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ANNUAL REPORT FOR THE FISCAL YEAR ENDING DECEMBER 31, 2015
As filed with the Securities and Exchange Commission on March 31, 2016
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2015
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the fiscal year ended December 31, 2015
Commission file number 001-32305
CORPBANCA
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
Republic of Chile
(Jurisdiction of incorporation or organization)
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Rosario Norte 660
Las Condes
Santiago, Chile
(Address of principal executive offices)
Investor Relations, Telephone: +(562) 2660-2555, Facsimile: +(562) 2660-2476,
Address: Rosario Norte 660, Las Condes, Santiago, Chile
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Name of each exchange on which registered | |
American Depositary Shares representing common shares | New York Stock Exchange | |
Common shares, no par value* | New York Stock Exchange* |
* | Not for trading purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission. |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities registered for which there is a reporting obligation pursuant Section 15(d) of the Act.
3.125% Senior Notes due January 15, 2018
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
340,358,194,234
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes ¨ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨ Yes x No
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes x No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ¨ | International Financial Reporting Standards as issued by the International Accounting Standards Board x | Other ¨ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ¨ Item 17 ¨ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ¨ Yes ¨ No
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CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 20-F contains statements that constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements preceded by, followed by or that include “believes,” “expects,” “intends,” “plans,” “projects,” “estimates” or “anticipates” and similar expressions. These statements appear throughout this Annual Report, including, without limitation, under “Item 3. Key Information—D. Risk Factors”, “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects”, are not based on historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control and include statements regarding our current intent, belief or expectations with respect to (1) our asset growth and financing plans, (2) trends affecting our financial condition or results of operations, (3) the impact of competition and regulations, (4) projected capital expenditures, and (5) liquidity. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those described in such forward-looking statements included in this Annual Report as a result of various factors (including, without limitation, the actions of competitors, future global economic conditions, market conditions, currency exchange rates and operating and financial risks), many of which are beyond our control. The occurrence of any such factors, not currently expected by us, would significantly alter the results set forth in these statements.
Factors that could cause actual results to differ materially and adversely include, but are not limited to:
• | trends affecting our financial condition or results of operations; |
• | our dividend policy; |
• | changes in the participation of our shareholders or any other factor that may result in a change of control; |
• | the amount of our indebtedness; |
• | natural disasters; |
• | changes in general economic, business, regulatory, political or other conditions in the Republic of Chile, or Chile, or the Republic of Colombia, or Colombia, or changes in general economic or business conditions in Latin America; |
• | changes in capital markets in general that may affect policies or attitudes towards lending to Chile or Colombia, Chilean or Colombian companies or securities issued by Chilean companies; |
• | the monetary and interest rate policies of the Central Bank of Chile (Banco Central de Chile), or the Central Bank of Colombia (Banco de la República de Colombia); |
• | inflation or deflation; |
• | unemployment; |
• | unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms; |
• | unanticipated turbulence in interest rates; |
• | movements in currency exchange rates; |
• | movements in equity prices or other rates or prices; |
• | changes in Chilean, Colombian and foreign laws and regulations; |
• | changes in Chilean or Colombian tax rates or tax regimes; |
• | competition, changes in competition and pricing environments; |
• | our inability to hedge certain risks economically; |
• | the adequacy of our loss allowances, provisions or reserves; |
• | technological changes; |
• | changes in consumer spending and saving habits; |
• | successful implementation of new technologies; |
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• | loss of market share; |
• | changes in, or failure to comply with, applicable banking, insurance, securities or other regulations; |
• | difficulties in successfully integrating recent and future acquisitions into our operations; |
• | our ability to successfully complete the implementation of a new information technology core banking system in Colombia, as part of the integration process in Colombia; |
• | consequences of the pending acquisition of a controlling interest in us by Itaú Unibanco Holding S.A, or Itaú Unibanco, as well as the merger of Banco Itaú Chile, or Itaú Chile, with and into us and the potential acquisition of Itaú BBA Colombia S.A., Corporación Financiera, or Itaú Colombia by us or the merger of Itaú Colombia with and into Banco CorpBanca Colombia, S.A., or CorpBanca Colombia (the Itaú-CorpBanca Merger); |
• | the merged bank’s abilities to achieve revenue benefits and cost savings from the integration between CorpBanca’s and Banco Itaú Chile’s businesses and assets; and |
• | the other factors identified or discussed under “Item 3. Key Information—D. Risk Factors” in this Annual Report |
You should not place undue reliance on such statements, which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may make in the future. We do not undertake any obligation to release publicly any revisions to such forward-looking statements after the date of this Annual Report to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
Neither CorpBanca nor Banco Itaú Chile, as a matter of course make public projections as to future net revenues, costs, or other results. However, the both banks have prepared prospective financial information for inclusion in this document mainly related to estimated revenue synergies, cost savings, funding costs and capital position to present the estimated impacts of the merge with Banco Itaú Chile. This prospective financial information was not prepared in accordance with the guidelines established by the American Institute of Certified Public Accounts (the “AICPA”) with respect to prospective financial information.
Statements relating to the cost savings that both, CorpBanca and Banco Itaú Chile expect to achieve following the transaction described in this document are based on assumptions which in the view of the bank’s management, were prepared on a reasonable basis, reflect the best currently available estimates and judgments, and present, to the best of such management’s knowledge and belief, the expected course of action and the expected future financial impact on performance of the bank due to the merger with Banco Itaú-Chile. However, the assumptions about these expected cost savings and growth opportunities are inherently uncertain and, though considered reasonable by management as of the date of its preparation, are subject to a wide variety of significant business, economic, and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the prospective financial information. There can be no assurance that the banks will be able to successfully implement the strategic or operational initiatives that are intended.
Neither CorpBanca’s independent auditors, nor any other independent accountants, have complied with, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, or disclaim any association with, the prospective financial information.
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ENFORCEMENT OF CIVIL LIABILITIES
We are a banking corporation organized under the laws of Chile. The majority of our directors or executive officers are not residents of the United States and a substantial portion of our assets and the assets of these persons are located outside the United States. As a result, it may not be possible for you to effect service of process within the United States upon us or such persons or to enforce against them or us in the United States or other foreign courts, judgments obtained in the United States predicated upon the civil liability provisions of the federal securities laws of the United States.
No treaty exists between the United States and Chile for the reciprocal enforcement of court judgments. Chilean courts, however, have enforced final judgments rendered in the United States, subject to the review in Chile of the United States judgment in order to ascertain whether certain basic principles of due process and public policy have been respected, without reviewing the merits of the subject matter of the case. If a United States court grants a final judgment in an action based on the civil liability provisions of the federal securities laws of the United States, enforceability of this judgment in Chile will be subject to the obtaining of the relevant “exequatur” (i.e., recognition and enforcement of the foreign judgment) according to Chilean civil procedure law in force at that time, and consequently, subject to the satisfaction of certain factors. Currently, the most important of these factors are the absence of any conflict between the foreign judgment and Chilean laws (excluding for this purpose the laws of civil procedure) and public policies; the absence of a conflicting judgment by a Chilean court relating to the same parties and arising from the same facts and circumstances; the absence of any further means for appeal or review of the judgment in the jurisdiction where judgment was rendered; the Chilean courts’ determination that the United States courts had jurisdiction; that service of process was appropriately served on the defendant and that the defendant was afforded a real opportunity to appear before the court and defend its case; and that enforcement would not violate Chilean public policy.
In general, the enforceability in Chile of final judgments of United States courts does not require retrial in Chile.
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PART I | 1 | |||||
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 1 | ||||
ITEM 2. | 1 | |||||
ITEM 3. | 1 | |||||
ITEM 4. | 28 | |||||
ITEM 4A. | 113 | |||||
ITEM 5. | 113 | |||||
ITEM 6. | 140 | |||||
THE DIRECTORS COMMITTEE AND AUDIT COMMITTEE | ||||||
ITEM 7. | 149 | |||||
ITEM 8. | 152 | |||||
ITEM 9. | 154 | |||||
ITEM 10. | 155 | |||||
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT FINANCIAL RISK | 191 | ||||
ITEM 12. | 236 | |||||
PART II | 237 | |||||
ITEM 13. | 237 | |||||
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 237 | ||||
ITEM 15. | 237 | |||||
ITEM 16. | 240 | |||||
ITEM 16A. | 240 | |||||
ITEM 16B. | 240 | |||||
ITEM 16C. | 240 | |||||
ITEM 16D. | 241 | |||||
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 241 | ||||
ITEM 16F. | 241 | |||||
ITEM 16G. | 241 | |||||
ITEM 16H. | 242 | |||||
PART III | 243 | |||||
ITEM 17. | 243 | |||||
ITEM 18. | 243 | |||||
ITEM 19. | 243 |
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Financial Statements
We are a Chilean bank and maintain our financial books and records in Chilean pesos and prepare our consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. As required by local regulations, our consolidated financial statements filed with the Chilean Superintendency of Banks and Financial Institutions (Superintendencia de Bancos e Instituciones Financieras), also referred to as the SBIF, have been prepared in accordance with Chilean accounting principles or Chilean Bank GAAP, issued by the SBIF; nevertheless, SBIF’s regulations provide that unless specifically regulated by this agency, our financial statements shall be prepared in accordance with IFRS, as issued by the IASB. Unless otherwise indicated herein, as used hereafter IFRS refers to the standards issued by the IASB. Therefore, our consolidated financial statements filed with the SBIF have been adjusted to IFRS in order to comply with the requirements of the Securities and Exchange Commission, or the SEC. We have included herein certain information in Chilean Bank GAAP with respect to the Chilean financial system and the financial performance of the bank. These disclosures are not considered non-GAAP measures as they are required for regulatory purposes in Chile.
The selected consolidated financial information included herein as of December 31, 2015 and for the year ended December 31, 2015, together with the selected consolidated financial information as of December 31, 2011, 2012, 2013 and 2014 and for the years ended December 31, 2011, 2012, 2013 and 2014, is derived from, and presented on the same basis as, our consolidated financial statements prepared under IFRS and should be read together with such consolidated financial statements. Readers should exercise caution in determining trends based on prior annual reports. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—The Economy—Critical Accounting Policies and Estimates”.
Our auditors, Deloitte Auditores y Consultores Ltda., or Deloitte, an independent registered public accounting firm, have audited our consolidated financial statements in accordance with IFRS as of December 31, 2015 and 2014 and for the years ended December 31, 2013, 2014 and 2015. See page 238 and F-1 of this report for further details on Deloitte’s opinions.
Foreign Currency Markets
In this Annual Report, references to “$,” “US$,” “U.S. dollars” and “dollars” are to United States dollars, references to “Chilean pesos” or “Ch$” are to Chilean pesos, references to “UF” are toUnidades de Fomento and references to “Colombian pesos” or “COP$” are to Colombian pesos. The UF is an inflation-indexed, Chilean peso-denominated unit that is linked to and adjusted daily to reflect changes in the previous month’s Chilean Consumer Price Index of the Chilean National Statistics Institute (Instituto Nacional de Estadísticas). As of December 31, 2015, one UF equaled US$36.08, Ch$25,629.09 and COP$113,102.78 and as of March 11, 2016, one UF equaled US$37.69, Ch$25,762.22 and COP$117,101. See “Item 5. Operating and Financial Review and Prospects”.
This Annual Report contains translations of certain Chilean peso amounts into U.S. dollars and Colombian pesos at specified rates solely for the convenience of the reader. These translations should not be construed as representations that such Chilean peso amounts actually represent such U.S. dollar or Colombian pesos amounts, were converted from U.S. dollars or Colombian pesos amounts at the rate indicated in preparing our financial statements or could be converted into U.S. dollars or Colombian pesos amounts at the rate indicated or any particular rate at all. Unless otherwise indicated, such U.S. dollar and Colombian pesos amounts have been translated from Chilean pesos based on our own exchange rate of Ch$710.32 and COP$3,135.17, respectively, per US$1.00 as of December 31, 2015.
Specific Loan Information
Unless otherwise specified, all references in this Annual Report to total loans are to loans and financial leases before deduction for allowances for loan losses, and they do not include loans to banks or unfunded loan commitments. In addition, all market share data and financial indicators for the Chilean banking system when compared to CorpBanca’s financial information,
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presented in this Annual Report or incorporated by reference into this Annual Report are based on information published periodically by the SBIF, which is published under Chilean Bank GAAP and prepared on a consolidated basis. Non-performing loans include the principal and accrued interest on any loan with one installment more than 90 days overdue. Impaired loans include those loans on which there is objective evidence that customers will not meet some of their contractual payment obligations. Past due loans include all installments and lines of credit more than 90 days overdue, provided that the aggregate principal amount of such loans is not included. Under IFRS, a loan is evaluated on each financial statement reporting date to determine whether objective evidence of impairment exists. A loan will be impaired if and only if, objective evidence of impairment exists as a result of one or more events that occurred after the initial recognition of the loan, and such event or events have an impact on the estimated future cash flows of such loan that can be reliably estimated. It may not be possible to identify a single event that was the individual cause of the impairment. An impairment loss relating to a loan is calculated as the difference between the carrying amount of the loan and the present value of estimated future cash flows discounted at the effective interest rate. Individually significant loans are individually tested for impairment. The remaining financial loans are evaluated collectively in groups with similar credit risk characteristics. The reversal of an impairment loss occurs only if it can be objectively related to an event occurring after the initial impairment loss was recorded. In the case of loans recorded at amortized cost, the reversal is recorded in income. See “Item 4. Information on the Company—Business Overview—Selected Statistical Information —Classification of Banks and Loans; Allowances and Provisions for Loan Losses.”
According to Decree with Force of Law No. 3 of 1997, as amended, theLey General de Bancosor the Chilean General Banking Act, a bank must have effective net equity (patrimonio efectivo) of at least 8% of its risk weighted assets, net of required allowance for loan losses, and paid in capital and reserves, or basic capital (capital básico), of at least 3% of its total assets, net of required allowance for loan losses.
For these purposes, the effective net equity of a bank is the sum of (1) the bank’s basic capital, (2) subordinated bonds issued by the bank valued at their issue price for an amount of up to 50% of its basic capital; provided that the value of the bonds shall decrease by 20% for each year that elapses during the period commencing six years prior to their maturity and (3) its voluntary allowances for loan losses, for an amount of up to 1.25% of its risk weighted assets to the extent voluntary allowances exceed those that banks are required to maintain by law or regulation; minus (4) certain deductions to be made in accordance with provisions of chapter 12-1 of the regulations of the SBIF (Recopilación Actualizada de Normas), or the Regulations of the SBIF.
Rounding and Other Matters
Certain figures included in this Annual Report and in our audited consolidated financial statements as of and for the year ended December 31, 2015 have been rounded for ease of presentation. Percentage figures included in this Annual Report have in all cases not been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Annual Report may vary slightly from those obtained by performing the same calculations using the figures in our audited consolidated financial statements as of and for the year ended December 31, 2015. Certain other amounts that appear in this Annual Report may similarly not sum due to rounding.
Inflation figures relating to Chile are those reported by the Chilean National Statistics Institute (Instituto Nacional de Estadísticas) or INE, unless otherwise stated herein or required by the context. Inflation figures relating to Colombia are those reported by the Colombian National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadística) or DANE, unless otherwise stated herein or required by the context. See “—Exchange Rate Information” below.
In this Annual Report, all macroeconomic data related to the Chilean economy is based on information published by the Central Bank of Chile and all macroeconomic data related to the Colombian economy is based on information published by the Central Bank of Colombia. All market share and other data related to the Chilean financial system is based on information published by the SBIF as well as other publicly available information and all market share and other data related to the Colombian financial system is based on information published by the Colombian Superintendency of Finance (Superintendencia Financiera de Colombia) as well as other publicly available information. The SBIF publishes the consolidated risk index (ratio of allowance for loans losses over total loans) of the Chilean financial system on a monthly basis. The Colombian Superintendency of Finance publishes every month the consolidated data required to calculate the risk index of the Colombian banking system (loan loss allowances and total loans).
EXCHANGE RATE INFORMATION
Exchange Rates
Chile has two currency markets, the Formal Exchange Market (Mercado Cambiario Formal) and the Informal Exchange Market (Mercado Cambiario Informal). The Formal Exchange Market is comprised of banks and other entities authorized by the Central Bank of Chile. The Informal Exchange Market is comprised of entities that are not expressly authorized to operate in the Formal Exchange Market, such as certain foreign exchange houses and travel agencies, among others. The Central Bank of Chile is empowered
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to require that certain purchases and sales of foreign currencies be carried out on the Formal Exchange Market. Both the Formal and Informal Exchange Markets are driven by free market forces. Current regulations require that the Central Bank of Chile be informed of certain transactions and that they be effected through the Formal Exchange Market.
The U.S. dollar observed exchange rate (dólar observado), or the Observed Exchange Rate, which is reported by the Central Bank of Chile and published daily in the Official Gazette (Diario Oficial) is the weighted average exchange rate of the previous business day’s transactions in the Formal Exchange Market. Nevertheless, the Central Bank of Chile may intervene by buying or selling foreign currency on the Formal Exchange Market to attempt to maintain the Observed Exchange Rate within a desired range. Even though the Central Bank of Chile is authorized to carry out its transactions at the Observed Exchange Rate, it often uses spot rates instead. Many other banks carry out foreign exchange transactions at spot rates as well.
The Informal Exchange Market reflects transactions carried out at an informal exchange rate. There are no limits imposed on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the Observed Exchange Rate.
The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.
As of December 31, 2015, the U.S. dollar exchange rate used by us was Ch$710.32 per US$1.00 and the Colombian peso exchange rate used by us was Ch$3,135.17 per Cop$1.00.
The following table sets forth the annual low, high, average and period-end Observed Exchange Rate for U.S. dollars for the periods set forth below, as reported by the Central Bank of Chile.
Daily Observed Exchange Rate (Ch$ per US$)(1) | ||||||||||||||||
Low (2) | High (2) | Average(3) | Period-End (4) | |||||||||||||
Year ended December 31, | ||||||||||||||||
2011 | 455.91 | 533.74 | 483.36 | 521.46 | ||||||||||||
2012 | 469.65 | 519.69 | 486.75 | 478.60 | ||||||||||||
2013 | 466.50 | 533.95 | 495.00 | 523.76 | ||||||||||||
2014 | 524.61 | 621.41 | 570.01 | 607.38 | ||||||||||||
2015 | 597.10 | 715.66 | 654.25 | 707.34 | ||||||||||||
Quarterly period | ||||||||||||||||
2014 1st Quarter | 524.61 | 573.24 | 551.48 | 550.53 | ||||||||||||
2014 2nd Quarter | 544.96 | 566.88 | 554.35 | 550.60 | ||||||||||||
2014 3rd Quarter | 548.72 | 601.66 | 576.31 | 601.66 | ||||||||||||
2014 4th Quarter | 576.50 | 621.41 | 598.18 | 607.38 | ||||||||||||
2015 1st Quarter | 606.75 | 642.18 | 624.42 | 626.87 | ||||||||||||
2015 2nd Quarter | 597.10 | 637.80 | 617.76 | 634.58 | ||||||||||||
2015 3rd Quarter | 636.39 | 706.24 | 676.25 | 704.68 | ||||||||||||
2015 4th Quarter | 673.91 | 715.66 | 697.75 | 707.34 | ||||||||||||
Month ended | ||||||||||||||||
September 2015 | 676.74 | 705.92 | 691.73 | 704.68 | ||||||||||||
October 2015 | 673.91 | 698.72 | 685.31 | 690.34 | ||||||||||||
November 2015 | 688.94 | 715.66 | 704.00 | 712.63 | ||||||||||||
December 2015 | 693.72 | 711.52 | 704.24 | 707.34 | ||||||||||||
January 2016 | 710.16 | 730.31 | 721.95 | 711.72 | ||||||||||||
February 2016 | 689.18 | 715.41 | 704.08 | 689.18 | ||||||||||||
March 2016(5) | 678.22 | 694.82 | 685.12 | 678.22 |
Source: Central Bank of Chile
(1) | Nominal figures. |
(2) | Exchange rates are the actual low and high, on a day-by-day basis for each period. |
(3) | The average of the exchange rates on the last day of each month during the period. |
(4) | Each annual period ends on December 31, and the respective period-end exchange rate is published by the Central Bank of Chile on the first business day following December 31. Each monthly period ends on the last calendar day of such month and the respective period-end exchange rate is published by the Central Bank of Chile on the first business day following the last calendar day of such month. |
(5) | The information for March 2016 is as of March 11, 2016. |
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The following table sets forth the annual low, high, average and period-end exchange rate for U.S. dollars for the periods set forth below under our policy to calculate our own exchange rate:
Bank’s Exchange Rate Ch$ per US$1 | ||||||||||||||||
Low (2) | High (2) | Average (3) | Period-End | |||||||||||||
Year ended December 31, | ||||||||||||||||
2011 | 455.87 | 535.03 | 483.49 | 519.08 | ||||||||||||
2012 | 469.68 | 518.65 | 486.68 | 479.16 | ||||||||||||
2013 | 466.48 | 533.95 | 495.31 | 526.41 | ||||||||||||
2014 | 605.46 | 621.56 | 612.85 | 605.46 | ||||||||||||
2015 | 593.49 | 714.82 | 654.55 | 710.32 | ||||||||||||
Quarterly period | ||||||||||||||||
2014 1st Quarter | 526.84 | 573.21 | 551.91 | 550.62 | ||||||||||||
2014 2nd Quarter | 544.80 | 567.56 | 554.49 | 552.81 | ||||||||||||
2014 3rd Quarter | 548.93 | 601.25 | 577.15 | 597.66 | ||||||||||||
2014 4th Quarter | 575.31 | 621.56 | 598.21 | 605.46 | ||||||||||||
2015 1st Quarter | 612.33 | 642.07 | 624.73 | 623.96 | ||||||||||||
2015 2nd Quarter | 593.49 | 638.47 | 618.00 | 638.47 | ||||||||||||
2015 3rd Quarter | 635.36 | 704.89 | 676.91 | 696.86 | ||||||||||||
2015 4th Quarter | 674.31 | 714.82 | 697.72 | 710.32 | ||||||||||||
Month ended | ||||||||||||||||
September 2015 | 678.59 | 704.61 | 691.30 | 696.86 | ||||||||||||
October 2015 | 674.31 | 695.13 | 684.65 | 691.27 | ||||||||||||
November 2015 | 689.46 | 714.82 | 704.81 | 710.25 | ||||||||||||
December 2015 | 690.95 | 712.46 | 703.99 | 710.32 | ||||||||||||
January 2016 | 710.69 | 731.70 | 721.96 | 710.69 | ||||||||||||
February 2016 | 691.26 | 713.84 | 703.27 | 694.77 | ||||||||||||
March 2016(4) | 676.68 | 694.87 | 683.28 | 683.53 |
Source: CorpBanca
(1) | Nominal figures. |
(2) | Exchange rates are the actual low and high, on a day-by-day basis for each period. |
(3) | The average of the exchange rates on the last day of each month during the period. |
(4) | The chart contains information up to March 11, 2016. |
Exchange Controls Considerations
Investments made in our common shares and our ADRs are subject to the following requirements:
• | any foreign investor acquiring common shares to be deposited into an ADR facility who brought funds into Chile for that purpose must bring those funds through an entity participating in the Formal Exchange Market; |
• | the entity participating in the Formal Exchange Market through which the funds are brought into Chile must report such investment to the Central Bank of Chile; |
• | all remittances of funds from Chile to the foreign investor upon the sale of common shares underlying American Depositary Shares, or ADSs, or from dividends or other distributions made in connection therewith must be made through the Formal Exchange Market; and |
• | all remittances of funds made to the foreign investor must be reported to the Central Bank of Chile. |
When funds are brought into Chile for a purpose other than to acquire common shares to convert them into ADSs and subsequently are used to acquire common shares to be deposited into the ADR facility, such investment must be reported to the Central Bank of Chile by the custodian within ten days following the end of each month within which the custodian is obligated to deliver periodic reports to the Central Bank of Chile.
All payments made within Chile in foreign currency in connection with ADSs through the Formal Exchange Market must be reported to the Central Bank of Chile by the entity participating in the transaction. In the event there are payments made outside of Chile, the foreign investor must provide the relevant information to the Central Bank of Chile directly or through an entity of the Formal Exchange Market within the first ten calendar days of the month following the date on which the payment was made.
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We cannot assure you that additional Chilean restrictions applicable to the holders of the ADSs, the disposition of shares underlying ADSs or the conversion or repatriation of the proceeds from such disposition will not be imposed in the future, nor can we assess the duration or impact of such restriction if imposed.
This summary does not purport to be complete and is qualified by reference to Chapter XIV of the Central Bank Foreign Exchange Regulations, a copy of which is available in the original Spanish version at the Central Bank of Chile’s website at www.bcentral.cl.
A. SELECTED FINANCIAL DATA
The following tables present our selected financial data as of the dates and for the periods indicated. You should read the following information together with our audited consolidated financial statements, including the notes thereto, included in this Annual Report and the information set forth in “Item 5. Operating and Financial Review and Prospects”.
For the fiscal years ended December 31, | ||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2015 (1) | |||||||||||||||||||
Ch$ | Ch$ | Ch$ | Ch$ | Ch$ | US$ | |||||||||||||||||||
(in million of Ch$, in thousand of US$)(2) | ||||||||||||||||||||||||
Interest income | 528,622 | 762,992 | 1,007,106 | 1,320,124 | 1,299,480 | 1,829,429 | ||||||||||||||||||
Interest expense | (335,622 | ) | (506,116 | ) | (549,416 | ) | (689,240 | ) | (678,901 | ) | (955,768 | ) | ||||||||||||
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Net interest income | 193,000 | 256,876 | 457,690 | 630,884 | 620,579 | 873,661 | ||||||||||||||||||
Net service fee income | 60,362 | 85,644 | 117,977 | 161,590 | 152,847 | 215,181 | ||||||||||||||||||
Trading and investment, foreign exchange gains and other operating income | 80,469 | 104,398 | 127,039 | 199,225 | 211,153 | 297,265 | ||||||||||||||||||
Total operating expenses | (152,706 | ) | (253,644 | ) | (362,145 | ) | (509,672 | ) | (480,789 | ) | (676,861 | ) | ||||||||||||
Income attributable to investments in other companies | 250 | 367 | 1,241 | 1,799 | 1,300 | 1,830 | ||||||||||||||||||
Provisions for loan losses | (40,754 | ) | (51,575 | ) | (102,072 | ) | (127,272 | ) | (169,748 | ) | (238,974 | ) | ||||||||||||
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Income before income taxes | 140,621 | 142,066 | 239,730 | 356,554 | 335,342 | 472,703 | ||||||||||||||||||
Income taxes | (23,303 | ) | (22,913 | ) | (64,491 | ) | (82,853 | ) | (96,677 | ) | (136,103 | ) | ||||||||||||
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Net income for the year | 117,318 | 119,153 | 175,239 | 273,701 | 238,665 | 335,999 | ||||||||||||||||||
Net income per common share (3) | 0.51 | 0.43 | 0.48 | 0.69 | 0.64 | 0.00089 | ||||||||||||||||||
Dividend per common share(4) | 0.52 | 0.49 | 0.176 | 0.260 | 0.332 | 0.00047 | ||||||||||||||||||
Dividends per ADS(4) | 787 | 736 | 265 | 390 | 499 | 0.70 | ||||||||||||||||||
Shares of common stock outstanding (in thousand) | 226,909,290.6 | 250,358,194.2 | 340,358,194.2 | 340,358,194.2 | 340,358,194.2 |
Source: CorpBanca
(1) | Amounts stated in U.S. dollars as of December 31, 2015, and for the year ended December 31, 2015 have been translated from Chilean pesos at our exchange rate of Ch$ 710.32 per US$1.00 as of December 31, 2015. |
(2) | Amounts stated in millions of Chilean pesos and thousands of U.S. dollars except for net income per share, dividends per common share and dividend per ADS expressed in Chilean pesos and in U.S. dollars. |
(3) | Net income per common share has been calculated on the basis of net income attributable to the equity holders of the Bank divided by the weighted average number of shares outstanding for the period. For further information on basic earnings and diluted earnings please see Note 23 (d) to our financial statements. |
(4) | Represents dividends paid in respect of net income earned in the prior fiscal year. |
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CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
As of December 31, | ||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2015 (1) | |||||||||||||||||||
Ch$ | Ch$ | Ch$ | Ch$ | US$ | ||||||||||||||||||||
(in million of Ch$, in thousand of US$) | ||||||||||||||||||||||||
Cash and deposits in banks | 265,747 | 520,228 | 911,088 | 1,169,178 | 1,004,757 | 1,414,513 | ||||||||||||||||||
Cash in the process of collection | 96,230 | 123,777 | 112,755 | 212,842 | 176,501 | 248,481 | ||||||||||||||||||
Trading portfolio financial assets | 166,039 | �� | 159,898 | 431,683 | 685,898 | 323,899 | 455,990 | |||||||||||||||||
Investments under agreements to resell | 23,251 | 21,313 | 201,665 | 78,079 | 24,674 | 34,736 | ||||||||||||||||||
Derivative financial instruments | 248,982 | 268,027 | 376,280 | 766,799 | 1,008,915 | 1,420,367 | ||||||||||||||||||
Loans and receivables from banks | 304,098 | 482,371 | 217,944 | 814,209 | 451,829 | 636,092 | ||||||||||||||||||
Loans and receivables from customers | 6,711,945 | 9,993,890 | 12,771,642 | 13,892,270 | 14,454,357 | 20,349,078 | ||||||||||||||||||
Financial investments available-for-sale | 843,250 | 1,112,435 | 889,087 | 1,156,896 | 1,924,788 | 2,709,748 | ||||||||||||||||||
Held to maturity investments | 21,962 | 104,977 | 237,522 | 190,677 | 170,191 | 239,598 | ||||||||||||||||||
Investment in other companies | 3,583 | 5,793 | 13,922 | 15,842 | 14,648 | 20,622 | ||||||||||||||||||
Intangible assets | 12,239 | 489,306 | 841,370 | 757,777 | 665,264 | 936,569 | ||||||||||||||||||
Property, plant equipment, net | 57,225 | 65,086 | 98,242 | 92,642 | 91,630 | 128,998 | ||||||||||||||||||
Current income taxes | 6,278 | — | — | 20,834 | 46,904 | 66,032 | ||||||||||||||||||
Deferred income taxes | 25,080 | 40,584 | 89,218 | 2,702 | 8,671 | 12,207 | ||||||||||||||||||
Other assets | 102,775 | 149,903 | 293,118 | 415,267 | 438,323 | 617,077 | ||||||||||||||||||
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TOTAL ASSETS | 8,888,684 | 13,537,588 | 17,485,536 | 20,271,912 | 20,805,351 | 29,290,109 | ||||||||||||||||||
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As of December 31, | ||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2015 (1) | |||||||||||||||||||
Ch$ | Ch$ | Ch$ | Ch$ | Ch$ | US$ | |||||||||||||||||||
(in million of Ch$, in thousand of US$) | ||||||||||||||||||||||||
Current accounts and demand deposits | 682,720 | 1,112,675 | 3,451,383 | 3,954,948 | 4,431,619 | 6,238,905 | ||||||||||||||||||
Transaction in the course of payment | 36,948 | 68,883 | 57,352 | 145,771 | 105,441 | 148,442 | ||||||||||||||||||
Obligations under repurchase agreements | 130,549 | 257,721 | 342,445 | 661,663 | 260,631 | 366,921 | ||||||||||||||||||
Time deposits and saving accounts | 4,824,378 | 7,682,675 | 7,337,703 | 8,076,966 | 8,495,603 | 11,960,247 | ||||||||||||||||||
Derivative financial instruments | 166,872 | 193,844 | 281,583 | 607,683 | 731,114 | 1,029,274 | ||||||||||||||||||
Borrowings from financial institutions | 663,626 | 969,521 | 1,273,840 | 1,431,923 | 1,528,585 | 2,151,967 | ||||||||||||||||||
Debt issued | 1,522,773 | 1,886,604 | 2,414,557 | 3,079,050 | 3,227,554 | 4,543,803 | ||||||||||||||||||
Other financial obligations | 20,053 | 18,120 | 16,807 | 15,422 | 14,475 | 20,378 | ||||||||||||||||||
Current income tax provision | — | 9,057 | 45,158 | 19,226 | 42,457 | 59,772 | ||||||||||||||||||
Deferred income taxes | 25,352 | 120,714 | 182,373 | 76,593 | 40,433 | 56,922 | ||||||||||||||||||
Provisions | 42,030 | 136,240 | 164,932 | 200,289 | 182,707 | 257,218 | ||||||||||||||||||
Other liabilities | 30,981 | 79,868 | 185,506 | 210,716 | 209,439 | 294,852 | ||||||||||||||||||
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TOTAL LIABILITIES | 8,146,282 | 12,535,922 | 15,753,639 | 18,480,250 | 19,270,058 | 27,128,700 | ||||||||||||||||||
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Equity Attributable to equity holders of the Bank | 739,793 | 947,296 | 1,426,199 | 1,465,725 | 1,220,552 | 1,718,312 | ||||||||||||||||||
Non controlling interest | 2,609 | 54,370 | 305,698 | 325,937 | 314,741 | 443,097 | ||||||||||||||||||
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TOTAL EQUITY | 742,402 | 1,001,666 | 1,731,897 | 1,791,662 | 1,535,293 | 2,161,409 | ||||||||||||||||||
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TOTAL LIABILITIES AND EQUITY | 8,888,684 | 13,537,588 | 17,485,536 | 20,271,912 | 20,805,351 | 29,290,109 | ||||||||||||||||||
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(1) | Amounts stated in U.S. dollars as of December 31, 2015, and for the year ended December 31, 2015 have been translated from Chilean pesos at our exchange rate of Ch$ 710.32 per US$1.00 as of December 31, 2015. |
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CONSOLIDATED RATIOS
As of and for the year ended December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
Profitability and Performance | ||||||||||||||||||||
Net interest margin(1) | 2.7 | % | 2.3 | % | 3.4 | % | 3.8 | % | 3.6 | % | ||||||||||
Return on average total assets(2) | 1.5 | % | 0.9 | % | 1.1 | % | 1.4 | % | 1.2 | % | ||||||||||
Return on average equity(3) | 19.6 | % | 13.1 | % | 12.7 | % | 18.2 | % | 18.0 | % | ||||||||||
Efficiency ratio (consolidated)(4) | 45.7 | % | 56.8 | % | 51.5 | % | 51.4 | % | 48.8 | % | ||||||||||
Dividend payout ratio(5) | 100.0 | % | 100.0 | % | 50.0 | % | 57.0 | % | 51.6 | % | ||||||||||
Capital | ||||||||||||||||||||
Average equity as a percentage of average total assets | 7.5 | % | 7.2 | % | 8.9 | % | 7.7 | % | 6.4 | % | ||||||||||
Equity as a percentage of total liabilities | 9.1 | % | 8.0 | % | 11.0 | % | 9.7 | % | 8.0 | % | ||||||||||
Asset Quality | ||||||||||||||||||||
Allowances for loan losses as a percentage of overdue loans(6) | 153.8 | % | 101.8 | % | 76.5 | % | 65.3 | % | 77.5 | % | ||||||||||
Overdue loans as a percentage of total loans(6) | 1.0 | % | 1.1 | % | 1.3 | % | 1.5 | % | 1.5 | % | ||||||||||
Allowances for loan losses as a percentage of total loans | 1.5 | % | 1.1 | % | 1.0 | % | 1.0 | % | 1.2 | % | ||||||||||
Past due loans as a percentage of total loans(7) | 0.7 | % | 0.5 | % | 0.5 | % | 0.6 | % | 0.7 | % | ||||||||||
Other Data | ||||||||||||||||||||
Inflation rate | ||||||||||||||||||||
Foreign exchange rate (Ch$/US$) | 11.0 | % | (7.7 | )% | 9.9 | % | 15.0 | % | 17.3 | % | ||||||||||
Number of employees | 3,461 | 5,163 | 7,298 | 7,456 | 7,545 | |||||||||||||||
Number of branches and offices | 116 | 209 | 295 | 298 | 304 |
(1) | Net interest margin is defined as net interest income divided by average interest-earning assets. |
(2) | Return on average total assets is defined as net income divided by average total assets. |
(3) | Return on average equity is defined as net income divided by average shareholders’ equity. |
(4) | Efficiency ratio (consolidated) is defined as total operating expenses as a percentage of operating income before loan losses. |
(5) | Dividend payout ratio represents dividends divided by net income. |
(6) | Overdue loans consist of all non-current loans (loans to customers). |
(7) | Past due loans include all installments and lines of credit more than 90 overdue. |
B. | CAPITALIZATION AND INDEBTEDNESS |
Not applicable.
C. | REASONS FOR THE OFFER AND USE OF PROCEEDS |
Not applicable.
D. | RISK FACTORS |
RISKS ASSOCIATED WITH OUR BUSINESS
The growth and composition of our loan portfolio may expose us to increased loan losses.
From December 31, 2012 to December 31, 2015, the compounded annual growth rate of our aggregate gross loan portfolio was 13.4%. Our business strategy is to grow profitably while increasing the size of our loan portfolio.
The consumer loans segment represents the single highest level of risk in our loan portfolio. As of December 31, 2015, the risk index (ratio of allowance for loans losses over total loans) of this segment was 1.5% – reflecting a 0.5% decrease in 2015 – while other segments of our loan portfolio such as mortgage loans and commercial loans had lower risk indexes of 0.4% and 1.3%, respectively.
During 2015, our portfolio of consumer loans was negatively impacted by the decline in consumer activity in the country. As of December 31, 2015, consumer loans represented 11.6% of our total loan portfolio compared to 12.2% as of December 31, 2014. While our loan portfolio grew by 4.3%, the composition of our loan portfolio as of December 31, 2015 reflected a greater increase in commercial loans, from Ch$10,090,574 million to Ch$10,696,518 million, this is a 6.0% increase when compared to our portfolio of consumer loans. Our mortgage loan portfolio has remained stable between Ch$2,229,558 million in 2014 and Ch$2,228,619 million in 2015, a 0.04% decrease.
Our consumer loan portfolio may experience loan losses due to the absence of collateral in respect of unsecured loans, insufficient collateral in collateralized loans, and risks relating to the circumstances of individual borrowers, including unemployment or incapacitation of our consumer borrowers.
We believe our total allowances for loan losses is adequate as of the date hereof to cover all known losses in our total loan portfolio. The growth of our loan portfolio (particularly in the lower-middle to middle income consumer segments) may expose us to a higher level of loan losses and require us to establish proportionately higher levels of provisions for loan losses, which would offset the increased income that we can expect to receive as our loan portfolio grows.
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Our loan portfolio may not continue to grow at the same or similar rate.
Past performance of our loan portfolio may not be indicative of future performance. Our loan portfolio may not continue to grow at the same or similar rates as the growth rate that we historically experienced, particularly in light of the growth in recent years attributable to the acquisitions of CorpBanca Colombia in May 2012 (the CorpBanca Colombia Aqcuisition) and Helm Bank in August 2013 (the Helm Bank Aqcuisition). Additionally, changes in the Chilean or Colombian economy, a slowdown in the growth of customer demand, an increase in market competition or changes in governmental regulations could also adversely affect the rate of growth of our loan portfolio and our risk index.
Our allowances for loan losses may not be adequate to cover the future actual losses to our loan portfolio.
As of December 31, 2015, our allowance for loan losses was Ch$173,939 (excluding allowances for loan losses on loans and receivable to banks) and the risk index was 1.2%. The amount of allowance for loan losses is based on our current assessment and expectations concerning various factors affecting the quality of our loan portfolio. These factors include, among others, our customers’ financial condition, repayment abilities and repayment intentions, the realizable value of any collateral, the prospects for support from any guarantor, Chilean and Colombian economies, government macroeconomic policies, interest rates and the legal and regulatory environment. Many of these factors are beyond our control. In addition, as these factors evolve, the models we use to determine the appropriate level of allowance for loan losses require recalibration, which may lead to increased provision for loan losses. If our assessment of and expectations concerning the above mentioned factors differ from actual developments, if the quality of our loan portfolio deteriorates or if the future actual losses exceed our estimates, our allowance for loan losses may not be adequate to cover actual losses and we may need to make additional allowances for loan losses, which may materially and adversely affect our results of operations and financial condition.
If we are unable to maintain the quality of our loan portfolio, our financial condition and results of operations may be materially and adversely affected.
As of December 31, 2015, our past due loans were Ch$104,897, which resulted in a past due loans to total loans ratio of 0.7%. As of December 31, 2015, our non-performing loans were Ch$196,806, which resulted in a non-performing to total loans ratio of 1.3%. We seek to continue to improve our credit risk management policies and procedures. However, we cannot assure you that our credit risk management policies, procedures and systems are free from any deficiency. Failure of credit risk management policies may result in an increase in the level of non-performing loans and adversely affect the quality of our loan portfolio. In addition, the quality of our loan portfolio may also deteriorate due to various other reasons, including factors beyond our control, such as the macroeconomic factors affecting the Chilean or Colombian economies. If such deterioration were to occur, it could materially and adversely affect our financial conditions and results of operations.
Additionally, due to limitations in the availability of information and the developing information infrastructure in Chile and Colombia, our assessment of the credit risks associated with a particular customer may not be based on complete, accurate or reliable information. In addition, although we have been improving our credit scoring systems to better assess borrowers’ credit risk profiles, we cannot assure you that our credit scoring systems collect complete or accurate information reflecting the actual behavior of customers or that their credit risk can be assessed correctly.
Furthermore, a substantial number of our customers consist of individuals and small-to-medium-sized enterprises, or SMEs. Our business results relating to our lower-income individual and SME customers are, however, more likely to be adversely affected by downturns in the Chilean and Colombian economies, including increases in unemployment, than our business from large corporations and high-income individuals. For example, unemployment directly affects the capacity of individuals to obtain and repay consumer loans. Consequently, this could materially and adversely affect the liquidity, business and financial condition of our customers, which may in turn cause us to experience higher levels of past due loans, and result in higher allowances for loan losses, which could in turn materially affect our asset quality, results of operations and financial conditions.
The value of any collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.
From time to time, we require our borrowers to collateralize their loans with guarantees, pledges of particular assets or other security. The value of any collateral securing our loan portfolio may significantly fluctuate or decline due to factors beyond our
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control. Such factors include market factors, environmental risks, natural disasters, macroeconomic factors and political events affecting the Chilean or Colombian economies. Any decline in the value of the collateral securing our loans may result in a reduction in the recovery from collateral realization and may have an adverse impact on our results of operations and financial condition.
In addition, the Bank may face difficulties in perfecting its liens and enforcing its rights as a secured creditor. In particular, timing delays and procedural problems in enforcing against collateral and local protectionism in the markets in which we operate may make foreclosures on collateral and enforcement of judgments difficult, and may result in losses that could materially and adversely affect the our results of operations and financial condition.
We may be unable to meet requirements relating to capital adequacy.
Chilean banks are required by the Chilean General Banking Act to maintain regulatory capital of at least 8% of risk-weighted assets, net of required allowance for loan losses and deductions, and basic capital of at least 3% of total assets, net of required allowance for loan losses. For the purposes of maintaining a high solvency classification from the SBIF and continued compliance with the SBIF’s capital requirements on us, our intention is to have the highest classification from the SBIF. As of December 31, 2015, the ratio of our Bank for International Settlements, or BIS, capital-weighted assets ratio was 9.5%. Nevertheless our capital ratios levels decreased from 12.4% to 9.5% between 2014 and 2015, following the approval of the merger with Banco Itaú Chile, considering that our shareholders, together with approving the merger, approved a special dividend distribution in the amount of Ch$239.86 billion that was paid on July 1, 2015.
Additionally, Colombian financial institutions are subject to capital adequacy requirements (as set forth in Decree 1771 of 2012, as amended) that are based on applicable Basel Committee standards. The regulations establish four categories of assets, which are each assigned different risk weights, and require that a credit institution’s Technical Capital (as defined below) be at least 9% of that institution’s total risk-weighted assets, and that its ordinary basic capital be at least 4.5% of that institution’s total risk-weighted assets. Technical Capital for the purposes of the Colombian regulations consists of the sum of Tier One Capital (ordinary basic capital) and Tier Two Capital (additional basic capital plus additional capital), collectively, Technical Capital. As of December 31, 2015, the consolidated ratio for our Colombian operations (calculated as BIS capital to risk-weighted assets) was 12.9%.
Certain developments could affect our ability to continue to satisfy the current capital adequacy requirements applicable to us, including:
• | the increase of risk-weighted assets as a result of the expansion of our business; |
• | the failure to increase our capital correspondingly; |
• | losses resulting from a deterioration in our asset quality; |
• | declines in the value of our available-for-sale investment portfolio; |
• | goodwill and minority interest; |
• | changes in accounting rules; and |
• | changes in the guidelines regarding the calculation of the capital adequacy ratios of banks in the countries we operate. |
• | fluctuations in exchange rates that could impact our loan portfolio, valuation adjustments due to the translation effects in equity or hedging strategies. |
As provided in article 68 of the Chilean General Banking Act, if we fail at any time to meet the legal requirements relating to the maintenance of regulatory capital (which is comprised of effective net worth and basic capital, as both concepts are defined in article 66 of the Chilean General Banking Act and Chapter 12-1 of the Regulations of the SBIF), we would have to comply with such legal requirements within a period of sixty days. For each day we fail to comply with such legal requirements, we would be subject to a daily penalty equal to one thousandth of the deficit of the effective net worth or basic capital, as the case may be.
If our Colombian operations fail to comply with the capital adequacy requirements applicable to Colombian financial institutions, we may be subject to certain penalties and sanctions that are graduated depending on the level of compliance failure, and which may include an administrative take-over by the government with the purpose of administration or liquidation. As a result, our business, results of operations and financial condition may be materially and adversely affected.
We are subject to market risk.
We are directly and indirectly affected by changes in local and international market conditions. Market risk, or the risk of losses in positions arising from movements in market prices, is inherent in the products and instruments associated with our operations, including loans, deposits, securities, bonds, long-term debt, short-term borrowings, proprietary trading in assets and liabilities and derivatives. Changes in market conditions that may affect our financial condition and results of operations include fluctuations in interest and currency exchange rates, securities prices, changes in the implied volatility of interest rates and foreign exchange rates, among others.
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Our results of operations are affected by interest rate volatility and inflation rate volatility.
Our results of operations depend to a great extent on our net interest income. In 2013, 2014 and 2015, our ratio of net interest income to total operating income was 65.1%, 63.6%, and 63.0% respectively. Changes in market interest rates in Chile or Colombia could affect the interest rates earned on our interest-earning assets differently from the interest rates paid on our interest-bearing liabilities leading to a reduction in our net interest income. Interest rates are highly sensitive to many factors beyond our control, including the monetary policies of the Central Bank of Chile and Colombia, changes in regulation of the financial sector in Chile and Colombia, domestic and international economic and political conditions and other factors. Yields on the Chilean government’s 90-day benchmark rate reached a high of 5.1% and a low of 4.8% in 2013, a high of 4.5% and a low of 3.7% in 2014, and a high of 3.1% and a low of 1.5% in 2015. On the other hand, the Colombian government does not issue short-term bonds of 30, 60 or 90 days as the Chilean government does. Instead, every month a committee of the Central Bank of Colombia determines the benchmark rate in order to achieve a specific goal of inflation. Yields on the Colombian benchmark rate reached a high of 4.0% and a low of 3.25% for 2013, a high of 4.5% and a low of 3.25% for 2014, and a high of 5.8% and a low of 4.5% for 2015. As of December 31, 2013, 2014, and 2015, we had Ch$889,087 million, Ch$1,156,896 million, and Ch$1,924,788 million, respectively, in financial investments available-for-sale. In the current global economic climate, there is a greater degree of uncertainty and unpredictability in the policy decisions and the setting of interest rates by the Central Bank of Chile and Central Bank of Colombia and, as a result, any volatility in interest rates could adversely affect us, including our future financial performance and the market value of our securities. In addition, inflation rate volatility could adversely affect our net interest income due to fluctuations in the gap between assets and liabilities that are indexed to the UF.
Increased competition and industry consolidation may adversely affect the results of our operations.
The Chilean and Colombian markets for financial services are highly competitive and competition is likely to increase.
In Chile, we face competition from banking and non-banking institutions with respect to the different products we offer. In the consumer and other loans businesses, we compete with other banks, credit unions and public social security funds (cajas de compensación). In some of our credit products, we face competition from department stores, large supermarket chains and leasing, factoring and automobile finance companies and in the saving products and mortgage loans businesses we compete with mutual funds, pension funds, insurance companies and with residential mortgage loan managers (Administradoras de Mutuos Hipotecarios). Furthermore, under the Chilean General Banking Act, representative offices of non-Chilean banks are now allowed to promote the credit products and services of their headquarters, which has increased, and may further increase, competition in our industry and, thus, have an adverse effect on our results of operation and financial condition.
In Colombia, we operate in a highly competitive environment and increased competitive conditions are to be expected in the jurisdictions where we operate. Intensified merger activity in the financial services industry produces larger, better capitalized and more geographically diverse firms that are capable of offering a wider array of financial products and services at more competitive prices. Our ability to maintain our competitive position in Colombia depends mainly on our ability to fulfill new customers’ needs through the development of new products and services and offer adequate services and strengthen our customer bases through cross-selling. Our Colombian operations will be adversely affected if we are not able to maintain efficient service strategies, or overcome certain delays or difficulties in the transition of the integration of the operational services and activities of CorpBanca Colombia and Helm Bank. In addition, our efforts to offer new services and products may not succeed if product or market opportunities develop more slowly than expected or if the profitability of opportunities is undermined by competitive pressures.
Our risk management system may not be sufficient to avoid losses that could have a material adverse effect on our business, financial condition and results of operations.
In addition to granting loans, part of our financial portfolio consists of trading transactions by our treasury division. Our financial success depends on, among other factors, our ability to accurately balance the risks we take and the returns we gain from our transactions. We use various processes to identify, analyze, manage and control our risk exposure, both in favorable and adverse market conditions. However, these processes involve subjective and complex judgments and assumptions, including projections of economic conditions and assumptions on the ability of our borrowers to repay their loans. Because of the nature of these risks, we cannot guarantee that our risk management efforts will prevent us from experiencing material losses. In particular, we may experience losses that could have a material adverse effect on our business, financial condition and results of operations if, among other factors:
• | we are not capable of identifying all of the risks that may affect our portfolio; |
• | our risk analysis or our measures taken in response to such risks are inadequate or inaccurate; |
• | the markets move in an unexpected and adverse way with respect to speed, direction, strength or other aspects and our ability to manage risks in such a scenario is restricted; |
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• | our clients are affected by unforeseen events resulting in their default or losses in an amount higher than those considered in our risk analyses; or |
• | collateral pledged in our favor is insufficient to cover our clients’ obligations to us if they default. |
Our reliance on short-term deposits as our principal source of funds exposes us to sudden increases in our costs of funding which could have a material adverse effect on our revenues.
Time deposits and other term deposits are our primary sources of funding, which represented 44.1% of our liabilities as of December 31, 2015. If a substantial number of our depositors withdraw their demand deposits or do not roll over their time deposits upon maturity, our liquidity position, results of operations and financial condition may be materially and adversely affected. We cannot assure you that in the event of a sudden or unexpected shortage of funds, any money markets in which we operate will be able to maintain levels of funding without incurring higher funding costs or the liquidation of certain assets. If this were to happen, our business, results of operations and financial condition may be materially and adversely affected.
Currency fluctuations could adversely affect our financial condition and results of operations and the value of our securities.
Economic policies and any future changes in the value of the Chilean peso or the Colombian peso against the U.S. dollar could affect the dollar value of our securities, since the equity value of CorpBanca is hedged against our base currency Chilean peso. The Chilean peso and the Colombian peso have been subject to significant fluctuations in their value against the U.S. Dollar in the past and could be subject to similar fluctuations in the future. As of December 31, 2014, the Chilean peso depreciated against the U.S. dollar by 15.0% and the Colombian peso depreciated against the U.S. dollar by 24.3%, each as compared to December 31, 2013. As of December 31, 2015, the Chilean peso depreciated against the U.S. dollar by 17.3% and the Colombian peso depreciated against the U.S. dollar by 31.1%, each as compared to December 31, 2014.
Our results of operations may be affected by fluctuations in exchange rates between and among the Chilean peso, the Colombian peso and the U.S. dollar despite our internal policy and Chilean and Colombian regulations relating to the general avoidance of material exchange rate gaps. As of December 31, 2011, 2012, 2013, 2014 and 2015, the gap between foreign currency denominated assets and foreign currency denominated liabilities, excluding derivatives, was Ch$(23,560), Ch$241,832 million, Ch$434,942 million, Ch$(26,191) million and Ch$(497,644) million, respectively.
We may decide to change our policy regarding exchange rate gaps. Regulations that limit such gaps may also be amended or eliminated. Greater exchange rate gaps could increase our exposure to the devaluation of the Chilean peso and/or the Colombian peso, and any such devaluation may impair our capacity to service our foreign-currency obligations and may, therefore, materially and adversely affect our financial condition and results of operations.
Our business is highly dependent on proper functioning and improvement of information technology systems.
Our business is highly dependent on the ability of our information technology systems to accurately process a large number of transactions across numerous and diverse markets and products in a timely manner. The proper functioning of our financial control, risk management, accounting, customer service and other data processing systems is critical to our business and our ability to compete effectively. We have backup data for our key data processing systems that could be used in the event of a catastrophe or a failure of our primary systems, and have established alternative communication networks where available. However, we cannot assure you that our business activities would not be materially disrupted if there were a partial or complete failure of any of these primary information technology systems or communication networks. Such failures could be caused by, among other things, software bugs, computer virus attacks, cyber attacks or conversion errors due to system upgrading. In addition, any security breach caused by unauthorized access to information or systems, intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, could have a material adverse effect on our business, results of operations and financial condition.
Our ability to remain competitive and achieve further growth will depend in part on our ability to upgrade our information technology systems and increase our capacity on a timely and cost effective basis. Any substantial failure to improve or upgrade information technology systems effectively or on a timely basis could materially and adversely affect our business, financial condition and results of operations.
Our business in Colombia is dependent on a technology service agreement with Banco Santander, S.A.
Our business in Colombia is dependent on the service and support of a subsidiary of Banco Santander S.A., provided to us pursuant to a technology service agreement. This technology service agreement was extended and expires at the end of December
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2016 unless we exercise our option to extend its term through June 2017. If Banco Santander, S.A. is unable to service and support our business in Colombia or if we are unable to integrate our information technology systems into our business in Colombia after the expiration of the technology service agreement, then such failure could materially and adversely affect our business, financial condition and results of operations.
A worsening of labor relations in Chile or Colombia could impact our business.
As of December 31, 2015, on a consolidated basis we had 3,838 employees in Chile (including 27 at our New York Branch), of which 54.2% were unionized and 3,707 employees in Colombia, of which 20.2% were unionized. We are parties to collective bargaining agreements with unions representing our employees in Chile and Colombia. CorpBanca Colombia’s current labor agreement with eigthteen unions in Colombia was subscribed on August 26, 2015 and expires on August 31, 2017. We generally apply the relevant terms of our collective bargaining agreement to unionized and non-unionized employees in each of the markets in which we operate. We have traditionally enjoyed good relations with our employees and their unions. However, a strengthening of cross-industry labor movements may result in increased employee or labor costs that could materially and adversely affect our business, financial condition or results of operations.
On December 29, 2014, the Chilean government proposed a labor reform bill to the Chilean Congress, or the Labor Reform, which intends to substantially modify rules applicable to collective bargaining, including our unionized Chilean employees. The principal proposals included in this bill are to (1) prohibit employers, including us, from hiring replacement employees in the event of a worker strike affecting the business, and (2) ensure a minimum level of benefits. Additionally, the bill prohibits the workers from negotiating and entering into collective bargaining agreements directly with employers outside of established unions. Instead, workers will be required to organize collective bargaining efforts through established union. The bill is expected to be enacted as law during the first half of 2016, in which case it will become effective a year after its publication in the Official Gazette. If this bill becomes law, the effects of any strike or collective bargaining efforts by our employees in Chile could have a negative impact on our business, financial condition or results of operations.
We rely on third parties for important products and services
Third party vendors provide key components of our business infrastructure such as different loan servicing systems, internet connections and network access. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to customers and otherwise to conduct business. Replacing these third party vendors could also entail significant delays and expense and could negatively impact our business.
We may experience operational problems, errors or fraud.
We are exposed to many types of operational risks, including the risk of fraud by employees and outsiders, failure to obtain proper authorizations, failure to properly document transactions, equipment failures and errors by employees. Although we maintain a system of operational controls, there can be no assurances that operational problems or errors will not occur and that their occurrence will not have a material adverse effect on our business, financial condition and results of operations.
Our anti-money laundering and anti-terrorist financing measures may not prevent third parties from using us as a conduit for those activities, which could have a material adverse effect on our business, financial condition and results of operations.
We are required to comply with applicable anti-money laundering and anti-terrorist financing laws and regulations and we have adopted various policies and procedures, including internal controls and “know-your customer” procedures, aimed at preventing money laundering and terrorist financing. In addition, because we also rely on our correspondent banks having their own appropriate anti-money laundering and anti-terrorist financing procedures, we use what we believe are commercially reasonable procedures for monitoring our correspondent banks. However, these measures, procedures and compliance may not be entirely effective in preventing third parties from using us (and our correspondent banks) as a conduit for money laundering (including illegal cash operations) or terrorist financing without our (and our correspondent banks’) knowledge or consent. If we were to be associated with money laundering (including illegal cash operations) or terrorist financing, our reputation could be harmed and we could become subject to fines, sanctions or legal enforcement (including being added to any “blacklists” that would prohibit certain parties from engaging in transactions with us), which could have a material adverse effect on our business, financial condition and results of operation.
Banking regulations may restrict our operations and thereby adversely affect our financial condition and results of operations.
We are subject to regulation in the markets in which we operate, including by the SBIF and by the Central Bank of Chile in Chile and by the Central Bank of Colombia, the Colombian Ministry of Finance, the Colombian Superintendency of Finance, the Superintendency of Industry and Commerce (Superintendencia de Industria y Comercio), or SIC, and the Self-Regulatory Organization (Autorregulador del Mercado de Valores-AMV), or the SRO in Colombia.
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Pursuant to the Chilean General Banking Act in Chile and the Financial System Organic Act (Estatuto Orgánico del Sistema Financiero) in Colombia, we may, subject to the necessary regulatory approvals, engage in the commercial banking business and in certain businesses in addition to traditional commercial banking. Such additional businesses may include securities brokerage, mutual fund management, securitization, insurance brokerage, leasing, factoring, financial advisory, custody and transportation of securities, loan collection and financial services. Regulators may in the future impose more restrictive limitations on the activities of banks, including us.
New capital adequacy requirements could require us to inject further capital into our business as well as in businesses we acquire, or to capitalize dividends, restrict the type or volume of transactions we enter into, or set limits on or require the change of rates or fees that we charge on certain loans or other products, any of which could lower the return on our investments, assets and equity. We may also face increased compliance costs and limitations on our ability to pursue certain business opportunities.
CorpBanca must maintain a capital adequacy index of at least 8% calculated pursuant to the guidelines issued by the SBIF. In line with the future adoption of Basel III regulations in Chile, the SBIF has maintained a proposal to increase the minimum effective BIS capital adequacy ratio from the current 8% to 10.5%. This change requires an amendment to the Chilean General Banking Act by Congress, and when adopted, could require us to inject additional capital in our business in the future. The SBIF has not issued any timetable for adoption of Basel III but has issued guidance to Chilean banks regarding the adoption of Basel III for 2019. Although we have not failed in the past to comply with our capital maintenance obligations, there can be no assurance that we will not do so in the future.
As a result of the 2008 global financial crisis, there has been an increase in government regulation of the financial services industry in many countries. Such regulation may also be increased in Chile and/or in Colombia, including the imposition of higher capital requirements, heightened disclosure standards and restrictions on certain types of transaction structures. In addition, numerous novel regulatory proposals have been discussed or proposed. If enacted, new regulations could require us to inject further capital into our business, restrict the type or volume of transactions we enter into, or set limits on or require the modification of rates or fees that we charge on certain loans or other products, any of which could lower the return on our investments, assets and equity. We may also face increased compliance costs and limitations on our ability to pursue certain business opportunities.
The banking regulatory and capital markets environment in which operate is continually evolving and may change.
Changes in banking regulations may materially and adversely affect our business, financial condition and results of operations. Chilean laws, regulations, policies and interpretations of laws relating to the financial system are continually evolving and changing.
In Chile, new regulations have been enacted in the past years which have, among others things,(a) increased the limit on the amount that a bank is allowed to grant as an unsecured loan to a single individual or entity (currently set at 10% of its regulatory capital and up to 30% of its regulatory capital if any loans granted in excess of the 10% are secured by certain collateral, for persons non related to the bank and at 5% or 25% if loans in excess of 5% are secured by certain collateral, for certain groups of persons related to the bank),(b) allowed marketing and promotion activities of credit products and services by non-Chilean banks with representative offices in Chile,(c)strengthened consumers’ rights in connection with financial products and services; and(d)lowered the maximum legal interest rate that can be imposed in general loans valued at over UF 200. These amendments have affected the Chilean banking industry in several ways including by increasing competition, increasing the risks associated with the growth of loan portfolios, providing additional scrutiny regarding prices and contracts for financial products and have caused a loss of flexibility in the determination of price and product distribution strategies in the retail banking segment.
Colombia has also experienced recent changes in applicable laws, regulations and policies, such as those regulating collateral and foreclosure, financial inclusion and consumer protection. In 2013, a new regulation regarding liens over movable assets was enacted which may affect our rights to foreclose on or liquidate movable assets pledged in favor of our Colombian subsidiaries. This new law created a new registry for liens over movable assets, pursuant to which, secured creditors –including us- had to register liens granted on their favor before the enactment of the law. There is a risk that third parties with conflicting liens may also try to obtain registration over the same assets, in which case the first party to register a lien will have priority over any others. In order to promote financial inclusion, the Colombian Congress passed Law No. 1,735 of 2014 which created a new type of financial entity called Specialized Electronic Deposit and Payment Institutions (Sociedades Especializadas en Depósitos y Pagos Electrónicos) as a new deposit-taking entity form that can be incorporated by a natural person, postal service offices and/or mobile network operator or another non-bank company. The Specialized Electronic Deposit and Payment Institutions are regulated financial services providers subject to financial regulation and supervision. The only activities these entities are authorized to perform are remote cash-in and cash-out deposit operations, the allocation of customers’ funds in electronic deposit accounts and the offering of transactional services such
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as remittances, transfers, and payments. This change increases the potential source of competition in Colombia and may impart our ability to acquire new customers or retain existing customers. Additionally, Law No. 1,328 of 2009, amended in 2014, created a customer protection regime with respect to financial institutions. This regime strengthened the rights of consumers of financial services and products and set forth specific obligations for financial institutions. Any violation of this law or regulations issued pursuant to this law by CorpBanca Colombia could result in monetary or administrative sanctions or restrictions on its operations.
Any of the regulatory changes mentioned above or their applicability or interpretation, and future regulatory activity could have an adverse effect on our operations and financial condition.
We are subject to regulatory inspections, examinations and to the imposition of fines by regulatory authorities in Chile and in Colombia.
We are also subject to various inspections, examinations, inquiries, audits and other regulatory requirements by Chilean and Colombian regulatory authorities.
We cannot assure you that we will be able to meet all of the applicable regulatory requirements and guidelines, or that we will not be subject to other sanctions, fines, restrictions on our business or other penalties in the future as a result of noncompliance. If other sanctions, fines, restrictions on our business or other penalties are imposed on us for failure to comply with applicable requirements, guidelines or regulations, our business, financial condition, results of operations and our reputation and ability to engage in business may be materially and adversely affected.
Pursuant to letter No. 16191, the SBIF fined the bank for an alleged infringement to the individual lending limits provided by article 84 No. 1, in relation to article 85 of the Chilean General Banking Act. The total amount was Ch$21,765 million. In an extraordinary meeting on January 4, 2016, the bank’s board of directors agreed: to communicate the letter as a material event, expressing disagreement with the alleged infringement and to instruct management to exercise each and every legal action in order to obtain the annulment of the fine.
On January 8, 2016, the bank paid the full amount of the fine as a mandatory condition precedent to exercise its appeal rights. However, no provision was made as of December 31, 2015 as management believes that it is probable that the fine will be annulled through the appeal process.
On January 18, 2016, CorpBanca brought an action before the Santiago Court of Appeals seeking the annulment of the fine. As of today, the court has not issued its ruling. We cannot assure you that a decision will be made in our favor. A final, non-appealable decision that is adverse to our claims may have a material adverse effect on our business, financial condition and results of operations.
Failure to protect personal information could materially and adversely affect our business, financial condition and results of operations.
We manage and hold confidential personal information of customers in the conduct of our banking operations, and offer various internet-based services to our clients, including online banking services. We could be liable for breaches of security in our online banking services, including cybersecurity breaches. The secure transmission of confidential information over the Internet is essential to maintain our clients’ confidence in our online services. In certain cases, we are responsible for protecting customers’ proprietary information as well as their accounts with us. We have security measures and processes in place to defend against these cybersecurity risks but these cyber attacks are rapidly evolving (including computer viruses, malicious code, phishing or other information security breaches), and we may not be able to anticipate or prevent all such attacks, which could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information. Individuals may also seek to intentionally disrupt our online banking services or compromise the confidentiality of customer information with criminal intent. Although we have procedures and controls to safeguard personal information in our possession, as well as systems and processes that are designed to recognize and assist in preventing security breaches, failure to protect against or mitigate breaches of security or other unauthorized disclosures could constitute a breach of privacy or other laws, subject us to legal actions and administrative sanctions as well as damages, adversely affect our ability to offer and grow our online services, result in the loss of customer relationships, negatively impact our reputation, and have an adverse effect on our business, results of operations and financial condition.
Our loan and investment portfolios are subject to risk of prepayment, which may result in reinvestment of assets on less profitable terms.
Our loan and investment portfolios are subject to prepayment risk, which results from the ability of a borrower or issuer to pay a debt obligation prior to maturity. Generally, in a declining interest rate environment, prepayment activity increases, which reduces the weighted average lives of our earning assets and adversely affects our operating results. Prepayment risk also has an adverse impact on our residential mortgage portfolio, since prepayments could shorten the weighted average life of this portfolio,
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which may result in a mismatch in funding or in reinvestment at lower yields. Prepayment risk is inherent to our commercial activity and an increase in prepayments could have a material adverse effect on our business, financial condition and results of operations.
Exposure to government debt could have an adverse effect on our business, financial condition and results of operations.
We invest in debt securities issued by the Chilean and Colombian governments, the Central Bank of Chile and the Chilean Ministry of Finance that, for the most part, are short-term and highly liquid instruments. As of December 31, 2015, 3.8% of our total assets comprised of securities issued by the Chilean government and 3.9% of our total assets comprised securities issued by foreign governments, mostly by the Colombian government. If the Chilean or Colombian governments default on the timely payment of such securities, our business, financial condition and results of operations may be adversely affected.
A downgrade of CorpBanca’s counterparty credit rating by international or domestic credit rating agencies could materially and adversely affect our debt credit rating for domestic and international debt, our business, our future financial performance, stockholders’ equity and the value of our securities.
Following the announcement of the Itaú-CorpBanca Merger, Standard & Poor´s placed CorpBanca BBB/A-2 ratings on CreditWatch Developing and Moody’s changed our rating review direction to ‘possible upgrade’, from ‘review for downgrade’, on our long and short term ratings, on January 14 and January 31, 2014, respectively. On August 20, 2015 and on June 15, 2015, Standard and Poor’s and Moody’s, respectively, confirmed the aforementioned ratings.
Any adverse revision to CorpBanca’s credit ratings in Chile or Colombia for domestic and international debt by international and domestic rating agencies may adversely affect our debt ratings, and, as a result, our cost of funding, including interest rates paid on our deposits and securities. If this were to happen, it could have a material adverse effect on our business, future financial performance, stockholders’ equity and the value of our securities.
Mismatches in the maturity of our loan portfolio and our funding sources as well as exchange rate fluctuations related to our funding sources could materially and adversely affect our business, financial condition and results of operations and our capacity to expand our loan business.
We are exposed to maturity mismatches between our loans and sources of funding. The majority of our loan portfolio consists of fixed interest rate loans, and the yield from our loans depends on our ability to balance our cost of funding with the interest rates we charge to our borrowers. An increase in market interest rates in Chile or Colombia could increase our cost of funding, especially the cost of time deposits, and could reduce the spread we earn on our loans, materially and adversely affecting our business, financial condition and results of operations.
Any mismatch between the maturity of our loan portfolio and our sources of funding would magnify the effect of any imbalance in interest rates, also representing a liquidity risk if we fail to obtain funding on an ongoing basis. In addition, since part of our funding comes from securities denominated in U.S. dollars or other foreign currencies that we issue abroad, any devaluation of the Chilean or Colombian peso against the U.S. dollar or such other foreign currencies could increase the cost of funding in relation to these securities. An increase in our total cost of funds for any of these reasons could result in an increase in the interest rates on our loans, which could, as a result, affect our business, financial condition and results of operations and our ability to attract new customers and expand our loan business.
We are subject to financial and operational risks associated with derivative transactions.
We enter into derivative transactions primarily to deliver services to our clients, for hedging purposes and, on a limited basis, for trading purposes. These transactions are subject to market, liquidity, counterparty (the risk of insolvency or other inability of a counterparty to perform its obligations to us) and operational risks.
Market practices and documentation for derivative transactions in Chile and Colombia may differ from those in other countries. For example, documentation may not incorporate terms and conditions of derivatives transactions as commonly understood in other countries. In addition, the execution and performance of these transactions depends on our ability to develop adequate control and administration systems and to hire and retain qualified personnel. Moreover, our ability to monitor and analyze these transactions depends on our information technology systems. These factors may further increase risks associated with derivative transactions and, if they are not adequately controlled, could materially and adversely affect our results of operations and financial condition.
Our level of insurance might not be sufficient to fully cover all liabilities that may arise in the course of our business and insurance coverage might not be available in the future.
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We maintain insurance for losses resulting from fire, explosions, floods and electrical shorts and outages at our various buildings and facilities. We also have civil liability insurance covering material and physical losses and damages that may be suffered by third parties. We cannot assure you that our level of insurance is sufficient to fully cover all liabilities that may arise in the course of our business or that insurance will continue to be available in the future. In addition, we may not be able to obtain insurance on comparable terms in the future. Our business and results of operations may be adversely affected if we incur liabilities that are not fully covered by our insurance policies.
The occurrence of natural disasters in the regions where we operate could impair our ability to conduct business effectively and could adversely affect our results of operations.
We are exposed to the risk of natural disasters such as earthquakes or tsunamis as well as floods, mudslides and volcanic eruptions in the regions where we operate. In the event of a natural disaster, unanticipated problems with our disaster recovery systems could have a material adverse impact on our ability to conduct business in the affected region, particularly if those problems affect our computer-based data processing, transmission, storage and retrieval systems and destroy valuable data. In addition, if a significant number of our local employees and managers were unavailable in the event of a disaster, our ability to effectively conduct business could be severely compromised. A natural disaster, such as the earthquake and tsunami that affected Chile in 2010, could damage some of our branches and automated teller machines, or ATMs, forcing us to close damaged facilities or locations, increased recovery costs as well as cause economic harm to our clients. A natural disaster or multiple catastrophic events could have a material adverse effect on local businesses in the affected region and could result in substantial volatility or adverse harm in our business, financial condition and results of operations for any fiscal quarter or year.
RISKS RELATING TO CHILE, COLOMBIA AND OTHER COUNTRIES IN WHICH WE OPERATE
Chile has different corporate disclosure and accounting standards than those you may be familiar with in the United States.
As a regulated financial institution, we are required to submit to the SBIF unaudited consolidated and unconsolidated balance sheets and income statements on a monthly basis. As of January 2008, the statements have to be prepared in accordance with the Compendium of Accounting Standards (Compendio de Normas Contables y Manual del Sistema de Información), or the Compendium, and the rules of the SBIF. Although Chilean banks are required to apply IFRS as issued by the IASB as of January 1, 2009, certain exceptions introduced by the SBIF prevent banks from achieving full convergence, for example loan loss provisions, assets received in lieu of payment among others. Also, the SBIF is vested with the authority to issue specific orders to banks, including on accounting matters. In those situations which are not addressed by the guidance issued by the SBIF, institutions must follow the generally accepted accounting principles issued by the Association of Chilean Accountants, which coincide with IFRS as issued by the IASB. However, our consolidated annual financial statements as of and for the three years ended December 31, 2015 have been prepared in accordance with IFRS in order to comply with SEC requirements.
Our consolidated financial statements include the necessary adjustments and reclassifications to the incorporated financial statements of each of CorpBanca’s subsidiaries and the New York Branch to bring their accounting policies and valuation criteria into line with those applied by the Bank, in accordance with IFRS-IASB.
The securities laws of Chile, which govern open or publicly listed companies such as ours, have as one of their principal objectives promoting disclosure of all material corporate information to the public. Chilean disclosure requirements, however, differ from those in the United States in some important respects. In addition, although Chilean law imposes restrictions on insider trading and price manipulation, applicable Chilean laws are different from those in the United States and in certain respects the Chilean securities markets are not as highly regulated and supervised as the United States securities markets.
Chile imposes controls on foreign investment and repatriation of investments that may affect our investors’ investment in, and earnings from, our ADSs.
Investors who are not Chilean residents are required to provide the Central Bank of Chile with information related to equity investments and conduct such operations within the Formal Exchange Market. See “Item 10. Additional Information—D. Exchange Controls” for a discussion of the types of information required to be provided.
Owners of ADSs are entitled to receive dividends on the underlying shares to the same extent as the holders of shares. Dividends received by holders of ADSs will be converted into U.S. dollars and distributed net of foreign currency exchange fees and fees of the depositary and will be subject to Chilean withholding tax, currently imposed at a rate of 35% (subject to credits in certain cases). If for any reason, including changes in Chilean laws or regulations, the depositary were unable to convert Chilean pesos to U.S. dollars, investors in our ADSs may receive dividends and other distributions, if any, in Chilean pesos.
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Additional Chilean restrictions applicable to holders of our ADSs, the disposition of the shares underlying them or the repatriation of the proceeds from such disposition or the payment of dividends could be imposed in the future and we cannot advise you as to the duration or impact of such restrictions, if imposed.
The legal restrictions on the exposure of Chilean pension funds may adversely affect our access to funding.
Chilean regulations impose restrictions on the share of assets that a Chilean pension fund management company (Administradora de Fondos de Pensiones, or AFP) may allocate: (i) per fund (considering all sub-funds within an AFP (A, B, C, D or E)), to deposits in checking accounts and term deposit accounts and in debt securities issued by a single banking institution (or guaranteed by such bank); (ii) per type of sub-fund, to shares, deposits, derivatives and debt securities of a single banking institution (or guaranteed by such bank); and (iii) per fund (considering all sub-funds), to shares issued by a single banking institution. Additionally, each fund managed by an AFP is permitted to make deposits with a bank for an amount not to exceed the equivalent of such bank’s equity. If the exposure of a pension fund managed by an AFP to a single bank exceeds such limit for investments in securities, the AFP for such pension fund is required to reduce the fund’s exposure below the limit within three years.
As of December 31, 2015, the aggregate exposure of AFPs to us was Ch$967,726 million or 0.89% of their total assets. If the exposure of any AFP to us exceeds the regulatory limit, we would need to seek alternative sources of funding, which could be more expensive and, as a consequence, may have a material adverse effect on our business, financial condition and results of operations.
Future increases in the corporate tax rate or additional modifications to the tax systems of the countries in which we operate may have a material adverse effect on us.
On September 29, 2014, Law No. 20,780, or the Tax Reform, was published in the Chilean Official Gazette, introducing the most significant amendments to the Chilean tax system over the last thirty years and strengthening the powers of the Chilean IRS to control and prevent tax avoidance. One of the main purposes of this reform was to finance major educational reforms under discussion in the Chilean Congress.
One of the most important changes introduced by the Tax Reform is the creation of two separate taxation systems in the Income Tax Law: (i) the attributed income system or (ii) the partially integrated system. This law also called for a gradual increase in the corporate income tax rate from 20% in 2013 to:
Years | 2014 | 2015 | 2016 | |||||||||
Rates | 21 | % | 22.5 | % | 24 | % |
Beginning in 2017, the applicable tax rate will depend on the tax system chosen. Taxpayers choosing the attributed income system will have a final rate of 25% while those choosing the partially-integrated system will have a transitory rate of 25.5% in 2017 and a final rate of 27% in 2018 and beyond.
• | Attributed income system: At the shareholder level, a 35% withholding tax would apply on an “attributed basis” from year 2017. As a result, any non-Chilean resident shareholder would be required to pay a 35% withholding tax while Chilean resident shareholders would be required to pay the progressiveImpuesto Global Complementario (Complementary Global Tax), with rates ranging between 0% and 35%, regardless of whether the Chilean company makes a profit distribution or dividend payment. Shareholders would be able to credit the corporate tax already paid by the company against the withholding tax or the progressive complementary income tax. The actual income distribution to the shareholders would not be taxable. |
• | Partially integrated system: When the income is actually withdrawn from a company, non-Chilean resident shareholders would be subject to a 35% withholding tax, while Chilean resident shareholders would be required to pay the progressive Complementary Global Tax, with rates ranging between 0% and 35%, against which only a 65% of the corporate tax will be allowed to be used as a credit against the withholding tax or the Complementary Global Tax; provided that, the deduction available to shareholders resident in a country with which Chile has an agreed tax treaty would be 100%. |
Foreign source income obtained by taxpayers domiciled or resident in Chile is generally subject to taxes in Chile on a cash basis. However, in the case of branches or other permanent establishments located abroad, both accrual and received income are considered in Chile for tax purposes. Also, taxpayers who obtain passive income from foreign companies, in which they have control,
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as defined by law, will have to pay taxes on accrual and cash basis, for the passive income accrued or perceived by those controlled entities.
Bonds and other debt instruments issued in Chile by Chilean companies are deemed to be located in Chile for capital gains purposes. However, bonds issued outside of Chile by Chilean companies are not deemed located in Chile for capital gain purposes and, consequently, the sale of such bonds by a non-Chilean resident is not subject to capital gains tax in Chile (according to section 11 of theLey Sobre Impuesto a la Renta or the Chilean Income Tax Law (it would be considered a foreign source income obtained by a non-Chilean resident).
The Tax Reform may have a material adverse effect on our business, financial condition and results of operations. Furthermore, uncertainty relating to tax legislation in Chile and Colombia poses a constant risk to CorpBanca. Changes in legislation, regulation and jurisprudence can affect tax burdens by increasing tax rates and fees, creating new taxes, limiting stated expenses and deductions, and eliminating incentives and non-taxed income. In addition, the Colombian government has a significant fiscal deficit that may result in future tax increases.
Colombian tax haven regulation could adversely affect our business and financial results.
Decree 1966 of 2014 amended by Decree 2095 of 2014 designates 37 jurisdictions as tax havens for Colombian tax purposes. In October 2014, Panama and Colombia signed a memorandum of understanding by which they agreed to execute a double taxation treaty. However, if Panama is considered a tax haven under Colombian tax regulations, the clients of our Colombian subsidiaries in Panama who are residents in such jurisdiction would be subject to the following regulations: (i) higher withholding tax rates including a higher withholding rates over financial yields derived from investments in the Colombian securities market, (ii) the Colombian transfer pricing regime and its reporting duties, (iii) an assumption for Colombian authorities of residency for the purposes of qualifying a conduct as abusive under tax regulations, (iv) the disallowance of payments made to residents or entities located in tax havens as costs or deductions, unless the respective withholding tax has been applied and (v) other additional information disclosure requirements.
Any downgrading of Chile’s or Colombia’s debt credit rating for domestic and international debt by international credit rating agencies may also affect our business and future financial performance.
Any adverse revisions to Chile’s or Colombia’s credit ratings for domestic and international debt by international rating agencies may adversely affect our ratings, and, as a result, our cost of funding, including interest rates paid on our deposits and securities. If this were to happen, it could have a material adverse effect on our business, future financial performance, stockholders’ equity and the value of our securities.
Our growth and profitability depend on the level of economic activity in Chile, Colombia and other emerging markets.
Substantially all of our loans are to borrowers doing business in Chile or Colombia. Accordingly, the recoverability of these loans in particular, our ability to increase the amount of loans outstanding and our results of operations and financial condition in general, are dependent to a significant extent on the level of economic activity in Chile and Colombia. The Chilean and Colombian economies have been influenced, to varying degrees, by economic conditions in other emerging market countries. Future developments in or affecting the Chilean or Colombian economies, including consequences of economic difficulties in emerging and developed markets, including some of our neighbor countries, or a deceleration in the economic growth of Asian or other developed nations to which Chile and Colombia export a majority of their respective goods, could materially and adversely affect our business, financial condition or results of operations.
Our results of operations and financial condition could also be affected by changes in economic or other policies of the Chilean or Colombian governments, which have each exercised and continue to exercise a substantial influence over many aspects of the private sector, or other political or economic developments in Chile. In addition, our financial condition and results of operations could also be affected by regulatory changes in administrative practices or other political or economic developments in or affecting Chile or Colombia, over which we have no control.
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Inflation and government measures to curb inflation could adversely affect our financial condition and results of operations.
Although Chilean and Colombian inflation have been low in recent years, Chile and Colombia have experienced high inflation in the double-digit levels in the past. Such high levels of inflation in Chile or Colombia could adversely affect the Chilean and Colombian economies and have an adverse effect on our results of operations if such inflation is not accompanied by a matching devaluation of the local currency. We cannot make any assurances that Chilean or Colombian inflation will not revert to prior levels in the future.
We may be unsuccessful in addressing the challenges and risks presented by our operations in countries outside Chile or Colombia.
We now operate a banking business in Colombia through CorpBanca Colombia and in Panamá through subsidiaries of CorpBanca Colombia. Our operations are focused on retail banking, as well as wholesale and commercial banking and providing financing and deposit services to SMEs and individuals with medium-high income levels. CorpBanca Colombia provides a broad range of commercial and retail banking services to its customers, operating principally in the cities of Bogotá, Medellín, Cali, Bucaramanga, Cartagena and Barranquilla.
We have limited experience conducting credit card and consumer finance businesses in countries outside Chile. Accordingly, we may not be successful in managing credit card and consumer finance operations outside of our traditional domestic market in Chile. We may face delays in payments by customers and higher delinquency rates in any market we enter into, which could necessitate higher provisions for loan losses and, consequently, have an adverse effect on our financial performance.
Colombia has experienced internal security issues that have had or could have in the future a negative effect on the Colombian economy.
Colombia has experienced internal security issues, primarily due to the activities of guerrilla groups such as the Revolutionary Armed Forces of Colombia(Fuerzas Armadas Revolucionarias de ColombiaortheFARC), National Liberation Army (Ejército de Liberación Nacional or the ELN), paramilitary groups and drug cartels. In remote regions of the country with minimal governmental presence, these groups have exerted influence over the local population and funded their activities by protecting, and rendering services to drug traffickers.
Despite the ongoing peace negotiations between the Colombian government and FARC, which have reduced guerrilla and criminal activity, particularly in the form of terrorism attacks, homicides, kidnappings and extortion, such activities persist in Colombia, and possible escalation of such activities and the effects associated with them have had and may have in the future a negative impact on the Colombian economy and on our operations in Colombia, including our customers, employees, results of operations and financial condition, and physical assets.
While the terms of a final peace agreement are still unknown, the government is likely to subject the proposed final text of these agreements to a referendum. The final agreement is expected to provide FARC with several benefits including: (i) changes in legislation concerning access to credit and financial services; (ii) tax benefits, and (iii) more favorable labor regulations. Such agreements and other legistalive changes arising therefrom may have a negative impact on the Colombian economy and on our operations in Colombia.
ELN, paramilitary groups and drug cartels’ are not part of the peace negotiations.It is expected that their activities will continue.
Tensions with Venezuela and Ecuador may affect the Colombian economy and, consequently, our results of operations and financial condition.
Diplomatic relations with Venezuela and Ecuador, two of Colombia’s main trading partners, have from time to time been tense and affected by events surrounding the Colombian armed forces combat of the FARC throughout Colombia, particularly on Colombia’s borders with Venezuela and Ecuador.
Additionally, further deterioration in relations with Venezuela and Ecuador may result in the closing of borders, the imposition of trade barriers or a breakdown of diplomatic ties, any of which could have a negative impact on Colombia’s trade balance, economy and general security situation, which may adversely affect our results of operations and financial condition. In 2015, the Venezuelan government abruptly closed the Colombian-Venezuelan border which resulted in a substantial decrease in trade between Colombia and Venezuela and increased diplomatic tensions between the two governments. As of March 2016, the border remains closed and the Venezuelan government has announced that such closure is indefinite. A continued closure of the border may result in further deterioration of trade and could have a negative impact in the Colombian economy.
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Constitutional collective actions (acciones populares), class actions (acciones de grupo) and other similar legal actions in Chile and Colombia involving claims for significant monetary awards against financial institutions may have an adverse effect on our business and results of operations.
Under the Chilean Consumer Protection Act and under the Colombian Constitution, individuals may initiate collective or class actions to protect their collective or class rights, as applicable. In the past few years, Chilean financial institutions have experienced limited numbers of collective and class actions mostly relating to abusive clauses in standard contracts.
In the past few years, Colombian financial institutions, including CorpBanca Colombia, have experienced a substantial increase in the aggregate number of these actions. The great majority of such actions have been related to fees, financial services and interest rates, and their outcome is uncertain. Pursuant to Law No. 1,425 of 2010, monetary awards for plaintiffs in constitutional collective actions (acciones populares) were eliminated as of January 1, 2011. Nevertheless, individuals continue to have the right to initiate constitutional or class actions against CorpBanca Colombia.
Future restrictions on interest rates or banking fees could negatively affect our profitability.
In the future, additional regulations in the jurisdictions where we operate could impose limitations regarding interest rates or fees charged by CorpBanca. Any such limitations could materially and adversely affect our results of operations and financial situation.
The Colombian Commerce Code limits the amount of interest that may be charged in commercial transactions. In the future, regulations could impose limitations regarding interest rates or fees we charge. Any such limitations could materially and adversely affect our results of operations and financial position. In the past, there have been disputes in Colombia among merchants, payment services and banks regarding interchange fees. Although such disputes have been resolved, the SIC, may initiate new investigations relating to the interchange fees. This possibility may lead to additional decreases in such fees, which in turn could adversely our operations in Colombia and our consolidated financial results.
Furthermore, the Colombian government has the authority to establish and define criteria and formulas applicable to the calculation of banking fees and other charges and to establish caps on the banking fees, credit card fees, and other charges that we impose on our customers. On December 20, 2011, the Colombian government used its authority to set a cap on the fees banks can charge on withdrawals from ATMs outside their own networks. Additionally, under Colombian regulation, banks are prohibited from charging prepayment penalties or fees on loans, other than in mortgage loans, except when the outstanding amount of a loan is more than the equivalent of 880 monthly minimum wages, or SMMLV (approximately US$180,861). In mortgage loans, irrespective of their principal amount or in other loans in which the outstanding amount is greater than 880 SMMLV, prepayment penalties or fees may be charged but only when expressly contemplated under the governing loan agreement. Further limits or regulations regarding banking fees, and uncertainties with respect thereto could have a negative effect on CorpBanca Colombia and our results of operations and financial condition.
Insolvency laws may limit our monetary collection and ability to enforce our rights.
A new Insolvency Act was published in Chile in the Official Gazette on January 9, 2014 (the Insolvency Act) and came into effect on October 9, 2014. Under this new Insolvency Act, monetary collection and enforcement of rights by a creditor may face limitations such as those arising from the Insolvency Protection (as defined below) recognized by the act. For more information on these limitations please see “Item 4—Information on the Company—B. Business Overview—Recent Regulatory Developments in Chile”.
Colombian insolvency laws provide that creditors of an insolvent debtor in default are prohibited from initiating collection proceedings outside the bankruptcy or reorganization process of such debtor. In addition, all collection proceedings outstanding at the beginning of any bankruptcy or reorganization process of any insolvent debtor must be suspended and creditors are prevented from enforcing their rights against the collateral and other assets of the debtor until the reorganization has been agreed (in which case the collection proceeding is resolved within the reorganization agreement) or it is declared that no reorganization was agreed. Additionally, Colombian laws provide insolvency protection for non-merchant individuals. This insolvency protection entails that, once a non-merchant individual has ceased paying his or her debts, such individual can initiate a voluntary insolvency proceeding before a notary public or mediator to reach an agreement with its creditors. The terms of any agreement reached with a group (two or more) of creditors that represent more than 50% of the total amount of the claims will be mandatorily applicable to all relevant creditors. There are other protections such as an automatic stay for a maximum of 90 days. These legal limitations make it difficult to recover on defaulted loans, and as a result, may cause CorpBanca Colombia to enhance its credit requirements which would result in
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decreased lending to individuals by making it more expensive. In addition, increased difficulties in enforcing debt and other monetary obligations due to this insolvency law could have an adverse effect on CorpBanca Colombia and our results of operations and financial condition.
The Central Bank of Colombia may impose requirements on our (and other Colombian residents’) ability to obtain loans in foreign currency.
The Central Bank of Colombia may impose certain mandatory deposit requirements in connection with foreign currency denominated loans obtained by Colombian residents, including CorpBanca Colombia, although no such mandatory deposit requirement is currently in effect. We cannot predict or control future actions by the Central Bank in respect of deposit requirements, which may involve the establishment of a mandatory deposit percentage, and the use of such measures by the Central Bank may raise our cost of raising funds and reduce our financial flexibility.
RISKS RELATING TO EXPANSION AND INTEGRATION OF ACQUIRED BUSINESSES
We may not be able to manage our growth successfully.
We have been expanding the scope of our operations over the past few years, and we expect that this expansion will continue. As we continue to grow, we must improve our operational, technical and managerial knowledge and compliance systems in order to effectively manage our operations across the expanded group. Failure to integrate, monitor and manage expanded operations could have a material adverse effect on our business, reputation and financial results. Our future growth will also depend on our access to internal and external financing sources. We may be unable to access such financing on commercially acceptable terms or at all.
Integration of acquired or merged businesses involves certain risks that may have a material adverse effect on us.
We have engaged in a number of mergers and acquisitions in the past, including the CorpBanca Colombia Acquisition, the Helm Bank Acquisition, and may make further mergers and acquisitions in the future as part of our growth strategy. We believe that these transactions will contribute to our continued growth and competitiveness in the Chilean, Colombian, and international banking sectors.
Any acquisition and merger of institutions and assets and the integration of such institutions and assets involves certain risks including the risk that:
• | integrating new networks, information systems, personnel, financial and accounting systems, risk and other management systems, financial planning and reporting, products and customer bases into our existing business may run into difficulties, cause us to incur unexpected costs and operating expenses and place additional demands on management time; |
• | we may incur unexpected liabilities or contingencies relating to acquired businesses; |
• | antitrust and other regulatory authorities may impose restrictions or limitations on the terms of the acquisition or merger, require disposition of certain assets or businesses or withhold their approval of such transaction; and |
• | the expected operation and financial synergies and other benefits from such mergers or acquisitions may not be fully achieved. |
If we fail to achieve the business growth opportunities, cost savings and other benefits we anticipate from mergers and acquisition transactions, or incur greater integration costs than we have estimated, our results of operations and financial condition may be materially and adversely affected.
Acquisitions and strategic partnerships may not perform in accordance with expectations, may fail to receive required regulatory approvals or may disrupt our operations and adversely affect our business financial condition and results of operations.
A component of our strategy is to identify and pursue growth-enhancing strategic opportunities. As part of that strategy we have consummated (i) the Banco Santander Colombia Acquisition in 2012 (today “CorpBanca Colombia”); and (ii) the Helm Bank Acquisition in 2013. Helm Bank was merged with and into CorpBanca Colombia on June 1, 2014. We will continue to consider additional strategic acquisitions and alliances from time to time, inside and outside of Chile and Colombia. Strategic acquisitions and alliances, including the Helm Bank Acquisition, could expose us to risks with which we have limited or no experience. Future acquisitions may also be subject to regulatory approval, which we may not receive, particularly in view of our increasing market share in the Colombian banking industry.
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We must necessarily base any assessment of potential acquisitions and alliances on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. Future acquisitions and alliances may not produce anticipated synergies or perform in accordance with our expectations and could adversely affect our business, financial condition and results of operations.
In addition, new demands on our existing organization, management and employees resulting from the integration of new acquisitions could disrupt our operations and adversely affect our business, financial condition and results of operations.
We may have problems successfully completing the implementation of a new information technology core banking system in Colombia.
A key element of our expansion strategy consists in the acquisition of existing businesses and their integration into our business model and administration and management processes. During 2015, we continued the integration process of Helm Bank and its subsidiaries into our pre-existing operations and business model, including integration of back-office functions. An important step of this integration process is the implementation of a new information technology core banking system in Colombia, which we have been implementing since February 2013. If we are unable to successfully complete the implementation of this new information technology core banking system in Colombia, the integration process in Colombia could be adversely affected, which could adversely affect our financial condition, results of operations and liquidity. The implementation of the new information technology core banking system in CorpBanca Colombia is underway.
RISKS RELATING TO THE PENDING ITAÚ-CORPBANCA MERGER
CorpBanca may be unable to fully realize the anticipated benefits of the Itaú-CorpBanca Merger.
The Itaú-CorpBanca Merger involves bringing together two large financial institutions that currently operate as independent companies. CorpBanca will be required to devote significant management attention and resources to integrating certain aspects of the business practices and operations of CorpBanca and Itaú Chile.
The success of the Itaú-CorpBanca Merger will depend, in part, on CorpBanca’s ability to realize anticipated revenue synergies, cost savings and growth opportunities resulting from the combination of the businesses of CorpBanca and Itaú Chile. We expect to generate synergies resulting from optimization of organizational structures, scalable IT systems, savings related to the branch network and reductions in administrative expenses. There is a risk, however, that CorpBanca may not be able to combine the businesses of CorpBanca and Itaú Chile in a manner that permits CorpBanca to realize these revenue synergies, cost savings and growth opportunities in the time, manner or amounts CorpBanca currently expects or at all. Potential difficulties CorpBanca may encounter as part of the merger process include, among other things:
• | complexities associated with managing Itaú-CorpBanca; |
• | the need to implement, integrate and harmonize various business-specific operating procedures and systems, as well as the financial, accounting, information and other systems of CorpBanca and Itaú Chile; |
• | potential loss of key employees as a result of implementing the Itaú-CorpBanca Merger; |
• | the need to coordinate the existing products and customer bases of CorpBanca and Itaú Chile; and |
• | potential unknown liabilities and unforeseen increased expenses or delays associated with the merger and the other transactions described in the Transaction Agreement (as defined below), or the Itaú-CorpBanca Merger. |
In addition, CorpBanca and Itaú Chile have operated and, until the completion of the merger, will continue to operate separately. It is possible that the integration process could result in:
• | diversion of management’s attention from their normal areas of responsibility to address issues related to the Itaú-CorpBanca Merger; and |
• | the disruption of CorpBanca’s or Itaú Chile’s ongoing businesses or inconsistencies in its standards, controls, procedures and policies, each of which could adversely affect their ability to maintain good relationships with its customers, suppliers, employees and other constituencies, or to achieve the anticipated benefits of the Itaú-CorpBanca Merger, and could increase costs or reduce their earnings or otherwise adversely affect the business, financial condition, results of operations and/or prospects of the merged entity following the completion of the merger, Itaú CorpBanca, which we refer to herein as, and will be referred to following the completion of the merger as, Itaú-CorpBanca. Actual revenue synergies, cost savings, growth |
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opportunities and efficiency and operational benefits resulting from the merger may be lower and may take CorpBanca longer than it currently expects. |
The integration of two large companies also presents significant management challenges. In order to achieve the anticipated benefits of the merger, the operations of the two companies will need to be reorganized and their resources will need to be combined in a timely and flexible manner.
There can be no assurance that CorpBanca will be able to implement these steps as anticipated or at all. If CorpBanca fails to consummate the Itaú-CorpBanca Merger within the time frame that is currently contemplated or to the extent that is currently planned, or if for any other reason the expected revenue synergies, cost savings and growth opportunities fail to materialize, it may not produce the benefits that CorpBanca currently anticipates.
CorpBanca has and will continue to incur significant costs and expenses in connection with the Itaú-CorpBanca Merger.
CorpBanca has incurred and will continue to incur substantial expenses in connection with the Itaú-CorpBanca Merger. These costs and expenses include financial advisory, legal, accounting, consulting and other advisory fees and expenses, reorganization and restructuring costs, filing fees, printing expenses and other related charges. Some of these costs are payable by CorpBanca and Itaú Chile regardless of whether the Itaú-CorpBanca Merger is completed. There are also many processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the Itaú-CorpBanca Merger. While CorpBanca has assumed that a certain level of expenses would be incurred in connection with the Itaú-CorpBanca Merger, there are many factors beyond CorpBanca’s control that could affect the total amount or the timing of the related expenses.
There may also be additional unanticipated significant costs in connection with the Itaú-CorpBanca Merger that CorpBanca may not recoup. These costs and expenses could, particularly in the near term, exceed the savings that CorpBanca expects to achieve from the elimination of duplicative expenses and the realization of economies of scale, other efficiencies and cost savings. Although CorpBanca expects that these savings will offset these integration and implementation costs over time, this net benefit may not be achieved in the near term or at all.
Itaú Unibanco will control the board of directors of Itaú-CorpBanca.
Itaú Unibanco and CorpGroup will collectively appoint a majority of the directors of the board of directors of Itaú-CorpBanca after the completion of the Transactions. The Itaú-CorpBanca Shareholders Agreement to be entered into by Itaú Unibanco and Corp Group contemplates that the directors appointed by them will vote, to the extent permited by the law, in a block and in accordance with the recommendation of Itaú Unibanco, subject to certain exceptions. Accordingly, Itaú Unibanco will be able to control the actions taken by the board of directors of Itaú-CorpBanca on most matters.
Uncertainties associated with the Itaú-CorpBanca Merger may cause a loss of management personnel and other key employees that could adversely affect CorpBanca, Itaú Chile and/or Itaú-CorpBanca.
The success of the Itaú-CorpBanca Merger is dependent, in part, on the experience and industry knowledge of their senior management and other key employees of CorpBanca and Itaú Chile and their ability to execute their business plans. In order to be successful, CorpBanca, Itaú Chile and Itaú-CorpBanca must be able to retain the senior management and other key employees and their ability to attract highly qualified personnel in the future. Current and prospective employees of CorpBanca and Itaú Chile may experience uncertainty about their roles within Itaú-CorpBanca following completion of the Itaú-CorpBanca Merger, which may have an adverse effect on the ability of CorpBanca, Itaú Chile or Itaú-CorpBanca to retain or attract senior management and other key employees, and in turn, on our business, financial condition and results of operations, regardless of the success of the Itaú-CorpBanca Merger.
Itaú-CorpBanca’s future results will suffer if it cannot effectively manage its expanded operations following completion of the Itaú-CorpBanca Merger.
Following the completion of the Itaú-CorpBanca Merger, the size of the business of Itaú-CorpBanca will be significantly larger and more complex than the current business of CorpBanca or Itaú Chile. Itaú-CorpBanca’s future success will depend, in part, on CorpBanca’s ability to manage this expanded business, posing substantial challenges for management. There can be no assurances that Itaú-CorpBanca will be successful or that it will realize the expected operating efficiencies, cost savings, revenue synergies and other benefits currently anticipated by CorpBanca and Itaú Chile from the Itaú-CorpBanca Merger.
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Failure to consummate the Itaú-CorpBanca Merger could negatively impact the share price and the future business and financial results of CorpBanca.
If the Itaú-CorpBanca Merger is not consummated, the ongoing businesses of CorpBanca may be adversely affected and, without realizing any of the benefits of having consummated the Itaú-CorpBanca Merger, CorpBanca will be subject to a number of risks, including the following:
• | CorpBanca and/or Itaú Chile will be required to pay costs and expenses relating to the Itaú-CorpBanca Merger; |
• | matters relating to the Itaú-CorpBanca Merger may require substantial commitments of time and resources by CorpBanca’s management, which could otherwise have been devoted to other opportunities that may have been beneficial to CorpBanca; and |
• | the Transaction Agreement restricts CorpBanca, without Itaú Chile’s consent and subject to certain exceptions, from taking certain actions until the Itaú-CorpBanca Merger is consummated. These restrictions may prevent CorpBanca from pursuing otherwise attractive business opportunities and making other changes to their businesses that may arise prior to consummation of the Transactions. |
If the Transactions are not consummated, these risks may materialize and may adversely affect CorpBanca business, financial results and share price.
The Transaction Agreement contains provisions that restrict CorpBanca’s ability to pursue alternative transactions.
The Transaction Agreement prohibits the parties from soliciting, discussing, negotiating or entering into alternative transactions. This provision could discourage a third party that may have an interest in acquiring all or a significant part of CorpBanca from considering or proposing that acquisition, even if such third party were prepared to pay consideration with a higher value than the value of the proposed Transactions.
The Transaction Agreement may be terminated in accordance with its terms and the Transactions may not be completed.
The Transaction Agreement is subject to a number of customary closing conditions which must be fulfilled in order to consummate the Itaú-CorpBanca Merger. Those conditions include: absence of orders preventing or suspending consummation of the Transactions, the accuracy of the representations and warranties by both parties, performance by both parties of their covenants and agreements, the execution and delivery by both parties of the Shareholders’ Agreement and certain pledge agreements, and the absence of any circumstance, occurrence or change that has had a material adverse effect on any of the parties. These conditions to the closing of the Itaú-CorpBanca Merger may not be fulfilled and, accordingly, the merger may not be completed. In addition, if the Itaú-CorpBanca Merger is not completed by May 2, 2016, either CorpBanca or Itaú Chile may choose not to proceed with the Itaú-CorpBanca Merger, and any party can unilaterally decide to terminate the Transaction Agreement.
RISKS RELATING TO OUR SECURITIES
U.S. securities laws do not require us to disclose as much information to investors as a U.S. issuer is required to disclose.
The corporate disclosure requirements applicable to us may not be equivalent to the requirements applicable to a U.S. company and, as a result, you may receive less information about us than you might otherwise receive in connection with a comparable U.S. company. We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that apply to “foreign private issuers.” The periodic disclosure required of foreign private issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers.
We are required to file an annual report on Form 20-F, but we are not required to file any quarterly reports. A U.S. registrant must file an annual report on Form 10-K and three quarterly reports on Form 10-Q.
We are required to furnish current reports on Form 6-K, but the information that we must disclose in those reports is governed primarily by Chilean law disclosure requirements and may differ from Form 8-K’s current reporting requirements imposed on a U.S. issuer.
We are not subject to the proxy requirements of Section 14 of the Exchange Act and our officers, directors and principal shareholders are not subject to the short swing insider trading reporting and recovery requirements under Section 16 of the Exchange Act.
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Our status as a controlled company and a foreign private issuer exempts us from certain of the corporate governance standards of the New York Stock Exchange.
We are a “controlled company” and a “foreign private issuer” within the meaning of the New York Stock Exchange (NYSE) corporate governance standards, which exempts us from certain NYSE corporate governance requirements. In addition, a foreign private issuer may elect to comply with the practice of its home country and not to comply with certain NYSE corporate governance requirements, including the requirements that (i) a majority of our board of directors (directorio), consist of independent directors, (ii) a nominating and corporate governance committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, (iii) a compensation committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, (iv) an annual performance evaluation of the nominating and corporate governance and compensation committees be undertaken, and (v) the members of the audit committee meet the Exchange Act Rule 10A-3(b)(1) independence requirements. We currently use these exemptions and intend to continue using these exemptions. Accordingly, you will not have the same protections afforded to investors in companies that are subject to all NYSE corporate governance requirements. See “Item 16G. Corporate Governance” for a comparison of the corporate governance standards of the New York Stock Exchange and Chilean practice.
Investors may find it difficult to enforce civil liabilities against us or our directors, officers and controlling persons.
We are organized under the laws of Chile and our principal place of business (domicilio social) is in Santiago, Chile. Most of our directors, officers and controlling persons reside outside of the United States. In addition, all or a substantial portion of our assets are located outside of the United States. As a result, it may be difficult for investors to effect service of process within the United States on such persons or to enforce judgments against them, including in any action based on civil liabilities under the United States federal securities laws.
RISKS RELATING TO OUR ADSs AND COMMON SHARES
There may be a lack of liquidity and market for our ADSs and common shares.
A lack of liquidity in the markets may develop for our ADSs, which would negatively affect the ability of the holders to sell our ADSs or the price at which holders of our ADSs desire to sell them. Future trading prices of our ADSs will depend on many factors including, among other things, prevailing interest rates, our operating results and the market for similar securities.
Our common shares underlying the ADSs are listed and traded on the Santiago Stock Exchange and the Chilean Electronic Exchange, although the trading market for the common shares is small by international standards.
In addition, according to article 14 of theLey de Mercado de Valores, Law No. 18,045, or the Chilean Securities Market Act, the Chilean Superintendency of Securities and Insurance, or SVS, may suspend the offer, quotation or trading of shares of any company listed on the Chilean stock exchanges for up to 30 days if, in its opinion, such suspension is necessary to protect investors or is justified for reasons of public interest. Such suspension may be extended for up to 120 days. If, at the expiration of the extension, the circumstances giving rise to the original suspension have not changed, the SVS will then cancel the relevant listing in the registry of securities. These and other factors may substantially limit your ability to sell the common shares underlying your ADSs at a price and time at which you wish to do so.
You may be unable to exercise preemptive rights.
TheLey Sobre Sociedades Anónimas, Law No. 18,046 and theReglamento de Sociedades Anónimas, which we refer to collectively as the Chilean Corporations Act, and applicable regulations establish that whenever we issue new common shares for cash, we are obligated by law to grant preemptive rights to all of our shareholders (including the depositary on behalf of the holders of ADSs), giving them the right to purchase a sufficient number of shares to maintain their existing ownership percentage. However, we may not be able to offer shares to United States holders of ADSs pursuant to preemptive rights granted to our shareholders in connection with any future issuance of common shares unless a registration statement under the U.S. Securities Act of 1933, as amended, or the Act, is effective with respect to such rights and common shares, or an exemption from the registration requirements of the Act is available.
Our existing shareholders who do not participate in any future preemptive rights offering will suffer an immediate dilution of their percentage equity participation in us. In addition, investors who purchase ADSs or common shares may be subject to dilution of their equity participation in us upon the completion of any future preemptive rights offering. Investors will not know the extent to which they will be diluted until the expiration of any future preemptive rights offering in Chile.
You may have fewer and less well defined shareholders’ rights than with shares of a company in the United States.
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Our corporate affairs are governed by ourEstatutos Sociales, or By-laws, and the laws of Chile. Under such laws, our shareholders may have fewer or less well-defined rights than they might have as shareholders of a corporation incorporated in a U.S. jurisdiction. For example, under legislation applicable to Chilean banks, our shareholders would not be entitled to appraisal rights in the event of a merger or other business combination undertaken by us.
Holders of ADSs are not entitled to attend shareholders’ meetings, and they may only vote through the depositary.
Under Chilean law, a shareholder is required to be registered in our shareholders’ registry at least five business days before a shareholders’ meeting in order to vote at such meeting. A holder of ADSs will not be able to meet this requirement, and accordingly is not entitled to vote at shareholders’ meetings, because the shares underlying the ADSs will be registered in the name of the depositary. While a holder of ADSs is entitled to instruct the depositary as to how to vote the shares represented by ADSs in accordance with the procedures provided for in the deposit agreement, a holder of ADSs will not be able to vote its shares directly at a shareholders’ meeting or to appoint a proxy to do so. In certain instances, a discretionary proxy may vote our shares underlying the ADSs if a holder of ADSs does not instruct the depositary with respect to voting. In addition, the vote of a holder of ADSs may not be necessary to approve certain matters since under Chilean law, substantially all of the forms of corporate action can be approved with the votes of our controlling shareholder in a duly summoned shareholders’ meeting, Corp Group Banking and other investment companies such as Compañía Inmobiliaria y de Inversiones Saga SpA (or Saga), which are owned by Mr. Saieh Bendeck and his family, except for certain matters requiring supermajority approval according to Chilean law.
U.S. holders of our ADSs or common shares could suffer adverse tax consequences if the Company is characterized as a passive foreign investment company.
If you are a U.S. holder (as defined in “Item 10. Additional Information—E. Taxation—U.S. federal income tax considerations”) and we are a passive foreign investment company, or PFIC, for any taxable year during which you own our ADSs or common shares, you could be subject to adverse U.S. tax consequences. As of the date of this Annual Report, we do not expect to be classified as a PFIC for U.S. federal income tax purposes for our current taxable year or for any taxable year in the foreseeable future. However, the determination of whether we are a PFIC is made on an annual basis and will depend on the composition and nature of our income and the composition, nature and value of our assets from time to time, and therefore no assurance can be provided regarding our PFIC status. You should consult your tax advisor regarding the U.S. federal, state and local and other tax consequences of owning and disposing of the ADSs or common shares in your particular circumstances. See Item 10. Additional Information—E. Taxation—U.S. federal income tax considerations” for additional information related to the PFIC rules and their application to the bank.
Holders of the ADSs or our common shares could be subject to a 30% U.S. withholding tax.
Pursuant to Sections 1471 through 1474 of the the Internal Revenue Code of 1986, as amended, or the Code, and U.S. Treasury Regulations promulgated thereunder, a 30% withholding tax may be imposed on all or some of the payments on the ADSs or our common stock after December 31, 2018 to holders and non-U.S. financial institutions receiving payments on behalf of holders that, in each case, fail to comply with information reporting, certification and related requirements. This withholding tax, if it applies, could apply to any payment made with respect to the ADSs or our common stock, and ADSs or shares of our common stock held through a non-compliant institution may be subject to withholding even if the holder otherwise would not be subject to withholding. U.S. holders are urged to consult their tax advisers regarding the application of these rules to their ownership of the ADSs or our common stock. See Item 10. Additional Information—E. Taxation—U.S. federal income tax considerations” for additional information related to these rules and their application to holders of ADSs or our common shares.
Exchange controls and withholding taxes in Chile may limit repatriation of your investment.
Equity investments in Chile by persons who are not Chilean residents are generally subject to various exchange control regulations that govern the repatriation of investments and earnings.
Dividends received by holders of ADSs are paid net of foreign currency exchange fees and fees and expenses of the depositary and are subject to Chilean withholding tax, currently imposed at a rate of 35%, subject to credits in certain cases as described under “Item 10. Additional Information—E. Taxation—Chilean Tax Considerations”. In order to facilitate capital movements from and into Chile and to encourage foreign investment, the Central Bank of Chile eliminated many foreign exchange restrictions and adopted the Compendium of Foreign Exchange Regulations (Compendio de Normas de Cambios Internacionales) effective April 19, 2001.
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We cannot assure you that additional Chilean restrictions applicable to the holders of ADRs, the disposition of the shares underlying the ADRs or the repatriation of the proceeds from such disposition or the payment of dividends will not be imposed in the future, nor can we advise as to the duration or impact of such restrictions if imposed. If for any reason, including changes in the Foreign Investment Agreement or Chilean law, the depositary was able to convert Chilean pesos to U.S. dollars, investors would receive dividends or other distributions, if any, in Chilean pesos.
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ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
We are a publicly traded company (sociedad anónima) organized under the laws of Chile and licensed by the SBIF to operate as a commercial bank. Our legal and commercial name is CorpBanca. Our principal executive offices are located at Rosario Norte 660, Las Condes, Santiago, Chile. Our telephone number is 56-22-660-8000 and our website is www.CorpBanca.cl. Our agent in the United States is CorpBanca New York Branch, Attention: Fernando Burgos Concha, located at 885 Third Avenue, 33rd Floor, New York, NY 10022. Information set forth on our website does not constitute a part of this Annual Report. CorpBanca is organized under the laws of Chile and its subsidiaries are organized under the laws of Chile and Colombia. The terms “CorpBanca,” “the bank,” “we,” “us” and “our” in this Annual Report refer to CorpBanca together with its subsidiaries unless otherwise specified.
HISTORY
We are Chile’s oldest operating bank, incorporated as Banco de Concepción by Decree No. 180 of the Chilean Ministry of Finance on October 3, 1871, and legally began operations as a bank on October 16 of the same year. We were founded by a group of residents of the city of Concepción, Chile, led by Aníbal Pinto, who would later become President of Chile. In 1971, Banco de Concepción was transferred to a government agency,Corporación de Fomento de la Producción(the Chilean Corporation for the Development of Production, or CORFO). Also in 1971, Banco de Concepción acquired Banco Francés e Italiano in Chile, which provided for the expansion of Banco de Concepción into Santiago. In 1972 and 1975, the bank acquired Banco de Chillán and Banco de Valdivia, respectively. In November 1975, CORFO sold its shares of the bank to private business persons, who took control of the bank in 1976. In 1980, the name of the bank was changed to Banco Concepción. In 1983, control of Banco Concepción was assumed by the SBIF. The bank remained under the control of the SBIF through 1986, when it was acquired bySociedad Nacional de Minería (the Chilean National Mining Society, or SONAMI). Under SONAMI’s control, Banco Concepción focused on providing financing to small- and medium-sized mining interests, increased its capital and sold a portion of its high-risk portfolio to the Central Bank of Chile. Investors led by Mr. Alvaro Saieh Bendeck purchased a majority interest of Banco Concepción from SONAMI in 1996. For over twenty years, Mr. Saieh Bendeck has directed the acquisition, creation and operation of a number of commercial banks, mutual fund companies, insurance companies and other financial entities in Chile and other parts of Latin America.
Following our acquisition by Mr. Alvaro Saieh Bendeck in 1996, we changed our name to CorpBanca, hired a management team with substantial experience in the Chilean financial services industry and commenced a period of significant growth fueled by organic expansion and acquisitions. In our first significant transactions, we acquired the assets of the consumer loan division of Corfinsa and the finance company Financiera Condell S.A. in 1998. In that year we also consolidated our information technology systems into a single, integrated platform, Integrated Banking System, or IBS, a central information system that replaced a number of systems, providing us with a single, central electronic database that gives us up-to-date customer information in each of our business lines and calculates net earnings and profitability of each product and client segment.
In June 2012, CorpBanca finalized the acquisition of a 91.9% interest in Banco Santander Colombia S.A (now CorpBanca Colombia), which gave CorpBanca control over CorpBanca Colombia’s 94.9% ownership stake in CorpBanca Investment Valores Colombia S.A., or CIVAL and CorpBanca Colombia’s 94.5% ownership stake in CorpBanca Investment Trust Colombia S.A., or CIT Colombia. In addition, in June 2012, CorpBanca acquired an additional 5.06% interest in CIVAL.
The participation of CorpBanca in CorpBanca Colombia was 66.39% as of December 31, 2013 as compared to 91.93% as of December 31, 2012 following a capital increase by CorpBanca Colombia in 2013 in which CorpBanca participated in a smaller proportion than the remaining shareholders. Finally, CorpBanca’s ownership stake in CorpBanca Colombia decreased to 66.28% in June, 2014 after the merger of this subsidiary with Helm Bank.
On August 6, 2013 we acquired approximately 99.75% of the ordinary shares of Helm Bank (reflecting approximately 87.42% of the ordinary and preferred shares then issued by Helm Bank), a commercial and retail bank in Colombia, including its subsidiaries in Colombia, Panamá, and the Cayman Islands. In the fourth quarter of 2013, we initiated a tender offer to acquire the remaining equity interest in Helm Bank from the remaining minority shareholders. We completed this tender offer in January 2014, resulting in the acquisition by us of an aggregate amount of 99.78% of Helm Bank. On June 1, 2014, we completed the acquisition process of Helm Bank by merging Helm Bank with and into CorpBanca Colombia, with CorpBanca Colombia being the surviving entity.
On September 1, 2014, Helm Comisionista de Bolsa S.A. merged with and into CorpBanca Investment Valores Colombia S.A., with CorpBanca Investment Valores Colombia S.A. being the surviving company. Immediately upon consummation of the
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merger, CorpBanca Investment Valores Colombia S.A. assumed the Helm Comisionista de Bolsa S.A. name. The customers and product portfolio of both entities were maintained in the new merged entity.
Our loan portfolio (excluding loans to banks) has grown at a compounded annual growth rate in nominal terms of 13.4% between December 31, 2012 and December 31, 2015. As of December 31, 2015, according to the SBIF, we were the fourth largest private bank in Chile in terms of the overall size of our loan portfolio (10.4% market share on a consolidated basis and 7.2% market share on an unconsolidated basis only taking into account our operations in Chile, each as reported to the SBIF calculated under local regulatory and accounting principles). As of December 31, 2015, we had total assets of Ch$20,805,351 million, including total loans of Ch$14,628,296 million, total deposits of Ch$8,495,603, shareholders’ equity (excluding net income for the trailing twelve months and provision for mandatory dividend) of Ch$1,105,117 and our return on average shareholders’ equity was 16.2% for the trailing twelve months. For the year ended December 31, 2015, we had net interest income of Ch$620,579 and net income of Ch$238,665.
Our risk management strategy has enabled us to maintain what we believe are solid solvency ratios and risk indicators, notwithstanding high levels of volatility in the financial markets over the past years. Despite of the above, our capital ratios levels decreased from 12.4% to 9.5% between 2014 and 2015, following the approval of the merger with Banco Itaú Chile, considering that our shareholders, together with approving the merger, approved a special dividend distribution in the amount of Ch$239.86 billion that was paid on July 1, 2015. In that specific context, our capital ratios reported on December 2015 are temporary impacted and limited to the period ending with the merger that will occur no later than May 2, 2016. As of December 31, 2015, we had an allowance for loan losses to total loans ratio of 1.2%. We have achieved an average annual return on equity of 14.8% between 2012 and 2015. As of December 31, 2015, we had 127 branches and 417 ATMs in Chile and 177 branches and 180 ATMs in Colombia.
The Pending Itaú-CorpBanca Merger1
As a result of the steps we have taken since the 1996 acquisition, we have developed a number of significant competitive strengths that we believe will continue to contribute to our growth potential. These include operating efficiencies, improved asset quality, an experienced management team, and a strong technological infrastructure. We believe that these strengths position us well for continued growth in the Chilean and Colombian financial services industries.
In this context and pursuant to CorpBanca’s regionalization strategy, during 2013, CorpBanca conducted a process involving some Latin American and global banks as potential partners in order to explore a strategic alliance to further expand CorpBanca’s reach and capabilities. Consequently, after conducting a comprehensive and competitive process for identifying a merger partner, on January 29, 2014, we and our controlling shareholders entered into a Transaction Agreement with Itaú Chile and its parent entity, Itaú Unibanco, or the Transaction Agreement, whereby we agreed to merge with Itaú Chile. As part of that process, we retained two investment banks (Bank of America Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman, Sachs & Co.) as financial advisors in connection with the merger transaction and with the purpose of conducting the process. We and our financial advisors contacted multiple well-known international and Chilean banks who were believed to potentially be interested in a merger. The goal of the process was to obtain the best transaction (in terms of value and certainty of closing) for us and all of our shareholders. After a thorough analysis by us and our financial advisors and Chilean and U.S. legal advisors of the indications of interest received from the different parties and discussions with certain of the parties, we concluded that Itaú Chile offered the best available transaction for us and all our shareholders.
Our shareholders approved the Itaú-CorpBanca Merger in an extraordinary shareholders’ meeting held on June 26, 2015 and the shareholders of Itaú Chile gave their consent to the merger in an extraordinary shareholders’ meeting held on June 30, 2015. Additionally, as of the date hereof, we have received all required regulatory approvals in connection with the Itaú-CorpBanca Merger. Following the Itaú-CorpBanca Merger, the name of the merged bank will be Itaú-CorpBanca and it will operate under the Itaú brand. We expect the Itaú-CorpBanca Merger to close no later than May 2, 2016.
After the closing of the Itaú-CorpBanca Merger, Itaú Unibanco and our current controlling shareholders will beneficially own 33.58% and 33.13% of our outstanding common shares, respectively. Pursuant to the Transaction Agreement, Itaú Unibanco committed to inject US$652 million prior to the closing of the Itaú-CorpBanca Merger, obligation that has been fulfilled. In connection with the Transaction Agreement, our controlling shareholders have agreed that at the closing of the Itaú-CorpBanca Merger, they will enter into the Itaú-CorpBanca Shareholders Agreement, whereby Itaú Unibanco will control the merged bank, or Itaú-CorpBanca, after the consummation of the Itaú-CorpBanca Merger. For a description of the Itaú-CorpBanca Shareholders Agreement and the Transaction Agreement, see Item 10. Additional Information—C. Material Contracts.
1 | All figures related to synergies or savings and one time expenses expressed in US dollars in this section were converted at an exchange rate of 544.10 Ch$/US$ at the time of the announcement of the transaction in January, 2014. |
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Pursuant to the Transaction Agreement, after the closing of the Itaú-CorpBanca Merger, Itaú-CorpBanca will acquire the operations of Itaú Unibanco in Colombia by acquiring the shares of Itaú Colombia at an aggregate price equivalent to their book value of approximately US$100 million. Furthermore, Itaú-CorpBanca will offer to acquire the CorpBanca Colombia shares held by Inversiones Corp Group Interhold Limitada, or Interhold and Inversiones Gasa Limitada, or Gasa and together with Interhold, CorpGroup Parent, representing 12.36 % of CorpBanca Colombia’s outstanding capital stock and that CorpGroup Parent has agreed to sell to Itaú-CorpBanca), through a cash offer in the aggregate amount of US$330 million. This offer to purchase for cash implies a valuation of CorpBanca Colombia of approximately US$2.66 billion (which is the same valuation assigned to CorpBanca Colombia for the purpose of determining the valuation of CorpBanca for the Itaú-CorpBanca Merger).
The Itaú-CorpBanca Merger is expected to be beneficial to us and all of our shareholders for the following principal strategic reasons:
• | On an estimated basis Itaú-CorpBanca would be the fourth largest private bank in Chile measured by total loans with a 12.3% market share (compared to the 7.2% market share we have on a stand-alone basis) as of December 31, 2015; |
• | we and Itaú Chile have complementary segments, products and lines of business; |
• | the combination of both banks would result in a merged bank with a solid capital base and improved funding profile; |
• | the merger’s potential to generate significant synergies; and |
• | the combination of our and Itaú Unibanco’s operations in Colombia would provide the merged bank with a strong framework to reach a stronger position in the Colombian market. |
We believe that the Itaú-CorpBanca Merger represents a significant opportunity to generate synergies that translate into financial savings and cost reductions in various aspects of our business starting on the third anniversary of the closing of the merger. From a human resources perspective, we expect to capitalize on relevant synergies relating to the optimization of the merged bank’s organizational structures, which we estimate will result in pre-tax savings of approximately US$55 million to US$67 million annually. Furthermore, we estimate that pre-tax savings associated with scalable IT systems will amount to approximately US$16 million to US$19 million annually and other savings derived from an enhanced branch network will be in the range of approximately US$8 million to US$10 million annually. Moreover, we expect reductions in administrative expenses and costs of services by service providers of both Itaú Chile and us in the range of US$15 million to US$18 million pre-tax annually.
In addition, we also expect improvements in part of our funding costs compared to the costs of funding we have today, as well as revenue synergies (which were not considered in the cost synergies described above). Assuming fully phased-in pre-tax synergies of approximately US$100 million per year during the first three years after the consummation of the Itaú-CorpBanca Merger, and excluding one-time integration costs of approximately US$85 million pre tax to be incurred during those first three years, the transaction will be accretive from an earnings per share perspective for all our shareholders from the first year after the closing.
We also expect a significant improvement in the capital position of the merged bank. We will combine our current Tier I Capital of approximately US$2.1 billion with Itaú Chile’s US$1.7 billion (including US$652 million capital injection to be completed prior to Closing), providing the merged bank with a considerably larger capital base to support further growth.
From a commercial and strategic perspective, the Itaú-CorpBanca Merger is expected to create a regional player and constitute a unique opportunity for us to partner with a leading financial institution in the region. Itaú Unibanco is the largest private financial institution in Brazil and a premier franchise in Latin America, which will allow us to benefit from a strong market capitalization in our existing markets while enhancing opportunities for growth in other markets, by leveraging Itaú Unibanco’s global client relationships and enabling the merged bank to expand its banking products’ offering. The enhanced footprint that Itaú-CorpBanca will have in Chile and Colombia is also expected to provide greater scale and resources to grow and compete more effectively in those countries, consolidating our position as the fourth largest private bank in Chile measured by total loans with a combined market share of 12.3% as of December 31, 2015 (compared to the 7.2% market share that we had as of December 31, 2015, on an unconsolidated basis in Chile). In addition, this enhanced footprint will function as a platform to expand in the region, in particular into Peru and Central America.
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CAPITAL EXPENDITURES
The following table reflects our capital expenditures in the years ended December 31, 2013, 2014 and 2015:
For the Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
Land and buildings | 3,874 | 1,291 | 4,873 | |||||||||
Machinery and equipment | 2,908 | 7,729 | 9,601 | |||||||||
Furniture and fixtures | 2,894 | 5,135 | 5,399 | |||||||||
Vehicle | 3 | — | — | |||||||||
Other | 24,686 | 13,038 | 17,389 | |||||||||
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Total | 34,366 | 27,193 | 37,262 | |||||||||
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The Ch$10,069 million increase in capital expenditure was mainly due to the increase (i) in intangibles (software and computer equipment acquisitions and investments in IT projects, included under Other) in 2015, and (ii) in land and buildings in Colombia.
Additionally, capital divestitures resulted in a gain of Ch$461 million in 2015 as compared to Ch$415 million in 2014 and Ch$25,164 million in 2013. For further details relating to these results and related divestitures, see Notes 14 and 32 of our audited consolidated financial statements included herein.
B. BUSINESS OVERVIEW
COMPETITIVE STRENGTHS
We believe that our current profitability and competitive advantages are the result of the following strengths:
Strong Market Position and Financial Performance
We believe that our strong position in the Chilean banking market has helped us achieve proportionately higher and more stable profits than our competitors. We are among the market leaders in Chile. According to the SBIF, as of December 31, 2015, we ranked fourth among private banks in total loans with 10.4% market share on a consolidated basis and 7.2% market share on an unconsolidated basis (taking into account only our operations in Chile). Additionally, as of the same date, the SBIF ranked us fourth in deposits with 10.8% market share on a consolidated basis and fourth on an unconsolidated basis (only taking into account our operations in Chile) with a 7.1% market share among private banks in the Chilean market. We have decreased our market share in total loans by 120 basis points during the 2012-2015 period on a consolidated basis. For the three years ended December 31, 2013, 2014 and 2015, we had net income of Ch$175,239 million, Ch$273,701 million and Ch$238,665 million, respectively.
In 2015, both our operations in Chile and Colombia allowed us to reach a net income of Ch$238,665 million, a decrease of 12.8% compared to 2014. This decrease was primarily due to higher provisions for loan losses, a negative currency translation effect between COP$ and Ch$ relating to our Colombian subsidiary and the negative impact of lower inflation in Chile during the year on net interest margin and higher tax rates that offset positive commercial customers-driven results in Chile and synergies already delivered in Colombia, in each case, as further discussed below in “Item 5—Operating and Financial Review and Prospects—A. Operating Results—The Economy—Results of Operations for the Years Ended December 31, 2013, 2014 and 2015— Net Income”. While 2014 showed stronger results from Colombia, during 2015 our Chilean results exceeded our expectations while Colombia results were below our expectations. Therefore, we achieved sustained growth in Chile over this period, despite facing increasingly complex domestic and international economic environments characterized by lower expectations regarding economic prospects and increasing uncertainty regarding significant expected legal reforms in Chile. The consolidation of our business in the segments of Commercial Banking, Traditional and Private Banking and Lower Income Retail Banking was important achieving these results by allowing us to be represented in all segments of the Chilean economy. Despite lower than expected, our results were helped by the positive results that our subsidiary, CorpBanca Colombia, experienced in 2015. CorpBanca Colombia was the sixth largest bank in Colombia as of December 31, 2015, in terms of total loans, with a significant presence in the segments of companies and high and middle-income individuals.
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Pending Itaú-CorpBanca Merger
We believe that the pending Itaú-CorpBanca Merger will provide us a competitive advantage over our competitors. In particular, the merger is expected to provide us with the opportunity to partner with a premier Latin American franchise and give us the ability to leverage Itaú Unibanco’s strong global client relationships. On an estimated basis, Itaú-CorpBanca is expected to be the fourth largest private bank in Chile with US$41.4 billion in assets, US$30.5 billion in loans and US$25.1 billion in total deposits. With this increased size, the institution is expected to be able to exploit various cross-selling opportunities and benefit from additional synergies through: (i) the optimization of cost structures, (ii) savings derived from an enhanced branch network, (iii) savings derived from scalable IT systems, (iv) improvements in the cost of funding and (v) the ability to further leverage Tier I Capital. In addition, we and Itaú Chile have complementary segments, products and lines of business, and the combination of the entities is expected to result in a merged bank with a solid capital base and a strong framework to reach a stronger position in the Colombian market.
We also expect a significant improvement in the capital position of the merged bank. Our current Tier I Capital of approximately US$2.1 billion, combined with Itaú Chile’s Tier I Capital of approximately US$1.7 billion (including US$652 million capital injection into CorpBanca to be made prior to closing), will provide the merged bank with a considerably larger capital base to support further growth.
The enhanced footprint that Itaú CorpBanca will have in Chile and Colombia is also expected to provide greater scale and resources to grow and compete more effectively within those countries, further consolidating our position as the fourth largest private bank in Chile measured by total loans with a combined market share of 12.3% as of December 31, 2015 compared to the 7.2% market share that we had as of December 31, 2015 on an unconsolidated basis.
Diversified Footprint in Chile and Colombia
We believe that our successful acquisition and integration of Banco Santander Colombia and Helm Bank gives us a distinct advantage over our competitors in Chile and Colombia. We are the first and until September 30, 2015 we were the only Chilean-based bank to acquire a universal bank outside Chile. As of today, we remain the only Chilean-based bank to have a footprint in Colombia through a universal bank. As of December 31, 2015, according to the Colombian Superintendency of Finance, CorpBanca Colombia was the sixth largest bank in Colombia in terms of total assets and the sixth largest bank in Colombia in terms of total loans.
Experienced Management Team
Our largest shareholder, Mr. Alvaro Saieh Bendeck has over twenty nine years of experience in the Chilean financial industry. Mr. Saieh Bendeck is committed to continuing his relationship with CorpBanca on matters concerning strategic development, control and new business. Our chairman of the board of directors, Mr. Jorge Andrés Saieh Guzmán, who became chairman of the board in February 2012, has over sixteen years experience as a member of the board of directors and more than four years experience as first vice chairman. Our chief executive officer, or CEO until March 28, 2016, Fernando Massú, has more than thirty two years of experience in the banking and financial services industry. Our chief financial officer, or CFO, Eugenio Gigogne, has over twenty five years of experience in the banking and financial services industry. The CEO of CorpBanca Colombia, Jaime Munita Valdivieso, has over twenty two years of experience in the banking and financial services industry. The members of the board of directors of CorpBanca Colombia also have a wealth of experience in the Colombian market and the banking and financial services industry.
As previously announced by us on November 23, 2015, our management structure is expected to change immediately following the closing of the Itaú-CorpBanca Merger. In particular, Fernando Massú has communicated his resignation as CEO, effective as from March 28, 2016, and is expected to be replaced by Milton Maluhy Filho, as soon as the Itaú-CorpBanca Merger is consumated. Mr. Maluhy Filho joined Itaú Unibanco in 2003 and became a partner in 2011. He is currently the CEO of Banco Itaú Chile. Previously, he was CEO of Rede S.A. (Redecard), a card processing subsidiary, and Executive Director at Itaú Unibanco, responsible for the management of the credit card segment and retail store alliances. Previously, he worked at Itaú BBA, holding leadership positions in areas such as international, products, operations, treasury, and trading desk. Prior to joining the bank, he worked at J.P. Morgan Crédit Commercial de France (CCF Brasil), and Lloyds TSB.
Although, the current composition of the board of directors of CorpBanca is expected to materially change given the change of control in favor of Itaú Unibanco once the Itaú-CorpBanca Merger is consumated, Jorge Andrés Saieh Guzmán is expected to retain his position as chairman of the board of directors.
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Sound Risk Management
We believe that we have asset quality that is superior to the market average. We have maintained our asset quality, as evidenced by our ratio of non-performing loan to total loans of 1.3% as of December 31, 2015, and a ratio of charge-offs to average outstanding loans of 0.8% as of December 31, 2015. We believe that we have a risk management system that enables us to identify risks and resolve potential problems on a timely basis and we have made a series of investments to improve the technology we use to manage risk. We have also employed our risk management system and philosophy to identify potential acquisition targets with high asset quality.
Operating in a Stable Economic Environment within Latin America
We conduct a majority of our business in Chile and a significant amount in Colombia. The Chilean and Colombian economies have generally demonstrated strong macroeconomic fundamentals in terms of Gross Domestic Product, or GDP, per capita and inflation; nevertheless in the past two years, the macroeconomic environment in both countries has shown mild GDP per capita growth (1.2% and 1.3% during 2015 in Chile and Colombia, respectively) and a shift in the inflation trend (4.4% and 6.8% during 2015 in Chile and Colombia, respectively). Still, the Chilean economy is recognized among the most stable in Latin America, as evidenced by its investment grade ratings of AA- by Standard & Poor’s, A+ by Fitch Ratings and Aa3 by Moody’s, the highest ratings in the region. Chile has consistently received investment-grade credit ratings since Standard & Poor’s and Moody’s started coverage in 1992 and 1994, respectively. Standard & Poor’s and Fitch Ratings have an investment grade rating of Colombia of BBB, with a “stable” outlook. Moody’s has an investment grade rating of Colombia of Baa2, with a “stable” outlook.
STRATEGY
Our strategy aims at enhancing our market position in the Chilean and Colombian financial services industry in terms of profitability, market share and service coverage. The key elements of our strategy are:
Continue to Grow our Operations Profitably as a Universal Bank
We seek to achieve organic growth by offering competitive products and services to our clients in all of our lines of business in Chile and Colombia. We believe that we have developed a successful wholesale banking business model, which allows us to realize high margins on the cross-selling of our products to our large corporate clients, and we intend to continue to expand our wholesale banking business model to our operations in Colombia. We are focusing our marketing and sales efforts on adapting this business model to apply to our SME clients in Chile and Colombia. Additionally, we believe that our strong franchise in the retail banking segment offers us the potential for significant growth in our loan portfolio, in the low-, mid- and high-income segments. In particular, we believe that there is significant opportunity to expand our wealth management business through the offering of unique investment products and opportunities that we benefit from as a member of CorpGroup. We believe Itaú and CorpBanca are complementary banking operations given their market position, which will enhance our competitive positioning and help enrich our client servicing models. In addition, we seek to identify and pursue growth-enhancing strategic opportunities. We will continue to evaluate additional strategic acquisitions and alliances from time to time, inside and outside of Chile and Colombia.
Further Penetrate the Colombian Financial Services Market
We intend to capitalize on the growth of the Colombian market given that we believe that our Colombian operation will offer us significant opportunities for growth in the financial services industry. Specifically, we expect to benefit from comparable lower banking penetration rates and higher in terms of GDP per capita in Colombia. The CorpBanca Colombia Acquisition, the Helm Bank Acquisition and the pending Itaú-CorpBanca Merger demonstrate our commitment to the Colombian financial services market. With respect to our current operations in Colombia, in order to improve operational efficiency and increase market share in key sectors, we intend to implement our commercial and operational standards and best practices of CorpBanca Colombia, while capitalizing on the local management expertise, customer base, services and products. With the Itaú-Corpbanca merger, we expect to achieve a stronger penetration of the wholesale market in Colombia as a result of the consolidation of Corporación Financiera Itaú BBA into our business and also leveraging retail banking best practices from Itaú Unibanco’s Brazil operations.
Actively Pursue Cross-Selling Opportunities
We intend to increase our market share and profitability by continuing to cross-sell services and products to our existing clients. We have instituted processes that facilitate our ability to offer additional financial services to our clients, which we believe will increase our revenues from fees for value-added services. In addition, we cross-sell loan products to our checking and savings account customers that are tailored to their individual needs and financial situation. The Itaú-CorpBanca Merger Will provide further opportunities to offer our clients an improved product menu leveraging the strong internation position of Itaú Unibanco in both wholesale and retail business.
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Efficiency
We are committed to continuing to improve our operating efficiency and profitability. We continue to update our branch operations to allow for an increased level of customer “self-help”. We are also working to increase use of internet and mobile banking by our customers, offering better quality. This strategy has allowed us to win in 2015 for the fifth year the Global Finance Award as Best Digital Bank for Companies in Chile, in recognition of an online service excellence. We have implemented a central information system that provides us with a single, central electronic database that gives us up-to-date customer information in each of our business lines and calculates net earnings and profitability of each transaction, product and client segment savings. Our senior management is focused on implementing technological solutions aimed at identifying means of improving our overall profitability and optimizing our cost structure, such as online time deposits which have an innovative product of great success in Chile. CorpBanca Colombia implemented the “AzulNet”, a portal with new features, faster response time and optimized services for business and retail customers. Through these initiatives, we will continue to strive to improve our efficiency ratio. As of December 31, 2015, we had a consolidated efficiency ratio of 47.3% (defined as operating expenses as a percentage of operating revenue consisting of aggregate of net interest income, fees and income from services (net), net gains from mark-to-market and trading, exchange differences (net) and other operating income (net)). This percentage represented a decrease compared to 50.5% as of December 31, 2014. When we split CorpBanca and CorpBanca Colombia from a management point of view, the recovery trend in both countries is similar: 47.3% vs. 50.5% in Chile in 2015 and 2014, and 47.2% vs. 50.6% in Colombia in 2015 and 2014, respectively.
As a result of our partnership with Itaú Chile, after the consummation of the CorpBanca-Itaú Merger, we will enjoy several benefits, including a greater scale and resources to compete more effectively and more efficiently. The combined entity has the potential to generate significant synergies in Chile which will result in significant efficiency improvements.
Focus on Building Customer Satisfaction
The quality of service that we provide to our customers is key to our growth strategy. We not only focus on gaining new customers, but on strengthening and establishing long-term relationships. We believe this is done through a constant effort to identify and understand the needs of our clients and to measure their satisfaction. We continue to develop new processes and technological solutions to provide our clients with excellent customer service. This is a key component of our strategy in order to retain and continue to create value while we finalize the integration of Helm Bank and while we consummate the merger and integration with Itaú Chile’s operations.
Increase our Profitability by Allocating our Capital More Effectively
We continue to seek attractive opportunities to improve our profitability. The Helm Bank Acquisition is a good example of our strategic commitment to maximize the use of our capital to increase our profitability. Although we are constantly evaluating investment opportunities, our current focus is on integrating our Colombian operations and consummating the Itaú-CorpBanca Merger.
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OWNERSHIP STRUCTURE
The following diagram shows our ownership structure as of December 31, 2015:
1) | Includes 926,513,842 shares owned by Saga that are under custody. |
2) | Since November 2013, includes CorpVida and CorpSeguros (1.18%) which are no longer controlled by the Saieh Group. |
3) | Includes Moneda’s funds with a total of 2.69% ownership. |
The following diagram shows our ownership structure as of December 31, 2014:
1) | Includes 926,513,842 shares owned by Saga that are under custody. |
2) | Since November 2013, includes CorpVida and CorpSeguros (1.33%) which are no longer controlled by the Saieh Group. |
3) | Includes Moneda’s funds with a total of 3.29% ownership. |
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PRINCIPAL BUSINESS ACTIVITIES
We provide a broad range of commercial and retail banking services to our customers. In addition, we provide financial advisory services, mutual fund management, insurance brokerage and securities brokerage services through our subsidiaries. The following chart sets forth our principal lines of business on a consolidated basis:
Representative Commercial Structure for CorpBanca and CorpBanca Colombia
1) | Also see “Item 5. Operating and Financial Review and Prospects—A. Operating Results” for a financial summary of our lines of business as of December 31, 2013, 2014 and 2015. |
2) | Only for CorpBanca. |
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The following chart sets forth a breakdown of our revenue by geographic market for the years ended December 31, 2013, 2014 and 2015:
Net Interest Income by geographic market | ||||||||||||
Year ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
CorpBanca Chile | 253,889 | 331,572 | 325,466 | |||||||||
CorpBanca Colombia(1)(2) | 196,324 | 290,113 | 276,200 | |||||||||
CorpBanca New York | 7,477 | 9,199 | 18,913 | |||||||||
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Total | 457,690 | 630,884 | 620,579 | |||||||||
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1) | Includes direct and indirect ownership of CorpBanca in Colombia: (i) CorpBanca Colombia and subsidiaries (including Panamá) and (ii) Helm Corredor de Seguros. |
2) | For 2013 includes five months of Helm Bank acquired in August 2013. |
The following table provides information on the composition of our loan portfolio net of allowances as of December 31, 2013 and 2014:
As of December 31, | ||||||||||||||||
2013 | 2014 | Variation | Variation | |||||||||||||
(in million of constant Ch$) | (%) | |||||||||||||||
Commercial loans | ||||||||||||||||
Commercial loans | 7,625,381 | 8,236,385 | 611,004 | 8.0 | % | |||||||||||
Foreign trade loans | 437,102 | 484,576 | 47,474 | 10.9 | % | |||||||||||
Current account debtors | 27,193 | 33,335 | 6,142 | 22.6 | % | |||||||||||
Factoring operations | 73,280 | 68,038 | (5,242 | ) | (7.2 | )% | ||||||||||
Leasing transactions | 811,462 | 866,180 | 54,718 | 6.7 | % | |||||||||||
Other loans and receivables | 219,684 | 305,952 | 86,268 | 39.3 | % | |||||||||||
Subtotals | 9,194,102 | 9,994,466 | 800,364 | 8.7 | % | |||||||||||
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Mortgage loans | ||||||||||||||||
Letters of credit loans | 73,831 | 64,430 | (9,401 | ) | (12.7 | )% | ||||||||||
Endorsable mutual mortgage loans | 194,788 | 181,269 | (13,519 | ) | (6.9 | )% | ||||||||||
Other mutual mortgage loans | 1,415,731 | 1,661,265 | 245,534 | 17.3 | % | |||||||||||
Leasing transactions | 260,145 | 279,326 | 19,181 | 7.4 | % | |||||||||||
Other loans and receivables | 37,513 | 35,506 | (2,007 | ) | (5.4 | )% | ||||||||||
Subtotal | 1,982,008 | 2,221,796 | 239,788 | 12.1 | % | |||||||||||
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Consumer loans | ||||||||||||||||
Consumer loans | 1,046,179 | 1,110,843 | 64,664 | 6.2 | % | |||||||||||
Current account debtors | 38,938 | 45,851 | 6,913 | 17.8 | % | |||||||||||
Credit card debtors | 226,281 | 237,605 | 11,324 | 5.0 | % | |||||||||||
Consumer leasing transactions | 21,437 | 19,702 | (1,735 | ) | (8.1 | )% | ||||||||||
Other loans and receivables | 262,697 | 262,007 | (690 | ) | (0.3 | )% | ||||||||||
Subtotal | 1,595,532 | 1,676,008 | 80,476 | 5.0 | % | |||||||||||
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Total | 12,771,642 | 13,892,270 | 1,120,628 | 8.8 | % | |||||||||||
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The following table provides information on the composition of our loan portfolio net of allowances as of December 31, 2014 and 2015:
As of December 31, | ||||||||||||||||
2014 | 2015 | Variation | Variation | |||||||||||||
(in million of constant Ch$) | (%) | |||||||||||||||
Commercial loans | ||||||||||||||||
Commercial loans | 8,236,385 | 8,726,128 | 489,773 | 5.9 | % | |||||||||||
Foreign trade loans | 484,576 | 504,883 | 20,307 | 4.2 | % | |||||||||||
Current account debtors | 33,335 | 26,551 | (6,784 | ) | (20.4 | )% | ||||||||||
Factoring operations | 68,038 | 60,453 | (7,585 | ) | (11.1 | )% | ||||||||||
Leasing transactions | 866,180 | 867,861 | 1,681 | 0.2 | % | |||||||||||
Other loans and receivables | 305,952 | 371,891 | 65,939 | 21.6 | % | |||||||||||
Subtotals | 9,994,466 | 10,557,797 | 563,331 | 5.6 | % | |||||||||||
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Mortgage loans | ||||||||||||||||
Letters of credit loans | 64,430 | 54,249 | (10,181 | ) | (15.8 | )% | ||||||||||
Endorsable mutual mortgage loans | 181,269 | 160,679 | (20,590 | ) | (11.4 | )% | ||||||||||
Other mutual mortgage loans | 1,661,265 | 1,701,512 | 40,247 | 2.4 | % | |||||||||||
Leasing transactions | 279,326 | 271,174 | (8,152 | ) | (2.9 | )% | ||||||||||
Other loans and receivables | 35,506 | �� | 32,173 | (3,333 | ) | (9.4 | )% | |||||||||
Subtotal | 2,221,796 | 2,219,787 | (2,009 | ) | (0.1 | )% | ||||||||||
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Consumer loans | ||||||||||||||||
Consumer loans | 1,110,843 | 1,283,457 | 172,614 | 15.5 | % | |||||||||||
Current account debtors | 45,851 | 50,804 | 4,953 | 10.8 | % | |||||||||||
Credit card debtors | 237,605 | 241,628 | 4,023 | 1.7 | % | |||||||||||
Consumer leasing transactions | 19,702 | 18,253 | (1,449 | ) | (7.4 | )% | ||||||||||
Other loans and receivables | 262,007 | 82,631 | (179,376 | ) | (68.5 | )% | ||||||||||
Subtotal | 1,676,008 | 1,676,773 | 765 | 0.0 | % | |||||||||||
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Total | 13,892,270 | 14,454,357 | 562,087 | 4.0 | % | |||||||||||
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Commercial Banking
We offer a range of products and services to our business clients depending on their size, ownership structure and/or investments under management. Our commercial banking segments are served by two separate business divisions: our Large, Corporate and Real Estate Companies division and our Companies division. For the years ended December 31, 2013, 2014 and 2015, our combined total average corporate loans outstanding for our Large, Corporate and Real Estate Companies division and our Companies division amounted to Ch$5,631,462 or 48.9% of total average loans, Ch$5,569,994 or 40.1% of total average loans and Ch$6,026,801 or 41.2% of total average loans, respectively.
Large, Corporate and Real Estate Companies. This division serves large economic groups, state-owned and private companies, mining companies, utilities, energy, seaports, airports, public hospitals or any business with annual sales in excess of US$60 million. Our Large, Corporate and Real Estate Companies division focuses on offering clients a broad range of services tailored to fit their specific needs. These services include deposit-taking and lending in both Chilean pesos and foreign currencies, trade financing, general commercial loans, working capital loans, letters of credit, interest rate, foreign exchange derivatives (including foreign exchange options) and cash flow management. This division also serves our real estate and project finance customers. As of December 31, 2015, we had 1,817 Large, Corporate and Real Estate Companies banking customers. We also offer our wholesale banking customers securities brokerage and financial advisory services through our subsidiaries as well as those products and services available through our New York Branch. (For the years ended December 31, 2013, 2014 and 2015, our total average corporate loans outstanding for our Large, Corporate and Real Estate Companies division amounted to Ch$3,843,701 or 33.4% of total average loans, Ch$3,791,937 or 27.3% of total average loans and Ch$3,919,595 or 26.8% of total average loans, respectively).
Companies.Our Companies division provides services to businesses with annual sales of less than US$60 million in Santiago and no set limit throughout the rest of Chile, except for large economic groups and state-owned mining companies, utilities and energy companies, ports, airports and public hospitals, which are serviced by our Large, Corporate and Real Estate Companies division. This division also serves small and medium-sized businesses and provides support to our factoring and leasing clients. Greater detail of each of these business areas are provided in the paragraphs found below.
This division offers our customers a broad range of financial products, including general commercial loans, working capital loans, trade finance, on-lending of financing originated by CORFO, overdraft credit lines, letters of credit, mortgage loans, term deposits, factoring and leasing. As of December 31, 2015, we had 20,966 customers in our Companies division.
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Within our Companies division, we have a special unit focused on small and medium-size companies, with annual sales between US$200,000 and US$2 million. We are able to offer an array of products through our small and medium-sized business unit, including products (such as lines of credit) backed by governmental warranties created to develop small and medium-sized businesses.
Retail Banking
We offer a range of products and services to our individual clients in Chile depending on their monthly income and/or net worth. Our retail banking divisions serve retail customers in Chile across all income levels, from low-income to high income individuals organized in two divisions: Traditional and Private Banking and Banco Condell.
Traditional and Private Banking
Traditional Banking
Our Traditional Banking Division is mainly oriented toward individuals in Chile with medium-high income levels (focused on clients with over Ch$1.2 million monthly income). Our traditional banking services are marketed and operated under the CorpBanca brand name. We offer our traditional and private banking clients products in Chile such as checking and deposit accounts, credit lines, credit and debit cards, personal installment loans, mortgage loans, insurance banking and time deposits, among others. In addition, we provide time deposits, mutual funds and savings accounts in Chilean pesos, Euros, UF and U.S. dollars, with a minimum term of seven days and no minimum amount for foreign-currency accounts. As of December 31, 2015, we had 228,674 traditional banking clients, a decrease of 0.9% as compared to December 31, 2014.
Private Banking
Within our Private Banking Division, we provide private banking services to our high income and high net worth customers in Chile. We consider high income individuals to be customers with a monthly income in excess of US$10,000 or a net worth in excess of US$600,000. Each client under our private banking or “Private Banking” program is provided with a liaison officer who oversees the client’s entire relationship with us across all product lines. In addition to the products and services we provide to private banking customers, we offer tailored lending products designed to help keep their businesses growing. As of December 31, 2015, we had 10,314 Private Banking clients, an increase of 11.3% as compared to December 31, 2014.
For the year ended December 31, 2015, our Traditional and Private Banking Division had loans with an annual average balance of Ch$2,994,312 or 20.5% of total average loans (a year-on-year increase of 24% on an average balance basis).
We offer the following products and services, among others, to our traditional and private banking customers:
Checking and Deposit Accounts. Our main checking account product is our “Integral” checking account, through which customers are provided with a package of services including ATM cards, a credit line, MasterCard and American Express credit cards with credit levels established pursuant to the creditworthiness of the individual, fraud insurance and access to internet and telephone banking. As of December 31, 2015, we had approximately 85,874 retail checking accounts, an increase of 8.3% as compared to December 31, 2014. Additionally, this growth in retail checking accounts has been accompanied by an increase in the average balance per account from Ch$143,035 million in 2014 to Ch$154,704 million in 2015.
Credit and Debit Cards. We issue MasterCard and American Express credit cards to our individual clients. In addition to traditional cards, we offer cards issued under certain specialized customer loyalty programs and tailor our marketing of credit card services to different groups based on personal income. As of December 31, 2015, we had 194,305 credit cards issued under the brand name CorpBanca, an increase of 10.6% as compared to December 31, 2014. Our promotions such as discounts on gasoline purchases have allowed us to excel in sales as well as usage-rates of this product. Also, as of December 31, 2015 we had 101,245 credit cards issued by our subsidiary SMU Corp S.A., or SMU Corp, under the brand name “Unimarc”, a decrease of 4.1% as compared to December 31, 2014.
We also offer debit cards, which can be used for banking transactions at ATMs operating on the Redbanc, S.A., or Redbanc, network, as well as at retailers associated with the Redcompra program. Under this agreement, we have access to 7,976 ATMs (including Banco del Estado de Chile’s ATMs) in Chile.
Mortgage Loans. We offer two types of mortgages: residential mortgages for the purchase of new and existing homes (including refinancing of existing residential mortgages) and other mortgages, which are loans for other purposes secured by real property owned by the customer. Our residential mortgage loans are UF-denominated and generally have maturities between five and thirty years. All of our mortgage loans are primary lien loans and are secured by a real property mortgage. Our lending criteria require minimum credit scores. These loans can be endorsed to a third party. These generally are financed by our general borrowings.
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To reduce our exposure to interest rate fluctuations and inflation with respect to our residential mortgage UF-denominated portfolio, a portion of these mortgages are funded through the issuance of letters of credit loans in the Chilean financial market, which bear a real market rate of interest plus a fixed spread over the rate of variation of the UF. The letters of credit loans are exclusively used to finance certain mortgage loans that as of December 31, 2015 represented only 2.4% of our mortgage loan portfolio. At the time of approval, these types of mortgage loans cannot be more than 75% of the lower of the purchase price or the appraised value of the mortgaged property or such loan will be classified as a commercial loan. Letters of credit loans are general unsecured obligations, and we are liable for all principal and accrued interest on such letters.
Residential mortgage loans are financed with our general funds, particularly through the issuance of long-term subordinated bonds. In addition, we generally require that the monthly payments on residential mortgage loans do not exceed 25% of the borrower’s household after-tax monthly income.
We continue to increase our marketing efforts relating to our mortgage services. Our market penetration for mortgage products has historically been lower than our overall Chilean market share for all banking products, which as of December 31, 2015 was 4.8%. As a result of competitive pricing, product innovation, timely customer service, product knowledge as well as our overall focus on mortgage services, we have been able to achieve our recent results and increase our market share. This is the case as the ratios compare the collateral’s fair value to our loans and receivables portfolio values. Accordingly, our market share for mortgage products was 5.7%, 5.5% and 4.8% as of December 31, 2013, 2014 and 2015, respectively. We intend to continue to grow in this market.
Where appropriate, we obtain collateral in respect of our loans and receivables from customers. The collateral normally takes the form of a real estate mortgage (i.e., urban and rural properties, agricultural lands, maritime vessels and aircraft, mineral rights and other assets) and liens (i.e., inventories, agricultural goods, industrial goods, plantations and other property pledged as security) over the customer’s assets. The existence and amount of collateral generally varies from loan to loan.
Consumer Loans. We offer personal consumer loans for a variety of purposes, including personal loans (with automatic payments deducted from a checking or credit card account and with life, home and/or unemployment insurance); university and post-graduate education loans (including life insurance). Our consumer loans are generally installment loans denominated in Chilean pesos or UF, bear interest at fixed or variable rates and typically have maturities up to five years with the exception of university and post-graduate education loans, which have maturities up to ten years.
Lower Income Retail Banking (Banco Condell)
Our Lower Income Retail Banking Division operates under the trade name Banco Condell and is focused on clients in Chile with an annual income between Ch$2.4 million and Ch$7.2 million. Banco Condell has 56 standalone branches and its own brand identity.
Under the Banco Condell brand, we offer consumer insurance policies and time deposits to the traditionally underserved low-to-middle income segments of the Chilean population. For the year ended December 31, 2015, our Banco Condell division managed loans with an annual average balance of Ch$171,186 million, or 1.2% of total loans. Improved economic conditions in Chile over the past decade have resulted in an increased demand for consumer credit by low- to middle-income individuals, whom we classify as persons with annual income lower than Ch$7.0 million. Many of these individuals have not had prior exposure to banking products or services. Through Banco Condell, we focus on developing and marketing products specifically oriented to individuals in this segment of the population while introducing them to the banking sector. We offer, among others, the following products and services to our lower income retail banking-Banco Condell customers:
Consumer Loans. We offer personal loans under the Banco Condell brand, including personal debt consolidation loans. These loans are generally denominated in Chilean pesos, repayable through equal monthly installments and typically have maturities up to five years. Life and unemployment insurance are mandatory in connection with these loans.
Consumer Insurance policies: We offer life, health, unemployment and credit-related life insurance policies.
Time Deposits and Debit Cards: We offer time deposits and debit cards oriented to low income segments for savings and financial transactions.
Treasury and International
Our Treasury and International Division specializes in financial management and is largely responsible for our funding and liquidity as well as management of any gap on our balance sheet. In addition, through our Treasury and International Division we manage proprietary trading functions, market making and distribution and sales of flow and non flow instruments for our corporate
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clients. This division is responsible for obtaining foreign currency-denominated credit lines from financial institutions outside of Chile.
As of December 31, 2015, our outstanding loans from foreign banks were US$1,597.2 million with approximately 52 institutions in the U.S., Canada, Germany, France, Taiwan, England, Japan, Singapore, Switzerland and other countries including in Latin America. The international global risk assets outstanding as of December 31, 2015 were US$2,014.4 million.
CorpBanca Colombia
CorpBanca Colombia provides a broad range of commercial and retail banking services to its customers in Colombia, operating principally in the cities of Bogotá, Medellín, Cali, Bucaramanga, Cartagena and Barranquilla. As of December 31, 2015, according to the Colombian Superintendency of Finance, CorpBanca Colombia was the sixth largest bank in Colombia in terms of total assets, the sixth largest bank in Colombia in terms of total loans and the sixth largest bank in Colombia, in terms of total deposits as reported under local regulatory and accounting principles.
As of December 31, 2015, according to our consolidated financial statements, which have been prepared in accordance with IFRS, CorpBanca Colombia had total assets of COP$33,785,247 million (US$10,778 million), including total loans of COP$22,984,175 million (US$7,332 million), total deposits of COP$10,492,939 million (US$3,347 million) and total shareholders’ equity of COP$3,437,030 million (US$1,096 million). For the year ended December 31, 2015, CorpBanca Colombia had total net interest income of COP$1,218,716 million (US$389 million) and net income of COP$307,008 million (US$98 million). As of December 31, 2015, CorpBanca Colombia had 177 branches and offices, 180 ATMs and over 3,707 employees.
New York Branch
Our Federal Branch in the city of New York offers a wide range of credit operations and services to both Chilean and non-Chilean retail and corporate customers. Operating with an offshore foreign branch of a Chilean bank is especially attractive to clients as it provides a sense of proximity and it allows us to accompany them as they expand abroad, responding to their needs and service requirements. Our target market on the liability side consists of medium and large Chilean companies, Latin American companies, and Latin American banks without offshore branch offices, among others. Funding has shown continuous growth allowing the branch to fully self-provide its funding needs. Additionally we have a private banking unit which provides sophisticated retail customers checking accounts and other associated services.
Our branch supports the commercial needs of Chilean and Latin American companies doing business overseas. Another important service is the participation in syndicated loans, together with other international institutions, to finance a variety of investment projects.
Financial Services Offered Through Subsidiaries
We have made several strategic long-term investments in financial services companies in Chile (each of which are regulated and supervised by either the SBIF or the SVS), which are engaged in activities complementary to our core Chilean banking activities. Through wholly-owned subsidiaries, we intend to continue to develop a comprehensive financial services group able to meet the diverse financial needs of our current and potential clients. As of December 31, 2015, assets of our subsidiaries represented 1.0% of total consolidated, percentage that remains stable compared to December 31, 2014. For the year ended December 31, 2015, net income of our subsidiaries represented 14.8% of total consolidated net income compared to 14.1% for the year ended December 31, 2014.
The following table sets forth certain financial information with respect to our financial services subsidiaries as of December 31, 2013, 2014 and 2015, in millions of Chilean pesos. Amounts relating to inter-company transactions have not been removed for purposes of this table.
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Financial Services Offered Through Subsidiaries
As of and for the year ended December 31, | ||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||
Assets | Equity | Net Income | Assets | Equity | Net Income | Assets | Equity | Net Income | ||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||
CorpBanca Corredores de Bolsa S.A. | 88,876 | 40,720 | 2,206 | 79,488 | 40,274 | 1,760 | 79,758 | 39,601 | 1,064 | |||||||||||||||||||||||||||
CorpBanca Administradora General de Fondos S.A. | 9,516 | 4,433 | 2,603 | 7,561 | 5,917 | 4,083 | 8,831 | 5,929 | 4,096 | |||||||||||||||||||||||||||
CorpBanca Corredores de Seguros S.A. | 16,318 | 13,875 | 7,866 | 18,006 | 15,165 | 9,012 | 20,234 | 15,432 | 8,759 | |||||||||||||||||||||||||||
CorpBanca Asesorías Financieras S.A. | 12,590 | 9,230 | 9,046 | 25,166 | 17,495 | 17,311 | 22,709 | 16,697 | 16,513 | |||||||||||||||||||||||||||
Corp Legal S.A. | 2,634 | 2,307 | 304 | 2,815 | 2,576 | 269 | 3,021 | 2,712 | 137 | |||||||||||||||||||||||||||
Corp Capital Agencia de Valores S.A | 1,137 | 925 | (62 | ) | — | — | (288 | ) | ||||||||||||||||||||||||||||
SMU Corp S.A. | 12,519 | 4,870 | (3,010 | ) | 19,523 | 5,598 | (1,403 | ) | 19,864 | 5,395 | (1,074 | ) | ||||||||||||||||||||||||
CorpBanca Investment Trust Colombia S.A. | 16,800 | 15,555 | 2,291 | 18,284 | 16,875 | 3,870 | 13,070 | 12,810 | 818 | |||||||||||||||||||||||||||
Helm Comisionista de Bolsa S.A. (previously known as CorpBanca Investment Valores Colombia S.A.)(1) | 5,357 | 4,652 | 580 | 8,628 | 7,681 | 954 | 9,477 | 8,227 | 2,350 | |||||||||||||||||||||||||||
CorpBanca Securities INC-NY | 1,037 | 1,036 | (16 | ) | 243 | 167 | (1,009 | ) | 798 | 769 | (381 | ) | ||||||||||||||||||||||||
Helm Corredor de Seguros S.A. | 4,818 | 2,774 | 516 | 3,786 | 2,448 | 1,872 | 4,165 | 2,993 | 847 | |||||||||||||||||||||||||||
Helm Comisionista de Bolsa S.A.(2) | 5,741 | 4,787 | 98 | — | — | — | ||||||||||||||||||||||||||||||
Helm Fiduciaria S.A. | 12,207 | 10,967 | 184 | 13,801 | 12,173 | 2,238 | 14,597 | 12,586 | 2,592 | |||||||||||||||||||||||||||
Helm Casa de Valores (Panamá) S.A. | 528 | 501 | 50 | 482 | 395 | — | 512 | 455 | (10 | ) | ||||||||||||||||||||||||||
Recaudaciones y Cobranzas S.A.(3) | — | — | — | — | — | — | 2,214 | 652 | (273 | ) |
1) | On September 1, 2014, Helm Comisionista de Bolsa S.A. merged with and into CorpBanca Investment Valores Colombia S.A., with CorpBanca Investment Valores Colombia S.A. being the surviving company. Immediately upon consummation of the merger, CorpBanca Investment Valores Colombia S.A. assumed the Helm Comisionista de Bolsa S.A. name. |
2) | On September 1, 2014, Helm Comisionista de Bolsa S.A. merged with and into CorpBanca Investment Valores Colombia S.A., with CorpBanca Investment Valores Colombia S.A. being the surviving company. |
3) | On February 25, 2015 CorpBanca acquired 73,609 shares in Recaudaciones y Cobranzas S.A. and CorpBanca Asesorias Financieras S.A. acquired 1 share of the same Company. CorpBanca controls 100% of Recaudaciones y Cobranzas S.A. |
CorpBanca Corredores de Bolsa S.A.
Our subsidiary CorpBanca Corredores de Bolsa S.A., or CCB, is a member of the Santiago Stock Exchange and is registered with the SVS as a security broker. CCB’s primary activities are providing brokerage services in equities, fixed income, and foreign currency exchange. CCB’s net income was Ch$2,206 million, Ch$1,760 million and Ch$1,064 million for the years ended December 31, 2013, 2014 and 2015, respectively. CCB had assets under custody of Ch$346,211 million, Ch$295,612 million and Ch$278,281 million as of December 31, 2013, 2014 and 2015, respectively. For the year ended December 31, 2015, CCB’s net income decreased by Ch$696 million, or 39.5%, as compared net income for the year ended December 31, 2014. This trend was driven by drastically lower trading volumes in the local equity markets, which were at a 9-year low for the year ended December 31, 2015. In order to mitigate adverse market conditions, CCB has refocused marketing efforts and redirect investments to products and businesses where there are investment opportunities for clients.
CorpBanca Administradora General de Fondos S.A.
We incorporated CorpBanca Administradora General de Fondos S.A., or CAGF, to complement banking services offered to individual and corporate clients. CAGF’s current function is to manage mutual fund assets for its clients in fixed and variable income instruments in both the local and foreign markets. For the years ended December 31, 2013, 2014 and 2015, CAGF had net income of Ch$2,603 million, Ch$4,083 million and Ch$4,096 million, respectively. CAGF had total assets of Ch$9,516 million, Ch$7,561 million and Ch$8,831 million as of December 31, 2013, 2014 and 2015, respectively. As of December 31, 2015, CAGF managed 26 mutual funds including fixed income funds and seven private investment funds and had total assets under management amounting to Ch$1,097,656 million, a decrease of Ch$79,942 million when compared to December 31, 2014. Our local fixed income funds experienced significant withdrawals during 2015. After several months of decreases, local fixed income rates suffered dramatic increases, especially during April and the last quarter of 2015. These sudden rate increases triggered capital losses which led to outflows, mainly from more conservative investors.
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CorpBanca Corredores de Seguros S.A.
In accordance with our strategy of expanding the breadth of financial services that we offer, our subsidiary CorpBanca Corredores de Seguros S.A., or CCS, offers a full line of insurance products. Many of these products complement the various banking and loan services that we provide, such as unemployment and life insurance in connection with personal loans and insurance in connection with mortgage lending. Through CCS we also provide non credit-related insurance to existing clients and the general public. For the years ended December 31, 2013, 2014 and 2015, CCS had net income of Ch$7,866 million, Ch$9,012 million and Ch$8,759 million, respectively. CCS had total assets of Ch$16,318 million, Ch$18,006 million and Ch$20,234 million as of December 31, 2013, 2014 and 2015, respectively.
CorpBanca Asesorías Financieras S.A.
CorpBanca Asesorías Financieras S.A., or CAF, provides a broad range of financial advisory services to a variety of corporations and government agencies, including those services related to debt restructurings, syndicated loans, structured loans, structured investment funds, bilateral grants, mergers and acquisitions, privatizations and company valuations. For the years ended December 31, 2013, 2014 and 2015, CAF had net income of Ch$9,046 million, Ch$17,311 million and Ch$16,513 million, respectively. CAF had total assets of Ch$12,590 million, Ch$25,166 million and Ch$22,709 million as of December 31, 2013, 2014 and 2015, respectively.
Corp Legal S.A.
Corp Legal S.A. was created in 2007 and is regulated by the SBIF. It provides standard legal services to CorpBanca, its subsidiaries and its clients.
SMU Corp S.A.
In 2009, we created SMU Corp, which is a subsidiary of CorpBanca and a joint venture with SMU. SMU is a retail business holding company owned by our largest shareholder, who indirectly owns retail (including Unimarc supermarkets) and wholesale supermarkets, convenience stores and construction oriented home improvement stores.
SMU Corp is a company whose sole and exclusive purpose is the issuance, operation and management of “Unimarc” credit cards to customers of supermarkets associated with SMU. During the year ended December 31, 2015, our customers purchased more than US$18 million in products and services in over 297 Unimarc supermarkets with the Unimarc card. These sales volumes represented about 0.7% of the sales of Unimarc for the year ended December 31, 2015. Unimarc credit cards were used for more than 537,000 transactions during the year ended December 31, 2015, including over 27,000 instances of cash advances.
CorpBanca Investment Trust Colombia S.A.
We acquired a 91.9% equity interest in CorpBanca Investment Trust Colombia S.A., or CIT Colombia, in 2012 as part of the acquisition of CorpBanca Colombia. CIT Colombia is a financial services company operating in Colombia that specializes in fund administration and trust and custodial services.
During 2015, CIT Colombia completed the implementation of a new custody software and became the first custodian to be certified with the Colombia Stock Exchange for the automation of processeses for the development of the custodian activities. Consequently, in July, CIT Colombia initiated local custody for a value of assets under custody of COP1.6 trillion. CIT Colombia also entered in new contracts with entities in Panama, Mexico, Brazil and Luxembourg for global custody arrangements.
CorpBanca Securities INC-NY
CorpBanca Securities INC., or CSINC, is a broker-dealer in the United States regulated by the SEC and the Financial Industry Regulatory Authority, or FINRA, a self-regulatory organization that all U.S. based broker-dealers are required to join.
Broker-dealers’ transactions can take place on national stock exchanges as well as off exchanges, with the requirement that all transactions performed by a U.S. based broker dealer are subject to regulatory oversight by the SEC and FINRA.
As of December 2015, CSINC has been approved by the SEC and FINRA, and is awaiting approval by the Federal Reserve (FED) to begin operations.
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Helm Corredor de Seguros, S.A.
Helm Corredor de Seguros S.A. is a Colombian corporation (sociedad anónima), which acts as an insurance broker. It has its main domicile in the city of Bogota, D.C., Colombia, and is regulated by the Colombian Superintendency of Finance.
Helm Comisionista de Bolsa S.A.(previously known as CorpBanca Investment Valores Colombia S.A.)
Helm Comisionista de Bolsa S.A. is a licensed securities broker dealer operating in Colombia that is the result of the consolidation of two previously separate subsidiaries of CorpBanca Colombia, CorpBanca Investment Valores Colombia S.A. and Helm Comisionista de Bolsa S.A.
Helm Comisionista de Bolsa S.A. offers and maintains the complete portfolio of products and services previously offered separately by each of Helm Comisionista de Bolsa S.A. and CorpBanca Investment Valores Colombia S.A. Additionally, Helm Comisionista de Bolsa S.A. continue to serve the clients that were historically served separately by each of Helm Comisionista de Bolsa S.A. and CorpBanca Investment Valores Colombia S.A.
Helm Fiduciaria S.A.
Helm Fiduciaria S.A., is a Colombian corporation (sociedad anónima), which is engaged in trust portfolio management, including investment trust management, administration, security and real estate trusts. It has its main domicile in the city of Bogota, D.C., Colombia and is regulated by the Colombian Superintendency of Finance.
Helm Bank S.A. (Panamá)
Helm Bank S.A. (Panamá) is a Panamanian corporation (sociedad anónima), which acts as a banking firm. It has its main domicile in the city of Panamá, Panamá and is regulated by the Panamanian Banking Superintendency.
Helm Casa de Valores S.A. (Panamá)
Helm Casa de Valores S.A. (Panamá) is a Panamanian corporation (sociedad anónima), which acts as a brokerage firm. It has its main domicile in the city of Panamá, Panamá and is regulated by the Panamanian Superintendency of Securities Market.
Recaudaciones y Cobranzas S.A.
On February 25, 2015, CorpBanca directly and indirectly acquired all of the issued and outstanding shares of Recaudaciones y Cobranzas S.A, or Instacob, a debt collection company providing court and out-of-court collections services for loans. As a result of this transaction, Instacob became a wholly owned subsidiary of ours.
SEASONALITY
Our business is not materially affected by seasonality.
RAW MATERIALS
On a consolidated basis, CorpBanca is not dependent on sources or availability of raw materials.
DISTRIBUTION CHANNELS, ELECTRONIC BANKING AND TECHNOLOGY
CorpBanca
Our distribution network in Chile provides integrated financial services and products to our customers through several diverse channels, including ATMs, branches, internet banking and telephone banking. As of December 31, 2015, we operated 127 branch offices in Chile and New York, which includes 71 branches operating as CorpBanca, 56 branches operating as Banco Condell, our consumer finance division and our New York Branch. In addition, as of December 31, 2015, we owned and operated 417 ATMs in Chile, and our customers have access to 7,976 ATMs (including Banco del Estado de Chile’s ATMs) in Chile through our agreement
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with Redbanc. We utilize a number of different sales channels including account executives, telemarketing and the internet to attract new clients. Our branch system serves as the main distribution network for our full range of products and services.
We offer internet banking to our customers 24 hours a day through our password-protected internet site, www.CorpBanca.cl. Our internet site offers a broad range of services, including up-to-date information on balances in deposit, checking, loan, credit card and other accounts and transactional capabilities such as transfers and payments. As of December 31, 2015, we had 166,224 customers with activated internet passwords in Chile, allowing them to access our internet banking services. We are a member of the Sociedad Interbancaria de Transferencias Electrónicas S.A., an organization that facilitates electronic banking transactions on behalf of our customers as well as other Chilean banks. We also provide our customers with access to a 24-hour phone-banking call center that grants them access to account information and allows them to effect certain payments by telephone.
We have developed a specialized internet-based service designed to facilitate and optimize the financial management of our commercial customers. This service, which we market under the name “Cash Management”, includes services such as payroll support and payments to suppliers.
We have entered into several service and lease agreements with IBM de Chile S.A.C., which provides us with the computer hardware and network build-out that we use in our headquarters and branch offices. We have also entered into a software consulting and development agreement with Datapro, Inc., which provides consulting and development for the IBS.
CorpBanca Colombia
CorpBanca Colombia’s distribution channel provides integrated financial services and products to its customers in Colombia through several diverse channels, including ATMs, branches, internet banking and telephone banking.
As of December 31, 2015, CorpBanca Colombia operated 177 branch offices in Colombia and one branch in Panama and owned and operated 180 ATMs in Colombia, and also provided its customers with access to 14,133 additional ATMs through Colombia’s other financial institutions. CorpBanca Colombia utilizes a number of different sales channels including account executives, telemarketing and the internet to attract new clients. CorpBanca Colombia’s branch system serves as the main distribution network for its full range of products and services.
CorpBanca Colombia offers internet banking to its customers 24 hours a day through its password-protected internet site, www.bancoCorpBanca.com.co CorpBanca Colombia’s internet site offers a broad range of services, including up-to-date information on balances in deposit, checking, loan, credit card and other accounts and transactional capabilities such as transfers and payments. As of December 31, 2015, CorpBanca Colombia had 104,460 customers with activated internet passwords who used the electronic banking service at least once during the month, allowing them to access CorpBanca Colombia’s internet banking services. CorpBanca Colombia is a member of ACH Colombia S.A. and Cenit S.A., an organization that facilitates electronic banking transactions on behalf of its customers as well as other Colombian banks. CorpBanca Colombia also provides its customers with access to a 24-hour phone-banking call center that grants them access to account information and allows them to effect certain payments by telephone.
CorpBanca Colombia has developed a specialized internet-based product designed to facilitate and optimize the financial management of its commercial customers. This product, which CorpBanca Colombia markets under the name “AzulNet”, includes services such as payroll support and payments to suppliers. Additionally, CorpBanca Colombia has decided to implement the IBS platform (which has been implemented and is used by CorpBanca both in Chile and in New York) and is currently in the implementation phase of the project.
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PATENTS, LICENSES AND CONTRACTS
CorpBanca is not dependent on patents or licenses, nor is it substantially dependent on any industrial, commercial or financial contracts (including contracts with customers or suppliers).
COMPETITION
Competition in Chile
Description of the Chilean Financial System. The Chilean financial services market consists of a variety of largely distinct sectors. The most significant sector, commercial banking, includes 24 privately-owned banks and one state-owned bank, Banco del Estado de Chile (which operates within the same legal and regulatory framework as the private sector banks). The private sector banks include those that are Chilean-owned, i.e., controlled by a Chilean entity, as well as a number of foreign-owned banks which are operated in Chile but controlled by a foreign entity. In 2015, 5 private sector banks along with the state-owned bank together accounted for 78.3% of all outstanding loans by Chilean financial institutions as of December 31, 2015: Banco Santander-Chile (18.9%), Banco de Chile (18.3%), Banco de Crédito e Inversiones, or BCI (12.9%), CorpBanca (7.2%), Banco Bilbao Vizcaya Argentaria, Chile (6.7%) and Banco del Estado de Chile (14.3%). All market share statistics in this paragraph are presented as reported to the SBIF calculated under local regulatory and accounting principles on an unconsolidated basis.
Financial System Evolution in Chile. The Chilean banking system has experienced a consolidation process in the past decades with mergers and acquisitions of banking entities in line with global trends. Currently, the largest Chilean bank in terms of loans outstanding is Banco Santander-Chile.
Following rapid consolidation among Chilean banks commencing in the late 1990s through today, the market has become characterized by fewer larger players. Our principal competitors in Chile are BCI, Banco de Chile and Banco Santander-Chile. As compared to other Chilean banks, we believe our position in the Chilean banking industry has enabled us to compete with international banks seeking to provide loans to companies operating in Chile, especially since we are able to offer alternative sources of financing. We also believe that the close relationships we have developed with our SME customers over the years provide us with a competitive advantage.
Commercial banks, such as us, face increasing competition from other financial intermediaries who can provide larger companies with access to the capital markets as an alternative to bank loans. To the extent permitted by the Chilean General Banking Act, we seek to maintain a competitive position in this respect through the investment banking activities of our subsidiary CAF.
We face competition in our mortgage and consumer loans businesses from insurance companies, which have been permitted to grant mortgage loans. We believe that, in addition to the other banks that operate in Chile, our main competitors in the credit card business are department stores and other non-banking businesses involved in the issuance of private-label credit cards. We intend to remain competitive in the mortgage loan services and credit card markets through product innovation.
We also experience competition from banks that provide international private banking services such as JPMorgan Chase, Deutsche Bank and BNP Paribas, among others. We believe our main competitive advantage in our Private Banking segment has been our ability to provide our customers with tailored lending products and responses to their needs as soon as possible. Our lower income retail banking segment, Banco Condell, competes with consumer divisions of other banks such as Banefe, CrediChile, among others, as well as certain consumer credit providers, including department stores. We believe the main competitive advantage of our Banco Condell brand is our ability to provide responses as soon as possible, know our customers’ needs and provide a fair price structure.
Competition in Colombia
Description of the Colombian Financial System. In recent years, the Colombian banking system has been undergoing a period of consolidation given the series of mergers and acquisitions that have taken place within the sector, including the CorpBanca Colombia Acquisition and the Helm Bank Acquisition. Several mergers and acquisitions have taken place since 2008, including: (a) the acquisition of the Colombian arm of ABN Amro Bank by the Royal Bank of Scotland; (b) the acquisition of a majority stake in Banco Colpatria by Scotiabank; (c) the acquisition of BAC-Credomatic, which has operations in several countries in Central America, by Banco de Bogotá; (d) the merger of Helm Bank S.A. with and into Banco CorpBanca Colombia S.A.; and (e) the merger of Banco GNB Colombia S.A. (previously known as Banco HSBC Colombia S.A.) with and into Banco GNB Sudameris S.A. During 2015 three new banks commenced operations in Colombia: Banco Mundo Mujer S.A. (previously operating as a microloan originator); Banco Multibank and Banco Compartir S.A., which converted its licenses from financing companies to banks.
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Additionally, pursuant to the Transaction Agreement with Itaú Unibanco, Itaú-CorpBanca will acquire the operations of Itaú Unibanco in Colombia by acquiring the shares of Itaú Colombia at an aggregate price equivalent to their book value of approximately US$100 million in a transaction expected to close by the end of 2016.
As of December 31, 2015, and according to the Colombian Superintendency of Finance, the principal participants in the Colombian financial system were the Central Bank of Colombia, 25 commercial banks (14 domestic private banks, 10 foreign banks, and one domestic state-owned bank), five finance corporations and 16 financing companies (four leasing companies and 12 traditional financing companies). In addition, trust companies, cooperatives, insurance companies, insurance brokerage firms, bonded warehouse, special state-owned institutions, pension and severance pay funds also participate in the Colombian financial system.
The Financial Reform Act of 2009 (Law 1328 passed July 15, 2009) authorized banks to provide merger and acquisition loans and allowed them to conduct financial leasing operations. As a result, some competitors have absorbed their financial leasing subsidiaries into their banking franchises and some leasing companies are in the process of becoming banks.
Financial System Evolution in Colombia during 2014 and 2015. 2015 was a challenging year for the Colombian financial services sector. The global decline in oil prices, depreciation of the Colombian peso and increased inflation rate of 6.77% which surpassed the Central Bank’s target range of 2%-4% created headwinds that hindered growth in the country. Additionally, pursuant to Law 1314 of 2009, as of January 2015 the financial sector implemented IFRS, however under local regulation those standards for non-consolidated financial statements do not fully comply with those issued by IASB especially on the loan loss provisions chapter. Bank lending increased 15.3% and deposits grew 11.6% as of December 2015, compared to December 2014. In terms of Monetary Policy in Colombia, the year began with a reference interest rate of 4.5% that increased to 5.75% in the last four months with the objective of aligning inflation expectations.
The demand for business loans granted by banks increased by 11.8% for 2015, compared to a 16.7% increase in 2014. Consumer loans granted by banks grew by 11.6% in 2015, compared to a 13.1% increase observed in 2014 and 11.7% registered in 2013. There was an increase on the dynamics of mortgage and small business loans, with increases of 46.6% and 20.8%, respectively, for 2015 relative to 2014. With the implementation of IFRS, Colombian banks reclassified home leasing operations as mortgages as of January 2015 from their prior classification as business loans for 2014 and prior years. Nevertheless, the implementation of IFRS had additional effects on the loan portfolio growth, loans to employees and operational leasing operations were included in the loan portfolio line as of January 2015.
The Colombian banking system’s level of past-due loans as a percentage of the system’s total loan portfolio increased to 3.0% for December 2015, after the 2.9% registered on December 2014. In addition, coverage, measured as the ratio of allowances to past-due loans, ended 2015 at 145.8%, compared to 150.5% at the end of 2014.
During 2015, lending gained some weight in the Colombian banks system’s structure. Net loans increased from 65.7% of total assets at the end of 2014 to 66.7% at the end of 2015, and investment portfolio and derivatives, as a percentage of total assets, increased from 19.1% at the end of 2014 to 19.4% at the end of 2015.
As of December 31, 2015, the Colombian financial sector recorded COP$547,286,169 million in total assets, representing a 13.8% increase as of December 31, 2014. The Colombian financial system’s total composition of assets shows banks with a market share of 91.8%, followed by financing companies with 5.2%, financial corporations with 2.5% and financial cooperatives with 0.5%.
As of December 31, 2015, the capital adequacy ratio (tier 1 + tier 2) for credit institutions was 15.15% (including banks, finance corporations and financing companies), decreasing by 45 bps when compared to December 31, 2014, and which is well above the minimum legal requirement of 9%.
Loans
As of December 31, 2014 and 2015, our gross consolidated loan portfolio was Ch$14,211,349 million and Ch$14,810,136 million, respectively, as reported to the SBIF calculated under local regulatory and accounting principles. This placed us as the fourth
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largest financial institution among private Chilean banks and fifth place among all banks operating in Chile. Our gross consolidated loan portfolio represented 10.4% of the market for loans in the Chilean financial system (comprising all commercial banks) as of December 31, 2015. During the period from 2012 to 2015, the compounded annual growth rate of our loan portfolio, excluding interbank loans in nominal terms, was 13.4% as compared to an increase of 12.1% in the average market loan portfolio.
The following table sets forth the aggregate outstanding loans for us and the five other private sector banks with the largest market shares in Chile as of December 31 2013, 2014 and 2015, based on information as reported to the SBIF calculated under local regulatory and accounting principles:
Bank Loans(1) | ||||||||||||
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
Banco Santander-Chile | 20,935,312 | 22,880,706 | 25,289,880 | |||||||||
Banco de Chile | 20,869,511 | 21,876,648 | 24,558,041 | |||||||||
Banco de Crédito e Inversiones (BCI) | 14,423,318 | 15,773,528 | 20,134,981 | |||||||||
CORPBANCA(2) | 13,085,663 | 14,211,349 | 14,810,136 | |||||||||
Banco Bilbao Vizcaya Argentaria, BBVA | 7,537,202 | 8,338,898 | 9,002,343 | |||||||||
Scotiabank Chile | 5,419,672 | 6,285,129 | 8,227,571 | |||||||||
Others | 31,925,978 | 36,501,973 | 39,947,092 | |||||||||
|
|
|
|
|
| |||||||
Total | 114,196,656 | 125,868,231 | 141,970,044 | |||||||||
|
|
|
|
|
|
Source: SBIF monthly consolidated financial information
(1) | Excludes interbank loans. |
(2) | The amounts under IFRS for years, 2013, 2014 and 2015, are MCh$ 12,897,681, MCh$ 14,029,875 and MCh$ 14,628,296 respectively. |
Deposits
We had consolidated deposits of Ch$12,927,222 million as of December 31, 2015, as reported under local regulatory and accounting principles, which consisted of our current accounts, bankers’ drafts, savings accounts, time deposits and other commitments. Our market share of 10.8% for deposits and other obligations as of such date ranks us in fourth place among private sector banks in Chile.
The following table sets forth the aggregate deposits for us and the five other private sector banks with the largest market share as of December 31, 2013, 2014 and 2015, based on information as reported to the SBIF calculated under local regulatory and accounting principles:
Bank Deposits and Other Obligations (1) | ||||||||||||
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
Banco Santander-Chile | 15,296,035 | 16,894,437 | 19,538,888 | |||||||||
Banco de Chile | 16,387,057 | 16,655,619 | 18,234,740 | |||||||||
Banco de Crédito e Inversiones (BCI) | 11,628,315 | 12,821,049 | 17,349,184 | |||||||||
CORPBANCA(1) | 10,789,086 | 12,031,914 | 12,927,222 | |||||||||
Banco Bilbao Vizcaya Argentaria Chile (BBVA) | 5,912,767 | 6,316,699 | 6,689,730 | |||||||||
Scotiabank Chile | 3,392,308 | 3,804,363 | 5,204,251 | |||||||||
Others | 33,746,086 | 36,959,088 | 39,623,430 | |||||||||
|
|
|
|
|
| |||||||
Total | 97,151,654 | 105,483,169 | 119,567,445 | |||||||||
|
|
|
|
|
|
Source: SBIF monthly consolidated financial information
(1) | Our aggregate deposits as calculated under IFRS for the years ended December 31, 2013, 2014 and 2015 were Ch$10,789,086 million, Ch$12,031,914 million and Ch$12,927,222 million, respectively. |
Shareholders’ Equity
We were the fourth largest among private sector banks in Chile with Ch$1,082,837 million in shareholders’ equity (excluding net income and accrual for mandatory dividends) as of December 31, 2015, as reported to the SBIF calculated under local regulatory and accounting principles.
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The following table sets forth the level of shareholders’ equity for us and the five largest private sector banks in Chile (measured by shareholders’ equity) as of December 31, 2013, 2014 and 2015, based on information as reported to the SBIF calculated under local regulatory and accounting principles:
Shareholders’ Equity(1)(2) | ||||||||||||
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
Banco Santander-Chile | 2,016,330 | 2,224,664 | 2,420,484 | |||||||||
Banco de Chile | 2,095,294 | 2,268,662 | 2,505,558 | |||||||||
Banco de Crédito e Inversiones (BCI) | 1,371,893 | 1,560,882 | 1,771,113 | |||||||||
CORPBANCA(3) | 1,333,795 | 1,330,297 | 1,082,837 | |||||||||
Banco Bilbao Vizcaya Argentaria Chile (BBVA) | 631,042 | 663,829 | 722,896 | |||||||||
Scotiabank Chile | 606,391 | 652,403 | 703,600 | |||||||||
Others | 3,459,970 | 3,993,427 | 4,590,585 | |||||||||
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|
|
|
|
| |||||||
Total | 11,514,715 | 12,694,164 | 13,797,073 | |||||||||
|
|
|
|
|
|
Source: SBIF monthly consolidated financial information
1) | Shareholders equity = Equity attributable to shareholders excluding net income and provision for mandatory dividend. |
2) | For comparison purposes with other banks, the information is presented under standards issued by the SBIF. |
3) | The amounts under IFRS, excluding net income, non-controlling interest, and accrued for mandatory dividends, for the years ended December 31, 2013, 2014 and 2015 were, Ch$ 1,341,324 million, Ch$ 1,344,858 million and Ch$ 1,105,117 respectively. |
CHILEAN BANKING REGULATION AND SUPERVISION
General
In Chile, only banks may maintain checking accounts for their customers and accept time deposits. The principal financial institutions regulators in Chile are the SBIF and the Central Bank of Chile. Chilean banks are primarily subject to the Chilean General Banking Act and secondarily, to the extent not inconsistent with such statute, the provisions of theLey 18.046 sobre Sociedades Anónimasor the Chilean Corporations Act governing public corporations, except for certain provisions which are expressly excluded.
The modern Chilean banking system dates from 1925 and has been characterized by periods of substantial regulation and state intervention, as well as periods of deregulation. The most recent period of deregulation commenced in 1975 and culminated in the adoption of a series of amendments to the Chilean General Banking Act. The Chilean General Banking Act sets forth the regulatory framework to which banks are subject outlining the activities that a bank may and may not carry out in Chile and their attributions -in addition to traditional banking activities- including general underwriting powers for new issuances of certain debt and equity securities and the power to create subsidiaries to engage in activities related to banking, such as brokerage, investment advisory, mutual fund services, administration of investment funds, factoring, securitization products and financial leasing services.
Following the Chilean banking crisis of 1982 and 1983, the SBIF assumed control of 21 financial institutions representing approximately 51% of the total loans in the banking system. As part of the solution to this crisis, the Central Bank of Chile acquired from financial institutions a certain portion of their distressed loan portfolios, at the book value of such loan portfolios. Each institution then repurchased such loans at their economic value (which, in most cases, was much lower than the book value at which the Central Bank of Chile had acquired the loans) and the difference was to be repaid to the Central Bank of Chile out of future income. Pursuant to Law No. 18,818, which was passed in 1989, this difference was converted into a subordinated obligation with no fixed term, known asdeuda subordinada or subordinated debt, which in the event of liquidation of the institution, would be paid after the institution’s other debts had been paid in full.
Central Bank of Chile
The Central Bank of Chile is an autonomous legal entity created by the Chilean Constitution. It is subject to the Chilean Constitution and its ownley orgánica constitucional, or Constitutional Act. To the extent not inconsistent with the Chilean Constitution or the Central Bank of Chile’s Constitutional Act, the Central Bank of Chile is also subject to private sector laws (but in no event is it subject to the laws applicable to the public sector). It is directed and administered by a council composed of five members designated by the President of Chile, subject to the approval of the Senate.
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The legal purpose of the Central Bank of Chile is to maintain the stability of the Chilean peso and the orderly functioning of Chile’s internal and external payment system. The Central Bank of Chile’s powers include setting reserve requirements, regulating the amount of money and credit in circulation, establishing regulations and guidelines regarding finance companies, foreign exchange (including the Formal Exchange Market) and banks’ deposit-taking activities.
SBIF
Banks in Chile are supervised by the SBIF, an independent Chilean governmental agency. The main responsibilities of the SBIF are to authorize the incorporation of new banks and to interpret and enforce, with broad powers, legal and regulatory requirements applicable to Chilean banks and other entities. Furthermore, in case of non-compliance with such legal and regulatory requirements, the SBIF may impose sanctions, including fines payable by the directors, managers and employees of a bank as well as the bank itself. In extreme cases it can appoint, by special resolution with the prior approval of the board of directors of the Central Bank of Chile, a provisional administrator to manage a bank. It must also approve any amendment to a bank’s by-laws or any increase in its capital.
The SBIF examines all banks from time to time, generally at least once a year. Banks are also required to submit monthly unaudited consolidated and unconsolidated financial statements to the SBIF and publish their quarterly and annual financial statements in a newspaper with countrywide coverage. In addition, banks are required to provide extensive information regarding their operations at various periodic intervals to the SBIF. Financial statements as of December 31 of any given year must be audited. A bank’s annual financial statements and the opinion of its independent auditors must also be submitted to the SBIF for review.
The SBIF must approve in advance any direct or indirect acquisition of more than 10% of the share capital of a bank. The absence of such approval will cause the acquiror to lose the voting rights of such shares. The SBIF may only refuse to grant its approval based on specific grounds set forth in the Chilean General Banking Act and its regulations.
Limitations on Types of Activities
Chilean banks can only conduct those activities allowed by the Chilean General Banking Act: making loans, accepting deposits, issuing bonds, engaging in certain international operations, performing specially entrusted activities (comisiones de confianza) and, subject to limitations, making investments and performing financial services related to banking. Investments are restricted to real estate and physical asset for the bank’s own use, gold, foreign exchange and debt securities. In addition, local banks are allowed to engage in certain derivatives such as options, swaps and forward contracts over certain underlying assets. Through subsidiaries, banks may also engage in other specific financial service activities such as securities brokerage services, mutual fund management, investment fund management, factoring, securitization, financial advisory and leasing activities. Subject to specific limitations and the prior approval of the SBIF and the Central Bank of Chile, Chilean banks may own majority or minority interests in foreign banks.
Deposit Insurance
In Chile, the government guarantees up to 90% of the aggregate amount of certain time deposits held by individuals in the Chilean banking system. The government guarantee covers those obligations with a maximum value of UF120 per person (Ch$3.08 million or US$4,329.7 as of December 31, 2015) in each calendar year.
Reserve Requirements
Deposits are subject to a reserve requirement of 9% for all demand deposits and obligations that are payable on demand, and 3.6% for time deposits and deposits in savings accounts in any currency of any term, judicially ordained deposits, and any other deposit (captación) for a term of up to one year. For purposes of calculating this reserve requirement, banks are authorized to make certain daily deductions from their liabilities in Chilean pesos, the most relevant of which include:
• | cash clearance account, which should be deducted from demand deposits for calculating reserve requirements; |
• | certain payment orders issued by pension providers; and |
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• | the amount subject to “technical reserve” (as described below), which can be deducted from reserve requirements. |
In the case of liabilities in foreign currency, banks are authorized to deduct for this purpose the amounts mentioned in the first and third bullet above.
The Central Bank of Chile has statutory authority to require banks to maintain reserves of up to an average of 40% for demand deposits and up to 20% for time deposits (irrespective, in each case, of the currency in which they are denominated) to implement monetary policy. In addition, according to the Chilean General Banking Act and the regulations issued by the SBIF and the Central Bank of Chile, Chilean banks must maintain a technical reserve of 100% of all deposits and obligations a bank has acquired in its financial business that are payable on demand, except for obligations with other banks, whenever such deposits and obligations exceed 2.5 times their basic capital. This technical reserve must be calculated daily, and must be kept in deposits in the Central Bank of Chile or documents issued by the Central Bank of Chile or the Chilean Treasury with a maturity date of no more than 90 days.
Minimum Capital
Under the Chilean General Banking Act, a bank must have a minimum paid-in capital and reserves of UF800,000 (Ch$20,503.2 million or US$28.9 million as of December 31, 2015).
Capital Adequacy Requirements
The Chilean General Banking Act and the Regulations of the SBIF include a modified version of the capital adequacy guidelines issued by the Basel Committee. According to such modified guidelines, the capital and reserves of a bank, or basic capital, cannot be less than 3% of total assets net of allowances, and its “effective net equity” cannot be less than 8% of its risk-weighted assets net of required loan loss allowances.
Basic capital is defined as a bank’s paid-in capital and reserves and is similar to Tier 1 capital except that it does not include 30% of net income for the period (considered as a deduction for minimum mandatory dividends).
Regulatory capital or “effective net equity” is defined as the aggregate of:
• | a bank’s paid-in capital and reserves; |
• | its subordinated bonds, valued at their placement price (but decreasing by 20% for each year during the period commencing six years prior to maturity), for an amount up to 50% of its basic capital; |
• | goodwill or premiums, paid balances and investments in companies that are not part of the consolidation, which shall be deducted; |
• | its voluntary allowances for loan losses for an amount of up to 1.25% of risk-weighted assets; and |
• | other adjustments as instructed by the SBIF. |
In cases where a limit is required to be applied on an unconsolidated basis, capital attributable to subsidiaries and foreign branches shall be excluded.
The Chilean General Banking Act contains a five-category risk classification system to be applied to bank assets that is based on the Basel Committee recommendations.
Within the scope of Basel III in Chile, further changes in regulation may occur. See “Item 3. Key Information—D. Risk Factors— Risks relating to Chile and other countries in which we operate—Chile’s banking regulatory and capital markets environment is continually evolving and may change”.
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Lending Limits
Under the Chilean General Banking Act, Chilean banks are subject to certain lending limits, including the following:
• | a bank cannot extend to any entity or individual, directly or indirectly, unsecured credit in an amount that exceeds 10% of the bank’s effective net equity, or in an amount that exceeds 30% of its effective net equity if the excess over 10% is secured by certain assets with a value equal to or higher than such excess. In the case of foreign export trade financing, the ceiling for unsecured credits is also 10% and the ceiling for secured credits is also established at 30%. In the case of financing infrastructure projects built through the concession mechanism, the 10% ceiling for unsecured credits is 15% if secured by a pledge over the concession, or if granted by two or more banks or finance companies which have executed a credit agreement with the builder or holder of the concession, while the ceiling for secured credits remains at 30%; |
• | a bank cannot extend loans to another financial institution subject to the Chilean General Banking Act in an aggregate amount exceeding 30% of its effective net equity; |
• | a bank cannot directly or indirectly grant a loan whose purpose is to allow an individual or entity to acquire shares of the lender bank; |
• | a bank cannot lend, directly or indirectly, to a director or any other person who has the power to act on behalf of such bank; and |
• | a bank cannot grant loans to related parties (which relation can arise from management or for ownership reasons, including holders of more than 1% of its shares, except in the case of companies which are actively traded on the Santiago Stock Exchange, like CorpBanca, in which case the limit is 5%) on more favorable terms than those generally offered to non-related parties. In addition, the aggregate amount of loans to a single group of related parties cannot exceed 5% of the bank’s effective net equity or 25% if the excess thereof is secured by certain assets with a value equal to or greater than such excess, or by certain other collateral specified in the Chilean General Banking Act. The definitions of “related” and “group” for these purposes are determined by the SBIF. The aggregate amount of all credits granted to related parties of the bank cannot exceed its effective net equity. |
To determine the lending limits with respect to a particular person, the obligations undertaken by partnerships in which the relevant person is an unlimited partner or by companies of any nature in which such person has more than 50% of their capital or more than 50% of their profits, will be accounted as obligations of such person. Likewise, if the participation of the relevant person in a company is higher than 2% but not higher than 50% of its capital or profits, then the obligations of such company will be accounted for as obligations of such person in proportion to its actual participation. Finally, when there is a plurality of debtors of the same obligation, then the obligation will be deemed joint and several with respect to each and all of the debtors, unless expressly undertaken in other terms.
Allowance for Loan Losses
Chilean banks are required to provide to the SBIF detailed information regarding their loan portfolio on a monthly basis. The SBIF examines and evaluates each financial institution’s credit management process, including its compliance with the loan classification guidelines. Banks must classify and evaluate their credits portfolio pursuant to the rules issued by the SBIF. However, a bank may request the authorization of the SBIF to use its own internal evaluation model for groups, to the extent they comply with certain requirements.
Classification of Banks and Loan Portfolios
Solvency and Management. Chilean banks are classified into categories I through V based upon their solvency and management ratings. The classification of each bank is confidential.
• | Category I: This category is reserved for financial institutions that have been rated level A in terms of solvency and management. |
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• | Category II: This category is reserved for financial institutions that have been rated (1) level A in terms of solvency and level B in terms of management, (2) level B in terms of solvency and level A in terms of management, or (3) level B in terms of solvency and level B in terms of management. |
• | Category III: This category is reserved for financial institutions that have been rated (1) level B in terms of solvency and level B in terms of management for two or more consecutive review periods, (2) level A in terms of solvency and level C in terms of management, or (3) level B in terms of solvency and level C in terms of management. |
• | Category IV: This category is reserved for financial institutions that are rated level A or B in terms of solvency and have been rated level C in terms of management for two or more consecutive review periods. |
• | Category V: This category is reserved for financial institutions that have been rated level C in terms of solvency, irrespective of their management rating level. |
A bank’s solvency rating is determined by its regulatory capital (after deducting accumulated losses during the financial year) to risk-weighted assets ratio. This ratio is equal to or greater than 10% for level A banks, equal to or greater than 8% and less than 10% for level B banks and less than 8% for level C banks.
With respect to a bank’s management rating, level A banks are those that are not rated as level B or C. Level B banks display some weakness in internal controls, information systems, response to risk, private risk rating or ability to manage contingency scenarios, which must be corrected within the period preceding the next evaluation, considering also the penalties imposed to the bank (except for those with a pending claim). Level C banks display significant deficiencies in internal controls, information systems, response to risk, private risk rating or ability to manage contingency scenarios.
Capital Markets
Under the Chilean General Banking Act, banks in Chile may purchase, sell, place, underwrite and act as paying agents with respect to certain debt securities. Likewise, banks in Chile may place and underwrite certain equity securities. Bank subsidiaries may also engage in debt placement and dealing, equity issuance advisory services and securities brokerage, as well as in financial leasing, mutual fund and investment fund administration, investment advisory services and merger and acquisition services. These subsidiaries are regulated by the SBIF and, in some cases, by the SVS, the regulator of the Chilean securities market and of open-stock (public) corporations.
In August 2010, the Chilean government passed Law No. 20,448, or MK3, which allowed non-Chilean banks with representative offices in Chile to promote their headquarters’ credit products and credit services directly in Chile. Before this reform, representative offices of non-Chilean banks were only able to act as intermediaries between their parent companies and local companies.
Subsidiaries and Affiliated Companies
Chilean banks are authorized to create subsidiaries to engage in (1) brokerage of securities, (2) management of mutual funds, investment funds, offshore funds, housing funds or all the foregoing, (3) insurance brokerage, (4) leasing operations, (5) factoring operations, (6) securitization, (7) financial advisory, (8) custody and transportation of funds, (9) provision of other financial services as authorized by the SBIF, (10) real estate leasing, and (11) social security advice. These subsidiaries are regulated by the SBIF except for the cases referred to in (1), (2), (3) and (6) above in which the SBIF may request information but the entities are regulated by the SVS or, with respect to social security, by the Superintendency of Pensions (Superintendencia de Pensiones) or SAFP. Currently, banks are not authorized to create or engage in the business of insurance companies (other than as insurance brokers) and pension funds or health insurance administrators.
Banks may also, with the prior authorization of the SBIF, create and participate in companies exclusively destined to the carrying out of activities in support of the main banking operations, such as credit card or debit card operators.
Legal Provisions Regarding Banking Institutions with Economic Difficulties
Liquidation of Chilean banks may not be ordered in bankruptcy procedures, except when undergoing voluntary liquidation. The Chilean General Banking Act sets forth that if a bank is under certain specific adverse circumstances, its board of directors must correct the situation within 30 days from the date in which the relevant financial statements are presented to the board. If the board of directors is unable to do so, it must summon a special shareholders’ meeting to increase the capital of the bank by the amount necessary to return the bank to financial stability. If the shareholders reject the capital increase, or if it is not effected and paid within the term and in the manner agreed to at the meeting, or if the SBIF does not approve the board of directors proposal, the bank
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will be barred from increasing its loan portfolio beyond that stated in the financial statements presented to the board of directors and from making any further investments in any instrument other than in instruments issued by the Central Bank of Chile. In such a case, or in the event that a bank is unable to make timely payment of its obligations or if a bank is under provisional administration by the SBIF, the Chilean General Banking Act provides that the bank may receive a two-year term loan from another bank which will be subordinated to other liabilities of the bank. The terms and conditions of such a loan must be approved by the directors of both banks, as well as by the SBIF, but need not be submitted to the borrowing bank’s shareholders for their approval. In any event, a creditor bank cannot grant interbank loans to an insolvent bank in an amount exceeding 25% of the creditor bank’s effective net equity. The board of directors of a bank that is unable to make timely payment of its obligations must present a reorganization plan to its creditors in order to capitalize its credits, agree on extensions, obtain forgiveness of debts or adopt any other valid measures for the payment of the debts. The terms of a reorganization plan must be the same for all the proposing bank’s creditors to whom such plan is applicable. From the date of submission of the reorganization plan until there is a decision from the creditors regarding such plan, the bank will only be required to pay demand deposits and liabilities. If the board of directors of a bank submits a reorganization plan to its creditors and such arrangement is approved, all subordinated debt issued by the bank, whether or not matured, will be converted by operation of law into common shares in the amount required for the ratio of effective net equity to risk-weighted assets not to be lower than 12%. If the reorganization plan is rejected by the creditors, the bank must submit a new proposal which must include the capitalization in an amount required so that the ratio of effective net equity to risk-weighted assets not to be lower than 12%. If this second proposal is rejected, the SBIF will declare the bank into mandatory liquidation, which process is regulated by the Banking Law and not by the general bankruptcy rules. If a bank fails to pay an obligation, it must notify the SBIF, which shall determine if the bank is solvent. Banks can be subject to a provisional administrator if there are reasons that affect its financial stability.
Dissolution and Liquidation of Banks
The SBIF may establish that a bank must be liquidated if the safety of its depositors or other creditors so demands it, or when such bank does not have the necessary solvency to continue its operations. In such case, the SBIF must revoke such bank’s banking license and mandate its liquidation, subject to approval by the Central Bank of Chile. The SBIF must also revoke a bank’s license when that bank’s reorganization plan has been rejected twice. The SBIF’s resolution must state the reason for ordering the liquidation and must appoint a liquidator, unless the Superintendent of Banks assumes this responsibility. Upon a liquidation order, all checking accounts deposits and obligations payable on demand from the ordinary course of business, are required to be paid by using the bank’s existing funds, its deposits with the Central Bank of Chile or its investments in instruments that represent its reserves.
If these funds are insufficient to pay these obligations, the liquidator may seize the rest of the bank’s assets, as needed. If necessary and in specified circumstances, the Central Bank of Chile will lend the bank the funds necessary to pay these obligations. Any such on demand obligations are preferential to any claims of other creditors of the liquidated bank.
Investments in Foreign Securities
Under current Chilean banking regulations, banks in Chile may grant loans to foreign individuals and entities and invest in certain foreign currency securities. Chilean banks may only invest in equity securities of foreign banks and certain other foreign companies which may be affiliates of the bank or which would support the bank’s business if such companies were incorporated in Chile. Banks in Chile may also invest in debt securities traded in formal secondary markets. Within certain limits, banks in Chile may invest in such debt securities, in the event such debt securities qualify as securities issued or guaranteed by (1) foreign sovereign states or their central banks or (2) other foreign or international financial institutions of which Chile is a member or bonds issued by foreign corporations. Such foreign currency securities must have a minimum rating as follows:
Rating Agency | Short Term | Long Term | ||
Moody’s | P-2 | Baa3 | ||
Standard and Poor’s | A-2 | BBB- | ||
Fitch Rating Service | F2 | BBB- | ||
Dominion Bond Rating Service (DBRS) | R-2 | BBB (low) |
A Chilean bank may invest in securities having a minimum rating as follows, provided that in case the total amount of these investments, together with the loans granted to certain classes of foreign debtors, exceeds 20% (or 30% for banks with a BIS ratio equal or exceeding 10%) of the effective net equity of the bank, a provision of 100% of the excess shall be established by the bank:
Rating Agency | Short Term | Long Term | ||
Moody’s | P-2 | Ba3 | ||
Standard and Poor’s | A-2 | BB- | ||
Fitch Rating Service | F2 | BB- |
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Rating Agency | Short Term | Long Term | ||
Dominion Bond Rating Service | R-2 | BB (low) |
If investments in these securities and certain loans referred to below exceed 70% of the effective net equity of the bank, a provision for 100% of the excess shall be established, unless the excess, up to 70% of the bank’s effective net equity, is invested in securities having a minimum rating as follows:
Rating Agency | Short Term | Long Term | ||
Moody’s | P-1 | Aa3 | ||
Standard and Poor’s | A-1+ | AA- | ||
Fitch Rating Service | F1+ | AA- | ||
Dominion Bond Rating Service | R-1 (high) | AA (low) |
Additionally, a Chilean bank may invest in foreign securities, with ratings equal to or exceeding those set forth in Table 3 above, in: (1) overnight and term deposits with foreign banks, subject to a limit of up to 30% of the effective net equity of the Chilean bank that makes the investment (or limit of 25% of its effective net equity regarding deposits with certain related parties); and (2) securities issued or guaranteed by sovereign states or their central banks or those securities issued or guaranteed by international institutions of which Chile is a part, subject to a limit of up to 50% of the effective net equity of the Chilean bank.
Subject to specific conditions, a bank may grant loans in dollars to subsidiaries or branches of Chilean companies located abroad, to companies listed on foreign stock exchanges authorized by the Central Bank of Chile and, in general, to individuals and entities domiciled abroad, as long as the Central Bank of Chile is kept informed of such activities. A bank may also grant loans in dollars to finance exports to or from Chile.
In the event that the sum of the investments of a bank in foreign currency and of the commercial and foreign trade loans granted to foreign individuals and entities exceeds 70% of the effective net equity of such bank, the excess is subject to a mandatory reserve of 100%.
Changes in the Governance of Our Regulators
A bill of law is under discussion for the adoption of measures to strengthen the governance of the SVS.
Among the announced amendments to the Chilean General Banking Act, not yet consummated in a bill of law, it has been proposed the adoption of measures to strengthen the governance of the SBIF. These proposed amendments would serve to implement Basel III principles and to introduce changes in the processes related to banks insolvency.
Financial Stability Council
Law No. 20,789 created the Financial Stability Council, composed by the Ministry of Finance (Ministerio de Hacienda) the Superintendent of Securities and Insurance, the Superintendent of Banks and the Superintendent of Pensions. The purpose of this council is to facilitate the technical coordination and the exchange of information by these market regulators in all matters related to the prevention and management of situations which may involve a risk for the financial system.
This law also expanded the authority of the SBIF to request information regarding controlling shareholders of banks and entities which are part of their corporate group.
Anti-Money Laundering, Anti-Terrorist Financing and Foreign Corrupt Practices Act Regulations
United States
We, as a foreign private issuer whose securities are registered under the U.S. Securities Exchange Act of 1934, are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA. The FCPA generally prohibits issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. The accounting provisions of the FCPA require an issuer to maintain books and records and have a system of internal accounting controls sufficient to, among other things, provide reasonable assurances that transactions are executed and assets are accessed and accounted for in accordance with management’s authorization. Significant penalties and fines may be imposed against us, and/or our officers, directors, employees, and agents, for violations of the FCPA. Furthermore, we may be subject to a
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variety of U.S. anti-money laundering and anti-terrorist financing laws and regulations, including, but not limited to, the Bank Secrecy Act of 1970, as amended, and the USA PATRIOT Act of 2001, as amended. A violation of such laws and regulations may result in substantial penalties, fines and imprisonment of our officers and/or directors.
Chile
The Anti-Money Laundering Act, or the AML Act requires banks, among others, to report any “suspicious transactions or activities” that they may become aware of in the ordinary course of business to the Chilean Financial Analysis Unit (Unidad de Análisis Financiero), or FAU. “Suspicious activities or transactions” are defined by the AML Act as any act, operation or transaction that, in accordance with the uses and customs of the relevant activity, is considered unusual or devoid of apparent economic or legal justification or that may constitute any of the actions described in article 8 of Law No, 18,314 (terrorist actions), or entered into by an individual or a legal entity included in any resolution issued by the United Nations Security Council, whether carried out in an isolated or recurrent basis.
In accordance with the AML Act, banks must keep special records for any transaction in cash for amounts exceeding US$10,000, and report them to the FAU if so required by the latter authority.
In addition, the entities subject to the AML Act are also subject to Circular No. 49 and other regulations issued by the FAU, which provides additional guidelines for the prevention of money laundering.
With regard to Chilean banks the SBIF has also provided rules and guidelines for banks to set up an AML and Combating Financing of Terrorism, or CFT, prevention system applicable in their ordinary course of business, which must take into consideration the volume and complexity of their transactions, including their affiliates and supporting entities, and their international presence. In case of non-compliance of these rules and guidelines, the SBIF may impose administrative sanctions upon the infringing bank such as fines and warnings. Among other requirements, such system shall include at least (1) “know your customer” policies, (2) a manual of policies and procedures, (3) the appointment of a compliance officer, and (4) all necessary technological tools to develop red-flag systems to identify and detect unusual operations. For more information on our Anti-Money Laundering Committee, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Other Committees—Anti-money laundering and anti-terrorism finance prevention committee”.
Colombia
The regulatory framework to prevent and control money laundering is contained in, among others, Decree 663 of 1993 and External Circular No. 029 of 2014 (Basic Legal Circular), Title IV, Chapter XI, “Instructions Related to Risk Management of Laundering and Terrorist Financing”, issued by the Colombian Superintendency of Finance, as well as Law 599 of 2000 (Colombian Criminal Code, as amended).
Colombian laws adopt the latest guidelines related to anti-money laundering and other terrorist activities established by the Financial Action Task Force on Money Laundering, or FATF. Colombia, as a member of the GAFI-SUD (Grupo de Acción Financiera de Sudamérica) (a FATF style regional body), follows all of FATF’s 40 recommendations. Finally, the Colombian criminal code introduced criminal rules and regulations to prevent, control, detect, eliminate and adjudicate all matters related to financing terrorism and money laundering. The criminal rules and regulations cover the omission of reports on cash transactions, mobilization or storage of cash, and the lack of controls.
Anti-money laundering provisions have been complemented with provisions aimed at deterring terrorism financing. For that purpose, by means of External Circular 26 of 2008, the Colombian Superintendency of Finance has issued regulations requiring the implementation by financial institutions of a risk management system for money laundering and terrorism financing. These regulations emphasize “know your customer” policies and knowledge of customers and markets. They also establish processes and parameters to identify and monitor a financial institution’s customers. According to these regulations, financial institutions must cooperate with the appropriate authorities to prevent and control money laundering and terrorism.
Finally, the Colombian Criminal Code includes rules and regulations to prevent, control, detect, eliminate and adjudicate all matters related to financing terrorism and money laundering. The criminal rules and regulations cover the omission of reports on cash transactions, and the lack of controls.
Recent Regulatory Developments in Chile
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Capital Adequacy Requirements
The SBIF and the government have announced their intention of sending a bill of law to amend the General Banking Act in three aspects: (i) adoption of Basel III, although with adjustments to local reality, (ii) strengthen the governance of the SBIF, and (iii) perfection of banking resolution mechanisms. The bill of law is announced to be submitted to Congress during 2016, but we currently ignore how the new capital adequacy requirements will be proposed to the Congress, as the Regulator has only given non-binding information to the market. Nevertheless, we anticipate that the impact of the new rules would be material.
New Insurance Brokerage Regulation
On December 1, 2013, a new regulation affecting all insurance brokerage businesses in Chile became effective. This regulation is a result of Law No. 20,667 that was enacted on May 9, 2013 and Circular No. 2,114 issued by the SVS on July 26, 2013. The new regulation establishes that, in the case of early termination of an insurance policy paid for in advance (for example, because of the early repayment of the related loan), all unearned premiums must be refunded to the customer by the company that issued the policy. This refund obligation includes both the unearned premiums and commissions relating to the remaining policy period, such as brokerage fees and any other commissions. We do not expect these new refund obligations to have a material effect on the results of our operations. The premiums and commissions subject to refund will be calculated in proportion to the unelapsed period. This refund obligation applies with respect to insurance policies issued after this new regulation became effective. Prior to this new regulation, unearned premiums were refunded only if the early termination took place within the later of forty-five days after the issuance of the insurance policy, or one-tenth of the total term of the insurance policy (from the date of issuance).
In addition, Circular No. 2,131 issued by the SVS on November 28, 2013, added additional requirements regarding customer service for insurance customers. We do not expect these new regulations to have a material effect on our results of operations.
Finally, Circular No. 2,137, issued by the SVS on January 13, 2014, required the adoption of IFRS by insurance brokerage companies beginning in 2015. We expect this requirement to initially affect the revenues of our subsidiary CorpBanca Corredora de Seguros, in its capacity as an insurance broker.
Modification to the AML Act
On January 9, 2015 Law N° 20,818 was enacted, amending certain provisions of the AML Act by: (i) increasing the authority of the FAU; (ii) increasing the scope of entities that are subject to the AML Act; (iii) amending the definition of “suspicious activities or transactions”; (iv) reducing the minimum amounts of the cash transactions to be registered and potentially reported to the FAU; (v) amending the sanctions applicable to any breach to the AML Act; (vi) adding new base crimes for the crime of money laundering; (vii) requiring entities subject to the AML Act to report to the FAU any transaction entered into by any individual or entity contained in any resolution issued by the United Nations Security Council; and (viii) establishing the obligation of the entities subject the AML Act to register with the FAU, among other things.
Funds Law (Ley Única de Fondos)
Law No. 20,712 on funds was published in the Chilean Official Gazette on January 7, 2014, or the Funds Law. The Funds Law is a single legal set of regulations enacted to provide for general and special regimes applicable to all Chilean funds, setting basic provisions governing their structure, management, dividend distribution, redemption of quotas and taxation, among other things. This law is expected to have a positive effect on the operations of our subsidiary CorpBanca Administradora General de Fondos S.A., in its capacity as fund manager.
Maximum Interest Rate
A new Chilean law regarding maximum interest rates was enacted on December 13, 2013 upon publication of Law 20,715 in the Chilean Official Gazette. This legislation affects all Chilean businesses that charge interest (including all banks) on loans up to UF 200 (approximately U.S$7,216), including installment loans, credit cards, credit line loans and overdue loans. This regulation requires, among other things, a new method for calculating the maximum legal interest rate for loans not indexed to inflation with
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terms longer than 90 days, which results in a reduction of the maximum legal interest rate applicable to such debtors. We do not expect the enactment of this law to have a material effect on our results of operations.
Insolvency Law
Chilean banks are subject to special insolvency proceedings. Nevertheless, a bank can be subject to the general insolvency law in case it becomes insolvent during a voluntary liquidation of its assets. In that regard, the Chilean Congress approved a new Insolvency Act on October 29, 2013, which was published in the Official Gazette on January 9, 2014 and came into effect on October 9, 2014. The new Insolvency Act eliminates the distinction between merchants and other debtors, eliminates the classification of bankruptcies as negligent or fraudulent and modifies the Chilean Criminal Code in order to recognize certain criminal offences related to the conduct of the business of the debtor prior to the declaration of its bankruptcy, and set forth different rules for the insolvency of an enterprise (empresa) and of a non-enterprise person (persona deudora) among other changes.
Under the new Insolvency Act, there are two types of proceedings for an enterprise : (i) liquidation proceedings which are very similar to existing bankruptcy proceedings, although they will be headed by a liquidator rather than a trustee (síndico) and (ii) reorganization proceedings. Upon completion of a liquidation procedure, the debtor recovers the free administration and disposition of its assets and any outstanding debts against the debtor incurred prior to the commencement of the liquidation procedure will be deemed discharged as a matter of law. As a result, a creditor who fails to participate during the liquidation process will forfeit its past claims against the debtor. The reorganization proceedings, are more oriented to the continuation of the debtor’s business and, therefore, allow the debtor to seek protection from the courts, or “Insolvency Protection” (protección financiera concursal), for a term of 30 days, as from the date the reorganization proceeding is declared commenced by the competent court during which, among other effects, it cannot be put into liquidation, its assets cannot be foreclosed, the agreements entered into by it cannot be unilaterally terminated by the other party, the maturity of the indebtedness of the debtor cannot be accelerated or the securities granted by the debtor cannot be enforced by the creditor based on the commencement of the reorganization proceeding of the debtor’s insolvency. In the event that a creditor breaches this provision, its credit shall rank junior after all the other debts of the debtor. This 30-day term could be extended for 30 or 60 days if supported by creditors representing 30% or 50% of the debtors’ unrelated liabilities, respectively.
Pursuant to the provisions of the new Insolvency Act, it is possible for a debtor to commence a reorganization procedure not only through a court process, but also as an out-of-court agreement with its creditors, which shall then be approved by the court through a simple process. It is also now possible for the debtor and its creditors to agree in reorganization proposal including different conditions for different categories of creditors (e.g., secured and unsecured), which must be expressly approved by the remaining creditors.
The new Insolvency Act also allows a debtor under Insolvency Protection to acquire debt to finance its operations (up to 20% of the debt it had at the commencement of the procedure), which shall rank senior with respect to the existing creditors (except for a few statutory preferences which shall remain in force) in case the reorganization agreement is not approved and the judge orders the liquidation of the company.
The new Insolvency Act amends claw-back period rules such that as a general rule any transfer, encumbrance or other transaction executed or granted by the debtor during the term of two years prior to the commencement of the reorganization or liquidation proceedings may be rendered ineffective if its proved before the court that such transfer, encumbrance or transaction: (i) was entered with the counterparty’s knowledge of the debtor’s bad business condition; and (ii) caused damages to the bankruptcy estate or has affected the parity that shall exist among creditors (e.g. that the transaction has not been entered into terms and conditions similar to those usually prevailing in the market at the time of its execution).
Notwithstanding the above, the new Insolvency Act maintains certain specific cases of ineffectiveness of any transfer, encumbrance or other transaction executed or granted during the term of one year prior to the commencement of the insolvency proceedings (which may be extended to two years in certain events), based on objective grounds, such as pre-payments, payments in terms different as originally agreed by the parties and the creation of security interests to guarantee pre-existing obligations. Also, agreements and changes to bylaws which decrease the capital of the debtor could be deemed ineffective if made during the six months prior to the commencement of the insolvency proceeding.
Finally, the new Insolvency Act regulates for the first time cross-border insolvency issues, allowing the recognition in Chile of foreign bankruptcy/liquidation proceedings. We do not expect the enactment of this law to have a material effect on our results of operations.
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Tax Reform
On September 29, 2014, the Tax Reform was published in the Chilean Official Gazette, introducing the most significant amendments to the Chilean tax system over the last 30 years and strengthening the powers of theServicio de Impuestos Internos, or the Chilean IRS to control and prevent tax avoidance. One of the main purposes of this reform was to finance major educational reforms under discussion in the Chilean Congress. Thereafter the Tax Reform was modified by Law No. 20,899, published on February 8, 2016.
The Tax Reform currently contemplates, among other matters, changes to the corporate tax regime by allowing coexistence of two alternative tax regimes available to Chilean companies from January 1, 2017 onwards: (i) an attributed income system or (ii) a partially integrated system.
• | Attributed income system: Under this system, companies will be subject to a corporate tax that would gradually increase to 25% over the course of four years, commencing in 2014 (increasing each year to 21%, 22.5%, 24% and 25%, respectively). At the shareholder level, a 35% withholding tax would apply on an “attributed basis” from year 2017. As a result, any non-Chilean resident shareholder would be required to pay a 35% withholding tax while Chilean resident shareholders would be required to pay the progressive Complementary Global Tax, with rates ranging between 0% and 35%, regardless of whether the Chilean company makes a profit distribution or dividend payment. Shareholders would be able to credit the corporate tax already paid by the company against the withholding tax or the progressive complementary income tax. The actual income distribution to the shareholders would not be taxable. This system will be exclusive for companies whose shareholders or owners are individuals domiciled or residing in Chile, or entities not domiciled or resident in Chile. |
• | Partially integrated system: Under this system, companies would be subject to a corporate tax of 25.5% on 2017 and 27% from 2018 onwards (which would be also gradually increased). Then, when the income is actually withdrawn from a company, non-Chilean resident shareholders would be subject to a 35% withholding tax, while Chilean resident shareholders would be required to pay the progressive Complementary Global Tax, with rates ranging between 0% and 35%, against which only a 65% of the corporate tax will be allowed to be used as a credit against the withholding tax or the Complementary Global Tax. Nevertheless, the foreign holder shall be entitled full corporate tax credit, if such holder is established on, domiciled in or resident of a country with which Chile has a double taxation treaty in force or, until December 31, 2019, Chile has signed a double taxation treaty with such country, although not in force. |
Law No. 20,899 introduced changes to both systems in order to simplify them. Other amendments included in this Law are related to the accuracy of the general anti-avoidance rules and the implementation of Value Added Tax (VAT) for certain operations, mainly to the sale of real estate and leases with purchase option.
Law No. 20,798
On September 16th, 2015 the Consumer Protection Act and the Pledge Whithout Conveyace Act were amended in order to include several provisions regarding the release and cancellation of mortgages and certain pledges. According to this law, once an obligation secured with any of the said security interests has been extinguished, the relevant creditorex officio shall grant and afford the corresponding release and cancellation public deed, and its record cancellation. Furthermore, the relevant creditor shall inform such proceedings to the debtor within the term established by law.
Colombian Banking Regulation and Supervision
Colombian Banking Regulators
Pursuant to the Colombian Constitution, the Colombian Congress has the power to prescribe the general legal framework within which the government may regulate the financial system. The agencies vested with the authority to regulate the financial system are the board of directors of the Central Bank of Colombia, the Colombian Ministry of Finance, the Colombian Superintendency of Finance, the SIC, and the SRO.
Central Bank of Colombia
The Central Bank of Colombia exercises the customary functions of a central bank, including price stabilization, monetary policy, regulation of currency circulation, regulation of credit, exchange rate monitoring and management of international reserves. Its board of directors is the regulatory authority for monetary, currency exchange and credit policies, and is responsible for the direction of the Central Bank of Colombia’s duties. The Central Bank of Colombia also acts as lender of last resort to financial institutions.
Colombian Ministry of Finance and Public Credit
One of the functions of the Colombian Ministry of Finance is to regulate all aspects of finance and insurance activities. As part of its duties, the Colombian Ministry of Finance issues decrees relating to financial matters that may affect banking operations in Colombia. In particular, the Colombian Ministry of Finance is responsible for regulations relating to capital adequacy, risk limitations, authorized operations, disclosure of information and accounting of financial institutions.
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Colombian Superintendency of Finance
The Colombian Superintendency of Finance is the authority responsible for supervising and regulating financial institutions, including commercial banks such as CorpBanca Colombia, finance companies, financial services companies and insurance companies. The Colombian Superintendency of Finance has broad discretionary powers to supervise financial institutions, including the authority to impose fines on financial institutions and their directors and officers for violations of applicable regulations and certain judicial attributions regarding controversies among customers and banks. The Colombian Superintendency of Finance can also conduct on-site inspections of Colombian financial institutions.
The Colombian Superintendency of Finance is also responsible for monitoring and regulating the market for publicly traded securities in Colombia and for monitoring and supervising securities market participants, including the Colombian Stock Exchange, brokers, dealers, mutual funds and issuers.
Financial institutions must obtain the prior authorization of the Colombian Superintendency of Finance before commencing operations.
Violations of the financial system rules and regulations are subject to administrative, and in some cases, criminal sanctions.
Self-Regulatory Organization
The SRO is a private entity responsible for the regulation of entities participating in the Colombian capital markets. The SRO may issue mandatory instructions to its members and supervise its members’ compliance and impose sanctions for violations.
All capital market intermediaries, including CorpBanca Colombia and its subsidiaries, must become members of the SRO and are subject to its regulations.
Superintendency of Industry and Commerce
The SIC is the authority responsible for supervising and regulating competition in several industrial sectors, including financial institutions. The SIC is authorized to initiate administrative proceedings and impose sanctions on banks, including CorpBanca Colombia, whenever the financial entity behaves in a manner considered to be anti-competitive.
The Colombian Superintendency of Finance is the authority responsible for approving mergers, acquisitions and integrations between financial institutions such a CorpBanca Colombia. For such approvals, the Colombian Superintendency of Finance must obtain a non-binding prior written opinion by the SIC
Capital Adequacy Requirements
Capital adequacy requirements for Colombian financial institutions (as set forth in Decree 2,555 of 2010, as amended, or Decree 2,555) are based on applicable Basel Committee standards. Decree 2,555 establishes four categories of assets, which are each assigned different risk weights, and require that a credit institution’s Technical Capital (as defined below) be at least 9% of that institution’s total risk-weighted assets.
Currently, Decree 2,555 sets forth, among other things:
• | that Technical Capital is the sum of ordinary primary capital (patrimonio básico ordinarioor Common Equity Tier One), additional primary capital (patrimonio básico adicionalor Additional Tier One), and secondary capital (patrimonio adicionalor tier two capital); |
• | the criteria for debt and equity instruments to be considered ordinary primary capital, additional primary capital and secondary capital. The Colombian Superintendency of Finance will review whether a given instrument adequately complies with these criteria in order for an instrument to be considered tier one, additional tier one or tier two capital, upon request of the issuer. Debt and equity instruments that have not been classified by the SFC as ordinary primary capital or secondary capital, will not be considered tier one, additional tier one or tier two capital for purposes of capital adequacy requirements; |
• | the minimum total solvency ratio of 9% of the financial institution’s technical capital divided by total risk-weighted assets; however, each entity must also comply with a minimum basic solvency ratio of 4.5%, which is defined as the |
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ordinary primary capital after deductions divided by the financial institution’s total risk-weighted assets. In addition, solvency ratios must be met individually, by each credit institution, and must be met and monitored on a consolidated basis; |
• | that the calculation of the total solvency ratio will take into account operational risk; however the Colombian Superintendency of Finance has not yet defined the methodology to be used to estimate such effect; and |
• | that credit institutions are able to include hybrids instruments designed to have characteristics of a fixed income and characteristics of equity market security, as part of its basic additional capital. |
When the solvency ratio of a financial institution is below 10%, the Colombian Superintendency of Finance implements a closer supervision on banking activities of the entity based on the supervision policy implemented by the Colombian Superintendency of Finance.
Minimum Capital Requirements
The minimum capital requirement for banks on an unconsolidated basis set forth in the Financial System Organic Act was COP77,016 million for 2014, COP79,835 million for 2015 and shall be COP85,240 million for 2016. Failure to meet such requirement can result in the relevant financial institution take over (toma de posesión) by the Colombian Superintendency of Finance. Minimum capital requirements are adjusted in January each year based on the inflation percentage for the precedent year. The capital requirements for each type of financial institution (financial corporations, financing companies, trust companies, etc) are different, with banks having the highest minimum amount. Additionally, there are capital requirements above this minimum for the purposes of credit exposure and derivatives transactions.
Capital Investment Limit
All investments in subsidiaries and other authorized capital investments, other than those made in order to abide by legal requirements, may not exceed 100% of the total aggregate of capital, equity reserves and the equity re-adjustment account of the respective bank, financial corporation or commercial finance company, excluding unadjusted fixed assets and including deductions for accumulated losses.
Mandatory Investments
The Central Bank of Colombia’s regulations require financial institutions, including CorpBanca Colombia, to make mandatory investments in securities issued by Finagro, a Colombian public financial institution that finances production and rural activities, to support the agricultural sector. The amount of these mandatory investments is calculated based on the current Colombian peso-denominated obligations of the relevant financial institution.
Foreign Currency Position Requirements
According to External Resolutions 4, or Resolution 4, and 9, or Resolution 9, issued the Central Bank of Colombia issued in 2007 and 2013 respectively, as amended, a financial institution’s foreign currency position (posición propia en moneda extranjera) is the difference between such institution’s foreign currency-denominated assets and liabilities (including any off-balance sheet items), made or contingent, including those that may be sold in Colombian legal currency.
Resolution 9 provides that the average of a bank’s foreign currency position for three business days cannot exceed the equivalent in Colombian pesos of 20% of the bank’s Technical Capital. Currency exchange intermediaries such as CorpBanca Colombia are permitted to hold a three business days’ average negative foreign currency position not exceeding the equivalent in foreign currency of 5% of its Technical Capital (with penalties being payable after the first business day).
Resolution 9 also defines foreign currency position in cash (posición propia de contado en moneda extranjera) as the difference between all foreign currency-denominated assets and liabilities. A bank’s three business days average foreign currency position in cash cannot exceed 50% of the bank’s Technical Capital. In accordance with Resolution 9, the three day average must be calculated on a daily basis and the foreign currency position in cash can be negative but must no exceed 20% of its Technical Capital. (Resolution 9 was amended on September 25th 2015).
Finally, Resolution 9 requires banks to comply with a gross position of leverage (posición bruta de apalancamiento). Gross position of leverage is defined as the sum of (i) the rights and obligations of term and future contracts denominated in foreign
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currency, plus (ii) foreign currency cash operations with settlement higher or equal to one banking day, plus (iii) the exchange rate risk exposure associated with debtor and creditor contingencies acquired in the trading of exchange rate options and derivatives.
Resolution 9 sets a limit on the gross position of leverage, which cannot exceed 550% of the Technical Capital.
Deposit Insurance
In Colombia, the deposit insurance fund, FOGAFIN (Fondo de Garantías de Instituciones Financieras), guarantees up to COP20 million (US$6,380 as of December 31, 2015) per person, for each institution calculated as the aggregate amount of time, savings and demand deposits held by individuals in a Colombian financial institution. Payment will be made in case of an administrative compulsory liquidation of the financial institution.
Reserve Requirements
Commercial banks are required by the board of directors of the Central Bank of Colombia to satisfy reserve requirements with respect to deposits and other cash demands. Such reserves are held by the Central Bank of Colombia in the form of cash deposits. According to Resolutions 5 and 11 of 2008 issued by the board of directors of the Central Bank of Colombia, as amended, the reserve requirements for Colombian banks are measured bi-weekly and the amounts depend on the class of deposits.
Credit institutions must maintain reserves of 11% over the following deposits, cash demands and other passive obligations:
• | Private demand deposits; |
• | Government demand deposits; |
• | Other deposits and liabilities; and |
• | Savings deposits. |
In addition, credit institutions must maintain reserves of 4.5% for term deposits with maturities fewer than 18 months and 0% for term deposits with maturities of more than 18 months.
Credit institutions may maintain these reserves in their accounts at the Central Bank of Colombia, or cash.
Marginal reserve requirements were eliminated by the Central Bank of Colombia in 2008. Since 2009, the reserve requirements have no remuneration.
Foreign Currency Loans
Residents of Colombia may obtain foreign currency loans from foreign residents and from Colombian currency exchange intermediaries or by placing debt securities abroad. Foreign currency loans must be either disbursed through a foreign exchange intermediary or deposited in offshore compensation accounts.
According to regulations issued by the Central Bank of Colombia, every Colombian resident and institution borrowing funds in foreign currency is generally required to post with the Central Bank of Colombia non-interest bearing deposits for a specified term, although the size of the required deposit is currently zero.
Notwithstanding the foregoing, such deposits would not be required in certain cases set forth in the External Resolution 8 of 2000 issued by the Central Bank of Colombia, or Resolution 8, including in the case of foreign currency loans aimed at financing Colombian investments abroad or for short-term exportation loans, provided that such loan is disbursed against the funds ofBanco de Comercio Exterior—Bancoldex. Moreover, Resolution 8 sets forth a number of restrictions and limitations as to the use of proceeds in the case of foreign currency loans obtained by Colombian currency exchange intermediaries (including CorpBanca Colombia) and also provides that deposits would not be required in the event such restrictions and limitations are observed. Such foreign currency loans may be used, among others, for lending activities in a foreign currency with a tenor equal to, or shorter than, the tenor of the foreign financing.
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Interest payments to foreign currency loans granted by foreign banks to Colombian residents are currently subject to a 33% withholding tax for loans with less than a year tenor or 14% withholding tax for loans with more than a year tenor, as a general rule.
Finally, pursuant to Law 9 of 1991, the board of directors of the Central Bank of Colombia is entitled to impose conditions and limitations on the incurrence of foreign currency indebtedness, as an exchange control policy, in order to avoid pressure in the currency exchange market.
Non-Performing Loan Allowance
The Colombian Superintendency of Finance maintains guidelines on non-performing loan allowances for financial institutions. This information has been provided in order to provide the reader with a more in-depth analysis. Notwithstanding, our allowance and provision for loan losses as recorded in our financial statements included herein have been determined in accordance with IFRS.
Selected Statistical Information
The following information is included for analytical purposes and should be read in conjunction with our financial statements as well as “Item 5. Operating and Financial Review and Prospects”. Unless otherwise indicated, financial data in the following tables as of December 31, 2013, 2014 and 2015 has been expressed in Chilean pesos as of December 31, 2015. The UF is linked to, and is adjusted daily to reflect changes in, the previous month’s CPI.
Average Balance Sheets, Income Earned From Interest-Earning Assets and Interest Paid on Interest Bearing Liabilities
The average balances for interest-earning assets and interest bearing liabilities, including interest and readjustments received and paid, have been calculated on the basis of daily balances on an unconsolidated basis. Unless otherwise set forth herein, such average balances as they apply to the operations of our subsidiaries were calculated on the basis of month-end balances. Such average balances are presented in Chilean pesos, in UFs and in foreign currencies (principally US$).
The nominal interest rate has been calculated by dividing the amount of interest and principal readjustment due to changes in the UF index (gain or loss) during the period by the related average balance, both amounts expressed in Chilean pesos. The nominal rates calculated for each period have been converted into real rates using the following formulas:
1 + Np | (1 + Nd)(1 + D) | |||||||||
Rp= | -1 | Rd= | -1 | |||||||
1 + 1 | 1+1 |
Where:
Rp= real average rate for Chilean peso-denominated assets and liabilities (in Ch$ and UF) for the period,
Rd= real average rate for foreign currency denominated assets and liabilities for the period,
Np= average nominal rate for Chilean peso-denominated assets and liabilities for the period,
Nd= average nominal rate for foreign currency denominated assets and liabilities for the period,
D= devaluation rate of the Chilean peso to the U.S. dollar for the period, and
I= inflation rate in Chile for the period (based on the variation of the Chilean consumer price index).
The real interest rate can be negative for a portfolio of Chilean peso-denominated loans when the inflation rate for the period is higher than the average nominal rate of the loan portfolio for the same period. A similar effect could occur for a portfolio of foreign currency denominated loans when the inflation rate for the period is higher than the sum of the devaluation rate for the period and the corresponding average nominal rate of the portfolio. The formula for the average real rate for foreign currency denominated assets and liabilities (Rd) reflects a gain or loss in purchasing power caused by the difference between the devaluation rate of the Chilean peso and the inflation rate in Chile during the period.
The following example illustrates the calculation of the real interest rate for a dollar-denominated asset bearing a nominal annual interest rate of 10% (Nd = 0.10), assuming a 5% annual devaluation rate (D = 0.05) and a 12% annual inflation rate (I = 0.12):
(1 + 0.10)(1 + 0.05) | 3.125% per year | |||||||
Rd= | -1= | |||||||
1 + 0.12 |
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In the example, since the inflation rate was higher than the devaluation rate, the real rate is lower than the nominal rate in dollars. If, for example, the annual devaluation rate were 15%, using the same numbers, the real rate in Chilean pesos would be 12.9%, which is higher than the nominal rate in U.S. dollars. Using the initial example, if the annual inflation rate were greater than 15.5%, the real rate would be negative.
Interest and average balances have been calculated by taking into consideration the following:
• | Foreign exchange gains or losses on foreign currency denominated assets and liabilities have not been included in interest income or expense; |
• | Interest on financial investments does not include trading gains or losses on these investments; |
• | Past due loans only include the payments that are 90 or more days overdue, and do not include the portion of such loan that is not overdue (principal amount) or those payments which are less than 90 days overdue, unless legal proceedings have been commenced for the entire outstanding balance according to the terms of the loan. This practice differs from that normally followed in the United States where the amount classified as past due would include the total principal, payments and interest on all loans which have any portion overdue; |
• | Penalty interest is not recognized on past due payments (loans with more than one payment) or past due loans (one payment). |
• | The interest earned from past due loans is only the proportion of interest earned on each of these payments. We do not accrue penalty interest on these payments; |
• | Loans that are not yet 90 days or more overdue have been included in each of the various categories of loans, and affect the various averages; |
• | Non-performing commercial loans (those loans which do not accrue interest) consist of loans included in Categories C4-C6 and loans (or portions thereof) that are overdue; |
• | Included in loans and receivables to banks are interbank deposits maintained in the Central Bank of Chile and foreign banks. Such assets have a distorting effect on the average interest rate earned on total interest-earning assets because currently balances maintained in Chilean peso amounts do not earn interest, and the only balances held in a foreign currency that earn interest are those maintained in U.S. dollars, but those only earn interest on the amounts that are legally required to be held for liquidity purposes. Additionally, this account includes interest earned by overnight investments. Consequently, the average interest earned on such assets is comparatively low. We maintain these deposits in these accounts to comply with statutory requirements and to facilitate international business, rather than to earn income; and |
• | The monetary gain or loss on interest-earning assets and interest bearing liabilities is not included as a component of interest income or interest expense because inflation effects are taken into account in the calculation of real interest rates. |
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The following tables show, by currency of denomination, average balances and, where applicable, interest amounts, nominal rates and rates for our assets and liabilities for the years ended December 31, 2013, 2014 and 2015.
Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||
INTEREST EARNING ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||
Deposits in Central Bank | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 86,059 | 1,527 | 1.8 | % | (1.2 | %) | 104,708 | 3,343 | 3.2 | % | (1.3 | )% | 79,148 | 2,832 | 3.6 | % | (0.8 | ) | ||||||||||||||||||||||||||||||
UF | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Foreign currency | 54,891 | — | 0.0 | % | 6.7 | % | 29,985 | — | 0.0 | % | 10.0 | % | 29,735 | — | 0.0 | % | 12.4 | |||||||||||||||||||||||||||||||
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Total | 140,950 | 1,527 | 1.8 | % | 1.9 | % | 134,692 | 3,343 | 2.5 | % | 1.2 | % | 108,882 | 2,832 | 3.6 | % | 2.8 | |||||||||||||||||||||||||||||||
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Financial investments | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 295,940 | 14,704 | 5.0 | % | 1.9 | % | 369,163 | 14,656 | 4.0 | % | (0.6 | )% | 368,870 | 11,424 | 3.1 | % | (1.2 | ) | ||||||||||||||||||||||||||||||
UF | 242,954 | 10,107 | 4.2 | % | 1.1 | % | 179,187 | 15,844 | 8.8 | % | 4.1 | % | 208,950 | 23,036 | 11.0 | % | 6.3 | |||||||||||||||||||||||||||||||
Foreign currency | 378,737 | 14,906 | 3.9 | % | 10.9 | % | 613,064 | 11,109 | 1.8 | % | 12.0 | % | 733,104 | 43,025 | 5.9 | % | 19.0 | |||||||||||||||||||||||||||||||
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Total | 917,630 | 39,718 | 4.3 | % | 5.4 | % | 1,161,414 | 41,610 | 3.6 | % | 6.7 | % | 1,310,924 | 77,486 | 5.9 | % | 11.3 | |||||||||||||||||||||||||||||||
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Total loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 3,281,015 | 328,549 | 10.0 | % | 6.8 | % | 3,197,553 | 305,184 | 9.5 | % | 4.7 | % | 3,688,139 | 321,248 | 8.7 | % | 4.1 | |||||||||||||||||||||||||||||||
UF | 3,651,479 | 245,383 | 6.7 | % | 3.6 | % | 3,544,600 | 373,539 | 10.5 | % | 5.7 | % | 3,978,943 | 323,621 | 8.1 | % | 3.6 | |||||||||||||||||||||||||||||||
Foreign currency | 4,573,453 | 359,714 | 7.9 | % | 15.1 | % | 7,153,353 | 566,525 | 7.9 | % | 18.7 | % | 6,955,148 | 542,624 | 7.8 | % | 21.1 | |||||||||||||||||||||||||||||||
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Total | 11,505,946 | 933,646 | 8.1 | % | 9.1 | % | 13,895,505 | 1,245,248 | 9.0 | % | 12.1 | % | 14,622,229 | 1,187,493 | 8.1 | % | 12.1 | |||||||||||||||||||||||||||||||
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Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||
Interbank loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 261,151 | 12,510 | 4.8 | % | 1.7 | 294,778 | 9,837 | 3.3 | % | (1.2 | )% | 245,549 | 7,457 | 3.0 | % | (1.3 | ) | |||||||||||||||||||||||||||||||
UF | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Foreign currency | 122,894 | 2,164 | 1.8 | % | 8.6 | 117,177 | 1,164 | 1.0 | % | 11.1 | % | 220,009 | 2,553 | 1.2 | % | 13.7 | ||||||||||||||||||||||||||||||||
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Total | 384,045 | 14,673 | 3.8 | % | 3.9 | % | 411,955 | 11,000 | 2.7 | % | 2.3 | % | 465,557 | 10,009 | 2.1 | % | 5.8 | |||||||||||||||||||||||||||||||
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Investment under resale agreements | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 31,514 | 1,930 | 6.1 | % | 3.0 | % | 31,891 | 1,328 | 4.2 | % | (0.4 | )% | 28,788 | 1,047 | 3.6 | % | (0.7 | ) | ||||||||||||||||||||||||||||||
UF | 1,021 | 20 | 2.0 | % | (1.0 | )% | 649 | 37 | 5.7 | % | 1.1 | % | 128 | 4 | 3.1 | % | (1.2 | ) | ||||||||||||||||||||||||||||||
Foreign currency | 122,577 | 13,185 | 10.8 | % | 18.2 | % | 152,590 | 12,190 | 8.0 | % | 18.7 | % | 64,021 | 12,938 | 20.2 | % | 35.1 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 155,110 | 15,135 | 9.8 | % | 15.0 | % | 185,129 | 13,555 | 7.3 | % | 15.4 | % | 92,937 | 13,989 | 15.1 | % | 23.9 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Other interest earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 23 | — | 0.0 | % | 0.0 | % | 14 | — | 0.0 | % | 0.0 | % | — | — | — | — | ||||||||||||||||||||||||||||||||
UF | — | — | 0.0 | % | 0.0 | % | — | — | 0.0 | % | 0.0 | % | — | — | — | — | ||||||||||||||||||||||||||||||||
Foreign currency | 551,272 | 2,407 | 0.4 | % | 7.2 | % | 920,043 | 5,368 | 0.6 | % | 10.6 | % | 815,920 | 7,671 | 0.9 | % | 13.4 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 551,295 | 2,407 | 0.4 | % | 7.2 | % | 920,057 | 5,368 | 0.6 | % | 10.6 | % | 815,920 | 7,671 | 0.9 | % | 13.4 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total interest earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 3,955,700 | 359,220 | 9.1 | % | 5.9 | % | 3,998,106 | 334,348 | 8.4 | % | 3.6 | % | 4,410,493 | 344,008 | 7.8 | % | 3.3 | |||||||||||||||||||||||||||||||
UF | 3,895,453 | 255,511 | 6.6 | % | 3.5 | % | 3,724,436 | 389,421 | 10.5 | % | 5.6 | % | 4,188,020 | 346,662 | 8.3 | % | 3.7 | |||||||||||||||||||||||||||||||
Foreign currency | 5,803,822 | 392,376 | 6.8 | % | 13.9 | % | 8,986,211 | 596,356 | 6.6 | % | 17.3 | % | 8,817,937 | 608,811 | 6.9 | % | 20.1 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 13,654,975 | 1,007,106 | 7.4 | % | 8.6 | % | 16,708,753 | 1,320,124 | 7.9 | % | 11.4 | % | 17,416,450 | 1,299,480 | 7.5 | % | 11.9 | |||||||||||||||||||||||||||||||
|
|
|
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|
|
|
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|
65
Table of Contents
Year ended December 31, | ||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||
Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||
NON-INTEREST EARNING ASSETS | ||||||||||||||||||||||||||||||||||||
Cash | ||||||||||||||||||||||||||||||||||||
Ch$ | 291,785 | 345,073 | 370,845 | |||||||||||||||||||||||||||||||||
UF | — | — | — | |||||||||||||||||||||||||||||||||
Foreign currency | 156,375 | 225,628 | 207,380 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 448,160 | 570,701 | 578,225 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Allowance for loan losses | ||||||||||||||||||||||||||||||||||||
Ch$ | 112,627 | 116,108 | 119,671 | |||||||||||||||||||||||||||||||||
UF | — | — | — | |||||||||||||||||||||||||||||||||
Foreign currency | 114,653 | 204,710 | 219,842 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 227,280 | 320,818 | 339,513 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Property, plant and equipment | ||||||||||||||||||||||||||||||||||||
Ch$ | 47,642 | 37,972 | 39,942 | |||||||||||||||||||||||||||||||||
UF | — | — | — | |||||||||||||||||||||||||||||||||
Foreign currency | 30,532 | 60,993 | 52,938 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 78,164 | 98,965 | 92,880 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Derivatives | ||||||||||||||||||||||||||||||||||||
Ch$ | 291,884 | 553,029 | 419,229 | |||||||||||||||||||||||||||||||||
UF | — | — | — | |||||||||||||||||||||||||||||||||
Foreign currency | 27,085 | 75,753 | 570,470 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 318,970 | 628,782 | 989,699 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Other assets | ||||||||||||||||||||||||||||||||||||
Ch$ | 555,959 | 597,292 | 715,778 | |||||||||||||||||||||||||||||||||
UF | 2,901 | 15,365 | 22,018 | |||||||||||||||||||||||||||||||||
Foreign currency | 566,368 | 1,046,829 | 1,198,666 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 1,125,228 | 1,659,486 | 1,936,462 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Year ended December 31, | ||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||
Average Balance | Interest Earmed | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | Average Balance | Interest Earned | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||
Total non-interest earning assets | ||||||||||||||||||||||||||||||||||||
Ch$ | 1,074,643 | 1,417,258 | 1,426,124 | |||||||||||||||||||||||||||||||||
UF | 2,901 | 15,365 | 22,018 | |||||||||||||||||||||||||||||||||
Foreign currency | 665,698 | 1,204,492 | 1,809,612 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 1,743,242 | 2,637,116 | 3,257,754 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total assets(1) | ||||||||||||||||||||||||||||||||||||
Ch$ | 5,030,344 | 359,220 | 5,415,364 | 334,348 | 5,836,617 | 344,008 | ||||||||||||||||||||||||||||||
UF | 3,898,354 | 255,511 | 3,739,801 | 389,421 | 4,210,039 | 346,662 | ||||||||||||||||||||||||||||||
Foreign currency | 6,469,521 | 392,376 | 10,190,704 | 596,356 | 10,627,549 | 608,811 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 15,398,217 | 1,007,106 | 19,345,868 | 1,320,124 | 20,674,205 | 1,299,480 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents total of interest paying and non-interest earning assets. |
66
Table of Contents
Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||
INTEREST BEARING LIABILITIES | ||||||||||||||||||||||||||||||||||||||||||||||||
Time Deposits | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 4,020,819 | 240,879 | 6.0 | % | 2.9 | % | 4,099,207 | 193,573 | 4.7 | % | 0.1 | % | 4,237,268 | 173,226 | 4.1 | % | (0.3 | )% | ||||||||||||||||||||||||||||||
UF | 550,376 | 30,390 | 5.5 | % | 2.4 | % | 438,503 | 34,295 | 7.8 | % | 3.1 | % | 633,380 | 35,521 | 5.6 | % | 1.2 | % | ||||||||||||||||||||||||||||||
Foreign currency | 2,484,695 | 90,374 | 3.6 | % | 10.6 | % | 3,311,784 | 121,297 | 3.7 | % | 14.0 | % | 3,359,560 | 120,861 | 3.6 | % | 16.4 | % | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 7,055,890 | 361,643 | 5.1 | % | 5.6 | % | 7,849,494 | 349,165 | 4.4 | % | 6.1 | % | 8,230,208 | 329,608 | 4.0 | % | 6.6 | % | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Central Bank borrowings | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
UF | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Repurchase agreements | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 95,836 | 4,924 | 5.1 | % | 2.1 | % | 35,219 | 1,459 | 4.1 | % | (0.4 | )% | 96,418 | 3,058 | 3.2 | % | (1.2 | )% | ||||||||||||||||||||||||||||||
UF | — | 167 | 0.0 | % | (2.9 | )% | — | 35 | 0.0 | % | 0.0 | % | — | 16 | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||
Foreign currency | 173,583 | 9,645 | 5.6 | % | 12.6 | % | 309,878 | 26,648 | 8.6 | % | 19.4 | % | 549,069 | 33,410 | 6.1 | % | 19.2 | % | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 269,419 | 14,736 | 5.5 | % | 8.9 | % | 345,097 | 28,142 | 8.2 | % | 17.4 | % | 645,487 | 36,484 | 5.7 | % | 16.2 | % | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Mortgage finance bonds | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 20 | 1 | 5.0 | % | 1.9 | % | 11 | 1 | 9.1 | % | 4.3 | % | 3 | — | 0.0 | % | (4.2 | )% | ||||||||||||||||||||||||||||||
UF | 130,971 | 8,322 | 6.4 | % | 3.3 | % | 105,840 | 10,465 | 9.9 | % | 5.1 | % | 87,372 | 7,256 | 8.3 | % | 3.7 | % | ||||||||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | — | — | — | 0.0 | % | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 130,991 | 8,323 | 6.4 | % | 3.3 | % | 105,851 | 10,466 | 9.9 | % | 5.1 | % | 87,375 | 7,256 | 8.3 | % | 3.7 | % | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Bonds | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 46,211 | 32,076 | 69.4 | % | 64.5 | % | 46,300 | 3,177 | 6.9 | % | 2.2 | % | 35,508 | 3,903 | 11.0 | % | 6.3 | % | ||||||||||||||||||||||||||||||
UF | 1,547,176 | 73,895 | 4.8 | % | 1.7 | % | 1,593,564 | 148,277 | 9.3 | % | 4.5 | % | 1,656,229 | 127,354 | 7.7 | % | 3.2 | % | ||||||||||||||||||||||||||||||
Foreign currency | 606,158 | 13,917 | 2.3 | % | 9.1 | % | 970,044 | 49,350 | 5.1 | % | 15.6 | % | 1,334,193 | 66,473 | 5.0 | % | 18.0 | % | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 2,199,545 | 119,888 | 5.5 | % | 5.1 | % | 2,609,908 | 200,804 | 7.7 | % | 8.6 | % | 3,025,930 | 197,730 | 6.5 | % | 9.7 | % | ||||||||||||||||||||||||||||||
|
|
|
|
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|
|
|
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|
|
|
|
67
Table of Contents
Year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||||||||||||||||||||||||||||||||||
Other interest bearing liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 519,568 | (3,888 | ) | (0.7 | )% | (3.6 | )% | 665,991 | 5,988 | 0.9 | % | (3.5 | )% | 747,416 | 5,620 | 0.8 | % | (3.5 | )% | |||||||||||||||||||||||||||||
UF | 16,224 | 1,459 | 9.0 | % | 5.8 | % | 14,344 | 3,568 | 24.9 | % | 19.4 | % | 12,765 | 2,015 | 15.8 | % | 10.9 | % | ||||||||||||||||||||||||||||||
Foreign currency | 1,747,481 | 47,255 | 2.7 | % | (0.3 | %) | 2,529,723 | 91,107 | 3.6 | % | 13.9 | % | 2,550,243 | 100,188 | 3.9 | % | 16.8 | % | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 2,283,273 | 44,826 | 2.0 | % | (1.0 | %) | 3,210,058 | 100,663 | 3.1 | % | 10.3 | % | 3,310,424 | 107,823 | 3.3 | % | 12.2 | % | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total interest bearing liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Ch$ | 4,682,454 | 273,992 | 2.3 | % | (0.7 | )% | 4,846,728 | 204,198 | 4.2 | % | (0.4 | )% | 5,116,613 | 185,807 | 3.6 | % | (0.7 | )% | ||||||||||||||||||||||||||||||
UF | 2,244,747 | 114,233 | 5.7 | % | 2.6 | % | 2,152,251 | 196,640 | 9.1 | % | 4.3 | % | 2,389,746 | 172,162 | 7.2 | % | 2.7 | % | ||||||||||||||||||||||||||||||
Foreign currency | 5,011,917 | 161,191 | 3.2 | % | 0.2 | % | 7,121,429 | 288,402 | 4.0 | % | 14.4 | % | 7,793,065 | 320,932 | 4.1 | % | 17.0 | % | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 11,939,118 | 549,416 | 4.6 | % | 0.3 | % | 14,120,408 | 689,240 | 4.9 | % | 7.8 | % | 15,299,424 | 678,901 | 4.4 | % | 8.8 | % | ||||||||||||||||||||||||||||||
|
|
|
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|
68
Table of Contents
Year ended December 31, | ||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||
Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | Average Balance | Interest Paid | Average Nominal Rate | Average Real Rate | |||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||
NON-INTEREST EARNING LIABILITIES | ||||||||||||||||||||||||||||||||||||
Non-interest-bearing demand deposits | ||||||||||||||||||||||||||||||||||||
Ch$ | 383,346 | 447,300 | 391,884 | |||||||||||||||||||||||||||||||||
UF | 10,412 | 10,046 | 9,820 | |||||||||||||||||||||||||||||||||
Foreign currency | 1,077,716 | 2,274,274 | 2,278,587 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 1,471,475 | 2,731,621 | 2,680,291 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Derivatives | ||||||||||||||||||||||||||||||||||||
Ch$ | 210,393 | 481,386 | 637,460 | |||||||||||||||||||||||||||||||||
UF | — | — | — | |||||||||||||||||||||||||||||||||
Foreign currency | 20,286 | 38,768 | 96,864 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 230,679 | 520,154 | 734,324 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Other non-interest-bearing | ||||||||||||||||||||||||||||||||||||
Ch$ | 185,812 | 203,067 | 324,709 | |||||||||||||||||||||||||||||||||
UF | 1,190 | 686 | 270 | |||||||||||||||||||||||||||||||||
Foreign currency | 193,931 | 265,206 | 309,010 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 380,933 | 468,959 | 633,989 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||||||||||
Ch$ | 1,218,551 | 1,498,598 | 1,319,898 | |||||||||||||||||||||||||||||||||
UF | — | — | 426 | |||||||||||||||||||||||||||||||||
Foreign currency | 157,461 | 6,129 | 5,852 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 1,376,012 | 1,504,727 | 1,326,176 | |||||||||||||||||||||||||||||||||
Total non-interest-bearing liabilities and shareholders’ equity | ||||||||||||||||||||||||||||||||||||
Ch$ | 1,998,102 | 2,630,351 | 2,673,952 | |||||||||||||||||||||||||||||||||
UF | 11,602 | 10,732 | 10,516 | |||||||||||||||||||||||||||||||||
Foreign currency | 1,449,395 | 2,584,377 | 2,690,313 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 3,459,098 | 5,225,461 | 5,374,781 | |||||||||||||||||||||||||||||||||
Total liabilities and equity(1) | ||||||||||||||||||||||||||||||||||||
Ch$ | 6,680,556 | 273,992 | 7,477,079 | 204,198 | 7,790,565 | 185,807 | ||||||||||||||||||||||||||||||
UF | 2,256,349 | 114,233 | 2,162,983 | 196,640 | 2,400,262 | 172,162 | ||||||||||||||||||||||||||||||
Foreign currency | 6,461,312 | 161,191 | 9,705,806 | 288,402 | 10,483,378 | 320,932 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 15,398,217 | 549,416 | 19,345,868 | 689,240 | 20,674,205 | 678,901 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents total of interest bearing and non-interest bearing liabilities and shareholders’ equity. |
69
Table of Contents
Interest-earning Assets—Net Interest Margin
The following tables analyze, by currency of denomination, our levels of average interest-earning assets and net interest, and illustrate the comparative margins obtained, for each of the periods indicated:
Year ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in millions of constant Ch$ as of December 31, 2015, except for percentages) | ||||||||||||
Total average interest earning assets | ||||||||||||
Ch$ | 3,955,700 | 3,998,106 | 4,410,493 | |||||||||
UF | 3,895,453 | 3,724,436 | 4,188,020 | |||||||||
Foreign currency | 5,803,822 | 8,986,211 | 8,817,937 | |||||||||
|
|
|
|
|
| |||||||
Total | 13,654,975 | 16,708,753 | 17,416,450 | |||||||||
|
|
|
|
|
| |||||||
Net interest earned (1) | ||||||||||||
Ch$ | 85,228 | 130,150 | 158,201 | |||||||||
UF | 141,278 | 192,781 | 174,500 | |||||||||
Foreign currency | 231,184 | 307,953 | 287,878 | |||||||||
|
|
|
|
|
| |||||||
Total | 457,690 | 630,884 | 620,579 | |||||||||
|
|
|
|
|
| |||||||
Net interest margin, nominal basis (2) | ||||||||||||
Ch$ | 2.2 | % | 3.3 | % | 3.6 | % | ||||||
UF | 3.6 | % | 5.2 | % | 4.2 | % | ||||||
Foreign currency | 4.0 | % | 3.4 | % | 3.3 | % | ||||||
|
|
|
|
|
| |||||||
Total | 3.4 | % | 3.8 | % | 3.6 | % | ||||||
|
|
|
|
|
|
(1) | Net interest earned is defined as interest revenue earned less interest expense incurred. |
(2) | Net interest margin is defined as net interest earned divided by average interest earning assets. |
70
Table of Contents
Changes in Net Interest Income and Interest Expense—Volume and Rate Analysis
The following tables allocate, by currency of denomination, changes in our net interest income between changes in the average volume of interest-earning assets and interest bearing liabilities and changes in their –respective nominal interest rates from 2013 to 2014 and 2014 to 2015. Volume and rate variances have been calculated based on movements in average balances over the year and changes in nominal interest rates, average interest-earning assets and average interest bearing liabilities. The net change attributable to changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate.
Increase (Decrease) from 2013 to 2014 due to changes in | ||||||||||||||||
Volume | Rate | Rate and Volume | Net Change from 2013 to 2014 | |||||||||||||
(in million of Ch$) | ||||||||||||||||
ASSETS | ||||||||||||||||
INTEREST EARNING ASSETS | ||||||||||||||||
Deposits in Central Bank | ||||||||||||||||
Ch$ | 331 | 12 | 1,474 | 1,816 | ||||||||||||
UF | — | — | — | — | ||||||||||||
Foreign currency | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 331 | 12 | 1,474 | 1,816 | ||||||||||||
Financial Investments | ||||||||||||||||
Ch$ | 3,638 | (30 | ) | (3,657 | ) | (48 | ) | |||||||||
UF | (2,653 | ) | 114 | 8,276 | 5,737 | |||||||||||
Foreign currency | 9,222 | — | (13,019 | ) | (3,797 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 10,208 | 85 | (8,400 | ) | 1,892 | |||||||||||
Total Loans | ||||||||||||||||
Ch$ | (8,358 | ) | (154 | ) | (14,853 | ) | (23,365 | ) | ||||||||
UF | (7,182 | ) | 1,394 | 133,943 | 128,156 | |||||||||||
Foreign currency | 202,916 | 25 | 3,870 | 206,811 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 187,376 | 1,265 | 122,960 | 311,601 | ||||||||||||
Interbank Loans | ||||||||||||||||
Ch$ | 1,611 | (38 | ) | (4,246 | ) | (2,673 | ) | |||||||||
UF | — | — | — | — | ||||||||||||
Foreign currency | (101 | ) | (9 | ) | (890 | ) | (1,000 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 1,510 | (47 | ) | (5,135 | ) | (3,672 | ) | |||||||||
Investment under resale agreements | ||||||||||||||||
Ch$ | 23 | (6 | ) | (618 | ) | (602 | ) | |||||||||
UF | (7 | ) | — | 24 | 17 | |||||||||||
Foreign currency | 3,228 | (34 | ) | (4,189 | ) | (995 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 3,244 | (40 | ) | (4,785 | ) | (1,580 | ) | |||||||||
Other interest earning assets | ||||||||||||||||
Ch$ | — | — | — | — | ||||||||||||
UF | — | — | — | — | ||||||||||||
Foreign currency | 1,610 | 8 | 1,343 | 2,961 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 1,610 | 8 | 1,343 | 2,961 | ||||||||||||
Total interest earning assets | ||||||||||||||||
Ch$ | (2,755 | ) | (215 | ) | (21,901 | ) | (24,872 | ) | ||||||||
UF | (9,841 | ) | 1,509 | 142,243 | 133,910 | |||||||||||
Foreign currency | 216,875 | (10 | ) | (12,886 | ) | 203,980 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 204,278 | 1,284 | 107,457 | 313,018 | ||||||||||||
|
|
|
|
|
|
|
|
71
Table of Contents
Increase (Decrease) from 2014 to 2015 due to changes in | ||||||||||||||||
Volume | Rate | Rate and Volume | Net Change from 2014 to 2015 | |||||||||||||
(in million of Ch$) | ||||||||||||||||
ASSETS | ||||||||||||||||
INTEREST EARNING ASSETS | ||||||||||||||||
Deposits in Central Bank | ||||||||||||||||
Ch$ | (815 | ) | 4 | 301 | (511 | ) | ||||||||||
UF | — | — | — | — | ||||||||||||
Foreign currency | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | (815 | ) | 4 | 301 | (511 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Financial Investments | ||||||||||||||||
Ch$ | (12 | ) | (32 | ) | (3,188 | ) | (3,232 | ) | ||||||||
UF | 2,632 | 39 | 4,521 | 7,192 | ||||||||||||
Foreign currency | 2,175 | — | 29,741 | 31,916 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 4,795 | 7 | 31,074 | 35,876 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Loans | ||||||||||||||||
Ch$ | 46,823 | (267 | ) | (30,492 | ) | 16,064 | ||||||||||
UF | 45,772 | (852 | ) | (94,839 | ) | (49,918 | ) | |||||||||
Foreign currency | (15,697 | ) | (84 | ) | (8,119 | ) | (23,901 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 76,898 | (1,203 | ) | (133,450 | ) | (57,755 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Interbank Loans | ||||||||||||||||
Ch$ | (1,643 | ) | (9 | ) | (728 | ) | (2,380 | ) | ||||||||
UF | — | — | — | — | ||||||||||||
Foreign currency | 1,021 | 2 | 366 | 1,389 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | (621 | ) | (7 | ) | (362 | ) | (991 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Investment under resale agreements | ||||||||||||||||
Ch$ | (129 | ) | (2 | ) | (149 | ) | (281 | ) | ||||||||
UF | (30 | ) | — | (3 | ) | (33 | ) | |||||||||
Foreign currency | (7,076 | ) | 186 | 7,637 | 748 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | (7,234 | ) | 184 | 7,485 | 434 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Other interest earning assets | ||||||||||||||||
Ch$ | — | — | — | — | ||||||||||||
UF | — | — | — | — | ||||||||||||
Foreign currency | (607 | ) | 33 | 2,878 | 2,303 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | (607 | ) | 33 | 2,878 | 2,303 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total interest earning assets | ||||||||||||||||
Ch$ | 44,224 | 305 | (34,258 | ) | 9,660 | |||||||||||
UF | 48,375 | (813 | ) | (90,321 | ) | (42,759 | ) | |||||||||
Foreign currency | (20,184 | ) | 137 | 32,502 | 12,455 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 72,415 | (981 | ) | (92,076 | ) | (20,644 | ) | |||||||||
|
|
|
|
|
|
|
|
72
Table of Contents
Increase (Decrease) from 2013 to 2014 due to changes in | Net Change from 2013 to 2014 | |||||||||||||||
Volume | Rate | Rate and Volume | ||||||||||||||
(in million of Ch$) | ||||||||||||||||
LIABILITIES | ||||||||||||||||
INTEREST BEARING LIABILITIES | ||||||||||||||||
Time Deposits | ||||||||||||||||
Ch$ | 4,696 | (510 | ) | (51,491 | ) | (47,306 | ) | |||||||||
UF | (6,177 | ) | 127 | 9,956 | 3,905 | |||||||||||
Foreign currency | 30,083 | 6 | 834 | 30,923 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 28,602 | (377 | ) | (40,702 | ) | (12,477 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Central Bank borrowings | ||||||||||||||||
Ch$ | — | — | — | — | ||||||||||||
UF | — | — | — | — | ||||||||||||
Foreign currency | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Repurchase Agreements | ||||||||||||||||
Ch$ | (3,114 | ) | (10 | ) | (341 | ) | (3,465 | ) | ||||||||
UF | — | — | (132 | ) | (132 | ) | ||||||||||
Foreign currency | 7,573 | 53 | 9,377 | 17,003 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 4,459 | 43 | 8,904 | 13,406 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Mortgage finance bonds | ||||||||||||||||
Ch$ | — | — | — | — | ||||||||||||
UF | (1,597 | ) | 46 | 3,694 | 2,143 | |||||||||||
Foreign currency | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | (1,597 | ) | 46 | 3,694 | 2,143 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Bonds | ||||||||||||||||
Ch$ | 62 | (289 | ) | (28,672 | ) | (28,899 | ) | |||||||||
UF | 2,216 | 701 | 71,466 | 74,382 | ||||||||||||
Foreign currency | 8,355 | 169 | 26,910 | 35,433 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 10,632 | 581 | 69,704 | 80,916 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other interest bearing liabilities | ||||||||||||||||
Ch$ | (1,096 | ) | 86 | 10,887 | 9,876 | |||||||||||
UF | (169 | ) | 26 | 2,251 | 2,109 | |||||||||||
Foreign currency | 21,153 | 157 | 22,542 | 43,852 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 19,887 | 268 | 35,680 | 55,837 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total interest bearing liabilities | ||||||||||||||||
Ch$ | 547 | (723 | ) | (69,617 | ) | (69,794 | ) | |||||||||
UF | (5,727 | ) | 899 | 87,235 | 82,407 | |||||||||||
Foreign currency | 67,163 | 385 | 59,663 | 127,211 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 61,983 | 561 | 77,281 | 139,824 | ||||||||||||
|
|
|
|
|
|
|
|
73
Table of Contents
Increase (Decrease) from 2014 to 2015 due to changes in | ||||||||||||||||
Volume | Rate | Rate and Volume | Net change from 2014 to 2015 | |||||||||||||
(in million of Ch$) | ||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
INTEREST BEARING LIABILITIES | ||||||||||||||||
Time deposits | ||||||||||||||||
Ch$ | 6,520 | (260 | ) | (26,606 | ) | (20,347 | ) | |||||||||
UF | 15,241 | (97 | ) | (13,918 | ) | 1,226 | ||||||||||
Foreign currency | 1,750 | (22 | ) | (2,164 | ) | (436 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 23,511 | (378 | ) | (42,688 | ) | (19,557 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Central Bank borrowings | ||||||||||||||||
Ch$ | — | — | — | — | ||||||||||||
UF | — | — | — | — | ||||||||||||
Foreign currency | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Repurchase agreements | ||||||||||||||||
Ch$ | 2,535 | (3 | ) | (933 | ) | 1,599 | ||||||||||
UF | — | — | (19 | ) | (19 | ) | ||||||||||
Foreign currency | 20,569 | (78 | ) | (13,729 | ) | 6,762 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 23,105 | (81 | ) | (14,681 | ) | 8,342 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Mortgage finance bonds | ||||||||||||||||
Ch$ | (1 | ) | — | — | (1 | ) | ||||||||||
UF | (1,826 | ) | (17 | ) | (1,366 | ) | (3,209 | ) | ||||||||
Foreign currency | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | (1,827 | ) | (17 | ) | (1,366 | ) | (3,210 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Bonds | ||||||||||||||||
Ch$ | (741 | ) | 19 | 1,447 | 726 | |||||||||||
UF | 5,831 | (257 | ) | (26,496 | ) | (20,923 | ) | |||||||||
Foreign currency | 18,526 | (10 | ) | (1,392 | ) | 17,123 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 23,616 | (248 | ) | (26,441 | ) | (3,074 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Other interest bearing liabilities | ||||||||||||||||
Ch$ | 732 | (10 | ) | (1,089 | ) | (368 | ) | |||||||||
UF | (393 | ) | (13 | ) | (1,148 | ) | (1,553 | ) | ||||||||
Foreign currency | 739 | 83 | 8,259 | 9,081 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 1,078 | 60 | 6,022 | 7,160 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total interest bearing liabilities | ||||||||||||||||
Ch$ | 9,046 | (254 | ) | (27,180 | ) | (18,391 | ) | |||||||||
UF | 18,853 | (384 | ) | (42,948 | ) | (24,478 | ) | |||||||||
Foreign currency | 41,584 | (27 | ) | (9,026 | ) | 32,530 | ||||||||||
Total | 69,483 | (665 | ) | (79,154 | ) | (10,339 | ) | |||||||||
|
|
|
|
|
|
|
|
Return on Equity and Assets
The following tables set forth our return on average shareholders’ equity and average total assets and related information for each of the periods indicated.
74
Table of Contents
Years ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$, except for percentages) | ||||||||||||
Net income | 175,239 | 273,701 | 238,665 | |||||||||
Net income attributable to the equity holders of the Bank | 162,422 | 233,997 | 216,321 | |||||||||
Average total assets | 15,398,217 | 19,345,868 | 20,674,205 | |||||||||
Average equity | 1,376,012 | 1,504,727 | 1,326,176 | |||||||||
Net income as a percentage of: | ||||||||||||
Average total assets | 1.14 | % | 1.41 | % | 1.15 | % | ||||||
Average equity | 12.74 | % | 18.19 | % | 18.00 | % | ||||||
Average equity as a percentage of: | ||||||||||||
Average total assets | 8.94 | % | 7.78 | % | 6.41 | % | ||||||
Proposed annual cash dividend (*) | 88,403 | 113,130 | 104,082 | |||||||||
Special cash dividend (**) | 239,860 | |||||||||||
Dividend payout ratio, based on net income attributable to shareholders under local GAAP (***) | 57 | % | 50 | % | 51.58 | % |
(*) | Dividend proposed by the board of directors for shareholders approval in Annual General Shareholders Meeting. |
(**) | In 2015, CorpBanca paid its annual dividend of Ch$0.3321397925/share on March 13, 2015 (equivalent to a payout ratio of 50%) and additionally paid a special dividend of Ch$0.704728148/share on July 1, 2015 against retained earnings. |
(***) | The 51.58% payout ratio for 2015 considers (i) a 50% payout ratio (Ch$0.29640983/share); and (ii) a remaining of UF 124,105 pending of distribution form the special dividend approved by shareholders in EGM of June 26, 2015 and paid on July 1, 2015 (Ch$0.00939188/share). |
Investment Portfolio
Financial investments are classified at the time of the purchase, based on management’s intentions, as either trading or investment instruments, the latter of which are categorized as available-for-sale or held to maturity.
Financial investments as of December 31, 2013, 2014 and 2015 are as follows:
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
Held-for-trading: | ||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||
Chilean Central Bank bonds | 746 | — | — | |||||||||
Chilean Central Bank notes | — | — | — | |||||||||
Other Chilean Central Bank and Government securities | 9,106 | 4,822 | 6,210 | |||||||||
Other national institution securities: | ||||||||||||
Bonds | — | 2,548 | 2,340 | |||||||||
Notes | 18,582 | 13,320 | 34,404 | |||||||||
Other securities | 133 | 15 | 551 | |||||||||
Foreign institution securities: | ||||||||||||
Bonds | 326,141 | 542,791 | 192,427 | |||||||||
Notes | — | — | — | |||||||||
Other securities | 64,443 | 110,615 | 57,875 | |||||||||
Mutual funds investments | ||||||||||||
Funds managed by related organizations | 12,495 | 11,787 | 28,092 | |||||||||
Funds managed by third parties | 37 | — | 2,000 | |||||||||
|
|
|
|
|
| |||||||
Total | 431,683 | 685,898 | 323,899 | |||||||||
|
|
|
|
|
|
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As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
Available-for-sale | (in million of Ch$) | |||||||||||
Chilean Central Bank and Government securities | ||||||||||||
Chilean Central Bank and Government securities | 334,718 | 276,487 | 527,444 | |||||||||
Chilean Central Bank Notes | 847 | 253,999 | 258,306 | |||||||||
Other Government securities | 21,769 | 6,442 | 859 | |||||||||
Other financial instruments | ||||||||||||
Promissory notes related to deposits in local banks | 78,712 | 54,162 | 65,778 | |||||||||
Chilean mortgage finance bonds | 313 | 203 | 92 | |||||||||
Chilean financial institutions bonds | 17,985 | — | 29,329 | |||||||||
Other local investments | 136,623 | 51,526 | 53,630 | |||||||||
Financial instruments issued abroad | ||||||||||||
Foreign government and central banks instruments | 212,280 | 434,392 | 629,297 | |||||||||
Other foreign investments | 85,840 | 79,685 | 360,053 | |||||||||
Impairment provision | — | — | — | |||||||||
Unquoted securities in active markets | ||||||||||||
Chilean corporate bonds | — | — | — | |||||||||
Other investments | — | — | — | |||||||||
Impairment provision | — | — | — | |||||||||
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| |||||||
Total | 889,087 | 1,156,896 | 1,924,788 | |||||||||
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|
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
Held to maturity | (in million of Ch$) | |||||||||||
Central Bank and Government securities | ||||||||||||
Chilean Central Bank securities | — | — | — | |||||||||
Chilean treasury bonds | — | — | — | |||||||||
Other Government securities | — | — | — | |||||||||
Other financial securities | ||||||||||||
Promissory notes related to deposits in local banks | — | — | — | |||||||||
Chilean mortgage finance bonds | — | — | — | |||||||||
Chilean financial institution bonds | — | — | — | |||||||||
Other local investments | 8,632 | 7,175 | 5,543 | |||||||||
Financial instruments issued abroad | ||||||||||||
Foreign government and central banks instruments | 93,750 | — | — | |||||||||
Other foreign investments | 135,140 | 183,502 | 164,648 | |||||||||
Impairment provision | — | — | — | |||||||||
Unquoted securities in active markets | ||||||||||||
Chilean corporate bonds | — | — | — | |||||||||
Other investments | — | — | — | |||||||||
Impairment provision | — | — | — | |||||||||
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| |||||||
Total | 237,522 | 190,677 | 170,191 | |||||||||
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|
We do not hold securities of any issuer other than the Central Bank of Chile and the Colombian Ministry of Finance, in which the aggregate book value of the investment in such securities exceeds 10% of our shareholders’ equity as of the end of the latest reported period.
The following table sets forth an analysis of our investments, by time remaining to maturity and the weighted average nominal rates of such investments, as of December 31, 2015:
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Held—for—trading | In one year or less | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | ||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||||||||||||||||||
Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Chilean Central Bank notes | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Others Government securities | 6,210 | — | — | — | — | — | — | — | 6,210 | |||||||||||||||||||||||||||
Other national institution securities: | ||||||||||||||||||||||||||||||||||||
Bonds | 1,561 | — | — | — | — | — | 779 | 1.58 | 2,340 | |||||||||||||||||||||||||||
Notes | 34,404 | 0.11 | — | — | — | — | — | — | 34,404 | |||||||||||||||||||||||||||
Other securities | 551 | — | — | — | — | — | — | — | 551 | |||||||||||||||||||||||||||
Foreign institution securities: | ||||||||||||||||||||||||||||||||||||
Bonds | 211 | 0.01 | 21,076 | 0.07 | 102,804 | 0.06 | 68,336 | 0.07 | 192,427 | |||||||||||||||||||||||||||
Notes | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other securities | 46,708 | 0.04 | 8,978 | 0.03 | — | — | 2,189 | 0.06 | 57,875 | |||||||||||||||||||||||||||
Mutual fund investments: | ||||||||||||||||||||||||||||||||||||
Funds managed by related organizations | 21,954 | 1.00 | 6,138 | 0.072 | — | — | — | — | 28,092 | |||||||||||||||||||||||||||
Funds managed by third parties | 2,000 | 0.50 | — | — | — | — | — | — | 2,000 | |||||||||||||||||||||||||||
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Total Held—for—trading | 113,599 | 0.25 | 36,192 | 0.06 | 102,804 | 0.06 | 71,304 | 0.09 | 323,899 | |||||||||||||||||||||||||||
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| |||||||||||||||||||
Available—for—sale | In one year or less | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | ||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | 81,672 | 0.68 | 331,979 | 0.59 | 113,793 | 0.59 | — | — | 527,444 | |||||||||||||||||||||||||||
Chilean treasury bonds | 10,086 | 0.81 | 214,738 | 0.65 | 33,482 | 0.47 | — | — | 258,306 | |||||||||||||||||||||||||||
Others Government securities | 859 | 0.63 | — | — | — | — | — | — | 859 | |||||||||||||||||||||||||||
Other financial instruments: | ||||||||||||||||||||||||||||||||||||
Promissory notes related to deposits in local banks | 65,778 | 0.28 | — | — | — | — | — | — | 65,778 | |||||||||||||||||||||||||||
Chilean mortgage finance bonds | 16 | 1.01 | 44 | 1.04 | 31 | 0.91 | — | — | 92 | |||||||||||||||||||||||||||
Chilean financial institution bonds | — | — | 29,329 | 1.29 | — | — | — | — | 29,329 | |||||||||||||||||||||||||||
Other local investments | 5,843 | 1.25 | 14,480 | 1.29 | 33,252 | 1.23 | 56 | 0.92 | 53,630 | |||||||||||||||||||||||||||
Financial instruments issued abroad: | ||||||||||||||||||||||||||||||||||||
Foreign Government and central bank instruments | 132,086 | 0.05 | 340,439 | 0.05 | 117,231 | 0.05 | 39,541 | 0.05 | 629,297 | |||||||||||||||||||||||||||
Other foreign investments | 135,035 | 2.35 | 168,072 | 8.63 | 46,917 | 8.16 | 10,031 | 6.15 | 360,053 | |||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Unquoted securities in active markets | ||||||||||||||||||||||||||||||||||||
Chilean corporate bonds | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other foreign investments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
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| |||||||||||||||||||
Total | 431,375 | 0.22 | 1,099,080 | 0.37 | 344,706 | 0.38 | 49,628 | 0.04 | 1,924,788 | |||||||||||||||||||||||||||
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Held to maturity | Within one year | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | ||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Chilean treasury bonds | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other Government securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other financial instruments: | ||||||||||||||||||||||||||||||||||||
Promissory notes related to deposits in local banks | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Chilean mortgage finance bonds | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Chilean financial institution bonds | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other local investments | 2,171 | 0.96 | 3,372 | 0.96 | — | — | — | — | 5,543 | |||||||||||||||||||||||||||
Financial instruments issued abroad: | ||||||||||||||||||||||||||||||||||||
Foreign government and central bank instruments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other foreign investments | 149,932 | 1.01 | 8,968 | 0.05 | — | — | 5,748 | 0.05 | 164,648 | |||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Unquoted securities in active markets | ||||||||||||||||||||||||||||||||||||
Chilean corporate bonds | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other investments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
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| |||||||||||||||||||
Total | 152,103 | 0.01 | 12,340 | 0.26 | 0 | 0.0 | 5,748 | 0.00 | 170,191 | |||||||||||||||||||||||||||
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Loan portfolio
The following table presents our loans by type of loan. Except where otherwise specified, all loan amounts stated below are before deduction for the allowance for loan losses. Total loans reflect our loan portfolio, including past due principal amounts.
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||
Commercial loans | 4,345,731 | 6,453,176 | 7,689,427 | 8,303,078 | 8,821,860 | |||||||||||||||
Foreign trade loans | 388,981 | 424,824 | 459,074 | 505,551 | 521,339 | |||||||||||||||
Current account debtors | 13,499 | 29,245 | 27,935 | 34,850 | 28,732 | |||||||||||||||
Factoring operations | 95,026 | 87,622 | 75,384 | 69,914 | 62,013 | |||||||||||||||
Leasing transactions | 293,726 | 341,294 | 811,882 | 866,492 | 888,189 | |||||||||||||||
Other loans and receivables | 78,433 | 158,699 | 221,754 | 310,590 | 374,385 | |||||||||||||||
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| |||||||||||
Subtotals | 5,215,396 | 7,494,860 | 9,285,456 | 10,090,475 | 10,696,518 | |||||||||||||||
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Mortgage loans: | ||||||||||||||||||||
Letters of credit loans | 102,377 | 87,211 | 74,049 | 64,622 | 54,372 | |||||||||||||||
Endorsable mutual mortgage loans | 241,653 | 216,627 | 196,359 | 182,314 | 161,438 | |||||||||||||||
Other mutual mortgage loans | 785,537 | 1,186,207 | 1,419,811 | 1,666,311 | 1,701,573 | |||||||||||||||
Leasing transactions | 138 | 61 | 260,883 | 280,573 | 278,882 | |||||||||||||||
Other loans and receivables | 46,223 | 41,869 | 37,874 | 35,738 | 32,354 | |||||||||||||||
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|
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Subtotals | 1,175,928 | 1,531,975 | 1,988,976 | 2,229,558 | 2,228,619 | |||||||||||||||
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Consumer loans: | ||||||||||||||||||||
Consumer loans | 266,953 | 779,735 | 1,061,996 | 1,130,858 | 1,298,817 | |||||||||||||||
Current account debtors | 25,454 | 29,398 | 40,012 | 47,564 | 52,488 | |||||||||||||||
Credit card debtors | 55,278 | 156,939 | 228,776 | 241,701 | 244,942 | |||||||||||||||
Consumer leasing transactions | 729 | 782 | 21,582 | 19,761 | 18,168 | |||||||||||||||
Other loans and receivables | 74,707 | 109,802 | 270,883 | 269,958 | 88,744 | |||||||||||||||
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Subtotals | 423,121 | 1,076,656 | 1,623,249 | 1,709,842 | 1,703,159 | |||||||||||||||
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Loans | 6,814,445 | 10,103,491 | 12,897,681 | 14,029,875 | 14,628,296 | |||||||||||||||
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Loans and receivables from Banks | 304,622 | 482,549 | 218,081 | 814,480 | 452,069 | |||||||||||||||
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| |||||||||||
Total | 7,119,067 | 10,586,040 | 13,115,762 | 14,844,355 | 15,080,365 | |||||||||||||||
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The loan categories are as follows:
Commercial loans
Commercial loans: Commercial loans are long- and short-term loans granted to corporations and individuals, including checking overdraft lines for companies, in Chilean pesos, inflation linked UF, US$ or Colombian pesos on an adjustable or fixed rate basis, primarily to finance working capital or investments. Commercial loans represent the largest portion of our loan portfolio. Interest accrues daily on a 30-day or 360-day basis. Loan payments are scheduled monthly, biannually or yearly, depending on the terms of the loan.
Foreign trade loans: Foreign trade loans are fixed rate, short-term loans made in foreign currency (principally US$) to finance imports or exports.
Current account debtors: The term “current account debtors” refers to our customers that receive short-term operating loans with a pre-approved credit limit. This category includes overdrafts loans.
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Factoring operations: Factoring operations refer to the transactions in which our customers assign their accounts receivable (invoices, bills, among others) to us, which allows them to convert their sales into cash regardless the original terms agreed for payment, improving their liquidity, financial indices and also delegating the collection management efforts to us and/or our subsidiaries.
Leasing transactions: Leasing transactions are agreements for the financial lease of capital equipment and other property of our clients.
Other loans and receivables: Other loans and receivables refer to outstanding loans including commercial loans not classified in any of the categories described above.
Mortgage loans
Mortgage loans: This category includes mortgage loans granted to individuals in order to acquire, expand, repair or build residential houses or apartments. Mortgage loans are granted in the form of letters of credit or other endorsable instruments/credit operations. This category also includes liaison credits granted before the mortgage loans are perfected; bilateral loans for purposes ancillary to the ones mentioned above; housing leasing operations and other receivables. Any loan granted to repay or restructure all or part of the credits described above belongs in this category.
Mortgage loans include the following sub-categories:
Letters of credit loans:Thissub-category includesinflation-indexed, fixed or variable rate, long-term loans with monthly payments of principal and interest secured by a real property mortgage that are financed with mortgage notes. At the time of the approval of the relevant loan by the bank, these mortgage loans cannot exceed 75% of the lower of the purchase price or the appraised value of the mortgaged property. Letter of credit loans are our general obligations, and we are liable for all principal and accrued interest on such Notes. The main difference between Letter of credit loans or Mortgages Bonds is the fact that Letter of credit loans fund specific mortgage loans (on a credit by credit basis) while Mortgages Bonds fund portfolios of mortgage loans.
Endorsable mutual mortgage loans:Thissub-category includes outstanding balances due from housing loans with mortgage loans which funding was obtained by the placement of mortgage bonds.
Mortgage bonds backed loans:Thissub-category includes long-term inflation-indexed mortgage loans (fixed and variable rate) with monthly payments of principal and interest secured by a real property mortgage that are financed by mortgage bonds.
Other mutual mortgage loans:Thissub-category includes inflation-indexed long-term mortgage loans (fixed and variable rate) with monthly payments of principal and interest secured by a real property mortgage that are financed by our general borrowings.
Housing Leasing transactions:Thissub-category includes outstanding balances owed by tenants in financial leases transactions
Other loans and receivables:Thissub-category includes loans that are ancillary or that complement mutual mortgage loans.
The balances of the renegotiated mortgage loans as of December 31, 2013, 2014 and 2015 were as follows:
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As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
Opening balance(1) | 1,748 | 3,090 | 5,914 | |||||||||
Renegotiated(2) | 4,744 | 3,170 | 928 | |||||||||
Recovery(3) | (2,828 | ) | (252 | ) | (931 | ) | ||||||
Write-offs(4) | (574 | ) | (94 | ) | (319 | ) | ||||||
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Final balance | 3,090 | 5,914 | 5,592 | |||||||||
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1) | Corresponds to the renegotiated portfolio opening balance. |
2) | Corresponds to the additions to the renegotiated loans portfolio during each respective period. |
3) | Corresponds to the recovery (which may include payments, or settlements by judicial action) obtained from renegotiated loans during each respective period. |
4) | Corresponds to write-offs of renegotiated loans during each respective period. |
Consumer loans
Consumer loans. This category includes all loans granted to individuals for the purpose of acquiring consumer goods or services, except for student loans. It includes different types of loans (such as loans payable in installments or revolving loans) and outstanding balances arising from the utilization of credit cards by individuals or overdrafts on checking accounts. In addition, this category includes leasing operations for consumer purposes and other receivables. Any loan granted to repay or restructure all or part of the credits described above belongs in this category.
Consumer loans include the following sub-categories:
Consumer loans: This sub-category is comprised by loans granted to individuals in Chilean pesos, generally on a fixed rate nominal basis, to finance the purchase of consumer goods or to pay for services. This loans are generally paid in monthly installments which include principal amortization and interest payments.
Current account debtors: This sub-category includes checking overdraft lines granted to individuals, in Chilean pesos, generally on a fixed rate nominal basis and linked to an individual’s checking account.
Credit card debtors: This sub-category includes outstanding balances arising from the use of credit cards by individuals.
Consumer leasing transactions: This sub-categoryincludes outstanding balances owed by tenants of consumer goods under financial leasing transactions.
Other loans and receivables: This sub-categoryincludes other revolving consumer loans and other accounts receivable granted to individuals not included in the above categories.
The balances of the renegotiated consumer loans as of December 31, 2013, 2014 and 2015 were as follows:
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
Opening balance(1) | 58,803 | 82,483 | 106,904 | |||||||||
Renegotiated(2) | 68,049 | 68,169 | 49,669 | |||||||||
Recovery(3) | (31,182 | ) | (34,660 | ) | (41,346 | ) | ||||||
Write-offs(4) | (13,187 | ) | (9,088 | ) | (17,432 | ) | ||||||
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| |||||||
Final balance | 82,483 | 106,904 | 97,795 | |||||||||
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(1) | Corresponds to the renegotiated portfolio opening balance. |
(2) | Corresponds to the additions to the renegotiated loans portfolio during each respective period. |
(3) | Corresponds to the recovery (which may include payments, or settlements by judicial action) obtained from renegotiated loans during each respective period. |
(4) | Corresponds to write-offs of renegotiated loans during each respective period. |
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As part of our business model we seek to be able to assist our customers when they are experiencing financial problems that cause them to fall behind on their payments. As a result, we make certain concessions when we renegotiate a loan, which may include the following: (i) extension of payment period; (ii) modifications to the interest rate based on each customer’s ability to pay; and (iii) forgiveness of interest payments.
The above-mentioned concessions are considered on a case-by-case basis. The grant of any concessions will depend on the situation of each customer and pursuant to the analysis by the branch agent in charge of such loan. We do not quantify the balance of consumer loans we have renegotiated by type of concession.
We use several types of concessions, frequently used in the market, to renegotiate our loans such as payment extensions, new operations or external refinancing to reduce the probability of losing the amount of the loan that the client has with us and improve collections.
With respect to the renegotiated loan portfolio, most of the loans are classified as impaired, and therefore the associated allowance for loan losses are based on the fair value less estimated cost to sell of the underlying collateral of each loan. To reclassify a renegotiated loan out of the impaired classification we conduct an individualized analysis of each customer. We consider if the customer has paid its loan for a reasonable period of time and the expected behavior of the customer for paying the remainder of the loan. In order to remove the renegotiated status from a loan, a customer must have improved its payment ability (credit risk profile) and must also demonstrate an improvement in its payment history. Once a minimum period of 4 to 6 months has passed, and a debtor’s situation has been duly rectified and documented, an executive in the commercial loan department may request that the renegotiated status of such loan be removed by the Assets Control Management team (which is an independent group in the commercial loan department that has the sole authority to change the risk classification of a loan). An executive in the commercial loan department has the exclusive authority to request a new classification on behalf of a customer.
The method of determining the allowance and provision for loan losses described in this section represents Chilean Bank GAAP accounting and is a regulatory required disclosure. This information has been provided in order to provide the reader with a more in-depth analysis. Notwithstanding, our allowance and provision for loan losses as recorded in our financial statements included herein have been determined in accordance with IFRS.
Normalization Portfolio
The balances of the normalization portfolio for 2013, 2014 and 2015 are as follows:
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As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
Opening balance(1) | 124,047 | 144,748 | 181,909 | |||||||||
Additions to normalization portfolio(2) | 88,797 | 91,274 | 167,882 | |||||||||
Recovery(3) | (43,748 | ) | (41,413 | ) | (57,932 | ) | ||||||
Write-offs(4) | (24,348 | ) | (12,699 | ) | (19,939 | ) | ||||||
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| |||||||
Final balance(5) | 144,748 | 181,909 | 271,920 | |||||||||
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1) | Corresponds to the opening balance of the normalization portfolio. |
2) | Corresponds to the additions to the normalization loans portfolio during each respective period. |
3) | Corresponds to the recovery (which may include payments, or settlements by judicial action) obtained from normalization loans during each respective period. |
4) | Corresponds to write-offs of normalization loans during each respective period. |
5) | Corresponds to the ending balance of the normalization portfolio. |
We have a group that handles loans referred to as our normalization portfolio. The activities of such group include:
• | Analyzing the status of borrowers to assess the chances of recovery; |
• | Establishing strategies and action plans to arrive at negotiated payment schedules; |
• | Making the decision, based on the compliance with negotiated payment schedules, whether to transfer debtors to court collection; |
• | Supervising and monitoring the progress of legal collection; and |
• | Establishing mechanisms for the control and monitoring of impaired customers and the transfer of such customers to the functional area of normalization. |
Because the group acts as one unit and the group’s aim is the management of this portfolio as a whole, we believe that the activity in the table presented above best represents the activities that we undertake with respect to those loans. The main difference between normalization portfolio and renegotiated portfolio for commercial loans, is that loans may be transferred to the normalization portfolio prior to the commencement of the renegotiation process to the extent, as defined internally, that the loan has demonstrated evidence of credit deterioration through deterioration in rating category, among others, requiring specific portfolio management procedures.
Treatment of debtors with commercial operations higher than UF1,000:
A loan from a customer classified as Large Companies, Corporate and Real Estate, Corporate Banking, SME Banking and Private Banking segments, which meet one of the following conditions, will be transferred to the normalization portfolio:
• | Customers with a risk grade of C3 or worse. |
• | Customers in default (for 90 days or more). After a 90-day period, the customer will be transferred to the normalization portfolio if such customer is unable to remedy the default. |
• | Customers that experience a sudden and severe deterioration in their financial position, and/or customers that have entered into any payment arrangements with other creditors, and/or customer that need a higher commitment, regardless of their credit risk grade. |
• | Any customer that could possibly result in a loss to the Bank, even if they are not in default. |
Treatment for debtors with commercial operations less than UF1,000:
• | Management and collection is under the supervision of the executive in the segment where such loan originated. |
• | Debtors with loan balances exceeding UF50 and in default for more than 90 days, unless under exceptional circumstances, will be transferred to collection, which will be under the supervision of the executive within the commercial loan segment. |
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The loan or loans that will be transferred to the normalization portfolio following any of the aforementioned conditions must be transferred with the debtor’s entire portfolio consisting of all of the transactions and balance of such customer with the Bank. The normalization portfolio management team is responsible for determining any action that will be taken against the customer (renegotiation of the loan or collection), within a period not exceeding 30 days.
No customer with a risk higher than UF1,000 can be sent to collection without first being transferred to the normalization portfolio.
Any customer in default for more than 120 days and with a debt higher than UF50, and not having completed renegotiation of the loan, must be sent to collection. Any exception to this deadline must be approved by the normalization portfolio management team.
Risk Index of Our Loan Portfolio
The risk index is calculated as ratio of the allowance for loan losses over total loans. Our risk index for commercial loans is calculated by including commercial current account debtors, foreign trade loans, commercial leases, factoring and other commercial loans. Mortgage loans include mortgage leasing arrangements and consumer mortgage loans, which include consumer leasing.
Commercial loans. Our risk index as of December 31, 2013, 2014 and 2015 was 1.0%, 1.0% and 1.3% respectively. The quality of our commercial loans depends on Chilean GDP growth, interest rates, changes in regulations, the general level of indebtedness and other economic conditions. Commercial loans include foreign trade loans, leasing contracts and factored receivables.
The main objective of our credit risk division is to maintain an adequate risk-return ratio for our assets, providing balance between commercial business goals and sound risk acceptance criteria, in accordance with our strategic objectives. This division’s work is based on its associates’ experience in evaluating credit risk using specialized, segmented management techniques, which has enabled it to build a sound, risk-conscious culture aligned with our strategy.
Such division helps define credit processes for the companies segment, including approval, monitoring and collections practices, using a regulatory and preventive outlook on credit risk. It also actively participates in loan approval and monitoring processes, which has helped us spread a risk-focused culture throughout the bank, reinforced by ongoing training for sales and risk executives. The division also directly manages higher risk loans in order to maximize recovery using a specialized approach.
Finally, the division’s assets quality ratios developed less favorably in comparison to 2014. Nevertheless, our asset quality ratios, including the risk index, the non performing loans and the past-due loans, continued to outperform the financial system.
Mortgage loans. The risk index of our residential mortgage loans as of December 31, 2013, 2014 and 2015 was 0.4%, 0.3% and 0.4%, respectively.
Despite of the increase between 2014 and 2015 it is important to consider that (i) non performing loans for this segment has decreased by 1.3%; and (ii) commercial activity in this segment was self constraint in preparation for the new SBIF’s standard credit-provisioning model for residential mortgage loans that is effective in Chile since January 2016, though this portfolio remained stable in 2015. Therefore, on the one hand this impacted Risk Index but on the other, benefited the coverage for non performing loans.
CorpBanca’s model for mortgage loans collectively evaluated for impairment recognizes loan losses only when they are incurred, in accordance with the guidance in IAS 39.BC109, and consistent with paragraph BC108 and BC110 of the same (as indicated in paragraph IAS 39.108 “a deterioration in the credit quality of an asset or a group of assets after their initial recognition”) and does not recognize impairment on the basis of expected future transactions or events. Thus, for a loss to be incurred, an event that provides objective evidence of impairment must have occurred and be supported by current observable data.
Consumer loans. The risk index of our consumer loans as of December 31, 2013, 2014 and 2015 was 1.7%, 2.0% and 1.5% respectively.
Consumer risk index decreased due to the credit quality improvement of new loans and also due to our risk management and collection performance.
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Lastly, the division also created a risk committee, or the Risk Committee, comprised of directors and senior executives that continuously monitor division activities based on the objectives of the bank and the business segment.
We consider CorpBanca’s Risk Index to be an important indicator of the quality of CorpBanca’s loan portfolio. As calculated pursuant to the requirements of the SBIF, the Risk Index includes an adjustment for acquired loans to reflect the total of the portfolio by adding back the valuation allowance for the contractual cash flows that are deemed to be uncollectible at the date of acquisition. This has had impact on our Risk Index as calculated for purposes of the SBIF given that our loan portfolio is comprised of two types of loans in terms of their origination: (i) loans originated as a part of our day-to-day activities; and (ii) loans acquired through business combinations. The latter refers to loans that became part of our portfolio as a result of the acquisitions of CorpBanca Colombia and Helm Bank. We refer to the calculation of this Risk Index pursuant to the SBIF requirements as our SBIF Risk Index.
The adjustment described above is not utilized for purposes of calculating the Risk Index using our IFRS financial information. IFRS 3 Business Combination, provides that: “The acquirer shall not recognize a separate valuation allowance as of the acquisition date for assets acquired in a business combination that are measured at their acquisition-date fair values because the effects of uncertainty about future cash flows are included in the fair value measure.” Therefore, for loans acquired through business combinations, no allowance for loan losses is recorded at the combination or acquisition date. We refer to our Risk Index as calculated using our IFRS financial information as our IFRS Risk Index.
According to this information, our IFRS Risk Index as of December 31, 2014 and 2015 (calculated using general ledger balances) was:
IFRS RISK INDEX | ||||||||||||
as of December 31, | % Change from 2015/2014 | |||||||||||
2014 | 2015 | |||||||||||
(in million of constant Ch$ as of December 31, 2015 except for percentages) | ||||||||||||
Total loans (calculated pursuant to IFRS) | 14,029,875 | 14,628,296 | 4.3 | % | ||||||||
Commercial loans | 10,090,475 | 10,696,518 | 6.0 | % | ||||||||
Mortgage loans | 2,229,558 | 2,228,619 | 0.0 | % | ||||||||
Consumer loans | 1,709,842 | 1,703,159 | (0.4 | )% | ||||||||
Allowances for loan losses (calculated pursuant to IFRS) | 137,605 | 173,939 | 26.4 | % | ||||||||
Commercial loans | 96,009 | 138,721 | 44.5 | % | ||||||||
Mortgage loans | 7,762 | 8,832 | 13.8 | % | ||||||||
Consumer loans | 33,834 | 26,386 | (22.0 | )% | ||||||||
Allowances for loan losses as a percentage of total loans | 1.0 | % | 1.2 | % | 21.2 | % | ||||||
Commercial loans | 1.0 | % | 1.3 | % | 36.3 | % | ||||||
Mortgage loans | 0.3 | % | 0.4 | % | 13.8 | % | ||||||
Consumer loans | 2.0 | % | 1.5 | % | (21.7 | )% |
And our SBIF Risk Index as of December 31, 2014 and 2015 was:
SBIF RISK INDEX | ||||||||||||
as of December 31, | % Change from 2015/2014 | |||||||||||
2014 | 2015 | |||||||||||
(in million of constant Ch$ as of December 31, 2015 except for percentages) | ||||||||||||
Total loans (calculated pursuant to SBIF requirements) | 14,211,349 | 14,810,136 | 4.2 | % | ||||||||
Commercial loans | 10,200,131 | 10,806,540 | 5.9 | % | ||||||||
Mortgage loans | 2,244,885 | 2,243,946 | 0.0 | % | ||||||||
Consumer loans | 1,766,333 | 1,759,650 | (0.4 | )% | ||||||||
Allowances for loan losses (calculated pursuant to SBIF requirements) | 319,445 | 355,779 | 11.4 | % | ||||||||
Commercial loans | 206,031 | 254,167 | 23.4 | % | ||||||||
Mortgage loans | 23,089 | 18,735 | (18.9 | )% | ||||||||
Consumer loans | 90,325 | 82,877 | (8.2 | )% | ||||||||
Allowances for loan losses as a percentage of total loans | 2.2 | % | 2.4 | % | 6.9 | % | ||||||
Commercial loans | 2.0 | % | 2.4 | % | 16.4 | % | ||||||
Mortgage loans | 1.0 | % | 0.8 | % | (18.8 | )% | ||||||
Consumer loans | 5.1 | % | 4.7 | % | (7.9 | )% |
During 2015, our loan portfolio was negatively impacted by the slowdown in the Chilean and Colombian economies. While our loan portfolio grew by 4.3%, the composition of our loan portfolio as of December 31, 2015 reflected a greater increase in commercial loans, which is the segment with the lowest level of risk. Our portfolio of commercial loans increased from Ch$10,090,574 million to Ch$10,696,518 million and our mortgage loan portfolio, also one of our low risk segment, has remained quite stable between Ch$2,229,558 million in 2014 and Ch$2,228,619 million in 2015, these are increases of a 6.0% and 0.0%, respectively as compared to our portfolio of consumer loans, the segment with the highest level of risk, which decreased by 0.4%. As of December 31, 2015, consumer loans represented 11.6% of our total loan portfolio compared to 12.2% as of December 31, 2014.
The consumer loans segment represents the single highest level of risk in our loan portfolio. As of December 31, 2015, the risk index (ratio of allowance for loans losses over total loans) of this segment was 1.5% – reflecting a 0.5% decrease in 2015 – while other segments of our loan portfolio such as mortgage loans and commercial loans had lower risk indexes of 0.4% and 1.3%, respectively.
Our consumer loan portfolio may experience loan losses due to the absence of collateral in respect of unsecured loans, insufficient collateral in collateralized loans, and risks relating to the circumstances of individual borrowers, including unemployment or incapacitation of our consumer borrowers.
We significantly increased our allowances for loan losses as a consequence of difficulties experienced by the Colombian oil & gas industry and related sectors during the year 2015. However, the 26.4% increase in the allowances was mitigated by the decrease in our consumer loan portfolio which lead to lower allowances for loan losses in this segment. As aforementioned, the IFRS Risk Index of commercial loans’ and the mortgage loans’ segments is of 1.3% and 0.4%, respectively while the consumer loans’ segment has a IFRS Risk Index of 1.5%. For comparison purposes, the SBIF Risk Index of our commercial, mortgage and consumers’ loans’ segments is of 2.4%, 0.8% and 4.7%, respectively. The above explains the assertion that our asset quality, as measured by the IFRS Risk Indices, remains unchanged, despite the increase in our allowances for loan losses.
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Maturity and Interest Rate Sensitivity of Loans
The following table sets forth an analysis of our loans by type and time remaining to maturity as of December 31, 2015:
Balance as of December 31, 2015 | Due within one month | Due after 1 month through 6 months | Due after 6 month through 1 year | Due after 1 year through 3 years | Due after 3 years through 5 years | Due after 5 years | Total | |||||||||||||||||||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||||||||||||||||||||||
Commercial loans | 8,821,860 | 1,306,668 | 1,642,414 | 1,667,495 | 1,334,978 | 1,501,840 | 1,368,464 | 8,821,860 | ||||||||||||||||||||||||
Foreign trade loans | 521,339 | 150,153 | 221,267 | 38,611 | 50,828 | 47,312 | 13,169 | 521,339 | ||||||||||||||||||||||||
Current account debtors | 28,732 | 24,538 | 2,582 | 1,606 | 5 | — | — | 28,732 | ||||||||||||||||||||||||
Factoring operations | 62,013 | 31,114 | 28,365 | 1,242 | 828 | 465 | — | 62,013 | ||||||||||||||||||||||||
Leasing transactions | 888,189 | 26,453 | 35,175 | 45,913 | 183,295 | 199,506 | 397,847 | 888,189 | ||||||||||||||||||||||||
Other loans and receivables | 374,385 | 27,908 | 5,151 | 6,207 | 24,747 | 23,160 | 287,211 | 374,385 | ||||||||||||||||||||||||
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Subtotals | 10,696,518 | 1,566,834 | 1,934,954 | 1,761,074 | 1,594,681 | 1,772,283 | 2,066,691 | 10,696,518 | ||||||||||||||||||||||||
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Letters of credit loans | 54,372 | 1,028 | 3,116 | 3,722 | 12,793 | 10,193 | 23,521 | 54,372 | ||||||||||||||||||||||||
Endorsable mutual mortgage loans | 161,438 | 1,533 | 4,780 | 5,721 | 22,666 | 21,218 | 105,520 | 161,438 | ||||||||||||||||||||||||
Mutual loans financed mortgage bonds | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Other mutual mortgage loans | 1,701,573 | 22,048 | 43,424 | 50,521 | 266,742 | 105,175 | 1,213,664 | 1,701,573 | ||||||||||||||||||||||||
Leasing transactions | 278,882 | 1,083 | 189 | 782 | 3,386 | 12,166 | 261,277 | 278,882 | ||||||||||||||||||||||||
Other loans and receivables | 32,354 | 269 | 933 | 1,118 | 4,413 | 4,166 | 21,454 | 32,354 | ||||||||||||||||||||||||
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| |||||||||||||||||
Subtotals | 2,228,619 | 25,961 | 52,441 | 61,865 | 310,000 | 152,918 | 1,625,435 | 2,228,619 | ||||||||||||||||||||||||
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Consumer loans | 1,298,194 | 62,639 | 68,295 | 72,312 | 290,211 | 517,265 | 287,472 | 1,298,194 | ||||||||||||||||||||||||
Current account debtors | 52,488 | 37,793 | 10,496 | 4,199 | — | — | — | 52,488 | ||||||||||||||||||||||||
Credit card debtors | 244,942 | 213,144 | 24,449 | 7,348 | — | — | — | 244,942 | ||||||||||||||||||||||||
Consumer leasing transactions | 18,791 | 104 | 286 | 512 | 5,525 | 12,239 | 125 | 18,791 | ||||||||||||||||||||||||
Other loans and receivables | 88,744 | 30,100 | 13,313 | 14,199 | 31,083 | 34 | 15 | 88,744 | ||||||||||||||||||||||||
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Subtotals | 1,703,159 | 343,781 | 116,839 | 98,570 | 326,819 | 529,539 | 287,612 | 1,703,159 | ||||||||||||||||||||||||
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Subtotal loans | 14,628,296 | 1,936,576 | 2,104,234 | 1,921,509 | 2,231,500 | 2,454,739 | 3,979,739 | 14,628,296 | ||||||||||||||||||||||||
Loans and receivables to banks | 452,069 | |||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total loans | 15,080,365 | |||||||||||||||||||||||||||||||
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Due in 1 year | Due after 1 year through 5 years | Due after 5 years | Balance as of December 31, 2014 | |||||||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||||||
Commercial loans | 4,616,577 | 2,836,818 | 1,368,464 | 8,821,859 | ||||||||||||
Foreign trade loans | 410,031 | 98,140 | 13,169 | 521,339 | ||||||||||||
Current account debtors | 28,727 | 5 | — | 28,732 | ||||||||||||
Factoring operations | 60,721 | 1,293 | — | 62,013 | ||||||||||||
Leasing transactions | 107,541 | 382,801 | 397,847 | 888,189 | ||||||||||||
Other loans and receivables | 39,266 | 47,907 | 287,211 | 374,385 | ||||||||||||
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| |||||||||
Subtotals | 5,262,862 | 3,366,964 | 2,066,691 | 10,696,517 | ||||||||||||
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| |||||||||
Letters of credit loans | 7,866 | 22,986 | 23,521 | 54,372 | ||||||||||||
Endorsable mutual mortgage loans | 12,034 | 43,884 | 105,520 | 161,438 | ||||||||||||
Mutual loans financed mortgage bonds | — | — | — | — | ||||||||||||
Other mutual mortgage loans | 115,993 | 371,917 | 1,213,664 | 1,701,573 | ||||||||||||
Leasing transactions | 2,053 | 15,552 | 261,277 | 278,882 | ||||||||||||
Other loans and receivables | 2,321 | 8,579 | 21,454 | 32,354 | ||||||||||||
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| |||||||||
Subtotals | 140,267 | 462,918 | 1,625,435 | 2,228,619 | ||||||||||||
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| |||||||||
Consumer loans | 203,246 | 807,476 | 287,472 | 1,298,194 | ||||||||||||
Current account debtors | 52,488 | — | — | 52,488 | ||||||||||||
Credit card debtors | 244,941 | — | — | 244,942 | ||||||||||||
Consumer leasing transactions | 902 | 17,764 | 125 | 18,791 | ||||||||||||
Other loans and receivables | 57,612 | 31,117 | 15 | 88,744 | ||||||||||||
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| |||||||||
Subtotals | 559,190 | 856,357 | 287,612 | 1,703,159 | ||||||||||||
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| |||||||||
Subtotal loans | 5,962,319 | 4,686,239 | 3,979,739 | 14,628,296 | ||||||||||||
Loans and receivables to banks | 452,069 | |||||||||||||||
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Total loans | 15,080,365 | |||||||||||||||
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The following table presents the interest rate sensitivity of our outstanding loans due after one year as of December 31, 2015.
As of December 31, 2015 | ||||
Variable interest rate | ||||
Ch$ | 386,489 | |||
UF | 267,865 | |||
Ch$ indexed to US$ | 407,168 | |||
Foreign currency | 2,268,255 | |||
Subtotal | 3,329,776 | |||
Fixed interest rate | ||||
Ch$ | 949,773 | |||
UF | 2,348,767 | |||
Ch$ indexed to US$ | 8,202 | |||
Foreign currency | 2,029,460 | |||
Subtotal | 5,336,202 | |||
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Total | 8,665,978 | |||
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The following table sets forth an analysis of our foreign loans by type and time remaining to maturity as of December 31, 2015:
2015 | Due in 1 year or less | Due after 1 year through 5 years | Due after 5 year | Total | ||||||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||||||
Commercial loans | 512 | 64,031 | 62,791 | 127,334 | ||||||||||||
Foreign loans (*) | 1,404,180 | 1,979,969 | 1,991,400 | 5,375,550 | ||||||||||||
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Total | 1,404,693 | 2,044,001 | 2,054,191 | 5,502,884 |
(*) | Includes commercial, mortgage and consumer loans. |
Loans by Economic Activity
The following table sets forth as of the dates indicated, an analysis of our loan portfolio before provisions based on the borrower’s principal business activity:
20-F 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans by Economic Activity | Domestic Loans as of December 31, | Foreign Loans as of December 31, | Total Loans as of December 31, | Distribution percentage as of December 31, | ||||||||||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2013 | 2014 | 2015 | 2013 | 2014 | 2015 | 2013 | 2014 | 2015 | |||||||||||||||||||||||||||||||||||||
Manufacturing | 499,037 | 965,965 | 742,288 | 332,767 | 111,397 | 137,587 | 831,804 | 1,077,362 | 879,875 | 6.45 | % | 7.68 | % | 6.01 | % | |||||||||||||||||||||||||||||||||
Mining and Petroleum | 328,377 | 266,661 | 450,459 | 457,884 | 363,055 | 316,248 | 786,261 | 629,716 | 766,707 | 6.10 | % | 4.49 | % | 5.24 | % | |||||||||||||||||||||||||||||||||
Electricity, Gas and Water | 146,316 | 273,576 | 230,658 | 351,301 | 483,644 | 467,077 | 497,617 | 757,220 | 697,735 | 3.86 | % | 5.40 | % | 4.77 | % | |||||||||||||||||||||||||||||||||
Agriculture and Livestock | 179,008 | 179,863 | 239,540 | 123,906 | 123,166 | 123,981 | 302,914 | 303,029 | 363,521 | 2.35 | % | 2.16 | % | 2.49 | % | |||||||||||||||||||||||||||||||||
Forestry and wood extraction | 23,650 | 48,344 | 36,291 | 8,875 | 7,785 | 7,732 | 32,525 | 56,129 | 44,023 | 0.25 | % | 0.40 | % | 0.30 | % | |||||||||||||||||||||||||||||||||
Fishing | 1,212 | 2,199 | 3,252 | — | — | — | 1,212 | 2,199 | 3,252 | 0.01 | % | 0.02 | % | 0.02 | % | |||||||||||||||||||||||||||||||||
Transport and storage | 196,092 | 182,364 | 242,533 | 165,982 | 146,354 | 105,593 | 362,074 | 328,718 | 348,126 | 2.81 | % | 2.34 | % | 2.38 | % | |||||||||||||||||||||||||||||||||
Communications | 3,423 | 3,490 | 4,034 | 111,671 | 91,191 | 57,944 | 115,094 | 94,681 | 61,978 | 0.89 | % | 0.67 | % | 0.42 | % | |||||||||||||||||||||||||||||||||
Construction | 854,452 | 887,305 | 989,048 | 257,438 | 214,999 | 217,069 | 1,111,890 | 1,102,304 | 1,206,117 | 8.62 | % | 7.86 | % | 8.25 | % | |||||||||||||||||||||||||||||||||
Commerce | 434,713 | 415,695 | 500,551 | 1,034,412 | 943,143 | 808,876 | 1,469,125 | 1,358,838 | 1,309,427 | 11.39 | % | 9.69 | % | 8.95 | % | |||||||||||||||||||||||||||||||||
Services | 2,695,813 | 2,620,475 | 3,128,986 | 980,883 | 1,305,238 | 1,229,567 | 3,676,696 | 3,925,713 | 4,358,553 | 28.51 | % | 27.98 | % | 29.80 | % | |||||||||||||||||||||||||||||||||
Others | 70,829 | 286,578 | 202,313 | 27,415 | 167,988 | 454,891 | 98,244 | 454,566 | 657,204 | 0.76 | % | 3.24 | % | 4.49 | % | |||||||||||||||||||||||||||||||||
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Subtotal Commercial Loans | 5,432,922 | 6,132,515 | 6,769,953 | 3,852,534 | 3,957,960 | 3,926,565 | 9,285,456 | 10,090,475 | 10,696,518 | 72.00 | % | 71.93 | % | 73.12 | % | |||||||||||||||||||||||||||||||||
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Mortgage Loans (1) | 1,529,701 | 1,730,106 | 1,742,092 | 459,275 | 499,452 | 486,527 | 1,988,976 | 2,229,558 | 2,228,619 | 15.42 | % | 15.89 | % | 15.23 | % | |||||||||||||||||||||||||||||||||
Consumer Loans (1) | 504,940 | 568,426 | 613,367 | 1,118,309 | 1,141,416 | 1,089,792 | 1,623,249 | 1,709,842 | 1,703,159 | 12.58 | % | 12.18 | % | 11.64 | % | |||||||||||||||||||||||||||||||||
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Total | 7,467,563 | 8,431,047 | 9,125,412 | 5,430,118 | 5,598,828 | 5,502,884 | 12,897,681 | 14,029,875 | 14,628,296 | 100 | % | 100 | % | 100 | % | |||||||||||||||||||||||||||||||||
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(1) | Figures prepared according to IFRS. We have classified our loan portfolio taking into account the debtor that receives the loan. |
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Foreign Country Outstanding Loans
Our cross-border outstanding loans are principally trade-related. The table below lists our total amounts outstanding to borrowers in foreign countries as of December 31, 2013, 2014 and 2015. This table does not include foreign trade-related loans to Chilean borrowers.
As of December 31 | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in millions of constant Ch$) | ||||||||||||
Argentina | 7,401 | — | — | |||||||||
Brazil | 39,265 | 43,064 | 12,961 | |||||||||
Canada | — | 58,426 | 44,064 | |||||||||
Cayman Islands | 8,249 | 2,296 | — | |||||||||
Colombia | 5,142,110 | 4,921,473 | 4,802,783 | |||||||||
Costa Rica | 6,478 | 4,127 | 3,260 | |||||||||
Ecuador | — | 13,194 | 55 | |||||||||
Gabon | 4,529 | |||||||||||
Japan | 8,548 | 6,642 | 4,307 | |||||||||
Holland | 64,366 | 84,567 | 83,804 | |||||||||
Mexico | 81,729 | 78,243 | 73,953 | |||||||||
Panama | 10,490 | 244,440 | 322,414 | |||||||||
Peru | 31,060 | 97,572 | 71,835 | |||||||||
Switzerland | 23,450 | — | — | |||||||||
United States | 6,972 | 44,786 | 78,918 | |||||||||
|
|
|
|
|
| |||||||
Total | 5,430,118 | 5,598,828 | 5,502,884 | |||||||||
|
|
|
|
|
|
We also maintain deposits abroad (primarily demand deposits) in foreign banks, as needed to conduct our foreign trade transactions. The table below lists the amounts of foreign deposits by country as of December 31, 2013, 2014 and 2015.
As of December 31 | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in millions of constant Ch$) | ||||||||||||
Australia | 81 | 85 | 84 | |||||||||
Barbados | 792 | — | — | |||||||||
Belgium | 147 | 1,044 | 225 | |||||||||
Bulgaria | 12 | — | ||||||||||
Canada | 481 | 383 | 325 | |||||||||
China | 4 | 8 | 5 | |||||||||
Colombia | 392,106 | 312,337 | 274,646 | |||||||||
Denmark | 16 | 12 | 17 | |||||||||
France | 21 | 22 | — | |||||||||
Germany | 8,664 | 15,999 | 7,046 | |||||||||
Italy | 15 | 14 | 19 | |||||||||
Japan | 628 | 1,689 | 538 | |||||||||
Mexico | 81 | 8 | 32 | |||||||||
Norway | 5 | 81 | 15 | |||||||||
Panama | 37,297 | 1,890 | 1,887 | |||||||||
Spain | 7 | 75 | 2,405 | |||||||||
Sweden | 21 | 26 | 29 | |||||||||
Switzerland | 55 | 88 | 140 | |||||||||
United Kingdom | 758 | 2,806 | 5,538 | |||||||||
United States | 261,317 | 616,024 | 452,723 | |||||||||
Venezuela | 13 | 10 | 12 | |||||||||
|
|
|
|
|
| |||||||
Total | 702,509 | 952,612 | 745,686 | |||||||||
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Companies Credit Risk Division
The goal of the Companies Credit Risk Division is to maintain an adequate ratio of risk to return for the corporate loan portfolio, provide a balance between commercial business goals, and to maintain sound acceptance criteria. These objectives are all in accordance with our strategic objectives.
To accomplish this goal, this division combines the following elements: (i) personnel with significant experience from various divisions, (ii) a sound, risk-conscious culture aligned with our strategy, (iii) a well defined corporate credit process, in terms of approval, monitoring and collection procedures, (iv) a regulatory and preventive outlook on risk, (v) active participation in the loan approval process, complete with a market-segmented structure, (vi) supervision of the loan approval process via monitoring, default and ex-post review committees, (vii) dissemination of a risk-conscious culture throughout the bank, (viii) continuous training for executives in the commercial and risk areas, and (ix) direct participation through the Risk Division in managing and collecting on deteriorated loans.
In addition, we have a number of credit committees with the ability to approve loans within certain amounts and terms depending on the credit risk rating of the potential borrower. Various risk managers of different levels of seniority participate in the credit approval process when certain predefined credit levels are surpassed.
Credit Review Process
We perform a credit analysis of our entire commercial and retail (consumer) borrowers. Credit risk presented by our current or potential borrowers is evaluated in accordance with policies and standards which have been approved by the board of directors.
A potential commercial borrower’s evaluation focuses primarily on the credit history and reputation of its owners and management, its market position and the demand for its products or services, its production processes and facilities, its current and projected cash flows, its solvency and when it applies, the guarantees offered in connection with the loan. We also use tools such as sector reports, standard risk models for major industries, and reports relating to the potential commercial borrower’s sales patterns.
In the case of individual retail borrowers, the credit approval process is based primarily on an evaluation of the borrower’s credit behavior which combines the applicant’s commercial behavioral variables such as current debt levels, ability to pay and socio-economic level, among others, along with centralized evaluation and decision-making systems in cases where the applicant does not fit the standard model. The information presented by a prospective borrower is evaluated by considering the individual’s income, expenses, personal assets, credit history and our previous experience (if any) with the individual.
Prior to extending credit to a commercial borrower, we assign a credit risk rating to such potential borrower based on our analysis that helps identify each applicant’s risk profile. These ratings are based on a scale of 1 to 10, with a rating of 1 being excellent and rating of 10 corresponding to certain loss. In general, we consider ratings 1 through 6 to be acceptable ratings, and ratings 7 through 10 to be indicative of probable losses. Loan approvals are made at various levels and with varying degrees of involvement by different categories of executives (A through I) depending on the credit risk rating we have assigned to the potential borrower, the size of the loan under consideration and the collateral offered, if any. Collateral granted for loans generally consists of mortgages on real estate. In all cases, the approval of at least three officers is required in order to approve a loan.
Our evaluation of a potential transaction with a borrower is based on the concept of total customer risk. Total customer risk takes into account (i) the direct risk (actual and potential), (ii) the indirect risk, and (iii) the risks related to the client, such as having common partners, being part of an economic group or common guarantees.
The following table shows the category of executives that were required to approve secured and unsecured commercial borrowing transactions, according to the credit risk rating of the potential borrower and the Chilean pesos amount of the total customer risk based on exchange rates in effect prior to end of December 2015:
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Risk Category | ||||||||||||||||||||
Debtors in risk individual’s categories from A1 to A5 and debtors in risk group’s categories G1 and G2 | Debtors in risk individual’s categories A6, and debtors in risk group’s categories from G3 and G8 and non-performing portfolio | |||||||||||||||||||
Corporate and Real Estate | Enterprises & Private Banking | Corporate and Real Estate | Enterprises & Private Banking | |||||||||||||||||
Committee | RD+RI | RT | RD+RI | RT | RD+RI | RT | RD+RI | RT | ||||||||||||
Executive | From | 4,500 + $1 | 8,000 + $1 | 3,500 + $1 | 6,000 + $1 | 2,250 + $1 | 4,000 + $1 | 1,750 + $1 | 3,000 + $1 | |||||||||||
Divisional | Up to | 4,500 | 8,000 | 3,500 | 6,000 | 2,250 | 4,000 | 1,750 | 3,000 | |||||||||||
Managers + ‘A’ | Up to | 2,500 | 4,000 | 2,000 | 3,000 | 1,250 | 2,000 | 1,000 | 1,500 | |||||||||||
Managers | Up to | 1,400 | 2,100 | 1,400 | 2,100 | 700 | 1,050 | 700 | 1,050 | |||||||||||
Level ‘C1’+‘A’ | Up to | 1,000 | 1,500 | 1,000 | 1,500 | 500 | 750 | 500 | 750 | |||||||||||
Level A | Up to | 700 | 1,100 | 700 | 1,100 | 350 | 550 | 350 | 550 | |||||||||||
Risks | Up to | 700 | 1,100 | 700 | 1,100 | 350 | 550 | 350 | 550 | |||||||||||
Level ‘C1’+‘B’ | Up to | 500 | 750 | 500 | 750 | 250 | 375 | 250 | 375 | |||||||||||
Sub managers | Up to | 400 | 600 | 400 | 600 | 200 | 300 | 200 | 300 | |||||||||||
Level “B” | Up to | 250 | 400 | 250 | 400 | 125 | 200 | 125 | 200 | |||||||||||
Level “C1” | Up to | 250 | 400 | 250 | 400 | 125 | 200 | 125 | 200 |
The following table details the maximum limits of customer credit risk in Chilean pesos that executives of each category were permitted to approve prior to end of December 2015. This table applies to all potential borrowers with credit risk ratings of 1 to 5 and varies according to whether the customer credit risk is comprised of secured or unsecured obligations.
Approval limits only for debtors with Risk Category A5 or G2, or Special Surveillance Continue as maximum (1) | ||||||||||
Level of Necessary Authority | Risk RD+R1 | Total Risk (RD+RI+RR) | ||||||||
Level “C” Executive | Up to | 100 | 150 | |||||||
Level “D” Executive | Up to | 60 | 100 | |||||||
Level “E” Executive | Up to | 40 | 60 | |||||||
Level “F” Executive | Up to | 20 | 30 | |||||||
Level “G” Executive | Up to | 10 | 20 | |||||||
Level “H” Executive | Up to | 5 | 10 | |||||||
Level “I” Executive | Up to | 3 | 6 | |||||||
Level “J” Executive | Up to | 2 | 2 | |||||||
Level “K” Executive | Up to | 1 | 1 |
(1) | Credit or loan operations with debtors who are in risk category A6 or worst or G3 or worst, or in Substandard Portfolio or Non-Performing Portfolio, or in Special Surveillance Out, Structured Out, Decrease or Guarantee, shall be approved at least for a Level of Authority “C1” or “B”. This restriction will not be applied to those debtors who are still being managed by the Normalization Management. |
All transactions at the Risk Committee level or higher are reviewed by our credit risk managers. All transactions resulting in total customer credit risk in excess of the amounts that can be reviewed by the Superior Committee as shown in the above table must be authorized by the directors committee of our board of directors, or the Directors Committee, the CEO and three other members of the board of directors.
Our Credit Risk Divisions also monitor compliance with the terms of loans we have granted, such as payment dates, conditions and covenants. The monitoring process includes verification of the use of proceeds and contractual conditions, continuing financial analysis of the borrower and any guarantors, on-site visits to the borrower’s place of business, confirmation of credit information and analysis of the economic environment as it affects the borrower or its sector, among other tools. Generally, the credit risk department performs this monitoring on a yearly basis. If a debtor exhibits an elevated level of risk based on the results of our yearly monitoring, we may place such debtor on a special watch list. We monitor debtors on the watch list on a monthly basis. The credit risk department regularly meets to decide whether to take any action (such as reducing outstanding loan amounts or requesting collateral) in respect of debtors on the watch list. In addition, our credit risk department has a unit dedicated to administering the loan accounts of debtors with respect to which losses are expected or have occurred. This unit supervises the process of collections and legal proceedings.
We also monitor the quality of the loan portfolio on a continuous basis. The purpose of this special supervision is to maintain constant scrutiny of the portions of the portfolio that represent the greatest risk and to anticipate any deterioration. Based on this ongoing review of the loan portfolio, we believe we are able to detect problem loans and make a decision on a client’s status. This includes measures such as reducing or extinguishing a loan, or requiring better collateral from the client. The control systems require that loans be reviewed at least three times per year for those clients in the lowest category of credit watch.
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Classification of Loan Portfolio
Loans are divided into: (1) consumer loans (including loans granted to individuals for the purpose of financing the acquisition of consumer goods or payment of services); (2) residential mortgage loans (including loans granted to individuals for the acquisition, construction or repair of residential real estate, in which the value of the property covers at least 100% of the amount of the loan); and (3) commercial loans (including all loans other than consumer loans and residential mortgage loans). The models and methods used to classify our loan portfolio and establish credit loss allowances must follow the following guiding principles, which have been approved by our board of directors.
Loans Analyzed on an Individual Basis
For individually large loans under IFRS, we use internal models to assign a risk category level to each customer and their respective loans. We consider the following risk factors: industry or sector in which the customer operates, owners or managers of the customer, customer’s financial situation, its payment capacity and payment history to calculate the estimated incurred loan loss.
Through this categorization, we differentiate the normal loans from the impaired ones.
These are our risk categories:
1. Customers classified in risk categories A1, A2, A3, A4, A5, or A6 are current or have less than 30 days overdue on their payment obligations and show no significant sign of deterioration in their credit quality. Customers classified in risk categories B1, B2, B3 or B4 are overdue between 30 and 89 days on their payment obligations, thus showing a certain level of indication of deterioration in credit quality. B category is different from the A because of a history of late payments.
2. Customers classified as C1, C2, C3, C4, C5, or C6 include clients whose loans with us have been charged off or are being administered by a specialized area.
For loans classified as A1, A2, A3, A4, A5, A6, B1, B2, B3 and B4, we assign a specific allowance percentage on an individual basis to each customer. The amount of the allowance for loan losses is determined based on debt servicing capacity, the company´s financial history, solvency and capacity of shareholders and management and projections for the industry sector in which the customer operates. There is a determined allowance percentage by group of customers with similar characteristics, i.e., A1, A2, A3, A4, A5, A6, B1, B2, B3 and B4).
Estimated Incurred Loan Loss = Allowance for Loan Losses
The estimated incurred loss is determined by multiplying the risk factors as defined in the following equation:
EIL | = | EXP X PNP X SEV | ||||||
| ||||||||
EXP | = | Exposure | ||||||
PNP | = | Probability of Non-Performance | ||||||
SEV | = | Severity | ||||||
EIL | = | Estimated Incurred Loss. |
“EIL = Estimated Incurred Loss” means the amount that could be lost in the event a client does not perform the obligations under the loan agreement.
“EXP = Exposure” means the value of the loan (unpaid principal balance).
“PNP = Probability of Non-Performance” means the probability, expressed as a percentage, that a customer will default within the next 12 months. This percentage is associated with the rating that we give to each client, which is determined by analyzing such parameters as debt servicing capacity (including, usually, projected cash flows), the customer’s financial history, the solvency and capacity of shareholders and management of the customer, and projections for the economic sector in which the customer operates.
“SEV = Severity” means the effective loss rate given for default for customer in the same risk category, which is determined statistically based on the historical effective losses.
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Every year the PNP and SEV assumptions are evaluated by our credit department, which could result in modifications to the PNP and the SEV of a client. These tests focus on the validation of the sufficiency of our allowances, and consist of comparisons between actual write-offs to allowances established by the model, and the coverage of the total allowance to actual write-offs in the most current periods. Individual loan classification and improvements to any customer classification are also presented for approval to our Credit Risk Committee.
Allowances for loan losses for each C risk category are based mainly on the fair value of the collateral, adjusted for the estimated cost to sell (7% on average), of each of these loans. The allowance percentage for each category is then based on the level of collateral, or the expected future cash flow from the loan. Our internal policies obligate us to update appraisals for collateral values every 24 months which does not vary by loan product. This period can be changed if market conditions in general or for a specific sector warrant an adjustment to appraisal value by the Risk Department which updated appraisal information is factored into our provision for loan loss calculations. We make no adjustments between appraisals to account for changes in fair value. A change in appraisal value may change the risk category or profile of a client leading to the establishment of more provisions or the removal of provisions.
Models used on Collective Evaluation of Commercial Borrowers of Less than Ch$200 million
There is no difference between our SBIF provision and IFRS provisions for loans collectively evaluated for impairment.
With respect to our portfolio of consumer loans, mortgage loans, and commercial loans under Ch$200,000 million (loans collectively evaluated for impairment (consumer and commercial), allowances for loan losses are determined by mathematical models. The population is first profiled primarily using the characteristics of payment behavior, aging of the balance of the loan, “probability of default” factors indicating transfer into the normalization portfolio, and socioeconomic status.
Each profile in the commercial loan portfolio has information aggregated by us – basically, historical loss experience (less recoveries).
This historical loss experience, which represents the derived loan loss allowance percentage is applied by profile to the commercial loan portfolio, taking into consideration, if applicable, any additional factors, such as increase in the unemployment rate in the country, economic downswings, etc. based upon more recent experience, should they affect the level of necessary loan loss reserves.
The profiles in the consumer loan portfolio are based on a wider range of variables than those in the commercial model and the variables are weighted and scored. In the aggregate, the sufficiency of the provision is analyzed first by the number of months coverage of historical write-offs. Should the coverage appear inadequate (either high or low or fluctuating significantly in comparison with previous months), vintage model calculations (where loss models are based on the age of the accounts as formulated by a curve which generally reaches, at an identified point in time, a stabilized loss rate) are performed to determine the appropriate allowance percentages to apply. At a minimum, vintage model analysis is performed every six months and the results of such analysis are reported to the Risk Committee.
In contrast to the mathematical models used for provisioning of the commercial and consumer loan portfolio, the provisioning of the mortgage loan portfolio is performed using a statistical model based on the formula SEV x PNP X EXP as explained above in relation to individually significant loans. Segmentation is set up in a different way from the individually significant loans. There are profiles primarily using factors such as demographic characteristics, delinquency, collateral ratio to loan balance and external credit ratings which associated results are “scored” and then assigned to a segment where each has an allowance percentage assigned based on the above formula.
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Total Loans – models based on group analysis
As of December 31, 2013 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Commercial | 648,247 | 12,195 | 1.9 | % | ||||||||
Leasing commercial | 100,151 | 340 | 0.3 | % | ||||||||
Factoring commercial | 7,698 | 183 | 2.4 | % | ||||||||
Consumer | 1,601,667 | 27,572 | 1.7 | % | ||||||||
Leasing consumer | 21,582 | 145 | 0.7 | % | ||||||||
Mortgage | 1,728,093 | 6,230 | 0.4 | % | ||||||||
Leasing mortgage | 260,883 | 738 | 0.3 | % | ||||||||
As of December 31, 2014 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Commercial | 731,776 | 14,741 | 2.0 | % | ||||||||
Leasing commercial | 84,841 | 263 | 0.3 | % | ||||||||
Factoring commercial | 5,721 | 143 | 2.5 | % | ||||||||
Consumer | 1,690,081 | 33,775 | 2.0 | % | ||||||||
Leasing consumer | 19,761 | 59 | 0.3 | % | ||||||||
Mortgage | 1,948,985 | 6,515 | 0.3 | % | ||||||||
Leasing mortgage | 280,573 | 1,247 | 0.4 | % | ||||||||
As of December 31, 2015 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Commercial | 1,147,453 | 13,153 | 1.1 | % | ||||||||
Leasing commercial | 134,432 | 3,691 | 2.7 | % | ||||||||
Factoring commercial | 15,920 | 375 | 2.4 | % | ||||||||
Consumer | 1,684,368 | 25,848 | 1.5 | % | ||||||||
Leasing consumer | 18,791 | 538 | 2.9 | % | ||||||||
Mortgage | 1,949,737 | 1,124 | 0.1 | % | ||||||||
Leasing mortgage | 278,882 | 7,708 | 2.8 | % |
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Consumer Loans – models based on group analysis
As of December 31, 2013 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Credit cards | 228,776 | 2,495 | 1.1 | % | ||||||||
Lines of credit | 40,012 | 1,074 | 2.7 | % | ||||||||
Others revolving | 4,322 | 105 | 2.4 | % | ||||||||
Installment Consumer loans | 791,692 | 7,688 | 1.0 | % | ||||||||
Student loans | 9,971 | 127 | 1.3 | % | ||||||||
Salary discount loans | 442,364 | 7,788 | 1.8 | % | ||||||||
Renegotiation | 82,483 | 8,048 | 9.8 | % | ||||||||
Others | 2,047 | 246 | 12.0 | % | ||||||||
As of December 31, 2014 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Credit cards | 241,701 | 4,096 | 1.7 | % | ||||||||
Lines of credit | 47,564 | 1,713 | 3.6 | % | ||||||||
Others revolving | 4,080 | 110 | 2.7 | % | ||||||||
Installment Consumer loans | 781,381 | 6,577 | 0.8 | % | ||||||||
Car loans | 37,127 | 961 | 2.6 | % | ||||||||
Student loans | 7,182 | 77 | 1.1 | % | ||||||||
Salary discount loans | 460,267 | 8,329 | 1.8 | % | ||||||||
Renegotiation | 106,904 | 11,389 | 10.7 | % | ||||||||
Others | 3,877 | 524 | 13.5 | % |
As of December 31, 2015 | ||||||||||||
Total Loans | Allowances for loan losses | Risk Index (%) | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Credit cards | 244,942 | 3,314 | 1.4 | % | ||||||||
Lines of credit | 52,488 | 1,684 | 3.2 | % | ||||||||
Others revolving | 3,645 | 260 | 7.1 | % | ||||||||
Installment Consumer loans | 757,879 | 4,221 | 0.6 | % | ||||||||
Car loans | 30,222 | 899 | 3.0 | % | ||||||||
Student loans | 4,738 | 66 | 1.4 | % | ||||||||
Salary discount loans | 492,439 | 4,731 | 1.0 | % | ||||||||
Renegotiation | 97,795 | 10,634 | 10.9 | % | ||||||||
Others | 221 | 39 | 17.5 | % |
With respect to our portfolio of consumer loans and commercial loans under Ch$200 million, allowances for loan losses are determined by mathematical models. The population is first profiled primarily using the characteristics of payment behavior, aging of the balance of the loan, “probability of default” factors indicating transfer into the normalization portfolio, and socioeconomic status.
Each profile in the commercial loan portfolio has information aggregated by us – basically, historical loss experience (less recoveries).
This historical loss experience which represents the derived loan loss allowance percentage is applied by profile to the commercial loan portfolio, taking into consideration, if applicable, any additional factors, such as increase in the unemployment rate in the country, economic downswings, etc. based upon more recent experience, should they affect the level of necessary loan loss reserves.
The profiles in the consumer loan portfolio are based on a wider range of variables than those in the commercial model and the variables are weighted and scored. In the aggregate, the sufficiency of the provision is analyzed first by the number of months coverage of historical write-offs. Should the coverage appear inadequate (either high or low or fluctuating significantly in comparison with previous months), vintage model calculations (where loss models are based on the age of the accounts as formulated by a curve which generally reaches, at an identified point in time, a stabilized loss rate) are performed to determine the appropriate allowance percentages to apply. At a minimum, vintage model analysis is performed every 6 months and the results of such analysis are reported to the Risk Committee.
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Models based on collective analysis for consumer loans and mortgage loans (Retail Banking)
Retail Credit Risk Division
Our Retail Credit Risk Division is responsible for the whole credit cycle management of three business units: Banco Condell (Low income segment (C3-D)), which primarily originates consumer loans, credit cards and a few mortgage loans, SMU Corp (Private Label Credit Card, mainly for our low income segment C3-D) and Retail Banking for higher income segments (our medium-high income segments (ABC1-C2)), which is primarily unsecured lending, consumer loans, revolving lines of credit, credit cards and mortgage loans.
Our credit risk management segment works to provide our branches with the best and simplest available information and tools to maximize the value of their profits and losses. The credit risk management process is composed of the following:
Credit Initiation
We strive to have in place a high quality underwriting process. An excellence in our credit decision-making process means healthy portfolios with very low early delinquency incident rates and profitable asset portfolios. Our credit initiation process consists of:
• | Credit Initiation Tools. Credit scoring, credit bureau information (60 months of positive and negative information) check lists to support our credit analysis (a five step process), credit policies and daily training. |
• | Accountability and Responsibility (tied to incentive plans). Branch managers know their customers and they are responsible for credit decisions but they must first seek approval with an underwriter (Risk Division). Credit authorization will be delegated based on the results of an internal credit initiation report. |
• | Analytical Driven Sales Process. We know the customers we want and we seek them out. On a monthly basis, our credit division selects names to offer credit cards and revolving credit lines for all segments, current customers or prospective customers. |
• | Control Environment. A four or five month review of accounting records is required to understand sales quality, to assess early delinquency rates and a sales scoring mix is reviewed on a daily basis. Also, branch managers are trained to understand their loan authorization ability (approving credit worthy customers and declining non-credit worthy customers). |
Maintenance
We strive to have high market share in the most profitable segments (low-medium risk and medium-high usage) and low market share in the lowest profitable segments (high risk or low usage). The result of which means a higher revenue share. The maintenance process is composed of:
• | Renewals/Non-Renewals (Revolving Products). Renewals and non-renewals are based on customer payment behavior and profitability. |
• | Campaigns. Top-up and cross-selling offers are implemented. On a monthly basis, the Risk Division selects our best customers to offer refinancing options on their current loans. Our goal is to have 100% of a customers’ “share of wallet” in our most profitable segments, which provides us with a healthy balance of investments among the products and services we offer. |
Collection
We strive to have in place a high quality collection process, consisting of the right strategy, vendors and products and policies.
• | Collection Strategy. Our collection strategy is currently based on geographic coverage and delinquency buckets. It includes reporting delinquent customers to the credit bureau (15 days past due). The next steps include customer risk segmentation to define our end-to-end collection strategy (intensity of calls, letters, mms (multimedia messaging), scripts, skip tracing and remedial offers). Our collection strategy is also included in the branch manager’s responsibilities. |
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• | Vendors. Our vendors provide cover, benchmarks and sometimes testing (champion/challenger). Also, the continuity of our business plan requires the use of vendors in cases of emergency and union instability, among others. |
• | Policies and Products. Rewrites, remedial offers and settlements are made as needed. We must maximize capital recovery. |
• | Technology. Our systems, Predictive Dialer and Collection System, are in place. |
• | Control Environment. Customer surveys and strong Management Information Systems enable us to have a controlled process. |
Write-off Policy, Recovery and Planning
The write-off policy, recovery and planning process consists of:
• | Write-off Policy. Our write-off policy is triggered for an unsecured portfolio at 180 days past due and 4 years for mortgages. |
• | Loan Loss Reserve. History of write-offs and recoveries are used to calculate each portfolio. On a monthly basis a Back Testing Analysis is performed in order to ensure the right coverage, as well as model performance. |
Management Information Systems (MIS) and Portfolio Management
We strive to develop strong MIS to understand our portfolio performance in real time. The MIS and Portfolio Management processes consist of:
• | MIS. Reports are prepared to understand the credit portfolio behavior by main segmentations (sales quality, by sales channel, scoring, type of customer, location (branch), products and loan to value (for mortgages), etc.). Also, the Risk Credit Division has the capability to enhance the scope of any analysis if necessary. |
• | Sales Indicators. Sales indicators include total applications, approvals and denials, scoring mix, approval rates, through the door analysis and vintage coincidence, among others (30+, 60+, 90+, write-off and recovery). |
• | Portfolio Review Indicators. Portfolio review indicators include delinquencies by bucket, net flows (roll forward, roll back, stay), is-was analysis, gross write-off, recoveries, net credit losses, charge off, vintage analysis, rewrite of sales, payments, pre-payments and refinance rate, etc. |
• | Portfolio Management. Periodic review against budgets and forecasts in order to adjust and make decisions, if necessary. |
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Analysis of our Loan Classification
The following tables provide statistical data regarding the classification of our loans as of the end of each of the five years, applying the classification explained in prior pages:
2011
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2011 | Normal Portfolio | Impaired Portfolio | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Total | Impaired | Total | Subtotal | Total General | ||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and receivables to banks | 200,028 | 36,851 | 67,701 | 42 | — | — | — | — | 304,622 | — | 304,622 | — | — | — | 304,622 | |||||||||||||||||||||||||||||||||||||||||||||
Loans and receivable to customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General Commercial loans | 236,229 | 1,002,989 | 1,227,123 | 1,039,390 | 439,597 | 9,011 | 14,203 | 4,594 | 3,973,136 | 73,174 | 4,046,310 | 231,295 | 68,126 | 299,421 | 4,345,731 | |||||||||||||||||||||||||||||||||||||||||||||
Foreign Trade loans | — | 53,245 | 93,925 | 144,847 | 36,568 | 7,432 | 357 | — | 336,374 | 42,190 | 378,564 | 8,151 | 2,266 | 10,417 | 388,981 | |||||||||||||||||||||||||||||||||||||||||||||
Lines of credit and overdrafts | — | 1,299 | 5,526 | 245 | 1,066 | 1 | 49 | 4 | 8,190 | 135 | 8,325 | 4,008 | 1,166 | 5,174 | 13,499 | |||||||||||||||||||||||||||||||||||||||||||||
Factored receivables | — | 8,755 | 28,677 | 36,988 | 15,308 | 290 | 54 | — | 90,072 | 356 | 90,428 | 2,647 | 1,951 | 4,598 | 95,026 | |||||||||||||||||||||||||||||||||||||||||||||
Leasing contracts | — | 11,495 | 16,698 | 106,405 | 89,018 | 592 | 2,439 | — | 226,647 | 37,655 | 264,302 | 19,428 | 9,996 | 29,424 | 293,726 | |||||||||||||||||||||||||||||||||||||||||||||
Other outstanding loans | — | 171 | 42 | 519 | 125 | 12 | — | 2 | 871 | 22 | 893 | 77,281 | 259 | 77,540 | 78,433 | |||||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial loans | 236,229 | 1,077,954 | 1,371,991 | 1,328,394 | 581,682 | 17,338 | 17,102 | 4,600 | 4,635,290 | 153,532 | 4,788,822 | 342,810 | 83,764 | 426,574 | 5,215,396 | |||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | — | — | — | — | — | — | — | — | — | — | — | 398,365 | 24,756 | 423,121 | 423,121 | |||||||||||||||||||||||||||||||||||||||||||||
— | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | — | — | — | — | — | — | — | — | — | — | — | 1,141,396 | 34,532 | 1,175,928 | 1,175,928 | |||||||||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | 236,229 | 1,077,954 | 1,371,991 | 1,328,394 | 581,682 | 17,338 | 17,102 | 4,600 | 4,635,290 | 153,532 | 4,788,822 | 1,882,571 | 143,052 | 2,025,623 | 6,814,445 | |||||||||||||||||||||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
98
Table of Contents
2012
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2012 | Normal Portfolio | Impaired Portfolio | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Total | Impaired | Total | Subtotal | Total General | ||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and receivables to banks | 463,159 | 9,080 | 10,310 | — | — | — | — | — | 482,549 | — | 482,549 | — | — | — | 482,549 | |||||||||||||||||||||||||||||||||||||||||||||
Loans and receivable to customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General Commercial loans | 127,381 | 1,068,995 | 1,548,114 | 1,967,759 | 911,992 | 36,551 | 61,696 | 22,809 | 5,745,297 | 78,178 | 5,823,475 | 591,842 | 37,859 | 629,701 | 6,453,176 | |||||||||||||||||||||||||||||||||||||||||||||
Foreign Trade loans | 18,758 | 162,015 | 132,106 | 39,748 | 20,515 | 23,009 | 2,856 | 399,007 | 18,036 | 417,043 | 7,524 | 257 | 7,781 | 424,824 | ||||||||||||||||||||||||||||||||||||||||||||||
Lines of credit and overdrafts | 492 | 6,336 | 11,285 | 2,530 | 126 | 100 | 44 | 20,913 | 186 | 21,099 | 7,885 | 261 | 8,146 | 29,245 | ||||||||||||||||||||||||||||||||||||||||||||||
Factored receivables | — | 19,817 | 36,031 | 23,673 | 1,505 | 415 | 35 | 81,476 | 322 | 81,798 | 5,631 | 193 | 5,824 | 87,622 | ||||||||||||||||||||||||||||||||||||||||||||||
Leasing contracts | 5,455 | 19,130 | 123,453 | 111,864 | 10,336 | 20,683 | 218 | 291,139 | 18,636 | 309,775 | 30,208 | 1,311 | 31,519 | 341,294 | ||||||||||||||||||||||||||||||||||||||||||||||
Other outstanding loans | 234 | 358 | 2,026 | 392 | 51 | 16 | 2 | 3,079 | 826 | 3,905 | 154,508 | 286 | 154,794 | 158,699 | ||||||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial loans | 127,381 | 1,093,934 | 1,755,770 | 304,901 | 1,090,199 | 69,084 | 105,919 | 25,964 | 6,540,911 | 116,184 | 6,657,095 | 797,598 | 40,167 | 837,765 | 7,494,860 | |||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | — | — | — | — | — | — | — | — | — | — | — | 1,043,027 | 33,629 | 1,076,656 | 1,076,656 | |||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | — | — | — | — | — | — | — | — | — | — | — | 1,499,243 | 32,732 | 1,531,975 | 1,531,975 | |||||||||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | 127,381 | 1,093,934 | 1,755,770 | 304,901 | 1,090,199 | 69,084 | 105,919 | 25,964 | 6,540,911 | 116,184 | 6,657,095 | 3,339,868 | 106,528 | 3,446,396 | 10,103,491 | |||||||||||||||||||||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
99
Table of Contents
2013
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2013 | Normal Portfolio | Impaired Portfolio | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Total | Impaired | Total | Subtotal | Total General | ||||||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and receivables to banks | 140,017 | 30,469 | 47,595 | — | — | — | — | — | 218,081 | — | 218,081 | — | — | — | 218,081 | |||||||||||||||||||||||||||||||||||||||||||||
Loans and receivable to customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General Commercial loans | 190,904 | 1,309,328 | 2,544,546 | 2,158,738 | 613,593 | 39,635 | 188,112 | 32,091 | 7,076,947 | 197,287 | 7,274,234 | 370,663 | 44,530 | 415,193 | 7,689,427 | |||||||||||||||||||||||||||||||||||||||||||||
Foreign Trade loans | 14,671 | 141,600 | 159,657 | 63,862 | 21,765 | — | 12,900 | 2,737 | 417,192 | 31,505 | 448,697 | 10,050 | 327 | 10,377 | 459,074 | |||||||||||||||||||||||||||||||||||||||||||||
Lines of credit and overdrafts | 1 | 1,592 | 4,833 | 7,530 | 1,629 | 154 | 201 | 33 | 15,973 | 566 | 16,539 | 10,952 | 444 | 11,396 | 27,935 | |||||||||||||||||||||||||||||||||||||||||||||
Factored receivables | — | 1,501 | 32,596 | 31,539 | 1,160 | — | 718 | — | 67,514 | 172 | 67,686 | 7,588 | 110 | 7,698 | 75,384 | |||||||||||||||||||||||||||||||||||||||||||||
Leasing contracts | 1,031 | 11,664 | 146,350 | 339,226 | 139,767 | 8,497 | 29,465 | 3,752 | 679,752 | 31,979 | 711,731 | 94,132 | 6,019 | 100,151 | 811,882 | |||||||||||||||||||||||||||||||||||||||||||||
Other outstanding loans | 1 | 277 | 2,692 | 4,660 | 1,594 | 49 | 205 | 43 | 9,521 | 952 | 10,473 | 210,801 | 480 | 211,281 | 221,754 | |||||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial loans | 206,608 | 1,465,962 | 2,890,674 | 2,605,555 | 779,508 | 48,335 | 231,601 | 38,656 | 8,266,899 | 262,461 | 8,529,360 | 704,186 | 51,910 | 756,096 | 9,285,456 | |||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | — | — | — | — | — | — | — | — | — | — | — | 1,579,321 | 43,928 | 1,623,249 | 1,623,249 | |||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | — | — | — | — | — | — | — | — | — | — | — | 1,954,173 | 34,803 | 1,988,976 | 1,988,976 | |||||||||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | 206,608 | 1,465,962 | 2,890,674 | 2,605,555 | 779,508 | 48,335 | 231,601 | 38,656 | 8,266,899 | 262,461 | 8,529,360 | 4,237,680 | 130,641 | 4,368,321 | 12,897,681 | |||||||||||||||||||||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
100
Table of Contents
2014
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2014 | Normal Portfolio | Impaired Portfolio | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||
A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Impaired | Total | Total | General Total | |||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and receivables from banks | 620,047 | 145,363 | 44,820 | 4,250 | — | — | — | — | — | 814,480 | — | — | — | 814,480 | ||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | (99 | ) | (98 | ) | (74 | ) | — | — | — | — | — | (271 | ) | — | (271 | ) | |||||||||||||||||||||||||||||||||||||||
As percentage of total loans | — | 0.07 | % | 0.22 | % | 1.74 | % | — | — | — | — | — | 0.03 | % | — | — | — | 0.03 | % | |||||||||||||||||||||||||||||||||||||
Loans and receivable from customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans | — | 440,672 | 1,715,679 | 3,006,527 | 2,092,385 | 244,994 | 142,492 | 51,957 | 203,352 | 7,898,058 | 357,032 | 47,988 | 405,020 | 8,303,078 | ||||||||||||||||||||||||||||||||||||||||||
Foreign trade loans | — | 6,821 | 160,843 | 177,597 | 88,026 | 8,926 | 28,230 | 1,243 | 23,993 | 495,679 | 9,497 | 375 | 9,872 | 505,551 | ||||||||||||||||||||||||||||||||||||||||||
Current account debtors | — | — | 8,235 | 7,008 | 3,918 | 264 | 413 | 123 | 1,118 | 21,079 | 12,162 | 1,609 | 13,771 | 34,850 | ||||||||||||||||||||||||||||||||||||||||||
Factoring operations | — | — | 4,574 | 30,570 | 28,474 | 481 | 29 | — | 65 | 64,193 | 5,643 | 78 | 5,721 | 69,914 | ||||||||||||||||||||||||||||||||||||||||||
Leasing transactions | — | 6,762 | 69,110 | 309,153 | 285,389 | 31,491 | 33,432 | 12,244 | 34,070 | 781,651 | 79,812 | 5,029 | 84,841 | 866,492 | ||||||||||||||||||||||||||||||||||||||||||
Other loans and receivables | 2 | 168 | 1,686 | 1,943 | 1,837 | 141 | 86 | 54 | 1,560 | 7,477 | 302,521 | 592 | 303,113 | 310,590 | ||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial loans | 2 | 454,423 | 1,960,127 | 3,532,798 | 2,500,029 | 286,297 | 204,682 | 65,621 | 264,158 | 9,268,137 | 766,667 | 55,671 | 822,338 | 10,090,475 | �� | |||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | (139 | ) | (1,466 | ) | (16,856 | ) | (18,782 | ) | (2,891 | ) | (4,246 | ) | (3,331 | ) | (33,151 | ) | (80,862 | ) | (6,163 | ) | (8,984 | ) | (15,147 | ) | (96,009 | ) | |||||||||||||||||||||||||||||
As percentage of total loans | 0.03 | % | 0.07 | % | 0.48 | % | 0.75 | % | 1.01 | % | 2.07 | % | 5.08 | % | 12.55 | % | 0.87 | % | 0.80 | % | 16.14 | % | 1.84 | % | 0.95 | % | ||||||||||||||||||||||||||||||
Consumer loans | 1,660,853 | 48,989 | 1,709,842 | 1,709,842 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | (21,399 | ) | (12,435 | ) | (33,834 | ) | (33,834 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | 1.29 | % | 25.38 | % | 1.98 | % | 1.98 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | 2,192,177 | 37,381 | 2,229,558 | 2,229,558 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | (5,029 | ) | (2,733 | ) | (7,762 | ) | (7,762 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | 0.23 | % | 7.31 | % | 0.35 | % | 0.35 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | 2 | 454,423 | 1,960,127 | 3,532,798 | 2,500,029 | 286,297 | 204,682 | 65,621 | 264,158 | 9,268,137 | 4,619,697 | 142,041 | 4,761,738 | 14,029,875 | ||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | (139 | ) | (1,466 | ) | (16,856 | ) | (18,782 | ) | (2,891 | ) | (4,246 | ) | (3,331 | ) | (33,151 | ) | (81,133 | ) | (32,591 | ) | (24,152 | ) | (56,743 | ) | (137,605 | ) | |||||||||||||||||||||||||||||
As percentage of total loans | 0.03 | % | 0.07 | % | 0.48 | % | 0.75 | % | 1.01 | % | 2.07 | % | 5.08 | % | 12.55 | % | 0.88 | % | 0.71 | % | 17.00 | % | 1.19 | % | 0.98 | % | ||||||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | — | — | — |
101
Table of Contents
2015
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2015 | Normal Portfolio | Impaired Portfolio | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||
A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Impaired | Total | Total | General Total | |||||||||||||||||||||||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and receivables from banks | 308,028 | 64,652 | 21,379 | 58,010 | — | — | — | — | — | 452,069 | — | — | — | 452,069 | ||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | (111 | ) | (129 | ) | — | (240 | ) | — | — | — | (240 | ) | |||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | — | 0.17 | % | 0.60 | % | — | — | — | — | — | — | 0.05 | % | — | — | — | 0.05 | % | ||||||||||||||||||||||||||||||||||||||
Loans and receivable from customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial loans | — | 337,942 | 1,902,372 | 2,982,307 | 2,181,402 | 303,679 | 122,571 | 73,698 | 207,409 | 8,111,380 | 627,823 | 82,657 | 710,480 | 8,821,860 | ||||||||||||||||||||||||||||||||||||||||||
Foreign trade loans | — | 3,558 | 142,449 | 148,669 | 82,726 | 24,727 | 33,564 | 11,082 | 18,368 | 465,143 | 55,512 | 684 | 56,196 | 521,339 | ||||||||||||||||||||||||||||||||||||||||||
Current account debtors | — | — | 390 | 7,837 | 3,760 | 184 | 61 | 25 | 757 | 13,014 | 13,267 | 2,451 | 15,718 | 28,732 | ||||||||||||||||||||||||||||||||||||||||||
Factoring operations | — | — | 1,236 | 30,918 | 13,182 | 38 | 670 | — | 49 | 46,093 | 15,537 | 383 | 15,920 | 62,013 | ||||||||||||||||||||||||||||||||||||||||||
Leasing transactions | — | 7,924 | 46,238 | 257,945 | 305,434 | 54,407 | 27,788 | 7,737 | 46,284 | 753,757 | 126,939 | 7,493 | 134,432 | 888,189 | ||||||||||||||||||||||||||||||||||||||||||
Other loans and receivables | — | 182 | 547 | 3,921 | 2,633 | 157 | 79 | 338 | 1,469 | 9,326 | 351,622 | 13,437 | 365,059 | 374,385 | ||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial loans | — | 349,606 | 2,093,232 | 3,431,597 | 2,589,137 | 383,192 | 184,733 | 92,880 | 274,336 | 9,398,713 | 1,190,700 | 107,105 | 1,297,805 | 10,696,518 | ||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | (99 | ) | (1,602 | ) | (10,957 | ) | (16,776 | ) | (9,790 | ) | (3,918 | ) | (18,921 | ) | (59,439 | ) | (121,502 | ) | (8,197 | ) | (9,022 | ) | (17,219 | ) | (138,721 | ) | |||||||||||||||||||||||||||||
As percentage of total loans | — | 0.03 | % | 0.08 | % | 0.32 | % | 0.65 | % | 2.55 | % | 2.12 | % | 20.37 | % | 21.67 | % | 1.29 | % | 0.69 | % | 8.42 | % | 1.33 | % | 1.30 | % | |||||||||||||||||||||||||||||
Consumer loans | 1,660,349 | 42,810 | 1,703,159 | 1,703,159 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | (21,186 | ) | (5,200 | ) | (26,386 | ) | (26,386 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | 1.28 | % | 12.15 | % | 1.55 | % | 1.55 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans | 2,192,888 | 35,731 | 2,228,619 | 2,228,619 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | (5,616 | ) | (3,216 | ) | (8,832 | ) | (8,832 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
As percentage of total loans | 0.26 | % | 9.00 | % | 0.40 | % | 0.40 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | — | 349,606 | 2,093,232 | 3,431,597 | 2,589,137 | 383,192 | 184,733 | 92,880 | 274,336 | 9,398,713 | 5,043,937 | 185,646 | 5,229,583 | 14,628,296 | ||||||||||||||||||||||||||||||||||||||||||
Allowances for loan losses | — | (99 | ) | (1,602 | ) | (10,957 | ) | (16,776 | ) | (9,790 | ) | (3,918 | ) | (18,921 | ) | (59,439 | ) | (121,502 | ) | (34,999 | ) | (17,438 | ) | (52,437 | ) | (173,939 | ) | |||||||||||||||||||||||||||||
As percentage of total loans | — | 0.03 | % | 0.08 | % | 0.32 | % | 0.65 | % | 2.55 | % | 2.12 | % | 20.37 | % | 21.67 | % | 1.29 | % | 0.69 | % | 9.39 | % | 1.00 | % | 1.19 | % | |||||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
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The following table sets forth our allowances for loan losses:
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$ except for percentages) | ||||||||||||
Required allowances | 126,039 | 137,605 | 173,939 | |||||||||
Voluntary allowances | — | — | — | |||||||||
Total allowances for loan losses | 126,039 | 137,605 | 173,939 | |||||||||
Total loan allowances as a percentage of total loans | 1.0 | % | 1.0 | % | 1.2 | % | ||||||
Total loans | 12,897,681 | 14,029,875 | 14,628,296 |
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Classification of Loan Portfolio Based on the Customer’s Payment Performance
The following tables set forth the amounts that are current as to payments of principal and interest and the amounts that are overdue under IFRS, as of the dates indicated:
Domestic Loans
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Current | 6,532,592 | 7,786,077 | 7,379,542 | 8,288,910 | 8,967,944 | |||||||||||||||
Overdue 1-29 days | 9,046 | 31,530 | 38,531 | 54,791 | 50,888 | |||||||||||||||
Overdue 30-89 days | 11,207 | 13,622 | 13,092 | 28,063 | 37,835 | |||||||||||||||
Overdue 90 days or more (“past due”) | 46,379 | 42,954 | 36,396 | 59,283 | 68,745 | |||||||||||||||
Total loans | 6,599,224 | 7,874,183 | 7,467,563 | 8,431,047 | 9,125,412 |
Foreign Loans
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Current | 215,221 | 2,209,789 | 5,353,411 | 5,530,306 | 5,435,928 | |||||||||||||||
Overdue 1-29 days | — | 9,486 | 39,349 | 36,331 | 23,472 | |||||||||||||||
Overdue 30-89 days | — | 1,715 | 9,664 | 8,824 | 7,332 | |||||||||||||||
Overdue 90 days or more (“past due”) | — | 8,318 | 27,694 | 23,367 | 36,152 | |||||||||||||||
Total loans | 215,221 | 2,229,308 | 5,430,118 | 5,598,828 | 5,502,884 |
Total Loans
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||
Current | 6,747,813 | 9,995,866 | 12,732,953 | 13,819,216 | 14,403,872 | |||||||||||||||
Overdue 1-29 days | 9,046 | 41,016 | 77,880 | 91,122 | 74,360 | |||||||||||||||
Overdue 30-89 days | 11,207 | 15,337 | 22,757 | 36,887 | 45,167 | |||||||||||||||
Overdue 90 days or more (“past due”) | 46,379 | 51,272 | 64,091 | 82,650 | 104,897 | |||||||||||||||
Total loans | 6,814,445 | 10,103,491 | 12,897,681 | 14,029,875 | 14,628,296 | |||||||||||||||
Overdue loans expressed as a percentage of total loans | 1.0 | % | 1.1 | % | 1.3 | % | 1.5 | % | 1.5 | % | ||||||||||
Past due loans as a percentage of total loans | 0.7 | % | 0.5 | % | 0.5 | % | 0.6 | % | 0.7 | % |
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Analysis of Impaired Loans and Amounts Past Due
The following tables analyze our impaired loans and past due loans and the allowances for loan losses existing as of the dates indicated:
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||||||
Total loans (excludes interbank loans) | 6,814,445 | 10,103,491 | 12,897,681 | 14,029,875 | 14,628,296 | |||||||||||||||
Impaired loans | 296,584 | 222,712 | 393,102 | 406,199 | 459,982 | |||||||||||||||
Allowance for loan losses | 102,500 | 109,601 | 126,039 | 137,605 | 173,939 | |||||||||||||||
Impaired loans as a percentage of total loans | 4.4 | % | 2.2 | % | 3.0 | % | 2.9 | % | 3.1 | % | ||||||||||
Amounts past due(1) | 46,379 | 51,272 | 64,091 | 82,650 | 104,897 | |||||||||||||||
To the extent secured(2) | 18,849 | 31,324 | 27,294 | 38,758 | 50,350 | |||||||||||||||
To the extent unsecured | 27,530 | 19,948 | 36,797 | 43,892 | 54,546 | |||||||||||||||
Amounts past due as a percentage of | ||||||||||||||||||||
Total loans | 0.7 | % | 0.5 | % | 0.5 | % | 0.6 | % | 0.7 | % | ||||||||||
To the extent secured(2) | 0.3 | % | 0.3 | % | 0.2 | % | 0.3 | % | 0.3 | % | ||||||||||
To the extent unsecured | 0.4 | % | 0.2 | % | 0.3 | % | 0.3 | % | 0.4 | % | ||||||||||
Non-performing loans(1) | 107,978 | 117,937 | 141,667 | 180,536 | 196,806 | |||||||||||||||
Non-performing loans as a percentage of total loans | 1.6 | % | 1.2 | % | 1.1 | % | 1.3 | % | 1.3 | % | ||||||||||
Allowance for loans losses as a percentage of: | ||||||||||||||||||||
Total loans | 1.5 | % | 1.1 | % | 1.0 | % | 1.0 | % | 1.2 | % | ||||||||||
Total impaired loans | 34.6 | % | 49.2 | % | 32.1 | % | 33.9 | % | 37.8 | % | ||||||||||
Total amounts past due | 221.0 | % | 213.8 | % | 196.7 | % | 166.5 | % | 165.8 | % | ||||||||||
Total amounts past due-unsecured | 372.3 | % | 549.4 | % | 342.5 | % | 313.51 | % | 318.88 | % |
1) | Non - performing loans include the principal and interest of any loan with one installment is 90 days overdue, and do not accrue interest |
2) | Guarantees taken by the Bank to secure collections reflected in its loan portfolios are collateral (urban and rural property, farm land, ships and aircraft, mining claims and other assets) and pledges (inventory, farm assets, industrial assets, plantings and other pledged assets). |
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The following table provides further information on our past due loans:
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Overdue 90 days or more (“Past Due”) | 46,379 | 51,272 | 64,091 | 82,650 | 104,897 | |||||||||||||||
Domestic Loans | 46,379 | 42,954 | 36,396 | 59,283 | 68,745 | |||||||||||||||
Foreign Loans | — | 8,318 | 27,695 | 23,367 | 36,152 | |||||||||||||||
Total Loans Past Due | 46,379 | 51,272 | 64,091 | 82,650 | 104,897 | |||||||||||||||
Amounts Past Due (1) | ||||||||||||||||||||
To the extent secured (2) | 18,849 | 31,324 | 27,294 | 38,758 | 50,350 | |||||||||||||||
To the extent unsecured(2) | 27,530 | 19,948 | 36,797 | 43,892 | 54,546 |
As of December 31, 2015 | Between 90-180 days | Between 181-240 days | Between 241-360 days | More than 360 days | Total | |||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Loans and receivables to customers | ||||||||||||||||||||
Commercial Loans | 14,484 | 19,608 | 24,078 | 37,878 | 96,047 | |||||||||||||||
Mortgages Loans | 1,066 | 230 | 592 | 2,836 | 4,724 | |||||||||||||||
Consumer Loans | 4,126 | — | — | — | 4,126 | |||||||||||||||
Total | 19,676 | 19,838 | 24,670 | 40,714 | 104,897 | |||||||||||||||
As of December 31, 2014 | Between 90-180 days | Between 181-240 days | Between 241-360 days | More than 360 days | Total | |||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Loans and receivables to customers | ||||||||||||||||||||
Commercial Loans | 27,444 | 12,385 | 10,151 | 23,724 | 73,705 | |||||||||||||||
Mortgages Loans | 1,139 | 268 | 241 | 2,980 | 4,629 | |||||||||||||||
Consumer Loans | 4,316 | — | — | — | 4,316 | |||||||||||||||
Total | 32,900 | 12,654 | 10,392 | 26,704 | 82,650 | |||||||||||||||
As of December 31, 2013 | Between 90-180 days | Between 181-240 days | Between 241-360 days | More than 360 days | Total | |||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Loans and receivables to customers | ||||||||||||||||||||
Commercial Loans | 15,934 | 9,938 | 11,935 | 14,229 | 52,035 | |||||||||||||||
Mortgages Loans | 1,246 | 204 | 671 | 2,494 | 4,614 | |||||||||||||||
Consumer Loans | 7,442 | — | — | — | 7,442 | |||||||||||||||
Total | 24,621 | 10,141 | 12,606 | 16,723 | 64,091 | |||||||||||||||
As of December 31, 2012 | Between 90-180 days | Between 181-240 days | Between 241-360 days | More than 360 days | Total | |||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Loans and receivables to customers | ||||||||||||||||||||
Commercial Loans | 9,064 | 7,756 | 6,475 | 18,496 | 41,791 | |||||||||||||||
Mortgages Loans | 1,802 | 221 | 455 | 2,542 | 5,020 | |||||||||||||||
Consumer Loans | 4,461 | — | — | — | 4,461 | |||||||||||||||
Total | 15,327 | 7,977 | 6,930 | 21,038 | 51,272 | |||||||||||||||
As of December 31, 2011 | Between 90-180 days | Between 181-240 days | Between 241-360 days | More than 360 days | Total | |||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Loans and receivables to customers | ||||||||||||||||||||
Commercial Loans | 10,584 | 3,560 | 5,715 | 18,467 | 38,326 | |||||||||||||||
Mortgages Loans | 4,741 | 199 | 289 | 745 | 5,974 | |||||||||||||||
Consumer Loans | 2,079 | — | — | — | 2,079 | |||||||||||||||
Total | 17,404 | 3,759 | 6,003 | 19,213 | 46,379 |
(1) | Interest income and expense are recorded on an accrual basis using the effective interest method. However, we cease accruing interest when a given operation or transaction is past due by 90 days or more, when it originated from a refinancing or renegotiation, or when the Bank believes that the debtor poses a high risk of default. |
(2) | Guarantees taken by the Bank to secure collections reflected in its loan portfolios are collateral (urban and rural property, farm land, ships and aircraft, mining claims and other assets) and pledges (inventory, farm assets, industrial assets, plantings and other pledged assets). |
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Analysis of Allowances for Loan Losses
The following table analyzes our provisions for loan losses charged to income and changes in the allowances attributable to write-offs, allowances released, recoveries, allowances on loans acquired:
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||||||
Allowances for loan losses at beginning of period | 104,215 | 102,500 | 109,601 | 126,039 | 137,605 | |||||||||||||||
Allowances on acquired loans | ||||||||||||||||||||
Charge-offs | (54,434 | ) | (59,619 | ) | (107,558 | ) | (101,635 | ) | (116,666 | ) | ||||||||||
Provisions established | 94,170 | 119,467 | 331,009 | 328,265 | 398,617 | |||||||||||||||
Provisions released(1) | (41,451 | ) | (52,682 | ) | (211,438 | ) | (176,176 | ) | (208,925 | ) | ||||||||||
Debt Exchange and loans-sale | — | — | (4,565 | ) | (9,239 | ) | (6,714 | ) | ||||||||||||
Exchange rate difference(2) | — | (65 | ) | 8,990 | (29,649 | ) | (29,978 | ) | ||||||||||||
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Allowances for loan losses at end of period | 102,500 | 109,601 | 126,039 | 137,605 | 173,939 | |||||||||||||||
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Ratio of charge-offs to average loans | 0.9 | % | 0.6 | % | 0.9 | % | 0.7 | % | 0.8 | % | ||||||||||
Allowances for loan losses at end of period as a percentage of total loans | 1.5 | % | 1.1 | % | 1.0 | % | 1.0 | % | 1.2 | % | ||||||||||
Allowances for loan losses at end of period | 102,500 | 109,601 | 126,039 | 137,605 | 173,939 | |||||||||||||||
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(1) | Represents the aggregate amount of provisions for loan losses released during the year as a result of charge-offs, recoveries or a determination by management that the level of risk existing in the loan portfolio has been reduced. |
(2) | Reflects the effect of inflation on the allowances for loan losses at the beginning of each period, adjusted to constant Chilean pesos as of December 31, 2015. |
Our policy with respect to write-offs1 is as disclosed in Note 1 to our financial statement included herein. The following table shows the write-offs breakdown by loan category:
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Consumer loans | 31,676 | 38,764 | 62,296 | 62,032 | 70,744 | |||||||||||||||
Mortgage loans | 1,782 | 3,907 | 2,831 | 2,506 | 2,559 | |||||||||||||||
Commercial loans | 20,976 | 16,948 | 42,431 | 37,097 | 43,363 | |||||||||||||||
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Total | 54,434 | 59,619 | 107,558 | 101,635 | 116,666 | |||||||||||||||
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The following table shows loan loss recoveries by loan category for the periods indicated:
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Bank debt | 19 | — | — | — | — | |||||||||||||||
Consumer loans | 9,598 | 10,014 | 10,803 | 14,347 | 11,105 | |||||||||||||||
Mortgage loans | 574 | 1,039 | 1,627 | 1,277 | 1,875 | |||||||||||||||
Commercial loans | 1,787 | 3,824 | 5,037 | 9,321 | 6,905 | |||||||||||||||
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Total | 11,978 | 14,877 | 17,467 | 24,945 | 19,885 | |||||||||||||||
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Based on information available regarding our debtors, we believe that our allowances for loan losses are sufficient to cover known probable losses and losses inherent in a loan portfolio of the size and nature of our loan portfolio.
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Allocation of Allowances for Loan Losses
The following tables set forth, as of December 31, 2013, 2014 and 2015, allowances for loan losses that were attributable to our commercial, consumer and mortgage loans as of each date. Under IFRS, the fair value of a loan portfolio acquired should be shown as recorded upon acquisition under IFRS 3, business combination.
As of December 31, 2015 | ||||||||||||||||
Allowance amount | Allowance Amount as a percentage of loans in category | Allowance Amount as a percentage of total loans | Loans in category as percentage of total | |||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||
Commercial loans | 138,721 | 1.3 | % | 0.9 | % | 70.9 | % | |||||||||
Consumer loans | 26,386 | 1.5 | % | 0.2 | % | 11.3 | % | |||||||||
Residential mortgage loans | 8,832 | 0.4 | % | 0.1 | % | 14.8 | % | |||||||||
Loans and receivables to banks | 240 | 0.1 | % | 0.0 | % | 3.0 | % | |||||||||
Total allocated allowances | 174,179 | 1.2 | % | 1.2 | % | 100 | % | |||||||||
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As of December 31, 2014 | ||||||||||||||||
Allowance amount | Allowance Amount as a percentage of loans in category | Allowance Amount as a percentage of total loans | Loans in category as percentage of total | |||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||
Commercial loans | 96,009 | 1.0 | % | 0.6 | % | 68.0 | % | |||||||||
Consumer loans | 33,834 | 2.0 | % | 0.2 | % | 11.5 | % | |||||||||
Residential mortgage loans | 7,762 | 0.3 | % | 0.1 | % | 15.0 | % | |||||||||
Loans and receivables to banks | 271 | 0.0 | % | 0.0 | % | 5.5 | % | |||||||||
Total allocated allowances | 137,876 | 0.9 | % | 0.9 | % | 100.0 | % | |||||||||
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As of December 31, 2013 | ||||||||||||||||
Allowance amount | Allowance Amount as a percentage of loans in category | Allowance Amount as a percentage of total loans | Loans in category as percentage of total | |||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||
Commercial loans | 91,354 | 1.0 | % | 0.7 | % | 70.8 | % | |||||||||
Consumer loans | 27,717 | 1.7 | % | 0.2 | % | 12.4 | % | |||||||||
Residential mortgage loans | 6,968 | 0.4 | % | 0.1 | % | 15.2 | % | |||||||||
Loans and receivables to banks | 137 | 0.1 | % | — | 1.7 | % | ||||||||||
Total allocated allowances | 126,176 | 1.0 | % | 1.0 | % | 100.0 | % | |||||||||
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As of December 31, 2012 | ||||||||||||||||
Allowance amount | Allowance Amount as a percentage of loans in category | Allowance Amount as a percentage of total loans | Loans in category as percentage of total | |||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||
Commercial loans | 79,041 | 1.1 | % | 0.7 | % | 70.8 | % | |||||||||
Consumer loans | 24,071 | 2.2 | % | 0.2 | % | 10.2 | % | |||||||||
Residential mortgage loans | 6,489 | 0.4 | % | 0.1 | % | 14.5 | % | |||||||||
Loans and receivables to banks | 178 | 0.0 | % | 0.0 | % | 4.6 | % | |||||||||
Total allocated allowances | 109,779 | 1.0 | % | 1.0 | % | 100.0 | % | |||||||||
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As of December 31, 2011 | ||||||||||||||||
Allowance amount | Allowance Amount as a percentage of loans in category | Allowance Amount as a percentage of total loans | Loans in category as percentage of total | |||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||
Commercial loans | 69,401 | 1.3 | % | 1.0 | % | 73.3 | % | |||||||||
Consumer loans | 22,716 | 5.4 | % | 0.3 | % | 5.9 | % | |||||||||
Residential mortgage loans | 10,383 | 0.9 | % | 0.1 | % | 16.5 | % | |||||||||
Loans and receivables to banks | 524 | 0.2 | % | 0.0 | % | 4.3 | % |
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As of December 31, 2011 | ||||||||||||||||
Allowance amount | Allowance Amount as a percentage of loans in category | Allowance Amount as a percentage of total loans | Loans in category as percentage of total | |||||||||||||
(in million of Ch$ except for percentages) | ||||||||||||||||
Total allocated allowances | 103,024 | 1.4 | % | 1.4 | % | 100.0 | % | |||||||||
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Composition of Deposits and Other Commitments
The following table sets forth the composition of our deposits and similar commitments as of December 31, 2013, 2014 and 2015.
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
Current accounts | 1,468,622 | 1,671,220 | 1,833,746 | |||||||||
Other deposits and demand accounts | 1,737,779 | 2,067,625 | 2,391,431 | |||||||||
Advance payments received from customers | 138,312 | 86,029 | 171,707 | |||||||||
Other demand liabilities | 106,670 | 130,074 | 34,735 | |||||||||
Term savings accounts | 32,630 | 31,556 | 31,573 | |||||||||
Time deposits | 7,273,216 | 7,950,992 | 8,463,703 | |||||||||
Other term creditors | 31,857 | 94,418 | 327 | |||||||||
Total | 10,789,086 | 12,031,914 | 12,927,222 | |||||||||
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Maturity of Deposits
The following table sets forth information regarding the currency and maturity of our deposits as of December 31, 2015, expressed in percentages. UF-denominated deposits are similar to Chilean peso-denominated deposits in all respects, except that the principal is readjusted periodically based on variations in the CPI.
As of December 31, 2015 | ||||||||||||||||
Ch$ | UF | Foreign Currency | Total | |||||||||||||
(In %) | ||||||||||||||||
Demand deposits | 18.97 | 1.70 | 49.00 | 34.28 | ||||||||||||
Savings accounts | 0.00 | 1.41 | 0.34 | 0.24 | ||||||||||||
Time deposits: | ||||||||||||||||
Maturing within 3 months | 60.56 | 36.55 | 20.25 | 37.85 | ||||||||||||
Maturing after 3 but within 6 months | 6.03 | 5.96 | 8.18 | 7.18 | ||||||||||||
Maturing after 6 but within 12 months | 12.23 | 26.61 | 17.19 | 15.55 | ||||||||||||
Maturing after 12 months | 2.22 | 27.76 | 5.04 | 4.90 | ||||||||||||
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Total time deposits | 81.03 | 96.89 | 50.66 | 65.47 | ||||||||||||
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Total deposits | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
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The following table sets forth information regarding the maturity of the outstanding time deposits in excess of US$100,000 (or its equivalent) issued by us as of December 31, 2015.
As of December 31, 2015 | ||||||||||||||||
Ch$ | UF | Foreign Currency | Total | |||||||||||||
(in millions of constant Ch$) | ||||||||||||||||
Maturing within 3 months | 2,625,456 | 195,609 | 1,397,462 | 4,218,527 | ||||||||||||
Maturing after 3 but within 6 months | 319,174 | 32,268 | 552,468 | 903,910 | ||||||||||||
Maturing after 6 but within 12 months | 657,280 | 155,342 | 1,125,732 | 1,938,355 | ||||||||||||
Maturing after 12 months | 119,873 | 164,224 | 336,480 | 620,577 | ||||||||||||
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Total time deposits | 3,721,784 | 547,444 | 3,412,142 | 7,681,369 | ||||||||||||
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Minimum Capital Requirements
As of December 31, 2013, 2014 and 2015 the table sets forth our minimum capital requirements set as follows:
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in millions of constant Ch$ except for percentages) | ||||||||||||
Net capital base | 1,411,341 | 1,443,427 | 1,183,723 | |||||||||
3% total assets net of provisions | (567,929 | ) | (667,775 | ) | (687,380 | ) | ||||||
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Excess over minimum required equity | 843,413 | 775,652 | 496,343 | |||||||||
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Net capital base as a percentage of the total assets, net of provisions | 7.3 | % | 6.4 | % | 5.1 | % | ||||||
Effective net equity | 1,991,289 | 2,071,647 | 1,666,708 | |||||||||
8% of the risk-weighted assets | (1,204,683 | ) | (1,337,231 | ) | (1,397,276 | ) | ||||||
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Excess over minimum required equity | 786,606 | 734,416 | 269,432 | |||||||||
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Effective equity as a percentage of the risk-weighted assets | 13.2 | % | 12.4 | % | 9.5 | % |
Our capital ratios levels decreased from 12.4% to 9.5% between 2014 and 2015, following the approval of the merger with Banco Itaú Chile, considering that our shareholders, together with approving the merger, approved a special dividend distribution in the amount of Ch$239.86 billion that was paid on July 1, 2015.
Short-term Borrowings
Our short-term borrowings (other than deposits and other obligations) totaled Ch$973,833 million, Ch$1,131,116 million and Ch$701,814 million as of December 31, 2013, 2014 and 2015, respectively, in accordance with IFRS.
The principal categories of our short-term borrowings are amounts borrowed under foreign trade lines of credit, domestic interbank loans and repurchase agreements. The table below presents the amounts outstanding at the end of each period indicated and the weighted average nominal interest rate for each such period by type of short-term borrowing.
As of and for the Year Ended December 31, | ||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||
Year End Balance | Weighted Average Nominal Interest Rate | Year End Balance | Weighted Average Nominal Interest Rate | Year End Balance | Weighted Average Nominal Interest Rate | |||||||||||||||||||
(in millions of constant Ch$ except for percentages) | ||||||||||||||||||||||||
Investments under repurchase agreements | 342,445 | 0.43 | % | 661,663 | 0.06 | % | 260,631 | 0.36 | % | |||||||||||||||
Central Bank borrowings | — | — | — | — | — | — | ||||||||||||||||||
Domestic interbank loans | — | — | — | — | — | — | ||||||||||||||||||
Borrowings under foreign trade credit lines | 631,388 | 0.60 | % | 469,453 | 0.92 | % | 441,183 | 1.20 | % | |||||||||||||||
Total short-term borrowings | 973,833 | 0.54 | % | 1,131,116 | 0.42 | % | 701,814 | 0.89 | % | |||||||||||||||
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The following table shows the average balance and the weighted average nominal rate for each short-term borrowing category during the periods indicated:
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As of and for the Year Ended December 31, | ||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||
Average Balance | Weighted Average Nominal Interest Rate | Average Balance | Weighted Average Nominal Interest Rate | Average Balance | Weighted Average Nominal Interest Rate | |||||||||||||||||||
(in millions of constant Ch$) | ||||||||||||||||||||||||
Investments under repurchase agreements | 247,148 | 0.55 | % | 345,098 | 0.12 | % | 645,487 | 0.15 | % | |||||||||||||||
Central Bank borrowing | 21,870 | 5.01 | % | — | — | — | — | |||||||||||||||||
Domestic interbank loans | 728 | 0.00 | % | 377 | 0.00 | % | 350 | 0.00 | % | |||||||||||||||
Borrowings under foreign trade credit lines | 537,236 | 0.57 | % | 639,341 | 0.55 | % | 511,118 | 0.89 | % | |||||||||||||||
Total short-term borrowings | 806,982 | 0.68 | % | 984,816 | 0.40 | % | 1,156,955 | 0.48 | % | |||||||||||||||
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The following table presents the maximum month-end balances of our principal sources of short-term borrowings during the periods indicated:
Maximum 2013 Month-End Balance | Maximum 2014 Month-End Balance | Maximum 2015 Month-End Balance | ||||||||||
(in millions of constant Ch$) | ||||||||||||
Investments under repurchase agreements | 408,760 | 679,201 | 1,076,429 | |||||||||
Central Bank borrowings | 133,583 | — | — | |||||||||
Domestic interbank loans | 1,550 | 4,178 | 1,573 | |||||||||
Borrowings under foreign trade credit lines | 776,559 | 951,923 | 734,798 |
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C. | ORGANIZATIONAL STRUCTURE |
The following diagram presents our current corporate structure, including our principal subsidiaries, as of the date of this Annual Report.
CorpBanca Corredores de Bolsa S.A., CorpBanca Administradora General de Fondos S.A., CorpBanca Asesorias Financieras S.A., CorpBanca Corredores de Seguros S.A., CorpLegal S.A. SMU Corp S.A. and Recaudaciones y Cobranzas S.A. are incorporated and domiciled in Chile. CorpBanca Securities Inc. and CorpBanca New York Branch are incorporated and domiciled in the State of New York, United States. Banco CorpBanca Colombia S.A., CorpBanca Investment Trust Colombia S.A., Helm Comisionista de Bolsa S.A., Helm Corredor de Seguros S.A. and Helm Fiduciaria S.A. are incorporated and domiciled in Colombia. Helm Bank Panama S.A. and Helm Casa de Valores (Panama) S.A. are incorporated and domiciled in Panama.
For more information about the services our subsidiaries and our New York Branch provide see “Item 4. Information on the Company—B. Business Overview—Principal Business Activities—Financial Services Offered Through Subsidiaries”.
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D. | PROPERTY |
Our principal executive offices are located at Rosario Norte 660, Las Condes, Santiago, Chile since 2007. As of December 31, 2015, we owned 38 of the 304 properties where our branches were located. Total branch space as of December 31, 2015 was approximately 96,120 square meters (1,034,627 square feet). Our branches are located throughout Chile, including the Santiago metropolitan region, and Colombia, including in the cities of Bogotá, Medellín, Cali, Bucaramanga and Barranquilla.
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
A. OPERATING RESULTS
The following discussion should be read in conjunction with our consolidated financial statements, together with the notes thereto, included elsewhere in this Annual Report, and in conjunction with the information included under “Item 3A. Selected Financial Data” and “Item 4B. Business Overview – Selected Statistical Information”. Our consolidated annual financial statements as of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015 have been prepared in accordance with IFRS. Our consolidated results of operations for years ended December 31, 2013, 2014 and 2015 are not comparable because of: (i) the consolidation of Helm Bank as a result of the Helm Bank Acquisition in August 2013; and (ii) the consolidation of Helm Bank for a full fiscal year since 2014. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from these discussed in forward-looking statements as a result of various factors, including those set forth in “Cautionary Statement Regarding Forward-Looking Information” and “Item 3D. Risk Factors.”
INTRODUCTION
We are a banking corporation organized under the laws of Chile. Our common shares are listed on the Santiago Stock Exchange and our ADSs are listed on the NYSE. We are regulated by the SBIF. We offer general commercial and consumer banking services and provide other services including factoring, collection, leasing, securities and insurance brokerage, asset management and investment banking.
The following classification of revenues and expenses is based on our consolidated financial statements:
Revenues
We have three main sources of revenues, which include both cash and non-cash items:
Interest income
We earn interest income from our interest-earning assets, which are mainly represented by loans to customers.
Income from service fees
We earn income from service fees related to checking accounts, loans, mutual funds, credit cards and other financial services.
Other operating income
We earn income relating to changes in the fair value of our securities portfolio, other trading activities and foreign exchange transactions.
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Expenses
We have three main sources of expenses, which include both cash and non-cash items:
Interest expense
We incur interest expense on our interest bearing liabilities, such as deposits, short-term borrowings and long-term debt.
Provisions for loan losses
Our allowance and provision for loan losses as recorded in our financial statements included herein have been determined in accordance with IFRS.
Other operating expenses
We incur expenses relating to salaries and benefits, administrative expenses and other non-interest expenses.
THE ECONOMY
Primary Markets in which we Operate
A majority of our investments are located in Chile and Colombia. Accordingly, our financial condition and results of operations are substantially dependent upon economic conditions prevailing in Chile and Colombia.
Developments in the Chilean Economy
Chile experienced profound economic reforms during the 1970s and 1980s. The Chilean economy grew at rates averaging more than 7% per annum from 1985 until the onset of the Asian economic crisis in 1997. The average rate of growth from 1998 to 2006 decreased to 3.6%, with a period of higher growth in 2007 with a rate of 5.1%. In 2008, this rate slowed to 3.5% as a worldwide recession hit many developed nations. The 2008 global financial crisis and the ensuing liquidity crisis and fear of further bank failures unleashed an accelerated reduction in indebtedness within the global financial system, with massive liquidations of assets and costly attempts to recapitalize banks, both in the United States and Europe.
Chile began to experience the impact of these negative global conditions towards the end of 2008, principally in the form of write-downs of local assets, a deceleration in the margin of some activity indicators and a moderation in the strong inflationary pressure.
During 2009, the Chilean economy suffered its worst contraction in the last 30 years, as a result of the impact of the global crisis that originated in developed countries and spread to emerging economies. As a result, the local economy significantly contracted, which was influenced by the deterioration of the industrial, mining and commercial sectors. The global crisis put severe stress on financial markets around the world with the ability to obtain credit being adversely affected, thereby stifling the productive capacity of many countries around the world. In particular, the leading commercial regions (US, the European Union and Japan) suffered the worst economic downturn in decades. In such year, the Chilean GDP decreased by 1.7%, which was the worst decrease in GDP since the 1980’s. In Chile, the labor market was the sector that was impacted the most, with the unemployment rate reported to have reached a peak of 10.8% in the third quarter of 2009. As a result of a fall in the price of goods and the appreciation of the U.S. dollar, Chile experienced deflation for the first time in 74 years (at a rate of (1.4%)). As a result, the Central Bank of Chile’s monetary rate reached a historic low of 0.5%, which remained as such throughout 2009. In addition, the Central Bank of Chile adopted non-traditional monetary policies such as establishing a liquidity fund for banks to utilize to finance plant maintenance programs. Towards the end of 2009, the weakening of the U.S. dollar and the stable rise in the price of copper helped appreciate the Chilean peso.
During 2010, Chile experienced a notable economic recovery. After the 1.7% decrease in GDP during 2009, the Chilean economy grew by 5.2%. The unemployment rate returned to pre-crisis levels and the inflation rate decreased to 3% at year end. The Chilean peso appreciated 7.8% against the U.S. Dollar as a result of the improvement of the Chilean economy and the rise in the price of copper. A 47% increase in the price of copper during 2010 was the main factor in Chile’s economic growth and the appreciation in the value of the Chilean peso. In line with the recovery of economic activity and employment, a strong credit recovery was observed throughout 2010. The recovery of conditions for extending credit, as shown in the surveys conducted by the Central Bank of Chile, contributed to this strong performance. According to the Central Bank of Chile’s national accounts, investment played a key role in this positive economic development, with investment growth of 12.2% in 2010. The Chilean government ended 2010 with a moderate surplus as a result of increased revenue (particularly from taxes on copper) and lower spending than budgeted (about 4% instead of 9%).
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During 2011 and 2012, the Chilean GDP continued to grow by 6% and 5.6%, respectively, increases greater than projected by market consensus in each case. Internal demand increased 9.3% and 7.1%, private investment increased 15.7% and 12.3% and private consumption increased 9% and 6.1%, respectively. Unemployment also decreased, from 8.3% in 2010 to 7.2% in 2011 and to 6.5% in 2012
During 2013, the Chilean real GDP grew by 4.1%, internal demand increased by 3.4%, private investment increased by 0.4%, and private consumption increased by 5.6%. The increase in real GDP was less than projected by market consensus. Unemployment also decreased, from 6.5% in 2012 to 6.0% in 2013. According to the Central Bank of Chile’s national accounts, investment played a key role in this positive economic development, with investment growth of 12.3% in 2012. Current international economic conditions have affected the Chilean economy.
Despite a sustained drop in international trade exports, the Chilean economy has rapidly adjusted to a less favorable international conditions. While GDP grew by 1.7% during 2014, real domestic expenditure decreased by 0.6%, led by a 6.1% contraction rate in real investment. As domestic demand grew softer than total GDP, current account deficit shrank to 1.2% as a percentage of GDP last year from (3.7)% in previous year, putting less pressure on tougher external conditions.
Inflation rate in 2014 accelerated to 4.6% per year, a level not seen since 2008 and considerably higher than Central Bank’s 3.0% target. This higher than anticipated inflation rate was due to (i) larger than expected pass-through of foreign currency exchange rate to domestic prices and (ii) increases in specific prices such as sugary drinks, alcoholic beverages and cigarettes in the enactment of the 2014 tax reform. The sharp decline in international oil prices helped ease inflationary pressures towards the end of the year, but overall domestic inflation has evolved at higher levels than anticipated. During 2014, the Central Bank of Chile continued to provide further monetary stimulus to weak economic activity, gradually lowering the monetary policy rate. Nevertheless, through the end of last year, higher persistence in inflation rate has forced Central Bank to reevaluate its monetary policy stance, suggesting a likely increase in monetary policy rate during 2015.
During 2015 the Chilean economy showed a significant slowdown in growth rates within the year, as a result of low levels of confidence, a messy political discussion on reforms and an external scenario characterized by high levels of volatility and significant appreciation of the dollar. During the first half of the year, economic growth was 2.4%, on a year over year comparison, while GDP growth for the second semester was significantly lower at 1.8%. Thus, full year GDP growth rate was 2.1%, with a weaker expansion of 1.8% in domestic demand.
In this context, while the unemployment rate has shown signs of resilience, with an unemployment rate of 6.3% in 2015, (against a 6,3% in 2014), additional labor market data show a deterioration in the quality, composition and degree utilization of employment.
Meanwhile, in line with the sharp depreciation of the exchange rate between the Chilean peso and the U.S. dollar, the inflation rates completed almost two years above the target range, ending 2015 with an annual inflation rate of 4.4%. In this context, the Central Bank of Chile began its process of withdrawal of monetary stimulus in October 2015, completing a second movement in December, bringing the monetary policy rate to 3.5%, maintaining the tightening bias. According to Central Bank Board, one or two additional hikes would be likely to occur during 2016.
Developments in the Colombian economy
The Colombian economy has demonstrated relatively stable growth in recent years. Despite recent international economic conditions, Colombia’s GDP increased 6.6% in 2011, 4.0% in 2012, 4.9% in 2013, 4.4% in 2014 and 3.1% in 2015. According to the DANE GDP growth has been fueled by local consumption and certain sectors such as mining and quarrying that grew 14.5% in 2011, with slower growth of 5.3% in 2012 and 5% in 2013. In 2014 this sector showed a clear deceleration with negative rates of 1.1% and 0.6% for 2015, given the decline in oil prices around the globe. In contrast, the construction sector accelerated in 2013 to 11.5%, from 5.9% in 2012 and 8.2% in 2011. During 2014 the construction sector grew 10.5% and 3.9% in 2015.
Recent economic activity indicators have also posted mixed results. While Colombian industrial production has recently recovered after been stagnant over the past three years, construction and the financial sector have posted stronger results. In 2015 industry grew 1.2%, while the finance sector grew 4.3% followed by construction with an expansion rate of 3.9%.
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Industrial production was depressed in 2012 and 2013, showing annual growths of 0.1% and 0.9% respectively, industrial production swung positive in 2014, and grew by 0.7% for the year ended December 31, 2014. However, industrial production continued to be weak during the early part of 2015 with quarterly negative growths and a speedy recovery during the last half of the year with annual quarterly growth rates for 3.2% and 4%. The rapid recovery of the sector is mainly supported in the reopening of a refinery in Cartagena, which reported growth rates over 15% during the last months of the year.
Additionally, the Colombian retail sector grew by 5.1% in 2014 and 4.1% in 2015. In addition, local cement production rebounded strongly in the month ended December 31, 2014, experiencing a gain of 10% in comparison to the same period in 2013, and confirming the positive performance of the construction industry for the year. In January 31 of 2015, local cement production experienced an increase of 14.5% when compared to the same period in 2014. Additionally, approved housing projects increased by 20.8% in the year ended December 31, 2014, when compared to the year before, which suggests that the Colombian construction sector will remain strong in 2015. Colombian imports grew by only 3.6% in 2013 but grew by 9.2% in 2014. However, exports contracted by 1.7% during 2014, following a growth of 5.3% in 2013. The recent drop in exports is explained by lower oil exports combined with the effects of lower global oil prices. In 2015 exports decreased 33% while imports decelerated at a lower rate of 15%.
Inflation
General
In the past, Chile has experienced high levels of inflation, which has significantly affected our financial condition and results of operations during such periods. The rate of inflation in Chile spiked to 7.1% in 2008. In 2009, for the first time in 74 years, Chile experienced deflation of 1.4%, in part due to the contraction of the economy related to the global economic crisis. In 2012, 2013, 2014 and 2015, the inflation rate was 1.5%, 3.0%, 4.6% and 4.4%, respectively. Our results of operations reflect the effect of inflation in the following ways:
• | a substantial portion of our assets and liabilities are denominated in UF. The UF is a unit of account, the peso value of which is indexed daily to reflect inflation recorded in the previous month. The net increase or decrease in the nominal peso value of our UF-denominated assets and liabilities is reflected as income or loss in our income statement, and |
• | the rates of interest earned and paid on peso-denominated assets and liabilities reflect, to a certain degree, inflation and expectations regarding inflation. |
Under Chilean law, banks are authorized to earn interest income on loans that are adjustable for the effects of inflation. Most banks, including CorpBanca, charge an interest rate that includes an estimate of future inflation. In addition, the peso-denominated value of our assets and liabilities that are denominated in UF fluctuate as the UF is adjusted based on inflation. In the case of assets, these fluctuations are recorded as income (for increases in the peso-denominated value) and losses (for decreases in the peso-denominated value). In the case of liabilities, these fluctuations are recorded as losses (for increases in the peso-denominated value) and income (for decreases in the peso-denominated value).
Colombia has experienced similarly high levels of inflation in the past. However, the rate of inflation in Colombia in 2012, 2013, 2014 and 2015 was 2.4%, 1.9%, 3.7% and 6.8% respectively. The 12-month inflation rate for 2015 rose by 3.11%. The components that led to such level of inflation in 2015 were food (a 10.85% increase from 2014), housing (a 5.38% increase from 2014) and health (a 5.30% increase from 2014).
UF-denominated Assets and Liabilities
The UF is revalued by the INE on a monthly basis. Every day in the period beginning the tenth day of the current month through the ninth day of the succeeding month, the nominal Chilean peso value of the UF is indexed up (or down in the event of deflation) in order to reflect each day a proportional amount of the prior calendar month’s change in the CPI. One UF was equal to Ch$23,309.56, Ch$24,627.10 and Ch$25,629.09 as of December 31, 2013, 2014 and 2015, respectively. The effect of any changes in the nominal Chilean peso value of our UF-denominated assets and liabilities is reflected in our results of operations as an increase (or decrease, in the event of deflation) in interest income and expense, respectively. Our net interest income is positively affected by increases in inflation to the extent that our average UF-denominated assets exceed our average UF-denominated liabilities. Conversely, our net interest income will be negatively affected by inflation in any period in which our average UF-denominated liabilities exceed our average UF-denominated assets. Our average UF-denominated assets exceeded our average UF-denominated liabilities by Ch$1,642,003 million, Ch$1,576,818 million and Ch$1,810,203 million during the years ended December 31, 2013, 2014 and 2015, respectively. See “Item 4. Information on the Company—B. Business Overview—Principal Business Activities—Selected Statistical Information—Average Balance Sheets, Income Earned from Interest Earning Assets and Interest Paid on Interest Bearing Liabilities”.
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Chilean Peso-denominated Assets and Liabilities
Interest rates prevailing in Chile are materially affected by the current rate of inflation during the period and market expectations concerning future inflation. The responsiveness to such prevailing rates of our Chilean peso-denominated interest-earning assets and interest bearing liabilities varies. See “—Interest Rates” and “—Results of Operations” below and “Item 11. Quantitative and Qualitative Disclosures about Financial Risk”. We maintain a substantial amount of non-interest bearing Chilean peso-denominated demand deposits. The ratio of the average balance of such demand deposits to average interest-earning assets was 2.8%, 2.7% and 2.3% during the years ended December 31, 2013, 2014 and 2015, respectively. Because such deposits are not sensitive to inflation or changes in the market interest rate environment, any decline in interest rates or the rate of inflation adversely affects our net interest margin on assets funded with such deposits and any increase in the rate of inflation increases the net interest margin on such assets. From 2013 to 2015, we decreased our percentage of foreign currency based loans in our total loan portfolio from 48.8% to 46.6%.
Interest Rates
Interest rates earned and paid on our assets and liabilities, respectively, reflect, to a certain degree, inflation, expectations regarding inflation, shifts in short-term interest rates set by the Central Bank of Chile and the Central Bank of Colombia and movements in long-term real rates.
Interest Rates in Chile
The Central Bank of Chile manages short-term interest rates based on its objectives of keeping the stability of the currency. Because our liabilities are generally re-priced to reflect interest rate changes more frequently than our interest-earning assets, changes in the rate of inflation or in the monetary policy interest rate published by the Central Bank of Chile are reflected in the interest rates we pay on our liabilities before such changes are reflected in the interest rates we earn on our assets. Therefore, when short-term interest rates fall, our net interest margin is positively impacted, but when short-term rates increase, our interest margin is negatively affected. At the same time, our net interest margin tends to be adversely affected in the short term by a decrease in inflation because generally our UF-denominated assets exceed our UF-denominated liabilities. See “Item 5. Operating and Financial Overview and Prospects—A. Operating Results—The Economy—Developments in the Chilean Economy” and “—UF-denominated Assets and Liabilities” above. An increase in long-term interest rates also has a positive effect on our net interest margin, because our interest-earning assets generally have a longer duration than our interest bearing liabilities.
In addition, because our Chilean peso-denominated liabilities have relatively short re-pricing periods, they are generally more responsive to changes in inflation or short-term rates than our UF-denominated liabilities. As a result, during periods when current inflation or expected inflation exceeds the previous month’s inflation, customers often switch funds from Chilean peso-denominated deposits to more expensive UF-denominated deposits, thereby adversely affecting our net interest margin. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Sources of Liquidity—Financial Investments”.
Interest Rates in Colombia
The Central Bank of Colombia manages short-term interest rates based on its objectives of maintaining a low and stable inflation rate, stabilizing output around its natural levels and contributing to the preservation of financial stability.
Colombian commercial banks, finance corporations and financing companies are required to report data to the Central Bank of Colombia on a weekly basis regarding the total volume (in Colombian pesos) of certificates of deposit issued during the prior week and the average interest rates paid for certificates of deposit with maturities of 90 days. Based on such reports, the Central Bank of Colombia calculates the DTF rate, which is the main benchmark interest rate in Colombia and is published at the beginning of the following week. The DTF is the weighted average interest rate paid by commercial banks, finance corporations and financing companies for certificates of deposit with maturities of 90 days.
For the week of March 21 of 2016, the DTF rate was 6.36%. The Central Bank of Colombia also calculates the interbank rate (Interés Bancario de Referencia), or IBR, which acts as a reference of overnight and one-month interbank loans, based on quotations submitted each business day by eight participating banks to the Central Bank of Colombia. Using a weighted average of the quotations submitted, the Central Bank of Colombia calculates the overnight IBR each business day. The one-month IBR is calculated each Tuesday. Article 884 of the Colombian Commercial Code provides for a limit on the amount of interest that may be charged in commercial transactions. The limit is 1.5 times the current banking interest rate (Interés Bancario Corriente), calculated as the
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average of the interest ordinarily charged by banks within a set period of time. The current banking interest rate is certified by the Colombian Superintendency of Finance.
A significant portion of our banking subsidiaries’ assets are linked to the DTF; accordingly, changes in the DTF affect our banking subsidiaries’ net interest income. The average DTF was 7.96% during 2007, and 9.69% during 2008. With the loosening of monetary policy that began in late 2008, the DTF decreased throughout 2009, reaching a low of 4.11% and an average of 6.22% during 2009, and a low of 3.39% and an average of 3.67% during 2010. As the economy recovered and the output gap began to close, the Central Bank of Colombia increased its interest rate throughout 2011, starting in February of that year, and through to the first quarter of 2012. As the economy began to slow down more than expected, due to the intensification of the European crisis during 2012, the Central Bank of Colombia decreased the interest rate by 100 basis points during the second half of that year, lowering it to 4.25% on December 31, 2012. Additional cuts of 100 basis points took place during the first quarter of 2013, bringing the policy rate to 3.25% on March 31, 2013. The policy rate has remained stable through the remainder of 2013, as inflation remained subdued throughout the year, supporting a healthy and gradual recovery pace of economic activity. The policy rate remained stable throughout 2013 and until March of 2014. On average, the DTF went from of 7.96% in 2007 to 3.88% in the first quarter of 2014.
From April of 2014 through August of 2014, the Central Bank of Colombia increased the Repo Rate by an aggregate 125 bps to 4.50%. This increase was a result of accelerated growth and intended to controlled inflation. The interest rate remained unchanged from August 2014 until August 2015, due to the uncertainty surrounding the local economy after the recent fall in global oil prices. On September 2015 the Central Bank decided to increase interest rates by 25 bps from 4.50% to 4.75%, given the record high inflation, the increase on inflation expectations, and a rapid deterioration of the current account deficit above 6% of GPD. Since inflation expectations have increased rapidly and remain above the upper bound of the inflation target of 4%, the Central Bank has increased interest rates regardless of the negative GDP gap. As of March of 2016, the Central Bank of Colombia has increased rates by 200 bps to 6.50% arguing that the internal demand has grown faster than expected.
The DTF has slowly adjusted to the new upward trend in monetary policy moving from 4.34% in 2014 to 5.22% at the end of December 2015. However, a large portion of the adjustment was observed during the first months of 2016, as a response to the new liquidity conditions of the market, taking the DTF rate to 6.36% during the third week of March of 2016.
Currency Exchange Rates
A material portion of our assets and liabilities is denominated in foreign currencies, principally the U.S. dollar and the Colombian peso. Our reported income is affected by changes in the value of the Chilean peso with respect to foreign currencies (principally the U.S. dollar and Colombian peso) because such assets and liabilities, as well as interest earned or paid on such assets and liabilities, and gains (losses) realized upon the sale of such assets, are converted to Chilean pesos in preparing our financial statements. The Chilean government’s economic policies and any future changes in the value of the Chilean peso against the U.S. dollar could adversely affect our financial condition and results of operations. In the past, the Chilean peso has been subject to significant volatility when compared to the U.S. dollar. In 2013, the Chilean peso depreciated against the U.S. dollar by 9.9% as compared to 2012. In 2014, the Chilean peso depreciated against the U.S. dollar by 15.0% as compared to 2013. In 2015 the Chilean peso depreciated against the U.S. dollar by 17.3% as compared to 2014. The exchange rate between the Chilean peso and the U.S. dollar as of December 31, 2013, 2014 and 2015 was Ch$524.61, Ch$606.75 and Ch$710.16 per US$1.00, respectively. The Chilean peso may be subject to significant fluctuations in the future.
Entering into forward exchange transactions enables us to reduce the negative impact of material gaps between the balances of our foreign currency-denominated assets and liabilities. As of December 31, 2013, 2014 and 2015, the gap between foreign currency denominated assets and foreign currency denominated liabilities, including forward contracts, was Ch$503,333 million, Ch$78,883 million and Ch$273,399 million, respectively.
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Critical Accounting Policies and Estimates
General
In our filings with the SEC, we prepare our consolidated financial statements in accordance with IFRS. In preparing our consolidated financial statements, we use estimates and assumptions to account for certain assets, liabilities, revenues, expenses and other transactions. While we review these estimates and assumptions in the ordinary course of business, the portrayal of our financial condition and results of operations often require our management to make judgments regarding the effects on our financial condition and results of operations on matters that are inherently uncertain. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. The following discussion describes those areas that require the most judgment or involve a higher degree of complexity in the application of the accounting policies that currently affect our financial condition and results of operations. Actual results may differ from those estimated under different variables, assumptions or conditions, and if these differences could have a material impact on our reported results of operations. Note 1 to our financial statements contains a summary of our significant accounting policies.
Allowance for Loan Losses
We have established allowances to cover probable loan losses in accordance with IFRS. The allowance for loan losses requires us to make estimates and judgments about inherently subjective matters in determining the classification of individual loans and, consequently, we regularly evaluate our allowance for loan losses by taking into consideration factors such as changes in the nature and volume of our loan portfolio, trends in forecasted portfolio credit quality and economic conditions that may affect our borrowers’ ability to pay. Increases in our allowance for loan losses are reflected as provisions for loan losses in our income statement. Loans are charged off in accordance with the guidelines as set forth by the SBIF. Write-offs are recorded as a reduction of the allowance for loan losses. See “Item 4. Information on the Company—Business Overview—Selected Statistical Information—Current Regulations Relating to Classification of Banks and Loans; Allowances for Loan Losses”.
For a further description of regulations relating to loan classification and provisioning, see “Item 4. Information on the Company—B. Business Overview—Principal Business Overview—Chilean Banking Regulation and Supervision—Current Regulations Relating to Classification of Banks and Loans; Allowances for Loan Losses”.
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We consider the accounting estimates related to allowance for loan losses to be “critical accounting estimates” because (i) they are highly susceptible to change from period to period because our assumptions about the risk of loss used to classify our loans are updated for recent performance experience which may increase or decrease our risk index that is used to determine our global allowance, (ii) our specific allowances are also updated to reflect recent performance which may result in an increase or decrease in our specific allowances, (iii) it requires management to make estimates and assumptions about loan classification and the related estimated probable loss if any and (iv) any significant difference between our estimated losses (as reflected in the specific and general provisions) as of the balance sheet date and our actual losses will require us to adjust our allowance for loan losses that may result in additional provisions for loan losses in future periods which could have a significant impact on our future net income and/or financial condition. As of December 31, 2015, our allowance for loan losses was Ch$173,939 million (excluding allowances and impairment for interbank loans).
Derivative Financial Instruments
Derivative financial instruments are recorded at fair value. Fair values are based on market quotes, discounted cash flow models and option valuations, as appropriate. If market information is limited or in some instances, not available, management applies its professional judgment. Other factors that may also affect estimates are incorrect model assumptions, market dislocations and unexpected correlations. Notwithstanding the level of subjectivity in determining fair value, we believe our estimates of fair value are adequate. The use of different models or assumptions could lead to changes in our reported results.
In addition, we make loans and accept deposits in amounts denominated in foreign currencies, principally the U.S. dollar. Such assets and liabilities are translated at the applicable exchange rate at the balance sheet date.
Financial Investments
Financial investments are summarized as follows:
Trading Instruments. Instruments for trading are securities acquired for which we have the intent to generate earnings from short-term price fluctuations or through brokerage margins, or that are included in a portfolio created for such purposes. Instruments for trading are valued at their fair value according to market prices on the closing date of the balance sheet.
Investment Instruments. Investment instruments are classified into two categories: held to maturity investments and instruments available-for-sale. Held to maturity investments only include those instruments for which we have the intent and ability to hold to maturity. Investment instruments not classified as held to maturity or trading are considered to be available-for-sale. Investment instruments are recorded initially at cost. Instruments available-for-sale are valued at each subsequent period-end at their fair value. Gains or losses from changes in fair value are recognized in other comprehensive income within line item “financial instruments available for sale”. All purchases and sales of investment instruments to be delivered within the deadline stipulated by market regulations and conventions are recognized on the trade date, which is the date on which the commitment is made to purchase or sell the asset. Other purchases or sales are treated as forwards until they are liquidated.
We enter into security repurchase agreements as a form of borrowing. The liability for the repurchase of the investment is classified as “obligations under repurchase agreements” and is carried at cost plus accrued interest.
We also enter into resale agreements as a form of investment. Under these agreements we purchase securities, which are included as assets under the caption “investments under agreements to resell” and are carried at cost plus accrued interest.
Recently Adopted and New Accounting Pronouncements
See Note 1 of our consolidated financial statements for a detailed description of recently adopted and new accounting pronouncements in IFRS.
Results of Operations for the Years Ended December 31, 2013, 2014 and 2015
Introduction
In 2015 our net income was of Ch$238.7 billion, of which 77% corresponded to Chile and 23% to Colombia, a decrease of 12.8% compared with 2014. While in 2014 we had stronger results from Colombia, during 2015 we recorded higher than expected results from Chile and lower that planned results from Colombia. The latter is explained by unfavorable exchange rate movements
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between the Colombian peso and the Chilean peso and higher provisions for loan losses as a consequence of difficulties experienced by the Colombian oil & gas industry and related sectors; while Chile’s operations had been favored by commercial customer driven results, higher net interest margin as consequence of higher UF variations and lower loan loss provisions than planned.
These extraordinary results have been achieved under lower than expected economic activity in Chile and Colombia. In particular, CorpBanca Colombia has been able to offset this more challenging economic context with the positive impact of cost savings already achieved from the completion of some of the stages of the merger between CorpBanca Colombia and Helm Bank. In the case of Chile, the stronger results have been achieved despite all the activities related to the merger with Banco Itaú Chile, efforts that have been taking higher momentum after the extraordinary shareholders meeting that approved the transaction in June 2015 and the SBIF’s authorization, granted in September, 2015.
Net Income
Our consolidated net income as reported in our consolidated financial statements for the year ended December 31, 2015 was Ch$238,665 million, a 12.8% or Ch$35,036 million decrease from Ch$273,701 million in 2014 which represented a 56.2% or Ch$98,462 million increase from Ch$175,239 million in 2013.
The decrease in our consolidated net income for the year ended December 31, 2015 was primarily due to: (i) higher provisions for loan losses; (ii) a negative translation effect COP/Ch$ of our Colombian subsidiary; (iii) the negative impact of lower inflation in Chile on net interest margin; and (iv) higher tax rates.
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The following table sets forth the components of our net income for the years ended December 31, 2013, 2014 and 2015:
For the Year Ended | ||||||||||||||||||||
December 31, | % Change from 2015/2014 | % Change from 2014/2013 | ||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||
(in millions of constant Ch$ except for percentages) | ||||||||||||||||||||
Components of net income: | ||||||||||||||||||||
Net interest income | 457,690 | 630,884 | 620,579 | (1.6 | )% | 37.8 | % | |||||||||||||
Net service fee income | 117,977 | 161,590 | 152,847 | (5.4 | )% | 37.0 | % | |||||||||||||
Trading and Investment, foreign exchange gains and other operating income | 127,039 | 199,225 | 211,153 | 6.0 | % | 56.8 | % | |||||||||||||
Provisions for loan losses | (102,072 | ) | (127,272 | ) | (169,748 | ) | 33.4 | % | 24.7 | % | ||||||||||
Income attributable to investment in other companies | 1,241 | 1,799 | 1,300 | (27.7 | )% | 45.0 | % | |||||||||||||
Total operating expenses | (362,145 | ) | (509,672 | ) | (480,789 | ) | (5.7 | )% | 40.7 | % | ||||||||||
Income before income taxes | 239,730 | 356,554 | 335,342 | (5.9 | )% | 48.7 | % | |||||||||||||
Income taxes | (64,491 | ) | (82,853 | ) | (96,677 | ) | 16.7 | % | 28.5 | % | ||||||||||
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Net income for the year | 175,239 | 273,701 | 238,665 | (12.8 | )% | 56.2 | % | |||||||||||||
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Net Interest Income
The following table sets forth the components of our net interest income for the years ended December 31, 2013, 2014 and 2015:
For the year ended December 31, | % Change | % Change | ||||||||||||||||||
2013 | 2014 | 2015 | from 2015/2014 | from 2014/2013 | ||||||||||||||||
(in millions of constant Ch$ except for percentages) | ||||||||||||||||||||
Interest income | 1,007,106 | 1,320,124 | 1,299,480 | (1.6 | )% | 31.1 | % | |||||||||||||
Interest expense | (549,416 | ) | (689,240 | ) | (678,901 | ) | (1.5 | )% | 25.4 | % | ||||||||||
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Net interest income | 457,690 | 630,884 | 620,579 | (1.6 | )% | 37.8 | % | |||||||||||||
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The following table sets forth information as to the components of our interest income for the years ended December 31 2013, 2014 and 2015:
For the year ended December 31, | ||||||||||||||||||||
2013 | 2014 | 2015 | % Change from 2015/2014 | % Change from 2014/2013 | ||||||||||||||||
(in millions of constant Ch$ except for percentages) | ||||||||||||||||||||
Interest income | 1,007,106 | 1,320,124 | 1,299,480 | (1.6 | )% | 31.1 | % | |||||||||||||
Average interest-earning assets: | ||||||||||||||||||||
Loans | 11,505,946 | 13,895,505 | 14,622,229 | 5.2 | % | 20.8 | % | |||||||||||||
Financial investments | 917,630 | 1,161,414 | 1,310,924 | 12.9 | % | 26.6 | % | |||||||||||||
Interbank deposits | 384,045 | 411,955 | 465,557 | 13.0 | % | 7.3 | % | |||||||||||||
Total average interest-earning assets | 12,807,621 | 15,468,875 | 16,398,711 | 6.0 | % | 20.8 | % |
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The following table sets forth information as to the components of our interest expense for the years ended December 31 2013, 2014 and 2015:
For the year ended December 31, | ||||||||||||||||||||
2013 | 2014 | 2015 | % Change from 2015/2014 | % Change from 2014/2013 | ||||||||||||||||
In millions of constant Ch$, except for percentages | ||||||||||||||||||||
Interest expense | 549,416 | 689,240 | 678,901 | (1.5 | )% | 25.4 | % | |||||||||||||
Average interest-earning liabilities: | ||||||||||||||||||||
Bonds | 2,199,545 | 2,609,908 | 3,025,930 | 15.9 | % | 18.7 | % | |||||||||||||
Time deposits | 7,055,890 | 7,849,494 | 8,230,208 | 4.9 | % | 11.2 | % | |||||||||||||
Central Bank borrowings | — | — | — | — | — | |||||||||||||||
Repurchase agreements | 269,419 | 345,097 | 645,487 | 87.0 | % | 28.1 | % | |||||||||||||
Mortgage finance bonds | 130,991 | 105,851 | 87,375 | (17.5 | )% | (19.2 | )% | |||||||||||||
Other interest-bearing liabilities | 2,283,273 | 3,210,058 | 3,310,424 | 3.1 | % | 40.6 | % | |||||||||||||
Total average interest-bearing liabilities | 11,939,118 | 14,120,408 | 15,299,424 | 8.3 | % | 18.3 | % |
2015 Compared to 2014:
Our interest income was Ch$1,299,480 million for the year ended December 31, 2015, a decrease of 1.6% as compared to Ch$1,320,124 million for the year ended December 31, in 2014. The decrease in interest income was primarily the result of a negative translation effect of the COP$ in relation to the Ch$2of our Colombian subsidiary (Ch$0.2266 per 1COP$ in 2015 vs. Ch$0.2532 per 1COP$ in 2014) as well as a lower UF variation in Chile (4.1% in 2015 vs. 5.7% in 2014). Despite the negative exchange rate effects, our Colombian subsidiaries’ net interest income in its local currency under Chilean GAAP increased 13.5% from COP$1,017,818 million in 2014 to COP$1,155,333 million in 2015.
The aforementioned factors negatively impacted our net interest margin (net interest income divided by average interest-earning assets), which decreased to 3.8% in 2015 from 4.1% in 2014.
2014 Compared to 2013:
Our interest income was Ch$1,320,124 million for the year ended December 31, 2014, an increase of 31.1% as compared to Ch$1,007,106 million for the year ended December 31, in 2013. The increase in interest income was primarily the result of: (i) the consolidation of Helm Bank into our financial statements for a full year in 2014; (ii) higher UF variation of 5.65% in 2014 versus 2.05% in 2013, which resulted in increased interest income from our UF loans and our UF investment portfolio; and (iii) higher loan activity both in Chile and Colombia. The increase in our loan activities in Chile and Colombia was reflected by an increase in the average loan balance. During this period, the balance of our average loans grew by 20.8% to Ch$13,895,505 million for the year ended December 31, 2014, from Ch$11,505,946 million for the year ended December 31, 2013.
Despite the 31.1% increase in our interest income during the period, our interest expense increased by only 25.4% to Ch$689,240 for the year ended December 31, 2014, as compared to Ch$ 549,416 for the year ended December 31, 2013, reflecting improved margins on our loans. This increase was the result of: (i) the consolidation of the results of Helm Bank for a full year in 2014, and (ii) an increase in our average interest-earning liabilities, in particular in bonds and time deposits. This increase was partly offset by: (i) a decrease of 1.5% (150 basis points) in the Central Bank monetary policy interest rate in Chile; and (ii) a decrease in our cost of funding in time deposits toward historical levels.
2 | Consolidated financial statements for CorpBanca use the Chilean peso as functional currency. CorpBanca Colombia financial statements are translated from Colombian peso to Chilean peso for consolidation purposes, being only the exchange rate variation in its income statement accounts reflected in 2015 results. CorpBanca has decided not to hedge this translation risk effect in profits and losses as long as net income from Colombian operations is retained as primarily source of capitalization. Since we have decided to retain earnings to support future grow in Colombia, an Foreign exchange hedge for financial statement balances is not efficient as it would be if there were a cash flow coming from our Colombian subsidiary. CorpBanca’s management revaluates this strategy on an annual basis. |
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As a result of the above, our net interest income increased by 37.8% to Ch$630,884 million for the year ended December 31, 2014, as compared to Ch$ 457,690 million for the year ended December 31, 2013.
Net interest margin (net interest income divided by average interest-earning assets) increased from 3.6% in 2013 to 4.1% in 2014 as a result of the above-mentioned factors relating to our interest income and interest expenses.
Allowances for Loan Losses
The following table sets forth information relating to our allowances for loan losses as of December 31, 2013, 2014 and 2015:
As of December 31, | |||||||||||||||||||||||||
2013 | 2014 | 2015 | % Change from 2015/2014 | % Change from 2014/2013 | |||||||||||||||||||||
(in millions of constant Ch$ as of December 31, 2015 except for percentages) | |||||||||||||||||||||||||
Total loans (excludes interbank loans) | 12,897,681 | 14,029,875 | 14,628,296 | 4.3% | 8.8% | ||||||||||||||||||||
Past due loans(1) | 64,091 | 82,650 | 104,897 | 26.9% | 29.0% | ||||||||||||||||||||
Non-performing loans(2) | 141,667 | 180,536 | 196,806 | 9.0% | 27.4% | ||||||||||||||||||||
Impaired loans(3) | 393,102 | 406,199 | 459,982 | 13.2% | 3.3% | ||||||||||||||||||||
Allowances for loan losses | 126,039 | 137,605 | 173,939 | 26.4% | 9.2% | ||||||||||||||||||||
Allowances for loan losses as a percentage of total loans | 1.0% | 1.0% | 1.2% | 21.2% | 0.4% | ||||||||||||||||||||
Allowances for loan losses as a percentage of non-performing loans | 89.0% | 76.2% | 88.4% | 16.0% | (14.3)% | ||||||||||||||||||||
Allowances for loan losses as a percentage of impaired loans | 32.1% | 33.9% | 37.8% | 11.6% | 5.7% | ||||||||||||||||||||
Non-performing loans as a percentage of total loans | 1.1% | 1.3% | 1.3% | 4.6% | 17.2% | ||||||||||||||||||||
Allowances for loan losses as a percentage of past due loans | 196.7% | 166.5% | 165.8% | (0.4)% | (15.3)% |
(1) | Past due loans include all installments and lines of credit more than 90 days overdue. Do not include the aggregate principal amount of such loans. |
(2) | Non-performing loans include the principal and interest on any loan with one installment more than 90 days overdue. |
(3) | Impaired loans include those loans on which there is objective evidence that debtors will not meet some of their contractual payment obligations. |
2015 Compared to 2014:
Allowances for loan losses (excluding allowances for loan loss on loans and receivables to banks) increased by 26.4% to Ch$173,939 million as of December 31, 2015 compared to Ch$137,605 million as of December 31, 2014. Higher allowances for loan losses resulted primarily from difficulties experienced by the Colombian oil & gas industry and related sectors which led to higher default risk in loans exposed to these industries. Despite the increased allowances with respect to our Colombian subsidiary, our Chilean operations benefitted from lower allowances for loan losses than previously anticipated, partly offseting the increase experienced in Colombia.
2014 Compared to 2013:
Allowances for loan losses (excluding allowances for loan loss on loans and receivables to banks) increased by 9.2% to Ch$137,605 million as of December 31, 2014 compared to Ch$126,039 million as of December 31, 2013. The increase in our allowances for loan losses was primarily due to the growth in our loan portfolio, which required a corresponding increase in our allowance for loan losses. Despite this increase, our asset quality was unchanged from 2013, as allowances for loan losses as a percentage of total loans remained at 1.0% in 2014, which was the same proportion as in 2013.
Provisions for Loan Losses
2015 Compared to 2014:
Provisions for loan losses increased by 33.4% to Ch$169,748 million for the year ended December 31, 2015, compared to Ch$127,272 million for the year ended December 31, 2014. The increase in our provisions for loan losses is due to (i) the depreciation of the Ch$; (ii) the downgrade of some of our clients in the Corporate segment within the segment of Large, Corporate and Real Estate Companies; and (iii) higher reserves in Colombia to prevent
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further deterioration in the gas and oil sector. Our current exposure to oil and gas sector is 2.1% of our consolidated loan portfolio, of which 1.5% represented Colombian exposure to such sector. Nevertheless, CorpBanca Colombia provisions in 2015 benefited from a new regulatory standard for leasing operations that allowed them to release Ch$6.2 billion in loan loss provisions that partly offset.
2014 Compared to 2013:
Provisions for loan losses increased by 24.7% to Ch$127,272 million for the year ended December 31, 2014, compared to Ch$102,072 million for the year ended December 31, 2013. The increase in our provisions for loan losses in 2014 was primarily the result of: (i) the consolidation of Helm Bank in 2014 for a full year; (ii) the growth of our loan portfolio in 2014 compared to 2013, which resulted in higher provisions.
Net Service Fee Income
2015 Compared to 2014:
Our net service fee income (including income from financial advisory services) for the year ended December 31, 2015 was Ch$152,847 million, representing a 5.4% decrease when compared to Ch$161,590 million, for the year ended December 31, 2014. Our income from service fees during the year ended December 31, 2015 decreased by 0.8% to Ch$200,401 million from Ch$202,013 million for the year ended December 31, 2014. This decrease was further negatively affected by a 17.6% increase in our expenses from service fees to Ch$47,554 million for the year ended December 31, 2014, from Ch$40,423 million for the year ended December 31, 2014.
The decrease in our net service fee income, was driven primarily by lower flat fees and insurance commissions in Colombia and the devaluation of the COP$ relative to the Chilean Peso that were partly offset by increased commercial activity of our real estate segment within the segment of Large, Corporate and Real Estate Companies the positive repricing effect of the Redbanc (interconnected network between banks through ATM) rate applied to ATMs transactions and the positive effects of the consolidation of Instacob, which we acquired on March 2015.
2014 Compared to 2013:
Our net service fee income (including income from financial advisory services) for the year ended December 31, 2014 was Ch$161,590 million, representing a 37.0% increase when compared to Ch$117,977 million, for the year ended December 31, 2013. Our income from service fees during the year ended December 31, 2014 increased by 39.5% to Ch$202,013 million from Ch$144,777 million for the year ended December 31, 2013. This increase was partially offset by a 37.6% increase in expenses from service fees to Ch$40,423 million for the year ended December 31, 2014, from Ch$26,800 million for the year ended December 31, 2013.
The increase in our net service fee income, was driven primarily by: (i) the consolidation of Helm Bank for a full year in 2014, compared to only five months in 2013; (ii) higher fees resulting from our financial advisory services and insurance brokerage business; and (iii) increased commercial activity in the markets in which we operate, including increased loan activity and other banking services and products, which resulted in increased billing and collection of fees related to such products and services. Our expenses from service fees were primarily the result of the consolidation of Helm Bank for a full year in 2014, as well as other organic growth of our expense structure.
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Other Net Operating Income
The following table sets forth the components of our other net operating income for the years ended December 31, 2013, 2014 and 2015:
For the year ended December 31, | ||||||||||||||||||||
2013 | 2014 | 2015 | % Change from 2015/2014 | % Change from 2014/2013 | ||||||||||||||||
(in millions of constant Ch$ except for percentages) | ||||||||||||||||||||
Trading and investment income, net | 101,287 | 183,693 | 338,698 | 84.4 | % | 81.4 | % | |||||||||||||
Foreign exchange gains (losses), net | (13,906 | ) | (13,426 | ) | (151,197 | ) | 1026.2 | % | (3.5 | )% | ||||||||||
Other operating revenue | 39,658 | 28,958 | 23,652 | (18.3 | )% | (27.0 | )% | |||||||||||||
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Trading and investment, foreign exchange gains and other operating income | 127,039 | 199,225 | 211,153 | 6.0 | % | 56.8 | % | |||||||||||||
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2015 Compared to 2014:
In the year ended December 31, 2015, trading and investment, foreign exchange gains and other net operating income increased by 6.0% to Ch$211,153 million from Ch$199,225 million in 2014. This increase was mainly the result of (i) a higher valuation of our forward and swap portfolio, driven by foreign exchange hedges, (ii) increasing commercial activity of our distribution desk both in derivatives transactions with customers and in regular loan portfolio sales, and (iii) the devaluation of the Chilean peso against the U.S. dollar over our hedge taxes in US$.
2014 compared to 2013:
In the year ended December 31, 2014, trading and investment, foreign exchange gains and other net operating income increased by 56.8% to Ch$199,225 million. This 56.8% increase was mainly due to an increase of 81.4% in trading and investment income (net) that was partially offset by a decrease of 3.5% in foreign exchange results and a decrease of 27.0% in our other operating income.
Trading and investment income net of foreign exchange gains (net) results benefited from (i) higher than expected inflation rate in Chile, which increased our revenues obtained from managing the gap between assets and liabilities indexed to UF. In Chile, the balance sheet of banks typically reflects more assets than liabilities indexed to UF, thereby creating a gap between those assets and liabilities. As there is a permanent UF variation increase in Chile, the managing of this gap benefits the banking industry, (ii) increased client-driven financial derivative activity, in the context of the appreciation of the U.S. Dollar against the Chilean Peso and the Colombian Peso, and (iii) the consolidation of Helm Bank for a full calendar year.
Other operating income decreased by 27.0% in 2014 compared to 2013 due to one-time revenue from the sale of 31 real estate properties in 2013.
Operating Expenses
The following table sets forth the components of our operating expenses for the years ended December 31, 2013, 2014 and 2015:
For the year ended December 31, | % Change from 2015/2016 | % Change from 2014/2013 | ||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||
(in millions of constant Ch$ except for percentages) | ||||||||||||||||||||
Personnel salary and expenses | 165,009 | 219,312 | 202,754 | (7.5 | )% | 32.9 | % | |||||||||||||
Administration expenses | 139,614 | 213,140 | 211,603 | (0.7 | )% | 52.7 | % | |||||||||||||
Depreciation and amortization | 42,288 | 51,613 | 42,905 | (16.9 | )% | 22.1 | % | |||||||||||||
Impairment | — | 1,308 | 332 | (74.6 | )% | — | ||||||||||||||
Other operating expenses | 15,234 | 24,299 | 23,195 | (4.5 | )% | 59.5 | % | |||||||||||||
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Total operating expenses | 362,145 | 509,672 | 480,789 | (5.7 | )% | 40.7 | % | |||||||||||||
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2015 Compared to 2014:
Operating expenses decreased by 5.7% to Ch$480,789 million for the year ended December 31, 2015 from Ch$509,672 million for the year ended December 31, 2014. The improvement is primarily the result of synergies already delivered in Colombia and the absence of one-time expenses related to the merger process between CorpBanca Colombia and Helm Bank.
Regarding the expenses related to the merger process with Banco Itaú Chile, in 2015 we totalled Ch$21.8 billion in pre-merger expenses compared to Ch$22.2 billion in 2014.
2014 Compared to 2013:
Operating expenses increased by 40.7% to Ch$509,672 million for the year ended December 31, 2014 from Ch$362,145 million for the year ended December 31, 2013. The increase in operating expenses was the result of (i) the incorporation of Helm Bank for a full year in 2014 including one-time costs related to the merger between CorpBanca Colombia and Helm Bank, (ii) higher bonus provisions and salaries as a result of both Chilean inflation, as well as a result of collective bargaining negotiations concluded in Chile during 2014, (iii) higher insurance premiums, and (iv) higher rent expenses which resulted from the consummation in 2013 of sale-leaseback transactions relating to 31 of our formerly-owned real estate properties, and (v) advisory services and associated fees related to the pending merger between Itaú Chile and CorpBanca.
Income Taxes
2015 Compared to 2014:
Our income tax expenses increased to Ch$96,677 million for the year ended December 31, 2015 from Ch$82,853 million for the year ended December 31, 2014. This 16.7% increase is due to higher tax rates, both in Chile and Colombia, and depreciation of the Colombian Peso relative to the Chilean Peso that resulted in higher tax expense from our investment in Colombia -which despite of been made in COP$, for tax purposes is considered to be in US dollars3- this impact is offset by the gains on the fiscal hedge as previously mentioned.
2014 Compared to 2013:
Our income tax expenses increased to Ch$82,853 million for the year ended December 31, 2014 from Ch$64,491 million for the year ended December 31, 2013. This increase was mainly due to a combination of our higher income before taxes that we experienced in 2014, combined with a higher tax rate in Chile. As described below and in “Item 4—Information on the Company—B. Business Overview—Recent Regulatory Developments in Chile”, the governments of Chile and Colombia have recently adopted changes to their respective tax codes that will result in an increased marginal tax rate for us and certain of our subsidiaries.
In September 2014, Chile enacted Law 20,780, which amended the Chilean income tax system, increasing rates applicable to us, in order to increase revenue collection to finance education reform, to make the Chilean tax system more equitable, and to simplify the previously existing tax system. As described in “Item 4—Information on the Company—B. Business Overview—Recent Regulatory Developments in Chile”, one of the most important changes introduced by the Tax Reform is the creation of two separate taxation systems in the Chilean Income Tax Law: the attributed income system and the semi-integrated system. The law also provides gradual increases in the corporate income tax rate from 20% in 2013 to 21% in 2014, 22.5% in 2015, 24% in 2016, and 25% or 27% in 2018 depending on the tax system chosen by the applicable taxpayer. The impact of this rate change on deferred taxes resulted in a credit to our profit for the year ended December 31, 2014 of Ch$369 million.
Additionally, in December 2014, Colombia enacted an amendment to the Colombian tax laws through Law 1,739. Among the more important modifications introduced by the Colombian tax reform was a gradual and transitory increase in income taxes between 2015 and 2018. This modification will raise the income tax rate in Colombia from 34%, in effect for fiscal year 2014, to 39%
3 | For tax purposes, the Chilean IRS considers that our investment in Colombia is denominated in US dollar. As we have to translate the valuation of this investment from US dollar to Chilean peso in our book each month, the volatility of the exchange rate generates a significant impact on the net income attributable to shareholders. In order to limit that effect, the management decided to hedge it with a derivative that has to be analyzed along with income tax expenses. |
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in 2015, 40% in 2016, 42% in 2017 and 43% in 2018. It will return to 34% in 2019 and beyond. The impact of this rate change on deferred taxes resulted in a charge to profit for the period of Ch$890 million (credit of Ch$82 million in 2013 for the effect of the tax reform in Law 1,607 on December 26, 2012).
Results of our operating segments
The following discussion should be read in conjunction with our consolidated financial statements, especially Note 4 regarding segment information included elsewhere in this annual report. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from these discussed in forward-looking statements as a result of various factors, including those set in forth in “Cautionary Statement Regarding Forward-Looking Statements” and “Item 3D. Risk Factors”.
Overview
We have seven segments: (i) Large, Corporate and Real Estate Companies, (ii) Companies, (iii) Traditional and Private Banking, (iv) Lower Income Retail Banking, (v) Treasury and International, (vi) Financial Services Offered Through Subsidiaries and (vii) Colombia. Below we describe our seven primary operating segments:
Commercial Banking:
• | Large, Corporate and Real Estate Companies includes companies that belong to major economic groups, specific industries, and companies with sales over U.S.$60 million; this segment also includes real estate companies and financial institutions. |
• | Companies include a full range of financial products and services for companies with annual sales under U.S.$60 million. Leasing and factoring have been included in this business segment. |
Retail Banking:
• | Traditional and Private Banking offers, among other products, checking accounts, consumer loans, credit cards and mortgage loans to middle and upper income customers. |
• | Lower Income Retail Banking, which corresponds to Banco Condell, offers, among other products, consumer loans, credit cards and mortgage loans to the traditionally underserved low-to-middle income segments. |
Treasury and International:
• | Treasury and International primarily includes treasury activities such as financial management, funding and liquidity, as well as international businesses. |
Financial Services Offered Through Subsidiaries:
• | Financial Services Offered Through Subsidiaries includes services rendered by our subsidiaries, which include insurance brokerage, financial advisory service, asset management and securities brokerage. |
Colombia:
• | Our Colombia segment includes services rendered by CorpBanca Colombia, Helm Bank and their respective subsidiaries, primarily within the Colombian domestic market, including commercial and retail banking services. |
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Year ended December 31, 2015 Results
The following table presents summary information related to each of our operating segments for the year ended December 31, 2015:
For the Period Ending December 31, 2015 | ||||||||||||||||||||||||||||||||
Commercial Banking | Retail Banking | |||||||||||||||||||||||||||||||
Large, Corporate and Real Estate Companies | Companies | Traditional and Private Banking | Lower Income Retail Banking | Treasury and International | Non- banking Financial Services | Colombia | Total | |||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||
Net Interest income | 59,669 | 77,694 | 75,109 | 25,907 | 80,228 | 25,772 | 276,200 | 620,579 | ||||||||||||||||||||||||
Net services fees income | 44,454 | 16,436 | 32,479 | 7,119 | (572 | ) | (3,650 | ) | 56,581 | 152,847 | ||||||||||||||||||||||
Trading and investment income, net | 4,291 | — | 17,210 | — | 77,585 | 154,272 | 85,340 | 338,698 | ||||||||||||||||||||||||
Foreign exchange gains (losses), net | 31,265 | 7,967 | 162 | — | (3,623 | ) | (206,251 | ) | 19,283 | (151,197 | ) | |||||||||||||||||||||
Other operating income | — | 2,889 | 20 | — | — | 6,935 | 13,808 | 23,652 | ||||||||||||||||||||||||
Provision for loan losses | (2,981 | ) | (12,792 | ) | (10,497 | ) | (5,775 | ) | — | (10,796 | ) | (126,907 | ) | (169,748 | ) | |||||||||||||||||
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Gross Operational Margin | 136,698 | 92,194 | 114,483 | 27,251 | 153,618 | (33,718 | ) | 324,305 | 814,831 | |||||||||||||||||||||||
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Other income and expenses | — | — | — | — | — | 230 | 1,070 | 1,300 | ||||||||||||||||||||||||
Total Operating Expenses | (22,101 | ) | (35,000 | ) | (63,477 | ) | (17,305 | ) | (13,400 | ) | (105,817 | ) | (223,689 | ) | (480,789 | ) | ||||||||||||||||
Income before taxes | 114,597 | 57,194 | 51,006 | 9,946 | 140,218 | (139,305 | ) | 101,686 | 335,342 | |||||||||||||||||||||||
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Averages Loans | 3,919,595 | 2,107,206 | 2,994,312 | 171,186 | 95,284 | 23,177 | 5,311,468 | 14,622,229 | ||||||||||||||||||||||||
Averages Investments | — | — | — | — | 569,839 | — | 1,220,340 | 1,790,179 |
Year ended December 31, 2014 Results
The following table presents summary information related to each of our operating segments for the year ended December 31, 2014:
As of December 31, 2014 | ||||||||||||||||||||||||||||||||
Commercial Banking | Retail Banking | |||||||||||||||||||||||||||||||
Large Corporate and Real Estate Companies | Companies | Traditional and Private Banking | Lower Income Retail Banking | Treasury and International | Non- Banking Financial Services | Colombia | Total | |||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||
Net interest income | 53,014 | 75,295 | 73,935 | 25,528 | 94,736 | 18,263 | 290,113 | 630,884 | ||||||||||||||||||||||||
Net services fees income | 40,097 | 15,399 | 27,971 | 7,880 | (255 | ) | (1,653 | ) | 72,151 | 161,590 | ||||||||||||||||||||||
Trading and investment income, net | (569 | ) | — | 16,144 | — | 27,388 | 88,815 | 51,915 | 183,693 | |||||||||||||||||||||||
Foreign exchange gains (losses), net | 20,189 | 5,974 | 888 | 2 | 12,767 | (120,645 | ) | 67,399 | (13,426 | ) | ||||||||||||||||||||||
Other operating income | — | 3,025 | 13 | — | — | 6,514 | 19,406 | 28,958 | ||||||||||||||||||||||||
Provision for loan losses | (1,643 | ) | (16,101 | ) | (11,718 | ) | (6,549 | ) | — | (1,161 | ) | (90,100 | ) | (127,272 | ) | |||||||||||||||||
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Gross operational margin | 111,088 | 83,592 | 107,233 | 26,861 | 134,636 | (9,867 | ) | 410,884 | 864,427 | |||||||||||||||||||||||
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Other income and expenses | 6,357 | — | — | — | — | (6,164 | ) | 1,606 | 1,799 | |||||||||||||||||||||||
Total operating expenses | (19,745 | ) | (36,004 | ) | (65,669 | ) | (17,136 | ) | (13,807 | ) | (100,937 | ) | (256,374 | ) | (509,672 | ) | ||||||||||||||||
Income before taxes | 97,700 | 47,588 | 41,564 | 9,725 | 120,829 | (116,968 | ) | 156,116 | 356,554 | |||||||||||||||||||||||
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Average loans | 3,791,937 | 1,778,057 | 2,414,564 | 154,955 | 63,622 | 153 | 5,692,217 | 13,895,505 | ||||||||||||||||||||||||
Average investments | — | — | — | — | 636,437 | — | 524,977 | 1,161,414 | ||||||||||||||||||||||||
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Year ended December 31, 2013 Results
The following table presents summary information related to each of our reportable segments for the year ended December 31, 2013:
As of December 31, 2013 | ||||||||||||||||||||||||||||||||
Commercial Banking | Retail Banking | |||||||||||||||||||||||||||||||
Large Corporate and Real Estate Companies | Companies | Traditional and Private Banking | Lower Income Retail Banking | Treasury and International | Non- Banking Financial Services | Colombia | Total | |||||||||||||||||||||||||
(in million of Ch$) | ||||||||||||||||||||||||||||||||
Net interest income | 50,436 | 69,128 | 65,535 | 22,126 | 21,612 | 32,529 | 196,324 | 457,690 | ||||||||||||||||||||||||
Net services fees income | 36,701 | 14,390 | 21,413 | 8,976 | (442 | ) | (8,033 | ) | 44,972 | 117,977 | ||||||||||||||||||||||
Trading and investment income, net | (1,658 | ) | — | 3,294 | — | 48,851 | 8,681 | 42,119 | 101,287 | |||||||||||||||||||||||
Foreign exchange gains (losses), net | 14,153 | 5,988 | 389 | 2 | (50,115 | ) | 1,778 | 13,899 | (13,906 | ) | ||||||||||||||||||||||
Other operating income | — | 2,450 | — | — | — | 29,413 | 7,795 | 39,658 | ||||||||||||||||||||||||
Provision for loan losses | (20,544 | ) | (21,240 | ) | (8,099 | ) | (6,238 | ) | — | 903 | (46,854 | ) | (102,072 | ) | ||||||||||||||||||
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Gross operational margin | 79,088 | 70,716 | 82,532 | 24,866 | 19,906 | 65,271 | 258,255 | 600,634 | ||||||||||||||||||||||||
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Other income and expenses | — | — | — | — | — | 493 | 748 | 1,241 | ||||||||||||||||||||||||
Total operating expenses | (15,926 | ) | (28,450 | ) | (63,247 | ) | (17,358 | ) | (11,744 | ) | (52,445 | ) | (172,975 | ) | (362,145 | ) | ||||||||||||||||
Income before taxes | 63,162 | 42,266 | 19,285 | 7,508 | 8,162 | 13,319 | 86,028 | 239,730 | ||||||||||||||||||||||||
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Average loans | 3,843,701 | 1,787,761 | 2,427,743 | 155,801 | 63,969 | 154 | 3,226,817 | 11,505,946 | ||||||||||||||||||||||||
Average investments | — | — | — | — | 622,551 | — | 295,079 | 917,630 | ||||||||||||||||||||||||
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B. LIQUIDITY AND CAPITAL RESOURCES
We maintain adequate liquidity to ensure our ability to honor withdrawals of deposits, make repayments of other liabilities at maturity, extend loans and meet our own working capital requirements.
Sources of Liquidity
Our liquidity depends upon our (i) capital, (ii) reserves and (iii) financial investments, including investments in government securities and other financial institutions. To cover any liquidity shortfalls and to enhance our liquidity position, we have access to Central Bank of Chile and Central Bank of Colombia borrowings. As part of our liquidity policy, we maintain at all times a diversified portfolio of cash and highly liquid assets that can be quickly monetized, including financial investments and Central Bank of Chile, Central Bank of Colombia and government securities.
While we continue to use all available sources of funding as we believe appropriate, we continue to emphasize the increase of deposits from retail customers as a source of liquidity. These deposits include checking accounts that do not bear interest and accordingly represent an inexpensive source of funding for us. In addition, to the extent that these types of deposits represent a larger percentage of our funding base, the percentage represented by time deposits is expected to decrease and, accordingly, we believe that the risks to our business of uncertainties relating to rolling over deposits will be diminished.
In 2008, we placed UF 5,330,000 in 25 year subordinated bonds to be used to finance our normal business activities and improve our balance sheet structure. In 2009, we placed UF 4,670,000 in 26 year subordinated bonds with the same purpose, taking advantage of favorable market conditions. On July 29, 2010, we entered into a US$167.5 million senior unsecured syndicated term loan facility with BNP Paribas, as Administrative Agent, and BNP Paribas Securities Corp., Citigroup Global Markets Inc., Commerzbank Aktiengesellschaft, Standard Chartered Bank and Wells Fargo Securities, LLC, as lead arrangers and book-runners. The proceeds of the loan were used mainly to fund our lending activities and for general corporate purposes. On July 24, 2012, we entered into a US$199.4 million two-year senior unsecured term syndicated loan facility with Standard Chartered Bank, HSBC Securities (USA) Inc. and Wells Fargo Securities, LLC, as mandated lead arrangers and book-runners. This loan was amended and restated:(a) on July 22, 2014 to increase the size of the loan to US$490 million and to extend the term of the loan by an additional fifteen months period; and(b) on September 23, 2015 to reflect a partial prepayment and to extend the term of the loan. Consequently, the loan, for an aggregate principal amount of up to US$ 315,000,000 shall mature on the earlier of April 14, 2017 or the date of any acceleration of maturity pursuant to the terms of the same.
On January 16, 2013, we issued US$800 million aggregate principal amount of 3.125% Senior Notes due 2018 in an SEC registered transaction. The net proceeds of this offering were used for general corporate purposes, primarily to fund lending activities. On September 22, 2014, we issued US$750 million aggregate principal amount of 3.875% Senior Notes due 2019, in accordance with
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Rule 144A and Regulation S under the U.S. Securities Act of 1933. The net proceeds of this offering were used for general corporate purposes, primarily to fund lending activities.
In addition, our Colombian operations manage their own funding costs in Colombian pesos, therefore they are not dependant on CorpBanca for their funding needs. As of December 31, 2015, we do not foresee a need to separately fund our Colombian operations with our capital, reserves or financial investments, including investments in government securities and other financial institutions. On December 31, 2013 CorpBanca Colombia entered into a Note Purchase Agreement with the IFC, a member of the World Bank Group, and the IFC Capitalization (Subordinated Debt) Fund L.P., a Delaware Limited Partnership managed by the IFC Asset Management Company (collectively, the IFC Parties), by means of which CorpBanca Colombia issued bonds for an amount of US$170,000,000.00 at a variable interest rate, maturing on March 15, 2024, and the IFC Parties subscribed and paid in full the purchase price for the bonds pursuant to the terms and conditions stated therein. In addition, on March 2, 2016 CorpBanca Colombia placed bonds in the Colombian local market totaling COP$300,000 million at a tenor of 2 years and 1 year.
On August 1, 2010, we implemented a local bond program for a maximum amount of UF150 million at any time outstanding. Under the local bond program, we are able to issue two types of bonds: (i) senior bonds, up to an aggregate amount of UF100 million, which can be divided into 28 series of senior bonds (from AB to AZ and from BA to BC), with a maturity ranging from 3 to 30 years and an interest rate of 3%, and (ii) subordinated bonds, up to an aggregate amount of UF50 million, which can be divided into 16 series (from BD to BS), with a maturity ranging from 20 to 35 years and an interest rate of 4%. For all the series of bonds that could be issued under the local bond program, the amortization of capital will be made in full at maturity. The principal owed in connection with outstanding senior and subordinated bonds is due at maturity and interest relating thereto is due bi-annually. The objective of the local bond program is to structure the future issuances of debt of CorpBanca in a way that provides for diverse alternatives of placements in order to manage efficiently its outstanding indebtedness. Under the local bond program, in 2010, we issued bonds in the Chilean market in the amount of UF18.8 million (Ch$403,364 million). In addition, on October 29, 2012 and October 31, 2012, we issued subordinated bonds in the local Chilean market in the aggregate amount of UF6.6 million (Ch$149,779 million).
In line with our goal of asset and liability management and growth, during 2015 we issued Ch$46,720 million and UF 5.05 million in senior local bonds. As of December 31, 2015 we had outstanding senior bonds in the aggregate amount of Ch$2,215,515 million (UF 86.45 million) and outstanding subordinated bonds in the aggregate amount of Ch$932,278 million (UF 36.38 million).
On December 1, 2015 we entered into a bilateral credit facility for an aggregate principal amount of US$50,000,000 with Bank of America, N.A. The credit agreement is subject to terms and conditions common for this type of transactions and shall mature on December 4, 2017.
As of December 31, 2015, we maintained a reserve in liquid assets (mainly consisting of securities issued by the Central Bank of Chile and Treasury Bonds of Colombia’s Government) of Ch$ 2,270,160 million. In addition, as of December 31, 2015, we maintained sufficient levels of cash and deposits in banks in the amount of Ch$1,004,757 million to satisfy our wholesale short-term obligations in the amount of Ch$1,404,312 million.
We continue to actively manage our liquidity through several committees that meet on a daily and weekly basis, as applicable. Our financial risk department also coordinates with management to forecast and manage complex liquidity scenarios.
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Capital
As of December 31, 2015, our shareholder’s equity was in excess of that required by Chilean regulatory requirements. According to the Chilean General Banking Act, a bank must have an effective net equity of at least 8% of its risk-weighted assets, net of required reserves, and paid-in capital and reserves (basic capital) of at least 3% of its total assets, net of required reserves. For these purposes, the effective net equity of a bank is the sum of (i) a bank’s basic capital, (ii) subordinated bonds issued by a bank valued at their placement price up to 50% of its net capital base; provided that the value of the bonds shall decrease 20% for each year that lapses during the period commencing six years prior to their maturity and (iii) voluntary loan loss allowances in an amount up to 1.25% of a bank’s risk-weighted assets (if a bank has goodwill, this value would be required to be deducted from the calculation of the effective net equity). The calculation of the effective net equity does not include the capital contributions made to subsidiaries of a bank and is made on a consolidated basis rather than on an unconsolidated basis. For purposes of weighing the risk of a bank’s assets, the Chilean General Banking Act considers the following five different categories of assets based on the nature of the issuer, availability of funds, nature of the assets and existence of collateral securing such assets:
Category | Weighting | |
1 | 0% | |
2 | 10% | |
3 | 20% | |
4 | 60% | |
5 | 100% |
Basic capital is defined as a bank’s paid-in capital and reserves and is similar to Tier 1 capital, except that it generally does not include net income for the period. However, beginning in 2008, the SBIF allowed banks to include net income for the period as basic capital, net of a 30% deduction for minimum dividends accrued.
Reserves
Under the Chilean General Banking Act, a bank must have a minimum paid-in capital and reserves of UF 800,000 (Ch$20,503.3 million or US$28.9 million as of December 31, 2015). However, a bank may begin its operations with 50% of such amount, provided that it has a total capital ratio (defined as effective net equity as a percentage of risk weighted assets) of not less than 12%. When such bank’s paid-in capital reaches UF600,000 (Ch$15,377.5 million or US$21.7 million as of December 31, 2015) the total capital ratio required is reduced to 10%.
The following table sets forth our minimum capital requirements of the dates indicated. See Note 35 to our consolidated financial statements included herein for a description of the minimum capital requirements.
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of constant Ch$ except for percentages) | ||||||||||||
Net capital base | 1,411,341 | 1,443,427 | 1,183,723 | |||||||||
3% total assets net of provisions | (567,929 | ) | (667,775 | ) | (687,380 | ) | ||||||
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Excess over minimum required equity | 843,413 | 775,652 | 496,343 | |||||||||
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Net capital base as a percentage of the total assets, net of provisions | 7.3 | % | 6.4 | % | 5.1 | % | ||||||
Effective net equity | 1,991,289 | 2,071,647 | 1,666,708 | |||||||||
8% of the risk-weighted assets | (1,204,683 | ) | (1,337,231 | ) | (1,397,276 | ) | ||||||
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Excess over minimum required equity | 786,606 | 734,416 | 269,432 | |||||||||
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Effective equity as a percentage of the risk-weighted assets | 13.2 | % | 12.4 | % | 9.5 | % |
Our capital ratios levels decreased from 12.4% to 9.5% between 2014 and 2015, following the approval of the merger with Banco Itaú Chile, considering that our shareholders, together with approving the merger, approved a special dividend distribution in the amount of Ch$239.86 billion that was paid on July 1, 2015.
Financial Investments
The following tables set forth our investment in Chilean government and corporate securities and certain other financial investments as of December 31, 2013, 2014 and 2015. Financial investments are classified at the time of the purchase, based on management’s intentions, as either trading or investment instruments, the latter of which are categorized as available-for-sale or held to maturity.
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As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
Held-for-trading: | ||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||
Chilean Central Bank bonds | 746 | — | — | |||||||||
Chilean Central Bank notes | — | — | — | |||||||||
Other Chilean Central Bank and Government securities | 9,106 | 4,822 | 6,210 | |||||||||
Other National institution securities: | ||||||||||||
Bonds | — | 2,548 | 2,340 | |||||||||
Notes | 18,582 | 13,320 | 34,404 | |||||||||
Other securities | 133 | 15 | 551 | |||||||||
Foreign institution securities: | ||||||||||||
Bonds | 326,141 | 542,791 | 192,427 | |||||||||
Notes | — | — | — | |||||||||
Other securities | 64,443 | 110,615 | 57,875 | |||||||||
Mutual funds investments | ||||||||||||
Funds managed by related organizations | 12,495 | 11,787 | 28,092 | |||||||||
Funds managed by third parties | 37 | — | 2,000 | |||||||||
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Total | 431,683 | 685,898 | 323,899 | |||||||||
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As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
Available-for-sale | ||||||||||||
Chilean Central Bank and Government securities | ||||||||||||
Chilean Central Bank securities | 334,718 | 276,487 | 527,444 | |||||||||
Chilean Treasury bonds | 847 | 253,999 | 258,306 | |||||||||
Other Government securities | 21,769 | 6,442 | 859 | |||||||||
Other financial instruments | ||||||||||||
Promissory notes related to deposits in local banks | 78,712 | 54,162 | 65,778 | |||||||||
Chilean mortgage finance bonds | 313 | 203 | 92 | |||||||||
Chilean financial institutions bonds | 17,985 | — | 29,329 | |||||||||
Other local investments | 136,623 | 51,526 | 53,630 | |||||||||
Financial instruments issued abroad | ||||||||||||
Foreign governments and central bank instruments | 212,280 | 434,392 | 629,297 | |||||||||
Other foreign investments | 85,840 | 79,685 | 360,053 | |||||||||
Impairment provision | — | — | — | |||||||||
Unquoted securities in active markets | ||||||||||||
Chilean corporate bonds | — | — | — | |||||||||
Other investments | — | — | — | |||||||||
Impairment provisions | — | — | — | |||||||||
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Total | 889,087 | 1,156,896 | 1,924,788 | |||||||||
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As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of Ch$) | ||||||||||||
Held to maturity | ||||||||||||
Chilean Central Bank and Government securities | ||||||||||||
Chilean Central Bank securities | — | — | — | |||||||||
Chilean Treasury bonds | — | — | — | |||||||||
Other Government securities | — | — | — | |||||||||
Other financial instruments | ||||||||||||
Promissory notes related to deposits in local banks | — | — | — | |||||||||
Chilean mortgage finance bonds | — | — | — | |||||||||
Chilean financial institutions bonds | — | — | — | |||||||||
Other local investments | 8,632 | 7,175 | 5,543 | |||||||||
Financial instruments issued abroad | ||||||||||||
Foreign governments and central bank instruments | 93,750 | — | — | |||||||||
Other foreign investment | 135,140 | 183,502 | 164,648 | |||||||||
Impairment provisions | — | — | — | |||||||||
Unquoted securities in active markets | ||||||||||||
Chilean corporate bonds | — | — | — | |||||||||
Other investments | — | — | — | |||||||||
Impairment provision | — | — | — | |||||||||
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Total | 237,522 | 190,677 | 170,191 | |||||||||
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We do not hold securities of any issuer other than the Central Bank of Chile and the Colombian Ministry of Finance, in which the aggregate book value of which the investment exceeds 10% of our shareholders’ equity as of the end of the latest reported period.
The following table shows interest rates per annum applicable to certain Central Bank of Chile bonds as of the dates indicated:
As of the end of: | Peso- Denominated Five-year bond | Peso- Denominated Ten-year bond | UF- Denominated Five-year bond | UF- Denominated Ten-year bond | ||||||||||||
2013 | ||||||||||||||||
January | — | — | — | — | ||||||||||||
February | — | — | — | — | ||||||||||||
March | 5.12 | 5.51 | 2.50 | 2.55 | ||||||||||||
April | 5.12 | 5.24 | 2.45 | 2.43 | ||||||||||||
May | 5.08 | 5.11 | 2.36 | 2.36 | ||||||||||||
June | 5.15 | 5.22 | 2.18 | — | ||||||||||||
July | 5.12 | 5.22 | 2.18 | 2.24 | ||||||||||||
August | 5.03 | 5.19 | 2.15 | 2.23 | ||||||||||||
September | 5.07 | — | 2.12 | — | ||||||||||||
October | — | — | — | — | ||||||||||||
November | — | — | — | — | ||||||||||||
December | — | — | — | — | ||||||||||||
2014 | ||||||||||||||||
January | — | — | — | — | ||||||||||||
February | — | — | — | — | ||||||||||||
March | — | — | — | — | ||||||||||||
April | — | — | — | — | ||||||||||||
May | — | — | — | — | ||||||||||||
June | — | — | — | — | ||||||||||||
July | — | — | — | — | ||||||||||||
August | — | — | — | — | ||||||||||||
September | — | — | — | — | ||||||||||||
October | — | — | — | — | ||||||||||||
November | — | — | — | — | ||||||||||||
December | — | — | — | — | ||||||||||||
2015 | ||||||||||||||||
January | — | — | — | — | ||||||||||||
February | — | — | — | — | ||||||||||||
March | — | — | — | — | ||||||||||||
April | 4.29 | — | — | — | ||||||||||||
May | — | — | — | — | ||||||||||||
June | 4.11 | — | — | — | ||||||||||||
July | 4.02 | — | — | — | ||||||||||||
August | — | — | — | — | ||||||||||||
September | — | — | — | — | ||||||||||||
October | — | — | — | — | ||||||||||||
November | — | — | — | — | ||||||||||||
December | — | — | — | — |
Our total financial instruments as a percentage of total assets increased to 11.6% as of December 31, 2015 due to a 2.2% increase in total assets as a consequence of an increase of our loan portfolio.
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The following table sets forth an analysis of our investments, by time remaining to maturity and the weighted average nominal rates of such investments, as of December 31, 2015:
Held-for-trading | In one year or less | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | ||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||||||||||||||||||
Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Chilean Central Bank notes | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Others Government securities | 6,210 | — | — | — | — | — | — | — | 6,210 | |||||||||||||||||||||||||||
Other national institution securities: | ||||||||||||||||||||||||||||||||||||
Bonds | 1,561 | — | — | — | — | — | 779 | 1.58 | 2,340 | |||||||||||||||||||||||||||
Notes | 34,404 | 0.11 | — | — | — | — | — | — | 34,404 | |||||||||||||||||||||||||||
Other securities | 551 | — | — | — | — | — | — | — | 551 | |||||||||||||||||||||||||||
Foreign institution securities: | ||||||||||||||||||||||||||||||||||||
Bonds | 211 | 0.01 | 21,076 | 0.07 | 102,804 | 0.06 | 68,336 | 0.07 | 192,427 | |||||||||||||||||||||||||||
Notes | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other securities | 46,708 | 0.04 | 8,978 | 0.03 | — | — | 2,189 | 0.06 | 57,875 | |||||||||||||||||||||||||||
Mutual fund investments: | ||||||||||||||||||||||||||||||||||||
Funds managed by related organizations | 21,954 | 1.00 | 6,138 | 0.072 | — | — | — | — | 28,092 | |||||||||||||||||||||||||||
Funds managed by third parties | 2,000 | 0.50 | — | — | — | — | — | — | 2,000 | |||||||||||||||||||||||||||
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Total Held—for—trading | 113,599 | 0.25 | 36,192 | 0.06 | 102,804 | 0.06 | 71,304 | 0.09 | 323,899 | |||||||||||||||||||||||||||
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Available—for—sale | In one year or less | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | ||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | 81,672 | 0.68 | 331,979 | 0.59 | 113,793 | 0.59 | — | — | 527,444 | |||||||||||||||||||||||||||
Chilean treasury bonds | 10,086 | 0.81 | 214,738 | 0.65 | 33,482 | 0.47 | — | — | 258,306 | |||||||||||||||||||||||||||
Others Government securities | 859 | 0.63 | — | — | — | — | — | — | 859 | |||||||||||||||||||||||||||
Other financial instruments: | ||||||||||||||||||||||||||||||||||||
Promissory notes related to deposits in local banks | 65,778 | 0.28 | — | — | — | — | — | — | 65,778 | |||||||||||||||||||||||||||
Chilean mortgage finance bonds | 16 | 1.01 | 44 | 1.04 | 31 | 0.91 | — | — | 92 | |||||||||||||||||||||||||||
Chilean financial institution bonds | — | — | 29,329 | 1.29 | — | — | — | — | 29,329 | |||||||||||||||||||||||||||
Other local investments | 5,843 | 1.25 | 14,480 | 1.29 | 33,252 | 1.23 | 56 | 0.92 | 53,630 | |||||||||||||||||||||||||||
Financial instruments issued abroad: | ||||||||||||||||||||||||||||||||||||
Foreign Government and central bank instruments | 132,086 | 0.05 | 340,439 | 0.05 | 117,231 | 0.05 | 39,541 | 0.05 | 629,297 | |||||||||||||||||||||||||||
Other foreign investments | 135,035 | 2.35 | 168,072 | 8.63 | 46,917 | 8.16 | 10,031 | 6.15 | 360,053 | |||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Unquoted securities in active markets | ||||||||||||||||||||||||||||||||||||
Chilean corporate bonds | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other foreign investments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
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Total | 431,375 | 0.22 | 1,099,080 | 0.37 | 344,706 | 0.38 | 49,628 | 0.04 | 1,924,788 | |||||||||||||||||||||||||||
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Held to maturity | Within one year | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | ||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||||||||||||||||||||||||||
Chilean Central Bank securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Chilean treasury bonds | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other Government securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other financial instruments: | ||||||||||||||||||||||||||||||||||||
Promissory notes related to deposits in local banks | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Chilean mortgage finance bonds | — | — | — | — | — | — | — | — | — |
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Held to maturity | Within one year | Weighted average Nominal Rate | After one year through five years | Weighted average Nominal Rate | After five years through ten years | Weighted average Nominal Rate | After ten years | Weighted average Nominal Rate | Total | |||||||||||||||||||||||||||
Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | ||||||||||||||||||||||||||||
(in million of Ch$, except for percentages) | ||||||||||||||||||||||||||||||||||||
Chilean financial institution bonds | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other local investments | 2,171 | 0.96 | 3,372 | 0.96 | — | — | — | — | 5,543 | |||||||||||||||||||||||||||
Financial instruments issued abroad: | ||||||||||||||||||||||||||||||||||||
Foreign government and central bank instruments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other foreign investments | 149,932 | 1.01 | 8,968 | 0.05 | — | — | 5,748 | 0.05 | 164,648 | |||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Unquoted securities in active markets | ||||||||||||||||||||||||||||||||||||
Chilean corporate bonds | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other investments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Impairment provision | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
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Total | 152,103 | 0.01 | 12,340 | 0.26 | — | — | 5,748 | — | 170,191 | |||||||||||||||||||||||||||
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Unused Sources of Liquidity
As part of our liquidity policy, we maintain at all times a diversified portfolio of highly liquid assets that can be quickly monetized, including cash, financial investments and Central Bank of Chile and other government securities.
Working Capital
The majority of our funding is derived from deposits and other borrowings from the public. In the opinion of management, our working capital is sufficient for our present needs.
Liquidity Management
We seek to ensure that, even under adverse conditions; we have access to the funds necessary to cover client needs, maturing liabilities and capital requirements. Liquidity risk arises in the general funding for our financing, trading and investment activities. It includes the risk of unexpected increases in the cost of funding the portfolio of assets at appropriate maturities and rates, the risk of being unable to liquidate a position in a timely manner at a reasonable price and the risk that we will be required to repay liabilities earlier than anticipated. See “Item 11. Quantitative and Qualitative Disclosures about Financial Risk” for more detailed information relating to the methods we employ in managing our liquidity.
Cash Flow
The tables below set forth information about our main sources and uses of cash. No legal or economic restrictions exist on the ability of our Chilean subsidiaries to transfer funds to us in the form of loans or cash dividends as long as these subsidiaries abide by the regulations in the Chilean Corporations Law regarding loans to related parties, and dividend payments. In addition, no legal or economic restrictions exist on the ability of our Colombian subsidiaries to transfer funds to us in the form of cash dividends. However, in the case of CorpBanca Colombia, for the following four to five years there is a possibility that shareholders may vote to capitalize such dividends in order to meet current capital adequacy requirements following Basel standards, as they did in respect of 2013 dividends, 2014 dividends and 2015 dividends. CorpBanca Colombia may also transfer funds to CorpBanca in the form of loans, as long as they abide by the regulations in the Colombian financial law regarding loans to related parties. Colombian subsidiaries (other than CorpBanca Colombia) may not transfer funds to us in the form of loans, due to their limited corporate purpose.
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Net Cash (Used in) Provided by Operating Activities
For the Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||
Net cash (used in) provided by operating activities | 227,949 | (338,361 | ) | 239,571 |
Our net cash provided by operating activities for the year ended December 31, 2015 increased from Ch$(338,361) million in 2014 to Ch$239,571 million in 2015. This increase in net cash provided by operating activities was mainly due to (i) the negative impact of the slowdown both in the Chilean and the Colombian economies in our loan portfolio; and (ii) the depreciation of the Chilean peso against the US dollar.
Net Cash (Used in) Investing Activities
For the Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||
Net cash used in investing activities | (277,704 | ) | (106,810 | ) | (33,845 | ) |
Our net cash used in investing activities decreased from Ch$(106,810) million for the year ended December 31, 2014 to Ch$(33, 845) million for the year ended December 31, 2015. This 68.3% decrease in net cash used in investing activities was mainly due to the fact that in 2015 we did not made any significant investment.
Net Cash Provided by Financing Activities
For the Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||
Net cash provided by financing activities | 649,518 | 515,980 | (410,813 | ) |
Our net cash provided by financing activities decreased from Ch$515,980 million for the year ended December 31, 2014 to Ch$(410,813) million for the year ended December 31, 2015. This 179.6% decrease in net cash provided by financing activities was mainly due to due to the fact that we issued less debt due to the economic slowdown, which result was partly offset by an increase in (i) our dividend payment due to the distribution of a special dividend in July 1st, 2015 and (ii) bonds redemption.
Deposits and Other Borrowings
The following table sets forth our average month-end balance of our liabilities for the years ended December 31, 2013, 2014 and 2015, in each case together with the related average nominal interest rates paid thereon.
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As of December 31, | ||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||
Average Balance | Interest Paid | Average Normal Rate | Average Balance | Interest Paid | Average Normal Rate | Average Balance | Interest Paid | Average Normal Rate | ||||||||||||||||||||||||||||
(in millions of Ch$ except for percentages) | ||||||||||||||||||||||||||||||||||||
Time deposits | 7,055,890 | 361,643 | 5.1 | % | 7,849,494 | 349,165 | 4.4 | % | 8,230,208 | 329,608 | 4.0 | % | ||||||||||||||||||||||||
Central Bank borrowings | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Repurchase agreements | 269,419 | 14,736 | 5.5 | % | 345,097 | 28,142 | 8.2 | % | 645,487 | 36,484 | 5.7 | % | ||||||||||||||||||||||||
Mortgage finance bonds | 130,991 | 8,323 | 6.4 | % | 105,851 | 10,466 | 9.9 | % | 87,375 | 7,256 | 8.3 | % | ||||||||||||||||||||||||
Bonds | 2,199,545 | 119,888 | 5.5 | % | 2,609,908 | 200,804 | 7.7 | % | 3,025,930 | 197,730 | 6.5 | % | ||||||||||||||||||||||||
Other interest bearing-liabilities | 2,283,273 | 44,826 | 2.0 | % | 3,210,058 | 100,663 | 3.1 | % | 3,310,424 | 107,823 | 3.3 | % | ||||||||||||||||||||||||
Subtotal interest-bearing liabilities | 11,939,118 | 549,416 | 4.6 | % | 14,120,408 | 689,240 | 4.9 | % | 15,299,424 | 678,901 | 4.4 | % | ||||||||||||||||||||||||
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Non-interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Non-interest bearing deposits | 1,471,475 | 2,731,621 | 2,680,291 | |||||||||||||||||||||||||||||||||
Derivates | 230,679 | 520,154 | 734,324 | |||||||||||||||||||||||||||||||||
Other non-interest bearing liabilities | 380,933 | 468,959 | 633,989 | |||||||||||||||||||||||||||||||||
Equity | 1,376,012 | 1,504,727 | 1,326,176 | |||||||||||||||||||||||||||||||||
Subtotal non-interest bearing liabilities | 3,459,098 | — | 5,225,461 | — | 5,374,781 | — | ||||||||||||||||||||||||||||||
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Total | 15,398,216 | 549,416 | 19,345,868 | 689,240 | 20,674,205 | 678,901 | ||||||||||||||||||||||||||||||
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Our current funding strategy is to continue to utilize all sources of funding in accordance with their cost, their availability and our general asset and liability management strategy. Our most important source of funding is our time deposits. Time deposits represented 53.8% of our average interest bearing liabilities for the year ended December 31, 2015. We continue to place special emphasis on increasing deposits from retail customers, which consist primarily of checking accounts that do not bear interest and accordingly represent an inexpensive source of funding for us. Our total checking accounts and other demand liabilities increased by 12.05% as of December 31, 2015 compared to December 31, 2014. To the extent that these types of deposits represent a larger percentage of our funding base, the percentage represented by time deposits is expected to decrease and, accordingly, we believe that the materiality to our business of uncertainties relating to rolling over deposits will be diminished. We also intend to continue to broaden our customer deposit base, to emphasize core deposit funding and to fund our mortgage loans with the matched funding available through the issuance of letters of credit loans in Chile’s domestic capital markets. Management believes that broadening our deposit base by increasing the number of account holders has created a more stable funding source.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
We do not currently conduct any significant research and development activities.
D. | TREND INFORMATION |
Our net interest income for the year ended December 31, 2015 decreased to Ch$620,579 million, or by (1.6)%, when compared to the year ended December 31, 2014. Generally, our net interest income is positively affected by an inflationary environment to the extent that our average UF-denominated assets exceed our average UF-denominated liabilities, while our net interest income is negatively affected by inflation in any period in which our average UF-denominated liabilities exceed our average UF-denominated assets. Currently, we have more UF-denominated assets than liabilities.
Our operating income depends significantly on our net interest income. For the years ended December 31, 2013, 2014 and 2015, net interest income over total operating income represented 65.1%, 63.6% and 63.0%, respectively. Changes in market interest rates may affect the interest rates earned on our interest-earning assets and the interest rates paid on our interest bearing liabilities, which may result in a further reduction in our net interest income.
Consolidation in the market, which can result in the creation of larger and stronger competitors, may adversely affect our financial condition and results of operations by decreasing the net interest margins we are able to generate and increasing our costs of operation. In addition, we expect to continue to face competition from non-banking financial entities such as department stores, leasing, factoring and automobile finance companies, mutual funds, pension funds and insurance companies.
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The following are the most important trends, uncertainties and events that are reasonably likely to affect us or that would cause the financial information disclosed herein not to be indicative of our future operating results or financial condition:
• | Higher levels of uncertainty related to the expectation of a possible global economic recession and a higher than expected slowdown of Chinese economic activity, which may translate into an upward adjustment of risk premium and higher global interest rates; |
• | In this context, the upturn in the Chilean and/or Colombian economies could be weaker than expected. Higher than anticipated unemployment rates and lower economic growth could increase provision expenses and decrease our rate of loan growth in the future; and |
• | Finally, uncertainty relating to the implementation of the Labor Reform do not allow us to predict its effects. |
Also see “Item 5. Operating and Financial Review and Prospects—A. Operating Results”.
E. OFF-BALANCE SHEET ARRANGEMENTS
We are party to transactions with off-balance-sheet risk in the normal course of our business. These transactions expose us to credit risk in addition to amounts recognized in the consolidated financial statements and include commitments to extend
credit. These commitments include contractual arrangements to which an unconsolidated entity is a party, under which CorpBanca has:
• | Any obligation under certain guarantee contracts; |
• | A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets; |
• | Any obligation under certain derivative instruments; |
• | Any obligation under a material variable interest held by CorpBanca in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to CorpBanca, or engages in leasing, hedging or research and development services CorpBanca. |
Such commitments are agreements to lend money to a customer at a future date, subject to the customer’s compliance with contractual terms. Since a substantial portion of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent our actual future cash requirements. The aggregate amount outstanding of these commitments was Ch$5,582,672 million as of December 31, 2015.
Contingent loans are those operations or commitments in which the bank assumes a credit risk upon committing itself to third parties, before the occurrence of a future event, to make a payment or disbursement that must be recovered from its clients.
The bank keeps a record of the following balances related to commitments or to liabilities of its own line of business in memorandum accounts: collateral and guarantees, confirmed foreign letters of credit, letters of credit, bank guarantees, cleared lines of credit, other credit commitments and other contingencies.
The total amount of contingent loans held off balance sheet as of December 31, 2013, 2014 and 2015 was Ch$2,751,929 million, Ch$3,191,435 million and Ch$3,285,411 million, respectively. Contingent loans are considered in the calculation of risk weighted assets and capital requirements as well as for credit risk reserve requirements.
See Note 1 “General Information and summary of significant accounting policies” and Note 22 “Contingencies, commitments and responsibilities” to our audited consolidated financial statements included herein for a better understanding and analysis of the figures held off sheet balance.
We use the same credit policies in making commitments to extend credit as we do for granting loans. In the opinion of our management, our outstanding off-balance sheet commitments do not represent an unusual credit risk.
Traditional financial instruments which meet the definition of a “derivative”, such as forwards in foreign currency, UF, interest rate futures currency and interest rate swaps, currency and interest rate options and others, are initially recognized on the balance sheet at their fair value. Fair value is obtained from market quotes, discounted cash flow models and option valuation models, as applicable. For further details of fair value, see Note 8 of our consolidated financial statements included herein.
In terms of outstanding exposure to credit risk, the true measure of risk from derivative transactions is the marked-to-market value of the contracts at a point in time (i.e., the cost to replace the contract at the current market rates should the counterparty default prior to the settlement). For most derivative transactions, the notional principal amount does not change hands; it is simply an amount that is used as a reference upon which to calculate payments.
F. | TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS |
In addition to the scheduled maturities of our contractual obligations which are included under “—Liquidity and Capital Resources—Sources of Liquidity” above, as of December 31, 2015, we also had other commercial commitments which mainly consist of open and unused letters of credit, together with guarantees granted by us in Ch$, UF and foreign currencies (principally U.S. dollars). We expect most of these commitments to expire unused.
The following table includes both the accrued interest and the interest expense projected over time of each contractual obligation as of December 31, 2015. For variable rate debt and interest rate swaps and other derivatives, where applicable, the interest
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rates upon which we based our contractual obligations going forward are based on the applicable forward curves. For any cross-currency swaps or other derivatives as applicable, the foreign currency exchange rate used was spot.
Contractual Obligations(*) | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | |||||||||||||||
(in million of Ch$) | ||||||||||||||||||||
Time deposits and saving accounts | 7,948,599 | 637,279 | 31,111 | 100,488 | 8,717,477 | |||||||||||||||
Deposits and other demand liabilities | 2,529,999 | 1,901,621 | — | — | 4,431,619 | |||||||||||||||
Bank obligations | 1,280,826 | 288,470 | 12,369 | 86,555 | 1,668,219 | |||||||||||||||
Investments under repurchase agreements | 260,631 | — | — | — | 260,631 | |||||||||||||||
Issued debt instruments | 441,817 | 191,933 | 1,124,216 | 1,469,589 | 3,227,554 | |||||||||||||||
Other financial liabilities | 9,597 | 1,077 | 295 | 3,506 | 14,475 | |||||||||||||||
Financial derivative contracts (all speculative and hedging instruments) | (40,252 | ) | (89,094 | ) | (97,265 | ) | (70,045 | ) | (296,655 | ) | ||||||||||
Total contractual obligations | 12,431,216 | 2,931,285 | 1,070,726 | 1,590.093 | 18,023,321 | |||||||||||||||
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(*) | The variable rates projections are obtained from the FRA rates of the respective projection curves. The parities used to convert the amounts to Chilean pesos correspond to the accounting parities used in the referred date. |
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
We are managed by our CEO (Gerente General) under the direction of our board of directors, which, in accordance with the Company’s by-laws, consists of nine directors and two alternates who are elected at our annual shareholders’ meetings. Pursuant to the provisions of our bylaws, members of the board of directors are generally elected for three-year terms. All of the members of the board of directors were elected on March 11, 2016 for a three-year period; however, it has been announced that after the consummation of the Itaú-CorpBanca Merger, a new board of directors will be appointed for the merged bank. Cumulative voting is permitted for the election of directors. The board of directors may appoint replacements to fill any vacancies that occur during periods between elections. Our principal executive officers are appointed by the board of directors and the CEO and hold their offices at the discretion of the board of directors and the CEO. Scheduled meetings of the board of directors are held monthly. Extraordinary meetings can be held when called in one of three ways: by the Chairman of the board of directors, by one or more directors with the prior approval of the Chairman of the board of directors, or by five directors. None of the members of our board of directors has a contract or agreement which entitles any director to any benefits upon termination of employment with us.
Our current directors are as follows:
Directors | Position | Age | ||
Jorge Andrés Saieh Guzmán | Chairman and director | 45 | ||
Fernando Aguad Dagach | First vice chairman and director | 56 | ||
Jorge Selume Zaror | Second vice chairman and director | 64 | ||
Ana Beatriz Holuigue Barros | Director | 60 | ||
Julio Barriga Silva | Director | 78 | ||
Francisco Mobarec Asfura | Director | 65 | ||
Gustavo Arriagada Morales | Director | 62 | ||
José Luis Mardones Santander | Director | 65 | ||
Hugo Verdegaal | Director | 66 | ||
María Catalina Saieh Guzmán | Alternate director | 33 | ||
Álvaro Barriga Oliva | Alternate director | 44 |
Jorge Andrés Saieh Guzmán became a director on August 25, 1998. On February 2, 2012, Mr. Saieh Guzmán became the chairman of our board of directors. Mr. Saieh Guzmán also serves as the chairman of the board of directors for Consorcio Periodístico de Chile S.A. Mr. Saieh Guzmán has also served as the vice chairman of the board of AFP Protección, as a member of the board of AFP Provida, as member of the board of the Chilean National Press Association and as a member of the board of our former affiliate, CorpBanca Venezuela. Mr. Saieh Guzmán also serves similar positions on a variety of different boards. Mr. Saieh Guzmán received a B.A. in Business and Administration and graduated from the Universidad Gabriela Mistral. Mr. Saieh Guzmán holds a
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Masters in Economics and a Masters in Business and Administration from the University of Chicago. Alvaro Saieh Bendeck is the father of Mr. Saieh Guzmán. Jorge Andres Saieh Guzmán and María Catalina Saieh Guzmán are siblings.
Fernando Aguad Dagach became a director on June 18, 1996. On February 2, 2012, Mr. Aguad became our first vice chairman. Mr. Aguad has previously held similar positions in a variety of institutions including Interbank Perú, Banco Osorno y La Unión and Canal de Televisión La Red. Mr. Aguad is an investor in financial institutions.
Jorge Selume Zaror became a director on May 23, 2001. On February 2, 2012, Mr. Selume became our second vice chairman. Mr. Selume also serves as director of the board, among others, for Clinica Indisa, Andean Region – Laureate International, Universidad Andrés Bello, Universidad Las Americas, Instituto Profesional AIEP and Blanco y Negro. Prior to this, Mr. Selume was a director on the board of directors of Banco Osorno y La Unión, a director of the government budget office of Chile, chairman of our former affiliate CorpBanca Venezuela and the CEO of CorpBanca between 1996 and 2001. Mr. Selume received a B.A. in Business and Administration and graduated from the Universidad de Chile. Mr. Selume holds a Masters in Economics from the University of Chicago.
Ana Beatriz Holuigue Barros became a director on October 20, 2015 after serving as alternate director since August 30, 2011. Previously, Ms. Holuigue was a professor at the Universidad Católica de Chile and served various roles at COPEC. She currently serves on the board of directors of Grupo de Radios Dial, Copesa and Supermercados de Chile S.A., among others. She received a B.A. in Business and Administration from the Universidad Católica de Chile.
Julio Barriga Silva became a director on April 30, 2014. Mr. Barriga previously served on the board of directors of CorpBanca between 1997 and 2012. Mr. Barriga has also served as the chairman of the board of Banco Santiago and the chief executive officer of Banco del Estado de Chile. Mr. Barriga is an agricultural engineer and an agricultural economist from the Universidad de Chile.
Francisco Mobarec Asfura became a director on February 2, 2012. Previously, Mr. Mobarec served as a manager in the area of corporate risk at Banco del Estado de Chile (2003-2006) and Banco Santiago (1999-2002), among others. Mr. Mobarec has previously served as a member of the audit committee of Central Bank of Chile (2007-2012) and a member of the board of directors of Factoring Penta S.A. (2008-2010), Empresa de Correos de Chile (2003-2006) and Banco Estado S.A. Administradora General de Fondos (2003-2006), among others. He received a B.A. in Business and Administration and an Accounting Auditor degree from the Universidad de Chile.
Gustavo Arriagada Morales became a director on September 28, 2010. Mr. Arriagada previously served as the Superintendent of Banks and Financial Institutions. He received a B.A. in Business and Administration and an Economics degree from the Universidad de Chile.
José Luis Mardones Santander became a director on March 12, 2013. Mr. Mardones currently serves as partner and director of Mardones y Marshall Consultores, independent director of CorpBanca and as director of Corporación CESCO (Centro de Estudios del Cobre y la Minería). Mr. Mardones previously served as chairman of the board of directors of Banco del Estado de Chile, chairman of Empresa Portuaria Valparaíso, director of Metro Regional de Valparaíso (Merval), Empresa Portuaria San Vicente, Instituto de Estudios Bancarios and of certain affiliates of Enami and Colbún. He received a civil engineering degree from the Universidad de Chile as well as a Masters in Law and Diplomacy and an International Studies Ph.D from Tufts University, The Fletcher School of Law and Diplomacy.
Hugo Verdegaal became a director on March 12, 2013. Mr. Verdegaal has more than 30 years experience as a business manager and senior client banker in the Latin America markets. Mr. Verdegaal has served as Citigroup’s and Citicorp’s Latin America managing director in the investment banking and corporate finance divisions in New York, as well as vice president of Citibank in Sao Paulo, Brazil. He received an M.A./B.A. in Economics degree from the Erasmus University (formerly Netherlands School of Economics), as well as an M.B.A. from the University of Michigan, Ann Arbor.
María Catalina Saieh Guzmán became an alternate director on February 2, 2012. Ms. Saieh previously served as cultural associated and opinion associated editor at La Tercera newspaper. Ms. Saieh was also vice-chairman of the board of Consorcio Periodístico de Chile S.A. (COPESA) during 2007 and chairman of the board of CorpVida Insurance Company. In 2010, she became chairman of the board of Fundación Descúbreme and chairman of the board Fundación Educacional Colegio El Golf. Ms. Saieh is a member of the board of Fundación CorpArtes. Ms. Saieh also serves similar positions on a variety of different boards. She holds a B.A. in English and a M.A. in Literature from Pontificia Universidad Católica de Chile. She also holds a M.B.A. from the
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University of Chicago, Booth School of Business. Alvaro Saieh Bendeck is the father of María Catalina Saieh Guzmán. María Catalina Saieh Guzmán and Jorge Andres Saieh Guzmán are siblings.
Alvaro Barriga Oliva became an alternate director on March 20, 2015. Mr. Barriga has been the general counsel of Corp Group for the last 15 years. He previously served as a member of the board of directors of SMU S.A. (20011-2014) and as general counsel of COPESA. He received his Law degree from the Diego Portales University and holds a Masters in Corporate Law from New York University.
Our current Executive Officers are as follows:
Executive Officer | Position | Age | ||
Fernando Massú Tare* | Chief Executive Officer | 57 | ||
Eugenio Gigogne Miqueles | Chief Financial Officer | 50 | ||
José Francisco Sánchez Figueroa | Corporate Director – Wholesale banking | 60 | ||
Cristián Canales Palacios | Corporate Director – Legal & Control | 50 | ||
Richard Kouyoumdjian Inglis | Corporate Director – Products, Marketing & Quality Service | 49 | ||
Jorge Hechenleitner Adams | Division Head – Wealth Management | 57 | ||
Gerardo Schlotfeldt Leighton | Division Head – Banco Condell | 54 | ||
Pedro Silva Yrarrázaval | Division Head – International and Finance | 54 | ||
Jorge Garrao Fortes | Division Head – Retail Credit Risk | 42 | ||
José Brito Figari | Division Head – Commercial Credit Risk | 53 | ||
Patricia Retamal Bustos | Division Head – Synergies & Customer Service | 42 | ||
Rodrigo Oyarzo Brncic | Division Head – Corporate & Large Companies | 43 | ||
Ricardo Torres Borge | Division Head – Real Estate | 49 | ||
Rodrigo Arroyo Pardo | Division Head – Wholesale Treasury | 43 | ||
Gerardo Reinike Herman | Division Head – Commercial Financial Products | 44 | ||
Pablo de la Cerda Merino | Division Head – Legal Services | 56 | ||
Marcela Leonor Jiménez Pardo | Division Head – Human Resources | 39 | ||
Américo Becerra Morales | Division Head – Operations & IT | 53 | ||
Cristián Guerra Bahamondes | Division Head – IT | 38 | ||
Jorge Max Pozuelos | Officer – Retail Banking | 44 | ||
Hernan Cerda Jaramillo | Officer – SME Banking | 41 | ||
Patricio Jimenez Anguita | Officer – Companies Banking | 58 | ||
José Manuel Mena Valencia | Comptroller Division Head** | 59 | ||
Felipe Cuadra Campos | Compliance Division Head** | 40 | ||
Fernando Burgos Concha | General Manager – New York Branch | 61 | ||
Jaime Munita Valdivieso | Chief Executive Officer – Banco CorpBanca Colombia | 45 |
* | Mr. Fernando Massú Taré’s tenure as CorpBanca’s Chief Executive Officer terminated on March 28, 2016 after his resignation and Mr. Cristián Canales Palacios was appointed as Chief Executive Officer until the consummation of the Itaú-CorpBanca Merger. |
** | Each of Mr. José Manuel Mena Valencia and Mr. Felipe Cuadra Campos reports to the audit committee and coordinates with senior management through the director of Legal & Control. |
Fernando Massú Tare became the CEO in February 2012. Mr. Massú previously served as a director and second vice chairman of our board of directors from October 15, 2009 until January 24, 2012. Prior to this, Mr. Massú served as Group Corporate director of CorpGroup (2008). Previously, he held the position of Global Wholesale Banking director at Banco Santander-Chile from 1995-2007. Between 1992 and 1995, Mr. Massú had management positions within the Santander Group in Portugal and Canada. From 1982 to 1992, Mr. Massú worked as General Manager Citicorp Chile Agencia de Valores. Mr. Massú received a B.A. in Business and Administration from Universidad Adolfo Ibáñez and attended a Professional Management Course at Harvard University.
Eugenio Gigogne Miqueles became CFO of CorpBanca in April 2010. Previously, he had served as head of the market risk department. Before joining CorpBanca in 2009, Mr. Gigogne was the CFO at Scotiabank — Chile for eight years. Mr. Gigogne received a B.A. in Business and Economics from the Universidad de Chile and a M.B.A. from Tulane University, USA.
José Francisco SánchezFigueroa became corporate director of Wholesale Banking in March 2012. Previously, he served as the Division Manager of CorpBanca since October 2009. Mr. Sánchez served as Deputy Head Large Companies and
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Corporate at CorpBanca, as well as other postings within the area (1996-2009). Mr. Sánchez received a B.A. in Business and Economics from the Universidad Católica de Chile.
Cristián Canales Palaciosbecame corporate director of Legal & Control in March 2012. Mr. Canales also served as Interim CEO from December 29, 2011 to February 5, 2012 following the resignation of Mario Chamorro Carrizo. Previously, he served as Division Manager of Legal Services from 2003 to 2012. Mr. Canales served as our Legal Services Manager from 2002 to February 2003 and as Senior Attorney from 1996 to 2001. From 1989 to 1996, Mr. Canales served as an attorney for Banco Osorno y La Unión. Mr. Canales received a law degree from the Universidad de Chile.
Richard Kouyoumdjian Inglis became corporate director of Products, Marketing & Quality Service in September 2014. He previously served as director of Shared Services between March 2012 and August 2014. He also previously served as the CFO and Chief Administrative Officer for the South American, Caribbean and Central America regions of Citigroup. Mr. Kouyoumdjian received a BSC in Naval Weapons Engineering from the Academia Politécnica Naval and a M.B.A. from the Universidad Católica de Chile. He also attended postgraduate studies at the Universities of Chicago and Cornell.
Jorge Hechenleitner Adams became Division Head of Wealth Management in January 2012. Previously, he served as Head of Private Banking (Nobel y Prime) at Banco Santander-Chile for five years. His highest title at Banco Santander-Chile was Manager of Subsidiaries division with 300 offices under his supervision. Mr. Hechenleitner received a B.A. in Business Administration from the Universidad Austral de Chile.
Gerardo Schlotfeldt Leighton became Division Head of Banco Condell in June 2010 and as Division Head of Retail Banking in January 2011. Previously, he served as CEO of Banco Paris. Mr. Schlotfeldt received an undergraduate degree in Industrial Civil Engineering from the Universidad Católica de Chile.
Pedro Silva Yrarrázaval became Division Head of International and Finance in October 2006. Mr. Silva previously served as CEO of our subsidiary CorpBanca Administradora General de Fondos S.A. (Asset Management). Mr. Silva received a B.A. in Business and Administration from the Universidad de Chile. Mr. Silva also received a M.B.A. from the University of Chicago.
Jorge Garrao Fortes became Division Head of Retail Credit Risk in September 10, 2010. He has over 14 years of experience in the financial market. Mr. Garrao received an undergraduate degree in Industrial Civil Engineering from the Universidad de Chile.
José Brito Figari became Division Head of Commercial Credit Risk in June 2011. Previously, Mr. Figari served as Manager of Commercial Credit Risk from 2008 to 2011. Mr. Brito received a B.A. in Business and Administration from Universidad Adolfo Ibáñez.
Patricia Retamal Bustos became Division Head of Synergies & Customer Service in December 2014. She previously served as Division Head of Synergies between January 2012 and November 2014. She has been with CorpBanca for four years, first as Manager of Corporate Banking. Ms. Retamal has 17 years of experience working at banks in the commercial credit risk and Large Companies and Corporations areas, including five years working at Banco Santander-Chile and eight years at Banco de Chile. Ms. Retamal received a B.A. in Business and Administration from the Universidad de Santiago de Chile.
Rodrigo Oyarzo Brncic became Division Head of Corporate and Large Companies in January 2012. Previously, he served as Manager of Structured Business from January 2009 to December 2011. Mr. Oyarzo received a B.A. in Business and Administration from the Universidad de Santiago.
Ricardo Torres Borge became Division Head of Real Estate in March 2012. Previously, he worked in Banco Santander’s Investment Banking area for sixteen years under the following positions: Investment Funds director, General Manager of Santander S.A. Administradora de Fondos de Inversión, Head of Real Estate Investment Banking Latam, Head of Structured Finance, Head of Corporate, Investment Banking and M&A, and Head of Equities. He was also in charge of Euroamérica’s Corporate Finance area for one year in 2011. Mr. Torres received an undergraduate degree in Commercial Engineering/accountants from Pontificia Universidad Católica de Chile.
Rodrigo Arroyo Pardo became Division Head of Treasury in March 2012. Prior to his new role, he served as Manager of Large Companies, Corporate & Real State of CorpBanca. Mr. Arroyo has been with CorpBanca since 2005 when he worked as an Assistant Manager of Investments in Local Currency. He was later named Manager of Trading in 2007. Previously, Mr. Arroyo
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worked for Grupo Santander for seven years and Metlife for five years. Mr. Arroyo received a B.A. in Business and Administration from the Universidad de Santiago de Chile and a M.B.A. from the Universidad Adolfo Ibáñez.
Gerardo Reinike Herman became Division Head of Commercial Financial Products in December 2013. Prior to his new position he served as Manager of Financial Products since December 2008 with the responsibility over the sales force of Money Desk of CorpBanca. Previously, Mr. Reinike worked for 12 years at the Money Desk at Banco Santander Chile in different positions. Mr. Reinike has B.A. in Business and Administration from Universidad Andrés Bello.
Pablo de la Cerda Merino has served as the Division Head of Legal Services since April 2012. Previously he has served as a Chief Legal Counsel of the bank since July 1996. From 1992 to 1996, Mr. De la Cerda has served as a Chief Legal Counsel at Banco Osorno y La Unión, and previously he served as legal counsel in the legal department of several Chilean banks. Mr. De la Cerda received a law degree from Universidad de Chile and an Executive LLM from Universidad del Desarrollo.
Marcela Leonor Jiménez Pardo became Division Manager of Human Resources in July 2012. Previously, she served in the Global Banking Consulting Group at Banco de Chile from 2008 to 2012. Ms. Jiménez received an undergraduate degree in Philology from the Pontificia Universidad Católica de Chile. She also holds a postgraduate degree in Human Resources Management from the Adolfo Ibáñez.
Américo Becerra Morales became Division Head of Operations and IT in September 2014. He previously served as Division Head of Operations between April 2012 and August 2014. Previously, he also served as Manager of Technology, and Global Operations at Banco Santander-Chile. Mr. Becerra has over 20 years of professional experience in the financial sector. He currently serves as an alternate director for the Association of Mutual Funds and the chairman of the committee of financial operations of the Association of Banks and Financial Institutions. Mr. Becerra is the former chairman of the audit committee of the Central Securities Depository (DCV) and former chairman of the Operations and technology committee at the DCV. He also previously served as director and Chairman of Santander S.A. Agente de Valores. Mr. Becerra received his auditor license at the Universidad de Santiago, a B.A. from the Universidad Católica de Chile, a M.B.A. from the Executive Development Institute and a Professional Development Degree from the Universidad de los Andes.
Cristián Guerra Bahamondesbecame the Division Head of IT in October 2013. Previously he served as Chief Operational Risk and Information Security since May 2010. Previously he served as Chief Information Security Officer Since September 2008. Mr. Guerra began working at CorpBanca in 1998 in different positions in the area of information technologies. Mr. Guerra received B.A computer engineer from the Universidad de Ciencias de la Informática. Mr. Guerra also received a Masters in Business and Administration from the Universidad Federico Santa María. Mr. Guerra also received a Masters degree in Information Technology from the Universidad Federico Santa María.
Jorge Max Pozuelosbecame Retail Banking Officer in October 2009. Previously he served as “Gerente Zonal en la División Comercial Personas” since 2006. Mr. Max received a B.A. in Business and Administration from Universidad Diego Portales and a M.B.A. from the Universidad Católica de Chile.
Hernán Cerda Jaramillobecame SME Banking Officer in June 2015. Previously he served as SME and Companies Officer since 2010. Mr. Cerda received a B.A. in Business and Administration from Universidad Diego Portales.
Patricio Jimenez Anguitabecame Companies Banking Officer in June 2015. Previously he served as Commercial Credit Risk Officer since 2004. Mr. Jimenez received an undergraduate degree in Industrial Civil Engineering from the Universidad de Santiago.
José Manuel Mena Valencia became our Comptroller Division Head in March 2008. From 1995 to 2008 Mr. Mena served as the CEO at Banco del Estado de Chile. Previously, he was CFO at Banco Osorno y La Union. Mr. Mena received an undergraduate degree in Industrial Civil Engineering. Mr. Mena also received a Masters in Economics from the Universidad de Chile.
Felipe Cuadra Campos became Chief Compliance Officer in October, 2013. Previously, he served as Corporate Attorney at CorpGroup Holding from 2010 to 2013 and as Senior Attorney at CorpBanca from 2006 to 2009. Between 2002 to 2005 Mr. Cuadra served as the Attorney at CorpBanca. Mr. Cuadra received a law degree from the Universidad Gabriela Mistral (Chile) and also received a Master of Laws in Taxation from Universidad Adolfo Ibáñez (Chile).
Fernando Burgos Concha became General Manager of CorpBanca´s New York Branch in June 2010. Previously, Mr. Burgos served as Manager of the International Area of CorpBanca for a period of seven years. Previously, he held several
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positions within CorpBanca and its parent, Corp Group Banking S.A. Mr. Burgos received a Bachelor of Science in Management from the US Air Force Academy, Colorado Springs USA.
Jaime Munita Valdivieso became CEO of Banco CorpBanca Colombia in May 2012. Previously, Mr. Munita worked for Grupo Santander Chile from 1997 to 2008, where he served as Manager at the Santander Chile Securities Agency, as Area Chief at Banco Santander Chile and as Fund Manager at Santander Asset Management. He also previously served as a direct advisor to CorpBanca, and currently serves as a member of the Banco CorpBanca Colombia board of directors. Mr. Munita received an undergraduate degree in Commercial Engineering from the Universidad de Finis Terrie and a Master of Business Administration from the Universidad Alfonso Ibáñez.
B. | COMPENSATION |
Consistent with Chilean law, we do not disclose to our shareholders, or otherwise make public, information regarding the individual compensation of our directors or officers. For the year ended December 31, 2015, we paid fees to each of our directors in the amount of UF100 per month and the chairman UF600 per month. No amounts were set aside or accrued by us to provide pension, retirement or similar benefits for our directors and executive officers. In the ordinary shareholders’ meeting held on March 11, 2016, the board of directors agreed to continue to pay each director UF100 per month and the chairman UF600 per month. We also engage in transactions with companies controlled by certain of our directors under the applicable requirements of the Chilean Corporations Act. See “Item 7.B. Related Party Transactions”. In the year ended December 31, 2015, we paid our senior management and directors-audit committee members an aggregate of Ch$18,622 million. Chilean law does not require us to have a compensation committee.
C. | BOARD PRACTICES |
The period during which the directors have served in their office is shown in the table under Section A of this Item 6. The date of expiration of the current term of office is shown in the table below:
Director | Date of Expiration of Term | |
Jorge Andrés Saieh Guzmán | March 2019 | |
Fernando Aguad Dagach | March 2019 | |
Jorge Selume Zaror | March 2019 | |
Ana Beatriz Holuigue Barros | March 2019 | |
Julio Barriga Silva | March 2019 | |
Francisco Mobarec Asfura | March 2019 | |
Gustavo Arriagada Morales | March 2019 | |
José Luis Mardones Santander | March 2019 | |
Hugo Verdegaal | March 2019 | |
María Catalina Saieh Guzmán | March 2019 | |
Alvaro Barriga Oliva | March 2019 |
Pursuant to the provisions of our bylaws, the members of the board are generally renewed every three years, based on length of service and according to the date and order of their respective appointments. In the Ordinary Shareholders’ Meeting held on March 11, 2016, the board of directors of CorpBanca was renewed in its entirety. Consequently, the nine persons listed above were elected as holders of the office of director until the next shareholders meeting to be held approximately 10 days after the completion of our legal merger with Banco Itaú Chile.
BOARD COMMITTEES
Audit Committee
Our board maintains an audit committee which is currently comprised of five members, including four directors and one non-director members. The current members of the audit committee are Messrs. Gustavo Arriagada Morales, who chairs it, José Luis Mardones Santander, Hugo Verdegaal, María Catalina Saieh Guzmán and Juan Echeverría González. The permanent consultant was Mr. Alejandro Ferreiro Yazigi.
The main duties of the audit committee are to review the efficiency of internal control systems, to ensure compliance with laws and regulations and to have a clear understanding of the risks involved in our business. The SBIF recommends that at least one of the members of the audit committee, who must also be a member of the board of directors, be experienced with respect to the accounting procedures and financial aspects of banking operations. The members of the audit committee appointed by the board of directors must be independent according to the criteria set by the board of directors. Moreover, they may not accept any payment or
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other compensatory fee from us, other than in their capacity as members of the board of directors, of the audit committee or of other committees. All the members of the audit committee receive a monthly remuneration.
A description of the experience and qualifications for Messrs. Gustavo Arriagada Morales, José Luis Mardones Santander, Hugo Verdegaal and María Catalina Saieh Guzmán, each of whom is a director of the Company is included in Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management. Below we include a summary of the experience and qualification for Juan Echeverría González, who is a non-director member of the audit committee.
Juan Echeverría González Mr. Echeverría currently serves as Corporate Chief Compliance Officer at CorpGroup. He was previously in charge of Deloitte’s audits of Banco Osorno, BBVA, Banco del Desarrollo, Banco Internacional, Financiera Condell, Banco CorpBanca Venezuela, and of several services provided to such financial institutions from 1993 to 2012. Mr. Echeverría is currently a director and a member of the audit committee of Compañía Minera San Gerónimo, CorpGroup Activos Inmobiliarios S.A., CorpBanca Colombia and Helm Colombia, and an advisor to the board of directors and audit committee of Copesa. He has participated in several local and international seminars regarding corporate governance, restructurings and business acquisitions. Mr. Echeverría received B.A. in Accounting from Universidad de Chile and received a two Masters degree from the Universidad Adolfo Ibáñez.
The audit committee’s responsibilities are, among others:
• | proposing external auditors and rating agencies to the directors’ committee; |
• | analyzing and supervising the activities, organizational structure and qualifications of our internal auditing staff, who report directly to the audit committee; |
• | analyzing rating agencies’ reports and their content, procedures and scope; |
• | approving the audit plan for us and our affiliates; |
• | reviewing audits and internal reports; |
• | coordinating with internal and external auditors; |
• | reviewing annual and interim financial statements and informing the board of directors of the results of such reviews; |
• | reviewing the reports, procedures and extent of the work of external auditors; |
• | reviewing the procedures and content of reports from external risk evaluators; |
• | discussing the effectiveness and reliability of internal control procedures; |
• | reviewing the performance of information systems, their sufficiency, reliability and use in decision making; |
• | discussing the observance of internal regulations related to compliance with laws and regulations; |
• | investigating suspected fraudulent activities; |
• | reviewing the inspection reports, instructions and presentations from the SBIF; |
• | reviewing compliance with the annual program of internal auditing; |
• | informing the board of directors of any change in accounting principles and its effects; |
• | setting procedures for the reception, consideration and treatment of complaints regarding accounting, internal accounting controls or other auditing matters, and for the confidential submission by employees of questionable matters regarding accounting or auditing matters; |
• | ensuring that internal auditing has the resources and sufficient support to properly perform its duties; monitoring the solutions provided to identified matters; and generally ensuring the implementation and consolidation of best practices in the bank. |
• | approving the crime prevention model and designating the company that will certify it; |
• | reviewing semiannually the performance of the compliance manager and ensuring that he or she is empowered with sufficient authority and resources to fulfill his or her duties; |
• | approving the audit charter, the code of ethics and the internal auditing manual; |
• | reviewing the strategic plan, budget and human resource structure of the bank’s comptroller; |
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• | proposing to the board of directors the appointment, reappointment or removal of the comptroller manager, evaluating his or her performance and approving his or her annual compensation; |
• | examining any alleged fraud and potential breaches of laws and regulations communicated through internal auditing; |
• | setting criteria for the selection and evaluation of the external auditors; and |
• | verifying the compliance of the rotation policy for external auditors. |
The audit committee has charters that establish their composition, organization, objectives, duties, responsibilities and extension of its activities. The SBIF requires the audit committee to meet at least every four months and to provide an annual written report to the board of directors informing it of its activities. The report must also be presented to the annual shareholders’ meeting. According to their charter, the audit committee a meet twice per month.
Directors Committee
Our board maintains a directors committee which is currently comprised of four members, including three directors and one non-director members. The current members of the directors committee are Messrs. Gustavo Arriagada Morales, who chairs it, Hugo Verdegaal, José Luis Mardones Santander and Juan Echeverría González.
The directors committee’s responsibilities are, among others:
• | reviewing the reports of the internal and external auditors, the balance sheet and any other financial statements presented by the administration to the shareholders, and to sign-off on it prior to its presentation to the shareholders for approval; |
• | recommending external auditors and rating agencies to the board of directors; |
• | reviewing operations with related parties and reporting to the board of directors; |
• | reviewing the compensation plans of executive officers and principal officers; |
• | examining the systems of remuneration and compensation plans for managers, senior executives and employees of the Company; |
• | preparing an annual report about its activities, including its main recommendations to shareholders; |
• | other duties required by our By-laws, a shareholders meeting and our board of directors. |
A description of the experience and qualifications for Messrs. Gustavo Arriagada Morales, Hugo Verdegaal and José Luis Mardones Santander, each of whom is a director of the Company is included in Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management. A description of the experience and qualifications for Mr. Juan Echeverría González, who is a non-director member of the director committee and the audit committee is included in Item 6. Directors, Senior Management and Employees—C. Board Practices—Board Committees—Audit Committee.
The directors committee has charters that establish their composition, organization, objectives, duties, responsibilities and extension of its activities. The SBIF requires the directors committee to meet at least every four months and to provide an annual written report to the board of directors informing it of its activities. The report must also be presented to the annual shareholders’ meeting. According to their charter, the directors committee a meet twice per month.
OTHER COMMITTEES
Corporate Governance Committee
The corporate governance committee was established by the board of directors as an advisory body of it that aims to ensure the existence and development of better corporate governance practices for financial institutions. For that purpose, it is in charge of evaluating practices and policies that are currently in execution, making proposals to the board of directors of improvements, adjustments or reforms and pursuing for the proper implementation and applications of said practices and policies of corporate governance. The committee performs its duties with respect to the bank, its affiliates and related entities abroad.
The committee is composed of five directors and is empowered to engage external consultants. During 2015, Ms. María Catalina Saieh Guzmán was the chairperson of the committee and the other members were Ms. Ana Holuigue Barros, Mr. José Luis Mardones Santander, Mr. Gustavo Arriagada Morales and Mr. Alvaro Barriga Oliva (all of whom were directors). The permanent consultant was Mr. Alejandro Ferreiro Yazigi.
During 2015, the committee met 10 times.
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The committee is regulated by its by-laws, by applicable legal and regulatory rules and by the principles established by the Organization for Economic Co-operation and Development (OECD) as well as those defined by the Basel Committee on Banking Supervision on good corporate governance matters for financial institutions.
Anti-Money Laundering and Anti-Terrorism Finance Prevention Committee
This committee is in charge of preventing money laundering and terrorism financing. Its main purposes include planning and coordinating activities to comply with related policies and procedures, staying informed about work carried out by the Compliance Officer and making decisions on any improvements to control measures proposed by the Compliance Officer. This committee is comprised of one director, the CEO, the Legal and Control director, one Area Manager and the Compliance Officer. This committee has the authority to request attendance from any executives or associates that it deems necessary. The committee has regular monthly meetings and holds extraordinary sessions when considered appropriate by any of its members.
Compliance Committee
The purpose of this committee is to monitor compliance with our codes of conduct and other complementary rules, establish and develop procedures necessary for compliance with these codes, interpret, administer and supervise compliance with these rules and resolve any conflicts that may arise. This committee is comprised of one director; the CEO; the Legal and Control director; the Division Head of Human Resources and the Compliance Division Head.
Social and Environmental Committee
The purpose of this committee is to adopt measures to ensure proper and efficient assessment of social and environmental impacts generated by the activities and projects that we finance, to meet the requirements of the IFC and to reduce the risks to us of assuming the costs transferred by these indirect social and environmental risks. Additionally, this committee proposes internal policies and procedures on environmental and corporate social responsibility matters to the Bank’s board of directors.
The committee is comprised of the persons holding the positions of corporate director of Legal and Control, corporate director of Wholesale banking, Commercial Credit Risk Division Head, Companies and Retail Banking Division Head, Large Companies and Corporate Division Head, International Banking Officer, SME Banking Officer, Companies Banking Officer, Legal Services Division Head and the Environmental Officer. The committee may invite to its meetings any Bank executive or associate that it deems necessary.
D. EMPLOYEES
As of December 31, 2015, on a consolidated basis, we had 7,545 employees. Approximately 37.5% of our employees were unionized as of December 31, 2015. All management positions are held by non-unionized employees. We believe that we have good relationships with our employees and the unions to which some of our employees belong. Our employees are covered by a collective bargaining agreement, which we entered into on August 1, 2014, which provides for improved benefits and has a term of four years.
The table below shows our employees by geographic area:
Year ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
Chile | 3,724 | 3,714 | 3,811 | |||||||||
Colombia | 3,548 | 3,716 | 3,707 | |||||||||
United States | 26 | 26 | 27 | |||||||||
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Total | 7,298 | 7,456 | 7,545 |
E. | SHARE OWNERSHIP |
Mr. Saieh Bendeck together with his family maintains an indirect ownership of 75.6% of Corp Group Banking S.A. In addition, Mr. Saieh Bendeck with his family are indirect holders of 100% of the ownership rights of Saga. As of the date hereof, Corp Group Banking S.A. and Compañía Inmobiliaria y de Inversiones Saga SpA, controlled by Mr. Saieh Bendeck, beneficially own approximately 43.73%, and 6.15% of our outstanding shares, respectively.
Our directors and senior managers do not have different or preferential voting rights with respect to those shares they own.
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We do not have any arrangements for issuing capital to our employees, including any arrangements that involve the issue or grant of options of our shares or securities.
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. MAJOR SHAREHOLDERS
Our only outstanding voting securities are our common shares. As of December 31, 2015, we had 340,358,194,234 common shares outstanding.
The following table sets forth information with respect to the record and beneficial ownership of our capital stock as of December 31, 2015:
Shareholders | Number of Shares | Percentage of Total Share Capital | Number of Votes | Percentage of Voting and Dividend Rights | ||||||||||||
Corp Group Banking S.A. | 148,835,852,909 | 43.73 | % | 148,835,852,909 | 43.73 | % | ||||||||||
Compañía Inmobiliaria y de Inversiones Saga SpA (1) | 20,918,589,773 | 6.15 | % | 20,918,589,773 | 6.15 | % | ||||||||||
Cía. de Seguros Confuturo S.A. (former CorpVida) | — | — | — | — | ||||||||||||
Cía. de Seguros CorpSeguros S.A. | — | — | — | — | ||||||||||||
Others investment companies | — | — | — | — | ||||||||||||
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Total Saieh Group | 169,754,442,682 | 49.88 | % | 169,754,442,682 | 49.88 | % | ||||||||||
IFC | 17,017,909,711 | 5.00 | % | 17,017,909,711 | 5.00 | % | ||||||||||
Sierra Nevada Investment Chile Dos Ltda. (Santo Domingo Group) | 9,817,092,180 | 2.88 | % | 9,817,092,180 | 2.88 | % | ||||||||||
ADRs holders and Foreign investors | 71,903,556,140 | 21.13 | % | 71,903,556,140 | 21.13 | % | ||||||||||
AFPs (Administradoras de Fondos de Pensiones) | 2,901,375,999 | 0.85 | % | 2,901,375,999 | 0.85 | % | ||||||||||
Securities Brokerage | 32,526,108,137 | 9.56 | % | 32,526,108,137 | 9.56 | % | ||||||||||
Insurance Companies(2) | 8,686,054,604 | 2.55 | % | 8,686,054,604 | 2.55 | % | ||||||||||
Other minority shareholders(3) | 27,751,654,781 | 8.15 | % | 27,751,654,781 | 8.15 | % | ||||||||||
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Others | 143,768,749,661 | 42.24 | % | 143,768,749,661 | 42.24 | % | ||||||||||
Total | 340,358,194,234 | 100.00 | % | 340,358,194,234 | 100.00 | % | ||||||||||
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(1) | Includes 926,513,842 shares owned by Saga that are under custody. |
(2) | Since November 2013, includes Conseguros (former CorpVida) and CorpSeguros (1.18%) which are no longer controlled by the Saieh Group. |
(3) | Includes Moneda’s funds with a total of 2.69% ownership. |
As of February 29, 2016, ADR holders (through the depositary) and foreign investors held approximately 28.49% of our total common shares, represented by five registered shareholders (Deutsche Bank Trust Company Americas - ADRs; Banco de Chile on behalf of non-resident third parties; Banco Itaú on behalf of investors; Banco Santander on behalf of foreign investors; Sierra Nevada Investments Chile Dos Ltda.). The remaining 71.51% of our total shares were held locally, in Chile, represented by 243,375,171,062 shares held by local shareholders. All of our shareholders have identical voting rights.
Corp Group Banking and Saga accounted for approximately 43.73% and 6.15%, respectively, of our outstanding common shares as of December 31, 2015. In connection with the pending Itaú-CorpBanca Merger, between August and September 2014 and February 2016, Corp Group Banking and Saga sold 5,208,000,000 and 344,218 common shares, respectively, of CorpBanca, decreasing its joint share ownership by 1.53%. Corp Group Banking and Saga are each controlled by Mr. Saieh who, together with members of his family, controls CorpBanca.
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After the closing of the Itaú-CorpBanca Merger, Itaú Unibanco and our current controlling shareholders will beneficially own 33.58% and 33.13% of our outstanding common shares, respectively. In connection with the Transaction Agreement, our controlling shareholders have agreed that at the closing of the Itaú-CorpBanca Merger, they will enter into the Itaú-CorpBanca Shareholders Agreement, whereby Itaú Unibanco will control the merged bank, or Itaú-CorpBanca, after the consummation of the Itaú-CorpBanca Merger. For a description of the Itaú-CorpBanca Shareholders Agreement and the Transaction Agreement, see Item 10. Additional Information—C. Material Contracts.
B. | RELATED PARTY TRANSACTIONS |
GENERAL
In the ordinary course of our business, we engage in a variety of transactions with certain of our affiliates and related parties. The Chilean Corporations Act requires that our transactions with related parties be in our interest and also on an arm’s-length basis or on similar terms to those customarily prevailing in the market. We are required to compare the terms of any such transaction to those prevailing in the market at the date the transaction is to be entered into. In the event that the transaction is not within the ordinary course of business, prior to its effectiveness, the directors committee must prepare a report describing the conditions of the operation and present it to the board of directors for its express approval. Directors of companies that violate this provision are liable for the resulting losses. Under the Chilean General Banking Act, transactions between a bank and its affiliates are subject to certain additional restrictions.
Under the Chilean Corporations Act, a “related party transaction”, in the case of an open stock corporation, is any operation between such corporation and (i) one or more related persons under article 100 of the Securities Market Act (see below), (ii) a director, manager, administrator, principal officer or liquidator of the corporation, by him/herself or on behalf of persons other than the corporation, or their respective spouses or blood or marriage relatives to the second degree, (iii) an entity of which any of the persons indicated in the previous numeral is the direct or indirect owner of ten percent or more of its capital or a director, manager or officer, (iv) a person or entity determined as such by the by-laws of the corporation or the board committee, and (v) an entity in which a director, manager, administrator, principal officer or liquidator of the corporation, has acted in any of those capacities during the immediately previous 18 months.
Article 100 of the Securities Market Act provides that the following persons are “related” to a company: (i) the other entities of the business conglomerate to which the company belongs, (ii) parents, subsidiaries and equity-method investors and investees of the company, (iii) all directors, managers, officers and liquidators of the company and their spouses or blood relatives to the second degree, or any entity controlled, directly or indirectly, by any of the referred individuals, (iv) any person that, by him/herself or with other persons under a joint action agreement, may appoint at least one member of the management of the company or control ten percent or more of the capital or voting capital of a stock company and (v) other entities or persons determined as such by the SVS.
A publicly-traded corporation may only enter into a related transaction when its aim is to contribute to the corporate general interests, its conditions are set at arm’s length and the corporation has followed the procedure indicated in the Chilean Corporations Act. The procedure to approve a related transaction can be summarized as follows: (i) the directors, managers, administrators, principal officers and liquidators involved in the potential transaction must give notice thereof to the board (these persons are obligated to disclose their interest in the transaction and their reasons to justify the convenience of the transaction for the corporation, both of which must be informed to the public), (ii) the absolute majority of the board, excluding any director involved in the transaction, must approve the transaction, (iii) the approval given by the board must be informed to the next shareholders’ meeting, (iv) if the directors involved in the transaction form the majority of the board, the transaction may only be approved by the unanimity of the remaining directors or by two-thirds of the issued voting shares in the corporation in a shareholders’ meeting, and (v) where the approval of the shareholders’ meeting is required, the board will request an independent appraiser to submit to the shareholders the conclusions regarding the conditions of the transaction.
These rules are not applicable to non-material transactions in terms of amounts involved, transactions included in the ordinary course of business of the corporation, according to the policies approved by the board and transactions with another entity of which the corporation owns at least 95% of its shares or rights.
Non-compliance with these rules does not invalidate the transaction, but the persons involved will be obligated to transfer the benefit accrued thereby from the transaction to the corporation and will be held liable for the potential damages suffered by the corporation. These rules apply to all publicly-traded corporations and to their subsidiaries, regardless of their corporate type.
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We believe that we have complied with the applicable requirements of the Chilean Corporations Act in all transactions with related parties and affirm that we will continue to comply with such requirements.
As of December 31, 2013, 2014 and 2015, loans to related parties totaled Ch$364,424 million, Ch$228,989 million and CCh$131,858 million, respectively, and related party receivables, other than loans, totaled Ch$27,325 million, Ch$18,157 million and CCh$16,805 million, respectively. See Note 33 to our financial statements for a more detailed accounting of transactions with related parties.
LOANS TO RELATED PARTIES
As of December 31, 2013, 2014 and 2015, loans to related parties were as follows:
As of December 31, 2015 | Operating Companies | Investment Companies | Individuals | |||||||||
(in million of constant Ch$ as of December 31, 2015) | ||||||||||||
Loans and receivables to customers: | ||||||||||||
Commercial loans | 86,595 | 24,406 | 3,863 | |||||||||
Mortgage Loans | — | — | 16,451 | |||||||||
Consumer Loans | — | — | 2,362 | |||||||||
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Loans and receivables to customers - gross | 86,595 | 24,406 | 22,676 | |||||||||
Provision for loan losses | (1,731 | ) | (6 | ) | (82 | ) | ||||||
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Loans and receivables to customers, net | 84,864 | 24,400 | 22,594 | |||||||||
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Other | 28,972 | 674 | 2,910 | |||||||||
As of December 31, 2014 | Operating Companies | Investment Companies | Individuals | |||||||||
(in millions of constant Ch$ as of December 31, 2014) | ||||||||||||
Loans and receivables to customers: | ||||||||||||
Commercial loans | 181,576 | 31,351 | 1,741 | |||||||||
Mortgage Loans | — | — | 14,580 | |||||||||
Consumer Loans | — | — | 2,592 | |||||||||
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Loans and receivables to customers - gross | 181,576 | 31,351 | 18,913 | |||||||||
Provision for loan losses | (2,650 | ) | (154 | ) | (47 | ) | ||||||
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Loans and receivables to customers, net | 178,926 | 31,197 | 18,866 | |||||||||
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Other | 76,396 | 312 | 2,304 | |||||||||
As of December 31, 2013 | Operating Companies | Investment Companies | Individuals | |||||||||
(in millions of constant Ch$ as of December 31, 2013) | ||||||||||||
Loans and receivables to customers: | ||||||||||||
Commercial loans | 161,421 | 193,076 | 1,915 | |||||||||
Mortgage Loans | — | — | 16,267 | |||||||||
Consumer Loans | — | — | 4,956 | |||||||||
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Loans and receivables to customers - gross | 161,421 | 193,076 | 23,138 | |||||||||
Provision for loan losses | (2,334 | ) | (10,792 | ) | (86 | ) | ||||||
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Loans and receivables to customers, net | 159,087 | 182,284 | 23,053 | |||||||||
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Other | 71,457 | 332 | 2,166 |
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All loans to related parties were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present other unfavorable features. During 2013, 2014 and 2015, and in accordance with IFRS, the total gross amounts of related party loans outstanding amounted to Ch$435,106 million, Ch$272,962 million and Ch$284,941 million, respectively.
OTHER TRANSACTIONS WITH RELATED PARTIES
During 2013, 2014 and 2015, we had the following income (expenses) from services provided to (by) related parties:
For the year ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
Company | Income (expenses) | Income (expenses) | Income (expenses) | |||||||||
(in million of nominal Ch$) | ||||||||||||
Transbank S.A. | (2,430 | ) | (3,617 | ) | (5,469 | ) | ||||||
Inmobiliaria Edificio Corp Group S.A. | (2,740 | ) | (3,067 | ) | (4,298 | ) | ||||||
Corp Group Interhold S.A. and Corp Group Holding Inversiones Ltda. | (2,632 | ) | (2,805 | ) | (2,664 | ) | ||||||
Redbanc S.A. | (1,782 | ) | (2,016 | ) | (2,028 | ) | ||||||
Promoservice S.A. | (1,508 | ) | (1,188 | ) | (1,677 | ) | ||||||
Recaudaciones y Cobranzas S.A. | (971 | ) | (1,943 | ) | — | |||||||
Operadora de Tarjeta de Crédito Nexus S.A. | (846 | ) | (936 | ) | (1,018 | ) | ||||||
Fundación Corpgroup Centro Cultural | (736 | ) | (1,505 | ) | (3,550 | ) | ||||||
Fundación Descubreme | (80 | ) | (78 | ) | (193 | ) | ||||||
Compañía de Seguros Vida Corp S.A. | (318 | ) | (159 | ) | (160 | ) | ||||||
Empresa Periodistica La Tercera S.A. | (163 | ) | (282 | ) | — | |||||||
SMU S.A. Rendic Hnos S.A. | (1,928 | ) | (2,092 | ) | (2,054 | ) | ||||||
Corp Research S.A. | (408 | ) | (426 | ) | ||||||||
CAI Gestion Inmobiliaria S.A | (219 | ) | (58 | ) | ||||||||
Grupo de Radios Dial S.A | (177 | ) | (189 | ) | ||||||||
Hotel Corporation of Chile S.A | (132 | ) | (160 | ) | ||||||||
Pulso Editorial S.A | (111 | ) | (697 | ) | ||||||||
Corp Imagen y diseños S.A | (76 | ) | (89 | ) | ||||||||
Asesorias e Inversiones Rapelco Limitada S.A | (49 | ) | (53 | ) | ||||||||
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(16,134 | ) | (20,859 | ) | (24,783 | ) |
These transactions were carried out on terms normally prevailing in the market at the date of the transaction.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. | FINANCIAL INFORMATION |
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See “Item 17. Financial Statements”.
LEGAL PROCEEDINGS
We are involved in collections proceedings initiated by us in the normal course of business and certain proceedings against us in the ordinary course of banking business as disclosed in Note 22 to our audited consolidated financial statements included herein.
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We are also involved in litigation with the SBIF before theCorte de Apelaciones de Santiago(Santiago Court of Appeals). On December 30, 2015, the SBIF issued letter N° 16,191 (or Letter 16,191) whereby we were informed that as a consequence of the appointment of the former member of our board of directors, Mr. Rafael Guilisasti Gana, as member of the boards of directors of Norte Grande S.A., Sociedad de Inversiones Oro Blanco S.A. and Sociedad de Inversiones Pampa Calichera S.A., the SBIF had commenced a special review on the corporate group known as “Cascadas” in order to verify our compliance with credit limitations set forth in the Chilean General Banking Act. The SBIF concluded that all the companies of the Cascadas group are part of a “corporate organizational structure” to exercise control over SQM S.A., therefore, they should be considered a single debtor for the purposes of computing the above referenced credit limitations. As a consequence of the above, the SBIF concluded that CorpBanca violated the individual lending limits set forth in article 84 N° 1 of the Chilean General Banking Act in relation to article 85 of the same norm regarding the companies that constitute the Cascadas group. In light of the foregoing, the SBIF imposed a fine on CorpBanca of 10% of the excess of such credit limitations equal to Ch$21,764,507,494 (U.S.$30.65 million).
Our board of directors, in a special meeting held on January 4, 2016, unanimously instructed the management of the bank to exercise any and all available actions and claims in order to rescind in its entirety Letter 16,191, due to material legal grounds and the fact that in imposing the fine the SBIF violated the most basic principles of due process. Consequently, on January 18, 2016, CorpBanca filed areclamación(complaint) before the Santiago Court of Appeals against the SBIF, after having paid the full amount of the fine as this advanced payment is a mandatory requirement imposed by the Chilean law in order to file thereclamación. The complaint filed by the bank seeks that Letter 16,191 is declared null and void, together with the fine imposed thereby; the restitution of the funds paid (which are held, in the meantime, in a special account of the SBIF at Banco del Estado de Chile, which can be withdrawn only to reimburse them to CorpBanca if the Court accepts the claim, or to give the amount to the State upon dismissal of thereclamación) by CorpBanca and the complete acquittal of the bank.
Pursuant to local regulation, on March 4th, 2016, the Court gave the SBIF a term to reply to CorpBanca’s claims. Such response was filed on March 17th, 2016.
DIVIDEND POLICY
Under the Chilean Corporations Act, Chilean open stock companies, such as ours, are generally required to distribute at least 30% of their net income each year, unless otherwise agreed by the unanimous consent of our shareholders. In the event of any loss of capital or of the legal reserve, no dividends can be distributed so long as such loss is not recovered from earnings or otherwise. No dividends above the legal minimum can be distributed if doing so would result in the bank exceeding its indebtedness ratio or its lending limits.
At our ordinary shareholders’ meeting held on March 11, 2016, our shareholders approved a new dividend policy for 2016 providing for the distribution of the 100% of the fiscal year’s net income, calculated as total net income for the period less an amount provisioned to comply with the Optimal Minimum Regulatory Capital, as this term is defined in the Shareholders’ Agreement. See Item 10. Additional Information—C. Material Contracts, Shareholders Agreement. Although our board of directors has adopted the aformentioned dividend policy for Corpbanca, the amount of dividend payments will depend upon, among other factors, our then current level of earnings, capital and legal reserve requirements, as well as market conditions, and there can be no assurance as to the amount or timing of future dividends. Our dividend policy was to distribute at least 50% of each fiscal year net income, calculated as total net income for the period less an amount which maintains capital constant in real terms until March 11, 2016. Dividend distributions in 2013, 2014 and 2015 each amounted to 50%, 57% and 50% of net income for the immediately preceding fiscal year, respectively.
In the event that dividends are paid, holders of ADSs will be entitled to receive dividends to the same extent as the owners of common shares. Dividends received by holders of ADSs will, absent changes in Chilean exchange controls or other laws, be converted into U.S. dollars and distributed net of currency exchange expenses and fees of the depositary and will be subject to Chilean withholding tax, currently imposed at the rate of 35% (which may be subject to credits in certain cases). Owners of ADSs are not charged with any fees with respect to cash or stock dividends.
B. SIGNIFICANT CHANGES
There have been no significant changes since the date of our annual financial statements.
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ITEM 9. | OFFER AND LISTING DETAILS |
A. OFFER AND LISTING DETAILS
PRICE HISTORY
The table below shows, for the periods indicated, high and low closing prices (in nominal Chilean pesos) of the common shares on the Santiago Stock Exchange and of our ADSs on the New York Stock Exchange.
Santiago Stock Exchange | New York Stock Exchange | |||||||||||||||
Common Stock | ADSs | |||||||||||||||
High | Low | High | Low | |||||||||||||
(Ch$ per share (1)) | (US$ per ADS(2)) | |||||||||||||||
Annual Price History | ||||||||||||||||
2011 | 8.78 | 5.81 | 93.76 | 17.05 | ||||||||||||
2012 | 7.40 | 5.50 | 23.08 | 17.11 | ||||||||||||
2013 | 7.47 | 4.73 | 22.19 | 13.75 | ||||||||||||
2014 | 7.79 | 5.92 | 21.14 | 15.82 | ||||||||||||
2015 | 7.90 | 5.53 | 18.78 | 11.70 | ||||||||||||
Quarterly Price History | ||||||||||||||||
2013 1st Quarter | 6.98 | 6.44 | 22.19 | 20.32 | ||||||||||||
2013 2nd Quarter | 6.64 | 5.25 | 20.98 | 15.20 | ||||||||||||
2013 3rd Quarter | 5.80 | 4.73 | 17.25 | 13.75 | ||||||||||||
2013 4th Quarter | 7.47 | 5.45 | 21.15 | 16.05 | ||||||||||||
2014 1st Quarter | 7.49 | 5.92 | 21.14 | 15.82 | ||||||||||||
2014 2nd Quarter | 6.92 | 6.44 | 18.88 | 17.38 | ||||||||||||
2014 3rd Quarter | 7.71 | 6.74 | 19.67 | 17.55 | ||||||||||||
2014 4th Quarter | 7.79 | 7.17 | 20.20 | 17.36 | ||||||||||||
2015 1st Quarter | 7.68 | 6.60 | 18.54 | 15.82 | ||||||||||||
2015 2nd Quarter | 7.90 | 6.71 | 18.78 | 16.34 | ||||||||||||
2015 3rd Quarter | 7.00 | 6.07 | 16.48 | 12.91 | ||||||||||||
2015 4th Quarter | 6.37 | 5.53 | 14.09 | 11.70 | ||||||||||||
Monthly Price History | ||||||||||||||||
September 2015 | 6.43 | 6.11 | 14.55 | 12.91 | ||||||||||||
October 2015 | 6.37 | 6.08 | 14.09 | 13.23 | ||||||||||||
November 2015 | 6.37 | 6.02 | 13.62 | 12.71 | ||||||||||||
December 2015 | 6.00 | 5.53 | 12.96 | 11.70 | ||||||||||||
January 2016 | 5.62 | 5.20 | 11.74 | 10.87 | ||||||||||||
February 2016 | 5.80 | 5.29 | 12.68 | 11.26 | ||||||||||||
March 2016(3) | 5.92 | 5.54 | 12.56 | 11.98 |
Sources: Santiago Stock Exchange Official Quotation Bulletin; NYSE.
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1) | Pesos per share reflect nominal price at trade date. |
2) | Price per ADS in US$: one ADS represents 5,000 shares of common stock and 1,500 since March 2011. |
3) | Information up to March 11, 2016 |
B. PLAN OF DISTRIBUTION
Not applicable.
C. | MARKETS |
Our common shares are traded on the Santiago Stock Exchange under the symbol “CorpBanca”. Our ADSs have been listed since November 1, 2004 on the New York Stock Exchange under the symbol “BCA”.
D. | SELLING SHAREHOLDER |
Not applicable.
E. | DILUTION |
Not applicable.
F. | EXPENSES OF THE ISSUE |
Not applicable.
ITEM 10. | ADDITIONAL INFORMATION |
A. | SHARE CAPITAL |
Not applicable.
B. | MEMORANDUM AND ARTICLES OF INCORPORATION |
Set forth below is material information concerning our share capital and a brief summary of the significant provisions of our by-laws and Chilean law. This description contains material information concerning the shares, but does not purport to be complete and is qualified in its entirety by reference to our by-laws, the Chilean General Banking Act, the Chilean Corporations Act and the Chilean Securities Market Act each referred to below.
GENERAL
Shareholders rights in a Chilean bank that is also a special corporation (sociedad anónima especial) subject to the regulations of open stock corporations (sociedades anónimas abiertasor Public Companies) are governed by the bank’s by-laws, which effectively serve the purpose of both the articles or certificate of incorporation and the by-laws of a company incorporated in the United States, by the Chilean General Banking Act and secondarily, to the extent not inconsistent with the latter, by the provisions of Chilean Corporations Act applicable to Public Companies except for certain provisions which are expressly excluded. Article 137 of the Chilean Corporations Act sets forth that all provisions of the Chilean Corporations Act take precedence over any contrary provision in a corporation’s by-laws. Both the Chilean Corporations Act and our by-laws provide that legal actions by shareholders against us (or our officers or directors) to enforce their rights as shareholders or by one shareholder against another in their capacity as such, are to be brought in Chile in arbitration proceedings, notwithstanding the plaintiff’s right to submit the action to the ordinary courts of Chile.
The Chilean securities markets are principally regulated by the SVS under the Chilean Securities Market Act and the Chilean Corporations Act. In the case of banks, compliance with these laws is supervised by the SBIF. These two acts provide for disclosure requirements, restrictions on insider trading and price manipulation and protection of minority investors. The Chilean Securities Market Act sets forth requirements relating to public offerings, stock exchanges, stock brokers and dealers, and outlines disclosure requirements for companies that issue publicly offered securities. The Chilean Corporations Act sets forth the rules and requirements for establishing Public Companies while eliminating government supervision of closed (closely-held) corporations. Public Companies are those that voluntarily, or are legally required to, register their shares in the Securities Registry.
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BOARD OF DIRECTORS
Our board of directors has nine regular members and two alternate members, elected by shareholders’ vote at ordinary shareholders’ meetings. The directors may be either shareholders or non-shareholders of the Company. There is no age limit for directors.
A director remains in office for three years and may be re-elected indefinitely. If for any reason, the ordinary shareholders’ meeting in which the new appointments of directors are to be made is not held, the duties of those serving as such shall be extended until their replacements are designated, in which case, the board of directors shall convene a meeting at the earliest possible time in order to effect the appointments.
The directors are entitled to compensation for the performance of their duties. The amount of their compensation is determined annually at the ordinary shareholders’ meeting. In addition, payments in the form of wages, fees, travel accounts, expense accounts, dues as representatives of the board of directors and other cash payments, payments in kind or royalties of any sort whatsoever, may be paid to certain directors for the performance of specific duties or tasks in addition to their functions as directors imposed upon them specifically by the ordinary shareholders’ meeting. Any special compensation must be reported at the ordinary shareholders’ meeting, and for that purpose, a detailed and separate entry shall be made in our annual report to investors, which shall expressly indicate the complete name of each of the directors receiving special compensation.
Without prejudice to any other incapacity or incompatibility established by the Chilean Corporations Act, according to the Chilean General Banking Act, the following may not be directors: (i) those persons who have been sentenced or are being tried for crimes punishable with a principal or accessory penalty of temporary or permanent suspension from or incapacity to hold public office, (ii) those persons who have been declared bankrupt and have not been rehabilitated, (iii) members of the Chilean Congress, (iv) directors or employees of any other financial institutions, brokers and security traders, together with its directors, officers, executives and managers; employees appointed by the President of Chile and employees or officers of (x) the State, (y) any public service, public institution, semi-public institution, autonomous entity or state-controlled company, or any such entity, a Public Entity, or (z) any enterprise, corporation or public or private entity in which the State or a Public Entity has a majority interest, has made capital contributions, or is represented or participating, provided that persons holding positions in teaching activities in any of the above entities may be directors, and (v) the bank’s employees, which shall not prevent a director from holding on a temporary basis and for a term not to exceed ninety days the position of manager. The CEO may not be elected as a director.
For purposes of the election of directors, each shareholder shall have the right to one vote per share for purposes of electing a single person, or to distribute his votes among candidates as he or she may deem convenient, and the persons obtaining the largest number of votes in the same and single process shall be awarded positions, until all positions have been filled. The elections of regular and alternate board members are carried out separately. For purposes of casting votes, the chairman and the secretary, together with any other persons that may have been previously designated by at the meeting to sign the minutes thereof, shall issue a certificate giving evidence of the oral votes of shareholders attending, following the order of the list of attendance being taken.
Each shareholder is entitled to cast his or her vote by means of a ballot signed by him or her, stating whether he or she signs for his own account or as a representative. This entitlement notwithstanding, in order to expedite the voting process, it can be ordered that the vote be taken alternatively or by oral vote or by means of ballots. At the time of polling, the chairman may instruct that the votes be read aloud, in order for those in attendance to count the number of votes issued and verify the outcome of the voting process.
Every election of directors, or any changes in the election of directors, shall be transcribed into a public deed before a notary public, published in a newspaper of Santiago and notified to the SBIF by means of the filing of a copy of the respective public deed. Likewise, the appointments of general manager, manager and deputy managers shall be communicated and transcribed into a public deed.
If a director ceases to be able to perform his or her duties, whether by reason of conflict of interest, limitation, legal incapacity, impossibility, resignation or any other legal cause, the vacancy is filled as follows: (i) the positions of regular director is filled by a member appointed by the board of directors on its first meeting after the vacancy occurs and such member appointed by the board of directors will remain in the position until the next ordinary shareholders’ meeting, where the appointment may be ratified, in which case, the replacement director will remain in his or her position until the expiration of the term of the director he or she replaced and act as full director; and (ii) while the vacancy has not been filled by the board of directors, an alternate director shall act as regular member.
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The alternate directors may temporarily replace regular directors in case of their absence or temporary inability to attend a board meeting. Alternate board members are always entitled to attend and speak at board meetings. They are entitled to vote at such meetings only when a regular member is absent and such alternate member acts as the absent member’s replacement.
During the first meeting following the ordinary shareholders’ meeting, the board of directors elects, by an absolute majority and in separate and secret votes, from among its members, a chairman, a first vice chairman and a second vice chairman. If no director obtains such majority, the election is repeated among those three directors who obtained the most votes, adding any blank votes to the person who obtained the greatest number of votes. In case of a tie, the vote is repeated and, if a tie were to occur again, there is a drawing. The chairman, the first vice president and the second vice president may be reelected indefinitely.
The board of directors meets in ordinary sessions at least once a month, held on pre-set dates and times determined by the board. Extraordinary meetings are held whenever called by the chairman, whether at his own will or upon the request of one or more directors, so long as the chairman determines in advance that the meeting is justified, except if the request is made by the absolute majority of the directors in office, in which case the meeting shall be held without such prior determination. The extraordinary meetings may only address those matters specifically included in the agenda for the extraordinary meeting, except that, if the meeting is attended by all the directors in office, they may agree otherwise by a unanimous vote. Notifications of meetings of the board of directors shall be made by certified letter sent to the address of each director registered with the bank, at least five days in advance of the date on which the ordinary or extraordinary session should be held. The five-day period shall be calculated from the date on which the letter is placed in the mail.
The quorum for the board of directors’ meeting is majority of its members in office, this is five directors. Resolutions shall be adopted by the affirmative vote of the absolute majority of the attending directors. In the event of a tie, the person acting as the chairman of the meeting shall have a casting vote.
Directors having a vested interest in a negotiation, act, contract or transaction that is not related to the bank business, either as principal or as representative of another person, shall communicate such fact to the other directors. If the respective resolutions are approved by the board, it shall be in accordance with the prevailing company’s interest and fair market conditions and such director’s interest must be disclosed at the next ordinary shareholders’ meeting by the chairman of such board meeting.
The discussions and resolutions of the board of directors shall be recorded in a special book of minutes maintained by the secretary. The relevant minutes shall be signed by the directors that attended the relevant meeting. If a director determines that the minutes for a meeting are inaccurate or incomplete, he or she is entitled to record an objection before actually signing the minutes. The minutes shall be deemed approved as from the moment it is signed by all the directors that attended such meeting and all the resolutions adopted may be carried out upon the approval. However, by unanimous consent of the directors that attended the meeting, the resolutions adopted by the board may be carried out before the approval of the minutes, provided that the agreement is recorded in a written document signed by all the relevant directors. In the event of death, refusal or incapacity for any reason of any of the directors attending to sign the minutes, such circumstance shall be recorded at the end of the minutes stating the reason for the impediment.
The directors are personally liable for all of the acts they effect in the performance of their duties. Any director who wishes to disclaim responsibility for any act or resolution of the board of directors must record his or her opposition in the minutes, and the chairman must report such opposition at the following ordinary shareholders’ meeting.
The board will represent us in and out of court and, for the performance of the bank’s business, a circumstance that will not be necessary to prove before third parties, it will be empowered with all the authorities and powers of administration that the law or the by-laws do not set as exclusive to the ordinary shareholders’ meeting, without being necessary to grant any special power of attorney, even for those acts that the law requires to do so. This provision is notwithstanding the judicial representation of the bank that is part of the general manager’s authorities. The board may delegate part of its authority to the general manager, to the managers, deputy managers or attorneys of the bank, a director, a commission of directors, and for specifically determined purposes, in other persons.
CAPITALIZATION
Under Chilean law, the shareholders of a bank, acting at an extraordinary shareholders’ meeting, have the power to authorize an increase in such company’s capital with the authorization of the SBIF. When an investor subscribes for issued shares, the shares are registered in such investor’s name, even if not paid for, and the investor is treated as a shareholder for all purposes except with regard to receipt of dividends and the return of capital; provided that the shareholders may, by amending the by-laws, also grant
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the right to receive dividends or distributions of capital. An investor becomes eligible to receive dividends and returns of capital once it has paid for the shares (if it has paid for only a portion of such shares, it is entitled to receive a corresponding pro-rata portion of the dividends declared and/or returns of capital with respect to such shares unless the company’s by-laws provide otherwise). If an investor does not pay for shares for which it has subscribed on or prior to the date agreed upon for payment, the board of directors is obligated to initiate legal action to recover outstanding amounts unless holders of two-thirds of the issued shares in an extraordinary shareholders meeting authorizes the board of directors to refrain from pursuing the collection, in which case the company’s capital will be reduced to the amount actually paid. Upon termination of the actions for collection, the board of directors shall propose to the shareholders meeting the write-off of the non-paid amount and the reduction of the capital of the company to the amount effectively paid in. Authorized shares and issued shares which have not been subscribed and paid for within the period fixed for their payment are cancelled and are no longer available for issuance by the company, unless in case of an issuance of convertible bonds or when reserved for compensation plans for employees.
Article 22 of Chilean Corporations Act states that the purchaser of shares of a company implicitly accepts its by-laws and any agreements adopted at shareholders’ meetings.
OWNERSHIP RESTRICTIONS
Under Article 12 of the Chilean Securities Market Act and the Regulations of the SBIF, shareholders of Public Companies are required to report the following to the SVS and the Chilean stock exchanges:
• | any direct or indirect acquisition or sale of shares that results in the holder’s acquiring or ceasing to own, directly or indirectly, 10% or more of a Public Company’s share capital; and |
• | any direct or indirect acquisition or sale of shares or options to buy or sell shares, in any amount, if made by a holder of 10% or more of a Public Company’s capital or if made by a director, liquidator, main officer, general manager or manager of such corporation. |
The foregoing requirements also apply to the acquisition or sale of securities or agreements which price or return depends or is conditioned (all or in a significant part) on changes or movements in the price of such shares. Such report shall be made the day following the execution of the transaction.
In addition, majority shareholders must state in any such report whether their purpose is to acquire control of the company or if they are making a financial investment. Any beneficial owner of ADSs representing 10% or more of our share capital is subject to these reporting requirements under Chilean law. The Chilean Securities Market Act also sets forth certain regulations on takeovers of corporations.
Under Article 54 of the Chilean Securities Market Act and the regulations of the SVS, persons or entities intending to acquire control, directly or indirectly, of a Public Company, regardless of the acquisition vehicle or procedure, and including acquisitions made through direct subscriptions or private transactions, are also required to inform the public of such acquisition at least ten business days before the date of perfection of the acts which allow to obtain control of the company, but in any case, as soon as negotiations regarding the change of control are formalized and/or as soon as reserved information and/or documents concerning the target are delivered to the potential acquirer through a filing with the SVS, the stock exchanges and the companies controlled by and that control the target and through a notice published in two Chilean newspapers, which notice must disclose, among other information, the person or entity purchasing or selling and the price and conditions of any negotiations.
Within the same term, a written communication to such effect must be sent to the target corporation, the controlling corporation, the corporations controlled by the target corporation, the SVS, and to the Chilean stock exchanges on which the securities are listed.
In addition to the foregoing, Article 54A of the Chilean Securities Market Act requires that within two business days of the completion of the transactions pursuant to which a person has acquired control of a Public Company, a notice shall be published in the same newspapers in which the notice referred to above was published and notices shall be sent to the same persons mentioned in the preceding paragraphs.
A beneficial owner of ADSs intending to acquire control of us is also subject to the foregoing reporting requirements.
The provisions of the aforementioned articles do not apply whenever the acquisition is being made through a tender or exchange offer.
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Title XXV of the Chilean Securities Market Act on tender offers and the regulations of the SVS provide that the following transactions shall be carried out through a tender offer:
• | an offer which allows a person to take control of a Public Company; |
• | an offer for all the outstanding shares of a Public Company upon acquiring two-thirds or more of its voting shares, in which case such controlling shareholder must offer to purchase the remaining shares from the investing shareholders in a tender offer, unless (i) the controlling shareholder has reached two-thirds of the voting shares through a tender offer for all of the shares of the company or due to any of the situations exempted, or (ii) it reaches such percentage as a result of a reduction of the capital of the company by operation of law: such offer must be made at a price not lower than the price at which appraisal rights may be exercised, that is, book value if the shares of the company are not actively traded or, if the shares of the company are actively traded, the weighted average price at which the stock has been traded during the 60 stock exchange business days between the thirtieth and the ninetieth stock exchange business days immediately preceding the acquisition; and |
• | an offer for a controlling percentage of the shares of a listed operating company if such person intends to take control of the company (whether listed or not) controlling such operating company, to the extent that the operating company represents 75% or more of the consolidated net worth of the holding company. |
Nevertheless, the following exceptions are applicable to all the cases described above (i) the shares are being sold by a controlling shareholder of such company at a price in cash which is not substantially higher than the market price and the shares of such company are actively traded on a stock exchange, or (ii) those shares are acquired (a) through a capital increase, (b) as a consequence of a merger, (c) by inheritance, or (d) through a forced sale.
Article 200 of the Chilean Securities Market Act prohibits any shareholder that has taken control of a Public Company to acquire, within the period of 12 months from the date of the transaction that permitted such shareholder to take control of the Public Company, a number of shares equal to or higher than 3% of the outstanding issued shares of the target without making a tender offer at a price per share not lower than the price paid at the time of the change of control transaction. However, if the acquisition is made on a stock exchange and on a pro rata basis, the controlling shareholder may purchase a higher percentage of shares, if so permitted by the regulations of the stock exchange.
Title XV of the Chilean Securities Market Act sets forth the basis to determine what constitutes control of a business group and a related party while Title XXV establishes a special procedure for acquiring control of a Public Company through a tender offer. The Chilean Securities Market Act defines control as the power of a person, or group of persons acting pursuant to a joint action agreement, to direct the majority of the votes in the shareholders meetings of the corporation, or to elect the majority of members of its board of directors, or to influence the management of the corporation significantly. Significant influence is deemed to exist in respect of the person or group of persons acting together pursuant to a joint action agreement holding, directly or indirectly, at least 25% of the voting share capital, unless:
• | another person or group of persons acting pursuant to a joint action agreement, directly or indirectly, control a stake equal to or higher than the percentage controlled by such person or group; |
• | the person or group does not control, directly or indirectly, more than 40% of the voting share capital and the percentage controlled is lower than the sum of the shares held by other shareholders holding more than 5% of the voting share capital; and |
• | in cases where the SVS has ruled otherwise, based on the distribution or atomization of the overall shareholding. |
According to the Chilean Securities Market Act, a joint action agreement is an agreement among two or more parties which, directly or indirectly, own shares in a corporation at the same time and whereby they agree to participate with the same interest in the management of the corporation or in taking control of the same. The law presumes that such an agreement exists between:
• | a principal and its agents; |
• | spouses and relatives up to certain level of kindred; |
• | entities within the same business group; and |
• | an entity and its controller or any of its members. |
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Likewise, the SVS may determine that a joint action agreement exists between two or more entities considering, among others, the number of companies in which they simultaneously participate and the frequency with which they vote identically in the election of directors, appointment of managers and other resolutions passed at shareholders’ meetings.
According to Article 96 of the Chilean Securities Market Act, a business group is a group of entities with such ties in their ownership, management or credit liabilities that it may be assumed that the economic and financial action of such members is directed by, or subordinated to, the joint interests of the group, or that there are common credit risks in the credits granted to, or securities issued by, them. According to the Chilean Securities Market Act, the following entities are part of the same business group:
• | a company and its controlling person; |
• | all the companies with a common controlling person and the common controlling person; and |
• | all the entities that the SVS declare to be part of the business group due to one or more of the following reasons: |
• | a substantial part of the assets of the company are involved in the business group, whether as investments in securities, equity rights, loans or guaranties; |
• | the company has a significant level of indebtedness and that the business group has a material participation as a lender or guarantor; |
• | when the controller is a group of entities, that the company is a member of a controlling person of the entities mentioned in the first two bullets above and there are grounds to include it in the business group based on the definitions above; and |
• | the company is controlled by one or more member of the controlling group of any of the entities of the business group, when such controller is composed of more than one person and there are grounds to include the company in the business group based on the definition above. |
Article 36 of the Chilean General Banking Act states that as a matter of public policy, no person or company may acquire, directly or indirectly, shares that alone or jointly with the shares previously owned by it, represent more than 10% of the shares of a bank without the prior authorization of the SBIF, which may not be unreasonably withheld. The prohibition also applies to beneficial owners of ADSs. In the absence of such authorization, any person or group of persons acting in concert would not be permitted to exercise voting rights with respect to the shares or ADSs acquired. In determining whether or not to issue such an authorization, the SBIF considers a number of factors enumerated in the Chilean General Banking Act, including the financial stability of the purchasing party.
Article 35bis of the Chilean General Banking Act establishes that prior authorization of the SBIF is required for:
• | the merger of two or more banks; |
• | the acquisition of all or a substantial portion (more than one third) of a bank’s assets and liabilities by another bank; |
• | the control by the same person, or controlling group, of two or more banks; or |
• | a substantial increase in the share ownership by a controlling shareholder of a bank (understood as either acquiring a majority or two thirds of the bank’s shares). |
Such prior authorization is required solely when the acquiring bank or the resulting group of banks would own a significant market share in loans (colocaciones), defined by the SBIF to be more than 15% of all loans in the Chilean banking system. The intended purchase, merger or expansion may be denied by the SBIF pursuant to a report from the Chilean Central Bank’s Counsel. Alternatively, a purchase, merger or expansion, when the acquiring bank or resulting group would have a market share in loans defined by the SBIF to be more than 20% of all loans in the Chilean banking system, may be conditioned on one or more of the following:
• | that the bank or banks maintain an effective net equity higher than 8% and up to 14% of their risk weighted assets; |
• | that the technical reserve established in Article 65 of the Chilean General Banking Act be applicable when deposits exceed one and a half times the resulting bank’s effective net equity (which is the sum of (x) paid-in capital and reserves, plus (y) subordinated bonds up to 50% of letter (x) above under certain terms, plus (z) certain effective risk voluntary reserves up to 1.25% of its risk weighted assets); or |
• | that the margin for interbank loans be diminished to 20% of resulting bank’s effective net equity. |
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If the acquiring bank or resulting group would have a market share in loans defined by the SBIF to be more than 15% but less than 20%, the authorization will be conditioned on the bank or banks maintaining an effective net equity not lower than 10% of their risk-weighted assets for the time set forth by the SBIF, which may not be less than one year. The calculation of risk-weighted assets is based on a five-category risk classification system applied to a bank’s assets that is based on the Basel Committee recommendations.
According to the Chilean General Banking Act a bank may not grant loans to related parties on more favorable terms than those generally offered to non-related parties. Article 84 No. 2 of the Chilean General Banking Act and the Regulations of the SBIF create the presumption, among other cases, that natural persons who are holders of shares and who beneficially own more than 1% of the shares (or 5% in the case of bank’s shares actively traded) are related to the bank and imposes certain restrictions on the amounts and terms of loans made by banks to related parties. This presumption would also apply to beneficial owners of ADSs representing more than 1% of the shares, and accordingly the limitations of Article 84 No. 2 would be applicable to such beneficial owners. Finally, according to the Regulations of the SBIF, Chilean banks that issue ADSs are required to inform the SBIF if any person, directly or indirectly, acquires ADSs representing 5% or more of the total amount of shares of capital stock issued by such bank.
Article 16bis of the Chilean General Banking Act provides that the individuals or legal entities which, individually or with other people, directly control a bank and who individually own more than 10% of its shares shall send to the SBIF reliable information on their financial situation in the form and within the time set forth in Chapter 1-3 of the regulations of the SBIF (Recopilación Actualizada de Normas). Also, controlling shareholders must submit information regarding their financial situation pursuant to Chapter 1-17 of said regulations.
PREEMPTIVE RIGHTS AND INCREASES OF SHARE CAPITAL
The Chilean Corporations Act provides that whenever a Chilean company issues new shares for consideration, it must offer to its existing shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentages in the company. Pursuant to this requirement, preemptive rights in connection with any future issuance of shares will be offered by us to the depositary as the registered owner of the shares underlying the ADSs. However, the depositary will not be able to make such preemptive rights available to holders of ADSs unless a registration statement under the Securities Act is effective with respect to the underlying shares or an exemption from the registration requirements thereunder is available.
We intend to evaluate, at the time of any preemptive rights offering, the practicality under Chilean law and Central Bank of Chile regulations in effect at the time of making such rights available to our ADS holders, as well as the costs and potential liabilities associated with registration of such rights and the related common shares under the Securities Act, and the indirect benefits to us of thereby enabling the exercise by all or certain holders of ADSs of their preemptive rights and any other factors we consider appropriate at the time, and then to make a decision as to whether to file such registration statement. We cannot assure you that any registration statement would be filed. If we do not file a registration statement and no exemption from the registration requirements under the Securities Act is available, the depositary will attempt to sell such holders’ preemptive rights and distribute the proceeds thereof, after deduction of its expenses and fees, if a premium can be recognized over the cost of such sale. In the event that the depositary is not able, or determines that it is not feasible, to sell such rights at a premium over the cost of any such sale, all or certain holders of ADSs may receive no value for such rights. The inability of all or certain holders of ADSs to exercise preemptive rights in respect of common shares underlying such ADSs could result in such holders not maintaining their percentage ownership of the common shares following such preemptive rights offering unless such holder made additional market purchases of ADSs or common shares.
Under Chilean law, preemptive rights are exercisable or freely transferable by shareholders during a period that cannot be less than 30 days following the grant of such rights. During such period (except for shares as to which preemptive rights have been waived), Chilean Public Companies are not permitted to offer any newly issued shares for sale to any third party. For an additional 30-day period thereafter, a Chilean company is not permitted to offer any unsubscribed shares for sale to third parties on terms which are more favorable than those offered to its shareholders. Thereafter, unsubscribed shares may be offered through any Chilean stock exchange without any indication of price. Unsubscribed shares that are not sold on a Chilean stock exchange can be sold to third parties only on terms no more favorable for the purchaser than those offered to shareholders.
SHAREHOLDERS’ MEETINGS AND VOTING RIGHTS
An ordinary annual meeting of shareholders is held within the first four months of each year, generally in March and must be called by the board of directors. The ordinary annual meeting of shareholders is the corporate body that approves the annual financial statements, approves all dividends in accordance with the dividend policy proposed by the board of directors, elects the
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members of our board of directors and approves any other matter which does not require an extraordinary shareholders’ meeting. The last ordinary annual meeting of our shareholders was held on March 11, 2016.
Extraordinary meetings may be called by our board of directors when deemed appropriate, and ordinary or extraordinary meetings must be called by our board of directors when requested by shareholders representing at least 10% of the issued voting shares or by the SBIF. Notice to convene the ordinary annual meeting or an extraordinary meeting is given by means of written notice which must be published at least three different days in a newspaper of our corporate domicile (currently Santiago) designated by the shareholders at their annual meeting and if a shareholder fails to make such designation, the notice must be published in the Official Gazette pursuant to legal regulations. The first notice must be published not less than 15 days nor more than 20 days in advance of the scheduled meeting. Notice must also be mailed 15 days in advance to each shareholder and to the SBIF, SVS and the Santiago, Valparaiso and Electronic Stock Exchanges. Currently, we publish our official notices in the Diario El Pulso.
The quorum for a shareholders’ meeting is established by the presence, in person or by proxy, of shareholders representing at least an absolute majority of the issued common shares; if a quorum is not present at the first meeting, the meeting can be reconvened (in accordance with the procedures described in the previous paragraph) and, upon the meeting being reconvened, shareholders present at the reconvened meeting are deemed to constitute a quorum regardless of the percentage of the shares represented. The shareholders’ meetings pass resolutions by the affirmative vote of an absolute majority of those voting shares present or represented at the meeting.
Only shareholders registered with us on the fifth day prior to the date of a meeting are entitled to attend and vote their shares. A shareholder may appoint another individual (who need not be a shareholder) as his proxy to attend and vote on his behalf. Every shareholder entitled to attend and vote at a shareholders’ meeting has one vote for every share subscribed. Under our by-laws, directors are elected by cumulative voting. Each shareholder has one vote per share and may cast all of his or her votes in favor of one nominee or may apportion is or her votes among any number of nominees.
The following matters can only be agreed upon at an extraordinary shareholders’ meeting:
• | our dissolution; |
• | a merger, transformation, division or other change in our corporate form or the amendment of our by-laws; |
• | the issuance of bonds or debentures convertible into shares; |
• | the conveyance of 50% or more of our assets or the submission of, or changes to any business plan that contemplates the sale of more than 50% of the assets of the company; |
• | the conveyance of 50% or more of the assets of a subsidiary, if represent at least 20% of our total assets, and any transfer of shares of a subsidiary that implies the Company loses control of such subsidiary; |
• | granting of a security interest or a personal guarantee in each case to secure the obligations of third parties, unless (i) to secure or guarantee the obligations of a subsidiary, in which case the approval of the board of directors will suffice (although this restriction is not applicable to banks: (a) granting sureties, (b) becoming jointly and/or jointly and severally liable with clients or (c) issuing bank guarantees within their course of business) and (ii) in those cases exempted by the Chilean General Banking Act; and |
• | other matters that require shareholder approval according to Chilean law or our by-laws. |
The matters referred to in the first five items listed above may only be approved at a meeting held before a notary public, who shall certify that the minutes are a true record of the events and resolutions of the meeting.
The by-laws establish that resolutions are passed at shareholders’ meetings by the affirmative vote of an absolute majority of those shares present or represented at the meeting. However, under the Chilean Corporations Act, the vote of a two-thirds majority of the outstanding voting shares is required to approve any of the following actions:
• | a change in corporate form, merger or spin-off; |
• | an amendment to our term of existence or early dissolution; |
• | a change in corporate domicile; |
• | a decrease of corporate capital; |
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• | the approval of capital contributions in kind and a valuation of the assets contributed; |
• | a modification of the authority reserved for the shareholders’ meetings or limitations on the powers of our board of directors; |
• | a reduction in the number of members of our board of directors; |
• | the conveyance of 50% or more of the corporate assets, regardless of whether it includes liabilities, or the submission of or change to any business plan that contemplates the conveyance of 50% or more of the corporate assets; |
• | the conveyance of 50% or more of the assets of a subsidiary, if those assets represent at least 20% of our total assets, and any transfer of shares of a subsidiary that implies the Company loses control of such subsidiary; |
• | the manner in which the corporation’s profits shall be distributed; |
• | the creation of security interests to secure third-party obligations in excess of 50% of the corporate assets, unless granted to a subsidiary or when exempted by the Chilean General Banking Act (although this restriction is not applicable to banks: (i) granting sureties, (ii) becoming jointly and/or jointly and severally liable with clients or (iii) issuing bank guarantees within their course of business); |
• | the acquisition of our own shares, when, and or the terms and conditions permitted by law; |
• | the cure of formal defects in the incorporation of the corporation or an amendment to its by-laws related to any of the matters referred to in the preceding bullets; |
• | to establish the right of the controller to force other shareholders to sell their shares in case the controller has surpassed 95% of the shares of the company as a result of a tender offer for 100% of its shares under certain circumstances; |
• | the approval of material related-party transactions according to Article 147 of the Chilean Corporations Act; or |
• | all other matters provided for in our by-laws. |
An amendment of our by-laws aimed at the creation, modification, renewal or suppression of preferences, must be approved with the favorable vote of two-thirds majority of the shares of the affected series.
In general, Chilean law does not require a Chilean Public Company to provide the level and type of information that U.S. securities laws require a reporting company to provide to its shareholders in connection with a solicitation of proxies. However, shareholders are entitled to examine the books of the company within the 15-day period before the ordinary annual meeting. Under Chilean law, a notice of a shareholders’ meeting listing matters to be addressed at the meeting must be mailed not fewer than 15 days prior to the date of such meeting, and, in cases of an ordinary annual meeting, shareholders must have available an annual report of the company’s activities which includes audited financial statements. In addition to these requirements, we regularly provide, and management currently intends to continue to provide, together with the notice of shareholders’ meeting, a proposal for the final annual dividend.
The Chilean Corporations Act provides that whenever shareholders representing 10% or more of the issued voting shares so request, a Chilean company’s annual report must include, in addition to the materials provided by the board of directors to shareholders, such shareholders’ comments and proposals in relation to the company’s affairs. Similarly, the Chilean Corporations Act provides that whenever the board of directors of a Public Company convenes an ordinary meeting of the shareholders and solicits proxies for that meeting, or distributes information supporting its decisions, or other similar material, it is obligated to include as an annex to its said materials any pertinent comments and proposals that may have been made by shareholders owning 10% or more of the company’s voting shares who have requested that such comments and proposals be so included.
DIVIDEND, LIQUIDATION AND APPRAISAL RIGHTS
Under the Chilean Corporations Act, Chilean companies are generally required to distribute at least 30% of their earnings as dividends, unless there is unanimous consent to the contrary. In the event of any loss of capital or of the legal reserve, no dividends can be distributed so long as such loss is not recovered. Also, no dividends of a bank can be distributed if doing so would result in the bank exceeding certain capital ratios.
Dividends that are declared but not paid by the date set for payment at the time of declaration are adjusted from the date set for payment to the date such dividends are actually paid. The right to receive dividends lapses if it is not claimed within five years from the date the dividend is payable.
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We may declare a dividend in cash or in shares. When a share dividend is declared above the legal minimum (which minimum must be paid in cash), our shareholders must be given the option to elect to receive cash. Our ADS holders may, in the absence of an effective registration statement under the Securities Act or an available exemption from the registration requirement thereunder, effectively be required to receive a dividend in cash.
In the event of our liquidation, the holders of fully paid shares would participate equally and ratably, in proportion to the number of paid-in shares held by them, in the assets available after payment of all creditors.
In accordance with the Chilean General Banking Act, our shareholders have no appraisal rights.
APPROVAL OF FINANCIAL STATEMENTS
Our board of directors is required to submit our audited financial statements to the shareholders annually for their approval at the ordinary shareholders meeting. The approval or rejection of such financial statements is entirely within our shareholders’ discretion. If our shareholders reject our financial statements, our board of directors must submit new financial statements not later than 60 days from the date of such rejection. If our shareholders reject our new financial statements, our entire board of directors is deemed removed from office and a new board of directors is elected at the same meeting. Directors who individually approved such rejected financial statements are disqualified for re-election for the ensuing period.
REGISTRATIONS AND TRANSFERS
Our common shares are registered by an administration agent named DCV Registros S.A. This entity is responsible for our shareholders’ registry. In the case of jointly owned common shares, an attorney-in-fact must be appointed to represent the joint owners in dealings with us.
C. | MATERIAL CONTRACTS |
The following is a brief summary of our material contracts currently in force. A copy of each of these contracts has been included as an exhibit hereto. See “Item 19. Exhibits”.
Transaction Agreement
This section describes the material terms of (i) the Transaction Agreement executed by CorpBanca, CorpGroup Parent, Itaú Unibanco and Itaú Chile on January 29, 2014 and amended on June 2, 2015; and (ii) the text of the Shareholders’ Agreement contemplated by the Transaction Agreement to be executed by Interhold, Gasa, Compañía Inmobiliaria y de Inversiones Saga SpA, Corp Group Holding Inversiones Ltda., Itaú Unibanco and an entity through which Itaú Unibanco may hold their interest in Itaú-CorpBanca, which has not yet been created, on the closing date of the Itaú-CorpBanca Merger.
The rights and obligations of the parties to the Transaction Agreement and the Shareholders’ Agreement are governed by the express terms and conditions of such agreement and not by this summary or any other information contained in this Form 20-F. The description in this section and elsewhere in this Form 20-F is qualified in its entirety by reference to the complete text of the Transaction Agreement and the form of Shareholders’ Agreement, copies of which are attached as Exhibit 10.C.1 and are incorporated by reference herein. This summary does not purport to be complete and may not contain all of the information about the Transaction Agreement or the Shareholders’ Agreement. CorpBanca encourages you to read the Transaction Agreement and the Shareholders’ Agreement carefully and in their entirety.
Additionally, we note that the Shareholders’ Agreement has not been executed, and is not, as of the date hereof, in full force or effect. The Shareholders’ Agreement will be executed by the parties thereto concurrently with the closing of the Itaú-CorpBanca Merger, subject to any changes and modifications, if any, as may be agreed to by the parties to the Shareholders’ Agreement
Capitalized terms used but not defined herein shall have the same meaning as in the Transaction Agreement or the Shareholders’ Agreement, as applicable.
Explanatory Note Regarding the Transaction Agreement
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The following summary is included to provide you with information regarding the terms of the Transaction Agreement. This section is not intended to provide you with any factual information about CorpBanca. Such information can be found elsewhere in this Form 20-F and in the public filings that CorpBanca makes with the SEC.
The representations, warranties and covenants made in the Transaction Agreement by CorpBanca and Itaú Chile were qualified and subject to important limitations agreed to by CorpBanca and Itaú Chile in connection with negotiating the terms of the Transaction Agreement. In particular, in your review of the representations and warranties contained in the Transaction Agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purpose of establishing the circumstances in which a party to the Transaction Agreement may have the right not to consummate the Itaú-CorpBanca Merger if the representations and warranties of the other party proved to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the Transaction Agreement, rather than establishing matters as facts. The representations and warranties are also subject to a contractual standard of materiality and in some cases were qualified by the matters contained in the disclosure schedules that CorpBanca and Itaú Chile delivered in connection with the Transaction Agreement. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Transaction Agreement, which subsequent information may or may not be fully reflected in public disclosures by Itaú Unibanco or CorpBanca. The representations and warranties and other provisions in the Transaction Agreement should not be read alone but instead together with the information provided elsewhere in this Form 20-F and in the documents incorporated by reference hereto. We may refer to January 29, 2014, the date that the parties entered into the Transaction Agreement, as the signing date.
Overview
To help you better understand the Itaú-CorpBanca Merger and the other transactions contemplated by the Transaction Agreement the charts below illustrate, in simplified form, the organizational structure of CorpBanca and Itaú Chile in Chile and Colombia.
The Itaú-CorpBanca Merger
The following transactions will occur prior to the Itaú-CorpBanca Merger:
• | The divestiture by CorpGroup Parent of a number of shares it holds, directly or indirectly, in CorpBanca which, collectively, amount to 1.53% of the capital stock of CorpBanca. Such shares shall be divested to third parties other than CorpGroup Parent and Itaú Unibanco, and are intended to be transferred to minority shareholders of CorpGroup Parent. During 2014, Corp Group Banking S.A. disposed of 5,208,000.000 of its shares of CorpBanca, as a result, it is still required to dispose of 344,218 CorpBanca shares prior to the closing of the Itaú-CorpBanca Merger in order to meet the divestiture commitment. |
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• | The capital increase in Itaú Chile for US$652 million through the issuance of shares to be fully subscribed and paid for by Itaú Unibanco and/or a company owned, directly or indirectly, by Itaú Unibanco. During the year ended December 31, 2014, Itaú Unibanco completed a capital increase of Itaú Chile in the aggregate amount of Ch$58,873 million (approximately US$82.88 million as of December 31, 2015) by purchasing fully subscribed and paid shares of Itaú Chile. As a result of the capital increase effected in the year ended December 31, 2014, Itaú Unibanco is still required to effect a US$552 million capital increase at Itaú Chile prior to the closing of the Itaú-CorpBanca Merger, to meet this commitment. |
Thereafter, Itaú Chile will merge with and into CorpBanca, with CorpBanca as surviving entity under the name of “Itaú-CorpBanca”. The Itaú-CorpBanca Merger is expected to result in the issuance of 172,048,565,857 shares of CorpBanca (representing 33.58% of the shares of Itaú-CorpBanca) to Itaú Unibanco. CorpGroup Parent shall retain 33.13% of the capital stock of Itaú-CorpBanca and the remaining 33.29% of the capital stock will be held by public shareholders.
After the Itaú-CorpBanca Merger, the following transactions will be implemented:
• | CorpBanca and four wholly-owned subsidiaries of CorpBanca shall purchase all of the shares of Itaú Colombia capital stock from affiliates of Itaú Parent, hereinafter referred to as the Colombian Acquisition or, alternatively, if the minority shareholders of CorpBanca Colombia accept the offer to sell their shares in CorpBanca Colombia to Itaú-CorpBanca; Itaú Colombia shall merge with and into CorpBanca Colombia, hereinafter referred to as the Colombian Merger. In the case of the Colombian Merger, CorpBanca Colombia shall be the surviving corporation and shall be governed by the laws of Colombia. |
• | Itaú-CorpBanca, as the holder of 66.28% of the shares of CorpBanca Colombia, shall offer to acquire from certain minority shareholders holding 33.72% of the capital stock of CorpBanca Colombia for an aggregate purchase price of US$894,000,000. CorpGroup Parent, who is among such group of minority shareholders, has committed to sell the 12.38% stake of capital stock it indirectly holds in CorpBanca Colombia. |
Prior to the completion of these transactions but after the Colombian Acquisition or the Colombian Merger, the contemplated structure in Colombia will be as follows:
The foregoing transactions are collectively referred to as the Transactions.
CorpBanca and Itaú Chile Representations and Warranties
CorpBanca and Itaú Chile made reciprocal customary representations and warranties regarding their businesses and subsidiaries that are subject, in some cases, to specified exceptions and qualifications and the matters contained in the disclosure schedules delivered by CorpBanca and Itaú Chile pursuant to the Transaction Agreement. The representations and warranties do not survive the closing of the Itaú-CorpBanca Merger. These representations and warranties relate to among other things:
• | due organization, existence, good standing and authority to carry on its respective business and such of its respective subsidiaries; |
• | its corporate power and authority to enter into, and complete the Transactions under, the Transaction Agreement and the Shareholders Agreement; provided that certain shareholder approvals are obtained, and the enforceability of such agreements against it; |
• | the absence of violations of, or conflicts with, its governing documents, applicable law and certain agreements as a result of entering into and performing under the Transaction Agreement and the Shareholders Agreement; |
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• | its capitalization; |
• | ownership and the absence of encumbrances on ownership of the equity interests of its subsidiaries; |
• | its audited consolidated financial statements as of, and for the years ending on, December 31, 2011 and 2012 and its unaudited consolidated financial statements as of, and for the nine-month period ending on September 30, 2013; |
• | the absence of certain undisclosed liabilities; |
• | the absence of certain changes or events since September 30, 2013; |
• | the conduct of business in accordance with the ordinary course since September 30, 2013; |
• | tax matters; |
• | the absence of facts or circumstances reasonably likely to materially impede or delay receipt of any regulatory consents required pursuant to the Transaction Agreement; |
• | compliance with permits, applicable laws and regulations and governmental orders; |
• | certain employment and labor matters; |
• | compensation and benefit plans; |
• | certain material contracts and the absence of any default under any of such material contracts; |
• | the absence of legal proceedings, investigations and governmental orders against it or its subsidiaries; |
• | timely filing of all reports required to be filed with any governmental authority since January 1, 2011 through the signing date; |
• | investment securities and commodities; |
• | intellectual property; |
• | extensions of credit; |
• | certain loan matters; |
• | properties; |
• | the absence of any undisclosed broker’s or finder’s fees; |
• | in the case of CorpBanca, the receipt of opinions as to the fairness, from a financial point of view, of the Chilean Exchange Ratio (as defined in the Transaction Agreement); |
• | insurance; and |
• | related party transactions. |
Many of CorpBanca’s and Itaú Chile’s representations and warranties are qualified by, among other things, exceptions relating to the absence of a Material Adverse Effect which for purposes of the Transaction Agreement shall mean any effect, circumstance, occurrence or change which (i) is materially adverse to the business, financial condition, operations or results of operations of (x) CorpBanca, CorpBanca Colombia and their respective subsidiaries, taken as a whole, in the case of each of the Corp Group Parties or (y) Itaú Chile, Itaú Colombia and their respective subsidiaries, taken as a whole, in the case of each of the Itaú Parties; or (ii) materially impairs the ability of such Party to consummate the Transactions on a timely basis; provided that in determining whether a Material Adverse Effect has occurred with respect to such Party under clause (i), there shall be excluded (with respect to each of clause (A), (B), (C) and (D) below, only to the extent that the adverse effect of a change on it is not materially disproportionate compared to the effect on other companies of a similar size operating in the banking industry in the jurisdictions in which the Party operates) any effect, circumstance, occurrence or change to the extent attributable to or resulting from (A) any changes in laws, regulations or interpretations of laws or regulations generally affecting the financial services industries in which the Parties operate, (B) any change in IFRS or regulatory accounting requirements generally affecting the financial services industries in which the Parties operate, (C) events, conditions or trends in economic, business or financial conditions generally affecting the financial services industries in which the Parties operate, including changes in prevailing interest rates, currency exchange rates and trading volumes in Chile, Colombia or foreign securities markets, (D) changes in national or international political or social conditions including the engagement by Chile, Brazil, Colombia or Panama in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon or within Chile, Brazil, Colombia or Panama, or any of their respective territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of
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Chile, Brazil, Colombia or Panama, (E) the effects of the actions expressly required by the Transaction Agreement and (F) the announcement of the Transaction Agreement and the Transactions; and provided further that in no event shall a change in the trading prices of a Party’s common stock by itself (but for the avoidance of doubt not the underlying causes thereof to the extent such causes are not otherwise excluded pursuant to (A) – (E) above) constitute a Material Adverse Effect.
Controlling Shareholder Representations and Warranties
CorpGroup Parent and Itaú Unibanco have also made certain customary representations and warranties pursuant to the Transaction Agreement regarding:
• | its corporate power and authority to enter into, and complete the Transactions under the Transaction Agreement, and the enforceability of such agreement against them; |
• | required consents, declarations or filings with governmental authorities; |
• | the absence of violations of, or conflicts with, its organizational documents, any applicable law and certain agreements as a result of their entering into the Transaction Agreement; and |
• | ownership and absence of encumbrances on their direct or indirect ownership of equity interests of CorpBanca and CorpBanca Colombia or Itaú Chile and Itaú Colombia, as applicable. |
Conduct of Business
Under the Transaction Agreement, CorpBanca and Itaú Chile have agreed that, except as expressly contemplated under the Transaction Agreement or consented to in writing by the other party, both of them shall, and shall cause their respective subsidiaries to, (a) conduct its business in the ordinary course consistent with past practice, (b) use reasonable best efforts to maintain and preserve intact its business organization, assets, employees and relationships with customers, suppliers, employees and business associates and (c) take no action that would reasonably be expected to adversely affect or delay the ability of any party to obtain any regulatory consents required for consummation of the Transactions, to perform their covenants and agreements under the Transaction Agreement or to consummate the Transactions on a timely basis.
Subject to certain exceptions set forth in the Transaction Agreement and pending completion of the Itaú-CorpBanca Merger, neither CorpBanca, CorpBanca Colombia nor Itaú Chile and Itaú Colombia shall, or shall permit its subsidiaries to, take any of the following actions without the other parties written consent:
• | amend its organizational documents or enter into a plan of consolidation, merger, share exchange, reorganization or similar business combination; |
• | (i) adjust, split, combine or reclassify any capital stock or authorize the issuance of any securities in respect of, in lieu of or in substitution for, shares of its capital stock, (ii) set a record date or payment date for, make, declare or pay any dividend or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible into or exercisable or exchangeable for any shares of its capital stock, (iii) grant or issue any equity, (iv) issue, sell or otherwise permit to become outstanding any additional shares of capital stock, (v) make any change in any instrument or contract governing the terms of any of its securities (other than for the purposes of effecting the Transactions) or (v) enter into any contract with respect to the sale or voting of its capital stock; |
• | make any material investment in or acquisition of any other entity; |
• | (i) enter into any new line of business which is not within the banking business, (ii) change its lending, investment, underwriting, securitization, servicing, risk and asset liability management and other banking and operating or (iii) make application for the opening, relocation or closing of any, or open, relocate or close any, branch office, loan production office or other significant office or operations facility; |
• | sell, transfer, mortgage, encumber or otherwise dispose of any part of its business or any of its properties or assets; |
• | incur any indebtedness for borrowed money other than indebtedness of it or any of its wholly-owned subsidiaries to it or any of its wholly-owned subsidiaries; assume, guarantee, endorse or otherwise as an accommodation become responsible for third parties obligations; or make any loan or advance to any third party; |
• | restructure or make any material change to its investment securities portfolio, its derivatives portfolio or its interest rate exposure; |
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• | terminate, amend, waive or knowingly fail to use reasonable best efforts to enforce, any material provision of any material contract; |
• | (i) increase by more than 20% the aggregate compensation or benefits of any of its current or former officers, directors, employees with annual base compensation in excess of US$350,000 or consultants, (ii) become a party to, adopt, terminate, materially amend or commit itself to any compensation and benefit plan or contract with annual base compensation in excess of US$350,000, (iii) pay or award, or commit to pay or award, any bonuses or incentive compensation or (iv) grant or accelerate the vesting of any equity-based awards; |
• | settle any litigation, except for certain litigation involving solely money damages in an amount not greater than US$1,000,000 individually; |
• | implement or adopt any change in its financial accounting principles, practices or methods; |
• | file or amend any material tax return; settle or compromise any material tax liability in an amount greater than US$2,000,000; make, change or revoke any material tax election; agree to any extension or waiver of the statute of limitations with respect to assessment or determination of material taxes, surrender any right to claim a material tax refund; or change any material method of tax accounting; |
• | knowingly take, or knowingly omit to take, any action that is reasonably likely to result in any of the conditions to the Transactions not being satisfied on a timely basis; |
• | adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such a liquidation or dissolution, restructuring, recapitalization or reorganization; or |
• | agree to take, or adopt any resolutions of its board of directors or similar governing body in support of, any of the actions described above. |
Payment of Dividends
Pursuant to the terms of the Transaction Agreement, in an extraordinary shareholders meeting held on June 26, 2015, our shareholders agreed to distribute a special dividend for an aggregate amount of Ch$239,860,000,000 (US$337,678,792.66 as of December 31, 2015), from the distributable earnings for the year ended December 31, 2014. This dividend, of Ch$0.704728148 per share, was paid on July 1, 2015.
Approval by CorpBanca and Itaú Chile Shareholders
In an extraordinary shareholders’ meeting held on June 26, 2015, our shareholders approved the Itaú-CorpBanca Merger and the other Transactions contemplated in the Transaction Agreement. Pursuant to the agreements adopted, the Itaú-CorpBanca Merger shall take place not later than May 2, 2016. The shareholders of Itaú Chile gave their consent to the Itaú-CorpBanca Merger and to the other Transactions contemplated in the Transaction Agreement in an extraordinary shareholders’ meeting held on June 30, 2015.
Applications and Consents
On September 4, 2015 the SBIF issued Resolution N° 409 approving the Itaú-CorpBanca Merger in the following terms:
1. The Itaú-CorpBanca Merger shall take place by the incorporation of the latter to the former, which, as a consequence of the merger, shall acquire all the assets, rights, authorizations, permits, obligations and liabilities of the absorbed bank, with Corpbanca continuing as the surviving entity.
2. The merger will not be effective before January 1, 2016 or after May 2, 2016, and the exact date shall be determined by the board of directors of both banks.
3. As a consequence of the merger, Itaú Unibanco will become the controller of the merged bank, pursuant to articles 97 and 99 of the Chilean Securities Market Act.
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4. The amendment to CorpBanca’s by-laws, which will be renamed Itaú Corpbanca, was approved. Such amendment shall be valid as from the date in which the Itaú-CorpBanca Merger is completed.
With the resolution of the SBIF referred above, all the regulatory authorizations required in Chile, Colombia, Panama and Brazil have been obtained in order to consummate the merger in the abovementioned terms.
Acquisition Proposals
The parties have agreed that they will not, and will cause their respective subsidiaries and subsidiaries’ officers, directors, representatives and affiliates not to, directly or indirectly, (i) initiate, solicit, encourage or knowingly facilitate inquiries or proposals with respect to, (ii) engage or participate in any negotiations concerning, (iii) provide any nonpublic information or data to, or have or participate in any discussions with, any third party relating to or (iv) approve or recommend, or propose to approve or recommend, or execute or enter into, any letter of intent, agreement in principle, merger agreement, asset purchase or share exchange agreement, option agreement or other similar agreement related to any alternative transaction to the Transactions contemplated under the Transaction Agreement.
Employee Matters
Following completion of the Itaú-CorpBanca Merger, CorpBanca at its election shall either (i) offer generally to officers and employees of Itaú Chile and its subsidiaries that have or will become employees of CorpBanca or its subsidiaries, or the Itaú Chile Continuing Employees, employee benefits under compensation and benefit plans on terms and conditions similar to those maintained by CorpBanca and its subsidiaries and/or (ii) maintain for the benefit of Itaú Chile Continuing Employees, the compensation and benefit plans maintained by Itaú Chile immediately before the Itaú-CorpBanca Merger. For purposes of eligibility, participation, vesting and benefit accrual (except not for purposes of benefit accrual to the extent that such credit would result in a duplication of benefits) under CorpBanca’s compensation and benefit plans, service with or credited by Itaú Chile or any of its subsidiaries or any of their predecessors shall be treated as service with CorpBanca.
Indemnification of Officers and Directors
From and after completion of the Itaú-CorpBanca Merger, in the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, in which any person who is now, or has been, or who becomes prior to completion of the Itaú-CorpBanca Merger, a director or officer of CorpBanca or Itaú Chile or any of their subsidiaries, or the Indemnified Parties, is, or is threatened to be, made a party on the basis of the Transaction Agreement or the Transactions, CorpBanca has agreed to indemnify, defend and hold harmless, to the fullest extent permitted by applicable law, each such Indemnified Party against any liability, judgments, fines and amounts paid in settlement in connection with any such threatened or actual claim, action, suit, proceeding or investigation.
Immediately prior to the completion of the Itaú-CorpBanca Merger, CorpBanca will cause the directors or officers of CorpBanca or Itaú Chile, to be covered by CorpBanca’s or Itaú Chile’s existing directors’ and officers’ liability insurance policy with respect to acts or omissions occurring prior to the Itaú-CorpBanca Merger which were committed by such officers and directors in their capacity as such. To this end, CorpBanca may substitute policies of at least the same coverage and amounts containing terms and conditions which are not less advantageous than such policy but in no event shall CorpBanca be required to expend more than 250% per year of coverage of the amount expended by CorpBanca or Itaú Chile per year of coverage as of the date of the Transaction Agreement.
Corporate Governance
CorpGroup Parent and Itaú Unibanco agreed to engage an internationally recognized management firm to evaluate their respective existing management and recommend, on the basis of international, merit-based standards, professional track record and relevant industry and jurisdiction-specific experience, a list of the most qualified candidates to serve as the initial senior management (including country heads) of Itaú-CorpBanca and its subsidiaries. After receipt of such non-binding recommendation Itaú Unibanco and CorpGroup Parent had to jointly determine in good faith the individuals who are most qualified to serve as senior management. On November 23, 2015, and as agreed in the Transaction Agreement, Itaú Unibanco and CorpGroup Parent announced the senior management team for the bank upon the consummation of the Itaú-CorpBanca Merger, which will be led by Milton Maluhy Filho as Chief Executive Officer.
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CorpBanca Colombia IPO
Itaú Unibanco and CorpGroup Parent have agreed to cause CorpBanca to cause CorpBanca Colombia to consummate a primary offering of shares as promptly as practicable on or after the consummation of the Itaú-CorpBanca Merger.
Charitable Contributions
Itaú Unibanco and CorpGroup Parent shall cause Itaú-CorpBanca and its subsidiaries to make, and Itaú-CorpBanca shall make, certain charitable donations.
Insurance Matters
Following completion of the Itaú-CorpBanca Merger, Itaú Unibanco shall cause Itaú Chile Compañía de Seguros de Vida S.A. to provide life insurance-related products to all the clients of Itaú-CorpBanca that are permitted to obtain an offer from an insurance broker to acquire life insurance and to pay CorpBanca Corredores de Seguros, S.A. and Itaú Chile Corredora de Seguros Limitada brokerage and/or services fees in an aggregate annual amount equal to 47.7%, or the Applicable Premium Percentage of the aggregate revenues generated by them from the sales of such life-insurance related products for the relevant year, in consideration and exchange for the offer of such products to the clients of Itaú-CorpBanca.
The Applicable Premium Percentage will be revised on a yearly basis as provided by the Transaction Agreement.
If Itaú Unibanco desires not to continue to cause Itaú Chile Compañía de Seguros de Vida S.A. to offer the life-insurance related products to the insurance clients of Itaú-CorpBanca, Itaú Unibanco shall use its reasonable best efforts to, enter into an agreement with a third party and one or more CorpBanca Corredores de Seguros, S.A. and/or Itaú Chile Corredora de Seguros Limitada, whereby such third party will provide life-insurance related products to the insurance clients of Itaú-CorpBanca and pay to CorpBanca Corredores de Seguros, S.A. and/or Itaú Chile Corredora de Seguros Limitada, as applicable, the related insurance brokerage fees on substantially the same terms described above. Until an agreement with such third party has been executed, Itaú Unibanco will continue to pay Itaú-CorpBanca or CorpBanca Corredores de Seguros, S.A. and/or Itaú Chile Corredora de Seguros Limitada an amount equal to the average of the Insurance Brokerage Fees paid by Itaú Chile Compañía de Seguros de Vida S.A. in the 12-month period prior to the date on which Itaú Chile Compañía de Seguros de Vida S.A. ceases to provide life-insurance related products to Itaú-CorpBanca or CorpBanca Corredores de Seguros, S.A. and/or Itaú Chile Corredora de Seguros Limitada.
Certain Other Businesses
CorpGroup Parent and Itaú Unibanco agreed to discuss whether CorpBanca will continue to hold its ownership interest in SMU Corp. If after such period of time, CorpGroup Parent and Itaú Unibanco have not reached an agreement, Itaú Unibanco will decide in its sole discretion.
Pursuant to such determination, and if necessary, CorpGroup Parent will, and will cause CorpBanca to use reasonable best efforts to divest, transfer, liquidate or otherwise dispose all of CorpBanca’s and its subsidiaries’ investment in SMU Corp. as promptly as reasonably practicable and on commercially reasonable terms.
Pursuant to the Transaction Agreement, Itaú Unibanco decided that CorpBanca shall divest all of its investment in SMU Corp. For these purposes, on February 23, 2016, CorpBanca’s board of directors agreed to sell the bank’s 51% stake in SMU Corp, in the following terms and conditions: (a)Purchaser: SMU S.A. and/or any other company appointed by the latter; (b)Sale price: Ch$454.4 million; (c)Term: Any time after the SBIF’s authorization and once Itaú Unibanco has consented to the terms and conditions of the transaction. As of the date of this report, Itaú Unibanco’s consent has already been requested.
Itaú Unibanco has agreed to cause its applicable subsidiary to enforce its rights under the Stock Purchase Agreement by and among MCC Inversiones Globales Ltda, Unibol S.A., Inversiones Río Bamba Ltda., Sociedad Promotora de Inversiones y Rentas Balaguer LTDA., BICSA Holdings Ltd., Itaú Unibanco Holding S.A., and certain beneficial owners set forth therein, dated as of August 1, 2011, to purchase the remaining outstanding capital stock of Munita, Cruzat y Claro S.A. Corredores de Bolsa, or the MCC, by August 31, 2016 to the extent it has not otherwise acquired such capital stock by that date. Promptly following the later of (i) the completion of the Itaú-CorpBanca Merger and (ii) the acquisition of 100% of the outstanding capital stock of MCC, Itaú Unibanco shall cause its applicable subsidiary to transfer 100% of the outstanding capital stock of MCC to Itaú-CorpBanca for fair value and other customary terms and conditions.
Conditions Precedent to Obligations to Consummate
Mutual Conditions to consummation of the Itaú-CorpBanca Merger
Each party’s respective obligations to consummate theItaú-CorpBanca Merger are subject to the following conditions:
• | approval of the Itaú-CorpBanca Merger by two-thirds of the CorpBanca shareholders; |
• | receipt of specified regulatory and third-party consents; and |
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• | the absence of any governmental order preventing or suspending the consummation of the Itaú-CorpBanca Merger or requiring any change to the terms or structure of the Transactions set forth in the Transaction Agreement. |
As of the date of this annual report, all the conditions above have been met.
Conditions to Obligations of CorpGroup Parent and CorpBanca
The obligations of CorpGroup Parent and CorpBanca to consummate the Itaú-CorpBanca Merger are subject to the following conditions:
• | the representations and warranties of Itaú Unibanco and Itaú Chile set forth in the Transaction Agreement shall be true and correct, subject to the materiality standards set forth in the Transaction Agreement, as of the date of the Transaction Agreement and as of the date of consummation of the Itaú-CorpBanca Merger; |
• | each of Itaú Unibanco and Itaú Chile shall have duly performed and complied with the agreements and covenants required to be performed and complied with by it pursuant to the Transaction Agreement; |
• | Itaú Unibanco shall have duly executed the Shareholders Agreement and certain pledge agreements; and |
• | no circumstance, occurrence or change that has had a Material Adverse Effect on Itaú Unibanco and Itaú Chile shall have occurred. |
Conditions to Obligations of Itaú Unibanco and Itaú Chile
The obligations of Itaú Unibanco and Itaú Chile to consummate the Itaú-CorpBanca Merger are subject to the following conditions:
• | the representations and warranties of CorpGroup Parent and CorpBanca set forth in the Transaction Agreement shall be true and, subject to the materiality standards set forth in the Transaction Agreement, correct as of the date of the Transaction Agreement and as of the date of consummation of the Itaú-CorpBanca Merger; |
• | each of CorpGroup Parent and CorpBanca shall have duly performed and complied with the agreements and covenants required to be performed and complied with by it pursuant to the Transaction Agreement; |
• | CorpGroup Parent shall have duly executed the Shareholders Agreement, caused to be executed certain pledge agreements, and, directly or indirectly, own at least 84,154,814,190 of the outstanding shares of CorpBanca; and |
• | no circumstance, occurrence or change that has had a Material Adverse Effect on CorpGroup Parent and CorpBanca shall have occurred. |
Termination and Effect of Termination
The Transaction Agreement may be terminated and the Transactions abandoned at any time prior to the completion of the Itaú-CorpBanca Merger, by any of the causes set forth below:
• | Mutual consent of both parties; |
• | By either party, upon written notice to the other party: |
• | in case of breach of any representation, warranty, covenant or agreement contained in the Transaction Agreement, if such breach, individually or in the aggregate, would result in the failure to comply with any of the conditions that are necessary for closing the Transactions and only if such breach has not or cannot be cured within 45 days from its notification to the breaching party; |
• | in case any regulatory consents that are necessary for the closing of the Transactions is denied by final non-appealable action by the corresponding governmental authority or in case any governmental authority of competent jurisdiction issues an order or takes any other action permanently restraining, enjoining or otherwise prohibiting the Transactions, and such order or other action has become final and non-appealable; or |
• | in case the Itaú-CorpBanca Merger is not consummated on or before May 2, 2016. |
Except as described above and subject to certain other exceptions, if the Transaction Agreement is terminated pursuant to any of the circumstances described above it will be considered without any effect and neither the parties, nor their affiliates, directors,
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or employees will have any obligation or liability with regard to the Transactions; provided that such termination shall not relieve any party from any liability for any willful and material breach of the Transaction Agreement.
Shareholders’ Agreement
The following summary is included to provide you with information regarding the terms of the form of Shareholders’ Agreement. This section is not intended to provide you with any factual information about CorpBanca. Such information can be found elsewhere in the public filings that CorpBanca makes with the SEC. The Shareholders’ Agreement remains subject to change to reflect any modifications mutually agreed by the parties thereto prior to its execution. As noted, the Shareholders’ Agreement will be executed concurrently with the closing of the Itaú-CorpBanca Merger.
Corporate Governance
Composition and size of the Board of Directors of Itaú-CorpBanca and its subsidiaries.
Itaú Unibanco and CorpGroup Parent have agreed that of the number of directors of each of the board of (i) Itaú-CorpBanca and CorpBanca Colombia that they are entitled or able to appoint (including by causing Itaú-CorpBanca to appoint) at any time (in addition to any independent directors required by applicable law) and (ii) the respective subsidiaries of Itaú-CorpBanca and CorpBanca Colombia that they are entitled or able to appoint at any time (in addition to any independent directors required by applicable law), each of Itaú Unibanco and CorpGroup Parent shall be entitled to designate a number in proportion to its respective direct and indirect percentage ownership in Itaú-CorpBanca, rounded to the nearest whole number; provided that Itaú Unibanco shall designate at least a majority of such directors of each board appointed by them and that at least one of such directors of each board is appointed by CorpGroup Parent.
The board of Itaú-CorpBanca shall be comprised of eleven directors and two alternate directors (one selected by Itaú Unibanco and one selected by CorpGroup Parent). The board of CorpBanca Colombia shall be comprised of nine directors and the number of directors of the board of all other subsidiaries shall be specified by the board of Itaú-CorpBanca.
Itaú Unibanco and CorpGroup Parent have agreed to cause, (i) a designee of CorpGroup Parent to be the chairman of the board of Itaú-CorpBanca as long as CorpGroup Parent holds at least 13% of the capital stock of Itaú-CorpBanca, (ii) a designee of CorpGroup Parent to be the chairman of the board of CorpBanca Colombia as long as CorpGroup Parent holds at least 13% of the capital stock of Itaú-CorpBanca and (iii) a designee of Itaú Unibanco to be the vice-chairman of Itaú-CorpBanca and CorpBanca Colombia. The chairman of the board of Itaú-CorpBanca shall not have a casting vote.
Itaú Unibanco and CorpGroup Parent shall cause the directors of the relevant board appointed by them to vote, to the extent permitted by applicable law, together as a single block on all matters in accordance with the recommendation of Itaú Unibanco (except in the cases subject to shareholder consent rights). To this end, in the event that (i) a director of Itaú-CorpBanca, CorpBanca Colombia or any other subsidiary of Itaú-CorpBanca designated by CorpGroup Parent or Itaú Unibanco does not vote with the other directors as a single block and (ii) as a consequence, the relevant board is unable to adopt a decision on such matter in accordance with the recommendation of Itaú Unibanco (except that (ii) will not be required if such director is a member of the Saieh Group, or fails to comply on more than two occasions and more than two matters in any calendar year), Itaú Unibanco or CorpGroup Parent (whomever designated such director), shall take all required action to have such director removed from the relevant board within 60 calendar days. Failure to take such action shall be considered to constitute a Material Breach by the shareholder who designated such director.
A majority of the directors will constitute quorum for all meetings of the relevant boards. However, if less than all of the directors appointed by Itaú Unibanco to such board are not present, a quorum will not exist without the consent of the majority of the directors appointed by Itaú Unibanco to such board. The vote of the majority of the directors attending a meeting will be required to pass a resolution of the relevant boards (except in the cases subject to shareholder consent rights).
Board Committees
Itaú Unibanco and CorpGroup Parent have agreed to cause Itaú-CorpBanca and CorpBanca Colombia to each create the following committees of the board of directors: Directors Committee, Audit Committee, Management and Talent Committee, Asset and Liability Management Committee and Credit Committee.
The Credit Committee shall (i) have binding power to establish the limits and procedures of the credit policy of Itaú-CorpBanca and its subsidiaries and the power to establish approval exceptions for financial decisions exceeding certain thresholds (to be defined by the Credit Committee) and (ii) shall impose a binding framework with upper limits on credit exposures for which
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approval of Itaú Unibanco will be required. In connection with the latter, Itaú Unibanco shall respond to any such requests for approval within seven business days (the absence of explicit denial being considered as an approval).
The Credit Committee shall be comprised of five members (of which three shall be appointed by Itaú Unibanco and two by CorpGroup Parent), all of whom shall be local executives or directors of the relevant board, and be headed by a local executive officer or director recommended by the chief executive officer of Itaú-CorpBanca or its relevant subsidiary, as applicable.
Political donations
The original form of Shareholders’ Agreement set forth that Itaú Unibanco and CorpGroup Parent shall cause Itaú-CorpBanca to make certain political donations consistent with past practice. This provision has been deleted in its entirety in the amendment of the Transaction Agreement, dated June 2, 2015.
Officers
The Board of Itaú-CorpBanca shall appoint from time to time the CEO, the country heads and other senior management of Itaú-CorpBanca and CorpBanca Colombia. Mr. Milton Maluhy Filho will be the initial CEO of Itaú-CorpBanca following completion of the Itaú-CorpBanca Merger. Itaú Unibanco and CorpGroup Parent shall cause Itaú-CorpBanca to cause its subsidiaries to appoint designees of the board of Itaú-CorpBanca from time to time to the designated positions at such subsidiary. A Management and Talent Committee will determine an objective process to recommend designees to these positions based on internal promotion, international, merit-based standards and professional track record, and relevant industry and jurisdiction-specific experience, and will provide a list of selected candidates to the board of Itaú-CorpBanca who will be ultimately responsible for their final appointment.
CorpGroup Parent may request the removal of the CEO of Itaú-CorpBanca and of CorpBanca Colombia if during three consecutive years (excluding the year of the closing of the Itaú-CorpBanca Merger) the ROE (return on equity) of the respective bank is at least 1% lower than the average ROE of the three largest privately-owned banks (measured by assets, and excluding Itaú-CorpBanca and CorpBanca Colombia) of Chile or Colombia, as the case may be, during such three-year period.
Shareholder Consent Rights
Subject to certain exceptions set forth in the Shareholders’ Agreement, Itaú Unibanco and CorpGroup Parent have agreed that Itaú-CorpBanca shall not take, and shall not permit any subsidiary to take, any of the following Transactions without the consent of (i) CorpGroup Parent, so long as CorpGroup Parent owns at least 13% of the capital stock of Itaú-CorpBanca, and (ii) Itaú Unibanco:
• | merge, reorganize or consolidate Itaú-CorpBanca or any of its subsidiaries or enter into a joint venture or similar transaction in excess of materiality thresholds; |
• | issue or sell any equity securities of Itaú-CorpBanca or any of its subsidiaries, other than solely to the extent required to comply with immediate legal and regulatory requirements or to meet the Optimal Regulatory Capital; |
• | repurchase or otherwise retire or acquire any shares or other equity securities of Itaú-CorpBanca or any of its subsidiaries; |
• | list or delist any shares or other equity securities of Itaú-CorpBanca or any of its subsidiaries; |
• | enter into, modify or terminate a contract or transaction with a related party; |
• | any acquisition of the stock, equity interests, assets or business of any third-party or any disposition of assets of Itaú-CorpBanca or any subsidiary or the capital stock or other equity interests of any subsidiary, in each case in excess of materiality thresholds; |
• | effect any liquidation, dissolutions, reorganizations through a voluntary bankruptcy or similar transactions; |
• | amend or repeal any provision of the organizational documents of Itaú-CorpBanca or any of its subsidiaries; |
• | change the size or powers of the board of directors or any committee thereof; |
• | enter into any new line of business, that is not a Banking Business; |
• | create or dissolve one or more subsidiaries in excess of materiality thresholds; |
• | enter into agreements between Itaú-CorpBanca or any of its subsidiaries, on the one hand, and any Governmental Authority, on the other hand; |
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• | make any change in the external auditors of Itaú-CorpBanca or any of its subsidiaries; |
• | make any change to the dividend policy; |
• | enter into any agreement that limits or restricts the ability of Itaú-CorpBanca or any of its subsidiaries to own, manage, operate, control, participate in, perform services for, or otherwise carry on or engage in any business or in any geographic area; |
• | enter into any contract to do any of the foregoing actions; and |
• | any other matter not set forth above that requires the approval of a supermajority of the shareholders of Itaú-CorpBanca under Article 67 of the Chilean Corporations Act. |
Holdcos
Itaú Unibanco and CorpGroup Parent shall each maintain a direct or indirect wholly-owned subsidiary, or Company One and Company Two, respectively, and, collectively, the Companies which shall hold their respective shares of Itaú-CorpBanca. Itaú Unibanco will form Company One prior to the Itaú-CorpBanca Merger. For CorpGroup Parent, Company Two is Corp Group Banking S.A. and Inversiones Saga Limitada.
Transfer of shares of Itaú-CorpBanca
Itaú Unibanco and CorpGroup Parent have agreed not to directly or indirectly purchase or otherwise acquire shares of Itaú-CorpBanca or any beneficial interest therein to the extent such acquisition would require Itaú Unibanco or CorpGroup Parent to launch a tender offer to acquire all shares of Itaú-CorpBanca. Any transfer of shares of Itaú-CorpBanca made by Itaú Unibanco and CorpGroup Parent shall be implemented through the Santiago Stock Exchange with a five-day prior notice to the other party.
So long as CorpGroup Parent and Itaú Unibanco collectively hold an aggregate direct or indirect participation in the voting shares of Itaú-CorpBanca of at least 50% plus one share, CorpGroup Parent shall keep (and may not transfer) the direct or indirect ownership of a number of shares of Itaú-CorpBanca representing the lesser of: (i) 16.42% of the shares of Itaú-CorpBanca at the time of execution of the Shareholders’ Agreement (i.e. at the closing of the Transactions) or (ii) the minimum percentage of such shares that allows Itaú Unibanco and CorpGroup Parent to hold such aggregate direct or indirect participation in the voting shares of Itaú-CorpBanca. Such number of shares will be pledged by CorpGroup Parent in favor of Itaú Unibanco.
Right of first offer, tag-along and drag-along rights
Right of first offer
Subject to the terms set forth on the Shareholders’ Agreement, Itaú Unibanco and CorpGroup Parent shall have a right of first offer with regard to potential transfers of shares of the Companies. If either Itaú Unibanco or CorpGroup Parent intend to transfer shares of the Companies, such party shall notify in writing to the other party of such intention, stating the number of shares, the price and other terms and conditions of the proposed transfer. The recipient party shall have the right to purchase all such shares for a price and under terms and conditions equal to those notified by the selling shareholder. If the recipient party elects not to purchase all the shares intended to be transferred, the selling shareholder shall be permitted for a period of six (6) months from the date the notice to purchase the shares was due to be received by the selling party, to transfer to a third party not less than the number of shares, at a price not less than and on terms and conditions not materially less favorable to the selling shareholder than those stated in the notice of such proposed transfer.
Tag-along
CorpGroup Parent will have the right to tag-along on the sale of shares of Company One or of shares of Itaú-CorpBanca owned by Company One by Itaú Unibanco and jointly sell to a third party with Itaú Unibanco in such sale. Pursuant to such right, in the event of a proposed transfer of shares of Company One or shares of Itaú-CorpBanca by Itaú Unibanco, Itaú Unibanco shall deliver to CorpGroup Parent prompt written notice stating, to the extent applicable, (i) the name of the proposed transferee, (ii) the number of shares proposed to be transferred, (iii) the proposed purchase price and (iv) any other material terms and conditions of the proposed transfer.
The proposed transferee will not be obligated to purchase a number of shares exceeding that set forth in the notification of the proposed transfer. In the event such transferee elects to purchase less than all of the total shares sought to be transferred by CorpGroup Parent and Itaú Unibanco, CorpGroup Parent shall be entitled to transfer to the proposed transferee a number of shares
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equal to (i) the total number of shares originally proposed to be transferred by Company One and Itaú Unibanco multiplied by (ii) a fraction, (A) the numerator of which is the total number of shares of Itaú-CorpBanca held by Company Two, and (B) the denominator of which is the total number of shares of Itaú-CorpBanca held by the Companies.
Drag-along
In the event of a proposed sale of all of the issued and outstanding shares of Company One or shares of Itaú-CorpBanca held by Itaú Unibanco to a third party and if at such time CorpGroup Parent owns less than 10% of the capital stock of Itaú-CorpBanca, Itaú Unibanco may notify CorpGroup Parent in writing of such proposed sale stating (i) the name of the proposed transferee, (ii) the proposed purchase price (which shall be equal to at least the higher of fair value and market price), (iii) the obligation of the transferee to purchase all of CorpGroup Parent shares of Itaú-CorpBanca, and (iv) any other material terms and conditions of the transfer.
Under these circumstances, CorpGroup Parent shall be obligated to sell all of its shares of Itaú-CorpBanca, free and clear of liens at the same price and on other terms no less favorable than Itaú Unibanco.
Put of Company Shares
If and to the extent that CorpGroup Parent is prohibited from selling its shares of Itaú-CorpBanca, CorpGroup Parent shall have the unconditional right, from time to time on one or more occasions, to sell to Itaú Unibanco, and Itaú Unibanco shall have the unconditional obligation to acquire from CorpGroup Parent, any number of shares of Company Two at a price per share equal to the market price as of the date on which CorpGroup Parent notifies Itaú Unibanco of CorpGroup Parent’s exercise of its unconditional right to sell if immediately following such sale CorpGroup Parent and Itaú Unibanco would continue to collectively hold an aggregate direct or indirect participation in the voting shares of Itaú-CorpBanca of at least 50% plus one share.
At the time of payment of the purchase price of the shares of Company Two, Itaú Unibanco shall pay CorpGroup Parent, as an indemnity for not being able to benefit from the exemption on capital gains set forth in Article 107 of the Chilean Income Tax Law to which it would otherwise have been entitled to if it would have sold the underlying shares of Itaú-CorpBanca in the Santiago Stock Exchange, a cash amount equal to (i) 50% of any taxes of CorpGroup Parent or its affiliates arising out of or in connection with such transfer that would not have arisen if it had sold the underlying shares of Itaú-CorpBanca in the Santiago Stock Exchange and benefit from the abovementioned exemption on capital gains, and (ii) any taxes of CorpGroup Parent or its affiliates arising out of the application of such indemnity payment.
Change of Control of CorpGroup Parent
Under the Shareholders’ Agreement, CorpGroup Parent shall notify Itaú Unibanco prior to consummating a Change of Control of CorpGroup Parent and provide Itaú Unibanco a right of first offer to purchase a number shares of Company Two equal to the number required by Itaú Unibanco to hold an aggregate direct or indirect participation in the voting shares of Itaú-CorpBanca of at least 50% plus one share at a price equal to the higher of the market price or fair value.
If Itaú Unibanco accepts the price proposed by CorpGroup Parent, CorpGroup Parent shall be obligated to cause Company Two to sell such number of Itaú-CorpBanca’s shares to Itaú Unibanco at such price.
In the event that Itaú Unibanco does not accept the price proposed by CorpGroup Parent and as a result, an agreement is not reached, then CorpGroup Parent shall be permitted to proceed with such Change of Control and Itaú Unibanco shall be entitled to unilaterally terminate the Shareholders’ Agreement during a period of 60 days after receipt of notice from CorpGroup notifying of the consummation of such Change of Control.
For purposes of the Shareholders’ Agreement, Change of Control shall mean, with respect to CorpGroup Parent, the Saieh Group ceasing to own, directly and indirectly, in a single transaction or in a series of related transactions, at least 50% plus one additional share of the issued voting stock of CorpGroup Parent.
Right to Exchange Shares for Shares of Itaú Unibanco
In the event Itaú Unibanco issues or sells certain equity securities of Itaú Unibanco to any third-party as consideration for or in connection with a transaction or series of transactions involving the direct or indirect investment by Itaú Unibanco in such equity securities or assets of any other third party, Itaú Unibanco shall inform CorpGroup Parent of such issuance or sale and shall offer to
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CorpGroup Parent the right to exchange for the same type of equity securities of Itaú Unibanco. CorpGroup Parent shall be entitled to exchange any or all of its shares of Company Two (or shares of Itaú-CorpBanca) for such equity securities of Itaú Unibanco at an exchange ratio that reflects the relative fair values of the relevant equity securities of Itaú Unibanco and the shares of Company Two or Itaú-CorpBanca, as the case may be.
Notwithstanding the foregoing, if the issuance of any such equity securities to CorpGroup Parent would result in Itaú Unibanco Participações S.A. ceasing to hold more than 50% of Itaú Unibanco’s voting equity, then CorpGroup Parent shall have the right to exchange no more than an amount of equity securities of Itaú Unibanco the issuance of which would not result in Itaú Unibanco Participações S.A. ceasing to hold more than 50% of Itaú Unibanco’s voting equity.
Controlling Shareholder
Notwithstanding the other provisions of the Shareholders’ Agreement, Itaú Unibanco shall have no obligation to purchase shares of Itaú-CorpBanca or Company Two, to the extent such purchase would, in and of itself, require Itaú Unibanco to make a tender offer for all of the outstanding shares of Itaú-CorpBanca.
If Itaú Unibanco ceases to be the Controlling Shareholder (as defined in Article 97 of the Chilean Securities Market Act) of Itaú-CorpBanca, prior to consummating any obligation pursuant to a provision of the Shareholders’ Agreement to purchase shares of Itaú-CorpBanca or Company Two from CorpGroup Parent which would result in Itaú Unibanco being the Controlling Shareholder of Itaú-CorpBanca, Itaú Unibanco shall commence a tender offer to purchase a number of shares of Itaú-CorpBanca which would result in Itaú Unibanco being the Controlling Shareholder of Itaú-CorpBanca for the purchase price provided in such applicable provision of the Shareholders’ Agreement and shall in any event satisfy its obligation (whether through the tender offer or a subsequent purchase thereafter) within 90 calendar days.
CorpGroup Parent Liquidity Put and Call Options
During a period of eighteen months from the closing date of the Itaú-CorpBanca Merger, CorpGroup Parent shall have the right to (i) sell to Itaú Unibanco, a number of shares of Company Two representing in the aggregate up to 6.6% of all of the outstanding shares of Itaú-CorpBanca at a price equal to the market price as of the notice date of such put right; or (ii) cause Company Two to sell to Itaú Unibanco, through one of the mechanisms available on the Santiago Stock Exchange that only allows block sales, a number of shares of Itaú-CorpBanca representing up to 6.6% of all of the outstanding shares of Itaú-CorpBanca (in which event Itaú Unibanco will place an order to purchase such shares in the Santiago Stock Exchange at a price not less than such market price). If, as a result of the competitive bidding procedures of the Santiago Stock Exchange, the shares of Itaú-CorpBanca sold by Company Two are unexpectedly sold over the Santiago Stock Exchange to a third party other than Itaú Unibanco or any of its affiliates at a higher price, then CorpGroup Parent shall no longer have the right to repurchase such shares of Itaú-CorpBanca from Itaú Unibanco or one of its wholly-owned subsidiaries.
If the put right described above has been exercised, at any time and from time to time during the five-year period thereafter, CorpGroup Parent shall have the unconditional right either to (i) acquire from Itaú Unibanco a number of shares of Company Two up to the number of shares sold pursuant to the put right described above at the same price per share as was paid by Itaú Unibanco pursuant to such put right plus an annual interest rate at the ChileanÍndice de Cámara Promedio plus a spread that is not to exceed the lowest spread then being offered by Itaú-CorpBanca to non-governmental borrowers in Chile; or (ii) cause Itaú Unibanco to place an order on the Santiago Stock Exchange to sell to CorpGroup Parent and/or Company Two a number of shares of Itaú-CorpBanca of up to the number of shares of Itaú-CorpBanca sold to Itaú Unibanco pursuant to the put right described above at the same price per share as was paid by Itaú Unibanco pursuant to such put right plus an annual interest rate at the ChileanÍndice de Cámara Promedio plus a spread that is not to exceed the lowest spread then being offered by Itaú-CorpBanca to non-governmental borrowers in Chile. If, as a result of the competitive bidding procedures of the Santiago Stock Exchange, the shares of Itaú-CorpBanca sold by Itaú Unibanco or one of its wholly-owned subsidiaries are sold over the Santiago Stock Exchange to a third party at a higher price, then CorpGroup Parent and/or Company Two shall not have the right to repurchase such shares of Itaú-CorpBanca.
Call Option in Event of Material Breach
If either Itaú Unibanco or CorpGroup Parent commits a Material Breach of the Shareholders’ Agreement, or the Breaching Shareholder, the non-Breaching Shareholder shall have the right to give written notice to the Breaching Shareholder describing such Material Breach and demanding that the Breaching Shareholder cure the Material Breach by fully performing its obligation.
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If the Breaching Shareholder has not cured its Material Breach within 50 calendar days after receipt of any such notice, the non-Breaching Shareholder shall have the unconditional right to (i) require the Breaching Shareholder to sell all of its shares to the non-Breaching Shareholder at a price per share equal to 80% of the market price as of the date of the notice exercising a call option and (ii) if the non-Breaching Shareholder is CorpGroup Parent, to sell to Itaú Unibanco all of its shares at a price per share equal to 120% of the market price as of the date of the notice exercising a put option.
Notwithstanding the foregoing, if the non-Breaching Shareholder is Itaú Unibanco, Itaú Unibanco may elect to purchase the maximum number of shares which would allow Itaú Unibanco to avoid making a public offer for all of the outstanding shares of Itaú-CorpBanca.
Non-Competition; Non-Solicit
Non-Competition
Neither Itaú Unibanco nor CorpGroup Parent shall, directly or indirectly, own, invest, control, acquire, operate, manage, participate or engage in any Banking Business in Chile, Colombia and the Republic of Panama other than (i) through its investment in the Itaú-CorpBanca and its subsidiaries and (ii) through anysociedad de apoyo al giro in which Itaú-CorpBanca has an ownership interest.
For purposes of the Shareholders’ Agreement, Banking Business shall mean providing (i) consumer financial products and/or services, including secured and/or unsecured consumer lending, consumer mortgage products, consumer card products, retail banking products and/or services, and consumer leasing; and/or (ii) deposit-taking services including both consumer and commercial deposits, and payroll services; and/or (iii) credit and/or debit card transaction processing services (which transaction processing services, for the avoidance of doubt, include merchant acquiring); and/or (iv) commercial financial products and/or services, including bilateral and syndicated loans, trustee and depositary services; and/or (v) investment banking services; and/or (vi) financial advisory services related to the services described in clauses (i) through (v) above; and/or (vii) all businesses related or reasonably incidental thereto.
Notwithstanding the foregoing, the Shareholders’ Agreement permits the following activities: (i) providing consumer financing and other financial products or services offered from time to time by supermarkets and other nonbank retailers in the applicable jurisdiction; (ii) financing or providing asset management products and services; (iii) receiving from or providing to any third party a personal guaranty or a loan or engaging in other financial arrangements in connection with a transaction or transactions that does not otherwise constitute a Banking Business in Chile, Colombia or the Republic of Panama; (iv) making investments by or in employee retirement, pension or similar plans or funds or in companies that manage such plans or funds; (v) acquiring, owning, controlling or managing, in any third party that has any Banking Business in Chile, Colombia and the Republic of Panama pursuant to purchase, merger, consolidation or otherwise so long as (A) the Banking Business in Chile, Colombia or the Republic of Panama conducted by such third party or business constitutes not more than 10% of the revenues of such acquired third party or business and not more than 5% of the revenues of Itaú-CorpBanca, in each case for the immediately preceding 12 months, and (B) after consummation of such acquisition, Itaú-CorpBanca is offered the right to acquire such Banking Business for cash at the fair value thereof; (vi) acquiring, owning, controlling, managing, investing in any third party or business which would otherwise be prohibited under the non-compete obligation, provided that action is undertaken to sell the competing portion of such business; (vii) acquiring, owning, controlling, managing, investing in any third party that has any Banking Business in Chile, Colombia and the Republic of Panama or engaging in a new business opportunity in the Banking Business in Chile, Colombia, Peru and Central America, if such transaction or opportunity was presented by Itaú-CorpBanca to Itaú Unibanco, if Corp Group Parent is the investing party, or by Itaú-CorpBanca to Corp Group Parent, if Itaú Unibanco is the investing party, and Corp Group Parent or Itaú Unibanco, as the case maybe, withheld their consent to Itaú-CorpBanca consummating such transaction; (viii) providing products or services pursuant to any unsolicited request from any client that operates in Chile, Colombia and the Republic of Panama which cannot be reasonably provided by Itaú-CorpBanca or its subsidiaries or (ix) acquiring, owning, managing or investing in the MCC Entities (as defined in the Shareholders’ Agreement) or prohibit any activities currently conducted by the MCC Entities.
Non-Solicit
Neither Itaú Unibanco nor CorpGroup Parent shall, directly or indirectly, solicit for hire, hire or otherwise induce or attempt to induce any officer of Itaú-CorpBanca or any of its subsidiaries to leave the employment of Itaú-CorpBanca or any of its subsidiaries, or in any way interfere with the relationship between Itaú-CorpBanca or any of its subsidiaries, on the one hand, and any officer thereof on the other hand.
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Dividend Policy; Dividend Put and Call Options.
For a period of eight fiscal years starting from the closing of the Transaction, or the Dividend Period, Itaú Unibanco and CorpGroup Parent have agreed to cause Itaú-CorpBanca to adopt an annual business plan and budget expressly providing for the management of Itaú-CorpBanca and its subsidiaries in a manner that has as its primary target, in the following order of priority: (i) first, complying with the Optimal Regulatory Capital for such fiscal year, (ii) second, the payment by Itaú-CorpBanca of cash dividends aggregating at least US$370 million for each year during the Dividend Period and (iii) third, achieving a growth rate of the total assets of Itaú-CorpBanca and CorpBanca Colombia above the Minimum Growth Rate and other reasonable objectives as determined by the board of Itaú-CorpBanca. Itaú Unibanco and CorpGroup Parent have agreed to cause the board of Itaú-CorpBanca to cause management of Itaú-CorpBanca and its subsidiaries to conduct their respective businesses in accordance with such annual business plan and budget.
If the amount of the dividends paid in cash by Itaú-CorpBanca is less than US$370 million for any fiscal year during the Dividend Period, Itaú Unibanco and CorpGroup have agreed to cause Itaú-CorpBanca and its subsidiaries to maximize the use of Tier 2 capital, to the fullest extent permitted by applicable Law to increase its regulatory capital to the extent required to maintain Optimal Regulatory Capital requirements for such fiscal year.
Optimal Regulatory Capital means at any date, with respect to either Itaú-CorpBanca or CorpBanca Colombia, as the case may be, (a) the higher of (i) 120% of the minimum regulatory Capital Ratio required by applicable law of the applicable country and (ii) the average regulatory Capital Ratio of the three largest privately-owned banks (excluding the Itaú-CorpBanca and/or CorpBanca Colombia) (measured in terms of assets) in Chile or Colombia, as the case may be, in each case as of the last day of the most recent fiscal year multiplied by (b) the risk-weighted assets (including any risk-weighted assets of subsidiaries that are consolidated for purposes of calculating minimum regulatory Capital Ratio in such country) of the Itaú-CorpBanca or CorpBanca Colombia, as the case may be, as of the date one year from the last day of the most recent fiscal year assuming that such risk-weighted assets grow during such year at a rate equal to the Minimum Growth Rate.
Minimum Growth Rate for any year shall mean the minimum growth rate of the total assets of Itaú-CorpBanca and CorpBanca Colombia (determined in accordance with IFRS) for the applicable country (e.g., Chile or Colombia) determined in good faith by the board of directors of Itaú-CorpBanca (but in no event exceeding Forecasted System Growth in such country for such year) reasonably necessary to maintain the market share of Itaú-CorpBanca and CorpBanca Colombia (each measured in terms of assets in their respective countries) as of the last day of the immediately preceding year.
Itaú-CorpBanca shall pay an annual dividend equal to 100% of the annual cash distributable earnings, net of any reserves required to maintain Optimal Regulatory Capital, before March 31 of each Fiscal Year. If the portion of such dividend to be received by CorpGroup Parent is less than US$120 million in any fiscal year of the Dividend Period, CorpGroup Parent shall have the right, from and after the date that such dividend is declared to (i) sell to Itaú Unibanco, at a price per share equal to the market price as of the date of the notification to exercise this put right, a number of shares of Company Two equal to (A) US$120 million minus the portion of the annual dividend declared by Itaú-CorpBanca to be received by CorpGroup Parent, divided by (B) the market price of the shares of Itaú-CorpBanca as of the date of the notification to exercise this put right; or (ii) cause Company Two to sell to Itaú Unibanco, a number of shares of Itaú-CorpBanca equal to (A) US$120 million minus the annual dividend declared by Itaú-CorpBanca and to be received by CorpGroup Parent, divided by (B) the market price of such shares as of the date of the notification to exercise this put right. If, as a result of the competitive bidding procedures of the Santiago Stock Exchange, the shares of Itaú-CorpBanca sold by Company Two are unexpectedly sold over the Santiago Stock Exchange to a third party at a higher price, then CorpGroup Parent shall no longer have the right to repurchase such shares of Itaú-CorpBanca from Itaú Unibanco or one of its wholly-owned subsidiaries.
If the put right described above has been exercised, during the five-year period thereafter, CorpGroup Parent shall have the right either to (i) acquire from Itaú Unibanco, a number of shares of Company Two up to the number of shares sold pursuant to such put right at the same price per share as was paid by Itaú Unibanco plus an annual interest rate at the ChileanÍndice de Cámara Promedio plus a spread that is not to exceed the lowest spread then being offered by Itaú-CorpBanca to non-governmental borrowers in Chile; or (ii) cause Itaú Unibanco to place an order on the Santiago Stock Exchange to sell to CorpGroup Parent and/or Company Two a number of shares of Itaú-CorpBanca up to the number of shares sold to Itaú Unibanco pursuant to such put right at the same price per share as was paid by Itaú Unibanco plus an annual interest rate at the ChileanÍndice de Cámara Promedio plus a spread that is not to exceed the lowest spread then being offered by Itaú-CorpBanca to non-governmental borrowers in Chile. If, as a result of the competitive bidding procedures of the Santiago Stock Exchange, the shares of Itaú-CorpBanca sold by Itaú Unibanco or one of its wholly-owned subsidiaries are sold over the Santiago Stock Exchange to a third party at a higher price, then CorpGroup Parent and/or Company Two shall not have the right to repurchase such shares of Itaú-CorpBanca.
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Use of Brands
Itaú Unibanco and CorpGroup Parent have agreed that for so long as Itaú Unibanco owns shares of Itaú-CorpBanca, CorpBanca and its subsidiaries shall have a royalty-free, perpetual license to use the Itaú Brand, whether alone or in conjunction with other trademarks.
Preapproved matters
CorpGroup Parent has agreed to consent to and affirmatively vote its shares of Itaú-CorpBanca at any shareholders’ meeting in favor of the approval of a transaction between the Itaú-CorpBanca’s stock-broker (corredora) subsidiary and MCC at such time as MCC is wholly owned by an Affiliate of Itaú Unibanco, transaction which may be structured as an acquisition of equity securities of MCC by Itaú-CorpBanca (followed by a merger of such subsidiary and MCC).
Strategic Transactions
Pursuant to the terms of the Shareholders’ Agreement, CorpGroup Parent and Itaú Unibanco intend to use Itaú-CorpBanca and its subsidiaries as their exclusive vehicle to pursue business opportunities in the Banking Business in Chile, Colombia, Peru and Central America. As a result, if either CorpGroup Parent or Itaú Unibanco, intends to pursue or develop any new business opportunities in the Banking Business in the abovementioned territories, either individually or with third parties, such party shall notify the other party and provide Itaú-CorpBanca with the exclusive right to pursue such business opportunity prior to presenting it to or pursuing it individually or with third parties. If CorpGroup Parent or Itaú-Unibanco, as the case may be, does not agree to Itaú-CorpBanca pursuing or continue to pursue or consummate such particular business opportunity within thirty (30) days following receipt of such notice, the other party shall have the right to pursue and implement it unilaterally and not through Itaú-CorpBanca.
If CorpGroup Parent agrees to Itaú-CorpBanca pursuing a business opportunity that would require a capital increase and/or a change in the dividend policy of Itaú-CorpBanca, Itaú Unibanco has agreed to provide CorpGroup Parent with long-term financing in an amount reasonably necessary as to finance its subscription of its pro rata share in such capital increase. If, on the other hand, CorpGroup Parent agrees to allow Itaú-CorpBanca to pursue and implement such business opportunity but decides not to participate in the capital increase in connection therewith, Itaú Unibanco will grant CorpGroup Parent a call option with respect to the number of shares that if purchased by CorpGroup Parent at such time would restore its direct and indirect ownership percentage of outstanding shares of Itaú-CorpBanca to its ownership percentage of outstanding shares of Itaú-CorpBanca immediately prior to such capital increase.
Itaú Unibanco’s Paraguay and Uruguay Operations
In respect of Itaú Unibanco’s Paraguay and Uruguay Operations, CorpGroup Parent and Itaú Unibanco have agreed to (i) negotiate in good faith the inclusion of their respective businesses in Paraguay and Uruguay as part of the business owned and operated by Itaú-CorpBanca, (ii) use their reasonable best efforts to agree on the valuation of such businesses in Paraguay and Uruguay and (iii) if CorpGroup Parent and Itaú Unibanco agree on the valuation of such businesses, to transfer to and operate such businesses by Itaú-CorpBanca.
Systems Operations Services Agreement
We have entered into a Systems Operations Services Agreement with IBM, initially dated March 30, 2001, and covering a term from April 1, 2001 through April 15, 2006 which can be renegotiated periodically. The current extension became effective on April 16, 2008 until April 30, 2018. Under this agreement, IBM provides outsourcing computer system operations services to us and we are obligated to pay fees amounting to UF 2,821.7 per month.
Service Contracts
On July 6, 2001, we entered into a Services Agreement with our affiliate CorpGroup Interhold S.A. pursuant to which CorpGroup provides us with professional and technical consulting services including preparation of financial statements, implementing financial and administrative procedures; preparing, analyzing, and providing legal advisory services; and analyzing economic, financial sectors and feasibility of investment plans; we pay fees of approximately UF6,250 per month. On January 27, 2014, we entered into an amendment to the agreement which will take effect as of January 1, 2015. Pursuant to this amendment, the agreement will be extended for a further 10-year term beginning on January 1, 2015, subject to certain early termination provisions. Either party may extend the term of the agreement for five additional years. Provisions for the payment of expenses were also included in this amendment.
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On April 10, 2008, we entered into a Services Agreement with our affiliate CorpGroup Interhold S.A., pursuant to which CorpGroup provides us with professional and technical consulting services in the finance, capital markets, real estate and operations areas; we pay fees of approximately UF 1,350 per month. On January 27, 2014, we entered into an amendment to the agreement which will take effect as of January 1, 2015. Pursuant to the amendment, the agreement will be extended for a further 10-year term beginning on January 1, 2015, subject to certain early termination provisions. Either party may extend the term of the agreement for five additional years, subject to certain conditions. Provisions for the payment of expenses were also included in this amendment.
On March 27, 2012, we entered into a Services Agreement with Mr. Álvaro Saieh Bendeck and our affiliate Corp Group Holding Inversiones Limitada, pursuant to which Corp Group Holding Inversiones Limitada provides us with professional and technical consulting services in all matters related to strategic planning and definitions, new businesses, including acquisitions in Chile or abroad, and management controls; we pay fees of approximately UF 1,250 per month. On January 27, 2014, we entered into an amendment to the agreement which will take effect as of January 1, 2015. Pursuant to the amendment, the agreement will be extended for a further 10-year term beginning on January 1, 2015, subject to certain early termination provisions. Either party may extend the term of the Service Contract for five additional years, provided that on such date the services continue to be rendered with the participation of Mr. Álvaro Saieh Bendeck. Provisions for the payment of expenses were also included in this amendment.
Software Consulting and Development Agreement
We have entered into a Software Consulting and Development Agreement, for the Integrated Banking System (IBS), dated as of October 4, 2001, with Datapro, Inc. The contract covers a five-year term for system maintenance and adjustments, which is automatically renewable at the end of the term. The contract includes an initial charge for development and user license of US$380,000.00 and a schedule of additional fees for services provided as well as a monthly maintenance fee.
Redbanc Agreement
We have entered into an agreement to participate in the automated teller machine network operated by Redbanc S.A., dated as of April 1, 2001. The contract covers a three-year term which is automatically and successively renewed for equal three-year periods. The purpose of this agreement is to provide services to facilitate the performance of banking objectives. This includes the installation, operation, maintenance, and development of equipment, devices, systems, and services used for the management and operation of automated and non-automated cash and point-of-sale machines and the related services. Redbanc shall invoice and charge us a different monthly fee for each of the services connected to the automated teller machine network.
D. | EXCHANGE CONTROLS |
The Central Bank of Chile is responsible for, among other things, monetary policies and exchange controls in Chile. Foreign investments must be registered with the Central Bank of Chile under theLey Orgánica Constitucional del Banco Central de Chile, or the Chilean Central Bank Act and theCompendio de Normas de Cambios Internacionales, or the Central Bank Foreign Exchange Regulations or the Compendium. The Chilean Central Bank Act is a constitutional law requiring a “special majority” vote of the Chilean Congress to be modified. Until January 1, 2016, foreign investments could be registered with theComité de Inversiones Extranjeras, or the Foreign Investment Committee under Decree Law No. 600 of 1974, as amended or DL 600, as an alternative to the registration with the Central Bank of Chile. The Tax Reform, however, repealed DL 600 as of January 1, 2016. As from 2016, the Foreign Investment Committee shall not be entitled to register new foreign investments. All foreign investments previously registered with the Foreign Investment Committee under DL 600, shall continue to be subject to the provisions of DL 600.
Pursuant to the Central Bank Foreign Exchange Regulations, investors are allowed to freely enter into any kind of foreign exchange transaction, the only restriction being that investors must inform the Central Bank of Chile about certain operations which they have conducted and must conduct certain operations through the Formal Exchange Market. The type of information related to equity investment that must be reported to the Central Bank of Chile by non-Chilean residents include the occurrence of, among other things, any assignment, substitution, changes in organizational status, change in the form of the investment, or material changes to the terms of the agreement governing the foreign currency transaction. Transactions that are required to be conducted through the Formal Exchange Market include transactions involving foreign commercial bank loans or Chilean company issued bonds, deposits made in Chilean financial institutions by foreign depositors, and equity investments and contributions of capital by foreign investors. The Formal Exchange Market entities through which transactions are conducted will report such transactions to the Central Bank of Chile.
Pursuant to the provisions of Chapter XIV of the Compendium, it is not necessary to seek the Central Bank of Chile’s prior approval in order to establish an ADR facility. The Central Bank of Chile only requires that (i) any foreign investor acquiring shares to be converted into ADSs who has actually brought funds into Chile for that purpose shall bring those funds through the
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Formal Exchange Market, (ii) any foreign investor acquiring shares to be converted into ADSs informs the Central Bank of Chile of the investment in the terms and conditions described below, (iii) all remittances of funds from Chile to the foreign investor upon the sale of the shares underlying the ADSs or from dividends or other distributions made in connection therewith, shall be made through the Formal Exchange Market, and (iv) all remittances of funds to the foreign investor, whether or not from Chile, shall be informed to the Central Bank of Chile in the terms and conditions described below.
When the shares to be converted into ADSs have been acquired by the foreign investor with funds brought into Chile through the Formal Exchange Market, a registration form shall be filed with the Department of International Financial Operations of the Central Bank of Chile by the foreign investor acting through an entity of the Formal Exchange Market on or before the date on which the foreign currency is brought into Chile. However, if the funds were brought into Chile with a different purpose and subsequently were used to acquire shares to be converted into ADSs, the Department of International Financial Operations of the Central Bank of Chile then shall be informed of such investment by the Custodian within ten days following the end of each fifteen-day period on which the Custodian has to deliver periodic reports to the Central Bank of Chile. If the funds were not brought into Chile, a registration form shall be filed with the Department of International Financial Operations of the Central Bank of Chile by the foreign investor itself or through an entity of the Formal Exchange Market within first 10 days of the month following the date on which the proceeds were used.
All payments in U.S. dollars in connection with the ADS facility made from Chile shall be made through the Formal Exchange Market. Pursuant to Chapter XIV of the Compendium no previous authorization from the Central Bank of Chile is required for the remittance of U.S. dollars obtained in the sale of the shares underlying ADSs or from dividends or other distributions made in connection therewith. The entity of the Formal Exchange Market participating in the transfer shall provide certain information to the Central Bank of Chile on the next banking business day. In the event there are payments made outside Chile, the foreign investor shall provide the relevant information to the Central Bank of Chile directly or through an entity of the Formal Exchange Market within the first 10 days of the month following the date on which the payment was made.
Under Chapter XIV of the Compendium payments and remittances of funds from Chile are governed by the rules in effect at the time the payment or remittance is made. Therefore, any change made to Chilean laws and regulations after the date hereof will affect foreign investors who have acquired ADSs or shares to be converted into ADSs. There can be no assurance that further Central Bank of Chile regulations or legislative changes to the current foreign exchange control regime in Chile will not restrict or prevent foreign investors to purchase and remit abroad U.S. dollars, nor can there be any assessment to the duration or impact of such restrictions, if imposed.
This situation is different from the one governing ADSs issued by Chilean companies prior to April 19, 2001. Prior to such date, ADSs representing shares of stock of Chilean corporations were subject to Chapter XXVI of the Compendium, which addressed the issuance of ADSs by Chilean companies and foreign investment contracts entered into among the issuer of the shares, the Central Bank of Chile and the depository pursuant to Article 47 of the Central Bank Act. Chapter XXVI of the Compendium and the corresponding foreign investment contracts granted foreign investors the vested right to acquire dollars with the proceeds obtained in the sale of the underlying shares of stock, or from dividends or other distributions made in connection therewith and remit them abroad. On April 19, 2001, the Central Bank of Chile eliminated Chapter XXVI of the Compendium and made the establishment of new ADR facilities subject to the provisions of Chapter XIV of the Compendium. All foreign investment contracts executed under the provisions of Chapter XXVI of the Compendium remain in full force and effect and are governed by the provisions in effect at the time of their execution.
The foregoing is a summary of the Central Bank of Chile’s regulations with respect to the issuance of ADSs representing common shares as in force and effect as of the date hereof. This summary does not purport to be complete and is qualified in its entirety by reference to the provisions of Chapter XIV of the Compendium, a copy of which is available from CorpBanca upon request.
There can be no assurance that further Central Bank of Chile regulations or legislative changes to the current foreign exchange control regime in Chile will not restrict or prevent foreign investors from purchasing or remitting U.S. dollars, or that further restrictions applicable to foreign investors which affect their ability to remit the capital, dividends or other benefits in connection with the shares of stock will not be imposed by the Central Bank of Chile in the future, nor can there be any assessment to the duration or impact of such restrictions, if imposed.
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E. | TAXATION |
CHILEAN TAX CONSIDERATIONS
The following discussion is based on material Chilean income tax laws presently in force, including Ruling No. 324 of January 29, 1990 of the Chilean Internal Revenue Service and other applicable regulations and rulings. The discussion summarizes the material Chilean income tax consequences of an investment in the ADSs or common shares received in exchange for ADSs by an individual who is not domiciled in or a resident of Chile or a legal entity that is not organized under the laws of Chile and does not have a permanent establishment located in Chile, which we refer to as a foreign holder. For purposes of Chilean law, an individual holder is a resident of Chile if he or she has resided in Chile for more than six months in one calendar year or for a total of more than six months, whether consecutive or not, in two consecutive tax years. An individual holder is domiciled in Chile if he or she resides in Chile with the purpose of staying in Chile (such purpose to be evidenced by circumstances such as the acceptance of employment within Chile or the relocation of his or her family to Chile). This discussion is not intended as tax advice to any particular investor, which can be rendered only in light of that investor’s particular tax situation.
Under Chilean law, provisions contained in statutes such as tax rates applicable to foreign holders, the computation of taxable income for Chilean purposes and the manner in which Chilean taxes are imposed and collected may be amended only by another statute. In addition, the Chilean tax authorities issue rulings and regulations of either general or specific application interpreting the provisions of Chilean tax law. Absent a retroactive law, Chilean taxes may not be assessed retroactively against taxpayers who act in good faith relying on such rulings and regulations, but Chilean tax authorities may change said rulings and regulations prospectively. There is no general income tax treaty in force between Chile and the United States (although a treaty has been signed it has not yet been ratified by United States’ Congress and therefore is not yet effective).
CASH DIVIDENDS AND OTHER DISTRIBUTIONS
Cash dividends paid by us with respect to the ADSs or common shares held by a foreign holder will be subject to a 35% Chilean withholding tax, which is withheld and paid over to the Chilean tax authorities by us. We refer to this as the Chilean withholding tax. A credit against the Chilean withholding tax is available based on the level of corporate income tax, or first category tax, actually paid by us on the taxable income to which the dividend is imputed; however, this credit does not reduce the Chilean withholding tax on a one-for-one basis because it also increases the base on which the Chilean withholding tax is imposed. In addition, distribution of book income in excess of retained taxable income is subject to the Chilean withholding tax, but such distribution is not eligible for the credit. In case such withholding is determined to be excessive at the end of the year, foreign holders will have rights to file for the reimbursement of the excess withholding. Under Chilean income tax law, for purposes of determining the level of the first category tax that has been paid by us, dividends generally are assumed to have been paid out of our oldest retained taxable profits. The first category tax rate is 22.5% in 2015. The foregoing tax consequences apply to cash dividends paid by us. Dividend distributions made in property (other than common shares) will be subject to the same Chilean tax rules as cash dividends.
CAPITAL GAINS
Gains realized on the sale, exchange or other disposition by a foreign holder of ADSs (or ADRs evidencing ADSs) will not be subject to Chilean taxation, provided that such disposition occurs outside Chile (confirmed by the Chilean IRS in ruling No. 1,307 of 2013). The deposit and withdrawal of common shares in exchange for ADRs will not be subject to any Chilean taxes.
Gains recognized on a sale or exchange of common shares received in exchange for ADSs (as distinguished from sales or exchanges of ADSs representing such common shares) by a foreign holder until December 31, 2016 will be subject to both the first category tax and the Chilean withholding tax (the former being creditable against the latter) if (1) the foreign holder has held such common shares for less than one year since exchanging ADSs for the common shares, (2) the foreign holder acquired and disposed of the common shares in the ordinary course of its business or as a regular trader of stock, or (3) the sale is made to a company in which the foreign holder holds an interest (10% or more of the shares in the case of Public Companies). A 35% withholding tax is imposed on the amount of the gains obtained on the sale or exchange of common shares received in exchange for ADSs, less a Chilean credit tax. In all other cases, gain on the disposition of common shares will be subject only to the first category tax levied as a sole tax. However, in these latter cases, if it is impossible to determine the taxable capital gain, a 5% withholding will be imposed on the total amount to be remitted abroad without any deductions as a provisional payment of the total tax due.
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From January 1, 2017 onwards, any gain obtained on the sale or exchange of common shares received in exchange for ADSs by a foreign holder will be subject to the Chilean withholding tax with a rate of 35%, which must be withheld by the purchaser. However, if it is impossible to determine the taxable capital gain, a 10% withholding will be imposed on the total amount to be remitted abroad without any deductions as a provisional payment of the total tax due.
The tax basis of common shares received in exchange for ADSs will be the acquisition value of such shares. The valuation procedure set forth in the deposit agreement, which values common shares that are being exchanged at the highest price at which they trade on the Santiago Stock Exchange on the date of the exchange, generally will determine the acquisition value for this purpose. Consequently, the conversion of ADSs into common shares and sale of such common shares for the value established under the deposit agreement will not generate a capital gain subject to taxation in Chile to the extent that the sale price is equal to the acquisition value at the time of redemption as discussed above. In the event the sale price exceeds the acquisition value of such shares determined as explained above, such capital gain will be subject to first category tax and the Chilean withholding tax as discussed above.
The distribution and exercise of preemptive rights relating to the common shares will not be subject to Chilean taxation. Amounts received in exchange for the shares or assignment of preemptive rights relating to the shares will be subject to both the first category tax and the Chilean withholding tax (the former being creditable against the latter to the extent described above).
Exempt capital gains - Article 107 of the Chilean Income Tax Law
According to Article 107 of the Chilean Income Tax Law, the sale and disposition of shares of Chilean public corporations which are significantly traded on a Chilean stock exchange is not levied by any Chilean tax on capital gains if the sale or disposition was made:
• | on a local stock exchange authorized by the SVS or in a tender offer process according to Title XXV of the Chilean Securities Market Act, so long as the shares (1) were purchased on a public stock exchange or in a tender offer process pursuant to Title XXV of the Chilean Securities Market Act, (2) are newly issued shares issued in a capital increase or incorporation of the corporation, (3) were acquired as a result of the exchange of convertible securities, or (4) were a contribution or redemption of securities in accordance with Article 109 of the Chilean Income Tax Law. In this case, gains exempted from Chilean taxes shall be calculated using the criteria set forth in the Chilean Income Tax Law; or |
• | within 90 days after the shares would have ceased to be significantly traded on the stock exchange. In such case, the gains exempted from Chilean taxes on capital gains will be up to the average price per share of the last 90 days in which the shares were significantly traded on the stock exchange. Any gains above the average price will be taxable capital gains. |
For purpose of the bullets above, shares are considered to be significantly traded on a Chilean stock exchange when they (1) are registered in the securities registry, (2) are registered in a Chilean Stock Exchange; and (3) have an adjusted presence equal to or above 25% or have a “Market Maker” according to the SVS Ruling No 327 dated January 17, 2012. Currently, our shares are considered to be significantly traded on a Chilean stock exchange.
OTHER CHILEAN TAXES
No Chilean inheritance, gift or succession taxes apply to the transfer or disposition of the ADSs by a foreign holder but such taxes generally will apply to the transfer at death or by a gift of common shares by a foreign holder. No Chilean stamp, issue, registration or similar taxes or duties apply to foreign holders of ADSs or common shares.
WITHHOLDING TAX CERTIFICATES
Upon request, we will provide to foreign holders appropriate documentation evidencing the payment of the Chilean withholding tax.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
This section is a summary of certain U.S. federal income tax consequences applicable to the acquisition, ownership and disposition by a U.S. holder (as defined below) of ADSs or common shares. This summary applies to you only if you are a U.S. holder and you hold your ADSs or common shares as capital assets (generally, property held for investment) for U.S. federal income tax purposes. This summary is not a comprehensive description of all of the tax consequences that may be relevant to a decision to purchase, hold or dispose of our ADSs or common shares.
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This section does not apply to you if you are a U.S. holder subject to special rules, including for example:
• | a dealer in securities; |
• | a trader in securities that elects to use a mark-to-market method of accounting for securities holdings; |
• | a regulated investment company; |
• | a real estate investment trust; |
• | a tax-exempt organization; |
• | a bank or other financial institution; |
• | a life insurance company; |
• | a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) or a partner or owner therein; |
• | a person liable for alternative minimum tax; |
• | a person that actually or constructively owns 10% or more of the bank’s shares; |
• | a person that holds ADSs or common shares as part of a straddle, a hedging, conversion or constructive sale transaction; or |
• | a person whose functional currency is not the U.S. dollar. |
This section is based on the Internal Revenue Code of 1986, as amended, or the Code, its legislative history, existing and proposed U.S. Treasury Regulations, published rulings, and court decisions, all as of the date of this Annual Report. These laws are subject to change, possibly on a retroactive basis, and subject to differing interpretations. This summary does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift or alternative minimum tax considerations. On February 4, 2010, a comprehensive income tax treaty between the United States and Chile was signed, however such treaty has not yet been ratified by each country and therefore is not yet effective. It is unclear at this time when such treaty will be ratified by both countries. You should consult your tax advisor regarding the ongoing status of this treaty and, if ratified, the impact such treaty would have on the consequences described in this annual report.
As used herein, the term “U.S. holder” means a beneficial owner of ADSs or common shares who is:
• | an individual who is a citizen or resident of the United States, |
• | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, |
• | an estate whose income is subject to U.S. federal income tax regardless of its source, or |
• | a trust if such trust validly elects to be treated as a United States person (as defined under the Code) for U.S. federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over its administration, and (2) one or more United States persons have the authority to control all of the substantial decisions of such trust. |
If a partnership (or other entity treated as such for U.S. federal income tax purposes) holds the ADSs or common shares, the U.S. federal income tax treatment of a partner, member or owner of such entity will generally depend on the status of the partner, member or owner and the tax treatment of such entity. A partner, member or owner in an entity holding the ADSs or common shares should consult its tax advisor with regard to the U.S. federal income tax treatment of its investment in the ADSs or common shares.
Prospective investors should consult their tax advisors as to the particular tax considerations applicable to them relating to the acquisition, ownership and disposition of our ADSs or common shares, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.
OWNERSHIP OF ADSs
In general
The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the relevant deposit agreement and any related agreement will be performed in accordance with the terms set forth therein. For U.S. federal income tax purposes, if you are a holder of ADSs, you generally will be treated as the owner of our common shares
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represented by such ADSs. Accordingly, deposits or withdrawals of common shares for ADSs will not be subject to U.S. federal income tax. The U.S. Treasury Department has expressed concern that depositaries for depositary receipts, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. holders of such receipts or shares. These actions would also be inconsistent with claiming the reduced rate for “qualified dividend income” described below. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Chilean withholding taxes and sourcing rules described below and availability of the reduced rate for qualified dividend income could be affected by future actions that may be taken by the U.S. Treasury Department.
Taxation of distributions
Subject to the PFIC rules discussed below, if you are a U.S. holder, the gross amount of any distribution of cash or property (including the net amount of Chilean taxes withheld, if any, on the distribution, after taking into account the credit for first category tax, as discussed above under “—Chilean Tax Considerations—Cash Dividends and Other Distributions”), paid by the bank out of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will be includable in gross income as ordinary dividend income. You must include the net amount of Chilean tax withheld, if any, from such distribution in gross income even though you do not in fact receive it. The dividend is taxable to you when you, in the case of common shares, or the depositary, in the case of ADSs, receive the dividend, actually or constructively. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the ADSs or common shares and thereafter as either long-term or short-term capital gain, depending on whether you have held our ADSs or common shares for more than one year at the time of the distribution. The bank does not currently maintain, and does not intend to maintain, calculations of our earnings and profits in accordance with U.S. federal income tax principles. Consequently, a U.S. holder should treat the entire amount of any distribution received as a dividend. As used below, the term “dividend” means a distribution that constitutes a dividend for U.S. federal income tax purposes.
If you are a non-corporate U.S. holder, dividends paid to you may constitute qualified dividend income and be taxable to you at a reduced rate provided that (1) certain holding period requirements are met, (2) the ADSs or common shares are considered to be readily tradable on an “established securities market” in the United States, and (3) the bank is not a PFIC. Under U.S. Internal Revenue Service, or IRS, authority, ADSs are considered for purposes of clause (2) above to be readily tradable on an established securities market in the United States because they are listed on the NYSE. Based on existing guidance, it is not entirely clear whether dividends received with respect to the common shares will be treated as qualified dividend income because the common shares are not themselves listed on a U.S. exchange. Moreover, as discussed below, under “—Passive Foreign Investment Company rules”, we believe that we will not be treated as a PFIC for U.S. federal income tax purposes with respect to our 2015 and current taxable year, and based on our current expectations regarding the value and nature of our assets, the sources and nature of our income, relevant market and shareholder data and our current business plans, we do not anticipate becoming a PFIC in the future. However, there can be no assurance in this regard because the PFIC determination is made annually and is based on the portion of our assets (including goodwill) and income that is characterized as passive under the PFIC rules and our continued qualification for an exception to the PFIC rules for certain foreign banks. You should consult your tax advisor regarding the availability of the reduced rate for dividends paid with respect to our ADSs or common shares. Dividends paid by us generally will not be eligible for the dividends-received deduction available to certain U.S. corporations.
The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the Chilean peso payments made, determined at the spot Chilean peso/U.S. dollar rate on the date the dividend distribution is actually or constructively received by you or the depositary, regardless of whether the payment is in fact converted into U.S. dollars at that time. If the dividend is converted to U.S. dollars on the date of receipt, a U.S. holder generally will not recognize a foreign currency gain or loss. However, if the U.S. holder converts the Chilean pesos into U.S. dollars on a later date, the U.S. holder must include in income any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the difference between (1) the U.S. dollar value of the amount included in income when the dividend was received, and (2) the amount received on the conversion of the Chilean pesos into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the reduced tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. U.S. holders should consult their own tax advisors regarding the tax consequences to them if the bank pays dividends in Chilean pesos or any other non-U.S. currency. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution.
Subject to certain limitations (including minimum holding period requirements), the net amount of Chilean income tax withheld and paid over to the Chilean taxing authorities (after taking into account the credit for first category tax, when available) will generally be creditable or deductible against your U.S. federal income tax liability. However, if the amount of Chilean withholding tax
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initially withheld from a dividend is determined under applicable Chilean law to be excessive (as described above under “—Chilean Tax Considerations—Cash Dividends and Other Distributions”), the excess tax may not be creditable. Special rules apply in determining the foreign tax credit limitation with respect to dividends received by individuals that are subject to the reduced tax rate for qualified dividends. Dividends will be treated as income from sources outside the United States and generally be categorized as “passive category income” for most U.S. holders for U.S. foreign tax credit purposes. A U.S. holder that does not elect to claim a credit for any foreign income taxes paid during the taxable year may instead claim a deduction in respect of such foreign income taxes, provided that the U.S. holder elects to deduct (rather than credit) all foreign income taxes paid or accrued during the taxable year. This discussion does not address special rules that apply to U.S. holders who, for purposes of determining the amount of the foreign tax credit, take foreign income taxes into account when accrued. The rules governing foreign tax credits are complex and a U.S. holder should consult its own tax advisor regarding the availability of foreign tax credits under its particular circumstances.
Taxation of dispositions
Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell, exchange or otherwise dispose of your ADSs or common shares in a taxable disposition, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your ADSs or common shares. Any such gain or loss will be long-term capital gain or loss if your ADSs or common shares have been held for more than one year. Certain non-corporate U.S. holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. The deductibility of capital losses is subject to limitations.
If you are a U.S. holder of our ADSs or common shares, the initial tax basis of your ADSs or common shares will be the U.S. dollar purchase price or, if purchased in Chilean pesos, the U.S. dollar value of the Chilean peso-denominated purchase price determined on the date of purchase. If the common shares are treated as being traded on an “established securities market,” a cash basis U.S. holder, or, if it elects, an accrual basis U.S. holder, will determine the U.S. dollar value of the cost of such common shares by translating the amount paid at the spot rate of exchange on the settlement date of the purchase. If you convert U.S. dollars to Chilean pesos and immediately use the currency to purchase common shares, such conversion generally will not result in taxable gain or loss to you.
The amount realized generally will be equal to the amount of cash or the fair market value of any other property received. With respect to the sale, exchange or other taxable disposition of our common shares, if the payment received is in Chilean pesos, the amount realized generally will be the U.S. dollar value of the payment received determined on (1) the date of receipt of payment in the case of a cash basis U.S. holder, and (2) the date of disposition in the case of an accrual basis U.S. holder. If our common shares are treated as being traded on an “established securities market,” a cash basis U.S. holder, or, if it elects, an accrual basis U.S. holder, will determine the U.S. dollar value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale.
If a Chilean income tax is withheld on the sale, exchange or other taxable disposition of our ADSs or common shares, the amount realized by a U.S. holder will include the gross amount of the proceeds of that sale, exchange or other taxable disposition before deduction of the Chilean income tax. Capital gain or loss, if any, realized by a U.S. holder on the sale, exchange or other taxable disposition of ADSs or common shares generally will be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. Consequently, in the case of a gain from the disposition of a common share that is subject to Chilean income tax, the U.S. holder may not be able to benefit from the foreign tax credit for that Chilean income tax (i.e., because the gain from the disposition would be U.S. source), unless the U.S. holder can apply the credit against U.S. federal income tax payable on other income from foreign sources. Alternatively, the U.S. holder may take a deduction for the Chilean income tax, provided that the U.S. holder elects to deduct all foreign taxes paid or accrued during the taxable year. The rules governing foreign tax credits are complex and a U.S. holder should consult its own tax advisor regarding the availability of foreign tax credits under its particular circumstances.
Passive Foreign Investment Company rules
Based upon our current estimates, expectations and projections of the value and classification of our assets and the sources and nature of our income, we believe that the bank’s ADSs and common shares should not be treated as stock of a PFIC for U.S. federal income tax purposes for 2015, our current taxable year or in the foreseeable future, including after the anticipated combination of the bank and Itaú Chile following the Itaú-CorpBanca Merger (which is expected to be consummated in 2016), but this conclusion is a factual determination that is made annually and there can be no assurance that we will not be considered a PFIC for the current taxable year or any subsequent taxable year. Our actual PFIC status for our current taxable year ending December 31, 2016 will not be determinable until after the close of such taxable year and, accordingly, there is no guarantee that we will not be a PFIC for 2016.
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In general, if you are a U.S. holder, the bank will be a PFIC with respect to you if for any taxable year in which you held the bank’s ADSs or common shares:
• | at least 75% of the bank’s gross income for the taxable year is “passive income”; or |
• | at least 50% of the value, determined on the basis of a quarterly average, of the bank’s assets is attributable to assets that produce or are held for the production of passive income. |
Passive income for this purpose generally includes dividends, interest, royalties, rents, annuities and gains from assets that produce passive income. We will be treated as owning our proportionate share of the assets and earnings and our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% by value of the stock of another corporation. If we are a PFIC for any year during which you hold our ADSs or common shares, you will generally be required to treat our ADSs or common shares as stock in a PFIC for all succeeding years during which you hold our ADSs or common shares, even if the bank does not otherwise meet the PFIC tests for any such succeeding year.
We are unable to determine with certainty that we are not a PFIC because the application of the PFIC rules to banks is unclear under present U.S. federal income tax law. Banks generally derive a substantial part of their income from assets that are interest bearing or that otherwise could be considered passive under the PFIC rules. The IRS has issued a notice and has proposed regulations, which together describe what is referred to as the “active bank exception.” For purposes of the PFIC test, the active bank exception excludes from passive income any income derived in the active conduct of a banking business by a qualifying foreign bank. The IRS notice and proposed regulations each have different requirements for qualifying as a foreign bank and for determining the banking income that may be excluded from passive income under the active bank exception. Moreover, the proposed regulations have been outstanding since 1994 and will not be effective unless finalized.
We believe that we should qualify as an active bank under the requirements of the notice and the proposed regulations, assuming that the proposed regulations are finalized in their current form. Accordingly, based on our present regulatory status under Chilean law, the present nature of our activities and the present composition of our assets and sources of income, we do not believe we were a PFIC for the taxable year ending December 31, 2015 (the latest period for which the determination can be made) and we also do not expect to be a PFIC for the current taxable year or for any future taxable years. However, if the Itaú-CorpBanca Merger is successfully consummated, whether we qualify as an active bank and whether we are a PFIC for the taxable year including such consummation and any subsequent taxable year will depend on the activities of the combined bank and, in part, on the composition of assets currently owned by Itaú Chile and the types of income that these assets generate in future taxable years. As a result, although we expect to qualify as an active bank and we do not expect to be a PFIC for the taxable year of the consummation of the Itaú-CorpBanca Merger and in subsequent taxable years, at this time there can be no assurance that this will be the case.
In addition, because a PFIC determination is a factual determination that must be made following the close of each taxable year and is based on, among other things, the market value of our assets and shares, and because the proposed regulations (although proposed to be retroactive in application) are not currently in force, our PFIC status may change and there can be no assurance that we will not be considered a PFIC for the current taxable year or any subsequent taxable year. If the bank is treated as a PFIC for any year in which you hold ADSs or common shares, and you are a U.S. holder that did not make a mark-to-market election, as described below, you will be subject to special rules with respect to:
• | any gain you realize on the sale, exchange or other taxable disposition (including certain pledges) of your ADSs or common shares; and |
• | any “excess distribution” that the bank makes to you (generally, any distributions to you during a single taxable year that are greater than 125% of the average annual distributions received by you in respect of the ADSs or common shares during the three preceding taxable years or, if shorter, your holding period for the ADSs or common shares). |
Under these rules:
• | the gain or excess distribution will be allocated ratably over your holding period for the ADSs or common shares; |
• | the amount allocated to the taxable year in which you realized the gain or excess distribution will be taxed as ordinary income; |
• | the amount allocated to each prior year, with certain exceptions, will be taxed at the highest tax rate in effect for that year; and |
• | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year. |
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The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ADSs or common shares cannot be treated as capital, even if you hold the ADSs or ordinary shares as capital assets. If we were a PFIC, certain subsidiaries and other entities in which we have a direct or indirect interest may also be PFICs, or Lower-tier PFICs. Under attribution rules, U.S. holders would be deemed to own their proportionate shares of Lower-tier PFICs and would be subject to U.S. federal income tax according to the rules described above on (1) certain distributions by a Lower-tier PFIC and (2) certain dispositions of shares of a Lower-tier PFIC, in each case as if the U.S. holder held such shares directly, even though such U.S. holder had not received the proceeds of those distributions or dispositions.
Alternatively, a U.S. holder of “marketable stock” (as defined below) may make a mark-to-market election. If you make this election, you will not be subject to the PFIC rules described above. Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of your ADSs or common shares at the end of the taxable year over your adjusted basis in your ADSs or common shares. These amounts of ordinary income will not be eligible for the reduced tax rates applicable to qualified dividend income or long-term capital gains. You will also be allowed to take an ordinary loss in respect of both (1) the excess, if any, of the adjusted basis of your ADSs or common shares over their fair market value at the end of the taxable year and (2) any loss realized on the actual sale or disposition of the ADSs or common shares, but in each case only to the extent of the net amount of previously included income as a result of the mark-to-market election. Any loss on an actual sale of your ADSs or common shares would be a capital loss to the extent it exceeds any previously included mark-to-market income not offset by previous ordinary deductions. Your basis in the ADSs or common shares will be adjusted to reflect any such income or loss amounts.
The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded in other thande minimis quantities on at least 15 days during each calendar quarter on a qualified exchange, including the NYSE, or other market, as defined in applicable regulations. The ADSs are listed on the NYSE, and we expect, although no assurance can be given, that they will be regularly traded on the NYSE. It is unclear whether the common shares will be treated as “marketable stock” for purpose of the mark-to-market rules. In addition, the mark-to-market election generally would not be effective for any Lower-tier PFICs. You are urged to consult your own tax advisors regarding the U.S. federal income tax consequences that would arise if we are treated as a PFIC while you hold ADSs or common shares.
Notwithstanding any election you make with regard to the ADSs or common shares, dividends that you receive from us will not constitute qualified dividend income to you, and therefore are not eligible for the reduced tax rate described above, if the bank is a PFIC either in the taxable year of the distribution or any preceding taxable year during which you held our ADSs or common shares. Instead, you must include the gross amount of any such dividend paid by us out of the bank’s accumulated earnings and profits (as determined for U.S. federal income tax purposes) in your gross income, and these amounts will be subject to tax at rates applicable to ordinary income.
If you directly (and, in some cases, indirectly) own ADSs or common shares that are treated as PFIC shares with respect to you during a taxable year, you will be required to file an annual report for such taxable year.
In addition, if we are a PFIC, we do not intend to prepare or provide you with the information necessary to make a “qualified electing fund” election, which, like the mark-to-market election, is a means by which U.S. taxpayers may elect out of the tax treatment that generally applies to PFICs.
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE APPLICATION OF THE PFIC RULES TO YOUR INVESTMENT IN ADSS OR COMMON SHARES, INCLUDING THE AVAILABILITY AND ADVISABILITY OF MAKING AN ELECTION TO AVOID THE ADVERSE TAX CONSEQUENCES OF THE PFIC RULES SHOULD WE BE CONSIDERED A PFIC FOR ANY TAXABLE YEAR.
Possible Foreign Account Tax Compliance Act Withholding
Pursuant to Sections 1471 through 1474 of the Code and U.S. Treasury Regulations promulgated thereunder, commonly referred to as FATCA, a 30% withholding tax may be imposed on all or some of the payments on the ADSs or our common stock after December 31, 2018 to holders and non-U.S. financial institutions receiving payments on behalf of holders that, in each case, fail to comply with information reporting, certification and related requirements. Under current guidance, the amount to be withheld is not defined, and it is not yet clear whether or to what extent payments on the ADSs or shares of our common stock may be subject to this withholding tax. This withholding tax, if it applies, could apply to any payment made with respect to the ADSs or our common stock. Moreover, withholding may be imposed at any point in a chain of payments if a non-U.S. payee fails to comply with U.S. information reporting, certification and related requirements. Accordingly, ADSs or shares of our common stock held through a non-compliant
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institution may be subject to withholding even if the holder otherwise would not be subject to withholding. You should consult your tax advisor regarding potential U.S. federal withholding taxes imposed under FATCA.
If FATCA withholding is required, the bank will not be required to pay any additional amounts with respect to any amounts withheld. Certain beneficial owners of ADSs or our common stock that are not foreign financial institutions generally will be entitled to refunds of any amounts withheld under FATCA, but this may entail significant administrative burden. U.S. holders are urged to consult their tax advisers regarding the application of FATCA to their ownership of the ADSs or our common stock.
Medicare tax
A 3.8% tax is imposed on the lesser of (1) modified adjusted gross income in excess of US$200,000 (US$250,000 for joint-filers), and (2) net investment income of certain individuals, trusts and estates. For these purposes, net investment income will generally include any dividends paid to you with respect to the ADSs or common shares and any gain realized on the sale, exchange or other taxable disposition of an ADS or common share.
Backup withholding tax and information reporting requirements
U.S. backup withholding tax and information reporting requirements generally apply to certain payments to certain non-exempt holders of ADSs or common shares. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, ADSs or common shares made within the United States, or by a U.S. payor or U.S. middleman, to a holder of ADSs or common shares, other than an exempt recipient. A payor will be required to withhold U.S. backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ADSs or common shares within the United States, or by a U.S. payor or U.S. middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such U.S. backup withholding tax requirements.
Backup withholding is not an additional tax. Any U.S. backup withholding tax generally will be allowed as a credit against the holder’s U.S. federal income tax liability or, to the extent the withheld amount exceeds such liability, refunded upon the timely filing of a U.S. federal income tax return.
Certain U.S. investors are subject to reporting requirements in connection with the holding of certain foreign financial assets, including our ADSs or common shares that they own, either directly or through certain foreign financial institutions, but only if the aggregate value of all of such assets exceeds US$50,000. Such investors are subject to penalties if they are required to submit such information to the IRS and fail to do so. You should consult your tax advisor regarding the application of these new reporting requirements to your particular situation.
The above description is not intended to constitute a complete analysis of all tax consequences relating to the purchase, ownership or disposition of the ADSs or common shares. Investors deciding on whether or not to invest in ADSs or common shares should consult their own tax advisors concerning the tax consequences of their particular situations.
F. | DIVIDENDS AND PAYING AGENTS |
Not applicable.
G. | STATEMENT BY EXPERTS |
Not applicable.
H. | DOCUMENTS ON DISPLAY |
We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by us with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 100 F Street, N.E., Washington, D.C. 20549, and at the SEC’s regional offices at 233 Broadway, New York, New York 10279 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, on which our ADSs are listed. In addition, the SEC maintains a
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website that contains information filed electronically with the SEC, which can be accessed on the internet at http://www.sec.gov. The information contained on this website does not form part of this annual report on Form 20-F.
Additional documents concerning CorpBanca which are referred to in this annual report may be inspected at our offices at Rosario Norte 660, Las Condes, Santiago, Chile.
I. | SUBSIDIARY INFORMATION |
Not applicable.
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT FINANCIAL RISK |
A. | Definition and Principles of Financial Risk Management |
This section describes the financial risks, liquidity risks and market risks to which we are exposed in our business activities. Additionally, an explanation is included of the internal tools and regulatory methods used to control these risks, portfolios over which these market risk approaches are applied and quantitative disclosures that demonstrate our level of exposure to financial risk.
The principal types of risks inherent to our business are market, liquidity, operational and credit risk. The effectiveness with which we are able to manage the balance between risk and reward is a significant factor in our ability to generate long-term stable earnings growth. Our senior management places great emphasis on risk management.
Our policy with respect to asset and liability management is to maximize our net interest income and return on assets and equity while managing interest rate, liquidity and foreign exchange risks, all within the limits provided by Chilean banking regulations and internal risk policies and limits.
Our asset and liability management policies are developed by our Asset & Liability Committee or “A&L Committee”, following guidelines established by our board of directors. The A&L Committee is composed of eleven members, including one director, the CEO, the treasury and international division manager, the financial risk manager, our CFO, and the division managers of management control and planning, retail banking, non-banking financial services and commercial banking, represented by the managers of the corporate and commercial banking divisions. The role of the financial risk manager and the A&L Committee is to ensure that our treasury and international division’s operations are consistently in compliance with our internal risk policies and limits, as well as applicable regulations. The A&L Committee typically meets twice per month. Senior members of our treasury and international division meet regularly with the A&L Committee and outside consultants to discuss our asset and liability position. The members of our financial risk management department are not employed in our banking operations or treasury and international division.
The market risk and control department’s activities consist of (i) applying Value at Risk, or VaR, techniques (as discussed below), (ii) marking to market our fixed income portfolio, derivatives portfolio and measuring daily profit and loss from trading activities, (iii) comparing VaR and other exposures against the established limits, and (iv) providing information about trading activities to the A&L Committee, other members of senior management and the treasury and international division.
Our financial risk analysis focuses on managing risk exposure relating to (i) the interest rate risk relating to fixed income portfolio (comprised of a “trading” portfolio and “an available-for-sale” portfolio), which contains mainly Chilean government bonds, Colombian government bonds, corporate bonds, letters of credit loans issued by third parties and interest rate derivatives, (ii) the interest rate risk relating to asset and liability positions, (iii) liquidity risk, and (iv) our net foreign currency position, which includes all of our assets and liabilities in foreign currencies (mainly U.S. dollars), including derivatives that hedge certain foreign currency mismatches that arise between investments and the funding thereof.
1. | Market Risk |
a) | Definition |
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Market risk is the exposure to economic gains or losses caused by movements in prices and market variables. This exposure stems from both the trading book, where positions are valued at fair value, and the banking book, which is at amortized cost. The different valuation methodologies require the use of diverse tools to measure and control the impact on either the value of the Bank’s positions or its financial margin.
Decisions as to how to manage these risks are reviewed by committees, the most important of which is the A&L Committee.
Each of the activities are measured, analyzed and reported on a daily basis using different metrics to ascertain their risk profiles.
The following section describes the main risk factors along with the tools we use to monitor the most important impacts of market risk factors to which the Bank and its subsidiaries are exposed.
1. Risk Factors
a) Foreign Exchange Risk
Foreign exchange risk is the exposure to adverse movements in the exchange rates of currencies other than the base currency for all balance sheet and off-balance sheet positions.
The main sources of foreign exchange risk are:
• | Positions in foreign currency (FX) within the trading book, |
• | Currency mismatches between assets and liabilities in the banking book, |
• | Cash flow mismatches in different currencies, and |
• | Structural positions produced from consolidating assets and liabilities from our foreign branches and subsidiaries denominated in currencies other than the Chilean peso. As a result, movements in exchange rates can generate volatility within the bank’s income statement and equity. This effect is known as “translation risk”. |
b) Indexation Rate Risk
Indexation risk is the exposure to changes in indexed units (e.g. UF,Unidad de Valor Real (UVR) or others) linked to domestic or foreign currency in which any instruments, contracts or other transactions recorded in the balance sheet may be denominated.
c) Interest Rate Risk
Interest rate risk is the exposure to movements in market interest rates. Changes in market interest rates can affect both the price of trading instruments and the net interest margin and other gains from the banking book such as fees. Likewise, fluctuations in interest rates can affect the underlying value of the Bank’s assets and liabilities and of derivative instruments that are recorded off balance sheet at fair value.
Interest rate risk can be represented by sensitivities to parallel and/or non-parallel yield shifts with the effects reflected in the prices of instruments, the financial margin and equity.
Movements in interest rates can be explained by at least the following risk factors:
• | Systemic risk |
• | Funding liquidity risk |
• | Credit risk |
• | Specific risk |
A key component of our asset and liability policy is the management of interest rate sensitivity. Interest rate sensitivity is the relationship between market interest rates and net interest income due to the maturity or re-pricing characteristics of interest-earning assets and interest bearing liabilities. For any given period, the pricing structure is matched when an equal amount of such assets and liabilities mature or re-price in that period. Any mismatch of interest-earning assets and interest bearing liabilities is known as a gap position. A positive gap denotes asset sensitivity and means that an increase in interest rates would have a positive effect on net interest income while a decrease in interest rates would have a negative effect on net interest income. Accordingly, a negative gap
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denotes asset sensitivity and means that a decrease in interest rates would have a negative effect on net interest income while an increase in interest rates would have a positive effect on net interest income.
Our interest rate sensitivity strategy takes into account not only the rates of return and the underlying degree of risk, but also liquidity requirements, including minimum regulatory cash reserves, mandatory liquidity ratios, withdrawal and maturity of deposits, capital costs and additional demand for funds. Our maturity mismatches and positions are monitored by our A&L Committee and are managed within established limits.
d) Prepayment or Call Risk
This risk arises from the possible prepayment (partial or full) of any transaction before its contractual maturity, generating the need to reinvest the freed cash flows at a different rate than that of the prepaid transaction.
e) Underwriting Risk
This risk arises as a result of the Bank underwriting a placement of bonds or other debt instruments, taking on the risk of coming to own the portion of the issuance that could not be placed among potential interested parties.
f) Correlation Risk
Correlation risk is the exposure to changes in estimated correlations between the relative value of two or more assets, or a difference between the effective and estimated correlation over the life of the transaction.
g) Market Liquidity Risk
Market liquidity risk is the exposure to losses as a result of the potential impact on transaction prices or costs in the sale or closure of a position. This risk is related to the particular market’s degree of depth.
h) Volatility Risk
In addition to the exposure related to the underlying asset, issuing options has other risks. These risks arise from the non-linear relationship between the gain generated by the option and the price and level of the underlying factors, as well as the exposure to changes in the perceived volatility of these factors.
b) | Management Principles |
The following principles govern the market risk management efforts of CorpBanca and its subsidiaries:
• | Business and trades are conducted in line with established policies, pre-approved limits, guidelines, procedure controls and clearly defined delegation of decision-making authority, in compliance with applicable laws and regulations. |
• | The bank’s organizational structure must ensure effective segregation of duties so that trading, monitoring, accounting and risk measurement are performed and reported independently using a dual-control system. |
• | Trading of new products and participation in new markets can only take place if all of the following occur: |
• | The product has been approved by the Bank’s New Product Committee. |
• | A full assessment has been conducted to determine if the activity falls within the bank’s general risk tolerance and specific commercial objectives. |
• | Proper controls and limits have been set for that activity. |
• | The limits, terms and conditions stipulated in the authorizations are monitored on a daily basis and any excesses are reported no later than the following day. |
• | Trading positions are valued each day at fair value in accordance with the valuation policy. |
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• | All trades must be executed at current market rates. |
2. | Funding Liquidity Risk |
a) | Definition |
Funding liquidity risk is the exposure of the bank and its subsidiaries to events that affect their ability to meet, in a timely manner and at reasonable costs, cash payment obligations arising from maturities of time deposits that are not renewed, withdrawals from demand accounts, maturities or settlements of derivatives, liquidations of investments or any other payment obligation.
Financial institutions are exposed to funding liquidity risk that is intrinsic to the role of intermediary that they play in the economy. In general, in financial markets demand for medium or long-term financing is usually much greater than the supply of funds for those terms while short-term financing is in considerable supply. In this sense, the role of intermediary played by financial institutions, which assume the risk of satisfying the demand for medium and long-term financing by brokering short-term available funds, is essential for the economy to function properly.
Appropriately managing funding liquidity risk not only allows contractual obligations to be met in a timely manner, but also enables:
• | The liquidation of positions, when it so decides, to occur without significant losses. |
• | The commercial and treasury activities of the bank and its subsidiaries to be financed at competitive rates. |
• | The bank to avoid fines or regulatory santions for not complying with regulations. |
b) | Management Principles |
The principles used to manage funding liquidity risk include:
• | Balancing strategic liquidity objectives with corporate profitability objectives, designing and implementing investment and financing strategies to compete with our key competitors. |
• | Designing policies, limits and procedures in accordance with banking regulations, internal rules and CorpBanca’s strategic business objectives. |
• | Establishing a robust framework for managing liquidity risk that guarantees that the entity will maintain sufficient liquidity, including a cushion of high-quality, unencumbered liquid assets that can be used to contend with a series of stress-generating events, including those that bring about losses or weaken sources of secured and unsecured financing. |
• | Clearly establishing liquidity risk tolerance appropriate for its business strategy and its size within the financial system. |
• | The bank has a financing strategy that promotes effective diversification of funding sources and maturities. It maintains a continuous presence in the funding market with correspondent banks and select customers, maintaining close relationships and promoting diversification of funding sources. It also keeps appropriate lines of financing available, ensuring its ability to obtain liquid resources quickly. The bank has identified the main factors of vulnerability that affect its ability to secure funds and monitors the validity of the assumptions behind estimates for obtaining funding. |
• | CorpBanca actively manages its intraday liquidity positions and risks in order to punctually meet its payment and liquidation obligations both under normal circumstances as well as situations of stress, contributing to the smooth operations of the payment and settlement systems. |
3. | Counterparty Risk |
Credit default risk is the risk of loss arising from non-compliance by a given counterparty, for whatever reason, in paying all or part of its obligations with the Bank under contractually agreed-upon conditions. This risk also includes a given counterparty’s inability to comply with obligations to settle derivative operations with bilateral risk.
The bank diversifies credit risk by placing limits on the concentration of this risk in any one individual debtor, debtor group, product, industry segment or country. Such risks are continuously monitored and the limits by debtor, debtor group, product, industry and country are reviewed at least once per year and approved by the respective committees.
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Exposure to credit risk is evaluated using an individual analysis of the payment capacity of debtors and potential debtors to meet their obligations on time and as agreed.
Furthermore, the bank has strict controls for derivative contracts negotiated directly with its counterparties. This exposure is managed using limits per customer based on a risk methodology equivalent to credit risk exposure. Lastly, the values of derivatives are adjusted to reflect the expected loss from the counterparty.
The Bank includes in the valuation of derivatives the “Counterparty Valuation Adjustment” (CVA), to reflect the counterparty risk in the determination of fair value.This valuation considers the Bank’s own credit risk, known as “Debit Valuation Adjustment” (DVA). See Note 34Financial Assets And Liabilities Measured At Fair Value.
Offsetting financial assets and liabilities
The Bank should offset a financial asset and a financial liability and the net amount presented in the statement of financial position when and only when:
i.- currently has a legally enforceable right to set off the recognized amounts; and
ii.- intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
The bank includes assets and financial liabilities that have master netting agreements but do not qualify to be netting directly in the statement of financial position and hence their values are presented gross in that Statement.
According to the above, the following table shows the impact of the main assets and liabilities offset and those who maintain netting agreements (including financial guarantees), but do not qualify to be netting directly in the statement of financial position.
As of December 31, 2015 | ||||||||||||||||||||||||||||||
Finnancial Instruments offset in the Statement of Financial Position. | Finnancial Instruments not offset in the Statement of Financial Position. (3) | |||||||||||||||||||||||||||||
Gross amount (1) | Amounts offset (2) | Net amounts Financial Position. | Amounts to (4) | Financial (5) | Net amounts (Total) | |||||||||||||||||||||||||
(a) | (b) | (c) = (a)- (b) | (d) | (e) | (f) = (c) - (d) - (e) | |||||||||||||||||||||||||
Finnancial Instruments | MM$ | MM$ | MM$ | Note | MM$ | MM$ | Note | MM$ | ||||||||||||||||||||||
Financial derivative contracts | Assets Liabilities | 1,008,915 | — | 1,008,915 | 8 | — | 35,388 | 21 | 973,527 | |||||||||||||||||||||
731,114 | — | 731,114 | 8 | — | 171,626 | 16 | 559,488 |
(1) | Gross amount without applying offset regulations. |
(2) | Value to offset in the statement of financial position. |
(3) | Finnancial Instruments that have master netting agreements but do not qualify to be netting directly in the statement of financial position |
(4) | Amount to offset in the Finnancial Instruments that have master netting agreements but do not qualify to be netting directly in the statement of financial position. |
(5) | Amounts related to financial guarantees |
B. | Corporate Governance Structure and Committees |
CorpBanca has established a sound organizational structure for monitoring, controlling and managing market risks, based on the following principles:
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• | Risk is monitored and controlled by parties independent from those managing risk, thus correctly aligning incentives. |
• | Management efforts should be flexible, within the framework permitted by policies, rules and current regulations. |
• | Senior management establishes the guidelines for risk appetite, and |
• | Is informed periodically on risk levels assumed, contingencies and instances when limits are exceeded. |
In order to guarantee the flexibility of management efforts and communication of risk levels to upper management, the following network of committees has been established:
• | Daily Committee: Meets daily to review financial conditions and the latest market movements. This committee reviews the relevance of positions on a daily basis in order to detect in advance any scenarios that could negatively impact returns and liquidity. It also monitors the performance of strategies used for each of the portfolios. |
• | Market and Proprietary Trading Committee: Meets weekly to analyze management of positions. This committee reviews local and global economic conditions and projections in order to analyze the potential benefits and risks of the strategies executed and evaluate new strategies. |
• | Financial Management Committee: Meets biweekly to analyze management of structural interest rate and indexation risk in the banking book. |
• | Liquidity Management Committee: Meets biweekly to analyze management of funding liquidity risk. |
• | A&L Committee: Meets biweekly to analyze economic and financial conditions and inform senior management of market and liquidity risk levels assumed by presenting indexes of market and funding liquidity risk, limit consumption and results of stress tests. |
• | Board of directors: The board of directors is informed each quarter of the market and funding liquidity risk levels assumed by presenting established risk indexes, limit consumption and results of stress tests. |
The Divisions in charge of managing market and funding liquidity risk are:
The Treasury Division is responsible for managing market risk. Its primary objective is to generate or conduct business with customers while its secondary function is to carry out proprietary trading.
The Finance and International Division is responsible for managing all structural risks in the markets in which it operates through the Financial Management and Liquidity Management Areas in order to provide greater stability to the financial margin and ensure suitable levels of solvency and liquidity.
As with the structure for financial risk at a corporate level, each local financial risk unit arranges its functions based on the specific characteristics of the business, operations, legal requirements or other relevant aspects.
In order to guarantee adherence to corporate policies and proper local execution, the corporate financial risk area and local units have the following roles and functions:
Corporate Financial Risk Area:
• | To design, propose and document risk policies and criteria, corporate limits and decision making and control processes. |
• | To generate management schemes, systems and tools, overseeing and supporting implementation so that they function effectively. |
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• | To know, assimilate and adapt internal and external best practices. |
• | To drive commercial activity to attain risk-weighted results. |
• | To consolidate, analyze and control financial risk incurred by all perimeter units. |
Local Financial Risk Units:
• | To measure, analyze and control the risks under their responsibility. |
• | To adapt and embrace corporate policies and procedures through local approval. |
• | To define and document local policies and lead local projects. |
• | To apply policies and decision-making systems to each market. |
• | To adapt the organization and management schemes to corporate frameworks and rules. |
C. | Monitoring and Controlling Financial Risk |
1. | Market Risk |
a) | Management Tools |
1) | Internal Monitoring |
(a) | Limits and Warning Levels |
(i) | Trading Book |
The trading book consists of financial instruments that are allocated to diverse portfolios based on their strategy. The market risk of these instruments stems mainly from being recorded at fair value. As a result, changes in market conditions can directly impact their value. The following sections describe the monitoring and control structure for market risk in the trading book used during 2015.
(a) | Value at Risk (VaR) |
The Value at Risk (VaR) methodology is the main tool for controlling market risk in the trading book. Its appeal lies in its providing a statistical measurement of the maximum expected loss at a certain defined level of confidence, consolidating the risk exposures with the observed distribution of market factors.
The Bank assigns global limits based on its activities in different markets. In addition, in order to complement these global limits, VaR sublimits are defined using diverse variables such as market volatility, volume, liquidity and return on capital are defined.
The following table presents the use of VaR during 2015 for the Bank and its Chilean and foreign subsidiaries.
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VaR Statistics for Bank and Subsidiaries
MCh$
VaR with 99% confidence level
2015 | ||||||||||||||||||
Minimum | Average | Maximum | Last | |||||||||||||||
CONSOLIDATED | Against P&L | 993.88 | 1,349.97 | 7,333.09 | 1,327.71 | |||||||||||||
CORPBANCA CHILE | Against P&L | 961.10 | 1,194.54 | 1,539.00 | 1,305.31 | |||||||||||||
CONSOLIDATED COLOMBIA | Against P&L | 157.44 | 295.43 | 517.12 | 403.03 | |||||||||||||
CORREDORES DE BOLSA S.A. | Against P&L | 37.80 | 86.96 | 119.96 | 81.24 | |||||||||||||
CORPBANCA NEW YORK | Against P&L | 0.03 | 0.28 | 2.21 | 0.34 |
FIGURE 1: VAR CONSUMPTION FOR THE BANK AND ITS SUBSIDIARIES
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The following graphs show the daily evolution of the VaR during 2015 for the Bank and its subsidiary in Colombia. As mentioned previously, the Var consumption of CorpBanca Chile (blue line) is consistently higher than CorpBanca Colombia (red line).
FIGURE 2: VAR TRENDS IN CHILE AND COLOMBIA IN 2015
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(i) | VaR Backtesting |
VaR backtesting is carried out at a local and corporate level by the different financial risk units. The backtesting methodology is applied consistently to all of the Bank’s portfolios. These exercises consist of comparing the estimated VaR measurements at a determined level of confidence and time horizon against the real results of losses obtained during the same time horizon. The methodology used compares the results obtained without considering the intraday results or changes in positions within the portfolio. This method corroborates the individual models’ ability to value and measure the risks from the different positions.
The graphs below compare the bank’s daily VaR estimates and the realized P&L over a period of 300 days in order to probe the VaR measurements’ consistency (Kupiec’s frequency test). Indeed, about 99% of the realized P&L should lie within the ±99% VaR interval. Given the time period of 300 days, there should be an expected number of 3 excesses.
As seen below, CorpBanca Chile exhibited 2 exceptions over the considered time period, which corresponds to the Basel green zone.
FIGURE 3: BACKTESTING TRENDS FOR CHILE IN 2015
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The graph presented above shows VaR movements with data from 300 days of history and the Bank’s results in Chile. Based on the graph, during the time frame indicated, there were 2 exceptions over the daily VaR. The frequency or Kupiec test places the model within the green zone, which indicates that the model is correct and aligned with the hypotheses made and accepts exceptions generated with a frequency of close to 1%, which are also independent from one another.
FIGURE 4: BACKTESTING TRENDS FOR COLOMBIA IN 2015
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The figure above illustrates an exception to the daily VaR. The frequency test places the model within the green zone, which indicates that there is no evidence for rejecting the model.
(b) Interest Rate and Currency Sensitivity
Measuring interest rate and currency sensitivity is one of the main tools for monitoring market risk in the trading book, enabling the Bank to break down, understand and report on the directional positions to which it is exposed.
Interest rate and currency sensitivity is monitored on a daily basis and is limited by the VaR limits established for each portfolio.
At the same time, exchange rate risk is controlled using notional limits, giving fluidity to currency products with customers and simultaneously limiting trading positions. The following table shows the current notional limits as well as closing positions as of year-end 2015, and statistics for that year.
As of December 31, 2015 | Consumption Statistics 2015 | |||||||||||||||||||||||
Exchange Rate | Position [USD] | VaR 99% [CLP] | VaR Inc 99% [CLP] | Minimum [USD] | Average [USD] | Maximum [USD] | ||||||||||||||||||
USD/CLP | (2,762,500 | ) | 36,736,323 | (8,851,222 | ) | (15,539,176 | ) | 3,909,861 | 20,537,405 | |||||||||||||||
EUR/USD | (4,182,583 | ) | 44,714,350 | 20,453,425 | (4,644,621 | ) | (628,976 | ) | 3,847,712 | |||||||||||||||
JPY/USD | 97,957 | 922,052 | (363,692 | ) | (130,447 | ) | 110,873 | 8,019,122 | ||||||||||||||||
GBP/USD | 164,707 | 1,361,434 | (383,271 | ) | (777,579 | ) | 84,218 | 299,155 | ||||||||||||||||
CAD/USD | 157,472 | 1,402,264 | 728,448 | (265,607 | ) | 107,933 | 280,168 | |||||||||||||||||
AUD/USD | 67,073 | 865,428 | (249,048 | ) | (33,986 | ) | 36,267 | 83,800 | ||||||||||||||||
MXN/USD | 74,141 | 814,771 | 23,711 | (24,711 | ) | 23,290 | 75,062 | |||||||||||||||||
PEN/USD | — | — | — | — | 697 | 10,471 | ||||||||||||||||||
BRL/USD | (22,553 | ) | 501,262 | (73,859 | ) | (914,258 | ) | (8,753 | ) | 60,875 | ||||||||||||||
COP/USD | (10,205 | ) | 175,291 | (61,146 | ) | (954,361 | ) | (66,546 | ) | 161,291 | ||||||||||||||
NOK/USD | 21,272 | 327,349 | 126,717 | 21,272 | 49,167 | 138,217 | ||||||||||||||||||
DKK/USD | 24,174 | 282,208 | (119,243 | ) | (297,483 | ) | 29,381 | 94,878 | ||||||||||||||||
SEK/USD | 357 | 4,120 | (738 | ) | (23,655 | ) | 6,433 | 18,231 | ||||||||||||||||
CHF/USD | 81,872 | 945,890 | (425,275 | ) | (2,334 | ) | 69,694 | 94,038 | ||||||||||||||||
WON/USD | — | — | — | — | — | — | ||||||||||||||||||
CNY/USD | 7,396 | 24,592 | (2,424 | ) | 2,665 | 10,189 | 34,627 |
FIGURE 5: CURRENT LIMITS AND CONSUMPTION OF CURRENCY POSITIONS FOR 2015
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The following tables show the trends in the most important currency positions managed in Chile, which are the U.S. dollar (USD) and the euro (EUR).
The graphs below show that the USD-Ch$ and EUR-USD exposures of CorpBanca Chile lie within the authorized limits.
FIGURE 6: EVOLUTION OF USD POSITION FOR 2015
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FIGURE 7: EVOLUTION OF EUR POSITION FOR 2015
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The limit for Colombia uses an overall position for all currencies, which cannot exceed US$ 40 million (notional). The table below shows the aggregate position for Colombia.
FIGURE 8: EVOLUTION OF USD/CH$ POSITION FOR 2015 CORPBANCA COLOMBIA
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(c) Sensitivity to Volatility
While the options portfolio is included in the VaR calculation described in the section above, the Bank also controls the risks associated with the currency options portfolio with additional limits, which promote the product as a customer necessity, more than as trading positions.
• | Gamma Risk Limit or Effect of Convexity of Options |
• | Vega Risk Limit or Effect of Variability of Area of Implied Market Volatility |
The following graphs show the use of limits as of year-end 2015 and trends in their use.
As of December 31, 2015 | ||||||||
Index | Limit | Value | ||||||
MCh$ | MCh$ | |||||||
Gamma Risk | 50 | — | ||||||
Vega Risk | 300 | 211 |
FIGURE 9: CONSUMPTION OF GAMMA AND VEGA RISK 2015
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FIGURE 10: TRENDS IN GAMMA RISK 2015
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FIGURE 11: TRENDS IN VEGA RISK 2015
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The following figures show the use of Gamma and Vega limits as of year-end 2015, for our subsidiary in Colombia.
As of December 31, 2015 | ||||||||
Index | Limit | Value | ||||||
(in million of Ch$) | ||||||||
Gamma Risk | 79 | 26 | ||||||
Vega Risk | 192 | 2 |
FIGURE 12: CONSUMPTION OF GAMMA AND VEGA RISK 2015 CORPBANCA COLOMBIA
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FIGURE 13: TRENDS IN VEGA RISK 2015 (CORPBANCA COLOMBIA)
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FIGURE 14: TRENDS IN GAMMA RISK 2015 (CORPBANCA COLOMBIA)
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(ii) Banking Book
The banking book consists primarily of:
Assets
• | Cash |
• | Commercial, mortgage and consumer loans from the commercial areas. |
• | Fixed-income instruments classified as available for sale or held to maturity. |
Liabilities
• | Demand deposits |
• | Time deposits |
• | Senior and subordinated bonds |
• | Derivative instruments that qualify for hedge accounting: Derivatives that, meeting certain requirements, are given an accounting treatment different than those derivatives recorded in the trading book, the objective of which is to manage risks in the banking book. |
The banking book’s main risks and the tools used to monitor, control and manage these risks are described below.
(a) | Financial Investment Positions |
The banking book includes a portfolio of financial investments classified as available-for-sale instruments, used to manage structural interest rate risk in the balance sheet. Exposure to this type of investments is calculated using PV01 and VaR market value sensitivities, in order to continuously monitor the volatility of book basis equity.
Hedge accounting is used as an effective and relatively low-cost tool to manage this risk.
(b) | Sensitivity to Indexation |
CorpBanca’s balance sheet presents a mismatch between inflation-indexed assets and liabilities. The Chilean market has more indexed assets than liabilities, which explains why the Bank has a mismatch of inflation-indexed assets. This is due to the existence of medium and long-term indexed assets that are financed with liabilities in Chilean pesos.
Hedge accounting is used as an effective and relatively low-cost tool to manage this risk.
The following table shows the size of the mismatch as December 31, 2015, and the mismatch statistics during the year.
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Statistics 2015 | ||||||||||||||||
December 31, 2015 | Minimum | Average | Maximum | |||||||||||||
(in million of Ch$) | ||||||||||||||||
Total Mismatch | 1,151,508 | 554,709 | 829,274 | 1,389,078 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance Sheet Mismatch | 1,791,742 | 1,558,585 | 1,629,130 | 2,234,983 | ||||||||||||
Derivatives Mismatch | (679,752 | ) | (1,011,179 | ) | (820,878 | ) | (852,365 | ) | ||||||||
Investment Mismatch | 39,518 | 7,303 | 21,022 | 6,460 |
FIGURE 15: INFLATION MISMATCH AS OF PERIOD-END 2015 AND STATISTICS FOR THE YEAR
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The following figure shows the evolution of this mismatch during 2015, and the relative ease with which the Bank to manage this risk. During the course of the 2015 exhibition held at moderate levels.
FIGURE 16: EVOLUTION OF INFLATION MISMATCH DURING 2015
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(c) Sensitivity of Financial Margin and Economic Capital
The Annual Income Sensitivity (AIS) index measures the sensitivity of the interest margin to 100 bps variations in the repricing rate for assets and liabilities during the next 12 months. The established limits are much lower than the Bank’s annual net income. During 2015, the sensitivity risk in the interest margin in Chile has remained low with a positive sensitivity to drops in interest rates.
The Market Value Sensitivity (MVS) index measures the sensitivity of the economic value (fair value) of the banking book in the event of a 100 bps increase in the valuation rates of assets and liabilities.
The tables below show the evolution of sensitivity indicators for interest margins and economic capital for Chile and Colombia.
FIGURE 17: EVOLUTION MVS AND AIS CHILE 2015
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FIGURE 18: EVOLUTION MVS AND AIS COLOMBIA 2015
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(d) Structural Exchange Rate Risk
Structural exchange rate risk arises from the Bank’s positions in currencies other than the Chilean peso related primarily to the consolidation of investments in subsidiaries or affiliates and the net income and hedges of these investments. The process of managing structural exchange rate risk is dynamic and attempts to limit the impact of currency depreciation, thus optimizing the financial cost of hedges.
The general policy for managing this risk is to finance them in the currency of the investment provided that the depth of the market so allows and the cost is justified by the expected depreciation. One-time hedges are also taken out when the Bank considers that any currency may weaken beyond market expectations with respect to the Chilean peso. As of December 31, 2015, greater ongoing exposure was concentrated in Colombian pesos (approximately US$ 1.1 billion).
The Bank hedges part of these positions on a permanent basis using currency derivatives.
(b) Stress Tests
These exercises allow weaknesses in positions and the balance sheet structure to be diagnosed. From this, the Bank can create a critical factor plan to be used before such scenarios come about, or a contingency plan for when the scenarios have already taken place or the estimated probability of occurrence is high.
(i) Trading Book
In addition, market stress tests can be performed to test trading book positions under diverse extreme scenarios in order to estimate the losses they would generate.
The results of the market stress tests on the trading book are reported periodically to the A&L Committee and the board of directors.
Stress tests conducted during 2015 indicated that none of the critical scenarios considered would affect the Bank’s solvency.
The list below enumerates some of the linear and historical sensitivity scenarios analyzed.
Scenario | Description | |
1 | Parallel shift of +50 bps | |
2 | Parallel shift of +75 bps | |
3 | Parallel shift of +100 bps | |
4 | Steepening of 0 to 100 bps in 5 years | |
5 | Twist of 25 bps pivoting in 5 years | |
6 | Shock to inflation compensation of +200 bps | |
7 | Shock to inflation compensation of -70 bps | |
8 | Shock of +80 bps to Libor-Camara curve | |
9 | Fall of Lehman Brothers (September 2008) | |
10 | Recomposition of AFP portfolios (March 2009) |
FIGURE 19: TRADING BOOK
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(ii) Banking Book
Market stress tests are also performed to test the banking book under diverse extreme scenarios in order to estimate the potential losses they would generate on both the interest margin and on capital.
Results of the market stress tests on the banking book are disclosed periodically to the A&L Committee and the board of directors.
Scenario | Description | |
1 | Parallel shift of 100 bps, +50 bps inflation compensation | |
2 | Parallel shift of 200 bps, +100 bps inflation compensation | |
3 | Parallel shift of 300 bps, +150 bps inflation compensation | |
4 | Ramp of 0 to 100 bps in 1 year, +50 bps inflation compensation | |
5 | Inverse ramp of 0 to 100 bps in 1 year, -200 bps inflation compensation | |
6 | +3 standard deviations, +50 bps inflation compensation | |
7 | +6 standard deviations, +150 bps inflation compensation | |
8 | Shock to inflation compensation of +200 bps | |
9 | Global recession,D inflation compensation: -200 bps | |
10 | Global recovery,D inflation compensation: +200 bps |
FIGURE 20: BANKING BOOK
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(c) | Methodologies |
(i) | Trading Book |
(a) | Value at Risk - VaR |
For the calculation of VaR, the non-parametric method of historical simulation is used, which consists of using a historical series of prices and the position at risk from the trading book.
A time series of simulated prices and yields is constructed with the assumption that the portfolio was conserved for the period of time of the historical series. The VaR tries to quantify a threshold of expected losses, which should only occur a certain percentage of times based on the level of confidence used in the calculation.
(b) | Rate Sensitivity |
Sources of rate risk include forwards, swaps and options. Rate sensitivity is calculated and reported by portfolio, by relevant discount curve and by maturity.
The present value of the portfolio is stressed by 1 bp. In other words, the present value is calculated by increasing the respective discount rate by 1 bp. The sensitivity of options is calculated using the theta value.
The variation in the present value of the portfolio corresponds to its sensitivity at a variation of one basis point (bp).
• | DV01 : Sensitivity to 1 bp variation in rate i at band m. |
• | PV : Present value of portfolio’s cash flows. |
• | PV’im : Present value of portfolio’s cash flows with shock of 1 bp in rate i at time band m. |
• | Pim : Net position in Ch$ at time band i, currency m. |
• | rim : Representative rate of currency m, time band i. |
• | Ti : Representative maturity of time band i. |
(c) | Currency Sensitivities |
Sources of exchange rate risk come from both balance sheet and off-balance sheet positions such as derivatives.
Currency or position sensitivity corresponds to the market valuation of each cash flow in the currency of origin. That is, the cash flows in foreign currency expressed at present value.
• | PV : Present value of portfolio’s cash flows. |
• | PV’m : Present value of portfolio’s cash flows with shock of 1 unit in exchange rate of currency m with respect to USD. |
(ii) | Banking Book |
(a) | Sensitivity to Indexation |
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Sources of indexation risk come from both balance sheet and off-balance sheet positions such as derivatives that, as a result of a change in indexation units (UF, UVR or others), impact the Bank’s net income.
As with currency sensitivity, indexation sensitivity is the market valuation of each indexed cash flow. That is, cash flows in indexation units expressed at present value.
• | PV : Present value of portfolio’s cash flows. |
• | PV’m : Present value of portfolio’s cash flows with shock of 1 unit in indexation unit. |
(b) | Sensitivity of Financial Margin |
This measures the impact caused by a movement of 100 bp, over a twelve-month horizon, in the Bank’s financial margin (interest earned less interest paid).
The information required to calculate the index is obtained from the regulatory cash flows of the market risk data from the balance sheet book (regulatory report C40) only considering the time bands up to and including 1Y.
• | AIS : Annual Income Sensitivity. |
• | Pim : Net position in Ch$ in respective time band. |
• | Dr : Variation of 100 bp. |
• | Ti : Representative maturity of time band i. |
(c) | Sensitivity of Economic Capital |
This measures the sensitivity of the market value of the cash flows associated with assets and liabilities in the event of a parallel change of 100 bp in the relevant discount curve.
The information required to calculate the index is obtained from the cash flows of the Bank’s entire portfolio using data from the banking book.
The present value of the aggregate flows are discounted using the average terms of the respective time bands. Then the present value is calculated similarly with a shock increasing the respective discount rate by 100 bp.
• | MVS : Market Value Sensitivity. |
• | PVim : Present value of the cash flows of time band i, currency m. |
• | PV’im : Present value of the cash flows of time band i, currency m, with a shock of 100 bp in discount rates. |
• | Pim : Net position in Ch$ at time band i, currency m. |
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• | rim : Representative rate of currency m, time band i. |
• | Ti : Representative maturity of time band i. |
(2) | Regulatory Monitoring |
Regulatory monitoring of market risk exposure is measured in accordance with chapter III.B.2.2 of the Compendium of Financial Standards from the Chilean Central Bank and chapter 12-21 of the Updated Compilation of Standards from the Superintendency of Banks and Financial Institutions for both the trading book and the banking book. In the trading book, the impact is measured in the event of a change in the market price of its financial positions as a result of variations in interest rates, exchange rates and volatility. In the banking book, the impact is measured on the entity’s financial margin and present value.
The limits established for the trading book are for exposure to interest rate risk and exchange rate risk. The difference between the regulatory capital recorded by the financial institution and the sum of the following two items cannot be negative: (i) the product of the credit risk-weighted assets defined in article 67 of the Chilean General Banking Act and the minimum percentage established for regulatory capital in article 66 of that law, and (ii) the sum of the trading book’s exposure to interest rate risk and the exchange rate risks for the entire balance sheet measured in accordance with the
Basel standard methodology with some important differences where exchange rate exposure stands out. As indicated in the paragraph above, the Bank must always comply with the following ratio:
RC-((k*CRWA)+MRE)>0
Where: | ||
RC | : Regulatory Capital | |
CRWA | : Credit Risk Weighted Assets | |
MRE | : Exposure to interest rate risk in trading book and currency Risk in entire balance Sheet | |
k | : Minimum percentage established for regulatory capital in article 66 of General Banking Law |
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Group | Description Sensitivity | Factor | ||
i | Each of the foreign currencies of countries with long-term external debt in foreign currency with a rating of at least AAAr, or equivalent, from any of the risk rating agencies indicated in Chapter III.B.5 of this Compendium. It also considers the EURO and the position in gold. | ơí = 8% | ||
j | Each of the foreign currencies of countries not included in basket i. | ơj- = 35% |
Market risk exposure in accordance with regulatory methodology is detailed below:
Market Risk Limit for Trading Book | 2013 | 2014 | 2015 | |||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Market Risk-Weighted Assets | 3,379,014 | 4,241,613 | 2,325,513 | |||||||||
Rate Trading | 796,729 | 785,550 | 735,625 | |||||||||
Currency Trading | 36,959 | 863 | 18,488 | |||||||||
Options Trading | 11,960 | 10,075 | 8,550 | |||||||||
Currency Structural moneda | 2,533,366 | 3,445,125 | 1,562,850 | |||||||||
Credit Risk-Weighted Assets | 15,058,532 | 16,715,382 | 17,465,950 | |||||||||
Total Risk-Weighted Assets | 18,437,546 | 20,956,995 | 19,791,463 | |||||||||
Regulatory Capital | 1,991,289 | 2,071,647 | 1,666,708 | |||||||||
Basel Index | 13.22 | % | 12.39 | % | 9.54 | % | ||||||
Badel Index (includes MRE *) | 10.80 | % | 9.89 | % | 8.42 | % | ||||||
Margin | 516,285 | 729,389 | 264,724 | |||||||||
% Consumption | 74.07 | % | 64.79 | % | 84.12 | % |
(*) | Market risk expositions |
FIGURE 21: MARKET RISK LIMIT FOR TRADING BOOK
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The market risk presented in the table above (measured in units of risk-weighted assets) shows that capital consumption related to the Bank’s exposures to market risks is explained in more than 83% of the cases by the effect of our investment in Banco CorpBanca Colombia. As of December 2015, this investment amounted to approximately US$ 815 million. This exposure to exchange rate risk —Chilean peso vs. Colombian peso— is considered structural in the sense that it arises from a long-term investment.
It is also worth mentioning that in accordance with Chilean regulations; a sensitivity factor of 35% is applied to net exposures in foreign currencies of countries other than those classified as AAA or their equivalent. The standard sensitivity factor in the Basel standards is only 8%. As a result, the capital consumption that the Bank must report to comply with local regulations is more than 4 times greater than if international recommendations were applied.
The regulatory model for market risk in Colombia, as in Chile, is based on the standard Basel model, separated into risk factors (i.e. interest rate, exchange rate and stock price). The volatilities applied to each of the factors are established by regulators. This result is used for the solvency margin, to which a factor equivalent to 100/9 is applied.
CorpBanca Colombia | ||||
Market Risk | 2015 | |||
MCh$ | ||||
Risk-Weighted Assets (RWA) | 576,312 | |||
Trading | 576,312 | |||
Structural (currency) | — | |||
Credit Risk | 5,470,672 | |||
Total Risk-Weighted Assets | 6,046,984 | |||
Regulatory Capital | 780,375 | |||
Basel Index | 14.00 | % | ||
Badel Index (includes MRE*) | 12.70 | % | ||
Margin | 291,020 | |||
% Consumption | 62.70 | % |
FIGURE 22: MARKET RISK IN COLOMBIA
Chilean regulations also require banks to establish limits for their market risk exposure in their banking book, which includes limits based on sensitivity in the financial margin and volatility in its equity value. Measurement of exposure to interest rate and indexation risks in the banking book must consider both the short-term impact on the capacity to generate net interest and indexation income and the fees sensitive to changes in interest rates, as well as the long-term impact on the institution’s economic value of adverse movements in interest rates.
The banking book’s exposure to the net interest and indexation margin is known as the short-term limit and cannot exceed 35% of the accumulated interest and indexation margin, plus fees sensitive to interest rates charged in the twelve months prior to the date of measurement. The exposure of capital to changes in interest rates has a long-term limit that cannot exceed 20% of regulatory capital. Both limits were presented and ratified by the Bank’s board of directors.
The exposure of regulatory limits in the banking book for Chile are detailed as follows:
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Market Risk Limit for Banking Book | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
Short-Term Limit | MCh$ | MCh$ | MCh$ | |||||||||
Exposure | 54,949 | 64,990 | 78,425 | |||||||||
Rate Risk | 22,502 | 39,274 | 43,914 | |||||||||
Indexation Risk | 28,666 | 21,683 | 29,662 | |||||||||
Reduced Revenue (fees sensitive to insterest rates) | 3,781 | 4,033 | 4,849 | |||||||||
Limit | 97,651 | 130,591 | 127,006 | |||||||||
Consumption % | 56.3 | % | 49.8 | % | 61.7 | % | ||||||
Financial Margin plus Fees (12 months) | 279,003 | 373,118 | 362,875 | |||||||||
Percentage over financial margin | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
Short-term Limit | 97,651 | 130,591 | 127,006 | |||||||||
Consumption with respect to financial margin | 19.7 | % | 17.4 | % | 21.6 | % | ||||||
Long-Term Limit | ||||||||||||
Exposure | 157,786 | 266,394 | 269,568 | |||||||||
Rate Risk | 157,786 | 266,394 | 269,568 | |||||||||
Limit | 537,648 | 414,329 | 333,342 | |||||||||
Consumption % | 29.3 | % | 64.3 | % | 80.9 | % | ||||||
Regulatory Capital (RC) | 1,991,289 | 2,071,647 | 1,666,708 | |||||||||
Percentage over margin | 27 | % | 20 | % | 20 | % | ||||||
Long-term Limit | 537,648 | 414,329 | 333,342 | |||||||||
Consumption with respect to regulatory capital | 7.9 | % | 12.9 | % | 16.2 | % |
FIGURE 23: MARKET RISK LIMIT FOR BANKING BOOK
Finally, regulatory provisions in Colombia do not establish methodologies for determining market risk exposure for the banking book. However, they are monitored, controlled and reported on a daily basis using the internal methodologies described above.
2. Funding Liquidity Risk
a) Management Tools
Our general policy is to maintain sufficient liquidity to ensure our ability to honor withdrawals of deposits, make repayments of other liabilities at maturity, extend loans and meet any other obligation. In order to comply with risk management objectives for funding liquidity risk, the monitoring and control structure is centered mainly on the following focal points:
• | Short-term maturity mismatch |
• | Coverage capacity using liquid assets |
• | Concentration of funding sources |
Additionally, the monitoring and control structure for liquidity risk is complemented with stress testing in order to observe the institution’s ability to respond in the event of illiquid conditions.
(1) | Internal Monitoring |
(a) | Limits and Warning Levels |
(i) | Thirty-day Liquidity Coverage Ratio |
In order to safeguard the Bank’s payment capacity in the event of illiquid conditions; a minimum has been established for the instrument portfolio that enables cash flows to be quickly generated either through liquidation or because they can be used as collateral for new funding sources.
The limit on the coverage ratio of liquidity is 50% of the mismatches of 30 days (consolidated currency).
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The composition of liquid assets as of year-end December 2015, after applying the respective price volatility haircuts and market liquidity adjustments is presented in the table below.
Liquid Assets CorpBanca Chile | ||||||||||||
Investment Portfolio Chile As of December 31, 2015 | Liquid Assets in domestic currency (30 days) | Liquid Assets in foreign currency (30 days) | Total Liquid Assets | |||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Cash and cash equivalents | 489,478 | 160,519 | 649,997 | |||||||||
Central Bank and goverment securities | 710,057 | — | 710,057 | |||||||||
Bank time deposits | 61,330 | — | 61,330 | |||||||||
Corporate bonds | 23,664 | 24,031 | 47,695 | |||||||||
Bank bonds | 23,553 | 11,543 | 35,096 | |||||||||
Repo agreements | (29,817 | ) | — | (29,817 | ) | |||||||
Average clearance reserves required | (217,782 | ) | (20,230 | ) | (238,012 | ) | ||||||
Liquid Assets | 1,060,483 | 175,863 | 1,236,346 |
FIGURE 24: LIQUID ASSETS CORPBANCA CHILE
Liquid Assets CorpBanca Colombia | ||||||||||||
Investment Portfolio Colombia As of December 31, 2015 | Liquid Assets in domestic currency (30 days) | Liquid Assets in foreign currency (30 days) | Total Liquid Assets | |||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Cash and cash equivalents | 362,716 | 9,102 | 371,818 | |||||||||
Central Bank and goverment securities | 837,423 | — | 837,423 | �� | ||||||||
Bank time deposits | — | — | — | |||||||||
Corporate bonds | 190,533 | — | 190,533 | |||||||||
Bank bonds | — | — | — | |||||||||
Repo agreements | — | — | — | |||||||||
Average clearance reserves required | (365,960 | ) | — | (365,960 | ) | |||||||
Liquid Assets | 1,024,712 | 9,102 | 1,033,814 |
FIGURE 25: LIQUID ASSETS CORPBANCA COLOMBIA
(ii) | Daily Wholesale Maturities |
In order to control concentration of funding sources and safeguard compliance with obligations, the Bank monitors maturities of deposits in Chilean pesos by wholesale customers. This monitoring is conducted with a daily limit of MCh$50,000 in maturities per day.
Special treatment is given to this customer segment for two reasons:
• | They individually could represent an important percentage of CorpBanca’s business. |
• | Given the profile of these customers in the wholesale segment, the renewal rate for these deposits tends to be lower. This last reason is consistent with cash disbursement models in regulatory reports, which do not assume that wholesale customers will renew deposits. |
The maturity profile for wholesale deposits is monitored on a daily basis for every country. As a result, excesses are detected and reported based on the structure of the maturity profile. Forecasted excesses must be justified the day after they are reported and must then be managed.
(iii) | Warning Levels for Liquidity Requirements |
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In addition to monitoring and reporting all internal limits on a daily basis, senior management is informed each month through the A&L Committee and the board of directors is informed each quarter. Special importance is placed on the Bank’s liquidity position by presenting an analysis of measurements of concentration, performance, premiums paid and/or other relevant variables.
(a) | Monitoring Funding Sources |
Monitoring of variations in the stock of short-term funding such as time and demand deposits for each of the segments represents a key variable in monitoring the Bank’s liquidity. Identifying abnormal volatilities in these funding sources enables the Bank to quickly foresee possible undesired liquidity problems and thus to suggest action plans for managing them.
During 2015, different strategies were implemented to diversify liabilities, including: diversifying time deposits, expanding stable funding sources such as on-line time deposits by individuals and issuing bonds.
These strategies enabled the Bank to continue to improve its funding structure, providing more stable funding.
(b) | Survival Horizon under Individual Stress |
As a function of stressed maturities and renewal ratios, days of survival are estimated based on projected liquidity needs and the portfolio of available liquid assets. Based on these scenarios, any significant deviation is studied to determine whether action plans need to be implemented.
(b) | Stress Tests |
Stress testing is a tool that complements the analysis of liquidity risk management as it enables the Bank to know its ability to respond in the event of extreme illiquid conditions and to trigger its contingency plans, if necessary, to address such conditions.
In particular, three types of scenarios are modeled:
• | Individual Crisis: the financial system losses confidence in the Bank, which translates into important withdrawals from demand accounts, decreases in deposits and bond investments by customers and penalties to its funding rates. |
• | Systemic Crisis: Local weakening of financial and credit conditions that causes the market to seek refuge in the U.S. dollar, greater restrictions on access to credit from abroad, massive outflows of capital, increases in the use of lines of credit and downward adjustments in expectations for the monetary policy rate. |
• | Global Crisis: Global weakening of financial, credit and economic conditions that causes the market to seek refuge in the U.S. dollar, greater restrictions on access to credit from abroad, decreased exposure to credit risk (replaced by sovereign risk), increases in the use of lines of credit and downward adjustments in expectations for the monetary policy rate. |
(2) | Regulatory Monitoring |
(a) | Liquidity requirement |
In accordance with Chapter III B.2 from the Chilean Central Bank and Chapter 12-9 of the Updated Compilation of Standards from the SBIF, the Bank must measure and control its liquidity position based on the difference between cash flows payable from liability and expense accounts and cash flows receivable from asset and income accounts for a given period or time band, which is called maturity mismatch.
This measurement is determined for controlling the liquidity position of the Bank itself and of its subsidiaries. The maturity mismatch calculation is carried out separately for domestic and foreign currency, setting limits based on capital and cash flows accumulated at 30 and 90 days:
• | The maturity mismatch in all currencies for periods less than or equal to 30 days must be less than or equal to the Bank’s basic capital. |
• | The maturity mismatch in foreign currencies for periods less than or equal to 30 days must be less than or equal to the Bank’s basic capital. |
• | The maturity mismatch in all currencies for periods less than or equal to 90 days must be less than or equal to twice the Bank’s basic capital. |
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In full compliance with the Chilean Central Bank and the SBIF, CorpBanca’s board of directors approved a policy to measure and control its liquidity position based on maturity mismatches on an adjusted basis with a 10% cushion with respect to the regulatory limit.
The table below shows the use of internal mismatch limits as of December 31, 2015 and some consumption statistics for the year.
As of December 31, 2015 | Statistics 2015 | |||||||||||||||||||||||
Table of Contents | Límit [MCh$] | Mismatch [MCh$] | Excess Reserve [MCh$] | Mínimum [MCh$] | Average [MCh$] | Máximum [MCh$] | ||||||||||||||||||
All currencies 30 days | 1,065,156 | 315,240 | 1,380,396 | 1,120,630 | 1,483,457 | 1,901,288 | ||||||||||||||||||
All currencies 90 days | 2,130,313 | 62,587 | 2,192,900 | 1,697,334 | 2,165,066 | 2,723,342 | ||||||||||||||||||
Foreign currency 30 days | 1,065,156 | 203,051 | 1,268,207 | 1,106,777 | 1,424,324 | 1,893,928 |
As of December 31, 2014 | As of December 31, 2013 | |||||||||||||||||||||||
Table of Contents | Límit [MCh$] | Mismatch [MCh$] | Excess Reserve [MCh$] | Límit [MCh$] | Mismatch [MCh$] | Excess Reserve [MCh$] | ||||||||||||||||||
All currencies 30 days | 1,362,821 | 567,416 | 1,930,237 | 1,404,443 | (146,681 | ) | 1,257,762 | |||||||||||||||||
All currencies 90 days | 2,725,642 | (381,918 | ) | 2,343,724 | 2,808,886 | (981,388 | ) | 1,827,498 | ||||||||||||||||
Foreign currency 30 days | 1,362,821 | 281,575 | 1,644,396 | 1,404,443 | 19,210 | 1,423,653 |
FIGURE 26: INTERNAL LIMITS AND CURRENCY MISMATCHES
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Figures 27, 28 and 29 show the evolution of consumption for each limit in 2015.
FIGURE 27: EVOLUTION OF CONSOLIDATED MISMATCH IN ALL CURRENCIES AT 30 DAYS DURING 2015
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FIGURE 28: EVOLUTION OF CONSOLIDATED MISMATCH IN ALL CURRENCIES AT 90 DAYS DURING 2015
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FIGURE 29: EVOLUTION OF CONSOLIDATED MISMATCH IN FOREIGN CURRENCIES AT 30 DAYS DURING 2015
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In the Colombian market, the regulatory measurement known as the standard LRI model measures 7 and 30-day liquidity gaps. It allows entities to quantify the level of minimum liquid assets, in domestic and foreign currency, that they should maintain each day in order to, at a minimum, meet their payment obligations fully and on time. Entities must be capable of measuring and forecasting the cash flows of their assets, liabilities, off-balance sheet positions and derivative instruments for different time horizons in both normal scenarios and crisis scenarios where cash flows vary significantly from expectations as a result of unforeseen changes in markets, the entity or both.
The following figures show the evolution of the 7 and 30 day liquidity gaps in Colombia in 2015.
FIGURE 30: CONSOLIDATED 7-DAY LIQUIDITY GAP 2015 COLOMBIA
FIGURE 31: CONSOLIDATED 30-DAY LIQUIDITY GAP 2015 COLOMBIA
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D. Disclosures Regarding Derivative Financial Instruments
We enter into transactions involving derivative instruments particularly foreign exchange contracts, as part of our asset and liability management and in acting as a dealer to satisfy our clients’ needs. These transactions arise from forward exchange contracts which are of two types: (i) transactions covering two foreign currencies and (ii) transactions covering Chilean pesos against the U.S. dollar.
Foreign exchange forward contracts involve an agreement to exchange the currency of one country for the currency of another country at an agreed-upon price and settlement date. These contracts are generally standardized contracts, normally for periods between 1 and 180 days and are not traded in a secondary market; however, in the normal course of business and with the agreement of the original counterparty, they may be terminated or assigned to another counterparty.
When we enter into a forward exchange contract, we analyze and approve the credit risk (the risk that the counterparty might default on its obligations). Subsequently, on an ongoing basis, we monitor the possible losses involved in each contract. To manage the level of credit risk, we deal with counterparties of good credit standing, enter into master netting agreements whenever possible and, when appropriate, obtain collateral.
The Central Bank of Chile requires that foreign exchange forward contracts be made only in U.S. dollars and other major foreign currencies. Most of our forward contracts are made in U.S. dollars against the Chilean peso or the UF. In September 1997, the Central Bank of Chile changed its regulations with respect to foreign currency forward contracts. We may now enter into foreign currency forward contracts with companies organized and located outside of Chile, including foreign subsidiaries of Chilean companies.
Unrealized gains, losses, premiums and discounts arising from foreign exchange forward contracts are shown under other assets and other liabilities.
The following table summarizes our derivative portfolio as of December 31, 2013, 2014 and 2015:
Derivatives financial assets
As of December 31, 2013 | ||||||||||||||||
Notional | ||||||||||||||||
Up to 3 months | 3 months to 1 year | Over one year | Fair Value | |||||||||||||
(in million of Ch$) | ||||||||||||||||
Foreign Currency Forwards | 3,401,493 | 1,568,880 | 257,382 | 70,265 | ||||||||||||
Interest Rate Swap | 476,480 | 1,259,204 | 6,437,978 | 153,007 | ||||||||||||
Foreign Currency Swap | 52,983 | 348,823 | 1,761,247 | 150,528 | ||||||||||||
Foreign Currency Call Options | 61,226 | 65,320 | — | 1,968 | ||||||||||||
Foreign Currency Put Options | 35,861 | 40,490 | — | 512 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 4,028,043 | 3,282,717 | 8,456,607 | 376,280 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As of December 31, 2014 | ||||||||||||||||
Notional | ||||||||||||||||
Up to 3 months | 3 months to 1 year | Over one year | Fair Value | |||||||||||||
(in million of Ch$) | ||||||||||||||||
Foreign Currency Forwards | 2,152,673 | 2,664,433 | 1,363,602 | 154,229 | ||||||||||||
Interest Rate Swap | 377,694 | 940,134 | 5,011,624 | 285,741 | ||||||||||||
Foreign Currency Swap | 153,015 | 297,605 | 1,922,635 | 323,785 | ||||||||||||
Foreign Currency Call Options | 39,462 | 36,175 | — | 2,648 | ||||||||||||
Foreign Currency Put Options | 49,992 | 34,594 | — | 396 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 2,772,836 | 3,972,941 | 8,297,861 | 766,799 | ||||||||||||
|
|
|
|
|
|
|
|
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As of December 31, 2015 | ||||||||||||||||
Notional | ||||||||||||||||
Up to 3 months | 3 months to 1 year | Over one year | Fair Value | |||||||||||||
(in million of Ch$) | ||||||||||||||||
Foreign Currency Forwards | 5,295,033 | 3,044,798 | 624,735 | 225,986 | ||||||||||||
Interest Rate Swap | 1,255,296 | 2,232,986 | 10,173,202 | 318,817 | ||||||||||||
Foreign Currency Swap | 37,925 | 110,613 | 3,044,960 | 458,946 | ||||||||||||
Foreign Currency Call Options | 83,343 | 87,933 | — | 4,655 | ||||||||||||
Foreign Currency Put Options | 32,766 | 25,800 | — | 511 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 6,704,363 | 5,502,130 | 13,842,897 | 1,008,915 | ||||||||||||
|
|
|
|
|
|
|
|
Derivatives financial liabilities
As of December 31, 2013 | ||||||||||||||||
Notional | ||||||||||||||||
Up to 3 months | 3 months to 1 year | Over one year | Fair Value | |||||||||||||
(in million of Ch$) | ||||||||||||||||
Foreign Currency Forwards | 3,431,709 | 1,947,645 | 228,605 | 62,170 | ||||||||||||
Interest Rate Swap | 628,224 | 1,977,705 | 6,061,512 | 100,784 | ||||||||||||
Foreign Currency Swap | 78,762 | 305,554 | 1,209,442 | 114,518 | ||||||||||||
Foreign Currency Call Options | 68,540 | 53,231 | — | 3,549 | ||||||||||||
Foreign Currency Put Options | 9,750 | 20,094 | — | 562 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 4,216,985 | 4,304,229 | 7,499,559 | 281,583 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As of December 31, 2014 | ||||||||||||||||
Notional | ||||||||||||||||
Up to 3 months | 3 months to 1 year | Over one year | Fair Value | |||||||||||||
(in million of Ch$) | ||||||||||||||||
Foreign Currency Forwards | 2,220,727 | 2,719,896 | 1,018,111 | 140,949 | ||||||||||||
Interest Rate Swap | 610,578 | 1,281,465 | 4,629,389 | 222,623 | ||||||||||||
Foreign Currency Swap | 99,063 | 320,262 | 1,243,465 | 240,861 | ||||||||||||
Foreign Currency Call Options | 60,237 | 39,121 | — | 2,564 | ||||||||||||
Foreign Currency Put Options | 11,420 | 14,727 | — | 686 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 3,002,025 | 4,375,471 | 6,890,965 | 607,683 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As of December 31, 2015 | ||||||||||||||||
Notional | ||||||||||||||||
Up to 3 months | 3 months to 1 year | Over one year | Fair Value | |||||||||||||
(in million of Ch$) | ||||||||||||||||
Foreign Currency Forwards | 4,684,078 | 2,921,873 | 470,323 | 191,589 | ||||||||||||
Interest Rate Swap | 708,063 | 2,117,270 | 8,658,594 | 192,537 | ||||||||||||
Foreign Currency Swap | 97,583 | 347,591 | 1,747,416 | 342,675 | ||||||||||||
Foreign Currency Call Options | 61,962 | 58,256 | — | 3,511 | ||||||||||||
Foreign Currency Put Options | 45,674 | 57,877 | — | 802 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 5,597,360 | 5,502,867 | 10,876,333 | 731,114 | ||||||||||||
|
|
|
|
|
|
|
|
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Financial Position | Profit or loss | |||||||||||||||||||||||||||||||||||
Positions | Final Position | Opening Position | Unrealized Gain/(Loss) | Realized Gain/(Loss) | Net Effect Gain/(Loss) | Unrealized Gain/(Loss) Other | Coverage Element Gain/(Loss) | |||||||||||||||||||||||||||||
Assets | Liabilities | |||||||||||||||||||||||||||||||||||
As of December 2013 | (in million of Ch$) | |||||||||||||||||||||||||||||||||||
(A) | (B) | (A-B) = (C) | (D) | (C) - (D) = (E) | (F) | (E) + (F) = (G) | (H) | (I) | ||||||||||||||||||||||||||||
Derivatives held-for-trading | Note 7 | Note 7 | Note 25 | Note 22 | Note 23 | |||||||||||||||||||||||||||||||
Foreign currency forwards | 70,232 | 61,377 | 8,855 | (4,545 | ) | 13,400 | 18,130 | 31,530 | ||||||||||||||||||||||||||||
Interest rate swaps | 152,591 | 93,382 | 59,209 | 24,286 | 34,923 | 2,393 | 37,316 | |||||||||||||||||||||||||||||
Foreing currency swaps | 147,357 | 111,256 | 36,101 | 53,306 | (17,205 | ) | 8,748 | (8,457 | ) | |||||||||||||||||||||||||||
Foreign currency call options | 1,968 | 3,549 | (1,581 | ) | (811 | ) | (770 | ) | (4,362 | ) | (5,132 | ) | ||||||||||||||||||||||||
Foreign currency put options | 512 | 562 | (50 | ) | 407 | (457 | ) | 3,671 | 3,214 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total derivatives held-for-trading | 372,660 | 270,126 | 102,534 | 72,643 | 29,891 | 28,580 | 58,471 | |||||||||||||||||||||||||||||
Derivatives hedge accounting | Note 7 | Note 7 | Note 26 | |||||||||||||||||||||||||||||||||
Fair Value hedges | 385 | 5,396 | (5,011 | ) | 2,752 | (7,763 | ) | 4,268 | (3,495 | ) | — | 6,955 | ||||||||||||||||||||||||
Cash flow hedges | 3,235 | 6,061 | (2,826 | ) | (1,212 | ) | (1,614 | ) | 6,168 | 4,554 | (5,187 | ) | — | |||||||||||||||||||||||
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Total derivatives hedge accounting | 3,620 | 11,457 | (7,837 | ) | 1,540 | (9,377 | ) | 10,436 | 1,059 | (5,187 | ) | 6,955 | ||||||||||||||||||||||||
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Total | 376,280 | 281,583 | ||||||||||||||||||||||||||||||||||
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Financial Position | Profit or loss | |||||||||||||||||||||||||||||||||||
Positions | Final Position | Opening Position | Unrealized Gain/(Loss) | Realized Gain/(Loss) | Net Effect Gain/(Loss) | Unrealized Gain/(Loss) Other | Coverage Element Gain/(Loss) | |||||||||||||||||||||||||||||
Assets | Liabilities | |||||||||||||||||||||||||||||||||||
As of December 31, 2014 | (in million of Ch$) | |||||||||||||||||||||||||||||||||||
(A) | (B) | (A-B) = (C) | (D) | (C) - (D) = (E) | (F) | (E) + (F) = (G) | (H) | (I) | ||||||||||||||||||||||||||||
Derivatives held-for-trading | Note 8 | Note 8 | Note 26 | Note 23 | Note 24 | |||||||||||||||||||||||||||||||
Foreign currency forwards | 154,214 | 134,337 | 19,877 | 8,855 | 11,022 | 69,750 | 80,772 | |||||||||||||||||||||||||||||
Interest rate swaps | 283,089 | 214,835 | 68,254 | 59,209 | 9,045 | 11,301 | 20,346 | |||||||||||||||||||||||||||||
Foreing currency swaps | 317,667 | 236,727 | 80,940 | 36,101 | 44,839 | (49,130 | ) | (4,291 | ) | |||||||||||||||||||||||||||
Foreign currency call options | 2,648 | 2,564 | 84 | (1,581 | ) | 1,665 | (9,148 | ) | (7,483 | ) | ||||||||||||||||||||||||||
Foreign currency put options | 396 | 686 | (290 | ) | (50 | ) | (240 | ) | 5,175 | 4,935 | ||||||||||||||||||||||||||
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Total derivatives held-for-trading | 758,014 | 589,149 | 168,865 | 102,534 | 66,331 | 27,948 | 94,279 | |||||||||||||||||||||||||||||
Derivatives hedge accounting | Note 8 | Note 8 | Note 27 | |||||||||||||||||||||||||||||||||
Fair Value hedges | 6,875 | 6,408 | 467 | (5,011 | ) | 5,478 | (2,045 | ) | 3,433 | — | (577 | ) | ||||||||||||||||||||||||
Cash flow hedges | 1,910 | 12,126 | (10,216 | ) | (2,826 | ) | (7,390 | ) | (7,220 | ) | (14,610 | ) | 958 | — | ||||||||||||||||||||||
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Total derivatives hedge accounting | 8,785 | 18,534 | (9,749 | ) | (7,837 | ) | (1,912 | ) | (9,265 | ) | (11,177 | ) | 958 | (577 | ) | |||||||||||||||||||||
Net invesment in foreing operation | ||||||||||||||||||||||||||||||||||||
Foreign currency forwards | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
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Total Net invesment in foreing operation | — | — | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Total | 766,799 | 607,683 | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Financial Position | Profit or loss | |||||||||||||||||||||||||||||||||||
Positions | Final Position | Opening Position | Unrealized Gain/(Loss) | Realized Gain/(Loss) | Net Effect Gain/(Loss) | Unrealized Gain/(Loss) Other | Coverage Element Gain/(Loss) | |||||||||||||||||||||||||||||
Assets | Liabilities | |||||||||||||||||||||||||||||||||||
As of December 31, 2015 | (in million of Ch$) | |||||||||||||||||||||||||||||||||||
(A) | (B) | (A-B) = (C) | (D) | (C) - (D) = (E) | (F) | (E) + (F) = (G) | (H) | (I) | ||||||||||||||||||||||||||||
Derivatives held-for-trading | Note 8 | Note 8 | Note 26 | Note 8 | Note 24 | |||||||||||||||||||||||||||||||
Foreign currency forwards | 222,956 | 179,610 | 43,346 | 19,877 | 23,469 | 198,588 | 222,057 | |||||||||||||||||||||||||||||
Interest rate swaps | 315,677 | 185,389 | 130,288 | 68,254 | 62,034 | (53,863 | ) | 8,171 | ||||||||||||||||||||||||||||
Foreing currency swaps | 433,578 | 322,795 | 110,783 | 80,940 | 29,843 | (37,182 | ) | (7,339 | ) | |||||||||||||||||||||||||||
Foreign currency call options | 4,655 | 3,511 | 1,144 | 84 | 1,060 | 52,264 | 53,324 | |||||||||||||||||||||||||||||
Foreign currency put options | 511 | 802 | (291 | ) | (290 | ) | (1 | ) | 9,957 | 9,956 | ||||||||||||||||||||||||||
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Total derivatives held-for-trading | 977,377 | 692,107 | 285,270 | 168,865 | 116,405 | 169,763 | 286,168 | |||||||||||||||||||||||||||||
Derivatives hedge accounting | Note 8 | Note 8 | Note 27 | |||||||||||||||||||||||||||||||||
Fair Value hedges | 5,205 | 8,922 | (3,717 | ) | 467 | (4,184 | ) | (56,883 | ) | (61,067 | ) | — | 3,461 | |||||||||||||||||||||||
Cash flow hedges | 23,712 | 24,476 | (3,752 | ) | (10,216 | ) | 6,464 | 48,593 | 55,057 | (3,088 | ) | — | ||||||||||||||||||||||||
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| |||||||||||||||||||
Total derivatives hedge accounting | 28,917 | 33,398 | (7,469 | ) | (9,749 | ) | 2,280 | (8,290 | ) | (6,010 | ) | (3,088 | ) | 3,461 | ||||||||||||||||||||||
Net invesment in foreing operation | ||||||||||||||||||||||||||||||||||||
Foreign currency forwards | 2,621 | 5,610 | (2,989 | ) | — | (2,989 | ) | 2,989 | — | (2,574 | ) | — | ||||||||||||||||||||||||
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Total Net invesment in foreing operation | 2,621 | 5,610 | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Total | 1,008,915 | 731,115 | ||||||||||||||||||||||||||||||||||
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(A) | In this category are financial derivative contracts with positive fair values. |
(B) | In this category are financial derivative contracts with negative fair values. |
(C) | Corresponds to the net effect of fair value are recorded in the income statement, except where they have effects in the previous year, see paragraph (d). See note 7 for 2013 and note 8 for 2014 and 2015 to our financial statements. |
(D) | Corresponds to the net effect of fair value in the previous years, which were in retained earnings at end of period. See note 7 for 2013 and note 8 for 2014 and 2015 to our financial statements. |
(E) | Fair value recorded in statements of income. |
(F) | Primarily includes adjustments settlements and financial derivative contracts in the period. |
(G) | Corresponds to the total effect on income from financial derivatives effects of the period. See note 25 for 2013 and note 26 for 2014 and 2015 to our financial statements. |
(H) | Corresponds to records effective part of accounting cash flow hedges. See note 22 for 2013 and note 23 for 2014 and 2015 to our financial statements. And also corresponds to effective part of accounting investment in foreign operation, CorpBanca Colombia began in 2015 with these operations. See note 8. |
(I) | Corresponds to adjustments and others hedged effects of accounting fair value. See note 23 for 2013 and note 24 for 2014 and 2015 to our financial statements. |
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ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
AMERICAN DEPOSITARY SHARES
Fees and Expenses
Effective as of May 7, 2012, Deutsche Bank Trust Company Americas serves as the depositary for our ADSs. Holders of the ADRs are required to pay the fees set forth in the table below to the depositary, and the depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid. The depositary may decide, in its sole discretion, to seek payment by either billing holders or by deducting the fee from one or more cash dividends or other cash distributions.
Depositary service | Fee payable by ADR holders | |
Issuance and delivery of ADRs, including in connection with share distributions, stock splits or other distributions (except when converted to cash); exercise rights; cancellation or withdrawal of ADSs, including cash distributions in connection with a cancellation or withdrawal. | US$5.00 (or less) per 100 ADSs (or fraction thereof) | |
Any distribution of cash proceeds to ADS registered holders, including cash dividends or sale of rights and other entitlements not made pursuant to a cancellation or withdrawal. | US$2.00 (or less) per 100 ADS | |
Operation and maintenance costs. | US$2.00 (or less) per 100 ADS | |
Direct and indirect payments by the depositary | ||
Transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw shares | — | |
Cable, telex and facsimile transmissions and electronic transmissions (when expressly provided in the deposit agreement). | — | |
Any fees, charges and expenses incurred in connection with the conversion of foreign currency, compliance with exchange control regulations and other regulatory requirements. | — | |
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty, or withholding taxes. | — | |
Any fees and expenses incurred by the depositary in connection with the delivery of deposited securities, including any fees of a central depositary for securities in the local market, where applicable. | — | |
Any other fees, charges costs or expenses incurred by the depositary or its agents for servicing the deposited securities. | — |
Any other charges and expenses of the depositary under the deposit agreement will be paid by CorpBanca upon agreement between the depositary and CorpBanca. All fees and charges may, at any time and from time to time, be changed by agreement between the depositary and the Company but, in the case of fees and charges payable by ADS holders and beneficial owners, only in the manner contemplated by article 20 of the ADR.
The depositary reimburses CorpBanca for certain expenses incurred by CorpBanca that are related to the ADR facility upon such terms and conditions as CorpBanca and the depositary have agreed and may hereinafter agree from time to time. The depositary may make available to CorpBanca a set amount or a portion of the depositary fees charged in respect of the ADR facility or otherwise upon such terms and conditions as CorpBanca and the depositary may agree from time to time.
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ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
There have been no defaults, dividend arrearages or delinquencies in any payments for the year ended December 31, 2015.
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
There have been no material modifications to the rights of security holders for the year ended December 31, 2015.
ITEM 15. | CONTROLS AND PROCEDURES |
DISCLOSURE CONTROLS AND PROCEDURES
As of December 31, 2015, CorpBanca, under the supervision and with the participation of our management, including the CEO and the CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). There are inherent limitations to the effectiveness of any control system, including the possibility of human error and the circumvention or overriding of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.
Based upon the evaluation, our CEO and CFO concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information relating to us, including our consolidated subsidiaries, required to be disclosed in the reports that we file under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the management, including principal financial officers as appropriate to allow timely decisions regarding required disclosure.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB (IFRS-IASB).
Our internal control over financial reporting includes those policies and procedures that:
• | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, |
• | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS-IASB and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and |
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015 based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, (COSO). Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2015.
Our independent registered public accounting firm, Deloitte, has audited the consolidated financial statements included in this annual report, and as part of their audit, has issued their report, included herein, on the effectiveness of our internal control over financial reporting as of December 31, 2015.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
Our internal control over financial reporting as of December 31, 2015 has been audited by an independent registered public accounting firm, as stated in its report, which follows below.
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ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
CorpBanca
We have audited the internal control over financial reporting of CorpBanca and subsidiaries (the “Bank”) as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Bank’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Bank’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the Bank’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Bank’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Bank; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Bank’s assets that could have a material effect on the financial statements.
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Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America), the consolidated financial statements as of and for the year ended December 31, 2015 of the Bank and our report dated March 31, 2016 expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph concerning the translation of Chilean peso amounts into U.S. dollar amounts in conformity with the basis stated in Note 1ff) and that such U.S. dollar amounts are presented solely for the convenience of readers in the United States of America.
/s/ Deloitte Auditores y Consultores Ltda.
Santiago, Chile
March 31, 2016
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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
We believe that each of the members of our audit committee qualifies as an “audit committee financial expert” within the meaning of this Item 16A, in that (i) each has an understanding of IFRS and financial statements, (ii) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves, (iii) significant experience auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the financial statements and experience supervising persons engaged in such activities, (iv) an understanding of internal control over financial accounting and reporting, and (v) an understanding of the functions of an audit committee.
The names of the members of our audit committee are included in Item 6. Directors, Senior Management and Employees—C. Board Practices. All but Mr. Echeverria, meet the independence requirements set foth in the Exchange Act Rule 10A-3(b)(1).
We have adopted a code of ethics, as defined in Item 16B of Form 20-F under the Exchange Act. Our code of ethics applies to our CEO, CFO, principal accounting officer and persons performing similar functions, as well as to our directors and other employees without exception. A copy of our code of ethics, as amended, along with our Code of Conduct in the Securities Market, is attached as an exhibit to this annual report.
Our code of ethics is available on our website, at www.corpbanca.cl under the heading “Gobiernos Corporativos”.
No waivers have been granted to the code of ethics since its adoption that applies to the persons indicated above.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the fees billed to us by our independent auditors during the fiscal years ended December 31, 2013, 2014 and 2015:
Principal accountant fees and services | ||||||||||||
Year ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
(in millions of constant Ch$) | ||||||||||||
Audit fees | 1.279 | 1.574 | 1.305 | |||||||||
Audit-related fees | 94 | 133 | 43 | |||||||||
Tax fees | — | — | — | |||||||||
All other fees | 36 | 300 | 297 | |||||||||
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1.410 | 2.007 | 1.645 | ||||||||||
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Audit fees in the above table are the aggregate fees billed by Deloitte in connection with the audit of our financial statements and services that are normally provided by Deloitte in connection with statutory and regulatory filings or engagements.
Audit-related fees in the above table are the aggregate fees billed by Deloitte for the audit and review of our filings under the Securities Act.
Tax fees in the above table are the aggregate fees billed by Deloitte for tax compliance, tax advice, and tax planning.
Other services are fees billed to us by Deloitte in connection with consulting work and advice on accounting matters (which are unrelated to the auditing of the accounts).
PRE-APPROVAL POLICIES AND PROCEDURES
Our audit committee approves all audit, audit-related services, tax services and other services provided by Deloitte. Any services provided by Deloitte that are not specifically included within the scope of the audit must be pre-approved by the audit committee prior to any engagement.
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ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
CorpBanca’s audit committee does not meet the requirements of Exchange Act Rule 10A-3 because Juan Echeverría González does not meet the Exchange Act Rule 10A-3(b)(1) independence requirements. CorpBanca is relying on the general exemption contained in Exchange Act Rule 10A-3(c)(3), which provides an exemption from NYSE’s listing standards relating to audit committees for foreign companies like CorpBanca. CorpBanca’s reliance on Rule 10A-3(c)(3) does not, in the opinion of management, materially adversely affect the ability of its audit committee to act independently and to satisfy the other requirements of Exchange Act Rule 10A-3.
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
The following table sets out certain information concerning purchases of our shares registered under Section 12 of the Exchange Act by us or any affiliated purchaser during fiscal year 2015:
Period (*) | (a) Total number of shares purchased | (b) Average price paid per share (in Ch$) | (c) Total number of shares purchased as part of publicly announced plans or programs | (d) Maximum number of shares that may yet be purchased under the plan or programs | ||||||||||||
January 2015 | — | — | — | — | ||||||||||||
February 2015 | — | — | — | — | ||||||||||||
March 2015 | — | — | — | — | ||||||||||||
April 2015 | — | — | — | — | ||||||||||||
May 2015 | — | — | — | — | ||||||||||||
June 2015 | — | — | — | — | ||||||||||||
July 2015 | — | — | — | — | ||||||||||||
August 2015 | — | — | — | — | ||||||||||||
September 2015 | — | — | — | — | ||||||||||||
October 2015 | — | — | — | — | ||||||||||||
November 2015 | — | — | — | — | ||||||||||||
December 2015 | — | — | — | — | ||||||||||||
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Total | — | — | — | — | ||||||||||||
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(*) | CorpBanca and our affiliates did not purchase any of our shares registered under Section 12 of the Exchange Act. |
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
On March 11, 2016, the bank’s Audit Committee (“BAC”) and the shareholders approved the appointment of PriceWaterhouseCoopers Consultores, Auditores y Compañia Limitada (“PwC”) as its independent registered public accounting firm (“external auditor”) for the year ending December 31, 2016. This change in external auditors is being made as a result of the pending Itaú-CorpBanca Merger which will result in Itau Unibanco as the ultimate controlling entity as defined under IFRS 10, “Consolidated Financial Statements”. Deloitte continued to serve as CorpBanca’s external auditor following this announcement for any pending year 2015 financial report and it will formally resign upon the filing of the Form 20-F for the year ended December 31, 2015.
During the two years prior to December 31, 2015, (1) Deloitte has not issued any reports on the financial statements of the bank or on the effectiveness of internal control over financial reporting that contained an adverse opinion or a disclaimer of opinion, nor were the auditors’ reports of Deloitte qualified or modified as to uncertainty, audit scope, or accounting principles, (2) there has not been any disagreement over any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to Deloitte’s satisfaction would have caused it to make reference to the subject matter of the disagreement in connection with its auditors’ reports, or any “reportable event” as described in Item 16F(a)(1)(v) of Form 20-F.
Further in the two years prior to December 31, 2015, the bank has not consulted with PwC regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to the consolidated financial statements of the bank, and neither a report was provided to the bank or oral advice was provided that PwC concluded was an important factor considered by the bank in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement as that term is used in Item 16F(a)(1)(iv) of Form 20-F or a “reportable event” as described in Item 16F(a)(1)(v) of Form 20-F.
ITEM 16G. | CORPORATE GOVERNANCE |
Pursuant to Section 303A.11 of the Listed Company Manual of the New York Stock Exchange, “foreign private issuers” are required to provide a summary of the significant ways in which their corporate governance practices differ from those corporate governance standards required of U.S. companies by the New York Stock Exchange. As a Chilean bank, our corporate governance standards are governed by our by-laws, the Chilean General Banking Act, the Chilean Securities Market Act, the Chilean Corporations Act and the Regulations of the SBIF. The following chart notes these differences:
NYSE Corporate Governance Standards | Chilean Corporate Governance Standards | |
Listed companies must have a majority of independent directors and independence test. | Publicly traded companies (sociedades anónimas abiertas) must designate at least one independent director and a directors committee, if they have a market capitalization equal to or greater than the equivalent of 1,500,000unidades de fomento, and at least 12.5% of its issued shares with voting rights are held by shareholders who individually control or own less than 10% of such shares. Under Chilean law, directors elected by a group or class of shareholders have the same duties to the company and to the shareholders as do the remaining directors, and all transactions with the company in which a director has an interest, either personally (which includes the director’s spouse and certain relatives) or as a representative of a third party, requires a report from the directors committee and the prior approval by the board of directors and must be entered into the interest of the Company and on market terms and conditions. Such transactions must be reviewed by the directors committee and disclosed at the subsequent shareholders’ meeting. | |
Non-management directors must meet at regularly scheduled executive sessions without management. | Chilean law establishes that our executive officers may not serve as directors and therefore, all of our directors are non-management. Our board of directors meets regularly on a monthly basis. |
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NYSE Corporate Governance Standards | Chilean Corporate Governance Standards | |
Listed companies must have a nominating/corporate governance committee composed entirely of independent directors. The committee must have a written charter addressing the committee’s purpose and responsibilities, which must include (i) identifying, and selecting or recommending, qualified individuals to serve as board members, (ii) developing and recommending corporate governance guidelines; and (iii) overseeing the evaluation of the board and management. | Under Chilean law, we are not required to have, and do not have, a nominating/corporate governance committee. Under Chilean law, the only committees that are required are the audit committee, the directors committee, the anti-money laundering committee and the anti-terrorism finance committee. | |
Listed companies must have a compensation committee composed entirely of independent directors. The committee must have a written charter addressing an annual performance evaluation of the committee and addressing the committee’s purpose and responsibilities, which must include (i) determining and approving the CEO’s compensation level based on an evaluation of the CEO’s performance in light of relevant corporate goals and objectives, (ii) making recommendations with respect to non-CEO executive officer compensation and (iii) producing a committee report on executive officer compensation. | Under Chilean law we are not required to have a compensation committee. Our board of directors establishes the compensation of our CEO and does a performance evaluation. The Directors Committee examines the compensation program of executive officers. | |
Shareholders must have the opportunity to vote on all equity-compensation plans and material revisions thereto, subject to limited exemptions. | Our compensation policies do not provide for equity compensation plans. | |
Listed companies must adopt and disclose corporate governance guidelines. The guidelines must address (i) director qualification standards, (ii) director responsibilities, (iii) director access to management, (iv) director compensation, (v) director orientation and continuing education, (vi) management succession, and (vii) annual performance evaluation of the board. | We follow corporate governance guidelines established by Chilean laws and by the Regulations of the SBIF which include, among others (i) active participation of directors in our main committees, (ii) the requirement that all employees sign and be knowledgeable of our code of ethics, (iii) a separation of functions — our commercial segment is separated from the back office and risk segments and main credit decisions are taken in committee, (iv) monthly review by the audit committee of internal audit reports and (v) the appointment of an officer who oversees compliance with the code of ethics. | |
Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose waivers thereof for directors or executive officers. | We have a code of business and ethics conduct which drives business and ethic conduct of our CEO, CFO and each employee. This code must be signed by each of our employees and is published in our intranet; it is included as an exhibit in this Annual Report. | |
Listed companies must have an audit committee that meets the requirements of Exchange Act Rule 10A-3 or be exempt therefrom. If the company has an audit committee, each member must meet Exchange Act Rule 10A-3(b)(1) independence requirements or be exempt therefrom. In particular, Exchange Act Rule 10A-3(b)(1) requires that each member of the audit committee be a member of the board of directors of the issuer, and must otherwise be independent. | Under Chilean law, all Chilean banks must establish an audit committee composed of two or more members, two of whom must be directors appointed by the board of directors. The SBIF recommends that at least one of the members of the audit committee, who must also be a member of the board of directors, be experienced with respect to the accounting procedures and financial aspects of banking operations. The members of the audit committee appointed by the board of directors must be independent according to the criteria set by the board of directors. In furtherance of the independence of the audit committee, the Board of directors has determined that audit committee members should not, for the last three years, have held positions as our principal executive officers, have performed professional services for us, have commercial commitments with us or with any of our affiliates or related persons or have relations with other entities related to us from which they have received material payments. Moreover, they may not accept any payment or other compensatory fee from us, other than in their capacity as members of the audit committee or of other committees. All the members of the audit committee receive a monthly remuneration. |
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
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Not applicable.
See the following items starting at page F-1:
(a) Report of Independent Registered Public Accounting Firm
(b) Consolidated Statement of Financial Position as of 2015 and 2014
(c) Consolidated Statement of Income for the three years ended December 31, 2015
(d) Consolidated Statement of Comprehensive Income for the three years ended December 31, 2015
(e) Statement of Changes in Shareholders’ Equity for the three years ended December 31, 2015
(f) Consolidated Statement of Cash Flows for each of the three years ended December 31, 2015
(g) Notes to the Consolidated Financial Statements.
The following exhibits are filed as part of this Annual Report:
Exhibit 1.1 | Articles of Incorporation and By-laws (estatutos sociales) of CorpBanca, including amendments thereto (English language translation). | |
Exhibit 2.(a).1** | Form of Amended and Restated Deposit Agreement, dated as of May 7, 2012, by and among CorpBanca, Deustche Bank Trust Company Americas, as depositary, and the registered holders and beneficial owners from time to time of American Depositary Shares evidenced by American Depositary Receipts issued thereunder, including a form of American Depositary Receipt. | |
Exhibit 2.(a).2* | Form of CorpBanca Share Certificate (English language translation). | |
Exhibit 2.(b).1+ | Indenture dated January 15, 2013, between CorpBanca and Deutsche Bank Trust Company Americas, as Trustee, related to CorpBanca’s 3.125% Senior Notes due 2018. | |
Exhibit 2.(b).2+ | First Supplemental Indenture dated January 15, 2013, between CorpBanca and Deutsche Bank Trust Company Americas, as Trustee, related to CorpBanca’s 3.125% Senior Notes due 2018. | |
Exhibit 2.(b).3+ | Form of Global Note due 2018 (included in Exhibit 2.(b).1). | |
Exhibit 3.1**** | Consolidated Text of the Share Purchase Agreement, dated December 6, 2011, by and among Banco Santander, S.A., CorpBanca, and Inversiones Corpgroup Interhold Limitada (including the modifications agreed to by the parties on February 21, 2012) | |
Exhibit 3.2**** | Addendum No. 1 to Share Purchase Agreement, dated February 21, 2012, by and among Banco Santander, S.A., CorpBanca, and Inversiones Corpgroup Interhold Limitada | |
Exhibit 4.(a).1* | Systems Operations Services Agreement, dated as of March 30, 2001, between IBM de Chile S.A.C. and CorpBanca (English language translation). | |
Exhibit 4.(a).2(i)++ | Service Contract, dated as of July 6, 2001, between Inversiones Corp Group Interhold Ltda. and CorpBanca, as amended (English language translation). | |
Exhibit 4.(a).2(ii)++ | Service Contract, dated as of April 10, 2008, between Inversiones Corp Group Interhold Ltda. and CorpBanca, as amended (English language translation). | |
Exhibit 4.(a).2(iii)++ | Service Contract, dated as of March 27, 2012, between Corp Group Holding Inversiones Ltda. and CorpBanca, as amended (English language translation). | |
Exhibit 4.(a).2(iii)(a) | Amendment, dated as of January 27, 2014 of the Service Contract, dated as of March 27, 2012, between Corp Group Holding Inversiones Ltda. and CorpBanca, as amended (English language translation). | |
Exhibit 4.(a).3* | Software Consulting and Development Agreement, “IBS” Integrated Banking System, dated as of October 4, |
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2001, between Datapro, Inc. and CorpBanca (English language translation). | ||
Exhibit 4.(a).4* | Agreement to Participate in the Automated Teller Machine Network Operated by Redbanc S.A., dated as of April 1, 2001, among Redbanc S.A. and CorpBanca (English language translation). | |
Exhibit 4.(a).5*** | Sublease Automatic Teller Machine Contract, dated as of November 26, 2008, among SMU S.A., Rendic Hermanos S.A., Supermercados Bryc S.A. and Distribuidora Super Diez S.A. and CorpBanca (English language translation). | |
Exhibit 4.(a).6 | Second Amended and Restated Credit Agreement, dated as of September 23, 2015, by and among CorpBanca, as borrower, Standard Chartered Bank, as administrative agent and HSBC Securities (USA) Inc. Standard Chartered Bank and Wells Fargo Securities, LLC, as joint bookrunners and mandated lead arrangers. | |
Exhibit 4.(a).7 | Lease agreement, dated as of July 27, 2015 between Corpbanca as tenant and Compañéa de Seguros Corpseguros S.A. as Landlord. | |
Exhibit 4.(a).8 | Lease agreement, dated as of July 27, 2015 between Corpbanca as tenant and Compañéa de Seguros CorpVida S.A. as Landlord. | |
Exhibit 8.1 | List of subsidiaries of CorpBanca. | |
Exhibit 10.C.1++ | Transaction Agreement dated as of January 29, 2014, by and among CorpBanca, Inversiones Corp Group Interhold Limitada, Inversiones Gasa Limitada, Itaú Unibanco and Itaú Chile. | |
Exhibit 10.C.1.a | Amendment to the Transaction Agreement, dates as of June 2, 2015, by and among CorpBanca, Inversiones Corp Group Interhold Limitada, Inversiones Gasa Limitada, Itaú Unibanco and Itaú Chile. | |
Exhibit 11.1 | CorpBanca’s Code of Ethics. (General code of conduct. English language translation). | |
Exhibit 11.2 | CorpBanca’s Code of Conduct in the Securities Market. (English language translation). | |
Exhibit 12.1 | Certification of the CEO of CorpBanca required under Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of the Sarbanes Oxley Act of 2002. | |
Exhibit 12.2 | Certification of the CFO of CorpBanca required under Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of the Sarbanes Oxley Act of 2002. | |
Exhibit 13.1 | Certification of the CEO of CorpBanca required under Rule 13a-14(a) or Rule 15d-14(a), pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002. | |
Exhibit 13.2 | Certification of the CFO of CorpBanca required under Rule 13a-14(a) or Rule 15d-14(a), pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002. | |
Exhibit 15.1 | Consent of Independent Registered Public Accounting Firm (Deloitte). | |
Exhibit 15.2 | Letter re: Change in Certifying Accountant |
* | Filed as an exhibit to our Form 20-F (File No. 001-32305) filed on September 24, 2004, and incorporated herein by reference. |
** | Filed as an exhibit to our registration statement on Form F-6 (File No. 001-32305) filed on April 30, 2012, and incorporated herein by reference. |
*** | Filed as an exhibit to our annual report on Form 20-F (File No. 001-32305) for the year ended December 31, 2008 filed on June 30, 2009, and incorporated herein by reference. |
**** | Filed as an exhibit to our annual report on Form 20-F (File No. 001-32305) for the year ended December 31, 2011 filed on April 30, 2012, and incorporated herein by reference. |
+ | Filed as an exhibit to our annual report on Form 20-F (File No. 001-32305) for the year ended December 31, 2012 filed on May 15, 2013, and incorporated herein by reference. |
++ | Filed as an exhibit to our annual report on Form 20-F (File No. 001-32305) for the year ended December 31, 2013 filed on May 15, 2014, and incorporated herein by reference. |
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SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
CORPBANCA | ||
/s/ Cristián Canales Palacios | ||
Name: | Cristián Canales Palacios | |
Title: | Chief Executive Officer |
Date: March 31, 2016
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
CorpBanca
We have audited the accompanying consolidated statements of financial position of CorpBanca and subsidiaries (the “Bank”) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. These consolidated financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CorpBanca and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”).
Our audits also comprehended the translation of Chilean peso amounts into U.S. dollar amounts and in our opinion, such translation has been made in conformity with the basis stated in note 1 ff) to the consolidated financial statements. Such U.S. dollars amounts are presented solely for the convenience of readers outside Chile.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America), the Bank’s internal control over financial reporting as of December 31, 2015, based on the criteria established inInternal Control—Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 31, 2016 expressed an unqualified opinion on the Bank’s internal control over financial reporting.
/s/ Deloitte Auditores y Consultores Ltda.
Santiago, Chile
March 31, 2016
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CORPBANCA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of December 31, 2014 and 2015
(In millions of Chilean pesos - MCh$)
Notes | 2014 | 2015 | 2015 | |||||||||||||
MCh$ | MCh$ | ThUS$ (Note 1.ff) | ||||||||||||||
ASSETS | ||||||||||||||||
Cash and deposits in banks | 5 a | ) | 1,169,178 | 1,004,757 | 1,414,513 | |||||||||||
Cash in the process of collection | 5 b | ) | 212,842 | 176,501 | 248,481 | |||||||||||
Trading portfolio financial assets | 6 | 685,898 | 323,899 | 455,990 | ||||||||||||
Investments under agreements to resell | 7 | 78,079 | 24,674 | 34,736 | ||||||||||||
Derivative financial instruments | 8 | 766,799 | 1,008,915 | 1,420,367 | ||||||||||||
Loans and receivables from banks, net | 9 | 814,209 | 451,829 | 636,092 | ||||||||||||
Loans and receivables from customers, net | 10 | 13,892,270 | 14,454,357 | 20,349,078 | ||||||||||||
Financial investments available-for-sale | 11 | 1,156,896 | 1,924,788 | 2,709,748 | ||||||||||||
Held to maturity investments | 11 | 190,677 | 170,191 | 239,598 | ||||||||||||
Investment in other companies | 12 | 15,842 | 14,648 | 20,622 | ||||||||||||
Intangible assets | 13 | 757,777 | 665,264 | 936,569 | ||||||||||||
Property, plant and equipment, net | 14 | 92,642 | 91,630 | 128,998 | ||||||||||||
Current income taxes | 15 | 20,834 | 46,904 | 66,032 | ||||||||||||
Deferred income taxes | 15 | 2,702 | 8,671 | 12,207 | ||||||||||||
Other assets | 16 | 415,267 | 438,323 | 617,078 | ||||||||||||
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TOTAL ASSETS | 20,271,912 | 20,805,351 | 29,290,109 | |||||||||||||
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LIABILITIES | ||||||||||||||||
Current accounts and demand deposits | 17 | 3,954,948 | 4,431,619 | 6,238,905 | ||||||||||||
Transaction in the course of payment | 5 b | ) | 145,771 | 105,441 | 148,442 | |||||||||||
Obligations under repurchase agreements | 7 | 661,663 | 260,631 | 366,921 | ||||||||||||
Time deposits and saving accounts | 17 | 8,076,966 | 8,495,603 | 11,960,247 | ||||||||||||
Derivative financial instruments | 8 | 607,683 | 731,114 | 1,029,274 | ||||||||||||
Borrowings from financial institutions | 18 | 1,431,923 | 1,528,585 | 2,151,967 | ||||||||||||
Debt issued | 19 | 3,079,050 | 3,227,554 | 4,543,803 | ||||||||||||
Other financial obligations | 19 | 15,422 | 14,475 | 20,378 | ||||||||||||
Current income tax provision | 15 | 19,226 | 42,457 | 59,772 | ||||||||||||
Deferred income taxes | 15 | 76,593 | 40,433 | 56,922 | ||||||||||||
Provisions | 20 | 200,289 | 182,707 | 257,218 | ||||||||||||
Other liabilities | 21 | 210,716 | 209,439 | 294,852 | ||||||||||||
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TOTAL LIABILITIES | 18,480,250 | 19,270,058 | 27,128,701 | |||||||||||||
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EQUITY | ||||||||||||||||
Attributable to equity holders of the Bank: | ||||||||||||||||
Capital | 23 | 781,559 | 781,559 | 1,100,291 | ||||||||||||
Reserves | 23 | 515,618 | 515,618 | 725,895 | ||||||||||||
Accumulated other comprehensive income | 23 | (98,590 | ) | (219,338 | ) | (308,788 | ) | |||||||||
Retained earnings: | 267,138 | 142,713 | 200,913 | |||||||||||||
Retained earnings from prior periods | 23 | 146,271 | 27,278 | 38,402 | ||||||||||||
Net income for the period | 23 | 233,997 | 216,321 | 304,540 | ||||||||||||
Less: Accrual for mandatory dividends | 20/23 | (113,130 | ) | (100,886 | ) | (142,029 | ) | |||||||||
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1,465,725 | 1,220,552 | 1,718,311 | ||||||||||||||
Non controlling interest | 23 | 325,937 | 314,741 | 443,097 | ||||||||||||
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TOTAL EQUITY | 1,791,662 | 1,535,293 | 2,161,408 | |||||||||||||
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TOTAL LIABILITIES & EQUITY | 20,271,912 | 20,805,351 | 29,290,109 | |||||||||||||
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Notes 1 to 38 are an integral part of these consolidated financial statements
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CORPBANCA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2013, 2014 and 2015
(In millions of Chilean pesos - MCh$)
Notes | 2013 | 2014 | 2015 | 2015 | ||||||||||||||||
MCh$ | MCh$ | MCh$ | ThUS$ | |||||||||||||||||
(Note 1.ff) | ||||||||||||||||||||
Interest income | 24 | 1,007,106 | 1,320,124 | 1,299,480 | 1,829,429 | |||||||||||||||
Interest expense | 24 | (549,416 | ) | (689,240 | ) | (678,901 | ) | (955,768 | ) | |||||||||||
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Net interest income | 24 c | ) | 457,690 | 630,884 | 620,579 | 873,661 | ||||||||||||||
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Income from service fees | 25 | 144,777 | 202,013 | 200,401 | 282,128 | |||||||||||||||
Expenses from service fees | 25 | (26,800 | ) | (40,423 | ) | (47,554 | ) | (66,947 | ) | |||||||||||
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Net service fee income | 117,977 | 161,590 | 152,847 | 215,181 | ||||||||||||||||
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Trading and investment income, net | 26 | 101,287 | 183,693 | 338,698 | 476,825 | |||||||||||||||
Foreign exchange gains (losses), net | 27 | (13,906 | ) | (13,426 | ) | (151,197 | ) | (212,858 | ) | |||||||||||
Other operating income | 32 | 39,658 | 28,958 | 23,652 | 33,298 | |||||||||||||||
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Trading and investment, foreign exchange gains and other operating income | 127,039 | 199,225 | 211,153 | 297,265 | ||||||||||||||||
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Operating income before provision for loan losses | 702,706 | 991,699 | 984,579 | 1,386,107 | ||||||||||||||||
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Provision for loan losses | 28 | (102,072 | ) | (127,272 | ) | (169,748 | ) | (238,974 | ) | |||||||||||
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Total operating income, net of provision for loan losses, interest and fees | 600,634 | 864,427 | 814,831 | 1,147,133 | ||||||||||||||||
Personnel salaries expenses | 29 | (165,009 | ) | (219,312 | ) | (202,754 | ) | (285,440 | ) | |||||||||||
Administration expenses | 30 | (139,614 | ) | (213,140 | ) | (211,603 | ) | (297,898 | ) | |||||||||||
Depreciation and amortization | 31 | (42,288 | ) | (51,613 | ) | (42,905 | ) | (60,402 | ) | |||||||||||
Impairment | 31 | — | (1,308 | ) | (332 | ) | (467 | ) | ||||||||||||
Other operating expenses | 32 | (15,234 | ) | (24,299 | ) | (23,195 | ) | (32,654 | ) | |||||||||||
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Total operating expenses | (362,145 | ) | (509,672 | ) | (480,789 | ) | (676,861 | ) | ||||||||||||
Total net operating income | 238,489 | 354,755 | 334,042 | 470,272 | ||||||||||||||||
Income attributable to investment other companies | 12 | 1,241 | 1,799 | 1,300 | 1,830 | |||||||||||||||
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Income before income taxes | 239,730 | 356,554 | 335,342 | 472,102 | ||||||||||||||||
Income taxes | 15 | (64,491 | ) | (82,853 | ) | (96,677 | ) | (136,103 | ) | |||||||||||
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Net income for the period | 175,239 | 273,701 | 238,665 | 335,999 | ||||||||||||||||
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Attributable to: | ||||||||||||||||||||
Equity holders of the Bank | 162,422 | 233,997 | 216,321 | 304,543 | ||||||||||||||||
Non controlling interest | 12,817 | 39,704 | 22,344 | 31,456 | ||||||||||||||||
Earnings per share attributable to equity holders of the Bank | Ch$ | Ch$ | Ch$ | US$ | ||||||||||||||||
Basic earnings per share | 23 d | ) | 0.48 | 0.69 | 0.64 | 0.0009 | ||||||||||||||
Diluted earning per share | 23 d | ) | 0.48 | 0.69 | 0.64 | 0.0009 |
Notes 1 to 38 are an integral part of these consolidated financial statements
F-3
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CORPBANCA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2013, 2014 and 2015
(In millions of Chilean pesos - MCh$)
2013 | 2014 | 2015 | 2015 | |||||||||||||||||
MCh$ | MCh$ | MCh$ | ThUS$ | |||||||||||||||||
(Note 1.ff) | ||||||||||||||||||||
Net income for the period | Notes | 175,239 | 273,701 | 238,665 | 335,996 | |||||||||||||||
Other Comprehensive Income | ||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||
Financial instruments available-for-sale | 23 f | ) | 4,597 | (3,798 | ) | (36,289 | ) | (51,088 | ) | |||||||||||
Exchange differences on translation | 23 f | ) | 11,960 | (68,673 | ) | (82,148 | ) | (115,649 | ) | |||||||||||
Gain (loss) from hedge of net investment in foreign operation | 23 f | ) | (2,840 | ) | (4,751 | ) | (7,931 | ) | (11,165 | ) | ||||||||||
Gain (loss) from cash flow hedge | 23 f | ) | (5,757 | ) | 6,145 | (4,046 | ) | (5,696 | ) | |||||||||||
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Other comprehensive income (loss) before income taxes | 7,960 | (71,077 | ) | (130,414 | ) | (183,598 | ) | |||||||||||||
Income tax relating to financial instruments available-for-sale | 15 d | ) | (911 | ) | 2,310 | 10,904 | 15,351 | |||||||||||||
Income tax relating to hedge of net investment in foreign operations | 15 d | ) | 568 | 1,371 | 2,758 | 3,883 | ||||||||||||||
Income tax relating to cash flow hedge | 15 d | ) | 842 | (1,090 | ) | 1,104 | 1,554 | |||||||||||||
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Income taxes | 499 | 2,591 | 14,766 | 20,788 | ||||||||||||||||
Total other comprehensive income that may be reclassified to profit in subsequent periods | 8,459 | (68,486 | ) | (115,648 | ) | (162,810 | ) | |||||||||||||
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Items that will not be reclassified subsequently to profit or loss | ||||||||||||||||||||
Remeasurement of defined benefit obligation | 20 c | ) | 3,300 | 1,442 | 90 | 127 | ||||||||||||||
Income tax relating to defined benefit obligation | 15 d | ) | (1,122 | ) | (562 | ) | (35 | ) | (49 | ) | ||||||||||
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Total items that will not be reclassified subsequently to profit or loss | 2,178 | 880 | 55 | 78 | ||||||||||||||||
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Total other comprehensive income (loss) | 10,637 | (67,606 | ) | (115,593 | ) | (162,732 | ) | |||||||||||||
Comprehensive income (loss) for the period | 185,876 | 206,095 | 123,072 | 173,264 | ||||||||||||||||
Attributable to: | ||||||||||||||||||||
Equity Holders of the bank | 173,059 | 163,512 | 95,573 | 134,550 | ||||||||||||||||
Non Controlling interest | 23 h | ) | 12,817 | 42,583 | 27,499 | 38,714 |
Notes 1 to 38 are an integral part of these consolidated financial statements
F-4
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CORPBANCA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended 31, 2013, 2014 and 2015
(In millions of Chilean pesos - MCh$, except for number of shares)
Accumulated other comprehensive income | Retained earnings | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of shares | Paid-in Capital | Reserves | Defined benefit obligation | Financial investment available- for-sale | Hedge of net investment in foreign operation | Derivatives for Cash Flow Hedge | Income tax accumulated other comprehensive income | Exchange differences on translation | Accumulated other comprehensive income | Retained earnings from previous periods | Net income for the period | Accrual for mandatory dividends | Total attributable to equity holders of the Bank | Non controlling interest | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||
(Millions) | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||||||||||||||
Equity as of January 1, 2013 | 293,358 | 638,234 | 275,552 | (10,301 | ) | (8,143 | ) | 456 | 570 | 4,893 | (26,217 | ) | (38,742 | ) | 132,292 | — | (60,040 | ) | 947,296 | 54,370 | 1,001,666 | |||||||||||||||||||||||||||||||||||||||||||
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Increase or decrease in capital and reserves | 47,000 | 143,325 | 147,843 | — | — | — | — | — | — | — | — | — | 291,168 | 787 | 291,955 | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | — | — | — | — | — | — | — | — | — | — | (60,040 | ) | — | 60,040 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Accrual for mandatory dividends | — | — | — | — | — | — | — | — | — | — | — | — | (77,547 | ) | (77,547 | ) | — | (77,547 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income for the period | — | — | — | 3,300 | 4,597 | (2,840 | ) | (5,757 | ) | (623 | ) | 11,960 | 10,637 | — | 162,422 | — | 173,059 | 12,817 | 185,876 | |||||||||||||||||||||||||||||||||||||||||||||
Dilutive effect of purchase of Helm Bank and Subsidiaries (**) | — | — | 92,223 | — | — | — | — | — | — | — | — | — | — | 92,223 | — | 92,223 | ||||||||||||||||||||||||||||||||||||||||||||||||
Changes in non-controlling interest | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 2,716 | 2,716 | ||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition Subsidiary in Colombia | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 235,008 | 235,008 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Equity as of December 31, 2013 | 340,358 | 781,559 | 515,618 | (7,001 | ) | (3,546 | ) | (2,384 | ) | (5,187 | ) | 4,270 | (14,257 | ) | (28,105 | ) | 72,252 | 162,422 | (77,547 | ) | 1,426,199 | 305,698 | 1,731,897 | |||||||||||||||||||||||||||||||||||||||||
Distribution of prior year’s net income | — | — | — | — | — | — | — | — | — | 162,422 | (162,422 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
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Equity as of January 1, 2014 | 340,358 | 781,559 | 515,618 | (7,001 | ) | (3,546 | ) | (2,384 | ) | (5,187 | ) | 4,270 | (14,257 | ) | (28,105 | ) | 234,674 | — | (77,547 | ) | 1,426,199 | 305,698 | 1,731,897 | |||||||||||||||||||||||||||||||||||||||||
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Increase or decrease in capital and reserves | — | — | — | — | 1,045 | 1,045 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | — | — | — | (88,403 | ) | 77,547 | (10,856 | ) | — | (10,856 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrual for mandatory dividends | — | — | — | (113,130 | ) | (113,130 | ) | — | (113,130 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income for the period | — | — | 955 | (8,059 | ) | (4,751 | ) | 6,145 | 3,898 | (68,673 | ) | (70,485 | ) | — | 233,997 | — | 163,512 | 42,583 | 206,095 | |||||||||||||||||||||||||||||||||||||||||||||
Changes in non-controlling interest | — | — | — | — | (23,389 | ) | (23,389 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Equity as of December 31 2014 | 340,358 | 781,559 | 515,618 | (6,046 | ) | (11,605 | ) | (7,135 | ) | 958 | 8,168 | (82,930 | ) | (98,590 | ) | 146,271 | 233,997 | (113,130 | ) | 1,465,725 | 325,937 | 1,791,662 | ||||||||||||||||||||||||||||||||||||||||||
Distribution of prior year’s net income | — | — | — | — | — | — | — | — | — | 233,997 | (233,997 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
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Equity as of January 1, 2015 | 340,358 | 781,559 | 515,618 | (6,046 | ) | (11,605 | ) | (7,135 | ) | 958 | 8,168 | (82,930 | ) | (98,590 | ) | 380,268 | — | (113,130 | ) | 1,465,725 | 325,937 | 1,791,662 | ||||||||||||||||||||||||||||||||||||||||||
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Increase or decrease in capital and reserves | — | — | 426 | 426 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | — | (352,990 | ) | 113,130 | (239,860 | ) | (239,860 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrual for mandatory dividends | — | (100,886 | ) | (100,886 | ) | (100,886 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income for the period | 60 | (43,720 | ) | (8,876 | ) | (4,046 | ) | 17,982 | (82,148 | ) | (120,748 | ) | 216,321 | 95,573 | 27,499 | 123,072 | ||||||||||||||||||||||||||||||||||||||||||||||||
Changes in non-controlling interest (see note 23.h) | — | — | (39,121 | ) | (39,121 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Equity as of December 31 2015 | 340,358 | 781,559 | 515,618 | (5,986 | ) | (55,325 | ) | (16,011 | ) | (3,088 | ) | 26,150 | (165,078 | ) | (219,338 | ) | 27,278 | 216,321 | (100,886 | ) | 1,220,552 | 314,741 | 1,535,293 | |||||||||||||||||||||||||||||||||||||||||
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Equity as of December 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ThUS$ (Note 1 ff) | 1,100,291 | 725,895 | (8,427 | ) | (77,887 | ) | (22,541 | ) | (4,347 | ) | 36,814 | (232,399 | ) | (308,788 | ) | 38,402 | 304,540 | (142,029 | ) | 1,718,311 | 443,097 | 2,161,408 | ||||||||||||||||||||||||||||||||||||||||||
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(**) | For more information, see Note 23Equity, letter i). Transfer non-controlling interest (including excess of fair value over carrying value to parent). |
Notes 1 to 38 are an integral part of these consolidated financial statements
F-5
Table of Contents
CORPBANCA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2013, 2014 and 2015
(In millions of Chilean pesos - MCh$)
Notes | 2013 | 2014 | 2015 | 2015 | ||||||||||||||||
MCh$ | MCh$ | MCh$ | ThUS$ | |||||||||||||||||
(Note 1 ff) | ||||||||||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||||||||||||||
Income before income taxes | 239,730 | 356,554 | 335,342 | 472,102 | ||||||||||||||||
Charges (credits) to income not representing cash flow: | ||||||||||||||||||||
Depreciation and amortization | 31 | 42,288 | 51,613 | 42,905 | 60,402 | |||||||||||||||
Impairment | 31 | — | 1,308 | 332 | 467 | |||||||||||||||
Provision for loan losses | 28 | 119,539 | 152,217 | 189,633 | 266,968 | |||||||||||||||
Provisions and write-offs for assets received in lieu of payment | 16 b | ) | 35 | (49 | ) | — | — | |||||||||||||
Contingency provisions | 32 b | ) | 107 | — | — | — | ||||||||||||||
Adjustment to market value of investments and derivatives | (17,139 | ) | (43,039 | ) | (94,883 | ) | (133,578 | ) | ||||||||||||
Net interest income | 24 | (457,690 | ) | (630,884 | ) | (620,579 | ) | (873,661 | ) | |||||||||||
Net service fee income | 25 | (117,977 | ) | (161,590 | ) | (152,847 | ) | (215,180 | ) | |||||||||||
Net foreign exchange gains (losses) | 27 | 13,906 | 13,426 | 151,197 | 212,858 | |||||||||||||||
Deferred income taxes | (5,297 | ) | (19,264 | ) | (42,129 | ) | (59,310 | ) | ||||||||||||
Variation of foreign exchange on assets and liabilities | 82,336 | 126,642 | 280,075 | 394,294 | ||||||||||||||||
Other | 28,041 | 24,682 | 1,812 | 2,551 | ||||||||||||||||
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Subtotals | (72,121 | ) | (128,384 | ) | 90,858 | 127,913 | ||||||||||||||
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Increase/decrease in operating assets and liabilities: | ||||||||||||||||||||
Loans and receivables to customers and banks | 495,928 | (1,609,012 | ) | (141,623 | ) | (199,379 | ) | |||||||||||||
Investments under agreements to resell | (133,034 | ) | 132,301 | (2,804 | ) | (3,948 | ) | |||||||||||||
Trading portfolio financial assets | 41,973 | (449,956 | ) | (12,820 | ) | (18,048 | ) | |||||||||||||
Financial investments available-for-sale | 428,471 | (308,639 | ) | (696,582 | ) | (980,659 | ) | |||||||||||||
Held to maturity investments | (28,173 | ) | 46,845 | 20,486 | 28,841 | |||||||||||||||
Other assets and liabilities | (44,363 | ) | (86,836 | ) | (22,955 | ) | (32,316 | ) | ||||||||||||
Time deposits and saving accounts | (971,620 | ) | 735,294 | 424,123 | 597,087 | |||||||||||||||
Currents accounts and demand deposits | 69,259 | 503,492 | 476,412 | 670,701 | ||||||||||||||||
Obligations under repurchase agreements | 98,580 | 319,218 | (401,032 | ) | (564,579 | ) | ||||||||||||||
Dividends received from investments in other companies | 12 a | ) | 1,241 | 1,799 | 1,300 | 1,830 | ||||||||||||||
Foreign borrowings obtained | 3,097,922 | 3,565,452 | 3,521,683 | 4,957,882 | ||||||||||||||||
Repayment of foreign borrowings | (3,171,343 | ) | (3,452,887 | ) | (3,467,574 | ) | (4,881,707 | ) | ||||||||||||
Interest paid | (530,312 | ) | (735,344 | ) | (691,598 | ) | (973,643 | ) | ||||||||||||
Interest received | 1,006,878 | 1,212,534 | 1,239,321 | 1,744,736 | ||||||||||||||||
Income tax | 15 | (63,830 | ) | (82,853 | ) | (96,677 | ) | (136,103 | ) | |||||||||||
Repayment of other borrowings | 2,493 | (1,385 | ) | (947 | ) | (1,333 | ) | |||||||||||||
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Net cash provided by (used in) operating activities | 227,949 | (338,361 | ) | 239,571 | 337,275 | |||||||||||||||
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F-6
Table of Contents
CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Purchase of property, plant and equipment, others | (34,366 | ) | (27,193 | ) | (37,262 | ) | (52,458 | ) | ||||||||||||
Acquisition in Colombia net of cash | 12 b | ) | (255,444 | ) | (83,998 | ) | — | — | ||||||||||||
Proceeds from sales of property, plant and equipment | 7,520 | 1,343 | 596 | 839 | ||||||||||||||||
Sale of assets received in lieu of payment or in foreclosure | 4,586 | 3,038 | 3,337 | 4,698 | ||||||||||||||||
Increased participation in companies | (516 | ) | (726 | ) | ||||||||||||||||
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Net cash (used in) investment activities | (277,704 | ) | (106,810 | ) | (33,845 | ) | (46,921 | ) | ||||||||||||
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CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Debt issued | 688,160 | 672,851 | 193,158 | 271,931 | ||||||||||||||||
Redemption of debt issued | (269,770 | ) | (68,468 | ) | (250,981 | ) | (353,335 | ) | ||||||||||||
Capital increase | 23 | 291,168 | — | — | — | |||||||||||||||
Dividends Paid | 23 c | ) | (60,040 | ) | (88,403 | ) | (352,990 | ) | (496,945 | ) | ||||||||||
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Net cash provided by financing activities | 649,518 | 515,980 | (410,813 | ) | (578,349 | ) | ||||||||||||||
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Net effect of exchange rate changes on cash and cash equivalents | (5,307 | ) | 32,301 | (7,187 | ) | (10,118 | ) | |||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 594,456 | 103,110 | (212,274 | ) | (298,113 | ) | ||||||||||||||
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Cash and cash equivalents at beginning of the period | 733,020 | 1,327,476 | 1,430,586 | 2,014,002 | ||||||||||||||||
Cash and cash equivalents at end of the period | 5 a | ) | 1,327,476 | 1,430,586 | 1,218,312 | 1,715,889 | ||||||||||||||
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Net variation of cash and cash equivalents | 594,456 | 103,110 | (212,274 | ) | (298,113 | ) | ||||||||||||||
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Additional Information | ||||||||||||||||||||
Income tax paid | (32,089 | ) | (64,280 | ) | (77,674 | ) | (109,351 | ) | ||||||||||||
tax refunds received during the period | 327 | 365 | 1,852 | 2,607 |
Notes 1 to 38 are an integral part of these consolidated financial statements
F-7
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
F-8
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Note 25 | - | FEES AND INCOME FROM SERVICES | F-131 | |||||
Note 26 | - | NET TRADING AND INVESTMENT INCOME | F-132 | |||||
Note 27 | - | NET FOREIGN EXCHANGE INCOME (LOSSES) | F-133 | |||||
Note 28 | - | PROVISION FOR LOAN LOSSES | F-135 | |||||
Note 29 | - | PERSONNEL SALARIES EXPENSES | F-138 | |||||
Note 30 | - | ADMINISTRATION EXPENSES | F-139 | |||||
Note 31 | - | DEPRECIATION, AMORTIZATION AND IMPAIRMENT | F-140 | |||||
Note 32 | - | OTHER OPERATING INCOME AND EXPENSES | F-149 | |||||
Note 33 | - | RELATED PARTY TRANSACTIONS | F-151 | |||||
Note 34 | - | FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE | F-158 | |||||
Note 35 | - | RISK MANAGEMENT | F-173 | |||||
Note 36 | - | MATURITY OF ASSETS AND LIABILITIES | F-222 | |||||
Note 37 | - | FOREIGN CURRENCY POSITION | F-225 | |||||
Note 38 | - | SUBSEQUENT EVENTS | F-226 |
F-9
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 1 - GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.1 General Information
Corporate information
CorpBanca is a banking corporation organized pursuant to the laws of the Republic of Chile that provides a broad range of general banking services to its clients, who are from natural persons to large corporations. CorpBanca and its subsidiaries (hereinafter jointly referred to as the “Bank” or “CorpBanca”) offer commercial and consumer banking services, including factoring, collections, leasing, securities and insurance brokerage, mutual funds and management of investment funds and bank investments.
Its legal domicile is Huérfanos 1072, Santiago, Chile and its web site iswww.corpbanca.cl.
1.2 Summary of significant accounting policies
Basis of preparation
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS – IASB).
The consolidated financial statements for the period ended December 31, 2015 have been approved for issue by the Board of Directors on March 28, 2016.
For purposes of these financial statements we use certain terms and conventions. References to “US$”, “US dollars” and “dollars” are to United States dollars, references to “Chilean pesos”, “pesos” or “Ch$” are to Chilean pesos, references to “Colombia pesos”, or “Cop$” are to Colombian pesos and references to “UF” are to Unidades de Fomento. The UF is an inflation-indexed Chilean monetary unit with a value in Chilean pesos that changes daily to reflect changes in the official Consumer Price Index (“CPI”) of the Instituto Nacional de Estadísticas (the Chilean National Institute of Statistics) from the previous month.
The UF is revalued in monthly cycles. Each day in the period beginning on the tenth day of the current month through the ninth day of the succeeding month, the nominal peso value of the UF is indexed up (or down in the event of deflation) in order to reflect a proportionate amount of the change in the Chilean Consumer Price Index (“CPI”) during the prior calendar month. As of December 31, 2013, 2014 and 2015, one UF equaled Ch$23,309.56, Ch$24,627.10, and Ch$25,629.09 respectively. The effect of any changes in the nominal peso value of our UF-denominated interest earning assets and interest bearing liabilities is reflected in our results of operations as an increase (or decrease, in the event of deflation) in interest income and expense, respectively.
For consolidation purposes, the statements of financial position of our New York Branch have been converted to Chilean pesos at the exchange rate of Ch$710.32 per US$1 as of December 31, 2015 (Ch$605.46 per US$1 as of December 31, 2014), our Colombian subsidiaries have used the exchange rate of Ch$0.2266 per COP$1 (Ch$0.2532 per COP$1 as of December 31, 2014), both in accordance with International Accounting Standard 21, regarding the translation of a foreign operation whose functional currency is not the currency of a hyperinflationary economy.
The main accounting policies adopted in preparing these financial statements are described below.
a) | Basis of consolidation |
The consolidated financial statements incorporate the financial statements of CorpBanca and its subsidiaries, the New York Branch and Colombian subsidiaries that participate in the consolidation as of December 31, 2014 and 2015, and for the three years ended December 31, 2013, 2014 and 2015, include the necessary adjustments and reclassifications to the financial statements of the subsidiaries, our New York Branch and Colombian subsidiaries as of December 31, 2014 and 2015, to bring their accounting policies and valuation criteria in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”).
F-10
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
All intragroup balances, transactions, income and expenses are eliminated in full on consolidation.
For consolidation purposes, the financial statements of the New York Branch, the financial statements of Colombian subsidiaries whose functional currency are the U.S. dollar and Colombian pesos respectively has been translated into Chilean pesos as described in Note 1 e) below.
Controlled Entities
Regardless of the nature of its involvement in an entity (the investee), CorpBanca will determine whether it controls an investee based on whether it has exposure, or rights, to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect the amount of the its returns.
CorpBanca controls an investee when it has exposure, or rights, to variable returns from the its involvement with the investee and has the ability to use its power over the investee to affect the amount of the its returns.
Therefore, the Bank controls an investee if and only if it has all of the following elements:
a) | Power over the investee, i.e. existing rights that give it the ability to direct the relevant activities of the investee (the activities that significantly affect the investee’s returns); |
b) | Exposure, or rights, to variable returns from its involvement with the investee; |
c) | The ability to use its power over the investee to affect the amount of the investor’s returns. |
When the Bank has less than the majority of voting rights in an investee, but these voting rights are sufficient to give it the practical ability to unilaterally direct the investee’s relevant activities, the Bank is determined to have control. The Bank considers all relevant factors and circumstances in evaluating whether voting rights are sufficient to obtain control, including:
• | The size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of other vote holders; |
• | Potential voting rights held by the investor, other vote holders or other parties; |
• | Rights from other contractual agreements; |
• | Any additional facts and circumstances that indicate that the investor has, or does not have, the current ability to direct the relevant activities when decisions need to be made, including voting behavior patterns in prior shareholder meetings. |
The Bank reevaluates whether or not it has control in an investee if the facts and circumstances indicate that there have been changes in one or more of the elements of control listed above.
All balances and transactions among consolidated companies have been eliminated upon consolidation. The consolidated financial statements include all assets, liabilities, equity, income, expenses, and cash flows of the parent and its subsidiaries presented as if they were one sole economic entity. A controlling shareholder prepares consolidated financial statements using uniform accounting policies for similar transactions and other events under equivalent circumstances.
Non-controlling interest are also presented in the Consolidated Statement of Financial Position, within equity, separately from that of the equity holders of the Bank. Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control are equity transactions (i.e. transactions with the owners in their role as such).
An entity shall attribute profit for the period and each component of other comprehensive income to equity holders of the Bank and the non-controlling interests.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
The entity shall also attribute total comprehensive income to the equity holder of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
The following table details the entities over which CorpBanca has the ability to exercise control and, therefore, the entities that it consolidates:1234567
Direct and Indirect Ownership | ||||||||||||||||||||||||||||||||||||||||
As of December 31, 2013 | As of December 31, 2014 | As of December 31, 2015 | ||||||||||||||||||||||||||||||||||||||
Country | Functional currency | Direct | Indirect | Total | Direct | Indirect | Total | Direct | Indirect | Total | ||||||||||||||||||||||||||||||
| % | % | % | % | % | % | % | % | % | |||||||||||||||||||||||||||||||
CorpBanca Corredores de Bolsa S.A. | Chile | $ | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | |||||||||||||||||||||||||||||
CorpBanca Administradora General de Fondos S.A. | Chile | $ | 99.996 | 0.004 | 100.000 | 99.996 | 0.004 | 100.000 | 99.996 | 0.004 | 100.000 | |||||||||||||||||||||||||||||
CorpBanca Asesorías Financieras S.A. (1) | Chile | $ | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | |||||||||||||||||||||||||||||
CorpBanca Corredores de Seguros S.A. | Chile | $ | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | |||||||||||||||||||||||||||||
CorpLegal S.A. (1) | Chile | $ | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | |||||||||||||||||||||||||||||
Recaudaciones y Cobranzas S.A. (1) (7) | Chile | $ | — | — | — | — | — | — | 99.990 | 0.010 | 100.000 | |||||||||||||||||||||||||||||
CorpBanca Agencia de Valores S.A. | Chile | $ | 99.990 | 0.010 | 100.000 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
SMU CORP S.A. (1) | Chile | $ | 51.000 | — | 51.000 | 51.000 | — | 51.000 | 51.000 | — | 51.000 | |||||||||||||||||||||||||||||
CorpBanca New York Branch (1) | EE.UU | US$ | 100.000 | — | 100.000 | 100.000 | — | 100.000 | 100.000 | — | 100.000 | |||||||||||||||||||||||||||||
Corpbanca Securities INC-NY (1) | EE.UU | US$ | 100.000 | — | 100.000 | 100.000 | — | 100.000 | 100.000 | — | 100.000 | |||||||||||||||||||||||||||||
Banco CorpBanca Colombia S.A. (2) (6) | Colombia | COP$ | 66.388 | — | 66.388 | 66.279 | — | 66.279 | 66.279 | — | 66.279 | |||||||||||||||||||||||||||||
Helm Bank Colombia S.A (merged) (2) (3) | Colombia | COP$ | — | 66.243 | 66.243 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Helm Corredor de Seguros S.A (2) | Colombia | COP$ | 80.000 | — | 80.000 | 80.000 | — | 80.000 | 80.000 | — | 80.000 | |||||||||||||||||||||||||||||
CorpBanca Investment Trust Colombia S.A. (2) | Colombia | COP$ | 5.499 | 62.737 | 68.236 | 5.499 | 62.634 | 68.133 | 5.499 | 62.634 | 68.133 | |||||||||||||||||||||||||||||
Helm Comisionista de Bolsa S.A. (Ex CIVAL) (2) (4) | Colombia | COP$ | 5.060 | 63.029 | 68.089 | 2.219 | 62.944 | 65.163 | 2.219 | 62.944 | 65.163 | |||||||||||||||||||||||||||||
Helm Comisionista de Bolsa S.A. (merged) (2) (4) | Colombia | COP$ | — | 66.240 | 66.240 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Helm Fiduciaria S.A (2) | Colombia | COP$ | — | 66.230 | 66.230 | — | 62.944 | 62.944 | — | 62.944 | 62.944 | |||||||||||||||||||||||||||||
Helm Bank (Panamá) S.A. | Panamá | US$ | — | 66.243 | 66.243 | — | 66.279 | 66.279 | — | 66.279 | 66.279 | |||||||||||||||||||||||||||||
Helm Bank Caymán S.A. (5) | Islas Caymán | US$ | — | 66.243 | 66.243 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Helm Casa de Valores (Panama) S.A. | Panamá | US$ | — | 66.240 | 66.240 | — | 66.276 | 66.276 | — | 66.276 | 66.276 |
1 | Companies regulated by the Superintendency of Banks and Financial Institutions (SBIF). The remaining companies in Chile are regulated by the Superintendency of Securities and Insurance (SVS). |
2 | Companies regulated by the Financial Superintendence of Colombia, which has a reciprocal supervision agreement with the SBIF. |
3 | Company merged with CorpBanca Colombia in June 2104. |
4 | Companies merged in September 2014, keeping the corporate name of Helm Comisionista de Bolsa S.A. and the taxpayer ID number of CIVAL (CorpBanca Investment Valores S.A.). |
5 | Liquidated company. |
6 | In 2014 its interest decreased to 66.279 through the merger with Helm Bank Colombia. |
7 | On February 25, 2015 , CorpBanca acquired 73,609 shares of the company “Recaudaciones y Cobranzas S.A.” and its subsidiary CorpBanca Asesorías Financieras S.A. acquired 1 share of the same society , therefore the Bank holds, directly and indirectly , 100% of its share capital. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Associates
Associates are entities over which the Bank has the ability to exercise significant influence, but not control. Usually, this ability manifests itself through an ownership interest equal to or greater than 20% of the entity’s voting rights and is valued using the equity method.
Other factors considered in determining whether there is significant influence over an entity include representation on the board of directors and the existence of material transactions.
Investments in other companies
Investments in other companies are those where the Bank neither has control nor exercises significant influence. Investments in these companies are measured at cost (See Note 12Investments in other companies).
Fund Management
Certain subsidiaries of CorpBanca manage and administer assets held in mutual funds and other investment vehicles on behalf of investors. The financial statements of funds are not included in these consolidated financial statements except when the Bank controls the fund. The Bank did not consolidate any funds as of December 31, 2014 or December 31, 2015.
Assets Managed, Trust Business and Other Related Businesses
CorpBanca and its subsidiaries manage assets held in common investment funds and other investment products on behalf of investors. The financial statements of these managed assets, trust businesses and other related businesses are not included in these consolidated financial statements except when the Bank controls the entity. The assets managed by CorpBanca Administradora General de Fondos S.A., CorpBanca Investment Trust Colombia S.A. and Helm Fiduciaria that are owned by third parties are not included in the consolidated financial statements.
b) | Non-controlling interest |
Non-controlling interest represents the equity and net income in a subsidiary not attributable, directly or indirectly, to the equity holders of the Bank. Non-controlling interest is disclosed as a separate line item within equity in the consolidated statements of financial position and as a separate disclosure within the consolidated statements of income and comprehensive income.
c) | Business Combinations and Goodwill |
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Bank, liabilities incurred by the Bank to the former owners of the acquiree and the equity interests issued by the Bank in exchange for control of the Acquiree. Acquisition costs incurred are expensed and included in administrative expenses.
When CorpBanca and subsidiaries acquire a business, it recognizes the identifiable assets acquired and liabilities assumed in accordance with IFRS. This includes the separation of embedded derivatives from host contracts.
If the business combination is done in stages, the acquirer’s stake previously held in the acquired assets or equity interest, measured at fair value at the date of the respective acquisition, is remeasured at fair value at the acquisition date control is achieved and any resulting gain/loss is recognized.
Any contingent consideration that must be transferred by the acquirer is recognized at its fair value at the acquisition date. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments arise from additional
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
information obtained during the “measurement period” (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
Goodwill is measured as the excess over the sum of the consideration transferred, the amount of anynon-controlling interests in the acquiree, and the fair value of the acquirer´s previously held equity interest in the acquiree (if any) over the fair value of the acquisition-date amounts of the identifiable net assets acquired. If, after reassessment of its initial calculation, theacquisition-date amounts of the net identifiable assets acquired exceeds the sum of the consideration transferred, the amount of anynon-controlling interests in the acquiree and the fair value of the acquirer´s previously held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain.
Goodwill amounts are established at the date of acquisition of the business and are subsequently measured at such amounts less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the Group´s cash-generating units (or groups ofcash-generating units if applicable) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently if there is an indication that the cash-generating unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the cash-generating unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
d) | Operating segments |
CorpBanca provides financial information by operating segments in accordance with IFRS 8 -Operating segments (IFRS 8) to disclose information to enable users of its financial statements to evaluate the nature and financial effects of its business activities in which it engages and the economic environments in which it operates so as to:
• | Better understand the Bank’s performance; |
• | Better evaluate its future cash projections; and |
• | Better judge the Bank as a whole. |
The Bank discloses separate information for each operating segment that has been identified and that exceeds the quantitative thresholds established for a segment that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance. The “CODM” is the Chief Executive Officer.
Operating segments with similar economic characteristics often have a similar long-term financial performance. Two or more segments may be aggregated into a single reporting segment only if aggregation is consistent with the core principles of IFRS 8 and the segments have similar economic characteristics and are similar in each of the following respects:
i. | the nature of the products and services; |
ii. | the nature of the production processes; |
iii. | the type or class of customers that use their products and services; |
iv. | the methods used to distribute their products or provide their services; and |
v. | if applicable, the nature of the regulatory environment, for example, banking, insurance, or utilities. |
The Bank reports separately information on each operating segment that meets any of the following quantitative thresholds:
i. | Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10% or more of the combined revenue, internal and external, of all the operating segments. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
ii. | The absolute amount of its reported profit or loss is 10% or more of, in absolute terms, of the greater of: (i) the combined reported profit of all the operating segments that did not report a loss; and (ii) the combined reported loss of all the operating segments that reported a loss. |
iii. | Its assets represent 10% or more of the combined assets of all the operating segments. |
The Banks has determined that its operating segments are its reportable segments. No operating segments have been aggregated to arrive at reportable segments.
The seven segments are Large, Corporate and Real Estate Companies; Companies; Traditional and Private Banking; Lower Income Retail Banking; Treasury and International; Financial Services Offered through Subsidiaries and Colombia. The CODM manages these operating segments using an internal profitability reporting system and reviews its segments on the basis of gross operational margin and only uses average balances to evaluate performance and allocate its resources.
Regarding foreign markets, Colombia has been identified as a separate segment based on the business activities described. 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 separate financial information is available for it.
More information on each segment is presented in Note 4Segment Information.
Commercial banking:
• | Large, Corporate, and Real Estate Companies includes companies that belong to the major economic groups, specific industries, and companies with annual sales over US$60 million; this operating segment also includes real estate companies and financial institutions. |
• | Companies - includes a full range of financial products and services for companies with annual sales under US$60 million. Leasing and factoring have been included in this operating segment. |
Retail banking:
• | Traditional and Private Banking - offers, among other products, checking accounts, consumer loans, credit cards and mortgage loans to middle and upper income customers. |
• | Lower income retail banking - which corresponds to operations of Banco Condell, offers among other products, consumer loans, credit cards and mortgage loans to the low-to-middle income customers. |
Treasury and International:
• | Primarily includes treasury activities such as financial management, funding, liquidity and international businesses. |
Non-banking financial services:
• | Services rendered by our subsidiaries, which include insurance brokerage, financial advisory service, asset management and securities brokerage. |
Colombia
• | All banking services rendered |
e) | Functional currency and foreign currency |
The Bank has determined the Chilean Peso as its functional currency and the presentation currency for its consolidated financial statements. The functional currency is the currency of the primary economic environment in which the Bank operates.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Consequently, all balances and transactions denominated in currencies other than Chilean Pesos are considered as denominated in “foreign currencies”.
For the purposes of presenting consolidated financial statements, the assets and liabilities of the foreign consolidated entities whose functional currencies are other than the Chilean Peso are translated into the presentation currency as follows:
• | Assets and liabilities are translated at the closing exchange rate as of December 31, 2013, 2014 and 2015. |
• | Income, expenses and cash flows are translated at the exchange rate at the date of the transactions. |
The resulting exchange differences of translating into Chilean pesos the functional currency balances of the consolidated entities whose functional currency is other than the Chilean Peso, are recorded and accumulated as “Exchange differences on translation” within the line item “Accumulated other comprehensive income” in equity. On the disposal of those foreign subsidiaries, all of the exchange differences accumulated in equity with respect to those amounts attributable to the equity holders of the Bank are reclassified to income.
In preparing the consolidated financial statements, transactions in currencies other than the Bank’s functional currency are recognized at the rates prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the closing exchange rates. Exchange differences on monetary items are recognized in net income in the period in which they arise. The amount of net foreign exchange gains and losses within the statements of income includes the recognition of the effects of fluctuations in the exchange rates on monetary assets and liabilities denominated in foreign currencies.
Exchange differences on monetary items are recognized in profit or loss in the period in which they arise except for:
• | Exchange differences on foreign currency borrowings relating to assets under construction for future productive use which are included in the cost of those assets, if any; |
• | Exchange differences on transactions entered into in order to hedge certain foreign currency risks; and |
• | Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the monetary items. |
Assets and liabilities in foreign currency are shown at their equivalent in Chilean pesos, calculated using the exchange rates as of December 31, 2015 of Ch$710.32 per US$1 for the U.S. dollar and Ch$0.2266 per COP$1 for the Colombian peso (Ch$605.46 per US$1 and Ch$0. 2532 per COP$1 as of December 31, 2014).
The foreign exchange gains (losses) presented within consolidated statements of income (see Note 27Net foreign exchange income (losses))as of December 31, 2013, 2014 and 2015 of MCh$(13,906), MCh$(13,426) and MCh$(149,370), respectively, include the foreign currency exchanges gain/losses for exchange rate fluctuations over monetary foreign currency-denominated assets and liabilities, and the gains (losses) obtained from the Bank’s operations denominated in foreign currency.
f) | Assets and liabilities measurement and classification criteria |
f.1 The criteria for measuring the assets and liabilities presented in the statements of financial position are the following:
Measurement or valuation of assets and liabilities is the process of determining the amounts at which the elements of the financial statements are to be recognized and carried in the Statement of Financial Position and the Statement of Comprehensive Income. This involves selecting the particular basis or method of measurement.
Financial assets and liabilities are recorded initially at fair value which, unless there is evidence otherwise, is the transaction price. Instruments not valued at fair value through profit and loss are adjusted to subtract transaction costs.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Financial liabilities are valued generally at amortized cost, except for financial liabilities designated as hedged items (or hedging instruments) and financial liabilities held for trading, which are valued at fair value.
The following measurement criteria are used for assets and liabilities recorded in the Statement of Financial Position:
• | Financial assets and liabilities measured at amortized cost: |
The amortized cost of a financial asset or liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility.
For the amortized cost of a financial asset or liability, the effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period.
• | Fair value measurements of assets and liabilities: |
Fair value is defined as the price that will be received for the sale of an asset or paid for the transfer of a liability in a orderly transaction on the main (or most advantageous) market as of the measurement date under current market conditions (i.e. exit price) regardless of whether that price is directly observable or estimated using another valuation technique.
Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions or market information might not be available. However, the objective of a fair value measurement in both cases is the same — to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions at which the market participant who holds the asset or liability could exit that asset or liability.
When a price for an asset or liability is not directly observable, the Bank will measure the fair value using another valuation technique that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. As fair value is a market-based measurement, it should be determined using the assumptions that market participants would use in pricing the asset or liability, including risk assumptions. As a result, the Bank’s intention to hold an asset or to settle or otherwise fulfill a liability is not relevant when measuring fair value.
A fair value measurement is for a particular asset or liability. Thus, when measuring fair value, the Bank takes into account the same characteristics of the asset or liability that market participants would consider in pricing that asset or liability on the measurement date.
To increase the consistency and comparability of fair value measurements and related disclosures, the Bank uses and discloses a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1 inputs) and lowest priority to unobservable inputs (Level 3 inputs). Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the similar asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.
Assets valued at cost:
Cost is defined as the cost of the transaction to acquire the asset, less any impairment losses that may exist.
f.2 Classification of financial assets for measurement purposes
Financial assets are initially classified into the various categories used for management and measurement purposes.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Financial assets are included for measurement purposes in one of the following categories:
• | Financial assets at fair value through profit and loss: this category includes the financial assets held for trading which are acquired principally for the purpose of generating a profit in the short term from fluctuations in their prices. This category includes the trading portfolio financial assets and derivative financial instruments not designated and effective as hedging instruments. |
• | Available-for-sale financial assets: this category includes debt and equity securities not classified as “held-to-maturity investments”, “loans and accounts receivable from banks and customers” or “financial assets at fair value through profit or loss”. |
• | Held-to-maturity investments: this category includes debt instruments traded in an active market, with fixed maturity and with fixed or determinable payments, for which the Bank has both the intention and proven ability to hold to maturity. |
• | Loans and accounts receivable from banks and customers: this item includes financing granted to third parties, based on their nature, regardless of the type of borrower and the form of financing. Includes loans and accounts receivable from customers, interbank loans, and finance lease transactions in which the consolidated entities act as lessors. |
• | Investments under agreements to resell:includes balances of financial instruments purchased under resale agreements. |
f.3 Classification of financial assets for presentation purposes
Financial assets are classified by their nature into the following line items in the consolidated financial statements:
• | Cash and deposits in banks: This item includes cash balances, checking accounts and on-demand deposits with the Central Bank of Chile and other domestic and foreign financial institutions. |
• | Cash in the process of collection: Domestic transactions in the process of transfer through a domestic clearinghouse or international transactions which may be delayed in settlement due to time differences, etc. |
• | Trading portfolio financial assets: This item includes financial instruments due for trading purposes and investments in mutual funds which must be adjusted to their fair value in the same way as instruments acquired for trading. |
• | Derivative financial instruments: This item includes the positive fair value of derivative financial instruments including embedded derivatives separated from hybrid financial instruments. (See Note 8Derivatives Financial Instrument and Hedge Accounting). |
• | Loans and receivables from banks: This item includes the balances of transactions with domestic and foreign banks, including the Central Bank of Chile, other than those reflected in the preceding items. |
• | Loans and receivables from customers: This item includes loans that are non-derivative financial assets for which fixed or determined amounts are charged, that are not listed on an active market and which the Bank does not intend to sell immediately or in the short term. When the Bank is the lessor in a lease, and it substantially transfers the risks and benefits incidental to the leased asset, the transaction is presented in loans. |
• | Financial investments available-for-sale: This item includes debt and equity securities not classified in any of the other categories. |
• | Held-to-maturity investments: this category includes debt instruments traded in an active market, with fixed maturity and with fixed or determinable payments, for which the Bank has both the intention and proven ability to hold to maturity. |
• | Investments under agreements to resell:includes balances of financial instruments purchased under resale agreements. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
f.4 Classification of financial liabilities for measurement purposes
Financial liabilities are initially classified into the various categories used for management and measurement purposes.
Financial liabilities are classified for measurement purposes into one of the following categories:
• | Financial liabilities at fair value through profit or loss: Financial liabilities issued to generate a short-term profit from fluctuations in their prices and financial liabilities arising from definitive sales of financial assets purchased under resale agreements or borrowed (“short positions”). |
• | Financial liabilities at amortized cost: financial liabilities, regardless of their type and maturity, not included in any of the aforementioned categories which arise from the borrowing activities of financial institutions, regardless of their form and maturity. |
f.5 Classification of financial liabilities for presentation purposes
Financial liabilities are classified by their nature into the following line items in the consolidated financial statements:
• | Current accounts and demand deposits:This item includes all on-demand obligations except for term savings accounts, which are not considered on-demand instruments in view of their special characteristics. Obligations whose payment may be required during the period are deemed to be on-demand obligations; i.e., operations which become callable the day after the closing date are not treated as on-demand obligations. |
• | Transaction in the course of payment:Transactions in the process of transfer through a domestic clearing house or international transactions which may be delayed as to transfer due to time differences, etc. |
• | Obligations under repurchase agreements:This item includes the balances of sales of financial instruments under securities repurchase and loan agreements. |
• | Time deposits and saving accounts:This item shows the balances of deposit transactions in which a term at the end of which they become callable has been stipulated. This item also includes saving accounts. |
• | Derivative financial instruments: This item includes financial derivative contracts with negative fluctuations in fair value since recognition, whether they are for trading or for account hedging purposes, as set forth in Note 8Derivatives Financial Instrument and Hedge Accounting. |
• | Borrowings from financial institutions:This item includes obligations due to other domestic banks, foreign banks, or the Central Bank of Chile, which were not classified in any of the previous categories. |
• | Debt issued:This encompasses three items. They are obligations under letters of credit, subordinated bonds, and senior bonds. |
• | Other financial obligations:This item includes credit obligations to persons distinct from other domestic banks, foreign banks, or the Central Bank of Chile, for financing purposes or operations in the regular course of business. |
f.6 Measurement of financial assets and financial liabilities
(i) | Measurement of financial assets |
(a) | Financial assets at fair value through profit or loss |
Financial assets at fair value through profit and loss are initially measured at fair value. Transaction costs are recognized immediately in profit or loss. Subsequent to initial recognition financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in net income.
For “Trading portfolio financial assets” fair value is based on market prices or valuation models prevailing on the closing date of the financial statements. Gains or losses from changes in fair value, as well as gains or losses from their trading are included
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
in line item “Trading and investment income” within the statement of income. Accrued interest income and indexation adjustments are also included as “Trading and investment income”.
All purchases and sales of trading instruments to be delivered within the deadline period established by market regulations and conventions are recognized on the trade date, which is the date on which the commitment is made to purchase or sell the asset.
For“Derivative financial instruments” including foreign exchange forwards, interest rate futures, currency and interest rate swaps, interest rate options, and other derivative instruments, fair value is obtained from market quotes, discounted cash flow models and option valuation models, as appropriate. Derivatives contracts are presented on the statement of financial position as an asset when their fair value is positive and as a liability when the fair value is negative in the line item “Derivative financial instruments”.
Certain derivatives embedded in other financial instruments are treated as separate derivatives when their risk is not closely related to the economic characteristics and risks of the host contract and the host contract is not measured at fair value with changes in fair value recognized in net income.
On initial recognition, derivative contracts are designated by the Bank as a trading derivative or as a hedging instrument for hedge accounting purposes.
The changes in the fair value of trading derivatives are recorded in line item “Trading and investment income” within the consolidated statements of income.
If the derivative is designated as a hedging instrument in a hedge relationship, this may be: (1) a fair value hedge of assets or liabilities or unrecognized firm commitments; (2) a hedge of cash flows related to recognized assets or highly probable liabilities or forecast transactions; or (3) hedge of a net investment in a foreign operation.
A hedging relationship qualifies for hedge accounting if, and only if, all of the following conditions are met: (a) at the inception of the hedge there is formal designation and documentation of the hedging relationship; (b) the hedge is expected to be highly effective; (c) the effectiveness of the hedge can be reliably measured and; (d) the hedge is assessed on an ongoing basis and determined to have been highly effective throughout the financial reporting periods for which the hedge was designated.
Transactions with derivatives that do not qualify for hedge accounting are recognized and presented as trading derivatives, even if they provide an effective economic hedge for managing risk positions.
When a derivative instrument hedges the risk exposure to changes in the fair value of a recognized asset or liability, the hedged asset or liability is recorded at its fair value. Gains or losses from measuring the fair value of the item hedged and the hedging derivative instrument are recognized in the income statement.
If the hedged item in a fair value hedge is a firm commitment, the changes in the fair value of the firm commitment with respect to the hedged risk are recognized as assets or liabilities with the corresponding gain or loss recognized in the income statement. The gains or losses from measuring the fair value of the hedging derivative instrument are also recorded in the income statement. When an asset or liability is acquired or assumed as a result of the fulfilling of the firm commitment, the initial carrying amount of the acquired asset or assumed liability is adjusted to include the cumulative change in the fair value of the firm commitment attributable to the hedged risk that was recognized in the statement of financial position.
When a derivative instrument hedges exposure to variability in cash flows of recognized assets or liabilities, or highly probable forecasted transactions, the effective portion of the changes in fair value with regard to the risk hedged is recognized in other comprehensive income. Any ineffective portion is immediately recognized in the income statement. The accumulated gains or losses recognized in other comprehensive income are reclassified to the income statement in the same period or periods in which the hedged item affect the income statement.
When a derivative instrument hedges exposure to variability in the amount of the Bank’s interest in the net assets of a foreign operation, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in other comprehensive income and the ineffective portion is recognized in net income. The gain or loss on the hedging instrument relating to the effective portion of the hedge that has been recognized in other comprehensive income is reclassified
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
from equity to the income statement when the net investment affects profit or loss, for example, as a reclassification adjustment on the disposal of the foreign operation.
The types of derivatives into which we enter are disclosed in Note 8Derivatives Financial Instruments and Hedge Accounting to these financial statements. They may include (please note description at Note 8) the following:
Inflation forwards and inflation swaps: These derivatives are used to hedge the economic value of inflation indexed structures such as having inflation indexed assets funded with nominal liabilities.
OIS – Swaps: These derivatives are used to hedge the economic value of long-term assets funded with short-term liabilities, fixing repricing of the short-term liabilities.
USD-CLP Fx Forwards: USD-CLP forwards are used to hedge U.S. dollar denominated assets which will be funded by Chilean peso denominated short-term liabilities.
(b) | Available-for-sale financial assets. |
Instruments available for sale are initially recognized at fair value, including transaction costs. Subsequent to initial recognition, available for sale investments are measured at fair value less any impairment losses. Gains or losses from changes in fair value are recognized in other comprehensive income within line item “Financial instruments available-for-sale”. When these investments are sold or impaired, the cumulative gains or losses previously accumulated in the financial investment available for sale reserve in equity are transferred to the income statement and reported under line item “Trading and investment income, Net”.
All purchases and sales of investment instruments to be delivered within the deadline period established by market regulations and conventions are recognized on the trade date, which is the date on which the commitment is made to purchase or sell the asset.
Investment instruments designated as hedging instruments are measured using the requirements established for hedge accounting.
(c) | Held-to-maturity investments |
Held-to-maturity investments are measured at amortized cost using the effective interest method. Amortized cost is understood to be the acquisition cost of a financial asset plus or minus, as appropriate, the principal repayments and the cumulative amortization (taken to income statement) of the difference between the initial cost and the maturity amount. In the case of held-to-maturity investments, amortized cost furthermore includes any reductions for impairment losses.
(d) | Loans and accounts receivables from banks and customers |
Loans and accounts receivables are measured at amortized cost using the effective interest rate method, less any impairment if if applicable.
The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative accretion using the effective interest method of any difference between the initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectability.
The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments and receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
(ii) | Measurement of financial liabilities |
In general, financial liabilities on the Bank´s Statement of Financial Position are measured at amortized cost, as defined above, except for those financial liabilities designated as hedged items (or hedging instruments) in hedging relationships which are measured at fair value.
f.7 Valuation techniques
Financial instruments at fair value, determined on the basis of quotations in active markets, include government debt securities, private sector debt securities, shares, short positions, and fixed-income securities issued.
In cases where quotations cannot be observed. Management makes its best estimate of the price that the market would set using its own internal models. In most cases, these models use data based on observable market parameters as significant inputs and, in very specific cases, they use significant inputs not observable in market data. Various techniques are employed to make these estimates, including the extrapolation of observable market data and extrapolation techniques.
The main valuation techniques used by the Bank’s internal models to determine the fair value of derivatives are as follows:
i. | In the valuation of financial instruments permitting static hedging (mainly “forwards” and “swaps”), the “present value” method is used. Estimated future cash flows are discounted using the interest rate curves of the related currencies. The interest rate curves are generally observable market data. |
ii. | In the valuation of financial instruments requiring dynamic hedging (mainly structured options and other structured instruments), the Black-Scholes model is normally used. Where appropriate, observable market inputs are used to obtain factors such as the bid-offer spread, exchange rates, volatility, correlation indexes and market liquidity. |
iii. | In the valuation of certain financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors, the present value method (futures) and the Black-Scholes model (plain vanilla options) are used. The main inputs used in these models are observable market data, including the related interest rate curves, volatilities, correlations and exchange rates. |
The fair value of the financial instruments arising from the aforementioned internal models considers contractual terms and observable market data, which include interest rates, credit risk, exchange rates, the quoted market price of raw materials and shares, volatility and prepayments, among other things. The valuation models are not significantly subjective, since these methodologies can be adjusted and evaluated, as appropriate, through the internal calculation of fair value and the subsequent comparison with the related actively traded price.
f.8 Offsetting
Financial asset and liability balances are offset only if there is a legally enforceable right to offset the recorded amounts and the Bank intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
f.9 Derecognition of financial assets and liabilities
The accounting treatment of financial asset transfers is conditioned by the degree and form in which risks and benefits associated the assets are transferred to third parties:
1. | If the Bank transfers substantially all the risks and rewards to third parties, as in the case of unconditional sales of financial assets, sales under repurchase agreements at fair value at the date of repurchase, sales of financial assets with a purchased call option or written put option deeply out of the money, utilization of assets in which the assignor does not retain subordinated debt nor grants any credit enhancement to the new holders, and other similar cases, the transferred financial asset is removed from the consolidated statements of financial position and any rights or obligations retained or created in the transfer are simultaneously recorded. |
2. | If the Bank retains substantially all the risks and rewards associated with the transferred financial asset, as in the case of sales of financial assets under agreements to repurchase at a fixed price or at the sale price plus interest, securities lending agreements under which the borrower undertakes to return the same or similar assets, and other similar cases, the |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
transferred financial asset is not removed from the consolidated statements of financial position and continues to be measured by the same criteria as those used before the transfer. However, the following items are recorded: |
a) | An associated financial liability for an amount equal to the consideration received; this liability is subsequently measured at amortized cost. |
b) | Both the income from the transferred (but not removed) financial asset as well as any expenses incurred on the new financial liability. |
3. | If the Bank neither transfers nor substantially retains all the risks and rewards associated with the transferred financial asset - as in the case of sales of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases - the following distinction is made: |
a) | If the assigning entity does not retain control of the conveyed financial assets: it is written-off the balance sheet and any right or obligation withheld or created as a consequence of such transfer is recognized. |
b) | If the assignor entity retains control of the conveyed financial asset: it continues to recognize it in the balance sheet for a value equal with its exposure to value changes that might be experienced and it recognizes a financial liability associated with the conveyed financial asset. The net value of the asset conveyed and the associated liability is the amortized cost of the rights and obligations withheld (if the conveyed asset is measured according to its amortized cost), or according to the fair value of the rights and obligations thus obtained (if the conveyed assets are measured at their fair value). |
In line with the foregoing, financial assets are only written-off the balance sheet when the rights over the cash flows that they generate are extinguished or when their implicit or ensuing risks and benefits have been substantially conveyed to third parties. Similarly financial liabilities are only written off of the balance sheet when the obligations that they generate are extinguished or when their associated risks and rewards have been transferred, with the intention of either cancelling them or reselling them.
f.10 Impairment of financial assets
Financial assets, other than those measured at fair value through net income, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after initial recognition of the asset (a ‘loss event’), and that loss event (or events) has an impact on the estimated future cash flows of a financial asset or group of financial assets that can be reliably estimated. It may not be possible to identify a single, discrete event that caused the impairment.
For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its costs is considered to be objective evidence of impairment. For available-for-sale debt instruments, objective evidence of impairment could include significant financial difficulty of the issuer or breach of contract (such as a default or delinquency in payments); the probability that the issuer will enter bankruptcy or financial re-organization; or the cessation of an active market for that financial asset because of financial difficulties.
Additionally, certain categories of financial assets, such as loans and receivables from banks and customers assets that are not deemed to be impaired individually are also assessed for impairment on a collective basis. For loans and receivables from banks and customers that are deemed to be impaired, the interest accrual is suspended, when there are reasonable doubts as to their full recovery and/or the collection of the related interest for the amounts and on the dates initially agreed upon, after taking into account the guarantees received to secure (fully or partially) collection of the related balances. Collections relating to impaired loans and advances are used to reduce the accrued interest and the remainder, if any, to reduce the principal amount outstanding. For further information on accounting policies for impairment of loans and receivables (see Note 1.j “Allowance for loan losses” below).
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
For financial assets carried at amortized cost, the amount of impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
For financial assets carried at cost, the amount of impairment loss recognized is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.
For equity securities included in the Available for sale financial asset portfolio, should a significant or prolonged decline in value occur, the impairment loss is equal to the difference between the acquisition cost and current fair value and is recorded in the income statement.
The carrying amount of the financial asset is reduced by the impairment loss directly with the exception of loans and receivables from banks and customers, where the carrying amount is reduced through the use of an allowance account (‘allowance for loan losses’). When a loan and receivable is considered uncollectible, and it has been covered with an allowance for loan losses previous to its write-off, it is written off against the allowance account by charging and releasing provision through the income statement. Subsequent recoveries of amounts previously written off are credited against the income statement.
When an available-for-sale financial asset is considered to be impaired, cumulative unrealized gains and losses previously recognized in other comprehensive income are reclassified to the income statement in the period.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through net income to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
In respect of available-for-sale equity securities, impairment losses previously recognized in net income are not reversed through income. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income and accumulated under the heading “financial instruments available-for-sale.”
In respect of available-for-sale debt securities, impairment losses are subsequently reversed through net income if an increase in fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.
g) | Loans and receivables |
Loans and receivables from customers and loans and receivables from banks, both originally granted by the Bank and acquired, are non-derivative financial assets with fixed or defined charges that are not quoted on an active market and that the Bank has no intention of selling immediately or in the short term; they are valued initially at cost plus incremental transaction costs and subsequently measured at amortized cost using the effective interest rate method.
When the Bank is the lessor in a lease agreement and transfers substantially all incidental risks and rewards over the leased asset, the transaction is presented within loans.
h) | Factored receivables |
Factored receivables are valued at the purchase price of the loan. The price difference between the amounts paid and the actual face value of the receivables is earned and recorded as interest income over the financing period.
i) | Lease receivables |
Lease receivables, included in “loans and receivables from customers”, are periodic payments from lease agreements that meet certain requirements to qualify as finance leases and are presented at the aggregate value of the minimum lease payments plus residual value net of unearned interest as of year end.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Assets leased among consolidated companies are treated as assets held for own use in the financial statements.
j) | Allowances for loan losses |
Allowance for loan losses are determined on an “individual” basis when they correspond to customers that are individually evaluated, and considering their size or level of exposure make it necessary to analyze them on a case-by-case basis and, are referred to as “collectively evaluated” when they correspond to a large number of loans whose amounts are not individually significant and relate to loans to individuals or small-size companies.
The impairment losses on these loans are determined:
• | individually, for all individually significant loans and for those which, although not significant, cannot be classified as part of homogenous groups of loans of similar characteristics, i.e., by type of loan, customer’s industry and geographical location, type of guarantee, age of past-due amounts, etc. |
• | collectively, for those with similar credit risk characteristics. |
• | When the Bank determines that there is no objective evidence of impairment for an individually significant loan, it includes the loan in a group of loans of similar credit risk characteristcs and collectively evaluates such loans for impairment |
Criteria for determining impairment losses may consist of:
• | becoming aware of a significant financial difficulty on the part of the customer; |
• | when there is evidence of a deterioration of the customer’s ability to pay, either because it is in arrears or for other reasons, and/or |
• | it becomes probable that the customer will enter bankruptcy or other financial reorganisation; |
• | observable data at a portfolio (collectively analyzed) level indicating that there is a measurable decrease in the estimated future cash flows, although the decrease cannot yet be ascribed to individual loan in the portfolio – such as adverse changes in the payment status of customer in the portfolio or national or local economic conditions that correlate with defaults on the loans in the portfolio. |
Write-offs
Loans and receivables are written off (the entire unpaid principal balance and related accrued interest balance) when we have determined that there is no longer any realistic prospect of recovery of part or all of the loans and receivable. The typical time frames from initial impairment to write-off are as follows:
Type of loans | ||
Consumer loans with or without collaterals | 6 months | |
Consumer leasing | 6 months | |
Other non-real estate leasing operations | 12 months | |
Other operations without collaterals | 24 months | |
Commercial loans with collaterals | 36 months | |
Real estate leasing (commercial and mortgage) | 36 months | |
Mortgage loans | 48 months |
Initial impairment starts from the date in which all or part of the loans and receivables fall into arrears.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Subsequent payments received from written-off loans and receivables are recognized in the income statement as recoveries.
k) | Transactions Involving Repurchase Agreements and Securities Lending |
Pursuant to agreements to resell, the Bank purchases financial instruments, which are recorded as assets under the heading “Investments under agreement to resell”, and accrete interest under the effective interest rate method through the maturity date of the contract.
Investments sold subject to a repurchase obligation and which serve as security for the loan are recorded under the heading “Trading portfolio financial assets” or “Financial investments available-for-sale”, respectively. A repurchase obligation is classified as a liability and recorded as “Obligations under repurchase agreements” and accretes interest under the effective interest rate method through the maturity date of the contract.
l) | Revenue and expense recognition |
The most significant criteria used by the Bank to recognize revenue and expenses are summarized as follows:
I.1 Interest revenue, interest expense and similar items
Interest revenue and expense are recorded on an accrual basis using the effective interest method.
The recognition of accrued interest in the consolidated income statement is suspended for loans individually classified as impaired and for those loans for which impairment losses have been assessed collectively. This interest is recognized as income, when collected, as a reversal of the related impairment losses.
Dividends received from investments in other companies are recognized in income when the right to receive them has been accrued and are presented under item “Income attributable to investments in other companies”.
The Bank ceases accruing interest on the basis of contractual terms on the principal amount of any asset that is classified as impaired. On the other hand, any interest collected on assets classified as impaired is accounted for on a cash basis.
Nonaccrual loans are returned to an accrual status when: (i) in a period of at least four months a customer has made consecutive payments for past due obligations; (ii) future cash flow payments are consistent with expected future cash flows to be received; and (iii) the customer’s conditions improve after the original nonaccrual status classification.
I.2 Commissions, fees, and similar items
Fee and commission income and expenses are recorded in the consolidated statements of income based on criteria that differ according to their nature. The main criteria are:
• | Income/expenses arising from transactions or services that are performed over a period of time are recorded over the life of such transactions or services. |
• | Income/expenses originated by a specific act are recognized when the specific act has occurred. |
I.3 Non-finance income and expenses
Non-finance income and expenses are recognized on an accrual basis.
m) | Property, plant and equipment |
Property, plant and equipment consist of buildings, land, furniture, vehicles, computer hardware and other fixtures owned by the Bank or acquired under finance leases.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Property, plant and equipment for own use
Property, plant and equipment for own use are measured at acquisition cost less accumulated depreciation and accumulated impairment losses. Property, plant and equipment also includes assets received in lieu of payment which are intended to be held for continuing own use (See Note 1.n. below) and assets acquired under finance leases (See Note 1.o. below).
Depreciation is calculated using the straight line method over the acquisition cost of assets minus their residual value. The land on which buildings and other structures stand has an indefinite life and, therefore, is not subject to depreciation.
The Bank applies the following useful lives to the fixed assets that comprise its total assets8:
Item | Useful life (Years) | |
Buildings | 75 | |
Facilities | 10 | |
Furniture | 10 | |
Vehicles | 10 | |
Office equipment | 10 | |
Security instruments and implements | 5 | |
Other minor assets | 5 |
The consolidated entities assess at the end of each reporting date whether there is any indication that the carrying amount of any of their tangible assets exceeds its recoverable amount; if so, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in proportion to the revised carrying amount and to the new remaining useful life, if the useful life needs to be re-estimated.
Similarly, if there is an indication of a recovery in the value of a tangible asset, the consolidated entities record the reversal of the impairment loss recognized in prior periods and adjust the future depreciation charges accordingly. In no circumstance may the reversal of an impairment loss on an asset increase its carrying value above the one it would have had if no impairment losses had been recorded in prior years.
The estimated useful lives of the items of property, plant and equipment held for own use are reviewed at least at the end of each reporting period to determine significant changes therein. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recorded in the consolidated statements of income in future years on the basis of the new useful lives.
Maintenance expenses are recorded as an expense in the period in which they are incurred.
n) | Assets received or awarded in lieu of payment |
Assets received or awarded in lieu of payment of loans and accounts receivable from customers are initially recognized at the price agreed by the parties, or otherwise, when the parties do not reach an agreement, at the value at which the Bank is awarded those assets at a judicial settlement. Such values approximate the assets’ market value as the valuations are determined from market-based evidence by appraisals undertaken by professionally qualified appraisers at the time of the receipt of the assets.
8 | According to internal accounting policies, CorpBanca and its subsidiaries use the same useful lives, except for buildings in Colombia, which have a useful life of 70 years. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
o) | Leasing |
a. Finance leases
Finance leases are leases that substantially transfer all the risks and rewards incidental to ownership of the leased asset to the lessee.
When the Bank acts as the lessor of an asset, the sum of the present value of the lease payments receivable from the lessee plus the guaranteed residual value, which is generally the exercise price of the lessee’s purchase option at the end of the lease term, is recorded as loans to third parties and is therefore included under “Loans and accounts receivable from customers, net” in the consolidated statements of financial position.
When the Bank act as lessee, it shows the cost of the leased assets in the consolidated statements of financial position based on the nature of the leased asset, and simultaneously records a liability for the same amount (which is the lower of the fair value of the leased asset and the sum of the present value of the lease payments payable to the lessor plus, if appropriate, the exercise of the purchase option). The depreciation policy for these assets is consistent with that for property, plant and equipment for own use.
In both cases, the finance revenues and finance expenses arising from these contracts is credited and debited, respectively, to “Interest income” and “Interest expense” in the consolidated statements of income so as to achieve a constant rate of return over the lease term.
b. Operating leases
In operating leases, ownership of the leased asset and substantially all the risks and rewards incidental thereto remain with the lessor.
When the consolidated entities act as the lessor, they present the acquisition cost of the leased assets under property, plant and equipment. The depreciation policy for these assets is consistent with that for similar items of property, plant and equipment held for own use. Income from operating leases is recorded on a straight line basis under “Other operating income” in the consolidated statements of income.
When the consolidated entities act as the lessees, the lease expenses, including any incentives granted by the lessor, are charged on a straight line basis to “Administrative and other expenses” in the consolidated statements of income.
p) | Intangible assets |
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 separately identifiable. They are assets whose cost can be estimated reliably and from which the consolidated entities consider it probable that future economic benefits will be generated. The cost of intangible assets acquired in a business combination is their fair value as of the date of acquisition.
These intangible assets are recorded initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortization or any accumulated impairment losses.
An entity will evaluate whether the useful life of an intangible asset is finite or indefinite and, if finite, will evaluate the duration or number of units of production or other similar units that make up its useful life. The entity will consider an intangible asset to have an indefinite useful life when, on the basis of an analysis of all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.
An intangible asset is accounted for based on its useful life. An intangible asset with a finite useful life is amortized over its economic useful life and reviewed to determine whether any indication of impairment may exist. The amortization period and method are reviewed at least once every reporting period. An intangible asset with an indefinite useful life is not amortized and the entity will determine if it has experienced an impairment loss by comparing its recoverable amount to its carrying amount on a yearly basis and at any time during the year in which there is an indication that its value may be impaired.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
q) | Contingent assets and liabilities |
Contingent assets and liabilities are those operations or commitments in which the bank assumes a credit risk upon committing itself to third parties, before the occurrence of a future fact, to make a payment or disbursement that must be recovered from its clients.
The Bank keeps a record of the following balances related to commitments or to liabilities of its own line of business in memorandum accounts: Collateral and guarantees, confirmed foreign letters of credit, documentary letters of credit issued, bank vouchers, inter-bank vouchers, freely disposable lines of credit, other credit commitments and other contingencies.
r) | Income and Deferred taxes |
The Bank and its subsidiaries have recorded income tax expense for each reporting period in accordance with current tax laws in the country where each of its entities and subsidiaries operates (see Note 15Current Taxes).
The tax expense on profit for the period includes the sum of current taxes that result from applying current tax rates to the taxable income for the period and the deferred tax expense recognized in consolidated profit or loss. The Bank and its subsidiaries recognize, when appropriate, deferred tax assets and liabilities for future estimates of tax effects attributable to differences between the book and tax values of assets and liabilities.
Deferred tax assets and liabilities are determined based on the tax rate applicable in the period that deferred tax assets and liabilities are recovered or settled. The effects of future changes in tax legislation or tax rates are recognized in deferred taxes when the tax legislation is enacted or substantially enacted. The effects of deferred taxes for temporary differences between the tax and book basis are recorded on an accrual basis in accordance with IAS 12 “Income Taxes”.
Tax Reforms
a. | Chile |
On September 29, 2014, Law 20,780 was published in the Official Gazette. The Law introduces modifications designed to increase revenue collection, finance education reform, make taxation more equitable and improve the current tax system.
As of period end, the deferred taxes of the Bank and its Chilean subsidiaries have been adjusted based on the new corporate income tax rates contained in Law 20,780, published on September 29, 2014. The law progressively increases the tax rate to 21% for commercial year 2014, 22.5% for 2015, 24% for 2016 and 25% for 2017 and beyond for taxpayers applying the Attributed Income System. Taxpayers applying the Semi-Integrated System will have a rate of 25.5% in 2017 and 27% in 2018 and beyond.
b. | Colombia |
The deferred taxes of the Colombian subsidiaries have been adjusted based on the new income tax rates introduced by Law 1,739 published December 23, 2014, which modified the Colombian tax statutes and incorporated mechanisms to fight tax evasion. This modification to Colombian tax regulations raises tax rates to 34% for commercial year 2014, 39% for 2015, 40% for 2016, 42% for 2017, 43% for 2018 and then returns to 34% for 2019 and beyond.
In light of these modifications, the deferred taxes of Chilean and Colombian companies have been recorded according to the rates in the periods of reversal of each temporary difference.
s) | Employee Benefits |
Vacation expense
The annual cost of employee vacations and benefits are recorded on an accrual basis.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Short-term benefits
Short-term benefits correspond to current liabilities as measured by the undiscounted amount that the Bank expects to pay over the course of the following year.
Other long-term benefits
Other long-term benefits correspond to remuneration (other post-employment benefits and termination benefits). The amount recognized as a liability is the total net present value of the obligations at the end of the reporting period minus the fair value at the close of the reporting period of plan assets (if any) against which the obligations are settled directly.
Retirement Plans
For defined benefit retirement plans, the cost of benefits is determined using the projected units of credit method with actuarial valuations performed as of each year end. An entity shall use the projected unit credit method to determine the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost.
An entity shall recognise the components of defined benefit cost, except to the extent that another IFRS requires or permits their inclusion, as follows:
(a) Service cost in profit or loss;
(b) Net interest on the net defined benefit liability in profit or loss; and
(c) Remeasurements of the net defined benefit liability in other comprehensive income.
t) | Cash flow statement |
For the preparation of the cash flow statement, the Bank applied the indirect method, in which, starting with the Bank’s consolidated income before taxes, non-cash transactions are subsequently added/ subtracted, as well as income and expenses associated with cash flows classified as investing or financing activities.
The preparation of the cash flow statements takes the following items into account:
a) | Cash flows: the inflow or outflow of cash and cash equivalents, which includes Central Bank of Chile deposits, Domestic bank deposits, and Foreign bank deposits (includes Bank of the Republic of Colombia deposits). |
b) | Operating activities: correspond to normal activities performed by the Bank, as well as other activities that cannot be classified as either investing or financing. The Bank in this section includes among others, foreign borrowings, dividend received from investment, available for sale and held to maturity investment, etc. |
c) | Investment activities: correspond to the acquisition, sale or disposal by other means, of long-term assets and other investments not included in cash and cash equivalents. |
d) | Financing activities: activities that produce changes in the size and composition of the net Shareholders’ equity and liabilities that are not part of operating activities or investments. |
In the statement of cash flows, cash and cash equivalents are defined as cash balances and bank deposits plus the net balance of cash in the process of collection. Cash and cash equivalents balances and their reconciliation to the cash flow statement are detailed in Note 5 “Cash and cash equivalents”.
The provision for loan losses presented in the operating section does not agree to the amount presented in the statements of income because, for cash flow statement purposes, the provision for loan losses excludes recoveries of assets previously written-off.
u) | Use of estimates |
The preparation of the financial statements requires Management to make estimates and assumptions that affect the application of the accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates.
In certain cases, generally accepted accounting principles require that assets or liabilities be recorded or disclosed at their fair values. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where quoted market prices in active markets are not available, the
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Bank has estimated such values based on the best information available, including the use of modeling and other valuation techniques.
The Bank has established allowances to cover incurred losses, therefore to estimate the allowances, they must be regularly evaluated taking into consideration factors such as changes in the nature and volume of the loan portfolio, trends in forecasted portfolio quality, credit quality and economic conditions that may adversely affect the borrowers’ payment capacity. Increases in the allowances for loan losses are reflected as “Provisions for loan losses” in the Consolidated Statement of Income. Loans are charged off when management determines that a loan or a portion thereof is uncollectible. Charge-offs are recorded as a reduction of the provisions for loan losses.
The relevant estimates and assumptions are regularly reviewed by the Bank’s Management to quantify certain assets, liabilities, revenues, expenses, and commitments. Revised accounting estimates are recorded in the period in which the estimate is revised and in any affected future period.
These estimates, made on the basis of the best available information, mainly refer to:
• | Useful life of material and intangible assets (Notes 13, 14 and 31) |
• | Valuation of goodwill (Notes 12, 13 and 31) |
• | Provisions (Note 20) |
• | Fair value of financial assets and liabilities (Notes 6, 7, 8, 11 and 34) |
• | Contingencies and commitments (Note 22) |
• | Impairment losses for certain assets (Notes 9,10, 11 and 31) |
• | Current and deferred taxes (Note 15) |
• | Consolidation perimeter and evaluation of control (Note 1.2, letter a)). |
v) | Mandatory dividends |
The Bank records within liabilities (provisions) the portion of profit for the year that should be distributed to comply with the Corporations Law (30%) or its dividend policy, which establishes that no less than 50% of profit for the years 2015 and 2014 should be distributed as dividends, as approved by shareholders in February 2013. For the years 2015 and 2014, the Bank provisioned 50% of profit for the year. This provision is recorded within “provision for minimum dividends” by reducing “retained earnings” within the Consolidated Statement of Changes in Equity.
w) | Earnings per share |
Basic earnings per share are determined by dividing the net income attributable to equity holders of the Bank in a period by the weighted average number of shares outstanding during the period.
Diluted earnings per share are determined in a similar manner as Basic Earnings per share, but the net income attributable to equity holders of the bank and the weighted average number of outstanding shares are adjusted to take into account the potential diluting effect of stock options, warrants, and convertible debt.
As of December 31, 2013, 2014 and 2015, the Bank did not have instruments that generated diluting effects on income attributable to equity holders of the Bank.
x) | Impairment |
Assets are acquired for the benefit they will produce. Therefore, impairment occurs whenever their book value exceeds their recoverable amount; assets are tested for impairment whenever there are indicators that the carrying amount may exceed the recoverable value.
The Bank and its subsidiaries use the following criteria to test for impairment, if any:
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Financial assets
A financial asset that is not recorded at fair value through profit and loss is evaluated at each period end in order to determine whether there is objective evidence of impairment. As of each reporting date, the Bank assesses whether there is objective evidence that a financial asset or a group of financial assets may be impaired. Financial assets or asset groups are considered impaired only if there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset and the loss event(s) had an impact on the estimated future cash flows of the financial asset or asset group that can be reliably estimated. It may not be possible to identify a single loss event that individually caused the impairment.
An impairment loss for financial assets recorded at amortized cost is calculated as the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted using the original effective interest rate of the financial asset.
Losses expected as the result of future events, whatever their probability, are not recognized. Objective evidence that an asset or group of assets is impaired includes observable data that comes to the attention of the asset holder about the following loss events: (i) significant financial difficulties of the issuer or the debtor; (ii) breach of a contract; (iii) granting of a concession by the lender to the issuer or the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, that the lender would not otherwise consider; (iv) high probability of bankruptcy or other financial reorganization; (v) disappearance of an active market for a given financial asset due to financial difficulties; or (vi) evidence that there has been a measurable reduction in the estimated future cash flows from a group of financial assets since initial recognition, even if it cannot yet be identified with individual financial assets, including data such as: (a) adverse changes in the status of payments by borrowers included in the group; or (b) local or national economic conditions that are linked to delinquency for group assets).
• | Individually significant financial assets are examined individually to determine impairment. Remaining financial assets are evaluated collectively in groups that share similar credit risk characteristics. When the Bank determines that there is no objective evidence of impairment for an individually significant loan, it includes the loan in a group of loans of similar credit risk characteristcs and collectively evaluates such loans for impairment. |
All impairment losses are recognized in the income statement. Any cumulative loss related to available-for-sale debt instruments recognized previously in equity is transferred to the income statement, in the circumstances noted in f.10.
An impairment loss can only be reversed if it can be related objectively to an event occurring after the impairment loss was recognized. Reversal of impairment on financial assets recorded at amortized cost and those classified as available-for-sale debt instruments is recorded in the income statement.
Non-financial asset
The carrying amounts of the Bank’s non-financial assets, excluding investment property and deferred taxes, are reviewed regularly, or at least every reporting period, to determine whether indications of impairment exist. If such indication exists, the recoverable amount of the asset is then estimated. The recoverable amount of an asset is the greater of the fair value less costs to sell, whether for an asset or a cash-generating unit “CGU”, and its value in use. That recoverable amount is determined for an individual asset, unless the asset does not generate cash flows that are largely independent from the cash flows of other assets or asset groups.
When the carrying amount of an asset or CGU, exceeds its recoverable amount, the asset is considered to be impaired and its value is reduced to its recoverable amount.
Upon assessing the value in use of an individual asset or CGU, estimated future cash flows are discounted to present value using a before-tax discount rate that reflects current market assessments of the time value of money and the specific risks that an asset may have.
As of each reporting period, the Bank will evaluate whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill no longer exists or could have decreased. If such indication exists, the entity will once
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
again estimate the asset’s recoverable amount. In evaluating whether indications that an impairment loss recognized in prior periods for an asset other than goodwill no longer exist or may have decreased in value, the entity will consider at least external sources (significant increase in market value of the asset; significant changes in technological, market, economic or legal environment affecting the asset; decrease in market interest rates or other investment rates of return which are likely to affect the discount rate used in calculating the asset’s value in use, resulting in higher recoverable amount) and internal sources during the period (in the immediate future, significant favorable changes in the manner in which the asset is used or is expected to be used; and available evidence from internal reporting indicating that the economic performance of the asset is or will be better than expected, including costs incurred during the period to improve or enhance the asset’s performance or restructure the operation to which the asset belongs).
Impairment losses recognized in prior years are assessed at each reporting date in search of any indication that the loss has decreased or disappeared. An impairment loss will be reversed only to the extent that the book value of the asset does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Goodwill
Goodwill is tested annually to determine whether impairment exists and when circumstances indicate that its book value may be impaired. Impairment of goodwill is determined by evaluating the recoverable amount of each cash generating unit (or group of cash generating units) to which goodwill is allocated. Where the recoverable amount of the cash generating unit is less than its carrying amount, an impairment loss is recognized.
Goodwill acquired in a business combination shall be allocated as of the acquisition date among the CGUs or group of CGUs of the acquirer that are expected to benefit from the synergies of the business combination, regardless of whether other of the acquiree’s assets or liabilities are allocated to these units. Impairment losses relating to goodwill cannot be reversed in future periods.
In accordance with IAS 36“Impairment of Assets”, annual impairment testing is required for a CGU to which goodwill has been allocated and for intangible assets with indefinite useful lives. Different CGU and different intangible assets can be tested for impairment at different times during the year as long as testing for the named asset is carried out at the same time each year.
y) | Provisions |
Provisions are reserves involving uncertainty about their amount or maturity. They are recorded in the Consolidated Statement of Financial Position when the following copulative requirements are met:
• | a present (legal or implicit) obligation has arisen from a past event and; |
• | as of the date of the consolidated financial statements is likely that the Bank and/or its controlled entities will have to disburse resources to settle the obligation and the amount can be reliably measured. |
A contingent liability is any obligation that arises from past events whose existence will be confirmed only if one or more uncertain future event occurs not within the control of the Bank and its controlled entities.
The annual consolidated financial statements include all material provisions with respect to which it is considered more likely than not that the obligation will have to be settled.
Provisions which are quantified on the basis of the best available information regarding the consequences of the event that gives rise to them, and are re-estimated at the end of each accounting period are used to cover the specific obligations for which they were originally recognized, and are reversed in full or in part when those obligations cease to exist or are reduced.
Provisions are classified into the following groups in the Consolidated Statement of Financial Position based on the obligations they cover:
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
• | Employee benefits and compensation |
• | Minimum dividends |
• | Contingencies |
z) | Derecognition financial assets and liabilities |
Accounting for transfers of financial assets is based on the degree and way in which the risks and rewards associated with the transferred assets are transferred:
1. | If the risks and rewards are substantially transferred to third parties (e.g. unconditional sales, sales with repurchase agreements at fair value as of the date of repurchase, sales of financial assets with a purchase option deemed deep-out-of-the-money, use of assets in which the transferor does not retain subordinate financing or transfer any type of credit enhancement to the new holders and other similar cases), the transferred asset is derecognized from the balance sheet and any rights or obligations retained or created upon transfer are simultaneously recognized. |
2. | If the risks and rewards of the transferred financial asset are substantially retained (e.g. sales of financial assets with repurchase agreements at fixed prices or for the sales price plus interest, securities lending agreements where the borrower has the obligation to return the securities or similar assets and other similar cases) the transferred asset is not derecognized from the balance sheet and will continue to be valued using the same criteria used before the transfer. Otherwise, the following is recorded in accounting: |
a) | A financial liability for an amount equal to the consideration received, which is subsequently valued at amortized cost. |
b) | Both the income from the transferred financial asset (but not derecognized) and the expenses for the new financial liability. |
3. | If the risks and rewards of the transferred financial asset are not substantially transferred or retained (e.g. sales of financial assets with a purchase option deemed not deep-in-the-money or deep-out-of-the-money, use of assets in which the transferor assumes subordinate financing or another type of credit enhancement for part of the transferrer asset and other similar cases), the following will be analyzed: |
a) | If the transferor has not retained control of the transferred financial asset, it will be derecognized, and any lights or obligations created or retained upon transfer will be recognized. |
b) | If the transferor has retained control of the transferred financial asset, it will continue to be recognized in the Statement of Financial Position for an amount equal to its exposure to the changes in value that it may experience and a financial liability will be recognized for the financial asset transferred. The net amount of the transferred asset and the associated liability will be the amortized cost of the rights and obligations retained if the transferred asset is measured at amortized cost, or the fair value of the rights and obligations retained if the transferred asset is measured at fair value. |
As a result, financial assets will only be derecognized when the rights over the cash flows have been extinguished or when substantially all implicit rights and rewards have been transferred to third parties. Likewise, financial liabilities are only derecognized from the Statement of Financial Position when the obligations they generate have been extinguished or when they are acquired with the intention to settle them or place them once again.
aa) | Debt issued |
The financial instruments issued by the Bank and subsidiaries are classified in the Consolidated Statement of Financial Position within “debt issued”, where the Bank has an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation by the exchange of a fixed amount of cash or other financial asset.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
After initial measurement, debt issued is subsequently measured at amortized cost using the effective interest rate. Amortized cost is calculated by taking into account any discount, premium or cost related directly to the issuance.
bb) | Assets, investment funds and pensions managed by the Bank and its subsidiaries |
The assets managed by CorpBanca Administradora General de Fondos S.A. and CorpBanca Investment Trust Colombia S.A. that are owned by third parties are not included in the Consolidated Financial Statements the Bank and its subsidiaries do not have control over them. Fees generated by these activities are included in “fee and commission income” in the Consolidated Statement of Income.
cc) | Fiduciary activities |
The Bank and its subsidiaries provide trust and other fiduciary services that result in the holding or investing of assets on behalf of customers. Assets held in a fiduciary capacity are not reported in the consolidated financial statements, as they are not the assets of the Bank. Contingencies and commitments arising from this activity are disclosed in Note 22Contingencies, Commitments and Responsabilities,letter a).
dd) | Customer loyalty program |
The Bank and its subsidiaries maintain a customer loyalty program as an incentive to their customers. Through this program, customers can acquire goods and/or services based on purchases made primarily with credit cards issued by the Bank and by meeting certain conditions established in the program for that purpose.
ee) | Non-current assets held for sale |
Non-current assets (or disposal groups made up of assets and liabilities) that are expected to be recovered primarily through sale instead of through continued use are classified as held for sale. Immediately before being classified as such, the assets (or elements of a disposal group) are remeasured in accordance with the Bank’s accounting policies. From this time forward, assets (or disposal groups) are measured at the lesser of book value and fair value less costs to sell.
Impairment losses after the initial classification of assets held for sale and gains and losses after revaluation are recognized in profit or loss. Gains are not recognized if they exceed any accumulated loss.
As of December 31, 2014 and 2015, the Bank did not have any non-current assets held for sale.
ff) | Convenience translation to U.S. dollars |
The Bank maintains its accounting records and prepares its consolidated financial statements in Chilean pesos. The U.S. dollar amounts disclosed in the accompanying financial statements are presented solely for the convenience of the reader at the December 31, 2015 closing exchange rate of Ch$710.32 per US$1.00. This translation should not be construed as representing that the Chilean peso amounts actually represent or have been, or could be, converted into U.S. dollars at such a rate or at any other rate.
gg) | Statement of compliance with International Financial Reporting Standards (IFRS) |
These consolidated financial statements as of December 31, 2015, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (hereinafter “IASB”).
Management has determined that, as of December 31, 2014, the presentation of both 1) current tax assets and liabilities and 2) deferred tax assets and liabilities should be modified to conform to IAS 12, “Income Taxes.” The reclassification of current tax assets and current tax liabilities as at December 31, 2014 was made to conform to the requirements of paragraph 71 of IAS 12 which requires the offset of such assets and liabilities when there is a legally enforceable right to do so and the entity
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
intends to realize the asset and settle the liability simultaneously which requirements were met by CorpBanca. The reclassification of deferred tax assets and deferred tax liabilities was made to conform to paragraph 74 of IAS 12 which requires offset of such assets and liabilities when there is a legally enforceable right to offset current tax assets and liabilities and when deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority on the same taxable entity or different taxable entities when the realization of such assets and the settlement of liabilities are expected to occur simultaneously. Therefore, in the December 31, 2014 Statement of Financial Position, the Company reclassified MCh$104,341 of deferred tax assets as an offset to deferred tax liabilities and MCh$19,226 of current tax assets as an offset to current tax liabilities, respectively. Management has determined that the effects of these reclassifications are not material to the 2014 Statement of Financial Position. This presentation is consistent with the presentation as of December 31, 2015. Note 15 of these financial statements has been revised to reflect disclosure in accordance with such reclassifications.
Application of new and revised International Financial Reporting Standards (IFRS)
a) | New and revised IFRS effective in the current period: |
The following new and revised IFRS have been adopted in these financial statements:
Amendments to IFRS | Effective date | |
Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) | Annual periods beginning on or after July 1, 2014 | |
Annual Improvements 2010-2012 Cycle | Annual periods beginning on or after July 1, 2014 | |
Annual Improvements 2011-2013 Cycle | Annual periods beginning on or after July 1, 2014 |
Amendment to IAS 19 (2011), Employee Benefits
On November 21, 2013, the IASB amended IAS 19 (2011) Employee Benefits to clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. The amendments permit contributions that are independent of the number of years of service to be recognized as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to periods of service. Other contributions by employees or third parties are required to be attributed to periods of service either using the plan’s contribution formula or on a straight-line basis. The amendments are effective for periods beginning on or after July 1, 2014, with earlier application permitted.
The Bank’s management analyzed these amendments in detail and concluded that they did not have a significant impact on the statements of financial position, comprehensive income or cash flows or notes.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Annual Improvements 2010 – 2012 Cycle
IFRS | Topic | Amendment | ||
IFRS 2Share based payments | Definition of vesting condition | Appendix A ‘Defined terms’ to IFRS 2 was amended to (i) change the definitions of ‘vesting condition’ and ‘market condition’, and (ii) add definitions for ‘performance condition’ and ‘service condition’ which were previously included within the definition of ‘vesting condition’. The amendments clarify that: (a) a performance target can be based on the operations of the entity or another entity in the same group (i.e. a non-market condition) or on the market price of the equity instruments of the entity or another entity in the same group (i.e. a market condition); (b) a performance target can relate either to the performance of the entity as a whole or to some part of it (e.g. a division or an individual employee); (c) a share market index target is a non-vesting condition because it not only reflects the performance of the entity, but also of other entities outside the group; (d) the period for achieving a performance condition must not extend beyond the end of the related service period; (e) a condition needs to have an explicit or implicit service requirement in order to constitute a performance condition (rather than being a non-vesting condition); (f) a market condition is a type of performance condition, rather than a non-vesting condition; and (g) if the counterparty ceases to provide services during the vesting period, this means it has failed to satisfy the service condition, regardless of the reason for ceasing to provide services. The amendments apply prospectively to share-based payment transactions with a grant date on or after July 1, 2014, with earlier application permitted. | ||
IFRS 3Business Combinations | Accounting for contingent consideration in a business combination | The amendments clarify that a contingent consideration that is classified as an asset or a liability should be measured at fair value at each reporting date, irrespective of whether the contingent consideration is a financial instrument within the scope of IFRS 9 or IAS 39 or a non-financial asset or liability. Changes in fair value (other than measurement period adjustments) should be recognized in profit or loss. Consequential amendments were also made to IFRS 9, IAS 39 and IAS 37. The amendments apply prospectively to business combination for which the acquisition date is on or after July 1, 2014. Earlier application is permitted. | ||
IFRS 8Operating Segments | Aggregation of Operating Segments | The amendments require an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have ‘similar economic characteristics’. The amendments apply for annual periods beginning on or after July 1, 2014, with earlier application |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
permitted. | ||||
IFRS 8,Operating Segment | Reconciliation of the total of the reportable segments’ assets to the entity’s assets | The amendment clarifies that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should only be provided if the segment assets are regularly provided to the chief operating decision-maker. The amendments apply for annual periods beginning on or after July 1, 2014, with earlier application permitted. | ||
IFRS 13,Fair Value Measurement | Short-term receivables and payables | The Basis for Conclusions was amended to clarify that the issuance of IFRS 13 and consequential amendments to IAS 39 and IFRS 9 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting, if the effect of not discounting is immaterial. | ||
IAS 16,Property, Plant and Equipment
IAS 38,Intangible Assets | Revaluation method: proportionate restatement of accumulated depreciation/amortization | The amendments remove perceived inconsistencies in the accounting for accumulated depreciation/amortization when an item of property, plant and equipment or an intangible asset is revalued. The amended requirements clarify that the gross carrying amount is adjusted in a manner consistent with the revaluation of the carrying amount of the asset and that accumulated depreciation/amortization is the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment losses. The amendments apply for annual periods beginning on or after July 1, 2014, with earlier application permitted. An entity is required to apply to amendments to all revaluations recognized in the annual period in which the amendments are first applied and in the immediately preceding annual period. An entity is permitted, but not required, to restate any earlier periods presented. | ||
IAS 24,Related Party Disclosures | Key management personnel | The amendments clarify that a management entity providing key management personnel services to a reporting entity is a related party of the reporting entity. Consequently, the reporting entity must disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required. The amendments apply for annual periods beginning on or after July 1, 2014, with earlier application permitted. |
The Bank’s management analyzed these amendments in detail and concluded that they did not have a significant impact on the statements of financial position, comprehensive income or cash flows or notes.
Annual Improvements 2011 – 2013 Cycle
IFRS | Topic | Amendment | ||
IFRS 1,First-time Adoption of International Financial | Meaning of “effective IFRS” | The Basis of Conclusions was amended to clarify that a first-time adopter is allowed, but not required, to apply a new IFRS that is not yet mandatory if that IFRS permits early application. If an entity chooses to early apply a new IFRS, it must apply that new |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Reporting Standards | IFRS retrospectively throughout all periods presented unless IFRS 1 provides an exemption or an exception that permits or requires otherwise. Consequently, any transitional requirements of that new IFRS do not apply to a first-time adopter that chooses to apply that new IFRS early. | |||
IFRS 3,Business Combinations | Scope exception for joint ventures | The scope section was amended to clarify that IFRS 3 does not apply to the accounting for the formation of all types of joint arrangement in the financial statements of the joint arrangement itself. | ||
IFRS 13,Fair Value Measurement | Scope of portfolio exception (paragraph 52) | The scope of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis was amended to clarify that it includes all contracts that are within the scope of, an accounted for in accordance with, IAS 39 or IFRS 9, even if those contracts do not meet the definitions of financial assets or financial liabilities within IAS 32. Consistent with the prospective initial application of IFRS 13, the amendment must be applied prospectively from the beginning of the annual period in which IFRS was initially applied. | ||
IAS 40,Investment Property | Interrelationship between IFRS 3 and IAS 40 | IAS 40 was amended to clarify that this standard and IFRS 3Business Combinationsare not mutually exclusive and application of both standards may be required. Consequently, an entity acquiring investment property must determine whether (a) the property meets the definition of investment property in IAS 40, and (b) the transaction meets the definition of a business combination under IFRS 3. The amendment applies prospectively for acquisitions of investment property in periods commencing on or after July 1, 2014. An entity is only permitted to adopt the amendments early and/or restate prior periods if the information to do so is available. |
The Bank’s management analyzed these amendments in detail and concluded that they did not have a significant impact on the statements of financial position, comprehensive income or cash flows or notes.
b) | New and revised IFRS in issue but not yet effective: |
New Standards | Effective date | |
IFRS 9,Financial Instruments | Annual periods beginning on or after January 1, 2018 | |
IFRS 15,Revenue from Contracts with Customers | Annual periods beginning on or after January 1, 2018 | |
IFRS 16Leases | Annual periods beginning on or after January 1, 2019 |
Amendments to Standards | Effective date | |
Accounting for Acquisitions of interests in Joint Operations (Amendments to IFRS 11) | Annual periods beginning on or after January 1, 2016 | |
Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) | Annual periods beginning on or after January 1, 2016 | |
Agriculture: Bearer Plants (amendments to IAS 16 and IAS | Annual periods beginning on or after January 1, 2016 |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
41) | ||
Equity Method in Separate Financial Statements (Amendments to IAS 27) | Annual periods beginning on or after January 1, 2016 | |
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) | Effective date deferred indefinitely. | |
Disclosure Initiative (Amendments to IAS 1) | Annual periods beginning on or after January 1, 2016 | |
Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28). | Annual periods beginning on or after January 1, 2016 | |
Annual Improvements Cycle 2012-2014 - Amendments to Four IFRS | Annual periods beginning on or after July 1, 2016 | |
Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12) | Annual periods beginning on or after January 1, 2017. | |
Disclosure Initiative (Amendments to IAS 7) | Annual periods beginning on or after January 1, 2017 |
IFRS 9, Financial Instruments
In 2014 IASB issued a finalized version of IFRS 9 which contains accounting requirements for financial instruments, replacing IAS 39 Financial Instruments: Recognition and Measurement. The standard contains requirements in the following areas:
Classification and measurement: Financial assets are classified by reference to the business model within which they are held and their contractual cash flow characteristics. The 2014 version of IFRS 9 introduces a “fair value through other comprehensive income” category for certain debt instruments. Financial liabilities are classified in a similar manner to under IAS 39 Financial Instruments: Recognition and Measurement, however there are differences in the requirements applying to the measurement of an entity’s own credit risk.
Impairment: The 2014 version of IFRS 9 introduces an “expected credit loss” model for the measurement of the impairment of financial assets, so it is no longer necessary for a credit event to have occurred before a credit loss is recognized.
Hedge accounting: Introduces a new hedge accounting model that is designed to be more closely aligned with how entities undertake risk management activities when hedging financial and non-financial risk exposures.
Derecognition: The requirements for the derecognition of financial assets and liabilities are carried forward from IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 must be applied in an entity’s firs annual IFRS financial statements for periods beginning on or after 1 January 2018. Early adoption is permitted.
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
IFRS 15, Revenue from Contracts with Customers
On May 28, 2014, the IASB has published its new standard, IFRS 15 Revenue from contracts with customers. At the same time, the Financial Accounting Standards Board (FASB) has published its equivalent revenue standard, ASU 2014-09.
The new standard provides a single, principles based five-step model to be applied to all contracts with customers, i) identify the contract with the customer, ii) identify the performance obligations in the contract, iii) determine the transaction price, iv) allocate the transaction price to the performance obligations in the contracts, v) recognize revenue when (or as) the entity satisfies a performance obligation.
IFRS 15 must be applied in an entity’s firs annual IFRS financial statements for periods beginning on or after 1 January 2018. Application of the Standard is mandatory and early adoption is permitted. An entity that chooses to apply IFRS 15 earlier than 1 January 2016 must disclose this fact.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
IFRS 16, Leases
On January 13, 2016 the IASB has published a new standard, IFRS 16 “Leases”. The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17 “Leases” and related interpretations and is effective for periods beginning on or after 1 January 2019, with earlier adoption permitted if IFRS 15 “Revenue from Contracts with Customers” has also been applied.
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
Accounting for Acquisitions of interests in Joint Operations (Amendments to IFRS 11)
On May 6, 2014 the IASB has issued “Accounting for Acquisitions of Interests in Joint Operations (amendments to IFRS 11)”, the amendments clarify the accounting for acquisitions of an interest in a joint operation when the operation constitutes a business.
Amends IFRS 11 Joint Arrangements to require an acquirer of an interest in a joint operation in which the activity constitutes a business (as defined in IFRS 3 Business Combinations) to:
• | apply all of the business combinations accounting principles in IFRS 3 and other IFRSs, except for those principles that conflict with the guidance in IFRS 11 |
• | disclose the information required by IFRS 3 and other IFRSs for business combinations. |
The amendments are effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted but corresponding disclosures are required. The amendments apply prospectively.
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)
On May 12, 2014 the IASB has published “Clarification of Acceptable Methods of depreciation and amortization (amendments to IAS 16 and IAS 38)”.
The amendments provide additional guidance on how the depreciation or amortisation of property, plant and equipment and intangible assets should be calculated. They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
Agriculture: Bearer Plants (amendments to IAS 16 and IAS 41)
On 30 June, 2014 the IASB has published ‘Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)’. The amendments bring bearer plants, which are used solely to grow produce, into the scope of IAS 16 so that they are accounted for in the same way as property, plant and equipment. The amendments are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.
Amends IAS 16 Property, Plant and Equipment and IAS 41 Agriculture to:
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
• | Include ‘bearer plants’ within the scope of IAS 16 rather than IAS 41, allowing such assets to be accounted for a property, plant and equipment and measured after initial recognition on a cost or revaluation basis in accordance with IAS 16. |
• | Introduce a definition of ‘bearer plants’ as a living plant that is used in the production or supply of agricultural produce, is expected to bear produce for more than one period and has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales . |
• | Clarify that produce growing on bearer plants remains within the scope of IAS 41. |
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
Equity Method in Separate Financial Statements (Amendments to IAS 27)
On August 12, 2014, the IASB has published “Equity Method in Separate Financial Statements (Amendments to IAS 27)”. The amendments reinstate the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity’s separate financial statements.
The amendments allow an entity to account for investments in subsidiaries, joint ventures and associates in its separate financial statements:
• | At cost, |
• | In accordance with IFRS 9 Financial Instruments (or IAS 39 Financial Instruments: Recognition and Measurement for entities that have not yet adopted IFRS 9), or |
• | Using the equity method as described in IAS 28 Investments in Associates and Joint Ventures. |
The accounting option must be applied by category of investments.
In addition to the amendments to IAS 27, there are consequential amendments to IAS 28 to avoid a potential conflict with IFRS 10 Consolidated Financial Statements and to IFRS 1 First-time Adoption of International Financial Reporting Standards.
The amendments are effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted. The amendments are to be applied retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)
On September 11, 2014, the IASB has published ‘Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)’. The amendments address a conflict between the requirements of IAS 28 ‘Investments in Associates and Joint Ventures’ and IFRS 10 ‘Consolidated Financial Statements’ and clarify the treatment of the sale or contribution of assets from an investor to its associate or joint venture, as follows:
• | Require full recognition in the investor’s financial statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3 Business Combinations) |
• | Require the partial recognition of gains and losses where the assets do not constitute a business, i.e. a gain or loss is recognised only to the extent of the unrelated investors’ interests in that associate or joint venture. |
On December 17, 2015 IASB has published final amendments to “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”. The amendments defer the effective date of the September 2014 amendments to these standards indefinitely until the research project on the equity method has been concluded”.
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Disclosure Initiative (Amendments to IAS 1)
On December 18, 2014 the IASB added an initiative on disclosure to its work program in 2013 to complement the work being done in the Conceptual Framework project. The initiative is made up of a number of smaller projects that aim at exploring opportunities to see how presentation and disclosure principles and requirements in existing Standards can be improved.
They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28).
On December 18, 2014 the IASB has published ‘Investment Entities: Applying the Consolidation Exception, Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates and Joint Ventures (2011) to address issues that have arisen in the context of applying the consolidation exception for investment entities.
They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
Annual Improvements Cycle 2012 – 2014
Standard | Topic | Amendments | ||
IFRS 5Non-Current Assets Held for Sale and Discontinued Operations | Changes in methods of disposal. | Adds specific guidance in IFRS 5 for cases in which an entity reclassifies an asset from held for sale to held for distribution to owners or vice versa and cases in which held-for-distribution accounting is discontinued. The amendments are effective for annual periods beginning on or after January 1, 2016, and early adoption is permitted. | ||
IFRS 7Financial Instruments: Disclosures: (with consequential amendments to IFRS 1) | Servicing contracts | Adds additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of determining the disclosures required.
Applicability of the amendments to IFRS 7 to condensed interim financial statements.
Clarifies the applicability of the amendments to IFRS 7 on offsetting disclosures to condensed interim financial statements. The amendments are effective for annual periods beginning on or after January 1, 2016, and early adoption is permitted. | ||
IAS 19Employee Benefits | Discount rate | Clarifies that the high quality corporate bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid (thus, the depth of the market for high quality corporate bonds should be assessed at currency level). The amendments are effective for annual periods beginning on or after January 1, 2016, and early adoption is permitted. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
IAS 34Interim Financial Reporting | Disclosure of information ‘elsewhere in the interim financial report’ | Clarifies the meaning of ‘elsewhere in the interim report’ and requires a cross-reference. The amendments are effective for annual periods beginning on or after January 1, 2016, and early adoption is permitted. |
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12)
On January 19, 2016, the IASB published final amendments to IAS 12 ‘Income Taxes’.
The amendments clarify the following aspects:
• | Unrealized losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument’s holder expects to recover the carrying amount of the debt instrument by sale or by use. |
• | The carrying amount of an asset does not limit the estimation of probable future taxable profits. |
• | Estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences. |
• | An entity assesses a deferred tax asset in combination with other deferred tax assets. Where tax law restricts the utilization of tax losses, an entity would assess a deferred tax asset in combination with other deferred tax assets of the same type. |
The amendments are effective for annual periods beginning on or after 1 January 2017. Earlier application is permitted.
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
Disclosure Initiative (Amendments to IAS 7)
The amendments are part of the IASB’s Disclosure initiative project and introduce additional disclosure requirements intended to address investors’ concerns that financial statements do not currently enable them to understand the entity’s cash flows; particularly in respect of the management of financing activities. The amendments require disclosure of information enabling users of financial statements to evaluate changes in liabilities arising from financial activities. Although there is no specific format required to comply with the new requirements, the amendments include illustrative examples to show how an entity can meet the objective of these amendments.
The amendments are effective for annual periods beginning on or after 1 January 2017. Earlier application is permitted.
Management is still in the process of evaluating the potential impact of these amendments / new pronouncements.
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Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
No accounting changes have taken place in comparison with the prior periods presented, except for the reclassifications noted at 99.
As of December 31, 2015, the following relevant events affecting the operations of the Bank and its subsidiaries or the consolidated financial statements have occurred:
CORPBANCA
1. | Board Meeting |
On February 20, 2015, the board agreed to publicly communicate, as essential events, the following matters:
That an ordinary general shareholders’ meeting had been convened for March 12, 2015, in order to conduct routine business and, among other items, to approve the financial statements for 2015 that report profit of MCh$226,260, and the board’s proposal to distribute MCh$113,130 in earnings, representing 50% of 2014 profit for the year, which translates into a dividend of Ch$0.332384912 per share to be distributed among all 340,358,194,234 shares issued by the Bank.
On that same date, the board agreed to distribute and pay the dividends once the shareholders’ meeting had concluded.
BANCO CORPBANCA COLOMBIA
a. Bond Issuance
In a meeting on December 15, 2015, the Board of Directors of CorpBanca approved the first issuance of senior bonds as part of the senior and/or subordinated bond issuance program with an overall cap of COP$3 billion (MCh$679.800 approximately). The board approved the general conditions for the first issuance.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
The segment information is disclosed by the Bank based on its operating segments, which differ primarily in the risks and returns that affect them.
The criteria used to report to the Chief Operating Decision Maker (CODM) areoperating segments in accordance with IFRS 8,Operating Segments. The CODM reviews the discrete financial information on the basis of gross operational margin (Total operating income, net of provision for loan losses, interest and fees) and only uses average balances (assets and liabilities) to evaluate performance and allocate resources.
The Bank’s business activities are primarily conducted in the domestic market. The seven operating segments are:
(1) | Large, Corporate and Real Estate Companies; |
(2) | Companies; |
(3) | Traditional and Private Banking; |
(4) | Lower Income Retail Banking; |
(5) | Treasury and International; |
(6) | Non-Banking Financial Services, and |
(7) | Colombia. |
The Bank manages these operating segments using an internal profitability reporting system.
The Bank has also included entity-wide disclosures on its operations in New York, and those in Colombia through the acquisition of Banco CorpBanca Colombia and its subsidiaries, as detailed above.
The Bank did not enter into transactions with a particular customer or third party that exceed 10% of its total income in 2013, 2014 and 2015.
Descriptions of each operating segment are as follows:
Commercial Banking
(1) | Large, Corporate, and Real Estate Companies Operating Segment includes companies that belong to the major economic groups, specific industries, and companies with sales over US$60 million; this operating segment also includes real estate companies and financial institutions. |
(2) | Companies Operating Segment includes a full range of financial products and services to companies with sales under US$60 million. Leasing and factoring is included in this operating segment. |
Retail Banking
(3) | Traditional and Private Banking Operating Segment offers, among other products, checking accounts, consumer loans, credit cards and mortgage loans to middle and upper income customers. |
(4) | Lower Income Retail Banking Operating Segment offers, among other products, consumer loans, credit cards and mortgage loans to the traditionally underserved low-to-middle income customers. |
Treasury and International
(5) | Treasury and International Operating Segment. Primarily includes our treasury activities such as financial management, funding and liquidity as well as our international business. |
Financial Services Offered Through Subsidiaries
(6) | Non-Banking Financial Services Operating Segment. These are services performed by our subsidiaries which include insurance brokerage, financial advisory services, asset management and securities brokerage. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Colombia
(7) | Colombia Operating Segment. This comprises the business operations of Banco CorpBanca Colombia and its subsidiaries in that country. The main business carried out in Colombia comes from individuals and small and medium-size entity Banking, Banking and Treasury businesses and institutions; and services. |
1. | Entity-Wide disclosure |
CorpBanca reports revenue from external customers:
(i) | based on the customers country of domicile and |
(ii) | attributed to all foreign countries from which the entity derives revenues. |
When revenue from external customers attributed to a particular foreign country is significant, it is disclosed separately.
Colombia has been identified as a separate operating segment based on the business activities described above; that their operating results are regularly reviewed by the CODM which results form the basis for decisions about allocated resources and assessments of performance; and discrete financial information is available.
Entity-Wide disclosure
The revenue from external customers (revenues are attributed to countries on the basis of the customer’s location) that come from the three geographic areas are the following:
Revenue from external customers | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
CorpBanca Chile | 253,889 | 331,572 | 325,466 | |||||||||
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Revenues attributed to Chile | 253,889 | 331,572 | 325,466 | |||||||||
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CorpBanca Colombia9 | 196,324 | 290,113 | 276,200 | |||||||||
CorpBanca New York | 7,477 | 9,199 | 18,913 | |||||||||
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Revenues attributed to foreign countries | 203,801 | 299,312 | 295,113 | |||||||||
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Total revenues from external customers | 457,690 | 630,884 | 620,579 | |||||||||
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Non current assets and others that are allocated correspond to the three geographic areas are the following:
9 | This segment includes investments in Helm Bank Caymán (until 2013), Helm Bank (Panamá) S.A., Helm Corredor de Seguros S.A. and Helm Casa de Valores (Panamá). |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Chile | Colombia | New York | 2014 | Chile | Colombia | New York | 2015 | |||||||||||||||||||||||||||||
Note | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||
Cash and deposits in banks | 5 | 304,495 | 623,501 | 241,182 | 1,169,178 | 312,960 | 522,118 | 169,679 | 1,004,757 | |||||||||||||||||||||||||||
Cash in the process of collection | 5 | 205,409 | 7,433 | — | 212,842 | 173,445 | 3,056 | — | 176,501 | |||||||||||||||||||||||||||
Investment in other companies | 12 | 10,322 | 5,520 | — | 15,842 | 10,070 | 4,578 | — | 14,648 | |||||||||||||||||||||||||||
Intangible assets (*) | 13 | 436,645 | 321,039 | 93 | 757,777 | 378,396 | 286,818 | 50 | 665,264 | |||||||||||||||||||||||||||
Property, plant and equipment, net | 14 | 38,795 | 52,944 | 903 | 92,642 | 40,583 | 50,030 | 1,017 | 91,630 | |||||||||||||||||||||||||||
Current income taxes | 15 | — | 20,834 | — | 20,834 | (3,242 | ) | 46,961 | 3,185 | 46,904 | ||||||||||||||||||||||||||
Deferred income taxes | 15 | — | — | 2,702 | 2,702 | — | — | 8,671 | 8,671 | |||||||||||||||||||||||||||
Other assets | 16 | 332,950 | 81,912 | 405 | 415,267 | 312,205 | 125,471 | 647 | 438,323 | |||||||||||||||||||||||||||
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2,687,084 | 2,446,698 | |||||||||||||||||||||||||||||||||||
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The accounting policies of segments are the same as those described in the summary of accounting policies. The Bank earns most of its income in the form of interest income, fee and commission income and income from financial operations.
(*) | This includes goodwill generated in business combinations by operations in Colombia (Colombia segment) totaling MCh$345.620 (MCh$386.180 in 2014). For more information, see Note 12Investment in other companiesto these consolidated financial statements. |
Hence, this disclosure furnishes information on how the Bank is managed as of December 31, 2014 and 2015.
a) | Income statement10: |
For the Year Ending December 31, 2013 | ||||||||||||||||||||||||||||||||
Commercial Banking | Retail Banking | |||||||||||||||||||||||||||||||
Large, Corporate and Real Estate Companies | Companies | Traditional and Private Banking | Lower Income Retail Banking | Treasury and International | Non-banking Financial Services | Colombia | Total | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Net Interest income | 50,436 | 69,128 | 65,535 | 22,126 | 21,612 | 32,529 | 196,324 | 457,690 | ||||||||||||||||||||||||
Net services fees income | 36,701 | 14,390 | 21,413 | 8,976 | (442 | ) | (8,033 | ) | 44,972 | 117,977 | ||||||||||||||||||||||
Trading and investment income, net | (1,658 | ) | — | 3,294 | — | 48,851 | 8,681 | 42,119 | 101,287 | |||||||||||||||||||||||
Foreign exchange gains (losses), net | 14,153 | 5,988 | 389 | 2 | (50,115 | ) | 1,778 | 13,899 | (13,906 | ) | ||||||||||||||||||||||
Other operating income | — | 2,450 | — | — | — | 29,413 | 7,795 | 39,658 | ||||||||||||||||||||||||
Provision for loan losses | (20,544 | ) | (21,240 | ) | (8,099 | ) | (6,238 | ) | — | 903 | (46,854 | ) | (102,072 | ) | ||||||||||||||||||
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Total operating income, net of loan losses, interest and fees | 79,088 | 70,716 | 82,532 | 24,866 | 19,906 | 65,271 | 258,255 | 600,634 | ||||||||||||||||||||||||
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Other income and expenses | — | — | — | — | — | 493 | 748 | 1,241 | ||||||||||||||||||||||||
Total operating expenses | (15,926 | ) | (28,450 | ) | (63,247 | ) | (17,358 | ) | (11,744 | ) | (52,445 | ) | (172,975 | ) | (362,145 | ) | ||||||||||||||||
Income before taxes | 63,162 | 42,266 | 19,285 | 7,508 | 8,162 | 13,319 | 86,028 | 239,730 | ||||||||||||||||||||||||
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Averages Loans | 3,843,701 | 1,787,761 | 2,427,743 | 155,801 | 63,969 | 154 | 3,226,817 | 11,505,946 | ||||||||||||||||||||||||
Averages Investments | — | — | — | — | 622,551 | — | 295,079 | 917,630 |
10 | “Operating income net of loan losses, interest and fees” as the selected measure of segment profit or loss is reconciled within the table to “Income before taxes” as required under IFRS 8Operating segments. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
For the Year Ending December 31, 2014 | ||||||||||||||||||||||||||||||||
Commercial Banking | Retail Banking | |||||||||||||||||||||||||||||||
Large, Corporate and Real Estate Companies | Companies | Traditional and Private Banking | Lower Income Retail Banking | Treasury and International | Non-banking Financial Services | Colombia | Total | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Net Interest income | 53,014 | 75,295 | 73,935 | 25,528 | 94,736 | 18,263 | 290,113 | 630,884 | ||||||||||||||||||||||||
Net services fees income | 40,097 | 15,399 | 27,971 | 7,880 | (255 | ) | (1,653 | ) | 72,151 | 161,590 | ||||||||||||||||||||||
Trading and investment income, net | (569 | ) | — | 16,144 | — | 27,388 | 88,815 | 51,915 | 183,693 | |||||||||||||||||||||||
Foreign exchange gains (losses), net | 20,189 | 5,974 | 888 | 2 | 12,767 | (120,645 | ) | 67,399 | (13,426 | ) | ||||||||||||||||||||||
Other operating income | — | 3,025 | 13 | — | — | 6,514 | 19,406 | 28,958 | ||||||||||||||||||||||||
Provision for loan losses | (1,643 | ) | (16,101 | ) | (11,718 | ) | (6,549 | ) | — | (1,161 | ) | (90,100 | ) | (127,272 | ) | |||||||||||||||||
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Total operating income, net of loan losses, interest and fees | 111,088 | 83,592 | 107,233 | 26,861 | 134,636 | (9,867 | ) | 410,884 | 864,427 | |||||||||||||||||||||||
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Other income and expenses | 6,357 | — | — | — | — | (6,164 | ) | 1,606 | 1,799 | |||||||||||||||||||||||
Total operating expenses | (19,745 | ) | (36,004 | ) | (65,669 | ) | (17,136 | ) | (13,807 | ) | (100,937 | ) | (256,374 | ) | (509,672 | ) | ||||||||||||||||
Income before taxes | 97,700 | 47,588 | 41,564 | 9,725 | 120,829 | (116,968 | ) | 156,116 | 356,554 | |||||||||||||||||||||||
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Averages Loans | 3,791,937 | 1,778,057 | 2,414,564 | 154,955 | 63,622 | 153 | 5,692,217 | 13,895,505 | ||||||||||||||||||||||||
Averages Investments | — | — | — | — | 636,437 | — | 524,977 | 1,161,414 | ||||||||||||||||||||||||
For the Year Ending December 31, 2015 | ||||||||||||||||||||||||||||||||
Commercial Banking | Retail Banking | |||||||||||||||||||||||||||||||
Large, Corporate and Real Estate Companies | Companies | Traditional and Private Banking | Lower Income Retail Banking | Treasury and International | Non-banking Financial Services | Colombia | Total | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Net Interest income | 59,669 | 77,694 | 75,109 | 25,907 | 80,228 | 25,772 | 276,200 | 620,579 | ||||||||||||||||||||||||
Net services fees income | 44,454 | 16,436 | 32,479 | 7,119 | (572 | ) | (3,650 | ) | 56,581 | 152,847 | ||||||||||||||||||||||
Trading and investment income, net | 4,291 | — | 17,210 | — | 77,585 | 154,272 | 85,340 | 338,698 | ||||||||||||||||||||||||
Foreign exchange gains (losses), net | 31,265 | 7,967 | 162 | — | (3,623 | ) | (206,251 | ) | 19,283 | (151,197 | ) | |||||||||||||||||||||
Other operating income | — | 2,889 | 20 | — | — | 6,935 | 13,808 | 23,652 | ||||||||||||||||||||||||
Provision for loan losses | (2,981 | ) | (12,792 | ) | (10,497 | ) | (5,775 | ) | — | (10,796 | ) | (126,907 | ) | (169,748 | ) | |||||||||||||||||
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Total operating income, net of loan losses, interest and fees | 136,698 | 92,194 | 114,483 | 27,251 | 153,618 | (33,718 | ) | 324,305 | 814,831 | |||||||||||||||||||||||
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Other income and expenses | — | — | — | — | — | 230 | 1,070 | 1,300 | ||||||||||||||||||||||||
Depreciation and amortization | ||||||||||||||||||||||||||||||||
Total operating expenses | (22,101 | ) | (35,000 | ) | (63,477 | ) | (17,305 | ) | (13,400 | ) | (105,817 | ) | (223,689 | ) | (480,789 | ) | ||||||||||||||||
Income before taxes | 114,597 | 57,194 | 51,006 | 9,946 | 140,218 | (139,305 | ) | 101,686 | 335,342 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Averages Loans | 3,919,595 | 2,107,206 | 2,994,312 | 171,186 | 95,284 | 23,177 | 5,311,468 | 14,622,228 |
F-49
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
b) | Assets and Liabilities |
As of December 31, 2014 | ||||||||||||||||||||||||||||||||
Commercial Banking | Retail Banking | |||||||||||||||||||||||||||||||
Large, Corporate and Real Estate Companies | Companies | Traditional and Private Banking | Lower Income Retail Banking | Treasury and International | Non-banking Financial Services | Colombia | Total | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
Mortgage | — | 29,233 | 1,708,700 | 4,097 | 31 | — | 487,497 | 2,229,558 | ||||||||||||||||||||||||
Consumer | 26 | 3,763 | 408,866 | 176,518 | — | — | 1,120,669 | 1,709,842 | ||||||||||||||||||||||||
Commercial | 3,884,110 | 1,915,805 | 929,480 | 18 | 621,274 | 135 | 3,554,133 | 10,904,955 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Loans before provisions | 3,884,136 | 1,948,801 | 3,047,046 | 180,633 | 621,305 | 135 | 5,162,299 | 14,844,355 | ||||||||||||||||||||||||
Provisions for loan losses | (36,475 | ) | (42,598 | ) | (29,891 | ) | (13,013 | ) | — | — | (15,899 | ) | (137,876 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Loans net of allowances (*) | 3,847,661 | 1,906,203 | 3,017,155 | 167,620 | 621,305 | 135 | 5,146,400 | 14,706,479 | ||||||||||||||||||||||||
Trading portfolio financial assets | — | — | — | — | 114,809 | — | 571,089 | 685,898 | ||||||||||||||||||||||||
Investments under agreements to resell | — | — | — | — | 27,106 | — | 50,973 | 78,079 | ||||||||||||||||||||||||
Derivative financial instruments | — | — | — | — | 651,284 | — | 115,515 | 766,799 | ||||||||||||||||||||||||
Financial investments available-for-sale | — | — | — | — | 677,793 | — | 479,103 | 1,156,896 | ||||||||||||||||||||||||
Held to maturity investments | — | — | — | — | 31,450 | — | 159,227 | 190,677 | ||||||||||||||||||||||||
Assets unallocated to any reportable segment (**) | — | — | — | — | — | — | — | 2,687,084 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total assets | 3,847,661 | 1,906,203 | 3,017,155 | 167,620 | 2,123,747 | 135 | 6,522,307 | 20,271,912 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Current Accounts and demand deposits | 330,711 | 307,644 | 235,215 | 3 | 1,029 | (4,531 | ) | 801,149 | 1,671,220 | |||||||||||||||||||||||
Other sight balances | 79,032 | 50,895 | 37,901 | 7,718 | — | 46,308 | 2,061,874 | 2,283,728 | ||||||||||||||||||||||||
Time Deposits and saving accounts | 967,530 | 866,950 | 1,141,464 | 13,212 | 2,850,439 | — | 2,237,371 | 8,076,966 | ||||||||||||||||||||||||
Obligations under repurchase agreements | — | — | — | — | 720 | 8,139 | 652,804 | 661,663 | ||||||||||||||||||||||||
Derivative financial instruments | — | — | — | — | 526,806 | — | 80,877 | 607,683 | ||||||||||||||||||||||||
Borrowings from financial institutions | — | — | — | — | 1,028,953 | — | 402,970 | 1,431,923 | ||||||||||||||||||||||||
Debt issued | — | — | — | — | 2,705,331 | — | 373,719 | 3,079,050 | ||||||||||||||||||||||||
Liabilities unallocated to any reportable segment (***) | — | — | — | — | — | — | — | 668,017 | ||||||||||||||||||||||||
Equity | — | — | — | — | — | — | 1,791,662 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total liabilities and equity | 1,377,273 | 1,225,489 | 1,414,580 | 20,933 | 7,113,278 | 49,916 | 6,610,764 | 20,271,912 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
F-50
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2015 | ||||||||||||||||||||||||||||||||
Commercial Banking | Retail Banking | |||||||||||||||||||||||||||||||
Large, Corporate and Real Estate Companies | Companies | Traditional and Private Banking | Lower Income Retail Banking | Treasury and International | Non-banking Financial Services | Colombia | Total | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
Mortgage | — | 35,906 | 1,702,494 | 3,661 | 31 | — | 486,527 | 2,228,619 | ||||||||||||||||||||||||
Consumer | 18 | 3,938 | 443,088 | 168,928 | — | — | 1,087,187 | 1,703,159 | ||||||||||||||||||||||||
Commercial | 4,341,677 | 1,981,686 | 998,428 | 15 | 309,453 | 16 | 3,517,312 | 11,148,587 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Loans before provisions | 4,341,695 | 2,021,530 | 3,144,010 | 172,604 | 309,484 | 16 | 5,091,026 | 15,080,365 | ||||||||||||||||||||||||
Provisions for loan losses | (39,564 | ) | (43,098 | ) | (29,768 | ) | (11,251 | ) | — | (5,502 | ) | (44,996 | ) | (174,179 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Loans net of allowances (*) | 4,302,131 | 1,978,432 | 3,114,242 | 161,353 | 309,484 | (5,486 | ) | 5,046,030 | 14,906,186 | |||||||||||||||||||||||
Trading portfolio financial assets | — | — | — | — | 67,459 | — | 256,440 | 323,899 | ||||||||||||||||||||||||
Investments under agreements to resell | — | — | — | — | 10,548 | — | 14,126 | 24,674 | ||||||||||||||||||||||||
Derivative financial instruments | — | — | — | — | 844,820 | — | 164,095 | 1,008,915 | ||||||||||||||||||||||||
Financial investments available-for-sale | — | — | — | — | 997,923 | — | 926,865 | 1,924,788 | ||||||||||||||||||||||||
Held to maturity investments | — | — | — | — | 12,789 | — | 157,402 | 170,191 | ||||||||||||||||||||||||
Assets unallocated to any reportable segment (**) | — | — | — | — | — | — | — | 2,446,698 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total assets | 4,302,131 | 1,978,432 | 3,114,242 | 161,353 | 2,243,023 | (5,486 | ) | 6,564,958 | 20,805,351 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Current Accounts and demand deposits | 302,402 | 372,637 | 270,428 | 4 | 579 | 146,232 | 741,464 | 1,833,746 | ||||||||||||||||||||||||
Other sight balances | 117,078 | 44,608 | 42,815 | 8,248 | 23 | 40,227 | 2,344,874 | 2,597,873 | ||||||||||||||||||||||||
Time Deposits and saving accounts | 1,170,796 | 916,075 | 1,312,052 | 12,236 | 2,706,744 | — | 2,377,700 | 8,495,603 | ||||||||||||||||||||||||
Obligations under repurchase agreements | — | — | — | — | 300 | 19,946 | 240,385 | 260,631 | ||||||||||||||||||||||||
Derivative financial instruments | — | — | — | — | 629,118 | — | 101,996 | 731,114 | ||||||||||||||||||||||||
Borrowings from financial institutions | — | — | — | — | 1,062,012 | — | 466,573 | 1,528,585 | ||||||||||||||||||||||||
Debt issued | — | — | — | — | 2,885,036 | — | 342,518 | 3,227,554 | ||||||||||||||||||||||||
Liabilities unallocated to any reportable segment (***) | — | — | — | — | — | — | — | 594,952 | ||||||||||||||||||||||||
Equity | — | — | — | — | — | — | 1,535,293 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total liabilities and equity | 1,590,276 | 1,333,320 | 1,625,295 | 20,488 | 7,283,812 | 206,405 | 6,615,510 | 20,805,351 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) | Loans and receivables (bank and customers) net of allowances for loan losses as of December 31, 2014 and 2015. Year 2014 (Note 10 MM$137,605, Note 9 MCh$ 271) and year 2015 (Note 10 MM$173,939, Note 9 MCh$ 240). |
(**) | Assets unallocated to any operating segment correspond to the following: |
Notes | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | |||||||||||
ASSETS | ||||||||||||
Cash and deposits in banks | 5 | 1,169,178 | 1,004,757 | |||||||||
Cash in the process of collection | 5 | 212,842 | 176,501 | |||||||||
Investments in other companies | 12 | 15,842 | 14,648 | |||||||||
Intangible assets | 13 | 757,777 | 665,264 | |||||||||
Property, plant and equipment, net | 14 | 92,642 | 91,630 | |||||||||
Current income taxes | 15 | 20,834 | 46,904 | |||||||||
Deferred income taxes | 15 | 2,702 | 8,671 | |||||||||
Other assets | 16 | 415,267 | 438,323 | |||||||||
|
|
|
| |||||||||
2,687,084 | 2,446,698 | |||||||||||
|
|
|
|
F-51
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
(***) | Liabilities unallocated to any operating segment correspond to the following: |
Notes | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | |||||||||||
LIABILITIES | ||||||||||||
Transaction in the course of payment | 5 | 145,771 | 105,441 | |||||||||
Other financial obligations | 19 | 15,422 | 14,475 | |||||||||
Current income tax provision | 15 | 19,226 | 42,457 | |||||||||
Deferred income taxes | 15 | 76,593 | 40,433 | |||||||||
Provisions | 20 | 200,289 | 182,707 | |||||||||
Other liabilities | 21 | 210,716 | 209,439 | |||||||||
|
|
|
| |||||||||
668,017 | 594,952 | |||||||||||
|
|
|
|
F-52
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 5 - CASH AND CASH EQUIVALENTS
a) | Detail of cash and cash equivalents |
The detail of the balances included under cash and cash equivalents is as follows:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Cash and deposits in banks (1) | ||||||||
Cash | 175,886 | 213,892 | ||||||
Deposits in the Central Bank of Chile | 39,885 | 45,020 | ||||||
Deposits in national banks | 795 | 159 | ||||||
Foreign deposits | 952,612 | 745,686 | ||||||
|
|
|
| |||||
Subtotal Cash and deposits in banks | 1,169,178 | 1,004,757 | ||||||
|
|
|
| |||||
Cash in the process of collection, net (5b)) | 67,071 | 71,060 | ||||||
Highly liquid financial instruments (2) | 118,897 | 123,264 | ||||||
Investments under agreements to resell (3) | 75,440 | 19,231 | ||||||
|
|
|
| |||||
Total cash and cash equivalents | 1,430,586 | 1,218,312 | ||||||
|
|
|
|
(1) | Amount in “Cash”, “Deposits in Central Bank of Chile” and Bank of the Republic of Colombia (included in “Foreign deposits”) are regulatory reserve deposits for which the Bank must maintain a certain monthly average. |
(2) | Corresponds to those financial instruments in the trading portfolio and available-for-sale portfolio with maturities that do not exceed three months from their dates of acquisition. This detail is presented below: |
Notes | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | |||||||||||
Trading Portfolio financial assets | 6 | 101,983 | 35,040 | |||||||||
Financial investment Available-for-sale portfolio | 11 | 16,914 | 88,224 | |||||||||
|
|
|
| |||||||||
Highly liquid financial instruments | 118,897 | 123,264 | ||||||||||
|
|
|
|
(3) | Corresponds to investments under agreements to resell with maturities that do not exceed three months from their dates of acquisition. This detail is presented below: |
Notes | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | |||||||||||
Investment under agreement to resell | 7 a | ) | 75,440 | 19,231 |
F-53
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
b) | Cash in the process of collection |
Cash in the process of collection is short-term, amounts in transit of collection.
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Assets (Cash in the process of collection) | ||||||||
Outstanding notes from other banks | 55,775 | 59,615 | ||||||
Funds receivable | 157,067 | 116,886 | ||||||
|
|
|
| |||||
Subtotal assets | 212,842 | 176,501 | ||||||
|
|
|
| |||||
Liabilities (Transaction in the course of payment) | ||||||||
Funds Payable | 145,771 | 105,441 | ||||||
|
|
|
| |||||
Subtotal liabilities | 145,771 | 105,441 | ||||||
|
|
|
| |||||
Net items in course of collection | 67,071 | 71,060 | ||||||
|
|
|
|
F-54
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 6 - TRADING PORTFOLIO FINANCIAL ASSETS
The detail of the financial instruments classified as trading financial assets is as follows:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Chilean Central Bank and Government securities: | ||||||||
Chilean Central Bank bonds | — | — | ||||||
Chilean - Central Bank notes | — | — | ||||||
Other Chilean Central Bank and government securities | 4,822 | 6,210 | ||||||
Other national institution securities: | ||||||||
Bonds | 2,548 | 2,340 | ||||||
Notes | 13,320 | 34,404 | ||||||
Other Securities | 15 | 551 | ||||||
Foreign Institution Securities: | ||||||||
Bonds | 542,791 | 192,427 | ||||||
Notes | — | — | ||||||
Other foreign Securities | 110,615 | 57,875 | ||||||
Mutual funds Investments: | ||||||||
Funds managed by related organizations | 11,787 | 28,092 | ||||||
Funds managed by third parties | — | 2,000 | ||||||
|
|
|
| |||||
Total (*) | 685,898 | 323,899 | ||||||
|
|
|
|
(*) | This total includes as of December 31, 2015 MCh$35.040 (MCh$101.983 as of December 31, 2014), included in Note 5Cash and cash equivalents, which corresponds to those financial instruments with maturities that do not exceed three months from their dates of acquisition. |
F-55
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 7 - INVESTMENT AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS
a) | The Bank purchases financial instruments agreeing to resell them at a future date. As of December 31, 2014 and 2015 the instruments acquired under agreements to resell are as follows: |
As of December 31, 2014 | ||||||||||||||||
Less than three months | More than three months and less than one year | More than one Year | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Government and Chilean Central Bank Securities: | ||||||||||||||||
Chilean Central Bank Securities | 339 | — | — | 339 | ||||||||||||
Treasury Bonds and Notes | — | — | — | — | ||||||||||||
Other fiscal securities | — | — | — | — | ||||||||||||
Other securities issued locally: | ||||||||||||||||
Other local bank securities | 13,148 | — | — | 13,148 | ||||||||||||
Bonds and company business papers | 272 | — | — | 272 | ||||||||||||
Other securities issued locally | 10,708 | 2,639 | — | 13,347 | ||||||||||||
Securities issued abroad: | ||||||||||||||||
Government and Central Bank securities | 50,973 | — | — | 50,973 | ||||||||||||
Other Securities issued abroad | — | — | — | — | ||||||||||||
Mutual Funds Investments: | ||||||||||||||||
Funds managed by related companies | — | — | — | — | ||||||||||||
Funds managed by third parties | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 75,440 | (*) | 2,639 | — | 78,079 | |||||||||||
|
|
|
|
|
|
|
|
As of December 31, 2015 | ||||||||||||||||
Less than three months | More than three months and less than one year | More than one Year | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Government and Chilean Central Bank Securities: | ||||||||||||||||
Chilean Central Bank Securities | — | — | — | — | ||||||||||||
Treasury Bonds and Notes | — | — | — | — | ||||||||||||
Other fiscal securities | — | — | — | — | ||||||||||||
Other securities issued locally: | ||||||||||||||||
Other local bank securities | 51 | — | — | 51 | ||||||||||||
Bonds and company business papers | — | — | — | — | ||||||||||||
Other securities issued locally | 5,054 | 5,443 | — | 10,497 | ||||||||||||
Securities issued abroad: | ||||||||||||||||
Government and Central Bank securities | 14,126 | — | — | 14,126 | ||||||||||||
Other Securities issued abroad | — | — | — | — | ||||||||||||
Mutual Funds Investments: | ||||||||||||||||
Funds managed by related companies | — | — | — | — | ||||||||||||
Funds managed by third parties | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 19,231 | (*) | 5,443 | — | 24,674 | |||||||||||
|
|
|
|
|
|
|
|
(*) | This total includes as of December 31, 2015 MCh$19,231 (MCh$75,440 as of December 31, 2014), included in Note 5Cash and cash equivalents, which corresponds to those financial instruments with maturities that do not exceed three months from their dates of acquisition. |
F-56
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
b)The Bank obtains funds by selling financial instruments and committing itself to buy them back at future dates, plus interest at a fixed rate.
As of December 31, 2014 and 2015 obligations under repurchase agreements are the following:
As of December 31, 2014 | ||||||||||||||||
Less than three months | More than three months and less than one year | More than one Year | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Government and Chilean Central Bank Securities: | ||||||||||||||||
Chilean Central Bank Securities | 720 | — | — | 720 | ||||||||||||
Treasury Bonds and Notes | — | — | — | — | ||||||||||||
Other fiscal securities | — | — | — | — | ||||||||||||
Other securities issued locally: | ||||||||||||||||
Other local bank securities | 8,138 | — | — | 8,138 | ||||||||||||
Bonds and company business papers | — | — | — | — | ||||||||||||
Other securities issued locally | — | — | — | — | ||||||||||||
Securities issued abroad: | ||||||||||||||||
Government and Central Bank securities | 652,805 | — | — | 652,805 | ||||||||||||
Other Securities issued abroad | — | — | — | — | ||||||||||||
Mutual Funds Investments: | ||||||||||||||||
Funds managed by related companies | — | — | — | — | ||||||||||||
Funds managed by third parties | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 661,663 | — | — | 661,663 | ||||||||||||
|
|
|
|
|
|
|
|
As of December 31, 2015 | ||||||||||||||||
Less than three months | More than three months and less than one year | More than one Year | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Government and Chilean Central Bank Securities: | ||||||||||||||||
Chilean Central Bank Securities | — | — | — | — | ||||||||||||
Treasury Bonds and Notes | 300 | — | — | 300 | ||||||||||||
Other fiscal securities | — | — | — | — | ||||||||||||
Other securities issued locally: | ||||||||||||||||
Other local bank securities | 19,946 | — | — | 19,946 | ||||||||||||
Bonds and company business papers | — | — | — | — | ||||||||||||
Other securities issued locally | — | — | — | — | ||||||||||||
Securities issued abroad: | ||||||||||||||||
Government and Central Bank securities | 240,385 | — | — | 240,385 | ||||||||||||
Other Securities issued abroad | — | — | — | — | ||||||||||||
Mutual Funds Investments: | ||||||||||||||||
Funds managed by related companies | — | — | — | — | ||||||||||||
Funds managed by third parties | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 260,631 | — | — | 260,631 | ||||||||||||
|
|
|
|
|
|
|
|
F-57
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 8 - DERIVATIVE FINANCIAL INSTRUMENT AND HEDGE ACCOUNTING
A. | As of December 31, 2014 and 2015, the Bank holds the following portfolio of derivative financial instruments: |
A.1) Derivatives financial assets
As of December 31, 2014 | ||||||||||||||||
Notional | ||||||||||||||||
Up to 3 months | 3 months to 1 year | Over one year | Fair Value | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Foreign Currency Forwards | 2,152,673 | 2,664,433 | 1,363,602 | 154,229 | ||||||||||||
Interest Rate Swap | 377,694 | 940,134 | 5,011,624 | 285,741 | ||||||||||||
Foreign Currency Swap | 153,015 | 297,605 | 1,922,635 | 323,785 | ||||||||||||
Foreign Currency Call Options | 39,462 | 36,175 | — | 2,648 | ||||||||||||
Foreign Currency Put Options | 49,992 | 34,594 | — | 396 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 2,772,836 | 3,972,941 | 8,297,861 | 766,799 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As of December 31, 2015 | ||||||||||||||||
Notional | ||||||||||||||||
Up to 3 months | 3 months to 1 year | Over one year | Fair Value | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Foreign Currency Forwards | 5,295,033 | 3,044,798 | 624,735 | 225,986 | ||||||||||||
Interest Rate Swap | 1,255,296 | 2,232,986 | 10,173,202 | 318,817 | ||||||||||||
Foreign Currency Swap | 37,925 | 110,613 | 3,044,960 | 458,946 | ||||||||||||
Foreign Currency Call Options | 83,343 | 87,933 | — | 4,655 | ||||||||||||
Foreign Currency Put Options | 32,766 | 25,800 | — | 511 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 6,704,363 | 5,502,130 | 13,842,897 | 1,008,915 | ||||||||||||
|
|
|
|
|
|
|
|
F-58
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
A.2) Derivatives financial liabilities
As of December 31, 2014 | ||||||||||||||||
Notional | ||||||||||||||||
Up to 3 months | 3 months to 1 year | Over one year | Fair Value | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Foreign Currency Forwards | 2,220,727 | 2,719,896 | 1,018,111 | 140,949 | ||||||||||||
Interest Rate Swap | 610,578 | 1,281,465 | 4,629,389 | 222,623 | ||||||||||||
Foreign Currency Swap | 99,063 | 320,262 | 1,243,465 | 240,861 | ||||||||||||
Foreign Currency Call Options | 60,237 | 39,121 | — | 2,564 | ||||||||||||
Foreign Currency Put Options | 11,420 | 14,727 | — | 686 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 3,002,025 | 4,375,471 | 6,890,965 | 607,683 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As of December 31, 2015 | ||||||||||||||||
Notional | ||||||||||||||||
Up to 3 months | 3 months to 1 year | Over one year | Fair Value | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Foreign Currency Forwards | 4,684,078 | 2,921,873 | 470,323 | 191,589 | ||||||||||||
Interest Rate Swap | 708,063 | 2,117,270 | 8,658,594 | 192,537 | ||||||||||||
Foreign Currency Swap | 97,583 | 347,591 | 1,747,416 | 342,675 | ||||||||||||
Foreign Currency Call Options | 61,962 | 58,256 | — | 3,511 | ||||||||||||
Foreign Currency Put Options | 45,674 | 57,877 | — | 802 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 5,597,360 | 5,502,867 | 10,876,333 | 731,114 | ||||||||||||
|
|
|
|
|
|
|
|
A.3) As of December 31, 2014 and 2015, the portfolio of derivative financial instruments for account hedging and for trading purposes are as follow:
F-59
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2014 | ||||||||||||||||||||
Notional | Fair Value | |||||||||||||||||||
Up to 3 month | 3 months to 1 year | Over 1 year | Assets | Liabilities | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Hedge accounting | ||||||||||||||||||||
Fair Value | ||||||||||||||||||||
Foreign Currency Forwards | — | — | — | — | — | |||||||||||||||
Foreign Currency Swaps | — | 181,639 | 83,010 | 4,343 | 3,942 | |||||||||||||||
Interest Rate Swap | — | 66,000 | 868,395 | 2,532 | 2,466 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Subtotal | — | 247,639 | 951,405 | 6,875 | 6,408 | |||||||||||||||
Cash Flow | ||||||||||||||||||||
Foreign Currency Forwards | 268,435 | 243,808 | 86,195 | 15 | 6,612 | |||||||||||||||
Foreign Currency Swaps | 42,382 | — | 48,521 | 1,775 | 192 | |||||||||||||||
Interest Rate Swap | 148,801 | 20,000 | 213,233 | 120 | 5,322 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Subtotal | 459,618 | 263,808 | 347,949 | 1,910 | 12,126 | |||||||||||||||
Net Investment in foreign operation | ||||||||||||||||||||
Foreign Currency Forwards | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Subtotal | — | — | — | — | — | |||||||||||||||
Derivatives held for trading | ||||||||||||||||||||
Foreign Currency Forwards | 4,104,965 | 5,140,521 | 2,295,518 | 154,214 | 134,337 | |||||||||||||||
Interest Rate Swap | 839,471 | 2,135,599 | 8,559,385 | 283,089 | 214,835 | |||||||||||||||
Foreign Currency Swaps | 209,696 | 436,228 | 3,034,569 | 317,667 | 236,727 | |||||||||||||||
Foreign Currency call options | 99,699 | 75,296 | — | 2,648 | 2,564 | |||||||||||||||
Foreign Currency put options | 61,412 | 49,321 | — | 396 | 686 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Subtotal | 5,315,243 | 7,836,965 | 13,889,472 | 758,014 | 589,149 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 5,774,861 | 8,348,412 | 15,188,826 | 766,799 | 607,683 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-60
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2015 | ||||||||||||||||||||
Notional | Fair Value | |||||||||||||||||||
3 months to 1 | ||||||||||||||||||||
Up to 3 month | year | Over 1 year | Assets | Liabilities | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Derivatives held for hedge accounting | ||||||||||||||||||||
Fair Value | ||||||||||||||||||||
Foreign Currency Forwards | 8,393 | 44,066 | — | 395 | 1,236 | |||||||||||||||
Foreign Currency Swaps | — | 12,231 | 136,785 | 1,670 | 4,452 | |||||||||||||||
Interest Rate Swap | 19,000 | 88,756 | 1,086,281 | 3,140 | 3,234 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Subtotal | 27,393 | 145,053 | 1,223,066 | 5,205 | 8,922 | |||||||||||||||
Cash Flow | ||||||||||||||||||||
Foreign Currency Forwards | 225,536 | 189,656 | 7,689 | 14 | 5,134 | |||||||||||||||
Foreign Currency Swaps | — | 43,776 | 421,240 | 23,698 | 15,428 | |||||||||||||||
Interest Rate Swap | 94,608 | 47,128 | 116,419 | — | 3,914 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Subtotal | 320,144 | 280,560 | 545,348 | 23,712 | 24,476 | |||||||||||||||
Net Investment in foreign operation | ||||||||||||||||||||
Foreign Currency Forwards | 237,027 | — | — | 2,621 | 5,610 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Subtotal | 237,027 | — | — | 2,621 | 5,610 | |||||||||||||||
Derivatives held for trading | ||||||||||||||||||||
Foreign Currency Forwards | 9,508,155 | 5,732,949 | 1,087,369 | 222,956 | 179,610 | |||||||||||||||
Interest Rate Swap | 1,849,751 | 4,214,372 | 17,629,096 | 315,677 | 185,389 | |||||||||||||||
Foreign Currency Swaps | 135,508 | 402,197 | 4,234,351 | 433,578 | 322,795 | |||||||||||||||
Foreign Currency call options | 145,305 | 146,189 | — | 4,655 | 3,511 | |||||||||||||||
Foreign Currency put options | 78,440 | 83,677 | — | 511 | 802 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Subtotal | 11,717,159 | 10,579,384 | 22,950,816 | 977,377 | 692,107 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 12,301,723 | 11,004,997 | 24,719,230 | 1,008,915 | 731,115 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-61
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
B. Hedge accounting
B.1 Fair value hedges:
The Bank uses interest rate derivatives to reduce the risk on certain items designated as hedged items, for example, long-and-short term debt issuances and assets such as commercial loans.
The Bank uses cross-currency swaps and interest rate swaps to hedge its exposure to changes in fair value of hedged items attributable to interest rates. The aforementioned hedging instruments change the effective cost of long-term issuances from a fixed interest rate to a variable interest rate.
Below is a detail by maturity of hedged items and hedging instruments as of December 31, 2014 and 2015, under fair value hedges.
As of December 31, 2014 | ||||||||||||||||
Notional | ||||||||||||||||
Within 1 | Between 1 | Between 3 | Over 6 | |||||||||||||
year | and 3 years | and 6 years | years | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Hedged Items | ||||||||||||||||
Loans | 66,000 | 48,000 | — | — | ||||||||||||
Working Capital | 181,639 | 26,738 | 57,456 | — | ||||||||||||
Bonds | — | — | 819,211 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 247,639 | 74,738 | 876,667 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Hedging instrument | ||||||||||||||||
Interest Rate Swaps | 66,000 | 49,184 | 819,211 | — | ||||||||||||
Currency Swaps | 181,639 | 25,554 | 57,456 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 247,639 | 74,738 | 876,667 | — | ||||||||||||
|
|
|
|
|
|
|
|
F-62
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2015 | ||||||||||||||||
Notional | ||||||||||||||||
Within 1 | Between 1 | Between 3 | Over 6 | |||||||||||||
year | and 3 years | and 6 years | years | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Hedged Items | ||||||||||||||||
Loans | 19,782 | 41,294 | 6,355 | — | ||||||||||||
Investment | 52,459 | — | — | 13,496 | ||||||||||||
Demand Deposits | 100,205 | 106,567 | ||||||||||||||
Bonds | — | 529,192 | 526,161 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 172,446 | 677,053 | 532,516 | 13,496 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Hedging instrument | ||||||||||||||||
Interest Rate Swaps | 107,756 | 639,714 | 433,071 | 13,496 | ||||||||||||
Foreign Currency Forwards | 52,459 | — | — | — | ||||||||||||
Currency Swaps | 12,231 | 37,339 | 99,445 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 172,446 | 677,053 | 532,516 | 13,496 | ||||||||||||
|
|
|
|
|
|
|
|
B.2 Cash flow hedges:
Cash flow hedges are used by the Bank to:
a) | Reduce the volatility of cash flows in balance sheet items that are indexed to inflation through the use of inflation forwards and combinations of swaps in pesos and indexed units. |
b) | Set the rate of a portion of the pool of short-term liabilities in pesos, thus reducing the risk of an important part of the Bank’s cost of funding, although still maintaining the liquidity risk of the pool. |
c) | It also sets the rate of funding sources at a floating rate, decreasing the risk that its funding costs increase. |
Below is a detailed account of hedged items and hedging instruments by maturity as of December 31, 2014 and 2015, under cash flow hedges.
F-63
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2014 | ||||||||||||||||
Notional | ||||||||||||||||
Within 1 | Between 1 | Between 3 | Over 6 | |||||||||||||
year | and 3 years | and 6 years | years | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Hedged Items | ||||||||||||||||
Loans | 512,244 | 224,904 | — | 43,000 | ||||||||||||
Investments | — | — | — | 4,745 | ||||||||||||
Demand Deposits | 168,800 | 45,000 | 30,300 | — | ||||||||||||
Working Capital | 42,382 | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 723,426 | 269,904 | 30,300 | 47,745 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Hedging instrument | ||||||||||||||||
Foreign Currency Forwards | 512,244 | 86,195 | — | — | ||||||||||||
Interest Rate Swaps | 168,800 | 139,933 | 30,300 | 43,000 | ||||||||||||
Currency Swaps | 42,382 | 43,776 | — | 4,745 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 723,426 | 269,904 | 30,300 | 47,745 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As of December 31, 2015 | ||||||||||||||||
Notional | ||||||||||||||||
Within 1 | Between 1 | Between 3 | Over 6 | |||||||||||||
year | and 3 years | and 6 years | years | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Hedged Items | ||||||||||||||||
Loans | 555,704 | 118,935 | 197,350 | 20,000 | ||||||||||||
Investments | — | — | — | 1,181 | ||||||||||||
Demand Deposits | 45,000 | 30,300 | — | — | ||||||||||||
Bonds | — | — | 177,581 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 600,704 | 149,235 | 374,931 | 21,181 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Hedging instrument | ||||||||||||||||
Foreign Currency Forwards | 415,192 | 7,688 | — | — | ||||||||||||
Interest Rate Swaps | 141,736 | 55,419 | 41,000 | 20,000 | ||||||||||||
Currency Swaps | 43,776 | 86,128 | 333,931 | 1,181 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 600,704 | 149,235 | 374,931 | 21,181 | ||||||||||||
|
|
|
|
|
|
|
|
The effective portion of increase/decrease in fair value of the hedging instruments of the hedged items from cash flow hedges, MCh$3,088 (MCh$958 as of December 31, 2014) (Note 23g)Equity) and the ineffective portion of increase/decrease in fair value of the hedging instruments of the hedged items from cash flow hedges are, respectively, MCh$(15) (MCh$5 as of December 31, 2014) (Note 27Net Foreign Exchange Income (losses) – Fair value gains (losses) on hedging derivatives), as of December 31, 2015 and 2014, respectively, were as follow with respect to the following hedged items:
F-64
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2014 | As of December 31, 2015 | |||||||||||||||||||
Effective | Ineffective | Effective | Ineffective | |||||||||||||||||
Note | portion | portion | portion | portion | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||
Demand Deposits | (3,380 | ) | — | 835 | — | |||||||||||||||
Loans | 4,168 | 5 | 5,593 | (15 | ) | |||||||||||||||
Investments | (58 | ) | — | 19 | — | |||||||||||||||
Bonds | 228 | — | (3,359 | ) | — | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net flows | 23 g | ) | 958 | 5 | 3,088 | (15 | ) |
B.3 Hedging net investment in foreign operations:
The Bank has a foreign operation (New York Branch and Colombia) whose functional currency (US dollars and Colombian pesos) is other than the Bank’s functional currency. When translating the results of operations and financial position of this foreign operation into the Bank’s functional currency, the Bank recognizes foreign exchange differences in other comprehensive income until it disposes of the foreign operation. For this reason, the Bank decided to hedge the foreign currency risk arising from its net investment in this foreign operation and has designated non-derivative financial instruments as hedging instruments. Gains or losses relating to the effective portion of the hedge are recognized in other comprehensive income and accumulated under the heading hedge of a net investment in foreign operation within equity. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss. Gains or losses on the hedging instrument relating to the effective portion accumulated in equity are reclassified to profit or loss on the disposal of the foreign operation.
Gains or losses on the hedge of the net investment in its foreign operation that have been recognized in other comprehensive income and accumulated in equity are as follows:
Note | 2013 | 2014 | 2015 | |||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||
Beginning balance | 365 | (1,907 | ) | (5,287 | ) | |||||||||||
Gains (losses) on hedge of net investment in foreign operation, before tax | 23 f | ) | (2,840 | ) | (4,751 | ) | (7,931 | ) | ||||||||
Income tax relating to hedges of net investments in foreign operations | 23 f | ) | 568 | 1,371 | 2,758 | |||||||||||
|
|
|
|
|
| |||||||||||
Closing balance | (1,907 | ) | (5,287 | ) | (10,460 | ) | ||||||||||
|
|
|
|
|
|
No ineffective portion was recognized in profit or loss for the years ended December 31, 2014 and 2015.
B.3.1 Hedging net investment in New York Branch
Nocional | Hedging Instrument (Fair Value) | Effective portion | Ineffective Portion | |||||||||||||
MUSD | MCh$ | MCh$ | MCh$ | |||||||||||||
As of December 31, 2015 | 60.1 | (13,437 | ) | (13,437 | ) | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
| |||||||||
As of December 31, 2014 | 60.1 | (7,135 | ) | (7,135 | ) | — | ||||||||||
|
|
|
|
|
|
|
|
F-65
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
B.3.1 Hedging net investment in CorpBanca Colombia (*)
As of December 31, 2015 | ||||||||||||||||||||||||
Notional | ||||||||||||||||||||||||
Within 1 | Between 1 | Between 3 | Over 6 | |||||||||||||||||||||
year | and 3 years | and 6 years | years | Effective portion | Ineffective Portion | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Hedged Items | 237,027 | — | — | — | (2,574 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Equity | 237,027 | — | — | — | (2,574 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Investment in foreign operation | 237,027 | — | — | — | (2,574 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Hedging Instrument | 237,027 | — | — | — | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Foreign Currency Forwards | 237,027 | — | — | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
(*) | CorpBanca Colombia began in 2015 with these operations. |
F-66
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 9 - LOANS AND RECEIVABLES FROM BANKS
a) | As of December 31, 2014 and 2015, loans and receivables from banks are as follows: |
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Local Banks | ||||||||
Loans to local banks | — | — | ||||||
Allowances for loans losses | — | — | ||||||
|
|
|
| |||||
Subtotal | — | — | ||||||
|
|
|
| |||||
Foreign Banks | ||||||||
Loans from foreign banks | 194,433 | 144,041 | ||||||
Other debts with foreign banks | — | — | ||||||
Allowances for loans losses | (271 | ) | (240 | ) | ||||
|
|
|
| |||||
Subtotal | 194,162 | 143,801 | ||||||
|
|
|
| |||||
Banco Central of Chile | ||||||||
Restricted Deposits in the Central Bank of Chile (*) | 620,047 | 308,028 | ||||||
|
|
|
| |||||
Subtotal | 620,047 | 308,028 | ||||||
|
|
|
| |||||
Total | 814,209 | 451,829 | ||||||
|
|
|
|
(*) | This corresponds to deposits in the Central Bank of Chile who are not current deposits and regulatory purposes. |
b) | The movement in the allowances for loan losses as of December 31, 2014 and 2015 is as follows: |
As of December 31, 2014 | ||||||||||||||||
Note | Local Banks | Foreign Banks | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||
Balance as of January 1, 2014 | — | (137 | ) | (137 | ) | |||||||||||
Write-offs | — | — | — | |||||||||||||
Established provisions | 28 | — | (269 | ) | (269 | ) | ||||||||||
Released provisions | 28 | — | 141 | 141 | ||||||||||||
Impairment | — | — | — | |||||||||||||
Impairment reversal | — | — | — | |||||||||||||
Exchange Differences | — | (6 | ) | (6 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Balances as of December 31, 2014 | — | (271 | ) | (271 | ) | |||||||||||
|
|
|
|
|
|
F-67
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2015 | ||||||||||||||||
Note | Local Banks | Foreign Banks | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||
Balance as of January 1, 2015 | — | (271 | ) | (271 | ) | |||||||||||
Write-offs | — | — | — | |||||||||||||
Established provisions | 28 | — | (121 | ) | (121 | ) | ||||||||||
Released provisions | 28 | — | 180 | 180 | ||||||||||||
Impairment | — | — | — | |||||||||||||
Impairment reversal | — | — | — | |||||||||||||
Exchange Differences | — | (28 | ) | (28 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Balances as of December 31, 2015 | — | (240 | ) | (240 | ) | |||||||||||
|
|
|
|
|
|
F-68
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 10 - LOANS AND RECEIVABLES FROM CUSTOMERS
a) | Loans and receivables from customers |
As of December 31, 2014 and 2015, the composition of the loan portfolio is as follows:
As of December 31, 2014 | Gross Assets | Allowances for loan losses | ||||||||||||||||||||||||||
Normal Portfolio | Impaired Portfolio | Total | Individually Evaluated for impairment | Collectively evaluated for impairment | Total | Net carrying amount | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||
Commercial loans | 8,051,738 | 251,340 | 8,303,078 | 56,527 | 10,166 | 66,693 | 8,236,385 | |||||||||||||||||||||
Foreign trade loans | 481,183 | 24,368 | 505,551 | 20,703 | 272 | 20,975 | 484,576 | |||||||||||||||||||||
Current account debtors | 32,123 | 2,727 | 34,850 | 704 | 811 | 1,515 | 33,335 | |||||||||||||||||||||
Factoring operations | 69,771 | 143 | 69,914 | 1,733 | 143 | 1,876 | 68,038 | |||||||||||||||||||||
Leasing transactions (*) | 827,393 | 39,099 | 866,492 | 49 | 263 | 312 | 866,180 | |||||||||||||||||||||
Other loans and receivables | 308,438 | 2,152 | 310,590 | 1,146 | 3,492 | 4,638 | 305,952 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Subtotals | 9,770,646 | 319,829 | 10,090,475 | 80,862 | 15,147 | 96,009 | 9,994,466 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Mortgage loans: | ||||||||||||||||||||||||||||
Letters of credit loans | 62,262 | 2,360 | 64,622 | — | 192 | 192 | 64,430 | |||||||||||||||||||||
Endorsable mutual mortgage loans | 176,912 | 5,402 | 182,314 | — | 1,045 | 1,045 | 181,269 | |||||||||||||||||||||
Other mutual mortgage loans | 1,643,396 | 22,915 | 1,666,311 | — | 5,046 | 5,046 | 1,661,265 | |||||||||||||||||||||
Leasing transactions (*) | 275,019 | 5,554 | 280,573 | — | 1,247 | 1,247 | 279,326 | |||||||||||||||||||||
Other loans and receivables | 34,588 | 1,150 | 35,738 | — | 232 | 232 | 35,506 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Subtotals | 2,192,177 | 37,381 | 2,229,558 | — | 7,762 | 7,762 | 2,221,796 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Consumer loans: | ||||||||||||||||||||||||||||
Consumer loans | 1,093,754 | 37,104 | 1,130,858 | — | 20,015 | 20,015 | 1,110,843 | |||||||||||||||||||||
Current account debtors | 46,239 | 1,325 | 47,564 | — | 1,713 | 1,713 | 45,851 | |||||||||||||||||||||
Credit card | 236,698 | 5,003 | 241,701 | — | 4,096 | 4,096 | 237,605 | |||||||||||||||||||||
Consumer leasing transactions (*) | 19,309 | 452 | 19,761 | — | 59 | 59 | 19,702 | |||||||||||||||||||||
Other loans and receivables | 264,853 | 5,105 | 269,958 | — | 7,951 | 7,951 | 262,007 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Subtotals | 1,660,853 | 48,989 | 1,709,842 | — | 33,834 | 33,834 | 1,676,008 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 13,623,676 | 406,199 | 14,029,875 | 80,862 | 56,743 | 137,605 | 13,892,270 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-69
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2015 | Gross Assets | Allowances for loan losses | ||||||||||||||||||||||||||
Normal Portfolio | Impaired Portfolio | Total | Individually Evaluated for impairment | Collectively evaluated for impairment | Total | Net carrying amount | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||
Commercial loans | 8,531,794 | 290,066 | 8,821,860 | 86,784 | 8,918 | 95,702 | 8,726,158 | |||||||||||||||||||||
Foreign trade loans | 502,287 | 19,052 | 521,339 | 15,803 | 653 | 16,456 | 504,883 | |||||||||||||||||||||
Current account debtors | 25,524 | 3,208 | 28,732 | 816 | 1,365 | 2,181 | 26,551 | |||||||||||||||||||||
Factoring operations | 61,581 | 432 | 62,013 | 1,185 | 375 | 1,560 | 60,453 | |||||||||||||||||||||
Leasing transactions (*) | 834,412 | 53,777 | 888,189 | 16,637 | 3,691 | 20,328 | 867,861 | |||||||||||||||||||||
Other loans and receivables | 359,479 | 14,906 | 374,385 | 277 | 2,217 | 2,494 | 371,891 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Subtotals | 10,315,077 | 381,441 | 10,696,518 | 121,502 | 17,219 | 138,721 | 10,557,797 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Mortgage loans: | ||||||||||||||||||||||||||||
Letters of credit loans | 52,522 | 1,850 | 54,372 | — | 123 | 123 | 54,249 | |||||||||||||||||||||
Endorsable mutual mortgage loans | 156,942 | 4,496 | 161,438 | — | 759 | 759 | 160,679 | |||||||||||||||||||||
Other mutual mortgage loans | 1,678,046 | 23,527 | 1,701,573 | — | 61 | 61 | 1,701,512 | |||||||||||||||||||||
Leasing transactions (*) | 274,144 | 4,738 | 278,882 | — | 7,708 | 7,708 | 271,174 | |||||||||||||||||||||
Other loans and receivables | 31,234 | 1,120 | 32,354 | — | 181 | 181 | 32,173 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Subtotals | 2,192,888 | 35,731 | 2,228,619 | — | 8,832 | 8,832 | 2,219,787 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Consumer loans: | ||||||||||||||||||||||||||||
Consumer loans | 1,264,649 | 33,545 | 1,298,194 | — | 14,737 | 14,737 | 1,283,457 | |||||||||||||||||||||
Current account debtors | 51,144 | 1,344 | 52,488 | — | 1,684 | 1,684 | 50,804 | |||||||||||||||||||||
Credit card | 240,027 | 4,915 | 244,942 | — | 3,314 | 3,314 | 241,628 | |||||||||||||||||||||
Consumer leasing transactions (*) | 18,475 | 316 | 18,791 | — | 538 | 538 | 18,253 | |||||||||||||||||||||
Other loans and receivables | 86,054 | 2,690 | 88,744 | — | 6,113 | 6,113 | 82,631 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Subtotals | 1,660,349 | 42,810 | 1,703,159 | — | 26,386 | 26,386 | 1,676,773 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 14,168,314 | 459,982 | 14,628,296 | 121,502 | 52,437 | 173,939 | 14,454,357 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) | Lease transactions (commercial, mortgage and consumer) are presented net of allowance and total MCh$1,157,288 as of December 31, 2015 (MCh$1,165,208 as of December 31, 2014). |
Guarantees taken by the Bank to secure collections reflected in its loan portfolios are collateral (urban and rural property, farm land, ships and aircraft, mining claims and other assets) and pledges (inventory, farm assets, industrial assets, plantings and other pledged assets). As of December 31, 2015 and 2014, the fair value of guarantees taken corresponds to 89.9% and 83.4% of the loans and receivables, respectively.
In the case of mortgage guarantees, as of December 31, 2015 and 2014, the fair value of the guarantees taken corresponds to 59.5% and 51.1% of the balance of these loans and receivables, respectively.
The Bank finances its customers’ asset purchases, both movable and real estate, through lease contracts that are included within loans and receivables from customers. As of December 31, 2015, MCh$155,332 corresponds to leases of movable assets (MCh$393,254 as of December 31, 2014) and MCh$237,272 to leases of real estate assets (MCh$742,600 as of December 31, 2014).
F-70
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Where appropriate, we obtain collateral in respect of our loans and receivables from customers. The collateral normally takes the form of a mortgage (i.e., urban and rural properties, agricultural lands, maritime vessels and aircraft, mineral rights and other assets) and liens (i.e., inventories, agricultural goods, industrial goods, plantations and other property pledged as security) over the customer’s assets. The existence and amount of collateral generally varies from loan to loan, based on the credit worthiness of the borrower.
We review collateral fair values by obtaining appraisals on impaired secured loans every 18 months and on normal secured loans every three years.
We monitor collateral values between appraisals on an ongoing basis in order to capture any unusual significant changes (i.e., improved conditions in the real estate industry, changes in overall economic conditions, etc.) in market-based evidence used in the appraisals. In the event that unusual significant changes occur between appraisals, the collateral values are reassessed and recalculated.
During 2015, the Bank has received assets such as homes, apartments, commercial and agricultural lands, among others, with a fair value of MCh$986 (MCh$3,550 in 2014) through foreclosure or judicial proceedings.
b) | Portfolio characteristics |
As of December 31, 2014 and 2015, the loan portfolio before allowances for loan losses by customer economic activity was as follows:
Local Loans | Foreign Loans | Total | Distribution Percentage as of | |||||||||||||||||||||||||||||
2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | % | % | |||||||||||||||||||||||||
Commercial loans: | ||||||||||||||||||||||||||||||||
Manufacturing | 965,965 | 742,288 | 111,397 | 137,587 | 1,077,362 | 879,875 | 7.68 | % | 6.01 | % | ||||||||||||||||||||||
Mining | 266,661 | 450,459 | 363,055 | 316,248 | 629,716 | 766,707 | 4.49 | % | 5.24 | % | ||||||||||||||||||||||
Electricity, gas and water | 273,576 | 230,658 | 483,644 | 467,077 | 757,220 | 697,735 | 5.40 | % | 4.77 | % | ||||||||||||||||||||||
Agriculture and livestock | 179,863 | 239,540 | 123,166 | 123,981 | 303,029 | 363,521 | 2.16 | % | 2.49 | % | ||||||||||||||||||||||
Forestry and wood extraction | 48,344 | 36,291 | 7,785 | 7,732 | 56,129 | 44,023 | 0.40 | % | 0.30 | % | ||||||||||||||||||||||
Fishing | 2,199 | 3,252 | — | — | 2,199 | 3,252 | 0.02 | % | 0.02 | % | ||||||||||||||||||||||
Transport | 182,364 | 242,533 | 146,354 | 105,593 | 328,718 | 348,126 | 2.34 | % | 2.38 | % | ||||||||||||||||||||||
Communications | 3,490 | 4,034 | 91,191 | 57,944 | 94,681 | 61,978 | 0.67 | % | 0.42 | % | ||||||||||||||||||||||
Construction | 887,305 | 989,048 | 214,999 | 217,069 | 1,102,304 | 1,206,117 | 7.86 | % | 8.25 | % | ||||||||||||||||||||||
Commerce | 415,695 | 500,551 | 943,143 | 808,876 | 1,358,838 | 1,309,427 | 9.69 | % | 8.95 | % | ||||||||||||||||||||||
Services | 2,620,475 | 3,128,986 | 1,305,238 | 1,229,567 | 3,925,713 | 4,358,553 | 27.98 | % | 29.80 | % | ||||||||||||||||||||||
Others | 286,578 | 202,313 | 167,988 | 454,891 | 454,566 | 657,204 | 3.24 | % | 4.49 | % | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Subtotals | 6,132,515 | 6,769,953 | 3,957,960 | 3,926,565 | 10,090,475 | 10,696,518 | 71.93 | % | 73.12 | % | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Mortgage Loans | 1,730,106 | 1,742,092 | 499,452 | 486,527 | 2,229,558 | 2,228,619 | 15.89 | % | 15.23 | % | ||||||||||||||||||||||
Consumer loans | 568,426 | 613,367 | 1,141,416 | 1,089,792 | 1,709,842 | 1,703,159 | 12.18 | % | 11.65 | % | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total | 8,431,047 | 9,125,412 | 5,598,828 | 5,502,884 | 14,029,875 | 14,628,296 | 100.00 | % | 100.00 | % | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-71
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
c) | Allowances for loans losses |
The changes in allowances for loan losses during the periods ended December 31, 2014 and 2015 are summarized as follows:
Note | Individually Evaluated for impairment | Collectively evaluated for impairment | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||
Balances as January 1, 2014 | 78,636 | 47,403 | 126,039 | |||||||||||||
Impaired portfolio write-offs: | ||||||||||||||||
Commercial loans | (20,964 | ) | (16,133 | ) | (37,097 | ) | ||||||||||
Mortgage loans | — | (2,506 | ) | (2,506 | ) | |||||||||||
Consumer loans | — | (62,032 | ) | (62,032 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Total Write-offs | (20,964 | ) | (80,671 | ) | (101,635 | ) | ||||||||||
Established provision | 28 | 133,767 | 194,498 | 328,265 | ||||||||||||
Provision released | 28 | (91,686 | ) | (84,490 | ) | (176,176 | ) | |||||||||
Impairment | — | — | — | |||||||||||||
Debt exchange and loans-sale | (9,239 | ) | — | (9,239 | ) | |||||||||||
Exchange rate differences | (9,652 | ) | (19,997 | ) | (29,649 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Balances as of December 31, 2014 | 10 a | ) | 80,862 | 56,743 | 137,605 | |||||||||||
|
|
|
|
|
| |||||||||||
Note | Individually Evaluated for impairment | Collectively evaluated for impairment | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||
Balances as January 1, 2015 | 80,862 | 56,743 | 137,605 | |||||||||||||
Impaired portfolio write-offs: | ||||||||||||||||
Commercial loans | (28,800 | ) | (14,563 | ) | (43,363 | ) | ||||||||||
Mortgage loans | — | (2,559 | ) | (2,559 | ) | |||||||||||
Consumer loans | — | (70,744 | ) | (70,744 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Total Write-offs | (28,800 | ) | (87,866 | ) | (116,666 | ) | ||||||||||
Established provision | 28 | 203,482 | 195,135 | 398,617 | ||||||||||||
Provision released | 28 | (115,698 | ) | (93,227 | ) | (208,925 | ) | |||||||||
Impairment | — | — | — | |||||||||||||
Debt exchange and loans-sale | (6,714 | ) | — | (6,714 | ) | |||||||||||
Exchange rate differences | (11,630 | ) | (18,348 | ) | (29,978 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Balances as of December 31, 2015 | 10 a | ) | 121,502 | 52,437 | 173,939 | |||||||||||
|
|
|
|
|
|
F-72
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
d) | Portfolio sale |
1. | As of December 31, 2015 and 2014, the Bank and its subsidiaries engaged in portfolio purchases and sales. The effect on income of these transactions as a whole does not exceed 5% of before tax profit for the year, and is recorded within net gains from trading and brokerage activities in the Consolidated Statement of Income for the Period, disclosed in Note 26Net Trading and Investment Incomewithin “Other financial investments at fair value with effect on profit or loss”. |
2. | As of December 31, 2015 and 2014, the Bank and its subsidiaries derecognized 100% of its sold portfolio, thus complying with the requirements of the accounting policy for derecognizing financial assets and liabilities in Note 1, letter z) of these annual consolidated financial statements. |
During 2014 and 2015, CorpBanca sold part of its portfolio of state-guaranteed loans and receivables (CAE for its Spanish acronym) acquired through a competitive bidding process for awards of the Financing Facility and Administration of Loans for Studies in Higher Education Law No. 20,027.The open bidding model for financial institutions, reflected in the respective databases, allow selling a percentage of the state-guaranteed loans and receivables to third parties. On the portfolio sale, CorpBanca transferred substantially all the risks and benefits associated with this portfolio. The detail of loans and receivables sold is as follows:
Loans sold | ||||||||||||||||
No. of Loans | Carrying Amount | Proceeds for sales | Gain (Loss) on sale (*) | |||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||
As of December 31, 2014 | 73,638 | 137,400 | 152,995 | 15,595 | ||||||||||||
As of December 31, 2015 | 66,344 | 116,006 | 133,067 | 17,061 |
(*) | This amount is included under line item “Trading and investment income, net” in the Consolidated Statements of Income, disclosed in Note 26Net Trading and Investment Income, line “Other financial investments at fair value with effect on profit or loss”. |
F-73
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
e) | Lease |
The Bank’s scheduled cash flows to be received from finance lease contracts have the following maturities:
Total receivable | Unearned income | Net lease receivable | ||||||||||||||||||||||
2014 | 2015 | 2014 | 2015 | 2014 | 2015 | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Up to 1 month | 22,852 | 22,739 | (822 | ) | (891 | ) | 22,030 | 21,848 | ||||||||||||||||
From 1 month to 3 months | 17,981 | 18,298 | (3,103 | ) | (3,354 | ) | 14,878 | 14,944 | ||||||||||||||||
From 3 months to 1 year | 84,075 | 87,768 | (13,429 | ) | (14,522 | ) | 70,646 | 73,246 | ||||||||||||||||
From 1 year to 3 years | 253,962 | 237,815 | (25,477 | ) | (38,669 | ) | 228,485 | 199,146 | ||||||||||||||||
From 3 years to 6 years | 330,437 | 308,300 | (67,707 | ) | (64,081 | ) | 262,730 | 244,219 | ||||||||||||||||
Over 6 years | 963,642 | 1,052,233 | (395,585 | ) | (419,774 | ) | 568,057 | 632,459 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total (*) | 1,672,949 | 1,727,153 | (506,123 | ) | (541,291 | ) | 1,166,826 | 1,185,862 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*) | Includes: |
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Commercial Leasing Transactions | 866,492 | 888,189 | ||||||
Mortgage Leasing Transactions | 280,573 | 278,882 | ||||||
Consumer Leasing Transactions | 19,761 | 18,791 | ||||||
|
|
|
| |||||
1,166,826 | 1,185,862 | |||||||
|
|
|
|
F-74
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 11 - INVESTMENT INSTRUMENTS
As of December 31, 2014 and 2015, the detail of financial investments available for sale and held to maturity was as follows:
a) | Financial investments |
As of December 31, 2014 | As of December 31, 2015 | |||||||||||||||||||||||
Available for sale | Held to maturity | Total | Available for sale | Held to maturity | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Chilean Central Bank and Government Securities | 536,928 | — | 536,928 | 786,609 | — | 786,609 | ||||||||||||||||||
Chilean Central Bank securities | 276,487 | — | 276,487 | 527,444 | — | 527,444 | ||||||||||||||||||
Chilean Treasury Bonds | 253,999 | — | 253,999 | 258,306 | — | 258,306 | ||||||||||||||||||
Other government securities | 6,442 | — | 6,442 | 859 | — | 859 | ||||||||||||||||||
Other financial instruments | 105,891 | 7,175 | 113,066 | 148,829 | 5,543 | 154,372 | ||||||||||||||||||
Promissory notes related to deposits in local banks | 54,162 | — | 54,162 | 65,778 | — | 65,778 | ||||||||||||||||||
Chilean mortgage finance bonds | 203 | — | 203 | 92 | — | 92 | ||||||||||||||||||
Chilean financial institution bonds | — | — | — | 29,329 | — | 29,329 | ||||||||||||||||||
Other local investments | 51,526 | 7,175 | 58,701 | 53,630 | 5,543 | 59,173 | ||||||||||||||||||
Financial instruments Issued abroad | 514,077 | 183,502 | 697,579 | 989,350 | 164,648 | 1,153,998 | ||||||||||||||||||
Foreign government and central bank instruments | 434,392 | — | 434,392 | 629,297 | — | 629,297 | ||||||||||||||||||
Other foreign investments | 79,685 | 183,502 | 263,187 | 360,053 | 164,648 | 524,701 | ||||||||||||||||||
Impairment provision | — | — | — | — | — | — | ||||||||||||||||||
Unquoted securities in active markets | — | — | — | — | — | — | ||||||||||||||||||
Chilean corporate bonds | — | — | — | — | — | — | ||||||||||||||||||
Other investments | — | — | — | — | — | — | ||||||||||||||||||
Impairment Provision | — | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 1,156,896 | (*) | 190,677 | 1,347,573 | 1,924,788 | (*) | 170,191 | 2,094,979 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*) | As of December 31, 2015 this total includes MCh$88,224 (MCh$16,914 as of December 31, 2014), included in Note 5Cash and cash equivalents, which corresponds to those financial instruments with maturities that do not exceed three months from their dates of acquisition. |
As of December 31, 2015, the portfolio of financial investments available-for-sale includes net unrealized losses and gains, net of taxes, recorded in other comprehensive income.
b) | Impairment of investment instruments |
All investments quoted in non-active markets and classified as available-for-sale have been recorded at their fair value.
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Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
c) | Detail of investments available-for-sale portfolio as of December, 31, 2014 and 2015 are as follows: |
As of December 31, 2014 | ||||||||||||||||
Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Chilean Central Bank and Government securities | 535,915 | 2,320 | (1,307 | ) | 536,928 | |||||||||||
Chilean Central Bank and Government securities | 275,640 | 1,606 | (759 | ) | 276,487 | |||||||||||
Chilean Central Bank Notes | 253,845 | 702 | (548 | ) | 253,999 | |||||||||||
Other government securities | 6,430 | 12 | — | 6,442 | ||||||||||||
Other Financial Instruments | 104,919 | 972 | — | 105,891 | ||||||||||||
Promissory notes related to deposits in local banks | 53,972 | 190 | — | 54,162 | ||||||||||||
Chilean mortgage finance bonds | 201 | 2 | — | 203 | ||||||||||||
Chilean financial institution bonds | — | — | — | — | ||||||||||||
Other local investments | 50,746 | 780 | — | 51,526 | ||||||||||||
Financial instruments Issued abroad | 527,667 | 654 | (14,244 | ) | 514,077 | |||||||||||
Foreign government and central bank instruments | 447,131 | 291 | (13,030 | ) | 434,392 | |||||||||||
Other foreign investments | 80,536 | 363 | (1,214 | ) | 79,685 | |||||||||||
Impairment Provision | — | — | — | — | ||||||||||||
Unquoted securities in active markets | — | — | — | — | ||||||||||||
Chilean corporate bonds | — | — | —�� | — | ||||||||||||
Other investments | — | — | — | — | ||||||||||||
Impairment Provision | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Totals | 1,168,501 | 3,946 | (15,551 | ) | 1,156,896 | |||||||||||
|
|
|
|
|
|
|
|
As of December 31, 2014, the portfolio of financial assets available for sale includes a net unrealized loss of MCh$11,605, recorded inOther Comprehensive Income within equity (Note 23Equity,letter f).
F-76
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2015 | ||||||||||||||||
Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Chilean Central Bank and Government securities | 796,456 | 17 | (9,864 | ) | 786,609 | |||||||||||
Chilean Central Bank and Government securities | 533,393 | 13 | (5,962 | ) | 527,444 | |||||||||||
Chilean Central Bank Notes | 262,207 | 1 | (3,902 | ) | 258,306 | |||||||||||
Other government securities | 856 | 3 | — | 859 | ||||||||||||
Other Financial Instruments | 148,508 | 1,547 | (1,226 | ) | 148,829 | |||||||||||
Promissory notes related to deposits in local banks | 65,777 | 5 | (4 | ) | 65,778 | |||||||||||
Chilean mortgage finance bonds | 88 | 4 | — | 92 | ||||||||||||
Chilean financial institution bonds | 29,937 | — | (608 | ) | 29,329 | |||||||||||
Other local investments | 52,706 | 1,538 | (614 | ) | 53,630 | |||||||||||
Financial instruments Issued abroad | 1,035,149 | 165 | (45,964 | ) | 989,350 | |||||||||||
Foreign government and central bank instruments | 635,925 | 162 | (6,790 | ) | 629,297 | |||||||||||
Other foreign investments | 399,224 | 3 | (39,174 | ) | 360,053 | |||||||||||
Impairment Provision | — | — | — | — | ||||||||||||
Unquoted securities in active markets | — | — | — | — | ||||||||||||
Chilean corporate bonds | — | — | — | — | ||||||||||||
Other investments | — | — | — | — | ||||||||||||
Impairment Provision | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Totals | 1,980,113 | 1,729 | (57,054 | ) | 1,924,788 | |||||||||||
|
|
|
|
|
|
|
|
As of December 31, 2015, the portfolio of financial assets available for sale includes a net unrealized loss of MCh$55,325, recorded inOther Comprehensive Incomewithin equity (Note 23Equity,letter g).
F-77
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
d) | The classification of our available-for-sale securities within the fair value hierarchy is as follows: |
As of December 31, 2014 | ||||||||||||||||||
Available for sale Portfolio | ||||||||||||||||||
Note | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||
Chilean Central Bank and Government securities | 34 | 536,928 | 530,486 | 6,442 | — | |||||||||||||
Chilean Central Bank and Government securities | 276,487 | 276,487 | — | — | ||||||||||||||
Chilean Central Bank Notes | 253,999 | 253,999 | — | — | ||||||||||||||
Other Chilean Central Bank and Government securities | 6,442 | — | 6,442 | — | ||||||||||||||
Other Financial Instruments | 34 | 105,891 | — | 105,891 | — | |||||||||||||
Promissory notes related to deposits in local banks | 54,162 | — | 54,162 | — | ||||||||||||||
Chilean mortgage finance bonds | 203 | — | 203 | — | ||||||||||||||
Chilean financial institution bonds | — | — | — | — | ||||||||||||||
Other local investments | 51,526 | — | 51,526 | — | ||||||||||||||
Financial instruments Issued abroad | 34 | 514,077 | 434,392 | 79,685 | — | |||||||||||||
Foreign government and central bank instruments | 434,392 | 434,392 | — | — | ||||||||||||||
Other foreign investments | 79,685 | — | 79,685 | — | ||||||||||||||
Impairment Provision | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Totals | 1,156,896 | 964,878 | 192,018 | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
As of December 31, 2015 | ||||||||||||||||||
Available for sale Portfolio | ||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||
Chilean Central Bank and Government securities | 34 | 786,609 | 785,750 | 859 | — | |||||||||||||
Chilean Central Bank and Government securities | 527,444 | 527,444 | — | — | ||||||||||||||
Chilean Central Bank Notes | 258,306 | 258,306 | — | — | ||||||||||||||
Other Chilean Central Bank and Government securities | 859 | — | 859 | — | ||||||||||||||
Other Financial Instruments | 34 | 148,829 | — | 148,829 | — | |||||||||||||
Promissory notes related to deposits in local banks | 65,778 | — | 65,778 | — | ||||||||||||||
Chilean mortgage finance bonds | 92 | — | 92 | — | ||||||||||||||
Chilean financial institution bonds | 29,329 | — | 29,329 | — | ||||||||||||||
Other local investments | 53,630 | — | 53,630 | — | ||||||||||||||
Financial instruments Issued abroad | 34 | 989,350 | 629,297 | 360,053 | — | |||||||||||||
Foreign government and central bank instruments | 629,297 | 629,297 | — | — | ||||||||||||||
Other foreign investments | 360,053 | — | 360,053 | — | ||||||||||||||
Impairment Provision | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Totals | 1,924,788 | 1,415,047 | 509,741 | — | ||||||||||||||
|
|
|
|
|
|
|
|
F-78
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 12 - INVESTMENTS IN OTHER COMPANIES
a) | As of December 31, 2014 and 2015 the investments in other companies are detailed as follows: |
As of December 31, 2014 | As of December 31, 2015 | |||||||||||||||||||
Ownership | Ownership | |||||||||||||||||||
Company | % | MCh$ | % | MCh$ | ||||||||||||||||
Nexus S.A. | 12.90 | 1,057 | 12.90 | 1,057 | ||||||||||||||||
Transbank S.A. | 8.72 | 3,145 | 8.72 | 3,249 | (ii) | |||||||||||||||
Combanc S.A. | 5.29 | 159 | 5.86 | 186 | (iii) | |||||||||||||||
Redbanc S.A. | 2.50 | 110 | 2.50 | 110 | ||||||||||||||||
Sociedad Interbancaria de Depósitos de Valores S.A. | 3.91 | 75 | 3.91 | 75 | ||||||||||||||||
Imerc OTC S.A | 6.67 | 864 | 6.67 | 864 | ||||||||||||||||
Deceval S.A. | (i | ) | 10.76 | 5,915 | 10.76 | 5,294 | ||||||||||||||
A.C.H Colombia | (i | ) | 4.22 | 447 | 4.21 | 400 | ||||||||||||||
Redeban Multicolor S.A | (i | ) | 1.60 | 263 | 1.60 | 235 | ||||||||||||||
Cámara de Compensación Divisas de Col. S.A. | (i | ) | 6.38 | 68 | 6.71 | 71 | (iv) | |||||||||||||
Cámara de Riesgo Central de Contraparte S.A. | (i | ) | 2.42 | 192 | 2.42 | 172 | ||||||||||||||
Cifin | (i | ) | 9.00 | 295 | — | — | (v) | |||||||||||||
Servibanca - Tecnibanca | (i | ) | 4.54 | 1,130 | 4.53 | 1,011 | ||||||||||||||
Shares or rights in other companies | ||||||||||||||||||||
Santiago Stock Exchange Shares | 2.08 | 1,056 | 2.08 | 1,056 | ||||||||||||||||
Chilean Electronic Stock Exchange Shares | 2.44 | 211 | 2.44 | 211 | ||||||||||||||||
Colombia Stock Exchange | (i | ) | 0.97 | 778 | 0.67 | 588 | (vi) | |||||||||||||
Fogacol | (i | ) | 150.000 Unit | 77 | 150.000 Unit | 69 | ||||||||||||||
|
|
|
| |||||||||||||||||
Total | 15,842 | 14,648 | ||||||||||||||||||
|
|
|
|
(i) | This corresponds to investments in other companies by its Colombia subsidiaries. |
(ii) | This corresponds to the purchase of 512,018 shares in the period (MCh$ 104). |
(iii) | This corresponds to the purchase of 55 shares of Combanc S.A. in the period (MCh$27). |
(iv) | The increase represents the acquisition of 8,450,712 shares for a total value of MCh$5. |
(v) | Decrease due to the reclassification of categories of this share, which pass from “Investments in other companies” to “Trading portfolio”. |
(vi) | Decrease due to the reclassification of categories of this investment, which pass from “Investments in other companies” to “Trading portfolio”. |
During as of December 31, 2013, 2014 and 2015, the Bank received dividends from its investment in other companies as follows:
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Dividends received | 1,241 | 1,799 | 1,300 | |||||||||
|
|
|
|
|
| |||||||
Total | 1,241 | 1,799 | 1,300 | |||||||||
|
|
|
|
|
|
F-79
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
The movements of investment in other companies as of December 31, 2014 and 2015 were the following:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Opening balance at January 1, | 13,922 | 15,842 | ||||||
Investment acquisitions | 2,664 | 136 | ||||||
Investment sales | (16 | ) | (108 | ) | ||||
Reclassification | — | (485 | ) | |||||
Exchange rate differences | (728 | ) | (737 | ) | ||||
|
|
|
| |||||
Balances as of December 31, | 15,842 | 14,648 | ||||||
|
|
|
|
b) | Business Combination |
During 2015 there were no mergers and acquisitions. The following information is provided to supplement with respect to intangible assets, impairment, etc.
b.1) | Business Combination Banco CorpBanca Colombia and Subsidiaries with Helm Bank and Subsidiaries. |
a. | Overview |
• | On July 4, 2013, the Chilean Central Bank (BCCH in Spanish) authorized CorpBanca to make an investment abroad consisting of the acquisition through its subsidiary Banco CorpBanca Colombia S.A. (domiciled in Bogota, Colombia, the “Acquirer”) of up to 100% of Helm Bank S.A., including its subsidiaries in Colombia, which provide complementary services through the subsidiaries Helm Comisionista and Helm Fiduciaria, Panama and the Cayman Islands (the “Acquirees”), with the purpose of subsequently merging both banks incorporated in Colombia; and for CorpBanca Chile (“the Buyer”) to directly acquire up to 80% of the shares of Helm Corredores de Seguros S.A., (“the Acquiree”, domiciled in Colombia). In terms of the subsidiaries owned by Helm Bank S.A in Panama and the Cayman Islands, BCCH did not directly authorize CorpBanca Chile to invest in them. It resulted as a necessary consequence of the acquisition of their parent company Helm Bank S.A. under the terms authorized by the SBIF. The SBIF established for CorpBanca Chile the obligation to liquidate the operations of the subsidiary incorporated in the Cayman Islands once it took control of the parent company in the shortest time possible and under the terms and conditions set forth in the relevant SBIF ruling. |
• | As a result, CorpBanca Colombia committed to acquire the voting and non-voting shares of Helm Bank S.A. and subsidiaries. As part of the agreement, CorpBanca Colombia committed to acquiring up to 100% of the preferential dividend and non-voting shares (preferential shares). |
• | It acquired, for merger purposes, 2,387,387,295 common shares, which represent 58.89% of the outstanding common shares (51.61% of subscribed and paid capital) of Helm Bank during the first close and 1,656,579,084 common shares, which represent 40.86% of the outstanding common shares (35.81% of subscribed and paid capital) of Helm Bank during the second close for a total of 4,043,966,379 common shares, which represent 99.75% of the total outstanding common shares and 87.42% of the subscribed and paid capital of Helm Bank, for purchases made on August 6 and 29, 2013. |
• | On January 28, 2014, CorpBanca Colombia honored that commitment, carrying out a voluntary Takeover Bid (TOB) for the preferential shares as part of the third close, which was mainly designed to offer a liquidity and sales mechanism to the preferential shareholders under the same economic conditions that were agreed upon for the sellers of the common shares of Helm Bank under the SPA and to facilitate the merger process, enabling CorpBanca Colombia and its subsidiaries to expand their presence in the medium and long term as loan establishments in the Colombian market, obtaining a 12.36% interest and therefore retaining a total interest of 99.78% of subscribed and paid capital. |
F-80
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
• | As explicitly legally required, CorpBanca Colombia and Helm Bank had to merge within the year following the date of the first acquisition of shares of Helm Bank (i.e. before August 6, 2014). |
• | On July 1, 2014, the merger between CorpBanca Colombia S.A., as the surviving entity, and Helm Bank S.A., as the absorbed entity, was formalized. As a result, Helm Bank S.A. is dissolved without being liquidated and all of its assets, rights and obligations are transferred fully to the absorbing entity. |
The acquired interests are summarized as follows:
Closing | Share Type | Total No. of Shares | No. of Shares Acquired | Ownership Interest by Share Type (%) | Total Ownership Interest (%) | |||||||||||||
(a) | (b) | (b)/(a) | ||||||||||||||||
First | Common | — | 2,387,387,295 | 58.89 | % | 51.61 | % | |||||||||||
Second | Common | — | 1,656,579,084 | 40.86 | % | 35.81 | % | |||||||||||
|
|
|
|
|
|
|
| |||||||||||
Subtotal | 4,054,076,213 | 4,043,966,379 | 99.75 | % | 87.42 | % | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Third | Preferential | 571,749,459 | 571,749,459 | 100.00 | % | 12.36 | % | |||||||||||
|
|
|
|
|
|
|
| |||||||||||
4,625,825,672 | 4,615,715,838 | — | 99.78 | % | ||||||||||||||
|
|
|
|
|
|
|
|
b. | Main Reasons for the Purchase |
After receiving the necessary regulatory authorizations from regulators in Chile, Colombia, Panama and the Cayman Islands, the Bank took control of Helm Bank and subsidiaries through its subsidiary Banco CorpBanca Colombia. With the recent acquisition of Helm Bank and its subsequent merger with CorpBanca Colombia, CorpBanca Chile has consolidated its operations in Colombia, reaffirming its long-term commitment to this market.
For CorpBanca Chile, the Colombian market has great potential and significant room for growth in the banking business. Many Chilean investors have invested in Colombia and the Bank aims to assist customers with these projects, to strengthen long-term relationships with people and companies in that country, and also to provide peace of mind to our shareholders and investors by diversifying risks and earnings sources.
c. | Detail of Assets Acquired and Liabilities Assumed |
1. | The fair values presented as of December 31, 2013, in the audited consolidated financial statements (see (1) in section 3.1 of the table below) were calculated on a provisional basis determined by skilled professionals that were independent from CorpBanca and subsidiaries (the Group). |
2. | In accordance with IFRS 3Business Combinations, if the purchase price allocation is accounted for provisionally, at the end of the accounting period in which the combination takes place the Group should report the provisional amounts of the incomplete items in its consolidated financial statements. During the measurement period, CorpBanca will retroactively adjust the provisional amounts recognized as of the date of acquisition to reflect the new information obtained regarding the facts and circumstances that existed as of the date of acquisition that, had they been known, would have affected the measurement of the amounts recognized as of that date. During the measurement period, the acquirer will also recognize additional assets or liabilities if new information is obtained regarding facts and circumstances that existed as of the date of acquisition that, had they been known, would have resulted in recognition of these assets and liabilities as of that date. The measurement period will end as soon as the Group receives the information that it was looking for regarding the facts and circumstances that existed as of the date of acquisition or concludes that no more information can be obtained. However, the measurement period shall not exceed one year (in our case August 6, 2014) from the date of acquisition described above. |
3. | During the measurement period, the Group retroactively adjusted the fair values determined on a provisional basis in accordance with IFRS 3. (see (2) of section 3.1 of the table below). |
F-81
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
This had no impact on the Consolidated Statements of Income for the period 2013.
3.1 Fair Value of the Identifiable Assets and Liabilities of Helm Bank and Subsidiaries as of the Date of Acquisition (August 6, 2013):
Fair Value Recognized at Acquisition Date | Difference in Amounts at Close of Measurement Period | |||||||||||||||
Provisional (1) | Final (2) | |||||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||
(c.1, c.2, a) | (c.3) | (c.3) | Observation | |||||||||||||
Total net identifiable assets at fair value | 364,233 | 360,042 | (4,191 | ) | ||||||||||||
Non-controlling interest at fair value | (1,485 | ) | (1,485 | ) | — | (b) | ||||||||||
Intangible assets | 146,384 | 142,201 | (4,183 | ) | (k) | |||||||||||
Contingent liabilities | (3,703 | ) | (1,054 | ) | 2,649 | (h) | ||||||||||
Net deferred taxes | (48,521 | ) | (47,832 | ) | 689 | (i) | ||||||||||
Deferred taxes (mercantile loan) | 31,585 | 27,990 | (3,595 | ) | (g) | |||||||||||
|
|
|
|
|
| |||||||||||
Subtotal fair value | (i) | 488,493 | 479,862 | (8,631 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Goodwill arising in acquisition | (ii) | 189,622 | 198,253 | 8,631 | (c,e) | |||||||||||
|
|
|
|
|
| |||||||||||
Total value of company | (i) + (ii) | 678,115 | 678,115 | — | ||||||||||||
|
|
|
|
|
| |||||||||||
Net cash received with subsidiary | 349,245 | 349,245 | — | (j) | ||||||||||||
Cash payment | (596,004 | ) | (596,004 | ) | — | (j) | ||||||||||
|
|
|
|
|
| |||||||||||
Net cash disbursement | (i) | (246,759 | ) | (246,759 | ) | — | ||||||||||
|
|
|
|
|
| |||||||||||
Liability for preferential shares | (ii) | (83,998 | ) | (83,998 | ) | — | (j) | |||||||||
|
|
|
|
|
| |||||||||||
Total value of company | (i) + (ii) | (330,757 | ) | (330,757 | ) | — | ||||||||||
|
|
|
|
|
|
(a) | This business combination was accounted for using the acquisition method as of the purchase date, which is the date on which control is transferred to the Group. The Bank obtains control in an investee when it has exposure, or rights, to variable returns from the investor’s involvement with the investee and has the ability to use its power over the investee to affect the amount of the investor’s returns. Potential voting rights that are currently enforceable or convertible were considered when evaluating control. Due to its interest in Helm Bank, CorpBanca has the following substantive rights: |
• | Voting rights in proportion to its interest in the companies. |
• | The right to name or remove key members of management or others of the investees that have the ability to direct relevant activities. |
• | The right to direct the activities of investees for the benefit of the bank. |
(b) | CorpBanca decided to measure the non-controlling interest in the acquiree at fair value. This value was estimated by applying the discounted cash flow method. |
(c) | The Group valued goodwill as of the acquisition date, taking into account the following factors: |
F-82
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
• | Fair value of the consideration transferred; |
• | The fair value of any non-controlling interest in the acquiree, plus |
• | If the business combination is performed in stages (not the case for our purposes), the fair value of the existing interests in the equity of the acquiree; |
• | Less the net amount recognized (generally the fair value) of the identifiable assets acquired and the identifiable liabilities assumed. |
(d) | Regarding the preceding point, when the excess is negative, a gain on sale with advantageous conditions is recognized immediately in profit and loss (such was not the case with this business combination). |
(e) | The goodwill of MCh$ 198,253 recognized as of the date of acquisition was attributed to expected synergies and other benefits arising from the combination of the entities’ assets and activities. This goodwill was not expected to be tax deductible. The final amount of goodwill determined by adjusting the fair value during the measurement period increased by MCh$ 8,631. |
(f) | As of the date of acquisition, the fair value of loans and receivables (including loans and advances to banks) totaled MCh$3,015,395 and their gross amount was MCh$ 3,142,532. |
(g) | A deferred tax asset must be recognized as part of the purchase price allocation for the mercantile tax credit generated under Colombian regulations. This is based on a future tax benefit existing as of the transaction date to reduce the future income tax basis (i.e. this credit is likely to be recovered). This analysis is based on IAS 12Income Taxes. The amount for this deferred tax for the mercantile tax credit is MCh$ 27,990. |
(h) | As of the date of acquisition, a contingent liability with a fair value of MCh$ 3,703 was determined as a result of legal contingencies. As of the date of the reporting period, the Bank reevaluated that contingent liability and determined variations in its value, giving a final amount of MCh$ 1,054. |
(i) | The acquirer recorded and measured deferred tax assets and/or liabilities that arose from the aforementioned assets acquired and liabilities assumed in accordance with IAS 12. The acquirer accounted for the tax effects of temporary differences that existed as of the acquisition date, totaling MCh$47,832. |
(j) | The total consideration transferred in the transaction was MCh$ 596,004. Net cash received for cash flow purposes was MCh$ 246,759. In 2013 and 2014, the line item “Acquisition of Subsidiary Helm Bank, net of cash acquired” was added to the cash flow statement. This includes the net cash disbursement for the purchase of Helm Bank S.A. and subsidiaries, detailed as follows: |
2014 | 2013 | |||||||||
MCh$ | MCh$ | |||||||||
Helm Bank and subsidiaries | 83,998 | 246,759 | ||||||||
Helm Corredor de Seguros | (*) | — | 8,685 | |||||||
|
|
|
| |||||||
Net cash disbursement for acquisition | 83,998 | 255,444 | ||||||||
|
|
|
|
(*) | Included in section business combination CorpBanca Chile and Helm Corredor de Seguros S.A.. |
(k) | The fair value was assigned to intangible assets (mainly related to customers and licenses for MCh$ 142,201) and their respective deferred taxes. See Note13 Intangible Assets to these consolidated financial statements. |
(l) | The transaction did not include any agreements involving contingent considerations. |
(m) | Since the acquisition date, during the 2013 period Helm Bank and subsidiaries contributed MCh$ 67,927 to net interest income, MCh$ 12,753 to net fees and commissions, MCh$ 92,429 to net operating income and MCh$ 34,076 to before tax profit for the period. If the combination had occurred at the beginning of the period (January 1, 2013), net interest |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
and adjustment income would have been MCh$ 280,981 and before tax profit for the period would have been MCh$ 62,001. In determining these amounts, management has assumed that the provisional fair value adjustments originated on the date of acquisition would have been the same had the acquisition occurred on January 1, 2013. |
(n) | The acquisition-related transaction costs of MCh$ 3,935, mainly for external legal fees and due diligence costs, are charged to administrative expenses in the Consolidated Statement of Income and included within cash flows from operating activities in the Statement of Cash Flows. |
(o) | Both the goodwill arising from the acquisition of a foreign business (the case of Helm and other group entities) as well as the fair value adjustments made to the carrying amount of the assets and liabilities must be treated as assets and liabilities of the same entity as a result of the acquisition of this business. In other words, they will be expressed in the same functional currency of the company (the Colombian peso) and will be converted at the closing exchange rate (COP to Ch$ exchange rate for parent company accounting purposes) in accordance with IAS 21The Effects of Changes in Foreign Exchange Rates. |
b.2) Business Combination – Banco CorpBanca Chile and Helm Corredor de Seguros S.A.
c. | Overview |
As part of the transaction with Helm, Banco CorpBanca Chile, domiciled in Chile, acquired 80.00% of the shares with voting rights of Helm Corredor de Seguros S.A.. This company, created January 16, 1985, is engaged in brokering insurance, under the supervision of the Colombian Financial Superintendency. It is domiciled in Bogota. This entity was common controlled by the same party as Helm Bank S.A. prior to its acquisition by the Bank.
d. | Main Reasons for the Purchase |
With this acquisition, CorpBanca sought to expand regionally and simultaneously participate in the growing Colombian banking market as a complementary business whose potential is based on the sound economic prospects of that country.
e. | Detail of Assets Acquired and Liabilities Assumed |
The fair value of the identifiable assets and liabilities of Helm Corredores de Seguros S.A. as of the date of acquisition (August 6, 2013) was as follows:
MCh$ | ||||
Total net identifiable assets at fair value | 4,030 | |||
Non-controlling interest measured at fair value (using an income approach) | (2,278 | ) | ||
Intangible assets | 1,797 | |||
Deferred income taxes | (616 | ) | ||
Goodwill arising from acquisition | 6,171 | |||
|
| |||
Consideration transferred for the acquisition | 9,104 | |||
|
| |||
Net cash received from subsidiary | 419 | |||
Gross cash consideration | (9,104 | ) | ||
|
| |||
Net cash consideration paid | (8,685 | ) | ||
|
|
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
f. | Important Matters Regarding the Acquisition |
• | The same criteria described for the business combination between CorpBanca Colombia and subsidiaries and Helm Bank and subsidiaries in sections c.1, c.2 and 3.3 letters a), b), c), d), i), j), k), l) and o) were used for this transaction. No adjustments were made during the measurement period. |
• | As of the acquisition date, no contingent liabilities were determined. |
• | Since the acquisition date, during the 2013 period HCS contributed MCh$ 29 to net interest income, MCh$ 3,081 to net fees and commissions, MCh$ 3,111 to net operating income and MCh$ 901 to before tax profit for the period. If the combination had occurred at the beginning of the period (January 1, 2013), net interest and adjustment income of Banco CorpBanca Chile would have been MCh$ 457,716 and before tax profit for the period would have been MCh$ 232,600 (these amounts do not include the effects of the business combination with Helm and subsidiaries). In determining these amounts, management has assumed that the provisional fair value adjustments originated on the date of acquisition would have been the same had the acquisition occurred on January 1, 2013. |
• | The goodwill of MCh$ 6,171 recognized as of the date of acquisition was attributed to expected synergies and other benefits arising from the combination of the assets and activities of HCS. Goodwill was not expected to be tax deductible. |
g. | Reconciliation of Carrying Amount of Goodwill. |
Goodwill is tested annually to determine whether impairment exists (as of December 31, of each year) and when circumstances indicate that its carrying amount may be impaired. This impairment is determined by evaluating the recoverable amount of each cash generating unit (or group of cash generating units) to which goodwill is allocated. Where the recoverable amount of the cash generating unit is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
The following table reconciles the carrying amount of goodwill at the beginning and end of the period:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
As of January 01, | 420,623 | 386,180 | ||||||
Increase in goodwill due to acquisitions during the period | — | — | ||||||
Net translation adjustments arising during the period | (34,443 | ) | (40,560 | ) | ||||
Adjustment from provisional to final amounts - business combination | — | — | ||||||
Impairment losses recognized during the period | — | — | ||||||
|
|
|
| |||||
As of December 31, | 386,180 | 345,620 | ||||||
|
|
|
|
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Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
a) Intangible assets as of December 31, 2014 and 2015 consist of the following:
As of December 31, 2014 | ||||||||||||||||||||
Concept | Useful life years | Remaining amortization years | Gross balance | Accumulated amortization | Net Balance | |||||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||||||
Integrated banking system (1) | 15 | 2 | 9,147 | (6,074 | ) | 3,073 | ||||||||||||||
Computer equipment system or software | 5 | 3 | 34,225 | (22,243 | ) | 11,982 | ||||||||||||||
IT Projects | 7 | 7 | 35,186 | (11,576 | ) | 23,610 | ||||||||||||||
CorpBanca Colombia acquisition | 751,045 | (32,593 | ) | 718,452 | ||||||||||||||||
-Goodwill | — | — | 386,180 | — | 386,180 | |||||||||||||||
-License | — | — | 46,797 | — | 46,797 | |||||||||||||||
-Trademark | 4 | 3 | 7,466 | (1,703 | ) | 5,763 | ||||||||||||||
-Other intangibles | 6 | 4 | 2,881 | (1,019 | ) | 1,862 | ||||||||||||||
-Customer relationship | 21 | 19 | 307,721 | (29,871 | ) | 277,850 | ||||||||||||||
Other projects | 6 | 2 | 1,383 | (723 | ) | 660 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total | 830,986 | (73,209 | ) | 757,777 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
As of December 31, 2015 | ||||||||||||||||||||
Concept | Useful life years | Remaining amortization years | Gross balance | Accumulated amortization | Net Balance | |||||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||||||
Integrated banking system (1) | 15 | 2 | 9,248 | (7,350 | ) | 1,898 | ||||||||||||||
Computer equipment system or software | 5 | 1 | 41,621 | (27,889 | ) | 13,732 | ||||||||||||||
IT Projects | 7 | 6 | 40,006 | (16,200 | ) | 23,806 | ||||||||||||||
CorpBanca Colombia acquisition | 671,693 | (46,452 | ) | 625,241 | ||||||||||||||||
-Goodwill | — | — | 345,620 | — | 345,620 | |||||||||||||||
-License | — | — | 42,277 | — | 42,277 | |||||||||||||||
-Trademark | 4 | 2 | 7,200 | (3,556 | ) | 3,644 | ||||||||||||||
-Other intangibles | 6 | 4 | 2,065 | (740 | ) | 1,325 | ||||||||||||||
-Customer relationship | 21 | 18 | 274,531 | (42,156 | ) | 232,375 | ||||||||||||||
Other projects | 6 | 2 | 2,239 | (1,652 | ) | 587 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total | 764,807 | (99,543 | ) | 665,264 | ||||||||||||||||
|
|
|
|
|
|
(1) | Integrated Banking System (IBS) corresponds to the main operating system software of the Bank that replaced a number of systems, providing us with a single, central electronic database that gives us up-to-date customer information in each of our business lines and calculates net earnings and profitability of each product and client segment. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
b) The movement of intangible assets in the period ended December 31, 2014 and 2015 is as follows:
Integrated banking system | Computer system or software | IT Projects | Intangible arising from business combination- | Others | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Balance as of January 1, 2014 | 9,086 | 27,948 | 30,527 | 815,812 | 1,703 | 885,076 | ||||||||||||||||||
Purchases | 52 | 7,942 | 4,985 | — | 59 | 13,038 | ||||||||||||||||||
Retirements | (13 | ) | (313 | ) | (1 | ) | — | (379 | ) | (706 | ) | |||||||||||||
Exchange differences | 22 | (1,352 | ) | (325 | ) | (64,767 | ) | — | (66,422 | ) | ||||||||||||||
Others | — | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balances as of December 31, 2014 | 9,147 | 34,225 | 35,186 | 751,045 | 1,383 | 830,986 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Integrated banking system | Computer equipment system or software | IT Projects | Intangible arising from business combination- Colombia (**) | Others | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Balance as of January 1, 2015 | 9,147 | 34,225 | 35,186 | 751,045 | 1,383 | 830,986 | ||||||||||||||||||
Purchases | 34 | 12,175 | 5,120 | — | 56 | 17,385 | ||||||||||||||||||
Retirements | — | (129 | ) | — | — | (374 | ) | (503 | ) | |||||||||||||||
Exchange differences | 67 | (4,650 | ) | (300 | ) | (79,352 | ) | 1,174 | (83,061 | ) | ||||||||||||||
Others | — | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balances as of December 31, 2015 | 9,248 | 41,621 | 40,006 | 671,693 | 2,239 | 764,807 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(**) | As of December 31, 2014 and 2015, intangible assets after amortization and the effects of exchange differences expressed in MCh$, consist of the following: |
2014 | 2015 | Note | ||||||||||
MCh$ | MCh$ | |||||||||||
Goodwill | 386,180 | 345,620 | 31 | Indefinite useful life | ||||||||
License | 46,797 | 42,277 | 31 | Indefinite useful life | ||||||||
|
|
|
| |||||||||
Trademarks | 5,763 | 3,644 | ||||||||||
|
|
|
| |||||||||
Indefinite | 1,206 | 988 | 31 | Indefinite useful life | ||||||||
Others | 4,557 | 2,656 | ||||||||||
|
|
|
| |||||||||
Other intangibles | 1,862 | 1,325 | ||||||||||
|
|
|
| |||||||||
Others | 1,399 | 944 | ||||||||||
Database | 463 | 381 | 31 | Indefinite useful life | ||||||||
Customer relationship | 277,850 | 232,375 | ||||||||||
|
|
|
| |||||||||
718,452 | 625,241 | |||||||||||
|
|
|
| |||||||||
434,646 | 389,266 | 31 | Total Indefinite useful life |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
c) Movements of accumulated amortization of intangible assets as of December 31, 2015 and 2014 are detailed as follows:
Integrated banking system | Computer equipment system or software | IT Projects | Intangible arising from business combination- Colombia | Others | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Balance as of January 1, 2014 | (4,869 | ) | (12,505 | ) | (7,195 | ) | (18,557 | ) | (580 | ) | (43,706 | ) | ||||||||||||
Amortization (Note 31) | (1,203 | ) | (10,427 | ) | (4,381 | ) | (21,628 | ) | (147 | ) | (37,786 | ) | ||||||||||||
Exchange differences | (15 | ) | 681 | — | 7,592 | — | 8,258 | |||||||||||||||||
Others | 13 | 8 | — | — | 4 | 25 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balances as of December 31, 2014 | (6,074 | ) | (22,243 | ) | (11,576 | ) | (32,593 | ) | (723 | ) | (73,209 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Integrated banking system | Computer equipment system or software | IT Projects | Intangible arising from business combination- Colombia | Others | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Balance as of January 1, 2015 | (6,074 | ) | (22,243 | ) | (11,576 | ) | (32,593 | ) | (723 | ) | (73,209 | ) | ||||||||||||
Amortization (Note 31) | (1,216 | ) | (7,411 | ) | (4,624 | ) | (17,058 | ) | (929 | ) | (31,238 | ) | ||||||||||||
Exchange differences | (60 | ) | 1,765 | — | 3,199 | — | 4,904 | |||||||||||||||||
Others | — | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balances as of December 31, 2015 | (7,350 | ) | (27,889 | ) | (16,200 | ) | (46,452 | ) | (1,652 | ) | (99,543 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
d) As of December 31, 2014 and 2015, the Bank has entered into the following contractual commitments for the acquisition of intangible assets:
As of December 31, | ||||||||
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
License detail: | ||||||||
Microsoft | 1,185 | 212 |
e) Impairment
At each reporting date, Banco CorpBanca will evaluate whether there is any indication of impairment of any asset. Should any such indication exist, or when impairment testing is required, the entity will estimate the asset’s recoverable amount.
The entity will conduct impairment testing on an annual basis for intangible assets with indefinite useful lives as well as intangible assets that are not yet available for use, by comparing their carrying amount with their recoverable amount. Impairment testing can be carried out at any time during the year, as long as it takes place at the same time each year. Impairment testing of different intangible assets can take place on different dates. However, if that intangible asset had been recognized initially during the current year, it will be tested for impairment before the year ends.
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Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Impairment of goodwill is determined by evaluating the recoverable amount of each cash generating unit (or group) to which goodwill is allocated. Where the recoverable amount of the cash generating unit is less than its carrying amount, an impairment loss is recognized; goodwill acquired in a business combination shall be distributed as of the acquisition date among the CGUs or group of CGUs of the acquirer that are expected to benefit from the synergies of the business combination, regardless of whether other of the acquiree’s assets or liabilities are allocated to these units. Impairment losses relating to goodwill cannot be reversed in future periods.
In accordance with IAS 36“Impairment of Assets”, annual impairment testing is permitted for a CGU to which goodwill has been allocated, or for intangible assets with indefinite useful lives, at any time as long as they are carried out at the same time each year. Different cash generating units and different intangible assets can be tested for impairment at different times during the year.
CorpBanca and subsidiaries conducted impairment testing for unamortized assets, including intangible assets that are still not in use, and concluded that no impairment exists.
f) Determination of intangible assets with indefinite useful lives.
Intangible assets with indefinite useful life (license, trademark and database) arising from business combinations made by the Bank, were determined by evaluating the factors described in International Financial Reporting Standards highlighting the following:
• | Intended use of the particular asset, by the Bank, and whether (the) item (s) could (n) be managed efficiently by another management team. |
• | The product life-cycle, as well as public information on estimates of useful lives of similar assets that are used when therefore similar view of their nature. |
• | Expected performance of main competitors to the industry or market, whether actual or potential. |
• | Ability and willingness of the Bank to achieve the levels of maintenance expenditure required to obtain the expected economic benefits of the asset. |
• | Incidence of technical technological or commercial obsolescence or that otherwise applicable to the industry or market. |
• | Period in which the asset is controlled, if it were limited, and the limits, legal or otherwise, regarding the use of the element. |
• | Evaluation of the dependence of the useful life of certain assets over the useful life of other assets of the Bank. |
The factors described are then used to perform the impairment tests carried out in accordance with IAS 36Impairment of Assets to unamortized intangible assets, see Note 31Depreciation, Amortization and Impairment, letter b)Impairment.
g) As of December 31, 2014 and 2015, the Bank and its subsidiaries have no restrictions on intangible assets. In addition, no intangible assets have been given in guarantee for compliance of any obligations. There are also no amounts owed by the Bank on intangible assets as of the aforementioned dates.
F-89
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 14 - PROPERTY, PLANT AND EQUIPMENT
a) | Property, plant and equipment for the periods ended December 31, 2014 and 2015 is as follows: |
As of December 31, 2014 | ||||||||||||||||||||
Item | Useful life years | Remaining amortization years | Gross balance | Accumulated depreciation | Net Balance | |||||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||||||
Land and buildings | 21 | 17 | 83,239 | (15,844 | ) | 67,395 | ||||||||||||||
Equipment | 5 | 3 | 41,560 | (27,080 | ) | 14,480 | ||||||||||||||
Other | 10 | 5 | 24,427 | (13,660 | ) | 10,767 | ||||||||||||||
- Furnitures | 18,372 | (11,278 | ) | 7,094 | ||||||||||||||||
- Leasing assets | 1,542 | (354 | ) | 1,188 | ||||||||||||||||
- Others | 4,513 | (2,028 | ) | 2,485 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total | 149,226 | (56,584 | ) | 92,642 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
As of December 31, 2015 | ||||||||||||||||||||
Item | Useful life years | Remaining amortization years | Gross balance | Accumulated depreciation | Net Balance | |||||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||||||
Land and buildings | 21 | 16 | 76,448 | (13,960 | ) | 62,488 | ||||||||||||||
Equipment | 5 | 3 | 42,205 | (23,749 | ) | 18,456 | ||||||||||||||
Other | 10 | 5 | 22,646 | (11,960 | ) | 10,686 | ||||||||||||||
- Furnitures | 18,436 | (10,921 | ) | 7,515 | ||||||||||||||||
- Leasing assets | 1,542 | (708 | ) | 834 | ||||||||||||||||
- Others | 2,668 | (331 | ) | 2,337 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total | 141,299 | (49,669 | ) | 91,630 | ||||||||||||||||
|
|
|
|
|
|
The useful lives presented herein are those of the Bank’s building, equipment, and other property, plant, and equipment as of the transition date to IFRS (January 1, 2009). The useful lives presented in Note 1 m) are all of the useful lives of the Bank’s property, plant, and equipment. Such useful lives have been determined based on our expected use considering the quality of the original construction, the environment in which the assets are located, the quality and degree of maintenance carried out, and appraisals performed by external specialists who are independent of the Bank which have been taken into consideration by management to determine the useful lives of our buildings.
b) | The movement of property, plant and equipment for the periods ended December 31, 2014 and 2015: |
Land and buildings | Equipment | Other | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Balances as of January 1, 2014 | 86,452 | 38,018 | 22,854 | 147,324 | ||||||||||||
Purchases | 3,374 | 7,729 | 3,052 | 14,155 | ||||||||||||
Retirements | (2,035 | ) | (958 | ) | (271 | ) | (3,264 | ) | ||||||||
Impairment (*) | — | (1,308 | ) | — | (1,308 | ) | ||||||||||
Other | (4,552 | ) | (1,921 | ) | (1,208 | ) | (7,681 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of December 31, 2014 | 83,239 | 41,560 | 24,427 | 149,226 | ||||||||||||
|
|
|
|
|
|
|
|
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Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Land and buildings | Equipment | Other | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Balances as of January 1, 2015 | 83,239 | 41,560 | 24,427 | 149,226 | ||||||||||||
Purchases | 7,451 | 9,601 | 2,825 | 19,877 | ||||||||||||
Retirements | (4,346 | ) | (1,970 | ) | (592 | ) | (6,908 | ) | ||||||||
Impairment (*) | — | (332 | ) | — | (332 | ) | ||||||||||
Exchange differences | (9,895 | ) | (6,911 | ) | (1,200 | ) | (18,006 | ) | ||||||||
Other | (1 | ) | 257 | (2,814 | ) | (2,558 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Balances as of December 31, 2015 | 76,448 | 42,205 | 22,646 | 141,299 | ||||||||||||
|
|
|
|
|
|
|
|
(*) | Impairment for technological obsolescence as a result of new regulations on ATMs (decree 222 dated October 30, 2013 from the Ministry of Internal Affairs and Public Safety of Chile), accounted for in accordance with IAS 36 Impairment of Assets. |
c) | Movements of accumulated depreciation of property, plant and equipment as of December 31, 2015 and 2014, are detailed as follows: |
Land and buildings | Equipment | Other | Total | |||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||
Balances as of January 1, 2014 | (12,046 | ) | (26,497 | ) | (10,539 | ) | (49,082 | ) | ||||||||||||
Depreciation | 31 a | ) | (5,775 | ) | (4,138 | ) | (3,914 | ) | (13,827 | ) | ||||||||||
Sales and Retirements | 873 | 1,078 | (133 | ) | 1,818 | |||||||||||||||
Other | 1,104 | 2,477 | 926 | 4,507 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Balances as of December 31, 2014 | (15,844 | ) | (27,080 | ) | (13,660 | ) | (56,584 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Land and buildings | Equipment | Other | Total | |||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||
Balances as of January 1, 2015 | (15,844 | ) | (27,080 | ) | (13,660 | ) | (56,584 | ) | ||||||||||||
Depreciation | 31 a | ) | (4,121 | ) | (4,598 | ) | (2,948 | ) | (11,667 | ) | ||||||||||
Sales and Retirements | 696 | 1,099 | 908 | 2,703 | ||||||||||||||||
Other | 5,309 | 6,830 | 3,740 | 15,879 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Balances as of December 31, 2015 | (13,960 | ) | (23,749 | ) | (11,960 | ) | (49,669 | ) | ||||||||||||
|
|
|
|
|
|
|
|
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Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
d) | As of December 31, 2014 and 2015, the Bank holds operating lease contracts that cannot be unilaterally terminated. The future payment information is detailed as follows: |
Future Operating Lease Payments Land, Buildings and Equipment | ||||||||||||||||
Up to 1 Year | From 1 to 5 Years | Over 5 Years | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
As of December 31, 2014 | 10,020 | 33,329 | 47,797 | 91,146 | ||||||||||||
As of December 31, 2015 | 11,249 | 40,264 | 55,191 | 106,704 |
e) | As of December 31, 2014 and 2015, the Bank holds finance lease contracts that cannot be rescinded or unilaterally terminated. The future payment information is detailed as follows: |
Future Financial Leasing Payments Land, Buildings and Equipment | ||||||||||||||||
Up to 1 Year | From 1 to 5 Years | Over 5 Years | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
As of December 31, 2014 | 600 | 4 | — | 604 | ||||||||||||
As of December 31, 2015 | 4 | — | — | 4 |
f)As of December 31, 2014 and 2015, the Bank and its subsidiaries have no restrictions on property, plant and equipment. In addition, no property, plant and equipment have been given in guarantee for compliance of any obligations. There are also no amounts owed by the Bank on property, plant and equipment as of the aforementioned dates.
F-92
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
a) | Current income tax provision |
At the end of each year the bank recognizes an Income Tax Provision, which is determined based on the currently enacted tax legislation. Current recoverable taxes recognized as of December 31, 2015 was MCh$4,447 (current recoverable taxes payable MCh$1,608 as of December 31, 2014). The income tax provision (net of recoverable taxes) is as follows:
As of December 31, 2014 | ||||||||||||
Chile | New York | Colombia | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Current tax assets | 44,433 | 677 | 40,298 | |||||||||
Current tax liabilities | (63,142 | ) | (1,194 | ) | (19,464 | ) | ||||||
|
|
|
|
|
| |||||||
Net total | (18,709 | ) | (517 | ) | 20,834 | |||||||
|
|
|
|
|
| |||||||
Assets | 20,834 | |||||||||||
Liabilities | (19,226 | ) | ||||||||||
Total | 1,608 | |||||||||||
As of December 31, 2015 | ||||||||||||
Chile | New York | Colombia | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Current tax assets | 53,303 | 2,467 | 55,382 | |||||||||
Current tax liabilities | (95,042 | ) | (3,185 | ) | (8,478 | ) | ||||||
|
|
|
|
|
| |||||||
Net total | (41,739 | ) | (718 | ) | 46,904 | |||||||
|
|
|
|
|
| |||||||
Assets | 46,904 | |||||||||||
Liabilities | (42,457 | ) | ||||||||||
Total | 4,447 |
Effect of current taxes by geographic area:
As of December 31, 2014 | ||||||||||||
Chile | New York | Colombia | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Income tax | 63,142 | 1,194 | 19,464 | |||||||||
Less: | ||||||||||||
Monthly Provisional Payment | (39,069 | ) | (677 | ) | (40,298 | ) | ||||||
Tax Credit for Training Costs | (760 | ) | — | |||||||||
Tax Credit for Donations | (1,261 | ) | — | |||||||||
Tax Credit for Property Taxes on leased real estate assets | (1,307 | ) | — | |||||||||
Other taxes to be recovered (1) | (2,036 | ) | — | |||||||||
|
|
|
|
|
| |||||||
Total | 18,709 | 517 | (20,834 | ) | ||||||||
|
|
|
|
|
|
F-93
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2015 | ||||||||||||
Chile | New York | Colombia | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Income tax | 95,042 | 3,185 | 8,478 | |||||||||
Less: | ||||||||||||
Monthly Provisional Payment | (50,269 | ) | (2,467 | ) | (55,382 | ) | ||||||
Tax Credit for Training Costs | (641 | ) | — | |||||||||
Tax Credit for Donations | (1,603 | ) | — | |||||||||
Tax Credit for Property Taxes on leased real estate assets | 0 | — | ||||||||||
Other taxes to be recovered (1) | (790 | ) | — | |||||||||
|
|
|
|
|
| |||||||
Total | 41,739 | 718 | (46,904 | ) | ||||||||
|
|
|
|
|
|
b) | Effect on income |
The tax expense for the years ended December 31, 2013, 2014 and 2015 is comprised of the following items:
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Income Tax Expense | ||||||||||||
Current tax expense | (82,327 | ) | (83,800 | ) | (106,705 | ) | ||||||
Deferred taxes | ||||||||||||
Deferred tax expenses / (benefit) | 18,940 | 1,190 | 5,291 | |||||||||
|
|
|
|
|
| |||||||
Subtotal | (63,387 | ) | (82,610 | ) | (101,414 | ) | ||||||
Others | (1,104 | ) | (243 | ) | 4,737 | |||||||
|
|
|
|
|
| |||||||
Net expense for income taxes | (64,491 | ) | (82,853 | ) | (96,677 | ) | ||||||
|
|
|
|
|
|
c) | Effective tax rate reconciliation |
The following table reconciles the income tax rate to the effective rate applied to determine the Bank’s income tax expense as of December 31, 2015 and 2014.
The nominal tax rates of the countries where consolidated subsidiaries are located are:
Country | 2013 | 2014 | 2015 | |||||||||
Rate | Rate | Rate | ||||||||||
Chile | 20.0 | % | 21.0 | % | 22.5 | % | ||||||
Colombia | 34.0 | % | 34.0 | % | 39.0 | % | ||||||
United States | 34.0 | % | 34.0 | % | 34.0 | % |
F-94
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, | ||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||
Tax Rate | Amount | Tax Rate | Amount | Tax Rate | Amount | |||||||||||||||||||
% | MCh$ | % | MCh$ | % | MCh$ | |||||||||||||||||||
Calculation of Statutory Rate | 20.0 | 46,348 | 21.0 | 72,397 | 22.5 | 75,369 | ||||||||||||||||||
Permanent and other differences (*) | 4.4 | 10,798 | 2.6 | 11,727 | 10.2 | 34,338 | ||||||||||||||||||
Effect of rate change Chile(1) | 0.0 | — | (0.1 | ) | (369 | ) | (2.8 | ) | (9,373 | ) | ||||||||||||||
Effect of rate change Colombia(2) | 0.0 | (82 | ) | 0.3 | 890 | 0.0 | (135 | ) | ||||||||||||||||
Intangible assets business combination | (3.7 | ) | (8,531 | ) | (5.4 | ) | (18,496 | ) | (6.2 | ) | (20,759 | ) | ||||||||||||
Effect of rates New York subsidiary (**) | 0.6 | 1,421 | 0.2 | 704 | 0.2 | 790 | ||||||||||||||||||
Effect of rates Colombia (**) | 6.2 | 14,537 | 4.6 | 16,000 | 4.9 | 16,447 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
27.5 | 64,491 | 23.2 | 82,853 | 28.8 | 96,677 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*) | This line contains permanent differences. |
(**) | This line reflects the differences in tax rates in other jurisdictions, based on the Bank’s consolidated results. |
(1) | In September 2014, Law 20,780 was published in the Official Gazette. The law modifies the income tax system in order to increase revenue collection to finance education reform, make taxation more equitable and improve the current tax system. |
One of the most important changes introduced by the tax reform is the creation of two separate taxation systems in the Income Tax Law: the “attributed income” system and the “semi-integrated” system. This law also called for a gradual increase in the corporate income tax rate from 20% in 2013 to:
Years | 2014 | 2015 | 2016 | 2017 | 2018 | |||||||||||||||
Rates | 21 | % | 22.5 | % | 24 | % | 25.5 | % | 27 | % |
Beginning in 2017, the applicable tax rate will depend on the tax system chosen. Taxpayers choosing the “Attributed Income” system will have a final rate of 25% while those choosing the “Semi-Integrated” system will have a transitory rate of 25.5% in 2017 and a final rate of 27% in 2018 and beyond.
The impact of this rate change on deferred taxes resulted in a credit to profit for the period of MCh$9.373 (MCh$369 in 2014).
(2) | In December 2014, Law 1,739 was published in Colombia. This new law modified both the Tax Statutes and Law 1,607 and also created mechanisms to prevent tax evasion. |
Among the more important modifications introduced by the Colombian tax reform were a gradual and transitory increase in income taxes between 2015 and 2018. This modification will raise the income tax rate in Colombia from 34%, in effect for commercial year 2014, to:
Years | 2015 | 2016 | 2017 | 2018 | ||||||||||||
Rates | 39 | % | 40 | % | 42 | % | 43 | % |
The impact of this rate change on deferred taxes resulted in a charge to profit for the period of MCh$135 (credit of MCh$890 in 2014 for the effect of the tax reform in Law 1,739 on December 23, 2014).
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Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
d) | Other comprehensive income – tax effects |
The table below sets for a summary of the deferred tax effect on other comprehensive income for the periods ended December 31, 2014 and 2015, which consists of the following items:
i) Tax effect of “OCI” that may be reclassified to profit in subsequent periods:
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Financial assets available-for sale | (911 | ) | 2,310 | 10,904 | ||||||||
Hedge of a net investment in New York Branch | 568 | 1,371 | 2,758 | |||||||||
Cash flow hedge | 842 | (1,090 | ) | 1,104 | ||||||||
|
|
|
|
|
| |||||||
Total charge to other comprehensive income | 499 | 2,591 | 14,766 | |||||||||
|
|
|
|
|
|
ii) “OCI” that will not be reclassified subsequently to profit or loss:
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Remeasurement of defined benefit obligation | 3,300 | 1,442 | 90 | |||||||||
Income tax relating to defined benefit obligation | (1,122 | ) | (562 | ) | (35 | ) | ||||||
|
|
|
|
|
| |||||||
Total charge to other comprehensive income | 2,178 | 880 | 55 | |||||||||
|
|
|
|
|
|
e) | Effect of deferred taxes |
Effect of deferred taxes by geographic area:
As of December 31, 2015 | ||||||||||||||||
Chile | New York | Colombia | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Deferred tax assets | 51,977 | 8,671 | 53,330 | 113,978 | ||||||||||||
Deferred tax liabilities | (53,763 | ) | — | (91,977 | ) | (145,740 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net by geographic area | (1,786 | ) | 8,671 | (38,647 | ) | (31,762 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net total | MCh$ | |||||||||||||||
Assets | 8,671 | |||||||||||||||
Liabilities | (40,433 | ) |
Below are the effects of deferred taxes on assets and liabilities assigned as a result of temporary differences (by geographic area):
F-96
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2014 | ||||||||||||
Chile | New York | Colombia | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Loan Provisions | 24,597 | 2,123 | 18,489 | |||||||||
Accrued interest and indexation past due portfolio | 4,038 | — | — | |||||||||
Unaccrued price difference | 78 | — | — | |||||||||
Personnel provisions | 266 | — | 6,924 | |||||||||
Miscellaneous provisions | 8,880 | 453 | 5,003 | |||||||||
Subsidiary tax loss | 6,205 | — | — | |||||||||
Net tax value of amortizable assets | 2,234 | — | 8,629 | |||||||||
Depreciation of property, plant and equipment | (1,752 | ) | (57 | ) | (4,656 | ) | ||||||
Lease division and others | (2,867 | ) | — | — | ||||||||
Market value of financial instruments | (23,723 | ) | — | (33,542 | ) | |||||||
Intangible assets Corpbanca Colombia | (65,373 | ) | — | (42,969 | ) | |||||||
Intangible assets mercantile credit CorpBanca Colombia | — | — | 24,150 | |||||||||
Other | (1,367 | ) | 183 | (9,837 | ) | |||||||
|
|
|
|
|
| |||||||
Total asset (liability), net | (48,784 | ) | 2,702 | (27,809 | ) | |||||||
|
|
|
|
|
| |||||||
Assets | 2,702 | |||||||||||
Liabilities | (76,593 | ) | ||||||||||
As of December 31, 2015 | ||||||||||||
Chile | New York | Colombia | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Loan Provisions | 25,665 | 5,122 | 23,711 | |||||||||
Accrued interest and indexation past due portfolio | 5,421 | — | — | |||||||||
Unaccrued price difference | 86 | — | — | |||||||||
Personnel provisions | 390 | — | 6,140 | |||||||||
Miscellaneous provisions | 15,034 | 638 | 7,795 | |||||||||
Subsidiary tax loss | 7,304 | — | — | |||||||||
Net tax value of amortizable assets | 1,667 | — | 11,754 | |||||||||
Depreciation of property, plant and equipment | (689 | ) | (254 | ) | (8,665 | ) | ||||||
Lease division and others | 20,285 | — | — | |||||||||
Market value of financial instruments | (13,252 | ) | — | (45,595 | ) | |||||||
Intangible assets Corpbanca Colombia | (55,558 | ) | — | (35,621 | ) | |||||||
Intangible assets mercantile credit CorpBanca Colombia | — | — | 885 | |||||||||
Other | (5,930 | ) | 2,742 | (837 | ) | |||||||
|
|
|
|
|
| |||||||
Total asset (liability), net | 423 | 8,248 | (40,433 | ) | ||||||||
|
|
|
|
|
| |||||||
Assets | 8,671 | |||||||||||
Liabilities | (40,433 | ) |
F-97
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
a) The detail of other assets is as follows:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Rentals in advance (1) | 18,157 | 16,805 | ||||||
Accounts and Notes receivable | 118,959 | 94,649 | ||||||
Prepaid expenses | 34,397 | 37,002 | ||||||
Projects under development (2) | 32,899 | 32,797 | ||||||
Assets for Leasing (3) | 57,022 | 52,388 | ||||||
Assets received in lieu of payment (4) | 5,255 | 2,024 | ||||||
Margin accounts | 115,949 | 171,626 | ||||||
Other | 32,629 | 31,032 | ||||||
|
|
|
| |||||
Total | 415,267 | 438,323 | ||||||
|
|
|
|
(1) | Rent paid in advance to SMU by the places to install ATMs (See Note 33Related Party Transactions, letter b)) |
(2) | Information system and other projects under development. |
(3) | Fixed assets available for delivery under the financial leases. Within this item, are included items recovered from leasing kept for sale, corresponding to computers, furniture, and transportation equipment. These assets are available for sale and have high probability of being sold. For most of such assets, the Bank expects to complete the sale within one year from the date when the assets are classified as available for sale and/or lease assets recovered held for sale. |
(4) | The provisions for assets received in lieu of payment are recorded as a provision for the difference between initial value and any additions or currency restatement and its realizable value, where the former is greater. |
b) The change due to received assets in lieu of payment during 2014 and 2015 is as follows:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Balance as of January 1 | 4,347 | 5,255 | ||||||
Receipts | 3,550 | 2,171 | ||||||
Sales | (2,691 | ) | (5,402 | ) | ||||
Provision | 49 | — | ||||||
|
|
|
| |||||
Balance as of December 31 | 5,255 | 2,024 | ||||||
|
|
|
|
F-98
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 17 - CURRENT ACCOUNTS, DEMAND DEPOSITS, TIME DEPOSITS AND SAVING ACCOUNTS
a)As of December 31, 2014 and 2015 “Current accounts and demand deposits” consist of the following:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Current Accounts | 1,671,220 | 1,833,746 | ||||||
Other deposits and demand accounts | 2,067,625 | 2,391,431 | ||||||
Advance payments received from customers | 86,029 | 171,707 | ||||||
Other demand liabilities | 130,074 | 34,735 | ||||||
|
|
|
| |||||
Total | 3,954,948 | 4,431,619 | ||||||
|
|
|
|
b)As of December 31, 2014 and 2015 “Time deposits and saving accounts” consist of the following:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Time deposits | 7,950,992 | 8,463,703 | ||||||
Term Savings Accounts | 31,556 | 31,573 | ||||||
Other term creditors | 94,418 | 327 | ||||||
|
|
|
| |||||
Total | 8,076,966 | 8,495,603 | ||||||
|
|
|
|
F-99
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 18 - BORROWINGS FROM FINANCIAL INSTITUTIONS
As of December 31, 2014 and 2015, borrowings from financial institutions include the following:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Loans obtained from the Chilean Central Bank | — | — | ||||||
|
|
|
| |||||
Subtotal | — | — | ||||||
|
|
|
| |||||
Loans obtained from local financial institutions | — | 536 | ||||||
|
|
|
| |||||
Subtotal | — | 536 | ||||||
|
|
|
| |||||
Loans obtained from foreign financial institutions | ||||||||
Apple Bank for saving | 9,026 | 14,147 | ||||||
Bancaribe Curaçao Bank | — | 14,217 | ||||||
Banco Aliado S.A., Panamá | 6,060 | 3,552 | ||||||
Banco Bogota - Colombia | 6,058 | — | ||||||
Banco Crédito del Peru | 21,201 | 17,775 | ||||||
Banco Estado (New York) | 30,470 | 14,234 | ||||||
Banco Latinoamericano de Comercio Exterior SA | 5,445 | 58,861 | ||||||
Banco de Comercio Exterior de Colombia - Bancoldex | 41,209 | 28,885 | ||||||
Bancolombia | 8,512 | — | ||||||
Banco República, Uruguay | 393 | 11,348 | ||||||
Bank of America, N.A. | 60,779 | 115,915 | ||||||
Bank of Montreal Toronto | 84,693 | 36,894 | ||||||
Bank of New York | 29,484 | 38,904 | ||||||
Bank of Nova Scotia | 33,239 | 10,414 | ||||||
Bank of Taiwan | 21,938 | 11,389 | ||||||
Bank Tokio-Mitsubishi | 30,086 | — | ||||||
Banque Nationale Du Canada | 30,086 | 24,757 | ||||||
BNP Paribas | 30,086 | 24,757 | ||||||
Citibank N.A. | 137,745 | 118,225 | ||||||
Commerzbank A.G. | 120,861 | 97,659 | ||||||
Corporacion Andina de Fomento | 30,333 | 35,340 | ||||||
Corporacion Financieera de Desarrollo S.A. | — | 42,746 | ||||||
Credicorp Capital S.A. | — | 60,734 | ||||||
Finagro - Colombia | 10,044 | 7,379 | ||||||
Findeter S.A.-Financiera del Desarrollo Territorial | 69,322 | 66,133 | ||||||
Global Bank Corporation | 6,055 | — | ||||||
HSBC England | 27,078 | 28,294 | ||||||
HSBC USA | 30,086 | 28,294 | ||||||
Kookmin Bank of New York | — | 17,808 | ||||||
Mercantil Commercebank | 23,965 | 39,127 | ||||||
Mizuho Bank | 30,086 | 24,757 | ||||||
OCBC Bank | 24,069 | — | ||||||
Royal Bank of Scotland | 27,078 | — | ||||||
Standard Chartered Bank | 107,236 | 55,345 | ||||||
Sumitomo Mitsui Banking Corporation | 84,907 | 128,792 | ||||||
Taiwan Cooperative Bank | — | 21,480 | ||||||
Wells Fargo Bank, N.A. | 146,362 | 180,493 | ||||||
Banco de la producción S.A. | 20,611 | 22,502 | ||||||
Other banks | 87,320 | 126,892 | ||||||
|
|
|
| |||||
Subtotal | 1,431,923 | 1,528,049 | ||||||
|
|
|
| |||||
Total | 1,431,923 | 1,528,585 | ||||||
|
|
|
|
F-100
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
The detail of borrowings from financial institutions by maturity is as follows:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | 934,076 | 1,131,837 | ||||||
Due within 1 year but within 2 years | 384,363 | 269,271 | ||||||
Due within 2 years but within 3 years | 26,961 | 55,152 | ||||||
Due within 3 years but within 4 years | 17,263 | 7,963 | ||||||
Due within 4 years but within 5 years | 11,073 | 5,309 | ||||||
Due after 5 years | 58,187 | 59,053 | ||||||
|
|
|
| |||||
1,431,923 | 1,528,585 | |||||||
|
|
|
|
F-101
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 19 - DEBT ISSUED AND OTHER FINANCIAL OBLIGATIONS
a) | As of December 31, 2014 and 2015 the composition of these items is as follows: |
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
I. Debt issued | ||||||||
Letters of credit | 98,444 | 79,761 | ||||||
Bonds | 2,078,358 | 2,215,515 | ||||||
Subordinated bonds | 902,248 | 932,278 | ||||||
Subtotal | 3,079,050 | 3,227,554 | ||||||
|
|
|
| |||||
II. Other financial obligations | ||||||||
Public Sector liabilities | 5,378 | 3,629 | ||||||
Borrowings from domestic financial institutions | 8,673 | 9,236 | ||||||
Foreign Borrowings | 1,371 | 1,610 | ||||||
Subtotal | 15,422 | 14,475 | ||||||
|
|
|
| |||||
Total | 3,094,472 | 3,242,029 | ||||||
|
|
|
|
b) | Debt classified as short term includes demand obligations or obligations that will mature in less than one year. All other debt is classified as long term, and is detailed as follows: |
As of December 31, 2014 | ||||||||||||
Long Term | Short Term | Total | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Letters of credit | 81,330 | 17,114 | 98,444 | |||||||||
Bonds | 1,858,576 | 219,782 | 2,078,358 | |||||||||
Subordinated bonds | 902,248 | — | 902,248 | |||||||||
|
|
|
|
|
| |||||||
I. Debt issued | 2,842,154 | 236,896 | 3,079,050 | |||||||||
|
|
|
|
|
| |||||||
II. Other financial obligations | 5,161 | 10,261 | 15,422 | |||||||||
|
|
|
|
|
| |||||||
As of December 31, 2015 | ||||||||||||
Long Term | Short Term | Total | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Letters of credit | 67,334 | 12,427 | 79,761 | |||||||||
Bonds | 1,876,960 | 338,555 | 2,215,515 | |||||||||
Subordinated bonds | 904,991 | 27,287 | 932,278 | |||||||||
|
|
|
|
|
| |||||||
I. Debt issued | 2,849,285 | 378,269 | 3,227,554 | |||||||||
|
|
|
|
|
| |||||||
II. Other financial obligations | 3,534 | 10,941 | 14,475 | |||||||||
|
|
|
|
|
|
F-102
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
c) | The detail of letter of credit by maturity is as follows: |
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | 17,114 | 12,427 | ||||||
Due after 1 year but within 2 years | 10,100 | 10,188 | ||||||
Due after 2 years but within 3 years | 10,776 | 8,620 | ||||||
Due after 3 years but within 4 years | 9,133 | 7,806 | ||||||
Due after 4 years but within 5 years | 8,302 | 7,094 | ||||||
Due after 5 years | 43,019 | 33,626 | ||||||
|
|
|
| |||||
Total | 98,444 | 79,761 | ||||||
|
|
|
|
d) | The detail of bonds issued is as follows: |
Expiration | 2014 | 2015 | ||||||||||||||||
Date | Interest rate | Currency | MCh$ | MCh$ | ||||||||||||||
Financial Bonds DTF | 09-02-2014 | 6.08 | % | US | 2,898 | — | ||||||||||||
Bonds-Q0110 | 09-01-2015 | 3.60 | % | UF | 119,998 | — | ||||||||||||
Bonds-AD0710 | 01-07-2015 | 3.00 | % | UF | 50,209 | — | ||||||||||||
Bonds-O0110 | 09-07-2015 | 6.30 | % | $ | 23,103 | — | ||||||||||||
Financial Bonds Fixed Rate - issued CorpBanca Colombia | 09-02-2016 | 11.31 | % | US | — | 324 | ||||||||||||
BCOR-J0606 | 01-06-2016 | 4.00 | % | UF | 14,547 | 5,073 | ||||||||||||
BCORAE0710 | 01-07-2016 | 3.00 | % | UF | 250,420 | 260,280 | ||||||||||||
BCOR-L0707 | 01-07-2017 | 3.40 | % | UF | 99,961 | 103,978 | ||||||||||||
BCORAF0710 | 01-07-2017 | 3.00 | % | UF | 153,013 | 159,717 | ||||||||||||
BCORUSDD0118 | 15-01-2018 | 3.125 | % | US | 439,350 | 519,206 | ||||||||||||
BCORAG0710 | 01-07-2018 | 3.00 | % | UF | 74,969 | 78,622 | ||||||||||||
Financial Bonds UVR - issued CorpBanca Colombia | 03-08-2018 | 6.36 | % | US | 13,456 | 12,779 | ||||||||||||
Financial Bonds IPC - issued CorpBanca Colombia | 10-12-2019 | 6.18 | % | US | 116,722 | 83,393 | ||||||||||||
BCORBW 914 | 09-01-2020 | 5.40 | % | $ | — | 45,044 | ||||||||||||
Bonds-AI0710 | 01-07-2020 | 3.00 | % | UF | 118,391 | 185,392 | ||||||||||||
Bonds-R0110 | 09-07-2020 | 4.00 | % | UF | 126,487 | 132,996 | ||||||||||||
Bonds-P0110 | 09-07-2020 | 7.30 | % | $ | 23,875 | 23,830 | ||||||||||||
BCORUSD0919 | 07-09-2020 | 3.88 | % | US | 450,959 | 530,943 | ||||||||||||
BCORA-J0710 | 07-01-2021 | 3.00 | % | UF | — | 73,938 | ||||||||||||
|
|
|
| |||||||||||||||
Total | 2,078,358 | 2,215,515 | ||||||||||||||||
|
|
|
|
F-103
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
e) | The detail of bonds issued by maturity is as follows: |
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | 219,782 | 338,555 | ||||||
Due after 1 year but within 2 years | 282,611 | 332,268 | ||||||
Due after 2 years but within 3 years | 282,109 | 629,466 | ||||||
Due after 3 years but within 4 years | 552,030 | 492,196 | ||||||
Due after 4 years but within 5 years | 472,092 | 360,248 | ||||||
Due after 5 years | 269,734 | 62,782 | ||||||
|
|
|
| |||||
Total | 2,078,358 | 2,215,515 | ||||||
|
|
|
|
f) | The detail of subordinated bonds is as follows: |
Expiration | 2014 | 2015 | ||||||||||||||
Date | Interest rate | Currency | MCh$ | MCh$ | ||||||||||||
Serie A - issued Corpbanca Colombia | 30-03-2017 | 10.84% | COP | 1,234 | 1,103 | |||||||||||
Serie B - issued CorpBanca Colombia. | 30-03-2017 | IPC+6,35 | COP | 8,459 | 7,723 | |||||||||||
Serie B - issued CorpBanca Colombia. | 30-03-2017 | IPC+4,45 | COP | 36,250 | 32,688 | |||||||||||
Serie A - issued Corpbanca Colombia | 30-03-2019 | 10.79% | COP | 548 | 490 | |||||||||||
Serie B - issued CorpBanca Colombia. | 30-03-2019 | IPC+4,45 | COP | 25,813 | 23,570 | |||||||||||
Serie UCOR-Y1197 | 01-11-2022 | 6.50% | UF | 7,847 | 7,397 | |||||||||||
Serie UCOR-Z1197 | 01-11-2022 | 6.50% | UF | 18,259 | 17,216 | |||||||||||
Serie AS10 - issued CorpBanca Colombia. | 07-02-2023 | IPC+3,89 | COP | 26,629 | 23,926 | |||||||||||
Serie B - issued CorpBanca Colombia. | 18-03-2024 | Libor 6m + 4% | USD | 104,318 | 122,928 | |||||||||||
Serie AS15- issued CorpBanca Colombia. | 07-02-2028 | IPC+4 | COP | 37,389 | 33,594 | |||||||||||
Serie UCORBF0710 | 01-07-2032 | 4.00% | UF | 12,098 | 12,610 | |||||||||||
Serie UCOR-V0808 | 01-08-2033 | 4.60% | UF | 131,270 | 136,694 | |||||||||||
Serie UCOR BI0710 | 01-07-2035 | 4.00% | UF | 29,372 | 30,550 | |||||||||||
Serie UCOR AA-0809 | 09-08-2035 | 4.90% | UF | 120,261 | 125,056 | |||||||||||
Serie UCORBJ0710 | 01-07-2036 | 4.00% | UF | 130,053 | 135,589 | |||||||||||
Serie UCOR BL0710 | 01-07-2038 | 4.00% | UF | 102,059 | 106,170 | |||||||||||
Serie UCOR BN0710 | 01-07-2040 | 4.00% | UF | 75,078 | 78,183 | |||||||||||
Serie UCORBP0710 | 01-07-2042 | 4.00% | UF | 35,311 | 36,791 | |||||||||||
|
|
|
| |||||||||||||
Total | 902,248 | 932,278 | ||||||||||||||
|
|
|
|
g) | The detail of subordinated bonds by maturity is as follows: |
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | — | 27,287 | ||||||
Due after 1 year but within 2 years | — | 51,148 | ||||||
Due after 2 years but within 3 years | 45,943 | 18,460 | ||||||
Due after 3 years but within 4 years | — | 42,521 | ||||||
Due after 4 years but within 5 years | 26,361 | 18,460 | ||||||
Due after 5 years | 829,944 | 774,402 | ||||||
|
|
|
| |||||
Total | 902,248 | 932,278 | ||||||
|
|
|
|
F-104
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
h) | The detail of other financial obligations by maturity is as follows: |
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | 1,588 | 1,705 | ||||||
Due after 1 year but within 2 years | — | 113 | ||||||
Due after 2 years but within 3 years | 268 | 613 | ||||||
Due after 3 years but within 4 years | 709 | 301 | ||||||
Due after 4 years but within 5 years | — | 648 | ||||||
Due after 5 years | 4,184 | 1,859 | ||||||
|
|
|
| |||||
Total long term obligations | 6,749 | 5,239 | ||||||
The detail of other short term financial obligations is as follows: | ||||||||
Amounts due to credit card operators | 8,673 | 9,236 | ||||||
Total short term financial obligations: | 8,673 | 9,236 | ||||||
|
|
|
| |||||
Total other financial obligations | 15,422 | 14,475 | ||||||
|
|
|
|
F-105
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2014 and 2015 the Bank has recorded the following provisions and changes in its provisions:
a. | Other Provisions |
The provisions as of December 31, 2014 and 2015 are as follows:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
(i) Provisions for employee benefits and salaries | 85,965 | 80,803 | ||||||
(ii) Accrual for mandatory dividends | 113,130 | 100,886 | ||||||
(iii) Allowances for contingencies | 1,194 | 1,018 | ||||||
|
|
|
| |||||
Total | 200,289 | 182,707 | ||||||
|
|
|
|
(i) | Employee benefits and staff salaries |
This item includes the following provisions related to: i) provisions for staff benefits and payroll, ii) provisions for compensation for years of service indemnities, iii) provisions for other employee benefits and iv) provisions for vacations.
(ii) | Mandatory Dividends |
Corresponds to the minimum dividends to be paid.
(iii) | Contingencies |
Includes estimates for probable losses.
b. | The provision balance changes during 2014 and 2015, were as follows: |
As of December 31, 2014 | ||||||||||||||||
(i) Employee benefits and staff salaries | (ii) Mandatory Dividends | (iii) Contingencies | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Balance as of January 1, 2014 | 80,801 | 77,547 | 6,584 | 164,932 | ||||||||||||
Established provision | 24,044 | 113,130 | — | 137,174 | ||||||||||||
Provisions released | (18,341 | ) | (77,547 | ) | (2,749 | ) | (98,637 | ) | ||||||||
Other changes | (539 | ) | — | (2,641 | ) | (3,180 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of December 31, 2014 | 85,965 | 113,130 | 1,194 | 200,289 | ||||||||||||
|
|
|
|
|
|
|
|
F-106
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2015 | ||||||||||||||||
(i) Employee benefits and staff salaries | (ii) Mandatory Dividends | (iii) Contingencies | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Balance as of January 1, 2015 | 85,965 | 113,130 | 1,194 | 200,289 | ||||||||||||
Established provision | 52,127 | 100,886 | — | 153,013 | ||||||||||||
Provisions released | (53,341 | ) | (113,130 | ) | (934 | ) | (167,405 | ) | ||||||||
Other changes | (3,948 | ) | — | 758 | (3,190 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of December 31, 2015 | 80,803 | 100,886 | 1,018 | 182,707 | ||||||||||||
|
|
|
|
|
|
|
|
Accounting effects:
(i) | Employee benefits and staff salaries are recorded in “Personnel salaries expenses.” |
(ii) | Mandatory dividends are recorded in the Equity Statement, against “Accrual for mandatory dividends”. |
(iii) | The contingency provisions/(releases) are included in Other Operating (Expenses)/Income, depending on whether they are debit or a credit. The provisión balance changes during 2014 and 2015, shown below: |
Note | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | |||||||||||
Balance as of January 1, | 6,584 | 1,194 | ||||||||||
Established provision | 32 b) | — | — | |||||||||
Provisions released | 32 a) | (2,749 | ) | (934 | ) | |||||||
Other | (2,641 | ) | 758 | |||||||||
|
|
|
| |||||||||
Balance as of December 31, | 1,194 | 1,018 | ||||||||||
|
|
|
|
c. | Provisions employee benefits and staff salaries |
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Long-term employee benefits | 7,167 | 7,021 | ||||||
Pension Plan | 37,900 | 32,030 | ||||||
Severance | 361 | 342 | ||||||
Retirement benefit plan | — | 322 | ||||||
|
|
|
| |||||
Provision for employee benefits | 45,428 | 39,715 | ||||||
Provision for other employee benefits (1) | 32,897 | 34,027 | ||||||
Provision for vacations (1) | 7,640 | 7,061 | ||||||
|
|
|
| |||||
Total | 85,965 | 80,803 | ||||||
|
|
|
|
(1) | Short-term personnel benefits |
F-107
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
i) Long-term employee benefits
The Bank’s employees are entitled to receive years of service awards starting with the 5th year employment anniversary and each five years thereafter. This award is paid in the month when the employee celebrates his/her corresponding employment anniversary.
1.-Assumptions used
The main assumptions used in the valuation are presented in the following tables:
Summary of economic assumptions
2014 | 2015 | |||||||
% | % | |||||||
Discount rate(s) | 6.50 | 6.75 | ||||||
Expected rate(s) of salary increase | 5.50 | 5.50 |
Summary of key demographic hypotheses
Retirement Age | 55 years (men) and 50 years (women), both with 20 years of service or 30 years of service with no age requirement. | |
Mortality | RV-08 mortality table “Annuitants Valid” Colombian market. |
2.-Methodology
Cost Method
To determine the cost of benefits, the method of the projected unit credit was used (to be described, as well as treatment costs).
Method applied to assets
The plan does not have its own assets.
Others
For fiscal year 2015, it is assumed that the nominal discount rate increases from 6.50% to 6.75% annual.
The movements in the present value of the defined benefit obligation and the amounts recognized in the statement of income in respect of this award are determined using the projected unit credit method and consisted of the following:
Changes in provision
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Present value of the liability at the beginning of fiscal year | 3,349 | 7,167 | ||||||
Cost of net profit | 1,253 | 1,568 | ||||||
Payments | (395 | ) | (667 | ) | ||||
Increase in provision | 3,819 | — | ||||||
Others | (859 | ) | (1,047 | ) | ||||
|
|
|
| |||||
Total | 7,167 | 7,021 | ||||||
|
|
|
|
F-108
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Cost of net profit
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Current service cost | 858 | 811 | ||||||
Interest expense on obligation | 395 | 757 | ||||||
|
|
|
| |||||
1,253 | 1,568 | |||||||
|
|
|
|
ii) Pension plan
The retirement pension liability is recorded based on the present value of the pension obligation for employees who meet certain statutory requirements as to age, length of service and other, determined in accordance with actuarial adjustments under the existing Colombian law.
The present value of the defined benefit obligation was measured using the Projected Unit Credit Method and Other long-term employee benefits.
1.-Assumptions used:
The principal assumptions used in the valuation are presented in the following tables:
Summary of economic hypotheses
2014 | 2015 | |||||||
% | % | |||||||
Discount rate(s) | 6.75 | 6.75 | ||||||
Expected rate(s) of salary increase | 5.50 | 5.50 | ||||||
Inflation rate | 3.00 | 3.00 |
2.-Methodology
Cost Method
To determine the cost of benefits, the method of the Projected Unit Credit (PUC) was used, according to the provisions of IAS 19 (revised 2011). Under the PUC method, the “projected accrued benefit” is calculated for each benefit. For all active members of the plan, the “projected accrued benefit” is based on the formula of the Plan and the years of service to the date of calculation, but using a salary average, social security benefits and others, projected to the age at which it is assumed that the employee will no longer provide services. The defined benefit obligation is the present value of the “projected benefits accrued”.
The service cost is the amount of benefits earned in the year by the active members as a result of a year of credited service value.
The interest cost for the year is the interest on the defined benefit obligation.
Method applied to assets
The plan does not have its own assets
Others
Amounts respect of these defined benefit plans were as follows:
F-109
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Changes in provision
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Present value of the liability at the beginning of fiscal year | 43,815 | 37,900 | ||||||
Interest expense on obligation | 2,602 | 2,170 | ||||||
Payments | (3,847 | ) | (3,875 | ) | ||||
Actuarial gain | (1,403 | ) | (183 | ) | ||||
Others | (3,267 | ) | (3,982 | ) | ||||
|
|
|
| |||||
Total | 37,900 | 32,030 | ||||||
|
|
|
|
iii) Severance
The benefit is equivalent to one month’s salary, adjusted for the application of severance factor (defined as the sum of 12 basic salaries plus additional payments does not constitute salary) per year of service and corresponding fraction.
1.- Assumptions used
The main assumptions used in the valuation are presented in the following tables:
Summary of economic hypotheses
Severance | ||||||||
2014 | 2015 | |||||||
% | % | |||||||
Discount rate(s) | 6.25 | 6.75 | ||||||
Expected rate(s) of salary increase | 5.50 | 5.50 | ||||||
Inflation rate | 3.00 | 3.00 |
2.- Methodology
Cost Method
To determine the cost of benefits, the method of the projected unit credit (PUC) was used.
Method applied to assets
The plan does not have its own assets.
Others
Amounts recognized respect of these defined benefit plans were as follows:
Changes in provision
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Opening defined benefit obligation | — | 361 | ||||||
Opening defined obligation (June, 2014) | 529 | — | ||||||
Current service cost | 25 | 30 | ||||||
Interest expense on obligations | 23 | 20 | ||||||
Actuarial (gains)/losses | (39 | ) | 90 | |||||
Benefits paid | (139 | ) | (122 | ) | ||||
Other - exchange rate differences | (38 | ) | (37 | ) | ||||
|
|
|
| |||||
Closing defined benefit obligation | 361 | 342 | ||||||
|
|
|
|
F-110
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
iv)Retirement benefit plan
This plan corresponds to the payment of a fixed amount in pesos at the time of retirement of the employee.
1.- Assumptions used
The main assumptions used in the valuation are presented in the following tables:
Summary of economic hypotheses
2014 | 2015 | |||||||
% | % | |||||||
Discount rate(s) | — | 7.00 | ||||||
Rate increase in profit | — | 5.50 | ||||||
Inflation rate | — | 3.00 |
2.- Methodology
Cost Method
To determine the cost of benefits, the method of the projected unit credit (PUC) was used.
Method applied to assets
The plan does not have its own assets.
Others
Amounts recognized respect of these defined benefit plans were as follows:
Changes in provision
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Opening defined benefit obligation | — | 284 | ||||||
Current service cost | — | 24 | ||||||
Interest expense on obligations | — | 19 | ||||||
Actuarial (gains)/losses | — | 3 | ||||||
Benefits paid | — | (8 | ) | |||||
Other - exchange rate differences | — | — | ||||||
|
|
|
| |||||
Closing defined benefit obligation | — | 322 | ||||||
|
|
|
|
vi) Summary effects inOther Comprehensive Income (OCI)
2014 | 2015 | |||||||
% | % | |||||||
Pension Plan | 1,403 | 183 | ||||||
Severance | 39 | (90 | ) | |||||
Retirement benefit plan | — | (3 | ) | |||||
|
|
|
| |||||
Total gain (loss) | 1,442 | 90 | ||||||
|
|
|
|
F-111
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
v) Actuarial Valuation Nature
Future actuarial calculations may differ with respect to the calculations presented, due to the following factors:
• | The experience of the plans differ from those anticipated by economic and demographic hypotheses selected. |
• | Changes in economic and demographic assumptions. |
• | Increases or decreases expected as a natural part of the operation of the methodology for these calculations (example, the end of the amortization period or additional costs based on the funding status of the plan). |
• | Changes in the characteristics of the plan or applicable law, and with respect thereto, there are no significant events affecting the results presented since the last valuation. |
vi) Expected future payments
2014 | Long-term employee benefits | Pension Plan | Severance | Retirement benefit plan | ||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Fiscal year 2015 | 674 | 3,959 | 13 | — | ||||||||||||
Fiscal year 2016 | 857 | 3,802 | 21 | — | ||||||||||||
Fiscal year 2017 | 939 | 3,629 | 18 | — | ||||||||||||
Fiscal year 2018 | 983 | 3,417 | 19 | — | ||||||||||||
Fiscal year 2019 | 709 | 3,221 | 44 | — | ||||||||||||
Fiscal year 2020-2024 (combined) | 4,916 | 13,591 | 331 | — | ||||||||||||
2015 | Long-term employee benefits | Pension Plan | Severance | Retirement benefit plan | ||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Fiscal year 2016 | 780 | 3,465 | 28 | 18 | ||||||||||||
Fiscal year 2017 | 900 | 3,316 | 18 | 12 | ||||||||||||
Fiscal year 2018 | 948 | 3,123 | 18 | 10 | ||||||||||||
Fiscal year 2019 | 759 | 2,948 | 33 | 11 | ||||||||||||
Fiscal year 2020 | 902 | 2,772 | 50 | 21 | ||||||||||||
Fiscal year 2021-2025 (combined) | 5,005 | 11,942 | 313 | 195 |
The average duration of the obligation for these plans is: 13.2 years (long term employee benefits); 14.9 years (Pension Plans); 6.2 years (Severance) and 12.9 years (Retirement benefit plan)
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2014 and 2015 other liabilities are as follows:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Margin accounts (1) | 204 | 35,388 | ||||||
Accounts and notes payable (2) | 160,050 | 134,695 | ||||||
Dividends payable | 266 | 259 | ||||||
Unearned income | 6,993 | 7,878 | ||||||
Various creditors | 15,544 | 23,368 | ||||||
Provision for commissions and consulting fees | 914 | 1,753 | ||||||
Other liabilities | 26,745 | 6,098 | ||||||
|
|
|
| |||||
Total | 210,716 | 209,439 | ||||||
|
|
|
|
(1) | Guarantees from financial operations |
(2) | Group obligations for business operations, such as withholding taxes, social security contributions, balances due on purchases of materials, balances due on obligations for leasing contracts for acquisition of fixed assets and other. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 22 - CONTINGENCIES, COMMITMENTS AND RESPONSIBILITIES
a) | Off-balance commitments and responsibilities: |
The Bank, its subsidiaries and its New York branch maintain off-balance sheet accounts as follows:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
CONTINGENT LOANS | 3,191,435 | 3,285,411 | ||||||
|
|
|
| |||||
Collaterals and Guarantees | 182,894 | 171,902 | ||||||
Collaterals and Guarantees in Chilean currency | — | — | ||||||
Collaterals and Guarantees in foreign currency | 182,894 | 171,902 | ||||||
Confirmed foreign letters of credit | 329 | 1,633 | ||||||
Letters of credit | 58,695 | 29,926 | ||||||
Bank Guarantees | 826,235 | 862,193 | ||||||
Interbank letters of guarantee | — | — | ||||||
Cleared lines of credit | 1,592,026 | 1,593,174 | ||||||
Other credit commitments | 531,256 | 626,583 | ||||||
Other contingent loans | — | — | ||||||
|
|
|
| |||||
THIRD PARTY OPERATIONS | 1,714,376 | 1,783,233 | ||||||
|
|
|
| |||||
Collections | 10,811 | 25,042 | ||||||
Foreign Collections | 5,184 | 5,276 | ||||||
Domestic Collections | 5,627 | 19,766 | ||||||
Placement or sale of financial securities | — | — | ||||||
Placement of public securities issues | — | — | ||||||
Sale of bank transaction letters of credit | — | — | ||||||
Other security sales | — | — | ||||||
Transferred financial assets administered by the bank | 370,791 | 505,928 | ||||||
Assets assigned to Insurance Companies | 35,469 | 32,943 | ||||||
Securitized assets | — | — | ||||||
Other assets assigned to third parties | 335,322 | 472,985 | ||||||
Third party funds under management | 1,332,774 | 1,252,263 | ||||||
Financial assets under management on behalf of third parties | 1,332,774 | 1,252,263 | ||||||
Other assets under management on behalf of third parties | — | — | ||||||
Financial assets acquired in own name | — | — | ||||||
Other assets acquired in own name | — | — | ||||||
|
|
|
| |||||
SECURITIES CUSTODY | 493,698 | 514,228 | ||||||
|
|
|
| |||||
Securities in custody held by the bank | 118,321 | 148,759 | ||||||
Securities in custody deposited in another entity | 284,594 | 270,589 | ||||||
Bank-issued Securities | 90,783 | 94,880 | ||||||
Term deposit notes | 90,783 | 94,880 | ||||||
Saleable letters of credit | — | — | ||||||
Other documents | — | — | ||||||
|
|
|
| |||||
COMMITMENTS | — | — | ||||||
|
|
|
| |||||
Underwriting transaction guarantees | — | — | ||||||
Asset acquisition commitments | — | — | ||||||
|
|
|
| |||||
Total | 5,399,509 | 5,582,872 | ||||||
|
|
|
|
The information above only includes the most significant balances.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
b) | Pending litigation |
b.1) CorpBanca
As of the date of issuance of these financial statements, there are lawsuits pending against the Bank related to loans and other matters, most of which, according to the Bank’s Legal Services Division, present no risk of significant loss. Nevertheless, as of December 31, 2015, it has not recorded provisions (MCh$207 as of December 31, 2014) in compliance with IAS 37 (included in “Allowances for contingencies”, Note 20Provisions, letter a)).
Pending litigation | 2014 | 2015 | ||||||
MCh$ | MCh$ | |||||||
Balance as of January 1, | 239 | 207 | ||||||
Established provision | — | — | ||||||
Provisions released | (32 | ) | (207 | ) | ||||
|
|
|
| |||||
Balance as of December 31, | 207 | — | ||||||
|
|
|
|
b.2) CorpBanca Corredores de Bolsa S.A.
According to the Bank’s Legal Services Division, as of December 31, 2014 and 2015, this company does not have any pending lawsuits that represent a risk of significant loss for the Bank. However, the company has initiated and/or is party to the following lawsuits and/or collections proceedings that could result in a loss for the Bank:
As of December 31, 2015, the subsidiary had MCh$201 (MCh$212 as of December 31, 2014) in doubtful accounts related to customer management. In the opinion of the Bank’s general counsel, not recovering the amounts owed could result in a loss for the Bank. Therefore, the subsidiary has recorded a provision of MCh$195 (MCh$212 as of December 31, 2014) in its financial statements (recorded within “Other assets”).
Before the 5th Criminal Court of Santiago, in fraud case No. 149913-7, as part of a criminal suit filed by Banco del Estado de Chile, to which CorpBanca Corredores de Bolsa S.A. is not party, the court seized (in the Company’s opinion, improperly) Time Deposit No. 00243145 for MCh$43 (historical pesos) that Concepción S.A. Corredores de Bolsa, now CorpBanca Corredores de Bolsa S.A., had acquired from its initial beneficiary, because it was consideredcorpus delicti. This time deposit is fully provisioned in the Company’s financial statements and is presented net of the provision in notes and accounts receivable (recorded within “Other assets”).
b.3) CorpBanca Administradora General de Fondos
On August 21, 2013, Jose Hernan Romero Salinas, sued to Corpbanca Administradora General de Fondos SA for absolute nullity of various subscription contracts Mutual Fund contributions made by him, plus restitution of the value thereof, loss of earnings, moral damages and costs, totaling MCh$662.-
Such judgment “Romero Salinas with Corpbanca Administradora General de Fondos SA”, was presented in the 9th Civil Court of Santiago, with Rol No. 9302-2013.
Regarding the conduct of the trial we note the following milestones:
By judicial sentence dated December 1, 2014, the 9th Civil Court of Santiago, partially upheld the complaint filed by Mr. Romero.
On January 6, 2015, the Society appealed cassation and appeals with respect to such failure.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
On April 28, 2015, the Third Chamber of the Court of Appeals of Santiago accepted the appeal and overturned the lower court ruling, rejecting the demand in all its parts, with costs.
Regarding the decision dated April 28, 2015, the complainant Mr. Romero appealed cassation on the merits, which was granted on 4 June 2015. However, the complainant filed an incident for clarification, correction or amendment, which he was rejected, and not having allocated funds for the preparation of the respective attest copies, as provided by Articles 197 and 776 of the Code of Civil Procedure, the Court of Appeals of Santiago declared void his appeal in the background, with dated June 25, 2015.
On September 10, 2015, counsel for the Administrator argued before the First Chamber of the Hon. Supreme Court, requesting its dismissal, taking account of their inadmissibility. On the same date, accepting our request, the ministers of the Hon. Supreme Court unanimously rejected, with costs, the appeal made reference (Role 10226-2015).
Finally, on September 15, 2015 the day, the 9th Civil Court of Santiago ordered be it done in the judgment of the Court of Appeals of Santiago, on April 18, 2015, which, as noted above, overturned the first instance ruling and “rejected” the demand in all its parts, with costs, which ended this trial. Obtaining a favorable outcome for Corpbanca widely Administradora General de Fondos, since it was ultimately rejected in its entirety the abovementioned demand.
b.4) Banco CorpBanca Colombia S.A.
As of the date of issuance of these financial statements, there are lawsuits pending against the Bank related to loans and other matters, most of which, according to the Bank’s Legal Services Division, present no risk of significant loss. Nevertheless, as of December 31, 2015, it has recorded provisions of MCh$2,088 (MCh$3,642 as of December 31, 2014) in compliance with IAS 37.
b.5) Other Companies Included in Consolidation
As of December, 2015 and 2014, the following companies do not have any pending lawsuits that represent a risk of significant loss for the Bank:
• | CorpBanca Asesorías Financieras S.A. |
• | CorpBanca Corredores de Seguros S.A. |
• | CorpLegal S.A. |
• | CorpBanca New York Branch |
• | SMU Corp S.A. |
• | CorpBanca Investment Trust Colombia S.A. |
• | CorpBanca Securities Inc. |
• | Recaudaciones y Cobranzas S.A. |
• | Helm Corredores de Seguros S.A. |
• | Helm Comisionista de Bolsa S.A. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
c) | Contingent loans |
The following table details the Bank’s contractual obligations:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Sureties and guarantees | 182,894 | 171,902 | ||||||
Letters of credit | 58,695 | 29,926 | ||||||
Confirmed foreign letters of credit | 329 | 1,633 | ||||||
Performance bonds | 826,235 | 862,193 | ||||||
Amounts available on lines of credit and credit cards | 1,592,026 | 1,593,174 | ||||||
Guaranteed credit by the state for Higher Education Law No. 20,027 | 493,824 | 356,248 | ||||||
Other | 37,432 | 270,335 | ||||||
|
|
|
| |||||
Total | 3,191,435 | 3,285,411 | ||||||
|
|
|
|
d) | Assets held in custody |
The Bank holds the following assets under management:
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Notes under collection | 10,811 | 25,042 | ||||||
Financial assets transferred to and managed by the bank | 370,791 | 505,928 | ||||||
Third party resources managed by the bank | 1,332,774 | 1,252,263 | ||||||
Securities held in custody | 493,698 | 514,228 | ||||||
|
|
|
| |||||
Total | 2,208,074 | 2,297,461 | ||||||
|
|
|
|
e) | Guarantees |
e.1) CorpBanca and subsidiaries
Assets given as collateral
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Securities | 3,878 | 6,015 | ||||||
Deposits | 10 | 12 | ||||||
Other | 13,347 | 10,497 | ||||||
|
|
|
| |||||
Total amount given as collateral | 17,235 | 16,524 | ||||||
|
|
|
|
e.2) CorpBanca Corredores de Bolsa S.A.
• | Direct commitments - As of December 31, 2014 and 2015, the Company does not have any direct commitments. |
• | Guarantees in Assets Established in Favor of Third-Party Obligations |
With the exception of guarantees that must be established in the normal course of business for legal or regulatory purposes, as of December 31, 2014 and 2015, the Company does not have any guarantees involving Bank assets established in favor of third parties.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
• | Personal guarantees -As of December 31, 2014 and 2015 and, the Company has not granted any personal guarantees. |
• | Operating guarantees -In compliance with articles 30 and 31 of Law No. 18,045 (Securities Market Law), the Company has established a guarantee of UF 4,000 maturing April 22, 2016, through Compañía de Seguros de Crédito Continental S.A., designating the Santiago Stock Exchange as the creditors’ representative. |
On November 29, 2014, an employee fidelity insurance policy with MUS$10 in coverage was purchased from ORION SEGUROS GENERALES, expiring November 28, 2015.
On November 28, 2015, an employee fidelity insurance policy with MUS$10 in coverage was purchased from ORION SEGUROS GENERALES, expiring December 29, 2015.
On December 29, 2015, an employee fidelity insurance policy with MUS$10 in coverage was purchased from ORION SEGUROS GENERALES, expiring December 29, 2016.
This subsidiary maintains shares in the stock exchanges to guarantee simultaneous operations for MCh$10,497 (MCh$13,347 in December 2014).
The Bank has established guarantees for MUS$100, equivalent to MCh$71, and MUS$30, equivalent to MCh$21, (MUS$100, equivalent to MCh$61, and MUS$30, equivalent to MCh$18, in December 2014), to guarantee transactions with foreign traders Pershing and Corp FX, respectively. The latter is a Chilean company engaged primarily in purchasing and selling financial assets on its own or on behalf of third parties and, in general, carrying out any type of purchase and sale transaction, arbitrage and/or any transaction or operation involving any monetary and/or financial assets, expressly including derivative contracts (swaps, forwards, options and/or arbitrage) for any type of underlying asset, in addition to receiving guarantees for the contracts and operations mentioned above, and accepting any type of mandate for these transactions involving any type of asset over which these guarantees are established.
The Company has fixed income instruments and cash deposits in the Santiago Stock Exchange to guarantee transactions in the Securities Settlement and Clearing House that totaled MCh$6,015 and MCh$0, respectively (MCh$3,878 and MCh$795 in December 2014, respectively).
e. 3) CorpBanca Administradora General de Fondos
• | Direct commitments - As of December 31, 2014 and 2015, the Company does not have any direct commitments. |
• | Guarantees Established in Favor of Third-Party Obligations |
On December 29, 2015, CorpBanca Administradora General de Fondos SA signed the Global Policy Bank (Bankers Blanket Bond) with ORION SEGUROS GENERALES, in order to anticipate possible situations of officer infidelity, with maturity on December 29, 2016. The insured amount of the policy amounted to MMUS$5, for each and every individual event and loss of MMUS$10 in the annual aggregate.
On November 29, 2015, CorpBanca Administradora General de Fondos SA extended the maturity of the insurance policy that the Company has with ORION SEGUROS GENERALES, to anticipate possible situations of employee fidelity remaining maturity at December 29, 2015.
On November 29, 2014, Insurance Policy contracted with ORION SEGUROS GENERALES, which mature on November 28, 2015, in order to anticipate possible situations employee fidelity, with its upward coverage MMUS$5 each and each individual event and loss MMUS$10 in annual aggregate.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
On October 29, 2014, CorpBanca Administradora General de Fondos SA extended the maturity of the insurance policy that the Company has with ORION SEGUROS GENERALES, to anticipate possible situations of employee fidelity remaining maturity to November 29, 2014.
e.4) Other Companies Included in Consolidation
As of December 31, 2014 and 2015, the following companies have not granted any guarantees that must be disclosed in these financial statements:
• | CorpBanca Asesorías Financieras S.A. |
• | CorpBanca Corredores de Seguros S.A. |
• | CorpLegal S.A. |
• | CorpBanca New York Branch |
• | SMU CORP S.A. |
• | Banco CorpBanca Colombia and Subsidiaries. |
• | CorpBanca Securities Inc. |
• | Recaudaciones y Cobranzas S.A. |
• | Helm Corredores de Seguros S.A. |
• | CorpBanca Investment Trust Colombia S.A. |
• | Helm Comisionista de Bolsa S.A. |
f) Other Liabilities
f.1) CorpBanca
• | The Bank is authorized to transfer to its customers any obligations for deferred customs duties arising from imports of leased assets. These transfers take place with prior authorization from the National Customs Service. As of December 31, 2015 and 2014, the Bank has not transferred any customs duties obligations to its customers. |
As of December 31, 2015, lease agreements pending asset delivery amount to MCh$142,508 (MCh$90,122 in December 2014).
f.3) CorpBanca Administradora General de Fondos S.A.
On December 19, 2013, the Chilean Treasury seized the funds deposited in account No. 1244905 at CorpBanca that the Company had in that bank for a past due tax debt for MCh$22, according to Administrative File 10305-2013 (Las Condes). On December 27, 2013, the debt was paid and the Company filed a motion to release the seized assets.
On December 27, 2013, the debt was paid and the Company filed a motion to release the seized assets.
On February 7, 2014, the seized assets were released into account No. 1244905 at CorpBanca.
f.4) Other Companies Included in Consolidation
As of December 31, 2013 and 2014, the following companies have no other obligations that must be disclosed in these financial statements:
• | CorpBanca Corredores de Bolsa S.A. |
• | CorpBanca Asesorías Financieras S.A. |
• | CorpBanca Corredora de Seguros S.A. |
• | CorpLegal S.A. |
• | CorpBanca New York Branch |
• | SMU CORP S.A. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
• | Banco CorpBanca Colombia and Subsidiaries. |
• | CorpBanca Securities Inc. |
• | CorpBanca Investment Trust Colombia S.A. |
• | Helm Comisionista de Bolsa S.A. |
g) Penalties
g.1) CorpBanca Corredores de Bolsa S.A.
CCLV Penalties as of December 31, 2015:
On December 3, 2015, the Company was fined 10 UF by the CCLV for annulling accepted transactions
On October 9, 2015, the Company was fined 50 UF by the CCLV for hedge of net seller positions during beyond the time limits.
On July 30, 2015, the Company was fined 12.58 UF by the CCLV for hedge of net seller positions during the beyond the time limits.
On July 29, 2015, the Company was sanctioned by the CCLV for hedge of net seller positions during beyond the time limits.
On May 6, 2015, the Company was sanctioned by the CCLV for hedge of net seller positions during beyond the time limits.
On April 24, 2015, the Company was sanctioned by the CCLV for hedge of net seller positions during beyond the time limits.
On February 17, 2015, the Company was fined 50 UF by the CCLV for hedge of net seller positions during beyond the time limits.
During the periods ended December 31, 2015 and 2014, its directors have not received penalties from any regulator.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
a) | Movement in Shareholders’ equity accounts (attributable to equity holders of the Bank) |
As of December 31, 2014 and 2015 the Bank’s issued shares are represented by the following detail, ordinary shares authorized, subscribed and paid, with no par value, detailed below:
Ordinary Shares | Ordinary Shares | |||||||
2014 | 2015 | |||||||
(number of shares) | (number of shares) | |||||||
Issued as of January 1 | 340,358,194,234 | 340,358,194,234 | ||||||
Issuance of paid shares | — | — | ||||||
Issuance of outstanding shares | — | — | ||||||
Repurchase of Bank’s issued shares (treasury shares) | — | — | ||||||
Sale of bank own issued shares | — | — | ||||||
|
|
|
| |||||
Total | 340,358,194,234 | 340,358,194,234 | ||||||
|
|
|
| |||||
Capital MCh$ | 781,559 | 781,559 |
i. | Purchases and Sales of Bank Shares |
As of December 31, 2014 and 2015, there were no purchase or sale transactions by the Bank involving its own shares.
ii. | Subscribed and Paid Shares |
2015
As of December 31, 2015, the Bank’s paid capital is represented by 340,358,194,234 subscribed and paid common shares with no par value.
2014
As of December 31, 2014, the Bank’s paid capital is represented by 340,358,194,234 subscribed and paid common shares with no par value.
iii. Profit Distribution
2015
• | Regarding 2014 profit, at the Ordinary General Shareholders’ Meeting held on March 12, 2015, shareholders agreed to distribute MCh$113,130 in earnings, representing 50% of profit for the year (see note 3Relevant Events). |
• | At the Extraordinary Shareholders’ Meeting held on June 26, 2015, shareholders agreed to distribute MCh$239,860 corresponding to 2014 profit and retained earnings from prior periods (see note 3Relevant Events). |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
2014
• | Regarding 2013 profit, at the Ordinary General Shareholders’ Meeting held on March 13, 2014, shareholders agreed to distribute MCh$88,403 in earnings, representing 57% of profit for the year. The remaining 43% was left as retained earnings. |
b) | List of major shareholders |
As of December 31, 2014 the shareholder composition is as follows:
Common Stock | ||||||||
Year 2014 | ||||||||
N° of Shares | Share % | |||||||
Corp Group Banking S.A. | 148,835,852,909 | 43.72918 | %(*) | |||||
Banco de Chile por cuenta de Terceros no Residentes | 28,294,988,762 | 8.31330 | % | |||||
Banco Santander por cuenta de Inv. Extranjeros | 23,071,014,201 | 6.77845 | % | |||||
Banco Itaú por cuenta de Inversionistas | 23,733,292,313 | 6.97303 | % | |||||
Compañía Inmobiliaria y de Inversiones SAGA Limitada | 20,918,589,773 | 6.14605 | %(1)(*) | |||||
Deutsche Bank Trust Company Americas (ADRS) | 14,042,402,000 | 4.12577 | % | |||||
Moneda S.A. AFI para Pionero Fondo de Inversión | 8,949,961,000 | 2.62957 | % | |||||
Sierra Nevada Investments Chile Dos Ltda. | 9,817,092,180 | 2.88434 | % | |||||
Corpbanca Corredores de Bolsa S.A. por cuenta de terceros | 4,238,106,664 | 1.24519 | % | |||||
Inv. Las Nieves S.A. | 3,790,725,224 | 1.11375 | % | |||||
Cía. de Seguros Corpvida S.A. | 3,563,148,560 | 1.04688 | % | |||||
Cía. de Seguros de Vida Consorcio Nacional de Seguros S.A. | 3,316,120,234 | 0.97430 | % | |||||
Santander S.A. C de B | 3,528,163,068 | 1.03660 | % | |||||
Bolsa de Comercio de Santiago Bolsa de Valores | 2,569,145,250 | 0.75484 | % | |||||
BTG Pactual Chile S.A. C de B | 2,053,973,966 | 0.60347 | % | |||||
Inmob. E Inversiones Boquiñeni Ltda. | 2,353,758,526 | 0.69155 | % | |||||
MBI Corredores de Bolsa S.A. | 1,969,927,336 | 0.57878 | % | |||||
Consorcio C. de B. S.A. | 1,918,739,065 | 0.56374 | % | |||||
Compañía de Seguros Corpseguros S.A. | 2,290,479,818 | 0.67296 | % | |||||
Valores Security S.A. C. de B. | 1,872,636,183 | 0.55020 | % | |||||
Other Shareholders | 29,230,077,202 | 8.58805 | % | |||||
|
|
|
| |||||
Total | 340,358,194,234 | 100.00000 | % | |||||
|
|
|
|
(1) | This group includes Deutsche Securities Corredores de Bolsa Ltda., which includes 926,513,842 shares in custody that are owned by Compañía Inmobiliaria y de Inversiones SAGA Limitada. |
(*) | In summary, the ultimate parent of the group is the Saieh Group which group is deemed to have control with its 49.8752% participation. |
As of December 31, 2015 the list of major shareholders as follows:
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Common Stock | ||||||||
Year 2015 | ||||||||
N° of Shares | Share % | |||||||
Corp Group Banking S.A. | 148,835,852,909 | 43.72918 | %(*) | |||||
Banco de Chile por cuenta de Terceros no Residentes | 31,093,128,417 | 9.13541 | % | |||||
Banco Santander por cuenta de Inv. Extranjeros | 23,965,413,566 | 7.04123 | % | |||||
Banco Itaú por cuenta de Inversionistas | 17,788,266,368 | 5.22634 | % | |||||
Compañía Inmobiliaria y de Inversiones SAGA Limitada | 20,918,589,773 | 6.14605 | %(1)(*) | |||||
Deutsche Bank Trust Company Americas (ADRS) | 16,074,657,500 | 4.72286 | % | |||||
Moneda S.A. AFI para Pionero Fondo de Inversión | 7,473,384,000 | 2.19574 | % | |||||
Sierra Nevada Investments Chile Dos Ltda. | 9,817,092,180 | 2.88434 | % | |||||
Corpbanca Corredores de Bolsa S.A. por cuenta de terceros | 9,227,579,709 | 2.71114 | % | |||||
Inversiones Las Nieves S.A. | 1,890,725,224 | 0.55551 | % | |||||
Cía. de Seguros de Vida Consorcio Nacional de Seguros S.A. | 3,694,485,882 | 1.08547 | % | |||||
Bolsa de Comercio de Santiago Bolsa de Valores | 3,485,036,065 | 1.02393 | % | |||||
BCI Corredores de Bolsa S.A. | 3,263,195,956 | 0.95875 | % | |||||
Compañía de Seguros Confuturo S.A. | 3,145,931,028 | 0.92430 | % | |||||
BTG Pactual Chile S.A. C de B | 2,312,540,037 | 0.67944 | % | |||||
Inmob. E Inversiones Boquiñeni Ltda. | 2,353,758,526 | 0.69155 | % | |||||
Banchile Corredores de Bolsa S.A. | 1,978,989,439 | 0.58144 | % | |||||
Larrain Vial Corredores de Bolsa S.A. | 1,626,092,346 | 0.47776 | % | |||||
Consorcio Corredores de Bolsa S.A. | 1,896,991,436 | 0.55735 | % | |||||
CRN Inmobiliaria Limitada | 1,535,239,055 | 0.45107 | % | |||||
Credicorp Capital S.A. Corredores de Bolsa | 1,389,545,804 | 0.40826 | % | |||||
El Maderal Inversiones Ltda. | 1,244,312,335 | 0.36559 | % | |||||
Itau BBA Corredores de Bolsa Ltda. | 1,137,057,344 | 0.33408 | % | |||||
Valores Security S.A. Corredores de Bolsa | 4,024,271,107 | 1.18236 | % | |||||
Other Shareholders | 20,186,058,228 | 5.93085 | % | |||||
|
|
|
| |||||
Total | 340,358,194,234 | 100.00000 | % | |||||
|
|
|
|
(1) | This group includes Deutsche Securities Corredores de Bolsa Ltda. which includes 926,513,842 shares in custody that are owned by Compañía Inmobiliaria y de Inversiones SAGA Limitada. |
(*) | In summary, the ultimate parent of the group is the Saieh Group which group is deemed to have control with its 49.8752% participation. |
c) | Dividends |
The distribution of dividends of the Bank is as follows:
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Year | Income attributable to equity holders | To reserves or retained earnings | Intended Dividends | Percentage Distributed | N° of Shares | Dividend per share (in MC$) | ||||||||||||||||||
MCh$ | MCh$ | MCh$ | % | |||||||||||||||||||||
2014 (Extraordinary Shareholders Meeting, June 2015) | — | (239,860 | ) | 239,860 | 100.00 | % | 340,358,194,234 | 0.705 | ||||||||||||||||
2014 (Shareholders Meeting, March 2015) | 226,260 | 113,130 | 113,130 | 50.00 | % | 340,358,194,234 | 0.332 | |||||||||||||||||
2013 (Shareholders Meeting, February 2014) | 155,093 | 66,690 | 88,403 | 57.00 | % | 340,358,194,234 | 0.260 | |||||||||||||||||
2012 (Shareholders Meeting, February 2013) | 120,080 | 60,040 | 60,040 | 50.00 | % | 340,358,194,234 | 0.176 |
Figures are presented as required by local regulations.
d) | As of the years ended December 31, 2014 and 2015 basic earnings and diluted earnings attributable to the equity holders of the bank is as follows: |
2014 | 2015 | |||||||||||||||
N° Shares | Total | N° Shares | Total | |||||||||||||
Millions | MCh$ | Millions | MCh$ | |||||||||||||
Basic and diluted earnings per share | ||||||||||||||||
Basic earnings per share | ||||||||||||||||
Net income attributable to the equity holders | — | 233,997 | — | 216,321 | ||||||||||||
Weighted average number of shares outstanding | 340,358 | — | 340,358 | — | ||||||||||||
Adjusted number of shares | 340,358 | — | 340,358 | — | ||||||||||||
Basic earnings per share (Chilean pesos) | 0.69 | 0.64 | ||||||||||||||
Diluted earnings per share | ||||||||||||||||
Net income attributable to the equity holders | — | 233,997 | — | 216,321 | ||||||||||||
Weighted average number of shares outstanding | 340,358 | — | 340,358 | — | ||||||||||||
Diluted effect | — | — | — | — | ||||||||||||
Adjusted number of shares | 340,358 | — | 340,358 | — | ||||||||||||
Diluted earnings per share (Chilean pesos) | — | 0.69 | — | 0.64 |
e) | Valuation Accounts |
Fair Value Reserve: This includes accumulated net changes in the fair value of investments available for sale until the investment is disposed of or there is a significant or prolonged decline in value.
Translation Reserves:This includes the effects of converting the financial statements of the New York Branch and Colombian subsidiaries, whose functional currencies are the US dollar and Colombian peso, respectively, to the presentation currency of Banco CorpBanca (the Chilean peso).
Cash Flow Hedge Reserves:This includes the effects of hedges on the Bank’s exposure to variations in cash flows that are attributed to a particular risk related to a recognized asset and/or liability.
Foreign Investment Accounting Hedge Reserve:Corresponds to adjustments for hedges of net investments in foreign operations.
Defined benefit obligation:This includes the effects of complying with IAS 19.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
f) | Other Comprehensive Income |
The following tables present movements in equity and income taxes for the years ended December 31, 2013, 2014 and 2015.
Other Comprehensive Income | 2013 | 2014 | 2015 | |||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Financial instruments available for sale | ||||||||||||
Balance as of January 1, | (8,143 | ) | (3,546 | ) | (11,605 | ) | ||||||
Gains (losses) on remeasuring financial instruments available for sale, before tax | 4,597 | (8,059 | ) | (43,720 | ) | |||||||
|
|
|
|
|
| |||||||
Total | (3,546 | ) | (11,605 | ) | (55,325 | ) | ||||||
|
|
|
|
|
| |||||||
Hedges of net investment in foreign operations | ||||||||||||
Balance as of January 1, | 456 | (2,384 | ) | (7,135 | ) | |||||||
Gains (losses) on hedges of net investment in foreign operations, before tax | (2,840 | ) | (4,751 | ) | (8,876 | ) | ||||||
|
|
|
|
|
| |||||||
Total | (2,384 | ) | (7,135 | ) | (16,011 | ) | ||||||
|
|
|
|
|
| |||||||
Cash flow hedges | ||||||||||||
Balance as of January 1, | 570 | (5,187 | ) | 958 | ||||||||
Gains (losses) on cash flow hedges, before tax | (5,757 | ) | 6,145 | (4,046 | ) | |||||||
|
|
|
|
|
| |||||||
Total | (5,187 | ) | 958 | (3,088 | ) | |||||||
|
|
|
|
|
| |||||||
Exchange differences on translation - New York Branch - Colombia | ||||||||||||
Balance as of January 1, | (26,217 | ) | (14,257 | ) | (82,930 | ) | ||||||
Gains (losses) on exchange differences on translation, before tax | 11,960 | (68,673 | ) | (82,148 | ) | |||||||
|
|
|
|
|
| |||||||
Total | (14,257 | ) | (82,930 | ) | (165,078 | ) | ||||||
|
|
|
|
|
| |||||||
Remeasurement of defined benefit obligation | ||||||||||||
Balance as of January 1, | (10,301 | ) | (7,001 | ) | (6,046 | ) | ||||||
Gains (losses) on Remeasurement of defined benefit obligation, before tax | 3,300 | 955 | 60 | |||||||||
|
|
|
|
|
| |||||||
Total | (7,001 | ) | (6,046 | ) | (5,986 | ) | ||||||
Other comprehensive income, before tax | (32,375 | ) | (106,758 | ) | (245,488 | ) | ||||||
Income tax relating to components of other comprehensive income | ||||||||||||
Income tax relating to instruments available for sale | 747 | 4,736 | 18,879 | |||||||||
Income tax relating to hedges of net investment in foreign operations | 477 | 1,848 | 4,606 | |||||||||
Income tax relating to cash flow hedge | 728 | (362 | ) | 742 | ||||||||
Income tax relating to defined benefit obligation | 2,318 | 1,946 | 1,923 | |||||||||
|
|
|
|
|
| |||||||
Total | 4,270 | 8,168 | 26,150 | |||||||||
|
|
|
|
|
| |||||||
Other comprehensive income, after tax | (28,105 | ) | (98,590 | ) | (219,338 | ) |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
g) | Rollforward for the year ended (OCI) |
i) Rollforward for the year ended (OCI) - Available for sale
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Opening Balance, Accumulated other comprehensive income | (3,546 | ) | (11,605 | ) | ||||
Amount recognized in other comprehensive income for the period | 11,798 | (36,012 | ) | |||||
Amount reclassified from equity to profit or loss for the period | (19,857 | ) | (7,708 | ) | ||||
|
|
|
| |||||
Ending balance, accumulated other comprehensive income | (11,605 | ) | (55,325 | ) | ||||
|
|
|
|
ii) Rollforward for the year ended (OCI) - Cash flow hedges
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
Opening Balance, Accumulated other comprehensive income | (5,187 | ) | 958 | |||||
Amount recognized in other comprehensive income for the period | (1,278 | ) | (3,694 | ) | ||||
Amount reclassified from equity to profit or loss for the period | 7,423 | (352 | ) | |||||
|
|
|
| |||||
Ending balance, accumulated other comprehensive income | 958 | (3,088 | ) | |||||
|
|
|
|
h) | Non - Controlling interest: |
This item reflects the net amount of the subsidiaries’ net equity attributable to equity instruments which do not belong to the Bank either directly or indirectly, including the part that has been attributed to income for the period.
This corresponds to the net amount of equity in the subsidiaries attributable to capital that does not belong, directly or indirectly, to the Bank, including the part of profit for the period that is attributed to them. Non-controlling interest in the subsidiary’s equity and profit for the period is detailed as follows:
The non controlling interest in the subsidiaries’ equity is summarized as follows:
As of December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||
Other Comprehensive income | ||||||||||||||||||||||||||||||||||||||||
Subsidiaries | Non- controlling | Equity | Net Income | Defined benefit obligation | Financial instruments available for sale | Exchange differences on translation NY | Effect Variation Accounting Case Foreign Investment | Cash Flow Hedges Effect Change | Deferred Tax | Other Comprehensive income | ||||||||||||||||||||||||||||||
% | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||
SMU CORP S.A. | 49.00 | % | 2,386 | (1,475 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Corredora de Seguros Helm | 20.00 | % | 554 | 83 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Banco CorpBanca Colombia and subsidiaries | 33.62 | % | 302,758 | 14,209 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
|
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|
|
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|
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| |||||||||||||||||||||
305,698 | 12,817 | — | — | — | — | — | — | — |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||
Other Comprehensive income | ||||||||||||||||||||||||||||||||||||||||
Subsidiaries | Non- controlling | Equity | Net Income | Defined benefit obligation | Financial Instruments available for sale | Exchange differences on translation NY | Effect Variation Accounting Case Foreign Investment | Cash Flow Hedges Effect Change | Deferred Tax | Other Comprehensive income | ||||||||||||||||||||||||||||||
% | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||
SMU CORP S.A. | 49.00 | % | 2,743 | (687 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Corredora de Seguros Helm | 20.00 | % | 1,761 | 374 | — | — | ||||||||||||||||||||||||||||||||||
Banco CorpBanca Colombia and subsidiaries | 33.72 | % | 321,433 | 40,017 | 487 | 4,261 | — | — | — | (1,869 | ) | 2,879 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||
325,937 | 39,704 | 487 | 4,261 | — | — | — | (1,869 | ) | 2,879 | |||||||||||||||||||||||||||||||
As of December 31, 2015 | ||||||||||||||||||||||||||||||||||||||||
Other Comprehensive income | ||||||||||||||||||||||||||||||||||||||||
Subsidiaries | Non- controlling | Equity | Net Income | Defined benefit obligation | Financial Instruments available for sale | Exchange differences on translation NY | Effect Variation Accounting Case Foreign Investment | Cash Flow Hedges Effect Change | Deferred Tax | Other Comprehensive income | ||||||||||||||||||||||||||||||
% | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||
SMU CORP S.A. | 49.00 | % | 2,644 | (526 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Corredora de Seguros Helm | 20.00 | % | 1,673 | 169 | — | — | ||||||||||||||||||||||||||||||||||
Banco CorpBanca Colombia and subsidiaries | 33.72 | % | 310,424 | 22,701 | 30 | 7,431 | — | 945 | — | (3,251 | ) | 5,155 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
314,741 | 22,344 | 30 | 7,431 | — | 945 | — | (3,251 | ) | 5,155 |
The rollforward of non-controlling interest is as follow:
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Balances as of January 1, | 54,370 | 305,698 | 325,937 | |||||||||
Net income for the year | 12,817 | 42,583 | 27,499 | |||||||||
Change in non-controlling interest | 3,503 | (22,344 | ) | (38,695 | ) | |||||||
Non-controlling interest arising on the acquisition non participation in rights to sahere increase | 235,008 | — | — | |||||||||
|
|
|
|
|
| |||||||
Balances as of December 31, | 305,698 | 325,937 | 314,741 | |||||||||
|
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|
|
|
F-127
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
The summarized financial information of Banco CorpBanca Colombia and its subsidiaries:
h.1) Information represents the non-controlling interest prior to intergroup elimination is as follows:
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Dividends paid | — | — | — | |||||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Cash and deposit in banks | 200,679 | 209,827 | 175,505 | |||||||||
Loans and receivables from banks | 4,781 | 34,465 | 21,789 | |||||||||
Loans and receivables from customers, net | 1,680,824 | 1,700,845 | 1,679,798 | |||||||||
Intangible assets | 156,379 | 137,972 | 117,344 | |||||||||
Others | 425,646 | 541,753 | 613,133 | |||||||||
|
|
|
|
|
| |||||||
TOTAL ASSETS | 2,468,309 | 2,624,862 | 2,607,569 | |||||||||
|
|
|
|
|
| |||||||
Currents account and demand deposits | 838,040 | 965,449 | 1,040,753 | |||||||||
Time deposits and saving accounts | 852,859 | 754,471 | 801,791 | |||||||||
Debt issued | 116,940 | 126,023 | 115,502 | |||||||||
Others | 354,772 | 454,606 | 335,666 | |||||||||
|
|
|
|
|
| |||||||
TOTAL LIABILITIES | 2,162,611 | 2,300,549 | 2,293,712 | |||||||||
|
|
|
|
|
| |||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Net interest income | 45,955 | 97,818 | 93,125 | |||||||||
Net service fee income | 11,016 | 21,968 | 17,048 | |||||||||
Operating income before provision for loan losses | 60,605 | 167,099 | 151,284 | |||||||||
Total operating income, net of loan losses, interest and | (450,407 | ) | 134,944 | 108,339 | ||||||||
Total net operating income | 15,198 | 46,831 | 34,264 | |||||||||
Net income for the period | 12,817 | 39,704 | 23,033 | |||||||||
|
|
|
|
|
| |||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Cash flow from operating activities | 39,639 | (103,207 | ) | 80,786 | ||||||||
Cash flow from investing activities | (49,442 | ) | (36,018 | ) | (11,413 | ) | ||||||
Cash flow from financing activities | 115,639 | 173,995 | (138,531 | ) |
h.2) | Summarized financial information of Banco CorpBanca Colombia and its subsidiaries as follows: |
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Dividends paid | — | — | — | |||||||||
2013 | 2014 | 2015 | ||||||||||
|
|
|
|
|
| |||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Cash and deposit in banks | 595,663 | 622,238 | 520,456 | |||||||||
Loans and receivables from banks | 14,423 | 102,204 | 64,616 | |||||||||
Loans and receivables from customers, net | 5,017,516 | 5,044,196 | 4,981,414 | |||||||||
Intangible assets | 355,572 | 321,029 | 286,769 | |||||||||
Others | 1,231,299 | 1,606,191 | 1,802,481 | |||||||||
|
|
|
|
|
| |||||||
TOTAL ASSETS | 7,214,473 | 7,695,858 | 7,655,736 | |||||||||
|
|
|
|
|
| |||||||
Currents account and demand deposits | 815,955 | 801,149 | 741,464 | |||||||||
Time deposits and saving accounts | 2,537,342 | 2,237,372 | 2,377,700 | |||||||||
Debt issued | 347,909 | 373,720 | 342,519 | |||||||||
Others | 2,730,817 | 3,490,399 | 3,415,222 | |||||||||
|
|
|
|
|
| |||||||
TOTAL LIABILITIES | 6,432,023 | 6,902,640 | 6,876,905 | |||||||||
|
|
|
|
|
| |||||||
2013 | 2014 | 2015 | ||||||||||
|
|
|
|
|
| |||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Net interest income | 196,295 | 290,077 | 276,160 | |||||||||
Net service fee income | 41,890 | 65,147 | 50,557 | |||||||||
Operating income before provision for loan losses | 301,998 | 495,532 | 448,627 | |||||||||
Total operating income, net of loan losses, interest and | 255,715 | 400,175 | 321,278 | |||||||||
Total net operating income | 84,356 | 140,240 | 102,972 | |||||||||
|
|
|
|
|
| |||||||
Net income for the period | 56,861 | 115,170 | 69,666 | |||||||||
|
|
|
|
|
| |||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Cash flow from operating activities | 102,985 | (152,867 | ) | 108,235 | ||||||||
Cash flow from investing activities | (125,463 | ) | (48,255 | ) | (15,291 | ) | ||||||
Cash flow from financing activities | 293,444 | 233,113 | (185,600 | ) |
i) Dilutive effect of purchase of Helm Bank and subsidiaries
Since CorpBanca Chile did not participate in the capital increase of Banco CorpBanca Colombia the ownership of CorpBanca Chile decreased from 91.9314% to 66.3877% CorpBanca Chile remeasured non-controlling interest at the date of transaction at fair value and adjusted the carrying amounts of the controlling and non-controlling interest to reflect the changes in their relative interests in the subsidiary (For more information, see Statements of Changes in Equity). In 2014, the interest decreased to 66.279% through the merger with Helm Bank Colombia.
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Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 24 - INTEREST INCOME AND EXPENSE
a) | The composition of interest income and inflation-indexing for the years ended December 31, 2013, 2014 and 2015 is as follows: |
As of December 31, | ||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||
Interest | Inflation (1) | Total | Interest | Inflation (1) | Total | Interest | Inflation (1) | Total | ||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||
Normal Portfolio | ||||||||||||||||||||||||||||||||||||
Investments under agreements to resell | 15,115 | 20 | 15,135 | 13,518 | 37 | 13,555 | 13,985 | 4 | 13,989 | |||||||||||||||||||||||||||
Loans and receivables to banks | 14,673 | — | 14,673 | 11,000 | — | 11,000 | 10,009 | — | 10,009 | |||||||||||||||||||||||||||
Commercial loans | 536,812 | 43,437 | 580,249 | 629,883 | 114,015 | 743,898 | 640,667 | 86,011 | 726,678 | |||||||||||||||||||||||||||
Mortgage Loans | 90,079 | 29,401 | 119,480 | 118,304 | 88,985 | 207,289 | 118,610 | 69,388 | 187,998 | |||||||||||||||||||||||||||
Consumer Loans | 189,261 | 919 | 190,180 | 273,992 | 484 | 274,476 | 253,600 | 221 | 253,821 | |||||||||||||||||||||||||||
Financial investments | 38,158 | 1,560 | 39,718 | 31,666 | 9,944 | 41,610 | 59,497 | 17,989 | 77,486 | |||||||||||||||||||||||||||
Other interest income | 4,133 | 514 | 4,647 | 7,674 | 1,328 | 9,002 | 7,737 | 1,057 | 8,794 | |||||||||||||||||||||||||||
Gain (loss) from accounting hedges (*) | (713 | ) | — | (713 | ) | (291 | ) | — | (291 | ) | 1,709 | — | 1,709 | |||||||||||||||||||||||
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|
|
|
|
|
|
|
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|
|
|
|
|
|
| |||||||||||||||||||
Subtotals | 887,518 | 75,851 | 963,369 | 1,085,746 | 214,793 | 1,300,539 | 1,105,814 | 174,670 | 1,280,484 | |||||||||||||||||||||||||||
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| |||||||||||||||||||
Impaired loan Portfolio | ||||||||||||||||||||||||||||||||||||
Interest Recovery | ||||||||||||||||||||||||||||||||||||
Commercial Loans | 14,990 | 1,349 | 16,339 | 8,592 | 2,640 | 11,232 | 14,652 | 2,949 | 17,601 | |||||||||||||||||||||||||||
Mortgage Loans | 1,479 | 629 | 2,108 | 1,556 | 1,697 | 3,253 | 532 | 606 | 1,138 | |||||||||||||||||||||||||||
Consumer Loans | 25,285 | 5 | 25,290 | 5,093 | 7 | 5,100 | 257 | — | 257 | |||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other interest income | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Subtotals | 41,754 | 1,983 | 43,737 | 15,241 | 4,344 | 19,585 | 15,441 | 3,555 | 18,996 | |||||||||||||||||||||||||||
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| |||||||||||||||||||
Total Interest Income | 929,272 | 77,834 | 1,007,106 | 1,100,987 | 219,137 | 1,320,124 | 1,121,255 | 178,225 | 1,299,480 | |||||||||||||||||||||||||||
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F-129
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
b) | The detail of interest expenses for the years ended December 31, 2013, 2014 and 2015 is the following: |
As of December 31, | ||||||||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||
Interests | Inflation (1) | Total | Interests | Inflation (1) | Total | Interests | Inflation (1) | Total | ||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||
Demand Deposits | (33,195 | ) | (224 | ) | (33,419 | ) | (73,560 | ) | (547 | ) | (74,107 | ) | (83,278 | ) | (372 | ) | (83,650 | ) | ||||||||||||||||||
Investments under agreements to repurchase | (14,569 | ) | (167 | ) | (14,736 | ) | (28,107 | ) | (35 | ) | (28,142 | ) | (36,468 | ) | (16 | ) | (36,484 | ) | ||||||||||||||||||
Deposits and Time Deposits | (352,167 | ) | (9,476 | ) | (361,643 | ) | (325,316 | ) | (23,849 | ) | (349,165 | ) | (304,121 | ) | (25,487 | ) | (329,608 | ) | ||||||||||||||||||
Borrowings from financial institutions | (15,987 | ) | — | (15,987 | ) | (21,977 | ) | — | (21,977 | ) | (22,027 | ) | — | (22,027 | ) | |||||||||||||||||||||
Debt issued | (95,368 | ) | (32,843 | ) | (128,211 | ) | (119,213 | ) | (92,057 | ) | (211,270 | ) | (136,686 | ) | (68,300 | ) | (204,986 | ) | ||||||||||||||||||
Other financial obligations | (334 | ) | (805 | ) | (1,139 | ) | (274 | ) | (567 | ) | (841 | ) | (180 | ) | (212 | ) | (392 | ) | ||||||||||||||||||
Other interest expenses | (379 | ) | (857 | ) | (1,236 | ) | (946 | ) | (2,506 | ) | (3,452 | ) | (2,157 | ) | (1,349 | ) | (3,506 | ) | ||||||||||||||||||
Gain (loss) from accounting hedges (*) | 6,955 | — | 6,955 | (286 | ) | — | (286 | ) | 1,752 | — | 1,752 | |||||||||||||||||||||||||
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Total Interest Expenses | (505,044 | ) | (44,372 | ) | (549,416 | ) | (569,679 | ) | (119,561 | ) | (689,240 | ) | (583,165 | ) | (95,736 | ) | (678,901 | ) | ||||||||||||||||||
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(1) | The inflation indexing is the result of changes in the Unidades de Fomento (“UF”). The UF is an inflation-index Chilean monetary unit with a value in Chilean pesos that changes daily to reflect changes in the official Consumer Price Index (“CPI”) of the Instituto Nacional de Estadísticas (the Chilean National Institute of Statistics) for the previous month. The effect of any changes in the nominal peso value of our UF-denominated interest earning assets and interest bearing liabilities is reflected in our results of operations as an increase (or decrease, in the event of deflation) in interest income and expense, respectively. |
(*) | The mark to market adjustments are presented in this line for hedging derivatives used in hedging of assets except in the case of foreign currency hedges and cash flow hedges (cross-currency), their all-in mark to market adjustment is included in the foreign exchange gain (losses) (See Note 27Net foreign exchange income (losses)). |
F-130
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 25 - FEES AND INCOME FROM SERVICES
Fees and income from services and the related expenses for the years ended December, 2013, 2014 and 2015 are summarized as follows:
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Income from services fees | ||||||||||||
Lines of credit and overdrafts | 13,393 | 11,629 | 10,962 | |||||||||
Letters of credit and guarantees | 9,826 | 12,621 | 10,458 | |||||||||
Card services | 25,591 | 37,911 | 38,461 | |||||||||
Account administration | 8,959 | 11,066 | 11,012 | |||||||||
Collections, billings and payments | 30,127 | 34,129 | 35,987 | |||||||||
Management and brokerage commissions for securities | 6,281 | 8,369 | 9,986 | |||||||||
Investments in mutual funds and others | 14,522 | 23,557 | 19,471 | |||||||||
Insurance brokerage | 13,615 | 21,025 | 17,788 | |||||||||
Financial advisors | 11,725 | 23,631 | 23,986 | |||||||||
Other fees earned | 9,397 | 16,401 | 20,473 | |||||||||
Other payments for services rendered | 1,341 | 1,674 | 1,817 | |||||||||
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| |||||||
Total Income from services fees | 144,777 | 202,013 | 200,401 | |||||||||
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| |||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Expenses from services fees | ||||||||||||
Credit card transactions | (12,367 | ) | (17,282 | ) | (24,727 | ) | ||||||
Securities transactions | (3,588 | ) | (3,922 | ) | (4,554 | ) | ||||||
Commissions paid through Chilean clearing house (ACC) | (3,779 | ) | (4,503 | ) | (5,610 | ) | ||||||
Foreign trade transactions | (415 | ) | (996 | ) | (996 | ) | ||||||
Expenses from refunded commissions | (15 | ) | (6 | ) | — | |||||||
Customer loyalty program | (824 | ) | (887 | ) | (969 | ) | ||||||
Customer loyalty program benefits | (1,191 | ) | (925 | ) | (1,466 | ) | ||||||
Loan services to customers | (1,409 | ) | (3,692 | ) | (3,934 | ) | ||||||
Fees for payroll deduction agreements | (613 | ) | (4,565 | ) | (2,517 | ) | ||||||
Other paid commissions | (2,599 | ) | (3,645 | ) | (2,781 | ) | ||||||
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Total expenses from services fees | (26,800 | ) | (40,423 | ) | (47,554 | ) | ||||||
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Net service fee income | 117,977 | 161,590 | 152,847 | |||||||||
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The fees earned through transactions with letters of credit are recorded under “Interest income” within the consolidated statements of income.
F-131
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 26 - NET TRADING AND INVESTMENT INCOME
Trading and investment income recognized on the consolidated statements of income for the years ended December 31, 2013, 2014 and 2015 is as follows:
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Trading instruments (securities) | 10,660 | 37,752 | 19,354 | |||||||||
Trading instruments (derivatives) | 58,471 | 94,279 | 286,168 | |||||||||
Other financial investments at fair value with effect on profit or loss | 7,741 | 19,862 | 22,285 | |||||||||
Financial investments available-for-sale realized gain (losses) (*) | 22,293 | 31,659 | 10,406 | |||||||||
Profit on bank-issued time deposit repurchase | 397 | 64 | 58 | |||||||||
Loss on bank-issued time deposit repurchase | (478 | ) | (376 | ) | (172 | ) | ||||||
Other | 2,203 | 453 | 599 | |||||||||
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| |||||||
Total trading and investment income, net | 101,287 | 183,693 | 338,698 | |||||||||
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(*) | Results generated by instruments available for sale mainly composed by the following: |
• | Fair value adjustments recognized in the results. This includes transfers to results, generated on exercise, of the fair value adjustments by selling of those instruments available for sale. |
• | Results generated from sales and / or liquidation, corresponding to the difference between the value obtained as compensation and the fair value of the instruments transferred. |
F-132
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 27 - NET FOREIGN EXCHANGE INCOME (LOSSES)
This item includes the income earned from foreign currency trading, the differences arise from converting monetary items in a foreign currency to the functional currency and those generated by non-monetary assets in a foreign currency at the time of their disposal.
The detail of net foreign exchange gains (losses) for the years ended December 31, 2013, 2014 and 2015 is as follows:
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Gains (losses) of foreign currency exchange differences | ||||||||||||
Net gains (losses) of foreign currency exchange positions | (18,980 | ) | (8,627 | ) | (158,271 | ) | ||||||
Other foreign currency exchange gains (losses) | 1,963 | 3,165 | 10,858 | |||||||||
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Subtotal | (17,017 | ) | (5,462 | ) | (147,413 | ) | ||||||
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| |||||||
Net earnings on exchange rate adjustments | ||||||||||||
Adjustments to loan to customers | 1,427 | 1,860 | 488 | |||||||||
Adjustments to investment instruments | 713 | 1,448 | 1,739 | |||||||||
Adjustments to other liabilities | (88 | ) | (95 | ) | (1 | ) | ||||||
Fair value gains (losses) on foreign currency hedging derivatives (1) (*) | 1,059 | (11,177 | ) | (6,010 | ) | |||||||
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Subtotal | 3,111 | (7,964 | ) | (3,784 | ) | |||||||
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Total | (13,906 | ) | (13,426 | ) | (151,197 | ) | ||||||
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(1) | In this present current earnings by hedging currency assets and liabilities. Different information to revealed in Note 24Interest Income and Expense and Note 26Net Trading and Investment Income. |
(*) | The Fair value gains (losses) on hedging derivatives as of December 31, 2013, 2014 and 2015 is as follows: |
Cash Flows (CF) or | Fair Value | |||||||||||||
Fair Value | Assets | Liabilities | Gain/(loss) | |||||||||||
As of December 31, 2013 | (FV) Hedge | MCh$ | MCh$ | MCh$ | ||||||||||
Derivatives held-for-hedging | ||||||||||||||
Foreign currency forwards | FV | 27 | — | (827 | ) | |||||||||
Foreign currency swaps | FV | — | 2,235 | 2,342 | ||||||||||
Interest rate swaps | FV | 358 | 3,161 | (5,010 | ) | |||||||||
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Subtotal | 385 | 5,396 | (3,495 | ) | ||||||||||
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Foreign currency forwards | CF | 6 | 793 | (168 | ) | |||||||||
Foreign currency swaps | CF | 3,171 | 1,027 | 450 | ||||||||||
Interest rate swaps | CF | 58 | 4,241 | 4,272 | ||||||||||
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Subtotal | 3,235 | 6,061 | 4,554 | |||||||||||
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Total derivatives held-for-hedging | 3,620 | 11,457 | 1,059 | |||||||||||
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F-133
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Cash Flows (CF) or | Fair Value | |||||||||||||
Fair Value | Assets | Liabilities | Gain/(loss) | |||||||||||
As of December 31, 2014 | (FV) Hedge | MCh$ | MCh$ | MCh$ | ||||||||||
Derivatives held-for-hedging | ||||||||||||||
Foreign currency forwards | FV | — | — | — | ||||||||||
Foreign currency swaps | FV | 4,343 | 3,942 | 6,070 | ||||||||||
Interest rate swaps | FV | 2,532 | 2,466 | (2,637 | ) | |||||||||
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Subtotal | 6,875 | 6,408 | 3,433 | |||||||||||
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Foreign currency forwards | CF | 15 | 6,612 | (13,644 | ) | |||||||||
Foreign currency swaps | CF | 1,775 | 192 | (678 | ) | |||||||||
Interest rate swaps | CF | 120 | 5,322 | (288 | ) | |||||||||
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Subtotal | 1,910 | 12,126 | (14,610 | ) | ||||||||||
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| |||||||||
Total derivatives held-for-hedging | 8,785 | 18,534 | (11,177 | ) | ||||||||||
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Cash Flows (CF) or | Fair Value | |||||||||||||
Fair Value | Assets | Liabilities | Gain/(loss) | |||||||||||
As of December 31, 2015 | (FV) Hedge | MCh$ | MCh$ | MCh$ | ||||||||||
Derivatives held-for-hedging | ||||||||||||||
Foreign currency forwards | FV | 395 | 1,236 | 3,500 | ||||||||||
Foreign currency swaps | FV | 1,670 | 4,452 | 4,227 | ||||||||||
Interest rate swaps | FV | 3,140 | 3,234 | (3,564 | ) | |||||||||
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Subtotal | 5,205 | 8,922 | 4,163 | |||||||||||
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Foreign currency forwards | CF | 2,635 | 10,744 | (9,772 | ) | |||||||||
Foreign currency swaps | CF | 23,698 | 15,428 | 1,028 | ||||||||||
Interest rate swaps | CF | — | 3,914 | (1,429 | ) | |||||||||
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Subtotal | 26,333 | 30,086 | (10,173 | ) | ||||||||||
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Total derivatives held-for-hedging | 31,538 | 39,008 | (6,010 | ) | ||||||||||
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F-134
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 28 - PROVISION FOR LOAN LOSSES
a) | The changes in provision for loan losses recorded on the income statement for the years ended December 31, 2013, 2014 and 2015 is as follows: |
For the year ended December 31, 2013 | ||||||||||||||||||||
(changes in provision) | ||||||||||||||||||||
Loans and receivables from customers | ||||||||||||||||||||
Loans and receivables from banks | Commercial loans | Mortgage Loans | Consumer Loans | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Recognized provision: | ||||||||||||||||||||
Individually evaluated | (1,054 | ) | (193,586 | ) | — | — | (194,640 | ) | ||||||||||||
Collectively evaluated | — | (29,038 | ) | (7,602 | ) | (100,783 | ) | (137,423 | ) | |||||||||||
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Charge to income for provisions recognized | (1,054 | ) | (222,624 | ) | (7,602 | ) | (100,783 | ) | (332,063 | )(*) | ||||||||||
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Released provisions: | ||||||||||||||||||||
Individually evaluated | 1,086 | 148,563 | — | — | 149,649 | |||||||||||||||
Collectively evaluated | — | 14,027 | 4,604 | 44,244 | 62,875 | |||||||||||||||
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Credit to income for provisions used | 1,086 | 162,590 | 4,604 | 44,244 | 212,524 | (*) | ||||||||||||||
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Recovery of assets previously written-off | — | 5,037 | 1,627 | 10,803 | 17,467 | |||||||||||||||
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Net charge to income | 32 | (54,997 | ) | (1,371 | ) | (45,736 | ) | (102,072 | ) | |||||||||||
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For the year ended December 31, 2014 | ||||||||||||||||||||
(changes in provision) | ||||||||||||||||||||
Loans and receivables from customers | ||||||||||||||||||||
Loans and receivables from banks | Commercial loans | Mortgage Loans | Consumer Loans | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Recognized provision: | ||||||||||||||||||||
Individually evaluated | (269 | ) | (133,767 | ) | — | — | (134,036 | ) | ||||||||||||
Collectively evaluated | — | (45,398 | ) | (10,198 | ) | (138,902 | ) | (194,498 | ) | |||||||||||
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| |||||||||||
Charge to income for provisions recognized | (269 | ) | (179,165 | ) | (10,198 | ) | (138,902 | ) | (328,534 | )(*) | ||||||||||
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| |||||||||||
Released provisions: | ||||||||||||||||||||
Individually evaluated | 141 | 91,686 | — | — | 91,827 | |||||||||||||||
Collectively evaluated | — | 22,710 | 5,349 | 56,431 | 84,490 | |||||||||||||||
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Credit to income for provisions used | 141 | 114,396 | 5,349 | 56,431 | 176,317 | (*) | ||||||||||||||
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Recovery of assets previously written-off | — | 9,321 | 1,277 | 14,347 | 24,945 | |||||||||||||||
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Net charge to income | (128 | ) | (55,448 | ) | (3,572 | ) | (68,124 | ) | (127,272 | ) | ||||||||||
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F-135
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
For the year ended December 31, 2015 | ||||||||||||||||||||
(changes in provision) | ||||||||||||||||||||
Loans and receivables from customers | ||||||||||||||||||||
Loans and receivables from banks | Commercial loans | Mortgage Loans | Consumer Loans | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Recognized provision: | ||||||||||||||||||||
Individually evaluated | (121 | ) | (203,482 | ) | — | — | (203,603 | ) | ||||||||||||
Collectively evaluated | — | (41,465 | ) | (15,019 | ) | (138,651 | ) | (195,135 | ) | |||||||||||
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Charge to income for provisions recognized | (121 | ) | (244,947 | ) | (15,019 | ) | (138,651 | ) | (398,738 | )(*) | ||||||||||
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| |||||||||||
Released provisions: | ||||||||||||||||||||
Individually evaluated | 180 | 115,698 | — | — | 115,878 | |||||||||||||||
Collectively evaluated | — | 12,401 | 15,396 | 65,430 | 93,227 | |||||||||||||||
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| |||||||||||
Credit to income for provisions used | 180 | 128,099 | 15,396 | 65,430 | 209,105 | (*) | ||||||||||||||
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| |||||||||||
Recovery of assets previously written-off | — | 6,905 | 1,875 | 11,105 | 19,885 | |||||||||||||||
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| |||||||||||
Net charge to income | 59 | (109,943 | ) | 2,252 | (62,116 | ) | (169,748 | ) | ||||||||||||
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(*) | The amounts disclosed in the Consolidated Statements of Cash Flows are detailed below: |
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Charge to income for provisions recognized | (332,063 | ) | (328,534 | ) | (398,738 | ) | ||||||
Credit to income for provisions used | 212,524 | 176,317 | 209,105 | |||||||||
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| |||||||
(119,539 | ) | (152,217 | ) | (189,633 | ) |
b) | The break down by type of loan, whether assessed collectively or individually, for established and released provision amounts, respectively, is as follows: |
For the year ended December 31, 2013. | ||||||||||||||||||||||||||||
Established Provision | Released Provision | |||||||||||||||||||||||||||
Individual Analysis | Group Analysis | Total | Individual Analysis | Group Analysis | Total | Note | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||
Commercial Loans | (193,586 | ) | (29,038 | ) | (222,624 | ) | 148,563 | 14,027 | 162,590 | |||||||||||||||||||
Mortgage Loans | — | (7,602 | ) | (7,602 | ) | — | 4,604 | 4,604 | ||||||||||||||||||||
Consumer Loans | — | (100,783 | ) | (100,783 | ) | — | 44,244 | 44,244 | ||||||||||||||||||||
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| |||||||||||||||||
(193,586 | ) | (137,423 | ) | (331,009 | ) | 148,563 | 62,875 | 211,438 | 10 | |||||||||||||||||||
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| |||||||||||||||||
Banks | (1,054 | ) | — | (1,054 | ) | 1,086 | — | 1,086 | 9 | |||||||||||||||||||
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| |||||||||||||||||
(194,640 | ) | (137,423 | ) | (332,063 | ) | 149,649 | 62,875 | 212,524 | ||||||||||||||||||||
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F-136
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
For the year ended December 31, 2014. | ||||||||||||||||||||||||||||
Established Provision | Released Provision | |||||||||||||||||||||||||||
Individual Analysis | Group Analysis | Total | Individual Analysis | Group Analysis | Total | Note | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||
Commercial Loans | (133,767 | ) | (45,398 | ) | (179,165 | ) | 91,686 | 22,710 | 114,396 | |||||||||||||||||||
Mortgage Loans | — | (10,198 | ) | (10,198 | ) | — | 5,349 | 5,349 | ||||||||||||||||||||
Consumer Loans | — | (138,902 | ) | (138,902 | ) | — | 56,431 | 56,431 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||||
(133,767 | ) | (194,498 | ) | (328,265 | ) | 91,686 | 84,490 | 176,176 | 10 | |||||||||||||||||||
|
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|
|
|
|
|
|
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|
| |||||||||||||||||
Banks | (269 | ) | — | (269 | ) | 141 | — | 141 | 9 | |||||||||||||||||||
|
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|
|
|
|
|
|
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| |||||||||||||||||
(134,036 | ) | (194,498 | ) | (328,534 | ) | 91,827 | 84,490 | 176,317 | ||||||||||||||||||||
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| |||||||||||||||||
For the year ended December 31, 2015. | ||||||||||||||||||||||||||||
Established Provision | Released Provision | |||||||||||||||||||||||||||
Individual Analysis | Group Analysis | Total | Individual Analysis | Group Analysis | Total | Note | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||
Commercial Loans | (203,482 | ) | (41,465 | ) | (244,947 | ) | 115,698 | 12,401 | 128,099 | |||||||||||||||||||
Mortgage Loans | — | (15,019 | ) | (15,019 | ) | — | 15,396 | 15,396 | ||||||||||||||||||||
Consumer Loans | — | (138,651 | ) | (138,651 | ) | — | 65,430 | 65,430 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
(203,482 | ) | (195,135 | ) | (398,617 | ) | 115,698 | 93,227 | 208,925 | 10 | |||||||||||||||||||
|
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|
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|
|
|
|
|
|
| |||||||||||||||||
Banks | (121 | ) | — | (121 | ) | 180 | — | 180 | 9 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
(203,603 | ) | (195,135 | ) | (398,738 | ) | 115,878 | 93,227 | 209,105 | ||||||||||||||||||||
|
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|
|
In management’s opinion, the credit risk provisions established cover all losses that may arise from estimated incurred loan losses, based on the information examined by the Bank and its subsidiaries.
F-137
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 29 - PERSONNEL SALARIES EXPENSES
Personnel salaries expenses for the years ended December 31, 2013, 2014 and 2015 are as follows:
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Personnel remunerations | (102,967 | ) | (131,872 | ) | (126,933 | ) | ||||||
Bonuses and gratifications/awards | (45,009 | ) | (57,326 | ) | (54,864 | ) | ||||||
Severance indemnities | (3,026 | ) | (10,231 | ) | (4,220 | ) | ||||||
Training Expenses | (955 | ) | (1,093 | ) | (416 | ) | ||||||
Other personnel expenses | (13,052 | ) | (18,790 | ) | (16,321 | ) | ||||||
|
|
|
|
|
| |||||||
Total | (165,009 | ) | (219,312 | ) | (202,754 | ) | ||||||
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|
|
F-138
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 30 - ADMINISTRATION EXPENSES
Administration expenses for the years ended December 31, 2013, 2014 and 2015 are as follows:
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Maintenance and repair of fixed assets | (8,178 | ) | (13,296 | ) | (14,382 | ) | ||||||
Office rentals | (14,297 | ) | (20,986 | ) | (21,238 | ) | ||||||
Equipment rentals | (3,088 | ) | (4,644 | ) | (3,943 | ) | ||||||
Insurance premiums | (10,996 | ) | (17,949 | ) | (17,143 | ) | ||||||
Office supplies | (1,202 | ) | (1,595 | ) | (1,478 | ) | ||||||
IT and communications expense | (7,583 | ) | (11,262 | ) | (12,059 | ) | ||||||
Lighting, heating and other services | (4,697 | ) | (5,545 | ) | (6,064 | ) | ||||||
Security Service and transportation of securities | (2,213 | ) | (1,994 | ) | (1,810 | ) | ||||||
Public relations expense and staff travel expenses | (1,935 | ) | (2,675 | ) | (2,573 | ) | ||||||
Legal and Notary Costs | (1,435 | ) | (795 | ) | (2,583 | ) | ||||||
Technical report fees | (12,997 | ) | (31,963 | ) | (30,908 | ) | ||||||
Professional services fees | (1,233 | ) | (2,366 | ) | (1,616 | ) | ||||||
Securities classification fees | (180 | ) | (121 | ) | (114 | ) | ||||||
Fines | (165 | ) | (131 | ) | (119 | ) | ||||||
Comprehensive management ATMs | (2,649 | ) | (2,448 | ) | (2,422 | ) | ||||||
Other administration expenses | (16,620 | ) | (26,361 | ) | (19,495 | ) | ||||||
|
|
|
|
|
| |||||||
Subtotal | (89,468 | ) | (144,131 | ) | (137,947 | ) | ||||||
Subcontracted services | ||||||||||||
Data processing | (9,526 | ) | (11,688 | ) | (13,250 | ) | ||||||
Sales | (307 | ) | (779 | ) | (718 | ) | ||||||
Loan valuation | (35 | ) | (3,674 | ) | (482 | ) | ||||||
Others | (8,455 | ) | (10,665 | ) | (7,463 | ) | ||||||
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|
|
|
|
| |||||||
Subtotal | (18,323 | ) | (26,806 | ) | (21,913 | ) | ||||||
Board of Directors Expenses | ||||||||||||
Remunerations | (1,343 | ) | (1,567 | ) | (1,493 | ) | ||||||
Other Board of Directors expenses | — | (25 | ) | — | ||||||||
|
|
|
|
|
| |||||||
Subtotal | (1,343 | ) | (1,592 | ) | (1,493 | ) | ||||||
Marketing and advertising | (6,672 | ) | (7,205 | ) | (6,938 | ) | ||||||
Real estate taxes, contributions and levies | (23,808 | ) | (33,406 | ) | (43,312 | ) | ||||||
Real estate taxes | (352 | ) | (416 | ) | (391 | ) | ||||||
Patents | (818 | ) | (817 | ) | (829 | ) | ||||||
Other taxes(*) | (18,795 | ) | (27,145 | ) | (36,501 | ) | ||||||
Contributions to SBIF | (3,843 | ) | (5,028 | ) | (5,591 | ) | ||||||
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|
|
|
|
| |||||||
Subtotal | (23,808 | ) | (33,406 | ) | (43,312 | ) | ||||||
|
|
|
|
|
| |||||||
Total | (139,614 | ) | (213,140 | ) | (211,603 | ) | ||||||
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F-139
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
(*) | This amount corresponds primarily to taxes other than income taxes that affect Banco CorpBanca Colombia and its subsidiaries (Colombian segment). They are taxes on local financial transactions, ongoing performance of commercial activities or services, non-discountable value added tax and equity tax, among others. |
NOTE 31 - DEPRECIATION, AMORTIZATION AND IMPAIRMENT
a) | Depreciation and amortization expenses as of December 31, 2013, 2014 and 2015 were as follows: |
As of Decembre 31, | ||||||||||||||
2013 | 2014 | 2015 | Note | |||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||
Depreciation and amortization | ||||||||||||||
Depreciation of property, plant and equipment | (12,680 | ) | (13,827 | ) | (11,667 | ) | 14 | |||||||
Amortization of intangible assets | (29,608 | ) | (37,786 | ) | (31,238 | ) | 13 | |||||||
|
|
|
|
|
| |||||||||
Balances | (42,288 | ) | (51,613 | ) | (42,905 | ) | ||||||||
|
|
|
|
|
|
b) | Impairment losses for the years ended December 31, 2013, 2014 and 2015 are detailed below: |
For the years ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Impairment of financial investments available-for-sale | — | — | — | |||||||||
Impairment of financial investments held-to-maturity | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Subtotal financial assets (i) | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Impairment of property, plant and equipment (*) | — | (1,308 | ) | (332 | ) | |||||||
Impairment of Goodwill and Intangibles | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Subtotal Non-financial assets (ii) | — | (1,308 | ) | (332 | ) | |||||||
|
|
|
|
|
| |||||||
Total | — | (1,308 | ) | (332 | ) | |||||||
|
|
|
|
|
|
(*) | Impairment for technological obsolescence as a result of new regulations on ATMs (decree 222 dated October 30, 2013 from the Ministry of Internal Affairs and Public Safety of Chile), accounted for in accordance with IAS36 Impairment of Assets. See note 14Property, Plant and Equipment, letterb). |
At each reporting date, Banco CorpBanca and its subsidiaries (the Group) will evaluate whether there is any indication of impairment of any asset. Should any such indication exist, or when impairment testing is required, the entity will estimate the asset’s recoverable amount.
i. | Financial assets |
As of each reporting date, CorpBanca and its subsidiaries assess whether there is objective evidence that a financial asset or a group of financial assets may be impaired. Financial assets or asset groups are considered impaired only if there is objective evidence of impairment as a result of one or more loss events 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 or asset group that can be reliably estimated. Evidence of impairment may include, among other examples, debtors or a group of debtors with significant financial difficulties, non-compliance or delinquency in principal or interest payments, the potential to declare bankruptcy or undergo another form of financial reorganization, or observable data that indicate a measureable reduction in estimated future cash flows, such as adverse changes in the status of past due payments or in the economic conditions related to such non-compliance.
F-140
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
ii. | Non-financial assets11 |
The carrying amounts of non-financial assets, excluding investment property and deferred taxes, are reviewed regularly, or at least every reporting period, to determine whether indications of impairment exist. If such indication exists, the recoverable amount of the asset is then estimated. The recoverable amount of an asset is the greater of the fair value less costs to sell, whether for an asset or a cash generating unit, and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash flows that are largely independent from the cash flows of other assets or asset groups.
The entity will conduct impairment testing on an annual basis for intangible assets with indefinite useful lives, as well as intangible assets that are not yet available for use, by comparing their carrying amount with their recoverable amount. Impairment testing can be carried out at any time during the year, as long as it takes place at the same time each year. Impairment testing of different intangible assets can take place on different dates. However, if that intangible asset had been recognized initially during the current year, it will be tested for impairment before the year ends.
Impairment of goodwill is determined by evaluating the recoverable amount of each cash generating unit (or group) to which goodwill is allocated. Where the recoverable amount of the cash generating unit is less than its carrying amount, an impairment loss is recognized; goodwill acquired in a business combination shall be allocated of the acquisition date among the CGUs or group of CGUs of the acquirer that are expected to benefit from the synergies of the business combination, regardless of whether other of the acquiree’s assets or liabilities are allocated to these units. Impairment losses relating to goodwill cannot be reversed in future periods.
In accordance with IAS 36 “Impairment of Assets”, annual impairment testing is required for a CGU to which goodwill has been allocated and for intangible assets with indefinite useful lives. Different cash generating units and different intangible assets can be tested for impairment at different times during the year as long as they are carried out at the same time each year.
Upon evaluating whether any indication of impairment exists for an asset, the entity shall consider at least the following factors:
External sources of information:
(a) | During the period, an asset’s market value has declined significantly more than would be expected as a result of the passage of time or normal use. |
(b) | Adverse conditions in the technological, market, economic or legal environment. |
(c) | Increase in interest rates. |
(d) | Market value of equity lower than carrying amount. |
Internal sources of information:
(a) | Evidence of obsolescence of physical damage of an asset. |
(b) | Plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite. |
(c) | Decrease or expected decrease in an asset’s performance. |
In the event of objective impairment, the carrying amount of an asset will be reduced to the recoverable amount if, and only if, the recoverable amount is less than the carrying amount. This reduction is an impairment loss.
Impairment losses are recognized immediately in the Statement of Income unless the asset is accounted for at revalued value in accordance with other standards. Any impairment loss in revalued assets is treated as a decrease in the revaluation made in accordance with that standard. When the estimated amount of an impairment loss is greater than the carrying amount of the asset to which it is related, the entity will recognize a liability if, and only if, it were obligated to do so by another standard.
11 | (Goodwill and intangible assets with definite/indefinite lives) were reviewed for indicator of impairment at December 31, 2015. No indicators of impairment were present. |
F-141
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
After recognizing an impairment loss, charges for depreciating the asset are adjusted for future periods in order to distribute the asset’s revised carrying amount, less its potential residual value, systematically over the remaining useful life.
If an impairment loss is recognized, the deferred tax assets and liabilities related to it will also be determined by comparing the asset’s revised carrying amount to its tax basis in accordance with IAS 12 Income Taxes.
Impairment testing of goodwill and intangible assets with indefinite useful lives at December 31, 2015
1. | Goodwill Impairment Testing |
The Group’s business combinations began in the first half of 2012, with CorpBanca Chile’s acquisition of Banco Santander Colombia S.A. from Banco Santander Spain12. The acquiree’s name was changed to Banco CorpBanca Colombia S.A. Following a capital increase in which CorpBanca Chile did not contribute the same proportion as its initial interest, CorpBanca Chile held a 66.27% interest in CorpBanca Colombia and subsidiaries.
Aspects | Acquirer | Acquired | ||
Entities | CorpBanca | Banco Santander (SIVAL) | ||
Country (residence) | Chile | Colombia |
In the same period, Banco CorpBanca Colombia acquired 94.50% of the shares entitled to vote of Corpbanca Investment Trust Colombia S.A.13
Aspects | Acquirer | Acquired | ||
Entities | CorpBanca Colombia | CITRUST | ||
Country (residence) | Colombia | Colombia |
Subsequently, during the second half of 2013, Banco CorpBanca Colombia S.A. acquired and took control of Helm Bank and subsidiaries, (this acquisition also enabled it to enter the Panamanian market), while CorpBanca Chile acquired 80% of the shares of Helm Corredor de Seguros S.A.Lastly, on June 1, 2014, the merger between Banco CorpBanca Colombia and Helm Bank S.A. was completed in order to operate as one single bank, taking advantage of the synergies generated as a result of each bank’s area of expertise and target business segments.
Aspects | Acquirer | Acquired | ||
Entities | CorpBanca Colombia | Helm Bank and subsidiaries | ||
Country (residence) | Colombia | Colombia; Panamá | ||
Entities | CorpBanca | Helm Corredores de Seguros | ||
Country (residence) | Chile | Colombia |
This is framed within the Group’s long-term strategy, which includes elements such as: To expand geographically; to increase returns from individual segments while maintaining low risk levels; to diversify and improve funding sources; to lead in costs and operating efficiency; to obtain synergies that promote growth; to cultivate a corporate culture that enables its strategy to be applied, etc.
The business combinations summarized in the preceding paragraph generated goodwill and intangible assets that must be tested for impairment in accordance with current regulations. They were allocated to the Colombia CGU, which is also identified as an operating segment14 (See Note 4Operating Segments).
12 | This transaction also included the acquisition of Santander Investment Valores Colombia S.A. (currently CorpBanca Investment Valores Colombia S.A.) and Santander Investment Trust Colombia S.A. (currently CorpBanca Investment Trust Colombia S.A.). |
13 | Company that became a subsidiary subsequent to a business combination between Banco Santander Colombia and CorpBanca Chile. |
F-142
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
The following table details the intangible assets with indefinitive lives for 2015, 2014 and 2013:
Note | 2013 | 2014 | 2015 | |||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||
Trademarks | 1,298 | 1,206 | 988 | |||||||||||||
Licenses | 13 | 50,567 | 46,797 | 42,277 | ||||||||||||
Database | 500 | 463 | 381 | |||||||||||||
Goodwill | 13 | 420,623 | 386,180 | 345,620 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total | 472,988 | 434,646 | 389,266 |
The Group has conducted annual impairment testing as of December 31, 2015, 2014 and 2013. Upon evaluating whether indications of impairment exist, the relationship between its market capitalization and the carrying amount of its equity are among the main factors considered. The Group’s market capitalization is greater than the carrying amount of its equity (Price/BV around 2.2 and 2.3 times, respectively).
The variables evaluated in the projections used in the Colombia CGU take into account aspects such as:
External Variables
Gross Domestic Product (GDP)
Colombia has grown steadily since 2000 forward. In the years before the crisis of 2008, GDP growth was maintained at values between 4.5 and 7%, which were subsequently affected by the subprime crisis, and then continued in 2011 with growth of between 4 and 4, 5%. 2015 is expected to end with a growth of about 3%, because of a general slowdown in the Latin American economy, returning to values above 4% in 2017.
Unemployment
The unemployment rate in Colombia is a good indicator of economic development that have sustained in the past 15 years. Starting in 2001 with an unemployment rate of 15%, which has decreased to 9% in 2015.
Inflation and exchange rate
These variables have not been ignored by the improvement in the last 15 years. Except for the last two years that inflation has increased slightly to 6%. Since 2000, levels have declined and, in general, have remained in line with the inflation target of the Central Bank of Colombia.
Rising inflation in Colombia (2015/2014) is principally due to a devaluation of the Colombian peso, reduction of foreign trade and local economic slowdown. This, coupled with climatic effects (“El Niño”15) has punished crops increasing food prices 62% increase in the previous year.
Economists expect this negative economic phenomenon will not last more than two years, counting on the end of El Niño in the middle of 2016, the stabilization of inflation to normal levels and the strengthening of GDP growth due to the competitive advantages obtained by the devaluation generated in recent months and the normalization of domestic demand.
Economic Sector
Regarding the most dynamic economic sectors, these were as follows: 8.7% construction, mining and quarrying with 4.2%, commerce, repairs, restaurants and hotels with 3.8% and financial institutions, real estate and business services with 3.6%.
14 | The Group determined that its operating segments also correspond to its reportable segments. As a result, no operating segments were aggregated to create reportable segments. |
15 | El Niño is an abnormal weather pattern that is caused by the warming of the Pacific Ocean near the equator, off the coast of South America. This occurs when the normal trade winds weaken (or even reverse), which lets the warm water that is usually found in the western Pacific flow instead towards the east. This warm water displaces the cooler water that is normally found near the surface of the eastern Pacific, setting off atmospheric changes that affect weather patterns in many parts of the world. |
F-143
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Directly responsible for the momentum has been consumption registering a variation of 2.9% due to the growth of household consumption (3.3%) and the expenditures of government (1.8%) ; meanwhile, the sector with negative demand was that of the gross fixed capital formation wich suffered a sharp slowdown.
Portfolio
The growth of the portfolio of Colombian financial institutions is positively correlated with GDP growth (0.72) therefore it has grown and accompanied the development of the economy.
As for the composition of growth in the banking book it shows that 10 years ago, it was led by commercial and consumer loans (microloans have historically shown higher volatility). Currently, the credit growth rate has converged at approximately 15%.
Interest Rate
As for interest rates when bank penetration has been growing and competitive, they have been thus reducing also the spread of loans rates and deposits.
The intervention rate for the end of 2015 is expected at around the 4.5% level, half the expected rate for commercial loans.
Bank solvency index
The minimum solvency ratio required by the regulation in Colobia is 9%, demonstrating the banking industry showed a steady increase between 2000 and 2015 (11.7% and 15.2% respectively).
Banking services
Colombia in the item financial inclusion ranks second among a group of 55 emerging economies, but still has barriers, use and access issues that keep to Colombia at a disadvantage compared to other countries.
The last measurement to establish the level of financial inclusion has to Colombia in the 57th, Korea in first place and Brazil in 29th place (among 82 countries). This analysis also indicates the barriers to further financial inclusion (63rd); in access to financial services (54th) and use of the products (46th).
According to the Banking Association in Colombia (Asobancaria) today throughout the territory of Colombia has coverage of banking services. However, 51% of savings accounts are inactive, and another percentage is only used for state subsidies and that money is fully withdrawn when accredited.
In turn, financial depth, which indicates the level of access to credit with Colombians last October reached 43.3%, according to the Financial Superintendence of Colombia.
In terms of banking services, Colombia is located very close to the Brazilian rates (around 60%) but with a significant growth potential and is expected to reach the level of Chile (around 80%) in less than 10 years, due to high levels of growth that have and will loan portfolios of consumer, commercial, mortgage and microcredit.
Taxes
The current rates for corporate taxes, according to the latest tax reform approved by the government of Colombia in December 2014 were applied.
INTENAL VARIABLES
Management, prepared its projections considering the following aspects: Revenues were projected considering the historical growth, which is consistent with the level of growth experienced by the Colombian GDP, the expected growth of the economy, and the expected increase in market share as a result of merger and growth expectations for the Colombian banking industry.
It is expected that the market share CorpBanca has sustained will grow in the coming years, in loans and deposits, for the following reasons:
a. Colombia represents about 7% of production in Latin America, fourth largest economy in the region.
b. Colombia should grow above the average of Latin America in the next 5 years.
c. GDP has grown consistently over the past seven years.
d. 80% of GDP is domestic demand.
F-144
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
e. The growth of loans and deposits is presented aligned to the expectation of market growth, which is explained by low levels of banking penetration in Colombia
• | The company has strong solvency figures which gives margin to reinvest and improve the conditions for growth. |
• | Expenses and revenues are projected similarly, ie according to historical growth presented by the industry, adjusted for synergies and economies of scale generated by mergers described above, which are characterized by the following: |
a. The main income attributable to: interest (generated by average portfolio balances in relation to their rate), service fee (transactions generated by product) and results from financial operations (obtained by operation of financial instruments).
b. Expenses primarily relate to interest (paid by deposit products in relation to agreed rates), provisions for credit risk (associated with the loan portfolio) and other expenses (which include administrative expenses, personnel and amortization).
The recoverable amount of the CGU Colombia, has been determined using the asset valuation approach called income approach, using the methodology of the dividend discount model main method. This methodology considers the flow that would generate dividends paid to shareholders in a perpetual projection horizon, discounted at the rate of equity cost at the date of valuation, facilities and estimated the economic value of the assets of the company, using flow projections cash derived from financial budgets approved by management and covering a period of 5 years of explicit projection (2020), a perpetual time horizon, assuming a profit growth of approximately 5% in perpetuity (a starting in 2021).
Senior Management believes that this growth rate is justified by the acquisition of new subsidiaries in Colombia and the issues discussed above, allowing capture more market and other potentials.
Key assumptions used in calculating the recoverable amount
The values assigned to the key assumptions are an evaluation by senior management of future industry trends based on both external and internal sources. The key assumptions used in calculating the recoverable amount are summarized below and detailed in subsequent sections:
Key Assumptions | 2015 | 2014 | ||||||
Projection period | 5.0 | 5.0 | ||||||
Perpetuity growth rates (%) | 5.0 | 5.0 | ||||||
Projected inflation rates (%) | 3.0 | 3.0 | ||||||
Discount rate (%) | 12.6 | 12.3 | ||||||
Tax rate (%) | 41.8 | 40.4 | ||||||
Solvency index limit (%) | 10.0 | 10.0 |
Goodwill
a. | Projection period and perpetuity. |
• | The recoverable amount has been determined using cash flows based on six -month budgets approved by senior management with a discount rate of around 12%. Cash flows beyond this time horizon have been extrapolated using a growth rate of around 5.0%. This growth rate does not exceed the average long-term growth rate for the market in which the CGU operates. |
• | Cash flow projections correspond to 5 years (until 2019) after which time a present value is calculated for cash flows in perpetuity by normalizing cash flows. This normalization is performed to increase the payment of dividends used in perpetuity without reducing the solvency ratio. |
• | The growth rate of cash flows in perpetuity is approximately 5.0% nominal (represents an approximate excess of 2.0 percentage points over inflation). Projected inflation for Colombia is around 3.0%. |
F-145
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
• | Growth in perpetuity is 5% is based on future projections and their potential for short-term increase, which implies an increase in portfolio in the first five years near 15% and reducing it gradually to 5% by 2025. |
b. | Loans and deposits. |
• | Loans were projected considering an increase of around 15% annually and the deposit portfolio was projected on a correlated basis, both concepts aligned to the expectations of market growth and market share. |
c. | Income |
• | Determined by average balances (calculated with respect to gaining market share) of mortgage loans, credit cards, commercial loans and consumer loans. |
• | Average growth rates until 2020 for interest income are around 16.3% while fee and commission income is close to 11.4%. |
• | In relation to the results generated on financial transactions growth of around 15.5%. |
d. | Costs. |
• | Cost projections are determined primarily by average balances of time and demand deposits as well as other relevant components. |
• | Interest expense (expenses related to deposits and taxes) demonstrate growth of 15.6% up to 2020. Credit risk provisions grow around 18.3% and other expenses demonstrate growth of 5%. |
e. | Discount rate. |
• | In order to estimate the discount rate (Ke) and the weighted average cost of capital, the capital asset pricing model was used as a framework. This models sets the rate demanded by shareholders (Ke) equal to the risk-free rate plus a premium that the investors expect to assume for the systematic risk inherent to the company. |
• | The risk-free rate corresponds to U.S. treasury bonds, specifically US GT 30 and GOVT. |
• | The beta measures the share price volatility for a company with respect to the general securities market. It reflects the market or systematic risk, as opposed to the company’s specific risk. We have selected a group of listed companies that operate in the Colombian banking industry. In the search for these indicators, we concentrated on companies whose main activities are similar. The betas of shares used for each of the comparable companies were taken from the Bloomberg platform. In order to adjust for the financial leverage effect of the beta of each company, the betas were “unlevered”, based on the current history of the comparable company and its debt-equity ratio to give the asset beta of each company. |
• | Taxes are projected at a rate of 40% for 2016, 42% for 2017, 43% and 43% for 2018 and 2021, in accordance with the tax reform passed in Colombia in December 2014. For the 2015 period, a tax rate of 34% was used for the first three years and after that a rate of 39%. |
• | The discount rate is a variable that has a considerable impact on results, sensitivity testing was performed for that rate, concluding that no reasonable change would negatively impact the results. |
f. | Dividend payments. |
• | Dividend payments were used to maximize the cash flows of shareholders with the restriction that solvency (technical capital to risk-weighted assets) did not go below 10% for projected cash flow. This did not exceed the solvency limits required by regulators, which are in line with the market and future growth forecasts. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Sensitivity to changes in key assumptions used
In determining the recoverable amount of the cash generating unit analyzed, upper management believes that no reasonable possible change in any of the aforementioned key assumptions would make the carrying amount of the unit significantly exceed its recoverable amount.
Results of Impairment Testing
The Bank concluded that the recoverable amounts of the assets tested exceed their respective carrying amounts. As a result of this analysis, senior management has not identified impairment.
2. | Impairment Testing of Intangible Assets with Indefinite Useful Lives |
License
The “with or without” methodology was used for the valuation, which reflects the difference between the values of the company based on the time it would take to obtain the intangible asset and, therefore, begin to receive cash flows. The key assumptions are detailed as follows:
a. | Period of time to obtain the license. A period of 18 months was defined as the time necessary to obtain a banking license and, therefore, begin to generate cash flows. |
b. | Cash flows. The same flows used for the equity valuation model were used (i.e. dividend discount). |
c. | Discount rate: The cash flows were discounted at the same rate used in the equity valuation model described above. A spread of 1% is added for cash flows generated by this asset, which is in line with its nature and is presented as riskier than the average of the assets in the Statement of Financial Position. |
As a result of this analysis, senior management has not identified impairment for this asset.
Trademark
The relief from royalty method was used, which considers the income attributable to the brands of Banco CorpBanca Colombia. It also considers a royalty equivalent to the percentage of income produced by the brands and the result of this cash flow is discounted to equity cost. The key assumptions are detailed as follows:
a. | Evolution of contribution margin. The assumptions that govern the evolution of income and costs are the same used in the valuation of CorpBanca’s economic equity. |
b. | Tax Relief-From-Royalty. The royalty rate used is approximately 0.3%. The same tax rate described above is used. |
c. | Marketing expenses. This uses the assumption that for the brand to continue to generate cash flows, marketing expenses must be incurred, specifically around 21% of results after the effects of the post-tax royalties. |
d. | Discount rate: The cash flows were discounted at the same rate used in the equity valuation model described above. A spread of 1% is added for cash flows generated by this asset, which is in line with its nature and is presented as riskier than the average of the assets in the Statement of Financial Position. |
As a result of this analysis, senior management has not identified impairment for this asset.
Database
For this asset, a value per user was estimated justified by the level of detail in the database and considering total customers for the Colombia segment.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As a result of this analysis, senior management has not identified impairment for this asset.
Sensitivity to Changes in Key Assumptions Used
In determining the recoverable amount of the assets described above (in 2.1 to 2.3), senior management performed a sensitivity analysis under diverse scenarios and concluded that no reasonable possible change in any of the aforementioned key assumptions would make their carrying amount significantly exceed that amount.
3. Recoverable Amount Disclosures for Non-Financial Assets
On May 29, 2013 the IASB published “Amends to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets. The publication of IFRS 13 Fair Value Measurements amended certain disclosure requirements in IAS 36 Impairment of Assets with respect to measuring the recoverable amount of impaired assets. However, one of the modifications to the disclosure requirements was more extensive than originally intended. The IASB has rectified this with the publication of these amendments to IAS 36.
The amendments to IAS 36 removed the requirement to disclose the recoverable amount of each cash-generating unit (group of units) for which the carrying amount of goodwill or intangible assets with indefinite useful lives allocated to that unit (group of units) was significant compared with the total carrying amount of goodwill or intangible assets with indefinite useful life of the entity. The amendments require an entity to disclose the recoverable amount of an individual asset (including goodwill) or a cash-generating unit to which the entity recognized or reversed deterioration during the reporting period. An entity shall disclose information about the fair value less costs to sell of an individual asset, including goodwill, or a cash-generating unit to which the entity recognized or reversed an impairment loss during the reporting period, including: (i) the level of the fair value hierarchy (IFRS 13), (ii) the valuation techniques used to measure fair value less costs to sell, and (iii) the key assumptions used in fair value measurement categorized within “Level 2” and “Level 3” of the fair value hierarchy. In addition, an entity should disclose the discount rate used when an entity recognized or reversed an impairment loss during the reporting period and the recoverable amount should be based on the fair value less costs to sell determined using a present value valuation technique. The amendments should be applied retrospectively for annual periods beginning on or after January 1, 2014. Earlier application is permitted.
4. Others
There have been no changes in valuation techniques of this period relative to those used in previous.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 32 - OTHER OPERATING INCOME AND EXPENSES
a) | Other operating income |
The detail of other operating income is as follows:
Note | 2013 | 2014 | 2015 | |||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||
Revenues for assets received in lieu of payment | ||||||||||||||||
Assets received in lieu of payment provision released | — | — | — | |||||||||||||
Gain on sales of assets received in lieu of payment | 1,921 | 2,226 | 2,356 | |||||||||||||
Others | 71 | 645 | 1,699 | |||||||||||||
|
|
|
|
|
| |||||||||||
Subtotal | 1,992 | 2,871 | 4,055 | |||||||||||||
|
|
|
|
|
| |||||||||||
Contingency provisions used | ||||||||||||||||
Other contingency provisions | 20 b) | 57 | 2,749 | 934 | ||||||||||||
|
|
|
|
|
| |||||||||||
Subtotal | 57 | 2,749 | 934 | |||||||||||||
|
|
|
|
|
| |||||||||||
Other Revenues | ||||||||||||||||
Gain on sales of property, plant and equipment | 25,164 | 415 | 461 | |||||||||||||
Compensation insurance companies | 106 | 89 | 95 | |||||||||||||
|
|
|
|
|
| |||||||||||
Subtotal | 25,270 | 504 | 556 | |||||||||||||
|
|
|
|
|
| |||||||||||
Leasing contributions revenue | 1,591 | 2,181 | 1,167 | |||||||||||||
Other operating income -Subsidiaries | 1,146 | 2,561 | 3,136 | |||||||||||||
Gain on sales of leased assets | 334 | 604 | 1,357 | |||||||||||||
Other operating income -Leasing | 185 | 241 | 366 | |||||||||||||
Insurance reimbursement | 2,750 | 6,417 | 8,206 | |||||||||||||
Change useful life intangible assets Helm Bank | — | 2,272 | — | |||||||||||||
Reimbursement of guarantees (Fogafin - Colombia) | — | 1,402 | — | |||||||||||||
Income policy administration | 397 | 1,481 | — | |||||||||||||
Valuation of investment income | — | — | 889 | |||||||||||||
Rental income | 1,279 | 2,713 | 618 | |||||||||||||
Other income | 4,657 | 2,962 | 2,368 | |||||||||||||
|
|
|
|
|
| |||||||||||
Subtotal | 12,339 | 22,834 | 18,107 | |||||||||||||
Total | 39,658 | 28,958 | 23,652 | |||||||||||||
|
|
|
|
|
|
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
b) | Other operating expenses |
Other operating expenses for the years ended December 31, 2013, 2014 and 2015 are the following:
Note | 2013 | 2014 | 2015 | |||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||
Provisions and expenses for assets received in lieu of payment | ||||||||||||||||
Provisions for assets received in lieu of payment | (35 | ) | — | (361 | ) | |||||||||||
Maintenance expenses of assets received in lieu of payment | (352 | ) | (554 | ) | (486 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Subtotal | (387 | ) | (554 | ) | (847 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Contingency provisions | ||||||||||||||||
Other contingency provisions | 20 b | ) | (107 | ) | — | — | ||||||||||
|
|
|
|
|
| |||||||||||
Subtotal | (107 | ) | — | — | ||||||||||||
|
|
|
|
|
| |||||||||||
Other expenses | ||||||||||||||||
Other expenses | (14,740 | ) | (23,745 | ) | (22,348 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Subtotal | (14,740 | ) | (23,745 | ) | (22,348 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total | (15,234 | ) | (24,299 | ) | (23,195 | ) | ||||||||||
|
|
|
|
|
|
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Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 33 - RELATED PARTY TRANSACTIONS
As defined in IAS 24, a related party is: (a) a person or a close member of that person’s family related to a reporting entity if that person (i) has control or joint control of the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. (b) an entity is related to a reporting entity if (i) the entity and the reporting entity are members of the same group; (ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member); (iii) both entities are joint ventures of the same third party; (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity; (v) the entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity; (vi) the entity is controlled or jointly controlled by a person identified in (a) or ; (vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the enity (or of a parent of the entity):
Transactions that the Bank entered into with related parties as of December 31, 2013, 2014 and 2015 are specified below:
a) | Loans granted to related parties |
Loan granted to related parties as of December 31, 2014 and 2015 are as fol1ows:
As of December 31, 2014 | Operating Companies | Investment Companies | Individuals | |||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Loans and receivables to customers: | ||||||||||||
Commercial loans | 181,576 | 31,351 | 1,741 | |||||||||
Mortgage Loans | — | — | 14,580 | |||||||||
Consumer Loans | — | — | 2,592 | |||||||||
|
|
|
|
|
| |||||||
Loans and receivables to customers - gross | 181,576 | 31,351 | 18,913 | |||||||||
Provision for loan losses | (2,650 | ) | (154 | ) | (47 | ) | ||||||
|
|
|
|
|
| |||||||
Loans and receivables to customers, net | 178,926 | 31,197 | 18,866 | |||||||||
|
|
|
|
|
| |||||||
Other | 76,396 | 312 | 2,304 | |||||||||
|
|
|
|
|
|
As of December 31, 2015 | Operating Companies | Investment Companies | Individuals | |||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Loans and receivables to customers: | ||||||||||||
Commercial loans | 86,595 | 24,406 | 3,863 | |||||||||
Mortgage Loans | — | — | 16,451 | |||||||||
Consumer Loans | — | — | 2,362 | |||||||||
|
|
|
|
|
| |||||||
Loans and receivables to customers - gross | 86,595 | 24,406 | 22,676 | |||||||||
Provision for loan losses | (1,731 | ) | (6 | ) | (82 | ) | ||||||
|
|
|
|
|
| |||||||
Loans and receivables to customers, net | 84,864 | 24,400 | 22,594 | |||||||||
|
|
|
|
|
| |||||||
Other | 28,972 | 674 | 2,910 | |||||||||
|
|
|
|
|
|
F-151
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
b) | Other transactions with related parties |
For the years ended December 31, 2013, 2014 and 2015, the Bank entered into the following transactions with related parties for amounts exceeding UF 1,000.
As of December 31, 2013: | ||||||||||||||||||
Asset (Liability) | Effect on Statement of Income | |||||||||||||||||
Company | Description | Notes | Income | (expense) | ||||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||||
Inmobiliaria Edificio Corpgroup S.A. | Corporate office rent and building costs | — | — | 2,740 | ||||||||||||||
Corp Group Interhold S.A. and Corp Group Holding Inversiones Ltda. | Management advisory services | — | — | 2,632 | ||||||||||||||
Transbank S.A. | Credit Card processing | — | — | 2,430 | ||||||||||||||
SMU S.A., Rendic Hnos S.A. | Prepaid rent for space for ATMs | 16 | 19,067 | — | 1,928 | |||||||||||||
Redbanc S.A. | Automatic teller machine administration | — | — | 1,782 | ||||||||||||||
Promoservice S.A. | Promotion services | — | — | 1,508 | ||||||||||||||
Recaudaciones y Cobranzas S.A. (*) | Office rent and credit collection | — | — | 971 | ||||||||||||||
Operadora de Tarjeta de Crédito Nexus S.A. | Credit card processing | — | — | 846 | ||||||||||||||
Fundación Corpgroup Centro Cultural | Donations | — | — | 736 | ||||||||||||||
Compañía de Seguros Vida Corp S.A. | Brokerage of insurance premiums and office rent | — | — | 318 | ||||||||||||||
Empresa Periodística La Tercera S.A. | Advertising services | — | — | 163 | ||||||||||||||
Fundación Descúbreme | Donations | — | — | 80 |
(*) | Since February 2015, the company is a subsidiary of CorpBanca Chile. |
F-152
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, 2014: | ||||||||||||||||||
Company | Description | Notes | Balance Asset | Effect on Statement of Income | ||||||||||||||
(Liability) | Income | (expense) | ||||||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||||
Transbank S.A. | Credit Card processing | — | — | 3,617 | ||||||||||||||
Inmobiliaria Edificio Corpgroup S.A. | Corporate office rent and building costs | — | — | 3,067 | ||||||||||||||
Inversiones Corp Group Interhold Ltda. | Management advisory services | — | — | 2,187 | ||||||||||||||
SMU S.A., Rendic Hnos S.A. | Prepaid rent for space for ATMs | 16 | 18,157 | — | 2,092 | |||||||||||||
Redbanc S.A. | Automatic teller machine administration | — | — | 2,016 | ||||||||||||||
Recaudaciones y Cobranzas S.A. (*) | Office rent and credit collection | — | — | 1,943 | ||||||||||||||
Fundación Corpgroup Centro Cultural | Donations | — | — | 1,505 | ||||||||||||||
Promoservice S.A. | Promotion services | — | — | 1,188 | ||||||||||||||
Operadora de Tarjeta de Crédito Nexus S.A. | Credit card processing | — | — | 936 | ||||||||||||||
Corp Group Holding Inversiones Limitada | Advisory | — | — | 618 | ||||||||||||||
Corp Research S.A | Management advisory services | — | — | 408 | ||||||||||||||
Empresa Periodística La Tercera S.A. | Advertising services | — | — | 282 | ||||||||||||||
CAI Gestion Inmobiliaria S.A | Commercial Homes (Department Stores) | — | — | 219 | ||||||||||||||
Grupo de Radios Dial S.A | Publicity | — | — | 177 | ||||||||||||||
Compañía de Seguros Vida Corp S.A. | Brokerage of insurance premiums and office rent | — | — | 159 | ||||||||||||||
Hotel Corporation of Chile S.A | Accommodation, events | — | — | 132 | ||||||||||||||
Pulso Editorial S.A | Publishing Services | — | — | 111 | ||||||||||||||
Fundación Descúbreme | Donations | — | — | 78 | ||||||||||||||
Corp Imagen y diseños S.A | Other services | — | — | 76 | ||||||||||||||
Asesorias e Inversiones Rapelco Limitada S.A | Other services | — | — | 49 |
(*) | Since February 2015, the company is a subsidiary of CorpBanca Chile. |
As of December 31, 2015: | ||||||||||||||||||
Company | Description | Notes | Balance Asset | Effect on Statement of Income | ||||||||||||||
Income | (expense) | |||||||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||||
Transbank S.A. | Credit Card processing | — | — | 5,469 | ||||||||||||||
Inmobiliaria Edificio Corpgroup S.A. | Corporate office rent and building costs | — | — | 4,298 | ||||||||||||||
Fundación Corpgroup Centro Cultural | Donations | — | — | 3,550 | ||||||||||||||
Inversiones Corp Group Interhold Ltda. | Management advisory services | — | — | 2,289 | ||||||||||||||
SMU S.A., Rendic Hnos S.A. | Prepaid rent for space for ATMs | 16 | 16,805 | — | 2,054 | |||||||||||||
Redbanc S.A. | Automatic teller machine administration | — | — | 2,028 | ||||||||||||||
Promoservice S.A. | Promotion services | — | — | 1,677 | ||||||||||||||
Operadora de Tarjeta de Crédito Nexus S.A. | Credit card processing | — | — | 1,018 | ||||||||||||||
Pulso Editorial S.A | Publishing Services | — | — | 697 | ||||||||||||||
Corp Research S.A | Management advisory services | — | — | 426 | ||||||||||||||
Corp Group Holding Inversiones Limitada | Advisory | — | — | 375 | ||||||||||||||
Fundación Descúbreme | Donations | — | — | 193 | ||||||||||||||
Grupo de Radios Dial S.A | Publicity | — | — | 189 | ||||||||||||||
Compañía de Seguros Vida Corp S.A. | Brokerage of insurance premiums and office rent | — | — | 160 | ||||||||||||||
Hotel Corporation of Chile S.A | Accommodation, events | — | — | 160 | ||||||||||||||
Corp Imagen y diseños S.A | Other services | — | — | 89 | ||||||||||||||
CAI Gestion Inmobiliaria S.A | Commercial Homes (Department Stores) | — | — | 58 | ||||||||||||||
Asesorias e Inversiones Rapelco Limitada S.A | Other services | — | — | 53 |
F-153
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
These transactions were carried out at normal market prices prevailing at the day of the transactions.
In accordance with IAS 24, the relationship of all listed companies in the above table falls under the category “other related parties”.
c) | Other assets and liabilities with related parties |
As of December 31, 2013: | ||||||||||||||||
Company | Description | Balance Asset | Effect on Statement of | |||||||||||||
Income | (expense) | |||||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||
Fundación Corpgroup Centro Cultural | Donations | — | — | 736 | ||||||||||||
Fundación Descúbreme | Donations | — | — | 80 | ||||||||||||
Fundación El Golf | Donations | — | — | 5 | ||||||||||||
As of December 31, 2014: | ||||||||||||||||
Company | Description | Balance Asset | Effect on Statement of | |||||||||||||
Income | (expense) | |||||||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||||
Fundación Corpgroup Centro Cultural | Donations | — | — | 1,505 | ||||||||||||
Fundación Descúbreme | Donations | — | — | 78 | ||||||||||||
Fundación de Inclusión Social Aprendamos | Donations | — | — | 5 | ||||||||||||
As of December 31, 2015: | ||||||||||||||||
Company | Description | Balance Asset | Effect on Statement of | |||||||||||||
Income | (expense) | |||||||||||||||
MCh $ | MCh $ | MCh $ | ||||||||||||||
Fundación Corpgroup Centro Cultural | Donations | — | — | 3,550 | ||||||||||||
Fundación Descúbreme | Donations | — | — | 193 | ||||||||||||
Fundación de Inclusión Social Aprendamos | Donations | — | — | 5 |
d) | Other assets and liabilities with related parties |
As of December 31, | ||||||||
2014 | 2015 | |||||||
MCh$ | MCh$ | |||||||
ASSETS | ||||||||
Derivative financial instruments | 17,686 | 59,642 | ||||||
Other assets | 212 | 249 | ||||||
LIABILITIES | ||||||||
Derivative financial instruments | — | — | ||||||
Demand deposits | 84,848 | 76,337 | ||||||
Deposits and other time deposits | 196,956 | 157,549 | ||||||
Other Liabilities | 1,093 | 1,050 |
F-154
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
e) | Operating income /expenses from related party transactions |
As of December 31, | ||||||||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||||||||
Type of recognized income or expense | Income | Expenses | Income | Expenses | Income | Expenses | ||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Interest revenue | 25,501 | 9,251 | 11,159 | 1,318 | 18,048 | 11,502 | ||||||||||||||||||
Income and expenses on fees and services | 470 | 249 | 903 | 88 | 483 | 29 | ||||||||||||||||||
Gain and Loss on other financial transactions | 311 | — | — | — | — | — | ||||||||||||||||||
Operating support expense | 525 | 15,994 | 317 | 20,906 | 214 | 27,295 | ||||||||||||||||||
Other income and expense | — | 437 | — | 848 | — | 141 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 26,807 | 25,931 | 12,379 | 23,160 | 18,745 | 38,967 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
f) | Contracts with related parties |
2014 | ||
Company | Description | |
Compañía de Seguros Vida Corp S.A. | Brokerage of insurance premiums and office lease | |
Corp Group Holding Inversiones Limitada | Advisory | |
Corp Research S.A | Management advisory services | |
Empresa Periodística La Tercera S.A. | Advertising services | |
Fundación Corpgroup Centro Cultural | Donations | |
Fundación Descúbreme | Donations | |
Grupo de Radios Dial S.A | Publicity | |
Hotel Corporation of Chile S.A | Accommodation, events | |
Inmobiliaria Edificio Corpgroup S.A. | Corporate office rent and building costs | |
Inversiones Corp Group Interhold Ltda. | Management advisory services | |
Operadora de Tarjeta de Crédito Nexus S.A. | Credit card processing | |
Promoservice S.A. | Promotion services | |
Pulso Editorial S.A | Publishing Services | |
Recaudaciones y Cobranzas S.A. (*) | Office rent and credit collection | |
Redbanc S.A. | Automatic teller machine administration | |
SMU S.A., Rendic Hnos S.A. | Rent spaces ATMs | |
Transbank S.A. | Credit Card processing |
(*) | Since February 2015, the company is a subsidiary of CorpBanca Chile. |
F-155
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
2015 | ||
Company | Description | |
CAI Gestión Inmobiliaria S.A. | Department stores | |
Compañía de Seguros Vida Corp S.A. | Brokerage of insurance premiums and office lease | |
Corp Group Holding Inversiones Limitada | Advisory | |
Corp Imagen y Diseño S.A | Other services | |
Corp Research S.A | Management advisory services | |
Distribución y Servicios META S.A. | Other services | |
Empresa Periodística La Tercera S.A. | Advertising services | |
Fundación Corpgroup Centro Cultural | Donations | |
Fundación Descúbreme | Donations | |
Grupo de Radios Dial S.A | Publicity | |
Hotel Corporation of Chile S.A | Accommodation, events | |
Inmobiliaria Edificio Corpgroup S.A. | Corporate office rent and building costs | |
Instituto profesional AIEP S.A | Advertising services | |
Inversiones Corp Group Interhold Ltda. | Management advisory services | |
Inversiones Santa Valentina S.A. | Administrative consulting | |
Laborum.com Chile S.A. | Advertising services | |
Operadora de Tarjeta de Crédito Nexus S.A. | Credit card processing | |
Promoservice S.A. | Promotion services | |
Pulso Editorial S.A | Publishing Services | |
Redbanc S.A. | Automatic teller machine administration | |
SMU S.A., Rendic Hnos S.A. | Rent spaces ATMs | |
Transbank S.A. | Credit Card processing | |
UNIRED S.A. | Payment management |
g) | Remunerations to members of the board and key management personnel |
Remunerations paid to key management personnel are sets forth in table below:
As of December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Short term benefits | 23,563 | 26,325 | 23,545 | |||||||||
Severance indemnities | 395 | 1,482 | 508 | |||||||||
|
|
|
|
|
| |||||||
Total | 23,958 | 27,807 | 24,053 | |||||||||
|
|
|
|
|
|
2015
In 2015 managers and senior executives received MCh$17,652 for remuneration. Additionally, depending on the bonus policy established by the Division of Human Resources, in conjunction with the General Manager and duly approved by the Board of Directors, senior executives of the Bank were awarded bonuses for meeting goals.
2014
As agreed by shareholders at the Ordinary General Shareholders’ Meeting on March 13, 2014, the Directors of CorpBanca received a total of MCh$463 in compensation for the year.
Monthly remunerations for 2014 were set at 100 UF for directors and 600 UF for the chairman of the board during the ordinary shareholders’ meeting. Members of the Directors’ Committee received 150 UF, while the chairman received 250 UF.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As agreed at the same meeting, the members of the Directors’ Audit Committee were paid total fees of MCh$799.
Total compensation received by the Bank’s executives and key management personnel during the year ended December 31, 2014, amounted to MCh$17,852.
In addition, based on the bonus policy established by the Human Resources and Development Division, together with the Chief Executive Officer, senior executives received bonuses for meeting their targets.
2013
As agreed by shareholders at the Ordinary General Shareholders’ Meeting on March 7, 2013, the Directors of CorpBanca received a total of MCh$460 in compensation for the year.
As agreed at the same meeting, the members of the Directors’ Audit Committee were paid total fees of MCh$726.
Total compensation received by the Bank’s executives and key management personnel during the year ended December 31, 2013, amounted to MCh$16,627.
In addition, based on the bonus policy established by the Human Resources and Development Division, together with the Chief Executive Officer, senior executives received bonuses for meeting their targets.
h) | Key management personnel |
As of December 31, 2014 and 2015, the composition of the Bank’s key management personnel is as follows:
Number of Executives | ||||||||
Position | 2014 | 2015 | ||||||
Directors | 42 | 51 | ||||||
Chief Executive Officers -at the Subsidiaries | 9 | 9 | ||||||
Division Managers | 24 | 21 | ||||||
Department Managers | 154 | 158 | ||||||
Deputy Managers | 138 | 142 | ||||||
Vicepresident | 19 | 17 |
i) | Transactions with key management personnel |
During 2014 and 2015 transactions with key personnel were carried out as follows:
Income | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Credit Cards | 149 | 138 | 202 | |||||||||
Consumer loans | 283 | 133 | 381 | |||||||||
Commercial loans | 62 | 101 | 53 | |||||||||
Mortgages loans | 792 | 2,495 | 1,254 |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
NOTE 34 - FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
This disclosure was prepared based on the guidelines “Fair Value of Financial Instruments” from the IFRS 13 “Fair Value Measurements”.
The following section details the main guidelines and definitions used by the Group:
Fair value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The transaction is carried out in the principal16 or most advantageous17 market and is not forced (i.e. it does not consider factors specific to the Group that may influence a real transaction).
Market participants: Buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics:
a. | They are independent of each other, i.e. they are not related parties as defined in IAS 24 “Related Party Disclosures”, although the price in a related party transaction may be used as an input to a fair value measurement if the entity has evidence that the transaction was entered into at market terms. |
b. | They are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information, including information that might be obtained through due diligence efforts that are usual and customary. |
c. | They are able to enter into a transaction for the asset or liability. |
d. | They are willing to enter into a transaction for the asset or liability (i.e. they are motivated, but not forced or otherwise compelled, to do so). |
Fair value measurement: When measuring fair value, the Group takes into account the same characteristics of the asset or liability that market participants would consider in pricing that asset or liability on the measurement date.
Aspects of the transaction: A fair value measurement assumes that the asset or liability is exchanged in an orderly transaction between market participants to sell the asset or transfer the liability at the measurement date under current market conditions. The measurement assumes that the transaction to sell the asset or transfer the liability takes place: (a) on the principal market for the asset or liability; or (b) in the absence of a principal market, on the most advantageous market for the asset or liability.
Market participants: The fair value measurement measures the fair value of the asset or liability using the assumptions that the market participants would use in pricing the asset or liability, assuming that the participants act in their best economic interest.
Prices: Fair value is the price that will be received for the sale of an asset or paid for the transfer of a liability in a orderly transaction on the main (or most advantageous) market as of the measurement date under current market conditions (i.e. exit price) regardless of whether that price is directly observable or estimated using another valuation technique.
Highest and best use of non-financial assets: The fair value measurement of these assets takes into account the market participant’s ability to generate economic benefits through the highest and best use of the asset or through the sale of the asset to another market participant that would maximize the value of the asset.
Group’s own liabilities and equity instruments: The fair value measurement assumes that these items are transferred to a market participant on the date of measurement. The transfer of these items assumes that:
16 | The market with the greatest volume and level of activity for the asset or liability. |
17 | The market that maximizes the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs. |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
a. | A liability would remain outstanding and the market participant transferee would be required to fulfill the obligation. The liability would not be settled with the counterparty or otherwise extinguished on the measurement date. |
b. | An entity’s own equity instrument would remain outstanding and the market participant transferee would take on the rights and responsibilities associated with the instrument. The instrument would not be canceled or otherwise extinguished on the measurement date. |
Default risk: The fair value of a liability reflects the effect of the default risk. This risk includes, but is not limited to, the entity’s own credit risk. This risk is assumed to be the same before and after the liability is transferred.
Initial recognition: When an asset is acquired or a liability assumed in an exchange transaction involving that asset or liability, the transaction price is the price paid to acquire the asset or received to assume the liability (the entry price). In contrast, the fair value of the asset or liability is the price received to sell the asset or paid to transfer the liability (the exit price). Entities do not necessarily sell assets at the prices paid to acquire them. Likewise, they do not necessarily transfer liabilities at the price received to assume them.
Valuation techniques: The Bank will use techniques that are appropriate for the circumstances and for which sufficient data is available to measure the fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. The following approaches deserve mention:
a. | Market approach. Uses prices and other relevant information generated by market transactions involving identical or comparable (similar) assets, liabilities, or a group of assets and liabilities (e.g. a business). |
b. | Cost approach. Reflects the amount that would be required currently to replace the service capacity of an asset (current replacement cost). |
c. | Income approach. Converts future amounts (cash flows or income and expenses) to a single current (discounted) amount, reflecting current market expectations about those future amounts. The fair value measurement is determined based on the value indicated by the current market expectations about those future amounts. |
Present value techniques: Technique to adjust the discount rate and expected cash flows (expected present value). The present value technique used to measure the fair value will depend on the specific facts and circumstances of the asset or liability being measured and the availability of sufficient data.
Components of the present value measurement: Present value is the tool used to link future amounts (e.g. cash flows or values) to a present amount using a discount rate. A fair value measurement of an asset or a liability using a present value technique captures all the following elements from the perspective of market participants at the measurement date:
a. | An estimate of future cash flows for the asset or liability being measured. |
b. | Expectations about possible variations in the amount and timing of the cash flows representing the uncertainty inherent in the cash flows. |
c. | The time value of money, represented by the rate on risk-free monetary assets that have maturity dates or durations that coincide with the period covered by the cash flows and pose neither uncertainty in timing nor risk of default to the holder (i.e. a risk-free interest rate). |
d. | The price for bearing the uncertainty inherent in the cash flows (i.e. a risk premium). |
e. | Other factors that market participants would take into account in the circumstances. |
f. | For a liability, the non-performance risk relating to that liability, including the entity’s (i.e. the debtor’s) own credit risk. |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Fair value hierarchy;Gives the highest priority to quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1 inputs) and lowest priority to unobservable inputs (Level 3 inputs). Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
1.1 | Determination of the fair value of financial instruments |
The following table summarizes the fair values of the Bank’s main financial assets and liabilities as of December 31, 2014 and 2015, including those that are not recorded at fair value in the Consolidated Statement of Financial Position.
2014 | 2015 | |||||||||||||||||||
Notes | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and deposits in banks | 5 | 1,169,178 | 1,169,178 | 1,004,757 | 1,004,757 | |||||||||||||||
Cash in the process of collection | 5 | 212,842 | 212,842 | 176,501 | 176,501 | |||||||||||||||
Trading portfolio financial assets | 6 | 685,898 | 685,898 | 323,899 | 323,899 | |||||||||||||||
Investments under agreements to resell | 7 | 78,079 | 78,079 | 24,674 | 24,674 | |||||||||||||||
Derivative financial instruments | 8 | 766,799 | 766,799 | 1,008,915 | 1,008,915 | |||||||||||||||
Loans and receivables from banks | 9 | 814,209 | 814,209 | 451,829 | 451,829 | |||||||||||||||
Loans and receivables from customers | 10 | 13,892,270 | 14,215,243 | 14,454,357 | 15,389,442 | |||||||||||||||
Financial investments available-for-sale | 11 | 1,156,896 | 1,156,896 | 1,924,788 | 1,924,788 | |||||||||||||||
Held to maturity investments | 11 | 190,677 | 190,713 | 170,191 | 160,258 | |||||||||||||||
LIABILITIES | ||||||||||||||||||||
Current accounts and demand deposits | 17 | 3,954,948 | 3,928,982 | 4,431,619 | 4,393,163 | |||||||||||||||
Transaction in the course of payment | 5 | 145,771 | 145,771 | 105,441 | 105,441 | |||||||||||||||
Obligations under repurchase agreements | 7 | 661,663 | 661,663 | 260,631 | 260,631 | |||||||||||||||
Time deposits and saving accounts | 17 | 8,076,966 | 8,077,208 | 8,495,603 | 8,476,053 | |||||||||||||||
Derivative financial instruments | 8 | 607,683 | 607,683 | 731,114 | 731,114 | |||||||||||||||
Borrowings from financial institutions | 18 | 1,431,923 | 1,438,512 | 1,528,585 | 1,523,976 | |||||||||||||||
Debt issued | 19 | 3,079,050 | 3,239,315 | 3,227,554 | 3,383,605 | |||||||||||||||
Other financial obligations | 19 | 15,422 | 15,422 | 14,475 | 14,475 |
1.1.1. Fair Value Measurements of assets and liabilities only for disclosure purposes (non-recurring):
In addition, the fair value estimates presented above do not attempt to estimate the value of the Group’s profits generated by its business, nor future business activities, and, therefore, do not represent the value of the Group as a going concern.
Cash, short-term assets and short-term liabilities
The fair value of these items approximates their book value given their short-term nature. These items include:
• | Cash and deposits in banks |
• | Cash in the process of collection |
• | Investments under agreements to resell |
• | Current accounts and demand deposits |
• | Other financial obligations |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Loans
The fair value of loans is determined using a discounted cash flow analysis, using a risk-free interest rate adjusted for expected losses from debtors based on their credit quality. The credit risk adjustment is based on the Group’s credit risk policies and methodologies: These items include:
• | Loans and receivables from banks |
• | Loans and receivables from customers |
Financial instruments held to maturity
The estimated fair value of these financial instruments is determined using quotes and transactions observed in the main market for identical instruments, or in their absence, for similar instruments. Fair value estimates of debt instruments or securities representative of debt take into account additional variables and inputs to the extent that they apply, including estimates of prepayment rates and the credit risk of issuers.
Medium and long-term liabilities
The fair value of medium and long-term liabilities is determined using a discounted cash flow analysis, using an interest rate curve that reflects current market conditions at which the entity’s debt instruments are traded. Medium and long-term liabilities include:
• | Time deposits and saving accounts |
• | Borrowings from financial institutions |
• | Debt issued |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
1.1.2. Fair Value measurement of financial assets and liabilities (recurring)
Fair value measurement of recurring items | ||||||||||||
Note | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | |||||||||||
ASSETS | ||||||||||||
Trading portfolio financial assets | 6 | 685,898 | 323,899 | |||||||||
From the Chilean Government and Central Bank | 4,822 | 6,210 | ||||||||||
Other instruments issued in Chile | 15,883 | 37,295 | ||||||||||
Foreign government and Central Bank instruments | 542,791 | 192,427 | ||||||||||
Other instruments issued abroad | 110,615 | 57,875 | ||||||||||
Mutual fund investments | 11,787 | 30,092 | ||||||||||
Financial investments available for sale | 11 | 1,156,896 | 1,924,788 | |||||||||
From the Chilean Government and Central Bank | 536,928 | 786,609 | ||||||||||
Other instruments issued in Chile | 105,891 | 148,829 | ||||||||||
Foreign government and Central Bank instruments | 434,392 | 629,297 | ||||||||||
Other instruments issued abroad | 79,685 | 360,053 | ||||||||||
Derivative financial instruments | 8 | 766,799 | 1,008,915 | |||||||||
Forwards | 154,229 | 225,986 | ||||||||||
Swaps | 609,526 | 777,763 | ||||||||||
Call Options | 2,648 | 4,655 | ||||||||||
Put Options | 396 | 511 | ||||||||||
|
|
|
| |||||||||
Total | 2,609,593 | 3,257,602 | ||||||||||
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|
|
| |||||||||
LIABILITIES | ||||||||||||
Derivative financial instruments | 8 | 607,683 | 731,114 | |||||||||
Forwards | 140,949 | 191,589 | ||||||||||
Swaps | 463,484 | 535,212 | ||||||||||
Call Options | 2,564 | 3,511 | ||||||||||
Put Options | 686 | 802 | ||||||||||
|
|
|
| |||||||||
Total | 607,683 | 731,114 | ||||||||||
|
|
|
|
Financial Instruments
The estimated fair value of these financial instruments is determined using quotes and transactions observed in the main market for identical instruments, or in their absence, for similar instruments. Fair value estimates of debt instruments or securities representative of debt take into account additional variables and inputs to the extent that they apply, including estimates of prepayment rates and the credit risk of issuers. These financial instruments are classified as follows:
• | Trading portfolio financial assets |
• | Financial investments available for sale |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Derivative instruments
The estimated fair value of derivative instruments is calculated using prices quoted on the market for financial instruments of similar characteristics.
The methodology therefore recognizes the credit risk of each counterparty.
The effect of both CVA (counterparty valuation adjustement) and DVA (negative counterparty valuation adjustment) are incorporated in the valuation of a derivatives contracts.
1.2 Fair value hierarchy18
IFRS 13 establishes a fair value hierarchy that classifies assets and liabilities based on the characteristics of the data that the technique requires for its valuation:
Level 1: inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Entity can access at the measurement date. The inputs needed to value the instruments in this category are available daily and used directly.
In the case of currency, shares and mutual funds, prices are observed directly in markets and the stock exchange. These prices correspond to the values at which the exact same assets are traded. As a result, the portfolio valuation does not require assumptions or models of any type.
For instruments issued by the Chilean Central Bank and the Chilean Treasury, prices are derived from identical assets or liabilities traded on an active market.
• | Level 2: inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
The specific instrument does not have daily quotes. However, similar instruments can be observed (e.g. same issuer, different maturity; or different issuer, same maturity and risk rating). Although the inputs are not directly observable, observable inputs are available with the needed frequency of usage.
In this category, instruments are valued by discounting contractual cash flows based on a zero-coupon curve determined through the price of instruments with similar characteristics and a similar issuer risk. The income approach is used, which converts future amounts to present amounts.
For derivative instruments within this category, quotes from over-the-counter transactions reported by the most important brokers in the Chilean market and the Bloomberg platform are used. The inputs observed include forward prices, interest rates and volatilities. Based on these inputs, market curves are modeled. They are a numerical representation of the opportunity costs of the instrument’s cash flows or the price volatility of an asset. Finally, cash flows are discounted.
The Black and Scholes model is used for options based on prices of brokers in the Over-The-Counter market.
For money market instruments, prices of transactions on the Santiago Stock Exchange are observed and used to model market curves.
18 | Level 2 and level 1 hierarchy instruments are not subject to adjustments of liquidity and credit spread because prices for such instruments are observed on active markets. |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
For corporate or bank bonds, given the lack of market depth, the Bank uses transactions (if any) in the Chilean market, on foreign markets, zero-coupon curves of risk-free instruments, adjustment curves, spread modeling, correlation with similar financial instruments, etc. and creates market curves for use in the final result.
• | Level 3: inputs are unobservable inputs for the asset or liability. |
This is used when prices, data or necessary inputs are not directly or indirectly observable for similar instruments for the asset or liability as of the valuation date. These fair value valuation models include liquidity and credit spread adjustments, over an OIS CLP swap curve. Additionally The Group has two derivative products in this category:
Due to the lack of liquidity of the active banking rate (TAB), the price is not observable and, therefore, models must be used to estimate the future cash flows of the contract. This spread is calculated on a historical basis using the Interest Rate Swap with the greatest market depth.
In addition, the Bank develops American forwards to meet its customers’ needs. They do not have a secondary market and, therefore, their value is estimated using an extension of the Hull-White model, used widely by the financial services industry.
None of these products generate significant impacts on the Bank’s results as a result of recalibration. The TAB swap does not have significant impacts on the valuation as the parameters are stable and the reversal to a historic average is empirically quick, which this model reflects correctly. On the other hand, the American forward behaves like a traditional forward when there is an important curve differential, which is the case between the Chilean peso-US dollar curve. Also, the model’s parameters are very stable.
The table below summarizes the impacts on the portfolio of a recalibration of the models based on a stress scenario, recalibrating parameters with the shock incorporated.
As of December 31, 2014 | ||||||||||||||||||||||||
Impact of Calibration in | Total | Volatility of American Forwards | TAB 30 | TAB 90 | TAB 180 | TAB 360 | ||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
American Forward USD-CLP | — | — | — | — | — | — | ||||||||||||||||||
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| |||||||||||||
Basis TAB CLP | (1,452 | ) | — | 82 | (377 | ) | (1,146 | ) | (11 | ) | ||||||||||||||
Basis TAB CLF | (539 | ) | — | — | — | 28 | (567 | ) | ||||||||||||||||
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Total | (1,991 | ) | — | 82 | (377 | ) | (1,118 | ) | (578 | ) |
As of December 31, 2015 | ||||||||||||||||||||||||
Impact of Calibration in | Total | Volatility of American Forwards | TAB 30 | TAB 90 | TAB 180 | TAB 360 | ||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
American Forward USD-CLP | — | — | — | — | — | — | ||||||||||||||||||
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Basis TAB CLP | (495 | ) | — | (194 | ) | (153 | ) | (145 | ) | (3 | ) | |||||||||||||
Basis TAB CLF | (264 | ) | — | — | — | (434 | ) | 170 | ||||||||||||||||
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Total | (759 | ) | — | (194 | ) | (153 | ) | (579 | ) | 167 |
The adjustments (CVA and DVA) are recognized periodically in the financial statements since December 2013, the portfolio of derivative contracts accumulate an effect of MCh$(6,773) as of December 31, 2015 (MCh$(2,929) as of December 31, 2014), the breakdown is as follows:
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
As of December 31, | ||||||||||||||||
2014 | 2015 | |||||||||||||||
CVA | DVA | CVA | DVA | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Derivatives held for hedging | (1 | ) | 10 | (3 | ) | 15 | ||||||||||
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Fair value | (1 | ) | 3 | — | 2 | |||||||||||
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Currency Forwards | — | — | — | — | ||||||||||||
Currency Swaps | (1 | ) | 2 | — | 2 | |||||||||||
Interest Rate Swaps | — | 1 | — | — | ||||||||||||
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Cash Flow | — | 7 | (4 | ) | 11 | |||||||||||
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Currency Forwards | — | 5 | 1 | 3 | ||||||||||||
Currency Swaps | — | (1 | ) | (6 | ) | 6 | ||||||||||
Interest Rate Swaps | 3 | 1 | 2 | |||||||||||||
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Inversiones en el Exterior | — | — | 1 | 2 | ||||||||||||
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Currency Forwards | — | — | 1 | 2 | ||||||||||||
Currency Swaps | — | — | — | — | ||||||||||||
Interest Rate Swaps | — | — | — | |||||||||||||
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Derivatives held for trading | (3,075 | ) | 137 | (7,016 | ) | 231 | ||||||||||
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Currency Forwards | 330 | 5 | (307 | ) | 25 | |||||||||||
Currency Swaps | (3,723 | ) | 118 | (5,533 | ) | 192 | ||||||||||
Interest Rate Swaps | 313 | 13 | (1,134 | ) | 12 | |||||||||||
Currency Call Options | 5 | 1 | (42 | ) | 2 | |||||||||||
Currency Put Options | — | — | — | — | ||||||||||||
Total financial derivatives | (3,076 | ) | 147 | (7,019 | ) | 246 | ||||||||||
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Net Effect | (2,929) | (6,773) | ||||||||||||||
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|
The following table summarizes the fair value hierarchy for the Group’s recurring valuation of financial instruments:
Level | Instrument | Issuer | Price Source | Model | ||||
1 | Shares | Various | Santiago Stock Exchange | Directly observable price. | ||||
Mutual Funds |
Asset Managers |
SVS |
Directly observable price. | |||||
Bonds |
Chilean Central Bank and Chilean Treasury |
Santiago Stock Exchange |
Internal rate of return (IRR) based on prices. | |||||
2 |
Derivatives |
N/A |
Over-The-Counter (brokers), Bloomberg |
Interest rate curves based on forward prices and coupon rates. | ||||
Money market instruments |
Chilean Central Bank and Chilean Treasury |
Santiago Stock Exchange |
Interest rate curves based on prices. |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Money market instruments |
Banks |
Santiago Stock Exchange |
Interest rate curves based on prices. | |||||
Bonds |
Companies, banks |
Pricing supplier |
Interest rate curves based on correlations, spreads, extrapolations, etc | |||||
3 |
Derivatives, active banking rate (TAB) |
N/A |
Over-The-Counter (brokers) |
Interest rate curves based on modeling of TAB-Chamber spread. | ||||
Derivatives, American forwards |
N/A |
Bloomberg |
Black and Scholes with inputs from European options. |
The following table classifies assets and liabilities measured at fair value on a recurring basis, in accordance with the fair value hierarchy established in IFRS 13 for December 31, 2014 and 2015.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Fair Value Measurement at reporting date using | ||||||||||||||||||
As of December 31, 2014 | Notes | Fair Value Amount | Quoted prices in Active Markets for identical assets (Level 1) | Significant Other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||
ASSETS | ||||||||||||||||||
Trading securities | 6 | 685,898 | 477,084 | 208,814 | — | |||||||||||||
Chilean Central Bank and Government securities | 4,822 | 4,822 | — | — | ||||||||||||||
Other national institution securities | 15,883 | — | 15,883 | — | ||||||||||||||
Foreign Institution Securities | 542,791 | 460,475 | 82,316 | — | ||||||||||||||
Other foreign Securities | 110,615 | — | 110,615 | — | ||||||||||||||
Mutual funds Investments | 11,787 | 11,787 | — | — | ||||||||||||||
Available-for-sale securities | 11 | 1,156,896 | 964,878 | 192,018 | — | |||||||||||||
Chilean Central Bank and Government securities: | 536,928 | 530,486 | 6,442 | — | ||||||||||||||
Other national institution securities | 105,891 | — | 105,891 | — | ||||||||||||||
Foreign Institution Securities | 434,392 | 434,392 | — | — | ||||||||||||||
Other foreign Securities | 79,685 | — | 79,685 | — | ||||||||||||||
Derivatives | 8 | 766,799 | — | 716,207 | 50,592 | |||||||||||||
Forwards | 154,229 | — | 154,216 | 13 | ||||||||||||||
Swaps | 609,526 | — | 558,947 | 50,579 | ||||||||||||||
Call Options | 2,648 | — | 2,648 | — | ||||||||||||||
Put Options | 396 | — | 396 | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total | 2,609,593 | 1,441,962 | 1,117,039 | 50,592 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
LIABILITIES | ||||||||||||||||||
Derivatives | 8 | 607,683 | — | 605,488 | 2,195 | |||||||||||||
Forwards | 140,949 | — | 140,944 | 5 | ||||||||||||||
Swaps | 463,484 | — | 461,294 | 2,190 | ||||||||||||||
Call Options | 2,564 | — | 2,564 | — | ||||||||||||||
Put Options | 686 | — | 686 | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total | 607,683 | — | 605,488 | 2,195 | ||||||||||||||
|
|
|
|
|
|
|
|
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Fair Value Measurement at reporting date using | ||||||||||||||||||
As of December 31, 2015 | Notes | Fair Value Amount | Quoted prices in Active Markets for identical assets (Level 1) | Significant Other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||
ASSETS | ||||||||||||||||||
Trading securities | 6 | 323,899 | 228,729 | 95,170 | — | |||||||||||||
Chilean Central Bank and Government securities | 6,210 | 6,210 | — | — | ||||||||||||||
Other national institution securities | 37,295 | — | 37,295 | — | ||||||||||||||
Foreign Institution Securities | 192,427 | 192,427 | — | — | ||||||||||||||
Other foreign Securities | 57,875 | — | 57,875 | — | ||||||||||||||
Mutual funds Investments | 30,092 | 30,092 | — | — | ||||||||||||||
Available-for-sale securities | 11 | 1,924,788 | 1,415,047 | 509,741 | — | |||||||||||||
Chilean Central Bank and Government securities: | 786,609 | 785,750 | 859 | — | ||||||||||||||
Other national institution securities | 148,829 | — | 148,829 | — | ||||||||||||||
Foreign Institution Securities | 629,297 | 629,297 | — | — | ||||||||||||||
Other foreign Securities | 360,053 | — | 360,053 | — | ||||||||||||||
Derivatives | 8 | 1,008,915 | — | 962,034 | 46,881 | |||||||||||||
Forwards | 225,986 | — | 225,981 | 5 | ||||||||||||||
Swaps | 777,763 | — | 730,887 | 46,876 | ||||||||||||||
Call Options | 4,655 | — | 4,655 | — | ||||||||||||||
Put Options | 511 | — | 511 | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total | 3,257,602 | 1,643,776 | 1,566,945 | 46,881 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
LIABILITIES | ||||||||||||||||||
Derivatives | 8 | 731,114 | — | 730,545 | 569 | |||||||||||||
Forwards | 191,589 | — | �� | 191,560 | 29 | |||||||||||||
Swaps | 535,212 | — | 534,672 | 540 | ||||||||||||||
Call Options | 3,511 | — | 3,511 | — | ||||||||||||||
Put Options | 802 | — | 802 | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total | 731,114 | — | 730,545 | 569 | ||||||||||||||
|
|
|
|
|
|
|
|
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
1.2.1 Transfers between level 1 and 2
The following table details transfers of assets and liabilities between Level 1 and Level 2 during 2014.
Transfers from | ||||||||||||||
As of December 31, 2014 | Note | Fair Value | Level 1 to 2 | Level 2 to 1 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||||
ASSETS | ||||||||||||||
Trading portfolio financial assets securities | 6 | 685,898 | — | — | ||||||||||
Financial instruments available for sale | 11 | 1,156,896 | — | — | ||||||||||
Derivative financial instruments | 8 | 766,799 | — | — | ||||||||||
|
|
|
|
|
| |||||||||
Total | 2,609,593 | — | — | |||||||||||
LIABILITIES | ||||||||||||||
Derivative financial instruments | 8 | 607,683 | — | — | ||||||||||
|
|
|
|
|
| |||||||||
Total | 607,683 | — | — |
Transfers from | ||||||||||||||
As of December 31, 2015 | Note | Fair Value | Level 1 to 2 | Level 2 to 1 | ||||||||||
M Ch$ | M Ch$ | M Ch$ | ||||||||||||
ASSETS | ||||||||||||||
Trading portfolio financial assets securities | 6 | 323,899 | — | — | ||||||||||
Financial instruments available for sale | 11 | 1,924,788 | — | — | ||||||||||
Derivative financial instruments | 8 | 1,008,915 | — | — | ||||||||||
|
|
|
|
|
| |||||||||
Total | 3,257,602 | — | — | |||||||||||
LIABILITIES | ||||||||||||||
Derivative financial instruments | 8 | 731,114 | — | — | ||||||||||
|
|
|
|
|
| |||||||||
Total | 731,114 | — | — |
1.2.2 Disclosures regarding level 3 assets and liablilities
Level 3 assets and liabilities are valued using techniques that require inputs that are not observable on the market, for which the income approach is used to convert future amounts to present amounts.
This category includes:
• | Derivative financial instruments indexed to the TAB rate. This rate is comprised of an interbank rate and a liquidity premium charged to financial institutions and is determined using a short-rate model with mean reversion. |
• | American forward options. |
As none of these products has a market, the Bank uses valuation techniques which incorporate unobservable input.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
These techniques use the following inputs: transaction prices from the main financial instrument markets and assumptions that are widely accepted by the financial services industry. Using this information, unobservable variables are constructed such as: adjustment curves, spreads, volatilities and other variables necessary for the valuation. Lastly, all of the models are subject to internal contrasts by independent areas and have been reviewed by internal auditors and regulators.
None of these products generate significant impacts on the Bank’s results as a result of recalibration. The American forward is only offered for the US dollar-Chilean peso market and until now, given the important differential between these interest rates, the product behaves like a traditional forward. The TAB swap does not have significant impacts on the valuation as the modeled liquidity premiums have a quick mean reversion for the short part and low volatility for the long part, concentrating on the book’s sensitivity in the longest part of the curve. The following table reconciles assets and liabilities measured at fair value on a recurring basis as of year-end 2015 and 2014.
As of December 31, 2014 | Opening balance | Gain (loss) recognized in profit or loss | Gain (loss) recognized in equity | Net of purchases, sales and agreements | Transfers from level 1 or level 2 | Closing balance | ||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Trading securities | — | — | ||||||||||||||||||||||
Financial assets available for sale | — | — | ||||||||||||||||||||||
Derivative instruments | 35,722 | 21,428 | — | (6,558 | ) | — | 50,592 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 35,722 | 21,428 | — | (6,558 | ) | — | 50,592 | |||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||
Derivative instruments | 2,716 | 5,897 | — | (6,418 | ) | — | 2,195 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 2,716 | 5,897 | — | (6,418 | ) | — | 2,195 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 | Opening balance | Gain (loss) recognized in profit or loss | Gain (loss) recognized in equity | Net of purchases, sales and agreements | Transfers from level 1 or level 2 | Closing balance | ||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Trading securities | — | — | ||||||||||||||||||||||
Financial assets available for sale | — | — | ||||||||||||||||||||||
Derivative instruments | 50,592 | 3,845 | — | (7,556 | ) | — | 46,881 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 50,592 | 3,845 | — | (7,556 | ) | — | 46,881 | |||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||
Derivative instruments | 2,195 | 2,452 | — | (4,078 | ) | — | 569 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 2,195 | 2,452 | — | (4,078 | ) | — | 569 |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
1.2.3 Hierarchy for remaining assets and liabilities
The following table classifies assets and liabilities measured at fair value on a non-recurring basis, in accordance with the fair value hierachy as of year-end 2015 and 2014.
Measurement at fair value of items not valued on a recurrent | ||||||||||||||||||
As of December 31, 2014 | Note | Estimated Fair Value | Quoted prices in active markets in identical assets (level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (level 3) | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||
ASSETS | ||||||||||||||||||
Cash and deposits in banks | 5 | 1,169,178 | — | — | 1,169,178 | |||||||||||||
Cash in the process of collection | 5 | 212,842 | — | — | 212,842 | |||||||||||||
Investment under agreements to resell | 7 | 78,079 | — | 50,973 | 27,106 | |||||||||||||
Loans and receivables from banks | 9 | 814,209 | — | 99,747 | 714,462 | |||||||||||||
Loans and receivables from customers | 14,215,243 | — | — | 14,215,243 | ||||||||||||||
Held to maturity investments | 190,713 | 147,116 | 43,597 | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
16,680,264 | 147,116 | 194,317 | 16,338,831 | |||||||||||||||
LIABILITIES | ||||||||||||||||||
Current accounts and demand deposits | 3,928,982 | — | — | 3,928,982 | ||||||||||||||
Transaction in the course of payment | 5 | 145,771 | — | — | 145,771 | |||||||||||||
Obligations under repurchase agreements | 7 | 661,663 | — | — | 661,663 | |||||||||||||
Time deposits and savings accounts | 8,077,208 | — | 5,359,682 | 2,717,526 | ||||||||||||||
Borrowings from financial institutions | 1,438,512 | — | — | 1,438,512 | ||||||||||||||
Debt issued | 3,239,315 | — | 2,865,595 | 373,720 | ||||||||||||||
Other financial obligations | 19 | 15,422 | — | — | 15,422 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
17,506,873 | — | 8,225,277 | 9,281,596 |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Measurement at fair value of items not valued on a recurrent | ||||||||||||||||||
As of December 31, 2015 | Note | Estimated Fair Value | Quoted prices in active markets in identical assets (level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (level 3) | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||
ASSETS | ||||||||||||||||||
Cash and deposits in banks | 5 | 1,004,757 | — | — | 1,004,757 | |||||||||||||
Cash in the process of collection | 5 | 176,501 | — | — | 176,501 | |||||||||||||
Investment under agreements to resell | 7 | 24,674 | — | 14,126 | 10,548 | |||||||||||||
Loans and receivables from banks | 9 | 451,829 | — | 64,616 | 387,213 | |||||||||||||
Loans and receivables from customers | 15,389,442 | — | — | 15,389,442 | ||||||||||||||
Held to maturity investments | 160,258 | 116,918 | 43,340 | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
17,207,461 | 116,918 | 122,082 | 16,968,461 | |||||||||||||||
LIABILITIES | ||||||||||||||||||
Current accounts and demand deposits | 4,393,163 | — | — | 4,393,163 | ||||||||||||||
Transaction in the course of payment | 5 | 105,441 | — | — | 105,441 | |||||||||||||
Obligations under repurchase agreements | 7 | 260,631 | — | — | 260,631 | |||||||||||||
Time deposits and savings accounts | 8,476,052 | — | 5,403,245 | 3,072,807 | ||||||||||||||
Borrowings from financial institutions | 1,523,976 | — | — | 1,523,976 | ||||||||||||||
Debt issued | 3,383,606 | — | 3,001,142 | 382,464 | ||||||||||||||
Other financial obligations | 19 | 14,475 | — | — | 14,475 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
18,157,344 | — | 8,404,387 | 9,752,957 |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
1. | Introduction: |
As a result of its activities, the Bank is exposed to several types of risks mainly related to its loan portfolio and financial instruments. The following sections describe the Bank’s main business activities and policies as they relate to risk management.
Risk Management Structure:
Board of Directors
At CorpBanca, the Board of Directors plays a leading role in corporate governance. They are responsible for establishing and monitoring the Bank’s risk management structure, for which it has a corporate governance system aligned with Chilean regulations, mainly from the SBIF. One of the principal functions of the Board of Directors is to monitor, evaluate and guide upper management to ensure that their actions are in line with best practices. To accomplish this, various Committees, support areas, codes and manuals have been developed, which lay out behavioral guidelines for the Bank’s associates and assist them in carrying out their functions related to controlling and managing the Bank’s risks.
Directors’ and Audit Committee
The purpose of the Directors Committee is to strengthen self-regulation within the Bank, thus improving the efficiency of the directors’ supervisory activities. This committee is responsible for, among other functions, examining accounting and financial reports, transactions with related parties and compensation of managers and senior executives.
The Audit Committee’s objective is to promote efficiency within the Bank’s internal control systems and compliance with regulations. In addition, it must reinforce and support both the function of the Bank’s Office of the Comptroller and its independence from management and serve, at the same time, as a bridge between the internal audit department and the external auditors as well as between these two groups and the Board of Directors.
At a meeting of the Board of Directors on August 30, 2011, the board agreed that the Directors’ Committee would take on additional functions of an audit committee and its name would be changed to the Directors’-Audit Committee.
Corporate Governance Committee
The Corporate Governance Committee is a consultation body of the Board of Directors whose mission is to ensure the existence and development within the Bank of the best corporate governance practices for financial entities. To this end, it is responsible for evaluating the current practices and policies, proposing and making recommendations to the Board of Directors on improvements, reforms and adjustments that it deems appropriate, also ensuring proper implementation and application of these corporate governance practices and policies defined by the Bank’s Board of Directors. The Committee performs these functions for the Bank, its divisions, its subsidiaries and its foreign entities.
This Committee is governed by its by-laws, as well as applicable SBIF regulations, general character standards from the SVS, the General Banking Law, the Corporations Law and other current laws and regulations or others issued in the future on these matters. The work of this Committee is also particularly based on the principles of the Organization for Economic Cooperation and Development (OECD) as well as of the Basel Committee on Banking Supervision with regards to good governance matters in financial companies.
Loan Committees
These committees are comprised of executives from the commercial and risk divisions as well as directors based on the required credit attributions and are intended to make decisions on different loan transactions and conditions that involve credit risk for the Bank. In addition, the highest decision-making authority the Executive Committee approves new, amended and/or updated credit policies.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Commercial Risk Committee
The objective of this Committee is to evaluate risk policies, mechanisms and procedures in place as well as to recommend measures and adjustments that help optimize the risk-return ratio for all segments within retail or consumer banking, maintaining risk in line with the returns sought by the Bank, granting flexible and specialized services that meet their customers needs. It proposes policies and strategies to improve diverse credit risk management processes in order to evaluate, rate and control the Bank’s internal processes to guarantee effective compliance and achieve proposed objectives. It reports directly to the Bank’s Board of Directors and is comprised of several directors other than the members of the Directors’-Audit Committee.
Asset-Liability Committee (ALCO)
This committee is responsible for establishing the policy framework for financial risk management, in accordance with guidelines defined by the Board of Directors and current legislation, as well as reviewing macroeconomic and financial conditions, the risks taken by the Company and the results obtained. Its main function is divided between commercial and financial matters. It approves the strategies that guide the Bank’s composition of assets and liabilities, cash inflows and outflows and transactions with financial instruments. This was done so that, after considering the diverse alternatives available, the Bank makes the decisions that ensure the highest and most sustainable returns with risk levels that are compatible with the financial business, current regulations and internal standards.
Anti-Money Laundering and Anti-Terrorism Finance Prevention Committee
This committee is in charge of preventing money laundering and terrorism financing. Its main purposes include planning and coordinating activities to comply with related policies and procedures, maintaining itself informed of work carried out by the Compliance Officer and making decisions on any improvements to control measures proposed by the Compliance Officer.
Compliance Committee
The purpose of this committee is to monitor compliance with the Codes of Conduct and other complementary rules; establish and develop procedures necessary for compliance with these codes; interpret, administer and supervise compliance with these rules; and resolve any conflicts that may arise. This committee is comprised of one director; the Chief Executive Officer; the Legal Services Division Manager; the Organizational Development Division Manager and the Compliance Officer.
Office of the Comptroller
The main function of the Office of the Comptroller is to support the Board of Directors and upper management to ensure maintenance, application and proper functioning of the Bank’s internal control system, which also entails supervising compliance with rules and procedures.
Code of Conduct and Market Information Manual
CorpBanca’s objective is to continue progressing to become the best bank and have first-rate human capital. All associates and directors of CorpBanca and its subsidiaries must adhere to ethical standards based on principles and values designed to guide and maintain the highest possible standards.
In response to our clients’ trust and recognition, which are vital to our success, all associates and directors should strive to retain this trust, strictly complying with the General Code of Conduct, approved in 2008 by the Bank’s management and the Audit Committee.
2. | Main risks affecting the Bank: |
The main types of risks related to our business activities are market, liquidity, operational, and credit risks. The effectiveness with which we can manage the balance between risk and profitability is an important factor in determining our capability to generate sustainable profit growth on a long term basis. Our senior management focuses greatly on risk management.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
2.1 Quantitative and qualitative information about Credit Risk:
For CorpBanca, proper risk management in all areas, particularly regarding credit risk, is one of the core pillars of the Bank’s portfolio management efforts, striving to maintain a proper risk/return ratio.
CorpBanca’s credit risk management is based on the following key elements:
• | Loan policies. |
• | Loan approval processes. |
• | Sound risk culture that is consistent with the Bank’s strategy. |
• | Regulatory and preventive outlook on risk. |
• | Human resources with considerable expertise in loan-related decision making. |
• | Active participation from Credit Risk Division in the approval process, using a market segmented structure. |
• | Defined monitoring and collections processes with involvement from the Commercial, Risk, Rating and Asset Control Areas. |
• | Dissemination of a risk culture throughout the Bank with internal and external training programs for the Commercial and Risk Areas. |
• | The Companies Risk Division fulfills a checks-and-balances function for the commercial areas. |
The Bank also has Credit Committees, which include Risk Managers, that determine debtor risk ratings.
These committees define individual and group exposure levels with customers as well as mitigating conditions such as collateral, loan agreements, etc.
The Bank’s risk management tool divides its portfolio into the following categories:
Normal Risk Portfolio
Watch List Portfolio
Default Portfolio
Normal Risk Portfolio
The risk involved is reviewed at the following times:
• | For each loan proposal upon initial granting, renewals and for special transactions. |
• | When deemed necessary by the Rating and Asset Control Division or the Companies Credit Risk Division. |
• | Whenever the account executive determines that relevant changes have occurred in any of the debtor’s risk factors that may imply greater risk. |
• | Through a monthly sample provided by the warning system. |
• | Through periodic review by diverse centers of responsibility. |
Watch List
An asset on the watch list presents weaknesses that can correct themselves, but requires special attention from each account executive and the Rating and Asset Control Division. Payment outlooks are satisfactory but may deteriorate if these weaknesses are not corrected. Loans in this category do not necessarily present expected losses for the Bank.
To safeguard the credit quality of loans, the Bank has established that the commercial segments must maintain a minimum of 5% of the Bank’s commercial portfolio on the watch list.
The watch list is managed by the Commercial Areas. These areas must comply with action plans established by the Watch List Committee.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
The watch list is also reviewed by the Watch List Committee, which is composed of the Companies Credit Risk and/or Credit Risk Division Manager, Rating and Asset Control Division Manager and the corresponding Commercial Area Managers, based on the following timetable:
Every 4 months | Debtors are reviewed using these strategies: | |||
V1 | Exit | |||
V2 | Guarantee | |||
V3 | Reduce | |||
Every 6 months | V4 | Continue | ||
Every 2 months | V5 | Structured exit | ||
If the loan remains unpaid. |
The committee reviews all debtors classified individually on the watch list, which controls 93% of the Bank’s commercial portfolio on a case-by-case basis.
The Risk Manager of each commercial segment and the Rating and Asset Control Division Manager are responsible for monitoring the account executive’s compliance with action plans and any agreements made by the Watch List Committee.
Debtors on the watch list must be included in the following action plans, depending on the type of problems that affect them:
Debtors with exit plans. | ||
The Bank made the decision to completely eliminate the risk. For these debtors, there must be a defined payment plan. | V1 | |
Debtors with plans to increase guarantee coverage. | V2 | |
Debtors with plans to decrease exposure. | V3 | |
Decrease debt to an amount that is comfortable for the Bank. | ||
Debtors with monitoring plans. | ||
Less degree of concern. Example: monitoring the capitalization of a company that is committed but not executed, one-time delays in payments, payment of claims questioned by the insurance company. | V4 | |
Debtors with structured payment plans. | V5 | |
Defined payment plan for all debt. Only requires monitoring that installments are paid on time. | ||
Debtors declared as satisfactory assets. | V0 | |
They were eliminated from the system after having satisfactorily complied with agreed-upon action plans. |
Variables that determine the classification of an asset as on the watch list.
1. | Using warning signs, which may include: |
• | Qualitative aspects of debtor (some examples) |
Change of owner, partner or guarantor.
Problems between partners.
Change of marital regime of guarantors.
Change of ownership of property, plant and equipment.
Labor conflicts.
Quality of financial information.
Adverse situation in industry or market in which debtor does business.
Regulatory changes.
Damage to facilities.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
• | Quantitative aspects of debtor (some examples) |
Decrease in sales.
Decrease in gross or operating margins.
Increase in cash cycle (inventory permanence, age of receivables).
Increase in bank debt.
Significant withdrawals by partners.
Increase in investments in and receivables from related parties.
Major investment projects.
• | Payment behavior |
Requesting continual renewals
Continuous internal overdrafts
Unpaid balances more than 30 days past due in financial system and/or past-due portfolio
Documents issued with insufficient funds
Scarce movements in current account
Unexplained labor and other violations
Number of defaults in Bank and financial system.
2. | Debtor risk rating. |
• | When the customer should be classified in category A6 or worse. |
3. | Debtor Analysis |
As a result of renewals of lines of credit or requests for particular loans, the commercial and financial situation are reviewed.
• | Who classified the debtor on the watch list? |
• | Account Executives |
• | Risk Managers |
• | Loan Approval Committees |
• | Past-due Portfolio Committee |
• | Rating and Asset Control Manager |
• | Commercial Managers |
• | To whom was the request for classification made? |
Rating and Asset Control Manager
• | Who changes payment plans for debtors on the watch list or removes customers from the list? |
The Rating and Asset Control Division is the only entity that can change, modify or exclude a customer from the watch list.
• | How is a customer removed from the watch list? |
The request is submitted to the committee, which then studies the information and approves or rejects the request.
• | How is the Commercial Area informed of the committee’s agreements? |
Through minutes issued by the Rating and Asset Control Manager.
Default Portfolio
This includes the entire portfolio managed by the Normalization Division. All customers with individual ratings of C1 or worse and all customers that have defaulted on any loan as a result of payment capacity problems, regardless of their rating, should be transferred to this division.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
The Rating and Asset Control Division reviews compliance with this provision on a monthly basis.
This portfolio is reviewed by the Rating and Asset Control Division each month.
Derivative Instruments
The Bank has strict controls for derivative contracts negotiated directly with its counterparties. Credit risk is limited to the fair value of contracts that are favorable for the Bank (asset position), which only represents a small fraction of the notional values of those instruments. This exposure to credit risk is managed as part of the loan limits for customers, together with potential exposure from market fluctuations. In order to mitigate risk, the Bank tends to operate with counterparty deposit margins.
Contingent Commitments
The Bank operates with diverse instruments that, although they are exposed to credit risk, are not reflected in the balance sheet. These include guarantors and pledges, documentary letters of credit, bank guarantees and commitments to grant loans.
Cosignatories and sureties represent an irrevocable payment obligation. In the event that a customer with a co-signer does not fulfill its obligations with third parties guaranteed by the Bank, this will affect the corresponding payments so that these transactions represent the same exposure to credit risk as a common loan.
Documentary letters of credit are commitments documented by the Bank on behalf of a customer that are guaranteed by merchandise on board, which therefore have less risk than direct indebtedness. Bank guarantees are contingent commitments that take effect only if the customer does not comply with a commitment made with a third party, guaranteed by them.
Regarding commitments to grant loans, the Bank is potentially exposed to losses equivalent to the unused total of the commitment. However, the likely amount of the loss is less than the unused total of the commitment. The Bank monitors the maturity of lines of credit because generally long-term commitments have greater credit risk than short-term commitments.
Financial Instruments
For this type of asset, the Bank measures the probability of not being able to collect from issuers using internal and external ratings such as risk rating agencies that are independent from the Bank.
Maximum Exposure to Credit Risk
The following table presents the distribution, by financial asset, of our maximum exposure to credit risk, as of December 31, 2014 and 2015, for different balance sheet components, including derivatives, and without deducting security interests in personal or real property or other credit improvements.
Maximum Exposure | ||||||||||
Notes | 2014 | 2015 | ||||||||
MCh$ | MCh$ | |||||||||
Loans and receivables from banks | 9 | 814,209 | 451,829 | |||||||
Loans and receivables from customers | 10 | 13,892,270 | 14,454,357 | |||||||
Derivative financial instruments | 8 | 766,799 | 1,008,915 | |||||||
Investments under agreements to resell | 7 | 78,079 | 24,674 | |||||||
Financial investments available-for-sale | 11 | 1,156,896 | 1,924,788 | |||||||
Held to maturity investments | 11 | 190,677 | 170,191 | |||||||
Other assets | 16 | 415,267 | 438,323 |
For more detail on maximum credit risk exposure and concentration by type of financial instrument, see the specific notes.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
The following table displays the concentration of credit risk by industry for financial assets:
As of December 31, 2014 | As of December 31, 2015 | |||||||||||||||||||||||||||
Notes | Maximum gross exposure | Maximum net exposure (1) | % | Maximum gross exposure | Maximum net exposure (1) | % | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Manufacturing | 1,077,362 | 1,067,420 | 10.68 | % | 879,875 | 863,100 | 8.23 | % | ||||||||||||||||||||
Mining | 629,716 | 624,517 | 6.24 | % | 766,707 | 752,089 | 7.17 | % | ||||||||||||||||||||
Electricity, gas and water | 757,220 | 750,519 | 7.50 | % | 697,735 | 684,432 | 6.52 | % | ||||||||||||||||||||
Agriculture and Livestock | 303,029 | 300,132 | 3.00 | % | 363,521 | 356,590 | 3.40 | % | ||||||||||||||||||||
Forestry and wood extraction | 56,129 | 54,996 | 0.56 | % | 44,023 | 43,184 | 0.41 | % | ||||||||||||||||||||
Fishing | 2,199 | 2,154 | 0.02 | % | 3,252 | 3,190 | 0.03 | % | ||||||||||||||||||||
Transport | 328,718 | 325,302 | 3.26 | % | 348,126 | 341,490 | 3.25 | % | ||||||||||||||||||||
Communications | 94,681 | 93,843 | 0.94 | % | 61,978 | 60,795 | 0.58 | % | ||||||||||||||||||||
Construction | 1,102,304 | 1,090,783 | 10.92 | % | 1,206,117 | 1,183,122 | 11.28 | % | ||||||||||||||||||||
Commerce | 1,358,838 | 1,345,358 | 13.47 | % | 1,309,427 | 1,284,462 | 12.24 | % | ||||||||||||||||||||
Services | 3,925,713 | 3,888,321 | 38.91 | % | 4,358,553 | 4,340,671 | 40.75 | % | ||||||||||||||||||||
Others | 454,566 | 451,121 | 4.50 | % | 657,204 | 644,672 | 6.14 | % | ||||||||||||||||||||
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Subtotal Commercial Loans | 10 a | ) | 10,090,475 | 9,994,466 | 100 | % | 10,696,518 | 10,557,797 | 100 | % | ||||||||||||||||||
Consumer Loans | 10 a | ) | 1,709,842 | 1,676,008 | 1,703,159 | 1,676,773 | ||||||||||||||||||||||
Mortgage Loans | 10 a | ) | 2,229,558 | 2,221,796 | 2,228,619 | 2,219,787 | ||||||||||||||||||||||
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Total | 14,029,875 | 13,892,270 | 14,628,296 | 14,454,357 | ||||||||||||||||||||||||
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(1) | Net of allowances |
Guarantees
In order to mitigate credit risk, guarantees have been established in the Bank’s favor. The main guarantees provided by customers are detailed as follows:
• | For loans to companies, the main guarantees are: |
• | Machinery and/or equipment |
• | Projects under construction, buildings with specific purposes and urban plots or land. |
• | For loans to individuals, the main guarantees are: |
• | Houses, and |
• | Apartments. |
Credit quality by financial asset class
With regard to the quality of credits, these are described consistent with the standards issued by the Superintendency of Banks and Financial Institutions. A detail by credit quality is summarized as follows:
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2014 | Normal Portfolio | Impaired Portfolio (*) | Total | Normal Portfolio | Impaired Portfolio | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Impaired | General Total | |||||||||||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||||||||
Loans and receivables from banks | 620,047 | 145,363 | 44,820 | 4,250 | — | — | — | — | — | 814,480 | — | — | — | 814,480 | ||||||||||||||||||||||||||||||||||||||||||
Provisions | — | (99 | ) | (98 | ) | (74 | ) | — | — | — | — | — | (271 | ) | — | (271 | ) | |||||||||||||||||||||||||||||||||||||||
% | — | 0.07 | % | 0.22 | % | 1.74 | % | — | — | — | — | — | 0.03 | % | — | — | — | 0.03 | % | |||||||||||||||||||||||||||||||||||||
Loans and receivable from customers Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General Commercial loans | — | 440,672 | 1,715,679 | 3,006,527 | 2,092,385 | 244,994 | 142,492 | 51,957 | 203,352 | 7,898,058 | 357,032 | 47,988 | 405,020 | 8,303,078 | ||||||||||||||||||||||||||||||||||||||||||
Foreign Trade loans | — | 6,821 | 160,843 | 177,597 | 88,026 | 8,926 | 28,230 | 1,243 | 23,993 | 495,679 | 9,497 | 375 | 9,872 | 505,551 | ||||||||||||||||||||||||||||||||||||||||||
Lines of credit and overdrafts | — | — | 8,235 | 7,008 | 3,918 | 264 | 413 | 123 | 1,118 | 21,079 | 12,162 | 1,609 | 13,771 | 34,850 | ||||||||||||||||||||||||||||||||||||||||||
Factored receivables | — | — | 4,574 | 30,570 | 28,474 | 481 | 29 | — | 65 | 64,193 | 5,643 | 78 | 5,721 | 69,914 | ||||||||||||||||||||||||||||||||||||||||||
Leasing contracts | — | 6,762 | 69,110 | 309,153 | 285,389 | 31,491 | 33,432 | 12,244 | 34,070 | 781,651 | 79,812 | 5,029 | 84,841 | 866,492 | ||||||||||||||||||||||||||||||||||||||||||
Other outstanding loans | 2 | 168 | 1,686 | 1,943 | 1,837 | 141 | 86 | 54 | 1,560 | 7,477 | 302,521 | 592 | 303,113 | 310,590 | ||||||||||||||||||||||||||||||||||||||||||
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Subtotal Commercial loans | 2 | 454,423 | 1,960,127 | 3,532,798 | 2,500,029 | 286,297 | 204,682 | 65,621 | 264,158 | 9,268,137 | 766,667 | 55,671 | 822,338 | 10,090,475 | ||||||||||||||||||||||||||||||||||||||||||
Provisions | — | (139 | ) | (1,466 | ) | (16,856 | ) | (18,782 | ) | (2,891 | ) | (4,246 | ) | (3,331 | ) | (33,151 | ) | (80,862 | ) | (6,163 | ) | (8,984 | ) | (15,147 | ) | (96,009 | ) | |||||||||||||||||||||||||||||
% | 0.03 | % | 0.07 | % | 0.48 | % | 0.75 | % | 1.01 | % | 2.07 | % | 5.08 | % | 12.55 | % | 0.87 | % | 0.80 | % | 16.14 | % | 1.84 | % | 0.95 | % | ||||||||||||||||||||||||||||||
Consumer loans | — | — | — | — | — | — | — | — | — | — | 1,660,853 | 48,989 | 1,709,842 | 1,709,842 | ||||||||||||||||||||||||||||||||||||||||||
Provisions | — | — | — | — | — | — | — | — | — | — | (21,399 | ) | (12,435 | ) | (33,834 | ) | (33,834 | ) | ||||||||||||||||||||||||||||||||||||||
% | — | — | — | — | — | — | — | — | — | — | 1.29 | % | 25.38 | % | 1.98 | % | 1.98 | % | ||||||||||||||||||||||||||||||||||||||
Mortgage loans | — | — | — | — | — | — | — | — | — | — | 2,192,177 | 37,381 | 2,229,558 | 2,229,558 | ||||||||||||||||||||||||||||||||||||||||||
Provisions | — | — | — | — | — | — | — | — | — | — | (5,029 | ) | (2,733 | ) | (7,762 | ) | (7,762 | ) | ||||||||||||||||||||||||||||||||||||||
% | — | — | — | — | — | — | — | — | — | — | 0.23 | % | 7.31 | % | 0.35 | % | 0.35 | % | ||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | 2 | 454,423 | 1,960,127 | 3,532,798 | 2,500,029 | 286,297 | 204,682 | 65,621 | 264,158 | 9,268,137 | 4,619,697 | 142,041 | 4,761,738 | 14,029,875 | ||||||||||||||||||||||||||||||||||||||||||
Provisions | — | (139 | ) | (1,466 | ) | (16,856 | ) | (18,782 | ) | (2,891 | ) | (4,246 | ) | (3,331 | ) | (33,151 | ) | (81,133 | ) | (32,591 | ) | (24,152 | ) | (56,743 | ) | (137,605 | ) | |||||||||||||||||||||||||||||
%Provisions | 0.03 | % | 0.07 | % | 0.48 | % | 0.75 | % | 1.01 | % | 2.07 | % | 5.08 | % | 12.55 | % | 0.88 | % | 0.71 | % | 17.00 | % | 1.19 | % | 0.98 | % |
(*) | B1 and B2: Customers who have financial difficulties but still are not impaired. |
Impaired: Customers who have financial difficulties and are impaired.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Individual Portfolio | Group Portfolio | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2015 | Normal Portfolio | Impaired Portfolio (*) | Normal Portfolio | Impaired Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||
A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Impaired | Total | Total | General Total | |||||||||||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||||||||
Loans and receivables from banks | 308,028 | 64,652 | 21,379 | 58,010 | — | — | — | — | — | 452,069 | — | — | — | 452,069 | ||||||||||||||||||||||||||||||||||||||||||
Provisions | — | (111 | ) | (129 | ) | — | (240 | ) | — | — | — | (240 | ) | |||||||||||||||||||||||||||||||||||||||||||
%Provisions | — | 0.17 | % | 0.60 | % | — | — | — | — | — | — | 0.05 | % | — | — | — | 0.05 | % | ||||||||||||||||||||||||||||||||||||||
Loans and receivable from customers Commercial loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General Commercial loans | — | 337,942 | 1,902,372 | 2,982,307 | 2,181,402 | 303,679 | 122,571 | 73,698 | 207,409 | 8,111,380 | 627,823 | 82,657 | 710,480 | 8,821,860 | ||||||||||||||||||||||||||||||||||||||||||
Foreign Trade loans | — | 3,558 | 142,449 | 148,669 | 82,726 | 24,727 | 33,564 | 11,082 | 18,368 | 465,143 | 55,512 | 684 | 56,196 | 521,339 | ||||||||||||||||||||||||||||||||||||||||||
Lines of credit and overdrafts | — | — | 390 | 7,837 | 3,760 | 184 | 61 | 25 | 757 | 13,014 | 13,267 | 2,451 | 15,718 | 28,732 | ||||||||||||||||||||||||||||||||||||||||||
Factored receivables | — | — | 1,236 | 30,918 | 13,182 | 38 | 670 | — | 49 | 46,093 | 15,537 | 383 | 15,920 | 62,013 | ||||||||||||||||||||||||||||||||||||||||||
Leasing contracts | — | 7,924 | 46,238 | 257,945 | 305,434 | 54,407 | 27,788 | 7,737 | 46,284 | 753,757 | 126,939 | 7,493 | 134,432 | 888,189 | ||||||||||||||||||||||||||||||||||||||||||
Other outstanding loans | — | 182 | 547 | 3,921 | 2,633 | 157 | 79 | 338 | 1,469 | 9,326 | 351,622 | 13,437 | 365,059 | 374,385 | ||||||||||||||||||||||||||||||||||||||||||
Subtotal Commercial loans | — | 349,606 | 2,093,232 | 3,431,597 | 2,589,137 | 383,192 | 184,733 | 92,880 | 274,336 | 9,398,713 | 1,190,700 | 107,105 | 1,297,805 | 10,696,518 | ||||||||||||||||||||||||||||||||||||||||||
Provisions | — | (99 | ) | (1,602 | ) | (10,957 | ) | (16,776 | ) | (9,790 | ) | (3,918 | ) | (18,921 | ) | (59,439 | ) | (121,502 | ) | (8,197 | ) | (9,022 | ) | (17,219 | ) | (138,721 | ) | |||||||||||||||||||||||||||||
%Provisions | — | 0.03 | % | 0.08 | % | 0.32 | % | 0.65 | % | 2.55 | % | 2.12 | % | 20.37 | % | 21.67 | % | 1.29 | % | 0.69 | % | 8.42 | % | 1.33 | % | 1.30 | % | |||||||||||||||||||||||||||||
Consumer loans | — | — | — | — | — | — | — | — | — | — | 1,660,349 | 42,810 | 1,703,159 | 1,703,159 | ||||||||||||||||||||||||||||||||||||||||||
Provisions | — | — | — | — | — | — | — | — | — | — | (21,186 | ) | (5,200 | ) | (26,386 | ) | (26,386 | ) | ||||||||||||||||||||||||||||||||||||||
%Provisions | — | — | — | — | — | — | — | — | — | — | 1.28 | % | 12.15 | % | 1.55 | % | 1.55 | % | ||||||||||||||||||||||||||||||||||||||
Mortgage loans | — | — | — | — | — | — | — | — | — | — | 2,192,888 | 35,731 | 2,228,619 | 2,228,619 | ||||||||||||||||||||||||||||||||||||||||||
Provisions | — | — | — | — | — | — | — | — | — | — | (5,616 | ) | (3,216 | ) | (8,832 | ) | (8,832 | ) | ||||||||||||||||||||||||||||||||||||||
%Provisions | — | — | — | — | — | — | — | — | — | — | 0.26 | % | 9.00 | % | 0.40 | % | 0.40 | % | ||||||||||||||||||||||||||||||||||||||
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Total loans and receivable to customers | — | 349,606 | 2,093,232 | 3,431,597 | 2,589,137 | 383,192 | 184,733 | 92,880 | 274,336 | 9,398,713 | 5,043,937 | 185,646 | 5,229,583 | 14,628,296 | ||||||||||||||||||||||||||||||||||||||||||
Provisions | — | (99 | ) | (1,602 | ) | (10,957 | ) | (16,776 | ) | (9,790 | )# | (3,918 | ) | (18,921 | ) | (59,439 | ) | (121,502 | ) | (34,999 | ) | (17,438 | ) | (52,437 | ) | (173,939 | ) | |||||||||||||||||||||||||||||
%Provisions | — | 0.03 | % | 0.08 | % | 0.32 | % | 0.65 | % | 2.55 | % | 2.12 | % | 20.37 | % | 21.67 | % | 1.29 | % | 0.69 | % | 9.39 | % | 1.00 | % | 1.19 | % | |||||||||||||||||||||||||||||
Financial investments | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
(*) | B1 and B2: Customers who have financial difficulties but still are not impaired. |
Impaired: Customers who have financial difficulties and are impaired.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
The overdue analysis by financial asset class is as follows:
As of December 31, 2014 | ||||||||||||||||
1-29 days | 30-89 days | 90 days or more | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Loans and receivables to banks | — | — | — | — | ||||||||||||
Loans and receivables to customers: | ||||||||||||||||
Commercial loans | 56,977 | 20,998 | 73,705 | 151,680 | ||||||||||||
Mortgage loans | 1,778 | 974 | 4,629 | 7,381 | ||||||||||||
Consumer loans | 32,367 | 14,915 | 4,316 | 51,598 | ||||||||||||
Financial investments | — | — | — | — | ||||||||||||
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| |||||||||
Total | 91,122 | 36,887 | 82,650 | 210,659 | ||||||||||||
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As of December 31, 2015 | ||||||||||||||||
1-29 days | 30-89 days | 90 days or more | Total | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Loans and receivables to banks | — | — | — | — | ||||||||||||
Loans and receivables to customers: | ||||||||||||||||
Commercial loans | 41,108 | 29,628 | 96,047 | 166,783 | ||||||||||||
Mortgage loans | 1,407 | 970 | 4,724 | 7,101 | ||||||||||||
Consumer loans | 31,846 | 14,569 | 4,126 | 50,541 | ||||||||||||
Financial investments | — | — | — | — | ||||||||||||
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Total | 74,361 | 45,167 | 104,897 | 224,425 | ||||||||||||
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The fair value of the collateral of overdue but not impaired loans was MCh$301,965 as of December 31, 2015 (MCh$857,110 as of December 31, 2014).
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
The following tables details assets and liabilities by currency as of December 31, 2014 and 2015:
As of December 31, 2014 | Notes | US$ | Euro | Yen | Sterling pound | Colombian pesos | Other currencies | UF | Pesos | ER(*) | ||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||||
Cash and due from bank | 5 | 399,755 | 11,675 | 1,293 | 30 | 622,248 | 265 | — | 133,912 | — | ||||||||||||||||||||||||||||
Cash in the process of collection | 5 | 51,716 | 1,865 | — | 486 | 7,433 | 41 | — | 151,301 | — | ||||||||||||||||||||||||||||
Trading portfolio financial assets | 6 | 82,316 | — | — | — | 571,089 | — | 5,434 | 27,059 | — | ||||||||||||||||||||||||||||
Investments under agreements to resell | 7 | — | — | — | — | 50,973 | — | 272 | 26,834 | — | ||||||||||||||||||||||||||||
Derivative financial instruments | 8 | 338,506 | — | — | — | 115,515 | — | — | 312,778 | — | ||||||||||||||||||||||||||||
Loans and receivables from banks | 9 | 91,958 | — | — | — | 102,204 | — | — | 620,047 | — | ||||||||||||||||||||||||||||
Loans and receivables from customers | 10 | 1,501,179 | 2,586 | — | — | 5,044,193 | 6 | 3,903,662 | 3,430,948 | 9,696 | ||||||||||||||||||||||||||||
Financial investments available-for-sale | 11 | 43,068 | — | — | — | 479,103 | — | 220,478 | 404,580 | 9,667 | ||||||||||||||||||||||||||||
Held to maturity investments | 11 | 24,275 | — | — | — | 159,227 | — | 7,175 | — | — | ||||||||||||||||||||||||||||
Investments in other companies | 12 | — | — | — | — | 5,520 | — | — | 10,322 | — | ||||||||||||||||||||||||||||
Intangible assets | 13 | 103 | — | — | — | 321,029 | — | — | 436,645 | — | ||||||||||||||||||||||||||||
Property, plant and equipment | 14 | 1,345 | — | — | — | 52,502 | — | — | 38,795 | — | ||||||||||||||||||||||||||||
Current taxes | 15 | — | — | — | — | 20,834 | — | — | — | — | ||||||||||||||||||||||||||||
Deferred income taxes | 15 | 2,702 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Other Assets | 16 | 126,277 | — | — | — | 83,536 | — | 6 | 205,448 | — | ||||||||||||||||||||||||||||
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|
|
| |||||||||||||||||||||
Total Assets | 2,663,200 | 16,126 | 1,293 | 516 | 7,635,406 | 312 | 4,137,027 | 5,798,669 | 19,363 | |||||||||||||||||||||||||||||
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|
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|
|
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|
|
|
| |||||||||||||||||||||
Current accounts and demand deposits | 17 | 120,915 | 2,588 | — | 9 | 2,863,024 | 64 | 10,117 | 958,231 | — | ||||||||||||||||||||||||||||
Transaction in the course of payment | 5 | 75,017 | 1,782 | 1,617 | 15 | 205 | 128 | — | 67,007 | — | ||||||||||||||||||||||||||||
Obligations under repurchase agreements | 7 | 131 | — | — | — | 652,804 | — | — | 8,728 | — | ||||||||||||||||||||||||||||
Time deposits and saving accounts | 17 | 1,024,704 | 8,388 | — | — | 2,237,371 | — | 527,356 | 4,279,146 | 1 | ||||||||||||||||||||||||||||
Derivative financial instruments | 8 | 268,071 | — | — | — | 80,876 | — | 640 | 258,096 | — | ||||||||||||||||||||||||||||
Borrowings from financial institutions | 18 | 1,025,646 | 3,308 | — | — | 402,969 | — | — | — | — | ||||||||||||||||||||||||||||
Debt issued | 19 | 892,149 | — | — | — | 373,720 | — | 1,766,196 | 46,985 | — | ||||||||||||||||||||||||||||
Other financial obligations | 19 | — | — | — | — | 1,371 | — | 4,552 | 9,286 | 213 | ||||||||||||||||||||||||||||
Current income tax provision | 15 | 517 | — | — | — | — | — | — | 18,709 | — | ||||||||||||||||||||||||||||
Deferred income taxes | 15 | — | — | — | — | 27,809 | — | — | 48,784 | — | ||||||||||||||||||||||||||||
Provisions | 20 | 5,764 | — | — | — | 44,657 | — | — | 149,868 | — | ||||||||||||||||||||||||||||
Other Liabilities | 21 | 27,988 | — | — | — | 69,261 | — | 502 | 112,965 | — | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||
Total Liabilities | 3,440,902 | 16,066 | 1,617 | 24 | 6,754,067 | 192 | 2,309,363 | 5,957,805 | 214 | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||
Net Assets (liabilities) | (777,702 | ) | 60 | (324 | ) | 492 | 881,339 | 120 | 1,827,664 | (159,136 | ) | 19,149 | ||||||||||||||||||||||||||
Contingent loans | 22 | 459,290 | 17,061 | 1,225 | — | 1,016,737 | — | 282,259 | 1,414,863 | — | ||||||||||||||||||||||||||||
Net asset (liability) position | (318,412 | ) | 17,121 | 901 | 492 | 1,898,076 | 120 | 2,109,923 | 1,255,727 | 19,149 |
(*) | exchange rate |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
As of December 31, 2015 | Notes | US$ | Euro | Yen | Sterling Pound | Colombian Pesos | Other Currencies | UF | Pesos | ER(*) | ||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||||||
Cash and due from bank | 5 | 294,317 | 6,212 | 72 | 121 | 522,118 | 354 | — | 181,563 | — | ||||||||||||||||||||||||||||
Cash in the process of collection | 5 | 79,335 | 2,174 | — | 100 | 3,056 | 241 | — | 91,595 | — | ||||||||||||||||||||||||||||
Trading portfolio financial assets | 6 | — | — | — | — | 256,440 | — | 24,895 | 42,564 | — | ||||||||||||||||||||||||||||
Investments under agreements to resell | 7 | — | — | — | — | 14,126 | — | — | 10,548 | — | ||||||||||||||||||||||||||||
Derivative financial instruments | 8 | 502,519 | — | — | — | 164,095 | — | — | 342,301 | — | ||||||||||||||||||||||||||||
Loans and receivables from banks | 9 | 79,185 | — | — | — | 64,616 | — | — | 308,028 | — | ||||||||||||||||||||||||||||
Loans and receivables from customers | 10 | 1,671,859 | 3,375 | — | — | 4,981,415 | — | 4,060,651 | 3,736,532 | 525 | ||||||||||||||||||||||||||||
Financial investments available-for-sale | 11 | 76,383 | — | — | — | 926,865 | — | 577,264 | 333,345 | 10,931 | ||||||||||||||||||||||||||||
Held to maturity investments | 11 | 7,246 | — | — | — | 157,402 | — | 5,543 | — | — | ||||||||||||||||||||||||||||
Investments in other companies | 12 | — | — | — | — | 4,578 | — | — | 10,070 | — | ||||||||||||||||||||||||||||
Intangible assets | 13 | 99 | — | — | — | 286,769 | — | — | 378,396 | — | ||||||||||||||||||||||||||||
Property, plant and equipment | 14 | 1,391 | — | — | — | 49,657 | — | — | 40,582 | — | ||||||||||||||||||||||||||||
Current taxes | 15 | — | — | — | — | 46,904 | — | — | — | — | ||||||||||||||||||||||||||||
Deferred income taxes | 15 | 8,248 | — | — | — | — | — | — | 423 | — | ||||||||||||||||||||||||||||
Other Assets | 16 | 162,593 | — | — | — | 126,537 | — | 4 | 149,189 | — | ||||||||||||||||||||||||||||
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|
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|
|
|
|
|
| |||||||||||||||||||||
Total Assets | 2,883,175 | 11,761 | 72 | 221 | 7,604,578 | 595 | 4,668,357 | 5,625,136 | 11,456 | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||
Current accounts and demand deposits | 17 | 306,508 | 3,974 | — | — | 3,086,338 | 53 | 10,045 | 1,024,701 | — | ||||||||||||||||||||||||||||
Transaction in the course of payment | 5 | 14,082 | 6,289 | — | 16 | — | 238 | — | 84,816 | — | ||||||||||||||||||||||||||||
Obligations under repurchase agreements | 7 | 109 | — | — | — | 240,385 | — | — | 20,137 | — | ||||||||||||||||||||||||||||
Time deposits and saving accounts | 17 | 1,156,878 | 268 | — | — | 2,377,700 | — | 581,482 | 4,379,275 | — | ||||||||||||||||||||||||||||
Derivative financial instruments | 8 | 342,583 | — | — | — | 101,995 | — | 540 | 285,996 | — | ||||||||||||||||||||||||||||
Borrowings from financial institutions | 18 | 1,059,591 | 2,422 | — | — | 466,572 | — | — | — | — | ||||||||||||||||||||||||||||
Debt issued | 19 | 1,050,149 | — | — | — | 342,519 | — | 1,764,207 | 70,679 | — | ||||||||||||||||||||||||||||
Other financial obligations | 19 | — | — | — | — | 1,610 | — | 3,016 | 9,849 | — | ||||||||||||||||||||||||||||
Current income tax provision | 15 | 718 | — | — | — | — | — | — | 41,739 | — | ||||||||||||||||||||||||||||
Deferred income taxes | 15 | — | — | — | — | 40,433 | — | — | — | — | ||||||||||||||||||||||||||||
Provisions | 20 | 4,892 | — | — | — | 64,686 | — | — | 113,129 | — | ||||||||||||||||||||||||||||
Other Liabilities | 21 | 36,663 | — | — | — | 68,339 | — | — | 104,437 | — | ||||||||||||||||||||||||||||
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|
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|
|
|
|
|
|
| |||||||||||||||||||||
Total Liabilities | 3,972,173 | 12,953 | — | 16 | 6,790,577 | 291 | 2,359,290 | 6,134,758 | — | |||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net Assets (liabilities) | (1,088,998 | ) | (1,192 | ) | 72 | 205 | 814,001 | 304 | 2,309,067 | (509,622 | ) | 11,456 | ||||||||||||||||||||||||||
Contingent loans | 22 | 608,029 | 7,413 | 728 | — | 904,259 | — | 354,929 | 1,410,053 | — | ||||||||||||||||||||||||||||
Net asset (liability) position | (480,969 | ) | 6,221 | 800 | 205 | 1,718,260 | 304 | 2,663,996 | 900,431 | 11,456 |
(*) | exchange rate |
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Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
FINANCIAL RISK MANAGEMENT
Definition and Principles of Financial Risk Management
Market Risk
Definition
Market risk is the exposure to economic gains or losses caused by movements in prices and market variables. This exposure stems from both the trading book, where positions are valued at fair value, and the banking book, which is at amortized cost. The different valuation methodologies require the use of diverse tools to measure and control the impact on either the value of the Bank’s positions or its financial margin.
Decisions as to how to manage these risks are reviewed by committees, the most important of which is the Asset-Liability Committee (ALCO).
Each of the activities are measured, analyzed and reported on a daily basis using different metrics to ascertain their risk profiles.
The following section describes the main risk factors along with the tools we use to monitor the most important impacts of market risk factors to which the Bank and its subsidiaries are exposed.
(1) | Risk Factors |
i. | Foreign Exchange Risk |
Foreign exchange risk is the exposure to adverse movements in the exchange rates of currencies other than the base currency for all balance sheet and off-balance sheet positions.
The main sources of foreign exchange risk are:
• | Positions in foreign currency (FX) within the trading book. |
• | Currency mismatches between assets and liabilities in the banking book. |
• | Cash flow mismatches in different currencies. |
• | Structural positions produced from consolidating assets and liabilities from our foreign branches and subsidiaries denominated in currencies other than the Chilean peso. As a result, movements in exchange rates can generate volatility within the bank’s income statement and equity. This effect is known as “translation risk”. |
ii. | Indexation Rate Risk |
Indexation risk is the exposure to changes in indexed units (e.g. UF, UVR or others) linked to domestic or foreign currency in which any instruments, contracts or other transactions recorded in the balance sheet may be denominated.
iii. | Interest Rate Risk |
Interest rate risk is the exposure to movements in market interest rates. Changes in market interest rates can affect both the price of trading instruments and the net interest margin and other gains from the banking book such as fees. Likewise, fluctuations in interest rates can affect the underlying value of the Bank’s assets and liabilities and of derivative instruments that are recorded off balance sheet at fair value.
F-185
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
Interest rate risk can be represented by sensitivities to parallel and/or non-parallel yield shifts with the effects reflected in the prices of instruments, the financial margin and equity.
Movements in interest rates can be explained by at least the following risk factors:
• | Systemic risk |
• | Funding liquidity risk |
• | Credit risk |
• | Specific risk. |
A key component of our asset and liability policy is the management of interest rate sensitivity. Interest rate sensitivity is the relationship between market interest rates and net interest income due to the maturity or re-pricing characteristics of interest-earning assets and interest bearing liabilities. For any given period, the pricing structure is matched when an equal amount of such assets and liabilities mature or re-price in that period. Any mismatch of interest-earning assets and interest bearing liabilities is known as a gap position. A positive gap denotes asset sensitivity and means that an increase in interest rates would have a positive effect on net interest income while a decrease in interest rates would have a negative effect on net interest income. Accordingly, a negative gap denotes asset sensitivity and means that a decrease in interest rates would have a negative effect on net interest income while an increase in interest rates would have a positive effect on net interest income.
Our interest rate sensitivity strategy takes into account not only the rates of return and the underlying degree of risk, but also liquidity requirements, including minimum regulatory cash reserves, mandatory liquidity ratios, withdrawal and maturity of deposits, capital costs and additional demand for funds. Our maturity mismatches and positions are monitored by our A&L Committee and are managed within established limits.
iv. | Prepayment or Call Risk |
This risk arises from the possible prepayment (partial or full) of any transaction before its contractual maturity, generating the need to reinvest the freed cash flows at a different rate than that of the prepaid transaction.
v. | Underwriting Risk |
This risk arises as a result of the Bank underwriting a placement of bonds or other debt instruments, taking on the risk of coming to own the portion of the issuance that could not be placed among potential interested parties.
vi. | Correlation Risk |
Correlation risk is the exposure to changes in estimated correlations between the relative value of two or more assets, or a difference between the effective and estimated correlation over the life of the transaction.
vii. | Market Liquidity Risk |
Market liquidity risk is the exposure to losses as a result of the potential impact on transaction prices or costs in the sale or closure of a position. This risk is related to the particular market’s degree of depth.
viii. | Volatility Risk |
In addition to the exposure related to the underlying asset, issuing options has other risks. These risks arise from the non-linear relationship between the gain generated by the option and the price and level of the underlying factors, as well as the exposure to changes in the perceived volatility of these factors.
F-186
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
1. | Management Principles |
The following principles govern the market risk management efforts of CorpBanca and its subsidiaries:
• | Business and trades are conducted in line with established policies, pre-approved limits, guidelines, procedure controls and clearly defined delegation of decision-making authority, in compliance with applicable laws and regulations. |
• | The Bank’s organizational structure must ensure effective segregation of duties so that trading, monitoring, accounting and risk measurement and management are performed and reported independently using a dual-control system. |
• | Trading of new products and participation in new markets can only take place if: |
• | The product has been approved by the Bank’s New Product Committee. |
• | A full assessment has been conducted to determine if the activity falls within the bank’s general risk tolerance and specific commercial objectives. |
• | Proper controls and limits have been set for that activity. |
• | The limits, terms and conditions stipulated in the authorizations are monitored on a daily basis and any excesses are reported no later than the following day. |
• | Trading positions are valued each day at fair value in accordance with the Valuation Policy. |
• | All trades must be executed at current market rates. |
2. | Funding Liquidity Risk |
a) | Definition |
Funding liquidity risk is the exposure of the Bank and its subsidiaries to events that affect their ability to meet, in a timely manner and at reasonable costs, cash payment obligations arising from maturities of time deposits that are not renewed, withdrawals from demand accounts, maturities or settlements of derivatives, liquidations of investments or any other payment obligation.
Financial institutions are exposed to funding liquidity risk that is intrinsic to the role of intermediary that they play in the economy. In general, in financial markets demand for medium or long-term financing is usually much greater than the supply of funds for those terms while short-term financing is in considerable supply. In this sense, the role of intermediary played by financial institutions, which assume the risk of satisfying the demand for medium and long-term financing by brokering short-term available funds, is essential for the economy to function properly.
Appropriately managing funding liquidity risk not only allows contractual obligations to be met in a timely manner, but also enables:
• | The liquidation of positions, when it so decides, to occur without significant losses. |
• | The commercial and treasury activities of the Bank and its subsidiaries to be financed at competitive rates. |
• | The Bank to avoid fines or regulatory sanctions for not complying with regulations. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
b) | Management Principles |
The principles used to manage funding liquidity risk include:
• | Balancing strategic liquidity objectives with corporate profitability objectives, designing and implementing investment and financing strategies to compete with our key competitors. |
• | Designing policies, limits and procedures in accordance with banking regulations, internal rules and CorpBanca’s strategic business objectives. |
• | Establishing a robust framework for managing liquidity risk that guarantees that the entity will maintain sufficient liquidity, including a cushion of high-quality, unencumbered liquid assets that can be used to contend with a series of stress-generating events, including those that bring about losses or weaken sources of secured and unsecured financing. |
• | Clearly establishing liquidity risk tolerance appropriate for its business strategy and its size within the financial system. |
• | The Bank has a financing strategy that promotes effective diversification of funding sources and maturities. It maintains a continuous presence in the funding market with correspondent banks and select customers, maintaining close relationships and promoting diversification of funding sources. It also keeps appropriate lines of financing available, ensuring its ability to obtain liquid resources quickly. The Bank has identified the main factors of vulnerability that affect its ability to secure funds and monitors the validity of the assumptions behind estimates for obtaining funding. |
• | CorpBanca actively manages its intraday liquidity positions and risks in order to punctually meet its payment and liquidation obligations both under normal circumstances as well as situations of stress, contributing to the smooth operations of the payment and settlement systems. |
c) | Others |
• | The maturity analysis of financial assets and liabilities are in Note 36Maturity of assets and liabilities. |
• | For further information on funding liquidity risk see page F- 219. |
3. | Counterparty Risk |
Credit default risk is the risk of loss arising from non-compliance by a given counterparty, for whatever reason, in paying all or part of its obligations with the Bank under contractually agreed-upon conditions. This risk also includes a given counterparty’s inability to comply with obligations to settle derivative operations with bilateral risk.
The Bank diversifies credit risk by placing limits on the concentration of this risk in any one individual debtor, debtor group, product, industry segment or country. Such risks are continuously monitored and the limits by debtor, debtor group, product, industry and country are reviewed at least once per year and approved by the respective committees.
Exposure to credit risk is evaluated using an individual analysis of the payment capacity of debtors and potential debtors to meet their obligations on time and as agreed.
Furthermore, the Bank has strict controls for derivative contracts negotiated directly with its counterparties. This exposure is managed using limits per customer based on a risk methodology equivalent to credit risk exposure. Lastly, the values of derivatives are adjusted to reflect the expected loss from the counterparty.
F-188
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
The Bank includes in the valuation of derivatives the “Counterparty Valuation Adjustment” (CVA), to reflect the counterparty risk in the determination of fair value.This valuation considers the Bank’s own credit risk, known as “Debit Valuation Adjustment” (DVA). See Note 34Financial Assets And Liabilities Measured At Fair Value.
Offsetting financial assets and liabilities
The Bank should offset a financial asset and a financial liability and the net amount presented in the statement of financial position when and only when:
i.- currently has a legally enforceable right to set off the recognized amounts; and
ii.- intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
The bank includes assets and financial liabilities that have master netting agreements but do not qualify to be netting directly in the statement of financial position and hence their values are presented gross in that Statement.
According to the above, the following table shows the impact of the main assets and liabilities offset and those who maintain netting agreements (including financial guarantees), but do not qualify to be netting directly in the statement of financial position.
As of December 31, 2015 | ||||||||||||||||||||||||||||||
Finnancial Instruments offset in the Statement of Financial Position. | Finnancial Instruments not offset in the Statement of Financial Position. (3) | |||||||||||||||||||||||||||||
Gross amount (1) | Amounts (2) | Net amounts reported in the Statement of Financial Position. | Amounts to (4) | Financial guarantees (5) | Net amounts (Total) | |||||||||||||||||||||||||
(a) | (b) | (c) = (a) - (b) | (d) | (e) | (f) = (c) - (d) - (e) | |||||||||||||||||||||||||
Finnancial Instruments | MM$ | MM$ | MM$ | Note | MM$ | MM$ | Note | MM$ | ||||||||||||||||||||||
Financial derivative contracts | Assets | 1,008,915 | — | 1,008,915 | 8 | — | 35,388 | 21 | 973,527 | |||||||||||||||||||||
Liabilities | 731,114 | — | 731,114 | 8 | — | 171,626 | 16 | 559,488 |
(1) | Gross amount without applying offset regulations. |
(2) | Value to offset in the statement of financial position. |
(3) | Finnancial Instruments that have master netting agreements but do not qualify to be netting directly in the statement of financial position |
(4) | Amount to offset in the Finnancial Instruments that have master netting agreements but do not qualify to be netting directly in the statement of financial position. |
(5) | Amounts related to financial guarantees |
B. | Corporate Governance Structure and Committees |
CorpBanca has established a sound organizational structure for monitoring, controlling and managing market risks, based on the following principles:
F-189
Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
• | Risk is monitored and controlled by parties independent from those managing risk, thus correctly aligning incentives. |
• | Management efforts should be flexible, within the framework permitted by policies, rules and current regulations. |
• | Senior management establishes the guidelines for risk appetite, and |
• | Is informed periodically on risk levels assumed, contingencies and instances when limits are exceeded. |
In order to guarantee the flexibility of management efforts and communication of risk levels to upper management, the following network of committees has been established:
• | Daily Committee: Meets daily to review financial conditions and the latest market movements. This committee reviews the relevance of positions on a daily basis in order to detect in advance any scenarios that could negatively impact returns and liquidity. It also monitors the performance of strategies used for each of the portfolios. |
• | Market and Proprietary Trading Committee: Meets weekly to analyze management of positions. This committee reviews local and global economic conditions and projections in order to analyze the potential benefits and risks of the strategies executed and evaluate new strategies. |
• | Financial Management Committee: Meets biweekly to analyze management of structural interest rate and indexation risk in the banking book. |
• | Liquidity Management Committee: Meets biweekly to analyze management of funding liquidity risk. |
• | Asset-Liability Committee (ALCO): Meets biweekly to analyze economic and financial conditions and inform senior management of market and liquidity risk levels assumed by presenting indexes of market and funding liquidity risk, limit consumption and results of stress tests. |
• | Board of Directors The board of directors is informed each quarter of the market and funding liquidity risk levels assumed by presenting established risk indexes, limit consumption and results of stress tests. |
The Divisions in charge of managing market and funding liquidity risk are:
The Treasury Division is responsible for managing market risk. Its primary objective is to generate or conduct business with customers while its secondary function is to carry out proprietary trading.
The Finance and International Division is responsible for managing all structural risks in the markets in which it operates through the Financial Management and Liquidity Management Areas in order to provide greater stability to the financial margin and ensure suitable levels of solvency and liquidity.
As with the structure for financial risk at a corporate level, each local financial risk unit arranges its functions based on the specific characteristics of the business, operations, legal requirements or other relevant aspects.
In order to guarantee adherence to corporate policies and proper local execution, the corporate financial risk area and local units have the following roles and functions:
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Table of Contents
CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
Corporate Financial Risk Area:
• | To design, propose and document risk policies and criteria, corporate limits and decision making and control processes. |
• | To generate management schemes, systems and tools, overseeing and supporting implementation so that they function effectively. |
• | To know, assimilate and adapt internal and external best practices. |
• | To drive commercial activity to attain risk-weighted results. |
• | To consolidate, analyze and control financial risk incurred by all perimeter units. |
Local Financial Risk Units:
• | To measure, analyze and control the risks under their responsibility. |
• | To adapt and embrace corporate policies and procedures through local approval. |
• | To define and document local policies and lead local projects. |
• | To apply policies and decision-making systems to each market. |
• | To adapt the organization and management schemes to corporate frameworks and rules. |
C. | Monitoring and Controlling Financial Risk |
1. | Market Risk |
(a) | Management Tools |
(1) Internal Monitoring
(a) | Limits and Warning Levels |
(i) | Trading Book |
The trading book consists of financial instruments that are allocated to diverse portfolios based on their strategy. The market risk of these instruments stems mainly from being recorded at fair value. As a result, changes in market conditions can directly impact their value. The following sections describe the monitoring and control structure for market risk in the trading book used during 2015.
(a) | Value at Risk (VaR) |
The Value at Risk (VaR) methodology is the main tool for controlling market risk in the trading book. Its appeal lies in its providing a statistical measurement of the maximum expected loss at a certain defined level of confidence, consolidating the risk exposures with the observed distribution of market factors.
For the above Corpbanca uses a Historical VaR to measure the market risk in their portfolios, this because a Historical VaR has comparative advantages over the other two calculation methodologies best known, for example, with respect to the Parametric or Statistical VaR which is based on assumptions of normal distribution of returns or, with respect to Monte Carlo simulation which is demanding in technological resources and which must make assumptions on the distribution of returns as well. Although the above is recognized that the Historical VaR has limitations associated primarily with data historical used for calculating vectors results which could not be reflecting most volatile periods or loss of correlations. Another limitation is to consider only the positions held between days and not consider intra-day positions that are also potential sources of losses due to changes in risk factors by movements of market variables during the day. That is why the bank has provided complementary risk measures quantification such as Stress VaR, Expected Shorfall, Conditional VaR, among others.
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
Additionally, the bank carries out VaR Backtesting to measure the reliability of the model calculation methodology and assumptions underlying. Results about VaR Backtesting are shown in the next point of this note.
The Bank assigns global limits based on its activities in different markets. In addition, in order to complement these global limits, VaR sublimits are defined using diverse variables such as market volatility, volume, liquidity and return on capital are defined.
The following table presents the use of VaR during 2015 for the Bank and its Chilean and foreign subsidiaries.
VaR Statistics for Bank and Subsidiaries
[MCh$]
VaR with 99% confidence level
2015 | ||||||||||||||||||||
Minimum | Average | Maximum | Last | |||||||||||||||||
CONSOLIDATED | Against P&L | 993.88 | 1,349.97 | 7,333.09 | 1,327.71 | |||||||||||||||
CORPBANCA CHILE | Against P&L | 961.10 | 1,194.54 | 1,539.00 | 1,305.31 | |||||||||||||||
CONSOLIDATED COLOMBIA | Against P&L | 157.44 | 295.43 | 517.12 | 403.03 | |||||||||||||||
CORREDORES DE BOLSA S.A. | Against P&L | 37.80 | 86.96 | 119.96 | 81.24 | |||||||||||||||
CORPBANCA NEW YORK | Against P&L | 0.03 | 0.28 | 2.21 | 0.34 |
FIGURE 1: VAR CONSUMPTION FOR THE BANK AND ITS SUBSIDIARIES
The following graphs show the daily evolution of the VaR during 2015 for the Bank and its subsidiary in Colombia. As mentioned previously, the Var consumption of CorpBanca Chile (blue line) is consistently higher than CorpBanca Colombia (red line)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
VaR Statistics for Bank and Subsidiaries
Figures in Millions of Chilean Pesos [MCh$]
VaR with 99% confidence level
FIGURE 2: VAR TRENDS IN CHILE AND COLOMBIA IN 2015
(i) VaR Backtesting
VaR backtesting is carried out at a local and corporate level by the different financial risk units. The backtesting methodology is applied consistently to all of the Bank’s portfolios. These exercises consist of comparing the estimated VaR measurements at a determined level of confidence and time horizon against the real results of losses obtained during the same time horizon. The methodology used compares the results obtained without considering the intraday results or changes in positions within the portfolio. This method corroborates the individual models’ ability to value and measure the risks from the different positions.
The graphs below compare the bank’s daily VaR estimates and the realized P&L over a period of 300 days in order to probe the VaR measurements’ consistency (Kupiec’s frequency test). Indeed, about 99% of the realized P&L should lie within the ±99% VaR interval. Given the time period of 300 days, there should be an expected number of 3 excesses.
As seen below, CorpBbanca Chile exhibited 2 exceptions over the considered time period, which corresponds to the Basel green zone.
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
FIGURE 3: BACKTESTING TRENDS FOR CHILE IN 2015
The graph presented above shows VaR movements with data from 300 days of history and the Bank’s results in Chile. Based on the graph, during the time frame indicated, there were 2 exceptions over the daily VaR. The frequency or Kupiec test places the model within the green zone, which indicates that the model is correct and aligned with the hypotheses made and accepts exceptions generated with a frequency of close to 1%, which are also independent from one another.
FIGURE 4: BACKTESTING TRENDS FOR COLOMBIA IN 2015
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
The figure above illustrates an exception to the daily VaR. The frequency test places the model within the green zone, which indicates that there is no evidence for rejecting the model.
(b) | Interest Rate and Currency Sensitivity |
Measuring interest rate and currency sensitivity is one of the main tools for monitoring market risk in the trading book, enabling the Bank to break down, understand and report on the directional positions to which it is exposed.
Interest rate and currency sensitivity is monitored on a daily basis and is limited by the VaR limits established for each portfolio.
At the same time, exchange rate risk is controlled using notional limits, giving fluidity to currency products with customers and simultaneously limiting trading positions. The following table shows the current notional limits as well as closing positions as of year-end 2015, and statistics for that year.
As of December 31, 2015 | Consumption Statistics 2015 | |||||||||||||||||||||||
Exchange Rate | Position [USD] | VaR 99% [CLP] | VaR Inc 99% [CLP] | Minimum [USD] | Average [USD] | Maximum [USD] | ||||||||||||||||||
USD/CLP | (2,762,500 | ) | 36,736,323 | (8,851,222 | ) | (15,539,176 | ) | 3,909,861 | 20,537,405 | |||||||||||||||
EUR/USD | (4,182,583 | ) | 44,714,350 | 20,453,425 | (4,644,621 | ) | (628,976 | ) | 3,847,712 | |||||||||||||||
JPY/USD | 97,957 | 922,052 | (363,692 | ) | (130,447 | ) | 110,873 | 8,019,122 | ||||||||||||||||
GBP/USD | 164,707 | 1,361,434 | (383,271 | ) | (777,579 | ) | 84,218 | 299,155 | ||||||||||||||||
CAD/USD | 157,472 | 1,402,264 | 728,448 | (265,607 | ) | 107,933 | 280,168 | |||||||||||||||||
AUD/USD | 67,073 | 865,428 | (249,048 | ) | (33,986 | ) | 36,267 | 83,800 | ||||||||||||||||
MXN/USD | 74,141 | 814,771 | 23,711 | (24,711 | ) | 23,290 | 75,062 | |||||||||||||||||
PEN/USD | — | — | — | — | 697 | 10,471 | ||||||||||||||||||
BRL/USD | (22,553 | ) | 501,262 | (73,859 | ) | (914,258 | ) | (8,753 | ) | 60,875 | ||||||||||||||
COP/USD | (10,205 | ) | 175,291 | (61,146 | ) | (954,361 | ) | (66,546 | ) | 161,291 | ||||||||||||||
NOK/USD | 21,272 | 327,349 | 126,717 | 21,272 | 49,167 | 138,217 | ||||||||||||||||||
DKK/USD | 24,174 | 282,208 | (119,243 | ) | (297,483 | ) | 29,381 | 94,878 | ||||||||||||||||
SEK/USD | 357 | 4,120 | (738 | ) | (23,655 | ) | 6,433 | 18,231 | ||||||||||||||||
CHF/USD | 81,872 | 945,890 | (425,275 | ) | (2,334 | ) | 69,694 | 94,038 | ||||||||||||||||
WON/USD | — | — | — | — | — | — | ||||||||||||||||||
CNY/USD | 7,396 | 24,592 | (2,424 | ) | 2,665 | 10,189 | 34,627 |
FIGURE 5: CURRENT LIMITS AND CONSUMPTION OF CURRENCY POSITIONS FOR 2015
The following tables show the trends in the most important currency positions managed in Chile, which are the U.S. dollar (USD) and the euro (EUR).
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
The graphs below show that the USD-CLP and EUR-USD exposures of CorpBbanca Chile lie within the authorized limits.
FIGURE 6: EVOLUTION OF USD POSITION FOR 2015
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
FIGURE 7: EVOLUTION OF EUR POSITION FOR 2015
The limit for Colombia uses an overall position for all currencies, which cannot exceed US$ 40 million (notional). The table below shows the aggregate position for Colombia.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
Evolution position USD/CLP 2015 Corpbanca Colombia
FIGURE 8: EVOLUTION OF USD/CLP POSITION FOR 2015 BANCO CORPBANCA COLOMBIA
(c) | Sensitivity to Volatility |
While the options portfolio is included in the VaR calculation described in the section above, the Bank also controls the risks associated with the currency options portfolio with additional limits, which promote the product as a customer necessity, more than as trading positions.
• | Gamma Risk Limit or Effect of Convexity of Options |
• | Vega Risk Limit or Effect of Variability of Area of Implied Market Volatility |
The following graphs show the use of limits as of year-end 2015 and trends in their use.
As of December 31, 2015 | ||||||||
Index | Limit | Value | ||||||
MCh$ | MCh$ | |||||||
Gamma Risk | 50 | — | ||||||
Vega Risk | 300 | 211 |
FIGURE 9: CONSUMPTION OF GAMMA AND VEGA RISK 2015
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
FIGURE 10: TRENDS IN GAMMA RISK 2015
FIGURE 11: TRENDS IN VEGA RISK 2015
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
The following figures show the use of Gamma and Vega limits as of year-end 2015, for our subsidiary in Colombia.
As of December 31, 2015 | ||||||||
Index | Limit | Value | ||||||
MCh$ | MCh$ | |||||||
Gamma Risk | 79 | 26 | ||||||
Vega Risk | 192 | 2 |
FIGURE 12: CONSUMPTION OF GAMMA AND VEGA RISK 2015 CORPBANCA COLOMBIA
FIGURE 13: TRENDS IN VEGA RISK 2015 (CORPBANCA COLOMBIA)
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
FIGURE14: TRENDS IN GAMMA RISK (CORPBANCA COLOMBIA)
(ii) Banking Book
The banking book consists primarily of:
Assets:
• | Cash |
• | Commercial, mortgage and consumer loans from the commercial areas. |
• | Fixed-income instruments classified as available for sale or held to maturity. |
Liabilities:
• | Demand deposits |
• | Time deposits |
• | Senior and subordinated bonds |
• | Derivative instruments that qualify for hedge accounting: Derivatives that, meeting certain requirements, are given an accounting treatment different than those derivatives recorded in the trading book, the objective of which is to manage risks in the banking book. |
The banking book’s main risks and the tools used to monitor, control and manage these risks are described below.
(a) Financial Investment Positions
The banking book includes a portfolio of financial investments classified as available-for-sale instruments, used to manage structural interest rate risk in the balance sheet. Exposure to this type of investments is calculated using PV01 and VaR market value sensitivities, in order to continuously monitor the volatility of book basis equity.
Hedge accounting is used as an effective and relatively low-cost tool to manage this risk.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
(b) | Sensitivity to Indexation |
CorpBanca’s balance sheet presents a mismatch between inflation-indexed assets and liabilities. The Chilean market has more indexed assets than liabilities, which explains why the Bank has a mismatch of inflation-indexed assets. This is due to the existence of medium and long-term indexed assets that are financed with liabilities in Chilean pesos.
Hedge accounting is used as an effective and relatively low-cost tool to manage this risk.
The following table shows the size of the mismatch as of December 31, 2015 and the mismatch statistics during the year.
Statistics 2015 | ||||||||||||||||
December 31, 2015 [MCh$] | Minimum [MCh$] | Average [MCh$] | Maximum [MCh] | |||||||||||||
Total Mismatch | 1,151,508 | 554,709 | 829,274 | 1,389,078 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance Sheet Mismatch | 1,791,742 | 1,558,585 | 1,629,130 | 2,234,983 | ||||||||||||
Derivatives Mismatch | (679,752 | ) | (1,011,179 | ) | (820,878 | ) | (852,365 | ) | ||||||||
Investments Mismatch | 39,518 | 7,303 | 21,022 | 6,460 |
FIGURE 15: INFLATION MISMATCH AS OF YEAR-END 2015 AND STATISTICS FOR THE YEAR
The following figure shows the evolution of this mismatch during 2015, and the relative ease with which the Bank to manage this risk. During the course of the 2015 exhibition held at moderate levels.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
FIGURE 16: EVOLUTION OF INFLATION MISMATCH DURING 2015
(c) | Sensitivity of Financial Margin and Economic Capital |
The Annual Income Sensitivity (AIS) index measures the sensitivity of the interest margin to 100 bps variations in the repricing rate for assets and liabilities during the next 12 months. The established limits are much lower than the Bank’s annual net income. During 2015, the sensitivity risk in the interest margin in Chile has remained low with a positive sensitivity to drops in interest rates.
The Market Value Sensitivity (MVS) index measures the sensitivity of the economic value (fair value) of the banking book in the event of a 100 bps increase in the valuation rates of assets and liabilities.
The tables below show the evolution of sensitivity indicators for interest margins and economic capital for Chile and Colombia.
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
FIGURE 17: EVOLUTION MVS AND AIS CHILE 2014-2015
FIGURE 18: EVOLUTION MVS AND AIS COLOMBIA 2014-2015
(d) | Structural Exchange Rate Risk |
Structural exchange rate risk arises from the Bank’s positions in currencies other than the Chilean peso related primarily to the consolidation of investments in subsidiaries or affiliates and the net income and hedges of these investments. The process of managing structural exchange rate risk is dynamic and attempts to limit the impact of currency depreciation, thus optimizing the financial cost of hedges.
The general policy for managing this risk is to finance them in the currency of the investment provided that the depth of the market so allows and the cost is justified by the expected depreciation. One-time hedges are also taken out when the Bank considers that any currency may weaken beyond market expectations with respect to the Chilean peso. As of December 31, 2015, greater ongoing exposure was concentrated in Colombian pesos (approximately US$ 1.1 billion).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
The Bank hedges part of these positions on a permanent basis using currency derivatives.
(b) | Stress Tests |
These exercises allow weaknesses in positions and the balance sheet structure to be diagnosed. From this, the Bank can create a critical factor plan to be used before such scenarios come about, or a contingency plan for when the scenarios have already taken place or the estimated probability of occurrence is high.
i) | Trading Book |
In addition, market stress tests can be performed to test trading book positions under diverse extreme scenarios in order to estimate the losses they would generate.
The results of the market stress tests on the trading book are reported periodically to the ALCO and the Board of Directors.
Stress tests conducted during 2015 indicated that none of the critical scenarios considered would affect the Bank’s solvency.
The list below enumerates some of the linear and historical sensitivity scenarios analyzed.
Scenario | Description | |
1 | Parallel shift of +50 bps | |
2 | Parallel shift of +75 bps | |
3 | Parallel shift of +100 bps | |
4 | Steepening of 0 to 100 bps in 5 years | |
5 | Twist of 25 bps pivoting in 5 years | |
6 | Shock to inflation compensation of +200 bps | |
7 | Shock to inflation compensation of -70 bps | |
8 | Shock of +80 bps to Libor-Camara curve | |
9 | Fall of Lehman Brothers (September 2008) | |
10 | Recomposition of AFP portfolios (March 2009) |
FIGURE 19: TRADING BOOK
ii) | Banking Book |
Market stress tests are also performed to test the banking book under diverse extreme scenarios in order to estimate the potential losses they would generate on both the interest margin and on capital.
Results of the market stress tests on the banking book are disclosed periodically to the ALCO and the Board of Directors.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
Scenario | Description | |
1 | Parallel shift of 100 bps, +50 bps inflation compensation | |
2 | Parallel shift of 200 bps, +100 bps inflation compensation | |
3 | Parallel shift of 300 bps, +150 bps inflation compensation | |
4 | Ramp of 0 to 100 bps in 1 year, +50 bps inflation compensation | |
5 | Inverse ramp of 0 to 100 bps in 1 year, -200 bps inflation compensation | |
6 | +3 standard deviations, +50 bps inflation compensation | |
7 | +6 standard deviations, +150 bps inflation compensation | |
8 | Shock to inflation compensation of +200 bps | |
9 | Global recession,D D inflation compensation: -200bps | |
10 | Global recovery, D inflation compensation: +200bps |
FIGURE 20: BANKING BOOK
(c) | Methodologies |
(i) | Trading Book |
(a) | Value at Risk - VaR |
For the calculation of VaR, the non-parametric method of historical simulation is used, which consists of using a historical series of prices and the position at risk from the trading book.
A time series of simulated prices and yields is constructed with the assumption that the portfolio was conserved for the period of time of the historical series. The VaR tries to quantify a threshold of expected losses, which should only occur a certain percentage of times based on the level of confidence used in the calculation.
(b) | Rate Sensitivity |
Sources of rate risk include forwards, swaps and options. Rate sensitivity is calculated and reported by portfolio, by relevant discount curve and by maturity.
The present value of the portfolio is stressed by 1 bp. In other words, the present value is calculated by increasing the respective discount rate by 1 bp. The sensitivity of options is calculated using the theta value.
The variation in the present value of the portfolio corresponds to its sensitivity at a variation of one basis point (bp).
• | DV01: Sensitivity to 1 bp variation in rate i at band m. |
• | PV: Present value of portfolio’s cash flows. |
• | PV’im: Present value of portfolio’s cash flows with shock of 1 bp in rate i at time band m. |
• | Pim: Net position in CLP at time band i, currency m. |
• | rim: Representative rate of currency m, time band i. |
• | Ti: Representative maturity of time band i. |
(c) | Currency Sensitivities |
Sources of exchange rate risk come from both balance sheet and off-balance sheet positions such as derivatives.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
Currency or position sensitivity corresponds to the market valuation of each cash flow in the currency of origin. That is, the cash flows in foreign currency expressed at present value.
• | PV : Present value of portfolio’s cash flows. |
• | PV’m : Present value of portfolio’s cash flows with shock of 1 unit in exchange rate of currency m with respect to USD. |
(ii) | Banking Book |
(a) | Sensitivity to Indexation |
Sources of indexation risk come from both balance sheet and off-balance sheet positions such as derivatives that, as a result of a change in indexation units (UF, UVR or others), impact the Bank’s net income.
As with currency sensitivity, indexation sensitivity is the market valuation of each indexed cash flow. That is, the cash flows in indexation units expressed at present value.
• | PV : Present value of portfolio’s cash flows. |
• | PV’m : Present value of portfolio’s cash flows with shock of 1 unit in indexation unit. |
(b) | Sensitivity of Financial Margin |
This measures the impact caused by a movement of 100 bp, over a twelve-month horizon, in the Bank’s financial margin (interest earned less interest paid).
The information required to calculate the index is obtained from the regulatory cash flows of the market risk data from the balance sheet book (regulatory report C40) only considering the time bands up to and including 1Y.
• | AIS :Annual Income Sensitivity. |
• | Pim : Net position in CLP in respective time band. |
• | Dr : Variation of 100 bp. |
• | Ti : Representative maturity of time band i. |
(c) | Sensitivity of Economic Capital |
This measures the sensitivity of the market value of the cash flows associated with assets and liabilities in the event of a parallel change of 100 bp in the relevant discount curve.
The information required to calculate the index is obtained from the cash flows of the Bank’s entire portfolio using data from the banking book.
The present value of the aggregate flows are discounted using the average terms of the respective time bands. Then the present value is calculated similarly with a shock increasing the respective discount rate by 100 bp.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
• | MVS : Market Value Sensitivity. |
• | PVim: Present value of the cash flows of time band i, currency m. |
• | PV’im : Present value of the cash flows of time band i, currency m, with a shock of 100 bp in discount rates. |
• | Pim : Net position in CLP at time band i, currency m. |
• | rim : Representative rate of currency m, time band i. |
• | Ti : Representative maturity of time band i. |
(2)Regulatory Monotoring
Regulatory monitoring of market risk exposure is measured in accordance with chapter III.B.2.2 of the Compendium of Financial Standards from the Chilean Central Bank and chapter 12-21 of the Updated Compilation of Standards from the Superintendency of Banks and Financial Institutions for both the trading book and the banking book. In the trading book, the impact is measured in the event of a change in the market price of its financial positions as a result of variations in interest rates, exchange rates and volatility. In the banking book, the impact is measured on the entity’s financial margin and present value.
The limits established for the trading book are for exposure to interest rate risk and exchange rate risk. The difference between the regulatory capital recorded by the financial institution and the sum of the following two items cannot be negative: (i) the product of the credit risk-weighted assets defined in article 67 of the General Banking Law and the minimum percentage established for regulatory capital in article 66 of that law, and (ii) the sum of the trading book’s exposure to interest rate risk and the exchange rate risks for the entire balance sheet measured in accordance with the Basel standard methodology with some important differences where exchange rate exposure stands out. As indicated in the paragraph above, the Bank must always comply with the following ratio:
RC-((k*CRWA)+MRE)>0 | ||
Where: | ||
RC | : Regulatory Capital | |
CRWA | : Credit Risk Weighted Assets | |
MRE | : Exposure to interest rate risk in trading book and currency Risk in entire balance Sheet | |
k | : Minimum percentage established for regulatory capital in article 66 of General Banking Law |
Group | Description Sensitivity | Factor | ||
i | Each of the foreign currencies of countries with long-term external debt in foreign currency with a rating of at least AAAr, or equivalent, from any of the risk rating agencies indicated in Chapter III.B.5 of this Compendium. It also considers the EURO and the position in gold. | o’í = 8% | ||
j | Each of the foreign currencies of countries not included in basket i. | o’j- = 35% |
Market risk exposure in accordance with regulatory methodology is detailed below:
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
Market Risk Limit for Trading Book | 2013 | 2014 | 2015 | |||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Market Risk-Weighted Assets | 3,379,014 | 4,241,613 | 2,325,513 | |||||||||
Rate Trading | 796,729 | 785,550 | 735,625 | |||||||||
Currency Trading | 36,959 | 863 | 18,488 | |||||||||
Options Trading | 11,960 | 10,075 | 8,550 | |||||||||
Currency Structural moneda | 2,533,366 | 3,445,125 | 1,562,850 | |||||||||
Credit Risk-Weighted Assets | 15,058,532 | 16,715,382 | 17,465,950 | |||||||||
Total Risk-Weighted Assets | 18,437,546 | 20,956,995 | 19,791,463 | |||||||||
Regulatory Capital | 1,991,289 | 2,071,647 | 1,666,708 | |||||||||
Basel Index | 13.22 | % | 12.39 | % | 9.54 | % | ||||||
Badel Index (includes MRE*) | 10.80 | % | 9.89 | % | 8.42 | % | ||||||
Margin | 516,285 | 729,389 | 264,724 | |||||||||
% Consumption | 74.07 | % | 64.79 | % | 84.12 | % |
FIGURE 21: MARKET RISK LIMIT FOR TRADING BOOK
The market risk presented in the table above (measured in units of risk-weighted assets) shows that capital consumption related to the Bank’s exposures to market risks is explained in more than 83% of the cases by the effect of our investment in Banco CorpBanca Colombia. As of December 2015, this investment amounted to approximately US$815 million. This exposure to exchange rate risk -Chilean peso vs. Colombian peso- is considered structural in the sense that it arises from a long—term investment.
It is also worth mentioning that in accordance with Chilean regulations, a sensitivity factor of 35% is applied to net exposures in foreign currencies of countries other than those classified as AAA or their equivalent. The standard sensitivity factor in the Basel standards is only 8%. As a result, the capital consumption that the Bank must report to comply with local regulations is more than 4 times greater than if international recommendations were applied.
The regulatory model for market risk in Colombia, as in Chile, is based on the standard Basel model, separated into risk factors (i.e. interest rate, exchange rate and stock price). The volatilities applied to each of the factors are established by regulators. This result is used for the solvency margin, to which a factor equivalent to 100/9 is applied.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
CorpBanca Colombia | ||||
Market Risk | 2015 | |||
MCh$ | ||||
Risk-Weighted Assets (RWA) | 576,312 | |||
Trading | 576,312 | |||
Structural (currency) | — | |||
Credit Risk | 5,470,672 | |||
Total Risk-Weighted Assets | 6,046,984 | |||
Regulatory Capital | 780,375 | |||
Basel Index | 14.00 | % | ||
Badel Index (includes MRE*) | 12.70 | % | ||
Margin | 291,020 | |||
% Consumption | 62.70 | % |
FIGURE 22: MARKET RISK IN COLOMBIA
Chilean regulations also require banks to establish limits for their market risk exposure in their banking book, which includes limits based on sensitivity in the financial margin and volatility in its equity value. Measurement of exposure to interest rate and indexation risks in the banking book must consider both the short-term impact on the capacity to generate net interest and indexation income and the fees sensitive to changes in interest rates, as well as the long-term impact on the institution’s economic value of adverse movements in interest rates.
The banking book’s exposure to the net interest and indexation margin is known as the short-term limit and cannot exceed 35% of the accumulated interest and indexation margin, plus fees sensitive to interest rates charged in the twelve months prior to the date of measurement. The exposure of capital to changes in interest rates has a long-term limit that cannot exceed 20% of regulatory capital. Both limits were presented and ratified by the Bank’s board of Directors.
The exposure of regulatory limits in the banking book for Chile are detailed as follows:
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
Market Risk Limit for Banking Book | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Short-Term Limit | ||||||||||||
Exposure | 54,949 | 64,990 | 78,425 | |||||||||
Rate Risk | 22,502 | 39,274 | 43,914 | |||||||||
Indexation Risk | 28,666 | 21,683 | 29,662 | |||||||||
Reduced Revenue (fees sensitive to insterest rates) | 3,781 | 4,033 | 4,849 | |||||||||
Limit | 97,651 | 130,591 | 127,006 | |||||||||
Consumption% | 56.3 | % | 49.8 | % | 61.7 | % | ||||||
Financial Margin plus Fees (12 months) | 279,003 | 373,118 | 362,875 | |||||||||
Percentage over financial margin | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
Short-term Limit | 97,651 | 130,591 | 127,006 | |||||||||
Consumption with respect to financial margin | 19.7 | % | 17.4 | % | 21.6 | % | ||||||
Long-Term Limit | ||||||||||||
Exposure | 157,786 | 266,394 | 269,568 | |||||||||
Rate Risk | 157,786 | 266,394 | 269,568 | |||||||||
Limit | 537,648 | 414,329 | 333,342 | |||||||||
Consumption% | 29.3 | % | 64.3 | % | 80.9 | % | ||||||
Regulatory Capital (RC) | 1,991,289 | 2,071,647 | 1,666,708 | |||||||||
Percentage over margin | 27 | % | 20 | % | 20 | % | ||||||
Long-term Limit | 537,648 | 414,329 | 333,342 | |||||||||
Consumption with respect to regulatory capital | 7.9 | % | 12.9 | % | 16.2 | % |
FIGURE 23: MARKET RISK LIMIT FOR BANKING BOOK
Finally, regulatory provisions in Colombia do not establish methodologies for determining market risk exposure for the banking book. However, they are monitored, controlled and reported on a daily basis using the internal methodologies described above.
2. | Funding Liquidity Risk |
a) | Management Tools |
Our general policy is to maintain sufficient liquidity to ensure our ability to honor withdrawals of deposits, make repayments of other liabilities at maturity, extend loans and meet any other obligation. In order to comply with risk management objectives for funding liquidity risk, the monitoring and control structure is centered mainly on the following focal points:
• | Short-term maturity mismatch |
• | Coverage capacity using liquid assets |
• | Concentration of funding sources |
Additionally, the monitoring and control structure for liquidity risk is complemented with stress testing in order to observe the institution’s ability to respond in the event of illiquid conditions.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
(1) Internal Monitoring
(a) | Limits and Warning Levels |
(i) | Thirty-day Liquidity Coverage Ratio |
In order to safeguard the Bank’s payment capacity in the event of illiquid conditions, a minimum has been established for the instrument portfolio that enables cash flows to be quickly generated either through liquidation or because they can be used as collateral for new funding sources.
The limit on the coverage ratio of liquidity is 50% of the mismatches of 30 days (consolidated currency).
The composition of liquid assets as of year-end December 2015 after applying the respective price volatility haircuts and market liquidity adjustments is presented in the table below.
Liquid Assets CorpBanca Chile
Investment Portfolio Chile As of December 31, 2015 | Liquid Assets in domestic currency (30 days) | Liquid Assets in foreign currency (30 days) | Total Liquid Assets | |||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Cash and cash equivalents | 489,478 | 160,519 | 649,997 | |||||||||
Central Bank and goverment securities | 710,057 | — | 710,057 | |||||||||
Bank time deposits | 61,330 | — | 61,330 | |||||||||
Corporate bonds | 23,664 | 24,031 | 47,695 | |||||||||
Bank bonds | 23,553 | 11,543 | 35,096 | |||||||||
Repo agreements | (29,817 | ) | — | (29,817 | ) | |||||||
Average clearance reserves required | (217,782 | ) | (20,230 | ) | (238,012 | ) | ||||||
Liquid Assets | 1,060,483 | 175,863 | 1,236,346 |
FIGURE 24: LIQUID ASSETS CORPBANCA CHILE
Liquid Assets CorpBanca Colombia
Investment Portfolio Colombia As of December 31, 2015 | Liquid Assets in domestic currency (30 days) | Liquid Assets in foreign currency (30 days) | Total Liquid Assets | |||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Cash and cash equivalents | 362,716 | 9,102 | 371,818 | |||||||||
Central Bank and goverment securities | 837,423 | — | 837,423 | |||||||||
Bank time deposits | — | — | — | |||||||||
Corporate bonds | 190,533 | — | 190,533 | |||||||||
Bank bonds | — | — | — | |||||||||
Repo agreements | — | — | — | |||||||||
Average clearance reserves required | (365,960 | ) | — | (365,960 | ) | |||||||
Liquid Assets | 1,024,712 | 9,102 | 1,033,814 |
FIGURE 25: LIQUID ASSETS BANCO CORPBANCA COLOMBIA
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
(ii) | Daily Wholesale Maturities |
In order to control concentration of funding sources and safeguard compliance with obligations, the Bank monitors maturities of deposits in Chilean pesos by wholesale customers. This monitoring is conducted with a daily limit of MCh$50,000 in maturities per day.
Special treatment is given to this customer segment for two reasons:
• | They individually could represent an important percentage of CorpBanca’s business. |
• | Given the profile of these customers in the wholesale segment, the renewal rate for these deposits tends to be lower. This last reason is consistent with cash disbursement models in regulatory reports, which do not assume that wholesale customers will renew deposits. |
The maturity profile for wholesale deposits is monitored on a daily basis for every country. As a result, excesses are detected and reported based on the structure of the maturity profile. Forecasted excesses must be justified the day after they are reported and must then be managed.
(iii) | Warning Levels for Liquidity Requirements |
In addition to monitoring and reporting all internal limits on a daily basis, senior management is informed each month through the ALCO and the Board of Directors is informed each quarter.
Special importance is placed on the Bank’s liquidity position by presenting an analysis of measurements of concentration, performance, premiums paid and/or other relevant variables.
(a) | Monitoring Funding Sources |
Monitoring of variations in the stock of short-term funding such as time and demand deposits for each of the segments represents a key variable in monitoring the Bank’s liquidity. Identifying abnormal volatilities in these funding sources enables the Bank to quickly foresee possible undesired liquidity problems and thus to suggest action plans for managing them.
During 2015, different strategies were implemented to diversify liabilities, including: diversifying time deposits, expanding stable funding sources such as on-line time deposits by individuals and issuing bonds.
These strategies enabled the Bank to continue to improve its funding structure, providing more stable funding.
(b) | Survival Horizon under Individual Stress |
As a function of stressed maturities and renewal ratios, days of survival are estimated based on projected liquidity needs and the portfolio of available liquid assets. Based on these scenarios, any significant deviation is studied to determine whether action plans need to be implemented.
(b) | Stress Tests |
Stress testing is a tool that complements the analysis of liquidity risk management as it enables the Bank to know its ability to respond in the event of extreme illiquid conditions and to trigger its contingency plans, if necessary, to address such conditions.
In particular, three types of scenarios are modeled:
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
• | Individual Crisis: the financial system losses confidence in the Bank, which translates into important withdrawals from demand accounts, decreases in deposits and bond investments by customers and penalties to its funding rates. |
• | Systemic Crisis:Local weakening of financial and credit conditions that causes the market to seek refuge in the U.S. dollar, greater restrictions on access to credit from abroad, massive outflows of capital, increases in the use of lines of credit and downward adjustments in expectations for the monetary policy rate. |
• | Global Crisis: Global weakening of financial, credit and economic conditions that causes the market to seek refuge in the U.S. dollar, greater restrictions on access to credit from abroad, decreased exposure to credit risk (replaced by sovereign risk), increases in the use of lines of credit and downward adjustments in expectations for the monetary policy rate. |
(2)Regulatory Monitoring
(a) | Liquidity requirement |
In accordance with Chapter III B.2 from the Chilean Central Bank and Chapter 12-9 of the Updated Compilation of Standards from the Superintendency of Banks and Financial Institutions, the Bank must measure and control its liquidity position based on the difference between cash flows payable from liability and expense accounts and cash flows receivable from asset and income accounts for a given period or time band, which is called maturity mismatch.
This measurement is determined for controlling the liquidity position of the Bank itself and of its subsidiaries. The maturity mismatch calculation is carried out separately for domestic and foreign currency, setting limits based on capital and cash flows accumulated at 30 and 90 days:
• | The maturity mismatch in all currencies for periods less than or equal to 30 days must be less than or equal to the Bank’s basic capital. |
• | The maturity mismatch in foreign currencies for periods less than or equal to 30 days must be less than or equal to the Bank’s basic capital. |
• | The maturity mismatch in all currencies for periods less than or equal to 90 days must be less than or equal to twice the Bank’s basic capital. |
In full compliance with the Chilean Central Bank and the Superintendency of Banks and Financial Institutions, CorpBanca’s Board of directors approved a policy to measure and control its liquidity position based on maturity mismatches on an adjusted basis with a 10% cushion with respect to the regulatory limit.
The table below shows the use of internal mismatch limits as of December 31, 2015, and some consumption statistics for the year.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
As of December 31, 2015 | Statistics 2015 | |||||||||||||||||||||||
Table of Contents | Límit [MCh$] | Mismatch [MCh$] | Excess Reserve [MCh$] | Mínimum [MCh$] | Average [MCh$] | Máximum [MCh$] | ||||||||||||||||||
All currencies 30 days | 1,065,156 | 315,240 | 1,380,396 | 1,120,630 | 1,483,457 | 1,901,288 | ||||||||||||||||||
All currencies 90 days | 2,130,313 | 62,587 | 2,192,900 | 1,697,334 | 2,165,066 | 2,723,342 | ||||||||||||||||||
Foreign currency 30 days | 1,065,156 | 203,051 | 1,268,207 | 1,106,777 | 1,424,324 | 1,893,928 |
As of December 31, 2014 | As of December 31, 2013 | |||||||||||||||||||||||
Table of Contents | Límit [MCh$] | Mismatch [MCh$] | Excess Reserve [MCh$] | Límit [MCh$] | Mismatch [MCh$] | Excess Reserve [MCh$] | ||||||||||||||||||
All currencies 30 days | 1,362,821 | 567,416 | 1,930,237 | 1,404,443 | (146,681 | ) | 1,257,762 | |||||||||||||||||
All currencies 90 days | 2,725,642 | (381,918 | ) | 2,343,724 | 2,808,886 | (981,388 | ) | 1,827,498 | ||||||||||||||||
Foreign currency 30 days | 1,362,821 | 281,575 | 1,644,396 | 1,404,443 | 19,210 | 1,423,653 |
FIGURE 26: INTERNAL LIMITS AND CURRENCY MISMATCHES
Figures 27, 28 and 29 show the evolution of consumption for each limit in 2015.
FIGURE 27: EVOLUTION OF CONSOLIDATED MISMATCH IN ALL CURRENCIES AT 30 DAYS DURING 2015
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
FIGURE 28: EVOLUTION OF CONSOLIDATED MISMATCH IN ALL CURRENCIES AT 90 DAYS DURING 2015
FIGURE 29: EVOLUTION OF CONSOLIDATED MISMATCH IN FOREIGN CURRENCIES AT 30 DAYS DURING 2015
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
In the Colombian market the regulatory measurement known as the standard LRI model measures 7 and 30-day liquidity gaps. It allows entities to quantify the level of minimum liquid assets, in domestic and foreign currency, that they should maintain each day in order to, at a minimum, meet their payment obligations fully and on time. Entities must be capable of measuring and forecasting the cash flows of their assets, liabilities, off-balance sheet positions and derivative instruments for different time horizons in both normal scenarios and crisis scenarios where cash flows vary significantly from expectations as a result of unforeseen changes in markets, the entity or both.
The following tables show the evolution of the 7 and 30 day liquidity gaps in Colombia in 2015.
FIGURE 30: CONSOLIDATED 7-DAY LIQUIDITY GAP 2015 COLOMBIA
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
FIGURE 31: CONSOLIDATED 30 DAY LIQUIDITY GAP 2015 COLOMBIA
Shareholders’ equity requirement
Consistent with Chile’s General Banking Law, we must maintain a ratio of at least 8%, net of required provisions between Effective Shareholders’ Equity and Consolidated Assets Weighted by risk, and a ratio of at least 3%, net of required provisions, between our Equity Base and Total Consolidated Assets. For such purposes, effective Equity is determined according to our Equity and Reserves or Equity Base with the following adjustments:
a. | subordinated bonds with a 50% limit of the Equity Base are added, and |
b. | the balance of Goodwill assets or surcharges paid, and investments in companies not involved in the consolidation are subtracted. |
Assets are weighted based on their risk categories, to which we assign a risk percentage based on the amount of capital needed to back each one of those assets. Five risk categories are applied (0%, 10%, 20%, 60% and 100%). For example, cash, deposits in other banks, and financial securities issued by the Central Bank of Chile have a 0% risk factor, which means that, consistent with current regulations, no capital is needed to back these assets. Fixed assets carry a 100% risk, which means that a mandatory capital equivalent of 8% of the value of these assets must be available.
In determining risk assets with conversion factors on notional values, we take into account all derivative securities negotiated off-exchange, thereby obtaining a credit risk exposure amount (or “credit equivalent”). The off-balance contingent loans are also considered to be “credit equivalent” in terms of weighting.
For the December 31, 2014 and 2015, the ratio of assets and risk weighted assets is as follows:
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As of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015
Consolidated Assets | Risk-Weighted Assets | |||||||||||||||
2014 | 2015 | 2014 | 2015 | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
In-Balance Assets (net of provisions): | ||||||||||||||||
Cash and deposits in banks | 1,169,178 | 1,004,757 | — | — | ||||||||||||
Cash in the process of collection | 212,842 | 176,501 | 69,124 | 46,344 | ||||||||||||
Trading portfolio financial assets | 685,898 | 323,899 | 182,209 | 116,964 | ||||||||||||
Investments under agreements to resell | 78,079 | 24,674 | 78,079 | 12,587 | ||||||||||||
Derivative financial instruments1 | 1,553,424 | 1,657,260 | 1,066,545 | 1,180,709 | ||||||||||||
Loans and receivables from banks | 814,209 | 451,829 | 194,162 | 143,801 | ||||||||||||
Loans and receivables from customers, net | 13,891,904 | 14,454,357 | 12,920,115 | 13,463,303 | ||||||||||||
Financial investments available-for-sale | 1,156,896 | 1,924,788 | 211,567 | 521,569 | ||||||||||||
Held to maturity investments | 190,677 | 170,191 | 190,677 | 170,191 | ||||||||||||
Investments in other companies | 15,842 | 14,648 | 15,842 | 14,648 | ||||||||||||
Intangible assets2 | 371,597 | 319,644 | 371,597 | 319,644 | ||||||||||||
Property, plant and equipment, net | 92,642 | 91,630 | 92,642 | 91,630 | ||||||||||||
Current taxes | 1,608 | 4,447 | 161 | 445 | ||||||||||||
Deferred income taxes | 113,501 | 118,127 | 11,350 | 11,813 | ||||||||||||
Other assets | 411,974 | 462,604 | 411,974 | 344,311 | ||||||||||||
Off-Balance sheet assets: | ||||||||||||||||
Contingent loans | 1,498,897 | 1,713,318 | 899,338 | 1,027,991 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total risk-weighted assets | 22,259,168 | 22,912,674 | 16,715,382 | 17,465,950 | ||||||||||||
|
|
|
|
|
|
|
|
Figures are presented as required by local regulations.
Risk-weighted assets are calculated according to Chapter 12-1 of the Recopilación Actualizada de Normas - RAN (updated compilation of rules) issued by the SBIF.
1. | Items presented at their credit equivalent risk value, as established in SBIF Chapter 12-1 “Equity for Legal and Regulatory Purposes.” |
2. | For calculation purposes, the amount of all assets that correspond to goodwill is subtracted as established in the aforementioned chapter. |
Amount | Ratio | |||||||||||||||
2014 | 2015 | 2014 | 2015 | |||||||||||||
MCh$ | MCh$ | |||||||||||||||
Basic Capital | 1,443,427 | 3 | 1,183,723 | 6.37 | %5 | 5.09 | % | |||||||||
Effective Equity | 2,071,647 | 4 | 1,666,708 | 12.39 | %6 | 9.54 | % |
3. | Basic capital is defined as the net amount that should be shown in the consolidated financial statements as “equity attributable to equity holders of the Bank” as indicated in the Compendium of Accounting Standards. |
4. | Regulatory capital is equal to basic capital plus subordinated bonds, additional provisions, and non-controlling interest as indicated in the Compendium of Accounting Standards; however, if that amount is greater than 20% of basic capital, only the amount equivalent to that percentage will be added; goodwill is subtracted and if the sum of the assets corresponding to minority investments in subsidiaries other than banking support companies is greater than 5% of basic capital, the amount that the sum exceeds that percentage will also be subtracted. |
5. | The consolidated basic capital ratio is equal to basic capital divided by total assets. |
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
6. | The consolidated solvency ratio is equal to the ratio of regulatory capital to weighted assets. |
b) As of December 31, 2015, the Bank includes the following information within its management objectives, policies and processes:
• | The Bank, in consolidated terms, has total equity of MCh$1,183,723 (MCh$1,443,427 as of December 31, 2014). |
• | In terms of regulatory ratios, the Bank closed as of December 31, 2015, with a ratio of basic capital to total assets of 5.09% (6.37% as of December 31, 2014), while the Basel Index (regulatory capital to total risk-weighted assets was 9.54% (12.39% as of December 31, 2014). |
Operational Risk
a) | Roles and Responsibilities |
Board of Directors
The Board of Directors must ensure that the mechanisms used to manage operational risk, as well as the definition of roles and responsibilities (established in this policy) are in accordance with guidelines outlined by the Bank’s shareholders.
Operational Risk and Information Security Committee
This committee is responsible for maintaining visibility regarding and commitment to operational risk management at the highest level of authority.
Operational Risk Management Area
The mission of this area is to define, promote, implement and monitor the framework for operational risk management, which should be in line with the Bank’s focus, objectives and strategic goals.
Division Managers
Division managers are responsible for managing operational risks within their respective divisions. Their responsibilities include:
• | Implementing operational risk policy in their respective business units. |
• | The most important operational risk management responsibilities of each division include: |
• | Identifying risks. |
• | Valuing risks (both qualitatively and quantitatively). |
• | Improving risks. |
• | Providing direct support for operational risk monitoring within the business unit. |
b) | Operational Risk Management Process |
The operational risk management model for CorpBanca and subsidiaries includes the following activities or functions:
i) | Creation of Risk Culture |
Training and Communication
Ongoing training and communication regarding the threats facing the business, together with business-focused training, are crucial to achieving objectives. Evaluations of operational risk are based on identifying threats to the business process, the impact of those threats and the subsequent evaluation of controls to mitigate operational risk.
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As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
ii) | Evaluation |
Evaluations of operational risk are based on identifying threats to the business process, the impact of those threats and the subsequent evaluation of controls to mitigate risk.
iii) | Improvements |
Each division manager must ensure that operational risks are reviewed regularly and that the proper measures are taken.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
NOTE 36 - MATURITY OF ASSETS AND LIABILITIES
a) | Maturity of financial assets |
Below are the main financial assets grouped according to their remaining terms, including interest accrued as of December 31, 2014 and 2015.
As of December 31, 2014 | ||||||||||||||||||||||||||||||
Notes | Up to 1 month | From 1 month to 3 months | From 3 months to 1 year | From 1 year to 3 years | From 3 years to 6 years | Over 6 years | TOTAL | |||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||
Trading portfolio financial assets | 6 | 20,145 | 81,838 | 361,936 | 114,110 | 35,393 | 72,476 | 685,898 | ||||||||||||||||||||||
Investments under agreements to resell | 7 | 70,353 | 5,087 | 2,639 | — | — | — | 78,079 | ||||||||||||||||||||||
Derivative financial instruments | 8 | 46,213 | 51,120 | 100,152 | 156,525 | 182,722 | 230,067 | 766,799 | ||||||||||||||||||||||
Loans and receivables from banks (*) | 9 | 720,066 | 35,834 | 16,309 | 26,241 | 16,030 | — | 814,480 | ||||||||||||||||||||||
Loans and receivables from customers(**) | 10 | 1,780,145 | 1,851,508 | 2,005,376 | 2,077,420 | 2,337,087 | 3,767,680 | 13,819,216 | ||||||||||||||||||||||
Commercial loans | 1,380,435 | 1,788,974 | 1,741,470 | 1,542,727 | 1,520,212 | 1,964,977 | 9,938,795 | |||||||||||||||||||||||
Mortgage loans | 20,453 | 21,917 | 126,284 | 182,590 | 353,418 | 1,517,515 | 2,222,177 | |||||||||||||||||||||||
Consumer Loans | 379,257 | 40,617 | 137,622 | 352,103 | 463,457 | 285,188 | 1,658,244 | |||||||||||||||||||||||
Financial investments available-for-sale | 11 | 7,914 | 9,000 | 87,162 | 285,053 | 496,090 | 271,677 | 1,156,896 | ||||||||||||||||||||||
Financial investments held-to-maturity | 11 | 49,582 | 8,034 | 118,510 | 5,233 | 948 | 8,370 | 190,677 |
(*) | Loans and advances to banks are presented gross. The amount of provisions corresponds to MCh$ 271. |
(**) | Loans are presented gross. Provisions by loan type are detailed as follows: Commercial MCh$96,009, Mortgage MCh$7,762 and Consumer MCh$33,834. Excludes amounts that have already matured, which total MCh$210,659 as of December 31, 2014. |
As of December 31, 2015 | ||||||||||||||||||||||||||||||
Notes | Up to 1 month | From 1 month to 3 months | From 3 months to 1 year | From 1 year to 3 years | From 3 years to 6 years | Over 6 years | TOTAL | |||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||
Trading portfolio financial assets | 6 | 28,103 | 6,937 | 53,945 | 26,535 | 25,588 | 182,791 | 323,899 | ||||||||||||||||||||||
Investments under agreements to resell | 7 | 17,237 | 1,994 | 5,443 | — | — | — | 24,674 | ||||||||||||||||||||||
Derivative financial instruments | 8 | 57,811 | 64,204 | 139,467 | 199,063 | 259,818 | 288,552 | 1,008,915 | ||||||||||||||||||||||
Loans and receivables from banks (*) | 9 | 320,330 | 72,495 | 33,757 | 7,114 | 18,373 | — | 452,069 | ||||||||||||||||||||||
Loans and receivables from customers(**) | 10 | 1,862,215 | 1,932,354 | 2,123,190 | 2,231,500 | 2,706,744 | 3,547,870 | 14,403,873 | ||||||||||||||||||||||
Commercial loans | 1,525,726 | 1,846,561 | 1,815,169 | 1,594,681 | 1,655,850 | 2,091,749 | 10,529,736 | |||||||||||||||||||||||
Mortgage loans | 24,554 | 33,941 | 181,270 | 310,000 | 578,945 | 1,092,809 | 2,221,519 | |||||||||||||||||||||||
Consumer Loans | 311,935 | 51,852 | 126,751 | 326,819 | 471,949 | 363,312 | 1,652,618 | |||||||||||||||||||||||
Financial investments available-for-sale | 11 | 67,237 | 20,987 | 312,890 | 837,128 | 455,079 | 231,467 | 1,924,788 | ||||||||||||||||||||||
Financial investments held-to-maturity | 11 | 64,135 | 3,566 | 84,402 | 12,340 | — | 5,748 | 170,191 |
(*) | Loans and advances to banks are presented gross. The amount of provisions corresponds to MCh$ 240. |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
(**) | Loans are presented gross. Provisions by loan type are detailed as follows: Commercial MCh$138,721, Mortgage MCh$8,832 and Consumer MCh$26,386. Excludes amounts that have already matured, which total MCh$224,423 as of December 31, 2015. |
b) | Maturity of financial liabilities |
Below are the main financial liabilities grouped according to their remaining terms, including interest accrued to December 31, 2014 and 2015:
As of December 31, 2014 | ||||||||||||||||||||||||||||||||
Notes | Up to 1 month | From 1 month to 3 months | From 3 months to 1 year | From 1 year to 3 years | From 3 years to 6 years | Over 6 years | TOTAL | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||
Obligations under repurchase agreements | 7 | 661,566 | 97 | — | — | — | — | 661,663 | ||||||||||||||||||||||||
Time deposits and saving accounts (*) | 17 | 2,760,216 | 2,289,106 | 2,361,770 | 599,081 | 12,789 | 22,448 | 8,045,410 | ||||||||||||||||||||||||
Derivative financial instruments | 8 | 43,992 | 51,390 | 115,826 | 163,062 | 112,699 | 120,714 | 607,683 | ||||||||||||||||||||||||
Borrowings from financial institutions | 18 | 155,456 | 101,935 | 676,685 | 411,324 | 28,865 | 57,658 | 1,431,923 | ||||||||||||||||||||||||
Debt issued | 19 | 123,230 | 3,541 | 110,125 | 628,830 | 1,069,830 | 1,143,494 | 3,079,050 |
(*) | Exclude term savings accounts totaling MCh$31,556 during 2014. |
As of December 31, 2015 | ||||||||||||||||||||||||||||||||
Notes | Up to 1 month | From 1 month to 3 months | From 3 months to 1 year | From 1 year to 3 years | From 3 years to 6 years | Over 6 years | TOTAL | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||||
Obligations under repurchase agreements | 7 | 259,907 | 724 | — | — | — | — | 260,631 | ||||||||||||||||||||||||
Time deposits and saving accounts (*) | 17 | 3,484,648 | 1,721,763 | 2,229,474 | 945,200 | 21,513 | 61,432 | 8,464,030 | ||||||||||||||||||||||||
Derivative financial instruments | 8 | 60,807 | 71,978 | 145,599 | 186,976 | 116,398 | 149,356 | 731,114 | ||||||||||||||||||||||||
Borrowings from financial institutions | 18 | 181,528 | 248,487 | 701,822 | 324,423 | 13,272 | 59,053 | 1,528,585 | ||||||||||||||||||||||||
Debt issued | 19 | 3,901 | 9,835 | 364,533 | 968,037 | 918,317 | 962,931 | 3,227,554 |
(*) | Exclude term savings accounts totaling MCh$31,573 during 2015. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
c) | Contractual Obligations |
As of December 31, 2014 | ||||||||||||||||||||
Contractual Obligations | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | |||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Time deposits and saving accounts | 7,748,193 | 572,819 | 13,376 | 46,672 | 8,381,060 | |||||||||||||||
Deposits and other demand liabilities | 2,336,350 | 1,835,272 | — | — | 4,171,622 | |||||||||||||||
Bank obligations | 1,350,294 | 55,543 | 30,263 | 57,679 | 1,493,779 | |||||||||||||||
Investments under repurchase agreements | 661,663 | — | — | — | 661,663 | |||||||||||||||
Issued debt Instruments | 343,607 | 799,686 | 1,204,339 | 1,611,282 | 3,958,914 | |||||||||||||||
Other financial liabilities | 9,490 | 677 | 1,120 | 5,520 | 16,807 | |||||||||||||||
Financial Derivative contracts (all speculative and | ||||||||||||||||||||
hedging instruments) | (50,918,290 | ) | (390,443 | ) | (178,969 | ) | (229,677 | ) | (51,717,379 | ) | ||||||||||
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Total contractual obligations | (38,468,693 | ) | 2,873,554 | 1,070,129 | 1,491,476 | (33,033,534 | ) | |||||||||||||
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As of December 31, 2015 | ||||||||||||||||||||
Contractual Obligations | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | |||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Time deposits and saving accounts | 7,948,599 | 637,279 | 31,111 | 100,488 | 8,717,477 | |||||||||||||||
Deposits and other demand liabilities | 2,529,999 | 1,901,621 | — | — | 4,431,620 | |||||||||||||||
Bank obligations | 1,280,826 | 288,470 | 12,369 | 86,555 | 1,668,220 | |||||||||||||||
Investments under repurchase agreements | 260,631 | — | — | — | 260,631 | |||||||||||||||
Issued debt Instruments | 441,817 | 191,933 | 1,124,216 | 1,469,589 | 3,227,555 | |||||||||||||||
Other financial liabilities | 9,597 | 1,077 | 295 | 3,506 | 14,475 | |||||||||||||||
Financial Derivative contracts (all speculative and hedging instruments) | (40,252 | ) | (89,094 | ) | (97,265 | ) | (70,045 | ) | (296,656 | ) | ||||||||||
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Total contractual obligations | 12,431,217 | 2,931,286 | 1,070,726 | 1,590,093 | 18,023,322 | |||||||||||||||
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
NOTE 37 - FOREIGN CURRENCY POSITION
Assets and liabilities denominated in foreign currencies or indexed to changes in exchange rates are summarized below:
Payable in Foreign currency | Payable in Chilean Peso (*) | Total | ||||||||||||||||||||||
2014 | 2015 | 2014 | 2015 | 2014 | 2015 | |||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Cash and due from banks | 1,709,883 | 1,158,904 | — | — | 1,709,883 | 1,158,904 | ||||||||||||||||||
Cash in the process of collection | 101,643 | 119,532 | — | — | 101,643 | 119,532 | ||||||||||||||||||
Trading portfolio financial assets | 1,079,188 | 361,020 | — | — | 1,079,188 | 361,020 | ||||||||||||||||||
Investments under agreements to resell | 84,189 | 19,887 | — | — | 84,189 | 19,887 | ||||||||||||||||||
Derivative financial instruments | 749,878 | 938,470 | — | — | 749,878 | 938,470 | ||||||||||||||||||
Loans and receivables to customers and banks | 11,134,939 | 9,573,784 | 16,014 | 739 | 11,150,953 | 9,574,523 | ||||||||||||||||||
Financial investments available-for-sale | 862,438 | 1,412,390 | 15,966 | 15,388 | 878,404 | 1,427,778 | ||||||||||||||||||
Held to maturity investments | 303,079 | 231,794 | — | 303,079 | 231,794 | |||||||||||||||||||
Investments other companies | 9,117 | 6,445 | 9,117 | 6,445 | ||||||||||||||||||||
Intangible assets | 530,392 | 403,857 | — | — | 530,392 | 403,857 | ||||||||||||||||||
Property, plant and equipment, net | 88,936 | 71,866 | — | — | 88,936 | 71,866 | ||||||||||||||||||
Current taxes | 2,656 | 6,261 | — | — | 2,656 | 6,261 | ||||||||||||||||||
Deferred income taxes | 111,035 | 86,622 | — | — | 111,035 | 86,622 | ||||||||||||||||||
Other assets | 341,098 | 407,050 | — | — | 341,098 | 407,050 | ||||||||||||||||||
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| |||||||||||||
TOTAL ASSETS | 17,108,471 | 14,797,882 | 31,980 | 16,127 | 17,140,451 | 14,814,009 | ||||||||||||||||||
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LIABILITIES | ||||||||||||||||||||||||
Current accounts and demand deposits | 4,932,778 | 4,782,173 | — | — | 4,932,778 | 4,782,173 | ||||||||||||||||||
Cash in the process of collection | 130,088 | 29,035 | — | — | 130,088 | 29,035 | ||||||||||||||||||
Obligations under repurchase agreements | 1,078,411 | 338,571 | — | — | 1,078,411 | 338,571 | ||||||||||||||||||
Time deposits and saving accounts | 5,401,615 | 4,976,382 | — | — | 5,401,615 | 4,976,382 | ||||||||||||||||||
Derivative financial instruments | 576,334 | 625,884 | — | — | 576,334 | 625,884 | ||||||||||||||||||
Borrowings from financial institutions | 2,367,897 | 2,154,708 | — | — | 2,367,897 | 2,154,708 | ||||||||||||||||||
Debt issued | 2,090,756 | 1,960,621 | — | — | 2,090,756 | 1,960,621 | ||||||||||||||||||
Other financial obligations | 2,264 | 2,267 | — | — | 2,264 | 2,267 | ||||||||||||||||||
Current taxes | — | — | — | — | — | — | ||||||||||||||||||
Deferred income taxes | 152,395 | 129,623 | — | — | 152,395 | 129,623 | ||||||||||||||||||
Provisions | 127,412 | 97,953 | — | — | 127,412 | 97,953 | ||||||||||||||||||
Other Liabilities | 160,618 | 147,822 | — | — | 160,618 | 147,822 | ||||||||||||||||||
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TOTAL LIABILITIES | 17,020,568 | 15,245,039 | — | — | 17,020,568 | 15,245,039 | ||||||||||||||||||
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(*) | Includes transactions denominated in foreign currencies but that are settled in pesos. |
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
CORPBANCA
a. | Fine for Exceeding Credit Margins |
Pursuant to letter No. 16191, the SBIF fined the bank for an alleged infringement to the individual lending limits provided by article 84 No. 1, in relation to article 85 of the Chilean General Banking Act. The total amount was Ch$21,765 million. In an extraordinary meeting on January 4, 2016, the bank’s board of directors agreed: to communicate the letter as a material event, expressing disagreement with the alleged infringement and to instruct management to exercise each and every legal action in order to obtain the annulment of the fine.
On January 8, 2016, the bank paid the full amount of the fine as a mandatory condition precedent to exercise its appeal rights. However, no provision was made as of December 31, 2015 as management believes that it is probable that the fine will be annulled through the appeal process.
On January 18, 2016, CorpBanca brought an action before the Santiago Court of Appeals seeking the annulment of the fine. As of today, the court has not issued its ruling.
b. | Board of Directors |
At the Ordinary Shareholder’s Meeting held on March 11, 2016 was agreed:
• | Proceed to the total renovation of the Board of Corpbanca, were elected the following 9 Directors and 2 Alternates: |
Directors:
Jorge Andrés Saieh Guzmán as Chairman
Fernando Aguad Dagach as First Vice Chairman
Jorge Selume Zaror as Second Vice Chairman.
Francisco Mobarec Asfura
Ana Holuigue Barros
Julio Barriga Silva
Gustavo Arriagada Morales
Hugo Verdegaal
José Luis Mardones Santander
Alternate Directors:
María Catalina Saieh Guzmán
Alvaro Barriga Oliva.
• | In the same shareholders’ meeting Mr. Fernando Massu Taré reports that will leave his position of CEO of CoprBanca from the next March 28, 2016. |
• | At such meeting the dividend distribution of 51.58% of 2015 net income (Chilean Bank GAAP) in the amount of MCh$104,082, equivalent to $0.30580171 dividend per share, was approved. |
The matters described above do not involve any adjustments to the financial statements as of December 31, 2015.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
c. | Law 20,899 Simplification of Tax System and Improvements to Other Tax Provisions |
On February 1, 2016, the President of Chile signed Law No. 20,899, which simplifies and includes specifications regarding the 2014 tax reform (Law No. 20,780), focusing on four specific objectives:
• | Simplify and include specifications regarding the tax reform; |
• | Ensure intended revenue collection; |
• | Maintain the system’s progressive nature; and |
• | Maintain tools to prevent evasion and avoidance. |
Among the most important aspects of this law are changes with respect to the adoption of the tax systems incorporated by Law 20,780 of 2014. The previous reform established two optional regimes taking effect in 2017: the attributed income regime and the semi-integrated regime.
Law 20,899 signed last February 1st keeps the two systems, but specifies that they shall be applied as follows:
i. | Attributed income regime: exclusively for companies with partners or owners that consist only of individuals domiciled or residing in Chile or individuals or legal entities not domiciled or residing in Chile. Under this regime, income will be taxed at the end of the commercial year and the companies’ partners can deduct 100% of the taxes paid by the company as a credit against their final taxes. Companies that use this regime will use a rate of 24% in 2016 and 25% in 2017. |
ii. | Semi-integrated regime: this regime applies to corporations and companies with at least one owner or shareholder that is another company. Income is taxed when profits are distributed, but shareholders only have the right to credit 65% of the taxes paid by the company against their final taxes, with the exception of shareholders that reside in a country that has a tax treaty in effect with Chile or that has been signed before 01.01.2017, but as of that date is not in effect such as the United States, Argentina, China, South Africa and Italy. These companies shall use tax rates of 24% in 2016, 25.5% in 2017 and 27% in 2018. |
Other modifications incorporated into this law are related to general anti-elusion laws and the application of value added tax (VAT) to certain transactions, mainly sales of real estate and leases with purchase options.
The matters described above do not involve any adjustments to the financial statements as of December 31, 2015.
CORPBANCA COLOMBIA
a. Profit Distribution
On January 29, 2015, shareholders of Banco CorpBanca Colombia and the other companies within the CorpBanca Colombia Group met and agreed to distribute profits as follows:
Banco CorpBanca Colombia | ||||||||
MCOP$ | MCh$ | |||||||
Profit for the period | 319,241,495 | 72,340 | ||||||
Release of fiscal reserve | — | — | ||||||
Total available to shareholders | 319,241,495 | 72,340 | ||||||
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Dividend payments | — | — | ||||||
Total | 319,241,495 | 72,340 | ||||||
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
On February 8, 2016, Banco CorpBanca signed an agreement with TransUnion Netherlands II B.V., to sell one hundred percent (100%) of its shareholding in the corporation CIFIN S.A., which is authorized as a technical and administrative services company and accredited as a provider of financial, credit and commercial information and services.
The matters described above do not involve any adjustments to the financial statements as of December 31, 2015.
b. Bond Placement
On March 2, 2016, the Bank placed bonds on national markets totaling MCOP$300.000, the issuance and placement was as following:
MCOP $ | Expiration Date | Reference | Rate | |||||||||
BBSA 16SA24 | 215,000 | 3/2/2018 | FIJA | 8.99 | % | |||||||
BBSA 168B18 | 85,000 | 9/2/2017 | IBR + | 2.39 | % | |||||||
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300,000 | ||||||||||||
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The matters described above do not involve any adjustments to the financial statements as of December 31, 2015.
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CORPBANCA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014 and 2015 and for the years ended
December 31, 2013, 2014 and 2015
Between January 1, 2016, and March 31, 2016, the date of issuance of these consolidated financial statements, there have been no other events after the reporting period that could affect the presentation and/or results of the financial statements.
Juan Vargas Matta | Fernando Massú Tare | |
Accounting Manager | Chief Executive Officer |
F-229