ANNUAL REPORT FOR THE FISCAL YEAR ENDING DECEMBER 31, 20152016
As filed with the Securities and Exchange Commission on March 31, 2016April 13, 2017
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20152016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the fiscal year ended December 31, 20152016
Commission file number001-32305
ITAÚ CORPBANCA
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
Republic of Chile
(Jurisdiction of incorporation or organization)
Rosario Norte 660
Las Condes
Santiago, Chile
(Address of principal executive offices)
Investor Relations, Telephone: +(562) 2660-2555, Facsimile: +(562) 2660-2476,
Address: Rosario Norte 660, Las Condes, Santiago, Chile
(Name, Telephone,E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Name of each exchange on which registered | |
American Depositary Shares representing common shares | New York Stock Exchange | |
Common shares, no par value* | New York Stock Exchange* |
* | Not for trading purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission. |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities registered for which there is a reporting obligation pursuant Section 15(d) of the Act.
3.125% Senior Notes due January 15, 2018
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
340,358,194,234512,406,760,091
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x☒ Yes ¨☐ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨☐ Yes x☒ No
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x☒ Yes ¨☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨☐ Yes x☒ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer x☒ Accelerated filer ¨☐ Non-accelerated filer ¨☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP | International Financial Reporting Standards as issued by the International Accounting Standards Board | Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ¨☐ Item 17 ¨☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). ¨☐ Yes x☒ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ¨☐ Yes ¨☐ No
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form20-F contains statements that constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements preceded by, followed by or that include “believes,” “expects,” “intends,” “plans,” “projects,” “estimates” or “anticipates” and similar expressions. These statements appear throughout this Annual Report, including, without limitation, under “Item 3. Key Information—D. Risk Factors”, “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects”, are not based on historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control and include statements regarding our current intent, belief or expectations with respect to (1) our asset growth and financing plans, (2) trends affecting our financial condition or results of operations, (3) the impact of competition and regulations, (4) projected capital expenditures, and (5) liquidity. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those described in such forward-looking statements included in this Annual Report as a result of various factors (including, without limitation, the actions of competitors, future global economic conditions, market conditions, currency exchange rates and operating and financial risks), many of which are beyond our control. The occurrence of any such factors, not currently expected by us, would significantly alter the results set forth in these statements.
Factors that could cause actual results to differ materially and adversely include, but are not limited to:
• | the monetary and interest rate policies of the Central Bank of Chile (Banco Central de Chile), or the Central Bank of Colombia (Banco de la República de Colombia); |
i
i
You should not place undue reliance on such statements, which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may make in the future. We do not undertake any obligation to release publicly any revisions to such forward-looking statements after the date of this Annual Report to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
Neither CorpBanca nor Banco Itaú Chile, as a matter of course make public projections as to future net revenues, costs, or other results. However, the both banks have prepared prospective financial information for inclusion in this document mainly related to estimated revenue synergies, cost savings, funding costs and capital position to present the estimated impacts of the merge with Banco Itaú Chile. This prospective financial information was not prepared in accordance with the guidelines established by the American Institute of Certified Public Accounts (the “AICPA”) with respect to prospective financial information.
Statements relating to the cost savings that both, CorpBanca and Banco Itaú Chile expect to achieve following the transaction described in this document are based on assumptions which in the view of the bank’s management, were prepared on a reasonable basis, reflect the best currently available estimates and judgments, and present, to the best of such management’s knowledge and belief, the expected course of action and the expected future financial impact on performance of the bank due to the merger with Banco Itaú-Chile. However, the assumptions about these expected cost savings and growth opportunities are inherently uncertain and, though considered reasonable by management as of the date of its preparation, are subject to a wide variety of significant business, economic, and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the prospective financial information. There can be no assurance that the banks will be able to successfully implement the strategic or operational initiatives that are intended.
Neither CorpBanca’sCorpbanca’s independent auditors, nor any other independent accountants, have complied with, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, or disclaim any association with, the prospective financial information.
ii
ENFORCEMENT OF CIVIL LIABILITIES
We are a banking corporation organized under the laws of Chile. The majority of our directors or executive officers are not residents of the United States and a substantial portion of our assets and the assets of these persons are located outside the United States. As a result, it may not be possible for you to effect service of process within the United States upon us or such persons or to enforce against them or us in the United States or other foreign courts, judgments obtained in the United States predicated upon the civil liability provisions of the federal securities laws of the United States.
No treaty exists between the United States and Chile for the reciprocal enforcement of court judgments. Chilean courts, however, have enforced final judgments rendered in the United States, subject to the review in Chile of the United States judgment in order to ascertain whether certain basic principles of due process and public policy have been respected, without reviewing the merits of the subject matter of the case. If a United States court grants a final judgment in an action based on the civil liability provisions of the federal securities laws of the United States, enforceability of this judgment in Chile will be subject to the obtaining of the relevant “exequatur” (i.e., recognition and enforcement of the foreign judgment) according to Chilean civil procedure law in force at that time, and consequently, subject to the satisfaction of certain factors. Currently, the most important of these factors are the absence of any conflict between the foreign judgment and Chilean laws (excluding for this purpose the laws of civil procedure) and public policies; the absence of a conflicting judgment by a Chilean court relating to the same parties and arising from the same facts and circumstances; the absence of any further means for appeal or review of the judgment in the jurisdiction where judgment was rendered; the Chilean courts’ determination that the United States courts had jurisdiction; that service of process was appropriately served on the defendant and that the defendant was afforded a real opportunity to appear before the court and defend its case; and that enforcement would not violate Chilean public policy.
In general, the enforceability in Chile of final judgments of United States courts does not require retrial in Chile.
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PART I | 1 | |||||
ITEM 1. | 1 | |||||
ITEM 2. | 1 | |||||
ITEM 3. | 1 | |||||
ITEM 4. | ||||||
ITEM 4A. | ||||||
ITEM 5. | ||||||
ITEM 6. | ||||||
ITEM 7. | ||||||
ITEM 8. | ||||||
ITEM 9. | ||||||
ITEM 10. | ||||||
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT FINANCIAL RISK | |||||
ITEM 12. | ||||||
PART II | ||||||
ITEM 13. | ||||||
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | |||||
ITEM 15. | ||||||
ITEM 16. | ||||||
ITEM 16A. | ||||||
ITEM 16B. | ||||||
ITEM 16C. | ||||||
ITEM 16D. | ||||||
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | |||||
ITEM 16F. | ||||||
ITEM 16G. | ||||||
ITEM 16H. | ||||||
PART III | ||||||
ITEM 17. | ||||||
ITEM 18. | ||||||
ITEM 19. |
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ITEM 1. IDENTITY1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER2.OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Financial Statements
We are a Chilean bank and maintain our financial books and records in Chilean pesos and prepare our consolidated financial statements presented herewith in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. As required by local regulations, our consolidated financial statements filed with the Chilean Superintendency of Banks and Financial Institutions (Superintendencia de Bancos e Instituciones Financieras), also referred to as the SBIF, and that are the basis for dividend distributions, have been prepared in accordance with Chilean accounting principles or Chilean Bank GAAP, issued by the SBIF; nevertheless, SBIF’sSBIF. SBIF regulations provide that unlessfor those matters not specifically regulated by this agency, our financial statements shall be prepared in accordance with IFRS, as issuedunder Chilean Bank GAAP should follow the accounting principles established by the IASB.IFRS. Unless otherwise indicated herein, as used hereafter IFRS refers to the standards issued by the IASB. Therefore, our consolidated financial statements filed herewith differ from the financial statements prepared in accordance with the SBIF have been adjusted to IFRS in order to comply with the requirements of the Securities and Exchange Commission, or the SEC.Chilean Bank GAAP. We have included herein certain information in Chilean Bank GAAP with respect to the Chilean financial system and the financial performance of the bank. These disclosures are not considerednon-GAAP measures as they are required for regulatory purposes in Chile.
The selected consolidated financial information included herein as of December 31, 20152016 and for the year ended December 31, 2015,2016, together with the selected consolidated financial information as of December 31, 2011, 2012, 2013 and 20142015 and for the yearsyear ended December 31, 2011, 2012, 2013 and 2014,2015, is derived from, and presented on the same basis as, our consolidated financial statements prepared under IFRS and should be read together with such consolidated financial statements.
Our financial statement data as of and for the years ended December 31, 2015 and 2016 are not comparable because of the Merger, which was consummated on April 1, 2016. The Merger has been accounted for as a reverse acquisition, based on guidance in IFRS 3 “Business Combinations,” with Banco Itaú Chile (the legal acquiree) considered as the accounting acquirer and Corpbanca (the legal acquirer) considered as the accounting acquiree. Accordingly, the financial statements of Itaú Corpbanca for periods prior to the acquisition date of April 1, 2016 reflect the historical financial information of Banco Itaú Chile.
Before the Merger, former Banco Itaú Chile (the legal acquiree) only produced financial statements pursuant to Chilean Banking GAAP, while former Corpbanca (the legal acquirer) from 2009 to 2015 issued financial statements according to Chilean Banking GAAP and according to IFRS. Therefore, Itaú Corpbanca (the merged entity) has applied the accommodation granted by General Instruction G to Form20-F (First-Time Application of International Financial Reporting Standards), and this annual report on Form20-F includes financial statements prepared in accordance with IFRS as of and for the years ended December 31, 2015 and 2016. For more information, see Notes 1.2(a) and 2 of our consolidated financial statements.
Readers should exercise caution in determining trends based on prior annual reports. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—The Economy—Critical Accounting Policies and Estimates”.Estimates.”
Our auditors, DeloittePricewaterhouseCoopers Consultores Auditores y Consultores Ltda.,SpA, or Deloitte,PwC, an independent registered public accounting firm, have audited our consolidated financial statements in accordance with IFRS as of December 31, 20152016 and 20142015 and for the years ended December 31, 2013, 20142015 and 2015.2016. See page 238pagesF-1 and F-1F-2 of this report for further details on Deloitte’sPwC’s opinions.
Foreign Currency Markets
In this Annual Report, references to “$,” “US$,” “U.S. dollars” and “dollars” are to United States dollars, references to “Chilean pesos”, “Ch$” or “Ch$”“CLP” are to Chilean pesos, references to “UF” are toUnidades de Fomento and references to “Colombian pesos” or “COP$” are to Colombian pesos. The UF is an inflation-indexed, Chilean peso-denominated unit that is linked to and
adjusted daily to reflect changes in the previous month’s Chilean Consumer Price Index of the Chilean National Statistics Institute (Instituto Nacional de Estadísticas). As of December 31, 2015, one UF equaled US$36.08, Ch$25,629.09 and COP$113,102.78 and as of March 11, 2016, one UF equaled US$37.69,39.34, Ch$25,762.2226,347.98 and COP$117,101.118,088.17 and as of April 6, 2017, one UF equaled US$40.36, Ch$26,482.18 and COP$115,238.73. See “Item 5. Operating and Financial Review and Prospects”.Prospects.”
This Annual Report contains translations of certain Chilean peso amounts into U.S. dollars and Colombian pesos at specified rates solely for the convenience of the reader. These translations should not be construed as representations that such Chilean peso amounts actually represent such U.S. dollar or Colombian pesos amounts, were converted from U.S. dollars or Colombian pesos amounts at the rate indicated in preparing our financial statements or could be converted into U.S. dollars or Colombian pesos amounts at the rate indicated or any particular rate at all. Unless otherwise indicated, such U.S. dollar and Colombian pesos amounts have been translated from Chilean pesos based on our own exchange rate of Ch$710.32669.81 and COP$3,135.17,3,002.00, respectively, per US$1.00 as of December 31, 2015.2016.
Specific Loan Information
Unless otherwise specified, all references in this Annual Report to total loans are to loans and financial leases before deduction for allowances for loan losses, and they do not include loans to banks or unfunded loan commitments. In addition, all market share data and financial indicators for the Chilean banking system when compared to CorpBanca’sItaú Corpbanca’s financial information,
presented in this Annual Report or incorporated by reference into this Annual Report are based on information published periodically by the SBIF, which is published under Chilean Bank GAAP and prepared on a consolidated basis.Non-performing loans include the principal and accrued interest on any loan with at least one installment more than 90 days overdue. Impaired loans include those loans on which there is objective evidence that customers will not meet some of their contractual payment obligations. Past due loans include all installments and lines of credit more than 90 days overdue, provided that the aggregate principal amount of such loans is not included. Under IFRS, a loan is evaluated on each financial statement reporting date to determine whether objective evidence of impairment exists. A loan will be impaired if and only if, objective evidence of impairment exists as a result of one or more events that occurred after the initial recognition of the loan, and such event or events have an impact on the estimated future cash flows of such loan that can be reliably estimated. It may not be possible to identify a single event that was the individual cause of the impairment. An impairment loss relating to a loan is calculated as the difference between the carrying amount of the loan and the present value of estimated future cash flows discounted at the effective interest rate. Individually significant loans are individually tested for impairment. The remaining financial loans are evaluated collectively in groups with similar credit risk characteristics. The reversal of an impairment loss occurs only if it can be objectively related to an event occurring after the initial impairment loss was recorded. In the case of loans recorded at amortized cost, the reversal is recorded in income. See “Item 4. Information on the Company—Business Overview—Selected Statistical Information —ClassificationInformation—Classification of Banks and Loans; Allowances and Provisions for Loan Losses.”
According to Decree with Force of Law No. 3 of 1997, as amended, theLey General de Bancosor the Chilean General Banking Act, a bank must have effective net equity (patrimonio efectivo) of at least 8% of its risk weighted assets, net of required allowance for loan losses, and paid in capital and reserves, or basic capital (capital básico), of at least 3% of its total assets, net of required allowance for loan losses.
For these purposes, the effective net equity of a bank is the sum of (1) the bank’s basic capital, (2) subordinated bonds issued by the bank valued at their issue price for an amount of up to 50% of its basic capital; providedcapital (provided that the value of the bonds shall decrease by 20% for each year that elapses during the period commencing six years prior to their maturity andmaturity), (3) its voluntary allowances for loan losses, for an amount of up to 1.25% of its risk weighted assets to the extent voluntary allowances exceed those that banks are required to maintain by law or regulation;regulation, (4) minority interests of up to 20% of the basic capital (provided that if such minority interests exceed 20%, only 20% will be taken into account), minus (4)(5) goodwill or premiums, paid balances and investments in companies that are not consolidated and (6) certain deductions to be made in accordance with provisions of chapter12-1 of the regulations of the SBIF (Recopilación Actualizada de Normas), or the Regulations of the SBIF.
Rounding and Other Matters
Certain figures included in this Annual Report and in our audited consolidated financial statements as of and for the yearyears ended December 31, 2015 and 2016 have been rounded for ease of presentation. Percentage figures included in this Annual Report have in all cases not been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Annual Report may vary slightly from those obtained by performing the same calculations using the figures in our audited consolidated financial statements as of and for the yearyears ended December 31, 2015.2015 and 2016. Certain other amounts that appear in this Annual Report may similarly not sum due to rounding.
Inflation figures relating to Chile are those reported by the Chilean National Statistics Institute (Instituto Nacional de Estadísticas) or INE, unless otherwise stated herein or required by the context. Inflation figures relating to Colombia are those reported by the Colombian National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadística) or DANE, unless otherwise stated herein or required by the context. See “—Exchange Rate Information” below.
In this Annual Report, all macroeconomic data related to the Chilean economy is based on information published by the Central Bank of Chile and all macroeconomic data related to the Colombian economy is based on information published by the Central Bank of Colombia. All market share and other data related to the Chilean financial system is based on information published by the SBIF as well as other publicly available information and all market share and other data related to the Colombian financial system is based on information published by the Colombian Superintendency of Finance (Superintendencia Financiera de Colombia) as well as other publicly available information. The SBIF publishes the consolidated risk index (ratio of allowance for loans losses over total loans) of the Chilean financial system on a monthly basis. The Colombian Superintendency of Finance publishes every month the consolidated data required to calculate the risk index of the Colombian banking system (loan loss allowances and total loans).
EXCHANGE RATE INFORMATION
Exchange Rates
Chile has two currency markets, the Formal Exchange Market (Mercado Cambiario Formal) and the Informal Exchange Market (Mercado Cambiario Informal). The Formal Exchange Market is comprised of banks and other entities authorized by the Central Bank of Chile. The Informal Exchange Market is comprised of entities that are not expressly authorized to operate in the Formal Exchange Market, such as certain foreign exchange houses and travel agencies, among others. The Central Bank of Chile is empowered
to require that certain purchases and sales of foreign currencies be carried out on the Formal Exchange Market. Both the Formal and Informal Exchange Markets are driven by free market forces. Current regulations require that the Central Bank of Chile be informed of certain transactions and that they be effected through the Formal Exchange Market.
The U.S. dollar observed exchange rate (dólar observado), or the Observed Exchange Rate, which is reported by the Central Bank of Chile and published daily in the Official Gazette (Diario Oficial) is the weighted average exchange rate of the previous business day’s transactions in the Formal Exchange Market. Nevertheless, the Central Bank of Chile may intervene by buying or selling foreign currency on the Formal Exchange Market to attempt to maintain the Observed Exchange Rate within a desired range. Even though the Central Bank of Chile is authorized to carry out its transactions at the Observed Exchange Rate, it often uses spot rates instead. Many other banks carry out foreign exchange transactions at spot rates as well.
The Informal Exchange Market reflects transactions carried out at an informal exchange rate. There are no limits imposed on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the Observed Exchange Rate.
The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.
As of December 31, 2015,2016, the U.S. dollar exchange rate used by us was Ch$710.32669.81 per US$1.00 and the Colombian peso exchange rate used by us was Ch$3,135.173,002.00 per Cop$COP$1.00.
The following table sets forth the annual low, high, average andperiod-end Observed Exchange Rate for U.S. dollars for the periods set forth below, as reported by the Central Bank of Chile.
Daily Observed Exchange Rate (Ch$ per US$)(1) | ||||||||||||||||
Low (2) | High (2) | Average(3) | Period-End (4) | |||||||||||||
Year ended December 31, | ||||||||||||||||
2011 | 455.91 | 533.74 | 483.36 | 521.46 | ||||||||||||
2012 | 469.65 | 519.69 | 486.75 | 478.60 | ||||||||||||
2013 | 466.50 | 533.95 | 495.00 | 523.76 | ||||||||||||
2014 | 524.61 | 621.41 | 570.01 | 607.38 | ||||||||||||
2015 | 597.10 | 715.66 | 654.25 | 707.34 | ||||||||||||
Quarterly period | ||||||||||||||||
2014 1st Quarter | 524.61 | 573.24 | 551.48 | 550.53 | ||||||||||||
2014 2nd Quarter | 544.96 | 566.88 | 554.35 | 550.60 | ||||||||||||
2014 3rd Quarter | 548.72 | 601.66 | 576.31 | 601.66 | ||||||||||||
2014 4th Quarter | 576.50 | 621.41 | 598.18 | 607.38 | ||||||||||||
2015 1st Quarter | 606.75 | 642.18 | 624.42 | 626.87 | ||||||||||||
2015 2nd Quarter | 597.10 | 637.80 | 617.76 | 634.58 | ||||||||||||
2015 3rd Quarter | 636.39 | 706.24 | 676.25 | 704.68 | ||||||||||||
2015 4th Quarter | 673.91 | 715.66 | 697.75 | 707.34 | ||||||||||||
Month ended | ||||||||||||||||
September 2015 | 676.74 | 705.92 | 691.73 | 704.68 | ||||||||||||
October 2015 | 673.91 | 698.72 | 685.31 | 690.34 | ||||||||||||
November 2015 | 688.94 | 715.66 | 704.00 | 712.63 | ||||||||||||
December 2015 | 693.72 | 711.52 | 704.24 | 707.34 | ||||||||||||
January 2016 | 710.16 | 730.31 | 721.95 | 711.72 | ||||||||||||
February 2016 | 689.18 | 715.41 | 704.08 | 689.18 | ||||||||||||
March 2016(5) | 678.22 | 694.82 | 685.12 | 678.22 |
Source: Central Bank of Chile
Daily Observed Exchange Rate (Ch$ per US$)(1) | ||||||||||||||||
Low (2) | High (2) | Average(3) | Period-End (4) | |||||||||||||
Year ended December 31, | ||||||||||||||||
2012 | 469.65 | 519.69 | 486.75 | 478.60 | ||||||||||||
2013 | 466.50 | 533.95 | 495.00 | 523.76 | ||||||||||||
2014 | 524.61 | 621.41 | 570.01 | 607.38 | ||||||||||||
2015 | 597.10 | 715.66 | 654.25 | 707.34 | ||||||||||||
2016 | 645.22 | 730.31 | 676.83 | 667.29 | ||||||||||||
Quarterly period | ||||||||||||||||
2015 1st Quarter | 606.75 | 642.18 | 624.42 | 626.87 | ||||||||||||
2015 2nd Quarter | 597.10 | 637.80 | 617.76 | 634.58 | ||||||||||||
2015 3rd Quarter | 636.39 | 706.24 | 676.25 | 704.68 | ||||||||||||
2015 4th Quarter | 673.91 | 715.66 | 697.75 | 707.34 | ||||||||||||
2016 1st Quarter | 671.97 | 730.31 | 702.07 | 675.10 | ||||||||||||
2016 2nd Quarter | 657.90 | 696.96 | 677.69 | 661.49 | ||||||||||||
2016 3rd Quarter | 645.22 | 680.28 | 661.65 | 659.08 | ||||||||||||
2016 4th Quarter | 649.40 | 679.24 | 665.80 | 667.29 | ||||||||||||
2017 1st Quarter | 638.35 | 673.36 | 655.58 | 662.66 | ||||||||||||
Month ended | ||||||||||||||||
September 2016 | 657.32 | 680.28 | 668.63 | 659.08 | ||||||||||||
October 2016 | 651.65 | 670.88 | 663.92 | 651.65 | ||||||||||||
November 2016 | 650.72 | 679.24 | 666.12 | 675.48 | ||||||||||||
December 2016 | 649.40 | 677.11 | 667.17 | 667.29 | ||||||||||||
January 2017 | 648.31 | 673.36 | 661.19 | 648.87 | ||||||||||||
February 2017 | 638.35 | 646.97 | 643.21 | 645.19 | ||||||||||||
March 2017 | 648.88 | 669.52 | 661.20 | 662.66 | ||||||||||||
April 2017(5) | 657.74 | 663.97 | 660.32 | 657.74 |
(1) | Nominal figures. |
(2) | Exchange rates are the actual low and high, on aday-by-day basis for each period. |
(3) | The average of the exchange rates on the last day of each month during the period. |
(4) | Each annual period ends on December 31, and the respectiveperiod-end exchange rate is published by the Central Bank of Chile on the first business day following December 31. Each monthly period ends on the last calendar day of such month and the respectiveperiod-end exchange rate is published by the Central Bank of Chile on the first business day following the last calendar day of such month. |
(5) | The information for |
The following table sets forth the annual low, high, average andperiod-end exchange rate for U.S. dollars for the periods set forth below under our policy to calculate our own exchange rate:
Bank’s Exchange Rate Ch$ per US$1 | ||||||||||||||||
Low (2) | High (2) | Average (3) | Period-End | |||||||||||||
Year ended December 31, | ||||||||||||||||
2011 | 455.87 | 535.03 | 483.49 | 519.08 | ||||||||||||
2012 | 469.68 | 518.65 | 486.68 | 479.16 | ||||||||||||
2013 | 466.48 | 533.95 | 495.31 | 526.41 | ||||||||||||
2014 | 605.46 | 621.56 | 612.85 | 605.46 | ||||||||||||
2015 | 593.49 | 714.82 | 654.55 | 710.32 | ||||||||||||
Quarterly period | ||||||||||||||||
2014 1st Quarter | 526.84 | 573.21 | 551.91 | 550.62 | ||||||||||||
2014 2nd Quarter | 544.80 | 567.56 | 554.49 | 552.81 | ||||||||||||
2014 3rd Quarter | 548.93 | 601.25 | 577.15 | 597.66 | ||||||||||||
2014 4th Quarter | 575.31 | 621.56 | 598.21 | 605.46 | ||||||||||||
2015 1st Quarter | 612.33 | 642.07 | 624.73 | 623.96 | ||||||||||||
2015 2nd Quarter | 593.49 | 638.47 | 618.00 | 638.47 | ||||||||||||
2015 3rd Quarter | 635.36 | 704.89 | 676.91 | 696.86 | ||||||||||||
2015 4th Quarter | 674.31 | 714.82 | 697.72 | 710.32 | ||||||||||||
Month ended | ||||||||||||||||
September 2015 | 678.59 | 704.61 | 691.30 | 696.86 | ||||||||||||
October 2015 | 674.31 | 695.13 | 684.65 | 691.27 | ||||||||||||
November 2015 | 689.46 | 714.82 | 704.81 | 710.25 | ||||||||||||
December 2015 | 690.95 | 712.46 | 703.99 | 710.32 | ||||||||||||
January 2016 | 710.69 | 731.70 | 721.96 | 710.69 | ||||||||||||
February 2016 | 691.26 | 713.84 | 703.27 | 694.77 | ||||||||||||
March 2016(4) | 676.68 | 694.87 | 683.28 | 683.53 |
Source: CorpBanca
Bank’s Exchange Rate Ch$ per US$1 | ||||||||||||||||
Low (2) | High (2) | Average (3) | Period-End | |||||||||||||
Year ended December 31, | ||||||||||||||||
2012 | 469.68 | 518.65 | 486.68 | 479.16 | ||||||||||||
2013 | 466.48 | 533.95 | 495.31 | 526.41 | ||||||||||||
2014 | 605.46 | 621.56 | 612.85 | 605.46 | ||||||||||||
2015 | 593.49 | 714.82 | 654.55 | 710.32 | ||||||||||||
2016 | 643.04 | 731.70 | 677.15 | 669.81 | ||||||||||||
Quarterly period | ||||||||||||||||
2015 1st Quarter | 612.33 | 642.07 | 624.73 | 623.96 | ||||||||||||
2015 2nd Quarter | 593.49 | 638.47 | 618.00 | 638.47 | ||||||||||||
2015 3rd Quarter | 635.36 | 704.89 | 676.91 | 696.86 | ||||||||||||
2015 4th Quarter | 674.31 | 714.82 | 697.72 | 710.32 | ||||||||||||
2016 1st Quarter | 667.08 | 731.70 | 701.17 | 667.08 | ||||||||||||
2016 2nd Quarter | 658.95 | 695.94 | 677.29 | 659.55 | ||||||||||||
2016 3rd Quarter | 643.04 | 692.91 | 662.75 | 658.20 | ||||||||||||
2016 4th Quarter | 648.87 | 680.20 | 666.36 | 669.81 | ||||||||||||
2017 1st Quarter | 637.03 | 673.91 | 655.53 | 659.61 | ||||||||||||
Month ended | ||||||||||||||||
September 2016 | 658.07 | 679.72 | 667.21 | 658.20 | ||||||||||||
October 2016 | 649.31 | 679.72 | 664.51 | 649.31 | ||||||||||||
November 2016 | 649.02 | 680.20 | 667.46 | 673.06 | ||||||||||||
December 2016 | 648.87 | 678.18 | 666.94 | 669.81 | ||||||||||||
January 2017 | 645.84 | 673.91 | 660.05 | 645.84 | ||||||||||||
February 2017 | 637.03 | 649.85 | 643.36 | 649.85 | ||||||||||||
March 2017 | 650.05 | 669.41 | 661.98 | 662.26 | ||||||||||||
April 2017(4) | 656.18 | 660.56 | 658.37 | 656.18 |
(1) | Nominal figures. |
(2) | Exchange rates are the actual low and high, on aday-by-day basis for each period. |
(3) | The average of the exchange rates on the last day of each month during the period. |
(4) | The chart contains information up to |
Exchange Controls Considerations
Investments made in our common shares and our ADRs are subject to the following requirements:
When funds are brought into Chile for a purpose other than to acquire common shares to convert them into ADSs and subsequently are used to acquire common shares to be deposited into the ADR facility, such investment must be reported to the
Central Bank of Chile by the custodian within ten days following the end of each month within which the custodian is obligated to deliver periodic reports to the Central Bank of Chile.
All payments made within Chile in foreign currency in connection with ADSs through the Formal Exchange Market must be reported to the Central Bank of Chile by the entity participating in the transaction. In the event there are payments made outside of Chile, the foreign investor must provide the relevant information to the Central Bank of Chile directly or through an entity of the Formal Exchange Market within the first ten calendar days of the month following the date on which the payment was made.
We cannot assure you that additional Chilean restrictions applicable to the holders of the ADSs, the disposition of shares underlying ADSs or the conversion or repatriation of the proceeds from such disposition will not be imposed in the future, nor can we assess the duration or impact of such restriction if imposed.
This summary does not purport to be complete and is qualified by reference to Chapter XIV of the Central Bank Foreign Exchange Regulations, a copy of which is available in the original Spanish version at the Central Bank of Chile’s website at www.bcentral.cl.
A. SELECTED FINANCIAL DATA
The following tables present our selected financial data as of the dates and for the periods indicated. You should read the following information together with our audited consolidated financial statements, including the notes thereto, included in this Annual Report and the information set forth in “Item 5. Operating and Financial Review and Prospects”.Prospects.”
For the fiscal years ended December 31, | ||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2015 (1) | |||||||||||||||||||
Ch$ | Ch$ | Ch$ | Ch$ | Ch$ | US$ | |||||||||||||||||||
(in million of Ch$, in thousand of US$)(2) | ||||||||||||||||||||||||
Interest income | 528,622 | 762,992 | 1,007,106 | 1,320,124 | 1,299,480 | 1,829,429 | ||||||||||||||||||
Interest expense | (335,622 | ) | (506,116 | ) | (549,416 | ) | (689,240 | ) | (678,901 | ) | (955,768 | ) | ||||||||||||
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Net interest income | 193,000 | 256,876 | 457,690 | 630,884 | 620,579 | 873,661 | ||||||||||||||||||
Net service fee income | 60,362 | 85,644 | 117,977 | 161,590 | 152,847 | 215,181 | ||||||||||||||||||
Trading and investment, foreign exchange gains and other operating income | 80,469 | 104,398 | 127,039 | 199,225 | 211,153 | 297,265 | ||||||||||||||||||
Total operating expenses | (152,706 | ) | (253,644 | ) | (362,145 | ) | (509,672 | ) | (480,789 | ) | (676,861 | ) | ||||||||||||
Income attributable to investments in other companies | 250 | 367 | 1,241 | 1,799 | 1,300 | 1,830 | ||||||||||||||||||
Provisions for loan losses | (40,754 | ) | (51,575 | ) | (102,072 | ) | (127,272 | ) | (169,748 | ) | (238,974 | ) | ||||||||||||
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Income before income taxes | 140,621 | 142,066 | 239,730 | 356,554 | 335,342 | 472,703 | ||||||||||||||||||
Income taxes | (23,303 | ) | (22,913 | ) | (64,491 | ) | (82,853 | ) | (96,677 | ) | (136,103 | ) | ||||||||||||
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Net income for the year | 117,318 | 119,153 | 175,239 | 273,701 | 238,665 | 335,999 | ||||||||||||||||||
Net income per common share (3) | 0.51 | 0.43 | 0.48 | 0.69 | 0.64 | 0.00089 | ||||||||||||||||||
Dividend per common share(4) | 0.52 | 0.49 | 0.176 | 0.260 | 0.332 | 0.00047 | ||||||||||||||||||
Dividends per ADS(4) | 787 | 736 | 265 | 390 | 499 | 0.70 | ||||||||||||||||||
Shares of common stock outstanding (in thousand) | 226,909,290.6 | 250,358,194.2 | 340,358,194.2 | 340,358,194.2 | 340,358,194.2 |
Source: CorpBanca
For the fiscal years ended December 31, | ||||||||||||
2015 | 2016 | 2016 (1) | ||||||||||
Ch$ | Ch$ | US$ | ||||||||||
(in millions of Ch$ and thousands of US$, except for number of shares and per share data)(2) | ||||||||||||
Interest income | 501,982 | 1,509,203 | 2,253,181 | |||||||||
Interest expense | (278,692 | ) | (870,028 | ) | (1,298,918 | ) | ||||||
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Net interest income | 223,290 | 639,175 | 954,263 | |||||||||
Net service fee income | 71,088 | 150,796 | 225,133 | |||||||||
Trading and investment, foreign exchange gains and other operating income | 50,040 | 83,551 | 124,738 | |||||||||
Total operating expenses | (178,460 | ) | (616,627 | ) | (920,600 | ) | ||||||
Provisions for loan losses | (42,929 | ) | (245,990 | ) | (367,253 | ) | ||||||
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Income before income taxes | 123,029 | 10,905 | 16,281 | |||||||||
Income taxes | (17,263 | ) | 3,568 | 5,327 | ||||||||
Income from continuing operations | 105,766 | 14,473 | 21,608 | |||||||||
Income from discontinued operations | — | (504 | ) | (752 | ) | |||||||
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Net income for the year | 105,766 | 13,969 | 20,855 | |||||||||
Net income per common share (3) | 0.919 | 0.035 | 0.00005 | |||||||||
Dividend per common share(4) | 0.768 | 0.372 | 0.00056 | |||||||||
Dividends per ADS(4) | 1.153 | 0.125 | 0.000187 | |||||||||
Shares of common stock outstanding | 115,039,690,651 | 512,406,760,091 |
(1) | Amounts stated in U.S. dollars as of December 31, |
(2) | Amounts stated in millions of Chilean pesos and thousands of U.S. dollars except for net income per share, dividends per common share and dividend per ADS expressed in Chilean pesos and in U.S. dollars. |
(3) | Net income per common share has been calculated on the basis of net income attributable to the equity holders of the |
(4) | Represents dividends paid in respect of net income earned in the prior fiscal year. |
CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2015 (1) | 2015 | 2016 | 2016 (1) | ||||||||||||||||||||||||||||
Ch$ | Ch$ | Ch$ | Ch$ | US$ | Ch$ | Ch$ | US$ | |||||||||||||||||||||||||||||
(in million of Ch$, in thousand of US$) | (in millions of Ch$ and thousands of US$) | |||||||||||||||||||||||||||||||||||
Cash and deposits in banks | 265,747 | 520,228 | 911,088 | 1,169,178 | 1,004,757 | 1,414,513 | 477,809 | 1,487,137 | 2,220,237 | |||||||||||||||||||||||||||
Cash in the process of collection | 96,230 | 123,777 | 112,755 | 212,842 | 176,501 | 248,481 | 62,095 | 145,769 | 217,627 | |||||||||||||||||||||||||||
Trading portfolio financial assets | 166,039 | �� | 159,898 | 431,683 | 685,898 | 323,899 | 455,990 | 17,765 | 632,557 | 944,383 | ||||||||||||||||||||||||||
Investments under agreements to resell | 23,251 | 21,313 | 201,665 | 78,079 | 24,674 | 34,736 | 10,293 | 170,242 | 254,165 | |||||||||||||||||||||||||||
Derivative financial instruments | 248,982 | 268,027 | 376,280 | 766,799 | 1,008,915 | 1,420,367 | 227,984 | 1,102,769 | 1,646,391 | |||||||||||||||||||||||||||
Loans and receivables from banks | 304,098 | 482,371 | 217,944 | 814,209 | 451,829 | 636,092 | 99,398 | 150,568 | 224,792 | |||||||||||||||||||||||||||
Loans and receivables from customers | 6,711,945 | 9,993,890 | 12,771,642 | 13,892,270 | 14,454,357 | 20,349,078 | 6,705,492 | 20,444,648 | 30,523,056 | |||||||||||||||||||||||||||
Financial investments available-for-sale | 843,250 | 1,112,435 | 889,087 | 1,156,896 | 1,924,788 | 2,709,748 | 514,985 | 2,074,077 | 3,096,515 | |||||||||||||||||||||||||||
Held to maturity investments | 21,962 | 104,977 | 237,522 | 190,677 | 170,191 | 239,598 | — | 226,433 | 338,056 | |||||||||||||||||||||||||||
Investment in other companies | 3,583 | 5,793 | 13,922 | 15,842 | 14,648 | 20,622 | ||||||||||||||||||||||||||||||
Intangible assets | 12,239 | 489,306 | 841,370 | 757,777 | 665,264 | 936,569 | 51,809 | 1,614,475 | 2,410,348 | |||||||||||||||||||||||||||
Property, plant equipment, net | 57,225 | 65,086 | 98,242 | 92,642 | 91,630 | 128,998 | 33,970 | 121,043 | 180,712 | |||||||||||||||||||||||||||
Current income taxes | 6,278 | — | — | 20,834 | 46,904 | 66,032 | 8,275 | 164,296 | 245,287 | |||||||||||||||||||||||||||
Deferred income taxes | 25,080 | 40,584 | 89,218 | 2,702 | 8,671 | 12,207 | 13,930 | 110,765 | 165,368 | |||||||||||||||||||||||||||
Other assets | 102,775 | 149,903 | 293,118 | 415,267 | 438,323 | 617,077 | 135,742 | 427,394 | 638,082 | |||||||||||||||||||||||||||
Non-current assets held for sale | 1,785 | 37,164 | 55,484 | |||||||||||||||||||||||||||||||||
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TOTAL ASSETS | 8,888,684 | 13,537,588 | 17,485,536 | 20,271,912 | 20,805,351 | 29,290,109 | 8,361,332 | 28,909,337 | 43,160,504 | |||||||||||||||||||||||||||
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As of December 31, | ||||||||||||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2015 (1) | |||||||||||||||||||||||||||||||
Ch$ | Ch$ | Ch$ | Ch$ | Ch$ | US$ | |||||||||||||||||||||||||||||||
(in million of Ch$, in thousand of US$) |
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Current accounts and demand deposits | 682,720 | 1,112,675 | 3,451,383 | 3,954,948 | 4,431,619 | 6,238,905 | 981,349 | 4,453,191 | 6,648,439 | |||||||||||||||||||||||||||
Transaction in the course of payment | 36,948 | 68,883 | 57,352 | 145,771 | 105,441 | 148,442 | 26,377 | 67,413 | 100,645 | |||||||||||||||||||||||||||
Obligations under repurchase agreements | 130,549 | 257,721 | 342,445 | 661,663 | 260,631 | 366,921 | 43,727 | 373,879 | 558,187 | |||||||||||||||||||||||||||
Time deposits and saving accounts | 4,824,378 | 7,682,675 | 7,337,703 | 8,076,966 | 8,495,603 | 11,960,247 | 3,952,573 | 11,581,710 | 17,291,038 | |||||||||||||||||||||||||||
Derivative financial instruments | 166,872 | 193,844 | 281,583 | 607,683 | 731,114 | 1,029,274 | 253,183 | 907,334 | 1,354,614 | |||||||||||||||||||||||||||
Borrowings from financial institutions | 663,626 | 969,521 | 1,273,840 | 1,431,923 | 1,528,585 | 2,151,967 | 658,600 | 2,179,870 | 3,254,460 | |||||||||||||||||||||||||||
Debt issued | 1,522,773 | 1,886,604 | 2,414,557 | 3,079,050 | 3,227,554 | 4,543,803 | 1,504,335 | 5,460,253 | 8,151,943 | |||||||||||||||||||||||||||
Other financial obligations | 20,053 | 18,120 | 16,807 | 15,422 | 14,475 | 20,378 | 20,733 | 25,563 | 38,165 | |||||||||||||||||||||||||||
Current income tax provision | — | 9,057 | 45,158 | 19,226 | 42,457 | 59,772 | 543 | 1,886 | 2,816 | |||||||||||||||||||||||||||
Deferred income taxes | 25,352 | 120,714 | 182,373 | 76,593 | 40,433 | 56,922 | 67 | 57,636 | 86,048 | |||||||||||||||||||||||||||
Provisions | 42,030 | 136,240 | 164,932 | 200,289 | 182,707 | 257,218 | 75,924 | 100,048 | 149,368 | |||||||||||||||||||||||||||
Other liabilities | 30,981 | 79,868 | 185,506 | 210,716 | 209,439 | 294,852 | 52,480 | 269,810 | 402,816 | |||||||||||||||||||||||||||
Liabilities directly associated withnon-current assets held for sale | — | 7,032 | 10,498 | |||||||||||||||||||||||||||||||||
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TOTAL LIABILITIES | 8,146,282 | 12,535,922 | 15,753,639 | 18,480,250 | 19,270,058 | 27,128,700 | 7,569,891 | 25,485,625 | 38,049,036 | |||||||||||||||||||||||||||
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Equity Attributable to equity holders of the Bank | 739,793 | 947,296 | 1,426,199 | 1,465,725 | 1,220,552 | 1,718,312 | ||||||||||||||||||||||||||||||
Non controlling interest | 2,609 | 54,370 | 305,698 | 325,937 | 314,741 | 443,097 | ||||||||||||||||||||||||||||||
Equity attributable to equity holders of the bank | 791,382 | 3,184,743 | 4,754,696 | |||||||||||||||||||||||||||||||||
Non-controlling interest | 59 | 238,969 | 356,771 | |||||||||||||||||||||||||||||||||
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TOTAL EQUITY | 742,402 | 1,001,666 | 1,731,897 | 1,791,662 | 1,535,293 | 2,161,409 | 791,441 | 3,423,712 | 5,111,467 | |||||||||||||||||||||||||||
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TOTAL LIABILITIES AND EQUITY | 8,888,684 | 13,537,588 | 17,485,536 | 20,271,912 | 20,805,351 | 29,290,109 | 8,361,332 | 28,909,337 | 43,160,504 | |||||||||||||||||||||||||||
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(1) | Amounts stated in U.S. dollars as of December 31, |
CONSOLIDATED RATIOS
As of and for the year ended December 31, | As of and for the year ended December 31, | |||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||
Profitability and Performance | ||||||||||||||||||||||||||||
Net interest margin(1) | 2.7 | % | 2.3 | % | 3.4 | % | 3.8 | % | 3.6 | % | 3.0 | % | 3.0 | % | ||||||||||||||
Return on average total assets(2) | 1.5 | % | 0.9 | % | 1.1 | % | 1.4 | % | 1.2 | % | 1.3 | % | 0.1 | % | ||||||||||||||
Return on average equity(3) | 19.6 | % | 13.1 | % | 12.7 | % | 18.2 | % | 18.0 | % | 13.9 | % | 0.5 | % | ||||||||||||||
Efficiency ratio (consolidated)(4) | 45.7 | % | 56.8 | % | 51.5 | % | 51.4 | % | 48.8 | % | 49.6 | % | 68.0 | % | ||||||||||||||
Dividend payout ratio(5) | 100.0 | % | 100.0 | % | 50.0 | % | 57.0 | % | 51.6 | % | 50.0 | % | 30.0 | % | ||||||||||||||
Capital | ||||||||||||||||||||||||||||
Average equity as a percentage of average total assets | 7.5 | % | 7.2 | % | 8.9 | % | 7.7 | % | 6.4 | % | 9.4 | % | 11.3 | % | ||||||||||||||
Equity as a percentage of total liabilities | 9.1 | % | 8.0 | % | 11.0 | % | 9.7 | % | 8.0 | % | 10.5 | % | 12.5 | % | ||||||||||||||
Asset Quality | ||||||||||||||||||||||||||||
Allowances for loan losses as a percentage of overdue loans(6) | 153.8 | % | 101.8 | % | 76.5 | % | 65.3 | % | 77.5 | % | ||||||||||||||||||
Overdue loans as a percentage of total loans(6) | 1.0 | % | 1.1 | % | 1.3 | % | 1.5 | % | 1.5 | % | ||||||||||||||||||
Allowances for loan losses as a percentage ofnon-performing loans (6) | 104.9 | % | 158.6 | % | ||||||||||||||||||||||||
Non-performing loans as a percentage of total loans (6) | 1.3 | % | 1.7 | % | ||||||||||||||||||||||||
Allowances for loan losses as a percentage of total loans | 1.5 | % | 1.1 | % | 1.0 | % | 1.0 | % | 1.2 | % | 1.4 | % | 2.7 | % | ||||||||||||||
Past due loans as a percentage of total loans(7) | 0.7 | % | 0.5 | % | 0.5 | % | 0.6 | % | 0.7 | % | 0.8 | % | 0.5 | % | ||||||||||||||
Other Data | ||||||||||||||||||||||||||||
Inflation rate | 4.4 | % | 2.7 | % | ||||||||||||||||||||||||
Foreign exchange rate (Ch$/US$) | 11.0 | % | (7.7 | )% | 9.9 | % | 15.0 | % | 17.3 | % | ||||||||||||||||||
Revaluation (devaluation) rate (Ch$/US$) (foreign exchange rate) | 17.3 | % | (5.7 | )% | ||||||||||||||||||||||||
Number of employees | 3,461 | 5,163 | 7,298 | 7,456 | 7,545 | 2,549 | 9,607 | |||||||||||||||||||||
Number of branches and offices | 116 | 209 | 295 | 298 | 304 | 97 | 398 |
(1) | Net interest margin is defined as net interest income divided by average interest-earning assets. |
(2) | Return on average total assets is defined as net income divided by average total assets. |
(3) | Return on average equity is defined as net income divided by average shareholders’ equity. |
(4) | Efficiency ratio (consolidated) is defined as total operating expenses as a percentage of operating income |
(5) | Dividend payout ratio represents dividends divided by net income. |
(6) |
(7) | Past due loans include all installments and lines of credit more than 90 |
B. | CAPITALIZATION AND INDEBTEDNESS |
Not applicable.
C. | REASONS FOR THE OFFER AND USE OF PROCEEDS |
Not applicable.
D. | RISK FACTORS |
RISKS ASSOCIATED WITH OUR BUSINESSWe wish to caution readers that the following important factors, and those important factors described in other reports submitted to, or filed with the Securities and Exchange Commission, or the SEC, among other factors, could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. In particular, as we are anon-U.S. company, there are risks associated with investing in our ADSs that are not typical for investments in the shares of U.S. companies. Prior to making an investment decision, you should carefully consider all of the information contained in this document, including the following factors.
Risks Associated with our Business
The growth and composition of our loan portfolio may expose us to increased loan losses.
From December 31, 2012In 2016, due to December 31, 2015, the compounded annual growth rateMerger and the consolidation of the loan portfolios of former Corpbanca and former Banco Itaú Chile, our aggregate gross loan portfolio was 13.4%grew by 208.8%. However, due to the decline in investment activity in Chile and a more challenging economic scenario in 2016, when compared to the combined loan portfolios of former Corpbanca and former Banco Itaú Chile in 2015, our consolidated loan portfolio decreased in 2016 by 2.7%. Our business strategy is to grow profitably while increasing the size of our loan portfolio.
The consumer loans segmentbusiness unit represents the single highest level of risk in our loan portfolio. As of December 31, 2015,2016, the risk index (ratio of allowance for loans losses over total loans) of this segmentunit was 1.5% – reflecting a 0.5% decrease in 2015 –4.7% while other segmentsbusiness units of our loan portfolio, such as mortgage loans and commercial loans, had lower risk indexes of 0.4%0.6% and 1.3%2.9%, respectively.
During 2015, our portfolio of consumer loans was negatively impacted by the decline in consumer activity in the country. As of December 31, 2015, consumer2016, commercial loans represented 11.6%69.7% of our total loan portfolio compared to 12.2% as of December 31, 2014. While our loan portfolio grew by 4.3%, the composition of our loan portfolio67.1% as of December 31, 2015 reflected a greater increase in commercialfor Banco Itaú Chile. As of December 31, 2016, mortgage loans from Ch$10,090,574 million to Ch$10,696,518 million, this is a 6.0% increase whenrepresented 18.5% of our total loan portfolio compared to 22.6% as of December 31, 2015 for Banco Itaú Chile, and consumer loans represented 11.8% of our portfolio of consumer loans. Our mortgagetotal loan portfolio has remained stable between Ch$2,229,558 million in 2014 and Ch$2,228,619 million incompared to 10.3% as of December 31, 2015 a 0.04% decrease.for Banco Itaú Chile.
Our consumer loan portfolio may experience loan losses due to the absence of collateral in respect of unsecured loans, insufficient collateral in collateralized loans, and risks relating to the circumstances of individual borrowers, including unemployment or incapacitation of our consumer borrowers.
We believe our total allowances for loan losses is adequate as of the date hereof to cover all known losses in our total loan portfolio. The growth of our loan portfolio (particularly in the lower-middle to middle income consumer segments)customer business units) may expose us to a higher level of loan losses and require us to establish proportionately higher levels of provisions for loan losses, which would offset the increased income that we can expect to receive as our loan portfolio grows.
Our loan portfolio may not continue to grow at the same or similar rate.
Past performance of our loan portfolio may not be indicative of future performance. Our loan portfolio may not continue to grow at the same or similar rates as the growth rate that we historically experienced, particularly in light of the growth in recent years attributable to the acquisitions of CorpBancaCorpbanca Colombia in May 2012 (the CorpBanca“Corpbanca Colombia Aqcuisition) andAcquisition”), Helm Bank in August 2013 (the Helm“Helm Bank Aqcuisition).Acquisition”) and the Merger. Additionally, changes in the Chilean or Colombian economy,economies, a slowdown in the growth of customer demand, an increase in market competition or changes in governmental regulations could also adversely affect the rate of growth of our loan portfolio and our risk index.
Our allowances for loan losses may not be adequate to cover the future actual losses to our loan portfolio.
As of December 31, 2015,2016, our allowance for loan losses was Ch$173,939559,304 million (excluding allowances for loan losses on loans and receivable to banks) and the risk index was 1.2%2.7%. The amount of allowance for loan losses is based on our current assessment and expectations concerning various factors affecting the quality of our loan portfolio. These factors include, among others, our customers’ financial condition, repayment abilities and repayment intentions, the realizable value of any collateral, the prospects for support from any guarantor, Chilean and Colombian economies, government macroeconomic policies, interest rates and the legal and regulatory environment. Many of these factors are beyond our control. In addition, as these factors evolve, the models we use to determine the appropriate level of allowance for loan losses require recalibration, which may lead to increased provision for loan losses. If our assessment of, and expectations concerning, the above mentioned factors differ from actual developments, if the quality of our loan portfolio deteriorates or if the future actual losses exceed our estimates, our allowance for loan losses may not be adequate to cover actual losses and we may need to make additional allowances for loan losses, which may materially and adversely affect our results of operations and financial condition.
If we are unable to maintain the quality of our loan portfolio, our financial condition and results of operations may be materially and adversely affected.
As of December 31, 2015,2016, our past duenon-performing loans were Ch$104,897,352,700 million, which resulted in a past due loansnon-performing to total loans ratio of 0.7%. As1.68% as of December 31, 2015, our non-performing loans were Ch$196,806, which resulted in a non-performing to total loans ratio of 1.3%.2016. We seek to continue to improve our credit risk management policies and procedures. However, we cannot assure you that our credit risk management policies, procedures and systems are free from any deficiency. Failure of credit risk management policies may result in an increase in the level ofnon-performing loans and adversely affect the quality of our loan portfolio. In addition, the quality of our loan portfolio may also deteriorate due to various other reasons, including factors beyond our control, such as the macroeconomic factors affecting the Chilean or Colombian economies. If such deterioration were to occur, it could materially and adversely affect our financial conditions and results of operations.
Additionally, due to limitations in the availability of information and the developing information infrastructure in Chile and Colombia, our assessment of the credit risks associated with a particular customer may not be based on complete, accurate or reliable
information. In addition, although we have been improving our credit scoring systems to better assess borrowers’ credit risk profiles, we cannot assure you that our credit scoring systems collect complete or accurate information reflecting the actual behavior of customers or that their credit risk can be assessed correctly.
Furthermore, a substantial number of our customers consist of individuals andsmall-to-medium-sized enterprises, or SMEs. Our business results relating to our lower-income individual and SME customers are, however, more likely to be adversely affected by downturns in the Chilean and Colombian economies, including increases in unemployment, than our business from large corporations and high-income individuals. For example, unemployment directly affects the capacity of individuals to obtain and repay consumer loans. Consequently, this could materially and adversely affect the liquidity, business and financial condition of our customers, which may in turn cause us to experience higher levels of past due loans, and result in higher allowances for loan losses, which could in turn materially affect our asset quality, results of operations and financial conditions.
The value of any collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.
From time to time, we require our borrowers to collateralize their loans with guarantees, pledges of particular assets or other security. The value of any collateral securing our loan portfolio may significantly fluctuate or decline due to factors beyond our
control. Such factors include market factors, environmental risks, natural disasters, macroeconomic factors and political events affecting the Chilean or Colombian economies. Any decline in the value of the collateral securing our loans may result in a reduction in the recovery from collateral realization and may have an adverse impact on our results of operations and financial condition.
In addition, the Bankwe may face difficulties in perfecting itsour liens and enforcing itsour rights as a secured creditor. In particular, timing delays and procedural problems in enforcing against collateral and local protectionism in the markets in which we operate may make foreclosures on collateral and enforcement of judgments difficult, and may result in losses that could materially and adversely affect the our results of operations and financial condition.
We may be unable to meet requirements relating to capital adequacy.
Chilean banks are required by the Chilean General Banking Act to maintain regulatory capital of at least 8% of risk-weighted assets, net of required allowance for loan losses and deductions, and basic capital of at least 3% of total assets, net of required allowance for loan losses. Due to the Merger, the SBIF considered the bank to be a systemically important bank and therefore imposed a larger regulatory minimum capital of 10% on the bank instead of 8%. For the purposes of maintaining a high solvency classification from the SBIF and continued compliance with the SBIF’s capital requirements on us, our intention is to have the highest classification from the SBIF. As of December 31, 2015, the ratio of2016, our Bank for International Settlements, or BIS, capital-weightedregulatory capital to risk weighted assets ratio was 9.5%. Nevertheless14.0% according to the rules issued by the SBIF, which implement the Basel I capital requirements standards in Chile. See “—Banking regulations may restrict our operations and thereby adversely affect our financial condition and results of operations.”
Itaú Corpbanca expects to target a capital ratios levels decreased from 12.4% to 9.5% between 2014 and 2015, followingratio based on the approvalgreater of 1.2 times the minimum regulatory capital requirement or the average regulatory capital ratio of the merger with Banco Itaúthree largest private banks in Chile considering that our shareholders, together with approvingand Colombia. As of December 31, 2016, according to public information published by the merger, approved a special dividend distributionSBIF, the average regulatory capital ratio of the three largest private banks in the amount of Ch$239.86 billion thatChile was paid on July 1, 2015.13.6%.
Additionally, Colombian financial institutions are subject to capital adequacy requirements (as set forth in Decree 1771No. 1,771 of 2012, as amended) that are based on applicable Basel Committee standards. The regulations establish four categories of assets, which are each assigned different risk weights, and require that a credit institution’s Technical Capital (as defined below) be at least 9% of that institution’s total risk-weighted assets, and that its ordinary basic capital be at least 4.5% of that institution’s total risk-weighted assets. Technical Capital for the purposes of the Colombian regulations consists of the sum of Tier One Capital (ordinary basic capital) and Tier Two Capital (additional basic capital plus additional capital), collectively, Technical Capital.. As of December 31, 2015,2016, the consolidated ratio for our Colombian operations (calculated as BIS capitalaccording to risk-weighted assets)the Colombian Superintendency of Finance definitions for “Total Solvency” (“Solvencia Total”)) was 12.9%12.7%.
Certain developments could affect our ability to continue to satisfy the current capital adequacy requirements applicable to us, including:
As provided in article 68 of the Chilean General Banking Act, if we fail at any time to meet the legal requirements relating to the maintenance of regulatory capital (which is comprised of effective net worth and basic capital, as both concepts are defined in article 66 of the Chilean General Banking Act and Chapter12-1 of the Regulations of the SBIF), we would have to comply with such legal requirements within a period of sixty60 days. For each day we fail to comply with such legal requirements, we would be subject to a daily penalty equal to one thousandth of the deficit of the effective net worth or basic capital, as the case may be.
If our Colombian operations fail to comply with the capital adequacy requirements applicable to Colombian financial institutions, we may be subject to certain penalties and sanctions that are graduated depending on the level of compliance failure, and which may include an administrative take-over by the government with the purpose of administration or liquidation. As a result, our business, results of operations and financial condition may be materially and adversely affected.
We are dependent on key personnel.
Our development, operation and growth depends significantly upon the efforts and experience of our board of directors, senior management and other key executives. The loss of key personnel for any reason, including retirement or our inability to timely attract and retain qualified management personnel to replace them, could have a material adverse effect on our business, financial condition and results of operations.
We are subject to market risk.
We are directly and indirectly affected by changes in local and international market conditions. Market risk, or the risk of losses in positions arising from movements in market prices, is inherent in the products and instruments associated with our operations, including loans, deposits, securities, bonds, long-term debt, short-term borrowings, proprietary trading in assets and liabilities and derivatives. Changes in market conditions that may affect our financial condition and results of operations include fluctuations in interest and currency exchange rates, securities prices, changes in the implied volatility of interest rates and foreign exchange rates, among others.
Our results of operations are affected by interest rate volatility and inflation rate volatility.
Our results of operations depend to a great extent on our net interest income. In 2013, 20142015 and 2015,2016, our ratio of net interest income to total operating income was 65.1%, 63.6%,64.8% and 63.0%73.2%, respectively. Changes in market interest rates in Chile or Colombia could affect the interest rates earned on our interest-earning assets differently from the interest rates paid on our interest-bearing liabilities leading to a reduction in our net interest income. Interest rates are highly sensitive to many factors beyond our control, including the monetary policies of the Central Bank of Chile and the Central Bank of Colombia, changes in regulation of the financial sector in Chile and Colombia, domestic and international economic and political conditions and other factors. Yields on the Chilean government’s90-day benchmark rate reached a high of 5.1% and a low of 4.8% in 2013, a high of 4.5% and a low of 3.7% in 2014, and a high of 3.1% and a low of 1.5% in 2015.2015 and a high of 3.6% and a low of 3.5% in 2016. On the other hand, the Colombian government does not issue short-term bonds of 30, 60 or 90 days as the Chilean government does. Instead, every month a committee of the Central Bank of Colombia determines the benchmark rate in order to achieve a specific goal of inflation. Yields on the Colombian benchmark rate reached a high of 4.0% and a low of 3.25% for 2013, a high of 4.5% and a low of 3.25% for 2014, and a high of 5.8% and a low of 4.5% for 2015.2015 and a high of 7.8% and a low of 5.8% for 2016. As of December 31, 2013, 2014,2015 and 2015,2016, we had Ch$889,087 million, Ch$1,156,896514,985 million and Ch$1,924,7882,074,077 million, respectively, in financial investmentsavailable-for-sale. In the current global economic climate, there is a greater degree of uncertainty and unpredictability in the policy decisions and the setting of interest rates by the Central Bank of Chile and the Central Bank of Colombia and, as a result, any volatility in interest rates could adversely affect us, including our future financial performance and the market value of our securities. In addition, inflation rate volatility could adversely affect our net interest income due to fluctuations in the gap between assets and liabilities that are indexed to the UF.
Increased competition and industry consolidation may adversely affect the results of our operations.
The Chilean and Colombian markets for financial services are highly competitive and competition is likely to increase.
In Chile, we face competition from banking andnon-banking institutions with respect to the different products we offer. In the consumer and other loans businesses, we compete with other banks, credit unions and public social security funds (cajas de compensación). In some of our credit products, we face competition from department stores, large supermarket chains and leasing, factoring and automobile finance companies, and in the saving products and mortgage loans businesses we compete with mutual funds, pension funds, insurance companies and with residential mortgage loan managers (Administradoras de Mutuos Hipotecarios). Furthermore, under the Chilean General Banking Act, representative offices ofnon-Chilean banks are now allowed to promote the credit products and services of their headquarters, which has increased, and may further increase, competition in our industry and, thus, have an adverse effect on our results of operation and financial condition.
In Colombia, we operate in a highly competitive environment and increased competitive conditions are to be expected in the jurisdictions where we operate. Intensified merger activity in the financial services industry produces larger, better capitalized and more geographically diverse firms that are capable of offering a wider array of financial products and services at more competitive prices. Our ability to maintain our competitive position in Colombia depends mainly on our ability to fulfill new customers’ needs through the development of new products and services and offer adequate services and strengthen our customer bases through cross-selling. Our Colombian operations will be adversely affected if we are not able to maintain efficient service strategies, or overcome certain delays or difficulties in the transition of the integration of the operational services and activities of CorpBancaCorpbanca Colombia and Helm Bank. In addition, our efforts to offer new services and products may not succeed if product or market opportunities develop more slowly than expected or if the profitability of opportunities is undermined by competitive pressures.
Our risk management system may not be sufficient to avoid losses that could have a material adverse effect on our business, financial condition and results of operations.
In addition to granting loans, part of our financial portfolio consists of trading transactions by our treasury division. Our financial success depends on, among other factors, our ability to accurately balance the risks we take and the returns we gain from our transactions. We use various processes to identify, analyze, manage and control our risk exposure, both in favorable and adverse market conditions. However, these processes involve subjective and complex judgments and assumptions, including projections of economic conditions and assumptions on the ability of our borrowers to repay their loans. Because of the nature of these risks, we cannot guarantee that our risk management efforts will prevent us from experiencing material losses. In particular, we may experience losses that could have a material adverse effect on our business, financial condition and results of operations if, among other factors:
We make estimates and assumptions in connection with the preparation of our consolidated financial statements, and any changes to those estimates and assumptions could have a material adverse effect on our operating results.
In connection with the preparation of our consolidated financial statements, we use certain estimates and assumptions based on historical experience and other factors. While we believe that these estimates and assumptions are reasonable under the current circumstances, they are subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, our reported operating results could be materially adversely affected.
As a result of the inherent limitations in our disclosure and accounting controls, misstatements due to error or fraud may occur and not be detected.
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports we file with or submit to the SEC under the Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to management, recorded, processed summarized and reported within the time periods specified in SEC rules and forms. We believe that any disclosure controls and procedures or internal controls and procedures, including related accounting controls, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.
Any failure by us to maintain effective internal control over financial reporting may adversely affect investor confidence and, as a result, the value of investments in our securities.
We are required under the Sarbanes-Oxley Act of 2002 to furnish a report by our management on the effectiveness of our internal control over financial reporting and to include a report by our independent auditors attesting to such effectiveness. Any failure by us to maintain effective internal control over financial reporting could adversely affect our ability to report accurately our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent auditors determine that we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market prices of our shares and ADSs could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies subject to SEC regulation, also could restrict our future access to the capital markets.
Our reliance on short-term deposits as our principal source of funds exposes us to sudden increases in our costs of funding which could have a material adverse effect on our revenues.revenue.
Time deposits and other term deposits are our primary sources of funding, which represented 44.1%45.3% of our liabilities as of December 31, 2015.2016. If a substantial number of our depositors withdraw their demand deposits or do not roll over their time deposits upon maturity, our liquidity position, results of operations and financial condition may be materially and adversely affected. We cannot assure you that in the event of a sudden or unexpected shortage of funds, any money markets in which we operate will be able to maintain levels of funding without incurring higher funding costs or the liquidation of certain assets. If this were to happen, our business, results of operations and financial condition may be materially and adversely affected.
Currency fluctuations could adversely affect our financial condition and results of operations and the value of our securities.
Economic policies and any future changes in the value of the Chilean peso or the Colombian peso against the U.S. dollar could affect the dollar value of our securities, since the equity value of CorpBancaItaú Corpbanca is hedged against our base currency Chilean peso. The Chilean peso and the Colombian peso have been subject to significant fluctuations in their value against the U.S. Dollardollar in the past and could be subject to similar fluctuations in the future. As of December 31, 2014, the Chilean peso depreciated against the U.S. dollar by 15.0% and the Colombian peso depreciated against the U.S. dollar by 24.3%, each as compared to December 31, 2013. As of December 31, 2015, the Chilean peso depreciated against the U.S. dollar by 17.3% and the Colombian peso depreciated against the U.S. dollar by 31.1%, each as compared to December 31, 2014. As of December 31, 2016, the Chilean peso appreciated against the U.S. dollar by 5.7% and the Colombian peso appreciated against the U.S. dollar by 4.3%, each as compared to December 31, 2015.
Our results of operations may be affected by fluctuations in exchange rates between and among the Chilean peso, the Colombian peso and the U.S. dollar despite our internal policy and Chilean and Colombian regulations relating to the general avoidance of material exchange rate gaps. As of December 31, 2011, 2012, 2013, 20142015 and 2015,2016, the gap between foreign currency denominated assets and foreign currency denominated liabilities, excluding derivatives, was Ch$(23,560), Ch$241,832 million, Ch$434,942 million, Ch$(26,191)222,673 million and Ch$(497,644)(606,535) million, respectively.
We may decide to change our policy regarding exchange rate gaps. Regulations that limit such gaps may also be amended or eliminated. Greater exchange rate gaps could increase our exposure to the devaluation of the Chilean peso and/or the Colombian peso, and any such devaluation may impair our capacity to service our foreign-currency obligations and may, therefore, materially and adversely affect our financial condition and results of operations.
Our business is highly dependent on proper functioning and improvement of information technology systems.
Our business is highly dependent on the ability of our information technology systems to accurately process a large number of transactions across numerous and diverse markets and products in a timely manner. The proper functioning of our financial control, risk management, accounting, customer service and other data processing systems is critical to our business and our ability to compete effectively. We have backup data for our key data processing systems that could be used in the event of a catastrophe or a failure of our primary systems, and have established alternative communication networks where available. However, we cannot assure you that our business activities would not be materially disrupted if there were a partial or complete failure of any of these primary information technology systems or communication networks. Such failures could be caused by, among other things, software bugs, computer virus attacks, cyber attackscyber-attacks or conversion errors due to system upgrading. In addition, any security breach caused by unauthorized access to information or systems, intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, could have a material adverse effect on our business, results of operations and financial condition.
Our ability to remain competitive and achieve further growth will depend in part on our ability to upgrade our information technology systems and increase our capacity on a timely and cost effective basis. Any substantial failure to improve or upgrade information technology systems effectively or on a timely basis could materially and adversely affect our business, financial condition and results of operations.
Our business in Colombia is dependent on acertain technology service agreementagreements with affiliates of Banco Santander, S.A.
Upon our acquisition of Banco Santander Colombia in 2012, Banco Santander, S.A. agreed to cause certain of its affiliates to provide us certain technology services. Our business in Colombia is still dependent on thesuch service and support of a subsidiarysuch affiliates of Banco Santander, S.A., provided to us pursuant to a We have recently extended the technology service agreement. This technology service agreement was extendedagreements entered into with such affiliates (including Produban Servicios Informáticos Generales S.L. and expires at the end ofIngenierĺa de Software Bancario S.L.) until December
2016 unless we exercise our option to extend its term through June 31, 2017. IfOur management has informed Banco Santander, S.A. isthat we may request a further extension of these agreements. If the affiliates of Banco Santander, S.A. are unable to service and support our business in Colombia or if we are unable to integrate our information technology systems into our business in Colombia after the expiration of the technology service agreement,agreements, then such failure could materially and adversely affect our business, financial condition and results of operations.
A worsening of labor relations in Chile or Colombia could impact our business.
As of December 31, 2015,2016, on a consolidated basis we had 3,8389,607 employees in Chile (including 27 at our New York Branch), of which 54.2%49% were unionized, and 3,7073,675 employees in Colombia, of which 20.2%24% were unionized. We are parties to collective bargaining agreements with unions representing our employees in Chile and Colombia. CorpBancaCorpbanca Colombia’s current labor agreement with eigthteen18 unions in Colombia was subscribed on August 26, 2015 and expires on August 31, 2017. We generally apply the relevant terms of our collective bargaining agreement to unionized andnon-unionized employees in each of the markets in which we operate. We have traditionally enjoyed good relations with our employees and their unions. However, we may not be able to renew our collective bargaining agreements on satisfactory terms or at all. This could result in strikes or work stoppages, which could result in substantial losses. The terms of existing or renewed agreements could also significantly increase our costs or negatively affect us. Also, a strengthening of cross-industry labor movements may result in increased employee or labor costs that could materially and adversely affect our business, financial condition or results of operations.
On December 29, 2014, the Chilean government proposed a labor reform billLaw 20,940, which will become effective on April 1, 2017, introduces significant amendments to the Chilean Congress,labor system. The principal amendments enacted by Law 20,940 to the existing labor framework in Chile include, among others:
• | In case of unions that include employees from several companies of the same industry (Sindicato Interempresa) the companies will be forced to bargain with them and not only with their own employees. |
The implementation of Law 20,940, as it increases the business, and (2) ensure a minimum level of benefits. Additionally, the bill prohibits the workers from negotiating and entering into collective bargaining agreements directly with employers outsidepower of established unions. Instead, workers will be requiredlabor unions, may have adverse effects on our overall employment and operating costs and may increase the likelihood of business disruptions on our activities in Chile, which could negatively affect our financial condition and results of operations. The amendments to organizethe labor law intend to encourage the collective bargaining efforts through established union. The bill is expected to be enacted as law duringand increase the first half of 2016, in which case it will become effective a year after its publication in the Official Gazette. If this bill becomes law, the effects of any strike or collective bargaining efforts by our employees in Chile could have a negative impact on our business, financial condition or results of operations.unionization rates.
We rely on third parties for important products and servicesservices.
Third partyThird-party vendors provide key components of our business infrastructure such as different loan servicing systems, internet connections and network access. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to customers and otherwise to conduct business. Replacing these third partythird-party vendors could also entail significant delays and expense and could negatively impact our business.
We may experience operational problems, errors or fraud.
We are exposed to many types of operational risks, including the risk of fraud by employees and outsiders, failure to obtain proper authorizations, failure to properly document transactions, equipment failures and errors by employees. Although we maintain a system of operational controls, there can be no assurances that operational problems or errors will not occur and that their occurrence will not have a material adverse effect on our business, financial condition and results of operations.
Our anti-money laundering and anti-terrorist financing measures may not prevent third parties from using us as a conduit for those activities, which could have a material adverse effect on our business, financial condition and results of operations.
We are required to comply with applicable anti-money laundering and anti-terrorist financing laws and regulations, and we have adopted various policies and procedures, including internal controls and “know-your customer” procedures, aimed at preventing money laundering and terrorist financing. In addition, because we also rely on our correspondent banks having their own appropriate anti-money laundering and anti-terrorist financing procedures, we use what we believe are commercially reasonable procedures for monitoring our correspondent banks. However, these measures, procedures and compliance may not be entirely effective in preventing third parties from using us (and our correspondent banks) as a conduit for money laundering (including illegal cash operations) or terrorist financing without our (and our correspondent banks’) knowledge or consent. If we were to be associated with money laundering (including illegal cash operations) or terrorist financing, our reputation could be harmed and we could become subject to fines, sanctions or legal enforcement (including being added to any “blacklists” that would prohibit certain parties from engaging in transactions with us), which could have a material adverse effect on our business, financial condition and results of operation.
Banking regulations may restrict our operations and thereby adversely affect our financial condition and results of operations.
We are subject to regulation in the markets in which we operate, including by the SBIF and by the Central Bank of Chile in Chile, and by the Central Bank of Colombia, the Colombian Ministry of Finance, the Colombian Superintendency of Finance, the Superintendency of Industry and Commerce (Superintendencia de Industria y Comercio), or SIC, and the Self-Regulatory Organization (Autorregulador del Mercado de Valores-AMV,), or the SROSRO) in Colombia.
Pursuant to the Chilean General Banking Act in Chile and the Financial System Organic Act (Estatuto Orgánico del Sistema Financiero) in Colombia, we may, subject to the necessary regulatory approvals, engage in the commercial banking business and in certain businesses in addition to traditional commercial banking. Such additional businesses may include securities brokerage, mutual fund management, securitization, insurance brokerage, leasing, factoring, financial advisory, custody and transportation of securities, loan collection and financial services. Regulators may in the future impose more restrictive limitations on the activities of banks, including us.
New capital adequacy requirements could require us to inject further capital into our business as well as in businesses we acquire, or to capitalize dividends, restrict the type or volume of transactions we enter into, or set limits on or require the change of rates or fees that we charge on certain loans or other products, any of which could lower the return on our investments, assets and equity. We may also face increased compliance costs and limitations on our ability to pursue certain business opportunities.
CorpBancaItaú Corpbanca must maintain a capital adequacy index of at least 8%10% calculated pursuant to the guidelines issued by the SBIF. In line with the future adoption of Basel III regulations in Chile, the SBIF has maintained a proposal to increase the minimum effective BIS capital adequacy ratio from the current 8% to 10.5%. This change requires an amendment to the Chilean General Banking Act by Congress, and when adopted, could require us to inject additional capital in our business in the future. The SBIF has not issued any timetable for adoption of Basel III but has issued guidance to Chilean banks regarding the adoption of Basel III for 2019. Although we have not failed in the past to comply with our capital maintenance obligations, there can be no assurance that we will not do so in the future.
As a result of the 2008 global financial crisis, there has been an increase in government regulation of the financial services industry in many countries. Such regulation may also be increased in Chile and/or in Colombia, including the imposition of higher capital requirements, heightened disclosure standards and restrictions on certain types of transaction structures. In addition, numerous novel regulatory proposals have been discussed or proposed. If enacted, new regulations could require us to inject further capital into our business, restrict the type or volume of transactions we enter into, or set limits on or require the modification of rates or fees that we charge on certain loans or other products, any of which could lower the return on our investments, assets and equity. We may also face increased compliance costs and limitations on our ability to pursue certain business opportunities.
The banking regulatory and capital markets environment in which we operate is continually evolving and may change.
Changes in banking regulations may materially and adversely affect our business, financial condition and results of operations. Chilean laws, regulations, policies and interpretations of laws relating to the financial system are continually evolving and changing.
In Chile, new regulations have been enacted in the past years which have, among others things,(a) increased the limit on the amount that a bank is allowed to grant as an unsecured loan to a single individual or entity (currently set at 10% of its regulatory capital and up to 30% of its regulatory capital if any loans granted in excess of the 10% are secured by certain collateral, for persons non relatednon-related to the bank and at 5% or 25% if loans in excess of 5% are secured by certain collateral, for certain groups of persons related to the bank),(b) allowed marketing and promotion activities of credit products and services bynon-Chilean banks with representative offices in Chile,(c)strengthened consumers’ rights in connection with financial products and services; and(d)lowered the maximum legal interest rate that can be imposed in general loans valued at over UF 200. These amendments have affected the Chilean banking industry in several ways including by increasing competition, increasing the risks associated with the growth of loan portfolios, providing additional scrutiny regarding prices and contracts for financial products and have caused a loss of flexibility in the determination of price and product distribution strategies in the retail banking segment.unit.
Colombia has also experienced recent changes in applicable laws, regulations and policies, such as those regulating collateral and foreclosure, financial inclusion and consumer protection. In 2013, a new regulation regarding liens over movable assets was enacted which may affect our rights to foreclose on or liquidate movable assets pledged in favor of our Colombian subsidiaries. This new law created a new registry for liens over movable assets, pursuant to which, secured creditors –including us- creditors—including us—had to register liens granted on their favor before the enactment of the law. The effects of this new law regarding guarantees over movable assets have been favorable for the financial sector in general. Uniform online registration of all guarantees over movable assets has allowed an increased general awareness of the credit situation of clients and of the availability of their rights to be used as support of their obligations. Also, the new law has made it possible to streamline the execution processes of delinquent clients and to provide clarity regarding the priority order of secured creditors in corporate insolvency events. Several operational mechanisms were implemented in order to ensure that all of the guarantees in favor of the bank were registered.
There is a risk that third parties with conflicting liens may also try to obtain registration over the same assets, in which case the first party to register a lien will have priority over any others. In order to promote financial inclusion, the Colombian Congress passed Law No. 1,735 of 2014, which created a new type of financial entity called Specialized Electronic Deposit and Payment Institutions (Sociedades Especializadas en DepóDepósitos y Pagos ElectróElectrónicos) as a new deposit-taking entity form that can be incorporated by a natural person, postal service offices and/or mobile network operator or anothernon-bank company. The Specialized Electronic Deposit and Payment Institutions are regulated financial services providers subject to financial regulation and supervision. The only activities these entities are authorized to perform are remotecash-in andcash-out deposit operations, the allocation of customers’ funds in electronic deposit accounts and the offering of transactional services such
as remittances, transfers, and payments. This change increases the potential source of competition in Colombia and may impartimpair our ability to acquire new
customers or retain existing customers. Additionally, Law No. 1,328 of 2009, amended in 2014, created a customer protection regime with respect to financial institutions. This regime strengthened the rights of consumers of financial services and products and set forth specific obligations for financial institutions. Any violation of this law or regulations issued pursuant to this law by CorpBancaCorpbanca Colombia could result in monetary or administrative sanctions or restrictions on its operations.
AnyWe also have limited operations outside of Chile and Colombia, including Spain and the regulatory changes mentioned aboveUnited States. Changes in the laws or regulations applicable to our business in the countries where we operate, or the adoption of new laws, and related regulations or their applicability or interpretation, and future regulatory activity couldmay have an adverse effect on our operations and financial condition.
We are subject to regulatory inspections, examinations and to the imposition of fines by regulatory authorities in Chile and in Colombia.
We are also subject to various inspections, examinations, inquiries, audits and other regulatory requirements by Chilean and Colombian regulatory authorities.
We cannot assure you that we will be able to meet all of the applicable regulatory requirements and guidelines, or that we will not be subject to other sanctions, fines, restrictions on our business or other penalties in the future as a result of noncompliance.non-compliance. If other sanctions, fines, restrictions on our business or other penalties are imposed on us for failure to comply with applicable requirements, guidelines or regulations, our business, financial condition, results of operations and our reputation and ability to engage in business may be materially and adversely affected.
Pursuant to letter No. 16191,16,191, the SBIF fined the bank for an alleged infringement to the individual lending limits provided by article 84 No. 1, in relation to article 85 of the Chilean General Banking Act. The total amount was Ch$21,765 million. In an extraordinary meeting on January 4, 2016, the bank’s board of directors agreed: to communicate the letter as a material event, expressing disagreement with the alleged infringement and to instruct management to exercise each and every legal action in order to obtain the annulment of the fine.
On January 8, 2016, the bank paid the full amount of the fine as a mandatory condition precedent to exercise its appeal rights. However, no provision was made as of December 31, 2015 as management believes that it is probable that the fine will be annulled through the appeal process.
On January 18, 2016, CorpBancathe bank brought an action before the Santiago Court of Appeals seeking the annulment of the fine. Pursuant to a final ruling by the Court of Appeals of Santiago dated August 31, 2016, the fine imposed by the SBIF pursuant to letter No.16,191 was declared illegal. In accordance with Article 22 of the General Law on Banks, the favorable ruling obtained by Itaú Corpbanca is not subject to appeal.
On September 6, 2016, the SBIF filed a complaint (recurso de queja) against the judges of the Court of Appeals of Santiago before the Supreme Court. As of today, the courtSupreme Court has not issued its ruling. We cannot assure you that athe Supreme Court decision will be made in our favor.favorable to us. A final,non-appealable decision that is adverse to our claims may have a materialan adverse effect on our business, financial condition and results of operations.
Failure to protect personal information could materially and adversely affect our business, financial condition and results of operations.
We manage and hold confidential personal information of customers in the conduct of our banking operations, and offer various internet-based services to our clients, including online banking services. We could be liable for breaches of security in our online banking services, including cybersecurity breaches. The secure transmission of confidential information over the Internet is essential to maintain our clients’ confidence in our online services. In certain cases, we are responsible for protecting customers’ proprietary information as well as their accounts with us. We have security measures and processes in place to defend against these cybersecurity risks but these cyber attackscyber-attacks are rapidly evolving (including computer viruses, malicious code, phishing or other information security breaches), and we may not be able to anticipate or prevent all such attacks, which could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information. Individuals may also seek to intentionally disrupt our online banking services or compromise the confidentiality of customer information with criminal intent. Although we have procedures and controls to safeguard personal information in our possession, as well as systems and processes that are designed to recognize and assist in preventing security breaches, failure to protect against or mitigate breaches of security or other unauthorized disclosures could constitute a breach of privacy or other laws, subject us to legal actions and administrative sanctions as well as damages, adversely affect our ability to offer and grow our online services, result in the loss of customer relationships, negatively impact our reputation, and have an adverse effect on our business, results of operations and financial condition.
Our loan and investment portfolios are subject to risk of prepayment, which may result in reinvestment of assets on less profitable terms.
Our loan and investment portfolios are subject to prepayment risk, which results from the ability of a borrower or issuer to pay a debt obligation prior to maturity. Generally, in a declining interest rate environment, prepayment activity increases, which reduces the weighted average lives of our earning assets and adversely affects our operating results. Prepayment risk also has an adverse impact on our residential mortgage portfolio, since prepayments could shorten the weighted average life of this portfolio,
which may result in a mismatch in funding or in reinvestment at lower yields. Prepayment risk is inherent to our commercial activity and an increase in prepayments could have a material adverse effect on our business, financial condition and results of operations.
Exposure to government debt could have an adverse effect on our business, financial condition and results of operations.
We invest in debt securities issued by the Chilean and Colombian governments, the Central Bank of Chile and the Chilean Ministry of Finance that, for the most part, are short-term and highly liquid instruments. As of December 31, 2015, 3.8%2016, 4.1% of our total assets comprised of securities issued by the Chilean government and 3.9%2.9% of our total assets comprised securities issued by foreign governments, mostly by the Colombian government. If the Chilean or Colombian governments default on the timely payment of such securities, our business, financial condition and results of operations may be adversely affected.
A downgrade of CorpBanca’sItaú Corpbanca’s counterparty credit rating by international or domestic credit rating agencies could materially and adversely affect our debt credit rating for domestic and international debt, our business, our future financial performance, stockholders’shareholders’ equity and the value of our securities.
Following the announcementconsummation of the Itaú-CorpBanca Merger, Standard & Poor´s placed CorpBanca BBB/A-2 ratings on CreditWatch DevelopingPoor’s and Moody’s changed our rating review direction to ‘possible upgrade’, from ‘review for downgrade’, onupgraded our long and short term ratings on January 14toBBB+/A-2 and January 31, 2014,A3/Prime-2, respectively. On August 20, 2015 and on June 15, 2015,January 27, 2017, Standard and Poor’s and Moody’s, respectively, confirmed the aforementioned ratings.ratings but revised our outlook from ‘Stable’ to ‘Negative’ as a result of the revision of the Banking Industry Country Risk Assessment, or BICRA, economic risk trend and the sovereign outlook change.
Any adverse revision to CorpBanca’sour credit ratings in Chile or Colombia for domestic and international debt by international and domestic rating agencies may adversely affect our debt ratings, and, as a result, our cost of funding, including interest rates paid on our deposits and securities. If this were to happen, it could have a material adverse effect on our business, future financial performance, stockholders’shareholders’ equity and the value of our securities.
Mismatches in the maturity of our loan portfolio and our funding sources as well as exchange rate fluctuations related to our funding sources could materially and adversely affect our business, financial condition and results of operations and our capacity to expand our loan business.
We are exposed to maturity mismatches between our loans and sources of funding. The majority of our loan portfolio consists of fixed interest rate loans, and the yield from our loans depends on our ability to balance our cost of funding with the interest rates we charge to our borrowers. An increase in market interest rates in Chile or Colombia could increase our cost of funding, especially the cost of time deposits, and could reduce the spread we earn on our loans, materially and adversely affecting our business, financial condition and results of operations.
Any mismatch between the maturity of our loan portfolio and our sources of funding would magnify the effect of any imbalance in interest rates, also representing a liquidity risk if we fail to obtain funding on an ongoing basis. In addition, since part of our funding comes from securities denominated in U.S. dollars or other foreign currencies that we issue abroad, any devaluation of the Chilean or Colombian peso against the U.S. dollar or such other foreign currencies could increase the cost of funding in relation to these securities. An increase in our total cost of funds for any of these reasons could result in an increase in the interest rates on our loans, which could, as a result, affect our business, financial condition and results of operations and our ability to attract new customers and expand our loan business.
We are subject to financial and operational risks associated with derivative transactions.
We enter into derivative transactions primarily to deliver services to our clients, for hedging purposes and, on a limited basis, for trading purposes. These transactions are subject to market, liquidity, counterparty (the risk of insolvency or other inability of a counterparty to perform its obligations to us) and operational risks.
Market practices and documentation for derivative transactions in Chile and Colombia may differ from those in other countries. For example, documentation may not incorporate terms and conditions of derivatives transactions as commonly understood in other countries. In addition, the execution and performance of these transactions dependsdepend on our ability to develop adequate control and administration systems and to hire and retain qualified personnel. Moreover, our ability to monitor and analyze these transactions depends on our information technology systems. These factors may further increase risks associated with derivative transactions and, if they are not adequately controlled, could materially and adversely affect our results of operations and financial condition.
Our level of insurance might not be sufficient to fully cover all liabilities that may arise in the course of our business and insurance coverage might not be available in the future.
We maintain insurance for losses resulting from fire, explosions, floods and electrical shorts and outages at our various buildings and facilities. We also have civil liability insurance covering material and physical losses and damages that may be suffered by third parties. We cannot assure you that our level of insurance is sufficient to fully cover all liabilities that may arise in the course of our business or that insurance will continue to be available in the future. In addition, we may not be able to obtain insurance on comparable terms in the future. Our business and results of operations may be adversely affected if we incur liabilities that are not fully covered by our insurance policies.
The occurrence of natural disasters in the regions where we operate could impair our ability to conduct business effectively and could adversely affect our results of operations.
We are exposed to the risk of natural disasters such as earthquakes or tsunamis as well as floods, mudslides and volcanic eruptions in the regions where we operate. In the event of a natural disaster, unanticipated problems with our disaster recovery systems could have a material adverse impact on our ability to conduct business in the affected region, particularly if those problems affect our computer-based data processing, transmission, storage and retrieval systems and destroy valuable data. In addition, if a significant number of our local employees and managers were unavailable in the event of a disaster, our ability to effectively conduct business could be severely compromised. A natural disaster, such as the earthquake and tsunami that affected Chile in 2010, could damage some of our branches and automated teller machines, or ATMs, forcing us to close damaged facilities or locations, increased recovery costs as well as cause economic harm to our clients. A natural disaster or multiple catastrophic events could have a material adverse effect on local businesses in the affected region and could result in substantial volatility or adverse harm in our business, financial condition and results of operations for any fiscal quarter or year.
RISKS RELATING TO CHILE, COLOMBIA AND OTHER COUNTRIES IN WHICH WE OPERATEOther businesses controlled by Itaú Unibanco may face difficulties from a business or reputational standpoint and affect us.
We are currently controlled by Itaú Unibanco, which as of March 31, 2017 had a 35.71% beneficial ownership stake in us. Since we are part of a larger conglomerate of companies owned by Itaú Unibanco, if other businesses controlled by Itaú Unibanco face difficulties from a business or reputational standpoint, we may suffer adverse consequences. If we were to be associated with these events, our reputation could be harmed, which could have a material adverse effect on our business, financial condition and results of operations.
We are subject to arbitration and litigation proceedings that could materially adversely affect our business, financial position and results of operations if an unfavorable ruling were to occur.
As described in “Item 8. Financial Information—A. Consolidated Statements and other Financial Information—Legal Proceedings,” we are currently subject to legal proceedings. Litigation is subject to inherent uncertainties, and unfavorable rulings may occur. From time to time, we may become involved in arbitration, litigation and other legal proceedings relating to claims arising from our operations in the normal course of business. We cannot assure you that the current or other legal proceedings will not materially affect our ability to conduct our business in the manner that we expect or otherwise have a material adverse effect on our business, financial condition and results of operations should an unfavorable ruling occur. See “Item 8. Financial Information—A. Consolidated Statements and other Financial Information—Legal Proceedings.”
On December 20, 2016, Helm LLC filed a lawsuit in the Supreme Court of the State of New York (the “State Court Lawsuit”) and a Request for Arbitration in the International Chamber of Commerce’s International Court of Arbitration in New York (the “Arbitration”) against Itaú Corpbanca, alleging certain contractual breaches. These alleged breaches relate to (i) the Amended and Restated Shareholders Agreement of HB Acquisition S.A.S., dated July 31, 2013 (the “SHA”), and (ii) the Transaction Agreement (as defined herein), providing for, among other things, the Merger, which created Itaú Corpbanca, and the potential acquisition by Itaú Corpbanca of certain shares in Corpbanca Colombia (the “TA Shares Acquisition”). In the State Court Lawsuit, Helm LLC sought an injunction in aid of arbitration to block the TA Shares Acquisition, which, as disclosed by Itaú Corpbanca in a Form6-K filed with the
SEC on January 25, 2017, has been postponed until January 28, 2022. On December 30, 2016, we filed our response to the petitions of Helm LLC under the State Court Lawsuit, and on January 26, 2017, Helm LLC filed a notice to discontinue the State Court Lawsuit. The Arbitration has commenced pursuant to the applicable procedures. We and Corpbanca Colombia, the latter only as a nominal defendant, filed their respective answers to Helm LLC’s claims on February 14, 2017. We believe the claims under the Arbitration are without merit and have filed a counterclaim against Helm LLC for breaching the SHA. We are taking and will take appropriate steps to enforce our rights under the SHA and under applicable law.
Risks Relating to Chile, Colombia and Other Countries in Which We Operate
Chile has different corporate disclosure and accounting standards than those you may be familiar with in the United States.
As a regulated financial institution, we are required to submit to the SBIF unaudited consolidated and unconsolidated balance sheets and income statements on a monthly basis. As of January 2008, the statements have to be prepared in accordance with the Compendium of Accounting Standards (Compendio de Normas Contables y Manual del Sistema de Información), or the Compendium,“Compendium”, and the rules of the SBIF. Although Chilean banks are required to apply IFRS as issued by the IASB as of January 1, 2009, certain exceptions introduced by the SBIF prevent banks from achieving full convergence, for example loan loss provisions, assets received in lieu of payment among others. Also, the SBIF is vested with the authority to issue specific orders to banks, including on accounting matters. In those situations which are not addressed by the guidance issued by the SBIF, institutions must follow the generally accepted accounting principles issued by the Association of Chilean Accountants, which coincide with IFRS as issued by the IASB.IFRS. However, our consolidated annual financial statements as of and for the three years ended December 31, 20152016 have been prepared in accordance with IFRS in order to comply with SEC requirements.
Our consolidated financial statements include the necessary adjustments and reclassifications to the incorporated financial statements of each of CorpBanca’sItaú Corpbanca’s subsidiaries and the New York Branch to bring their accounting policies and valuation criteria into line with those applied by the Bank,bank, in accordance with IFRS-IASB.IFRS.
The securities laws of Chile, which govern open or publicly listed companies such as ours, have as one of their principal objectives promoting disclosure of all material corporate information to the public. Chilean disclosure requirements, however, differ from those in the United States in some important respects. In addition, althoughAlthough Chilean law imposes restrictions on insider trading and price manipulation, applicable Chilean laws are different from those in the United States and in certain respects the Chilean securities markets are not as highly regulated and supervised as the United States securities markets.
Chile imposesmay impose controls on foreign investment and repatriation of investments that may affect our investors’ investment in, and earnings from, our ADSs.
Investors who are not Chilean residents are required to provide the Central Bank of Chile with information related to equity investments and conduct such operations within the Formal Exchange Market. See “Item 10. Additional Information—D. Exchange Controls” for a discussion of the types of information required to be provided.
Owners of ADSs are entitled to receive dividends on the underlying shares to the same extent as the holders of shares. Dividends received by holders of ADSs will be converted into U.S. dollars and distributed net of foreign currency exchange fees and fees of the depositary and will be subject to Chilean withholding tax, currently imposed at a rate of 35% (subject to credits in certain cases). If for any reason, including changes in Chilean laws or regulations, the depositary were unable to convert Chilean pesos to U.S. dollars, investors in our ADSs may receive dividends and other distributions, if any, in Chilean pesos.
Additional Chilean restrictions applicable to holders of our ADSs, the disposition of the shares underlying them or the repatriation of the proceeds from such disposition or the payment of dividends could be imposed in the future and we cannot advise you as to the duration or impact of such restrictions, if imposed.
The legal restrictions on the exposure of Chilean pension funds may adversely affect our access to funding.
Chilean regulations impose restrictions on the share of assets that a Chilean pension fund management company (Administradora de Fondos de Pensiones, or AFP) may allocate: (i) per fund (considering allsub-funds within an AFP (A, B, C, D or E)), to deposits in checking accounts and term deposit accounts and in debt securities issued by a single banking institution (or guaranteed by such bank); (ii) per type ofsub-fund, to shares, deposits, derivatives and debt securities of a single banking institution (or guaranteed by such bank); and (iii) per fund (considering allsub-funds), to shares issued by a single banking institution. Additionally, each fund managed by an AFP is permitted to make deposits with a bank for an amount not to exceed the equivalent of such bank’s equity. If the exposure of a pension fund managed by an AFP to a single bank exceeds such limit for investments in securities, the AFP for such pension fund is required to reduce the fund’s exposure below the limit within three years.
As of December 31, 2015,2016, the aggregate exposure of AFPs to us was Ch$967,7262,068,189.4 million or 0.89%2.5% of their total assets. If the exposure of any AFP to us exceeds the regulatory limit,limits, we would need to seek alternative sources of funding, which could be more expensive and, as a consequence, may have a material adverse effect on our business, financial condition and results of operations.
Future increases in the corporate tax rate or additional modifications to the tax systems of the countries in which we operate may have a material adverse effect on us.
On September 29, 2014, Law No. 20,780 or the Tax Reform, was published in the Chilean Official Gazette,(the “Tax Reform”) went into effect, introducing the most significant amendmentschanges to the Chilean tax system over the last thirty years and strengthening the powers of the Chilean IRS (Servicio de Impuestos Internos)to control and prevent tax avoidance. One of the main purposes of this reform was to finance major educational reforms under discussion in the Chilean Congress. Subsequently, on February 8, 2016, Law No. 20,899, which simplifies the income tax system and modifies other legal tax provisions, went into effect.
OneAs a result of the most important changes introduced by the Tax Reform is the creation ofthese reforms, two separate taxation systems were created in the Income Tax Law: (i) the attributed income system orand (ii) the partially integrated system. This lawpartially-integrated system (sistema parcialmente integrado). These reforms also called for a gradual increase in the corporate income tax rate from 20% in 2013 to:
Years | 2014 | 2015 | 2016 | |||||||||
Rates | 21 | % | 22.5 | % | 24 | % |
to 21% in 2014, to 22.5% in 2015 and to 24% in 2016. Beginning in 2017, the applicable tax rate applicable to a taxpayer will depend on the tax system chosen.that the taxpayer chooses. Taxpayers choosing the attributed income system will have a final rate of 25% while those choosing the partially-integrated system will have a transitory rate of 25.5% in 2017 and a final rate of 27% in 2018 and beyond. As a corporation (sociedad anónima), we cannot choose a tax system and are subject to the partially-integrated tax regime.
Foreign source income obtained by taxpayers domiciled or resident in Chile is generally subject to taxes in Chile on a cash basis. However, in the case of branches or other permanent establishments located abroad, both accrual and received income are considered in Chile for tax purposes. Also, taxpayers who obtain passive income from foreign companies, in which they have control,
as defined by law, will have to pay taxes on accrual and cash basis, for the passive income accrued or perceived by those controlled entities.
Bonds and other debt instruments issued in Chile by Chilean companies are deemed to be located in Chile for capital gains purposes. However, bonds issued outside of Chile by Chilean companies are not deemed located in Chile for capital gain purposes and, consequently, the sale of such bonds by anon-Chilean resident is not subject to capital gains tax in Chile (according to section 11 of theLey Sobre Impuesto a la Renta, or the Chilean Income Tax Law, (itit would be considered a foreign source income obtained by anon-Chilean resident).
We cannot assure you that the manner in which the corporate tax rate is interpreted and applied will not change in the future. In addition, the Chilean government may decide to levy additional taxes in Chile. The Tax Reform mayand any further changes to taxes in Chile could have a material adverse effect on our business, financial condition and results of operations. Furthermore, uncertainty relating to tax legislation in Chile and Colombia poses a constant risk to CorpBanca. Itaú Corpbanca.
In addition, on December 29, 2016, the Colombian Government approved a tax reform under Law No. 1,819. The most relevant features of this reform are:
2017 | 2018 | 2019 and following years | ||||||||||
General tax rate | 34 | % | 33 | % | 33 | % | ||||||
Surcharge (*) | 6 | % | 4 | % | — | |||||||
Total | 40 | % | 37 | % | 33 | % |
(*) | To be paid only by taxpayers whose income surpasses COP$800 million. |
• | The percentage of liquid equity to calculate “assumed income” (renta presuntiva) increased from 3.0% to 3.5%. |
• | The tax for equity (impuesto para la equidador CREE) and its corresponding surcharge are eliminated as of 2017. |
• | The wealth tax (impuesto a la riqueza) will be eliminated starting in 2019. |
• | The tax reform adds Article772-1 to the Colombian Tax Statute (Estatuto Tributario), which establishes that those taxpayers that are required to keep accounting books must have a system of control or reconciliation of the differences that arise between IFRS accounting and the provisions of the Tax Statute. Any failure to control or reconcile any such differences may be considered as a fiscal breach punishable by the regime of accounting irregularities. |
Changes in legislation, regulation and jurisprudence can affect tax burdens by increasing tax rates and fees, creating new taxes, limiting stated expenses and deductions, and eliminating incentives andnon-taxed income.
Potential changes to the pension system in Chile may impose an increase in our labor costs and therefore have a material adverse effect on our financial results.
In addition,August 2016, following political turmoil relating to low pensions under the Colombian governmentexisting Chilean pension funds system, President Michelle Bachelet proposed changes to the existing Chilean pension funds system. Under the current private system, employees make contributions to fund their individual pension accounts. Under President Bachelet’s proposal, for the first time, companies would have to contribute to the system. The proposal contemplates, among other measures, a gradual increase over the next 10 years from the current 10% contribution funded by employees to a 15% contribution in which the additional 5% will be exclusively funded by employers. As proposed, part of this additional contribution would go to a common fund (the “solidarity fund” orpilar solidario), rather than employees’ personal savings accounts, in order to increase the pensions for certain lower-income individuals. This political proposal has not yet become a significant fiscal deficitbill of law submitted to Congress, and there are several economic and political discussions over its content. However, it is possible to anticipate that some additional contribution from the employers to the Chilean social security system will be approved, which may resultcause a relevant increase in future tax increases.our labor costs and, therefore, have a material adverse effect on our financial results.
Colombian tax haven regulation could adversely affect our business and financial results.
Decree 1966No. 1,966 of 2014 amended by Decree 2095No. 2,095 of 2014 designates 37 jurisdictions as tax havens for Colombian tax purposes. In October 2014, Panama and Colombia signed a memorandum of understanding by which they agreed to execute a double taxation treaty. However, if Panama is considered a tax haven under Colombian tax regulations, the clients of our Colombian subsidiaries in Panama who are residents in such jurisdiction would be subject to the following regulations: (i) higher withholding tax rates including a higher withholding rates over financial yields derived from investments in the Colombian securities market, (ii) the Colombian transfer pricing regime and its reporting duties, (iii) an assumption for Colombian authorities of residency for the purposes of qualifying a conduct as abusive under tax regulations, (iv) the disallowance of payments made to residents or entities located in tax havens as costs or deductions, unless the respective withholding tax has been applied and (v) other additional information disclosure requirements.
Any downgrading of Chile’s or Colombia’s debt credit rating for domestic and international debt by international credit rating agencies may also affect our business and future financial performance.
Any adverse revisions to Chile’s or Colombia’s credit ratings for domestic and international debt by international rating agencies may adversely affect our ratings, and, as a result, our cost of funding, including interest rates paid on our deposits and securities. If this were to happen, it could have a material adverse effect on our business, future financial performance, stockholders’shareholders’ equity and the value of our securities.
Chilean and Colombian authorities exercise influence on the Chilean and Colombian economies. Changes in monetary, fiscal and foreign exchange policies or in the Chilean and Colombian governments’ structures may adversely affect us.
Chilean and Colombian authorities intervene from time to time in the Chilean and Colombian economies, through changes in fiscal, monetary, and foreign exchange policies, which may adversely affect us. These changes may impact variables that are crucial for our growth strategy (such as foreign exchange and interest rates, liquidity in the currency market, tax burden, and economic growth), thus limiting our operations in certain markets, affecting our liquidity and our clients’ ability to pay and, consequently, affecting us.
In addition, changes in the Chilean and Colombian governments’ structure may result in changes in government policies, which may affect us. This uncertainty may, in the future, contribute to an increase in the volatility of the Chilean and Colombian capital markets, which, in turn, may have an adverse impact on us. Other political, diplomatic, social and economic developments in Chile, Colombia or other countries that affect Chile and Colombia may also affect us.
Our growth and profitability depend on the level of economic activity in Chile, Colombia and other emerging markets.
Substantially all of our loans are to borrowers doing business in Chile or Colombia. Accordingly, the recoverability of these loans in particular, our ability to increase the amount of loans outstanding and our results of operations and financial condition in general, are dependent to a significant extent on the level of economic activity in Chile and Colombia. The Chilean and Colombian economies have been influenced, to varying degrees, by economic conditions in other emerging market countries. Future developments in or affecting the Chilean or Colombian economies, including consequences of economic difficulties in emerging and developed markets, including some of our neighbor countries, or a deceleration in the economic growth of Asian or other developed nations to which Chile and Colombia export a majority of their respective goods, could materially and adversely affect our business, financial condition or results of operations.
Our results of operations and financial condition could also be affected by changes in economic or other policies of the Chilean or Colombian governments, which have each exercised and continue to exercise a substantial influence over many aspects of the private sector, or other political or economic developments in Chile. In addition, our financial condition and results of operations could also be affected by regulatory changes in administrative practices or other political or economic developments in or affecting Chile or Colombia, over which we have no control.
Inflation and government measures to curb inflation could adversely affect our financial condition and results of operations.
Although Chilean and Colombian inflation have been low in recent years, Chile and Colombia have experienced high inflation in the double-digit levels in the past. Such high levels of inflation in Chile or Colombia could adversely affect the Chilean and Colombian economies and have an adverse effect on our results of operations if such inflation is not accompanied by a matching devaluation of the local currency. We cannot make any assurances that Chilean or Colombian inflation will not revert to prior levels in the future.
We may be unsuccessful in addressing the challenges and risks presented by our operations in countries outside Chile or Colombia.Chile.
We now operate a banking business in Colombia through CorpBancaCorpbanca Colombia and in PanamáPanama through subsidiaries of CorpBancaCorpbanca Colombia. Our operations are focused on retail banking, as well as wholesale and commercial banking and providing financing and deposit services to SMEs and individuals with medium-high income levels. CorpBancaCorpbanca Colombia provides a broad range of commercial and retail banking services to its customers, operating principally in the cities of Bogotá, Medellín, Cali, Bucaramanga, Cartagena and Barranquilla.
We have limited experience conducting credit card and consumer finance businesses in countries outside Chile. Accordingly, we may not be successful in managing credit card and consumer finance operations outside of our traditional domestic market in Chile. We may face delays in payments by customers and higher delinquency rates in any market we enter into, which could necessitate higher provisions for loan losses and, consequently, have an adverse effect on our financial performance.
Colombia has experienced internal security issues that have had or could have in the future a negative effect on the Colombian economy.
Colombia has experienced internal security issues, primarily due to the activities of guerrilla groups such as the Revolutionary Armed Forces of Colombia(Fuerzas Armadas Revolucionarias de Colombia,ortheFARC), National Liberation Army (Ejército de Liberación Nacional, or the ELN), paramilitary groups and drug cartels. In remote regions of the country with minimal governmental presence, these groups have exerted influence over the local population and funded their activities by protecting, and rendering services to drug traffickers.
Despite the ongoing peace negotiations between the Colombian government and FARC, which have reduced guerrilla and criminal activity, particularly in the form of terrorism attacks, homicides, kidnappings and extortion, such activities persist in Colombia, and possible escalation of such activities and the effects associated with them have had and may have in the future a negative impact on the Colombian economy and on our operations in Colombia, including our customers, employees, results of operations and financial condition, and physical assets.
While the terms of aThe final peace agreement are still unknown,was reached in September 2016 and the government is likely to subject the proposed final text of these agreementssubmitted it to a referendum.referendum that was not approved. However, Congress subsequently approved the peace agreement, and in December 2016 the agreement implementation process began. The final agreement is expected to provide FARC with several benefits including: (i) changes in legislation concerning access to credit and financial services; (ii) tax benefits,benefits; and (iii) more favorable labor regulations. Such agreements and other legistalivelegislative changes arising therefrom may have a negative impact on the Colombian economy and on our operations in Colombia.
ELN, paramilitary groups and drug cartels’ arewere not part of the peace negotiations.Itnegotiations. It is expected that their activities will continue.
Tensions with Venezuela and Ecuador may affect the Colombian economy and, consequently, our results of operations and financial condition.
Diplomatic relations with Venezuela and Ecuador, two of Colombia’s main trading partners, have from time to time been tense and affected by events surrounding the Colombian armed forces combat of the FARC throughout Colombia, particularly on Colombia’s borders with Venezuela and Ecuador.
Additionally, further deterioration in relations with Venezuela and Ecuador may result in the closing of borders, the imposition of trade barriers or a breakdown of diplomatic ties, any of which could have a negative impact on Colombia’s trade balance, economy and general security situation, which may adversely affect our results of operations and financial condition. In 2015, the Venezuelan government abruptly closed the Colombian-Venezuelan border which resulted in a substantial decrease in trade between Colombia and Venezuela, and increasedrepresenting less than 0.7% of total Colombian exports. In recent years, diplomatic tensions between the two governments.governments have increased. As of March 2016,2017, the border remains closed and the Venezuelan government has announced that such closure is indefinite. A continued closure of the border may result in further deterioration of trade and could have a negative impact in the Colombian economy.
Constitutional collective actions (acciones popularesacciones populares), class actions (acciones de grupo) and other similar legal actions in Chile and Colombia involving claims for significant monetary awards against financial institutions may have an adverse effect on our business and results of operations.
Under the Chilean Consumer Protection Act and under the Colombian Constitution, individuals may initiate collective or class actions to protect their collective or class rights, as applicable. In the past few years, Chilean financial institutions have experienced limited numbers of collective and class actions mostly relating to abusive clauses in standard contracts.
In the past few years, Colombian financial institutions, including CorpBancaCorpbanca Colombia, have experienced a substantial increase in the aggregate number of these actions. The great majority of such actions have been related to fees, financial services and interest rates, and their outcome is uncertain. Pursuant to Law No. 1,425 of 2010, monetary awards for plaintiffs in constitutional collective actions (acciones populares) were eliminated as of January 1, 2011. Nevertheless, individuals continue to have the right to initiate constitutional or class actions against CorpBancaCorpbanca Colombia.
Future restrictions on interest rates or banking fees could negatively affect our profitability.
In the future, additional regulations in the jurisdictions where we operate could impose limitations regarding interest rates or fees charged by CorpBanca.Itaú Corpbanca. Any such limitations could materially and adversely affect our results of operations and financial situation.
The Colombian Commerce Code limits the amount of interest that may be charged in commercial transactions. In the future, regulations could impose limitations regarding interest rates or fees we charge. Any such limitations could materially and adversely affect our results of operations and financial position. In the past, there have been disputes in Colombia among merchants, payment services and banks regarding interchange fees. Although such disputes have been resolved, the SIC, may initiate new investigations relating to the interchange fees. This possibility may lead to additional decreases in such fees, which in turn could adversely our operations in Colombia and our consolidated financial results.
Furthermore, the Colombian government has the authority to establish and define criteria and formulas applicable to the calculation of banking fees and other charges and to establish caps on the banking fees, credit card fees, and other charges that we impose on our customers. On December 20, 2011, the Colombian government used its authority to set a cap on the fees banks can charge on withdrawals from ATMs outside their own networks. Additionally, under Colombian regulation, banks are prohibited from charging prepayment penalties or fees on loans, other than in mortgage loans, except when the outstanding amount of a loan is more than the equivalent of 880 monthly minimum wages, or SMMLV (approximately US$180,861). In mortgage loans, irrespective of their principal amount or in other loans in which the outstanding amount is greater than 880 SMMLV, prepayment penalties or fees may be charged but only when expressly contemplated under the governing loan agreement. Further limits or regulations regarding banking fees, and uncertainties with respect thereto could have a negative effect on CorpBancaCorpbanca Colombia and our results of operations and financial condition.
Insolvency laws may limit our monetary collection and ability to enforce our rights.
AOn January 9, 2014, a new Insolvency Actinsolvency act was published in Chile in the Official Gazette on January 9, 2014 (the(Ley No. 20,720 de Reorganización y Liquidación de Empresas y Personas, or the Chilean Insolvency Act) and came into effect on October 9, 2014. Under this newthe Chilean Insolvency Act, monetary collection and enforcement of rights by a creditor may face limitations such as those arising from the Insolvency Protection (as defined below) recognized by the act. For more information on these limitations please see “Item 4—Information on the Company—B. Business Overview—Recent Regulatory Developments in Chile”.Chile.”
Colombian insolvency laws provide that creditors of an insolvent debtor in default are prohibited from initiating collection proceedings outside the bankruptcy or reorganization process of such debtor. In addition, all collection proceedings outstanding at the beginning of any bankruptcy or reorganization process of any insolvent debtor must be suspended and creditors are prevented from enforcing their rights against the collateral and other assets of the debtor until the reorganization has been agreed (in which case the collection proceeding is resolved within the reorganization agreement) or it is declared that no reorganization was agreed. Additionally, Colombian laws provide insolvency protection fornon-merchant individuals. This insolvency protection entails that, once anon-merchant individual has ceased paying his or her debts, such individual can initiate a voluntary insolvency proceeding before a notary public or mediator to reach an agreement with its creditors. The terms of any agreement reached with a group (two or more) of creditors that represent more than 50% of the total amount of the claims will be mandatorily applicable to all relevant creditors. There are other protections such as an automatic stay for a maximum of 90 days. These legal limitations make it difficult to recover on defaulted loans, and as a result, may cause CorpBancaCorpbanca Colombia to enhance its credit requirements which would result in
decreased lending to individuals by making it more expensive. In addition, increased difficulties in enforcing debt and other monetary obligations due to this insolvency law could have an adverse effect on CorpBancaCorpbanca Colombia and our results of operations and financial condition.
The Central Bank of Colombia may impose requirements on our (and other Colombian residents’) ability to obtain loans in foreign currency.
The Central Bank of Colombia may impose certain mandatory deposit requirements in connection with foreign currency denominated loans obtained by Colombian residents, including CorpBancaCorpbanca Colombia, although no such mandatory deposit requirement is currently in effect. We cannot predict or control future actions by the Central Bank of Colombia in respect of deposit requirements, which may involve the establishment of a mandatory deposit percentage, and the use of such measures by the Central Bank of Colombia may raise our cost of raising funds and reduce our financial flexibility.
RISKS RELATING TO EXPANSION AND INTEGRATION OF ACQUIRED BUSINESSESRisks Relating to Expansion and Integration of Acquired Businesses
We may not be able to manage our growth successfully.
We have been expanding the scope of our operations over the past few years, and we expect that this expansion will continue. As we continue to grow, we must improve our operational, technical and managerial knowledge and compliance systems in order to effectively manage our operations across the expanded group. Failure to integrate, monitor and manage expanded operations could have a material adverse effect on our business, reputation and financial results. Our future growth will also depend on our access to internal and external financing sources. We may be unable to access such financing on commercially acceptable terms or at all.
Integration of acquired or merged businesses involves certain risks that may have a material adverse effect on us.
We have engaged in a number of mergers and acquisitions in the past, including the CorpBancaMerger, the Corpbanca Colombia Acquisition, the Helm Bank Acquisition and the subsequent merger of Helm Bank with and into Corpbanca Colombia, consummated on June 1, 2014, that may make further mergers and acquisitions in the future as part of our growth strategy. We believe that these transactions will contribute to our continued growth and competitiveness in the Chilean, Colombian, and international banking sectors.
Any acquisition and merger of institutions and assets and the integration of such institutions and assets involves certain risks including the risk that:
If we fail to achieve the business growth opportunities, cost savings and other benefits we anticipate from mergers and acquisition transactions, or incur greater integration costs than we have estimated, our results of operations and financial condition may be materially and adversely affected.
Acquisitions and strategic partnerships may not perform in accordance with expectations, may fail to receive required regulatory approvals or may disrupt our operations and adversely affect our business financial condition and results of operations.
A component of our strategy is to identify and pursue growth-enhancing strategic opportunities. As part of that strategy we have consummated (i) the Banco Santander Colombia Acquisition in 2012 (today “CorpBanca“Corpbanca Colombia”); and (ii) the Helm Bank Acquisition in 2013. Helm2013 (Helm Bank was merged with and into CorpBancaCorpbanca Colombia on June 1, 2014.2014); and (iii) the Merger in 2016. We will continue to consider additional strategic acquisitions and alliances from time to time, inside and outside of Chile and Colombia. Strategic acquisitions and alliances, including the Helm Bank Acquisition, could expose us to risks with which we have limited or no experience. Future acquisitions may also be subject to regulatory approval, which we may not receive, particularly in view of our increasing market share in the Colombian banking industry.
We must necessarily base any assessment of potential acquisitions and alliances on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. Future acquisitions and alliances may not produce anticipated synergies or perform in accordance with our expectations and could adversely affect our business, financial condition and results of operations.
In addition, new demands on our existing organization, management and employees resulting from the integration of new acquisitions could disrupt our operations and adversely affect our business, financial condition and results of operations.
We may have problems successfully completing the implementation of a new information technology core banking system in Colombia.
A key element of our expansion strategy consists in the acquisition of existing businesses and their integration into our business model and administration and management processes. During 2015, we continued the integration process of Helm Bank and its subsidiaries into our pre-existing operations and business model, including integration of back-office functions. An important step of this integration process is the implementation of a new information technology core banking system in Colombia, which we have been implementing since February 2013. If we are unable to successfully complete the implementation of this new information technology core banking system in Colombia, the integration process in Colombia could be adversely affected, which could adversely affect our financial condition, results of operations and liquidity. The implementation of the new information technology core banking system in CorpBanca Colombia is underway.
RISKS RELATING TO THE PENDING ITAÚ-CORPBANCA MERGER
CorpBancaItaú Corpbanca may be unable to fully realize the anticipated benefits of the combination of Corpbanca and Banco Itaú-CorpBanca Merger. Chile.
On April 1, 2016, Corpbanca and Banco Itaú Chile completed a business combination, which was consummated through the Merger. The Itaú-CorpBanca Merger involves bringingbrought together two large financial institutions that currently operatehad previously operated as independent companies. CorpBanca will be required to devote significantSignificant management attention and resources have been and will continue to integratingbe required to integrate certain aspects of the business practices and operations of CorpBancaCorpbanca and Banco Itaú Chile.
The success of the Itaú-CorpBanca Merger will depend, in part, on CorpBanca’sthe ability of Itaú Corpbanca to realize anticipated revenue synergies, cost savings and growth opportunities resulting from the combination of the businesses of CorpBancaformer Corpbanca and former Banco Itaú Chile. We expect to generate synergies resulting from optimization of organizational structures, scalable IT systems, savings related to the branch network and reductions in administrative expenses. There is a risk, however, that CorpBancaItaú Corpbanca may not be able to combine the businesses of CorpBancaCorpbanca and Banco Itaú Chile in a manner that permits CorpBancaItaú Corpbanca to realize these revenue synergies, cost savings and growth opportunities in the time, manner or amounts CorpBanca currentlyit expects or at all. Potential difficulties CorpBancaItaú Corpbanca may encounter as part of the merger process include, among other things:
In addition, CorpBanca and Itaú Chile have operated and, until the completion of the merger, will continue to operate separately. Itit is possible that the integration process could result in:
the disruption of CorpBanca’s or Itaú Chile’sCorpbanca’s ongoing businesses or inconsistencies in its standards, controls, procedures and policies,
each of which could adversely affect theirItaú Corpbanca’s ability to maintain good relationships with its customers, suppliers, employees and other constituencies, or to achieve the anticipated benefits of the Itaú-CorpBanca Merger, and could increase costs or reduce theirits earnings or otherwise adversely affect the business, financial condition, results of operations and/or prospects of the merged entity following the completion of the merger, Itaú CorpBanca, which we refer to herein as, and will be referred to following the completion of the merger as, Itaú-CorpBanca.Corpbanca. Actual revenue synergies, cost savings, growth
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The integration of two large companies also presents significant management challenges. In order to achieve the anticipated benefits of the merger,Merger, the operations of the two companies will need to beare being reorganized and their resources will need to be combined in a timely and flexible manner.
There can be no assurance that CorpBancaItaú Corpbanca will be able to implement these steps as anticipated or at all. If CorpBancaItaú Corpbanca fails to consummateachieve the Itaú-CorpBanca Mergerplanned restructuring within the time frame that is currently contemplated or to the extent that is currently planned, or if for any other reason the expected revenue synergies, cost savings and growth opportunities fail to materialize, itthe Merger may not produce the benefits that CorpBancaItaú Corpbanca currently anticipates.
CorpBancaItaú Corpbanca has incurred and will continue to incur significant costs and expenses in connection with the Itaú-CorpBanca Merger.
CorpBancaItaú Corpbanca has incurred and will continue to incur substantial expenses in connection with the Itaú-CorpBancaintegration process derived from the Merger. TheseIn 2014 and 2015, after the Merger was announced but prior to its consummation, expenses were related to transaction costs and expenses include financial advisory,associated to the closing of the Merger, such as investment banks, legal accounting, consulting and other advisory fees and expenses, reorganization and restructuring costs,advisors, auditors, filing fees, printing expenses and other related charges. Some of theseAfter the Merger, expenses have been related to restructuring costs are payable by CorpBanca and Itaú Chile regardless of whether the Itaú-CorpBanca Merger is completed.associated toone-time integration expenses. There are also many processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the Itaú-CorpBanca Merger. While CorpBanca has assumed that a certain levelAny delay in the integration of expenses would be incurred in connection with the business operations of former Corpbanca and former Banco Itaú-CorpBanca Merger, there are many Chile or factors beyond CorpBanca’sItaú Corpbanca’s control that could affect the total amount or the timing of the relatedintegration and implementation expenses.
There may also beIf additional unanticipated significant costs are incurred in connection with the Itaú-CorpBanca Merger, that CorpBanca may not recoup. Thesethese costs and expenses could, particularly in the near term, exceed the savings that CorpBancaItaú Corpbanca expects to achieve from the elimination of duplicative expenses and the realization of economies of scale, other efficiencies and cost savings. Although CorpBancaItaú Corpbanca expects that theseto achieve savings willand economies of scale sufficient to offset these integration and implementation costs over time, this net benefit may not be achieved in the near term or at all.
Itaú Corpbanca’s future results will suffer if it cannot effectively manage its expanded operations following completion of the Merger.
The size of Itaú Corpbanca’s combined business following the completion of the Merger is significantly larger and more complex than the previous businesses of former Corpbanca or former Banco Itaú Chile individually. Itaú Corpbanca’s future success will depend, in part, on its ability to manage this expanded business, posing substantial challenges for management. There can be no assurances that Itaú Corpbanca will be successful or that it will realize the expected operating efficiencies, cost savings, revenue synergies and other benefits currently anticipated from the Merger.
We may have problems successfully completing the implementation of a new information technology core banking system in Colombia.
A key element of our expansion strategy consists in the acquisition of existing businesses and their integration into our business model and administration and management processes. During 2016, we continued the back-office functions integration process of Helm Bank. An important step of this integration process is the implementation of a unique integrated information technology core banking system in Colombia. The original project, which we had been implementing since February 2013, was discontinued after the Merger. New management decided to maintain the existing platform at Helm Bank and to integrate all existing IT information instead of implementing a fully new information technology core banking system as originally planned. If we are unable to successfully complete the integration into Helm’s platform, the integration process in Colombia could be adversely affected, which could adversely affect our financial condition, results of operations and liquidity. The integration into Helm’s information technology core banking system in Corpbanca Colombia is underway.
Risks Relating to Our Securities
Our controlling shareholder is able to exercise significant control over us which could result in conflicts of interest.
Itaú Unibanco will controlis the sole controlling shareholder of Itaú Corpbanca. As of March 31, 2017, Itaú Unibanco beneficially owned 35.71% of our voting common shares. In addition, (i) Itaú Unibanco and (ii) Inversiones Gasa Limitada, CorpGroup Holding Inversiones Limitada, CorpGroup Banking S.A., Compañía Inmobiliaria y de Inversiones Saga SpA and CorpGroup Interhold SpA (together, “CorpGroup”) have signed a shareholders’ agreement to determine certain aspects related to corporate governance, dividend policy, transfer of shares, liquidity and other matters (the “Itaú CorpGroup Shareholders’ Agreement”). Itaú Unibanco and CorpGroup are in position to elect 11 of the 13 members of our board of directors. The Itaú CorpGroup Shareholders’ Agreement provides that the directors of Itaú-CorpBanca.
appointed by Itaú Unibanco and CorpGroup will collectively appoint a majority of the directors of the board of directors of Itaú-CorpBanca after the completion of the Transactions. The Itaú-CorpBanca Shareholders Agreement to be entered into by Itaú Unibanco and Corp Group contemplates that the directors appointed by them will vote, to the extent permitedpermitted by the law, in a block and in accordance with the recommendation of Itaú Unibanco, subject to certain exceptions. Accordingly, Itaú Unibanco will beis able to control the actions taken by the board of directors of Itaú-CorpBanca Corpbanca on most matters.
Uncertainties associated with the Itaú-CorpBanca Merger may cause a loss of management personnel and other key employees that could adversely affect CorpBanca, Itaú Chile and/or Itaú-CorpBanca.
The success of the Itaú-CorpBanca Merger is dependent, in part, on the experience and industry knowledge of their senior management and other key employees of CorpBanca and Itaú Chile and their ability to execute their business plans. In order to be successful, CorpBanca, Itaú Chile and Itaú-CorpBanca must be able to retain the senior management and other key employees and their ability to attract highly qualified personnel in the future. Current and prospective employees of CorpBanca and Itaú Chile may experience uncertainty about their roles within Itaú-CorpBanca following completion of the Itaú-CorpBanca Merger, which may have an adverse effect on the ability of CorpBanca, Itaú Chile or Itaú-CorpBanca to retain or attract senior management and other key employees, and in turn, on our business, financial condition and results of operations, regardless of the success of the Itaú-CorpBanca Merger.
Itaú-CorpBanca’s future results will suffer if it cannot effectively manage its expanded operations following completion of the Itaú-CorpBanca Merger.
Following the completion of the Itaú-CorpBanca Merger, the size of the business of Itaú-CorpBanca will be significantly larger and more complex than the current business of CorpBanca or Itaú Chile. Itaú-CorpBanca’s future success will depend, in part, on CorpBanca’s ability to manage this expanded business, posing substantial challenges for management. There can be no assurances that Itaú-CorpBanca will be successful or that it will realize the expected operating efficiencies, cost savings, revenue synergies and other benefits currently anticipated by CorpBanca and Itaú Chile from the Itaú-CorpBanca Merger.
Failure to consummate the Itaú-CorpBanca Merger could negatively impact the share price and the future business and financial results of CorpBanca.
If the Itaú-CorpBanca Merger is not consummated, the ongoing businesses of CorpBanca may be adversely affected and, without realizing any of the benefits of having consummated the Itaú-CorpBanca Merger, CorpBanca will be subject to a number of risks, including the following:
If the Transactions are not consummated, these risks may materialize and may adversely affect CorpBanca business, financial results and share price.interest.
The Transaction Agreement contains provisions that restrict CorpBanca’s ability to pursue alternative transactions.
The Transaction Agreement prohibits the parties from soliciting, discussing, negotiating or entering into alternative transactions. This provision could discourage a third party that may have an interest in acquiring all or a significant part of CorpBanca from considering or proposing that acquisition, even if such third party were prepared to pay consideration with a higher value than the value of the proposed Transactions.
The Transaction Agreement may be terminated in accordance with its terms and the Transactions may not be completed.
The Transaction Agreement is subject to a number of customary closing conditions which must be fulfilled in order to consummate the Itaú-CorpBanca Merger. Those conditions include: absence of orders preventing or suspending consummation of the Transactions, the accuracy of the representations and warranties by both parties, performance by both parties of their covenants and agreements, the execution and delivery by both parties of the Shareholders’ Agreement and certain pledge agreements, and the absence of any circumstance, occurrence or change that has had a material adverse effect on any of the parties. These conditions to the closing of the Itaú-CorpBanca Merger may not be fulfilled and, accordingly, the merger may not be completed. In addition, if the Itaú-CorpBanca Merger is not completed by May 2, 2016, either CorpBanca or Itaú Chile may choose not to proceed with the Itaú-CorpBanca Merger, and any party can unilaterally decide to terminate the Transaction Agreement.
RISKS RELATING TO OUR SECURITIES
U.S. securities laws do not require us to disclose as much information to investors as a U.S. issuer is required to disclose.
The corporate disclosure requirements applicable to us may not be equivalent to the requirements applicable to a U.S. company and, as a result, you may receive less information about us than you might otherwise receive in connection with a comparable U.S. company. We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that apply to “foreign private issuers.” The periodic disclosure required of foreign private issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers.
We are required to file an annual report on Form20-F, but we are not required to file any quarterly reports. A U.S. registrant must file an annual report on Form10-K and three quarterly reports on Form10-Q.
We are required to furnish current reports on Form6-K, but the information that we must disclose in those reports is governed primarily by Chilean law disclosure requirements and may differ from Form8-K’s current reporting requirements imposed on a U.S. issuer.
We are not subject to the proxy requirements of Section 14 of the Exchange Act and our officers, directors and principal shareholders are not subject to the short swing insider trading reporting and recovery requirements under Section 16 of the Exchange Act.
Our status as a controlled company and a foreign private issuer exempts us from certain of the corporate governance standards of the New York Stock Exchange.
We are a “controlled company” and a “foreign private issuer” within the meaning of the New York Stock Exchange (NYSE) corporate governance standards, which exempts us from certain NYSE corporate governance requirements. In addition, a foreign private issuer may elect to comply with the practice of its home country and not to comply with certain NYSE corporate governance requirements, including the requirements that (i) a majority of our board of directors (directorio), consist of independent directors, (ii) a nominating and corporate governance committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, (iii) a compensation committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, (iv) an annual performance evaluation of the nominating and corporate governance and compensation committees be undertaken, and (v) the members of the audit committee meet the Exchange Act Rule10A-3(b)(1) independence requirements. We currently use these exemptions and intend to continue using these exemptions. Accordingly, you will not have the same protections afforded to investors in companies that are subject to all NYSE corporate governance requirements. See “Item 16G. Corporate Governance” for a comparison of the corporate governance standards of the New York Stock Exchange and Chilean practice.
Investors may find it difficult to enforce civil liabilities against us or our directors, officers and controlling persons.
We are organized under the laws of Chile and our principal place of business (domicilio social) is in Santiago, Chile. Most of our directors, officers and controlling persons reside outside of the United States. In addition, all or a substantial portion of our assets are located outside of the United States. As a result, it may be difficult for investors to effect service of process within the United States on such persons or to enforce judgments against them, including in any action based on civil liabilities under the United States federal securities laws.
RISKS RELATING TO OUR
Risks Relating to Our ADSs AND COMMON SHARESand Common Shares
There may be a lack of liquidity and market for our ADSs and common shares.
A lack of liquidity in the markets may develop for our ADSs, which would negatively affect the ability of the holders to sell our ADSs or the price at which holders of our ADSs desire to sell them. Future trading prices of our ADSs will depend on many factors including, among other things, prevailing interest rates, our operating results and the market for similar securities.
Our common shares underlying the ADSs are listed and traded on the Santiago Stock Exchange and the Chilean Electronic Exchange, although the trading market for the common shares is small by international standards.
In addition, according to article 14 of theLey No. 18,045 de Mercado de Valores, Law No. 18,045, or the Chilean (the “Chilean Securities Market Act,Act”), theSuperintendencia de Valores y Seguros (the Chilean Superintendency of Securities and Insurance, or SVS,SVS) may suspend the offer, quotation or trading of shares of any company listed on the Chilean stock exchanges for up to 30 days if, in its opinion, such suspension is necessary to protect investors or is justified for reasons of public interest. Such suspension may be extended for up to 120 days. If, at the expiration of the extension, the circumstances giving rise to the original suspension have not changed, the SVS will then cancel the relevant listing in the registry of securities. These and other factors may substantially limit your ability to sell the common shares underlying your ADSs at a price and time at which you wish to do so.
You may be unable to exercise preemptive rights.
TheLey Sobre18,046 sobre Sociedades Anónimas, Law No. 18,046 and theReglamento de Sociedades Anónimas, which we refer to collectively as the Chilean Corporations Act, and applicable regulations establish that whenever we issue new common shares for cash, we are obligated by law to grant preemptive rights to all of our shareholders (including the depositary on behalf of the holders of ADSs), giving them the right to purchase a sufficient number of shares to maintain their existing ownership percentage. However, we may not be able to offer shares to United States holders of ADSs pursuant to preemptive rights granted to our shareholders in connection with any future issuance of common shares unless a registration statement under the U.S. Securities Act of 1933, as amended, or the Act, is effective with respect to such rights and common shares, or an exemption from the registration requirements of the Act is available.
Our existing shareholders who do not participate in any future preemptive rights offering will suffer an immediate dilution of their percentage equity participation in us. In addition, investors who purchase ADSs or common shares may be subject to dilution of their equity participation in us upon the completion of any future preemptive rights offering. Investors will not know the extent to which they will be diluted until the expiration of any future preemptive rights offering in Chile.
You may have fewer and less well defined shareholders’ rights than with shares of a company in the United States.
Our corporate affairs are governed by ourEstatutos Sociales, orBy-laws, and the laws of Chile. Under such laws, our shareholders may have fewer or less well-defined rights than they might have as shareholders of a corporation incorporated in a U.S. jurisdiction. For example, under legislation applicable to Chilean banks, our shareholders would not be entitled to appraisal rights in the event of a merger or other business combination undertaken by us.
Holders of ADSs are not entitled to attend shareholders’ meetings, and they may only vote through the depositary.
Under Chilean law, a shareholder is required to be registered in our shareholders’ registry at least five business days before a shareholders’ meeting in order to vote at such meeting. A holder of ADSs will not be able to meet this requirement, and accordingly is not entitled to vote at shareholders’ meetings, because the shares underlying the ADSs will be registered in the name of the depositary. While a holder of ADSs is entitled to instruct the depositary as to how to vote the shares represented by ADSs in accordance with the procedures provided for in the deposit agreement, a holder of ADSs will not be able to vote its shares directly at a shareholders’ meeting or to appoint a proxy to do so. In certain instances, a discretionary proxy may vote our shares underlying the ADSs if a holder of ADSs does not instruct the depositary with respect to voting. In addition, the vote of a holder of ADSs may not be necessary to approve certain matters since under Chilean law, substantially all of the forms of corporate action can be approved with the votes of our controlling shareholder, Itaú Unibanco, in a duly summoned shareholders’ meeting, Corp Group Banking and other investment companies such as Compañía Inmobiliaria y de Inversiones Saga SpA (or Saga), which are owned by Mr. Saieh Bendeck and his family, except for certain matters requiring supermajority approval according to Chilean law.
U.S. holders of our ADSs or common shares could suffer adverse tax consequences if the Company iswe are characterized as a passive foreign investment company.
If you are a U.S. holder (as defined in “Item 10. Additional Information—E. Taxation—U.S. federal income tax considerations”) and we are a passive foreign investment company, or PFIC, for any taxable year during which you own our ADSs or common shares, you could be subject to adverse U.S. tax consequences. As of the date of this Annual Report, we do not expect to be classified as a PFIC for U.S. federal income tax purposes for our current taxable year or for any taxable year in the foreseeable future. However, the determination of whether we are a PFIC is made on an annual basis and will depend on the composition and nature of our income and the composition, nature and value of our assets from time to time, and therefore no assurance can be provided regarding our PFIC status. You should consult your tax advisor regarding the U.S. federal, state and local and other tax consequences of owning and disposing of the ADSs or common shares in your particular circumstances. See Item“Item 10. Additional Information—E. Taxation—U.S. federal income tax considerations” for additional information related to the PFIC rules and their application to the bank.
Holders of the ADSs or our common shares could be subject to a 30% U.S. withholding tax.
Pursuant to Sections 1471 through 1474 of the the Internal Revenue Code of 1986, as amended, or the Code, and U.S. Treasury Regulations promulgated thereunder, a 30% withholding tax may be imposed on all or some of the payments on the ADSs or our common stockshares after December 31, 2018 to holders andnon-U.S. financial institutions receiving payments on behalf of holders that, in each case, fail to comply with information reporting, certification and related requirements. This withholding tax, if it applies, could apply to any payment made with respect to the ADSs or our common stock,shares, and ADSs or shares of our common stockshares held through anon-compliant institution may be subject to withholding even if the holder otherwise would not be subject to withholding. U.S. holders are urged to consult their tax advisers regarding the application of these rules to their ownership of the ADSs or our common stock.shares. See Item“Item 10. Additional Information—E. Taxation—U.S. federal income tax considerations” for additional information related to these rules and their application to holders of ADSs or our common shares.
Exchange controls and withholding taxes in Chile may limit repatriation of your investment.
Equity investments in Chile by persons who are not Chilean residents are generallymay be subject to various exchange control regulations that govern the repatriation of investments and earnings.
Dividends received by holders of ADSs are paid net of foreign currency exchange fees and fees and expenses of the depositary and are subject to Chilean withholding tax, currently imposed at a rate of 35%, subject to credits in certain cases as described under “Item 10. Additional Information—E. Taxation—Chilean Tax Considerations”.Considerations.” In order to facilitate capital movements from and into Chile and to encourage foreign investment, the Central Bank of Chile eliminated many foreign exchange restrictions and adopted the Compendium of Foreign Exchange Regulations (Compendio de Normas de Cambios Internacionales) effective April 19, 2001.
We cannot assure you that additional Chilean restrictions applicable to the holders of ADRs, the disposition of the shares underlying the ADRs or the repatriation of the proceeds from such disposition or the payment of dividends will not be imposed in the future, nor can we advise as to the duration or impact of such restrictions, if imposed. If for any reason, including changes in the Foreign Investment Agreement or Chilean law, the depositary wasis not able to convert Chilean pesos to U.S. dollars, investors would receive dividends or other distributions, if any, in Chilean pesos.
ITEM 4. INFORMATION4.INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
We are a publicly traded company (sociedad anónima) organized under the laws of Chile and licensed by the SBIF to operate as a commercial bank. Our legal name is Itaú Corpbanca, and our commercial name is CorpBanca.Banco Itaú and/or Itaú. Our principal executive offices are located at Rosario Norte 660, Las Condes, Santiago, Chile. Our telephone number is 56-22-660-800056-2-2660-8000 and our website is www.CorpBanca.cl.www.itau.cl. Our agent in the United States is CorpBancaItaú Corpbanca New York Branch, Attention: Fernando Burgos Concha, located at 885 Third Avenue, 33rd Floor, New York, NY 10022. Information set forth on our website does not constitute a part of this Annual Report. CorpBancaItaú Corpbanca is organized under the laws of Chile and its subsidiaries are organized under the laws of Chile and Colombia. The terms “CorpBanca,“Itaú Corpbanca,” “Itaú,” “the bank,” “we,” “us” and “our” in this Annual Report refer to CorpBancaItaú Corpbanca together with its subsidiaries unless otherwise specified.
HISTORYHistory
We are Chile’sThe bank’s history has been extensive and with a challenging road that has led us to become the oldest private operating bank in Chile, incorporated as Banco de Concepción by Decree No. 180 of the Chilean Ministry of Finance on October 3, 1871, and legally began operations as a bank on October 16 of the same year. We were founded by a group of residents of the city of Concepción, Chile, led by Aníbal Pinto, who would later become President of Chile.
In 1971, Banco de Concepción was transferred to a government agency,Corporación de Fomento de la Producción(the Chilean Corporation for the Development of Production, or CORFO). Also in 1971, Banco de Concepción acquired Banco Francés e Italiano in Chile, which provided for the expansion of Banco de Concepción into Santiago. In 1972 and 1975, the bank acquired Banco de Chillán and Banco de Valdivia, respectively. In November 1975, CORFO sold its shares of the bank to private business persons, who took control of the bank in 1976. In 1980, the name of the bank was changed to Banco Concepción. In 1983, control of Banco Concepción was assumed by the SBIF. The bank remained under the control of the SBIF through 1986, when it was acquired bySociedad Nacional de Minería (the Chilean National Mining Society, or SONAMI). Under SONAMI’s control, Banco Concepción focused on providing financing to small- andmedium-sized mining interests, increased its capital and sold a portion of its high-risk portfolio to the Central Bank of Chile.
Investors led by Mr. Alvaro Saieh Bendeck purchased a majority interest of Banco Concepción from SONAMI in 1996. For over twenty years, Mr. Saieh Bendeck has directedFollowing the acquisition, creation and operation of a number of commercial banks, mutual fund companies, insurance companies and other financial entities in Chile and other parts of Latin America.
Following our acquisition by Mr. Alvaro Saieh Bendeck in 1996, wethe brand name changed our name to CorpBanca,Corpbanca, hired a management team with substantial experience in the Chilean financial services industry and commenced a period of significant growth fueled by organic expansion and acquisitions. In ourOur first significant transactions we acquiredwere the acquisition of the assets of the consumer loan division of Corfinsa and the finance company Financiera Condell S.A. in 1998. InBoth combined created the bank’s Consumer Division, Banco Condell, focused on themiddle-low income segment of the population in Chile.
With a view to its internationalization in November 2004, the bank completed the listing process that year we also consolidated our information technology systems intoenabled it to trade its ADRs on the New York Stock Exchange. Five years later, the New York Branch was opened as a single, integrated platform, Integrated Banking System, or IBS,support for clients who can see their possibilities of financing in the United States expanded. Two years later, Corpbanca opened its representative office in Spain, whose role is to inform and promote the bank with foreign companies and serve as a central information system that replaced a number of systems, providing usliaison with a single, central electronic database that gives us up-to-date customer informationbank clients in each of our business linesChile and calculates net earnings and profitability of each product and client segment.Colombia.
In June 2012, CorpBancaformer Corpbanca finalized the acquisition of a 91.9% interest in Banco Santander Colombia S.AS.A. (now CorpBancaCorpbanca Colombia), which gave CorpBanca control over CorpBanca Colombia’s 94.9% ownership stake in CorpBanca Investment Valores Colombia S.A., or CIVAL and CorpBanca Colombia’s 94.5% ownership stake in CorpBanca Investment Trust Colombia S.A., or CIT Colombia.. With this acquisition, we became the first Chilean bank to have a banking subsidiary outside the country. In addition, in June 2012, CorpBanca acquired an additional 5.06% interest in CIVAL.
The participation of CorpBanca in CorpBanca Colombia was 66.39% as of December 31, 2013 as compared to 91.93% as of December 31, 2012 following a capital increase by CorpBanca Colombia in 2013 in which CorpBanca participated in a smaller proportion than the remaining shareholders. Finally, CorpBanca’s ownership stake in CorpBanca Colombia decreased to 66.28% in June, 2014 after the merger of this subsidiary with Helm Bank.
On August 6, 2013, we acquired approximately 99.75% of the ordinary shares of Helm Bank (reflecting approximately 87.42% of the ordinary and preferred shares then issued by Helm Bank), a commercial and retail bank in Colombia, including its subsidiaries in Colombia, PanamáS.A., and the Cayman Islands. In the fourth quarter of 2013, we initiated a tender offer to acquire the remaining equity interest in Helm Bank from the remaining minority shareholders. We completed this tender offer in January 2014, resulting in the acquisition by us of an aggregate amount of 99.78% of Helm Bank. On June 1, 2014, we completed the acquisition process of Helm Bank by merging Helm Bankfollowing year, merged it with and into CorpBancaCorpbanca Colombia, maintaining the networks of branches separately: Corpbanca Colombia and Helm.
Becoming a large bank with CorpBanca Colombia beinga regional presence prompted our former controlling shareholder to enter, in early 2014, into a merger agreement with Itaú Unibanco and Banco Itaú Chile.
Itaú financial group expanded into Chile in September 2006 after the surviving entity.acquisition of BankBoston (Chile). On February 28, 2007, BankBoston (Chile) was named Banco Itaú Chile, after the Superintendency of Banks and Financial Institutions approved the acquisition.
OnIn June 2015, the Extraordinary Shareholders Meetings of Corpbanca and Banco Itaú Chile agreed to the merger, which was approved by the Superintendency of Banks and Financial Institutions in September 1, 2014, Helm Comisionista de Bolsa S.A. merged with and into CorpBanca Investment Valores Colombia S.A., with CorpBanca Investment Valores Colombia S.A. being the surviving company. Immediately upon consummation of the same year. The Merger was consummated on April 1, 2016, the date on which the bank was renamed “Itaú Corpbanca.”
With this merger, CorpBanca Investment Valores Colombia S.A. assumed the Helm Comisionista de Bolsa S.A. name. The customers and product portfolio of both entities were maintained in the new merged entity.
Our loan portfolio (excluding loans to banks) has grown at a compounded annual growth rate in nominal terms of 13.4% between December 31, 2012 and December 31, 2015. As of December 31, 2015, according to the SBIF, we werebank became the fourth largest private bank in Chile in terms of the overall size of our loan portfolio (10.4% market share on a consolidated basis and 7.2% market share on an unconsolidated basis only taking into account our operations in Chile, each as reported to the SBIF calculated under local regulatory and accounting principles). As of December 31, 2015, we had total assets of Ch$20,805,351 million, including total loans of Ch$14,628,296 million, total deposits of Ch$8,495,603, shareholders’ equity (excluding net income for the trailing twelve months and provision for mandatory dividend) of Ch$1,105,117 and our return on average shareholders’ equity was 16.2% for the trailing twelve months. For the year ended December 31, 2015, we had net interest income of Ch$620,579 and net income of Ch$238,665.
Our risk management strategy has enabled us to maintain what we believe are solid solvency ratios and risk indicators, notwithstanding high levels of volatilitywith approximately 11% participation in the financial markets overlocal credit market.
In this way, the past years. Despitestories of the above, our capital ratios levels decreased from 12.4% to 9.5% between 2014 and 2015, following the approval of the merger with Banco Itaú Chile considering that our shareholders, togetherand Corpbanca were merged into a single one, with approving the merger, approvedCorpbanca contributing a special dividend distributionlong and successful business trajectory which, since its beginning in 1871 in the amountcity of Ch$239.86 billion that was paid on July 1, 2015. In that specific context, our capital ratios reported on December 2015 are temporary impactedConcepción, has had a clear goal: offering clients a service of excellence being faithful to what inspired its founders. On the other hand, Itaú Unibanco, with more than 90 years of history in Brazil, contributed all its experience as the largest private bank in Latin America and limitedone of the largest banks in the world measured in market capitalization with a leading presence in the Brazilian market.
Our business model is the result of the combination of the local banks’ strengths and local knowledge, which will allow us to reach more clients, with an extended range of products and financial solutions.
A summary of the period ending withmain milestones in the merger that will occur no later than May 2, 2016. Ashistory of December 31, 2015, we had an allowance for loan losses to total loans ratio of 1.2%. We have achieved an average annual return on equity of 14.8% between 2012 and 2015. As of December 31, 2015, we had 127 branches and 417 ATMsthe bank is set forth in Chile and 177 branches and 180 ATMs in Colombia.the following chart:
The Pending Itaú-CorpBanca Merger1
As a result of the steps we have taken since the 1996 acquisition, we have developed a number of significant competitive strengths that we believe will continue to contribute to our growth potential. These include operating efficiencies, improved asset quality, an experienced management team, and a strong technological infrastructure. We believe that these strengths position us well for continued growth in the Chilean and Colombian financial services industries.
In this context and pursuant to CorpBanca’sCorpbanca’s regionalization strategy, during 2013, CorpBancaCorpbanca conducted a process involving some Latin American and global banks as potential partners in order to explore a strategic alliance to further expand CorpBanca’sthe bank’s reach and capabilities. Consequently, after conducting a comprehensive and competitive process for identifying a merger partner, on January 29, 2014, we and our controlling shareholders entered into a Transaction Agreement with Itaú Chile and its parent entity, Itaú Unibanco, or the Transaction Agreement, whereby we agreed to merge with Itaú Chile. As part of that process, we retained two investment banks (Bank of America Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman, Sachs & Co.) as financial advisors in connection with the merger transaction and with the purpose of conducting the process. We and our financial advisors contacted multiple well-known international and Chilean banks who were believed to potentially be interested in a merger. The goal of the process was to obtain the best transaction (in terms of value and certainty of closing) for us and all of our shareholders. After a thorough analysis by us and our financial advisors and Chilean and U.S. legal advisors of the indications of interest received from the different parties and discussions with certain of the parties, we concluded that Itaú Chile offered the best available transaction for us and all our shareholders.
Our
The shareholders of former Corpbanca approved the Itaú-CorpBanca Merger in an extraordinary shareholders’ meeting held on June 26, 2015, and the shareholders of former Banco Itaú Chile gave their consent to the merger in an extraordinary shareholders’ meeting held on June 30, 2015. Additionally, as of
On April 1, 2016 the date hereof, we have received all required regulatory approvals in connectionMerger was consummated and Banco Itaú Chile was merged with the Itaú-CorpBanca Merger. Following the Itaú-CorpBanca Merger, the name of the merged bank will be Itaú-CorpBanca and it will operate under the Itaú brand. We expect the Itaú-CorpBanca Merger to close no later than May 2, 2016.
into Corpbanca. After the closing of the Itaú-CorpBanca Merger, Itaú Unibanco and our current controlling shareholders willCorpGroup beneficially ownowned 33.58% and 33.13% of our outstanding common shares, respectively. Pursuant to the Transaction Agreement, Itaú Unibanco committed to inject US$652 million prior to the closing of the Itaú-CorpBanca Merger, obligation that has been fulfilled. In connection with the Transaction Agreement, our controlling shareholders have agreed that at the closing of the Itaú-CorpBanca Merger, they will enterand CorpGroup also entered into the Itaú-CorpBanca Shareholders Agreement, whereby Itaú Unibanco will control the merged bank, or Itaú-CorpBanca, after CorpGroup Shareholders’ Agreement. Upon the consummation of the Merger, Itaú-CorpBanca Merger. Unibanco became the controlling shareholder of the merged bank. For a description of the Itaú-CorpBanca Shareholders CorpGroup Shareholders’ Agreement and the Transaction Agreement, see Item“Item 10. Additional Information—C. Material Contracts.”
The “Itaú” and “Corpbanca” brands continued and will continue to coexist until the end of the branch migration phase. Accordingly, in terms of customer attention, products and services, we will continue to operate through separate networks for each brand. The migration of clients from the Corpbanca IT platform to Banco Itaú Chile’s IT platform and the subsequent change of image in the Corpbanca branches has been implemented gradually since the second half of 2016. During this period, clients of both banks have kept their product and service accounts, including their bank account numbers, fees, benefits and products.
After the Merger, the corresponding subsidiaries of Banco Itaú Chile and Corpbanca continued to operate independently and their respective clients were served by their current executives. On March 21, 2017, our general funds’ manager (administradoras generales de fondos) subsidiaries, on the one hand, and insurance broker subsidiaries, on the other hand, filed an authorization request with the SBIF needed to merge the respective companies. Our securities broker subsidiaries merged on January 1, 2017.
By consolidating operations in Chile and Colombia, the new bank became one of Chile’s largest private financial institutions, ranking fourth in the industry with a market share in Chile of 11.4% at the end of 2016. The Merger and combination of the strengths of both banks translated into an expansion in the offer of products and services for our clients, with a large branch platform in Chile (224) and Colombia (174).
Client Migration
In order to migrate our clients from Corpbanca’s platform systems to Banco Itaú Chile’s, we set forth a gradual process defined as “migration waves”, which started after we consummated the Merger. For this purpose, we scheduled several waves to migrate Corpbanca’s customers. The migration waves also included the change of image of certain Corpbanca branches.
In parallel to the migration waves, we integrated the processes and systems of the merged banks, which contemplated the following three stages in order to achieve the Target Operational Model, or TOM:
TOM LD1: This stage included integrating all the financial statements, balance sheets and |
• | TOM Migration: This stage included migrating customers, developing functional gaps for customers of both banks to enjoy the functionalities offered by each bank separately, and building the necessary drivers of coexistence of both bank’s systems. This stage is still in progress, and we expect to complete it by the end of 2017. |
• | TOM Technology and Operations: This stage refers to the technological integration and implementation of improvements of both banks supported in a single core banking. This stage is in progress, and we expect to complete it by 2018. |
On October 11, 2016, the first wave of mass migration of customers took place, with which our bank began its journey to operate under a single brand. As part of this process, 32 “Corpbanca” branches changed their image to “Itaú.”
The first months of work set forth the foundations for a successful customer migration process. The following waves are scheduled to be completed during 2017, replicating aspects of operational efficiency and processes that ultimately benefit our customers.
PursuantPending Acquisitions in Colombia
The obligation of the parties to the Transaction Agreement after the closingto cause Itaú Corpbanca to acquire all of the Itaú-CorpBanca Merger, Itaú-CorpBanca will acquire the operations of Itaú Unibanco in Colombia by acquiring theoutstanding shares of Itaú Colombia or to carry out a merger of Banco Corpbanca Colombia with Itaú Colombia was amended on January 20, 2017 and replaced with the obligation of the parties to cause Banco Corpbanca Colombia to acquire the assets and liabilities of Itaú Colombia in accordance with the terms and conditions agreed by Banco Corpbanca Colombia and Itaú Colombia on November 1, 2016 (the
“Colombian Acquisition”). Assets and liabilities will be purchased at an aggregate price equivalent to their book value, which is COP$263 billion (approximately US$89.5 million) for the assets and COP$92.8 billion (approximately US$31.6 million) for the liabilities. This agreement also contemplates the rendering of approximately US$100 million. Furthermore,certain services by Banco Corpbanca Colombia in favor of Itaú-CorpBanca will offer Colombia and the hiring of the senior management of Itaú Colombia by Banco Corpbanca Colombia. The Colombian Acquisition has been approved by the shareholders of Corpbanca Colombia and is expected to acquirebe carried out as soon as practicable once approved by the CorpBancaColombian Financial Superintendency.
Additionally, the amendment to the Transaction Agreement also included the postponement of the date for Itaú Corpbanca to purchase the shares that CorpGroup holds in Corpbanca Colombia. The purchase of those shares of Banco Corpbanca Colombia shares held by Inversiones Corp Group Interhold Limitada, or Interhold and Inversiones Gasa Limitada, or Gasa and together with Interhold, CorpGroup Parent,(currently representing 12.36 %12.36% of CorpBanca Colombia’s outstanding capital stock and that CorpGroup Parent hasshares outstanding), which was previously agreed to sellbe carried out no later than January 29, 2017, was postponed until January 28, 2022, subject to Itaú-CorpBanca), through a cash offer inreceipt of the applicable regulatory approvals. The purchase price for the shares has not changed and will be US$3.5367 per share plus (i) interest from (and including) August 4, 2015 until (but excluding) the payment date at an annual interest rate equal to Libor plus 2.7% minus (ii) the sum of (x) the aggregate amount of US$330 million. This offerdividends paid by Banco Corpbanca Colombia to purchase for cash implies a valuationCorpGroup since the date of CorpBanca Colombia of approximately US$2.66 billion (which is the same valuation assigned to CorpBanca Colombia forTransaction Agreement, plus (y) the purpose of determining the valuation of CorpBanca for the Itaú-CorpBanca Merger).
The Itaú-CorpBanca Merger is expected to be beneficial to us and all of our shareholders for the following principal strategic reasons:
We believe that the Itaú-CorpBanca Merger represents a significant opportunity to generate synergies that translate into financial savings and cost reductions in various aspects of our business starting on the third anniversarypayment date of the closing of the merger. From a human resources perspective, we expectpurchase price, at an annual interest rate equal to capitalize on relevant synergies relating to the optimization of the merged bank’s organizational structures, which we estimate will result in pre-tax savings of approximately US$55 million to US$67 million annually. Furthermore, we estimate that pre-tax savings associated with scalable IT systems will amount to approximately US$16 million to US$19 million annually and other savings derived from an enhanced branch network will be in the range of approximately US$8 million to US$10 million annually. Moreover, we expect reductions in administrative expenses and costs of services by service providers of both Itaú Chile and us in the range of US$15 million to US$18 million pre-tax annually.Libor plus 2.7%.
In addition, we also expect improvements in part of our funding costs compared to the costs of funding we have today, as well as revenue synergies (which were not considered in the cost synergies described above). Assuming fully phased-in pre-tax synergies of approximately US$100 million per year during the first three years after the consummation of the Itaú-CorpBanca Merger, and excluding one-time integration costs of approximately US$85 million pre tax to be incurred during those first three years, the transaction will be accretive from an earnings per share perspective for all our shareholders from the first year after the closing.
We also expect a significant improvement in the capital position of the merged bank. We will combine our current Tier I Capital of approximately US$2.1 billion with Itaú Chile’s US$1.7 billion (including US$652 million capital injection to be completed prior to Closing), providing the merged bank with a considerably larger capital base to support further growth.
From a commercial and strategic perspective, the Itaú-CorpBanca Merger is expected to create a regional player and constitute a unique opportunity for us to partner with a leading financial institution in the region. Itaú Unibanco is the largest private financial institution in Brazil and a premier franchise in Latin America, which will allow us to benefit from a strong market capitalization in our existing markets while enhancing opportunities for growth in other markets, by leveraging Itaú Unibanco’s global client relationships and enabling the merged bank to expand its banking products’ offering. The enhanced footprint that Itaú-CorpBanca will have in Chile and Colombia is also expected to provide greater scale and resources to grow and compete more effectively in those countries, consolidating our position as the fourth largest private bank in Chile measured by total loans with a combined market share of 12.3% as of December 31, 2015 (compared to the 7.2% market share that we had as of December 31, 2015, on an unconsolidated basis in Chile). In addition, this enhanced footprint will function as a platform to expand in the region, in particular into Peru and Central America.
CAPITAL EXPENDITURESExpenditures
The following table reflects our capital expenditures in the years ended December 31, 2013, 20142015 and 2015:2016:
For the Year Ended December 31, | For the Year Ended December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||
Land and buildings | 3,874 | 1,291 | 4,873 | — | 11,002 | |||||||||||||||
Machinery and equipment | 2,908 | 7,729 | 9,601 | 15,766 | 87,600 | |||||||||||||||
Furniture and fixtures | 2,894 | 5,135 | 5,399 | — | — | |||||||||||||||
Vehicle | 3 | — | — | — | — | |||||||||||||||
Other | 24,686 | 13,038 | 17,389 | 715 | 6,555 | |||||||||||||||
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Total | 34,366 | 27,193 | 37,262 | 16,481 | 105,157 | |||||||||||||||
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TheTotal capital expenditures in 2016 of Ch$10,069105,157 million increaseconsisted mainly of Ch$80,509 million in capital expenditure was mainly dueexpenses relating to the increase (i) in intangibles (softwarepurchase of software and computer equipment acquisitions and investments inotherIT-related expenses, including the post-Merger integration of IT projects, included under Other) in 2015, and (ii) in land and buildings in Colombia.
Additionally, capital divestitures resulted in a gain of Ch$461 million in 2015 as compared to Ch$415 million in 2014 and Ch$25,164 million in 2013.systems. For further details relating to these results and related divestitures, see Notes 1412 and 3213 of our audited consolidated financial statements included herein.
B. BUSINESS OVERVIEW
COMPETITIVE STRENGTHS
We believe that our current profitabilitythe Merger will enable us to emerge as a leading banking platform in Chile and competitive advantages are theColombia as a result of the following strengths:
Strong Market Position and Financial PerformanceBanking Platform with Larger Scale
We believe that our strong positionas a result of the Merger, we have greater scale and resources to grow and compete more effectively in Chile and Colombia. The merged bank has become the fourth largest private bank in Chile and will result in a banking platform for future expansion in the Chilean banking market has helped us achieve proportionately higher and more stable profits than our competitors. We are among the market leaders in Chile.Andean Region. According to the SBIF, as of December 31, 2015,2016, we ranked fourth among private banks in total loans with 10.4% market share on a consolidated basis and 7.2%11.4% market share on an unconsolidated basis (taking into account only our operations in Chile). Additionally, as of the same date, the SBIF ranked us fourth in deposits with 10.8% market share on a consolidated basis and fourth on an unconsolidated basis (only taking into account our operations in Chile) with a 7.1%9.8% market share among private banks in the Chilean market. We have decreased our market share in total loans by 120 basis points during the 2012-2015 period on a consolidated basis. For the three years ended December 31, 2013, 2014 and 2015, we had net income of Ch$175,239 million, Ch$273,701 million and Ch$238,665 million, respectively.
In 2015, both2016, our operations in Chile and Colombia allowed us to reach areached an aggregate net income of Ch$238,665 million, a decrease of 12.8% compared to 2014.13,969 million. This decreaseresult was primarily due to higher provisions for loan losses a negative currency translation effect between COP$made in light of downgrades of corporate clients in the energy sector both in Chile and Ch$ relating to our Colombian subsidiary andColombia, the negative impact of lower inflationhigher monetary policy interest rates in Chile during the year on net interest margin and higher tax rates that offset positive commercial customers-driven results inboth Chile and synergies already delivered in Colombia, in each case,and slower economic activity as further discussed below in “Item 5—Operating and Financial Review and Prospects—A. Operating Results—The Economy—Results of Operations for the Years Ended December 31, 2013, 20142015 and 2015— 2016—Net Income”. While 2014 showed stronger resultsIncome.”
Unique Control and Support from Colombia, during 2015 our Chilean results exceeded our expectations while Colombia results were below our expectations. Therefore, we achieved sustained growth in Chile over this period, despite facing increasingly complex domestic and international economic environments characterized by lower expectations regarding economic prospects and increasing uncertainty regarding significant expected legal reforms in Chile. The consolidation of our business in the segments of Commercial Banking, Traditional and Private Banking and Lower Income Retail Banking was important achieving these results by allowing us to be represented in all segments of the Chilean economy. Despite lower than expected, our results were helped by the positive results that our subsidiary, CorpBanca Colombia, experienced in 2015. CorpBanca Colombia was the sixth largest bank in Colombia as of December 31, 2015, in terms of total loans, with a significant presence in the segments of companies and high and middle-income individuals.
Pending Itaú-CorpBanca MergerLeading Institution
We believe that the pending Itaú-CorpBanca Merger will providehas provided us with a competitive advantage over our competitors. In particular,Since Itaú Unibanco is the merger is expected to provide us with the opportunity to partner withlargest private financial institution in Brazil and a premier Latin American franchise, and givethe Merger provides us the abilitywith an opportunity to leverage Itaú Unibanco’s strong global client relationships. On an estimated basis,relationships in the markets the bank operates while enhancing opportunities for growth abroad.
We expect that Itaú-CorpBanca is expected to be the fourth largest private bank in Chile with US$41.4 billion in assets, US$30.5 billion in loans and US$25.1 billion in total deposits. With this increased size, the institution is expected to Corpbanca will be able to exploit variousexpand its offering of banking products through a successful managing model, segmentation and digitalization, all based on Itaú Unibanco’s strategy. Our balance sheet provides us with cross-selling opportunities and allows us to benefit from additional synergies through: (i) the optimization of cost structures,structures; (ii) savings derived from an enhanced branch network,network; (iii) savings derived from scalable IT systems,systems; and (iv) improvements in the cost of fundingfunding.
Diversified Footprint in Chile and (v) the ability to further leverage Tier I Capital. In addition, we and Itaú Chile have complementary segments, products and lines of business, and the combination of the entities is expected to result in a merged bank with a solid capital base and a strong framework to reach a stronger position in the Colombian market.Colombia
We also expect a significant improvement inbelieve that the capital position of the merged bank. Our current Tier I Capital of approximately US$2.1 billion, combined with Itaú Chile’s Tier I Capital of approximately US$1.7 billion (including US$652 million capital injection into CorpBanca to be made prior to closing), will provide the merged bank with a considerably larger capital base to support further growth.
The enhanced footprint that Itaú CorpBanca will haveCorpbanca has in Chile and Colombia is also expected to provide greater scale and resourcesgives us an increased ability to grow and compete more effectively within those countries, further consolidating our position as the fourth and sixth largest private bank in Chile measured by total loans with a combined market share of 12.3% as of December 31, 2015 compared to the 7.2% market share that we had as of December 31, 2015 on an unconsolidated basis.
Diversified Footprint in Chile and Colombia, respectively.
We believe that our successful acquisition and integration of Banco Santanderacquisitions in Colombia and Helm Bank givesgive us a distinct advantage over our competitors in Chile and Colombia. We are the first, and until September 30, 2015 we were the only, Chilean-based bank to acquire a universal bank outside Chile. As of today, we remain the only Chilean-based bank to have a footprint in Colombia through a universal bank. As of December 31, 2015,2016, according to the Colombian Superintendency of Finance, CorpBancaCorpbanca Colombia was the sixth largest bank in Colombia in terms of total assets and the sixth largest bank in Colombia in terms of total loans.
Experienced Management Team
Our largest shareholder, Mr. Alvaro Saieh Bendeck has over twenty nine years of experience in the Chilean financial industry. Mr. Saieh Bendeck is committed to continuing his relationship with CorpBanca on matters concerning strategic development, control and new business. OurThe chairman of theour board of directors,director, Mr. Jorge Andrés Saieh Guzmán, who became chairman of the board in February 2012,2012. He has over sixteen16 years of experience as a member of theour board of directors and more than four years experience as first vice chairman.directors. Our chief executive officer or CEO until March 28, 2016, Fernando Massú(CEO), Milton Maluhy, assumed office in 2016. He is part of Itaú Unibanco since 2002 and a partner since 2010. Mr. Maluhy was president director of Rede S.A. (former Redecar S.A.) and executive director of Itaú Unibanco, responsible for alliances between Itaú Unibanco and retail chains, as well as head of Itaú Unibanco’s credit card area. Our chief financial officer (CFO), Gabriel Moura, has more than thirty twoover 20 years of experience in the banking and financial services industry. Our chief financial officer, or CFO, Eugenio Gigogne,He is part of Itaú Unibanco since 2000 and a partner since 2010. The CEO of Corpbanca Colombia, Alvaro Pimentel, has over twenty five20 years of experience in Itaú Unibanco. He has a degree in economics from the bankingUniversidade Estadual de Campinas–Unicamp in Brazil and financial services industry. The CEOan Executive MBA in finance from Insper in Brazil. A number of CorpBanca Colombia, Jaime Munita Valdivieso, has over twenty two years of experience in the banking and financial services industry. The members of the board of directors of CorpBancaCorpbanca Colombia also have a wealth of experience in the Colombian market and the banking and financial services industry.
As previously announced by us on November 23, 2015, our management structure is expected to change immediately following the closing of the Itaú-CorpBanca Merger. In particular, Fernando Massú has communicated his resignation as CEO, effective as from March 28, 2016, and is expected to be replaced by Milton Maluhy Filho, as soon as the Itaú-CorpBanca Merger is consumated. Mr. Maluhy Filho joined Itaú Unibanco in 2003 and became a partner in 2011. He is currently the CEO of Banco Itaú Chile. Previously, he was CEO of Rede S.A. (Redecard), a card processing subsidiary, and Executive Director at Itaú Unibanco, responsible for the management of the credit card segment and retail store alliances. Previously, he worked at Itaú BBA, holding leadership positions in areas such as international, products, operations, treasury, and trading desk. Prior to joining the bank, he worked at J.P. Morgan Crédit Commercial de France (CCF Brasil), and Lloyds TSB.
Although, the current composition of the board of directors of CorpBanca is expected to materially change given the change of control in favor of Itaú Unibanco once the Itaú-CorpBanca Merger is consumated, Jorge Andrés Saieh Guzmán is expected to retain his position as chairman of the board of directors.
Sound Risk Management
We believe that we haveour asset quality that is superior to the market average. We have maintainedaverage in terms of credit risk metrics, despite negative credit events during 2016. As of December 2016, our asset quality, as evidenced by our ratio of non-performing loan to total loans of 1.3% as of December 31, 2015, and a ratio of charge-offsour write-offs to average outstanding loans of 0.8% as of December 31, 2015. We believe thatratios were 1.7% and 1.1%, respectively. After the Merger, we have arevised our risk policies to align credit criteria to Itaú’s internal risk policies. This risk management system thatphilosophy enables us to identify risks and resolve potential problems on a timely basis and we have made a series of investments to improve the technology we use to manage risk. We have also employed our risk management system and philosophy to identify potential acquisition targets with high asset quality.basis.
Operating in a Stable Economic Environment withinWithin Latin America
We conduct a majority of our business in Chile and a significant amount in Colombia. The Chilean and Colombian economies have generally demonstrated stronga stable macroeconomic fundamentalsenvironment in terms of Gross Domestic Product, or GDP, per capitagrowth and inflation; nevertheless in the past two years, the macroeconomic environment in both countries has shown mild GDP per capita growth (1.2% and 1.3% during 2015 in Chile and Colombia, respectively) and a shift in the inflation trend (4.4% and 6.8% during 2015 in Chile and Colombia, respectively). Still, theinflation. The Chilean economy is generally recognized as among the most stable in Latin America, as evidenced by its investment grade ratings ofAA- by Standard & Poor’s, A+ by Fitch Ratings and Aa3 by Moody’s, the highest ratings in the region. Chile has consistently received investment-grade credit ratings since Standard & Poor’s and Moody’s started coverage in 1992 and 1994, respectively. Standard & Poor’s and Fitch Ratings have an investment grade rating of Colombia of BBB, with a “stable”“negative” outlook. Moody’s has an investment grade rating of Colombia of Baa2, with a “stable” outlook.
STRATEGY
Our strategy aims at enhancing our market position in the Chilean and Colombian financial services industry in terms of profitability, market share and service coverage. The key elements of our strategy are:
Continue to Grow our Operations Profitably as a Universal Bank
We seek to achieve organic growth by offering competitive products and services to our clients in all of our lines of business in Chile and Colombia.Colombia by offering competitive products and services to our clients. We believe that we have developed a successful wholesale banking business model, which allows us to realize high margins on the cross-selling of our products to our large corporate clients, and we intendclients. Our intention is to continue to expand ourthe wholesale banking business model to our operations in Colombia. We are focusing our marketing and sales efforts on adapting this business model to apply to our SME clients in Chile and Colombia. Additionally, we believe that our strong franchise in the retail banking segmentunit offers us the potential for significant growth in our loan portfolio, in thelow-,mid- and high-income segments. In particular, we believe that there is significant opportunity to expand our wealth management business through the offering of unique investment products and opportunities that we benefit from as a member of CorpGroup.opportunities. We believe Itaú and CorpBanca arethat the Merger has given us a complementary banking operations given theirand an improved market position, which will enhance our competitive positioning and help enrichenhances our client servicing models. In addition, we seek to identify and pursue growth-enhancinggrowth throughout enhancing strategic opportunities. We will continue to evaluate additional strategic acquisitions and alliances from time to time, inside and outside of Chile and Colombia.
Further Penetrate the Colombian Financial Services Market
We intend to capitalize on the growth of the Colombian market given that we believe that our Colombian operation will offer us significant opportunities for growth in the financial services industry.growth. Specifically, we expect to benefit from comparable lower banking penetration rates and higher in terms of GDP per capita in Colombia. The CorpBancastrategic acquisitions in Colombia Acquisition,and Itaú Corpbanca’s mandate to expand businesses in the Helm Bank Acquisition and the pending Itaú-CorpBanca MergerAndean Region demonstrate our commitment to the Colombian financial services market. With respect to our current operations in Colombia, in order to improve our operational efficiency and increase our market share in key sectors, we intend to implementare putting in place our commercial and operational standards and best practices, of CorpBanca Colombia, while capitalizing on the local management expertise, customer base, services and products. WithAs a result of the acquisition of the assets and liabilities of Itaú-Corpbanca merger, BBA Colombia Corporación Financiera by Corpbanca Colombia to be performed in accordance with the Transaction Agreement, we expect to achieve a stronger penetration of the wholesale market in Colombia as a result of the consolidation of Corporación Financieramarket. We also expect to leverage on Itaú BBA into our business and also leveragingUnibanco’s retail banking best practices, from Itaú Unibanco’s Brazil operations.our new controlling shareholder.
Actively Pursue Cross-Selling Opportunities
We intend to increase our market share and profitability by continuing to cross-sell services and products to our existing clients. We have instituted processes that facilitate our ability to offer additional financial services to our clients, which we believe will increase our revenuesrevenue from fees for value-addedhigh-value-added services. In addition, we cross-sell loan products to our checking and savings account customers that are tailored to their individual needs and financial situation. The Itaú-CorpBancaWe believe that the Merger Will providehas provided us with further opportunities to offer our clients an improved product menu leveraging the strong internation position of Itaú Unibanco in both wholesale and retail business.
Efficiency
We are committed to continuing to improve our operating efficiency and profitability. We continue to update our branch operations to allow for an increased level of customer “self-help”.“self-help.” We are also working to increase use of internet and mobile banking by our customers, offering better quality. This strategy has allowed us to win in 2015 for the fifth year the Global Finance Award as Best Digital Bank for Companies in Chile, in recognition of an online service excellence. We have implemented a central information system that provides us with a single, central electronic database that gives usup-to-date customer information in each of our business lines and calculates net earnings and profitability of each transaction, product and client segment savings. Our senior management is focused on implementing technological solutions aimed at identifying means of improving our overall profitability and optimizing our cost structure, such as online time deposits which have an innovative product of great success in Chile. CorpBancaCorpbanca Colombia implemented the “AzulNet”, a portal with new features, faster response time and optimized services for business and retail customers. Through these initiatives, we will continue to strive to improve our efficiency ratio. As of December 31, 2015,2016, we had a consolidated efficiency ratio of 47.3%68% (defined as operating expenses as a percentage of operating revenueincome consisting of aggregate of net interest income, fees andnet service fee income, from services (net), net gains frommark-to-market and trading, exchange differences (net) and other operating income (net)). This percentage represented a decrease compared to 50.5% as of December 31, 2014. When we split CorpBanca and CorpBanca Colombia from a management point of view, the recovery trend in both countries is similar: 47.3% vs. 50.5% in Chile in 2015 and 2014, and 47.2% vs. 50.6% in Colombia in 2015 and 2014, respectively.
As a result of our partnership with Itaú Chile, after the consummation of the CorpBanca-Itaú Merger, we believe we will enjoy several benefits, including a greater scale and resources to compete more effectively and more efficiently. The combined entityWe believe the merged bank has the potential to generate significant synergies in Chile which will result in significant efficiency improvements.
Focus on Building Customer Satisfaction
The quality of service that we provide to our customers is key to our growth strategy. We not only focus on gaining new customers, but on strengthening and establishing long-term relationships. We believe this is done through a constant effort to identify and understand theour clients’ needs of our clients and to measure their satisfaction. We also continue to develop new processes and technological solutions to provideimprove our clients with excellent customer service. This is a key component of our strategy in order to retain and continue tocontinuously create value while we finalize the integration of Helm Bank and while we consummate the merger and integration with Itaú Chile’s operations.value.
Increase our Profitability by Allocating our Capital More Effectively
We continue to seek attractive opportunities to improve our profitability. The Helm Bank Acquisition is a good example of our strategic commitment to maximize the use of our capital to increase our profitability. Although we are constantly evaluating investment opportunities, our current focus is on integrating our Colombian operations and consummating the Itaú-CorpBanca Merger.
OWNERSHIP STRUCTURE
The following diagram shows our ownershipItaú Corpbanca capital stock is comprised of 512,406,760,091 common shares traded on the Santiago Stock Exchange and the Electronic Stock Exchange of Chile. Shares are also traded as depositary receipts on the New York Stock Exchange in the form of ADRs.
Since the consummation of the Merger on April 1, 2016, Itaú Corpbanca has been controlled by Itaú Unibanco. On October 26, 2016 Itaú Unibanco indirectly acquired an additional 2.13% share capital of Itaú Corpbanca from the Saieh Family. As a result of this acquisition, the current shareholder structure is as of December 31, 2015:follows:
The following diagram shows our ownership structure as of December 31, 2014:
PRINCIPAL BUSINESS ACTIVITIES
We provide a broad range of commercial and retail banking services to our customers.customers in Chile and Colombia. In addition, we provide financial advisory services, mutual fund management, insurance brokerage and securities brokerage services through our subsidiaries. The following chart sets forthsubsidiaries, and banking services through our principal lines of business on a consolidated basis:New York Branch.
Representative Commercial Structure for CorpBanca and CorpBanca Colombia
The following chart sets forth a breakdown of our revenue by geographic market for the years ended December 31, 2013, 20142015 and 2015:2016:
Net Interest Income by geographic market | ||||||||||||
Year ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
CorpBanca Chile | 253,889 | 331,572 | 325,466 | |||||||||
CorpBanca Colombia(1)(2) | 196,324 | 290,113 | 276,200 | |||||||||
CorpBanca New York | 7,477 | 9,199 | 18,913 | |||||||||
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Total | 457,690 | 630,884 | 620,579 | |||||||||
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Net Interest Income by geographic market | ||||||||||||||||||||||||
Year ended December 31, | ||||||||||||||||||||||||
2015 | 2016 | |||||||||||||||||||||||
Chile | Colombia | Total | Chile | Colombia | Total | |||||||||||||||||||
(in millions of Ch$) | ||||||||||||||||||||||||
Interest income | 501,982 | — | 501,982 | 1,013,951 | 495,252 | 1,509,203 | ||||||||||||||||||
Interest expense | (278,692 | ) | — | (278,692 | ) | (554,246 | ) | (315,782 | ) | (870,028 | ) | |||||||||||||
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Net interest income | 223,290 | — | 223,290 | 459,705 | 179,470 | 639,175 | ||||||||||||||||||
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The following table providessegments presented in this Annual Report correspond to the segments used by the bank after the Merger. Information for 2015, referring to former Banco Itaú Chile’s historical information, onis presented using the composition of our loan portfolio net of allowances as ofsame segmenting criteria. However, the results for the years ended December 31, 20132015 and 2014:2016 are not comparable because of the Merger. See “Item 3. Key Information—Presentation of Financial and Other Information.”
As of December 31, | ||||||||||||||||
2013 | 2014 | Variation | Variation | |||||||||||||
(in million of constant Ch$) | (%) | |||||||||||||||
Commercial loans | ||||||||||||||||
Commercial loans | 7,625,381 | 8,236,385 | 611,004 | 8.0 | % | |||||||||||
Foreign trade loans | 437,102 | 484,576 | 47,474 | 10.9 | % | |||||||||||
Current account debtors | 27,193 | 33,335 | 6,142 | 22.6 | % | |||||||||||
Factoring operations | 73,280 | 68,038 | (5,242 | ) | (7.2 | )% | ||||||||||
Leasing transactions | 811,462 | 866,180 | 54,718 | 6.7 | % | |||||||||||
Other loans and receivables | 219,684 | 305,952 | 86,268 | 39.3 | % | |||||||||||
Subtotals | 9,194,102 | 9,994,466 | 800,364 | 8.7 | % | |||||||||||
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Mortgage loans | ||||||||||||||||
Letters of credit loans | 73,831 | 64,430 | (9,401 | ) | (12.7 | )% | ||||||||||
Endorsable mutual mortgage loans | 194,788 | 181,269 | (13,519 | ) | (6.9 | )% | ||||||||||
Other mutual mortgage loans | 1,415,731 | 1,661,265 | 245,534 | 17.3 | % | |||||||||||
Leasing transactions | 260,145 | 279,326 | 19,181 | 7.4 | % | |||||||||||
Other loans and receivables | 37,513 | 35,506 | (2,007 | ) | (5.4 | )% | ||||||||||
Subtotal | 1,982,008 | 2,221,796 | 239,788 | 12.1 | % | |||||||||||
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Consumer loans | ||||||||||||||||
Consumer loans | 1,046,179 | 1,110,843 | 64,664 | 6.2 | % | |||||||||||
Current account debtors | 38,938 | 45,851 | 6,913 | 17.8 | % | |||||||||||
Credit card debtors | 226,281 | 237,605 | 11,324 | 5.0 | % | |||||||||||
Consumer leasing transactions | 21,437 | 19,702 | (1,735 | ) | (8.1 | )% | ||||||||||
Other loans and receivables | 262,697 | 262,007 | (690 | ) | (0.3 | )% | ||||||||||
Subtotal | 1,595,532 | 1,676,008 | 80,476 | 5.0 | % | |||||||||||
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Total | 12,771,642 | 13,892,270 | 1,120,628 | 8.8 | % | |||||||||||
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The following table provides information on the composition of our loan portfolio net of allowances as of December 31, 20142015 and 2015:2016
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||
2014 | 2015 | Variation | Variation | 2015 | 2016 | Variation | Variation | |||||||||||||||||||||||||
(in million of constant Ch$) | (%) | (in millions of constant Ch$) | (%) | |||||||||||||||||||||||||||||
Commercial loans | Commercial loans |
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Commercial loans | 8,236,385 | 8,726,128 | 489,773 | 5.9 | % | 3,568,144 | 11,625,087 | 8,056,943 | 225.8 | % | ||||||||||||||||||||||
Foreign trade loans | 484,576 | 504,883 | 20,307 | 4.2 | % | 414,953 | 720,792 | 305,839 | 73.7 | % | ||||||||||||||||||||||
Current account debtors | 33,335 | 26,551 | (6,784 | ) | (20.4 | )% | 37,115 | 125,996 | 88,881 | 239.5 | % | |||||||||||||||||||||
Factoring operations | 68,038 | 60,453 | (7,585 | ) | (11.1 | )% | 56,144 | 74,433 | 18,289 | 32.6 | % | |||||||||||||||||||||
Student loans | 173,254 | 597,946 | 424,692 | 245.1 | % | |||||||||||||||||||||||||||
Leasing transactions | 866,180 | 867,861 | 1,681 | 0.2 | % | 244,627 | 1,043,046 | 798,419 | 326.4 | % | ||||||||||||||||||||||
Other loans and receivables | 305,952 | 371,891 | 65,939 | 21.6 | % | 10,234 | 28,243 | 18,009 | 176.0 | % | ||||||||||||||||||||||
Subtotals | 9,994,466 | 10,557,797 | 563,331 | 5.6 | % | 4,504,471 | 14,215,543 | 9,711,072 | 215.6 | % | ||||||||||||||||||||||
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Mortgage loans | ||||||||||||||||||||||||||||||||
Letters of credit loans | 64,430 | 54,249 | (10,181 | ) | (15.8 | )% | 16,482 | 57,589 | 41,107 | 249.4 | % | |||||||||||||||||||||
Endorsable mutual mortgage loans | 181,269 | 160,679 | (20,590 | ) | (11.4 | )% | 8,720 | 151,167 | 142,447 | 1,633.6 | % | |||||||||||||||||||||
Other mutual mortgage loans | 1,661,265 | 1,701,512 | 40,247 | 2.4 | % | 1,502,395 | 3,344,285 | 1,841,890 | 122.6 | % | ||||||||||||||||||||||
Leasing transactions | 279,326 | 271,174 | (8,152 | ) | (2.9 | )% | — | 283,084 | 283,084 | — | ||||||||||||||||||||||
Other loans and receivables | 35,506 | �� | 32,173 | (3,333 | ) | (9.4 | )% | — | 28,920 | 28,920 | — | |||||||||||||||||||||
Subtotal | 2,221,796 | 2,219,787 | (2,009 | ) | (0.1 | )% | 1,527,597 | 3,865,045 | 2,337,448 | 153.0 | % | |||||||||||||||||||||
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Consumer loans | ||||||||||||||||||||||||||||||||
Consumer loans | 1,110,843 | 1,283,457 | 172,614 | 15.5 | % | 370,612 | 1,703,973 | 1,333,361 | 359.8 | % | ||||||||||||||||||||||
Current account debtors | 45,851 | 50,804 | 4,953 | 10.8 | % | 109,913 | 172,938 | 63,025 | 57.3 | % | ||||||||||||||||||||||
Credit card debtors | 237,605 | 241,628 | 4,023 | 1.7 | % | 192,591 | 396,514 | 203,923 | 105.9 | % | ||||||||||||||||||||||
Consumer leasing transactions | 19,702 | 18,253 | (1,449 | ) | (7.4 | )% | 308 | 16,519 | 16,211 | 5,263.3 | % | |||||||||||||||||||||
Other loans and receivables | 262,007 | 82,631 | (179,376 | ) | (68.5 | )% | — | 74,116 | 74,116 | — | ||||||||||||||||||||||
Subtotal | 1,676,008 | 1,676,773 | 765 | 0.0 | % | 673,424 | 2,364,060 | 1,690,636 | 251.1 | % | ||||||||||||||||||||||
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Total | 13,892,270 | 14,454,357 | 562,087 | 4.0 | % | 6,705,492 | 20,444,648 | 13,739,156 | 204.9 | % | ||||||||||||||||||||||
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CommercialWholesale Banking
We offer a range of products and services to our business clients depending on their size, ownership structure and/or investments under management. Our commercial banking segmentscustomers are served by two separate business divisions: our Large, Corporate and Real Estate Companies division and our Companies division. For the years ended December 31, 2013, 2014 and 2015, our combined total average corporate loans outstanding for our Large, Corporate and Real Estate Companies division and our Companies division amounted to Ch$5,631,462 or 48.9% of total average loans, Ch$5,569,994 or 40.1% of total average loans and Ch$6,026,801 or 41.2% of total average loans, respectively.
Large, Corporate and Real Estate Companies. This division serves large economic groups, state-owned and private companies, mining companies, utilities, energy, seaports, airports, public hospitals or any business with annual sales in excess of US$60 million. Our Large, Corporate and Real Estate Companies division focuses on offering clients a broad range of services tailored to fit their specific needs. These services include deposit-taking and lending in both Chilean pesos and foreign currencies, trade financing, general commercial loans, working capital loans, letters of credit, interest rate, foreign exchange derivatives (including foreign exchange options) and cash flow management. This division also serves our real estate and project finance customers. As of December 31, 2015, we had 1,817 Large, Corporate and Real Estate Companies banking customers. We also offer our wholesale banking customers securities brokerage and financial advisory services through our subsidiaries as well as those products and services available through our New York Branch. (For the years ended December 31, 2013, 2014 and 2015, our total average corporate loans outstanding for our Large, Corporate and Real Estate Companies division amounted to Ch$3,843,701 or 33.4% of total average loans, Ch$3,791,937 or 27.3% of total average loans and Ch$3,919,595 or 26.8% of total average loans, respectively).
Companies.Our Companies division provides services to businesses with annual sales of less than US$60 million in Santiago and no set limit throughout the rest of Chile, except for large economic groups and state-owned mining companies, utilities and energy companies, ports, airports and public hospitals, which are serviced by our Large, Corporate and Real Estate Companies division. This division also serves small andmedium-sized businesses and provides support to our factoring and leasing clients. Greater detail of each of these business areas are provided in the paragraphs found below.
This division offers our customers a broad range of financial products, including general commercial loans, working capital loans, trade finance,on-lending of financing originated by CORFO, overdraft credit lines, letters of credit, mortgage loans, term deposits, factoring and leasing. As of December 31, 2015, we had 20,966 customers in our Companies division.
Within our Companies division, we have a special unit focused on small andmedium-size companies, with annual sales between US$200,000 and US$2 million. We are able to offer an array of products through our small andmedium-sized business unit, including products (such as lines of credit) backed by governmental warranties created to develop small andmedium-sized businesses.
Retail Banking
We offer a range of products and services to our individual clients in Chile depending on their monthly income and/or net worth. Our retail banking divisions serve retail customers in Chile across all income levels, fromlow-income to high income individuals organized in two divisions: Traditional and Private Banking and Banco Condell.
Traditional and Private Banking
Traditional Banking
Our Traditional Banking Division is mainly oriented toward individuals in Chile with medium-high income levels (focused on clients with over Ch$1.2 million800,000 monthly income). Our traditional banking services are marketed and operated under the CorpBancaItaú and Corpbanca brand name.names. We offer our traditional and private banking clients products in Chile such as checking and deposit accounts, credit lines, credit and debit cards, personal installment loans, mortgage loans, insurance banking, and time deposits among others. In addition, we provide time deposits, mutual funds and savings accounts in Chilean pesos, Euros, UF and U.S. dollars, with a minimum term of seven daysamong others. In addition, we provide mutual fund and no minimum amount for foreign-currency accounts. As of December 31, 2015, we had 228,674 traditional banking clients, a decrease of 0.9% as compared to December 31, 2014.securities brokerage services.
Private Banking
Within our Private Banking Division, we provide private banking services to our high income and high net worth customers in Chile. We consider high income individuals to be customers with a monthly income in excess of US$10,000 or a net worth in excess of US$600,000. Each client under our private banking or “Private Banking” program is provided with a liaison officer who oversees the client’s entire relationship with us across all product lines. In addition to the products and services we provide to private banking customers, we offer tailored lending products designed to help keep their businesses growing. As of December 31, 2015, we had 10,314 Private Banking clients, an increase of 11.3% as compared to December 31, 2014.
For the year ended December 31, 2015, our Traditional and Private Banking Division had loans with an annual average balance of Ch$2,994,312 or 20.5% of total average loans (a year-on-year increase of 24% on an average balance basis).
We offer the following products and services, among others, to our traditional and private banking customers:
Checking and Deposit Accounts. Our main checking account product is provided to our “Integral” checking account, through which customers are provided with a package of services including a checkbook, an ATM cards,card, a credit line and a MasterCard, Visa and American Express credit cards with credit levels established pursuant to the creditworthiness of the individual, fraud insurance and access to internet and telephone banking. As of December 31, 2015, we had approximately 85,874 retail checking accounts, an increase of 8.3% as compared to December 31, 2014. Additionally, this growth in retail checking accounts has been accompanied by an increase in the average balance per account from Ch$143,035 million in 2014 to Ch$154,704 million in 2015.
Credit and Debit Cards. We issue MasterCard and American Express credit cards to our individual clients. In addition to traditional cards, we offer cards issued under certain specialized customer loyalty programs and tailor our marketing of credit card services to different groups based on personal income. As of December 31, 2015, we had 194,305 credit cards issued under the brand name CorpBanca, an increase of 10.6% as compared to December 31, 2014. Our promotions such as discounts on gasoline purchases have allowed us to excel in sales as well as usage-rates of this product. Also, as of December 31, 2015 we had 101,245 credit cards issued by our subsidiary SMU Corp S.A., or SMU Corp, under the brand name “Unimarc”, a decrease of 4.1% as compared to December 31, 2014.
We also offer debit cards, which can be used for banking transactions at ATMs operating on the Redbanc S.A., or Redbanc, network, as well as at retailers associated with the Redcompra program. Under this agreement, we have access to 7,9767,725 ATMs (including Banco del Estado de Chile’s ATMs) in Chile.
Mortgage Loans. We offer two types of mortgages: residential mortgages for the purchase of new and existing homes (including refinancing of existing residential mortgages) and other mortgages, which are loans for other purposes secured by real property owned by the customer. Our residential mortgage loans areUF-denominated and generally have maturities between five and thirty30 years. All of our mortgage loans are primary lien loans and are secured by a real property mortgage. Our lending criteria require minimum credit scores. These loans can be endorsed to a third party. These generally are financed by our general borrowings.
To reduce our exposure to interest rate fluctuations and inflation with respect to our residential mortgageUF-denominated portfolio, a portion of these mortgages are funded with our general funds, particularly through the issuance of letters of credit loans in the Chilean financial market,long-term subordinated bonds, which bear a real market rate of interest plus a fixed spread over the rate of variation of the UF. The letters of credit loans are exclusively used to finance certain mortgage loans that as of December 31, 2015 represented only 2.4% of our mortgage loan portfolio. At the time of approval, these types of mortgage loans cannot be more than 75% of the lower of the purchase price or the appraised value of the mortgaged property or such loan will be classified as a commercial loan. Letters of credit loans are general unsecured obligations, and we are liable for all principal and accrued interest on such letters.
Residential mortgage loans are financed with our general funds, particularly through the issuance of long-term subordinated bonds. In addition, we generally require that the monthly payments on residential mortgage loans do not exceed 25% of the borrower’s householdafter-tax monthly income.
We continue to increase our marketing efforts relating to our mortgage services. Our market penetration for mortgage products has historically been lower than our overall Chilean market share for all banking products, which as of December 31, 20152016 was 4.8%11.4%. As a result of competitive pricing, product innovation, timely customer service, product knowledge as well as our overall focus on mortgage services, we have been able to achieve our recent results and
increase our market share.mortgage loan portfolio. This is the case as the ratios compare the collateral’s fair value to our loans and receivables portfolio values. Accordingly, our market share for mortgage products was 5.7%, 5.5%4.8% for Corpbanca and 4.8%4.2% for Banco Itaú Chile as of December 31, 2013, 20142015, respectively; and 2015, respectively.for Itaú Corpbanca was 8.4% as of as of December 31, 2016. We intend to continue to grow in this market.
Where appropriate, we obtain collateral in respect of our loans and receivables from customers. The collateral normally takes the form of a real estate mortgage (i.e., urban and rural properties, agricultural lands, maritime vessels and aircraft, mineral rights and other assets) and liens (i.e., inventories, agricultural goods, industrial goods, plantations and other property pledged as security) over the customer’s assets. The existence and amount of collateral generally varies from loan to loan.
Consumer Loans. We offer personal consumer loans for a variety of purposes, including personal loans (with automatic payments deducted from a checking or credit card account and with life, home and/or unemployment insurance); university and post-graduate education loans (including life insurance). Our consumer loans are generally installment loans denominated in Chilean pesos or UF, bear interest at fixed or variable rates and typically have maturities up to five years with the exception of university and post-graduate education loans, which have maturities up to ten years.
Lower Income Retail BankingConsumer Finance (Banco Condell)
Our Lower Income Retail BankingConsumer Finance Division operates under the trade name Banco Condell and is focused on clients in Chile with an annual income between Ch$2.4 million and Ch$7.2 million. Products and services we offer focus on the traditionally underservedlow-to-middle income segments of the Chilean population, where the consumer loans represent the core of the business. Banco Condell has 56 standalone branches and its own brand identity.
Under the Banco Condell brand, we also offer consumer insurance policies and time deposits to the traditionally underserved low-to-middle income segments of the Chilean population. For the year ended December 31, 2015, our Banco Condell division managed loans with an annual average balance of Ch$171,186 million, or 1.2% of total loans.deposits. Improved economic conditions in Chile over the past decade have resulted in an increased demand for consumer credit bylow- to middle-income individuals, whom we classify as persons with annual income lower than Ch$7.0 million. Many of these individuals have not had prior exposure to banking products or services. Through Banco Condell, we focus on developing and marketing products specifically oriented to individuals in this segment of the population while introducing them to the banking sector. We offer, among others, the following products and services to our lower income retail banking-Banco Condell customers:
Consumer Loansloans. We offer personal loans underUnder the Banco Condell brand we offer installment loans, including personal debt consolidation loans. These loans are generally denominated in Chilean pesos, repayable through equal monthly installments and typically have maturities up to five years. Life and unemployment insurance are mandatory in connection with these loans.
Consumer Insurance policies: We offer life, health, unemployment and credit-related life insurance policies.
Time Deposits and Debit Cards: We offer time deposits and debit cards oriented to low income segments for savings and financial transactions.
Treasury and International
Our Treasury and International Division specializes in financial management and is largely responsible for our funding and liquidity as well as management of any gap on our balance sheet. In addition, through our Treasury and International Division we manage proprietary trading functions, market making and distribution and sales of flow and non flownon-flow instruments for our corporate
clients. This divisionarea is responsible for obtaining foreign currency-denominated credit lines from financial institutions outside of Chile.
As of December 31, 2015,2016, our outstanding loans from foreign banks were US$1,597.21,912.3 million with approximately 5229 financial institutions in the U.S., Canada, Germany, France, Taiwan, England, Japan, Singapore, Switzerland and other countries including in Latin America. The international global risk assets outstanding as of December 31, 20152016 were US$2,014.43,213.1 million.
CorpBancaCorpbanca Colombia
CorpBancaCorpbanca Colombia provides a broad range of commercial and retail banking services to its customers in Colombia, operating principally in the cities of Bogotá, Medellín, Cali, Bucaramanga, Cartagena and Barranquilla. As of December 31, 2015,2016, according to the Colombian Superintendency of Finance, CorpBancaCorpbanca Colombia was the sixth largest bank in Colombia in terms of total assets, the sixth largest bank in Colombia in terms of total loans and the sixthfifth largest bank in Colombia, in terms of total deposits as reported under local regulatory and accounting principles.
As of December 31, 2015,2016, according to our consolidated financial statements, which have been prepared in accordance with IFRS, CorpBancaCorpbanca Colombia had total assets of COP$33,785,247Ch$7,272,848 million (US$10,77810,858 million), including total loans of COP$22,984,175Ch$5,011,954 million (US$7,3327,483 million), total deposits of COP$10,492,939Ch$4,813,425 million (US$3,3477,186 million) and total shareholders’ equity of COP$3,437,030Ch$681,246 million (US$1,0961,017 million). For the year endednine-month period between April 1, 2016 and December 31, 2015, CorpBanca2016, Corpbanca Colombia had total net interest income of COP$1,218,716Ch$179,470 million (US$389267.9 million) and net income before tax of COP$307,008Ch$2,579 million (US$983.9 million). As of December 31, 2015, CorpBanca2016, Corpbanca Colombia had 177174 branches, and offices, 180 ATMs and over 3,707 employees.3,727 employees in Colombia and Panama.
New York Branch
Our Federal Branch in the city of New York Branch offers a wide range of credit operations and services to both Chilean andnon-Chilean retail customers and corporate customers.large andmedium-sized companies. Operating with an offshore foreign branch of a Chilean bank is especially attractive to clients abroad as it provides a sense of proximity and it allows us to accompany themour customers as they expand abroad,operate overseas, responding to their needs and service requirements. Our target market on the liability side consists of retail customers with sophisticated financial needs, medium and large Chilean companies, Latin American companies, and Chilean and Latin American banks without offshore branch offices, among others. FundingThe New York Branch has shown continuous growth allowing the brancha Yankee Certificate of Deposits program that is placed directly to fully self-provide its funding needs. Additionally we have a private banking unit which provides sophisticated retail customers checking accounts and other associated services.clients or through U.S. dealers.
Our branchNew York Branch supports the commercial needs of Chilean and Latin American companies doing business overseas. Another important service is the participation in syndicated loans, together with other international institutions, to finance a variety of investment projects. Our New York Branch also has a private banking unit to provide current accounts and other associated services. As of December 31, 2016, the branch had US$1,603 million in assets.
Financial Services Offered Through Subsidiaries
We have made several strategic long-term investments in financial services companies in Chile (each of which are regulated and supervised by either the SBIF or the SVS), which are engaged in activities complementary to our core Chilean banking activities. Through wholly-owned subsidiaries, we intend to continue to develop a comprehensive financial services group able to meet the diverse financial needs of our current and potential clients. As of December 31, 2015,2016, assets of our subsidiaries represented 1.0%0.7% of total consolidated, percentage that remains stable compared to December 31, 2014.consolidated. For the year ended December 31, 2015,2016, net income of our subsidiaries represented 14.8% of total consolidated net income compared to 14.1% for the year ended December 31, 2014.totaled Ch$36,218 million (US$54.1 million).
The following table sets forth certain financial information with respect to our financial services subsidiaries as of December 31, 2013, 20142015 and 2015,2016, in millions of Chilean pesos. Amounts relating to inter-company transactions have not been removed for purposes of this table.
Financial Services Offered Through Subsidiaries
As of and for the year ended December 31, | ||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||
Assets | Equity | Net Income | Assets | Equity | Net Income | Assets | Equity | Net Income | ||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||
CorpBanca Corredores de Bolsa S.A. | 88,876 | 40,720 | 2,206 | 79,488 | 40,274 | 1,760 | 79,758 | 39,601 | 1,064 | |||||||||||||||||||||||||||
CorpBanca Administradora General de Fondos S.A. | 9,516 | 4,433 | 2,603 | 7,561 | 5,917 | 4,083 | 8,831 | 5,929 | 4,096 | |||||||||||||||||||||||||||
CorpBanca Corredores de Seguros S.A. | 16,318 | 13,875 | 7,866 | 18,006 | 15,165 | 9,012 | 20,234 | 15,432 | 8,759 | |||||||||||||||||||||||||||
CorpBanca Asesorías Financieras S.A. | 12,590 | 9,230 | 9,046 | 25,166 | 17,495 | 17,311 | 22,709 | 16,697 | 16,513 | |||||||||||||||||||||||||||
Corp Legal S.A. | 2,634 | 2,307 | 304 | 2,815 | 2,576 | 269 | 3,021 | 2,712 | 137 | |||||||||||||||||||||||||||
Corp Capital Agencia de Valores S.A | 1,137 | 925 | (62 | ) | — | — | (288 | ) | ||||||||||||||||||||||||||||
SMU Corp S.A. | 12,519 | 4,870 | (3,010 | ) | 19,523 | 5,598 | (1,403 | ) | 19,864 | 5,395 | (1,074 | ) | ||||||||||||||||||||||||
CorpBanca Investment Trust Colombia S.A. | 16,800 | 15,555 | 2,291 | 18,284 | 16,875 | 3,870 | 13,070 | 12,810 | 818 | |||||||||||||||||||||||||||
Helm Comisionista de Bolsa S.A. (previously known as CorpBanca Investment Valores Colombia S.A.)(1) | 5,357 | 4,652 | 580 | 8,628 | 7,681 | 954 | 9,477 | 8,227 | 2,350 | |||||||||||||||||||||||||||
CorpBanca Securities INC-NY | 1,037 | 1,036 | (16 | ) | 243 | 167 | (1,009 | ) | 798 | 769 | (381 | ) | ||||||||||||||||||||||||
Helm Corredor de Seguros S.A. | 4,818 | 2,774 | 516 | 3,786 | 2,448 | 1,872 | 4,165 | 2,993 | 847 | |||||||||||||||||||||||||||
Helm Comisionista de Bolsa S.A.(2) | 5,741 | 4,787 | 98 | — | — | — | ||||||||||||||||||||||||||||||
Helm Fiduciaria S.A. | 12,207 | 10,967 | 184 | 13,801 | 12,173 | 2,238 | 14,597 | 12,586 | 2,592 | |||||||||||||||||||||||||||
Helm Casa de Valores (Panamá) S.A. | 528 | 501 | 50 | 482 | 395 | — | 512 | 455 | (10 | ) | ||||||||||||||||||||||||||
Recaudaciones y Cobranzas S.A.(3) | — | — | — | — | — | — | 2,214 | 652 | (273 | ) |
As of and for the year ended December 31, | ||||||||||||||||||||||||
2015 | 2016 | |||||||||||||||||||||||
Assets | Equity | Net Income | Assets | Equity | Net Income | |||||||||||||||||||
(in millions of Ch$) | ||||||||||||||||||||||||
Corpbanca Corredores de Bolsa S.A. | — | — | — | 56,121 | 39,482 | 365 | ||||||||||||||||||
Corpbanca Administradora General de Fondos S.A. | — | — | — | 6,363 | 4,880 | 3,067 | ||||||||||||||||||
Corpbanca Corredores de Seguros S.A. | — | — | — | 19,792 | 14,681 | 8,056 | ||||||||||||||||||
Itaú Asesorías Financieras S.A.(1) | — | — | — | 4,473 | 3,207 | 3,031 | ||||||||||||||||||
Corp Legal S.A. | — | — | — | 2,654 | 2,306 | (277 | ) | |||||||||||||||||
Corpbanca Investment Trust Colombia S.A. Sociedad Fiduciaria | — | — | — | 13,888 | 13,484 | 600 | ||||||||||||||||||
Helm Comisionista de Bolsa S.A. (previously known as Corpbanca Investment Valores Colombia S.A.)(2) | — | — | — | 11,267 | 10,012 | 890 | ||||||||||||||||||
Corpbanca SecuritiesINC-NY | — | — | — | 481 | 467 | (259 | ) | |||||||||||||||||
Helm Corredor de Seguros S.A. | — | — | — | 3,534 | 1,692 | 388 | ||||||||||||||||||
Helm Fiduciaria S.A. | — | — | — | 18,771 | 15,530 | 2,392 | ||||||||||||||||||
Helm Casa de Valores (Panamá) S.A. | — | — | — | 616 | 501 | 43 | ||||||||||||||||||
Recaudaciones y Cobranzas S.A. (3) | — | — | — | 2,473 | 1,098 | 447 | ||||||||||||||||||
Itaú Chile C. de Seguros Limitada | 51,998 | 50,945 | 8,049 | 18,168 | 13,093 | 10,499 | ||||||||||||||||||
Itaú Chile Adm. General de Fondos S.A. | 37,302 | 35,374 | 6,532 | 14,823 | 11,628 | 5,263 | ||||||||||||||||||
Itaú BBA Corredor de Bolsa Limitada (4) | 87,528 | 23,227 | 1,158 | 43,161 | 2,109 | 1,714 |
On April 21, 2016, the legal name of Corpbanca Asesorías Financieras S.A. was changed to Itaú Asesorías Financieras S.A. |
(2) | On September 1, 2014, Helm Comisionista de Bolsa S.A. merged with and into |
On February 25, 2015 |
(4) | On January 1, 2017, Itaú BBA Corredor de Bolsa Limitada merged into Corpbanca Corredores de Bolsa S.A. The legal name of the merged entity was changed to “Itaú Corpbanca Corredores de Bolsa S.A.” and the commercial name was changed to “Itaú Corredores de Bolsa.” |
CorpBancaCorpbanca Corredores de Bolsa S.A.
Our subsidiary CorpBancaCorpbanca Corredores de Bolsa S.A., or CCB, is a member of the Santiago Stock Exchange and is registered with the SVS as a security broker. CCB’s primary activities are providing brokerage services in equities, fixed income, and foreign currency exchange. CCB’s net income was Ch$2,206365 million for the year ended December 31, 2016. CCB had assets under custody of Ch$1,760273,998 million as of December 31, 2016. For the year ended December 31, 2016, CCB’s net income was driven by a decrease in our customers’ investments in local equity adversely affecting operating revenue. Our customer base is mainly comprised of the retail customer unit, which has historically shown a higher risk aversion than other customer business units.
On January 1, 2017, Itaú BBA Corredor de Bolsa Limitada merged into Corpbanca Corredores de Bolsa S.A. Itaú BBA Corredor de Bolsa Limitada, or ICB, was a member of the Santiago Stock Exchange and was registered with the SVS as a security broker. ICB’s primary activities were providing brokerage services in equities, fixed income, and foreign currency exchange. ICB’s net income was Ch$1,158 million and Ch$1,0641,714 million for the years ended December 31, 2013, 20142015 and 2015,2016, respectively. CCBICB had assets under custody of Ch$346,211 million, Ch$295,612128,232 million and Ch$278,281207,228 million as of December 31, 2013, 20142015 and 2015,2016, respectively. For the year ended December 31, 2015, CCB’s2016, ICB’s net income decreasedincreased by Ch$696556 million, or 39.5%48%, as compared to net income for the year ended December 31, 2014. This trend2015.
The legal name of the merged entity was driven by drastically lower trading volumes inchanged to “Itaú Corpbanca Corredores de Bolsa S.A.” and the local equity markets, which were at a 9-year low for the year ended December 31, 2015. In ordercommercial name was changed to mitigate adverse market conditions, CCB has refocused marketing efforts and redirect investments to products and businesses where there are investment opportunities for clients.“Itaú Corredores de Bolsa.”
CorpBancaCorpbanca Administradora General de Fondos S.A.
We incorporated CorpBancaCorpbanca Administradora General de Fondos S.A., or CAGF, to complement banking services offered to individual and corporate clients. CAGF’s current function is to manage mutual fund assets for its clients in fixedprovide asset management services to individual, corporate and variable income instruments in both the local and foreign markets.institutional clients. For the yearsyear ended December 31, 2013, 2014 and 2015,2016, CAGF had net income of Ch$2,603 million, Ch$4,083 million and Ch$4,096 million, respectively.3,067 million. CAGF had total assets of Ch$9,516 million, Ch$7,561 million and Ch$8,8316,363 million as of December 31, 2013, 2014 and 2015, respectively.2016. As of December 31, 2015,2016, CAGF managed 2624 mutual funds, including fixed income funds and sevensix private investment funds, and had total assets under management amounting to Ch$1,097,656 million, a decrease of Ch$79,942 million when compared to December 31, 2014. Our local fixed income funds experienced significant1,013,732 million. In 2016, CAGF’s assets under management were impacted mostly by the withdrawals during 2015. After several months of decreases, local fixed income rates suffered dramatic increases, especially during April andobserved in the last quarter of 2015. These sudden rate increases triggered capital losses which led2016, due to outflows, mainly from more conservative investors.a higher volatility environment observed in local and international markets.
CorpBancaCorpbanca Corredores de Seguros S.A.
In accordance with our strategy of expanding the breadth of financial services that we offer, our subsidiary CorpBancaCorpbanca Corredores de Seguros S.A., or CCS, offers a full line of insurance products. Many of these products complement the variousour banking and loan services that we provide, such asby offering clients unemployment and life insurance in connection withrelated to personal loans, and insuranceas well as insurances in connection with mortgage lending.loans. Through CCS, we also provide non credit-relatednon-credit-related insurance to existing clients and the general public. For the yearsyear ended December 31, 2013, 2014 and 2015,2016, CCS had net income of Ch$7,866 million, Ch$9,012 million and Ch$8,759 million, respectively.8,056 million. CCS had total assets of Ch$16,318 million, Ch$18,006 million and Ch$20,23419,792 million as of December 31, 2013, 2014 and 2015, respectively.2016.
CorpBancaItaú Asesorías Financieras S.A. (formerly Corpbanca Asesorías Financieras S.A.)
CorpBancaItaú Asesorías Financieras S.A., or CAF,ICAF, provides a broad range of financial advisory services to a variety of corporations and government agencies, including those services related to debt restructurings, syndicated loans, structured loans, structured investment funds, bilateral grants, mergers and acquisitions, privatizations and company valuations. For the yearsyear ended December 31, 2013, 2014 and 2015, CAF2016, ICAF had net income of Ch$9,046 million, Ch$17,311 million and Ch$16,513 million, respectively. CAF3,031 million. ICAF had total assets of Ch$12,590 million, Ch$25,166 million and Ch$22,7094,473 million as of December 31, 2013, 2014 and 2015, respectively.2016.
Corp Legal S.A.
Corp Legal S.A. was created in 2007 and is regulated by the SBIF. It provides standard legal services to CorpBanca,Itaú Corpbanca, its subsidiaries and its clients.
SMU Corp S.A.
In 2009, we created SMU Corp, which is a subsidiary of CorpBanca and a joint venture with SMU. SMU is a retail business holding company owned by our largest shareholder, who indirectly owns retail (including Unimarc supermarkets) and wholesale supermarkets, convenience stores and construction oriented home improvement stores.
SMU Corp is a company whose sole and exclusive purpose is the issuance, operation and management of “Unimarc” credit cards to customers of supermarkets associated with SMU. During the year ended December 31, 2015, our customers purchased more than US$18 million in products and services in over 297 Unimarc supermarkets with the Unimarc card. These sales volumes represented about 0.7% of the sales of Unimarc for the year ended December 31, 2015. Unimarc credit cards were used for more than 537,000 transactions during the year ended December 31, 2015, including over 27,000 instances of cash advances.
CorpBancaCorpbanca Investment Trust Colombia S.A. Sociedad Fiduciaria
We acquired a 91.9% equity interest in CorpBancaCorpbanca Investment Trust Colombia S.A., Sociedad Fiduciaria, or CIT Colombia, in 2012 as part of the acquisition of CorpBancaCorpbanca Colombia. CIT Colombia is a financial services company operating in Colombia that specializes in fund administration and trust and custodial services.
During 2015, CIT Colombia completed the implementation of a new custody software and became the first custodian to be certified with the Colombia Stock Exchange for the automation of processesesprocesses for the development of the custodian activities. Consequently, in July 2015, CIT Colombia initiated local custody for a value of assets under custody of COP1.6COP$1.6 trillion. As of December 31, 2016, the value of assets under local and global custody were COP$2.5 trillion and COP$2.8 trillion, respectively. CIT Colombia also entered in new contracts with entities in Panama, Mexico, Brazil and Luxembourg for global custody arrangements.
CorpBanca Securities INC-NYHelm Comisionista de Bolsa S.A.
CorpBancaHelm Comisionista de Bolsa S.A. is a licensed securities broker dealer operating in Colombia that is the result of the consolidation of two previously separate subsidiaries of Corpbanca Colombia, Corpbanca Investment Valores Colombia S.A. and Helm Comisionista de Bolsa S.A.
Helm Comisionista de Bolsa S.A. offers and maintains the complete portfolio of products and services previously offered separately by each of Helm Comisionista de Bolsa S.A. and Corpbanca Investment Valores Colombia S.A. Additionally, Helm Comisionista de Bolsa S.A. continue to serve the clients that were historically served separately by each of Helm Comisionista de Bolsa S.A. and Corpbanca Investment Valores Colombia S.A.
Corpbanca SecuritiesINC-NY
Corpbanca Securities INC., or CSINC, is a broker-dealer in the United States regulated by the SEC and the Financial Industry Regulatory Authority, or FINRA, a self-regulatory organization that all U.S. based broker-dealers are required to join.
Broker-dealers’ transactions can take place on national stock exchanges as well as off exchanges, with the requirement that all transactions performed by a U.S. based broker dealerbroker-dealer are subject to regulatory oversight by the SEC and FINRA.
As of December 2015,31, 2016, CSINC hashad been approved by the SEC and FINRA, and is awaiting approval byFINRA. Approval from the Federal Reserve (FED) to begin operations.operations has not yet been requested until internal business decisions are finalized.
Helm Corredor de Seguros S.A.
Helm Corredor de Seguros S.A. is a Colombian corporation (sociedad anónima), which acts as an insurance broker. It has its main domicile in the city of Bogota, D.C., Colombia, and is regulated by the Colombian Superintendency of Finance.
Helm Comisionista de Bolsa S.A.(previously known as CorpBanca Investment Valores Colombia S.A.)
Helm Comisionista de Bolsa S.A. is a licensed securities broker dealer operating in Colombia that is the result of the consolidation of two previously separate subsidiaries of CorpBanca Colombia, CorpBanca Investment Valores Colombia S.A. and Helm Comisionista de Bolsa S.A.
Helm Comisionista de Bolsa S.A. offers and maintains the complete portfolio of products and services previously offered separately by each of Helm Comisionista de Bolsa S.A. and CorpBanca Investment Valores Colombia S.A. Additionally, Helm Comisionista de Bolsa S.A. continue to serve the clients that were historically served separately by each of Helm Comisionista de Bolsa S.A. and CorpBanca Investment Valores Colombia S.A.
Helm Fiduciaria S.A.
Helm Fiduciaria S.A., is a Colombian corporation (sociedad anónima), which is engaged in trust portfolio management, including investment trust management, administration, security, and real estate trusts.trusts and fund administration. It has its main domicile in the city of Bogota, D.C., Colombia and is regulated by the Colombian Superintendency of Finance.
Helm BankCasa de Valores (Panamá) S.A. (Panamá)
Helm BankCasa de Valores (Panamá) S.A. (Panamá) is a Panamanian corporation (sociedad anónima), which acts as a banking firm. It has its main domicile in the city of Panamá, Panamá and is regulated by the Panamanian Banking Superintendency.
Helm Casa de Valores S.A. (Panamá)
Helm Casa de Valores S.A. (Panamá) is a Panamanian corporation (sociedad anónima), which that acts as a brokerage firm. It has its main domicile in the city of Panamá, PanamáPanama City and is regulated by the Panamanian Superintendency of Securities Market.
Recaudaciones y Cobranzas S.A.
On February 25, 2015, CorpBancaformer Corpbanca, directly and indirectly, acquired all of the issued and outstanding shares of Recaudaciones y Cobranzas S.A, or Instacob, a debt collection company providing court andout-of-court collections services for loans. As a result of this transaction, Instacob became a wholly owned subsidiary of ours.
Itaú Chile Corredora de Seguros Limitada
In accordance with our strategy of expanding the breadth of financial services that we offer, our subsidiary Itaú Chile Corredora de Seguros Limitada, or ICS, offers a full line of insurance products. Many of these products complement our banking services by offering clients unemployment and life insurance related to personal loans, as well as insurances in connection with mortgage loans. Through ICS, we also provide noncredit-related insurance to existing clients and the general public. For the years ended December 31, 2015 and 2016, ICS had net income of Ch$8,049 million and Ch$10,499 million, respectively. ICS had total assets of Ch$51,998 million and Ch$18,168 million as of December 31, 2015 and 2016, respectively.
Itaú Chile Administradora General de Fondos S.A.
We incorporated Itaú Chile Administradora General de Fondos S.A., or IAGF, to complement banking services offered to our individual and corporate clients. IAGF’s current function is to provide asset management services to individual, corporate and institutional clients. For the years ended December 31, 2015 and 2016, IAGF had net income of Ch$6,532 million and Ch$5,263 million, respectively. IAGF had total assets of Ch$37,302 million and Ch$14,823 million as of December 31, 2015 and 2016, respectively. As of December 31, 2016, IAGF managed 23 mutual funds, including fixed income funds and had total assets under management amounting to Ch$1,090,736 million, a decrease of Ch$6,920 million when compared to December 31, 2015. During 2016, IAGF experienced a decrease of 11.3% of its assets under management explained mostly by the withdrawals observed in the last quarter of 2016, due to a higher volatility environment observed in local and international markets.
SEASONALITY
Our business is not materially affected by seasonality.
RAW MATERIALS
On a consolidated basis, CorpBancaItaú Corpbanca is not dependent on sources or availability of raw materials.
DISTRIBUTION CHANNELS, ELECTRONIC BANKING AND TECHNOLOGY
CorpBancaItaú Corpbanca
Our distribution network in Chile provides integrated financial services and products to our customers through several diverse channels, including ATMs, traditional branches, internet banking and telephone banking. As of December 31, 2015,2016, we operated 127224 branch offices in Chile and New York, which includes 7138 branches operating as CorpBanca,Corpbanca, 129 branches operating as Itaú, 56 branches operating as Banco Condell, our consumer finance division and our New York Branch. In addition, as of December 31, 2015,2016, we owned and operated 417502 ATMs in Chile, and our customers have access to 7,9767,725 ATMs (including Banco del Estado de Chile’s ATMs) in Chile through our agreement
with Redbanc. We utilize a number of different sales channels including account executives, telemarketing and the internet to attract new clients. Our branch system serves as the main distribution network for our full range of products and services.
We offer internet banking to our customers 24 hours a day through our password-protected internet site, www.CorpBanca.cl.www.itau.cl and www.corpbanca.cl. Our internet site offers a broad range of services, includingup-to-date information on balances in deposit, checking, loan, credit card and other accounts and transactional capabilities such as transfers and payments. As of December 31, 2015,2016, we had 166,224187,380 customers with activated internet passwords in Chile, allowing them to access our internet banking services. We are a member of theSociedad Interbancaria de Transferencias Electrónicas S.A., an organization that facilitates electronic banking transactions on behalf of our customers as well as other Chilean banks. We also provide our customers with access to a24-hour phone-banking call center that grants them access to account information and allows them to effect certain payments by telephone.
We have developed a specialized internet-based service designed to facilitate and optimize the financial management of our commercial customers. This service, which we market under the name “Cash Management”, includes services such as payroll support and payments to suppliers.
As a legacy of the Merger, we currently have several IT platforms to conduct our operations. We have enteredexpect to migrate all our operations into the platform used by former Banco Itaú Chile by the end of 2019. For the activities of former Corpbanca, we maintain several service and lease agreements with IBM de Chile S.A.C., which provides us with the computer hardware and networkbuild-out that we use in our headquarters and branch offices.offices, the recovery data center is in NetGlobalis. The main platform is IBS with internal development. For the activities of former Banco Itaú Chile, our platform uses Altamira. We also have also entered intoour own main data center as well as a software consulting and development agreement with Datapro, Inc., which provides consulting and development for the IBS.recovery data center.
CorpBancaCorpbanca Colombia
CorpBancaCorpbanca Colombia’s distribution channel provides integrated financial services and products to its customers in Colombia through several diverse channels, including ATMs, branches, internet banking and telephone banking.
As of December 31, 2015, CorpBanca2016, Corpbanca Colombia operated 177174 branch offices in Colombia and one branch in Panama and owned and operated 180 ATMs in Colombia, and also provided its customers with access to 14,13315.227 additional ATMs through Colombia’s other financial institutions. CorpBancaCorpbanca Colombia utilizes a number of different sales channels including account executives, telemarketing and the internet to attract new clients. CorpBancaCorpbanca Colombia’s branch system serves as the main distribution network for its full range of products and services.
CorpBancaCorpbanca Colombia offers internet banking to its customers 24 hours a day through its password-protected internet site, www.bancoCorpBanca.com.co CorpBancawww.bancoCorpbanca.com.co. Corpbanca Colombia’s internet site offers a broad range of services, includingup-to-date information on balances in deposit, checking, loan, credit card and other accounts and transactional capabilities such as transfers and payments. As of December 31, 2015, CorpBanca2016, Corpbanca Colombia had 104,460106,205 customers with activated internet passwords who used the electronic
banking service at least once during the month, allowing them to access CorpBancaCorpbanca Colombia’s internet banking services. CorpBancaCorpbanca Colombia is a member of ACH Colombia S.A. and Cenit S.A., an organization that facilitates electronic banking transactions on behalf of its customers as well as other Colombian banks. CorpBancaCorpbanca Colombia also provides its customers with access to a24-hour phone-banking call center that grants them access to account information and allows them to effect certain payments by telephone.
CorpBancaCorpbanca Colombia has developed a specialized internet-based product designed to facilitate and optimize the financial management of its commercial customers. This product, which CorpBancaCorpbanca Colombia markets under the name “AzulNet”, includes services such as payroll support and payments to suppliers. Additionally, CorpBancain 2016 Corpbanca Colombia has decided to implement the IBSmigrate Corpbanca Colombia’s brand platform (which has been implemented and is used by CorpBanca both in Chile and in New York)to Helm’s brand platform and is currently in the implementation phase of the project.
PATENTS, LICENSES AND CONTRACTS
CorpBancaItaú Corpbanca is not dependent on patents or licenses, nor is it substantially dependent on any industrial, commercial or financial contracts (including contracts with customers or suppliers).
COMPETITION
Competition in Chile
Description of the Chilean Financial System. The Chilean financial services market consists of a variety of largely distinct sectors. The most significant sector, commercial banking, includes 2422 privately-owned banks and one state-owned bank, Banco del Estado de Chile (which operates within the same legal and regulatory framework as the private sector banks). The private sector banks include those that are Chilean-owned, i.e., controlled by a Chilean entity, as well as a number of foreign-owned banks which are operated in Chile but controlled by a foreign entity. In 2015, 52016, five private sector banks along with the state-owned bank together accounted for 78.3%83.1% of all outstanding loans by Chilean financial institutions as of December 31, 2015:2016: Banco Santander-Chile (18.9%(19.1%), Banco de Chile (18.3%(18.0%), Banco de Crédito e Inversiones, or BCI (12.9%Bci (13.3%), CorpBanca (7.2%Itaú Corpbanca (11.4%), Banco Bilbao Vizcaya Argentaria, Chile (6.7%(6.6%) and Banco del Estado de Chile (14.3%(14.7%). All market share statistics in this paragraph are presented as reported to the SBIF calculated under local regulatory and accounting principles on an unconsolidated basis.
Financial System Evolution in Chile. The Chilean banking system has experienced a consolidation process in the past decades with mergers and acquisitions of banking entities in line with global trends. Currently, the largest Chilean bank in terms of loans outstanding is Banco Santander-Chile.
Following rapid consolidation among Chilean banks commencing in the late 1990s through today, the market has become characterized by fewer larger players. Our principal competitors in Chile are BCI, Banco de Chile, Banco Santander-Chile and Banco Santander-Chile.Bci. As compared to other Chilean banks, we believe our position in the Chilean banking industry has enabledafter the Merger enables us to compete with international banks seeking to provide loans to companies operating in Chile, especially since we arehave a greater scale and resources to grow and compete more effectively. Additionally, we have a unique control and support from a leading institution such as Itaú Unibanco. Itaú Corpbanca will be able to offer alternative sources of financing. We also believe that the close relationships we have developed with our SME customers over the years provide us with a competitive advantage.expand its banking products’ offering through proven segmentation and digitalization models.
Commercial banks, such as us, face increasing competition from other financial intermediaries who can provide larger companies with access to the capital markets as an alternative to bank loans. To the extent permitted by the Chilean General Banking Act, we seek to maintain a competitive position in this respect through the investment banking activities of our subsidiary CAF.Itaú Asesorías Financieras.
We face competition in our mortgage and consumer loans businesses from insurance companies, which have been permitted to grant mortgage loans. We believe that, inIn addition to the other banks that operate in Chile, our main competitors in the credit card business are department stores and othernon-banking businesses involved in the issuance of private-label credit cards. We intend to remain competitive in the mortgage loan services and credit card markets through product innovation.
We also experience competition from banks that provide international private banking services such as JPMorgan Chase Deutsche Bank and BNP Paribas, among others. We believe our main competitive advantage in our Private Banking segmentbusiness unit has been our ability to provide our customers with tailored lending products and responses to their needs as soon as possible. Our lower income retail banking segment,business unit, Banco Condell, competes with consumer divisions of other banks such as Banefe, CrediChile and Banco Nova, among others, as well as certain consumer credit providers, including department stores. We believe that the main competitive advantage of our Banco Condell brandbusiness unit is our ability to provide responses as soon as possible, know our customers’ needs and provide a fair price structure.
Competition in Colombia
Description of the Colombian Financial System. In recent years, the Colombian banking system has been undergoing a period of consolidation given the series of mergers and acquisitions that have taken place within the sector, including the CorpBancaCorpbanca Colombia Acquisition and the Helm Bank Acquisition. Several mergers and acquisitions have taken place since 2008, including: (a) the acquisition of the Colombian arm of ABN Amro Bank by the Royal Bank of Scotland; (b) the acquisition of a majority stake in Banco Colpatria by Scotiabank; (c) the acquisition ofBAC-Credomatic, which has operations in several countries in Central America, by Banco de Bogotá; (d) the merger of Helm Bank S.A. with and into Banco CorpBancaCorpbanca Colombia S.A.; and (e) the merger of Banco GNB Colombia S.A. (previously known as Banco HSBC Colombia S.A.) with and into Banco GNB Sudameris S.A. During 2015, three new banks commenced operations in Colombia: Banco Mundo Mujer S.A. (previously operating as a microloan originator); Banco Multibank and Banco Compartir S.A., which converted its licenses from financing companies to banks.
Additionally, pursuant to the Transaction Agreement with Itaú Unibanco, Itaú-CorpBancaand its amendment dated January 20, 2017, Banco Corpbanca Colombia will acquire the operationsassets and liabilities of Itaú Unibanco inBBA Colombia S.A. Corporación Financiera (Itaú Colombia). The transaction was approved by acquiring the sharesshareholders of Banco Corpbanca Colombia on December 21, 2016, by the shareholders of Itaú Colombia at an aggregate price equivalent to their book valueon November 15, 2016, and by Helm LLC (in its capacity of approximately US$100 million in a transaction expected to closeminority shareholder of Corpbanca Colombia). The acquisition of assets and liabilities (the “Colombian Acquisition”) will be carried out as soon as practicable once the same has been approved by the end of 2016.Colombian Financial Superintendency (the “CFS”).
As of December 31, 2015,2016, and according to the Colombian Superintendency of Finance, the principal participants in the Colombian financial system were the Central Bank of Colombia, 25 commercial banks (14 domestic private banks, 10 foreign banks, and one domestic state-owned bank), five finance corporations and 1615 financing companies (four(three leasing companies and 12 traditional financing companies). In addition, trust companies, cooperatives, insurance companies, insurance brokerage firms, bonded warehouse, special state-owned institutions, pension and severance pay funds also participate in the Colombian financial system.
The Financial Reform Act of 2009 (Law 1328 passed July 15, 2009) authorized banks to provide merger and acquisition loans and allowed them to conduct financial leasing operations. As a result, some competitors have absorbed their financial leasing subsidiaries into their banking franchises and some leasing companies are in the process of becoming banks.
Financial System Evolution in Colombia during 20142015 and 20152016. 20152016 was a challenging year for the Colombian financial services sector. The global declineincrease in oil prices, depreciation of the Colombian peso and increased inflation rate of 6.77%5.75%, which for two years in a row surpassed the Central Bank’s target range of2%-4% created headwinds that hindered growth in impacted the country. Additionally, pursuant to Law 1314profitability of 2009,the financial sector when the reference interest rate increased by 175 basis points on 2016. The Central Bank’s rate was 5.75% as of January 2015 the financial sector implemented IFRS, however under local regulation those standards for non-consolidated financial statements do not fully comply with those issued by IASB especially on the loan loss provisions chapter.1, 2016 and 7.50% as of December 31, 2016. Bank lending increased 15.3%12.2% and deposits grew 11.6%10.9% as of December 2015,31, 2016, compared to December 2014. In terms of Monetary Policy in Colombia, the year began with a reference interest rate of 4.5% that increased to 5.75% in the last four months with the objective of aligning inflation expectations.31, 2015.
The demand for business loans granted by banks increased by 11.8%11.4% for 2015,2016, compared to a 16.7%16.3% increase in 2014.2015. Consumer loans granted by banks grew by 11.6%13.2% in 2015,2016, compared to a 13.1%12.4% increase observed in 2014 and 11.7% registered in 2013.2015. There was an increasea moderation on the dynamics of mortgage and small business loans, with increases of 46.6%15.1% and 20.8%6.1%, respectively, for 20152016 relative to 2014. With2015. On 2015, compared to 2014, the implementationrates of IFRS, Colombian banks reclassified home leasing operations asgrowth for mortgages as of January 2015 from their prior classification aswas 19.1% and for small business loans for 2014 and prior years. Nevertheless, the implementation of IFRS had additional effects on the loan portfolio growth, loans to employees and operational leasing operations were included in the loan portfolio line as of January 2015.
was 20.7%. The Colombian banking system’s level ofpast-due loans as a percentage of the system’s total loan portfolio increased to 3.0%3.1% for December 2015,2016, after the 2.9%2.8% registered on December 2014.2015. In addition, coverage, measured as the ratio of allowances topast-due loans, ended 2015December 2016 at 145.8%155.5%, compared to 150.5%155.9% at the end of 2014.2015.
During 2015,2016, lending gained some weight in the Colombian banks system’s structure. Net loans increased from 65.7%66.6% of total assets at the end of 20142015 to 66.7%68.5% at the end of 2015,December 2016, and investment portfolio and derivatives, as a percentage of total assets, increaseddecreased from 19.1%19.3% at the end of 20142015 to 19.4%17.2% at the end of 2015.2016.
As of December 31, 2015,2016, the Colombian financial sector recorded COP$547,286,169574,636,417 million in total assets, representing a 13.8%4.5% increase as of December 31, 2014.2015. The Colombian financial system’s total composition of assets shows banks with a market share of 91.8%95.4%, followed by financial corporations with 2.2%, financing companies with 5.2%, financial corporations with 2.5%1.9% and financial cooperatives with 0.5%.
As of December 31, 2015,2016, the capital adequacy ratio (tier(Tier 1 + tierTier 2) for credit institutions was 15.15%15.85% (including banks, finance corporations and financing companies), decreasingincreasing by 4543 bps when compared to December 31, 2014,2015, and which is well above the minimum legal requirement of 9%.
Loans
As of December 31, 20142015 and 2015,2016, our gross consolidated loan portfolio was Ch$14,211,3496,823,977 million and Ch$14,810,13621,048,484 million, respectively, as reported to the SBIF calculated under local regulatory and accounting principles. This placed us as the fourth
largest financial institution among private Chilean banks and fifth place among all banks operating in Chile. Our gross consolidated loan portfolio represented 10.4%14.1% of the market for loans in the Chilean financial system (comprising all commercial banks) as of December 31, 2015. During2016. In 2016, due to the period from 2012 to 2015,Merger and the compounded annual growth rateconsolidation of the loan portfolios of former Corpbanca and former Banco Itaú Chile, our aggregate gross loan portfolio excluding interbank loansgrew by 208.4%. However, due to the decline investment activity in nominal terms, was 13.4% asChile and a more challenging economic scenario in 2016, when compared to an increasethe combined loan portfolios of 12.1%former Corpbanca and former Banco Itaú Chile in the average market2015, our consolidated loan portfolio.portfolio decreased in 2016 by 2.7%.
The following table sets forth the aggregate outstanding loans for us and the five other private sector banks with the largest market shares in Chile as of December 31, 2013, 20142015 and 2015,2016, based on information as reported to the SBIF calculated under local regulatory and accounting principles:
Bank Loans(1) | Bank Loans (1) | |||||||||||||||||||
As of December 31, | As of December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||
Banco Santander-Chile | 20,935,312 | 22,880,706 | 25,289,880 | 25,289,880 | 26,933,624 | |||||||||||||||
Banco de Chile | 20,869,511 | 21,876,648 | 24,558,041 | 24,558,041 | 25,385,534 | |||||||||||||||
Banco de Crédito e Inversiones (BCI) | 14,423,318 | 15,773,528 | 20,134,981 | |||||||||||||||||
CORPBANCA(2) | 13,085,663 | 14,211,349 | 14,810,136 | |||||||||||||||||
Banco de Crédito e Inversiones (Bci) | 20,134,981 | 22,324,012 | ||||||||||||||||||
Itaú Corpbanca (2) | 6,823,977 | 21,048,484 | ||||||||||||||||||
Banco Bilbao Vizcaya Argentaria, BBVA | 7,537,202 | 8,338,898 | 9,002,343 | 9,002,343 | 9,252,921 | |||||||||||||||
Scotiabank Chile | 5,419,672 | 6,285,129 | 8,227,571 | 8,227,571 | 8,840,341 | |||||||||||||||
Others | 31,925,978 | 36,501,973 | 39,947,092 | 47,933,251 | 35,771,491 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Total | 114,196,656 | 125,868,231 | 141,970,044 | 141,970,044 | 149,556,407 | |||||||||||||||
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|
|
|
|
Source: SBIF monthly consolidated financial information
(1) | Excludes interbank loans. |
(2) | The amounts under IFRS for |
Deposits
We had consolidated deposits of Ch$12,927,22216,033,088 million as of December 31, 2015,2016, as reported under local regulatory and accounting principles, which consisted of our current accounts, bankers’ drafts, savings accounts, time deposits and other commitments. Our market share of 10.8%9.8% for deposits and other obligations as of such date ranks us in fourth place among private sector banks in Chile.
The following table sets forth the aggregate deposits for us and the five other private sector banks with the largest market share as of December 31, 2013, 20142015 and 2015,2016, based on information as reported to the SBIF calculated under local regulatory and accounting principles:
Bank Deposits and Other Obligations (1) | Bank Deposits and Other Obligations (1) | |||||||||||||||||||
As of December 31, | As of December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||
Banco Santander-Chile | 15,296,035 | 16,894,437 | 19,538,888 | 19,538,888 | 20,691,024 | |||||||||||||||
Banco de Chile | 16,387,057 | 16,655,619 | 18,234,740 | 18,234,740 | 18,874,049 | |||||||||||||||
Banco de Crédito e Inversiones (BCI) | 11,628,315 | 12,821,049 | 17,349,184 | 17,349,184 | 18,151,951 | |||||||||||||||
CORPBANCA(1) | 10,789,086 | 12,031,914 | 12,927,222 | |||||||||||||||||
Itaú Corpbanca | 4,933,922 | 16,033,088 | ||||||||||||||||||
Banco Bilbao Vizcaya Argentaria Chile (BBVA) | 5,912,767 | 6,316,699 | 6,689,730 | 6,689,730 | 6,876,369 | |||||||||||||||
Scotiabank Chile | 3,392,308 | 3,804,363 | 5,204,251 | 5,204,251 | 6,144,361 | |||||||||||||||
Others | 33,746,086 | 36,959,088 | 39,623,430 | 47,616,730 | 36,740,960 | |||||||||||||||
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|
|
|
| ||||||||||||||||
Total | 97,151,654 | 105,483,169 | 119,567,445 | 119,567,445 | 123,511,802 | |||||||||||||||
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|
|
|
|
Source: SBIF monthly consolidated financial information
(1) | Our aggregate deposits as calculated under IFRS for the years ended December 31, |
Shareholders’ Equity
We were the fourth largest among private sector banks in Chile with Ch$1,082,837 million in shareholders’ equity (excluding net income and accrual for mandatory dividends) as of December 31, 2015, as reported to the SBIF calculated under local regulatory and accounting principles.
The following table sets forth the level of shareholders’ equity for us and the five largest private sector banks in Chile (measured by shareholders’ equity) as of December 31, 2013, 2014 and 2015, based on information as reported to the SBIF calculated under local regulatory and accounting principles:
Shareholders’ Equity(1)(2) | Shareholders’ Equity(1)(2) | |||||||||||||||||||
As of December 31, | As of December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||
Banco Santander-Chile | 2,016,330 | 2,224,664 | 2,420,484 | 2,420,484 | 2,538,055 | |||||||||||||||
Banco de Chile | 2,095,294 | 2,268,662 | 2,505,558 | 2,505,558 | 2,620,394 | |||||||||||||||
Banco de Crédito e Inversiones (BCI) | 1,371,893 | 1,560,882 | 1,771,113 | 1,771,113 | 2,280,185 | |||||||||||||||
CORPBANCA(3) | 1,333,795 | 1,330,297 | 1,082,837 | |||||||||||||||||
Itaú Corpbanca(3) | 740,335 | 3,172,486 | ||||||||||||||||||
Banco Bilbao Vizcaya Argentaria Chile (BBVA) | 631,042 | 663,829 | 722,896 | 722,896 | 768,215 | |||||||||||||||
Scotiabank Chile | 606,391 | 652,403 | 703,600 | 703,600 | 772,684 | |||||||||||||||
Others | 3,459,970 | 3,993,427 | 4,590,585 | 4,933,087 | 4,129,791 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Total | 11,514,715 | 12,694,164 | 13,797,073 | 13,797,073 | 16,281,810 | |||||||||||||||
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|
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Source: SBIF monthly consolidated financial information
Shareholders equity = Equity attributable to shareholders excluding net income and provision for mandatory dividend. |
For comparison purposes with other banks, the information is presented under standards issued by the SBIF. |
The amounts under IFRS, excluding net income,non-controlling interest, and accrued for mandatory dividends, for the years ended December 31, |
CHILEAN BANKING REGULATION AND SUPERVISION
General
In Chile, only banks may maintain checking accounts for their customers and accept time deposits. The principal financial institutions regulators in Chile are the SBIF and the Central Bank of Chile. Chilean banks are primarily subject to the Chilean General Banking Act and secondarily, to the extent not inconsistent with such statute, the provisions of theLey 18.046 sobre Sociedades Anónimasor the Chilean Corporations Act governing public corporations, except for certain provisions which are expressly excluded.
The modern Chilean banking system dates from 1925 and has been characterized by periods of substantial regulation and state intervention, as well as periods of deregulation. The most recent period of deregulation commenced in 1975 and culminated in the adoption of a series of amendments to the Chilean General Banking Act. The Chilean General Banking Act sets forth the regulatory framework to which banks are subject outlining the activities that a bank may and may not carry out in Chile and their attributions-in addition to traditional banking activities- including general underwriting powers for new issuances of certain debt and equity securities and the power to create subsidiaries to engage in activities related to banking, such as brokerage, investment advisory, mutual fund services, administration of investment funds, factoring, securitization products and financial leasing services.
Following the Chilean banking crisis of 1982 and 1983, the SBIF assumed control of 21 financial institutions representing approximately 51% of the total loans in the banking system. As part of the solution to this crisis, the Central Bank of Chile acquired from financial institutions a certain portion of their distressed loan portfolios, at the book value of such loan portfolios. Each institution then repurchased such loans at their economic value (which, in most cases, was much lower than the book value at which the Central Bank of Chile had acquired the loans) and the difference was to be repaid to the Central Bank of Chile out of future income. Pursuant to Law No. 18,818, which was passed in 1989, this difference was converted into a subordinated obligation with no fixed term, known asdeuda subordinada or subordinated debt, which in the event of liquidation of the institution, would be paid after the institution’s other debts had been paid in full.
Central Bank of Chile
The Central Bank of Chile is an autonomous legal entity created by the Chilean Constitution. It is subject to the Chilean Constitution and its ownley orgáorgánica constitucional, or Constitutional Act. To the extent not inconsistent with the Chilean Constitution or the Central Bank of Chile’s Constitutional Act, the Central Bank of Chile is also subject to private sector laws (but in no event it is it subject to the laws applicable to the public sector). It is directed and administered by a council composed of five members designated by the President of Chile, subject to the approval of the Senate.
The legal purpose of the Central Bank of Chile is to maintain the stability of the Chilean peso and the orderly functioning of Chile’s internal and external payment system. The Central Bank of Chile’s powers include setting reserve requirements, regulating the amount of money and credit in circulation, establishing regulations and guidelines regarding finance companies, foreign exchange (including the Formal Exchange Market) and banks’ deposit-taking activities.
SBIF
Banks in Chile are supervised by the SBIF, an independent Chilean governmental agency. The main responsibilities of the SBIF are to authorize the incorporation of new banks and to interpret and enforce, with broad powers, legal and regulatory requirements applicable to Chilean banks and other entities. Furthermore, in case ofnon-compliance with such legal and regulatory requirements, the SBIF may impose sanctions, including fines payable by the directors, managers and employees of a bank as well as the bank itself. In extreme cases it can appoint, by special resolution with the prior approval of the board of directors of the Central Bank of Chile, a provisional administrator to manage a bank. It must also approve any amendment to a bank’sby-laws or any (including, increase in its capital.capital).
The SBIF examines all banks from time to time, generally at least once a year. Banks are also required to submit monthly unaudited consolidated and unconsolidated financial statements to the SBIF and publish their quarterly and annual financial statements in a newspaper with countrywide coverage. In addition, banks are required to provide extensive information regarding their operations at various periodic intervals to the SBIF. Financial statements as of December 31 of any given year must be audited. A bank’s annual financial statements and the opinion of its independent auditors must also be submitted to the SBIF for review.
The SBIF must approve in advance any direct or indirect acquisition of more than 10% of the share capital of a bank. The absence of such approval will cause the acquiroracquirer to lose the voting rights of such shares. The SBIF may only refuse to grant its approval based on specific grounds set forth in the Chilean General Banking Act and its regulations.
Limitations on Types of Activities
Chilean banks can only conduct those activities allowed by the Chilean General Banking Act: making loans, accepting deposits, issuing bonds, engaging in certain international operations, performing specially entrusted activities (comisiones de confianza) and, subject to limitations, making investments and performing financial services related to banking. Investments are restricted to real estate and physical asset for the bank’s own use, gold, foreign exchange and debt securities. In addition, local banks are allowed to engage in certain derivatives such as options, swaps and forward contracts over certain underlying assets. Through subsidiaries, banks may also engage in other specific financial service activities such as securities brokerage services, mutual fund management, investment fund management, factoring, securitization, financial advisory and leasing activities. Subject to specific limitations and the prior approval of the SBIF and the Central Bank of Chile, Chilean banks may own majority or minority interests in foreign banks.
Deposit Insurance
In Chile, the government guarantees up to 90% of the aggregate amount of certain time deposits held by individuals in the Chilean banking system. The government guarantee covers those obligations with a maximum value of UF120 per person (Ch$3.083.2 million or US$4,329.74,720.4 as of December 31, 2015)2016) in each calendar year.
Reserve Requirements
Deposits are subject to a reserve requirement of 9% for all demand deposits and obligations that are payable on demand, and 3.6% for time deposits and deposits in savings accounts in any currency of any term, judicially ordained deposits, and any other deposit (captación) for a term of up to one year. For purposes of calculating this reserve requirement, banks are authorized to make certain daily deductions from their liabilities in Chilean pesos, the most relevant of which include:
In the case of liabilities in foreign currency, banks are authorized to deduct for this purpose the amounts mentioned in the first and third bullet above.
The Central Bank of Chile has statutory authority to require banks to maintain reserves of up to an average of 40% for demand deposits and up to 20% for time deposits (irrespective, in each case, of the currency in which they are denominated) to implement monetary policy. In addition, according to the Chilean General Banking Act and the regulations issued by the SBIF and the Central Bank of Chile, Chilean banks must maintain a technical reserve of 100% of all deposits and obligations a bank has acquired in its financial business that are payable on demand, except for obligations with other banks, whenever such deposits and obligations exceed 2.5 times their basic capital. This technical reserve must be calculated daily, and must be kept in deposits in the Central Bank of Chile or documents issued by the Central Bank of Chile or the Chilean Treasury with a maturity date of no more than 90 days.
Minimum Capital
Under the Chilean General Banking Act, a bank must have a minimumpaid-in capital and reserves of UF800,000 (Ch$20,503.221,078.4 million or US$28.931.5 million as of December 31, 2015)2016).
Capital Adequacy Requirements
The Chilean General Banking Act and the Regulations of the SBIF include a modified version of the capital adequacy guidelines issued by the Basel Committee. According to such modified guidelines, the capital and reserves of a bank, or basic capital, cannot be less than 3% of total assets net of allowances, and its “effective net equity” cannot be less than 8% of its risk-weighted assets net of required loan loss allowances.
Basic capital is defined as a bank’spaid-in capital and reserves and is similar to Tier 1 capital except that it does not include 30% of net income for the period (considered as a deduction for minimum mandatory dividends).deduct goodwill nor intangible assets.
Regulatory capital or “effective net equity” is defined as the aggregate of:
In cases where a limit is required to be applied on an unconsolidated basis, capital attributable to subsidiaries and foreign branches shall be excluded.
The Chilean General Banking Act contains a five-category risk classification system to be applied to bank assets that is based on the Basel Committee recommendations.
Within the scope of Basel III in Chile, further changes in regulation may occur. See “Item 3. Key Information—D. Risk Factors—Risks relating to Chile and other countries in which we operate—Chile’s banking regulatory and capital markets environment is continually evolving and may change”.change.”
Lending Limits
Under the Chilean General Banking Act, Chilean banks are subject to certain lending limits, including the following:
a bank cannot grant loans to related parties (which relation can arise from management or for ownership reasons, including holders of more than 1% of its shares, except in the case of companies which are actively traded on the Santiago Stock Exchange, like CorpBanca, in which case the limit is 5%) on more favorable terms than those generally offered to non-related parties. In addition, the aggregate amount of loans to a single group of related parties cannot exceed 5% of the bank’s effective net equity or 25% if the excess thereof is secured by certain assets with a value equal to or greater than such excess, or by certain other collateral specified in the Chilean General Banking Act. The definitions of “related” and “group” for these purposes are determined by the SBIF. The aggregate amount of all credits granted to related parties of the bank cannot exceed its effective net equity.
Santiago Stock Exchange, like Itaú Corpbanca, in which case the limit is 5%) on more favorable terms than those generally offered tonon-related parties. In addition, the aggregate amount of loans to a single group of related parties cannot exceed 5% of the bank’s effective net equity or 25% if the excess thereof is secured by certain assets with a value equal to or greater than such excess, or by certain other collateral specified in the Chilean General Banking Act. The definitions of “related” and “group” for these purposes are determined by the SBIF. The aggregate amount of all credits granted to related parties of the bank cannot exceed its effective net equity. |
To determine the lending limits with respect to a particular person, the obligations undertaken by partnerships in which the relevant person is an unlimited partner or by companies of any nature in which such person has more than 50% of their capital or more than 50% of their profits, will be accounted as obligations of such person. Likewise, if the participation of the relevant person in a company is higher than 2% but not higher than 50% of its capital or profits, then the obligations of such company will be accounted for as obligations of such person in proportion to its actual participation. Finally, when there is a plurality of debtors of the same obligation, then the obligation will be deemed joint and several with respect to each and all of the debtors, unless expressly undertaken in other terms.
Allowance for Loan Losses
Chilean banks are required to provide to the SBIF detailed information regarding their loan portfolio on a monthly basis. The SBIF examines and evaluates each financial institution’s credit management process, including its compliance with the loan classification guidelines. Banks must classify and evaluate their credits portfolio pursuant to the rules issued by the SBIF. However, a bank may request the authorization of the SBIF to use its own internal evaluation model for groups, to the extent they comply with certain requirements.
Classification of Banks and Loan Portfolios
Solvency and Management. Chilean banks are classified into categories I through V based upon their solvency and management ratings. The classification of each bank is confidential.
• | Category I: This category is reserved for financial institutions that have been rated level A in terms of solvency and management. |
• | Category II: This category is reserved for financial institutions that have been rated (1) level A in terms of solvency and level B in terms of management, (2) level B in terms of solvency and level A in terms of management, or (3) level B in terms of solvency and level B in terms of management. |
• | Category III: This category is reserved for financial institutions that have been rated (1) level B in terms of solvency and level B in terms of management for two or more consecutive review periods, (2) level A in terms of solvency and level C in terms of management, or (3) level B in terms of solvency and level C in terms of management. |
• | Category IV: This category is reserved for financial institutions that are rated level A or B in terms of solvency and have been rated level C in terms of management for two or more consecutive review periods. |
• | Category V: This category is reserved for financial institutions that have been rated level C in terms of solvency, irrespective of their management rating level. |
A bank’s solvency rating is determined by its regulatory capital (after deducting accumulated losses during the financial year) to risk-weighted assets ratio. This ratio is equal to or greater than 10% for level A banks, equal to or greater than 8% and less than 10% for level B banks and less than 8% for level C banks.
With respect to a bank’s management rating, level A banks are those that are not rated as level B or C. Level B banks display some weakness in internal controls, information systems, response to risk, private risk rating or ability to manage contingency scenarios, which must be corrected within the period preceding the next evaluation, considering also the penalties imposed to the bank (except for those with a pending claim). Level C banks display significant deficiencies in internal controls, information systems, response to risk, private risk rating or ability to manage contingency scenarios.
Capital Markets
Under the Chilean General Banking Act, banks in Chile may purchase, sell, place, underwrite and act as paying agents with respect to certain debt securities. Likewise,In addition, banks in Chile may place and underwrite certain equity securities. Bank subsidiaries may also engage in debt placement and dealing, equity issuance advisory services and securities brokerage, as well as in financial leasing, mutual fund and investment fund administration, investment advisory services and merger and acquisition services. These subsidiaries are regulated by the SBIF and, in some cases, by the SVS, the regulator of the Chilean securities market and of open-stock (public) corporations.
In August 2010, the Chilean government passed Law No. 20,448, or MK3, which allowed non-Chilean banks with representative offices in Chile to promote their headquarters’ credit products and credit services directly in Chile. Before this reform, representative offices of non-Chilean banks were only able to act as intermediaries between their parent companies and local companies.
Subsidiaries and Affiliated Companies
Chilean banks are authorized to create subsidiaries to engage in (1) brokerage of securities, (2) management of mutual funds, investment funds, offshore funds, housing funds or all the foregoing, (3) insurance brokerage, (4) leasing operations, (5) factoring operations, (6) securitization, (7) financial advisory, (8) custody and transportation of funds, (9) provision of other financial services as authorized by the SBIF, (10) real estate leasing, and (11) social security advice. These subsidiaries are regulated by the SBIF except for the cases referred to in (1), (2), (3) and (6) above in which the SBIF may request information but the entities are regulated by the SVS or, with respect to social security, by the Superintendency of Pensions (Superintendencia de Pensiones) or SAFP. Currently, banks are not authorized to create or engage in the business of insurance companies (other than as insurance brokers) and pension funds or health insurance administrators.
Banks may also, with the prior authorization of the SBIF, create and participate in companies exclusively destined to the carrying out of activities in support of the main banking operations, such as credit card or debit card operators.
Legal Provisions Regarding Banking Institutions with Economic Difficulties
Liquidation of Chilean banks may not be ordered in bankruptcy procedures, except when undergoing voluntary liquidation. The Chilean General Banking Act sets forth that if a bank is under certain specific adverse circumstances, its board of directors must correct the situation within 30 days from the date in which the relevant financial statements are presented to the board. If the board of directors is unable to do so, it must summon a special shareholders’ meeting to increase the capital of the bank by the amount necessary to return the bank to financial stability. If the shareholders reject the capital increase, or if it is not effected and paid within the term and in the manner agreed to at the meeting, or if the SBIF does not approve the board of directors proposal, the bank
will be barred from increasing its loan portfolio beyond that stated in the financial statements presented to the board of directors and from making any further investments in any instrument other than in instruments issued by the Central Bank of Chile. In such a case, or in the event that a bank is unable to makefacing solvency problems which compromise timely payment of its obligations or if a bank is under provisional administration by the SBIF, the Chilean General Banking Act provides that the bank may receive atwo-year term loan from another bank which will be subordinated to other liabilities of the bank. The terms and conditions of such a loan must be approved by the directors of both banks, as well as by the SBIF, but need not be submitted to the borrowing bank’s shareholders for their approval. In any event, a creditor bank cannot grant interbank loans to an insolvent bank in an amount exceeding 25% of the creditor bank’s effective net equity. The board of directors of a bank that is unable to makefacing solvency problems which compromise timely payment of its obligations must present a reorganization plan to its creditors in order to capitalize its credits, agree on extensions, obtain forgiveness of debts or adopt any other valid measures for the payment of the debts. The terms of a reorganization plan must be the same for all the proposing bank’s creditors to whom such plan is applicable. From the date of submission of the reorganization plan until there is a decision from the creditors regarding such plan, the bank will only be required to pay demand deposits and liabilities. If the board of directors of a bank submits a reorganization plan to its creditors and such arrangement is approved, all subordinated debtand by virtue of its provisions shares shall be issued byin payment of the bank, whether or not matured, willcapitalization of the credits, those shares shall be converted by operation of law into common sharesallocated to the creditors in proportion to the amount required for the ratio of effective net equity to risk-weighted assets not to be lower than 12%.credits being capitalized. If the reorganization plan is rejected by the creditors, the bank must submit a new proposal which must include the capitalization in an amount required so that the ratio of effective net equity to risk-weighted assets not to be lower than 12%. If this second proposal is rejected, the SBIF will declare the bank into mandatory liquidation, which process is regulated by the Banking Law and not by the general bankruptcy rules. If a bank fails to pay an obligation, it must notify the SBIF, which shall determine if the bank is solvent. Banks can be subject to a provisional administrator if there are reasons that affect its financial stability.
Dissolution and Liquidation of Banks
The SBIF may establish that a bank must be liquidated if the safety of its depositors or other creditors so demands it, or when such bank does not have the necessary solvency to continue its operations. In such case, the SBIF must revoke such bank’s banking license and mandate its liquidation, subject to approval by the Central Bank of Chile. The SBIF must also revoke a bank’s license when that bank’s reorganization plan has been rejected twice. The SBIF’s resolution must state the reason for ordering the liquidation
and must appoint a liquidator, unless the Superintendent of Banks assumes this responsibility. Upon a liquidation order, all checking accounts deposits and obligations payable on demand from the ordinary course of business, are required to be paid by using the bank’s existing funds, its deposits with the Central Bank of Chile or its investments in instruments that represent its reserves.
If these funds are insufficient to pay these obligations, the liquidator may seize the rest of the bank’s assets, as needed. If necessary and in specified circumstances, the Central Bank of Chile will lend the bank the funds necessary to pay these obligations. Any such on demand obligations are preferential to any claims of other creditors of the liquidated bank.
Investments in Foreign Securities
Under current Chilean banking regulations, banks in Chile may grant loans to foreign individuals and entities and invest in certain foreign currency securities. Chilean banks may only invest in equity securities of foreign banks and certain other foreign companies which may be affiliates of the bank or which would support the bank’s business if such companies were incorporated in Chile. Banks in Chile may also invest in debt securities traded in formal secondary markets. Within certain limits, banks in Chile may invest in such debt securities, in the event such debt securities qualify as securities issued or guaranteed by (1) foreign sovereign states or their central banks or (2) other foreign or international financial institutions of which Chile is a member or bonds issued by foreign corporations. Such foreign currency securities must have a minimum rating as follows:
Rating Agency | Short Term | Long Term | ||
Moody’s | P-2 | Baa3 | ||
Standard and Poor’s | A-2 | BBB- | ||
Fitch Rating Service | F2 | BBB- | ||
Dominion Bond Rating Service (DBRS) | R-2 | BBB (low) |
A Chilean bank may invest in securities having a minimum rating as follows, provided that in case the total amount of these investments, together with the loans granted to certain classes of foreign debtors, exceeds 20% (or 30% for banks with a BIS ratio equal or exceeding 10%) of the effective net equity of the bank, a provision of 100% of the excess shall be established by the bank:
Rating Agency | Short Term | Long Term | ||
Moody’s | P-2 | Ba3 | ||
Standard and Poor’s | A-2 | BB- | ||
Fitch Rating Service | F2 | BB- |
Rating Agency | Short Term | Long Term | ||
Dominion Bond Rating Service | R-2 | BB (low) |
If investments in these securities and certain loans referred to below exceed 70% of the effective net equity of the bank, a provision for 100% of the excess shall be established, unless the excess, up to 70% of the bank’s effective net equity, is invested in securities having a minimum rating as follows:
Rating Agency | Short Term | Long Term | ||
Moody’s | P-1 | Aa3 | ||
Standard and Poor’s | A-1+ | AA- | ||
Fitch Rating Service | F1+ | AA- | ||
Dominion Bond Rating Service | R-1 (high) | AA (low) |
Additionally, a Chilean bank may invest in foreign securities, with ratings equal to or exceeding those set forth in Table 3 above, in: (1) overnight and term deposits with foreign banks, subject to a limit of up to 30% of the effective net equity of the Chilean bank that makes the investment (or limit of 25% of its effective net equity regarding deposits with certain related parties); and (2) securities issued or guaranteed by sovereign states or their central banks or those securities issued or guaranteed by international institutions of which Chile is a part, subject to a limit of up to 50% of the effective net equity of the Chilean bank.
Subject to specific conditions, a bank may grant loans in dollars to subsidiaries or branches of Chilean companies located abroad, to companies listed on foreign stock exchanges authorized by the Central Bank of Chile and, in general, to individuals and entities domiciled abroad, as long as the Central Bank of Chile is kept informed of such activities. A bank may also grant loans in dollars to finance exports to or from Chile.
In the event that the sum of the investments of a bank in foreign currency and of the commercial and foreign trade loans granted to foreign individuals and entities exceeds 70% of the effective net equity of such bank, the excess is subject to a mandatory reserve of 100%.
Changes in the Governance of Our Regulators
A bill of law is under discussionOn February 23, 2017, Law No. 21,000, which establishes the Chilean Commission for the adoption of measures to strengthenFinancial Market (Comisión para el Mercado Financiero), was published. This new law modifies, among other matters, the corporate governance and operation of the SVS.Chilean regulator for securities and insurance, a role that has historically been performed by the Chilean Superintendency of Securities and Insurance. This law will come into effect in August 2018. The main features of this new law are the following:
Among
• | The new law establishes the separation of responsibility for (i) the issuance of regulations, (ii) compliance enforcement, and (iii) investigation and the imposition of sanctions. All three activities will be conducted by different divisions within the Commission for the Financial Market. While the issuance of regulations and the imposition of sanctions will correspond to the Council of the Commission for the Financial Market, the Investigation Unit (Unidad de Investigación) will be in charge of the investigation of breaches of regulations of competence of such commission, of the initiation of sanctioning procedures and of the surveillance of the compliance of the sanctions imposed by the commission. |
• | The sanctioning process will have two different procedures: (i) a simplified procedure for cases where no crimes are involved and for cases of less materiality; and (ii) a general procedure for cases involving potential crimes and for cases which even though do not involve potential crimes, are material. The new law also establishes plea bargain procedures (delación compensada) and the imposition of prohibitions to be eligible for election as director or main executive to those charged with criminal conducts. |
The new law also encourages the self-regulation of entities subject to the supervision of the Commission for the Financial Market through the creation of the Financial Self-Regulation Committee.
Additionally, amendments to the Chilean General Banking Act have been announced but not yet consummated in a bill of law, itlaw. It has been proposed the adoption of measures to strengthen the governance of the SBIF. These proposed amendments would serve to implement Basel III principles and to introduce changes in the processes related to banks insolvency.
Financial Stability Council
Law No. 20,789 created the Financial Stability Council, composed by the Ministry of Finance (Ministerio de Hacienda) the Superintendent of Securities and Insurance, the Superintendent of Banks and the Superintendent of Pensions. The purpose of this council is to facilitate the technical coordination and the exchange of information by these market regulators in all matters related to the prevention and management of situations which may involve a risk for the financial system.
This law also expanded the authority of the SBIF to request information regarding controlling shareholders of banks and entities which are part of their corporate group.
Anti-Money Laundering, Anti-Terrorist Financing and Foreign Corrupt Practices Act Regulations
United States
We, as a foreign private issuer whose securities are registered under the U.S. Securities Exchange Act of 1934, are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA. The FCPA generally prohibits issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. The accounting provisions of the FCPA require an issuer to maintain books and records and have a system of internal accounting controls sufficient to, among other things, provide reasonable assurances that transactions are executed and assets are accessed and accounted for in accordance with management’s authorization. Significant penalties and fines may be imposed against us, and/or our officers, directors, employees, and agents, for violations of the FCPA. Furthermore, we may be subject to a
variety of U.S. anti-money laundering and anti-terrorist financing laws and regulations, including, but not limited to, the Bank Secrecy Act of 1970, as amended, and the USA PATRIOT Act of 2001, as amended. A violation of such laws and regulations may result in substantial penalties, fines and imprisonment of our officers and/or directors.
Chile
The Anti-Money Laundering Act, or the AML Act, requires banks, among others, to report any “suspicious transactions or activities” that they may become aware of in the ordinary course of business to the Chilean Financial Analysis Unit (Unidad de Análisis Financiero), or FAU. “Suspicious activities or transactions” are defined by the AML Act as any act, operation or transaction that, in accordance with the uses and customs of the relevant activity, is considered unusual or devoid of apparent economic or legal justification or that may constitute any of the actions described in article 8 of Law No, 18,314 (terrorist actions), or entered into by an individual or a legal entity included in any resolution issued by the United Nations Security Council, whether carried out in an isolated or recurrent basis.
In accordance with the AML Act, banks must keep special records for any transaction in cash for amounts exceeding US$10,000, and report them to the FAU if so required by the latter authority.
In addition, the entities subject to the AML Act are also subject to Circular No. 49 and other regulations issued by the FAU, which provides additional guidelines for the prevention of money laundering.
With regard to Chilean banks the SBIF has also provided rules and guidelines for banks to set up an AML and Combating Financing of Terrorism, or CFT, prevention system applicable in their ordinary course of business, which must take into consideration the volume and complexity of their transactions, including their affiliates and supporting entities, and their international presence. In case ofnon-compliance of these rules and guidelines, the SBIF may impose administrative sanctions upon the infringing bank such as fines and warnings. Among other requirements, such system shall include at least (1) “know your customer” policies, (2) a manual of policies and procedures, (3) the appointment of a compliance officer, and (4) all necessary technological tools to developred-flag systems to identify and detect unusual operations. For more information on our Anti-Money Laundering Committee, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Other Committees—Anti-money laundering and anti-terrorism finance prevention committee”.committee.”
Colombia
The regulatory framework to prevent and control money laundering is contained in, among others, Decree 663 of 1993 and External Circular No. 029 of 2014 (Basic Legal Circular), Title IV, Chapter XI, “Instructions Related to Risk Management of Laundering and Terrorist Financing”, issued by the Colombian Superintendency of Finance, as well as Law 599 of 2000 (Colombian Criminal Code, as amended).
Colombian laws adopt the latest guidelines related to anti-money laundering and other terrorist activities established by the Financial Action Task Force on Money Laundering, or FATF. Colombia, as a member of theGAFI-SUD (Grupo de Acción Financiera de Sudamérica) (a FATF style regional body), follows all of FATF’s 40 recommendations. Finally, the Colombian criminal code introduced criminal rules and regulations to prevent, control, detect, eliminate and adjudicate all matters related to financing terrorism and money laundering. The criminal rules and regulations cover the omission of reports on cash transactions, mobilization or storage of cash, and the lack of controls.
Anti-money laundering provisions have been complemented with provisions aimed at deterring terrorism financing. For that purpose, by means of External Circular 26 of 2008, the Colombian Superintendency of Finance has issued regulations requiring the implementation by financial institutions of a risk management system for money laundering and terrorism financing. These regulations emphasize “know your customer” policies and knowledge of customers and markets. They also establish processes and parameters to identify and monitor a financial institution’s customers. According to these regulations, financial institutions must cooperate with the appropriate authorities to prevent and control money laundering and terrorism.
Finally, the Colombian Criminal Code includes rules and regulations to prevent, control, detect, eliminate and adjudicate all matters related to financing terrorism and money laundering. The criminal rules and regulations cover the omission of reports on cash transactions, and the lack of controls.
Recent Regulatory Developments in Chile
Capital Adequacy Requirements
The SBIF and the government have announced their intention of sending a bill of law to amend the General Banking Act in three aspects: (i) adoption of Basel III, although with adjustments to local reality, (ii) strengthen the governance of the SBIF, and (iii) perfection of banking resolution mechanisms. The bill of law is announced to be submitted to Congress during 2016,2017, but we currently ignore how the new capital adequacy requirements will be proposed to the Congress, as the Regulator has only givennon-binding information to the market. Nevertheless, we anticipate that the impact of the new rules would be material.
New Insurance Brokerage RegulationCommission for the Financial Market
On December 1, 2013, a new regulation affecting all insurance brokerage businesses in Chile became effective. This regulation is a result ofFebruary 23, 2017, Law No. 20,66721,000, which establishes the Chilean Commission for the Financial Market (Comisión para el Mercado Financiero) was published. This new law modifies, among other matters, the corporate governance and operation of the Chilean regulator for securities and insurance, a role that was enacted on May 9, 2013 and Circular No. 2,114 issuedhas historically been performed by the SVS on July 26, 2013. The new regulation establishes that,Chilean Superintendency of Securities and Insurance. This law will come into effect in August 2018. See “—Changes in the caseGovernance of early termination of an insurance policy paid for in advance (for example, because of the early repayment of the related loan), all unearned premiums must be refunded to the customer by the company that issued the policy. This refund obligation includes both the unearned premiums and commissions relating to the remaining policy period, such as brokerage fees and any other commissions. We do not expect these new refund obligations to have a material effect on the results of our operations. The premiums and commissions subject to refund will be calculated in proportion to the unelapsed period. This refund obligation applies with respect to insurance policies issued after this new regulation became effective. Prior to this new regulation, unearned premiums were refunded only if the early termination took place within the later of forty-five days after the issuance of the insurance policy, or one-tenth of the total term of the insurance policy (from the date of issuance).
In addition, Circular No. 2,131 issued by the SVS on November 28, 2013, added additional requirements regarding customer service for insurance customers. We do not expect these new regulations to have a material effect on our results of operations.
Finally, Circular No. 2,137, issued by the SVS on January 13, 2014, required the adoption of IFRS by insurance brokerage companies beginning in 2015. We expect this requirement to initially affect the revenues of our subsidiary CorpBanca Corredora de Seguros, in its capacity as an insurance broker.Our Regulators.”
Modification to the AML Act
On January 9,February 18, 2015 Law N° 20,818 was enacted, amending certain provisions of the AML Act by: (i) increasing the authority of the FAU; (ii) increasing the scope of entities that are subject to the AML Act; (iii) amending the definition of “suspicious activities or transactions”; (iv) reducing the minimum amounts of the cash transactions to be registered and potentially reported to the FAU; (v) amending the sanctions applicable to any breach to the AML Act; (vi) adding new base crimes for the crime of money laundering; (vii) requiring entities subject to the AML Act to report to the FAU any transaction entered into by any individual or entity contained in any resolution issued by the United Nations Security Council; and (viii) establishing the obligation of the entities subject to the AML Act to register with the FAU, among other things.
Funds Law (Ley Única de Fondos)
Law No. 20,712 on funds was published in the Chilean Official Gazette on January 7, 2014, or the Funds Law. The Funds Law is a single legal set of regulations enacted to provide for general and special regimes applicable to all Chilean funds, setting basic provisions governing their structure, management, dividend distribution, redemption of quotas and taxation, among other things. This law is expected to have a positive effect on the operations of our subsidiary CorpBancasubsidiaries Corpbanca Administradora General de Fondos S.A. and Itaú Chile Administradora General de Fondos S.A., in itstheir respective capacity as fund manager.managers.
Maximum Interest Rate
A new Chilean law regarding maximum interest rates was enacted on December 13, 2013 upon publication of Law 20,715 in the Chilean Official Gazette. This legislation affects all Chilean businesses that charge interest (including all banks) on loans up to UF 200 (approximately U.S$7,216), including installment loans, credit cards, credit line loans and overdue loans. This regulation requires, among other things, a new method for calculating the maximum legal interest rate for loans not indexed to inflation with
terms equal to or longer than 90 days, which results in a reduction of the maximum legal interest rate applicable to such debtors. We do not expect the enactment of this law to have a material effect on our results of operations.
Insolvency Law
Chilean banks are subject to special insolvency proceedings. Nevertheless, a bank can be subject to the general insolvency law in case it becomes insolvent during a voluntary liquidation of its assets. In that regard, the Chilean Congress approved a new Insolvency Act on October 29, 2013, which was published in the Official Gazette on January 9, 2014 and came into effect on October 9, 2014. The new Insolvency Act eliminates the distinction between merchants and other debtors, eliminates the classification of bankruptcies as negligent or fraudulent and modifies the Chilean Criminal Code in order to recognize certain criminal offences related to the conduct of the business of the debtor prior to the declaration of its bankruptcy, and setsets forth different rules for the insolvency of an enterprise (empresa) and of anon-enterprise person (persona deudora) among other changes.
Under the new Insolvency Act, there are two types of proceedings for an enterprise :enterprise: (i) liquidation proceedings which are very similar to existing bankruptcy proceedings, although they will be headed by a liquidator rather than a trustee (síndico) and (ii) reorganization proceedings. Upon completion of a liquidation procedure, the debtor recovers the free administration and disposition of its assets and any outstanding debts against the debtor incurred prior to the commencement of the liquidation procedure will be deemed discharged as a matter of law. As a result, a creditor who fails to participate during the liquidation process will forfeit its past claims against the debtor. The reorganization proceedings, are more oriented to the continuation of the debtor’s business and, therefore, allow the debtor to seek protection from the courts, or “Insolvency Protection” (protección financiera concursal), for a term of 30 days, as from the date the reorganization proceeding is declared commenced by the competent court during which, among other effects, it cannot be put into liquidation, its assets cannot be foreclosed, the agreements entered into by it cannot be unilaterally terminated by the other party, the maturity of the indebtedness of the debtor cannot be accelerated or the securities granted by the debtor cannot be enforced by the creditor based on the commencement of the reorganization proceeding of the debtor’s insolvency. In the event that a creditor breaches this provision, its credit shall rank junior after all the other debts of the debtor. This30-day term could be extended for 30 or 60 days if supported by creditors representing 30% or 50% of the debtors’ unrelated liabilities, respectively.
Pursuant to the provisions of the new Insolvency Act, it is possible for a debtor to commence a reorganization procedure not only through a court process, but also as anout-of-court agreement with its creditors, which shall then be approved by the court through a simple process. It is also now possible for the debtor and its creditors to agree in reorganization proposal including different conditions for different categories of creditors (e.g., secured and unsecured), which must be expressly approved by the remaining creditors.
The new Insolvency Act also allows a debtor under Insolvency Protection to acquire debt to finance its operations (up to 20% of the debt it had at the commencement of the procedure), which shall rank senior with respect to the existing creditors (except for a few statutory preferences which shall remain in force) in case the reorganization agreement is not approved and the judge orders the liquidation of the company.
The new Insolvency Act amends claw-back period rules such that as a general rule any transfer, encumbrance or other transaction executed or granted by the debtor during the term of two years prior to the commencement of the reorganization or liquidation proceedings may be rendered ineffective if its proved before the court that such transfer, encumbrance or transaction: (i) was entered with the counterparty’s knowledge of the debtor’s bad business condition; and (ii) caused damages to the bankruptcy estate or has affected the parity that shall exist among creditors (e.g., that the transaction has not been entered into terms and conditions similar to those usually prevailing in the market at the time of its execution).
Notwithstanding the above, the new Insolvency Act maintains certain specific cases of ineffectiveness of any transfer, encumbrance or other transaction executed or granted during the term of one year prior to the commencement of the insolvency proceedings (which may be extended to two years in certain events), based on objective grounds, such aspre-payments, payments in terms different as originally agreed by the parties and the creation of security interests to guaranteepre-existing obligations. Also, agreements and changes to bylaws which decrease the capital of the debtor could be deemed ineffective if made during the six months prior to the commencement of the insolvency proceeding.
Finally, the new Insolvency Act regulates for the first time cross-border insolvency issues, allowing the recognition in Chile of foreign bankruptcy/liquidation proceedings. We do not expect the enactment of this law to have a material effect on our results of operations.
Tax Reform
On September 29, 2014, the Tax Reform was published in the Chilean Official Gazette, introducing the most significant amendments to the Chilean tax system over the last 30 years and strengthening the powers of theServicio de Impuestos Internos, or the Chilean IRS to control and prevent tax avoidance. One of the main purposes of this reform was to finance major educational reforms under discussion in the Chilean Congress. Thereafter the Tax Reform was modified by Law No. 20,899, published on February 8, 2016.
The Tax Reform currently contemplates, among other matters, changes to the corporate tax regime by allowing coexistence of two alternative tax regimes available to Chilean companies from January 1, 2017 onwards: (i) an attributed income system or (ii) a partially integrated system.
Law No. 20,899 introduced changes to both systems in order to simplify them. Other amendments included in this Law are related to the accuracy of the general anti-avoidance rules and the implementation of Value Added Tax (VAT) for certain operations, mainly to the sale of real estate and leases with purchase option.
Law No. 20,79820,855
On September 16th,25, 2015 the Consumer Protection Act and the Pledge Whithout ConveyaceConveyance Act were amended in order to include several provisions regarding the release and cancellation of mortgages and certain pledges. According to this law, once an obligation secured with any of the said security interests has been extinguished, the relevant creditorex officio shall grant and afford the corresponding release and cancellation public deed, and its record cancellation. Furthermore, the relevant creditor shall inform such proceedings to the debtor within the term established by law.
Colombian BankingNew Securities Brokerage Regulation
On March 9, 2015, the Chilean Superintendency of Securities and SupervisionInsurance issued its General Rule No. 380, which came into effect on September 9, 2016. This new rule replaced the rules regarding the relationship of Chilean securities brokers with their customers by setting forth new regulations on matters such as suitability, contracts with clients, conflicts of interest, execution of orders and registration and recording of orders, among others. Based on this new rule, Chilean securities brokers are required to execute contracts with clients that shall include the information set forth in this rule (i.e., communications to the client of the existence of conflicts of interest, procedures to deal with such conflicts, communications between the securities broker and the client, granting of security interest, fees, etc.). Also, the Chilean stock exchanges changed their internal regulations to adopt the new regulations set forth by General Rule No. 380, including providing forms of the contracts required to be executed with clients.
COLOMBIAN BANKING REGULATION AND SUPERVISION
Colombian Banking Regulators
Pursuant to the Colombian Constitution, the Colombian Congress has the power to prescribe the general legal framework within which the government may regulate the financial system. The agencies vested with the authority to regulate the financial system are the board of directors of the Central Bank of Colombia, the Colombian Ministry of Finance, the Colombian Superintendency of Finance, the SIC, and the SRO.
Central Bank of Colombia
The Central Bank of Colombia exercises the customary functions of a central bank, including price stabilization, monetary policy, regulation of currency circulation, regulation of credit, exchange rate monitoring and management of international reserves. Its board of directors is the regulatory authority for monetary, currency exchange and credit policies, and is responsible for the direction of the Central Bank of Colombia’s duties. The Central Bank of Colombia also acts as lender of last resort to financial institutions.
Colombian Ministry of Finance and Public Credit
One of the functions of the Colombian Ministry of Finance is to regulate all aspects of finance and insurance activities. As part of its duties, the Colombian Ministry of Finance issues decrees relating to financial matters that may affect banking operations in Colombia. In particular, the Colombian Ministry of Finance is responsible for regulations relating to capital adequacy, risk limitations, authorized operations, disclosure of information and accounting of financial institutions.
Colombian Superintendency of Finance
The Colombian Superintendency of Finance is the authority responsible for supervising and regulating financial institutions, including commercial banks such as CorpBancaCorpbanca Colombia, finance companies, financial services companies and insurance companies. The Colombian Superintendency of Finance has broad discretionary powers to supervise financial institutions, including the authority to impose fines on financial institutions and their directors and officers for violations of applicable regulations and certain judicial attributions regarding controversies among customers and banks. The Colombian Superintendency of Finance can also conducton-site inspections of Colombian financial institutions.
The Colombian Superintendency of Finance is also responsible for monitoring and regulating the market for publicly traded securities in Colombia and for monitoring and supervising securities market participants, including the Colombian Stock Exchange, brokers, dealers, mutual funds and issuers.
Financial institutions must obtain the prior authorization of the Colombian Superintendency of Finance before commencing operations.
Violations of the financial system rules and regulations are subject to administrative, and in some cases, criminal sanctions.
Self-Regulatory Organization
The SRO is a private entity responsible for the regulation of entities participating in the Colombian capital markets. The SRO may issue mandatory instructions to its members and supervise its members’ compliance and impose sanctions for violations.
All capital market intermediaries, including CorpBancaCorpbanca Colombia and its subsidiaries, must become members of the SRO and are subject to its regulations.
Superintendency of Industry and Commerce
The SIC is the authority responsible for supervising and regulating competition in several industrial sectors, including financial institutions. The SIC is authorized to initiate administrative proceedings and impose sanctions on banks, including CorpBancaCorpbanca Colombia, whenever the financial entity behaves in a manner considered to be anti-competitive.
The Colombian Superintendency of Finance is the authority responsible for approving mergers, acquisitions and integrations between financial institutions such a CorpBancaCorpbanca Colombia. For such approvals, the Colombian Superintendency of Finance must obtain anon-binding prior written opinion by the SICSIC.
Capital Adequacy Requirements
Capital adequacy requirements for Colombian financial institutions (as set forth in Decree 2,555 of 2010, as amended, or Decree 2,555) are based on applicable Basel Committee standards. Decree 2,555 establishes four categories of assets, which are each assigned different risk weights, and require that a credit institution’s Technical Capital (as defined below) be at least 9% of that institution’s total risk-weighted assets.
Currently, Decree 2,555 sets forth, among other things:
• | that Technical Capital is the sum of ordinary primary capital (patrimonio básico ordinarioor Common Equity Tier One), additional primary capital (patrimonio básico adicionalor Additional Tier One), and secondary capital (patrimonio adicionalor tier two capital); |
the minimum total solvency ratio of 9% of the financial institution’s technical capital divided by total risk-weighted assets; however, each entity must also comply with a minimum basic solvency ratio of 4.5%, which is defined as the
ordinary primary capital after deductions divided by the financial institution’s total risk-weighted assets. In addition, solvency ratios must be met individually, by each credit institution, and must be met and monitored on a consolidated basis;
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When the solvency ratio of a financial institution is below 10%, the Colombian Superintendency of Finance implements a closer supervision on banking activities of the entity based on the supervision policy implemented by the Colombian Superintendency of Finance.
Minimum Capital Requirements
The minimum capital requirement for banks on an unconsolidated basis set forth in the Financial System Organic Act was COP77,016COP$79,835 million for 2014, COP79,835 million(Ch$17,813 million) for 2015, COP$85,240 million (Ch$19,019 million) for 2016 and shall be COP85,240 millionCOP$90,142 (Ch$20,715 million) for 2016.2017. Failure to meet such requirement can result in the relevant financial institution take over (toma de posesión) by the Colombian Superintendency of Finance. Minimum capital requirements are adjusted in January each year based on the inflation percentage for the precedent year. The capital requirements for each type of financial institution (financial corporations, financing companies, trust companies, etc)etc.) are different, with banks having the highest minimum amount. Additionally, there are capital requirements above this minimum for the purposes of credit exposure and derivatives transactions.
Capital Investment Limit
All investments in subsidiaries and other authorized capital investments, other than those made in order to abide by legal requirements, may not exceed 100% of the total aggregate of capital, equity reserves and the equityre-adjustment account of the respective bank, financial corporation or commercial finance company, excluding unadjusted fixed assets and including deductions for accumulated losses.
Mandatory Investments
The Central Bank of Colombia’s regulations require financial institutions, including CorpBancaCorpbanca Colombia, to make mandatory investments in securities issued by Finagro, a Colombian public financial institution that finances production and rural activities, to support the agricultural sector. The amount of these mandatory investments is calculated based on the current Colombian peso-denominated obligations of the relevant financial institution.
Foreign Currency Position Requirements
According to External Resolutions 4, or Resolution 4, and 9, or Resolution 9, issued the Central Bank of Colombia issued in 2007 and 2013, respectively, as amended, a financial institution’s foreign currency position (posició(posición propia en moneda extranjera) is the difference between such institution’s foreign currency-denominated assets and liabilities (including anyoff-balance sheet items), made or contingent, including those that may be sold in Colombian legal currency.
Resolution 9 provides that the average of a bank’s foreign currency position for three business days cannot exceed the equivalent in Colombian pesos of 20% of the bank’s Technical Capital. Currency exchange intermediaries such as CorpBancaCorpbanca Colombia are permitted to hold a three business days’ average negative foreign currency position not exceeding the equivalent in foreign currency of 5% of its Technical Capital (with penalties being payable after the first business day).
Resolution 9 also defines foreign currency position in cash (posición propia de contado en moneda extranjera) as the difference between all foreign currency-denominated assets and liabilities. A bank’s three business days average foreign currency position in cash cannot exceed 50% of the bank’s Technical Capital. In accordance with Resolution 9, the three day average must be calculated on a daily basis and the foreign currency position in cash can be negative but must nonot exceed 20% of its Technical Capital. (Resolution 9 was amended on September 25th, 2015).
Finally, Resolution 9 requires banks to comply with a gross position of leverage (posición bruta de apalancamiento). Gross position of leverage is defined as the sum of (i) the rights and obligations of term and future contracts denominated in foreign
currency, plus (ii) foreign currency cash operations with settlement higher or equal to one banking day, plus (iii) the exchange rate risk exposure associated with debtor and creditor contingencies acquired in the trading of exchange rate options and derivatives.
Resolution 9 sets a limit on the gross position of leverage, which cannot exceed 550% of the Technical Capital.
Deposit Insurance
In Colombia, the deposit insurance fund, FOGAFIN (Fondo de Garantías de Instituciones Financieras), guarantees up to COP20COP$20 million (US$6,3806,662.2 as of December 31, 2015)2016) per person, for each institution calculated as the aggregate amount of time, savings and demand deposits held by individuals in a Colombian financial institution. Payment will be made in case of an administrative compulsory liquidation of the financial institution.
Reserve Requirements
Commercial banks are required by the board of directors of the Central Bank of Colombia to satisfy reserve requirements with respect to deposits and other cash demands. Such reserves are held by the Central Bank of Colombia in the form of cash deposits. According to Resolutions 5 and 11 of 2008 issued by the board of directors of the Central Bank of Colombia, as amended, the reserve requirements for Colombian banks are measuredbi-weekly and the amounts depend on the class of deposits.
Credit institutions must maintain reserves of 11% over the following deposits, cash demands and other passive obligations:
In addition, credit institutions must maintain reserves of 4.5% for term deposits with maturities fewer than 18 months and 0% for term deposits with maturities of more than 18 months.
Credit institutions may maintain these reserves in their accounts at the Central Bank of Colombia, or cash.
Marginal reserve requirements were eliminated by the Central Bank of Colombia in 2008. Since 2009, the reserve requirements have no remuneration.
Foreign Currency Loans
Residents of Colombia may obtain foreign currency loans from foreign residents and from Colombian currency exchange intermediaries or by placing debt securities abroad. Foreign currency loans must be either disbursed through a foreign exchange intermediary or deposited in offshore compensation accounts.
According to regulations issued by the Central Bank of Colombia, every Colombian resident and institution borrowing funds in foreign currency is generally required to post with the Central Bank of Colombianon-interest bearing deposits for a specified term, although the size of the required deposit is currently zero.
Notwithstanding the foregoing, such deposits would not be required in certain cases set forth in the External Resolution 8 of 2000 issued by the Central Bank of Colombia, or Resolution 8, including in the case of foreign currency loans aimed at financing Colombian investments abroad or for short-term exportation loans, provided that such loan is disbursed against the funds ofBanco de Comercio Exterior—Bancoldex. Moreover, Resolution 8 sets forth a number of restrictions and limitations as to the use of proceeds in the case of foreign currency loans obtained by Colombian currency exchange intermediaries (including CorpBancaCorpbanca Colombia) and also provides that deposits would not be required in the event such restrictions and limitations are observed. Such foreign currency loans may be used, among others, for lending activities in a foreign currency with a tenor equal to, or shorter than, the tenor of the foreign financing.
Interest payments to foreign currency loans granted by foreign banks to Colombian residents are currently subject to a 33% withholding tax for loans with less than a year tenor or 14% withholding tax for loans with more than a year tenor, as a general rule.
Finally, pursuant to Law 9 of 1991, the board of directors of the Central Bank of Colombia is entitled to impose conditions and limitations on the incurrence of foreign currency indebtedness, as an exchange control policy, in order to avoid pressure in the currency exchange market.
Non-Performing Loan Allowance
The Colombian Superintendency of Finance maintains guidelines onnon-performing loan allowances for financial institutions. This information has been provided in order to provide the reader with a morein-depth analysis. Notwithstanding, our allowance and provision for loan losses as recorded in our financial statements included herein have been determined in accordance with IFRS.
Recent Regulatory Developments in Colombia
Selected Statistical InformationTax Reform
On December 29, 2016, the Colombian Government approved a tax reform under Law No. 1,819. See “Item 3.—Risk Factors—Future increases in the corporate tax rate or additional modifications to the tax systems of the countries in which we operate may have a material adverse effect on us.”
Abandoned Accounts
On February 1, 2016, Law No. 1,777 was enacted. Abandoned accounts are regulated in order to establish a public use for funds in these accounts. Funds are considered abandoned in bank accounts after three consecutive years without any account movement. Such abandoned funds may be invested in the creation and administration of a fund in the public financial institute that finances educational credit (Crédito Educativo y Becas en el Exterior or ICETEX).
Costs of Financial Services
On July 7, 2016, Law No. 1,793 was enacted in order to regulate the costs of financial services. Among other things, this new law establishes that clients of entities authorized to collect funds from the public may access all of the funds deposited in their savings accounts or electronic deposits, without having the obligation to maintain a minimum balance. The entities must provide mechanisms for this purpose without charging additional fees to clients. This new law also establishes that: (i) for savings accounts, entities authorized to raise funds from the public may only charge financial and/or transactional costs for the first 60 days of inactivity and/or absence of financial movements by the user, and in no case may such entities make retroactive charges when the account becomes active again; (ii) for savings accounts that are inactive at the time of entry into force of the new law, the period of 60 days for the suspension of collections will start from the date of effectiveness of the law; and (iii) entities authorized to raise funds from the public are obligated to recognize users with a minimum interest rate in all savings accounts for any level of deposit. In addition, the receiving entities must inform the consumers about these changes in law.
Abusive Contract Clauses and Practices
On May 26, 2016, the Colombian Superintendence of Finance issued its Circular No. 18, which modified the then-current instructions related to abusive contract clauses and practices. The circular forbids certain practices that were considered abusive by the Colombian Superintendence of Finance, as well as those practices informed by the Financial Consumer Defenders. Financial institutions were given a maximum term of six months from the entry into force of the circular to adjust their contracts and practices to its instructions.
Total Unified Value (Valor Total Unificado or VTU)
On July 12, 2016, the Colombian Superintendence of Finance issued its External Circular Letter No. 23, setting forth instructions related to the obligation of banking entities to report to their clients a “Total Unified Value” (Valor Total Unificado or VTU) of active and passive operations, when offering basic services and an “Annual Report of Total Costs” (Reporte Annual de Costos Totales or RACT). The purpose of this circular was to: (i) update and harmonize the instructions related to the scope, content and form of delivery of the RACT, and the basic services package; (ii) incorporate the components to be taken into account for the calculation and reporting of “Total Unified Value in Active Transactions” (Valor Total Unificado de Operaciones Activas or VTUA) and “Total Unified Value in Passive Transactions” (Valor Total Unificado de Operaciones Pasivas or VTUP); and (iii) establish the method of calculation of the VTUA and VTUP.
Interruptions of Services
On August 3, 2016, the Colombian Superintendence of Finance issued its External Circular No. 28, setting forth instructions applicable to all financial sector companies in connection with events that generate interruptions of services and that prevent operations from being carried out by clients. The circular aimed to guarantee that clients are informed of these interruptions and have mechanisms to guarantee the effective exercise of their rights. The circular also includes instructions related to: (i) the information that credit institutions must provide to clients when encountering interruptions in the provision of services; and (ii) the general requirements regarding security and quality of information.
Requirements for Trust Products
On July 27, 2016, the Colombian Superintendence of Finance issued its Circular No. 024, which established the minimum requirements for trust products linked to the development of real estate projects, accountability and the process of commercialization of the participation in any trust fund. The circular also sets forth the information that must be provided to financial consumers of trust products of any kind. For this purpose, the Colombian Superintendence of Finance published an ABC on business trust about real estate projects providing general guidance to those interested in this class of investment.
Reversal of Payments
On April 11, 2016, the Colombian Ministry of Industry and Commerce issued its Decree No. 587, which added a chapter to the Unique Decree of the Commerce, Industry and Tourism Sector, Decree 1,074 of 2015, and regulated Article 51 of Law 1,480 of 2011. The decree establishes the conditions and procedures for reversals of payments requested by consumers, when the purchase of the goods or services was made through electronic commerce mechanisms with an electronic payment instrument such as a credit or debit card.
SELECTED STATISTICAL INFORMATION
The following information is included for analytical purposes and should be read in conjunction with our financial statements as well as “Item 5. Operating and Financial Review and Prospects”.Prospects.” Unless otherwise indicated, financial data in the following tables as of December 31, 2013, 20142015 and 20152016 has been expressed in Chilean pesos as of December 31, 2015.2016. The UF is linked to, and is adjusted daily to reflect changes in, the previous month’s CPI.
Average Balance Sheets, Income Earned From Interest-Earning Assets and Interest Paid on Interest Bearing Liabilities
The average balances for interest-earning assets and interest bearing liabilities, including interest and readjustments received and paid, have been calculated on the basis of dailymonthly balances on an unconsolidated basis. Unless otherwise set forth herein, such average balances as they apply to the operations of our subsidiaries were calculated on the basis ofmonth-end balances. Such average balances are presented in Chilean pesos, in UFs and in foreign currencies (principally US$).
The nominal interest rate has been calculated by dividing the amount of interest and principal readjustment due to changes in the UF index (gain or loss) during the period by the related average balance, both amounts expressed in Chilean pesos. The nominal rates calculated for each period have been converted into real rates using the following formulas:
1 + Np | (1 + Nd)(1 + D) | |||||||||
Rp= | -1 | Rd= | -1 | |||||||
1 + 1 | 1+1 |
1 + Np | (1 + Nd)(1 + D) | |||||||||
Rp= | -1 | Rd= | -1 | |||||||
1 + I | 1+I |
Where:
Rp= real average rate for Chilean peso-denominated assets and liabilities (in Ch$ and UF) for the period,
Rd= real average rate for foreign currency denominated assets and liabilities for the period,
Np= average nominal rate for Chilean peso-denominated assets and liabilities for the period,
Nd= average nominal rate for foreign currency denominated assets and liabilities for the period,
D= devaluation rate of the Chilean peso to the U.S. dollar for the period, and
I= inflation rate in Chile for the period (based on the variation of the Chilean consumer price index).
The real interest rate can be negative for a portfolio of Chilean peso-denominated loans when the inflation rate for the period is higher than the average nominal rate of the loan portfolio for the same period. A similar effect could occur for a portfolio of foreign currency denominated loans when the inflation rate for the period is higher than the sum of the devaluation rate for the period and the corresponding average nominal rate of the portfolio. The formula for the average real rate for foreign currency denominated assets and liabilities (Rd) reflects a gain or loss in purchasing power caused by the difference between the devaluation rate of the Chilean peso and the inflation rate in Chile during the period.
The following example illustrates the calculation of the real interest rate for a dollar-denominated asset bearing a nominal annual interest rate of 10% (Nd = 0.10), assuming a 5% annual devaluation rate (D = 0.05) and a 12% annual inflation rate (I = 0.12):
(1 + 0.10)(1 + 0.05) | 3.125% per year | |||||||
Rd= | -1= | |||||||
1 + 0.12 |
In the example, since the inflation rate was higher than the devaluation rate, the real rate is lower than the nominal rate in dollars. If, for example, the annual devaluation rate were 15%, using the same numbers, the real rate in Chilean pesos would be 12.9%, which is higher than the nominal rate in U.S. dollars. Using the initial example, if the annual inflation rate were greater than 15.5%, the real rate would be negative.
Interest and average balances have been calculated by taking into consideration the following:
The following tables show, by currency of denomination, average balances and, where applicable, interest amounts, nominal rates and rates for our assets and liabilities for the years ended December 31, 2013, 20142015 and 2015.2016.
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$ except for percentages) | (in millions of Ch$ except for percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTEREST EARNING ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits in Central Bank | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 86,059 | 1,527 | 1.8 | % | (1.2 | %) | 104,708 | 3,343 | 3.2 | % | (1.3 | )% | 79,148 | 2,832 | 3.6 | % | (0.8 | ) | 189,594 | 1,333 | 0.7 | % | (3.5 | )% | 218,522 | 1,689 | 0.8 | % | (1.9 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||
UF | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 54,891 | — | 0.0 | % | 6.7 | % | 29,985 | — | 0.0 | % | 10.0 | % | 29,735 | — | 0.0 | % | 12.4 | 7,173 | — | — | 12.4 | % | 58,713 | — | (9.7 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 140,950 | 1,527 | 1.8 | % | 1.9 | % | 134,692 | 3,343 | 2.5 | % | 1.2 | % | 108,882 | 2,832 | 3.6 | % | 2.8 | 196,767 | 1,333 | 0.7 | % | (3.0 | )% | 277,235 | 1,689 | 0.6 | % | (3.5 | )% | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Financial investments | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 295,940 | 14,704 | 5.0 | % | 1.9 | % | 369,163 | 14,656 | 4.0 | % | (0.6 | )% | 368,870 | 11,424 | 3.1 | % | (1.2 | ) | 219,660 | 6,880 | 3.1 | % | (1.2 | )% | 535,413 | 31,750 | 5.9 | % | 3.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 242,954 | 10,107 | 4.2 | % | 1.1 | % | 179,187 | 15,844 | 8.8 | % | 4.1 | % | 208,950 | 23,036 | 11.0 | % | 6.3 | 276,560 | 14,000 | 5.1 | % | 0.6 | % | 409,993 | 2,112 | 0.5 | % | (2.1 | )% | |||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 378,737 | 14,906 | 3.9 | % | 10.9 | % | 613,064 | 11,109 | 1.8 | % | 12.0 | % | 733,104 | 43,025 | 5.9 | % | 19.0 | — | — | — | — | 665,262 | 44,852 | 6.7 | % | (2.0 | )% | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 917,630 | 39,718 | 4.3 | % | 5.4 | % | 1,161,414 | 41,610 | 3.6 | % | 6.7 | % | 1,310,924 | 77,486 | 5.9 | % | 11.3 | 496,220 | 20,881 | 4.2 | % | (0.2 | )% | 1,610,668 | 78,715 | 4.9 | % | (0.3 | )% | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Total loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 3,281,015 | 328,549 | 10.0 | % | 6.8 | % | 3,197,553 | 305,184 | 9.5 | % | 4.7 | % | 3,688,139 | 321,248 | 8.7 | % | 4.1 | 2,124,186 | 200,490 | 9.4 | % | 4.8 | % | 5,138,512 | 703,514 | 13.7 | % | 10.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 3,651,479 | 245,383 | 6.7 | % | 3.6 | % | 3,544,600 | 373,539 | 10.5 | % | 5.7 | % | 3,978,943 | 323,621 | 8.1 | % | 3.6 | 3,090,867 | 239,666 | 7.8 | % | 3.2 | % | 6,527,551 | 222,864 | 3.4 | % | 0.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 4,573,453 | 359,714 | 7.9 | % | 15.1 | % | 7,153,353 | 566,525 | 7.9 | % | 18.7 | % | 6,955,148 | 542,624 | 7.8 | % | 21.1 | 1,195,539 | 43,906 | 3.7 | % | 16.5 | % | 6,135,822 | 464,499 | 7.6 | % | (1.2 | )% | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 11,505,946 | 933,646 | 8.1 | % | 9.1 | % | 13,895,505 | 1,245,248 | 9.0 | % | 12.1 | % | 14,622,229 | 1,187,493 | 8.1 | % | 12.1 | 6,410,592 | 484,062 | 7.6 | % | 6.2 | % | 17,801,885 | 1,390,877 | 7.8 | % | 2.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$ except for percentages) |
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Interbank loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 261,151 | 12,510 | 4.8 | % | 1.7 | 294,778 | 9,837 | 3.3 | % | (1.2 | )% | 245,549 | 7,457 | 3.0 | % | (1.3 | ) | 48,329 | 1,048 | 2.2 | % | (2.1 | )% | 166,307 | 6,485 | 3.9 | % | 1.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
UF | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 122,894 | 2,164 | 1.8 | % | 8.6 | 117,177 | 1,164 | 1.0 | % | 11.1 | % | 220,009 | 2,553 | 1.2 | % | 13.7 | 51,156 | 412 | 0.8 | % | 13.3 | % | 196,185 | 1,696 | 0.9 | % | (7.4 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 384,045 | 14,673 | 3.8 | % | 3.9 | % | 411,955 | 11,000 | 2.7 | % | 2.3 | % | 465,557 | 10,009 | 2.1 | % | 5.8 | 99,485 | 1,459 | 1.5 | % | 5.8 | % | 362,492 | 8,180 | 2.3 | % | (3.5 | )% | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment under resale agreements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 31,514 | 1,930 | 6.1 | % | 3.0 | % | 31,891 | 1,328 | 4.2 | % | (0.4 | )% | 28,788 | 1,047 | 3.6 | % | (0.7 | ) | 16,039 | 916 | 5.7 | % | 1.3 | % | 34,876 | 1,696 | 4.9 | % | 2.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 1,021 | 20 | 2.0 | % | (1.0 | )% | 649 | 37 | 5.7 | % | 1.1 | % | 128 | 4 | 3.1 | % | (1.2 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 122,577 | 13,185 | 10.8 | % | 18.2 | % | 152,590 | 12,190 | 8.0 | % | 18.7 | % | 64,021 | 12,938 | 20.2 | % | 35.1 | — | — | — | — | 102,096 | 23,854 | 23.4 | % | 38.6 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
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|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 155,110 | 15,135 | 9.8 | % | 15.0 | % | 185,129 | 13,555 | 7.3 | % | 15.4 | % | 92,937 | 13,989 | 15.1 | % | 23.9 | 16,039 | 916 | 5.7 | % | 1.3 | % | 136,972 | 25,550 | 18.7 | % | 29.3 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
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|
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other interest earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 23 | — | 0.0 | % | 0.0 | % | 14 | — | 0.0 | % | 0.0 | % | — | — | — | — | — | — | — | — | 122 | — | — | (8.2 | )% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | — | — | 0.0 | % | 0.0 | % | — | — | 0.0 | % | 0.0 | % | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 551,272 | 2,407 | 0.4 | % | 7.2 | % | 920,043 | 5,368 | 0.6 | % | 10.6 | % | 815,920 | 7,671 | 0.9 | % | 13.4 | 218,567 | (6,669 | ) | (3.1 | )% | 8.9 | % | 993,168 | 4,192 | 0.4 | % | 12.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
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|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 551,295 | 2,407 | 0.4 | % | 7.2 | % | 920,057 | 5,368 | 0.6 | % | 10.6 | % | 815,920 | 7,671 | 0.9 | % | 13.4 | 218,567 | (6,669 | ) | (3.1 | )% | 8.9 | % | 993,289 | 4,192 | 0.4 | % | 12.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
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|
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|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 3,955,700 | 359,220 | 9.1 | % | 5.9 | % | 3,998,106 | 334,348 | 8.4 | % | 3.6 | % | 4,410,493 | 344,008 | 7.8 | % | 3.3 | 2,597,808 | 210,667 | 8.1 | % | 3.6 | % | 6,093,752 | 745,134 | 12.2 | % | 9.3 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 3,895,453 | 255,511 | 6.6 | % | 3.5 | % | 3,724,436 | 389,421 | 10.5 | % | 5.6 | % | 4,188,020 | 346,662 | 8.3 | % | 3.7 | 3,367,427 | 253,666 | 7.5 | % | 3.0 | % | 6,937,544 | 224,977 | 3.2 | % | 0.5 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 5,803,822 | 392,376 | 6.8 | % | 13.9 | % | 8,986,211 | 596,356 | 6.6 | % | 17.3 | % | 8,817,937 | 608,811 | 6.9 | % | 20.1 | 1,472,435 | 37,649 | 2.6 | % | 15.2 | % | 8,151,245 | 539,093 | 6.6 | % | (2.1 | )% | |||||||||||||||||||||||||||||||||||||||||||||||||||
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|
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 13,654,975 | 1,007,106 | 7.4 | % | 8.6 | % | 16,708,753 | 1,320,124 | 7.9 | % | 11.4 | % | 17,416,450 | 1,299,480 | 7.5 | % | 11.9 | 7,437,670 | 501,962 | 6.7 | % | 5.6 | % | 21,182,541 | 1,509,203 | 7.1 | % | 2.0 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NON-INTEREST EARNING ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 291,785 | 345,073 | 370,845 | 81,203 | 341,023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 156,375 | 225,628 | 207,380 | 54,714 | 192,603 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 448,160 | 570,701 | 578,225 | 135,917 | 533,626 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 112,627 | 116,108 | 119,671 | 108,865 | 234,582 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 114,653 | 204,710 | 219,842 | — | 222,365 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 227,280 | 320,818 | 339,513 | 108,865 | 456,948 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, plant and equipment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 47,642 | 37,972 | 39,942 | 33,879 | 64,522 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 30,532 | 60,993 | 52,938 | — | 36,006 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 78,164 | 98,965 | 92,880 | 33,879 | 100,528 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 291,884 | 553,029 | 419,229 | 141,979 | 773,393 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | — | — | — | 61,628 | 47,967 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 27,085 | 75,753 | 570,470 | 63,374 | 192,707 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 318,970 | 628,782 | 989,699 | 266,981 | 1,014,067 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 555,959 | 597,292 | 715,778 | 265,169 | 1,565,969 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 2,901 | 15,365 | 22,018 | 7,303 | 15,665 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 566,368 | 1,046,829 | 1,198,666 | 73,017 | 790,266 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,125,228 | 1,659,486 | 1,936,462 | 345,489 | 2,371,900 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Earmed | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total non-interest earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 1,074,643 | 1,417,258 | 1,426,124 | 413,365 | 2,510,325 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 2,901 | 15,365 | 22,018 | 68,931 | 63,632 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 665,698 | 1,204,492 | 1,809,612 | 191,105 | 989,216 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,743,242 | 2,637,116 | 3,257,754 | 673,401 | 3,563,173 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 5,030,344 | 359,220 | 5,415,364 | 334,348 | 5,836,617 | 344,008 | 3,011,173 | 210,667 | 8,604,077 | 745,134 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 3,898,354 | 255,511 | 3,739,801 | 389,421 | 4,210,039 | 346,662 | 3,436,358 | 253,666 | 7,001,176 | 224,977 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 6,469,521 | 392,376 | 10,190,704 | 596,356 | 10,627,549 | 608,811 | 1,663,540 | 37,649 | 9,140,462 | 539,093 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
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|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 15,398,217 | 1,007,106 | 19,345,868 | 1,320,124 | 20,674,205 | 1,299,480 | 8,111,071 | 501,982 | 24,745,715 | 1,509,203 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
(1) | Represents total of interest paying andnon-interest earning assets. |
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$ except for percentages) | (in millions of Ch$ except for percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTEREST BEARING LIABILITIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Time Deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 4,020,819 | 240,879 | 6.0 | % | 2.9 | % | 4,099,207 | 193,573 | 4.7 | % | 0.1 | % | 4,237,268 | 173,226 | 4.1 | % | (0.3 | )% | 2,287,277 | 80,363 | 3.5 | % | (0.8 | )% | 5,244,385 | 238,587 | 4.5 | % | 1.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 550,376 | 30,390 | 5.5 | % | 2.4 | % | 438,503 | 34,295 | 7.8 | % | 3.1 | % | 633,380 | 35,521 | 5.6 | % | 1.2 | % | 1,100,267 | 75,553 | 6.9 | % | 2.4 | % | 1,480,525 | 55,293 | 3.7 | % | 1.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 2,484,695 | 90,374 | 3.6 | % | 10.6 | % | 3,311,784 | 121,297 | 3.7 | % | 14.0 | % | 3,359,560 | 120,861 | 3.6 | % | 16.4 | % | 488,362 | 4,985 | 1.0 | % | 13.5 | % | 3,159,182 | 165,501 | 5.2 | % | 20.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 7,055,890 | 361,643 | 5.1 | % | 5.6 | % | 7,849,494 | 349,165 | 4.4 | % | 6.1 | % | 8,230,208 | 329,608 | 4.0 | % | 6.6 | % | 3,875,906 | 160,901 | 4.2 | % | 1.9 | % | 9,884,092 | 459,381 | 4.6 | % | 7.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Central Bank borrowings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase agreements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 95,836 | 4,924 | 5.1 | % | 2.1 | % | 35,219 | 1,459 | 4.1 | % | (0.4 | )% | 96,418 | 3,058 | 3.2 | % | (1.2 | )% | 57,267 | 1,772 | 3.1 | % | (1.3 | )% | 105,389 | 4,528 | 4.3 | % | 1.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
UF | — | 167 | 0.0 | % | (2.9 | )% | — | 35 | 0.0 | % | 0.0 | % | — | 16 | 0.0 | % | 0.0 | % | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 173,583 | 9,645 | 5.6 | % | 12.6 | % | 309,878 | 26,648 | 8.6 | % | 19.4 | % | 549,069 | 33,410 | 6.1 | % | 19.2 | % | — | — | — | — | 294,863 | 43,558 | 14.8 | % | 42.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 269,419 | 14,736 | 5.5 | % | 8.9 | % | 345,097 | 28,142 | 8.2 | % | 17.4 | % | 645,487 | 36,484 | 5.7 | % | 16.2 | % | 57,267 | 1,772 | 3.1 | % | (1.3 | )% | 400,252 | 48,086 | 12.0 | % | 31.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage finance bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 20 | 1 | 5.0 | % | 1.9 | % | 11 | 1 | 9.1 | % | 4.3 | % | 3 | — | 0.0 | % | (4.2 | )% | — | — | — | — | 210 | 2,839 | 1,351.9 | % | 1,313.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 130,971 | 8,322 | 6.4 | % | 3.3 | % | 105,840 | 10,465 | 9.9 | % | 5.1 | % | 87,372 | 7,256 | 8.3 | % | 3.7 | % | 28,123 | 2,187 | 7.8 | % | 3.2 | % | 71,532 | 1,402 | 2.0 | % | (0.7 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | — | — | — | 0.0 | % | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 130,991 | 8,323 | 6.4 | % | 3.3 | % | 105,851 | 10,466 | 9.9 | % | 5.1 | % | 87,375 | 7,256 | 8.3 | % | 3.7 | % | 28,123 | 2,187 | 7.8 | % | 3.2 | % | 71,742 | 4,241 | 5.9 | % | 3.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 46,211 | 32,076 | 69.4 | % | 64.5 | % | 46,300 | 3,177 | 6.9 | % | 2.2 | % | 35,508 | 3,903 | 11.0 | % | 6.3 | % | 31,744 | 1,597 | 5.0 | % | 0.6 | % | 140,587 | 82,121 | 58.4 | % | 54.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 1,547,176 | 73,895 | 4.8 | % | 1.7 | % | 1,593,564 | 148,277 | 9.3 | % | 4.5 | % | 1,656,229 | 127,354 | 7.7 | % | 3.2 | % | 1,213,873 | 91,958 | 7.6 | % | 3.0 | % | 2,954,380 | 97,588 | 3.3 | % | 0.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 606,158 | 13,917 | 2.3 | % | 9.1 | % | 970,044 | 49,350 | 5.1 | % | 15.6 | % | 1,334,193 | 66,473 | 5.0 | % | 18.0 | % | — | — | — | — | 1,111,030 | 51,344 | 4.6 | % | (3.9 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
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|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 2,199,545 | 119,888 | 5.5 | % | 5.1 | % | 2,609,908 | 200,804 | 7.7 | % | 8.6 | % | 3,025,930 | 197,730 | 6.5 | % | 9.7 | % | 1,245,617 | 93,555 | 7.5 | % | 3.6 | % | 4,205,997 | 231,053 | 5.5 | % | 1.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other interest bearing liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 586,735 | 9,572 | 1.6 | % | (2.7 | )% | 1,236,698 | 24,576 | 2.0 | % | (0.7 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 6,622 | 4,303 | 65.0 | % | 58.0 | % | 11,946 | 2,122 | 17.8 | % | 14.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 662,759 | 6,402 | 1.0 | % | 13.5 | % | 2,780,526 | 100,569 | 3.6 | % | (4.9 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
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|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,256,116 | 20,277 | 1.6 | % | 6.2 | % | 4,029,170 | 127,267 | 3.2 | % | (3.5 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest bearing liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 2,963,023 | 93,304 | 3.1 | % | (1.2 | )% | 6,727,269 | 352,651 | 5.2 | % | 2.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 2,348,885 | 174,001 | 7.4 | % | 2.9 | % | 4,518,383 | 156,405 | 3.5 | % | 0.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 1,151,121 | 11,387 | 1.0 | % | 13.5 | % | 7,345,601 | 360,972 | 4.9 | % | (3.7 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
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|
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|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 6,463,029 | 278,692 | 4.3 | % | 2.9 | % | 18,591,253 | 870,028 | 4.7 | % | (0.4 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Other interest bearing liabilities Ch$ UF Foreign currency Total Total interest bearing liabilities Ch$ UF Foreign currency Total Year ended December 31, 2013 2014 2015 Average
Balance Interest
Paid Average
Nominal
Rate Average
Real
Rate Average
Balance Interest
Paid Average
Nominal
Rate Average
Real
Rate Average
Balance Interest
Paid Average
Nominal
Rate Average
Real
Rate (in million of Ch$ except for percentages) 519,568 (3,888 ) (0.7 )% (3.6 )% 665,991 5,988 0.9 % (3.5 )% 747,416 5,620 0.8 % (3.5 )% 16,224 1,459 9.0 % 5.8 % 14,344 3,568 24.9 % 19.4 % 12,765 2,015 15.8 % 10.9 % 1,747,481 47,255 2.7 % (0.3 %) 2,529,723 91,107 3.6 % 13.9 % 2,550,243 100,188 3.9 % 16.8 % 2,283,273 44,826 2.0 % (1.0 %) 3,210,058 100,663 3.1 % 10.3 % 3,310,424 107,823 3.3 % 12.2 % 4,682,454 273,992 2.3 % (0.7 )% 4,846,728 204,198 4.2 % (0.4 )% 5,116,613 185,807 3.6 % (0.7 )% 2,244,747 114,233 5.7 % 2.6 % 2,152,251 196,640 9.1 % 4.3 % 2,389,746 172,162 7.2 % 2.7 % 5,011,917 161,191 3.2 % 0.2 % 7,121,429 288,402 4.0 % 14.4 % 7,793,065 320,932 4.1 % 17.0 % 11,939,118 549,416 4.6 % 0.3 % 14,120,408 689,240 4.9 % 7.8 % 15,299,424 678,901 4.4 % 8.8 %
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NON-INTEREST EARNING LIABILITIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest-bearing demand deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 383,346 | 447,300 | 391,884 | 251,259 | 445,473 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 10,412 | 10,046 | 9,820 | — | 6,754 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 1,077,716 | 2,274,274 | 2,278,587 | 35,784 | 1,446,241 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,471,475 | 2,731,621 | 2,680,291 | 287,043 | 1,898,468 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 210,393 | 481,386 | 637,460 | 174,282 | 641,346 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | — | — | — | 78,605 | 73,255 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 20,286 | 38,768 | 96,864 | 54,967 | 131,319 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 230,679 | 520,154 | 734,324 | 307,854 | 845,920 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other non-interest-bearing | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 185,812 | 203,067 | 324,709 | 280,856 | 422,558 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 1,190 | 686 | 270 | — | 66 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 193,931 | 265,206 | 309,010 | 10,360 | 180,758 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 380,933 | 468,959 | 633,989 | 291,216 | 603,382 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 1,218,551 | 1,498,598 | 1,319,898 | 761,929 | 2,758,990 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | — | — | 426 | — | 47,688 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 157,461 | 6,129 | 5,852 | — | 13 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,376,012 | 1,504,727 | 1,326,176 | 761,929 | 2,806,690 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total non-interest-bearing liabilities and shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 1,998,102 | 2,630,351 | 2,673,952 | 1,468,326 | 4,268,367 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 11,602 | 10,732 | 10,516 | 78,605 | 127,763 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 1,449,395 | 2,584,377 | 2,690,313 | 101,111 | 1,758,331 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 3,459,098 | 5,225,461 | 5,374,781 | 1,648,042 | 6,154,461 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and equity(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 6,680,556 | 273,992 | 7,477,079 | 204,198 | 7,790,565 | 185,807 | 4,431,349 | 92,827 | 10,995,636 | 352,651 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UF | 2,256,349 | 114,233 | 2,162,983 | 196,640 | 2,400,262 | 172,162 | 2,427,490 | 174,478 | 4,646,147 | 156,405 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 6,461,312 | 161,191 | 9,705,806 | 288,402 | 10,483,378 | 320,932 | 1,252,232 | 11,387 | 9,103,931 | 360,972 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 15,398,217 | 549,416 | 19,345,868 | 689,240 | 20,674,205 | 678,901 | 8,111,071 | 278,692 | 24,745,714 | 870,028 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
(1) | Represents total of interest bearing andnon-interest bearing liabilities and shareholders’ equity. |
Interest-earning Assets—Net Interest Margin
The following tables analyze, by currency of denomination, our levels of average interest-earning assets and net interest, and illustrate the comparative margins obtained, for each of the periods indicated:
Year ended December 31, | Year ended December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in millions of constant Ch$ as of December 31, 2015, except for percentages) | (in millions of constant Ch$ as of December 31, 2015, except for percentages) | |||||||||||||||||||
Total average interest earning assets | ||||||||||||||||||||
Ch$ | 3,955,700 | 3,998,106 | 4,410,493 | 2,597,808 | 6,093,752 | |||||||||||||||
UF | 3,895,453 | 3,724,436 | 4,188,020 | 3,367,427 | 6,937,544 | |||||||||||||||
Foreign currency | 5,803,822 | 8,986,211 | 8,817,937 | 1,472,435 | 8,151,245 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Total | 13,654,975 | 16,708,753 | 17,416,450 | 7,437,670 | 21,182,541 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Net interest earned (1) | ||||||||||||||||||||
Ch$ | 85,228 | 130,150 | 158,201 | 117,840 | 393,041 | |||||||||||||||
UF | 141,278 | 192,781 | 174,500 | 79,188 | 68,014 | |||||||||||||||
Foreign currency | 231,184 | 307,953 | 287,878 | 26,261 | 178,120 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Total | 457,690 | 630,884 | 620,579 | 223,289 | 639,175 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Net interest margin, nominal basis (2) | ||||||||||||||||||||
Ch$ | 2.2 | % | 3.3 | % | 3.6 | % | 4.5 | % | 6.4 | % | ||||||||||
UF | 3.6 | % | 5.2 | % | 4.2 | % | 2.4 | % | 1.0 | % | ||||||||||
Foreign currency | 4.0 | % | 3.4 | % | 3.3 | % | 1.8 | % | 2.2 | % | ||||||||||
|
|
|
|
| ||||||||||||||||
Total | 3.4 | % | 3.8 | % | 3.6 | % | 3.0 | % | 3.0 | % | ||||||||||
|
|
|
|
|
(1) | Net interest earned is defined as interest revenue earned less interest expense incurred. |
(2) | Net interest margin is defined as net interest earned divided by average interest earning assets. |
Changes in Net Interest Income and Interest Expense—Volume and Rate Analysis
The following tables allocate, by currency of denomination, changes in our net interest income between changes in the average volume of interest-earning assets and interest bearing liabilities and changes in their –respectiverespective nominal interest rates from 20132015 to 2014 and 2014 to 2015.2016. Volume and rate variances have been calculated based on movements in average balances over the year and changes in nominal interest rates, average interest-earning assets and average interest bearing liabilities. The net change attributable to changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate.
Increase (Decrease) from 2013 to 2014 due to changes in | Increase (Decrease) from 2015 to 2016 due to changes in | |||||||||||||||||||||||||||
Volume | Rate | Rate and Volume | Net Change from 2013 to 2014 | Volume | Rate | Net Change from 2015 to 2016 | ||||||||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
INTEREST EARNING ASSETS | ||||||||||||||||||||||||||||
Deposits in Central Bank | ||||||||||||||||||||||||||||
Ch$ | 331 | 12 | 1,474 | 1,816 | 171 | 185 | 356 | |||||||||||||||||||||
UF | — | — | — | — | — | — | — | |||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | 331 | 12 | 1,474 | 1,816 | 171 | 185 | 356 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||
Financial Investments | ||||||||||||||||||||||||||||
Ch$ | 3,638 | (30 | ) | (3,657 | ) | (48 | ) | 15,046 | 9,824 | 24,870 | ||||||||||||||||||
UF | (2,653 | ) | 114 | 8,276 | 5,737 | 6,711 | (18,599 | ) | (11,888 | ) | ||||||||||||||||||
Foreign currency | 9,222 | — | (13,019 | ) | (3,797 | ) | — | 44,852 | 44,852 | |||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | 10,208 | 85 | (8,400 | ) | 1,892 | 21,757 | 36,077 | 57,834 | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||
Total Loans | ||||||||||||||||||||||||||||
Ch$ | (8,358 | ) | (154 | ) | (14,853 | ) | (23,365 | ) | 284,505 | 218,519 | 523,024 | |||||||||||||||||
UF | (7,182 | ) | 1,394 | 133,943 | 128,156 | 235,183 | (251,985 | ) | (16,802 | ) | ||||||||||||||||||
Foreign currency | 202,916 | 25 | 3,870 | 206,811 | 182,143 | 238,450 | 420,593 | |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | 187,376 | 1,265 | 122,960 | 311,601 | 701,832 | 204,983 | 906,815 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||
Interbank Loans | ||||||||||||||||||||||||||||
Ch$ | 1,611 | (38 | ) | (4,246 | ) | (2,673 | ) | 2,602 | 2,835 | 5,437 | ||||||||||||||||||
UF | — | — | — | — | — | — | — | |||||||||||||||||||||
Foreign currency | (101 | ) | (9 | ) | (890 | ) | (1,000 | ) | 1,098 | 186 | 1,284 | |||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | 1,510 | (47 | ) | (5,135 | ) | (3,672 | ) | 3,701 | 3,020 | 6,721 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||||||
Investment under resale agreements | ||||||||||||||||||||||||||||
Ch$ | 23 | (6 | ) | (618 | ) | (602 | ) | 1,054 | (274 | ) | 780 | |||||||||||||||||
UF | (7 | ) | — | 24 | 17 | — | — | — | ||||||||||||||||||||
Foreign currency | 3,228 | (34 | ) | (4,189 | ) | (995 | ) | — | 23,854 | 23,854 | ||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | 3,244 | (40 | ) | (4,785 | ) | (1,580 | ) | 1,054 | 23,580 | 24,634 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||||||
Other interest earning assets | ||||||||||||||||||||||||||||
Ch$ | — | — | — | — | — | — | — | |||||||||||||||||||||
UF | — | — | — | — | — | — | — | |||||||||||||||||||||
Foreign currency | 1,610 | 8 | 1,343 | 2,961 | (24,265 | ) | 35,126 | 10,861 | ||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | 1,610 | 8 | 1,343 | 2,961 | (24,265 | ) | 35,126 | 10,861 | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||
Total interest earning assets | ||||||||||||||||||||||||||||
Ch$ | (2,755 | ) | (215 | ) | (21,901 | ) | (24,872 | ) | 303,379 | 231,088 | 534,467 | |||||||||||||||||
UF | (9,841 | ) | 1,509 | 142,243 | 133,910 | 241,894 | (270,584 | ) | (28,690 | ) | ||||||||||||||||||
Foreign currency | 216,875 | (10 | ) | (12,886 | ) | 203,980 | 158,977 | 342,467 | 501,444 | |||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | 204,278 | 1,284 | 107,457 | 313,018 | 704,250 | 302,971 | 1,007,221 | |||||||||||||||||||||
|
|
|
|
|
|
|
Increase (Decrease) from 2014 to 2015 due to changes in | Increase (Decrease) from 2015 to 2016 due to changes in | |||||||||||||||||||||||||||
Volume | Rate | Rate and Volume | Net Change from 2014 to 2015 | Volume | Rate | Net change from 2015 to 2016 | ||||||||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
INTEREST EARNING ASSETS | ||||||||||||||||||||||||||||
Deposits in Central Bank | ||||||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||
INTEREST BEARING LIABILITIES | ||||||||||||||||||||||||||||
Time deposits | ||||||||||||||||||||||||||||
Ch$ | (815 | ) | 4 | 301 | (511 | ) | 105,013 | 53,211 | 158,224 | |||||||||||||||||||
UF | — | — | — | — | 25,147 | (45,407 | ) | (20,260 | ) | |||||||||||||||||||
Foreign currency | — | — | — | — | 26,896 | 133,620 | 160,516 | |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | (815 | ) | 4 | 301 | (511 | ) | 157,056 | 141,424 | 298,480 | |||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Financial Investments | ||||||||||||||||||||||||||||
Central Bank borrowings | ||||||||||||||||||||||||||||
Ch$ | (12 | ) | (32 | ) | (3,188 | ) | (3,232 | ) | — | — | — | |||||||||||||||||
UF | 2,632 | 39 | 4,521 | 7,192 | — | — | — | |||||||||||||||||||||
Foreign currency | 2,175 | — | 29,741 | 31,916 | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | 4,795 | 7 | 31,074 | 35,876 | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total Loans | ||||||||||||||||||||||||||||
Repurchase agreements | ||||||||||||||||||||||||||||
Ch$ | 46,823 | (267 | ) | (30,492 | ) | 16,064 | 1,135 | 1,621 | 2,756 | |||||||||||||||||||
UF | 45,772 | (852 | ) | (94,839 | ) | (49,918 | ) | — | — | — | ||||||||||||||||||
Foreign currency | (15,697 | ) | (84 | ) | (8,119 | ) | (23,901 | ) | — | 43,558 | 43,558 | |||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | 76,898 | (1,203 | ) | (133,450 | ) | (57,755 | ) | 1,135 | 45,179 | 46,314 | ||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Interbank Loans | ||||||||||||||||||||||||||||
Mortgage finance bonds | ||||||||||||||||||||||||||||
Ch$ | (1,643 | ) | (9 | ) | (728 | ) | (2,380 | ) | — | 2,839 | 2,839 | |||||||||||||||||
UF | — | — | — | — | 3,484 | (4,269 | ) | (785 | ) | |||||||||||||||||||
Foreign currency | 1,021 | 2 | 366 | 1,389 | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | (621 | ) | (7 | ) | (362 | ) | (991 | ) | 3,484 | (1,430 | ) | 2,054 | ||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Investment under resale agreements | ||||||||||||||||||||||||||||
Bonds | ||||||||||||||||||||||||||||
Ch$ | (129 | ) | (2 | ) | (149 | ) | (281 | ) | 5,443 | 75,081 | 80,524 | |||||||||||||||||
UF | (30 | ) | — | (3 | ) | (33 | ) | 142,118 | (136,488 | ) | 5,630 | |||||||||||||||||
Foreign currency | (7,076 | ) | 186 | 7,637 | 748 | — | 51,344 | 51,344 | ||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | (7,234 | ) | 184 | 7,485 | 434 | 147,561 | (10,063 | ) | 137,498 | |||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Other interest earning assets | ||||||||||||||||||||||||||||
Other interest bearing liabilities | ||||||||||||||||||||||||||||
Ch$ | — | — | — | — | 10,168 | 4,836 | 15,004 | |||||||||||||||||||||
UF | — | — | — | — | 3,466 | (5,647 | ) | (2,181 | ) | |||||||||||||||||||
Foreign currency | (607 | ) | 33 | 2,878 | 2,303 | 21,335 | 72,832 | 94,167 | ||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | (607 | ) | 33 | 2,878 | 2,303 | 34,968 | 72,022 | 106,990 | ||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total interest earning assets | ||||||||||||||||||||||||||||
Total interest bearing liabilities | ||||||||||||||||||||||||||||
Ch$ | 44,224 | 305 | (34,258 | ) | 9,660 | 121,758 | 137,589 | 259,347 | ||||||||||||||||||||
UF | 48,375 | (813 | ) | (90,321 | ) | (42,759 | ) | 174,215 | (191,811 | ) | (17,596 | ) | ||||||||||||||||
Foreign currency | (20,184 | ) | 137 | 32,502 | 12,455 | 48,232 | 301,353 | 349,585 | ||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Total | 72,415 | (981 | ) | (92,076 | ) | (20,644 | ) | 344,204 | 247,132 | 591,336 | ||||||||||||||||||
|
|
|
|
|
|
|
LIABILITIES INTEREST BEARING LIABILITIES Time Deposits Ch$ UF Foreign currency Total Central Bank borrowings Ch$ UF Foreign currency Total Repurchase Agreements Ch$ UF Foreign currency Total Mortgage finance bonds Ch$ UF Foreign currency Total Bonds Ch$ UF Foreign currency Total Other interest bearing liabilities Ch$ UF Foreign currency Total Total interest bearing liabilities Ch$ UF Foreign currency Total Increase (Decrease)
from 2013 to 2014 due to changes in Net Change
from 2013
to 2014 Volume Rate Rate and
Volume (in million of Ch$) 4,696 (510 ) (51,491 ) (47,306 ) (6,177 ) 127 9,956 3,905 30,083 6 834 30,923 28,602 (377 ) (40,702 ) (12,477 ) — — — — — — — — — — — — — — — — (3,114 ) (10 ) (341 ) (3,465 ) — — (132 ) (132 ) 7,573 53 9,377 17,003 4,459 43 8,904 13,406 — — — — (1,597 ) 46 3,694 2,143 — — — — (1,597 ) 46 3,694 2,143 62 (289 ) (28,672 ) (28,899 ) 2,216 701 71,466 74,382 8,355 169 26,910 35,433 10,632 581 69,704 80,916 (1,096 ) 86 10,887 9,876 (169 ) 26 2,251 2,109 21,153 157 22,542 43,852 19,887 268 35,680 55,837 547 (723 ) (69,617 ) (69,794 ) (5,727 ) 899 87,235 82,407 67,163 385 59,663 127,211 61,983 561 77,281 139,824
LIABILITIES AND SHAREHOLDERS’ EQUITY INTEREST BEARING LIABILITIES Time deposits Ch$ UF Foreign currency Total Central Bank borrowings Ch$ UF Foreign currency Total Repurchase agreements Ch$ UF Foreign currency Total Mortgage finance bonds Ch$ UF Foreign currency Total Bonds Ch$ UF Foreign currency Total Other interest bearing liabilities Ch$ UF Foreign currency Total Total interest bearing liabilities Ch$ UF Foreign currency Total Increase (Decrease)
from 2014 to 2015 due to changes in Volume Rate Rate and
Volume Net
change
from
2014
to 2015 (in million of Ch$) 6,520 (260 ) (26,606 ) (20,347 ) 15,241 (97 ) (13,918 ) 1,226 1,750 (22 ) (2,164 ) (436 ) 23,511 (378 ) (42,688 ) (19,557 ) — — — — — — — — — — — — — — — — 2,535 (3 ) (933 ) 1,599 — — (19 ) (19 ) 20,569 (78 ) (13,729 ) 6,762 23,105 (81 ) (14,681 ) 8,342 (1 ) — — (1 ) (1,826 ) (17 ) (1,366 ) (3,209 ) — — — — (1,827 ) (17 ) (1,366 ) (3,210 ) (741 ) 19 1,447 726 5,831 (257 ) (26,496 ) (20,923 ) 18,526 (10 ) (1,392 ) 17,123 23,616 (248 ) (26,441 ) (3,074 ) 732 (10 ) (1,089 ) (368 ) (393 ) (13 ) (1,148 ) (1,553 ) 739 83 8,259 9,081 1,078 60 6,022 7,160 9,046 (254 ) (27,180 ) (18,391 ) 18,853 (384 ) (42,948 ) (24,478 ) 41,584 (27 ) (9,026 ) 32,530 69,483 (665 ) (79,154 ) (10,339 )
Return on Equity and Assets
The following tables set forth our return on average shareholders’ equity and average total assets and related information for each of the periods indicated.
Years ended December 31, | Years ended December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in million of Ch$, except for percentages) | (in millions of Ch$, except for percentages) | |||||||||||||||||||
Net income | 175,239 | 273,701 | 238,665 | 105,766 | 13,969 | |||||||||||||||
Net income attributable to the equity holders of the Bank | 162,422 | 233,997 | 216,321 | 105,757 | 14,407 | |||||||||||||||
Average total assets | 15,398,217 | 19,345,868 | 20,674,205 | 8,111,071 | 24,745,715 | |||||||||||||||
Average equity | 1,376,012 | 1,504,727 | 1,326,176 | 761,929 | 2,806,690 | |||||||||||||||
Net income as a percentage of: | ||||||||||||||||||||
Average total assets | 1.14 | % | 1.41 | % | 1.15 | % | 1.30 | % | 0.06 | % | ||||||||||
Average equity | 12.74 | % | 18.19 | % | 18.00 | % | 13.88 | % | 0.50 | % | ||||||||||
Average equity as a percentage of: | ||||||||||||||||||||
Average total assets | 8.94 | % | 7.78 | % | 6.41 | % | 9.39 | % | 11.34 | % | ||||||||||
Proposed annual cash dividend (*) | 88,403 | 113,130 | 104,082 | 52,168 | 618 | |||||||||||||||
Special cash dividend (**) | 239,860 | |||||||||||||||||||
Dividend payout ratio, based on net income attributable to shareholders under local GAAP (***) | 57 | % | 50 | % | 51.58 | % | ||||||||||||||
Dividend payout ratio, based on net income attributable to shareholders under local GAAP | 50.00 | % | 30.00 | % |
(*) | Dividend proposed by the board of directors for |
Investment Portfolio
Financial investments are classified at the time of the purchase, based on management’s intentions, as either trading or investment instruments, the latter of which are categorized asavailable-for-sale or held to maturity.
Financial investments as of December 31, 2013, 20142015 and 20152016 are as follows:
As of December 31, | As of December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||
Held-for-trading: | ||||||||||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||||||||||
Chilean Central Bank bonds | 746 | — | — | 1,583 | 8,349 | |||||||||||||||
Chilean Central Bank notes | — | — | — | — | — | |||||||||||||||
Other Chilean Central Bank and Government securities | 9,106 | 4,822 | 6,210 | 4,828 | 17,855 | |||||||||||||||
Other national institution securities: | ||||||||||||||||||||
Bonds | — | 2,548 | 2,340 | — | 786 | |||||||||||||||
Notes | 18,582 | 13,320 | 34,404 | — | — | |||||||||||||||
Other securities | 133 | 15 | 551 | — | 12,608 | |||||||||||||||
Foreign institution securities: | ||||||||||||||||||||
Bonds | 326,141 | 542,791 | 192,427 | — | 547,499 | |||||||||||||||
Notes | — | — | — | — | — | |||||||||||||||
Other securities | 64,443 | 110,615 | 57,875 | — | 11,727 | |||||||||||||||
Mutual funds investments | ||||||||||||||||||||
Funds managed by related organizations | 12,495 | 11,787 | 28,092 | 11,354 | 33,733 | |||||||||||||||
Funds managed by third parties | 37 | — | 2,000 | — | — | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Total | 431,683 | 685,898 | 323,899 | 17,765 | 632,557 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
As of December 31, | ||||||||||||||||||||
2015 | 2016 | |||||||||||||||||||
Available-for-sale | (in millions of Ch$) | |||||||||||||||||||
Chilean Central Bank and Government securities | ||||||||||||||||||||
Chilean Central Bank and Government securities | 218,757 | 901,239 | ||||||||||||||||||
Chilean Central Bank Notes | 32,112 | 272,734 | ||||||||||||||||||
Other Government securities | — | — | ||||||||||||||||||
Other financial instruments | ||||||||||||||||||||
Promissory notes related to deposits in local banks | 31,193 | 397,898 | ||||||||||||||||||
Chilean mortgage finance bonds | — | 76 | ||||||||||||||||||
Chilean financial institutions bonds | 230,448 | 2,607 | ||||||||||||||||||
Other local investments | — | 32,230 | ||||||||||||||||||
Financial instruments issued abroad | ||||||||||||||||||||
Foreign government and central banks instruments | — | 284,444 | ||||||||||||||||||
Other foreign investments | — | 162,882 | ||||||||||||||||||
Impairment provision | — | — | ||||||||||||||||||
Unquoted securities in active markets | ||||||||||||||||||||
Chilean corporate bonds | — | — | ||||||||||||||||||
Other investments | 2,475 | 19,967 | ||||||||||||||||||
Impairment provision | — | — | ||||||||||||||||||
|
| |||||||||||||||||||
Total | 514,985 | 2,074,077 | ||||||||||||||||||
|
|
Chilean Central Bank and Government securities Chilean Central Bank and Government securities Chilean Central Bank Notes Other Government securities Other financial instruments Promissory notes related to deposits in local banks Chilean mortgage finance bonds Chilean financial institutions bonds Other local investments Financial instruments issued abroad Foreign government and central banks instruments Other foreign investments Impairment provision Unquoted securities in active markets Chilean corporate bonds Other investments Impairment provision Total As of December 31, 2013 2014 2015 Available-for-sale (in million of Ch$) 334,718 276,487 527,444 847 253,999 258,306 21,769 6,442 859 78,712 54,162 65,778 313 203 92 17,985 — 29,329 136,623 51,526 53,630 212,280 434,392 629,297 85,840 79,685 360,053 — — — — — — — — — — — — 889,087 1,156,896 1,924,788
As of December 31, | As of December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
Held to maturity | (in million of Ch$) | (in millions of Ch$) | ||||||||||||||||||
Central Bank and Government securities | ||||||||||||||||||||
Chilean Central Bank securities | — | — | — | — | — | |||||||||||||||
Chilean treasury bonds | — | — | — | — | — | |||||||||||||||
Other Government securities | — | — | — | — | — | |||||||||||||||
Other financial securities | ||||||||||||||||||||
Promissory notes related to deposits in local banks | — | — | — | — | — | |||||||||||||||
Chilean mortgage finance bonds | — | — | — | — | — | |||||||||||||||
Chilean financial institution bonds | — | — | — | — | — | |||||||||||||||
Other local investments | 8,632 | 7,175 | 5,543 | — | — | |||||||||||||||
Financial instruments issued abroad | ||||||||||||||||||||
Foreign government and central banks instruments | 93,750 | — | — | — | 226,433 | |||||||||||||||
Other foreign investments | 135,140 | 183,502 | 164,648 | — | — | |||||||||||||||
Impairment provision | — | — | — | — | — | |||||||||||||||
Unquoted securities in active markets | ||||||||||||||||||||
Chilean corporate bonds | — | — | — | — | — | |||||||||||||||
Other investments | — | — | — | — | — | |||||||||||||||
Impairment provision | — | — | — | — | — | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Total | 237,522 | 190,677 | 170,191 | — | 226,433 | |||||||||||||||
|
|
|
|
|
We do not hold securities of any issuer other than the Central Bank of Chile and the Colombian Ministry of Finance, in which the aggregate book value of the investment in such securities exceeds 10% of our shareholders’ equity as of the end of the latest reported period.
The following table sets forth an analysis of our investments, by time remaining to maturity and the weighted average nominal rates of such investments, as of December 31, 2015:
Held—for—trading | In one year or less | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | In one year or less | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | (in millions of Ch$, except for percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | — | — | — | — | — | — | — | — | — | 1,066 | 1.6 | 482 | 5.4 | 4,846 | 4.2 | 1,955 | 4.5 | 8,349 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean Central Bank notes | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others Government securities | 6,210 | — | — | — | — | — | — | — | 6,210 | 38 | 1.0 | 17,475 | 4.8 | 342 | 3.8 | — | — | 17,855 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other national institution securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bonds | 1,561 | — | — | — | — | — | 779 | 1.58 | 2,340 | — | — | — | — | — | — | 786 | 4.3 | 786 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes | 34,404 | 0.11 | — | — | — | — | — | — | 34,404 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other securities | 551 | — | — | — | — | — | — | — | 551 | — | — | 12,608 | 0.3 | — | — | — | — | 12,608 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign institution securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bonds | 211 | 0.01 | 21,076 | 0.07 | 102,804 | 0.06 | 68,336 | 0.07 | 192,427 | 255,311 | 7.5 | 230,597 | 6.5 | 49,216 | 6.1 | 12,375 | 6.4 | 547,499 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other securities | 46,708 | 0.04 | 8,978 | 0.03 | — | — | 2,189 | 0.06 | 57,875 | 2,992 | 7.4 | 3,683 | 4.7 | — | — | 5,052 | — | 11,727 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mutual fund investments: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Funds managed by related organizations | 21,954 | 1.00 | 6,138 | 0.072 | — | — | — | — | 28,092 | 33,733 | 9.6 | — | — | — | — | — | — | 33,733 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Funds managed by third parties | 2,000 | 0.50 | — | — | — | — | — | — | 2,000 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Held—for—trading | 113,599 | 0.25 | 36,192 | 0.06 | 102,804 | 0.06 | 71,304 | 0.09 | 323,899 | 293,140 | 7.7 | 264,845 | 6.0 | 54,404 | 5.9 | 20,168 | 4.5 | 632,557 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Available—for—sale | In one year or less | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | 81,672 | 0.68 | 331,979 | 0.59 | 113,793 | 0.59 | — | — | 527,444 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean treasury bonds | 10,086 | 0.81 | 214,738 | 0.65 | 33,482 | 0.47 | — | — | 258,306 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others Government securities | 859 | 0.63 | — | — | — | — | — | — | 859 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other financial instruments: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Promissory notes related to deposits in local banks | 65,778 | 0.28 | — | — | — | — | — | — | 65,778 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean mortgage finance bonds | 16 | 1.01 | 44 | 1.04 | 31 | 0.91 | — | — | 92 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean financial institution bonds | — | — | 29,329 | 1.29 | — | — | — | — | 29,329 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other local investments | 5,843 | 1.25 | 14,480 | 1.29 | 33,252 | 1.23 | 56 | 0.92 | 53,630 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial instruments issued abroad: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign Government and central bank instruments | 132,086 | 0.05 | 340,439 | 0.05 | 117,231 | 0.05 | 39,541 | 0.05 | 629,297 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other foreign investments | 135,035 | 2.35 | 168,072 | 8.63 | 46,917 | 8.16 | 10,031 | 6.15 | 360,053 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unquoted securities in active markets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean corporate bonds | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other foreign investments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 431,375 | 0.22 | 1,099,080 | 0.37 | 344,706 | 0.38 | 49,628 | 0.04 | 1,924,788 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Held to maturity | Within one year | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Available—for—sale | In one year or less | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | (in millions of Ch$, except for percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | — | — | — | — | — | — | — | — | — | — | — | 901,239 | 3.2 | — | — | — | — | 901,239 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean treasury bonds | — | — | — | — | — | — | — | — | — | — | — | 216,488 | 2.8 | 53,038 | 2.4 | 3,208 | 2.4 | 272,734 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Government securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others Government securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other financial instruments: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Promissory notes related to deposits in local banks | — | — | — | — | — | — | — | — | — | — | — | 397,898 | 0.4 | — | — | — | — | 397,898 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean mortgage finance bonds | — | — | — | — | — | — | — | — | — | — | — | 55 | 3.3 | 21 | 3.2 | — | — | 76 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean financial institution bonds | — | — | — | — | — | — | — | — | — | — | — | 2,607 | 1.9 | — | — | — | — | 2,607 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other local investments | 2,171 | 0.96 | 3,372 | 0.96 | — | — | — | — | 5,543 | — | — | 32,230 | 4.2 | — | — | — | — | 32,230 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial instruments issued abroad: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign government and central bank instruments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign Government and central bank instruments | 47,847 | 6.3 | 154,455 | 5.5 | 82,142 | 5.0 | — | — | 284,444 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other foreign investments | 149,932 | 1.01 | 8,968 | 0.05 | — | — | 5,748 | 0.05 | 164,648 | 92,574 | 6.9 | 64,096 | 12.8 | 6,212 | 11.3 | — | — | 162,882 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unquoted securities in active markets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean corporate bonds | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other investments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other foreign investments | 19,967 | — | — | — | — | — | — | — | 19,967 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 152,103 | 0.01 | 12,340 | 0.26 | 0 | 0.0 | 5,748 | 0.00 | 170,191 | 160,388 | 5.8 | 1,769,068 | 3.1 | 141,413 | 4.3 | 3,208 | 2.4 | 2,074,077 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Chilean Central Bank and Government securities: Chilean Central Bank securities Chilean treasury bonds Other Government securities Other financial instruments: Promissory notes related to deposits in local banks Chilean mortgage finance bonds Chilean financial institution bonds Other local investments Financial instruments issued abroad: Foreign government and central bank instruments Other foreign investments Impairment provision Unquoted securities in active markets Chilean corporate bonds Other investments Impairment provision Total Held to maturity Within one
year Weighted
average
Nominal
Rate After
one
year
through
five
years Weighted
average
Nominal
Rate After
five
years
through
ten years Weighted
average
Nominal
Rate After ten
years Weighted
average
Nominal
Rate Total Ch$ % Ch$ % Ch$ % Ch$ % Ch$ (in millions of Ch$, except for percentages) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 209,408 5.4 16,791 7.7 234 4.1 — — 226,433 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 209,408 5.4 16,791 7.7 234 4.1 — — 226,433
Loan portfolioPortfolio
The following table presents our loans by type of loan. Except where otherwise specified, all loan amounts stated below are before deduction for the allowance for loan losses. Total loans reflect our loan portfolio, including past due principal amounts.
As of December 31, | As of December 31, | |||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||
(in million of constant Ch$ as of December 31, 2015) | (in millions of constant Ch$ as of December 31, 2016) | |||||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||
Commercial loans | 4,345,731 | 6,453,176 | 7,689,427 | 8,303,078 | 8,821,860 | 3,604,521 | 11,956,364 | |||||||||||||||||||||
Foreign trade loans | 388,981 | 424,824 | 459,074 | 505,551 | 521,339 | 429,320 | 754,144 | |||||||||||||||||||||
Current account debtors | 13,499 | 29,245 | 27,935 | 34,850 | 28,732 | 39,114 | 133,701 | |||||||||||||||||||||
Factoring operations | 95,026 | 87,622 | 75,384 | 69,914 | 62,013 | 57,232 | 76,141 | |||||||||||||||||||||
Student loans | 177,023 | 610,315 | ||||||||||||||||||||||||||
Leasing transactions | 293,726 | 341,294 | 811,882 | 866,492 | 888,189 | 248,755 | 1,073,506 | |||||||||||||||||||||
Other loans and receivables | 78,433 | 158,699 | 221,754 | 310,590 | 374,385 | 10,501 | 30,300 | |||||||||||||||||||||
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|
|
|
|
| ||||||||||||||||||||||
Subtotals | 5,215,396 | 7,494,860 | 9,285,456 | 10,090,475 | 10,696,518 | 4,566,466 | 14,634,471 | |||||||||||||||||||||
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Mortgage loans: | ||||||||||||||||||||||||||||
Letters of credit loans | 102,377 | 87,211 | 74,049 | 64,622 | 54,372 | 16,526 | 57,708 | |||||||||||||||||||||
Endorsable mutual mortgage loans | 241,653 | 216,627 | 196,359 | 182,314 | 161,438 | 8,753 | 152,320 | |||||||||||||||||||||
Other mutual mortgage loans | 785,537 | 1,186,207 | 1,419,811 | 1,666,311 | 1,701,573 | 1,508,569 | 3,360,950 | |||||||||||||||||||||
Leasing transactions | 138 | 61 | 260,883 | 280,573 | 278,882 | — | 288,329 | |||||||||||||||||||||
Other loans and receivables | 46,223 | 41,869 | 37,874 | 35,738 | 32,354 | — | 29,210 | |||||||||||||||||||||
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|
|
|
|
| ||||||||||||||||||||||
Subtotals | 1,175,928 | 1,531,975 | 1,988,976 | 2,229,558 | 2,228,619 | 1,533,848 | 3,888,517 | |||||||||||||||||||||
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|
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| ||||||||||||||||||||||
Consumer loans: | ||||||||||||||||||||||||||||
Consumer loans | 266,953 | 779,735 | 1,061,996 | 1,130,858 | 1,298,817 | 389,356 | 1,786,004 | |||||||||||||||||||||
Current account debtors | 25,454 | 29,398 | 40,012 | 47,564 | 52,488 | 113,667 | 182,832 | |||||||||||||||||||||
Credit card debtors | 55,278 | 156,939 | 228,776 | 241,701 | 244,942 | 197,425 | 414,903 | |||||||||||||||||||||
Consumer leasing transactions | 729 | 782 | 21,582 | 19,761 | 18,168 | 309 | 17,091 | |||||||||||||||||||||
Other loans and receivables | 74,707 | 109,802 | 270,883 | 269,958 | 88,744 | — | 80,134 | |||||||||||||||||||||
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|
|
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|
| ||||||||||||||||||||||
Subtotals | 423,121 | 1,076,656 | 1,623,249 | 1,709,842 | 1,703,159 | 700,757 | 2,480,964 | |||||||||||||||||||||
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| ||||||||||||||||||||||
Loans | 6,814,445 | 10,103,491 | 12,897,681 | 14,029,875 | 14,628,296 | 6,801,071 | 21,003,952 | |||||||||||||||||||||
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|
| ||||||||||||||||||||||
Loans and receivables from Banks | 304,622 | 482,549 | 218,081 | 814,480 | 452,069 | 99,468 | 150,780 | |||||||||||||||||||||
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|
|
|
|
|
| ||||||||||||||||||||||
Total | 7,119,067 | 10,586,040 | 13,115,762 | 14,844,355 | 15,080,365 | 6,900,539 | 21,154,732 | |||||||||||||||||||||
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The loan categories are as follows:
Commercial loansLoans
Commercial loans: Commercial loans are long- and short-term loans granted to corporations and individuals, including checking overdraft lines for companies, in Chilean pesos, inflation linkedinflation-linked UF, US$ or Colombian pesos on an adjustable or fixed rate basis, primarily to finance working capital or investments. Commercial loans represent the largest portion of our loan portfolio. Interest accrues daily on a30-day or360-day basis. Loan payments are scheduled monthly, biannually or yearly, depending on the terms of the loan.
Foreign trade loans: Foreign trade loans are fixed rate, short-term loans made in foreign currency (principally US$) to finance imports or exports.
Current account debtors: The term “current account debtors” refers to our customers that receive short-term operating loans with apre-approved credit limit. This category includes overdrafts loans.
Factoring operations: Factoring operations refer to the transactions in which our customers assign their accounts receivable (invoices, bills, among others) to us, which allows them to convert their sales into cash regardless the original terms agreed for payment, improving their liquidity, financial indices and also delegating the collection management efforts to us and/or our subsidiaries.
Leasing transactions: Leasing transactions are agreements for the financial lease of capital equipment and other property of our clients.
Other loans and receivables: Other loans and receivables refer to outstanding loans including commercial loans not classified in any of the categories described above.
Mortgage loansLoans
Mortgage loans: This category includes mortgage loans granted to individuals in order to acquire, expand, repair or build residential houses or apartments. Mortgage loans are granted in the form of letters of credit or other endorsable instruments/credit operations. This category also includes liaison credits granted before the mortgage loans are perfected; bilateral loans for purposes ancillary to the ones mentioned above; housing leasing operations and other receivables. Any loan granted to repay or restructure all or part of the credits described above belongs in this category.
Mortgage loans include the followingsub-categories:
Letters of credit loans:Thissub-categoryThissub-category includesinflation-indexed, fixed or variable rate, long-term loans with monthly payments of principal and interest secured by a real property mortgage that are financed with mortgage notes. At the time of the approval of the relevant loan by the bank, these mortgage loans cannot exceed 75% of the lower of the purchase price or the appraised value of the mortgaged property. Letter of credit loans are our general obligations, and we are liable for all principal and accrued interest on such Notes. The main difference between Letter of credit loans or Mortgages Bonds is the fact that Letter of credit loans fund specific mortgage loans (on a credit by credit basis) while Mortgages Bonds fund portfolios of mortgage loans.
Endorsable mutual mortgage loans:Thissub-categoryThissub-category includes outstanding balances due from housing loans with mortgage loans which funding was obtained by the placement of mortgage bonds.
Mortgage bonds backed loans:Thissub-categoryThissub-category includes long-term inflation-indexed mortgage loans (fixed and variable rate) with monthly payments of principal and interest secured by a real property mortgage that are financed by mortgage bonds.
Other mutual mortgage loans:Thissub-categoryThissub-category includes inflation-indexed long-term mortgage loans (fixed and variable rate) with monthly payments of principal and interest secured by a real property mortgage that are financed by our general borrowings.
Housing Leasing transactions:Thissub-categoryThissub-category includes outstanding balances owed by tenants in financial leases transactions
Other loans and receivables:Thissub-categoryThissub-category includes loans that are ancillary or that complement mutual mortgage loans.
The balances of the renegotiated mortgage loans as of December 31, 2013, 20142015 and 20152016 were as follows:
As of December 31, | As of December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||
Opening balance(1) | 1,748 | 3,090 | 5,914 | 1,307 | 1,360 | |||||||||||||||
Integration Itaú Corpbanca | — | 13,315 | ||||||||||||||||||
Renegotiated(2) | 4,744 | 3,170 | 928 | 385 | 4,584 | |||||||||||||||
Recovery(3) | (2,828 | ) | (252 | ) | (931 | ) | — | (2,279 | ) | |||||||||||
Write-offs(4) | (574 | ) | (94 | ) | (319 | ) | (332 | ) | (1,320 | ) | ||||||||||
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| ||||||||||||||||
Final balance | 3,090 | 5,914 | 5,592 | 1,360 | 15,660 | |||||||||||||||
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|
Corresponds to the renegotiated portfolio opening balance. |
Corresponds to the additions to the renegotiated loans portfolio during each respective period. |
Corresponds to the recovery (which may include payments, or settlements by judicial action) obtained from renegotiated loans during each respective period. |
Corresponds to write-offs of renegotiated loans during each respective period. |
Consumer loansLoans
Consumer loans. This category includes all loans granted to individuals for the purpose of acquiring consumer goods or services, except for student loans. It includes different types of loans (such as loans payable in installments or revolving loans) and outstanding balances arising from the utilization of credit cards by individuals or overdrafts on checking accounts. In addition, this category includes leasing operations for consumer purposes and other receivables. Any loan granted to repay or restructure all or part of the credits described above belongs in this category.
Consumer loans include the followingsub-categories:
Consumer loans: Thissub-category is comprised by loans granted to individuals in Chilean pesos, generally on a fixed rate nominal basis, to finance the purchase of consumer goods or to pay for services. This loans are generally paid in monthly installments which include principal amortization and interest payments.
Current account debtors: Thissub-category includes checking overdraft lines granted to individuals, in Chilean pesos, generally on a fixed rate nominal basis and linked to an individual’s checking account.
Credit card debtors: Thissub-category includes outstanding balances arising from the use of credit cards by individuals.
Consumer leasing transactions: This sub-categoryincludessub-categoryincludes outstanding balances owed by tenants of consumer goods under financial leasing transactions.
Other loans and receivables: This sub-categoryincludessub-categoryincludes other revolving consumer loans and other accounts receivable granted to individuals not included in the above categories.
The balances of the renegotiated consumer loans as of December 31, 2013, 20142015 and 20152016 were as follows:
As of December 31, | As of December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||
Opening balance(1) | 58,803 | 82,483 | 106,904 | 26,658 | 25,996 | |||||||||||||||
Integration Itaú Corpbanca | — | 93,542 | ||||||||||||||||||
Renegotiated(2) | 68,049 | 68,169 | 49,669 | 15,471 | 78,496 | |||||||||||||||
Recovery(3) | (31,182 | ) | (34,660 | ) | (41,346 | ) | (8,622 | ) | (44,485 | ) | ||||||||||
Write-offs(4) | (13,187 | ) | (9,088 | ) | (17,432 | ) | (7,511 | ) | (24,827 | ) | ||||||||||
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| ||||||||||||||||
Final balance | 82,483 | 106,904 | 97,795 | 25,996 | 128,722 | |||||||||||||||
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|
(1) | Corresponds to the renegotiated portfolio opening balance. |
(2) | Corresponds to the additions to the renegotiated loans portfolio during each respective period. |
(3) | Corresponds to the recovery (which may include payments, or settlements by judicial action) obtained from renegotiated loans during each respective period. |
(4) | Corresponds to write-offs of renegotiated loans during each respective period. |
As part of our business model we seek to be able to assist our customers when they are experiencing financial problems that cause them to fall behind on their payments. As a result, we make certain concessions when we renegotiate a loan, which may include the following: (i) extension of payment period; (ii) modifications to the interest rate based on each customer’s ability to pay; and (iii) forgiveness of interest payments.
The above-mentioned concessions are considered on acase-by-case basis. The grant of any concessions will depend on the situation of each customer and pursuant to the analysis by the branch agent in charge of such loan. We do not quantify the balance of consumer loans we have renegotiated by type of concession.
We use several types of concessions, frequently used in the market, to renegotiate our loans such as payment extensions, new operations or external refinancing to reduce the probability of losing the amount of the loan that the client has with us and improve collections.
With respect to the renegotiated loan portfolio, most of the loans are classified as impaired, and therefore the associated allowance for loan losses are based on the fair value less estimated cost to sell of the underlying collateral of each loan. To reclassify a renegotiated loan out of the impaired classification we conduct an individualized analysis of each customer. We consider if the customer has paid its loan for a reasonable period of time and the expected behavior of the customer for paying the remainder of the loan. In order to remove the renegotiated status from a loan, a customer must have improved its payment ability (credit risk profile) and must also demonstrate an improvement in its payment history. Once a minimum period of 4 to 6 months has passed, and a debtor’s situation has been duly rectified and documented, an executive in the commercial loan department may request that the renegotiated status of such loan be removed by the Assets Control Management team (which is an independent group in the commercial loan department that has the sole authority to change the risk classification of a loan). An executive in the commercial loan department has the exclusive authority to request a new classification on behalf of a customer.
The method of determining the allowance and provision for loan losses described in this section represents Chilean Bank GAAP accounting and is a regulatory required disclosure. This information has been provided in order to provide the reader with a morein-depth analysis. Notwithstanding, our allowance and provision for loan losses as recorded in our financial statements included herein have been determined in accordance with IFRS.
Normalization Portfolio
The balances ofnormalization portfolio table set forth below represents the commercial loan portfolio managed by the normalization portfolio for 2013, 2014management team. This portfolio includes renegotiated commercial loans, commercial loans paid regularly but with certain delay, and 2015 are as follows:
As of December 31, | As of December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||
Opening balance(1) | 124,047 | 144,748 | 181,909 | 63,996 | 75,600 | |||||||||||||||
Integration Itaú Corpbanca | — | 189,709 | ||||||||||||||||||
Additions to normalization portfolio(2) | 88,797 | 91,274 | 167,882 | 23,505 | 69,454 | |||||||||||||||
Recovery(3) | (43,748 | ) | (41,413 | ) | (57,932 | ) | (5,508 | ) | (44,455 | ) | ||||||||||
Write-offs(4) | (24,348 | ) | (12,699 | ) | (19,939 | ) | (6,393 | ) | (53,111 | ) | ||||||||||
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| ||||||||||||||||
Final balance(5) | 144,748 | 181,909 | 271,920 | 75,600 | 237,197 | |||||||||||||||
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|
|
Corresponds to the opening balance of the normalization portfolio. |
Corresponds to the additions to the normalization loans portfolio during each respective period. |
Corresponds to the recovery (which may include payments, or settlements by judicial action) obtained from normalization loans during each respective period. |
Corresponds to write-offs of normalization loans during each respective period. |
Corresponds to the ending balance of the normalization portfolio. |
We have a group that handles loans referred to as our normalization portfolio. The activities of such group include:
Because the group acts as one unit and the group’s aim is the management of this portfolio as a whole, we believe that the activity in the table presented above best represents the activities that we undertake with respect to those loans. The main difference between normalization portfolio and renegotiated portfolio for commercial loans, is that loans may be transferred to the normalization portfolio prior to the commencement of the renegotiation process to the extent, as defined internally, that the loan has demonstrated evidence of credit deterioration through deterioration in rating category, among others, requiring specific portfolio management procedures.
Treatment of debtors with commercial operations higher than UF1,000:
A loan from a customer classified as Large Companies, Corporate and Real Estate and Corporate Banking SME Banking and Private Banking segments,business units, which meet one of the following conditions, will be transferred to the normalization portfolio:
Treatment for debtors with commercial operations less than UF1,000:
The loan or loans that will be transferred to the normalization portfolio following any of the aforementioned conditions must be transferred with the debtor’s entire portfolio consisting of all of the transactions and balance of such customer with the Bank.bank. The normalization portfolio management team is responsible for determining any action that will be taken against the customer (renegotiation of the loan or collection), within a period not exceeding 30 days.
No customer with a risk higher than UF1,000 can be sent to collection without first being transferred to the normalization portfolio.
Any customer in default for more than 120 days and with a debt higher than UF50, and not having completed renegotiation of the loan, must be sent to collection. Any exception to this deadline must be approved by the normalization portfolio management team.
Risk Index of Our Loan Portfolio
The risk index is calculated as ratio of the allowance for loan losses over total loans. Our risk index for commercial loans is calculated by including commercial current account debtors, foreign trade loans, commercial leases, factoring and other commercial loans. Mortgage loans include mortgage leasing arrangements and consumer mortgage loans, which include consumer leasing.
Commercial loans. Our risk index as of December 31, 2013, 20142015 and 20152016 was 1.0%, 1.0%1.4% and 1.3%2.9%, respectively. The quality of our commercial loans depends on Chilean GDP growth, interest rates, changes in regulations, the general level of indebtedness and other economic conditions. Commercial loans include foreign trade loans, leasing contracts and factored receivables.
The main objective of our credit risk division is to maintain an adequate risk-return ratio for our assets, providing balance between commercial business goals and sound risk acceptance criteria, in accordance with our strategic objectives. This division’s work is based on its associates’ experience in evaluating credit risk using specialized, segmented management techniques, which has enabled it to build a sound, risk-conscious culture aligned with our strategy.
Such division helps define credit processes for the companies segment,companies’ business unit, including approval, monitoring and collections practices, using a regulatory and preventive outlook on credit risk. It also actively participates in loan approval and monitoring processes, which has helped us spread a risk-focused culture throughout the bank, reinforced by ongoing training for sales and risk executives. The division also directly manages higher risk loans in order to maximize recovery using a specialized approach.
Finally, the division’s assets quality ratios developed less favorably in comparison to 2014.2015. Nevertheless, our asset quality ratios, including the risk index, the non performingnon-performing loans and thepast-due loans, continued to outperform the financial system.
Mortgage loans. The risk index of our residential mortgage loans as of December 31, 2013, 20142015 and 20152016 was 0.4%, 0.3% and 0.4%0.6%, respectively.
Despite of the increase between 2014 and 2015 it is important to consider that (i) non performing loans for this segment has decreased by 1.3%; and (ii) commercial activity in this segment was self constraint in preparation for the new SBIF’s standard credit-provisioning model for residential mortgage loans that is effective in Chile since January 2016, though this portfolio remained stable in 2015. Therefore, on the one hand this impacted Risk Index but on the other, benefited the coverage for non performing loans.
CorpBanca’sItaú Corpbanca’s model for mortgage loans collectively evaluated for impairment recognizes loan losses only when they are incurred, in accordance with the guidance in IAS 39.BC109, and consistent with paragraph BC108 and BC110 of the same (as indicated in paragraph IAS 39.108 “a deterioration in the credit quality of an asset or a group of assets after their initial recognition”) and does not recognize impairment on the basis of expected future transactions or events. Thus, for a loss to be incurred, an event that provides objective evidence of impairment must have occurred and be supported by current observable data.
Consumer loans. The risk index of our consumer loans as of December 31, 2013, 20142015 and 20152016 was 1.7%, 2.0%3.9% and 1.5%4.7%, respectively.
Consumer risk index decreased due to the credit quality improvement of new loans and also due to our risk management and collection performance.
Lastly, theThe division also created a risk committee, or the Risk Committee, comprised of directors and senior executives that continuously monitor division activities based on the objectives of the bank and the business segment.unit.
We consider CorpBanca’sItaú Corpbanca’s Risk Index to be an important indicator of the quality of CorpBanca’sItaú Corpbanca’s loan portfolio. As calculated pursuant to the requirements of the SBIF, the Risk Index includes an adjustment for acquired loans to reflect the total of the portfolio by adding back the valuation allowance for the contractual cash flows that are deemed to be uncollectible at the date of acquisition. This has had impact on our Risk Index as calculated for purposes of the SBIF given that our loan portfolio is comprised of two types of loans in terms of their origination: (i) loans originated as a part of our day-to-day activities; and (ii) loans acquired through business combinations. The latter refers to loans that became part of our portfolio as a result of the acquisitions of CorpBanca Colombia and Helm Bank. We refer to the calculation of this Risk Index pursuant to the SBIF requirements as our SBIF Risk Index.
The adjustment described above is not utilized for purposes of calculating the Risk Index using our IFRS financial information. IFRS 3 Business Combination, provides that: “The acquirer shall not recognize a separate valuation allowance as of the acquisition date for assets acquired in a business combination that are measured at their acquisition-date fair values because the effects of uncertainty about future cash flows are included in the fair value measure.” Therefore, for loans acquired through business combinations, no allowance for loan losses is recorded at the combination or acquisition date. We refer to our Risk Index as calculated using our IFRS financial information as our IFRS Risk Index.
According to this information, our IFRSOur Risk Index as of December 31, 20142015 and 20152016 (calculated using general ledger balances) was:
IFRS RISK INDEX | ||||||||||||
as of December 31, | % Change from 2015/2014 | |||||||||||
2014 | 2015 | |||||||||||
(in million of constant Ch$ as of December 31, 2015 except for percentages) | ||||||||||||
Total loans (calculated pursuant to IFRS) | 14,029,875 | 14,628,296 | 4.3 | % | ||||||||
Commercial loans | 10,090,475 | 10,696,518 | 6.0 | % | ||||||||
Mortgage loans | 2,229,558 | 2,228,619 | 0.0 | % | ||||||||
Consumer loans | 1,709,842 | 1,703,159 | (0.4 | )% | ||||||||
Allowances for loan losses (calculated pursuant to IFRS) | 137,605 | 173,939 | 26.4 | % | ||||||||
Commercial loans | 96,009 | 138,721 | 44.5 | % | ||||||||
Mortgage loans | 7,762 | 8,832 | 13.8 | % | ||||||||
Consumer loans | 33,834 | 26,386 | (22.0 | )% | ||||||||
Allowances for loan losses as a percentage of total loans | 1.0 | % | 1.2 | % | 21.2 | % | ||||||
Commercial loans | 1.0 | % | 1.3 | % | 36.3 | % | ||||||
Mortgage loans | 0.3 | % | 0.4 | % | 13.8 | % | ||||||
Consumer loans | 2.0 | % | 1.5 | % | (21.7 | )% |
And our SBIF Risk Index as of December 31, 2014 and 2015 was:
SBIF RISK INDEX | ||||||||||||||||||||||||
RISK INDEX | ||||||||||||||||||||||||
as of December 31, | % Change from 2015/2014 | as of December 31, | % Change from 2016/2015 | |||||||||||||||||||||
2014 | 2015 | 2015 | 2016 | |||||||||||||||||||||
(in million of constant Ch$ as of December 31, 2015 except for percentages) | (in millions of constant Ch$ as of December 31, 2016 except for percentages) | |||||||||||||||||||||||
Total loans (calculated pursuant to SBIF requirements) | 14,211,349 | 14,810,136 | 4.2 | % | ||||||||||||||||||||
Total loans (calculated pursuant to IFRS) | 6,801,071 | 21,003,952 | 208.8 | % | ||||||||||||||||||||
Commercial loans | 10,200,131 | 10,806,540 | 5.9 | % | 4,566,466 | 14,634,471 | 220.5 | % | ||||||||||||||||
Mortgage loans | 2,244,885 | 2,243,946 | 0.0 | % | 1,533,848 | 3,888,517 | 153.5 | % | ||||||||||||||||
Consumer loans | 1,766,333 | 1,759,650 | (0.4 | )% | 700,757 | 2,480,964 | 254.0 | % | ||||||||||||||||
Allowances for loan losses (calculated pursuant to SBIF requirements) | 319,445 | 355,779 | 11.4 | % | ||||||||||||||||||||
Allowances for loan losses (calculated pursuant to IFRS) | 95,579 | 559,304 | 485.2 | % | ||||||||||||||||||||
Commercial loans | 206,031 | 254,167 | 23.4 | % | 61,995 | 418,928 | 575.7 | % | ||||||||||||||||
Mortgage loans | 23,089 | 18,735 | (18.9 | )% | 6,251 | 23,472 | 275.5 | % | ||||||||||||||||
Consumer loans | 90,325 | 82,877 | (8.2 | )% | 27,333 | 116,904 | 327.7 | % | ||||||||||||||||
Allowances for loan losses as a percentage of total loans | 2.2 | % | 2.4 | % | 6.9 | % | 1.4 | % | 2.7 | % | 89.5 | % | ||||||||||||
Commercial loans | 2.0 | % | 2.4 | % | 16.4 | % | 1.4 | % | 2.9 | % | 110.9 | % | ||||||||||||
Mortgage loans | 1.0 | % | 0.8 | % | (18.8 | )% | 0.4 | % | 0.6 | % | 48.1 | % | ||||||||||||
Consumer loans | 5.1 | % | 4.7 | % | (7.9 | )% | 3.9 | % | 4.7 | % | 20.8 | % |
During 2015,2016, our loan portfolio wasand, therefore, our allowances for loan losses were negatively impacted by (i) the slowdown in the Chilean and Colombian economies. economies, and (ii) the review of risk policies to align our credit criteria with Itaú Unibanco’s risk internal policies, which derived from rating downgrades for our corporate clients, impacting our commercial risk index and our total risk index (ratio of allowance for loans losses over total loans).
While our loan portfolio grew by 4.3%,208.8% due to the Merger, the composition of our loan portfolio as of December 31, 20152016 reflected a greater increase in commercial loans, which is the segment with the lowest level of risk.loans. Our portfolio of commercial loans increased from Ch$10,090,5744,566,466 million to Ch$10,696,51814,634,471 million and our mortgage loan portfolio, also onewhich is the business unit with the lowest level of our low risk, segment, has remained quite stable betweenincreased from Ch$2,229,558 million in 2014 and Ch$2,228,6191,533,888 million in 2015 theseto Ch$3,888,517 million in 2016. These are increases of a 6.0%220.5% and 0.0%153.5%, respectively, as compared to our portfolio of consumer loans, the segmentbusiness unit with the highest level of risk, which decreased by 0.4%increased from Ch$700,757 million in 2015 to Ch$2,480,964 million in 2016, an increase of 254%. As of December 31, 2015,2016, commercial loans, mortgage loans and consumer loans represented 11.6%69.7%, 18.5% and 11.8% of our total loan portfolio compared to 12.2% as of December 31, 2014.portfolio.
The consumerConsumer loans segment representsrepresent the single highest level of risk in our loan portfolio. As of December 31, 2015,2016, the risk index (ratio of allowance for loans losses over total loans) of this segmentbusiness unit was 1.5% – reflecting a 0.5% decrease in 2015 –4.7%, while other segments of our loan portfolio such as mortgage loans and commercial loans had lowera risk indexesindex of 0.4% and 1.3%, respectively.2.9%. Our mortgage loans had the lowest risk index of 0.6%.
Our consumer loan portfolio may experience loan losses due to the absence of collateral in respect of unsecured loans, insufficient collateral in collateralized loans, and risks relating to the circumstances of individual borrowers, including unemployment or incapacitation of our consumer borrowers.
We significantly increased our allowances for loan losses as a consequence of difficulties experienced by the Colombian oil & gas industry and related sectors during the year 2015. However, the 26.4% increase in the allowances was mitigated by the decrease in our consumer loan portfolio which lead to lower allowances for loan losses in this segment. As aforementioned, the IFRS Risk Index of commercial loans’ and the mortgage loans’ segments is of 1.3% and 0.4%, respectively while the consumer loans’ segment has a IFRS Risk Index of 1.5%. For comparison purposes, the SBIF Risk Index of our commercial, mortgage and consumers’ loans’ segments is of 2.4%, 0.8% and 4.7%, respectively. The above explains the assertion that our asset quality, as measured by the IFRS Risk Indices, remains unchanged, despite the increase in our allowances for loan losses.
Maturity and Interest Rate Sensitivity of Loans
The following table sets forth an analysis of our loans by type and time remaining to maturity as of December 31, 2015:2016:
Balance as of December 31, 2015 | Due within one month | Due after 1 month through 6 months | Due after 6 month through 1 year | Due after 1 year through 3 years | Due after 3 years through 5 years | Due after 5 years | Total | |||||||||||||||||||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||||||||||||||||||||||
Commercial loans | 8,821,860 | 1,306,668 | 1,642,414 | 1,667,495 | 1,334,978 | 1,501,840 | 1,368,464 | 8,821,860 | ||||||||||||||||||||||||
Foreign trade loans | 521,339 | 150,153 | 221,267 | 38,611 | 50,828 | 47,312 | 13,169 | 521,339 | ||||||||||||||||||||||||
Current account debtors | 28,732 | 24,538 | 2,582 | 1,606 | 5 | — | — | 28,732 | ||||||||||||||||||||||||
Factoring operations | 62,013 | 31,114 | 28,365 | 1,242 | 828 | 465 | — | 62,013 | ||||||||||||||||||||||||
Leasing transactions | 888,189 | 26,453 | 35,175 | 45,913 | 183,295 | 199,506 | 397,847 | 888,189 | ||||||||||||||||||||||||
Other loans and receivables | 374,385 | 27,908 | 5,151 | 6,207 | 24,747 | 23,160 | 287,211 | 374,385 | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Subtotals | 10,696,518 | 1,566,834 | 1,934,954 | 1,761,074 | 1,594,681 | 1,772,283 | 2,066,691 | 10,696,518 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Letters of credit loans | 54,372 | 1,028 | 3,116 | 3,722 | 12,793 | 10,193 | 23,521 | 54,372 | ||||||||||||||||||||||||
Endorsable mutual mortgage loans | 161,438 | 1,533 | 4,780 | 5,721 | 22,666 | 21,218 | 105,520 | 161,438 | ||||||||||||||||||||||||
Mutual loans financed mortgage bonds | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Other mutual mortgage loans | 1,701,573 | 22,048 | 43,424 | 50,521 | 266,742 | 105,175 | 1,213,664 | 1,701,573 | ||||||||||||||||||||||||
Leasing transactions | 278,882 | 1,083 | 189 | 782 | 3,386 | 12,166 | 261,277 | 278,882 | ||||||||||||||||||||||||
Other loans and receivables | 32,354 | 269 | 933 | 1,118 | 4,413 | 4,166 | 21,454 | 32,354 | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Subtotals | 2,228,619 | 25,961 | 52,441 | 61,865 | 310,000 | 152,918 | 1,625,435 | 2,228,619 | ||||||||||||||||||||||||
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|
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|
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|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Consumer loans | 1,298,194 | 62,639 | 68,295 | 72,312 | 290,211 | 517,265 | 287,472 | 1,298,194 | ||||||||||||||||||||||||
Current account debtors | 52,488 | 37,793 | 10,496 | 4,199 | — | — | — | 52,488 | ||||||||||||||||||||||||
Credit card debtors | 244,942 | 213,144 | 24,449 | 7,348 | — | — | — | 244,942 | ||||||||||||||||||||||||
Consumer leasing transactions | 18,791 | 104 | 286 | 512 | 5,525 | 12,239 | 125 | 18,791 | ||||||||||||||||||||||||
Other loans and receivables | 88,744 | 30,100 | 13,313 | 14,199 | 31,083 | 34 | 15 | 88,744 | ||||||||||||||||||||||||
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|
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|
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|
|
|
|
|
| |||||||||||||||||
Subtotals | 1,703,159 | 343,781 | 116,839 | 98,570 | 326,819 | 529,539 | 287,612 | 1,703,159 | ||||||||||||||||||||||||
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|
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|
|
|
|
| |||||||||||||||||
Subtotal loans | 14,628,296 | 1,936,576 | 2,104,234 | 1,921,509 | 2,231,500 | 2,454,739 | 3,979,739 | 14,628,296 | ||||||||||||||||||||||||
Loans and receivables to banks | 452,069 | |||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total loans | 15,080,365 | |||||||||||||||||||||||||||||||
|
|
Due in 1 year | Due after 1 year through 5 years | Due after 5 years | Balance as of December 31, 2014 | Due in 1 year | Due after 1 year through 5 years | Due after 5 years | Balance as of December 31, 2016 | |||||||||||||||||||||||||
(in million of constant Ch$ as of December 31, 2015) | (in millions of constant Ch$ as of December 31, 2016) | |||||||||||||||||||||||||||||||
Commercial loans | 4,616,577 | 2,836,818 | 1,368,464 | 8,821,859 | 4,801,846 | 2,979,172 | 4,175,345 | 11,956,364 | ||||||||||||||||||||||||
Foreign trade loans | 410,031 | 98,140 | 13,169 | 521,339 | 740,860 | 10,469 | 2,815 | 754,144 | ||||||||||||||||||||||||
Current account debtors | 28,727 | 5 | — | 28,732 | 132,827 | 874 | — | 133,701 | ||||||||||||||||||||||||
Factoring operations | 60,721 | 1,293 | — | 62,013 | 71,848 | 4,293 | — | 76,141 | ||||||||||||||||||||||||
Student loans | 305 | 7,932 | 602,079 | 610,315 | ||||||||||||||||||||||||||||
Leasing transactions | 107,541 | 382,801 | 397,847 | 888,189 | 80,031 | 394,501 | 598,974 | 1,073,506 | ||||||||||||||||||||||||
Other loans and receivables | 39,266 | 47,907 | 287,211 | 374,385 | 22,403 | 4,581 | 3,316 | 30,300 | ||||||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||
Subtotals | 5,262,862 | 3,366,964 | 2,066,691 | 10,696,517 | 5,850,120 | 3,401,822 | 5,382,529 | 14,634,471 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||
Letters of credit loans | 7,866 | 22,986 | 23,521 | 54,372 | 25,188 | 5,694 | 26,826 | 57,708 | ||||||||||||||||||||||||
Endorsable mutual mortgage loans | 12,034 | 43,884 | 105,520 | 161,438 | 1,589 | 5,172 | 145,559 | 152,320 | ||||||||||||||||||||||||
Mutual loans financed mortgage bonds | — | — | — | — | ||||||||||||||||||||||||||||
Other mutual mortgage loans | 115,993 | 371,917 | 1,213,664 | 1,701,573 | 99,949 | 44,472 | 3,216,529 | 3,360,950 | ||||||||||||||||||||||||
Leasing transactions | 2,053 | 15,552 | 261,277 | 278,882 | 29,937 | 7,970 | 250,422 | 288,329 | ||||||||||||||||||||||||
Other loans and receivables | 2,321 | 8,579 | 21,454 | 32,354 | 639 | 360 | 28,211 | 29,210 | ||||||||||||||||||||||||
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|
|
|
|
|
| |||||||||||||||||||||||||
Subtotals | 140,267 | 462,918 | 1,625,435 | 2,228,619 | 157,303 | 63,668 | 3,667,547 | 3,888,517 | ||||||||||||||||||||||||
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|
|
|
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|
| |||||||||||||||||||||||||
Consumer loans | 203,246 | 807,476 | 287,472 | 1,298,194 | 46,693 | 1,308,863 | 430,449 | 1,786,004 | ||||||||||||||||||||||||
Current account debtors | 52,488 | — | — | 52,488 | 114,657 | 68,176 | — | 182,832 | ||||||||||||||||||||||||
Credit card debtors | 244,941 | — | — | 244,942 | 210,935 | 203,968 | — | 414,903 | ||||||||||||||||||||||||
Consumer leasing transactions | 902 | 17,764 | 125 | 18,791 | 570 | 16,320 | 202 | 17,091 | ||||||||||||||||||||||||
Other loans and receivables | 57,612 | 31,117 | 15 | 88,744 | 50,821 | 23,087 | 6,226 | 80,134 | ||||||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||
Subtotals | 559,190 | 856,357 | 287,612 | 1,703,159 | 423,675 | 1,620,414 | 436,877 | 2,480,964 | ||||||||||||||||||||||||
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|
|
|
|
|
| |||||||||||||||||||||||||
Subtotal loans | 5,962,319 | 4,686,239 | 3,979,739 | 14,628,296 | 6,431,098 | 5,085,904 | 9,486,953 | 21,003,952 | ||||||||||||||||||||||||
Loans and receivables to banks | 452,069 | 150,780 | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Total loans | 15,080,365 | 21,154,732 | ||||||||||||||||||||||||||||||
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|
The following table presents the interest rate sensitivityanalysis of our outstanding loans due after one year as of December 31, 2015.2016.
As of December 31, | ||||
Variable interest rate | ||||
Ch$ | ||||
UF | ||||
Ch$ indexed to US$ | ||||
Foreign currency | ||||
Subtotal | ||||
Fixed interest rate | ||||
Ch$ | ||||
UF | ||||
Ch$ indexed to US$ | ||||
Foreign currency | ||||
Subtotal | ||||
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| |||
Total | ||||
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|
The following table sets forth an analysis of our foreign loans by type and time remaining to maturity as of December 31, 2015:2016:
2015 | Due in 1 year or less | Due after 1 year through 5 years | Due after 5 year | Total | ||||||||||||||||||||||||||||
2016 | Due in 1 year or less | Due after 1 year through 5 years | Due after 5 year | Total | ||||||||||||||||||||||||||||
(in million of constant Ch$ as of December 31, 2015) | (in millions of constant Ch$ as of December 31, 2016) | |||||||||||||||||||||||||||||||
Commercial loans | 512 | 64,031 | 62,791 | 127,334 | 4,169 | 73,387 | 100,461 | 178,019 | ||||||||||||||||||||||||
Foreign loans (*) | 1,404,180 | 1,979,969 | 1,991,400 | 5,375,550 | 1,419,966 | 1,940,061 | 2,106,007 | 5,466,034 | ||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||
Total | 1,404,693 | 2,044,001 | 2,054,191 | 5,502,884 | 1,424,135 | 2,013,448 | 2,206,468 | 5,644,052 |
(*) | Includes commercial, mortgage and consumer loans. |
Loans by Economic Activity
The following table sets forth as of the dates indicated, an analysis of our loan portfolio before provisions based on the borrower’s principal business activity:
20-F 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
20-F 2016 | 20-F 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans by Economic Activity | Domestic Loans as of December 31, | Foreign Loans as of December 31, | Total Loans as of December 31, | Distribution percentage as of December 31, | Domestic Loans as of December 31, | Foreign Loans as of December 31, | Total Loans as of December 31, | Distribution percentage as of December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2013 | 2014 | 2015 | 2013 | 2014 | 2015 | 2013 | 2014 | 2015 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Manufacturing | 499,037 | 965,965 | 742,288 | 332,767 | 111,397 | 137,587 | 831,804 | 1,077,362 | 879,875 | 6.45 | % | 7.68 | % | 6.01 | % | 444,647 | 1,065,647 | — | 155,749 | 444,647 | 1,221,396 | 6.54 | % | 5.81 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mining and Petroleum | 328,377 | 266,661 | 450,459 | 457,884 | 363,055 | 316,248 | 786,261 | 629,716 | 766,707 | 6.10 | % | 4.49 | % | 5.24 | % | 203,501 | 428,384 | — | 275,056 | 203,501 | 703,440 | 2.99 | % | 3.35 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Electricity, Gas and Water | 146,316 | 273,576 | 230,658 | 351,301 | 483,644 | 467,077 | 497,617 | 757,220 | 697,735 | 3.86 | % | 5.40 | % | 4.77 | % | 293,538 | 720,818 | 29,761 | 414,511 | 323,299 | 1,135,329 | 4.75 | % | 5.41 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Agriculture and Livestock | 179,008 | 179,863 | 239,540 | 123,906 | 123,166 | 123,981 | 302,914 | 303,029 | 363,521 | 2.35 | % | 2.16 | % | 2.49 | % | 74,460 | 262,449 | 44,379 | 165,296 | 118,839 | 427,745 | 1.75 | % | 2.04 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forestry and wood extraction | 23,650 | 48,344 | 36,291 | 8,875 | 7,785 | 7,732 | 32,525 | 56,129 | 44,023 | 0.25 | % | 0.40 | % | 0.30 | % | 25,146 | 28,853 | — | 6,494 | 25,146 | 35,347 | 0.37 | % | 0.17 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fishing | 1,212 | 2,199 | 3,252 | — | — | — | 1,212 | 2,199 | 3,252 | 0.01 | % | 0.02 | % | 0.02 | % | 30,433 | 58,770 | — | — | 30,433 | 58,770 | 0.45 | % | 0.28 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transport and storage | 196,092 | 182,364 | 242,533 | 165,982 | 146,354 | 105,593 | 362,074 | 328,718 | 348,126 | 2.81 | % | 2.34 | % | 2.38 | % | 253,955 | 442,468 | 56,575 | 251,885 | 310,530 | 694,353 | 4.57 | % | 3.31 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Communications | 3,423 | 3,490 | 4,034 | 111,671 | 91,191 | 57,944 | 115,094 | 94,681 | 61,978 | 0.89 | % | 0.67 | % | 0.42 | % | 13,954 | 31,712 | — | 48,448 | 13,954 | 80,160 | 0.21 | % | 0.38 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction | 854,452 | 887,305 | 989,048 | 257,438 | 214,999 | 217,069 | 1,111,890 | 1,102,304 | 1,206,117 | 8.62 | % | 7.86 | % | 8.25 | % | 294,772 | 1,359,125 | 1,550 | 265,669 | 296,322 | 1,624,794 | 4.36 | % | 7.74 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commerce | 434,713 | 415,695 | 500,551 | 1,034,412 | 943,143 | 808,876 | 1,469,125 | 1,358,838 | 1,309,427 | 11.39 | % | 9.69 | % | 8.95 | % | 473,926 | 912,877 | 6,719 | 801,712 | 480,645 | 1,714,589 | 7.07 | % | 8.16 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Services | 2,695,813 | 2,620,475 | 3,128,986 | 980,883 | 1,305,238 | 1,229,567 | 3,676,696 | 3,925,713 | 4,358,553 | 28.51 | % | 27.98 | % | 29.80 | % | 1,458,307 | 2,869,113 | 63,870 | 1,418,260 | 1,522,177 | 4,287,373 | 22.38 | % | 20.41 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others | 70,829 | 286,578 | 202,313 | 27,415 | 167,988 | 454,891 | 98,244 | 454,566 | 657,204 | 0.76 | % | 3.24 | % | 4.49 | % | 796,973 | 2,465,332 | — | 185,843 | 796,973 | 2,651,175 | 11.72 | % | 12.62 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial Loans | 5,432,922 | 6,132,515 | 6,769,953 | 3,852,534 | 3,957,960 | 3,926,565 | 9,285,456 | 10,090,475 | 10,696,518 | 72.00 | % | 71.93 | % | 73.12 | % | 4,363,612 | 10,645,548 | 202,854 | 3,988,923 | 4,566,466 | 14,634,471 | 67.14 | % | 69.68 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mortgage Loans (1) | 1,529,701 | 1,730,106 | 1,742,092 | 459,275 | 499,452 | 486,527 | 1,988,976 | 2,229,558 | 2,228,619 | 15.42 | % | 15.89 | % | 15.23 | % | 1,533,848 | 3,360,930 | — | 527,587 | 1,533,848 | 3,888,517 | 22.56 | % | 18.51 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer Loans (1) | 504,940 | 568,426 | 613,367 | 1,118,309 | 1,141,416 | 1,089,792 | 1,623,249 | 1,709,842 | 1,703,159 | 12.58 | % | 12.18 | % | 11.64 | % | 700,757 | 1,353,422 | — | 1,127,542 | 700,757 | 2,480,964 | 10.30 | % | 11.81 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 7,467,563 | 8,431,047 | 9,125,412 | 5,430,118 | 5,598,828 | 5,502,884 | 12,897,681 | 14,029,875 | 14,628,296 | 100 | % | 100 | % | 100 | % | 6,598,217 | 15,359,900 | 202,854 | 5,644,052 | 6,801,071 | 21,003,952 | 100 | % | 100 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | Figures prepared according to IFRS. We have classified our loan portfolio taking into account the debtor that receives the loan. |
Foreign Country Outstanding Loans
Our cross-border outstanding loans are principally trade-related. The table below lists our total amounts outstanding to borrowers in foreign countries as of December 31, 2013, 20142015 and 2015.2016. This table does not include foreign trade-related loans to Chilean borrowers.
As of December 31 | As of December 31 | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in millions of constant Ch$) | (in millions of constant Ch$) | |||||||||||||||||||
Argentina | 7,401 | — | — | — | 107 | |||||||||||||||
Bahamas | 3,568 | — | ||||||||||||||||||
Brazil | 39,265 | 43,064 | 12,961 | 9,508 | 7,128 | |||||||||||||||
Canada | — | 58,426 | 44,064 | |||||||||||||||||
Cayman Islands | 8,249 | 2,296 | — | |||||||||||||||||
British Virgin Islands | — | 6,725 | ||||||||||||||||||
Colombia | 5,142,110 | 4,921,473 | 4,802,783 | 112,637 | 5,199,713 | |||||||||||||||
Costa Rica | 6,478 | 4,127 | 3,260 | — | 1,683 | |||||||||||||||
Ecuador | — | 13,194 | 55 | |||||||||||||||||
Gabon | 4,529 | |||||||||||||||||||
Japan | 8,548 | 6,642 | 4,307 | |||||||||||||||||
Holland | 64,366 | 84,567 | 83,804 | |||||||||||||||||
Luxembourg | — | 1,677 | ||||||||||||||||||
Mexico | 81,729 | 78,243 | 73,953 | 9,334 | 47,923 | |||||||||||||||
Netherlands | — | 47,701 | ||||||||||||||||||
Panama | 10,490 | 244,440 | 322,414 | 13,237 | 16,509 | |||||||||||||||
Peru | 31,060 | 97,572 | 71,835 | 10,191 | 198,428 | |||||||||||||||
Switzerland | 23,450 | — | — | 44,379 | 40,179 | |||||||||||||||
United States | 6,972 | 44,786 | 78,918 | — | 76,278 | |||||||||||||||
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Total | 5,430,118 | 5,598,828 | 5,502,884 | 202,854 | 5,644,052 | |||||||||||||||
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We also maintain deposits abroad (primarily demand deposits) in foreign banks, as needed to conduct our foreign trade transactions. The table below lists the amounts of foreign deposits by country as of December 31, 2013, 20142015 and 2015.2016.
As of December 31 | As of December 31 | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in millions of constant Ch$) | (in millions of constant Ch$) | |||||||||||||||||||
Australia | 81 | 85 | 84 | 6 | 173 | |||||||||||||||
Barbados | 792 | — | — | |||||||||||||||||
Belgium | 147 | 1,044 | 225 | — | 2,045 | |||||||||||||||
Bulgaria | 12 | — | ||||||||||||||||||
Canada | 481 | 383 | 325 | 2 | 166 | |||||||||||||||
China | 4 | 8 | 5 | — | 5 | |||||||||||||||
Colombia | 392,106 | 312,337 | 274,646 | — | 278,098 | |||||||||||||||
Denmark | 16 | 12 | 17 | — | 362 | |||||||||||||||
France | 21 | 22 | — | |||||||||||||||||
Germany | 8,664 | 15,999 | 7,046 | 2,284 | 11,971 | |||||||||||||||
Italy | 15 | 14 | 19 | — | 18 | |||||||||||||||
Japan | 628 | 1,689 | 538 | — | 887 | |||||||||||||||
Mexico | 81 | 8 | 32 | — | 44 | |||||||||||||||
New Zealand | 5 | — | ||||||||||||||||||
Norway | 5 | 81 | 15 | — | 39 | |||||||||||||||
Panama | 37,297 | 1,890 | 1,887 | — | 270 | |||||||||||||||
Spain | 7 | 75 | 2,405 | — | 4,620 | |||||||||||||||
Sweden | 21 | 26 | 29 | — | 269 | |||||||||||||||
Switzerland | 55 | 88 | 140 | 38 | 163 | |||||||||||||||
United Kingdom | 758 | 2,806 | 5,538 | — | 2,012 | |||||||||||||||
United States | 261,317 | 616,024 | 452,723 | 156,755 | 701,819 | |||||||||||||||
Venezuela | 13 | 10 | 12 | — | 7 | |||||||||||||||
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Total | 702,509 | 952,612 | 745,686 | 159,090 | 1,002,968 | |||||||||||||||
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Companies Credit Risk Division
The goalobjective of the Companies Credit Risk DivisionManagement and Control structure is to maintain an adequate ratio ofoptimize the risk to return forratio and keep the corporate loancredit portfolio provide a balance between commercial business goals, and to maintain sound acceptance criteria. These objectives are all in accordancequality aligned with our strategic objectives.the risk appetite levels defined by the bank.
To accomplish this goal, this divisionthe Corporate Risk Management combines, the following elements: (i) personnel with significant experience from various divisions, (ii)among others, a sound, risk-conscious culture aligned with our strategy, (iii) a well definedwell-defined corporate credit process in terms of approval, monitoring and collection procedures, (iv) a strong supervision of all stages of the credit cycle, monitoring the quality and performance of our loan portfolio and taking promptly measures over potentiallynon-performing loans, while ensuring strong compliance of the legal, regulatory and preventive outlook onnormative framework.
The Credit Risk Management and Control structure is segregated in Wholesale Credit Risk, Retail Credit Risk and Credit Risk Control.
Wholesale Credit Risk is accountable for the credit risk (v) active participationprocess of the wholesale banking business units comprised of Corporate, Real Estate Companies and Large Enterprises.
Retail Credit Risk is responsible for the whole credit cycle covering from the credit assessment to recovery management of the retail business units comprised of SME’s, Personal Bank, Itaú Branches and Banco Condell.
The Credit Risk Control Unit is in charge of generating mechanisms to support and strengthen the loan approvalrisk assessment process complete with a market-segmented structure, (vi) supervisionand to monitor the performance of the loan approval process via monitoring, defaultportfolio by combining risks identification, analysis, measurement, control and ex-post review committees, (vii) dissemination of a risk-conscious culture throughouttimely reporting risk exposures that faces the bank, (viii) continuous training for executives in the commercial and risk areas, and (ix) direct participation through the Risk Division in managing and collecting on deteriorated loans.
In addition, we have a number of credit committees with the ability to approve loans within certain amounts and terms depending on the credit risk rating of the potential borrower. Various risk managers of different levels of seniority participate in the credit approval process when certain predefined credit levels are surpassed.bank.
Credit Review Process
We perform a credit analysis of our entire commercialCredit risk and retail (consumer) borrowers. Credit riskexposure presented by our current or potential borrowers is evaluated in accordance with policies and standards which have been approved by theour board of directors.
Credit analysis of our entire wholesale and retail borrowers is periodically performed. Credit Exposures of clients in Wholesale are reviewed at least once a year, and credit limits can be reduced if potential weaknesses in loan repayment capability are detected.
A potential commercialwholesale borrower’s evaluation focuses primarily on the credit history and reputation of its owners and management, its market position and the demand for its products or services, its production processes and facilities, its current and projected cash flows, its solvency, and when it applies, the guarantees offered in connection with the loan. We also use tools such as sector reports, standard risk models for major industries, and reports relating to the potential commercial borrower’s sales patterns.
In the case of individual retail borrowers, we use centralized evaluation and decision-making processes as well as case by case assessment when the applicant does not fit the standard model. The credit approval process is based primarily on an evaluation of the borrower’s credit behavior which combinesin the applicant’s commercial behavioral variables such asfinancial system, taking into account current debt, levels,credit history, ability to pay, and socio-economic level, among others, along with centralized evaluation and decision-making systems in cases where the applicant does not fit the standard model. The information presented by a prospective borrower is evaluated by considering the individual’s income, expenses, personal assets credit history and our previous experience (if any) in the bank.
Wholesale Credit Risk
The credit evaluation process is carried out on a case by case assessment of credit proposals. Our internal approval governance structure ensures that credit decisions fall within acceptable risk parameters, identifying potential risks while keeping a healthy expansion of our loan portfolio aligned with the individual.our business and strategic purposes.
Prior to extending credit to a commercialwholesale borrower, we perform a risk analysis to identify the applicant’s risk profile and assign aan internal credit risk rating to such potential borrower based on our analysis that helps identify each applicant’s risk profile. These ratings are based on a scale of 1 to 10, with a rating of 1 being excellent and rating of 10 corresponding to certain loss. In general, we consider ratings 1 through 6 to be acceptable ratings, and ratings 7 through 10 to be indicative of probable losses. Loan approvals are made at various levels and with varying degrees of involvement by different categories of executives (A through I) depending on therating. The credit risk rating we have assigned to the potential borrower, the size of the loan under consideration and the collateral offered, if any. Collateral granted for loans generally consists of mortgages on real estate. In all cases, the approval of at least three officers is required in order to approve a loan.
Our evaluation of a potential transaction with a borrower is based on the concept of total customer risk. Total customer risk takes into account (i) the direct risk (actual and potential), (ii) the indirect risk, and (iii) the risks related to the client,information such as having common partners, being parteconomic and financial condition of anthe counterparty, cash generating capabilities and the current and projected situation on the economic group or common guarantees.sector in which it operates.
The following table shows the category of executives that were required to approve securedCredit committees are structured depending on business units, credit amount and unsecured commercial borrowing transactions, according to the credit risk rating of the client or potential borrower, and the Chilean pesos amountin order to perform a detailed assessment of the total customer risk based on exchange rates in effect priorcredit proposals. The credit decisions will be taken by the members of the credit committees. Any denial by the committee of any such requests can be delivered to endbe assessed by the upper instance committee.
Retail Credit Risk
Our Retail Credit Risk Management is responsible for the entire credit cycle from credit assessment to recovery of December 2015:
Committee Executive Divisional Managers + ‘A’ Managers Level ‘C1’+‘A’ Level A Risks Level ‘C1’+‘B’ Sub managers Level “B” Level “C1” Risk Category Debtors in risk individual’s categories from A1 to A5 and
debtors in risk group’s categories G1 and G2 Debtors in risk individual’s categories A6,
and debtors in risk group’s categories from
G3 and G8 and non-performing portfolio Corporate and Real Estate Enterprises & Private
Banking Corporate and Real
Estate Enterprises & Private
Banking RD+RI RT RD+RI RT RD+RI RT RD+RI RT From 4,500 + $1 8,000 + $1 3,500 + $1 6,000 + $1 2,250 + $1 4,000 + $1 1,750 + $1 3,000 + $1 Up to 4,500 8,000 3,500 6,000 2,250 4,000 1,750 3,000 Up to 2,500 4,000 2,000 3,000 1,250 2,000 1,000 1,500 Up to 1,400 2,100 1,400 2,100 700 1,050 700 1,050 Up to 1,000 1,500 1,000 1,500 500 750 500 750 Up to 700 1,100 700 1,100 350 550 350 550 Up to 700 1,100 700 1,100 350 550 350 550 Up to 500 750 500 750 250 375 250 375 Up to 400 600 400 600 200 300 200 300 Up to 250 400 250 400 125 200 125 200 Up to 250 400 250 400 125 200 125 200
The following table details the maximum limits of customer credit risk in Chilean pesos that executivesmanagement process for individual customers is composed of each category were permitted to approve prior to end of December 2015. This table applies to all potential borrowers withthe following:
Credit Initiation.
Our credit risk ratings of 1 to 5 and varies according to whether the customer credit risk is comprised of secured or unsecured obligations.initiation process consists of:
Approval limits only for debtors with Risk Category A5 or G2, or Special Surveillance Continue as maximum (1) | ||||||||||
Level of Necessary Authority | Risk RD+R1 | Total Risk (RD+RI+RR) | ||||||||
Level “C” Executive | Up to | 100 | 150 | |||||||
Level “D” Executive | Up to | 60 | 100 | |||||||
Level “E” Executive | Up to | 40 | 60 | |||||||
Level “F” Executive | Up to | 20 | 30 | |||||||
Level “G” Executive | Up to | 10 | 20 | |||||||
Level “H” Executive | Up to | 5 | 10 | |||||||
Level “I” Executive | Up to | 3 | 6 | |||||||
Level “J” Executive | Up to | 2 | 2 | |||||||
Level “K” Executive | Up to | 1 | 1 |
• | Credit |
All transactions at the Risk Committee level or higher are reviewed by our credit risk managers. All transactions resulting in total customer credit risk in excess of the amounts that can be reviewed by the Superior Committee as shown
• | Accountability and Responsibility (tied to incentive plans). Branch managers know their customers and they are responsible for credit decisions but they must first seek approval with a credit risk officer. |
• | Analytical Driven Sales Process. We know the customers that we want and we seek them out. On a monthly basis,pre-approved credit loans, credit cards and revolving credit lines are offered to clients and prospective customers, whose risk profile is within thecut-off threshold and the parameters established under our credit policy. Additionally, we use traditional credit review processes, where credit proposals are evaluated by a credit expert. |
• | Control Environment. To assess the loan authorization ability (approving credit worthy customers and decliningnon-credit worthy customers), early delinquency rates and the sales scoring mix are periodically reviewed. |
Maintenance.
We strive to have high market share in the above table must be authorized by the directors committee of our board of directors, or the Directors Committee, the CEO and three other members of the board of directors.
Our Credit Risk Divisions also monitor compliance with the terms of loans we have granted, such as payment dates, conditions and covenants. The monitoring process includes verification of the use of proceeds and contractual conditions, continuing financial analysis of the borrower and any guarantors, on-site visits to the borrower’s place ofmost profitable business confirmation of credit information and analysis of the economic environment as it affects the borrower or its sector, among other tools. Generally, the credit risk department performs this monitoring on a yearly basis. If a debtor exhibits an elevated level of risk based on the results of our yearly monitoring, we may place such debtor on a special watch list. We monitor debtors on the watch list on a monthly basis. The credit risk department regularly meets to decide whether to take any action (such as reducing outstanding loan amounts or requesting collateral) in respect of debtors on the watch list. In addition, our credit risk department has a unit dedicated to administering the loan accounts of debtors with respect to which losses are expected or have occurred. This unit supervises the process of collections and legal proceedings.
We also monitor the quality of the loan portfolio on a continuous basis. The purpose of this special supervision is to maintain constant scrutiny of the portions of the portfolio that represent the greatestunits(low-medium risk and to anticipate any deterioration. Based on this ongoing review of the loan portfolio, we believe we are able to detect problem loansmedium-high usage) and make a decision on a client’s status. This includes measures such as reducing or extinguishing a loan, or requiring better collateral from the client. The control systems require that loans be reviewed at least three times per year for those clientslow market share in the lowest category of credit watch.profitable business units (high risk or low usage). The maintenance process is composed of:
• | Renewals/Non-Renewals (Revolving Products). Renewals andnon-renewals are based on customer payment behavior and profitability. |
• | Campaigns. Top-up and cross-selling offers are implemented. On a monthly basis, the Risk Division selects our best customers to offer refinancing options on their current loans. Our goal ismaximize the share of wallet in our most profitable business units. |
Collection.
We strive to have in place a high quality collection process, with a consistent strategy, vendors, products and policies. The collection process is composed of:
• | Collection Strategy. Our collection strategy is currently based on geographic coverage and delinquency buckets. Delinquent customers are reported to credit bureaus. |
• | Vendors. Our vendors provide physical collection coverage, benchmarks and sometimes testing (champion/challenger). Also, the continuity plan requires the use of vendors in cases of emergency and union instability, among others. |
• | Policies and Products. Rewrites, remedial offers and settlements are made as needed. We must maximize capital recovery. |
• | Control Environment and support. Customer surveys and strong Management Information Systems enable us to have a controlled process. Collection systems and predictive dialer are in place. |
Write-off Policy, Recovery and Planning.
Thewrite-off policy, recovery and planning process consists of:
• | Write-off Policy. Ourwrite-off policy is triggered for an unsecured portfolio at 180 days past due and four years for mortgages. |
• | Loan Loss Reserve. History of write-offs and recoveries are used to calculate each portfolio. Back Testing Analyses are periodically performed in order to ensure the right coverage, as well as model performance. |
Classification of Loan Portfolio
Loans are divided into: (1) consumer loans (including loans granted to individuals for the purpose of financing the acquisition of consumer goods or payment of services); (2) residential mortgage loans (including loans granted to individuals for the acquisition, construction or repair of residential real estate, in which the value of the property covers at least 100% of the amount of the loan); and (3) commercial loans (including all loans other than consumer loans and residential mortgage loans). The models and methods used to classify our loan portfolio and establish credit loss allowances must follow the following guiding principles, which have been approved by our board of directors.
Loans Analyzed on an Individual Basis
For individually largeanalyzed commercial loans under IFRS, we use internal modelsa risk classification process that combines parametrical variables with expert judgment, to assign a risk category levelcategories to each customer and their respective loans. We consider the followingindividually analyzed client. This process considers financial risk factors:factors such as industry or customer’s economic sector, in which the customer operates, owners or managers of the customer, customer’s financial situation, its payment capacity and payment history to calculate the estimated incurred loan loss.history.
ThroughAs a result of this categorization,classification process, we differentiate the normal loans from the impaired ones.
These are our riskones, identifying three mayor categories:
1. Customers classified in risk categories A1, A2, A3, A4, A5, or A6 are current or have less than 30 days overdue on their payment obligations and show no significant sign of deterioration in their credit quality. Customers classified in risk categories B1, B2, B3 or B4 are overdue between 30 and 89 days on their payment obligations, thus showing a certain level of indication of deterioration in credit quality. B category is different from the A because of a history of late payments.
1. | Customers classified in risk categories A1, A2, A3, A4, A5, or A6 are current or have less than 30 days overdue on their payment obligations and show no significant sign of deterioration in their credit quality. Customers classified in risk categories B1, B2, B3 or B4 are overdue between 30 and 89 days on their payment obligations, thus showing a certain level of indication of deterioration in credit quality. |
2. Customers classified as C1, C2, C3, C4, C5, or C6 include clients whose loans with us have been charged off or are being administered by a specialized area.
2. | Customers classified as C1, C2, C3, C4, C5, or C6, include clients whose loans with us have been in default (over 90) or are being managed by a specialized collection area. |
For loans classified as A1, A2, A3, A4, A5, A6, B1, B2, B3 and B4, we assign a specific allowance percentage on an individual basis to each customer. The amount of the allowance for loan losses is determined based on debt servicing capacity, the company´scompany’s financial history, solvency and capacity of shareholders and management and projections for the industry sector in which the customer operates. There is a determined allowance percentage by group of customers with similar characteristics i.e.(i.e., A1, A2, A3, A4, A5, A6, B1, B2, B3 and B4).
Estimated Incurred Loan Loss = Allowance for Loan Losses
The estimated incurred loss (or Allowance for Loan Losses) is determined by multiplying the risk factors as defined in the following equation:
EIL | = | EXP X PNP X SEV | ||||||
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EXP | = | Exposure | ||||||
PNP | = | Probability of Non-Performance | ||||||
SEV | = | Severity | ||||||
“EIL = Estimated Incurred Loss”(EIL) means the amount that could be lost in the event a client does not perform the obligations under the loan agreement.
“
EXP = Exposure” means(EXP) is the value of the loan (unpaid principal balance).
“PNP = Probability ofNon-Performance”(PNP) means the probability, expressed as a percentage, that a customer will default within the next 12 months. This percentage is associated with the rating that we givegiven to each client, which is determined by analyzing such parameters as debt servicing capacity (including, usually, projected cash flows), the customer’s financial history, the solvency and capacity of shareholders and management of the customer, and projections for the economic sector in which the customer operates.client.
“SEV = Severity”(SEV) means the effective loss rate given for default for customerto customers in the same risk category, which is determined statistically based on the historical effective losses.
Every year the PNP and SEV assumptions are evaluated by our credit department, which could result in modifications to the PNP and the SEV of a client. These tests focus on the validation of the sufficiency of our allowances, and consist of comparisons between actual write-offs to allowances established by the model, and the coverage of the total allowance to actual write-offs in the most current periods. Individual loan classification and improvements to any customer classification are also presented for approval to our Credit Risk Committee.
Allowances for loan losses for each C risk category are based mainly on the fair value of the collateral, adjusted for the estimated cost to sell (7% on average), of each of these loans.expenses associated with the recovery and asset sale. The allowance percentage for each category is then based mostly on the level of collateral, or the expected future cash flow from the loan. Our internal policies obligate us to update appraisals for collateral values every 24 months which does not vary by loan product. This period can be changed if market conditions in general or for a specific sector warrant an adjustment to appraisal value by the Risk Department which updated appraisal information is factored into our provision for loan loss calculations. We make no adjustments between appraisals to account for changes in fair value. A change in appraisal value may change the risk category or profile of a client leading to the establishment of more provisions or the removal of provisions.collateral.
Models usedLoans Analyzed on Collective Evaluation of Commercial Borrowers of Less than Ch$200 milliona Group Basis
There is no difference between our SBIF provisionFor the consumer loan and IFRS provisions for loans collectively evaluated for impairment.
With respect to ourgroup-evaluated commercial loan portfolio of consumer loans, mortgage loans, and commercial loans under Ch$200,000 million (loans collectively evaluated for impairment (consumer and commercial),the allowances for loan losses are determined by mathematicalstatistical models. The population (clients) is first profiled primarily using the characteristicswith a wide range of variables such as demographic variables, payment behavior, aging of the balance of the loan, in order to determine “probability of default” factors indicating transfer into the normalization portfolio, and socioeconomic status.portfolio.
Each profile in the commercialgroup-evaluated loan portfolio has information aggregated by us –information basically, historical loss experience (less recoveries).
This historical loss experience, which represents the derived loan loss allowance percentage is applied by profile to the consumer and commercial loan portfolio, taking into consideration, if applicable, any additional factors, such as increase in the unemployment rate in the country, economic downswings, etc. based upon more recent experience, should they affect the level of necessary loan loss reserves.
The profiles in the consumer loan portfolio are based on a wider range of variables than those in the commercial model and the variables are weighted and scored. In the aggregate, the sufficiency of the provisionprovisions is analyzed first by the number of monthsmonths’ coverage of historical write-offs. ShouldIf the coverage appearappears inadequate (either high or low, or significantly fluctuating significantly in comparison with previous months), vintage model calculations (whereare performed to determine the appropriate allowance percentages to apply. The loss models are based on the age of the accounts as formulated by a curve which generally reaches, at an identified point in time, a stabilized loss rate) are performed to determine the appropriate allowance percentages to apply. At a minimum, vintagerate.
The standard model analysis is performed every six monthsuses only delinquency and the results of such analysis are reported to the Risk Committee.
In contrast to the mathematical models used for provisioning of the commercial and consumer loan portfolio, the provisioning of the mortgage loan portfolio is performed using a statistical model based on the formula SEV x PNP X EXP as explained above in relation to individually significant loans. Segmentation is set up in a different way from the individually significant loans. There are profiles primarily using factors such as demographic characteristics, delinquency, collateral ratio to loan balance as variables to determine the provisioning rate. The implementation of this new model impacted the provision requirement due to an increased provisioning level, especially in the impaired loans and external credit ratings which associated results are “scored” and then assignedmortgage loans with loan to a segment where each has an allowance percentage assigned based on the above formula.value ratios over 80%.
Total Loans – models basedModels Based on group analysisGroup Analysis
As of December 31, 2013 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Commercial | 648,247 | 12,195 | 1.9 | % | ||||||||
Leasing commercial | 100,151 | 340 | 0.3 | % | ||||||||
Factoring commercial | 7,698 | 183 | 2.4 | % | ||||||||
Consumer | 1,601,667 | 27,572 | 1.7 | % | ||||||||
Leasing consumer | 21,582 | 145 | 0.7 | % | ||||||||
Mortgage | 1,728,093 | 6,230 | 0.4 | % | ||||||||
Leasing mortgage | 260,883 | 738 | 0.3 | % | ||||||||
As of December 31, 2014 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Commercial | 731,776 | 14,741 | 2.0 | % | ||||||||
Leasing commercial | 84,841 | 263 | 0.3 | % | ||||||||
Factoring commercial | 5,721 | 143 | 2.5 | % | ||||||||
Consumer | 1,690,081 | 33,775 | 2.0 | % | ||||||||
Leasing consumer | 19,761 | 59 | 0.3 | % | ||||||||
Mortgage | 1,948,985 | 6,515 | 0.3 | % | ||||||||
Leasing mortgage | 280,573 | 1,247 | 0.4 | % | ||||||||
As of December 31, 2015 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Commercial | 1,147,453 | 13,153 | 1.1 | % | ||||||||
Leasing commercial | 134,432 | 3,691 | 2.7 | % | ||||||||
Factoring commercial | 15,920 | 375 | 2.4 | % | ||||||||
Consumer | 1,684,368 | 25,848 | 1.5 | % | ||||||||
Leasing consumer | 18,791 | 538 | 2.9 | % | ||||||||
Mortgage | 1,949,737 | 1,124 | 0.1 | % | ||||||||
Leasing mortgage | 278,882 | 7,708 | 2.8 | % |
As of December 31, 2015 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in millions of Ch$ except for percentages) | ||||||||||||
Commercial | 682,579 | 7,061 | 1.0 | % | ||||||||
Leasing commercial | 18,519 | 132 | 0.7 | % | ||||||||
Factoring commercial | 4,883 | 119 | 2.4 | % | ||||||||
Student loans | 177,023 | 3,769 | 2.1 | % | ||||||||
Consumer | 700,448 | 27,332 | 3.9 | % | ||||||||
Leasing consumer | 309 | 1 | 0.3 | % | ||||||||
Mortgage | 1,533,848 | 6,251 | 0.4 | % | ||||||||
Leasing mortgage | — | — | — | |||||||||
As of December 31, 2016 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in millions of Ch$ except for percentages) | ||||||||||||
Commercial | 1,418,823 | 36,816 | 2.6 | % | ||||||||
Leasing commercial | 111,455 | 3,508 | 3.2 | % | ||||||||
Factoring commercial | 4,052 | 177 | 4.4 | % | ||||||||
Student loans | 610,315 | 12,369 | 2.0 | % | ||||||||
Consumer | 2,463,873 | 116,332 | 4.7 | % | ||||||||
Leasing consumer | 17,091 | 572 | 3.4 | % | ||||||||
Mortgage | 3,600,188 | 18,227 | 0.5 | % | ||||||||
Leasing mortgage | 288,329 | 5,245 | 1.8 | % |
Consumer Loans – models basedModels Based on group analysisGroup Analysis
As of December 31, 2013 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Credit cards | 228,776 | 2,495 | 1.1 | % | ||||||||
Lines of credit | 40,012 | 1,074 | 2.7 | % | ||||||||
Others revolving | 4,322 | 105 | 2.4 | % | ||||||||
Installment Consumer loans | 791,692 | 7,688 | 1.0 | % | ||||||||
Student loans | 9,971 | 127 | 1.3 | % | ||||||||
Salary discount loans | 442,364 | 7,788 | 1.8 | % | ||||||||
Renegotiation | 82,483 | 8,048 | 9.8 | % | ||||||||
Others | 2,047 | 246 | 12.0 | % | ||||||||
As of December 31, 2014 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Credit cards | 241,701 | 4,096 | 1.7 | % | ||||||||
Lines of credit | 47,564 | 1,713 | 3.6 | % | ||||||||
Others revolving | 4,080 | 110 | 2.7 | % | ||||||||
Installment Consumer loans | 781,381 | 6,577 | 0.8 | % | ||||||||
Car loans | 37,127 | 961 | 2.6 | % | ||||||||
Student loans | 7,182 | 77 | 1.1 | % | ||||||||
Salary discount loans | 460,267 | 8,329 | 1.8 | % | ||||||||
Renegotiation | 106,904 | 11,389 | 10.7 | % | ||||||||
Others | 3,877 | 524 | 13.5 | % |
As of December 31, 2015 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Credit cards | 244,942 | 3,314 | 1.4 | % | ||||||||
Lines of credit | 52,488 | 1,684 | 3.2 | % | ||||||||
Others revolving | 3,645 | 260 | 7.1 | % | ||||||||
Installment Consumer loans | 757,879 | 4,221 | 0.6 | % | ||||||||
Car loans | 30,222 | 899 | 3.0 | % | ||||||||
Student loans | 4,738 | 66 | 1.4 | % | ||||||||
Salary discount loans | 492,439 | 4,731 | 1.0 | % | ||||||||
Renegotiation | 97,795 | 10,634 | 10.9 | % | ||||||||
Others | 221 | 39 | 17.5 | % |
With respect to our portfolio of consumer loans and commercial loans under Ch$200 million, allowances for loan losses are determined by mathematical models. The population is first profiled primarily using the characteristics of payment behavior, aging of the balance of the loan, “probability of default” factors indicating transfer into the normalization portfolio, and socioeconomic status.
Each profile in the commercial loan portfolio has information aggregated by us – basically, historical loss experience (less recoveries).
This historical loss experience which represents the derived loan loss allowance percentage is applied by profile to the commercial loan portfolio, taking into consideration, if applicable, any additional factors, such as increase in the unemployment rate in the country, economic downswings, etc. based upon more recent experience, should they affect the level of necessary loan loss reserves.
The profiles in the consumer loan portfolio are based on a wider range of variables than those in the commercial model and the variables are weighted and scored. In the aggregate, the sufficiency of the provision is analyzed first by the number of months coverage of historical write-offs. Should the coverage appear inadequate (either high or low or fluctuating significantly in comparison with previous months), vintage model calculations (where loss models are based on the age of the accounts as formulated by a curve which generally reaches, at an identified point in time, a stabilized loss rate) are performed to determine the appropriate allowance percentages to apply. At a minimum, vintage model analysis is performed every 6 months and the results of such analysis are reported to the Risk Committee.
Models based on collective analysis for consumer loans and mortgage loans (Retail Banking)
Retail Credit Risk Division
Our Retail Credit Risk Division is responsible for the whole credit cycle management of three business units: Banco Condell (Low income segment (C3-D)), which primarily originates consumer loans, credit cards and a few mortgage loans, SMU Corp (Private Label Credit Card, mainly for our low income segment C3-D) and Retail Banking for higher income segments (our medium-high income segments (ABC1-C2)), which is primarily unsecured lending, consumer loans, revolving lines of credit, credit cards and mortgage loans.
Our credit risk management segment works to provide our branches with the best and simplest available information and tools to maximize the value of their profits and losses. The credit risk management process is composed of the following:
Credit Initiation
We strive to have in place a high quality underwriting process. An excellence in our credit decision-making process means healthy portfolios with very low early delinquency incident rates and profitable asset portfolios. Our credit initiation process consists of:
Maintenance
We strive to have high market share in the most profitable segments (low-medium risk and medium-high usage) and low market share in the lowest profitable segments (high risk or low usage). The result of which means a higher revenue share. The maintenance process is composed of:
Collection
We strive to have in place a high quality collection process, consisting of the right strategy, vendors and products and policies.
Write-off Policy, Recovery and Planning
The write-off policy, recovery and planning process consists of:
Management Information Systems (MIS) and Portfolio Management
We strive to develop strong MIS to understand our portfolio performance in real time. The MIS and Portfolio Management processes consist of:
As of December 31, 2015 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in millions of Ch$ except for percentages) | ||||||||||||
Credit cards | 197,425 | 4,834 | 2.4 | % | ||||||||
Lines of credit | 113,341 | 3,428 | 3.0 | % | ||||||||
Other revolving | 326 | 326 | 100 | % | ||||||||
Installment consumer loans | 358,481 | 8,378 | 2.3 | % | ||||||||
Card loans | — | — | — | |||||||||
Salary discount loans | 4,862 | 122 | 2.5 | % | ||||||||
Renegotiation | 26,009 | 10,243 | 39.4 | % | ||||||||
Others | 3 | — | — | |||||||||
As of December 31, 2016 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in millions of Ch$ except for percentages) | ||||||||||||
Credit cards | 414,903 | 18,390 | 4.4 | % | ||||||||
Lines of credit | 259,045 | 15,244 | 5.9 | % | ||||||||
Other revolving | 3,889 | 655 | 16.9 | % | ||||||||
Installment consumer loans | 1,060,901 | 31,652 | 3.0 | % | ||||||||
Card loans | 26,252 | 859 | 3.3 | % | ||||||||
Salary discount loans | 570,120 | 20,316 | 3.6 | % | ||||||||
Renegotiation | 128,722 | 29,205 | 22.7 | % | ||||||||
Others | 42 | 12 | 29.6 | % |
Analysis of ourOur Loan Classification
The following tables provide statistical data regarding the classification of our loans as of the end of each of the five years, applying the classification explained in prior pages:
2011
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2011 | Normal Portfolio | Impaired Portfolio | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Total | Impaired | Total | Subtotal | Total General | ||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and receivables to banks | 200,028 | 36,851 | 67,701 | 42 | — | — | — | — | 304,622 | — | 304,622 | — | — | — | 304,622 | |||||||||||||||||||||||||||||||||||||||||||||
Loans and receivable to customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General Commercial loans | 236,229 | 1,002,989 | 1,227,123 | 1,039,390 | 439,597 | 9,011 | 14,203 | 4,594 | 3,973,136 | 73,174 | 4,046,310 | 231,295 | 68,126 | 299,421 | 4,345,731 | |||||||||||||||||||||||||||||||||||||||||||||
Foreign Trade loans | — | 53,245 | 93,925 | 144,847 | 36,568 | 7,432 | 357 | — | 336,374 | 42,190 | 378,564 | 8,151 | 2,266 | 10,417 | 388,981 | |||||||||||||||||||||||||||||||||||||||||||||
Lines of credit and overdrafts | — | 1,299 | 5,526 | 245 | 1,066 | 1 | 49 | 4 | 8,190 | 135 | 8,325 | 4,008 | 1,166 | 5,174 | 13,499 | |||||||||||||||||||||||||||||||||||||||||||||
Factored receivables | — | 8,755 | 28,677 | 36,988 | 15,308 | 290 | 54 | — | 90,072 | 356 | 90,428 | 2,647 | 1,951 | 4,598 | 95,026 | |||||||||||||||||||||||||||||||||||||||||||||
Leasing contracts | — | 11,495 | 16,698 | 106,405 | 89,018 | 592 | 2,439 | — | 226,647 | 37,655 | 264,302 | 19,428 | 9,996 | 29,424 | 293,726 | |||||||||||||||||||||||||||||||||||||||||||||
Other outstanding loans | — | 171 | 42 | 519 | 125 | 12 | — | 2 | 871 | 22 | 893 | 77,281 | 259 | 77,540 | 78,433 | |||||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial loans | 236,229 | 1,077,954 | 1,371,991 | 1,328,394 | 581,682 | 17,338 | 17,102 | 4,600 | 4,635,290 | 153,532 | 4,788,822 | 342,810 | 83,764 | 426,574 | 5,215,396 | |||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | — | — | — | — | — | — | — | — | — | — | — | 398,365 | 24,756 | 423,121 | 423,121 | |||||||||||||||||||||||||||||||||||||||||||||
— | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | — | — | — | — | — | — | — | — | — | — | — | 1,141,396 | 34,532 | 1,175,928 | 1,175,928 | |||||||||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | 236,229 | 1,077,954 | 1,371,991 | 1,328,394 | 581,682 | 17,338 | 17,102 | 4,600 | 4,635,290 | 153,532 | 4,788,822 | 1,882,571 | 143,052 | 2,025,623 | 6,814,445 | |||||||||||||||||||||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
2012
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2012 | Normal Portfolio | Impaired Portfolio | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Total | Impaired | Total | Subtotal | Total General | ||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and receivables to banks | 463,159 | 9,080 | 10,310 | — | — | — | — | — | 482,549 | — | 482,549 | — | — | — | 482,549 | |||||||||||||||||||||||||||||||||||||||||||||
Loans and receivable to customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General Commercial loans | 127,381 | 1,068,995 | 1,548,114 | 1,967,759 | 911,992 | 36,551 | 61,696 | 22,809 | 5,745,297 | 78,178 | 5,823,475 | 591,842 | 37,859 | 629,701 | 6,453,176 | |||||||||||||||||||||||||||||||||||||||||||||
Foreign Trade loans | 18,758 | 162,015 | 132,106 | 39,748 | 20,515 | 23,009 | 2,856 | 399,007 | 18,036 | 417,043 | 7,524 | 257 | 7,781 | 424,824 | ||||||||||||||||||||||||||||||||||||||||||||||
Lines of credit and overdrafts | 492 | 6,336 | 11,285 | 2,530 | 126 | 100 | 44 | 20,913 | 186 | 21,099 | 7,885 | 261 | 8,146 | 29,245 | ||||||||||||||||||||||||||||||||||||||||||||||
Factored receivables | — | 19,817 | 36,031 | 23,673 | 1,505 | 415 | 35 | 81,476 | 322 | 81,798 | 5,631 | 193 | 5,824 | 87,622 | ||||||||||||||||||||||||||||||||||||||||||||||
Leasing contracts | 5,455 | 19,130 | 123,453 | 111,864 | 10,336 | 20,683 | 218 | 291,139 | 18,636 | 309,775 | 30,208 | 1,311 | 31,519 | 341,294 | ||||||||||||||||||||||||||||||||||||||||||||||
Other outstanding loans | 234 | 358 | 2,026 | 392 | 51 | 16 | 2 | 3,079 | 826 | 3,905 | 154,508 | 286 | 154,794 | 158,699 | ||||||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial loans | 127,381 | 1,093,934 | 1,755,770 | 304,901 | 1,090,199 | 69,084 | 105,919 | 25,964 | 6,540,911 | 116,184 | 6,657,095 | 797,598 | 40,167 | 837,765 | 7,494,860 | |||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | — | — | — | — | — | — | — | — | — | — | — | 1,043,027 | 33,629 | 1,076,656 | 1,076,656 | |||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | — | — | — | — | — | — | — | — | — | — | — | 1,499,243 | 32,732 | 1,531,975 | 1,531,975 | |||||||||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | 127,381 | 1,093,934 | 1,755,770 | 304,901 | 1,090,199 | 69,084 | 105,919 | 25,964 | 6,540,911 | 116,184 | 6,657,095 | 3,339,868 | 106,528 | 3,446,396 | 10,103,491 | |||||||||||||||||||||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
2013
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2013 | Normal Portfolio | Impaired Portfolio | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Total | Impaired | Total | Subtotal | Total General | ||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and receivables to banks | 140,017 | 30,469 | 47,595 | — | — | — | — | — | 218,081 | — | 218,081 | — | — | — | 218,081 | |||||||||||||||||||||||||||||||||||||||||||||
Loans and receivable to customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General Commercial loans | 190,904 | 1,309,328 | 2,544,546 | 2,158,738 | 613,593 | 39,635 | 188,112 | 32,091 | 7,076,947 | 197,287 | 7,274,234 | 370,663 | 44,530 | 415,193 | 7,689,427 | |||||||||||||||||||||||||||||||||||||||||||||
Foreign Trade loans | 14,671 | 141,600 | 159,657 | 63,862 | 21,765 | — | 12,900 | 2,737 | 417,192 | 31,505 | 448,697 | 10,050 | 327 | 10,377 | 459,074 | |||||||||||||||||||||||||||||||||||||||||||||
Lines of credit and overdrafts | 1 | 1,592 | 4,833 | 7,530 | 1,629 | 154 | 201 | 33 | 15,973 | 566 | 16,539 | 10,952 | 444 | 11,396 | 27,935 | |||||||||||||||||||||||||||||||||||||||||||||
Factored receivables | — | 1,501 | 32,596 | 31,539 | 1,160 | — | 718 | — | 67,514 | 172 | 67,686 | 7,588 | 110 | 7,698 | 75,384 | |||||||||||||||||||||||||||||||||||||||||||||
Leasing contracts | 1,031 | 11,664 | 146,350 | 339,226 | 139,767 | 8,497 | 29,465 | 3,752 | 679,752 | 31,979 | 711,731 | 94,132 | 6,019 | 100,151 | 811,882 | |||||||||||||||||||||||||||||||||||||||||||||
Other outstanding loans | 1 | 277 | 2,692 | 4,660 | 1,594 | 49 | 205 | 43 | 9,521 | 952 | 10,473 | 210,801 | 480 | 211,281 | 221,754 | |||||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial loans | 206,608 | 1,465,962 | 2,890,674 | 2,605,555 | 779,508 | 48,335 | 231,601 | 38,656 | 8,266,899 | 262,461 | 8,529,360 | 704,186 | 51,910 | 756,096 | 9,285,456 | |||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | — | — | — | — | — | — | — | — | — | — | — | 1,579,321 | 43,928 | 1,623,249 | 1,623,249 | |||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | — | — | — | — | — | — | — | — | — | — | — | 1,954,173 | 34,803 | 1,988,976 | 1,988,976 | |||||||||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | 206,608 | 1,465,962 | 2,890,674 | 2,605,555 | 779,508 | 48,335 | 231,601 | 38,656 | 8,266,899 | 262,461 | 8,529,360 | 4,237,680 | 130,641 | 4,368,321 | 12,897,681 | |||||||||||||||||||||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
2014
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2014 | Normal Portfolio | Impaired Portfolio | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||
A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Impaired | Total | Total | General Total | |||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and receivables from banks | 620,047 | 145,363 | 44,820 | 4,250 | — | — | — | — | — | 814,480 | — | — | — | 814,480 | ||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | (99 | ) | (98 | ) | (74 | ) | — | — | — | — | — | (271 | ) | — | (271 | ) | |||||||||||||||||||||||||||||||||||||||
As percentage of total loans | — | 0.07 | % | 0.22 | % | 1.74 | % | — | — | — | — | — | 0.03 | % | — | — | — | 0.03 | % | |||||||||||||||||||||||||||||||||||||
Loans and receivable from customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans | — | 440,672 | 1,715,679 | 3,006,527 | 2,092,385 | 244,994 | 142,492 | 51,957 | 203,352 | 7,898,058 | 357,032 | 47,988 | 405,020 | 8,303,078 | ||||||||||||||||||||||||||||||||||||||||||
Foreign trade loans | — | 6,821 | 160,843 | 177,597 | 88,026 | 8,926 | 28,230 | 1,243 | 23,993 | 495,679 | 9,497 | 375 | 9,872 | 505,551 | ||||||||||||||||||||||||||||||||||||||||||
Current account debtors | — | — | 8,235 | 7,008 | 3,918 | 264 | 413 | 123 | 1,118 | 21,079 | 12,162 | 1,609 | 13,771 | 34,850 | ||||||||||||||||||||||||||||||||||||||||||
Factoring operations | — | — | 4,574 | 30,570 | 28,474 | 481 | 29 | — | 65 | 64,193 | 5,643 | 78 | 5,721 | 69,914 | ||||||||||||||||||||||||||||||||||||||||||
Leasing transactions | — | 6,762 | 69,110 | 309,153 | 285,389 | 31,491 | 33,432 | 12,244 | 34,070 | 781,651 | 79,812 | 5,029 | 84,841 | 866,492 | ||||||||||||||||||||||||||||||||||||||||||
Other loans and receivables | 2 | 168 | 1,686 | 1,943 | 1,837 | 141 | 86 | 54 | 1,560 | 7,477 | 302,521 | 592 | 303,113 | 310,590 | ||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial loans | 2 | 454,423 | 1,960,127 | 3,532,798 | 2,500,029 | 286,297 | 204,682 | 65,621 | 264,158 | 9,268,137 | 766,667 | 55,671 | 822,338 | 10,090,475 | �� | |||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | (139 | ) | (1,466 | ) | (16,856 | ) | (18,782 | ) | (2,891 | ) | (4,246 | ) | (3,331 | ) | (33,151 | ) | (80,862 | ) | (6,163 | ) | (8,984 | ) | (15,147 | ) | (96,009 | ) | |||||||||||||||||||||||||||||
As percentage of total loans | 0.03 | % | 0.07 | % | 0.48 | % | 0.75 | % | 1.01 | % | 2.07 | % | 5.08 | % | 12.55 | % | 0.87 | % | 0.80 | % | 16.14 | % | 1.84 | % | 0.95 | % | ||||||||||||||||||||||||||||||
Consumer loans | 1,660,853 | 48,989 | 1,709,842 | 1,709,842 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | (21,399 | ) | (12,435 | ) | (33,834 | ) | (33,834 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | 1.29 | % | 25.38 | % | 1.98 | % | 1.98 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | 2,192,177 | 37,381 | 2,229,558 | 2,229,558 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | (5,029 | ) | (2,733 | ) | (7,762 | ) | (7,762 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | 0.23 | % | 7.31 | % | 0.35 | % | 0.35 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | 2 | 454,423 | 1,960,127 | 3,532,798 | 2,500,029 | 286,297 | 204,682 | 65,621 | 264,158 | 9,268,137 | 4,619,697 | 142,041 | 4,761,738 | 14,029,875 | ||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | (139 | ) | (1,466 | ) | (16,856 | ) | (18,782 | ) | (2,891 | ) | (4,246 | ) | (3,331 | ) | (33,151 | ) | (81,133 | ) | (32,591 | ) | (24,152 | ) | (56,743 | ) | (137,605 | ) | |||||||||||||||||||||||||||||
As percentage of total loans | 0.03 | % | 0.07 | % | 0.48 | % | 0.75 | % | 1.01 | % | 2.07 | % | 5.08 | % | 12.55 | % | 0.88 | % | 0.71 | % | 17.00 | % | 1.19 | % | 0.98 | % | ||||||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | — | — | — |
2015
Individual Portfolio | Group Portfolio | Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2015 | Normal Portfolio | Impaired Portfolio | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Impaired | Total | Total | General Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, | Normal Portfolio | Impaired Portfolio | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2016 | A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Impaired | Total | Total | General Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and receivables from banks | 308,028 | 64,652 | 21,379 | 58,010 | — | — | — | — | — | 452,069 | — | — | — | 452,069 | 35,506 | 60,395 | 3,567 | — | — | — | — | — | — | 99,468 | — | — | — | 99,468 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | (111 | ) | (129 | ) | — | (240 | ) | — | — | — | (240 | ) | 13 | 49 | 8 | — | — | — | — | — | — | 70 | — | — | — | 70 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | — | 0.17 | % | 0.60 | % | — | — | — | — | — | — | 0.05 | % | — | — | — | 0.05 | % | 0.04 | % | 0.08 | % | 0.22 | % | — | — | — | — | — | — | 0.07 | % | — | — | — | 0.07 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and receivable from customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans | — | 337,942 | 1,902,372 | 2,982,307 | 2,181,402 | 303,679 | 122,571 | 73,698 | 207,409 | 8,111,380 | 627,823 | 82,657 | 710,480 | 8,821,860 | 12,155 | 162,931 | 1,259,304 | 1,059,879 | 152,478 | 231,136 | 12,627 | 29,873 | 37,617 | 2,958,000 | 598,460 | 48,061 | 646,521 | 3,604,521 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign trade loans | — | 3,558 | 142,449 | 148,669 | 82,726 | 24,727 | 33,564 | 11,082 | 18,368 | 465,143 | 55,512 | 684 | 56,196 | 521,339 | — | 70,317 | 186,081 | 92,216 | 25,507 | 22,099 | 2,933 | 6,057 | 18,748 | 423,958 | 5,351 | 11 | 5,362 | 429,320 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current account debtors | — | — | 390 | 7,837 | 3,760 | 184 | 61 | 25 | 757 | 13,014 | 13,267 | 2,451 | 15,718 | 28,732 | 2 | 2,865 | 3,735 | 5,443 | 1,268 | 1,315 | 528 | 47 | 948 | 16,151 | 21,977 | 986 | 22,963 | 39,114 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Factoring operations | — | — | 1,236 | 30,918 | 13,182 | 38 | 670 | — | 49 | 46,093 | 15,537 | 383 | 15,920 | 62,013 | 5,559 | 5,740 | 21,619 | 15,119 | 2,053 | 1,430 | 112 | — | 717 | 52,349 | 4,854 | 29 | 4,883 | 57,232 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Student loans | — | — | — | — | — | — | — | — | — | — | 167,195 | 9,828 | 177,023 | 177,023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leasing transactions | — | 7,924 | 46,238 | 257,945 | 305,434 | 54,407 | 27,788 | 7,737 | 46,284 | 753,757 | 126,939 | 7,493 | 134,432 | 888,189 | — | 11,614 | 90,037 | 63,768 | 21,626 | 15,527 | 3,322 | 2,167 | 22,175 | 230,236 | 18,088 | 431 | 18,519 | 248,755 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other loans and receivables | — | 182 | 547 | 3,921 | 2,633 | 157 | 79 | 338 | 1,469 | 9,326 | 351,622 | 13,437 | 365,059 | 374,385 | 52 | 93 | 1,487 | 640 | 180 | 215 | 12 | 12 | 77 | 2,768 | 7,718 | 15 | 7,733 | 10,501 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial loans | — | 349,606 | 2,093,232 | 3,431,597 | 2,589,137 | 383,192 | 184,733 | 92,880 | 274,336 | 9,398,713 | 1,190,700 | 107,105 | 1,297,805 | 10,696,518 | 17,768 | 253,560 | 1,562,263 | 1,237,065 | 203,112 | 271,722 | 19,534 | 38,156 | 80,282 | 3,683,462 | 823,643 | 59,361 | 883,004 | 4,566,466 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | (99 | ) | (1,602 | ) | (10,957 | ) | (16,776 | ) | (9,790 | ) | (3,918 | ) | (18,921 | ) | (59,439 | ) | (121,502 | ) | (8,197 | ) | (9,022 | ) | (17,219 | ) | (138,721 | ) | 9 | 254 | 1,691 | 5,297 | 3,984 | 4,615 | 1,681 | 4,905 | 28,590 | 51,026 | 5,350 | 5,619 | 10,969 | 61,995 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | — | 0.03 | % | 0.08 | % | 0.32 | % | 0.65 | % | 2.55 | % | 2.12 | % | 20.37 | % | 21.67 | % | 1.29 | % | 0.69 | % | 8.42 | % | 1.33 | % | 1.30 | % | 0.05 | % | 0.10 | % | 0.11 | % | 0.43 | % | 1.96 | % | 1.70 | % | 8.61 | % | 12.86 | % | 35.61 | % | 1.39 | % | 0.65 | % | 9.47 | % | 1.24 | % | 1.36 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | 1,660,349 | 42,810 | 1,703,159 | 1,703,159 | 662,936 | 37,821 | 700,757 | 700,757 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | (21,186 | ) | (5,200 | ) | (26,386 | ) | (26,386 | ) | — | — | — | — | — | — | — | — | — | — | 13,721 | 13,612 | 27,333 | 27,333 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | 1.28 | % | 12.15 | % | 1.55 | % | 1.55 | % | — | — | — | — | — | — | — | — | — | — | 2.07 | % | 35.99 | % | 3.90 | % | 3.90 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | 2,192,888 | 35,731 | 2,228,619 | 2,228,619 | 1,469,501 | 64,347 | 1,533,848 | 1,533,848 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | (5,616 | ) | (3,216 | ) | (8,832 | ) | (8,832 | ) | — | — | — | — | — | — | — | — | — | — | 2,846 | 3,405 | 6,251 | 6,251 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | 0.26 | % | 9.00 | % | 0.40 | % | 0.40 | % | — | — | — | — | — | — | — | — | — | — | 0.19 | % | 5.29 | % | 0.41 | % | 0.41 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | — | 349,606 | 2,093,232 | 3,431,597 | 2,589,137 | 383,192 | 184,733 | 92,880 | 274,336 | 9,398,713 | 5,043,937 | 185,646 | 5,229,583 | 14,628,296 | 17,768 | 253,560 | 1,562,263 | 1,237,065 | 203,112 | 271,722 | 19,534 | 38,156 | 80,282 | 3,683,462 | 2,956,080 | 161,529 | 3,117,609 | 6,801,071 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | (99 | ) | (1,602 | ) | (10,957 | ) | (16,776 | ) | (9,790 | ) | (3,918 | ) | (18,921 | ) | (59,439 | ) | (121,502 | ) | (34,999 | ) | (17,438 | ) | (52,437 | ) | (173,939 | ) | 9 | 254 | 1,691 | 5,297 | 3,984 | 4,615 | 1,681 | 4,905 | 28,590 | 51,026 | 21,917 | 22,636 | 44,553 | 95,579 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | — | 0.03 | % | 0.08 | % | 0.32 | % | 0.65 | % | 2.55 | % | 2.12 | % | 20.37 | % | 21.67 | % | 1.29 | % | 0.69 | % | 9.39 | % | 1.00 | % | 1.19 | % | 0.05 | % | 0.10 | % | 0.11 | % | 0.43 | % | 1.96 | % | 1.70 | % | 8.61 | % | 12.86 | % | 35.61 | % | 1.39 | % | 0.74 | % | 14.01 | % | 1.43 | % | 1.41 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
The following table sets forth our allowances for loan losses:2016
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Required allowances | 126,039 | 137,605 | 173,939 | |||||||||
Voluntary allowances | — | — | — | |||||||||
Total allowances for loan losses | 126,039 | 137,605 | 173,939 | |||||||||
Total loan allowances as a percentage of total loans | 1.0 | % | 1.0 | % | 1.2 | % | ||||||
Total loans | 12,897,681 | 14,029,875 | 14,628,296 |
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, | Normal Portfolio | Impaired Portfolio | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||
2016 | A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Impaired | Total | Total | General Total | ||||||||||||||||||||||||||||||||||||||||||||
(in millions of Ch$) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and receivables from banks | 37,960 | 76,834 | 33,751 | 2,235 | — | — | — | — | — | 150,780 | — | — | — | 150,780 | ||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | 14 | 85 | 74 | 39 | — | — | — | — | — | 212 | — | — | — | 212 | ||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | 0.04 | % | 0.11 | % | 0.22 | % | 1.74 | % | — | — | — | — | — | 0.14 | % | — | — | — | 0.14 | % | ||||||||||||||||||||||||||||||||||||
Loans and receivable from customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans | 47,699 | 204,313 | 2,647,749 | 3,852,211 | 2,438,286 | 509,927 | 288,559 | 124,372 | 533,585 | 10,646,701 | 1,195,886 | 113,777 | 1,309,663 | 11,956,364 | ||||||||||||||||||||||||||||||||||||||||||
Foreign trade loans | — | 727 | 150,548 | 337,499 | 113,418 | 34,313 | 21,950 | 7,419 | 67,299 | 733,173 | 20,198 | 773 | 20,971 | 754,144 | ||||||||||||||||||||||||||||||||||||||||||
Current account debtors | 2 | 407 | 10,443 | 19,249 | 20,847 | 7,218 | 2,140 | 914 | 3,452 | 64,672 | 65,640 | 3,389 | 69,029 | 133,701 | ||||||||||||||||||||||||||||||||||||||||||
Factoring operations | 11,811 | 9,550 | 20,040 | 15,093 | 11,729 | 2,903 | 128 | — | 835 | 72,089 | 3,713 | 339 | 4,052 | 76,141 | ||||||||||||||||||||||||||||||||||||||||||
Student loans | — | — | — | — | — | — | — | — | — | — | 583,776 | 26,539 | 610,315 | 610,315 | ||||||||||||||||||||||||||||||||||||||||||
Leasing transactions | 4,234 | 6,064 | 107,786 | 307,019 | 325,678 | 62,920 | 54,327 | 6,998 | 87,025 | 962,051 | 104,279 | 7,176 | 111,455 | 1,073,506 | ||||||||||||||||||||||||||||||||||||||||||
Other loans and receivables | 111 | 312 | 2,101 | 3,264 | 3,318 | 664 | 493 | 51 | 826 | 11,140 | 17,446 | 1,714 | 19,160 | 30,300 | ||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial loans | 63,857 | 221,373 | 2,938,667 | 4,534,335 | 2,913,276 | 617,945 | 367,597 | 139,754 | 693,022 | 12,489,826 | 1,990,938 | 153,707 | 2,144,645 | 14,634,471 | ||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | 28 | 5,463 | 33,775 | 47,643 | 23,149 | 14,663 | 21,760 | 219,577 | 366,058 | 21,337 | 31,533 | 52,870 | 418,928 | ||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | — | 0.01 | % | 0.19 | % | 0.74 | % | 1.64 | % | 3.75 | % | 3.99 | % | 15.57 | % | 31.68 | % | 2.93 | % | 1.07 | % | 20.52 | % | 2.47 | % | 2.86 | % | |||||||||||||||||||||||||||||
Consumer loans | 2,387,009 | 93,955 | 2,480,964 | 2,480,964 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | — | — | — | — | — | — | — | — | — | 65,934 | 50,970 | 116,904 | 116,904 | ||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | — | — | — | — | — | — | — | — | — | — | 2.76 | % | 54.25 | % | 4.71 | % | 4.71 | % | ||||||||||||||||||||||||||||||||||||||
Mortgage loans | 3,755,370 | 133,147 | 3,888,517 | 3,888,517 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | — | — | — | — | — | — | — | — | — | 12,494 | 10,978 | 23,472 | 23,472 | ||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | — | — | — | — | — | — | — | — | — | — | 0.50 | % | 12.51 | % | 0.60 | % | 0.60 | % | ||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | 63,857 | 221,373 | 2,938,667 | 4,534,335 | 2,913,276 | 617,945 | 367,597 | 139,754 | 693,022 | 12,489,826 | 8,133,317 | 380,809 | 8,514,126 | 21,003,952 | ||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | 28 | 5,463 | 33,775 | 47,643 | 23,149 | 14,663 | 21,760 | 219,577 | 366,058 | 99,765 | 93,481 | 193,246 | 559,304 | ||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | — | 0.09 | % | 0.11 | % | 0.82 | % | 1.80 | % | 2.86 | % | 4.6 | % | 14.3 | % | 33.8 | % | 3.06 | % | 1.23 | % | 24.55 | % | 2.27 | % | 2.66 | % | |||||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
Classification of Loan Portfolio Based on the Customer’s Payment Performance
The following tables set forth the amounts that are current as to payments of principal and interest and the amounts that are overdue under IFRS, as of the dates indicated:
Domestic Loans
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Current | 6,532,592 | 7,786,077 | 7,379,542 | 8,288,910 | 8,967,944 | |||||||||||||||
Overdue 1-29 days | 9,046 | 31,530 | 38,531 | 54,791 | 50,888 | |||||||||||||||
Overdue 30-89 days | 11,207 | 13,622 | 13,092 | 28,063 | 37,835 | |||||||||||||||
Overdue 90 days or more (“past due”) | 46,379 | 42,954 | 36,396 | 59,283 | 68,745 | |||||||||||||||
Total loans | 6,599,224 | 7,874,183 | 7,467,563 | 8,431,047 | 9,125,412 |
Foreign Loans
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Current | 215,221 | 2,209,789 | 5,353,411 | 5,530,306 | 5,435,928 | |||||||||||||||
Overdue 1-29 days | — | 9,486 | 39,349 | 36,331 | 23,472 | |||||||||||||||
Overdue 30-89 days | — | 1,715 | 9,664 | 8,824 | 7,332 | |||||||||||||||
Overdue 90 days or more (“past due”) | — | 8,318 | 27,694 | 23,367 | 36,152 | |||||||||||||||
Total loans | 215,221 | 2,229,308 | 5,430,118 | 5,598,828 | 5,502,884 |
Total Loans
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||
Current | 6,747,813 | 9,995,866 | 12,732,953 | 13,819,216 | 14,403,872 | |||||||||||||||
Overdue 1-29 days | 9,046 | 41,016 | 77,880 | 91,122 | 74,360 | |||||||||||||||
Overdue 30-89 days | 11,207 | 15,337 | 22,757 | 36,887 | 45,167 | |||||||||||||||
Overdue 90 days or more (“past due”) | 46,379 | 51,272 | 64,091 | 82,650 | 104,897 | |||||||||||||||
Total loans | 6,814,445 | 10,103,491 | 12,897,681 | 14,029,875 | 14,628,296 | |||||||||||||||
Overdue loans expressed as a percentage of total loans | 1.0 | % | 1.1 | % | 1.3 | % | 1.5 | % | 1.5 | % | ||||||||||
Past due loans as a percentage of total loans | 0.7 | % | 0.5 | % | 0.5 | % | 0.6 | % | 0.7 | % |
As of December 31, | ||||||||
2015 | 2016 | |||||||
(in millions of Ch$, except for percentages) | ||||||||
Current | 6,524,210 | 19,763,116 | ||||||
Overdue1-29 days | 110,765 | 615,893 | ||||||
Overdue30-89 days | 74,999 | 272,243 | ||||||
Overdue90-180 days | 27,200 | 143,166 | ||||||
Overdue181-240 days | 7,331 | 52,791 | ||||||
Overdue241-360 days | 11,012 | 56,011 | ||||||
Overdue more than 360 days | 45,554 | 100,732 | ||||||
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Total loans (excludes interbank loans) | 6,801,071 | 21,003,952 |
Analysis of Impaired Loans,Non-Performing Loans and Amounts Past Due Loans
The following tables analyze our impaired loans and past due loans and the allowances for loan losses existing as of the dates indicated:
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||||||
Total loans (excludes interbank loans) | 6,814,445 | 10,103,491 | 12,897,681 | 14,029,875 | 14,628,296 | |||||||||||||||
Impaired loans | 296,584 | 222,712 | 393,102 | 406,199 | 459,982 | |||||||||||||||
Allowance for loan losses | 102,500 | 109,601 | 126,039 | 137,605 | 173,939 | |||||||||||||||
Impaired loans as a percentage of total loans | 4.4 | % | 2.2 | % | 3.0 | % | 2.9 | % | 3.1 | % | ||||||||||
Amounts past due(1) | 46,379 | 51,272 | 64,091 | 82,650 | 104,897 | |||||||||||||||
To the extent secured(2) | 18,849 | 31,324 | 27,294 | 38,758 | 50,350 | |||||||||||||||
To the extent unsecured | 27,530 | 19,948 | 36,797 | 43,892 | 54,546 | |||||||||||||||
Amounts past due as a percentage of | ||||||||||||||||||||
Total loans | 0.7 | % | 0.5 | % | 0.5 | % | 0.6 | % | 0.7 | % | ||||||||||
To the extent secured(2) | 0.3 | % | 0.3 | % | 0.2 | % | 0.3 | % | 0.3 | % | ||||||||||
To the extent unsecured | 0.4 | % | 0.2 | % | 0.3 | % | 0.3 | % | 0.4 | % | ||||||||||
Non-performing loans(1) | 107,978 | 117,937 | 141,667 | 180,536 | 196,806 | |||||||||||||||
Non-performing loans as a percentage of total loans | 1.6 | % | 1.2 | % | 1.1 | % | 1.3 | % | 1.3 | % | ||||||||||
Allowance for loans losses as a percentage of: | ||||||||||||||||||||
Total loans | 1.5 | % | 1.1 | % | 1.0 | % | 1.0 | % | 1.2 | % | ||||||||||
Total impaired loans | 34.6 | % | 49.2 | % | 32.1 | % | 33.9 | % | 37.8 | % | ||||||||||
Total amounts past due | 221.0 | % | 213.8 | % | 196.7 | % | 166.5 | % | 165.8 | % | ||||||||||
Total amounts past due-unsecured | 372.3 | % | 549.4 | % | 342.5 | % | 313.51 | % | 318.88 | % |
As of December 31, | ||||||||
2015 | 2016 | |||||||
(in millions of Ch$ except for percentages) | ||||||||
Total loans | 6,801,071 | 21,003,952 | ||||||
Impaired loans(1) | 241,811 | 1,073,831 | ||||||
Allowance for loan losses | 95,579 | 559,304 | ||||||
Impaired loans as a percentage of total loans | 3.6 | % | 5.1 | % | ||||
Non-performing loans(2) | 91,097 | 352,700 | ||||||
Non-performing loans as a percentage of total loans(1) | 1.3 | % | 1.7 | % | ||||
Past due loans(3) | 51,241 | 112,450 | ||||||
Past due loans as a percentage of total loans | 0.8 | % | 0.5 | % | ||||
Allowance for loans losses as a percentage of: | ||||||||
Total loans | 1.4 | % | 2.7 | % | ||||
Total impaired loans | 39.5 | % | 52.1 | % | ||||
Totalnon-performing loans | 104.9 | % | 158.6 | % | ||||
Total amounts past due | 186.5 | % | 497.4 | % |
(2) | Non-performing loans include the principal and interest |
The following table provides further information on our past duenon-performing loans:
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Overdue 90 days or more (“Past Due”) | 46,379 | 51,272 | 64,091 | 82,650 | 104,897 | |||||||||||||||
Domestic Loans | 46,379 | 42,954 | 36,396 | 59,283 | 68,745 | |||||||||||||||
Foreign Loans | — | 8,318 | 27,695 | 23,367 | 36,152 | |||||||||||||||
Total Loans Past Due | 46,379 | 51,272 | 64,091 | 82,650 | 104,897 | |||||||||||||||
Amounts Past Due (1) | ||||||||||||||||||||
To the extent secured (2) | 18,849 | 31,324 | 27,294 | 38,758 | 50,350 | |||||||||||||||
To the extent unsecured(2) | 27,530 | 19,948 | 36,797 | 43,892 | 54,546 |
As of December 31, 2015 | Between 90-180 days | Between 181-240 days | Between 241-360 days | More than 360 days | Total | |||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Loans and receivables to customers | ||||||||||||||||||||
Commercial Loans | 14,484 | 19,608 | 24,078 | 37,878 | 96,047 | |||||||||||||||
Mortgages Loans | 1,066 | 230 | 592 | 2,836 | 4,724 | |||||||||||||||
Consumer Loans | 4,126 | — | — | — | 4,126 | |||||||||||||||
Total | 19,676 | 19,838 | 24,670 | 40,714 | 104,897 | |||||||||||||||
As of December 31, 2014 | Between 90-180 days | Between 181-240 days | Between 241-360 days | More than 360 days | Total | |||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Loans and receivables to customers | ||||||||||||||||||||
Commercial Loans | 27,444 | 12,385 | 10,151 | 23,724 | 73,705 | |||||||||||||||
Mortgages Loans | 1,139 | 268 | 241 | 2,980 | 4,629 | |||||||||||||||
Consumer Loans | 4,316 | — | — | — | 4,316 | |||||||||||||||
Total | 32,900 | 12,654 | 10,392 | 26,704 | 82,650 | |||||||||||||||
As of December 31, 2013 | Between 90-180 days | Between 181-240 days | Between 241-360 days | More than 360 days | Total | |||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Loans and receivables to customers | ||||||||||||||||||||
Commercial Loans | 15,934 | 9,938 | 11,935 | 14,229 | 52,035 | |||||||||||||||
Mortgages Loans | 1,246 | 204 | 671 | 2,494 | 4,614 | |||||||||||||||
Consumer Loans | 7,442 | — | — | — | 7,442 | |||||||||||||||
Total | 24,621 | 10,141 | 12,606 | 16,723 | 64,091 | |||||||||||||||
As of December 31, 2012 | Between 90-180 days | Between 181-240 days | Between 241-360 days | More than 360 days | Total | |||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Loans and receivables to customers | ||||||||||||||||||||
Commercial Loans | 9,064 | 7,756 | 6,475 | 18,496 | 41,791 | |||||||||||||||
Mortgages Loans | 1,802 | 221 | 455 | 2,542 | 5,020 | |||||||||||||||
Consumer Loans | 4,461 | — | — | — | 4,461 | |||||||||||||||
Total | 15,327 | 7,977 | 6,930 | 21,038 | 51,272 | |||||||||||||||
As of December 31, 2011 | Between 90-180 days | Between 181-240 days | Between 241-360 days | More than 360 days | Total | |||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Loans and receivables to customers | ||||||||||||||||||||
Commercial Loans | 10,584 | 3,560 | 5,715 | 18,467 | 38,326 | |||||||||||||||
Mortgages Loans | 4,741 | 199 | 289 | 745 | 5,974 | |||||||||||||||
Consumer Loans | 2,079 | — | — | — | 2,079 | |||||||||||||||
Total | 17,404 | 3,759 | 6,003 | 19,213 | 46,379 |
As of December 31, 2016 | Between 90-180 days | Between 181-240 days | Between 241-360 days | More than 360 days | Total | |||||||||||||||
(in millions of Ch$) | ||||||||||||||||||||
Commercial Loans | 58,494 | 44,543 | 45,334 | 73,827 | 222,198 | |||||||||||||||
Mortgages Loans | 39,268 | 8,248 | 10,677 | 26,905 | 85,098 | |||||||||||||||
Consumer Loans | 45,404 | — | — | — | 45,404 | |||||||||||||||
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Total loans (excludes interbank loans) | 143,166 | 52,791 | 56,011 | 100,732 | 352,700 | |||||||||||||||
As of December 31, 2015 | Between 90-180 days | Between 181-240 days | Between 241-360 days | More than 360 days | Total | |||||||||||||||
(in millions of Ch$) | ||||||||||||||||||||
Loans and receivables to customers | ||||||||||||||||||||
Commercial Loans | 7,238 | 4,651 | 8,137 | 29,496 | 49,522 | |||||||||||||||
Mortgages Loans | 6,417 | 2,680 | 2,875 | 16,058 | 28,030 | |||||||||||||||
Consumer Loans | 13,545 | — | — | — | 13,545 | |||||||||||||||
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Total loans (excludes interbank loans) | 27,200 | 7,331 | 11,012 | 45,554 | 91,097 |
Analysis of Allowances for Loan Losses
The following table analyzes our provisions for loan losses charged to income and changes in the allowances attributable to write-offs, allowances released, recoveries, allowances on loans acquired:
As of December 31, | As of December 31, | |||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||
(in million of Ch$ except for percentages) | (in millions of Ch$ except for percentages) | |||||||||||||||||||||||||||
Allowances for loan losses at beginning of period | 104,215 | 102,500 | 109,601 | 126,039 | 137,605 | 98,349 | 95,579 | |||||||||||||||||||||
Allowances on acquired loans | ||||||||||||||||||||||||||||
Charge-offs | (54,434 | ) | (59,619 | ) | (107,558 | ) | (101,635 | ) | (116,666 | ) | (52,485 | ) | (188,095 | ) | ||||||||||||||
Provisions established | 94,170 | 119,467 | 331,009 | 328,265 | 398,617 | 199,353 | 674,034 | |||||||||||||||||||||
Provisions released(1) | (41,451 | ) | (52,682 | ) | (211,438 | ) | (176,176 | ) | (208,925 | ) | (148,136 | ) | (404,794 | ) | ||||||||||||||
Debt Exchange and loans-sale | — | — | (4,565 | ) | (9,239 | ) | (6,714 | ) | ||||||||||||||||||||
Exchange rate difference(2) | — | (65 | ) | 8,990 | (29,649 | ) | (29,978 | ) | ||||||||||||||||||||
Integration Itaú Corpbanca | — | 442,947 | ||||||||||||||||||||||||||
Impairment | — | — | ||||||||||||||||||||||||||
Use provision | (1,502 | ) | (58,746 | ) | ||||||||||||||||||||||||
Exchange rate differences(2) | — | (1,621 | ) | |||||||||||||||||||||||||
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Allowances for loan losses at end of period | 102,500 | 109,601 | 126,039 | 137,605 | 173,939 | 95,579 | 559,304 | |||||||||||||||||||||
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Ratio of charge-offs to average loans | 0.9 | % | 0.6 | % | 0.9 | % | 0.7 | % | 0.8 | % | 0.8 | % | 1.1 | % | ||||||||||||||
Allowances for loan losses at end of period as a percentage of total loans | 1.5 | % | 1.1 | % | 1.0 | % | 1.0 | % | 1.2 | % | 1.4 | % | 2.7 | % | ||||||||||||||
Allowances for loan losses at end of period | 102,500 | 109,601 | 126,039 | 137,605 | 173,939 | 95,579 | 559,304 | |||||||||||||||||||||
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(1) | Represents the aggregate amount of provisions for loan losses released during the year as a result of charge-offs, recoveries or a determination by management that the level of risk existing in the loan portfolio has been reduced. |
(2) | Reflects the effect of inflation on the allowances for loan |
Our policy with respect to write-offs1 is as disclosed in Note 1 to our financial statement included herein. The following table shows the write-offs breakdown by loan category:
As of December 31, | As of December 31, | |||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||||||||||
Consumer loans | 31,676 | 38,764 | 62,296 | 62,032 | 70,744 | 32,132 | 94,294 | |||||||||||||||||||||
Mortgage loans | 1,782 | 3,907 | 2,831 | 2,506 | 2,559 | 2,964 | 8,157 | |||||||||||||||||||||
Commercial loans | 20,976 | 16,948 | 42,431 | 37,097 | 43,363 | 17,389 | 85,644 | |||||||||||||||||||||
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Total | 54,434 | 59,619 | 107,558 | 101,635 | 116,666 | 52,485 | 188,095 | |||||||||||||||||||||
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The following table shows loan loss recoveries by loan category for the periods indicated:
As of December 31, | As of December 31, | |||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||||||||||
Bank debt | 19 | — | — | — | — | — | — | |||||||||||||||||||||
Consumer loans | 9,598 | 10,014 | 10,803 | 14,347 | 11,105 | 5,818 | 13,088 | |||||||||||||||||||||
Mortgage loans | 574 | 1,039 | 1,627 | 1,277 | 1,875 | 616 | 1,285 | |||||||||||||||||||||
Commercial loans | 1,787 | 3,824 | 5,037 | 9,321 | 6,905 | 1,871 | 8,898 | |||||||||||||||||||||
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Total | 11,978 | 14,877 | 17,467 | 24,945 | 19,885 | 8,305 | 23,271 | |||||||||||||||||||||
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Based on information available regarding our debtors, we believe that our allowances for loan losses are sufficient to cover known probable losses and losses inherent in a loan portfolio of the size and nature of our loan portfolio.
Allocation of Allowances for Loan Losses
The following tables set forth, as of December 31, 2013, 20142015 and 2015,2016, allowances for loan losses that were attributable to our commercial, consumer and mortgage loans as of each date. Under IFRS, the fair value of a loan portfolio acquired should be shown as recorded upon acquisition under IFRS 3, business combination.
As of December 31, 2015 | As of December 31, 2016 | |||||||||||||||||||||||||||||||
Allowance amount | Allowance Amount as a percentage of loans in category | Allowance Amount as a percentage of total loans | Loans in category as percentage of total | Allowance amount | Allowance Amount as a percentage of loans in category | Allowance Amount as a percentage of total loans | Loans in category as percentage of total | |||||||||||||||||||||||||
(in million of Ch$ except for percentages) | (in millions of Ch$ except for percentages) | |||||||||||||||||||||||||||||||
Commercial loans | 138,721 | 1.3 | % | 0.9 | % | 70.9 | % | 418,928 | 2.9 | % | 2.0 | % | 69.2 | % | ||||||||||||||||||
Consumer loans | 26,386 | 1.5 | % | 0.2 | % | 11.3 | % | 116,904 | 4.7 | % | 0.6 | % | 11.7 | % | ||||||||||||||||||
Residential mortgage loans | 8,832 | 0.4 | % | 0.1 | % | 14.8 | % | 23,472 | 0.6 | % | 0.1 | % | 18.4 | % | ||||||||||||||||||
Loans and receivables to banks | 240 | 0.1 | % | 0.0 | % | 3.0 | % | 212 | 0.1 | % | 0.0 | % | 0.7 | % | ||||||||||||||||||
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Total allocated allowances | 174,179 | 1.2 | % | 1.2 | % | 100 | % | 559,516 | 2.6 | % | 2.6 | % | 100 | % | ||||||||||||||||||
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As of December 31, 2014 | ||||||||||||||||
Allowance amount | Allowance Amount as a percentage of loans in category | Allowance Amount as a percentage of total loans | Loans in category as percentage of total | |||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||
Commercial loans | 96,009 | 1.0 | % | 0.6 | % | 68.0 | % | |||||||||
Consumer loans | 33,834 | 2.0 | % | 0.2 | % | 11.5 | % | |||||||||
Residential mortgage loans | 7,762 | 0.3 | % | 0.1 | % | 15.0 | % | |||||||||
Loans and receivables to banks | 271 | 0.0 | % | 0.0 | % | 5.5 | % | |||||||||
Total allocated allowances | 137,876 | 0.9 | % | 0.9 | % | 100.0 | % | |||||||||
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As of December 31, 2013 | ||||||||||||||||
Allowance amount | Allowance Amount as a percentage of loans in category | Allowance Amount as a percentage of total loans | Loans in category as percentage of total | |||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||
Commercial loans | 91,354 | 1.0 | % | 0.7 | % | 70.8 | % | |||||||||
Consumer loans | 27,717 | 1.7 | % | 0.2 | % | 12.4 | % | |||||||||
Residential mortgage loans | 6,968 | 0.4 | % | 0.1 | % | 15.2 | % | |||||||||
Loans and receivables to banks | 137 | 0.1 | % | — | 1.7 | % | ||||||||||
Total allocated allowances | 126,176 | 1.0 | % | 1.0 | % | 100.0 | % | |||||||||
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As of December 31, 2012 | ||||||||||||||||
Allowance amount | Allowance Amount as a percentage of loans in category | Allowance Amount as a percentage of total loans | Loans in category as percentage of total | |||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||
Commercial loans | 79,041 | 1.1 | % | 0.7 | % | 70.8 | % | |||||||||
Consumer loans | 24,071 | 2.2 | % | 0.2 | % | 10.2 | % | |||||||||
Residential mortgage loans | 6,489 | 0.4 | % | 0.1 | % | 14.5 | % | |||||||||
Loans and receivables to banks | 178 | 0.0 | % | 0.0 | % | 4.6 | % | |||||||||
Total allocated allowances | 109,779 | 1.0 | % | 1.0 | % | 100.0 | % | |||||||||
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As of December 31, 2011 | ||||||||||||||||
Allowance amount | Allowance Amount as a percentage of loans in category | Allowance Amount as a percentage of total loans | Loans in category as percentage of total | |||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||
Commercial loans | 69,401 | 1.3 | % | 1.0 | % | 73.3 | % | |||||||||
Consumer loans | 22,716 | 5.4 | % | 0.3 | % | 5.9 | % | |||||||||
Residential mortgage loans | 10,383 | 0.9 | % | 0.1 | % | 16.5 | % | |||||||||
Loans and receivables to banks | 524 | 0.2 | % | 0.0 | % | 4.3 | % |
Total allocated allowances Commercial loans Consumer loans Residential mortgage loans Loans and receivables to banks Total allocated allowances As of December 31, 2011 Allowance
amount Allowance Amount
as a percentage of
loans in category Allowance Amount
as a percentage of
total loans Loans in
category as
percentage of
total (in million of Ch$ except for percentages) 103,024 1.4 % 1.4 % 100.0 % As of December 31, 2015 Allowance
amount Allowance Amount
as a percentage of
loans in category Allowance Amount
as a percentage of
total loans Loans in
category as
percentage of
total (in millions of Ch$ except for percentages) 61,995 1.4 % 0.9 % 66.2 % 27,333 3.9 % 0.4 % 10.2 % 6,251 0.4 % 0.1 % 22.2 % 70 0.1 % 0.0 % 1.4 % 95,649 1.4 % 1.4 % 100 %
Composition of Deposits and Other Commitments
The following table sets forth the composition of our deposits and similar commitments as of December 31, 2013, 20142015 and 2015.2016.
As of December 31, | As of December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||
Current accounts | 1,468,622 | 1,671,220 | 1,833,746 | 769,258 | 2,591,618 | |||||||||||||||
Other deposits and demand accounts | 1,737,779 | 2,067,625 | 2,391,431 | |||||||||||||||||
Advance payments received from customers | 138,312 | 86,029 | 171,707 | |||||||||||||||||
Other demand liabilities | 106,670 | 130,074 | 34,735 | 212,091 | 1,861,573 | |||||||||||||||
Saving accounts | — | 32,425 | ||||||||||||||||||
Time deposits | 3,952,573 | 11,549,010 | ||||||||||||||||||
Term savings accounts | 32,630 | 31,556 | 31,573 | — | 275 | |||||||||||||||
Time deposits | 7,273,216 | 7,950,992 | 8,463,703 | |||||||||||||||||
Other term creditors | 31,857 | 94,418 | 327 | |||||||||||||||||
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Total | 10,789,086 | 12,031,914 | 12,927,222 | 4,933,922 | 16,034,901 | |||||||||||||||
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Maturity of Deposits
The following table sets forth information regarding the currency and maturity of our deposits as of December 31, 2015,2016, expressed in percentages.UF-denominated deposits are similar to Chilean peso-denominated deposits in all respects, except that the principal is readjusted periodically based on variations in the CPI.
As of December 31, 2015 | ||||||||||||||||
Ch$ | UF | Foreign Currency | Total | |||||||||||||
(In %) | ||||||||||||||||
Demand deposits | 18.97 | 1.70 | 49.00 | 34.28 | ||||||||||||
Savings accounts | 0.00 | 1.41 | 0.34 | 0.24 | ||||||||||||
Time deposits: | ||||||||||||||||
Maturing within 3 months | 60.56 | 36.55 | 20.25 | 37.85 | ||||||||||||
Maturing after 3 but within 6 months | 6.03 | 5.96 | 8.18 | 7.18 | ||||||||||||
Maturing after 6 but within 12 months | 12.23 | 26.61 | 17.19 | 15.55 | ||||||||||||
Maturing after 12 months | 2.22 | 27.76 | 5.04 | 4.90 | ||||||||||||
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Total time deposits | 81.03 | 96.89 | 50.66 | 65.47 | ||||||||||||
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Total deposits | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
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Demand deposits Savings accounts Time deposits: Maturing within 3 months Maturing after 3 but within 6 months Maturing after 6 but within 12 months Maturing after 12 months Total time deposits Total deposits As of December 31, 2016 Ch$ UF Foreign
Currency Total (In %) 23.71 0.65 38.01 27.78 — 0.65 0.36 0.20 49.32 26.99 29.29 39.14 13.36 7.83 5.37 9.58 10.50 21.66 10.67 11.49 3.11 42.23 16.30 11.82 76.29 98.70 61.31 72.02 100 % 100 % 100 % 100 %
The following table sets forth information regarding the maturity of the outstanding time deposits in excess of US$100,000 (or its equivalent) issued by us as of December 31, 2015.2016.
As of December 31, 2015 | As of December 31, 2016 | |||||||||||||||||||||||||||||||
Ch$ | UF | Foreign Currency | Total | Ch$ | UF | Foreign Currency | Total | |||||||||||||||||||||||||
(in millions of constant Ch$) | (in millions of constant Ch$) | |||||||||||||||||||||||||||||||
Maturing within 3 months | 2,625,456 | 195,609 | 1,397,462 | 4,218,527 | 3,064,393 | 328,939 | 1,783,361 | 5,176,693 | ||||||||||||||||||||||||
Maturing after 3 but within 6 months | 319,174 | 32,268 | 552,468 | 903,910 | 1,053,023 | 98,297 | 331,116 | 1,482,436 | ||||||||||||||||||||||||
Maturing after 6 but within 12 months | 657,280 | 155,342 | 1,125,732 | 1,938,355 | 841,204 | 283,736 | 699,327 | 1,824,267 | ||||||||||||||||||||||||
Maturing after 12 months | 119,873 | 164,224 | 336,480 | 620,577 | 250,175 | 555,341 | 1,075,269 | 1,880,786 | ||||||||||||||||||||||||
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Total time deposits | 3,721,784 | 547,444 | 3,412,142 | 7,681,369 | 5,208,795 | 1,266,313 | 3,889,073 | 10,364,181 | ||||||||||||||||||||||||
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Minimum Capital Requirements
As of December 31, 2013, 2014 and 2015 theThe following table sets forth our minimum capital requirements set as follows:of December 31, 2015 and 2016.
As of December 31, | As of December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in millions of constant Ch$ except for percentages) | (in millions of constant Ch$ except for percentages) | |||||||||||||||||||
Net capital base | 1,411,341 | 1,443,427 | 1,183,723 | 792,503 | 3,173,516 | |||||||||||||||
3% total assets net of provisions | (567,929 | ) | (667,775 | ) | (687,380 | ) | (293,014 | ) | (957,058 | ) | ||||||||||
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Excess over minimum required equity | 843,413 | 775,652 | 496,343 | 499,489 | 2,216,458 | |||||||||||||||
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Net capital base as a percentage of the total assets, net of provisions | 7.3 | % | 6.4 | % | 5.1 | % | 8.11 | % | 9.95 | % | ||||||||||
Effective net equity | 1,991,289 | 2,071,647 | 1,666,708 | 871,029 | 3,252,175 | |||||||||||||||
8% of the risk-weighted assets | (1,204,683 | ) | (1,337,231 | ) | (1,397,276 | ) | (587,087 | ) | (1,855,600 | ) | ||||||||||
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Excess over minimum required equity | 786,606 | 734,416 | 269,432 | 283,942 | 1,396,575 | |||||||||||||||
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Effective equity as a percentage of the risk-weighted assets | 13.2 | % | 12.4 | % | 9.5 | % | 11.9 | % | 14.0 | % |
Our capital ratios levels decreasedincreased from 12.4%11.9% to 9.5%14.0% between 20142015 and 2015,2016, following the approval of the merger with Banco Itaú Chile, considering that our shareholders, together with approving the merger, approved a special dividend distribution in the amount of Ch$239.86 billion that was paid on July 1, 2015.Merger.
Short-term Borrowings
Our short-term borrowings (other than deposits and other obligations) totaled Ch$973,833 million, Ch$1,131,116115,450 million and Ch$701,8141,071,295 million as of December 31, 2013, 20142015 and 2015,2016, respectively, in accordance with IFRS.
The principal categories of our short-term borrowings are amounts borrowed under foreign trade lines of credit, domestic interbank loans and repurchase agreements.
The table below presents the amounts outstanding at the end of each period indicated and the weighted average nominal interest rate for each such period by type of short-term borrowing.
As of and for the Year Ended December 31, | As of and for the Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||||||||||||||||
Year End Balance | Weighted Average Nominal Interest Rate | Year End Balance | Weighted Average Nominal Interest Rate | Year End Balance | Weighted Average Nominal Interest Rate | Year End Balance | Weighted Average Nominal Interest Rate | Year End Balance | Weighted Average Nominal Interest Rate | |||||||||||||||||||||||||||||||
(in millions of constant Ch$ except for percentages) | (in millions of constant Ch$ except for percentages) | |||||||||||||||||||||||||||||||||||||||
Investments under repurchase agreements | 342,445 | 0.43 | % | 661,663 | 0.06 | % | 260,631 | 0.36 | % | 43,727 | 0.34 | % | 373,879 | 0.13 | % | |||||||||||||||||||||||||
Central Bank borrowings | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Domestic interbank loans | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Borrowings under foreign trade credit lines | 631,388 | 0.60 | % | 469,453 | 0.92 | % | 441,183 | 1.20 | % | 71,723 | 0.05 | % | 697,416 | 0.08 | % | |||||||||||||||||||||||||
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Total short-term borrowings | 973,833 | 0.54 | % | 1,131,116 | 0.42 | % | 701,814 | 0.89 | % | 115,450 | 0.16 | % | 1,071,295 | 0.10 | % | |||||||||||||||||||||||||
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The following table shows the average balance and the weighted average nominal rate for each short-term borrowing category during the periods indicated:
As of and for the Year Ended December 31, | As of and for the Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||||||||||||||||
Average Balance | Weighted Average Nominal Interest Rate | Average Balance | Weighted Average Nominal Interest Rate | Average Balance | Weighted Average Nominal Interest Rate | Year End Balance | Weighted Average Nominal Interest Rate | Year End Balance | Weighted Average Nominal Interest Rate | |||||||||||||||||||||||||||||||
(in millions of constant Ch$) | (in millions of constant Ch$ except for percentages) | |||||||||||||||||||||||||||||||||||||||
Investments under repurchase agreements | 247,148 | 0.55 | % | 345,098 | 0.12 | % | 645,487 | 0.15 | % | 57,267 | 0.26 | % | 400,252 | 0.12 | % | |||||||||||||||||||||||||
Central Bank borrowing | 21,870 | 5.01 | % | — | — | — | — | |||||||||||||||||||||||||||||||||
Central Bank borrowings | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Domestic interbank loans | 728 | 0.00 | % | 377 | 0.00 | % | 350 | 0.00 | % | — | — | 3,333 | 0.09 | % | ||||||||||||||||||||||||||
Borrowings under foreign trade credit lines | 537,236 | 0.57 | % | 639,341 | 0.55 | % | 511,118 | 0.89 | % | 54,015 | 0.06 | % | 496,186 | 0.12 | % | |||||||||||||||||||||||||
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Total short-term borrowings | 806,982 | 0.68 | % | 984,816 | 0.40 | % | 1,156,955 | 0.48 | % | 111,282 | 0.16 | % | 899,772 | 0.12 | % | |||||||||||||||||||||||||
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The following table presents the maximummonth-end balances of our principal sources of short-term borrowings during the periods indicated:
Maximum 2013 Month-End Balance | Maximum 2014 Month-End Balance | Maximum 2015 Month-End Balance | Maximum 2015 Month-End Balance | Maximum 2016 Month-End Balance | ||||||||||||||||
(in millions of constant Ch$) | (in millions of constant Ch$) | |||||||||||||||||||
Investments under repurchase agreements | 408,760 | 679,201 | 1,076,429 | 78,987 | 848,219 | |||||||||||||||
Central Bank borrowings | 133,583 | — | — | — | — | |||||||||||||||
Domestic interbank loans | 1,550 | 4,178 | 1,573 | — | 40,017 | |||||||||||||||
Borrowings under foreign trade credit lines | 776,559 | 951,923 | 734,798 | 118,484 | 774,636 | |||||||||||||||
Other obligations | 20,733 | 31,392 |
C. | ORGANIZATIONAL STRUCTURE |
The following diagram presents our current corporate structure, including our principal subsidiaries, as of the date of this Annual Report.
CorpBanca
Itaú Corpbanca Corredores de Bolsa S.A., CorpBancaCorpbanca Administradora General de Fondos S.A., CorpBanca AsesoriasItaú Chile Administradora General de Fondos S.A., Itaú Asesorías Financieras S.A., CorpBancaCorpbanca Corredores de Seguros S.A., Itaú Chile Corredora de Seguros Limitada, CorpLegal S.A. SMU Corp S.A., and Recaudaciones y Cobranzas S.A. are incorporated and domiciled in Chile. CorpBancaCorpbanca Securities Inc. and CorpBancaItaú Corpbanca New York Branch are incorporated and domiciled in the State of New York, United States. Banco CorpBancaCorpbanca Colombia S.A., CorpBancaCorpbanca Investment Trust Colombia S.A., Sociedad Fiduciaria, Helm Comisionista de Bolsa S.A., Helm Corredor de Seguros S.A. and Helm Fiduciaria S.A. are incorporated and domiciled in Colombia. Helm Bank Panama S.A. and Helm Casa de Valores (Panama) S.A. are incorporated and domiciled in Panama.
For more information about the services our subsidiaries and our New York Branch provide see “Item 4. Information on the Company—B. Business Overview—Principal Business Activities—Financial Services Offered Through Subsidiaries”.
D. | PROPERTY |
Our principal executive offices are located at Rosario Norte 660, Las Condes, Santiago, Chile since 2007. As of December 31, 2015,2016, we owned 3846 of the 304422 properties where our branches were located. Total branch space as of December 31, 20152016 was approximately 96,120178,758 square meters (1,034,627(586,476.4 square feet). Our branches are located throughout Chile, including the Santiago metropolitan region, and Colombia, including in the cities of Bogotá, Medellín, Cali, Bucaramanga and Barranquilla.
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
A. OPERATING RESULTS
The following discussion should be read in conjunction with our consolidated financial statements, together with the notes thereto, included elsewhere in this Annual Report, and in conjunction with the information included under “Item 3A. Selected Financial Data” and “Item 4B. Business Overview – Selected Statistical Information”. Our consolidated annual financial statements as of December 31, 20142015 and 20152016 and for the years ended December 31, 2013, 20142015 and 20152016 have been prepared in accordance with IFRS.
Our consolidated resultsfinancial statement data as of operationsand for the years ended December 31, 2013, 20142015 and 20152016 are not comparable because of: (i)of the consolidation of Helm BankMerger, which was consummated on April 1, 2016. The Merger has been accounted for as a resultreverse acquisition, based on guidance in IFRS 3 “Business Combinations,” with Banco Itaú Chile (the legal acquiree) considered as the accounting acquirer and Corpbanca (the legal acquirer) considered as the accounting acquiree. Accordingly, the financial statements of Itaú Corpbanca for periods prior to the Helm Bank Acquisitionacquisition date of April 1, 2016 reflect the historical financial information of Banco Itaú Chile.
Before the Merger, former Banco Itaú Chile (the legal acquiree) only produced financial statements pursuant to Chilean Banking GAAP, while former Corpbanca (the legal acquirer) from 2009 to 2015 issued financial statements according to Chilean Banking GAAP and according to IFRS. Therefore, Itaú Corpbanca (the merged entity) has applied the accommodation granted by General Instruction G to Form 20-F (First-Time Application of International Financial Reporting Standards), and this annual report on Form 20-F includes financial statements prepared in August 2013;accordance with IFRS as of and (ii)for the consolidationyears ended December 31, 2015 and 2016. For more information, see Notes 1.2(a) and 2 of Helm Bank for a full fiscal year since 2014. our consolidated financial statements.
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from these discussed in forward-looking statements as a result of various factors, including those set forth in “Cautionary Statement Regarding Forward-Looking Information” and “Item 3D. Risk Factors.”
INTRODUCTION
We are a banking corporation organized under the laws of Chile. Our common shares are listed on the Santiago Stock Exchange and our ADSs are listed on the NYSE. We are regulated by the SBIF. We offer general commercial and consumer banking services and provide other services including factoring, collection, leasing, securities and insurance brokerage, asset management and investment banking.
The following classification of revenues and expenses is based on our consolidated financial statements:
Revenues
We have three main sources of revenues, which include both cash and non-cash items:
Interest income
We earn interest income from our interest-earning assets, which are mainly represented by loans to customers.
Income from service fees
We earn income from service fees related to checking accounts, loans, mutual funds, credit cards and other financial services.
Other operating income
We earn income relating to changes in the fair value of our securities portfolio, other trading activities and foreign exchange transactions.
Expenses
We have three main sources of expenses, which include both cash and non-cash items:
Interest expenseExpense
We incur interest expense on our interest bearing liabilities, such as deposits, short-term borrowings and long-term debt.
Provisions for loan lossesLoan Losses
Our allowance and provision for loan losses as recorded in our financial statements included herein have been determined in accordance with IFRS.
Other operating expensesOperating Expenses
We incur expenses relating to salaries and benefits, administrative expenses and other non-interest expenses.
THE ECONOMY
Primary Markets in which we Operate
A majority of our investments are located in Chile and Colombia. Accordingly, our financial condition and results of operations are substantially dependent upon economic conditions prevailing in Chile and Colombia.
Developments in the Chilean Economy
Chile experienced profound economic reforms during the 1970s and 1980s. The Chilean economy grew at rates averaging more than 7% per annum from 1985 until the onseta third year of the Asian economic crisis in 1997. The average rate of growth from 1998 to 2006 decreased to 3.6%, with a period of higherbelow-potential growth in 2007 with a rate of 5.1%. In 2008, this rate slowed to 3.5% as a worldwide recession hit many developed nations. The 2008 global financial crisis and the ensuing liquidity crisis and fear of further bank failures unleashed an accelerated reduction in indebtedness within the global financial system, with massive liquidations of assets and costly attempts to recapitalize banks, both in the United States and Europe.
Chile began to experience the impact of these negative global conditions towards2016, still affected by the end of 2008, principally in the formcommodity boom cycle. In this context of write-downs of local assets, a deceleration in the margin of someweak activity, indicators and a moderation in the strong inflationary pressure.
During 2009, the Chilean economy suffered its worst contraction in the last 30 years, as a result of the impact of the global crisis that originated in developed countries and spread to emerging economies. As a result, the local economy significantly contracted, which was influenced by the deterioration of the industrial, mining and commercial sectors. The global crisis put severe stress on financial markets around the world with the ability to obtain credit being adversely affected, thereby stifling the productive capacity of many countries around the world. In particular, the leading commercial regions (US, the European Union and Japan) suffered the worst economic downturn in decades. In such year, the Chilean GDP decreased by 1.7%, which was the worst decrease in GDP since the 1980’s. In Chile, the labor market washas gradually weakened and external accounts have remained at sustainable levels. International developments led the sector that was impactedChilean peso to appreciate from the most,beginning of the year, which led to a significant deceleration in tradable goods inflation. The latter, coupled with the expectation of a weakening economy ahead, prompted the central bank to announce a cycle of monetary easing for 2017.
Activity performed robustly in the first quarter of the year only to lose momentum thereafter. The deceleration came from less dynamic consumption during the third quarter, despite a rebound in purchases of durable goods. The weakening of the labor market likely contributed to flagging domestic demand, with the unemployment rate reportedaveraging 6.5% in 2016, up from 6.3% in 2015, and the highest since 2012. Low-quality self-employment was the driving force behind job creation, expanding 6% in 2016, compared to have reached a peak0.8% in 2015, while waged employment expanded by only 0.4% in 2016, after growing 2.3% in 2015. The weakness of 10.8%the labor market has added to the low level of confidence in the third quarterprivate sector.
After two consecutive years of 2009.contraction, investment boosted growth in the first half of 2016. However, investments again contracted in the second half of 2016. As a result, in 2016, investments contracted for a third consecutive year by 0.8%. Furthermore,
the tax incentive that favored the construction sector dynamics from the second half of 2015 is ending. Thus, the outlook for investment remains dreary. On the other hand, net exports have contributed positively to growth, partly due to imports that contracted every quarter of the year.
The fourth quarter was the weakest in 2016. Mining and manufacturing production were behind the slowdown, while private consumption activity saw a fallrebound at the end of the year. The Chilean economy expanded 1.5% during 2016, the lowest growth since the international financial crisis.
Meanwhile, external accounts evolved favorably in 2016. In 2016, the pricecurrent account deficit stood at US$3.6 billion (-1.4% of goodsGDP), below the 2.0% recorded in 2015. Improving trade figures aided the full year current account balance. The trade balance saw a US$5.3 billion surplus in 2016, up from US$3.5 billion in 2015. The current account deficit would remain close to this level in 2017. Despite the positive evolution of the current account, weak activity and low copper prices affected foreign direct investment in 2016. In 2016, foreign direct investment fell to US$12.2 billion (4.9% of GDP) from US$20.5 billion in 2015 (8.6% of GDP), its lowest dollar value since 2006.
A contained current account deficit alongside higher copper prices resulted in a favorable performance of the Chilean peso. The postponement of rate hikes by the Federal Reserve also played an important role in appreciation of the U.S. dollar,currency. After ending 2015 at Ch$709 per US$1.0, the exchange rate peaked over Ch$730 in January 2016. However, the currency stabilized in the second half of the year and fluctuated between Ch$640 and Ch$680, ending the year at Ch$670. Going forward, the currency could experience some depreciation amid diverging monetary policy stance between Chile experienced deflationand the U.S., while copper prices moderate throughout the year.
A widening output gap and a stronger currency helped inflation decelerate to 2.7% by December 31, 2016, from 4.4% in December 2015. During the last third of the year, inflation saw a significant deceleration toward the 3% target, with tradable goods leading the slowdown.
In this context, the Chilean Central Bank maintained the monetary policy interest rate at 3.5% throughout the year. However, given the imminent slowdown in inflation and the signs of weakening of the economy, there was a gradual shift in the monetary policy bias. In its 4Q16 Monetary Policy Report, the Chilean Central Bank anticipated a cycle of rate cuts of 50 basis points to materialize in 2017.
As for fiscal policy, the gradual deterioration of Chile’s debt position has raised alerts. While the country has preserved it’s “double A” rating among the top rating agencies, Fitch Ratings and Standard and Poor’s revised the sovereign outlook to negative from stable. Both agencies see that a combination of weak growth and lower mining-related revenue have put debt on a path consistent with levels that are incompatible with its current credit rating. Notwithstanding the change, a short-term downgrade is not anticipated. In this sense, the surprise of a smaller fiscal deficit in 2016, given lower spending growth and higher mining income, is a positive development. The 2.8% of GDP nominal deficit in 2016 is the largest since the international financial crisis. Moreover, the 2017 national budget anticipates a further increase in the deficit before moderating in coming years.
Primary elections will take place in early July. The general election will be held on November 17, where Congress, part of the Senate and the future President of Chile will be elected.
Developments in the Colombian Economy
Colombia’s 2016 economic context was characterized by high inflation, weakening activity amid the terms-of-trade shock, and external and fiscal deficits that endangered the country’s macroeconomic sustainability. Despite signs of weakening activity, the imbalances triggered an aggressive monetary policy response, which gradually managed to moderate inflation and curve the dynamism of internal demand. The monetary tightening came along a less expansive fiscal policy, which contributed to the gradual moderation of the fiscal deficit and the current account deficit. In spite of the improvement recorded during 2016, the challenges for the first timeColombian economy persist in 74 years (at2017.
High inflation was partly due to theEl Niño weather phenomenon and a ratetransportation strike last year, which led to a significant rise in food prices. In addition, the weakening of (1.4%)).the Colombian peso during 2015 contributed to inflation reaching a maximum annual gain of 8.97% in July, something not observed since 2000, before the inflation-targeting scheme was implemented in 2010.
Affected by elevated inflation, inflation expectations for the end of 2016 and 2017 showed a significant increase during the year. As a result, the Central Bank of Chile’sColombia carried on with the monetary tightening cycle initiated in 2015, taking the policy rate to 7.75% in September 2016, from 5.75% in December 2015. The rate remained unchanged during the next two months, before being cut by 25 basis points to 7.50% in December 2016.
Besides economic challenges, Colombia faced other issues during the year. On the one hand, the administration sought to obtain approval of a peace agreement reached with the FARC after four years of negotiations. Although the administration suffered a historic low of 0.5%, which remained as such throughout 2009. In addition,setback at the Central Bank of Chile adopted non-traditional monetary policies such as establishing a liquidity fund for bankspolls when it wanted to utilize to finance plant maintenance programs. Towards the end of 2009, the weakeningobtain popular validation of the U.S. dollar andagreement, the stable risenegotiation that followed secured enough political support to approve a modified version of the agreement in Congress. Once the issue was resolved, the authorities turned to the next challenge: the approval of a much-needed tax reform, aimed at replacing lost oil revenue with permanent sources of income.
The additional revenue that will come from the tax reform is considered to be a move in the priceright direction at a time when Colombia faced the risk of copper helped appreciatea sovereign rating downgrade. The main changes introduced by the Chilean peso.
During 2010, Chile experienced a notable economic recovery. Aftertax reform are the 1.7% decrease in GDP during 2009, the Chilean economy grew by 5.2%. The unemployment rate returned to pre-crisis levels and the inflation rate decreased to 3% at year end. The Chilean peso appreciated 7.8% against the U.S. Dollar as a result of the improvement of the Chilean economy and the rise in the price of copper. A 47% increase in the price of copper during 2010 wasVAT rate from 16% to 19%, the main factor in Chile’s economic growth and the appreciation in the value of the Chilean peso. In line with the recovery of economic activity and employment, a strong credit recovery was observed throughout 2010. The recovery of conditions for extending credit, as shown in the surveys conducted by the Central Bank of Chile, contributed to this strong performance. According to the Central Bank of Chile’s national accounts, investment played a key role in this positive economic development, with investment growth of 12.2% in 2010. The Chilean government ended 2010 with a moderate surplus as a result of increased revenue (particularly from taxes on copper) and lower spending than budgeted (about 4% instead of 9%).
During 2011 and 2012, the Chilean GDP continued to grow by 6% and 5.6%, respectively, increases greater than projected by market consensus in each case. Internal demand increased 9.3% and 7.1%, private investment increased 15.7% and 12.3% and private consumption increased 9% and 6.1%, respectively. Unemployment also decreased, from 8.3% in 2010 to 7.2% in 2011 and to 6.5% in 2012
During 2013, the Chilean real GDP grew by 4.1%, internal demand increased by 3.4%, private investment increased by 0.4%, and private consumption increased by 5.6%. The increase in real GDP was less than projected by market consensus. Unemployment also decreased, from 6.5%cigarette and fuel taxes, as well as the reduction in 2012 to 6.0% in 2013. According to the Central Bank of Chile’s national accounts, investment played a key role in this positive economic development, with investment growth of 12.3% in 2012. Current international economic conditions have affected the Chilean economy.
Despite a sustained drop in international trade exports, the Chilean economy has rapidly adjusted to a less favorable international conditions. While GDP grew by 1.7% during 2014, real domestic expenditure decreased by 0.6%, led by a 6.1% contraction rate in real investment. As domestic demand grew softer than total GDP, current account deficit shrank to 1.2% as a percentage of GDP last year from (3.7)% in previous year, putting less pressure on tougher external conditions.
Inflation rate in 2014 accelerated to 4.6% per year, a level not seen since 2008 and considerably higher than Central Bank’s 3.0% target. This higher than anticipated inflation rate was due to (i) larger than expected pass-through of foreign currency exchange rate to domestic prices and (ii) increases in specific prices such as sugary drinks, alcoholic beverages and cigarettes in the enactment of the 2014corporate income tax reform. The sharp decline in international oil prices helped ease inflationary pressures towards the end of the year, but overall domestic inflation has evolved at higher levels than anticipated. During 2014, the Central Bank of Chile continued to provide further monetary stimulus to weak economic activity, gradually lowering the monetary policy rate. Nevertheless, through the end of last year, higher persistence in inflation rate has forced Central Bank to reevaluate its monetary policy stance, suggesting a likely increase in monetary policy rate during 2015.
During 2015 the Chilean economy showed a significant slowdown in growth rates within the year, as a result of low levels of confidence, a messy political discussion on reforms and an external scenario characterized by high levels of volatility and significant appreciation of the dollar. During the first half of the year, economic growth was 2.4%, on a year over year comparison, while GDP growth for the second semester was significantly lower at 1.8%. Thus, full year GDP growth rate was 2.1%, with a weaker expansion of 1.8% in domestic demand.
In this context, while the unemployment rate has shown signs of resilience, with an unemployment rate of 6.3% in 2015, (against a 6,3% in 2014), additional labor market data show a deterioration in the quality, composition and degree utilization of employment.
Meanwhile, in line with the sharp depreciation of the exchange rate between the Chilean peso and the U.S. dollar, the inflation rates completed almost two years above the target range, ending 2015 with an annual inflation rate of 4.4%. In this context, the Central Bank of Chile began its process of withdrawal of monetary stimulus in October 2015, completing a second movement in December, bringing the monetary policy rate to 3.5%, maintaining the tightening bias. According to Central Bank Board, one or two additional hikes would be likely to occur during 2016.
Developments in the Colombian economy
The Colombian economy has demonstrated relatively stable growth in recent years. Despite recent international economic conditions, Colombia’s GDP increased 6.6% in 2011, 4.0% in 2012, 4.9% in 2013, 4.4% in 2014 and 3.1% in 2015. According to the DANE GDP growth has been fueled by local consumption and certain sectors such as mining and quarrying that grew 14.5% in 2011, with slower growth of 5.3% in 2012 and 5% in 2013. In 2014 this sector showed a clear deceleration with negative rates of 1.1% and 0.6% for 2015, given the decline in oil prices around the globe. In contrast, the construction sector accelerated in 2013 to 11.5%, from 5.9% in 2012 and 8.2% in 2011. During 2014 the construction sector grew 10.5% and 3.9% in 2015.
Recent economic activity indicators have also posted mixed results. While Colombian industrial production has recently recovered after been stagnant over the past three years, construction and the financial sector have posted stronger results. In 2015 industry grew 1.2%, while the finance sector grew 4.3% followed by construction with an expansion rate of 3.9%.
Industrial production was depressed in 2012 and 2013, showing annual growths of 0.1% and 0.9% respectively, industrial production swung positive in 2014, and grew by 0.7% for the year ended December 31, 2014. However, industrial production continued to be weak during the early part of 2015 with quarterly negative growths and a speedy recovery during the last half of the year with annual quarterly growth rates for 3.2% and 4%. The rapid recovery of the sector is mainly supported in the reopening of a refinery in Cartagena, which reported growth rates over 15% during the last months of the year.
Additionally, the Colombian retail sector grew by 5.1% in 2014 and 4.1% in 2015. In addition, local cement production rebounded strongly in the month ended December 31, 2014, experiencing a gain of 10% in comparison to the same period in 2013, and confirming the positive performance of the construction industry for the year. In January 31 of 2015, local cement production experienced an increase of 14.5% when compared to the same period in 2014. Additionally, approved housing projects increased by 20.8% in the year ended December 31, 2014, when compared to the year before, which suggests that the Colombian construction sector will remain strong in 2015. Colombian imports grew by only 3.6% in 2013 but grew by 9.2% in 2014. However, exports contracted by 1.7% during 2014, following a growth of 5.3% in 2013. The recent drop in exports is explained by lower oil exports combined with the effects of lower global oil prices. In 2015 exports decreased 33% while imports decelerated at a lower rate of 15%.rates.
Inflation
General
In the past, Chile has experienced high levels of inflation, which has significantly affected our financial condition and results of operations during such periods. The rate of inflation in Chile spiked to 7.1% in 2008. In 2009, for the first time in 74recent years, Chile has experienced deflation of 1.4%, in part due torelatively low inflation rates, with sporadic episodes where price growth deviated from the contraction of the economy related to the global economic crisis.Chilean Central Bank’s 2%-4% target range. In 2012, 2013, 2014, 2015 and 2015,2016, the inflation rate was 1.5%, 3.0%, 4.6%, 4.4% and 4.4%2.7%, respectively. Our results of operations reflect the effect of inflation in the following ways:
Under Chilean law, banks are authorized to earn interest income on loans that are adjustable for the effects of inflation. Most banks, including CorpBanca,Itaú Corpbanca, charge an interest rate that includes an estimate of future inflation. In addition, the peso-denominated value of our assets and liabilities that are denominated in UF fluctuate as the UF is adjusted based on inflation. In the case of assets, these fluctuations are recorded as income (for increases in the peso-denominated value) and losses (for decreases in the peso-denominated value). In the case of liabilities, these fluctuations are recorded as losses (for increases in the peso-denominated value) and income (for decreases in the peso-denominated value).
Colombia has experienced similarly high levels of inflation in the past. However, therecently amid its currency depreciation and supply-side shocks affecting food prices. The rate of inflation in Colombia in 2012, 2013, 2014, 2015 and 20152016 was 2.4%, 1.9%, 3.7%, 6.8% and 6.8%5.8%, respectively. TheAt its peak, the 12-month inflation rate for 2015 rose by 3.11%.reached 9% in July 2016. The components that led to suchthe elevated level of inflation in 2015year-end 2016 were food (a 10.85%(with a 7.2% increase from 2014)2015), housing (a 5.38%4.8% increase from 2014)2015) and healthtransport (a 5.30%4.5% increase from 2014)2015).
UF-denominatedUF-Denominated Assets and Liabilities
The UF is revalued by the INE on a monthly basis. Every day in the period beginning the tenth day of the current month through the ninth day of the succeeding month, the nominal Chilean peso value of the UF is indexed up (or down in the event of deflation) in order to reflect each day a proportional amount of the prior calendar month’s change in the CPI. One UF was equal to Ch$23,309.56, Ch$24,627.1025,629.09 and Ch$25,629.0926,347.98 as of December 31, 2013, 20142015 and 2015,2016, respectively. The effect of any changes in the nominal Chilean peso value of our UF-denominated assets and liabilities is reflected in our results of operations as an increase (or decrease, in the event of deflation) in interest income and expense, respectively. Our net interest income is positively affected by increases in inflation to the extent that our average UF-denominated assets exceed our average UF-denominated liabilities. Conversely, our net interest income will be negatively affected by inflation in any period in which our average UF-denominated liabilities exceed our average UF-denominated assets. Our average UF-denominated assets exceeded our average UF-denominated liabilities by Ch$1,642,003 million, Ch$1,576,8181,088,868 million and Ch$1,810,2032,402,718 million during the years ended December 31, 2013, 20142015 and 2015,2016, respectively. See “Item 4. Information on the Company—B. Business Overview—Principal Business Activities—Selected Statistical Information—Average Balance Sheets, Income Earned from Interest Earning Assets and Interest Paid on Interest Bearing Liabilities”.Liabilities.”
Chilean Peso-denominatedPeso-Denominated Assets and Liabilities
Interest rates prevailing in Chile are materially affected by the current rate of inflation during the period and market expectations concerning future inflation. The responsiveness to such prevailing rates of our Chilean peso-denominated interest-earning assets and interest bearing liabilities varies. See “—Interest Rates” and “—Results of Operations” below and “Item 11. Quantitative and Qualitative Disclosures about Financial Risk”.Risk.” We maintain a substantial amount of non-interest bearing Chilean peso-denominated demand deposits. The ratio of the average balance of such demand deposits to average interest-earning assets was 2.8%, 2.7%3.4% and 2.3%2.1% during the years ended December 31, 2013, 20142015 and 2015,2016, respectively. Because such deposits are not sensitive to inflation or changes in the market interest rate environment, any decline in interest rates or the rate of inflation adversely affects our net interest margin on assets funded with such deposits and any increase in the rate of inflation increases the net interest margin on such assets. From 2013 to 2015, we decreased our percentage of foreign currency based loans in our total loan portfolio from 48.8% to 46.6%.
Interest Rates
Interest rates earned and paid on our assets and liabilities, respectively, reflect, to a certain degree, inflation, expectations regarding inflation, shifts in short-term interest rates set by the Central Bank of Chile and the Central Bank of Colombia and movements in long-term real rates.
Interest Rates in Chile
The Central Bank of Chile manages short-term interest rates based on its objectivesobjective of keeping the stability of the currency. Because our liabilities are generally re-priced to reflect interest rate changes more frequently than our interest-earning assets, changes in the rate of inflation or in the monetary policy interest rate published by the Central Bank of Chile are reflected in the interest rates we pay on our liabilities before such changes are reflected in the interest rates we earn on our assets. Therefore, when short-term interest rates fall, our net interest margin is positively impacted, but when short-term rates increase, our interest margin is negatively affected. At the same time, our net interest margin tends to be adversely affected in the short term by a decrease in inflation because generally our UF-denominated assets exceed our UF-denominated liabilities. See “Item 5. Operating and Financial Overview and Prospects—A. Operating Results—The Economy—Developments in the Chilean Economy” and “—UF-denominated Assets and Liabilities” above. An increase in long-term interest rates also has a positive effect on our net interest margin, because our interest-earning assets generally have a longer duration than our interest bearing liabilities.
In addition, because our Chilean peso-denominated liabilities have relatively short re-pricing periods, they are generally more responsive to changes in inflation or short-term rates than our UF-denominated liabilities. As a result, during periods when current inflation or expected inflation exceeds the previous month’s inflation, customers often switch funds from Chilean peso-denominated deposits to more expensive UF-denominated deposits, thereby adversely affecting our net interest margin. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Sources of Liquidity—Financial Investments”.Investments.”
Interest Rates in Colombia
The Central Bank of Colombia manages short-term interest rates based on its objectives of maintaining a low and stable inflation rate, stabilizing output around its natural levels and contributing to the preservation of financial stability.
Colombian commercial banks, finance corporations and financing companies are required to report data to the Central Bank of Colombia on a weekly basis regarding the total volume (in Colombian pesos) of certificates of deposit issued during the prior week and the average interest rates paid for certificates of deposit with maturities of 90 days. Based on such reports, the Central Bank of Colombia calculates the DTF rate, which is the main benchmark interest rate in Colombia and is published at the beginning of the following week. The DTF is the weighted average interest rate paid by commercial banks, finance corporations and financing companies for certificates of deposit with maturities of 90 days.
For the weekAs of March 21 of 2016,April 6, 2017, the DTF rate was 6.36%6.58%. The Central Bank of Colombia also calculates the interbank rate (InteréInterés Bancario de Referencia), or IBR, which acts as a reference of overnight and one-month interbank loans, based on quotations submitted each business day by eight participating banks to the Central Bank of Colombia. Using a weighted average of the quotations submitted, the Central Bank of Colombia calculates the overnight IBR each business day. The one-month IBR is calculated each Tuesday. Article 884 of the Colombian Commercial Code provides for a limit on the amount of interest that may be charged in commercial transactions. The limit is 1.5 times the current banking interest rate (InteréInterés Bancario Corriente), calculated as the
average of the interest ordinarily charged by banks within a set period of time. The current banking interest rate is certified by the Colombian Superintendency of Finance.
A significant portion of our banking subsidiaries’ assets are linked to the DTF; accordingly, changes in the DTF affect our banking subsidiaries’ net interest income. The average DTF was 7.96% during 2007, and 9.69% during 2008. With the loosening of monetary policy that began in late 2008, the DTF decreased throughout 2009, reaching a low of 4.11% and an average of 6.22% during 2009, and a low of 3.39% and an average of 3.67% during 2010. As the economy recovered and the output gap began to close, the Central Bank of Colombia increased its interest rate throughout 2011, starting in February of that year, and through to the first quarter of 2012. As the economy began to slow down more than expected, due to the intensification of the European crisis during 2012,show a significant slowdown, the Central Bank of Colombia decreased the interest rate by 100 basis points during the second half of that year, lowering it to 4.25% on December 31, 2012. Additional cuts of 100 basis points took place during the first quarter of 2013, bringing the policy rate to 3.25% on March 31, 2013. The policy rate has remained stable through the remainder of 2013, as inflation remained subdued throughout the year, supporting a healthy and gradual recovery pace of economic activity. The policy rate remained stable throughout 2013 and until March of 2014. On average, the DTF went from of 7.96% in 2007 to 3.88% in the first quarter of 2014.
From April of 2014 throughto August of 2014, the Central Bank of Colombia increased the Repo Rate by an aggregate 125 bps to 4.50%. This increase was, a result of accelerated growth and intendedlevel consistent with neutral conditions. After a year on hold, amid accelerating inflation, which led to controlled inflation. The interest rate remained unchanged from August 2014 until August 2015, due to the uncertainty surrounding the local economy after the recent fall in global oil prices. On September 2015 the Central Bank decided to increase interest rates by 25 bps from 4.50% to 4.75%, given the record high inflation, the increase onincreasing inflation expectations, and a rapid deterioration of the current account deficit above 6% of GPD. Since inflation expectations have increased rapidly and remain above the upper bound of the inflation target of 4%,GDP, the Central Bank has increased interest rates regardlessbegan a monetary tightening cycle in September 2015, taking the policy rate to 5.75% by year-end. The tightening cycle ended in July 2016, with the policy rate at 7.75%. As inflation began to slowdown in the third quarter of the negative GDP gap. As of March of 2016,year, the Central Bank of Colombia has increased rates by 200 bpsmoved back to 6.50% arguing thatloosening the internal demand has grown faster than expected.monetary policy stance with a 25 basis point cut to 7.50% in December 2016.
The DTF has slowly adjustedIn response to the new upward trend inchanging monetary policy conditions, the DTF adjusted upward moving from 4.34% in 2014 to 5.22% at the end of December 2015. However, a large portion2015 and 7.59% by the end of the adjustment was observed duringJuly 2016, before retreating to 6.86% by year-end. As monetary loosening has proceeded in the first monthsquarter of 2016, as a response to the new liquidity conditions of the market, taking2017, the DTF rate dropped to 6.36%6.65% during the third week of March of 2016.2017.
Currency Exchange Rates
A material portion of our assets and liabilities is denominated in foreign currencies, principally the U.S. dollar and the Colombian peso. Our reported income is affected by changes in the value of the Chilean peso with respect to foreign currencies (principally the U.S. dollar and Colombian peso) because such assets and liabilities, as well as interest earned or paid on such assets and liabilities, and gains (losses) realized upon the sale of such assets, are converted to Chilean pesos in preparing our financial statements. The Chilean government’s economic policies and any future changes in the value of the Chilean peso against the U.S. dollar could adversely affect our financial condition and results of operations. In the past, the Chilean peso has been subject to significant volatility when compared to the U.S. dollar. In 2013, the Chilean peso depreciated against the U.S. dollar by 9.9% as compared to 2012. In 2014, the Chilean peso depreciated against the U.S. dollar by 15.0% as compared to 2013. In 2015 the Chilean peso depreciated against the U.S. dollar by 17.3% as compared to 2014. In 2016, the Chilean peso appreciated against the U.S. dollar by 5.7% as compared to 2015. The exchange rate between the Chilean peso and the U.S. dollar as of December 31, 2013, 20142015 and 20152016 was Ch$524.61, Ch$606.75710.16 and Ch$710.16669.81 per US$1.00, respectively. The Chilean peso may be subject to significant fluctuations in the future.
Entering into forward exchange transactions enables us to reduce the negative impact of material gaps between the balances of our foreign currency-denominated assets and liabilities. As of December 31, 2013, 20142015 and 2015,2016, the gap between foreign currency denominated assets and foreign currency denominated liabilities, including forward contracts, was Ch$503,333 million, Ch$78,883235,611 million, and Ch$273,399(481,755) million, respectively.
Critical Accounting Policies and Estimates
General
In our filings with the SEC, we prepare our consolidated financial statements in accordance with IFRS. In preparing our consolidated financial statements, we use estimates and assumptions to account for certain assets, liabilities, revenues, expenses and other transactions. While we review these estimates and assumptions in the ordinary course of business, the portrayal of our financial condition and results of operations often require our management to make judgments regarding the effects on our financial condition and results of operations on matters that are inherently uncertain. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. The following discussion describes those areas that require the most judgment or involve a higher degree of complexity in the application of the accounting policies that currently affect our financial condition and results of operations. Actual results may differ from those estimated under different variables, assumptions or conditions, and if these differences could have a material impact on our reported results of operations. Note 1 to our financial statements contains a summary of our significant accounting policies.
In addition to the critical accounting policies described below, information regarding other accounting policies is set forth in the notes to our consolidated financial statements.
Allowance for Loan Losses
We have establishedrecord our allowances to cover probable loanfollowing our internal models for the recording of incurred debt. To establish impairment losses, in accordance with IFRS. The allowance for loan losses requires us to make estimates and judgments about inherently subjective matters in determining the classificationbank carries out an evaluation of individualoutstanding loans and consequently, we regularly evaluate our allowance for loan losses by taking into consideration factors suchaccounts receivable from customers, as changes in the nature and volume of our loan portfolio, trends in forecasted portfolio credit quality and economic conditions that may affect our borrowers’ ability to pay. Increases in our allowance for loan losses are reflected as provisions for loan losses in our income statement. Loans are charged off in accordance with the guidelines as set forth by the SBIF. Write-offs are recorded as a reduction of the allowance for loan losses. See “Item 4. Information on the Company—Business Overview—Selected Statistical Information—Current Regulations Relating to Classification of Banks and Loans; Allowances for Loan Losses”.detailed below:
• | Individual assessment of debtors: When debtors are recorded as individually significant,i.e., when they have significant debt levels or, even for those that do not have these levels, could be classified in a group of financial assets with similar credit risk features and who, due to the size, complexity or level of exposure, require detailed information. See “Item 4. Information on the Company—Business Overview—Selected Statistical Information—Current Regulations Relating to Classification of Banks and Loans; Allowances for Loan Losses” and “Note 1—General Information and Summary of Significant Accounting Policies—q. Allowances for loan losses” of our Audited Consolidated Financial Statements. |
• | Group assessment of debtors: When there is no evidence of impairment for individually-assessed debtors and debtors with loans grouped collectively—whether or not significant—the bank groups debtors with similar credit risk features and assesses them for impairment. Debtors individually assessed for impairment and for whom a loss due to impairment has been recorded are not included in the group assessment of impairment. See “Item 4. Information on the Company—Business Overview—Selected Statistical Information—Current Regulations Relating to Classification of Banks and Loans; Allowances for Loan Losses”, and “Note 1—General Information and Summary of Significant Accounting Policies—q. Allowances for loan losses” of our Audited Consolidated Financial Statements. |
For a further description of regulations relating to loan classification and provisioning, see “Item 4. Information on the Company—B. Business Overview—Principal Business Overview—Chilean Banking Regulation and Supervision—Current Regulations Relating to Classification of Banks and Loans; Allowances for Loan Losses”.
We consider the accounting estimates related to allowance for loan losses to be “critical accounting estimates” because (i) they are highly susceptible to change from period to period because our assumptions about the risk of loss used to classify our loans are updated for recent performance experience which may increase or decrease our risk index that is used to determine our global allowance, (ii) our specific allowances are also updated to reflect recent performance which may result in an increase or decrease in our specific allowances, (iii) it requires management to make estimates and assumptions about loan classification and the related estimated probable loss if any and (iv) any significant difference between our estimated losses (as reflected in the specific and general provisions) as of the balance sheet date and our actual losses will require us to adjust our allowance for loan losses that may result in additional provisions for loan losses in future periods which could have a significant impact on our future net income and/or financial condition. As of December 31, 2015, our allowance for loan losses was Ch$173,939 million (excluding allowances and impairment for interbank loans).Losses.”
Derivative Financial Instruments
Derivative financial instruments are recorded at fair value. Fair values are based on market quotes, discounted cash flow models and option valuations, as appropriate. If market information is limited or in some instances, not available, management applies its professional judgment. Other factors that may also affect estimates are incorrect model assumptions, market dislocations and unexpected correlations. Notwithstanding the level of subjectivity in determining fair value, we believe our estimates of fair value are adequate. The use of different models or assumptions could lead to changes in our reported results. See “Note 1—General Information and Summary of Significant Accounting Policies.”
In addition, we make loans and accept deposits in amounts denominated in foreign currencies, principally the U.S. dollar. Such assets and liabilities are translated at the applicable exchange rate at the balance sheet date.
Financial Investments
Financial investments are summarized as follows:
Trading Instruments. Instruments for trading are securities acquired for which we have the intent to generate earnings from short-term price fluctuations or through brokerage margins, or that are included in a portfolio created for such purposes. Instruments for trading are valued at their fair value according to market prices on the closing date of the balance sheet. See “Note 1—General Information and Summary of Significant Accounting Policies.”
Investment Instruments. Investment instruments are classified into two categories: held to maturity investments and instruments available-for-sale. Held to maturity investments only include those instruments for which we have the intent and ability to hold to maturity. Investment instruments not classified as held to maturity or trading are considered to be available-for-sale. Investment instruments are recorded initially at cost. Instruments available-for-sale are valued at each subsequent period-end at their fair value. Gains or losses from changes in fair value are recognized in other comprehensive income within line item “financial instruments available for sale”.sale.” All purchases and sales of investment instruments to be delivered within the deadline stipulated by market regulations and conventions are recognized on the trade date, which is the date on which the commitment is made to purchase or sell the asset. Other purchases or sales are treated as forwards until they are liquidated. See “Note 1— General Information and Summary of Significant Accounting Policies.”
We enter into security repurchase agreements as a form of borrowing. The liability for the repurchase of the investment is classified as “obligations under repurchase agreements” and is carried at cost plus accrued interest.
We also enter into resale agreements as a form of investment. Under these agreements we purchase securities, which are included as assets under the caption “investments under agreements to resell” and are carried at cost plus accrued interest.
Recently Adopted and New Accounting Pronouncements
See Note 1 and Note 2 of our consolidated financial statements for a detailed description of recently adopted and new accounting pronouncements in IFRS.
Results of Operations for the Years Ended December 31, 2013, 20142015 and 20152016
Introduction
In 2015 our2016 we had a net income was of Ch$238.7 billion, of which 77% corresponded to Chile and 23% to Colombia,13,969 million, a decrease of 12.8%86.8% compared with 2014. While in 2014 we had stronger results from Colombia, during 2015 we recorded higher than expected results from Chile and lower that planned results from Colombia.2015. The latter is explained by unfavorable exchange rate movements
between the Colombian peso and the Chilean peso andmain factors for this decrease were: (i) higher provisions for loan losses as a consequenceexpenses in face of difficulties experienced by the Colombian oil & gas industry and related sectors; while Chile’s operations had been favored by commercial customer driven results, higher net interest margin as consequence of higher UF variations and lower loan loss provisions than planned.
These extraordinary results have been achieved under lower than expected economic activity, both in Chile and Colombia. In particular, CorpBanca Colombia, has been able to offset this more challenging economic context withthat affected the positive impact of cost savings already achieved from the completioncredit rating of some of the stages of the merger between CorpBanca Colombia and Helm Bank. In the case of Chile, the stronger results have been achieved despite all the activitiesour corporate clients; (ii) operational expenses related to the merger with Banco ItaúMerger process in Chile, effortssuch as severance indemnities and increased intangibles amortization expense; (iii) an overall slower business environment that have been taking higher momentum afteraffected revenue growth; and (iv) the extraordinary shareholders meeting that approved the transaction in June 2015 and the SBIF’s authorization, granted in September, 2015.post-Merger integration process.
Net Income (Loss)
Our consolidated net incomeloss as reported in our consolidated financial statements for the year ended December 31, 20152016 was Ch$238,66513,969 million, a 12.8%86.8% or Ch$35,03691,797 million decrease from our net income of Ch$273,701105,766 million in 2014 which represented a 56.2% or Ch$98,462 million increase from Ch$175,239 million in 2013.2015.
The decrease in our consolidated net income for the year ended December 31, 20152016 was primarily due to: (i) higher provisions for loan losses; (ii) a negative translation effect COP/Ch$ of our Colombian subsidiary;higher operating expenses due to the integration process related to the Merger; and (iii) the negative impact of lower inflation in Chile on net interest margin;margin and (iv) higher tax rates.increased policy rates throughout most of the year in Colombia.
The following table sets forth the components of our net income for the years ended December 31, 2013, 20142015 and 2015:2016:
For the Year Ended | For the Year Ended | |||||||||||||||||||||||||||||||
December 31, | % Change from 2015/2014 | % Change from 2014/2013 | December 31, | % Change from 2016/2015 | ||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||||||||
(in millions of constant Ch$ except for percentages) | (in millions of constant Ch$ except for percentages) | |||||||||||||||||||||||||||||||
Components of net income: | ||||||||||||||||||||||||||||||||
Net interest income | 457,690 | 630,884 | 620,579 | (1.6 | )% | 37.8 | % | 223,290 | 639,175 | 186.3 | % | |||||||||||||||||||||
Net service fee income | 117,977 | 161,590 | 152,847 | (5.4 | )% | 37.0 | % | 71,088 | 150,796 | 112.1 | % | |||||||||||||||||||||
Trading and Investment, foreign exchange gains and other operating income | 127,039 | 199,225 | 211,153 | 6.0 | % | 56.8 | % | 50,040 | 83,551 | 67.0 | % | |||||||||||||||||||||
Provisions for loan losses | (102,072 | ) | (127,272 | ) | (169,748 | ) | 33.4 | % | 24.7 | % | (42,929 | ) | (245,990 | ) | 473.0 | % | ||||||||||||||||
Income attributable to investment in other companies | 1,241 | 1,799 | 1,300 | (27.7 | )% | 45.0 | % | |||||||||||||||||||||||||
Total operating expenses | (362,145 | ) | (509,672 | ) | (480,789 | ) | (5.7 | )% | 40.7 | % | (178,460 | ) | (616,627 | ) | 245.5 | % | ||||||||||||||||
Income before income taxes | 239,730 | 356,554 | 335,342 | (5.9 | )% | 48.7 | % | 123,029 | 10,905 | (91.1 | )% | |||||||||||||||||||||
Income taxes | (64,491 | ) | (82,853 | ) | (96,677 | ) | 16.7 | % | 28.5 | % | (17,263 | ) | 3,568 | (120.7 | )% | |||||||||||||||||
Income from continuing operations | 105,766 | 14,473 | (86.3 | ) | ||||||||||||||||||||||||||||
Income from discontinued operations | — | (504 | ) | — | ||||||||||||||||||||||||||||
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Net income for the year | 175,239 | 273,701 | 238,665 | (12.8 | )% | 56.2 | % | 105,766 | 13,969 | (86.8 | )% | |||||||||||||||||||||
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Net Interest Income
The following table sets forth the components of our net interest income for the years ended December 31, 2013, 20142015 and 2015:2016:
For the year ended December 31, | % Change | % Change | For the year ended December 31, | % Change from 2016/2015 | ||||||||||||||||||||||||||||
2013 | 2014 | 2015 | from 2015/2014 | from 2014/2013 | 2015 | 2016 | ||||||||||||||||||||||||||
(in millions of constant Ch$ except for percentages) | (in millions of constant Ch$ except for percentages) | |||||||||||||||||||||||||||||||
Interest income | 1,007,106 | 1,320,124 | 1,299,480 | (1.6 | )% | 31.1 | % | 501,982 | 1,509,203 | 200.6 | % | |||||||||||||||||||||
Interest expense | (549,416 | ) | (689,240 | ) | (678,901 | ) | (1.5 | )% | 25.4 | % | (278,692 | ) | (870,028 | ) | 212.2 | % | ||||||||||||||||
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Net interest income | 457,690 | 630,884 | 620,579 | (1.6 | )% | 37.8 | % | 223,290 | 639,175 | 186.3 | % | |||||||||||||||||||||
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The following table sets forth information as to the components of our interest income for the years ended December 31, 2013, 20142015 and 2015:2016:
For the year ended December 31, | For the year ended December 31, | % Change from 2016/2015 | ||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | % Change from 2015/2014 | % Change from 2014/2013 | 2015 | 2016 | ||||||||||||||||||||||||||
(in millions of constant Ch$ except for percentages) | (in millions of constant Ch$ except for percentages) | |||||||||||||||||||||||||||||||
Interest income | 1,007,106 | 1,320,124 | 1,299,480 | (1.6 | )% | 31.1 | % | 501,982 | 1,509,203 | 200.6 | % | |||||||||||||||||||||
Average interest-earning assets: | ||||||||||||||||||||||||||||||||
Loans | 11,505,946 | 13,895,505 | 14,622,229 | 5.2 | % | 20.8 | % | 6,410,592 | 17,801,885 | 177.7 | % | |||||||||||||||||||||
Financial investments | 917,630 | 1,161,414 | 1,310,924 | 12.9 | % | 26.6 | % | 496,220 | 1,610,668 | 224.6 | % | |||||||||||||||||||||
Interbank deposits | 384,045 | 411,955 | 465,557 | 13.0 | % | 7.3 | % | 99,485 | 362,492 | 264.6 | % | |||||||||||||||||||||
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Total average interest-earning assets | 12,807,621 | 15,468,875 | 16,398,711 | 6.0 | % | 20.8 | % | 7,006,297 | 19,775,044 | 182.2 | % |
The following table sets forth information as to the components of our interest expense for the years ended December 31, 2013, 20142015 and 2015:2016:
For the year ended December 31, | ||||||||||||||||||||
2013 | 2014 | 2015 | % Change from 2015/2014 | % Change from 2014/2013 | ||||||||||||||||
In millions of constant Ch$, except for percentages | ||||||||||||||||||||
Interest expense | 549,416 | 689,240 | 678,901 | (1.5 | )% | 25.4 | % | |||||||||||||
Average interest-earning liabilities: | ||||||||||||||||||||
Bonds | 2,199,545 | 2,609,908 | 3,025,930 | 15.9 | % | 18.7 | % | |||||||||||||
Time deposits | 7,055,890 | 7,849,494 | 8,230,208 | 4.9 | % | 11.2 | % | |||||||||||||
Central Bank borrowings | — | — | — | — | — | |||||||||||||||
Repurchase agreements | 269,419 | 345,097 | 645,487 | 87.0 | % | 28.1 | % | |||||||||||||
Mortgage finance bonds | 130,991 | 105,851 | 87,375 | (17.5 | )% | (19.2 | )% | |||||||||||||
Other interest-bearing liabilities | 2,283,273 | 3,210,058 | 3,310,424 | 3.1 | % | 40.6 | % | |||||||||||||
Total average interest-bearing liabilities | 11,939,118 | 14,120,408 | 15,299,424 | 8.3 | % | 18.3 | % |
2015 Compared to 2014:
For the year ended December 31, | ||||||||||||
2015 | 2016 | % Change from 2016/2015 | ||||||||||
(in millions of constant Ch$ except for percentages) | ||||||||||||
Interest expense | 278,692 | 870,028 | 212.2 | % | ||||||||
Average interest-earning liabilities: | ||||||||||||
Bonds | 1,245,617 | 4,205,997 | 237.7 | % | ||||||||
Time deposits | 3,875,906 | 9,884,092 | 155.0 | % | ||||||||
Repurchase agreements | 57,267 | 400,252 | 598.9 | % | ||||||||
Mortgage finance bonds | 28,123 | 71,742 | 155.1 | % | ||||||||
Other interest-bearing liabilities | 1,256,116 | 4,029,170 | 220.8 | % | ||||||||
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Total average interest-bearing liabilities | 6,463,029 | 18,591,253 | 187.7 | % |
Our net interest income was Ch$1,299,480639,175 million for the year ended December 31, 2015, a decrease2016, an increase of 1.6%186.3% as compared to Ch$1,320,124223,290 million for the year ended December 31, in 2014.2015. The decreaseincrease in interest income was primarily the result of a negative translation effectthe consolidation of the COP$ in relationformer Corpbanca into former Banco Itaú Chile from April 1, 2016. In addition to the Ch$2ofthis factor, our Colombian subsidiary (Ch$0.2266 per 1COP$ in 2015 vs. Ch$0.2532 per 1COP$ in 2014) as well asnet interest margin was impacted by a lower UF variation in Chile (4.1%(2.8% in 2016 vs. 4.1% in 2015) and by increased monetary policy rates in Colombia (5.8% as of December 31, 2015, vs. 5.7%reaching 7.8% in 2014). Despite the negative exchange rate effects,August 1, 2016 before declining to 7.5% in December 19, 2016), which negatively affected our Colombian subsidiaries’ net interest incomemargin since our interest-earning assets in its local currency under Chilean GAAP increased 13.5% from COP$1,017,818 millionColombia are mostly fixed-rate and with a long duration and our interest-bearing liabilities are mostly floating-rate and with a shorter duration. Although decreasing through most of the year, net interest margin in 2014 to COP$1,155,333 millionColombia is higher than in 2015.Chile.
The aforementioned factors negatively impactedhad a total almost neutral impact in our net interest margin (net interest income divided by average interest-earning assets), which decreased to 3.8% in 2015 from 4.1% in 2014.
2014 Compared to 2013:
Our interest income was Ch$1,320,124 million for the year ended December 31, 2014, an increase of 31.1% as compared to Ch$1,007,106 million for the year ended December 31, in 2013. The increase in interest income was primarily the result of: (i) the consolidation of Helm Bank into our financial statements for a full year in 2014; (ii) higher UF variation of 5.65% in 2014 versus 2.05% in 2013, which resulted in increased interest income from our UF loans and our UF investment portfolio; and (iii) higher loan activity both in Chile and Colombia. The increase in our loan activities in Chile and Colombia was reflected by an increase in the average loan balance. During this period, the balance of our average loans grew by 20.8% to Ch$13,895,505 million for the year ended December 31, 2014, from Ch$11,505,946 million for the year ended December 31, 2013.
Despite the 31.1% increase in our interest income during the period, our interest expense increased by only 25.4%4 basis points to Ch$689,240 for the year ended December 31, 2014, as compared to Ch$ 549,416 for the year ended December 31, 2013, reflecting improved margins on our loans. This increase was the result of: (i) the consolidation of the results of Helm Bank for a full year3.19% in 2014, and (ii) an increase2016 from 3.23% in our average interest-earning liabilities, in particular in bonds and time deposits. This increase was partly offset by: (i) a decrease of 1.5% (150 basis points) in the Central Bank monetary policy interest rate in Chile; and (ii) a decrease in our cost of funding in time deposits toward historical levels.2015.
As a result of the above, our net interest income increased by 37.8% to Ch$630,884 million for the year ended December 31, 2014, as compared to Ch$ 457,690 million for the year ended December 31, 2013.
Net interest margin (net interest income divided by average interest-earning assets) increased from 3.6% in 2013 to 4.1% in 2014 as a result of the above-mentioned factors relating to our interest income and interest expenses.
Allowances for Loan Losses
The following table sets forth information relating to our allowances for loan losses as of December 31, 2013, 20142015 and 2015:2016:
As of December 31, | As of December 31, | ||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | % Change from 2015/2014 | % Change from 2014/2013 | 2015 | 2016 | % Change from 2016/2015 | ||||||||||||||||||||||||||||||
(in millions of constant Ch$ as of December 31, 2015 except for percentages) | (in millions of constant Ch$ except for percentages) | ||||||||||||||||||||||||||||||||||||
Total loans (excludes interbank loans) | 12,897,681 | 14,029,875 | 14,628,296 | 4.3% | 8.8% | 6,801,071 | 21,003,952 | 208.8% | |||||||||||||||||||||||||||||
Past due loans(1) | 64,091 | 82,650 | 104,897 | 26.9% | 29.0% | 51,241 | 112,450 | 119.5% | |||||||||||||||||||||||||||||
Non-performing loans(2) | 141,667 | 180,536 | 196,806 | 9.0% | 27.4% | 91,097 | 352,700 | 287.2% | |||||||||||||||||||||||||||||
Impaired loans(3) | 393,102 | 406,199 | 459,982 | 13.2% | 3.3% | 241,811 | 1,073,831 | 344.1% | |||||||||||||||||||||||||||||
Allowances for loan losses | 126,039 | 137,605 | 173,939 | 26.4% | 9.2% | 95,579 | 559,304 | 485.2% | |||||||||||||||||||||||||||||
Allowances for loan losses as a percentage of total loans | 1.0% | 1.0% | 1.2% | 21.2% | 0.4% | 1.4% | 2.7% | 89.5% | |||||||||||||||||||||||||||||
Allowances for loan losses as a percentage of non-performing loans | 89.0% | 76.2% | 88.4% | 16.0% | (14.3)% | 104.9% | 158.6% | 51.1% | |||||||||||||||||||||||||||||
Allowances for loan losses as a percentage of impaired loans | 32.1% | 33.9% | 37.8% | 11.6% | 5.7% | 39.5% | 52.1% | 31.8% | |||||||||||||||||||||||||||||
Non-performing loans as a percentage of total loans | 1.1% | 1.3% | 1.3% | 4.6% | 17.2% | 1.3% | 1.7% | 25.4% | |||||||||||||||||||||||||||||
Allowances for loan losses as a percentage of past due loans | 196.7% | 166.5% | 165.8% | (0.4)% | (15.3)% | 186.5% | 497.4% | 166.7% |
(1) | Past due loans include all installments and lines of credit more than 90 days overdue. Do not include the aggregate principal amount of such loans. |
(2) | Non-performing loans include the principal and interest on any loan with one installment more than 90 days overdue. |
(3) | Impaired loans include those loans on which there is objective evidence that debtors will not meet some of their contractual payment obligations. |
2015 Compared to 2014:
Allowances for loan losses (excluding allowances for loan loss on loans and receivables to banks) increased by 26.4%485.2% to Ch$173,939559,304 million as of December 31, 20152016 compared to Ch$137,60595,579 million as of December 31, 2014.2015. Higher allowances for loan losses resulted primarily from difficulties experienced by the Colombian oil & gas industry and related sectors which ledconsolidation of former Corpbanca into former Banco Itaú Chile from April 1, 2016. Another important factor leading to higher default risk in loans exposed to these industries. Despite the increased allowances with respect to our Colombian subsidiary, our Chilean operations benefitted from lower allowances for loan losses than previously anticipated, partly offseting the increase experienced in Colombia.provisions was the lower economic activity both in Chile and Colombia that affected the credit rating of some of our corporate clients after a thorough revision of all of our individually assessed credit exposures.
2014 Compared to 2013:
Allowances for loan losses (excluding allowances for loan loss onOur non-performing loans, and receivables to banks) increased by 9.2% to Ch$137,605 million as of December 31, 2014 compared to Ch$126,039 million as of December 31, 2013. The increase in our allowances for loan losses was primarily due to the growth in our loan portfolio, which required a corresponding increase in our allowance for loan losses. Despite this increase, our asset quality was unchanged from 2013, as allowances for loan losses as a percentage of total loans, remained at 1.0% in 2014, whichincreased to 1.7% as of December 31, 2016 compared to 1.3% as of December 31, 2015. This increase was the same proportionresult of increased delinquency in Colombia that affected the local market as a whole due to the reduction in 2013.economic activity, as well as an increased delinquency observed in Chile in the fourth quarter of 2016 in personal loans, also as a consequence of the continued slowdown in the economy.
Provisions for Loan Losses
2015 Compared to 2014:
Provisions for loan losses increased by 33.4%473% to Ch$169,748245,990 million for the year ended December 31, 2015,2016, compared to Ch$127,27242,929 million for the year ended December 31, 2014.2015. The increase in our provisions for loan losses iswas due to (i) the depreciationconsolidation of former Corpbanca into former Banco Itaú Chile from April 1, 2016; (ii) lower economic activity both in Chile and Colombia that affected the Ch$; (ii) the downgradecredit rating of some of our clients in the Corporate segment within the segment of Large, Corporate and Real Estate Companies;corporate business unit; and (iii) higher reserves in Colombia to prevent
further deterioration in the gas and oil sector. Our current exposure to oil and gas sector is 2.1%a thorough revision of all of our consolidated loan portfolio, of which 1.5% represented Colombian exposure to such sector. Nevertheless, CorpBanca Colombia provisionsindividually assessed credit exposures in 2015 benefited from a new regulatory standard for leasing operations that allowed them to release Ch$6.2 billion in loan loss provisions that partly offset.
2014 Compared to 2013:
Provisions for loan losses increased by 24.7% to Ch$127,272 millionline with the revised credit policies defined for the year ended December 31, 2014, compared to Ch$102,072 million formerged bank, as part of the year ended December 31, 2013. The increase in our provisions for loan losses in 2014 was primarily the result of: (i) the consolidation of Helm Bank in 2014 for a full year; (ii) the growth of our loan portfolio in 2014 compared to 2013, which resulted in higher provisions.integration process.
Net Service Fee Income
2015 Compared to 2014:
Our net service fee income (including income from financial advisory services) for the year ended December 31, 20152016 was Ch$152,847150,796 million, representing a 5.4% decrease112.1% increase when compared to Ch$161,59071,088 million for the year ended December 31, 2014.2015. Our income from service fees during the year ended December 31, 2015 decreased2016 increased by 0.8%138.2% to Ch$200,401193,801 million from Ch$202,01381,375 million for the year ended December 31, 2014.2015. This decreaseincrease was further negatively affectedpartially offset by a 17.6%318.1% increase in our expenses from service fees to Ch$47,55443,005 million for the year ended December 31, 2014,2016, from Ch$40,42310, 287 million for the year ended December 31, 2014.
The decrease in our net service fee income, was driven primarily by lower flat fees and insurance commissions in Colombia and the devaluation of the COP$ relative to the Chilean Peso that were partly offset by increased commercial activity of our real estate segment within the segment of Large, Corporate and Real Estate Companies the positive repricing effect of the Redbanc (interconnected network between banks through ATM) rate applied to ATMs transactions and the positive effects of the consolidation of Instacob, which we acquired on March 2015.
2014 Compared to 2013:
Our net service fee income (including income from financial advisory services) for the year ended December 31, 2014 was Ch$161,590 million, representing a 37.0% increase when compared to Ch$117,977 million, for the year ended December 31, 2013. Our income from service fees during the year ended December 31, 2014 increased by 39.5% to Ch$202,013 million from Ch$144,777 million for the year ended December 31, 2013. This increase was partially offset by a 37.6% increase in expenses from service fees to Ch$40,423 million for the year ended December 31, 2014, from Ch$26,800 million for the year ended December 31, 2013.
The increase in our net service fee income, was driven primarily by: (i)by the consolidation of Helm Bank forformer Corpbanca into former Banco Itaú Chile from April 1, 2016. Other than this factor, we experienced lower flat fees due to a full year in 2014, compared to only five months in 2013; (ii) higher fees resulting from our financial advisory services and insurance brokerage business; and (iii) increased commercial activityreduction in the marketsnumber of new credit structuring operations in which we operate, including increased loan activity and other banking services and products, which resultedthe wholesale business unit in increased billing and collectionlight of fees related to such products and services. Our expenses from service fees were primarilyreduced investment levels in the result of the consolidation of Helm Bank for a full year in 2014, as well as other organic growth of our expense structure.Chilean economy.
Other Net Operating Income
The following table sets forth the components of our other net operating income for the years ended December 31, 2013, 20142015 and 2015:2016:
For the year ended December 31, | ||||||||||||||||||||
2013 | 2014 | 2015 | % Change from 2015/2014 | % Change from 2014/2013 | ||||||||||||||||
(in millions of constant Ch$ except for percentages) | ||||||||||||||||||||
Trading and investment income, net | 101,287 | 183,693 | 338,698 | 84.4 | % | 81.4 | % | |||||||||||||
Foreign exchange gains (losses), net | (13,906 | ) | (13,426 | ) | (151,197 | ) | 1026.2 | % | (3.5 | )% | ||||||||||
Other operating revenue | 39,658 | 28,958 | 23,652 | (18.3 | )% | (27.0 | )% | |||||||||||||
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Trading and investment, foreign exchange gains and other operating income | 127,039 | 199,225 | 211,153 | 6.0 | % | 56.8 | % | |||||||||||||
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2015 Compared to 2014:
For the year ended December 31, | % Change from 2016/2015 | |||||||||||
2015 | 2016 | |||||||||||
(in millions of constant Ch$ as of December 31, 2015 except for percentages) | ||||||||||||
Trading and investment income, net | (33,182 | ) | 112,952 | (440.4 | )% | |||||||
Foreign exchange gains (losses), net | 74,461 | (48,848 | ) | (165.6 | )% | |||||||
Other operating revenue | 8,761 | 19,447 | 122.0 | % | ||||||||
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Trading and investment, foreign exchange gains and other operating income | 50,040 | 83,551 | 67.0 | % | ||||||||
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In the year ended December 31, 2015,2016, trading and investment, foreign exchange gains and other net operating income increased by 6.0%67.0% to Ch$211,15383,551 million from Ch$199,22550,040 million in 2014.2015. This increase was mainly the result of (i) a higher valuationthe consolidation of our forwardformer Corpbanca and swap portfolio, drivenformer Banco Itaú Chile from April 1, 2016, partially compensated by foreign exchange hedges, (ii) increasinglower commercial activity of our distribution desk both in derivatives transactions with customers and in regular loan portfolio sales, and (iii) the devaluation of the Chilean peso against the U.S. dollar over our hedge taxes in US$.
2014 compared to 2013:
In the year ended December 31, 2014, trading and investment, foreign exchange gains and other net operating income increased by 56.8% to Ch$199,225 million. This 56.8% increase was mainly due to an increase of 81.4% in trading and investment income (net) that was partially offset by a decrease of 3.5% in foreign exchange results and a decrease of 27.0% in our other operating income.
Trading and investment income net of foreign exchange gains (net) results benefited from (i) higher than expected inflation rate in Chile, which increased our revenues obtained from managing the gap between assets and liabilities indexed to UF. In Chile, the balance sheet of banks typically reflects more assets than liabilities indexed to UF, thereby creating a gap between those assets and liabilities. As there is a permanent UF variation increase in Chile, the managing of this gap benefits the banking industry, (ii) increased client-driven financial derivative activity, in the context of the appreciation of the U.S. Dollar against the Chilean Peso and the Colombian Peso, and (iii) the consolidation of Helm Bank for a full calendar year.
Other operating income decreased by 27.0% in 2014 compared to 2013 due to one-time revenue from the sale of 31 real estate properties in 2013.sales.
Operating Expenses
The following table sets forth the components of our operating expenses for the years ended December 31, 2013, 20142015 and 2015:2016:
For the year ended December 31, | % Change from 2015/2016 | % Change from 2014/2013 | ||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||
(in millions of constant Ch$ except for percentages) | ||||||||||||||||||||
Personnel salary and expenses | 165,009 | 219,312 | 202,754 | (7.5 | )% | 32.9 | % | |||||||||||||
Administration expenses | 139,614 | 213,140 | 211,603 | (0.7 | )% | 52.7 | % | |||||||||||||
Depreciation and amortization | 42,288 | 51,613 | 42,905 | (16.9 | )% | 22.1 | % | |||||||||||||
Impairment | — | 1,308 | 332 | (74.6 | )% | — | ||||||||||||||
Other operating expenses | 15,234 | 24,299 | 23,195 | (4.5 | )% | 59.5 | % | |||||||||||||
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Total operating expenses | 362,145 | 509,672 | 480,789 | (5.7 | )% | 40.7 | % | |||||||||||||
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2015 Compared to 2014:
For the year ended December 31, | % Change from 2016/2015 | |||||||||||
2015 | 2016 | |||||||||||
(in millions of constant Ch$ except for percentages) | ||||||||||||
Personnel salary and expenses | 86,711 | 245,665 | 183.3 | % | ||||||||
Administration expenses | 66,831 | 235,204 | 251.9 | % | ||||||||
Depreciation and amortization | 9,785 | 63,692 | 550.9 | % | ||||||||
Impairment | — | 351 | — | |||||||||
Other operating expenses | 15,133 | 71,715 | 373.9 | % | ||||||||
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Total operating expenses | 178,460 | 616,627 | 245.5 | % | ||||||||
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Operating expenses decreasedincreased by 5.7%245.5% to Ch$480,789616,627 million for the year ended December 31, 2016 from Ch$178,460 million for the year ended December 31, 2015. This increase was primarily the result of the consolidation of former Corpbanca and former Banco Itaú Chile from April 1, 2016. In addition, our operating expenses were impacted by (i) the integration process, which generated increased severance indemnities with the reduction of 715 employees from overlapping functions between the merged banks; (ii) higher administration expenses from third-party services, such as consultancy; (iii) office rental charges, as we start to move to new corporate headquarters; and (iv) higher amortization of intangible asset expenses, as a consequence of the recognition of intangible assets from the business combination.
Income Taxes
Our income tax for the year ended December 31, 2016 was Ch$3,568 million compared to an expense of Ch$17,263 million for the year ended December 31, 2015. This change is mostly explained by (i) the reduction in income before income taxes, from a Ch$123,029 million for the year ended December 31, 2015 fromto a loss before income taxes of Ch$509,67210,905 million for the year ended December 31, 2014. The improvement is primarily the result of synergies already delivered in Colombia and the absence of one-time expenses related to the merger process between CorpBanca Colombia and Helm Bank.
Regarding the expenses related to the merger process with Banco Itaú Chile, in 2015 we totalled Ch$21.8 billion in pre-merger expenses compared to Ch$22.2 billion in 2014.
2014 Compared to 2013:
Operating expenses increased by 40.7% to Ch$509,672 million for the year ended December 31, 2014 from Ch$362,145 million for the year ended December 31, 2013. The increase in operating expenses was the result of (i) the incorporation of Helm Bank for a full year in 2014 including one-time costs related to the merger between CorpBanca Colombia and Helm Bank, (ii) higher bonus provisions and salaries as a result of both Chilean inflation, as well as a result of collective bargaining negotiations concluded in Chile during 2014, (iii) higher insurance premiums, and (iv) higher rent expenses which resulted from the consummation in 2013 of sale-leaseback transactions relating to 31 of our formerly-owned real estate properties, and (v) advisory services and associated fees related to the pending merger between Itaú Chile and CorpBanca.
Income Taxes
2015 Compared to 2014:
Our income tax expenses increased to Ch$96,677 million for the year ended December 31, 2015 from Ch$82,853 million for the year ended December 31, 2014. This 16.7% increase is due to higher tax rates, both in Chile and Colombia, and depreciation of the Colombian Peso relative to the Chilean Peso that resulted in higher tax expense from our investment in Colombia -which despite of been made in COP$, for tax purposes is considered to be in US dollars3- this impact is offset by the gains on the fiscal hedge as previously mentioned.
2014 Compared to 2013:
Our income tax expenses increased to Ch$82,853 million for the year ended December 31, 2014 from Ch$64,491 million for the year ended December 31, 2013. This increase was mainly due to a combination of our higher income before taxes that we experienced in 2014, combined with a higher tax rate in Chile. As described below and in “Item 4—Information on the Company—B. Business Overview—Recent Regulatory Developments in Chile”, the governments of Chile and Colombia have recently adopted changes to their respective tax codes that will result in an increased marginal tax rate for us and certain of our subsidiaries.
In September 2014, Chile enacted Law 20,780, which amended the Chilean income tax system, increasing rates applicable to us, in order to increase revenue collection to finance education reform, to make the Chilean tax system more equitable, and to simplify the previously existing tax system. As described in “Item 4—Information on the Company—B. Business Overview—Recent Regulatory Developments in Chile”, one of the most important changes introduced by the Tax Reform is the creation of two separate taxation systems in the Chilean Income Tax Law: the attributed income system and the semi-integrated system. The law also provides gradual increases in the corporate income tax rate from 20% in 2013 to 21% in 2014, 22.5% in 2015, 24% in 2016 and 25% or 27% in 2018 depending on(ii) the tax system chosen by the applicable taxpayer. The impactconsolidation of this rate change on deferred taxes resulted in a credit toCorpbanca’s Colombian operation into our profit for the year ended December 31, 2014 of Ch$369 million.financial statements.
Additionally, in December 2014, Colombia enacted an amendment to the Colombian tax laws through Law 1,739. Among the more important modifications introduced by the Colombian tax reform was a gradual and transitory increase in income taxes between 2015 and 2018. This modification will raise the income tax rate in Colombia from 34%, in effect for fiscal year 2014, to 39%
in 2015, 40% in 2016, 42% in 2017 and 43% in 2018. It will return to 34% in 2019 and beyond. The impact of this rate change on deferred taxes resulted in a charge to profit for the period of Ch$890 million (credit of Ch$82 million in 2013 for the effect of the tax reform in Law 1,607 on December 26, 2012).
Results of our operating segmentsOur Operating Segments
The following discussion should be read in conjunction with our consolidated financial statements, especially Note 4 regarding segment information included elsewhere in this annual report. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from these discussed in forward-looking statements as a result of various factors, including those set in forth in “Cautionary Statement Regarding Forward-Looking Statements” and “Item 3D. Risk Factors”.Factors.”
Overview
WeReported segments are determined based on our operating segments: Chile—which includes our New York Branch—and Colombia. Each of Chile and Colombia mainly differentiates by the risks and returns that affect them in their own markets. Reported segments are in accordance with IFRS 8 “Operating Segments.”
The segments presented in this Annual Report correspond to the segments used by the bank after the Merger. Information for 2015, referring to former Banco Itaú Chile’s historical information, is presented using the same segmenting criteria. However, the results for the years ended December 31, 2015 and 2016 are not comparable because of the Merger. See “Item 3. Key Information—Presentation of Financial and Other Information.”
Chile. The bank’s commercial activities in Chile have seven segments: (i) Large,been strategically aligned in four commercial areas directly related to the needs of its clients and the bank’s strategy:
Commercial Banking:
This area includes Corporate andBanking, Real Estate Companies, (ii) Companies, (iii) Traditional and PrivateConstruction Banking, (iv) Lower Income Retailand Large Companies.
Corporate Banking (v) Treasury and International, (vi) Financial Services Offered Through Subsidiaries and (vii) Colombia. Below we describe our seven primary operating segments:
Commercial Banking:
Retail BankingBanking::
Traditional Banking (composed of natural persons) and Private Banking (composed of small and medium-size companies with sales of less than US$3 million) serve medium- and high-income clients offering, among other products,others, checking accounts, consumer loans, credit cards and mortgage loans.
Consumer Finance (Banco Condell) offers consumer loans to middleindividuals with income up to Ch$600,000 (this group arose from the combination of former Banco Itaú Chile and upper income customers.
former Corpbanca).
Treasury and International:Treasury:
Other Financial Services Offered Through Subsidiaries:Services:
Colombia:The bank’s commercial activities in Colombia are carried out by Banco Corpbanca Colombia S.A. and its subsidiaries. The operations and businesses carried out by these entities in that country are related to the needs of their clients and the bank’s strategy.
Through its different subsidiaries, Banco Corpbanca Colombia S.A. offers additional products and other financial services rendered by CorpBanca Colombia, Helm Bankto achieve a comprehensive service for its current and their respective subsidiaries, primarily within the Colombian domestic market, including commercial and retail banking services.
Year endedEnded December 31, 2015 Results
The following table presents summary information related to each of our operating segments for the year ended December 31, 2015:
For the Period Ending December 31, 2015 | As of December 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||
Commercial Banking | Retail Banking | Chile | Colombia | Total | ||||||||||||||||||||||||||||||||||||||||
Large, Corporate and Real Estate Companies | Companies | Traditional and Private Banking | Lower Income Retail Banking | Treasury and International | Non- banking Financial Services | Colombia | Total | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||||||||||
Net Interest income | 59,669 | 77,694 | 75,109 | 25,907 | 80,228 | 25,772 | 276,200 | 620,579 | ||||||||||||||||||||||||||||||||||||
Net interest income | 223,290 | — | 223,290 | |||||||||||||||||||||||||||||||||||||||||
Net services fees income | 44,454 | 16,436 | 32,479 | 7,119 | (572 | ) | (3,650 | ) | 56,581 | 152,847 | 71,088 | — | 71,088 | |||||||||||||||||||||||||||||||
Trading and investment income, net | 4,291 | — | 17,210 | — | 77,585 | 154,272 | 85,340 | 338,698 | (33,182 | ) | — | (33,182 | ) | |||||||||||||||||||||||||||||||
Foreign exchange gains (losses), net | 31,265 | 7,967 | 162 | — | (3,623 | ) | (206,251 | ) | 19,283 | (151,197 | ) | 74,461 | — | 74,461 | ||||||||||||||||||||||||||||||
Other operating income | — | 2,889 | 20 | — | — | 6,935 | 13,808 | 23,652 | 8,761 | — | 8,761 | |||||||||||||||||||||||||||||||||
Provision for loan losses | (2,981 | ) | (12,792 | ) | (10,497 | ) | (5,775 | ) | — | (10,796 | ) | (126,907 | ) | (169,748 | ) | (42,929 | ) | — | (42,929 | ) | ||||||||||||||||||||||||
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Gross Operational Margin | 136,698 | 92,194 | 114,483 | 27,251 | 153,618 | (33,718 | ) | 324,305 | 814,831 | |||||||||||||||||||||||||||||||||||
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Total operating income, net of provision for loan losses, interest and fees | 301,489 | — | 301,489 | |||||||||||||||||||||||||||||||||||||||||
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Other income and expenses | — | — | — | — | — | 230 | 1,070 | 1,300 | — | — | — | |||||||||||||||||||||||||||||||||
Total Operating Expenses | (22,101 | ) | (35,000 | ) | (63,477 | ) | (17,305 | ) | (13,400 | ) | (105,817 | ) | (223,689 | ) | (480,789 | ) | ||||||||||||||||||||||||||||
Total operating expenses | (178,460 | ) | — | (178,460 | ) | |||||||||||||||||||||||||||||||||||||||
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Income before taxes | 114,597 | 57,194 | 51,006 | 9,946 | 140,218 | (139,305 | ) | 101,686 | 335,342 | 123,029 | — | 123,029 | ||||||||||||||||||||||||||||||||
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Income (loss) taxes | (17,263 | ) | — | (17,263 | ) | |||||||||||||||||||||||||||||||||||||||
Income from continuing operations | 105,766 | — | 105,766 | |||||||||||||||||||||||||||||||||||||||||
Income (loss) discontinued operations | — | — | — | |||||||||||||||||||||||||||||||||||||||||
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Averages Loans | 3,919,595 | 2,107,206 | 2,994,312 | 171,186 | 95,284 | 23,177 | 5,311,468 | 14,622,229 | ||||||||||||||||||||||||||||||||||||
Averages Investments | — | — | — | — | 569,839 | — | 1,220,340 | 1,790,179 | ||||||||||||||||||||||||||||||||||||
Net income for the period | 105,766 | — | 105,766 | |||||||||||||||||||||||||||||||||||||||||
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Average loans | 6,410,592 | — | 6,410,592 | |||||||||||||||||||||||||||||||||||||||||
Average investments | 496,220 | — | 496,220 |
Year endedEnded December 31, 20142016 Results
The following table presents summary information related to each of our operating segments for the year ended December 31, 2014:2016:
As of December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||
Commercial Banking | Retail Banking | As of December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||
Large Corporate and Real Estate Companies | Companies | Traditional and Private Banking | Lower Income Retail Banking | Treasury and International | Non- Banking Financial Services | Colombia | Total | Chile | Colombia | Total | ||||||||||||||||||||||||||||||||||
(in million of Ch$) | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||||||
Net interest income | 53,014 | 75,295 | 73,935 | 25,528 | 94,736 | 18,263 | 290,113 | 630,884 | 459,705 | 179,470 | 639,175 | |||||||||||||||||||||||||||||||||
Net services fees income | 40,097 | 15,399 | 27,971 | 7,880 | (255 | ) | (1,653 | ) | 72,151 | 161,590 | 112,147 | 38,649 | 150,796 | |||||||||||||||||||||||||||||||
Trading and investment income, net | (569 | ) | — | 16,144 | — | 27,388 | 88,815 | 51,915 | 183,693 | 38,642 | 74,310 | 112,952 | ||||||||||||||||||||||||||||||||
Foreign exchange gains (losses), net | 20,189 | 5,974 | 888 | 2 | 12,767 | (120,645 | ) | 67,399 | (13,426 | ) | (26,744 | ) | (22,104 | ) | (48,848 | ) | ||||||||||||||||||||||||||||
Other operating income | — | 3,025 | 13 | — | — | 6,514 | 19,406 | 28,958 | 9,058 | 10,389 | 19,447 | |||||||||||||||||||||||||||||||||
Provision for loan losses | (1,643 | ) | (16,101 | ) | (11,718 | ) | (6,549 | ) | — | (1,161 | ) | (90,100 | ) | (127,272 | ) | (146,812 | ) | (99,178 | ) | (245,990 | ) | |||||||||||||||||||||||
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Gross operational margin | 111,088 | 83,592 | 107,233 | 26,861 | 134,636 | (9,867 | ) | 410,884 | 864,427 | |||||||||||||||||||||||||||||||||||
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Total operating income, net of provision for loan losses, interest and fees | 445,996 | 181,536 | 627,532 | |||||||||||||||||||||||||||||||||||||||||
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Other income and expenses | 6,357 | — | — | — | — | (6,164 | ) | 1,606 | 1,799 | — | — | — | ||||||||||||||||||||||||||||||||
Total operating expenses | (19,745 | ) | (36,004 | ) | (65,669 | ) | (17,136 | ) | (13,807 | ) | (100,937 | ) | (256,374 | ) | (509,672 | ) | (437,670 | ) | (178,957 | ) | (616,627 | ) | ||||||||||||||||||||||
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Income before taxes | 97,700 | 47,588 | 41,564 | 9,725 | 120,829 | (116,968 | ) | 156,116 | 356,554 | 8,326 | 2,579 | 10,905 | ||||||||||||||||||||||||||||||||
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Income (loss) taxes | (84 | ) | 3,652 | 3,568 | ||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | 8,242 | 6,231 | 14,473 | |||||||||||||||||||||||||||||||||||||||||
Income (loss) discontinued operations | (504 | ) | — | (504 | ) | |||||||||||||||||||||||||||||||||||||||
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Net income for the period | 7,738 | 6,231 | 13,969 | |||||||||||||||||||||||||||||||||||||||||
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Average loans | 3,791,937 | 1,778,057 | 2,414,564 | 154,955 | 63,622 | 153 | 5,692,217 | 13,895,505 | 12,645,761 | 5,156,124 | 17,801,885 | |||||||||||||||||||||||||||||||||
Average investments | — | — | — | — | 636,437 | — | 524,977 | 1,161,414 | 830,584 | 1,142,595 | 1,973,179 | |||||||||||||||||||||||||||||||||
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Year ended December 31, 2013 Results
The following table presents summary information related to each of our reportable segments for the year ended December 31, 2013:
As of December 31, 2013 | ||||||||||||||||||||||||||||||||
Commercial Banking | Retail Banking | |||||||||||||||||||||||||||||||
Large Corporate and Real Estate Companies | Companies | Traditional and Private Banking | Lower Income Retail Banking | Treasury and International | Non- Banking Financial Services | Colombia | Total | |||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||
Net interest income | 50,436 | 69,128 | 65,535 | 22,126 | 21,612 | 32,529 | 196,324 | 457,690 | ||||||||||||||||||||||||
Net services fees income | 36,701 | 14,390 | 21,413 | 8,976 | (442 | ) | (8,033 | ) | 44,972 | 117,977 | ||||||||||||||||||||||
Trading and investment income, net | (1,658 | ) | — | 3,294 | — | 48,851 | 8,681 | 42,119 | 101,287 | |||||||||||||||||||||||
Foreign exchange gains (losses), net | 14,153 | 5,988 | 389 | 2 | (50,115 | ) | 1,778 | 13,899 | (13,906 | ) | ||||||||||||||||||||||
Other operating income | — | 2,450 | — | — | — | 29,413 | 7,795 | 39,658 | ||||||||||||||||||||||||
Provision for loan losses | (20,544 | ) | (21,240 | ) | (8,099 | ) | (6,238 | ) | — | 903 | (46,854 | ) | (102,072 | ) | ||||||||||||||||||
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Gross operational margin | 79,088 | 70,716 | 82,532 | 24,866 | 19,906 | 65,271 | 258,255 | 600,634 | ||||||||||||||||||||||||
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Other income and expenses | — | — | — | — | — | 493 | 748 | 1,241 | ||||||||||||||||||||||||
Total operating expenses | (15,926 | ) | (28,450 | ) | (63,247 | ) | (17,358 | ) | (11,744 | ) | (52,445 | ) | (172,975 | ) | (362,145 | ) | ||||||||||||||||
Income before taxes | 63,162 | 42,266 | 19,285 | 7,508 | 8,162 | 13,319 | 86,028 | 239,730 | ||||||||||||||||||||||||
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Average loans | 3,843,701 | 1,787,761 | 2,427,743 | 155,801 | 63,969 | 154 | 3,226,817 | 11,505,946 | ||||||||||||||||||||||||
Average investments | — | — | — | — | 622,551 | — | 295,079 | 917,630 | ||||||||||||||||||||||||
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B. LIQUIDITY AND CAPITAL RESOURCES
We maintain adequate liquidity to ensure our ability to honor withdrawals of deposits, make repayments of other liabilities at maturity, extend loans and meet our own working capital requirements.
Sources of Liquidity
Our funding strategy aims for diversification by counterparties and maturities, both in the domestic and foreign markets. We are permanently monitoring the main vulnerability factors that could affect our current and potential capacity to obtain funding. Our objective is to ensure a diversified funding base by tenors within a risk appetite framework and cost structure. Stable and diversified financing is obtained through different sources by types of providers, products and markets. In this way, we have generated robust liquidity levels to face potential liquidity stress scenarios.
Regarding mismatches, our Assets and Liabilities Committee (ALCO) defines the limitation framework. Within this framework, each unit manages term mismatches. Once the ALCO has set the limits of term mismatches, they are confirmed by our board of directors.
From a liquidity point of view, the ALCO also proposes to the board of directors the liquidity reserves that each unit must maintain and manage. The determination of these limits depends, upon our (i) capital, (ii)among other things, on the maturity structure for the next 30 days, on the type of customers holding short-term deposits and on-demand deposits and on other obligations we maintain. The ALCO also defines the type of eligible instruments to be considered liquidity reserves, and (iii) financial investments, including investments in government securities and other financial institutions. To cover anyit periodically monitors the liquidity shortfalls and to enhance our liquidity position, we have access to Central Bank of Chile and Central Bank of Colombia borrowings. As part of our liquidity policy, we maintainlevels maintained at all times a diversified portfoliotime. The compliance of cash and highly liquid assets that can be quickly monetized, including financial investments and Central Bankthe entire structure of limits is monitored daily by our Market Risk department.
For our operations in Chile, Central Bank of Colombia and government securities.
While we continue to use all available sources of funding as we believe appropriate, we continue to emphasize the increase of deposits from retail customers as a source of liquidity. These deposits include checking accounts that do not bear interest and accordingly represent an inexpensivemain source of funding for us. In addition, to the extent that theseare deposits provided by three major types of deposits represent a larger percentageclients: (i) institutional investors; (ii) large corporations; and (iii) retail clients.
For short-term funding (less than one year), we usually issue deposits. Interest rates granted to clients consider characteristics of ourstability of the funding base, the percentage represented by time deposits is expected to decreasetype of customer and accordingly, we believe that the risks to our business of uncertainties relating to rolling over deposits will be diminished.
In 2008, we placed UF 5,330,000 in 25 year subordinated bonds to be used to finance our normal business activities and improve our balance sheet structure. In 2009, we placed UF 4,670,000 in 26 year subordinated bondsterms associated with the same purpose, taking advantageoperation.
If the funding requirements are longer than one year, we may also carry out other operations such as bilateral credits with correspondent banks, syndicated loans with foreign banks, and the issuance of favorable market conditions. On July 29, 2010, we entered into a US$167.5 million senior unsecured syndicated term loan facility with BNP Paribas, as Administrative Agent,bonds in both the local and BNP Paribas Securities Corp., Citigroup Global Markets Inc., Commerzbank Aktiengesellschaft, Standard Chartered Bank and Wells Fargo Securities, LLC, as lead arrangers and book-runners. foreign markets.
The proceedschoice of one or the other of the loan wereaforementioned options will depend, among other factors, on the tenor, the specific price conditions and the amount. In general, in transactions between one and three years, bilateral credits are used mainly to fund our lending activitieswith correspondent banks and for general corporate purposes. On July 24, 2012,syndicated loans. For operations exceeding these terms, we entered into a US$199.4 million two-year senior unsecured term syndicated loan facility with Standard Chartered Bank, HSBC Securities (USA) Inc.access the capital markets through bonds. The price conditions and Wells Fargo Securities, LLC, as mandated lead arrangers and book-runners. This loan was amended and restated:(a) on July 22, 2014 to increase the size of the loantransaction will determine if the issuance will be carried out in the domestic or in the foreign market.
On the other hand, our funding strategy considers not having currency mismatches and, therefore, for operations carried out in foreign markets to US$490 million andfinance operations in local currency, derivatives are used to extendtransform the termforeign currency into local currency. Any mismatch of the loan by an additional fifteen months period; and(b) on September 23, 2015 to reflect a partial prepayment and to extend the term of the loan. Consequently, the loan, for an aggregate principal amount of up to US$ 315,000,000 shall maturecurrencies presented on the earlier of April 14, 2017 or the date of any acceleration of maturity pursuant to the terms of the same.balance sheet is measured in our currency risk reports that are daily calculated.
On January 16, 2013, we issued US$800 million aggregate principal amount of 3.125% Senior Notes due 2018Within this context, in an SEC registered transaction. The net proceeds of this offering were used for general corporate purposes, primarily to fund lending activities. On September 22, 2014, we issued US$750 million aggregate principal amount of 3.875% Senior Notes due 2019, in accordance with
Rule 144A and Regulation S under the U.S. Securities Act of 1933. The net proceeds of this offering were used for general corporate purposes, primarily to fund lending activities.
In addition, our Colombian operations manage their own funding costs in Colombian pesos, therefore they are not dependant on CorpBanca for their funding needs. As of December 31, 2015, we do not foresee a need to separately fund our Colombian operations with our capital, reserves or financial investments, including investments in government securities and other financial institutions. On December 31, 2013 CorpBanca Colombia entered into a Note Purchase Agreement with the IFC, a member of the World Bank Group, and the IFC Capitalization (Subordinated Debt) Fund L.P., a Delaware Limited Partnership managed by the IFC Asset Management Company (collectively, the IFC Parties), by means of which CorpBanca Colombia issued bonds for an amount of US$170,000,000.00 at a variable interest rate, maturing on March 15, 2024, and the IFC Parties subscribed and paid in full the purchase price for the bonds pursuant to the terms and conditions stated therein. In addition, on March 2, 2016 CorpBanca Colombia placed bonds in the Colombian local market totaling COP$300,000 million at a tenor of 2 years and 1 year.
On August 1, 2010, we implemented a local bond program for a maximum amount of UF150 million at any time outstanding. Under the local bond program, we are able to issue two types of bonds: (i) senior bonds, up to an aggregate amount of UF100 million, which can be divided into 28 series of senior bonds (from AB to AZ and from BA to BC), with a maturity ranging from 3 to 30 years and an interest rate of 3%, and (ii) subordinated bonds, up to an aggregate amount of UF50 million, which can be divided into 16 series (from BD to BS), with a maturity ranging from 20 to 35 years and an interest rate of 4%. For all the series of bonds that could be issued under the local bond program, the amortization of capital will be made in full at maturity. The principal owed in connection with outstanding senior and subordinated bonds is due at maturity and interest relating thereto is due bi-annually. The objective of the local bond program is to structure the future issuances of debt of CorpBanca in a way that provides for diverse alternatives of placements in order to manage efficiently its outstanding indebtedness. Under the local bond program, in 2010, we issued bonds in the local markets and also financed operations in the external market. The funds we have raised allowed us to increase our liquidity reserves and refinance maturities.
Among the most noteworthy milestones are the following issuances in the Chilean market both in UF and CLP:
Ticker | Currency | Total amount issued | Bonus maturity | Weighted average interest rate of the issuances | ||||||||||
BCORBX0914 | CLP | 43,000,000,000 | 01.SEP.2021 | 5.28 | % | |||||||||
BCORCA0914 | CLP | 100,000,000,000 | 01.SEP.2024 | 5.34 | % | |||||||||
BCORAL0710 | UF | 4,000,000 | 01.JUL.2023 | UF + 2.40 | % | |||||||||
BCORAN0710 | UF | 6,500,000 | 01.JUL.2025 | UF + 2.58 | % | |||||||||
BCORAO0710 | UF | 8,500,000 | 01.JUL.2026 | UF + 2.65 | % |
As for our New York Branch, 2016 was a transition year. The institutional funding structure was modified. Our interbank funding increased its relevance within our funding structure and our Yankee CD program remained stable. At the same time, we increased the average term of these liabilities, maintaining a competitive cost structure. On the other hand, our New York branch obtained a higher yield on our cash reserves through the Federal Reserve hike of interest rates. We also increased our transactional customers’ deposits, maintaining our focus on sight balances and time deposits in New York. With this strategy we focused on those customers that deliver a greater return. We also continued to grow in the amountPeruvian market, which became the most important country for institutional funding in 2016.
Likewise, our Colombian subsidiary obtains its financing through the institutional market (Instituciones Financieras or IFIs) with a penetration close to 48% including bonds, wholesale banking with 30% and retail banking with 22%. The IFIs’ deposits are mainly concentrated in the period with 93%, while the liabilities of UF18.8 million (Ch$403,364 million). the wholesale and retail banking are concentrated 52% in interest-bearing sight deposits and 12% in non-interest-bearing sight deposits.
In addition on October 29, 2012 and October 31, 2012, we issued subordinated bondsto the factors permanently evaluated for the selection of our sources of funding according to our guidelines, liquidity management in Colombia includes market particularities such as levels of market concentration, the level of participation of individuals in the local Chilean marketbanking industry, and participation of the Central Government in the aggregate amountliquidity of UF6.6 million (Ch$149,779 million).the system, among others.
In line with our goalDuring the last six months of asset and liability management and growth, during 2015 we issued Ch$46,720 million and UF 5.05 million in senior local bonds. As2016, Corpbanca Colombia made adjustments to increase structural sources of December 31, 2015 we had outstanding senior bondsfunds through a decrease in the aggregate amountconcentration of Ch$2,215,515 million (UF 86.45 million)sight deposits and outstanding subordinated bondsan increase in the aggregate amountduration of Ch$932,278 million (UF 36.38 million).
On December 1, 2015 we entered intodeposits of IFIs. As part of this plan, the internationalization process was initiated through the structuring of a bilateral credit facility for an aggregate principal amountsyndicated loan with expected disbursement in March 2017. In the Panamanian unit, due to the limitations of US$50,000,000 with Bankthe international license, the sources of America, N.A. The credit agreement is subjectfunding come exclusively from individuals and institutions who are not nationals or residents in Panama. Sight deposits are mainly related to termsforeign trade operations (legal entities) and conditions common for this typeterm deposits (individuals). Higher liquidity reserves are maintained due to the limitation of transactionsalternative sources of resources and shall mature on December 4, 2017.
Asthe degree of December 31, 2015, we maintained a reserve in liquid assets (mainly consistingnatural concentration of securities issued by the Central Banksources of Chile and Treasury Bonds of Colombia’s Government) of Ch$ 2,270,160 million. In addition, as of December 31, 2015, we maintained sufficient levels of cash and deposits in banks in the amount of Ch$1,004,757 million to satisfy our wholesale short-term obligations in the amount of Ch$1,404,312 million.funding.
We continue to actively manage our liquidity through several committees that meet on a daily and weekly basis, as applicable. Our financial risk department also coordinates with management to forecast and manage complex liquidity scenarios.
Capital
As of December 31, 2015,2016, our shareholder’sshareholders’ equity was in excess of that required by Chilean regulatory requirements. According to the Chilean General Banking Act, a bank must have an effective net equity of at least 8% of its risk-weighted assets, net of required reserves, and paid-in capital and reserves (basic capital) of at least 3% of its total assets, net of required reserves. Nevertheless when approving the Merger, the SBIF required that Itaú Corpbanca must have an effective net equity of at least 10% of its risk-weighted assets, net of required reserves.
For these purposes, the effective net equity of a bank is the sum of (i) a bank’s basic capital, (ii) subordinated bonds issued by a bank valued at their placement price up to 50% of its net capital base; provided that the value of the bonds shall decrease 20% for each year that lapses during the period commencing six years prior to their maturity and (iii) voluntary loan loss allowances in an amount up to 1.25% of a bank’s risk-weighted assets (if a bank has goodwill, this value would be required to be deducted from the calculation of the effective net equity). The calculation of the effective net equity does not include the capital contributions made to subsidiaries of a bank and is made on a consolidated basis rather than on an unconsolidated basis. For purposes of weighing the risk of a bank’s assets, the Chilean General Banking Act considers the following five different categories of assets based on the nature of the issuer, availability of funds, nature of the assets and existence of collateral securing such assets:
Category | Weighting | |
1 | 0% | |
2 | 10% | |
3 | 20% | |
4 | 60% | |
5 | 100% |
Basic capital is defined as a bank’s paid-in capital and reserves and is similar to Tier 1 capital, except that it generally does not include net income for the period. However, beginning in 2008, the SBIF allowed banks to include net income for the period as basic capital, net of a 30% deduction for minimum dividends accrued.deduct goodwill nor intangible assets.
Reserves
Under the Chilean General Banking Act, a bank must have a minimum paid-in capital and reserves of UF 800,000 (Ch$20,503.321,078.4 million or US$28.931.5 million as of December 31, 2015)2016). However, a bank may begin its operations with 50% of such amount, provided that it has a total capital ratio (defined as effective net equity as a percentage of risk weighted assets) of not less than 12%. When such bank’s paid-in capital reaches UF600,000 (Ch$15,377.515,808.8 million or US$21.723.6 million as of December 31, 2015)2016) the total capital ratio required is reduced to 10%.
The following table sets forth our minimum capital requirements as of the dates indicated. See Note 3534 to our consolidated financial statements included herein for a description of the minimum capital requirements.
As of December 31, | As of December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
(in million of constant Ch$ except for percentages) | (in millions of constant Ch$ except for percentages) | |||||||||||||||||||
Net capital base | 1,411,341 | 1,443,427 | 1,183,723 | 792,503 | 3,173,516 | |||||||||||||||
3% total assets net of provisions | (567,929 | ) | (667,775 | ) | (687,380 | ) | (293,014 | ) | (957,058 | ) | ||||||||||
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Excess over minimum required equity | 843,413 | 775,652 | 496,343 | 499,489 | 2,216,458 | |||||||||||||||
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Net capital base as a percentage of the total assets, net of provisions | 7.3 | % | 6.4 | % | 5.1 | % | 8.11 | % | 9.95 | % | ||||||||||
Effective net equity | 1,991,289 | 2,071,647 | 1,666,708 | 871,029 | 3,252,175 | |||||||||||||||
8% of the risk-weighted assets | (1,204,683 | ) | (1,337,231 | ) | (1,397,276 | ) | (587,087 | ) | (1,855,600 | ) | ||||||||||
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Excess over minimum required equity | 786,606 | 734,416 | 269,432 | 283,942 | 1,396,575 | |||||||||||||||
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Effective equity as a percentage of the risk-weighted assets | 13.2 | % | 12.4 | % | 9.5 | % | 11.9 | % | 14.0 | % |
Our capital ratiosratio levels decreasedincreased from 12.4%11.9% to 9.5%14.0% between 20142015 and 2015,2016, following the approval of the merger with Banco Itaú Chile, considering thatMerger. Our 2015 ratios were impacted because our shareholders, together with approving the merger,Merger, approved a special dividend distribution in the amount of Ch$239.86 billion that was paid on July 1, 2015.2015, equivalent to 100% of former Corpbanca’s retained earnings.
Financial Investments
The following tables set forth our investment in Chilean government and corporate securities and certain other financial investments as of December 31, 2013, 20142015 and 2015.2016. Financial investments are classified at the time of the purchase, based on management’s intentions, as either trading or investment instruments, the latter of which are categorized as available-for-sale or held to maturity.
As of December 31, | ||||||||
2015 | 2016 | |||||||
(in millions of Ch$) | ||||||||
Held-for-trading: | ||||||||
Chilean Central Bank and Government securities: | ||||||||
Chilean Central Bank bonds | 1,583 | 8,349 | ||||||
Chilean Central Bank notes | — | — | ||||||
Other Chilean Central Bank and Government securities | 4,828 | 17,855 | ||||||
Other National institution securities: | ||||||||
Bonds | — | 786 | ||||||
Notes | — | — | ||||||
Other securities | — | 12,608 | ||||||
Foreign institution securities: | ||||||||
Bonds | — | 547,499 | ||||||
Notes | — | — | ||||||
Other securities | — | 11,727 | ||||||
Mutual funds investments | ||||||||
Funds managed by related organizations | 11,354 | 33,733 | ||||||
Funds managed by third parties | — | — | ||||||
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Total | 17,765 | 632,557 | ||||||
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Held-for-trading: Chilean Central Bank and Government securities: Chilean Central Bank bonds Chilean Central Bank notes Other Chilean Central Bank and Government securities Other National institution securities: Bonds Notes Other securities Foreign institution securities: Bonds Notes Other securities Mutual funds investments Funds managed by related organizations Funds managed by third parties Total Available-for-sale Chilean Central Bank and Government securities Chilean Central Bank securities Chilean Treasury bonds Other Government securities Other financial instruments Promissory notes related to deposits in local banks Chilean mortgage finance bonds Chilean financial institutions bonds Other local investments Financial instruments issued abroad Foreign governments and central bank instruments Other foreign investments Impairment provision Unquoted securities in active markets Chilean corporate bonds Other investments Impairment provisions Total As of December 31, Held to maturity Chilean Central Bank and Government securities Chilean Central Bank securities Chilean Treasury bonds Other Government securities Other financial instruments Promissory notes related to deposits in local banks Chilean mortgage finance bonds Chilean financial institutions bonds Other local investments Financial instruments issued abroad Foreign governments and central bank instruments Other foreign investment Impairment provisions Unquoted securities in active markets Chilean corporate bonds Other investments Impairment provision Total Available-for-sale Chilean Central Bank and Government securities Chilean Central Bank securities Chilean Treasury bonds Other Government securities Other financial instruments Promissory notes related to deposits in local banks Chilean mortgage finance bonds Chilean financial institutions bonds Other local investments Financial instruments issued abroad Foreign governments and central bank instruments Other foreign investments Impairment provision Unquoted securities in active markets Chilean corporate bonds Other investments Impairment provisions Total Held to maturity Chilean Central Bank and Government securities Chilean Central Bank securities Chilean Treasury bonds Other Government securities Other financial instruments Promissory notes related to deposits in local banks Chilean mortgage finance bonds Chilean financial institutions bonds Other local investments Financial instruments issued abroad Foreign governments and central bank instruments Other foreign investments Impairment provision Unquoted securities in active markets Chilean corporate bonds Other investments Impairment provisions Total As of December 31, 2013 2014 2015 (in million of Ch$) 746 — — — — — 9,106 4,822 6,210 — 2,548 2,340 18,582 13,320 34,404 133 15 551 326,141 542,791 192,427 — — — 64,443 110,615 57,875 12,495 11,787 28,092 37 — 2,000 431,683 685,898 323,899 As of December 31, 2013 2014 2015 (in million of Ch$) 334,718 276,487 527,444 847 253,999 258,306 21,769 6,442 859 78,712 54,162 65,778 313 203 92 17,985 — 29,329 136,623 51,526 53,630 212,280 434,392 629,297 85,840 79,685 360,053 — — — — — — — — — — — — 889,087 1,156,896 1,924,788 2013 2014 2015 (in million of Ch$) — — — — — — — — — — — — — — — — — — 8,632 7,175 5,543 93,750 — — 135,140 183,502 164,648 — — — — — — — — — — — — 237,522 190,677 170,191 As of December 31, 2015 2016 (in millions of Ch$) 218,757 901,239 32,112 272,734 — — 31,193 397,898 — 76 230,448 2,607 — 32,230 — 284,444 — 162,882 — — — — 2,475 19,967 — — 514,985 2,074,077 As of December 31, 2015 2016 (in millions of Ch$) — — — — — — — — — — — — — — — 226,433 — — — — — — — — — — — 226,433
We do not hold securities of any issuer other than the Central Bank of Chile and the Colombian Ministry of Finance, in which the aggregate book value of which the investment exceeds 10% of our shareholders’ equity as of the end of the latest reported period.
The following table shows interest rates per annum applicable to certain Central Bank of Chile bonds as of the dates indicated:
As of the end of: | Peso- Denominated Five-year bond | Peso- Denominated Ten-year bond | UF- Denominated Five-year bond | UF- Denominated Ten-year bond | ||||||||||||
2013 | ||||||||||||||||
January | — | — | — | — | ||||||||||||
February | — | — | — | — | ||||||||||||
March | 5.12 | 5.51 | 2.50 | 2.55 | ||||||||||||
April | 5.12 | 5.24 | 2.45 | 2.43 | ||||||||||||
May | 5.08 | 5.11 | 2.36 | 2.36 | ||||||||||||
June | 5.15 | 5.22 | 2.18 | — | ||||||||||||
July | 5.12 | 5.22 | 2.18 | 2.24 | ||||||||||||
August | 5.03 | 5.19 | 2.15 | 2.23 | ||||||||||||
September | 5.07 | — | 2.12 | — | ||||||||||||
October | — | — | — | — | ||||||||||||
November | — | — | — | — | ||||||||||||
December | — | — | — | — | ||||||||||||
2014 | ||||||||||||||||
January | — | — | — | — | ||||||||||||
February | — | — | — | — | ||||||||||||
March | — | — | — | — | ||||||||||||
April | — | — | — | — | ||||||||||||
May | — | — | — | — | ||||||||||||
June | — | — | — | — | ||||||||||||
July | — | — | — | — | ||||||||||||
August | — | — | — | — | ||||||||||||
September | — | — | — | — | ||||||||||||
October | — | — | — | — | ||||||||||||
November | — | — | — | — | ||||||||||||
December | — | — | — | — | ||||||||||||
2015 | ||||||||||||||||
January | — | — | — | — | ||||||||||||
February | — | — | — | — | ||||||||||||
March | — | — | — | — | ||||||||||||
April | 4.29 | — | — | — | ||||||||||||
May | — | — | — | — | ||||||||||||
June | 4.11 | — | — | — | ||||||||||||
July | 4.02 | — | — | — | ||||||||||||
August | — | — | — | — | ||||||||||||
September | — | — | — | — | ||||||||||||
October | — | — | — | — | ||||||||||||
November | — | — | — | — | ||||||||||||
December | — | — | — | — |
As of the end of: | Peso- Denominated Five-Year Bond | Peso- Denominated Ten-Year Bond | UF- Denominated Five-Year Bond | UF- Denominated Ten-Year Bond | ||||||||||||
2015 | ||||||||||||||||
January | — | — | — | — | ||||||||||||
February | — | — | — | — | ||||||||||||
March | — | — | — | — | ||||||||||||
April | 4.29 | — | — | — | ||||||||||||
May | — | — | — | — | ||||||||||||
June | 4.11 | — | — | — | ||||||||||||
July | 4.02 | — | — | — | ||||||||||||
August | — | — | — | — | ||||||||||||
September | — | — | — | — | ||||||||||||
October | — | — | — | — | ||||||||||||
November | — | — | — | — | ||||||||||||
December | — | — | — | — | ||||||||||||
2016 | ||||||||||||||||
January | — | — | — | — | ||||||||||||
February | — | — | — | — | ||||||||||||
March | — | — | — | — | ||||||||||||
April | — | — | — | — | ||||||||||||
May | — | — | — | — | ||||||||||||
June | — | — | — | — | ||||||||||||
July | — | — | — | — | ||||||||||||
August | — | — | — | — | ||||||||||||
September | — | — | — | — | ||||||||||||
October | — | — | — | — | ||||||||||||
November | — | — | — | — | ||||||||||||
December | — | — | — | — |
Our total financial instruments as a percentage of total assets increased to 11.6%from 6.4% as of December 31, 2015 to 10.2% as of December 31, 2016 due to a 2.2%an increase of 459.9% in total assetsfinancial instruments as a consequence of an increasethe consolidation of our loan portfolio.former Corpbanca.
The following table sets forth an analysis of our investments, by time remaining to maturity and the weighted average nominal rates of such investments, as of December 31, 2015:2016:
Held-for-trading | In one year or less | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | ||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||||||||||||||||||
Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Chilean Central Bank notes | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Others Government securities | 6,210 | — | — | — | — | — | — | — | 6,210 | |||||||||||||||||||||||||||
Other national institution securities: | ||||||||||||||||||||||||||||||||||||
Bonds | 1,561 | — | — | — | — | — | 779 | 1.58 | 2,340 | |||||||||||||||||||||||||||
Notes | 34,404 | 0.11 | — | — | — | — | — | — | 34,404 | |||||||||||||||||||||||||||
Other securities | 551 | — | — | — | — | — | — | — | 551 | |||||||||||||||||||||||||||
Foreign institution securities: | ||||||||||||||||||||||||||||||||||||
Bonds | 211 | 0.01 | 21,076 | 0.07 | 102,804 | 0.06 | 68,336 | 0.07 | 192,427 | |||||||||||||||||||||||||||
Notes | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other securities | 46,708 | 0.04 | 8,978 | 0.03 | — | — | 2,189 | 0.06 | 57,875 | |||||||||||||||||||||||||||
Mutual fund investments: | ||||||||||||||||||||||||||||||||||||
Funds managed by related organizations | 21,954 | 1.00 | 6,138 | 0.072 | — | — | — | — | 28,092 | |||||||||||||||||||||||||||
Funds managed by third parties | 2,000 | 0.50 | — | — | — | — | — | — | 2,000 | |||||||||||||||||||||||||||
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Total Held—for—trading | 113,599 | 0.25 | 36,192 | 0.06 | 102,804 | 0.06 | 71,304 | 0.09 | 323,899 | |||||||||||||||||||||||||||
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Available—for—sale | In one year or less | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | ||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | 81,672 | 0.68 | 331,979 | 0.59 | 113,793 | 0.59 | — | — | 527,444 | |||||||||||||||||||||||||||
Chilean treasury bonds | 10,086 | 0.81 | 214,738 | 0.65 | 33,482 | 0.47 | — | — | 258,306 | |||||||||||||||||||||||||||
Others Government securities | 859 | 0.63 | — | — | — | — | — | — | 859 | |||||||||||||||||||||||||||
Other financial instruments: | ||||||||||||||||||||||||||||||||||||
Promissory notes related to deposits in local banks | 65,778 | 0.28 | — | — | — | — | — | — | 65,778 | |||||||||||||||||||||||||||
Chilean mortgage finance bonds | 16 | 1.01 | 44 | 1.04 | 31 | 0.91 | — | — | 92 | |||||||||||||||||||||||||||
Chilean financial institution bonds | — | — | 29,329 | 1.29 | — | — | — | — | 29,329 | |||||||||||||||||||||||||||
Other local investments | 5,843 | 1.25 | 14,480 | 1.29 | 33,252 | 1.23 | 56 | 0.92 | 53,630 | |||||||||||||||||||||||||||
Financial instruments issued abroad: | ||||||||||||||||||||||||||||||||||||
Foreign Government and central bank instruments | 132,086 | 0.05 | 340,439 | 0.05 | 117,231 | 0.05 | 39,541 | 0.05 | 629,297 | |||||||||||||||||||||||||||
Other foreign investments | 135,035 | 2.35 | 168,072 | 8.63 | 46,917 | 8.16 | 10,031 | 6.15 | 360,053 | |||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Unquoted securities in active markets | ||||||||||||||||||||||||||||||||||||
Chilean corporate bonds | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other foreign investments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
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Total | 431,375 | 0.22 | 1,099,080 | 0.37 | 344,706 | 0.38 | 49,628 | 0.04 | 1,924,788 | |||||||||||||||||||||||||||
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Held to maturity | Within one year | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | ||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Chilean treasury bonds | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other Government securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other financial instruments: | ||||||||||||||||||||||||||||||||||||
Promissory notes related to deposits in local banks | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Chilean mortgage finance bonds | — | — | — | — | — | — | — | — | — |
Held—for—trading | In one year or less | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | ||||||||||||||||||||||||||||
(in millions of Ch$, except for percentages) | ||||||||||||||||||||||||||||||||||||
Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | 1,066 | 1.6 | 482 | 5.4 | 4,846 | 4.2 | 1,955 | 4.5 | 8,349 | |||||||||||||||||||||||||||
Chilean Central Bank notes | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Others Government securities | 38 | 1.0 | 17,475 | 4.8 | 342 | 3.8 | — | — | 17,855 | |||||||||||||||||||||||||||
Other national institution securities: | ||||||||||||||||||||||||||||||||||||
Bonds | — | — | — | — | — | — | 786 | 4.3 | 786 | |||||||||||||||||||||||||||
Notes | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other securities | — | — | 12,608 | 0.3 | — | — | — | — | 12,608 | |||||||||||||||||||||||||||
Foreign institution securities: | ||||||||||||||||||||||||||||||||||||
Bonds | 255,311 | 7.5 | 230,597 | 6.5 | 49,216 | 6.1 | 12,375 | 6.4 | 547,499 | |||||||||||||||||||||||||||
Notes | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other securities | 2,992 | 7.4 | 3,683 | 4.7 | — | — | 5,052 | — | 11,727 | |||||||||||||||||||||||||||
Mutual fund investments: | ||||||||||||||||||||||||||||||||||||
Funds managed by related organizations | 33,733 | 9.6 | — | — | — | — | — | — | 33,733 | |||||||||||||||||||||||||||
Funds managed by third parties | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
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Total Held—for—trading | 293,140 | 7.7 | 264,845 | 6.0 | 54,404 | 5.9 | 20,168 | 4.5 | 632,557 | |||||||||||||||||||||||||||
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Held to maturity | Within one year | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Available—for—sale | In one year or less | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | (in millions of Ch$, except for percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | — | — | 901,239 | 3.2 | — | — | — | — | 901,239 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean treasury bonds | — | — | 216,488 | 2.8 | 53,038 | 2.4 | 3,208 | 2.4 | 272,734 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Others Government securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other financial instruments: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Promissory notes related to deposits in local banks | — | — | 397,898 | 0.4 | — | — | — | — | 397,898 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean mortgage finance bonds | — | — | 55 | 3.3 | 21 | 3.2 | — | — | 76 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean financial institution bonds | — | — | — | — | — | — | — | — | — | — | — | 2,607 | 1.9 | — | — | — | — | 2,607 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other local investments | 2,171 | 0.96 | 3,372 | 0.96 | — | — | — | — | 5,543 | — | — | 32,230 | 4.2 | — | — | — | — | 32,230 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial instruments issued abroad: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign government and central bank instruments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign Government and central bank instruments | 47,847 | 6.3 | 154,455 | 5.5 | 82,142 | 5.0 | — | — | 284,444 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other foreign investments | 149,932 | 1.01 | 8,968 | 0.05 | — | — | 5,748 | 0.05 | 164,648 | 92,574 | 6.9 | 64,096 | 12.8 | 6,212 | 11.3 | — | — | 162,882 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unquoted securities in active markets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chilean corporate bonds | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other investments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other foreign investments | 19,967 | — | — | — | — | — | — | — | 19,967 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 152,103 | 0.01 | 12,340 | 0.26 | — | — | 5,748 | — | 170,191 | 160,388 | 5.8 | 1,769,068 | 3.1 | 141,413 | 4.3 | 3,208 | 2.4 | 2,074,077 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Chilean Central Bank and Government securities: Chilean Central Bank securities Chilean treasury bonds Other Government securities Other financial instruments: Promissory notes related to deposits in local banks Chilean mortgage finance bonds Chilean financial institution bonds Other local investments Financial instruments issued abroad: Foreign government and central bank instruments Other foreign investments Impairment provision Unquoted securities in active markets Chilean corporate bonds Other investments Impairment provision Total Held to maturity Within one
year Weighted
average
Nominal
Rate After
one year
through
five years Weighted
average
Nominal
Rate After
five years
through
ten years Weighted
average
Nominal
Rate After ten
years Weighted
average
Nominal
Rate Total Ch$ % Ch$ % Ch$ % Ch$ % Ch$ (in millions of Ch$, except for percentages) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 209,408 5.4 16,791 7.7 234 4.1 — — 226,433 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 209,408 5.4 16,791 7.7 234 4.1 — — 226,433
Unused Sources of Liquidity
As part of our liquidity policy, we maintain at all times a diversified portfolio of highly liquid assets that can be quickly monetized, including cash, financial investments and Central Bank of Chile and other government securities.
Working Capital
The majority of our funding is derived from deposits and other borrowings from the public. In the opinion of management, our working capital is sufficient for our present needs.
Liquidity Management
We seek to ensure that, even under adverse conditions; we have access to the funds necessary to cover client needs, maturing liabilities and capital requirements. Liquidity risk arises in the general funding for our financing, trading and investment activities. It includes the risk of unexpected increases in the cost of funding the portfolio of assets at appropriate maturities and rates, the risk of being unable to liquidate a position in a timely manner at a reasonable price and the risk that we will be required to repay liabilities earlier than anticipated. See “Item 11. Quantitative and Qualitative Disclosures about Financial Risk” for more detailed information relating to the methods we employ in managing our liquidity.
Cash Flow
The tables below set forth information about our main sources and uses of cash. No legal or economic restrictions exist on the ability of our Chilean subsidiaries to transfer funds to us in the form of loans or cash dividends as long as these subsidiaries abide by the regulations in the Chilean Corporations Law regarding loans to related parties, and dividend payments. In addition, no legal or economic restrictions exist on the ability of our Colombian subsidiaries to transfer funds to us in the form of cash dividends. However, in the case of CorpBancaCorpbanca Colombia, for the following four to five years there is a possibility that shareholders may vote to capitalize such dividends in order to meet current capital adequacy requirements following Basel standards, as they did in respect of 2013 dividends, 2014 dividends and 2015 dividends. CorpBancaCorpbanca Colombia may also transfer funds to CorpBancaItaú Corpbanca in the form of loans, as long as they abide by the regulations in the Colombian financial law regarding loans to related parties. Colombian subsidiaries (other than CorpBancaCorpbanca Colombia) may not transfer funds to us in the form of loans, due to their limited corporate purpose.
Net Cash (Used in) Provided by Operating Activities
For the Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||
Net cash (used in) provided by operating activities | 227,949 | (338,361 | ) | 239,571 |
For the Year Ended December 31, | ||||||||
2015 | 2016 | |||||||
(in millions of constant Ch$ as of December 31, 2016) | ||||||||
Net cash (used in) provided by operating activities | (421,705 | ) | (978,898 | ) |
Our net cash provided byused in operating activities for the year ended December 31, 20152016 increased from Ch$(338,361)421,705 million in 20142015 to Ch$239,571978,898 million in 2015.2016. This increase in net cash provided by operating activities was mainly due to (i) the negative impactrepayment of the slowdown both in the Chilean and the Colombian economies in our loan portfolio; and (ii) the depreciation of the Chilean peso against the US dollar.foreign borrowings.
Net Cash (Used in) Investing Activities
For the Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||
Net cash used in investing activities | (277,704 | ) | (106,810 | ) | (33,845 | ) |
For the Year Ended December 31, | ||||||||
2015 | 2016 | |||||||
(in millions of constant Ch$ as of December 31, 2016) | ||||||||
Net cash used in investing activities | (16,481 | ) | 1,589,074 |
Our net cash used in investing activities decreasedincreased from a negative Ch$(106,810)16,481 million for the year ended December 31, 20142015 to Ch$(33, 845)1,589,074 million for the year ended December 31, 2015.2016. This 68.3% decreaseincrease in net cash used in investing activities was mainly due to an increase in cash and cash equivalents resulting from the fact that in 2015 we did not made any significant investment.Corpbanca integration.
Net Cash Provided by Financing Activities
For the Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||
Net cash provided by financing activities | 649,518 | 515,980 | (410,813 | ) |
For the Year Ended December 31, | ||||||||
2015 | 2016 | |||||||
(in millions of constant Ch$ as of December 31, 2016) | ||||||||
Net cash provided by financing activities | 413,217 | 874,784 |
Our net cash provided by financing activities decreasedincreased from Ch$515,980413,217 million for the year ended December 31, 20142015 to Ch$(410,813)874,784 million for the year ended December 31, 2015.2016. This 179.6% decrease111.7% increase in net cash provided by financing activities was mainly due to due to the fact that weincreases in issued less debt due to the economic slowdown, which result was partly offset by an increaseinstruments and in (i) our dividend payment due to the distribution of a special dividend in July 1st, 2015 and (ii) bonds redemption.capital.
Deposits and Other Borrowings
The following table sets forth our average month-end balance of our liabilities for the years ended December 31, 2013, 20142015 and 2015,2016, in each case together with the related average nominal interest rates paid thereon.
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Paid | Average Normal Rate | Average Balance | Interest Paid | Average Normal Rate | Average Balance | Interest Paid | Average Normal Rate | Average Balance | Interest Paid | Average Normal Rate | Average Balance | Interest Paid | Average Normal Rate | ||||||||||||||||||||||||||||||||||||||||||||||
(in millions of Ch$ except for percentages) | (in millions of Ch$ except for percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Time deposits | 7,055,890 | 361,643 | 5.1 | % | 7,849,494 | 349,165 | 4.4 | % | 8,230,208 | 329,608 | 4.0 | % | 3,875,906 | 160,901 | 4.2 | % | 9,884,092 | 459,381 | 4.6 | % | ||||||||||||||||||||||||||||||||||||||||
Central Bank borrowings | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Repurchase agreements | 269,419 | 14,736 | 5.5 | % | 345,097 | 28,142 | 8.2 | % | 645,487 | 36,484 | 5.7 | % | 57,267 | 1,772 | 3.1 | % | 400,252 | 48,086 | 12.0 | % | ||||||||||||||||||||||||||||||||||||||||
Mortgage finance bonds | 130,991 | 8,323 | 6.4 | % | 105,851 | 10,466 | 9.9 | % | 87,375 | 7,256 | 8.3 | % | 28,123 | 2,187 | 7.8 | % | 71,742 | 4,241 | 5.9 | % | ||||||||||||||||||||||||||||||||||||||||
Bonds | 2,199,545 | 119,888 | 5.5 | % | 2,609,908 | 200,804 | 7.7 | % | 3,025,930 | 197,730 | 6.5 | % | 1,245,617 | 93,555 | 7.5 | % | 4,205,997 | 231,053 | 5.5 | % | ||||||||||||||||||||||||||||||||||||||||
Other interest bearing-liabilities | 2,283,273 | 44,826 | 2.0 | % | 3,210,058 | 100,663 | 3.1 | % | 3,310,424 | 107,823 | 3.3 | % | 1,256,116 | 20,277 | 1.6 | % | 4,029,170 | 127,267 | 3.2 | % | ||||||||||||||||||||||||||||||||||||||||
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Subtotal interest-bearing liabilities | 11,939,118 | 549,416 | 4.6 | % | 14,120,408 | 689,240 | 4.9 | % | 15,299,424 | 678,901 | 4.4 | % | 6,463,029 | 278,692 | 4.3 | % | 18,591,253 | 870,028 | 4.7 | % | ||||||||||||||||||||||||||||||||||||||||
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Non-interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest bearing deposits | 1,471,475 | 2,731,621 | 2,680,291 | 287,043 | 1,898,469 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivates | 230,679 | 520,154 | 734,324 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives | 307,854 | 845,920 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other non-interest bearing liabilities | 380,933 | 468,959 | 633,989 | 291,216 | 603,382 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity | 1,376,012 | 1,504,727 | 1,326,176 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders’ equity | 761,929 | 2,806,690 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subtotal non-interest bearing liabilities | 3,459,098 | — | 5,225,461 | — | 5,374,781 | — | 1,648,042 | 6,154,461 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 15,398,216 | 549,416 | 19,345,868 | 689,240 | 20,674,205 | 678,901 | 8,111,071 | 278,692 | 24,745,714 | 870,028 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Our current funding strategy is to continue to utilize all sources of funding in accordance with their cost, their availability and our general asset and liability management strategy. Our most important source of funding is our time deposits. Time deposits represented 53.8%53.2% of our average interest bearing liabilities for the year ended December 31, 2015.2016. We continue to place special emphasis on increasing deposits from retail customers, which consist primarily of checking accounts that do not bear interest and accordingly represent an inexpensive source of funding for us. Our total checking accounts and other demand liabilities increased by 12.05%353.8% as of December 31, 20152016 compared to December 31, 2014.2015. To the extent that these types of deposits represent a larger percentage of our funding base, the percentage represented by time deposits is expected to decrease and, accordingly, we believe that the materiality to our business of uncertainties relating to rolling over deposits will be diminished. We also intend to continue to broaden our customer deposit base, to emphasize core deposit funding and to fund our mortgage loans with the matched funding available through the issuance of letters of credit loans in Chile’s domestic capital markets. Management believes that broadening our deposit base by increasing the number of account holders has created a more stable funding source.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
C. | RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES |
We do not currently conduct any significant research and development activities.
D. | TREND INFORMATION |
Our net interest income for the year ended December 31, 2015 decreased2016 increased to Ch$620,579639,175 million, or by (1.6)%186.25%, when compared to the year ended December 31, 2014.2015. Generally, our net interest income is positively affected by an inflationary environment to the extent that our average UF-denominated assets exceed our average UF-denominated liabilities, while our net interest income is negatively affected by inflation in any period in which our average UF-denominated liabilities exceed our average UF-denominated assets. Currently, we have more UF-denominated assets than liabilities.
Our operating income depends significantly on our net interest income. For the years ended December 31, 2013, 20142015 and 2015,2016, net interest income over total operating income represented 65.1%, 63.6%64.83% and 63.0%73.17%, respectively. Changes in market interest rates may affect
the interest rates earned on our interest-earning assets and the interest rates paid on our interest bearing liabilities, which may result in a further reduction in our net interest income.
Consolidation in the market, which can result in the creation of larger and stronger competitors, may adversely affect our financial condition and results of operations by decreasing the net interest margins we are able to generate and increasing our costs of operation. In addition, we expect to continue to face competition from non-banking financial entities such as department stores, leasing, factoring and automobile finance companies, mutual funds, pension funds and insurance companies.
The following are the most important trends, uncertainties and events that are reasonably likely to affect us or that would cause the financial information disclosed herein not to be indicative of our future operating results or financial condition:
Also see “Item 5. Operating and Financial Review and Prospects—A. Operating Results”.Results.”
E. OFF-BALANCE SHEET ARRANGEMENTS
E. | OFF-BALANCE SHEET ARRANGEMENTS |
We are party to transactions with off-balance-sheet risk in the normal course of our business. These transactions expose us to credit risk in addition to amounts recognized in the consolidated financial statements and include commitments to extend
credit. These commitments include contractual arrangements to which an unconsolidated entity is a party, under which CorpBancaItaú Corpbanca has:
Such commitments are agreements to lend money to a customer at a future date, subject to the customer’s compliance with contractual terms. Since a substantial portion of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent our actual future cash requirements. The aggregate amount outstanding of these commitments was Ch$5,582,67213,693,842 million as of December 31, 2015.2016.
Contingent loans are those operations or commitments in which the bank assumes a credit risk upon committing itself to third parties, before the occurrence of a future event, to make a payment or disbursement that must be recovered from its clients.
The bank keeps a record of the following balances related to commitments or to liabilities of its own line of business in memorandum accounts: collateral and guarantees, confirmed foreign letters of credit, letters of credit, bank guarantees, cleared lines of credit, other credit commitments and other contingencies.
The total amount of contingent loans held off balance sheet as of December 31, 2013, 20142015 and 20152016 was Ch$2,751,929 million, Ch$3,191,4352,292,081 million and Ch$3,285,4115,310,136 million, respectively. Contingent loans are considered in the calculation of risk weighted assets and capital requirements as well as for credit risk reserve requirements.
See Note 1 “General Information and summarySummary of significant accounting policies”Significant Accounting Policies” and Note 2221 “Contingencies, commitmentsCommitments and responsibilities”Responsibilities” to our audited consolidated financial statements included herein for a better understanding and analysis of the figures held off sheet balance.
We use the same credit policies in making commitments to extend credit as we do for granting loans. In the opinion of our management, our outstanding off-balance sheet commitments do not represent an unusual credit risk.
Traditional financial instruments which meet the definition of a “derivative”, such as forwards in foreign currency, UF, interest rate futures currency and interest rate swaps, currency and interest rate options and others, are initially recognized on the balance sheet at their fair value. Fair value is obtained from market quotes, discounted cash flow models and option valuation models, as applicable. For further details of fair value, see Note 8 of our consolidated financial statements included herein.
In terms of outstanding exposure to credit risk, the true measure of risk from derivative transactions is the marked-to-market value of the contracts at a point in time (i.e., the cost to replace the contract at the current market rates should the counterparty default prior to the settlement). For most derivative transactions, the notional principal amount does not change hands; it is simply an amount that is used as a reference upon which to calculate payments.
F. | TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS |
In addition to the scheduled maturities of our contractual obligations which are included under “—Liquidity and Capital Resources—Sources of Liquidity” above, as of December 31, 2015,2016, we also had other commercial commitments which mainly consist of open and unused letters of credit, together with guarantees granted by us in Ch$, UF and foreign currencies (principally U.S. dollars). We expect most of these commitments to expire unused.
The following table includes both the accrued interest and the interest expense projected over time of each contractual obligation as of December 31, 2015.2016. For variable rate debt and interest rate swaps and other derivatives, where applicable, the interest
rates upon which we based our contractual obligations going forward are based on the applicable forward curves. For any cross-currency swaps or other derivatives as applicable, the foreign currency exchange rate used was spot.
Contractual Obligations(*) | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | ||||||||||||||||||||||||||||||
(in million of Ch$) | (in millions of Ch$) | |||||||||||||||||||||||||||||||||||||||
Time deposits and saving accounts | 7,948,599 | 637,279 | 31,111 | 100,488 | 8,717,477 | 9,108,950 | 1,139,025 | 130,722 | 1,938,961 | 12,317,658 | ||||||||||||||||||||||||||||||
Deposits and other demand liabilities | 2,529,999 | 1,901,621 | — | — | 4,431,619 | 4,453,191 | — | — | — | 4,453,192 | ||||||||||||||||||||||||||||||
Bank obligations | 1,280,826 | 288,470 | 12,369 | 86,555 | 1,668,219 | 1,921,451 | 109,668 | 98,709 | 328,524 | 2,458,353 | ||||||||||||||||||||||||||||||
Investments under repurchase agreements | 260,631 | — | — | — | 260,631 | 619,218 | — | — | — | 619,218 | ||||||||||||||||||||||||||||||
Issued debt instruments | 441,817 | 191,933 | 1,124,216 | 1,469,589 | 3,227,554 | 722,373 | 1,664,555 | 1,098,225 | 6,297,495 | 9,782,648 | ||||||||||||||||||||||||||||||
Other financial liabilities | 9,597 | 1,077 | 295 | 3,506 | 14,475 | (194,188 | ) | 140,997 | 126,842 | 322,304 | 395,955 | |||||||||||||||||||||||||||||
Financial derivative contracts (all speculative and hedging instruments) | (40,252 | ) | (89,094 | ) | (97,265 | ) | (70,045 | ) | (296,655 | ) | (13,790 | ) | (46,999 | ) | (43,652 | ) | (116,076 | ) | (220,517 | ) | ||||||||||||||||||||
Total contractual obligations | 12,431,216 | 2,931,285 | 1,070,726 | 1,590.093 | 18,023,321 | 16,617,205 | 3,007,246 | 1,410,846 | 8,771,208 | 29,806,504 | ||||||||||||||||||||||||||||||
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(*) | The variable rates projections are obtained from the FRA rates of the respective projection curves. The parities used to convert the amounts to Chilean pesos correspond to the accounting parities used in the referred date. |
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
We are managed by our CEO (Gerente General) under the direction of our board of directors, which, in accordance with the Company’sby-laws, consists of nine11 directors and two alternates who are elected at our annual ordinary shareholders’ meetings. Pursuant to the provisions of our bylaws, members of the board of directors are generally elected for three-year terms. All of the members of the board of directors were elected on MarchApril 11, 2016 for a three-year period; however, it has been announced that after the consummation of the Itaú-CorpBanca Merger, a newperiod, except for Mr. Vassimon, Mr. Samhan and Mr. Bucher, who were initially appointed by our board of directors will be appointed foron November 15, 2016, September 27, 2016 and February 23, 2017, respectively, and were confirmed as members of the merged bank.board in the last annual ordinary shareholders’ meeting held on March 27, 2017. Cumulative voting is permitted for the election of directors. The board of directors may appoint replacements to fill any vacancies that occur during periods between elections. Our principal executive officers are appointed by the board of directors and the CEO and hold their offices at the discretion of the board of directors and the CEO. Scheduled meetings of the board of directors are held monthly. Extraordinary meetings can be held when called in one of three ways: by the Chairman of the board of directors, by one or more directors with the prior approval of the Chairman of the board of directors, or by five directors. None of the members of our board of directors has a contract or agreement which entitles any director to any benefits upon termination of employment with us.
Our current directors are as follows:
Directors | Position | Age | ||||
Jorge Andrés Saieh Guzmán | Chairman and director | 46 | ||||
Ricardo Villela Marino | Vice chairman and director | 42 | ||||
Jorge Selume Zaror | Director | 65 | ||||
Fernando Aguad Dagach | ||||||
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| Director | |||||
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Gustavo Arriagada Morales | Director | 63 | ||||
Eduardo Mazzilli de Vassimon | Director | 58 | ||||
Boris Buvinic Guerovich | Director | 57 | ||||
Andrés Bucher Cepeda | Director | 53 | ||||
Pedro Samhan Escandar | Director | 66 | ||||
Fernando Concha Ureta | Director | 57 | ||||
João Lucas Duchene | Director | 61 | ||||
José Luis Mardones Santander | ||||||
| 66 | |||||
| Alternate director | |||||
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Jorge AndréAndrés Saieh GuzmáGuzmán became a director on August 25, 1998. On February 2, 2012, Mr. Saieh Guzmán became the chairman of our board of directors. Mr. Saieh Guzmán also serves as the chairman of the board of directors for Consorcio Periodístico de Chile S.A. Mr. Saieh Guzmán has also served as the vice chairman of the board of AFP Protección, as a member of the board of AFP Provida, as member of the board of the Chilean National Press Association and as a member of the board of our former affiliate, CorpBancaCorpbanca Venezuela. Mr. Saieh Guzmán also serves similar positions on a variety of different boards. Mr. Saieh Guzmán received a B.A. in Business and Administration and graduated from the Universidad Gabriela Mistral. Mr. Saieh Guzmán holds a
Masters in Economics and a MastersMaster in Business and Administration from the University of Chicago. Alvaro Saieh Bendeck is the father of Mr. Saieh Guzmán.
Ricardo Villela Marino became a director on April 11, 2016. Mr. Marino has served Itaú Unibanco Group as a Vice President of Itaú Unibanco since August 2010. He served as Executive Officer (September 2006 to August 2010), Senior Managing Director (August 2005 to September 2006), Managing Director (December 2004 to August 2005) at Itaú Unibanco. He has served as an Alternate Member of the Board of Directors of Itaúsa since April 2011. He has served as an Alternate Member of the Board of Directors of Duratex S.A., Elekeiroz S.A. and Itautec S.A. since April 2009. He was President of the Latin American Federation of Banks (FELABAN) (2008 to 2010). He has a B.A. degree in Mechanical Engineering from the Polytechnic School of USP in Brazil and a Master degree in Business Administration from MIT Sloan School of Management.
Jorge Andres Saieh GuzmáSelume Zaror became a director on May 23, 2001. Mr. Selume also serves as director of the board, among others, for Clínica Indisa, Andean Region – Laureate International, Universidad Andrés Bello, Universidad Las Americas, Instituto Profesional AIEP and Blanco y Negro. Prior to this, Mr. Selume was a director on the board of directors of Banco Osorno y La Unión, a director of the government budget office of Chile, chairman of our former affiliate Corpbanca Venezuela and Maríthe CEO of Corpbanca between 1996 and 2001. Mr. Selume received a Catalina Saieh Guzmán are siblings.B.A. in Business and Administration and graduated from the Universidad de Chile. Mr. Selume holds a Masters in Economics from the University of Chicago.
Fernando Aguad Dagach became a director on June 18, 1996. On February 2, 2012, Mr. Aguad became our first vice chairman. Mr. Aguad has previously held similar positions in a variety of institutions including Interbank Perú, Banco Osorno y La Unión and Canal de Televisión La Red. Mr. Aguad is an investor in financial institutions.
Jorge Selume Zaror became a director on May 23, 2001. On February 2, 2012, Mr. Selume became our second vice chairman. Mr. Selume also serves as director of the board, among others, for Clinica Indisa, Andean Region – Laureate International, Universidad Andrés Bello, Universidad Las Americas, Instituto Profesional AIEP and Blanco y Negro. Prior to this, Mr. Selume was a director on the board of directors of Banco Osorno y La Unión, a director of the government budget office of Chile, chairman of our former affiliate CorpBanca Venezuela and the CEO of CorpBanca between 1996 and 2001. Mr. Selume received a B.A. in Business and Administration and graduated from the Universidad de Chile. Mr. Selume holds a Masters in Economics from the University of Chicago.
Ana Beatriz Holuigue Barros became a director on October 20, 2015 after serving as alternate director since August 30, 2011. Previously, Ms. Holuigue was a professor at the Universidad Católica de Chile and served various roles at COPEC. She currently serves on the board of directors of Grupo de Radios Dial, Copesa and Supermercados de Chile S.A., among others. She received a B.A. in Business and Administration from the Universidad Católica de Chile.
Julio Barriga Silva became a director on April 30, 2014. Mr. Barriga previously served on the board of directors of CorpBanca between 1997 and 2012. Mr. Barriga has also served as the chairman of the board of Banco Santiago and the chief executive officer of Banco del Estado de Chile. Mr. Barriga is an agricultural engineer and an agricultural economist from the Universidad de Chile.
Francisco Mobarec Asfura became a director on February 2, 2012. Previously, Mr. Mobarec served as a manager in the area of corporate risk at Banco del Estado de Chile (2003-2006) and Banco Santiago (1999-2002), among others. Mr. Mobarec has previously served as a member of the audit committee of Central Bank of Chile (2007-2012) and a member of the board of directors of Factoring Penta S.A. (2008-2010), Empresa de Correos de Chile (2003-2006) and Banco Estado S.A. Administradora General de Fondos (2003-2006), among others. He received a B.A. in Business and Administration and an Accounting Auditor degree from the Universidad de Chile.
Gustavo Arriagada Morales became a director on September 28, 2010. Mr. Arriagada previously served as the Superintendent of Banks and Financial Institutions. He received a B.A. in Business and Administration and an Economics degree from the Universidad de Chile.
Eduardo Mazzilli de Vassimonbecame a director on November 15, 2016. Mr. Vassimon has held several positions within the Itaú Unibanco Group including Vice President of Itaú Unibanco Holding (April 2015 to December 2016); Vice President of Itaú Unibanco since March 2013 and Member of the Board of Directors (November 2004 to April 2015) and CEO (since December 2016) of Banco Itaú BBA S.A. He also served as Vice President of Banco Itaú BBA S.A. (November 2004 to December 2008), and was responsible for the international, financial institutions, products, client desk and treasury departments. He has served as General Manager of Itaú Unibanco (1980 to 1990). He served as a member of the Board of Directors at Investimentos Bemge S.A. since February 2013. He worked as Deputy Foreign Exchange Director (1990 to 1991) and as International Unit Director (1992 to 2003) of BancoBBA-Creditanstalt S.A. He has a B.A. in Economics from the School of Economics of USP (1980) and in Business Administration from FGV (1980). He also holds Master degrees from the São Paulo Business Administration School of FGV (1982) and from École dês Hautes Études Commerciales (1982) in France.
Boris Buvinic Guerovich became a director on April 11, 2016. Mr. Buvinic served as Country Manager of Banco Itaú Chile (2006-2016) and BankBoston Chile (2003-2006). Since 1990 he has had a leading role in launching the business of retail banking in Chile, mainly through Banco Santiago which is now Santander Chile, where he worked for 11 years, finally serving as Director of Marketing and Sales. He participated as a member of the board of the Association of Banks and Financial Institutions of Chile (Asociación de Bancos e Instituciones Financieras de Chile). Mr. Buvinic holds a degree in Commercial Engineering from Universidad Católica de Valparaíso, Chile. He participated in the program for CEO training at the Kellogg School of Management.
Andrés Bucher Cepeda became a director on February 23, 2017. Mr. Bucher has held numerous senior management positions in the Chilean financial industry in the past 28 years. He has served as Banchile Corredores de Bolsa’s Chief Executive Officer since November 2012. Mr. Bucher previously worked as the Investment Banking and Capital Markets Division Manager at Banco de Chile beginning in 2008. Before that, Mr. Bucher was Investment Banking head for Citigroup Chile, where he worked for more than 19 years. Mr. Bucher holds a degree in industrial civil engineering from the Pontificia Universidad Católica de Chile and an MBA from The Wharton School at the University of Pennsylvania.
Pedro Samhan Escandarbecame a director on September 27, 2016. Mr. Samhan was formerly a member of the Board of Citibank in Panama and Costa Rica. Before that, he was the CFO of Banco de Chile and the CFO of Banco de Chile. Before that, he was appointed as director of Banchile Trade Services Limited. Previously, Mr. Samhan was the CFO of Citigroup Chile for several years. He served as a member of the board of directors of Cruz Blanca Seguros de Vida from 1994 to 1997, AFP Habitat from 1996 to 2006 and Compañía Minera Las Luces from 1994 to 1996. Mr. Samhan was CFO of Citicorp for Caribbean and Central America from 1990 to 1993 and investment banking head of Citicorp Chile from 1988 to 1990. Mr. Samhan holds a degree in civil industrial engineering from Universidad de Chile.
Fernando Concha Ureta became a director on April 11, 2016. Mr. Concha is aco-founding partner at Falcom Capital. He has more than 30 years of experience in the financial industry in Chile and the region. While at Citigroup, he held several leading positions, including Banamex Corporate Director of Treasure Operations, CEO at Citibank Chile and CEO of the Andean Cluster and Central America, among others. In addition, he has also represented Citi as member in several boards and committees, such as Banco de Chile Board, among others. He holds a degree in Business from the Pontificia Universidad Católica de Chile.
João Lucas Duchenebecame a director on April 11, 2016. Mr. Duchene is Head of the Banking Advisory Group at the International Finance Corporation (IFC). Before joining IFC in 2002, he was Head of Risk Management for the Brazil and Northern Latin American Region of BankBoston, based in São Paulo. He participated actively in the Risk Management Commission of the Brazilian banking association Febraban. Mr. Duchene holds a degree in Production Engineering at Escola Politecnica da Universidade de São Paulo.
José Luis Mardones Santander became a director on March 12, 2013.7, 2013 and alternate director on April 11, 2016. Mr. Mardones currently serves as partner and director of Mardones y Marshall Consultores, alternate independent director of CorpBancaItaú Corpbanca and as director of Corporación CESCO (Centro de Estudios del Cobre y la Minería). Mr. Mardones previously served as chairman of the board of directors of Banco del Estado de Chile, chairman of Empresa Portuaria Valparaíso, director of Metro Regional de Valparaíso (Merval), Empresa Portuaria San Vicente, Instituto de Estudios Bancarios and of certain affiliates of Enami and Colbún. He received a civil engineering degree from the Universidad de Chile as well as a Masters in Law and Diplomacy and an International Studies Ph.DPh.D. from Tufts University, The Fletcher School of Law and Diplomacy.
Hugo Verdegaal became a director on March 12, 2013. Mr. Verdegaal has more than 30 years experience as a business manager and senior client banker in the Latin America markets. Mr. Verdegaal has served as Citigroup’s and Citicorp’s Latin America managing director in the investment banking and corporate finance divisions in New York, as well as vice president of Citibank in Sao Paulo, Brazil. He received an M.A./B.A. in Economics degree from the Erasmus University (formerly Netherlands School of Economics), as well as an M.B.A. from the University of Michigan, Ann Arbor.
María Catalina Saieh GuzmánCamilo Morales Riquelme became an alternate director on February 2, 2012. Ms. Saieh previously servedApril 11, 2016. Mr. Morales worked for 10 years in the SBIF serving in the Department of Studies between 1982 and 1990. He has also held different positions in Chilean companies, such as cultural associatedEmpresa Nacional de Minería, Banco Santiago, Midway Guaranty S.A. (Subsidiary of Oppenheimer and opinion associated editor at La Tercera newspaper. Ms. Saieh was also vice-chairmanCo.), Santander Investment, Banco Bhif and Corpbanca, among others. Mr. Morales has been professor and lecturer in the Faculty of the boardEconomics of Consorcio PeriodísticoUniversidad de Santiago, Universidad de Chile S.A. (COPESA) during 2007 and chairman ofUniversidad Gabriela Mistral and has authored different publications related to the board of CorpVida Insurance Company. In 2010, she became chairman of the board of Fundación Descúbreme and chairman of the board Fundación Educacional Colegio El Golf. Ms. Saieh is a member of the board of Fundación CorpArtes. Ms. Saieh also serves similar positions on a variety of different boards. Shebanking industry. Mr. Morales holds a B.A. in EnglishBusiness and Administration and an Economics Degree from Universidad de Chile and a M.A.Master of Arts in LiteratureEconomics from Pontificia Universidad Católica de Chile. She also holds a M.B.A. from the
University of Chicago, Booth School of Business. Alvaro Saieh Bendeck is the father of María Catalina Saieh Guzmán. María Catalina Saieh Guzmán and Jorge Andres Saieh Guzmán are siblings.
Alvaro Barriga Oliva became an alternate director on March 20, 2015. Mr. Barriga has been the general counsel of Corp Group for the last 15 years. He previously served as a member of the board of directors of SMU S.A. (20011-2014) and as general counsel of COPESA. He received his Law degree from the Diego Portales University and holds a Masters in Corporate Law from New York University.Minnesota.
Our current Executive Officers are as follows:
Executive Officer | Position | Age | ||||
| Chief Executive Officer | 40 | ||||
| Chief Financial Officer | 41 | ||||
| Corporate Director – Wholesale | 45 | ||||
| Corporate Director – | |||||
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Pedro Silva Yrarrázaval | 55 | |||||
Rogério Carvalho Braga | Corporate Director – Marketing & Products | 61 | ||||
Mauricio Baeza Letelier | Chief Risk Officer | 54 | ||||
| 52 | |||||
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Marcela Leonor Jiménez Pardo | 40 | |||||
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| 44 | |||||
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Felipe Cuadra Campos | Compliance | 41 | ||||
Fernando Burgos Concha | General Manager – New York Branch | 61 | ||||
| Chief Executive Officer – Banco | 46 |
* |
Each of Mr. |
Fernando Massú TareMilton Maluhy became the CEO on April 1, 2016. Mr. Maluhy joined Itaú Unibanco in February 2012. Mr. Massú previously served2002 and became a partner in 2010. Previously, he was CEO of Rede S.A. (former Redecar S.A.), a card processing subsidiary, and Executive Director at Itaú Unibanco, responsible for the management of the credit card segment and retail store alliances. Previously, he worked at Itaú BBA, holding leadership positions in areas such as a directorinternational, products, operations, treasury, and second vice chairman of our board of directors from October 15, 2009 until January 24, 2012.trading desk. Prior to this,joining the bank, he worked at J.P. Morgan, Crédit Commercial de France (CCF Brazil) and Lloyds TSB. Mr. Massú served as Group Corporate directorMaluhy holds a B.A. in Business Administration from Fundação Armando Álvares Penteado – FAAP.
Gabriel Amado de Mourabecame CFO of CorpGroup (2008). Previously, heItaú Corpbanca on April 1, 2016. Mr. Moura joined Itaú Unibanco in 2000 and became an associate partner in 2010. He has more than 21 years of experience in asset management, risk management, finance and M&A. Mr. Moura held the position of GlobalChief Investment Officer for Itaú’s pension funds, endowments and insurance businesses. He was also Chief Risk Officer for Wealth Management as well as member of the board of directors of different companies in Brazil and abroad. Prior to joining the bank, he worked at BBVA Asset Management and Itaú Bankers Trust. Mr. Moura holds a M.B.A. from the Wharton School at the University of Pennsylvania.
Christian Tauber Domínguezbecame corporate director of Wholesale Banking director at Banco Santander-Chile from 1995-2007. Between 1992 and 1995, Mr. Massú had management positions within the Santander Group in Portugal and Canada. From 1982 to 1992, Mr. Massú worked as General Manager Citicorp Chile Agencia de Valores. Mr. Massú received a B.A. in Business and Administration from Universidad Adolfo Ibáñez and attended a Professional Management Course at Harvard University.
Eugenio Gigogne Miqueles became CFO of CorpBanca in April 2010.October 2016. Previously, he had served as headCorporate Banking director in BBVA. He joined Banco Itaú Chile in October 2007 as the Corporate Banking manager, and from 2011 to 2016 he served as the Corporate Banking manager of Itaú Chile. In 2016 Mr. Tauber took office as the market risk department. Before joining CorpBanca in 2009,Corporate Manager of Corporate Banking. Mr. Gigogne was the CFO at Scotiabank — Chile for eight years. Mr. GigogneTauber received a B.A. in Business and Economics from the Universidad de Chile and a M.B.A. from Tulane University, USA.
José Francisco SánchezFigueroa became corporate director of Wholesale Banking in March 2012. Previously, he served as the Division Manager of CorpBanca since October 2009. Mr. Sánchez served as Deputy Head Large Companies and
Corporate at CorpBanca, as well as other postings within the area (1996-2009). Mr. Sánchez received a B.A. in Business and Economics from thePontificia Universidad Católica de Chile.
CristiáJulián Canales PalaciosAcuña Morenobecame corporate director of Legal & ControlRetail Banking in March 2012.September 2016. Mr. Canales also servedAcuña has vast experience in both national and international banking, having worked as Interim CEO from December 29, 2011 to February 5, 2012 following the resignation of Mario Chamorro Carrizo. Previously, he served asCommercial Division Manager of Legal Services from 2003 to 2012.in Chile and in Colombia in Banco Santander-Chile and in Banco Santander Colombia, respectively. Mr. Canales served as our Legal Services Manager from 2002 to February 2003 and as Senior Attorney from 1996 to 2001. From 1989 to 1996, Mr. Canales served asAcuña holds an attorney for Banco Osorno y La Unión. Mr. Canales received a lawAccountant Auditor degree from the Universidad deDiego Portales, Chile.
Richard Kouyoumdjian Inglis became corporate director of Products, Marketing & Quality Service in September 2014. He previously served as director of Shared Services between March 2012 and August 2014. He also previously served as the CFO and Chief Administrative Officer for the South American, Caribbean and Central America regions of Citigroup. Mr. Kouyoumdjian received a BSC in Naval Weapons Engineering from the Academia Politécnica Naval and a M.B.A. from the Universidad Católica de Chile. He also attended postgraduate studies at the Universities of Chicago and Cornell.
Jorge Hechenleitner Adams became Division Head of Wealth Management in January 2012. Previously, he served as Head of Private Banking (Nobel y Prime) at Banco Santander-Chile for five years. His highest title at Banco Santander-Chile was Manager of Subsidiaries division with 300 offices under his supervision. Mr. Hechenleitner received a B.A. in Business Administration from the Universidad Austral de Chile.
Gerardo Schlotfeldt Leighton became Division Head of Banco Condell in June 2010 and as Division Head of Retail Banking in January 2011. Previously, he served as CEO of Banco Paris. Mr. Schlotfeldt received an undergraduate degree in Industrial Civil Engineering from the Universidad Católica de Chile.
Pedro Silva Yrarrázavalbecame Division Headcorporate director of InternationalTreasury on April 1, 2016. Between October 2006 and Finance in October 2006.March 2016, Mr. Silva held the same position at Corpbanca. Mr. Silva previously served as CEO of our subsidiary CorpBancaCorpbanca Administradora General de Fondos S.A. (Asset Management). Mr. Silva received a B.A. in Business and Administration from the Universidad de Chile. Mr. Silva also received a M.B.A. from the University of Chicago.
Jorge Garrao FortesRogério Carvalho Bragabecame Division Headcorporate director of Retail CreditMarketing & Products on April 1, 2016. During his career in the Itaú group, he led various business areas such as Premium Bonds, Individuals, Payroll Loans, Marketing, Channels, Personal Banking Products, Vehicle Financing, and Commercial Branches. Before joining Itaú Unibanco, Mr. Braga worked for six years in AIG (American International Group) in New York and Lisbon, and for 11 years with the Moreira Sales group, in charge of the food industry sector. Mr. Braga received a law degree from the Pontificia Universidad de Católica de Sao Paulo and an M.B.A. from Pepperdine University.
Mauricio Baeza Letelierbecame Chief Risk Officer in September 10, 2010. He has over 142016. With almost 30 years of experience in the financial market.banking industry, Mr. GarraoBaeza Letelier has held diverse executive positions in risk management areas of local banking institutions. During the last five years he was the Manager of Corporate Risk of Banco de Chile, while leading the Risk Committee of the Bank and Financial institution Association of Chile (Asociación de Bancos e Instituciones Financieras de Chile). Mr. Baeza received an undergraduate degree in Industrial Civil Engineering from the Universidad de Chile.
José Brito Figari became Division Head of Commercial Credit Risk in June 2011. Previously, Mr. Figari served as Manager of Commercial Credit Risk from 2008 to 2011. Mr. Brito received a B.A. in Business and Administration from Universidad Adolfo Ibáñez.
Patricia Retamal Bustos became Division Head of Synergies & Customer Service in December 2014. She previously served as Division Head of Synergies between January 2012 and November 2014. She has been with CorpBanca for four years, first as Manager of Corporate Banking. Ms. Retamal has 17 years of experience working at banks in the commercial credit risk and Large Companies and Corporations areas, including five years working at Banco Santander-Chile and eight years at Banco de Chile. Ms. Retamal received a B.A. in Business and Administration from the Universidad de Santiago de Chile.
Rodrigo Oyarzo Brncic became Division Head of Corporate and Large Companies in January 2012. Previously, he served as Manager of Structured Business from January 2009 to December 2011. Mr. Oyarzo received a B.A. in Business and Administration from the Universidad de Santiago.
Ricardo Torres Borge became Division Head of Real Estate in March 2012. Previously, he worked in Banco Santander’s Investment Banking area for sixteen years under the following positions: Investment Funds director, General Manager of Santander S.A. Administradora de Fondos de Inversión, Head of Real Estate Investment Banking Latam, Head of Structured Finance, Head of Corporate, Investment Banking and M&A, and Head of Equities. He was also in charge of Euroamérica’s Corporate Finance area for one year in 2011. Mr. Torres received an undergraduate degree in Commercial Engineering/accountants from Pontificia Universidad Católica de Chile.
Rodrigo Arroyo PardoLuis Antônio Rodriguesbecame Division HeadCorporate Director of Treasury in March 2012. Prior to his new role, he served as Manager of Large Companies, CorporateIT & Real State of CorpBanca.Operations on April 1, 2016. Mr. ArroyoRodrigues has been with CorpBancaa director of Itaú Unibanco since 2005 when2004, a partner since 2010 and an executive director since 2011. He initiated his career in the Itaú group 32 years ago, and participated on the technology side of every merger and acquisition of the group (Banco Francês e Brasileiro, Banerj, Bemge, Banestado and BankBoston), as well as having a key role in the system integration of Itaú and Unibanco.
Cristián Toro Cañasbecame General Counsel in June 2016. Mr. Toro worked for more than 10 years in Citibank Chile, acting as general counsel since 2004. In 1999 he worked in Shearman & Sterling in New York. In 2008 he joined Lan Airlines as an Assistant Managerlegal vice-president. After the merger of Investments in Local Currency. He was later named Manager of Trading in 2007. Previously, Mr. Arroyo
worked for Grupo Santander for seven yearsLan and Metlife for five years. Mr. Arroyo received a B.A. in BusinessTam, he continued to work as legal vice-president and Administration from the Universidad de Santiago de Chile and a M.B.A. from the Universidad Adolfo Ibáñez.
Gerardo Reinike Herman became Division Head of Commercial Financial Products in December 2013. Prior to his new position he served as Manager of Financial Products since December 2008 with the responsibility over the sales force of Money Desk of CorpBanca. Previously, Mr. Reinike worked for 12 years at the Money Desk at Banco Santander Chile in different positions. Mr. Reinike has B.A. in Business and Administration from Universidad Andrés Bello.
Pablo de la Cerda Merino has served as the Division Head of Legal Services since April 2012. Previously he has served as a Chief Legal Counselsecretary of the bank since July 1996. From 1992 to 1996,board of directors of Latam Airlines Group. Mr. De la Cerda has served as a Chief Legal Counsel at Banco Osorno y La Unión, and previously he served as legal counsel in the legal department of several Chilean banks. Mr. De la CerdaToro received a law degree from the Pontificia Universidad de Católica de Chile and an Executive LLM from Universidad del Desarrollo.the New York University School of Law.
Marcela Leonor Jiménez Pardobecame Division ManagerCorporate Director of Human Resources in April 2016. Between July 2012.2012 and March 2016 she held the same position at Corpbanca. Previously, she served in the Global Banking Consulting Group at Banco de Chile from 2008 to 2012. Ms. Jiménez received an undergraduate degree in Philology from the Pontificia Universidad Católica de Chile. She also holds a postgraduate degree in Human Resources Management from the Adolfo Ibáñez.
Américo Becerra MoralesMarcio Gonçalves Palestra (I) became Division Head of Operations and ITour Interim Comptroller in September 2014. He previouslyJanuary 2017. Previously, Mr. Palestra served as Division Head of Operations between April 2012Senior Audit Manager at Itaú Corpbanca and August 2014. Previously, heat Itaú Unibanco Brazil, from 2008 to 2016. He also served as Audit Manager of Technology,at BankBoston and Global OperationsAuditor at Banco Santander-Chile. Mr. Becerra has over 20Real, totaling 28 years of professional experience in the financial sector. He currently serves as an alternate director for the Association of Mutual Funds and the chairman of the committee of financial operations of the Association of Banks and Financial Institutions.banking industry. Mr. Becerra is the former chairman of the audit committee of the Central Securities Depository (DCV) and former chairman of the Operations and technology committee at the DCV. He also previously served as director and Chairman of Santander S.A. Agente de Valores. Mr. Becerra received his auditor license at the Universidad de Santiago, a B.A. from the Universidad Católica de Chile, a M.B.A. from the Executive Development Institute and a Professional Development Degree from the Universidad de los Andes.
Cristián Guerra Bahamondesbecame the Division Head of IT in October 2013. Previously he served as Chief Operational Risk and Information Security since May 2010. Previously he served as Chief Information Security Officer Since September 2008. Mr. Guerra began working at CorpBanca in 1998 in different positions in the area of information technologies. Mr. Guerra received B.A computer engineer from the Universidad de Ciencias de la Informática. Mr. Guerra also received a Masters in Business and Administration from the Universidad Federico Santa María. Mr. Guerra also received a Masters degree in Information Technology from the Universidad Federico Santa María.
Jorge Max Pozuelosbecame Retail Banking Officer in October 2009. Previously he served as “Gerente Zonal en la División Comercial Personas” since 2006. Mr. Max received a B.A. in Business and Administration from Universidad Diego Portales and a M.B.A. from the Universidad Católica de Chile.
Hernán Cerda Jaramillobecame SME Banking Officer in June 2015. Previously he served as SME and Companies Officer since 2010. Mr. Cerda received a B.A. in Business and Administration from Universidad Diego Portales.
Patricio Jimenez Anguitabecame Companies Banking Officer in June 2015. Previously he served as Commercial Credit Risk Officer since 2004. Mr. JimenezPalestra received an undergraduate degree in Industrial Civil Engineering from the UniversidadBusiness Administration (Universidade Cidade de Santiago.
José Manuel Mena Valencia became our Comptroller Division Head in March 2008. From 1995 to 2008 Mr. Mena served as the CEO at Banco del Estado de Chile. Previously, he was CFO at Banco Osorno y La Union. Mr. Mena received an undergraduate degree in Industrial Civil Engineering. Mr. MenaSão Paulo) and also received a MastersMaster in Economics from the Universidad de Chile.Information Technology (Fundação Getulio Vargas).
Felipe Cuadra Camposbecame Chief Compliance Officer inon April 1, 2016. Between October 2013.2013 and March 2016 he held the same position at Corpbanca. Previously, he served as Corporate Attorney at CorpGroup Holding from 2010 to 2013 and as Senior Attorney at CorpBancaCorpbanca from 2006 to 2009. Between 2002 toand 2005 Mr. Cuadra served as the Attorneyan attorney at CorpBanca.Corpbanca. Mr. Cuadra received a law degree from the Universidad Gabriela Mistral (Chile) and also received a Master of Laws in Taxation from Universidad Adolfo Ibáñez (Chile).
Fernando Burgos Conchabecame General Manager of CorpBanca´sItaú Corpbanca’s New York Branch inon April 1, 2016. Between June 2010.2010 and March 2016 he held the same position at Corpbanca. Previously, Mr. Burgos served as Manager of the International Area of CorpBancaCorpbanca for a period of seven years. Previously, he held several
positions within CorpBancaCorpbanca and its parent, Corp GroupCorpGroup Banking S.A. Mr. Burgos received a Bachelor of Science in Management from the USU.S. Air Force Academy, Colorado Springs USA.Springs.
Jaime Munita ValdiviesoAlvaro De Alvarenga Freire Pimentelbecame CEO of Banco CorpBancaCorpbanca Colombia in May 2012.on January 1, 2017. Previously, Mr. Munita worked for Grupo Santander Chile from 1997 to 2008, where he served as Manager atPimentel held different positions during his 20 years with the Santander Chile Securities Agency, as Area Chief at Banco Santander Chilegroup in Corporate Banking and as Fund Manager at Santander Asset Management.the General Operation and Technology areas. He also previously served asis a direct advisor to CorpBanca, and currently serves aspartner of Itaú Unibanco. Mr. Pimentel received a member of the Banco CorpBanca Colombia board of directors. Mr. Munita received an undergraduate degree in Commercial EngineeringEconomics from the Universidad de Finis TerrieCampinas and a Master of Business Administrationan Executive MBA in Finance from the Universidad Alfonso Ibáñez.Insper, both in Brazil.
B. | COMPENSATION |
Consistent with Chilean law, we do not disclose to our shareholders, or otherwise make public, information regarding the individual compensation of our directors or officers. For the year ended December 31, 2015,2016, we paid fees to each of our directors in the amount of UF100 per month and the chairman UF600 per month. No amounts were set aside or accrued by us to provide pension, retirement or similar benefits for our directors and executive officers. In the annual ordinary shareholders’ meeting held on March 11, 2016,27, 2017, the board of directors agreed to continue to pay each director UF100 per month and the chairman UF600 per month. We also engage in transactions with companies controlled by certain of our directors under the applicable requirements of the Chilean Corporations Act. See “Item 7.B. Related Party Transactions”.Transactions.” In the year ended December 31, 2015,2016, we paid our senior management and directors-audit committee membersdirectors an aggregate of Ch$18,62224,313 million. Chilean law does not require us to have a compensation committee.
C. | BOARD PRACTICES |
The period during which the directors have served in their office is shown in the table under Section A of this Item 6. The date of expiration of the current term of office is shown in the table below:
Director | Date of Expiration of Term | |
Jorge Andrés Saieh Guzmán | ||
Ricardo Villela Marino | April 2019 | |
Jorge Selume Zaror | April 2019 | |
Fernando Aguad Dagach | ||
Gustavo Arriagada Morales | ||
Eduardo Mazzilli de Vassimon | April 2019 | |
Boris Buvinic Guerovich | April 2019 | |
Andrés Bucher Cepeda | April 2019 | |
Pedro Samhan Escandar | April 2019 | |
Fernando Concha Ureta | April 2019 | |
João Lucas Duchene | April 2019 | |
José Luis Mardones Santander | ||
Pursuant to the provisions of our bylaws, the members of the board are generally renewed every three years, based on length of service and according to the date and order of their respective appointments. In the Annual Ordinary Shareholders’ Meeting held on March 11, 2016, the board of directors of CorpBancaformer Corpbanca was renewed in its entirety. Consequently, the nine persons listed above were elected as holders of the office of director until the next shareholders meeting to be held approximately 10 daysentirety and after the completionItaú -Corpbanca Merger five of our legal merger with Banco Itaú Chile.them were confirmed and the remaining eight were newly appointed at the Extraordinary Shareholders’ Meeting held on April 11, 2016.
BOARD COMMITTEES
Audit Committee
Our board of directors maintains an audit committee which is currently comprised of five members, including fourtwo directors, one alternate director and one twonon-director members. The current members of the audit committee are Messrs. Andrés Bucher Cepeda, who chairs it, Gustavo Arriagada Morales, who chairs it, José Luis Mardones Santander, Hugo Verdegaal, María Catalina Saieh Guzmán andCamilo Morales Riquelme, Juan Echeverría González. The permanent consultant was Mr. Alejandro Ferreiro Yazigi.
The main duties of the audit committee are to review the efficiency of internal control systems, to ensure compliance with lawslez and regulations and to have a clear understanding of the risks involved in our business. The SBIF recommends that at least one of the members of the audit committee, who must also be a member of the board of directors, be experienced with respect to the accounting procedures and financial aspects of banking operations. The members of the audit committee appointed by the board of directors must be independent according to the criteria set by the board of directors. Moreover, they may not accept any payment or
other compensatory fee from us, other than in their capacity as members of the board of directors, of the audit committee or of other committees. All the members of the audit committee receive a monthly remuneration.Diego Fresco Gutiérrez.
A description of the experience and qualifications for Messrs. Andrés Bucher Cepeda, Gustavo Arriagada Morales José Luis Mardones Santander, Hugo Verdegaal and María Catalina Saieh Guzmán,Camilo Morales Riquelme, each of whom is a director of theour Company, is included in Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management. Below we include a summary of the experience and qualification for Juan Echeverría González and for Diego Fresco Gutiérrez, who is a arenon-director member members of the audit committee.Audit Committee.
Juan Echeverría González Mr. Echeverría currently serves as Corporate Chief Compliance Officer at CorpGroup. He was previously a partner in charge of Deloitte’s audits of Corpbanca, Banco Osorno BBVA,y la Unión, Banco Bilbao Vizcaya Argentaria, Chile, Banco del Desarrollo, Banco Internacional, Financiera Condell, Banco CorpBancaCorpbanca Venezuela, and of several services provided to such financial institutions from 1993 to 2012. Mr. Echeverría is currently a director and a member of the audit committee of Compañía Minera San Gerónimo,Banco Corpbanca Colombia, Consorcio Periodístico de Chile (COPESA), Grupo de Radios DIAL S.A., CorpGroup Activos Inmobiliarios S.A., CorpBanca Colombia and Helm Colombia,Centro Cultural CorpGroup SpA, and an advisor to the board of directors and audit committee of Copesa.Compañía Minera San Gerónimo. He has participated in several local and international seminars regarding corporate governance, restructurings and business acquisitions. Mr. Echeverría received a B.A. in Accounting from Universidad de Chile and received a two Masters degreeMaster degrees from theUniversidad Adolfo Ibáñez in Business Law and Tax Law. He also holds two Diplomas in Tax Law from Universidad Adolfo Ibáñez.
Diego FrescoGutiérrezis an independent consultant on complex issues of financial reporting, particularly to companies dually listed in Brazil and in the United States since June 2013. He was a partner at PwC – São Paulo (2000 to June 2013) in the Capital Markets and Accounting Advisory Services area and prior to that held several positions at PwC in Uruguay (1998 to 2000 and 1990 to 1997) and in the United States (1997 to 1998). He has a Bachelor’s degree in Accounting from Universidad de la República Oriental del Uruguay in 1994. He is a Certified Public Accountant registered in the State of Virginia (United States) since 2002 (Registration 27,245) and a Contador registered with the Regional Council of Accountancy of the State of São Paulo. He is a member of the Commission of Governance in Financial Institutions of the Brazilian Institute of Corporate Governance (IBGC) since 2013.
The local regulator for the banking industry (SBIF –Superintendencia de Bancos e Instituciones Financieras) recommends that at least one of the members of the audit committee be experienced with respect to the accounting procedures and financial aspects of banking operations. Moreover, the members of the audit committee are appointed by the board of directors and must be independent according to the criteria set forth by the board of directors, and they cannot accept any payment or other compensatory fee from the Company, other than in their role and responsibility as members of the board of directors, of the audit committee or of other established Committees. All the members of the audit committee receive a monthly remuneration.
The audit committee’scommittee has one charter that establishes its composition, objectives, roles, responsibilities and extension of its activities. The SBIF requires the audit committee to meet at least every four months and to provide an annual written report to the board of directors informing it of its activities. This report must also be presented to the annual shareholders’ meeting. According to their charter, the audit committee meetings take place at least twice a month.
The main objectives of the audit committee are among others:to oversee the effectiveness of the internal controls established by management, as well as to oversee compliance with laws and regulations. Other specific responsibilities of the audit committee include:
Directors’ Committee
Our board maintains a directors’ committee which is currently comprised of three members, all of which are considered under Chilean law as independent directors of our board of directors. Also, a fourth director participates as a guest member. The current members of the comptroller manager, evaluating his or her performancedirectors committee are Messrs. Gustavo Arriagada Morales, who chairs it, Fernando Concha Ureta and approving his or her annual compensation;
A description of the external auditors;experience and
The auditdirectors’ committee has chartersbylaws that establish their composition, organization, objectives, duties, responsibilities and extension of its activities. The SBIF requires the auditdirectors committee to meet at least every four months and to provide an annual written report to the board of directors informing it of its activities. The report must also be presented to the annual shareholders’ meeting. According to theirits charter, the audit committee a meet twice per month.
Directors Committee
Our board maintains a directors committee which is currently comprised of four members, including three directors and one non-director members. The current members of the directors committee are Messrs. Gustavo Arriagada Morales, who chairs it, Hugo Verdegaal, José Luis Mardones Santander and Juan Echeverría González.meets once per month.
The directors committee’s responsibilities are, among others:
A description of the experience and qualifications for Messrs. Gustavo Arriagada Morales, Hugo Verdegaal and José Luis Mardones Santander, each of whom is a director of the Company is included in Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management. A description of the experience and qualifications for Mr. Juan Echeverría González, who is a non-director member of the director committee and the audit committee is included in Item 6. Directors, Senior Management and Employees—C. Board Practices—Board Committees—Audit Committee.
The directors committee has charters that establish their composition, organization, objectives, duties, responsibilities and extension of its activities. The SBIF requires the directors committee to meet at least every four months and to provide an annual written report to the board of directors informing it of its activities. The report must also be presented to the annual shareholders’ meeting. According to their charter, the directors committee a meet twice per month.
OTHER COMMITTEES
Corporate Governance Committee
The corporate governance committee was established by the board of directors as an advisory body of it that aims to ensure the existence and development of better corporate governance practices for financial institutions. For that purpose, it is in charge of evaluating practices and policies that are currently in execution, making proposals to the board of directors of improvements, adjustments or reforms and pursuing for the proper implementation and applications of said practices and policies of corporate governance. The committee performs its duties with respect to the bank, its affiliates and related entities abroad.
The committee is composed of five directors and onenon-director member. This committee is empowered to engage external consultants. During 2015, Ms. María Catalina Saieh Guzmán was the chairperson of theThis committee is currently comprised by Mr. Ricardo Villela Marino, who chairs it, and the other members were Ms. Ana Holuigue Barros, Mr.Messrs. Eduardo Mazzilli de Vassimon, Boris Buvinic Guerovich, João Lucas Duchene, José Luis Mardones Santander Mr. Gustavo Arriagada Morales and Mr. Alvaro Barriga Oliva (all of whom were directors). The permanent consultant was Mr. Alejandro Ferreiro Yazigi.Yazigi(non-director member).
During 2015, the committee met 10 times.
The committee is regulated by its by-laws,bylaws, by applicable legal and regulatory rules and by the principles established by the Organization for EconomicCo-operation and Development (OECD) as well as those defined by the Basel Committee on Banking Supervision on good corporate governance matters for financial institutions.
Anti-Money Laundering and Anti-Terrorism Finance Prevention Committee
This committee is in charge of preventing money laundering and terrorism financing. Its main purposes include planning and coordinating activities to comply with related policies and procedures, staying informed about the work carried out by the Compliance Officer and making decisions on any improvements to control measures proposed by the Compliance Officer. This committee is comprised of one director,two directors, the CEO, the Chief Legal and Control director,Officer, the Chief Risk Officer, one Area Manager and the Compliance Officer. This committee has the authority to request attendance from any executives or associates that it deems necessary. The committee has regular monthly meetings and holds extraordinary sessions when considered appropriate by any of its members.
Compliance Committee
The purpose of this committee is to monitor compliance with our codes of conduct and other complementary rules, establish and develop procedures necessary for compliance with these codes, interpret, administer and supervise compliance with these rules and resolve any conflicts that may arise. This committee is comprised of one director;two directors, the CEO;CEO, the Chief Legal and Control director;Officer, the Division HeadChief of Human Resources and the Compliance Division Head.Officer.
SocialAssets and EnvironmentalLiabilities Committee
The main purpose of this committee is to monitor compliance with the financial guidelines established by our board of directors. In this regard, it approves and follows up on the financial strategies that guide the bank regarding the composition of its assets and liabilities, income and expenditure flows and operations with financial instruments.
Credit Committee
The purpose of this committee is to adopt measures to ensure proper(i) establish the limits and efficient assessment of social and environmental impacts generated by the activities and projects that we finance, to meet the requirementsprocedures of the IFCcredit policy of the bank and its subsidiaries and to reduce the risks to usestablish approval exceptions for financial decisions exceeding certain thresholds and (ii) evaluate and resolve lending operations in general that are of assuming the costs transferred by these indirect socialcompetence of this committee.
Management and environmental risks. Additionally,Talent Committee
The purpose of this committee proposes internal policiesis to determine an objective process to recommend the appointment of the senior management and procedures on environmental and corporate social responsibility mattersperform an advisory role in relation with the administration of the senior management, including the right to makenon-binding recommendations to the Bank’s board of directors.
Thedirectors relating to the compensation, the milestones to be achieved and the evaluation of the CEO and other senior officers. This committee is comprised of the persons holding the positions of corporate director of Legal and Control, corporate director of Wholesale banking, Commercial Credit Risk Division Head, Companies and Retail Banking Division Head, Large Companies and Corporate Division Head, International Banking Officer, SME Banking Officer, Companies Banking Officer, Legal Services Division Headfour directors and the Environmental Officer. The committee may invite to its meetings any Bank executive or associate that it deems necessary.CEO.
D. EMPLOYEES
As of December 31, 2015,2016, on a consolidated basis, we had 7,5459,607 employees. Approximately 37.5%At the same date, approximately 39.6% of our employees were unionized as of December 31, 2015.unionized. All management positions are held bynon-unionized employees. We believe that we have good relationships with our employees and the unions to which some of our employees belong. Our employees are covered by a collective bargaining agreement,agreements, which weformer Corpbanca entered into on August 1, 2014 which providesand Banco Itaú Chile entered into on January 31, 2014, respectively. Both agreements provide for improved benefits and hashave a term of four years.
The table below shows our employees by geographic area:
Year ended December 31, | Year ended December 31, | |||||||||||||||||||
2013 | 2014 | 2015 | 2015 | 2016 | ||||||||||||||||
Chile | 3,724 | 3,714 | 3,811 | 2,549 | 5,904 | |||||||||||||||
Colombia | 3,548 | 3,716 | 3,707 | — | 3,675 | |||||||||||||||
United States | 26 | 26 | 27 | — | 28 | |||||||||||||||
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Total | 7,298 | 7,456 | 7,545 | 2,549 | 9,607 |
E. CONTROLLING SHAREHOLDER’S SHARE OWNERSHIP
Mr. Saieh Bendeck together with his family maintains an indirect ownership of 75.6% of Corp Group Banking S.A. In addition, Mr. Saieh Bendeck with his family are indirect holders of 100% of the ownership rights of Saga. As of the date hereof, Corp Group BankingItaú Unibanco is the sole controlling shareholder of Itaú Corpbanca with a total share of capital of 35.71% through Itaú Unibanco Holding S.A., ITB Holding Brasil Participações Limitada and Compañía Inmobiliaria y de Inversiones SagaCGB II SpA, controlled by Mr. Saieh Bendeck,who beneficially own approximately 43.73%22.45%, 11.13% and 6.15%2.13% of our outstanding shares, respectively.
Our directors and senior managers do not have different or preferential voting rights with respect to those shares they own.
We do not have any arrangements for issuing capital to our employees, including any arrangements that involve the issue or grant of options of our shares or securities.
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. MAJOR SHAREHOLDERS
Our only outstanding voting securities are our common shares. As of DecemberMarch 31, 2015,2017, we had 340,358,194,234512,406,760,091 common shares outstanding.
The following table sets forth information with respect to the record and beneficial ownership of our capital stock as of DecemberMarch 31, 2015:2017:
Shareholders | Number of Shares | Percentage of Total Share Capital | Number of Votes | Percentage of Voting and Dividend Rights | Number of Shares | Percentage of Total Share Capital | Number of Votes | Percentage of Voting and Dividend Rights | ||||||||||||||||||||||||
Corp Group Banking S.A. | 148,835,852,909 | 43.73 | % | 148,835,852,909 | 43.73 | % | ||||||||||||||||||||||||||
Compañía Inmobiliaria y de Inversiones Saga SpA (1) | 20,918,589,773 | 6.15 | % | 20,918,589,773 | 6.15 | % | ||||||||||||||||||||||||||
Cía. de Seguros Confuturo S.A. (former CorpVida) | — | — | — | — | ||||||||||||||||||||||||||||
Cía. de Seguros CorpSeguros S.A. | — | — | — | — | ||||||||||||||||||||||||||||
Others investment companies | — | — | — | — | ||||||||||||||||||||||||||||
Itaú Unibanco | 182,956,488,453 | 35.71 | % | 182,956,488,453 | 35.71 | % | ||||||||||||||||||||||||||
Itaú Unibanco Holding S.A. | 115,039,610,411 | 22.45 | % | 115,039,610,411 | 22.45 | % | ||||||||||||||||||||||||||
ITB Holding Brasil Participaçoes Limitada | 57,008,875,206 | 11.13 | % | 57,008,875,206 | 11.13 | % | ||||||||||||||||||||||||||
CGB II SpA | 10,908,002,836 | 2.13 | % | 10,908,002,836 | 2.13 | % | ||||||||||||||||||||||||||
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Total Saieh Group | 169,754,442,682 | 49.88 | % | 169,754,442,682 | 49.88 | % | ||||||||||||||||||||||||||
Saieh Family | 158,846,095,628 | 31.00 | % | 158,846,095,628 | 31.00 | % | ||||||||||||||||||||||||||
Corp. Group Banking S.A. | 137,927,850,073 | 26.92 | % | 137,927,850,073 | 26.92 | % | ||||||||||||||||||||||||||
Cía. Inmob. y de Inversiones Saga SpA (1) | 20,918,245,555 | 4.08 | % | 20,918,245,555 | 4.08 | % | ||||||||||||||||||||||||||
IFC | 17,017,909,711 | 5.00 | % | 17,017,909,711 | 5.00 | % | 17,017,909,711 | 3.32 | % | 17,017,909,711 | 3.32 | % | ||||||||||||||||||||
Sierra Nevada Investment Chile Dos Ltda. (Santo Domingo Group) | 9,817,092,180 | 2.88 | % | 9,817,092,180 | 2.88 | % | ||||||||||||||||||||||||||
Others | 153,586,266,299 | 29.97 | % | 153,586,266,299 | 29.97 | % | ||||||||||||||||||||||||||
ADRs holders and Foreign investors | 71,903,556,140 | 21.13 | % | 71,903,556,140 | 21.13 | % | 65,601,449,327 | 12.80 | % | 65,601,449,327 | 12.80 | % | ||||||||||||||||||||
AFPs (Administradoras de Fondos de Pensiones) | 2,901,375,999 | 0.85 | % | 2,901,375,999 | 0.85 | % | 2,209,460,345 | 0.43 | % | 2,209,460,345 | 0.43 | % | ||||||||||||||||||||
Securities Brokerage | 32,526,108,137 | 9.56 | % | 32,526,108,137 | 9.56 | % | 37,843,003,400 | 7.38 | % | 37,843,003,400 | 7.38 | % | ||||||||||||||||||||
Santo Domingo Group | 9,817,092,180 | 1.92 | % | 9,817,092,180 | 1.92 | % | ||||||||||||||||||||||||||
Insurance Companies(2) | 8,686,054,604 | 2.55 | % | 8,686,054,604 | 2.55 | % | 6,085,105,294 | 1.19 | % | 6,085,105,294 | 1.19 | % | ||||||||||||||||||||
Other minority shareholders(3) | 27,751,654,781 | 8.15 | % | 27,751,654,781 | 8.15 | % | 32,030,155,753 | 6.25 | % | 32,030,155,753 | 6.25 | % | ||||||||||||||||||||
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Others | 143,768,749,661 | 42.24 | % | 143,768,749,661 | 42.24 | % | ||||||||||||||||||||||||||
Total | 340,358,194,234 | 100.00 | % | 340,358,194,234 | 100.00 | % | 512,406,760,091 | 100 | % | 512,406,760,091 | 100 | % | ||||||||||||||||||||
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(1) | Includes |
As of February 29, 2016,March 31, 2017, ADR holders (through the depositary) and foreign investors held approximately 28.49%14.72% of our total common shares, represented by fiveseven registered shareholders (Deutsche Bank Trust Company Americas - ADRs; Banco de Chile on behalf ofnon-resident third parties; Banco Itaú Corpbanca on behalf of investors; Banco Santander on behalf of foreign investors; Banco Santander-HSBC Bank PLC London Client Account; Banco Santander-HSBC Global Custody Clients S/C; and Sierra Nevada Investments Chile Dos Ltda.)Limitada). The remaining 71.51%85.28% of our total shares were held locally, in Chile, represented by 243,375,171,062436,988,218,584 shares held by local shareholders. All of our shareholders have identical voting rights.
Corp Group BankingItaú Unibanco Holding S.A., ITB Holding Brasil Participações Limitada and SagaCGB II SpA, accounted for approximately 43.73%22.45%, 11.13% and 6.15%2.13%, respectively, of our outstanding common shares as of DecemberMarch 31, 2015. In connection with the pending2017. Itaú-CorpBanca Merger, between August Unibanco Holding S.A., ITB Holding Brasil Participações Limitada and September 2014 and February 2016, Corp Group Banking and Saga sold 5,208,000,000 and 344,218 common shares, respectively, of CorpBanca, decreasing its joint share ownership by 1.53%. Corp Group Banking and SagaCGB II SpA are each controlled by Mr. SaiehItaú Unibanco who together with membersis the sole controlling shareholder of his family, controls CorpBanca.
After the closing of the Itaú-CorpBanca Merger, Itaú Unibanco and our current controlling shareholders will beneficially own 33.58%CorpGroup have signed the Itaú CorpGroup Shareholders’ Agreement to determine aspects related to corporate governance, dividend policy (based on performance and 33.13%capital metrics), transfer of our outstanding common shares, respectively. In connection with the Transaction Agreement, our controlling shareholders have agreed that at the closing of the Itaú-CorpBanca Merger, they will enter into the Itaú-CorpBanca Shareholders Agreement, whereby Itaú Unibanco will control the merged bank, or Itaú-CorpBanca, after the consummation of the Itaú-CorpBanca Merger.liquidity and other matters. For a description of the Itaú-CorpBanca Shareholders CorpGroup Shareholders’ Agreement and the Transaction Agreement, see Item“Item 10. Additional Information—C. Material Contracts.”
B. | RELATED PARTY TRANSACTIONS |
GENERAL
In the ordinary course of our business, we engage in a variety of transactions with certain of our affiliates and related parties. The Chilean Corporations Act requires that our transactions with related parties be in our interest and also on anarm’s-length basis or on similar terms to those customarily prevailing in the market. We are required to compare the terms of any such transaction to those prevailing in the market at the date the transaction is to be entered into. In the event that the transaction is not within the ordinary course of business, prior to its effectiveness, the directors committee must prepare a report describing the conditions of the operation and present it to the board of directors for its express approval. Directors of companies that violate this provision are liable for the resulting losses. Under the Chilean General Banking Act, transactions between a bank and its affiliates are subject to certain additional restrictions.
Under the Chilean Corporations Act, a “related party transaction”, in the case of an open stock corporation, is any operation between such corporation and (i) one or more related persons under article 100 of the Securities Market Act (see below), (ii) a director, manager, administrator, principal officer or liquidator of the corporation, by him/herself or on behalf of persons other than the corporation, or their respective spouses or blood or marriage relatives to the second degree, (iii) an entity of which any of the persons indicated in the previous numeral is the direct or indirect owner of ten percent or more of its capital or a director, manager or officer, (iv) a person or entity determined as such by theby-laws of the corporation or the board committee, and (v) an entity in which a director, manager, administrator, principal officer or liquidator of the corporation, has acted in any of those capacities during the immediately previous 18 months.
Article 100 of the Securities Market Act provides that the following persons are “related” to a company: (i) the other entities of the business conglomerate to which the company belongs, (ii) parents, subsidiaries and equity-method investors and investees of the company, (iii) all directors, managers, officers and liquidators of the company and their spouses or blood relatives to the second degree, or any entity controlled, directly or indirectly, by any of the referred individuals, (iv) any person that, by him/herself or with other persons under a joint action agreement, may appoint at least one member of the management of the company or control ten percent or more of the capital or voting capital of a stock company and (v) other entities or persons determined as such by the SVS.
A publicly-traded corporation may only enter into a related transaction when its aim is to contribute to the corporate general interests, its conditions are set at arm’s length and the corporation has followed the procedure indicated in the Chilean Corporations Act. The procedure to approve a related transaction can be summarized as follows: (i) the directors, managers, administrators, principal officers and liquidators involved in the potential transaction must give notice thereof to the board (these persons are obligated to disclose their interest in the transaction and their reasons to justify the convenience of the transaction for the corporation, both of which must be informed to the public), (ii) the absolute majority of the board, excluding any director involved in the transaction, must approve the transaction, (iii) the approval given by the board must be informed to the next shareholders’ meeting, (iv) if the directors involved in the transaction form the majority of the board, the transaction may only be approved by the unanimity of the remaining directors or bytwo-thirds of the issued voting shares in the corporation in a shareholders’ meeting, and (v) where the approval of the shareholders’ meeting is required, the board will request an independent appraiser to submit to the shareholders the conclusions regarding the conditions of the transaction.
These rules are not applicable tonon-material transactions in terms of amounts involved, transactions included in the ordinary course of business of the corporation, according to the policies approved by the board and transactions with another entity of which the corporation owns at least 95% of its shares or rights.
Non-compliance with these rules does not invalidate the transaction, but the persons involved will be obligated to transfer the benefit accrued thereby from the transaction to the corporation and will be held liable for the potential damages suffered by the corporation. These rules apply to all publicly-traded corporations and to their subsidiaries, regardless of their corporate type.
We believe that we have complied with the applicable requirements of the Chilean Corporations Act in all transactions with related parties and affirm that we will continue to comply with such requirements.
As of December 31, 2013, 20142015 and 2015,2016, loans to related parties totaled Ch$364,424 million, Ch$228,9897,314 million and CCh$131,858Ch$233,672 million, respectively, and related party receivables, other than loans, totaled Ch$27,325 million, Ch$18,1572,190 million and CCh$16,805Ch$91,358 million, respectively. See Note 3332 to our financial statements for a more detailed accounting of transactions with related parties.
LOANS TO RELATED PARTIES
As of December 31, 2013, 20142015 and 2015,2016, loans to related parties were as follows:
As of December 31, 2015 | Operating Companies | Investment Companies | Individuals | |||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||
Loans and receivables to customers: | ||||||||||||
Commercial loans | 86,595 | 24,406 | 3,863 | |||||||||
Mortgage Loans | — | — | 16,451 | |||||||||
Consumer Loans | — | — | 2,362 | |||||||||
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Loans and receivables to customers - gross | 86,595 | 24,406 | 22,676 | |||||||||
Provision for loan losses | (1,731 | ) | (6 | ) | (82 | ) | ||||||
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Loans and receivables to customers, net | 84,864 | 24,400 | 22,594 | |||||||||
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Other | 28,972 | 674 | 2,910 | |||||||||
As of December 31, 2014 | Operating Companies | Investment Companies | Individuals | |||||||||
(in millions of constant Ch$ as of December 31, 2014) | ||||||||||||
Loans and receivables to customers: | ||||||||||||
Commercial loans | 181,576 | 31,351 | 1,741 | |||||||||
Mortgage Loans | — | — | 14,580 | |||||||||
Consumer Loans | — | — | 2,592 | |||||||||
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Loans and receivables to customers - gross | 181,576 | 31,351 | 18,913 | |||||||||
Provision for loan losses | (2,650 | ) | (154 | ) | (47 | ) | ||||||
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Loans and receivables to customers, net | 178,926 | 31,197 | 18,866 | |||||||||
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Other | 76,396 | 312 | 2,304 | |||||||||
As of December 31, 2013 | Operating Companies | Investment Companies | Individuals | |||||||||
(in millions of constant Ch$ as of December 31, 2013) | ||||||||||||
Loans and receivables to customers: | ||||||||||||
Commercial loans | 161,421 | 193,076 | 1,915 | |||||||||
Mortgage Loans | — | — | 16,267 | |||||||||
Consumer Loans | — | — | 4,956 | |||||||||
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Loans and receivables to customers - gross | 161,421 | 193,076 | 23,138 | |||||||||
Provision for loan losses | (2,334 | ) | (10,792 | ) | (86 | ) | ||||||
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Loans and receivables to customers, net | 159,087 | 182,284 | 23,053 | |||||||||
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Other | 71,457 | 332 | 2,166 |
As of December 31, 2016 Loans and receivables to customers: Commercial loans Mortgage Loans Consumer Loans Loans and receivables to customers - gross Provision for loan losses Loans and receivables to customers, net As of December 31, 2015 Loans and receivables to customers: Commercial loans Mortgage Loans Consumer Loans Loans and receivables to customers - gross Provision for loan losses Loans and receivables to customers, net Operating
Companies Investment
Companies Individuals (in millions of constant Ch$ as of December 31, 2016) 117,362 93,170 3,070 — — 19,568 — — 3,493 117,362 93,170 26,131 (2,398 ) (396 ) (197 ) 114,964 92,774 25,934 Operating
Companies Investment
Companies Individuals (in millions of constant Ch$ as of December 31, 2015) 40 — 831 — — 5,209 — — 1,245 40 — 7,285 — — (11 ) 40 — 7,274
All loans to related parties were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present other unfavorable features. During 2013, 20142015 and 2015,2016, and in accordance with IFRS, the total gross amounts of related party loans outstanding amounted to, Ch$435,106 million, Ch$272,9627,325 million and Ch$284,941236,663 million, respectively.
OTHER TRANSACTIONS WITH RELATED PARTIES
During 2013, 20142015 and 2015,2016, we had the following income (expenses) from services provided to (by) related parties:
For the year ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
Company | Income (expenses) | Income (expenses) | Income (expenses) | |||||||||
(in million of nominal Ch$) | ||||||||||||
Transbank S.A. | (2,430 | ) | (3,617 | ) | (5,469 | ) | ||||||
Inmobiliaria Edificio Corp Group S.A. | (2,740 | ) | (3,067 | ) | (4,298 | ) | ||||||
Corp Group Interhold S.A. and Corp Group Holding Inversiones Ltda. | (2,632 | ) | (2,805 | ) | (2,664 | ) | ||||||
Redbanc S.A. | (1,782 | ) | (2,016 | ) | (2,028 | ) | ||||||
Promoservice S.A. | (1,508 | ) | (1,188 | ) | (1,677 | ) | ||||||
Recaudaciones y Cobranzas S.A. | (971 | ) | (1,943 | ) | — | |||||||
Operadora de Tarjeta de Crédito Nexus S.A. | (846 | ) | (936 | ) | (1,018 | ) | ||||||
Fundación Corpgroup Centro Cultural | (736 | ) | (1,505 | ) | (3,550 | ) | ||||||
Fundación Descubreme | (80 | ) | (78 | ) | (193 | ) | ||||||
Compañía de Seguros Vida Corp S.A. | (318 | ) | (159 | ) | (160 | ) | ||||||
Empresa Periodistica La Tercera S.A. | (163 | ) | (282 | ) | — | |||||||
SMU S.A. Rendic Hnos S.A. | (1,928 | ) | (2,092 | ) | (2,054 | ) | ||||||
Corp Research S.A. | (408 | ) | (426 | ) | ||||||||
CAI Gestion Inmobiliaria S.A | (219 | ) | (58 | ) | ||||||||
Grupo de Radios Dial S.A | (177 | ) | (189 | ) | ||||||||
Hotel Corporation of Chile S.A | (132 | ) | (160 | ) | ||||||||
Pulso Editorial S.A | (111 | ) | (697 | ) | ||||||||
Corp Imagen y diseños S.A | (76 | ) | (89 | ) | ||||||||
Asesorias e Inversiones Rapelco Limitada S.A | (49 | ) | (53 | ) | ||||||||
|
|
|
|
|
| |||||||
(16,134 | ) | (20,859 | ) | (24,783 | ) |
For the year ended December 31, | ||||||||
2015 | 2016 | |||||||
Company | Income (expenses) | Income (expenses) | ||||||
(in millions of nominal Ch$) | ||||||||
Redbanc S.A. | (888 | ) | (3,754 | ) | ||||
Transbank S.A. | (5,572 | ) | (10,882 | ) | ||||
Combanc S.A. | (164 | ) | (291 | ) | ||||
Itaú Chile Cía. de Seguros de Vida S.A. | — | — | ||||||
Seguros | (2,168 | ) | (21,775 | ) | ||||
Servicios de recaudación | (53 | ) | — | |||||
Arriendos | (15 | ) | — | |||||
Asesorias Cumelen S.A. | — | (450 | ) | |||||
Corp Research S.A. | — | (443 | ) | |||||
Recuperadora de Créditos S.A. | (1,030 | ) | (540 | ) | ||||
Itaú Chile Inv. Serv. y Administración S.A. | (587 | ) | (422 | ) | ||||
Compañia de Seguros Confuturo S. A. | — | (1,418 | ) | |||||
Instituto de Estudios Bancarios Guillermo Subercaseaux | — | (69 | ) | |||||
Opina S.A. | — | (110 | ) | |||||
VIP Asesorias y Servicios Integrales Limitada | — | (185 | ) | |||||
Itaú Unibanco S.A. | (6,610 | ) | — | |||||
CAI Gestion Inmobiliaria S.A. | — | (90 | ) | |||||
Compañia de Seguros Corp Seguros S.A | — | (3,263 | ) | |||||
Universidad Andres Bello | — | (32 | ) | |||||
Promoservice S.A. | — | (1,431 | ) | |||||
Comder Contraparte Central S.A | — | (697 | ) | |||||
Sinacofi S.A | — | (918 | ) | |||||
Operadora de Tarjeta de Crédito Nexus S.A. | — | (1,896 | ) | |||||
Pulso Editorial S.A | — | (521 | ) | |||||
Inmobiliaria Edificio CorpGroup S.A. | — | (5,010 | ) | |||||
Grupo de Radios Dial S.A. | — | (107 | ) | |||||
Hotel Corporation of Chile S.A. | — | (64 | ) | |||||
Corp Imagen y diseños S.A. | — | (82 | ) | |||||
Asesorias e Inversiones Rapelco Limitada S.A. | — | (37 | ) | |||||
CorpGroup Holding Inversiones Limitada | — | (394 | ) | |||||
SMU S.A., Rendic Hnos. S.A. | — | (2,152 | ) | |||||
Inversiones CorpGroup Interhold Limitada | — | (2,172 | ) | |||||
|
|
|
| |||||
(17,087 | ) | (59,205 | ) |
These transactions were carried out on terms normally prevailing in the market at the date of the transaction.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. | FINANCIAL INFORMATION |
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See “Item 17. Financial Statements”.Statements.”
LEGAL PROCEEDINGS
We are involved in collections proceedings initiated by us in the normal course of business and certain proceedings against us in the ordinary course of banking business as disclosed in Note 2221 to our audited consolidated financial statements included herein.
We are also involved in litigation with the SBIF before theCorte de Apelaciones de Santiago(Santiago Court
GENERAL
In the ordinary course of Appeals). On December 30, 2015,our business, we engage in a variety of transactions with certain of our affiliates and related parties. The Chilean Corporations Act requires that our transactions with related parties be in our interest and also on anarm’s-length basis or on similar terms to those customarily prevailing in the SBIF issued letter N° 16,191 (or Letter 16,191) whereby we were informedmarket. We are required to compare the terms of any such transaction to those prevailing in the market at the date the transaction is to be entered into. In the event that asthe transaction is not within the ordinary course of business, prior to its effectiveness, the directors committee must prepare a consequencereport describing the conditions of the appointment ofoperation and present it to the former member of our board of directors Mr. Rafael Guilisasti Gana, as memberfor its express approval. Directors of the boards of directors of Norte Grande S.A., Sociedad de Inversiones Oro Blanco S.A. and Sociedad de Inversiones Pampa Calichera S.A., the SBIF had commenced a special review on the corporate group known as “Cascadas” in order to verify our compliance with credit limitations set forth in the Chilean General Banking Act. The SBIF concludedcompanies that all the companies of the Cascadas groupviolate this provision are part of a “corporate organizational structure” to exercise control over SQM S.A., therefore, they should be considered a single debtorliable for the purposes of computing the above referenced credit limitations. As a consequence of the above, the SBIF concluded that CorpBanca violated the individual lending limits set forth in article 84 N° 1 ofresulting losses. Under the Chilean General Banking Act, in relationtransactions between a bank and its affiliates are subject to article 85 of the same norm regarding the companies that constitute the Cascadas group. In light of the foregoing, the SBIF imposed a fine on CorpBanca of 10% of the excess of such credit limitations equal to Ch$21,764,507,494 (U.S.$30.65 million).
Our board of directors, in a special meeting held on January 4, 2016, unanimously instructed the management of the bank to exercise any and all available actions and claims in order to rescind in its entirety Letter 16,191, due to material legal grounds and the fact that in imposing the fine the SBIF violated the most basic principles of due process. Consequently, on January 18, 2016, CorpBanca filed areclamación(complaint) before the Santiago Court of Appeals against the SBIF, after having paid the full amount of the fine as this advanced payment is a mandatory requirement imposed by the Chilean law in order to file thereclamación. The complaint filed by the bank seeks that Letter 16,191 is declared null and void, together with the fine imposed thereby; the restitution of the funds paid (which are held, in the meantime, in a special account of the SBIF at Banco del Estado de Chile, which can be withdrawn only to reimburse them to CorpBanca if the Court accepts the claim, or to give the amount to the State upon dismissal of thereclamación) by CorpBanca and the complete acquittal of the bank.
Pursuant to local regulation, on March 4th, 2016, the Court gave the SBIF a term to reply to CorpBanca’s claims. Such response was filed on March 17th, 2016.
DIVIDEND POLICYcertain additional restrictions.
Under the Chilean Corporations Act, Chileana “related party transaction”, in the case of an open stock companies,corporation, is any operation between such corporation and (i) one or more related persons under article 100 of the Securities Market Act (see below), (ii) a director, manager, administrator, principal officer or liquidator of the corporation, by him/herself or on behalf of persons other than the corporation, or their respective spouses or blood or marriage relatives to the second degree, (iii) an entity of which any of the persons indicated in the previous numeral is the direct or indirect owner of ten percent or more of its capital or a director, manager or officer, (iv) a person or entity determined as ours,such by theby-laws of the corporation or the board committee, and (v) an entity in which a director, manager, administrator, principal officer or liquidator of the corporation, has acted in any of those capacities during the immediately previous 18 months.
Article 100 of the Securities Market Act provides that the following persons are generally required“related” to distributea company: (i) the other entities of the business conglomerate to which the company belongs, (ii) parents, subsidiaries and equity-method investors and investees of the company, (iii) all directors, managers, officers and liquidators of the company and their spouses or blood relatives to the second degree, or any entity controlled, directly or indirectly, by any of the referred individuals, (iv) any person that, by him/herself or with other persons under a joint action agreement, may appoint at least 30%one member of the management of the company or control ten percent or more of the capital or voting capital of a stock company and (v) other entities or persons determined as such by the SVS.
A publicly-traded corporation may only enter into a related transaction when its aim is to contribute to the corporate general interests, its conditions are set at arm’s length and the corporation has followed the procedure indicated in the Chilean Corporations Act. The procedure to approve a related transaction can be summarized as follows: (i) the directors, managers, administrators, principal officers and liquidators involved in the potential transaction must give notice thereof to the board (these persons are obligated to disclose their interest in the transaction and their reasons to justify the convenience of the transaction for the corporation, both of which must be informed to the public), (ii) the absolute majority of the board, excluding any director involved in the transaction, must approve the transaction, (iii) the approval given by the board must be informed to the next shareholders’ meeting, (iv) if the directors involved in the transaction form the majority of the board, the transaction may only be approved by the unanimity of the remaining directors or bytwo-thirds of the issued voting shares in the corporation in a shareholders’ meeting, and (v) where the approval of the shareholders’ meeting is required, the board will request an independent appraiser to submit to the shareholders the conclusions regarding the conditions of the transaction.
These rules are not applicable tonon-material transactions in terms of amounts involved, transactions included in the ordinary course of business of the corporation, according to the policies approved by the board and transactions with another entity of which the corporation owns at least 95% of its shares or rights.
Non-compliance with these rules does not invalidate the transaction, but the persons involved will be obligated to transfer the benefit accrued thereby from the transaction to the corporation and will be held liable for the potential damages suffered by the corporation. These rules apply to all publicly-traded corporations and to their subsidiaries, regardless of their net income each year, unless otherwise agreed bycorporate type.
We believe that we have complied with the unanimous consent of our shareholders. In the event of any loss of capital orapplicable requirements of the legal reserve, no dividends can be distributed so long as such loss is not recovered from earnings or otherwise. No dividends above the legal minimum can be distributed if doing so would resultChilean Corporations Act in the bank exceeding its indebtedness ratio or its lending limits.
At our ordinary shareholders’ meeting held on March 11, 2016, our shareholders approved a new dividend policy for 2016 providing for the distribution of the 100% of the fiscal year’s net income, calculated as total net income for the period less an amount provisionedall transactions with related parties and affirm that we will continue to comply with the Optimal Minimum Regulatory Capital,such requirements.
As of December 31, 2015 and 2016, loans to related parties totaled Ch$7,314 million and Ch$233,672 million, respectively, and related party receivables, other than loans, totaled Ch$2,190 million and Ch$91,358 million, respectively. See Note 32 to our financial statements for a more detailed accounting of transactions with related parties.
LOANS TO RELATED PARTIES
As of December 31, 2015 and 2016, loans to related parties were as this term is definedfollows:
As of December 31, 2016 | Operating Companies | Investment Companies | Individuals | |||||||||
(in millions of constant Ch$ as of December 31, 2016) | ||||||||||||
Loans and receivables to customers: | ||||||||||||
Commercial loans | 117,362 | 93,170 | 3,070 | |||||||||
Mortgage Loans | — | — | 19,568 | |||||||||
Consumer Loans | — | — | 3,493 | |||||||||
|
|
|
|
|
| |||||||
Loans and receivables to customers - gross | 117,362 | 93,170 | 26,131 | |||||||||
Provision for loan losses | (2,398 | ) | (396 | ) | (197 | ) | ||||||
|
|
|
|
|
| |||||||
Loans and receivables to customers, net | 114,964 | 92,774 | 25,934 | |||||||||
|
|
|
|
|
| |||||||
As of December 31, 2015 | Operating Companies | Investment Companies | Individuals | |||||||||
(in millions of constant Ch$ as of December 31, 2015) | ||||||||||||
Loans and receivables to customers: | ||||||||||||
Commercial loans | 40 | — | 831 | |||||||||
Mortgage Loans | — | — | 5,209 | |||||||||
Consumer Loans | — | — | 1,245 | |||||||||
|
|
|
|
|
| |||||||
Loans and receivables to customers - gross | 40 | — | 7,285 | |||||||||
Provision for loan losses | — | — | (11 | ) | ||||||||
|
|
|
|
|
| |||||||
Loans and receivables to customers, net | 40 | — | 7,274 | |||||||||
|
|
|
|
|
|
All loans to related parties were made in the Shareholders’ Agreement. See Item 10. Additional Information—C. Material Contracts, Shareholders Agreement. Although our boardordinary course of directors has adoptedbusiness, were made on substantially the aformentioned dividend policysame terms, including interest rates and collateral, as those prevailing at the time for Corpbanca,comparable transactions with other persons, and did not involve more than the amountnormal risk of dividend payments will depend upon, amongcollectability or present other factors, our then current levelunfavorable features. During 2015 and 2016, and in accordance with IFRS, the total gross amounts of earnings, capital and legal reserve requirements, as well as market conditions, and there can be no assurance as to the amount or timing of future dividends. Our dividend policy was to distribute at least 50% of each fiscal year net income, calculated as total net income for the period less an amount which maintains capital constant in real terms until March 11, 2016. Dividend distributions in 2013, 2014 and 2015 eachrelated party loans outstanding amounted to, 50%, 57%Ch$7,325 million and 50% of netCh$236,663 million, respectively.
OTHER TRANSACTIONS WITH RELATED PARTIES
During 2015 and 2016, we had the following income for(expenses) from services provided to (by) related parties:
For the year ended December 31, | ||||||||
2015 | 2016 | |||||||
Company | Income (expenses) | Income (expenses) | ||||||
(in millions of nominal Ch$) | ||||||||
Redbanc S.A. | (888 | ) | (3,754 | ) | ||||
Transbank S.A. | (5,572 | ) | (10,882 | ) | ||||
Combanc S.A. | (164 | ) | (291 | ) | ||||
Itaú Chile Cía. de Seguros de Vida S.A. | — | — | ||||||
Seguros | (2,168 | ) | (21,775 | ) | ||||
Servicios de recaudación | (53 | ) | — | |||||
Arriendos | (15 | ) | — | |||||
Asesorias Cumelen S.A. | — | (450 | ) | |||||
Corp Research S.A. | — | (443 | ) | |||||
Recuperadora de Créditos S.A. | (1,030 | ) | (540 | ) | ||||
Itaú Chile Inv. Serv. y Administración S.A. | (587 | ) | (422 | ) | ||||
Compañia de Seguros Confuturo S. A. | — | (1,418 | ) | |||||
Instituto de Estudios Bancarios Guillermo Subercaseaux | — | (69 | ) | |||||
Opina S.A. | — | (110 | ) | |||||
VIP Asesorias y Servicios Integrales Limitada | — | (185 | ) | |||||
Itaú Unibanco S.A. | (6,610 | ) | — | |||||
CAI Gestion Inmobiliaria S.A. | — | (90 | ) | |||||
Compañia de Seguros Corp Seguros S.A | — | (3,263 | ) | |||||
Universidad Andres Bello | — | (32 | ) | |||||
Promoservice S.A. | — | (1,431 | ) | |||||
Comder Contraparte Central S.A | — | (697 | ) | |||||
Sinacofi S.A | — | (918 | ) | |||||
Operadora de Tarjeta de Crédito Nexus S.A. | — | (1,896 | ) | |||||
Pulso Editorial S.A | — | (521 | ) | |||||
Inmobiliaria Edificio CorpGroup S.A. | — | (5,010 | ) | |||||
Grupo de Radios Dial S.A. | — | (107 | ) | |||||
Hotel Corporation of Chile S.A. | — | (64 | ) | |||||
Corp Imagen y diseños S.A. | — | (82 | ) | |||||
Asesorias e Inversiones Rapelco Limitada S.A. | — | (37 | ) | |||||
CorpGroup Holding Inversiones Limitada | — | (394 | ) | |||||
SMU S.A., Rendic Hnos. S.A. | — | (2,152 | ) | |||||
Inversiones CorpGroup Interhold Limitada | — | (2,172 | ) | |||||
|
|
|
| |||||
(17,087 | ) | (59,205 | ) |
These transactions were carried out on terms normally prevailing in the immediately preceding fiscal year, respectively.
In the event that dividends are paid, holders of ADSs will be entitled to receive dividends to the same extent as the owners of common shares. Dividends received by holders of ADSs will, absent changes in Chilean exchange controls or other laws, be converted into U.S. dollars and distributed net of currency exchange expenses and fees of the depositary and will be subject to Chilean withholding tax, currently imposedmarket at the rate of 35% (which may be subject to credits in certain cases). Owners of ADSs are not charged with any fees with respect to cash or stock dividends.
B. SIGNIFICANT CHANGES
There have been no significant changes since the date of our annual financial statements.the transaction.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM |
A. OFFERCONSOLIDATED STATEMENTS AND LISTING DETAILSOTHER FINANCIAL INFORMATION
PRICE HISTORYSee “Item 17. Financial Statements.”
The table below shows, forLEGAL PROCEEDINGS
We are involved in collections proceedings initiated by us in the periods indicated, highnormal course of business and low closing prices (in nominal Chilean pesos)certain proceedings against us in the ordinary course of the common shares on the Santiago Stock Exchange and of our ADSs on the New York Stock Exchange.
Santiago Stock Exchange | New York Stock Exchange | |||||||||||||||
Common Stock | ADSs | |||||||||||||||
High | Low | High | Low | |||||||||||||
(Ch$ per share (1)) | (US$ per ADS(2)) | |||||||||||||||
Annual Price History | ||||||||||||||||
2011 | 8.78 | 5.81 | 93.76 | 17.05 | ||||||||||||
2012 | 7.40 | 5.50 | 23.08 | 17.11 | ||||||||||||
2013 | 7.47 | 4.73 | 22.19 | 13.75 | ||||||||||||
2014 | 7.79 | 5.92 | 21.14 | 15.82 | ||||||||||||
2015 | 7.90 | 5.53 | 18.78 | 11.70 | ||||||||||||
Quarterly Price History | ||||||||||||||||
2013 1st Quarter | 6.98 | 6.44 | 22.19 | 20.32 | ||||||||||||
2013 2nd Quarter | 6.64 | 5.25 | 20.98 | 15.20 | ||||||||||||
2013 3rd Quarter | 5.80 | 4.73 | 17.25 | 13.75 | ||||||||||||
2013 4th Quarter | 7.47 | 5.45 | 21.15 | 16.05 | ||||||||||||
2014 1st Quarter | 7.49 | 5.92 | 21.14 | 15.82 | ||||||||||||
2014 2nd Quarter | 6.92 | 6.44 | 18.88 | 17.38 | ||||||||||||
2014 3rd Quarter | 7.71 | 6.74 | 19.67 | 17.55 | ||||||||||||
2014 4th Quarter | 7.79 | 7.17 | 20.20 | 17.36 | ||||||||||||
2015 1st Quarter | 7.68 | 6.60 | 18.54 | 15.82 | ||||||||||||
2015 2nd Quarter | 7.90 | 6.71 | 18.78 | 16.34 | ||||||||||||
2015 3rd Quarter | 7.00 | 6.07 | 16.48 | 12.91 | ||||||||||||
2015 4th Quarter | 6.37 | 5.53 | 14.09 | 11.70 | ||||||||||||
Monthly Price History | ||||||||||||||||
September 2015 | 6.43 | 6.11 | 14.55 | 12.91 | ||||||||||||
October 2015 | 6.37 | 6.08 | 14.09 | 13.23 | ||||||||||||
November 2015 | 6.37 | 6.02 | 13.62 | 12.71 | ||||||||||||
December 2015 | 6.00 | 5.53 | 12.96 | 11.70 | ||||||||||||
January 2016 | 5.62 | 5.20 | 11.74 | 10.87 | ||||||||||||
February 2016 | 5.80 | 5.29 | 12.68 | 11.26 | ||||||||||||
March 2016(3) | 5.92 | 5.54 | 12.56 | 11.98 |
Sources: Santiago Stock Exchange Official Quotation Bulletin; NYSE.
B. PLAN OF DISTRIBUTION
Not applicable.
Our common shares are traded on the Santiago Stock Exchange under the symbol “CorpBanca”. Our ADSs have been listed since November 1, 2004 on the New York Stock Exchange under the symbol “BCA”.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Set forth below is material information concerning our share capital and a brief summary of the significant provisions of our by-laws and Chilean law. This description contains material information concerning the shares, but does not purport to be complete and is qualifiedbanking business as disclosed in its entirety by referenceNote 21 to our by-laws,audited consolidated financial statements included herein.
We are also involved in litigation with the Chilean General Banking Act,SBIF before the Chilean Corporations Act and the Chilean Securities Market Act each referred to below.
GENERAL
In the ordinary course of our business, we engage in a variety of transactions with certain of our affiliates and related parties. The Chilean Corporations Act requires that our transactions with related parties be in our interest and also on anarm’s-length basis or on similar terms to those customarily prevailing in the market. We are required to compare the terms of any such transaction to those prevailing in the market at the date the transaction is to be entered into. In the event that the transaction is not within the ordinary course of business, prior to its effectiveness, the directors committee must prepare a report describing the conditions of the operation and present it to the board of directors for its express approval. Directors of companies that violate this provision are liable for the resulting losses. Under the Chilean General Banking Act, transactions between a bank and its affiliates are subject to certain additional restrictions.
Under the Chilean Corporations Act, a “related party transaction”, in the case of an open stock corporation, is any operation between such corporation and (i) one or more related persons under article 100 of the Securities Market Act (see below), (ii) a director, manager, administrator, principal officer or liquidator of the corporation, by him/herself or on behalf of persons other than the corporation, or their respective spouses or blood or marriage relatives to the second degree, (iii) an entity of which any of the persons indicated in the previous numeral is the direct or indirect owner of ten percent or more of its capital or a director, manager or officer, (iv) a person or entity determined as such by theby-laws of the corporation or the board committee, and (v) an entity in which a director, manager, administrator, principal officer or liquidator of the corporation, has acted in any of those capacities during the immediately previous 18 months.
Article 100 of the Securities Market Act provides that the following persons are “related” to a company: (i) the other entities of the business conglomerate to which the company belongs, (ii) parents, subsidiaries and equity-method investors and investees of the company, (iii) all directors, managers, officers and liquidators of the company and their spouses or blood relatives to the second degree, or any entity controlled, directly or indirectly, by any of the referred individuals, (iv) any person that, by him/herself or with other persons under a joint action agreement, may appoint at least one member of the management of the company or control ten percent or more of the capital or voting capital of a stock company and (v) other entities or persons determined as such by the SVS.
A publicly-traded corporation may only enter into a related transaction when its aim is to contribute to the corporate general interests, its conditions are set at arm’s length and the corporation has followed the procedure indicated in the Chilean Corporations Act. The procedure to approve a related transaction can be summarized as follows: (i) the directors, managers, administrators, principal officers and liquidators involved in the potential transaction must give notice thereof to the board (these persons are obligated to disclose their interest in the transaction and their reasons to justify the convenience of the transaction for the corporation, both of which must be informed to the public), (ii) the absolute majority of the board, excluding any director involved in the transaction, must approve the transaction, (iii) the approval given by the board must be informed to the next shareholders’ meeting, (iv) if the directors involved in the transaction form the majority of the board, the transaction may only be approved by the unanimity of the remaining directors or bytwo-thirds of the issued voting shares in the corporation in a shareholders’ meeting, and (v) where the approval of the shareholders’ meeting is required, the board will request an independent appraiser to submit to the shareholders the conclusions regarding the conditions of the transaction.
These rules are not applicable tonon-material transactions in terms of amounts involved, transactions included in the ordinary course of business of the corporation, according to the policies approved by the board and transactions with another entity of which the corporation owns at least 95% of its shares or rights.
Non-compliance with these rules does not invalidate the transaction, but the persons involved will be obligated to transfer the benefit accrued thereby from the transaction to the corporation and will be held liable for the potential damages suffered by the corporation. These rules apply to all publicly-traded corporations and to their subsidiaries, regardless of their corporate type.
We believe that we have complied with the applicable requirements of the Chilean Corporations Act in all transactions with related parties and affirm that we will continue to comply with such requirements.
As of December 31, 2015 and 2016, loans to related parties totaled Ch$7,314 million and Ch$233,672 million, respectively, and related party receivables, other than loans, totaled Ch$2,190 million and Ch$91,358 million, respectively. See Note 32 to our financial statements for a more detailed accounting of transactions with related parties.
LOANS TO RELATED PARTIES
As of December 31, 2015 and 2016, loans to related parties were as follows:
As of December 31, 2016 | Operating Companies | Investment Companies | Individuals | |||||||||
(in millions of constant Ch$ as of December 31, 2016) | ||||||||||||
Loans and receivables to customers: | ||||||||||||
Commercial loans | 117,362 | 93,170 | 3,070 | |||||||||
Mortgage Loans | — | — | 19,568 | |||||||||
Consumer Loans | — | — | 3,493 | |||||||||
|
|
|
|
|
| |||||||
Loans and receivables to customers - gross | 117,362 | 93,170 | 26,131 | |||||||||
Provision for loan losses | (2,398 | ) | (396 | ) | (197 | ) | ||||||
|
|
|
|
|
| |||||||
Loans and receivables to customers, net | 114,964 | 92,774 | 25,934 | |||||||||
|
|
|
|
|
| |||||||
As of December 31, 2015 | Operating Companies | Investment Companies | Individuals | |||||||||
(in millions of constant Ch$ as of December 31, 2015) | ||||||||||||
Loans and receivables to customers: | ||||||||||||
Commercial loans | 40 | — | 831 | |||||||||
Mortgage Loans | — | — | 5,209 | |||||||||
Consumer Loans | — | — | 1,245 | |||||||||
|
|
|
|
|
| |||||||
Loans and receivables to customers - gross | 40 | — | 7,285 | |||||||||
Provision for loan losses | — | — | (11 | ) | ||||||||
|
|
|
|
|
| |||||||
Loans and receivables to customers, net | 40 | — | 7,274 | |||||||||
|
|
|
|
|
|
All loans to related parties were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present other unfavorable features. During 2015 and 2016, and in accordance with IFRS, the total gross amounts of related party loans outstanding amounted to, Ch$7,325 million and Ch$236,663 million, respectively.
OTHER TRANSACTIONS WITH RELATED PARTIES
During 2015 and 2016, we had the following income (expenses) from services provided to (by) related parties:
For the year ended December 31, | ||||||||
2015 | 2016 | |||||||
Company | Income (expenses) | Income (expenses) | ||||||
(in millions of nominal Ch$) | ||||||||
Redbanc S.A. | (888 | ) | (3,754 | ) | ||||
Transbank S.A. | (5,572 | ) | (10,882 | ) | ||||
Combanc S.A. | (164 | ) | (291 | ) | ||||
Itaú Chile Cía. de Seguros de Vida S.A. | — | — | ||||||
Seguros | (2,168 | ) | (21,775 | ) | ||||
Servicios de recaudación | (53 | ) | — | |||||
Arriendos | (15 | ) | — | |||||
Asesorias Cumelen S.A. | — | (450 | ) | |||||
Corp Research S.A. | — | (443 | ) | |||||
Recuperadora de Créditos S.A. | (1,030 | ) | (540 | ) | ||||
Itaú Chile Inv. Serv. y Administración S.A. | (587 | ) | (422 | ) | ||||
Compañia de Seguros Confuturo S. A. | — | (1,418 | ) | |||||
Instituto de Estudios Bancarios Guillermo Subercaseaux | — | (69 | ) | |||||
Opina S.A. | — | (110 | ) | |||||
VIP Asesorias y Servicios Integrales Limitada | — | (185 | ) | |||||
Itaú Unibanco S.A. | (6,610 | ) | — | |||||
CAI Gestion Inmobiliaria S.A. | — | (90 | ) | |||||
Compañia de Seguros Corp Seguros S.A | — | (3,263 | ) | |||||
Universidad Andres Bello | — | (32 | ) | |||||
Promoservice S.A. | — | (1,431 | ) | |||||
Comder Contraparte Central S.A | — | (697 | ) | |||||
Sinacofi S.A | — | (918 | ) | |||||
Operadora de Tarjeta de Crédito Nexus S.A. | — | (1,896 | ) | |||||
Pulso Editorial S.A | — | (521 | ) | |||||
Inmobiliaria Edificio CorpGroup S.A. | — | (5,010 | ) | |||||
Grupo de Radios Dial S.A. | — | (107 | ) | |||||
Hotel Corporation of Chile S.A. | — | (64 | ) | |||||
Corp Imagen y diseños S.A. | — | (82 | ) | |||||
Asesorias e Inversiones Rapelco Limitada S.A. | — | (37 | ) | |||||
CorpGroup Holding Inversiones Limitada | — | (394 | ) | |||||
SMU S.A., Rendic Hnos. S.A. | — | (2,152 | ) | |||||
Inversiones CorpGroup Interhold Limitada | — | (2,172 | ) | |||||
|
|
|
| |||||
(17,087 | ) | (59,205 | ) |
These transactions were carried out on terms normally prevailing in the market at the date of the transaction.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. | FINANCIAL INFORMATION |
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See “Item 17. Financial Statements.”
LEGAL PROCEEDINGS
We are involved in collections proceedings initiated by us in the normal course of business and certain proceedings against us in the ordinary course of banking business as disclosed in Note 21 to our audited consolidated financial statements included herein.
We are also involved in litigation with the SBIF before theCorte de Apelaciones de Santiago(Santiago Court of Appeals). On December 30, 2015, the SBIF issued letter N° 16,191 (or Letter 16,191) whereby we were informed that as a consequence of the appointment of the former member of our board of directors, Mr. Rafael Guilisasti Gana, as member of the boards of directors of Norte Grande S.A., Sociedad de Inversiones Oro Blanco S.A. and Sociedad de Inversiones Pampa Calichera S.A., the SBIF had commenced a special review on the corporate group known as “Cascadas” in order to verify our compliance with credit limitations set forth in the Chilean General Banking Act. The SBIF concluded that all the companies of the Cascadas group are part of a “corporate organizational structure” to exercise control over SQM S.A., therefore, they should be considered a single debtor for the purposes of computing the above referenced credit limitations. As a consequence of the above, the SBIF concluded that Corpbanca violated the individual lending limits set forth in article 84 N° 1 of the Chilean General Banking Act in relation to article 85 of the same norm regarding the companies that constitute the Cascadas group. In light of the foregoing, the SBIF imposed a fine on Corpbanca of 10% of the excess of such credit limitations equal to Ch$21,764,507,494 (U.S.$30.65 million).
On January 8, 2016, the bank paid the full amount of the fine as a mandatory condition precedent to exercise its appeal rights. On January 18, 2016, the bank brought an action before the Santiago Court of Appeals seeking the annulment of the fine. Pursuant to a final ruling by the Court of Appeals of Santiago dated August 31, 2016, the fine imposed by the SBIF pursuant to letter No.16,191 was declared illegal. In accordance with Article 22 of the General Law on Banks, the favorable ruling obtained by Itaú Corpbanca is not subject to appeal.
On September 6, 2016, the SBIF filed a complaint (recurso de queja) against the judges of the Court of Appeals of Santiago before the Supreme Court. As of today, the Supreme Court has not issued its ruling. We cannot assure you that the Supreme Court decision will be favorable to us. A final,non-appealable decision that is adverse to our claims may have an adverse effect on our business, financial condition and results of operations.
On December 20, 2016, Helm LLC filed a lawsuit in the Supreme Court of the State of New York (the “State Court Lawsuit”) and a Request for Arbitration in the International Chamber of Commerce’s International Court of Arbitration in New York (the “Arbitration”) against Itaú Corpbanca, alleging certain contractual breaches. These alleged breaches relate to (i) the Amended and Restated Shareholders Agreement of HB Acquisition S.A.S., dated July 31, 2013 (the “SHA”), and (ii) the Transaction Agreement (as defined herein), providing for, among other things, the Merger, which created Itaú Corpbanca, and the potential acquisition by Itaú Corpbanca of certain shares in Corpbanca Colombia (the “TA Shares Acquisition”). In the State Court Lawsuit, Helm LLC sought an injunction in aid of arbitration to block the TA Shares Acquisition, which, as disclosed by Itaú Corpbanca in a Form6-K filed with the SEC on January 25, 2017, has been postponed until January 28, 2022. On December 30, 2016, we filed our response to the petitions of Helm LLC under the State Court Lawsuit, and on January 26, 2017, Helm LLC filed a notice to discontinue the State Court Lawsuit. The Arbitration has commenced pursuant to the applicable procedures. We and Corpbanca Colombia, the latter only as a nominal defendant, filed their respective answers to Helm LLC’s claims on February 14, 2017. We believe the claims under the Arbitration are without merit and have filed a counterclaim against Helm LLC for breaching the SHA. We are taking and will take appropriate steps to enforce our rights under the SHA and under applicable law.
DIVIDEND POLICY
Under the Chilean Corporations Act, Chilean open stock companies, such as ours, are generally required to distribute at least 30% of their net income each year, unless otherwise agreed by the unanimous consent of our shareholders. In the event of any loss of capital or of the legal reserve, no dividends can be distributed so long as such loss is not recovered from earnings or otherwise. No dividends above the legal minimum can be distributed if doing so would result in the bank exceeding its indebtedness ratio or its lending limits.
At our ordinary shareholders’ meeting held on March 27, 2017, our shareholders approved a new dividend policy providing for the distribution of the 100% of the fiscal year’s net income, calculated as total net income for the period less an amount provisioned to comply with the Optimal Minimum Regulatory Capital, as this term is defined in the Itaú CorpGroup Shareholders’ Agreement. See “Item 10. Additional Information—C. Material Contracts, Itaú CorpGroup Shareholders’ Agreement.” Although our board of directors has adopted the aforementioned dividend policy for Itaú Corpbanca, the amount of dividend payments will depend upon, among other factors, our then current level of earnings, capital and legal reserve requirements, as well as market conditions, and there can be no assurance as to the amount or timing of future dividends. Dividend distributions for former Corpbanca and for Banco Itaú Chile in 2015 and 2016 each amounted to 50% and 50% and 52% and 50% of net income for the immediately preceding fiscal year, respectively. Additionally, in July 2015 former Corpbanca paid an extraordinary dividend of 100% of the retained earnings in connection with the Transaction Agreement
In the event that dividends are paid, holders of ADSs will be entitled to receive dividends to the same extent as the owners of common shares. Dividends received by holders of ADSs will, absent changes in Chilean exchange controls or other laws, be converted into U.S. dollars and distributed net of currency exchange expenses and fees of the depositary and will be subject to Chilean withholding tax, currently imposed at the rate of 35% (which may be subject to credits in certain cases). Owners of ADSs are not charged with any fees with respect to cash or stock dividends.
B. SIGNIFICANT CHANGES
There have been no significant changes since the date of our annual financial statements.
ITEM 9. | OFFER AND LISTING DETAILS |
A. OFFER AND LISTING DETAILS
PRICE HISTORY
The table below shows, for the periods indicated, high and low closing prices (in nominal Chilean pesos) of the common shares on the Santiago Stock Exchange and of our ADSs on the New York Stock Exchange.
Santiago Stock Exchange | New York Stock Exchange | |||||||||||||||
Common Stock | ADSs | |||||||||||||||
High | Low | High | Low | |||||||||||||
(Ch$ per share (1)) | (US$ per ADS(2)) | |||||||||||||||
Annual Price History | ||||||||||||||||
2012 | 7.40 | 5.50 | 23.08 | 17.11 | ||||||||||||
2013 | 7.47 | 4.73 | 22.19 | 13.75 | ||||||||||||
2014 | 7.79 | 5.92 | 21.14 | 15.82 | ||||||||||||
2015 | 7.90 | 5.53 | 18.78 | 11.70 | ||||||||||||
2016 | 6.16 | 5.20 | 14.43 | 10.87 | ||||||||||||
Quarterly Price History | ||||||||||||||||
2014 1st Quarter | 7.49 | 5.92 | 21.14 | 15.82 | ||||||||||||
2014 2nd Quarter | 6.92 | 6.44 | 18.88 | 17.38 | ||||||||||||
2014 3rd Quarter | 7.71 | 6.74 | 19.67 | 17.55 | ||||||||||||
2014 4th Quarter | 7.79 | 7.17 | 20.20 | 17.36 | ||||||||||||
2015 1st Quarter | 7.68 | 6.60 | 18.54 | 15.82 | ||||||||||||
2015 2nd Quarter | 7.90 | 6.71 | 18.78 | 16.34 | ||||||||||||
2015 3rd Quarter | 7.00 | 6.07 | 16.48 | 12.91 | ||||||||||||
2015 4th Quarter | 6.37 | 5.53 | 14.09 | 11.70 | ||||||||||||
2016 1st Quarter | 6.13 | 5.20 | 13.75 | 10.87 | ||||||||||||
2016 2nd Quarter | 6.16 | 5.23 | 14.43 | 11.26 | ||||||||||||
2016 3rd Quarter | 5.97 | 5.46 | 13.80 | 12.32 | ||||||||||||
2016 4th Quarter | 5.99 | 5.37 | 13.81 | 11.97 | ||||||||||||
Monthly Price History | ||||||||||||||||
September 2016 | 5.95 | 5.67 | 13.80 | 12.90 | ||||||||||||
October 2016 | 5.99 | 5.73 | 13.81 | 12.82 | ||||||||||||
November 2016 | 5.80 | 5.37 | 13.52 | 12.01 | ||||||||||||
December 2016 | 5.63 | 5.40 | 13.01 | 11.97 | ||||||||||||
January 2017 | 5.69 | 5.32 | 12.89 | 12.25 | ||||||||||||
February 2017 | 5.34 | 5.06 | 12.70 | 11.65 | ||||||||||||
March 2017 | 6.12 | 5.40 | 13.68 | 12.15 | ||||||||||||
April 2017(3) | 6.40 | 6.06 | 14.48 | 13.75 |
Sources: Santiago Stock Exchange Official Quotation Bulletin; NYSE.
(1) | Pesos per share reflect nominal price at trade date. |
(2) | Price per ADS in US$: one ADS represents 5,000 shares of common stock and 1,500 since March 2011. |
(3) | Information up to April 6, 2016. |
B. PLAN OF DISTRIBUTION
Not applicable.
C. | MARKETS |
Our common shares are traded on the Santiago Stock Exchange under the symbol “ITAUCORP.” Our ADSs have been listed since November 1, 2004 on the New York Stock Exchange under the symbol “ITCB.”
D. | SELLING SHAREHOLDER |
Not applicable.
E. | DILUTION |
Not applicable.
F. | EXPENSES OF THE ISSUE |
Not applicable.
ITEM 10. | ADDITIONAL INFORMATION |
A. | SHARE CAPITAL |
Not applicable.
B. | MEMORANDUM AND ARTICLES OF INCORPORATION |
Set forth below is material information concerning our share capital and a brief summary of the significant provisions of ourby-laws and Chilean law. This description contains material information concerning the shares, but does not purport to be complete and is qualified in its entirety by reference to ourby-laws, the Chilean General Banking Act, the Chilean Corporations Act and the Chilean Securities Market Act each referred to below.
GENERAL
Shareholders rights in a Chilean bank that is also a special corporation (sociedad anónima especial) are subject to the regulations of open stock corporations (sociedades anónimas abiertasor Public Companies)public companies) are governed by the bank’sby-laws, which effectively serve the purpose of both the articles or certificate of incorporation and theby-laws of a company incorporated in the United States, by the Chilean General Banking Act and secondarily, to the extent not inconsistent with the latter, by the provisions of Chilean Corporations Act applicable to Public Companiespublic companies except for certain provisions which are expressly excluded. Article 137 of the Chilean Corporations Act sets forth that all provisions of the Chilean Corporations Act take precedence over any contrary provision in a corporation’sby-laws. Both the Chilean Corporations Act and ourby-laws provide that legal actions by shareholders against us (or our officers or directors) to enforce their rights as shareholders or by one shareholder against another in their capacity as such, are to be brought in Chile in arbitration proceedings, notwithstanding the plaintiff’s right to submit the action to the ordinary courts of Chile.
The Chilean securities markets are principally regulated by the SVS under the Chilean Securities Market Act and the Chilean Corporations Act. In the case of banks, compliance with these laws is supervised by the SBIF. These two acts provide for disclosure requirements, restrictions on insider trading and price manipulation, and protection of minority investors. The Chilean Securities Market Act sets forth requirements relating to public offerings, stock exchanges, stocksecurities brokers and dealers, and outlines disclosure requirements for companies that issue publicly offered securities. The Chilean Corporations Act sets forth the rules and requirements for establishing Public Companiespublic companies while eliminating government supervision of closed (closely-held) corporations. Public Companiescompanies are those that voluntarily, or are legally required to, register their shares in the Securities Registry.Registry kept by the SVS.
BOARD OF DIRECTORS
Our board of directors has nine11 regular members and two alternate members, elected by shareholders’ vote at ordinary shareholders’ meetings. The directors may be either shareholders ornon-shareholders of the Company. There is no age limit for directors.
A director remains in office for three years and may bere-elected indefinitely. If for any reason, the ordinary shareholders’ meeting in which the new appointments of directors are to be made is not held, the duties of those serving as such shall be extended until their replacements are designated, in which case, the board of directors shall convene a meeting at the earliest possible time in order to effect the appointments.
The directors are entitled to compensation for the performance of their duties. The amount of their compensation is determined annually at the ordinary shareholders’ meeting. In addition, payments in the form of wages, fees, travel accounts, expense accounts, dues as representatives of the board of directors and other cash payments, payments in kind or royalties of any sort whatsoever, may be paid to certain directors for the performance of specific duties or tasks in addition to their functions as directors imposed upon them specifically by the ordinary shareholders’ meeting. Any special compensation must be reported at the ordinary shareholders’ meeting, and for that purpose, a detailed and separate entry shall be made in our annual report to investors, which shall expressly indicate the complete name of each of the directors receiving special compensation.
Without prejudice to any other incapacity or incompatibility established by the Chilean Corporations Act, according to the Chilean General Banking Act, the following may not be directors: (i) those persons who have been sentenced or are being tried for crimes punishable with a principal or accessory penalty of temporary or permanent suspension from or incapacity to hold public office, (ii) those persons who have been declared bankrupt and have not been rehabilitated, (iii) members of the Chilean Congress, (iv) directors or employees of any other financial institutions, brokers and security traders, together with its directors, officers, executives and managers; employees appointed by the President of Chile and employees or officers of (x) the State, (y) any public service, public institution, semi-public institution, autonomous entity or state-controlled company, or any such entity, a Public Entity, or (z) any enterprise, corporation or public or private entity in which the State or a Public Entity has a majority interest, has made capital contributions, or is represented or participating, provided that persons holding positions in teaching activities in any of the above entities may be directors, and (v) the bank’s employees, which shall not prevent a director from holding on a temporary basis and for a term not to exceed ninety90 days the position of manager. The CEO may not be elected as a director.
For purposes of the election of directors, each shareholder shall have the right to one vote per share for purposes of electing a single person, or to distribute his votes among candidates as he or she may deem convenient, and the persons obtaining the largest number of votes in the same and single process shall be awarded positions, until all positions have been filled. The elections of regular and alternate board members are carried out separately. For purposes of casting votes, the chairman and the secretary, together with any other persons that may have been previously designated by at the meeting to sign the minutes thereof, shall issue a certificate giving evidence of the oral votes of shareholders attending, following the order of the list of attendance being taken.
Each shareholder is entitled to cast his or her vote by means of a ballot signed by him or her, stating whether he or she signs for his own account or as a representative. This entitlement notwithstanding, in order to expedite the voting process, it can be ordered that the vote be taken alternatively or by oral vote or by means of ballots. At the time of polling, the chairman may instruct that the votes be read aloud, in order for those in attendance to count the number of votes issued and verify the outcome of the voting process.
Every election of directors, or any changes in the election of directors, shall be transcribed into a public deed before a notary public, published in a newspaper of Santiago and notified to the SBIF by means of the filing of a copy of the respective public deed. Likewise, the appointments of general manager, manager and deputy managers shall be communicated and transcribed into a public deed.
If a director ceases to be able to perform his or her duties, whether by reason of conflict of interest, limitation, legal incapacity, impossibility, resignation or any other legal cause, the vacancy is filled as follows: (i) the positions of regular director is filled by a member appointed by the board of directors on its first meeting after the vacancy occurs and such member appointed by the board of directors will remain in the position until the next ordinary shareholders’ meeting, where the appointment may be ratified, in which case, the replacement director will remain in his or her position until the expiration of the term of the director he or she replaced and act as full director; and (ii) while the vacancy has not been filled by the board of directors, an alternate director shall act as regular member.
The alternate directors may temporarily replace regular directors in case of their absence or temporary inability to attend a board meeting. Alternate board members are always entitled to attend and speak at board meetings. They are entitled to vote at such meetings only when a regular member is absent and such alternate member acts as the absent member’s replacement.
During the first meeting following the ordinary shareholders’ meeting, the board of directors elects, by an absolute majority and in separate and secret votes, from among its members, a chairman a first vice chairman and a second vice chairman. If no director obtains such majority, the election is repeated among those three directors who obtained the most votes, adding any blank votes to the person who obtained the greatest number of votes. In case of a tie, the vote is repeated and, if a tie were to occur again, there is a drawing. The chairman the first vice president and the second vice president may be reelected indefinitely.
The board of directors meets in ordinary sessions at least once a month, held onpre-set dates and times determined by the board. Extraordinary meetings are held whenever called by the chairman, whether at his own will or upon the request of one or more directors, so long as the chairman determines in advance that the meeting is justified, except if the request is made by the absolute majority of the directors in office, in which case the meeting shall be held without such prior determination. The extraordinary meetings may only address those matters specifically included in the agenda for the extraordinary meeting, except that, if the meeting is attended by all the directors in office, they may agree otherwise by a unanimous vote. Notifications of meetings of the board of directors shall be made by certified letter sent to the address of each director registered with the bank, at least five days in advance of the date on which the ordinary or extraordinary session should be held. Thefive-day period shall be calculated from the date on which the letter is placed in the mail.
The quorum for the board of directors’ meeting is majority of its members in office, this is fivesix directors. Resolutions shall be adopted by the affirmative vote of the absolute majority of the attending directors. In the event of a tie, the person acting as the chairman of the meeting shall have a casting vote.
Directors having a vested interest in a negotiation, act, contract or transaction that is not related to the bank business, either as principal or as representative of another person, shall communicate such fact to the other directors. If the respective resolutions are approved by the board, it shall be in accordance with the prevailing company’s interest and fair market conditions and such director’s interest must be disclosed at the next ordinary shareholders’ meeting by the chairman of such board meeting.
The discussions and resolutions of the board of directors shall be recorded in a special book of minutes maintained by the secretary. The relevant minutes shall be signed by the directors that attended the relevant meeting. If a director determines that the minutes for a meeting are inaccurate or incomplete, he or she is entitled to record an objection before actually signing the minutes. The minutes shall be deemed approved as from the moment it is signed by all the directors that attended such meeting and all the resolutions adopted may be carried out upon the approval. However, by unanimous consent of the directors that attended the meeting, the resolutions adopted by the board may be carried out before the approval of the minutes, provided that the agreement is recorded in a written document signed by all the relevant directors. In the event of death, refusal or incapacity for any reason of any of the directors attending to sign the minutes, such circumstance shall be recorded at the end of the minutes stating the reason for the impediment.
The directors are personally liable for all of the acts they effect in the performance of their duties. Any director who wishes to disclaim responsibility for any act or resolution of the board of directors must record his or her opposition in the minutes, and the chairman must report such opposition at the following ordinary shareholders’ meeting.
The board will represent us in and out of court and, for the performance of the bank’s business, a circumstance that will not be necessary to prove before third parties, it will be empowered with all the authorities and powers of administration that the law or theby-laws do not set as exclusive to the ordinary shareholders’ meeting, without being necessary to grant any special power of attorney, even for those acts that the law requires to do so. This provision is notwithstanding the judicial representation of the bank that is part of the general manager’s authorities. The board may delegate part of its authority to the general manager, to the managers, deputy managers or attorneys of the bank, a director, a commission of directors, and for specifically determined purposes, in other persons.
CAPITALIZATION
Under Chilean law, the shareholders of a bank, acting at an extraordinary shareholders’ meeting, have the power to authorize an increase in such company’s capital with the authorization of the SBIF. When an investor subscribes for issued shares, the shares are registered in such investor’s name, even if not paid for, and the investor is treated as a shareholder for all purposes except with regard to receipt of dividends and the return of capital; provided that the shareholders may, by amending theby-laws, also grant
the right to receive dividends or distributions of capital. An investor becomes eligible to receive dividends and returns of capital once it has paid for the shares (if it has paid for only a portion of such shares, it is entitled to receive a correspondingpro-rata portion of the dividends declared and/or returns of capital with respect to such shares unless the company’sby-laws provide otherwise). If an investor does not pay for shares for which it has subscribed on or prior to the date agreed upon for payment, the board of directors is obligated to initiate legal action to recover outstanding amounts unless holders oftwo-thirds of the issued shares in an extraordinary shareholders meeting authorizes the board of directors to refrain from pursuing the collection, in which case the company’s capital will be reduced to the amount actually paid. Upon termination of the actions for collection, the board of directors shall propose to the shareholders meeting thewrite-off of thenon-paid amount and the reduction of the capital of the company to the amount effectively paid in. Authorized
shares and issued shares which have not been subscribed and paid for within the period fixed for their payment (which cannot be longer than three years) are cancelled and are no longer available for issuance by the company, unless in case of an issuance of convertible bonds (in which case the unsubscribed portion of the capital increase shall remain in place for a number of shares sufficient to comply with the option) or when reserved for compensation plans for employees.employees (in which case the maximum term for subscription and payment cannot be longer than five years).
Article 22 of Chilean Corporations Act states that the purchaser of shares of a company implicitly accepts itsby-laws and any agreements adopted at shareholders’ meetings.
OWNERSHIP RESTRICTIONS
Under Article 12 of the Chilean Securities Market Act and the Regulations of the SBIF, shareholders of Public Companies are required to report the following to the SVS and the Chilean stock exchanges:
The foregoing requirements also apply to the acquisition or sale of securities or agreements which price or return depends or is conditioned (all or in a significant part) on changes or movements in the price of such shares. Such report shall be made the day following the execution of the transaction.
In addition, majority shareholders must state in any such report whether their purpose is to acquire control of the company or if they are making a financial investment. Any beneficial owner of ADSs representing 10% or more of our share capital is subject to these reporting requirements under Chilean law. The Chilean Securities Market Act also sets forth certain regulations on takeovers of corporations.
Under Article 54 of the Chilean Securities Market Act and the regulations of the SVS, persons or entities intending to acquire control, directly or indirectly, of a Public Company, regardless of the acquisition vehicle or procedure, and including acquisitions made through direct subscriptions or private transactions, are also required to inform the public of such acquisition at least ten business days before the date of perfection of the acts which allow to obtain control of the company, but in any case, as soon as negotiations regarding the change of control are formalized and/or as soon as reserved information and/or documents concerning the target are delivered to the potential acquirer through a filing with the SVS, the stock exchanges and the companies controlled by and that control the target and through a notice published in two Chilean newspapers, which notice must disclose, among other information, the person or entity purchasing or selling and the price and conditions of any negotiations.
Within the same term, a written communication to such effect must be sent to the target corporation, the controlling corporation, the corporations controlled by the target corporation, the SVS, and to the Chilean stock exchanges on which the securities are listed.
In addition to the foregoing, Article 54A of the Chilean Securities Market Act requires that within two business days of the completion of the transactions pursuant to which a person has acquired control of a Public Company, a notice shall be published in the same newspapers in which the notice referred to above was published and notices shall be sent to the same persons mentioned in the preceding paragraphs.
A beneficial owner of ADSs intending to acquire control of us is also subject to the foregoing reporting requirements.
The provisions of the aforementioned articles do not apply whenever the acquisition is being made through a tender or exchange offer.
Title XXV of the Chilean Securities Market Act on tender offers and the regulations of the SVS provide that the following transactions shall be carried out through a tender offer:
Nevertheless, the following exceptions are applicable to all the cases described above (i) the shares are being sold by a controlling shareholder of such company at a price in cash which is not substantially higher than the market price and the shares of such company are actively traded on a stock exchange, or (ii) those shares are acquired (a) through a capital increase, (b) as a consequence of a merger, (c) by inheritance, or (d) through a forced sale.
Article 200 of the Chilean Securities Market Act prohibits any shareholder that has taken control of a Public Company to acquire, within the period of 12 months from the date of the transaction that permitted such shareholder to take control of the Public Company, a number of shares equal to or higher than 3% of the outstanding issued shares of the target without making a tender offer at a price per share not lower than the price paid at the time of the change of control transaction. However, if the acquisition is made on a stock exchange and on a pro rata basis, the controlling shareholder may purchase a higher percentage of shares, if so permitted by the regulations of the stock exchange.
Title XV of the Chilean Securities Market Act sets forth the basis to determine what constitutes control of a business group and a related party while Title XXV establishes a special procedure for acquiring control of a Public Company through a tender offer. The Chilean Securities Market Act defines control as the power of a person, or group of persons acting pursuant to a joint action agreement, to direct the majority of the votes in the shareholders meetings of the corporation, or to elect the majority of members of its board of directors, or to influence the management of the corporation significantly. Significant influence is deemed to exist in respect of the person or group of persons acting together pursuant to a joint action agreement holding, directly or indirectly, at least 25% of the voting share capital, unless:
According to the Chilean Securities Market Act, a joint action agreement is an agreement among two or more parties which, directly or indirectly, own shares in a corporation at the same time and whereby they agree to participate with the same interest in the management of the corporation or in taking control of the same. The law presumes that such an agreement exists between:
Likewise, the SVS may determine that a joint action agreement exists between two or more entities considering, among others, the number of companies in which they simultaneously participate and the frequency with which they vote identically in the election of directors, appointment of managers and other resolutions passed at shareholders’ meetings.
According to Article 96 of the Chilean Securities Market Act, a business group is a group of entities with such ties in their ownership, management or credit liabilities that it may be assumed that the economic and financial action of such members is directed by, or subordinated to, the joint interests of the group, or that there are common credit risks in the credits granted to, or securities issued by, them. According to the Chilean Securities Market Act, the following entities are part of the same business group:
Article 36 of the Chilean General Banking Act states that as a matter of public policy, no person or company may acquire, directly or indirectly, shares that alone or jointly with the shares previously owned by it, represent more than 10% of the shares of a bank without the prior authorization of the SBIF, which may not be unreasonably withheld. The prohibition also applies to beneficial owners of ADSs. In the absence of such authorization, any person or group of persons acting in concert would not be permitted to exercise voting rights with respect to the shares or ADSs acquired. In determining whether or not to issue such an authorization, the SBIF considers a number of factors enumerated in the Chilean General Banking Act, including the financial stability of the purchasing party.
Article 35bis of the Chilean General Banking Act establishes that prior authorization of the SBIF is required for:
Such prior authorization is required solely when the acquiring bank or the resulting group of banks would own a significant market share in loans (colocaciones), defined by the SBIF to be more than 15% of all loans in the Chilean banking system. The
intended purchase, merger or expansion may be denied by the SBIF pursuant to a report from the Chilean Central Bank’s Counsel. Alternatively, a purchase, merger or expansion, when the acquiring bank or resulting group would have a market share in loans defined by the SBIF to be more than 20% of all loans in the Chilean banking system, may be conditioned on one or more of the following:
If the acquiring bank or resulting group would have a market share in loans defined by the SBIF to be more than 15% but less than 20%, the authorization will be conditioned on the bank or banks maintaining an effective net equity not lower than 10% of their risk-weighted assets for the time set forth by the SBIF, which may not be less than one year. The calculation of risk-weighted assets is based on a five-category risk classification system applied to a bank’s assets that is based on the Basel Committee recommendations.
According to the Chilean General Banking Act a bank may not grant loans to related parties on more favorable terms than those generally offered tonon-related parties. Article 84 No. 2 of the Chilean General Banking Act and the Regulations of the SBIF create the presumption, among other cases, that natural persons who are holders of shares and who beneficially own more than 1% of the shares (or 5% in the case of bank’s shares actively traded) are related to the bank and imposes certain restrictions on the amounts and terms of loans made by banks to related parties. This presumption would also apply to beneficial owners of ADSs representing more than 1% of the shares, and accordingly the limitations of Article 84 No. 2 would be applicable to such beneficial owners. Finally, according to the Regulations of the SBIF, Chilean banks that issue ADSs are required to inform the SBIF if any person, directly or indirectly, acquires ADSs representing 5% or more of the total amount of shares of capital stock issued by such bank.
Article 16bis of the Chilean General Banking Act provides that the individuals or legal entities which, individually or with other people, directly control a bank and who individually own more than 10% of its shares shall send to the SBIF reliable information on their financial situation in the form and within the time set forth in Chapter1-3 of the regulations of the SBIF (Recopilación Actualizada de Normas). Also, controlling shareholders must submit information regarding their financial situation pursuant to Chapter1-17 of said regulations.
PREEMPTIVE RIGHTS AND INCREASES OF SHARE CAPITAL
The Chilean Corporations Act provides that whenever a Chilean company issues new shares for consideration, it must offer to its existing shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentages in the company. Pursuant to this requirement, preemptive rights in connection with any future issuance of shares will be offered by us to the depositary as the registered owner of the shares underlying the ADSs. However, the depositary will not be able to make such preemptive rights available to holders of ADSs unless a registration statement under the Securities Act is effective with respect to the underlying shares or an exemption from the registration requirements thereunder is available.
We intend to evaluate, at the time of any preemptive rights offering, the practicality under Chilean law and Central Bank of Chile regulations in effect at the time of making such rights available to our ADS holders, as well as the costs and potential liabilities associated with registration of such rights and the related common shares under the Securities Act, and the indirect benefits to us of thereby enabling the exercise by all or certain holders of ADSs of their preemptive rights and any other factors we consider appropriate at the time, and then to make a decision as to whether to file such registration statement. We cannot assure you that any registration statement would be filed. If we do not file a registration statement and no exemption from the registration requirements under the Securities Act is available, the depositary will attempt to sell such holders’ preemptive rights and distribute the proceeds thereof, after deduction of its expenses and fees, if a premium can be recognized over the cost of such sale. In the event that the depositary is not able, or determines that it is not feasible, to sell such rights at a premium over the cost of any such sale, all or certain holders of ADSs may receive no value for such rights. The inability of all or certain holders of ADSs to exercise preemptive rights in respect of common shares underlying such ADSs could result in such holders not maintaining their percentage ownership of the common shares following such preemptive rights offering unless such holder made additional market purchases of ADSs or common shares.
Under Chilean law, preemptive rights are exercisable or freely transferable by shareholders during a period that cannot be less than 30 days following the grant of such rights. During such period (except for shares as to which preemptive rights have been waived), Chilean Public Companies are not permitted to offer any newly issued shares for sale to any third party. For an additional30-day period thereafter, a Chilean company is not permitted to offer any unsubscribed shares for sale to third parties on terms which are more favorable than those offered to its shareholders. Thereafter, unsubscribed shares may be offered through any Chilean stock exchange without any indication of price. Unsubscribed shares that are not sold on a Chilean stock exchange can be sold to third parties only on terms no more favorable for the purchaser than those offered to shareholders.
SHAREHOLDERS’ MEETINGS AND VOTING RIGHTS
An annual ordinary annual meeting of shareholders is held within the first four months of each year, generally in March and must be called by the board of directors. The annual ordinary annual meeting of shareholders is the corporate body that approves the annual financial statements, approves all dividends in accordance with the dividend policy proposed by the board of directors, elects the
members of our board of directors and approves any other matter which does not require an extraordinary shareholders’ meeting. The last annual ordinary annual meeting of our shareholders was held on March 11, 2016.27, 2017.
Extraordinary meetings may be called by our board of directors when deemed appropriate, and ordinary or extraordinary meetings must be called by our board of directors when requested by shareholders representing at least 10% of the issued voting shares or by the SBIF.
Notice to convene the annual ordinary annual meeting or an extraordinary meeting is given by means of written notice which must be published at least three different days in a newspaper of our corporate domicile (currently Santiago) designated by the shareholders at their annual meeting and if a shareholder fails to make such designation, the notice must be published in the Official Gazette pursuant to legal regulations. The first notice must be published not less than 15 days nor more than 20 days in advance of the scheduled meeting. Notice must also be mailed 15 days in advance to each shareholder and to the SBIF, SVS and the Santiago, Valparaiso and Electronic Stock Exchanges. Currently, we publish our official notices in the Diario El Pulso.
The quorum for a shareholders’ meeting is established by the presence, in person or by proxy, of shareholders representing at least an absolute majority of the issued common shares; if a quorum is not present at the first meeting, the meeting can be reconvened (in accordance with the procedures described in the previous paragraph) and, upon the meeting being reconvened, shareholders present at the reconvened meeting are deemed to constitute a quorum regardless of the percentage of the shares represented. The shareholders’ meetings pass resolutions by the affirmative vote of an absolute majority of those voting shares present or represented at the meeting.
Only shareholders registered with us on the fifth business day prior to the date of a meeting are entitled to attend and vote their shares. A shareholder may appoint another individual (who need not be a shareholder) as his proxy to attend and vote on his behalf. Every shareholder entitled to attend and vote at a shareholders’ meeting has one vote for every share subscribed. Under ourby-laws, directors are elected by cumulative voting. Each shareholder has one vote per share and may cast all of his or her votes in favor of one nominee or may apportion is or her votes among any number of nominees.
The following matters can only be agreed upon at an extraordinary shareholders’ meeting:
granting of a security interest or a personal guarantee in each case to secure the obligations of third parties, unless (i) to secure or guarantee the obligations of a subsidiary, in which case the approval of the board of directors will suffice (although this restriction is not applicable to banks: (a) granting sureties, (b) becoming jointly and/or jointly and severally liable with clients or (c) issuing bank guarantees within their course of business) and (ii) in those cases exempted by the Chilean General Banking Act; and
(although this restriction is not applicable to banks: (a) granting sureties, (b) becoming jointly and/or jointly and severally liable with clients or (c) issuing bank guarantees within their course of business) and (ii) in those cases exempted by the Chilean General Banking Act; and |
The matters referred to in the first five items listed above may only be approved at a meeting held before a notary public, who shall certify that the minutes are a true record of the events and resolutions of the meeting.
Theby-laws establish that resolutions are passed at shareholders’ meetings by the affirmative vote of an absolute majority of those shares present or represented at the meeting. However, under the Chilean Corporations Act, the vote of atwo-thirds majority of the outstanding voting shares is required to approve any of the following actions:
An amendment of our by-laws aimed at the creation, modification, renewal or suppression of preferences, must be approved with the favorable vote of two-thirds majority of the shares of the affected series.
In general, Chilean law does not require a Chilean Public Companypublic company to provide the level and type of information that U.S. securities laws require a reporting company to provide to its shareholders in connection with a solicitation of proxies. However, shareholders are entitled to examine the books of the company within the15-day period before the ordinary annual meeting. Under Chilean law, a notice of a shareholders’ meeting listing matters to be addressed at the meeting must be mailed not fewer than 15 days prior to the date of such meeting, and, in cases of an ordinary annual meeting, shareholders must have available an annual report of the company’s activities which includes audited financial statements. In addition to these requirements, we regularly provide, and management currently intends to continue to provide, together with the notice of shareholders’ meeting, a proposal for the final annual dividend.
The Chilean Corporations Act provides that whenever shareholders representing 10% or more of the issued voting shares so request, a Chilean company’s annual report must include, in addition to the materials provided by the board of directors to shareholders, such shareholders’ comments and proposals in relation to the company’s affairs. Similarly, the Chilean Corporations Act provides that whenever the board of directors of a Public Companypublic company convenes an ordinary meeting of the shareholders and solicits proxies for that meeting, or distributes information supporting its decisions, or other similar material, it is obligated to include as an annex to its said materials any pertinent comments and proposals that may have been made by shareholders owning 10% or more of the company’s voting shares who have requested that such comments and proposals be so included.
DIVIDEND, LIQUIDATION AND APPRAISAL RIGHTS
Under the Chilean Corporations Act, Chilean companies are generally required to distribute at least 30% of their earnings as dividends, unless there is unanimous consent to the contrary. In the event of any loss of capital or of the legal reserve, no dividends can be distributed so long as such loss is not recovered. Also, no dividends of a bank can be distributed if doing so would result in the bank exceeding certain capital ratios.
Dividends that are declared but not paid by the date set for payment at the time of declaration are adjusted from the date set for payment to the date such dividends are actually paid. The right to receive dividends lapses if it is not claimed within five years from the date the dividend is payable.
We may declare a dividend in cash or in shares. When a share dividend is declared above the legal minimum (which minimum must be paid in cash), our shareholders must be given the option to elect to receive cash. Our ADS holders may, in the absence of an effective registration statement under the Securities Act or an available exemption from the registration requirement thereunder, effectively be required to receive a dividend in cash.
In the event of our liquidation, the holders of fully paid shares would participate equally and ratably, in proportion to the number ofpaid-in shares held by them, in the assets available after payment of all creditors.
In accordance with the Chilean General Banking Act, our shareholders have no appraisal rights.
APPROVAL OF FINANCIAL STATEMENTS
Our board of directors is required to submit our audited financial statements to the shareholders annually for their approval at the ordinary shareholders meeting. The approval or rejection of such financial statements is entirely within our shareholders’ discretion. If our shareholders reject our financial statements, our board of directors must submit new financial statements not later than 60 days from the date of such rejection. If our shareholders reject our new financial statements, our entire board of directors is deemed removed from office and a new board of directors is elected at the same meeting. Directors who individually approved such rejected financial statements are disqualified forre-election for the ensuing period.
REGISTRATIONS AND TRANSFERS
Our common shares are registered by an administration agent named DCV Registros S.A. This entity is responsible for our shareholders’ registry. In the case of jointly owned common shares, anattorney-in-fact must be appointed to represent the joint owners in dealings with us.
C. | MATERIAL CONTRACTS |
The following is a brief summary of our material contracts currently in force. A copy of each of these contracts has been included as an exhibit hereto. See “Item 19. Exhibits”.Exhibits.”
Transaction Agreement
This section describes the material terms of (i) the Transaction Agreement executed by CorpBanca,former Corpbanca, CorpGroup Parent, Itaú Unibanco and former Itaú Chile on January 29, 2014, and amended on June 2, 2015;2015 and on January 20, 2017; and (ii) the text of the Itaú CorpGroup Shareholders’ Agreement contemplated by the Transaction Agreement to beand executed by Interhold,Itaú Unibanco Holding S.A., Inversiones Gasa Limitada, CorpGroup Holding Inversiones Limitada, CorpGroup Banking S.A., Compañía Inmobiliaria y de Inversiones Saga SpA Corp Group Holding Inversiones Ltda., Itaú Unibanco and an entity through which Itaú Unibanco may hold their interest in Itaú-CorpBanca, which has not yet been created,CorpGroup Interhold SpA on the closing date of the Itaú-CorpBanca Merger.April 1, 2016.
The rights and obligations of the parties to the Transaction Agreement and the Itaú CorpGroup Shareholders’ Agreement are governed by the express terms and conditions of such agreement and not by this summary or any other information contained in this Form20-F. The description in this section and elsewhere in this Form20-F is qualified in its entirety by reference to the complete text of the Transaction Agreement and the form of Itaú CorpGroup Shareholders’ Agreement, copies of which are attached as Exhibit 10.C.1 and are incorporated by reference herein. This summary does not purport to be complete and may not contain all of the information about the Transaction Agreement or the Itaú CorpGroup Shareholders’ Agreement. CorpBancaItaú Corpbanca encourages you to read the Transaction Agreement and the Itaú CorpGroup Shareholders’ Agreement carefully and in their entirety.
Additionally, we note that the Shareholders’ Agreement has not been executed, and is not, as of the date hereof, in full force or effect. The Shareholders’ Agreement will be executed by the parties thereto concurrently with the closing of the Itaú-CorpBanca Merger, subject to any changes and modifications, if any, as may be agreed to by the parties to the Shareholders’ Agreement
Capitalized terms used but not defined herein shall have the same meaning as in the Transaction Agreement or the Itaú CorpGroup Shareholders’ Agreement, as applicable.
Explanatory Note Regarding the Transaction Agreement
The following summary is included to provide you with information regarding the terms of the Transaction Agreement. This section is not intended to provide you with any factual information about CorpBanca.Itaú Corpbanca. Such information can be found elsewhere in this Form20-F and in the public filings that CorpBancaItaú Corpbanca makes with the SEC.
The representations, warranties and covenants made in the Transaction Agreement by CorpBancaformer Itaú Chile and Itaú Chileformer Corpbanca were qualified and subject to important limitations agreed to by CorpBancaItaú Chile and Itaú ChileCorpbanca in connection with negotiating the terms of the Transaction Agreement. In particular, in your review of the representations and warranties contained in the Transaction Agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purpose of establishing the circumstances in which a party to the Transaction Agreement may have the right not to consummate the Itaú-CorpBanca Merger if the representations and warranties of the other party proved to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the Transaction Agreement, rather than establishing matters as facts. The representations and warranties are also subject to a contractual standard of materiality and in some cases were qualified by the matters contained in the disclosure schedules that CorpBanca and Itaú Chilethe parties delivered in connection with the Transaction Agreement. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Transaction Agreement, which subsequent information may or may not be fully reflected in public disclosures by Itaú Unibanco or CorpBanca.former Corpbanca. The representations and warranties and other provisions in the Transaction Agreement should not be read alone but instead together with the information provided elsewhere in this Form20-F and in the documents incorporated by reference hereto. We may refer to January 29, 2014, the date that the parties entered into the Transaction Agreement, as the signing date.
Overview
To help you better understand the Itaú-CorpBanca Merger and the other transactions contemplated by the Transaction Agreement the charts below illustrate, in simplified form, the organizational structure of CorpBancaformer Corpbanca and Itaú Chile in Chile and Colombia.
The Itaú-CorpBanca Merger
The following transactions will occuroccurred prior to the Itaú-CorpBanca Merger:
After these transactions occurred, Itaú Chile in the aggregate amount of Ch$58,873 million (approximately US$82.88 million as of December 31, 2015) by purchasing fully subscribed and paid shares of Itaú Chile. As a result of the capital increase effected in the year ended December 31, 2014, Itaú Unibanco is still required to effect a US$552 million capital increase at Itaú Chile prior to the closing of the Itaú-CorpBanca Merger, to meet this commitment.
Thereafter, Itaú Chile will mergemerged with and into CorpBanca,Corpbanca, with CorpBancaCorpbanca as surviving entity under the name of “Itaú-CorpBanca”. Corpbanca.” The Itaú-CorpBanca Merger is expected to resultresulted in the issuance of 172,048,565,857 shares of CorpBancaCorpbanca (representing 33.58% of the shares of Itaú-CorpBanca) Corpbanca) to Itaú Unibanco. CorpGroup Parent shall retainThe Saieh Family retained 33.13% of the capital stock of Itaú-CorpBanca Corpbanca and the remaining 33.29% of the capital stock will bewas held by public shareholders.
After the On October 26, 2016, Itaú-CorpBanca Merger, the following transactions will be implemented:
Prior to the completion of these transactions but after the Colombian Acquisition or the Colombian Merger, the contemplated structure in Colombia will be as follows:Itaú Corpbanca.
The foregoing transactions are collectively referred to as the Transactions.
CorpBanca and Itaú Chile Representations and Warranties
CorpBanca and Itaú Chile made reciprocal customary representations and warranties regarding their businesses and subsidiaries that are subject, in some cases, to specified exceptions and qualifications and the matters contained in the disclosure schedules delivered by CorpBanca and Itaú Chile pursuant to the Transaction Agreement. The representations and warranties do not survive the closingConsummation of the Itaú-CorpBanca Merger. These representations and warranties relate to among other things:
Many of CorpBanca’s and Itaú Chile’s representations and warranties are qualified by, among other things, exceptions relating to the absence of a Material Adverse Effect which for purposes of the Transaction Agreement shall mean any effect, circumstance, occurrence or change which (i) is materially adverse to the business, financial condition, operations or results of operations of (x) CorpBanca, CorpBanca Colombia and their respective subsidiaries, taken as a whole, in the case of each of the Corp Group Parties or (y) Itaú Chile, Itaú Colombia and their respective subsidiaries, taken as a whole, in the case of each of the Itaú Parties; or (ii) materially impairs the ability of such Party to consummate the Transactions on a timely basis; provided that in determining whether a Material Adverse Effect has occurred with respect to such Party under clause (i), there shall be excluded (with respect to each of clause (A), (B), (C) and (D) below, only to the extent that the adverse effect of a change on it is not materially disproportionate compared to the effect on other companies of a similar size operating in the banking industry in the jurisdictions in which the Party operates) any effect, circumstance, occurrence or change to the extent attributable to or resulting from (A) any changes in laws, regulations or interpretations of laws or regulations generally affecting the financial services industries in which the Parties operate, (B) any change in IFRS or regulatory accounting requirements generally affecting the financial services industries in which the Parties operate, (C) events, conditions or trends in economic, business or financial conditions generally affecting the financial services industries in which the Parties operate, including changes in prevailing interest rates, currency exchange rates and trading volumes in Chile, Colombia or foreign securities markets, (D) changes in national or international political or social conditions including the engagement by Chile, Brazil, Colombia or Panama in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon or within Chile, Brazil, Colombia or Panama, or any of their respective territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of
Chile, Brazil, Colombia or Panama, (E) the effects of the actions expressly required by the Transaction Agreement and (F) the announcement of the Transaction Agreement and the Transactions; and provided further that in no event shall a change in the trading prices of a Party’s common stock by itself (but for the avoidance of doubt not the underlying causes thereof to the extent such causes are not otherwise excluded pursuant to (A) – (E) above) constitute a Material Adverse Effect.
Controlling Shareholder Representations and Warranties
CorpGroup Parent and Itaú Unibanco have also made certain customary representations and warranties pursuant to the Transaction Agreement regarding:
Conduct of Business
Under the Transaction Agreement, CorpBanca and Itaú Chile have agreed that, except as expressly contemplated under the Transaction Agreement or consented to in writing by the other party, both of them shall, and shall cause their respective subsidiaries to, (a) conduct its business in the ordinary course consistent with past practice, (b) use reasonable best efforts to maintain and preserve intact its business organization, assets, employees and relationships with customers, suppliers, employees and business associates and (c) take no action that would reasonably be expected to adversely affect or delay the ability of any party to obtain any regulatory consents required for consummation of the Transactions, to perform their covenants and agreements under the Transaction Agreement or to consummate the Transactions on a timely basis.
Subject to certain exceptions set forth in the Transaction Agreement and pending completion of the Itaú-CorpBanca Merger neither CorpBanca, CorpBanca Colombia nor Itaú Chile and Itaú Colombia shall, or shall permit its subsidiaries to, take any of the following actions without the other parties written consent:
Payment of Dividends
Pursuant to the terms of the Transaction Agreement, in an extraordinary shareholders meeting held on June 26, 2015, our shareholders agreed to distribute a special dividend for an aggregate amount of Ch$239,860,000,000 (US$337,678,792.66 as of December 31, 2015), from the distributable earnings for the year ended December 31, 2014. This dividend, of Ch$0.704728148 per share, was paid on July 1, 2015.
Approval by CorpBanca and Itaú Chile Shareholders
In an extraordinary shareholders’ meeting held on June 26, 2015, our shareholders approved the Itaú-CorpBanca Merger and the other Transactions contemplated in the Transaction Agreement. Pursuant to the agreements adopted, the Itaú-CorpBanca Merger shall take place not later than May 2, 2016. The shareholders of Itaú Chile gave their consent to the Itaú-CorpBanca Merger and to the other Transactions contemplated in the Transaction Agreement in an extraordinary shareholders’ meeting held on June 30, 2015.
Applications and Consents
On September 4, 2015 the SBIF issued Resolution N° 409 approving the Itaú-CorpBancaMerger. Pursuant to the agreements adopted and the approval by the SBIF, the Merger inwas consummated on April 1, 2016.
After the Merger, and according to the Transaction Agreement and its amendment on January 20, 2017, the following terms:transactions will be implemented:
1. The Itaú-CorpBanca Merger
2. The merger will not be effective before JanuaryColombia and Itaú Colombia on November 1, 2016 or after May 2, 2016,(the “Colombian Acquisition”). This agreement also contemplates the rendering of certain services by Corpbanca Colombia in favor of Itaú Colombia and the exact date shallhiring of the senior management of Itaú Colombia by Corpbanca Colombia. The Colombian Acquisition will be determinedcarried out as soon as practicable once the same has been approved by the board of directors of both banks.Colombian Financial Superintendency (the “CFS”).
3. As a consequence
4. The amendment to CorpBanca’s by-laws, which will be renamed Itaú Corpbanca, was approved. Such amendment shall be valid as fromTransaction Agreement, plus (y) the date in which the Itaú-CorpBanca Merger is completed.
With the resolution of the SBIF referred above, all the regulatory authorizations required in Chile, Colombia, Panama and Brazil have been obtained in order to consummate the merger in the abovementioned terms.
Acquisition Proposals
The parties have agreed that they will not, and will cause their respective subsidiaries and subsidiaries’ officers, directors, representatives and affiliates not to, directly or indirectly, (i) initiate, solicit, encourage or knowingly facilitate inquiries or proposalsaccrued interest with respect to (ii) engage or participate in any negotiations concerning, (iii) provide any nonpublic information or datathe amount of such dividends since the date of their payment until the payment date of the purchase price, at an annual interest rate equal to or have or participate in any discussions with, any third party relatingLibor plus 2.7%.
The foregoing transactions are collectively referred to or (iv) approve or recommend, or propose to approve or recommend, or execute or enter into, any letter of intent, agreement in principle, merger agreement, asset purchase or share exchange agreement, option agreement or other similar agreement related to any alternative transaction toas the Transactions contemplated under the Transaction Agreement.Transactions.
Employee Matters
Following completion of the Itaú-CorpBanca Merger, CorpBanca at its election shallItaú Corpbanca had the discretion to either (i) offer generally to officers and employees of Itaú Chile and its subsidiaries that have or will become employees of CorpBancaItaú Corpbanca or its subsidiaries, or the Itaú Chile Continuing Employees, employee benefits under compensation and benefit plans on terms and conditions similar to those maintained by CorpBancaformer Corpbanca and its subsidiaries and/or (ii) maintain for the benefit of Itaú Chile Continuing Employees, the compensation and benefit plans maintained by former Itaú Chile immediately before the Itaú-CorpBanca Merger. For purposes of eligibility, participation, vesting and benefit accrual (except not for purposes of benefit accrual to the extent that such credit would result in a duplication of benefits) under CorpBanca’sformer Corpbanca’s compensation and benefit plans, service with or credited by former Itaú Chile or any of its subsidiaries or any of their predecessors shall be treated as service with CorpBanca.former Corpbanca.
Indemnification of Officers and Directors
From and after completion of the Itaú-CorpBanca Merger, in the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, in which any person who is now, or has been, or who becomes prior to completion of the Itaú-CorpBanca Merger,was a director or officer of CorpBancaformer Corpbanca or former Itaú Chile or any of their subsidiaries, or the Indemnified Parties, is, or is threatened to be, made a party on the basis of the Transaction Agreement or the Transactions, CorpBancaItaú Corpbanca has agreed to indemnify, defend and hold harmless, to the fullest extent permitted by applicable law, each such Indemnified Party against any liability, judgments, fines and amounts paid in settlement in connection with any such threatened or actual claim, action, suit, proceeding or investigation.
Immediately prior to the completionRegistration of the Itaú-CorpBanca Merger, CorpBanca will cause the directors or officersShares of CorpBanca or Itaú Chile, to be covered by CorpBanca’s or Itaú Chile’s existing directors’ and officers’ liability insurance policy with respect to acts or omissions occurring prior to the Itaú-CorpBanca Merger which were committed by such officers and directors in their capacity as such. To this end, CorpBanca may substitute policies of at least the same coverage and amounts containing terms and conditions which are not less advantageous than such policy but in no event shall CorpBanca be required to expend more than 250% per year of coverage of the amount expended by CorpBanca or Itaú Chile per year of coverage as of the date of the Transaction Agreement.
Corporate Governance
CorpGroup Parent and Itaú Unibanco agreed to engage an internationally recognized management firm to evaluate their respective existing management and recommend, on the basis of international, merit-based standards, professional track record and relevant industry and jurisdiction-specific experience, a list of the most qualified candidates to serve as the initial senior management (including country heads) of Itaú-CorpBanca and its subsidiaries. After receipt of such non-binding recommendation Itaú Unibanco and CorpGroup Parent had to jointly determine in good faith the individuals who are most qualified to serve as senior management. On November 23, 2015, and as agreed in the Transaction Agreement, Itaú Unibanco and CorpGroup Parent announced the senior management team for the bank upon the consummation of the Itaú-CorpBanca Merger, which will be led by Milton Maluhy Filho as Chief Executive Officer.
CorpBancaBanco Corpbanca Colombia IPO
Itaú UnibancoCorpbanca and CorpGroup Parent have agreedwill carry out commercially reasonable efforts, in accordance with the shareholders agreement of Banco Corpbanca Colombia, in order to cause CorpBanca to cause CorpBancaCorpbanca Colombia to consummatebe registered as a primary offeringpublic company in the National Registry of shares as promptly as practicable on or after the consummationSecurities and Issuers of the Itaú-CorpBanca Merger.
Charitable ContributionsCFS and its shares to be listed in the Colombian Stock Market (the “CSM”). The registration process is subject to the approval of Corpbanca Colombia’s extraordinary shareholders’ meeting.
Itaú UnibancoCorpbanca and CorpGroup, Parent shall causepursuant to the terms of the shareholders’ agreement dated July 1, 2013 entered into with Helm LLC and other shareholders of Corpbanca Colombia, requested to submit for the shareholders’ approval the registration of Corpbanca Colombia in the National Registry of Securities and Issuers of the CFS and the listing of its shares in the CSM. On February 1, 2017, in a meeting of shareholders of Corpbanca Colombia called for the decision of the above-mentioned matters, Helm
LLC voted against such registration and listing and, therefore, those matters were rejected. Following this rejection, Itaú-CorpBanca Corpbanca and its subsidiaries to make,CorpGroup filed a counterclaim in the Arbitration held in New York against Helm LLC for breaching the shareholders’ agreement. See “Item 8. Financial Information—A. Consolidated Statements and Itaú-CorpBanca shall make, certain charitable donations.other Financial Information—Legal Proceedings.”
Insurance Matters
Following completion of the Itaú-CorpBanca Merger, Itaú Unibanco shallis required to cause Itaú Chile Compañía de Seguros de Vida S.A. to provide life insurance-related products to all the clients of Itaú-CorpBanca Corpbanca that are permitted to obtain an offer from an insurance broker to acquire life insurance and to pay CorpBancaCorpbanca Corredores de Seguros, S.A. and Itaú Chile Corredora de Seguros Limitada brokerage and/or services fees in an aggregate annual amount equal to 47.7%, or the Applicable Premium Percentage of the aggregate revenues generated by them from the sales of such life-insurance related products for the relevant year, in consideration and exchange for the offer of such products to the clients of Itaú-CorpBanca. Corpbanca.
The Applicable Premium Percentage will be revised on a yearly basis as provided by the Transaction Agreement.
If Itaú Unibanco desires not to continue to cause Itaú Chile Compañía de Seguros de Vida S.A. to offer the life-insurance related products to the insurance clients of Itaú-CorpBanca, Corpbanca, Itaú Unibanco shall use its reasonable best efforts to, enter into an agreement with a third party and one or more CorpBancaCorpbanca Corredores de Seguros, S.A. and/or Itaú Chile Corredora de Seguros Limitada, whereby such third party will provide life-insurance related products to the insurance clients of Itaú-CorpBanca Corpbanca and pay to CorpBancaCorpbanca Corredores de Seguros, S.A. and/or Itaú Chile Corredora de Seguros Limitada, as applicable, the related insurance brokerage fees on substantially the same terms described above. Until an agreement with such third party has been executed, Itaú Unibanco will continue to pay Itaú-CorpBanca Corpbanca or CorpBancaCorpbanca Corredores de Seguros, S.A. and/or Itaú Chile Corredora de Seguros Limitada an amount equal to the average of the Insurance Brokerage Fees paid by Itaú Chile Compañía de Seguros de Vida S.A. in the12-month period prior to the date on which Itaú Chile Compañía de Seguros de Vida S.A. ceases to provide life-insurance related products to Itaú-CorpBanca Corpbanca or CorpBancaCorpbanca Corredores de Seguros, S.A. and/or Itaú Chile Corredora de Seguros Limitada.
Certain Other Businesses
CorpGroup Parent and Itaú Unibanco agreed to discuss whether CorpBancaItaú Corpbanca will continue to hold its ownership interest in SMU Corp. If after such period of time, CorpGroup Parent and Itaú Unibanco have not reached an agreement, Itaú Unibanco will decide in its sole discretion.
Pursuant to such determination, and if necessary, CorpGroup Parent will, and will cause CorpBanca to use reasonable best efforts to divest, transfer, liquidate or otherwise dispose all of CorpBanca’s and its subsidiaries’ investment in SMU Corp. as promptly as reasonably practicable and on commercially reasonable terms.
Pursuant to the Transaction Agreement, Itaú Unibanco decided that CorpBancaItaú Corpbanca shall divest all of its investment in SMU Corp. For these purposes, on February 23, 2016, CorpBanca’sItaú Corpbanca’s board of directors agreed to sell the bank’s 51% stake in SMU Corp, in the following terms and conditions: (a)Purchaser: SMU S.A. and/or any other company appointed by the latter; (b)Sale price: Ch$454.4 million; (c)Term: Any time after the SBIF’s authorization and once Itaú Unibanco has consented to the terms and conditions of the transaction. As
On January 30, 2017, Itaú Corpbanca transferred all of its shares in SMU Corp., equivalent to 51% of the datetotal shares of this report,such entity, to Inversiones Monserrat S.A., the acquiring entity of the shares. SMU Corp. S.A. has therefore ceased to be a subsidiary of Itaú Unibanco’s consent has already been requested.Corpbanca.
Itaú Unibanco has agreed to cause its applicable subsidiary to enforce its rights under the Stock Purchase Agreement by and among MCC Inversiones Globales Ltda, Unibol S.A., Inversiones Río Bamba Ltda., Sociedad Promotora de Inversiones y Rentas Balaguer LTDA., BICSA Holdings Ltd., Itaú Unibanco Holding S.A., and certain beneficial owners set forth therein, dated as of August 1, 2011, to purchase the remaining outstanding capital stock of Munita, Cruzat y Claro S.A. Corredores de Bolsa, or the MCC, by August 31, 2016 to the extent it has not otherwise acquired such capital stock by that date. Promptly following the later of (i) the completion of the Itaú-CorpBanca Merger and (ii) the acquisition of 100% of the outstanding capital stock of MCC, Itaú Unibanco shall cause its applicable subsidiary to transfer 100% of the outstanding capital stock of MCC to Itaú-CorpBanca for fair value and other customary terms and conditions.
Conditions Precedent to Obligations to Consummate
Mutual Conditions to consummation of the Itaú-CorpBanca Merger
Each party’s respective obligations to consummate theItaú-CorpBanca Merger are subject to the following conditions:
As of the date of this annual report, all the conditions above have been met.
Conditions to Obligations of CorpGroup Parent and CorpBanca
The obligations of CorpGroup Parent and CorpBanca to consummate the Itaú-CorpBanca Merger are subject to the following conditions:
Conditions to Obligations of Itaú Unibanco and Itaú Chile
The obligations of Itaú Unibanco and Itaú Chile to consummate the Itaú-CorpBanca Merger are subject to the following conditions:
Termination and Effect of Termination
The Transaction Agreement may be terminated and the Transactions abandoned at any time prior to the completion of the Itaú-CorpBanca Merger, by any of the causes set forth below:
Except as described above and subject to certain other exceptions, if the Transaction Agreement is terminated pursuant to any of the circumstances described above it will be considered without any effect and neither the parties, nor their affiliates, directors,
or employees will have any obligation or liability with regard to the Transactions; provided that such termination shall not relieve any party from any liability for any willful and material breach of the Transaction Agreement.
Shareholders’ Agreement
The following summary is included to provide you with information regarding the terms of the form of Itaú CorpGroup Shareholders’ Agreement.Agreement executed by Itaú Unibanco Holding S.A. and CorpGroup on April 1, 2016. This section is not intended to provide you with any factual information about CorpBanca.Itaú Corpbanca. Such information can be found elsewhere in the public filings that CorpBancaItaú Corpbanca makes with the SEC. The Shareholders’ Agreement remains subject to change to reflect any modifications mutually agreed by the parties thereto prior to its execution. As noted, the Shareholders’ Agreement will be executed concurrently with the closing of the Itaú-CorpBanca Merger.
Corporate Governance
Composition and size of the Board of Directors of Itaú-CorpBanca Corpbanca and its subsidiaries.
Itaú Unibanco and CorpGroup Parent have agreed that of the number of directors of each of the board of (i) Itaú-CorpBanca Corpbanca and CorpBancaCorpbanca Colombia that they are entitled or able to appoint (including by causing Itaú-CorpBanca Corpbanca to appoint) at any time (in addition to any independent directors required by applicable law) and (ii) the respective subsidiaries of Itaú-CorpBanca Corpbanca and CorpBancaCorpbanca Colombia that they are entitled or able to appoint at any time (in addition to any independent directors required by applicable law),
each of Itaú Unibanco and CorpGroup Parent shall be entitled to designate a number in proportion to its respective direct and indirect percentage ownership in Itaú-CorpBanca, Corpbanca, rounded to the nearest whole number; provided that Itaú Unibanco shall designate at least a majority of such directors of each board appointed by them and that at least one of such directors of each board is appointed by CorpGroup Parent.
The board of Itaú-CorpBanca Corpbanca shall be comprised of eleven11 directors and two alternate directors (one selected by Itaú Unibanco and one selected by CorpGroup Parent). The board of CorpBancaCorpbanca Colombia shall be comprised of nine directors and the number of directors of the board of all other subsidiaries shall be specified by the board of Itaú-CorpBanca. Corpbanca.
Itaú Unibanco and CorpGroup Parent have agreed to cause, (i) a designee of CorpGroup Parent to be the chairman of the board of Itaú-CorpBanca Corpbanca as long as CorpGroup Parent holds at least 13% of the capital stock of Itaú-CorpBanca, Corpbanca, (ii) a designee of CorpGroup Parent to be the chairman of the board of CorpBancaCorpbanca Colombia as long as CorpGroup Parent holds at least 13% of the capital stock of Itaú-CorpBanca Corpbanca and (iii) a designee of Itaú Unibanco to be the vice-chairman of Itaú-CorpBanca Corpbanca and CorpBancaCorpbanca Colombia. The chairman of the board of Itaú-CorpBanca Corpbanca shall not have a casting vote.
Itaú Unibanco and CorpGroup Parent shall cause the directors of the relevant board appointed by them to vote, to the extent permitted by applicable law, together as a single block on all matters in accordance with the recommendation of Itaú Unibanco (except in the cases subject to shareholder consent rights). To this end, in the event that (i) a director of Itaú-CorpBanca, CorpBanca Corpbanca, Corpbanca Colombia or any other subsidiary of Itaú-CorpBanca Corpbanca designated by CorpGroup Parent or Itaú Unibanco does not vote with the other directors as a single block and (ii) as a consequence, the relevant board is unable to adopt a decision on such matter in accordance with the recommendation of Itaú Unibanco (except that (ii) will not be required if such director is a member of the Saieh Group, or fails to comply on more than two occasions and more than two matters in any calendar year), Itaú Unibanco or CorpGroup Parent (whomever designated such director), shall take all required action to have such director removed from the relevant board within 60 calendar days. Failure to take such action shall be considered to constitute a Material Breach by the shareholder who designated such director.
A majority of the directors will constitute quorum for all meetings of the relevant boards. However, if less than all of the directors appointed by Itaú Unibanco to such board are not present, a quorum will not exist without the consent of the majority of the directors appointed by Itaú Unibanco to such board. The vote of the majority of the directors attending a meeting will be required to pass a resolution of the relevant boards (except in the cases subject to shareholder consent rights).
Board Committees
Itaú Unibanco and CorpGroup Parent have agreed to cause Itaú-CorpBanca Corpbanca and CorpBancaCorpbanca Colombia to each create the following committees of the board of directors: Directors Committee, Audit Committee, Management and Talent Committee, AssetAssets and LiabilityLiabilities Management Committee and Credit Committee.
The Credit Committee shall (i) have binding power to establish the limits and procedures of the credit policy of Itaú-CorpBanca Corpbanca and its subsidiaries and the power to establish approval exceptions for financial decisions exceeding certain thresholds (to be defined by the Credit Committee) and (ii) shall impose a binding framework with upper limits on credit exposures for which
approval of Itaú Unibanco will be required. In connection with the latter, Itaú Unibanco shall respond to any such requests for approval within seven business days (the absence of explicit denial being considered as an approval).
The Credit Committee shall be comprised of five members (of which three shall be appointed by Itaú Unibanco and two by CorpGroup Parent), all of whom shall be local executives or directors of the relevant board, and be headed by a local executive officer or director recommended by the chief executive officerCEO of Itaú-CorpBanca Corpbanca or its relevant subsidiary, as applicable.
Political donations
The original form of Shareholders’ Agreement set forth that Itaú Unibanco and CorpGroup Parent shall cause Itaú-CorpBanca to make certain political donations consistent with past practice. This provision has been deleted in its entirety in the amendment of the Transaction Agreement, dated June 2, 2015.
Officers
The Boardboard of directors of Itaú-CorpBanca Corpbanca shall appoint from time to time the CEO, the country heads and other senior management of Itaú-CorpBanca Corpbanca and CorpBancaCorpbanca Colombia. Mr. Milton Maluhy Filho will be the initial CEO of Itaú-CorpBanca following completion of the Itaú-CorpBanca Merger. Itaú Unibanco and CorpGroup Parent shall cause Itaú-CorpBanca Corpbanca to cause its subsidiaries to appoint designees of the board of Itaú-CorpBanca Corpbanca from time to time to the designated positions at such subsidiary. A Management and Talent Committee will determine an objective process to recommend designees to these positions based on internal promotion, international, merit-based standards and professional track record, and relevant industry and jurisdiction-specific experience, and will provide a list of selected candidates to the board of Itaú-CorpBanca Corpbanca who will be ultimately responsible for their final appointment.
CorpGroup Parent may request the removal of the CEO of Itaú-CorpBanca Corpbanca and of CorpBancaCorpbanca Colombia if during three consecutive years (excluding the year of the closing of the Itaú-CorpBanca Merger) the ROE (return on equity) of the respective bank is at least 1% lower than the average ROE of the three largest privately-owned banks (measured by assets, and excluding Itaú-CorpBanca Corpbanca and CorpBancaCorpbanca Colombia) of Chile or Colombia, as the case may be, during such three-year period.
Shareholder Consent Rights
Subject to certain exceptions set forth in the Itaú CorpGroup Shareholders’ Agreement, Itaú Unibanco and CorpGroup Parent have agreed that Itaú-CorpBanca Corpbanca shall not take, and shall not permit any subsidiary to take, any of the following Transactionstransactions without the consent of (i) CorpGroup Parent, so long as CorpGroup Parent owns at least 13% of the capital stock of Itaú-CorpBanca, Corpbanca, and (ii) Itaú Unibanco:
Holdcos
Itaú Unibanco and CorpGroup Parent shall each maintain a direct or indirect wholly-owned subsidiary, or Company One and Company Two, respectively, and, collectively, the Companies which shall hold their respective shares of Itaú-CorpBanca. Itaú Unibanco will form Company One prior to the Itaú-CorpBanca Merger. For CorpGroup Parent, Company Two is Corp Group Banking S.A. and Inversiones Saga Limitada.
Transfer of shares of Itaú-CorpBanca Corpbanca
Itaú Unibanco and CorpGroup Parent have agreed not to directly or indirectly purchase or otherwise acquire shares of Itaú-CorpBanca Corpbanca or any beneficial interest therein to the extent such acquisition would require Itaú Unibanco or CorpGroup Parent to launch a tender offer to acquire all shares of Itaú-CorpBanca. Corpbanca. Any transfer of shares of Itaú-CorpBanca Corpbanca made by Itaú Unibanco and CorpGroup Parent shall be implemented through the Santiago Stock Exchange with afive-day prior notice to the other party.
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So long as CorpGroup Parent and Itaú Unibanco collectively hold an aggregate direct or indirect participation in the voting shares of Itaú-CorpBanca Corpbanca of at least 50% plus one share, CorpGroup Parent shall keep (and may not transfer) the direct or indirect ownership of a number of shares of Itaú-CorpBanca Corpbanca representing the lesser of: (i) 16.42% of the shares of Itaú-CorpBanca Corpbanca at the time of execution of the Itaú CorpGroup Shareholders’ Agreement (i.e. at the closing of the Transactions) or (ii) the minimum percentage of such shares that allows Itaú Unibanco and CorpGroup Parent to hold such aggregate direct or indirect participation in the voting shares of Itaú-CorpBanca. Corpbanca. Such number of shares will be pledged by CorpGroup Parent in favor of Itaú Unibanco.
Right of first offer,tag-along and drag-along rights
Right of first offer
Subject to the terms set forth on the Itaú CorpGroup Shareholders’ Agreement, Itaú Unibanco and CorpGroup Parent shall have a right of first offer with regard to potential transfers of shares of the Companies. If either Itaú Unibanco or CorpGroup Parent intend to transfer shares of the Companies, such party shall notify in writing to the other party of such intention, stating the number of shares, the price and other terms and conditions of the proposed transfer. The recipient party shall have the right to purchase all such shares for a price and under terms and conditions equal to those notified by the selling shareholder. If the recipient party elects not to purchase all the shares intended to be transferred, the selling shareholder shall be permitted for a period of six (6) months from the date the notice to purchase the shares was due to be received by the selling party, to transfer to a third party not less than the number of shares, at a price not less than and on terms and conditions not materially less favorable to the selling shareholder than those stated in the notice of such proposed transfer.
Tag-along
CorpGroup Parent will have the right totag-along on the sale of shares of Company One or of shares of Itaú-CorpBanca Corpbanca owned by Company One by Itaú Unibanco and jointly sell to a third party with Itaú Unibanco in such sale. Pursuant to such right, in the event of a proposed transfer of shares of Company One or shares of Itaú-CorpBanca Corpbanca by Itaú Unibanco, Itaú Unibanco shall deliver to CorpGroup Parent prompt written notice stating, to the extent applicable, (i) the name of the proposed transferee, (ii) the number of shares proposed to be transferred, (iii) the proposed purchase price and (iv) any other material terms and conditions of the proposed transfer.
The proposed transferee will not be obligated to purchase a number of shares exceeding that set forth in the notification of the proposed transfer. In the event such transferee elects to purchase less than all of the total shares sought to be transferred by CorpGroup Parent and Itaú Unibanco, CorpGroup Parent shall be entitled to transfer to the proposed transferee a number of shares
equal to (i) the total number of shares originally proposed to be transferred by Company One and Itaú Unibanco multiplied by (ii) a fraction, (A) the numerator of which is the total number of shares of Itaú-CorpBanca Corpbanca held by Company Two, and (B) the denominator of which is the total number of shares of Itaú-CorpBanca Corpbanca held by the Companies.
Drag-along
In the event of a proposed sale of all of the issued and outstanding shares of Company One or shares of Itaú-CorpBanca Corpbanca held by Itaú Unibanco to a third party and if at such time CorpGroup Parent owns less than 10% of the capital stock of Itaú-CorpBanca, Corpbanca, Itaú Unibanco may notify CorpGroup Parent in writing of such proposed sale stating (i) the name of the proposed transferee, (ii) the proposed purchase price (which shall be equal to at least the higher of fair value and market price), (iii) the obligation of the transferee to purchase all of CorpGroup Parent shares of Itaú-CorpBanca, Corpbanca, and (iv) any other material terms and conditions of the transfer.
Under these circumstances, CorpGroup Parent shall be obligated to sell all of its shares of Itaú-CorpBanca, Corpbanca, free and clear of liens at the same price and on other terms no less favorable than Itaú Unibanco.
Put of Company Shares
If and to the extent that CorpGroup Parent is prohibited from selling its shares of Itaú-CorpBanca, Corpbanca, CorpGroup Parent shall have the unconditional right, from time to time on one or more occasions, to sell to Itaú Unibanco, and Itaú Unibanco shall have the unconditional obligation to acquire from CorpGroup Parent, any number of shares of Company Two at a price per share equal to the market price as of the date on which CorpGroup Parent notifies Itaú Unibanco of CorpGroup Parent’s exercise of its unconditional right to sell if immediately following such sale CorpGroup Parent and Itaú Unibanco would continue to collectively hold an aggregate direct or indirect participation in the voting shares of Itaú-CorpBanca Corpbanca of at least 50% plus one share.
At the time of payment of the purchase price of the shares of Company Two, Itaú Unibanco shall pay CorpGroup Parent, as an indemnity for not being able to benefit from the exemption on capital gains set forth in Article 107 of the Chilean Income Tax Law to which it would otherwise have been entitled to if it would have sold the underlying shares of Itaú-CorpBanca Corpbanca in the Santiago Stock Exchange, a cash amount equal to (i) 50% of any taxes of CorpGroup Parent or its affiliates arising out of or in connection with such transfer that would not have arisen if it had sold the underlying shares of Itaú-CorpBanca Corpbanca in the Santiago Stock Exchange and benefit from the abovementioned exemption on capital gains, and (ii) any taxes of CorpGroup Parent or its affiliates arising out of the application of such indemnity payment.
Change of Control of CorpGroup Parent
Under the Itaú CorpGroup Shareholders’ Agreement, CorpGroup Parent shall notify Itaú Unibanco prior to consummating a Change of Control of CorpGroup Parent and provide Itaú Unibanco a right of first offer to purchase a number shares of Company Two equal to the number required by Itaú Unibanco to hold an aggregate direct or indirect participation in the voting shares of Itaú-CorpBanca Corpbanca of at least 50% plus one share at a price equal to the higher of the market price or fair value.
If Itaú Unibanco accepts the price proposed by CorpGroup Parent, CorpGroup Parent shall be obligated to cause Company Two to sell such number of Itaú-CorpBanca’s Corpbanca’s shares to Itaú Unibanco at such price.
In the event that Itaú Unibanco does not accept the price proposed by CorpGroup Parent and as a result, an agreement is not reached, then CorpGroup Parent shall be permitted to proceed with such Change of Control and Itaú Unibanco shall be entitled to unilaterally terminate the Itaú CorpGroup Shareholders’ Agreement during a period of 60 days after receipt of notice from CorpGroup notifying of the consummation of such Change of Control.
For purposes of the Itaú CorpGroup Shareholders’ Agreement, Change of Control shall mean, with respect to CorpGroup Parent, the Saieh Group ceasing to own, directly and indirectly, in a single transaction or in a series of related transactions, at least 50% plus one additional share of the issued voting stock of CorpGroup Parent.
Right to Exchange Shares for Shares of Itaú Unibanco
In the event Itaú Unibanco issues or sells certain equity securities of Itaú Unibanco to any third-party as consideration for or in connection with a transaction or series of transactions involving the direct or indirect investment by Itaú Unibanco in such equity securities or assets of any other third party, Itaú Unibanco shall inform CorpGroup Parent of such issuance or sale and shall offer to
CorpGroup Parent the right to exchange for the same type of equity securities of Itaú Unibanco. CorpGroup Parent shall be entitled to exchange any or all of its shares of Company Two (or shares of Itaú-CorpBanca) Corpbanca) for such equity securities of Itaú Unibanco at an exchange ratio that reflects the relative fair values of the relevant equity securities of Itaú Unibanco and the shares of Company Two or Itaú-CorpBanca, Corpbanca, as the case may be.
Notwithstanding the foregoing, if the issuance of any such equity securities to CorpGroup Parent would result in Itaú Unibanco Participações S.A. ceasing to hold more than 50% of Itaú Unibanco’s voting equity, then CorpGroup Parent shall have the right to exchange no more than an amount of equity securities of Itaú Unibanco the issuance of which would not result in Itaú Unibanco Participações S.A. ceasing to hold more than 50% of Itaú Unibanco’s voting equity.
Controlling Shareholder
Notwithstanding the other provisions of the Itaú CorpGroup Shareholders’ Agreement, Itaú Unibanco shall have no obligation to purchase shares of Itaú-CorpBanca Corpbanca or Company Two, to the extent such purchase would, in and of itself, require Itaú Unibanco to make a tender offer for all of the outstanding shares of Itaú-CorpBanca. Corpbanca.
If Itaú Unibanco ceases to be the Controlling Shareholder (as defined in Article 97 of the Chilean Securities Market Act) of Itaú-CorpBanca, Corpbanca, prior to consummating any obligation pursuant to a provision of the Itaú CorpGroup Shareholders’ Agreement to purchase shares of Itaú-CorpBanca Corpbanca or Company Two from CorpGroup Parent which would result in Itaú Unibanco being the Controlling Shareholder of Itaú-CorpBanca, Corpbanca, Itaú Unibanco shall commence a tender offer to purchase a number of shares of Itaú-CorpBanca Corpbanca which would result in Itaú Unibanco being the Controlling Shareholder of Itaú-CorpBanca Corpbanca for the purchase price provided in such applicable provision of the Itaú CorpGroup Shareholders’ Agreement and shall in any event satisfy its obligation (whether through the tender offer or a subsequent purchase thereafter) within 90 calendar days.
CorpGroup Parent Liquidity Put and Call Options
During a period of eighteen18 months from the closing date of the Itaú-CorpBanca Merger, CorpGroup Parent shall have the right to (i) sell to Itaú Unibanco, a number of shares of Company Two representing in the aggregate up to 6.6% of all of the outstanding shares of Itaú-CorpBanca Corpbanca at a price equal to the market price as of the notice date of such put right; or (ii) cause Company Two to sell to Itaú Unibanco, through one of the mechanisms available on the Santiago Stock Exchange that only allows block sales, a number of shares of Itaú-CorpBanca Corpbanca representing up to 6.6% of all of the outstanding shares of Itaú-CorpBanca Corpbanca (in which event Itaú Unibanco will place an order to purchase such shares in the Santiago Stock Exchange at a price not less than such market price). If, as a result of the competitive bidding procedures of the Santiago Stock Exchange, the shares of Itaú-CorpBanca Corpbanca sold by Company Two are unexpectedly sold over the Santiago Stock Exchange to a third party other than Itaú Unibanco or any of its affiliates at a higher price, then CorpGroup Parent shall no longer have the right to repurchase such shares of Itaú-CorpBanca Corpbanca from Itaú Unibanco or one of its wholly-owned subsidiaries.
If the put right described above has been exercised, at any time and from time to time during the five-year period thereafter, CorpGroup Parent shall have the unconditional right either to (i) acquire from Itaú Unibanco a number of shares of Company Two up to the number of shares sold pursuant to the put right described above at the same price per share as was paid by Itaú Unibanco pursuant to such put right plus an annual interest rate at the ChileanÍndice de Cámara Promedio plus a spread that is not to exceed the lowest spread then being offered by Itaú-CorpBanca Corpbanca tonon-governmental borrowers in Chile; or (ii) cause Itaú Unibanco to place an order on the Santiago Stock Exchange to sell to CorpGroup Parent and/or Company Two a number of shares of Itaú-CorpBanca Corpbanca of up to the number of shares of Itaú-CorpBanca Corpbanca sold to Itaú Unibanco pursuant to the put right described above at the same price per share as was paid by Itaú Unibanco pursuant to such put right plus an annual interest rate at the ChileanÍndice de Cámara Promedio plus a spread that is not to exceed the lowest spread then being offered by Itaú-CorpBanca Corpbanca tonon-governmental borrowers in Chile. If, as a result of the competitive bidding procedures of the Santiago Stock Exchange, the shares of Itaú-CorpBanca Corpbanca sold by Itaú Unibanco or one of its wholly-owned subsidiaries are sold over the Santiago Stock Exchange to a third party at a higher price, then CorpGroup Parent and/or Company Two shall not have the right to repurchase such shares of Itaú-CorpBanca. Corpbanca.
Call Option in Event of Material Breach
If either Itaú Unibanco or CorpGroup Parent commits a Material Breach of the Itaú CorpGroup Shareholders’ Agreement, or the Breaching Shareholder, thenon-Breaching Shareholder shall have the right to give written notice to the Breaching Shareholder describing such Material Breach and demanding that the Breaching Shareholder cure the Material Breach by fully performing its obligation.
If the Breaching Shareholder has not cured its Material Breach within 50 calendar days after receipt of any such notice, thenon-Breaching Shareholder shall have the unconditional right to (i) require the Breaching Shareholder to sell all of its shares to thenon-Breaching Shareholder at a price per share equal to 80% of the market price as of the date of the notice exercising a call option and (ii) if thenon-Breaching Shareholder is CorpGroup Parent, to sell to Itaú Unibanco all of its shares at a price per share equal to 120% of the market price as of the date of the notice exercising a put option.
Notwithstanding the foregoing, if thenon-Breaching Shareholder is Itaú Unibanco, Itaú Unibanco may elect to purchase the maximum number of shares which would allow Itaú Unibanco to avoid making a public offer for all of the outstanding shares of Itaú-CorpBanca. Corpbanca.
Non-Competition;Non-Solicit
Non-Competition
Neither Itaú Unibanco nor CorpGroup Parent shall, directly or indirectly, own, invest, control, acquire, operate, manage, participate or engage in any Banking Business in Chile, Colombia and the Republic of Panama other than (i) through its investment in the Itaú-CorpBanca Corpbanca and its subsidiaries and (ii) through anysociedad de apoyo al giro in which Itaú-CorpBanca Corpbanca has an ownership interest.
For purposes of the Itaú CorpGroup Shareholders’ Agreement, Banking Business shall mean providing (i) consumer financial products and/or services, including secured and/or unsecured consumer lending, consumer mortgage products, consumer card
products, retail banking products and/or services, and consumer leasing; and/or (ii) deposit-taking services including both consumer and commercial deposits, and payroll services; and/or (iii) credit and/or debit card transaction processing services (which transaction processing services, for the avoidance of doubt, include merchant acquiring); and/or (iv) commercial financial products and/or services, including bilateral and syndicated loans, trustee and depositary services; and/or (v) investment banking services; and/or (vi) financial advisory services related to the services described in clauses (i) through (v) above; and/or (vii) all businesses related or reasonably incidental thereto.
Notwithstanding the foregoing, the Itaú CorpGroup Shareholders’ Agreement permits the following activities: (i) providing consumer financing and other financial products or services offered from time to time by supermarkets and other nonbank retailers in the applicable jurisdiction; (ii) financing or providing asset management products and services; (iii) receiving from or providing to any third party a personal guaranty or a loan or engaging in other financial arrangements in connection with a transaction or transactions that does not otherwise constitute a Banking Business in Chile, Colombia or the Republic of Panama; (iv) making investments by or in employee retirement, pension or similar plans or funds or in companies that manage such plans or funds; (v) acquiring, owning, controlling or managing, in any third party that has any Banking Business in Chile, Colombia and the Republic of Panama pursuant to purchase, merger, consolidation or otherwise so long as (A) the Banking Business in Chile, Colombia or the Republic of Panama conducted by such third party or business constitutes not more than 10% of the revenues of such acquired third party or business and not more than 5% of the revenues of Itaú-CorpBanca, Corpbanca, in each case for the immediately preceding 12 months, and (B) after consummation of such acquisition, Itaú-CorpBanca Corpbanca is offered the right to acquire such Banking Business for cash at the fair value thereof; (vi) acquiring, owning, controlling, managing, investing in any third party or business which would otherwise be prohibited under thenon-compete obligation, provided that action is undertaken to sell the competing portion of such business; (vii) acquiring, owning, controlling, managing, investing in any third party that has any Banking Business in Chile, Colombia and the Republic of Panama or engaging in a new business opportunity in the Banking Business in Chile, Colombia, Peru and Central America, if such transaction or opportunity was presented by Itaú-CorpBanca Corpbanca to Itaú Unibanco, if Corp GroupCorpGroup Parent is the investing party, or by Itaú-CorpBanca Corpbanca to Corp GroupCorpGroup Parent, if Itaú Unibanco is the investing party, and Corp GroupCorpGroup Parent or Itaú Unibanco, as the case maybe, withheld their consent to Itaú-CorpBanca Corpbanca consummating such transaction; (viii) providing products or services pursuant to any unsolicited request from any client that operates in Chile, Colombia and the Republic of Panama which cannot be reasonably provided by Itaú-CorpBanca Corpbanca or its subsidiaries or (ix) acquiring, owning, managing or investing in the MCC Entities (as defined in the Itaú CorpGroup Shareholders’ Agreement) or prohibit any activities currently conducted by the MCC Entities.
Non-Solicit
Neither Itaú Unibanco nor CorpGroup Parent shall, directly or indirectly, solicit for hire, hire or otherwise induce or attempt to induce any officer of Itaú-CorpBanca Corpbanca or any of its subsidiaries to leave the employment of Itaú-CorpBanca Corpbanca or any of its subsidiaries, or in any way interfere with the relationship between Itaú-CorpBanca Corpbanca or any of its subsidiaries, on the one hand, and any officer thereof on the other hand.
Dividend Policy; Dividend Put and Call Options.
For a period of eight fiscal years starting from the closing of the Transaction, or the Dividend Period, Itaú Unibanco and CorpGroup Parent have agreed to cause Itaú-CorpBanca Corpbanca to adopt an annual business plan and budget expressly providing for the management of Itaú-CorpBanca Corpbanca and its subsidiaries in a manner that has as its primary target, in the following order of priority: (i) first, complying with the Optimal Regulatory Capital for such fiscal year, (ii) second, the payment by Itaú-CorpBanca Corpbanca of cash dividends aggregating at least US$370 million for each year during the Dividend Period and (iii) third, achieving a growth rate of the total assets of Itaú-CorpBanca Corpbanca and CorpBancaCorpbanca Colombia above the Minimum Growth Rate and other reasonable objectives as determined by the board of Itaú-CorpBanca. Corpbanca. Itaú Unibanco and CorpGroup Parent have agreed to cause the board of Itaú-CorpBanca Corpbanca to cause management of Itaú-CorpBanca Corpbanca and its subsidiaries to conduct their respective businesses in accordance with such annual business plan and budget.
If the amount of the dividends paid in cash by Itaú-CorpBanca Corpbanca is less than US$370 million for any fiscal year during the Dividend Period, Itaú Unibanco and CorpGroup have agreed to cause Itaú-CorpBanca Corpbanca and its subsidiaries to maximize the use of Tier 2 capital, to the fullest extent permitted by applicable Law to increase its regulatory capital to the extent required to maintain Optimal Regulatory Capital requirements for such fiscal year.
Optimal Regulatory Capital means at any date, with respect to either Itaú-CorpBanca Corpbanca or CorpBancaCorpbanca Colombia, as the case may be, (a) the higher of (i) 120% of the minimum regulatory Capital Ratio required by applicable law of the applicable country and (ii) the average regulatory Capital Ratio of the three largest privately-owned banks (excluding the Itaú-CorpBanca Corpbanca and/or CorpBancaCorpbanca Colombia) (measured in terms of assets) in Chile or Colombia, as the case may be, in each case as of the last day of the most recent fiscal year multiplied by (b) the risk-weighted assets (including any risk-weighted assets of subsidiaries that are consolidated for
purposes of calculating minimum regulatory Capital Ratio in such country) of the Itaú-CorpBanca Corpbanca or CorpBancaCorpbanca Colombia, as the case may be, as of the date one year from the last day of the most recent fiscal year assuming that such risk-weighted assets grow during such year at a rate equal to the Minimum Growth Rate.
Minimum Growth Rate for any year shall mean the minimum growth rate of the total assets of Itaú-CorpBanca Corpbanca and CorpBancaCorpbanca Colombia (determined in accordance with IFRS) for the applicable country (e.g., Chile or Colombia) determined in good faith by the board of directors of Itaú-CorpBanca Corpbanca (but in no event exceeding Forecasted System Growth in such country for such year) reasonably necessary to maintain the market share of Itaú-CorpBanca Corpbanca and CorpBancaCorpbanca Colombia (each measured in terms of assets in their respective countries) as of the last day of the immediately preceding year.
Itaú-CorpBanca Corpbanca shall pay an annual dividend equal to 100% of the annual cash distributable earnings, net of any reserves required to maintain Optimal Regulatory Capital, before March 31 of each Fiscal Year. If the portion of such dividend to be received by CorpGroup Parent is less than US$120 million in any fiscal year of the Dividend Period, CorpGroup Parent shall have the right, from and after the date that such dividend is declared to (i) sell to Itaú Unibanco, at a price per share equal to the market price as of the date of the notification to exercise this put right, a number of shares of Company Two equal to (A) US$120 million minus the portion of the annual dividend declared by Itaú-CorpBanca Corpbanca to be received by CorpGroup Parent, divided by (B) the market price of the shares of Itaú-CorpBanca Corpbanca as of the date of the notification to exercise this put right; or (ii) cause Company Two to sell to Itaú Unibanco, a number of shares of Itaú-CorpBanca Corpbanca equal to (A) US$120 million minus the annual dividend declared by Itaú-CorpBanca Corpbanca and to be received by CorpGroup Parent, divided by (B) the market price of such shares as of the date of the notification to exercise this put right. If, as a result of the competitive bidding procedures of the Santiago Stock Exchange, the shares of Itaú-CorpBanca Corpbanca sold by Company Two are unexpectedly sold over the Santiago Stock Exchange to a third party at a higher price, then CorpGroup Parent shall no longer have the right to repurchase such shares of Itaú-CorpBanca Corpbanca from Itaú Unibanco or one of its wholly-owned subsidiaries.
If the put right described above has been exercised, during the five-year period thereafter, CorpGroup Parent shall have the right either to (i) acquire from Itaú Unibanco, a number of shares of Company Two up to the number of shares sold pursuant to such put right at the same price per share as was paid by Itaú Unibanco plus an annual interest rate at the ChileanÍndice de Cámara Promedio plus a spread that is not to exceed the lowest spread then being offered by Itaú-CorpBanca Corpbanca tonon-governmental borrowers in Chile; or (ii) cause Itaú Unibanco to place an order on the Santiago Stock Exchange to sell to CorpGroup Parent and/or Company Two a number of shares of Itaú-CorpBanca Corpbanca up to the number of shares sold to Itaú Unibanco pursuant to such put right at the same price per share as was paid by Itaú Unibanco plus an annual interest rate at the ChileanÍndice de Cámara Promedio plus a spread that is not to exceed the lowest spread then being offered by Itaú-CorpBanca Corpbanca tonon-governmental borrowers in Chile. If, as a result of the competitive bidding procedures of the Santiago Stock Exchange, the shares of Itaú-CorpBanca Corpbanca sold by Itaú Unibanco or one of its wholly-owned subsidiaries are sold over the Santiago Stock Exchange to a third party at a higher price, then CorpGroup Parent and/or Company Two shall not have the right to repurchase such shares of Itaú-CorpBanca.
Use of Brands
Itaú Unibanco and CorpGroup Parent have agreed that for so long as Itaú Unibanco owns shares of Itaú-CorpBanca, CorpBanca Corpbanca, Itaú Corpbanca and its subsidiaries shall have a royalty-free, perpetual license to use the Itaú Brand, whether alone or in conjunction with other trademarks.
Preapproved mattersMatters
CorpGroup Parent has agreed to consent to and affirmatively vote its shares of Itaú-CorpBanca Corpbanca at any shareholders’ meeting in favor of the approval of a transaction between the Itaú-CorpBanca’s stock-broker Corpbanca’s securities broker (corredora) subsidiary and MCC at such time as MCC is wholly owned by an Affiliate of Itaú Unibanco, transaction which may be structured as an acquisition of equity securities of MCC by Itaú-CorpBanca Corpbanca (followed by a merger of such subsidiary and MCC).
Strategic Transactions
Pursuant to the terms of the Itaú CorpGroup Shareholders’ Agreement, CorpGroup Parent and Itaú Unibanco intend to use Itaú-CorpBanca Corpbanca and its subsidiaries as their exclusive vehicle to pursue business opportunities in the Banking Business in Chile, Colombia, Peru and Central America. As a result, if either CorpGroup Parent or Itaú Unibanco, intends to pursue or develop any new business opportunities in the Banking Business in the abovementioned territories, either individually or with third parties, such party shall notify the other party and provide Itaú-CorpBanca Corpbanca with the exclusive right to pursue such business opportunity prior to presenting it to or pursuing it individually or with third parties. If CorpGroup Parent or Itaú-Unibanco, as the case may be, does not agree to Itaú-CorpBanca Corpbanca pursuing or continue to pursue or consummate such particular business opportunity within thirty (30)30 days following receipt of such notice, the other party shall have the right to pursue and implement it unilaterally and not through Itaú-CorpBanca. Corpbanca.
If CorpGroup Parent agrees to Itaú-CorpBanca Corpbanca pursuing a business opportunity that would require a capital increase and/or a change in the dividend policy of Itaú-CorpBanca, Corpbanca, Itaú Unibanco has agreed to provide CorpGroup Parent with long-term financing in an amount reasonably necessary as to finance its subscription of its pro rata share in such capital increase. If, on the other hand, CorpGroup Parent agrees to allow Itaú-CorpBanca Corpbanca to pursue and implement such business opportunity but decides not to participate in the capital increase in connection therewith, Itaú Unibanco will grant CorpGroup Parent a call option with respect to the number of shares that if purchased by CorpGroup Parent at such time would restore its direct and indirect ownership percentage of outstanding shares of Itaú-CorpBanca Corpbanca to its ownership percentage of outstanding shares of Itaú-CorpBanca Corpbanca immediately prior to such capital increase.
Itaú Unibanco’s Paraguay and Uruguay Operations
In respect of Itaú Unibanco’s Paraguay and Uruguay Operations, CorpGroup Parent and Itaú Unibanco have agreed to (i) negotiate in good faith the inclusion of their respective businesses in Paraguay and Uruguay as part of the business owned and operated by Itaú-CorpBanca, Corpbanca, (ii) use their reasonable best efforts to agree on the valuation of such businesses in Paraguay and Uruguay and (iii) if CorpGroup Parent and Itaú Unibanco agree on the valuation of such businesses, to transfer to and operate such businesses by Itaú-CorpBanca. Corpbanca.
Systems Operations Services Agreement
We have entered into a Systems Operations Services Agreement with IBM, initially dated March 30, 2001, and covering a term from April 1, 2001 through April 15, 2006 which can be renegotiated periodically. The current extension became effective on April 16, 2008 until April 30, 2018. Under this agreement, IBM provides outsourcing computer system operations services to us and we are obligated to pay fees amounting to UF 2,821.7 per month.
Service Contracts
On July 6, 2001, we entered into a Services Agreement with our affiliate Inversiones CorpGroup Interhold S.A.Limitada pursuant to which CorpGroup provides us with professional and technical consulting services including preparation of financial statements, implementing financial and administrative procedures; preparing, analyzing, and providing legal advisory services; and analyzing economic, financial sectors and feasibility of investment plans; we pay fees of approximately UF6,250 per month. On January 27, 2014, we entered into an amendment to the agreement which will take effect as of January 1, 2015. Pursuant to this amendment, the agreement will be extended for a further10-year term beginning on January 1, 2015, subject to certain early termination provisions. Either party may extend the term of the agreement for five additional years. Provisions for the payment of expenses were also included in this amendment.
On April 10, 2008, we entered into a Services Agreement with our affiliate Inversiones CorpGroup Interhold S.A.,Limitada, pursuant to which CorpGroup provides us with professional and technical consulting services in the finance, capital markets, real estate and operations areas; we pay fees of approximately UF 1,350 per month. On January 27, 2014, we entered into an amendment to the agreement which will take effect as of January 1, 2015. Pursuant to the amendment, the agreement will be extended for a further10-year term beginning on January 1, 2015, subject to certain early termination provisions. Either party may extend the term of the agreement for five additional years, subject to certain conditions. Provisions for the payment of expenses were also included in this amendment.
On March 27, 2012, we entered into a Services Agreement with Mr. Álvaro Saieh Bendeck and our affiliate Corp GroupCorpGroup Holding Inversiones Limitada, pursuant to which Corp GroupCorpGroup Holding Inversiones Limitada provides us with professional and technical consulting services in all matters related to strategic planning and definitions, new businesses, including acquisitions in Chile or abroad, and management controls; we pay fees of approximately UF 1,250 per month. On January 27, 2014, we entered into an amendment to the agreement which will take effect as of January 1, 2015. Pursuant to the amendment, the agreement will be extended for a further10-year term beginning on January 1, 2015, subject to certain early termination provisions. Either party may extend the term of the Service Contract for five additional years, provided that on such date the services continue to be rendered with the participation of Mr. Álvaro Saieh Bendeck. Provisions for the payment of expenses were also included in this amendment.
Software Consulting and Development Agreement
We have entered into a Software Consulting and Development Agreement, for the Integrated Banking System (IBS), dated as of October 4, 2001, with Datapro, Inc. The contract covers a five-year term for system maintenance and adjustments, which is automatically renewable at the end of the term. The contract includes an initial charge for development and user license of US$380,000.00 and a schedule of additional fees for services provided as well as a monthly maintenance fee.
Redbanc Agreement
We have entered into an agreement dated as of April 1, 2001 to participate in the automated teller machine network operated by Redbanc S.A.. Due to the Merger, on October 11, 2016, this agreement was amended and restated in order to (i) terminate the equivalent agreement entered into by former Banco Itaú Chile with Redbanc S.A., dated as of April 1, 2001. prior to the Merger and (ii) recognize and confirm the agreement entered into by former Corpbanca, which remains in full force and effect.
The contractagreement covers a three-year term which is automatically and successively renewed for equal three-year periods. The purpose of this agreement is to provide services to facilitate the performance of banking objectives. This includes the installation, operation, maintenance, and development of equipment, devices, systems, and services used for the management and operation of automated andnon-automated cash andpoint-of-sale machines and the related services. Redbanc shall invoice and charge us a different monthly fee for each of the services connected to the automated teller machine network.
D. | EXCHANGE CONTROLS |
The Central Bank of Chile is responsible for, among other things, monetary policies and exchange controls in Chile. Foreign investments must be registered with the Central Bank of Chile under theLey Orgánica Constitucional del Banco Central de Chile, or the Chilean Central Bank Act and theCompendio de Normas de Cambios Internacionales, or the Central Bank Foreign Exchange Regulations or the Compendium. The Chilean Central Bank Act is a constitutional law requiring a “special majority” vote of the Chilean Congress to be modified. Until January 1, 2016, foreign investments could be registered with theComité de Inversiones Extranjeras, or the Foreign Investment Committee under Decree Law No. 600 of 1974, as amended or DL 600, as an alternative to the registration with the Central Bank of Chile. The Tax Reform, however, repealed DL 600 as of January 1, 2016. As from 2016, the Foreign Investment Committee shall not be entitled to register new foreign investments. All foreign investments previously registered with the Foreign Investment Committee under DL 600, shall continue to be subject to the provisions of DL 600.
Pursuant to the Central Bank Foreign Exchange Regulations, investors are allowed to freely enter into any kind of foreign exchange transaction, the only restriction being that investors must inform the Central Bank of Chile about certain operations which they have conducted and must conduct certain operations through the Formal Exchange Market. The type of information related to equity investment that must be reported to the Central Bank of Chile bynon-Chilean residents include the occurrence of, among other things, any assignment, substitution, changes in organizational status, change in the form of the investment, or material changes to the terms of the agreement governing the foreign currency transaction. Transactions that are required to be conducted through the Formal Exchange Market include transactions involving foreign commercial bank loans or Chilean company issued bonds, deposits made in Chilean financial institutions by foreign depositors, and equity investments and contributions of capital by foreign investors. The Formal Exchange Market entities through which transactions are conducted will report such transactions to the Central Bank of Chile.
Pursuant to the provisions of Chapter XIV of the Compendium, it is not necessary to seek the Central Bank of Chile’s prior approval in order to establish an ADR facility. The Central Bank of Chile only requires that (i) any foreign investor acquiring shares to be converted into ADSs who has actually brought funds into Chile for that purpose shall bring those funds through the
Formal Exchange Market, (ii) any foreign investor acquiring shares to be converted into ADSs informs the Central Bank of Chile of the investment in the terms and conditions described below, (iii) all remittances of funds from Chile to the foreign investor upon the sale of the shares underlying the ADSs or from dividends or other distributions made in connection therewith, shall be made through the Formal Exchange Market, and (iv) all remittances of funds to the foreign investor, whether or not from Chile, shall be informed to the Central Bank of Chile in the terms and conditions described below.
When the shares to be converted into ADSs have been acquired by the foreign investor with funds brought into Chile through the Formal Exchange Market, a registration form shall be filed with the Department of International Financial Operations of the Central Bank of Chile by the foreign investor acting through an entity of the Formal Exchange Market on or before the date on which the foreign currency is brought into Chile. However, if the funds were brought into Chile with a different purpose and subsequently were used to acquire shares to be converted into ADSs, the Department of International Financial Operations of the Central Bank of Chile then shall be informed of such investment by the Custodian within ten days following the end of each fifteen-day15-day period on which
the Custodian has to deliver periodic reports to the Central Bank of Chile. If the funds were not brought into Chile, a registration form shall be filed with the Department of International Financial Operations of the Central Bank of Chile by the foreign investor itself or through an entity of the Formal Exchange Market within first 10 days of the month following the date on which the proceeds were used.
All payments in U.S. dollars in connection with the ADS facility made from Chile shall be made through the Formal Exchange Market. Pursuant to Chapter XIV of the Compendium no previous authorization from the Central Bank of Chile is required for the remittance of U.S. dollars obtained in the sale of the shares underlying ADSs or from dividends or other distributions made in connection therewith. The entity of the Formal Exchange Market participating in the transfer shall provide certain information to the Central Bank of Chile on the next banking business day. In the event there are payments made outside Chile, the foreign investor shall provide the relevant information to the Central Bank of Chile directly or through an entity of the Formal Exchange Market within the first 10 days of the month following the date on which the payment was made.
Under Chapter XIV of the Compendium payments and remittances of funds from Chile are governed by the rules in effect at the time the payment or remittance is made. Therefore, any change made to Chilean laws and regulations after the date hereof will affect foreign investors who have acquired ADSs or shares to be converted into ADSs. There can be no assurance that further Central Bank of Chile regulations or legislative changes to the current foreign exchange control regime in Chile will not restrict or prevent foreign investors to purchase and remit abroad U.S. dollars, nor can there be any assessment to the duration or impact of such restrictions, if imposed.
This situation is different from the one governing ADSs issued by Chilean companies prior to April 19, 2001. Prior to such date, ADSs representing shares of stock of Chilean corporations were subject to Chapter XXVI of the Compendium, which addressed the issuance of ADSs by Chilean companies and foreign investment contracts entered into among the issuer of the shares, the Central Bank of Chile and the depository pursuant to Article 47 of the Central Bank Act. Chapter XXVI of the Compendium and the corresponding foreign investment contracts granted foreign investors the vested right to acquire dollars with the proceeds obtained in the sale of the underlying shares of stock, or from dividends or other distributions made in connection therewith and remit them abroad. On April 19, 2001, the Central Bank of Chile eliminated Chapter XXVI of the Compendium and made the establishment of new ADR facilities subject to the provisions of Chapter XIV of the Compendium. All foreign investment contracts executed under the provisions of Chapter XXVI of the Compendium remain in full force and effect and are governed by the provisions in effect at the time of their execution.
The foregoing is a summary of the Central Bank of Chile’s regulations with respect to the issuance of ADSs representing common shares as in force and effect as of the date hereof. This summary does not purport to be complete and is qualified in its entirety by reference to the provisions of Chapter XIV of the Compendium, a copy of which is available from CorpBancaCorpbanca upon request.
There can be no assurance that further Central Bank of Chile regulations or legislative changes to the current foreign exchange control regime in Chile will not restrict or prevent foreign investors from purchasing or remitting U.S. dollars, or that further restrictions applicable to foreign investors which affect their ability to remit the capital, dividends or other benefits in connection with the shares of stock will not be imposed by the Central Bank of Chile in the future, nor can there be any assessment to the duration or impact of such restrictions, if imposed.
E. | TAXATION |
CHILEAN TAX CONSIDERATIONS
The following discussion is based on material Chilean income tax laws presently in force, including Ruling No. 324 of January 29, 1990 of the Chilean Internal Revenue Service and other applicable regulations and rulings. The discussion summarizes the material Chilean income tax consequences of an investment in the ADSs or common shares received in exchange for ADSs by an individual who is not domiciled in or a resident of Chile or a legal entity that is not organized under the laws of Chile and does not have a permanent establishment located in Chile, which we refer to as a foreign holder. For purposes of Chilean law, an individual holder is a resident of Chile if he or she has resided in Chile for more than six months in one calendar year or for a total of more than six months, whether consecutive or not, in two consecutive tax years. An individual holder is domiciled in Chile if he or she resides in Chile with the purpose of staying in Chile (such purpose to be evidenced by circumstances such as the acceptance of employment within Chile or the relocation of his or her family to Chile). This discussion is not intended as tax advice to any particular investor, which can be rendered only in light of that investor’s particular tax situation.
Under Chilean law, provisions contained in statutes such as tax rates applicable to foreign holders, the computation of taxable income for Chilean purposes and the manner in which Chilean taxes are imposed and collected may be amended only by another statute. In addition, the Chilean tax authorities issue rulings and regulations of either general or specific application interpreting the provisions of Chilean tax law. Absent a retroactive law, Chilean taxes may not be assessed retroactively against taxpayers who act in good faith relying on such rulings and regulations, but Chilean tax authorities may change said rulings and regulations prospectively. There is no general income tax treaty in force between Chile and the United States (although a treaty has been signed it has not yet been ratified by United States’ Congress and therefore is not yet effective).
CASH DIVIDENDS AND OTHER DISTRIBUTIONS
Cash dividends paid by us with respect to the ADSs or common shares held by a foreign holder will be subject to a 35% Chilean withholding tax, which is withheld and paid over to the Chilean tax authorities by us. We refer to this as the Chilean withholding tax. A credit against the Chilean withholding tax is available based on the level of corporate income tax, or first category tax, actually paid by us on the taxable income to which the dividend is imputed; however, this credit does not reduce the Chilean withholding tax on aone-for-one basis because it also increases the base on which the Chilean withholding tax is imposed.
From January 1, 2017, the first category tax may be credited partially (65%). Nevertheless, the foreign holder shall be entitled to a full first category tax credit regardless of the tax regime chosen by the company if such holder is established or domiciled in, or resident of, a country with which Chile has a double taxation treaty in force or, until December 31, 2019, Chile has signed a double taxation treaty with such country, even if not in force.
In addition, distribution of book income in excess of retained taxable income is subject to the Chilean withholding tax, but such distribution is not eligible for the credit. In case such withholding is determined to be excessive at the end of the year, foreign holders will have rights to file for the reimbursement of the excess withholding. Under Chilean income tax law, for purposes of determining the level of the first category tax that has been paid by us, dividends generally are assumed to have been paid out of our oldest retained taxable profits. The first category tax rate is 22.5%24% in 2015.2016, is 25.5% in 2017 and 27% in 2018. The foregoing tax consequences apply to cash dividends paid by us. Dividend distributions made in property (other than common shares) will be subject to the same Chilean tax rules as cash dividends.
CAPITAL GAINS
Gains realized on the sale, exchange or other disposition by a foreign holder of ADSs (or ADRs evidencing ADSs) will not be subject to Chilean taxation, provided that such disposition occurs outside Chile (confirmed by the Chilean IRS in ruling No. 1,307 of 2013). The deposit and withdrawal of common shares in exchange for ADRs will not be subject to any Chilean taxes.
Gains recognized on a sale or exchange of common shares received in exchange for ADSs (as distinguished from sales or exchanges of ADSs representing such common shares) by a foreign holder until December 31, 2016 will be subject to both the first category tax and the Chilean withholding tax (the former being creditable against the latter) if (1) the foreign holder has held such common shares for less than one year since exchanging ADSs for the common shares, (2) the foreign holder acquired and disposed of the common shares in the ordinary course of its business or as a regular trader of stock, or (3) the sale is made to a company in which the foreign holder holds an interest (10% or more of the shares in the case of Public Companies). A 35% withholding tax is imposed on the amount of the gains obtained on the sale or exchange of common shares received in exchange for ADSs, less a Chilean credit tax. In all other cases, gain on the disposition of common shares will be subject only to the first category tax levied as a sole tax. However, in these latter cases, if it is impossible to determine the taxable capital gain, a 5% withholding will be imposed on the total amount to be remitted abroad without any deductions as a provisional payment of the total tax due.
From January 1, 2017 onwards, any gain obtained on the sale or exchange of common shares received in exchange for ADSs by a foreign holder will be subject to the Chilean withholding tax with a rate of 35%, which must be withheld by the purchaser. However, if it is impossible to determine the taxable capital gain, a 10% withholding will be imposed on the total amount to be remitted abroad without any deductions as a provisional payment of the total tax due.
The tax basis of common shares received in exchange for ADSs will be the acquisition value of such shares.shares duly adjusted for local inflation. The valuation procedure set forth in the deposit agreement, which values common shares that are being exchanged at the highest price at which they trade on the Santiago Stock Exchange on the date of the exchange, generally will determine the acquisition value for this purpose. Consequently, the conversion of ADSs into common shares and sale of such common shares for the value established under the deposit agreement will not generate a capital gain subject to taxation in Chile to the extent that the sale price is equal to the acquisition value at the time of redemption as discussed above. In the event the sale price exceeds the acquisition value of such shares determined as explained above, such capital gain will be subject to first category tax (in the event the sale took place on or before December 31, 2016) and the Chilean withholding tax as discussed above.
The distribution and exercise of preemptive rights relating to the common shares will not be subject to Chilean taxation. Amounts received in exchange for the shares or assignment of preemptive rights relating to the shares will be subject to both the first category tax and the Chilean withholding tax (the former being creditable against the latter to the extent described above).
Exempt capital gains - Article 107 of the Chilean Income Tax Law
According to Article 107 of the Chilean Income Tax Law, the sale and disposition of shares of Chilean public corporations which are significantly traded on a Chilean stock exchange is not levied by any Chilean tax on capital gains if the sale or disposition was made:
For purpose of the bullets above, shares are considered to be significantly traded on a Chilean stock exchange when they (1) are registered in the securities registry, (2) are registered in a Chilean Stock Exchange; and (3) have an adjusted presence equal to or above 25% or have a “Market Maker” according to the SVS Ruling No 327 dated January 17, 2012. Currently, our shares are considered to be significantly traded on a Chilean stock exchange.
OTHER CHILEAN TAXES
No Chilean inheritance, gift or succession taxes apply to the transfer or disposition of the ADSs by a foreign holder but such taxes generally will apply to the transfer at death or by a gift of common shares by a foreign holder. No Chilean stamp, issue, registration or similar taxes or duties apply to foreign holders of ADSs or common shares.
WITHHOLDING TAX CERTIFICATES
Upon request, we will provide to foreign holders appropriate documentation evidencing the payment of the Chilean withholding tax.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
This section is a summary of certain U.S. federal income tax consequences applicable to the acquisition, ownership and disposition by a U.S. holder (as defined below) of ADSs or common shares. This summary applies to you only if you are a U.S. holder and you hold your ADSs or common shares as capital assets (generally, property held for investment) for U.S. federal income tax purposes. This summary is not a comprehensive description of all of the tax consequences that may be relevant to a decision to purchase, hold or dispose of our ADSs or common shares.
This section does not apply to you if you are a U.S. holder subject to special rules, including for example:
This section is based on the Internal Revenue Code of 1986, as amended, or the Code, its legislative history, existing and proposed U.S. Treasury Regulations, published rulings, and court decisions, all as of the date of this Annual Report. These laws are subject to change, possibly on a retroactive basis, and subject to differing interpretations. This summary does not address any U.S. state or local ornon-U.S. tax considerations or any U.S. federal estate, gift or alternative minimum tax considerations. On February 4, 2010, a comprehensive income tax treaty between the United States and Chile was signed, however such treaty has not yet been ratified by each country and therefore is not yet effective. It is unclear at this time when such treaty will be ratified by both countries. You should consult your tax advisor regarding the ongoing status of this treaty and, if ratified, the impact such treaty would have on the consequences described in this annual report.Annual Report.
As used herein, the term “U.S. holder” means a beneficial owner of ADSs or common shares who is:is, for U.S. federal income tax purposes, any of the following:
If a partnership (or other entity treated as sucha partnership for U.S. federal income tax purposes) holds the ADSs or common shares, the U.S. federal income tax treatment of a partner, member or owner of such entity will generally depend on the status of the partner, member or owner and the tax treatment of such entity. A partner, member or owner in an entity holding the ADSs or common shares should consult its tax advisor with regard to the U.S. federal income tax treatment of its investment in the ADSs or common shares.
Prospective investors should consult their tax advisors as to the particular tax considerations applicable to them relating to the acquisition, ownership and disposition of our ADSs or common shares, including the applicability of U.S. federal, state and local tax laws andnon-U.S. tax laws.
OWNERSHIP OF ADSs
In general
The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the relevant deposit agreement and any related agreement will be performed in accordance with the terms set forth therein. For U.S. federal income tax purposes, if you are a holder of ADSs, you generally will be treated as the owner of our common shares
represented by such ADSs. Accordingly, deposits or withdrawals of common shares for ADSs will not be subject to U.S. federal income tax. The U.S. Treasury Department has expressed concern that depositaries for depositary receipts, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. holders of such receipts or shares. These actions would also be inconsistent with claiming the reduced rate for “qualified dividend income” described below. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Chilean withholding taxes and sourcing rules described below and availability of the reduced rate for qualified dividend income could be affected by future actions that may be taken by the U.S. Treasury Department.
Taxation of distributions
Subject to the PFIC rules discussed below, if you are a U.S. holder, the gross amount of any distribution of cash or property (including the net amount of Chilean taxes withheld, if any, on the distribution, after taking into account the credit for first category tax, as discussed above under “—Chilean Tax Considerations—Cash Dividends and Other Distributions”), paid by the bank out of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will be includable in gross income as ordinary dividend income. You must include the net amount of Chilean tax withheld, if any, from such distribution in gross income even though you do not in fact receive it. The dividend is taxable to you when you, in the case of common shares, or the depositary, in the case of ADSs, receive the dividend, actually or constructively. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as anon-taxable return of capital to the extent of your basis in the ADSs or common shares and thereafter as either long-term or short-term capital gain, depending on whether you have held our ADSs or common shares for more than one year at the time of the distribution. The bank does not currently maintain, and does not intend to maintain, calculations of our earnings and profits in accordance with U.S. federal income tax principles. Consequently, a U.S. holder should treat the entire amount of any distribution received as a dividend. As used below, the term “dividend” means a distribution that constitutes a dividend for U.S. federal income tax purposes.
If you are anon-corporate U.S. holder, dividends paid to you may constitute qualified dividend income and be taxable to you at a reduced rate provided that (1) certain holding period requirements are met, (2) the ADSs or common shares are considered to be readily tradable on an “established securities market” in the United States, and (3) the bank is not a PFIC. Under U.S. Internal Revenue Service, or IRS, authority, ADSs are considered for purposes of clause (2) above to be readily tradable on an established securities market in the United States because they are listed on the NYSE. Based on existing guidance, it is not entirely clear whether dividends received with respect to the common shares will be treated as qualified dividend income because the common shares are not themselves listed on a U.S. exchange. Moreover, as discussed below, under “—Passive Foreign Investment Company rules”, we believe that we will not be treated as a PFIC for U.S. federal income tax purposes with respect to our 20152016 and current taxable year, and based on our current expectations regarding the value and nature of our assets, the sources and nature of our income, relevant market and shareholder data and our current business plans, we do not anticipate becoming a PFIC in the future. However, there can be no assurance in this regard because the PFIC determination is made annually and is based on the portion of our assets (including goodwill) and income that is characterized as passive under the PFIC rules and our continued qualification for an exception to the PFIC rules for certain foreign banks. You should consult your tax advisor regarding the availability of the reduced rate for dividends paid with respect to our ADSs or common shares. Dividends paid by us generally will not be eligible for the dividends-received deduction available to certain U.S. corporations.
The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the Chilean peso payments made, determined at the spot Chilean peso/U.S. dollar rate on the date the dividend distribution is actually or constructively received by you or the depositary, regardless of whether the payment is in fact converted into U.S. dollars at that time. If the dividend is converted to U.S. dollars on the date of receipt, a U.S. holder generally will not recognize a foreign currency gain or loss. However, if the U.S. holder converts the Chilean pesos into U.S. dollars on a later date, the U.S. holder must include in income any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the difference between (1) the U.S. dollar value of the amount included in income when the dividend was received, and (2) the amount received on the conversion of the Chilean pesos into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the reduced tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. U.S. holders should consult their own tax advisors regarding the tax consequences to them if the bank pays dividends in Chilean pesos or any othernon-U.S. currency. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution.
Subject to certain limitations (including minimum holding period requirements), the net amount of Chilean income tax withheld and paid over to the Chilean taxing authorities (after taking into account the credit for first category tax, when available) will generally be creditable or deductible against your U.S. federal income tax liability. However, if the amount of Chilean withholding tax
initially withheld from a dividend is determined under applicable Chilean law to be excessive (as described above under “—Chilean Tax Considerations—Cash Dividends and Other Distributions”), the excess tax may not be creditable. Special rules apply in determining the foreign tax credit limitation with respect to dividends received by individuals that are subject to the reduced tax rate for qualified dividends. Dividends will be treated as income from sources outside the United States and generally be categorized as “passive category income” for most U.S. holders for U.S. foreign tax credit purposes. A U.S. holder that does not elect to claim a credit for any foreign income taxes paid during the taxable year may instead claim a deduction in respect of such foreign income taxes, provided that the U.S. holder elects to deduct (rather than credit) all foreign income taxes paid or accrued during the taxable year. This discussion does not address special rules that apply to U.S. holders who, for purposes of determining the amount of the foreign tax credit, take foreign income taxes into account when accrued. The rules governing foreign tax credits are complex and a U.S. holder should consult its own tax advisor regarding the availability of foreign tax credits under its particular circumstances.
Taxation of dispositions
Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell, exchange or otherwise dispose of your ADSs or common shares in a taxable disposition, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your ADSs or common shares. Any such gain or loss will be long-term capital gain or loss if your ADSs or common shares have been held for more than one year. Certainnon-corporate U.S. holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. The deductibility of capital losses is subject to limitations.
If you are a U.S. holder of our ADSs or common shares, the initial tax basis of your ADSs or common shares will be the U.S. dollar purchase price or, if purchased in Chilean pesos, the U.S. dollar value of the Chilean peso-denominated purchase price determined on the date of purchase. If the common shares are treated as being traded on an “established securities market,” a cash basis U.S. holder, or, if it elects, an accrual basis U.S. holder, will determine the U.S. dollar value of the cost of such common shares by translating the amount paid at the spot rate of exchange on the settlement date of the purchase. If you convert U.S. dollars to Chilean pesos and immediately use the currency to purchase common shares, such conversion generally will not result in taxable gain or loss to you.
The amount realized generally will be equal to the amount of cash or the fair market value of any other property received. With respect to the sale, exchange or other taxable disposition of our common shares, if the payment received is in Chilean pesos, the amount realized generally will be the U.S. dollar value of the payment received determined on (1) the date of receipt of payment in the case of a cash basis U.S. holder, and (2) the date of disposition in the case of an accrual basis U.S. holder. If our common shares are treated as being traded on an “established securities market,” a cash basis U.S. holder, or, if it elects, an accrual basis U.S. holder, will determine the U.S. dollar value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale.
If a Chilean income tax is withheld on the sale, exchange or other taxable disposition of our ADSs or common shares, the amount realized by a U.S. holder will include the gross amount of the proceeds of that sale, exchange or other taxable disposition before deduction of the Chilean income tax. Capital gain or loss, if any, realized by a U.S. holder on the sale, exchange or other taxable disposition of ADSs or common shares generally will be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. Consequently, in the case of a gain from the disposition of a common share that is subject to Chilean income tax, the U.S. holder may not be able to benefit from the foreign tax credit for that Chilean income tax (i.e., because the gain from the disposition would be U.S. source), unless the U.S. holder can apply the credit against U.S. federal income tax payable on other income from foreign sources. Alternatively, the U.S. holder may take a deduction for the Chilean income tax, provided that the U.S. holder elects to deduct all foreign taxes paid or accrued during the taxable year. The rules governing foreign tax credits are complex and a U.S. holder should consult its own tax advisor regarding the availability of foreign tax credits under its particular circumstances.
Passive Foreign Investment Company rules
Based upon our current estimates, expectations and projections of the value and classification of our assets and the sources and nature of our income, we believe that the bank’s ADSs and common shares should not be treated as stock of a PFIC for U.S. federal income tax purposes for 2015,2016, our current taxable year or in the foreseeable future, including after the anticipated combination of the bank and Itaú Chile following the Itaú-CorpBanca Merger (which is expected to be consummated in 2016), but this conclusion is a factual
determination that is made annually and there can be no assurance that we will not be considered a PFIC for the current taxable year or any subsequent taxable year. Our actual PFIC status for our current taxable year ending December 31, 20162017 will not be determinable until after the close of such taxable year and, accordingly, there is no guarantee that we will not be a PFIC for 2016.2017.
In general, if you are a U.S. holder, the bank will be a PFIC with respect to you if for any taxable year in which you held the bank’s ADSs or common shares:
Passive income for this purpose generally includes dividends, interest, royalties, rents, annuities and gains from assets that produce passive income. We will be treated as owning our proportionate share of the assets and earnings and our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% by value of the stock of another corporation. If we are a PFIC for any year during which you hold our ADSs or common shares, you will generally be required to treat our ADSs or common shares as stock in a PFIC for all succeeding years during which you hold our ADSs or common shares, even if the bank does not otherwise meet the PFIC tests for any such succeeding year.
We are unable to determine with certainty that we are not a PFIC because the application of the PFIC rules to banks is unclear under present U.S. federal income tax law. Banks generally derive a substantial part of their income from assets that are interest bearing or that otherwise could be considered passive under the PFIC rules. The IRS has issued a notice and has proposed regulations, which together describe what is referred to as the “active bank exception.” For purposes of the PFIC test, the active bank exception excludes from passive income any income derived in the active conduct of a banking business by a qualifying foreign bank. The IRS notice and proposed regulations each have different requirements for qualifying as a foreign bank and for determining the banking income that may be excluded from passive income under the active bank exception. Moreover, the proposed regulations have been outstanding since 1994 and will not be effective unless finalized.
We believe that we should qualify as an active bank under the requirements of the notice and the proposed regulations, assuming that the proposed regulations are finalized in their current form. Accordingly, based on our present regulatory status under Chilean law, the present nature of our activities and the present composition of our assets and sources of income, we do not believe we were a PFIC for the taxable year ending December 31, 20152016 (the latest period for which the determination can be made) and we also do not expect to be a PFIC for the current taxable year or for any future taxable years. However, if the Itaú-CorpBanca Merger is successfully consummated, whether we qualify as an active bank and whether we are a PFIC for the taxable year including such consummation and any subsequent taxable year will depend on the activities of the combined bank and, in part, on the composition of assets currently owned by Itaú Chile and the types of income that these assets generate in future taxable years. As a result, although we expect to qualify as an active bank and we do not expect to be a PFIC for the taxable year of the consummation of the Itaú-CorpBanca Merger and in subsequent taxable years, at this time there can be no assurance that this will be the case.
In addition, because a PFIC determination is a factual determination that must be made following the close of each taxable year and is based on, among other things, the market value of our assets and shares, and because the proposed regulations (although proposed to be retroactive in application) are not currently in force, our PFIC status may change and there can be no assurance that we will not be considered a PFIC for the current taxable year or any subsequent taxable year. If the bank is treated as a PFIC for any year in which you hold ADSs or common shares, and you are a U.S. holder that did not make amark-to-market election, as described below, you will be subject to special rules with respect to:
Under these rules:
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ADSs or common shares cannot be treated as capital, even if you hold the ADSs or ordinary shares as capital assets. If we were a PFIC, certain subsidiaries and other entities in which we have a direct or indirect interest may also be PFICs, or Lower-tier PFICs. Under attribution rules, U.S. holders would be deemed to own their proportionate shares of Lower-tier PFICs and would be subject to U.S. federal income tax according to the rules described above on (1) certain distributions by a Lower-tier PFIC and (2) certain dispositions of shares of a Lower-tier PFIC, in each case as if the U.S. holder held such shares directly, even though such U.S. holder had not received the proceeds of those distributions or dispositions.
Alternatively, a U.S. holder of “marketable stock” (as defined below) may make amark-to-market election. If you make this election, you will not be subject to the PFIC rules described above. Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of your ADSs or common shares at the end of the taxable year over your adjusted basis in your ADSs or common shares. These amounts of ordinary income will not be eligible for the reduced tax rates applicable to qualified dividend income or long-term capital gains. You will also be allowed to take an ordinary loss in respect of both (1) the excess, if any, of the adjusted basis of your ADSs or common shares over their fair market value at the end of the taxable year and (2) any loss realized on the actual sale or disposition of the ADSs or common shares, but in each case only to the extent of the net amount of previously included income as a result of themark-to-market election. Any loss on an actual sale of your ADSs or common shares would be a capital loss to the extent it exceeds any previously includedmark-to-market income not offset by previous ordinary deductions. Your basis in the ADSs or common shares will be adjusted to reflect any such income or loss amounts.
Themark-to-market election is available only for “marketable stock,” which is stock that is regularly traded in other thande minimis quantities on at least 15 days during each calendar quarter on a qualified exchange, including the NYSE, or other market, as defined in applicable regulations. The ADSs are listed on the NYSE, and we expect, although no assurance can be given, that they will be regularly traded on the NYSE. It is unclear whether the common shares will be treated as “marketable stock” for purpose of themark-to-market rules. In addition, themark-to-market election generally would not be effective for any Lower-tier PFICs. You are urged to consult your own tax advisors regarding the U.S. federal income tax consequences that would arise if we are treated as a PFIC while you hold ADSs or common shares.
Notwithstanding any election you make with regard to the ADSs or common shares, dividends that you receive from us will not constitute qualified dividend income to you, and therefore are not eligible for the reduced tax rate described above, if the bank is a PFIC either in the taxable year of the distribution or any preceding taxable year during which you held our ADSs or common shares. Instead, you must include the gross amount of any such dividend paid by us out of the bank’s accumulated earnings and profits (as determined for U.S. federal income tax purposes) in your gross income, and these amounts will be subject to tax at rates applicable to ordinary income.
If you directly (and, in some cases, indirectly) own ADSs or common shares that are treated as PFIC shares with respect to you during a taxable year, you will be required to file an annual report for such taxable year.
In addition, if we are a PFIC, we do not intend to prepare or provide you with the information necessary to make a “qualified electing fund” election, which, like themark-to-market election, is a means by which U.S. taxpayers may elect out of the tax treatment that generally applies to PFICs.
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE APPLICATION OF THE PFIC RULES TO YOUR INVESTMENT IN ADSS OR COMMON SHARES, INCLUDING THE AVAILABILITY AND ADVISABILITY OF MAKING AN ELECTION TO AVOID THE ADVERSE TAX CONSEQUENCES OF THE PFIC RULES SHOULD WE BE CONSIDERED A PFIC FOR ANY TAXABLE YEAR.
Possible Foreign Account Tax Compliance Act Withholding
Pursuant to Sections 1471 through 1474 of the Code and U.S. Treasury Regulations promulgated thereunder, commonly referred to as FATCA, a 30% withholding tax may be imposed on all or some of the payments on the ADSs or our common stock after December 31, 2018 to holders andnon-U.S. financial institutions receiving payments on behalf of holders that, in each case, fail to comply with information reporting, certification and related requirements. Under current guidance, the amount to be withheld is not
defined, and it is not yet clear whether or to what extent payments on the ADSs or shares of our common stock may be subject to this withholding tax. This withholding tax, if it applies, could apply to any payment made with respect to the ADSs or our common stock. Moreover, withholding may be imposed at any point in a chain of payments if anon-U.S. payee fails to comply with U.S. information reporting, certification and related requirements. Accordingly, ADSs or shares of our common stock held through anon-compliant
institution may be subject to withholding even if the holder otherwise would not be subject to withholding. You should consult your tax advisor regarding potential U.S. federal withholding taxes imposed under FATCA.
If FATCA withholding is required, the bank will not be required to pay any additional amounts with respect to any amounts withheld. Certain beneficial owners of ADSs or our common stock that are not foreign financial institutions generally will be entitled to refunds of any amounts withheld under FATCA, but this may entail significant administrative burden. U.S. holders are urged to consult their tax advisers regarding the application of FATCA to their ownership of the ADSs or our common stock.
Medicare tax
A 3.8% tax is imposed on the lesser of (1) modified adjusted gross income in excess of US$200,000 (US$250,000 for joint-filers), and (2) net investment income of certain individuals, trusts and estates. For these purposes, net investment income will generally include any dividends paid to you with respect to the ADSs or common shares and any gain realized on the sale, exchange or other taxable disposition of an ADS or common share.
Backup withholding tax and information reporting requirements
U.S. backup withholding tax and information reporting requirements generally apply to certain payments to certainnon-exempt holders of ADSs or common shares. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, ADSs or common shares made within the United States, or by a U.S. payor or U.S. middleman, to a holder of ADSs or common shares, other than an exempt recipient. A payor will be required to withhold U.S. backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ADSs or common shares within the United States, or by a U.S. payor or U.S. middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such U.S. backup withholding tax requirements.
Backup withholding is not an additional tax. Any U.S. backup withholding tax generally will be allowed as a credit against the holder’s U.S. federal income tax liability or, to the extent the withheld amount exceeds such liability, refunded upon the timely filing of a U.S. federal income tax return.
Information with respect to foreign financial assets
Certain U.S. investors are subject to reporting requirements in connection with the holding of certain foreign financial assets, including our ADSs or common shares that they own, either directly or through certain foreign financial institutions, but only if the aggregate value of all of such assets exceeds US$50,000. Such investors are subject to penalties if they are required to submit such information to the IRS and fail to do so. You should consult your tax advisor regarding the application of these new reporting requirements to your particular situation.
The above description is not intended to constitute a complete analysis of all tax consequences relating to the purchase, ownership or disposition of the ADSs or common shares. Investors deciding on whether or not to invest in ADSs or common shares should consult their own tax advisors concerning the tax consequences of their particular situations.
F. | DIVIDENDS AND PAYING AGENTS |
Not applicable.
G. | STATEMENT BY EXPERTS |
Not applicable.
H. | DOCUMENTS ON DISPLAY |
We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by us with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 100 F Street, N.E., Washington, D.C. 20549, and at the SEC’s regional offices at 233 Broadway, New York, New York 10279 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, on which our ADSs are listed. In addition, the SEC maintains a
website that contains information filed electronically with the SEC, which can be accessed on the internet at http://www.sec.gov. The information contained on this website does not form part of this annual report on Form20-F.
Additional documents concerning CorpBancaCorpbanca which are referred to in this annual report may be inspected at our offices at Rosario Norte 660, Las Condes, Santiago, Chile.
I. | SUBSIDIARY INFORMATION |
Not applicable.
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT FINANCIAL RISK |
A. |
This section describesFollowing the consummation of the Merger, as part of the integration process of the merged banks, we amended our risk management policies and procedures in order to adopt Itaú Unibanco’s risk policies and procedures according to Basel III framework.
While there is no single definition of financial risks, liquidity risksrisk, the bank defines this risk as the possibility of an event having unexpected financial consequences on the institution. Although this definition involves a strong adversity component, it also involves an important opportunity component. Therefore, the purpose of financial risk management is not to eliminate this risk, but rather to limit its exposure to negative events in line with the risk appetite of the bank’s shareholders and marketthe regulations that govern the institution. The main financial risks to which we arethe bank is exposed in our business activities. Additionally, an explanation is included of the internal toolsare: Market Risk, Liquidity Risk and regulatory methods used to control these risks, portfolios over which these market risk approaches are applied and quantitative disclosures that demonstrate our level of exposure to financial risk.
The principal types of risks inherent to our business are market, liquidity, operational and credit risk. The effectiveness with which we are able to manage the balance between risk and reward is a significant factor in our ability to generate long-term stable earnings growth. Our senior management places great emphasis on risk management.
Our policy with respect to asset and liability management is to maximize our net interest income and return on assets and equity while managing interest rate, liquidity and foreign exchange risks, all within the limits provided by Chilean banking regulations and internal risk policies and limits.
Our asset and liability management policies are developed by our Asset & Liability Committee or “A&L Committee”, following guidelines established by our board of directors. The A&L Committee is composed of eleven members, including one director, the CEO, the treasury and international division manager, the financial risk manager, our CFO, and the division managers of management control and planning, retail banking, non-banking financial services and commercial banking, represented by the managers of the corporate and commercial banking divisions. The role of the financial risk manager and the A&L Committee is to ensure that our treasury and international division’s operations are consistently in compliance with our internal risk policies and limits, as well as applicable regulations. The A&L Committee typically meets twice per month. Senior members of our treasury and international division meet regularly with the A&L Committee and outside consultants to discuss our asset and liability position. The members of our financial risk management department are not employed in our banking operations or treasury and international division.
The market risk and control department’s activities consist of (i) applying Value at Risk, or VaR, techniques (as discussed below), (ii) marking to market our fixed income portfolio, derivatives portfolio and measuring daily profit and loss from trading activities, (iii) comparing VaR and other exposures against the established limits, and (iv) providing information about trading activities to the A&L Committee, other members of senior management and the treasury and international division.
Our financial risk analysis focuses on managing risk exposure relating to (i) the interest rate risk relating to fixed income portfolio (comprised of a “trading” portfolio and “an available-for-sale” portfolio), which contains mainly Chilean government bonds, Colombian government bonds, corporate bonds, letters of credit loans issued by third parties and interest rate derivatives, (ii) the interest rate risk relating to asset and liability positions, (iii) liquidity risk, and (iv) our net foreign currency position, which includes all of our assets and liabilities in foreign currencies (mainly U.S. dollars), including derivatives that hedge certain foreign currency mismatches that arise between investments and the funding thereof.Counterparty Risk.
1. | Market Risk |
Market risk is the exposure to economic gains or losses caused by movements in prices and market variables. This exposurerisk stems from both the activities of the Trading and Banking Books. The Trading Book includesnon-derivative financial instruments that have been classified as trading book, whereinstruments and all derivative positions are valuedthat have not been classified as hedging instruments, according to accounting standards. The Banking Book includes all positions in derivative andnon-derivative instruments that do not form part of the Trading Book. In the first case, it comes from activities intended to obtain short-term gains and from the intensive use of instruments recorded at fair value, andvalue. In the banking book, which issecond case, with a more long-term vision, it stems from commercial activities with products valued at amortized cost. The different valuation methodologies require the use of diverse tools to measure and control the impact on either the value of the Bank’s positions or its financial margin.
Decisions as to how to manage these risks are reviewed by committees, the most important of which is the A&L Committee.
Each of the activities are measured, analyzed and reported on a daily basis using different metrics to ascertain their risk profiles.
The following section describes the main risk factors along with the tools we use to monitor the most important impacts of market risk factors to which the Bankbank and its subsidiaries are exposed.
1. Risk Factorsexposed:
a) Foreign Exchange Risk
Foreign exchange risk is the exposure to adverse movements in the exchange rates of currencies other than the base currency for all balance sheet andoff-balance sheet positions.
The main sources of foreign exchange risk are:
b) Indexation Rate Risk
Indexation risk is the exposure to changes in indexed units (e.g. UF,Unidad de Valor Real (UVR) UVR or others) linked to domestic or foreign currency in which any instruments, contracts or other transactions recorded in the balance sheetstatement of financial position may be denominated.
c) Interest Rate Risk
Interest rate risk is the exposure to movements in market interest rates. Changes in market interest rates can affect both the price of trading instruments recorded at fair value and the net interestfinancial margin and other gains from the banking bookBanking Book such as fees. Likewise, fluctuationsFluctuations in interest rates canalso affect the underlying value of the Bank’s assets and liabilities and of derivative instruments that are recorded off balance sheet at fairbank’s economic value.
Interest rate risk can be represented by sensitivities to parallel and/ornon-parallel yield shifts with the effects reflected in the prices of instruments, the financial margin, equity and equity.
Movements in interest rates can be explained by at least the following risk factors:
A key component of our asset and liability policy is the management of interest rate sensitivity. Interest rate sensitivity is the relationship between market interest rates and net interest income due to the maturity or re-pricing characteristics of interest-earning assets and interest bearing liabilities. For any given period, the pricing structure is matched when an equal amount of such assets and liabilities mature or re-price in that period. Any mismatch of interest-earning assets and interest bearing liabilities is known as a gap position. A positive gap denotes asset sensitivity and means that an increase in interest rates would have a positive effect on net interest income while a decrease in interest rates would have a negative effect on net interest income. Accordingly, a negative gap
denotes asset sensitivity and means that a decrease in interest rates would have a negative effect on net interest income while an increase in interest rates would have a positive effect on net interest income.
Our interest rate sensitivity strategy takes into account not only the rates of return and the underlying degree of risk, but also liquidity requirements, including minimum regulatory cash reserves, mandatory liquidity ratios, withdrawal and maturity of deposits, capital costs and additional demand for funds. Our maturity mismatches and positions are monitored by our A&L Committee and are managed within established limits.economic value.
d) Prepayment or Call Risk
This risk arises from the possible prepayment (partial or full) of any transaction before its contractual maturity, generating the need to reinvest the freed cash flows at a different rate than that of the prepaid transaction.
e) Underwriting Risk
This risk arises as a result of the Bank underwriting a placement of bonds or other debt instruments, taking on the risk of coming to own the portion of the issuance that could not be placed among potential interested parties.
f) Correlation Risk
Correlation risk is the exposure to changes in estimated correlations between the relative value of two or more assets, or a difference between the effective and estimated correlation over the life of the transaction.
g) Market Liquidity Risk
Market liquidity risk is the exposure to losses as a result of the potential impact on transaction prices or costs in the sale or closure of a position. This risk is related to the particular market’s degree of depth.
h) Volatility Risk
In addition to the exposure related to the underlying asset, issuing options has other risks. These risks arise from thenon-linear relationship between the gain generated by the option and the price and level of the underlying factors, as well as the exposure to changes in the perceivedprice volatility of these factors.
The following principles govern the market risk management efforts of CorpBanca and its subsidiaries:underlying asset.
2. | Funding Liquidity Risk |
Funding liquidity risk is the exposure of the bank and its subsidiaries to events that affect their ability to meet, in a timely manner and at reasonable costs, cash payment obligations arising from maturities of time deposits that are not renewed, withdrawals from demand accounts, maturities or settlements of derivatives, liquidations of investments or any other payment obligation.
Financial institutions are exposed to funding liquidity risk that is intrinsic to the role of intermediary that they play in the economy. In general, in financial markets demand for medium or long-term financing is usually much greater than the supply of funds for those terms while short-term financing is in considerable supply. In this sense, the role of intermediary played by financial institutions, which assume the risk of satisfying the demand for medium and long-term financing by brokering short-term available funds, is essential for the economy to function properly.
Appropriately managing funding liquidity risk not only allows contractual obligations to be met in a timely manner, but also enables:
The principles used to manage funding liquidity risk include:
3. | Counterparty Risk |
Credit defaultCounterparty risk is the risk of loss arising fromnon-compliance by a given counterparty, for whatever reason, in paying all or part of its obligations with the Bankbank under contractually agreed-upon conditions. This risk also includes a given counterparty’s inability to comply with obligations to settle derivative operations with bilateral risk.
The bank diversifies credit risk by placing concentration limits on the concentration of this risk in any one individual debtor, debtor group, product, industry segment or country. Such risks are continuously monitored and the limits by debtor, debtor group, product, industry and country are reviewed at least once per year and approved by the respective committees.
different groups. Exposure to credit risk is evaluated using an individual analysis of the payment capacity of debtors and potential debtors to meet their obligations on time and as agreed.
Furthermore,
B. | FINANCIAL RISK MANAGEMENT |
The process of managing financial risks is an ongoing, interlinked process that begins by identifying the risks to which the institution is exposed. After that, the bank calculates the potential impact of that exposure on its profit or loss and limits it to a desired level. This involves actively monitoring risk and studying how it evolves over time. The risk management process can be subdivided into the following stages:
1) | Identification of Financial Risks |
The Financial Risk Division has strict controlsa highly technical team that is constantly monitoring the activities of the bank and its subsidiaries to search for derivative contracts negotiated directlypotential risks that have not been quantified and controlled. The bank’s Treasury Division serves as a first line of defense and plays an essential role in risk detection. Itaú Corpbanca’s structure facilitates this role of identifying risks by preserving the division’s independence and ensuring active participation from management in creating/modifying products. After a risk is identified, it is quantified to see the potential impact on value creation within the institution.
2) | Quantification and Control of Financial Risk Exposure |
Once a risk has been identified, the Financial Risk Division is responsible for mapping the risk using the appropriate quantification metrics. Our board of directors and senior management are aware of the methods used to measure exposure and are responsible for setting the institution’s desired risk appetite levels (by business unit, associate, risk factor, area, etc.), always taking care to adhere to current regulations. The limit setting process is the instrument used to establish the equity available to each activity. Limit determination is, by design, a dynamic process that responds to the risk level considered acceptable by senior management.
The Financial Risk Division requests and proposes a system of quantitative and qualitative limits and warning levels that affect liquidity and market risk. This request must be authorized by the Assets and Liabilities Committee, or ALCO, and our board of directors. It also regularly measures risk incurred, develops valuation tools and models, performs periodic stress testing, measures the degree of concentration with its counterparties. This exposure is managed usinginterbank counterparties, drafts policy and procedure handbooks and monitors authorized limits and warning levels, which are reviewed at least once per customeryear.
The limit structure requires the division to carry out a process that includes the following steps:
The metrics, by type of risk, used to quantify exposure or demonstrate that a risk has been materialized are detailed below:
a) Market Risk Metrics and Limits
Given the complexity and relevance of the portfolios managed by Itaú Corpbanca, diverse instruments have been chosen to control market risk based on the characteristics of the financial products in the Trading and Banking Books.
The following regulatory and internal metrics are used to monitor and control market risk:
Regulatory Risk Measurements for the Trading and Banking Books
The bank measures regulatory exposure using the standardized methodology equivalentprovided by the Chilean Central Bank (ChapterIII-B-2.2 “Standards on Measuring and Controlling Market Risks in Banking Companies” of the Compendium of Financial Standards) and complemented by the SBIF (Chapter12-21 —Standards on Measuring and Controlling Market Risks), which is a risk measurement based on the standard methodology of the Basel Committee and is designed to quantify exposure to market risks for the Banking and Trading Books.
The regulatory measurement of market risk in the Trading Book allows the bank to estimate its potential losses from fluctuations standardized by the regulator. The regulatory limit is the sum of this risk (also known as Market Risk Exposure or MRE) and 10% of the credit risk exposure. Lastly,weighted assets. This sum cannot be greater than the valuesbank’s minimum capital requirement.
The bank, on an individual level, must continuously observe those limits and report to the SBIF on a weekly basis its positions at risk and compliance with those limits (Regulatory Report SBIF C41—Weekly information on market risk using standardized methodology). It must also inform the SBIF each month on the consolidated positions at risk of subsidiaries and foreign subsidiaries (Regulatory Report SBIF C43—Consolidated information on market risk using standardized methodology).
The following table details regulatory limit consumption for market risk, specifically for the Trading Book as of December 31, 2015 and 2016.
Trading Book
Limit Consumption | As of December 31, | |||||||
2015 | 2016 | |||||||
Market risk exposure (MRE) | 71.8 | % | 60.4 | % |
The regulatory risk measurement for the Banking Book (Regulatory Report SBIF C40—Cashflows related to interest rate and indexation risk in the Banking Book) is used to estimate the bank’s potential losses from standardized adverse movements in interest and exchange rates. For regulatory reporting purposes, the Trading Book includes the interest rate risk of derivatives are adjustedmanaged in the Banking Book.
The standardized regulatory report for the Banking Book (Regulatory Report SBIF C40) is used to reflectestimate the bank’s potential economic losses from standardized adverse movements in interest rates defined by the SBIF. Currently, limits for short-term exposure (STE) to interest rate and indexation risk in the Banking Book must not exceed 35% of annual operating income (LTM moving period) and long-term limit consumption (LTE) must be less than 20% of the bank’s minimum capital requirement.
The following table details regulatory limit consumption for market risk, specifically for the Banking Book as of December 31, 2015 and 2016:
Banking Book
Limit Consumption | As of December 31, | |||||||
2015 | 2016 | |||||||
Short-term exposure to interest rate risk (STE) | 60.6 | % | 51.8 | % | ||||
Long-term exposure to interest rate risk (LTE) | 13.8 | % | 60.1 | % |
Value at Risk (VaR) Calculation
• | Calculation of Historical Value at Risk(non-parametric): This measurement provides the maximum potential economic loss at a certain confidence level and a given time horizon. Historical VaR, as opposed to Statistical or Parametric VaR, is based on the observed distribution of past returns, does not need to make assumptions of probability distributions (frequently normal distribution) and, therefore, does not need a mean (assumed 0), standard deviation and correlations across returns (parameters). The bank’s uses a 99% confidence level and a time horizon of one day. |
• | Calculation of volatility-adjusted Historical Value at Risk(non-parametric): This measurement is based on the above and the profit and loss (P&L) vector is adjusted according to whether it is facing a period of greater or less volatility. |
Our board of directors defines limits on the Value at Risk (as of the end of the first half of 2016 it uses the volatility-adjusted Historical VaR method) that can be maintained, which is monitored on a daily basis. The measurement is also subjected to back testing to verify that the daily losses that effectively occurred do not exceed VaR more than once every 100 days. The result is monitored daily to confirm the validity of the assumptions, hypothesis and the adequacy of the parameters and risk factors used in the VaR calculation. The bank in turn calculates VaR for sub/portfolios and risk factors, which allows it to quickly detect pockets of risk. Since VaR does not consider stress scenarios, it is complemented by stress testing. Specifically, the bank uses metrics that take into account prospective, historical and standardized scenarios.
(i) Limitations of VaR Model
Although the VaR model is one of the models most frequently used by the local financial industry, like any model it has limitations that must be considered:
The Bank includes in the valuation of derivativesevent that the “Counterparty Valuation Adjustment” (CVA), to reflectportfolio return is above the counterparty riskconfidence level defined in the determinationVaR. In other words, in the bank’s case it does not reflect what happens in the 1% of the tail. This is mitigated with the stress measures detailed below.
• | It does not take into account potential changes in the dynamics of movements in market variables (i.e. potential changes in the matrix of variance and covariance). |
(ii) Sensitivity Measurements
Sensitivity measurements are based on estimated scenarios for positions in the Trading and Banking Books.
• | Trading Book Positions by Risk Factor: The table below sets forth the Trading Book positions by risk factor as of December 31, 2015 and 2016: |
Position | ||||||||
Risk Factor / Products | 2015 | 2016 | ||||||
MCh$ | MCh$ | |||||||
CLP rates | ||||||||
Derivatives | (77,875 | ) | (131,852 | ) | ||||
Investments | 3,733 | 344,390 | ||||||
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CLF rates | ||||||||
Derivatives | 175,245 | 319,785 | ||||||
Investments | 2,678 | 72,668 | ||||||
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COP rates | ||||||||
Derivatives | 0 | 4,275 | ||||||
Investments | 0 | 381,848 | ||||||
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UVR rates | ||||||||
Derivatives | 0 | 0 | ||||||
Investments | 0 | 164,828 | ||||||
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USD rates | 7,835 | 44,211 | ||||||
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OM rates | 52 | (1,061 | ) | |||||
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FX (exchange rate) | 7,887 | 14,089 | ||||||
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Inflation (CLF) | 0 | 0 | ||||||
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Optionality (Gamma, Vega) | 1 | 6 | ||||||
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Trading Book positions by risk factor correspond to the fair value.This valuation considersand equivalent nominal value (exchange rate or “FX,” inflation and optionality) of the Bank’s own credit risk, known as “Debit Valuation Adjustment” (DVA). See Note 34Financial Assets And Liabilities Measured At Fair Value.
Offsettingportfolios within the Trading Book. The Trading Book is made up of the financial assets and liabilities
The Bank should offset a financial asset and a financial liability and the net amount presented in Notes 6 and 8, and financial liabilities presented in Note 8, all of them included in our consolidated financial statements. The currency position incorporates the amortized cost positions from the statement of financial position, excluding the positions related to the foreign investment with their respective hedges. The currency positions in the Trading Book have limits for each currency.
• | Banking Book by Risk Factor: |
FX and Inflation Positions in Banking Book:
The following table sets forth the foreign currency and inflation positions in the Banking Book as of December 31, 2015 and 2016:
Year-End 2015 Year-End 2016 | ||||||||
CLF Position | 448,256 | 1,118,526 | ||||||
FX Position | (52,231 | ) | (684,938 | ) |
Positions in currencies other than Chilean pesos and exposure to indexation are classified by book and by their effect on the bank’s financial statements, reflecting the spot exposure to each risk factor. It is important to highlight the impact of structural exchange rate risk arising from the bank’s positions in currencies other than the Chilean peso related primarily to the consolidation of investments in subsidiaries or affiliates and the results and hedges of these investments. The process of managing structural exchange rate risk is dynamic and attempts to limit the impact of currency depreciation, thus optimizing the financial cost of hedges. The general policy for managing this risk is to finance them in the currency of the investment provided that the depth of the market so allows and the cost is justified by the expected depreciation.One-time hedges are also taken out when and only when:
i.- currently has a legally enforceable rightthe bank considers that any currency may weaken beyond market expectations with respect to set off the recognized amounts; and
ii.- intends either to settleChilean peso. As of December 31, 2016, greater ongoing exposure was concentrated in Colombian pesos (approximately US$1.0 billion). The Bank hedges part of these positions on a netpermanent basis or to realizeusing currency derivatives. The currency positions in the assetBanking Book have limits for each currency.
Structural Interest Rate Position in Banking Book (Interest Rate Gap):
Structural interest rate risk is measured using representation by risk factor of cash flows expressed at fair value, assigned at the repricing date and settleby currency. This methodology facilitates the liability simultaneously.
The bank includes assetsdetection of concentrations of interest rate risk over different time frames. All positions in and financial liabilities that have master netting agreements but do not qualify to be netting directly inoutside the statement of financial position must be ungrouped into cash flows and henceplaced at the repricing / maturity point. For those accounts that do not have contractual maturities, an internal model is used to analyze and estimate their durations and sensitivities.
The following table shows the Banking Book positions for the most important currencies in which the bank does business as of December 31, 2015 and 2016 (products valued at amortized cost andavailable-for-sale instruments and derivatives valued at fair value).
The exposures presented are the present values resulting from:
Year-End 2015 | ||||||||||||||||||||
CLP Position | 1 Month | 1 - 3 Months | 3 Months to 1 Year | 1 to 3 Years | More than 3 Years | |||||||||||||||
ASSETS | 1,375,771 | 433,059 | 740,858 | 377,601 | 102,765 | |||||||||||||||
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Cash | 227,450 | — | — | — | — | |||||||||||||||
Repurchase agreements | 58,296 | — | — | — | — | |||||||||||||||
Loans to customers, net | 639,202 | 408,002 | 701,133 | 365,287 | 102,720 | |||||||||||||||
Financial assets available for sale | 147,925 | 25,057 | 39,725 | 12,314 | 45 | |||||||||||||||
Financial assets held to maturity | — | — | — | — | — | |||||||||||||||
PP&E and intangible assets | 97,349 | — | — | — | — | |||||||||||||||
Other assets | 205,549 | — | — | — | — | |||||||||||||||
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LIABILITIES | (1,823,957 | ) | (518,933 | ) | (1,046,279 | ) | (278,441 | ) | (10,960 | ) | ||||||||||
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Current accounts and demand deposits | (375,365 | ) | (47,417 | ) | (151,741 | ) | (110,807 | ) | (10,960 | ) | ||||||||||
Savings accounts and time deposits | (658,190 | ) | (471,444 | ) | (892,462 | ) | (137,889 | ) | — | |||||||||||
Debt issued | — | — | (2,077 | ) | (29,745 | ) | — | |||||||||||||
Repurchase agreements | (88,328 | ) | (72 | ) | — | — | — | |||||||||||||
Other liabilities | (178,329 | ) | — | — | — | — | ||||||||||||||
Capital and reserves | (523,745 | ) | — | — | — | — | ||||||||||||||
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DERIVATIVES | 313,295 | 157,511 | 414,040 | (130,308 | ) | (92,492 | ) | |||||||||||||
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Financial derivative instruments | 313,295 | 157,511 | 414,040 | (130,308 | ) | (92,492 | ) | |||||||||||||
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CLF Position | Year-End 2015 | |||||||||||||||||||
1 Month | 1 - 3 Months | 3 Months to 1 Year | 1 to 3 Years | More than 3 Years | ||||||||||||||||
ASSETS | 340,027 | 265,914 | 957,214 | 627,247 | 2,133,207 | |||||||||||||||
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Cash | — | — | — | — | — | |||||||||||||||
Repurchase agreements | — | — | — | — | — | |||||||||||||||
Loans to customers, net | 248,695 | 217,467 | 874,598 | 546,211 | 2,133,207 | |||||||||||||||
Financial assets available for sale | 81,786 | 48,447 | 82,616 | 81,036 | — | |||||||||||||||
Financial assets held to maturity | — | — | — | — | — | |||||||||||||||
PP&E and intangible assets | — | — | — | — | — | |||||||||||||||
Other assets | 9,546 | — | — | — | — | |||||||||||||||
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LIABILITIES | (214,234 | ) | (88,779 | ) | (609,756 | ) | (542,924 | ) | (1,756,897 | ) | ||||||||||
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Current accounts and demand deposits | (371 | ) | — | — | — | — | ||||||||||||||
Savings accounts and time deposits | (171,613 | ) | (80,000 | ) | (494,159 | ) | (171,808 | ) | (373,648 | ) | ||||||||||
Debt issued | (4,173 | ) | (8,776 | ) | (59,318 | ) | (285,780 | ) | (1,331,970 | ) | ||||||||||
Repurchase agreements | — | — | — | — | — | |||||||||||||||
Other liabilities | (38,077 | ) | (3 | ) | (56,279 | ) | (85,336 | ) | (51,279 | ) | ||||||||||
Capital and reserves | — | — | — | — | — | |||||||||||||||
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DERIVATIVES | 88,477 | (202,459 | ) | (189,140 | ) | (55,062 | ) | (304,577 | ) | |||||||||||
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Financial derivative instruments | 88,477 | (202,459 | ) | (189,140 | ) | (55,062 | ) | (304,577 | ) | |||||||||||
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FX Position | Year-End 2015 | |||||||||||||||||||
1 Month | 1 - 3 Months | 3 Months to 1 Year | 1 to 3 Years | More than 3 Years | ||||||||||||||||
ASSETS | 535,528 | 426,188 | 548,729 | 22,657 | 16,207 | |||||||||||||||
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Cash | 143,224 | — | — | — | — | |||||||||||||||
Repurchase agreements | — | — | — | — | — | |||||||||||||||
Loans to customers, net | 335,312 | 426,188 | 548,729 | 22,657 | 16,207 | |||||||||||||||
Financial assets available for sale | — | — | — | — | — | |||||||||||||||
Financial assets held to maturity | — | — | — | — | — | |||||||||||||||
PP&E and investments | — | — | — | — | — | |||||||||||||||
Other assets | 56,992 | — | — | — | — | |||||||||||||||
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LIABILITIES | (445,017 | ) | (499,406 | ) | (452,259 | ) | (30,098 | ) | (5,389 | ) | ||||||||||
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Current accounts and demand deposits | (65,134 | ) | (10,675 | ) | (34,114 | ) | (24,691 | ) | (5,389 | ) | ||||||||||
Savings accounts and time deposits | (241,110 | ) | (159,131 | ) | (169,009 | ) | — | — | ||||||||||||
Debt issued | — | — | — | — | — | |||||||||||||||
Repurchase agreements | — | — | — | — | — | |||||||||||||||
Other liabilities | (138,773 | ) | (329,600 | ) | (249,136 | ) | (5,407 | ) | — | |||||||||||
Capital and reserves | — | — | — | — | — | |||||||||||||||
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DERIVATIVES | (229,775 | ) | 74,931 | 9,984 | (630 | ) | (23,882 | ) | ||||||||||||
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Financial derivative instruments | (229,775 | ) | 74,931 | 9,934 | (630 | ) | (23,382 | ) | ||||||||||||
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ASSETS Cash Repurchase agreements Loans to customers, net Financial assets available for sale Financial assets held to maturity PP&E and intangible assets Other assets LIABILITIES Current accounts and demand deposits Savings accounts and time deposits Debt issued Other liabilities Capital and reserves DERIVATIVES Financial derivative instruments Year-End 2016 CLP Position 1 Month 1 - 3 Months 3 Months to 1
Year 1 to 3 Years More than 3 Years 3,501,743 870,776 2,160,430 1,290,116 543,713 456,753 — — — — 82,146 — — — — 2,103,570 823,545 2,126,992 1,126,147 459,420 320,536 47,233 33,438 163,969 84,293 — — — — — 214,411 — — — — 324,327 — — — — (6,504,266 ) (1,196,757 ) (2,361,334 ) (227,588 ) (158,564 ) (1,890,606 ) — (58,425 ) — — (3,042,768 ) (1,190,542 ) (2,286,425 ) (157,934 ) (255 ) (831 ) (4,710 ) (15,982 ) (69,654 ) (158,309 ) (302,491 ) (1,505 ) (502 ) — — (1,267,570 ) — — — — (136,936 ) (204,005 ) 548,898 (117,704 ) 48,800 (136,936 ) (204,005 ) 548,898 (117,704 ) 48,800
Year-End 2016 | ||||||||||||||||||||
CLF Position | 1 Month | 1 - 3 Months | 3 Months to 1 Year | 1 to 3 Years | More than 3 Years | |||||||||||||||
ASSETS | 460,596 | 467,103 | 2,112,730 | 1,828,020 | 3,977,336 | |||||||||||||||
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Cash | — | — | — | — | — | |||||||||||||||
Repurchase agreements | — | — | — | — | — | |||||||||||||||
Loans to customers, net | 498,761 | 453,798 | 2,019,088 | 1,751,321 | 3,931,531 | |||||||||||||||
Financial assets available for sale | 3,792 | 13,305 | 93,642 | 76,699 | 45,805 | |||||||||||||||
PP&E and intangible assets | — | — | — | — | — | |||||||||||||||
Other assets | (41,957 | ) | — | — | — | — | ||||||||||||||
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LIABILITIES | (366,933 | ) | (158,745 | ) | (1,087,649 | ) | (892,317 | ) | (3,218,064 | ) | ||||||||||
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Other liabilities | (86,149 | ) | — | (46,944 | ) | (66,944 | ) | (21,856 | ) | |||||||||||
Capital and reserves | — | — | — | — | — | |||||||||||||||
Debt issued | (41,651 | ) | (12,178 | ) | (542,146 | ) | (649,782 | ) | (2,773,046 | ) | ||||||||||
Current accounts and demand deposits | (17,596 | ) | — | — | — | — | ||||||||||||||
Savings accounts and time deposits | (221,537 | ) | (146,567 | ) | (498,559 | ) | (175,591 | ) | (423,162 | ) | ||||||||||
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DERIVATIVES | (633,500 | ) | (290,901 | ) | (864,344 | ) | (448,301 | ) | 233,496 | |||||||||||
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Financial derivative instruments | (633,500 | ) | (290,901 | ) | (864,344 | ) | (448,301 | ) | 233,496 | |||||||||||
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COP and UVR Position Assets Cash Repurchase agreements Loans to customers, net Financial assets available for sale Financial assets held to maturity PP&E and investments Other assets Liabilities Current accounts and demand deposits Savings accounts and time deposits Debt issued Other liabilities Capital and reserves Derivatives Financial derivative instruments Year-End 2016 1 Month 1 -3 Months 3 Months to 1
Year 1 to 3 Years More than 3 Years 2,777,361 610,840 667,891 761,052 690,494 328,871 — — — — 152,665 — — — — 1,697,264 602,867 629,102 695,626 508,008 44,235 7,973 38,789 65,426 182,486 107,541 — — — — — — — — — 446,735 — — — — (4,229,588 ) (581,868 ) (765,798 ) (461,681 ) (309,997 ) (1,759,415 ) — — — — (930,983 ) (570,126 ) (631,854 ) (342,199 ) (101,967 ) (24,653 ) (11,742 ) (133,944 ) (119,482 ) (208,030 ) (740,891 ) — — — — (773,646 ) — — — — (41,422 ) (24,828 ) 220,845 (8,233 ) (83,679 ) (41,422 ) (24,828 ) 220,845 (8,233 ) (83,679 )
FX Position | Year-End 2016 | |||||||||||||||||||
1 Month | 1 -3 Months | 3 Months to 1 Year | 1 to 3 Years | More than 3 Years | ||||||||||||||||
ASSETS | 979,846 | 774,212 | 1,123,227 | 31,486 | 34,326 | |||||||||||||||
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Cash | 349,543 | — | — | — | — | |||||||||||||||
Repurchase agreements | 39,172 | — | — | — | — | |||||||||||||||
Loans to customers, net | 645,830 | 774,108 | 1,122,529 | 22,872 | 22,093 | |||||||||||||||
Financial assets available for sale | 287 | 104 | 698 | 8,614 | 12,233 | |||||||||||||||
Financial assets held to maturity | — | — | — | — | — | |||||||||||||||
PP&E and investments | — | — | — | — | — | |||||||||||||||
Other assets | (54,986 | ) | — | — | — | — | ||||||||||||||
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LIABILITIES | (1,880,468 | ) | (785,961 | ) | (1,179,179 | ) | (545,528 | ) | — | |||||||||||
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Current accounts and demand deposits | (317,104 | ) | — | (7,959 | ) | — | — | |||||||||||||
Savings accounts and time deposits | (923,035 | ) | (264,542 | ) | (322,601 | ) | — | — | ||||||||||||
Debt issued | (7,529 | ) | (125,397 | ) | (469,452 | ) | (540,348 | ) | — | |||||||||||
Other liabilities | (610,230 | ) | (396,022 | ) | (379,167 | ) | (5,180 | ) | — | |||||||||||
Capital and reserves | (22,570 | ) | — | — | — | — | ||||||||||||||
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DERIVATIVES | 329,880 | 264,544 | 461,844 | 543,063 | (57,615 | ) | ||||||||||||||
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Financial derivative instruments | 329,880 | 264,544 | 461,844 | 543,063 | (57,615 | ) | ||||||||||||||
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The following table summarizes the aforementioned exposures:
Currency | 2015 Exposure | 2016 Exposure | ||||||
MCh$ | MCh$ | |||||||
CLP | 13,530 | (1,942,677 | ) | |||||
CLF | 448,256 | 1,118,526 | ||||||
COP-UVR | — | (778,611 | ) | |||||
FX | (52,231 | ) | 93,673 | |||||
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(iii) Sensitivity Analysis for Financial Risk
The bank uses stress testing as a sensitivity-analysis tool in order to control financial risk. This measurement is performed separately for the Trading and Banking Books.
Sensitivity is estimated using the DV01 indicator, which is a measure of sensitivity of portfolio results if the zero coupon interest rate of the risk factor increases by 1 basis point (0.01%) for different maturities and in annualized terms. Although the use of DV01 indicator to estimate potential impacts on the economic, book and equity value is easy to understand and implement, it excludes both correlations among risk factors and second-order effects.
The following table presents an estimate of the likely, but reasonable, impact of fluctuations in interest rates, exchange rates and implicit volatilities (market factors) that would impact the Trading and Banking Books.
The fluctuations in market factors correspond to highly probable scenarios chosen from among a set of scenarios agreed upon based on the opinions of specialists in economics and financial risk and operators. In order to estimate sensitivity, DV01 and the reasonably likely scenarios must be multiplied by market factor.
• | Interest Rate Scenarios – Chile (basis points – 0.01%): |
Scenarios for Impact on Profit and Loss (P&L) | Scenarios for Impact onAvailable-for-Sale Assets (APS) | Scenarios for Impact on Accrual Book | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Term | Chamber CLP | Gov’t CLP | Chamber CLF | Gov’t CLF | Curve USD | Curves MX | Term | Chamber CLP | Gov’t CLP | Chamber CLF | Gov’t CLF | Curve USD | Curves MX | Term | Chamber CLP | Chamber CLF | Curve USD | Curves MX | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1D | (36) | 38 | 125 | 146 | 66 | (20) | 1D | (36) | 38 | (60) | 146 | 66 | 66 | 1D | 71 | 125 | 66 | 66 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3M | (27) | 38 | 125 | 146 | 66 | (20) | 3M | (27) | 38 | (60) | 146 | 66 | 66 | 1M | 71 | 125 | 66 | 66 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6M | (18) | 38 | 125 | 146 | 66 | (20) | 6M | (18) | 38 | (60) | 146 | 66 | 66 | 3M | 71 | 125 | 66 | 66 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
9M | (21) | 39 | 87 | 111 | 52 | (20) | 9M | (21) | 39 | (45) | 111 | 52 | 52 | 6M | 71 | 125 | 66 | 66 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1Y | (24) | 40 | 50 | 75 | 39 | (20) | 1Y | (24) | 40 | (31) | 75 | 39 | 39 | 9M | 71 | 125 | 66 | 66 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2Y | (30) | 40 | 49 | 75 | 32 | (23) | 2Y | (30) | 40 | (23) | 75 | 32 | 32 | 1Y | 71 | 125 | 66 | 66 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3Y | (32) | 43 | 51 | 69 | 38 | (27) | 3Y | (32) | 43 | (24) | 69 | 38 | 38 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4Y | (35) | 46 | 52 | 64 | 45 | (31) | 4Y | (35) | 46 | (25) | 64 | 45 | 45 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5Y | (37) | 49 | 54 | 58 | 51 | (34) | 5Y | (37) | 49 | (27) | 58 | 51 | 51 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7Y | (39) | 48 | 56 | 58 | 55 | (36) | 7Y | (39) | 48 | (30) | 58 | 55 | 55 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10Y | (42) | 46 | 61 | 59 | 60 | (38) | 10Y | (42) | 46 | (34) | 59 | 60 | 60 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
20Y | (42) | 46 | 50 | 38 | 60 | (38) | 20Y | (42) | 46 | (30) | 38 | 60 | 60 |
• | Exchange Rate Scenarios – Chile: |
Exchange Rate | Scenario for Impact on P&L | Scenario for Impact on AFS | Scenario for Impact on Amortized Cost Book | |||||||||
USD-CLP | (3.8 | )% | (3.8 | )% | (3.8 | )% | ||||||
USD-COP | (7.7 | )% | (7.7 | )% | (7.7 | )% |
• | Interest Rate Scenarios – Colombia (basis points – 0.01%): |
Scenarios for Impact on Profit and Loss | Scenarios for Impact onAvailable-for- | Scenarios for Impact on | ||||||||||||||||||||||||||||
Term | Gov’t COP | Swap IBR | Curve USD | Term | Gov’t COP | Swap IBR | Curve USD | Term | Swap IBR | Curve USD | ||||||||||||||||||||
1 | D | 43 | (19) | 0 | 1D | 43 | (19) | 0 | 1D | 29 | 0 | |||||||||||||||||||
3 | M | 44 | (28) | 83 | 3M | 44 | (28) | 7 | 1M | 30 | 14 | |||||||||||||||||||
6 | M | 45 | (39) | 95 | 6M | 45 | (39) | (2) | 3M | 35 | 7 | |||||||||||||||||||
9 | M | 46 | (46) | 96 | 9M | 46 | (46) | (13) | 6M | 39 | (2) | |||||||||||||||||||
1 | Y | 47 | (54) | 97 | 1Y | 47 | (54) | (25) | 9M | 52 | (13) | |||||||||||||||||||
2 | Y | 52 | (76) | 107 | 2Y | 52 | (76) | (16) | 1Y | 65 | (25) | |||||||||||||||||||
3 | Y | 56 | (80) | 106 | 3Y | 56 | (80) | (21) | ||||||||||||||||||||||
4 | Y | 58 | (78) | 103 | 4Y | 58 | (78) | (25) | ||||||||||||||||||||||
5 | Y | 58 | (76) | 99 | 5Y | 58 | (76) | (29) | ||||||||||||||||||||||
7 | Y | 59 | (77) | 98 | 7Y | 59 | (77) | (32) | ||||||||||||||||||||||
10 | Y | 59 | (80) | 96 | 10Y | 59 | (80) | (37) | ||||||||||||||||||||||
20 | Y | 67 | (87) | 96 | 20Y | 67 | (87) | (37) |
• | Exchange Rate Scenarios – Colombia |
Exchange | Scenario for Impact on P&L | Scenario for Impact on AFS | Scenario for Impact on Amortized Cost Book | |||||||||
USD-COP | 13.2 | % | (6.1 | )% | 13.2 | % |
The following table sets forth the impact of movements or reasonably likely scenarios applied to positions in the Trading Book that affect the bank’s P&L as of December 31, 2015 and 2016.
Potential Impact on P&L | 2015 | 2016 | ||||||
MCh$ | MCh$ | |||||||
CLP Rate Risk | (1,865 | ) | (2,812 | ) | ||||
Derivatives | (1,823 | ) | (2,604 | ) | ||||
Investments | (42 | ) | (208 | ) | ||||
|
|
|
| |||||
CLF Rate Risk | (2,662 | ) | (8,069 | ) | ||||
Derivatives | (2,635 | ) | (8,069 | ) | ||||
Investments | (27 | ) | — | |||||
|
|
|
| |||||
COP Rate Risk | — | (11,622 | ) | |||||
Derivatives | — | (10,439 | ) | |||||
Investments | — | (1,183 | ) | |||||
|
|
|
| |||||
UVR Rate Risk | — | (404 | ) | |||||
Derivatives | — | — | ||||||
Investments | — | (404 | ) | |||||
|
|
|
| |||||
USD Rate Risk | (778 | ) | (2,658 | ) | ||||
Other Currencies Rate Risk | (2 | ) | (9 | ) | ||||
|
|
|
| |||||
Total Rate Risk | (5,307 | ) | (25,574 | ) | ||||
|
|
|
| |||||
Foreign Exchange Risk | (131 | ) | (1,921 | ) | ||||
Options Risk | — | (87 | ) | |||||
|
|
|
| |||||
Total Impact | (5,438 | ) | (27,582 | ) | ||||
|
|
|
|
(iv) Risk Measurements for Options
Option Risk includes the (Vega) and Gamma volatility risks. The following table sets forth the impact on the margin of movements or reasonably likely scenarios on positions in the Banking Book as of December 31, 2015 and 2016.
Potential Impact on Banking Book Amortized Cost | 2015 | 2016 | ||||||
MCh$ | MCh$ | |||||||
Impact of Interbank Rate Risk | (4,673 | ) | (7,096 | ) | ||||
|
|
|
|
The impact on the Banking Book does not necessarily mean a gain/loss but it does mean smaller/larger net income from the generation of funds (net funding income, which is the net interest from the accrual portfolio) for the next 12 months.
In line with the effects on P&L of positions accounted for at fair value and amortized cost, changes in market factors because of reasonably possible movements in interest and exchange rates also generate impacts on equity accounts as a result of the potential change in market value of the portfolio ofavailable-for-sale instruments and the portfolios of cash flow and net foreign investment hedges, which are presented gross in the following table:
As of December 31, 2015:
Potential Impact on Equity | ||||||||||||
Interest Rate | DV01 (+1 bp) | Impact of Change in Interest Rate | ||||||||||
USD | MUS$ | MCh$ | ||||||||||
CLP | (9,665 | ) | (1 | ) | (242 | ) | ||||||
CLF | (30,919 | ) | (2 | ) | (1,725 | ) | ||||||
USD | — | — | — | |||||||||
Other | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total Rate Impact | (40,584 | ) | (3 | ) | (1,967 | ) | ||||||
|
|
|
|
|
|
Foreign Exchange | Impact of Change in Prices | |||||||
MUS$ | MCh$ | |||||||
USD | — | — | ||||||
Other | — | — | ||||||
|
|
|
| |||||
Total Impact on Exchange Rate | — | — | ||||||
|
|
|
| |||||
Total Impact | (3 | ) | (1,967 | ) | ||||
|
|
|
|
As of December 31, 2016:
Interest Rate | Potential Impact on Equity | |||||||||||
DV01 (+1 bp) | Impact of Change in Interest Rate | |||||||||||
US$ | MUS$ | MCh$ | ||||||||||
CLP | (293,337 | ) | (14.00 | ) | (9,211 | ) | ||||||
CLF | 41,167 | (15.00 | ) | (10,029 | ) | |||||||
COP | (152,241 | ) | (8.00 | ) | (5,588 | ) | ||||||
UVR | — | — | — | |||||||||
USD | (77,927 | ) | (3.00 | ) | (2,094 | ) | ||||||
Other | (159 | ) | — | (7 | ) | |||||||
|
|
|
|
|
| |||||||
Total Rate Impact | (482,497 | ) | (40 | ) | (26,929 | ) | ||||||
|
|
|
|
|
|
Exchange Rate | Impact of Change in Prices | |||||||
MUS$ | MCh$ | |||||||
USD | (1 | ) | (269 | ) | ||||
COP | (150 | ) | (100,390 | ) | ||||
|
|
|
| |||||
Total Impact on Exchange Rate | (151 | ) | (100,659 | ) | ||||
|
|
|
| |||||
Total Impact | (191 | ) | (127,589 | ) | ||||
|
|
|
|
The bank uses accounting hedges to efficiently manage accounting asymmetries present in financial risk exposure. The use of accounting hedges is dependent on limits defined by our board of directors, definitions from the ALCO and our hedging policy. The ALM Division is responsible for designing and implementing strategies and the Financial Risk Management Division for measuring and monitoring the effectiveness of hedges, generating effectiveness indicators that Statement.are continuously monitored.
AccordingFor further details on accounting hedge strategies, see Note 8 of our consolidated financial statements.
b) Liquidity Risk Metrics and Limits
Liquidity risk measurements are focused mainly on quantifying whether the institution has sufficient resources to meet its intraday and interday obligations under both normal and stressed conditions. They also include a framework of indicators to forecast the occurrence of liquidity stress scenarios and clarity as to the above,steps to follow once the risk has occurred.
The following regulatory and internal metrics are used to monitor and control liquidity risk.
(i) Regulatory Measurement of Liquidity Risk
Adjusted liquidity gap: SBIF Chapter12-20 (“Management and Measurement of Liquidity Position”) establishes that, with prior authorization from the regulator, cash outflows to retail counterparties may be assigned a different maturity than their contractual maturity based on their statistical behavior. Adjusted mismatches (local consolidated) are restricted to a maximum of:
The bank, on a local consolidated level, must continuously observe those limits and periodically report to the SBIF its positions at risk and compliance with those limits.
The following table sets forth the use of the liquidity regulatory limit as of December 31, 2015 and 2016:
As of December 31, | ||||||||
Regulatory Liquidity Indicator | 2015 | 2016 | ||||||
% | % | |||||||
At 30 days | (2 | ) | 4 | |||||
At 30 days in foreign currency | 6 | 12 | ||||||
At 90 days | 15 | 16 |
Note: Negative percentage(-2%) means that cash inflows exceed cash outflows at that maturity.
(ii) Regulatory Measurement of Contractual Liquidity Gap
In accordance with SBIF Chapter12-20, all cash flows in and outside the statement of financial position are analyzed provided that they contribute cash flows at their contractual maturity point.
Balances of the bank’s consolidated undiscounted contractual cash flows from financial assets and liabilities as of December 31, 2015 and 2016, are detailed as follows:
December 31, 2015 | ||||||||||||||||||||||||
1 Month | 1 - 3 Months | 3 Months to 1 Year | 1 to 3 Years | More than 3 Years | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Assets | 1,684,312 | 634,369 | 1,862,438 | 1,106,943 | 5,370,043 | 10,658,103 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Cash | 556,223 | — | — | — | — | 556,223 | ||||||||||||||||||
Financial instruments recorded at market value | 465,982 | — | — | — | — | 465,982 | ||||||||||||||||||
Loans to other domestic banks without lines of credit | 49,779 | 8,927 | 38,282 | 2,825 | 2,825 | 102,638 | ||||||||||||||||||
Lines of credit granted to other domestic banks | — | — | — | — | — | — | ||||||||||||||||||
Commercial loans without lines of credit | 548,585 | 550,736 | 1,193,941 | 616,189 | 2,936,302 | 5,845,752 | ||||||||||||||||||
Commercial lines of credit and overdrafts | 8,671 | 2,306 | 38,713 | 22 | 22 | 49,734 | ||||||||||||||||||
Consumer loans without lines of credit | 13,780 | 27,094 | 113,379 | 221,144 | 317,221 | 692,619 | ||||||||||||||||||
Consumer lines of credit and overdrafts | (9,524 | ) | 9,338 | 295,542 | 3,001 | 3,001 | 301,357 | |||||||||||||||||
Residential mortgage loans | 10,773 | 21,390 | 98,262 | 257,087 | 2,053,706 | 2,441,217 | ||||||||||||||||||
Financial instruments recorded based on issuer’s flow | 89 | 17,682 | 34,274 | 11,504 | 14,079 | 77,628 | ||||||||||||||||||
Other transactions or commitments without lines of credit | 61,262 | — | 77,054 | — | — | 138,316 | ||||||||||||||||||
Other lines of credit granted | — | — | — | — | — | — | ||||||||||||||||||
Derivative instruments | (21,308 | ) | (3,104 | ) | (27,009 | ) | (4,829 | ) | 42,887 | (13,363 | ) | |||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Liabilities | (2,140,218 | ) | (876,303 | ) | (2,297,841 | ) | (1,191,284 | ) | (3,520,612 | ) | (10,025,260 | ) | ||||||||||||
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|
|
|
|
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|
| |||||||||||||
Current accounts and other demand deposits | (1,013,102 | ) | — | — | — | — | (1,013,102 | ) | ||||||||||||||||
Term savings accounts - unconditional withdrawal | — | — | — | — | — | — | ||||||||||||||||||
Term savings accounts - deferred withdrawal | — | — | — | — | — | — | ||||||||||||||||||
Obligations with Chilean Central Bank without lines of credit | — | — | — | — | — | — | ||||||||||||||||||
Lines of credit secured from Chilean Central Bank | — | — | — | — | — | — | ||||||||||||||||||
Obligations with other domestic banks without lines of credit | (2 | ) | (2 | ) | (99 | ) | (753 | ) | (9,210 | ) | (10,066 | ) | ||||||||||||
Lines of credit secured from other domestic banks | (21 | ) | — | — | — | — | (21 | ) | ||||||||||||||||
Savings accounts and time deposits | (943,680 | ) | (821,386 | ) | (1,660,957 | ) | (362,949 | ) | (976,198 | ) | (4,765,172 | ) | ||||||||||||
Foreign loans without lines of credit | (2,992 | ) | (22,259 | ) | (550,776 | ) | (83,019 | ) | (87,778 | ) | (746,824 | ) | ||||||||||||
Lines of credit from foreign banks | — | — | — | — | — | — | ||||||||||||||||||
Letter of credit obligations | (1,748 | ) | — | (4,916 | ) | (9,009 | ) | (21,783 | ) | (37,456 | ) | |||||||||||||
Bonds payable | (3,806 | ) | (952 | ) | (51,699 | ) | (290,792 | ) | (1,907,377 | ) | (2,254,626 | ) | ||||||||||||
Other obligations or payment commitments without lines of credit | (174,867 | ) | (30,704 | ) | (29,394 | ) | (444,762 | ) | (518,266 | ) | (1,197,993 | ) | ||||||||||||
Other lines of credit secured | — | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net band | (455,906 | ) | (240,934 | ) | (435,403 | ) | (84,341 | ) | 1,849,431 | 632,843 | ||||||||||||||
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|
|
|
|
|
|
|
|
|
|
Assets Cash Financial instruments recorded at market value Loans to other domestic banks without lines of credit Lines of credit granted to other domestic banks Commercial loans without lines of credit Commercial lines of credit and overdrafts Consumer loans without lines of credit Consumer lines of credit and overdrafts Residential mortgage loans Financial instruments recorded based on issuer’s flow Other transactions or commitments without lines of credit Other lines of credit granted Derivative instruments Liabilities Current accounts and other demand deposits Term savings accounts - unconditional withdrawal Term savings accounts - deferred withdrawal Obligations with Chilean Central Bank without lines of credit Lines of credit secured from Chilean Central Bank Obligations with other domestic banks without lines of credit Lines of credit secured from other domestic banks Savings accounts and time deposits Foreign loans without lines of credit Lines of credit from foreign banks Letter of credit obligations Bonds payable Other obligations or payment commitments without lines of credit Other lines of credit secured Net band December 31, 2016 1 Month 1 - 3 Months 3 Months to
1 Year 1 to 3 Years More than
3 Years Total MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ 4,437,895 2,112,587 4,778,259 5,251,810 17,824,808 34,405,359 1,119,862 — — — — 1,119,862 1,004,424 359,123 118,864 494,925 1,159,907 3,137,243 167,076 4,092 — — — 171,167 — — — — — — 1,969,379 1,525,530 3,364,118 2,816,389 9,368,578 19,043,975 (276,662 ) 2,761 58,006 45 45 (215,785 ) 62,325 131,324 525,925 1,038,327 1,744,874 3,502,775 94,515 4,484 325,597 3,248 3,248 431,093 37,140 66,144 283,201 739,403 5,314,672 6,440,560 30,967 470 75,868 — — 107,305 238,207 6,092 16,098 112,494 117,408 490,299 — — — — — — (9,338 ) 12,547 10,582 46,999 116,076 176,865 (8,454,693 ) (2,799,978 ) (5,214,372 ) (2,960,247 ) (8,655,131 ) (28,084,422 ) (4,318,821 ) — — — — (4,318,821 ) (2,901 ) — — — — (2,901 ) (39,644 ) — — — — (39,644 ) (376,629 ) — — — — (376,629 ) — — — — — — — — — — — — — — — — — — (3,091,375 ) (2,474,208 ) (3,500,821 ) (1,139,025 ) (1,938,961 ) (12,144,391 ) (245,352 ) (281,556 ) (1,017,915 ) (109,668 ) (328,524 ) (1,983,014 ) — — — — — — (4,099 ) (809 ) (12,048 ) (26,473 ) (79,972 ) (123,402 ) (40,256 ) (32,952 ) (632,208 ) (1,638,082 ) (6,217,523 ) (8,561,021 ) (335,616 ) (10,453 ) (51,380 ) (46,999 ) (90,151 ) (534,599 ) — — — — — — (4,016,798 ) (687,391 ) (436,113 ) 2,291,563 9,169,677 6,320,937
The preceding tables present undiscounted cash flows from the bank’s assets (Notes 5 – 11 of our consolidated financial statements) and liabilities (Notes 16 - 18 of our consolidated financial statements) on the basis of maturity estimation models. The bank’s expected cash flows could vary as a function of changes in the variables that are used to estimate asset and liability maturities.
The grouping corresponds to regulatory categories that bring together financial items with similar characteristics from the perspective of liquidity risk. These categories are modeled separately and reported in cash flows.
(iii) Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
In line with international risk management practices, the bank uses the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to manage liquidity risk.
The LCR aims to measure the sufficiency of high-quality assets to face a30-day funding stress scenario. At a minimum, the bank must survive until the 30th day of the stress scenario with funding from liquid assets in its portfolio because, as described in the standard, managers and/or supervisors would have been able to establish timely corrective measures. The indicator also recognizes differentiated behavior for wholesale versus retail counterparties, which in the bank’s case represent 72% and 28%, respectively, for the30-day band. On the other hand, the NSFR focuses on maintaining sufficient stable funding to meet (long-term) stable funding needs. We calculate LCR and NSFR using the methodologies defined by the SBIF and the Brazilian Central Bank (BACEN). Both regulators set a limit for LCR, while only the BACEN establishes a limit for NSFR. The methodology used to estimate LCR and NSFR consists of liquidity ratios proposed by the “Basel III Committee on Banking Supervision” (“BIS III”) that were adopted by the SBIF and the BACEN.
(iv) Deposits / Loans
Structurally, the bank’s liquidity can be quantified based on the level of assets and liabilities in its balance sheet. In particular, the following table shows the impactratio of deposits / loans in Itaú Corpbanca’s balance sheet. Deposits refer to the carrying amount of funds (demand and time deposits) that customers deposit in the bank, while loans are credits that the bank grants. This is a measurement of the mainreciprocity between the bank’s commercial activity and the stability of its funding.
Dec 2015 | Dec 2016 | |||||||
Year-End | 73.5 | % | 78.4 | % | ||||
Minimum | 73.2 | % | 71.0 | % | ||||
Maximum | 79.9 | % | 81.5 | % | ||||
Average | 76.5 | % | 77.5 | % |
Note1:loans are reported net of provisions
Note2:comparative basis for 2015 is only Itaú Chile
(v) Liquidity Warning Levels
Warning levels seek to provide evidence or signs of potential adverse liquidity events. The most relevant warning levels include: counterparty and maturity concentration, currency concentration, product concentration, reserve management, evolution of funding rates and diversification of Liquid Assets.
(vi) Analysis of Pledged and Unpledged Assets
The following presents an analysis of the bank’s pledged and uncommitted assets that will be available to generate additional funding as fixed-income instruments. For this, pledged assets are.
The following table sets forth our available assets and liabilities offsetinvestments adjusted for the delivery or receipt of guarantees as of December 31, 2015 and those who maintain netting agreements (including financial guarantees), but do not qualify to be netting directly in the statement of financial position.2016:
As of December 31, 2015 | ||||||||||||||||||||||||||||||
Finnancial Instruments offset in the Statement of Financial Position. | Finnancial Instruments not offset in the Statement of Financial Position. (3) | |||||||||||||||||||||||||||||
Gross amount (1) | Amounts offset (2) | Net amounts Financial Position. | Amounts to (4) | Financial (5) | Net amounts (Total) | |||||||||||||||||||||||||
(a) | (b) | (c) = (a)- (b) | (d) | (e) | (f) = (c) - (d) - (e) | |||||||||||||||||||||||||
Finnancial Instruments | MM$ | MM$ | MM$ | Note | MM$ | MM$ | Note | MM$ | ||||||||||||||||||||||
Financial derivative contracts | Assets Liabilities | 1,008,915 | — | 1,008,915 | 8 | — | 35,388 | 21 | 973,527 | |||||||||||||||||||||
731,114 | — | 731,114 | 8 | — | 171,626 | 16 | 559,488 |
Year | Amount | Guarantees Furnished | Guarantees Received | Cash | ||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
(i) | (ii) | (iii) | (i-ii+iii) | |||||||||||||
2015 | 579,597 | 43,727 | 10,293 | 546,163 | ||||||||||||
2016 | 1,980,930 | 423,655 | 383,424 | 1,940,699 |
(vii) Counterparty Risk
Exposure to derivative counterparty risk is measured by recognizing the different contracts maintained with the bank’s customers, including contracts without mitigating clauses, contracts with netting, contracts with Credit Support Annex (CSA) and with clearing houses, which receive a differentiated treatment.
The following table details the netting of these transactions:
12/31/2015 | 12/31/2016 | |||||||||||||||||||||||
Gross amount assets | Gross amount liabilities | Net amounts | Gross amount assets | Gross amount liabilities | Net amounts | |||||||||||||||||||
(a) | (b) | (c) = (a) + (b) | (a) | (b) | (c) = (a) + (b) | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Derivatives with netting agreement | — | — | — | 776.613 | (885.158 | ) | (108.545 | ) | ||||||||||||||||
Derivatives without netting agreement | 227.984 | (253.183 | ) | (25.199 | ) | 326.156 | (22.176 | ) | 303.980 | |||||||||||||||
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Total Derivatives | 227.984 | (253.183 | ) | (25.199 | ) | 1.102.769 | (907.334 | ) | 195.435 | |||||||||||||||
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Net guarantees delivered in compensation houses(*) | 724 | — | 724 | 56.818 | — | 56.818 | ||||||||||||||||||
Net guarantees delivered in bilateral agreements(**) | — | — | — | 167.148 | (49.776 | ) | 117.372 | |||||||||||||||||
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Net guarantees | 724 | — | 724 | 223.966 | (49.776 | ) | 174.190 | |||||||||||||||||
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Derivatives net of guarantees | 227.984 | (252.459 | ) | (24.475 | ) | 1.052.993 | (683.368 | ) | 369.625 | |||||||||||||||
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Market values of derivatives that are reported in accounting do not reflect counterparty risk management using guarantees as they do not reveal the true exposures with the counterparties. The guarantees delivered (received) must be added (subtracted) from the market value in order to correctly reflect these exposures.
CorpBanca hasIt is important to highlight that counterparty risk management is framed within the bank’s corporate credit policies.
3) Monitoring and Governance of Financial Risks
Our board of directors is the body in charge of the bank’s management. Its duties include defining the institution’s strategic guidelines and supervising its risk management structure.
Risk management policies are established a sound organizational structurewith the objective of identifying and analyzing the risks faced by the bank, setting adequate limits and controls and monitoring risks and compliance with limits. Risk management policies and structures are reviewed regularly so that they reflect changes in the bank’s activities. The bank, through its standards and procedures, aims to develop an appropriate control environment in which all employees understand their roles and responsibilities.
The Audit Committee supervises the way in which the bank monitors and manages risk and compliance with the bank’s risk management policies and procedures and checks that the risk management framework is appropriate for monitoring,the risks faced by the bank. This committee is assisted by the Internal Audit Department in its supervisory role. Internal Audit performs reviews of risk management controls and procedures, whose results are reported to the Audit Committee.
In accordance with the bank’s governance outlook, the Financial Risk Department is responsible for identifying, quantifying, analyzing, controlling and monitoring financial risk at the bank. The Credit Risk Division is responsible for managing market risks, based oncredit risk for the following principles:Corporate Banking, Treasury, Companies and Retail divisions. The Financial Risk Department is part of the Planning and Control Division. The other departments within this division include Accounting, Management Control, Planning and Development, Capital Management and Investor Relations. The main objective of this corporate division is to provide accurate, timely and high-quality information to support decision making by internal and external stakeholders.
The Corporate Treasury Division is charged with managing financial risk in the bank’s Trading and Banking Books. In the Banking Book, this consists of managing inflation, interest rate and liquidity risk in the bank’s balance sheet in order to maximize returns in compliance with corporate policies and current laws and regulations. The Trading Book refers to the portfolio of financial instruments acquired to obtain short-term gains from increases in fair value arising from changes in the values of underlying variables. This book is responsible for managing currency risk for the entire balance sheet. Management of the bank’s funding structure is an important component of managing liquidity and interest rate risk within the Banking Book or balance sheet.
The Financial Risk Department is independent from the business areas and is responsible for controlling and measuring the bank’s financial risks (market and liquidity risk) as well as supplying, along with the Treasury Division, the ALCO with the metrics and limits for those risks, which are established in the respective policies.
The bank’s financial risk management efforts are framed within the Financial Risk Policy, which is comprised of the Liquidity Management Policy, the Market Risk Management Policy and the Valuation Policy.
a) Financial Risk Management Principles
b) Financial Risk Management Committees
In order to guarantee the flexibility of management efforts and communication of risk levels to uppersenior management, the following network of committees has been established:
• | Daily Committees: Meets daily to review financial conditions and the latest market movements. This committee reviews the relevance of positions on a daily basis in order to detect in advance any scenarios that could negatively impact returns and liquidity. It also monitors the performance of strategies used for each of the portfolios. |
• | Proprietary Trading and Market Making Committees: Meets weekly to analyze strategies for managing investment portfolio or directional positions. This committee reviews local and global economic conditions and projections in order to analyze the potential benefits and risks of the strategies executed and evaluate new strategies. |
• | ALM Committees: This committee meets biweekly to analyze management of structural interest rate and indexation risk in the banking book. |
• | Liquidity and Market Committee: This committee meets biweekly to analyze management of funding liquidity risk. |
• | Treasury Committee: This committee meets monthly to analyze matters related to treasury activity and establish agreements and strategies on related matters, always in line with current ALCO policies and guidelines. |
• | Assets-Liabilities Committee (ALCO): This committee meets monthly to analyze economic and financial conditions and inform senior management of market and liquidity risk levels assumed by presenting indexes of market and funding liquidity risk, limit consumption and results of stress tests. |
• | Board of Directors: Our board of directors is informed each quarter of the market and funding liquidity risk levels assumed by presenting established risk indexes, limit consumption and results of stress tests.
Total Mismatch Balance Sheet Mismatch Derivatives Mismatch Investment Mismatch
Short-Term Limit Exposure Rate Risk Indexation Risk Reduced Revenue (fees sensitive to insterest rates) Limit Consumption % Financial Margin plus Fees (12 months) Percentage over financial margin Short-term Limit Consumption with respect to financial margin Long-Term Limit Exposure Rate Risk Limit Consumption % Regulatory Capital (RC) Percentage over margin Long-term Limit Consumption with respect to regulatory capital
Foreign Currency Forwards Interest Rate Swap Foreign Currency Swap Foreign Currency Call Options Foreign Currency Put Options Total
Positions Final Position Opening Position Unrealized Gain/(Loss) Realized Gain/(Loss) Net Effect Gain/(Loss) Unrealized Gain/(Loss) Other Coverage Element Gain/(Loss) Foreign currency forwards Interest rate swaps Foreing currency swaps Foreign currency call options Foreign currency put options Total derivatives held-for-trading Fair Value hedges Cash flow hedges Total derivatives hedge accounting Total Positions Final Position Opening Position Unrealized Gain/(Loss) Realized Gain/(Loss) Net Effect Gain/(Loss) Unrealized Gain/(Loss) Other Coverage Element Gain/(Loss) Foreign currency forwards Interest rate swaps Foreing currency swaps Foreign currency call options Foreign currency put options Total derivatives held-for-trading Fair Value hedges Cash flow hedges Total derivatives hedge accounting Net invesment in foreing operation Foreign currency forwards Total Net invesment in foreing operation Total Positions Final Position Opening Position Unrealized Gain/(Loss) Realized Gain/(Loss) Net Effect Gain/(Loss) Unrealized Gain/(Loss) Other Coverage Element Gain/(Loss) Foreign currency forwards Interest rate swaps Foreing currency swaps Foreign currency call options Foreign currency put options Total derivatives held-for-trading Fair Value hedges Cash flow hedges Total derivatives hedge accounting Net invesment in foreing operation Foreign currency forwards Total Net invesment in foreing operation Total
AMERICAN DEPOSITARY SHARES Fees and Expenses Effective as of May 7, 2012, Deutsche Bank Trust Company Americas serves as the depositary for our ADSs. Holders of the ADRs are required to pay the fees set forth in the table below to the depositary, and the depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid. The depositary may decide, in its sole discretion, to seek payment by either billing holders or by deducting the fee from one or more cash dividends or other cash distributions.
Any other charges and expenses of the depositary under the deposit agreement will be paid by The depositary reimburses
There have been no defaults, dividend arrearages or delinquencies in any payments for the year ended December 31,
There have been no material modifications to the rights of security holders for the year ended December 31,
DISCLOSURE CONTROLS AND PROCEDURES As of December 31, A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Therefore, our management does not expect that the controls will prevent all errors and all fraud. Based upon the evaluation performed, our CEO and CFO have concluded that as of December 31, 2016, our disclosure controls and procedures
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on
Our management assessed the effectiveness of our internal control over financial reporting as of December 31,
The effectiveness of our Company’s internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers Consultores Auditores SpA, an independent registered public accounting firm. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING In connection with the evaluation required by Rule13a-15(d) under the Exchange Act, our management, including our CEO and CFO, concluded that the changes that occurred during the year ended December 31, 2016 have not materially affected, and are not reasonably likely to materially affect, our internal control over financial reporting. REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The report of PricewaterhouseCoopers Consultores Auditores SpA, our independent registered public accounting firm,
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT We believe that each of the members of our audit committee qualifies as an “audit committee financial expert” within the meaning of this Item 16A, in The names of the members of our audit committee are included in Item 6. Directors, Senior Management and Employees—C. Board Practices. All We have adopted a code of ethics, as defined in Item 16B of Form20-F under the Exchange Act. Our code of ethics applies to our CEO, CFO, principal accounting officer and persons performing similar functions, as well as to our directors and other employees without exception. A copy of our code of ethics, as amended, along with our Code of Conduct in the Securities Market, is attached as an exhibit to this annual report. Our code of ethics is available on our website, at No waivers have been granted to the code of ethics since its adoption that applies to the persons indicated above. ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table sets forth the fees billed to us by our independent auditors during the fiscal years ended December 31,
Audit fees in the above table are the aggregate fees billed by Audit-related fees in the above table are the aggregate fees billed by Tax fees in the above table are the aggregate fees billed by Other services are fees billed to us by PRE-APPROVAL POLICIES AND PROCEDURES Our audit committee approves all audit, audit-related services, tax services and other services provided by
The following table sets out certain information concerning purchases of our shares registered under Section 12 of the Exchange Act by us or any affiliated purchaser during fiscal year
Pursuant to Section 303A.11 of the Listed Company Manual of the New York Stock Exchange, “foreign private issuers” are required to provide a summary of the significant ways in which their corporate governance practices differ from those corporate governance standards required of U.S. companies by the New York Stock Exchange. As a Chilean bank, our corporate governance standards are governed by ourby-laws, the Chilean General Banking Act, the Chilean Securities Market Act, the Chilean Corporations Act and the Regulations of the SBIF. The following chart notes these differences:
ITEM 16H. MINE SAFETY DISCLOSURE Not applicable. Not applicable. See the following items starting at page (a) Report of (b) Consolidated (c) Consolidated (d) Consolidated (e) (f) Consolidated (g) Notes to the The following exhibits are filed as part of this Annual Report:
The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date:
Consolidated Financial Statements as of and for the periods ended December 31, 2016 and 2015 and as of January 1, 2015.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Itaú CorpBanca
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Santiago, Chile
As of December 31, (In millions of Chilean pesos - MCh$)
The explanatory notes are an integral part of these Consolidated Financial Statements. Itaú Corpbanca and Subsidiaries Consolidated Statements of Income For the years ended December 31, 2016 and 2015 (In millions of Chilean pesos - MCh$, except for earnings per share)
The explanatory notes are an integral part of these Consolidated Financial Statements. Itaú Corpbanca and Subsidiaries Consolidated Statements of Other Comprehensive Income For the years ended December 31, 2016 and 2015 (In millions of Chilean pesos - MCh$)
For the years ended December 31, (In millions of Chilean pesos- MCh$-except for number of shares)
The explanatory notes are an integral part of these Consolidated Financial Statements.
Itaú Corpbanca and Subsidiaries Consolidated Statements of Cash Flows For the years ended December 31, 2016 and 2015 (In millions of Chilean pesos - MCh$)
CASH FLOW FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment, others Acquisition in Colombia net of cash Proceeds from sales of property, plant and equipment Sale of assets received in lieu of payment or in foreclosure Increased participation in companies Net cash (used in) investment activities CASH FLOW FROM FINANCING ACTIVITIES: Debt issued Redemption of debt issued Capital increase Dividends Paid Net cash provided by financing activities Net effect of exchange rate changes on cash and cash equivalents NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period Net variation of cash and cash equivalents Additional Information Income tax paid tax refunds received during the period
(In millions of Chilean pesos, except for the number of shares) NOTE 1 1.1 General Information – Itaú Corpbanca and Subsidiaries
Upon the consummation of the merger, the ownership structure was as follows: Itaú Unibanco (35.71%), CorpGroup and subsidiaries (31.00%) andnon-controlling shareholders (33.29%). Itaú Unibanco is the Bank’s controlling shareholder. In this context, and notwithstanding the foregoing, Itaú Unibanco and CorpGroup entered into a shareholder agreement that Itaú Corpbanca is headquartered in Chile, and it also has operations in Colombia and Panama. In addition, it has a The legal domicile of Itaú Corpbanca is Rosario Norte N° 660, Las Condes, Santiago, Chile. The Consolidated Financial Statements of Itaú Corpbanca for the period ended December 31, 2016, have been approved for issue by the Board of Directors on April 13, 2017.
Itaú Corpbanca must prepare consolidated financial statements that include its The Bank does business in the
1.2 Summary of significant accounting policies
Itaú Coprbanca is the result of
Itaú Corpbanca transition date is January 1, 2015. The Bank prepared its opening balance under these standards as of such date. Note 2 Section 1 of the financial statements (First Time Adoption of International Financial Reporting Standards) presents a reconciliations between the Consolidated Financial Statements at the beginning and end of the fiscal year ended December 31, 2015 and between the Consolidated Statements of Income for such year. The reconciliation presents the adjustments made to the financial statements for such dates and periods prepared under Chilean Banking GAAP and the reasons for such adjustments. The The financial statements for the period ended December 31, Changes in accounting policies, valuation criteria and forms of An increase in the information included in the notes to the financial statements. For purposes of these financial statements we use certain terms and conventions. References to “US$”, “US dollars” and “dollars” are to United States dollars, references to “Chilean pesos”, “pesos” or “Ch$” are to Chilean pesos, references to “Colombia pesos”, or The UF is revalued in monthly cycles. Each day in the period beginning on the tenth day of the current month through the ninth day of the succeeding month, the nominal peso value of the UF is indexed up (or down in the event of deflation) in order to reflect a proportionate amount of the change in the Chilean Consumer Price Index (“CPI”) during the prior calendar month. As of December 31, Ch$ For consolidation purposes, the statements of financial position of our New York Branch have been converted to Chilean pesos at the exchange rate of Ch$ The main accounting policies adopted in preparing these financial statements are described below.
The consolidated financial statements incorporate the financial statements of
All intragroup balances, transactions, income and expenses are eliminated in full on consolidation. For consolidation purposes, the financial statements of the New York Branch, the financial statements of Colombian subsidiaries whose functional currency are
Regardless of the nature of its involvement in an entity (the investee), Itaú CorpBanca will determine whether it controls an investee based on whether it has exposure, or rights, to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect the amount of
Therefore, the Bank controls an investee if and only if it has all of the following elements:
When the Bank has less than the majority of voting rights in an investee, but these voting rights are sufficient to give it the practical ability to unilaterally direct the investee’s relevant activities, the Bank is determined to have control. The Bank considers all relevant factors and circumstances in evaluating whether voting rights are sufficient to obtain control, including:
The size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of other vote holders;
Potential voting rights held by the investor, other vote holders or other parties; Rights from other contractual agreements;
Any additional facts and circumstances that indicate that the investor has, or does not have, the current ability to direct the relevant activities when decisions need to be made, including voting behavior patterns in prior shareholder meetings. The Bank reevaluates whether or not it has control in an investee if the facts and circumstances indicate that there have been changes in one or more of the elements of control listed above. All balances and transactions among consolidated companies have been eliminated upon consolidation. The consolidated financial statements include all assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries presented as if they were one sole economic entity. A controlling shareholder prepares consolidated financial statements using uniform accounting policies for similar transactions and other events under equivalent circumstances. Non-controlling interest An entity shall attribute profit for the period and each component of other comprehensive income to equity holders of the Bank and thenon-controlling interests.
The entity shall also attribute total comprehensive income to the equity holder of the Bank and to thenon-controlling interests even if this results in thenon-controlling interests having a deficit balance. The following table details the entities over which
Associates Associates are entities over which the Bank has the ability to exercise significant influence, but not control. Usually, this ability manifests itself through an ownership interest equal to or greater than 20% of the entity’s voting rights and is valued using the equity method. Other factors considered in determining whether there is significant influence over an entity include representation on the board of directors and the existence of material transactions.
Fund Management Certain subsidiaries of Assets Managed, Trust Business and Other Related Businesses
In accordance with IFRS 10 “Consolidated Financial Statements,” for consolidation purposes, the role of the Bank Scope of its decision-making authority over the investee. Rights held by other parties. Remuneration it is entitled to in accordance with the remuneration agreement. Decision-maker’s exposure to variability of returns from other interests that it holds in the investee. The Bank does not control or consolidate any trust businesses or other entities related to this type of business. Itaú Corpbanca and its subsidiaries manage funds on behalf of and for the benefit of investors, acting solely as an Agent. The assets managed by Itaú Chile Administradora General de Fondos S.A., CorpBanca Administradora General de Fondos S.A., CorpBanca Investment Trust Colombia S.A. and Helm Fiduciaria
Non-controlling interest represents the equity and net income in a subsidiary not attributable, directly or indirectly, to the equity holders of the Bank.Non-controlling interest is disclosed as a separate line item within equity in the consolidated statements of financial position and as a separate disclosure within the consolidated statements of income and comprehensive income.
When
Any contingent consideration that must be transferred by the acquirer is recognized at its fair value at the acquisition date.
Goodwill is measured as the excess Goodwill amounts are established at the date of acquisition of the business and are subsequently measured at such amounts less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Group´s cash-generating units (or groups ofcash-generating units if applicable) that is expected to benefit from the synergies of the
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
The Bank has determined the Chilean Peso as its functional currency and the presentation currency for its consolidated financial statements. The functional currency is the currency of the primary economic environment in which the Bank operates.
Consequently, all balances and transactions denominated in currencies other than Chilean Pesos are considered as denominated in “foreign For the purposes of presenting consolidated financial statements, the assets and liabilities of the foreign consolidated entities whose functional currencies are other than the Chilean Peso are translated into the presentation currency as follows:
Assets and liabilities are translated at the closing exchange rate
Income, expenses and cash flows are translated at the exchange rate at the date of the transactions. The resulting exchange differences of translating into Chilean pesos the functional currency balances of the consolidated entities whose functional currency is other than the Chilean Peso, are recorded and accumulated as “Exchange differences on translation” within the line item “Accumulated other comprehensive income” in equity. On the disposal of those foreign subsidiaries, all of the exchange differences accumulated in equity with respect to those amounts attributable to the equity holders of the Bank are reclassified to income. In preparing the consolidated financial statements, transactions in currencies other than the Bank’s functional currency are recognized at the rates prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are Exchange differences on monetary items are recognized in profit or loss in the period in which they arise except for:
Exchange differences on foreign currency borrowings relating to assets under construction for future productive use which are included in the cost of those assets, if any;
Exchange differences on transactions entered into in order to hedge certain foreign currency risks; and
Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on Assets and liabilities in foreign currency are shown at their equivalent in Chilean pesos, calculated using the exchange rates as of December 31, The foreign exchange gains (losses) presented within consolidated statements of income
g.1) Classification of financial assets for measurement purposes Financial assets are included for measurement purposes in one of the following categories: Financial assets at fair value through profit and loss: this category includes the financial assets held for trading which are acquired principally for the purpose of generating a profit in the short term from fluctuations in their prices. This category includes the trading portfolio financial assets and derivative financial instruments not designated and effective as hedging instruments. Available-for-sale financial assets: this category includes debt and equity securities not classified as“held-to-maturity investments,” “loans and accounts receivable from banks and customers” or “financial assets at fair value through profit or loss.” Held-to-maturity investments: this category includes debt instruments traded in an active market, with fixed maturity and with fixed or determinable payments, for which the Bank has both the intention and proven ability to hold to maturity. Loans and accounts receivable from banks and customers: this item includes financing granted to third parties, based on their nature, regardless of the type of borrower and the form of financing. Includes loans and accounts receivable from customers, interbank loans, and finance lease transactions in which the consolidated entities act as lessors. Investments under agreements to resell: includes balances of financial instruments purchased under resale agreements. g.2) Classification of financial assets for presentation purposes Financial assets are classified by their nature into the following line items in the consolidated financial statements: Cash and deposits in banks: This item includes cash balances, checking accounts andon-demand deposits with the Central Bank of Chile and other domestic and foreign financial institutions. Cash in the process of collection: Domestic transactions in the process of transfer through a domestic clearinghouse or international transactions which may be delayed in settlement due to time differences, etc. Trading portfolio financial assets: This item includes financial instruments due for trading purposes and investments in mutual funds which must be adjusted to their fair value in the same way as instruments acquired for trading. Derivative financial instruments: This item includes the positive fair value of derivative financial instruments including embedded derivatives separated from hybrid financial instruments. (See Note 8 “Derivatives Financial Instrument and Hedge Accounting”). Loans and receivables from banks: This item includes the balances of transactions with domestic and foreign banks, including the Central Bank of Chile, other than those reflected in the preceding items. Loans and receivables from customers: This item includes loans that arenon-derivative financial assets for which fixed or determined amounts are charged, that are not listed on an active market and which the Bank does not intend to sell immediately or in the short term. When the Bank is the lessor in a lease, and it substantially transfers the risks and benefits incidental to the leased asset, the transaction is presented as a loan. Financial investmentsavailable-for-sale: This item includes debt and equity securities not classified in any of the other categories. Held-to-maturity investments: This category includes debt instruments traded in an active market, with fixed maturity and with fixed or determinable payments, for which the Bank has both the intention and proven ability to hold to maturity. Investments under agreements to resell: Includes balances of financial instruments purchased under resale agreements. g.3) Classification of financial liabilities for measurement purposes Financial liabilities are classified for measurement purposes into one of the following categories: Financial liabilities at fair value through profit or loss: Financial liabilities issued to generate a short-term profit from fluctuations in their prices, and financial liabilities arising from definitive sales of financial assets purchased under resale agreements or borrowed (“short positions”). Financial liabilities at amortized cost: Financial liabilities, regardless of their type and maturity, not included in any of the aforementioned categories which arise from the borrowing activities of financial institutions, regardless of their form and maturity. g.4) Classification of financial liabilities for presentation purposes Financial liabilities are classified by their nature into the following line items in the consolidated financial statements: Current accounts and demand deposits: This item includes allon-demand obligations except for term savings accounts, which are not consideredon-demand instruments in view of their special characteristics. Obligations whose payment may be required during the period are deemed to beon-demand obligations; i.e., operations which become callable the day after the closing date are not treated ason-demand obligations. Transaction in the course of payment: Transactions in the process of transfer through a domestic clearing house or international transactions which may be delayed as to transfer due to time differences, etc. Obligations under repurchase agreements: This item includes the balances of sales of financial instruments under securities repurchase and loan agreements. Time deposits and saving accounts: This item shows the balances of deposit transactions in which a term at the end of which they become callable has been stipulated. This item also includes saving accounts. Derivative financial instruments: This item includes financial derivative contracts whether they are for trading or for account hedging purposes, as set forth in Note 8 “Derivatives Financial Instrument and Hedge Accounting.” Borrowings from financial institutions: This item includes obligations due to other domestic banks, foreign banks, or the Central Bank of Chile, which were not classified in any of the previous categories. Debt issued: This encompasses three items: Obligations under letters of credit, subordinated bonds and senior bonds. Other financial obligations: This item includes credit obligations to persons distinct from other domestic banks, foreign banks, or the Central Bank of Chile, for financing purposes or operations in the regular course of business.
Itaú Corpbanca provides financial information by operating segment in conformity with IFRS 8 “Operating Segments” in order to make disclosures that enable financial statement users to evaluate the nature and financial effects of the business activities in which the Bank engages and the economic environments in which it operates and to allow them to: Better understand the Bank’s performance; Better evaluate its future cash flow projections; Form better opinions regarding the Bank as a whole. To comply with IFRS 8, Itaú Corpbanca identifies operating segments, being these Chile and Colombia, used by Executive Committee (Chief Operating Decision Market “CODM”) to analyze and make decisions regarding operating, financing and investment decisions, based on the following elements:
The Executive Committee manages these segments through the use of its own internal profitability reporting system and reviews its segments based on the operational management result and uses indicators of efficiency, profitability and others to evaluate performance and allocate its resources. In addition, a geographical disclosure about the operations presented by the Bank in Colombia and Chile is added. More information on each segment is presented in Note 4 “Segment Information.”
Pursuant to agreements to resell, the Bank purchases financial instruments, which are recorded as assets under the heading “Investments under agreement to resell,” and accrue interest under the effective interest rate method through the maturity date of the contract. Investments sold subject to a repurchase obligation and which serve as security for the loan are presented under the heading “Trading portfolio financial assets” or “Financial investmentsavailable-for-sale,” respectively. A repurchase obligation is classified as a liability and recorded as “Obligations under repurchase agreements” and accrues interest under the effective interest rate method through the maturity date of the contract.
Measurement or valuation of assets and liabilities is the process of determining the amounts at which Financial assets and liabilities are recorded initially at fair value which, unless there is evidence otherwise, is the transaction price. Instruments not
Financial liabilities are valued generally at amortized cost, except for financial liabilities designated as hedged items (or hedging instruments) and financial liabilities held for trading, which are valued at fair value. The following measurement criteria are used for assets and liabilities recorded in the Statement of Financial Position:
Financial assets and liabilities measured at amortized cost: The amortized cost of a financial asset or liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility. For the amortized cost of a financial asset or liability, the effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period.
Fair value measurements of assets and liabilities: Fair value is defined as the price that will be received for the sale of an asset or paid for the transfer of a liability in Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions or market information might not be available. However, the objective of a fair value measurement in both cases is the same — to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions at which the market participant who holds the asset or liability could exit that asset or liability. When a price for an asset or liability is not directly observable, the Bank will measure the fair value using another valuation technique that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. As fair value is a market-based measurement, it should be determined using the assumptions that market participants would use in pricing the asset or liability, including risk assumptions. As a result, the Bank’s intention to hold an asset or to settle or otherwise fulfill a liability is not relevant when measuring fair value. A fair value measurement is for a particular asset or liability. Thus, when measuring fair value, the Bank takes into account the same characteristics of the asset or liability that market participants would consider in pricing that asset or liability on the measurement date. To increase the consistency and comparability of fair value measurements and related disclosures, the Bank uses and discloses a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1 inputs) and lowest priority to unobservable inputs (Level 3 inputs). Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the similar asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Assets valued at cost: Cost is defined as the cost of the transaction to acquire the asset, less any impairment losses that may exist.
Financial assets at fair value through profit and loss are initially measured at fair value. Transaction costs are recognized immediately in profit or loss. Subsequent to initial recognition financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in net income. For “Trading portfolio financial
in line item “Trading and investment income” within the statement of income. Accrued interest income and indexation adjustments are also included as “Trading and investment All purchases and sales of trading instruments to be delivered within the deadline period established by market regulations and conventions are recognized on the trade date, which is the date on which the commitment is made to purchase or sell the asset. For Certain derivatives embedded in other financial instruments are treated as separate derivatives when their risk is not closely related to the economic characteristics and risks of the host contract and the host contract is not measured at fair value with changes in fair value recognized in net income. On initial recognition, derivative contracts are designated by the Bank as a trading derivative or as a hedging instrument for hedge accounting purposes. The changes in the fair value of trading derivatives are recorded in line item “Trading and investment income” within the consolidated statements of income. If the derivative is designated as a hedging instrument in a hedge relationship, this may be: (1) a fair value hedge of assets or liabilities or unrecognized firm commitments; (2) a hedge of cash flows related to recognized highly probable assets or A hedging relationship qualifies for hedge accounting if, and only if, all of the following conditions are met: (a) at the inception of the hedge there is formal designation and documentation of the hedging relationship; (b) the hedge is expected to be highly effective; (c) the effectiveness of the hedge can be reliably measured and; (d) the hedge is assessed on an ongoing basis and determined to have been highly effective throughout the financial reporting periods for which the hedge was designated. Transactions with derivatives that do not qualify for hedge accounting are recognized and presented as trading derivatives, even if they provide an effective economic hedge for managing risk positions.
If the hedged item in a fair value hedge is a firm commitment, the changes in the fair value of the firm commitment with respect to the hedged risk are recognized as assets or liabilities with the corresponding gain or loss recognized in the income statement. The gains or losses from measuring the fair value of the hedging derivative instrument are also recorded in the income statement. When an asset or liability is acquired or assumed as a result of the fulfilling of the firm commitment, the initial carrying amount of the acquired asset or assumed liability is adjusted to include the cumulative change in the fair value of the firm commitment attributable to the hedged risk that was recognized in the statement of financial position. When a derivative instrument hedges exposure to variability in cash flows of recognized assets or liabilities, or highly probable forecasted transactions, the effective portion of the changes in fair value with regard to the risk hedged is recognized in other comprehensive income. Any ineffective portion is immediately recognized in the income statement. The accumulated gains or losses recognized in other comprehensive income are reclassified to the income statement in the same period or periods in which the hedged item affect the income statement. When a derivative instrument hedges exposure to variability in the amount of the Bank’s interest in the net assets of a foreign operation, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in other comprehensive income and the ineffective portion is recognized in net income. The gain or loss on the hedging instrument relating to the effective portion of the hedge that has been recognized in other comprehensive income is reclassified
from equity to the income statement when the net investment affects profit or loss, for example, as a reclassification adjustment on the disposal of the foreign operation.
Inflation forwards and inflation swaps: These derivatives are used to hedge the economic value of inflation indexed structures such as OIS – Swaps: These derivatives are used to hedge the economic value of long-term assets funded with short-term USD-CLP Fx Forwards:USD-CLP forwards are used to hedge U.S. dollar denominated assets which will be funded by Chilean peso denominated short-term liabilities.
Instruments available for sale are initially recognized at fair value, including transaction costs. Subsequent to initial recognition, available for sale investments are measured at fair All purchases and sales of investment instruments to be delivered within the deadline period established by market regulations and conventions are recognized on the trade date, which is the date on which the commitment is made to purchase or sell the asset. Investment instruments designated as hedging instruments are measured using the requirements established for hedge accounting.
Held-to-maturity investments are measured at amortized cost using the effective interest method.
Loans and accounts receivables are measured at amortized cost using the effective interest rate method, less any impairment if
In general, financial liabilities on the Bank´s Statement of Financial Position are measured at amortized cost, as defined above, except for those financial liabilities designated as hedged items (or hedging instruments) in hedging relationships which are measured at fair value.
Financial instruments at fair value, determined on the basis of quotations in active markets, include government debt securities, private sector debt securities, shares, short positions, and fixed-income securities issued. In cases where quotations cannot be The main valuation techniques used by the Bank’s internal models to determine the fair value of derivatives are as follows:
Thenon-observable inputs are described in Note 33 “Financial Assets and Liabilities Measured at Fair Value.” The fair value of the financial instruments arising from the aforementioned internal models considers contractual terms and observable market data, which include interest rates, credit risk, exchange rates, the quoted market price of raw materials and shares, volatility and prepayments, among other things. The valuation models
Financial asset and liability balances are offset if and only if there is a legally enforceable right to offset the recorded amounts and the Bank intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
j.6) Impairment of financial assets Financial assets, other than those measured at fair value through net income, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after initial recognition of the asset (a Foravailable-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its costs is considered to be objective evidence of impairment. Foravailable-for-sale debt instruments, objective evidence of impairment could include significant financial difficulty of the issuer or breach of contract (such as a default or delinquency in payments); the probability that the issuer will enter bankruptcy or financialre-organization; or the cessation of an active market for that financial asset because of financial difficulties. Additionally, certain categories of financial assets, such as loans and receivables from banks and
For financial assets carried at amortized cost, the amount of impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. For
When anavailable-for-sale financial asset is considered to be impaired, cumulative unrealized gains and losses previously recognized in other comprehensive income are reclassified to the income statement in the period. In respect ofavailable-for-sale equity securities, impairment losses previously recognized in net income are not reversed through income. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income and accumulated under the heading “financial instrumentsavailable-for-sale.” In respect ofavailable-for-sale debt securities, impairment losses are subsequently reversed through net income if an increase in fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss. The carrying amount of the financial asset is reduced by the impairment loss directly with the exception of loans and receivables from banks and customers, where the carrying amount is reduced through the use of an allowance account
For financial assets measured at amortized cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through net income to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
The most significant criteria used by the Bank to recognize revenue and expenses are summarized as follows: 1 Interest revenue, interest expense and similar items Interest revenue and expense are recorded on an accrual basis using the effective interest method. 2 Commissions, fees, and similar items Fee and commission income and expenses are recorded in the consolidated statements of Income/expenses arising from transactions or services that are performed over a period of time are recorded over the life of such transactions or services. Income/expenses originated by a specific transaction are recognized when occurs. 3Non-finance income and expenses Non-finance income and expenses are recognized on an accrual basis.
Assets are acquired for the benefit they will produce. Therefore, impairment The Bank and its subsidiaries use the following criteria to test for impairment, if any: Financial assets A financial asset that is not recorded at fair value through profit and loss is evaluated at each period end in An impairment loss for financial assets recorded at amortized cost is calculated as the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted using the original effective interest rate of the financial asset. Losses expected as the result of future events, whatever their probability, are not Individually significant financial assets are examined individually to determine impairment. Remaining financial assets are evaluated collectively in groups that share similar credit risk characteristics. When the Bank determines that there is no objective evidence of impairment for an
An impairment loss can only be reversed Non-financial asset The carrying amounts of the Bank’snon-financial assets, excluding investment property and deferred taxes, are reviewed regularly, or at least every reporting period, to determine whether indications of impairment exist. If such indication exists, the recoverable amount of the asset is then estimated. The recoverable amount of an asset is the greater of the fair value less costs to sell, whether for an asset or a cash-generating unit “CGU,” and its value in use. That recoverable amount is determined for an individual asset, unless the asset does not generate cash flows that are largely independent from the cash flows of other assets or asset groups. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered to be impaired and its value is reduced to its recoverable amount. Upon assessing the value in use of an individual asset or CGU, estimated future cash flows are discounted to present value using abefore-tax discount rate that reflects current market assessments of the time value of money and the specific risks that an asset may have. Impairment losses recognized in prior years are assessed at each reporting date in search of any indication that the loss has decreased or disappeared. An impairment loss will be reversed only to the extent that the book value of the asset does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Goodwill Goodwill is tested annually to determine whether impairment exists and when circumstances indicate that its book value may be impaired. Impairment of goodwill is determined by evaluating the recoverable amount of each cash CGU (or group of CGUs) to which goodwill is allocated. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Goodwill acquired in a business combination shall be allocated as of the acquisition date among the CGUs or group of CGUs of the acquirer that are expected to benefit from the synergies of the business combination, regardless of whether other of the acquiree’s assets or liabilities are allocated to these units. Impairment losses relating to goodwill cannot be reversed in future periods. In accordance with IAS 36 “Impairment of Assets,” annual impairment testing is required for a CGU to which goodwill has been allocated and for intangible assets with indefinite useful lives. Different CGUs and different intangible assets can be tested for impairment at different times during the year as long as testing for the named asset is carried out at the same time each year.
Property, plant and equipment consist of buildings, land, furniture, vehicles, computer hardware and other fixtures owned by the Bank or acquired under finance leases. Property, plant and equipment for own use Property, plant and equipment for own uses are measured at acquisition cost less accumulated depreciation and accumulated impairment losses. Property, plant and equipment also includes assets received in lieu of payment which are intended to be held for continuing own use (See letter bb) below) and assets acquired under finance leases (See letter cc) below). Depreciation is calculated using the straight line method over the acquisition cost of assets minus their residual value. The land on which buildings and other structures stand has an indefinite life and, therefore, is not subject to depreciation. The consolidated entities assess at the end of each reporting date whether there is any indication that the carrying amount of any of their tangible assets exceeds its recoverable amount; if so, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in proportion to the revised carrying amount and to the new remaining useful life, if the useful life needs to bere-estimated. Similarly, if there is an indication of a recovery in the value of a tangible asset, the consolidated entities record the reversal of the impairment The estimated useful lives and residual value of the items of property, plant and equipment held for own use are reviewed at least at the end of each reporting period to determine significant changes therein. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recorded in the consolidated statements of income in future years of the new useful lives. Maintenance expenses are recorded as an expense in the period in which they are incurred.
Loans and receivables from customers and loans and receivables from banks, both originally granted by the Bank and acquired, arenon-derivative financial assets with fixed or defined charges that are not quoted on an active market and that the Bank has no intention of selling immediately or in the short term; they are valued initially at cost plus incremental transaction costs and subsequently measured at amortized cost using the effective interest rate method. When the Bank is the lessor in a lease agreement and transfers substantially all incidental risks and rewards over the leased asset, the transaction is presented within loans.
Factored receivables are valued at the purchase price of the loan. The price difference between the amounts paid and the
Lease receivables, included in “loans and receivables from
year-end. Assets leased among consolidated companies are treated as assets held for own use in the financial statements.
The impairment losses on these loans are determined:
individually, for all individually significant loans and for those which, although not significant, cannot be classified as part of homogenous groups of loans of similar characteristics, i.e., by type of loan, customer’s industry and geographical location, type of guarantee, age ofpast-due amounts, etc.
collectively, for those with similar credit risk characteristics.
Criteria for determining impairment losses may consist of:
becoming aware of a significant financial difficulty on the part of the customer;
when there is evidence of a deterioration of the customer’s ability to pay, either because it is in arrears or for other
it becomes probable that the customer will enter bankruptcy or other financial
observable data at a portfolio (collectively analyzed) level indicating that there is a measurable decrease in the estimated future cash flows, although the decrease cannot yet be ascribed to individual loan in the portfolio, Write-offs Loans and receivables are written off (the entire unpaid principal balance and related accrued interest balance) when we have determined that there is no longer any realistic prospect of recovery of part or all of the loans and receivable. The
Initial impairment starts from the date in which all or part of the loans and receivables fall into arrears.
Subsequent payments received fromwritten-off loans and receivables are recognized in the income statement as recoveries.
Contingent assets and liabilities are those operations or commitments in which the The Bank keeps a record of the following balances related to commitments or to liabilities of its own line of business in memorandum accounts: Collateral and guarantees, confirmed foreign letters of credit, documentary letters of credit issued, bank vouchers, inter-bank vouchers, freely disposable lines of credit, other credit commitments and other contingencies.
Provisions are liabilities involving uncertainty about their amount or maturity. They are recorded in the Consolidated Statement of Financial Position when the following requirements are met: a present (legal or implicit) obligation has arisen from a past event; and as of the date of the consolidated financial statements it is likely that the Bank and/or its controlled entities will have to disburse resources to settle the obligation and the amount can be reliably measured. A contingent liability is any obligation that arises from past events whose existence will be confirmed only if one or more uncertain future event occurs not within the control of the Bank and its controlled entities. The annual consolidated financial statements include all material provisions with respect to which it is considered more likely than not that the obligation will have to be settled. Provisions which are quantified on the basis of the best available information regarding the consequences of the event that gives rise to them, and arere-estimated at the end of each accounting period are used to cover the specific obligations for which they were originally recognized, and are reversed in full or in part when those obligations cease to exist or are reduced. Provisions are classified into the following groups in the Consolidated Statement of Financial Position based on the obligations they cover: Employee benefits and compensation Minimum dividends Contingencies
The Bank and its subsidiaries have recorded income tax expense for each reporting period in accordance with current tax laws in the country where each of its entities and subsidiaries operates (see Note The tax expense on profit for the period includes the sum of current taxes that result from applying current tax rates to the taxable income for the period and the deferred tax expense recognized in consolidated profit or loss. The Bank and its subsidiaries recognize, when appropriate, deferred tax assets and liabilities for future estimates of tax effects attributable to differences between the book and tax values of assets and liabilities. Deferred tax assets and liabilities are determined based on the tax rate applicable in the period that deferred tax assets and liabilities are recovered or settled. The effects of future changes in tax legislation or tax rates are recognized in deferred taxes when the tax legislation is enacted or substantially enacted. The effects of deferred taxes for temporary differences between the tax and book basis are recorded on an accrual basis in accordance with IAS 12 Tax Reforms
As of period end, the deferred taxes of the Bank and its Chilean subsidiaries have been adjusted based on the It should be pointed out that according to the new Article 14 of the Income Tax Law as amended by Law No. 20,899 of February 8, 2016, as from 2017, the Bank and Chilean subsidiaries are subject to the Partial Credit Imputation Regime, considering that by default, the public limited companies are subject to this regime, without being able to opt for the Attributed Income System.
On December 29, 2016, Law 1,819 was published in Colombia. This law introduced a variety of amendments to the Tax Statutes, strengthened the role of the Colombian Internal Revenue Service (DIAN) and introduced several mechanisms to prevent tax evasion. One of the main amendments reduced the income tax rate for commercial year 2017 to 40%, consisting of a 34% general tax and a 6% surcharge. In 2018, the tax rate falls to 37%, consisting of a 34% general rate and a 4% surcharge. Finally, from 2019 onwards, the income tax rate will be 33% and there will be no surcharge. Deferred taxes for the Bank’s Colombian subsidiaries have been adjusted based on the new income tax rates contained in Law No. 1,819, published December 29, 2016. In light of these modifications, the deferred taxes of Chilean and Colombian companies have been recorded according to the rates in the periods of reversal of each temporary difference.
Accounting for transfers of financial assets is based on the degree and way in which the risks and rewards associated with the transferred assets are transferred:
As a result, financial assets will only be derecognized when the rights over the cash flows have been extinguished or when substantially all implicit rights and rewards have been transferred to third parties. Likewise, financial liabilities are only derecognized from the Statement of Financial Position when the obligations they generate have been extinguished or when they are acquired with the intention to settle them or place them once
Short-term benefits Short-term employee benefits are employee benefits (other than termination benefits) that are due to be fully settled within 12 months after the end of the reporting period in which the employees render the related services. When an employee has rendered service to an entity during an accounting period, the entity shall recognize the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service:
Vacation expense The annual cost of personnel vacation and benefits is recorded on an accrual basis. Post-employment benefits Post-employment benefits are employee benefits (other than termination benefits and short-term employee benefits) which are payable after the completion of employment. Post-employment benefit plans are formal or informal arrangements under which an entity provides post-employment benefits for one or more employees. Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions. Other long-term benefits Other long-term employee benefits include all employee benefits other than short-term employee benefits, post-employment benefits and termination benefits. The standard requires a simplified method of accounting for other long-term employee benefits. In contrast to the accounting required for post-employment benefits, this method does not recognize new measurements in other comprehensive income. Termination benefits Termination benefits are employee benefits payable as a result of either:
An entity shall recognize termination benefits as a liability and an expense at the first of the following dates:
The financial instruments issued by the Bank and subsidiaries are classified in the Consolidated Statement of Financial Position within “debt
After initial measurement, debt issued is subsequently measured at amortized cost using the effective interest rate. Amortized cost is calculated by taking into account any discount, premium or cost related directly to the
Intangible assets are identified asnon-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of a legal transaction or are separately identifiable. They are assets whose cost can be estimated reliably and from which the consolidated entities consider it probable that future economic benefits will be generated. The cost of intangible assets acquired in a business combination is their fair value as of the date of acquisition. These intangible assets are recorded initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortization or any accumulated impairment losses. An entity will evaluate whether the useful life of an intangible asset is finite or indefinite and, if finite, will evaluate the duration or number of units of production or other similar units that make up its useful life. The entity will consider an intangible asset to have an indefinite useful life when, on the basis of an analysis of all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. An intangible asset is accounted for based on its useful life. An intangible asset with a finite useful life is amortized over its economic useful life and reviewed to determine whether any indication of impairment may exist. The amortization period and method are reviewed at least once every reporting period. An intangible asset with an indefinite useful life is not amortized and the entity will determine if it has experienced an impairment loss by comparing its recoverable amount to its carrying amount on a yearly basis and at any time during the year in which there is an indication that its value may be impaired.
Computer software acquired by the Bank is accounted for at cost less accumulated amortization and impairment losses. Expenses for internally developed software are recognized as an asset when the Bank is able to demonstrate its intent and ability to complete development and use it internally to generate future economic benefits and can reliably measure the costs of completing development. Capitalized costs of internally developed software include all costs directly attributable to developing the software and are amortized over their useful lives. Internally developed software is accounted for at capitalized cost less accumulated amortization and impairment losses. Subsequent expenses for the recognized asset are capitalized only when they increase the future economic benefit for the specific assets. All other expenses are recognized in profit or loss.
In accordance with IFRS 3, when intangible assets are acquired and/or generated in a business combination, their cost is the fair value as of the date of acquisition. The fair value of an intangible asset must reflect the expectations of market participants as of the acquisition date regarding the likelihood that the future economic benefits incorporated into the asset will flow to the entity. In other words, the entity expects an inflow of economic benefits, even if there is uncertainty regarding the date or amount. In accordance with IAS 38 “Intangible Assets” and IFRS 3, the acquirer shall recognize an intangible asset from the acquiree on the date of acquisition separately from goodwill, regardless of whether the asset had been recognized by the acquiree before the business combination. The business combination between Banco Itaú Chile and CorpBanca gave rise to intangible assets and goodwill as indicated in Note 2, Sections 3 and 12 below.
This item applies to intangible assets that qualify as identifiable, which means it is controlled by the Bank, the cost can be reliably measured and it is likely to generate future economic benefits.
For the preparation of the cash flow statement, the Bank applied the indirect method, in which, starting with the Bank’s consolidated income before taxes,non-cash transactions are subsequently added/subtracted, as well as income and expenses associated with cash flows classified as investing or financing activities. The preparation of the cash flow statements takes the following items into account:
In the statement of cash flows, cash and cash equivalents are defined as cash balances and bank deposits plus the net balance of cash in the process of collection, plus highly-liquid trading andavailable-for-sale securities with insignificant risk of changing value, maturing in no more than three months from the date of acquisition and repurchase agreements with similar conditions.Cash and cash equivalents balances and their reconciliation to the cash flow statement are detailed in Note 5 “Cash and cash equivalents.” It also includes investments in fixed-income mutual funds that are presented together with trading securities in the Consolidated Statement of Financial Position. Balances of cash and cash equivalents and their reconciliation with the Consolidated Statement of Cash Flows are detailed in Note 5“Cash and Cash Equivalents.” The provision for loan losses presented in the operating section does not agree to the amount presented in the statements of income because, for cash flow statement purposes, the provision for loan losses excludes recoveries of assets previouslywritten-off.
The preparation of the financial statements requires Management to make estimates and assumptions that affect the application of the accounting policies and the reported amounts of assets, The Bank has established allowances to cover incurred losses, therefore to estimate the allowances, they must be regularly evaluated taking into consideration factors such as changes in the The relevant estimates and assumptions are regularly reviewed by Management to quantify certain assets, liabilities, revenues, expenses, and commitments. Revised accounting estimates are recorded in the period in which the estimate is revised and in any affected future period. These estimates, made on the basis of the best available information, mainly refer to: Useful life of material and intangible assets (Notes12, 13 and 30) Valuation of goodwill (Notes 2, 12 and 30) Provisions (Note 19) Fair value of financial assets and liabilities (Notes 6, 7, 8, 11 and 33) Contingencies and commitments (Note 21) Impairment losses for certain assets (Notes 9, 10, 27 and 30) Current and deferred taxes (Note 14) Consolidation perimeter and evaluation of control (Note 1.2, letter c)). In certain cases, generally accepted accounting principles require that assets or liabilities be recorded or disclosed at their fair values. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where quoted market prices in active markets are not available, the Bank has estimated such values based on the best information available, including the use of modeling and other valuation techniques.
The Bank records within liabilities (as a provision) the portion of profit for the year that should be distributed to comply with the Corporations Law (30%) or its bylaws. For the years 2016 and 2015, the Bank provisioned 50% of profit for the year. This provision is recorded within “provision for minimum dividends” by reducing “retained earnings” within the Consolidated Statement of Changes in Equity. Although Banco Itaú Chile had a policy to not distribute dividends, in the agreement signed for the merger with CorpBanca it agreed to distribute 50% of profit for the 2015 period and the year 2014. However, at an Extraordinary Shareholders’ Meeting on June 11, 2015, shareholders agreed to reduce the amount of the dividends for the year 2014 to MCh$26,448. See Note 22. Title VII of the bylaws of Itaú Corpbanca establishes that the Bank must distribute an annual cash dividend to its shareholders, as proposed by the Board and prorated based on their shareholdings, of at least thirty (30%) of profit for each year. In any event, no dividends may be distributed if there are any capital losses until those losses have been remedied, nor if any distribution causes the Bank to breach any of the capital requirements in the General Banking Law. For the purpose of distributing dividends, the Bank will adhere to the terms of the Transaction Agreement (signed January 29, 2014), which was approved at an Ordinary Shareholders’ Meeting held March 11, 2016.
a. Finance leases Finance leases are leases that substantially transfer all the risks and rewards incidental to ownership of the leased asset to the lessee. When the Bank acts as the lessor of an asset, the sum of the present value of the lease payments receivable from the lessee plus the guaranteed residual value, which is generally the exercise price of the lessee’s purchase option at the end of the lease term, is recorded as loans to third parties and is therefore included under “Loans and accounts receivable from customers, net” in the consolidated statements of financial position. When the Bank acts as lessee, it shows the cost of the leased assets in the consolidated statements of financial position based on the nature of the leased asset, and simultaneously records a liability for the same amount (which is the lower of the fair value of the leased asset and the sum of the present value of the lease payments payable to the lessor plus, if appropriate, the exercise of the purchase option). The depreciation policy for these assets is consistent with that for property, plant and equipment for own use. In both cases, the finance revenues and finance expenses arising from these contracts is credited and debited, respectively, to “Interest income” and “Interest expense” in the consolidated statements of income so as to achieve a constant rate of return over the lease term. b. Operating leases In operating leases, ownership of the leased asset and substantially all the risks and rewards incidental thereto remain with the lessor. When the consolidated entities act as the lessor, they present the acquisition cost of the leased assets under property, plant and equipment. The depreciation policy for these assets is consistent with that for similar items of property, plant and equipment held for own use. Income from operating leases is recorded on a straight line basis under “Other operating income” in the consolidated statements of income. When the consolidated entities act as the lessees, the lease expenses, including any incentives granted by the lessor, are charged on a straight line basis to “Administrative and other expenses” in the consolidated statements of income.
The Bank and its subsidiaries provide trust and other fiduciary services that result in the holding or investing of assets on behalf of customers. Assets held in a fiduciary capacity are not reported in the consolidated financial statements, as they are not the assets of the Bank. Contingencies and commitments arising from this activity are disclosed in Note
Non-current assets (or disposal groups made up of assets and liabilities) that are expected to be recovered primarily through sale instead of through continued use are classified as held for sale. Immediately before being classified as such, the assets (or elements of a disposal group) are remeasured in accordance with the Bank’s accounting policies. From this time forward, assets (or disposal groups) are measured at the lesser of Impairment losses after the initial classification of assets held for sale and gains and losses after revaluation are recognized in profit or loss. Gains are not recognized if they exceed any accumulated loss. The Bank includes the following asnon-current assets held for sale: As of December 31, The investment is available for immediate sale in its current condition and the sale is considered highly likely as the Bank’s senior management is committed to the sale. The Bank has no intention of changing its mind regarding this sale and, therefore, has already begun the process of identifying a buyer, which it expects to conclude within a year. The transaction was completed within one year as detailed in Note 37”Subsequent Events.” Assets received or awarded in lieu of payment of loans and accounts receivable from customers are initially recognized at the price agreed by the parties, or otherwise, when the parties do not reach an agreement, at the value at which the Bank is awarded those assets at a judicial settlement. Such values approximate the assets’ market value as the valuations are determined from market-based evidence by appraisals undertaken by professionally qualified appraisers at the time of the receipt of the assets. The value as of December 31, 2016 MCh$18,855 (MCh$1,785 as of December 31, 2015 and MCh$815 as of 1 January 2015).
Basic earnings per share are determined by dividing the net income attributable to equity holders of the Bank in a period by the weighted average number of shares outstanding during the period. Diluted earnings per share are determined in a similar manner as Basic Earnings per share, but the net income attributable to equity holders of the bank and the weighted average number of outstanding shares are adjusted to take into account the potential diluting effect of stock options, warrants, and convertible debt. As of December 31, 2016 and 2015, the Bank did not have
The Bank
These consolidated financial statements as of December 31,
Application of
Amendments and
The Bank’s management analyzed these amendments in detail and concluded that they Amendment to IAS 1, “Presentation of financial
The Bank’s management analyzed these amendments in detail and concluded that they Amendments to IFRS 10 “Consolidated financial statements” and IAS 28 “Investments in associates and joint ventures” – Published in December 2014. These amendments clarify the application of the consolidation exception for investment entities and their subsidiaries. The amendment to IFRS 10 clarify that exception from preparing consolidated financial statements is also available to intermediate parent entities which are subsidiaries of investment entities. The amendment to IAS 28 establishes that entities which are not investment entities but have an interest in an associate or joint venture which is an investment entity have a
The Bank’s management analyzed these amendments in detail and concluded that they Annual Improvements Cycle 2012-2014. The document covers the following standards:
IFRS 7, “Financial instruments: Disclosures.” There are two amendments to IFRS 7. (1) Servicing contracts. If an entity transfers a financial asset to a third party under conditions which allow the transferor to derecognize the asset, IFRS 7 requires disclosure of all types of continuing involvement that the entity might still have in the transferred assets. IFRS 7 provides guidance on what is meant by continuing involvement in this context. The amendment adds specific guidance to help management determine whether the terms of an arrangement to service a financial asset which has been transferred constitute continuing involvement. The amendment is prospective with an option to apply retrospectively. A consequential amendment to IFRS 1 is included to give the same relief to first-time adopters. (2) Interim financial statements. The amendment clarifies that the additional disclosure required by the amendments to IFRS 7, “Disclosure – Offsetting financial assets and financial liabilities” is not specifically required for all interim periods, unless required by IAS 34. The amendment is retrospective. The Bank’s management analyzed these amendments in detail and concluded that they do not apply since the Bank does not have
IFRS 9
IFRS 9 sets out the requirements for recognition and measurement of financial instruments. The main new developments of the standard Classification and Impairment: For financial assets, an ECL is An assessment of each facility’s credit risk profile will determine whether they are to be allocated to one of three stages: Stage 1: when it is deemed there has been no significant increase in credit risk since initial recognition, a loss allowance equal to a12-month ECL – i.e. the proportion of lifetime expected losses resulting from possible default events within the next12-months – will be applied; Stage 2: when it is deemed there has been a significant increase in credit risk since initial recognition, but no credit impairment has materialized, a loss allowance equal to the lifetime ECL – i.e. lifetime expected loss resulting from all possible defaults throughout the residual life of a facility – will be applied; and Stage 3: when the facility is considered credit impaired, a loss allowance equal to the lifetime ECL will be applied. Similar to incurred losses under IAS 39, objective evidence of credit impairment is required. The assessment of whether a significant increase in credit risk has occurred since initial recognition involves the application of both quantitative measures and qualitative factors, requires management judgement and is a key aspect of the IFRS 9 methodology. Hedge accounting: Itaú Corpbanca is in the process of implementing IFRS 9, the possible impacts resulting from its adoption are being evaluated and will be concluded by the date of entry into force of the standard. It should be noted that the adoption of the concept of expected loss in relation to the concept of loss incurred should present an increase in the allowance for doubtful accounts as a result of the anticipation of the recognition of losses. In the process of implementation are involved the areas of finance, risk,
from contracts with customers. The basic principle is that an entity will recognize the revenues that represent the transfer of goods or services promised to customers in an amount that reflects the consideration that the entity expects to be entitled to exchange for those goods or services. Its application supersedes IAS 11 “Construction Contracts”; IAS 18 “Revenue”; IFRIC 13 “Customer loyalty programs”; IFRIC 15 “Agreements for the construction of real estate”; IFRIC 18 “Transfers of Assets from Customers”; andSIC-31 “Barter transactions involving advertising services.” Early adoption is permitted. The Bank’s management is evaluating the potential impact of adopting these amendments/new standards together with its parent company (Itaú Unibanco Holding S.A.), which has made available material to define and identify the Bank’s initial status on this matter. IFRS 16 “Leases”– Published in January 2016 – The standard establishes the recognition, measurement, presentation and disclosure of leases. IFRS 16 replaces IAS 17 and introduces a single lease accounting model and requires a lessee to recognize the assets and liabilities lessors provide relevant information in a way that faithfully represents the transactions. IFRS
IFRIC 22 “Foreign currency transactions and advance consideration”– Published in The Bank’s management evaluated the potential impact of these amendments / new
IAS Amendments to IAS
The Bank’s management evaluated the potential impact of adopting these amendments/new standards and concluded that, to the extent necessary, it will disclose a reconciliation of the initial and final balances in the statement of financial Amendment to IFRS 15, “Revenue from contracts withThese amendments comprise clarifications of the guidance on identifying performance obligations, accounting for licenses of intellectual property and the principal versus agent assessment (gross versus net revenue presentation). New and amended illustrative examples have been added for each of those areas of guidance and additional practical expedients related to transition to the new The Bank’s management is evaluating the Amendments to IFRS 2, “Share based payments.” Published in June 2016. This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that change an
Annual Improvements Cycle 2014-2016. The document covers the following standards:
NOTE 2 FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS, FINANCIAL STATEMENT PRESENTATION AND
The consolidated financial statements of Itaú Corpbanca and subsidiaries as of December 31, In preparing its opening IFRS statement of financial position, the Bank has adjusted the amounts reported previously in financial statements prepared with in accordance with Chilean Banking GAAP. An explanation of how the transition from Chilean Banking GAAP to IFRSs has affected the Bank’s financial position, financial performance and cash flows is set out in the following tables and notes. Itaú Corpbanca’s transition date was January 1, 2015. The Bank prepared its Consolidates Statements of Financial Position under these standards as of that date.
Under Chilean Banking GAAP, the Bank recognizes interest of some credits on a contractual basis. Under IFRS, this situation it is not permitted and interest must be recognized based on the effective interest rate.
Under Chilean Banking GAAP the term for charging off (impairment loss of loans)past-due and late installments on credits and accounts receivable was calculated from the time of their classification in thepast-due portfolio, which represented transactions in arrears for payment of principal and interest by ninety days or more. This method was realized Chilean Banking GAAP quota by quota. Under IAS 39 “Financial Instruments: Recognition and Measurement” an impairment loss of financial asset or group of financial assets is recognized if, and only if, objective evidence of impairment as a result of one or more events that occurred after initial recognition of the asset (a loss event), and that loss (or event) has an impact on the estimated future cash flows of a financial asset or group of financial assets that can be reliably estimated. It may not be possible to identify a single event that caused the impairment. According to this definition the impairment is determined for each loan considering its total amount and no longer quota by quota as under Chilean Banking GAAP. An impairment relating to loan recorded at amortized cost is calculated as the difference between the recorded asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. Individually significant financial assets are individually tested to determine their impairment. All impairments are recorded in the Consolidated Statements of Income. The Bank has classified the effects arising from the application of IFRS for charge-offs of loans and accounts receivable, as well as the associated effect caused in the allowances established for each transaction (when 100% of the transaction wascharged-off, the related allowances were released).
Under Chilean Banking GAAP, the Bank does not recognize income on an accrual basis in the Statement of Income for certain loans included in the impaired portfolio. Under IFRS this situation it is not permitted and interest must be recognized based on the effective interest rate.
Under Chilean Banking GAAP write-offs of loans and accounts receivable are based on due, past due and current installments, and the term begins at the moment of default, i.e. when the default time of an installment or a portion of a loan reaches thewrite-off term established by the SBIF. The term corresponds to the time elapsed since the date on which payment of all or part of the obligation in default became due. Under IFRS, it is not required to establish a charge off date.
Investments in other companies in which the Bank does not exercise significant influence (ownership interest less than 20%) were reclassified and presented asavailable-for-sale financial investment in accordance with IAS 39.
In applying the International Financial Reporting Standards (IFRS) issued by IASB, certain deferred expenses were derecognized and written off to equity as part of the adoption of the new standards. In addition, assets in lieu of payment were reclassified and recognized in accordance with IFRS 5.
Under Chilean Banking GAAP, the Bank recognizes provisions for country risk and allowances related to the undrawn available credit lines and contingence loans in accordance with the local regulations. IFRS only permits to recognized allowances based on the incurred loss model.
Correspond to the deferred tax effects of all difference between Chilean Banking GAAP mentioned above.
Set out below are the applicable mandatory exceptions and certain optional exemptions to the retroactive application of IFRS from Chilean banking GAAP as follows: Mandatory exceptions
Itaú Corpbanca, when adopting IFRS for the first time, will apply the requirements for derecognition of financial assets and financial liabilities prospectively for transactions occurring on or after the date of transition to IFRS.
This exception is not applicable to the Bank because there is not a difference between Chilean Banking GAAP versus IFRS.
This exception is not applicable to the Bank.
Itaú Corpbanca, when adopting IFRS for the first time, will apply the requirements for classification and measurement of financial assets for transactions occurring on or after the date of transition to IFRS, in accordance with IAS 39.
This exception is not applicable to the Bank because there is not a difference between Chilean Banking GAAP versus IFRS.
This exception is not applicable to the Bank. Optional exemptions
The Bank has applied the exemption provided under IFRS 1 for business combinations, and, therefore, did not apply IFRS 3 “Business Combinations” retrospectively to those business combinations that occurred prior to the transition date of January 1, 2015.
The Bank has used the depreciated cost under Chilean Banking GAAP as its deemed cost at the date of transition.
Itaú Corpbanca has elected to use this optional exemption and, consequently, have determined whether an arrangement existing at the date of transition to IFRSs contains a lease on the basis of facts and circumstances existing at that date.
This exemption is not applicable. IAS 39 - with the previously mentioned exceptions - has been applied to the comparative balances included in these financial statements. The remaining voluntary exemptions do not apply to the Group:
The reconciliations below quantify the impact that this transition had in the financial statements of the Bank. The following reconciliations have been prepared:
a. Banco Itaú and CorpBanca completed a business combination on April 1, 2016 (reverse acquisition), which is described in detail in Section 3 “Business Combination of Banco Itaú Chile and CorpBanca” below. b. The Consolidated Financial Statements prepared after the reverse acquisition (from April 1, 2016 forward) are issued under the name of the legal acquirer (the acquired for accounting purposes, or CorpBanca, the merged entity, which will take the name Itaú Corpbanca), but described in these notes as a continuation of the financial statements of the legal acquiree (the acquirer for accounting purposes, or Banco Itaú Chile) for comparative figures from 2015, and for the current period’s comprehensive income for the period and other related items for the months January-March 2016, but for the April-December period those generated by Itaú Corpbanca, with an adjustment that was made retroactively (See Consolidated statements of changes in equity) to the legal capital of the acquirer for accounting purposes that reflects the legal capital of the acquired for accounting purposes. That adjustment is required to reflect the capital of the legal acquirer (the acquired for accounting purposes). c. Since these Consolidated Financial Statements represent the continuation of the financial statements of the legal acquiree (i.e. Banco Itaú Chile and Subsidiaries from January to March 2016 and 2015 for comparative purposes, with the modification to Itaú-Corpbanca from April 1, 2016) except for its capital structure, these Consolidated Financial Statements will reflect: (i) The assets and liabilities of the legal acquiree (the acquirer for accounting purposes, Banco Itaú Chile and Subsidiaries) recognized and measured at their book value prior to the combination. (ii) The assets and liabilities of the legal successor (the acquired for accounting purposes, CorpBanca and Subsidiaries) were recognized and measured in accordance with IFRS 3 under the acquisition method (information included in Section 3 “Business Combination Banco Itaú and Corpbanca”). (iii) Retained earnings and other equity balances of the legal acquiree (the acquirer for accounting purposes, Banco Itaú Chile and Subsidiaries as of March 31, 2016) before the business combination. (iv) The amount recognized as issued equity interests in the consolidated financial statements, determined by adding the equity interests issued by the legal acquiree (the acquirer for accounting purposes, Banco Itaú Chile and Subsidiaries) outstanding immediately before the business combination to the fair value of the legal acquirer (the acquired for accounting purposes, CorpBanca and Subsidiaries). However, the equity structure (i.e. the number and type of equity interests issued) reflects the equity structure of the legal acquirer (the acquired for accounting purposes, CorpBanca and Subsidiaries), including the equity interests that the legal acquirer issued for the purposes of the business combination. Therefore, the equity structure of the legal acquiree (the acquirer for accounting purposes, Banco Itaú Chile and Subsidiaries) were restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal acquirer (the acquired for accounting purposes, CorpBanca and Subsidiaries) issued in the reverse acquisition (information included in Figure 1 below). (v) Thenon-controlling interest’s share of thepre-combination book value of the retained earnings of the legal acquiree (the acquirer for accounting purposes, Banco Itaú Chile and Subsidiaries) and other equity interests (book value). Non-controlling interest In a reverse acquisition, some owners of the legal acquiree (accounting acquirer) may choose not to exchange their equity interests for those of the legal successor (accounting acquire), but this did not occur in this business combination. The assets and liabilities of the legal acquire will be measured and recognized in the Consolidated Financial Statements at their book values prior to the combination. Therefore, in a reverse acquisition, thenon-controlling interest reflects the proportional interest of thenon-controlling shareholders in thepre-combination book values of the net assets of the legal acquire, even when thenon-controlling interests in other acquisitions are measured at their fair values as of the date of acquisition. Earnings per share The capital structure of the Consolidated Financial Statements prepared after the reverse acquisition (from April 1, 2016 forward), will reflect the capital structure of the legal acquirer (accounting acquired, or CorpBanca and Subsidiaries, but the merged entity will take the name Itaú CorpBanca), including the equity interests issued by the legal acquirer in order to complete the business combination. In order to calculate the average weighted number of outstanding common shares (the denominator in the calculation of earnings per share) for the period in which the reverse acquisition has occurred: a. the number of outstanding common shares from the beginning of that period until the date of acquisition (i.e. January 1 to March 31, 2016) must be calculated on the basis of the average weighted number of outstanding common shares of the legal acquired (accounting acquirer, Banco Itaú and Subsidiaries) during the period multiplied by the exchange ratio established in the merger agreement; and b. the number of outstanding common shares from the date of acquisition until the end of that period (i.e. April 1 to December 31, 2016) must be the real number of common shares that the legal acquirer (accounting acquired, CorpBanca and Subsidiaries, but the merged entity will take the name Itaú Corpbanca) has had outstanding during that period. Basic earnings per share for each comparative year prior to the date of the acquisition presented in the consolidated financial statements after a reverse acquisition must be calculated by dividing: a. the profit of the legal acquiree (Banco Itaú Chile and Subsidiaries) attributable to the common shareholders in each of those periods by b. the historical weighted average of the number of common shares outstanding of the legal acquiree multiplied by the exchange ratio established in the acquisition agreement. The results of these transactions are as follows: Figure 1: Calculation of Earnings per Share – Restated
The scope of each section is briefly presented below: Introduction and relevant background. Overall, the main points discussed in the business combination between banks are summarized. General aspects of the operation.The main facts are presented in chronological form, from its origin, subsequent compliance and progress until the merger. Description of the acquiree accounting. The main qualitative and quantitative points are presented regarding CorpBanca and Subsidiaries. Main reasons for purchase. It groups the main reasons for the transaction between the banks. Relevant accounting aspects. An accounting analysis of the operations carried out in the business combination is included from an international accounting standard perspective. Detail of assets acquired and liabilities assumed. Section for the qualitative and quantitative evaluation of the net assets acquired from CorpBanca and Subsidiaries, in accordance with the corresponding international accounting standards. Reconciliation of book value of goodwill. There are events related to goodwill generated. The information to be discussed below is intended to inform about the business combination between CorpBanca and Banco Itaú Chile (Itaú) that took place on April 1, 2016. 3.1 Introduction and relevant background Itaú and CorpBanca contributed their banking business in Chile and Colombia to create an Andean banking platform. CorpBanca shareholders until March 31, 2016 owned 66.42% of the resulting bank (Itaú-Corpbanca) from the merger between CorpBanca and Itaú Chile, while Itaú is own the remaining 33.58%. Prior to the merger, Itaú Unibanco injected US$652 million into Itaú Chile (See Note 22 “Equity”). On January 29, 2014, Itaú Unibanco (Brazil), Banco Itaú (Chile), CorpBanca (Chile) and CorpGroup (Chile) established an agreement, which mainly involves: The merger of CorpBanca and Banco Itaú (Chile), merger by incorporation of the latter into the former, which will be renamed “Itaú Corpbanca”. Itaú Unibanco will control Itaú Corpbanca. Itaú Unibanco and CorpGroup will sign a shareholders’ agreement. Itaú Corpbanca will control the Colombian entities of CorpBanca and Itaú Unibanco. CorpBanca will be the legal entity. On June 26 and 30, 2015, CorpBanca and Banco Itaú (Chile) approved the proposed merger at Extraordinary Shareholders’ Meetings and agreed to amend the aforementioned agreement, which implies: Additional dividend for current CorpBanca shareholders. Reduction of dividends at Banco Itaú (Chile). New dividend policy for the fiscal year 2015. Extension of the term for the purchase of the Corp Group’s stake in CorpBanca Colombia. The proposed merger will take effect on a date not earlier than January 1, 2016 or after May 2, 2016. On April 1, 2016, the merger by incorporation of Banco Itaú Chile into CorpBanca took place, becoming the corporate name of the merged Bank “Itaú Corpbanca” which became the legal successor of Banco Itaú Chile.
The shareholders of the legal acquiree will receive in exchange 80,240.28252 shares of the merged bank (Itaú-Corpbanca) for each share of the Banco Itaú Chile that is registered in the Shareholders’ Registry of the latter at midnight on March 31, 2016. Due to the above, as of April 1, 2016, Itaú-Corpbanca’s control is acquired by Itaú Unibanco Holding S.A. IFRS 3 “Business Combinations” requires the identification of the acquirer through the concept of control, as established by IFRS 10 “Consolidated Financial Statements,” in order to evaluate in summary the following: Power over the investee (direct relevant activities). Exposure, or right, to variable returns arising from their involvement in the investee. Ability to use its power over the investee to influence the amount of investor returns. In addition, since this transaction is an reverse acquisition, CorpBanca must maintain control of the tax amounts, pursuant to Article No. 64 of the Tax Code and Circular No. 45 issued by the Internal Revenue Service on July 16, 2001. According to the above, among the conclusive aspects of analysis, we have the following: Legally, CorpBanca will absorb Banco Itaú (Chile) through the issuance of shares. Existence of Shareholders Agreement between Itaú and CorpGroup. There is no joint control, since CorpGroup only has protection type rights. Although CorpBanca is larger in size than Banco Itaú (Chile), CorpBanca issued capital on the basis of the Shareholders’ Agreement between Itaú and CorpGroup, therefore Itaú (as a group) acquired a greater number of voting shares. Of the Directors who may be elected by the shareholders agreement of CorpGroup and Itaú-Unibanco, the majority of which will be proposed by Itaú-Unibanco according to its shareholding and the remaining Directors by CorpGroup. Itaú Unibanco will appoint an absolute majority of members for each of the management committees, which direct the respective relevant activities of Itaú Corpbanca. The above points are consistent with the commercial purpose of this transaction, which is from CorpBanca’s point of view to partner with a leading institution in the region and, from Itaú’s point of view, to extend and deepen its banking business in Chile and Colombia.
3.2 Introduction and relevant background On January 29, 2014, CorpBanca entered into an agreement with Inversiones Corp Group Interhold Limited, Inversiones Saga Limitada (these last two, together “CorpGroup”), Itaú-Unibanco Holding, S.A. (“Itaú-Unibanco”) and Banco Itaú Chile, an English-language contract called “Transaction Agreement”12 (hereinafter referred to as “TA”), under which the parties agreed to a strategic association of their operations in Chile and Colombia, subject to authorization from the corresponding regulators and the shareholders of CorpBanca and Banco Itaú Chile, as indicated below. This strategic partnership was structured through the merger of CorpBanca and Banco Itaú Chile, in accordance with the TA mentioned above, contemplated the following: a. Previous Events. CorpGroup disposed of CorpBanca shares that it owns, directly or indirectly, equivalent to 1.53% of the capital stock13 of said Bank and Banco Itaú Chile increased its capital in the amount of US$652 million, through the issuance of payment shares that were Subscribed and paid in full by a company directly or indirectly owned by Itaú-Unibanco. b. Merger. The merger between the two entities was approved by the Extraordinary Shareholders’ Meetings of CorpBanca and Banco Itaú Chile, absorbing CorpBanca to Banco Itaú Chile, which was named “Itaú-CorpBanca”. A total of 172,048,565,857 shares of CorpBanca were issued, representing at the date of the merger 33.58% of the merged bank’s share capital, which were distributed among the shareholders of Banco Itaú Chile, maintaining the current shareholders of CorpBanca 66.71 % of the capital stock of the merged Bank. In this way, the number of shares in which the merged bank’s share capital was divided went from 340,358,194,234 to 512,406,760,091 shares, which were fully subscribed and paid. c. Control. As a result of the merger, Itaú-Unibanco was incorporated as a shareholder of CorpBanca and, due to the effect of the share exchange ratio applicable to said merger, acquired control of the merged bank, pursuant to Articles 97 and 99 of Law No. 18,045 In the event of a significant interest in its ownership (at the date of merger), of 33.13% of the share capital, with 33.29% remaining market. d. Colombia14. In order to strengthen and consolidate operations in Colombia, the acquisition of the shares of Banco Corpbanca Colombia owned by CorpGroup (currently 12.36%), as well as acquisition of assets and liabilities of Itaú Colombia, is contemplated. e. Course of Business. Due to the time between the signing of the TA and the materialization of the merger, the parties agreed that both CorpBanca and Banco Itaú Chile complied with certain restrictions during that period, which consisted essentially of continuing with the ordinary course of their business in a way substantially similar to how they have been conducting business up to this point.
f. Pact of Shareholders. The TA also contemplated that at the close of the transaction in Chile, CorpGroup and Itaú-Unibanco will enter into a shareholders’ agreement regulating certain matters regarding the exercise of their voting rights in Itaú-Corpbanca and matters related to the transfer of their shares: It was established that the Board of Directors of the merged Bank be composed of 11 regular members and 2 alternate members. Of the Directors who may be elected by the shareholders agreement of CorpGroup and Itaú-Unibanco, the majority of them will be proposed by Itaú-Unibanco, according to its shareholdings and the remaining Directors by CorpGroup. The Chairman of the Board was proposed by CorpGroup and the General Manager by Itaú-Unibanco. In the committees composed of Directors, most of these were proposed by Itaú-Unibanco, according to their shareholding. Also, subject to current regulations, CorpGroup committed to exercise its voting rights in a manner in line with Itaú-Unibanco. On the other hand, CorpGroup will grant to Itaú-Unibanco a pledge on 16% of the merged Bank’s shares, in guarantee of the obligations assumed under the shareholders agreement, keeping CorpGroup exercising its voting and economic rights emanating from the shares pledged. The intention of the parties was that the merged Bank distribute all the available profits of each year, after insuring certain adequate levels of capital, so that Itaú-Corpbanca can comfortably comply with regulatory requirements and best practices of the industry. CorpGroup and Itaú-Unibanco also imposed certainnon-compete obligations with the merged Bank. Finally, in relation to the transfer of shares, a right of first offer, a right to join the sale to a third party and the obligation to join the sale to a third party were established. A sale and purchase right of 6.6% of the merged Bank’s shares was also established in favor of CorpGroup as a liquidity mechanism in the short term and a right to sell as an alternative to merged Bank. In both cases, the price will be the market, without premium, and will be privileged, as the first option, sales in the market through the Santiago Stock Exchange. The closing of the transaction contemplated in the TA was subject both to the obtaining of the pertinent regulatory authorizations and to the approval of the merger by the shareholders of CorpBanca and Banco Itaú Chile in the respective Extraordinary Meetings that will be cited to pronounce on it. The main events of approvals and / or modifications are presented below:
According to the law in force in Chile, the SBIF authorization was issued once the Extraordinary Shareholders’ Meetings of CorpBanca and Banco Itaú Chile approved the merger. On this point, said Superintendency informed that by resolution No. 409 dated September 4, 2015, approval of the merger was analyzed in the following terms: The merger of CorpBanca and Banco Itaú Chile will take place through the incorporation of the second to the first one, which, through the merger, will acquire all the assets, rights, authorizations, permits, liabilities and liabilities of the absorbed bank, becoming CorpBanca its legal successor. The merger will not take place before January 1, 2016 or after May 2, 2016 and its exact date must be determined by the boards of both banks. The resulting Bank shall maintain a percentage of not less than 10% between effective equity and risk-weighted assets. As a result of the merger, Itaú Unibanco will acquire control of the merged bank, in accordance with Articles 97 and 99 of Law No. 18,045, on Stock Market. Reforms introduced to the CorpBanca status were approved, whose corporate name will be Itaú Corpbanca, which will be valid from the date of the merger. The modifications are as follows: The capital stock increased by MCh$1,862,826 representing 512,406,760,091 shares. The Bank’s name was changed to Itaú Corpbanca and it can do business as “Banco Itaú” or “Itaú”. The number of board members increased from 9 to 11, with the number of substitutes remaining at 2. The new text of theby-laws of the merged Bank that incorporates the aforementioned amendments was approved. With the aforementioned resolution of the SBIF, the necessary authorizations of the regulators of Chile, Colombia, Panama and Brazil are completed so that the merger materializes in the indicated terms. 3.3 Description of Accounting Acquiree: CorpBanca Chile Public limited company organized under the laws of the Republic of Chile and supervised by the SBIF. Its purpose is to execute and celebrate all those acts, contracts, operations or business that the General Banking Lawpermits without prejudice to extend or restrict its sphere of action in accordance with the legal provisions that may be enacted in the future, without it being necessary to modify its statutes. This base ranges from natural persons to large corporations. Since 2004, it is subject to the supervision of the Securities and Exchange Commission of the United States of America “SEC,” in consideration of the fact that the Bank is registered on the New York Stock Exchange (NYSE), through an American Depository Shares program (“ADS”). The entity is the oldest private bank operating in Chile, founded in 1871. Headquartered in Chile, it also operates in Colombia and Panama. It also has a branch in New York and a representative office in Madrid. At the date of the business combination, its total consolidated assets amounted to MCh$21,064,559 and its equity amounted to MCh$1,455,948. Focused on large andmedium-sized companies and individuals, CorpBanca offers universal bank products, its remarkable performance in the last 20 years has allowed it to become the fourth largest private bank in Chile. In 2012, it began its regionalization process with the acquisition of two banks in Colombia (Banco CorpBanca Colombia and Helm Bank), becoming the first Chilean bank to have banking subsidiaries outside the country. In February 2016, according to SBIF, it was the fourth largest private bank in Chile in terms of loans, reaching a market share of 7.1%. In January 2016, according to SFC, CorpBanca Colombia was the sixth largest Bank in Colombia in terms of assets, total placements and total deposits, as reported under local accounting and regulatory principles. At the same date, the market share of loans reached 6.1%. The acquired entity and its subsidiaries offer commercial and consumer banking services, in addition to other services, including factoring, collection, leasing, insurance and securities brokerage, mutual funds and investment fund management and related operations, in addition to a direct operation in Colombia. Subsidiaries and / or branches in Chile and abroad as of April 1, 2016 is briefly summarized below: a. Operations in Chile CorpBanca Corredores de Bolsa S.A. Its corporate purpose is to engage primarily in securities brokerage operations. CorpBanca Administradora General de Fondos S.A. Its sole purpose is the management of third party resources, in the form of mutual funds, private investment funds and individual portfolios of third parties, mainly. CorpBanca Asesorías Financieras S.A.Its purpose is the provision of advisory services complementary to the bank draft. CorpBanca Corredores de Seguros S.A. The object of which is the remunerated intermediation of general and life insurance contracts, with the sole exception of pension insurance, with any national insurer, based in the country, and the provision of advisory and consultancy services in the field of insurance and investment in movable and immovable property. CorpLegal S.A. Its purpose is to provide all kinds of legal professional advice to the Bank, its Subsidiaries and / or its clients, on the occasion of operations that are granted to them. SMU Corp S.A. Its purpose is the issuance, operation and administration of credit cards that will be used for the granting of credits to Unimarc Supermarket customers in its own supermarkets. Recaudaciones y Cobranzas S.A. Its main purpose is the provision of services for preliminary collection, judicial and extrajudicial collection of all kinds of credits, titles or documents, for own or third parties, subscription of payment agreements and management ofpre-emptive portfolio. b. Operations Outside Chile CorpBanca Branch of New York. Branch that has a banking license issued by the New York State authorities, focused on commercial banking, focusing on the provision of banking services in that city and country for its parent customers, as well as granting of working capital and financing to corporate companies in Latin America. CorpBanca Securities Inc. Broker-dealer (based in New York) whose objective is to improve the offer of value for the clients of both the Bank and its subsidiaries. Banco CorpBanca Colombia S.A.With its principal place of business in Bogotá (Colombia), its corporate purpose is to raise funds in current account, other deposits at sight and at term, with the main purpose of performing active credit operations, also executing acts and operations authorized to banking establishments. Helm Comisionista de Bolsa S.A. Helm carries out investment banking and brokerage activities, with main domicile in Bogotá (Colombia). CorpBanca Investment Trust Colombia S.A. Headquartered in Bogotá (Colombia), with a corporate purpose to develop activities through investment trusts, administration, guarantees and real estate. Helm Fiduciaria S.A. Financial services company whose corporate purpose is to carry out authorized fiduciary business in Colombia. Helm Corredor de Seguros S.A. Entity with operations in the Colombian insurance market, focused on the structuring and management of insurance programs. Helm Bank Panamá S.A. Entity domiciled in Panama, with an international license issued in that country to carry out banking business abroad. Helm Casa de Valores S.A. Entity domiciled in Panama authorized to execute operations related to stock brokerage and related activities. 3.4 Main reasons for purchase Consolidate the fourth largest private Chile bank by total lending. Complementary segments, products and business lines. Strong capital bases and a better financing profile. Potential to generate relevant synergies. Strong framework to reach a more relevant position in the Colombian market. The merged bank in Chile will become the regional expansion platform for both groups, with the exception of Brazil and Mexico. 3.5 Relevant Accounting Aspects The following are the main terms established in the transaction agreement (TA) and complementary facts, in which the aforementioned strategic business combination was established, through the following points (mainly focused on accounting issues): a. Capital increases by Itaú Chile16 (US$100 million and US$552 million). b. The merger of Itaú Chile with and into CorpBanca, with the latter as legal survivor.
c. Following the approval or refusal of the merger of CorpBanca Colombia-Helm17 by the Financial Superintendence of Colombia (SFC), either the acquisition of Itaú Colombia by CorpBanca or the merger of Itaú Colombia with and into CorpBanca Colombia, with CorpBanca Colombia as a company Survivor, and d. The purchase by Itaú Corpbanca of all shares of Banco Corpbanca Colombia owned by CorpGroup (currently 12.36% of that bank’s shares), was agreed to take place on January 28, 2022, subject to the necessary regulatory approvals. Taking the above points as a basis for analysis, it is necessary to determine which is part of the business combination transaction, being necessary to evaluate relevant issues such as the following: The acquirer (Banco Itaú) and the acquiree (CorpBanca Chile) may have In either situation, Banco Itaú had to identify all the amounts that were not part of what the acquirer and the acquiree (or their previous owners) exchanged in a. Relevant points about Chile In accordance with IFRS 3, a reverse acquisition occurs when the entity that issues securities (the legal acquirer, CorpBanca) is identified as the acquiree for accounting purposes and the legal acquirer must be identified as the acquirer for accounting purposes (Banco Itaú), is presented
At the acquisition date, the acquirer recognized, separately from the goodwill, the identifiable assets acquired, the liabilities assumed and anynon-controlling interests in the acquire. CorpBanca merged with Banco Itaú (Chile) in a reverse acquisition mode, which means that the shareholders of the latter entity will take control of “Itaú Corpbanca”, being CorpBanca the legal successor. Therefore, the assets and liabilities of Banco Itaú (Chile) were incorporated at their carrying amount (book value) while the assets and liabilities of CorpBanca were recorded at market or accounting value, as
appropriate based on applicable accounting standards. The following table shows the book values of both banks before the business combination:
CorpBanca issued new shares in exchange for all assets and liabilities of Banco Itaú (Chile), which were delivered to Itaú Unibanco. Due to the above, a capital increase was approved in CorpBanca through the issuance of 172,048,565,857 shares, which were delivered to the shareholders of Banco Itaú (Chile) in exchange for the Prior to this, Itaú Unibanco injected MUS$652 of capital into Banco Itaú. In relation to the above, the exchange ratio for the net assets of Banco Itaú (Chile) implied the following ownership structure after the merger: Itaú Unibanco: 33.58% (majority shareholder), CorpGroup: 33.13% and minority shareholders: 33.29%. From an accounting perspective, the transaction described above is considered a reverse acquisition under IFRS 3 “Business Combination.” b. Relevant points about Colombia19 The purchase by Itaú Corpbanca of all the shares of Banco Corpbanca Colombia owned by CorpGroup (which currently represents 12.36% of the shares of said bank), agreed to postpone January 28, 2022, Subject to obtaining the necessary regulatory approvals. Acquisition by Itaú Colombia of the obligation of the parties to cause Banco Corpbanca Colombia to acquire the assets and liabilities of Itaú Colombia in accordance with the terms and conditions agreed between Banco Corpbanca Colombia and Itaú Colombia dated November 1, 2016 (The “Acquisition in Colombia”). This acquisition in Colombia will be made as soon as practicable and once it is approved by the Colombian Financial Superintendence (“SFC”).
Accordingly, the offer to purchase these shares is considered a separate transaction from the business combination between Banco Itaú and CorpBanca, and is recorded in the financial statements, as appropriate, as established by IFRS 10.
3.6 Detail of assets acquired and liabilities assumed The fair value of identifiable assets and liabilities of CorpBanca at
Important considerations in relation to the acquisition: 3.6.1 The measurement process has concluded and the fair values presented herein are definitive, having the following considerations: a. Banco Itaú Chile acquires 33.58% of the shares of CorpBanca, whose majority shareholder is Corp Group Interhold Limitada, for a total of MCh$1,970,674. The transaction was carried out through a capital increase by Itaú Chile, followed by the merger of Itaú Chile and CorpBanca. In determining the consideration transferred (price paid), one must take into account that the transaction is a reverse acquisition where the price is determined based on an exchange ratio where the stock of one of the banks is listed (CorpBanca), and the other is not (Itaú Chile). IFRS state that the “most reliable” measure should be used to determine the consideration transferred. In this case there was a reliable and significant market value of one of the parties to the transaction, reaching a total of MCh$2,218,541 at the valuation date. b. If the initial accounting of a business combination is incomplete at the end of the accounting period in which the combination occurs, the Bank and its affiliates will report in their financial statements the provisional amounts of items whose accounting is incomplete. During the measurement period, Itaú Corpbanca will retroactively adjust the provisional amounts recognized at the acquisition date to reflect the new information obtained on facts and circumstances that existed at the date of acquisition and that, had they been known, would have affected the amounts recognized at that date. During the measurement period the acquirer will also recognize additional assets or liabilities if it obtains new information on facts and circumstances that existed at the date of acquisition and that, had they been known, would have resulted in the recognition of those assets and liabilities at that date. The measurement period will end as soon as Itaú Corpbanca and its subsidiaries receive the information they are looking for regarding facts and circumstances that existed at the date of acquisition or conclude that no further information can be obtained. However, the measurement period shall not exceed one year from the date of acquisition, as described above. The business combination analyzed is complete in the current accounting period. c. This business combination was accounted for using the acquisition method at the date of purchase, the date on which control is transferred to Banco Itaú Chile. Control is obtained when you the investor is exposed, or is entitled, to variable returns from its involvement with the investee and has the ability to influence those returns through its power over it. Potential voting rights that were currently enforceable or convertible were considered when assessing control. Itaú Unibanco has substantive rights such as the following: Right to vote proportional to the participation in the Companies. Rights to appoint or remove key members of the management of the investees that have the ability to direct the relevant activities. The right to appoint or terminate the investees to direct the relevant activities. Right to direct the activities of subordinates for the benefit of the Bank. d. Banco Itaú Chile valued goodwill as of the acquisition date, taking into account the following factors: Fair value of the consideration transferred; The recognized amount of anynon-controlling interest in the acquiree, plus If the business combination is performed in stages, the fair value of the existing holdings in the assets of the acquiree; Less the net recognized amount (generally fair value) of identifiable acquired assets and identifiable assumed liabilities. e. In relation to the previous point, when the excess is negative, a gain on sale under advantageous conditions is recognized immediately in the result (this was not the case for this combination). f. The fair value of intangible assets and their respective deferred taxes (mainly core deposit of MCh$240,463, relating to customers of (MCh$96,390), brands and other (MCh$51,448)) have been definitively determined, reaching a balance of MCh$388,301. See more detail in Note 12 “Intangible Assets.” g. At the acquisition date, a contingent liability was determined at a fair value of MCh$8,031 as a result of legal contingencies, with its outflows of resources estimated to be approximately two fiscal years and no related reimbursements are contemplated at the date of assessment. At the closing date of the reporting period, this contingent liability was reassessed and no changes were determined. h. The fair value of loans and receivables (both to customers and banks) amounted to MCh$14,412,154 at the acquisition date. i. The goodwill of MCh$1,144,338 recognized at the acquisition date is attributed to the expected synergies and other benefits arising from the combination of the assets and activities of CorpBanca and its subsidiaries in conjunction with Itaú and its subsidiaries. The goodwill is not expected to be deductible for income tax purposes. j. Deferred tax assets and / or liabilities arising from assets acquired and liabilities assumed, in accordance with IAS 12 “Income Tax,” will be recognized. The potential tax effects of the temporary differences and of the tax offsets of the acquired companies that existed at the date of acquisition will be accounted for. k. Itaú Corpbanca has chosen to measure thenon-controlling interest in the acquiree in relation to thenon-controlling interest proportionate share based on the recognized amounts of the net identifiable assets of the acquiree. 3.6.2 In relation to the results generated by the accounting acquire, we have the following: a. The amounts of revenue from ordinary activities and results of CorpBanca from the date of acquisition, together with Banco Itaú, form part of Itaú Corpbanca’s Consolidated Statement of Comprehensive Income for the reporting period21. b. From the acquisition date, the entity contributed MCh$568,109 to net interest income, MCh$135,729 to net fee income, MCh$545,991 to net operating income and MCh$(23,938) to income before income taxes. If the combination had occurred at the beginning of the year (January 1, 2016), net interest income and readjustments would have been MCh$756,204, net fee income would have been MCh$179,756, net operating income would have been MCh$664,034, and the result of the period before income tax would have been MCh$(81,146). In determining these amounts, management has assumed that the fair value adjustments originated at the date of acquisition would have been the same had the acquisition occurred on January 1, 2016. 3.6.3 Acquisition-related transaction costs, mainly external legal fees and due diligence costs, are charged to administrative expenses in the Consolidated Statements of Income and are part of the cash flows from operations in the Consolidated Statements of Cash Flows, this amount amounted to MCh$37,480. 3.6.4 The total consideration transferred for the operation entailed the issuance of 172,048,565,857 shares that were delivered by Itaú shareholders equivalent to 33.58% of the total shares of the merged Bank. 3.6.5 There are no contingent consideration agreements in the purchase transaction. 3.6.6 Goodwill arising from the acquisition of a foreign business and related fair value adjustments of assets acquired and liabilities assumed must be treated as assets and liabilities of the foreign business. This means that they will be expressed in the same functional currency of the aforementioned business, and that they will be translated at the closing exchange rate. 3.7 Reconciliation of the Carrying Amount of Goodwill. Goodwill is tested annually to determine whether impairment exists (as of December 31, of each year), and when circumstances indicate that its carrying amount may be impaired. The impairment is determined by evaluating the recoverable amount of eachcash-generating unit (or group of cash-generating units) to which goodwill is allocated. Where the recoverable amount of the cash generating unit (CGU) is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
The following table reconciles the carrying amount of goodwill at the end of the period:
As of December 31,
ITAÚ CORPBANCA
a. Merger22 Completion and Change of Control. On April 1, 2016, the merger by incorporation of Banco Itaú Chile and CorpBanca took place. The merged bank’s new legal name is“Itaú Corpbanca”, which is the legal successor of Banco Itaú Chile, which was dissolved from that date. Change of Control. For the purposes of completing the merger, Itaú Corpbanca issued 172,048,565,857 new shares, which correspond to 33.58% of its share capital. These shares were distributed on this date to shareholders of Banco Itaú Chile in exchange for their own shares. By virtue of the merger, and in accordance with articles 97 and 99 of the Securities Market Law, starting from this date, the control of Itaú Corpbanca is achieved by Itaú Unibanco Holding S.A. b. Election of Full Board of Directors At an extraordinary shareholders’ meeting of Itaú Corpbanca held on April 11, 2016, the shareholders elected the following individuals (11 directors and 2 alternates, number established in Itaú Corpbanca’s bylaws): Directors: Jorge Andres Saieh Guzman Ricardo Villela Marino Jorge Selume Zaror Fernando Aguad Dagach Gustavo Arriagada Morales Candido Botelho Bracher Boris Buvinic Guerovich Boris Nicolás Abovic Wiegand Héctor Valdés Ruiz Fernando Concha Ureta Joao Lucas Duchene Alternate Directors: José Luis Mardones Santander Camilo Morales Riquelme The directors Gustavo Arriagada Morales, Héctor Valdés Ruiz, Fernando Concha Ureta and Joao Lucas Duchene were appointed as independent directors, in conformity with article 50 Bis of Law 18,046. Jose Luis Mardones Santander was appointed as an independent alternate director.
c. Modifications to the Board At an extraordinary board meeting held on April 14, 2016, the following individuals were elected chairman and vice chairman of the Board: Chairman: Jorge Andres Saieh Guzman Vice Chairman: Ricardo Villela Marino At an ordinary board meeting held on September 27, 2016, the Board accepted the resignation of the independent director Héctor Valdés Ruiz effective August 31, 2016, and appointed Pedro Samhan Escandar in his place until the next ordinary general shareholders’ meeting. At an ordinary board meeting held on November 15, 2016, the Board accepted the resignation of Candido Bracher and appointed Eduardo Vassimon in his place until the next ordinary general shareholders’ meeting. d. Acquisition of Shares by Controller On October 26, 2016, Itaú Unibanco Holding S.A. (“Itaú Unibanco through its subsidiary ITB Holding Brasil Participações Ltda., indirectly acquired 10,908,002,836 shares of Itaú Corpbanca, at a price of MCh$60,040. This transaction was executed as contained in the Itaú Corpbanca shareholder agreement signed between Itaú Unibanco and Corp Group and related parties. As a result of this acquisition, Itaú Unibanco’s ownership interest has increased from approximately 33.58% to approximately 35.71% (the interest held by CorpGroup and its related parties was reduced from 33.13% to approximately 31.00%), with no modifications to the Bank’s corporate governance. e. Amendments to Transaction Agreement In an ordinary meeting of the Board of Directors’ committee of Itaú Corpbanca on December 19, 2016, and an ordinary meeting of the Board of Itaú Corpbanca on December 20, 2016, the following amendments to the Transaction Agreement were approved:
It is informed that the Colombian Acquisition was already approved by the shareholders of Corpbanca Colombia.
Once the abovementioned registry and listing have been obtained, CorpGroup will be permitted to sell all of its shares, or a portion thereof, of Banco Corpbanca Colombia in the CSM, subject to a right of first offer granted to Itaú Corpbanca. The shares sold by CorpGroup in the CSM will be deducted from the shares that Itaú Corpbanca must acquire from CorpGroup on January 28, 2022. These amendments are disclosed in more detail in Note 37 “Subsequent Events,” in the section Itaú Corpbanca letter a). f. Lawsuit Brought by Helm LLC against Itaú Corpbanca On December 20, 2016, Helm LLC filed a lawsuit in the New York State Supreme Court (“the State Court Lawsuit”) and a Request for Arbitration before the ICC International Arbitration Court (the “Arbitration”), against Itaú Corpbanca, alleging certain breaches of contract. These alleged breaches refer to (i) the amended shareholder agreement of HB Acquisition S.A.S. dated July 31, 2013 (“SHA”) and (ii) the Transaction Agreement (“TA”) dated January 29, 2014, as amended, which governs, among other matters, the merger between Itaú Chile S.A. and Corpbanca, by which Itaú Corpbanca was formed, and the potential acquisition by Itaú Corpbanca of certain shares of Corpbanca Colombia (the “Acquisition of the Shares under the TA”) on or before January 29, 2017. In the State Court Lawsuit, Helm LLC sought an injunction to support the arbitration to prevent the Acquisition of the Shares from taking place, which, as reported by Itaú Corpbanca as a relevant event on December 20, 2016, was postponed until January 28, 2022. On December 30, 2016, Itaú Corpbanca filed its response to the motions filed by Helm LLC in accordance with the State Court Lawsuit and, later, on January 26, 2017, Helm LLC filed a notice to withdraw the State Court Lawsuit. The Arbitration has begun in accordance with applicable procedures. Itaú Corpbanca and Corpbanca Colombia (the latter as nominal defendant) filed their respective responses to the arbitration suit on February g. Fine for Exceeding Credit Margins Via Ruling No. 16,191 dated December 30, 2015, the
CORPBANCA ADMINISTRADORA GENERAL DE FONDOS S.A. a. Distribution of Dividends. At the thirty-first ordinary general shareholders’ meeting b. Merger Approval from SBIF. On June 28, 2016, the SBIF authorized the merger request of the subsidiaries described in letter c) below. c. Merger Approval. At an extraordinary shareholders’ meeting held June 30, 2016, the shareholders approved the merger of Itaú Chile Administradora General de Fondos S.A. (absorbed company) and Corpbanca Administradora General de Fondos S.A. (absorbing company). The merger is required to take place before November 1, 2016, nor after October 31, 2017. Furthermore, modifications to and the amended text of the company’s bylaws were approved and will take effect from the date of the merger. ITAÚ CHILE ADMINISTRADORA GENERAL DE FONDOS S.A. a. Distribution of Dividends. At an ordinary shareholders’ meeting held April 29, 2016, the shareholders approved a dividend distribution of b. Merger Approval from SBIF. On c. Merger Approval. At an extraordinary shareholders’ meeting CORPBANCA CORREDORES DE BOLSA S.A. a. Merger Approval and Completion On June 28, 2016, the Superintendency of Banks and Financial Institutions authorized the merger request from the subsidiaries Itaú BBA Corredor de Bolsa Limitada (absorbed company) and Corpbanca Corredores de Bolsa S.A. (absorbing company). At an extraordinary shareholders’ meeting held June 30, 2016, the shareholders approved the merger of Itaú BBA Corredor de Bolsa Limitada (absorbed company) and Corpbanca Corredores de Bolsa S.A. (absorbing company). The merger shall not take place before June 30, 2016, nor after June 30, 2017. On December 20, 2016, it is reported that the date of the merger with Itaú BBA Corredores de Bolsa Limitada will be January 1, 2017. On this date, Itaú BBA Corredores de Bolsa Limitada will be absorbed by Corpbanca Corredores de Bolsa S.A., which will be the legal successor and from that day forward be called Itaú Corpbanca Corredores de Bolsa S.A. It may also do business as “Itaú Corredores de Bolsa S.A.” ITAÚ BBA CORREDOR DE BOLSA LTDA. a. Merger Approval and Completion On June 28, 2016, the SBIF authorized the merger request of the subsidiaries described in the following paragraph. In a public instrument dated June 30, 2016, the merger of Itaú BBA Corredor de Bolsa Limitada (absorbed company) and Corpbanca Corredores de Bolsa S.A. (absorbing company) was approved. The merger shall not take place before June 30, 2016, nor after June 30, 2017. On December 20, 2016, it is reported that the date of the merger with Itaú BBA Corredores de Bolsa Limitada will be January 1, 2017. On this date, Itaú BBA Corredores de Bolsa Limitada will be absorbed by Corpbanca Corredores de Bolsa S.A., which will be the legal successor and from that day forward be called Itaú Corpbanca Corredores de Bolsa S.A. It may also do business as “Itaú Corredores de Bolsa S.A.”
BANCO CORPBANCA COLOMBIA S.A.
a. Profit Distribution In March 2016, shareholders of Banco CorpBanca Colombia met and agreed to distribute profits by increasing the legal reserve by MCOP$319,241 (MCh$72,212), which did not involve distributing dividends. b. Investments On May 31, 2016, the sale of 100% of thenon-majority interest in CIFIN S.A. was completed at a price of COP$626,655.19 (Ch$139,806.77) per share. c. Revocation of Contract At a shareholders’ meeting on July 29, 2016, the shareholders approved the revocation of the contract entitled: “Transfer of Agreement for Sublicense of Software and Other Services” for MCh$18,845 signed with Itaú Corpbanca. d. Bond Issuance
e. Transfer of Assets and Liabilities On December 21, 2016, at a general shareholders’ meeting,
The segment The reportable segments and the criteria used to a) Segments According to the
The Bank’s business activities The Bank manages these business areas using a reporting system for internal profitability. The operating
The Bank did not enter into transactions with a particular customer or third party that exceed 10% of its total income in
Commercial Banking
The Corporate Banking consists of companies that belong to major economic groups, specific industries and companies with sales greater than US$100 million, including international business and the representative office in Spain. The Real Estate and Construction works with companies within these industries that operate in both Santiago and other areas of Chile.
The Large Companies includes a wide range of financial products and services for companies with annual sales of between US$3 million and US$100 million. The leasing and factoring departments have been included in this segment. Retail Banking
Traditional Banking (composed of natural persons) and Preferential Banking (composed of Small andMedium-size companies with sales under US$3 million) serve medium- to high-income customers, offering current accounts, consumer loans, credit cards and mortgage loans, among other products. The Banco Condell Consumer Banking Division offers consumer loans to individuals with income up to ThCh$600 (this group arose from the combination of Banco Itaú and CorpBanca).
Treasury and International
Mainly includes treasury activities such as financial management, financing and liquidity as well as international business activities. Other Financial Services These are services provided by our subsidiaries that include insurance brokerage, financial advisory services, asset management and securities brokerage. The integration process derived from the business combination with former Corpbanca is still ongoing. As such, at December 31, 2016 and 2015, there was no discrete financial information available to measure performance through the commercial areas.
The commercial activities of this segment are carried out by Banco CorpBanca Colombia S.A. and its subsidiaries.
b) Geographical information The segments reported by Itaú Corpbanca, reveals revenue from ordinary activities from external clients:
When revenue from external customers attributed to a particular foreign country is significant, it is disclosed separately.
Segment information on assets and
ASSETS Cash and deposits in banks Cash in the process of collection Trading portfolio financial assets Investments under agreements to resell Derivative financial instruments Loans and receivables from banks - Loans and receivables from customers , net Financial investmentsavailable-for-sale Held to maturity investments Intangible assets Property, plant and equipment, net Current income taxes Deferred income taxes Other assets Non-current assets held for sale LIABILITIES Current accounts and demand deposits Transaction in the course of payment Obligations under repurchase agreements Time deposits and saving accounts Derivative financial instruments Borrowings from financial institutions Debt issued Other financial obligations Current income tax provision Deferred income taxes Provisions Other liabilities Liabilities directly associated withnon-current assets held for sale ASSETS Cash and deposits in banks Cash in the process of collection Trading portfolio financial assets Investments under agreements to resell Derivative financial instruments Loans and receivables from banks - Loans and receivables from customers , net Financial investmentsavailable-for-sale Held to maturity investments Intangible assets Property, plant and equipment, net Current income taxes Deferred income taxes Other assets Non-current assets held for sale LIABILITIES Current accounts and demand deposits Transaction in the course of payment Obligations under repurchase agreements Time deposits and saving accounts Derivative financial instruments Borrowings from financial institutions Debt issued Other financial obligations Current income tax provision Deferred income taxes Provisions Other liabilities Liabilities directly associated withnon-current assets held for sale
Net interest income Net services fees income Trading and investment income, net Foreign exchange gains (losses), net Other operating income Provision for loan losses Total operating income, net of provision for loan losses, interest and fees Other income and expenses Depreciation and Amortization Other oeprating expenses Total operating expenses Income before taxes Income (loss) taxes Income from continuing operations Income (loss) discontinued operations Net income for the period Average loans Average investments
NOTE 5
The detail of the balances included under cash and cash equivalents is as follows:
Investment under agreement to resell
Cash in the process of collection is short-term, amounts in transit of collection.
Assets (Cash in the process of collection) Outstanding notes from other banks Funds receivable Subtotal assets Liabilities (Transaction in the course of payment) Funds payable Subtotal liabilities Net items in course of collection
NOTE 6 The detail of the financial instruments classified as trading financial assets is as follows:
NOTE 7
b) As of December 31,
Government and Chilean Central Bank Securities: Chilean Central Bank Securities Treasury Bonds and Notes Other fiscal securities Other securities issued locally: Other local bank securities Bonds and company business papers Other securities issued locally Securities issued abroad: Government and Central Bank securities Other Securities issued abroad Mutual Funds Investment Funds managed by related companies Funds managed by third parties Total
NOTE 8
Foreign Currency Forwards Foreign Currency Swap Interest Rate Swap Foreign Currency Call Option Foreign Currency Put Option Total a.3) As of December 31,
Hedge Accounting Fair Value Foreign Currency Forwards Foreign Currency Swap Interest Rate Swap Subtotal Cash Flow Foreign Currency Forwards Foreign Currency Swap Interest Rate Swap Subtotal Net Investment in foreign operation Foreign Currency Forwards Subtotal Derivatives held for trading Foreign Currency Forwards Foreign Currency Swap Interest Rate Swap Foreign Currency Call Option Foreign Currency Put Option Subtotal Total
The Bank uses interest rate derivatives to The
Hedge Items Loans Investment Bonds Demand Deposits Working capital Total Hedge instrument Foreign Currency Forwards Currency Swaps Interest Rate Swaps Total Hedge Items Loans Investment Bonds Demand Deposits Working capital Total Hedge instrument Foreign Currency Forwards Currency Swaps Interest Rate Swaps Total
Cash flow hedges are used by the Bank to:
Below is a detailed account of hedged items and hedging instruments by maturity as of December 31,
The effective portion of increase/decrease in fair value of the hedging instruments of the hedged items from cash flow hedges, MCh$
The objective of hedging is to safeguard the value of equity by managing the exchange rate risk of investments. The hedges of a net investment in a foreign operation, The part of the gain or loss The ineffective part is recognized in the Gains or losses on the hedge of the net investment in its foreign operation that have been recognized in other comprehensive income and accumulated in equity are as follows:
Beginning balance Gains (losses) on hedge of net investment in foreign operation, before tax Income tax relating to hedges of net investment in foreign operations Closing Balance
The detail of each coverage is explained below: b.3.1) Hedging net investment in New York Branch
NOTE 9
As of December 31,
NOTE 10
As of December 31,
As of December 31, 2016 Commercial loans: Commercial Loans Foreign trade loans Current Account debtors Factoring operations Student loans Leasing transactions (*) Other loans and receivables Subtotals Mortgage loans: Letter of credit loans Endorsable mutual mortgage loans Other mutual mortgage loans Leasing transactions (*) Other loans and receivables Subtotals Consumer loans: Consumer loans Current account debtors Credit card Consumer leasing transactions (*) Other loans and receivables Subtotals Total As of December 31, 2015 Commercial loans: Commercial Loans Foreign trade loans Current Account debtors Factoring operations Student loans Leasing transactions (*) Other loans and receivables Subtotals Mortgage loans: Letter of credit loans Endorsable mutual mortgage loans Other mutual mortgage loans Leasing transactions (*) Other loans and receivables Subtotals Consumer loans: Consumer loans Current account debtors Credit card Consumer leasing transactions (*) Other loans and receivables Subtotals Total
Guarantees taken by the Bank to secure collections reflected in its loan portfolios are collateral (urban and rural property, farm land, ships and aircraft, mining claims and other assets) and pledges (inventory, farm assets, industrial assets, plantings and other pledged assets). As of December 31, 2016, 2015 and In the case of mortgage guarantees, as of December 31, 2016, 2015 and The Bank finances its customers’ asset purchases, both movable and real estate, through lease contracts that are included within loans and receivables from customers. As of December 31,
MCh$95,231 as of January 1, 2015). Where appropriate, we obtain collateral in respect of our loans and receivables from customers. The collateral normally takes the form of a mortgage (i.e., urban and rural properties, agricultural lands, maritime vessels and aircraft, mineral rights and other assets) and liens (i.e., inventories, agricultural goods, industrial goods, plantations and other property pledged as security) over the customer’s assets. The existence and amount of collateral generally varies from loan to loan, based on the credit worthiness of the borrower. We review collateral fair values by obtaining appraisals on impaired secured loans every 18 months and on normal secured loans every three years. We monitor collateral values between appraisals on an ongoing basis in order to capture any unusual significant changes (i.e., improved conditions in the real estate industry, changes in overall economic conditions, etc.) in market-based evidence used in the appraisals. In the event that unusual significant changes occur between appraisals, the collateral values are reassessed and recalculated. During
As of December 31,
The changes in allowances for loan losses during the periods ended December 31,
Balances as January 1, 2016 Impaired portfolio write-offs: Commercial loans Mortgage loans Consumer loans Total write-offs Established provision Provision released Integration Itaú Corpbanca Impairment Application of provisions Exchange rate differences Balances as of December 31, 2016
During
The Bank’s scheduled cash flows to be received from finance lease contracts have the following maturities:
As of December 31, 2016 this total includes MCh$351,537 (MCh$90,434 as of December 31, 2015 and MCh$199,680 as of January 1, 2015), included in Note 5 “Cash and cash equivalents,” which corresponds to those financial instruments with maturities that do not exceed three months from their dates of acquisition. As of December 31,
Chilean Central Bank and Government Securities Chilean Central Bank securities Chilean Treasury Bonds Other government securities Other financial instruments Promissory notes related to deposits in local banks Chilean mortgage finance bonds Chilean financial institutions bonds Other local investments Financial instruments issued abroad Foreign government and central bank instruments Other foreign investments Unquoted securities in active markets Chilean corporate bonds Other investments Total Chilean Central Bank and Government Securities Chilean Central Bank securities Chilean Treasury Bonds Other government securities Other financial instruments Promissory notes related to deposits in local banks Chilean mortgage finance bonds Chilean financial institutions bonds Other local investments Financial instruments issued abroad Foreign government and central bank instruments Other foreign investments Unquoted securities in active markets Chilean corporate bonds Other investments Total
Chilean Central Bank and Government Securities Chilean Central Bank securities Chilean Treasury Bonds Other government securities Other financial instruments Promissory notes related to deposits in local banks Chilean mortgage finance bonds Chilean financial institutions bonds Other local investments Financial instruments issued abroad Foreign government and central bank instruments Other foreign investments Unquoted securities in active markets Chilean corporate bonds Other investments Total
NOTE 12
a)
b) The movement of intangible assets in the period ended December 31,
c) Movements of accumulated amortization of intangible assets as of December 31,
d) As of December 31,
e) Impairment At each reporting date, Banco The entity will conduct impairment testing on an annual basis for intangible assets with indefinite useful lives as well as intangible assets that are not yet available for use, by comparing their carrying amount with their recoverable amount. Impairment testing can be carried out at any time during the year, as long as it takes place at the same time each year. Impairment testing of different intangible assets can take place on different dates. However, if that intangible asset had been recognized initially during the current year, it will be tested for impairment before the year ends.
Impairment of goodwill is determined by evaluating the recoverable amount of each In accordance with IAS 36“
Itaú Corpbanca and subsidiaries conducted impairment testing for unamortized assets, including intangible assets that are still not in use, and concluded that no impairment exists (See Note
As of December 31,
NOTE
The
Balances as of January 1, 2016 Integration Itaú Corpbanca Purchases Sales/Retirements Exchange differences Others Balances as of December 31, 2016 Balances as of January 1, 2015 Purchases Sales/Retirements Exchange differences Others Balances as of December 31, 2015
NOTE
At the end of each year the bank recognizes an Income Tax Provision, which is determined based on the currently enacted tax legislation. Current recoverable taxes recognized as of December 31, a.1 Tax current:
a.2 Effect of current taxes by geographic area:
Income tax Less: Monthly Provisional Payment Tax Credit for Property Taxes on leased real estate assets Tax Credit for Training Costs Tax Credit Donations Other taxes to be recovered Total
The tax expense for the years ended December 31,
The following table reconciles the income tax rate to the effective rate applied to determine the Bank’s income tax expense as of December 31, The nominal tax rates of the countries where consolidated subsidiaries are located are:
Chile Colombia United States
The table below sets for a summary of the deferred tax effect on other comprehensive income for the periods ended December 31,
e.1 Deferred taxes:
Deferred tax assets Deferred tax liabilities Net by geographic area
e.2 Deferred taxes by geographic area:
Below are the effects of deferred taxes on assets and liabilities assigned as a result of temporary differences (by geographic area):
Loan provision Accrued interest and indexation past due portfolio Unaccrued price difference Personnel provisions Miscellaneous provisions Subsidiary tax loss Net tax value of amortizable assets Depreciation of property, plant and equipment Lease division and others Market value of financial instruments Intangible assets Corpbanca Colombia Intangible assets mercantile credit Corpbanca Colombia Intagration Itaú Corpbanca Others Total asset (liability), net Loan provision Accrued interest and indexation past due portfolio Unaccrued price difference Personnel provisions Miscellaneous provisions Subsidiary tax loss Net tax value of amortizable assets Depreciation of property, plant and equipment Lease division and others Market value of financial instruments Intangible assets Corpbanca Colombia Intangible assets mercantile credit Corpbanca Colombia Intagration Itaú Corpbanca Others Total asset (liability), net
NOTE a) The detail of other assets is as follows:
b) The
Assets received in lieu of payment Asset to fair value SMU Corp S.A. Total
NOTE a)As of December 31,
b)As of December 31,
Time deposits Team saving accounts Other term creditors Total
NOTE As of December 31,
Loans obtained from foreign financial institutions Standard Chartered Bank Commerzbank AG Wells Fargo Bank, N.A. Corporacion Interamericana de Inversiones USA Citibank N.A. Findeter S.A - Financiera del Desarrollo Territorial Sumitomo Mitsui Banking Corporation Bancoldex S.A - Banco de Comercio Exterior de Colombia S.A Export Development Canada Bank of America, N.A. Deutsche Bank Bank of Montreal Wachovia Bank N.A. Corporacion Andina de Fomento Bank of New York Bank of Nova Scotia IFC Corp Financiera Internacional Cobank CB Scotiabank Canada Banco Crédito del Peru HSBC England HSBC USA Deg Deutsche Investitions Ing Bank NV Landes Bank Badén BHF Bank Alemania Bank of China lt Discount Bank ur HSBC, Hong Kong Bank of China Deutsche Bank Trust KFW - Kreditants KFW Ipex Bank Icici Bank Indi Barclays Bank PLC London Mercantil CA Banco Universal Bankinter SA Banco de Bogota Taiwan Cooperative Bank Banco República Banque Nationale Du Canada Mizuho Corporate Bank FONDOS SURA SAF S.A.C. BNP Paribas Banco de la Produccion SA Banco Latinoamericano de export. Apple Bank for Saving Scotia Fondos Soc. Admin de Fondos S.A. Credicorp capital SASAF Uni Bank & Trust, Inc Bancaribe curacao Bank n.v. BBVA ASSET MGMT CONTL SA SOC ADM FONDOS PERU Others Subtotal Total
The detail of borrowings from financial institutions by maturity is as follows:
Due within 1 year Due within 1 year but within 2 years Due within 2 years but within 3 years Due within 3 years but within 4 years Due within 4 years but within 5 years Due after 5 years Total
NOTE
A B E F G H I J K L-2 M-2 N O P Q-1 R-2 S T U V W X Y Z AA AB AC AF AG AH AI AJ AL-2 BCORAF0710 BCORAG0710 BCORAI0710 BCOR-L0707 BCORAJ0710 BCOR-P0110 BCORBW0914 BCOR-R0110 BCORUSD0118 BCORUSD0919 BCORAL0710 BCORAN0710 BCORAO0710 BCORBX0914 BCORCA0914 BBSA168B18 BBSA26SA48 BBSA316SA060 BBCR1109B84 BBCR3119B84 BBCR1099B120 BBSA69C120 BBSA69C180 BBSA3169C180 BBSA168B18 BBCR3117C84 Total
Due within 1 year Due after 1 year but within 2 years Due after 2 years but within 3 years Due after 3 years but within 4 years Due after 4 years but within 5 years Due after 5 years Total
Due within 1 year Due after 1 year but within 2 years Due after 2 years but within 3 years Due after 3 years but within 4 years Due after 4 years but within 5 years Due after 5 years Total lon term obligation The detail of other short term financial obligations is as follows: Amounts due to credit card operations Others Total short term financial obligations Total other financial obligations
As of December 31,
The provisions as of December 31,
This item includes the following provisions related to: i) provisions for staff benefits and payroll, ii) provisions for compensation for years of service indemnities, iii) provisions for other employee benefits and iv) provisions for vacations.
Corresponds to the minimum dividends to be paid.
Includes estimates for probable losses.
Accounting effects:
The Bank’s employees are entitled to receive years of service awards starting with the 5th year employment anniversary and each five years thereafter. This award is paid in the month when the employee celebrates his/her corresponding employment anniversary.
The main assumptions used in the valuation are presented in the following tables:
Summary of key demographic hypotheses
2.- Methodology Cost Method To determine the cost of benefits, the method of the Method applied to assets The plan does not have its own assets. Others
The movements in the present value of the defined benefit obligation and the amounts recognized in the statement of income in respect of this award are determined using the projected unit credit method and consisted of the following: Changes in
Cost of net profit
The retirement pension liability is recorded based on the present value of the pension obligation for employees who meet certain statutory requirements as to age, length of service and other, determined in accordance with actuarial adjustments under the existing Colombian law. The present value of the defined benefit obligation was measured using the Projected Unit Credit Method and Other long-term employee benefits.
1.-Assumptions used: The principal assumptions used in the valuation are presented in the following tables:
2.-Methodology Cost Method To determine the cost of benefits, the method of the Projected Unit Credit (PUC) was used, according to the provisions of IAS 19 (revised 2011). Under the PUC method, the “projected accrued benefit” is calculated for each benefit. For all active members of the plan, the “projected accrued benefit” is based on the formula of the Plan and the years of service to the date of calculation, but using a salary average, social security benefits and others, projected to the age at which it is assumed that the employee will no longer provide services. The defined benefit obligation is the present value of the “projected benefits The service cost is the amount of benefits earned in the year by the active members as a result of a year of credited service value. The interest cost for the year is the interest on the defined benefit obligation. Method applied to assets The plan does not have its own assets Others Amounts respect of these defined benefit plans were as follows:
The benefit is equivalent to one month’s salary, adjusted for the application of severance factor (defined as the sum of 12 basic salaries plus additional payments does not constitute salary) per year of service and corresponding fraction. 1.- Assumptions used The main assumptions used in the valuation are presented in the following tables:
2.- Methodology Cost Method To determine the cost of benefits, the method of the projected unit credit (PUC) was used. Method applied to assets The plan does not have its own assets. Others Amounts recognized respect of these defined benefit plans were as follows: Changes in provision
This plan corresponds to the payment of a fixed amount in pesos at the time of retirement of the employee. 1.- Assumptions used The main assumptions used in the valuation are presented in the following tables:
2.- Methodology Cost Method To determine the cost of benefits, the method of the projected unit credit (PUC) was used. Method applied to assets The plan does not have its own assets. Others Amounts recognized respect of these defined benefit plans were as follows: Changes in provision
Future actuarial calculations may differ with respect to the calculations presented, due to the following factors:
The experience of the plans
Changes in economic and demographic assumptions.
Increases or decreases expected as a natural part of the operation of the methodology for these calculations (example, the end of the amortization period or additional costs based on the funding status of the plan).
Changes in the characteristics of the plan or applicable law, and with respect thereto, there are no significant events affecting the results presented since the last
(vii) Expected future payments
The average duration of the obligation for these plans is:
NOTE
NOTE This section discloses information on contingencies of significant loss, contingent loans, contingent liabilities not reflected in the financial statements and other responsibilities, lawsuits or other legal actions involving the Bank and/or its Subsidiaries.
As of the date of issuance of these
Via Ruling No. 16,191 dated December 30, 2015, the SBIF fined CorpBanca MCh$21,765 for violations of credit margins established in articles84-1 and 85 of the General Banking Law (“GBL”) related to Chapter12-3 of the SBIF’s Updated Standards. On January 18, 2016, CorpBanca filed an appeal with the Santiago Court of Appeals to challenge the fine in conformity with the GBL. On August 31, 2016, the Court of Appeals ruled in favor of CorpBanca and rendered all fines null and void. Five business days later, the SBIF filed a complaint against the appellate court ministers, which is being heard by the Supreme Court under CaseNo. 62,128-2016. The case is currently in the agreement stage. On December 20, 2016, Helm LLC filed a lawsuit in the New York State Supreme Court (“the State Court Lawsuit”) and a Request for Arbitration before the ICC International Arbitration Court (the “Arbitration”), against Itaú Corpbanca, alleging certain breaches of contract. These alleged breaches refer to (i) the amended shareholder agreement of HB Acquisition S.A.S. dated July 31, 2013 (“SHA”) and (ii) the Transaction Agreement (“TA”) dated January 29, 2014, as amended, which governs, among other matters, the merger between Itaú Chile S.A. and Corpbanca, by which Itaú Corpbanca was formed, and the potential acquisition by Itaú Corpbanca of certain shares of Corpbanca Colombia (the “Acquisition of the Shares under the TA”) on or before January 29, 2017. In the State Court Lawsuit, Helm LLC sought an injunction to support the arbitration to prevent the Acquisition of the Shares from taking place, which, as reported by Itaú Corpbanca as an Essential Event on December 20, 2016, was postponed until January 28, 2022. On December 30, 2016, Itaú Corpbanca filed its response to the motions filed by Helm LLC in accordance with the State Court Lawsuit and, later, on January 26, 2017, Helm LLC filed a notice to withdraw the State Court Lawsuit. The Arbitration has begun in accordance with applicable procedures. Itaú Corpbanca and Corpbanca Colombia (the latter as nominal defendant) filed their respective responses to the arbitration suit on February 14, 2017. Itaú Corpbanca believes that the actions filed in the Arbitration by Helm LLC have no grounds and Itaú Corpbanca has filed a countersuit against Helm LLC for breaching the SHA. Itaú Corpbanca has taken and will continue to take all steps necessary to enforce its rights under the SHA in accordance with applicable law. Other legal actions have been filed against the Bank involving its normal operations. The Bank’s maximum exposure for these lawsuits amounts to approximately MCh$24,000. However, in management’s opinion, based on reports from the Legal Division as ofyear-end 2016 and 2015, it is not more likely than not that these lawsuits result in significant losses not foreseen by the Bank in these financial statements and, therefore, management has not recorded any provisions
The following table contains the amounts for which the Bank and its Subsidiaries are contractually obliged to provide loans, maintainoff-balance sheet accounts:
The Bank and its subsidiaries have the following responsibilities arising from the normal course of business maintainoff-balance sheet accounts:
Banco CorpBanca Colombia S.A. The Bank and its subsidiaries are involved in civil, administrative and labor proceedings. Of the 178 outstanding civil and administrative proceedings, 105 are related to banking operations and 73 to ownership of leased assets. In aggregate, the lawsuits are seeking MCh$15,667. The likelihood of loss is considered potential in 4 cases, remote in 157 cases and probable in 17 cases. Based on this evaluation, the Bank has recorded a provision of MCh$834. The Bank has provisioned MCh$1,095 for labor proceedings. In aggregate, these lawsuits are seeking MCh$1,685. Of the 123 cases, the likelihood of loss is considered probable in 59 cases and remote in 64 cases. CorpBanca Corredora de Seguros S.A. In order to comply with Article 58, letter d) of DFL 251 of 1930, which states, “Insurance Brokers, in order to conduct business, must comply with the requirement of contracting insurance policies as determined by the Superintendency of
Itaú Corredora de Seguros Limitada As established in Article 58, letter D of DFL 251 and SVS Ruling No. 1,160, the company has taken out liability (a) and guarantee (b) policies to cover the risk of potential damages that could affect it and to ensure correct and full compliance with
With the As of December 31,
On December 29, 2015, an employee
It has established guarantees for
On December 29, 2015, CorpBanca Administradora General de Fondos
On March 23, 2016, the On November 17, 2016, Corpbanca General Manager of On December 29,
Itaú BBA Corredor de Bolsa Limitada To comply with article 30 of Law No. 18,045, the subsidiary has a performance bond in favor of Bolsa Electrónica de Chile (the Chilean Electronic Stock Exchange) to ensure correct and complete performance of all obligations as a securities intermediary. The beneficiaries of this guarantee are its present or future creditors as a result of its brokerage operations. The performance bond is detailed as follows:
The subsidiary also has a comprehensive insurance policy to comply with Ruling No. 52 from Bolsa Electrónica de Chile. The comprehensive insurance policy is detailed as follows:
The subsidiary established a pledge on its shares of Bolsa de Comercio de Santiago (Santiago Exchange) in favor of that
As of December 31, The subsidiary has a performance bond as a representative of the beneficiaries of the guarantee in articles 98 and 99 of Law No. 20,172, in order to guarantee faithful and full compliance of our obligations as a Portfolio Manager. The performance bond is detailed as follows:
The business combination29 (reverse acquisition) accounted as established in IFRS 3 requires for the consolidated financial statements after the merger (from April 1, 2016 forward) to be prepared under the name of the legal acquirer (the acquiree for accounting purposes, or CorpBanca, the merged entity, which will take the name Itaú-Corpbanca), and presenting in these notes the financial information of the legal acquiree (the acquirer for accounting purposes, or Banco Itaú Chile), for comparative figures from 2015, and for the
The information for the year 2015 for comparative purposes corresponds to the information disclosed by Banco Itaú Chile, which has been restated by the exchange ratio for the business combination of 80,240.28252 shares of the merged bank for every 1 share of Banco Itaú Chile. As described above, as of December 31,
As of December 31,
201630 As of December 31, 2016, the Bank’s paid capital is represented by 512,406,760,091 subscribed and paid common shares with no par value, totaling MCh$1,862,826. On March 22, 2016, Banco Itaú Chile’s capital was increased by MCh$392,813, through the subscription of 710,477 of the bank’s single-series shares with no par value (equivalent to 57,008,875,206 shares of the merged bank based on the exchange ratio for the business combination), which were subscribed and paid by ITB Holding Brasil Participações Ltda., a wholly owned subsidiary of Itaú Unibanco Holding S.A., within the framework of the merger of Banco Itaú Chile and CorpBanca and in compliance with the “Transaction Agreement” signed on January 29, 2014. 2015 As of December 31, 2015, the Bank’s
2015 At an extraordinary meeting of the shareholders of Banco Itaú Chile on June 11, 2015, shareholders agreed to reduce the profits for the year 2014 that they had agreed to distribute as At an ordinary general meeting of the shareholders of Banco Itaú Chile on March 12, 2015, shareholders agreed to distribute MCh$42,847 in earnings, representing 50% of profit for the year ended December 31, 2014.
As of December 31,
As of December 31, 2015 the
The distribution of dividends of the Bank is as follows32:
The equity structure of the Consolidated Financial Statements prepared after the reverse acquisition (from April 1, 2016), will reflect the equity structure of the legal acquirer, including the equity interests issued by the legal acquirer in order to complete the business combination. The average weighted number of outstanding common shares (the denominator in the calculation of earnings per share) for the period in which the reverse acquisition has occurred is calculated as follows:
Basic earnings per share for each comparative year prior to the date of the acquisition presented in the Consolidated Financial Statements after a reverse acquisition must be calculated by dividing: a. the profit of the legal acquiree (Bank Itaú Chile) attributable to the common shareholders in each of those periods by b. the historical weighted average of the number of common shares outstanding of the legal acquiree multiplied by the exchange ratio established in the acquisition agreement. Therefore, in order to calculate basic and diluted earnings, the value for number of shares as of December 2015 for Bank Itaú Chile has been restated based on the exchange ratio for the business combination.
As of
Fair Value Reserve: This includes accumulated net changes in the fair value of investments available for sale until the investment is disposed of or there is a significant or prolonged decline in value. Translation Reserves:This includes the effects of converting the financial statements of the New York Branch and Colombian subsidiaries, whose functional currencies are the US dollar and Colombian peso, respectively, to the presentation currency of Cash Flow Hedge Reserves:This includes the effects of hedges on the Bank’s exposure to variations in cash flows that are attributed to a particular risk related to a recognized asset and/or liability. Foreign Investment Accounting Hedge Reserve:Corresponds to adjustments for hedges of net investments in foreign operations. Defined benefit obligation:This includes the effects of complying with IAS 19.
The following tables present movements in equity and income taxes attributable to the equity holders of the Bank for the years ended December 31,
Other Comprehensive Income Financial instruments available for sale Balance as of January 1, Gains (losses) on remeasuring financial instruments available for sale, before tax Total Hedges of net investment in foreign operations Balance as of January 1, Gains (losses) on hedges of net investment in foreign operations, before tax Total Cash Flow Hedges Balance as of January 1, Gains (losses) on cash flow hedges, before tax Total Exchange differences on translation Balance as of January 1, Gains (losses) on exchange differences on translation, before tax Total Remeasurement of defined benefit obligation Balance as of January 1, Gains (losses) on remeasurement of defined benefit obligation, before tax Total Other Comprehensive Income, before tax Income tax relating to components of other comprehensive income Income tax relating to instruments available for sale Balance as of January 1, Income Tax Income and Loss Related toAvailable-for-Sale Instruments Total Income tax relating to hedges of net investment in foreign operation Balance as of January 1, Losses and gains from Income Tax relative to Foreign Coverage Total Income tax relating to cash flow hedges Balance as of January 1, Losses and gains from income tax related to hedges Total Income tax relating to defined benefit obligation Balance as of January 1, Income tax gains and losses on recognition of defined benefit obligations Total Totals Income tax in valuation accounts Other comprehensive income after tax
This item
This corresponds to the net amount of equity in the Non-controlling interest in the subsidiary’s equity and profit for the period is detailed as follows:
Thenon-controlling interest movement, we have the following:
The
The information representing thenon-controlling interest of the above-named company, before consolidation elimination adjustments are as follows:
Summary of Financial Statements Current assets Current liabilities Net current assets Non-current assets Non-current liabilities Netnon-current assets Net assets Non-controlling interests accumulated Summary of Income Statement Interest income and readjustments Income of the period Non-controlling interests income Statement of Cash Flow Statement Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Net increse (decrese) in cash flow
Consolidated Income of the Period Other Comprehensive Income Before Taxes Instruments available for sale Hedge in foreing operation Cash flow hedge Exchange differences on traslation Defined benefit obligation Total Income taxes Instruments available for sale Hedge in foreing operation Cash flow hedge Defined benefit obligation Total Comprehensive Income of the period Consolidated Income of the Period Other Comprehensive Income Before Taxes Instruments available for sale Total Income taxes Instruments available for sale Total Comprehensive Income of the period
NOTE This item comprises interests and readjustments accrued in the period by all financial assets whose implicit or explicit performance, is obtained by applying the effective interest rate method, independently if these are valued at fair value, as well as of the effect from accounting hedges.
NOTE
This item comprises the financial income
This item includes expenses for commissions accrued in the
NOTE Includes the amount of adjustments for variation of financial instruments, except those attributable to interest accrued by applying the effective interest rate method of value adjustments of assets, as well as the results obtained in its sale. Trading and investment income recognized on the
NOTE This item includes the income earned from foreign currency trading, the differences arise from converting monetary items in a foreign currency to the functional currency and those generated bynon-monetary assets in a foreign currency at the time of their disposal. The detail of net foreign exchange gains (losses) for the years ended December 31,
Fair value hedges Cash flow hedges Net investment in foreign operation Total
NOTE
Commercial Loans Mortgage Loans Consumer Loans Subtotal Banks Total
In management’s opinion, the credit risk provisions established cover all losses that may arise from estimated incurred loan losses, based on the information examined by the Bank and its subsidiaries.
NOTE Personnel salaries expenses for the years ended December 31,
Personnel remunerations Bonus and gratifications/awards Severances indemnities Training expenses Other personnel expenses Total
NOTE Administration expenses for the years ended December 31,
NOTE
At each reporting date, Banco
Goodwill impairment
In January 2014, Itaú Unibanco (Brazil), Banco Itaú (Chile), CorpBanca (Chile) and CorpGroup (Chile) signed an agreement establishing a strategic partnership for their operations in Chile and Colombia by merging the
In terms of
The market shares of
(ii) Bank usage levels mainly in the
Expenses scale. Points worth highlighting include:
The recoverable amount of the
1.1 Key assumptions used in calculating the recoverable The values assigned to the key assumptions are an evaluation by senior management of future industry trends based on both external and internal sources. The key assumptions used in calculating the recoverable amount are summarized below and detailed in subsequent sections:
The recoverable amount has been determined using cash flows based on CGUs operate.Cash flow projections
From the outset, the new management team set a period of three years (2016-2018) from the merger to fully integrate both banks. From the fourth year (2019), the new Bank should be fully operable under the strategy established by the new controller. The Bank’s expectation is for each CGU to reach its potential and maturity over the long-term. This cycle is adjusted to the development stage of each market where the CGUs are located. Management believes that the growth and efficiency targets contained in its strategic plan should take more than five years This transformation has led to major economic efforts (visible in these financial statements) and Although some merger costs have already been incorporated, certain synergies as a result of these costs will begin to Therefore, the Bank has considered seven-year projections to avoid generating a bias in the growth curves and in perpetuity. This takes into account the industry’s growth and possibilities to gain market share, given the new growth strategies chosen by b. Loans and deposits. Loans were projected considering an increase of around c. Income. d. Costs. Cost projections are determined primarily by average balances of time and demand deposits as well as other relevant components. e. Discount rate. In order to estimate the discount rate The risk-free rate corresponds to U.S. treasury bonds, specifically The beta measures the share price volatility for a company with respect to the general securities market. It reflects the market or systematic risk, as opposed to the company’s specific risk. We have selected a group of listed companies that operate in the Colombian banking industry. In the search for these indicators, we concentrated on companies whose main activities are similar. The f. Tax rate. Taxes are projected at rates of: Chile 25.5% for 2017 and 27% for 2018 - 2023; Colombia 40% for 2017, 37% for 2018 and 33% for 2019 - 2023. g. Dividend payment. Dividend payments were used to maximize the cash flows of shareholders with the restriction that solvency (technical capital to risk-weighted assets) did not go below 10% for projected cash
1.2 Sensitivity to changes in the key assumptions used In determining the recoverable amount of the
There have been no changes in valuation techniques
NOTE
The detail of other operating income is as follows:
Other operating expenses for the years ended December 31,
Provisions and expenses for assets received in lieu of payment Provisions for assets received in lieu of payment Expenses for maintenance of goods received in payment Subtotal Provisions for contingencies Other provisions for contingencies Subtotal Other expenses. Loss on sale of fixed assets Subtotal Business Report Expense Spend benefits points cards Expenses for operating losses Insurance expense law 20,027 Provisions for assets received in lieu of payment from leasing Bank expenditure Pronexo Spending Fines and penalties Lost property Other expenses Subtotal Total
NOTE As defined in IAS 24, a related party is: (a) a person or a close member of that person’s family related to a reporting entity if that person (i) has control or joint control of the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. (b) an entity is related to a reporting entity if (i) the entity and the reporting entity are members of the same group; (ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member); (iii) both entities are joint ventures of the same third party; (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity; (v) the entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity; (vi) the entity is controlled or jointly controlled by a person identified in (a) Transactions that the Bank entered into with related parties as of December 31,
Loan granted to related parties as of December 31,
Loan and receivables to customer Commercial Loans Mortgages Loans Consumer Loans Loans and receivables to customers - gross Provision for loan losses Loans and receivables to customers, net Loan and receivables to customer Commercial Loans Mortgages Loans Consumer Loans Loans and receivables to customers - gross Provision for loan losses Loans and receivables to customers, net Loan and receivables to customer Commercial Loans Mortgages Loans Consumer Loans Loans and receivables to customers - gross Provision for loan losses Loans and receivables to customers, net
For the years ended December 31,
The Bank, during 2016, purchases credit from Itaú Unibanco S.A. - Nassau Branch, for US$152,263,397 and Itaú Unibanco S.A. - New York Branch for US$25,875,000, through its New York Branch, this purchase was made at the par value of the loan portfolio and did not generate any impact on the result.
These transactions were carried out at normal market prices prevailing at the day of the transactions. In accordance with IAS 24, the relationship of all listed companies in the above table falls under the category “other related
As of December 31, 2016
Remunerations paid to key management personnel are sets forth in table below:
2016 The total remuneration received during the year 2016 by the managers and chief executives of Itaú Corpbanca amounted to MCh$23,878. 2015
2014
As of December 31,
During
Credit Cards Consumer loans Commercial loans Mortgages loans
NOTE This disclosure was prepared based on the guidelines “Fair Value of Financial Instruments” from the IFRS 13 “Fair Value The following section details the main guidelines and definitions used by the Group: Fair value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The transaction is carried out in the principal Market participants: Buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics:
Fair value measurement: When measuring fair value, the Group takes into account the same characteristics of the asset or liability that market participants would consider in pricing that asset or liability on the measurement date. Aspects of the transaction: A fair value measurement assumes that the asset or liability is exchanged in an orderly transaction between market participants to sell the asset or transfer the liability at the measurement date under current market conditions. The measurement assumes that the transaction to sell the asset or transfer the liability takes place: (a) on the principal market for the asset or liability; or (b) in the absence of a principal market, on the most advantageous market for the asset or liability. Market participants: The fair value measurement measures the fair value of the asset or liability using the assumptions that the market participants would use in pricing the asset or liability, assuming that the participants act in their best economic interest. Prices: Fair value is the price that will be received for the sale of an asset or paid for the transfer of a liability in Highest and best use ofnon-financial assets: The fair value measurement of these assets takes into account the market participant’s ability to generate economic benefits through the highest and best use of the asset or through the sale of the asset to another market participant that would maximize the value of the asset.
Default risk: The fair value of a liability reflects the effect of the default risk. This risk includes, but is not limited to, the entity’s own credit risk. This risk is assumed to be the same before and after the liability is transferred. Initial recognition: When an asset is acquired or a liability assumed in an exchange transaction involving that asset or liability, the transaction price is the price paid to acquire the asset or received to assume the liability (the entry price). In contrast, the fair value of the asset or liability is the price received to sell the asset or paid to transfer the liability (the exit price). Entities do not necessarily sell assets at the prices paid to acquire them. Likewise, they do not necessarily transfer liabilities at the price received to assume them. Valuation techniques: The Bank will use techniques that are appropriate for the circumstances and for which sufficient data is available to measure the fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. The following approaches deserve mention:
Present value techniques: Technique to adjust the discount rate and expected cash flows (expected present value). The present value technique used to measure the fair value will depend on the specific facts and circumstances of the asset or liability being measured and the availability of sufficient data. Components of the present value measurement: Present value is the tool used to link future amounts (e.g. cash flows or values) to a present amount using a discount rate. A fair value measurement of an asset or a liability using a present value technique captures all the following elements from the perspective of market participants at the measurement date:
Fair value
The following table summarizes the fair values of the Bank’s main financial assets and liabilities as of December 31,
In addition, the fair value estimates presented above do not attempt to estimate the value of the Group’s profits generated by its business, nor future business activities, and, therefore, do not represent the value of the Group as a going concern. The following section describes the methods used to estimate fair value: 1.1.1. Fair Value Measurements of assets and liabilities only for disclosure purposes(non-recurring):
Cash, short-term assets and short-term liabilities The fair value of these items approximates their book value given their short-term nature. These items include:
Cash and deposits in banks
Cash in the process of collection
Investments under agreements to resell
Current accounts and demand deposits
Other financial obligations
Loans The fair value of loans is determined using a discounted cash flow analysis, using a risk-free interest rate adjusted for expected losses from debtors based on their credit quality. The credit risk adjustment is based on the Group’s credit risk policies and methodologies: These items include:
Loans and receivables from banks
Loans and receivables from customers Financial instruments held to maturity The estimated fair value of these financial instruments is determined using quotes and transactions observed in the main market for identical instruments, or in their absence, for similar instruments. Fair value estimates of debt instruments or securities representative of debt take into account additional variables and inputs to the extent that they apply, including estimates of prepayment rates and the credit risk of issuers. Medium and long-term liabilities The fair value of medium and long-term liabilities is determined using a discounted cash flow analysis, using an interest rate curve that reflects current market conditions at which the entity’s debt instruments are traded. Medium and long-term liabilities include:
Time deposits and saving accounts
Borrowings from financial institutions
Debt issued
1.1.2. Fair Value measurement of financial assets and liabilities (recurring):
Financial Instruments The estimated fair value of these financial instruments is determined using quotes and transactions observed in the main market for identical instruments, or in their absence, for similar instruments. Fair value estimates of debt instruments or securities representative of debt take into account additional variables and inputs to the extent that they apply, including estimates of prepayment rates and the credit risk of issuers. These financial instruments are classified as follows:
Trading portfolio financial assets Financial investments available for sale
Financial Derivative The estimated fair value of derivative instruments is calculated using prices quoted on the market for financial instruments of similar characteristics. The methodology, therefore, recognizes the credit risk of each counterparty. The adjustments are known internationally as the counterparty value adjustment (CVA), which consists of an adjustment for debtor risk (credit value adjustment or CVA) and for creditor risk (debit value adjustment or DVA). The sum of these adjustments gives the effective counterparty risk that the derivative contract must have. These adjustments are recorded periodically in the financial statements. As of December 2016, 2015 and January 1, 2015, the portfolio of derivative contracts in both Chile and Colombia had an aggregate effect of
1.2 Fair value hierarchy IFRS 13 establishes a fair value hierarchy that classifies assets and liabilities based on the characteristics of the data that the technique requires for its valuation: Level 1: inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Entity can access at the measurement date. The inputs needed to value the instruments in this category are available daily and used directly. In the case of currency, shares and mutual funds, prices are observed directly inover-the-counter (OTC) markets and the stock exchange. These prices correspond to the values at which the exact same assets are traded. As a result, the portfolio valuation does not require assumptions or models of any type. For instruments issued by the Chilean Central Bank and the Chilean Treasury,
Level 2:
In this category, instruments are valued by discounting contractual cash flows based on azero-coupon curve determined through the price of instruments with similar characteristics and a similar issuer risk. The income approach is used, which converts future amounts to present amounts. For derivative instruments within this category, quotes fromover-the-counter (OTC) transactions reported by the most important brokers in the Chilean market and the Bloomberg platform are used. The inputs observed include forward prices, interest rates and volatilities. Based on these inputs, market curves are modeled. They are a numerical representation of the opportunity costs of the instrument’s cash flows or the price volatility of an asset. Finally, cash flows are discounted. The Black and Scholes model is used for options based on prices of brokers in theOver-The-Counter market. For money market instruments, prices of transactions on the Santiago Stock Exchange are observed and used to model market curves.
For corporate or bank bonds, given the lack of market depth, the Bank uses transactions (if any) in the Chilean market, on foreign markets,zero-coupon curves of risk-free instruments, adjustment curves, spread modeling, correlation with similar financial instruments, etc. and creates market curves for use in the final result. These market curves are provided by a pricing supplier and are widely accepted by the market, regulators and scholars.
Level 3: inputs are unobservable inputs for the asset or liability. This is used when prices, data or necessary inputs are not directly or indirectly observable for similar instruments for the asset or liability as of the valuation date. These fair value valuation models Due to the lack of liquidity of the active banking rate (TAB), the price is not observable and, therefore, models must be used to estimate the future cash flows of the contract. This spread is calculated on a historical basis using the Interest Rate Swap with the greatest market depth. In addition, the Bank develops American forwards to meet its customers’ needs. They do not have a secondary market and, therefore, their value is estimated using an extension of the Hull-White model, used widely by the financial services industry. None of these products generate significant impacts on the Bank’s results as a result of recalibration. The TAB swap does not have significant impacts on the valuation as the parameters are stable and the reversal to a historic average is empirically quick, which this model reflects correctly. On the other hand, the American forward behaves like a traditional forward when there is an important curve differential, which is the case between the Chileanpeso-US dollar curve. Also, the model’s parameters are very stable. The table below summarizes the impacts on the portfolio of a recalibration of the models based on a stress scenario, recalibrating parameters with the shock incorporated. Impact of Calibration in MCh$ American ForwardUSD-CLP Basis TAB CLP Basis TAB CLF Total
The following table summarizes the fair value hierarchy for the Group’s recurring valuation of financial instruments:
The following table classifies assets and liabilities measured at fair value on a recurring basis, in accordance with the fair value hierarchy established in IFRS 13 for December 31,
As of December 31, 2016 ASSETS Trading portfolio financial assets From the Chilean Government and Central Bank Others instruments issued in Chile Foreign government and Central Bank instruments Others instruments issued abroad Mutual fund investments Financial investments available for sale From the Chilean Government and Central Bank Others instruments issued in Chile Foreign government and Central Bank instruments Others instruments issued abroad Others investments Derivative financial instruments Forwards Swaps Call Options Put Options Others Total LIABILITIES Derivative financial instruments Forwards Swaps Call Options Put Options Others Total As of December 31, 2015 ASSETS Trading portfolio financial assets From the Chilean Government and Central Bank Others instruments issued in Chile Foreign government and Central Bank instruments Others instruments issued abroad Mutual fund investments Financial investments available for sale From the Chilean Government and Central Bank Others instruments issued in Chile Foreign government and Central Bank instruments Others instruments issued abroad Others investments Derivative financial instruments Forwards Swaps Call Options Put Options Others Total LIABILITIES Derivative financial instruments Forwards Swaps Call Options Put Options Others Total As of January 1, 2015 ASSETS Trading portfolio financial assets From the Chilean Government and Central Bank Others instruments issued in Chile Foreign government and Central Bank instruments Others instruments issued abroad Mutual fund investments Financial investments available for sale From the Chilean Government and Central Bank Others instruments issued in Chile Foreign government and Central Bank instruments Others instruments issued abroad Others investments Derivative financial instruments Forwards Swaps Call Options Put Options Others Total LIABILITIES Derivative financial instruments Forwards Swaps Call Options Put Options Others Total
1.2.1 Transfers between level 1 and 2 The following table details transfers of assets and liabilities between Level 1 and Level 2
During 2016 and 2015, no assets were transferred between levels 1 and 2. 1.2.2 Disclosures regarding level 3 assets and Level 3 assets and liabilities are valued using techniques that require inputs that are not observable on the market, for which the income approach is used to convert future amounts to present amounts. This category includes:
Derivative financial instruments indexed to the TAB rate. This rate is comprised of an interbank rate and a liquidity premium charged to financial institutions and is determined using a short-rate model with mean reversion.
American forward options. As none of these products has a market, the Bank uses valuation techniques which incorporate unobservable input.
These techniques use the following inputs: transaction prices from the main financial instrument markets and assumptions that are widely accepted by the financial services industry. Using this information, unobservable variables are constructed such as: adjustment curves, spreads, volatilities and other variables necessary for the valuation. Lastly, all of the models are subject to internal contrasts by independent areas and have been reviewed by internal auditors and regulators. None of these products generate significant impacts on the Bank’s results as a result of recalibration. The American forward is only offered for the US dollar-Chilean peso market and until now, given the important differential between these interest rates, the product behaves like a traditional forward. The TAB swap does not have significant impacts on the valuation as the modeled liquidity premiums have a quick mean reversion for the short part and low volatility for the long part, concentrating on the book’s sensitivity in the longest part of the curve. The following table reconciles assets and liabilities measured at fair value on a recurring basis as ofyear-end 2016 ASSETS Trading portfolio financial assets Financial investments available for sale Derivative financial instruments Forwards Swaps Call Option Put Option Total LIBILITIES Derivative financial instruments Forwards Swaps Call Option Put Option Total
1.2.3 Hierarchy for remaining assets and liabilities The following table classifies assets and liabilities measured at fair value on anon-recurring basis, in accordance with the fair value
As of December 31, 2016. ASSETS Cash and deposits in banks Cash in the process of collection Investments under agreements to resell Loans and receivables from banks Loans and receivables from customers Held to maturity investments LIABILITIES Current accounts and demand deposits Transaction in the course of payment Obligations under repurchase agreements Time deposits and saving accounts Borrowings from financial institutions Debt issued Other financial obligations As of December 31, 2015. ASSETS Cash and deposits in banks Cash in the process of collection Investments under agreements to resell Loans and receivables from banks Loans and receivables from customers Held to maturity investments LIABILITIES Current accounts and demand deposits Transaction in the course of payment Obligations under repurchase agreements Time deposits and saving accounts Borrowings from financial institutions Debt issued Other financial obligations As of January 1, 2015. ASSETS Cash and deposits in banks Cash in the process of collection Investments under agreements to resell Loans and receivables from banks Loans and receivables from customers Held to maturity investments LIABILITIES Current accounts and demand deposits Transaction in the course of payment Obligations under repurchase agreements Time deposits and saving accounts Borrowings from financial institutions Debt issued Other financial obligations
As a result of its activities, the Bank Risk management policies are established with the objective of identifying and analyzing the risks faced by the Bank, setting adequate limits and controls and monitoring risks and compliance with limits. Risk management policies and structures are reviewed regularly in order to reflect changes in the Bank’s activities. The Bank, through its standards and procedures, aims to develop an appropriate control environment in which all associates understand their roles and responsibilities. The following sections describe the Bank’s main business activities and policies as they relate to risk management. Risk Management Structure: Board of Directors At
The Audit Committee’s objective is to The committee is linked to the Board of Directors through the participation of at least two board members named by the Board itself. These members must report to the Board situations and events analyzed by the Committee, thus holding the Bank’s board members responsible for complying with both self-control policies established and practiced by the entity as well as laws and regulations to which it is subject. The Audit Committee must reinforce and support
The Directors’ Committee’s objective is to strengthen the self-regulation of the Bank and other entities under its control, making the Board’s work more efficient through increased oversight of management’s activities. It is also responsible for making the agreements necessary to protect shareholders, especially minority shareholders, examining executive compensation systems and analyzing and issuing a report on the transactions referenced in title XVI of Law 18,046. A copy of this report is sent to the Board, which must read the report and approve or reject each respective transaction. In its role as overseer of Corporate Governance Committee For the purposes of this committee, which is aware of how difficult it is to bring together all aspects of good corporate governance under one definition, corporate governance shall be defined as the set of bodies and institutional practices that impact a company’s decision making process, contributing to sustainable value creation in a framework of transparency, proper management, risk control and corporate responsibility towards the market. Therefore, appropriate corporate governance in a bank must align organizational incentives and promote the rights of shareholders and other direct or indirect stakeholders. The Corporate Governance Committee is a consultation body of the Board of Directors whose mission is to ensure the existence and development within the Bank of the best corporate governance practices for financial entities. To this end, it
Executive Loan Committees
Asset-Liability Committee (ALCO)
The committee’s main purpose is to comply with the financial guidelines It will consider the diverse alternatives available Anti-Money Laundering and Anti-Terrorism Finance Prevention Committee This Operational Risk Committee This committee’s objective is to evaluate the status of critical processes that are directly related to the Bank’s Operational Risk and Internal Controls, in accordance with current Superintendency of Banks and Financial Institutions standards in order to improve any weaknesses that the Bank may present and ensure proper implementation of regulatory changes. It is also responsible for attaining critical processes under an internal control environment that enables the Bank to operate stably and consistently, thus procuring desired levels of reliability, integrity and availability for information resources. Compliance Committee The Compliance Committee’s main purpose is to define, promote and ensure that the conduct of all Itaú Corpbanca employees meets the highest possible standards of personal and professional excellence. Employee conduct should, at all times, be guided by the principles and values that embody our organization’s spirit, philosophy and good business practices. It is also responsible for ensuring that the Regulatory Compliance Model is properly applied in accordance with definitions set by this committee,
The main function of Code of Conduct and Market Information Manual
In response to our clients’ trust and recognition, which are vital to our success, all associates and directors should strive to retain this trust, strictly complying with the General Code of b. Main Risks and Requirements Affecting the Bank and its Subsidiaries: b.1 Credit Risk The Corporate Risk Division is responsible for identifying, analyzing and monitoring risk at the Bank. Credit risk is the risk of potential loss faced by the
Quantitative and For
The credit risk areas are fully autonomous from the business areas. Their size and organizational structure are in accordance with the size of their portfolio and the complexity of their transactions. Each credit risk area uses tools and methodologies tailored to the particular segments it serves to manage and monitor credit risk. This allows them to properly control risk based on the size and complexity of the transactions carried out by the Bank. Credit risk management is based on the following key elements:
Loan policies. Loan approval processes.
Sound risk culture that is consistent with the Bank’s strategy.
Regulatory and
Human resources with considerable expertise in loan-related decision making.
Active participation from Credit Risk Division in the approval process, using a market segmented structure.
Defined monitoring and collections processes with involvement from the Commercial
Dissemination of a risk culture throughout the Bank with internal and external training programs for the Commercial and Risk Areas. The Bank also has Credit Committees, which include Risk Managers that determine debtor risk ratings. These committees define individual and group exposure levels with customers as well as mitigating conditions such as collateral, loan agreements, etc. As part of the policies it defines that all customers must be analyzed at least once a year when the credit line is renewed or when a warning is activated, whichever occurs first. The Bank’s risk management tool divides its portfolio into the following categories: Normal Risk Portfolio. Substandard Portfolio Default Portfolio. Normal Risk Portfolio40
Substandard Portfolio41
They are evaluated by analyzing a default parametric model that includes payment behavior and also considers the
Default Portfolio42 This
rating. The Rating and Asset Control
Contingent Commitments The Bank operates with diverse instruments that, although they are exposed to credit risk, are not reflected in the balance sheet. These include
Financial Instruments For this type of asset, the Bank measures the probability of not being able to collect from issuers using internal and external ratings such as risk rating agencies that are independent from the Bank. Maximum Exposure to Credit Risk The following table
For more detail on maximum credit risk exposure and concentration by type of financial instrument, see the specific
The following table displays the concentration of credit risk by industry for financial assets:
Guarantees In order to mitigate credit risk, guarantees have been established in the Bank’s favor. The main guarantees provided by customers are detailed as follows: For loans to companies, the main guarantees are:
Machinery and/or equipment
Projects under construction, buildings with specific purposes and Urban plots or land. For loans to individuals, the main guarantees are: rural property, farm land, ships and aircraft, mining claims and other assets) and pledges (inventory, farm assets, industrial assets, plantings and other pledged assets). As of December 31, 2016 and 2015, the fair value of guarantees taken corresponds to 116.97% and 107.40% of the assets covered, respectively.Houses
Guarantees taken by the Bank to secure collections of rights reflected in its loan portfolios are real mortgage-type guarantees (urban and In the case of mortgage guarantees, as of December 31, 2016 and 2015, the fair value of the guarantees taken corresponds to 78.35% and 69.98% of the balance receivable on loans, respectively. Credit With regard to the quality of credits, these are described consistent with the standards issued by the Superintendency of Banks and Financial Institutions. A detail by credit quality is summarized as follows:
Impaired: Customers who have financial difficulties and are impaired.
Impaired: Customers who have financial difficulties and are impaired. Loans and receivables from banks Provisions % Provisions Loans and receivables from customers Commercial Loans: General Commercial loans Foreign Trade loans Lines of credit and overdrafts Factored receivables Student loans Leasing contracts Other outstanding loans Subtotal Commercial loans Provisions % Provisión Consumer loans Provisions % Provisión Mortgage loans Provisions % Provisión Total loans and receivable from customers Provisions % Provisión Financial investments
Assets and liabilities by
currency The following tables details assets and liabilities by currency as of December 31,
b.2 Financial Risk a. Definition and Principles of Financial Risk Management While there is no single definition of financial risk, the Bank defines this risk as the possibility of an event having unexpected financial consequences on the institution. Although this definition involves a strong adversity component, it also involves an important opportunity component. Therefore, the purpose of financial risk management is not to eliminate this risk, but rather to limit its exposure to negative events in line with the risk appetite of the Bank’s shareholders and the regulations that govern the institution. The main financial risks to which the Bank is exposed are: Market Risk, Liquidity Risk and Counterparty Risk. a.1) Market Risk
Market
The following section describes the main
Foreign Exchange Risk Foreign exchange risk is the exposure to adverse movements in the exchange rates of currencies other than the base currency for all balance sheet andoff-balance sheet positions. The main sources of foreign exchange risk are:
Positions in foreign currency (FX) within the
Currency mismatches between assets and liabilities in the
Cash flow mismatches in different currencies.
Structural positions produced from consolidating assets and liabilities from our foreign branches and subsidiaries denominated in currencies other than the Chilean peso. As a result, movements in exchange rates can generate volatility within the
Indexation Risk Indexation risk is the exposure to changes in indexed units (e.g.
Interest rate risk can be represented by sensitivities to parallel and/ornon-parallel yield shifts with the effects reflected in the prices of instruments, the financial margin, equity and
In addition to the exposure related to the underlying asset, issuing options has other risks. These risks arise from thenon-linear relationship between the gain generated by the option and the price and level of the underlying factors, as well as
The a.2) Funding Liquidity Risk
Financial institutions are exposed to funding liquidity risk that is intrinsic to the role of intermediary that they play in the economy. In general, in financial markets demand for medium or long-term financing is usually much greater than the supply of funds for those terms while short-term financing is in considerable supply. In this sense, the role of intermediary played by financial institutions, which assume the risk of satisfying the demand for medium and long-term financing by brokering short-term available funds, is essential for the economy to function properly. Appropriately managing funding liquidity risk not only allows contractual obligations to be met in a timely manner, but also enables:
The Bank diversifies credit risk by placing concentration limits on different groups. Exposure to credit risk is evaluated using an individual analysis of the payment capacity of debtors and potential debtors to meet their obligations on time and as agreed.
The process of managing financial risks is an ongoing, interlinked process that begins by identifying the risks to which the institution is exposed. After that, the Bank calculates the potential impact of that exposure on its profit or loss and limits it to a desired level. This involves actively monitoring risk and studying how it evolves over time. The risk management process can be subdivided into the following stages: b.1) Identification of Financial Risks The Financial Risk Division has b.2) Quantification and Control of Financial Risk Exposure Once a risk has been identified, the Financial Risk Division is responsible for mapping the risk using the appropriate quantification metrics. The Board and senior management are aware of the methods used to measure exposure and are responsible for setting the institution’s desired risk appetite levels (by business unit, associate, risk factor, area, etc.), always taking care to adhere to current regulations. The limit setting process is the instrument used to establish the equity available to each activity. Limit determination is, by design, a dynamic process that responds to the risk level considered acceptable by senior management. The Financial Risk Division requests and proposes a system of quantitative and qualitative limits and warning levels that affect liquidity and market risk; this request must be authorized by the ALCO and the Board. It also regularly measures risk incurred, develops valuation tools and models, performs periodic stress testing, measures the degree of concentration with The limit structure requires the division to carry out a process that includes the following steps: Efficiently and comprehensively identify and outline the main types of financial risks incurred so that they are consistent with the running of the business and the defined strategy. Quantify and communicate to business areas the risk levels and profile that senior management considers acceptable in order to avoid incurring undesired risks. Give business areas flexibility to take on financial risks in an efficient and timely manner based on changes in the market and business strategies, and always within the risk levels considered acceptable by the entity. Enable business generators to take on a cautious yet sufficient level of risk in order to achieve budgeted results. Outline the range of products and underlying assets with which each treasury unit can operate, based on characteristics like the model, valuation systems and liquidity of the instruments involved, among other factors. The metrics, by type of risk, used to quantify exposure or demonstrate that a risk has been materialized are detailed below: Market Risk Metrics and Limits Given the complexity and relevance of the portfolios managed by Itaú Corpbanca, diverse instruments have been chosen to control market risk based on the characteristics of the financial products in the Trading and Banking Books: The following regulatory and internal metrics are used to monitor and control market risk: Regulatory Risk Measurements for the Trading and Banking Books The Bank measures regulatory exposure using the standardized methodology The regulatory measurement of market risk The Bank, on an individual level, must continuously observe those limits and report to the SBIF on a weekly basis regarding its positions at risk and compliance with those limits (regulatory report SBIF C41 “Weekly information on market risk using standardized methodology”). It must also inform the SBIF each month on the consolidated positions at risk of subsidiaries and foreign subsidiaries (regulatory report SBIF C43 “Consolidated information on market risk using standardized methodology”). The following table details regulatory limit consumption for market risk, specifically for the Trading Book as of December 31, 2016 and 2015. Trading Book
The regulatory risk measurement for the Banking Book (regulatory report SBIF C40 “Cash flows related to interest rate and indexation risk in the Banking Book”) is used to estimate the Bank’s potential losses from standardized adverse movements in interest and exchange rates. It is important to specify that for regulatory reporting purposes, the Trading Book includes the interest rate risk of derivatives The standardized regulatory report for the Banking Book (regulatory report SBIF C40) is used to estimate the Bank’s potential economic losses from standardized adverse movements in interest rates defined by the SBIF. Currently, limits for short-term exposure (STE) to interest rate and indexation risk in the Banking Book must not exceed 35% of annual operating income (LTM moving period) and long-term limit consumption (LTE) must be less than 20% of the Bank’s regulatory capital. The following table details regulatory limit consumption for market risk, specifically for the Banking Book as of December 31, 2016 and 2015: Banking Book
Value at Risk (VaR) Calculation of Historical Value at Risk(Non-parametric). This measurement provides the maximum potential economic loss at a certain confidence level and a given time horizon. Historical VaR, as opposed to Statistical or Parametric VaR, is based on the observed distribution of past returns, does not need to make assumptions of probability distributions (frequently normal distribution) and, therefore, does not need a mean (assumed 0), standard deviation and correlations across returns (parameters). The Bank’s uses a 99% confidence level and a time horizon of 1 day. Calculation of Volatility-Adjusted Historical Value at Risk(Non-parametric). This measurement is based on the above and the profit and loss vector is adjusted according to The Board of Directors defines limits on the Value at Risk (as of the end of the first half of 2016 it uses the volatility-adjusted Historical VaR method) that can be maintained, which is monitored on a daily basis. The measurement is also subjected to backtesting to verify that the daily losses that effectively occurred do not exceed VaR more than once every 100 days. The result is monitored daily to confirm the validity of the assumptions, hypothesis and the adequacy of the parameters and risk factors used in the VaR calculation. The Bank in turn calculates VaR for sub/portfolios and risk factors, which allows it to quickly detect pockets of risk. Since VaR does not consider stress scenarios, it is complemented by stress testing. Specifically, the Bank uses metrics that take into account prospective, historical and standardized scenarios. Although the Value at Risk model is one of the models most frequently used by the local financial industry, like any model it has limitations that must be considered: It does not take into account the expected loss in the event that the portfolio return is above the confidence level defined in the VaR. In other words, in the Bank’s case it does not reflect what happens in the 1% of the tail. This is mitigated with the stress measures detailed below. It does not consider intraday results, but only reflects the potential loss given current positions. It does not take into account potential changes in the dynamics of movements in market variables (i.e. potential changes in the matrix of variance and covariance). Sensitivity Measurements Sensitivity measurements are based on estimated scenarios for positions in the Trading and Banking books. Trading Book Positions by Risk Factor: Trading Book positions as of December 31, 2016 and 2015, are detailed as follows:
Trading Book positions by risk factor correspond to the fair and equivalent nominal value (exchange rate or “FX,” inflation and optionality) of the portfolios within the Trading Book. The Trading Book is made up of the financial assets presented in Notes 6 and 8, and financial liabilities presented in Note 8. The currency position incorporates the amortized cost positions from the Banking Book Positions by Risk Factor:
Positions in currencies other than Chilean pesos (FX) and exposure to indexation is classified by book and by their effect on the Bank’s financial statements, reflecting the spot exposure to each risk factor. It is important to highlight the impact of structural exchange rate risk arising from the Bank’s positions in currencies other than the Chilean peso related primarily to the consolidation of investments in subsidiaries or affiliates and the results and hedges of these investments. The process of managing structural exchange rate risk is dynamic and attempts to limit the impact of currency depreciation, thus optimizing the financial cost of hedges. The general policy for managing this risk is to finance them in the currency of the investment provided that the depth of the market so allows and the cost is justified by the expected depreciation.One-time hedges are also taken out when the Bank considers that any currency may weaken beyond market expectations with respect to the Chilean peso. As of December 2016, greater ongoing exposure was concentrated in Colombian pesos (approximately MUS$ 1,000). The Bank hedges part of these positions on a permanent basis using currency derivatives. The currency positions in the Banking Book have limits for each currency. Structural Interest Rate Position in Banking Book (Interest Rate Gap): Structural interest rate risk is measured using representation by risk factor of cash flows expressed at fair value, assigned at the repricing date and by currency. This methodology facilitates the detection of concentrations of interest rate risk over different time frames. All positions in and outside the Statement of Financial Position must be ungrouped into cash flows and placed at the repricing / maturity point. For those accounts that do not have contractual maturities, an internal model is used to analyze and estimate their durations and sensitivities. The following table shows the Banking Book Positions (products valued at amortized cost andavailable-for-sale instruments and derivatives valued at fair value) for the most important currencies in which the Bank does business as ofyear-end 2016 and 2015. The exposures presented are the present values resulting from: Modeling contractual cash flows based on behaviors that affect market risk exposure. Example: prepayment, renewal, etc. Discounting cash flows from items accounted for on an accrual basis at a rate that represents the opportunity cost of the liability/asset. Discounting cash flows from items accounted for at market value at the market rate. ASSETS Cash Repurchase agreements Loans to customers, net Financial assets available for sale Financial assets held to maturity PP&E and intangible assets Other assets LIABILITIES Current accounts and demand deposits Savings accounts and time deposits Debt issued Other liabilities Capital and reserves DERIVATIVES Financial derivative instruments
ASSETS Cash Repurchase agreements Loans to customers, net Financial assets available for sale Financial assets held to maturity PP&E and investments Other assets LIABILITIES Current accounts and demand deposits Savings accounts and time deposits Debt issued Other liabilities Capital and reserves DERIVATIVES Financial derivative instruments
ASSETS Cash Repurchase agreements Loans to customers, net Financial assets available for sale Financial assets held to maturity PP&E and investments Other assets LIABILITIES Current accounts and demand deposits Savings accounts and time deposits Debt issued Repurchase agreements Other liabilities Capital and reserves DERIVATIVES Financial derivative instruments Cash presented in the above tables corresponds to term deposits. The remaining portion of the cash and cash equivalents is considered readily available. The following table summarizes the aforementioned exposures:
Sensitivity Analysis for Financial Risks The Bank uses stress testing as a sensitivity analysis tool in order to control financial risk. This measurement is performed separately for the Trading and Banking Books. Sensitivity is estimated using the DV01 indicator, which is a measure of sensitivity of portfolio results if the zero coupon interest rate of the risk factor increases by 1 basis point (0.01%) for different maturities and in annualized terms. Although the use of DV01 to estimate potential impacts on the economic, book and equity value is easy to understand and implement, it excludes both correlations among risk factors and second-order effects. The following table presents an estimate of the likely, but reasonable impact of fluctuations in interest rates, exchange rates and implicit volatilities (market factors) that would impact the Trading and Banking Book. The fluctuations in market factors correspond to highly probable scenarios chosen from among a set of scenarios agreed upon based on the opinions of specialists in economics and financial risk and operators. In order to estimate sensitivity, sensitivity (DV01) and the reasonably likely scenarios must be multiplied by market factor. Interest Rate Scenarios - Chile (basis points – 0.01%)
Exchange Rate Scenarios - Chile
Interest Rate Scenarios - Colombia (basis points – 0.01%)
Exchange Rate Scenarios – Colombia
The following table presents the impact of movements or reasonably likely scenarios applied to positions in the Trading Book that affect the Bank’s profit and loss (P&L) as of December 31,
Option Risk includes the (Vega) and Gamma volatility risks. The following table presents the impact on the margin of movements or reasonably likely scenarios on positions in the Banking Book as of December 31, 2016 and 2015.
The impact on the Banking Book does not necessarily mean a gain/loss but it does mean smaller/larger net income from the generation of funds (net funding income, which is the net interest from the accrual portfolio) for the next 12 months. In line with the effects on P&L of positions accounted for at fair value and amortized cost, the changes in market factors because of reasonably possible movements in interest and exchange rates also generate impacts on equity accounts as a result of the potential change in market value of the portfolio ofavailable-for-sale instruments and the portfolios of cash flow and net foreign investment hedges, which are presented in the following table: As of December 31, 2016: CLP CLF COP UVR USD Other Total Rate Impact
The Bank uses accounting hedges to efficiently manage accounting asymmetries present in financial risk exposure. The use of accounting hedges is dependent on limits defined by the board, definitions from the ALCO and the hedging policy. The ALM Division is responsible for designing and implementing strategies and the Financial Risk Management Division for measuring and monitoring the effectiveness of hedges, generating effectiveness indicators that are continuously monitored. See Note 8 for more information on accounting hedge strategies. Liquidity Risk Metrics and Limits Liquidity risk measurements are focused mainly on quantifying whether the institution has sufficient resources to meet its intraday and interday obligations under both normal and stressed conditions. They also include a framework of indicators to forecast the occurrence of liquidity stress scenarios and clarity as to the steps to follow once the risk has occurred. The following regulatory and internal metrics are used to monitor and control liquidity risk: Regulatory Measurement of Liquidity Risk Adjusted liquidity gap: the same chapter (SBIF12-20 “Management and Measurement of Liquidity Position”) establishes that, with prior authorization from the regulator, cash outflows to retail counterparties may be assigned a different maturity than their contractual maturity based on their statistical behavior. Adjusted mismatches (local consolidated) are restricted to a maximum of: 30-day mismatches in consolidated and foreign currency: 100% of Core Capital. 90-day mismatches in consolidated currency: 200% of Core Capital. The Bank, on a local consolidated level, must continuously observe those limits and periodically report to the SBIF its positions at risk and compliance with those limits using the C46 regulatory report “Liquidity Situation.” The use of the liquidity regulatory limit as of December 31, 2016 and 2015,
Regulatory Measurement of Contractual Liquidity Gap In accordance with SBIF Chapter12-20, all cash flows in and outside the Balances of
Note: comparative basis for 2015 is only Itaú Chile The The grouping corresponds to regulatory categories that bring together financial items with similar characteristics from the perspective of liquidity risk. These categories are modeled separately and reported in cash flows. Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) In line with international risk management practices, the Bank uses the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to manage liquidity risk. The LCR aims to measure the sufficiency of high-quality assets to face a30-day funding stress scenario. At a
Structurally, the
Note1: loans are reported net of provisions Note2: comparative basis for 2015 is only Itaú Chile Liquidity Warning Levels Warning levels seek to provide evidence or signs of potential adverse liquidity events. The most relevant warning levels include: counterparty and maturity concentration, currency concentration, product concentration, reserve management, evolution of funding rates and diversification of Liquid Assets. Analysis of Pledged and Unpledged Assets The following presents an analysis of the Bank’s pledged and uncommitted assets that will be available to generate additional funding as fixed-income instruments. For this, pledged assets are: Assets that have been committed or received in guarantee. Assets that an entity considers that it is restricted from using. Available assets and
Counterparty Risk Exposure to derivative counterparty risk is measured by recognizing the different contracts maintained with the institution’s customers, including contracts without mitigating clauses, contracts with netting, contracts with Credit Support Annex (CSA) and with clearing houses, which receive a differentiated treatment. The following table details the netting of these transactions:
Market values of derivatives that are reported in accounting do not reflect counterparty risk management using guarantees as they do not reveal the true exposures with the counterparties. The guarantees delivered (received) must be added (subtracted) from the market value in order to correctly reflect these exposures.
b.3) Monitoring and Governance of Financial Risks The Board is the body in charge of the Bank’s management. Its duties include defining the institution’s strategic guidelines and supervising its risk management structure. Risk management policies are established The Audit Committee supervises the way in which the Bank monitors and manages risk and compliance with the risk management policies and procedures and oversights if the risks management framework is appropriate for In accordance with the Bank’s governance outlook, the Financial Risk Division is responsible for identifying, quantifying, analyzing, controlling and monitoring financial risk at the Bank. The Credit Risk Division is responsible for managing
The Financial Risk Division is independent from the business areas and is responsible for controlling and measuring the Bank’s financial risks (market and liquidity risk) as well as supplying, along with the Treasury Division, the ALCO with the metrics and limits for those risks, which are established in the respective policies. The Bank’s financial risk management efforts are framed within the Financial Risk Policy, which is comprised of the Liquidity Management Policy, the Market Risk Management Policy and the Valuation Policy. Financial Risk Management Principles
Risk is monitored and controlled by parties independent from those managing risk, thus correctly aligning incentives.
Management efforts should be flexible, within the framework permitted by policies, rules and current regulations.
Senior management establishes the guidelines for risk appetite, and Financial Risk Management Committees In order to guarantee the flexibility of management efforts and communication of risk levels to
Daily
Liquidity
Treasury Committee: Meets monthly to analyze matters related to treasury activity and establish agreements and strategies on related matters, always in line with current ALCO policies and guidelines. Asset-Liability Committee (ALCO): Meets
Board of
b.3 Shareholders’ equity requirement The
The Bank
In
adding subordinated bonds limited to 50% of Core Capital and,
subtracting the asset balance of goodwill and unconsolidated investments in companies. addingnon-controlling interest up to a maximum of 20% of Core Capital. Assets are weighted
As instructed in Chapter12-1 “Equity for Legal and Regulatory Purposes” of the SBIF RAN, beginning in January 2010, a regulatory change was implemented that made effective ChapterB-3 of the Compendium of Accounting Standards and its subsequent amendments, which changed the risk exposures of contingent loans, passing from 100% to
As of
Figures are presented as required by local regulations.
In accordance with the SBIF’s authorization of the business combination, it determined that the resulting bank (from April 1, 2016 onward) shall maintain regulatory capital of not less than 10% of its risk-weighted assets. The shareholder agreement established “Optimum Regulatory Capital” for Itaú Corpbanca (Chilean Bank) or CorpBanca Colombia (Colombian Bank), as appropriate, (a) of the greater of (i) 120% of the minimum regulatory Capital Ratio required by applicable law in the respective country; and (ii) the average minimum regulatory Capital Ratio of the three largest private banks (excluding the Chilean Bank and/or the Colombian Bank (measured in terms of the assets of the Chilean Bank and/or the Colombian Bank (measured in terms of assets) in Chile or Colombia, as appropriate, in each case the last day of the most recent fiscal year multiplied by (b) the risk-weighted assets (which include the risk-weighted assets of the Subsidiaries that are consolidated for the purpose of calculating the minimum regulatory Capital Ratio in each country) of the Chilean Bank or the Colombian Bank, as appropriate, as of the date one year after the last day of the most recent fiscal year, presuming that the risk-weighted assets grow during that year at a rate equal to the Minimum Growth Rate. The Bank, in consolidated terms (the owners of the Bank), has total equity of MCh$
In terms of regulatory ratios, the Bank closed b.4 Operational Risk
The
In line with its business strategy, Banco Itaú Corpbanca has assigned operational risk management to the Operational Risk Division, which acts according to an annual plan based on the strategic plan for the business areas, support areas and the Parent Company. This plan includes its own activities and others agreed with the Parent Company to comply with regulatory requirements. Time and available resources are distributed based on the organization’s objectives and size. This Division reports to the Corporate Risk Division, which in turn reports to the Bank’s Chief Executive Officer. In the Bank’s corporate governance structure, managing operational risk is of strategic importance to its business processes. Operational risk management is based on financial industry best practices, international standards (most importantly the Basel standards) and local standards, especially Chapter1-13 of the SBIF regulations on operational risk management. Banco Itaú Corpbanca has adopted a model with three lines of defense as the Our methodology consists of evaluating the risks and controls of a business from a broad perspective and includes a plan to monitor the effectiveness of those controls and identify potential weaknesses. This perspective considers, among other factors, the volume and complexity of activities and the potential impact of the related operational losses and the control environment. The stages and main activities of our methodology are: Identifying risks: Mapping processes. Identifying risks and controls associated with processes, products, projects. Identifying internal and external rules and regulations. Recording operating losses. Measuring and evaluating each risk identified: Evaluating events. Evaluating internal and external rules and regulations. Walk-throughs and tests. Classifying controls (SOX). Evaluating business impacts of contingencies using a business impact analysis (BIA). Corporate and regulatory self-assessment. Mitigation and control: Defining the risk response (walk-throughs, tests, action plans). Mitigating and controlling crisis situations. Monitoring the internal control environment. Defining and implementing risk indicators Monitoring indicators and controls. Assisting with implementation of actions plans to mitigate audit comments and risk events. Reporting: Management reports to the Bank’s senior management and committees. Coordinating operational risk, IT security, continuity and crisis management committees. Management reports to parent company. c. Objectives The main objectives of the Bank and its subsidiaries in managing operational risk are Identify, evaluate, report, manage and monitor operational risk of activities, products and processes carried out or sold by the
Build a strong culture of operational risk management and Generate effective internal reports on matters related to operational risk management, Control the
Lastly, it continues to apply the Sarbanes-Oxley (SOX) methodologies for its main products and processes, which
NOTE
Below are the main financial assets grouped according to their remaining terms, including interest accrued as of December 31,
Below are the main financial liabilities grouped according to their remaining terms, including interest accrued to as of December 31,
NOTE Assets and liabilities denominated in foreign currencies or indexed to changes in exchange rates are summarized below:
ITAÚ CORPBANCA CORREDORA DE BOLSA S.A.
On
The matters described above do not involve any adjustments to the
ITAÚ CORPBANCA
On January 20, 2017, Itaú Unibanco Holding S.A. (“Itaú Unibanco”), Itaú Corpbanca, Corp Group Interhold S.P.A. (“Interhold”) and Inversiones Gasa Limitada (“GASA,” collectively with Interhold, “CorpGroup”), have agreed to amend the Transaction Agreement signed on January 29, 2014 and amended on June 2, 2015 The amendments to the Transaction Agreement are detailed in Note 3 “Relevant Events,” in the section “Itaú Corpbanca” letter e).
On January 30, 2017, Itaú Corpbanca transferred all of its shares in SMU Corp S.A., equivalent to 51%. As a result, that company is no longer a subsidiary of the Bank. The shares were acquired by Inversiones Monserrat S.A.
On December 20, 2016, Helm LLC filed a lawsuit in the New York State Supreme Court (“the State Court Lawsuit”) and a Request for Arbitration before the ICC International Arbitration Court (the “Arbitration”), against Itaú Corpbanca, alleging certain breaches of contract. These alleged breaches refer to (i) the amended shareholder agreement of HB Acquisition S.A.S. dated July 31, 2013 (“SHA”) and (ii) the Transaction Agreement (“TA”) dated January 29, 2014, as amended, which governs, among other matters, the merger between Itaú Chile S.A. and Corpbanca, by which Itaú Corpbanca was formed, and the In the State Court Lawsuit, Helm LLC sought an injunction to support the arbitration to prevent the Acquisition of the Shares from taking place, which, as reported by Itaú Corpbanca as an Essential Event on December 20, 2016, was postponed until January 28, 2022. On December 30, 2016, Itaú Corpbanca filed its response to the motions filed by Helm LLC in accordance with the State Court Lawsuit and, later, on January 26, 2017, Helm LLC filed a notice to withdraw the State Court Lawsuit. The Arbitration has begun in accordance with applicable procedures. Itaú Corpbanca and Corpbanca Colombia
In the Annual Ordinary Shareholders’ Meeting held in March 27, 2017, our shareholders agreed to distribute
The matters described above do not involve any adjustments to the
ITAÚ CHILE ADMINISTRADORA GENERAL DE FONDOS S.A. – CORPBANCA ADMINISTRADORA GENERAL DE FONDOS S.A.
On January 25, 2017, extraordinary meetings of the boards of Itaú Chile Administradora General de Fondos S.A. and CorpBanca Administradora General de Fondos S.A. were held. At these meetings, the boards agreed to render null and void the agreement to merge and amend the bylaws approved on June 30, 2016, at the Extraordinary Shareholders’ Meeting. They also agreed to initiate, as soon as possible, a new merger process to integrate the businesses of both companies and to request the corresponding authorizations, which will be communicated in a timely manner. The matters described above do not involve any adjustments to the
Between January 1,
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