As filed with the Securities and Exchange Commission on April 29, 2020

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,WASHINGTON, D.C. 20549

FORM 20-F

☐ 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, 20192020

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 transition period from          to

Commission file number 001-15266

BANCO DE CHILE

(Exact name of Registrant as specified in its charter)

BANK OF CHILE

(Translation of Registrant’s name into English)

REPUBLIC OF CHILE

(Jurisdiction of incorporation or organization)

Securities registered or to be registered pursuant to Section 12(b) of the Act:Act.

Securities registered or to be registered pursuant to Section 12(g) of the Act:Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:Act.

None

(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:report.

Shares of common stock:stock:  101,017,081,114

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes þ☐ 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 ☐☒ Noþ

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. ☒ Yes  þ☐ 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 Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes þ☐ No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” accelerated“accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

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 Rule 12b-2 of the Exchange Act). ☐ Yes ☒ 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 ☐ Noþ

TABLE OF CONTENTS

SUMMARY OF RISK FACTORS

An investment in our ADSs is subject to a number of risks, including risks relating to the nature of our business as a financial institution in Chile. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.

Risks Relating to our Operations and the Chilean Banking Industry

Risks Relating to our American Depositary Shares (“ADSs”)

Risks Relating to Chile

We are a party to collective bargaining agreements with various labor unions to which most of our employees belong. Disputes regarding the terms of these agreements, our potential inability to negotiate acceptable contracts with these unions, could result in strikes, work stoppages, or other slowdowns by the affected workers, among other things. In addition, recent and pending changes to Chilean labor and pension laws may increase costs. Therefore, reforms to labor and pension laws as well as labor strikes or slowdowns could adversely affect our results of operations.

FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we have based these forward-looking statements on our expectations and projections about future events, it is possible that actual results may differ materially from our expectations. In many cases, we include a discussion of the factors that are most likely to cause forward-looking statements to differ from actual results together with the forward-looking statements themselves. These statements appear throughout this annual report, including, without limitation, under “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.” Examples of such forward-looking statements include:

Words such as “believe,” “anticipate,” “plan,” “aims,” “seeks,” “expect,” “intend,” “target,” “objective,” “estimate,” “project,” “potential,” “predict,” “forecast,” “guideline,” “could,” “may,” “will,” “should” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. These statements may relate to (i) our asset growth and financing plans, (ii) trends affecting our financial condition or results of operations and (iii) the impact of competition and regulations, but are not limited to such topics. 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, foreign 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 could 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:

You should not place undue reliance on forward-looking statements, which speak only as of the date that they were made. This cautionary statement should be considered in connection with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to publicly release any revisions to such forward-looking statements after the filing of this annual report to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

PRESENTATION OF FINANCIAL INFORMATION

We prepare our audited consolidated financial statements in Chilean pesos and in accordance with International Financial Reporting Standards (“IFRS”) in effect from time to time as issued by the International Accounting Standards Board (“IASB”).

Unless otherwise indicated, the financial information included in this annual report with respect to 2015, 2016, 2017, 2018, 2019 and 20192020 has been derived from financial statements that have been prepared in accordance with IFRS. See Note 2(a) to our audited consolidated financial statements as of and for the year ended December 31, 20192020 appearing elsewhere in this annual report. IFRS differs in certain significant respects from Chilean Generally Accepted Accounting Principles (the “Chilean GAAP”) as issued by theSuperintendencia de Bancos e Instituciones Financieras de Chile (the “Superintendency of Banks and Financial Institutions” or “SBIF”). As a result, our financial information presented under IFRS is not directly comparable to any of our financial information presented under Chilean GAAP. Accordingly, readers should avoid such comparison.

In this annual report, references to “$,” “U.S.$,” “U.S. dollars” and “dollars” are to United States dollars, references to “pesos” or “Ch$” are to Chilean pesos (see Note 2(f)) to our audited consolidated financial statements as of and for the year ended December 31, 20192020 appearing elsewhere in this annual report), and references to “UF” are to “Unidades de Fomento.” The UF is an inflation indexed Chilean monetary unit of account with a value in Chilean pesos that is linked to and adjusted daily to reflect changes in the Consumer Price Index (“CPI”) of theInstituto Nacional de Estadísticas (the “Chilean National Statistics Institute”). As of December 31, 20192020 and April 24, 2020,23, 2021, one UF equaled Ch$28,309.9429,070.33 and Ch$28,673.54,29,466.67, respectively.

This annual report contains translations of certain Chilean peso amounts into U.S. dollars at specified rates. These translations should not be construed as representations that the Chilean peso amounts actually represent such U.S. dollar amounts, were converted from U.S. dollars at the rate indicated in our audited consolidated financial statements as of and for the year ended December 31, 20192020 or could be converted into U.S. dollars at the rate indicated. Banco de Chile utilizes the exchange rate of accounting representation, or spot exchange rate, for such matters. This is also described in “Item 3. Key Information—Selected Financial Data—Exchange Rates.” Thus, unless otherwise indicated, the U.S. dollar amounts have been translated from Chilean pesos based on the exchange rate of accounting representation as of December 30, 20192020 as determined by our Treasury on a daily basis, based on the average of the daily closing bid and offer rates reported by Bloomberg for the Santiago Stock Exchange. As of December 30, 20192020 (the latest practicable date, as December 31, 20192020 was a banking holiday in Chile) and April 24, 2020,23, 2021, the exchange rates of accounting representation were Ch$751.88711.90 = U.S. $1.00 and Ch$858.86712.05 = U.S.$1.00, respectively. As of the same dates, the observed exchange rates, as published by Banco Central de Chile (the “Central Bank”), were Ch$744.62711.24 = U.S.$1.00 and Ch$858.87705.41 = U.S.$1.00, respectively.

The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.

Unless otherwise specified, all references in this annual report to total loans are to loans to customers before deducting allowances for loan losses, and they do not include loans to banks or contingent loans. In addition, all market share data and financial indicators for the Chilean banking system as compared to Banco de Chile’s financial information presented in this annual report are based on information published periodically by the CMF which is published under Chilean GAAP and prepared on a consolidated basis, unless otherwise indicated. For more information see “Item 4. Information on the Company—Business Overview—Competition.”

In this annual report, “past due loans” are any loans for which the counterparty has failed to make a payment when contractually due, including installments that are overdue, plus the remaining balance of principal and interest on such loans. In order to distinguish between different overdue time periods, the corresponding time period is included after the term “Past due Loans” (for example, “Past due Loans—90 days or more”). For more information, please see “Item 4. Information on the Company—Selected Statistical Information—Classification of Loan Portfolio Based on the Borrower’s Payment Performance.”

According to Chilean regulations, as of the filing date and for the purposes of this annual report, regulatory capital (“Regulatory Capital”) consists of:

Given the phase-in period for the implementation of Basel III in Chile, the above definitions are still in effect and they will be applicable until November 30, 2021. From December 1, 2021 onwards, new definitions for Regulatory Capital, including Common Equity Tier 1, Additional Tier 1, and Tier 2 Capital, will go into effect. For more information, see “Item 3. Key Information—Risk Factors—Risks Relating to our Operations and the Chilean Banking Industry—Restrictions imposed by regulations may constrain our operations and thereby adversely affect our financial condition and results” and “Item 4. Information on the Company—Regulation and Supervision— Modifications to the General Banking Act.”

Certain figures included in this annual report and in our audited consolidated financial statements as of and for the year ended December 31, 20192020 have been rounded for ease of presentation. Percentage figures included in this annual report have not in all cases 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 year ended December 31, 2019.2020. Certain other amounts that appear in this annual report may similarly not sum due to rounding.

Inflation figures are those reported by the Chilean National Statistics Institute, unless otherwise stated herein or required by the context.

MACRO-ECONOMIC AND MARKET DATA

In this annual report, all macro-economic data relating to the Chilean economy is based on information published by the Central Bank. All market share data, financial indicators and other data relating to the Chilean financial system are based on information published periodically by the CMF, which is published under Chilean GAAP and prepared on a consolidated basis.

Part I

Not Applicable.

Not Applicable.

SELECTED FINANCIAL DATA

The following tables present historical financial information about us as of the dates and for each of the periods indicated. The following tables should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements as of and for the year ended December 31, 20192020 appearing elsewhere in this annual report. The financial information for the years ended December 31, 2015, 2016, 2017, 2018, 2019 and 20192020 is presented under IFRS. For financial information for the years ended December 31, 2016 and 2017, respectively, please refer to “Item 3—Selected Financial Data” in our annual report on Form 20-F for the year ended December 31, 2019 filed with the SEC on April 29, 2020, which is hereby incorporated by reference solely for the purpose of the financial information for the years ended December 31, 2016 and 2017.

Our audited consolidated financial statements have been prepared in accordance with IFRS for the years ended December 31, 2015, 2016, 2017, 2018, 2019 and 2019.2020.

In 2019, however, GDP recorded only a moderate annual expansion of 1.1%. During the first three quarters of 2019, the Chilean economy underperformed in comparison with its growth potential, but by the third quarter, it seemed that the economy was retaking a healthy pace of growth. However, that growth pattern was more than offset, highly influenced by the effect of the social unrest that started in Chile on October 18, 2019, which resulted in several protests and upheavals causing severe damage to public and private infrastructure, transport disruptions, temporary interruption of certain economic activities and significant deterioration of both consumer confidence and business sentiment. Accordingly, in the fourth quarter of 2019, the local economy recorded a contraction of 2.1%. In spite of2019. Despite this subdued performance, the loan portfolio managed by the banking industry increased by 10.0% in nominal terms in 2019, mainly due to theexplained by a decoupled behavior of mortgage loans, evidenced by sustained growth of 11.2% over the course of the year.

During 2020, the global health emergency derived from the COVID-19 pandemic resulted in a deteriorated macroeconomic scenario in Chile, as depicted by a 5.8% GDP contraction and a surge in unemployment rate from 7.3% in December 2019 to 10.3% in December 2020. These figures were undoubtedly influenced by long-lasting lockdowns and other measures taken by the Chilean health authority in order to reduce mobility and social interaction across the country, which eventually led to many economic sectors (such as tourism, construction, retail and restaurants, among others) to cease or reduce their operations for months. In this environment, the loan portfolio managed by the banking industry grew at a moderate annual rate of 2.4% in nominal terms (excluding operations of subsidiaries abroad). This figure was primarily influenced by residential mortgage loans, disassociatedwhich continued to be decoupled from economic dynamics and encouragedbacked by both historicallyunprecedented low interest ratesrates. To a lesser extent, the governmental support program aimed at promoting lending for companies by guaranteeing working capital loans for SMEs and strong housing demand. In turn,middle market companies, translated into a boost in commercial loanloans balances also grew, but mainlyduring the period. Still, consumer loans were substantially affected by the deteriorated macroeconomic scenario during the first three quarters of the year, as evidenced by the drop in household spending and lower payment capacity until an improvement in individuals’ financial stability was seen by the end of the third quarter, as a consequenceresult of a fiscal aid package that translated into direct money transfers, the monetary actions taken by the Central Bank in order to ensure liquidity in the local market, and also the two consecutive withdrawals from pension funds approved by the Chilean Congress.

Despite the recovery in the second half of the effects ofyear, as shown by the sharp depreciation of the Chilean peso on U.S. dollar denominated loans during the fourth quarter of 2019. Also, consumer loans moderately increased by 1.1%, reflecting the slowdown in private consumption for the economy as a whole. Given the cyclical nature of the banking business,year-end 2020 figures, many factors could adversely affect the growth rate of the industry and, therefore, the expansion of our loan portfolio including, but not limited to: (i) a slowdown or negative GDP growth, (ii) changes in household or investment spending, (iii) changes in banking customers’ behavior, and (iv) any effect related to social trends, social unrest, pandemics or any event affecting the growth potential of the Chilean economy. Similarly, this could affect our credit quality indicators causing us to establish higher allowances for loan losses. For more information, see “Item 4. Information on the Company—Regulation and Supervision” and “Item 4. Information on the Company—Selected Statistical Information.”

Restrictions imposed by regulations may constrain our operations and thereby adversely affect our financial condition and results.

We are subject to regulation by the Financial Market Commission (“CMF”). In addition, we are subject to regulation by the Central Bank with respect to certain matters, including liquidity management, among others. See “Item 4. Information on the Company—Regulation and Supervision.”

The CMF was established in January 2018 pursuant to Law No. 21,000 and replaced the Superintendency of Securities and Insurance (“SVS”). Following Law No. 21,130 (Modernization of Banking Legislation) in June 2019, the former banking supervisor (the “Superintendency of Banks and Financial Institutions” or “SBIF”) merged into the CMF, and all the powers previously vested in the SBIF were transferred to the CMF. Accordingly, the CMF currently oversees the Chilean Financial Market (comprised of publicly traded companies, insurance companies, insurance brokers, mutual funds and investment funds) as well as the Chilean banking industry as a whole and some non-bank lenders.

Pursuant to theLey General de Bancos (the “General Banking Act”) all Chilean banks may, subject to the approval of the CMF, engage in certain non-banking businesses approved by the law. The CMF’s approval will depend on the risk of the activity and the strength of the bank. Furthermore, the General Banking Act currently imposes on the Chilean banking system a modified version of the capital adequacy guidelines issued by the Basel Committee on Banking Regulation and Supervisory Practices (the “Basel Committee”) and limits the discretion of the CMF to deny new banking licenses.

On October 3, 2018, the Chilean Congress passed modifications to the General Banking Act in diverse topics, including the adoption of Basel III guidelines for the Chilean banking industry. These modifications were enacted in Law No. 21,130 on December 27, 2018 and subsequently published on January 12, 2019. This law addresses four main topics aimed at modernizing the Chilean banking framework by means of:

Following the phase-in period set by the law, the former SBIF merged into the CMF in June 2019. Subsequently,

Since May 2019, the newCMF began the publication for comment in respect of their rule-making on a diverse and wide array of topics associated with Basel III. By December 2020, 11 out of 12 final rules had been issued by the CMF. There is only one piece of regulation pending of issuance, which is the specific ruling associated with limits to large or single exposures (Article N°83 of General Banking Act). The Chilean regulator has a period of 18 months, until December 2020,not informed us as to issuewhen it would be available for banks. Also, the specific regulation formethodology to activate or deactivate the implementation of Basel III. Priorcountercyclical buffer, to that date, no additional capital requirements to those currently in force (Basel I) will be imposed on local banks. Between June 2019defined by the Central Bank and April 2020,monitored by the CMF, has published seven specific regulations addressing Basel III matters for public comment, including:is still pending of issuance.

The rules already in place are: (i) a methodology for determining systemically important banks or groups of banks, (ii) a standardized methodology for determining operational risk-weighted assets of banks, (iii) the guidelines for calculation and composition of regulatory capital, (ii) conditions for banks,the issuance of financial instruments representing additional Tier 1 capital, (iii) conditions for the issuance of financial instruments representing Tier 2 capital, (iv) a framework for determination of credit risk-weighted assets for banks under both a standardized methodology and internal models, (v) a standardized framework for determining market risk-weighted assets for the trading book, (vi) a standardized methodology for determining operational risk-weighted assets, (vii) additional requirements of common equity Tier 1 capital requirements, including both a conservation buffer and a countercyclical buffer, (viii) a methodology for determining systemically important banks (vi)or groups of banks and additional requirements for these types of banks, (ix) a framework for the calculation of leverage ratio, and (vii) conditions(x) the Pillar 2 framework for the issuanceregulatory review process, and (xi) Pillar 3 disclosure requirements.

For more detailed information on each specific regulation and capital thresholds, see “Item 4. Information on the Company—Regulation and Supervision—Modifications to the General Banking Act.”

Our capital adequacy ratios under the previous and new regulatory frameworks, as of financial instruments representing additional Tier I capital or Tier II capital, to be computedDecember 2020, are as part of total regulatory capital. Final regulations have yet to be published, while some other significant rules are still in the process of being released for public comment. These regulations include: (i) methodologies for calculation of market risk-weighted assets, (ii) a methodology to activate or deactivate countercyclical buffer, which should be defined by the Central Bank and monitored byfollows:

On March 31, 2021 the CMF (iii) specifications regardingannounced that based on the imposition of other-than-capital requirementsinformation provided by local banks for the year ended December 31, 2020, there are six domestic systemically important banks, suchincluding us, which will be subject to systemic buffers. However, as reserve requirements and interbank loans, among others, and (iv) Pillar II requirements (if any), among other topics. Sinceof the date of this annual report we have not received any notice regarding the buffer that will apply to us. As a result, since we have no absolute certainty regarding the limits that will be finally imposed by the CMF to the banking industry, and on us in particular either in terms of potential capital buffers, or the calculation of risk-weighted assets, we cannot assure you that our profitability will not be impacted by actions we may take in order to fulfill new regulatory thresholds. For more information, see “Item 4. Information on the Company—Regulation and Supervision—Modifications to the General Banking Act.”

During 2015, the Central Bank published a final version of new liquidity standards for local banks, based on Basel III guidelines. The CMF is the institution empowered to put these guidelines into practice and monitor them on an ongoing basis. Subsequently, the regulator released a new set of liquidity requirements for banks (Circular No. 3,585) on July 31, 2015, which established reporting requirements for local banks with respect to management and measurement of banks’ liquidity position. As a result, sinceSince 2016, banks have been required to report and monitor liquidity ratios, such as Liquidity Coverage Ratio (“LCR”) and Net Stable Funding Ratio (“NSFR”), for information purposes only. Nonetheless, onOn May 4, 2018 the Chilean Central Bank published for comment an amendment to Chapter III.B.2.1 ofCompendio de Normas Financieras (the Compendium of Financial Norms), focused on proposing a minimum requirement for the LCR, considering a phase-in period of five years, starting at 60% in 2019 and reaching the final limit of 100% in 2023 (with annual increments of 10% between 2019 and 2023). Given the phase-in period established for the LCR limit, we do not see any significant impact on our financial condition, results of operation or profitability in the medium term. Nevertheless, we cannot assure whether any other new liquidity requirements, if any, will have a material adverse effect on us. It is important to note that in light of the situation caused by the COVID-19 outbreak, the Central Bank announced the possibility of temporarily easing certain liquidity requirements, particularly associated with 30-day and 90-day cash flows mismatches, while stating that LCR limits could also be temporarily softened during the duration of the pandemic. However, none of these measures have been necessary in the case of Banco de Chile in 2020 or 2021, periods in which we have maintained significant liquidity surplus. For more information on liquidity matters, see “Item 4. Information on the Company—Regulation and Supervision—Liquidity Risk Regulations” and “Item 5. Operating and Financial Review and Prospects—Recent Developments.Operating Results—Impacts of COVID-19 in 2020.”

As for credit risk allowances, on December 30, 2014, the former SBIF published a set of amendments to the regulations on allowances for potential loan losses. The amendments established a standardized method for calculating loan loss provisions for residential mortgage loans, based on past due behavior and loan-to-value ratios. They also provided new and more precise definitions for impaired loans and new requirements to remove loans from such portfolios. This set of rules also addressed the future possibility of implementing standardized credit risk provisioning models for consumer and commercial loan portfolios, evaluated on a grouped basis. The new amendments also introduced changes to the treatment of provisions related to factoring loans and guarantors. This new set of rules went into effect on January 1, 2016 and had no material impact on our results prepared under both IFRS and Chilean GAAP for the years ended December 31, 2018 and 2019. Notwithstanding the above, it is important to note that in January 2018, the former SBIF published for comment a set of amendments to the provisioning rules for commercial loans evaluated on a grouped basis. Following this announcement, on July 6, 2018 the former SBIF published the final amendments to the provisioning rules for commercial loans evaluated on a group basis, which established standardized models for leasing loans, student loans and other commercial loans (not included in the former categories). In addition, the new set of rules also addressed other topics related to loan provisioning. The new provisioning criteria went into effect in July 2019 and had no material impact on our results of operations under both Chilean GAAP and IFRS. Nevertheless, we cannot rule out that future changes in the provisioning rules for other types of loans or related definitions will not affect our results under IFRS or Chilean GAAP, as applicable.

Additionally, the Chilean Government has focused on matters related to consumer protection in recent years. Since 2010, several legal and administrative regulations have been amended and revoked in order to strengthen consumer protection and the relationship between financial institutions and their customers.

Since January 2017,In May 2020, the Chilean Congress has considered and discussedpassed a billlaw that modifies the current framework regarding liabilities for payment service providers (such as banks) and for customers of such services, in cases of fraudulent transactions carried out within credit orand debit cards, including those byand in electronic means. This bill establishesfunds transfers. Among other matters, these new regulations demand that funds charged, to credit or debit cards for transactions, thatwhich are not recognizedlater unrecognized by the customer, must be returned toby the cardholder’s account. Further, this proposed legislation states that, if such unrecognized charged funds are up to an amount ofpayment service provider when the transaction does not exceed UF 35 (equivalent to Ch$1.0 million as of April 24, 2020)March 31, 2021), and if greater, the payment service provider must mandatorily return these fundssuch amount, enabling the financial entity to retain the excess to the cardholder’s account within five business days. In case of unrecognized charges for amounts overextent it judicially proves wrongdoing from the limit of UF 35, the payment service provider will have an additional term of seven days to return the amounts in excess of UF 35. However, in this case, the payment service provider may retain such excess if it considers to have sufficient evidence to determine that the customer acted fraudulently or with gross negligence, in which case the payment service provider will be required to prove this to the applicable court. Also,customer. As expected, this new legislation doessignified an important increase in our liabilities towards customers due to digital fraud during 2020 compared to previous years, since we are now legally obliged to assume certain losses suffered by our customers. Although we have implemented an array of measures and campaigns with our customers, which signified that we have been able to adequately mitigate the impact of this legislation, we cannot assure you that we will not allow payment service providerscontinue to offer fraud insurance forsee an increase in our liabilities as a result of this new legislation. For further information on the obligations and liabilities imposed by, and characteristics of, this new legislation, see “Item 4. Information on the Company—Regulation and Supervision—Consumer-Oriented Regulation.”

On April 20, 2021, new legislation that modifies consumer protection laws, prohibiting and limiting certain extrajudicial, or out-of-court, debt collection actions towards individuals and SMEs was enacted. Regarding banks, among other matters, this new law (i) limits the number and type of out-of-court collection measures, (ii) requires keeping detailed records of such cards. It further establishes obligations foractions up to two years after they have been initiated, and (iii) prohibits continuing with out-of-court collection actions once a collection has been initiated in court. We believe that this legislation could reduce our ability to recover delinquencies in our individuals’ and SMEs’ portfolios and could have an impact in our net portfolio expenses and collection costs. This could also signify that we may have to modify strategies in our collection processes to ensure rigorous compliance with the payment service providerapplicable regulation and our internal policies. Consequently, we cannot rule out that this could have an adverse effect on Banco de Chile and the financial industry.

As of mid-April 2021, a bill addressing a broad range of financial regulation and services was approved by the Chilean Congress and enacted by the Chilean Government. With respect to take adequate measures to protectloan products, this law sets new rules on the payment services in caseapplication of unlawful acts, holding them liable for damages causedinterests and fees. The main modifications introduced by securitythis new law are: (i) it states that no interests may be charged on the portion of credits that is already paid; (ii) it forbids charging simultaneously and protection deficiencies in their technological systems through which such services are provided. Accordingly,jointly default interests with other kinds of interest over the billsame amount; and (iii) it establishes that, certain fraudulent transactions with creditduring the 12 months following the publication of this law, the CMF will dictate specific regulation addressing the extent by which fees or debit cards and electronic payments (such as forgery of credit or debit cards, sale of forged or stolen cards and/or its data, impersonation of a card/accountholder, etc.) are constitutive of crimes subject to imprisonment penalties and fines up to threefold the amount of the fraudulent transaction. Further, this proposed legislation grants the Chilean Public Ministry (public prosecutors) broad powers to investigate these crimes when they are suspectedcommissions may be charged on credit transactions. These ancillary regulations pending to be relatedissued by the CMF could limit our ability to organized crime. Discussions within the Chilean Congress,charge and earn fees or commissions on certain credits and loan products. Therefore, as of the date of this annual report, have concluded. However, before this bill is enacted, it must be further reviewed by the Constitutional Court, given certain matters addressed by it. If this bill is passed and enacted with the current drafting, the new legislation may increase litigation and related costs, raising thresholds and evidentiary standards to determine the liability of the customer, as banks will bear the burden of proof for fraud and gross negligence from customers in certain cases. Furthermore, we cannot assure thatyet determine or rule out whether this billnew law will not have an adverse effectnegatively affect our results of operations in the banking industry or on Banco de Chile if it is passed, particularly in cases of electronic fraud, where we may have the legal obligation to pay compensation for damages to customers.future.

In addition, there are several bills modifying matters related to loans and credit products, such as interest rate ceilings, prepayment fees and the possibility of capitalizing interests. These bills have been recentlyinterests, most of which were introduced by members of the Chilean Congress during the last monthsOctober 2019 aftermath and the COVID-19 pandemic, and include an array of amendments from different perspectives. In addition, in the contextSome of the COVID-19 outbreak, the Chilean Congress is currently discussing bills aimingthem also aim to ease the financial burden of certain banking borrowers, such as SMEs and individuals. One of these bills proposes to suspend six credit-related installments for consumer and mortgage loans by postponing these payments to the end of the liability, bearing no additional interests. Since allmost of these bills are currently at early stages in the Chilean Congress, there is no certainty whether any or all of them will be further discussed or not, and as to when or how these bills could change the current regulatory framework. Therefore, we cannot determine or assure you whether they will materially affect our results of operations in the future.

Also, since September 2019, the Chilean Congress has been discussing a bill presented by the Chilean Finance Ministry, known as “Financial Portability”, which aims to simplify the bank switching process for individual customers and SMEs of certain products, while also reducing the costs and time associated with the process. In summary, all banking customers holding: (i) a savings account, (ii) a demand account, (iii) electronic checks, (iv) a line of credit, (v) credit or debit cards, (vi) time deposits, (vii) mutual funds, (viii) consumer loans, (ix) auto-finance loans, (x) residential mortgage loans, or (xi) a combination of these products, will be able to transfer such services to other financial service providers in order to improve the financial terms of any banking product or a group of products, such as interest rates, tenors and related benefits. The bank switching process will be managed by the provider receiving the new customer. After certain modifications introduced to the bill, it was passed by the Congress Lower House on October 29, 2019 and is currently being analyzed by the Upper House. The bill could attract new customers for us, but may also cause us to lose current ones. As such, while the commercial and financial effects of the bill are still unknown, it is expected to produce higher administrative expenses in order to address a faster switching process, whereas the financial impact could be associated, but not limited to, (i) a decrease in net interest margin, (ii) lower income from fees and commissions, and (iii) a customer base reduction, among others. Still, at this point it not possible to determine the full future extent of this bill’s impact on our results of operations, if enacted.

From the taxation perspective, on August 23, 2018 the Chilean Government sent a bill to the Chilean Congress, which was intended to modernize the Chilean tax system. The Congress, in conjunction with the Government, introduced certain modifications to the original bill, which was passed by the Congress in January 2020 and enacted on February 24, 2020 (Law No. 21,210). Further measures were introduced as part of emergency plans to reactivate the economy following the COVID-19 pandemic. In addition, at the beginning of April 2021, members of the Chilean Congress proposed legislation aiming to raise the corporate tax rate for large companies from 27% to 30%, which would be applicable for two fiscal years (2021 and 2022) to the extent their average pre-tax income in the previous three years exceeds UF 1,000,000 (equivalent to US$41 million as of March 31, 2021), which is the case for Banco de Chile. However, a reform to the Chilean Constitution would be necessary for such purposes. At this point, there is no certainty whether this legislation will pass or if the proposed draft will be modified, therefore we cannot yet determine or rule out whether this legislation, if passed, could have a material impact on our results of operations in the future or not. For more information on current tax regulation (Law No. 21,210), please see “Item“Item 4—Information on the Company—Regulation and Supervision—Amendments to the Reform that Modified the Chilean Tax System” and “Item 10—Additional information—Taxation—Chilean Tax Considerations.”

Lastly, we cannot assure you that regulators will not impose more restrictive limitations in the future on the activities of banks, including us, than those that are currently in effect. Any such change in terms of capital adequacy, liquidity, credit risk provisioning, consumer protection, bankruptcy and taxation, among other matters, could have a material adverse effect on our results of operations or financial condition in a fashion that we cannot determine in advance. For more information, see “Item 4. Information on the Company—Regulation and Supervision.”

Modifications to reserve requirements may affect our growth capacity and margins.

According to the local banking regulation, demand deposits and time deposits are subject to reserve requirements of 9.0% and 3.6% (with terms of less than one year), respectively. However, the Central Bank is entitled to require banks to maintain reserves of up to 40.0% for demand deposits and up to 20.0% for time deposits, to the extent needed for monetary policy purposes. In addition, if the aggregate balance of demand deposits and other demand accounts (e.g., deposits in current accounts, other demand deposits or obligations payable on demand and incurred in the ordinary course of business, saving deposits that allow unconditional withdrawals that bear a stated maturity, and other deposits payable immediately unconditionally) held by a bank exceeds 2.5 times its regulatory capital, that bank is required to set a technical reserve equivalent to the full amount of the excess. In this regard, as part of the implementation of Basel III, the CMF has proposednew regulation establishes that systemically important banks could be subject to additionalstricter technical reserve requirements, since the threshold of 2.5 times the regulatory capital could be reduced to 1.5 times, under approval of the Central Bank. Even though the conditionstimes. Conditions to set this additional requirement have yetare part of the faculties of the CMF, although the decision to impose such additional requirement must be revealed byagreed with the local regulator, weCentral Bank. We cannot assure you that we will not be subject to such requirement in the future, which in turn could impact our capacity to afford balance sheet growth and could have a material adverse effect on our net interest margin.

Changes in accounting standards could impact our results.

The IASB, or other regulatory bodies, periodically introduce modifications to financial accounting and reporting standards under which we prepare our consolidated financial statements. These changes can materially impact the means by which we report financial information, affecting our results of operations. Also, we could be required to apply new or revised standards retroactively.

In this regard, IFRS 16 “Leases” became effective on January 1, 2019. This standard modifies accounting models associated with an entity’s role as lessee or tenant in terms of the recognition of assets and liabilities for all leases existing on January 1, 2019. The adoption of IFRS 16 had no material impact on our results of operations or financial condition for the year ended December 31, 2019. For more information, see Note 4 to our audited consolidated financial statements as of and for the year ended December 31, 2019 appearing elsewhere in this annual report.

Currently, we cannot assure you that future changes in financial accounting and reporting standards will not substantially affect our results of operations or performance indicators, as we do not know the extent of future standards.

Increased competition and industry consolidation may adversely affect our operations.

The Chilean market for financial services is highly competitive. We compete with Chilean and foreign banks, with Banco del Estado de Chile, which is state-owned, and with other providers of financial services that are not part of the banking industry. In addition, the retail segment (which encompasses individuals and small and medium-sized companies) has become the target market of several banks, since banking penetration is still in progress in Chile, particularly in this segment. Accordingly, competition within this market is increasing as banks are continuously incorporating new and tailored products and services, while striving to improve service quality.quality and to accelerate digital transformation. Further, following the new rules issued in the last years by ourthe Chilean regulator, the processing and merchant acquiring services for credit and debitpayment cards (particularly related to new acquirers) may now be accomplished through a four-party mechanism, as done in some developed economies. This model facilitates the entry of new players. As of the date of this annual report, most merchant acquiring services are provided in Chile by Transbank S.A. (of which we held a 26.16% direct ownership as of December 31, 2019)2020), whereas some competitors have already begun to implement this new four-party model for their own business. As a result, net interest margins (once deducted provisions for loan losses) or fee-based income in these sub-segments could decline over time.

In relation to the abovementioned four-party mechanism for processing and merchant acquiring services for payment cards, since July 2020 there is a bill under discussion in the Chilean Congress which seeks to regulate limits to rates or fees (“Interchange Rates”) charged by payment card issuers (such as banks) to the operating companies (acquirers) in this four-party model. This bill creates a technical committee that will periodically determine limits applicable to Interchange Rates. The first set of limits would be established by the committee within 15 months once the legislation is passed. Currently, a non-contentious proceeding is being carried out in the Chilean Antitrust Court (Tribunal de Defensa de la Libre Competencia), with the purpose of establishing temporary rules setting forth limits on Interchange Rates, applicable until these matters are addressed by legislation. Notwithstanding the progress of both the bill and the proceeding before the Chilean Antitrust Court, and given the uncertainty regarding the limits on Interchange Rates that could be determined by the technical committee, as of the date of this annual report we are unable to assess the impacts this regulation could have on the banking industry and our results of operations.

We also face increasingly significant competition from non-banking competitors in some of our credit products, especially credit cards and installment loans, including large department stores and private compensation funds, andas well as saving and credit cooperatives. In addition, we face competition from other types of lenders, such as non-banking leasing, crowdfunding, factoring and automobile financing companies, especially in credit products, mutual funds, pension funds and insurance companies within the market for savings products and insurance companies in the market for mortgage loans. Likewise, other non-traditional providers of financial services have emerged over the last years, such as e-commerce,fintech companies,Telecom companies, like internet and mobile phone providers, that may set and provide offerings, in the form of temporary financing, directly to their customers. Some of these companies may have more resources than us, including larger customer bases, stronger brand recognition and more effective marketing tools. They may also adopt more aggressive pricing, while devoting significant resources to technology, infrastructure and marketing.marketing as it is part of their core business. Some of these non-banking competitors are not regulated by the CMF for purposes of banking supervision. Therefore, they are not subject to the same specific solvency or liquidity requirements, among other requisites, as banks are. Nevertheless, banks continue to be the main suppliers of leasing, factoring and mutual fund management, directly or indirectly through subsidiaries, while growing quickly in insurance brokerage services. However, we cannot assure you that this trend will continue in the future.

Likewise, we are aware that new competitors may enter the market, or existing competitors may innovate their services and strategies to improve the quality of services rendered to their customers. If we fail to effectively anticipate or adapt to new trends in the financial services industry, trends, including changes in distribution channels,the way of delivering financial products and services, introduction of emerging technologies, changes in customer behavior or adaption of the kinds of services offered to or needed by them, our business may be adversely affected. In addition, new technologies, including cryptocurrencies and payment systems, may result in substantial expenditures to adapt and update our existing products and services as we continue to grow our internet and mobile banking capabilities.

Also, in the past, increasing competition within the Chilean banking industry has been accompanied by a consolidation wave and the entry of international players in to the system through multiple mergers and acquisitions. These trends have continued and resulted in the creation of larger and stronger banking conglomerates, offering a wide range of products and services and targeting most of the segments in the Chilean banking market. These dynamics may adversely impact our results of operations as they may translate into higher interest rates paid on deposits and lower interest rates earned on loans, resulting in decreased net interest margins.

For more detailinformation regarding past and recent changes in the Chilean banking industry see “Item 4. Information on the Company—Business Overview—Competition.”

Our exposure to certain segments of the retail market could lead to higher levels of total past due loans and subsequent charge-offs.

Although we have historically been focused on wholesale banking, over the last years we have continued to reorient our commercial strategy to increase penetration of the retail banking segment. In fact, according to our management information systems, the share of the retail banking segment in our total loan book has increased from 53.6% in 2014 to 63.8%64.2% in 2019.2020. Although this trend has been associated with expansion in middle and higher income personal banking, our retail banking segment is also composed of small and medium-sized companies (approximately 13.8%16.1% of our total loan book as of December 31, 2019,2020, which consists of companies with annual sales of up to ~Ch$2,000 million) and, to a lesser extent, of lower-income individuals (approximately 2.3%1.9% of our total loan book as of December 31, 2019,2020, which consists of individuals with monthly incomes ranging from Ch$180,000 to Ch$500,000). Since these customers are likely to be more severely affected by adverse developments in the Chilean economy than large corporations and higher-income individuals, such as those in 2020 as a result of the COVID-19 pandemic, we may be exposed to higher levels of past due loans and subsequent write-offs in the future, which could result in materially higher allowances for loan losses that could adversely affect our results of operations.

As of December 31, 2019,2020, our past due loans (loans 90 days90-days or more past due) amounted to Ch$418,768299,408 million, which represented a 37.1%28.5% annual increasedecrease when compared to the Ch$305,530418,768 million recorded in 2018.2019. These figures translated into past due ratios (loans 90 days90-days or more past due over total loans) of 1.09% in 2018 and 1.39% in 2019.2019 and 0.97% in 2020. According to our management information systems, as of December 31, 20192020 our past due loans (loans 90 days90-days or more past due) were composed of 86.6%80.4% retail banking 90 days90-days or more past due loans (consumer and residential mortgage loans to individuals, as well as commercial loans to small and medium sized companies) and 13.4%19.6% wholesale banking 90 days or more past due loans (commercial loans to large companies and corporations). During the prior fiscal year, our past due loans (90 days or more) portfolio was composed of 93.5%86.5% retail banking past due loans (90 days or more) and 6.5%13.5% wholesale banking past due loans (90 days or more).

A combination of various market dynamics impacting our segments may affectaffected our past due loans (loans 90 days90-days or more past due) ratio year over year. In fact, forin the year ended December 31, 2019, we2020. We experienced a moderatean annual increasedecrease of approximately Ch$76,704121,751 million in past due loans in the retail segment, whereas past due loans (loans 9090- days or more past due) in the wholesale banking segment increased by Ch$36,5342,391 million, in each caseboth as compared to 2018. These trends were mainly due2019. Although this trend in the retail segment could seem to be contradictory in the context of the COVID-19 pandemic, it was primarily explained by a high comparison base effect, as the social turmoil that occurred in Chile atunrest and the end of 2019, which reduced productive or income-generating capacity, as well as disrupted many economic sectors’ distribution networks because of long-standingsubsequent protests and upheavals. In light of these dynamics, the economy contracted 1.8%upheavals in the fourth quarter of 2019 weakened some of our customers’ payment capacity while not permitting others to meet their obligations as many banks and shortly after,stores had temporary changes in working hours, all of which led to a sharp increase in past-due loans (loans 90- days or more past due) in 2019. In addition, past-due loans (loans 90- days or more past due) in 2020 decreased as a consequence of measures taken by local authorities and the qualitybanking system in order to relieve debt pressures faced by individuals and companies, particularly as a result of jobs decreased significantly, as reflectedthe effect of the COVID-19 pandemic. These measures included: (i) refinancing installments of mortgage and consumer loans offered by banks to their customers, (ii) direct money transfers made by the increasegovernment as part of self-employed workersa significant fiscal aid package, (iii) two consecutive withdrawals from individual pension funds in July and December 2020 as approved by the Chilean Congress, and (iv) a special government-guaranteed loan program for SMEs and middle market companies with lower salaries. Consequently, the payment capacityaim of some borrowers decreased, particularly those belonging to the retail banking segment (personal banking and SMEs).improving their liquidity. The trend for the retail banking past due loans (90 days or more) was primarily associated with consumer loans granted to individuals, and commercial loans rendered to SMEs, jointly explaining 80.7%53.8% of the total increasedecrease in the retail banking segment. Onsegment, aligned with the other hand, inaforementioned drivers. To a lesser extent, residential mortgage loans granted to individuals explained 23.3% of this annual drop. In the wholesale banking segment, some companies, particularly those participatingthe growth in past-due loans (90- days or more) was explained by liquidity difficulties due to the middle market segment, such as retailers and some large companies, experienced a deterioration of their financial condition as a resultaftermath effects of the social unrest, suffering significant decreasespandemic in their turnover causing working capital constraints.Chile during 2020. As a result, past-due ratios (90 days or more past-due loans over total loans) increaseddecreased from 1.66% in 2018 to 1.89% in 2019 to 1.21% in 2020, and increased from 0.17% in 2018 to 0.53% in 2019 to 0.84% in 2020, in the retail banking and the wholesale banking segment, respectively.

AlthoughSince the unpredictability of certain social developments, international events such as the COVID-19 pandemic, market fluctuations and changes to macroeconomic indicators, and delayed effects of these developments, may affect our diverse customer segments, we cannot assure you that we will be able to maintain a balanced risk-return equation if global or local economic conditions deteriorate in the future. In this regard, economic recessions, social turmoil or market volatility could adversely affect the financial condition of our borrowers, which could translate into an increase in our non-performing loans, impair our loan portfolio and result in lower demand for our loans. Any of these trends could have a material adverse effect on our business, financial condition and results of operations.

For more information on past due loans, see “Item 3. Key Information—Risk Factors—Risks Relating to our ADSs— Developments in international financial markets may adversely affect the market price of the ADSs and shares,” “Item 3. Key Information—Risk Factors—Risks Relating to our ADSs— COVID-19 or any other pandemic disease and health events will affect both the global and the Chilean economy, our business or results of operations and could affect our financial condition” and “Item 4. Information on the Company—Selected Statistical Information—Analysis of Substandard and Past due Loans.”

Our results of our operations are affected by interest rate volatility and inflation.

Our results of our operations depend greatly on our net interest income, which represented 68.4%68.1% of our total operating revenues in 2019.2020. Changes in nominal interest rates and inflation could affect the interest rates earned on our interest-earning assets differently from the interest rates paid on our interest-bearing liabilities, resulting in net income reduction. Inflation and interest rates are sensitive to several factors beyond our control, including the Central Bank’s monetary policy, deregulation of the Chilean financial sector, local and international economic developments and political conditions, among other factors. In addition, changes in interest rates affect securities and other investments or assets that are recorded at fair value and are therefore exposed to potential negative fair value adjustments. Any volatility in interest rates could have a material adverse effect on our financial condition and results of operations. Also, real negative interest rates could negatively impact our ability to raise funding for our operations, particularly for short-term maturities, which could result in higher funding costs and lower net interest margin.

The average annual short-term nominal interest rate in Chile for 90 to 360 day deposits received by Chilean financial institutions was 3.03% in 2017, 2.97% in 2018, and 2.72% in 2019.2019 and 0.86% in 2020. The average long-term nominal interest rate based on the interest rate of the Central Bank’s five-year bonds traded in the secondary market, issued by both the Central Bank and the Chilean Government, was 3.73% in 2017, 4.07% in 2018, 3.31% in 2019 and 2.95%1.94% in 2019.2020. As of March 31, 2020,2021, rates paid by Chilean banks in Chilean pesos on 90 to 360 day deposits averaged 2.06%0.38% on a year-to-date basis. As of the same date, rates of the Central Bank’s five-year Chilean peso denominated bonds averaged 2.90%1.63%.

Inflation in Chile has been moderate in recent years, especially in comparison with periods of high inflation experienced in the 1980s and 1990s. High levels of inflation in Chile could adversely affect the Chilean economy, consumer purchasing power, household consumption and investment in machinery and equipment and, therefore, the demand for financing and our business. The annual inflation rate (as measured by annual changes in the CPI and as reported by the Chilean National Institute of Statistics) during the last five years and the first three months of 2020 was:

Source: Chilean National Institute of Statistics

Although we benefit from a higher than expected inflation rate in Chile due to the structure of our assets and liabilities (we have a significant net asset position indexed to the inflation rate), significant changes in inflation with respect to current levels could adversely affect our results of operations and, therefore, the value of both our shares and ADSs.

For more information, see “Item 3. Key Information—Risk Factors—Risks Relating to our ADSs— Developments in international financial markets may adversely affect the market price of the ADSs and shares,” “Item 3. Key Information—Risk Factors—Risks Relating to our ADSs— COVID-19 or any other pandemic disease and health events will affect both the global and the Chilean economy, our business or results of operations and could affect our financial condition,” “Item 5. Operating and Financial Review and Prospects—Operating Results—Overview—Inflation” and “Item 5. Operating and Financial Review and Prospects—Operating Results—Overview—Interest Rates.”

Part of the information included in our financial statements considers assumptions, estimates and modeling which, if inaccurate, could have a material impact on our results of operations and financial position.

The preparation of our financial statements requires management to make judgments and estimates that affect the amounts of assets, liabilities, income and expenses reported in our financial statements. Estimates and assumptions are based on historical experience, expert judgment and other factors, including expectations of future developments under certain alternative scenarios. Although assumptions and estimates are evaluated and revised on a continuous basis, we cannot rule out that projected scenarios could dramatically change in the short term, causing a severe impact on fundamentals and estimates.

We are also subject to model risk since the valuation of financial instruments relies on models (such as cash flows valuation models for fixed-income securities, valuation models for derivatives including technical approximations, value adjustments models for derivatives, and IFRS 9 forward-looking provisioning models, among others) and inputs, which, in some cases, are not observable. Accordingly, computed values for securities and financial instruments may be inaccurate or subject to change, since the inputs used for specific models may be unavailable, particularly for illiquid assets or under scenarios of financial turmoil. In these cases, we will make assumptions and judgments in order to establish the fair value of certain instruments, which involves uncertainty and may translate into inaccurate estimates of actual results.

In this regard, the cessation or replacement of certain rates, market indices or benchmarks extensively used by financial markets and practitioners for valuation purposes, such as interest rates or foreign exchange rates indices, could also impact the accuracy of the estimates we include in our financial statements. In fact, onOn July 27, 2017, the Chief Executive of the United Kingdom Financial Conduct Authority (FCA), which regulates the entity that oversees the London interbank offered rate (“LIBOR”), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. Moreover, on March 5, 2021 the FCA made an announcement confirming that 35 LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021 for all GBP, EUR, CHF and JPY LIBOR settings, and the one-week and two-month USD LIBOR, and after June 30, 2023 for the Overnight and one-month, three-month, six-month and 12-month USD LIBOR. This announcement not only indicates that LIBOR maywill cease to be calculated, but this could also produce changes in the LIBOR rate as we currently know it, affecting its precision or comprehensiveness when representing the worldwide fixed-income market. This reform and other similar changes may result in various risks for the financial and banking business, including but not limited to: (i) risk management, financial and accounting risks arising from market risk models and from valuation, hedging, discontinuation and recognition of financial instruments linked to benchmark rates; (ii) pricing risks arising from how changes to benchmark indices could impact pricing mechanisms on some instruments; (iii) communication risks arising from misunderstandings with customers or counterparties; (iv) the possibility that a limited number of transactions do not contemplate a LIBOR fallback provision; and (v) the necessity of adapting current IT systems, trading platforms, financial reporting infrastructure and clearing processes, among others. The implementation of alternative benchmark rates is still in progress, although most banks are set to move from LIBOR to the Secured Overnight Funding Rate (or “SOFR”), which is the secured overnight financing rate published by the Federal Reserve Bank of New York on the Federal Reserve Bank of New York’s website and mayis intended to be an appropriate replacement for LIBOR. This could have an adverse effect on our business, results of operations or financial condition thatif we are unable to determineagree on an alternative benchmark, like SOFR, with our customers and financial counterparties in advance. As of December 31, 2019, we had on-balance and off-balance contracts with maturity after 2021 that used LIBOR as a benchmark. Most of them have interests paid in LIBOR or are valued by using LIBOR as the prevailing discount rate, including derivatives, loans and master agreements. Furthermore, we may face a risk of litigation, disputes or other actions from clients, counterparties, customers, investors or others regarding the interpretation or enforcement of related provisions or if we fail to appropriately communicate the effect that the transition to alternative benchmark rates will have on existing and future products. Although we expect to adapt our valuation processes, IT infrastructure and pricing systems as new information arises, we can neither assure you nor calculate the impact this could have on our business and results of operations, if any.

AtAs of December 31, 2020, we had on-balance and off-balance contracts that used LIBOR as a benchmark. Most of them have interests paid in LIBOR or are valued by using LIBOR as the prevailing discount rate, including derivatives, loans and master agreements, such as ISDA contracts. As of December 31, 2020, our on-balance assets based on LIBOR amounted to approximately U.S.$936 million and our liabilities based on LIBOR amounted to U.S.$908 million. In the case of assets, approximately 9% was due to expire in 2021, 25% is due to expire before June 2023 and 66% is expiring after June 2023. As for liabilities, 100% is expiring before June 2023. Most of these assets and liabilities are associated with trade finance loans, although there are also some commercial credits linked to LIBOR. On the other hand, off-balance sheet arrangements based on LIBOR represented a net liability exposure of approximately U.S.$2,019 million as of December 31, 2020, of which approximately U.S.$1,470 million are due to expire before June 2023. Although most of our counterparties, particularly those associated with derivative contracts under ISDA agreements, are already set to move from LIBOR to SOFR as contracts consider fallback clauses that allow rate switching, we have deployed an action plan that includes: (i) identification of our main exposures and risks related to the LIBOR transition, (ii) development of new products linked to the new reference rate, and (iii) revision of current contracts and renegotiation with some of our customers. As of the date of this time, itannual report, according to our estimates, switching from LIBOR to SOFR is not possibleexpected to predict the overall effect (including financial impacts)have a material impact on our results of operations. However, we cannot assure you that any suchother reforms and changes, any establishment of alternative reference rates or any other reforms to these reference rates that may be enacted includingwill not have a material impact on our results of operations in the potential or actual discontinuance of LIBOR publication, any transition away from LIBOR or ongoing reliance on LIBOR for some legacy products.future.

The main accounting items subject to risk of incorrect valuation include impairment of loans to customers and advances to banks, valuation of fixed-income securities and financial derivatives held for trading, valuation and impairment of financial assets measured at fair value through other comprehensive income, and deferred tax assets and provisions for liabilities, among others. If our judgment, assumptions or models used in valuing these items are inaccurate, there could be a material effect on our results, funding requirements and capital ratios.

Market turmoil could result in material negative adjustments to the fair value of our financial assets, which could translate into a material effect on our results or financial condition.

Over the last decade worldwide financial markets have been subject to stress that has resulted in sharp temporary changes in interest rates and credit spreads. We have material exposures to debt securities issued by the local government and the Central Bank and other fixed-income investments in securities issued by local and foreign issuers. All of these are booked at fair value with direct impact on our profit and loss statement or in other comprehensive income. Therefore, these positions expose us to potential negative fair value adjustments in the short or medium term and to impairments in the long term, due to dramatic and unexpected changes in short- or long-term local and foreign interest rates and credit spreads. Any of these factors could have a material adverse effect on our results of operations and financial condition.

See also “Item 3. Key Information—Risk Factors—Risks Relating to our ADSs— Developments in international financial markets may adversely affect the market price of the ADSs and shares” and “Item 3. Key Information—Risk Factors—Risks Relating to our ADSs— COVID-19 or any other pandemic disease and health events will affect both the global and the Chilean economy, our business or results of operations and could affect our financial condition.”

Operational problems, errors, criminal events or terrorism may have a material adverse impact on our business, financial condition and results of operations.

As all large financial institutions, we are exposed to many operational risks, including the risk of fraud by employees and outsiders, failure to obtain suitable internal authorizations, failure to properly document in-person and online transactions, equipment failures, mistakes made by employees and natural disasters, such as earthquakes, tsunamis, wildfires and floods. We could also be affected by operational disruptions associated with intentional or unintentional mass employee absence due to social unrest, demonstrations, street riots (such as the one witnessed since October 2019), transportation services interruptions and massive epidemic or pandemic outbreaks, such as COVID-19, among others.

Furthermore, we may be exposed to criminal events, terrorist attacks or rioting that could result in physical damage to our buildings (including our headquarters, offices, branches and ATMs) and/or injury to customers, employees and others. In addition, since activating certain aspects of our business continuity plan in response to the COVID-19 pandemic to allow many of our associates to work remotely, our associates’ ability to relocate to a secondary location in the event of any operational disruptions may be limited due to the pandemic. Although we maintain a system of operational controls composed of both trained staff and world-class technological resources that have been enhanced over the last years, as well as comprehensive contingency plans and security procedures, there can be no assurances that operational problems, errors, criminal events or terrorist attacks will not occur and that their occurrence will not have a material adverse impact on our results of operations, financial condition and the value of our shares and ADSs.

Cybersecurity events could negatively affect our reputation or results of operations and may result in litigation.

We have access to large amounts of confidential financial information and hold substantial financial assets belonging to our customers as well as to us. In addition, we provide our customers with continuous online access to their accounts. Customers have the ability to transfer substantial financial assets in Chile and abroad through electronic means, while purchasing goods or withdrawing funds with credit and debit cards issued by us. Among the most significant cyber-attack risks that we are constantly facing are internet fraud and loss of sensitive information, both from our customers and ourselves. In particular, loss from internet fraud occurs when cyber criminals extract funds directly from clients’ or our accounts using fraudulent schemes that may include internet-based fund transfers. We are also exposed to cyber-attacks, hacking and other cybersecurity incidents in the normal course of business. Thus, as a financial institution, we are under a constant threat of suffering losses due to these reasons. In addition, our risk and exposure to these matters remains heightened because of the evolving nature and complexity of these threats from cybercriminals and hackers, our plans to continue to provide and enhance our internet banking and mobile banking channels, and our plans to develop additional remote connectivity solutions to serve our customers. Accordingly, cybersecurity is a material risk for us.

There has recently been an increased level of attention focused on cyber-attacks against large corporations that include, but are not limited to, obtaining unauthorized access to digital systems for purposes of misappropriating cash, other assets or sensitive information, corrupting data or causing operational disruptions. Cybersecurity incidents, such as computer break-ins, phishing, identity theft and other disruptions, could negatively affect the security of information stored in and transmitted through our computer systems and network infrastructure. Subsequently, this may result in significant liability to us in excess of insurance coverage, which may carry low coverage limits, and may cause existing and potential customers to refrain from doing business with us. Additionally, cyber-attacks on our network or other systems could have a material adverse effect on our business and results of operations due to financial losses, losses of sensitive information, interruption or delays in our business and operations, regulatory fines, reimbursement or other compensation costs, compliance costs and reputational damage, among other things.

On May 24, 2018, we suffered a cybersecurity incident by international cybercriminals involving the theft of funds that subsequently resulted in an operational write-off of approximately Ch$6,900 million (or U.S.$9.9 million). The incident also caused temporary interruptions to some of our operations, which during a short period of time affected the quality of certain services provided to our customers. Following the incident, we took immediate action to effectively contain and eradicate any disruption in our operations. At the same time, we took appropriate measures to recover the stolen funds. In spite of this incident and the temporary damage to our IT infrastructure, we were able to deploy a contingency plan, which allowed us: (i) to maintain the continuity of our operations and customer assistance in branches and through remote channels, (ii) to take immediate measures in order to assure that our customers’ funds were absolutely secured, and (iii) to comply with our short-term financial commitments with third parties and customers based on liquidity management. For more information on the incident, see “Item 5. Operating Results—Results of Operations for the Years Ended December 31, 2016, 2017 and 2018—Other Income (Loss), Net”, “Item 5. Operating Results—Results of Operations for the Years Ended December 31, 2016, 2017 and 2018—Operating Expenses” and “Item 4. Information about the Company—Our Business Strategy—Operating Efficiency and Productivity” in our annual report on Form 20-F for the year ended December 31, 2018 filed with the SEC on April 26, 2019.

Furthermore, in line with the enhancements in our cybersecurity standards that were performed during the last years, and to further improve our protections against events such as the one that occurred in May 2018, we have made significant efforts and taken steps to enhance our data security and IT infrastructure, including the purchase of protection systems and world-class infrastructure, among others. We reinforced our organizational structure and replaced our former Technological Security Area with our Cybersecurity Division in June 2018, whose main role is to be the first line of defense and be in charge of mitigating and managing cybersecurity threats, while at the same time improving cybersecurity policies, spreading related knowledge among our bank and customers and developing competences that all our employees must possess on this regard.

In 2019, we continued to enhance our cybersecurity protocols and infrastructure by improving security in our networks, servers, workstations and digital applications. Similarly, we put significant efforts in to enhancing access-control to our networks by using technological solutions and specialized software, while simultaneously improving our capabilities on detection and management of high-risk threats. Also, based on our efforts to change our staff’s culture on cybersecurity matters, we were able to timely detect and block phishing attempts targeting clients and non-clients. In 2020, given the effects of COVID-19 on our operations, most of our staff has been operating remotely, which has accelerated our digital transformation while imposing a challenge for us in terms of cybersecurity, since our collaborators are accessing our network and servers from home. As such, we reinforced cybersecurity measures by implementing new protocols and tools. For more information, see “Item 4. Information on the Company— History and Development of the Bank—History—Technological Projects”. However, notwithstanding every measure taken to address cybersecurity matters, and although we have not experienced any material losses relating toin this incidentmatter and are currently performing our best efforts to prevent them, we cannot assure you that we will not suffer additional losses in the future related to these kinds of events.

The occurrence of any cyber-attack or information security breach could result in material adverse consequences to us, including damage to our reputation and the loss of customers. We could also face litigation or additional regulatory scrutiny. Litigation or regulatory actions in turn could lead to significant liability or other sanctions, including fines and penalties or reimbursement of customers adversely affected by this security breach. As mentioned above, although we did not suffer any material adverse effects as a result of the May 2018 cyber-attack, successful attacks or systems failures at our bank or at other financial institutions could lead to a general loss of customer confidence in financial institutions, including us.

In addition, we depend on a variety of internet-based data processing, communication, and information exchange platforms and networks. We cannot assure you that all of our systems are entirely free from vulnerability. Additionally, we enter into contracts with several third parties to provide our customers with data processing and communication services. Therefore, if information security is breached, or if one of our employees or external service providers breaches compliance procedures, information could be lost or misappropriated, which may affect our results of operations, damage others or result in potential litigation.

Further, in light of the high volume of transactions we process, the large number of our clients, partners and counterparties, the increasing sophistication of malicious actors, and our remote work environment in response to the COVID-19 pandemic, a cyber-attack could occur and persist for an extended period of time without detection. We expect that any investigation of a cyber-attack would take substantial amounts of time, and that there may be extensive delays before we obtain full and reliable information. Although we have substantially increased measures to address cybersecurity during the last yearyears and, with the help of service providers, intend to continuously implement security technology devices and establish operational procedures to prevent such damage, we cannot assure you that these security measures will be successful.

Any downgrade in Chile’s or our credit rating could increase our cost of funding, affecting our interest margins, results of operations and profitability.

Our current credit ratings determine the cost and the terms upon which we are able to obtain funding in the ordinary course of business. Rating agencies regularly evaluate us by taking into account diverse factors, including our financial strength, the business environment and the economic backdrop in which we operate. Thus, methodologies used by rating agencies evaluate Chile’s sovereign debt ratings when determining our ratings. During 2019,2020, Standard & Poor’s Ratings Service (“S&P”), Fitch Ratings Service (“Fitch”) and Moody’s Investors Service (“Moody’s”) did not change Chile’s sovereign credit rating by keeping it at A+, A and A1, respectively. However, Fitch Ratings Service (“Fitch”) changed Chile’s sovereign credit rating from A to A-. Also, Moody’sS&P maintained its outlook on Chile’s sovereign credit rating as stable,negative, whereas in MarchAugust 2020 and AprilOctober 2020 FitchMoody’s and S&P,Fitch, respectively, revised the outlook for Chile’s sovereign credit rating from stable to negative. Similarly, asnegative and from negative to stable, respectively. Following these actions, on March 24, 2021 S&P downgraded Chile’s sovereign credit rating from A+ to A, while modifying the credit outlook from negative to stable. The credit action taken by S&P was founded in the expected negative effects due to the COVID-19 pandemic and the effects of increasing social pressures that may lead the government to incur further social expenses and increase Chile’s structural fiscal balance in the long-run. Given the recent credit action taken by S&P for Chile’s sovereign credit rating, this rating agency also downgraded four local banks (excluding us) by one notch, while maintaining the negative outlook for the whole banking industry (including us), with the exception of Banco Estado (a state-owned bank) that received a stable outlook. As of the date of this annual report, S&P and Moody’s maintained our credit rating for unsecured long-term debt at levels of A and A1, respectively. Nonetheless, givenrespectively, both with a negative credit outlook (downgraded from the potentialstable outlook in April 2020) due to the effects of COVID-19 on the Chilean economy and the banking activity, in conjunction with the slowdown evidenced by the Chilean economy since the social turmoil both S&P and Moody’s changed their outlook on us from stable to negative at the beginning of April 2020. In addition, Moody’s applied a one-notch reduction to our baseline credit assessment, resulting in an equal adjustment to our subordinated debt rating, whereas our unsecured long-term debt rating remained unchanged at A1. It is important to note that both credit rating agencies revised other local banks downwards due to the deterioration suffered by the local economy over the last six months.October 2019. While Chile’s current long-term debt credit ratings remain investment grade, these credit ratings may deteriorate further and adversely affect our credit rating.

Any downgrade in our debt credit ratings could result in higher borrowing costs for us, while requiring us to post additional collateral or limiting our access to capital markets. All of these factors could adversely impact our commercial business by affecting our ability to: (i) sell or market our products, (ii) obtain long-term debt and engage in derivatives transactions, (iii) retain customers who need minimum ratings thresholds to operate with us, (iv) maintain derivative contracts that require us to have a minimum credit rating and (v) enter into new derivative contracts, which could impact our market risk profile, among other effects. Any of these factors could have an adverse effect on our liquidity, results of operations and financial condition.

Due to the recent volatility in the financial markets and concerns about the soundness of developed and emerging economies, as well as the still unpredictable effects of COVID-19 on the global and the local economies, we cannot assure you that rating agencies will maintain our and Chile’s sovereign debt current ratings and outlooks.

As a financial institution, we are subject to reputational risk that could materially affect our results of operations or financial condition.

Corporate reputation is a crucial competitive advantage for us, as it allows us to attract and retain customers, appeal to investors and avoid employee attrition. Also, reputation is a key element in banking since access to funding is driven by the confidence of depositors and the opinion of ratings agencies on the value of our franchise. Therefore, any disreputable event, including employee misconduct, legal proceedings, regulatory sanctions, failure to deliver minimum standards of service quality, failure to comply with regulatory requirements, unethical behavior by our staff or involvement in political issues or public scandals (or gossip related thereto), complaints filed by customers or non-customers and fake news or alleged issues about us or our operations in social media could damage our reputation and produce significant harm to our results of operations or financial condition. Furthermore, our reputation is highly aligned with the reputation of the banking industry in which we participate and, therefore, actions by other providers of financial services or the banking industry as a whole could also harm our own reputation.

Similarly, the ability to manage potential conflicts of interest has become an increasingly important factor for our business given our widespread operations in many economic sectors with diverse third parties. Accordingly, the failure to address –or even the perceived failure to address– conflicts of interest could affect the willingness of customers and investors to work with us, or could lead to legal actions against us. In order to address and avoid these potential events, we are continuously improving our corporate governance standards by detecting potential failures and adopting world-class principles and procedures. Nevertheless, we cannot assure you that we will not face reputational events in the future that could harm our prospects or the value of our franchise. For more information on corporate governance, see “Item 6. Directors, Senior Management and Employees—Board Practices”.

Risks Relating to our American Depositary Shares (“ADSs”)

Our principal shareholders may have interests that differ from those of our other shareholders and their significant share ownership may have an adverse effect on the future market price of our ADSs and shares.

As of April 24, 2020,23, 2021, LQ Inversiones Financieras S.A. (“LQIF”), a holding company beneficially owned by Quiñenco S.A. and Citigroup Chile S.A., holds directly and indirectly approximately 51.15% of the voting rights of our shares. Subject to our bylaws and applicable law, these principal shareholders are in a position to elect a majority of the members of our board of directors and control all matters decided by a shareholder vote, including the approval of fundamental corporate transactions.

Actions by our principal shareholders with respect to the disposition of the shares or ADSs they beneficially own, or the perception that such actions may occur, may adversely affect the trading price of our shares on the various stock exchanges on which they are listed and, consequently, the market price of the ADSs.

There may be a lack of liquidity and a limited market for our shares and ADSs.

While our ADSs have been listed on the New York Stock Exchange (the “NYSE”) since the first quarter of 2002, there can be no assurance that an active trading market for our ADSs will be sustained. During 2019,2020, a daily average volume of approximately 89,230147,464 of our American Depositary Receipts (“ADRs”) were traded on the NYSE, according to data provided by Bloomberg. Although our shares are traded on the Santiago Stock Exchange and the Chilean Electronic Stock Exchange, the Chilean market for our shares in Chile is small and somewhat illiquid. As of April 24, 2020,23, 2021, approximately 48.74%48.85% of our outstanding shares were held by shareholders other than our principal shareholders, LQIF.

If an ADS holder withdraws the underlying shares from the ADR facility, the small size of the market, its limited liquidity, as well as our concentrated ownership, may impair the ability of the ADS holder to sell the shares in the Chilean market in the amount and at the price and time such holder desires, and could increase the volatility of the price of our ADSs.

ADS holders may be unable to exercise voting rights at shareholders’ meetings and preemptive rights.

ADS holders may exercise voting rights associated with common stock only in accordance with the deposit agreement governing our ADSs. Accordingly, ADS holders will face practical limitations when exercising their voting rights because ADS holders must first receive a notice of a shareholders’ meeting from the Depositary and may then exercise their voting rights by instructing the Depositary, on a timely basis, on how they wish to vote. This voting process necessarily will take longer for ADS holders than for direct common stock holders,stockholders, who are able to exercise their vote by attending our shareholders’ meetings. Therefore, if the Depositary fails to receive timely voting instructions from some or all ADS holders, the Depositary will assume that ADS holders agree to give a discretionary proxy to a person designated by us to vote their ADSs on their behalf. Furthermore, ADS holders may not receive voting materials in time to instruct the Depositary to vote. Accordingly, ADS holders may not be able to properly exercise their voting rights.

Furthermore, theLey Sobre Sociedades Anónimas No. 18,046 (the “Chilean Corporations Law”) and theReglamento de Sociedades Anónimas (the “Chilean Corporations Regulation”) require that whenever we issue new common stock for cash, we grant preemptive rights to all of our shareholders (including holders of ADSs) to purchase a sufficient number of shares to maintain their existing ownership percentage. Such an offering would not be possible unless a registration statement under the Securities Act were effective with respect to such rights and common stock, or an exemption from the registration requirements thereunder were available.

We may elect not to make a registration statement available with respect to the preemptive rights and the common stock, in which case you may be unable to exercise your preemptive rights. If a registration statement is not filed, the depositary will sell such holders’ preemptive rights and distribute the proceeds thereof if a premium can be recognized over the cost of any such sale.

Developments in international financial markets may adversely affect the market price of the ADSs and shares.

The market price of our ADSs and shares may be adversely affected by volatility in international financial markets and adverseunfavorable developments in global economic conditions. The market for Chilean securities and the Chilean economy as a whole are influenced by (i) economic and market conditions in Chile’s main commercial partners such as the United States, Europe and certain emerging economies, especially Asian countries, and (ii) economic as well as political developments in Latin American countries. Although economic conditions are different in each country, investors’ reactions to specific issues in one country may affect the financial markets in others, including Chile. Therefore, unfavorable developments

The year ended December 31, 2020 was marked by the economic effects of COVID-19 in other countries—especially inboth developed economies and Chile’s main commercial partners—may adversely affectemerging markets. Mobility restrictions and massive lockdowns significantly affected economic growth globally, and although more than a year has passed since the market pricefirst case of our ADSsCOVID-19 in China, countries across the globe have experienced two or three waves of contagion that have led health and shares.

Bypolitical authorities to re-introduce mobility restrictions, while deploying massive fiscal and monetary aid packages intended to mitigate the endeconomic effects of the pandemic. According to Bloomberg estimates, global GDP would have contracted 3.5% in 2020, whereas GDP of developed and emerging economies would have decreased 4.9% and 2.4%, respectively. These trends also translated into a new boost of commodities, since productive capacity and stocks were also affected by massive and longstanding lockdowns. These trends show a significant change when compared to the performance seen in 2019, when the global economy appeared to have overcome a long period of turbulence and volatility, which began in 2007 with the subprime mortgage crisis, when many U.S. banks and financial institutions disclosed significant write-downs related to their exposure to mortgage-backed securities and other similar financial instruments. This situation led to significant government intervention for important banks worldwide, bankruptcy for others and active M&A activity to rescue failing banks, maintain investors’ and customers’ confidence and to prevent bank runs. These government actions became less frequent as the U.S. economy started to show signs of recovery. Thus, in December 2015, the U.S. Federal Reserve began to taper its quantitative easing programs undertaken after the subprime crisis and began to gradually increase the marginal standing facility rate from 0.50% in January 2016 to 2.5% in June 2019. However, given the evolution of certain economic indicators, and the effects of the United States-China trade war on the U.S. economy, and particularly due to the effect of the COVID-19 pandemic on actual economic growth, the U.S. Federal Reserve decided to apply subsequent reductions to the federal fund rate starting in July 2019. As a result, the U.S. federal fund rate reached2019 from 2.5% to 1.75% in December 2019.2020. Subsequently, based on the aftermath of the COVID-19 pandemic, the U.S. Federal Reserve carried out sharp cuts to the reference rate in March and April 2020, by leading the monetary interest rate to 0.25%, a level at which it remained until December 2020. Investor sentiment regarding the outlook of the U.S. economy has fluctuated and we cannot assure you that past developments will not occur again in the future or that recent volatility in the international markets will not affect us, including our results of operations and, consequently, the market price of our ADSs and shares.

Additionally, the fiscal condition of many European countries remains weak and doubts about the financial condition of certain European banks arise from time to time. We cannot assure you that volatility in global financial markets due to the uncertainty regarding the fiscal condition of some European countries will not continue and affect the Chilean economy, and consequently, the financial condition and results of operations of the entire Chilean banking system, including us. Accordingly, the price of our ADS could be adversely affected by a new financial turmoil in the Eurozone, political issues, armed conflicts, uncertainty due to terrorism, a slower than expected recovery, or a deterioration in healthier economies.

Furthermore, uncertainty regarding the future of emerging and developed economies continues to be a source of instability worldwide. For example, although the “trade war” between the United States and China, by which both countries seek to revise tariffs on the others’ imported goods, seemed to improve with the first phase of the trade agreement reached between both countries, it continues to be a source of volatility for financial markets from time to time. Also, political and social instability in some Latin American countries like Colombia, Venezuela, Ecuador, Argentina and even Chile produced migration issues in more stable countries within the region. Moreover, the materialization of Brexit, armed conflicts in the Middle East and Asia, ongoing negotiations between the U.S. and North Korea, the developing conflict between the U.S. and Iran, terrorism, the global migration crisis and waves of populism looming in different countries, illustrate volatile social and political environments that could harm foreign trade and economic growth for both developed and developing countries. These changes may also generate significant volatility in international markets and commodity prices.

Additionally, the slowdown of the Chinese economy has led to increasing volatility in the financial markets in the past, affecting international commodity prices, including copper, which is Chile’s main export. ThisFor example, during the first months of the COVID-19 pandemic, there was a slowdown could be amplified byin the effects of COVID-19, givenChinese economy due to the quarantine ordered by Chinese authorities in the most affected regions of the country. DueWhile the effects of COVID-19 on the Chinese economy have mostly subsided, due to the importance of copper exports and overall mining activity to Chilean economic growth, a prolonged slowdown in the Chinese economy, a Chinese-U.S. trade war or other developments may drive copper prices down and adversely affect the Chilean economy. Although copper prices have beenwere impacted in early 2020 by the global economic slowdown and fears of the COVID-19 evolution, our exposure to the Chilean mining sector represented only 2.01%1.7% as of December 31, 20192020 in terms of total loans.

The effect of all these trends on market volatility and the economic outlook of developed countries, emerging economies and Chile’s commercial partners could adversely impact the local economy, the local banking industry and, ultimately, our results of operations, financial condition and the price of our shares and ADS.

COVID-19 or any other pandemic disease and health events will affect both the global and the Chilean economy, our business or results of operations and could affect our financial condition.

Pandemic disease and health events, such as the recent outbreak of the novel strain of COVID-19, have the potential to negatively impact economic activities in many countries, including Chile, with subsequent adverse effects on our results of operations or financial condition.

The outbreak of COVID-19 was first reported on December 31, 2019 in Wuhan, Hubei Province, China. From Wuhan, the disease spread rapidly to other parts of China, as well as other countries, including Chile and the United States, growing into a global pandemic, as declared by the World Health Organization. Since the outbreak began, countries have responded by taking various measures including imposing mass quarantines, andshelter-in-place orders, medical screenings, restricting or banning travel, limiting public gatherings, closing businesses and schools and suspending certain other economic activities.

In addition, concerns related to COVID-19 have lowered equity market valuations, decreased liquidity in fixed income markets and created significant volatility and disruption in global financial markets, particularly in the early months of the pandemic, resulting in the fall of stock prices (including the price of our stock), a trend which may continue.. Also, there are other broad and continuingcontinue to be concerns related to the potential effects of COVID-19 on international trade (including supply chain disruptions and export levels), travel, employee productivity, employee illness, increased unemployment levels, securities markets, and other economic activities that may continue to have a destabilizing effect on financial markets and economic activity, particularly for companies in the financial sector. Furthermore, any actions taken by governmental authorities and other third parties in response to the pandemic may negatively impact our business, results of operations and financial condition.

TheAlthough in certain countries some of the activity restrictions listed above have been relaxed with progressive success, particularly in the spring and summer seasons, most of these countries had to re-introduce massive lockdowns as a result of a second and –in some cases– a third wave took place. Further, variant strains of the COVID-19 virus have appeared, further complicating efforts of the medical community and governmental authorities in response to the pandemic. At this point, multiple COVID-19 vaccines have received regulatory approval and currently are being distributed in many countries to the broader population. Nonetheless, mobility restrictions remain in several countries and, therefore, the adverse social and economic effects of the pandemic continue to be a threat for economic growth.

Since the first casecases of COVID-19 were detected in Chile was detected onduring March 3, 2020. As of the date of this annual report,2020, the Chilean Government has taken various measures in order to prepare for and safeguard the country forfrom a mass contagion. However,contagion and to contain and control the peakspread of contagion is not expected to occur until the end of April 2020. In light of this, various decisions have been made by the Government. OnCOVID-19. For example, on March 18, 2020, a state of catastrophe was declared in the entire country, which, under the Chilean Constitution, enablesenabled the President to restrict freedom of movement and gathering, to seize goods (subject to compensation by the State) and limit property rights for the purposes of reestablishing normality and ensuring supply of basic needs. Other measures taken during the state of catastrophe include aincluded partial or total lockdownlockdowns with varying levels of severity and length for some neighborhoods and regions.regions during the months of high rates of contagion, particularly during the second and part of the third quarters of 2020. In the peak of the pandemic, approximately 60% of the Chilean population was subject to some type of mobility restriction. By the end of the third quarter of 2020, the level of contagion decreased significantly and lockdowns started to be lifted. Likewise, vaccination started by the end of 2020, and as of the date of this annual report, Chile has been internationally distinguished by deploying a massive vaccination process that has reached approximately eight million people, representing approximately 50% of the target population. However, a second wave of contagion appeared at the beginning of the fall season. Therefore, by mid-March, the Chilean Government established total lockdowns for some neighborhoods, and operating restrictions to some economic activities (restaurants, gyms, cinema, among others), in light of a spike in the rate of contagion. Although, the Chilean health authority expects to see an overall improvement as long as a greater portion of the population receives the vaccine, widened mobility restrictions may not be ruled out. Therefore, eventual countrywide lockdownpartial or total lockdowns may occur.still occur until COVID-19 is fully under control and/or herd immunity is reached. As a result of a potential partial or total lockdown, any material or extended disruption of our ability to meet our responsibilities to our customers and/or a decrease in demand or use of services from our customers is likely to result in a loss of revenue. Also, many economic sectors have closed or decided to reduce their working hours. Many others continue to operate remotely, utilizing a home office. Only certain businesses necessary to maintain basic supplies, such as pharmacies, banks and supermarkets, remain open during lockdowns.

Further, government measures in order to avoid mass contagion are constantly evolving and future measures are uncertain and cannot be predicted. Consequently, the effectiveness and sustainability of our work from home arrangements, contingency sites and the potential inability to maintain critical staffing in our physical banking facilities may also negatively impact our business and results of operations. Also, the unavailability of personnel and the changes in normal operating procedures could adversely compromise our ability to conduct business generally, operating performance, financial reporting and internal controls. Consequently, the uncertain economic conditions and various activity restrictions due to the COVID-19 pandemic have thus resulted in an extremely challenging operating environment for many businesses, the complete shutdown of others, as well as record levels of unemployment. The national unemployment rate was 10.3% as of December 2020 while reaching a peak of approximately 13.1% in July 2020. For more information about the current status of COVID-19 in Chile, see “Item 5. Operating and Financial Review and Prospects—Recent Developments”.Trend Information.”

From a macroeconomic point of view, the impact of COVID-19 in Chile is uncertain. Initial estimates, revealed in the March Monetary Policy Report authored by the Central Bank, indicate that COVID-19 could result in a Chilean GDP contraction in the range of -2.5% to -1.5% in 2020. Subsequently, the International Monetary Fund forecasted a GDP contraction of up to -4.5% fornegatively impacted the Chilean local economy with GDP contracting by 5.8% in 2020. However, in the case of a mass lockdown, Chilean GDP is likely2020 as compared to contract in an amount that is not yet possible to estimate.2019. Economic stagnation, contraction and increased unemployment levels are expectedled to resulta peak in higher past-due loans in the second quarter of 2020, given the deteriorated financial condition of certain of our customers and, therefore, highera significant increase in provisions for loans losses or credit losses, which coupled with lower commercial activity, a sharp decrease in loan origination –particularly in terms of consumer loans– resulting in lower net income.income for the whole industry by approximately 52.9% in 2020, when compared to 2019 (although the figure also includes a significant impairment accounted by a local bank). Similarly, in the case of aadditional country lockdown andlockdowns or a shutdown involving the Bank, any of our subsidiaries or our customers, we may be unable to meet the needs of our customers for an unknown period of time, which could adversely affect our results of operations by reducing revenues, decreasing our collection capabilities.

As the COVID-19 pandemic continues to cause a historic economic downturn, financial institutions face increased credit risk, strategic risk, operational risk, and compliance risk. The COVID-19 outbreak has also resulted, and continues to result, in increased volatility in both the local and the international financial markets and economic indicators, such as exchange rates, interest rates, credit spreads and commodity prices. Any shocks or unexpected movements in these market factors could result in financial losses associated with our trading portfolio or financial assets measured at fair value through other comprehensive income, which could then cause deterioration of our financial condition or limitations to meet our liabilities. Furthermore, market fears could translate into liquidity constraints and reduced access to funding in both the local and the international markets, negatively affecting our net interest margin and net income. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which could have an adverse impact on our earnings. In order to prepare for the impacts of this environment, the Chilean financial authorities have made various decisions in order to ensure liquidity within the Chilean financial system. Any decision towards accomplishing this end, such assystem, the Central Bank carried out consecutive reductions to the monetary policy affectingrate by leading the reference rate to 0.5% for a few months. This interest ratesrate cut had a direct effect on yield curves. The average nominal interest rate for 90 to 360 day deposits decreased from 2.72% in 2019 to 0.86% in 2020, while the average nominal interest rate of the five-year bonds issued by both the Central Bank and the Chilean Government decreased from 3.31% in 2019 and to 1.93% in 2020. Any additional decisions towards accomplishing this end are also expected to affect our results of operations, which could be amplified by flat yield curves in case of an economic downturn. Lastly, contingency plans in order to address the emergency, including home offices, implementation of alternative offsite locations and so on, are expected to cause a temporary increaseincreased in our operating expenses and lowered net income.income, and may continue to do so as the circumstances develop.

Based onIn terms of the above, we expect COVID-19 to negatively impact our results of operations during 2020 in an amount that could be significant, although it is not possible to predict yet. For more information about the potential impacts of COVID-19direct effect on our results of operations and financial condition in 2020, we reflected the dynamics of the whole local banking system. Given the effect of mobility restrictions on overall economic activity, our loan portfolio recorded a moderate annual increase of only 3.0%, although average balances posted a higher expansion. However, most of our loan growth was associated with low-margin products, such as commercial loans, growing 8.0% on an annual basis, particularly fostered by the government-guaranteed loan program and, to a lesser extent, due to an expansion of 2.0% in residential mortgage loans. On the other hand, year-end balances of consumer loans, a high-margin product, decreased by approximately 12.9% in 2020, as compared to 2019, mainly due to lowered household consumption and increased unemployment. As of December 31, 2020, we had granted approximately Ch$1,889,000 in FOGAPE-COVID loans to companies, while rescheduling approximately Ch$414,155 million in installments of consumer, mortgage and commercial loans. From the funding point of view, the sharp decrease in nominal interest rates dramatically impacted the contribution of our demand deposits (increasing 33.9% on an annual basis) to our cost of funds. We partially offset this effect by raising approximately Ch$3,100,000 million from the Central Bank bearing an interest rate of 0.5% (equivalent to the reference rate). These trends significantly affected our net interest income, which decreased by approximately 4.0%. Similarly, the plunge in disposable income of individuals and constrained on-site economic activities had a negative impact on the number of transactions processed, which resulted in a 2.5% decline in fee-based income. These factors, coupled with a significant increase of approximately 65.0% in provisions for loan losses, which in turn mainly resulted from the negative effect of the macroeconomic environment (including higher unemployment, decreased private consumption, stagnation of investment spending (capital expenditures), lower disposable income of individuals and constrained liquidity position of companies, among other effects) on provisioning. All of these factors, partly mitigated by higher results associated with treasury activities and lower income tax, resulted in an annual decrease of approximately 33.4% in net income. From the capital adequacy perspective, however, we maintained a solid trend during the year. Although our balance sheet increased by approximately 11.1% in 2020, most of the increase was focused on low-risk financial assets (Central Bank’s notes) in order to face recurrent reserve requirements in a context of increasing demand deposit balances, while riskier assets, such as loans, posted a moderate decrease. In addition, as in recent years, in March 2020 we capitalized 30% of our net distributable income while retaining the effect of inflation on our shareholders equity (jointly amounting to Ch$242,470 million), all of which allowed us to end 2020 with a capital adequacy (BIS) ratio of 16.0%, as compared to the 14.1% recorded in 2019.

By the beginning of 2021, notwithstanding the positive view of market analysts and global institutions, such as the World Bank and the International Monetary Fund, there were some doubts regarding the expected recovery for the Chilean economy by mid-March 2021 due to the previously mentioned increase in COVID-19 cases and measures taken by the Chilean health authorities. Accordingly, our financial performance could see “Item 5. Operatinga slowdown in the coming quarters, as compared to the first quarter of 2021, as long as mobility restrictions remain or last longer than expected.

Aligned with this view, because there have been no comparable recent global pandemics that resulted in a similar global impact, we do not yet know the full extent of the COVID-19 pandemic’s effects on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and Financial Reviewcannot be predicted, including the scope and Prospects—Trend Information—Impactduration of COVID-19.”the pandemic, the effectiveness of our remote working arrangements, third party providers’ ability to support our operations, and any further action taken by governmental authorities and other third parties in response to the pandemic. As the economic impact due to the COVID-19 pandemic continues we cannot provide any assurances as to how long it will be before the COVID-19 pandemic abates and economic activity can begin to resume to pre-COVID-19 pandemic levels.

In the past, Chile has imposed controls on foreign investment and repatriation of investments that affected investments in, and earnings from, our ADSs.

Equity investments held in Chile by non-Chilean residents have historically been subject to various exchange control regulations that restrict the repatriation of investments and earnings from Chile. In April 2001, the Central Bank eliminated most of the regulations affecting foreign investors. However, foreign investors still have to provide the Central Bank with information related to equity investments and must conduct such operations within the Formal Exchange Market. Additional Chilean restrictions applicable to holders of our ADSs, the disposition of the shares underlying them, the repatriation of the proceeds from such disposition or the payment of dividends may be imposed in the future, and we can neither determine in advance nor advise you as to when or how those restrictions could impact you, if imposed.

If for any reason, including changes in Chilean law, the depositary for our ADSs were unable to convert Chilean pesos to U.S. dollars, investors would receive dividends and other distributions, if any, in Chilean pesos.

Risks Relating to Chile

Our growth and profitability depend on the level of economic activity in Chile.

Our core business and transactions are with customers doing business in Chile. Accordingly, our ability to grow our business volumes and results of operations, as well as enhance our financial condition, in general, depends on the dynamics of the Chilean economy and specific macroeconomic variables such as inflation, unemployment, interest rates, consumption and investment. The global financial crisis of 2008 not only dramatically affected the economic growth in developed countries, but also affected the Chilean economy by the end of 2008 and during the first three quarters of 2009. This translated into a subsequent slowdown in the local banking industry due to lower levels of consumption and deteriorated credit quality in loan portfolios prompted by unemployment and financial stress experienced by certain economic sectors. Conversely, between 2010 and 2012, the local economy and the banking industry took a significant upturn, fostered by real GDP growth that averaged 5.7% per year, mainly as a result of the recovery in consumption and investment, as well as higher fiscal spending associated with the reconstruction process after a significant earthquake in 2010. During 2013, the Chilean economy entered into a moderate slowdown, recording only a 4.0% GDP growth, which deepened throughout the following years with GDP annual expansions of just 1.8%, 2.3%, 1.7% and 1.2% in 2014, 2015, 2016 and 2017, respectively. This trend in GDP deceleration was the result of low levels of both corporate and individual confidence, as evidenced by the indices (IPEC and IMCE) used by the Central Bank, due to factors such as slower growth of Chile’s main commercial partners, especially China, and uncertainty associated with various reforms presented by the Chilean administration appointed in 2014. This trend reversed in 2018, when the Chilean economy managed to grow 3.9% on an annual basis. The GDP growth was mainly fostered by a strong recovery in investment spending, which increased 4.8% in 2018 and, to a lesser degree, a 3.7% growth in private consumption.

During In 2019, the first halflocal economy grew by only 1.1%, mainly as a result of 2019, however, the Chilean economy experienced a significant slowdown by expanding only 1.4% and 1.8% in the first and the second quarters, respectively. In the third quarter, however, the economy showed signs of recovery by growing 3.4% on an annual basis, primarily steered by an important rebound in investment associated with construction and infrastructure. Nonetheless, the social turmoil that took place in Chile on October 18, 2019, dramaticallywhich temporarily damaged the productive capacity, income-generating capacity and distribution networks of many economic sectors, which resultedresulting in decreased commercial activity and constrained working hours. These local events, coupled with the initial effects of the COVID-19 pandemic on the economic environment of our main trade partners,partners’ economies, particularly China, Europe and the United States, battered the dynamics of some of our key export products. AsDuring 2020, the local economy was severely impacted by the aftermaths of COVID-19 on overall activity, primarily as a consequence,result of the long-lasting lockdowns imposed by the government in order to control the spread of the virus across the country, which translated into: (i) a spike in unemployment from 7.1% at the end of 2019 to a peak of 12.3% in the third quarter of 2020, converging to 10.3% at the end of the year, (ii) a 7.5% decline in private consumption, caused by the sharp decrease in disposable income and mobility restrictions, and (iii) an annual contraction of 11.5% in investment spending (gross fixed capital formation), since many investment projects were postponed in light of both uncertainty on the economic outlook, social distancing measures and lockdowns that impacted diverse economic sectors. These trends were mainly present in the second and third quarters of 2020, when GDP recorded an annual decline of 11.8% on average. However, by the end of the third quarter, economic activity began to recover as quarantines continued to be lifted and certain industries, like construction, restaurants and manufacturing, returned to more normal activity. Likewise, household spending experienced some recovery based on the fiscal aid package implemented by the Ministry of Finance that resulted in direct money transfers for individuals and the two pension fund withdrawals approved by the Chilean GDP contracted 2.1%Congress. Accordingly, in the fourth quarter of 2019. Overall,2020, the Chileanlocal economy expanded 1.1% during 2019, belowposted an annual decrease of only 0.4%, which resulted in an annual GDP contraction of 5.8% in 2020. Although the expectedeffects of the COVID-19 pandemic on the local economy and most relevant economies worldwide, such as China, the United States and main European countries, have mostly subsided or significantly improved and the worldwide vaccination process is in progress, we cannot assure you that the dynamics of our economy and the economic growth of 2.5%.our key international partners will improve or return to pre-COVID-19 levels. Given the social unrestdevelopments described belowpreviously and the potential impacts of the COVID-19 outbreak in Chile, particularly a possible countrywide spread of the virus and decisions related to partial or total lockdowns, we cannot rule out that the Chilean economy could stagnate or even fall into recession during 2020,2021, which could have a subsequent adverse effect on our business growth and the business growth of the Chilean banking industry in general.

Therefore, we cannot assure you that the local economy will grow in the coming years, as it has in the past, or that developments affecting the Chilean economy and the local banking industry will not materially affect our business, financial condition or results of operations. For more information, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Overview”,Impact of COVID-19 in 2020,” “Item 3. Key Information—Risk Factors—COVID-19 or any other pandemic disease and health events will affect both the global and the Chilean economy, our business or results of operations and could affect our financial condition” and “Item 5. Operating and Financial Review and Prospects—Trend Information—Impact of COVID-19.”

Currency fluctuations could adversely affect our results of operations, the value of our ADSs and any distributions on the ADSs.

The Chilean Government’s economic policies and any future changes in the value of the Chilean peso with respect to the U.S. dollar could affect the dollar value of our common stock and our ADSs. Given the floating exchange rate regime that exists in Chile, the Chilean peso has been subject to large fluctuations in the past and this trend could occur again in the future. According to information published by the Central Bank (“Dólar Observado”, which differs from exchange rate of accounting representation or market exchange rate), between December 31, 20182019 and December 31, 2019,2020, the value of the U.S. dollar relative to the Chilean peso increaseddecreased by approximately 7.0%5.3%, as compared to the increase of 13.1%8.4% recorded in the period from December 31, 20172018 to December 31, 2018.2019. Chilean trading in the shares underlying our ADSs is conducted in Chilean pesos. Cash dividends associated with our shares of common stock are received in Chilean pesos by the depositary, which then converts such amounts to U.S. dollars at the then-prevailing exchange rate for making payments in respect of our ADSs. If the value of the U.S. dollar increases relative to the Chilean peso, the dollar value of our ADSs, and any distributions to be received from the depositary, will decrease. In addition, the depositary will incur customary currency conversion costs (to be borne by the holders of our ADSs) in connection with the conversion and subsequent distribution of dividends or other payments. For more information, see “Item 10. Additional Information—Exchange Controls.”

Since we manage assets and liabilities denominated in foreign currency, our results of operations may be affected by fluctuations in the exchange rates between the Chilean peso and the U.S. dollar, or the Chilean peso in relation to other currencies, despite our policy and Chilean regulations related to the general avoidance of material exchange rate mismatches. In order to reduce the effect of exchange rate mismatches, we enter into foreign exchange derivative transactions, including both hedge accounting derivatives and trading derivatives, that hedge most of our exposure.exposure to foreign currency. As of December 31, 2019,2020, our foreign currency-denominated assets and Chilean peso-denominated assets, which contain repayment terms linked to changes in foreign currency exchange rates, exceeded our foreign currency-denominated liabilities and Chilean peso-denominated liabilities, which contain repayment terms linked to changes in foreign currency exchange rates, by an amount of Ch$3,5642,649 million, or 0.11%0.08% of our paid-in capital and reserves.

We may decide to change our policy regarding exchange rate mismatches. Regulations that limit such mismatches may also be amended or eliminated by regulatory institutions. Higher exchange rate mismatches will increase our exposure to the depreciation of the Chilean peso, and any such depreciation may impair our capacity to service foreign-currency obligations and may, therefore, materially and adversely affect us, our financial condition and results of operations. Additionally, the economic policies of the Chilean Government and any future fluctuations of the Chilean peso, with respect to the U.S. dollar, could adversely affect our financial condition and results of operations.

Chile has corporate disclosure standards different from those you may be familiar with in the United States.

Chilean disclosure requirements for publicly listed companies differ from those in the United States in some significant aspects. In addition, although Chilean law imposes restrictions on insider trading and price manipulation, the Chilean securities markets are not as highly regulated and closely supervised as the U.S. securities markets. Accordingly, the information available to you regarding our corporation will not be the same as the information available to shareholders of a U.S. company. For more information, see “Item 16G. Corporate Governance.”

Chilean law may provide shareholders with fewer and less well-defined rights.

Our corporate affairs are governed by ourestatutos (bylaws) 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, our shareholders would not be entitled to appraisal rights in the event of a merger or other business combination undertaken by us.

Our business growth, asset quality and profitability may be affected by political, legal and economic uncertainty, arising fromas well as social developments and social unrestthe drafting of a new constitution in Chile in the long run.Chile.

Our operations are highly dependent on the Chilean political and social environment, as most of our customers and borrowers do business in Chile. Thus, our results of operations could be negatively impacted by unfavorable political and diplomatic developments, social instability or unrest, as well as dramatic changes in public policies, including expropriation, nationalization, international ownership legislation, interest rate caps and tax policy.

In October 2019, a series of disruptive protests over a variety of social matters were initially sparked by the announcement of a subway fare increase in Santiago. Among these protests, some violent groups vandalized and looted public and private infrastructure in Santiago and other major cities. The protests and related violence have disrupted various economic activities throughout the country. In addition, many banks and other financial institutions experienced physical damages at their branches and ATMs. Although most of our damages were insured, 239 of the Bank’s branches and approximately 170 of our ATMs suffered varying levels of damage during this period, with nine of our branches and 109 ATMs being severely damaged.

The social unrest also led to increased volatility in the Chilean stock market, with a significant correction of stock prices and a sharp depreciation of the Chilean peso against the U.S. dollar. Furthermore, share prices of local banks, including ours, suffered significant declines in the market, while bond spreads of local banks increased.

In response to thesethe protests, the Government announced a social agenda intended to increase basic pensions, expand social health coverage, and reduce and stabilize tariffs for some public services, such as public transportation and electricity. To fund these initiatives, the Government and the opposition reached an agreement regarding a new tax reform that was passed by the Chilean Congress and enacted on January 29, 2020. Through various measures the reform aimed to levy higher taxes on high-income individuals, while alleviating the tax burden for lower-income segments. For more information, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Income Tax and Item 10. Additional Information—Taxation—Chilean Tax Considerations”. Further, on November 15, 2019, the majority of the local political parties agreed on a process to draft a new constitution that will replace the current one drafted indating from 1980. ThisAccording to amendments approved by the Chilean Congress to the 1980 Constitution, this process will bewas initiated by athe referendum to vote onheld in October 2020, in which two matters:matters were voted on: (i) whether a new constitution should be drafted and if so, (ii) whether the convention for drafting the new constitution will be comprised of 50% Congress members and 50% non-Congress member elected citizen,citizens, or entirely comprised of non-Congress member elected citizens for this specific purpose. As stated in the original amendment to the current Constitution, which enables this process, this referendum was going to take place in April 2020, and elections for the members that will compose the convention, if that is decided, were expected to be held in October 2020. However, due to the current COVID-19 pandemic and urgent health measures taken by our Government,In the referendum, was postponedthe choice for October 2020,a new constitution obtained 78% of the votes and 79% of voters determined that a convention entirely comprised of non-Congress member elected citizens will draft the electionsnew constitution. The election for determining the composition of the convention body was scheduled to be held on April 11, 2021, however, since COVID-19 cases significantly increased during late February and March 2021, lockdowns and other measures had to be reinstated by the Chilean authorities, causing the election to be postponed to mid-May 2021. These elections will also appoint mayors, local councils and governors, and to avoid crowds due to COVID-19 restrictions, will be exceptionally held during two days. As for April 2021. Eachthe procedure under which the new constitution will be written by the convention body, each new article of the constitution will have tomust be approved by two thirds of the convention. This convention will be exclusively authorized to discuss and draft the provisions of a new constitution. The process to draft the constitution is expected to commence in July 2021, and may last up to one year from the date it is legally installed. The draft delivered by the convention must be ratified or rejected in a new referendum.

The social unrest has also ledAs mentioned, the referendum to increased volatilityvote for a new constitution was carried out in October 2020, in which the Chilean stock market andchoice for a sharp depreciationnew constitution obtained 78% of the Chilean peso againstvotes and 79% of voters determined that a convention entirely comprised of citizens will draft the U.S. dollar. Furthermore, share pricesnew constitution. As a consequence of the recent developments relating to an uptick of COVID-19 cases, the April 2021 elections for mayors, local banks, including ours, suffered significant declines incouncils and governors and members of the market, while bond spreads of local banks increased.convention were exceptionally postponed for May 15 and 16, 2021.

WeBased on the announcement of the social agenda, and subsequently due to the mobility restrictions implemented due to the COVID-19 pandemic, protests and riots declined during 2020 and were later resumed, to a lesser extent, by the end of 2020 and beginning of 2021. However, the social crisis produced by the COVID-19 pandemic also translated in isolated demonstrations. Accordingly, we cannot rule out an increase in past-due levels during 20202021, or beyond, to the extent that the quality of salaried jobs decreases and that the economic outlook deteriorates in light of doubtsuncertainty around the new constitution or changes to the political and economic model. Amid this environment, our risk expenses could increase in the short-term, while our results of operations, and the results of the industry as a whole could be affected. Furthermore, economic activity could slow down, affecting loan growth across the industry and for us.

The long-term effects of this social unrest are difficult to predict, but could include slower economic growth and higher unemployment rates, which could adversely affect our profitability and prospects. For example, an increase in the unemployment rate beyond what we predicted, or for a longer period than predicted, could diminish demand for loans and decrease our customers’ payment capacity to repay loans, increasing expected credit losses. Overall, we cannot assure you that the social unrest will decrease in Chile in the near future, and therefore, we can offer no assurance that it will not have a negative impact on economic growth, the overall Chilean business environment and our results of operations and financial condition.

Reforms to labor and pension laws as well as labor strikes or slowdowns could adversely affect our results of operations.

We are a party to collective bargaining agreements with various labor unions to which most of our employees belong. Therefore, disputes regarding the terms of these agreements, or our potential inability to negotiate acceptable contracts with these unions, could result in strikes, work stoppages, or other slowdowns by the affected workers, among other things. If unionized workers were to engage in a strike, work stoppage, or other slowdown, or other employees were to become unionized, we could experience disruption of our operations or higher ongoing labor costs, either of which could have a material adverse effect on our results of operations. See “Item 6. Directors, Senior Management and Employees—Employees.”

Since 2017, a bill has been under consideration in the Chilean Congress aimed at reducing the maximum working hours from 45 to 40 hours per week, applicable to employees. If this bill is approved and enacted, we could experience higher ongoing labor costs, which could have an adverse effect on our results of operations.

Current labor legislation defines a company’s minimum services and emergency teams by the applicable labor regulator after negotiations between a company and each labor union prior to the commencement of a collective bargaining process. As such, minimum services refer to those functions of a company which must continue to be provided during a strike because they have been determined to be essential to protect assets and facilities, to prevent accidents, guarantee public utility services, meet the basic needs of the population and prevent environmental damage or harm to health. A company’s emergency teams are made up of workers assigned by each union to fulfill such minimum services. As further explained in “Item 8 – Financial Information – Legal Proceedings – Setting of Minimum Services and Emergency Teams in Case of a Strike”, we are currently in the process of challengingchallenged the minimum services and emergency teams that have been assigned to us. As ofus, but our claims were not upheld, both by the date of this annual report, we cannot offer any assurance as tolabor authority and the final outcome of these legal proceedings. To the extent we are not able to prevail,labor courts. Therefore, in the event of futures strikes, we could face operational disruptions due to an inadequate number of minimum services and an insufficient staff for the emergency teams.

Since November 6,late 2018, a bill introduced by the Chilean Government has presented three bills with the purpose of improving the existing Chilean pension system. These projects, which initially sought to improve the private pension funds system mainly by increasing the contributions to individual capitalization and enhancing the solidarity fund grantedfinanced by common taxation, have extensively changed during the last two years, especially after the October 2019 social turmoil aftermath and the COVID-19 pandemic. The last bill was presented by the Chilean State, has been under discussionGovernment in March 2021, and, among other matters, (i) seeks to increase the number of people benefited by the solidarity fund; (ii) increases from 10% to 16% the compulsory individual contribution which must be paid by the employer (where 3% would be destined to individual capitalization and the other 3% to solidarity (despite discussions with the Chilean Congress. However,Government’s opposition which seeks to apply the full extra 6% to solidarity); (iii) increases the pensions of certain groups of low income pensioners by offering several benefits to them; (iv) creates new pension fund managers as non-profit seeking organizations; (v) mandates fund managers to return up to 20% of the fees charged to the contributors to the extent they suffer losses; and (vi) eliminates fees for the management of Chilean mutual funds.

Further, during the discussions between the Chilean Government and the Chilean Congress to reach an agreement on a feasible pension reform, as a result of the social unrest in Chile, this bill has suffered broad modifications and indicationsCOVID-19 pandemic, two extraordinary withdrawals from the Government, which are set forth in the indications publicly announced by the Government and sentpension funds were permitted to anyone who had contributed to the Congress in January 2020. The bill proposes a gradual 6% increase of employees’ gross salaries that should be set aside for pension savings, i.e.fund system, each one up to 10% of the current 10%aggregated individual account available, but not exceeding UF 150 (equivalent to 16%. This additional 6%, which would be gradually introduced over a periodCh$4.4 million as of 12 years, is to be paid by the employer. Half of this increase is meant to finance individual capitalizations while the other 3% would be allocated to solidarity pensions. This additional 6% would not be managed by the current pension fund managers, but by a public entity to be created by this new law.March 31, 2021). As of the date of this annual report, a third withdrawal was passed by the Chilean Congress and enacted. This third withdrawal allows withdrawals from the pension funds in similar terms as the previous two, and is expected to be implemented during the following weeks.

With the information we have as of today, we are unable to predict the final content of the lawpension reform and therefore any potential adverse effects of this bill in our financial condition and results of operations cannot yet be ascertained. Should this bill come into effect, it may cause an increase in labor costs, including ours, and therefore, have an adverse effect on our financial and operational results.

Since the pension fund managers usually invest a portion of the funds in certain banking debt instruments (for instance, bonds, time deposits), if the amount of funds available in the pension funds system decreases significantly, we may need to seek alternative funding sources, which could be more expensive and, as a consequence, may have an adverse effect on our financial condition and results of operations.

History and Development of the Bank

Overview

We were founded in 1893, and we have been, for much of our history, among the largest and most profitable Chilean banks in terms of return on average assets and average equity in Chile. Our core business is commercial banking in Chile, providing traditional banking products and specialized financial services to our large and diversified customer base of individuals and companies.

Our legal name is Banco de Chile and we are organized as a banking corporation under the laws of Chile and were licensed by the CMF to operate as a commercial bank on September 17, 1996. Our main executive offices are located at Paseo Ahumada 251, Santiago, Chile, our telephone number is +56 (2) 2637-1111 and our website iswww.bancochile.cl. Our representative in the United States is Puglisi & Associates, with offices at 850 Library Avenue, Suite 204, Newark, Delaware 19711.

We are a full service financial institution that provides, directly and indirectly through our subsidiaries, a wide variety of lending and non-lending products and services to all segments of the Chilean financial market, providing our customers with powerful, differentiated and comprehensive value offerings. In addition to our traditional banking operations, our subsidiaries and affiliates permit us to offer a variety of non-banking but specialized financial services including securities brokerage, mutual funds management, investment banking, insurance brokerage, securitization and collection services.

Our business is not materially affected by seasonality.

We organize our operations and deliver our services to our customers through the following four principal business segments:

Through our retail banking segment, we provide our individual customers with credit cards, installment loans and residential mortgage loans, as well as traditional deposit services, such as current accounts, demand deposits, demand accounts, savings accounts and time deposits. We and our subsidiaries also offer financial solutions such as insurance brokerage, securities brokerage, mutual funds management, among others. In addition to personal banking, our retail segment comprises micro, small and medium sized companies that we serve by providing them with short and long term financing, deposit and cash management solutions, in addition to an array of financial services, such as insurance brokerage. In addition, our banking services for wholesale customers include commercial loans (including factoring and leasing), trade finance, capital markets services, cash management and non-lending services, such as payroll, payment and collection services, as well as a wide range of treasury, financial advisory and risk management products.

In 2008, we enhanced our value offerings by entering into a strategic partnership with Citigroup Inc., as a result of our merger with Citibank Chile. We also offer international banking services through our representative office in Beijing and a worldwide network of correspondent banks.

According to the CMF, under Chilean GAAP, as of December 31, 2019,2020, we ranked firstsecond in the Chilean banking industry in terms of net income attributable to equity holders with a market share of 23.4%39.3%. As of the same date and excluding operations of subsidiaries abroad, we were the second largest bank in Chile in terms of total loans with a market share of 16.5%16.6%, the largest provider of commercial loans with a market share of 16.0%16.7%, the second largest provider of consumer loans with a market share of 17.0%17.3% and the secondthird largest private sector bank in terms of residential mortgage loans with a market share of 17.2%16.3%. As for liabilities, excluding operations of subsidiaries abroad, we were the largest private bank in Chile in terms of current accounts and demand deposit balances (net of clearance) with a market share of 22.5%20.8% and, more importantly, we ranked first in current account balances held by individuals with a market share of 26.5%27.1%, both as reported by the CMF and as of December 31, 2019.2020. Lastly, according to the Chilean Association of Mutual Funds, as of December 31, 2019,2020, we were the largest provider of mutual funds management services in Chile with a market share of 23.6%24.2%.

As of December 31, 2019,2020, we had:

As of December 31, 2019,2020, we had 13,55513,134 employees and delivered financial products and services through a nationwide distribution network of 359334 branches and 1,7441,766 automatic teller machines (“ATMs”). Our ATMs are part of a larger network of 7,3617,449 ATMs operating in Chile, of which 4,6524,757 ATMs operate under a network managed by Redbanc S.A., a company we partly own along with nineeight other private sector banks.

History

We were founded in 1893 as a result of the merger of Banco Nacional de Chile, Banco Agrícola and Banco de Valparaíso, which created the largest private sector bank in Chile. We have played an important role in the economic history of Chile. Before the creation of the Central Bank in 1926 and prior to the enactment of the General Banking Act, we were the main stabilization agent of the Chilean banking system, a role that is now performed by the Central Bank. Beginning in the early 1970s, the Chilean Government assumed control of a majority of Chilean banks, and all but one of the foreign banks that were operating at that time closed their branches and offices within the country. Throughout this era, we remained as a private sector bank, with the exception of a portion of our shares owned by the Chilean Government that were sold to private investors in 1975. Throughout our history we have developed a well-recognized brand name in Chile and expanded our operations in foreign markets, where we developed an extensive network of correspondent banks. In the early twentieth century, we established a representative office in London, which we maintained until 1985, when our operations in Europe were moved to Frankfurt. The office in Frankfurt was closed in 2000, when our foreign operations were centralized at the New York branch. In 1987 and 1988, we established four subsidiaries to provide a full range of specialized financial products and services as permitted by the General Banking Act. In 1999, we widened our scope of specialized financial services by creating our insurance brokerage and factoring subsidiaries. During the early 2000s, the Chilean banking industry witnessed intense merger and acquisition activity. In 2002, we merged with Banco de A. Edwards, which allowed us to expand our business to new customer segments. In 2008, we sold our U.S. branch to Citigroup in connection with our merger with Citibank Chile that was carried out during the same year. As a result of these consolidations, we currently operate a distribution network that is composed of three brand names, namely, “Banco de Chile” (which operates throughout Chile), “Banco Edwards-Citi” (which is primarily oriented to higher income segments) and “Banco CrediChile” (which is focused on consumer loans and demand accounts for lower and middle income segments).

During 2014, the Chilean economy entered into a slowdown cycle, which affected investment and the growth of commercial loans. Amid this slowdown, we took advantage of our competitive strengths and continued to optimize our risk-return relationship by keeping our credit risk under control and developing innovative commercial strategies. As a result, we remained at the top of the industry in terms of net income generation and return on average equity, according to information published by the SBIF as of December 31, 2014. In order to achieve these goals, we improved customer experience by launching cutting-edge mobile banking solutions and applying world-class business intelligence methodologies. Furthermore, we continued to diversify our funding structure by issuing long term bonds in Switzerland, Japan and Hong Kong, while taking advantage of our U.S.$1,000 million commercial paper program, which was established in 2010 (‘the Commercial Paper Program”) to raise short-term funds. Lastly, we recorded a 15.9% annual expansion in current accounts and demand deposit (year-end balances) that enabled us to rank first in these liabilities within the local banking industry, according to information released by the SBIF as of December 31, 2014. These figures were reflected by the interest of investors in Banco de Chile’s stock, which recorded an 86.5% annual increase in trading volumes (excluding the effect of the LQIF secondary offering), the highest increase among all publicly listed Chilean banks.

During 2015, the economic backdrop remained a leading challenge for the banking industry. However, we remained the most profitable bank in Chile (in terms of return of return on average capital and reserves and return of average assets for banks with market share in loans above 3.0%) and the first bank in net income attributable to equity holders. These accomplishments were due to diverse initiatives implemented during the year, including innovation in IT solutions for our customers, which has become one of our main goals. Due to these initiatives, we were recognized as theBest Consumer Digital Bank in Chile byGlobalFinance and as theBest Internet and Mobile Bank in Chile byGlobal Banking & Finance Reviewin 2015. In addition, we entered into two strategic partnerships with both a local and an international airline, which will benefit our 1.5 million credit card holders. We also acquired a commercial loan portfolio from a local bank amounting to approximately Ch$564 billion. Moreover, 2015 was a record year for Banco de Chile in terms of bond placements amounting to approximately Ch$1,342 billion, of which Ch$156 billion were placed abroad under the U.S.$3 billion MTN Program we maintain in Luxembourg.

Throughout 2016 we continued to face economic headwinds as the local economy’s growth continued to slowdown. Amid this environment, we focused on growing profitably by concentrating on those segments with a more balanced risk-return relationship. Thus, in spite of recording a moderate annual expansion of 3.4% in total loans, we managed to remain first in terms of net income attributable to equity holders and profitability (for banks with market share above 3.0% in total loans) within the local banking industry, with a market share of 28.4% and a ROAE of 19.6%, both under our internal reporting policies. Our customer-centric approach has been crucial to these achievements and we believe our service quality makes a difference when compared to our competition. During 2016 we accomplished significant advances on this matter such as attaining the highest net promotion score among the main Chilean banks for first time in our recent history while also reducing our attrition rate. We believe these achievements were the result of diverse projects and strategies intended to enhance customer proximity. Thus, during 2016 we launched a new personal banking website, with improved functionalities and enhanced our mobile banking solutions by adding new applications for smartphones. In terms of service quality, we revised and updated our portfolio of high income customers, opened new specifically-oriented branches for preferential customers and set up a new service model for premium customers called “Private Wealth Management.” Lastly, we continued to strengthen the benefits associated with our loyalty program for credit card users by adding new alliances to the package of already existing services and providers. Based on all of these initiatives, during 2016 we were recognized by various specialized publications covering multiple areas of banking activity including “Most Valuable Banking Brand” in Chile by The Banker, “Most Innovative Banking Solutions” in Chile by Global Business Outlook, “Best Consumer Digital Bank” in Chile by Global Finance and “Best Bank” in Chile by World Finance.

During 2017, we were first in terms of net income and profitability within the local banking industry, with a market share of 26.1% and a ROAE of 19.3%, both under our internal reporting policies. These achievements were attained during a difficult economic landscape, which resulted in a significant slowdown of the corporate lending business that impacted certain macroeconomic indicators such as unemployment, which adversely affected the credit quality of our personal banking business. Amid this environment, we maintained our customer-centric approach and focused on developing new ways to enhance the customer experience by expanding our service offerings, business platforms and benefits to our loyalty program. For example, we launched a new website for companies, aimed at serving corporates, other large companies and SME customers. Similarly, we created a new mobile application and upgraded existing ones. We released “MiInversion” which serves as a portfolio management platform for retail customers and developed new functionalities for the MiBanco application. We believe remote channels are the future of banking and are continuously promoting their use among customers while seeking new solutions to offer banking products through mobile or internet technologies. This strategy boosted demand for mobile and internet services that during 2017 reflected increases of 78% and 11% in monetary transactions using these means, respectively. In addition, our enhanced loyalty program added new alliances with two airlines and negotiated access to a VIP lounge for customers at the Santiago airport. These initiatives continue to demonstrate our commitment to superior customer service and have allowed us to obtain a 73.3 % average net promoter score in 2017, as measured by a syndicated study conducted by Consultores Asociados de Marketing Cadem S.A., or CADEM,“CADEM,” the highest among our relevant peers. We also undertook transformational changes by assessing relevant processes in terms of efficiency, cost control and operational risk. We believe these actions are necessary to maintain our market leading position in an increasingly competitive banking industry. Lastly, we received recognition for our business performance and digital strategy including being recognized as the Best Bank in Chile, Best Digital Bank for Companies in Chile and Best Sub-Custodian Bank in Chile by Global Finance and being named the Best Mobile and Digital Bank in Chile and the Best Investment Bank in Chile by Global Banking & Finance Review.

Throughout 2018, we continued to show outstanding performance when compared to our main competitors. We led the market in terms of net income attributable to equity holders with a 25.3% market share, which translated into an above-average ROAE of 19% (both figures under Chilean GAAP). Thanks to this performance, we were able to earn sufficient income to fully repay the subordinated debt held by SAOS with the Central Bank in April 2019. This is a significant milestone in our history, since we were able to pay off this debt 17 years before the original maturity date. In 2018, the Chilean economy maintained the trend shown by the end of 2017. Thus, GDP grew solidly at 4.0%, primarily due to the rebound of private investment. Amid this scenario, our loan book increased 9.7%, thanks to record sales in installment and mortgage loans while also adding a record amount of new current account holders. Moreover, the wholesale segment achieved a significant recovery by the end of the year, after two consecutive years of contraction.

During 2018, we continued to focus on superior customer service, attaining first place in service quality among our peers by posting an average net promoter score of 71.2%, as measured by a syndicated study conducted by CADEM, and an attrition rate of only 6.2%, according to our management information system. Based on these attributes we received the “National Customer Satisfaction Award” and the “Consumer Loyalty Award” in 2018. Aligned with this view, we continued to develop our digital strategy in order to assure stability and efficiency on our diverse platforms while innovating in new products and services provided online. Thus, we added new functionalities to some of our applications (MiBanco, MiPago and MiInversion), which allow our customers to perform new transactions through their smartphones including time deposits, money exchange and the RedGiro service. Due to these improvements the amount of mobile transactions in our mobile platforms increased to 35.1 million in 2018, which represents an annual increase of 60.8%. Also, thanks to our digital banking strategy we were once again recognized as the “Best Digital and Mobile Bank in Chile” by Global Banking & Finance Review and “Innovative Digital Bank of the year in Chile” by The European Magazine. Cybersecurity was also a central point of attention for us in 2018. After the cyber-attack occurred in May 2018, on which we timely reacted based on solid security protocols, we decided to enhance our organizational structure and IT infrastructure by creating the new Cybersecurity Division. This new division took various actions in order to promote a cybersecurity culture across the company, while spreading the knowledge that all of our employees should have in respect to this important topic.

In 2019, we achieved significant accomplishments, all of which were aligned with our long-term strategy, while maintaining a clear focus on our customers’ needs. For example, we began the year signing a long-term, exclusive partnership for life and non-life insurance products with an international insurance company. We expect this partnership to provide our customers with a wide array of insurance solutions, as well as give us the ability to offer products with an excellent price-to-quality ratio. Additionally, we entered a commercial alliance with a local Chilean retailer, allowing us to expand our ATM network by 22.5% on average in Chile during 2019 when compared to 2018. Through these initiatives, we maintained our position as a market leader in fee-based income in 2019, while significantly widening the competitive gap with followers in the industry.

During 2019, we also continued our strategic objectives by defining and working to meet specific goals and improving our customer proximity in order to better meet their needs. To this purpose, we continued to deploy our digital transformation strategy by implementing a digital onboarding for customers seeking to remotely open a checking account. We continued developing our new service model to unify customer service under CrediChile and Banco de Chile brands through merging several branches. Through these initiatives, we continuecontinued being an industry leader among major banks in service quality, holding a net promoter score of 72.5% as of December 31, 2019 according to a syndicated study performed by ProCalidad.

Further in 2019, we had two milestone bond placements. We placed our first green bond to finance renewable energy projects in Chile for approximately U.S.$48 million. We also took advantage of low interest rates and the phase-in, proposed by the regulation in connection with the Basel III implementation in Chile, for a subordinated bond placement in the local market of approximately Ch$215,397 million. 2019 was also an iconic year for share ownership. SAOS was able to fully repay the Central Bank subordinated debt on April 30, 2019 based on the dividend received from our net distributable earnings for the year ended December 31, 2018. Consequently, SM-Chile and SAOS entered into a liquidation process and their Banco de Chile voting rights were transferred to their respective shareholders. As a result, the free-float of our stock increased from approximately 32.09% to 48.74% (including Ergas group). Finally, as of December 31, 2019 we were the market-leading bank in Chile in net income attributable to equity holders and profitability, with a market share of 23.4% and a ROAE of 17.5% (under Chilean GAAP).

In 2020, our main achievements were related to both adapting our operations and processes to the contingencies produced by the COVID-19 pandemic, while being able to successfully overcome the financial challenge posed by the economic crisis caused by the pandemic. In order to continue adapting our operations to the increasing demand for remote settings and faster services from our customers, while still addressing the effects of mobility restrictions and lockdown, during 2020 we emphasized the importance of digital transformation within our organization. First, we enhanced some of our main mobile applications (MiBanco and MiPago) and our online websites for individuals, by optimizing their security protocols while providing better and more organized content to improve the user experience. In addition, one of the most important milestones of the year was the launch of the FAN account, our fully digital onboarding bank account that promotes financial inclusion among all income segments. This initiative should allow us to strengthen our market-leading position in demand deposits, as reflected by a market stake of 27.1% reached in demand deposit account balances held by individuals as of December 31, 2020 (excluding operations of subsidiaries abroad). As a consequence of these efforts on digital transformation, we were rewarded and recognized as the Innovative Digital Bank of the Year in Chile by The European magazine. Also, during 2020 we continued implementing our dual service model for branches, while modernizing them in order to comply with the sanitary restrictions as a result of the COVID-19 pandemic. These actions, coupled with a set of other measures taken in order to guarantee our operational continuity, led us to being recognized as the leading bank in Best Service Quality in 2020 according to Adimark. Moreover, during the course of the year we improved our organizational structure by creating the Productivity and Efficiency Division, which aims to accelerate the implementation of initiatives intended to optimize our operations while identifying new opportunities to improve diverse processes. Likewise, we continued to reinforce our cybersecurity structure by creating three subdivisions in order to better cope with new challenges that digital transformation poses: (i) the Cybersecurity Operations unit, (ii) the Intelligence and Response unit, and (iii) the Detection and Containment unit.

Throughout 2020, we also deployed the National Support Plan in order to support our customers that have been affected by the COVID-19 pandemic. This initiative included the possibility of rescheduling up to six installments of consumer, residential mortgage and commercial loans while reprogramming their credit card debt, as well as a special support program that granted government-guaranteed working capital loans to SMEs and Large Companies clients. As of December 31, 2020, we had granted nearly Ch$1,890,000 million in these secured loans, representing a 6.1% of our total loan portfolio. Also, as of the same date, we had rescheduled approximately Ch$414,155 million of installments of consumer, mortgage and commercial loans.

In 2020, our results were undoubtedly affected by a deteriorated economic landscape caused by the COVID-19 pandemic. This context translated into downward trends in local and foreign interest rates, lower transactionality, reduced demand for loans and increasing unemployment, that led to a decline in customer income and a spike in risk expenses. However, due to our prudent risk policies, strict cost control and a proactive management of our Treasury and Money Market Operations business segment, we were able to deal with this challenge by posting a year-end net income attributable to equity holders of Ch$401,630, equivalent to a ROAE of 10.1%. Lastly, due to the establishment of additional allowances and the increase in equity during 2020, we had the strongest Capital Adequacy Ratio among major local banks, posting a year-end 16.0% BIS Ratio.

Merger with Banco de A. Edwards

On December 6, 2001, our shareholders approved our merger with Banco de A. Edwards, which became effective on January 1, 2002. Banco de A. Edwards had been listed on the NYSE since 1995, and since January 2002, we have been listed on the NYSE under the symbol BCH. We concluded the merger process with the consolidation of a new corporate structure and the integration of our technological platforms.

Merger with Citibank Chile

On December 27, 2007, our shareholders approved our merger with Citibank Chile, which became effective on January 1, 2008. During 2008, we integrated Citibank Chile’s technological platforms with ours and established a new organizational structure in order to satisfy the needs of our customers and to achieve important synergies. We concluded the merger process with the integration of Corporación Financiera Atlas S.A. (Citibank Chile’s consumer area) into our consumer finance area (CrediChile), which allowed us to nearly double our customer base and market share in consumer finance. As result of this merger and integration process, we entered into the following agreements with Citigroup Inc. to provide a framework for our relationship with Citigroup Inc., its services and trademarks in Chile: (i) the Global Connectivity Agreement, (ii) the Cooperation Agreement, (iii) the Trademark License Agreement and, (iv) the Master Services Agreement. On October 22, 2015, we entered into a new Global Connectivity Agreement, a new Cooperation Agreement and a new Trademark License Agreement with Citigroup Inc. All of these new agreements replaced the original agreements we entered into on December 27, 2008. In addition, on January 26, 2017, we entered into a new Master Services Agreement with Citigroup Inc. On August 24, 2017, we agreed to extend the Cooperation Agreement dated October 22, 2015 for a period of two years beginning on January 1, 2018, pursuant to which the parties may agree, to extend for another two-year term to commence on January 1, 2020. As a result of the extension of the Cooperation Agreement, the new Global Connectivity Agreement, Trademark License Agreement and Master Services Agreement were extended under the same terms as the Cooperation Agreement. For more information, see “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.

Technological Projects

In 2016 we undertook diverse technological initiatives intended to adequately support our core business and improve our operating efficiency. Our main initiative to support to our core business was the implementation of a new internet-based platform for personal banking with a friendlier design and more efficient architecture that boosted online transactions, increased customer satisfaction and decreased web surfing time. Furthermore, we implemented the first stage of a new commercial platform, called “Business Center,” which includes a new system aimed at integrating the sale and post-sale process. Business Center will also become our CRM system in the future. We also put into practice a modern platform for our leasing business. In addition, we continued to enhance the capabilities of our Treasury by upgrading the Murex system, completing a new phase of the platform that allows us to clear derivatives with other Chilean banks while setting up diverse IT solutions to clear derivatives contracts with European counterparties (EMIR). We also continued to reinforce our mobile offerings by improving the mass-market appeal of MiPass, originally introduced in 2015. In addition, we implemented online notifications of payments, money transfers and credit card charges, which are received by customers on their smartphones at the moment of transaction. In regard to efficiency, during 2016 we completed several projects intended to digitalize documents, reports and forms in order to avoid printing and implemented a new image-based model for controlling operations carried out by tellers and representative officers. Similarly, we automated diverse form filling procedures for operations related to personal banking and SMEs and set up platforms and procedures for pre-approval operations. Finally, we continued to develop the last stages of our ATM replacement schedule by renewing 96% of our total network, in accordance with the requirements imposed by the Chilean regulator.

During 2017 we continued to develop the “Business Center” project, which is our new Sales & Customer Relationship Management tool. This system is expected to support significant improvements in the quality and responsiveness of our back-office and front-office operating processes to enhance our customer centric vision. We launched our Pricing 360° tool, which improves pricing through a deeper knowledge of account officers on customers’ needs, enabling us to provide tailored lending solutions to our diversified customer base. Similarly, we upgraded the “Time Deposits and Savings” module, which permits account officers to tailor offerings to personal banking customers. Moreover, we completed the renewal of our ATM network to meet the new security and quality standards required by the SBIF. Additionally, we launched two new platforms for companies. We renewed the website business platform for these customers by adding new functionalities, security standards and the ability to conduct paperless transactions. We implemented a new electronic platform for factoring, which is aimed at improving the interaction with customers by making transactions easier while also upgrading the middle and back-office systems for this business. In personal banking, we maintained our focus on innovation and digital banking by adding new functionalities to existing mobile applications including the authorization of web transactions through MiPass application, access to MiBanco by means of fingerprint scanner, e-commerce payments through MiPago and an On/Off functionality for credit cards in MiBanco.

During 2018, we continued to enhance our diverse IT infrastructure and digital platforms in order to assure stability and efficiency to our processes, attract new potential clients while continuously improving the service provided to our current customers. To this extent, we focused on continued developing new stages of our new CRM system and sales platform by introducing a new pricing tool for individuals that allow our account officers to easily use and access to our customers’ information. The CRM system is a key project for us and we expect to keep on developing new functionalities over the next years. Moreover, we intensified our efforts to expand and improve our remote channels given the massive use of internet and fast adoption of smart phones. In that direction, we added new functionalities to some of our applications, and expanded our RedGiro service to the mobile banking, only available on our website until 2017.

In May 2018 we suffered a cyber-attack involving the theft of funds that subsequently resulted in an operational write-off of approximately Ch$6,900 million or U.S.$ 9.9 million (mostly recovered from the redemption of an insurance policy). Even though this incident temporarily affected certain services provided to our customers, we were able to maintain the continuity of our operations. In addition, as of this date, based on our internal analysis we have found no evidence whatsoever that our customers were affected by this incident in terms of misappropriation of funds. See “Item 3. Key Information—Risk Factors—Risks Relating to our Operations and the Chilean Banking Industry—Cybersecurity events could negatively affect our reputation or results of operations and may result in litigation.” This cybersecurity incident, although successfully overcome, posed new challenges for us in terms of cybersecurity infrastructure, controls and procedures. Thus, as part of the efforts to improve our cybersecurity risk management, we created the Cybersecurity Division in June 2018, which replaced our former Technological Security Area. The new division is the first line of defense for us on these matters and is in charge of mitigating and managing cybersecurity threats. The division is focused on managing projects aimed at improving our cybersecurity protocols and procedures. During 2018, the Cybersecurity Division undertook diverse IT projects in order to reinforce our infrastructure and cybersecurity capabilities, acquiring world-class protection software and firewalls while investing in specialized platforms to address this significant topic. During 2018, we invested approximately Ch$9,915 million in cybersecurity equipment and software and incurred approximately Ch$9,847 million in operating expenses related to cybersecurity matters. These disbursements almost doubled the total amount incurred in 2017.

In addition to executing our digital transformation strategy to improve customer experience, in 2019 we also developed and implemented various projects aimed at improving cybersecurity infrastructure, efficiency and customer service. We launched our E360° tool, which is a tactical dashboard that enables standardization of offerings, while also improving the management of commercial efforts, customer visits and promises to clients. In SMEs, Middle Market Companies and Corporate Banking, we successfully migrated a majority of the customer base to a new web-based transactional platform, Banconexión 2.0. This platform was developed to address segment needs, delivering an improved customer experience while ensuring high security standards in banking operations. Furthermore, as a result of a commercial partnership with a local retailer, we were able to significantly expand our ATM network by 15%. Additionally, throughout 2019, we carried out various cybersecurity projects aimed at improving in-networks, workstations, servers and digital applications, while enhancing access-control through technological solutions and software. To increase efficiency and productivity, we developed new automated transactional platforms for foreign currency trading to help meet the needs of professional and non-professional counterparties. Lastly, we adopted a world-class module for collateral management, improving the administration of our derivative portfolio and counterparty risk.

In 2020, it became clear that the acceleration of our digital transformation was critical to remain competitive in this challenging industry. Since the beginning of the COVID-19 pandemic in our country, we have been continuously identifying upgrades in our models, processes and platforms in a year where our customers are increasingly demanding less physical contact, while still receiving fast, flexible and reliable services. In this context, in September 2020, we officially launched the FAN account, a 100% digital debit account for individuals. Moreover, we continued to migrate our Middle Market Companies to Banconexión 2.0, the online transactional platform for companies. Furthermore, this platform was used to grant government-guaranteed working capital loans to SMEs and Middle Market Companies, related to the Fondos de Garantía para el Pequeño Empresario (“FOGAPE”) program, which coupled with the National Support Plan that provided funding to our customers during the difficult times of the COVID-19 pandemic. In addition, an increased number of employees working at home compelled us to improve our cybersecurity protocols, such as the implementation of the Authentication Enrollment (MFA) platform that allows our collaborators to authorize their login to the Bank’s software through their personal smartphones. Furthermore, we updated our main website and both MiBanco and MiPago mobile apps, by improving their structure, security protocols and graphics, in order to offer an optimized and unified web view within our digital channels. Lastly, we also advanced in the implementation of “Pricing Empresas,” a pricing model for companies that seeks to improve our management and customer segmentation, as well as implementing a new module in the Murex system associated with collateral management for derivatives.

Through these efforts we have maintained our commitment to anticipating changes and minimizing risks related to technological advances, including cybersecurity risks, as mentioned in “Item 3. Key Information—Risk Factors—Risks Relating to our Operations and the Chilean Banking Industry” and “Item 3. Key Information—Risk Factors—Risks Relating to our Operations and the Chilean Banking Industry—Cybersecurity events could negatively affect our reputation or results of operations and may result in litigation.”

The 1982-1983 Economic Crisis and the Central Bank Subordinated Debt

During the 1982-1983 economic crisis, the Chilean banking system experienced significant instability that required the Central Bank and the Chilean Government to provide assistance to most Chilean private sector banks, including us. During this period, we experienced significant financial difficulties. In 1985 and 1986, we increased our capital and sold shares representing 88% of our capital to more than 30,000 new shareholders. As a result, no single shareholder held a controlling stake in the Bank. In 1987, the SBIF returned complete control and administration of the Bank to our shareholders and our board of directors by ending our provisional administration based on our successful capital increases as required by Law No. 18,401.

Subsequent to the crisis, like most major Chilean banks, we sold certain of our non-performing loans to the Central Bank at face value on terms that included a repurchase obligation. The repurchase obligation was later exchanged for subordinated debt of each participating bank issued in favor of the Central Bank. In 1989, pursuant to Law No. 18,818, banks were permitted to repurchase the portfolio of non-performing loans for a price equal to the economic value of such loans, provided that the banks assume a subordinated obligation equal to the difference between the face and economic value of such loans. In November 1989, we repurchased our portfolio of non-performing loans from the Central Bank and assumed the Central Bank’s subordinated debt related to our non-performing loans.

In November 1996, pursuant to Law No. 19,396, our shareholders approved a reorganization by which Banco de Chile was converted into a holding company named SM-Chile S.A. (SM-Chile). In turn, SM-Chile organized a new wholly-owned banking subsidiary named Banco de Chile, to which the former contributed all of its assets and liabilities, other than the Central Bank subordinated debt. In addition, SM-Chile created a second wholly-owned subsidiary namedSociedad Administradora de la Obligación Subordinada SAOS S.A. (SAOS) that, pursuant to a prior agreement with the Central Bank, assumed a new repayment obligation in favor of the Central Bank that replaced the Central Bank subordinated debt in its entirety and received 63.6% of our shares from SM-Chile. Although shares held by SAOS had economic rights that belong to the Central Bank, their voting rights were exercised by SM-Chile’s shareholders. This Central Bank debt, for which SAOS was solely responsible and for which there was no recourse to us or SM-Chile, was equal to the unpaid principal of the Central Bank subordinated debt that it replaced but had terms that differed in some aspects, such as the rescheduling of the debt for a term of 40 years providing for equal annual installments and a pledge of our shares owned by SAOS as collateral for such debt. The Central Bank debt bore interest at a rate of 5.0% per year and is UF-denominated.

Pursuant to SM-Chile’s bylaws, that company remains in existence until the Central Bank subordinated debt is completely paid off by SAOS, which occurred on April 30, 2019. As of such date, SM-Chile has been in the process of being liquidated, and the shares of Banco de Chile owned by SM-Chile and by SAOS (which was dissolved as of April 30, 2019) were distributed among SM-Chile’s shareholders as described in “Item 7. Major Shareholders and Related Party Transactions–Ownership Structure.” As a result, SM-Chile’s shareholders became direct shareholders of Banco de Chile.

During the existence of the Central Bank subordinated debt, dividends that SAOS received from us were its sole source of revenues, which by legal mandate were destined to repay its debt to the Central Bank. SAOS did not have any other material debt, as it was a special purpose legal entity created by virtue of Law No. 19,396 whose only business was to own Banco de Chile shares and repay the obligation to the Central Bank. To the extent distributed dividends were not sufficient to pay the amount of each installment of its debt, SAOS was permitted to maintain a cumulative deficit balance with the Central Bank that SAOS committed to pay with future dividends. If the cumulative deficit balance exceeded an amount equal to 20% of our paid in capital and reserves, the Central Bank could have required SAOS to sell a sufficient number of shares of our stock to pay the entire accumulated deficit amount.

SAOS fully repaid the Central Bank subordinated debt on April 30, 2019 using the proceeds of the dividend it received from us from our net distributable earnings for the year ended December 31, 2018. As a consequence of such full repayment, SAOS was dissolved, SM-Chile began a liquidation process and Banco de Chile’s shares previously owned by SM-Chile and SAOS were distributed to our shareholders. As a consequence, LQ Inversiones Financieras S.A. and Inversiones LQ SM Ltda, increased their direct ownership in Banco de Chile, from their prior shareholdings of 27.18% and 0.29%, respectively, to 46.34% and 4.81% in each case. Similarly, other shareholders of SM-Chile became our shareholders, which significantly increased the public float of our stock. As of December 31, 2019, only SAOS had been fully dissolved. As of April 24, 2020,23, 2021, the liquidation process of SM-Chile was in progress.progress and is expected to end by 2025. For more information, see “Item 7. Major Shareholders and Related Party Transactions–Ownership Structure.”

As a result of the full repayment of the Central Bank subordinated debt, LQ Inversiones Financieras is now the major direct shareholder of Banco de Chile with a shareholding of 46.34%51.15%, as of April 24, 2020.23, 2021. See Item 7. Major Shareholders and Related Party Transactions—Ownership Structure and Item 7. Major Shareholders and Related Party Transactions– Major Shareholders.

Capital Expenditures

The following table sets forth our capital expenditures in each of the three years ended December 31, 2017, 2018, 2019 and 2019:2020:

Our budget for capital expenditures for 20202021 amounts to approximately Ch$93,33984,448 million, of which expenditures in information technology investments represent 64%63%, while infrastructure projects represent the remaining 36%37%. The budget for capital expenditures is in line with our mid-term strategic priorities of improving our efficiency and enhancing our customer service capabilities with a firm focus on digitalization. These capital expenditures will be principally financed by cash on hand and long-term debt financing.

Among the budgeted expenditures for information technology, 62%44% corresponds to new and ongoing IT projects undertaken by Banco de Chile, which are intended to provide us with business solutions for customers, technological stability, and improvements in productivity.productivity, enhancements in our communication network and cloud as well as reinforced cybersecurity infrastructure and systems. Of the remaining 38%56% budgeted for IT expenditures, 11%19% relates to the development of applications in order to provide us with digital alternatives to deliver tailored solutions to our customers, 15% is intended for the renewal of our technological infrastructure, which includes further optimization of our nationwide ATM network, 9% is associated with the technological renovation of several of our branches due to the new customer service model, 7% is expected to be deployed to further optimize our nationwide ATM network, another 7%6% consists of investments in technological equipment and system improvements to be carried out by certain subsidiaries 7% is intended to reinforce our cybersecurity infrastructure and systems and the remaining 6% is aimed to help fulfill regulatory requirements.

Our 20202021 infrastructure expenditures budget includes disbursements associated with the renovation of sometransformation and consolidation of our branches particularlybranch network as a result of a new customer service model we are deploying in some of our locations (50%(60%), renovation and restoration of our corporate buildings (20%(16%), general maintenance investments (12%(14%), security-related expenditures (8%reconstitution of infrastructure related to contingency issues (9%) and other initiatives related to our efficiency programsubsidiaries and social commitment (2%security expenditures (1%).

All of the aforementioned investments have been or will be made in Chile.

BUSINESS OVERVIEW

Our Competitive Strengths

Building on our knowledge of the Chilean financial market, we have historically been able to develop significant competitive advantages based on our strong brand recognition, our widespread branch network, the diversity and relative size of our customer base, our highly competitive funding structure, the superior asset quality of our loan portfolio as compared to our peers in Chile, an attractive risk-return relationship and our market leadership in a diverse range of financial products and services.

Our main competitive strengths are:

Brand Recognition and Strong Corporate Image

We have operated in the Chilean financial industry for over 125 years under the “Banco de Chile” brand name. In order to provide our customers with specialized value offerings and a wider range of financial products and services, we have also developed the “Banco Edwards-Citi”, “Banco CrediChile” and “Banchile” brand names. We believe our long standinglong-standing history in the Chilean market is recognized by our customers and the general public, who associate our brands with value, quality, reliability and social responsibility within the Chilean financial industry, as demonstrated in various polls conducted by well-known market research companies. We believe that our long history in the Chilean banking industry is a key element that differentiates us from our competitors.

Additionally, we believe that our merger with Citibank Chile reinforced our corporate image as a leading financial institution within Chile and allowed us to gain recognition among customers and investors all over the world.

We also believe that our strong corporate image is further strengthened by our commitment to social responsibility, which includes supporting the Teleton Foundation (a non-governmental organization dedicated to assisting and treating disabled Chilean children), our partnership with institutions dedicated to improving the quality of Chilean education, our participation in campaigns intended to improve the quality of life of needy people, our commitment to supporting and sponsoring diverse monetary and non-monetary campaigns for recovery efforts from natural disasters in Chile, including wildfires, earthquakes, floods and tsunamis, and the development of other initiatives intended to strengthen our role in, and contribution to, Chilean society. Furthermore, over the last years we have devoted efforts to improve our commitment to the environment by carrying out numerous initiatives.

In 2020, we received diverse distinctions due to our strong brand recognition within the banking industry. Among these awards, we ranked first among local banking brands in “Most Valuable Brand in Chile”, according to a study conducted by BrandZ, and “Marca Ciudadana 2020”, a poll conducted by CADEM.

Business Scale and Leading Market Position

We are one of the largest financial institutions in Chile and a market leader in a broad range of financial products and services within the Chilean financial system, as listed in the following table:

Source: Chilean Association of Mutual Funds and the Financial Market Commission (“CMF”).

We have traditionally had a strong presence in the wholesale segment by maintaining long-term relationships with major local and multinational companies that operate in Chile. We have been able to maintain this leading position by continuously improving our products and services and supplementing them with comprehensive and tailored service models that allow us to successfully serve our customers’ needs. We have also added value to our service offerings by including treasury products for hedging purposes, together with investment banking, insurance brokerage and other specialized financial services provided by our subsidiaries.

In addition, in recent years we have focused on further penetrating the retail banking market through diverse value offerings intended to cover our target demographics and enterprises. Therefore, in recent years we have prioritized the expansion of our residential mortgage portfolio and our presence in transactional services such as credit cards, current accounts and demand accounts, as we believe they are effective means to build long-term relationships and customer loyalty, while increasing cross-selling opportunities. For this reason, through our Individual and SME Banking Area, we aim to lead the market in services offered to high, medium and low income individuals for whom we have developed an attractive and complete portfolio of financial services, including a full range of wealth management services through one of our subsidiaries. Also, our Consumer Finance Area (Banco CrediChile) is one of the largest banking providers of consumer loans among the Chilean banks’ consumer areas, based on comprehensive serviceWe supplement these value offerings with specific proposals for low income individuals. ThisSMEs, which in recent years has been recently supplemented by the implementation ofcoupled with value offerings satisfying small scale entrepreneurs’ financial needs and individual customers in outlying districts seeking deposit and transactional solutions. This broad variety of services has also enabled us to lead the Chilean market in terms of income from fees and commissions.

We believe our financial strength, prestige and brand recognition among Chilean customers have allowed us to become the market leader in terms of current account balances within the Chilean financial system, especially among individuals, who have demonstrated their preference for our services. Our position was further consolidated in the financial downturn that started in 2008 and the local social unrest in late 2019, when we benefited from a “flight-to-quality” effect as investors and depositors were seeking a reliable institution to keep their funds.

Broad and Diversified Customer Base

We believe that we have one of the largest customer bases among financial institutions in Chile. In recent years, we have been able to expand our customer base by providing attractive and tailored value offerings based on continuously improving segmentation and by applying sophisticated business intelligence tools. As of December 31, 2019,2020, we had approximately 1,390,0001,325,000 core clients, which had at least a current account or a loan outstanding with us. However, in regards to main banking products, we serve a broader customer base composed of 1,200,0001,092,000 borrowers, approximately 970,0001,000,000 current accounts holders, approximately 145,000143,900 time deposit holders, approximately 115,000113,000 saving account holders and approximately 1,100,0001,237,000 credit card account holders.

We believe that our broad customer base is both an essential driver of our business and a valuable asset that enables us to cross-sell our traditional lending products and services along with non-lending services provided primarily through our subsidiaries, including our securities brokerage, mutual funds management, securitization, financial advisory, insurance brokerage and collection services.

Multichannel Distribution Approach

In order to better serve our customers, we offer a distribution approach composed of both physical and non-physical channels.

We are present in all regions of Chile and strive to be accessible to every Chilean customer through our large branch network as well as non-physical contact channels. As of December 31, 2019,2020, we had a nationwide branch network of 359334 branches, the largest in Chile among private sector banks, according to information published by the CMF. This network is composed of 242245 branches under our “Banco de Chile” brand name, 41 branches under our “Banco Edwards Citi” brand name and 7648 branches under our “Banco CrediChile” brand name. However, these branches are involved in an integration process, which aims to optimize our branch network by consolidating our “Banco CrediChile” branches under the “Banco de Chile” brand name. We believe that our branch network enables us to develop close relationships with our customers and therefore we are constantly assessing new branch locations throughout Chile.

We have also complemented our branch network with non-physical remote channels, such as ATMs, internet-based online platforms and mobile banking applications. As of December 31, 2019,2020, we had 1,7121,766 ATMs throughout Chile and we provided our customers with specialized internet websites for each of the segments we target, coupled with diverse mobile banking applications, including MiBanco, MiBeneficio, MiCuenta, MiPago, MiPass, MiInversion and MiSeguro. During 2019, 70%2020, 80% of the total transactions (monetary and non-monetary) carried out by customers and non-customers in our distribution channels were performed through non-physical remote channels.

Competitive Funding Structure

We believe that we have a cost effective and highly competitive funding structure based on our leading market position in current accounts and demand deposits, especially among individuals. According to the CMF, as of December 31, 2019,2020, with a 26.5%27.1% market share, we ranked first within the Chilean banking industry in current account and demand deposits held by individuals. Similarly, as of that same date and excluding operations of subsidiaries abroad, we were the principalsecond bank in Chile in terms of total balances of non-interest bearing current accounts and demand deposits representing 22.5%20.8% of the industry (net of clearing), as reported by the CMF. Also, our total balances of current accounts and demand deposits represented 27.4%32.9% of our funding structure as of December 31, 20192020 (under Chilean GAAP), as compared to the 15.9%25.2% reported by the Chilean financial industry as a whole, excluding Banco de Chile. In addition, we have a solid base of funding from retail customers, who held demand deposits and time deposits that jointly represented 36%42% of our total funding as of December 31, 2019.2020. This characteristic provides us with a stable source of funding that is reflected by a 30-day moving average renewal rate of retail time deposits which reached around 75%80% as of December 31, 2019.2020.

We are constantly striving to diversify our liability structure in terms of sources, types of instruments and markets with the aim of maintaining a competitive cost of funding and improving our liquidity. Thus,In this context, in 20192020 we benefitedwere less active than previous years (particularly in the second half of the year) in terms of long-term debt placement in both local and overseas markets. This decrease in debt issuances was a result of lower funding needs due to a moderate loan growth, a strong surge in current accounts and demand deposits and borrowing from downward trendsthe Central Bank associated with the liquidity program implemented to ensure liquidity in the local interest ratesmarket while promoting lending during the COVID-19 pandemic, which allowed us to place long-term bonds at attractive spreads throughout the year. Furthermore, we also took advantage of our superior credit rating within Chilefinance commercial loans to SMEs and the Latin American region and benefitedMiddle Market companies while funding needs from specific windows of opportunity to place bonds abroad.individuals. As a result, in 20192020 we carried out the following debt placements:placements amounting to approximately: (i) U.S.$ 280 million (denominated in UF) within the local market, with maturities ranging from seven to eight years, (ii) U.S.$ 46 million in Australia with a tenor of 15 years, and (iii) U.S.$ 781 million in commercial paper Trade Finance transactions (outstanding balance of approximately U.S.$ 141 million as of December 31, 2020).

In summary, our funding structure provides us with a cost advantage over many of our competitors (which use a higher proportion of interest bearing liabilities), as current accounts and demand deposits are non-interest bearing in Chile. Our solid market position in demand deposits, together with our high international credit ratings, translated into one of the lowest costs of funding from liabilities associated with interest bearing deposits and long-term debt, among the five largest banks in Chile.

Superior Asset Quality

We are one of the Chilean financial institutions with the highest credit quality and the healthiest loan portfolio in Chile. We believe this asset quality is the result of our well known prudent risk management approach and accurate credit risk models that are continuously being updated and have enabled us to maintain relatively low levels of past due loans (loans 90 days or more past due) and high coverage indicators over the last few years. According to the CMF, and under our internal reporting policies, as of December 31, 2019,2020, we had a delinquency ratio (loans 90 days or more past due as a percentage of total loans) of 1.4%0.97% which was well below the industry average delinquency ratio of 2.2%1.70% posted by the Chilean banking industry (excluding Banco de Chile) as of the same date. Additionally, according to data published by the CMF, as of December 31, 2019,2020, we had a coverage ratio (allowances for loan losses over loans 90 days or more past due) of 163.7%249.5%, which was well above the industry average coverage ratio of 119.1%163.2% as of the same date (excluding Banco de Chile).

Over the last years, the utilization of business intelligence tools has also contributed to an improvement in our credit risk management. In this regard, during 2018 we successfully re-launched our pre-approved loan program through which we target a select group of retail customers to help them meet their borrowing needs depending on their life cycle stage and credit profile. During 2019, we successfully added SMEs to the pre-approved loan program, which enabled us to maintain solid growth rates in this segment with contained credit risk. In 2020, we also adjusted and implemented new admission protocols for the credit granting process considering an economic landscape of higher uncertainty, increased unemployment and lower disposable income of our customers. In addition, we continued to implement “Pricing Empresas,” our pricing model for companies.

International Coverage

In 2008, we enhanced our value offerings by entering into a strategic partnership with Citigroup Inc., as a result of our merger with Citibank Chile, effective on January 1, 2008. As result of the merger and integration process, we entered into various agreements with Citigroup Inc. to establish a framework for our relationship with Citigroup Inc., including the services to be rendered by each party and the use of trademarks in Chile. For more information, see “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.

This strategic alliance, backed by a Global Connectivity Agreement with Citigroup Inc., has allowed us to broaden our service offerings by adding a comprehensive portfolio of international financial services that previously we could only partially provide. Based on this relationship, we are able to provide our local customers with world-class financial services and participate with them in their international ventures. Furthermore, we provide a reliable business platform for Citibank’s customers who aim to operate in Chile.

Our Business Strategy

Mission

‘We are a leading and globally-connected corporation with a prestigious business tradition. We provide excellent financial services to all of our customer segments by offering creative and effective solutions while at the same time ensuring that we add value for our shareholders, employees and community as a whole.’

To accomplish this mission, we believe it is essential to attain industry leadership in all businesses and financial areas in which we operate, namely, profitability, efficiency, business scale, customer base, human resources development and corporate social responsibility.

Vision

‘We aspire to be, in all things we do, the best bank for our customers, the best place to work and the best investment for our shareholders. In order to accomplish this vision, we are committed to the development of our employees and the community as a whole.’

Our mission and vision commitscommit us to all of the diverse stakeholders related to our business, including customers, employees, investors and the community. Thus, our vision is shared and internalized by all areas across the corporation, senior management and the board of directors while also constituting the basis for our strategic objectives. This vision requires initiatives to achieve comprehensive excellence in management, with customer satisfaction as our major goal. For this reason, we apply high industry standards in information technology, business models and service quality, all of which are summarized by the value creation cycle below:

Corporate Values

Our way of thinking is reflected by a set of values that are shared by our employees and shareholders, which are aimed at providing our customers with world-class financial solutions and quality standards.

Purpose