Exhibit 99.1
Consolidated Financial Statements
As of December 31, 2019 and 2018
BANCO DE CHILE AND SUBSIDIARIES
(Free translation of Consolidated Financial Statements originally issued in Spanish)
INDEX
I. | Consolidated Statements of Financial Position | |
II. | Consolidated Statements of Income | |
III. | Consolidated Statements of Other Comprehensive Income | |
IV. | Consolidated Statements of Changes in Equity | |
V. | Consolidated Statements of Cash Flows | |
VI. | Notes to the Consolidated Financial Statements |
MCh$ | = | Millions of Chilean pesos |
ThUS$ | = | Thousands of U.S. dollars |
UF or CLF | = | Unidad de Fomento |
(The UF is an inflation-indexed, Chilean peso denominated monetary unit set daily in advance on the basis of the previous month’s inflation rate). | ||
Ch$ or CLP | = | Chilean pesos |
US$ or USD | = | U.S. dollar |
JPY | = | Japanese yen |
EUR | = | Euro |
HKD | = | Hong Kong dollar |
CHF | = | Swiss Franc |
PEN | = | Peruvian sol |
AUD | = | Australian dollar |
NOK | = | Norwegian krone |
IFRS | = | International Financial Reporting Standards |
IAS | = | International Accounting Standards |
RAN | = | Actualized Standards Compilation of the Chilean Commission for Financial Market (“CMF”) |
IFRIC | = | International Financial Reporting Interpretations Committee |
SIC | = | Standards Interpretation Committee |
BANCO DE CHILE AND SUBSIDIARIES
INDEX
Consolidated Financial Statements
BANCO DE CHILE AND SUBSIDIARIES
As of December 31, 2019 and 2018
BANCO DE CHILE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
For the years ended December 31, 2019 and 2018
(Free translation of Consolidated Financial Statements originally issued in Spanish)
(Expressed in million of Chilean pesos)
2019 | 2018 | |||||||||
Notes | MCh$ | MCh$ | ||||||||
ASSETS | ||||||||||
Cash and due from banks | 7 | 2,392,166 | 880,081 | |||||||
Transactions in the course of collection | 7 | 584,672 | 580,333 | |||||||
Financial assets held-for-trading | 8 | 1,872,355 | 1,745,366 | |||||||
Investment under resale agreements | 9 | 142,329 | 97,289 | |||||||
Derivative instruments | 10 | 2,786,215 | 1,513,947 | |||||||
Loans and advances to banks | 11 | 1,139,433 | 1,494,307 | |||||||
Loans to customers, net | 12 | 29,334,052 | 27,307,223 | |||||||
Financial assets available-for-sale | 13 | 1,357,846 | 1,043,440 | |||||||
Financial assets held-to-maturity | 13 | — | — | |||||||
Investments in other companies | 14 | 50,758 | 44,561 | |||||||
Intangible assets | 15 | 58,307 | 52,061 | |||||||
Property and equipment | 16 | 220,262 | 215,872 | |||||||
Leased assets | 16 | 150,665 | — | |||||||
Current tax assets | 17 | 357 | 677 | |||||||
Deferred tax assets | 17 | 320,948 | 277,922 | |||||||
Other assets | 18 | 862,968 | 673,380 | |||||||
TOTAL ASSETS | 41,273,333 | 35,926,459 | ||||||||
LIABILITIES | ||||||||||
Current accounts and other demand deposits | 19 | 11,326,133 | 9,584,488 | |||||||
Transactions in the course of payment | 7 | 352,121 | 335,575 | |||||||
Obligations under repurchase agreements | 9 | 308,734 | 303,820 | |||||||
Savings accounts and time deposits | 20 | 10,856,618 | 10,656,174 | |||||||
Derivative instruments | 10 | 2,818,121 | 1,528,357 | |||||||
Borrowings from financial institutions | 21 | 1,563,277 | 1,516,759 | |||||||
Debt issued | 22 | 8,813,414 | 7,475,552 | |||||||
Other financial obligations | 23 | 156,229 | 118,014 | |||||||
Lease liabilities | 16 | 146,013 | — | |||||||
Current tax liabilities | 17 | 76,289 | 20,924 | |||||||
Deferred tax liabilities | 17 | — | — | |||||||
Provisions | 24 | 684,663 | 670,119 | |||||||
Other liabilities | 25 | 643,498 | 412,524 | |||||||
TOTAL LIABILITIES | 37,745,110 | 32,622,306 | ||||||||
EQUITY | 27 | |||||||||
Attributable to Bank’s Owners: | ||||||||||
Capital | 2,418,833 | 2,418,833 | ||||||||
Reserves | 703,272 | 617,597 | ||||||||
Other comprehensive income | (56,601 | ) | (39,222 | ) | ||||||
Retained earnings: | ||||||||||
Retained earnings from previous years | 170,171 | 17,481 | ||||||||
Income for the year | 593,008 | 594,872 | ||||||||
Less: | ||||||||||
Provision for minimum dividends | (300,461 | ) | (305,409 | ) | ||||||
Subtotal | 3,528,222 | 3,304,152 | ||||||||
Non-controlling interests | 1 | 1 | ||||||||
TOTAL EQUITY | 3,528,223 | 3,304,153 | ||||||||
TOTAL LIABILITIES AND EQUITY | 41,273,333 | 35,926,459 |
The accompanying notes 1 to 42 are an integral part of these consolidated financial statements
1
BANCO DE CHILE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2019 and 2018
(Free translation of Consolidated Financial Statements originally issued in Spanish)
(Expressed in million of Chilean pesos)
2019 | 2018 | |||||||||
Notes | MCh$ | MCh$ | ||||||||
Interest revenue | 28 | 2,111,645 | 1,999,551 | |||||||
Interest expense | 28 | (742,270 | ) | (679,640 | ) | |||||
Net interest income | 1,369,375 | 1,319,911 | ||||||||
Income from fees and commissions | 29 | 589,172 | 505,114 | |||||||
Expenses from fees and commissions | 29 | (131,870 | ) | (145,159 | ) | |||||
Net fees and commission income | 457,302 | 359,955 | ||||||||
Net financial operating income | 30 | 116,409 | 139,856 | |||||||
Foreign exchange transactions, net | 31 | 30,886 | 2,701 | |||||||
Other operating income | 36 | 40,548 | 50,860 | |||||||
Total operating revenues | 2,014,520 | 1,873,283 | ||||||||
Provisions for loan losses | 32 | (347,274 | ) | (281,410 | ) | |||||
OPERATING REVENUES, NET OF PROVISIONS FOR LOAN LOSSES | 1,667,246 | 1,591,873 | ||||||||
Personnel expenses | 33 | (475,599 | ) | (442,577 | ) | |||||
Administrative expenses | 34 | (329,705 | ) | (331,477 | ) | |||||
Depreciation and amortization | 35 | (70,541 | ) | (37,681 | ) | |||||
Impairment | 35 | (2,555 | ) | (334 | ) | |||||
Other operating expenses | 37 | (32,604 | ) | (35,655 | ) | |||||
TOTAL OPERATING EXPENSES | (911,004 | ) | (847,724 | ) | ||||||
NET OPERATING INCOME | 756,242 | 744,149 | ||||||||
Income attributable to associates | 14 | 6,450 | 7,255 | |||||||
Income before income tax | 762,692 | 751,404 | ||||||||
Income tax | 17 | (169,683 | ) | (156,531 | ) | |||||
NET INCOME FOR THE YEAR | 593,009 | 594,873 | ||||||||
Attributable to: | ||||||||||
Bank’s Owners | 27 | 593,008 | 594.872 | |||||||
Non-controlling interests | 1 | 1 | ||||||||
Net income per share attributable to Bank’s Owners: | Ch$ | Ch$ | ||||||||
Basic net income per share | 27 | 5.87 | 5.89 | |||||||
Diluted net income per share | 27 | 5.87 | 5.89 |
The accompanying notes 1 to 42 are an integral part of these consolidated financial statements
2
BANCO DE CHILE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OTHER COMPREHENSIVE INCOME
For the years ended December 31, 2019 and 2018
(Free translation of Consolidated Financial Statements originally issued in Spanish)
(Expressed in million of Chilean pesos)
2019 | 2018 | |||||||||
Notes | MCh$ | MCh$ | ||||||||
NET INCOME FOR THE YEAR | 593,009 | 594,873 | ||||||||
OTHER COMPREHENSIVE INCOME THAT WILL BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS | ||||||||||
Net gains (losses) on available-for-sale instruments valuation | 13 | 13,763 | (11,787 | ) | ||||||
Net gains (losses) on derivatives held as cash flow hedges | 10 | (37,546 | ) | (30,943 | ) | |||||
Subtotal Other comprehensive income before income taxes | (23,783 | ) | (42,730 | ) | ||||||
Income tax relating to the components of other comprehensive income that are reclassified in income for the year | 6,404 | 11,548 | ||||||||
Total other comprehensive income items that will be reclassified subsequently to profit or loss | (17,379 | ) | (31,182 | ) | ||||||
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS | ||||||||||
Adjustment for defined benefit plans | 24 | (247 | ) | (127 | ) | |||||
Subtotal other comprehensive income before income taxes | (247 | ) | (127 | ) | ||||||
Income tax relating to the components of other comprehensive income that will not be reclassified to income for the year | 17 | 66 | 35 | |||||||
Total other comprehensive income items that will not be reclassified subsequently to profit or loss | (181 | ) | (92 | ) | ||||||
CONSOLIDATED COMPREHENSIVE INCOME FOR THE YEAR | 575,449 | 563,599 | ||||||||
Attributable to: | ||||||||||
Bank’s Owners | 575,448 | 563,598 | ||||||||
Non-controlling interests | 1 | 1 |
The accompanying notes 1 to 42 are an integral part of these consolidated financial statements
3
BANCO DE CHILE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2019 and 2018
(Free translation of Consolidated Financial Statements originally issued in Spanish)
(Expressed in millions of Chilean pesos)
Reserves | Other comprehensive income | Retained earnings | ||||||||||||||||||||||||||||||||||||||||||||||||
Notes | Paid-in Capital | Other reserves | Reserves from earnings | Unrealized gains (losses) on available-for-sale | Derivatives cash flow hedge | Income Tax | Retained earnings from previous years | Income (losses) for the year | Provision for minimum dividends | Attributable to equity holders of the parent | Non- controlling interest | Total equity | ||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||||
Balances as of December 31, 2017 | 2,271,401 | 32,053 | 531,135 | 1,851 | (12,551 | ) | 2,660 | 16,060 | 576,012 | (312,907 | ) | 3,105,714 | 1 | 3,105,715 | ||||||||||||||||||||||||||||||||||||
Capitalization of retained earnings | 147,432 | — | — | — | — | — | — | (147,432 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Retention (release) of profits according to bylaws | 27 | — | — | 54,501 | — | — | — | — | (54,501 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Dividends distributions and paid | 27 | — | — | — | — | — | — | — | (374,079 | ) | 312,907 | (61,172 | ) | (1 | ) | (61,173 | ) | |||||||||||||||||||||||||||||||||
Equity effect change in accounting policy | — | — | — | — | — | — | 1,421 | — | — | 1,421 | — | 1,421 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive income: | 27 | |||||||||||||||||||||||||||||||||||||||||||||||||
Defined benefit plans adjustment, net | — | (92 | ) | — | — | — | — | — | — | — | (92 | ) | — | (92 | ) | |||||||||||||||||||||||||||||||||||
Derivatives cash flow hedge | — | — | — | — | (30,943 | ) | 8,354 | — | — | — | (22,589 | ) | — | (22,589 | ) | |||||||||||||||||||||||||||||||||||
Valuation adjustment on available-for-sale instruments | — | — | — | (11,787 | ) | — | 3,194 | — | — | — | (8,593 | ) | — | (8,593 | ) | |||||||||||||||||||||||||||||||||||
Income for the year 2018 | 27 | — | — | — | — | — | — | — | 594,872 | — | 594,872 | 1 | 594,873 | |||||||||||||||||||||||||||||||||||||
Provision for minimum dividends | 27 | — | — | — | — | — | — | — | — | (305,409 | ) | (305,409 | ) | — | (305,409 | ) | ||||||||||||||||||||||||||||||||||
Balances as of December 31, 2018 | 2,418,833 | 31,961 | 585,636 | (9,936 | ) | (43,494 | ) | 14,208 | 17,481 | 594,872 | (305,409 | ) | 3,304,152 | 1 | 3,304,153 | |||||||||||||||||||||||||||||||||||
Retention of profits | 27 | — | — | — | — | — | — | 152,705 | (152,705 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Retention (release) of profits according to bylaws | 27 | — | — | 85,856 | — | — | — | — | (85,856 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Dividends distributions and paid | 27 | — | — | — | — | — | — | — | (356,311 | ) | 305,409 | (50,902 | ) | (1 | ) | (50,903 | ) | |||||||||||||||||||||||||||||||||
Equity effect change in accounting policy | — | — | — | — | — | — | (15 | ) | — | — | (15 | ) | — | (15 | ) | |||||||||||||||||||||||||||||||||||
Other comprehensive income: | 27 | |||||||||||||||||||||||||||||||||||||||||||||||||
Defined benefit plans adjustment, net | — | (181 | ) | — | — | — | — | — | — | — | (181 | ) | — | (181 | ) | |||||||||||||||||||||||||||||||||||
Derivatives cash flow hedge | — | — | — | — | (37,546 | ) | 10,138 | — | — | — | (27,408 | ) | — | (27,408 | ) | |||||||||||||||||||||||||||||||||||
Valuation adjustment on available-for-sale instruments | 13 | — | — | — | 13,763 | — | (3,734 | ) | — | — | — | 10,029 | — | 10,029 | ||||||||||||||||||||||||||||||||||||
Income for the year 2019 | 27 | — | — | — | — | — | — | — | 593,008 | — | 593,008 | 1 | 593,009 | |||||||||||||||||||||||||||||||||||||
Provision for minimum dividends | 27 | — | — | — | — | — | — | — | — | (300,461 | ) | (300,461 | ) | — | (300,461 | ) | ||||||||||||||||||||||||||||||||||
Balances as of December 31, 2019 | 2,418,833 | 31,780 | 671,492 | 3,827 | (81,040 | ) | 20,612 | 170,171 | 593,008 | (300,461 | ) | 3,528,222 | 1 | 3,528,223 |
The accompanying notes 1 to 42 are an integral part of these consolidated financial statements
4
BANCO DE CHILE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2019 and 2018
(Free translation of Consolidated Financial Statements originally issued in Spanish)
(Expressed in million of Chilean pesos)
2019 | 2018 | |||||||||
Notes | MCh$ | MCh$ | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
Net income for the year | 593,009 | 594,873 | ||||||||
Charges (credits) to income that do not represent cash flows: | ||||||||||
Depreciation and amortization | 35 | 70,541 | 37,681 | |||||||
Impairment | 35 | 2,555 | 334 | |||||||
Provision for loans and accounts receivable from customers and owed by banks | 32 | 393,737 | 344,490 | |||||||
Provision of contingent loans | 32 | 1,512 | (2,501 | ) | ||||||
Fair value adjustment of financial assets held-for-trading | 294 | (663 | ) | |||||||
Changes in assets and liabilities by deferred taxes | 17 | (46,694 | ) | (7,819 | ) | |||||
(Gain) loss attributable to investments in companies with significant influence, net | 14 | (6,039 | ) | (6,811 | ) | |||||
(Gain) loss from sales of assets received in lieu of payment,net | 36 | (10,793 | ) | (8,779 | ) | |||||
(Gain) loss on sales of property and equipment, net | 36 – 37 | (90 | ) | (3,632 | ) | |||||
Charge-offs of assets received in lieu of payment | 37 | 8,778 | 6,638 | |||||||
Other charges (credits) to income that do not represent cash flows | 8,882 | (3,901 | ) | |||||||
Net change in exchange rate, interest variation and fees accrued on assets and liabilities | 146,774 | 45,048 | ||||||||
Changes in assets and liabilities that affect operating cash flows: | ||||||||||
(Increase) decrease in loans and advances to banks, net | 354,308 | (734,330 | ) | |||||||
(Increase) decrease in loans to customers | (2,343,162 | ) | (2,687,964 | ) | ||||||
(Increase) decrease in financial assets held-for-trading, net | 2,801 | 211,059 | ||||||||
(Increase) decrease in other assets and liabilities | 103,135 | (162,604 | ) | |||||||
Increase (decrease) in current account and other demand deposits | 1,738,840 | 668,521 | ||||||||
Increase (decrease) in transactions from reverse repurchase agreements | 1,711 | 98,570 | ||||||||
Increase (decrease) in savings accounts and time deposits | 184,946 | 579,827 | ||||||||
Sale of assets received in lieu of payment or adjudicated | 30,795 | 31,403 | ||||||||
Total cash flows from operating activities | 1,235,840 | (1,000,560 | ) | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
(Increase) decrease in financial assets available-for-sale, net | (302,427 | ) | 463,558 | |||||||
Payments for lease agreements | 16 | (29,374 | ) | — | ||||||
Net changes in leased assets | 16 | (1,725 | ) | — | ||||||
Purchases of property and equipment | 16 | (43,512 | ) | (28,065 | ) | |||||
Sales of property and equipment | 92 | 3,640 | ||||||||
Acquisition of intangible assets | 15 | (20,928 | ) | (23,512 | ) | |||||
Acquisition of investments in companies | 14 | (671 | ) | (30 | ) | |||||
Dividends received from investments in companies | 963 | 855 | ||||||||
Total cash flows from investing activities | (397,582 | ) | 416,446 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
Redemption of letters of credit | (3,268 | ) | (4,388 | ) | ||||||
Issuance of bonds | 22 | 2,625,176 | 2,157,587 | |||||||
Redemption of bonds | (1,546,572 | ) | (1,436,232 | ) | ||||||
Dividends paid | 27 | (356,311 | ) | (374,079 | ) | |||||
Increase (decrease) in borrowings from foreign financial institutions | 44,755 | 320,635 | ||||||||
Increase (decrease) in other financial obligations | 42,664 | (8,753 | ) | |||||||
Increase (decrease) in other obligations with Central Bank of Chile | — | (1 | ) | |||||||
Other long-term borrowings | — | 15 | ||||||||
Payment of other long-term borrowings | (4,005 | ) | (9,814 | ) | ||||||
Total cash flows from financing activities | 802,439 | 644,970 | ||||||||
TOTAL NET POSITIVE CASH FLOWS FOR THE YEAR | 1,640,697 | 60,856 | ||||||||
Effect of exchange rate changes | 34,299 | 116,121 | ||||||||
Cash and cash equivalents at beginning of year | 2,256,375 | 2,079,398 | ||||||||
Cash and cash equivalents at end of year | 7 | 3,931,371 | 2,256,375 |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Operational Cash flow interest: | ||||||||
Interest received | 2,010,563 | 1,881,766 | ||||||
Interest paid | (460,115 | ) | (400,686 | ) |
The accompanying notes 1 to 42 are an integral part of these consolidated financial statements
5
BANCO DE CHILE AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Free translation of Consolidated Financial Statements originally issued in Spanish)
1. | Company information: |
Banco de Chile is authorized to operate as a commercial bank since September 17, 1996, being, in conformity with the stipulations of article 25 of Law No. 19,396, the legal continuation of Banco de Chile resulting from the merger of the Banco Nacional de Chile, Banco Agrícola and Banco de Valparaiso, which was constituted by public deed dated October 28, 1893, granted before the Notary Public of Santiago, Mr. Eduardo Reyes Lavalle, authorized by Supreme Decree of November 28, 1893.
Banco de Chile (or the “Bank”) is a Corporation organized under the laws of the Republic of Chile, regulated by the Chilean Commission for the Financial Market (“CMF”), in accordance with the established in the Law 21,130 dated January 12, 2019, which ordered the integration of the Superintendency of Banks and Financial Institutions (“SBIF”) with the Commission for the Financial Market as of June 1, 2019. Since 2001, it is subject to the supervision of the Securities and Exchange Commission of the United States of America (“SEC”), in consideration of the fact that the Bank is registered on the New York Stock Exchange (“NYSE”), through a program of American Depositary Receipt (“ADR”).
Banco de Chile offers a broad range of banking services to its customers, ranging from individuals to large corporations. Additionally, the Bank offers international as well as treasury banking services, in addition to those offered by subsidiaries that include securities brokerage, mutual fund and investment management, insurance brokerage, financial advisory services and securitization.
Banco de Chile’s legal address is Ahumada 251, Santiago, Chile and its website is www.bancochile.cl.
The Consolidated Financial Statements of Banco de Chile, for the year ended December 31, 2019 were approved by the Directors on January 30, 2020.
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles: |
(a) | Basis of preparation: |
Legal dispositions
Decree Law No. 3,538 of 1980, according to the text replaced by the first article of Law No. 21,000 that “Creates the Commission for the Financial Market”, provides in numeral 6 of its article 5 that the Commission for the Market Financial (“CMF”) may “set the standards for the preparation and presentation of reports, balance sheets, statements of situation and other financial statements of the audited entities and determine the principles under which they must keep their accounting”.
In accordance with the current legal framework, banks must use the accounting principles provided by the Commission and in everything that is not dealt with by it or in contravention of its instructions, they must adhere to the generally accepted accounting principles, which correspond to the technical standards issued by the College of Accountants of Chile AG, coinciding with the International Financial Reporting Standards (“IFRS”) agreed by the International Accounting Standards Board (“IASB”). If there are discrepancies between these accounting principles of general acceptance and the accounting criteria issued by the Commission, the latter shall prevail.
(b) | Basis of consolidation: |
The financial statements of Banco de Chile as of December 31, 2019 and 2018 have been consolidated with its Chilean subsidiaries and foreign subsidiary using the global integration method (line-by-line). They include preparation of individual financial statements of the Bank and companies that participate in the consolidation and it include adjustments and reclassifications necessary to homologue accounting policies and valuation criteria applied by the Bank. The Consolidated Financial Statements have been prepared using the same accounting policies for similar transactions and other events in equivalent circumstances.
Significant intercompany transactions and balances (assets and liabilities, equity, income, expenses and cash flows) originated in operations performed between the Bank and its subsidiaries and between subsidiaries have been eliminated in the consolidation process. The non-controlling interest corresponding to the participation percentage of third parties in subsidiaries, which the Bank does not own directly or indirectly, has been recognized and is shown separately in the consolidated shareholders’ equity of Banco de Chile.
7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(b) | Basis of consolidation, continued: |
(i) | Subsidiaries |
Consolidated financial statements as of December 31, 2019 and 2018 incorporate financial statements of the Bank and its subsidiaries. According IFRS 10 – “Consolidated Financial Statements”, control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee. Specifically the Bank have power over the investee when has existing rights that give it the ability to direct the relevant activities of the investee.
When the Bank has less than a majority of the voting rights of an investee, but these voting rights are enough to have the ability to direct the relevant activities unilaterally, then conclude the Bank has control. The Bank considers all factors and relevant circumstances to evaluate if their voting rights are enough to obtain the control, which it includes:
● | The amount of voting rights that the Bank has, related to the amount of voting rights of the others stakeholders; |
● | Potential voting rights maintained by the Bank, other holders of voting rights or other parties; |
● | Rights emanated from other contractual arrangements; |
● | Any additional circumstance that indicate that the Bank have or have not the ability to manage the relevant activities when that decisions need to be taken, including behavior patterns of vote in previous shareholders meetings. |
8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(b) | Basis of consolidation, continued: |
(i) | Subsidiaries, continued: |
The Bank reevaluates if it has or has not the control over an investee when the circumstances indicates that exists changes in one or more elements of control listed above.
The entities controlled by the Bank and which form parts of the consolidation are detailed as follows:
Functional | Interest Owned | |||||||||||||||||||||||||||||
Rut | Subsidiaries | Country | Currency | Direct | Indirect | Total | ||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
% | % | % | % | % | % | |||||||||||||||||||||||||
96,767,630-6 | Banchile Administradora General de Fondos S.A. | Chile | Ch$ | 99.98 | 99.98 | 0.02 | 0.02 | 100.00 | 100.00 | |||||||||||||||||||||
96,543,250-7 | Banchile Asesoría Financiera S.A. | Chile | Ch$ | 99.96 | 99.96 | — | — | 99.96 | 99.96 | |||||||||||||||||||||
77,191,070-K | Banchile Corredores de Seguros Ltda. | Chile | Ch$ | 99.83 | 99.83 | 0.17 | 0.17 | 100.00 | 100.00 | |||||||||||||||||||||
96,571,220-8 | Banchile Corredores de Bolsa S.A. | Chile | Ch$ | 99.70 | 99.70 | 0.30 | 0.30 | 100.00 | 100.00 | |||||||||||||||||||||
96,932,010-K | Banchile Securitizadora S.A. | Chile | Ch$ | 99.01 | 99.01 | 0.99 | 0.99 | 100.00 | 100.00 | |||||||||||||||||||||
96,645,790-2 | Socofin S.A. | Chile | Ch$ | 99.00 | 99.00 | 1.00 | 1.00 | 100.00 | 100.00 |
(ii) | Associates and Joint Ventures |
Associates
An associate is an entity over whose operating and financial management policy decisions the Bank has significant influence, without to have the control over the associate. Significant influence is generally presumed when the Bank holds between 20% and 50% of the voting rights. Other considered factors when determining whether the Bank has significant influence over another entity are the representation on the board of directors and the existence of material intercompany transactions. The existence of these factors could determine the existence of significant influence over an entity even though the Bank had participation less than 20% of the voting rights.
Investments in associates where exists significant influence, are accounted for using the equity method. In accordance with the equity method, the Bank’s investments are initially recorded at cost, and subsequently increased or decreased to reflect the proportional participation of the Bank in the net income or loss of the associate and other movements recognized in its shareholders’ equity. Goodwill arising from the acquisition of an associate is included in the net book value, net of any accumulated impairment loss.
9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(b) | Basis of consolidation, continued: |
(ii) | Associates and Joint Ventures, continued: |
Joint Ventures
Joint Ventures are joint arrangements whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
According to IFRS 11 “Joint Arrangements”, an entity will determine the type of joint arrangement in which it is involved, and may classify the agreement as a “Joint operation” or a “Joint venture”.
For investments defined like “Joint Operation”, their assets, liabilities, income and expenses are recognised by their participation in joint operation.
For investments defined like “Joint Venture”, they will be registered according equity method.
Investments in other companies that, for their characteristics, are defined like “Joint Ventures” are the following:
● | Artikos S.A. |
● | Servipag Ltda. |
(iii) | Shares or rights in other companies |
These are entities in which the Bank does not have significant influence. They are presented at acquisition value (historical cost).
(iv) | Special purpose entities |
According to current regulation, the Bank must be analyzing periodically its consolidation area, considering that the principal criteria are the control that the Bank has in an entity and not its percentage of equity participation.
As of December 31, 2019 and 2018 the Bank does not control and has not created any SPEs.
10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(b) | Basis of consolidation, continued: |
(v) | Fund management |
The Bank and its subsidiaries manage and administer assets held in mutual funds and other investment products on behalf of investors, perceiving a paid according to the service provided and according to market conditions. Managed resources are owned by third parties and therefore not included in the Statement of Financial Position.
According to established in IFRS 10, for consolidation purposes is necessary to assess the role of the Bank and its subsidiaries with respect to the funds they manage, must determine whether that role is Agent or Principal. This assessment should consider the following:
- The scope of their authority to make decisions about the investee.
- The rights held by third parties.
- The remuneration to which he is entitled under remuneration arrangements.
- Exposure, decision maker, the variability of returns from other interests that keeps the investee.
The Bank and its subsidiaries manage on behalf and for the benefit of investors, acting in that relationship only as Agent. Under this category, and as provided in the aforementioned rule, do not control these funds when they exercise their authority to make decisions. Therefore, as of December 31, 2019 and 2018 act as agent, and therefore do not consolidate any fund, no funds are part of the consolidation.
(c) | Non-controlling interest: |
Non-controlling interest represents the share of losses, income and net assets that the Bank does not control, neither directly or indirectly. It is presented as a separate item in the Consolidated Statement of Income and the Consolidated Statement of Financial Position.
(d) | Use of estimates and judgment: |
Preparing Consolidated Financial Statements requires management to make judgments, estimations and assumptions that affect the application of accounting policies and the valuation of assets, liabilities, income and expenses presented. Real results could differ from these estimated amounts. The estimates made refer to:
1. | Provision for loan losses (Note No. 11. No. 12 and No. 32); |
2. | Useful life of intangible, property and equipment and leased assets and lease liabilities (Notes No.15 and No.16); |
3. | Income taxes and deferred taxes (Note No. 17); |
4. | Provisions (Note No. 24); |
5. | Contingencies and Commitments (Note No. 26); |
6. | Fair value of financial assets and liabilities (Note No. 39). |
11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(d) | Use of estimates and judgments, continued: |
Estimates and relevant assumptions are regularly reviewed by the management of the Bank, according to quantify certain assets, liabilities, gains, loss and commitments. Estimates reviewed are registered in income in the year that the estimate is reviewed.
During the year ended December 31, 2019 there have been no significant changes in the estimates made.
(e) | Financial asset and liability valuation criteria: |
Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the Consolidated Statement of Financial Position and the Consolidated Statement of Other Comprehensive Income. This involves selecting the particular basis or method of measurement.
In the Consolidated Financial Statements several measuring bases are used with different levels mixed among them. These bases or methods include the following:
(i) | Initial recognition |
The Bank and its subsidiaries recognize loans to customers, trading and investment securities, deposits, debt issued and subordinated liabilities and other assets o liabilities on the date of negotiation. Purchases and sales of financial assets performed on a regular basis are recognized as of the trade date on which the Bank committed to purchase or sell the asset.
(ii) | Classification |
Assets, liabilities and income accounts have been classified in conformity with standards issued by the CMF.
12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(e) | Financial asset and liability valuation criteria, continued: |
(iii) | Derecognition of financial assets and financial liabilities |
The Bank and its subsidiaries derecognize a financial asset (or where applicable part of a financial asset) from its Consolidated Statement of Financial Position when the contractual rights to the cash flows of the financial asset have expired or when the contractual rights to receive the cash flows of the financial asset are transferred during a transaction in which all ownership risks and rewards of the financial asset are transferred. Any portion of transferred financial assets that is created or retained by the Bank is recognized as a separate asset or liability.
When the Bank transfers a financial asset, it assesses to what extent it has retained the risks and rewards of ownership. In this case:
(a) | If substantially all risks and rewards of ownership of the financial asset have been transferred, it is derecognized, and any rights or obligations created or retained upon transfer are recognized separately as assets or liabilities. |
(b) | If substantially all risks and rewards of ownership of the financial asset have been retained, the Bank continues to recognize it. |
(c) | If substantially all risks and rewards of ownership of the financial asset are neither transferred nor retained, the Bank will determine if it has retained control of the financial asset. In this case: |
(i) | If the Bank has not retained control, the financial asset will be derecognized, and any rights or obligations created or retained upon transfer will be recognized separately as assets or liabilities. |
(ii) | If the Bank has retained control, it will continue to recognize the financial asset in the Consolidated Financial Statement by an amount equal to its exposure to changes in value that can experience and recognize a financial liability associated to the transferred financial asset. |
The Bank derecognizes a financial liability (or a portion thereof) from its Consolidated Statement of Financial Position if, and only if, it has extinguished or, in other words, when the obligation specified in the corresponding contract has been paid or settled or has expired.
13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(e) | Financial asset and liability valuation criteria, continued: |
(iv) | Offsetting |
Financial assets and liabilities are offset and the net amount is reported in the Statement of Financial Position if, and only if, the Bank has the legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis or to realize an asset and settle the liability simultaneously.
Income and expenses are shown net only if accounting standards allow such treatment, or in the case of gains and losses arising from a group of similar transactions such as the Bank’s trading activities.
(v) | Valuation at amortized cost |
Amortized cost is the amount at which a financial asset or liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization (calculated using the effective interest rate method) of any difference between that initial amount and the maturity amount and minus any reduction for impairment.
(vi) | Fair value measurements |
Fair value of a financial instrument is the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between participants in a main market (or more advantageous) at the measurement date under current market conditions, regardless of whether that price is directly observable or estimated using another valuation technique. The most objective and common fair value is the price that you would pay on an active, transparent and deep market (“quoted price” or “market price”).
When available, the Bank estimates the fair value of an instrument using quoted prices in an active market for that instrument. A market is considered active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis.
If a market for a financial instrument is not active, the Bank establishes fair value using a valuation technique. These valuation techniques include the use of recent market transactions between knowledgeable, willing parties in an arm’s length transaction, if available, as well as references to the fair value of other instruments that are substantially the same, discounted cash flows and options pricing models.
The chosen valuation technique use the maximum observable market data, relies as little as possible on estimates performed by the Bank, incorporates factors that market participants would consider in setting a price and is consistent with accepted economic methodologies for pricing financial instruments. Inputs into the valuation technique reasonably represent market expectations and include risk and return factors that are inherent in the financial instrument. Periodically, the Bank calibrates the valuation techniques and tests it for validity using prices from observable current market transaction in the same instrument or based on any available observable market data.
14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(e) | Financial asset and liability valuation criteria, continued: |
(vi) | Fair value measurements, continued: |
The best evidence of the fair value of a financial instrument at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. However, when transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognized in incomes.
On the other hand, it should be noted that the Bank has financial assets and liabilities offset each other’s market risks, based on which average market prices are used as a basis for determining their fair value.
Then, the fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties; to the extent that the Bank believes that a third-party market participant would take them into account in pricing a transaction.
The Bank’s fair value disclosures are included in Note No. 39.
(f) | Functional currency: |
The items included in the financial statements of each of the entities of Banco de Chile and its subsidiaries are valued using the currency of the primary economic environment in which it operates (functional currency). The functional currency of Banco de Chile is the Chilean peso, which is also the currency used to present the entity’s Consolidated Financial Statements, that is the currency of the primary economic environment in which the Bank operates, as well as obeying to the currency that influences in the costs and income structure.
(g) | Transactions in foreign currency: |
Transactions in currencies other than the functional currency are considered to be in foreign currency and are initially recorded at the exchange rate of the functional currency on the transaction date. Monetary assets and liabilities denominated in foreign currencies are converted using the exchange rate of the functional currency as of the date of the Statement of Financial Position. All differences are recorded as a debit or credit to income.
15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(g) | Transactions in foreign currency, continued: |
As of December 31, 2019, the Bank applied the exchange rate of accounting representation according to the standards issued by the CMF, where assets expressed in dollars are shown to their equivalent value in Chilean pesos calculated using the following exchange rate of Ch$751.88 US$1 (Ch$693.60 to US$1 in 2018).
The gain of Ch$30,886 million for net foreign exchange transactions, net (Ch$2,701 million in 2018) shown in the Consolidated Statements of Income, includes recognition of the effects of exchange rate variations on assets and liabilities in foreign currency or indexed to exchange rates, and the result of foreign exchange transactions conducted by the Bank and its subsidiaries.
(h) | Business Segments: |
The Bank’s operating segments are determined based on its different business units, considering the following factors:
(i) | That it conducts business activities from which income is obtained and expenses are incurred (including income and expenses relating to transactions with other components of the same entity). |
(ii) | That its operating results are reviewed regularly by the entity’s highest decision-making authority for operating decisions, to decide about resource allocation for the segment and evaluate its performance; and |
(iii) | That separate financial information is available. |
(i) | Cash and cash equivalents: |
The Consolidated Statement of Cash Flows shows the changes in cash and cash equivalents derived from operating activities, investment activities and financing activities during the year. The indirect method has been used in the preparation of this statement of cash flows.
16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(i) | Cash and cash equivalents, continued: |
For the preparation of Consolidated Financial Statements of Cash Flow it is considered the following concepts:
(i) | Cash and cash equivalents correspond to “Cash and Bank Deposits”, plus (minus) the net balance of transactions in the course of collection that are shown in the Consolidated Statement of Financial Position, plus instruments held-for-trading and available-for-sale that are highly liquid and have an insignificant risk of change in value, maturing in less than three months from the date of acquisition, plus repurchase agreements that are in that situation. Also includes investments in fixed income mutual funds, according to instructions of the CMF, that are presented under “Trading Instruments” in the Consolidated Statement of Financial Position. |
(ii) | Operating activities: corresponds to normal activities of the Bank, as well as other activities that cannot classify like investing or financing activities. |
(iii) | Investing activities: correspond to the acquisition, sale or disposition other forms, of long-term assets and other investments that not include in cash and cash equivalent. |
(iv) | Financing activities: corresponds to the activities that produce changes in the amount and composition of the equity and the liabilities that are not included in the operating or investing activities. |
(j) | Financial assets held-for-trading: |
Financial assets held-for-trading consist of securities acquired with the intention of generating profits as a result of short-term prices fluctuation or as a result of brokerage activities, or are part of a portfolio on which a short-term profit-generating pattern exists.
Financial assets held-for-trading are stated at their fair value. Accrued interest, gains or losses from their fair value adjustments, as well as gains or losses from trading activities, are included in “Net financial operating income” in the Consolidated Statement of Income.
17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(k) | Operations under resale and repurchase agreements: |
The Bank carries out operations under resale agreements as a form of investment. The securities purchased under these agreements are recognized on the Bank’s Consolidated Statement of Financial Position under “Investments under resale agreements”, which is valued in accordance with the agreed-upon interest rate, through of method of amortized cost. According to rules, the Bank not register as own portfolio the instruments bought within resale agreements.
The Bank also carries out operations under repurchase agreements as a form of financing. The investments that are sold under repurchase obligation and that serve as collateral for borrowings are classified as “Financial Assets held-for-trading” or “Available-for-sale Instruments”. The obligation to repurchase the investment is classified in the liability as “Obligations under repurchase agreements”, which is valued in accordance with the agreed-upon interest rate.
As of December 31, 2019 and 2018 it not exist operations corresponding to securities lending.
(l) | Derivative instruments: |
The Bank maintains contracts of Derivative financial instruments, for cover the exposition of risk of foreign currency and interest rate. These contracts are recorded in the Consolidated Statement of Financial Position at their cost (included transactions costs) and subsequently measured at fair value. Derivative instruments are reported as an asset when their fair value is positive and as a liability when negative under the item “Derivative Instruments”.
Changes in fair value of derivative contracts held for trading purpose are included under “Profit (loss) net of financial operations”, in the Consolidated Statement of Income.
In addition, the Bank includes in the valorization of derivatives the “Credit Valuation Adjustment” (CVA), to reflect the counterparty risk in the determination of fair value and the Bank’s own credit risk, known as “Debit valuation adjustment” (DVA).
Certain embedded derivatives in other financial instruments are treated as separate derivatives when their risk and characteristics are not closely related to those of the main contract and if the contract in its entirety is not recorded at its fair value with its unrealized gains and losses included in income.
At the moment of subscription of a derivative contract must be designated by the Bank as a derivative instrument for trading or hedging purposes.
18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(l) | Derivative instruments, continued: |
If a derivative instrument is classified as a hedging instrument, it can be:
(1) | A hedge of the fair value of existing assets or liabilities or firm commitments, or; |
(2) | A hedge of cash flows related to existing assets or liabilities or forecasted transactions. |
A hedge relationship for hedge accounting purposes must comply with all of the following conditions:
(a) | at its inception, the hedge relationship has been formally documented; |
(b) | it is expected that the hedge will be highly effective; |
(c) | the effectiveness of the hedge can be measured in a reasonable manner; and |
(d) | the hedge is highly effective with respect to the hedged risk on an ongoing basis and throughout the entire hedge relationship. |
The Bank presents and measures individual hedges (where there is a specific identification of hedged item and hedged instruments) by classification, according to the following criteria:
Fair value hedges: changes in the fair value of a hedged instruments derivative, designed like “fair value hedges”, are recognized in income under the line “Net interest income” and/or “Foreign exchange transactions, net”. Hedged item also is presented to fair value, related to the risk to be hedge. Gains or losses from hedged risk are recognized in income under the line “Net interest income” and adjust the book value of item hedged.
19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(l) | Derivative instruments, continued: |
Cash flow hedge: changes in the fair value of financial instruments derivative designated like “cash flow hedge” are recognised in “Other Comprehensive Income”, to the extent that hedge is effective and hedge is reclassified to income in the item “Net interest income” and/or “Foreign exchange transactions, net”, when hedged item affects the income of the Bank produced for the “interest rate risk” or “foreign exchange risk”, respectively. If the hedge is not effective, changes in fair value are recognised directly in income in the item “Net financial operating income”.
If the hedged instruments does not comply with criteria of hedge accounting of cash flow, it expires or is sold, it suspend or executed, this hedge must be discontinued prospectively. Accumulated gains or losses recognised previously in the equity are maintained there until projected transactions occur, in that moment will be registered in Consolidated Statement of Income (in the item “Net interest income” and/or “Foreign exchange transactions, net”, depend of the hedge), lesser than it foresees that the transaction will not execute, in this case it will be registered immediately in Consolidated Statement of Income (in the item “Net interest income” and/or “Foreign exchange transactions, net”, depend of the hedge).
(m) | Loans to customers: |
Loans to customers include originated and purchased non-derivative financial assets with fixed or determinable payments that are not quoted on an active market and which the Bank does not intend to sell immediately or in the short-term.
(i) | Valuation method |
Loans are initially measured at cost plus incremental transaction costs, and subsequently measured at amortized cost using the effective interest rate method minus any impairment, except when the Bank defined some loans as hedged items, which are measured at fair value, changes are recorded in the Consolidated Statement of Income, as described in letter (l) of this note.
20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(m) | Loans to customers, continued: |
(ii) | Lease contracts |
Accounts receivable for leasing contracts, included under the caption “Loans to customers” correspond to periodic rent installments of contracts which meet the definition to be classified as financial leases and are presented at their nominal value net of unearned interest as of each year-end.
(iii) | Factoring transactions |
They are valued for the amounts disbursed by the Bank in exchange for invoices or other commercial instruments representative of credit, with or without responsibility of the grantor, received in discount. Price differences between the amounts disbursed and the nominal value of the credits are recorded in the result as interest income, through the effective interest method, during the financing period.
In those cases where the transfer of these instruments it was made without responsibility of the grantor, it is the Bank who assumes the insolvency risks of those required to pay.
(iv) | Impairment of loans |
The impaired loans include the following assets, according to Chapter B-1 of Banking Accounting Standards Compendium of the CMF:
a) | In case of debtors subject to individual assessment, are considered in impaired portfolio “Non-complying loans” and the categories B3 y B4 of “Substandar loans” defined in letter m) v.i). |
b) | Debtors subject to assessment group evaluation, the impaired portfolio includes all credits of the “Non-complying loans” defined in letter m) v. v). |
(v) | Allowance for loan losses |
Allowances are required to cover the risk of loan losses have been established in accordance with the instructions issued by the CMF. The loans are presented net of those allowances and, in the case of loans and in the case of contingent loans, they are shown in liabilities under “Provisions”.
In accordance with what is stipulated by the CMF, models or methods are used based on an individual and group analysis of debtors, to establish allowance for loan losses.
21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(m) | Loans to customers, continued: |
(v) | Allowance for loan losses, continued: |
(v.i) | Allowance for individual evaluations: |
An individual analysis of debtors is applied to individuals and companies that are of such significance with respect to size, complexity or level of exposure to the bank, that they must be analyzed in detail.
Likewise, the analysis of borrowers should focus on its credit quality related to the ability to payment, to have sufficient and reliable information, and to analyze in regard to guarantees, terms, interest rates, currency and revaluation, etc.
For purposes of establish the allowances, the banks must be asses the credit quality, then classify to one of three categories of loans portfolio: Normal, Substandard and Non-complying Loans, it must classify the debtors and their operations related to loans and contingent loans in the categories that apply.
v.i.1 | Normal Loans and Substandard Loans: |
Normal loans: correspond to borrowers who are up to date on their payment obligations and show no sign of deterioration in their credit quality. Loans classified in categories A1 through A6.
Substandard loans: includes all borrowers with insufficient payment capacity or significant deterioration of payment capacity that may be reasonably expected not to comply with all principal and interest payments obligations set forth in the credit agreement.
This category also includes all loans that have been non-performing for more than 30 days. Loans classified in this category are B1 through B4.
As a result of individual analysis of the debtors, the banks must classify them in the following categories, assigning, subsequently, the percentage of probability of default and loss given default resulting in the following percentage of expected loss:
Classification | Category of the debtors | Probability of default (%) | Loss given default (%) | Expected loss (%) |
Normal Loans | A1 | 0.04 | 90.0 | 0.03600 |
A2 | 0.10 | 82.5 | 0.08250 | |
A3 | 0.25 | 87.5 | 0.21875 | |
A4 | 2.00 | 87.5 | 1.75000 | |
A5 | 4.75 | 90.0 | 4.27500 | |
A6 | 10.00 | 90.0 | 9.00000 | |
Substandard Loans | B1 | 15.00 | 92.5 | 13.87500 |
B2 | 22.00 | 92.5 | 20.35000 | |
B3 | 33.00 | 97.5 | 32.17500 | |
B4 | 45.00 | 97.5 | 43.87500 |
22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(m) | Loans to customers, continued: |
(v) | Allowance for loan losses, continued: |
(v.i) | Allowance for individual evaluations, continued: |
v.i.1 | Normal Loans and Substandard Loans, continued: |
Allowances for Normal and Substandard Loans:
To determine the amount of allowances to be constitute for normal and substandard portfolio, previously should be estimated the exposure to subject to the allowances, which will be applied to respective expected loss (expressed in decimals), which consist of probability of default (PD) and loss given default (LGD) established for the category in which the debtor and/or guarantor belong, as appropriate.
The exposure affects to allowances applicable to loans plus contingent loans minus the amounts to be recovered by way of the foreclosure of financial or real guarantees of the operations. Also, in some cases, the credit risk of direct debtor can be replaced by credit quality from guarantor or surety. Loans mean the book value of credit of the respective debtor, while for contingent loans, the value resulting from to apply the indicated in No.3 of Chapter B-3 of Banking Accounting Standards Compendium.
The banks must use the following equation:
Provision debtor = (ESA-GE) x (PD debtor /100)x(LGD debtor /100)+GE x(PD guarantor/100)x(LGD guarantor/100)
Where:
ESA = Exposure subject to allowances
GE = Guaranteed exposure
ESA = (Loans + Contingent Loans) – Financial Guarantees
However, the Bank must maintain a minimum provision level of 0.50% over normal portfolio and contingents loans.
v.i.2 | Non-complying Loans |
The non-complying portfolio includes the debtors and their credits for which their recovery is considered remote, as they show an impaired or no payment capacity. This category comprises all debtors who have stopped paying their creditors or with visible evidence that they will stop doing so, as well as debtors who are granted a loan to leave as normal debt an operation with more than 60 days overdue in their payment, those in which a forced restructuring of debts is necessary to avoid default and, in addition, any debtor debtors that has 90 days overdue or more in the payment of interest or principal of any credit.
This portfolio is composed of the debtors belonging to categories C1 to C6 of the rating scale and all credits, including 100% of the amount of contingent loans, held by those same debtors.
23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(m) | Loans to customers, continued: |
(v) | Allowance for loan losses, continued: |
(v.i) | Allowance for individual evaluations, continued: |
v.i.2 | Non-complying Loans, continued: |
For purposes to establish the allowances on the non-complying loans, the Bank disposes the use of percentage of allowances to be applied on the amount of exposure, which corresponds to the amount of loans and contingent loans that maintain the same debtor. To apply that percentage, must be estimated a expected loss rate, less the amount of the exposure the recoveries by way of foreclosure of financial or real guarantees that to support the operation and, if there are available specific background, also must be deducting present value of recoveries obtainable exerting collection actions, net of expenses associated with them. This loss percentage must be categorized in one of the six levels defined by the range of expected actual losses by the Bank for all transactions of the same debtor.
These categories, their range of loss as estimated by the Bank and the percentages of allowance that definitive must be applied on the amount of exposures, are listed in the following table:
Type of Loan | Classification | Expected loss | Allowance (%) |
Non-complying loans
| C1 | Up to 3 % | 2 |
C2 | More than 3% up to 20% | 10 | |
C3 | More than 20% up to 30% | 25 | |
C4 | More than 30 % up to 50% | 40 | |
C5 | More than 50% up to 80% | 65 | |
C6 | More than 80% | 90 |
For these loans, the expected loss must be calculated in the following manner:
Expected loss = (TE – R) / TE
Allowance = TE x (AP/100)
Where:
TE = total exposure
R = recoverable amount based on estimates of collateral value and collection efforts
AP = allowance percentage (based on the category in which the expected loss should be classified).
All credits of the debtor must be kept in the Default Portfolio until there is a normalization of their ability or payment behavior, without prejudice to punishment of each particular credit that meets the condition indicated in point (vi) of this letter in order to remove a debtor from the Default Portfolio, once the circumstances that lead to classification in this portfolio according to the present rules have been overcome, at least the following copulative conditions must be met:
- | No obligation of the debtor with the bank with more than 30 calendar days overdue. |
- | No new refinances granted to pay its obligations. |
- | At least one of the payments includes amortization of capital. |
- | If the debtor has a credit with partial payment periods less than six months, has already made two payments. |
- | If the debtor must pay monthly fees for one or more credits, has paid four consecutive dues. |
- | The debtor does not have direct debts unpaid in the CMF recast information, except in the case of insignificant amounts. |
24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(m) | Loans to customers, continued: |
(v) | Allowance for loan losses, continued: |
(v.ii) | Allowances for group evaluations |
Group evaluations are relevant to address a large number of operations whose individual amounts are low or small companies. Such assessments, and the criteria for application, must be consistent with the transaction of give the credit.
In the case of consumer loans, collateral are not considered for the purpose of estimating the expected loss.
The Bank must discriminate between provisions on the normal portfolio and on the portfolio in default, and those that protect the risks of contingent credits associated with those portfolios.
Group evaluations requires the formation of groups of loans with similar characteristics in terms of type of debtors and conditions agreed, to establish technically based estimates by prudential criteria and following both the payment behavior of the group that concerned as recoveries of defaulted loans and consequently provide the necessary provisions to cover the risk of the portfolio.
Banks may use two alternative methods for determining provisions for retail loans that are evaluated as a group.
Under first method, it will be used the experience to explain the payment behavior of each homogeneous group of debtors and recoveries through collateral and of collection process, when it correspond, with objective of to estimate directly a percentage of expected losses that will be apply to the amount of the loans of respective group.
Under second method, the banks will segment to debtors in homogeneous groups, according described above, associating to each group a determined probability of default and a percentage of recovery based in a historic analysis. The amount of provisions to register it will be obtained multiplied the total loans of respective group by the percentages of estimated default and of loss given the default.
In both methods, estimated loss must be related with type of portfolio and terms of operations.
The Bank to determine its provisions has opted for using second method.
25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(m) | Loans to customers, continued: |
(v) | Allowance for loan losses, continued: |
(v.iii) | Standard method of provisions for Mortgage Loans |
According to the established by the CMF, the provision factor applicable, represented by expected loss over the mortgage loans, it will depend to the past due of each credit and the relation, at the end of month, between outstanding capital and the value of the mortgage guarantees (CMG), according the following table:
Provision factor applicable according past due and CMG | ||||||
CMG | Concept | Past due days at the end-month | ||||
0 | 1-29 | 30-59 | 60-89 | Non – Complying Loans | ||
CMG ≤ 40% | PD (%) | 1.0916 | 21.3407 | 46.0536 | 75.1614 | 100.0000 |
LGD (%) | 0.0225 | 0.0441 | 0.0482 | 0.0482 | 0.0537 | |
EAD (%) | 0.0002 | 0.0094 | 0.0222 | 0.0362 | 0.0537 | |
40% < CMG ≤ 80% | PD (%) | 1.9158 | 27.4332 | 52.0824 | 78.9511 | 100.0000 |
LGD (%) | 2.1955 | 2.8233 | 2.9192 | 2.9192 | 3.0413 | |
EAD (%) | 0.0421 | 0.7745 | 1.5204 | 2.3047 | 3.0413 | |
80% < CMG ≤ 90% | PD (%) | 2.5150 | 27.9300 | 52.5800 | 79.6952 | 100.0000 |
LGD (%) | 21.5527 | 21.6600 | 21.9200 | 22.1331 | 22.2310 | |
EAD (%) | 0.5421 | 6.0496 | 11.5255 | 17.6390 | 22.2310 | |
CMG > 90% | PD (%) | 2.7400 | 28.4300 | 53.0800 | 80.3677 | 100.0000 |
LGD (%) | 27.2000 | 29.0300 | 29.5900 | 30.1558 | 30.2436 | |
EAD (%) | 0.7453 | 8.2532 | 15.7064 | 24.2355 | 30.2436 |
Where: |
PD | : Probability of default |
LGD | : Loss given default |
EAD | : Exposure at default |
CMG | : Outstanding loan capital Mortgage Guarantee value |
In the event that a single debtor maintains more than one home mortgage loan with the bank and one of them is 90 days or more behind, all such loans will be assigned to the defaulted portfolio, calculating the provisions for each one of them. They agree with their respective percentages of CMG.
26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(m) | Loans to customers, continued: |
(v) | Allowance for loan losses, continued: |
(v.iv) | Commercial portfolio |
To determine the allowances of the commercial portfolio, the Bank must consider the standard methods presented below, as applicable to commercial leasing operations or other types of commercial loans. Then, the applicable provision factor will be assigned considering the parameters defined for each method.
a) | Commercial Leasing Operations |
The provision factor must be applied to the current value of commercial leasing operations (including the purchase option) and will depend on the default of each operation, the type of leased asset and the relationship between the current value of each operation and the leased asset value (PVB) at each month-end, as indicated in the following tables:
Probability of default (PD) applicable according to default and type of asset (%) | ||
Days of default of the operation at the month-end | Type of asset | |
Real estate | Non-real estate | |
0 | 0.79 | 1.61 |
1-29 | 7.94 | 12.02 |
30-59 | 28.76 | 40.88 |
60-89 | 58.76 | 69.38 |
Portfolio in default | 100.00 | 100.00 |
Loss given the default (LGD) applicable according to PVB section and type of asset (%) | ||
PVB = Current value of the operation / Value of the leased asset | ||
PVB section | Real estate | Non-real estate |
PVB ≤ 40% | 0.05 | 18.2 |
40% < PVB ≤ 50% | 0.05 | 57.00 |
50% < PVB ≤ 80% | 5.10 | 68.40 |
80% < PVB ≤ 90% | 23.20 | 75.10 |
PVB > 90% | 36.20 | 78.90 |
The determination of the PVB relationship will be made considering the appraisal value expressed in UF for real estate and in Chilean pesos for non-real estate, recorded at the time of the respective loan granting, taking into account possible situations that may be causing temporary increases in the assets prices at that time.
27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(m) | Loans to customers, continued: |
(v) | Allowance for loan losses, continued: |
(v.iv) | Commercial portfolio, continued: |
b) | Generic commercial placements and factoring |
In the case of factoring operations and other commercial placements, other than those indicated above, the provision factor, applicable to the amount of the placement and the exposure of the contingent loan risk (as indicated in paragraph 3 of Chapter B-3 ), will depend on the default of each operation and the relationship that exists at the end of each month, between the obligations that the debtor has with the bank and the value of the collateral that protect them (PTVG), as indicated in the following tables:
Probability of default (PD) applicable according to default and PTVG section (%) | |||
Days of default at the month-end | With collateral | Without collateral | |
PTVG≤100% | PTVG>100% | ||
0 | 1.86 | 2.68 | 4.91 |
1-29 | 11.60 | 13.45 | 22.93 |
30-59 | 25.33 | 26.92 | 45.30 |
60-89 | 41.31 | 41.31 | 61.63 |
Portfolio in default | 100.00 | 100.00 | 100.00 |
Loss given the default (LGD) applicable according to PTVG section (%) | |||
Collateral (with / without) | PTVG section | Generic commercial operations or factoring without the responsibility of the transferor | Factoring with the responsibility of the transferor |
With collateral | PTVG ≤ 60% | 5.0 | 3.2 |
60% < PTVG≤ 75% | 20.3 | 12.8 | |
75% < PTVG ≤ 90% | 32.2 | 20.3 | |
90% < PTVG | 43.0 | 27.1 | |
Without collateral | 56.9 | 35.9 |
28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(m) | Loans to customers, continued: |
(v) | Allowance for loan losses, continued: |
(v.iv) | Commercial portfolio, continued: |
The collaterals used for the purposes of calculating the PTVG relationship of this method may be specific or general, including those that are simultaneously specific and general. Collateral can only be considered if, according to the respective coverage clauses, it was constituted in the first degree of preference in favor of the bank and only guarantees the debtor's credits with respect to which it is imputed (not shared with other debtors).
For the purposes of calculating the PTVG, the assigned invoices in factoring operations nor the collaterals associated with the mortgage loans will not be considered, regardless of the conditions of its coverage clauses.
For the calculation of the PTVG ratio, the following considerations must be taken:
i. Transactions with specific collaterals: when the debtor granted specific collateral for generic commercial loans and factoring, the PTVG ratio is calculated independently for each covered transaction, such as the division between the amount of the loans and the contingent loans exposure and the collateral's value of the covered product.
ii. Transactions with general collaterals: when the debtor granted general or general and specific collaterals, the Bank calculates the respective PTVG, jointly for all generic commercial loans and factoring and not contemplated in the preceding paragraph i), as the division between the sum of the amounts of the loans and exposures of contingent loans and the general, or general and specific collateral that, according to the scope of the remaining coverage clauses, safeguard the loans considered in the numerator aforementioned coverage ratio.
The amounts of the collaterals used in the PTVG ratio of numbers i) and ii) must be determined according to:
- The last valuation of the collateral, be it appraisal or fair value, according to the type of real guarantee in question. For the determination of fair value, the criteria indicated in Chapter 7-12 of the Updated Collection of Standards should be considered.
- Possible situations that could be causing temporary increases in the values of the collaterals.
- Limitations on the amount of coverage established in their respective clauses.
29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(m) | Loans to customers, continued: |
(v) | Allowance for loan losses, continued: |
(v.v) | Portfolio in default |
The portfolio in default includes all placements and 100% of the amount of the contingent loans, of the debtors that the closing of a month presents a delay equal to or greater than 90 days in the payment of the interest of the capital of any credit. It will also include debtors who are granted a credit to leave an operation that has more than 60 days of delay in their payment, as well as those debtors who were subject to forced restructuring or partial forgiveness of a debt.
They may exclude from the portfolio in default: a) mortgage loans for housing, which delinquent less than 90 days, unless the debtor has another loan of the same type with greater delinquency; and, b) credits for financing higher studies of Law No. 20,027, which do not yet present the non-compliance conditions indicated in Circular No. 3,454 of December 10, 2008.
All credits of the debtor must be kept in the Default Portfolio until there is a normalization of their ability or payment behavior, without prejudice to punishment of each particular credit that meets the condition indicated in point (vi) of this letter in order to remove a debtor from the Default Portfolio, once the circumstances that lead to classification in this portfolio according to the present rules have been overcome, at least the following copulative conditions must be met:
- | No obligation of the debtor with the bank with more than 30 calendar days overdue. |
- | No new refinances granted to pay its obligations. |
- | At least one of the payments includes amortization of capital. This condition does not apply in the case of debtors who only have credits for financing higher education in accordance with Law No. 20,027. |
- | If the debtor has a credit with partial payment periods less than six months, has already made two payments. |
- | If the debtor must pay monthly fees for one or more credits, has paid four consecutive dues. |
- | The debtor does not appear with unpaid debts direct according to the information recast by CMF, except for insignificant amounts. |
(vi) | Charge-offs |
Generally, the charge-offs are produced when the contractual rights on cash flows end. In case of loans, even if the above does not happen, it will proceed to charge-offs the respective asset balances.
The charge-off refers to derecognition of the assets in the Statement of Financial Position, related to the respective transaction and, therefore, the part that could not be past-due if a loan is payable in installments, or a lease.
The charge-off must be to make using credit risk provisions constituted, whatever the cause for which the charge-off was produced.
30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(m) | Loans to customers, continued: |
(vi) | Charge-offs, continued: |
(vi.i) | Charge-offs of loans to customers |
Charge-off loans to customers, other than leasing operations, shall be made in accordance to the following circumstances occurs:
a) | The Bank, based on all available information, concludes that will not obtain any cash flow of the credit recorded as an asset. |
b) | When the debt without executive title expires 90 days after it was recorded in asset. |
c) | At the time the term set by the statute of limitations runs out and as result legal actions are precluded in order to request payment through executive trial or upon rejection or abandonment of title execution issued by judicial and non-recourse resolution. |
d) | When past-due term of a transaction complies with the following: |
Type of Loan | Term | |
Consumer loans - secured and unsecured | 6 months | |
Other transactions - unsecured | 24 months | |
Commercial loans - secured | 36 months | |
Residential mortgage loans | 48 months |
The term represents the time elapsed since the date on which payment of all or part of the obligation in default became due.
31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(m) | Loans to customers, continued: |
(vi) | Charge-offs, continued: |
(vi.ii) | Charge-offs of lease operations |
Assets for leasing operations must be charge-offs against the following circumstances, whichever occurs first:
a) | The bank concludes that there is no possibility of the rent recoveries and the value of the property cannot be considered for purposes of recovery of the contract, either because the lessee have not the asset, for the property’s conditions, for expenses that involve its recovery, transfer and maintenance, due to technological obsolescence or absence of a history of your location and current situation. |
b) | When it complies the prescription term of actions to demand the payment through executory or upon rejection or abandonment of executory by court. |
c) | When past-due term of a transaction complies with the following: |
Type of Loan | Term | |
Consumer leases | 6 months | |
Other non-real estate lease transactions | 12 months | |
Real estate leases (commercial or residential) | 36 months |
The term represents the time elapsed since the date on which payment of all or part of the obligation in default became due.
(vii) | Loan loss recoveries |
Cash recoveries on charge-off loans including loans that were reacquired from the Central Bank of Chile are recorded directly in income in the Consolidated Statement of Income, as a reduction of the “Provisions for Loan Losses” item.
In the event that there are recovery in assets, is recognized in income the revenues for the amount they are incorporated in the asset. The same criteria will be followed if the leased assets are recovered after the charge-off of a lease operation, to incorporate those to the asset.
(viii) | Renegotiations of charge-off transactions |
Any renegotiation of a credit already written off does not give rise to income, as long as the operation remains to have an impaired quality; the actual payments received must be treated as recoveries of credits written off, as indicated above.
Therefore, renegotiated credit can be recorded as an asset only if it has not deteriorated quality; also recognizing revenue from activation must be recorded like recovery of loans.
The same criteria should apply in the case that was give credit to pay a charge-off loan.
32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(n) | Investment instruments: |
Investment instruments are classified into two categories: Investments to maturity and Instruments available for sale. The category of Investments to maturity includes only those instruments in which it have the capacity and intention to hold them until their expiration date. The other investment instruments are considered as available-for-sale.
Financial assets held-to-maturity are recorded at their cost plus accrued interest and indexations less impairment provisions made when the carrying amount exceeds the estimated recoverable amount.
A financial asset classified as available-for-sale is initially recognized at its fair value plus transaction costs that are directly attributable to the acquisition of the financial asset, subsequently measured at their fair value based on market prices or valuation models. Unrealized gains or losses as a result of fair value adjustments are recorded in “Other comprehensive income” within Equity. When these investments are sold, the cumulative fair value adjustment existing within equity is recorded directly in income under “Net financial operating income”.
Interest and indexations of financial assets held-to-maturity and available-for-sale are included in the line item “Interest revenue”.
Investment securities, which are subject to hedge accounting, are adjusted according to the rules for hedge accounting as described in Note No. 2 (l).
As of December 31, 2019 and 2018, the Bank does not held to maturity instruments.
33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(o) | Intangible: |
Intangible assets are identified as non-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of a legal transaction or are developed internally by the consolidated entities. They are assets whose cost can be estimated reliably and from which the consolidated entities have control and consider it probable that future economic benefits will be generated. Intangible assets are recorded initially at acquisition cost and are subsequently measured at cost less any accumulated amortization or any accumulated impairment losses.
Software or computer programs purchased by the Bank and its subsidiaries are accounted for at cost less accumulated amortization and impairment losses.
The subsequent expense in software assets is capitalized only when it increases the future economic benefit for the specific asset. All other expenses are recorded as an expense as incurred.
Amortization is recorded in income using the straight-line amortization method based on the estimated useful life of the software, from the date on which it is available for use. The estimated useful life of software is a maximum of 6 years.
(p) | Property and equipment: |
Property and equipment includes the amount of land, real estate, furniture, computer equipment and other installations owned by the consolidated entities and which are for own use. These assets are stated at historical cost less depreciation and accumulated impairment. This cost includes expenses than have been directly attributed to the asset’s acquisition.
Depreciation is recognized in the Consolidated Statements of Income on a straight-line basis over the estimated useful lives of each part of an item of property and equipment.
Estimated useful lives for 2019 and 2018 are as follows:
- Buildings | 50 years |
- Installations | 10 years |
- Equipment | 5 years |
- Supplies and accessories | 5 years |
Maintenance expenses relating to those assets held for own uses are recorded as expenses in the year in which they are incurred.
34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(q) | Deferred taxes and income taxes: |
The income tax provision of the Bank and its subsidiaries has been determined in conformity with current legal provisions.
The Bank and its subsidiaries recognize, when appropriate, deferred tax assets and liabilities for future estimates of tax effects attributable to temporary differences between the book and tax values of assets and liabilities. Deferred tax assets and liabilities are measured based on the tax rate expected to be applied, in accordance with current tax law, in the year that deferred tax assets are realized or liabilities are settled. The effects of future changes in tax legislation or tax rates are recognized in deferred taxes starting on the date of publication of the law approving such changes.
Deferred tax assets are recognized only when it is likely that future tax profits will be sufficient to recover deductions for temporary differences. According to instructions from the CMF, deferred taxes are presented in the Statement of Financial Position according to IAS 12 "Income Tax".
(r) | Assets received in lieu of payment: |
Assets received or awarded in lieu of payment of loans and accounts receivable from customers are recorded, in the case of assets received in lieu of payment, at the price agreed by the parties, or otherwise, when the parties do not reach an agreement, at the amount at which the Bank is awarded those assets at a judicial auction.
Assets received in lieu of payment are classified under “Other Assets” and they are recorded at the lower of its carrying amount or net realizable value, less charge-off and presented net of a portfolio valuation allowance. The CMF requires regulatory charge-offs if the asset is not sold within a one year of foreclosure.
(s) | Investment properties: |
Investments properties are real estate assets held to earn rental income or for capital appreciation or both, but are not held-for-sale in the ordinary course of business or used for administrative purposes. Investment properties are measured at cost, less accumulated depreciation and impairment and are presented under “Other Assets”.
(t) | Debt issued: |
Financial instruments issued by the Bank are classified in the Statement of Financial Position under “Debt issued” items, where the substance of the contractual arrangement results in the Bank having an obligation either to deliver cash or another financial asset to the holder or to satisfy the obligation other than by the exchange of a fixed amount of cash.
Debt issued is subsequently measured at amortized cost using the effective interest rate. Amortized cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the effective interest rate.
35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(u) | Provisions and contingent liabilities: |
Provisions are liabilities involving uncertainty about their amount or maturity. They are recorded in the Statement of Financial Position when the following requirements are jointly met:
i) | a present obligation has arisen from a past event and, |
ii) | as of the date of the financial statements it is probable that the Bank or its subsidiaries have to disburse resources to settle the obligation and the amount can be reliably measured. |
A contingent asset or liability is any right or obligation arising from past events whose existence will be confirmed by one or more uncertain future events which are not within the control of the Bank.
The following are classified as contingent loans in the complementary information:
i. | Guarantees and sureties: Comprises guarantees, sureties and standby letters of credit. In addition it includes payment guarantees for purchases in factoring transactions. |
ii. | Confirmed foreign letters of credit: Corresponds to letters of credit confirmed by the Bank. |
iii. | Documentary letters of credit: Includes documentary letters of credit issued by the Bank which have not yet been negotiated. |
iv. | Documented guarantee with promissory notes. |
v. | Undrawn credit lines: The unused amount of credit lines that allow customers to draw without prior approval by the Bank (for example, using credit cards or overdrafts in checking accounts). |
vi. | Other credit commitments: Amounts not yet lent under committed loans, which must be disbursed at an agreed future date when events contractually agreed upon with the customer occur, such as in the case of lines of credit linked to the progress of a construction or similar projects. |
36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(u) | Provisions and contingent liabilities, continued: |
vii. | Other contingent loans: Includes any other kind of commitment by the Bank which may exist and give rise to lending when certain future events occur. In general, this includes unusual transactions such as pledges made to secure the payment of loans among third parties or derivative contracts made by third parties that may result in a payment obligation and are not covered by deposits. |
Exposure to credit risk on contingent loans:
In order to calculate provisions on contingent loans, as indicated in Chapter B-3 of the Banking Accounting Standards Compendium of the CMF, the amount of exposure that must be considered shall be equivalent to the percentage of the amounts of contingent loans indicated below:
Type of contingent loan | Exposure | |||
a) Guarantors and pledges | 100 | % | ||
b) Confirmed foreign letters of credit | 20 | % | ||
c) Documentary letters of credit issued | 20 | % | ||
d) Guarantee deposits | 50 | % | ||
e) Undrawn credit lines | 35 | % | ||
f) Other loan commitments: | ||||
- College education loans Law No. 20,027 | 15 | % | ||
- Others | 100 | % | ||
g) Other contingent loans | 100 | % |
Notwithstanding the above, when dealing with transactions performed with customers with overdue loans as indicated in Chapter B-1 of the Accounting Standards Compendium of the CMF, that exposure shall be equivalent to 100% of its contingent loans.
37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(v) | Provisions for minimum dividends: |
According with the Accounting Standards Compendium of the CMF, the Bank records within liabilities the portion of net income for the year that should be distributed to comply with the Corporations Law or its dividend policy. For these purposes, the Bank establishes a provision in a complementary equity account within retained earnings.
Distributable net income is considered for the purpose of calculating a minimum dividends provision, which is defined as that which results from reducing or adding to net income the value of price-level restatement for the concept of restatement or adjustment of paid-in capital and reserves for the year.
(w) | Employee benefits: |
(i) | Staff accrued vacations |
The annual costs of vacations and staff benefits are recognized on an accrual basis.
(ii) | Short-term benefits |
The Bank has a yearly bonus plan for its employees based on their ability to meet objectives and their individual contribution to the company’s results, consisting of a given number or portion of monthly salaries. It is provisioned for based on the estimated amount to be distributed.
(iii) | Staff severance indemnities |
Banco de Chile has recorded a liability for long-term severance indemnities in accordance with employment contracts it has with certain employees. The liability, which is payable to specified retiring employees with 30 or 35 years of service, is recorded at the present value of the accrued benefits, which are calculated by applying a real discount rate to the benefit accrued as of year-end over the estimated average remaining service year.
38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(w) | Employee benefits, continued: |
(iii) | Staff severance indemnities, continued: |
Obligations for this defined benefits plan are valued according to the projected unit credit actuarial valuation method, using inputs such as staff turnover rates, expected salary growth in wages and probability that this benefit will be used, discounted at current long-term rates (3.17% as of December 31, 2019 and 4.25% as of December 31, 2018).
The discount rate used corresponds to the rate of 10-year Chilean Central Bank Bonds in pesos (BCP).
Losses and gains caused by changes in actuarial variables are recognized in Other Comprehensive Income. There are no other additional costs that must be recognized by the Bank.
(x) | Earnings per share: |
Basic earnings per share is determined by dividing net income for the year attributable to the Bank by the average weighted number of shares in circulation during that period.
Diluted earnings per share are determined similarly to basic earnings, but the weighted average number of outstanding shares is adjusted to take into account the potential dilutive effect of the options on shares, warrants and convertible debt. As of December 31, 2019 and 2018 there are no concepts to adjust.
(y) | Interest revenue and expense: |
Interest income and expenses are recognized in the income statement using the effective interest rate method. The effective interest rate is the rate which exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument (or a shorter period) where appropriate, to the carrying amount of the financial asset or financial liability. To calculate the effective interest rate, the Bank determines cash flows by taking into account all contractual conditions of the financial instrument, excluding future credit losses.
The effective interest rate calculation includes all fees and other amounts paid or received that form part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the purchase or issuance of a financial asset or liability.
For its impaired portfolio and high risk loans and accounts receivables from clients, the Bank has applied a conservative position of discontinuing accrual-basis recognition of interest revenue in the income statement; they are only recorded once received. In accordance with the above, suspension occurs in the following cases:
39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(y) | Interest revenue and expense, continued: |
Loans with individual evaluation:
· | Loans classified in categories C5 and C6: Accrual is suspended by the sole fact of being in the impaired portfolio. |
· | Loans classified in categories C3 and C4: The accrual is suspended after have fulfilled three months in the impaired portfolio. |
Group evaluation loans:
· | Any credit, with the exception of those that have real guarantees that reach at least 80%: The accrual is suspended when the credit or one of its installments has reached six months of delay in its payment. |
Notwithstanding the above, in the case of loans subject to individual evaluation, recognition of income from accrual of interest and readjustments can be maintained for loans that are being paid normally and which correspond to obligations whose cash flows are independent, as can occur in the case of project financing.
The suspension of recognition of revenue on an accrual basis means that, while the credits are kept in the impaired portfolio, the related assets included in the Consolidated Statement of Financial Position will increase with no interest, or fees and adjustments in the Consolidated Statements of Income, and income will not be recognized for these items, unless they are actually received.
(z) | Fees and commissions: |
Revenue and expenses from fees are recognized in the Consolidated Income Statement using the criteria established in IFRS 15 "Revenue from contracts with customers".
Under IFRS 15, revenues are recognized considering the terms of the contract with customers. Revenue is recognized when or as the performance obligation is satisfied by transferring the goods or services committed to the customer.
Under IFRS 15, revenues are recognized using different criteria depending on their nature. The most significant are:
− | Those that correspond to a singular act, when the act that originates them takes place. |
− | Those that originate in transactions or services that are extended over time, during the life of such transactions or services. |
− | Commissions on loan commitments and other fees related to credit operations are deferred (together with the incremental costs directly related to the placement) and recognized as an adjustment to the effective interest rate of the placement. In the case of loan commitments, when there is no certainty of the date of effective placement, the commissions are recognized in the period of the commitment that originates it on a linear basis. |
40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(z) | Fees and commissions, continued: |
The fees registered by the Bank correspond mainly to:
− | Commissions for lines of credit and overdrafts: they are accrued in the period related to the granting of lines of credit and overdrafts in current account. |
− | Commissions for guarantees and letters of credit: they are accrued in the period related to the granting of payment guarantees for real or contingent obligations of third parties. |
− | Commissions for card services: correspond to commissions earned and accrued during the period, related to the use of credit, debit and other cards. |
− | Commissions for account management: includes commissions for the maintenance of current accounts and other deposit accounts. |
− | Commissions for collections, collections and payments: correspond to collection, collection and payments services provided by the Bank. |
− | Commissions for intermediation and management of securities: correspond to income from brokerage service, placements, administration and custody of securities. |
− | Remuneration for insurance commercialization: Income generated by the sale of insurance is included. |
− | Commissions for investments in mutual funds and others: corresponds to commissions originated in the administration of mutual funds. |
− | Other commissions earned: Income generated by currency changes, financial advice, use of distribution channels, use of trademark agreement and placement of financial products and cash transfers and recognition of payments associated with strategic alliances, among others, are included. |
Fees for commissions include:
− | Remuneration for card operations: commissions paid for the operation of credit and debit cards are included. |
− | Inter-bank transactions: Corresponds to commissions paid to the automatic clearing house for transactions carried out. |
− | Commissions for operations with securities: commissions for deposit and custody of securities and brokerage of securities are included. |
− | Other commissions: commissions for collection, payments and other online services are included. |
(aa) | Identifying and measuring impairment: |
Financial assets, different to loans to customers
Financial assets are reviewed throughout each year, and especially at each reporting date, to determine whether there is objective evidence of impairment as a result of a loss event that occurred after the initial recognition of the asset and the loss event had an impact on the estimated future cash flows of the financial asset that can be reliably calculated.
An impairment loss for financial assets (different to loans to customers) recorded at amortized cost is calculated as the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted using the effective interest rate original.
41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(aa) | Identifying and measuring impairment, continued: |
An impairment loss on a financial asset available-for-sale is calculated based on its fair value. In this case, the objective evidence includes a significant and prolonged decline, under the original investment cost in the fair value of the investment.
If there is evidence of impairment, any amount previously recognized in equity, net gains (losses) not recognized in the income statement, are removed from equity and recognized in the income statement for the year, presenting as net gains (losses) related to financial assets available-for-sale. This amount is determined as the difference between the acquisition cost (net of any repayment and amortization) and the current fair value of the asset, less any impairment loss on that investment that has been previously recognized in the income statement.
When the fair value of the available-for-sale debt security recovers to, at least, amortized cost, it is no longer considered impaired and subsequent changes in fair value are reported in equity.
All impairment losses are recognized in the incomes statement. Any cumulative loss related to available-for-sale financial assets recognized previously in equity is transferred to the incomes statement.
An impairment loss can only be reversed if it can be related objectively to an event occurring after the impairment loss was recognized. The amount of the reversal is recognized in profit or loss up to the amount previously recognized as impairment. An impairment loss is reversed if, in a subsequent period, the fair value of the debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.
42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(aa) | Identifying and measuring impairment, continued: |
Non-financial assets
The carrying amounts of the non-financial assets of the Bank and its subsidiaries, excluding investment properties and deferred tax assets, are reviewed throughout the year and especially at each reporting date, to determine if any indication of impairment exists. If such indication exists, the recoverable amount of the asset is then estimated.
Impairment losses recognized in prior years are assessed at each reporting date in search of any indication that the loss has decreased or disappeared. An impairment loss is reversed if there has been a change in the estimations used to determine the recoverable amount. An impairment loss is reverted only to the extent that the book value of the asset does not exceed the carrying.
The Bank assesses at each reporting date and on an ongoing basis whether there is an indication that an asset may be impaired. If any indication exists, the Bank estimates the asset’s recoverable amount. An asset’s recoverable amount is the major value between fair value (less costs to sell) and its value in use. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, share prices and other available fair value indicators.
Impairment losses related to goodwill cannot be reversed in future years.
43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(ab) | Lease transactions: |
(i) The Bank acting as lessor
Assets leased to customers under agreements which transfer substantially all the risks and rewards of ownership, with or without ultimate legal title, are classified as finance leases. When assets held are subject to a finance lease, the leased assets are derecognized and a receivable is recognized which is equal to the present value of the minimum lease payments, discounted at the interest rate implicit in the lease. Initial direct costs incurred in negotiating, and arranging a finance lease are incorporated into the receivable through the discount rate applied to the lease. Finance lease income is recognized over the lease term based on a pattern reflecting a constant periodic rate of return on the net investment in the finance lease.
Assets leased to customers under agreements which do not transfer substantially all the risks and rewards of ownership are classified as operating leases.
The leased investment properties, under the operating lease modality, are included in the statement of financial position as "Other assets" and depreciation is determined on the book value of these assets, applying a proportion of the value in a systematic way on the economic use of the estimated useful life. Lease income is recognized on a straight-line basis over the lease term.
(ii) The Bank acting as lessee
A contract is, or contains a lease, if one party has the right to control the use of an identified asset for a period of time in exchange for a regular payment.
On the start date of a lease, a right-to-use assets leased is determined at cost, which includes the amount of the initial measurement of the lease liability plus other disbursements made.
The amount of the lease liability is measured at the present value of future lease payments that have not been paid on that date, which are discounted using the Bank's incremental financing interest rate.
The right-of-use asset is measured using the cost model, less accumulated depreciation and accumulated losses due to impairment of value, depreciation of the right-of-use asset, is recognized in the Income Statement based on the linear depreciation method from the start date and until the end of the lease term.
In accordance with the establish in the Circular No. 3,649 of the CMF, the monthly variation of the UF for the contracts established in said monetary unit should be treated as a new measurement, therefore the UF readjustment modifies the value of the lease liability, and in parallel, the amount of the right-of-use asset must be adjusted by this effect.
After the start date, the lease liability is measured by lowering the carrying amount to reflect the lease payments made and the modifications to the lease.
According to IFRS 16 "Leases" the bank does not apply this rule to contracts whose duration is 12 months or less and those that contain an underlying asset of low value. In these cases, payments are recognized as a lease expense.
44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
2. | Summary of Significant Accounting Principles, continued: |
(ac) | Fiduciary activities: |
The Bank provides trust and other fiduciary services that result in the holding or investing of assets on behalf of the clients. Assets held in a fiduciary capacity are not reported in the financial statements, as they are not the assets of the Bank. Contingencies and commitments arising from this activity are disclosed in Note No. 26 (a).
(ad) | Customer loyalty program: |
The Bank maintains a loyalty program to provide incentives to its customers, which allows to acquire goods and/or services, based on the exchange of prize points ("Dolares-Premio"), which are granted based on the purchases made with Bank's credit cards and the compliance of certain conditions established in said program. The consideration for the prizes is made by a third party. In accordance with IFRS 15, these associated benefit plans have the necessary provisions to meet the delivery of committed future performance obligations.
(ae) | Additional provisions: |
In accordance to the CMF regulations, the banks have recorded additional allowances for its individually evaluated loan portfolio, taking into consideration the expected impairment of this portfolio. The calculation of this allowance is performed based on the Bank’s historical experience and considering possible future adverse macroeconomic conditions or circumstances that could affect a specific sector.
The provisions made in order to forestall the risk of macroeconomic fluctuations should anticipate situations reversal of expansionary economic cycles in the future, could translate into a worsening in the conditions of the economic environment and thus, function as a countercyclical mechanism accumulation of additional provisions when the scenario is favorable and release or assignment to specific provisions when environmental conditions deteriorate.
According to the above, additional provisions must always correspond to general provisions on commercial, consumer or mortgage loans, or segments identified, and in no case may be used to offset weaknesses of the models used by the Bank.
As of December 31, 2019 and 2018 the additional provisions amounted Ch$213,252 million, which are presents in the item “Provisions” of the liability in the Consolidated Statement of Financial Position.
(af) | Reclassifications: |
There have not been significant reclassifications at the end of the year 2019.
45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
3. | New Accounting Pronouncements: |
3.1 Standards approved and/or modified by the International Accounting Standards Board (IASB) and by the Chilean Commission for the Financial Market (CMF):
3.1.1 Standards and interpretations that have been adopted in these Consolidated Financial Statements.
As of the date of issuance of these Consolidated Financial Statements, the new accounting pronouncements issued by both the International Accounting Standards Board and the CMF, which have been adopted by the Bank and its subsidiaries, are detailed below:
Accounting standards issued by IASB.
IFRS 16 Leases.
On January 2016 was issued IFRS 16, this standard replaces IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease. The standard establishes the principles for the recognition, measurement, presentation and disclosure of leases and requires that lessor take into account most leases in a single balance model.
This new rule does not differ significantly from IAS 17 Leases that precedes it, related to the accounting treatment for the lessor. However, related to the lessee, the new rule requires the recognition of assets and liabilities for most lease contracts.
This standard is applicable as of January 1, 2019. The Bank carried out an implementation process during the year 2018, which culminated with the application as of January 1, 2019, using the modified retrospective method, this means that a the initial application date of the right-of-use asset is equal to the financial liability, and additionally it was decided not to restate the balances of the previous year. (For additional information see notes Accounting Principles and Changes in Accounting Policies and Disclosures).
IFRIC 23 Uncertainty over Income Tax Treatments.
In June 2017, the IASB published IFRIC 23, which clarifies the application of the recognition and measurement criteria required by IAS 12 Income Taxes when there is uncertainty about tax treatments. This interpretation is effective for annual periods beginning on January 1, 2019.
The Administration has assessed that the implementation of this interpretation had no impact on the Banco de Chile and its subsidiaries.
46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
3. | New Accounting Pronouncements, continued: |
Accounting standards issued by the CMF.
Circular No. 3,645.
On January 11, 2019, the CMF introduced changes to the Compendium of Accounting Standards in order to apply the criteria defined in IFRS 16.
The main changes are for the valuation for the right to use of assets under lease being applied as a measurement after initial recognition, the cost methodology less accumulated depreciation / amortization and accumulated impairment.
In the statement of financial position are introduced the items "Leased assets" and "lease liabilities", which also modify the Notes "Fixed assets" and "Leased assets and lease liabilities".
Additionally, for the purposes of the first application of this standard, banks and their subsidiaries recorded the effect due to the first application of this standard in the equity item "Retained earnings from previous years".
On May 6, 2019, the CMF issued Circular No. 3,649, which defined the treatment of the lease agreements expressed in UF, establishing that the variation in the UF should be treated as a new measurement, and therefore the readjustments resulting in changes in lease payments must be recognized as a modification of the amount of the obligation and in parallel, the amount of the asset must be adjusted for the right to use leased assets for this purpose.
The application of these amendments was made jointly with the adoption of IFRS 16.
47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
3. | New Accounting Pronouncements, continued: |
Circular No. 3,638.
On July 6, 2018, the CMF published amendments to the standards contained in Chapter B-1 "Provisions for Credit Risk" of the Compendium of Accounting Standards, which incorporates a standard model for the estimation of provisions for credit risk of the commercial portfolio of group analysis.
The methods and risk factors considered are the following:
- | Commercial Leasing Portfolio: considers default, the type of asset in leasing (real estate or non-real estate) and the present value of benefits (PVB) of the asset of the operation. |
- | Student Portfolio: considers the type of loan granted, the enforceability of the payment and the default that it presents, in case the loan is enforceable. |
- | Generic Commercial Portfolio: considers default and the existence of real guarantees that guarantee the placement. In the case of guarantees, the relationship between the placement and the value of the collateral is considered. |
According to the CMF, the three standardized methods included in the model will constitute a prudential floor for internal methods currently used by the industry.
On January 31, 2019, the CMF complemented these instructions with the publication of Circular No. 3,647, with the purpose of recognizing the mitigating effect of the credit risk represented by the transferor's responsibility in factoring operations, a particular factor is introduced for the component "Loss Given Default" (hereinafter "LGD") of the standard method for the commercial portfolio of group analysis, for factoring provisions.
The adoption of this standard in July 2019 did not have a material impact on the Consolidated Financial Statements of Banco de Chile and its subsidiaries.
48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
3. | New Accounting Pronouncements, continued: |
3.1.2 New standards and interpretations that have been issued but its date of application have not yet come into force:
The following is a summary of new standards, interpretations and improvements to the International Financial Reporting Standards issued by IASB that are not yet effective as of December 31, 2019, are detailed below:
Accounting standards issued by IASB.
Conceptual Framework.
On March 29, 2018, the IASB issued a “Reviewed” Conceptual Framework. Changes to the Conceptual Framework may affect the application of IFRS when no rule applies to a particular transaction or event.
The Conceptual Framework introduces mainly the following improvements:
- | It incorporates some new concepts of measurement, presentation and disclosure and derecognition of assets and liabilities in the Financial Statements. |
- | Provides updated definitions of assets, liabilities and includes criteria for the recognition of assets and liabilities in the financial statements. |
- | Clarifies some important concepts such as background on form, prudential criteria and measurement of uncertainty. |
The Conceptual Framework enters into force for periods beginning onJanuary 1, 2020. Early adoption is permitted.
- IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Definition of materiality or relative importance.
The IASB issued changes to IAS 1, Presentation of Financial Statements, and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, to clarify the definition of materiality and align these standards with the Revised Conceptual Framework issued in March 2018, to facilitate companies to make materiality judgments.
Under the old definition omissions or misrepresentations of elements are important if they could, individually or collectively, influence the economic decisions that users make on the basis of financial statements (IAS 1 Presentation of Financial Statements).
The new definition states that information is material if the omission, distortion or concealment of the information can reasonably be expected to influence decisions that primary users of financial statements of general purpose make on the basis of those financial statements, which provide financial information about a specific reporting entity.
The date of application of these amendments isJanuary 1, 2020. Early application is allowed.
This amendment has no impact on the Consolidated Financial Statements of Banco de Chile and its subsidiaries.
49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
3. | New Accounting Pronouncements, continued: |
IFRS 9 Financial Instruments, IFRS 7 Financial Instruments: Disclosures and IAS 39 Financial Instruments: Recognition and Measurement. Interest rate benchmark reform.
In September 2019, the IASB issued amendments to IFRS 9, IFRS 7 and IAS 39, as a result of the IBOR (Interbank Offered Rate) reform, which results in the replacement of existing reference interest rates, by alternative interest rates.
The amendments provide temporary application exceptions that allow hedge accounting to continue during the uncertainty period, prior to the replacement of existing reference interest rates.
The date of application of these amendments is fromJanuary 1, 2020. Early application is allowed.
This amendment has no impact on the Consolidated Financial Statements of Banco de Chile and its subsidiaries.
Accounting Standards issued by the CMF.
Circular No. 2,243.
On December 20, 2019, the CMF published Circular No. 2,243, which updates the instructions of the Banking Accounting Standards Compendium (“CNCB”) for banks.
The changes seek to achieve greater convergence with IFRS, as well as an improvement in the quality of financial information, to contribute to the financial stability and transparency of the banking system.
The main changes introduced to the CNCB correspond to:
1) Incorporation of IFRS 9 with the exception of the chapter on impairment of loans classified as “financial assets at amortized cost”. This exception is mainly due to prudential criteria set by the CMF. These criteria have given rise, over time, to the establishment of standard models that the banking institutions must apply to determine the impairment of the loan portfolio.
2) Changes in the presentation formats of the Statement of Financial Position and Income Statement, when adopting IFRS 9 in replacement of IAS 39.
3) Incorporation of new presentation formats for the Statement of Other Comprehensive Income and the Statement of Changes in Equity and guidelines on financing and investment activities for the Statement of Cash Flows.
4) Incorporation of a financial report “Management Comments” (according to the IASB Practice Document No. 1), which will complement the information provided by the interim and annual financial statements.
5) Modifications of some notes of the financial statements, among which are: Financial assets at amortized cost and Risk management, in order to better comply with the disclosure criteria contained in the IFRS 7. In addition, disclosures about related parties are aligned according to IAS 24.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
3. | New Accounting Pronouncements, continued: |
6) Changes in the accounting plan of Chapter C-3 of the CNCB, both in the accounts coding as well as in their description. The foregoing corresponds to the detailed information of the formats for the Statement of Financial Position, the Income Statement and the Statement of Other Comprehensive Income.
7) Modification of the criteria for the suspension of the recognition of interest income on an accrual basis, when any credit or one of its payments presents a default greater than 3 months (Chapter B-2 of the CNCB).
8) Adaptation of the limitations and precisions to the use of IFRS contained in Chapter A-2 of the CNCB.
The new standards will be applicable from January 1, 2021, with a transition date on January 1, 2020, for the comparative financial statements purposes that must be published as of March 2021. Notwithstanding the above, the change of criteria for the suspension of the recognition of interest income on an accrual basis as provided in Chapter B-2, must be adopted no later than January 1, 2021. The effects of the application of the suspension rule of Interest and readjustments when any credit or one of its payments presents a default greater than 3 months will not have a significant impact on the Bank's results.
The Bank and its subsidiaries have prepared a work plan and allocated the necessary resources to address implementation of the modifications to the CNCB. The foregoing was with the purpose of complying with the new standards required for the preparation and presentation of the Financial Statements.
51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
4. | Changes in Accounting policies and Disclosures: |
The accounting policies adopted in the preparation of this Consolidated Financial Statements are consistent with those used in the preparation of the annual Consolidated Financial Statements for the year ended December 31, 2018, except for the adoption of new regulations in force at 1 January 2019.
As of January 1, 2019, the Bank first adopted IFRS 16 Leases, for the purposes of the initial application, it was decided to recognize the cumulative effect on the date of initial adoption (January 1, 2019), not restating comparative information, accounting for a right-of-use asset for an amount equal to the lease liability for an amount of Ch$144,497 million (See Note No. 16 letter d)). This amount was determined according to the present value of the remaining lease payments, discounted using the Bank's incremental financing interest rate.
During the year ended December 31, 2019, no other significant accounting changes have occurred that affect the presentation of these Consolidated Financial Statements.
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
5. | Relevant Events: |
(a) | On January 18, 2019, the subsidiary Banchile Corredores de Bolsa S.A. informed that in the Ordinary Session held that day, the Board became aware and accepted the resignation presented by Mr. Roberto Serwaczak Slowinski to his position as Director of the company. |
(b) | On January 24, 2019 in the Ordinary Session No. 2,895, the Board of Directors of Banco de Chile agreed to convene an Ordinary Meeting of Shareholders for March 28, 2019, with the purpose of proposing, among other matters, the distribution of the dividend No. 207 of $ 3.52723589646 for each share, corresponding to 70% of the distributable liquid profit, retaining the remaining 30%. |
(c) | On January 28, 2019, Banco de Chile and its subsidiary Banchile Corredores de Seguros Ltda. informed that they have entered into a strategic alliance with the insurance companies Chubb Seguros Chile S.A. and Chubb Seguros de Vida Chile S.A. The framework of the strategic alliance establishes the general terms and conditions pursuant to which the Bank will grant, for a period of 15 years, exclusive access to the Companies to provide insurances to clients via face-to-face and digital channels of the Bank, through Banchile, subject to the exceptions agreed upon by the parties. |
The aforementioned Agreement included an initial payment on the date of the signing of the contracts, in accordance with the terms and conditions thereof, and annual payments subject to compliance with insurance sales objectives during the agreement lifetime.
The subscription of the contracts referred in the Agreement was subject to the condition that the National Economic Prosecutor's Office approve the execution of all of them, for which purpose the parties have proceeded to notify the operation in accordance with Chapter IV of the Decree Law No. 211.
(d) | On March 14, 2019 in the Ordinary session No. 2,897, the Board of Directors of Banco de Chile agreed to establish a provision for minimum dividends of 60% of the net distributable profit that will be generated during the course of the year. For these purposes, the net distributable profit is defined as net income for the corresponding period minus the value effect of the monetary unit of paid capital and reserves, as a result of any change in the Consumer Price Index (CPI) between to the month prior to the current month and the month of November of the previous year. |
(e) | On March 28, 2019 at the Ordinary Shareholder’s Meeting, our shareholders approved the distribution of the dividend No. 207 of $3.52723589646 per share, to be charged to the net distributable income obtained during the fiscal year 2018. Also, the shareholders agreed to withhold of 30% of the distributable net profit for the year 2018. |
Additionally, the shareholders approved the definite appointment of Mr. Julio Santiago Figueroa as Director of Banco de Chile, a position which he will hold until the next renewal of the Board of Directors.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
5. | Relevant Events, continued: |
(f) | On May 20, 2019, the subsidiary Banchile Corredores de Bolsa S.A. reported that in Ordinary Session held on May 17, 2019, the Board of Banchile Corredores de Bolsa S.A. appointed Mr. Fuad Jorge Muvdi Arenas as titular director. |
(g) | On June 4, 2019, Banco de Chile reported that the condition established in of the Strategic Alliance Framework Agreement subscribed by Banco de Chile, its subsidiary Banchile Corredores de Seguros Limitada and the insurance companies Chubb Seguros Chile SA and Chubb Seguros de Vida Chile SA, had been met on January 28, 2019, and in order to comply with said agreement, the following contracts had been signed: |
- | Contract of Exclusive Access to Distribution Channels between the Bank and the Companies; |
- | Supply, Intermediation and Distribution of Insurance Contracts between Banchile and each of the Companies; |
- | Trademark Use Agreement between the Bank and each of the Companies; and |
- | Collection Contracts between the Bank and each of the Companies. |
(h) | On June 10, 2019, Banco de Chile informed that on that date Mr. Rodrigo Manubens Moltedo submitted his resignation to the position of Deputy Director of Banco de Chile. |
(i) | On June 27, 2019, Banco de Chile informed that in ordinary session, the Board of Directors appointed Mrs. Sandra Guazzotti as first substitute director, until the next Ordinary Shareholders' Meeting, replacing Mr. Rodrigo Manubens Moltedo. |
(j) | On July 1, 2019, Banco de Chile reported the deceased of the Director of Banco de Chile, Mr. Gonzalo Menéndez Duque. |
(k) | On July 8, 2019, the subsidiary Banchile Administradora General de Fondos S.A. informed that on July 5, 2019 Mr. Nicolás Luksic Puga submitted his resignation to the position of director of the Company. |
(l) | On August 8, 2019, Banco de Chile informed that in ordinary session the Board of Directors appointed to Mr. Hernán Büchi Buc as Regular Director of the Board in replacement of Mr. Gonzalo Menéndez Duque until the next Ordinary Shareholders Meeting. |
(m) | On November 28, 2019 and in Ordinary session, the Board of Directors appointedto Mr. Paul Fürst Gwinner as the second alternate director, replacing until the next Ordinary Meeting of Shareholders, to Mr. Thomas Fürst Freiwirth, who presented his resignation as director alternate. |
(n) | On November 29, 2019, Banco de Chile reported that together with Citigroup Inc. they have agreed to extend the validity of the Cooperation Agreement and the Global Connectivity Contract, both entered into on October 22, 2015. In accordance with the aforementioned extension, the validity of said contracts extends from January 1, 2020 and until January 1, 2022, and the parties may agree before August 31, 2021, an extension for two years from January 1, 2022. In the event that this does not occur, the contracts will be extended only once for a period of one year from January 1, 2022 and until January 1, 2023. The same renewal procedure may be used in the future as many times as agreed by the parties. |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
5. | Relevant Events, continued: |
Together with the above and on the same date, Banco de Chile and Citigroup Inc. signed an Amended and Restated Trademark License Agreement and an Amended and Restated Master Services Agreement, agreeing that their periods of validity will be the same as those established in the Contract of Cooperation referred to in the previous paragraph.
The Board of Directors of Banco de Chile, in session No. 2,912 of November 28, 2019, approved the extension and subscription of the aforementioned contracts, in the terms established in articles 146 and following of the Corporations Law.
6. | Business Segments: |
For management purposes, the Bank is organized into four segments, which are defined based on the types of products and services offered, and the type of client in which focuses as described below:
Retail: | This segment focuses on individuals and small and medium-sized companies (SMEs) with annual sales up to UF 70,000, where the product offering focuses primarily on consumer loans, commercial loans, checking accounts, credit cards, credit lines and mortgage loans. |
Wholesale: | This segment focused on corporate clients and large companies, whose annual revenue exceed UF 70,000, where the product offering focuses primarily on commercial loans, checking accounts and liquidity management services, debt instruments, foreign trade, derivative contracts and leases. |
Treasury: | This segment includes the associated revenues to the management of the investment portfolio and the business of financial transactions and currency trading. |
Transactions with customers carried out by the Treasury are reflected in the respective aforementioned segments. These products are highly transaction-focused and include foreign exchange transactions, derivatives and financial instruments in general, among others.
Subsidiaries: | Corresponds to the businesses generated by the companies controlled by the Bank, which carry out activities complementary to the bank business. The companies that comprise this segment are: |
Entity | |
- Banchile Administradora General de Fondos S.A. | |
- Banchile Asesoría Financiera S.A. | |
- Banchile Corredores de Seguros Ltda. | |
- Banchile Corredores de Bolsa S.A. | |
- Banchile Securitizadora S.A. | |
- Socofin S.A. |
55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
6. | Business Segments, continued: |
The financial information used to measure the performance of the Bank’s business segments is not comparable with similar information from other financial institutions because each institution relies on its own definitions. The accounting policies applied to the segments is the same as those described in the summary of accounting principles. The Bank obtains the majority of the results for: interest, indexation and commissions and financial operations and changes, discounting provisions for credit risk and operating expenses. Management is mainly based on these concepts to evaluate the performance of the segments and make decisions about the goals and allocations of resources of each unit. Although the results of the segments reconcile with those of the Bank at the total level, this is not necessarily the case in terms of the different concepts, given that management is measured and controlled individually and not on a consolidated basis, applying the following criteria:
● | The net interest margin of loans and deposits is obtained aggregating the net financial margins of each individual operation of credit and uptake made by the bank. For these purposes, the volume of each operation and its contribution margin are considered, which in turn corresponds to the difference between the effective rate of the customer and the internal transfer price established according to the term and currency of each operation. Additionally, the net margin includes the result of interest and indexation from the accounting hedges. |
● | The capital and its financial impacts on outcome have been assigned to each segment based on the risk-weighted assets. |
● | Operational expenses are reflected at the level of the different functional areas of the Bank. The allocation of expenses from functional areas to business segments is done using different allocation criteria, at the level of the different concepts and expense items. |
Taxes are managed at a corporate level and are not allocated to business segments.
For the years ended December 31, 2019 and 2018, there was no income from transactions with a customer or counterparty that accounted for 10% or more of the Bank's total revenues.
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
6. | Business Segments, continued: |
The following table presents the income by segment for the years ended December 31, 2019 and 2018 for each of the segments defined above:
Retail | Wholesale | Treasury | Subsidiaries | Subtotal | Consolidation adjustment | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||||||||
Net interest income | 1,033,646 | 972,172 | 359,074 | 355,451 | (19,246 | ) | (2,415 | ) | (7,651 | ) | (8,994 | ) | 1,365,823 | 1,316,214 | 3,552 | 3,697 | 1,369,375 | 1,319,911 | ||||||||||||||||||||||||||||||||||||||
Net commissions income (loss) | 270,064 | 184,545 | 48,097 | 45,905 | (3,241 | ) | (4,031 | ) | 153,330 | 145,704 | 468,250 | 372,123 | (10,948 | ) | (12,168 | ) | 457,302 | 359,955 | ||||||||||||||||||||||||||||||||||||||
Other operating income | 34,854 | 43,288 | 61,505 | 59,376 | 45,105 | 63,931 | 53,931 | 33,341 | 195,395 | 199,936 | (7,552 | ) | (6,519 | ) | 187,843 | 193,417 | ||||||||||||||||||||||||||||||||||||||||
Total operating revenue | 1,338,564 | 1,200,005 | 468,676 | 460,732 | 22,618 | 57,485 | 199,610 | 170,051 | 2,029,468 | 1,888,273 | (14,948 | ) | (14,990 | ) | 2,014,520 | 1,873,283 | ||||||||||||||||||||||||||||||||||||||||
Provision for loan losses | (333,156 | ) | (287,569 | ) | (14,052 | ) | 6,041 | — | — | (66 | ) | 118 | (347,274 | ) | (281,410 | ) | — | — | (347,274 | ) | (281,410 | ) | ||||||||||||||||||||||||||||||||||
Depreciation and amortization | (58,725 | ) | (29,571 | ) | (5,885 | ) | (5,008 | ) | (85 | ) | (91 | ) | (5,846 | ) | (3,011 | ) | (70,541 | ) | (37,681 | ) | — | — | (70,541 | ) | (37,681 | ) | ||||||||||||||||||||||||||||||
Other operating expenses | (587,212 | ) | (561,513 | ) | (151,660 | ) | (152,921 | ) | (5,040 | ) | (4,693 | ) | (111,499 | ) | (105,906 | ) | (855,411 | ) | (825,033 | ) | 14,948 | 14,990 | (840,463 | ) | (810,043 | ) | ||||||||||||||||||||||||||||||
Income attributable to associates | 3,957 | 4,220 | 1,669 | 2,173 | 331 | 400 | 493 | 462 | 6,450 | 7,255 | — | — | 6,450 | 7,255 | ||||||||||||||||||||||||||||||||||||||||||
Income before income taxes | 363,428 | 325,572 | 298,748 | 311,017 | 17,824 | 53,101 | 82,692 | 61,714 | 762,692 | 751,404 | — | — | 762,692 | 751,404 | ||||||||||||||||||||||||||||||||||||||||||
Income taxes | (169,683 | ) | (156,531 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Income after income taxes | 593,009 | 594,873 |
The following table presents assets and liabilities of the years ended December 31, 2019 and 2018 by each segment defined above:
Retail | Wholesale | Treasury | Subsidiaries | Subtotal | Consolidation adjustment | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||||||||
Assets | 18,139,505 | 16,425,483 | 10,766,374 | 10,591,702 | 11,426,849 | 8,093,850 | 964,695 | 925,440 | 41,297,423 | 36,036,475 | (345,395 | ) | (388,615 | ) | 40,952,028 | 35,647,860 | ||||||||||||||||||||||||||||||||||||||||
Current and deferred taxes | 321,305 | 278,599 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | 41,273,333 | 35,926,459 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | 11,407,066 | 10,399,587 | 10,750,446 | 9,873,018 | 15,075,652 | 11,952,656 | 781,052 | 764,736 | 38,014,216 | 32,989,997 | (345,395 | ) | (388,615 | ) | 37,668,821 | 32,601,382 | ||||||||||||||||||||||||||||||||||||||||
Current and deferred taxes | 76,289 | 20,924 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 37,745,110 | 32,622,306 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
7. | Cash and Cash Equivalents: |
(a) | The detail of the balances included under cash and cash equivalents and their reconciliation with the Statement of Cash Flows at the year-end are detailed as follows: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Cash and due from banks: | ||||||||
Cash (*) | 889,911 | 624,862 | ||||||
Deposit in Chilean Central Bank (*) | 178,429 | 121,807 | ||||||
Deposits in other domestic banks | 75,651 | 26,698 | ||||||
Deposits abroad | 1,248,175 | 106,714 | ||||||
Subtotal - Cash and due from banks | 2,392,166 | 880,081 | ||||||
Net transactions in the course of collection | 232,551 | 244,758 | ||||||
Highly liquid financial instruments (**) | 1,192,188 | 1,058,904 | ||||||
Repurchase agreements (**) | 114,466 | 72,632 | ||||||
Total cash and cash equivalents | 3,931,371 | 2,256,375 |
(*) | Amounts in cash funds and in Central Bank are regulatory reserve deposits that the Bank must maintain as a monthly average. |
(**) | It corresponds to negotiation instruments and repurchase contracts that meet the definition of cash and cash equivalents. |
(b) | Transactions in course of settlement: |
Transactions in course of settlement are transactions for which the only remaining step is settlement, which will increase or decrease the funds in the Central Bank or in foreign banks, normally occurring within 24 to 48 business hours, and are detailed as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Assets | ||||||||
Documents drawn on other banks (clearing) | 222,261 | 210,743 | ||||||
Funds receivable | 362,411 | 369,590 | ||||||
Subtotal - assets | 584,672 | 580,333 | ||||||
Liabilities | ||||||||
Funds payable | (352,121 | ) | (335,575 | ) | ||||
Subtotal - liabilities | (352,121 | ) | (335,575 | ) | ||||
Net transactions in the course of settlement | 232,551 | 244,758 |
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
8. | Financial Assets Held-for-trading: |
The detail of financial instruments classified as held-for-trading is as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Instruments issued by the Chilean Government and Central Bank of Chile | ||||||||
Central Bank of Chile bonds | 16,490 | 24,906 | ||||||
Central Bank of Chile promissory notes | 1,008,035 | 1,410,080 | ||||||
Other instruments issued by the Chilean Government and Central Bank | 99,164 | 88,486 | ||||||
Other instruments issued in Chile | ||||||||
Bonds from other domestic companies | 1,556 | 7,532 | ||||||
Bonds from domestic banks | 55,094 | 20,186 | ||||||
Deposits in domestic banks | 315,415 | 100,225 | ||||||
Other instruments issued in Chile | 3,272 | 1,664 | ||||||
Instruments issued Abroad | ||||||||
Instruments from foreign governments or central banks | — | — | ||||||
Other instruments issued abroad | — | 4,446 | ||||||
Mutual fund investments | ||||||||
Funds managed by related companies | 373,329 | 87,841 | ||||||
Funds managed by third-party | — | — | ||||||
Total | 1,872,355 | 1,745,366 |
Under “Instruments issued by the Chilean Government and Central Bank of Chile” are classified instruments sold under repurchase agreements to customers and financial instruments, by an amount of Ch$15,243 million as of December 31, 2019 (Ch$115,749 million as of December 31, 2018). Repurchase agreements had a 3 day average expiration at the end of year 2019 (2 days in December 2018).
Moreover, under this same item, other financial instruments are maintained as collateral guaranteeing the derivative transactions executed through Comder Contraparte Central S.A. for an amount of Ch$57,639 as of December 31, 2019 (Ch$34,456 million as of December 31, 2018).
“Other instruments issued in Chile” include instruments sold under repurchase agreements with customers and financial instruments amounting to Ch$251,158 million as of December 31, 2019 (Ch$99,268 million as of December 31, 2018). The repurchase agreements have an average expiration of 7 days at the end of the year 2019 (10 days in December 2018).
Additionally, the Bank holds financial investments in mortgage finance bonds issued by itself in the amount of Ch$8,029 million as of December 31, 2019 (Ch$11,397 million as of December 31, 2018), which are presented as a reduction of the liability line item “Debt issued”.
59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
9. | Investments under resale agreements and obligations under repurchase agreements: |
(a) | Rights arising from resale repurchase agreements: The Bank provides financing to its customers through repurchase agreements and securities lending, in which the financial instrument serves as collateral. As of December 31, 2019 and 2018, the detail is as follows: |
Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 12 months | Over 1 year and up to 3 years | Over 3 years and up to 5 years | Over 5 years | Total | |||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||||||||||||
Instruments issued by the Chilean Governments and Central Bank of Chile | |||||||||||||||||||||||||||||||||||||||||||||||||||
Central Bank bonds | 11,184 | — | — | — | — | — | — | — | — | — | — | — | 11,184 | — | |||||||||||||||||||||||||||||||||||||
Central Bank promissory notes | — | 742 | — | — | — | — | — | — | — | — | — | — | — | 742 | |||||||||||||||||||||||||||||||||||||
Other instruments issued by the Chilean Government and Central Bank | 18,459 | — | — | — | — | — | — | — | — | — | — | — | 18,459 | — | |||||||||||||||||||||||||||||||||||||
Subtotal | 29,643 | 742 | — | — | — | — | — | — | — | — | — | — | 29,643 | 742 | |||||||||||||||||||||||||||||||||||||
Other Instruments issued in Chile | |||||||||||||||||||||||||||||||||||||||||||||||||||
Deposit promissory notes from domestic banks | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Mortgage bonds from domestic banks | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Bonds from domestic banks | 15,407 | 367 | — | — | — | — | — | — | — | — | — | — | 15,407 | 367 | |||||||||||||||||||||||||||||||||||||
Deposits in domestic banks | — | 2,053 | — | — | — | — | — | — | — | — | — | — | — | 2,053 | |||||||||||||||||||||||||||||||||||||
Bonds from other Chilean companies | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Other instruments issued in Chile | 57,007 | 70,334 | 29,393 | 16,918 | 10,879 | 6,875 | — | — | — | — | — | — | 97,279 | 94,127 | |||||||||||||||||||||||||||||||||||||
Subtotal | 72,414 | 72,754 | 29,393 | 16,918 | 10,879 | 6,875 | — | — | — | — | — | — | 112,686 | 96,547 | |||||||||||||||||||||||||||||||||||||
Instruments issued by foreign institutions | |||||||||||||||||||||||||||||||||||||||||||||||||||
Instruments from foreign governments or Central Bank | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Other instruments | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Subtotal | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Mutual fund investments | |||||||||||||||||||||||||||||||||||||||||||||||||||
Funds managed by related companies | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Funds managed by third-party | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Subtotal | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Total | 102,057 | 73,496 | 29,393 | 16,918 | 10,879 | 6,875 | — | — | — | — | — | — | 142,329 | 97,289 |
Securities received:
The Bank and its subsidiaries have received financial instruments that they can sell or give as collateral in case the owner of these instruments enters into default or in bankruptcy. As of December 31, 2019, the fair value of the instruments received amounts to Ch$142,370 million (Ch$95,316 million as of December, 2018).
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
9. | Investments under resale agreements and obligations under repurchase agreements, continued: |
(b) | Obligations arising from repurchase agreements: The Bank obtains financing by selling financial instruments and agreeing to repurchase them in the future, plus interest at a prefixed rate. As of December 31, 2019 and 2018, the repurchase agreements are the following: |
Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 12 months | Over 1 year and up to 3 years | Over 3 years and up to 5 years | Over 5 years | Total | |||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||||||||||||||
Instruments issued by the Chilean Governments and Central Bank of Chile | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Central Bank bonds | 7,301 | 130,197 | — | — | — | — | — | — | — | — | — | — | 7,301 | 130,197 | |||||||||||||||||||||||||||||||||||||||
Central Bank promissory notes | 9,067 | — | — | — | — | — | — | — | — | — | — | — | 9,067 | — | |||||||||||||||||||||||||||||||||||||||
Other instruments issued by the Chilean Government and Central Bank | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Subtotal | 16,368 | 130,197 | — | — | — | — | — | — | — | — | — | — | 16,368 | 130,197 | |||||||||||||||||||||||||||||||||||||||
Other Instruments issued in Chile | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposit promissory notes from domestic banks | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Mortgage bonds from domestic banks | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Bonds from domestic banks | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Deposits in domestic banks | 280,696 | 162,167 | 8,583 | 1,448 | — | 5,210 | — | — | — | — | — | — | 289,279 | 168,825 | |||||||||||||||||||||||||||||||||||||||
Bonds from other Chilean companies | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Other instruments issued in Chile | 1,647 | 4,798 | — | — | 1,440 | — | — | — | — | — | — | — | 3,087 | 4,798 | |||||||||||||||||||||||||||||||||||||||
Subtotal | 282,343 | 166,965 | 8,583 | 1,448 | 1,440 | 5,210 | — | — | — | — | — | — | 292,366 | 173,623 | |||||||||||||||||||||||||||||||||||||||
Instruments issued by foreign institutions | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Instruments from foreign governments or central bank | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Other instruments issued by foreing | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Subtotal | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Mutual fund investments | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Funds managed by related companies | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Funds managed by third-party | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Subtotal | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Total | 298,711 | 297,162 | 8,583 | 1,448 | 1,440 | 5,210 | — | — | — | — | — | — | 308,734 | 303,820 |
Securities sold:
The fair value of the financial instruments delivered as collateral by the Bank and its subsidiaries, in sales transactions with repurchase agreement and securities lending as of December 31, 2019 amounts to Ch$305,593 million (Ch$298,708 million in December 2018). In the event that the Bank and its subsidiaries enter into default or bankruptcy, the counterparty is authorized to sell or deliver these investments as collateral.
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
10. | Derivative Instruments andAccounting Hedges: |
(a) | As ofDecember 31, 2019 and 2018, the Bank’s portfolio of derivative instruments is detailed as follows: |
Notional amount of contract with final expiration date in | Fair Value | |||||||||||||||||||||||||||||||||||
As of December 31, 2019 |
Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 12 months | Over 1 year and | Over 3 year and |
Over 5 years | Total |
Assets |
Liabilities | |||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||
Derivatives held for hedging purposes | ||||||||||||||||||||||||||||||||||||
Interest rate swap and cross currency swap | — | — | — | 8,166 | — | — | 8,166 | — | 2,547 | |||||||||||||||||||||||||||
Interest rate swap | — | — | — | 6,806 | — | 79,511 | 86,317 | 32 | 6,739 | |||||||||||||||||||||||||||
Total derivatives held for hedging purposes | — | — | — | 14,972 | — | 79,511 | 94,483 | 32 | 9,286 | |||||||||||||||||||||||||||
Derivatives held as cash flow hedges | ||||||||||||||||||||||||||||||||||||
Interest rate swap and cross currency swap | — | 33,182 | — | 192,647 | 134,812 | 821,241 | 1,181,882 | 61,562 | 34,443 | |||||||||||||||||||||||||||
Total derivatives held as cash flow hedges | — | 33,182 | — | 192,647 | 134,812 | 821,241 | 1,181,882 | 61,562 | 34,443 | |||||||||||||||||||||||||||
Trading derivatives | ||||||||||||||||||||||||||||||||||||
Currency forward | 8,770,180 | 8,736,613 | 14,803,058 | 2,067,618 | 65,321 | 38,346 | 34,481,136 | 956,632 | 673,630 | |||||||||||||||||||||||||||
Interest rate swap | 1,790,715 | 5,806,453 | 19,749,389 | 16,219,325 | 7,021,586 | 10,823,786 | 61,411,254 | 888,581 | 886,963 | |||||||||||||||||||||||||||
Interest rate swap and cross currency swap | 414,717 | 858,732 | 3,849,108 | 5,679,500 | 3,569,635 | 4,204,064 | 18,575,756 | 873,371 | 1,210,061 | |||||||||||||||||||||||||||
Call currency options | 22,620 | 47,513 | 96,988 | 11,293 | — | — | 178,414 | 4,961 | 1,529 | |||||||||||||||||||||||||||
Put currency options | 19,583 | 36,024 | 92,524 | 10,541 | — | — | 158,672 | 1,076 | 2,209 | |||||||||||||||||||||||||||
Total trading derivatives | 11,017,815 | 15,485,335 | 38,591,067 | 23,988,277 | 10,656,542 | 15,066,196 | 114,805,232 | 2,724,621 | 2,774,392 | |||||||||||||||||||||||||||
Total | 11,017,815 | 15,518,517 | 38,591,067 | 24,195,896 | 10,791,354 | 15,966,948 | 116,081,597 | 2,786,215 | 2,818,121 |
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
10. | Derivative Instruments andAccounting Hedges, continued: |
(a) | Portfolio of derivative instruments, continued: |
Notional amount of contract with final expiration date in | Fair Value | |||||||||||||||||||||||||||||||||||
As of December 31, 2018 |
Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 12 months |
Over 1 year and up to 3 years |
Over 3 year and up to 5 years |
Over 5 years |
Total |
Assets |
Liabilities | |||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||
Derivatives held for hedging purposes | ||||||||||||||||||||||||||||||||||||
Interest rate swap and cross currency swap | — | — | — | — | 11,132 | — | 11,132 | — | 3,012 | |||||||||||||||||||||||||||
Interest rate swap | — | — | 10,555 | — | 16,078 | 200,321 | 226,954 | 1,116 | 3,152 | |||||||||||||||||||||||||||
Total derivatives held for hedging purposes | — | — | 10,555 | — | 27,210 | 200,321 | 238,086 | 1,116 | 6,164 | |||||||||||||||||||||||||||
Derivatives held as cash flow hedges | ||||||||||||||||||||||||||||||||||||
Interest rate swap and cross currency swap | — | 142,045 | 213,518 | 136,852 | 163,027 | 482,015 | 1,137,457 | 34,298 | 31,818 | |||||||||||||||||||||||||||
Total derivatives held as cash flow hedges | — | 142,045 | 213,518 | 136,852 | 163,027 | 482,015 | 1,137,457 | 34,298 | 31,818 | |||||||||||||||||||||||||||
Trading derivatives | ||||||||||||||||||||||||||||||||||||
Currency forward | 8,414,296 | 9,941,108 | 13,350,051 | 3,843,703 | 92,395 | 35,374 | 35,676,927 | 735,444 | 631,047 | |||||||||||||||||||||||||||
Interest rate swap | 3,977,068 | 9,065,335 | 25,723,239 | 17,216,272 | 7,219,269 | 9,129,644 | 72,330,827 | 287,611 | 284,840 | |||||||||||||||||||||||||||
Interest rate swap and cross currency swap | 227,185 | 369,509 | 1,983,836 | 4,366,801 | 3,339,946 | 3,695,613 | 13,982,890 | 450,519 | 570,033 | |||||||||||||||||||||||||||
Call currency options | 16,988 | 71,243 | 131,175 | 9,769 | — | — | 229,175 | 4,839 | 2,921 | |||||||||||||||||||||||||||
Put currency options | 16,141 | 62,809 | 103,834 | 9,769 | — | — | 192,553 | 120 | 1,534 | |||||||||||||||||||||||||||
Total trading derivatives | 12,651,678 | 19,510,004 | 41,292,135 | 25,446,314 | 10,651,610 | 12,860,631 | 122,412,372 | 1,478,533 | 1,490,375 | |||||||||||||||||||||||||||
Total | 12,651,678 | 19,652,049 | 41,516,208 | 25,583,166 | 10,841,847 | 13,542,967 | 123,787,915 | 1,513,947 | 1,528,357 |
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
10. | Derivative Instruments and Accounting Hedges, continued: |
(b) | Fair value Hedges: |
The Bank uses cross-currency swaps and interest rate swaps to hedge its exposure to changes in the fair value of the hedged elements attributable to interest rates in financial instruments. The aforementioned hedge instruments change the effective cost of long-term assets from a fixed interest rate to a floating rate, decreasing the duration and modifying the sensitivity to the shortest segments of the curve.
Below is a detail of the hedged elements and instruments under fair value hedges as of December 31, 2019 and 2018:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Hedge element | ||||||||
Commercial loans | 8,166 | 11,132 | ||||||
Corporate bonds | 86,317 | 226,954 | ||||||
Hedge instrument | ||||||||
Cross currency swap | 8,166 | 11,132 | ||||||
Interest rate swap | 86,317 | 226,954 |
(c) | Cash flow Hedges: |
(c.1) | The Bank uses cross currency swaps to hedge the risk from variability of cash flows attributable to changes in the interest rates and foreign exchange of foreign banks obligations and bonds issued abroad in US Dollars, Hong Kong dollars, Swiss Franc, Japanese Yens, Peruvian Sol, Australian Dollars, Euros and Norwegian kroner. The cash flows of the cross currency swaps equal the cash flows of the hedged items, which modify uncertain cash flows to known cash flows derived from a fixed interest rate. |
Additionally, these cross currency swap contracts used to hedge the risk from variability of the Unidad de Fomento (“CLF”) in assets flows denominated in CLF until a nominal amount equal to the portion notional of the hedging instrument CLF, whose readjustment daily impact the item “Interest Revenue” of the Income Financial Statements.
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
10. | Derivative Instruments and Accounting Hedges, continued: |
(c) | Cash flow Hedges, continued: |
(c.2) | Below are the cash flows from bonds issued abroad objects of this hedge and the cash flows of the asset part of the derivative instrument: |
Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 12 months | Over 1 year and up to 3 years | Over 3 years and up to 5 years | Over 5 years | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||||||||
Hedge element | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Outflows: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate Bond EUR | — | — | — | — | (1,421 | ) | (1,338 | ) | (2,842 | ) | (2,675 | ) | (2,842 | ) | (2,675 | ) | (91,089 | ) | (87,097 | ) | (98,194 | ) | (93,785 | ) | ||||||||||||||||||||||||||||||||
Corporate Bond HKD | — | — | — | — | (12,829 | ) | (66,378 | ) | (25,627 | ) | (21,601 | ) | (91,034 | ) | (83,608 | ) | (320,604 | ) | (263,206 | ) | (450,094 | ) | (434,793 | ) | ||||||||||||||||||||||||||||||||
Corporate Bond PEN | — | — | (894 | ) | — | (894 | ) | — | (3,575 | ) | — | (3,575 | ) | — | (49,651 | ) | — | (58,589 | ) | — | ||||||||||||||||||||||||||||||||||||
Corporate Bond CHF | — | — | — | (89,256 | ) | (798 | ) | (125,993 | ) | (1,597 | ) | (1,450 | ) | (90,095 | ) | (82,552 | ) | (116,765 | ) | (106,050 | ) | (209,255 | ) | (405,301 | ) | |||||||||||||||||||||||||||||||
Corporate Bond USD | — | — | — | — | (1,600 | ) | (1,476 | ) | (3,200 | ) | (2,952 | ) | (3,200 | ) | (2,952 | ) | (43,994 | ) | (42,060 | ) | (51,994 | ) | (49,440 | ) | ||||||||||||||||||||||||||||||||
Obligation USD | (216 | ) | (870 | ) | (336 | ) | (86 | ) | (884 | ) | (49,401 | ) | (166,592 | ) | (105,622 | ) | — | — | — | — | (168,028 | ) | (155,979 | ) | ||||||||||||||||||||||||||||||||
Corporate Bond JPY | — | — | (34,638 | ) | (49,362 | ) | (2,121 | ) | (1,072 | ) | (38,596 | ) | (33,487 | ) | (3,482 | ) | (32,882 | ) | (193,625 | ) | (71,830 | ) | (272,462 | ) | (188,633 | ) | ||||||||||||||||||||||||||||||
Corporate Bond AUD | — | — | (428 | ) | — | (3,274 | ) | — | (7,399 | ) | — | (7,401 | ) | — | (156,499 | ) | — | (175,001 | ) | — | ||||||||||||||||||||||||||||||||||||
Corporate Bond NOK | — | — | — | — | (2,341 | ) | — | (4,682 | ) | — | (4,682 | ) | — | (75,919 | ) | — | (87,624 | ) | — | |||||||||||||||||||||||||||||||||||||
Hedge instrument | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inflows: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cross Currency Swap EUR | — | — | — | — | 1,421 | 1,338 | 2,842 | 2,675 | 2,842 | 2,675 | 91,089 | 87,097 | 98,194 | 93,785 | ||||||||||||||||||||||||||||||||||||||||||
Cross Currency Swap HKD | — | — | — | — | 12,829 | 66,378 | 25,627 | 21,601 | 91,034 | 83,608 | 320,604 | 263,206 | 450,094 | 434,793 | ||||||||||||||||||||||||||||||||||||||||||
Cross Currency Swap PEN | — | — | 894 | — | 894 | — | 3,575 | — | 3,575 | — | 49,651 | — | 58,589 | — | ||||||||||||||||||||||||||||||||||||||||||
Cross Currency Swap CHF | — | — | — | 89,256 | 798 | 125,993 | 1,597 | 1,450 | 90,095 | 82,552 | 116,765 | 106,050 | 209,255 | 405,301 | ||||||||||||||||||||||||||||||||||||||||||
Cross Currency Swap USD | — | — | — | — | 1,600 | 1,476 | 3,200 | 2,952 | 3,200 | 2,952 | 43,994 | 42,060 | 51,994 | 49,440 | ||||||||||||||||||||||||||||||||||||||||||
Cross Currency Swap USD | 216 | 870 | 336 | 86 | 884 | 49,401 | 166,592 | 105,622 | — | — | — | — | �� | 168,028 | 155,979 | |||||||||||||||||||||||||||||||||||||||||
Cross Currency Swap JPY | — | — | 34,638 | 49,362 | 2,121 | 1,072 | 38,596 | 33,487 | 3,482 | 32,882 | 193,625 | 71,830 | 272,462 | 188,633 | ||||||||||||||||||||||||||||||||||||||||||
Cross Currency Swap AUD | — | — | 428 | — | 3,274 | — | 7,399 | — | 7,401 | — | 156,499 | — | 175,001 | — | ||||||||||||||||||||||||||||||||||||||||||
Cross Currency Swap NOK | — | — | — | — | 2,341 | — | 4,682 | — | 4,682 | — | 75,919 | — | 87,624 | — | ||||||||||||||||||||||||||||||||||||||||||
Net cash flows | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
10. | Derivative Instruments and Accounting Hedges, continued: |
(c) | Cash flow Hedges, continued: |
(c.2) | Below are the cash flows from underlying assets and the cash flows of the liability part of the derivative instrument: |
Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 12 months | Over 1 year and up to 3 years | Over 3 years and up to 5 years | Over 5 years | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||||||||
Hedge element | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inflows: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash flows in CLF | 156 | — | 33,648 | 144,458 | 21,062 | 237,340 | 234,065 | 173,263 | 280,074 | 195,590 | 795,068 | 542,523 | 1,364,073 | 1,293,174 | ||||||||||||||||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hedge instrument | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Outflows: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cross Currency Swap HKD | (156 | ) | — | — | — | (8,798 | ) | (59,667 | ) | (17,906 | ) | (16,835 | ) | (69,035 | ) | (68,362 | ) | (268,034 | ) | (233,286 | ) | (363,929 | ) | (378,150 | ) | |||||||||||||||||||||||||||||||
Cross Currency Swap PEN | — | — | (47 | ) | — | (48 | ) | — | (188 | ) | — | (189 | ) | — | (31,223 | ) | — | (31,695 | ) | — | ||||||||||||||||||||||||||||||||||||
Cross Currency Swap JPY | — | — | (33,570 | ) | (50,247 | ) | (4,096 | ) | (2,740 | ) | (40,344 | ) | (37,432 | ) | (6,424 | ) | (35,213 | ) | (199,778 | ) | (78,611 | ) | (284,212 | ) | (204,243 | ) | ||||||||||||||||||||||||||||||
Cross Currency Swap USD | — | — | — | — | (1,275 | ) | (47,797 | ) | (161,941 | ) | (107,893 | ) | (1,281 | ) | (1,243 | ) | (37,242 | ) | (36,888 | ) | (201,739 | ) | (193,821 | ) | ||||||||||||||||||||||||||||||||
Cross Currency Swap CHF | — | — | — | (94,211 | ) | (3,858 | ) | (125,325 | ) | (7,653 | ) | (7,482 | ) | (197,107 | ) | (87,164 | ) | — | (108,488 | ) | (208,618 | ) | (422,670 | ) | ||||||||||||||||||||||||||||||||
Cross Currency Swap EUR | — | — | — | — | (1,857 | ) | (1,811 | ) | (3,715 | ) | (3,621 | ) | (3,718 | ) | (3,608 | ) | (85,686 | ) | (85,250 | ) | (94,976 | ) | (94,290 | ) | ||||||||||||||||||||||||||||||||
Cross Currency Swap AUD | — | — | (31 | ) | — | (521 | ) | — | (1,103 | ) | — | (1,104 | ) | — | (108,622 | ) | — | (111,381 | ) | — | ||||||||||||||||||||||||||||||||||||
Cross Currency Swap NOK | — | — | — | — | (609 | ) | — | (1,215 | ) | — | (1,216 | ) | — | (64,483 | ) | — | (67,523 | ) | — | |||||||||||||||||||||||||||||||||||||
Net cash flows | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
10. | Derivative Instruments and Accounting Hedges, continued: |
(c) | Cash flow Hedges, continued: |
With respect to CLF assets hedged; these are revalued monthly according to the variation of the UF, which is equivalent to monthly reinvest the assets until maturity of the relationship hedging.
(c.3) | The unrealized results generated during the year 2019 by those derivative contracts that conform the hedging instruments in this cash flow hedging strategy, have been recorded with charge to equity amounting to Ch$37,546 million (charge to equity of Ch$30,943 million in December 2018). The net effect of taxes charge to equity amounts to Ch$27,408 million (net charge to equity of Ch$22,589 million equity during the years 2018). |
The accumulated balance for this concept as of December 31, 2019 corresponds to a charge in equity amounted to Ch$81,040 million (charge to equity of Ch$43,494 million as of December 2018).
(c.4) | The net effect in income of derivatives cash flow hedges amount to Ch$84,684 million credit to income during the year 2019 (Ch$85,659 million during the years 2018). |
(c.5) | As of December 31, 2019 and 2018, it not exist inefficiency in cash flow hedge, because both, hedge item and hedge instruments, are mirrors of each other, it means that all variation of value attributable to rate and revaluation components are netted totally. |
(c.6) | As of December 31, 2019 and 2018, the Bank does not have hedges of net investments in foreign business. |
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
11. | Loans and advances to Banks: |
(a) | As of December 31, 2019 and 2018, the balances presented in the item "Loans and advances to Banks" are as follows: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Domestic Banks | ||||||||
Interbank loans of liquidity | 150,007 | 100,023 | ||||||
Provisions for loans to domestic banks | (54 | ) | (83 | ) | ||||
Subtotal | 149,953 | 99,940 | ||||||
Foreign Banks | ||||||||
Interbank loans commercial | 289,337 | 239,797 | ||||||
Credits with third countries | 8,934 | 41,872 | ||||||
Chilean exports trade loans | 61,860 | 12,873 | ||||||
Provisions for loans to foreign banks | (704 | ) | (1,006 | ) | ||||
Subtotal | 359,427 | 293,536 | ||||||
Central Bank of Chile | ||||||||
Central Bank deposits | 630,053 | 1,100,306 | ||||||
Other Central Bank credits | — | 525 | ||||||
Subtotal | 630,053 | 1,100,831 | ||||||
Total | 1,139,433 | 1,494,307 |
(b) | The changes in provisions of the credits owed by the banks, during the years 2019 and 2018, are summarized as follows: |
Bank’s Location | ||||||||||||
Detail | Chile | Abroad | Total | |||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Balance as of January 1, 2018 | 43 | 540 | 583 | |||||||||
Provisions established | 40 | 466 | 506 | |||||||||
Provisions released | — | — | — | |||||||||
Balance as of December 31, 2018 | 83 | 1,006 | 1,089 | |||||||||
Provisions established | — | — | — | |||||||||
Provisions released | (29 | ) | (302 | ) | (331 | ) | ||||||
Balance as of December 31, 2019 | 54 | 704 | 758 |
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
12. | Loans to Customers, net: |
(a.i) | Loans to Customers: |
As of December 31, 2019 and 2018, the portfolio of loans is composed as follows:
2019 | ||||||||||||||||||||||||||||||||
Assets before allowances | Allowances established | |||||||||||||||||||||||||||||||
Normal Portfolio | Substandard Portfolio | Non-Complying Portfolio | Total | Individual Provisions | Group Provisions | Total | Net assets | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||||||
Commercial loans | 11,740,263 | 45,346 | 351,425 | 12,137,034 | (118,440 | ) | (125,082 | ) | (243,522 | ) | 11,893,512 | |||||||||||||||||||||
Foreign trade loans | 1,407,782 | 4,111 | 19,312 | 1,431,205 | (35,995 | ) | (3,321 | ) | (39,316 | ) | 1,391,889 | |||||||||||||||||||||
Current account debtors | 258,195 | 4,020 | 3,479 | 265,694 | (3,683 | ) | (4,181 | ) | (7,864 | ) | 257,830 | |||||||||||||||||||||
Factoring transactions | 683,602 | 2,950 | 1,533 | 688,085 | (10,642 | ) | (1,171 | ) | (11,813 | ) | 676,272 | |||||||||||||||||||||
Student loans | 54,203 | — | 1,993 | 56,196 | — | (4,056 | ) | (4,056 | ) | 52,140 | ||||||||||||||||||||||
Commercial lease transactions (1) | 1,580,443 | 14,944 | 23,764 | 1,619,151 | (5,770 | ) | (7,825 | ) | (13,595 | ) | 1,605,556 | |||||||||||||||||||||
Other loans and accounts receivable | 76,287 | 347 | 10,110 | 86,744 | (2,412 | ) | (5,195 | ) | (7,607 | ) | 79,137 | |||||||||||||||||||||
Subtotal | 15,800,775 | 71,718 | 411,616 | 16,284,109 | (176,942 | ) | (150,831 | ) | (327,773 | ) | 15,956,336 | |||||||||||||||||||||
Mortgage loans | ||||||||||||||||||||||||||||||||
Letters of credit | 13,720 | — | 1,034 | 14,754 | — | (12 | ) | (12 | ) | 14,742 | ||||||||||||||||||||||
Endorsable mortgage loans | 31,469 | — | 882 | 32,351 | — | (15 | ) | (15 | ) | 32,336 | ||||||||||||||||||||||
Other residential lending | 8,975,754 | — | 169,482 | 9,145,236 | — | (27,795 | ) | (27,795 | ) | 9,117,441 | ||||||||||||||||||||||
Credit from ANAP | 4 | — | — | 4 | — | — | — | 4 | ||||||||||||||||||||||||
Residential lease transactions | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Other loans and accounts receivable | 10,650 | — | 66 | 10,716 | — | (225 | ) | (225 | ) | 10,491 | ||||||||||||||||||||||
Subtotal | 9,031,597 | — | 171,464 | 9,203,061 | — | (28,047 | ) | (28,047 | ) | 9,175,014 | ||||||||||||||||||||||
Consumer loans | ||||||||||||||||||||||||||||||||
Consumer loans in installments | 2,778,721 | — | 260,839 | 3,039,560 | — | (262,832 | ) | (262,832 | ) | 2,776,728 | ||||||||||||||||||||||
Current account debtors | 293,863 | — | 2,478 | 296,341 | — | (14,740 | ) | (14,740 | ) | 281,601 | ||||||||||||||||||||||
Credit card debtors | 1,169,820 | — | 25,794 | 1,195,614 | — | (51,581 | ) | (51,581 | ) | 1,144,033 | ||||||||||||||||||||||
Consumer lease transactions (1) | 69 | — | — | 69 | — | (1 | ) | (1 | ) | 68 | ||||||||||||||||||||||
Other loans and accounts receivable | 13 | — | 703 | 716 | — | (444 | ) | (444 | ) | 272 | ||||||||||||||||||||||
Subtotal | 4,242,486 | — | 289,814 | 4,532,300 | — | (329,598 | ) | (329,598 | ) | 4,202,702 | ||||||||||||||||||||||
Total | 29,074,858 | 71,718 | 872,894 | 30,019,470 | (176,942 | ) | (508,476 | ) | (685,418 | ) | 29,334,052 |
(1) | In this item, the Bank finances its customers purchases of assets, including real estate and other personal property, through financial lease agreements. As of December 31, 2019 Ch$779,383 million correspond to finance leases for real estate and Ch$839,837 million correspond to finance leases for movable assets. |
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
12. | Loans to Customers net, continued: |
(a.i) | Loans to Customers, continued: |
2018 | ||||||||||||||||||||||||||||||||
Assets before allowances | Allowances established | |||||||||||||||||||||||||||||||
Normal Portfolio | Substandard Portfolio | Non-Complying Portfolio | Total | Individual Provisions | Group Provisions | Total | Net assets | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||||||
Commercial loans | 11,135,653 | 56,275 | 298,916 | 11,490,844 | (104,382 | ) | (100,310 | ) | (204,692 | ) | 11,286,152 | |||||||||||||||||||||
Foreign trade loans | 1,290,718 | 7,619 | 14,012 | 1,312,349 | (36,984 | ) | (3,449 | ) | (40,433 | ) | 1,271,916 | |||||||||||||||||||||
Current account debtors | 215,228 | 3,500 | 3,443 | 222,171 | (3,723 | ) | (9,067 | ) | (12,790 | ) | 209,381 | |||||||||||||||||||||
Factoring transactions | 694,367 | 3,847 | 2,517 | 700,731 | (11,289 | ) | (1,901 | ) | (13,190 | ) | 687,541 | |||||||||||||||||||||
Student loans | 50,230 | — | 1,667 | 51,897 | — | (1,502 | ) | (1,502 | ) | 50,395 | ||||||||||||||||||||||
Commercial lease transactions (1) | 1,524,226 | 23,270 | 24,092 | 1,571,588 | (5,283 | ) | (3,947 | ) | (9,230 | ) | 1,562,358 | |||||||||||||||||||||
Other loans and accounts receivable | 72,163 | 382 | 8,367 | 80,912 | (1,543 | ) | (6,579 | ) | (8,122 | ) | 72,790 | |||||||||||||||||||||
Subtotal | 14,982,585 | 94,893 | 353,014 | 15,430,492 | (163,204 | ) | (126,755 | ) | (289,959 | ) | 15,140,533 | |||||||||||||||||||||
Mortgage loans | ||||||||||||||||||||||||||||||||
Letters of credit | 19,820 | — | 1,552 | 21,372 | — | (5 | ) | (5 | ) | 21,367 | ||||||||||||||||||||||
Endorsable mortgage loans | 40,790 | — | 1,474 | 42,264 | — | (29 | ) | (29 | ) | 42,235 | ||||||||||||||||||||||
Other residential lending | 7,816,433 | — | 157,416 | 7,973,849 | — | (26,245 | ) | (26,245 | ) | 7,947,604 | ||||||||||||||||||||||
Credit from ANAP | 6 | — | — | 6 | — | — | — | 6 | ||||||||||||||||||||||||
Residential lease transactions | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Other loans and accounts receivable | 9,949 | — | 268 | 10,217 | — | (167 | ) | (167 | ) | 10,050 | ||||||||||||||||||||||
Subtotal | 7,886,998 | — | 160,710 | 8,047,708 | — | (26,446 | ) | (26,446 | ) | 8,021,262 | ||||||||||||||||||||||
Consumer loans | ||||||||||||||||||||||||||||||||
Consumer loans in installments | 2,711,285 | — | 246,207 | 2,957,492 | — | (231,753 | ) | (231,753 | ) | 2,725,739 | ||||||||||||||||||||||
Current account debtors | 310,344 | — | 2,401 | 312,745 | — | (13,870 | ) | (13,870 | ) | 298,875 | ||||||||||||||||||||||
Credit card debtors | 1,145,106 | — | 19,958 | 1,165,064 | — | (44,579 | ) | (44,579 | ) | 1,120,485 | ||||||||||||||||||||||
Consumer lease transactions (1) | 9 | — | — | 9 | — | — | — | 9 | ||||||||||||||||||||||||
Other loans and accounts receivable | 8 | — | 804 | 812 | — | (492 | ) | (492 | ) | 320 | ||||||||||||||||||||||
Subtotal | 4,166,752 | — | 269,370 | 4,436,122 | — | (290,694 | ) | (290,694 | ) | 4,145,428 | ||||||||||||||||||||||
Total | 27,036,335 | 94,893 | 783,094 | 27,914,322 | (163,204 | ) | (443,895 | ) | (607,099 | ) | 27,307,223 | |||||||||||||||||||||
(1) | In this item, the Bank finances its customers purchases of assets, including real estate and other personal property, through financial lease agreements. As of December 31, 2018 Ch$758,772 million correspond to finance leases for real estate and Ch$812,825 million correspond to finance leases for movable assets. |
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
12. | Loans to Customers, net, continued: |
(a.ii) | Impaired Portfolio: |
As of December 31, 2019 and 2018, the Bank presents the following details of normal and impaired portfolio:
Assets before Allowances | Allowances established | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Normal Portfolio | Impaired Portfolio | Total | Individual Provisions | Group Provisions | Total | Net assets | ||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||||||||
Commercial loans | 15,859,496 | 15,075,493 | 424,613 | 354,999 | 16,284,109 | 15,430,492 | (176,942 | ) | (163,204 | ) | (150,831 | ) | (126,755 | ) | (327,773 | ) | (289,959 | ) | 15,956,336 | 15,140,533 | ||||||||||||||||||||||||||||||||||||
Mortgage loans | 9,031,597 | 7,886,998 | 171,464 | 160,710 | 9,203,061 | 8,047,708 | — | — | (28,047 | ) | (26,446 | ) | (28,047 | ) | (26,446 | ) | 9,175,014 | 8,021,262 | ||||||||||||||||||||||||||||||||||||||
Consumer loans | 4,242,486 | 4,166,752 | 289,814 | 269,370 | 4,532,300 | 4,436,122 | — | — | (329,598 | ) | (290,694 | ) | (329,598 | ) | (290,694 | ) | 4,202,702 | 4,145,428 | ||||||||||||||||||||||||||||||||||||||
Total | 29,133,579 | 27,129,243 | 885,891 | 785,079 | 30,019,470 | 27,914,322 | (176,942 | ) | (163,204 | ) | (508,476 | ) | (443,895 | ) | (685,418 | ) | (607,099 | ) | 29,334,052 | 27,307,223 |
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
12. | Loans to Customers, continued: |
(b) | Credit risk provisions: |
The changes in credits risk provisions, during the years 2019 and 2018, are summarized as follows:
Commercial | Mortgage | Consumer | ||||||||||||||||||
Individual | Group | Group | Group | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Balance as of January 01, 2018 | 176,178 | 107,297 | 31,764 | 242,943 | 558,182 | |||||||||||||||
Charge-offs | (5,750 | ) | (46,669 | ) | (6,993 | ) | (233,511 | ) | (292,923 | ) | ||||||||||
Sales or transfers of credits | (2,144 | ) | — | — | — | (2,144 | ) | |||||||||||||
Allowances established | — | 66,127 | 1,675 | 281,262 | 349,064 | |||||||||||||||
Allowances released | (5,080 | ) | — | — | — | (5,080 | ) | |||||||||||||
Balance as of December 31, 2018 | 163,204 | 126,755 | 26,446 | 290,694 | 607,099 | |||||||||||||||
Balance as of January 01, 2019 | 163,204 | 126,755 | 26,446 | 290,694 | 607,099 | |||||||||||||||
Charge-offs | (8,699 | ) | (46,999 | ) | (7,790 | ) | (249,712 | ) | (313,200 | ) | ||||||||||
Sales or transfers of credits | (2,549 | ) | — | — | — | (2,549 | ) | |||||||||||||
Allowances established | 24,986 | 71,075 | 9,391 | 288,616 | 394,068 | |||||||||||||||
Allowances released | — | — | — | — | — | |||||||||||||||
Balance as of December 31, 2019 | 176,942 | 150,831 | 28,047 | 329,598 | 685,418 |
In addition to these credit risk provisions, also provisions are maintained for country risk to cover foreign operations and additional loan provisions agreed upon by the Board of Directors, which are presented in liabilities under the item Provisions (Note No. 24).
Other disclosures:
1. | As of December 31, 2019 and 2018, the Bank and its subsidiaries have made purchases and sales of loan portfolios. The effect in income is no more than 5% of net income before taxes, as described in Note No. 12 (e) and (f). |
2. | As of December 31, 2019 and 2018, the Bank and its subsidiaries derecognized 100% of its portfolio of loans sold and on which all or substantially all of the risks and benefits associated to these financial assets have been transferred (see Note No. 12 letter (f)). |
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
12. | Loans to Customers, continued: |
(c) | Finance lease contracts: |
The cash flows to be received by the Bank from finance lease contracts have the following maturities:
Total receivable | Unearned income | Net balance receivable (*) | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Within one year | 544,067 | 519,186 | (58,871 | ) | (60,216 | ) | 485,196 | 458,970 | ||||||||||||||||
From 1 to 2 years | 392,832 | 383,164 | (42,302 | ) | (44,066 | ) | 350,530 | 339,098 | ||||||||||||||||
From 2 to 3 years | 258,331 | 255,997 | (27,329 | ) | (28,740 | ) | 231,002 | 227,257 | ||||||||||||||||
From 3 to 4 years | 163,847 | 162,310 | (18,361 | ) | (19,471 | ) | 145,486 | 142,839 | ||||||||||||||||
From 4 to 5 years | 108,192 | 108,453 | (13,242 | ) | (13,992 | ) | 94,950 | 94,461 | ||||||||||||||||
After 5 years | 335,695 | 336,705 | (30,313 | ) | (33,666 | ) | 305,382 | 303,039 | ||||||||||||||||
Total | 1,802,964 | 1,765,815 | (190,418 | ) | (200,151 | ) | 1,612,546 | 1,565,664 |
(*) | The net balance receivable does not include past-due portfolio totaling Ch$6,674 million as of December 31, 2019 (Ch$5,933 million as of December 2018). |
The Bank maintains financial lease operations associated with real estate, industrial machinery, vehicles and transportation equipment. These leases contracts have an average term between 2 and 15 years.
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
12. | Loans to Customers, continued: |
(d) | Loans by industry sector: |
The following table details the Bank’s loan portfolio (before allowances for loans losses) as of December 31, 2019 and 2018 by the customer’s industry sector:
Location | ||||||||||||||||||||||||||||||||
Chile | Abroad | Total | ||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | % | MCh$ | % | |||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||
Financial Services | 2,584,212 | 2,119,641 | 3,060 | 2,784 | 2,587,272 | 8.62 | 2,122,425 | 7.60 | ||||||||||||||||||||||||
Services | 2,264,966 | 2,107,146 | 436 | 348 | 2,265,402 | 7.55 | 2,107,494 | 7.55 | ||||||||||||||||||||||||
Construction | 2,141,500 | 1,751,219 | — | — | 2,141,500 | 7.13 | 1,751,219 | 6.27 | ||||||||||||||||||||||||
Commerce | 2,052,853 | 2,284,128 | 11,189 | 38,430 | 2,064,042 | 6.88 | 2,322,558 | 8.32 | ||||||||||||||||||||||||
Manufacturing | 1,624,099 | 1,544,090 | — | 34,613 | 1,624,099 | 5.41 | 1,578,703 | 5.66 | ||||||||||||||||||||||||
Agriculture and livestock | 1,622,206 | 1,581,701 | — | — | 1,622,206 | 5.40 | 1,581,701 | 5.67 | ||||||||||||||||||||||||
Transportation and telecommunication | 1,233,433 | 1,480,285 | — | 17,369 | 1,233,433 | 4.11 | 1,497,654 | 5.37 | ||||||||||||||||||||||||
Mining | 604,411 | 453,331 | — | — | 604,411 | 2.01 | 453,331 | 1.62 | ||||||||||||||||||||||||
Electricity, gas and water | 325,139 | 461,348 | — | — | 325,139 | 1.08 | 461,348 | 1.65 | ||||||||||||||||||||||||
Fishing | 140,647 | 156,444 | — | — | 140,647 | 0.47 | 156,444 | 0.56 | ||||||||||||||||||||||||
Others | 1,675,958 | 1,397,615 | — | — | 1,675,958 | 5.58 | 1,397,615 | 5.01 | ||||||||||||||||||||||||
Subtotal | 16,269,424 | 15,336,948 | 14,685 | 93,544 | 16,284,109 | 54.24 | 15,430,492 | 55.28 | ||||||||||||||||||||||||
Residential mortgage loans | 9,203,061 | 8,047,708 | — | — | 9,203,061 | 30.66 | 8,047,708 | 28.83 | ||||||||||||||||||||||||
Consumer loans | 4,532,300 | 4,436,122 | — | — | 4,532,300 | 15.10 | 4,436,122 | 15.89 | ||||||||||||||||||||||||
Total | 30,004,785 | 27,820,778 | 14,685 | 93,544 | 30,019,470 | 100.00 | 27,914,322 | 100.00 |
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
12. | Loans to Customers, continued: |
(e) | Purchase of loan portfolio: |
During the year ended December 31, 2019 the Bank has not acquired portfolio loans.
During the year 2018, the Bank acquired portfolio loans, whose nominal value amounted to Ch$36,919 million.
(f) | Sale or transfer of loans from the loan portfolio: |
During the years 2019 and 2018 there have been operations of sale or transfer of of the loan portfolio according to the following:
2019 | ||||||||||||||||
Carrying amount | Allowances | Sale price | Effect on income (loss) gain (*) | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Sale of current loans | 12,420 | (2,549 | ) | 12,420 | 2,549 | |||||||||||
Sale of written – off loans | — | — | — | — | ||||||||||||
Total | 12,420 | (2,549 | ) | 12,420 | 2,549 |
2018 | ||||||||||||||||
Carrying amount | Allowances | Sale price | Effect on income (loss) gain (*) | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Sale of current loans | 22,277 | (2,144 | ) | 21,876 | 1,743 | |||||||||||
Sale of written – off loans | — | — | — | — | ||||||||||||
Total | 22,277 | (2,144 | ) | 21,876 | 1,743 |
(*) | See Note No. 30. |
(g) | Securitization of own assets: |
During the years 2019 and 2018, there is no securitization transactions executed involving its own assets.
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
13. | Investment Securities: |
As of December 31, 2019 and 2018, investment securities classified as available-for-sale and held-to-maturity are detailed as follows:
2019 | 2018 | |||||||||||||||||||||||
Available- for-sale | Held-to- maturity | Total | Available-for -sale | Held-to- maturity | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Instruments issued by the Chilean Government and Central Bank of Chile | ||||||||||||||||||||||||
Bonds issued by the Central Bank of Chile | 76,358 | — | 76,358 | 135,145 | — | 135,145 | ||||||||||||||||||
Promissory notes issued by the Central Bank of Chile | 16,466 | — | 16,466 | — | — | — | ||||||||||||||||||
Other instruments of the Chilean Government and the Central Bank of Chile | 16,238 | — | 16,238 | 29,077 | — | 29,077 | ||||||||||||||||||
Other instruments issued in Chile | ||||||||||||||||||||||||
Deposit promissory notes from domestics banks | — | — | — | — | — | — | ||||||||||||||||||
Mortgage bonds from domestic banks | 122,291 | — | 122,291 | 92,491 | — | 92,491 | ||||||||||||||||||
Bonds from domestic banks | 15,927 | — | 15,927 | 5,351 | — | 5,351 | ||||||||||||||||||
Deposits from domestic banks | 1,020,842 | — | 1,020,842 | 559,108 | — | 559,108 | ||||||||||||||||||
Bonds from other Chilean companies | 1,395 | — | 1,395 | 6,599 | — | 6,599 | ||||||||||||||||||
Promissory notes issued by other Chilean companies | — | — | — | — | — | — | ||||||||||||||||||
Other instruments issued in Chile | 68,476 | — | 68,476 | 107,125 | — | 107,125 | ||||||||||||||||||
Instruments issued Abroad | ||||||||||||||||||||||||
Instruments from foreign governments or Central Banks | — | — | — | — | — | — | ||||||||||||||||||
Other instruments | 19,853 | — | 19,853 | 108,544 | — | 108,544 | ||||||||||||||||||
Total | 1,357,846 | — | 1,357,846 | 1,043,440 | — | 1,043,440 |
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
13. | Investment Securities, continued: |
Instruments issued by the Chilean Government and Central Bank include instruments sold under repurchase agreements with clients and financial institutions, totaling Ch$6,965 million as of December 2018. The repurchase agreements have an average maturity of 3 days as of December 2018. As of December 31, 2019, there is no amount for this concept.
Under the instruments issued abroad mainly include bonds of local companies issued abroad.
As of December 31, 2019, the portfolio of financial assets available-for-sale includes an accumulated unrealized gain of Ch$3,827 million (accumulated unrealized losses of Ch$9,936 million in December 2018), recorded as an equity valuation adjustment.
During the years 2019 and 2018, there is no evidence of impairment of financial assets available-for-sale.
Gross profits and losses realized on the sale of available-for-sale investments as of December 31, 2019 and 2018 are shown in Note No. 30 “Net Financial Operating Income”. The changes on results at the end of each year are as fallow:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Unrealized (losses) gains | 18,479 | (11,387 | ) | |||||
Realized losses (gains) reclassified to income | (4,716 | ) | (400 | ) | ||||
Subtotal | 13,763 | (11,787 | ) | |||||
Income tax on other comprehensive income | (3,734 | ) | 3,194 | |||||
Net effect in equity | 10,029 | (8,593 | ) |
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
14. | Investments in Other Companies: |
(a) | Investments in other companies include investments of Ch$50,758 million as of December 31, 2019 (Ch$44,561 million as of December 31, 2018), as follows: |
Investment | ||||||||||||||||||||||||||||||||||
Ownership Interest | Equity | Assets | Income | |||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||
Company | Shareholder | % | % | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Associates | ||||||||||||||||||||||||||||||||||
Transbank S.A. | Banco de Chile | 26.16 | 26.16 | 82,667 | 69,358 | 21,973 | 18,468 | 3,505 | 3,262 | |||||||||||||||||||||||||
Soc. Operadora de Tarjetas de Crédito Nexus S.A.(*) | Banco de Chile | 29.63 | 25.81 | 17,675 | 16,805 | 5,238 | 4,557 | 5 | 735 | |||||||||||||||||||||||||
Administrador Financiero del Transantiago S.A. | Banco de Chile | 20.00 | 20.00 | 19,174 | 17,978 | 3,985 | 3,680 | 390 | 582 | |||||||||||||||||||||||||
Redbanc S.A. | Banco de Chile | 38.13 | 38.13 | 9,221 | 8,356 | 3,549 | 3,219 | 330 | 325 | |||||||||||||||||||||||||
Centro de Compensación Automatizado S.A. | Banco de Chile | 33.33 | 33.33 | 6,464 | 5,592 | 2,184 | 1,894 | 294 | 305 | |||||||||||||||||||||||||
Sociedad Imerc OTC S.A. | Banco de Chile | 12.33 | 12.33 | 12,470 | 11,952 | 1,538 | 1,474 | 59 | 56 | |||||||||||||||||||||||||
Sociedad Interbancaria de Depósitos de Valores S.A. | Banco de Chile | 26.81 | 26.81 | 4,811 | 4,161 | 1,359 | 1,129 | 231 | 204 | |||||||||||||||||||||||||
Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A. | Banco de Chile | 15.00 | 15.00 | 6,290 | 6,106 | 958 | 944 | 29 | 58 | |||||||||||||||||||||||||
Subtotal Associates | 158,772 | 140,308 | 40,784 | 35,365 | 4,843 | 5,527 | ||||||||||||||||||||||||||||
Joint Ventures | ||||||||||||||||||||||||||||||||||
Servipag Ltda. | Banco de Chile | 50.00 | 50.00 | 12,292 | 11,398 | 6,271 | 5,699 | 572 | 701 | |||||||||||||||||||||||||
Artikos Chile S.A. | Banco de Chile | 50.00 | 50.00 | 2,399 | 2,025 | 1,387 | 1,188 | 624 | 583 | |||||||||||||||||||||||||
Subtotal Joint Ventures | 14,691 | 13,423 | 7,658 | 6,887 | 1,196 | 1,284 | ||||||||||||||||||||||||||||
Subtotal | 173,463 | 153,731 | 48,442 | 42,252 | 6,039 | 6,811 | ||||||||||||||||||||||||||||
Investments valued at cost (1) | ||||||||||||||||||||||||||||||||||
Bolsa de Comercio de Santiago S.A. | Banchile Corredores de Bolsa | 1,646 | 1,646 | 353 | 376 | |||||||||||||||||||||||||||||
Banco Latinoamericano de Comercio Exterior S.A. (Bladex) | Banco de Chile | 309 | 309 | 48 | 57 | |||||||||||||||||||||||||||||
Bolsa Electrónica de Chile S.A. | Banchile Corredores de Bolsa | 257 | 257 | 9 | 10 | |||||||||||||||||||||||||||||
Sociedad de Telecomunicaciones Financieras Interbancarias Mundiales (Swift) (**) | Banco de Chile | 96 | 89 | — | — | |||||||||||||||||||||||||||||
CCLV Contraparte Central S.A. | Banchile Corredores de Bolsa | 8 | 8 | 1 | 1 | |||||||||||||||||||||||||||||
Subtotal | 2,316 | 2,309 | 411 | 444 | ||||||||||||||||||||||||||||||
Total | 50,758 | 44,561 | 6,450 | 7,255 |
(1) | Income from investments valorized at cost, corresponds to income recognized on cash basis (dividends). |
(*) | During the year 2019, Banco de Chile increased its percentage of ownership interest through the purchase of 159,152 shares. |
(**) | In 2018, as a result of the reallocation of shares, Banco de Chile purchased 8 shares of the Company. With the above, the total number of shares equals 58 titles. |
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
14. | Investments in Other Companies, continued: |
(a) | Associates: |
2019 | ||||||||||||||||||||||||||||||||||||
Centro de Compensación Automatizado S.A. | Soc. Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A. | Soc. Operadora de Tarjetas de Crédito Nexus S.A. | Sociedad Interbancaria de Depósitos de Valores S.A. | Redbanc S.A. | Transbank S.A. | Administrador Financiero del Transantiago S.A. | Sociedad Imerc OTC S.A. | Total | ||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||
Current assets | 5,087 | 6,019 | 9,586 | 113 | 7,047 | 1,118,388 | 54,120 | 2,504 | 1,202,864 | |||||||||||||||||||||||||||
Non-current assets | 3,463 | 1,353 | 21,561 | 4,961 | 16,366 | 99,060 | 592 | 12,648 | 160,004 | |||||||||||||||||||||||||||
Total Assets | 8,550 | 7,372 | 31,147 | 5,074 | 23,413 | 1,217,448 | 54,712 | 15,152 | 1,362,868 | |||||||||||||||||||||||||||
Current liabilities | 1,947 | 769 | 7,951 | 263 | 7,688 | 1,130,800 | 34,234 | 2,659 | 1,186,311 | |||||||||||||||||||||||||||
Non-current liabilities | 139 | 313 | 5,521 | — | 6,504 | 3,981 | 1,304 | 23 | 17,785 | |||||||||||||||||||||||||||
Total Liabilities | 2,086 | 1,082 | 13,472 | 263 | 14,192 | 1,134,781 | 35,538 | 2,682 | 1,204,096 | |||||||||||||||||||||||||||
Equity | 6,464 | 6,290 | 17,675 | 4,811 | 9,221 | 82,667 | 19,174 | 12,470 | 158,772 | |||||||||||||||||||||||||||
Minority interest | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total Liabilities and Equity | 8,550 | 7,372 | 31,147 | 5,074 | 23,413 | 1,217,448 | 54,712 | 15,152 | 1,362,868 | |||||||||||||||||||||||||||
Operating income | 3,384 | 3,386 | 49,944 | 15 | 38,024 | 222,912 | 3,707 | 46 | 321,418 | |||||||||||||||||||||||||||
Operating expenses | (2,229 | ) | (3,348 | ) | (49,699 | ) | (57 | ) | (36,693 | ) | (133,128 | ) | (2,224 | ) | (616 | ) | (227,994 | ) | ||||||||||||||||||
Other income (expenses) | (13 | ) | 159 | (304 | ) | 903 | (195 | ) | (72,143 | ) | 979 | 1,067 | (69,547 | ) | ||||||||||||||||||||||
Gain before tax | 1,142 | 197 | (59 | ) | 861 | 1,136 | 17,641 | 2,462 | 497 | 23,877 | ||||||||||||||||||||||||||
Income tax | (261 | ) | (4 | ) | 75 | — | (270 | ) | (4,239 | ) | (514 | ) | (20 | ) | (5,233 | ) | ||||||||||||||||||||
Gain for the year | 881 | 193 | 16 | 861 | 866 | 13,402 | 1,948 | 477 | 18,644 |
2018 | ||||||||||||||||||||||||||||||||||||
Centro de Compensación Automatizado S.A. | Soc. Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A. | Soc. Operadora de Tarjetas de Crédito Nexus S.A. | Sociedad Interbancaria de Depósitos de Valores S.A. | Redbanc S.A. | Transbank S.A. | Administrador Financiero del Transantiago S.A. | Sociedad Imerc OTC S.A. | Total | ||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||
Current assets | 3,088 | 5,871 | 12,918 | 153 | 6,084 | 818,587 | 55,406 | 18,842 | 920,949 | |||||||||||||||||||||||||||
Non-current assets | 3,985 | 857 | 22,221 | 4,239 | 14,741 | 85,971 | 412 | 6,431 | 138,857 | |||||||||||||||||||||||||||
Total Assets | 7,073 | 6,728 | 35,139 | 4,392 | 20,825 | 904,558 | 55,818 | 25,273 | 1,059,806 | |||||||||||||||||||||||||||
Current liabilities | 1,321 | 622 | 14,179 | 231 | 9,907 | 833,788 | 36,676 | 10,111 | 906,835 | |||||||||||||||||||||||||||
Non-current liabilities | 160 | — | 4,155 | — | 2,562 | 1,412 | 1,164 | 3,201 | 12,654 | |||||||||||||||||||||||||||
Total Liabilities | 1,481 | 622 | 18,334 | 231 | 12,469 | 835,200 | 37,840 | 13,312 | 919,489 | |||||||||||||||||||||||||||
Equity | 5,592 | 6,106 | 16,805 | 4,161 | 8,356 | 69,358 | 17,978 | 11,952 | 140,308 | |||||||||||||||||||||||||||
Minority interest | — | — | — | — | — | — | — | 9 | 9 | |||||||||||||||||||||||||||
Total Liabilities and Equity | 7,073 | 6,728 | 35,139 | 4,392 | 20,825 | 904,558 | 55,818 | 25,273 | 1,059,806 | |||||||||||||||||||||||||||
Operating income | 3,214 | 3,302 | 50,319 | 1 | 35,314 | 191,568 | 3,435 | 6,254 | 293,407 | |||||||||||||||||||||||||||
Operating expenses | (2,005 | ) | (3,016 | ) | (46,426 | ) | (35 | ) | (33,895 | ) | (177,440 | ) | (2,615 | ) | (5,567 | ) | (270,999 | ) | ||||||||||||||||||
Other income (expenses) | (25 | ) | 177 | (173 | ) | 796 | (260 | ) | 2,380 | 2,982 | 59 | 5,936 | ||||||||||||||||||||||||
Gain before tax | 1,184 | 463 | 3,720 | 762 | 1,159 | 16,508 | 3,802 | 746 | 28,344 | |||||||||||||||||||||||||||
Income tax | (268 | ) | (79 | ) | (870 | ) | — | (308 | ) | (4,038 | ) | (894 | ) | (292 | ) | (6,749 | ) | |||||||||||||||||||
Gain for the year | 916 | 384 | 2,850 | 762 | 851 | 12,470 | 2,908 | 454 | 21,595 |
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
14. | Investments in Other Companies, continued: |
(c) | Joint Ventures: |
The Bank has a 50% interest in the jointly controlled entities Artikos S.A. and Servipag Ltda. Bank’s interest of both entities is accounted for using the equity method in the consolidated financial statements.
Below the summary financial information of the jointly controlled companies:
Artikos S.A. | Servipag Ltda. | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Current assets | 1,701 | 1,397 | 74,748 | 59,142 | ||||||||||||
Non-current assets | 1,944 | 1,503 | 18,005 | 15,371 | ||||||||||||
Total Assets | 3,645 | 2,900 | 92,753 | 74,513 | ||||||||||||
Current liabilities | 1,083 | 875 | 74,745 | 57,847 | ||||||||||||
Non-current liabilities | 163 | — | 5,716 | 5,268 | ||||||||||||
Total Liabilities | 1,246 | 875 | 80,461 | 63,115 | ||||||||||||
Equity | 2,399 | 2,025 | 12,292 | 11,398 | ||||||||||||
Total Liabilities and Equity | 3,645 | 2,900 | 92,753 | 74,513 | ||||||||||||
Operating income | 3,643 | 3,544 | 43,259 | 42,679 | ||||||||||||
Operating expenses | (2,452 | ) | (2,519 | ) | (41,708 | ) | (40,318 | ) | ||||||||
Other income (expenses) | 11 | 12 | (315 | ) | (339 | ) | ||||||||||
Gain before tax | 1,202 | 1,037 | 1,236 | 2,022 | ||||||||||||
Income tax | 46 | 130 | (343 | ) | (621 | ) | ||||||||||
Gain for the year | 1,248 | 1,167 | 893 | 1,401 |
(d) | The change of investments in companies registered under the equity method in the years of 2019 and 2018, are as follows: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Initial book value | 42,252 | 35,771 | ||||||
Acquisition of investments in companies | 671 | — | ||||||
Participation on income in companies with significant influence and joint control | 6,039 | 6,811 | ||||||
Dividends receivable | — | — | ||||||
Dividends Minimum | — | 136 | ||||||
Dividends received | (552 | ) | (411 | ) | ||||
Others | 32 | (55 | ) | |||||
Total | 48,442 | 42,252 |
(e) | During the year ended as of December 31, 2019 and 2018 no impairment has incurred in these investments. |
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
15. | Intangible Assets: |
(a) | As of December 31, 2019 and 2018 intangible assets are composed as follows: |
Useful Life | Average remaining amortization | Gross balance | Accumulated Amortization | Net balance | ||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||
Years | Years | Years | Years | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||
Other Intangible Assets: | ||||||||||||||||||||||||||||||||
Software or computer programs | 6 | 6 | 5 | 5 | 163,485 | 144,942 | (105,178 | ) | (92,881 | ) | 58,307 | 52,061 | ||||||||||||||||||||
Total | 163,485 | 144,942 | (105,178 | ) | (92,881 | ) | 58,307 | 52,061 |
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
15. | Intangible Assets, continued: |
(b) | The change of intangible assets as of December 31, 2019 and 2018 are as follows: |
Software or computer programs | ||||||||
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Gross Balance | ||||||||
Balance as of January 1, | 144,942 | 122,454 | ||||||
Acquisition | 20,928 | 23,512 | ||||||
Disposals/ write-downs | (1,759 | ) | (1,024 | ) | ||||
Reclassification | (276 | ) | — | |||||
Impairment (*) | (350 | ) | — | |||||
Total | 163,485 | 144,942 | ||||||
Accumulated Amortization | ||||||||
Balance as of January 1, | (92,881 | ) | (83,409 | ) | ||||
Amortization for the year (*) | (12,875 | ) | (10,496 | ) | ||||
Disposals/ write-downs | 316 | 1,024 | ||||||
Reclassification | 262 | — | ||||||
Total | (105,178 | ) | (92,881 | ) | ||||
Balance as of December 31, | 58,307 | 52,061 |
(*) | See Note No. 35 Depreciation, amortization and impairment. |
(c) | As of December 31, 2019 and 2018, the Bank maintains the following amounts with technological developments: |
Detail | Commitment Amount | |||||||
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Software and licenses | 7,151 | 11,806 |
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
16. | Fixed assets, leased assets and lease liabilities: |
(a) | The properties and equipment as of December 31, 2019 and 2018 are composed as follows: |
Useful Life | Average remaining depreciation | Gross balance | Accumulated Depreciation | Net balance | ||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||
Years | Years | Years | Years | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||
Type of property and equipment: | ||||||||||||||||||||||||||||||||
Land and Buildings | 26 | 26 | 21 | 21 | 301,619 | 320,585 | (136,394 | ) | (150,099 | ) | 165,225 | 170,486 | ||||||||||||||||||||
Equipment | 5 | 5 | 4 | 3 | 207,605 | 183,220 | (162,560 | ) | (148,455 | ) | 45,045 | 34,765 | ||||||||||||||||||||
Others | 7 | 7 | 4 | 4 | 55,519 | 53,500 | (45,527 | ) | (42,879 | ) | 9,992 | 10,621 | ||||||||||||||||||||
Total | 564,743 | 557,305 | (344,481 | ) | (341,433 | ) | 220,262 | 215,872 |
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
16. | Fixed assets, leased assets and lease liabilities, continued: |
(b) | The changes in properties and equipment as of December 31, 2019 and 2018 are as follows: |
2019 | ||||||||||||||||
Land and Buildings | Equipment | Others | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Gross Balance | ||||||||||||||||
Balance as of January 1, 2019 | 320,585 | 183,220 | 53,500 | 557,305 | ||||||||||||
Reclassification | (25,654 | ) | (37 | ) | — | (25,691 | ) | |||||||||
Additions | 12,555 | 28,118 | 2,839 | 43,512 | ||||||||||||
Disposals/write-downs/Sales | (5,437 | ) | (3,115 | ) | (762 | ) | (9,314 | ) | ||||||||
Impairment losses (*) (***) | (430 | ) | (581 | ) | (58 | ) | (1,069 | ) | ||||||||
Total | 301,619 | 207,605 | 55,519 | 564,743 | ||||||||||||
Accumulated Depreciation | ||||||||||||||||
Balance as of January 1, 2019 | (150,099 | ) | (148,455 | ) | (42,879 | ) | (341,433 | ) | ||||||||
Reclassification | 21,278 | 37 | — | 21,315 | ||||||||||||
Depreciation charges of the year (*) (**) | (8,613 | ) | (16,819 | ) | (3,403 | ) | (28,835 | ) | ||||||||
Sales and disposals of the year | 1,040 | 2,692 | 740 | 4,472 | ||||||||||||
Transfers | — | (15 | ) | 15 | — | |||||||||||
Total | (136,394 | ) | (162,560 | ) | (45,527 | ) | (344,481 | ) | ||||||||
Balance as of December 31, 2019 | 165,225 | 45,045 | 9,992 | 220,262 |
2018 | ||||||||||||||||
Land and Buildings | Equipment | Others | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Gross Balance | ||||||||||||||||
Balance as of January 1, 2018 | 311,428 | 184,369 | 52,552 | 548,349 | ||||||||||||
Reclassification | — | — | — | — | ||||||||||||
Additions | 12,589 | 12,702 | 2,774 | 28,065 | ||||||||||||
Disposals/write-downs/Sales | (3,145 | ) | (13,845 | ) | (1,785 | ) | (18,775 | ) | ||||||||
Impairment losses (*) | (287 | ) | (6 | ) | (41 | ) | (334 | ) | ||||||||
Total | 320,585 | 183,220 | 53,500 | 557,305 | ||||||||||||
Accumulated Depreciation | ||||||||||||||||
Balance as of January 1, 2018 | (142,768 | ) | (148,006 | ) | (41,316 | ) | (332,090 | ) | ||||||||
Depreciation charges of the year (*) (**) | (9,193 | ) | (14,291 | ) | (3,333 | ) | (26,817 | ) | ||||||||
Sales and disposals of the year | 1,862 | 13,842 | 1,770 | 17,474 | ||||||||||||
Total | (150,099 | ) | (148,455 | ) | (42,879 | ) | (341,433 | ) | ||||||||
Balance as of December 31, 2018 | 170,486 | 34,765 | 10,621 | 215,872 |
(*) | See Note No.35 Depreciation, Amortization and Impairment. |
(**) | This amount does not include the depreciation of the year of the Investment Properties, amount is included in “Other Assets” for Ch$359 million (Ch$368 million as of December 2018). | |
(***) | This amount does not include charge-offs provision of Property and Equipment of Ch$949 million. |
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
16. | Fixed assets, leased assets and lease liabilities, continued: |
(c) | The composition of the rights over leased assets as of December 31, 2019 is as follows: |
Gross Balance | Accumulated Depreciation | Net Balance | ||||||||||
Categories | MCh$ | MCh$ | MCh$ | |||||||||
Buildings | 130,853 | (18,722 | ) | 112,131 | ||||||||
Floor space for ATMs | 41,960 | (9,091 | ) | 32,869 | ||||||||
Improvements to leased properties | 27,254 | (21,589 | ) | 5,665 | ||||||||
Total | 200,067 | (49,402 | ) | 150,665 |
(d) | The changes of the rights over leased assets as of December 31, 2019 is as follows: |
Buildings | Floor space for ATMs | Improvements to leased properties | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Gross Balance | ||||||||||||||||
Balance as of January 1, 2019 | 116,577 | 27,920 | — | 144,497 | ||||||||||||
Reclassification | — | — | 26,332 | 26,332 | ||||||||||||
Additions | 14,276 | 14,040 | 1,725 | 30,041 | ||||||||||||
Write-downs (*) | — | — | (803 | ) | (803 | ) | ||||||||||
Total | 130,853 | 41,960 | 27,254 | 200,067 | ||||||||||||
Accumulated Depreciation | ||||||||||||||||
Balance as of January 1, 2019 | — | — | — | — | ||||||||||||
Reclassification | — | — | (21,546 | ) | (21,546 | ) | ||||||||||
Depreciation of the year (*) | (18,722 | ) | (9,091 | ) | (659 | ) | (28,472 | ) | ||||||||
Write-downs (*) | — | — | 616 | 616 | ||||||||||||
Total | (18,722 | ) | (9,091 | ) | (21,589 | ) | (49,402 | ) | ||||||||
Balance as of December 31, 2019 | 112,131 | 32,869 | 5,665 | 150,665 |
(*) | See Note No.35 Depreciation, Amortization and Impairment. |
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
16. | Fixed assets, leased assets and lease liabilities, continued: |
(e) | The following are the future maturities of the lease liabilities as of December 31, 2019: |
Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 12 months | Over 1 year and up to 3 years | Over 3 years and up to 5 years | Over 5 years | Total | ||||||||||||||||||||||
Lease associated with: | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||
Buildings | 1,726 | 3,519 | 15,286 | 37,063 | 24,899 | 38,526 | 121,019 | |||||||||||||||||||||
ATMs | 809 | 1,618 | 7,131 | 18,125 | 5,403 | 679 | 33,765 | |||||||||||||||||||||
Total | 2,535 | 5,137 | 22,417 | 55,188 | 30,302 | 39,205 | 154,784 |
The Bank and its subsidiaries maintain contracts with certain renewal options and for which there is reasonable certainty that said option shall be carried out. In such cases, the lease period used to measure the liability and assets corresponds to an estimate of future renewals.
The changes of the year of obligations under capitalized leases and year flows are as follows:
Total cash flow for the year | ||||
Lease liability | MCh$ | |||
Balances as of January 1, 2019 | 144,497 | |||
Liabilities for new lease agreements | 24,431 | |||
Interest expenses | 2,574 | |||
Payments of capital and interests | (29,374 | ) | ||
Others | 3,885 | |||
Balances as of December 31, 2019 | 146,013 |
(f) | The future cash flows related to short-term lease agreements in effect as of December 31, 2019 correspond to Ch$8,611 million. |
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
17. | Current Taxes and Deferred Taxes: |
(a) | Current Taxes: |
The Bank and its subsidiaries at the end of each year, have constituted a First Category Income Tax Provision, which was determined based on current tax regulations, and has been reflected in the Statement of Financial Position net of taxes to be recovered or payable, as applicable, as of December 31, 2019 and 2018, according to the following detail:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Income tax | 222,266 | 150,798 | ||||||
Less: | ||||||||
Monthly prepaid taxes | (143,200 | ) | (126,917 | ) | ||||
Credit for training expenses | (1,900 | ) | (2,224 | ) | ||||
Others | (1,234 | ) | (1,410 | ) | ||||
Total | 75,932 | 20,247 | ||||||
Tax rate | 27 | % | 27 | % |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Current tax assets | 357 | 677 | ||||||
Current tax liabilities | (76,289 | ) | (20,924 | ) | ||||
Total tax payable, net | (75,932 | ) | (20,247 | ) |
(b) | Income Tax: |
The effect of the tax expense during the years between January 1 and December 31, 2019 and 2018, broken down as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Income tax expense: | ||||||||
Current year tax | 232,404 | 159,153 | ||||||
Tax Previous year | (16,348 | ) | 2,574 | |||||
Subtotal | 216,056 | 161,727 | ||||||
(Credit) Charge for deferred taxes: | ||||||||
Origin and reversal of temporary differences | (46,694 | ) | (7,819 | ) | ||||
Subtotal | (46,694 | ) | (7,819 | ) | ||||
Others | 321 | 2,623 | ||||||
Net charge to income for income taxes | 169,683 | 156,531 |
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
17. | Current and Deferred Taxes, continued: |
(c) | Reconciliation of effective tax rate: |
The following is a reconciliation of the income tax rate to the effective rate applied to determine the Bank’s income tax expense as of December 31, 2019 and 2018:
2019 | 2018 | |||||||||||||||
Tax rate | Tax rate | |||||||||||||||
% | MCh$ | % | MCh$ | |||||||||||||
Income tax calculated on net income before tax | 27.00 | 205,927 | 27.00 | 202,879 | ||||||||||||
Additions or deductions | (1.27 | ) | (9,650 | ) | (0.37 | ) | (2,792 | ) | ||||||||
Subordinated debt (*) | — | — | (3.26 | ) | (24,515 | ) | ||||||||||
Price-level restatement | (3.93 | ) | (29,962 | ) | (3.87 | ) | (29,102 | ) | ||||||||
Other | 0.44 | 3,368 | 1.34 | 10,061 | ||||||||||||
Effective rate and income tax expense | 22.24 | 169,683 | 20.84 | 156,531 |
(*) The tax expense related to the subordinated debt held by SAOS S.A, it ended during the current fiscal year 2018, as a result of the generation of sufficient resources to pay off the total debt.
The effective rate for income tax for the year 2019 is 22.24% (20.84% in December 2018).
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
17. | Current and Deferred Taxes, continued: |
(d) | Effect of deferred taxes on income and equity: |
The Bank and its subsidiaries have recorded the effects of deferred taxes in their Financial Statements. The effects of deferred taxes on assets, liabilities and income accounts are detailed as follows:
Effect on | ||||||||||||||||
Balances | Income | Equity | Balances | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Debit Differences: | ||||||||||||||||
Allowances for loan losses | 206,197 | 14,882 | — | 221,079 | ||||||||||||
Personnel provisions | 12,994 | 3,720 | — | 16,714 | ||||||||||||
Staff vacations | 7,241 | 203 | — | 7,444 | ||||||||||||
Accrued interests adjustments from impaired loans | 3,232 | 442 | — | 3,674 | ||||||||||||
Staff severance indemnities provision | 600 | (59 | ) | 66 | 607 | |||||||||||
Provision of credit cards expenses | 9,813 | (1,592 | ) | — | 8,221 | |||||||||||
Provision of accrued expenses | 13,155 | (2,591 | ) | — | 10,564 | |||||||||||
Adjustment for valuation of financial assets available-for-sale | 2,695 | — | (2,695 | ) | — | |||||||||||
Leasing | 42,988 | (1,196 | ) | — | 41,792 | |||||||||||
Incomes received in advance | — | 32,170 | — | 32,170 | ||||||||||||
Other adjustments | 12,392 | 3,093 | — | 15,485 | ||||||||||||
Total Debit Differences | 311,307 | 49,072 | (2,629 | ) | 357,750 | |||||||||||
Credit Differences: | ||||||||||||||||
Depreciation and price-level restatement of property and equipment | 14,990 | 534 | — | 15,524 | ||||||||||||
Adjustment for valuation of financial assets available-for-sale | — | — | 1,039 | 1,039 | ||||||||||||
Transitory assets | 4,359 | 2,815 | — | 7,174 | ||||||||||||
Loans accrued to effective rate | 1,569 | (183 | ) | — | 1,386 | |||||||||||
Prepaid expenses | 6,699 | (3,365 | ) | — | 3,334 | |||||||||||
Other adjustments | 5,768 | 2,577 | — | 8,345 | ||||||||||||
Total Credit Differences | 33,385 | 2,378 | 1,039 | 36,802 | ||||||||||||
Deferred, Net | 277,922 | 46,694 | (3,668 | ) | 320,948 |
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
17. | Current and Deferred Taxes, continued: |
(e) | For the purpose of complying with the Circular No. 47 issued by the Chilean Internal Revenue Service (SII) and No. 3,478 issued by the CMF, dated August 18, 2009 the changes and effects generated by the application of Article 31, No. 4 of the Income Tax Law are detailed below: |
As the circular requires, the information corresponds only to the Bank’s credit operations and does not consider operations of subsidiary entities that are consolidated in these Consolidated Financial Statements.
2019 | ||||||||||||||||||||
Tax value assets | ||||||||||||||||||||
(e.1) Loans to customers as of December 31, 2019 | Book value assets (*) | Tax value assets | Past-due loans with guarantees | Past-due loans without guarantees | Total Past-due loans | |||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Loans and advance to banks | 1,139,433 | 1,140,190 | — | — | — | |||||||||||||||
Commercial loans | 13,725,346 | 14,308,651 | 47,451 | 76,814 | 124,265 | |||||||||||||||
Consumer loans | 4,202,634 | 5,016,666 | 820 | 29,643 | 30,463 | |||||||||||||||
Residential mortgage loans | 9,175,014 | 9,200,565 | 10,041 | 155 | 10,196 | |||||||||||||||
Total | 28,242,427 | 29,666,072 | 58,312 | 106,612 | 164,924 |
2018 | ||||||||||||||||||||
Tax value assets | ||||||||||||||||||||
(e.1) Loans to customers as of December 31, 2018 | Book value assets (*) | Tax value assets | Past-due loans with guarantees | Past-due loans without guarantees | Total Past-due loans | |||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Loans and advance to banks | 1,494,307 | 1,495,395 | — | — | — | |||||||||||||||
Commercial loans | 13,018,976 | 13,519,191 | 21,584 | 59,773 | 81,357 | |||||||||||||||
Consumer loans | 4,145,419 | 4,850,068 | 731 | 24,424 | 25,155 | |||||||||||||||
Residential mortgage loans | 8,021,262 | 8,047,078 | 8,818 | 210 | 9,028 | |||||||||||||||
Total | 26,679,964 | 27,911,732 | 31,133 | 84,407 | 115,540 |
(*) | In accordance with the mentioned Circular and instructions from the SII, the value of financial statement assets, are presented on an individual basis (only Banco de Chile) net of allowance for loan losses and do not include lease and factoring operations. |
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
17. | Current and Deferred Taxes, continued: |
2019 | ||||||||||||||||||||
(e.2) Provisions on past-due loans | Balance as of January 1, 2019 | Charge-offs against provisions | Provisions established | Provisions released | Balance as of December 31, 2019 | |||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Commercial loans | 59,773 | (44,925 | ) | 165,500 | (103,534 | ) | 76,814 | |||||||||||||
Consumer loans | 24,424 | (247,314 | ) | 274,262 | (21,729 | ) | 29,643 | |||||||||||||
Residential mortgage loans | 210 | (4,078 | ) | 30,251 | (26,228 | ) | 155 | |||||||||||||
Total | 84,407 | (296,317 | ) | 470,013 | (151,491 | ) | 106,612 |
2018 | ||||||||||||||||||||
(e.2) Provisions on past-due loans | Balance as of January 1, 2018 | Charge-offs against provisions | Provisions established | Provisions released | Balance as of December 31, 2018 | |||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Commercial loans | 52,169 | (40,576 | ) | 93,336 | (45,156 | ) | 59,773 | |||||||||||||
Consumer loans | 24,024 | (230,382 | ) | 259,589 | (28,807 | ) | 24,424 | |||||||||||||
Residential mortgage loans | 211 | (2,660 | ) | 13,067 | (10,408 | ) | 210 | |||||||||||||
Total | 76,404 | (273,618 | ) | 365,992 | (84,371 | ) | 84,407 |
(e.3) Charge-offs and recoveries | 2019 | 2018 | ||||||
MCh$ | MCh$ | |||||||
Charge-offs Art. 31 No. 4 second subparagraph | 11,432 | 12,914 | ||||||
Write-offs resulting in provisions released | 314 | 711 | ||||||
Recovery or renegotiation of written-off loans | 47,975 | 60,579 |
(e.4) Application of Art. 31 No. 4 first & third subsections of the income tax law | 2019 | 2018 | ||||||
MCh$ | MCh$ | |||||||
Charge-offs in accordance with first subsection | — | — | ||||||
Write-offs in accordance with third subsection | 314 | 711 |
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
18. | Other Assets: |
(a) | Item composition: |
At the end of each year, the item is composed as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Assets held for leasing (*) | 139,389 | 101,848 | ||||||
Assets received or awarded as payment (**) | ||||||||
Assets awarded at judicial sale | 10,967 | 14,171 | ||||||
Assets received in lieu of payment | 1,556 | 3,623 | ||||||
Provision for assets received in lieu of payment or awarded | (188 | ) | (806 | ) | ||||
Subtotal | 12,335 | 16,988 | ||||||
Other Assets | ||||||||
Deposits by derivatives margin | 475,852 | 336,548 | ||||||
Other accounts and notes receivable | 44,671 | 29,080 | ||||||
Trading and brokerage (***) | 40,911 | 28,478 | ||||||
Prepaid expenses | 34,934 | 37,394 | ||||||
Recoverable income taxes | 33,136 | 44,665 | ||||||
Servipag available funds | 17,923 | 13,991 | ||||||
Commissions receivable | 14,191 | 12,155 | ||||||
Investment properties | 13,190 | 13,938 | ||||||
VAT receivable | 11,831 | 15,021 | ||||||
Accounts receivable for sale of assets received in lieu of payment | 2,184 | 4,816 | ||||||
Pending transactions | 2,021 | 2,070 | ||||||
Rental guarantees | 1,957 | 1,895 | ||||||
Assets recovered from leasing for sale | 871 | 1,064 | ||||||
Materials and supplies | 672 | 745 | ||||||
Others | 16,900 | 12,684 | ||||||
Subtotal | 711,244 | 554,544 | ||||||
Total | 862,968 | 673,380 |
(*) | These correspond to property and equipment to be given under finance lease. |
(**) | Assets received in lieu of payment are assets received as payment of customers’ past-due debts. The assets acquired must not exceed the aggregate 20% of the Bank’s effective equity. These assets currently represent 0.0341% (0.0877% as of December 31, 2018) of the Bank’s effective equity. |
The assets awarded at judicial sale are not subject to the aforementioned margin. These properties are assets available for sale and is expected to be completed the sale within one year from the date the asset is received or acquired. In the event that said assets are not sold within one year, it must be written off.
The provision for assets received in lieu of payment or awarded is recorded as indicated in the Compendium of Accounting Standards, Chapter B-5 No.3, which indicates to recognize a provision for the difference between the initial value plus any additions and its realizable value, when the initial is greater.
(***) | This item mainly includes simultaneous operations carried out by the subsidiary Banchile Corredores de Bolsa S.A. |
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
18. | Other Assets, continued: |
(b) | The changes of the provision for assets received in lieu of payment during the 2019 and 2018 are as follows: |
Provision for assets received in lieu of payment | MCh$ | |||
Balance as of January 1, 2018 | 818 | |||
Provisions used | (2,781 | ) | ||
Provisions established | 2,769 | |||
Provisions released | — | |||
Balance as of December 31, 2018 | 806 | |||
Provisions used | (2,159 | ) | ||
Provisions established | 1,541 | |||
Provisions released | — | |||
Balance as of December 31, 2019 | 188 |
19. | Current accounts and Other Demand Deposits: |
As of December 31, 2019 and 2018, this item is composed as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Current accounts | 8,951,527 | 7,725,465 | ||||||
Other demand deposits | 1,662,950 | 1,143,414 | ||||||
Other deposits and sight accounts | 711,656 | 715,609 | ||||||
Total | 11,326,133 | 9,584,488 |
20. | Savings accounts and Time Deposits: |
As of December 31, 2019 and 2018, this item is composed as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Time deposits | 10,537,614 | 10,343,922 | ||||||
Term savings accounts | 239,850 | 224,303 | ||||||
Other term balances payable | 79,154 | 87,949 | ||||||
Total | 10,856,618 | 10,656,174 |
93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
21. | Borrowings from Financial Institutions: |
(a) | As of December 31, 2019 and 2018, borrowings from financial institutions are detailed as follows: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Domestic banks | ||||||||
Banco do Brasil | 3,900 | 7,001 | ||||||
Banco Santander | 2,314 | — | ||||||
Banco Security | — | 374 | ||||||
Subtotal domestic banks | 6,214 | 7,375 | ||||||
Foreign banks | ||||||||
Foreign trade financing | ||||||||
Citibank N.A. | 285,974 | 212,329 | ||||||
Bank of New York Mellon | 224,812 | 152,828 | ||||||
Sumitomo Mitsui Banking | 213,534 | 196,571 | ||||||
Bank of America | 194,704 | 210,279 | ||||||
Wells Fargo Bank | 139,845 | 225,087 | ||||||
The Bank of Nova Scotia | 133,539 | 122,080 | ||||||
Zürcher Kantonalbank | 78,872 | 55,621 | ||||||
Standard Chartered Bank | 70,128 | 296 | ||||||
JP Morgan Chase Bank | 60,150 | 62,557 | ||||||
Toronto Dominion Bank | 22,556 | 84,056 | ||||||
ING Bank | 10,987 | — | ||||||
Commerzbank AG | 2,201 | 1,084 | ||||||
Mizuho Bank Ltd. | — | 63,651 | ||||||
Others | 89 | 24 | ||||||
Borrowings and other obligations | ||||||||
Wells Fargo Bank | 113,377 | 104,637 | ||||||
Citibank N.A. | 6,198 | 15,940 | ||||||
ING Bank NV | 88 | — | ||||||
Deutsche Bank AG | — | 161 | ||||||
Standard Chartered Bank | — | 1,612 | ||||||
Bank of America | — | 486 | ||||||
Others | 9 | 85 | ||||||
Subtotal foreign banks | 1,557,063 | 1,509,384 | ||||||
Chilean Central Bank | — | — | ||||||
Total | 1,563,277 | 1,516,759 |
94
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
22. | Debt Issued: |
As of December 31, 2019 and 2018, this item is composed as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Mortgage bonds | 10,898 | 16,368 | ||||||
Bonds | 7,912,621 | 6,772,990 | ||||||
Subordinated bonds | 889,895 | 686,194 | ||||||
Total | 8,813,414 | 7,475,552 |
During the year ended as of December 31, 2019, Banco de Chile issued bonds by an amount of Ch$2,625,176 million, from which corresponds to Short-Term Bonds, Current Bonds and Subordinated Bonds by an amount of Ch$944,413 million, Ch$1,465,406 and Ch$215,357 million respectively, according to the following details:
Short-term Bonds
Counterparty | Currency | Amount MCh$ | Annual interest rate % | Issued date | Maturity date | |||||||
Citibank N.A. | USD | 40,937 | 2.91 | 04/01/2019 | 04/04/2019 | |||||||
Wells Fargo Bank | USD | 40,264 | 2.85 | 17/01/2019 | 24/04/2019 | |||||||
Citibank N.A. | USD | 33,598 | 2.80 | 22/01/2019 | 22/04/2019 | |||||||
Citibank N.A. | USD | 53,250 | 2.67 | 04/04/2019 | 02/07/2019 | |||||||
Citibank N.A. | USD | 27,886 | 2.67 | 09/04/2019 | 09/08/2019 | |||||||
Citibank N.A. | USD | 33,257 | 2.66 | 11/04/2019 | 11/07/2019 | |||||||
Wells Fargo Bank | USD | 33,257 | 2.68 | 11/04/2019 | 11/10/2019 | |||||||
Citibank N.A. | USD | 33,051 | 2.66 | 12/04/2019 | 22/07/2019 | |||||||
Wells Fargo Bank | USD | 3,966 | 2.67 | 12/04/2019 | 12/09/2019 | |||||||
Citibank N.A. | USD | 27,184 | 2.67 | 29/04/2019 | 29/10/2019 | |||||||
Wells Fargo Bank | USD | 33,838 | 2.60 | 30/04/2019 | 30/07/2019 | |||||||
Citibank N.A. | USD | 34,795 | 2.61 | 17/05/2019 | 18/11/2019 | |||||||
Citibank N.A. | USD | 34,842 | 2.59 | 23/05/2019 | 22/08/2019 | |||||||
Bank of America | USD | 34,208 | 2.50 | 21/06/2019 | 22/08/2019 | |||||||
Wells Fargo Bank | USD | 3,421 | 2.50 | 24/06/2019 | 25/07/2019 | |||||||
Citibank N.A. | USD | 547 | 2.40 | 24/06/2019 | 15/10/2019 | |||||||
Citibank N.A. | USD | 13,620 | 2.50 | 25/06/2019 | 05/08/2019 | |||||||
Citibank N.A. | USD | 13,575 | 2.51 | 28/06/2019 | 01/08/2019 | |||||||
Citibank N.A. | USD | 34,070 | 2.38 | 11/07/2019 | 09/10/2019 | |||||||
Citibank N.A. | USD | 29,883 | 2.25 | 09/08/2019 | 12/11/2019 | |||||||
Wells Fargo Bank | USD | 3,525 | 2.03 | 13/08/2019 | 08/05/2020 | |||||||
Citibank N.A. | USD | 35,676 | 2.20 | 22/08/2019 | 21/11/2019 | |||||||
Wells Fargo Bank | USD | 21,350 | 2.20 | 10/09/2019 | 09/12/2019 | |||||||
Wells Fargo Bank | USD | 7,117 | 2.20 | 11/09/2019 | 16/12/2019 | |||||||
Wells Fargo Bank | USD | 28,466 | 2.20 | 11/09/2019 | 10/12/2019 | |||||||
Citibank N.A. | USD | 15,799 | 2.10 | 07/10/2019 | 07/01/2020 | |||||||
Citibank N.A. | USD | 36,206 | 2.07 | 09/10/2019 | 09/01/2020 | |||||||
Citibank N.A. | USD | 36,212 | 2.00 | 24/10/2019 | 29/01/2020 | |||||||
Bank of America | USD | 36,212 | 2.00 | 24/10/2019 | 24/01/2020 | |||||||
Citibank N.A. | USD | 18,200 | 2.00 | 25/10/2019 | 03/02/2020 | |||||||
Citibank N.A. | USD | 31,819 | 1.91 | 04/11/2019 | 13/01/2020 | |||||||
Citibank N.A. | USD | 31,239 | 1.97 | 12/11/2019 | 12/02/2020 | |||||||
Citibank N.A. | USD | 4,554 | 2.05 | 22/11/2019 | 07/08/2020 | |||||||
Citibank N.A. | USD | 7,989 | 2.05 | 22/11/2019 | 07/08/2020 | |||||||
Citibank N.A. | USD | 18,750 | 2.07 | 04/12/2019 | 07/08/2020 | |||||||
Citibank N.A. | USD | 23,268 | 2.05 | 09/12/2019 | 09/04/2020 | |||||||
Wells Fargo Bank | USD | 3,877 | 2.04 | 09/12/2019 | 05/06/2020 | |||||||
Wells Fargo Bank | USD | 15,395 | 2.04 | 11/12/2019 | 27/03/2020 | |||||||
Citibank N.A. | USD | 1,792 | 2.03 | 30/12/2019 | 20/07/2020 | |||||||
Wells Fargo Bank | USD | 7,518 | 2.10 | 30/12/2019 | 15/12/2020 | |||||||
Total as of December 31, 2019 | 944,413 |
95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
22. | Debt Issued, continued: |
Current Bonds Long-Term
Serie | Currency | Amount MCh$ | Terms Years | Annual issue rate % | Issue date | Maturity date | ||||||||
BCHIEC0817 | UF | 83,470 | 5 | 1.55 | 30/01/2019 | 30/01/2024 | ||||||||
BCHIED1117 | UF | 41,711 | 5 | 1.54 | 14/03/2019 | 14/03/2024 | ||||||||
BCHIED1117 | UF | 5,587 | 5 | 1.45 | 19/03/2019 | 19/03/2024 | ||||||||
BCHIED1117 | UF | 36,317 | 5 | 1.45 | 20/03/2019 | 20/03/2024 | ||||||||
BCHIDW1017 | UF | 84,359 | 2 | 0.93 | 09/05/2019 | 09/05/2021 | ||||||||
BCHIDW1017 | UF | 57,091 | 2 | 0.57 | 24/06/2019 | 24/06/2021 | ||||||||
BCHIEH0917 | UF | 58,867 | 7 | 1.04 | 01/07/2019 | 01/07/2026 | ||||||||
BCHIEB1117 | UF | 86,682 | 4 | 0.83 | 01/07/2019 | 01/07/2023 | ||||||||
BCHIEH0917 | UF | 29,514 | 7 | 1.00 | 02/07/2019 | 02/07/2026 | ||||||||
BCHIEI1117 | UF | 60,697 | 7 | 0.66 | 19/07/2019 | 19/07/2026 | ||||||||
BCHIEI1117 | UF | 22,063 | 7 | 0.51 | 30/07/2019 | 30/07/2026 | ||||||||
BCHIEI1117 | UF | 8,613 | 7 | 0.45 | 01/08/2019 | 01/08/2026 | ||||||||
BCHICC0815 | UF | 71,703 | 12 | 0.54 | 05/08/2019 | 05/08/2031 | ||||||||
BCHICA1015 | UF | 71,221 | 11 | 0.54 | 05/08/2019 | 05/08/2030 | ||||||||
BCHICB1215 | UF | 14,496 | 11 | 0.44 | 07/08/2019 | 07/08/2030 | ||||||||
BCHIEI1117 | UF | 7,764 | 7 | 0.30 | 07/08/2019 | 07/08/2026 | ||||||||
BCHIEI1117 | UF | 20,212 | 7 | 0.28 | 08/08/2019 | 08/08/2026 | ||||||||
BCHICB1215 | UF | 57,926 | 11 | 0.45 | 08/08/2019 | 08/08/2030 | ||||||||
BCHIEI1117 | UF | 3,108 | 7 | 0.29 | 08/08/2019 | 08/08/2026 | ||||||||
BCHIBV1015 | UF | 71,063 | 10 | 0.37 | 20/08/2019 | 20/08/2029 | ||||||||
BCHIEV1117 | UF | 132,366 | 10 | 0.34 | 05/09/2019 | 05/09/2029 | ||||||||
BCHIEK1117 | UF | 117,493 | 13 | 1.38 | 11/12/2019 | 11/12/2032 | ||||||||
Subtotal UF | 1,142,323 | |||||||||||||
BONO JPY | JPY | 63,041 | 20 | 1.00 | 14/05/2019 | 14/05/2039 | ||||||||
BONO HKD | HKD | 32,725 | 12 | 2.90 | 19/07/2019 | 19/07/2031 | ||||||||
BONO AUD | AUD | 36,519 | 20 | 3.50 | 28/08/2019 | 28/08/2039 | ||||||||
BONO PEN | PEN | 29,969 | 15 | 5.40 | 04/09/2019 | 04/09/2034 | ||||||||
BONO AUD | AUD | 24,547 | 15 | 3.13 | 09/09/2019 | 09/09/2034 | ||||||||
BONO NOK | NOK | 60,951 | 10 | 3.50 | 07/11/2019 | 07/11/2029 | ||||||||
BONO AUD | AUD | 39,067 | 20 | 3.55 | 11/11/2019 | 11/11/2039 | ||||||||
BONO JPY | JPY | 36,264 | 10 | 1.00 | 19/11/2019 | 19/11/2029 | ||||||||
Subtotal Others currency | 323,083 | |||||||||||||
Total as of December 31, 2019 | 1,465,406 |
Subordinated bonds
Serie | Currency | Amount MCh$ | Terms Years | Annual issue rate % | Issue date | Maturity date | ||||||||
UCHI-J1111 | UF | 61,471 | 23 | 1.05 | 20/08/2019 | 20/08/2042 | ||||||||
UCHI-J1111 | UF | 65,973 | 23 | 1.04 | 20/08/2019 | 20/08/2042 | ||||||||
UCHI-J1111 | UF | 48,799 | 23 | 0.99 | 21/08/2019 | 21/08/2042 | ||||||||
UCHI-I1111 | UF | 39,114 | 21 | 0.96 | 24/09/2019 | 24/09/2040 | ||||||||
Total as of December 31, 2019 | 215,357 |
96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
22. | Debt Issued, continued: |
During the year ended as of December 31, 2018, Banco de Chile issued bonds by an amount of Ch$2,157,587 million, from which corresponds to Short-Term Bonds and Current Bonds by an amount of Ch$940,720 million and Ch$1,216,867 million respectively, according to the following details:
Short-term Bonds
Counterparty | Currency | Amount MCh$ | Annual interest rate % | Issued date | Maturity date | |||||||
Wells Fargo Bank | USD | 2,998 | 1.85 | 06/02/2018 | 08/05/2018 | |||||||
Wells Fargo Bank | USD | 2,998 | 1.93 | 06/02/2018 | 08/06/2018 | |||||||
Wells Fargo Bank | USD | 2,998 | 1.98 | 06/02/2018 | 09/07/2018 | |||||||
Wells Fargo Bank | USD | 2,998 | 2.05 | 06/02/2018 | 06/08/2018 | |||||||
Wells Fargo Bank | USD | 2,998 | 2.05 | 06/02/2018 | 08/08/2018 | |||||||
Wells Fargo Bank | USD | 29,716 | 2.25 | 28/02/2018 | 28/06/2018 | |||||||
Wells Fargo Bank | USD | 1,723 | 2.40 | 28/02/2018 | 29/08/2018 | |||||||
Citibank N.A. | USD | 6,894 | 2.60 | 28/02/2018 | 25/02/2019 | |||||||
Wells Fargo Bank | USD | 13,780 | 2.30 | 02/03/2018 | 02/07/2018 | |||||||
Wells Fargo Bank | USD | 4,489 | 2.30 | 05/03/2018 | 06/07/2018 | |||||||
Citibank N.A. | USD | 18,080 | 2.22 | 07/03/2018 | 05/06/2018 | |||||||
Wells Fargo Bank | USD | 1,747 | 2.25 | 13/03/2018 | 11/06/2018 | |||||||
Wells Fargo Bank | USD | 3,006 | 2.45 | 14/03/2018 | 11/09/2018 | |||||||
Wells Fargo Bank | USD | 606 | 2.60 | 15/03/2018 | 14/12/2018 | |||||||
Wells Fargo Bank | USD | 605 | 2.60 | 29/03/2018 | 28/09/2018 | |||||||
Wells Fargo Bank | USD | 60,343 | 2.60 | 05/04/2018 | 04/09/2018 | |||||||
Wells Fargo Bank | USD | 30,254 | 2.50 | 06/04/2018 | 01/08/2018 | |||||||
Wells Fargo Bank | USD | 1,743 | 2.40 | 10/04/2018 | 09/08/2018 | |||||||
Wells Fargo Bank | USD | 8,918 | 2.75 | 13/04/2018 | 12/04/2019 | |||||||
Wells Fargo Bank | USD | 8,946 | 2.75 | 17/04/2018 | 16/04/2019 | |||||||
Citibank N.A. | USD | 19,046 | 2.36 | 08/05/2018 | 08/08/2018 | |||||||
Citibank N.A. | USD | 31,665 | 2.38 | 09/05/2018 | 07/08/2018 | |||||||
Citibank N.A. | USD | 1,873 | 2.37 | 10/05/2018 | 08/08/2018 | |||||||
Citibank N.A. | USD | 12,250 | 2.36 | 14/05/2018 | 15/08/2018 | |||||||
Wells Fargo Bank | USD | 18,968 | 2.70 | 11/06/2018 | 01/04/2019 | |||||||
Wells Fargo Bank | USD | 28,973 | 2.42 | 13/06/2018 | 24/07/2018 | |||||||
Wells Fargo Bank | USD | 15,991 | 2.45 | 19/06/2018 | 20/09/2018 | |||||||
Citibank N.A. | USD | 12,778 | 2.41 | 20/06/2018 | 20/09/2018 | |||||||
Citibank N.A. | USD | 31,944 | 2.45 | 20/06/2018 | 03/10/2018 | |||||||
Wells Fargo Bank | USD | 3,194 | 2.65 | 20/06/2018 | 13/02/2019 | |||||||
Citibank N.A. | USD | 3,885 | 2.50 | 22/06/2018 | 23/11/2018 | |||||||
Wells Fargo Bank | USD | 19,495 | 2.20 | 28/06/2018 | 27/07/2018 | |||||||
Wells Fargo Bank | USD | 4,875 | 2.30 | 03/07/2018 | 11/09/2018 | |||||||
Wells Fargo Bank | USD | 29,556 | 2.30 | 06/07/2018 | 10/09/2018 | |||||||
Wells Fargo Bank | USD | 62,079 | 2.45 | 17/07/2018 | 17/10/2018 | |||||||
Wells Fargo Bank | USD | 32,729 | 2.45 | 24/07/2018 | 22/10/2018 | |||||||
Wells Fargo Bank | USD | 19,283 | 2.45 | 27/07/2018 | 29/10/2018 | |||||||
Wells Fargo Bank | USD | 31,919 | 2.50 | 30/07/2018 | 29/11/2018 | |||||||
Wells Fargo Bank | USD | 16,039 | 2.52 | 01/08/2018 | 06/12/2018 | |||||||
Citibank N.A. | USD | 25,787 | 2.50 | 02/08/2018 | 06/12/2018 | |||||||
Wells Fargo Bank | USD | 10,859 | 2.47 | 07/08/2018 | 14/12/2018 | |||||||
Wells Fargo Bank | USD | 3,238 | 2.46 | 09/08/2018 | 14/12/2018 | |||||||
Wells Fargo Bank | USD | 17,070 | 2.53 | 31/08/2018 | 28/12/2018 | |||||||
Wells Fargo Bank | USD | 6,929 | 2.58 | 04/09/2018 | 06/02/2019 | |||||||
Citibank N.A. | USD | 34,646 | 2.57 | 04/09/2018 | 04/01/2019 | |||||||
Citibank N.A. | USD | 4,902 | 2.24 | 07/09/2018 | 09/10/2018 | |||||||
Citibank N.A. | USD | 34,525 | 2.25 | 07/09/2018 | 09/10/2018 | |||||||
Citibank N.A. | USD | 1,742 | 2.23 | 10/09/2018 | 09/10/2018 | |||||||
Wells Fargo Bank | USD | 3,484 | 2.65 | 10/09/2018 | 11/03/2019 | |||||||
Wells Fargo Bank | USD | 6,026 | 2.45 | 11/09/2018 | 06/12/2018 | |||||||
Bank of America | USD | 18,421 | 2.62 | 14/09/2018 | 01/03/2019 | |||||||
Wells Fargo Bank | USD | 33,464 | 2.48 | 20/09/2018 | 20/12/2018 | |||||||
Wells Fargo Bank | USD | 1,322 | 2.70 | 03/10/2018 | 05/04/2019 | |||||||
Wells Fargo Bank | USD | 13,591 | 2.78 | 12/10/2018 | 25/04/2019 | |||||||
Wells Fargo Bank | USD | 6,694 | 2.55 | 16/10/2018 | 16/01/2019 | |||||||
Citibank N.A. | USD | 6,713 | 2.50 | 17/10/2018 | 04/01/2019 | |||||||
Citibank N.A. | USD | 34,208 | 2.65 | 23/10/2018 | 22/01/2019 | |||||||
Citibank N.A. | USD | 20,483 | 2.84 | 11/12/2018 | 11/03/2019 | |||||||
Wells Fargo Bank | USD | 2,236 | 2.90 | 12/12/2018 | 12/04/2019 | |||||||
Wells Fargo Bank | USD | 34,555 | 2.67 | 20/12/2018 | 19/02/2019 | |||||||
Wells Fargo Bank | USD | 10,466 | 2.97 | 27/12/2018 | 02/05/2019 | |||||||
Wells Fargo Bank | USD | 6,977 | 2.97 | 27/12/2018 | 29/04/2019 | |||||||
Total as of December 31, 2018 | 940,720 |
97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
22. | Debt Issued, continued: |
Current Bonds Long-Term
Serie | Currency | Amount MCh$ | Terms Years | Annual issue rate % | Issue date | Maturity date | ||||||||
BCHIEA0617 | UF | 106,001 | 6 | 1.60 | 03/01/2018 | 03/01/2024 | ||||||||
BCHIBN1015 | UF | 114,212 | 12 | 2.90 | 24/01/2018 | 24/01/2030 | ||||||||
BCHIEF1117 | UF | 79,612 | 8 | 1.80 | 09/02/2018 | 09/02/2026 | ||||||||
BCHIEP0717 | UF | 104,550 | 11 | 2.00 | 13/02/2018 | 13/02/2029 | ||||||||
BCHIBT1215 | UF | 57,936 | 14 | 3.00 | 13/03/2018 | 13/03/2032 | ||||||||
BCHIBW1215 | UF | 59,081 | 14 | 2.20 | 14/08/2018 | 14/08/2032 | ||||||||
BCHIDY0917 | UF | 55,619 | 5 | 1.24 | 16/08/2018 | 16/08/2023 | ||||||||
BCHIEN1117 | UF | 109,543 | 10 | 2.08 | 25/09/2018 | 25/09/2028 | ||||||||
BCHIDX0817 | UF | 109,311 | 5 | 1.70 | 22/10/2018 | 22/10/2023 | ||||||||
BCHIDY0917 | UF | 12,025 | 5 | 1.74 | 22/10/2018 | 22/10/2023 | ||||||||
BCHIDY0917 | UF | 15,299 | 5 | 1.75 | 22/10/2018 | 22/10/2023 | ||||||||
BCHIBY1215 | UF | 59,374 | 15 | 2.29 | 24/10/2018 | 24/10/2033 | ||||||||
BCHIBX0815 | UF | 58,998 | 15 | 2.29 | 24/10/2018 | 24/10/2033 | ||||||||
BCHIBZ0815 | UF | 59,987 | 15 | 2.23 | 07/12/2018 | 07/12/2033 | ||||||||
BCHIEJ0717 | UF | 82,878 | 9 | 1.99 | 12/12/2018 | 12/12/2027 | ||||||||
Subtotal UF | 1,084,426 | |||||||||||||
BCHIDH0916 | CLP | 20,370 | 4 | 3.80 | 11/06/2018 | 11/06/2022 | ||||||||
BONO USD | USD | 32,842 | 10 | 4.26 | 28/09/2018 | 28/09/2028 | ||||||||
BONO CHF | CHF | 79,229 | 5 | 0.57 | 26/10/2018 | 26/10/2023 | ||||||||
Subtotal others currency | 132,441 | |||||||||||||
Total as of December 31, 2018 | 1,216,867 |
During the year ended December 31, 2018, there were no subordinated bonds, issued.
During the year ended as of December 31, 2019 and 2018, the Bank has not been in default of principal and interest on its debt instruments. Likewise, there have been no breaches of covenants and other commitments associated with the debt instruments issued.
98
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
23. | Other Financial Obligations: |
As of December 31, 2019 and 2018, this item is composed as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Other Chilean obligations | 138,575 | 95,912 | ||||||
Public sector obligations | 17,654 | 22,102 | ||||||
Total | 156,229 | 118,014 |
24. | Provisions: |
(a) | As of December 31, 2019 and 2018, this item is composed as follows: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Provisions for minimum dividends (*) | 300,461 | 305,409 | ||||||
Provisions for personnel benefits and payroll expenses | 109,075 | 92,579 | ||||||
Provisions for contingent loan risks | 57,042 | 55,530 | ||||||
Provisions for contingencies: | ||||||||
Additional loan provisions | 213,252 | 213,252 | ||||||
Country risk provisions | 4,332 | 2,881 | ||||||
Other provisions for contingencies | 501 | 468 | ||||||
Total | 684,663 | 670,119 |
(*) | See Note No. 27 letter (c). |
99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
24. | Provisions, continued: |
(b) | The following table shows the changes in provisions and accrued expenses during the years 2019 and 2018: |
Minimum dividends | Personnel benefits and payroll | Contingent loan Risks | Additional loan provisions | Country risk provisions and other contingencies | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Balances as of January 1, 2018 | 312,907 | 86,628 | 58,031 | 213,252 | 25,050 | 695,868 | ||||||||||||||||||
Provisions established | 305,409 | 72,946 | — | — | 3 | 378,358 | ||||||||||||||||||
Provisions used | (312,907 | ) | (66,995 | ) | — | — | (19,347 | ) | (399,249 | ) | ||||||||||||||
Provisions released | — | — | (2,501 | ) | — | (2,357 | ) | (4,858 | ) | |||||||||||||||
Balances as of December 31, 2018 | 305,409 | 92,579 | 55,530 | 213,252 | 3,349 | 670,119 | ||||||||||||||||||
Provisions established | 300,461 | 93,358 | 1,512 | — | 1,484 | 396,815 | ||||||||||||||||||
Provisions used | (305,409 | ) | (76,862 | ) | — | — | — | (382,271 | ) | |||||||||||||||
Provisions released | — | — | — | — | — | — | ||||||||||||||||||
Balances as of December 31, 2019 | 300,461 | 109,075 | 57,042 | 213,252 | 4,833 | 684,663 |
(c) | Provisions for personnel benefits and payroll: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Provisions for performance bonuses | 51,051 | 47,797 | ||||||
Staff accrued vacation provision | 27,609 | 26,855 | ||||||
Staff severance indemnities | 7,566 | 7,754 | ||||||
Other personnel benefits provision | 22,849 | 10,173 | ||||||
Total | 109,075 | 92,579 |
100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
24. | Provisions, continued: |
(d) | Staff severance indemnities: |
(i) | Changes in the staff severance indemnities: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Present value of the obligations at the beginning of the year | 7,754 | 7,676 | ||||||
Increase (Decrease) in provision | 323 | 550 | ||||||
Benefit paid | (758 | ) | (599 | ) | ||||
Effect of change in actuarial factors | 247 | 127 | ||||||
Total | 7,566 | 7,754 |
(ii) | Net benefits expenses: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
(Decrease) Increase in provisions | 101 | 250 | ||||||
Interest cost of benefits obligations | 222 | 300 | ||||||
Effect of change in actuarial factors | 247 | 127 | ||||||
Net benefit expenses | 570 | 677 |
(iii) | Factors used in the calculation of the provision: |
The main assumptions used in the determination of severance indemnity obligations for the Bank's plan are shown below:
December 31, 2019 | December 31, 2018 | |||||||
% | % | |||||||
Discount rate | 3.17 | 4.25 | ||||||
Salary increase rate | 4.42 | 4.42 | ||||||
Payment probability | 99.99 | 99.99 |
The most recent actuarial valuation of the staff severance indemnities provision was carried out during the year 2019.
101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
24. | Provisions, continued: |
(e) | Changes in compliance bonuses provision: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Balances as of January 1 | 47,797 | 43,372 | ||||||
Net provisions established | 45,792 | 40,058 | ||||||
Provisions used | (42,538 | ) | (35,633 | ) | ||||
Total | 51,051 | 47,797 |
(f) | Changes in staff accrued vacation provision: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Balances as of January 1 | 26,855 | 25,159 | ||||||
Net provisions established | 7,257 | 7,529 | ||||||
Provisions used | (6,503 | ) | (5,833 | ) | ||||
Total | 27,609 | 26,855 |
(g) | Employee benefits share-based provision: |
As of December 31, 2019 and 2018, the Bank and its subsidiaries do not have a stock-based compensation plan.
(h) | Contingent loan provisions: |
As of December 31, 2019, the Bank and its subsidiaries maintain contingent loan provisions by an amount of Ch$57,042 million (Ch$55,530 million in December 2018). See Note No. 26 letter (d).
102
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
25. | Other Liabilities: |
As of December 31, 2019 and 2018, this item is composed as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Accounts and notes payable | 231,465 | 176,826 | ||||||
Income received in advance (*) | 125,418 | 5,743 | ||||||
Dividends payable | 1,443 | 1,079 | ||||||
Other liabilities | ||||||||
Securities unliquidated | 134,253 | 106,071 | ||||||
Documents intermediated (**) | 80,190 | 53,492 | ||||||
Cobranding | 30,186 | 36,081 | ||||||
VAT debit | 16,354 | 13,719 | ||||||
Outstanding transactions | 1,157 | 992 | ||||||
Insurance payments | 792 | 616 | ||||||
Others | 22,240 | 17,905 | ||||||
Total | 643,498 | 412,524 |
(*) | In relation to the Strategic Alliance Framework Agreement disclosed in Note No. 5 letter c), on June 4, 2019, Banco Chile received the payment from the Insurance Companies for an amount of Ch$149,061 million, which was recorded according to IFRS 15. The related income is recognized over time, depending on compliance with the associated performance obligation. |
(**) | This item mainly includes financing of simultaneous operations performed by subsidiary Banchile Corredores de Bolsa S.A. |
103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
26. | Contingencies and Commitments: |
(a) | Commitments and responsibilities accounted in off-balance-sheet accounts: |
In order to satisfy its customers’ needs, the Bank entered into several irrevocable commitments and contingent obligations. Although these obligations are not recognized in the Statement of Financial Position, they entail credit risks and, therefore, form part of the Bank’s overall risk.
The Bank and its subsidiaries keep recorded in off-balance sheet accounts the main balances related to commitments or with responsibilities inherent to the course of its normal business:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Contingent loans | ||||||||
Guarantees and sureties | 280,838 | 341,676 | ||||||
Confirmed foreign letters of credit | 94,673 | 56,764 | ||||||
Issued letters of credit | 316,916 | 388,396 | ||||||
Bank guarantees | 2,283,390 | 2,232,682 | ||||||
Freely disposition credit lines | 7,870,260 | 7,769,325 | ||||||
Other credit commitments | 155,163 | 46,561 | ||||||
Transactions on behalf of third parties | ||||||||
Documents in collections | 144,043 | 160,367 | ||||||
Third-party resources managed by the Bank: | ||||||||
Financial assets managed on behalf of third parties | 6,418 | 27,334 | ||||||
Other assets managed on behalf of third parties | — | — | ||||||
Financial assets acquired on its own behalf | 73,140 | 103,319 | ||||||
Other assets acquired on its own behalf | — | — | ||||||
Custody of securities | ||||||||
Securities held in safe custody in the Bank and subsidiaries | 2,677,353 | 2,089,079 | ||||||
Securities held in safe custody in other entities | 18,719,297 | 18,624,962 | ||||||
Total | 32,621,491 | 31,840,465 |
104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
26. | Contingencies and Commitments, continued: |
(b) | Lawsuits and legal proceedings: |
(b.1) | Normal judicial contingencies in the industry: |
At the date of issuance of these Consolidated Financial Statements, there are legal actions filed against the Bank related with the ordinary course operations. As of December 31, 2019 the Bank maintain provisions for judicial contingencies amounting to Ch$237 million (Ch$204 million as of December 2018), which are part of the item “Provisions” in the Statement of Financial Position.
The estimated end dates of the respective legal contingencies are as follows:
As of December 31, 2019 | ||||||||||||||||||||
2020 | 2021 | 2022 | 2023 | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Legal contingencies | 120 | 117 | — | — | 237 |
(b.2) | Contingencies for significant lawsuits in courts: |
As of December 31, 2019 and 2018 there are not significant lawsuits in court that affect or may affect these Consolidated Financial Statements.
105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
26. | Contingencies and Commitments, continued: |
(c) | Guarantees granted by operations: |
i. | In subsidiary Banchile Administradora General de Fondos S.A.: |
In compliance with Article No, 12 of Law No. 20,712, Banchile Administradora General de Fondos S.A., has designated Banco de Chile as the representative of the beneficiaries of the guarantees it has established, and in such role the Bank has issued bank guarantees totaling UF 3,090,000, maturing January 10, 2020 (UF 2,977,300, maturing on January 10, 2019 as of December 2018). The subsidiary took a policy with Mapfre Seguros Generales S.A. for the Real State Funds by a guaranteed amount of UF 755,800.
As of December 31, 2019 and 2018 the Bank has not guaranteed mutual funds.
In compliance with the rules established by the Chilean Commission for the Financial Market (CMF) in letter f) of Circular No. 1,894 of September 24, 2008, the entity has constituted guarantees, by management portfolio, in benefit of investors. Such guarantee corresponds to a bank guarantee for UF 401,800, with maturity on January 10, 2020.
ii. | In subsidiary Banchile Corredores de Bolsa S.A.: |
For the purposes of ensuring correct and complete compliance with all of its obligations as broker-dealer entity, in conformity with the provisions from Article No. 30 and subsequent of Law No. 18,045 on Securities Markets, the subsidiary established a guarantee in an insurance policy for UF 20,000, insured by Mapfre Seguros, that matures April 22, 2020, whereby the Securities Exchange of the Santiago Stock Exchange was appointed as the subsidiary’s creditor representative.
2019 | 2018 | |||||||
Guarantees: | MCh$ | MCh$ | ||||||
Shares delivered to cover simultaneous forward sales transactions: | ||||||||
Santiago Securities Exchange, Stock Exchange | 85,302 | 59,074 | ||||||
Electronic Chilean Securities Exchange, Stock Exchange | 6,843 | 17,223 | ||||||
Fixed income securities to guarantee CCLV system, Santiago Securities Exchange, Stock Exchange | 7,985 | 5,976 | ||||||
Shares delivered to guarantee equity lending, Electronic Chilean Securities Exchange, Stock Exchange | 382 | — | ||||||
Total | 100,512 | 82,273 |
106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
26. | Contingencies and Commitments, continued: |
(c) | Guarantees granted, continued: |
ii. | In subsidiary Banchile Corredores de Bolsa S.A., continued: |
In conformity with the internal regulation of the stock exchange in which this subsidiary participates, and for the purpose of securing the broker’s correct performance, the Company established a pledge over 1,000,000 shares of the Santiago Stock Exchange, in favor of that institution, as stated in the Public Deed dated September 13, 1990 before the notary of Santiago Mr. Raul Perry Pefaur, and over 100,000 shares of the Electronic Chilean Stock Exchange, in favor of that Institution, as stated in a contract signed between both entities dated May 16, 1990.
Banchile Corredores de Bolsa S.A. keeps an insurance policy current with Southbridge Compañía de Seguros Generales S.A. that expires January 2, 2020, this considers matters of employee fidelity, physical losses, falsification or adulteration, and currency fraud with a coverage amount equivalent to US$10,000,000.
According to disposition of Chilean Central Bank, it provided a bank guarantee N°9571-2 corresponding to UF 10,500, with purposes to comply with the requirements of the SOMA contract (Contract for Service of System Open Market Operations) of the Chilean Central Bank. This bank guarantee is readjustable in UF to fixed term, non-endorsable and has a maturity date of July 22, 2020.
It also provided a bank guarantee No. 350329-3 in the amount of UF 251,400 for the benefits of investors in portfolio management contracts. This bank guarantee is revaluated in UF to fixed term, non-endorsable and has a maturity date of January 10, 2020.
It has been constituted the bank guarantee No. 9887-5 corresponding to UF 500, to ensure the seriousness of the offer presented in the fixed income tender process. Beneficiary: Mutual de Seguridad of the Chilean Chamber of Construction, valid until March 30, 2020.
It has been constituted the bank guarantee No. 9988-3 corresponding to UF 500, to ensure the seriousness of the offer presented in the variable income tender process. Beneficiary: Mutual de Seguridad of the Chilean Chamber of Construction, valid until March 30, 2020.
It also provided a cash guarantee in the amount of US$122,494.32 for the purpose of complying with the obligations to Pershing, for any operations conducted through that broker.
107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
26. | Contingencies and Commitments, continued: |
(c) | Guarantees granted, continued: |
iii. | In subsidiary Banchile Corredores de Seguros Ltda.: |
According to established in article No. 58, letter D of D.F.L. 251, as of December 31, 2019 the entity maintains two insurance policies with effect from April 15, 2019 to April 14, 2020 which protect it against of potential damages caused by infractions of the law, regulations and complementary rules that regulate insurance brokers, especially when the non-compliance comes from acts, errors or omissions of the broker, its representatives, agents or dependents that participate in the intermediation.
The policies contracted are:
Matter insured | Amount Insured (UF) | |||
Errors and omissions liability policy | 60,000 | |||
Civil liability policy | 500 |
(d) | Provisions for contingencies loans: |
Established provisions for credit risk from contingencies operations are the followings:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Freely disposition credit lines | 31,121 | 29,255 | ||||||
Bank guarantees provision | 22,268 | 22,806 | ||||||
Guarantees and sureties provision | 3,156 | 2,891 | ||||||
Letters of credit provision | 440 | 494 | ||||||
Other credit commitments | 57 | 84 | ||||||
Total | 57,042 | 55,530 |
108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
26. | Contingencies and Commitments, continued: |
(e) | By Exempt Resolution No. 270 dated October 30, 2014, the Superintendency of Securities and Insurance (current Commission for the Financial Market) imposed a fine of UF 50,000 to Banchile Corredores de Bolsa S.A. for violations of the second paragraph of article 53 of the Securities Market Law, said company filed a claim with the competent Civil Court requesting the annulment of the fine. On December 10, 2019, a judgement in the case was issued reducing the fine to the amount of UF 7,500. The judgment indicated has been subject to cassation appeals filed by both parties, which are pending before the Court of Appeals of Santiago. |
The company has not made provisions considering that the Bank’s legal advisors in charge of the procedure estimate that there are solid grounds that the claim filed by Banchile Corredores de Bolsa S.A. can be accepted.
109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
27. | Equity: |
(a) | Capital: |
(i) | Authorized, subscribed and paid shares: |
As of December 31, 2019, the paid-in capital of Banco de Chile is represented by 101,017,081,114 registered shares (101,017,081,114 shares as of December 31, 2018), with no par value, subscribed and fully paid.
As of December 31, 2019 | ||||||||
Corporate Name or Shareholders’s name | Number of Shares | % of Equity Holding | ||||||
LQ Inversiones Financieras S.A. | 46,815,289,329 | 46.344 | % | |||||
Banchile Corredores de Bolsa S.A. | 5,708,422,261 | 5.651 | % | |||||
Inversiones LQ-SM Limitada | 4,854,988,014 | 4.806 | % | |||||
Banco Itaú Corpbanca (on behalf foreign investors) | 4,458,337,344 | 4.413 | % | |||||
Banco Santander (on behalf foreign investors) | 4,310,744,955 | 4.267 | % | |||||
Banco de Chile on behalf third parties | 3,635,074,988 | 3.598 | % | |||||
Ever 1 BAE SPA | 2,303,065,577 | 2.280 | % | |||||
Ever Chile SPA | 2,201,574,554 | 2.179 | % | |||||
Inversiones Aspen Ltda. | 1,594,040,870 | 1.578 | % | |||||
JP Morgan Chase Bank | 1,388,915,908 | 1.375 | % | |||||
Larraín Vial S.A. Corredora de Bolsa | 1,311,456,827 | 1.298 | % | |||||
Inversiones Avenida Borgoño Limitada | 1,190,565,316 | 1.179 | % | |||||
Banco de Chile on behalf Citibank Nueva York | 755,440,788 | 0.748 | % | |||||
Valores Security S.A. Corredores de Bolsa | 609,333,678 | 0.603 | % | |||||
BCI Corredores de Bolsa S.A. | 575,904,925 | 0.570 | % | |||||
Santander S.A. Corredores de Bolsa Limitada | 545,861,161 | 0.540 | % | |||||
Inversiones CDP Limitada | 487,744,912 | 0.483 | % | |||||
A.F.P Habitat S.A. for Type A Fund | 413,318,522 | 0.409 | % | |||||
BICE Inversiones Corredores de Bolsa S.A. | 393,920,005 | 0.390 | % | |||||
A.F.P Habitat S.A. for Type C Pension Fund | 381,039,562 | 0.377 | % | |||||
Subtotal | 83,935,039,496 | 83.090 | % | |||||
Others shareholders | 17,082,041,618 | 16.910 | % | |||||
Total | 101,017,081,114 | 100.000 | % |
110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
27. | Equity, continued: |
(a) | Capital, continued |
(i) | Authorized, subscribed and paid shares, continued: |
As of December 31, 2018 | ||||||||
Corporate Name or Shareholders’s name | Number of Shares | % of Equity Holding | ||||||
Sociedad Administradora de la Obligación Subordinada SAOS S.A. | 28,593,701,789 | 28.306 | % | |||||
LQ Inversiones Financieras S.A. | 27,460,203,382 | 27.184 | % | |||||
Sociedad Matriz del Banco de Chile S.A. | 12,138,573,251 | 12.016 | % | |||||
Banco Santander (on behalf foreign investors) | 3,439,864,114 | 3.405 | % | |||||
Banchile Corredores de Bolsa S.A. | 3,159,186,953 | 3.127 | % | |||||
Banco Itaú Corpbanca (on behalf foreign investors) | 2,924,345,509 | 2.895 | % | |||||
Banco de Chile on behalf third parties | 2,460,416,617 | 2.436 | % | |||||
Ever 1 BAE SPA | 2,303,065,577 | 2.280 | % | |||||
Ever Chile SPA | 2,201,574,554 | 2.179 | % | |||||
Inversiones Aspen Ltda. | 1,594,040,870 | 1.578 | % | |||||
A.F.P. Habitat S.A. | 1,551,740,366 | 1.536 | % | |||||
JP Morgan Chase Bank | 1,418,927,508 | 1.405 | % | |||||
A.F.P. Provida S.A. | 1,173,558,237 | 1.162 | % | |||||
A.F.P. Cuprum S.A. | 1,011,413,383 | 1.001 | % | |||||
A.F.P. Capital S.A. | 757,283,486 | 0.750 | % | |||||
Inversiones Avenida Borgoño Limitada | 617,644,066 | 0.611 | % | |||||
Inversiones CDP limitada | 487,744,912 | 0.483 | % | |||||
Larraín Vial S.A. Corredora de Bolsa | 444,107,165 | 0.440 | % | |||||
Santander S.A. Corredores de Bolsa Limitada | 407,981,210 | 0.404 | % | |||||
BCI Corredores de Bolsa S.A. | 331,846,694 | 0.329 | % | |||||
Subtotal | 94,477,219,643 | 93.526 | % | |||||
Others shareholders | 6,539,861,471 | 6.474 | % | |||||
Total | 101,017,081,114 | 100.000 | % |
111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
27. | Equity, continued: |
(a) | Capital, continued: |
(ii) | Shares: |
(ii.1) | The following table shows the changes in share from December 31, 2017 to December 31, 2019: |
Total | ||||
Ordinary Shares | ||||
Total shares as of December 31, 2017 | 99,444,132,192 | |||
Capitalization of earning – Issue fully paid-in shares | 1,572,948,922 | |||
Total shares as of December 31, 2018 | 101,017,081,114 | |||
Total shares as of December 31, 2019 | 101,017,081,114 |
(b) | Approval and payment of dividends: |
At the Bank Ordinary Shareholders’ Meeting held on March 28, 2019 it was approved the distribution and payment of dividend No. 207 of Ch$3.52723589646 per share of the Banco de Chile, with charged to the net distributable income for the year ended as of December 31, 2018. The amount of the dividend paid in year 2019 amounted to Ch$356,311million.
At the Bank Ordinary Shareholders’ Meeting held on March 22, 2018 it was approved the distribution and payment of dividend No. 206 of Ch$3.14655951692 per share of the Banco de Chile, with charged to the net distributable income for the year ended as of December 31, 2017. The amount of the dividend paid in year 2018 amounted to Ch$374,079 million.
112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
27. | Equity, continued: |
(c) | Provision for minimum dividends: |
In 2019, the Board of Directors of Banco de Chile agreed to establish a provision for minimum dividends of 60% of the net distributable profit generated during the course of the year, being understood as net distributable profit as net income for the corresponding period minus the value effect of the monetary unit of paid capital and reserves, as a result of any change in the Consumer Price Index (CPI) between to the month prior to the current month and the month of November of the previous year. This, maintains the criteria adopted at the Extraordinary Shareholders' Meeting held on March 25, 2010, which agreed the withholding of the equivalent to change in the CPI of the paid-in capital and reserves, which was materialized with a transitory article of the bylaws with effect until the payment of the subordinated obligation made on April 30, 2019.
As indicated above, the retained earnings for the year ended December 31, 2018 in March 2019 amounted to Ch$85,856 million (the retained earnings for the year ended December 31, 2017 in March 2018 amounted to Ch$54,501 million).
The amount of net distributable profit as of December 31, 2019 amounted to Ch$500,768 million (Ch$509,015 million as of December 31, 2018). In accordance with the foregoing, the Bank recorded a provision for minimum dividends under "Provisions" as of December 31 for an amount of Ch$300,461 million (Ch$305,409 million in December 2018), reflecting as a counterpart a capital reduction for the same amount in the item "Retained earnings".
(d) | Earnings per share: |
(i) | Basic earnings per share: |
Basic earnings per share are determined by dividing the net income attributable to the Bank ordinary equity holders in a period between the weighted average number of shares outstanding during that period, excluding the average number of own shares held throughout the period.
(ii) | Diluted earnings per share: |
In order to calculate the diluted earnings per share, both the amount of income attributable to common shareholders and the weighted average number of shares outstanding, net of own shares, must be adjusted for all the inherent dilutive effects to the potential common shares (stock options, warrants and convertible debt).
113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
27. | Equity, continued: |
Accordingly, the basic and diluted earnings per share as of December 31, 2019 and 2018 were determined as follows:
2019 | 2018 | |||||||
Basic earnings per share: | ||||||||
Net profits attributable to ordinary equity holders of the bank (in million Chilean pesos) | 593,008 | 594,872 | ||||||
Weighted average number of ordinary shares | 101,017,081,114 | 101,017,081,114 | ||||||
Earning per shares (in Chilean pesos) | 5.87 | 5.89 | ||||||
Diluted earnings per share: | ||||||||
Net profits attributable to ordinary equity holders of the bank (in million Chilean pesos) | 593,008 | 594,872 | ||||||
Weighted average number of ordinary shares | 101,017,081,114 | 101,017,081,114 | ||||||
Assumed conversion of convertible debt | — | — | ||||||
Adjusted number of shares | 101,017,081,114 | 101,017,081,114 | ||||||
Diluted earnings per share (in Chilean pesos) | 5.87 | 5.89 |
As of December 31, 2019 and 2018, the Bank does not have instruments that generate dilutive effects.
(e) | Other comprehensive income: |
This item includes the following concepts:
The adjustment of cash flow hedge derivatives comprises the portion of income recorded in equity resulting from changes in fair value due to changes in market factors. During the year 2019 it was made a charge to equity for Ch$37,546 million (charge to equity of Ch$30,943 million during the year 2018). The income tax effect presented a credit to equity of Ch$10,138 million (credit of Ch$8,354 million in December 2018).
The valuation adjustment of investments available for sale originates from fluctuations in the fair value of such portfolio, with a charge or credit to equity. During the year 2019, it was made a credit to equity for Ch$13,763 million (charge of Ch$11,787 million during the year 2018). The deferred tax effect meant a charge to equity of Ch$3,734 million (credit to equity of Ch$3,194 million in December 2018).
(f) | Retained earnings from previous years: |
During the year 2019, the Ordinary Shareholders Meeting of Banco de Chile approved the withholding of 30% of the distributable liquid profit corresponding to the 2018 fiscal year equivalent to Ch$152,705 million.
114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
28. | Interest Revenue and Expenses: |
(a) | On the closing date of the Financial Statement, the interest and indexation income, excluding hedge results, are composed as follows: |
2019 | 2018 | |||||||||||||||||||||||||||||||
Interest | UF Indexation | Prepaid fees | Total | Interest | UF Indexation | Prepaid fees | Total | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Commercial loans | 736,474 | 159,145 | 12,413 | 908,032 | 694,710 | 151,987 | 4,143 | 850,840 | ||||||||||||||||||||||||
Consumer loans | 626,670 | 1,628 | 9,906 | 638,204 | 602,627 | 1,841 | 8,827 | 613,295 | ||||||||||||||||||||||||
Residential mortgage loans | 296,832 | 229,815 | 6,061 | 532,708 | 283,066 | 214,620 | 5,010 | 502,696 | ||||||||||||||||||||||||
Financial investment | 37,441 | 7,442 | — | 44,883 | 40,195 | 12,270 | — | 52,465 | ||||||||||||||||||||||||
Repurchase agreements | 2,480 | — | — | 2,480 | 2,767 | — | — | 2,767 | ||||||||||||||||||||||||
Loans to banks | 27,457 | — | — | 27,457 | 24,138 | — | — | 24,138 | ||||||||||||||||||||||||
Other interest and indexation revenue | 15,378 | 2,377 | — | 17,755 | 9,335 | 2,575 | — | 11,910 | ||||||||||||||||||||||||
Total | 1,742,732 | 400,407 | 28,380 | 2,171,519 | 1,656,838 | 383,293 | 17,980 | 2,058,111 |
The amount of interest recognized on a received basis for impaired portfolio in 2019 amounts to Ch$4,415 million (Ch$5,113 million in December 2018).
(b) | At the each year end, the stock of interest and UF indexation not recognized in incomes is the following: |
2019 | 2018 | |||||||||||||||||||||||
Interest | UF Indexation | Total | Interest | UF Indexation | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Commercial loans | 8,755 | 1,141 | 9,896 | 6,591 | 967 | 7,558 | ||||||||||||||||||
Residential mortgage loans | 2,172 | 1,494 | 3,666 | 2,741 | 1,624 | 4,365 | ||||||||||||||||||
Consumer loans | 36 | — | 36 | 42 | — | 42 | ||||||||||||||||||
Total | 10,963 | 2,635 | 13,598 | 9,374 | 2,591 | 11,965 |
115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
28. | Interest Revenue and Expenses, continued: |
(c) | At each year end, interest and UF indexation expenses excluding hedge results, are detailed as follows: |
2019 | 2018 | |||||||||||||||||||||||
Interest | UF Indexation | Total | Interest | UF Indexation | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Savings accounts and time deposits | 268,404 | 44,738 | 313,142 | 253,020 | 48,231 | 301,251 | ||||||||||||||||||
Debt securities issued | 212,355 | 173,660 | 386,015 | 198,244 | 154,107 | 352,351 | ||||||||||||||||||
Other financial obligations | 876 | 42 | 918 | 1,363 | 119 | 1,482 | ||||||||||||||||||
Repurchase agreements | 7,048 | — | 7,048 | 8,901 | — | 8,901 | ||||||||||||||||||
Obligations with banks | 43,570 | — | 43,570 | 29,274 | 1 | 29,275 | ||||||||||||||||||
Demand deposits | 539 | 13,869 | 14,408 | 324 | 9,056 | 9,380 | ||||||||||||||||||
Lease liabilities | 2,574 | — | 2,574 | — | — | — | ||||||||||||||||||
Other interest and indexation expenses | 41 | 442 | 483 | 63 | 631 | 694 | ||||||||||||||||||
Total | 535,407 | 232,751 | 768,158 | 491,189 | 212,145 | 703,334 |
(d) | As of December 31, 2019 and 2018, the Bank uses cross currency and interest rate swaps to hedge its position on movements on the fair value of corporate bonds and commercial loans and cross currency swaps to hedge the risk of variability of obligations flows with foreign banks and bonds issued in foreign currency. |
2019 | 2018 | |||||||||||||||||||||||
Income | Expense | Total | Income | Expense | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Gain from fair value accounting hedges | 720 | — | 720 | 1,380 | — | 1,380 | ||||||||||||||||||
Loss from fair value accounting hedges | (9,392 | ) | — | (9,392 | ) | (3,605 | ) | — | (3,605 | ) | ||||||||||||||
Gain from cash flow accounting hedges | 385,983 | 433,438 | 819,421 | 284,424 | 304,246 | 588,670 | ||||||||||||||||||
Loss from cash flow accounting hedges | (440,561 | ) | (407,550 | ) | (848,111 | ) | (341,149 | ) | (280,552 | ) | (621,701 | ) | ||||||||||||
Net gain on hedge items | 3,376 | — | 3,376 | 390 | — | 390 | ||||||||||||||||||
Total | (59,874 | ) | 25,888 | (33,986 | ) | (58,560 | ) | 23,694 | (34,866 | ) |
(e) | At each year end, the summary of interest is as follows: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Interest revenue | 2,171,519 | 2,058,111 | ||||||
Interest expense | (768,158 | ) | (703,334 | ) | ||||
Subtotal interest income | 1,403,361 | 1,354,777 | ||||||
Net gain (loss) from accounting hedges | (33,986 | ) | (34,866 | ) | ||||
Total net interest income | 1,369,375 | 1,319,911 |
116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
29. | Income and Expenses from Fees and Commissions: |
The income and expenses for commissions that are shown in the Consolidated Statement of Income refers to the following items:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Commission income | ||||||||
Debit and credit card services | 185,878 | 167,201 | ||||||
Investments in mutual funds and others | 101,046 | 91,173 | ||||||
Use of distribution channel and access to customers | 65,243 | 20,974 | ||||||
Collections and payments | 56,389 | 52,717 | ||||||
Portfolio management | 47,816 | 46,730 | ||||||
Fees for insurance transactions | 37,035 | 32,886 | ||||||
Guarantees and letters of credit | 26,101 | 25,021 | ||||||
Trading and securities management | 21,878 | 24,632 | ||||||
Brand use agreement | 16,494 | 14,840 | ||||||
Lines of credit and overdrafts | 4,716 | 4,837 | ||||||
Financial advisory services | 4,393 | 5,046 | ||||||
Other commission earned | 22,183 | 19,057 | ||||||
Total commissions income | 589,172 | 505,114 | ||||||
Commission expenses | ||||||||
Credit card transactions | (97,823 | ) | (113,403 | ) | ||||
Interbank transactions | (20,133 | ) | (16,554 | ) | ||||
Collections and payments | (6,284 | ) | (6,546 | ) | ||||
Securities transactions | (5,943 | ) | (7,544 | ) | ||||
Sales force | (404 | ) | (258 | ) | ||||
Other commission | (1,283 | ) | (854 | ) | ||||
Total commissions expenses | (131,870 | ) | (145,159 | ) |
117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
30. | Net Financial Operating Income: |
The gains (losses) from trading and brokerage activities are detailed as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Financial assets held-for-trading | 76,402 | 50,643 | ||||||
Trading derivative | 32,814 | 85,961 | ||||||
Sale of available-for-sale instruments | 4,789 | 1,118 | ||||||
Sale of loan portfolios (Note No.12 (f)) | 2,549 | 1,743 | ||||||
Net income on other transactions | (145 | ) | 391 | |||||
Total | 116,409 | 139,856 |
31. | Foreign Exchange Transactions, Net: |
Net foreign exchange transactions are detailed as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Gain from accounting hedges | 113,374 | 118,690 | ||||||
Exchange difference, net | 6,284 | 9,609 | ||||||
Indexed foreign currency | (88,772 | ) | (125,598 | ) | ||||
Total | 30,886 | 2,701 |
118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
32. | Provisions for Loan Losses: |
The change registered in income during 2019 and 2018 due to provisions, are summarized as follows:
Loans to customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and advance to banks | Commercial Loans | Mortgage Loans | Consumer Loans | Subtotal | Contingent Loans | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||||||||
Provisions established: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- Individual provisions | — | (506 | ) | (24,986 | ) | — | — | — | — | — | (24,986 | ) | — | — | (2,368 | ) | (24,986 | ) | (2,874 | ) | ||||||||||||||||||||||||||||||||||||
- Group provisions | — | — | (71,075 | ) | (66,127 | ) | (9,391 | ) | (1,675 | ) | (288,616 | ) | (281,262 | ) | (369,082 | ) | (349,064 | ) | (2,282 | ) | — | (371,364 | ) | (349,064 | ) | |||||||||||||||||||||||||||||||
Provisions established, net | — | (506 | ) | (96,061 | ) | (66,127 | ) | (9,391 | ) | (1,675 | ) | (288,616 | ) | (281,262 | ) | (394,068 | ) | (349,064 | ) | (2,282 | ) | (2,368 | ) | (396,350 | ) | (351,938 | ) | |||||||||||||||||||||||||||||
Provisions released: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- Individual provisions | 331 | — | — | 5,080 | — | — | — | — | — | 5,080 | 770 | — | 1,101 | 5,080 | ||||||||||||||||||||||||||||||||||||||||||
- Group provisions | — | — | — | — | — | — | — | — | — | — | — | 4,869 | — | 4,869 | ||||||||||||||||||||||||||||||||||||||||||
Provisions realeased, net | 331 | — | — | 5,080 | — | — | — | — | — | 5,080 | 770 | 4,869 | 1,101 | 9,949 | ||||||||||||||||||||||||||||||||||||||||||
Provision, net | 331 | (506 | ) | (96,061 | ) | (61,047 | ) | (9,391 | ) | (1,675 | ) | (288,616 | ) | (281,262 | ) | (394,068 | ) | (343,984 | ) | (1,512 | ) | 2,501 | (395,249 | ) | (341,989 | ) | ||||||||||||||||||||||||||||||
Additional provision | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Recovery of written-off assets | — | — | 12,253 | 13,579 | 5,114 | 4,572 | 30,608 | 42,428 | 47,975 | 60,579 | — | — | 47,975 | 60,579 | ||||||||||||||||||||||||||||||||||||||||||
Provision for loan losses, net | 331 | (506 | ) | (83,808 | ) | (47,468 | ) | (4,277 | ) | 2,897 | (258,008 | ) | (238,834 | ) | (346,093 | ) | (283,405 | ) | (1,512 | ) | 2,501 | (347,274 | ) | (281,410 | ) |
In the opinion of the Administration, provisions constituting for credit risk cover all possible losses that may arise from the non-recovery of assets, according to the records examined by the Bank.
The detail of the amounts presented in the Consolidated Statement of Cash Flow is as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Allowances established of loans to customer and loans and advances to banks | (394,068 | ) | (349,570 | ) | ||||
Allowances released of loans to customer and loans and advances to banks | 331 | 5,080 | ||||||
Total allowances of loans to customer and loans and advances to banks | (393,737 | ) | (344,490 | ) |
119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
33. | Personnel Expenses: |
Salaries and personnel expenses during 2019 and 2018 are as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Remunerations | 254,886 | 244,919 | ||||||
Bonuses and incentives | 71,028 | 64,622 | ||||||
Variable compensation | 37,281 | 36,901 | ||||||
Staff severance indemnities | 35,100 | 19,941 | ||||||
Gratifications | 27,889 | 26,275 | ||||||
Lunch and health benefits | 27,618 | 26,698 | ||||||
Training expenses | 3,626 | 3,909 | ||||||
Other personnel expenses | 18,171 | 19,312 | ||||||
Total | 475,599 | 442,577 |
120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
34. | Administrative Expenses: |
This item is composed as follows:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
General administrative expenses | ||||||||
Information technology and communications | 92,264 | 79,300 | ||||||
Maintenance and repair of property and equipment | 50,297 | 36,716 | ||||||
External advisory services and professional services fees | 21,099 | 16,690 | ||||||
Surveillance and securities transport services | 11,533 | 11,828 | ||||||
Office supplies | 9,366 | 8,535 | ||||||
Insurance premiums | 5,851 | 5,286 | ||||||
Expenses for short-term leases and low value (*) | 5,801 | — | ||||||
Energy, heating and other utilities | 5,697 | 5,676 | ||||||
External service of financial information | 5,461 | 4,787 | ||||||
Postal box, mail, postage and home delivery services | 5,131 | 6,045 | ||||||
Legal and notary expenses | 3,996 | 4,398 | ||||||
Representation and travel expenses | 3,657 | 3,763 | ||||||
External service of custody of documentation | 3,315 | 3,088 | ||||||
Other expenses of obligations for lease agreements (*) | 2,797 | — | ||||||
Donations | 2,238 | 1,982 | ||||||
Office rental and equipment and ATM (*) | — | 34,773 | ||||||
Other general administrative expenses | 5,227 | 8,591 | ||||||
Subtotal | 233,730 | 231,458 | ||||||
Outsource services | ||||||||
Credit pre-evaluation | 19,159 | 21,952 | ||||||
Data processing | 10,129 | 8,562 | ||||||
External technological developments expenses | 9,459 | 9,984 | ||||||
Certification and technology testing | 7,460 | 6,823 | ||||||
Other | 3,470 | 3,577 | ||||||
Subtotal | 49,677 | 50,898 | ||||||
Board expenses | ||||||||
Board of Directors Compensation | 2,509 | 2,511 | ||||||
Other Board expenses | 194 | 298 | ||||||
Subtotal | 2,703 | 2,809 | ||||||
Marketing expenses | ||||||||
Advertising | 27,808 | 31,375 | ||||||
Subtotal | 27,808 | 31,375 | ||||||
Taxes, payroll taxes and contributions | ||||||||
Contribution to the banking regulator | 10,285 | 9,548 | ||||||
Real estate contributions | 2,856 | 2,823 | ||||||
Patents | 1,209 | 1,243 | ||||||
Other taxes | 1,437 | 1,323 | ||||||
Subtotal | 15,787 | 14,937 | ||||||
Total | 329,705 | 331,477 |
(*) | See Note No. 3 Adoption of IFRS 16 “Leases”. |
121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
35. | Depreciation, Amortization and Impairment: |
(a) | The amounts corresponding to charges to results for depreciation and amortization during the years 2019 and 2018, are detailed as follows: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Depreciation and amortization | ||||||||
Depreciation of property and equipment (Note No. 16 (b)) | 29,194 | 27,185 | ||||||
Depreciation of rights over leased assets (Note No. 16 (d))(*) | 28,472 | — | ||||||
Amortization of intangibles assets (Note No. 15 (b)) | 12,875 | 10,496 | ||||||
Total | 70,541 | 37,681 |
(*) | See Note No. 4 “Changes in Accounting policies and Disclosures”. |
(b) | As of December 31, 2019 and 2018 the impairment expenses is composed as follows: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Impairment | ||||||||
Impairment of properties and equipment (Note No. 16 (b)) | 2,018 | 334 | ||||||
Impairment of intangible assets (Note No. 15 (b)) | 350 | — | ||||||
Impairment of rights over leased assets (Note No. 16 (d)) | 187 | — | ||||||
Total | 2,555 | 334 |
122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
36. | Other Operating Income: |
During the years 2019 and 2018, the Bank and its subsidiaries present other operating income, according to the following:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Income for assets received in lieu of payment | ||||||||
Income from sale of assets received in lieu of payment | 10,793 | 8,779 | ||||||
Other income | 40 | 56 | ||||||
Subtotal | 10,833 | 8,835 | ||||||
Release of provisions for contingencies | ||||||||
Country risk provisions | — | 436 | ||||||
Other provisions for contingencies | — | 7,526 | ||||||
Subtotal | — | 7,962 | ||||||
Other income | ||||||||
Release and expense recovery | 9,002 | 4,218 | ||||||
Rental income | 8,387 | 9,013 | ||||||
Credit/debit card income | 4,037 | 2,504 | ||||||
Recovery from correspondent banks | 2,816 | 2,591 | ||||||
Revaluation of prepaid monthly payments | 1,731 | 1,224 | ||||||
Income from sale leased assets | 1,166 | 2,586 | ||||||
Reimbursements for insurance policies | 349 | 6,346 | ||||||
Fiduciary and trustee commissions | 267 | 286 | ||||||
Gain on sale of property and equipment | 90 | 3,634 | ||||||
Others | 1,870 | 1,661 | ||||||
Subtotal | 29,715 | 34,063 | ||||||
Total | 40,548 | 50,860 |
123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
37. | Other Operating Expenses: |
During the years 2019 and 2018, the Bank and its subsidiaries present other operating expenses, according to the following:
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Provisions and expenses for assets received in lieu of payment | ||||||||
Charge-off assets received in lieu of payment | 8,778 | 6,638 | ||||||
Provisions for assets received in lieu of payment | 1,786 | 3,361 | ||||||
Expenses to maintain assets received in lieu of payment | 1,225 | 1,749 | ||||||
Subtotal | 11,789 | 11,748 | ||||||
Provisions for contingencies | ||||||||
Country risk provisions | 1,451 | — | ||||||
Other provisions | 33 | 3 | ||||||
Subtotal | 1,484 | 3 | ||||||
Other expenses | ||||||||
Write-offs for operating risks | 5,561 | 11,378 | ||||||
Leasings operational expenses | 5,111 | 4,504 | ||||||
Card administration | 2,490 | 2,640 | ||||||
Correspondent banks | 1,569 | 882 | ||||||
Expenses for charge-off leased assets recoveries | 1,072 | 2,287 | ||||||
Credit life insurance | 282 | 294 | ||||||
Contribution to other organisms | 253 | 253 | ||||||
Civil lawsuits | 120 | 121 | ||||||
Losses on sale of property and equipment | — | 2 | ||||||
Others | 2,873 | 1,543 | ||||||
Subtotal | 19,331 | 23,904 | ||||||
Total | 32,604 | 35,655 |
124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
38. | Related Party Transactions: |
Related parties are considered to be those natural or legal persons who are in positions to directly or indirectly have significant influence through their ownership or management of the Bank and its subsidiaries, as set out in the Compendium of Accounting Standards and Chapter 12-4 of the current Compilation of Standards issued by the CMF.
According to the above, the Bank has considered as related parties those natural or legal persons who have a direct participation or through third parties on Bank ownership, where such participation exceeds 5% of the shares, and also people who, regardless of ownership, have authority and responsibility for planning, management and control of the activities of the entity or its subsidiaries. There also are considered as related the companies in which the parties related by ownership or management of the Bank have a share which reaches or exceeds 5%, or has the position of director, general manager or equivalent.
125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
38. | Related Party Transactions, continued: |
(a) | Loans with related parties: |
The following are the loans and accounts receivable and contingent loans, corresponding to related entities.
Productive and Services Companies (*) | Investment and Commercial Companies (**) | Individuals (***) | Total | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Loans and accounts receivable: | ||||||||||||||||||||||||||||||||
Commercial loans | 174,370 | 221,351 | 130,237 | 132,366 | 13,563 | 13,183 | 318,170 | 366,900 | ||||||||||||||||||||||||
Residential mortgage loans | — | — | — | — | 58,477 | 44,756 | 58,477 | 44,756 | ||||||||||||||||||||||||
Consumer loans | — | — | — | — | 9,862 | 10,074 | 9,862 | 10,074 | ||||||||||||||||||||||||
Gross loans | 174,370 | 221,351 | 130,237 | 132,366 | 81,902 | 68,013 | 386,509 | 421,730 | ||||||||||||||||||||||||
Allowance for loan losses | (782 | ) | (962 | ) | (243 | ) | (242 | ) | (889 | ) | (379 | ) | (1,914 | ) | (1,583 | ) | ||||||||||||||||
Net loans | 173,588 | 220,389 | 129,994 | 132,124 | 81,013 | 67,634 | 384,595 | 420,147 | ||||||||||||||||||||||||
Contingent loans: | ||||||||||||||||||||||||||||||||
Guarantees and sureties | 5,531 | 5,102 | 9,470 | 14,963 | — | — | 15,001 | 20,065 | ||||||||||||||||||||||||
Letters of credits | 2,365 | 5,310 | 328 | 2,776 | — | — | 2,693 | 8,086 | ||||||||||||||||||||||||
Foreign letters of credits | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Banks guarantees | 32,650 | 45,842 | 43,478 | 30,122 | 57 | — | 76,185 | 75,964 | ||||||||||||||||||||||||
Freely disposition credit lines | 52,916 | 58,041 | 14,364 | 14,674 | 21,519 | 19,160 | 88,799 | 91,875 | ||||||||||||||||||||||||
Other contingencies loans | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total contingent loans | 93,462 | 114,295 | 67,640 | 62,535 | 21,576 | 19,160 | 182,678 | 195,990 | ||||||||||||||||||||||||
Provision for contingencies loans | (214 | ) | (258 | ) | (52 | ) | (99 | ) | (37 | ) | (30 | ) | (303 | ) | (387 | ) | ||||||||||||||||
Contingent loans, net | 93,248 | 114,037 | 67,588 | 62,436 | 21,539 | 19,130 | 182,375 | 195,603 | ||||||||||||||||||||||||
Amount covered by guarantee: | ||||||||||||||||||||||||||||||||
Mortgage | 30,807 | 28,208 | 57,456 | 52,108 | 69,165 | 69,292 | 157,428 | 149,608 | ||||||||||||||||||||||||
Warrant | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Pledge | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Others (****) | 37,794 | 47,135 | 12,921 | 13,219 | 5,250 | 3,694 | 55,965 | 64,048 | ||||||||||||||||||||||||
Total collateral | 68,601 | 75,343 | 70,377 | 65,327 | 74,415 | 72,986 | 213,393 | 213,656 |
126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
38. | Related Party Transactions, continued: |
(a) | Loans with related parties, continued: |
(*) | For these effects are considered productive companies, those that meet the following conditions: |
i) | They engage in production activities and generate a separate flow of income. |
ii) | Less than 50% of their assets are financial assets held-for-trading or investments. |
Service companies are considered entities whose main purpose is oriented to rendering services to third parties.
(**) | Investment companies and commercial include those legal entities that do not meet the conditions for productive companies or services providers and are profit-oriented. |
(***) | Individuals include key members of the management and correspond to those who directly or indirectly have authority and responsibility for planning, administrating and controlling the activities of the organization, including directors. This category also includes their family members who influence or are influenced by such individuals in their interactions with the organization. |
(****) | These guarantees mainly correspond to shares and other financial guarantees. |
(b) | Other assets and liabilities with related parties: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Assets | ||||||||
Cash and due from banks | 99,802 | 23,086 | ||||||
Transactions in the course of collection | 63,969 | 35,469 | ||||||
Financial assets held-for-trading | 880 | 205 | ||||||
Derivative instruments | 495,378 | 415,683 | ||||||
Investment instruments | 12,141 | 14,690 | ||||||
Other assets | 76,548 | 80,569 | ||||||
Total | 748,718 | 569,702 | ||||||
Liabilities | ||||||||
Demand deposits | 227,377 | 169,607 | ||||||
Transactions in the course of payment | 16,202 | 58,987 | ||||||
Obligations under repurchase agreements | 54,030 | 84,465 | ||||||
Savings accounts and time deposits | 396,028 | 219,322 | ||||||
Derivative instruments | 432,669 | 337,299 | ||||||
Borrowings with banks | 292,172 | 228,269 | ||||||
Lease liabilities | 5,138 | — | ||||||
Other liabilities | 151,335 | 115,145 | ||||||
Total | 1,574,951 | 1,213,094 |
127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
38. | Related Party Transactions, continued: |
(c) | Income and expenses from related party transactions (*): |
2019 | 2018 | |||||||||||||||
Income | Expense | Income | Expense | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Type of income or expense recognized | ||||||||||||||||
Interest and revenue expenses | 19,039 | 2,619 | 21,736 | 7,196 | ||||||||||||
Fees and commissions income | 72,931 | 65,383 | 70,286 | 74,205 | ||||||||||||
Net Financial Operating Income | ||||||||||||||||
Derivative instruments (**) | 124,967 | 73,252 | 85,500 | 42,365 | ||||||||||||
Other financial operations | 87 | 119 | — | — | ||||||||||||
Released or established of provision for credit risk | — | 106 | — | 34 | ||||||||||||
Operating expenses | — | 120,559 | — | 105,734 | ||||||||||||
Other income and expenses | 542 | 26 | 446 | 45 |
(*) | This detail does not constitute a Statement of Comprehensive Income for related party transactions since the assets with these parties are not necessarily equal to liabilities and each item reflects total income and expense and not those corresponding to exact transactions. |
(**) | The outcome of derivative operations is presented net at each related counterparty level. Additionally, this line includes operations with local counterpart banks (unrelated) which have been novated by Comder Contraparte Central S.A. (Related entity) for centralized clearing purposes, which generated a net gain of Ch$123,461 million as of December 31, 2019 (net gain of Ch$71,297 million as of December 31, 2018). |
(d) | Contracts with related parties: |
During the year ended December 31, 2019, the Bank has signed, renewed or amended the contractual terms and conditions of the following contracts with related parties that do not correspond to the ordinary transactions with clients in general, for above UF 1,000:
Company name | Concept or service description | |
Servipag Ltda. | Development of systems and collection and payment services | |
Canal 13 S.A. | Advertising service | |
Redbanc S.A. | ATM configuration services | |
DCV Registros S.A. | Shareholders’ Meeting Management Service | |
Asoc. de Bancos e Instituciones Financieras | Membership fee | |
Sociedad de Fomento Fabril | Cooperation agreement for the operation of the network of inclusive companies | |
Fundacion Chilena del Pacífico | Sponsorship of SMEs summit and entrepreneurs of Asia-Pacific Economic Cooperation (APEC) | |
Transbank S.A. | Operation contract cards | |
Transbank S.A. | Collection of insurance premiums |
128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
38. | Related Party Transactions, continued: |
Company name | Concept or service description | |
Nexus S.A. | Credit card operation services | |
Ionix SPA | Software development services | |
Combanc S.A. | High value payment services | |
Centro de Compensación Automatizado S.A. | Electronic transfer services and mandates | |
Sistemas Oracle de Chile S.A. | Licensing, support and hardware configuration services | |
Empresa Nacional de Energía Enex S.A. | Lease contract | |
Citigroup Inc. | Cooperation and global connectivity agreement | |
Nuevos Desarrollos S.A. | Lease contract | |
Administradora Plaza Vespucio S.A. | Lease contract | |
Plaza Vespucio SPA | Lease contract | |
Plaza Antofagasta S.A. | Lease contract |
(e) | Directors’ expenses and remunerations and payments to key management personnel: |
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Personnel remunerations | 4,148 | 3,926 | ||||||
Short-term benefits | 3,255 | 3,476 | ||||||
Severance pay | 1,264 | 1,037 | ||||||
Directors’ remunerations and fees (*) | 2,509 | 2,511 | ||||||
Total | 11,176 | 10,950 |
(*) | It includes fees paid to members of the Advisory Committee of Banchile Corredores de Seguros Ltda, of Ch$13 million (Ch$12 million in December 2018). |
Fees paid to the advisors of the Board of Directors amount to Ch$90 million (Ch$206 million in December 2018) and travel and other related expenses amount to Ch$104 million (Ch$92 million in December 2018).
Composition of key personnel:
No. of executives | ||||||||
2019 | 2018 | |||||||
Position | ||||||||
CEO | 1 | 1 | ||||||
CEOs of subsidiaries | 6 | 6 | ||||||
Division Managers | 13 | 13 | ||||||
Directors Bank and subsidiaries | 21 | 20 | ||||||
Total | 41 | 40 |
129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial Assets and Liabilities: |
Banco de Chile and its subsidiaries have defined a corporate framework for valuation and control related with the process to the fair value measurement.
Within the established framework includes the Product Control Unit, which is independent of the business areas and reports to the Financial Management and Control Division Manager. This function befall to the Financial Control and Treasury Manager, through the Financial Risk Information and Control Section, is responsible for independent verification of price and results of trading (including derivatives) and investment operations and all fair value measurements.
To achieve the appropriate measurements and controls, the Bank and its subsidiaries, take into account at least the following aspects:
(i) | Industry standard valuation. |
To value financial instruments, Banco de Chile uses industry standard modeling; quota value, share price, discounted cash flows and valuation of options through Black-Scholes-Merton, according to the case. The input parameters for the valuation correspond to rates, prices and levels of volatility for different terms and market factors that are traded in the national and international market and that are provided by the main sources of the market.
(ii) | Quoted prices in active markets. |
The fair value for instruments with quoted prices in active markets is determined using daily quotes from electronic systems information (such as Bolsa de Comercio de Santiago, Bloomberg, LVA and Risk America, etc). This quote represents the price at which these instruments are regularly traded in the financial markets.
(iii) | Valuation techniques. |
If no specific quotes are available for the instrument to be valued, valuation techniques will be used to determine the fair value.
Due to, in general, the valuation models require a set of market parameters as inputs, the aim is to maximize information based on observable or price-related quotations for similar instruments in active markets. To the extent there is no information in direct from the markets, data from external suppliers of information, prices of similar instruments and historical information are used to validate the valuation parameters.
130
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial Assets and Liabilities, continued: |
(iv) | Fair value adjustments. |
Part of the fair value process considers three adjustments to the market value, calculated based on the market parameters, including; a liquidity adjustment, a Bid/Offer adjustment and an adjustment is made for credit risk of derivatives (CVA and DVA). The calculation of the liquidity adjustment considers the size of the position in each factor, the particular liquidity of each factor, the relative size of Banco de Chile with respect to the market, and the liquidity observed in transactions recently carried out in the market. In turn, the Bid/Offer adjustment, represents the impact on the valuation of an instrument depending on whether the position corresponds to a long (bought) or a short (sold).To calculate this adjustment is used the direct quotes from active markets or indicative prices or derivatives of similar assets depending on the instrument, considering the Bid, Mid and Offer, respectively. Finally, the adjustment made for CVA and DVA for derivatives corresponds to the credit risk recognition of the issuer, either of the counterparty (CVA) or of Banco de Chile (DVA).
Liquidity value adjustments are made to trading instruments (including derivatives) only, while Bid / Offer adjustments are made for trading instruments and available for sale. Adjustments for CVA / DVA are carried out only for derivatives.
(v) | Fair value control. |
A process of independent verification of prices and rates is executed daily, in order to control that the market parameters used by Banco de Chile in the valuation of the financial instruments relating to the current state of the market and from them the best estimate derived of the fair value. The objective of this process is to control that the official market parameters provided by the respective business area, before being entered into the valuation, are within acceptable ranges of differences when compared to the same set of parameters prepared independently by the Financial Risk Information and Control Section. As a result, value differences are obtained at the level of currency, product and portfolio. In the event significant differences exist, these differences are scaled according to the amount of individual materiality of each market factor and aggregated at the portfolio level, according to the grouping levels within previously defined ranges. These ranges are approved by the Finance, International and Financial Risk Committee.
Complementary and in parallel, the Financial Risk Information and Control Section generates and reports on a daily basis Profit and Loss (“P&L”) and Exposure to Market Risks, which allow for proper control and consistency of the parameters used in the valuation.
131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial Assets and Liabilities, continued: |
(vi) | Judgmental analysis and information to Management. |
In particular cases, where there are no market quotations for the instrument to be valued and there are no prices for similar transactions instruments or indicative parameters, a specific control and a reasoned analysis must be carried out in order to estimate the fair value of the operation. Within the valuation framework described in the Reasonable Value Policy (and its procedure) approved by the Board of Directors of Banco de Chile, a required level of approval is set in order to carry out transactions where market information is not available or it is not possible to infer prices or rates from it.
(a) | Hierarchy of instrument valued at Fair value: |
Banco de Chile and its subsidiaries, classify all the financial instruments among the following levels:
Level 1: | These are financial instruments whose fair value is calculated at quoted prices (unadjusted) in extracted from liquid and deep markets. For these instruments there are quotes or prices (return internal rates, quote value, price) the observable market, so that assumptions are not required to determine the value. |
In this level, the following instruments are considered: currency futures, debt instruments issued Chilean Central Bank and Treasury, which belong to benchmarks, mutual fund investments and equity shares.
For the instruments of the Central Bank of Chile and the General Treasury of the Republic, all those mnemonics belonging to a Benchmark, in other words corresponding to one of the following categories published by the Santiago Stock Exchange, will be considered as Level 1: Pesos-02, Pesos-03, Pesos-04, Pesos-05, Pesos-07, Pesos-10, UF-02, UF-04, UF-05, UF-07, UF-10, UF-20, UF-30. A Benchmark corresponds to a group of mnemonics that are similar in duration and are traded in an equivalent way, i.e., the price (return internal rates in this case) obtained is the same for all the instruments that make up a Benchmark. This feature defines a greater depth of market, with daily quotations that allow classifying these instruments as Level 1.
In the case of debt issued by the Government, the internal rate of return of the market is used to discount all flows to present value. In the case of mutual funds and equity shares, the current market price per share, which multiplied by the number of instruments results in the fair value.
The preceding described valuation methodology is equivalent to the one used by the Bolsa de Comercio de Santiago (Santiago Stock Exchange) and correspond to the standard methodology used in the market.
132
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial Assets and Liabilities, continued: |
Level 2: | They are financial instruments whose fair value is calculated based on prices other than in quoted in Level 1 that are observable for the asset or liability, directly (that is, as prices or internal rates of return) or indirectly (that is, derived from prices or internal rates of return from similar instruments). These categories include: |
a) | Quoted prices for similar assets or liabilities in active markets. |
b) | Quoted prices for identical or similar assets or liabilities in markets that are not active. |
c) | Inputs data other than quoted prices that are observable for the asset or liability. |
d) | Inputs data corroborated by the market. |
At this level there are mainly derivatives instruments, debt issued by banks, debt issues of Chilean and foreign companies, issued in Chile or abroad, mortgage claims, financial brokerage instruments and some issuances by the Central Bank of Chile and the General Treasury of the Republic, which do not belong to benchmarks.
To value derivatives, depends on whether they are impacted by volatility as a relevant market factor in standard valuation methodologies; for options the Black-Scholes-Merton formula is used; for the rest of the derivatives, forwards and swaps, discounted cash flows method is used.
For the remaining instruments at this level, as for debt issues of level 1, the valuation is done through cash flows model by using an internal rate of return that can be derived or estimated from internal rates of return of similar securities as mentioned above.
In the event that there is no observable price for an instrument in a specific term, the price will be inferred from the interpolation between periods that have observable quoted price in active markets. These models incorporate various market variables, including the credit quality of counterparties, exchange rates and interest rate curves.
133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial Assets and Liabilities, continued: |
Valuation Techniques and Inputs for Level 2 Instrument:
Type of | Valuation Method | Description: Inputs and Sources |
Local Bank and Corporate Bonds | Discounted cash flows model | Prices (internal rates of return) are provided by third party price providers that are widely used in the Chilean market.
Model is based on a Base Yield (Central Bank Bonds) and issuer spread.
The model is based on daily prices and risk/maturity similarities between Instruments. |
Offshore Bank and Corporate Bonds | Prices are provided by third party price providers that are widely used in the Chilean market.
Model is based on daily prices. | |
Local Central Bank and Treasury Bonds | Prices (internal rates of return) are provided by third party price providers that are widely used in the Chilean market.
Model is based on daily prices. | |
Mortgage Notes | Prices (internal rates of return) are provided by third party price providers that are widely used in the Chilean market.
Model is based on a Base Yield (Central Bank Bonds) and issuer spread.
The model takes into consideration daily prices and risk/maturity similarities between instruments. | |
Time Deposits | Prices (internal rates of return) are provided by third party price providers that are widely used in the Chilean market.
Model is based on daily prices and considers risk/maturity similarities between instruments. | |
Cross Currency Swaps, Interest Rate Swaps, FX Forwards, Inflation Forwards | Forward Points, Inflation forecast and local swap rates are provided by market brokers that are widely used in the Chilean market.
Offshore rates and spreads are obtained from third party price providers that are widely used in the Chilean market.
Zero Coupon rates are calculated by using the bootstrapping method over swap rates.
| |
FX Options | Black-Scholes Model | Prices for volatility surface estimates are obtained from market brokers that are widely used in the Chilean market. |
134
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial Assets and Liabilities, continued: |
Level 3: | These are financial instruments whose fair value is determined using non-observable inputs data neither for the assets or liabilities under analysis nor for similar instruments. An adjustment to an input that is significant to the entire measurement can result in a fair value measurement classified within Level 3 of the fair value hierarchy, if the adjustment uses significant non-observable data entry. |
The instruments likely to be classified as level 3 are mainly Corporate Debt by Chilean and foreign companies, issued both in Chile and abroad.
Valuation Techniques and Inputs for Level 3 Instrument:
Type of Financial Instrument | Valuation Method | Description: Inputs and Sources |
Local Bank and Corporate Bonds | Discounted cash flows model
| Since inputs for these types of securities are not observable by the market, we model interest rate of returns for them based on a Base Yield (Central Bank Bonds) and issuer spread. These inputs (base yield and issuer spread) are provided on a daily basis by third party price providers that are widely used in the Chilean market. |
Offshore Bank and Corporate Bonds | Discounted cash flows model
| Since inputs for these types of securities are not observable by the market, we model interest rate of returns for them based on a Base Yield (US-Libor) and issuer spread. These inputs (base yield and issuer spread) are provided on a weekly basis by third party price providers that are widely used in the Chilean market.
|
135
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial Assets and Liabilities, continued: |
(b) | Level chart: |
The following table shows the classification by levels, for financial instruments registered at fair value.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
Financial Assets | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||
Financial assets held-for-trading | ||||||||||||||||||||||||||||||||
From the Chilean Government and Central Bank | 93,032 | 178,692 | 1,030,657 | 1,344,780 | — | — | 1,123,689 | 1,523,472 | ||||||||||||||||||||||||
Other instruments issued in Chile | 3,272 | 1,663 | 316,971 | 107,078 | 55,094 | 20,866 | 375,337 | 129,607 | ||||||||||||||||||||||||
Instruments issued abroad | — | 4,446 | — | — | — | — | — | 4,446 | ||||||||||||||||||||||||
Mutual fund investments | 373,329 | 87,841 | — | — | — | — | 373,329 | 87,841 | ||||||||||||||||||||||||
Subtotal | 469,633 | 272,642 | 1,347,628 | 1,451,858 | 55,094 | 20,866 | 1,872,355 | 1,745,366 | ||||||||||||||||||||||||
Derivative contracts for trading purposes | ||||||||||||||||||||||||||||||||
Forwards | — | — | 956,632 | 735,444 | — | — | 956,632 | 735,444 | ||||||||||||||||||||||||
Swaps | — | — | 1,761,952 | 738,130 | — | — | 1,761,952 | 738,130 | ||||||||||||||||||||||||
Call Options | — | — | 4,961 | 4,839 | — | — | 4,961 | 4,839 | ||||||||||||||||||||||||
Put Options | — | — | 1,076 | 120 | — | — | 1,076 | 120 | ||||||||||||||||||||||||
Futures | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Subtotal | — | — | 2,724,621 | 1,478,533 | — | — | 2,724,621 | 1,478,533 | ||||||||||||||||||||||||
Hedge derivative contracts | ||||||||||||||||||||||||||||||||
Fair value hedge (Swap) | — | — | 32 | 1,116 | — | — | 32 | 1,116 | ||||||||||||||||||||||||
Cash flow hedge (Swap) | — | — | 61,562 | 34,298 | — | — | 61,562 | 34,298 | ||||||||||||||||||||||||
Subtotal | — | — | 61,594 | 35,414 | — | — | 61,594 | 35,414 | ||||||||||||||||||||||||
Financial assets available-for-sale (1) | ||||||||||||||||||||||||||||||||
From the Chilean Government and Central Bank | 66,953 | 99,132 | 42,109 | 65,090 | — | — | 109,062 | 164,222 | ||||||||||||||||||||||||
Other instruments issued in Chile | — | — | 1,221,862 | 747,653 | 7,069 | 23,021 | 1,228,931 | 770,674 | ||||||||||||||||||||||||
Instruments issued abroad | — | — | 19,853 | 108,544 | — | — | 19,853 | 108,544 | ||||||||||||||||||||||||
Subtotal | 66,953 | 99,132 | 1,283,824 | 921,287 | 7,069 | 23,021 | 1,357,846 | 1,043,440 | ||||||||||||||||||||||||
Total | 536,586 | 371,774 | 5,417,667 | 3,887,092 | 62,163 | 43,887 | 6,016,416 | 4,302,753 | ||||||||||||||||||||||||
Financial Liabilities | ||||||||||||||||||||||||||||||||
Derivative contracts for trading purposes | ||||||||||||||||||||||||||||||||
Forwards | — | — | 673,630 | 631,047 | — | — | 673,630 | 631,047 | ||||||||||||||||||||||||
Swaps | — | — | 2,097,024 | 854,873 | — | — | 2,097,024 | 854,873 | ||||||||||||||||||||||||
Call Options | — | — | 1,529 | 2,921 | — | — | 1,529 | 2,921 | ||||||||||||||||||||||||
Put Options | — | — | 2,209 | 1,534 | — | — | 2,209 | 1,534 | ||||||||||||||||||||||||
Futures | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Subtotal | — | — | 2,774,392 | 1,490,375 | — | — | 2,774,392 | 1,490,375 | ||||||||||||||||||||||||
Hedge derivative contracts | ||||||||||||||||||||||||||||||||
Fair value hedge (Swap) | — | — | 9,286 | 6,164 | — | — | 9,286 | 6,164 | ||||||||||||||||||||||||
Cash flow hedge (Swap) | — | — | 34,443 | 31,818 | — | — | 34,443 | 31,818 | ||||||||||||||||||||||||
Subtotal | — | — | 43,729 | 37,982 | — | — | 43,729 | 37,982 | ||||||||||||||||||||||||
Total | — | — | 2,818,121 | 1,528,357 | — | — | 2,818,121 | 1,528,357 |
(1) | As of December 31, 2019, 98% of instruments of level 3 have denomination “Investment Grade”. Also, 100% of total of these financial instruments correspond to domestic issuers. |
136
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial Assets and Liabilities, continued: |
(c) | Level 3 reconciliation: |
The following table shows the reconciliation between the balances at the beginning and at the end of year for those instruments classified in Level 3, whose fair value is reflected in the Financial Statements:
2019 | ||||||||||||||||||||||||||||||||
Balance as of January 1, 2019 | Gain (Loss) Recognized in Income (1) | Gain (Loss) Recognized in Equity (2) | Purchases | Sales | Transfer from Level 1 and 2 | Transfer to Level 1 and 2 | Balance as of December 31, 2019 | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Financial Assets | ||||||||||||||||||||||||||||||||
Financial assets held-for-trading: | ||||||||||||||||||||||||||||||||
Other instruments issued in Chile | 20,866 | (38 | ) | — | 48,017 | (26,504 | ) | 13,368 | (615 | ) | 55,094 | |||||||||||||||||||||
Subtotal | 20,866 | (38 | ) | — | 48,017 | (26,504 | ) | 13,368 | (615 | ) | 55,094 | |||||||||||||||||||||
Available-for-Sale Instruments: | ||||||||||||||||||||||||||||||||
Other instruments issued in Chile | 23,021 | 968 | (517 | ) | — | (18,177 | ) | 1,774 | — | 7,069 | ||||||||||||||||||||||
Subtotal | 23,021 | 968 | (517 | ) | — | (18,177 | ) | 1,774 | — | 7,069 | ||||||||||||||||||||||
Total | 43,887 | 930 | (517 | ) | 48,017 | (44,681 | ) | 15,142 | (615 | ) | 62,163 |
2018 | ||||||||||||||||||||||||||||||||
Balance as of January 1, 2018 | Gain (Loss) Recognized in Income (1) | Gain (Loss) Recognized in Equity (2) | Purchases | Sales | Transfer from Level 1 and 2 | Transfer to Level 1 and 2 | Balance as of December 31, 2018 | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Financial Assets | ||||||||||||||||||||||||||||||||
Financial assets held-for-trading: | ||||||||||||||||||||||||||||||||
Other instruments issued in Chile | 8,012 | 176 | — | 48,740 | (36,062 | ) | — | — | 20,866 | |||||||||||||||||||||||
Subtotal | 8,012 | 176 | — | 48,740 | (36,062 | ) | — | — | 20,866 | |||||||||||||||||||||||
Available-for-Sale Instruments: | ||||||||||||||||||||||||||||||||
Other instruments issued in Chile | 46,265 | 2,539 | (292 | ) | — | (20,520 | ) | — | (4,971 | ) | 23,021 | |||||||||||||||||||||
Subtotal | 46,265 | 2,539 | (292 | ) | — | (20,520 | ) | — | (4,971 | ) | 23,021 | |||||||||||||||||||||
Total | 54,277 | 2,715 | (292 | ) | 48,740 | (56,582 | ) | — | (4,971 | ) | 43,887 |
(1) | Recorded in income under item “Net financial operating income”. |
(2) | Recorded in equity under item “Other Comprehensive Income”. |
137
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial Assets and Liabilities, continued: |
(d) | Sensitivity of instruments classified in level 3 to changes in key assumptions of models: |
The following table shows the sensitivity, by type of instrument, of those instruments classified in Level 3 using alternative in key valuation assumptions:
2019 | 2018 | |||||||||||||||
Level 3 | Sensitivity to changes in key assumptions of models | Level 3 | Sensitivity to changes in key assumptions of models | |||||||||||||
Financial Assets | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||
Financial assets held-for-trading | ||||||||||||||||
Other instruments issued in Chile | 55,094 | (466 | ) | 20,866 | (26 | ) | ||||||||||
Subtotal | 55,094 | (466 | ) | 20,866 | (26 | ) | ||||||||||
Available-for- Sale Instruments | ||||||||||||||||
Other instruments issued in Chile | 7,069 | (86 | ) | 23,021 | (195 | ) | ||||||||||
Subtotal | 7,069 | (86 | ) | 23,021 | (195 | ) | ||||||||||
Total | 62,163 | (552 | ) | 43,887 | (221 | ) |
With the purpose to determine the sensitivity of the financial investments to changes in significant market factors, the Bank has made alternative calculations at fair value, changing those key parameters for the valuation and which are not directly observable in screens. In the case of the financial assets listed in the table above, which correspond to Bank Bonds and Corporate Bonds, it was considered that, since there are no current observables prices, the input prices will be based on brokers’ quotes. The prices are usually calculated as a base rate plus a spread. For Local Bonds it was determined to apply a 10% impact on the price, while for the Off Shore Bonds it was determined to apply a 10% impact only on the spread, since the base rate is covered by interest rate swaps instruments in the so-called accounting hedges. The 10% impact is considered a reasonable move taking into account the market performance of these instruments and comparing it against the bid / offer adjustment that is provisioned by these instruments.
138
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial Assets and Liabilities, continued: |
(e) | Other assets and liabilities: |
The following table summarizes the fair values of the Bank’s main financial assets and liabilities that are not recorded at fair value in the Statement of Financial Position. The values shown in this note are not attempt to estimate the value of the Bank’s income-generating assets, nor forecast their future behavior. The estimated fair value is as follows:
Book Value | Estimated Fair Value | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Assets | ||||||||||||||||
Cash and due from banks | 2,392,166 | 880,081 | 2,392,166 | 880,081 | ||||||||||||
Transactions in the course of collection | 584,672 | 580,333 | 584,672 | 580,333 | ||||||||||||
Investments under resale agreements | 142,329 | 97,289 | 142,329 | 97,289 | ||||||||||||
Subtotal | 3,119,167 | 1,557,703 | 3,119,167 | 1,557,703 | ||||||||||||
Loans and advances to banks | ||||||||||||||||
Domestic banks | 149,953 | 99,940 | 149,953 | 99,940 | ||||||||||||
Central Bank of Chile | 630,053 | 1,100,831 | 630,053 | 1,100,831 | ||||||||||||
Foreign banks | 359,427 | 293,536 | 358,542 | 286,063 | ||||||||||||
Subtotal | 1,139,433 | 1,494,307 | 1,138,548 | 1,486,834 | ||||||||||||
Loans to customers, net | ||||||||||||||||
Commercial loans | 15,956,336 | 15,140,533 | 15,988,330 | 14,949,852 | ||||||||||||
Residential mortgage loans | 9,175,014 | 8,021,262 | 9,888,506 | 8,451,099 | ||||||||||||
Consumer loans | 4,202,702 | 4,145,428 | 4,215,509 | 4,116,261 | ||||||||||||
Subtotal | 29,334,052 | 27,307,223 | 30,092,345 | 27,517,212 | ||||||||||||
Total | 33,592,652 | 30,359,233 | 34,350,060 | 30,561,749 | ||||||||||||
Liabilities | ||||||||||||||||
Current accounts and other demand deposits | 11,326,133 | 9,584,488 | 11,326,133 | 9,584,488 | ||||||||||||
Transactions in the course of payment | 352,121 | 335,575 | 352,121 | 335,575 | ||||||||||||
Obligations under repurchase agreements | 308,734 | 303,820 | 308,734 | 303,820 | ||||||||||||
Savings accounts and time deposits | 10,856,618 | 10,656,174 | 10,795,125 | 10,632,350 | ||||||||||||
Borrowings from banks | 1,563,277 | 1,516,759 | 1,555,129 | 1,506,940 | ||||||||||||
Other financial obligations | 156,229 | 118,014 | 160,361 | 119,024 | ||||||||||||
Subtotal | 24,563,112 | 22,514,830 | 24,497,603 | 22,482,197 | ||||||||||||
Debt Issued | ||||||||||||||||
Letters of credit for residential purposes | 10,229 | 15,040 | 11,081 | 15,982 | ||||||||||||
Letters of credit for general purposes | 669 | 1,328 | 725 | 1,411 | ||||||||||||
Bonds | 7,912,621 | 6,772,990 | 8,340,272 | 6,897,317 | ||||||||||||
Subordinate bonds | 889,895 | 686,194 | 1,004,621 | 732,611 | ||||||||||||
Subtotal | 8,813,414 | 7,475,552 | 9,356,699 | 7,647,321 | ||||||||||||
Total | 33,376,526 | 29,990,382 | 33,854,302 | 30,129,518 |
Other financial assets and liabilities not measured at their fair value, but for which a fair value is estimated, even if not managed based on such value, include assets and liabilities such as placements, deposits and other time deposits, debt issued, and other financial assets and obligations with different maturities and characteristics. The fair value of these assets and liabilities is calculated using the Discounted Cash Flow model and the use of various data sources such as yield curves, credit risk spreads, etc. In addition, due to some of these assets and liabilities are not traded on the market, periodic reviews and analyzes are required to determine the suitability of the inputs and determined fair values.
139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial assets and liabilities, continued: |
(f) | Levels of other assets and liabilities: |
The following table shows the estimated fair value of financial assets and liabilities not valued at their fair value, as of December 31, 2019 and 2018:
Level 1 Estimated Fair Value | Level 2 Estimated Fair Value | Level 3 Estimated Fair Value | Total Estimated Fair Value | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and due from banks | 2,392,166 | 880,081 | — | — | — | — | 2,392,166 | 880,081 | ||||||||||||||||||||||||
Transactions in the course of collection | 584,672 | 580,333 | — | — | — | — | 584,672 | 580,333 | ||||||||||||||||||||||||
Investments under resale agreements | 142,329 | 97,289 | — | — | — | — | 142,329 | 97,289 | ||||||||||||||||||||||||
Subtotal | 3,119,167 | 1,557,703 | — | — | — | — | 3,119,167 | 1,557,703 | ||||||||||||||||||||||||
Loans and advances to banks | ||||||||||||||||||||||||||||||||
Domestic banks | 149,953 | 99,940 | — | — | — | — | 149,953 | 99,940 | ||||||||||||||||||||||||
Central Bank | 630,053 | 1,100,831 | — | — | — | — | 630,053 | 1,100,831 | ||||||||||||||||||||||||
Foreign banks | — | — | — | — | 358,542 | 286,063 | 358,542 | 286,063 | ||||||||||||||||||||||||
Subtotal | 780,006 | 1,200,771 | — | — | 358,542 | 286,063 | 1,138,548 | 1,486,834 | ||||||||||||||||||||||||
Loans to customers, net | ||||||||||||||||||||||||||||||||
Commercial loans | — | — | — | — | 15,988,330 | 14,949,852 | 15,988,330 | 14,949,852 | ||||||||||||||||||||||||
Residential mortgage loans | — | — | — | — | 9,888,506 | 8,451,099 | 9,888,506 | 8,451,099 | ||||||||||||||||||||||||
Consumer loans | — | — | — | — | 4,215,509 | 4,116,261 | 4,215,509 | 4,116,261 | ||||||||||||||||||||||||
Subtotal | — | — | — | — | 30,092,345 | 27,517,212 | 30,092,345 | 27,517,212 | ||||||||||||||||||||||||
Total | 3,899,173 | 2,758,474 | — | — | 30,450,887 | 27,803,275 | 34,350,060 | 30,561,749 | ||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Current accounts and other demand deposits | 11,326,133 | 9,584,488 | — | — | — | — | 11,326,133 | 9,584,488 | ||||||||||||||||||||||||
Transactions in the course of payment | 352,121 | 335,575 | — | — | — | — | 352,121 | 335,575 | ||||||||||||||||||||||||
Obligations under repurchase agreements | 308,734 | 303,820 | — | — | — | — | 308,734 | 303,820 | ||||||||||||||||||||||||
Savings accounts and time deposits | — | — | — | — | 10,795,125 | 10,632,350 | 10,795,125 | 10,632,350 | ||||||||||||||||||||||||
Borrowings from banks | — | — | — | — | 1,555,129 | 1,506,940 | 1,555,129 | 1,506,940 | ||||||||||||||||||||||||
Other financial obligations | — | — | — | — | 160,361 | 119,024 | 160,361 | 119,024 | ||||||||||||||||||||||||
Subtotal | 11,986,988 | 10,223,883 | — | — | 12,510,615 | 12,258,314 | 24,497,603 | 22,482,197 | ||||||||||||||||||||||||
Debt Issued | ||||||||||||||||||||||||||||||||
Letters of credit for residential purposes | — | — | 11,081 | 15,982 | — | — | 11,081 | 15,982 | ||||||||||||||||||||||||
Letters of credit for general purposes | — | — | 725 | 1,411 | — | — | 725 | 1,411 | ||||||||||||||||||||||||
Bonds | — | — | 8,340,272 | 6,897,317 | — | — | 8,340,272 | 6,897,317 | ||||||||||||||||||||||||
Subordinated bonds | — | — | — | — | 1,004,621 | 732,611 | 1,004,621 | 732,611 | ||||||||||||||||||||||||
Subtotal | — | — | 8,352,078 | 6,914,710 | 1,004,621 | 732,611 | 9,356,699 | 7,647,321 | ||||||||||||||||||||||||
Total | 11,986,988 | 10,223,883 | 8,352,078 | 6,914,710 | 13,515,236 | 12,990,925 | 33,854,302 | 30,129,518 |
140
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial Assets and Liabilities, continued: |
(f) | Levels of other assets and liabilities, continued: |
The Bank determines the fair value of these assets and liabilities according to the following:
· | Short-term assets and liabilities: For assets and liabilities with short-term maturity, it is assumed that the book values approximate to their fair value. This assumption is applied to the following assets and liabilities: |
Assets: | Liabilities: |
Cash and deposits in banks | Current accounts and other demand deposits |
Transactions in the course of collection | Transactions in the course of payments |
Investments under resale agreements | Obligations under repurchase agreements |
Loans and advance to domestic banks |
· | Loans to Customers and Advance to foreign banks: Fair value is determined by using the discounted cash flow model and internally generated discount rates, based on internal transfer rates derived from our internal transfer price policy. Once the present value is determined, we deduct the related loan loss allowances in order to incorporate the credit risk associated with each contract or loan. As we use internally generated parameters for valuation purposes, we categorize these instruments in Level 3. |
· | Letters of Credit and Bonds: In order to determine the present value of contractual cash flows, we apply the discounted cash flow model by using market interest rates that are available in the market, either for the instruments under valuation or instruments with similar features that fit valuation needs in terms of currency, maturities and liquidity. The market interest rates are obtained from third party price providers widely used by the market. As a result of the valuation technique and the quality of inputs (observable) used for valuation, we categorize these financial liabilities in Level 2. |
· | Saving Accounts, Time Deposits, Borrowings from Financial Institutions, Subordinated Bonds and Other borrowings financial: The discounted cash flow model is used to obtain the present value of committed cash flows by applying a bucket approach and average adjusted discount rates that derived from both market rates for instruments with similar features and our internal transfer price policy. As we use internally generated parameters and/or apply significant judgmental analysis for valuation purposes, we categorize these financial liabilities in Level 3. |
141
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
39. | Fair Value of Financial Assets and Liabilities, continued: |
(g) | Offsetting of financial assets and liabilities: |
The Bank trades financial derivatives with foreign counterparties using ISDA Master Agreement (International Swaps and Derivatives Association, Inc.), under legal jurisdiction of the City of New York – USA or London – United Kingdom. Legal framework in these jurisdictions, along with documentation mentioned, it allows Banco de Chile the right to anticipate the maturity of the transaction and then, offset the net value of those transactions in case of default of counterparty. Additionally, the Bank has negotiated with these counterparties an additional annex (CSA Credit Support Annex), that includes other credit mitigating, such as entering margins on a certain amount of net value of transactions, early termination (optional or mandatory) of transactions at certain dates in the future, coupon adjustment of transaction in exchange for payment of the debtor counterpart over a certain threshold amount, etc.
Below are detail the contracts susceptible to offset:
Fair Value | Negative Fair Value of contracts with right to offset | Positive Fair Value of contracts with right to offset | Financial Collateral | Net Fair Value | ||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||
Derivative financial assets | 2,786,215 | 1,513,947 | (952,762 | ) | (582,210 | ) | (1,161,208 | ) | (424,920 | ) | (43,337 | ) | (30,036 | ) | 628,908 | 476,781 | ||||||||||||||||||||||||
Derivative financial liabilities | 2,818,121 | 1,528,357 | (952,762 | ) | (582,210 | ) | (1,161,208 | ) | (424,920 | ) | (418,988 | ) | (233,450 | ) | 285,163 | 287,777 |
142
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
40. | Maturity of Assets and Liabilities: |
The table below details the main financial assets and liabilities grouped in accordance with their remaining maturity, including accrued interest as of December 31, 2019 and 2018, respectively. As these are for trading and available-for-sale instruments are included at their fair value:
2019 | ||||||||||||||||||||||||||||||||||||
Up to 1 month | Over 1 month and up to 3 months | Over 3 month and up to 12 months | Subtotal up to 1 year | Over 1 year and up to 3 years | Over 3 year and up to 5 years | Over 5 years | Subtotal over 1 year | Total | ||||||||||||||||||||||||||||
Assets | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||
Cash and due from banks | 2,392,166 | — | — | 2,392,166 | — | — | — | — | 2,392,166 | |||||||||||||||||||||||||||
Transactions in the course of collection | 584,672 | — | — | 584,672 | — | — | — | — | 584,672 | |||||||||||||||||||||||||||
Financial Assets held-for-trading | 1,872,355 | — | — | 1,872,355 | — | — | — | — | 1,872,355 | |||||||||||||||||||||||||||
Investments under resale agreements | 102,057 | 29,393 | 10,879 | 142,329 | — | — | — | — | 142,329 | |||||||||||||||||||||||||||
Derivative instruments | 158,873 | 314,446 | 621,036 | 1,094,355 | 543,469 | 411,470 | 736,921 | 1,691,860 | 2,786,215 | |||||||||||||||||||||||||||
Loans and advances to banks (*) | 876,119 | 97,585 | 166,487 | 1,140,191 | — | — | — | — | 1,140,191 | |||||||||||||||||||||||||||
Loans to customers (*) | 4,161,262 | 2,340,320 | 5,685,646 | 12,187,228 | 5,624,031 | 3,198,639 | 9,009,572 | 17,832,242 | 30,019,470 | |||||||||||||||||||||||||||
Financial assets available-for-sale | 23,786 | 225,772 | 779,872 | 1,029,430 | 106,930 | 30,080 | 191,406 | 328,416 | 1,357,846 | |||||||||||||||||||||||||||
Financial assets held-to-maturity | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total financial assets | 10,171,290 | 3,007,516 | 7,263,920 | 20,442,726 | 6,274,430 | 3,640,189 | 9,937,899 | 19,852,518 | 40,295,244 |
2018 | ||||||||||||||||||||||||||||||||||||
Up to 1 month | Over 1 month and up to 3 months | Over 3 month and up to 12 months | Subtotal up to 1 year | Over 1 year and up to 3 years | Over 3 year and up to 5 years | Over 5 years | Subtotal over 1 year | Total | ||||||||||||||||||||||||||||
Assets | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||
Cash and due from banks | 880,081 | — | — | 880,081 | — | — | �� | — | — | 880,081 | ||||||||||||||||||||||||||
Transactions in the course of collection | 580,333 | — | — | 580,333 | — | — | — | — | 580,333 | |||||||||||||||||||||||||||
Financial Assets held-for-trading | 1,745,366 | — | — | 1,745,366 | — | — | — | — | 1,745,366 | |||||||||||||||||||||||||||
Investments under resale agreements | 73,496 | 16,918 | 6,875 | 97,289 | — | — | — | — | 97,289 | |||||||||||||||||||||||||||
Derivative instruments | 157,417 | 241,305 | 378,093 | 776,815 | 274,200 | 214,863 | 248,069 | 737,132 | 1,513,947 | |||||||||||||||||||||||||||
Loans and advances to banks (*) | 1,262,428 | 77,268 | 132,259 | 1,471,955 | 23,441 | — | — | 23,441 | 1,495,396 | |||||||||||||||||||||||||||
Loans to customers (*) | 3,941,756 | 2,143,023 | 4,973,622 | 11,058,401 | 5,726,668 | 3,133,606 | 7,995,647 | 16,855,921 | 27,914,322 | |||||||||||||||||||||||||||
Financial assets available-for-sale | 38,691 | 137,420 | 383,200 | 559,311 | 74,940 | 136,342 | 272,847 | 484,129 | 1,043,440 | |||||||||||||||||||||||||||
Financial assets held-to-maturity | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total financial assets | 8,679,568 | 2,615,934 | 5,874,049 | 17,169,551 | 6,099,249 | 3,484,811 | 8,516,563 | 18,100,623 | 35,270,174 |
(*) | These balances are presented without deduction of their respective provisions, which amount to Ch$685,418 million (Ch$607,099 million in December 2018) for loans to customers and Ch$758 million (Ch$1,089 million in December 2018) for borrowings from financial institutions. |
143
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
40. | Maturity of Assets and Liabilities, continued: |
2019 | ||||||||||||||||||||||||||||||||||||
Up to 1 month | Over 1 month and up to 3 months | Over 3 month and up to 12 months | Subtotal up to 1 year | Over 1 year and up to 3 years | Over 3 year and up to 5 years | Over 5 years | Subtotal over 1 year | Total | ||||||||||||||||||||||||||||
Liabilities | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||
Current accounts and other demand deposits | 11,326,133 | — | — | 11,326,133 | — | — | — | — | 11,326,133 | |||||||||||||||||||||||||||
Transactions in the course of payment | 352,121 | — | — | 352,121 | — | — | — | — | 352,121 | |||||||||||||||||||||||||||
Obligations under repurchase agreements | 298,711 | 8,583 | 1,440 | 308,734 | — | — | — | — | 308,734 | |||||||||||||||||||||||||||
Savings accounts and time deposits (**) | 6,130,583 | 1,979,110 | 2,224,778 | 10,334,471 | 281,384 | 492 | 421 | 282,297 | 10,616,768 | |||||||||||||||||||||||||||
Derivative instruments | 155,991 | 237,743 | 616,472 | 1,010,206 | 608,516 | 469,861 | 729,538 | 1,807,915 | 2,818,121 | |||||||||||||||||||||||||||
Borrowings from financial institutions | 69,711 | 349,478 | 1,049,781 | 1,468,970 | 94,307 | — | — | 94,307 | 1,563,277 | |||||||||||||||||||||||||||
Debt issued: | ||||||||||||||||||||||||||||||||||||
Mortgage bonds | 1,102 | 1,212 | 2,622 | 4,936 | 3,868 | 1,579 | 515 | 5,962 | 10,898 | |||||||||||||||||||||||||||
Bonds | 423,966 | 211,648 | 413,485 | 1,049,099 | 1,460,318 | 1,746,745 | 3,656,459 | 6,863,522 | 7,912,621 | |||||||||||||||||||||||||||
Subordinate bonds | 3,041 | 2,460 | 115,933 | 121,434 | 38,525 | 18,251 | 711,685 | 768,461 | 889,895 | |||||||||||||||||||||||||||
Other financial obligations | 140,449 | 1,436 | 6,490 | 148,375 | 6,383 | 1,471 | — | 7,854 | 156,229 | |||||||||||||||||||||||||||
Lease liabilities | 2,353 | 4,776 | 20,841 | 27,970 | 51,571 | 28,463 | 38,009 | 118,043 | 146,013 | |||||||||||||||||||||||||||
Total financial liabilities | 18,904,161 | 2,796,446 | 4,451,842 | 26,152,449 | 2,544,872 | 2,266,862 | 5,136,627 | 9,948,361 | 36,100,810 |
2018 | ||||||||||||||||||||||||||||||||||||
Up to 1 month | Over 1 month and up to 3 months | Over 3 month and up to 12 months | Subtotal up to 1 year | Over 1 year and up to 3 years | Over 3 year and up to 5 years | Over 5 years | Subtotal over 1 year | Total | ||||||||||||||||||||||||||||
Liabilities | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||
Current accounts and other demand deposits | 9,584,488 | — | — | 9,584,488 | — | — | — | — | 9,584,488 | |||||||||||||||||||||||||||
Transactions in the course of payment | 335,575 | — | — | 335,575 | — | — | — | — | 335,575 | |||||||||||||||||||||||||||
Obligations under repurchase agreements | 237,999 | 1,448 | 64,373 | 303,820 | — | — | — | — | 303,820 | |||||||||||||||||||||||||||
Savings accounts and time deposits (**) | 5,018,791 | 1,946,688 | 3,100,464 | 10,065,943 | 365,177 | 619 | 132 | 365,928 | 10,431,871 | |||||||||||||||||||||||||||
Derivative instruments | 146,887 | 237,039 | 335,497 | 719,423 | 264,438 | 273,790 | 270,706 | 808,934 | 1,528,357 | |||||||||||||||||||||||||||
Borrowings from financial institutions | 115,220 | 269,412 | 1,052,830 | 1,437,462 | 79,297 | — | — | 79,297 | 1,516,759 | |||||||||||||||||||||||||||
Debt issued: | ||||||||||||||||||||||||||||||||||||
Mortgage bonds | 1,453 | 1,618 | 3,581 | 6,652 | 5,911 | 2,577 | 1,228 | 9,716 | 16,368 | |||||||||||||||||||||||||||
Bonds | 325,766 | 275,688 | 583,876 | 1,185,330 | 844,692 | 1,505,660 | 3,237,308 | 5,587,660 | 6,772,990 | |||||||||||||||||||||||||||
Subordinate bonds | 4,220 | 2,254 | 44,901 | 51,375 | 41,122 | 27,906 | 565,791 | 634,819 | 686,194 | |||||||||||||||||||||||||||
Other financial obligations | 97,393 | 3,505 | 10,126 | 111,024 | 5,555 | 1,307 | 128 | 6,990 | 118,014 | |||||||||||||||||||||||||||
Total financial liabilities | 15,867,792 | 2,737,652 | 5,195,648 | 23,801,092 | 1,606,192 | 1,811,859 | 4,075,293 | 7,493,344 | 31,294,436 |
(**) | Excludes term saving accounts, which amount to Ch$239,850 million (Ch$224,303 million in December 2018). |
144
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management: |
(1) | Introduction: |
The Bank’s risk management is based on specialization, knowledge of the business and the experience of its teams, with professionals specifically dedicated to each different type of risks. Our policy is to maintain an integrated, forward looking approach to risk management, taking into account the current and forecasted economic environment and the risk/return ratio of all products for both the Bank and its subsidiaries.
Our risk management policies are established in order to identify and analyze the risks faced by the Bank, set appropriate risk limits and controls, and to monitor the risks and compliance with the limits. Policies and risk management systems are reviewed regularly. Through its administration policies and procedures, the Bank develops a disciplined and constructive control environment.
(a) | Risk Management Structure |
Credit, Market and Operational Risk Management are at the all levels of the Organization, with a structure that recognizes the relevance of the different risk areas that exist.
(i) Board of Directors
The Board is responsible for approving the policies and establishing the structure for the proper administration of the various risks faced by the organization. The Board is permanently informed of the evolution of the different risk areas, participating through its Finance, International and Financial Risk, Credit, Portfolio Risk Committee and Higher Operational Risk Committee, in which the status of credit, market and operational risks are reviewed.
145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(1) | Introduction, continued: |
(a) | Risk Management Structure, continued: |
(ii) Finance, International and Financial Risk Committee
This committee functions are to design policies and procedures related to price and liquidity risk; design a structure of limits and alerts of financial exposures, and ensure a correct and timely measurement, control and reporting thereof; track exposures and financial risks; analyze impacts on the valuation of operations and / or results due to potential adverse movements in the values of market variables or liquidity narrowness; review the stress test assumptions and establish action plans where appropriate ; ensure the existence of independent units that value financial positions, and analyze the results of financial positions; track the international financial exposure of liabilities; review the main credit exposures of Treasury products (derivatives, bonds); ensure that the management guidelines for price and liquidity risks in subsidiaries are consistent with those of the Bank, and be aware of the evolution of their main financial risks.
The Finance, International and Financial Risk Committee, session monthly and is comprises by the Chairman of the Board, two Directors or Advisors to the Board, General Manager, Corporate Division Manager, Wholesale Credit Risk Division Manager, Treasury Division Manager and Financial Risk Area Manager. If deemed appropriate, the Committee may invite certain persons to participate, on a permanent or occasional basis, in one or more sessions-
(iii) Credit Committees
The credit approval process is done mainly through various credit committees, which are composed of qualified professionals and with the necessary attributions to take decisions required.
Each committee is responsible for defining the terms and conditions under which the Bank accepts counterparty risks and the Retail Credit Risk and Wholesale Credit Risk Divisions participate independently and autonomously of the commercial areas. They are constituted according to the commercial segments and the amounts to approve and have different meeting periodicities.
Within the risk management structure of the Bank, the maximum approval instance is the Credit Committee of Directors. Sessions weekly and is comprises by the Chairman of the Board, regular and alternate directors, Board Advisors, General Manager and the Wholesale Credit Risk Division Manager. This Committee is responsible for knowing, analyzing and resolving all credit operations associated with clients and / or economic groups whose total amount subject for approval is equal to or greater than UF 750,000. It also has to know, analyze and resolve all those credit operations that, in accordance with the established in the Bank's internal rules, must be approved by this Committee, with the exception of the special powers delegated by the Board to the Administration.
146
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(1) | Introduction, continued: |
(a) | Risk Management Structure, continued: |
(iv) Portfolio Risk Committee
The main function is to know the evolution of the composition, concentration and risk of the loan portfolio of the different banks and segments. Review the main debtors and the different risk indicators of the portfolio, proposing differentiated management strategies. Approves and proposes to the Board the different credit risk policies. It is responsible for reviewing, approving and recommending to the Board of Directors, for its final approval, the different portfolio evaluation methodologies and provision models. It is also responsible for reviewing and analyzing the adequacy of provisions for the different banks and segments. Also to review the guidelines and methodological advances for the development of internal models of credit risk, together with monitoring the concentration by sectors and segments according to the sectoral limits policy. In general, any matter that involves Credit Risk on which senior management must pronounce.
The Portfolio Risk Committee meets monthly and is comprises by the Chairman of the Board, a regular and alternate Director, General Manager, Wholesale Credit Risk Division Manager, Retail Credit Risk Division Manager, Commercial Division Manager, Risk Management and Information Control Manager.
(v) Operational Risk Committee
It is empowered to trigger the necessary changes in the processes, procedures, controls and information systems that support the operation of Banco de Chile, in order to mitigate its operational risks, ensuring that the different areas properly manage and control these risks.
The Operational Risk Committee is comprises by the Global Risk Control Division Manager (Chairman), Operational Risk Manager (Vice President), Operational Risk Management Assistant Manager (Secretary), Financial Management and Control Division Manager, Cybersecurity Division Manager, Technological Risk Manager, Operations Area Manager, Technology and Infrastructure Manager, Customer Area Manager, Large Business Area Manager, Corporate Audit Area Manager; Customer Service Manager and Chief Attorney. The Committee meets monthly and can be summoned extraordinarily.
(vi) Senior Operational Risk Committee
This committee has a sanctioning nature and to ensure that the policies, actions and strategies of operational risk, information security, business continuity and outsourcing of services are aligned with the Bank's objectives and strategies. In addition, to inform the Board about the integral management of operational risk, the Bank's operational risk exposure level, the main risks, events and action plans.
The Senior Operational Risk Committee is comprises by the Chairman of the Board (Chairman), Operational Risk Manager (Secretary), Vice President of the Board, two regular or alternate directors appointed by the Board of the Bank, General Manager, Prosecutor, Global Risk Control Division Manager, Operations and Technology Division Manager, Commercial Division Manager, Cybersecurity Division Manager, and Technological Risk Manager. The Committee meets monthly and can be summoned extraordinarily.
147
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(1) | Introduction, continued: |
(a) | Risk Management Structure, continued: |
(vii) Corporate Risk Governance Structure
The bank corporate governance considers the active participation of the Board, who establishes the policies and guidelines regarding the accepted risk levels, the Administration being responsible for the control and compliance with the provisions set forth by the Board, together with the setting of standards and procedures related. Likewise, the Board establishes the guidelines for the development and validation of models, approves the provisions models and pronounced about the sufficiency of provisions.
At the administration level, the Retail Credit Risk, Wholesale Credit Risk and Global Risk Control divisions comprise the corporate risk governance structure, which through specialized teams, added to a robust regulatory framework of processes and procedures allow optimal management and effective in the subjects they address. The first two are responsible for the credit risk in the admission, monitoring and recovery phases, in the respective Retail and Wholesale segments. Along with this, in the Retail Credit Risk Division the different methodologies related to regulatory and management aspects are developed. The Wholesale Credit Risk Division, in turn, has a Market Risk Area responsible for measuring, limiting, controlling and reporting said risk along with the valuation standards definition.
The Global Risk Control Division through the Operational and Technological Risk Areas, which incorporates Business Continuity, is responsible for controlling those risks, also has an Internal Validation Area of Risk Models.
Additionally, the Bank has a Cybersecurity Division, focused on protecting and monitoring the most sensitive assets of the organization, being able to provide security and confidence to customers and collaborators, whose main objective is to have a secure bank, cyber-resilient and prepared to face any type of threat that puts the reputation and information of the organization at risk.
These divisions have teams with extensive experience and knowledge in each area associated with credit and market risks, ensuring their integral and consolidated management, including the Bank and its subsidiaries.
(b) | Internal Audit |
The risk management processes of the entire Bank are permanently audited by the Internal Audit Area, which examines the sufficiency of the procedures and their compliance. Internal Audit discusses the results of all evaluations with the administration and reports its findings and recommendations to the Board of Directors through the Audit Committee.
148
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(1) | Introduction, continued: |
(c) | Measurement Methodology |
Regarding to Credit Risk, provision levels and portfolio expenses are the basic measures for determining the credit quality of our portfolio.
Banco de Chile permanently evaluates its loan portfolio, timely recognizing the associated level of risk of the loan portfolio. For this comprehensive credit risk assessment, there are policies, standards, procedures, along with models developed in accordance with the instructions issued by the Financial Market Commission ("CMF") and approved by the Board of Directors.
As a result of this evaluation, on both individual and group portfolios, the level of provisions that the bank should constitute is determined, in the event of customers payment default.
The individual evaluation mainly applies to the Bank's portfolio of legal persons that, due to their size, complexity or indebtedness, requires a more detailed level of knowledge and a case-by-case analysis. Each debtor individually assessed is assigned one of the 16 risk categories defined by the CMF, in order to establish the provisions in a timely and appropriate manner. This review of the portfolio risk classifications is carried out permanently considering the financial situation, payment behavior and the environment of each client.
149
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(1) | Introduction, continued: |
(c) | Measurement Methodology, continued: |
The group evaluation mainly applies to the portfolio of natural persons and smaller companies. These assessments are carried out monthly through statistical models that allow estimating the appropriate level of provisions necessary to cover the portfolio risk. The consistency of the models is analyzed through an independent validation of the unit that develops them and, subsequently, through the analysis of retrospective tests that allow to compare the real losses with the expected ones.
The Bank annually performs a sufficiency test of provisions for the total portfolio of loans, in order to validate the quality and robustness of the risk assessment processes, verifying that the provisions constituted are sufficient to cover the losses that could be derive from the credit operations granted. The result of this analysis is presented to the Board of Directors, who declares on the sufficiency of the provisions in each year.
Banco de Chile constitutes additional provisions with the objective of protecting itself from the risk of unpredictable economic fluctuations that may affect the macroeconomic environment or the situation of a specific economic sector. The amount of additional provisions to be constituted or released is annually proposed to the Portfolio Risk Committee and subsequently to the Board of Directors for approval.
The monitoring and control of risks are carried out mainly based on limits established by the Board of Directors. These limits reflect the Bank's business and market strategy, as well as the level of risk that it is willing to accept, with additional emphasis on the selected industries.
The Bank's General Manager receives on daily basis, and the Finance, International and Financial Risk Committee on a monthly basis, the evolution of the Bank's price and liquidity risk status, both according to internal metrics and those imposed by the regulators.
(2) | Credit Risk: |
Credit risk considers the likelihood that the counterparty in the credit operation will not meet its contractual obligation due to incapacity or financial insolvency, and this leads to a potential credit loss.
Credit risk management has a relevant focus on the adequate risk-return relation, is permanent and considers the processes of admission, monitoring and recovery of loans granted. In this management, an adequate balance of the risks assumed is taken into account, ensuring the solvency of the Bank over time.
The established credit risk policies and processes recognize the singularities that exist in the different markets and segments, and grant a specialized treatment to each of them.
150
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(2) | Credit Risk, continued: |
The above results in the following management principles:
1. | Rigorous evaluation in the admission process applying the defined credit risk policies, their associated rules and procedures, together with the availability of sufficient and accurate information. This implies analyzing the generation of flows and solvency of the client to meet the payment commitments and, when the characteristics of the operation merit it, must constitute adequate collateral that allow mitigating the risk incurred with the client. |
2. | Have permanent and robust portfolio tracking processes, through systems that alert both the potential signs of impairment in relation to the conditions of origin, as well as the possible business opportunities with those clients that present a better payments quality and behavior. |
3. | To develop advanced modeling and data management tools that allow for efficient decision-making at different stages of the credit process. |
4. | Have a collection structure with agile and efficient processes that allow carrying out procedures according to the different types of defaults presented by the clients. |
5. | Maintain an efficient administration in work teams organization, tools and availability of information that allow an optimal credit risk management. |
Credit Risk Divisions continuously manage risk knowledge in order to contribute to the business and anticipate threats that may affect the solvency and quality of the portfolio. Its mission is to establish the Credit Risk management framework for the different segments of the Bank, within the defined regulatory scope and at the risk established by the entity, through a portfolio vision that allows us to manage, resolve and control the process of approval of operations related to the different portfolios of the Bank, in an efficient and proactive manner..
a) | Retail Segments: |
Admission management in these segments is mainly carried out through an evaluation that uses scoring tools, accompanied by an adequate model of credit attributions, which are required to approve each operation. These evaluations take into account the level of indebtedness, payment capacity and the maximum acceptable exposure for the client.
In these segments, the Bank has segregated functions, distributed in the following areas:
− | Model Area, has the responsibility of constructing statistical models, establishing the variables and their respective weightings. These models are validated by the Model Validation Area and submitted to the Models Technical Committee before approval in the Portfolio Risk Committee or the Board of Directors, as appropriate. |
− | Area of Integration in Management is responsible for incorporating statistical models in credit evaluation processes, ensuring an adequate linkage of the decision. |
− | Admission Area performs the evaluation of operations and clients, with specialization by regions and segments, which favors their knowledge of clients and socio-economic background. It also maintains a framework of policies and standards that ensure the quality of the portfolio according to the desired risk, defining guidelines for the admission of clients that are released to commercial and risk areas through programs and continuous training. |
151
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(2) | Credit Risk, continued: |
− | Model and Portfolio Tracking Area is responsible for evaluating and measuring the performance of the models and the behavior of the portfolios, the latter especially through the monitoring of the main indicators of aggregate portfolio and layers analysis, reported in management reports, generating relevant information for decision making in different defined instances. This Area also ensures proper execution of the strategy, meeting the objectives of risk quality and return. |
− | Collection Area performs a cross-collection management in the Bank and centralizes recovery management in retail segments through Socofin, Bank's subsidiary company, defining refinancing criteria and payment agreements with customers, along with the incorporation of robust tools for collection management |
b) | Wholesale Segments: |
Admission management in these segments is based on an individual evaluation of the client and if it belongs to a group of companies, the relationship of the rest of the group with the Bank is also considered. This individual and group evaluation, if applicable, considers, among others, the financial capacity with emphasis on equity solvency, generation capacity, exposure levels, industry variables, evaluation of partners and management and aspects of the operation such as financing, term, products and possible collaterals.
This process is supported by a rating model that allows greater homogeneity in the evaluation of the client and his group. Additionally, for the evaluation of clients, there are specialized areas in some segments that, due to their nature, require expert knowledge, such as real estate, construction, agricultural, financial, and international, among others.
The permanent monitoring of the portfolio is carried out in a centralized manner, based on information periodically updated by both the client and the industry. Monitoring of compliance with the special conditions established in the admission stage is carried out, such as controls of financial covenants, coverage of certain collaterals and restrictions imposed at the time of approval. Alerts are also generated through monitoring to ensure the correct classification of the individual portfolio.
Additionally, within the Admission areas, joint tasks are carried out that allow monitoring the development of operations from their gestation to their recovery, in order to ensure that the portfolio's risks are well recognized in a timely manner.
Upon detection of clients that show signs of impairment or default with any condition, the commercial area to which the client belongs together with the Wholesale Credit Risk Division, establish action plans to regularize said situation. In those cases where they present problems in the recovery of their credits, there is the area of Special Asset Management, belonging to the Wholesale Credit Risk Division, in charge of the collection management, establishing action plans and negotiations based on the particular characteristics of each client.
152
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(2) | Credit Risk, continued: |
c) | Portfolio Concentration: |
The maximum exposure to credit risk, by client or counterparty, without taking into account guarantees or other credit enhancements as of December 31, 2019 and 2018, does not exceed 10% of the Bank's effective equity.
The following tables show credit risk exposure per balance sheet item, including derivatives, detailed by both geographic region and industry sector as of December 31, 2019:
Chile | United States | Brazil | Others | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and Due from Banks | 1,144,109 | 1,145,703 | — | 102,354 | 2,392,166 | |||||||||||||||
Financial Assets held-for-trading | ||||||||||||||||||||
From the Chilean Government and Central Bank of Chile | 1,123,689 | — | — | — | 1,123,689 | |||||||||||||||
Other instruments issued in Chile | 375,337 | — | — | — | 375,337 | |||||||||||||||
Instruments issued abroad | — | — | — | — | — | |||||||||||||||
Mutual fund investments | 373,329 | — | — | — | 373,329 | |||||||||||||||
Subtotal | 1,872,355 | — | — | — | 1,872,355 | |||||||||||||||
Investments under resale agreements | 142,329 | — | — | — | 142,329 | |||||||||||||||
Derivative Contracts for Trading Purposes | ||||||||||||||||||||
Forwards | 872,481 | 53,923 | — | 30,228 | 956,632 | |||||||||||||||
Swaps | 1,142,174 | 167,818 | — | 451,960 | 1,761,952 | |||||||||||||||
Call Options | 4,961 | — | — | — | 4,961 | |||||||||||||||
Put Options | 807 | 11 | — | 258 | 1,076 | |||||||||||||||
Futures | — | — | — | — | — | |||||||||||||||
Subtotal | 2,020,423 | 221,752 | — | 482,446 | 2,724,621 | |||||||||||||||
Hedge Derivative Contracts | ||||||||||||||||||||
Forwards | — | — | — | — | — | |||||||||||||||
Swaps | 5,864 | 25,780 | — | 29,950 | 61,594 | |||||||||||||||
Call Options | — | — | — | — | — | |||||||||||||||
Put Options | — | — | — | — | — | |||||||||||||||
Futures | — | — | — | — | — | |||||||||||||||
Subtotal | 5,864 | 25,780 | — | 29,950 | 61,594 | |||||||||||||||
Loans and advances to Banks | ||||||||||||||||||||
Central Bank of Chile | 630,053 | — | — | — | 630,053 | |||||||||||||||
Domestic banks | 150,007 | — | — | — | 150,007 | |||||||||||||||
Foreign banks | — | — | 244,969 | 115,162 | 360,131 | |||||||||||||||
Subtotal | 780,060 | — | 244,969 | 115,162 | 1,140,191 | |||||||||||||||
Loans to Customers, Net | ||||||||||||||||||||
Commercial loans | 16,269,424 | — | — | 14,685 | 16,284,109 | |||||||||||||||
Residential mortgage loans | 9,203,061 | — | — | — | 9,203,061 | |||||||||||||||
Consumer loans | 4,532,300 | — | — | — | 4,532,300 | |||||||||||||||
Subtotal | 30,004,785 | — | — | 14,685 | 30,019,470 | |||||||||||||||
Financial Assets Available-for-Sale | ||||||||||||||||||||
from the Chilean Government and Central Bank of Chile | 109,062 | — | — | — | 109,062 | |||||||||||||||
Other instruments issued in Chile | 1,228,931 | — | — | — | 1,228,931 | |||||||||||||||
Instruments issued abroad | — | — | — | 19,853 | 19,853 | |||||||||||||||
Subtotal | 1,337,993 | — | — | 19,853 | 1,357,846 | |||||||||||||||
Financial assets held-to-Maturity | — | — | — | — | — |
153
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(2) | Credit Risk, continued: |
Financial Services | Chilean Central Bank | Government | Retail (Individuals) | Trade | Manufacturing | Mining | Electricity, Gas and Water | Agriculture and Livestock | Fishing | Transportation and Telecom | Construction | Services | Others | Total | ||||||||||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||||||||||||||||||||
Financial Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Due from Banks | 2,213,737 | 178,429 | — | — | — | — | — | — | — | — | — | — | — | — | 2,392,166 | |||||||||||||||||||||||||||||||||||||||||||||
Financial Assets held-for-trading | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
From the Chilean Government and Central Bank of Chile | — | 1,024,525 | 99,164 | — | — | — | — | — | — | — | — | — | — | — | 1,123,689 | |||||||||||||||||||||||||||||||||||||||||||||
Other instruments issued in Chile | 375,337 | — | — | — | — | — | — | — | — | — | — | — | — | — | 375,337 | |||||||||||||||||||||||||||||||||||||||||||||
Instruments issued abroad | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Mutual fund investments | 373,329 | — | — | — | — | — | — | — | — | — | — | — | — | — | 373,329 | |||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 748,666 | 1,024,525 | 99,164 | — | — | — | — | — | — | — | — | — | — | — | 1,872,355 | |||||||||||||||||||||||||||||||||||||||||||||
Investments under resale agreements | 66,285 | — | 18,460 | 278 | 40,642 | — | 2,067 | 1,533 | 902 | 35 | 8,665 | 21 | — | 3,441 | 142,329 | |||||||||||||||||||||||||||||||||||||||||||||
Derivative Contracts for Trading Purposes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forwards | 480,269 | — | — | 1,532 | 16,225 | 79 | 2,856 | 22,903 | 14,103 | 642 | 1,930 | 277 | 497 | 415,319 | 956,632 | |||||||||||||||||||||||||||||||||||||||||||||
Swaps | 1,693,048 | — | — | 4 | 9,813 | 7,718 | 19 | 14,184 | 10,232 | 4,275 | 12,526 | 210 | — | 9,923 | 1,761,952 | |||||||||||||||||||||||||||||||||||||||||||||
Call Options | 1,196 | — | — | — | 1,569 | 280 | — | — | 1,433 | 171 | — | 84 | 190 | 38 | 4,961 | |||||||||||||||||||||||||||||||||||||||||||||
Put Options | 554 | — | — | — | 522 | — | — | — | — | — | — | — | — | — | 1,076 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 2,175,067 | — | — | 1,536 | 28,129 | 8,077 | 2,875 | 37,087 | 25,768 | 5,088 | 14,456 | 571 | 687 | 425,280 | 2,724,621 | |||||||||||||||||||||||||||||||||||||||||||||
Hedge Derivative Contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forwards | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Swaps | 61,594 | — | — | — | — | — | — | — | — | — | — | — | — | — | 61,594 | |||||||||||||||||||||||||||||||||||||||||||||
Call Options | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Put Options | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Futures | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 61,594 | — | — | — | — | — | — | — | — | — | — | — | — | — | 61,594 | |||||||||||||||||||||||||||||||||||||||||||||
Loans and advances to Banks | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Central Bank of Chile | — | 630,053 | — | — | — | — | — | — | — | — | — | — | — | — | 630,053 | |||||||||||||||||||||||||||||||||||||||||||||
Domestic banks | 150,007 | — | — | — | — | — | — | — | — | — | — | — | — | — | 150,007 | |||||||||||||||||||||||||||||||||||||||||||||
Foreign banks | 360,131 | — | — | — | — | — | — | — | — | — | — | — | — | — | 360,131 | |||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 510,138 | 630,053 | — | — | — | — | — | — | — | — | — | — | — | — | 1,140,191 | |||||||||||||||||||||||||||||||||||||||||||||
Loans to Customers, Net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans | 2,587,272 | — | — | — | 2,064,042 | 1,624,099 | 604,411 | 325,139 | 1,622,206 | 140,647 | 1,233,433 | 2,141,500 | 2,265,402 | 1,675,958 | 16,284,109 | |||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage loans | — | — | — | 9,203,061 | — | — | — | — | — | — | — | — | — | — | 9,203,061 | |||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | — | — | — | 4,532,300 | — | — | — | — | — | — | — | — | — | — | 4,532,300 | |||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 2,587,272 | — | — | 13,735,361 | 2,064,042 | 1,624,099 | 604,411 | 325,139 | 1,622,206 | 140,647 | 1,233,433 | 2,141,500 | 2,265,402 | 1,675,958 | 30,019,470 | |||||||||||||||||||||||||||||||||||||||||||||
Financial Assets Available-for-Sale | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
from the Chilean Government and Central Bank of Chile | — | 92,824 | 16,238 | — | — | — | — | — | — | — | — | — | — | — | 109,062 | |||||||||||||||||||||||||||||||||||||||||||||
Other instruments issued in Chile | 994,658 | — | — | — | — | — | — | 9,667 | — | — | — | 178,444 | — | 46,162 | 1,228,931 | |||||||||||||||||||||||||||||||||||||||||||||
Instruments issued abroad | 19,853 | — | — | — | — | — | — | — | — | — | — | — | — | — | 19,853 | |||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 1,014,511 | 92,824 | 16,238 | — | — | — | — | 9,667 | — | — | — | 178,444 | — | 46,162 | 1,357,846 | |||||||||||||||||||||||||||||||||||||||||||||
Financial assets held-to-Maturity | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
154
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(2) | Credit Risk, continued: |
The following tables show credit risk exposure per balance sheet item, including derivatives, detailed by both geographic region and industry sector as of December 31, 2018:
Chile | United States | Brazil | Others | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and Due from Banks | 773,368 | 69,343 | — | 37,370 | 880,081 | |||||||||||||||
Financial Assets held-for-trading | ||||||||||||||||||||
From the Chilean Government and Central Bank of Chile | 1,523,472 | — | — | — | 1,523,472 | |||||||||||||||
Other instruments issued in Chile | 129,607 | — | — | — | 129,607 | |||||||||||||||
Instruments issued abroad | — | 4,446 | — | — | 4,446 | |||||||||||||||
Mutual fund investments | 87,841 | — | — | — | 87,841 | |||||||||||||||
Subtotal | 1,740,920 | 4,446 | — | — | 1,745,366 | |||||||||||||||
Investments under resale agreements | 97,289 | — | — | — | 97,289 | |||||||||||||||
Derivative Contracts for Trading Purposes | ||||||||||||||||||||
Forwards | 670,595 | 23,082 | — | 41,767 | 735,444 | |||||||||||||||
Swaps | 453,191 | 98,414 | — | 186,525 | 738,130 | |||||||||||||||
Call Options | 4,309 | — | — | 530 | 4,839 | |||||||||||||||
Put Options | 56 | — | — | 64 | 120 | |||||||||||||||
Futures | — | — | — | — | — | |||||||||||||||
Subtotal | 1,128,151 | 121,496 | — | 228,886 | 1,478,533 | |||||||||||||||
Hedge Derivative Contracts | ||||||||||||||||||||
Forwards | — | — | — | — | — | |||||||||||||||
Swaps | 4,547 | 14,348 | — | 16,519 | 35,414 | |||||||||||||||
Call Options | — | — | — | — | — | |||||||||||||||
Put Options | — | — | — | — | — | |||||||||||||||
Futures | — | — | — | — | — | |||||||||||||||
Subtotal | 4,547 | 14,348 | — | 16,519 | 35,414 | |||||||||||||||
Loans and advances to Banks | ||||||||||||||||||||
Central Bank of Chile | 1,100,831 | — | — | — | 1,100,831 | |||||||||||||||
Domestic banks | 100,023 | — | — | — | 100,023 | |||||||||||||||
Foreign banks | — | — | 209,693 | 84,849 | 294,542 | |||||||||||||||
Subtotal | 1,200,854 | — | 209,693 | 84,849 | 1,495,396 | |||||||||||||||
Loans to Customers, Net | ||||||||||||||||||||
Commercial loans | 15,336,948 | — | 354 | 93,190 | 15,430,492 | |||||||||||||||
Residential mortgage loans | 8,047,708 | — | — | — | 8,047,708 | |||||||||||||||
Consumer loans | 4,436,122 | — | — | — | 4,436,122 | |||||||||||||||
Subtotal | 27,820,778 | — | 354 | 93,190 | 27,914,322 | |||||||||||||||
Financial Assets Available-for-Sale | ||||||||||||||||||||
from the Chilean Government and Central Bank of Chile | 164,222 | — | — | — | 164,222 | |||||||||||||||
Other instruments issued in Chile | 770,674 | — | — | — | 770,674 | |||||||||||||||
Instruments issued abroad | — | 108,544 | — | — | 108,544 | |||||||||||||||
Subtotal | 934,896 | 108,544 | — | — | 1,043,440 | |||||||||||||||
Financial assets held-to-Maturity | — | — | — | — | — |
155
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(2) | Credit Risk, continued: |
Financial Services | Chilean Central Bank | Government | Retail (Individuals) | Trade | Manufacturing | Mining | Electricity, Gas and Water | Agriculture and Livestock | Fishing | Transportation and Telecom | Construction | Services | Others | Total | ||||||||||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||||||||||||||||||||
Financial Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Due from Banks | 758,274 | 121,807 | — | — | — | — | — | — | — | — | — | — | — | — | 880,081 | |||||||||||||||||||||||||||||||||||||||||||||
Financial Assets held-for-trading | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
From the Chilean Government and Central Bank of Chile | — | 1,434,986 | 88,486 | — | — | — | — | — | — | — | — | — | — | — | 1,523,472 | |||||||||||||||||||||||||||||||||||||||||||||
Other instruments issued in Chile | 129,607 | — | — | — | — | — | — | — | — | — | — | — | — | — | 129,607 | |||||||||||||||||||||||||||||||||||||||||||||
Instruments issued abroad | 4,446 | — | — | — | — | — | — | — | — | — | — | — | — | — | 4,446 | |||||||||||||||||||||||||||||||||||||||||||||
Mutual fund investments | 87,841 | — | — | — | — | — | — | — | — | — | — | — | — | — | 87,841 | |||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 221,894 | 1,434,986 | 88,486 | — | — | — | — | — | — | — | — | — | — | — | 1,745,366 | |||||||||||||||||||||||||||||||||||||||||||||
Investments under resale agreements | 29,031 | 742 | — | — | 37,520 | — | 5,017 | 4,466 | 3,096 | 59 | 15,637 | — | 985 | 736 | 97,289 | |||||||||||||||||||||||||||||||||||||||||||||
Derivative Contracts for Trading Purposes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forwards | 374,006 | — | — | — | 7,194 | 13,328 | 40 | 10,288 | 4,211 | 411 | 98 | 455 | 296 | 325,117 | 735,444 | |||||||||||||||||||||||||||||||||||||||||||||
Swaps | 584,743 | — | — | — | 51,916 | 7,348 | 22 | 4,026 | 10,006 | 2,249 | 2,235 | 680 | 74,250 | 655 | 738,130 | |||||||||||||||||||||||||||||||||||||||||||||
Call Options | 1,669 | — | — | — | 389 | 16 | — | 1,090 | 1,489 | 80 | — | 59 | 36 | 11 | 4,839 | |||||||||||||||||||||||||||||||||||||||||||||
Put Options | 64 | — | — | — | 51 | 5 | — | — | — | — | — | — | — | — | 120 | |||||||||||||||||||||||||||||||||||||||||||||
Futures | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 960,482 | — | — | — | 59,550 | 20,697 | 62 | 15,404 | 15,706 | 2,740 | 2,333 | 1,194 | 74,582 | 325,783 | 1,478,533 | |||||||||||||||||||||||||||||||||||||||||||||
Hedge Derivative Contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forwards | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Swaps | 35,414 | — | — | — | — | — | — | — | — | — | — | — | — | — | 35,414 | |||||||||||||||||||||||||||||||||||||||||||||
Call Options | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Put Options | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Futures | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 35,414 | — | — | — | — | — | — | — | — | — | — | — | — | — | 35,414 | |||||||||||||||||||||||||||||||||||||||||||||
Loans and advances to Banks | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Central Bank of Chile | — | 1,100,831 | — | — | — | — | — | — | — | — | — | — | — | — | 1,100,831 | |||||||||||||||||||||||||||||||||||||||||||||
Domestic banks | 100,023 | — | — | — | — | — | — | — | — | — | — | — | — | — | 100,023 | |||||||||||||||||||||||||||||||||||||||||||||
Foreign banks | 294,542 | — | — | — | — | — | — | — | — | — | — | — | — | — | 294,542 | |||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 394,565 | 1,100,831 | — | — | — | — | — | — | — | — | — | — | — | — | 1,495,396 | |||||||||||||||||||||||||||||||||||||||||||||
Loans to Customers, Net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans | 2,122,425 | — | — | — | 2,322,558 | 1,578,703 | 453,331 | 461,348 | 1,581,701 | 156,444 | 1,497,654 | 1,751,219 | 2,107,494 | 1,397,615 | 15,430,492 | |||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage loans | — | — | — | 8,047,708 | — | — | — | — | — | — | — | — | — | — | 8,047,708 | |||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | — | — | — | 4,436,122 | — | — | — | — | — | — | — | — | — | — | 4,436,122 | |||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 2,122,425 | — | — | 12,483,830 | 2,322,558 | 1,578,703 | 453,331 | 461,348 | 1,581,701 | 156,444 | 1,497,654 | 1,751,219 | 2,107,494 | 1,397,615 | 27,914,322 | |||||||||||||||||||||||||||||||||||||||||||||
Financial Assets Available-for-Sale | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
from the Chilean Government and Central Bank of Chile | — | 135,145 | 29,077 | — | — | — | — | — | — | — | — | — | — | — | 164,222 | |||||||||||||||||||||||||||||||||||||||||||||
Other instruments issued in Chile | 680,656 | — | — | — | 22,390 | — | — | 8,245 | — | — | 4,938 | — | — | 54,445 | 770,674 | |||||||||||||||||||||||||||||||||||||||||||||
Instruments issued abroad | 108,544 | — | — | — | — | — | — | — | — | — | — | — | — | — | 108,544 | |||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 789,200 | 135,145 | 29,077 | — | 22,390 | — | — | 8,245 | — | — | 4,938 | — | — | 54,445 | 1,043,440 | |||||||||||||||||||||||||||||||||||||||||||||
Financial assets held-to-Maturity | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
156
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(2) | Credit Risk, continued: |
(d) | Collaterals and Other Credit Enhancements: |
The amount and type of collateral required depends on the counterparty’s credit risk assessment.
The Bank has guidelines regarding the acceptability of types of collateral and valuation parameters.
The main types of collateral obtained are:
· | For commercial loans: Residential and non-residential real estate, liens and inventory. |
· | For retail loans: Mortgages loans on residential property. |
The Bank also obtains collateral from parent companies for loans granted to their subsidiaries.
Management makes sure its collateral is acceptable according to both external standards and internal policies guidelines and parameters. The Bank has approximately 235,878 collateral assets, the majority of which consist of real estate. The following table contains guarantees value as of December 31:
Guarantee | ||||||||||||||||||||||||||||
Loans | Mortgages | Pledges | Securities | Warrants | Others | Total | ||||||||||||||||||||||
2019 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||
Corporate Lending | 12,114,603 | 2,453,533 | 82,365 | 345,246 | 2,182 | 207,052 | 3,090,378 | |||||||||||||||||||||
Small Business Lending | 4,169,506 | 3,133,480 | 30,466 | 26,674 | — | 74,725 | 3,265,345 | |||||||||||||||||||||
Consumer Lending | 4,532,300 | 341,495 | 966 | 2,045 | — | 20,646 | 365,152 | |||||||||||||||||||||
Mortgage Lending | 9,203,061 | 8,019,519 | 51 | 176 | — | — | 8,019,746 | |||||||||||||||||||||
Total | 30,019,470 | 13,948,027 | 113,848 | 374,141 | 2,182 | 302,423 | 14,740,621 |
Guarantee | ||||||||||||||||||||||||||||
Loans | Mortgages | Pledges | Securities | Warrants | Others | Total | ||||||||||||||||||||||
2018 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||
Corporate Lending | 11,703,594 | 2,589,429 | 75,105 | 423,556 | 2,263 | 221,919 | 3,312,272 | |||||||||||||||||||||
Small Business Lending | 3,726,898 | 2,977,286 | 31,270 | 28,974 | — | 71,140 | 3,108,670 | |||||||||||||||||||||
Consumer Lending | 4,436,122 | 332,030 | 967 | 2,244 | — | 20,090 | 355,331 | |||||||||||||||||||||
Mortgage Lending | 8,047,708 | 7,493,073 | 58 | 265 | — | — | 7,493,396 | |||||||||||||||||||||
Total | 27,914,322 | 13,391,818 | 107,400 | 455,039 | 2,263 | 313,149 | 14,269,669 |
157
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(2) | Credit Risk, continued: |
(d) | Collaterals and Other Credit Enhancements, continued: |
The Bank also uses mitigating tactics for credit risk on derivative transactions. To date, the following mitigating tactics are used:
· | Accelerating transactions and net payment using market values at the date of default of one of the parties. |
· | Option for both parties to terminate early any transactions with a counterparty at a given date, using market values as of the respective date. |
· | Margins established with time deposits by customers that close FX forwards with subsidiary Banchile Corredores de Bolsa S.A. |
The value of the guarantees that the Bank maintains related to the loans individually classified as impaired as of December 31, 2019 and 2018 amounted Ch$100,133 million and Ch$85,721 million, respectively.
The value guarantees related to past due loans but no impaired as of December 31, 2019 and 2018 amounted Ch$344,098 million and Ch$295,634 million respectively.
(e) | Credit Quality by Asset Class: |
The Bank determines the credit quality of financial assets using internal credit ratings. The rating process is linked to the Bank’s approval and monitoring processes and is carried out in accordance with risk categories established by current standards. Credit quality is continuously updated based on any favorable or unfavorable developments to customers or their environments, considering aspects such as commercial and payment behavior as well as financial information.
The Bank also conducts reviews of companies in certain industry sectors that are affected by macroeconomic or sector-specific variables. Such reviews allow the Bank to timely establish any necessary allowance loan losses that are sufficient to cover losses for potentially uncollectable loans.
158
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(2) | Credit Risk, continued: |
(e) | Credit Quality by Asset Class, continued: |
The following tables shows credit quality by asset class for Consolidated Statements of Financial Position sheet items, based on the Bank’s credit rating system.
As of December 31, 2019:
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||
Normal | Substandard | Non-complying | Normal | Non-complying | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Financial Assets | ||||||||||||||||||||||||
Loans and advances to banks | ||||||||||||||||||||||||
Central Bank of Chile | 630,053 | — | — | — | — | 630,053 | ||||||||||||||||||
Domestic banks | 150,007 | — | — | — | — | 150,007 | ||||||||||||||||||
Foreign banks | 360,131 | — | — | — | — | 360,131 | ||||||||||||||||||
Subtotal | 1,140,191 | — | — | — | — | 1,140,191 | ||||||||||||||||||
Loans to customers (before allowances for loan losses) | ||||||||||||||||||||||||
Commercial loans | 11,893,060 | 71,718 | 149,826 | 3,907,715 | 261,790 | 16,284,109 | ||||||||||||||||||
Residential mortgage loans | — | — | — | 9,031,597 | 171,464 | 9,203,061 | ||||||||||||||||||
Consumer loans | — | — | — | 4,242,486 | 289,814 | 4,532,300 | ||||||||||||||||||
Subtotal | 11,893,060 | 71,718 | 149,826 | 17,181,798 | 723,068 | 30,019,470 |
As of December 31, 2018:
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||
Normal | Substandard | Non-complying | Normal | Non-complying | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Financial Assets | ||||||||||||||||||||||||
Loans and advances to banks | ||||||||||||||||||||||||
Central Bank of Chile | 1,100,831 | — | — | — | — | 1,100,831 | ||||||||||||||||||
Domestic banks | 100,023 | — | — | — | — | 100,023 | ||||||||||||||||||
Foreign banks | 294,542 | — | — | — | — | 294,542 | ||||||||||||||||||
Subtotal | 1,495,396 | — | — | — | — | 1,495,396 | ||||||||||||||||||
Loans to customers (before allowances for loan losses) | ||||||||||||||||||||||||
Commercial loans | 11,489,787 | 94,893 | 118,914 | 3,492,798 | 234,100 | 15,430,492 | ||||||||||||||||||
Residential mortgage loans | — | — | — | 7,886,998 | 160,710 | 8,047,708 | ||||||||||||||||||
Consumer loans | — | — | — | 4,166,752 | 269,370 | 4,436,122 | ||||||||||||||||||
Subtotal | 11,489,787 | 94,893 | 118,914 | 15,546,548 | 664,180 | 27,914,322 |
159
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(2) | Credit Risk, continued: |
(e) | Credit Quality by Asset Class, continued: |
Analysis of age of portfolio loan, over-due loans by financial asset class. Additionally to the overdue portion, the amounts detailed include remaining balance of the past due credits are featured below:
As of December 31, 2019:
Default | ||||||||||||
1 to 29 days | 30 to 59 days | 60 to 89 days | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Loans and advances to banks | 31,249 | — | — | |||||||||
Commercial loans | 213,709 | 54,366 | 26,698 | |||||||||
Import-export financing | 9,562 | 804 | 1,207 | |||||||||
Factoring transactions | 31,972 | 3,022 | 336 | |||||||||
Commercial lease transactions | 53,742 | 8,073 | 4,722 | |||||||||
Other loans and receivables | 1,463 | 693 | 521 | |||||||||
Residential mortgage loans | 152,539 | 73,801 | 32,907 | |||||||||
Consumer loans | 221,162 | 102,344 | 51,976 | |||||||||
Total | 715,398 | 243,103 | 118,367 |
As of December 31, 2018:
Default | ||||||||||||
1 to 29 days | 30 to 59 days | 60 to 89 days | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Loans and advances to banks | 273 | — | — | |||||||||
Commercial loans | 176,581 | 48,321 | 27,785 | |||||||||
Import-export financing | 13,892 | 2,194 | 618 | |||||||||
Factoring transactions | 43,041 | 7,540 | 726 | |||||||||
Commercial lease transactions | 92,057 | 6,166 | 3,230 | |||||||||
Other loans and receivables | 1,462 | 777 | 470 | |||||||||
Residential mortgage loans | 154,700 | 67,211 | 24,639 | |||||||||
Consumer loans | 217,923 | 102,752 | 40,782 | |||||||||
Total | 699,929 | 234,961 | 98,250 |
160
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(2) | Credit Risk, continued: |
(e) | Credit Quality by Asset Class, continued: |
The following table presents past due loans not impaired as of December 31,
Past due but not impaired (*) | ||||||||||||||||
Up to 30 days | Over 30 days and up to 59 days | Over 60 days and up to 89 days | Over 90 days | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
2019 | 631,091 | 159,751 | 57,946 | — | ||||||||||||
2018 | 538,950 | 145,127 | 37,371 | 410 |
(*) | These amounts include installments that are overdue, plus the remaining balance of principal and interest on such loans. |
(f) | Assets Received in Lieu of Payment: |
The Bank has received assets in lieu of payment totaling Ch$12,523 million and Ch$17,794 million as of December 31, 2019 and 2018, respectively, the majority of which are properties. All of these assets are managed for sale.
161
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(2) | Credit Risk, continued: |
(g) | Renegotiated Assets: |
The impaired loans are considered to be renegotiated when the corresponding financial commitments are restructured and the Bank assesses the probability of recovery as sufficiently high.
The following table details the book value of loans with renegotiated terms per financial asset class:
2019 | 2018 | |||||||
Financial Assets | MCh$ | MCh$ | ||||||
Loans and advances to banks | ||||||||
Central Bank of Chile | — | — | ||||||
Domestic banks | — | — | ||||||
Foreign banks | — | — | ||||||
Subtotal | — | — | ||||||
Loans to customers, net | ||||||||
Commercial loans | 220,056 | 192,646 | ||||||
Residential mortgage loans | 11,980 | 14,463 | ||||||
Consumer loans | 366,339 | 362,562 | ||||||
Subtotal | 598,375 | 569,671 | ||||||
Total renegotiated financial assets | 598,375 | 569,671 |
The Bank evaluates allowances loan losses in two segments: individually assessed allowances loan losses and group assessed allowances loan losses, which are described in Note No. 2 letter (m).
162
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(3) | Market Risk: |
Market Risk refers to the loss that the Bank could face due to a liquidity shortage to honor the payments or close financial transactions in a timely manner (Liquidity Risk), or due to adverse movements in the values of market variables (Risk Price).
(a) | Liquidity Risk: |
Liquidity Risk Measurement and Limits
The Bank manages the Liquidity Risk separately for each sub-category: Trading Liquidity Risk and Funding Liquidity Risk.
Trading Liquidity Risk is the inability to close, at current market prices, the financial positions opened mainly from the Trading Book (which is daily valued at market prices and the value differences instantly reflected in the Income Statement). This risk is controlled by establishing limits on the positions amounts of the Trading Book in accordance with what is estimated to be closed in a short time period. Additionally, the Bank incorporates a negative impact on the Income Statement whenever it considers that the size of a certain position in the Trading Book exceeds the reasonable amount, negotiated in the secondary markets, which would allow the exposure to be offset without altering market prices.
Funding Liquidity Risk refers to the Bank's inability to obtain sufficient cash to meet its immediate obligations. This risk is managed by a minimum amount of highly liquid assets called liquidity buffer, and establishing limits and controls of internal metrics, among which the Market Access Report (“MAR”) stands out, which estimates the amount of funding that the Bank would need from wholesale financial counterparties, for the next 30 and 90 days in each of the relevant currencies of the balance sheet, to face a cash need as a result of the operation under business as usual conditions, that is, basically, rollover of the total loans portfolio, the output of a volatile part of the demand deposits accounts and of the retailers term deposits, and the expiration of all the wholesaler term deposits.
163
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(3) | Market Risk, continued: |
(a) | Liquidity Risk, continued: |
The use of MAR within year 2019 is illustrated below (LCCY = local currency; FCCY = foreign currency):
MAR LCCY + FCCY MMM$ | MAR FCCY MMUS$ | |||||||||||||||
1 - 30 days | 1 - 90 days | 1 - 30 days | 1 - 90 days | |||||||||||||
Maximum | 3,352 | 5,498 | 1,999 | 3,254 | ||||||||||||
Minimum | 1,705 | 3,993 | 1 | 1,407 | ||||||||||||
Average | 2,621 | 4,841 | 1,052 | 2,479 |
The Bank also monitors the amount of assets denominated in local currency that is funded by liabilities denominated in foreign currency, including all tenors and the cash flows generated by derivatives payments to be made in foreign currency in the future. This metric is referred to as Cross Currency Funding. The Bank oversees and limits this amount in order to take precautions against not only Banco de Chile’s event but also against a systemic adverse environment generated by a country risk event that might trigger lack of foreign currency funding.
The use of Cross Currency Funding within year 2019 is illustrated below:
Cross Currency Funding MMUS$ | ||||
Maximum | 3,339 | |||
Minimum | 1,742 | |||
Average | 2,640 |
Additionally, the Bank establishes thresholds that alert behaviors outside the expected ranges at a normal or prudent level of operation, in order to protect other dimensions of liquidity risk such as, for example, the maturities concentration of fund providers; the diversification of sources of funds either by type of counterparty or type of product, among others.
Likewise, the evolution over time of the Bank's financial ratios that can detect structural changes in its balance sheet characteristics is monitored, such as those presented in the following table and whose relevant use values during the year 2019 are shown below:
Liquid Assets/ Net Funding <30 days | Liabilities>1 year/ Assets >1 year | Deposits/ Loans | ||||||||||
Maximum | 103 | % | 82 | % | 62 | % | ||||||
Minimum | 82 | % | 76 | % | 58 | % | ||||||
Average | 92 | % | 78 | % | 60 | % |
Moreover, some market index, prices and monetary decisions taken by the Central Bank of Chile are monitored to detect structural changes in market conditions that can trigger a liquidity shortage or even a financial crisis.
164
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(3) | Market Risk, continued: |
(a) | Liquidity Risk, continued: |
The Bank measures and controls the mismatch of cash flows under regulatory standards with the C46 index report, which represents the net cash flows expected over time as a result of the contractual maturity of almost all assets and liabilities. Additionally, the Commission for the Financial Market (hereinafter, “CMF”) authorized Banco de Chile, among others, to report the adjusted C46 index. This allows the Bank to report, in addition to the regular C46 index, outflow behavior assumptions of certain specific elements of the liability, such as demand deposits and time deposits. In addition, the regulator also requires some rollover assumptions for the loan portfolio.
The CMF establish the following limits for the C46:
Foreign Currency balance sheet items: | 1-30 days C46 index < 1 x Tier-1 Capital |
All Currencies balance sheet items: | 1-30 days C46 index < 1 x Tier-1 Capital |
All Currencies balance sheet items: | 1-90 days C46 index < 2 x Tier-1 Capital |
The use of this index in year 2019 is illustrated below:
Adjusted C46 All CCYs | Adjusted C46 FCCY | |||||||||||
1 - 30 days | 1 - 90 days | 1 - 30 days | ||||||||||
Maximum | 0.56 | 0.79 | 0.42 | |||||||||
Minimum | 0.32 | 0.55 | 0.15 | |||||||||
Average | 0.49 | 0.69 | 0.28 | |||||||||
Regulatory Limit | 1.0 | 2.0 | 1.0 |
Additionally, the regulatory entities have introduced other metrics that the Bank uses in its management, such as the Liquidity Coverage Ratio ("LCR") and Net Stable Financing Ratio ("NSFR"), using assumptions similar to those used in the international banking. Only for the first one, a limit implementation calendar has been established and that during the year 2019 was with a minimum level of 60%. The evolution of the LCR and NSFR metrics during the year 2019 are shown below:
LCR | NSFR | |||||||
Maximum | 1.17 | 1.02 | ||||||
Minimum | 0.88 | 0.97 | ||||||
Average | 0.99 | 0.99 | ||||||
Regulatory Limit | 0.6 | (*) | N/A |
(*)This is the current minimum value for the year 2019 and that increases 0.1 annually until reaching 1.0 in the year 2023.
165
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(3) | Market Risk, continued: |
(a) | Liquidity Risk, continued: |
The contractual maturity profile of the financial liabilities of Banco de Chile and its subsidiaries (consolidated basis), as of 2019 and 2018 year end, is as follows:
Up to 1 month | 1 to 3 months | 3 to 12 months | 1 to 3 years | 3 to 5 years | Over 5 years | Total | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||
Liabilities as of December 31, 2019 | ||||||||||||||||||||||||||||
Current accounts and other demand deposits | 11,326,133 | — | — | — | — | — | 11,326,133 | |||||||||||||||||||||
Transactions in the course of payment | 352,121 | — | — | — | — | — | 352,121 | |||||||||||||||||||||
Obligations under repurchase agreements | 297,011 | 8,582 | — | — | — | — | 305,593 | |||||||||||||||||||||
Savings accounts and time deposits | 6,421,107 | 1,985,948 | 2,250,153 | 284,073 | 491 | 421 | 10,942,193 | |||||||||||||||||||||
Full delivery derivative transactions | 378,151 | 351,351 | 1,132,429 | 974,371 | 669,851 | 797,191 | 4,303,344 | |||||||||||||||||||||
Borrowings from financial institutions | 68,843 | 348,228 | 934,144 | 206,811 | — | — | 1,558,026 | |||||||||||||||||||||
Other financial obligations | 142,010 | 292 | 17,529 | 727 | 167 | — | 160,725 | |||||||||||||||||||||
Debt instruments issued in foreign currency other than USD | 178,310 | 190,329 | 576,309 | 2,091,841 | 2,081,579 | 5,017,172 | 10,135,540 | |||||||||||||||||||||
Total (excluding non-delivery derivative transactions) | 19,163,686 | 2,884,730 | 4,910,564 | 3,557,823 | 2,752,088 | 5,814,784 | 39,083,675 | |||||||||||||||||||||
Non-delivery derivative transactions | 501,461 | 839,534 | 1,461,804 | 796,805 | 738,830 | 1,650,402 | 5,988,836 |
Up to 1 month | 1 to 3 months | 3 to 12 months | 1 to 3 years | 3 to 5 years | Over 5 years | Total | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||
Liabilities as of December 31, 2018 | ||||||||||||||||||||||||||||
Current accounts and other demand deposits | 9,584,488 | — | — | — | — | — | 9,584,488 | |||||||||||||||||||||
Transactions in the course of payment | 335,575 | — | — | — | — | — | 335,575 | |||||||||||||||||||||
Obligations under repurchase agreements | 292,231 | 1,440 | 5,137 | — | — | — | 298,808 | |||||||||||||||||||||
Savings accounts and time deposits | 5,344,294 | 1,981,221 | 3,152,103 | 373,398 | 619 | 132 | 10,851,767 | |||||||||||||||||||||
Full delivery derivative transactions | 351,496 | 190,643 | 648,870 | 582,628 | 536,506 | 592,303 | 2,902,446 | |||||||||||||||||||||
Borrowings from financial institutions | 97,661 | 268,795 | 946,950 | 183,206 | — | — | 1,496,612 | |||||||||||||||||||||
Other financial obligations | 92,896 | 730 | 4,857 | 18,406 | 366 | 35 | 117,290 | |||||||||||||||||||||
Debt instruments issued in foreign currency other than USD | 101,707 | 267,665 | 724,724 | 1,410,766 | 1,899,529 | 4,303,542 | 8,707,933 | |||||||||||||||||||||
Total (excluding non-delivery derivative transactions) | 16,200,348 | 2,710,494 | 5,482,641 | 2,568,404 | 2,437,020 | 4,896,012 | 34,294,919 | |||||||||||||||||||||
Non-delivery derivative transactions | 297,613 | 604,200 | 1,028,798 | 712,286 | 593,431 | 1,209,282 | 4,445,610 |
166
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(3) | Market Risk, continued: |
(b) | Price Risk: |
Price Risk Measurement and Limits
The measurement and management of Price Risk are carried out through the use of several metrics developed internally by the Bank, both for the Trading Book and for the Accrual Book (the Accrual Book includes all balance sheet items, even those of the Trading book but in such case these are reported at an interest rate adjustment period of one day, thus not generating accrual interest rate risk). In addition, the Bank reports metrics to regulatory entities according to the models defined by them.
The bank has established internal limits for the exposures of the Trading Book. In fact, FX positions (FX delta), Equity positions (Equity delta), interest rate sensitivities generated by the derivatives and debt securities portfolios (DV01 or also referred as to rho) and the FX volatility sensitivity (vega) are measured, reported and against their limits. Limits are established on an aggregate basis but also for some specific tenor points. The use of these limits is daily monitored, controlled and reported by independent control functions to the senior management of the bank. The internal governance framework also establishes that these limits must be approved by the board and reviewed at least annually.
The Bank measures and controls the risk for the Trading Book portfolios using the Value-at-Risk (VaR). The model uses a 99% confidence level and the most recent one-year observed rates, prices and yields data.
The use of VaR within year 2019 is illustrated below:
Value-at-Risk 99% one-day confidence level MCh$ | ||||
Maximum | 872 | |||
Minimum | 176 | |||
Average | 562 |
Additionally, the Bank performs measuring, limiting, controlling and reporting interest rate exposures and risks for the Accrual Book using internally developed methodologies based on the differences in the amounts of assets and liabilities considering the interest rate repricing dates. Exposures are measured according to the Interest Rate Exposure or IRE metric and their corresponding risks using to the Earnings-at-Risk or EaR metric.
167
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(3) | Market Risk, continued: |
(b) | Price Risk, continued: |
The use of EaR within year 2019 is illustrated below:
12- months Earnings-at-Risk 99% confidence level 3 months defeasance period MCh$ | ||||
Maximum | 54,372 | |||
Minimum | 45,023 | |||
Average | 47,743 |
The regulatory risk measurement for the Trading Book (C41 report) is produced by utilizing guidelines provided by the Central Bank of Chile (hereinafter, “BCCh”) and the CMF, which are adopted based on standardized BIS methodologies. The referred methodologies estimate the potential loss that the bank may incur considering standardized fluctuations of the value of market factors such as FX rates, interest rates and volatilities that may adversely impact the value of FX spot positions, interest rate exposures, and volatility exposures, respectively. In addition, correlation factors are included to represent non-parallel changes in the yield curve. The CMF does not set an individual limit for this particular risk, but a global one that includes this risk (also called Market Risk Equivalent or MRE) and the Credit Risk Weighted Assets.
The risk measurement for the Banking Book, according to normative guidelines (C40 report), as a result of interest rate fluctuations is carried out through the use of standardized methodologies provided by regulatory entities (BCCh and CMF). The report includes models for reporting interest rate gaps and standardized adverse interest rate fluctuations. In addition to this, the regulatory entity has requested banks to establish internal limits for this regulatory risk measurement. Limits must be established separately for short-term and long-term balance. The short-term risk limit should be expressed as a percentage of the Net Interest Margin or NIM plus the revenue collected from commissions that depend on the level of the interest rate; the long-term risk limit cannot exceed a specific percentage of the amount of effective equity.
In addition to the above, the Market Risk Policy of Banco de Chile enforces to perform daily stress tests for the Trading Book and monthly for the Accrual Book. The output of the stress testing process is monitored against corresponding trigger levels: in the case those triggers are breached, the senior management is notified in order to implement further actions, if necessary. In addition, the results during the month for the trading activities are controlled against defined loss levels and in case such levels are exceeded, senior management is also notified.
168
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(3) | Market Risk, continued: |
(b) | Price Risk, continued: |
The following table illustrates the interest rate cash-flows of the Banking Book, considering the interest rate repricing dates on an individual basis, as of December 31, 2019 and 2018:
Up to 1 month | 1 to 3 months | 3 to 12 months | 1 to 3 years | 3 to 5 years | Over 5 years | Total | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||
Assets as of December 31, 2019 | ||||||||||||||||||||||||||||
Cash and due from banks | 2,310,055 | — | — | — | — | — | 2,310,055 | |||||||||||||||||||||
Transactions in the course of collection | 483,857 | — | — | — | — | — | 483,857 | |||||||||||||||||||||
Investments under resale agreements | 45,056 | — | — | — | — | — | 45,056 | |||||||||||||||||||||
Derivative under hedge-accounting treatment | 774 | 36,304 | 28,302 | 257,909 | 348,950 | 1,069,919 | 1,742,158 | |||||||||||||||||||||
Inter-banking loans | 876,508 | 98,673 | 167,287 | — | — | — | 1,142,468 | |||||||||||||||||||||
Customer loans | 3,179,665 | 2,524,282 | 6,473,441 | 6,979,231 | 3,980,097 | 10,744,559 | 33,881,275 | |||||||||||||||||||||
Available-for-sale instruments | 26,180 | 241,326 | 805,844 | 115,805 | 25,219 | 142,005 | 1,356,379 | |||||||||||||||||||||
Held-to-maturity instruments | — | — | — | — | — | — | — | |||||||||||||||||||||
Total Assets | 6,922,095 | 2,900,585 | 7,474,874 | 7,352,945 | 4,354,266 | 11,956,483 | 40,961,248 |
Up to 1 month | 1 to 3 months | 3 to 12 months | 1 to 3 years | 3 to 5 years | Over 5 years | Total | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||
Assets as of December 31, 2018 | ||||||||||||||||||||||||||||
Cash and due from banks | 844,173 | — | — | — | — | — | 844,173 | |||||||||||||||||||||
Transactions in the course of collection | 442,840 | — | — | — | — | — | 442,840 | |||||||||||||||||||||
Investments under resale agreements | 3,161 | — | — | — | — | — | 3,161 | |||||||||||||||||||||
Derivative under hedge-accounting treatment | 20 | 140,631 | 253,266 | 176,330 | 229,092 | 717,331 | 1,516,670 | |||||||||||||||||||||
Inter-banking loans | 1,262,749 | 79,199 | 133,689 | 24,337 | — | — | 1,499,974 | |||||||||||||||||||||
Customer loans | 2,305,334 | 2,311,297 | 5,784,455 | 8,402,372 | 3,923,096 | 9,721,138 | 32,447,692 | |||||||||||||||||||||
Available-for-sale instruments | 48,469 | 153,479 | 408,390 | 146,136 | 58,093 | 230,003 | 1,044,570 | |||||||||||||||||||||
Held-to-maturity instruments | — | — | — | — | — | — | — | |||||||||||||||||||||
Total Assets | 4,906,746 | 2,684,606 | 6,579,800 | 8,749,175 | 4,210,281 | 10,668,472 | 37,799,080 |
Up to 1 month | 1 to 3 months | 3 to 12 months | 1 to 3 years | 3 to 5 years | Over 5 years | Total | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||
Liabilities as of December 31, 2019 | ||||||||||||||||||||||||||||
Current accounts and other demand deposits | 11,382,462 | — | — | — | — | — | 11,382,462 | |||||||||||||||||||||
Transactions in the course of payment | 256,675 | — | — | — | — | — | 256,675 | |||||||||||||||||||||
Obligations under repurchase agreements | 9,068 | — | — | — | — | — | 9,068 | |||||||||||||||||||||
Savings accounts and time deposits | 6,421,107 | 1,985,948 | 2,250,153 | 284,073 | 491 | 421 | 10,942,193 | |||||||||||||||||||||
Derivative hedging instruments | 156 | 33,740 | 23,300 | 251,136 | 317,886 | 1,117,967 | 1,744,185 | |||||||||||||||||||||
Inter-banking loans | 60,331 | 348,228 | 934,144 | 206,811 | — | — | 1,549,514 | |||||||||||||||||||||
Debt instruments issued (*) | 178,310 | 190,329 | 576,309 | 2,091,841 | 2,081,579 | 5,017,172 | 10,135,540 | |||||||||||||||||||||
Other liabilities | 142,010 | 292 | 17,529 | 727 | 167 | — | 160,725 | |||||||||||||||||||||
Total Liabilities | 18,450,119 | 2,558,537 | 3,801,435 | 2,834,588 | 2,400,123 | 6,135,560 | 36,180,362 |
169
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(3) | Market Risk, continued: |
(b) | Price Risk, continued: |
Up to 1 month | 1 to 3 months | 3 to 12 months | 1 to 3 years | 3 to 5 years | Over 5 years | Total | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||
Liabilities as of December 31, 2018 | ||||||||||||||||||||||||||||
Current accounts and other demand deposits | 9,622,073 | — | — | — | — | — | 9,622,073 | |||||||||||||||||||||
Transactions in the course of payment | 226,580 | — | — | — | — | — | 226,580 | |||||||||||||||||||||
Obligations under repurchase agreements | 6,963 | — | — | — | — | — | 6,963 | |||||||||||||||||||||
Savings accounts and time deposits | 5,273,096 | 1,981,221 | 3,152,103 | 373,398 | 619 | 71,330 | 10,851,767 | |||||||||||||||||||||
Derivative hedging instruments | 115 | 144,525 | 243,151 | 187,522 | 222,201 | 715,536 | 1,513,050 | |||||||||||||||||||||
Inter-banking loans | 97,661 | 268,795 | 946,950 | 183,206 | — | — | 1,496,612 | |||||||||||||||||||||
Debt instruments issued (*) | 101,707 | 267,665 | 724,724 | 1,410,766 | 1,899,529 | 4,303,542 | 8,707,933 | |||||||||||||||||||||
Other liabilities | 92,896 | 730 | 4,857 | 18,406 | 366 | 35 | 117,290 | |||||||||||||||||||||
Total Liabilities | 15,421,091 | 2,662,936 | 5,071,785 | 2,173,298 | 2,122,715 | 5,090,443 | 32,542,268 |
(*) | Amounts shown here are different from those reported in the liabilities report which is part of the liquidity analysis, due to differences in the treatment of mortgage bonds issued by the Bank in both reports. |
Price Risk Sensitivity Analysis
The Bank uses stress tests as the main sensitivity analysis tool for Price Risk. The analysis is implemented for the Trading Book and the Accrual Book separately. The Bank has adopted this tool as it is considered more useful than fluctuations in business as usual scenario, such as VaR or EaR, given that:
(i) | The financial crisis show market factors fluctuations that are materially larger than those used in the VaR with 99% of confidence level or EaR with 99% of confidence level. |
(ii) | The financial crisis also show that correlations between these fluctuations are materially different from those used in the VaR computation, since a crisis precisely indicates severe disconnections between the behaviors of market factors fluctuations respect to the patterns observed under normal conditions. |
(iii) | Trading liquidity dramatically diminishes during financial distress and especially in emerging markets. Therefore, the overnight VaR number might not be representative of the loss for trading portfolios in such environment since closing exposures period may exceed one business day. This may also happen when calculating EaR, even considering three months as the closing period. |
The impacts are determined by mathematical simulations of fluctuations in the values of market factors, and also, estimating the changes of the economic and / or accounting value of the financial positions.
170
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(3) | Market Risk, continued: |
(b) | Price Risk, continued: |
In order to comply with IFRS 7.40, the following exercise was included illustrating an estimation of the impact of extreme but reasonable fluctuations of interest rates, swaps yields, FX rates and exchange volatility, which are used for valuing Trading and Accrual portfolios. Given that the Bank's portfolio includes positions denominated in nominal and real interest rates, these fluctuations must be aligned with extreme but realistic Chilean inflation changes forecasts.
The exercise is implemented in a simple way: Trading portfolios impacts are estimated by multiplying the sensitivities by the fluctuations obtained as the results of mathematical simulations over a two-week time horizon and using the maximum historical volatility of the last fifteen years in each of the market factors; Accrual portfolios impacts are estimated by multiplying cumulative gaps by forward interest rates fluctuations modeled over a three-month time horizon and using the maximum historical volatility of interest fluctuations but limited by maximum fluctuations and / or levels observed during the last fifteen years. It is relevant to note that the methodology might ignore some portion of the interest rates convexity, since it is not captured properly when large fluctuations are modeled. In any case, given the magnitude of the changes, the methodology may be reasonable enough for the purposes and scope of the analysis.
The following table illustrates the fluctuations resulting from the main market factors in the maximum stress test exercise, or more adverse, for the Trading Book.
The directions or signs of these fluctuations are those that correspond to those that generate the most adverse impact at the aggregate level.
Average Fluctuations of Market Factors for Maximum Stress Scenario Trading Book | ||||||||||||||||||||||||
CLP Derivatives (bps) | CLP Bonds (bps) | CLF Derivatives (bps) | CLF Bonds (bps) | USD Offshore Libor Derivatives (bps) | Spread USD On/Off Derivatives (bps) | |||||||||||||||||||
Less than 1 year | 103 | 47 | 163 | 108 | -62 | -9 | ||||||||||||||||||
Greater than 1 year | 38 | 69 | 92 | 123 | -73 | -2 |
bps = basis points
171
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(3) | Market Risk, continued: |
(b) | Price Risk, continued: |
The worst impact on the Bank's Trading Book as of December 31, 2019, as a result of the simulation process described above, is as follows:
Most Adverse Stress Scenario P&L Impact Trading Book (MCh$) | ||||||||
CLP Interest Rate | (4,968 | ) | ||||||
Derivatives | (3,006 | ) | ||||||
Debt instruments | (1,962 | ) | ||||||
CLF Interest Rate | (8,694 | ) | ||||||
Derivatives | (2,600 | ) | ||||||
Debt instruments | (6,094 | ) | ||||||
Interest rate USD offshore | (1,963 | ) | ||||||
Domestic/offshore interest rate spread USD | (50 | ) | ||||||
Total Interest rates | (15,675 | ) | ||||||
Total FX | (16 | ) | ||||||
Total FX Options | 224 | |||||||
Total | (15,467 | ) |
The modeled scenario would generate losses in the Trading Book for approximately MCh$15,500. In any case, such fluctuations would not result in material losses compared to Basic Capital (Tier-1) or to the P&L estimate for the next 12-months.
The impact on the Accrual Book for the next 12 months as of December 31, 2019, which does not necessarily mean a net loss / gain but a greater/lower net income from funds generation (resulting net interest rate generation), is illustrated below:
Most Adverse Stress Scenario 12-Month Revenue Accrual Book (MCh$) | ||||
Impact by Base Interest Rate shocks | (164,322 | ) | ||
Impact due to Spreads Shocks | (67 | ) | ||
Higher / (Lower) Net revenues | (164,389 | ) |
The main negative impact on the Trading Book would occur as a result of a drastic increase in local interest rates. The lowest potential income in the next 12 months in the Accrual Book would occur in a scenario of sharp fall in inflation. In any case, the impacts would be less than the annual budgeted profits of the Bank.
172
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(4) | Requirements and Capital Management: |
The main objectives of the Bank's capital management are to ensure compliance with regulatory requirements, maintain a solid credit rating and sound capital ratios. During 2019, the Bank has successfully met the required capital requirements.
As part of its Capital Management Policy, the Bank has established capital adequacy alerts, which are stricter than those required by the regulator, which are monitored on a monthly basis. During 2019, none of the internal alerts defined in the Capital Management Policy were activated.
The Bank manages capital by making adjustments in light of changes in economic conditions and the risk characteristics of its business. For this purpose, the Bank may modify the amount of dividend payments to its shareholders or issue equity instruments. The capital adequacy of the Bank is monitored using, among other measures, the indexes and rules established by the CMF.
Regulatory Capital
According to the Chilean General Banking Law, Banks must maintain a minimum ratio of 8%, net of required provisions, as a result of dividing the Equity by the sum of the Consolidated Weighted Assets by Risk. In addition, banks must maintain a minimum ratio of Basic Capital to Total Consolidated Assets of 3%, net of required provisions. As a result of the merger of Banco de Chile with Citibank Chile in 2008, the CMF established that the institution was obliged to maintain the first reason Less than 10%. In this way, the regulatory body ratified the validity of the minimum of 10% that it had already set in December 2001 by authorizing the merger by absorption of Banco Edwards into Banco de Chile.
Equity is determined from Capital and Reserves or Basic Capital with the following adjustments: (a) the balance of subordinated bonds issued with a maximum equivalent to 50% of the Basic Capital is added and weighted according to their term at maturity; (b) the additional provisions for loans are added, (c) the balance of the assets corresponding to goodwill or overpaid and investments in companies not included in the consolidation is deducted, and (d) the balance of noncontrolling interest is added.
Assets are weighted according to the risk categories, which are assigned a risk percentage that would reflect the amount of capital needed to support each of those assets. There are 5 risk categories (0%, 10%, 20%, 60% and 100%). For example, cash, deposits in other banks and financial instruments issued by the Central Bank of Chile have 0% risk, which means that, according to current standards, no capital is required to back these assets. Properties and equipment have a 100% risk, which means that they must have a minimum capital equivalent to 8% of the amount of these assets and in the case of the Bank of Chile 10%.
173
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(4) | Requirements and Capital Management, continued: |
All derivative instruments traded outside of stock exchanges are considered in the determination of risk assets with a conversion factor over the notional values, thus obtaining the amount of exposure to credit risk (or "credit equivalent"). The contingent credits out of balance are also considered by a "credit equivalent", for their weighting.
The risk-weighted assets and TIER 1 and TIER 2 Capital, as of December 31, 2019 and 2018 are the following:
Consolidated assets | Risk-weighted assets | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Balance sheet assets (net of provisions) | ||||||||||||||||
Cash and due from banks | 2,392,166 | 880,081 | 38,250 | 13,084 | ||||||||||||
Transactions in the course of collection | 584,672 | 580,333 | 167,781 | 186,536 | ||||||||||||
Financial Assets held-for-trading | 1,872,355 | 1,745,366 | 462,177 | 134,412 | ||||||||||||
Investments under resale agreements | 142,329 | 97,289 | 142,329 | 97,289 | ||||||||||||
Derivative instruments (*) | 1,555,749 | 1,310,262 | 1,124,730 | 916,798 | ||||||||||||
Loans and advances to banks | 1,139,433 | 1,494,307 | 389,417 | 313,524 | ||||||||||||
Loans to customers, net | 29,334,052 | 27,307,223 | 25,668,329 | 24,102,808 | ||||||||||||
Financial assets available-for-sale | 1,357,846 | 1,043,440 | 323,160 | 356,568 | ||||||||||||
Financial assets held-to-maturity | — | — | — | — | ||||||||||||
Investments in other companies | 50,758 | 44,561 | 50,758 | 44,561 | ||||||||||||
Intangible assets | 58,307 | 52,061 | 58,307 | 52,061 | ||||||||||||
Property and equipment | 220,262 | 215,872 | 220,262 | 215,872 | ||||||||||||
Current tax assets | 150,665 | — | 150,665 | — | ||||||||||||
Leased assets | 357 | 677 | 36 | 68 | ||||||||||||
Deferred tax assets | 320,948 | 277,922 | 32,095 | 27,792 | ||||||||||||
Other assets | 862,968 | 673,380 | 862,968 | 673,380 | ||||||||||||
Subtotal | 40,042,867 | 35,722,774 | 29,691,264 | 27,134,753 | ||||||||||||
Off-balance-sheet assets | ||||||||||||||||
Contingent loans | 4,365,922 | 4,266,821 | 2,616,074 | 2,559,197 | ||||||||||||
Total | 44,408,789 | 39,989,595 | 32,307,338 | 29,693,950 |
(*)According to Chapter 12-1 of the Compilation of Standards, financial derivative contracts are presented as an equivalent credit risk for the purposes of calculating consolidated assets.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
41. | Risk Management, continued: |
(4) | Capital Requirements and Capital Management, continued: |
The amounts and ratios determined for the limit of basic capital and effective equity as of December 2019 and 2018, are:
As of December 31, | ||||||||
2019 | 2018 | |||||||
MCh$ | MCh$ | |||||||
Basic capital (*) | 3,528,222 | 3,304,152 | ||||||
Effective equity | 4,569,090 | 4,129,999 | ||||||
Total consolidated assets | 44,408,789 | 39,989,595 | ||||||
Total consolidated assets weighted by credit risk | 32,307,338 | 29,693,950 |
(*) | The Basic Capital corresponds to the equity of the owners of the Bank in the Consolidated Statement of Financial Position |
Ratio | ||||||||
As of December 31, | ||||||||
2019 | 2018 | |||||||
% | % | |||||||
Basic capital / consolidated assets | 7.94 | 8.26 | ||||||
Effective equity / consolidated assets weighted by risk | 14.14 | 13.91 |
During the year 2019, the CMF began the regulatory process for the implementation of the Basel III standards in Chile, in accordance with the established in Law No. 21,130 that modernizes the Banking Legislation. At the date of issuance of these Financial Statements, various regulatory proposals have been published, in order to receive comments for the identification of banks of systemic importance, methodologies for determining assets weighted by credit and operational risk, calculation of regulatory capital and additional basic capital requirements. The issuance period for all the regulations necessary to implement Basel III corresponds to December 1, 2020.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, continued
(Free translation of Consolidated Financial Statements originally issued in Spanish)
42. | Subsequent Events: |
a) | On January 20, 2020, the subsidiary Banchile Administradora General de Fondos S.A. informed that during the Ordinary Session held that day, the Board of Directors appointed Mr. José Luis Vizcarra Villalobos as director, replacing Mr. Joaquín Contardo Silva, who presented resignation to the director position. |
b) | On January 30, 2020, the Board of Directors of Banco de Chile agreed to convene an Ordinary Shareholders Meeting on March 26, 2020 in order to propose, among other matters, the following distribution of profits for the year ended on December 31, 2019: |
i. | Deduct and withhold from the net income of the year, an amount equivalent to the effect of inflation of the paid capital and reserves according to the variation of the Consumer Price Index that occurred between November 2018 and November 2019, amounting to Ch$92,239,840,420, which will be added to retained earnings from previous periods. |
ii. | From the resulting balance, distribute in the form of a dividend 70% of the remaining liquid profit, corresponding to a dividend of Ch$3.47008338564 to each of the 101,017,081,114 shares of the Bank, retaining the remaining 30%. |
Consequently, the distribution as a dividend that will be proposed will amount to 59.1% of the profits for the year ended December 31, 2019.
In Management’s opinion, there are no others significant subsequent events that affect or could affect the Consolidated Financial Statements of Banco de Chile and its subsidiaries between December 31, 2019 and the date of issuance of these Consolidated Financial Statements.
Héctor Hernández G. General Accounting Manager | Eduardo Ebensperger O. Chief Executive Officer |
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