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, 20192020 and December 31, 2020,2021, the value of the U.S. dollar relative to the Chilean peso decreasedincreased by approximately 5.3%19.8%, as compared to the increasedecrease of 8.4%5.3% recorded in the period from December 31, 20182019 to December 31, 2019.2020. 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 to foreign currency. As of December 31, 2020, our foreign currency-denominated assets and Chilean peso-denominated assets, which contain repayment terms linked to changes in foreign currency exchange rates, exceeded2021, our foreign currency-denominated liabilities and Chilean peso-denominated liabilities, which contain repayment terms linked to changes in foreign currency exchange rates, exceeded our foreign currency-denominated assets and Chilean peso denominated assets, which contain repayment terms linked to changes in foreign currency exchange rates, by an amount of Ch$2,6493,600 million (amounting to approximately U.S.$4.2 million as of December 31, 2021), or 0.08%0.11% 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.respects. 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 our estatutos (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, as well as social developments and the drafting of a new constitution in 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.dollar, both of which were further affected by COVID-19 since 2020. Furthermore, share prices of local banks, including ours, suffered significant declines in the market, while bond spreads of local banks increased.

In response to the protests,social unrest, the Chilean 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.services. To fund these initiatives, the Chilean Government and the opposition reached an agreement regarding a newagreed on amendments to certain tax reformlegislation 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, seeSee “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 dating from 1980. According to amendments approved by the Chilean Congress to the 1980 Constitution, this process was initiated by the referendum held in October 2020, in which two 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 citizens, or entirely comprised of non-Congress member elected citizens for this specific purpose. In the referendum, the choice for 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 new 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 the procedure under which the new constitution will be written by the convention body, each new article must 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.

As mentioned, the referendum to vote for a new constitution was carried out in October 2020, in which the choice for a new constitution obtained 78% of the votes and 79% of voters determined that a convention entirely comprised of citizens will draft the new constitution. As a consequence of the recent developments relating to an uptick of COVID-19 cases, the April 2021 elections for mayors, local councils and governors and members of the convention were exceptionally postponed for May 15 and 16, 2021.

Based 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 2021, or beyond, to the extent that the quality of salaried jobs decreases and that the economic outlook deteriorates in light of uncertainty 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 thisthe 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.

Moreover, to address the social unrest initiated in October 2019, in November 2019, the majority of the local political parties agreed on a process to draft a project of new constitution to replace the current one dating from 1980. This process includes two referendums, the first of which was held in October 2020 to approve or reject the idea of drafting such a new constitution, at which time, the choice of drafting the project of new constitution by the Constitutional Convention won by a broad margin; the second referendum to approve or reject the finalized project of new constitution will be held on September 4, 2022.

In May 2021, the members of the Constitutional Convention were chosen in national elections. The Constitutional Convention initiated its functions in July 2021. Each new article of the new constitution must be approved by two thirds of the Constitutional Convention, which has until July 2022 to finalize the draft of the project of new constitution. The long-term effects of the implementation of a new constitution that will address among other matters, a reform to our current political, economic and institutional system, if approved by referendum, are still hard to predict. Therefore, we cannot rule out that economic growth and investment in Chile may be affected and, that as a consequence, our results of operations or financial condition, may also be affected.

In national elections held in December 2021, Mr. Gabriel Boric was elected as President and he assumed office on March 11, 2022. The Chilean Congress was also elected by the end of 2021. If there is a lack of control and alignment between the Congress and the Chilean President, delays in political and economic reforms could occur. Further, there can be no assurance as to the policies and reforms that the current administration and the newly elected Congress may take or their impact on Chile’s economic and fiscal situation, growth, stability, outlook and, consequently, as to the effects that any such policies or reforms may have on our business, financial condition and results of operations.

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. IfMost recently in 2021, new bills have been introduced by members of the Chilean Congress on this matter, including one bill that aims to gradually reduce the maximum working hours to 38 per week within the fifth year of its enactment, while precluding employers from reducing wages. Another bill seeks to modify Chilean labor laws by increasing the participation of employees in companies’ profits and the way that this participation is calculated. The recently appointed administration has also stated that the reduction of weekly working hours is among its priorities in terms of labor reforms. These proposed legislations, if approved and enacted, we could experiencetranslate into higher ongoing labor costs, which could have an adverse effect on our results of operations.operations and future financial condition.

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 challenged the minimum services and emergency teams that have been assigned to us, but our claims were not upheld, both by the labor authority and the 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 late 2018,

In recent years, the Chilean Government has presented threeseveral bills with the purpose of improving the Chilean pension system. These projects, which initiallyThe most recent bills presented by the former Government mainly sought to improveincrease minimum pensions, to introduce a social insurance scheme to adjust for longevity, and to increase the amount each worker must contribute to fund pensions. The nature of the entity that would collect and manage such an increase is also under discussion. However, the new Government has expressed an intention to propose its own reform to the pension system. Measures such as, but not limited to the following, may be presented: (i) replacing current private pension fundsfund managers, (ii) transitioning from individual capitalization to a collective pension system, by increasing(iii) reinforcing the current solidarity pillar while maintaining individual capitalization and enhancing(iv) some initiatives combining certain aspects of (i) through (iii). Given the solidarity fund financed by common taxation, have extensively changed duringuncertainty regarding the last two years, especially afterreforms the October 2019 social turmoil aftermathnew administration will propose and the COVID-19 pandemic.differences from prior proposals, we are unable to predict what, if any, reform will be enacted or the final content of such pension reform, including whether pension funds will continue to operate under the current regulatory scheme. The last bill was presented by the Chilean Government in March 2021,potential adverse effect of any such proposed reform on our financial condition and among other matters, (i) seeks to increase the numberresults of people benefited by the solidarity fund; (ii) increases from 10% to 16% the compulsory individual contribution which mustoperations cannot yet be paid by the employer (where 3% would be destined to individual capitalization and the other 3% to solidarity (despite discussions with the Chilean 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.ascertained.

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 COVID-19 pandemic, three consecutive pension fund withdrawals and one withdrawal from life annuities (rentas vitalicias), jointly amounting to U.S.$48,500 million as of December 31, 2021 have been permitted by the Chilean Congress. In late 2021, a fourth extraordinary withdrawal from the pension funds was rejected by the Senate and, recently, in April 2022, two extraordinaryprojects pursuing further withdrawals from the pension funds were permitted to anyone who had contributed to the pension fund system, each one up to 10% of the aggregated individual account available, but not exceeding UF 150 (equivalent to Ch$4.4 million as of March 31, 2021). As of the date of this annual report, a third withdrawal was passedalso rejected by the Chilean Congress. Nevertheless, we cannot rule out that new withdrawals that may be proposed in the future, could be approved.

Uncertainty on the future of the Chilean pension system remains, since successive government administrations have not been able to reach an agreement with the Chilean Congress and enacted. This third withdrawal allows withdrawalson an increase in the pension amounts to be received by Chilean pensioners. The recently appointed administration has committed to a change in the pension system, which would move from the pension funds in similar terms as the previous two,current based on individual retirement accounts to one composed of individual accounts and is expected to be implemented during the following weeks.

With the information we have as of today, wecolectivelly-funded pensions. We are unable to predict the final content of theany pension reform and therefore any potential adverse effects of this bill init is not clear whether pension funds will continue to operate under the current regulatory scheme. Therefore, we cannot assure you that 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.will not increase. Since the pension fund managers usually invest a portion of the funds they manage in certain banking debt instruments (for instance, bonds and time deposits), including those issued by Chilean banks, including us, if the amount of funds available in the pension fund system continues to decrease due to new withdrawals, the demand for both the long-term fixed-income securities we issue as debt to finance our operations and our shares of common stock will decrease, and we will not be able to raise funds system decreases significantly, we may needfrom pension fund managers as in the past. As a result, there would be further restrictions to our access to long-term financing, compelling us to seek alternative funding sources in Chile and abroad, which could bemay bear more expensive interest rates and include higher transactional costs, and, as a consequence, may have an adverse effect on our net interest margin, results of operations and financial condition and results of operations.in the long term.

Item 4 Information on the Company

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 is www.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 servicefull-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 shortshort- and long termlong-term financing, deposit and cash management solutions, in addition to an array of financial services, such as insurance brokerage. In addition, ourOur 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, 2020,2021, we ranked secondfirst in the Chilean banking industry in terms of net income attributable to equity holders with a market share of 39.3%21.4%. 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 16.6%16.7%, the largest provider of commercial loans with a market share of 16.7%17.1%, the second largest provider of consumer loans with a market share of 17.3%17.4% and the third largest private sector bank in terms of residential mortgage loans with a market share of 16.3%15.8%. 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 20.8%21.6% and, more importantly, we ranked first in current account balances held by individuals with a market share of 27.1%25.3%, both as reported by the CMF and as of December 31, 2020.2021. Lastly, according to the Chilean Association of Mutual Funds, as of December 31, 2020,2021, we were the largest provider of mutual funds management services in Chile with a market share of 24.2%24.9%.

As of December 31, 2020,2021, we had:

As of December 31, 2020,2021, we had 13,13412,284 employees and delivered financial products and services through a nationwide distribution network of 334272 branches and 1,766 automatic teller machines (“ATMs”).1,761 ATMs. Our ATMs are part of a larger network of 7,4497,553 ATMs operating in Chile, of which 4,7574,775 ATMs operate under a network managed by Redbanc S.A., a company we partly own along with eight 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 soldmerged our U.S. branch to Citigroup in connection with our mergeroperations with Citibank Chile that was carried out during the same year.Chile. 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 lowerlower- and middle incomemiddle-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 the Best Consumer Digital Bank in Chile by GlobalFinance and as the Best Internet and Mobile Bank in Chile by Global Banking & Finance Review in 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.

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 ROAEReturn-on-Average-Equity (“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,” 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 iswas a significant milestone in our history, sinceas 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, weWe also 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 provided online and services provided online. Thus, we addedadding 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 amountnumber of mobile transactions in our mobile platforms increased to 35.1 million in 2018, which representsrepresented 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 divisionDivision, which 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.company.

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 continued 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 tookwhile issuing a subordinated bond to take advantage of both low interest rates and the phase-in period 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.Chile. 2019 was also an iconic year for share ownership.ownership, since 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. ThisWe believe, this initiative should allowenabled 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 dualnew 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 beenwere affected by the COVID-19 pandemic. This initiative included the possibility of reschedulingenabled customers to reschedule 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 Companieslarge company 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.

During 2021, under Chilean GAAP and according to the CMF, we once again led in terms of net income attributable to equity holders by recording a year-end market share of 21.4% within the banking industry, representing a ROAE of 20.16%, which denotes an annual expansion of 71.2% in net income (under Chilean GAAP). Regarding our loan portfolio, as of December 31, 2021, we recorded Ch$34,265,873 million in loan balances under IFRS, reaching a double-digit expansion on an annual basis. Our loan book was mostly influenced by solid annual increases in commercial and residential mortgage loans that grew steadily over the course of the year. While commercial loans continued to be influenced by the state-guaranteed loan program (FOGAPE and FOGAPE Reactiva), residential mortgage loans managed to expand aligned with higher-than-expected inflation and despite the pick-up in long-term interest rates during 2021. As for consumer loans, the contraction experienced by this lending product during 2020 and much of 2021 began steadily reversing over the last months of 2021 by gradually approaching pre-pandemic loan balances. Furthermore, in 2021, in regard to our digital transformation strategy, we continued to enhance the value offering behind the FAN Account, our full digital onboarding account, by implementing new services, such as: (i) a new customer service channel with a chatbot called FANi, (ii) full access to digital Banco de Chile’s ecosystem and (iii) cardless cash withdrawal. Thanks to these efforts, we managed to attract nearly 581,000 new clients during 2021, which were added to approximately 115,000 new current account holders, resulting in a year-end increase of 22.3% in current accounts and demand deposits and a market-leading share of 21.6% (according to the CMF). In addition, in December 2021, the phase-in period for implementation of the Basel III framework became effective in Chile, which includes new regulations in connection with regulatory capital and credit, market and operational risk-weighted assets. Our proactive approach to Basel III implementation has allowed us to remain as the strongest bank in terms of capital adequacy among major banks in Chile by recording Total Capital or Regulatory Capital and CET1 ratios of 17.3% and 13.0%, respectively, as of December 31, 2021, while having the highest amount of additional provisions (accounted for under Chilean GAAP) among private local banks as of the same date.

Furthermore, in 2021 we received an “A” rating from a recognized international ESG index that assesses diverse categories associated with this subject. This new rating, which denotes an improvement of three notches when compared to the former evaluation, reflects the strong accomplishments we have attained in ESG initiatives. In addition, in December 2021, we issued a U.S.$500 million 144A/Regulation S bond in the international capital markets in order to diversify our liability structure while generating funding for our long-term sustainability. This long-term debt placement joined a special bond issued a few months earlier that was intended to finance SMEs while promoting female development in their workplaces. Lastly, we successfully completed the final steps of our new service model for branches, which will allow us to provide better solutions and services to our customers while offering an improved customer experience through a more efficient, technological and modern branch network.

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. 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. In 1989, banks were permitted to repurchase the portfolio of non-performing loans in exchange for assuming a subordinated obligation equal to the difference between the face and economic value of such loans, which we did in November 1989.

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 named Sociedad Administradora de la Obligación Subordinada SAOS S.A. (SAOS) that, pursuant to a prior agreement with the Central Bank, assumed a new obligation in favor of the Central Bank that fully replaced the Central Bank’s subordinated debt and received 63.6% of our shares from SM-Chile. Thus, SAOS would repay the new obligation by means of the proceeds of the dividends it would receive from us. Pursuant to SM-Chile’s bylaws, that company would remain in existence until the Central Bank subordinated debt was completely paid off by SAOS, which finally occurred on April 30, 2019 by using the dividends distributed by us with charge to our net distributable earnings for the year ended December 31, 2018. Since that date, SM-Chile has been in the process of liquidation while SAOS was dissolved immediately. As of the date of this annual report, the liquidation process of SM-Chile is in progress and is expected to end by 2025.

As a consequence, the shares of Banco de Chile owned by SM-Chile and by SAOS were distributed among Banco de Chile’s shareholders and the former SM-Chile shareholders became our shareholders. Based on this 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, while the public float of our stock increased significantly.

For more information on the Central Bank Subordinated Debt and the liquidation process of SM-Chile, see “Item 4. Information on the Company—History and Development of the Bank–History—The 1982 1983 Economic Crisis and the Central Bank Subordinated Debt” and “Item 7. Major Shareholders and Related Party Transactions—Ownership Structure” in the Form 20-F for the year ended December 31, 2020 filed with the SEC on April 30, 2021.

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 areaConsumer 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 agreedAll of these agreements have continued 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 werebe extended, under the same terms as the Cooperation Agreement.amended and/or restated successively. 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/Offon/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 usinformation, 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 Companiesmiddle market companies and Corporate Banking, we successfully migrated a majority of the customer base to a new web-based transactional platform, BanconexiónBanconexion 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 Companiesmiddle market companies to BanconexiónBanconexion 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,middle market companies, related to the Fondos de Garantía para el Pequeño Empresario (“FOGAPE”)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“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.

During 2021, we strengthened our transactional coverage, service standards as well as increased functionalities on our web and digital platforms, incorporating digital marketing tools which were crucial to providing effective and timely support to customers. First, we made upgrades in some of our mobile applications, most of them related to enhanced security protocols, updated graphics as well as new and optimized functionalities, to allow us to provide a unified offering through our digital channels. With that in mind, in order to make things easier for our clients, we launched a QR code payment service for SMEs through the MiPago and MiBanco applications, a service that is already available in more than 6,000 commercial locations across the country and in WebPay, an online secure payments gateway. We also implemented a smart-pay service for credit and debit cards that enables customers to make payments through their digital wallets, using Garmin Pay, Fitbit or Google Pay in smartphones and smartwatches. Similarly, we relaunched MiSeguro, our application that allows our customers to address and manage their insurance programs by adding new functionalities that will facilitate the acquisition of new insurance policies while simplifying after-sale support services. Moreover, in 2021 we completed the migration of our SMEs, large companies and corporate customer base to Banconexion 2.0, a new website for companies that aims to improve the customer experience by providing one of the highest cybersecurity standards within the banking industry, which coupled with the addition of new products to the platform that allowed our customers, for instance, to manage and apply for FOGAPE Reactiva loans completely through Banconexion 2.0. In addition, we launched the mobile application Mi Banconexion, a new mobile application that allows companies to visualize and monitor their balances and movements in banking accounts, credit cards and lines of credit. Furthermore, our online banking incorporated a new feature that enables customers to request the rescheduling of their installments of residential mortgage loans as well as the possibility to send payment orders abroad. In terms of our FAN account, our 100% digital debit account for individuals, we reached nearly 730,000 clients as of December 31, 2021. Lastly, we launched B-TV, a nationally televised live show intended to prompt direct and 100% online communication between clients and collaborators by providing relevant content to our viewers (commercial campaigns, talks, events, webinars, among others). Through this new communication channel, we expect to develop a closer relationship with our clients and the communities in which we operate.

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 named Sociedad 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 23, 2021, the liquidation process of SM-Chile was in 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 51.15%, as of April 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, 2018, 2019, 2020 and 2020:2021:

Our budget for capital expenditures for 20212022 amounts to approximately Ch$84,44879,466 million, of which expenditures in information technology investments represent 63%78.2%, while infrastructure projects represent the remaining 37%21.8%. 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, 44%59.1% 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, cybersecurity tools, improvements in productivity, enhancements in our communication network and cloud as well as reinforced cybersecurity infrastructure and systems. Of the remaining 56%40.9% budgeted for IT expenditures, 19% relates to the development of applications in order to provide us with digital alternatives to deliver tailored solutions to our customers, 15%18.0% 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 due14.7% relates to the new customer service model,development of applications in order to provide us with digital alternatives to meet customers’ needs, another 6%5.6% is aimed at supporting regulatory compliance requirements and the remaining 2.6% consists of investments in technological equipment and system improvements to be carried out by certain subsidiaries and the remaining 6% is aimed to help fulfill regulatory requirements.subsidiaries.

Our 20212022 infrastructure expenditures budget includes disbursements associated with general maintenance investments (34.0%), the transformation and consolidationrefurbishment of our branch network as a result of a new customer service model we are deploying in some of our locations (60%(30.0%), renovation and restoration of our corporate buildings (16%(20.9%), general maintenance investments (14%), reconstitutionimplementation of infrastructure related to contingency issues (9%security devices for branches (12.0%) and other initiatives related to subsidiaries and security expenditures (1%(3.1%).

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 125128 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-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 2020,2021, we received diversevarious distinctions due to our strong brand recognition within the banking industry. Among these awards, we ranked firstsecond in corporate responsibility and corporate governance among local banking brands in “Most Valuable Brand in Chile”,banks, according to a study conducted by BrandZ, and “Marca Ciudadana 2020”, a pollMERCO. Likewise, Global Finance magazine recognized us as the Best Bank in Chile at the Best Bank Awards 2021. According to studies conducted by CADEM.GFK Adimark, we ranked first among comparable peers in various categories such as most reliable bank, most solvent bank in terms of capital base and the bank with the strongest commitment to its customers, for the year ended December 31, 2021.

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”).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 incomelow-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. We supplement these value offerings with specific proposals for SMEs, which in recent years has coupled 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, 2020,2021, according to our management information system, we had approximately 1,325,0001,338,549 core clients, which had at least a current account or a loan outstanding with us. However, in regardsIn addition, with respect to our main banking products, as of December 31, 2021, we serve a broader customer base composed of 1,092,000 borrowers,had approximately 1,000,0001,081,119 current accounts holders, approximately 143,900170,348 time deposit holders, approximately 113,000114,026 saving account holders and approximately 1,237,000holders. Similarly, as of December 31, 2021, we were the largest privately-owned bank in terms of number of borrowers with a 18.1% market share associated with 1,026,722 debtors, according to data published by the CMF. As of the same date, according to the CMF, we had 1,471,584 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, 2020,2021, we had a nationwide branch network of 334272 branches, the second largest in Chile among private sector banks, according to information published by the CMF. This network is composed of 245238 branches under our “Banco de Chile” brand name 41and 34 branches under our “Banco Edwards Citi” brand name and 48 branches under our “Banco CrediChile” brand name. However, these branches are involved in an integrationDuring 2021, we completed the consolidation process which aims to optimize our branch network by consolidatingof 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, 2020,2021, we had 1,7661,761 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, MiBanconexion, MiBeneficio, MiCuenta, MiPago, MiPass, MiInversion and MiSeguro. During 2020, 80%2021, 81% 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.

Proven Digital Banking and Business Intelligence Capabilities

Over the last years, digital transformation has been steadily increasing its importance within the Chilean banking industry, a trend that was accelerated during 2020 because of the health and social contingencies derived from the COVID-19 pandemic. In order to be aligned with our customers’ needs during such a challenging period, we made several cultural changes within our organization, which include the introduction of new financial products, services and technologies. By doing so, we expect to achieve sustainable growth in the coming years and to improve both our processes’ efficiency and the consumer experience with the Bank.

Key Pillars of Banco de Chile’s Digital Transformation Strategy

During 2021, we implemented several advances in both the back and front office aimed at improving customer experience by expanding digital channels, adding new products and functionalities. We have also continued increasing sales through these points of contact by working with advanced analytics in order to improve cross-selling. Additionally, we are working on developing a talent and digital culture across the Bank in order to bolster our capabilities while emboldening innovation.

One of the key pillars of our digital banking strategy has been the development of cutting-edge mobile applications and customized websites. Over the last years, we have devoted efforts to enhance our mobile banking platforms by developing and launching diverse applications, including MiBanco, Mi Pago, MiSeguro, MiInversion, MiPass and MiBeneficio. We are continually improving the functionalities and robustness of applications that enable our customers to perform most of the transactions they can execute on our websites, such as: (i) accessing their account balances, (ii) executing electronic money transfers, (iii) generating secure passwords to make such transfers, (iv) making cash advances from credit cards to checking accounts, (v) making bill payments, (vi) requesting for reimbursements from other Banco de Chile’s customers by scanning a QR code, and (vii) managing their personal investment portfolio by investing or disinvesting in equity, fixed-income and mutual funds, among others.

Also, in 2020, we launched FAN Account, which is a full digital onboarding demand account. As of December 31, 2021, we have reached 729,611 customers. In addition, throughout 2021 we added more functionalities to the FAN Account in order to improve customer experience while fostering loyalty.

We believe these and other similar initiatives have allowed us to continue improving our online channel usage rates, as illustrated in the table below, which sets forth information regarding the evolution of the numbers of transactions (monetary and non-monetary) carried out by customers and non-customers through our diverse distribution channels were performed through non-physical remote channels. See “Item 4. Distribution Channels and Electronic Banking”.

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, 2020,2021, with a 27.1%25.3% 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 secondfirst bank in Chile in terms of total balances of non-interest bearing current accounts and demand deposits representing 20.8%21.6% of the industry (net of clearing), as reported by the CMF. Also, ourOur total balances of current accounts and demand deposits represented 32.9%35.9% of our funding structure as of December 31, 20202021 (under Chilean GAAP), as compared to the 25.2%27.5% 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 42%44% of our total funding as of December 31, 2020.2021. 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 80%79% as of December 31, 2020.2021.

We are constantly strivingstrive 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. In this context, in 20202021 we were lessmore active than previous years (particularly in the second half of the year)previous year in terms of long-term debt placementplacements in both local and overseas markets. This decreaseThe increase in debt issuancesissuance was athe result of our mid-term funding strategy that aims to diversify our liability structure in order to finance loan growth at convenient cost of funds amid expectations of increasing interest rates a lower funding needs due to a moderate loan growth, a strong surge in current accounts andfrom demand deposits for the same reason. As such, we will continue monitoring market opportunities in order to take advantage of our superior credit rating within Chile and borrowing from the Central Bank associated with the liquidity program implemented to ensure liquidity in the local market while promoting lending during the COVID-19 pandemic, which allowed us to finance commercial loans to SMEs and Middle Market companies while funding needs from individuals. As a result, in 2020Latin America. In 2021 we carried out the following debt placements amounting to approximately:placements: (i) U.S.$ 280Ch$36,097 million (denominated in UF) within the local market,Japan with maturities ranging from seven to eight years,a 10-year maturity, (ii) U.S.$ 46Ch$31,203 million in Australia with a tenor of 15 years, and10-year maturity, (iii) U.S.$ 781Ch$698,435 million in commercial paper, Trade Finance transactions (outstanding balance of(iv) approximately U.S.$ 141Ch$115,483 million as of December 31, 2020).in Switzerland with a five-year maturity, (v) Ch$82,543 million in Japan with a five-year maturity, and (vi) Ch$419,345 million in the international capital markets through a Rule 144A/Regulation S issuance with a ten-year maturity.

In summary,We believe that our funding structure provides us with a cost advantage over many of our competitors (which use a higher proportion of interest bearinginterest-bearing liabilities), as current accounts and demand deposits are non-interest bearing in Chile. OurWe also believe that 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.

Prudent Risk Management & 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 knownwell-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 duepast-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, 2020,2021, we had a delinquency ratio (loans 90 days or more past due as a percentage of total loans) of 0.97%0.85% which was well below the industry average delinquency ratio of 1.70%1.33% 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, 2020,2021, we had a coverage ratio (allowances for loan losses over loans 90 days or more past due) of 249.5%248.2%, which was well above the industry average coverage ratio of 163.2%183.9% 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“Pricing Empresas,” our pricing model for companies.

In 2021, we continued to improve our provisioning models while reinforcing our credit risk monitoring in order to reflect accurately the effects of the dynamics of the local economy on the payment behavior of our borrowers while being prepared to respond to lagging indicators of the effects of the pandemic on asset quality.

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 commit 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

OurOur 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

‘We are a company that contributes to the economic development of the country by generating favorable conditions for the development of individuals and enterprises, providing them with financial solutions that fit their needs at every stage of their lifetime.’

In order to accomplish this, we have made commitments to all of our stakeholders, since we are convinced that we will achieve excellence in all of our businesses and projects as long as we are able to satisfy stakeholders in their interactions with us.

Commitments

Commitments

We aim to satisfy the expectations of the following stakeholders by:

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Strategic Priorities

Our long-term strategy is intended to maintain profitable growth by placing the customer at the center of all of our decisions and continuously improving efficiency and productivity in all of our processes and procedures while maintainingproductivity.

Strategic Priorities

Our long-term strategy is intended to maintain profitable growth by placing the customer at the center of all of our decisions and continuously improving efficiency and productivity in all of our processes and procedures while maintaining a strong commitment to the country. These are our strategic priorities and we aspire to attain them through collaboration and teamwork.