ANNUAL REPORT FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020
As filed with the Securities and Exchange Commission on April 23, 2021
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
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☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| OR |
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☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the fiscal year ended December 31, 2020 |
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| OR |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| OR |
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☐ | 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, 2020
Commission file number 001-32305
ITAÚ CORPBANCA
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
Republic of Chile
(Jurisdiction of incorporation or organization)
Rosario Norte 660
Las Condes
Santiago, Chile
(Address of principal executive offices)
Investor Relations, Telephone: +(562) 2660-2555, Facsimile: +(562) 2660-2476,
Address: Rosario Norte 660, Las Condes, Santiago, Chile
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| | | ||
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
American Depositary Shares representing common shares | | ITCB | | 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:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
512,406,760,091
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 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 ☐ 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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | International Financial Reporting Standards as issued | 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 ☐ 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 ☐
INTRODUCTION
About This Report
We file our annual report on Form 20-F and other information with the U.S. Securities and Exchange Commission.
We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. The materials included in this Annual Report on Form 20-F may be downloaded at the SEC’s website: http://www.sec.gov. Any filings we make are also available to the public over the Internet at the SEC’s website at www.sec.gov and at our website at https://ir.itau.cl. (This URL is intended to be an inactive textual reference only. It is not intended to be an active hyperlink to our website. The information on our website, which might be accessible through a hyperlink resulting from this URL, is not and shall not be deemed to be incorporated into this Annual Report.)
The terms “Itaú Corpbanca,” “Itaú,” “the Bank,” “we,” “us” and “our” in this Annual Report refer to Itaú Corpbanca together with its subsidiaries unless otherwise specified.
i
An investment in our securities and ADSs is subject to a number of risks, including Risks Associated with our Business, Risks Relating to Chile, Colombia and Other Countries in Which we Operate, Risks Relating to Expansion and Integration of Acquired Businesses and Risks Related to our Securities, the ADSs and our Common Shares. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.
Risks Associated with our Business
● | Composition of Loan Portfolio: Through the further expansion of our loan portfolio in retail segments, we are seeking to decrease our corporate segment concentration and, as a result, balance our loan portfolio and strengthen our retail operation (particularly in the consumer segment), which may expose us to a higher level of loan losses and require us to establish higher levels of provisions for loan losses, which may in turn have a material adverse effect on our results of operations. |
● | Growth of Loan Portfolio: 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 acquisitions. In addition, the growth of our loan portfolio 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. |
● | Capital Adequacy Requirements: Although we have historically complied with our capital maintenance obligations in the jurisdictions where we operate, there can be no assurance that we will continue to do so in the future. If we fail to meet the capital adequacy requirements, we may be required to take corrective actions or subject to sanctions in the jurisdictions where we operate, which could materially and adversely affect our business reputation, financial condition and results of operations. |
● | Rate Volatility: In the current global economic climate, there is a greater degree of uncertainty in the policy decisions and the setting of interest rates by the Central Bank of Chile and the Central Bank of Colombia. 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. |
● | Competition and Consolidation: The Chilean and Colombian markets for financial services are highly competitive and competition is likely to increase. 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. Increased competition and industry consolidation may adversely affect the results of our operations. |
● | Risk Management: We use various processes to identify, manage and control our risk exposure under all market conditions. However, these processes involve subjective and complex judgments and assumptions and we cannot guarantee that our risk management efforts will prevent us from experiencing material losses that could have a material adverse effect on our business, financial condition and results of operations. |
● | Concentration Risk: Concentration risk is associated with high financial losses triggered by significant exposure to a particular risk factor. We are subject to concentration risk and an excessive concentration in a particular risk factor could have a material adverse effect on our business, financial condition and results of operations. |
● | Reliance on Short Term Deposits: Time deposits and other term deposits are our primary sources of funding. 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 revenue. |
● | Banking Regulations: We are subject to constantly evolving regulation in the markets in which we operate. 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 |
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may also face increased compliance costs and limitations on our ability to pursue certain business opportunities, which may restrict our operations and thereby adversely affect our financial condition and results of operations. |
● | Government Debt Exposure: 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. 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 by this exposure. |
● | Benchmark Transition: In 2017, it was announced that banks will no longer be compelled to submit rates for the calculation of LIBOR after 2021. It is impossible to predict whether LIBOR will continue to exist and how it will be determined after this date, or what alternative reference rate may be adopted. A significant portion of our income, expenses and liabilities is directly tied to interest rates and we may not effectively manage risks associated with the replacement of benchmark indices, including LIBOR. |
Risks Relating to Chile, Colombia and Other Countries in Which We Operate
● | Pension Fund Regulations: If the exposure of any pension fund to us exceeds the regulatory limits established by the Chilean government, 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.. Potential changes to the pension system in Chile may also impose an increase in our labor costs and therefore have a material adverse effect on our financial results. |
● | Government Influence: Chilean and Colombian authorities exercise influence on and intervene in the Chilean and Colombian economies from time to time and changes in monetary, fiscal and foreign exchange policies or in the Chilean and Colombian governments’ structures may adversely affect us, as our profitability depends on the levels of economic activity in these countries. |
● | Social and Political Environment: Ongoing social unrest in Chile and internal security issues in Colombia have had or could have in the future a negative effect on the economies in which we operate and in turn could negatively impact our business and/or financial performance. In particular, further deterioration of Colombia’s political relations with Venezuela 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. |
● | COVID-19: The ongoing COVID-19 pandemic and related government response measures, including measures related to both public health and financial stability, have and may continue to affect the economies of the countries in which we operate, our business operations or our financial condition and results of operations. |
Risks Relating to Expansion and Integration of Acquired Businesses
● | Integration Risk: Integration of acquired or merged businesses involves certain risks that may have a material adverse effect on us. For example, acquisitions and strategic partnerships may not perform as expected or may disrupt our operations and adversely affect our business financial condition and results of operations. |
Risks Related to our Securities, the ADSs and our Common Shares
● | Controlling Shareholder: Itaú Unibanco is the sole controlling shareholder of Itaú Corpbanca. Our controlling shareholder is able to exercise significant control over us which could result in conflicts of interest. |
● | Other Risks: Investors may find it difficult to enforce civil liabilities against us or our directors, officers and controlling persons, most of whom reside outside of the United States. In addition, investors may have fewer and less well defined shareholders’ rights than with shares of a company in the United States. Further, holders of ADSs are not entitled to attend shareholders’ meetings, and they may only vote through the depositary. |
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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; |
● | adverse developments with respect to the financial stability and conditions of our shareholders, counterparties, joint venture partners and business partners; |
● | natural disasters and pandemics, including the ongoing SARS-CoV-2 (“COVID-19”) pandemic; |
● | cyber-attacks, terrorism and other criminal activities; |
● | 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 or the global economy; |
● | 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; |
● | social unrest; |
● | our counterparties’ failure to meet contractual obligations; |
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● | 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; |
● | concentration of financial exposure; |
● | 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; |
● | loss of market share; |
● | changes in, or failure to comply with, applicable banking, insurance, securities or other regulations; |
● | changes in accounting standards; |
● | 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 Merger of Banco Itaú Chile with and into Corpbanca on April 1, 2016 (the “Merger”), the acquisition of the assets and liabilities of Itaú BBA Colombia S.A., Corporación Financiera (“Itaú BBA Colombia”) by us (the “Itaú Colombia Acquisition”), and the acquisition of an additional 20.8% share ownership in Itaú Corpbanca Colombia by us; |
● | our ability to achieve revenue benefits and cost savings from the integration between former Corpbanca’s and former Banco Itaú Chile’s businesses and assets; |
● | our ability to address and forecast economic and social trends affecting our business, and to effectively implement the appropriate strategies; and |
● | the other factors identified or discussed under “Item 3. Key Information—D. Risk Factors” in this Annual Report. |
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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 Itaú 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. 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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TABLE OF CONTENTS
| | |
| 9 | |
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | | 9 |
| 9 | |
| 9 | |
| 52 | |
| 155 | |
| 156 | |
| 197 | |
| 208 | |
| 211 | |
| 213 | |
| 214 | |
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT FINANCIAL RISK | | 250 |
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | | 274 |
| 277 | |
| 277 | |
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | | 277 |
| 277 | |
| 278 | |
| 278 | |
| 278 | |
| 279 | |
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | | 279 |
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | | 280 |
| 280 | |
| 281 | |
| 282 | |
| 283 | |
| 283 | |
| 283 | |
| 284 |
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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
We are a Chilean bank and maintain our financial books and records in Chilean pesos and prepare our consolidated financial statements presented herewith in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. As required by local regulations, our consolidated financial statements filed with the Chilean Commission for the Financial Market (Comisión para el Mercado Financiero) also referred to as the “CMF”, and that are the basis for dividend distributions, have been prepared in accordance with Chilean accounting principles or Chilean Banking GAAP, issued by the CMF. CMF regulations provide that for those matters not specifically regulated by this agency, our financial statements prepared under Chilean Banking GAAP should follow the accounting principles established by IFRS. Unless otherwise indicated herein, as used hereafter IFRS refers to the standards issued by the IASB. Therefore, our consolidated financial statements filed herewith differ from the financial statements prepared in accordance with Chilean Banking GAAP. We have included herein certain information in Chilean Banking 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, 2019 and 2020, and for the years ended December 31, 2018, 2019 and 2020 is derived from, and presented on the same basis as, our consolidated financial statements prepared under IFRS and should be read together with such consolidated financial statements.
Our financial statement data as of and for the year ended December 31, 2016 is not comparable to the data as of and for the years ended December 31, 2017, 2018, 2019, and 2020 because of the Merger, which was consummated on April 1, 2016. The Merger has been accounted for as a reverse acquisition, based on guidance in IFRS 3 “Business Combinations,” with Banco Itaú Chile (the legal acquiree) considered as the accounting acquirer and Corpbanca (the legal acquirer) considered as the accounting acquiree. Accordingly, the financial statements of Itaú Corpbanca for periods prior to the acquisition date of April 1, 2016 reflect the historical financial information of Banco Itaú Chile. Before the Merger, former Banco Itaú Chile (the legal acquiree) only produced financial statements pursuant to Chilean Banking GAAP, while former Corpbanca (the legal acquirer) from 2009 to 2015 issued financial statements according to Chilean Banking GAAP and according to IFRS.
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, PricewaterhouseCoopers Consultores Auditores SpA, or PwC, an independent registered public accounting firm, have audited our consolidated financial statements included in this Annual Report.
We have adopted IFRS 16 as issued by the IASB in January 2016 with a date of transition of January 1, 2019, which resulted in changes to our accounting policies. As per the permitted transitional provisions of IFRS 16, we elected not to revise comparative figures; accordingly, some IFRS 16 disclosures presented in our consolidated financial statements and this Annual Report with respect to certain amounts and disclosures are not comparable. Please see Note 1 (t) for new accounting policies and Note 2 Accounting Changes to our consolidated financial statements included in this Annual Report for a description of the impact of the adoption of this standard.
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Foreign Currency Markets
In this Annual Report, references to “$,” “US$,” “U.S. dollars” and “dollars” are to United States dollars, references to “Chilean pesos,” “Ch$” or “CLP” are to Chilean pesos, references to “UF” are to Unidades de Fomento and references to “Colombian pesos” or “COP$” 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 (CPI) of the Chilean National Statistics Institute (Instituto Nacional de Estadísticas). As of December 31, 2020, one UF equaled US$40.90, Ch$29,070.33 and COP$142,484.01 and as of March 31, 2021, one UF equaled US$40.82 , Ch$29,394.77 and COP$149,797.04. 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 consolidated 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$710.73 and Ch$3,483.54, respectively, per US$1.00 or COP$1.00, as the case may be, as of December 31, 2020.
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 Itaú Corpbanca’s financial information, presented in this Annual Report or incorporated by reference into this Annual Report are based on information published periodically by the CMF, which is published under Chilean Banking GAAP and prepared on a consolidated basis. Non-performing loans include the principal and accrued interest on any loan with at least one installment more than 90 days overdue. Impaired loans include those loans on which there is objective evidence that customers will not meet some of their contractual payment obligations. At the end of each reporting period the Bank evaluates the impairment of the loan portfolio. As of December 31, 2018, 2019 and 2020 this has been assessed in accordance with IFRS 9 and for prior periods in accordance with IAS 39. 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. See “Item 4. Information on the Company—Business Overview—Selected Statistical Information—Classification of Banks and Loan Portfolios; Allowances for Loan Losses.”
Unless an exception applies, under Decree with Force of Law No. 3 of 1997, as amended (including, without limitation, by Law No. 21,130 which sets forth new capital requirements for banks in Chile that are in line with Basel III standards), also called the Ley General de Bancos or the Chilean General Banking Act, (1) a bank must have an effective net equity (Patrimonio Efectivo) of at least 8% of its risk weighted assets, net of required allowance for loan losses, as calculated in accordance with Chilean Banking GAAP; and (2) the paid-in capital and reserves, or basic capital (Capital Básico), shall not be lower than (y) 4.5% of its risk weighted assets and (z) 3% of its total assets, in both cases, net of required allowance for loan losses.
Note, however, that in any of the following events a higher effective net equity and/or a higher basic capital may be required:
(1) | If at the moment in which the incorporation deed of a bank is granted (or at the moment in which the authorization of existence of a branch of a foreign bank is granted), at least 50% of the minimum paid-in capital and reserves, or basic capital (Capital Básico) (i.e., UF800,000 (Ch$23,256.3 million or US$32.7 million as of December 31, 2020)) has not been paid, the respective bank shall have an additional basic capital equal to 2% of its risk weighted assets, net of required allowances, above the general minimum basic capital of 4.5% plus any additional basic capital that may be applicable pursuant to number (2) below. The additional 2% requirement will be reduced to 1% once the bank’s paid basic capital reaches UF600,000 (Ch$17,442.2 million or US$24.5 million as of December 31, 2020). |
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(2) | On December 1, 2020, the CMF completed the issuance of the regulations necessary to implement in Chile the new capital requirements established by Law No. 21,130. As a result, the following will apply: |
b. | Beginning on December 1, 2020, the Central Bank of Chile may impose an additional basic capital requirement (Counter-Cyclical Buffer) of up to 2.5% of a bank’s risk weighted assets, net of required allowances, above the minimum requirements. This additional requirement may be imposed by the Central Bank of Chile on a general basis applicable to all banking institutions, as a contra-cyclical measure. Note that on September 25, 2020 the CMF published the regulation (Circular No. 2,272) setting forth the Counter-Cyclical Buffer that may be applicable to banks in Chile; |
c. | In the event that the CMF determines, through a grounded resolution and with the affirmative consent of the Counsel of the Central Bank of Chile, that a bank or group of banks has systemic importance, the CMF will be entitled to impose, among others, one or more of the following conditions: (y) an increase between 1% and 3.5% to the basic capital over risk weighted assets, net of required allowances, above the aforementioned 8% minimum effective net equity (Patrimonio Efectivo) requirement and (z) an increase of up to 2% to the basic capital over total assets, net of required allowances, above the aforementioned 3% minimum basic capital requirement. The conditions imposed on a bank qualified of systemic importance may be terminated in the event the Council of the CMF determines that a bank no longer has systemic importance. |
On November 2, 2020, the CMF published the regulation (Circular No. 2,276) setting forth the factors and methodologies to be considered to determine whether a bank or group of banks qualifies as of systemic importance; this regulation also provides the additional basic capital requirements to be imposed on a bank if it is considered of systemic importance. This regulation, which became effective on December 1, 2020, provides that the additional basic capital requirements will be applied progressively from December 1, 2022 to December 1, 2025, at a ratio of 25% per year until reaching 100% on December 1, 2025. Finally, the first resolution qualifying banks as systemically important was issued on March 31, 2021 and qualifies Itaú Corpbanca, among others, as a bank of systemic importance.
In general terms, the rating of a bank or group of banks under the same controller as of systemic importance is associated with the group’s materiality to the operation of the Chilean financial system. Materiality is determined based on a finding that the financial weakening or eventual insolvency of a bank or group of banks under the same controller could have material adverse consequences on the rest of the financial system or even on the country’s economy as a whole. To establish the degree of systemic importance of a bank or group of banks under the same controller, the CMF considers as a reference framework the evaluation methodology established by the Basel Committee on Banking Supervision (BCBS) in force since January 1, 2016, which contemplates the creation of an index based on different factors that determine the systemic impact of a bank if it were to financial weaken or become insolvent.
11
In accordance with the above, to establish the degree of systemic importance of a bank, the CMF established an index of systemic importance, determined by the weighted aggregate of the relative percentage of participation of each bank in the following factors, each of which is will be calculated from a set of sub-factors: size, local interconnection (sub-factors to be measured only within the local market, including assets within the Chilean financial system and liabilities within the Chilean financial system), local substitutability (sub-factors to be measured only within the local market including payment activities, deposits and loans), and complexity (sub-factors to be measured include OTC derivative contracts, inter-jurisdictional assets, inter-jurisdictional liabilities, assets at fair value and assets of third parties under the bank’s management).
Specifically, the systemic importance index is calculated as: (a) the weighted average of the bank’s scores in the four factors set forth in the preceding paragraph, using the following weighting: 30% for size and local interconnection and 20% for local substitutability and complexity, and (b) the bank’s score in each factor will be equal to the weighted average of its percentage participation in each of the sub-factors. This participation is multiplied by 10,000 to express it in basis points; and
d. | If after a review process, to the judgment of the CMF, a bank presents risks not properly protected with the equity requirements mentioned above, the CMF may impose additional equity requirements, starting in the fourth quarter of 2020. Such additional equity requirements may consist in an additional basic capital, or one or more of the instruments listed in numbers (ii), (iii), (iv) and (v) of the following paragraph. In any event, the additional equity requirements shall not exceed 4% of its risk weighted assets, net of required allowances. For these purposes, on September 11, 2020, the CMF issued the regulation (Circular No. 2,270) setting forth the general criteria and guidelines to determine the additional equity requirements as a result of this CMF supervision process. This regulation imposes on banks the obligation to prepare and deliver a Self-Assessment Report on the Effective Net Equity (Informe de Autoevaluación de Patrimonio Efectivo or the IAPE) to the CMF on a yearly basis, no later than April each year. This new regulation became effective as of September 11, 2020; however the IAPE must be delivered progressively pursuant to the following timeline: Starting April 2021, in a simplified format considering credit risk only; starting April 2022, in a simplified format considering credit, market and operational risks, and starting April 2023, in a full format considering all the material risks of the bank. |
To determine the effective net equity of a bank (Patrimonio Efectivo), the Chilean Banking Act authorizes the CMF to set forth, through a general regulation, adjustments or exclusions of assets and liabilities, including risk mitigators, that impact its value. Pursuant to this authorization, on October 8, 2020, the CMF published the regulation (Circular No. 2,274) containing the elements of and discounts to the regulatory capital of Chilean banks. This regulation became effective on December 1, 2020 and the regulatory adjustments and exclusions will be applied progressively during a 5-year term, without discounts in 2021 and with progressive increases beginning with 15% on December 1, 2022, 30% from December 1, 2023, 65% from December 1, 2024 and reaching 100% on December 1, 2025.
Pursuant to the above-mentioned regulation, the effective net equity (Patrimonio Efectivo) or regulatory capital of a bank is the sum of the following factors: (a) tier 1 (T1) capital, plus (b) tier 2 (T2) capital. In turn, (y) tier 1 (T1) capital is the sum of (1) the the bank’s basic capital or common equity tier 1 (CET1) (i.e., paid-in capital and reserves) and (2) the additional tier 1 (AT1) capital (i.e., bonds issued without a maturity date and preferred stocks valued at their issue price, for an amount up to one third of the banks’ basic capital), and (z) tier 2 (T2) capital corresponds to (1) subordinated bonds issued by the bank valued at their issue price and 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 (2) the bank’s voluntary allowances for loan losses up to (A) 1.25% of its credit risk weighted assets, if standard methodologies are applied, or (B) 0.625% in the event non-standard methodologies are applied.
12
The following table sets forth the Basel III Implementation Calendar Chilean banks:
| | | | | | |
| December 31, | | ||||
| 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
Conservation Buffer | 0% | 0.625% | 1125% | 1875% | 2.5% | |
AT1 | 0% | 0% | 0.5% | 1.0% | 1.5% | |
SIB* | 0% | 0% | 25% | 50% | 75% | 100% |
Capital discounts | 0 | 0 | 15% | 30% | 65% | 100% |
Pillar III | | | | First report | | |
Pillar II | In effect | First IAPE | | | | |
| | | | | | |
* Systemically Important Banks * The Bank has been designated as an SIB by the CMF. |
Rounding and Other Matters
Certain figures included in this Annual Report and in our consolidated financial statements as of and for the years ended December 31, 2016, 2017, 2018, 2019 and 2020 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 consolidated financial statements as of and for the years ended December 31, 2018, 2019 and 2020. 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 “Item 3. Key Information—Presentation of Financial and Other Information—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 or DANE. All market share and other data related to the Chilean financial system is based on information published by the CMF 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 Financial Superintendency (Superintendencia Financiera de Colombia) as well as other publicly available information. The CMF 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 Financial Superintendency publishes every month the consolidated data required to calculate the risk index of the Colombian banking system (loan loss allowances and total loans).
EXCHANGE RATE INFORMATION
Exchange Rates
Chile has two currency markets, the Formal Exchange Market (Mercado Cambiario Formal) and the Informal Exchange Market (Mercado Cambiario Informal). The Formal Exchange Market is comprised of banks and other entities authorized by the Central Bank of Chile. The Informal Exchange Market is comprised of entities that are not expressly authorized to operate in the Formal Exchange Market, such as certain foreign exchange houses and travel agencies, among others. The Central Bank of Chile is empowered to require that certain purchases and sales of foreign currencies be carried out on the Formal Exchange Market. Both the Formal and Informal Exchange Markets are driven by free market forces. Current regulations require that the Central Bank of Chile be informed of certain transactions and that they be effected through the Formal Exchange Market.
13
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, 2020, the Bank’s U.S. dollar exchange rate was Ch$710.73 per US$1.00 and the Bank’s Colombian peso exchange rate was Ch$3,483.54 per COP$1.00.
Exchange Controls Considerations
Investments made in our common shares and our American Depositary Shares, or ADSs, are subject to the following requirements:
● | any foreign investor acquiring common shares to be deposited into an ADS 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 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 ADS facility, such investment must be reported to the Central Bank of Chile by the custodian within ten days following the end of each month within which the custodian is obligated to deliver periodic reports to the Central Bank of Chile.
All payments made within Chile in foreign currency in connection with ADSs through the Formal Exchange Market must be reported to the Central Bank of Chile by the entity participating in the transaction. In the event there are payments made outside of Chile, the foreign investor must provide the relevant information to the Central Bank of Chile directly or through an entity of the Formal Exchange Market within the first ten calendar days of the month following the date on which the payment was made.
We cannot assure you that additional Chilean restrictions applicable to the holders of the ADSs, the disposition of shares underlying ADSs or the conversion or repatriation of the proceeds from such disposition will not be imposed in the future, nor can we assess the duration or impact of such restriction if imposed.
This summary does not purport to be complete and is qualified by reference to Chapter XIV of the Central Bank Foreign Exchange Regulations, a copy of which is available in the original Spanish version at the Central Bank of Chile’s website at www.bcentral.cl.
14
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 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, | ||||||||||
| | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2020 (1) |
|
| Ch$ |
| Ch$ |
| Ch$ |
| Ch$ |
| Ch$ |
| US$ |
| | (in millions of Ch$ and thousands of US$, except for | ||||||||||
| | number of shares and per share data)(2) | ||||||||||
Interest income |
| 1,509,203 |
| 1,646,329 |
| 1,739,317 |
| 1,773,640 |
| 1,549,674 | | 2,180,398 |
Interest expense |
| (870,028) |
| (863,347) |
| (851,654) |
| (873,222) |
| (683,237) | | (961,317) |
Net interest income |
| 639,175 |
| 782,982 |
| 887,663 |
| 900,418 |
| 866,437 |
| 1,219,081 |
Net service fee income |
| 150,796 |
| 177,571 |
| 186,129 |
| 174,404 |
| 140,999 | | 198,386 |
Trading and investment, foreign exchange gains and other operating income |
| 83,551 |
| 95,965 |
| 181,446 |
| 216,232 |
| 102,001 | | 143,516 |
Operating income before provision for loan losses |
| 873,522 |
| 1,056,518 |
| 1,255,238 |
| 1,291,054 |
| 1,109,437 |
| 1,560,983 |
Provisions for loan losses |
| (245,990) |
| (315,417) |
| (279,798) |
| (382,678) |
| (466,230) | | (655,988) |
Total operating income, net of provision for loan losses, interest and fees |
| 627,532 |
| 741,101 |
| 975,440 |
| 908,376 |
| 643,207 |
| 904,995 |
Total operating expenses |
| (616,627) |
| (731,147) |
| (741,527) |
| (736,533) |
| (1,581,778) | | (2,225,568) |
Total net operating income (loss) before income taxes |
| 10,905 |
| 9,954 |
| 233,913 |
| 171,843 |
| (938,571) |
| (1,320,573) |
Income (loss) from investments in associates |
| — |
| — |
| — |
| 532 |
| (2,794) | | (3,931) |
Income (loss) before income taxes |
| 10,905 |
| 9,954 |
| 233,913 |
| 172,375 |
| (941,365) |
| (1,324,504) |
Income taxes |
| 3,568 |
| 52,871 |
| (67,059) |
| (47,853) |
| 115,210 | | 162,101 |
Income (loss) from continuing operations |
| 14,473 |
| 62,825 |
| 166,854 |
| 124,522 |
| (826,155) | | (1,162,403) |
Income (loss) from discontinued operations |
| (504) |
| — |
| — |
| — |
| — |
| — |
Net income for the year |
| 13,969 |
| 62,825 |
| 166,854 |
| 124,522 |
| (826,155) |
| (1,162,403) |
| | | | | | | | | | | | |
|
| For the fiscal years ended December 31, | ||||||||||
| | 2016 | | 2017 | | 2018 | | 2019 | | 2020 |
| 2020(1) |
|
| Ch$ |
| Ch$ |
| Ch$ |
| Ch$ |
| Ch$ |
| US$ |
|
| (in millions of Ch$ and thousands of US$, except for number of shares and per share data)(2) | ||||||||||
Equity holders of the Bank |
| 14,407 |
| 67,821 |
| 171,331 |
| 113,684 |
| (808,784) | | (1,155,252) |
Non-controlling interest |
| (438) |
| (4,996) |
| (4,477) |
| 10,838 |
| (17,371) | | (24,441) |
Net income (loss) per common share(3) |
| 0.035 |
| 0.132 |
| 0.334 |
| 0.248 |
| (1,806) | | (2.54) |
Dividend per common share(4) |
| 36,387 |
| 0.0012 |
| 0.04500 |
| 0.101 |
| 0.248 | | 0.000 |
Gross dividends per ADS(4) |
| n.a. |
| 1,8081, |
| 67.26700 |
| 151.101 |
| 371.943 | | 0.52 |
Shares of common stock outstanding |
| 512,406,760,091 |
| 512,406,760,091 |
| 512,406,760,091 |
| 512,406,760,091 |
| 512,406,760,091 |
|
|
(1) | Amounts stated in U.S. dollars as of December 31, 2020 and for the year ended December 31, 2020 have been translated from Chilean pesos at our exchange rate of Ch$710.73 per US$1.00 as of December 31, 2020. |
(2) | Amounts stated in millions of Chilean pesos and thousands of U.S. dollars except for net income per share, dividends per common share and dividend per ADS expressed in Chilean pesos and in U.S. dollars. |
(3) | Net income per common share has been calculated on the basis of net income attributable to the equity holders of the Bank divided by the weighted average number of shares outstanding for the period. For further information on basic earnings and diluted earnings please see Notes 1(ee) and 24(d) to our consolidated financial statements. |
(4) | Represents dividends or net dividends paid to common shareholders or to ADS holders in respect of net income earned in the prior fiscal year. |
15
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| | | | | | | | | | | | |
|
| As of December 31, | ||||||||||
| | 2016 | | 2017 | | 2018 | | 2019 | | 2020 |
| 2020(1) |
|
| Ch$ |
| Ch$ |
| Ch$ |
| Ch$ |
| Ch$ |
| US$ |
| | (in millions of Ch$ and thousands of US$) | ||||||||||
Cash and deposits in banks | | 1,487,137 | | 964,030 | | 987,680 | | 1,009,681 | | 3,089,072 | | 4,346,337 |
Cash in the process of collection |
| 145,769 |
| 157,017 |
| 318,658 |
| 231,305 |
| 173,192 | | 243,682 |
Financial instruments at fair value through profit or loss |
| — |
| — |
| 96,943 |
| 183,702 |
| 582,710 | | 819,875 |
Financial instruments at fair value through other comprehensive income |
| — |
| — |
| 2,657,154 |
| 3,598,890 |
| 3,970,899 | | 5,587,071 |
Interbank loans at amortized cost |
| — |
| — |
| 341,244 |
| 56,396 |
| 7,121 | | 10,019 |
Loans and accounts receivable from customers at amortized cost |
| — |
| — |
| 20,714,370 |
| 22,254,697 |
| 21,576,108 | | 30,357,672 |
Financial instruments at amortized cost |
| — |
|
|
| 198,923 |
| 115,658 |
| 111,542 | | 156,940 |
Trading portfolio financial assets |
| 632,557 |
| 415,061 |
| — |
| — |
| — | | — |
Investments under resale agreements |
| 170,242 |
| 28,524 |
| 109,467 |
| 75,975 |
| 105,580 | | 148,551 |
Derivative financial instruments |
| 1,102,769 |
| 1,248,775 |
| 1,368,957 |
| 3,154,957 |
| 3,982,803 | | 5,603,820 |
Investment in associates | | — | | — | | — | | 9,605 | | 7,149 | | 10,059 |
Loans and receivables from banks, net |
| 150,568 |
| 70,077 |
| — |
| — |
| — | | — |
Loans and receivables from customers, net |
| 20,444,648 |
| 19,764,078 |
| — |
| — |
| — | | — |
Financial investments available-for-sale |
| 2,074,077 |
| 2,663,478 |
| — |
| — |
| | | |
Held to maturity investments |
| 226,433 |
| 202,030 |
| — |
| — |
| | | |
Intangible assets |
| 1,614,475 |
| 1,562,654 |
| 1,570,964 |
| 1,574,433 |
| 718,683 | | 1,011,190 |
Property, plant equipment, net |
| 121,043 |
| 130,579 |
| 95,564 |
| 95,080 |
| 80,615 | | 113,426 |
Right of use asset under lease agreements | | — | | — | | — | | 167,441 | | 146,008 | | 205,434 |
Current taxes |
| 164,296 |
| 238,452 |
| 123,129 |
| 85,516 |
| 64,699 | | 91,032 |
Deferred taxes |
| 110,765 |
| 140,685 |
| 178,686 |
| 208,657 |
| 312,556 | | 439,768 |
Other assets |
| 427,394 |
| 429,025 |
| 501,797 |
| 770,861 |
| 542,633 | | 763,487 |
Non-current assets held for sale |
| 37,164 |
| 18,308 |
| 59,802 |
| 17,202 |
| 15,078 | | 21,214 |
TOTAL ASSETS |
| 28,909,337 |
| 28,032,773 |
| 29,323,338 |
| 33,610,056 |
| 35,486,448 | | 49,929,577 |
Checking accounts and demand deposits |
| 4,453,191 |
| 4,141,667 |
| 4,300,475 |
| 4,873,448 |
| 6,197,406 | | 8,719,775 |
Transaction in the process of beign cleared |
| 67,413 |
| 109,496 |
| 247,165 |
| 164,573 |
| 154,232 | | 217,005 |
Obligations under repurchase agreements |
| 373,879 |
| 420,920 |
| 1,015,614 |
| 559,457 |
| 638,851 | | 898,866 |
Time deposits and time liabilities |
| 11,581,710 |
| 10,065,243 |
| 10,121,111 |
| 11,620,187 |
| 11,433,064 | | 16,086,368 |
Derivative financial instruments |
| 907,334 |
| 1,095,154 |
| 1,112,806 |
| 2,938,034 |
| 3,673,591 | | 5,168,757 |
Interbank borrowings |
| 2,179,870 |
| 2,196,130 |
| 2,327,723 |
| 2,646,756 |
| 3,798,978 | | 5,345,177 |
Debt instruments issued |
| 5,460,253 |
| 5,950,038 |
| 6,010,124 |
| 6,408,356 |
| 6,204,856 | | 8,730,258 |
Other financial obligations |
| 25,563 |
| 17,066 |
| 12,400 |
| 12,966 |
| 13,123 | | 18,464 |
Lease contracts liabilities | | — | | — | | — | | 172,924 | | 151,885 | | 213,703 |
Current taxes |
| 1,886 |
| 624 |
| 1,191 |
| 13 |
| 1,766 | | 2,485 |
Deferred taxes |
| 57,636 |
| 26,354 |
| 471 |
| 263 |
| 237 | | 333 |
Provisions |
| 100,048 |
| 117,889 |
| 214,903 |
| 177,827 |
| 135,090 | | 190,072 |
Other liabilities |
| 269,810 |
| 463,435 |
| 521,795 |
| 708,914 |
| 700,034 | | 984,951 |
Liabilities directly associated with non-current assets held for sale |
| 7,032 |
| — |
| — |
| — |
| — | | — |
TOTAL LIABILITIES |
| 25,485,625 |
| 24,604,016 |
| 25,885,778 |
| 30,283,718 |
| 33,103,113 | | 46,576,214 |
Equity attributable to equity holders of the Bank |
| 3,184,743 |
| 3,211,477 |
| 3,219,478 |
| 3,231,893 |
| 2,314,248 | | 3,256,157 |
Non-controlling interest |
| 238,969 |
| 217,280 |
| 218,082 |
| 94,445 |
| 69,087 | | 97,206 |
TOTAL EQUITY |
| 3,423,712 |
| 3,428,757 |
| 3,437,560 |
| 3,326,338 |
| 2,383,335 | | 3,353,363 |
TOTAL LIABILITIES AND EQUITY |
| 28,909,337 |
| 28,032,773 |
| 29,323,338 |
| 33,610,056 |
| 35,486,448 | | 49,929,577 |
(1) | Amounts stated in U.S. dollars as of December 31, 2020 and for the year ended December 31, 2020 have been translated from Chilean pesos at our exchange rate of Ch$710.73 per US$1.00 as of December 31, 2020. |
16
CONSOLIDATED RATIOS
| | | | | | | | | | | |
|
| As of and for the Year Ended | |||||||||
| | December 31, | |||||||||
|
| 2016 | | 2017 | | 2018 | | 2019 | | 2020 | |
Profitability and Performance |
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(1) |
| 3.0 | % | 3.2 | % | 3.5 | % | 3.4 | % | 2.9 | % |
Return on average total assets(2) |
| 0.1 | % | 0.2 | % | 0.6 | % | 0.4 | % | (2.2) | % |
Return on average equity(3) |
| 0.5 | % | 1.8 | % | 4.8 | % | 3.5 | % | (28.7) | % |
Efficiency ratio (consolidated)(4) |
| 68.0 | % | 67.3 | % | 67.7 | % | 56.9 | % | 121.3 | % |
Dividend payout ratio(5) |
| 50.0 | % | 30.0 | % | 40.0 | % | 30.0 | % | 100.0 | % |
Capital |
|
|
|
|
|
|
|
|
|
|
|
Average equity as a percentage of average total assets |
| 11.3 | % | 11.9 | % | 11.9 | % | 11.3 | % | 7.7 | % |
Shareholders’ equity as a percentage of total liabilities |
| 12.5 | % | 13.1 | % | 12.4 | % | 10.7 | % | 7.0 | % |
Asset Quality |
|
|
|
|
|
|
|
|
|
|
|
Allowances for loan losses as a percentage of non-performing loans(6)(7) |
| 158.6 | % | 133.9 | % | 169.6 | % | 134.6 | % | 206.8 | % |
Non-performing loans as a percentage of total loans(6) |
| 1.7 | % | 2.3 | % | 2.1 | % | 2.8 | % | 57.0 | % |
Allowances for loan losses as a percentage of total loans (Risk Index)(7) |
| 2.7 | % | 3.0 | % | 3.6 | % | 3.8 | % | 4.6 | % |
Past due loans as a percentage of total loans(8) |
| 0.5 | % | 0.6 | % | 0.8 | % | 1.4 | % | 1.3 | % |
Other Data |
|
|
|
|
|
|
|
|
|
|
|
Inflation rate |
| 2.7 | % | 2.3 | % | 2.6 | % | 3.0 | % | 3.0 | % |
Revaluation (devaluation) rate (Ch$/US$) (foreign exchange rate) |
| (5.7) | % | (8.3) | % | 13.1 | % | 7.8 | % | (5.1) | % |
Number of employees |
| 9,659 |
| 9,492 |
| 9,179 |
| 8,987 |
| 8,364 |
|
Number of branches and offices |
| 398 |
| 375 |
| 363 |
| 321 |
| 294 |
|
(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 consisting of aggregate of net interest income, net service fee income, net gains from make-to-market and trading exchange differences (net) and other operating income (net). |
(5) | Dividend payout ratio represents dividends divided by net income paid in each period. |
(6) | Non-performing loans include the principal and interest on any loan with one installment more than 90 days overdue. Total loans in 2018, 2019, and 2020 corresponds to loans at amortized cost. Our loan portfolio classified as stage 3, under IFRS 9, was Ch$1,325,218 million as of December 31, 2020, Ch$1,237,205 million in 2019 and Ch$884,977 million in 2018 with an ECL coverage of 40.0% as of December 31, 2020, 34.9% in 2019 and 39.7% in 2018. |
(7) | Allowance for loan losses as of December 31, 2018, 2019 and 2020 corresponds to allowances for loans and accounts receivable from customers at amortized cost according to IFRS 9. Prior periods are in accordance with IAS 39. |
(8) | Past due loans include all installments and lines of credit more than 90 days overdue and does not include the aggregate principal amount of such loans. |
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
We wish to caution readers that the following important factors, and those important factors described in other reports submitted to, or filed with the Securities and Exchange Commission, or the SEC, among other factors, could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. In particular, as we are a non-U.S. company, there are risks associated with investing in our ADSs that are not typical for investments in the shares of U.S. companies. Prior to making an investment decision, you should carefully consider all of the information contained in this document, including the following factors.
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Risks Associated with our Business
The growth and composition of our loan portfolio may expose us to increased loan losses.
In 2020, our aggregate gross loan portfolio decreased by 2.2% due to negative factors in the business environment, particularly worse economic conditions due to COVID-19 pandemic in the countries where we operate. In 2020, our loan growth composition was different from previous years and from our expectations. However, consistent with our strategy, we increased the share of mortgage and consumer loans in our portfolio from 33.2% to 34.5% while ceding some ground in commercial loans, especially in our wholesale business, where we are focusing on improving returns. This trend is a key indicator that we are making progress towards balancing our loan portfolio. Our business strategy is to grow profitably while increasing our loan portfolio size. Through the further expansion of our loan portfolio in retail segments, we are seeking to decrease our corporate segment concentration and, as a result, balance our loan portfolio and strengthen our retail operation (particularly in the consumer segment), which may expose us to a higher level of loan losses and require us to establish higher levels of provisions for loan losses.
As of December 31, 2020, commercial loans represented 65.5% of our total loan portfolio, a decrease when compared to the same period in 2019. As of December 31, 2020, mortgage loans represented 23.5% of our total loan portfolio compared to 21.1% as of December 31, 2019 and consumer loans represented 11.0% of our total loan portfolio compared to 12.1% as of December 31, 2019.
The consumer loans portfolio represents the single highest level of risk in our loan portfolio. As of December 31, 2020, the risk index (ratio of allowance for loans losses over total loans) of the consumer segment was 8.9% while other business units of our loan portfolio, such as mortgage loans and commercial loans, had lower risk indexes of 1.4% and 5.0% 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 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 may expose us to a higher level of loan losses and require us to establish proportionately higher levels of provisions for loan losses, which would offset the increased income that we can expect to receive as our loan portfolio grows.
Our loan portfolio may not continue to grow at the same or similar rate.
Past performance of our loan portfolio may not be indicative of future performance. Our loan portfolio may not continue to grow at the same or similar rates as the growth rate that we historically experienced, particularly in light of the growth in recent years attributable to the acquisitions in Colombia of Banco Santander Colombia S.A., now Itaú Corpbanca Colombia S.A. (“Itaú Corpbanca Colombia”), in May 2012 (the “Santander Colombia Acquisition”), Helm Bank in August 2013 (the “Helm Bank Acquisition”) and the Merger in Chile in April 2016. Additionally, changes in the Chilean or Colombian economies, a slowdown in the growth of customer demand, an increase in market competition or changes in governmental regulations could also adversely affect the rate of growth of our loan portfolio and our risk index.
Our allowances for loan losses may not be adequate to cover the future actual losses to our loan portfolio.
As of December 31, 2020, our allowance for loan losses was Ch$1,041.9 billion (excluding allowances for loan losses on loans and receivable to banks) and the risk index (or allowances for loan losses to total loans) was 4.6%. 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
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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 provisions may not be adequate to cover actual losses and we may need to make additional reserves, 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, 2020, our non-performing loans were Ch$503,882 million, which resulted in a non-performing to total loans ratio of 2.2% as of December 31, 2020. Further, our loan portfolio classified as stage 3, under IFRS 9, was Ch$1,325,218 million with an expected credit loss (“ECL”) coverage of 40.0% as of December 31, 2020. 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; for instance, the ongoing COVID-19 pandemic may affect our ability to accurately assess the creditworthiness of borrowers. 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 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, we may face difficulties in perfecting our liens and enforcing our 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 our results of operations and financial condition.
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We may be unable to meet requirements relating to capital and liquidity adequacy.
Unless an exception applies, Chilean banks are required by the Chilean General Banking Act (as amended) to maintain (1) a regulatory capital of at least 8% of risk-weighted assets, net of required allowance for loan losses and deductions, as calculated in accordance with Chilean Bank GAAP, and a (2) basic capital not lower than (y) 4.5% of its risk weighted assets and (z) 3% of its total assets, in both cases, net of required allowance for loan losses.
See “Item 3. Key Information—Presentation of Financial and Other Information—Specific Loan Information” in this Annual Report for additional information regarding events in which a higher effective net equity and/or a higher basic capital may be required and detail on certain regulations that were issued by the CMF during 2020, which may impose additional capital and reserve requirements.
Due to the Merger and considering that the market participation of the merged bank was higher than 15% and below 20%, the CMF considered the Bank to have a material market share and therefore imposed a larger regulatory minimum capital of 10% on the Bank instead of the previous 8%. For the purposes of maintaining a high solvency classification from the CMF and continued compliance with the CMF's capital requirements on us, our intention is to have the highest classification from the CMF. As of December 31, 2020, our regulatory capital to risk weighted assets ratio was 13.6% according to the rules issued by the CMF, under the Basel I capital requirements standards in Chile. See "Item 4-Information on the Company-B. Business Overview- Capital Adequacy Requirements" for more information on capital adequacy requirements in Chile.
Additionally, Colombian financial institutions are subject to capital adequacy requirements that are based on applicable Basel Committee standards. Current regulations establish four categories of assets, which are each assigned different risk weights, and require that a credit institution’s solvency ratio (as defined below) be at least 9% of that institution’s total risk-weighted assets, and that its basic solvency ratio 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), additional tier one capital (additional basic capital) and tier two capital (additional capital). As of December 31, 2020, the consolidated ratio for our Colombian operations (calculated according to the Colombian Financial Superintendency definitions for “Total Solvency” (Solvencia Total)) was 13.4%. See “Item 4. Information on the Company—B. Business Overview— Capital Adequacy Requirements” for more information on capital adequacy requirements in Colombia.
Furthermore, the Colombian government issued Decree No. 1477 of 2018 and Decree No. 1421 of 2019, which provide for complementary ratio mechanisms such as (i) an additional primary solvency ratio (Relación de Solvencia Básica Adicional), (ii) a leverage ratio (Relación de Apalancamiento) and (iii) buffers (Colchones). These new complementary ratio mechanisms have been implemented to adopt the recommendations set forth by Basel III. Financial institutions have been required to comply with Decree No. 1477 of 2018 since February 6, 2020 and with Decree No. 1421 of 2019 since January 1, 2021. However, with respect to the matters regarding the additional primary solvency ratio and the buffers included in Decree No. 1421 of 2019, a gradual four-year implementation schedule is being followed, starting on January 1, 2021. See “Item 4. Information on the Company—Colombian Banking Regulation and Supervision – Capital Adequacy Requirements Amendment.”
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 financial instruments at fair value through other comprehensive income; |
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● | increases in goodwill and minority interest deductions from capital; |
● | mergers and acquisitions; |
● | changes in accounting rules; |
● | changes in the guidelines regarding the calculation of the capital adequacy ratios of banks in the countries we operate; and |
● | fluctuations in exchange rates that could impact our loan portfolio, valuation adjustments due to the translation effects in equity or hedging strategies. |
Although we have historically complied with our capital adequacy obligations in the jurisdictions where we operate, there can be no assurance that we will continue to do so in the future. We may be required to raise additional capital in the future in order to maintain our capital adequacy ratios above the minimum required levels. Our ability to raise additional capital may be limited by numerous factors, including: our future financial condition, results of operations and cash flows; any necessary government regulatory approvals; our credit ratings; general market conditions for capital raising activities by commercial banks and other financial institutions; and domestic and international economic, political and other conditions. If we require additional capital in the future, we cannot assure you that we will be able to obtain such capital on favorable terms, in a timely manner or at all. For information on actions we are considering to address our capital adequacy ratios going forward, see “Item 5—Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital”.
Furthermore, if we fail to meet the capital adequacy requirements, we may be required to take corrective actions or be subject to sanctions in the jurisdictions where we operate. These measures or sanctions could materially and adversely affect our business reputation, financial condition and results of operations.
In 2015, the CMF and the Central Bank published new liquidity standards and ratios to be implemented and calculated by all banks. The first stage of these new liquidity requirements, which is currently being implemented, is intended to improve the information—in quantity and quality—about the actual situation of banks without imposing specific limits, except liquidity mismatches for 30-day and 90-day periods, for which thresholds with respect to banks’ capital, are already in place. As of December 31, 2020, the liquidity coverage ratio (LCR) for our Chilean operations was 195%. Since we have no certainty regarding the limits to be imposed by the regulator to the banking industry and Itaú Corpbanca in particular, we cannot assure you that new liquidity requirements will not have a material impact on our financial condition or results of operations in the future. See “Item 4—Information on the Company—B. Business Overview— Reserve Requirements” for more information on liquidity requirements in Chile.
Liquidity adequacy requirements for Colombian financial institutions (as set forth in Resolución Externa No. 5 de 2008, as amended, issued by the board of directors of the Central Bank of Colombia) include 11% on demand and savings deposits, with the exception of time certificates of deposit under 18 months, in which case the percentage is 4.5% or 0% when they exceed that term. As of December 31, 2020, the LCR for our Colombian operations (calculated according to the Colombian Financial Superintendency) was 268.6% (127% under our internal models based on Basel III standards). Although we have historically complied with our required liquidity ratios, there can be no assurance that we will continue to do so in the future. See “Item 4—Information on the Company—B. Business Overview— Reserve Requirements” for more information on liquidity requirements in Colombia.
We are dependent on key personnel.
Our development, operation and growth depend significantly upon the efforts and experience of our board of directors, senior management and other key executives. The loss of key personnel for any reason, including retirement or our inability to timely attract and retain qualified management personnel to replace them, could have a material adverse effect on our business, financial condition and results of operations.
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We are subject to market risk.
We are affected by changes in local and global economic conditions as both domestic and international idiosyncratic factors and market structures have an impact in our activities. As a bank with regional exposure, 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. Moreover, as we operate in financially integrated economies, changes in market conditions that may affect our financial condition and results of operations include fluctuations in interest and currency exchange rates, securities prices, and changes in the implied volatility of interest rates and foreign exchange rates, among others.
Further, the ongoing COVID-19 pandemic added a new source of uncertainty to global economic activity. Authorities around the world have taken measures aimed at containing the spread of the disease, and related restrictions will likely remain in place, continuing to depress activity, until the COVID-19 pandemic is controlled. The materialization of these risks has affected global growth and may continue to decrease the investors’ interest in assets in Chile, Colombia and other countries in which we do business, which has already impacted the market price of our securities and may continue to do so, possibly making it more difficult for us to access capital markets and, as a result, to finance our operations in the future.
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 2018, 2019 and 2020, our ratio of net interest income to total operating income before provision for loan losses was 70.7%, 69.8% and 78.1%, respectively. Changes in market interest rates in Chile or Colombia could affect the interest rates earned on our interest-earning assets differently from the interest rates paid on our interest-bearing liabilities leading to a reduction in our net interest income. Interest rates are highly sensitive to many factors beyond our control, including the monetary policies of the Central Bank of Chile and the Central Bank of Colombia, changes in regulation of the financial sector in Chile and Colombia, domestic and international economic and political conditions and other factors. Yields on the Chilean government’s 90 day benchmark rate reached a high of 2.9% and a low of 2.5% in 2018, a high of 3.0% and a low of 1.8% in 2019 and a high of 1.8% and a low of 0.5% in 2020. 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 the board of directors 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 4.8% and a low of 4.3% in 2018, was flat at 4.3% in 2019 and a high of 4.25% and a low of 1.75% in 2020. As of December 31, 2018, we had Ch$0 in financial investments at fair value through other comprehensive income and as of December 31, 2019 and 2020, we had Ch$3,599 million and Ch$3,971 million, respectively, in financial instruments at fair value through other comprehensive income. In the current global economic climate, there is a greater degree of uncertainty and unpredictability in the policy decisions and the setting of interest rates by the Central Bank of Chile and the Central Bank of Colombia and, as a result, any volatility in interest rates could adversely affect us, including our future financial performance and the market value of our securities. In addition, inflation rate volatility could adversely affect our net interest income due to fluctuations in the gap between assets and liabilities that are indexed to the UF.
Increased competition and industry consolidation may adversely affect the results of our operations.
The Chilean and Colombian markets for financial services are highly competitive and competition is likely to increase.
In Chile, we face competition from banking 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 allowed to promote the credit products and services of their
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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 also 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. 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; |
● | 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. |
We are subject to concentration risk.
Concentration risk is the risk associated with potentially high financial losses triggered by significant exposure to a particular component of risk, whether it be related to a particular counterparty, industry, geographic region, mitigating instruments, index or currency. Examples of such risks include significant exposure to a single counterparty, to counterparties operating in the same economic sector or geographical region, to businesses segments or credit products, or to financial instruments that depend on the same index or currency.
We believe that an excessive concentration with respect to a particular risk factor could have a material adverse effect on our business, financial condition and results of operations.
We make estimates and assumptions in connection with the preparation of our consolidated financial statements, and any changes to those estimates and assumptions could have a material adverse effect on our operating results.
In connection with the preparation of our consolidated financial statements, we use certain estimates and assumptions based on historical experience and other factors. While we believe that these estimates and assumptions are reasonable under the current circumstances, they are subject to significant uncertainties, some of which are beyond our
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control. Should any of these estimates and assumptions change or prove to have been incorrect, our reported operating results could be materially adversely affected.
Changes in accounting standards could impact reported earnings.
The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. For example, IFRS 9 was adopted as of January 1, 2018, establishing a new impairment model of expected loss and making changes to the classification and measurement requirements for financial assets and liabilities. In addition, we adopted IFRS 16 as of January 1, 2019, requiring new standards for the recognition, measurement, presentation and disclosure of leases. This led to approximately Ch$176,795 million of assets for the right of use and lease liabilities for the same amount as of the date of adoption of IFRS 16. These changes can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. We cannot assure you that future changes in financial accounting and reporting standards will not substantially affect our results of operations or performance indicators, as we do not know the extent of future standards.
The preparation of our tax returns requires the use of estimates and interpretations of complex tax laws and regulations and is subject to review by taxing authorities.
We are subject to the tax laws and regulations of Chile and certain foreign countries. These tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental taxing authorities, which are sometimes subject to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense and filing returns, we must make judgments and interpretations about the application of these inherently complex tax laws.
If the judgment, estimates and assumptions we use in preparing our tax returns are subsequently found to be incorrect, there could be a material adverse effect on our results of operations.
As a result of the inherent limitations in our disclosure and accounting controls, misstatements due to error or misconduct may occur and not be detected.
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports we file with or submit to the SEC under the Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to management, recorded, processed summarized and reported within the time periods specified in SEC rules and forms. We believe that any disclosure controls and procedures or internal controls and procedures, including related accounting controls, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.
Any failure by us to maintain effective internal control over financial reporting may adversely affect investor confidence and, as a result, the value of investments in our securities.
We are required under the Sarbanes-Oxley Act of 2002 to furnish a report by our management on the effectiveness of our internal control over financial reporting and to include a report by our independent auditors attesting to such effectiveness. Any failure by us to maintain effective internal control over financial reporting could adversely affect our ability to report accurately our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent auditors determine that we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market prices of our shares and ADSs could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material
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weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies subject to SEC regulation, also could restrict our future access to the capital markets.
Our reliance on short-term deposits as our principal source of funds exposes us to sudden increases in our costs of funding which could have a material adverse effect on our revenue.
Time deposits and other term deposits are our primary sources of funding, which represented 32.7% of our liabilities as of December 31, 2020. 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 Itaú 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, 2018, the Chilean peso depreciated against the U.S. dollar by 13.1% and the Colombian peso depreciated against the U.S. dollar by 8.8%, each as compared to December 31, 2017. As of December 31, 2019, the Chilean peso depreciated against the U.S. dollar by 7.8% and the Colombian peso depreciated against the U.S. dollar by 0.9%, each as compared to December 31, 2018. As of December 31, 2020, the Chilean peso appreciated against the U.S. dollar by 5.1% and the Colombian peso depreciated against the U.S. dollar by 6.3%, each as compared to December 31, 2019.
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, 2018, 2019 and 2020, the gap between foreign currency denominated assets and foreign currency denominated liabilities, excluding derivatives, was Ch$720,224 million, Ch$974,361million and Ch$1,725,528 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, a cyber-attack, including 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.
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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.
Further, as a result of the ongoing COVID-19 pandemic, we have rapidly increased the number of employees working remotely. This may cause increases in the unavailability of our systems and infrastructure, interruption of telecommunication services, generalized system failures and heightened vulnerability to cyberattacks. Accordingly, our ability to conduct our business may be adversely impacted.
Chile’s continuous political, legal and economic uncertainty arising from social unrest could adversely impact our business.
In October 2019, a series of extreme disruptive protests over economic inequality in Chile were initially sparked by the announcement of a 4% subway fare increase in Santiago. Important political and social actors claim that the social unrest reflects the desire of a new social contract. Chile’s current constitution dates to August 11, 1980 and has been subject to several amendments. The most relevant amendment was published in the Chilean Official Gazette on September 22, 2005. On November 15, 2019, the majority of the local political parties agreed on a new constitutional process, which was initiated by a referendum held on October 25, 2020. As a result of this political agreement, Law No. 21,200 and Law No. 21,221 were enacted. See “Item 4—Information on the Company—B. Business Overview— Recent Regulatory Developments in Chile— Referendum to Amend the Chilean Constitution.” As a consequence of the social unrest and the political agreement to vote on a new constitution, there was increased volatility in the Chilean stock market and exchange rate fluctuations that resulted in a weakening of the Chilean peso against the U.S. dollar. Depreciation of the peso prompted the Central Bank to inject liquidity into the economy in U.S. dollars. The share prices and bond spreads of local banks, including ours, suffered significant declines in the market as social protests continued in the country. In addition, many banks and other financial institutions experienced physical damages at their branches and ATMs a result of violence and vandalism associated with the protests. Although most of our damages are insured, 72 of the Bank’s branches and some of our ATM machines suffered varying levels of damage during this period due to vandalism and pillaging, with five of such branches being destroyed.
While news of the referendum calmed markets and unrest levels have improved since then, if social unrest in Chile continues or worsens, particularly in light of the COVID-19 pandemic, it could have a negative impact on economic growth and the business environment in Chile overall, which could in turn have an adverse effect on our business and prospects.
A worsening of labor relations in Chile or Colombia could impact our business.
As of December 31, 2020, on a consolidated basis we had 5,220 employees in Chile (not including 32 at our New York Branch), of which 64.4% were unionized, and 3,058 employees in Colombia, of which 43.0% were unionized. We are parties to collective bargaining agreements with unions representing our employees in Chile and Colombia. Itaú Corpbanca’s current labor agreements with five unions in Chile were subscribed in January 2020, in March 2020 and in September 2020 and expire in December 2022, March 2023 and August 2023, respectively. Itaú Corpbanca Colombia’s current labor agreement with 23 unions in Colombia was subscribed on September 1, 2019 and will expire on August 31, 2021. 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, we may not be able to renew our collective bargaining agreements on satisfactory terms or at all. This could result in strikes or work stoppages, which could result in substantial losses. The terms of existing or renewed agreements could also significantly increase our costs or negatively affect us. Also, a strengthening of cross-industry labor movements may result in increased employee or labor costs that could materially and adversely affect our business, financial condition or results of operations.
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Law 20,940, which became effective on April 1, 2017, introduces significant amendments to the Chilean labor system. The principal amendments enacted by Law 20,940 to the existing labor framework in Chile include, among others:
● | Collective bargaining coverage was expanded to certain employees who were prevented from exercising this right, such as apprentices, temporary workers and others. Before the amendments to the labor law, employees who could hire and dismiss employees, were not able to bargain collectible as part of the employees. After the amendments to the labor law, only employees with legal capacity to represent the employer are not able to bargain collectible, unless they do so representing the employer. |
● | Collective bargaining agreements currently in effect will constitute a floor for the negotiation of new conditions of employment. The financial situation of the company or business as of the date of discussions for a new agreement would not have any bearing on collective bargaining negotiations. |
● | The employer’s right to replace those workers participating in a strike with current or new employees while the strike is taking place will be curtailed and replaced with an obligation from unions to provide the personnel required to comply with “minimum services” through “emergency teams.” |
● | Unions may annually request from large companies information regarding the remunerations and duties associated with each category of employees. |
● | After the amendments to the labor law, unions will have to agree in the extension of benefits to those employees who are not currently unionized. |
● | In case of unions that include employees from several companies of the same industry (Sindicato Interempresa) the companies will be forced to bargain with them and not only with their own employees. |
The implementation of Law 20,940, as it increases the collective bargaining power of labor unions, may have adverse effects on our overall employment and operating costs and may increase the likelihood of business disruptions on our activities in Chile, which could negatively affect our financial condition and results of operations. The amendments to the labor law intend to encourage the collective bargaining and increase the unionization rates.
There is currently a new labor reform being discussed in Congress, which, among other items, would shorten the work week from 45 hours to 40 hours, excluding lunch breaks. There is also discussion to increase minimum wage currently set at Ch$301,000/month (US$352.5/month). The weekly working hours agreed under the collective bargaining agreements we have with our employees are 45 hours (excluding lunch breaks) and our minimum wage is set above the legal minimum. Despite this, we cannot assure you at this time that the new labor reform will not have material impact on our expenses.
These and any additional legislative or regulatory actions in Chile, Colombia, Panama, the United States or other countries, and any required changes to our business operations resulting from such labor legislation and regulations, could result in reduced capital availability, significant loss of revenue, limit our ability to continue organic growth (including increased lending), pursue business opportunities in which we might otherwise consider engaging and provide certain products and services, affect the value of assets that we hold, require us to increase our prices and therefore reduce demand for our products, impose additional costs on us or otherwise adversely affect our businesses. Accordingly, we cannot provide assurance that any such new legislation or regulations would not have an adverse effect on our business, results of operations or financial condition in the future.
In a recent case (Decisión 00716, 2019), the State of Council of Colombia stated that temporary employees (known as those employees from staffing companies who render temporary services for user companies) can become unionized and benefit from collective bargaining agreements entered into between user companies to which employees render their services and industry unions. In the ruling, the State of Counsel also stated that the lack of a direct employment relationship between the temporary employees and their user companies should not be an obstacle to the unionization of temporary employees in industry unions. In addition, Article 471 of the Colombian Labor Code provides that when a
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collective bargaining agreement is part of the union whose unionized employees exceed one third of the total employees of a company, the benefits and rules of such collective bargaining agreement will be extended to all employees of such company, regardless of unionization status. The new ability of temporary employees to unionize as well as the effects of Article 471 of the Colombian Labor Code could impact our business given that it will increase costs.
We are subject to counterparty risk.
We are exposed to counterparty risk in addition to credit risks associated with our lending activities. We routinely conduct transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients. Many of the routine transactions we enter into expose us to significant credit risk in the event of default by one of our significant counterparties.
We may incur losses if any of our counterparties fail to meet their contractual obligations, due to bankruptcy, lack of liquidity, operational failure or other reasons that are exclusively attributable to our counterparties. Counterparty risk may arise from, for example, investing in securities of third parties, entering into derivative contracts under which counterparties have obligations to make payments to us or executing securities, futures, currency or commodity trades from proprietary trading activities that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, clearing houses or other financial intermediaries. Failure to meet contractual obligations by our counterparties could have a material adverse effect on our business, financial condition and 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 loan and deposit servicing systems, back office and business process support, information technology production and support, internet connections and network access. Relying on these third parties and affiliated companies can be a source of operational and regulatory risk to us, including with respect to security breaches affecting such parties. We are also subject to risk with respect to security breaches affecting the vendors and other parties that interact with these service providers. As our interconnectivity with these third parties and affiliated companies increases, we increasingly face the risk of operational failure with respect to their systems. We may be required to take steps to protect the integrity of our operational systems, thereby increasing our operational costs and potentially decreasing customer satisfaction. In addition, any problems caused by these third parties or affiliated companies, including as a result of them not providing us their services for any reason, or performing their services poorly, could adversely affect our ability to deliver products and services to customers and otherwise conduct our business, which could lead to reputational damage and regulatory investigations and intervention. Replacing these third party vendors could also entail significant delays and expense, which could negatively impact our business.
We may experience operational problems, errors or misconduct.
We are exposed to many types of operational risks, including the risk of misconduct 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,
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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 CMF and by the Central Bank of Chile in Chile, and by the Central Bank of Colombia (Banco de la República), the Colombian Ministry of Finance and Public Credit (Ministerio de Hacienda y Crédito Público), the Colombian Financial Superintendency (Superintendencia Financiera de Colombia), 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.
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.
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.
On February 23, 2017, Law No. 21,000, was published. This new law modified, among other matters, the corporate governance and operation of the Chilean regulator for securities, insurance, banking and established the CMF as a unique regulator with respect to these areas. For more information, see “Item 4. Information on the Company—B. Business Overview—Changes in the Governance of Our Regulators.” These changes in our regulators’ laws may result in further changes in banking regulations or other consequences that could have a material adverse effect on our financial condition or results of operations.
The banking regulatory and capital markets environment in which we operate is continually evolving and may change.
Changes in banking regulations may materially and adversely affect our business, financial condition and results of operations. Chilean laws, regulations, policies and interpretations of laws relating to the financial system are continually evolving and changing. For more information, see “Item 4. Information on the Company—B. Business Overview—Chilean Banking Regulation and Supervision—Recent Regulatory Developments in Chile.”
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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 UF200. 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 unit.
Colombia has also experienced recent changes in applicable laws, regulations and policies, such as those regarding financial inclusion and consumer protection. In order to promote financial inclusion, the Colombian Congress passed Law No. 1735 of 2014, which created a new type of financial entity called Specialized Electronic Deposit and Payment Institutions (Sociedades Especializadas en Depósitos y Pagos Electrónicos, or SEDPEs). Previously, the only activities these entities were authorized to perform were remote cash-in and cash-out deposit operations, the allocation of customers’ funds in electronic deposit accounts and the offering of transactional services such as remittances, transfers and payments. However, SEDPES have recently been authorized to use correspondent networks and open accounts remotely, and SEDPE customers are authorized to have more than one account per SEDPE, which may further encourage the utilization of SEDPEs in the Colombian financial market. Additionally, along with the global trend to increase the use of technology for different financial services, new regulations may be issued by the Colombian government in order to facilitate the incorporation of these entities into the financial system. Such changes and trends may increase competition in the Colombian financial market and may impair our ability to expand or retain our customer base. On July 31, 2018, the Colombian Ministry of Finance and Public Credit issued Decree No. 1357, which permitted the creation of companies with the purpose of managing electronic systems destined for crowdfunding. The creation of these companies may have an impact on our business, given that they offer an alternative to finance projects that is different from traditional loans.
In addition, Decree 1234 of 2020 sets out a mechanism of procedures, plans, conditions, and requirements to enable testing of innovative technological developments in the activities of the entities supervised by the Colombian Financial Superintendency. The innovative technological developments permitted under Decree 1234 must have one of the following purposes: increasing efficiency in the provision of services or offering of financial products; solving a problem for financial consumers; facilitating financial inclusion; improving regulatory compliance; and developing financial markets or improving their competitiveness. In January 2021, the Colombian Financial Superintendency reported that as of March 2021, nine alliances will be able to test operations in deposit products on behalf of cryptoactive platforms in the sandbox implemented by the Colombian regulator. This alliance will have a trial year during which participants can develop their activities.
In Colombia, the Ministry of Finance and Public Credit, the Colombian Central Bank, the Colombian Financial Superintendency and the entities that make up the regulatory financial network have adopted different measures aimed at protecting the stability of the financial system and the proper functioning of the markets, promoting access to liquidity and adequate management of the risks related to the COVID-19 pandemic, and especially protecting financial consumers in this context. One of these measures was Decree 817 of 2020, which took extraordinary measures to allow joint-stock companies (sociedad por acciones simplificada) to issue debt securities and trade them on stock exchanges for a two-year term. Also, in March 2020, the Colombian Financial Superintendency created the Debtor Support Program (“PAD”), which consists of a set of complementary measures for the support of debtors in the new economic reality, which focus on combining prudent guidelines and attention to the needs of financial consumers. The following were the key proposals by the Colombian Financial Superintendency in connection with the PAD: (i) credit institutions should apply targeted and structural measures to support debtors who are economically affected by the COVID-19 pandemic, in accordance with analyses to be carried out by financial entities taking into account the new economic reality of the debtor; (ii) creation of special measures for origination and rating by risk level for micro, small, medium and other companies that were or will be in reorganization processes; (iii) implementation of the PAD by financial institutions for debtors whose income or ability to pay were affected as a result of the COVID-19 pandemic, including the following
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measures: (1) reduction of interest payments; (2) restrictions on increases in interest rates and (3) new grace periods without the possibility of interest capitalization and without charging interest for other concepts that are deferred such as insurance fees. At the beginning of the COVID-19 pandemic, the PAD was intended to be in force until December 31, 2020, but in December 2020, the Colombian Financial Superintendency announced that the PAD would be extended until June 30, 2021.
Pursuant to the objective of the Colombian government in adopting the recommendations set forth by Basel III, the Colombian Ministry of Finance and Public Credit issued Decree No. 1477 of 2018 and Decree No. 1421 of 2019, which provide for complementary ratio mechanisms such as (i) an additional primary solvency ratio (Relación de Solvencia Básica Adicional), (ii) a leverage ratio (Relación de Apalancamiento), and (iii) buffers (Colchones). Financial institutions shall comply with Decree No. 1477 of 2018, no later than February 6, 2020 and with Decree 1421 of 2019 no later than January 1, 2021, except on the matters regarding the additional primary solvency ratio and the buffers, which will have a gradual implementation for a four year term, starting after January 1, 2021. However, due to the COVID-19 pandemic, the Basel Committee announced on March 27, 2020 a series of measures aimed at providing additional operational capacity to enable financial entities and their supervisors to respond proactively to the impact that the COVID-19 pandemic has had on the global financial system. Among the measures designed are the following: (i) delaying the final implementation date of certain new Basel III regulations; and (ii) allowing financial institutions to adopt a new market risk framework and make clearer disclosures about their solvency ratios and leverage ratios. Therefore, in March 2020, the Colombian Financial Superintendency issued an external circular (Circular 009, 2020) which (i) postponed sending resolution plans related to the implementation of international standards for different financial entities until April 2021 and (ii) suspended the requirement that entities carry out technical appraisals of suitable guarantees in the terms of the Circular Básica Contable y Financiera for 120 calendar days beginning March 17, 2020. The measures adopted by the Basel Committee allow financial entities to allocate resources that were aimed at strengthening their solvency to respond to the adverse impact that COVID-19 pandemic has had on global financial markets. The measures allow banks to have greater liquidity in order to promote financing to companies and households. Finally, through the measures implemented by the Basel Committee, supervisors will free up credit capacity by reducing the capital reserve that are required for banks in scenarios in which losses on loans must be covered. See “Item 4. Colombian Banking Regulation and Supervision – Capital Adequacy Requirements Amendment.”
We also have limited operations outside of Chile and Colombia, including Peru and the United States. Changes in the laws or regulations applicable to our business in the countries where we operate, or the adoption of new laws, and related regulations or their applicability or interpretation, may 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 non-compliance. If other sanctions, fines, restrictions on our business or other penalties are imposed on us for failure to comply with applicable requirements, guidelines or regulations, our business, financial condition, results of operations and our reputation and ability to engage in business may be materially and adversely affected.
Pursuant to letter No. 16,191, the CMF 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 fines.
On January 8, 2016, the Bank paid the full amount of the fines as a mandatory condition precedent to exercise its appeal rights. On January 18, 2016, the Bank brought an action before the Santiago Court of Appeals seeking the
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annulment of the fines. Pursuant to a final ruling by the Court of Appeals of Santiago dated August 31, 2016, the fines imposed by the former SBIF pursuant to letter No.16,191 were declared illegal. In accordance with Article 22 of the General Law on Banks, the favorable ruling obtained by Itaú Corpbanca is not subject to appeal.
On September 6, 2016, the former SBIF filed a complaint (Recurso de Queja) against the judges of the Court of Appeals of Santiago before the Supreme Court, which was dismissed by the Supreme Court on May 9, 2017.
On October 19, 2017, the former SBIF filed a complaint against Itaú Corpbanca regarding the same alleged violations, giving rise to a new administrative procedure. On November 14, 2017, Itaú Corpbanca filed a special constitutional rights action (Acción de Protección) before the Santiago Court of Appeals that was declared inadmissible. This ruling was confirmed by the Supreme Court. On November 22, 2017, Itaú Corpbanca filed a defense arguing that it acted in full compliance with applicable law. Pursuant to resolution No. 101, dated January 4, 2019, the former SBIF partially accepted the defenses of Itaú Corpbanca, imposing a fine for one of the three charges originally formulated. The total amount of the fine imposed was Ch$5,985,328,978. In an extraordinary meeting on January 14, 2019, Itaú Corpbanca’s board of directors analyzed the grounds and consequences of resolution No. 101, including potential courses of action, and reaffirmed the conviction that Itaú Corpbanca has acted in compliance with applicable law. Notwithstanding the foregoing, Itaú Corpbanca decided not to file any appeals against the former SBIF’s resolution and paid the Ch$5,985,328,978 fine imposed.
On August 22, 2019, the CMF Investigation Unit pressed administrative charges against Itaú Corpbanca in relation to the past tenure of Mr. Héctor Valdés as member of our board. Mr. Valdés left our board of directors in August 2016. The bill of charges comprises three different allegations. First, that Itaú Chile breached Section 84 No. 4 of the Chilean General Banking Act by lending UF45,000 (Ch$1,273.9 million or US$1.70 million as of December 31, 2019) to Inmobiliaria Zurich Tres S.A. (“Zurich Tres”). Section 84 No. 4 of the Chilean General Banking Act prohibits granting loans to directors, relatives, and entities in which directors hold an interest. At the time of the loan (June 2015), Mr. Valdés was a director of Itaú Chile and held a non-controlling, indirect stake (11.04%) in Zurich Tres. Second, that after the merger between Itaú Chile and Corpbanca, Itaú Corpbanca breached Section 84 No. 4 of the Chilean General Banking Act by failing to adjust Mr. Valdés’s financial situation before allowing his appointment as director in April 2016. According to the CMF’s investigation unit, the adjustment of Mr. Valdés’s financial situation would have required the full payment of Zurich Tres’s outstanding debt at the time (UF116,187 (Ch$3,289.2 million or US$4.4 million as of December 31, 2019)). And lastly, that Itaú Corpbanca breached Section 50 bis of the Chilean Corporations Act, by allowing the appointment of Mr. Valdés as an independent director when he must have been disqualified for such position. According to the CMF Investigation Unit, Mr. Valdés was not independent. The grounds for lack of independence were: (a) the indirect financial relationship with the bank through Zurich Tres, (b) the former tenure as director of Itaú Chile within the 18 months prior to his appointment as independent director of Itaú Corpbanca, and (c) the former tenure as an advisor of Corpbanca’s board within the 18 months prior to his appointment as independent director of Itaú Corpbanca.
On October 1, 2019, Itaú Corpbanca filed its statement of defense, claiming that Zurich Tres would have been covered by a regulatory provision (CMF’s RAN 12-12), which exempts, under certain conditions, loans granted to legal entities in which a director only holds an indirect stake. In addition, Itaú Corpbanca argued that the first and second charges would be time-barred. Finally, Itaú Corpbanca asserted that Mr. Valdés qualified as an independent director in April 2016, notwithstanding Zurich Tres’s financial commitments with the Bank and Mr. Valdés’s former tenure as director of Itaú Chile. Itaú Corpbanca denied that Mr. Valdés acted as an advisor of Corpbanca’s board within the 18 months prior to the appointment as independent director.
On December 9, 2019, the Chief of the CMF Investigation Unit recommended the CMF Council to: (i) declare the first charge as time-barred; (ii) impose a fine of UF173,000 (Ch$4,897.6 million or US$6.54 million as of December 31, 2019) in connection with the second charge; and (iii) declare Itaú Corpbanca liable for the third charge, without giving advice on a specific fine. Under regular conditions, the maximum statutory fine for such charge would be UF15,000 (Ch$424.6 million or US$0.57 million as of December 31, 2019).
On January 9, 2020 the CMF Council held a final hearing on the case. On March 25, 2020, the CMF Council dismissed all charges pressed against Itaú Corpbanca, ruling that (a) the loans granted to Zurich Tres were indeed
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covered by the regulatory exemption (CMF’s RAN 12-12) and thus did not infringe the General Banking Act and that (b) only a director (and not the corporation) could be liable for applying to an independent seat at a board without meeting the independence criteria set forth in Section 50 bis of the Corporations Act. There has been no further development in this case of Itau Corpbanca since March 2020. As of this date, the dismissal by the CMF counsel is final.
Over the last three years the Colombian Financial Superintendency opened several examination processes of the activities of financial institutions, which resulted in the imposition of over 56 sanctions and fines. Deficiencies in the implementation of Risk Management System for Money Laundering and Terrorism Financing (“SARLAFT”) parameters and the performance of unauthorized financial activities were the most common reasons for the opening of these examination processes during these years.
Security breaches, including cyber-attacks, 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 cybersecurity risks; however, 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 remains a possibility. If such event occurs, the Bank could be in breach of privacy laws or other laws and/or regulations, which could make us subject to legal proceedings and administrative sanctions, including damages, and in turn adversely affect our ability to offer and grow our online services, cause a loss of customer relationships, negatively impact our reputation, and have an adverse effect on our business, results of operations and financial condition.
In recent years, computer systems of companies and organizations have been targeted, not only by cyber criminals, but also by activists and rogue states. Cyber-attacks could give rise to the loss of significant amounts of customer data and other sensitive information, as well as significant levels of liquid assets (including cash). In addition, cyber-attacks could disrupt our electronic systems used to service our customers. As attempted attacks continue to evolve in scope and sophistication, we may incur significant costs in order to modify or enhance our protective measures against such attacks, or to investigate or remediate any vulnerability or resulting breach, or in communicating cyber-attacks to our customers. If we fail to effectively manage our cyber security risk, for example by failing to update our systems and processes in response to new threats, our reputation could be harmed and our operating results, financial condition and prospects could be adversely affected through the payment of customer compensation, regulatory penalties and fines and/or through the loss of assets. In addition, we may also be impacted by cyber-attacks against national critical infrastructures of the countries where we operate; for example, the telecommunications network. Our information technology systems are dependent on such national critical infrastructure and any cyber-attack against such critical infrastructure could negatively affect our ability to service our customers. As we do not operate such national critical infrastructure, we have limited ability to protect our information technology systems from the adverse effects of such a cyber-attack.
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.
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Prepayment risk also has an adverse impact on our residential mortgage portfolio, since prepayments could shorten the weighted average life of this portfolio, which may result in a mismatch in funding or in reinvestment at lower yields. Prepayment risk is inherent to our commercial activity and an increase in prepayments could have a material adverse effect on our business, financial condition and results of operations.
Exposure to government debt could have an adverse effect on our business, financial condition and results of operations.
We invest in debt securities issued by the Chilean and Colombian governments, the Central Bank of Chile and the Chilean Ministry of Finance that, for the most part, are short-term and highly liquid instruments. As of December 31, 2020, 8.9% of our total assets comprised securities issued by the Chilean government and 0.6% 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 Itaú 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, shareholders’ equity and the value of our securities.
Following the consummation of the Merger, Standard & Poor’s (S&P) and Moody’s upgraded our long and short term ratings to 'BBB+/A-2' and 'A3/Prime-2', respectively. However, on March 25, 2021 S&P lowered our ratings to 'BBB' following the sovereign action of March 24, 2021 when Chile was downgraded to 'A' reflecting the marked erosion of its public finances to a structurally weaker level amid countercyclical policies taken to cushion the harsh economic and social impact of the global pandemic and recession, and therefore diminishing the likelihood of extraordinary government support to banks. The outlook on our ratings is 'negative', incorporating the deterioration stemming from the COVID-19 pandemic and other internal events. On April 3, 2020, Moody’s affirmed the aforementioned ratings but revised our rating outlook to 'negative' from 'stable', reflecting the risk of prolonged adverse economic conditions due to COVID-19 and social unrest, which could translate into consistently heightened economic and credit risks for financial institutions operating in Chile.
Any further adverse revision to our 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, shareholders’ equity and the value of our securities.
Mismatches in the maturity of our loan portfolio and our funding sources as well as exchange rate fluctuations related to our funding sources could materially and adversely affect our business, financial condition and results of operations and our capacity to expand our loan business.
We are exposed to maturity mismatches between our loans and sources of funding. The majority of our loan portfolio consists of fixed interest rate loans, and the yield from our loans depends on our ability to balance our cost of funding with the interest rates we charge to our borrowers. An increase in market interest rates in Chile or Colombia could increase our cost of funding, especially the cost of time deposits, and could reduce the spread we earn on our loans, materially and adversely affecting our business, financial condition and results of operations.
Any mismatch between the maturity of our loan portfolio and our sources of funding would magnify the effect of any imbalance in interest rates, also representing a liquidity risk if we fail to obtain funding on an ongoing basis. In addition, since part of our funding comes from securities denominated in U.S. dollars or other foreign currencies that we issue abroad, any devaluation of the Chilean or Colombian peso against the U.S. dollar or such other foreign currencies could increase the cost of funding in relation to these securities. An increase in our total cost of funds for any of these reasons could result in an increase in the interest rates on our loans, which could, as a result, affect our business, financial condition and results of operations and our ability to attract new customers and expand our loan business.
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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 depend on our ability to develop adequate control and administration systems and to hire and retain qualified personnel. Moreover, our ability to monitor and analyze these transactions depends on our information technology systems. These factors may further increase risks associated with derivative transactions and, if they are not adequately controlled, could materially and adversely affect our results of operations and financial condition.
Our level of insurance might not be sufficient to fully cover all liabilities that may arise in the course of our business and insurance coverage might not be available in the future.
We maintain insurance for losses resulting from fire, explosions, floods and electrical shorts and outages at our various buildings and facilities. We also have civil liability insurance covering material and physical losses and damages that may be suffered by third parties. We cannot assure you that our level of insurance is sufficient to fully cover all liabilities that may arise in the course of our business or that insurance will continue to be available in the future. In addition, we may not be able to obtain insurance on comparable terms in the future. Our business and results of operations may be adversely affected if we incur liabilities that are not fully covered by our insurance policies.
The occurrence of natural disasters or terrorist events 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. We also recognize that natural disasters could be amplified by the effects of climate change. 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. Furthermore, we are exposed to terrorist events resulting in physical damage to our buildings (including our headquarters, offices, branches and ATMs) and/or injury to customers, employees and others. Although we maintain comprehensive contingency plans and security procedures, there can be no assurance that terrorist events will not occur and that their occurrence will not have a material adverse impact on our business and results of operations for any fiscal quarter or year.
Climate change may have adverse effects on our business.
The risks associated with climate change are gaining increasing social, regulatory, economic and political relevance, both nationally and internationally. New regulations related to climate change may affect our operations and business strategy, leading us to incur financial costs resulting from: (i) the physical risk of climate change and (ii) the risk of transition to a low carbon economy.
The physical risks of climate change are related to the gradual increase in the average temperature of the planet and to the increase in the intensity and frequency of extreme weather events. Despite uncertainties with regard to the intensity and location of these events, their impact on the economy is expected to be more acute in the future. The
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potential impact on the economy includes, but is not limited to, significant changes in asset prices and industry profitability. Damage to borrowers' properties and operations may impair asset values and credit quality of customers, leading to more non-performing loans, write-offs and impairment charges in our portfolios. In addition, our facilities may also suffer physical damage due to weather events, leading to increased costs for us.
As the economy transitions to a low-carbon one, financial institutions may face significant and rapid developments in stakeholder expectations, policy, law and regulation which could impact the lending activities we undertake, as well as the risks associated with our lending portfolios, and the value of our financial assets. As concerns about climate change increase and societal preferences change, we may face greater scrutiny for the type of business we conduct, adverse media coverage and reputational damage, which may in turn impact customer demand for our products, returns on certain business activities and the value of certain assets and trading positions, leading to impairment charges. The impacts of climate change may also increase losses for sensitive sectors, as a result of the effects of both physical and transition risks, causing loss of profitability for companies exposed to these risks and impairing their ability to repay any loans. Possible carbon pricing can affect companies' costs and compromise their ability to generate cash flows. Any subsequent increase in defaults and rising unemployment could create recessionary pressures, which may lead to an increased deterioration in the creditworthiness of our clients, higher expected credit loss, and increased charge-offs and defaults among wholesale and retail customers. If we do not adequately embed risks associated with climate change into our risk framework to appropriately assess, manage and disclose the various financial and operational risks we face as a result of climate change, or fail to adapt our strategy and business model to the changing regulatory requirements and market expectations on a timely basis, it may have a material and adverse impact on our business growth rate, competitiveness, profitability, capital requirements, cost of funding, and financial condition.
Other businesses controlled by Itaú Unibanco may face difficulties from a business or reputational standpoint and affect us.
We are currently controlled by Itaú Unibanco, which as of March 31, 2021 had a 39.22% beneficial ownership stake in us. Since we are part of a larger conglomerate of companies owned by Itaú Unibanco, if other businesses controlled by Itaú Unibanco face difficulties from a business or reputational standpoint, we may suffer adverse consequences. If we were to be associated with these events, our reputation could be harmed, which could have a material adverse effect on our business, financial condition and results of operations.
We are subject to arbitration and litigation proceedings that could materially adversely affect our business, financial position and results of operations if an unfavorable ruling were to occur.
As described in “Item 8. Financial Information—A. Consolidated Statements and other Financial Information—Legal Proceedings,” we are currently subject to legal proceedings. Litigation is subject to inherent uncertainties, and unfavorable rulings may occur. From time to time, we may become involved in arbitration, litigation and other legal proceedings relating to claims arising from our operations in the normal course of business. We cannot assure you that the current or other legal proceedings will not materially affect our ability to conduct our business in the manner that we expect or otherwise have a material adverse effect on our business, financial condition and results of operations should an unfavorable ruling occur. See “Item 8. Financial Information—A. Consolidated Statements and other Financial Information—Legal Proceedings.”
We may incur financial losses and damages to our reputation from environmental and social risks.
In recent years, environmental and social risks have been recognized as increasingly relevant, since they can affect the creation of shared value in the short, medium and long terms from the standpoint of the organization and its main stakeholders.
Environmental and social issues may affect our activities and the revenue of our clients, causing reputational damage, delays in payments or default, especially in the case of significant environmental and social incidents. Environmental and social risks become more evident when we finance projects, where should there be environmental damage caused by projects in which we were involved with respect to the financing thereof, we could be deemed to be indirectly responsible for such damage and could consequently be held liable for certain damages.
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We may not effectively manage risks associated with the replacement of benchmark indices.
A significant portion of our income, expenses and liabilities is directly tied to interest rates. Therefore, our results of operations and financial condition are significantly affected by inflation, interest rate fluctuations and related government monetary policies. In addition, various interbank offered rates which are deemed to be “benchmarks” (the “IBORs”, including LIBOR and EURIBOR) are the subject of increased regulatory scrutiny. Some of these reforms are already effective while others are yet to be implemented, including the majority of the provisions of the EU Benchmark Regulation (Regulation (EU) 2016/1011) as it forms part of domestic law of the United Kingdom by virtue of the European Union (Withdrawal) Act 2018.
In particular, the U.K. Financial Conduct Authority (“FCA”) announced that the FCA will no longer oblige banks to contribute to the calculation of LIBOR after the end of 2021. In addition, on March 5, 2021, the FCA confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of all sterling, euro, Swiss franc, Japanese yen, and the 1-week and 2-month US dollar settings, or immediately after June 30, 2023, in the case of the remaining US dollar settings. These announcements indicate that the continuation of LIBOR on the current basis (or at all) cannot and will not be guaranteed after 2021.
The cessation of LIBOR for various currencies at the end of 2021 (and in 2023 for certain tenors of USD LIBOR) will also result in replacement rates being used more widely, including in the instruments documenting certain of our financial obligations. For example, in the U.S., a group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, called the Alternative Reference Rate Committee (“ARRC”) and comprised of a diverse set of private sector entities, has identified the Secured Overnight Financing Rate (or “SOFR”) as its preferred alternative rate for the USD LIBOR and the Federal Reserve Bank of New York has begun publishing SOFR daily. Many banks in the U.S. have begun entering into transactions where interest is determined based on SOFR or plan to do so during the course of 2021, as recommended by ARRC and certain regulators. Additionally, many financial contracts, including some which govern our financial obligations, include replacement alternatives for LIBOR upon the cessation of LIBOR. It is possible that some U.S. lenders will elect to use alternative rates other than SOFR. Central banks in several other jurisdictions have also announced plans for publishing alternative reference rates for other currencies.
In addition, on November 29, 2017, the Bank of England and the FCA announced that, as of January 2018, its working group on Sterling risk free rates has been mandated with implementing a broad-based transition to the Sterling Overnight Index Average (“SONIA”) over the next four years across sterling bond, loan and derivative markets so that SONIA is established as the primary sterling interest rate benchmark by the end of 2021.
On September 21, 2017, the European Central Bank announced that it would be part of a new working group tasked with the identification and adoption of a “risk free overnight rate” which can serve as a basis for an alternative to current benchmarks used in a variety of financial instruments and contracts in the euro area. On September 13, 2018, the working group on Euro risk-free rates recommended the new Euro short-term rate (“€STR”) as the new risk-free rate for the euro area. The €STR was published for the first time on October 2, 2019. Although EURIBOR has been reformed in order to comply with the terms of the Benchmark Regulation, it remains uncertain as to how long it will continue in its current form, or whether it will be further reformed or replaced with €STR or an alternative benchmark.
This and other reforms may cause IBORs to perform differently than in the past, or to disappear entirely, or have other consequences, which cannot be fully anticipated, which introduce a number of risks for us, including legal risks arising from potential changes required to document new and existing transactions, financial risks arising from any changes in the valuation of financial instruments linked to benchmark rates and hedging mismatches, pricing risks arising from how changes to benchmark indices could impact pricing mechanisms on some instruments, operational risks arising from the potential requirement to adapt information technology systems, trade reporting infrastructure and operational processes, and commercial risks arising from the potential impact of communication with customers and engagement during the transition period. Accordingly, the implementation of alternative benchmark rates may have a material adverse effect on our business, results of operations, financial condition and prospects.
The Bank is working on a “transition program” from existing benchmark indices focused on the following stages:
a) Front book (new operations)
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b) Discontinuation of new operations indexed in LIBOR
c) Curves and impacts on collateral
d) Back book, or LIBOR portfolio migration to risk-free rates.
As of December 31, 2020, the exposure of our financial assets and liabilities impacted by the LIBOR reform are presented below:
| | | |
| | | |
Financial Instruments based on Libor | |||
| Exposure | ||
| Assets | | Liabilities |
| MCh$ |
| MCh$ |
Non-derivative financial instruments | 1,632,335 |
| 1,107,483 |
Loans and accounts receivable from customers | 1,632,335 | | — |
Interbank borrowings | — |
| 1,107,483 |
Financial derivative contracts (1) (2) | 12,988,222 |
| 9,228,125 |
Totals | 14,620,557 |
| 10,335,608 |
Our business strategy may not provide us the results we expect.
Our strategy and challenges are determined by management based on related assumptions, such as the future economic environment, and the regulatory, political and social scenarios in the regions in which we operate. These assumptions are subject to inaccuracies and risks that might not be identified or anticipated. Accordingly, the results and consequences arising from any possible inaccurate assumptions may compromise our capacity to fully or partially implement strategies, as well as to achieve the results and benefits expected therefrom, which might give rise to financial losses and reduce the value creation to our stockholders. For instance, as mentioned in “Item 4–Information on the Company–Strategy” below, we have developed and are implementing a transformation plan with five key pillars: client centricity, digital experience, simplification, talent development in an agile working model, and sustainable results. The implementation of our transformation plan will depend on, among other things: (1) our senior management’s focus in order to adequately mange our transformation and hiring additional personnel with specific training in the five key pillars, and (2) the incorporation of our pillars without disruption into our various business-specific operating procedures and systems, including our financial, accounting, information and other systems. To the extent we are not able to implement fully the items mentioned above, our transformation plan may not materialize as currently expected or could even be delayed indefinitely.
Additionally, factors beyond our control, such as, but not limited to, economic and market conditions, changes in laws and regulations, including regulations limiting fees or interest rates and fostering an increasingly competitive scenario, and other risk factors stated in this annual report may make it difficult or impossible to implement fully or partially our business model and also our achieving the results and benefits expected from our business plan.
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 CMF unaudited consolidated and unconsolidated balance sheets and income statements on a monthly basis. These 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 CMF. Certain exceptions introduced by the CMF prevent banks from achieving full convergence, for example loan loss provisions, assets received in lieu of payment among others. Also, the CMF is vested with the authority to issue specific orders to banks, including on accounting matters. In situations not addressed by the guidance issued by the CMF, institutions must follow IFRS. However, our consolidated
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financial statements as of and for the three years ended December 31, 2020 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 Itaú 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.
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. 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 may impose controls on foreign investment and repatriation of investments that may affect our investors’ investment in, and earnings from, our ADSs.
Investors who are not Chilean residents are required to provide the Central Bank of Chile with information related to equity investments and conduct such operations within the Formal Exchange Market. See “Item 10. Additional Information—D. Exchange Controls” for a discussion of the types of information required to be provided.
Owners of ADSs are entitled to receive dividends on the underlying shares to the same extent as the holders of shares. Dividends received by holders of ADSs will be converted into U.S. dollars and distributed net of foreign currency exchange fees and fees of the depositary and will be subject to Chilean withholding tax, currently imposed at a rate of 35% (subject to credits in certain cases). If for any reason, including changes in Chilean laws or regulations, the depositary were unable to convert Chilean pesos to U.S. dollars, investors in our ADSs may receive dividends and other distributions, if any, in Chilean pesos.
Additional Chilean restrictions applicable to holders of our ADSs, the disposition of the shares underlying them or the repatriation of the proceeds from such disposition or the payment of dividends could be imposed in the future and we cannot advise you as to the duration or impact of such restrictions, if imposed.
The legal restrictions on the exposure of Chilean pension funds may adversely affect our access to funding.
Chilean regulations impose restrictions on the share of assets that a Chilean pension fund management company (Administradora de Fondos de Pensiones, or AFP) may allocate: (i) per fund (considering 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, 2020, the aggregate exposure of AFPs to us was US$5,448 million or 2.5% of their total assets. If the exposure of any AFP to us exceeds the regulatory limits, we would need to seek alternative sources of funding, which could be more expensive and, as a consequence, may have a material adverse effect on our business, financial condition and results of operations.
Future increases in the corporate tax rate or additional modifications to the tax systems of the countries in which we operate may have a material adverse effect on us.
On September 29, 2014, Law No. 20,780 (the “Tax Reform”) went into effect, introducing significant changes to the Chilean tax system and strengthening the powers of the Chilean IRS (Servicio de Impuestos Internos) to control and
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prevent tax avoidance. One of the main purposes of this reform was to finance major educational reforms under discussion in the Chilean Congress. Subsequently, on February 8, 2016, Law No. 20,899, which simplifies the income tax system and modifies other legal tax provisions, went into effect.
Further, on February 24, 2020, Law No. 21,210 (the “New Tax Reform Bill”) was published in the Official Gazzette, which introduces additional amendments and modifications to the Chilean tax system.
Given that the Bank’s average annual amount of gross revenues would be higher than UF75,000, we are subject to the partially-integrated tax regime (corporate tax of 27%). Under this 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 40%, 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, with the final tax burden being a maximum of 44.45%; provided that, the deduction available to shareholders resident in a country with which Chile maintains a tax treaty in force would be 100%, with the tax burden then remaining at 35%. See “Item 4—Information on the Company—B. Business Overview—Recent Regulatory Developments in Chile—Tax Reform.”
In addition, on December 29, 2016, the Colombian Government approved a tax reform under Law No. 1819 and subsequently, on December 18, 2018, Law No. 1943 came into force on January 1, 2019. See “Item 4—Information on the Company—B. Business Overview— Recent Regulatory Developments in Colombia — Tax Reform.” However, the Colombian Constitutional Court ruled that Law No. 1943 was partly unconstitutional. Law No. 1943 was thus replaced by Law No. 2010, which was enacted on December 27, 2019. Law 2010 was applicable for the 2020 fiscal year. On April 15, 2021, the Government presented to the Congress a new tax reform bill, but approval by Congress is expected to be challenging.
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. We cannot assure you that the manner in which corporate taxes are interpreted and applied in the jurisdictions where we operate will not change in the future. In addition, governments may decide to levy additional taxes in the jurisdictions where we operate. The current tax reforms and any further changes to taxes in the jurisdictions where we operate could have a material adverse effect on our business, financial condition and results of operations. Furthermore, uncertainty relating to tax legislation in the jurisdictions where we operate poses a constant risk to Itaú Corpbanca.
Potential changes to the pension system in Chile may impose an increase in our labor costs and therefore have a material adverse effect on our financial results.
On November 6, 2018, President Sebastián Piñera submitted Bill No. 12212-13 with the purpose of introducing changes to the existing Chilean pension funds system, specifically related to solidary pensions, the individual capitalization pension system and new schemes of pensions for the middle class and women.
Under this proposal, companies would have to contribute to the system with 4% contribution to be exclusively funded by employers. This amendment would have a gradual implementation during a period of five years. Additionally, the employer would be obliged to contribute 0.2% of the gross salary of its employees to fund disability insurance. This insurance would be applicable to all elderly employees with a serious physical or mental disability. Further, the bill states that the solidarity fund (Pilar Solidario) will increase approximately 40% given that the Chilean government is expected to contribute 1.12% of the GDP to the fund. This new contribution requirement may impose an increase in our labor costs and in turn have a material adverse effect on our financial results.
For more information on recent changes to the pension system in Chile see “Item 4. Information on the Company—B. Business Overview—Chilean Banking Regulation and Supervision—Recent Regulatory Developments in Chile—Changes to the Pension System in Chile”.
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Colombian tax haven regulation could adversely affect our business and financial results.
Decree No. 1,966 of 2014 amended by Decree No. 2,095 of 2014 designates 37 jurisdictions as tax havens for Colombian tax purposes. In October 2014, Panama and Colombia signed a memorandum of understanding by which they agreed to execute a double taxation treaty. Therefore, Panama is currently not considered a tax haven for Colombian tax purposes. However, if in the future 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. On March 26, 2020, S&P revised Colombia’s rating outlook to negative from stable on increased risks to external liquidity, debt, and growth; foreign currency ratings were affirmed at 'BBB-/A-3' as well as local currency sovereign credit ratings at 'BBB/A-2'. In April 2020, Fitch downgraded Colombia to 'BBB-' maintaining a negative outlook due to the likely weakening of key fiscal metrics in the wake of the economic downturn caused by a combination of shocks stemming from the sharp fall in the oil price and efforts to combat COVID-19. Additionally, in December 2020, Moody’s revised its outlook from stable to negative. As of March 31, 2021, Colombia’s long-term debt denominated in foreign currency is rated 'BBB-' with a negative outlook by S&P, 'Baa2' by Moody’s, with a negative outlook, and 'BBB-' with a negative outlook by Fitch. Further, Colombia recorded a wide current account deficit in 2020, contributing to an increase in external indebtedness, which may create additional downward pressure on its credit rating. We cannot assure you that Colombia’s credit rating or rating outlook will not be further downgraded in the future.
In July 2018, Moody’s downgraded Chile’s ratings to 'A1' and in August 2020 changed the outlook to stable from negative. In October 2020, Fitch downgraded Chile’s rating to 'A-' and the outlook changed from negative to stable. On March 24, 2021, S&P lowered Chile long-term foreign currency rating to 'A' from 'A+' on weaker fiscal flexibility; Chile’s outlook is stable, indicating S&P expectation of continuity in key economic policies over the coming two to three years while the country elects new political leadership and writes a new constitution. Nonetheless, we cannot assure you that Chile’s credit rating or rating outlook will not be further downgraded in the future. If further adverse revisions to Chile’s or Colombia’s credit ratings or rating outlook were to occur, it could have a material adverse effect on our business, future financial performance, shareholders’ equity and the value of our securities.
Chilean and Colombian authorities exercise influence on the Chilean and Colombian economies. Changes in monetary, fiscal and foreign exchange policies or in the Chilean and Colombian governments’ structures may adversely affect us.
Chilean and Colombian authorities intervene from time to time in the Chilean and Colombian economies, through changes in fiscal, monetary, and foreign exchange policies, which may adversely affect us. These changes may impact variables that are crucial for our growth strategy (such as foreign exchange and interest rates, liquidity in the currency market, tax burden, and economic growth), thus limiting our operations in certain markets, affecting our liquidity and our clients’ ability to pay and, consequently, affecting us.
In addition, changes in the Chilean and Colombian governments’ structure may result in changes in government policies, which may affect us. This uncertainty may, in the future, contribute to an increase in the volatility of the Chilean and Colombian capital markets, which, in turn, may have an adverse impact on us. Other political, diplomatic, social and economic developments in Chile, Colombia or other countries that affect Chile and Colombia may also affect us.
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Prior to the ongoing COVID-19 pandemic, the Chilean fiscal outlook had deteriorated in response to increased social spending following the social unrest in October 2019. This was worsened by the fiscal response implemented by the Chilean government to mitigate the impacts of COVID-19 (see Item 5. Operating and Financial Review and Prospects—Operating Results—Recent Developments.), which will temporarily lead to larger deficits, debt issuances and use of rainy day funds. In this regard, if the Chilean government does not continue to pursue its fiscal consolidation plan, the Chilean peso would depreciate, causing an increase in inflation and interest rates and in turn a deceleration of economic growth, which could adversely affect our business, results of operations and financial condition.
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 adversely affecting the Chilean or Colombian economies and other emerging and developed markets such as those of our neighbor countries, including the negative impact of COVID-19 on these economies, and 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. In this regard, with over one third of exports, of which approximately 75% is copper, sent to China, developments in the Chinese economy have relevant implications in the investment, growth and exchange valuation in Chile. Additionally, changes in the economic and political outlook in the United States, Europe and the members of Mercosur influence our growth prospects, with 13%, 13% and 6% of exports sent to these regions, respectively.
Our results of operations and financial condition could also be affected by changes in economic or other policies of the Chilean or Colombian governments, which have each exercised and continue to exercise a substantial influence over many aspects of the private sector, or other political or economic developments in Chile. In addition, our financial condition and results of operations could also be affected by regulatory changes in administrative practices or other political or economic developments in or affecting Chile or Colombia, over which we have no control.
Inflation and government measures to curb inflation could adversely affect our financial condition and results of operations.
Although Chilean and Colombian inflation have been low in recent years, Chile and Colombia have experienced high inflation in the double-digit levels in the past. Such high levels of inflation in Chile or Colombia could adversely affect the Chilean and Colombian economies and have an adverse effect on our results of operations if such inflation is not accompanied by a matching devaluation of the local currency. We cannot make any assurances that Chilean or Colombian inflation will not revert to prior levels in the future.
We may be unsuccessful in addressing the challenges and risks presented by our operations in countries outside Chile.
We now operate a banking business in Colombia through Itaú Corpbanca Colombia and in Panama through subsidiaries of Itaú 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. Itaú 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.
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Colombia has experienced and continues to experience internal security issues that have had or could have a negative effect on the Colombian economy and in turn could negatively impact our business and/or financial performance.
Colombia has experienced internal security issues, primarily due to the activities of paramilitary and guerrilla groups, such as the National Liberation Army (Ejército de Liberación Nacional or “ELN”), urban militias, former members of the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia or “FARC”) and of drug cartels. These groups have exerted influence over the local population and funded their activities by protecting, and rendering services to drug traffickers. Any breakdown in peace, renewed or continuing drug-related crime and guerilla and paramilitary activities may have a negative impact on the Colombian economy in the future. Our business or financial condition could be adversely affected by rapidly changing economic or social conditions, including any peace negotiation with guerilla, paramilitary or other group, which may result in legislation that increases our tax burden, or that of other Colombian companies, which could, in turn, impact the overall economy.
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 historical 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. Trade with Venezuela has constantly decreased; the share of total exports fell from over 10% in 2009 to less than 1% in 2020. The Venezuelan government has abruptly closed the Venezuelan border. There could be further closures of the border, which may result in further deterioration of trade relations with Venezuela and could have a negative impact in the Colombian economy, especially with respect to private consumption. Recently, diplomatic tension between the two governments has increased: Venezuela broke relations with Colombia after Colombia assisted the Venezuelan opposition’s efforts to bring humanitarian aid into Venezuela.
Colombia has recently faced an increase in migration from Venezuela. It is estimated that since 2015, approximately 1.73 million Venezuelans had entered Colombian territory with the intention to stay as of December 31, 2020. The unprecedented migration wave is putting strains on Colombia. Mass migration threatens to increase political instability and social conflict in Colombia. Additionally, mass migration of Venezuelans into Colombia has created tense diplomatic relations which will likely hinder regional cooperation in reaching a solution to the migration crisis. In a move to regulate and benefit from the migration, Colombia announced it will give temporary protective legal status (10 years) to Venezuelan migrants, potentially increasing the working-age population by 3%, and boost potential growth.
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 and Law 472 of 1998, individuals may initiate collective or class actions to protect their collective or class rights, as applicable. See “Item 4—Information on the Company—B. Business Overview— Recent Regulatory Developments in Chile—Amendment to the Consumer Protection Act.” 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 Itaú 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. 1425 of 2010, monetary incentives for plaintiffs in constitutional collective actions were eliminated as of January 1, 2011. Nevertheless, individuals continue to have the right to initiate constitutional or class actions against Itaú Corpbanca Colombia.
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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 Itaú Corpbanca. Any such limitations could materially and adversely affect our results of operations and financial situation.
The Colombian Commerce Code limits the amount of interest that may be charged in commercial transactions. In the future, regulations could impose limitations regarding interest rates or fees we charge. Any such limitations could materially and adversely affect our results of operations and financial position. In the past, there have been disputes in Colombia among merchants, payment services and banks regarding interchange fees. Although such disputes have been resolved, the SIC, may initiate new investigations relating to the interchange fees. This possibility may lead to additional decreases in such fees, which in turn could adversely our operations in Colombia and our consolidated financial results.
Furthermore, the Colombian government has the authority to establish and define criteria and formulas applicable to the calculation of banking fees and other charges and to establish caps on the banking fees, credit card fees, and other charges that we impose on our customers. The Colombian government has established a cap on the fees banks can charge on withdrawals from ATMs outside their own networks. Additionally, under Colombian regulation, other than in connection with mortgage loans, 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$224,000). 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. With respect to mortgage long-term loans granted in connection with the acquisition of homes, banks are prohibited from charging prepayment penalties. Further limits or regulations regarding banking fees, and uncertainties with respect thereto could have a negative effect on Itaú Corpbanca Colombia and our results of operations and financial condition.
Moreover, the Colombian Congress enacted Law 2009 of 2019, which provides that financial institutions, including banks, which are authorized to collect public savings and charge management fees for savings accounts, debit cards and credit cards, must grant their clients access to a minimum package of products and services at no additional cost. This new requirement could materially and adversely affect our results of operations and financial situation.
Insolvency laws may limit our monetary collection and ability to enforce our rights.
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 80 days, which could be extended by 30 additional days. These legal limitations make it difficult to recover on defaulted loans, and as a result, may cause Itaú Corpbanca Colombia to enhance its credit requirements which would result in decreased lending to individuals by making it more expensive. In addition, increased difficulties in enforcing debt and other monetary obligations due to this insolvency law could have an adverse effect on Itaú Corpbanca Colombia and our results of operations and financial condition.
Due to the adverse impact of the COVID-19 pandemic, the Colombian government issued several amendments to the Colombian insolvency regime aimed at mitigating the adverse effects of the COVID-19 pandemic on the economy. These amendments are expected to be in place until April 2022. Pursuant to these amendments (i) a company in Colombia can enter into an emergency negotiating proceeding or a business recovery proceeding created under Decree
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560 of 2020 as non-judicial insolvency proceedings and (ii) Colombian companies subject to a reorganization proceeding in Colombia are permitted to obtain additional financing in order to continue performing their business activities within the ordinary course of business without the insolvency court’s prior authorization. This transitory regulation seeks to protect the company as a unit of economic productivity and a source of employment and is aimed at those companies that have been affected by the government’s declaration of a state of emergency in response to the COVID-19 pandemic and may further limit our monetary collection efforts at such companies.
Insolvency proceedings may adversely affect our foreclosure rights in respect to security registered as personal property.
Pursuant to Article 50 of Law No. 1676 of 2013, secured creditors in Colombia with collateral registered as personal property (i) may be allowed to foreclose the respective collateral owned by the debtor subject to a reorganization proceeding, provided that the assets under the security do not constitute essential assets for the economic activity of the debtors or such assets are at risk of being destroyed and the competent judge authorizes such foreclosure, and (ii) once the reorganization agreement is confirmed, each secured creditor may have priority over the other creditors that are part of the agreement. However, in accordance with recent judicial precedents, such rights will only be available to the secured creditors to the extent that the other assets of the debtor are sufficient to ensure the payment of the salary and benefits derived from the employment contracts as well as alimony, if any. Any inability to enforce our foreclosure rights under this Law could have a material adverse effect on 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 Itaú Corpbanca Colombia, although no such mandatory deposit requirement is currently in effect. We cannot predict or control future actions by the Central Bank of Colombia in respect of deposit requirements, which may involve the establishment of a mandatory deposit percentage, and the use of such measures by the Central Bank of Colombia may raise our cost of raising funds and reduce our financial flexibility.
COVID-19 or any other pandemic disease and health events could affect the economies of the countries in which we operate, our business operations or our financial condition and results of operations.
Public health crises, or the public perception of the risks of public health crises, such as the ongoing COVID-19 pandemic, may negatively impact economic activity in Chile and in other countries in which we operate. Accordingly, our results of operations or financial condition may be adversely affected.
The outbreak of COVID-19 was first reported on December 31, 2019 in Wuhan, Hubei Province, China. From Wuhan, the disease spread rapidly to other parts of China, as well as other countries, including the countries in which we operate, growing into a global pandemic, as declared by the World Health Organization. Since the outbreak began, countries have responded by taking various measures including imposing mass quarantines, restricting travel, limiting public gatherings, closing businesses and schools and suspending certain economic activities. Although in various countries some of the activity restrictions listed above have been relaxed with progressive success, in many geographies, the number of individuals diagnosed with COVID-19 has significantly increased, causing a freezing or even reversal of the relaxation of activity restrictions. Moreover, although multiple COVID-19 vaccines have received regulatory approval and currently are being distributed to certain at-risk populations, it is too early to know how quickly these vaccines can be distributed to the broader population and how effective they will be in mitigating the adverse social and economic effects of the COVID-19 pandemic. Further, variant strains of the COVID-19 virus have appeared, further complicating efforts of the medical community and governmental authorities in response to the COVID-19 pandemic.
In addition, concerns related to COVID-19 have lowered equity market valuations, decreased liquidity in fixed income markets and created significant volatility and disruption in global financial markets, resulting in increased volatility of stock prices (including the price of our stock), a trend which may continue. Also, there are other broad and continuing concerns related to the potential effects of COVID-19 on international trade (including supply chain
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disruptions and export levels), travel, employee productivity, employee illness, increased unemployment levels, securities markets, and other economic activities that may have a destabilizing effect on financial markets and economic activity, including companies in the financial sector. Furthermore, any actions taken by governmental authorities and other third parties in response to the COVID pandemic may negatively impact our business, results of operations and financial condition. For example, a faster withdrawal of monetary stimulus in developed economies may affect emerging economies and thus affect our operations.
The first case of COVID-19 in Chile was detected on March 3, 2020. The Chilean national and subnational governments have since taken various measures in order to prepare for and safeguard the country from a mass contagion and to contain and control the spread of COVID-19. Measures include declaration of a state of emergency, partial or total lockdown for some regions, closure of public venues (including educational institutions) and mass events. Further government actions may be imposed as the COVID-19 pandemic continues to develop.
From a macroeconomic point of view, the overall impact of the COVID-19 pandemic in Chile is uncertain. The Chilean GDP shrunk 5.8% in 2020, compared to our estimate of a 1.2% increase prior to the onset of the COVID-19 pandemic. While the rollout of a swift inoculation program and elevated copper prices point to a notable recovery in 2021 (of 6.5%), resumption of widespread lockdown measures highlight the recovery uncertainty. Further economic stagnation, contraction and increased unemployment levels may affect our cost of funding, the recoverability and value of our assets and could result in higher past-due loans, given the deteriorated financial condition of our customers and, therefore, higher provisions for loans losses, resulting in lower net income.
The overall impact of the COVID pandemic in Colombia is also uncertain. While Colombia’s GDP increased by 1.1% year-over-year in the first quarter of 2020, as of December 31, 2020, it had decreased by 6.8% as compared to the prior year. While the Colombian government has taken various response measures, including the announcement of a fiscal package for 2020 totaling over COP 31 trillion (almost 3% of 2019 GDP), interest rate cuts by 250 basis points between March and December 2020, and introduction of a broad range of measures to increase liquidity, we cannot assure you that the period of economic stability that Colombia experienced prior to the COVID-19 pandemic will continue when the COVID-19 pandemic subsides, or that the growth the Colombian economy achieved over the past decade prior to the COVID-19 pandemic will continue in future periods.
The ongoing COVID-19 pandemic has also resulted in increased volatility in both the local and the international financial markets and economic indicators, such as exchange rates, interest rates and credit spreads. Any shocks or unexpected movements in these market factors could result in financial losses associated with our trading portfolio or financial assets, which could deteriorate our financial condition. Furthermore, market concerns could translate into liquidity constraints and reduced access to funding in both the local and the international markets, negatively affecting our business.
As the ongoing COVID-19 pandemic continues to impact economic activity globally, we, our employees, contractors, suppliers, customers and other business partners may continue to be prevented from conducting certain business activities for an indefinite period of time. In addition, preventive measures — either imposed by governments or voluntarily adopted by companies — may lead to our customers being unable to transact business and meet their obligations with us. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which could have an adverse impact on our earnings. In order to prepare for the impacts of this environment, the Chilean financial authorities made various decisions in order to ensure liquidity within the Chilean financial system, such as consecutive reductions to the monetary policy affecting interest rates by the Central Bank. Any additional decisions towards accomplishing this end are also expected to affect our results of operations. Consequently, the COVID-19 pandemic may continue to have an adverse effect on our operations. Because there have been no comparable recent global pandemics that resulted in a similar global impact, we do not yet know the full extent of the COVID-19 pandemic’s effects on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic, the effectiveness of our remote working arrangements, third party providers’ ability to support our operations, and any further action taken by governmental authorities and other third parties in response to the COVID-19 pandemic. As the economic impact due to the COVID-19 pandemic continues we cannot provide any assurances as to how long it
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will be before the COVID-19 pandemic abates and economic activity can begin to resume to pre-COVID-19 pandemic levels.
For further information on measures adopted by the regulatory authorities in Chile to address the consequences of the ongoing COVID-19 pandemic on the Chilean financial system see “Item 5. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”
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 Merger, the Santander Colombia Acquisition, the Helm Bank Acquisition and the subsequent merger of Helm Bank with and into Itaú Corpbanca Colombia, consummated on June 1, 2014, that may make further mergers and acquisitions in the future as part of our growth strategy. We believe that these transactions will contribute to our continued growth and competitiveness in the Chilean, Colombian, and international banking sectors.
These acquisitions and mergers and the integration of such institutions and assets involve certain risks, which as of the current stage of such transactions may still include remaining risks such as:
● | integrating new networks, information systems, 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; 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 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 Santander Colombia Acquisition in 2012 (now “Itaú Corpbanca Colombia”); (ii) the Helm Bank Acquisition in 2013 (Helm Bank was merged with and into Itaú Corpbanca Colombia on June 1, 2014); and (iii) the Merger in 2016. We will continue to consider additional strategic acquisitions and alliances from time to time, inside and outside of Chile and Colombia. Strategic acquisitions and alliances, could expose us to risks with which we have limited or no experience. Future acquisitions may also be subject to regulatory approval, which we may not receive, particularly in view of our increasing market share in the Colombian banking industry.
We must necessarily base any assessment of potential acquisitions and alliances on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. Future acquisitions and alliances
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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.
Itaú Corpbanca may be unable to fully realize the anticipated benefits of the combination of Corpbanca and Banco Itaú Chile.
On April 1, 2016, Corpbanca and Banco Itaú Chile completed a business combination, which was consummated through the Merger. The Merger brought together two large financial institutions that had previously operated as independent companies. Significant management attention and resources have been and will continue to be required to integrate certain aspects of the business practices and operations of Corpbanca and Banco Itaú Chile. The success of the Merger will depend, in part, on the ability of Itaú Corpbanca to realize anticipated revenue synergies, cost savings and growth opportunities resulting from the combination of the businesses of former Corpbanca and former Banco Itaú Chile. We expect to generate synergies resulting from optimization of organizational structures, scalable IT systems, savings related to the branch network and reductions in administrative expenses. There is a risk, however, that Itaú Corpbanca may not be able to combine the businesses of Corpbanca and Banco Itaú Chile in a manner that permits Itaú Corpbanca to realize these revenue synergies, cost savings and growth opportunities in the time, manner or amounts it expects or at all. Potential difficulties Itaú Corpbanca may encounter as part of the Merger process include, among other things:
● | complexities associated with managing the combined companies; |
● | 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 Banco Itaú Chile; |
● | the need to coordinate the existing products and customer bases of Corpbanca and Banco 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). |
● | In addition, it is possible that the integration process could result in: |
● | diversion of management’s attention from their normal areas of responsibility to address integration issues; and |
● | the disruption of Itaú Corpbanca’s ongoing businesses or inconsistencies in its standards, controls, procedures and policies, |
each of which could adversely affect Itaú Corpbanca’s ability to maintain good relationships with its customers, suppliers, employees and other constituencies, or to achieve the anticipated benefits of the Merger, and could increase costs or reduce its earnings or otherwise adversely affect the business, financial condition, results of operations and/or prospects of Itaú Corpbanca. Actual revenue synergies, cost savings, growth opportunities and efficiency and operational benefits resulting from the Merger may be lower and may take longer than Itaú Corpbanca currently expects. Therefore if the benefits from the Merger are not as expected, we may be required to record impairment losses on the carrying amount (including goodwill) of the acquired business, which may have a material adverse effect on our financial condition and results of operations. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies and Estimates – Estimate of Impairment of Goodwill.”
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 are being reorganized and their resources will need to be combined in a timely and flexible manner. There can be no assurance that Itaú Corpbanca will be able to
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implement these steps as anticipated or at all. If Itaú Corpbanca fails to achieve the planned restructuring within the time frame that is currently contemplated or to the extent that is currently planned, or if for any other reason the expected revenue synergies, cost savings and growth opportunities fail to materialize, the Merger may not produce the benefits that Itaú Corpbanca currently anticipates.
Risks Relating to Our Securities
Our controlling shareholder is able to exercise significant control over us which could result in conflicts of interest.
Itaú Unibanco is the sole controlling shareholder of Itaú Corpbanca. As of March 31, 2021 Itaú Unibanco beneficially owned 39.22% of our voting common shares. In addition, (i) Itaú Unibanco and (ii) Inversiones Gasa Limitada, CorpGroup Holding Inversiones Limitada, CorpGroup Banking S.A., Compañía Inmobiliaria y de Inversiones Saga SpA and CorpGroup Interhold SpA (together, “CorpGroup”) have signed a shareholders’ agreement to determine certain aspects related to corporate governance, dividend policy, transfer of shares, liquidity and other matters (the “Itaú CorpGroup Shareholders’ Agreement”). Itaú Unibanco and CorpGroup are in position to elect 11 of the 13 members of our board of directors. The Itaú CorpGroup Shareholders’ Agreement provides that the directors appointed by Itaú Unibanco and CorpGroup will vote, to the extent permitted by the law, in a block and in accordance with the recommendation of Itaú Unibanco, subject to certain exceptions. Accordingly, Itaú Unibanco is able to control the actions taken by the board of directors of Itaú Corpbanca on most matters, which could result in conflicts of interest.
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.
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
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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 the Ley No. 18,045 de Mercado de Valores (the “Chilean Securities Market Act”), the CMF –formerly Superintendencia de Valores y Seguros or Chilean Superintendency of Securities and Insurance– 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 CMF 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.
The Ley 18,046 sobre Sociedades Anónimas and the Reglamento de Sociedades Anónimas, which we refer to collectively as the Chilean Corporations Act, and applicable regulations establish that whenever we issue new common shares for cash, we are obligated by law to grant preemptive rights to all of our shareholders (including the depositary on behalf of the holders of ADSs), giving them the right to purchase a sufficient number of shares to maintain their existing ownership percentage. However, we may not be able to offer shares to United States holders of ADSs pursuant to preemptive rights granted to our shareholders in connection with any future issuance of common shares unless a registration statement under the U.S. Securities Act of 1933, as amended, or the Act, is effective with respect to such rights and common shares, or an exemption from the registration requirements of the Act is available.
Our existing shareholders who do not participate in any future preemptive rights offering will suffer an immediate dilution of their percentage equity participation in us. In addition, investors who purchase ADSs or common shares may be subject to dilution of their equity participation in us upon the completion of any future preemptive rights offering. Investors will not know the extent to which they will be diluted until the expiration of any future preemptive rights offering in Chile.
You may have fewer and less well defined shareholders’ rights than with shares of a company in the United States.
Our corporate affairs are governed by our Estatutos 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
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incorporated in a U.S. jurisdiction. For example, under legislation applicable to Chilean banks, our shareholders would not be entitled to appraisal rights in the event of a merger or other business combination undertaken by us.
Holders of ADSs are not entitled to attend shareholders’ meetings, and they may only vote through the depositary.
Under Chilean law, a shareholder is required to be registered in our shareholders’ registry at least five business days before a shareholders’ meeting in order to vote at such meeting. A holder of ADSs will not be able to meet this requirement, and accordingly is not entitled to vote at shareholders’ meetings, because the shares underlying the ADSs will be registered in the name of the depositary. While a holder of ADSs is entitled to instruct the depositary as to how to vote the shares represented by ADSs in accordance with the procedures provided for in the deposit agreement, a holder of ADSs will not be able to vote its shares directly at a shareholders’ meeting or to appoint a proxy to do so. In certain instances, a discretionary proxy may vote our shares underlying the ADSs if a holder of ADSs does not instruct the depositary with respect to voting. In addition, the vote of a holder of ADSs may not be necessary to approve certain matters since under Chilean law, substantially all of the forms of corporate action can be approved with the votes of our controlling shareholder, Itaú Unibanco, in a duly summoned shareholders’ meeting, 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 we are characterized as a passive foreign investment company.
If you are a U.S. holder (as defined in “Item 10. Additional Information—E. Taxation—U.S. federal income tax considerations”) and we are a passive foreign investment company, or PFIC, for any taxable year during which you own our ADSs or common shares, you could be subject to adverse U.S. tax consequences. As of the date of this Annual Report, we do not expect to be classified as a PFIC for U.S. federal income tax purposes for our current taxable year or for any taxable year in the foreseeable future. However, the determination of whether we are a PFIC is made on an annual basis and will depend on the composition and nature of our income and the composition, nature and value of our assets from time to time, and therefore no assurance can be provided regarding our PFIC status. You should consult your tax advisor regarding the U.S. federal, state and local and other tax consequences of owning and disposing of the ADSs or common shares in your particular circumstances. See “Item 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 Internal Revenue Code of 1986, as amended, or the Code, and U.S. Treasury Regulations promulgated thereunder, a 30% withholding tax may, in the future, be imposed on all or some of the payments on the ADSs or our common shares 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 shares, and ADSs or shares of our common shares 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 advisors regarding the application of these rules to their ownership of the ADSs or our common shares. 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 may be subject to 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
51
eliminated many foreign exchange restrictions and adopted the Compendium of Foreign Exchange Regulations (Compendio de Normas de Cambios Internacionales) effective April 19, 2001.
We cannot assure you that additional Chilean restrictions applicable to the holders of ADSs, the disposition of the shares underlying the ADSs 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 is not able to convert Chilean pesos to U.S. dollars, investors would receive dividends or other distributions, if any, in Chilean pesos.
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 CMF to operate as a commercial bank. Our legal name is Itaú Corpbanca, and our commercial name is Banco Itaú and/or Itaú. Our principal executive offices are located at Rosario Norte 660, Las Condes, Santiago, Chile. Our telephone number is 56 2 2660 8000 and our main websites are www.itau.cl and ir.itau.cl. Our agent in the United States is Itaú Corpbanca New York Branch, Attention: Joaquín Rojas Walbaum, 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. Itaú Corpbanca is organized under the laws of Chile and its subsidiaries are organized under the laws of Chile and Colombia.
History
Itaú Corpbanca is the resulting entity from the merger of two leading banks in Chile: Corpbanca and Banco Itaú Chile. Corpbanca, the oldest private bank in Chile and the legal surviving entity, and Banco Itaú Chile, a fully owned-subsidiary of Itaú Unibanco, the largest private bank in Latin America and the sole controlling shareholder of Itaú Corpbanca since the merger on April 1, 2016.
The Bank’s history has been extensive and full of challenges. The Bank was 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. Over the next 150 years, the Bank went through a number of changes in control from private to government agency and back to private, and also through several mergers and acquisitions.
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 CMF. The bank remained under the control of the CMF through 1986, when it was acquired by Sociedad 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. Following the acquisition by Mr. Alvaro Saieh Bendeck in 1996, the brand name changed 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. Our first significant transactions were the acquisition of the assets of the consumer loan division of Corfinsa and the finance company Financiera Condell S.A. in 1998. Both combined created the Bank’s Consumer Division, Banco Condell, focused on the middle-low income segment of the population in Chile.
With a view to its internationalization in November 2004, the Bank completed the listing process that enabled it to trade its ADSs on the New York Stock Exchange. Five years later, the New York Branch was opened as a support for
52
clients who can see their possibilities of financing in the United States expanded. Two years later, Corpbanca opened its representative office in Spain, whose role is to inform and promote the Bank with foreign companies and serve as a liaison with bank clients in Chile and Colombia.
Itaú financial group expanded into Chile in September 2006 after the acquisition of BankBoston (Chile). On February 28, 2007, BankBoston (Chile) was named Banco Itaú Chile, after the Superintendency of Banks and Financial Institutions approved the acquisition.
In June 2012, former Corpbanca finalized the acquisition of Banco Santander Colombia S.A. (now Itaú Corpbanca Colombia). With this acquisition, we became the first Chilean bank to have a banking subsidiary outside the country. In 2013, we acquired Helm Bank S.A., and the following year, merged it with and into Itaú Corpbanca Colombia, maintaining the networks of branches separately: Itaú Corpbanca Colombia and Helm.
Becoming a large bank with a regional presence prompted our former controlling shareholder to enter, in early 2014, into a merger agreement with Itaú Unibanco and Banco Itaú Chile. On January 29, 2014, Corpbanca and Itaú Chile agreed to merge (the “Transaction Agreement”, or “Merger”). In June 2015, the Extraordinary Shareholders Meetings of Corpbanca and Banco Itaú Chile agreed to the Merger, which was approved by the Superintendency of Banks and Financial Institutions in September of the same year. On April 1, 2016 the Merger was consummated and Banco Itaú Chile was merged with and into Corpbanca, renaming the Bank as “Itaú Corpbanca”.
Immediately following the Merger, the corresponding subsidiaries of Banco Itaú Chile and Corpbanca continued to operate independently and their respective clients were served by their current executives. In January 2017, December 2017, and April 2018, respectively, each of our securities brokerages’ (Corredoras de Bolsa) subsidiaries, our asset managers’ (Administradoras Generales de Fondos) subsidiaries, and our insurance broker’s subsidiaries, were also merged, to consolidate each of those business into one single company for each of them.
As of December 31, 2020, the Bank is the fifth largest private bank in Chile with approximately 9.8% market share in the local credit market.
In this way, the stories of Banco Itaú Chile and Corpbanca were merged into a single one, with Corpbanca contributing a long and successful business trajectory which has had a clear goal: offering clients a service of excellence being faithful to what inspired its founders. On the other hand, Itaú Unibanco, with more than 90 years of history in Brazil, contributed all its experience as the largest private bank in Latin America and one of the largest banks in the world measured in market capitalization with a leading presence in the Brazilian market.
Our business model is the result of the combination of the local banks’ strengths and local knowledge, which will allow us to reach more clients, with an extended range of products and financial solutions.
By consolidating operations in Chile and Colombia, the new bank became one of Chile’s largest private financial institutions, ranking fifth in the Chilean banking industry with a market share by loans of 9.8% in Chile as of December 31, 2020. The Merger and combination of the strengths of both banks has translated into an expansion in the offer of products and services for our clients, with a large branch platform in Chile. Indeed, we operate 182 branch offices in Chile, one branch in New York, 110 branches in Colombia and one office in Panama.
As of March 31, 2021, Itaú Unibanco and CorpGroup beneficially own 39.22% and 27.16% of our outstanding common shares, respectively. Itaú Unibanco and CorpGroup also entered into the Itaú CorpGroup Shareholders’ Agreement. Upon the consummation of the Merger, as previously mentioned, Itaú Unibanco became the sole controlling shareholder of the merged bank. For a description of the Itaú CorpGroup Shareholders’ Agreement and the Transaction Agreement, see “Item 10. Additional Information—C. Material Contracts.”
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A summary of the main milestones in the history of the Bank is set forth in the following chart:
The Itaú Colombia Acquisition
The obligation of the parties to the Transaction Agreement to cause Itaú Corpbanca to acquire all of the outstanding shares of Itaú BBA Colombia or to carry out a merger of Itaú Corpbanca Colombia, formerly Banco Corpbanca Colombia, with Itaú BBA Colombia was amended on January 20, 2017 and replaced with the obligation of the parties to cause Itaú Corpbanca Colombia to acquire the assets and liabilities of Itaú BBA Colombia at their book value in accordance with the terms and conditions agreed by Itaú Corpbanca Colombia and Itaú BBA Colombia on November 1, 2016 (the “Itaú Colombian Asset & Liabilities Acquisition”). The Itaú Colombian Asset & Liabilities Acquisition was approved by the shareholders of Itaú Corpbanca Colombia and the Colombian Financial Superintendency and completed on June 16, 2017, as established in the agreement signed on June 1, 2017 between Itaú Corpbanca Colombia, as assignee, and Itaú BBA Colombia S.A. Corporación Financiera, as assignor. Pursuant to the Itaú Colombian Asset & Liabilities Acquisition transaction, Itaú Corpbanca Colombia paid to Itaú BBA Colombia S.A. Corporación Financiera Ch$33,205 million. This agreement also contemplated the rendering of certain services by Itaú Corpbanca Colombia in favor of Itaú BBA Colombia and the hiring of the senior management of Itaú BBA Colombia by Itaú Corpbanca Colombia.
The amendment to the Transaction Agreement included, among other aspects, the postponement of the date for Itaú Corpbanca to purchase the shares that CorpGroup holds in Itaú Corpbanca Colombia. The purchase of those shares of Itaú Corpbanca Colombia held by CorpGroup (currently representing 12.36% of shares outstanding), which was previously agreed to be carried out no later than January 29, 2017, was postponed until January 28, 2022, subject to receipt of the applicable regulatory approvals. The purchase price for the shares has not changed and will be US$3.5367 per share (US$330 million in total) plus (i) interest from (and including) August 4, 2015 until (but excluding) the payment date at an annual interest rate equal to Libor plus 2.7% minus (ii) the sum of (x) the aggregate amount of dividends paid by Itaú Corpbanca Colombia to CorpGroup since the date of the Transaction Agreement, plus (y) the accrued interest with respect to the amount of such dividends since the date of their payment until the payment date of the purchase price, at an annual interest rate equal to Libor plus 2.7%. The purchase of this additional interest, if and when consummated considering the required regulatory approvals, would have an adverse impact on our consolidated capital and profitability levels, particularly as (i) the acquisition price, which was set in 2014 and includes accrued interest since 2015, implies a price to book value ratio for this interest that is higher than current price to book value ratios for listed Colombian banks (ii) we now have to comply with more stringent Basel III capital requirements, which could lead to a downgrade in our credit ratings and have a material adverse effect on us. For information on actions we are considering to address our capital adequacy ratios going forward, see “Item 5—Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital”.
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On February 28, 2019, as a result of an arbitration proceeding before the ICC International Court of Arbitration (the “ICC”) initiated by Helm LLC (“Helm”) against Corp Group Holding Inversiones Ltda. (“Corp Group”) and Itaú Corpbanca (collectively, “Respondents”), a three-member Tribunal of the ICC rejected Helm’s demand and ordered Helm to sell its shares of Itaú Corpbanca Colombia, which represent 19.44% of the equity in Itaú Corpbanca Colombia, to Respondents at approximately $299 million (including interest at LIBOR plus 2.7% per year from April 1, 2016 onwards). On December 3, 2019, following receipt of regulatory approvals from the banking supervisors in Chile, Colombia and Brazil, Itaú Corpbanca completed the announced acquisition of shares of Itaú Corpbanca Colombia from Helm LLC and Kresge Stock Holding Company. In connection with the transactions, Itaú Corpbanca acquired shares representing approximately 20.82% of Itaú Corpbanca Colombia’s outstanding equity for aggregate consideration of approximately US$334 million. As a result of the transactions, Itaú Corpbanca owns approximately 87.10% of the equity of Itaú Corpbanca Colombia. Following the transactions, the Amended and Restated Shareholders Agreement of HB Acquisition S.A.S., dated as of July 31, 2013, which governs Itaú Corpbanca Colombia was terminated.
Capital Expenditures
The following table reflects our capital expenditures in the years ended December 31, 2018, 2019 and 2020:
| | | | | | |
| | For the Year Ended December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | (in millions of Ch$) | ||||
Land and buildings |
| 6,207 |
| 1,505 |
| 159 |
Computer systems and equipment |
| 74,449 |
| 61,723 |
| 65,713 |
Furniture and fixtures |
| — |
| — |
| — |
Vehicle |
| — |
| — |
| — |
Other |
| 2,296 |
| 2,488 |
| 1,803 |
Total |
| 82,952 |
| 65,716 |
| 67,675 |
Total capital expenditures in 2020 of Ch$67,675 million consisted mainly of Ch$65,713 million in expenses relating to computer software and IT projects. For further details relating to these results and related divestitures, see Notes 1(m) and 14 of our consolidated financial statements included herein.
B. BUSINESS OVERVIEW
Our business model is based on the combination of local bank strengths and local knowledge. In the last five years, we believe we have emerged as a leading banking platform for future expansion in the Andean Region as a result of the following strengths:
i. Larger Scale. As a result of the Merger, we have greater scale and resources to grow and compete more effectively, particularly in Chile where we have become the fifth largest private bank as measured by loans, with a 9.8% market share. Total consolidated loans of Itaú Corpbanca represents 24% of Itaú Unibanco’s consolidated loan portfolio.
ii. Leveraging Itaú Unibanco’s strong market position and expertise. Since Itaú Unibanco is the largest private financial institution in Brazil and a premier Latin American franchise, we believe the Merger provides us with an opportunity to leverage Itaú Unibanco’s strong global client relationships in the markets the Bank operates while enhancing opportunities for growth abroad. Itaú Corpbanca has been able to expand its offering of banking products through a successful managing model, segmentation and digitalization based on Itaú Unibanco’s strategy.
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iii. Diversified business. We conduct a majority of our business in Chile and a significant amount in Colombia. The Chilean and Colombian economies have generally demonstrated a stable macroeconomic environment in terms of growth and inflation. Further, we believe that the enhanced footprint that Itaú Corpbanca has in Chile and Colombia gives us an increased ability to grow and compete more effectively within those countries, further consolidating our market position in Chile and Colombia.
STRATEGY
Our strategy aims at being a leading bank in terms of sustainable performance and customer satisfaction. Our culture supports us in attracting and retaining talent, directing our business path and promoting a competitive advantage. Our culture is translated into the seven attitudes, which we call “Our Way”, that keep us up-to-date with the context, demands and transformations of our business and organizational culture.
In order to better manage the impacts of COVID-19 in our operations, during the first half of 2020 we organized ourselves in three main pillars. The first pillar is related to our clients and what needed to be done to continue to be fully accessible remotely and to continue to provide the solutions requested by our clients, especially during this period. The second pillar is related to our people and how we could support and protect them as we simultaneously reinforce our organizational values and culture. The third pillar relates to our efforts to maintain our strong focus on risk operational management and technological conditions to keep us running strong, safe and solid.
As we begin to move away from the crisis caused by the COVID-19 pandemic, we are working towards our goal of building the bank of the future by accelerating our evolution building upon the strengths we developed over the last few months. For that reason, we built a transformation plan with five key pillars: client centricity, digital experience, simplification, talent development in an agile working model, and sustainable results.
Client Centricity
Client centricity is one of the key aspects of Our Way. We aim to optimize the experience of our clients and offer the solutions they need in a timely manner, combining convenience, value and freedom of choice to attract new customers.
On the convenience side, we offer a 100% digital portability experience as well as our digital channels with digital payments. We also facilitate portability to our bank by a process of data aggregation so that our customers do not have to manually enter their transfer and payment data to their new accounts with us.
On the value side, we have launched a mixed-rate mortgage product, called Bipotecario, which allows customers to take advantage of the current low interest rate environment. We have also opened our loyalty program, enabling customers to exchange Itaú points freely for travel tickets and products of their choice as well as cash back.
On the product offering side, we have opened investment architecture opportunitie to provide clients with freedom of choice, with the best investment options available in the market as well as independent advice. That is why we are partnering with top local and global asset managers. Our own asset management business is recognized as a leader in responsible investment, corporate governance and sustainability research.
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 our clients’ needs and to measure their satisfaction. We also continue to develop new processes and technological solutions to improve our customer service. This is a key component of our strategy to continuously create value.
Digital Experience
Our digital banking strategy is one of the pillars we plan to use to boost our retail banking segment and to further improve our efficiency.
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Delivering a digital experience that allows us to offer an easy and convenient experience, adapted to the needs of our clients, is key as the strong trend towards digital channels and transactions continues. Due to the ongoing COVID-19 pandemic, we are encouraging our customers to use our digital channels, such as our apps and online banking, and our digital products, such as virtual cards, contactless payments (using near field communication technology) and digital invoicing. Therefore, we have been investing heavily in our digital channels. The share of transfers and payments made through our app more than doubled in 2020. Also, during 2020, we increased the frequency of all digital contact, sending information on investment alternatives, details on the market’s volatility and tips on how to avoid digital fraud related to the current situation to clients. At the end of March 2021, we announced a new alliance with Rappi that we believe will bring greater financial inclusion to Chile. This initiative is backed-up by the experience and support of both Itaú and Rappi and is expected to allow us to distribute products and services to Rappi's clients over the next 10 years. We see the alliance as an opportunity to diversify our strategies to attract new customers and to learn about the development of digital products and about the massive use of data to customize the customer experience with a leading company in marketplace strategy in various markets. In the third quarter, we launched a new app as well as a new and more convenient personal banking website. In addition, in the fourth quarter we launched a digital wallet that allows payments in smartphones and smart watches, making them easier and safer, as well as offering both Visa and MasterCard options for our clients. We were also the first bank to launch a digital token for companies, providing additional convenience and security for our corporate and SME clients.
Our digital strategy is not only focused on improvements in our mobile offerings, but also transforming our process in order to become a digital bank from back office to the front office.
Simplification
Simplification is a key element of our strategy to drive customer satisfaction and efficiency. We are committed to continuing to improve our operating efficiency and profitability. We are working to increase use of internet and mobile banking by our customers, by offering them better technology solutions. Our senior management is focused on implementing technological solutions aimed to identify means of improving our overall profitability and to optimize our cost structure. Through these initiatives, we will continue to strive to improve our efficiency ratio.
Robotic process automation and simplification of our organizational structure are part of our simplification initiatives. We have been working with robotic process automation since the end of 2018 and completed over 80 projects in 2020, which enabled us to save 0.5% of our cost base in 2020. We reduced our customer onboarding unit cost in almost 60%, which is key given the growth we have been experiencing in our customer base. We also simplified our organizational structure, with the most significant reduction in our headcount since the merger, with proportionally higher reductions in the top layers of the organization.
Talent Development
During 2020, our deep digital transformation allowed us to maintain operations in a year of crisis and continue working to deliver the best experience to customers while working remotely.
In a pioneering initiative in the Chilean banking market, we have announced a new flexible working model called Remote First. Under this model, for our employees, working from home will be the default option, rather than the exception. We believe this model will provide convenience and flexibility to our employees and expect it will be a competitive advantage in talent acquisition and retention as well as in efficiency in the years to come.
To manage this change, we set up multidisciplinary work teams that have focused on sizing the proportion of workers in each unit that will work in person, mixed or remotely, incorporating the opinions that we raise with collaborators. Teleworking is expected to continue during 2021 for approximately 50% of our collaborators, mainly those who have administrative positions and support areas.
This new way of working is one more step towards building the bank of the future, one that adapts to the demands of today's world. This process will involve adapting workspaces, technologies and work practices, always keeping the needs of customers at the center of our decisions.
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Sustainable Results
Sustainable results in responsible banking are at the core of what we do. We believe that having good governance, taking care of the environment, and being positively engaged with our employees, society in general, and the communities that we are a part of is essential. We believe that the union of the initiatives described above will allow us to deliver sustainable and recurring results for our shareholders and investors, because as Our Way says: we act and think like owners. In 2020, our management and corporate decisions were once again recognized by the market and we have continued to move forward by launching two new 100% ESG mutual funds in alliance with two world-class asset managers, Nordea and Robeco Assets.
These all are the steps towards consolidating our digital transformation and becoming a bank of the future that adapts to the needs of a constantly changing world.
OWNERSHIP STRUCTURE
Itaú Corpbanca capital stock is comprised of 512,406,760,091 common shares traded on the Santiago Stock Exchange and the Chilean Electronic Stock Exchange. Shares are also traded as depositary receipts on the New York Stock Exchange in the form of ADSs.
Since the consummation of the Merger on April 1, 2016, Itaú Corpbanca has been controlled by Itaú Unibanco. After the Merger, Itaú Unibanco indirectly acquired an additional 2.13%, 0.35%, 2.08% and 1.08% share capital of Itaú Corpbanca from the Saieh Family, on October 26, 2016, September 15, 2017, on October 13, 2018 and on September 10, 2020, respectively. As a result of these acquisitions, the current shareholder structure is as follows:
PRINCIPAL BUSINESS ACTIVITIES
We are a commercial bank based in Chile that, in addition to our presence in every region in Chile, has operations in Colombia and Panama, a branch in New York and a representation office in Lima, Peru.
We provide a broad range of wholesale and retail banking services to our customers in Chile and Colombia. In addition, we provide financial advisory services, asset management, insurance brokerage and securities brokerage services through our subsidiaries, and banking services through our New York Branch.
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We operate in two main geographic areas: Chile and Colombia. The Chile segment also includes operations carried out by Itaú Corpbanca New York Branch and the Colombia segment also includes the operations carried out by Itaú S.A. (Panama). The following table sets forth a breakdown of our revenue by geographic market for the years ended December 31, 2018, 2019 and 2020 in accordance with IFRS 9:
| | | | | | | | | | | | | | | | | | |
|
| Net Interest Income by Geographic Market | ||||||||||||||||
| | 2018 | | 2019 | | 2020 | ||||||||||||
|
| Chile |
| Colombia |
| Total |
| Chile |
| Colombia |
| Total |
| Chile |
| Colombia |
| Total |
|
| (in millions of Ch$) | ||||||||||||||||
Interest income |
| 1,208,481 |
| 530,836 |
| 1,739,317 |
| 1,279,986 |
| 493,654 |
| 1,773,640 |
| 1,116,943 | | 432,731 | | 1,549,674 |
Interest expense |
| (593,796) |
| (257,858) |
| (851,654) |
| (631,279) |
| (241,943) |
| (873,222) |
| (490,729) | | (192,508) | | (683,237) |
Net interest income |
| 614,685 |
| 272,978 |
| 887,663 |
| 648,707 |
| 251,711 |
| 900,418 |
| 626,214 | | 240,223 | | 866,437 |
The following table provides information on the composition of our loan portfolio at amortized cost net of allowances as of December 31, 2018 and 2019:
| | | | | | | | |
| As of December 31,(1) |
| ||||||
| 2018 | | 2019 | | Variation(2) | | Variation(2) | |
| (in millions of Ch$) | | % |
| ||||
Commercial loans |
| |
| |
| |
| |
Commercial loans | 11,065,601 | | 11,870,750 | | 805,149 | | 7.3 | % |
Foreign trade loans | 920,479 | | 1,034,681 | | 114,202 | | 12.4 | % |
Current account debtors | 124,299 | | 143,768 | | 19,469 | | 15.7 | % |
Factoring operations | 210,558 | | 217,410 | | 6,852 | | 3.3 | % |
Student loans | 625,598 | | 635,279 | | 9,681 | | 1.5 | % |
Leasing transactions | 903,047 | | 988,907 | | 85,860 | | 9.5 | % |
Other loans and receivables | 32,611 | | 24,550 | | (8,061) | | (24.7) | % |
Subtotals |
| |
| |
| |
| |
| 13,882,193 | | 14,915,345 | | 1,033,152 | | 7.4 | % |
Mortgage loans |
| |
| |
| |
| |
Letters of credit loans | 37,892 | | 29,891 | | (8,001) | | (21.1) | % |
Endorsable mutual mortgage loans | 110,652 | | 102,442 | | (8,210) | | (7.4) | % |
Other mutual mortgage loans | 3,901,107 | | 4,321,019 | | 419,912 | | 10.8 | % |
Leasing transactions | 307,723 | | 323,708 | | 15,985 | | 5.2 | % |
Other loans and receivables | 22,336 | | 20,480 | | (1,856) | | (8.3) | % |
Subtotal | 4,379,710 | | 4,797,540 | | 417,830 | | 9.5 | % |
Consumer loans |
| |
| |
| |
| |
Consumer loans | 1,766,313 | | 1,811,312 | | 44,999 | | 2.5 | % |
Current account debtors | 191,913 | | 186,632 | | (5,281) | | (2.8) | % |
Credit card debtors | 443,141 | | 499,743 | | 56,602 | | 12.8 | % |
Consumer leasing transactions | 5,727 | | 2,886 | | (2,841) | | (49.6) | % |
Other loans and receivables | 45,373 | | 41,239 | | (4,134) | | (9.1) | % |
Subtotal | 2,452,467 | | 2,541,812 | | 89,345 | | 3.6 | % |
Total | 20,714,370 | | 22,254,697 | | 1,540,327 | | 7.4 | % |
(1) | Allowance for loan losses as of December 31, 2018 corresponds to allowances for loans and accounts receivable from customers at amortized cost according to IFRS 9. Prior periods are in accordance with IAS 39. |
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The following table provides information on the composition of our loan portfolio at amortized cost net of allowances as of December 31, 2019 and 2020:
| | | | | | | | | |
|
| As of December 31, |
| ||||||
|
| 2019 |
| 2020 |
| Variation |
| Variation |
|
|
| (in millions of Ch$) |
| (%) | | ||||
Commercial loans | | | | | | | | | |
Commercial loans |
| 11,870,750 |
| 11,502,835 |
| (367,915) |
| (3.1) | % |
Foreign trade loans |
| 1,034,681 |
| 825,445 |
| (209,236) |
| (20.2) | % |
Current account debtors |
| 143,768 |
| 62,046 |
| (81,722) |
| (56.8) | % |
Factoring operations |
| 217,410 |
| 151,487 |
| (65,923) |
| (30.3) | % |
Student loans |
| 635,279 |
| 576,986 |
| (58,293) |
| (9.2) | % |
Leasing transactions |
| 988,907 |
| 916,587 |
| (72,320) |
| (7.3) | % |
Other loans and receivables |
| 24,550 |
| 25,796 |
| 1,246 |
| 5.1 | % |
Subtotals |
| 14,915,345 |
| 14,061,182 |
| (854,163) |
| (5.7) | % |
Mortgage loans |
|
|
|
|
|
|
|
| |
Letters of credit loans |
| 29,891 |
| 23,113 |
| (6,778) |
| (22.7) | % |
Endorsable mutual mortgage loans |
| 102,442 |
| 89,409 |
| (13,033) |
| (12.7) | % |
Other mutual mortgage loans |
| 4,321,019 |
| 4,761,064 |
| 440,045 |
| 10.2 | % |
Leasing transactions |
| 323,708 |
| 295,856 |
| (27,852) |
| (8.6) | % |
Other loans and receivables |
| 20,480 |
| 73,846 |
| 53,366 |
| 260.6 | % |
Subtotal |
| 4,797,540 |
| 5,243,288 |
| 445,748 |
| 9.3 | % |
Consumer loans |
|
|
|
|
|
|
|
| |
Consumer loans |
| 1,811,312 |
| 1,684,696 |
| (126,616) |
| (7.0) | % |
Current account debtors |
| 186,632 |
| 112,945 |
| (73,687) |
| (39.5) | % |
Credit card debtors |
| 499,743 |
| 442,854 |
| (56,889) |
| (11.4) | % |
Consumer leasing transactions |
| 2,886 |
| 1,285 |
| (1,601) |
| (55.5) | % |
Other loans and receivables |
| 41,239 |
| 29,858 |
| (11,381) |
| (27.6) | % |
Subtotal |
| 2,541,812 |
| 2,271,638 |
| (270,174) |
| (10.6) | % |
Total |
| 22,254,697 |
| 21,576,108 |
| (678,589) |
| (3.0) | % |
Business activities in Chile have been strategically aligned onto three areas directly related not only to our medium term strategy but to our customers’ needs: 1) Wholesale Banking (a. Corporate, b. Large Companies and c. Real Estate); 2) Retail Banking (a. Itaú Personal Bank, b. Itaú, c. Itaú Private Bank, d. Midsize Companies, e. SMEs and f. Banco Condell, our Consumer Finance Division); and 3) Treasury.
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A description of each of the areas in Chile, along with our Colombian banking subsidiary as well as of our New York branch, is presented below:
Wholesale Banking
Wholesale Banking serves large economic groups, state-owned and private companies, mining companies, utilities, energy, seaports, airports, public hospitals or any business. Wholesale Banking also serves our real estate and project finance customers. It 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.
Corporate Banking. This area specializes in institutional customers and customers with annual sales in excess of US$100 million.
Large Companies. This area includes a wide range of products and financial services to companies with annual sales between US$8 million to US$100 million.
Real Estate and Construction Companies. This area is focused on companies or economic groups in the real estate or construction industry with annual sales in excess of US$100,000.
Retail Banking
Retail Banking serves retail individuals customers across all income levels, from low-income to high-income individuals, and also targets midsize companies and small and very small companies (SMEs), the latter two grouped under “Itaú Companies.” Retail Banking is organized into the following four areas:
Itaú Private Banking. Within our Private Banking Division, we provide private banking services to our high-income and high net worth customers. We consider high-income individuals to be customers with a monthly income in excess of Ch$8.0 million. 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. The relationship model is based on providing each customer with the comprehensive, personalized and professional advising service for managing their net worth, major investments, banking and credit structuring needs in a way that best fits the investor and financing profile. 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. Our specialized team of business executives and investment bankers aims to maximize gains for our customers based on their investor profile.
Itaú Personal Bank. This area specializes in high-income individuals, with a monthly income between Ch$2.5 million and Ch$8.0 million. This is the first high-income individuals’ segment in Chile with differentiated branches at the ground floor to be access directly from the street, and additionally with differentiated mobile and web channels. The service model is based on relationships and constant advising on financial products, investment and/or protection. Itaú Personal Bank offers a specialized, differentiated value proposition based on customer relationships. Its three pillars are highly qualified executives, with a systematic work standard; smaller portfolios per executive in relation to the traditional model, in order to facilitate management; and certified investment consultants who specialize in providing exclusive, timely advising. The network includes 23 premium branches, 34 traditional branches with a space for the Personal Bank and two digital branches for this segment.
Itaú (Traditional Banking). Our Traditional Banking Division is mainly oriented toward individuals with medium-high income levels (focused on clients between Ch$600,000 and Ch$2.5 million monthly income). We offer our traditional and private banking clients products such as checking accounts, credit lines, credit and debit cards, personal installment loans, mortgage loans, insurance banking, time deposits and savings accounts in Chilean pesos, Euros, UF and U.S. dollars, among others. In addition, we provide mutual fund and securities brokerage services. This mass-market model is focused on customer self-service through various channels: face-to-face at our branches, digitally through the website and App, and through direct e-mail contact with account executives and through calls to the Contact Center. Our
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goal is to face our customers’ changes and needs with them, offering agile, simple options that enable them interface with the Bank autonomously. This segment is served under 107 traditional branches and two digital branches.
Banco Condell (Consumer Finance). Our Consumer Finance Division operates under the trade name Banco Condell and specializes in financing for middle and low-income segments who have low banking access and monthly income between Ch$200,000 and Ch$600,000. A financial inclusiveness mechanism, Banco Condell's business model enables it to provide services to people with informal, non-accreditable income. Through Banco Condell we offer our customers insurance policies, certificates of deposit and consumer loans, products that represent the essence of our business. In an effort to drive down costs without compromising excellent customer service, in 2018 we start to integrated Banco Condell offices with Itaú branches, maintaining an experience of closeness and trust with this segment in an effort to provide agile financing solutions. The plan is to follow along these lines to bring our different segments to more places while maintaining our customers’ satisfaction. Also, we are aiming to make Banco Condell a point of access for future Itaú customers who demonstrate good credit and meet the requirements for a business area upgrade. As of December 2020, Banco Condell has 48 branches and its own brand identity.
Treasury
Our Treasury manages the Bank’s market risks (including interest rate and inflation risk) and liquidation risk, acting in accordance with internal policies as well as regulatory and corporate limits. Also, it is responsible for optimizing the funding structure and assigning transfer prices to the products it manages for the business channels and for managing relationships with counterparties from international financial institutions. Finally, this area is responsible for distributing financial products, like currency, derivative and money market operations, to all the Bank’s customer segments.
As of December 31, 2020, the outstanding loans from foreign banks to Itaú Corpbanca were US$1,160 million with approximately 12 financial institutions from the U.S., Canada, Germany, France , Japan, Switzerland and other countries, including Latin America. The international global risk assets outstanding as of December 31, 2020 were US$4,279 million.
Itaú Corpbanca Colombia
Itaú 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 2020, according to the Colombian Financial Superintendency, Itaú Corpbanca Colombia was the ninth largest bank in Colombia in terms of total assets, the eighth largest bank in Colombia in terms of total loans and the ninth largest bank in Colombia, in terms of total deposits as reported under local regulatory and accounting principles.
As of December 31, 2020, Itaú Corpbanca Colombia had total assets of Ch$6,005,558 million (US$8,449.8 million), including total loans of Ch$4,649,475 million (US$6,541.8 million), and total equity of Ch$532,192 million (US$748.8 million). In comparative terms, Itaú Corpbanca Colombia has a market share of 3.9% of the total assets in Colombian Banking Industry and its total assets represent 16.9% of Itaú Corpbanca’s total assets.
As of December 31, 2020, Itaú Corpbanca Colombia had total net interest income of Ch$240,223 million (US$338.0 million) and losses of Ch$350,110 million (US$492.6 million). As of December 31, 2020, Itaú Corpbanca Colombia had 111 branches, 125 ATMs and 3,098 employees in Colombia and Panama.
New York Branch
Our New York Branch supports the commercial needs of Chilean and other Latin American companies that conduct business overseas. Operating with an offshore foreign branch of a Chilean bank is especially attractive to clients abroad as it provides a sense of proximity and it allows us to accompany our customers as they operate internationally, responding to their needs and service requirements. Our target market consists of medium and large Chilean companies, other Latin American companies, and Chilean and other Latin American banks without offshore branch offices, among others.
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Our New York Branch has a Yankee Certificate of Deposits program that is placed directly to clients or through U.S. dealers. Also, the Branch funds its operation through interbank and financial institution deposits with a broad variety of customers. The New York Branch participates in bilateral and syndicated loans, together with other international institutions, to finance a variety of investment projects. As of December 31, 2020, the branch had US$2,646 million in assets and had a net income of US$181,033 for the year ended December 31, 2020.
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 the CMF), which are engaged in activities complementary to our core 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, 2020, assets of our subsidiaries represented 0.9% of total consolidated. For the year ended December 31, 2020, net income of our subsidiaries totaled Ch$32,158 million (US$45.2 million).
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The following table sets forth certain financial information with respect to our financial services subsidiaries as of December 31, 2018, 2019 and 2020, in millions of Chilean pesos. Amounts relating to inter-company transactions have not been removed for purposes of this table.
| | | | | | | | | | | | | | | | | | |
|
| As of and for the Year Ended December 31, | ||||||||||||||||
| | 2018 | | 2019 | | 2020 | ||||||||||||
| | | | | | Net | | | | | | Net | | | | | | Net |
|
| Assets |
| Equity |
| Income |
| Assets |
| Equity |
| Income |
| Assets |
| Equity |
| Income |
| | (in millions of Ch$) | ||||||||||||||||
Itaú Corredores de Bolsa Ltda.(1) |
| 200,158 |
| 40,998 |
| 546 |
| 293,808 | | 41,760 | | 1,484 |
| 196,374 | | 43,414 | | 1,927 |
Itaú Adm. General de Fondos S.A.(2) |
| 15,195 |
| 12,922 |
| 6,790 |
| 16,008 | | 13,649 | | 7,516 |
| 12,540 | | 11,528 | | 5,395 |
Itaú Asesorías Financieras Ltda.(3) |
| 11,798 |
| 6,803 |
| 8,321 |
| 9,051 | | 8,494 | | 6,683 |
| 10,530 | | 9,298 | | 805 |
Itaú Corredores de Seguros S.A.(4) |
| 43,025 |
| 27,043 |
| 19,630 |
| 52,838 | | 42,774 | | 24,565 |
| 32,984 | | 25,895 | | 17,058 |
Itaú Chile Corredora de Seguros Limitada(4) |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Corp Legal S.A.(5) |
| 125 |
| 125 |
| (229) |
| — | | — |
| — |
| — | | — |
| — |
Recaudaciones y Cobranzas Ltda.(6) |
| 3,842 |
| 1,316 |
| 105 |
| 3,462 | | 2,824 | | 1,508 |
| 4,384 | | 1,984 | | 1,199 |
Itaú Corredor de Seguros Colombia S.A. |
| 3,468 |
| 2,047 |
| 73 |
| 3,982 | | 2,387 | | 623 |
| 3,650 | | 2,017 | | (166) |
Itaú Securities Services Colombia S.A. Sociedad Fiduciaria |
| 13,119 |
| 12,906 |
| 189 |
| 14,943 | | 14,484 | | 718 |
| 14,198 | | 13,694 | | 506 |
Itaú Asset Management Colombia S.A. Sociedad Fiduciaria |
| 17,941 |
| 16,137 |
| 2,495 |
| 24,308 | | 20,941 | | 3,714 |
| 24,410 | | 21,810 | | 2,755 |
Itaú Comisionista de Bolsa S.A. |
| 17,748 |
| 9,174 |
| 1,685 |
| 12,919 | | 11,243 | | 1,449 |
| 15,112 | | 12,736 | | 2,679 |
Itaú Bank (Panamá) S.A. |
| 416,786 |
| 71,548 |
| 2,449 |
| 446,771 | | 89,266 | | 8,620 |
| 393,558 | | 91,108 | | 6,015 |
Itaú Casa de Valores S.A.(7) |
| 679 |
| 556 |
| 92 |
| 1,039 | | 755 | | 144 |
| — | | — | | — |
(1) | On January 1, 2017, Itaú BBA Corredor de Bolsa Limitada merged into Itaú Corpbanca Corredores de Bolsa S.A. The legal name of the merged entity was changed to “Itaú Corpbanca Corredores de Bolsa S.A.” and the commercial name was changed to “Itaú Corredores de Bolsa.” On August 1, 2018 “Itaú CorpBanca Corredores de Bolsa S.A.” changed its legal name to “Itaú Corredores de Bolsa Ltda.” |
(2) | On December 29, 2017, Itaú Chile Administradora General de Fondos S.A. merged into Corpbanca Administradora General de Fondos S.A. The legal name of the merged entity was changed to “Itaú Administradora General de Fondos S.A.” and the commercial name was changed to “Itaú Asset Management.” |
(3) | On April 21, 2016, the legal name of Corpbanca Asesorías Financieras S.A. was changed to Itaú Asesorías Financieras S.A. On May 2, 2019 “Itaú Asesorías Financieras S.A.” changed its legal name to “Itaú Asesorías Financieras Ltda.” |
(4) | On April 1, 2018, Itaú Chile Corredora de Seguros Limitada merged into Corpbanca Corredores de Seguros S.A. The legal name of the merged entity was changed to “Itaú Corredores de Seguros S.A.” and the commercial name was changed to “Itaú Corredores de Seguros.” |
(5) | On May 20, 2019, Corp Legal was dissolved. |
(6) | On October 25, 2017, the legal name of “Recaudaciones y Cobranzas S.A.” was changed to “Itaú Corpbanca Recaudaciones y Cobranzas S.A.” On November 5, 2018 “Itaú CorpBanca Recaudaciones y Cobranzas S.A.” changed its legal name to “Recaudaciones y Cobranzas Ltda.” |
(7) | On January 27, 2020, Itaú Casa de Valores S.A. was sold. |
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Itaú Corredores de Bolsa Ltda. (formerly Itaú Corpbanca Corredores de Bolsa S.A.)
Our subsidiary Itaú Corredores de Bolsa Ltda., or ICB, is a member of the Santiago Stock Exchange and is registered with the CMF as a security broker. ICB’s primary activities are providing brokerage services in equities and fixed income.
Its integration into the bank's franchise model was a relevant challenge, since it involved a large part of the efforts of the year. This path will allow offering clients a unique investment platform, together with a diversified offer of investment alternatives.
For the year ended December 31, 2020 ICB’s net income was Ch$1,927 million and it had assets under custody of Ch$187 billion as of December 31, 2020. For the year ended December 31, 2020, ICB’s net income increase was driven by the fall in the interest rate curve benefiting the prices of the fixed income securities portfolio, since ICB’s investment policy is to invest its shareholders equity in fixed income securities only.
Itaú Administradora General de Fondos S.A.
Itaú Administradora General de Fondos S.A. ‒whose commercial name is “Itaú Asset Management”‒, or IAGF complements our banking services offered to our individual and corporate clients. IAGF’s currently provides asset management services to individual, corporate and institutional clients.
Itaú Asset Management believes that its role in the management of third-party resources is not limited only to management, but also to deliver investment tools that adjust to the needs and investor profile of each client, and offer a wide scope of diverse products. For this reason, its objectives are focused on improving processes and products, and on a digital proposal for our clients, in a changing and dynamic market scenario.
During 2020, a series of new initiatives were developed, including the Open Investment Platform or the Invierte + account, focused precisely on the digital space. Regarding the institutional segment, the focus was on the Latin American Debt and Equity funds, where Itaú AGF has deep and dedicated analysis and coverage, and where interesting opportunities are expected to be captured. In the area of responsible investment, Itaú AGF's leadership position continued to be consolidated, at the local and regional level, in terms of the integration of ESG factors in investment decision-making. In fact, Itaú AGF was recognized for the second consecutive year by the Sustainable Leaders Agenda 2020 (ALAS20) as an ALAS20 Institution in Chile, after obtaining first place in the three categories in which they were nominated: Leading Institution in Responsible Investments, Leader in Research in Sustainability and Leader in Corporate Governance.
For the years ended December 31, 2018, 2019 and 2020, IAGF had net income of Ch$6,790 million, Ch$7,516 million and Ch$5,395 million, respectively. IAGF had total assets of Ch$15,195 million, Ch$16,008 million and Ch$12,540 million as of December 31, 2018, 2019 and 2020 respectively. As of December 31, 2020, IAGF managed 35 mutual funds, including equity funds, fixed income funds and ETFs and had total assets under management amounting to Ch$2,336 billion, an increase of Ch$375 billion as compared to December 31, 2019.
During 2020, IAGF experienced a decrease of 28.2% in net income, explained primarily by a customer shift in preferences towards: i) deposits rather than funds, which resulted in a decrease in volume; or ii) funds that are less risky which in turn have lower fees.
On December 29, 2017, Corpbanca Administradora General de Fondos S.A., or CAGF, merged into Itaú Chile Administradora General de Fondos S.A. CAGF’s, primary activities were providing asset management services to individual, corporate and institutional clients. For the year ended December 31, 2016, CAGF had net income of Ch$3,067 million. CAGF had total assets of Ch$6,363 million as of December 31, 2016. As of December 31, 2016, CAGF managed 24 mutual funds, including fixed income funds and six private investment funds, and had total assets under management amounting to Ch$1,013,732 million. In 2016, CAGF’s assets under management were impacted mostly by the withdrawals observed in the last quarter of 2016, due to a higher volatility environment observed in local and international markets.
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The legal name of the merged entity was changed to “Itaú Administradora General de Fondos S.A.” and the commercial name was changed to “Itaú Asset Management.”
Itaú Asesorías Financieras Ltda.
Itaú Asesorías Financieras Ltda., or IAF, provides a broad range of financial advisory services to a variety of corporations and government agencies. We offer our clients specialized and tailored solutions, among which are the structuring and implementation of corporate financing in the banking market, syndicated and bilateral loans, debt restructuring and project financing structuring under the Project Finance modality according to the Equator Principles.
Additionally, this subsidiary offers debt structuring services in the capital markets through the structuring, issuance and placement of bonds and commercial papers, as well as advice for mergers, acquisitions and capital increases, or advice and studies in general.
For the year ended December 31, 2020, IAF had net income of Ch$805 million. IAF had total assets of Ch$10,530 million as of December 31, 2020.
Itaú Corredores de Seguros S.A.
In accordance with our strategy of expanding the breadth of financial services that we offer, our subsidiary Itaú Corredores de Seguros S.A., or ICS, offers a full line of insurance products. Many of these products complement our banking services by offering clients unemployment and life insurance related to personal loans, as well as insurances in connection with mortgage loans. Through ICS, we also provide non-credit-related insurance to existing clients and the general public.
The challenges of the last year led us to update ICS’s product grid, simplifying and modernizing such products, adjusting their coverage, establishing more competitive prices in relation to the market and seeking better protection for clients.
For the year ended December 31, 2020, ICS had net income of Ch$17,058 million. ICS had total assets of Ch$32,984 million as of December 31, 2020.
On April 1, 2018, Itaú Chile Corredora de Seguros Limitada, or ICCS, merged into Corpbanca Corredores de Seguros S.A. ICCS’s primary activities were providing a full line of insurance products to our clients. For the years ended December 31, 2015, 2016 and 2017, ICCS had net income of Ch$8,049 million, Ch$10,499 million and Ch$9,796 million, respectively. ICCS had total assets of Ch$51,998 million, Ch$18,168 million and Ch$18,695 million as of December 31, 2015, 2016 and 2017, respectively.
The legal name of the merged entity was changed to “Itaú Corredores de Seguros S.A.” and the commercial name was changed to “Itaú Corredores de Seguros.”
Corp Legal S.A.
Corp Legal S.A. was created in 2007 to provide standard legal services to Itaú Corpbanca, its subsidiaries and its clients. On May 20, 2019, Corp Legal S.A. was dissolved.
Recaudaciones y Cobranzas Ltda.
This subsidiary is a banking support company engaged in legal and out-of-court collections services for any type of loans, titles or notes on its own behalf or on behalf of third parties.
On February 25, 2015, former 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.
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On November 5, 2018 Itaú CorpBanca Recaudaciones y Cobranzas S.A. changed its legal name to Recaudaciones y Cobranzas Ltda.
During 2020, this subsidiary was focused on supporting the bank and its clients offering the holiday payment or reestructuring products in the context of the COVID-19 pandemic. To promote installments payment in the lock-down periods, a dedicated portal was created to enable any client to pay remotely. These initiatives allowed to reduce delinquency ratios and, at the same time, benefitted recovery levels and decreased write-offs.
Itaú Securities Services Colombia S.A. Sociedad Fiduciaria
We acquired a 91.9% equity interest in Corpbanca Investment Trust Colombia S.A. Sociedad Fiduciaria, now Itaú Securities Services Colombia S.A. Sociedad Fiduciaria, or ISS Colombia, in 2012 as part of the acquisition of Banco Santander Colombia. ISS Colombia is a financial services company operating in Colombia that specializes in trust and custodial services.
Its operations have grown from a value of assets under custody of COP $6,520 million (Ch$1,455 million) as of December 31, 2017, to COP $9,472 million (Ch$2,011 million) as of December 31, 2018, to COP$12,014,496 million (Ch$2,744,110 million) as of December 31, 2019, and to COP$12,434,736 million (Ch$2,537 billion) as of December 31, 2020. The value of assets under local and global custody were COP$9,476,766 million (Ch$1,933.5 billion) and COP$2,960,968 million (Ch$604.1 billion), respectively, as of December 31, 2020. ISS has contracts with entities in Panama, Mexico, Brazil and Luxembourg for global custody arrangements.
Itaú Asset Management Colombia S.A. Sociedad Fiduciaria
Itaú Asset Management Colombia S.A. Sociedad Fiduciaria, is a Colombian corporation (sociedad anónima), which is engaged in trust portfolio management, including investment trust management, administration, security, real estate trusts and fund administration. It has its main domicile in the city of Bogota, D.C., Colombia and is regulated by the Colombian Financial Superintendency.
Itaú Comisionista de Bolsa S.A.
Itaú 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 Itaú Corpbanca Colombia, Corpbanca Investment Valores Colombia S.A. and Helm Comisionista de Bolsa S.A.
Itaú Comisionista de Bolsa S.A. offers and maintains a complete portfolio of products and services dedicated especially to the distribution of investments, and it complements its value proposition with financial advisory services.
Itaú Casa de Valores S.A.
Itaú Casa de Valores (Panamá) S.A. was a Panamanian corporation (sociedad anónima) that acted as a brokerage firm. It has its main domicile in Panama City and was regulated by the Panamanian Superintendency of Securities Market. On January 27, 2020, Itaú Comisionista de Bolsa Colombia S.A., a subsidiary of Itaú Corpbanca Colombia S.A., completed the sale of 100% of its share ownership in Itaú Casa de Valores S.A.
Itaú Corredor de Seguros Colombia S.A.
Itaú Corredor de Seguros Colombia 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 the Colombian Financial Superintendency regulates it.
On November 5, 2019, Itaú Corpbanca signed a share purchase agreement in which it committed to acquire 20% of the shares that Helm LLC holds in Itaú Corredor de Seguros Colombia S.A. The acquisition of the shares of Itaú
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Corredor de Seguros Colombia S.A. by Itaú Corpbanca is subject to the corresponding regulatory approvals, including the approval from the CMF.
SEASONALITY
Our business is not materially affected by seasonality.
RAW MATERIALS
On a consolidated basis, Itaú Corpbanca is not dependent on sources or availability of raw materials.
DISTRIBUTION CHANNELS, ELECTRONIC BANKING AND TECHNOLOGY
As a universal bank, we provide a wide range of financial services and products to our clients, from commercial banking to asset management and investment banking. Those products are distributed through two main channels: traditional and digital.
The traditional channels are composed of brick & mortar branches, digital branches and ATMs. The digital channels are operated remotely, via the internet or mobile phones.
Our network of 294 branches (as of December 31, 2020) distributes all our products and services in Chile and Colombia, and our 533 ATMs (as of December 31, 2020) are a convenient and efficient way of serving clients, due to low operating costs, 24/7 availability and a very complete services offering.
During 2020, particularly as a result of the COVID-19 pandemic, we continue to experience an important increase in our digital channel usage. The world is experiencing a digital revolution that expands the possibilities of people and gives them a unique experience, linked to immediacy, speed and efficiency. However, this becomes a challenge for the industry and for us: we work continuously to improve the experience on our platforms, bearing in mind our security mechanisms, in order to protect customers from various attacks on our network, such as phishing.
Cybersecurity risk culture is relevant, especially for customers since they are the most vulnerable link in the fraud chain. That is why we focus efforts on ongoing education regarding the required precautions, protecting their passwords and avoiding falling victim to phishing or pharming schemes.
We continue to operate in an increasingly hostile cyber threat environment, which requires ongoing investment in business and technical controls to defend against these threats. Although there can be no assurance that the measures implemented will be fully effective to prevent or mitigate future attacks or breaches, the consequences of which could be significant to the Bank, we continue to strengthen and invest in both business and technical controls in order to prevent, detect and respond to an increasingly hostile cyber threat environment. We continually evaluate the threat environment for the most prevalent attack types and their potential outcomes to determine the most effective controls to mitigate those threats.
Itaú Corpbanca
Our distribution network provides integrated financial services and products to our customers through diverse channels, including ATMs, traditional branches, mobile banking, internet banking and telephone banking.
As of December 31, 2020, we operated 183 branch offices in Chile and New York, which includes one branch in New York, 107 branches operating as Itaú (23 exclusively for Itaú Personal Bank), 48 branches operating as Banco Condell, our consumer finance division, and four digital branches.
In 2019 we launched two digital branches, one for Personal Bank and the other focused on Itaú Sucursales, and in 2020 we launched two more (one of each segment). We believe that the COVID-19 pandemic only accelerated the
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development and acceptance of digital branches, confirming the value of remote service in times when physical care was limited. This reinforces our digital strategy by improving our customers’ experience through digitalized channels.
Our digital branches are mainly aimed at our clients with a digital profile, who value a fast, simple and tailor-made service. Currently, this model serves 10,000 clients from our Personal Bank and Itaú segments, has multiple service channels and operates during extended hours.
In addition, as of December 31, 2020, we owned and operated 408 ATMs in Chile, and our customers have access to 7,041 additional ATMs (including Banco del Estado de Chile and Banco Falabella’s ATMs) in Chile through our agreement with Redbanc. We utilize a number of different sales channels including account executives, telemarketing and the internet to attract new clients. Our branch system serves as the main distribution network for our full range of products and services.
We also offer internet and mobile banking to our customers 24 hours a day through our password-protected internet site, www.itau.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.
The strong trend towards digital channels and transformation continues as the share of transfers and payments made through the app more than doubled in 2020. That is why we have been investing in our digital channel. In the third quarter, we launched a whole new app as well as a new and more convenient personal banking website. With a more attractive design and modern components, the new Itaú App provides easier access (with touch / face ID) and transfers. In addition, it has direct access to the functionalities most used by our clients. As a result, more than 200,000 clients are enrolled in our app, as of December 2020.
Further, we have experienced an increase in the Servitest ranking of four positions with the new app, and we have ranked first in new sites among companies in the same survey. Our new app ranks number two among our peers in both Android and Apple stores.
Also, in 2020 we launched a 100% digital security device that is found in the clients' cell phones and allows them to approve transactions in a simple, easy and secure way through unique and unrepeatable codes. It is called Itaú Pass. This allows our clients to carry out transactions through the application, only with their cell phone and / or by entering the corresponding code on the desktop. We are the first in the industry to have this type of technology not only for our personal clients, but also for the business segment. 60% of customers who carry out digital transactions use this device.
In addition, in the fourth quarter we launched a digital wallet that allows payments in smartphones and smart watches, making them easier and safer, as well as offering both Visa and MasterCard options for our clients.
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.
Itaú Corpbanca Colombia
Itaú Corpbanca Colombia’s distribution channels provide also integrated financial services and products to its customers in Colombia through several mechanisms, including ATMs, branches, internet banking, mobile app, and telephone banking.
As of December 31, 2020, Itaú Corpbanca Colombia operated 111 branch offices in Colombia and Panama and 125 ATMs in Colombia, also providing its customers with access to 16,168 additional ATMs through Colombia’s other financial institutions as of December 31, 2020. Itaú Corpbanca Colombia utilizes different sales channels including account executives, telemarketing and the internet to attract new clients. Itaú Corpbanca Colombia’s branch system serves as the main distribution network for its full range of products and services.
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Itaú Corpbanca Colombia offers internet banking to its customers 24 hours a day through its password-protected internet site, www.itau.co. Itaú 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, 2020, Itaú Corpbanca Colombia had 142 thousand customers with activated internet passwords who use the electronic banking service, allowing them to access Itaú Corpbanca Colombia’s internet banking services.
Itaú Corpbanca Colombia is a member of ACH Colombia S.A. and Cenit S.A., organizations that facilitate electronic banking transactions on behalf of its customers as well as other Colombian banks. Itaú 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.
PATENTS, LICENSES AND CONTRACTS
Itaú 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 17 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 2020, five private sector banks along with the state-owned bank together accounted for 88.1% of all outstanding loans by Chilean financial institutions as of December 31, 2020: Banco Santander-Chile (18.5%), Banco de Chile (16.6%), Banco de Crédito e Inversiones, or Bci (14.3%), Scotiabank Chile (13.7%), Itaú Corpbanca (9.8%), and Banco del Estado de Chile (14.4%). All market share statistics in this paragraph are presented as reported to the CMF 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.
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 Banco de Chile, Banco Santander-Chile, Bci and Scotiabank Chile. Acquisitions of non-banking credit card and consumer loans businesses between 2018 and 2019 such as Promotora CMR by Banco Falabella, Walmart Servicios Financieros by Bci and Santander Consumer by Banco Santander-Chile have increased competition in the credit card and consumer business. As compared to other Chilean banks, we believe our position in the Chilean banking industry enables us to compete with international banks seeking to provide loans to companies operating in Chile, especially since we have scale and resources to grow and compete more effectively. Additionally, we have a unique control and support from a leading institution such as Itaú Unibanco. Itaú Corpbanca will be able to expand its banking products’ offering through proven segmentation and digital models.
Commercial banks, such as us, face increasing competition from other financial intermediaries who can provide larger companies with access to the capital markets as an alternative to bank loans. To the extent permitted by the Chilean General Banking Act, we seek to maintain a competitive position in this respect through the investment banking activities of our subsidiary Itaú Asesorías Financieras.
Further, we face competition in our mortgage and consumer loans businesses from insurance companies, which have been permitted to grant mortgage loans. 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
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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 and BNP Paribas, among others. We believe our main competitive advantage in our private banking 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, Banco Condell, competes with consumer finance divisions of other banks such as CrediChile and Banco Nova, among others, as well as certain consumer credit providers, including department stores. We believe that the main competitive advantage of our Banco Condell area 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 a series of mergers and acquisitions that have taken place within the sector. Between 2010 and 2015 the number of commercial banks increased from 19 to 25 as a result of: (a) five financing companies and two financial cooperatives converting their licenses to operate as banks; (b) Banco Mundo Mujer S.A. becoming a bank after acting as a microloan originator; (c) the creation of Banco Santander de Negocios Colombia S.A. in 2013; (d) Scotiabank acquiring a majority stake in Banco Colpatria, which in turn dissolved former Scotiabank Colombia S.A.; (e) the merger of Helm Bank S.A. with and into Banco Corpbanca Colombia S.A., after the latter entered the market by acquiring Banco Santander Colombia S.A.; and (f) the merger of Banco GNB Colombia S.A. (previously known as Banco HSBC Colombia S.A.) with and into Banco GNB Sudameris S.A.
One of the recent changes in the Colombian banking system has been the arrival of the Itaú brand. On April 1, 2016, Corpbanca in Chile (at the time, the parent company of Banco Corpbanca Colombia) and Itaú Chile merged, resulting in the bank Itaú Corpbanca. Such operation changed the controlling shareholder of the Banco Corpbanca Colombia. As part of the integration and technological migration plan, Banco Corpbanca Colombia introduced the Itaú brand in the previous Helm-branded branches and changed its corporate name to Itaú Corpbanca Colombia S.A. For the Corpbanca-branded branches the migration towards Itaú was completed in stages beginning in the second half of 2017 and ending in the first quarter of 2018. In addition, according to the Transaction Agreement with Itaú Unibanco, and its amendment dated January 20, 2017, Itaú Corpbanca Colombia acquired the assets and liabilities of Itaú BBA Colombia S.A. Corporación Financiera on June 16, 2017. The transaction was approved by the shareholders of Itaú Corpbanca Colombia on December 21, 2016, by the shareholders of Itaú BBA Colombia on November 15, 2016, by Helm LLC (in its capacity of minority shareholder of Itaú Corpbanca Colombia), and by the Colombian Financial Superintendency on April 7, 2017.
Following a stable 2017, 2018 brought a change involving two players of the Colombian banking system, with Citibank Colombia´s decision to sell its retail business, including individuals and small enterprises, to Scotiabank Colpatria. Such operation was approved by the Colombian Financial Superintendency on June 18, 2018.
During 2019, Banco Serfinanza began operating as a new commercial bank in Colombia when the former financing company Serfinanza received authorization from the CFS to function as a bank. This approval was granted on February 4, 2019.
During January 2020, Lulo Bank S.A., entity owned by the local Gilinski family which is also behind Banco GNB Sudameris, was authorized by means of Resolution 0085 of 2020 by the Colombian Financial Superintendency to establish itself as a commercial bank in Colombia. This entity intends to be the first fully digital bank in Colombia and will be required to receive an operating license once the Colombian Financial Superintendency has verified its compliance with all the requirements to operate as a commercial bank. Additionally, during December 2020, J.P. Morgan received authorization from the Colombian Financial Superintendency by means of Resolution No. 1091 of 2020 to begin operating a new commercial bank in Colombia.
In terms of presence, Colombian banks have been expanding abroad over the last decade, mostly in Central America. One example is the acquisition of BAC-Credomatic (which has operations in several countries in Central
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America) by Banco de Bogotá, with Davivienda and Bancolombia also having made similar investments aiming to grow their businesses.
As of December, 2020, and according to the Colombian Financial Superintendency, the main actors in the local financial system were the Central Bank of Colombia, 26 commercial banks (17 domestic private banks, 8 foreign banks, and one domestic state-owned bank), five finance corporations and ten financing companies. In addition, trust companies, cooperatives, insurance companies, insurance brokerage firms, bonded warehouses, special state-owned institutions, and pension and severance pay funds also participate in the Colombian financial system.
Regulatory matters. On August 6, 2018, the Colombian Ministry of Finance and Public Credit issued Decree 1477 and on August 6, 2019 issued Decree 1421, regulating the standards of capital for credit institutions under Basel III, with initial implementation date on February 2020. Its content covers the following areas: (a) alignment in the definitions of capital ratio; (b) an update in the measurements of the Risk-Weighted Assets (RWA); (c) implementation of buffers; and (d) leverage ratio. Additionally, on August 6, 2019 the Ministry of Finance issued Decree 1421, including capital charges for Operational Risk and postponing to January 2021 the beginning of the transition of capital requirements presented by Decree 1477. On September 6, 2019, the CFS published the instructions and methodology for the calculations of the capital ratio. The transition towards the new regulation began in January 2021 and will be completed by January 2024, period in which banks will have to meet the new limits and buffers for the capital ratios. See “Item 4. Information on the Company—B. Business Overview—Colombian Banking Regulation and Supervision—Regulatory Developments in Colombia.”
Financial System Evolution in Colombia during 2019 and 2020. 2020 was a year of moderate growth for the Colombian financial services sector. The inflation rate decreased throughout the year and ended at 1.61% as of December 31, 2020, outside of the Central Bank’s target range of 2% to 4%. The reference interest rate decreased throughout the year and ended at 1.75% as of December 31, 2020. As of December 2020, banks increased their gross loans by 4.2% as compared to a growth rate of 7.9% in 2019 and 6.0% in 2018. Similarly, deposits grew 14.9% as compared to December 31, 2019.
The Colombian banking system’s level of past-due loans above 30 days as a percentage of the system’s total loan portfolio stayed flat over the first half of 2020, at 3.99% in June 2020. In the second half of the year, the ratio increased to 5.47% as of December 2020, slightly above the 4.78% registered for December 2019. Coverage, measured as the ratio of allowances to past-due loans, ended December 2020 at 139%, compared to 127.4% at the end of 2019.
As of December 2020, the demand for business, small business and consumer loans slowed down as compared to December 2019. Business loans grew 4.7% after registering a 3.1% growth the previous year, small business loans grew 1.3%, after a growth of 3.0% in 2019, and consumer loans increased by 2.3% after an increase rate of 16.6% the previous year. On the other hand, the gross amount of mortgage loans increased 7.0%, compared to 9.8% in 2019.
During 2020, lending decreased in the Colombian banks system’s structure. Net loans decreased from 66.6% of total assets at the end of 2019 to 63.1% as of December 2020. Investment portfolio and derivatives, as a percentage of total assets, increased from 18.9% at the end of 2019 to 21.7% at the end of 2020.
As of December 31, 2020, the Colombian financial sector recorded COP$768,723,769 million in total assets, representing a 8.2% increase as compared to December 31, 2019. The Colombian financial system’s total composition of assets shows banks hold a market share of 94.9%, followed by financial corporations at 2.9%, financing companies at 1.6% and financial cooperatives at 0.5%.
As of December 31, 2020, the capital adequacy ratio (Tier 1 + Tier 2) for credit institutions was 17.2% (including banks, finance corporations, financing companies and cooperative entities), increasing 177 basis points when compared to December 2019, well above the minimum legal requirement of 9%.
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Loans
As of December 31, 2019 and 2020, our gross consolidated loan portfolio was Ch$23,154,056 million and Ch$22,589,071, respectively, as reported to the CMF calculated under local regulatory and accounting principles. This placed us as the fifth largest financial institution among private Chilean banks and sixth place among all banks operating in Chile. Our gross consolidated loan portfolio represented 9.8% of the market for loans in the Chilean financial system (comprising all commercial banks) as of December 31, 2020. In 2020, our loan portfolio decreased 2.4% driven primarily by the decrease in the Colombian portfolio, which was impacted by a 9% devaluation of the COP/CLP exchange rate. Excluding the effect of this exchange variation, at the end of 2020, the most affected segments were commercial and consumer loans in Chile. On the other hand, mortgage loans performed well in both countries, being more resilient during the economic downturn produced by the COVID-19 pandemic.
The following table sets forth the aggregate outstanding loans for us and the five other private sector banks with the largest market shares in Chile as of December 31, 2018, 2019 and 2020, based on information as reported to the CMF calculated under local regulatory and accounting principles:
| | | | | | |
| | Bank Loans(1) | ||||
| | As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
|
| (in millions of Ch$) | ||||
Banco Santander-Chile |
| 30,266,929 |
| 32,716,883 |
| 34,390,240 |
Banco de Chile |
| 27,914,322 |
| 30,019,470 |
| 30,936,968 |
Banco de Crédito e Inversiones (Bci) |
| 30,099,862 |
| 33,880,778 |
| 35,508,713 |
Itaú Corpbanca(2) |
| 21,548,899 |
| 23,199,360 |
| 22,635,560 |
Banco Bilbao Vizcaya Argentaria, BBVA(3) |
| — |
| — |
| — |
Scotiabank Chile(3) |
| 22,823,339 |
| 25,347,159 |
| 25,376,523 |
Others |
| 44,375,257 |
| 49,736,187 |
| 50,432,778 |
Total |
| 177,028,608 |
| 194,899,837 |
| 199,280,782 |
Source: CMF monthly consolidated financial information
(1) | Excludes interbank loans. |
(2) | The amounts under IFRS for 2018, 2019 and 2020 are Ch$21,482,490 million, Ch$23,134,814 million, and Ch$22,619,167 million, respectively. |
(3) | Figures for 2018 only attributed to Scotiabank Chile after the merger with Banco Bilbao Vizcaya Argentaria. |
Deposits
We had consolidated deposits of Ch$13,923,511 million as of December 31, 2020, as reported under local regulatory and accounting principles, which consisted of our checking accounts, bankers’ drafts, savings accounts, time deposits and other commitments. Our market share of 9.3% for deposits and other obligations as of such date ranks us in fifth place among private sector banks in Chile.
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The following table sets forth the aggregate deposits for us and the five other private sector banks with the largest market share as of December 31, 2018, 2019 and 2020, based on information as reported to the CMF calculated under local regulatory and accounting principles:
| | | | | | |
| | Bank Deposits and Other Obligations(1) | ||||
|
| As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
|
| (in millions of Ch$) | ||||
Banco Santander-Chile |
| 21,809,236 |
| 23,490,249 |
| 25,142,684 |
Banco de Chile |
| 20,240,662 |
| 22,182,751 |
| 24,066,770 |
Banco de Crédito e Inversiones (BCI) |
| 24,551,315 |
| 27,553,455 |
| 30,566,185 |
Itaú Corpbanca |
| 14,421,586 |
| 16,493,635 |
| 17,630,470 |
Banco Bilbao Vizcaya Argentaria Chile (BBVA)(2) |
| — |
| — |
| — |
Scotiabank Chile(2) |
| 14,927,861 |
| 15,989,560 |
| 15,645,249 |
Others |
| 42,974,991 |
| 46,511,133 |
| 50,867,265 |
Total |
| 138,925,651 |
| 152,220,783 |
| 163,918,623 |
Source: CMF monthly consolidated financial information
(1) | Our aggregate deposits as calculated under IFRS for the years ended December 31, 2018, 2019 and 2020 were Ch$14,421,586 million, Ch$16,493,635 million and Ch$17,630,470 million, respectively. |
(2) | Figures for 2018 only attributed to Scotiabank Chile after the merger with Banco Bilbao Vizcaya Argentaria. |
Shareholders’ Equity
We were the fourth largest among private sector banks in Chile with Ch$2,315,411 million in shareholders’ equity (excluding net income and provision for mandatory dividends) as of December 31, 2020, as reported to the CMF calculated under local regulatory and accounting principles.
The following table sets forth the level of shareholders’ equity for us and the five largest private sector banks in Chile (measured by shareholders’ equity) as of December 31, 2018, 2019 and 2020, based on information as reported to the CMF calculated under local regulatory and accounting principles:
| | | | | | |
| | Shareholders’ Equity(1)(2) | ||||
|
| As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
|
| (in millions of Ch$) | ||||
Banco Santander-Chile |
| 3,239,546 |
| 3,390,823 |
| 3,567,916 |
Banco de Chile |
| 3,304,152 |
| 3,528,222 |
| 3,726,267 |
Banco de Crédito e Inversiones (BCI) |
| 3,457,509 |
| 3,791,478 |
| 3,893,620 |
Itaú Corpbanca(3) |
| 3,324,531 |
| 3,346,102 |
| 2,315,411 |
Banco Bilbao Vizcaya Argentaria Chile (BBVA)(4) |
| — |
| — |
| — |
Scotiabank Chile(4) |
| 2,013,539 |
| 2,038,149 |
| 2,398,357 |
Others |
| 3,185,318 |
| 2,203,398 |
| 5,807,823 |
Total |
| 18,524,595 |
| 18,298,172 |
| 21,709,394 |
Source: CMF 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 CMF. |
(3) | The amounts under IFRS, excluding net income (loss) and provision for mandatory dividends, for the years ended December 31, 2018, 2019 and 2020 were Ch$3,099,761 million, Ch$3,156,329 million and Ch$3,123,032 million, respectively. |
(4) | Figures for 2018 only attributed to Scotiabank Chile after the merger with Banco Bilbao Vizcaya Argentaria. |
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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 CMF 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 the Ley 18.046 sobre Sociedades Anónimas or 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 CMF 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 as deuda 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 own ley 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 it is subject to the laws applicable to the public sector). It is directed and administered by a council composed of five members designated by the President of Chile, subject to the approval of the Senate.
The legal purpose of the Central Bank of Chile is to maintain the stability of the Chilean peso and the orderly functioning of Chile’s internal and external payment system. The Central Bank of Chile’s powers include setting reserve requirements, regulating the amount of money and credit in circulation, establishing regulations and guidelines regarding finance companies, foreign exchange (including the Formal Exchange Market) and banks’ deposit-taking activities.
CMF
On June 1, 2019, the Superintendency of Banks and Financial Institutions (Superintendencia de Bancos e Instituciones Financieras or SBIF) as former banking regulator, was replaced by the Commission for the Financial Market (Comisión para el Mercado Financiero or CMF). The CMF is an independent Chilean governmental agency responsible for overseeing the correct functioning, development and stability of the financial market, facilitating the participation of market agents and promoting the protection of the public interest. It is in charge of regulating and supervising banks and the entities part of the securities and insurance market. With respect to banks, the main responsibilities of the CMF 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 CMF may impose sanctions, including fines payable by the
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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 (including, increase in its capital).
The CMF 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 CMF 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 CMF. 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 CMF for review.
The CMF 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 acquirer to lose the voting rights of such shares. The CMF 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 CMF 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$3.5 million or US$4,908.20 as of December 31, 2020) in each calendar year.
Reserve Requirements
Deposits are subject to a reserve requirement (Encaje) 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 |
● | 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 CMF and the Central Bank of Chile, Chilean banks must maintain a technical reserve (Reserva
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Técnica) 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 net equity (Patrimonio Efectivo). 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 of any term. If the technical reserve is breached, the bank is sanctioned with a fine calculated by applying the maximum conventional interest rate (Interés Máximo Convencional) for non-adjustable transactions (Operaciones no Reajustables) to the daily deficit; provided, however, that the CMF may decide not to apply this fine if the deficit lasts up to three business days and the bank has not incurred in further deficits during the same calendar month.
During 2015, the Central Bank of Chile published a final version of new liquidity standards for local banks, based on Basel III guidelines. The CMF is the institution empowered to put these guidelines into practice and monitor them on an ongoing basis. Accordingly, the CMF released a set of new liquidity requirements for banks (Circular No. 3,585) on July 31, 2015. These guidelines established reporting requirements for local banks with respect to management and measurement of banks’ liquidity positions, compelling banks to share financial information with the regulator and the general public regarding liquid assets, liabilities, concentration of financial instruments by type of liability and counterparty and weighted maturity by type of liability, among other metrics. The most significant liquidity ratios that will eventually be adopted by Chilean banks are:
● | Liability concentration per institutional and wholesale counterparty. Banks will have to calculate the percentage of their liabilities coming from institutional and wholesale counterparties, including ratios regarding renovation, renewals, restructurings, maturity and product concentration of these counterparties. |
● | Liquidity coverage ratio (LCR), which measures the percentage of liquid assets over net cash outflows. The new guidelines also define liquid assets and the formulas for calculating net cash outflows. |
● | Net Stable Funding Ratio (NSFR) which will measure a bank’s available stable funding relative to its required stable funding. Both concepts are also defined in the new regulations. |
The first stage of these new liquidity requirements was implemented to improve the information relating to the actual situation of banks without imposing specific limits, except liquidity mismatches for 30 and 90-day periods, for which thresholds with respect to the capital of banks are already in place. On December 28, 2018, the CMF released an update on the liquidity requirements (Circular No. 3,644), which established a limit of 60% for the LCR as of January 1, 2019. The LCR limit will increase 10% per year until it reaches 100% in 2023.
Minimum Capital
Under the Chilean General Banking Act, a bank must have a minimum paid-in capital and reserves of UF800,000 (Ch$23,256.3 million or US$32.7 million as of December 31, 2020).
Capital Adequacy Requirements
According to the Chilean General Banking Act (as amended from time to time, including without limitation, by Law No. 21,130) and the Regulations of the CMF, as a general rule, the capital and reserves of a bank, or basic capital, cannot be less than (y) 4.5% of its risk weighted assets and (z) 3% of its total assets, in both cases, net of allowances, and its “effective net equity” cannot be less than 8% of its risk-weighted assets net of required loan loss allowances, as calculated in accordance with Chilean Bank GAAP. See “Item 3. Key Information—Presentation of Financial and Other Information—Specific Loan Information” in this Annual Report for additional information regarding events in which a higher effective net equity and/or a higher basic capital may be required and detail on certain regulations that were issued by the CMF during 2020, which may impose additional capital and reserve requirements.
Basic capital or common equity tier 1 (CET1) is defined as a bank’s paid-in capital and reserves.
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Regulatory capital or “effective net equity” is defined as the aggregate of: (a) tier 1 (T1) capital, plus (b) tier 2 (T2) capital. In turn, (y) tier 1 (T1) capital is the sum of (1) the the bank’s basic capital or common equity tier 1 (CET1) (i.e., paid-in capital and reserves) and (2) the additional tier 1 (AT1) capital (i.e., bonds issued without a maturity date and preferred stocks valued at their issue price, for an amount up to one third of the banks’ basic capital), and (z) tier 2 (T2) capital corresponds to (1) subordinated bonds issued by the bank valued at their issue price and 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 (2) the bank’s voluntary allowances for loan losses up to (A) 1.25% of its credit risk weighted assets, if standard methodologies are applied, or (B) 0.625% in the event non-standard methodologies are applied.
As provided in Article 68 of the Chilean General Banking Act, if a bank fails 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 21-1 of the Regulations of the CMF), the bank would have to comply with such legal requirements within a period of 60 days. Further, if the bank fails to comply with such legal requirements, it would be subject to the sanctions set forth in Title III of Law No. 21,000 which created the CMF (i.e., the CMF may impose one or more of the following sanctions: (i) censure; (ii) fines up to the following amounts: (x) UF15,000 (approximately US$613,531 as of December 31, 2020), but in the event the entity is sanctioned for breaches of similar nature before, the amount of the fine could be up to five times the aforementioned amount, (y) 30% of the irregular operation or (z) double of the benefits realized as a result of the irregular operation; and/or (iii) the revocation of its authorization of existence).
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 up to 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 currency export trade financing, 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 bank subject to the Chilean General Banking Act in an aggregate amount exceeding 30% of the effective net equity of the lender bank; |
● | the total amount of loans granted by a bank to a group of persons or entities belonging to the same business group (grupo empresarial) as this term is defined in Title XV of the Chilean Securities Market Act, cannot exceed 30% of the actual equity of the lending bank. For these purposes, the loans mentioned in the preceding bullet shall not be considered; |
● | 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 Itaú 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 |
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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 CMF. 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.
Any breach of the lending limits set forth in clauses a), b) and c) above, will be subject to a fine equivalent to 10% of the excess amount. In case of breach of the rules set forth in clause f) above, it will be subject to a fine equivalent to 20% of the loan granted.
Allowance for Loan Losses
Chilean banks are required to provide to the CMF detailed information regarding their loan portfolio on a monthly basis. The CMF 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 CMF. However, a bank may request the authorization of the CMF 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 on their solvency and management ratings. The classification of each bank is confidential.
● | Category I: This category is reserved for financial institutions that have been rated level A in terms of solvency and management. |
● | Category II: This category is reserved for financial institutions that have been rated (1) level A in terms of solvency and level B in terms of management, (2) level B in terms of solvency and level A in terms of management, or (3) level B in terms of solvency and level B in terms of management. |
● | Category III: This category is reserved for financial institutions that have been rated (1) level B in terms of solvency and level B in terms of management for two or more consecutive review periods, (2) level A in terms of solvency and level C in terms of management, or (3) level B in terms of solvency and level C in terms of management. |
● | Category IV: This category is reserved for financial institutions that are rated level A or B in terms of solvency and have been rated level C in terms of management for two or more consecutive review periods. |
● | Category V: This category is reserved for financial institutions that have been rated level C in terms of solvency, irrespective of their management rating level. |
With respect to solvency, banks are qualified as level A, B and C.
A bank fits within level A if (y) its effective net equity over its risk weighted assets, including the additional basic capital requirement (Conservation Buffer), is equal to or higher than 10.5% or the higher applicable ratio in the event any of the additional basic capital requirements are applicable (i.e., Counter-Cyclical Buffer, systemic importance
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additional requirement or Pilar 2 requirement) and (z) its basic capital over its risk weighted assets is equal to or higher than 7.0% or the higher applicable ratio in the event any of the additional basic capital requirements are applicable (i.e., Counter-Cyclical Buffer, systemic importance additional requirement or Pilar 2 requirement).
A bank fits within level B, if it complies with the general minimum effective net equity and basic capital requirements, but not with the additional requirements outlined in the preceding paragraph.
A bank fits within level C if it does not comply with the general minimum effective net equity and basic capital requirements.
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 their corporate governance, internal controls, security in their networks, 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. Pursuant to Chapter 1-13 of the regulations of the CMF (Recopilación Actualizada de Normas), as amended through Circular No. 2,261 dated July 6, 2020, the CMF set forth the terms and conditions necessary to implement the aforementioned management rating, which consider, among others, compliance by the bank with the regulations governing critical information infrastructure in cyber security, as set forth in Chapter 20-1 of the regulations of the CMF (Recopilación Actualizada de Normas).
On March 31, 2021, the CMF designated Itaú Corpbanca, among others, as a bank of systemic importance, in its first resolution on the qualification of systemically important banks.
Main Differences Between the Accounting Policies under IFRS and Chilean Banking GAAP
The financial information included herein is prepared and presented in accordance with IFRS. Certain differences exist between Chilean Banking GAAP and IFRS which might be material to the financial information contained herein. The matters described below summarize certain differences between Chilean Banking GAAP and IFRS that may be material. We are responsible for preparing the summary below. We have not prepared a comprehensive reconciliation of our consolidated financial statements and related footnote disclosures between Chilean Banking GAAP and IFRS and have not quantified such differences. Accordingly, no assurance is provided that the following summary of differences between Chilean Banking GAAP and IFRS is complete.
Suspension of interest income and inflation-indexation adjustments recognition. Financial institutions must suspend recognition of income on an accrual basis in their statements of income for certain loans included in the impaired portfolio. IFRS 9 did not allow the suspension of accrual of interest on financial assets for which an impairment loss has been determined. As of January 1, 2018, the Bank adopted IFRS 9. Under IFRS 9, interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for financial assets that have subsequently become credit-impaired (or “Stage 3”), for which interest revenue is calculated by applying the effective interest rate to their amortized cost (i.e., net of the ECL provision). Off-balance interests are recorded as interest income only if the Bank receives the related payments.
Allowances for Loan losses. The main difference between Chilean Banking GAAP and IFRS 9 regarding loan loss allowances is that loan loss allowances under Chilean Banking GAAP are calculated using expected loss models based on specific guidelines set by the CMF, which in turn are based on an 12-month period expected losses approach while IFRS 9, if a financial assets has experienced a significant increase in credit risk or is impaired, requires a lifetime expected losses approach. According to both Chilean Banking GAAP and IFRS, loan loss allowances are calculated using expected loss models. The models adopted with IFRS 9 used an expected loss approach, however these are not in accordance with specific guidelines under Chilean Banking GAAP given by the CMF. The CMF has not yet adopted IFRS 9 and therefore we have adjusted the consolidated financial statements to fully comply with IFRS standards. The most significant impact of IFRS 9 on our financial statements arises from the impairment requirements. Impairment losses will increase and become more volatile for financial instruments in the scope of IFRS 9 impairment model. Based
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on the assessment made, the total impact of the adoption of IFRS 9 on the opening balance of our equity on January 1, 2018 was Ch$129,025 million (net of tax).
Loans and accounts receivable charge-offs. Under Chilean Banking GAAP, charge-offs of loans and accounts receivable are based on due, past due and current installments, and the term begins at the moment of default, i.e., when the default time of an installment or a portion of a loan reaches the charge-off term established by the CMF in the Compendium of Accounting Standards. The term corresponds to the time elapsed since the date on which payment of all or part of the obligation in default became due. IFRS does not require any such deadline for charge-offs. A charge-off due to impairment would be recorded, if and only if, all efforts at collection of the loan or account receivable had been exhausted. Accordingly, this difference does not materially impact our consolidated financial statements.
Investments in other companies. Under Chilean Banking GAAP, investments in other companies in which the Bank does not exercise significant influence were reclassified and presented as FVTOCI financial investment in accordance with IAS 39 and in some circumstances are accounted for at cost. Under IFRS 9 these investments are reclassified according to the Bank’s intention either as financial instruments at fair value through profit or loss (FVTPL) or fair value through other comprehensive income (FVTOCI).
Assets received in lieu of payment - Other non-current assets held for sale. Under Chilean Banking GAAP it is required that the initial value of assets received in lieu of payment be the value agreed upon with a debtor as a result of the loan settlement or the value awarded in an auction, as applicable. These assets are required to be written off one year after their acquisition, if the assets have not been previously disposed of. IFRS requires that assets received in lieu of payment be initially accounted for at fair value. Subsequently, asset valuation depends on the classification provided by the entity for that type of asset. No deadline is established for charging-off an asset. Assets in lieu of payment were reclassified and recognized in accordance with IFRS 5.
Country risk and contingent loans provisions. Under Chilean Banking GAAP, the Bank establishes provisions for country risk and provisions related to the undrawn available credit lines and contingent loans in accordance with local regulations. Since January 1, 2018, in accordance with IFRS 9, expected credit losses for contingent loans are recorded in our consolidated financial statements.
Improvements in leased properties. As instructed by the CMF, improvements in leased properties should be disclosed together with right-of-use assets under the same line item in the Consolidated Statement of Financial Position. While there is no difference with IFRS in terms of measurement, there is a significant difference in terms of disclosures. These assets have been properly reclassified in the consolidated financial statements.
Deferred taxes. The Bank records, when appropriate, deferred tax assets and liabilities for the estimated future tax effects attributable to the differences between the carrying amount of assets and liabilities and their tax bases. Due to the adjustments made to the consolidated financial statements, we adjust deferred taxes accordingly.
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. In addition, banks in Chile may place and underwrite certain equity securities. Bank subsidiaries may also engage in debt placement and dealing, equity issuance advisory services and securities brokerage, as well as in financial leasing, mutual fund and investment fund administration, investment advisory services and merger and acquisition services. These subsidiaries are regulated by the CMF.
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 CMF, (10) real estate leasing, and (11) social security advice. These subsidiaries are regulated by the CMF except with respect to social security, in which case the entities are
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regulated 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 CMF, create and participate in companies exclusively destined to the carrying out of activities in support of the main banking operations, such as payment card operators.
Legal Provisions Regarding Banking Institutions with Financial Instability or Poor Management
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 that are indicative of financial instability or poor management, the bank must (i) immediately inform the CMF of the occurrence of any such circumstance, and (ii) submit to the CMF within five days (extendable up to 10 days), a remediation plan approved by its board of directors. The remediation plan must include concrete measures towards the remediation of the situation affecting the bank and secure its normal operation. The CMF is also authorized to request such remediation plan in the event it becomes aware that a bank has been affected by any such circumstances without having received timely notice thereof from the affected bank. The CMF shall communicate, on a confidential basis, to the Financial Stability Council the bank’s submission of a remediation plan, as well as its approval, rejection and/or comments made by the CMF. The remediation plan submitted by the bank must be approved by the CMF and shall set forth a maximum six-month term from the date of its approval by the CMF for its satisfaction, unless otherwise expressly authorized by the CMF.
Additionally, the bank must provide the CMF with periodic reports as to the implementation of the remediation plan. If the remediation plan includes, as one of its remediation measures, a capital increase, with the prior approval of the CMF, the board of directors of the bank must summon a shareholders meeting to approve such increase. If the shareholders reject the capital increase, or if approved, it is not paid within the approved term, or if the CMF rejects for a second time the conditions to summon the shareholders meeting, the CMF may prohibit the bank for a maximum term of six months, renewable once for the same period, among others, from granting new loans, extending any loans beyond 180 days and releasing or limiting the collateral on existing loans. The Chilean General Banking Act provides that the remediation plan can include a three-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 CMF, 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.
If a bank does not submit a remediation plan, or if the remediation plan is rejected by the CMF, or if the bank breaches any of the measures set forth therein, or has incurred in repeated breaches or fines, or is reluctant to comply with the CMF’s orders or has incurred in any material fact that threatens its financial stability, or if the CMF does not approve the remediation plan, or if such plan is not timely submitted by the bank or the terms of such plan are breached by the bank, or if the capital increase included in the remediation plan is approved by the shareholders of the bank but not paid within the approved term, or if the CMF rejects for the second time the conditions to summon the shareholders meeting that shall approve the capital increase, the CMF is authorized to appoint a delegated inspector and/or, with the prior consent of the Council of the Central Bank of Chile, to appoint a provisional administrator who will be in charge of the bank’s administration. The appointment of a delegated inspector or provisional administrator shall be for a period no longer than one year, renewable for one additional year in case of the delegated inspector, and indefinitely in the case of the provisional administrator.
Dissolution and Liquidation of Banks
The CMF may provide 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 CMF must revoke such bank’s authorization of existence and mandate its liquidation, subject to approval by the Central Bank of Chile. The CMF’s resolution must state the reason for ordering the liquidation and must appoint a liquidator, who shall be a person that meets the suitability and technical capacity requirements to be determined by the CMF pursuant to a regulation to be
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issued by the CMF. Upon a liquidation order, all checking accounts deposits and obligations payable on demand from the ordinary course of business are required to be paid by using the bank’s existing funds, its deposits with the Central Bank of Chile or its investments in instruments that represent its reserves.
If these funds are insufficient to pay these obligations, the liquidator may seize the rest of the bank’s assets, as needed. If necessary and in specified circumstances, the Central Bank of Chile will lend the bank the funds necessary to pay these obligations. Any such on demand obligations are preferential to any claims of other creditors of the liquidated bank.
Investments in Foreign Securities
Under current Chilean banking regulations, banks in Chile may grant loans to foreign individuals and entities and invest in certain foreign currency securities. Chilean banks may only invest in equity securities of foreign banks and certain other foreign companies which may be affiliates of the bank or which would support the bank’s business if such companies were incorporated in Chile. Banks in Chile may also invest in debt securities traded in formal secondary markets. Within certain limits, banks in Chile may invest in such debt securities, in the event such debt securities qualify as securities issued or guaranteed by (1) foreign sovereign states or their central banks or (2) other foreign or international financial institutions of which Chile is a member or bonds issued by foreign corporations. Such foreign currency securities must have a minimum rating as follows:
| | | | |
Rating Agency |
| Short Term |
| Long Term |
Moody’s |
| P-2 |
| Baa3 |
Standard and Poor’s |
| A-2 |
| BBB- |
Fitch Rating Service |
| F2 |
| BBB- |
Dominion Bond Rating Service (DBRS) |
| R-2 |
| BBB (low) |
A Chilean bank may invest in securities having a minimum rating as follows, provided that in case the total amount of these investments, together with the loans granted to certain classes of foreign debtors, exceeds 20% (or 30% for banks with a BIS ratio equal or exceeding 10%) of the effective net equity of the bank, a provision of 100% of the excess shall be established by the bank:
| | | | |
Rating Agency |
| Short Term |
| Long Term |
Moody’s |
| P-2 |
| Ba3 |
Standard and Poor’s |
| A-2 |
| BB- |
Fitch Rating Service |
| F2 |
| BB- |
| | | | |
Rating Agency |
| Short Term |
| Long Term |
Dominion Bond Rating Service |
| R-2 |
| BB (low) |
If investments in these securities and certain loans referred to below exceed 70% of the effective net equity of the bank, a provision for 100% of the excess shall be established, unless the excess, up to 70% of the bank’s effective net equity, is invested in securities having a minimum rating as follows:
| | | | |
Rating Agency |
| Short Term |
| Long Term |
Moody’s |
| P-1 |
| Aa3 |
Standard and Poor’s |
| A-1+ |
| AA- |
Fitch Rating Service |
| F1+ |
| AA- |
Dominion Bond Rating Service |
| R-1 (high) |
| AA (low) |
Additionally, a Chilean bank may invest in foreign securities, with ratings equal to or exceeding those set forth in the table 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
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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
On February 23, 2017, Law No. 21,000, which establishes the CMF, was published. This new law (as amended by Law No. 21,130) modifies, among other matters, the corporate governance and operation of the Chilean regulator for (i) securities and insurance, a role that was historically performed by the Chilean Superintendency of Securities and Insurance and (ii) banks, a role that was historically performed by the SBIF. This law came into effect in March 2017, except with respect to the replacement of the SBIF by the CMF in which case the law came into effect on June 1, 2019. The main features of this new law (as amended by Law No. 21,130) are the following:
● | The Chilean Superintendency of Securities and Insurance was replaced by a new body, which is the Commission for the Financial Market which became operational on December 14, 2017. The direction of the Commission for the Financial Market corresponds to the Council of the Commission for the Financial Market, which is composed of five members. This commission continues to supervise the entities that formerly were under the supervision of the Chilean Superintendency of Securities and Insurance. |
● | The new law established the separation of responsibility for (i) the issuance of regulations, (ii) compliance enforcement, and (iii) investigation and the imposition of sanctions. All three activities are conducted by different divisions within the Commission for the Financial Market. While the issuance of regulations and the imposition of sanctions corresponds to the Council of the Commission for the Financial Market, the Investigation Unit (Unidad de Investigación) is in charge of the investigation of breaches of regulations of competence of such commission, of the initiation of sanctioning procedures and of the surveillance of the compliance of the sanctions imposed by the commission. |
● | In addition to the former powers of the Chilean Superintendency of Securities and Insurance and the Chilean Superintendency of Banks and Financial Institutions, the Commission for the Financial Market has other powers, such as the authority to seize documents, intercept communications and obtain information on banking operations (including those subject to bank secrecy). |
● | The sanctioning process has two different procedures: (i) a simplified procedure for cases where no crimes are involved and for cases of less materiality; and (ii) a general procedure for cases involving potential crimes and for cases which even though do not involve potential crimes, are material. The new law also established plea bargain procedures (Delación Compensada) and the imposition of prohibitions to be eligible for election as director or main executive to those charged with criminal conducts. |
The new law also encourages the self-regulation of entities subject to the supervision of the Commission for the Financial Market through the creation of the Financial Self-Regulation Committee.
Financial Stability Council
Law No. 20,789 created the Financial Stability Council, composed by the Minister of Finance (Ministro de Hacienda), the chairman of the CMF and the Superintendent of Pensions. The purpose of this council is to facilitate the
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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 CMF to request information regarding controlling shareholders of banks and entities which are part of their corporate group.
Anti-Money Laundering, Anti-Terrorist Financing and Foreign Corrupt Practices Act Regulations
United States
We, as a foreign private issuer whose securities are registered under the U.S. Securities Exchange Act of 1934, are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA. The FCPA generally prohibits issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. The accounting provisions of the FCPA require an issuer to maintain books and records and have a system of internal accounting controls sufficient to, among other things, provide reasonable assurances that transactions are executed and assets are accessed and accounted for in accordance with management’s authorization. Significant penalties and fines may be imposed against us, and/or our officers, directors, employees, and agents, for violations of the FCPA. Furthermore, we may be subject to a variety of U.S. anti-money laundering and anti-terrorist financing laws and regulations, including, but not limited to, the Bank Secrecy Act of 1970, as amended, and the USA PATRIOT Act of 2001, as amended. A violation of such laws and regulations may result in substantial penalties, fines and imprisonment of our officers and/or directors.
Chile
The Anti-Money Laundering Act, or the AML Act, requires banks, among others, to report any “suspicious transactions or activities” that they may become aware of in the ordinary course of business to the Chilean Financial Analysis Unit (Unidad de Análisis Financiero), or FAU. “Suspicious activities or transactions” are defined by the AML Act as any act, operation or transaction that, in accordance with the uses and customs of the relevant activity, is considered unusual or devoid of apparent economic or legal justification or that may constitute any of the actions described in Article 8 of Law No, 18,314 (terrorist actions), or entered into by an individual or a legal entity included in any resolution issued by the United Nations Security Council, whether carried out in an isolated or recurrent basis.
In accordance with the AML Act, banks must keep special records for any transaction in cash for amounts exceeding US$10,000, and report them to the FAU if so required by the latter authority.
In addition, the entities subject to the AML Act are also subject to Circular No. 49 and other regulations issued by the FAU, which provides additional guidelines for the prevention of money laundering.
With regard to Chilean banks the CMF 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 CMF 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.”
On December 2, 2009, Chilean Law 20,393 came into effect. Law 20,393 regulates and provides for the criminal liability of legal entities for certain crimes, such as money laundering, financing of terrorism, bribery, misappropriation (Apropiación Indebida), unfair administration (Administración Desleal), incompatible negotiation (Negociación Incompatible), and corruption between private parties (Corrupción entre Particulares). Pursuant to Law 20,393, a legal
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entity will be exempted from criminal liability if it has adopted and implemented a crime prevention model (Modelo de Prevención de Delitos) which shall include at a minimum (i) the appointment of a compliance officer, who shall be given enough powers and resources to exercise its duties and (ii) a system to prevent the commission of crimes which must be certified by external auditors, the respective risk classification entities and other specialized entities registered with the CMF. In this regard, Itaú Corpbanca and its subsidiaries have adopted and implemented a Crime Prevention Model which has been certified by BH Compliance Limitada.
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 IV, “Instructions Related to Risk Management of Laundering and Terrorist Financing,” issued by the Colombian Financial Superintendency, 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 Financial Superintendency 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.
In addition, the Colombian Financial Superintendency issued External Circular 27 of 2020, which includes several new provisions. Entities under surveillance must have effective FATF policies and procedures and must comply with the obligations on international lists binding for Colombia, foreign PEPs, and PEPs of international organizations. Therefore, such entities must have have the ability to consult such lists immediately prior to engaging a client, final beneficiary, supplier, shareholder or employee, as well as permanently during the contractual or legal relationship.
In any case, the scope of the customer knowledge procedures applicable to the employees, suppliers and administrators (in terms of article 22 of Law 222 of 1995) of the supervised entity, must include, as a minimum, compliance with the subnumeral 4.2.2.1.4 of the chapter, provided that such measure allows the supervised entity to carry out an adequate and effective management of FATF risk according to its FATF risk analysis.
Regarding foreign corrupt practices regulations, the Colombian Congress enacted Law 1778 of 2016 pursuant to which rules on liability of legal entities related with the commission of acts of transnational corruption were established (the “Law 1778”). Law 1778 grants authority to the Colombian Superintendency of Companies regarding the possibility to investigate and sanction legal entities whose employees, contractors, directors or partners (of their own or any subordinate entity) give, offer or promise to give to a foreign public official sums of money, any object of monetary value or any other kind of benefit or value in exchange for the latter to perform, omit or delay acts related with their duties and in connection with a business or international transaction. Additionally, according to Law 1778, the parent companies may also be responsible, along with their subordinate entities when, with the latter’s acknowledgement or tolerance, such subordinate entities (employees, contractors, directors or partners) perform acts of transnational bribery.
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.
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Recent Regulatory Developments in Chile
Capital Adequacy Requirements
As noted above, on January 12, 2019, Law No. 21,130, which modified the Chilean General Banking Act, was enacted. Such law has adopted the capital adequacy requirements applicable to banks under Basel III. See “Item 4—Information on the Company—B. Business Overview—Chilean Banking Regulation and Supervision—CMF.”
Commission for the Financial Market
On February 23, 2017, Law No. 21,000, which establishes the CMF, was published. This new law modified, among other matters, the corporate governance and operation of the Chilean regulator for securities and insurance, a role that has historically been performed by the Chilean Superintendency of Securities and Insurance. In conjunction with Law No. 21,130, which modified the Chilean General Banking Act for purposes of adopting Basel III, the aforementioned act also provided for the replacement of the SBIF by the CMF This law came into effect in March 2017. See “Item 4. Information on the Company—Changes in the Governance of Our Regulators.”
Referendum to Amend the Chilean Constitution
Pursuant to Law No. 21,200 (effective December 24, 2019) and Law 21,221 (effective March 26, 2020), the Chilean Constitution was amended to entitle the President of the Republic of Chile (the “Republic”) to call for a referendum with the purpose of asking the citizens: (i) whether they would like a new Constitution and (ii) whether this potential new Constitution should be drafted by either a “Combined Constitutional Convention” (Convención Mixta Constitucional), comprised of 86 congressmen currently in office and chosen by the National Congress, and 86 popularly elected members—or a “Civic Constitutional Convention” (Convención Constitucional), exclusively composed of 155 popularly elected members. The referendum took place on October 25, 2020, and a wide majority of the Chilean voters chose to approve the drafting of a new constitution and voted in favor of having such document drafted by a Civic Constitutional Convention.
In accordance with these results, the President of the Republic called for elections of the 155 participants of the Civic Constitutional Convention which would have taken place on April 11, but due to the COVID-19 those were postponed until May 15 and May 16, 2021. This election will be made jointly with the election of regional governors, mayors, and municipal authorities..
However, due to the recent surge in COVID-19 cases in Chile, there has been a series of protocols and measures taken to ensure the safety of the elections. On March 17, 2021, Law No. 21,317 was published in the official gazette, amending the constitution by dividing the upcoming elections in two days, April 10 and April 11, 2021. Furthermore, on March 30, 2021, the government submitted to the Chilean Congress a bill of law that that has been recently approved and enacted Law No. 21,324 amending by suspending the upcoming elections of April, until May 15 and May 16, 2021.
The Civic Constitutional Convention shall draft and approve a proposal of new Constitution within nine months after its establishment, which may be extended only once for three additional months. The approval of the new constitutional provisions will require two thirds of the votes of the members of the Civic Constitutional Convention (i.e., 104 votes). The proposal of a new Constitution shall respect: (i) the State’s organization as a republic; (ii) the Republic’s democratic regime; (iii) all final judgments issued in the Republic; and (iv) the international treaties ratified by the Republic.
After the approval by the Civic Constitutional Convention of a new Constitution, the President of the Republic shall call for a third referendum asking the citizens whether they approve or reject said proposal. Finally, if this proposal is approved by the citizens, the eventual new Constitution will become effective after its publication in the Official Gazette; provided, however, that it may contain transitory provisions regarding certain matters.
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Modification to the AML Act
The AML Act has been recently amended as follows:
On February 18, 2015 Law No. 20,818 was enacted, amending certain provisions of the AML Act by: (i) increasing the authority of the FAU; (ii) increasing the scope of entities that are subject to the AML Act; (iii) amending the definition of “suspicious activities or transactions”; (iv) reducing the minimum amounts of the cash transactions to be registered and potentially reported to the FAU; (v) amending the sanctions applicable to any breach to the AML Act; (vi) adding new base crimes for the crime of money laundering; (vii) requiring entities subject to the AML Act to report to the FAU any transaction entered into by any individual or entity contained in any resolution issued by the United Nations Security Council; and (viii) establishing the obligation of the entities subject to the AML Act to register with the FAU, among other things.
On November 20, 2018 Law No. 21,121 was enacted amending, among others, the AML Act by including misappropriation (Apropiación Indebida) and unfair administration (Administración Desleal) as crimes of money laundering.
Tax Reform and Future Changes in Chilean Tax Regulations
On February 24, 2020, Law No. 21,210 (the “Tax Reform”) was published in the Official Gazette, which introduces additional amendments and modifications to the Chilean tax system.
Pursuant to the Tax Reform and given that the Bank’s average annual amount of gross revenues would be higher than UF75,000, the Bank is subject to the partially integrated system where companies are subject to a corporate tax of 27%. 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 40%, against which only 65% of the corporate tax will be allowed to be used as a credit against the withholding tax or the Complementary Global Tax. In any case, the final tax burden cannot exceed a rate of 44.45%. Nevertheless, a foreign holder shall be entitled to full corporate tax credit, if such holder is established in, domiciled in, or resident of a country with which Chile has a double taxation treaty in force or, until December 31, 2026, with which Chile has signed a double taxation treaty, although not in force, given that the foreign holder credits his tax residency under the Chilean IRS’s regulations on the matter. These regulations are currently contained in Exempt Resolution No. 151, issued on December 9, 2020, which provides the requirements that must be met by foreign investors and their tax certificates in order to be eligible for this benefit.
Foreign source income obtained by taxpayers domiciled or resident in Chile is generally subject to taxes in Chile on a cash basis. However, in the case of branches or other permanent establishments located abroad, both accrual and received income are considered in Chile for tax purposes. Also, taxpayers who obtain passive income from foreign companies, in which they have control, as defined by law, will have to pay taxes on accrual and cash basis, for the passive income accrued or perceived by those controlled entities.
Bonds and other debt instruments issued in Chile by Chilean companies are deemed to be located in Chile for capital gains purposes. However, bonds issued outside of Chile by Chilean companies are not deemed located in Chile for capital gain purposes and, consequently, the sale of such bonds by a non-Chilean resident is not subject to capital gains tax in Chile (according to section 11 of the Ley 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).
Lastly, pursuant to the current social and political agenda, it is expected that the Chilean government, based on a report prepared in January 2021 by a commission of experts, will introduce a new tax reform bill aimed at limiting tax exemptions and/or preferential tax treatments contained in the Chilean tax legislation, such as the exemption on capital gains arising from the sale of shares that are publicly traded and have a large presence on the stock exchange.
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Amendment to the Consumer Protection Act
On September 13, 2018, Law No. 21,081 was published in the Official Gazette. This law, which entered into effect pursuant to a schedule that ranges between March 14, 2019 and September 13, 2020, amends the Consumer Protection Act in the following manner: (i) strengthens consumer organizations; (ii) substantially increases the fines applicable for breaching the Chilean Consumer Protection Act; (iii) increases the period of the statute of limitations for liability; (iv) amends procedures in several respects in order to make them more consumer-friendly; and (v) increases the inspection powers of the National Consumer Service (SERNAC).
Amendment to the Invoices Act
Law No. 19,893 (the “Invoices Act”) regulates invoices and their payment dates. The Invoices Act was amended by Law No. 21,131 (effective May 16, 2019) and by Law No. 21,217 (effective June 3, 2020). Pursuant to these amendments, all purchasers or recipients of good and services are obliged to pay the provision for such goods and services within a 30-day term following the receipt of the corresponding invoice issued by the relevant seller or supplier.
Exceptionally, the Invoices Act allows the parties of a sale and purchase agreement or equivalent (other than agreements between small and large-sized companies, as defined by Chilean law) to extend the abovementioned payment period as long as: (i) such extension (the “Extension”) is mutually agreed by the parties in writing; (ii) the Extension is registered before the Ministry of Economy within five business days from its execution; and (iii) the aforementioned extension does not imply the imposition of an abusive condition by the purchaser or recipient of the goods or services. Any Extension that does not comply with any of the prior requirements shall be deemed void and unwritten. Likewise, any condition or provision that intends to unduly delay the payment of the corresponding goods or services shall be deemed void and unwritten.
Amendment to Payment Methods for Overdrawing in Banking Current Accounts
On June 18, 2019, Law No. 21,167 was published. This law came into effect on January 1, 2020 and amended the Chilean Bank Checking and Checking Accounts Act, providing for the automatic application to the payment of the associated credit facility the deposits made into a banking current account, unless the account holder instructs otherwise and to the extent that there are no outstanding debts for non-stipulated credits. The account holder is entitled to change its instruction at any time, which will become effective on the immediately following calendar month.
Amendments to Chilean Personal Data Protection Act
On February 28, 2020, Law No. 21,214 was published. This law went into effect on August 26, 2020 and amends the Chilean Personal Data Protection Act that governs the treatment and management of personal data of identified or identifiable individuals by public agencies and private entities in data banks and registries. This new law prohibits the manager of the data bank to publish or disclose the information related to student loans contracted to finance personal or third parties’ education.
New Labor Laws
On April 1, 2020, Law No. 21,220 went into effect. This law modifies the Chilean Labor Code with respect to remote work and teleworking, such as the working day, minimum breaks and control and supervision by the employer. The main aspects regulated by the law are: (i) the obligation to agree and establish the modality of telework in an employment contract or annex, which must be registered with the Labor Office (Dirección del Trabajo), (ii) the employer’s duty to supply the employees with all work tools, and (iii) the employees’ right to a minimum total disconnection time of 12 continuous hours between each work day.
On April 6, 2020, Law No. 21,227 went into effect. This law allows an employment contract to be suspended for those employees who cannot provide their services remotely (i.e., teleworking). Employees may collect unemployment insurance for the duration of the suspension of the employment relationship. The main aspects regulated by the law are the following: (i) it provides for the suspension of the employment relationship by the sole mandate of the law in cases
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where, due to an act of the government, the employee is absolutely prevented from rendering their services, (ii) it allows the suspension of an employment contract through an agreement between the employer and the employee in cases not falling under (i) above and in which COVID-19 has seriously affected the employer, (iii) it allows employers to agree with employees on a reduction of the working day of up to 50% and of the remuneration in the same proportion, (iv) it provides for a right of the employees to receive unemployment insurance benefits of up to 70% of their remuneration, and (v) it prohibits the dismissal of employees by reason of force majeure under the Chilean Labor Code.
Law Limiting the Liability of Users of Payment Methods in Loss, Theft, Robbery or Fraud Cases
Since April 2005, Law No. 20,009 has provided the Chilean legal framework governing the liability of cardholders in case of thefts, losses and robbery of his or her credit or debit cards. Under Law No. 20,009, to the extent a cardholder notifies the issuer of the loss, theft or robbery of its credit or debit cards, they will be exempt from liability in respect of transactions made after such notification; further the issuer of the card must provide evidence that the transactions were made by the cardholder. Although it is generally considered that this mechanism has worked adequately, on May 29, 2020, Law No. 21,234 went into effect. This law amended certain aspects of Law No. 20,009, establishing a new liability regime in cases of loss, theft, robbery or fraud of payment cards or other similar payment methods, as well as in cases of fraud in electronic transactions (collectively, the “Payment Methods”). Pursuant to such bill of law, users of a Payment Method may limit their responsibility in cases of loss, theft, robbery or fraud by providing notice thereof to the issuer of the applicable Payment Method. Upon such notice, the issuer of the applicable Payment Method shall be liable for all operations occurring thereafter. Further, with respect to operations that took place prior to the corresponding notice by a user and that a user denies to have approved or performed, the user shall make a claim in respect thereof within 30 business days from the notice mentioned above. Upon such claim, the issuer of the Payment Method shall (i) within five business days, cancel the charges or reimburse the funds in an amount of up to UF35 (Ch$1.0 million or US$1,431.6 million as of December 31, 2020); and/or (ii) with respect to amounts in excess of UF35 (Ch$1.0 million or US$1,431.6 million as of December 31, 2020) and within seven additional business days, cancel the charges, reimburse the funds or initiate judicial legal actions against the user, if the issuer has evidence that the user has acted with gross negligence or willful misconduct. If the issuer of a Payment Methods desires to contest the claim of a user, the issuer shall bear the burden of proof.
Law Regulating Financial Portability
On September 8, 2020, Law No. 21,236 went into effect. This law (which also amended the Consumer Protection Act) provides for a full set of provisions regulating financial portability with the main purpose of allowing individuals and small and medium size companies to contract for financial products or services with a new provider, allowing the termination of the financial products or services contracted with the initial provider. For these purposes, a provider corresponds to every insurance company, manager of mortgage loans, family allowance compensation fund (caja de compensación de asignación familiar), association of savings and credits (cooperativa de ahorro y crédito), any massive lending institution pursuant to the Chilean Money Loan Transactions Act and any other entity subject to the surveillance of the CMF.
Law Regulating Responsibilities of Market Agents
On April 13, 2021, Law No. 21,314, a part of the anti-abuse agenda, was published. This law regulates the responsibility and transparency requirements for market agents.
This law introduces various modifications to several legal provisions, but mainly to the Chilean Securities Market Act and the Chilean Corporations Act. The main modifications introduced by this law can be summarized as follows: (i) imposition of new information and transparency rules on stock markets, (ii) establishment of the prohibition against directors, managers, administrators and executives of a securities issuer (e.g. a public limited companies) directly or indirectly executing transactions over the securities issued by the issuer, (iii) imposing on the stock markets or securities exchanges the obligation to establish a real-time interconnection system among them in order to provide better service for investors, (iv) establishment of the prohibition against price manipulation, (v) establishment of new regulations for the relationships among related parties and delegation of power to the CMF to request information about the transactions made with these related parties and regulated companies, (vi) establishment of new regulations and responsibilities for
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social security advisors, and (vii) creation of the role of financial and social security advisors or entities that perform a financial and social security advisory function.
Bill Amending the Chilean Banking Act
A bill submitted on October 3, 2019, which remains at an early stage of discussion at the Chilean Congress, proposes to amend the Chilean Banking Act in respect of the termination of banking services agreements as follows: (i) imposing on banks the duty to deliver to their clients all the available information to assist them in the termination of such contracts; (ii) setting forth that the termination of such contracts must be completed within seven business days from the date of the client’s request of termination; (iii) prohibiting the collection of expenses and commissions related to the termination of such contracts; and (iv) imposing on banks the obligation to deliver to their clients upon the termination of the contract and payment of all outstanding obligations, all the security documents executed and those containing personal and commercial information about the client.
Bills Amending the Consumer Protection Act
Several bills have been submitted to the Chilean Congress containing amendments to the Consumer Protection Act in the following matters:
● | A bill submitted on January 24, 2019 amends to Chilean Consumer Protection Act in the following manner: (i) provides as rights of the consumer of financial products or services those set forth in the Chilean Money Loan Transactions Act (which includes, among others, the prohibition to set forth in certain loan transactions, an interest rate higher than the conventional maximum interest rate (tasa máxima convencional)); (ii) authorizes consumers to prepay their loans notwithstanding the outstanding principal amount (it should be noted that another bill of law submitted on September 10, 2019 proposes to amend the Chilean Money Loan Transactions Act setting forth the debtor’s right to prepay its loans even against the lender’s approval, to the extent that the pre-payment includes the principal amount and the interests accrued thereon calculated as of the payment date); |
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Bill Amending the Chilean Money Loan Transactions Act in respect of the Conventional Maximum Interest Rate
A bill submitted to the Chilean Congress on December 9, 2019 proposes to amend the Chilean Money Loan Transactions Act by reducing the conventional maximum interest rate (tasa máxima convencional) applicable to certain loan transactions, including those in Chilean pesos with a principal amount of up to UF200 (Ch$5.8 million or US$8,180.4 million as of December 31, 2020).
Though this particular bill has not been discussed since its submission to the Chilean Congress, a bill with a similar content was submitted to the Chilean Congress on July 1, 2020, proposing a transitory limitation of the conventional maximum interest rate until December 31, 2020. However, this bill has also not been discussed since its submission.
Bill Amending the Chilean Insolvency Act
A bill submitted to the Chilean Congress on August 14, 2019 proposes to amend the Chilean Insolvency Act setting forth special requirements in order for individuals over 60 years of age to be subject to a renegotiation procedure (aimed to assist debtor and creditors in reaching an agreement for renegotiation the former’s debt). This bill is currently in its second stage of discussion at the Economy Commission of the Chamber of Representatives.
Economic Crimes and Anti-Abuse Agenda (Agenda Anti-Abusos)
A bill submitted on October 23, 2019 proposes to amend several Chilean laws, including the Chilean Banking Law, the Chilean Securities Act and Law No. 21,000 which created the CMF, by increasing the penalties applicable to several economic crimes, including, banking bankruptcy crimes, insider trading and securities law crimes. In addition, during the first quarter of 2020, the Government of Chile has pushed an anti-abuse agenda (agenda anti-abusos) through several bills of law (currently at an early stage) that in substance create the category of economic crimes, which would include those crimes contemplated in the Chilean Securities Market Act (including insider trading), collusion, crimes set forth in the Chilean General Banking Act (including, banking bankruptcy crimes (delitos concursales bancarios), breach of the rules on bank secrecy) and incompatible negotiation (negociación incompatible), corruption between private parties (corrupción entre particulares), and money laundering. The new category of economic crimes would also be subject to special rules to determine the applicable penalties and includes economic crimes among those that create criminal liability for legal entities.
Bill Regulating Expenses Associated with Execution and Liquidation of Money Loan Transactions
On May 19, 2020, a bill was submitted to the Chilean Congress proposing a series of amendments and modifications to several acts regarding expenses associated with the execution and liquidation of money loan transactions. These amendments can be summarized as follows: (i) amends the Consumer Protection Act in terms of prohibiting the transfer to the consumer of extrajudicial debt collection costs. Such costs would have to first be proved before the civil courts like other damages; (ii) modifies the Consumer Protection Act by expressly regulating the operational costs in the procurement of financial products; and (iii) amends the Chilean Money Loan Transactions Act in terms of limiting the maximum amounts of prepayment commissions and default interest for loan transactions below UF5,000. This bill is currently in early stages of discussion.
Draft on Regulation Amending the Report of Social Responsibility and Sustainable Development
On December 2, 2019, the CMF published for comments a draft regulation on new information requirements regarding social responsibility and sustainable development (ESG), that would be applicable for all security issuers
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registered in Chile. As a continuation of this process, on March 22, 2021, the CMF submitted a new version of such draft regulation reflecting the comments received as well as the advances on the subject matter were observed at the international level during 2019 and 2020. This regulation seeks to broaden the scope of information that security issuers are obliged to disclose on their annual reports (memorias anuales) by amending General Rule No. 386, which in turn amends General Rule No. 30. This draft regulation provides for the obligation to deliver information on: (i) economic impact; (ii) environmental sustainability benchmarks; and (iii) social sustainability benchmarks. The draft regulation contemplates a restructuring of the current annual report, incorporating ESG issues in a comprehensive manner throughout such report. The new annual report proposal is structured based on an approach that starts with the governance of the entity, its strategy, risk management system, and is complemented by the disclosure of specific indicators and goals. The rationale for the changes is that the new annual report would make it possible to disclose the way in which the entity structures its corporate governance, defines the strategy to achieve its objectives, and determines, identifies and manages material risks.
Changes to the Pension System in Chile
On November 6, 2018, President Sebastián Piñera submitted Bill No. 12212 13 with the purpose of introducing changes to the existing Chilean pension funds system, specifically related to solidary pensions, the individual capitalization pension system and new schemes of pensions for the middle class and women.
Under this proposal, companies would have to contribute to the system with 4% contribution to be exclusively funded by employers. This amendment would have a gradual implementation during a period of five years. Additionally, the employer would be obliged to contribute 0.2% of the gross salary of its employees to fund disability insurance. This insurance would be applicable to all elderly employees with a serious physical or mental disability. Further, the bill states that the solidarity fund (Pilar Solidario) will increase approximately 40% given that the Chilean government is expected to contribute 1.12% of the GDP to the fund.
Further, on November 26, 2019, the Ministry of Finance and the Chilean Senate reached an agreement to increase the basic pension for pensioners aged 80 years or older by 50% starting on December 1, 2019. The agreement resulted in Law No. 21,190, which provides for a 50% increase in the pension for pensioners aged 80 years and older and a 30% increase in basic pensions for pensioners between 75 to 79 years of age by December 1, 2019, which will be equalized to the basic pension for pensioners aged 80 years and older by January 1, 2021. Basic pensions for pensioners under 75 years of age increased by 25% on December 1, 2019, will increase 40% in the aggregate from January 1, 2021, and will be equalized to the basic pensions for pensioners between 75 to 79 years of age by January 1, 2022.
Law No. 21,190 is financed by the treasury of the Chilean government.
Amendments to Allow Withdrawal of 10% of the Pension Funds Administered by Pension Funds Managers
On April 20, 2020, the first bill proposing an amendment to the Chilean constitution to allow individuals to exceptionally request a one-time withdrawal of 10% of their pension funds administered by the Chilean pension fund management companies (Administradoras de Fondos de Pensiones, or AFP) due to the adverse economic and social effects of the COVID-19 pandemic was submitted to the Chilean Congress. This first bill was enacted into Law No. 21,248 on July 30, 2020, which introduced a transitory provision in the Chilean constitution in order to allow this one-time withdrawal that could be requested by the individual until 365 days after the publication of the law.
Considering that the adverse effects of the COVID-19 pandemic persisted during 2020, on August 27, 2020, several congressmen presented a second bill of law to amend the Chilean constitution and allow individuals to withdraw another 10% of their pension funds. However, since this bill was initiated by congressmen and has other constitutional and validity issues, the Constitutional Tribunal declared the unconstitutionality of the bill.
Nevertheless, on November 11, 2020, the President of the Republic submitted to the Chilean Congress a third bill proposing to allow a second withdrawal by individuals of 10% of their pension funds. This bill was enacted into Law No. 21,295 on December 10, 2020, with similar conditions to the ones described under Law No. 21,248 except that it was not enacted as an amendment to the Chilean constitution.
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Finally, since December 15, 2020, there have been five new bills submitted by congressmen that propose to allow a third withdrawal of 10% of the pension funds. These bills are currently in an advanced stage of discussion and have been recently merged for joint discussion. These bills are distinguishable from each other in terms of setting different limits to the minimum and maximum amount that people would be able to withdraw, the scope of beneficiaries of this amendment, and the specific means of amending the Chilean constitution in light of the resolution of Constitutional Tribunal mentioned above.
Government Actions to Address COVID-19
On March 19, 2020, the President of Chile declared constitutional state of emergency under catastrophic circumstances. According to articles 41 and 43 of the Chilean Constitution, under a constitutional state of emergency the President of Chile is entitled to: (i) restrict the freedom of movement and the right of assembly, (ii) establish limitations to property rights, (iii) requisition of goods, and (iv) adopt extraordinary administrative measures that are necessary for the prompt recovery of normal conditions in the affected zones. This state of emergency has been extended until June 30, 2021 by means of Decree No. 72 of March 13, 2021.
In order to address the financial implications of the COVID-19 outbreak, Chilean financial authorities, including both the Central Bank and the CMF, have taken, and continue to take an array of measures at the beginning of the COVID-19 pandemic. The following is a summary of the measures that regulatory authorities have taken in Chile to address the consequences of the COVID-19 pandemic on the Chilean economy:
● | A first package of measures was presented by the Chilean government on March 17, 2020, including the following: (i) an employment protection initiative that allows employees to retain their employment contracts and employee labor rights, while receiving a partial wage financed through the unemployment insurance fund; (ii) a capital injection of US$0.5 billion to Banco del Estado de Chile that would raise its credit capacity (to provide financing to individuals and SMEs) by close to US$4.4 billion; (iii) a special bonus for workers without a formal employment relationship that would benefit nearly three million people; (iv) a municipal solidarity fund focused on alleviating reduced SME revenue during the emergency; (v) the elimination of the stamp tax for six months, applicable to all new credit operations; (vi) and the fast-tracking of payments to government suppliers to within 30 days after delivery of product or service; |
● | A second package was announced by the Chilean government on April 8, 2020, considering two key areas: protecting economic activity and protecting income, especially for workers without a formal employment relationship. This package includes the Chilean government guarantee of 48-month credit lines to SMEs. The total guarantees provided by the Chilean government could reach US$3 billion (just over 1% of the Chilean GDP) and will grant preferential interest rates on new loans by addressing credit risk concerns. Collateral offered by the Chilean government decreases with a firm’s annual sales, with new credit channeled through the banking sector available until September. Banks will need to reschedule other credit lines held by the respective recipients at such banks for the duration of the COVID-19 credit line period. Firms receiving this working capital injection are not able to use it to pay other credit lines, but rather to pay for ongoing operations (e.g., salaries, providers, rent, etc.). Preliminary estimates are close to US$24 billion in new credit, which would imply up to a 20% increase in outstanding commercial loans (or 10% of the Chilean GDP); |
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● | An initiative to provide income for those workers without a formal employment relationship who do not hold unemployment insurance, supported by a US$2 billion fund (just under 1% of the Chilean GDP); |
● | A new fiscal package for US$5 billion, with new additional resources committed closer to an additional US$3 billion. As a result, Chile’s debt is set to accelerate even further. In addition to the measures adopted to address the pre-existing social demands (2% of the Chilean GDP, including increased pensions, minimum wages as well as infrastructure repair), the combined coronavirus stimulus packages adds further pressure to the fiscal accounts, raising the likelihood of a credit rating downgrade. Last month, Fitch changed its outlook to negative on its 'A' rating. While the government of Chile retains a very strong balance sheet and holds significant financial buffers (SWFs), the planned expenditure path means debt stabilizing in coming years is unlikely. The fiscal impulse from the coronavirus measures (phase I and II) is expected to be equivalent to approximately US$5.5-7 billion or approximately 2%-3% of the Chilean GDP, taking the fiscal deficit to 7.4% of GDP in 2020; |
● | The issuance, since March 18, 2020, by the CMF of several regulations requesting its supervised entities to provide any material information on the financial and operational effects that may have been caused by the outbreak of COVID-19 in Chile and to timely implement their contingency plans, postponing the obligation of supervised entities to submit their financial statements in March, extending in an additional 18-month period the one-year term during which banks must sell goods received as payment of debts between March 1, 2019 and September 30, 2020, amending the treatment of the guarantees constituted by banks in the context of bilaterally cleared derivative transactions and announcing measures guaranteeing greater flexibility of the financial system (e.g., postpone the implementation of Basel III requirements for one year and maintaining the current general regulatory framework for banks capital requirements until December 2021, authorize banks to extend up to six months the maturity of loans granted to consumers and small and medium-sized enterprises, and to use mortgage guarantees’ surpluses to secure such loans and facilitate banks in certain circumstances and until July 31, 2020 to reschedule loans without implementing additional provisions); and |
● | The enactment of Law No. 21,225, which sets forth several measures part of an extraordinary economic plan to combat the economic consequences of COVID-19, including the stamp tax reduction to 0% rate between April 1, 2020 and September 30, 2020. |
● | Legislation led to the partial withdrawal of pension funds, with over US$35 billion (nearly 15% of GDP) being released through two episodes of 10% extractions. A third withdrawal proposal is being discussed. The subsequent liquidity injection has resulted in a consumption-led economic recovery in Chile. |
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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 and Public Credit, the Colombian Financial Superintendency, the SIC, the Normative Projection and Financial Regulation Studies Unit (Unidad de Proyección Normativa y Estudios de Regulación Financiera – URF), the Deposit Insurance Fund (Fondo de Garantías de Instituciones Financieras - FOGAFIN) 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 and Public Credit is to regulate all aspects of finance and insurance activities. As part of its duties, the Colombian Ministry of Finance and Public Credit issues decrees relating to financial matters that may affect banking operations in Colombia. In particular, the Colombian Ministry of Finance and Public Credit is responsible for regulations relating to capital adequacy, risk limitations, authorized operations, disclosure of information and accounting of financial institutions.
Colombian Financial Superintendency
The Colombian Financial Superintendency is the authority responsible for supervising and regulating financial institutions, including commercial banks such as Itaú Corpbanca Colombia, finance companies, financial services companies and insurance companies. The Colombian Financial Superintendency 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 Financial Superintendency can also conduct on-site inspections of Colombian financial institutions.
The Colombian Financial Superintendency 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 Financial Superintendency 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 intermediaries 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.
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The sanctions of SRO can coexist with the sanctions of the Colombian Financial Superintendency. Itaú Corpbanca Colombia and Itaú Asset Management Colombia are members of the SRO and are subject to its regulations.
Normative Projection and Financial Regulation Studies Unit (Unidad de Proyección Normativa y Estudios de Regulación Financiera – URF)
The URF, within the policy framework established by the Colombian Ministry of Finance and Public Credit and without prejudice to the Board of Directors of the Colombian Central Bank, is responsible for the preparation of regulations for the exercise of the power of regulation in exchange matters and monetary, credit, regulation and intervention in financial, stock market, insurance activities and any other activities related to the management, use and investment of the resources captured from the public, for their subsequent issuance by the Colombian government.
Deposit Insurance Fund - FOGAFIN (Fondo de Garantías de Instituciones Financieras)
FOGAFIN is in charge of protecting the savings of citizens deposited in banks, financial corporations, financing companies, and companies specialized in SEDPEs that, by obligation, are registered in FOGAFIN. FOGAFIN is part of the Safety Network of the Colombian Financial System, made up of the Colombian Ministry of Finance and Public Credit, the Colombian Central Bank and the Colombian Financial Superintendency.
To protect the public’s savings and thereby ensure the stability of the financial sector, FOGAFIN applies, if necessary, different support operations to its registered entities to reduce or minimize the adverse effects of crisis situations in the financial system; administers and pays out deposit insurance; and monitors financial entities in possession and in liquidation of such funds.
Capital Adequacy Requirements
Capital adequacy requirements for Colombian financial institutions (as set forth in Decree 2555 of 2010, as amended, or Decree 2555) are based on applicable Basel Committee standards. Decree 2555 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 2555 sets forth, among other things:
● | that Technical Capital is the sum of ordinary primary capital (Patrimonio Básico Ordinario or Common Equity Tier One), additional primary capital (Patrimonio Básico Adicional or Additional Tier One), and secondary capital (Patrimonio Adicional or tier two capital); |
● | the criteria for debt and equity instruments to be considered ordinary primary capital, additional primary capital and secondary capital. The Colombian Financial Superintendency 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 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 Financial Superintendency has not yet defined the methodology to be used to estimate such effect; and |
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● | 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 Financial Superintendency implements a closer supervision on banking activities of the entity based on the supervision policy implemented by the Colombian Financial Superintendency. If a bank fails to comply with the capital adequacy requirements applicable to Colombian financial institutions, it 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.
Minimum Capital Requirements
The minimum capital requirement for banks on an unconsolidated basis set forth in the Financial System Organic Act was COP$93,829 million (Ch$20,066 million) for 2018, COP$96,813 million for 2019, COP$100,492 million (Ch$20,503 million) for 2020 and COP$102,110 million (Ch$20,037 million) for 2021. Failure to meet such requirement can result in the relevant financial institution take over (Toma de Posesión) by the Colombian Financial Superintendency. 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 Itaú 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 Resolution 1, issued by the Central Bank of Colombia issued in 2018, 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 1 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 Itaú 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 1 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 has no limit.
Finally, Resolution 1 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
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contracts denominated in foreign currency, excluding obligations of a transaction that imply either the right or an obligation on foreign currency, plus (ii) foreign currency cash operations with settlement higher or equal to one banking day, excluding obligations of a transaction that imply either the right or an obligation on foreign currency plus (iii) the exchange rate risk exposure associated with debtor and creditor contingencies acquired in the trading of exchange rate options and derivatives. Resolution 1 sets no limit on the gross position of leverage with respect to the currency position in cash.
Deposit Insurance
In Colombia, the deposit insurance fund, FOGAFIN (Fondo de Garantías de Instituciones Financieras), guarantees up to COP$50 million (US$14,353.2 as of December 31, 2020) 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 8% 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 3.5% 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.
Also, pursuant to the Circular Básica Contable y Financiera (Basic Accounting and Financial Circular) , to measure liquidity risk exposure on internal models, banks are required to calculate a liquidity risk indicator (LRI) accumulated for the band periods of 7, 15 and 30 days, as established by the Colombian Financial Superintendency’s standard model.
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.
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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 1, including in the case of foreign currency loans aimed at financing Colombian investments abroad. Moreover, Resolution 1 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 Itaú 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.
As a general rule, interest payments to foreign currency loans granted by foreign banks to Colombian residents are currently subject to a withholding tax at: (i) the general tax rate applicable to entities that are not Colombian residents for tax purposes (33% in 2019, 32 % in 2020, 31% in 2021 and in 2022 and onward 30%), when such payments are made to entities located in a preferential tax regime jurisdiction, non-cooperative jurisdiction or low-tax jurisdiction, according to paragraph of section 408 of the Colombian Tax Code; (ii) 5% when those interest payments are (a) derived from loans with an eight-year or longer term and (b) related to infrastructure projects under Law 1508 of 2012; (iii) 15% when interest payments are related to a loan of one year or longer; and (iv) 15% in 2018 and 20% in 2019 and onward as a general rule (i.e. in other cases different than (i), (ii) and (iii) above) according to section 408 of the Colombian Tax Code.
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 Financial Superintendency 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 consolidated financial statements included herein have been determined in accordance with IFRS.
Recent Regulatory Developments in Colombia
Tax Reform (2018-2020)
On December 28, 2018, the Colombian Government approved a tax reform under Law No. 1943. This tax reform was replaced by Law No. 2010 on December 27, 2019; however, most provisions in Law No. 1943 remain in Law No. 2010. The most relevant features of this reform are the following:
● | General income tax rate will be reduced from 37% in 2018 down to 30% in 2022 as follows: |
| | | | | | | | | |
| | | | | | 2022 and |
| | |
|
| 2020 |
| 2021 |
| following years | | | |
General tax rate |
| 32 | % | 31 | % | 30 | % | | |
Surcharge(*) |
| — |
| — |
| — |
| | |
Total |
| 32 | % | 31 | % | 30 | % | | |
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● | As of 2019, input VAT in the acquisition of fixed assets may be treated as a tax credit and may be offset against the income tax due. |
● | As of 2019, the thin capitalization rule will apply only to indebtedness between related parties. In order to determine the non-deductible interest, the debt-to-equity is to 2:1. For the deductibility of interest, taxpayers will have to prove to the Colombian Tax Administration, upon request, that there is no indebtedness between related parties through back-to-back operations or any other kind of operation in which the creditor is a substantially related party. In such case, the parties involved in the operation may be jointly liable for the taxes, sanctions and interest. |
● | The tax rate on dividends distributed to foreign companies, out of profits that were taxed at the corporate level was set at 10% in 2020 and onwards. |
● | The dividends distributed between Colombian companies were subject to a 7.5% withholding tax rate, which may be offset as a tax credit by the beneficial owner (either an individual tax resident or a foreign investor). Dividends distributed among Colombian entities duly registered as a corporate group or under a controlled situation (situación de control) before the Chamber of Commerce would not subject to withholding tax. In fiscal year 2018, dividends distributed among Colombian companies, out of profits that were taxed at the corporate level, were not subject to withholding tax. |
● | A new wealth tax (impuesto al patrimonio) applied and will apply to individuals and certain foreign investors in 2019, 2020 and 2021. |
● | As of 2019, Colombia may levy a capital gains tax on the sale of shares of a non-Colombian entity when such non-Colombian entity owns assets/shares in Colombia (enajenaciones indirectas). |
● | Entities and individuals involved in operations considered as tax abuse or tax fraud by the Colombian Tax Administration may be jointly liable for the taxes, sanctions and interest, pursuant to Section 793 of the Colombian Tax Code. |
● | Private equity funds and collective investment funds remain as non-taxpayers and its beneficiaries may defer the realization of the income when certain conditions are met. |
● | The percentage of liquid equity to calculate “assumed income” (renta presuntiva) decreased from 3.5% to 0.5% in 2020 and 0% as of 2021. |
Abandoned Accounts
On February 1, 2016, Law No. 1777 was enacted. Abandoned accounts are regulated in order to establish a public use for funds in these accounts. Funds are considered abandoned in bank accounts after three consecutive years without any account movement. Such abandoned funds may be invested in the creation and administration of a fund in the public financial institute that finances educational credit (Crédito Educativo y Becas en el Exterior or ICETEX).
Costs of Financial Services
On July 7, 2016, Law No. 1793 was enacted in order to regulate the costs of financial services. Among other things, this new law establishes that clients of entities authorized to collect funds from the public may access all of the funds deposited in their savings accounts or electronic deposits, without having the obligation to maintain a minimum balance. The entities must provide mechanisms for this purpose without charging additional fees to clients. This new law also establishes that: (i) for savings accounts, entities authorized to raise funds from the public may only charge financial and/or transactional costs for the first 60 days of inactivity and/or absence of financial movements by the user, and in no case may such entities make retroactive charges when the account becomes active again; (ii) for savings accounts that are inactive at the time of entry into force of the new law, the period of 60 days for the suspension of collections will
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start from the date of effectiveness of the law; and (iii) entities authorized to raise funds from the public are obligated to recognize users with a minimum interest rate in all savings accounts for any level of deposit. In addition, the receiving entities must inform the consumers about these changes in law.
Moreover, the Colombian Congress enacted Law 2009 of 2019, which provides that financial institutions, including banks, which are authorized to collect public savings and charge management fees for savings accounts, debit cards and credit cards, must grant their clients access to a minimum package of products and services at no additional cost.
Abusive Contract Clauses and Practices
On May 26, 2016, the Colombian Financial Superintendency issued its Circular No. 18, which modified the then-current instructions related to abusive contract clauses and practices. The circular forbids certain practices that were considered abusive by the Colombian Financial Superintendency, as well as those practices informed by the Financial Consumer Defenders. Financial institutions were given a maximum term of six months from the entry into force of the circular to adjust their contracts and practices to its instructions.
Total Unified Value (Valor Total Unificado or VTU)
On July 12, 2016, the Colombian Financial Superintendency issued its External Circular Letter No. 23, setting forth instructions related to the obligation of banking entities to report to their clients a “Total Unified Value” (Valor Total Unificado or VTU) of active and passive operations, when offering basic services and an “Annual Report of Total Costs” (Reporte Annual de Costos Totales or RACT). The purpose of this circular was to: (i) update and harmonize the instructions related to the scope, content and form of delivery of the RACT, and the basic services package; (ii) incorporate the components to be taken into account for the calculation and reporting of “Total Unified Value in Active Transactions” (Valor Total Unificado de Operaciones Activas or VTUA) and “Total Unified Value in Passive Transactions” (Valor Total Unificado de Operaciones Pasivas or VTUP); and (iii) establish the method of calculation of the VTUA and VTUP.
Interruptions of Services
On August 3, 2016, the Colombian Financial Superintendency issued its External Circular No. 28, setting forth instructions applicable to all financial sector companies in connection with events that generate interruptions of services and that prevent operations from being carried out by clients. The circular aimed to guarantee that clients are informed of these interruptions and have mechanisms to guarantee the effective exercise of their rights. The circular also includes instructions related to: (i) the information that credit institutions must provide to clients when encountering interruptions in the provision of services; and (ii) the general requirements regarding security and quality of information.
Requirements for Trust Products
On July 27, 2016, the Colombian Financial Superintendency issued its Circular No. 024, which established the minimum requirements for trust products linked to the development of real estate projects, accountability and the process of commercialization of the participation in any trust fund. The circular also sets forth the information that must be provided to financial consumers of trust products of any kind. For this purpose, the Colombian Financial Superintendency published an ABC on business trust about real estate projects providing general guidance to those interested in this class of investment.
Reversal of Payments
On April 11, 2016, the Colombian Ministry of Industry and Commerce issued its Decree No. 587, which added a chapter to the Unique Decree of the Commerce, Industry and Tourism Sector, Decree 1074 of 2015, and regulated Article 51 of Law 1,480 of 2011. The decree establishes the conditions and procedures for reversals of payments requested by consumers, when the purchase of the goods or services was made through electronic commerce mechanisms with an electronic payment instrument such as a credit or debit card.
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Accessibility for People with Disabilities
On March 31, 2018, the Colombian Financial Superintendency issued External Circular No. 008, which amended the Basic Legal Circular regarding the system of attention to financial consumers in situation of disability.
Securities Custodian
On January 26, 2017, the Colombian Ministry of Finance and Public Credit issued its Decree No. 119, which amended Decree No. 1068 of 2015 in relation to the general regime of foreign capital investment in Colombia and of Colombian investments abroad and other provisions regarding foreign exchange. The decree establishes that only entities such as trustee companies, broker companies and investment management companies can act as representatives of foreign portfolio investments.
Moreover, on July 26, 2019, the Colombian Ministry of Finance and Public Credit issued Decree No. 1351, which, among other matters, extends the faculties of the securities custodians so that they can act on behalf of its clients as a securities transfer agent for the management, negotiation and settlement of the operations of temporary transfer of securities (TTVs). The custodian may register transactions in the registration system and will be in charge of the guarantees and the final execution of the transaction. This Decree also allows banks to invest in securities issued by stock exchange funds whose basket is constituted solely of public debt securities issued by the Colombian government.
Specialized Electronic Deposit and Payment Institutions (Sociedades Especializadas en Depósitos y Pagos Electrónicos or SEDPE)
On December 7, 2017, the Colombian Ministry of Finance and Public Credit issued its Decree No. 2076, which amended Decree No. 2555 to, among other things: (i) provide that SEDPEs shall establish a consumer advocate to protect consumers’ rights, (ii) authorize SEDPEs the use of correspondent networks and establish rules regarding cash payments through the correspondent network, (iii) authorize SEDPEs the opening of accounts through non-presential means, and (iv) authorize SEDPEs customers to have more than one account per SEDPE.
In February 2020, the Colombian Ministry of Finance and Public Credit issued Decree 222 of 2020 that modifies Decree 2555 which regulates, among other instruments, low-amount deposits, low-amount credits, correspondents and microcredit. This decree was created to channel resources during the COVID-19 pandemic. One of the features is, among others, that people will be able to open low-amount demand deposits in SEDPEs and cooperatives with specific characteristics of the amount through a simplified procedure.
On April 11, 2020, the Colombian Financial Superintendency issued External Circular No. 15 to impart instructions related to the treatment of resources injected by the Colombian government through SEDPEs within the framework of the Solidarity Income Program. This regulatory instrument was later amended by the External Circular No. 32, to add new instructions related to abusive practices and the automatic debit.
Publication of the Current Banking Interest Rate
Beginning on September 1, 2017, the Colombian Financial Superintendency started publishing the current banking interest rate (Interés Bancario Corriente) on a monthly basis, and not on a quarterly basis as previously.
Financial Conglomerates
On September 21, 2017, Law 1870 was enacted. This law establishes that financial holdings will be subject to the inspection and oversight of the Colombian Financial Superintendency under the terms of said law and of the decrees issued in the future for this regulation. A financial holding is understood as any legal person or investment vehicle that exercises the first level of control or significant influence over the entities that make up the financial conglomerate. Furthermore, this law gives the Colombian Financial Superintendency the faculty to request information regarding the members of the financial conglomerate to verify if they meet requirements regarding: (i) the appropriate levels of capital; (ii) solvency margins; (iii) with exposure limits; and (iv) concentration risks. Also this law permits the Colombian
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Financial Superintendency to verify if each member entity of the conglomerate complies with applicable regulations in relation to: (i) risk management; (ii) internal control; (iii) disclosure of information; (iv) conflicts of interest; and (v) corporate governance. Such requirements will not be applicable if the foreign financial holding proves to the Colombian Financial Superintendency that is already subject to an equivalent regime of prudential regulation and consolidated supervision.
As a result, the Colombian Ministry of Finance and Public Credit enacted (i) Decree 246 of 2018 to provide criteria to exclude certain entities from the financial conglomerates, (ii) Decree 774 of 2018 to determine appropriate levels of capital for financial conglomerates, and (iii) Decree 1486 of 2018 to establish criteria for determining linked entities, exposure limits, risk concentration and conflicts of interest of financial conglomerates.
In addition, the Colombian Financial Superintendency issued (i) External Circular No. 012 of 2019, regarding appropriate levels of capital for financial conglomerates and (ii) External Circular No. 013 of 2019 giving instructions related to the Risk Management Framework for Financial Conglomerates (Marco de Gestión de Riesgos para los Conglomerados Financieros).
Finally, the CFS issued External Circular No. 030 of 2020, which sets forth rules applicable to related parties, exposure limits and concentration of risks of financial conglomerates. External Circular No.041 of 2020 further modifies existing rules to control aggregate exposure limits and risk concentration between entities of a financial conglomerate and their related parties.
Modification of the Initial Conditions of Credits
On September 29, 2017 the Colombian Financial Superintendency issued External Circular No. 026, which provides guidelines for the management of credits of which the initial conditions have been modified, based on potential or real deterioration in the debtor’s payment capacity, in order to standardize the existing policies regarding this type of credit.
Mutual Funds Portfolio Investments
On December 20, 2017, the Colombian Financial Superintendency issued its external Circular No. 037 which sets forth instructions with the objective of updating the existing valuation methodologies for the valuation of the assets that make up the portfolios of mutual funds.
Furthermore, on February 19, 2019, the Colombian Ministry of Finance and Public Credit issued Decree No. 232, amending Decree No. 2555, which provides rules about the election of the members of the board of directors, their duties and the conditions that companies must meet to retire from the mutual fund.
Properties and Investments of Financial Institutions
On November 30, 2017, the Colombian Financial Superintendency issued its external Circular No. 33 which amends Chapter V, Title I, Part I of the Basic Legal Circular, with the purpose of updating the accounts that compute the calculation of fixed assets and investments.
On December 19, 2019, the Colombian Financial Superintendency modified Chapter XVIII of its Basic Financial Circular to adjust the requirements for the management and measurement of risks associated to transactions in derivative operations and structured products. The financial institutions were required to implement these modifications by December 31, 2020.
In addition, in March and April of 2020, the Colombian Financial Superintendency issued instructions related to the strengthening of operational risk management and the adoption of measures to mitigate negative effects in response to the adverse financial and economic impact of the COVID-19 pandemic.
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Withdrawal of Money
On June 9, 2017 Law 1836 was enacted. The law obliges financial institutions to provide a free form of withdrawal of money to the beneficiaries in the deposit agreements. The Colombian Financial Superintendency will be in charge of ensuring compliance with this legal duty.
Liquidation Formula for Public-Private Association Agreements
On January 15, 2018, the Colombian president signed Law 1882 of 2018, which incorporates a liquidation formula for public-private association agreements and transport infrastructure concessions, providing that if an agreement is declared void, the state-owned entity will still pay for the costs, investments and expenses actually incurred by the concessionaire. This means that the credits associated with those contracts will be entitled to receive such payments, and that the concessionaire will only have a right to receive payments after such credits are paid, but no more than the total amount of equity contributions made by its shareholders less the total amount of dividends paid to them.
Purchase of Assets and Assumption of Liabilities in the Liquidation of a Credit Establishment
On March 15, 2018, the Colombian Ministry of Finance and Public Credit issued Decree No. 521, amending Decree No. 2555, which incorporates a chapter regulating the purchase of assets and assumption of liabilities from credit institutions (Establecimientos de Crédito) under a forced liquidation process.
Access to the Financial System for Former Members of FARC
On April 2, 2018 the Colombian Financial Superintendency issued External Circular No. 005, which sets forth rules governing the integration into the financial system of former FARC members who have taken part in a process of reincorporation into civil life, and of any legal entity in which they may be part as shareholders, contributors or members.
Electronic Savings Accounts
On April 26, 2018 the Colombian Ministry of Finance and Public Credit issued Decree No. 720, amending Decree No. 2555, regarding the characteristics of the electronic savings accounts.
Capital Adequacy levels for Financial Conglomerates
On May 8, 2018 the Colombian Ministry of Finance and Public Credit issued Decree No. 774, amending Decree No. 2555, which incorporates a chapter regulating the adequate capital levels that must be complied by financial conglomerates, for which such financial institutions will have an 18 month term to comply with Decree No. 774.
Foreign Exchange
On May 25, 2018, the Central Bank of Colombia issued External Resolution 1, which repeals the previous resolutions on foreign exchange, compiling and amending different matters on this subject that where established on External Resolutions (i) 8 of 2000, (ii) 3 of 2006, (iii) 1 of 2012, (iv) 9 of 2013, (v) 6 of 2015, and (vi) 3 of 2016.
Resolution Plans and Coordination Mechanisms
On May 28, 2018 the Colombian Ministry of Finance and Public Credit issued Decree No. 923, amending Decree No. 2555, which incorporates a chapter implementing the resolution plans and coordination mechanisms, which must be presented by the entities supervised by the Colombian Financial Superintendency to foresee the strategy, resources, action guide processes and procedures adopted by these entities, in order to deal with situations of financial stress that are considered material in a timely and adequate manner.
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Cybersecurity and Technology
On, June 5, 2018, the Colombian Financial Superintendency issued External Circular No. 007, which sets the minimum requirements that must be set by entities supervised by the Colombian Financial Superintendency in their management systems for cybersecurity risks.
In addition, in 2019, the Colombian Financial Superintendency issued the following regulations: (i) External Circular No. 005, regarding the minimum requirements for the use of cloud services by its supervised entities; (ii) External Circular No. 006, which provides instructions related to safety and quality of operations using QR codes; and (iii) External Circular No. 029, which sets forth the minimum security and quality requirements for carrying out operations, access and information for financial consumers and the use of biometric factors.
In addition, the Colombian Financial Superintendency issued External Circular 033 of 2020 which (i) regulates the minimum requirements for the management of information security and cybersecurity and (ii) defines the single taxonomy for the reporting of cybersecurity incidents by adopting the Traffic Light Protocol (TLP) for the report of cyber incidents to the Colombian regulator.
Capital Adequacy Requirements Amendment
On August 6, 2018 the Colombian Ministry of Finance and Public Credit issued Decree No. 1477, amending Decree No. 2555, regarding the capital adequacy requirements for financial institutions. Decree No. 1477 creates two complementary ratio mechanisms called (i) additional primary solvency ratio (Relación de Solvencia Básica Adicional) and (ii) leverage ratio (Relación de Apalancamiento). Additional primary solvency ratio is defined as the sum of the ordinary primary capital net of deductions and the additional primary capital, divided by the value of the weighted assets by their level of credit and market risk. The additional primary solvency of a financial institution must be at least 6%. In the case of the leverage ratio, this term is defined as the sum of the ordinary primary capital net of deductions and the additional primary capital, divided by the leverage value. This leverage ratio must be at least 3%.
Furthermore, Decree No. 1477 added the following buffers (Colchones), in order to increase both the quality and the amount of capital, to provide greater coverage to the risks assumed by the entity:
● | Conservation Buffer (Colchón de Conservación): 1.5% of RWA covered with ordinary primary capital; |
● | Buffer for entities of systemic importance (Colchón para las Entidades con Importancia Sistémica): 1.0% of RWA covered with ordinary primary capital; and |
● | Combined Buffer (Colchón Combinado). |
In addition, on August 6, 2019, the Colombian Ministry of Finance and Public Credit issued Decree No. 1421, amending Decree No. 2555, regarding capital adequacy requirements by operational risk for credit institutions. This Decree, among other matters, provides a formula for calculating the operational exposure value, using a business indicator (indicador de negocio) multiplied by the coefficient of operational risk (coeficiente de riesgo operacional) and by the internal loss (indicador de pérdida interna).
Financial institutions were required to comply with Decrees No. 1477 and No. 1421 no later than January 1, 2021, except on the matters regarding the additional primary solvency ratio and the buffers, which will have a gradual implementation in a four-year term, from January 2021 until January 2024.
Investments in Companies of Innovation and Financial Technology
On December 27, 2018, the Colombian Ministry of Finance and Public Credit issued Decree No. 2443, amending Decree No. 2555, authorizing credit establishments to invest in companies, which sole purpose is to develop and /or apply innovations and technology related to the corporate purpose of the investing credit establishment.
106
Draft Bill Presented to the Colombian Congress for the Modernization of Payment Systems and Capital Markets Development
On March 23, 2021, the Colombian Ministry of Finance and Public Credit presented a bill to the Colombian Congress. The bill was based on the Colombian public policy for a greater development of the financial system between 2020 and 2025 and also in accordance with the recommendations of the 2019 Capital Market Mission. The bill is divided into four major chapters: (i) promote payment systems and financial inclusion; (ii) develop the capital markets; (iii) modernize some subsectors of the financial system and (iv) strengthen the institutional framework of the financial authorities, according to the Ministry of Finance and Public Credit. Thus, it is proposed that there be a single regulator with greater capacities to promote universal, efficient and secure access to payment systems. The Ministry of Finance and Public Credit, with the support of the Financial Regulation Unit (URF), will have a broad authority for this purpose. Likewise, the supervision of payment actors is assigned to the Colombian Financial Superintendency to ensure a homogeneous standard. In addition, it is proposed to update the subsidy dispersal scheme in accordance with the experience acquired during the COVID-19 pandemic, in order to improve the targeting of public policy and make the actions of the Colombian Government more efficient.
SELECTED STATISTICAL INFORMATION
The following information is included for analytical purposes and should be read in conjunction with our consolidated 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, 2018, 2019 and 2020 has been expressed in Chilean pesos as of December 31, 2020. 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 monthly 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:
Rp= | 1 + Np | -1 | Rd= | (1 + Nd)(1 + D) | -1 |
| 1 + I | | | 1+I | |
Where:
Rp= real average interest rate for Chilean peso-denominated assets and liabilities (in Ch$ and UF) for the period,
Rd= real average interest rate for foreign currency denominated assets and liabilities for the period,
Np= average nominal interest rate for Chilean peso-denominated assets and liabilities for the period,
Nd= average nominal interest 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).
107
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):
Rd= | (1 + 0.10)(1 + 0.05) | -1= 3.125% per year |
| 1 + 0.12 | |
In the example, since the inflation rate was higher than the devaluation rate, the real rate is lower than the nominal rate in dollars. If, for example, the annual devaluation rate were 15%, using the same numbers, the real rate in Chilean pesos would be 12.9%, which is higher than the nominal rate in U.S. dollars. Using the initial example, if the annual inflation rate were greater than 15.5%, the real rate would be negative.
Interest and average balances have been calculated by taking into consideration the following:
● | 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 |
108
● | 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. |
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, 2018, 2019 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| ||||||||||||||||||||||
| | 2018 | | 2019 | | 2020 |
| ||||||||||||||||||
| | | | | | Average | | Average | | | | | | Average | | Average | | | | | | Average | | Average |
|
| | Average | | Interest | | Nominal | | Real | | Average | | Interest | | Nominal | | Real | | Average | | Interest | | Nominal | | Real |
|
|
| Balance |
| Earned |
| Rate |
| Rate |
| Balance |
| Earned |
| Rate |
| Rate |
| Balance |
| Earned |
| Rate |
| Rate | |
| | (in millions of Ch$ except for percentages) | | ||||||||||||||||||||||
INTEREST EARNING ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | |
Deposits in Central Bank | | | | | | | | | | | | | | | | | | | | | | | | | |
Ch$ |
| 127,534 |
| 1,778 |
| 1.4 | % | (1.2) |
| 93,607 |
| — |
| — | | (2.5) | % | 1,326,438 | | 2,708 | | 0.2 | % | (2.7) | % |
UF |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | (3) | % | — | | — | | — | | — | |
Foreign currency |
| 8,528 |
| — |
| — |
| 10.2 | % | 16,902 |
| — |
| — | | 10.2 | % | 25,104 | | 861 | | 3.4 | % | 8.2 | % |
Total |
| 136,062 |
| 1,778 |
| 1.3 | % | (0.5) | % | 110,509 |
| — |
| — | % | (0.6) | % | 1,351,542 |
| 3,569 |
| 0.3 | % | (2.5) | % |
Financial investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
Ch$ |
| 821,238 |
| 29,658 |
| 3.6 | % | 1.0 | % | 1,234,023 |
| 36,786 |
| 3.0 | % | 0.4 | % | 2,082,428 | | 24,088 | | 1.2 | % | (1.8) | % |
UF |
| 704,707 |
| 26,354 |
| 3.7 | % | 1.1 | % | 537,620 |
| 17,979 |
| 3.3 | % | 0.7 | % | 735,578 | | 22,051 | | 3.0 | % | — | % |
Foreign currency |
| 1,460,155 |
| 64,321 |
| 4.4 | % | 15.0 | % | 1,057,750 |
| 39,888 |
| 3.8 | % | 14.4 | % | 964,450 | | 32,899 | | 3.4 | % | 8.2 | % |
Total |
| 2,986,100 |
| 120,333 |
| 4.0 | % | 7.9 | % | 2,829,393 |
| 94,653 |
| 3.3 | % | 5.7 | % | 3,782,456 |
| 79,038 |
| 2.1 | % | 1.1 | % |
Total loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
Ch$ |
| 5,977,972 |
| 572,181 |
| 9.6 | % | 6.8 | % | 6,070,912 |
| 553,481 |
| 9.1 | % | 6.4 | % | 6,456,845 | | 475,776 | | 7.4 | % | 4.2 | % |
UF |
| 7,778,882 |
| 453,513 |
| 5.8 | % | 3.1 | % | 8,339,123 |
| 476,859 |
| 5.7 | % | 3.0 | % | 8,911,447 | | 449,809 | | 5.0 | % | 2.0 | % |
Foreign currency |
| 7,226,952 |
| 582,271 |
| 8.1 | % | 19.1 | % | 7,829,584 |
| 628,795 |
| 8.0 | % | 19.0 | % | 8,093,776 | | 530,497 | | 6.6 | % | 11.5 | % |
Total |
| 20,983,806 |
| 1,607,965 |
| 7.7 | % | 9.7 | % | 22,239,619 |
| 1,659,135 |
| 7.5 | % | 9.6 | % | 23,462,068 |
| 1,456,082 |
| 6.2 | % | 5.9 | % |
Interbank loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
Ch$ |
| 116,340 |
| 3,372 |
| 2.9 | % | 0.3 | % | 99,005 |
| 2,564 |
| 2.6 | % | (0.0) | % | 84,917 | | 736 | | 0.9 | % | (2.1) | % |
UF |
| — |
| — |
| — |
| — |
| — |
| — |
| — | % | — |
| — | | — | | — | % | — | % |
Foreign currency |
| 87,332 |
| 1,642 |
| 1.9 | % | 12.3 | % | 93,205 |
| 1,797 |
| 1.9 | % | 12.3 | % | 55,626 | | 805 | | 1.4 | % | 6.2 | % |
Total |
| 203,672 |
| 5,014 |
| 2.5 | % | 5.4 | % | 192,210 |
| 4,361 |
| 2.3 | % | 6.0 | % | 140,543 |
| 1,541 |
| 1.1 | % | 1.2 | % |
Investment under resale agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| |
| |
|
Ch$ |
| 103,654 |
| 2,782 |
| 2.7 | % | 0.1 | % | 64,142 |
| 1,451 |
| 2.3 | % | (0.3) | % | 85,353 | | 1,959 | | 2.3 | % | (0.7) | % |
UF |
| — |
| — |
| — |
| — |
| — |
| — |
| — | % | — |
| — | | — | | — | | — | |
Foreign currency |
| 42,789 |
| 2,206 |
| 5.2 | % | 15.9 | % | 68,774 |
| 3,543 |
| 5.2 | % | 15.9 | % | 63,936 | | 1,608 | | 2.5 | % | 7.3 | % |
Total |
| 146,443 |
| 4,988 |
| 5.2 | % | 4.7 | % | 132,916 |
| 4,994 |
| 3.8 | % | 8.1 | % | 149,289 |
| 3,567 | | 2.4 | % | 2.7 | % |
Other interest earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| | |
| |
|
Ch$ |
| 113 |
| — |
| — |
| 10.2 | % | 122,904 |
| 455 |
| 0.4 | % | (2.2) | % | 229,507 | | 383 | | 0.2 | % | (2.8) | % |
UF |
| — |
| — |
| — |
| — |
| — |
| — |
| — | % | — |
| — | | — | | — | | — | |
Foreign currency |
| 579,539 |
| (761) |
| (0.1) | % | 10.1 | % | 845,938 |
| 10,042 |
| 0.9 | % | 11.2 | % | 1,077,850 | | 5,494 | | 0.5 | % | 5.2 | % |
Total |
| 579,652 |
| (761) |
| (0.1) | % | 10.1 | % | 968,842 |
| 10,497 |
| 1.1 | % | 9.5 | % | 1,307,357 |
| 5,877 | | 0.4 | % | 3.8 | % |
Total interest earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
Ch$ |
| 7,146,851 |
| 609,771 |
| 8.5 | % | 5.8 | % | 7,684,592 |
| 594,737 |
| 7.7 | % | 5.0 | % | 10,265,488 | | 505,650 | | 4.9 | % | 1.9 | % |
UF |
| 8,483,589 |
| 479,867 |
| 5.7 | % | 3.0 | % | 8,876,743 |
| 494,838 |
| 5.6 | % | 2.9 | % | 9,647,025 | | 471,860 | | 4.9 | % | 1.8 | % |
Foreign currency |
| 9,405,295 |
| 649,679 |
| 6.9 | % | 17.8 | % | 9,912,152 |
| 684,065 |
| 6.9 | % | 17.8 | % | 10,280,742 | | 572,164 | | 5.6 | % | 10.5 | % |
Total |
| 25,035,735 |
| 1,739,317 |
| 6.9 | % | 9.4 | % | 26,473,487 |
| 1,773,640 |
| 6.7 | % | 9.1 | % | 30,193,255 |
| 1,549,674 |
| 5.1 | % | 4.8 | % |
109
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | ||||||||||||||||||||||
| | 2018 | | 2019 | | 2020 | ||||||||||||||||||
| | | | | | Average | | Average | | | | | | Average | | Average | | | | | | Average | | Average |
| | Average | | Interest | | Nominal | | Real | | Average | | Interest | | Nominal | | Real | | Average | | Interest | | Nominal | | Real |
|
| Balance |
| Earned |
| Rate |
| Rate |
| Balance |
| Earned |
| Rate |
| Rate |
| Balance |
| Earned |
| Rate |
| Rate |
| | (in millions of Ch$) | ||||||||||||||||||||||
NON-INTEREST EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$ |
| 474,207 |
| — |
| — |
| — |
| 467,947 |
| — |
| — |
| — |
| 434,581 |
| — | | — |
| — |
UF |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | — |
| — |
Foreign currency |
| 445,823 |
| — |
| — |
| — |
| 382,741 |
| — |
| — |
| — |
| 306,202 |
| — | | — |
| — |
Total |
| 920,030 |
| — |
| — |
| — |
| 850,688 |
| — |
| — |
| — |
| 740,783 |
| — | | — |
| — |
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
|
|
|
Ch$ |
| 482,567 |
| — |
| — |
| — |
| (428,709) |
| — |
| — |
| — |
| (551,386) |
| — | | — |
| — |
UF |
| — |
| — |
| — |
| — |
| (2,003) |
| — |
| — |
| — |
| (2,262) |
| — | | — |
| — |
Foreign currency |
| 271,780 |
| — |
| — |
| — |
| (274,929) |
| — |
| — |
| — |
| (281,992) |
| — | | — |
| — |
Total |
| 754,347 |
| — |
| — |
| — |
| (705,641) |
| — |
| — |
| — |
| (835,640) |
| — | | — |
| — |
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
|
|
|
Ch$ |
| 73,524 |
| — |
| — |
| — |
| 40,238 |
| — |
| — |
| — |
| 35,482 |
| — | | — |
| — |
UF |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | — |
| — |
Foreign currency |
| 37,100 |
| — |
| — |
| — |
| 16,340 |
| — |
| — |
| — |
| 21,137 |
| — | | — |
| — |
Total |
| 110,624 |
| — |
| — |
| — |
| 56,578 |
| — |
| — |
| — |
| 56,619 |
| — | | — |
| — |
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
|
|
|
Ch$ |
| 892,914 |
| — |
| — |
| — |
| 1,473,720 |
| — |
| — |
| — |
| 2,738,668 |
| — | | — |
| — |
UF |
| 71,759 |
| — |
| — |
| — |
| 219,004 |
| — |
| — |
| — |
| 361,193 |
| — | | — |
| — |
Foreign currency |
| 311,364 |
| — |
| — |
| — |
| 472,664 |
| — |
| — |
| — |
| 1,211,278 |
| — | | — |
| — |
Total |
| 1,276,037 |
| — |
| — |
| — |
| 2,165,388 |
| — |
| — |
| — |
| 4,311,139 |
| — | | — |
| — |
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
|
|
|
Ch$ |
| 2,098,272 |
| — |
| — |
| — |
| 2,029,886 |
| — |
| — |
| — |
| 1,713,607 |
| — | | — |
| — |
UF |
| 13,324 |
| — |
| — |
| — |
| 161,027 |
| — |
| — |
| — |
| 64,946 |
| — | | — |
| — |
Foreign currency |
| 521,334 |
| — |
| — |
| — |
| 728,780 |
| — |
| — |
| — |
| 1,097,310 |
| — | | — |
| — |
Total |
| 2,632,930 |
| — |
| — |
| — |
| 2,919,693 |
| — |
| — |
| — |
| 2,875,863 |
| — | | — |
| — |
Total non-interest earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
|
|
|
Ch$ |
| 3,056,349 |
| — |
| — |
| — |
| 3,583,082 |
| — |
| — |
| — |
| 4,370,952 |
| — | | — |
| — |
UF |
| 85,083 |
| — |
| — |
| — |
| 378,028 |
| — |
| — |
| — |
| 423,877 |
| — | | — |
| — |
Foreign currency |
| 1,043,840 |
| — |
| — |
| — |
| 1,325,597 |
| — |
| — |
| — |
| 2,353,935 |
| — | | — |
| — |
Total |
| 4,185,272 |
| — |
| — |
| — |
| 5,286,707 |
| — |
| — |
| — |
| 7,148,764 |
| — | | — |
| — |
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Ch$ |
| 10,203,200 |
| 609,771 |
| — |
| — |
| 11,267,674 |
| 594,737 |
| — |
| — |
| 14,636,440 |
| 505,650 |
| — |
| — |
UF |
| 8,568,672 |
| 479,867 |
| — |
| — |
| 9,254,771 |
| 494,838 |
| — |
| — |
| 10,070,902 |
| 471,860 |
| — |
| — |
Foreign currency |
| 10,449,134 |
| 649,679 |
| — |
| — |
| 11,237,749 |
| 684,065 |
| — |
| — |
| 12,634,677 |
| 572,164 |
| — |
| — |
Total |
| 29,221,006 |
| 1,739,317 |
| — |
| — |
| 31,760,194 |
| 1,773,640 |
| — |
| — |
| 37,342,019 |
| 1,549,674 |
| — | | — |
110
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | |||||||||||||||||||||||
| | 2018 | | 2019 | | 2020 | |||||||||||||||||||
| | | | | | Average | | Average | | | | | | Average | | Average | | | | | | Average | | Average | |
| | Average | | Interest | | Nominal | | Real | | Average | | Interest | | Nominal | | Real | | Average | | Interest | | Nominal | | Real | |
|
| Balance |
| Paid |
| Rate |
| Rate |
| Balance |
| Paid |
| Rate |
| Rate |
| Balance |
| Paid |
| Rate |
| Rate | |
|
| (in millions of Ch$ except for percentages) | |||||||||||||||||||||||
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
INTEREST BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Time Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Ch$ |
| 6,171,595 |
| 184,021 |
| 3.0 | % | 0.4 | % | 6,982,682 |
| 207,951 |
| 3.0 | % | 0.4 | % | 8,417,414 |
| 140,558 |
| 1.7 | % | (0.9) | % |
UF |
| 639,980 |
| 40,755 |
| 6.4 | % | 3.7 | % | 430,140 |
| 24,087 |
| 5.6 | % | 2.9 | % | 403,581 |
| 23,615 |
| 5.9 | % | 3.2 | % |
Foreign currency |
| 3,285,676 |
| 160,958 |
| 4.9 | % | 15.6 | % | 3,199,175 |
| 145,052 |
| 4.5 | % | 9.8 | % | 3,374,784 |
| 103,309 |
| 3.1 | % | 8.3 | % |
Total |
| 10,097,251 |
| 385,734 |
| 3.8 | % | 5.5 | % | 10,611,997 |
| 377,090 |
| 3.6 | % | 3.3 | % | 12,195,779 |
| 267,482 |
| 2.2 | % | 1.8 | % |
Central Bank borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
|
| |
|
Ch$ |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | — |
| 1,539,759 |
| 7,162 |
| 0.5 | % | (2.1) | % |
UF |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | — |
| — |
| — |
| — | | — | |
Foreign currency |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | — |
| — |
| — |
| — | | — | |
Total |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | — |
| 1,539,759 |
| 7,162 |
| 0.5 | % | (2.1) | % |
Repurchase agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
|
| |
|
Ch$ |
| 281,691 |
| 7,546 |
| 2.7 | % | 0.1 | % | 373,437 |
| 9,226 |
| 2.5 | % | (0.1) | % | 409,857 |
| 3,204 |
| 0.8 | % | (1.8) | % |
UF |
| — |
| 4 |
| — | | — |
| — |
| — |
| — | | — | | — |
| — |
| — | | — | |
Foreign currency |
| 524,532 |
| 22,114 |
| 4.2 | % | 14.8 | % | 342,753 |
| 17,123 |
| 5.0 | % | 10.3 | % | 188,347 |
| 5,418 |
| 2.9 | % | 8.1 | % |
Total |
| 806,223 |
| 29,664 |
| 3.7 | % | 9.7 | % | 716,190 |
| 26,349 |
| 3.7 | % | 4.9 | % | 598,204 |
| 8,622 |
| 1.4 | % | 1.3 | % |
Mortgage finance bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
|
| |
|
Ch$ |
| — |
| — |
| — | | — | | — |
| — |
| — | | — | | — |
| — |
| — | | — | |
UF |
| 58,939 |
| 2,963 |
| 5.0 | % | 2.4 | % | 45,598 |
| 1,993 |
| 4.4 | % | 1.3 | % | 34,536 |
| 1,262 |
| 3.7 | % | 0.6 | % |
Foreign currency |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | — | | — |
| — |
| — | | — | |
Total |
| 58,939 |
| 2,963 |
| 5.0 | % | 2.4 | % | 45,598 |
| 1,993 |
| 4.4 | % | 1.3 | % | 34,536 |
| 1,262 |
| 3.7 | % | 0.6 | % |
Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
|
| |
|
Ch$ |
| 567,496 |
| 61,589 |
| 10.9 | % | 8.0 | % | 631,821 |
| 66,052 |
| 10.5 | % | 7.2 | % | 839,586 |
| 60,282 |
| 7.2 | % | 4.1 | % |
UF |
| 4,232,986 |
| 209,261 |
| 4.9 | % | 2.3 | % | 4,760,456 |
| 222,959 |
| 4.7 | % | 1.6 | % | 4,761,392 |
| 188,066 |
| 3.9 | % | 0.9 | % |
Foreign currency |
| 989,060 |
| 48,439 |
| 4.9 | % | 15.6 | % | 965,401 |
| 51,469 |
| 5.3 | % | 10.2 | % | 757,911 |
| 42,379 |
| 5.6 | % | 10.5 | % |
Total |
| 5,789,542 |
| 319,289 |
| 5.5 | % | 5.1 | % | 6,357,678 |
| 340,480 |
| 5.4 | % | 3.5 | % | 6,358,889 |
| 290,727 |
| 4.6 | % | 2.5 | % |
Other interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
|
| |
|
Ch$ |
| 1,623,176 |
| 7,596 |
| 0.5 | % | (2.1) | % | 1,784,255 |
| (4,414) |
| (0.2) | % | (3.2) | % | 2,236,779 |
| 8,195 |
| 0.4 | % | (2.6) | % |
UF |
| 15,607 |
| 4,833 |
| 31.0 | % | 27.6 | % | 3,622 |
| 6,216 |
| 171.6 | % | 163.7 | % | 121,987 |
| 330 |
| 0.3 | % | (2.7) | % |
Foreign currency |
| 3,130,676 |
| 101,575 |
| 3.2 | % | 13.8 | % | 3,319,744 |
| 125,508 |
| 3.8 | % | 8.6 | % | 3,600,564 |
| 99,457 |
| 2.8 | % | 7.5 | % |
Total |
| 4,769,459 |
| 114,004 |
| 2.4 | % | 8.4 | % | 5,107,621 |
| 127,310 |
| 2.5 | % | 4.6 | % | 5,959,330 |
| 107,982 |
| 1.8 | % | 3.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
|
| |
|
Total interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
|
| |
|
Ch$ |
| 8,643,958 |
| 260,752 |
| 3.0 | % | 0.4 | % | 9,772,195 |
| 278,815 |
| 2.9 | % | (0.1) | % | 13,443,396 |
| 219,401 |
| 1.6 | % | (1.3) | % |
UF |
| 4,947,511 |
| 257,816 |
| 5.2 | % | 2.5 | % | 5,239,816 |
| 255,255 |
| 4.9 | % | 1.8 | % | 5,321,495 |
| 213,273 |
| 4.0 | % | 1.0 | % |
Foreign currency |
| 7,929,943 |
| 333,086 |
| 4.2 | % | 14.8 | % | 7,827,072 |
| 339,152 |
| 4.3 | % | 9.2 | % | 7,921,605 |
| 250,563 |
| 3.2 | % | 7.9 | % |
Total |
| 21,521,412 |
| 851,654 |
| 4.0 | % | 6.2 | % | 22,839,083 |
| 873,222 |
| 3.8 | % | 3.5 | % | 26,686,496 |
| 683,237 |
| 2.6 | % | 1.9 | % |
111
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | ||||||||||||||||||||||
| | 2018 | | 2019 | | 2020 | ||||||||||||||||||
| | | | | | Average | | Average | | | | | | Average | | Average | | | | | | Average | | Average |
| | Average | | Interest | | Nominal | | Real | | Average | | Interest | | Nominal | | Real | | Average | | Interest | | Nominal | | Real |
|
| Balance |
| Paid |
| Rate |
| Rate |
| Balance |
| Paid |
| Rate |
| Rate |
| Balance |
| Paid |
| Rate |
| Rate |
|
| (in millions of Ch$) | ||||||||||||||||||||||
NON-INTEREST EARNING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing demand deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$ |
| 657,388 |
| — |
| — |
| — |
| 663,099 |
| — |
| — |
| — |
| 680,483 |
| — |
| — |
| — |
UF |
| 6,053 |
| — |
| — |
| — |
| 3,441 |
| — |
| — |
| — |
| 5,294 |
| — |
| — |
| — |
Foreign currency |
| 1,670,808 |
| — |
| — |
| — |
| 1,655,539 |
| — |
| — |
| — |
| 1,831,418 |
| — |
| — |
| — |
Total |
| 2,334,249 |
| — |
| — |
| — |
| 2,322,079 |
| — |
| — |
| — |
| 2,517,195 |
| — |
| — |
| — |
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Ch$ |
| 755,182 |
| — |
| — |
| — |
| 1,342,427 |
| — |
| — |
| — |
| 2,582,756 |
| — |
| — |
| — |
UF |
| 91,479 |
| — |
| — |
| — |
| 270,407 |
| — |
| — |
| — |
| 449,618 |
| — |
| — |
| — |
Foreign currency |
| 241,447 |
| — |
| — |
| — |
| 463,213 |
| — |
| — |
| — |
| 1,288,305 |
| — |
| — |
| — |
Total |
| 1,088,108 |
| — |
| — |
| — |
| 2,076,047 |
| — |
| — |
| — |
| 4,320,679 |
| — |
| — |
| — |
Other non-interest-bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Ch$ |
| 381,290 |
| — |
| — |
| — |
| 405,178 |
| — |
| — |
| — |
| 368,659 |
| — |
| — |
| — |
UF |
| 145,879 |
| — |
| — |
| — |
| 282,031 |
| — |
| — |
| — |
| 234,737 |
| — |
| — |
| — |
Foreign currency |
| 259,246 |
| — |
| — |
| — |
| 249,556 |
| — |
| — |
| — |
| 338,847 |
| — |
| — |
| — |
Total |
| 786,415 |
| — |
| — |
| — |
| 936,765 |
| — |
| — |
| — |
| 942,243 |
| — |
| — |
| — |
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Ch$ |
| 3,340,551 |
| — |
| — |
| — |
| 3,421,657 |
| — |
| — |
| — |
| 2,636,110 |
| — |
| — |
| — |
UF |
| 117,620 |
| — |
| — |
| — |
| 113,112 |
| — |
| — |
| — |
| 126,645 |
| — |
| — |
| — |
Foreign currency |
| 32,650 |
| — |
| — |
| — |
| 51,451 |
| — |
| — |
| — |
| 112,651 |
| — |
| — |
| — |
Total |
| 3,490,821 |
| — |
| — |
| — |
| 3,586,220 |
| — |
| — |
| — |
| 2,875,406 |
| — |
| — |
| — |
Total non-interest-bearing liabilities and shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Ch$ |
| 5,134,412 |
| — |
| — |
| — |
| 5,832,361 |
| — |
| — |
| — |
| 6,268,008 |
| — |
| — |
| — |
UF |
| 361,030 |
| — |
| — |
| — |
| 668,991 |
| — |
| — |
| — |
| 816,294 |
| — |
| — |
| — |
Foreign currency |
| 2,204,151 |
| — |
| — |
| — |
| 2,419,759 |
| — |
| — |
| — |
| 3,571,221 |
| — |
| — |
| — |
Total |
| 7,699,593 |
| — |
| — |
| — |
| 8,921,111 |
| — |
| — |
| — |
| 10,655,523 |
| — |
| — |
| — |
Total liabilities and equity(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Ch$ |
| 13,778,370 |
| 260,752 | | — | | — | | 15,604,556 | | 278,815 | | — | | — | | 19,711,404 | | 219,401 | | — | | — |
UF |
| 5,308,542 |
| 257,816 | | — | | — | | 5,908,807 | | 255,255 | | — | | — | | 6,137,789 | | 213,273 | | — | | — |
Foreign currency |
| 10,134,094 |
| 333,086 |
| — |
| — |
| 10,246,831 |
| 339,152 |
| — |
| — |
| 11,492,826 |
| 250,563 |
| — |
| — |
Total |
| 29,221,006 |
| 851,654 |
| — |
| — |
| 31,760,194 |
| 873,222 |
| — |
| — |
| 37,342,019 |
| 683,237 |
| — |
| — |
(1) | Represents total of interest bearing and non-interest bearing liabilities and shareholders’ equity. |
112
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, |
| ||||
| | 2018 |
| 2019 |
| 2020 |
|
|
| (in millions of Ch$ | | ||||
|
| except for percentages) | | ||||
Total average interest earning assets |
|
|
|
|
|
| |
Ch$ |
| 7,146,851 |
| 7,684,592 |
| 10,265,488 | |
UF |
| 8,483,589 |
| 8,876,743 |
| 9,647,025 | |
Foreign currency |
| 9,405,295 |
| 9,912,152 |
| 10,280,742 | |
Total |
| 25,035,735 |
| 26,473,487 |
| 30,193,255 | |
Net interest earned(1) |
|
|
|
|
|
| |
Ch$ |
| 349,019 |
| 315,922 |
| 286,249 | |
UF |
| 222,051 |
| 242,101 |
| 258,587 | |
Foreign currency |
| 316,593 |
| 342,395 |
| 321,601 | |
Total |
| 887,663 |
| 900,418 |
| 866,437 | |
Net interest margin, nominal basis(2) |
|
|
|
|
|
| |
Ch$ |
| 4.9 | % | 4.1 | % | 2.8 | % |
UF |
| 2.6 | % | 2.7 | % | 2.7 | % |
Foreign currency |
| 3.4 | % | 3.5 | % | 3.1 | % |
Total |
| 3.5 | % | 3.4 | % | 2.9 | % |
(1) | Net interest earned is defined as interest revenue earned less interest expense incurred. |
(2) | Net interest margin is defined as net interest earned divided by average interest earning assets. |
Changes in Net Interest Income and Interest Expense—Volume and Rate Analysis
The following tables allocate, by currency of denomination, changes in our net interest income between changes in the average volume of interest-earning assets and interest bearing liabilities and changes in their respective nominal interest rates from 2018 to 2019 and 2019 to 2020.
113
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 2018 to 2019 due to changes in | ||||
| | | | | | Net Change |
| | | | | | from 2018 |
|
| Volume |
| Rate |
| to 2019 |
|
| (in millions of Ch$) | ||||
ASSETS | | | | | | |
INTEREST EARNING ASSETS | | | | | | |
Deposits in Central Bank | | | | | | |
Ch$ |
| (473) |
| (1,305) |
| (1,778) |
UF |
| — |
| — |
| — |
Foreign currency |
| — |
| — |
| — |
Total |
| (473) |
| (1,305) |
| (1,778) |
Financial Investments |
|
|
|
|
|
|
Ch$ |
| 14,907 |
| (7,779) |
| 7,128 |
UF |
| (6,249) |
| (2,126) |
| (8,375) |
Foreign currency |
| (17,726) |
| (6,707) |
| (24,433) |
Total |
| (9,068) |
| (16,612) |
| (25,680) |
Total Loans |
|
|
|
|
|
|
Ch$ |
| 8,896 |
| (27,596) |
| (18,700) |
UF |
| 32,662 |
| (9,316) |
| 23,346 |
Foreign currency |
| 48,554 |
| (2,030) |
| 46,524 |
Total |
| 90,112 |
| (38,942) |
| 51,170 |
Interbank Loans | |
|
|
| | |
Ch$ |
| (502) |
| (306) |
| (808) |
UF |
| — |
| — |
| — |
Foreign currency |
| 110 |
| 45 |
| 155 |
Total |
| (392) |
| (261) |
| (653) |
Investment under resale agreements | |
|
|
| | |
Ch$ |
| (1,060) |
| (271) |
| (1,331) |
UF |
| — |
| — |
| — |
Foreign currency |
| 1,340 |
| (3) |
| 1,337 |
Total |
| 280 |
| (274) |
| 6 |
Other interest earning assets | |
|
|
| | |
Ch$ |
| — |
| 455 |
| 455 |
UF |
| — |
| — |
| — |
Foreign currency |
| (350) |
| 11,153 |
| 10,803 |
Total |
| (350) |
| 11,608 |
| 11,258 |
Total interest earning assets | |
|
|
| | |
Ch$ |
| 21,768 |
| (36,802) |
| (15,034) |
UF |
| 26,413 |
| (11,442) |
| 14,971 |
Foreign currency |
| 31,928 |
| 2,458 |
| 34,386 |
Total |
| 80,109 |
| (45,786) |
| 34,323 |
114
| | | | | | |
| | Increase (Decrease) | ||||
| | from 2018 to 2019 due to changes in | ||||
| | | | | | Net change |
| | | | | | from 2018 |
|
| Volume |
| Rate |
| to 2019 |
|
| (in millions of Ch$) | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY INTEREST BEARING LIABILITIES |
|
|
|
|
|
|
Time deposits |
|
|
|
|
|
|
Ch$ |
| 24,185 |
| (255) |
| 23,930 |
UF |
| (13,363) |
| (3,305) |
| (16,668) |
Foreign currency |
| (4,238) |
| (11,668) |
| (15,906) |
Total |
| 6,584 |
| (15,228) |
| (8,644) |
Central Bank borrowings |
|
|
|
|
|
|
Ch$ |
| — |
| — |
| — |
UF |
| — |
| — |
| — |
Foreign currency |
| — |
| — |
| — |
Total |
| — |
| — |
| — |
Repurchase agreements |
|
|
|
|
|
|
Ch$ |
| 2,458 |
| (778) |
| 1,680 |
UF |
| — |
| — |
| — |
Foreign currency |
| (7,665) |
| 2,670 |
| (4,995) |
Total |
| (5,207) |
| 1,892 |
| (3,315) |
Mortgage finance bonds |
|
|
|
|
|
|
Ch$ |
| — |
| — |
| — |
UF |
| (671) |
| (299) |
| (970) |
Foreign currency |
| — |
| — |
| — |
Total |
| (671) |
| (299) |
| (970) |
Bonds |
|
|
|
|
|
|
Ch$ |
| 6,981 |
| (2,518) |
| 4,463 |
UF |
| 26,076 |
| (12,378) |
| 13,698 |
Foreign currency |
| (1,159) |
| 4,189 |
| 3,030 |
Total |
| 31,898 |
| (10,707) |
| 21,191 |
Other interest bearing liabilities |
|
|
|
|
|
|
Ch$ |
| 754 |
| (12,764) |
| (12,010) |
UF |
| (3,711) |
| 5,094 |
| 1,383 |
Foreign currency |
| 6,134 |
| 17,799 |
| 23,933 |
Total |
| 3,177 |
| 10,129 |
| 13,306 |
Total interest bearing liabilities |
|
|
| |
|
|
Ch$ |
| 34,378 |
| (16,315) |
| 18,063 |
UF |
| 8,331 |
| (10,888) |
| (2,557) |
Foreign currency |
| (6,928) |
| 12,990 |
| 6,062 |
Total |
| 35,781 |
| (14,213) |
| 21,568 |
115
| | | | | | |
| | Increase (Decrease) | ||||
| | from 2019 to 2020 due to changes in | ||||
|
| |
| |
| Net Change |
| | | | | | from 2019 |
| | Volume | | Rate | | to 2020 |
|
| (in millions of Ch$) | ||||
ASSETS |
|
|
|
|
|
|
INTEREST EARNING ASSETS |
|
|
|
|
|
|
Deposits in Central Bank |
|
|
|
|
|
|
Ch$ |
| — |
| 2,708 |
| 2,708 |
UF |
| — |
| — |
| — |
Foreign currency |
| — |
| 861 |
| 861 |
Total |
| — |
| 3,569 |
| 3,569 |
Financial Investments |
|
|
|
|
|
|
Ch$ |
| 25,291 |
| (37,989) |
| (12,698) |
UF |
| 6,620 |
| (2,548) |
| 4,072 |
Foreign currency |
| (3,518) |
| (3,471) |
| (6,989) |
Total |
| 28,393 |
| (44,008) |
| (15,615) |
Total Loans |
|
|
|
|
|
|
Ch$ |
| 35,185 |
| (112,890) |
| (77,705) |
UF |
| 32,727 |
| (59,777) |
| (27,050) |
Foreign currency |
| 21,217 |
| (119,515) |
| (98,298) |
Total |
| 89,129 |
| (292,182) |
| (203,053) |
Interbank Loans |
|
|
|
|
|
|
Ch$ |
| (365) |
| (1,463) |
| (1,828) |
UF |
| — |
| — |
| — |
Foreign currency |
| (725) |
| (267) |
| (992) |
Total |
| (1,090) |
| (1,730) |
| (2,820) |
Investment under resale agreements |
|
|
|
|
|
|
Ch$ |
| 480 |
| 28 |
| 508 |
UF |
| — |
| — |
| — |
Foreign currency |
| (249) |
| (1,686) |
| (1,935) |
Total |
| 231 |
| (1,658) |
| (1,427) |
Other interest earning assets |
|
|
|
|
|
|
Ch$ |
| 395 |
| (467) |
| (72) |
UF |
| — |
| — |
| — |
Foreign currency |
| 2,753 |
| (7,301) |
| (4,548) |
Total |
| 3,148 |
| (7,768) |
| (4,620) |
Total interest earning assets |
|
|
|
|
|
|
Ch$ |
| 60,986 |
| (150,073) |
| (89,087) |
UF |
| 39,347 |
| (62,325) |
| (22,978) |
Foreign currency |
| 19,478 |
| (131,379) |
| (111,901) |
Total |
| 119,811 |
| (343,777) |
| (223,966) |
116
| | | | | | |
|
| Increase (Decrease) | ||||
| | from 2019 to 2020 due to changes in | ||||
| | | | | | Net Change |
| | | | | | from 2019 |
|
| Volume |
| Rate |
| to 2020 |
|
| (in millions of Ch$) | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
INTEREST BEARING LIABILITIES |
|
|
|
|
|
|
Time deposits |
|
|
|
|
|
|
Ch$ |
| 42,728 |
| (110,121) |
| (67,393) |
UF |
| (1,487) |
| 1,015 |
| (472) |
Foreign currency |
| 7,962 |
| (49,705) |
| (41,743) |
Total |
| 49,203 |
| (158,811) |
| (109,608) |
Central Bank borrowings |
|
|
|
|
|
|
Ch$ |
| — |
| 7,162 |
| 7,162 |
UF |
| — |
| — |
| — |
Foreign currency |
| — |
| — |
| — |
Total |
| — |
| 7,162 |
| 7,162 |
Repurchase agreements |
|
|
|
|
|
|
Ch$ |
| 900 |
| (6,922) |
| (6,022) |
UF |
| — |
| — |
| — |
Foreign currency |
| (7,714) |
| (3,991) |
| (11,705) |
Total |
| (6,814) |
| (10,913) |
| (17,727) |
Mortgage finance bonds |
|
|
|
|
|
|
Ch$ |
| — |
| — |
| — |
UF |
| (484) |
| (247) |
| (731) |
Foreign currency |
| — |
| — |
| — |
Total |
| (484) |
| (247) |
| (731) |
Bonds |
|
|
|
|
|
|
Ch$ |
| 21,720 |
| (27,490) |
| (5,770) |
UF |
| 44 |
| (34,937) |
| (34,893) |
Foreign currency |
| (11,062) |
| 1,972 |
| (9,090) |
Total |
| 10,702 |
| (60,455) |
| (49,753) |
Other interest bearing liabilities |
|
|
|
|
|
|
Ch$ |
| (1,119) |
| 13,728 |
| 12,609 |
UF |
| 203,135 |
| (209,021) |
| (5,886) |
Foreign currency |
| 10,617 |
| (36,668) |
| (26,051) |
Total |
| 212,633 |
| (231,961) |
| (19,328) |
Total interest bearing liabilities |
|
|
| |
|
|
Ch$ |
| 64,229 |
| (123,643) |
| (59,414) |
UF |
| 201,208 |
| (243,190) |
| (41,982) |
Foreign currency |
| (197) |
| (88,392) |
| (88,589) |
Total |
| 265,240 |
| (455,225) |
| (189,985) |
117
Return on Equity and Assets
The following tables set forth our return on average shareholders’ equity and average total assets and related information for each of the periods indicated.
| | | | | | | |
|
| Years ended December 31, |
| ||||
|
| 2018 |
| 2019 |
| 2020 | |
|
| (in millions of Ch$, except for percentages) | | ||||
Net income (loss) |
| 166,854 |
| 124,522 |
| (826,155) | |
Net income (loss) attributable to equity holders of the Bank |
| 171,331 |
| 113,684 |
| (808,784) | |
Average total assets |
| 29,221,006 |
| 31,760,194 |
| 37,342,019 | |
Average equity |
| 3,490,821 |
| 3,586,220 |
| 2,875,406 | |
Net income (loss) as a percentage of: |
|
|
|
|
|
| |
Average total assets |
| 0.57 | % | 0.39 | % | (2.24) | % |
Average equity |
| 4.78 | % | 3.47 | % | (29.18) | % |
Average equity as a percentage of: |
|
|
| |
| | |
Average total assets |
| 11.95 | % | 11.29 | % | 7.69 | % |
Annual cash dividend |
| 22,979 |
| 51,614 |
| 127,065 | |
Dividend payout ratio, based on net income attributable to shareholders under local GAAP |
| 40.00 | % | 30.00 | % | 100.00 | % |
Investment Portfolio
Since 2018, our financial investments are classified into measurement categories based on both our business model for managing the financial asset and the contractual cash flow characteristics of the financial asset.
Financial investments as of December 31, 2018, 2019 and 2020 are as follows:
| | | | | | |
|
| As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
|
| (in millions of Ch$) | ||||
Financial Instruments at Fair Value Through Profit or Loss | | | | | | |
Chilean Central Bank and Government securities: |
|
|
|
|
|
|
Chilean Central Bank securities |
| 21,736 |
| 52,019 |
| 21,369 |
Other Chilean Central Bank and Government securities |
| 14,872 |
| 28,879 |
| 86,673 |
Other national institution securities: |
|
|
|
|
| |
Bonds |
| 3 |
| 905 |
| 271 |
Notes |
| — |
| — |
| — |
Other securities |
| 4,014 |
| 22,218 |
| — |
Foreign institution securities: |
|
|
|
|
| |
Bonds |
| 23,276 |
| 67,088 |
| 432,178 |
Notes |
| — |
| — |
| — |
Other securities |
| 19,505 |
| 4,390 |
| 4,861 |
Mutual funds investments |
|
|
|
|
| |
Funds managed by related organizations |
| 3,532 |
| 5,870 |
| 35,017 |
Funds managed by third parties |
| 10,005 |
| 33 |
| — |
Other investments | | | | | | |
Other financial instruments at FVTPL | | — | | 2,300 | | 2,341 |
Total |
| 96,943 |
| 183,702 |
| 582,710 |
118
| | | | | | |
|
| As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
|
| (in millions of Ch$) | ||||
Financial Instruments at Fair Value Through Other Comprehensive Income |
|
|
|
|
|
|
Chilean Central Bank and Government securities |
|
|
|
|
|
|
Chilean Central Bank and Government securities |
| 411,431 |
| 477,900 |
| 1,170,841 |
Chilean Treasury bonds |
| 913,041 |
| 1,609,397 |
| 1,783,765 |
Other Government securities |
| 27,612 |
| 86,981 |
| 101,573 |
Other financial instruments |
|
|
|
|
|
|
Promissory notes related to deposits in local banks |
| 185,501 |
| 412,962 |
| 14,856 |
Chilean mortgage finance bonds |
| 50 |
| 41 |
| 30 |
Chilean financial institutions bonds |
| — |
| 118,583 |
| 277,163 |
Other local investments |
| 5,979 |
| — |
| — |
Financial instruments issued abroad |
|
|
|
|
|
|
Foreign government and central banks instruments |
| 769,693 |
| 165,927 |
| 217,185 |
Other foreign investments |
| 332,560 |
| 716,423 |
| 394,691 |
Impairment provision |
| — |
| — |
| — |
Unquoted securities in active markets |
|
|
|
|
|
|
Chilean corporate bonds |
| 4,909 |
| — |
| — |
Other investments |
| 6,378 |
| 10,676 |
| 10,795 |
Impairment provision |
| — |
| — |
| — |
Total |
| 2,657,154 |
| 3,598,890 |
| 3,970,899 |
| | | | | | |
| | As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
|
| (in millions of Ch$) | ||||
Financial Instruments at Amortized Cost |
|
|
|
|
|
|
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 |
| — |
| — |
| — |
Financial instruments issued abroad |
|
|
|
|
|
|
Foreign government and central banks instruments |
| — |
| — |
| — |
Other foreign investments |
| 198,923 |
| 115,658 |
| 111,542 |
Impairment provision |
| — |
| — |
| — |
Unquoted securities in active markets |
|
|
|
|
|
|
Chilean corporate bonds |
| — |
| — |
| — |
Other investments |
| — |
| — |
| — |
Impairment provision |
| — |
| — |
| — |
Total |
| 198,923 |
| 115,658 |
| 111,542 |
We do not hold securities of any issuer other than the Central Bank of Chile, the Chilean Treasury, and the Colombian Ministry of Finance and Public Credit, 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.
119
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, 2020:
| | | | | | | | | | | | | | | | | | |
| | | | | | After | | | | After | | | | | | | | |
| | | | | | one | | | | five | | | | | | | | |
| | | | Weighted | | year | | Weighted | | years | | Weighted | | | | Weighted | | |
| | In one | | average | | through | | average | | through | | average | | After | | average | | |
| | year or | | Nominal | | five | | Nominal | | ten | | Nominal | | ten | | Nominal | | |
| | less | | Rate | | years | | Rate | | years | | Rate | | years | | Rate | | Total |
|
| Ch$ |
| % |
| Ch$ |
| % |
| Ch$ |
| % |
| Ch$ |
| % |
| Ch$ |
|
| (in millions of Ch$, except for percentages) | ||||||||||||||||
Financial Instruments at Fair Value Through Profit or Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Bank and Government securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank securities |
| 21,369 | | 8.29% | | — | | — | | — | | — | | — | | — |
| 21,369 |
Chilean Central Bank notes |
| — | | 0.00% | | — | | — | | — | | — | | — | | — |
| — |
Others Government securities |
| 86,318 | | 33.48% | | — | | — | | 355 | | 3.33% | | — | | — |
| 86,673 |
Other national institution securities: |
| | | | | | | | | | | | | | | |
|
|
Bonds |
| 267 | | 0.10% | | — | | — | | — | | — | | 4 | | 100% |
| 271 |
Notes |
| — | | 0.00% | | — | | — | | — | | — | | — | | — |
| — |
Other securities |
| — | | 0.00% | | — | | — | | — | | — | | — | | — |
| — |
Other local investments |
| — | | 0.00% | | — | | — | | — | | — | | — | | — |
| — |
Foreign institution securities: |
| | | | | | | | | | | | | | | |
|
|
Bonds |
| 110,422 | | 42.83% | | 314,215 | | 100% | | 7,541 | | 70.69% | | — | | — |
| 432,178 |
Notes |
| — | | 0.00% | | — | | — | | — | | — | | — | | — |
| — |
Other securities |
| 2,089 | | 0.81% | | — | | — | | 2,772 | | 25.98% | | — | | — |
| 4,861 |
Mutual fund investments: |
| | | | | | | | | | | | | | | |
|
|
Funds managed by related organizations |
| 35,017 | | 13.58% | | — | | — | | — | | 25.98% | | — | | — |
| 35,017 |
Funds managed by third parties |
| — | | 0.00% | | — | | — | | — | | — | | — | | — |
| — |
Other investments: |
| | | | | | | | | | | — | | | | |
| — |
Other trading investments |
| 2,341 | | 13.58% | | — | | — | | — | | — | | — | | — |
| 2,341 |
Total |
| 257,823 |
| 32.21% |
| 314,215 |
| 100% |
| 10,668 |
| 56.83% |
| 4 |
| 100% |
| 582,710 |
120
| | | | | | | | | | | | | | | | | | |
| | | | Weighted | | After | | Weighted | | After five | | Weighted | | | | Weighted | | |
| | In one | | average | | one year | | average | | years | | average | | | | average | | |
| | year or | | Nominal | | through | | Nominal | | through | | Nominal | | After ten | | Nominal | | |
| | less | | Rate | | five years | | Rate | | ten years | | Rate | | years | | Rate | | Total |
|
| Ch$ |
| % |
| Ch$ |
| % |
| Ch$ |
| % |
| Ch$ |
| % |
| Ch$ |
|
| (in millions of Ch$, except for percentages) | ||||||||||||||||
Financial Instruments at Fair Value Through Other Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank and Government securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank securities |
| 1,169,788 | | 68.62% | | 1,053 | | — | | — | | — | | — | | — |
| 1,170,841 |
Chilean Treasury bonds |
| 251,280 | | 14.74% | | 1,302,784 | | 65.78% | | 203,009 | | 81.82% | | 26,692 | | 100% |
| 1,783,765 |
Others Government securities |
| 26,872 | | 1.58% | | 31,479 | | 1.59% | | 43,222 | | 17.42% | | — | | — |
| 101,573 |
Other financial instruments: |
| | | | | | | | | | | | | | | |
|
|
Promissory notes related to deposits in local banks |
| 14,856 | | 0.87% | | — | | — | | — | | — | | — | | — |
| 14,856 |
Chilean mortgage finance bonds |
| — | | — | | 30 | | — | | — | | — | | — | | — |
| 30 |
Chilean financial institution bonds |
| 90,969 | | 5.34% | | 186,194 | | 9.40% | | — | | — | | — | | — |
| 277,163 |
Other local investments |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Financial instruments issued abroad: |
| | | | | | | | | | | | | | | |
|
|
Foreign Government and central bank instruments |
| 25,685 | | 1.51% | | 191,500 | | 9.67% | | — | | — | | — | | — |
| 217,185 |
Other foreign investments |
| 125,297 | | 7.35% | | 267,523 | | 13.51% | | 1,871 | | 0.75% | | — | | — |
| 394,691 |
Impairment provision |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Unquoted securities in active markets |
| | | | | | | | | | | | | | | |
|
|
Chilean corporate bonds |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Other foreign investments |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Impairment provision |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Other investment |
| 10,795 | | — | | — | | — | | — | | — | | — | | — |
| 10,795 |
Total |
| 1,715,542 |
| 49.83% |
| 1,980,563 |
| 46.94% |
| 248,102 |
| 69.99% |
| 26,692 |
| 100% |
| 3,970,899 |
121
| | | | | | | | | | | | | | | | | | |
|
| |
| |
| After |
| |
| |
| |
| |
| |
| |
| | | | | | one | | | | After | | | | | | | | |
| | | | Weighted | | year | | Weighted | | five | | Weighted | | | | Weighted | | |
| | | | average | | through | | average | | years | | average | | | | average | | |
| | Within | | Nominal | | five | | Nominal | | through | | Nominal | | After ten | | Nominal | | |
| | one year | | Rate | | years | | Rate | | ten years | | Rate | | years | | Rate | | Total |
| | Ch$ | | % | | Ch$ | | % | | Ch$ | | % | | Ch$ | | % | | Ch$ |
|
| (in millions of Ch$, except for percentages) | ||||||||||||||||
Financial Instruments at Amortized Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank and Government securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank securities |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Chilean treasury bonds |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Other Government securities |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Other financial instruments: |
| | | | | | | | | | | | | | | |
|
|
Promissory notes related to deposits in local banks |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Chilean mortgage finance bonds |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Chilean financial institution bonds |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Other local investments |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Financial instruments issued abroad: |
| | | | | | | | | | | | | | | |
|
|
Foreign government and central bank instruments |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Other foreign investments |
| 111,542 | | 1.0% | | — | | — | | — | | — | | — | | — |
| 111,542 |
Impairment provision |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Unquoted securities in active markets |
| | | | | | | | | | | | | | | |
|
|
Chilean corporate bonds |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Other foreign investments |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Other investment |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Impairment provision |
| — | | — | | — | | — | | — | | — | | — | | — |
| — |
Total |
| 111,542 | | 1.0% | | — | | — | | — | | — | | — | | — |
| 111,542 |
122
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. For 2018, 2019 and 2020, our loan portfolio refers to loans and accounts receivable from customers at amortized cost.
| | | | | | |
| | As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
Commercial loans: |
|
|
|
|
|
|
Commercial loans |
| 11,457,388 |
| 12,288,810 |
| 12,172,207 |
Foreign trade loans |
| 928,443 |
| 1,109,169 |
| 847,086 |
Checking account debtors |
| 131,100 |
| 154,276 |
| 70,126 |
Factoring operations |
| 210,567 |
| 221,104 |
| 155,540 |
Student loans |
| 676,689 |
| 654,721 |
| 594,688 |
Leasing transactions |
| 928,160 |
| 1,005,209 |
| 940,989 |
Other loans and receivables |
| 34,553 |
| 27,255 |
| 28,163 |
Subtotals |
| 14,366,900 |
| 15,460,544 |
| 14,808,799 |
Mortgage loans: |
|
|
|
|
|
|
Letters of credit loans |
| 38,364 |
| 30,269 |
| 23,345 |
Endorsable mutual mortgage loans |
| 118,668 |
| 103,850 |
| 90,456 |
Other mutual mortgage loans |
| 3,953,245 |
| 4,384,547 |
| 4,820,863 |
Leasing transactions |
| 312,118 |
| 336,587 |
| 307,574 |
Other loans and receivables |
| 23,432 |
| 20,788 |
| 74,515 |
Subtotals |
| 4,445,827 |
| 4,876,041 |
| 5,316,753 |
Consumer loans: |
|
|
|
|
|
|
Consumer loans |
| 1,921,785 |
| 2,005,038 |
| 1,866,015 |
Checking account debtors |
| 209,492 |
| 206,738 |
| 124,009 |
Credit card debtors |
| 481,567 |
| 537,741 |
| 467,624 |
Consumer leasing transactions |
| 6,203 |
| 3,113 |
| 1,467 |
Other loans and receivables |
| 50,716 |
| 45,599 |
| 33,314 |
Subtotals |
| 2,669,763 |
| 2,798,229 |
| 2,492,429 |
Loans |
| 21,482,490 |
| 23,134,814 |
| 22,617,981 |
Loans and receivables from Banks |
| 341,707 |
| 56,635 |
| 7,131 |
Total |
| 21,824,197 |
| 23,191,449 |
| 22,625,112 |
The loan categories are as follows:
Commercial Loans
Commercial loans: Commercial loans are long- and short-term loans granted to companies, 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.
123
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.
Student loans: Loans with a government guarantee for college education, known as Créditos con Aval del Estado (“CAE”), established by law No. 20,027.
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 endorsable or non-endorsable instruments/credit operations and letters of credit, with the former being the most frequently used in the market. 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:
Endorsable mutual mortgage loans: This sub-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: This sub-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: This sub-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: This sub-category includes outstanding balances owed by tenants in financial leases transactions
Letters of credit loans: This sub-category includes inflation-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.
Other loans and receivables: This sub-category includes loans that are ancillary or that complement mutual mortgage loans.
124
The balances of the renegotiated mortgage loans as of December 31 2018, 2019 and 2020 were as follows:
| | | | | | |
| | As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | (in millions of Ch$) | ||||
Opening balance(1) |
| 10,933 |
| 11,112 |
| 12,080 |
Integration Itaú Corpbanca |
| — |
| — |
| — |
Renegotiated(2) |
| 2,779 |
| 3,437 |
| 4,021 |
Recovery(3) |
| (2,567) |
| (2,450) |
| (3,010) |
Write-offs(4) |
| (33) |
| (19) |
| (198) |
Final balance |
| 11,112 |
| 12,080 |
| 12,893 |
(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 use 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-category includes outstanding balances owed by tenants of consumer goods under financial leasing transactions.
Other loans and receivables: This sub-category includes other revolving consumer loans and other accounts receivable granted to individuals not included in the above categories.
125
The balances of the renegotiated consumer loans as of December 31, 2018, 2019 and 2020 were as follows:
| | | | | | |
| | As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | (in millions of Ch$) | ||||
Opening balance(1) |
| 150,707 |
| 186,320 |
| 236,689 |
Integration Itaú Corpbanca |
| — |
| — |
| — |
Renegotiated(2) |
| 48,318 |
| 90,687 |
| 133,404 |
Recovery(3) |
| (14,937) |
| (47,159) |
| (42,103) |
Write-offs(4) |
| 2,232 |
| 6,841 |
| 5,090 |
Final balance |
| 186,320 |
| 236,689 |
| 333,080 |
(1) | Corresponds to the renegotiated portfolio opening balance. |
(2) | Corresponds to the additions to the renegotiated loans portfolio during each respective period. |
(3) | Corresponds to the recovery (which may include payments, or settlements by judicial action) obtained from renegotiated loans during each respective period. |
(4) | Corresponds to write-offs of renegotiated loans during each respective period. |
As part of our business model we seek to be able to assist our customers when they are experiencing financial problems that cause them to fall behind on their payments. As a result, we make certain concessions when we renegotiate a loan, which may include the following: (i) extension of payment period; (ii) modifications to the interest rate based on each customer’s ability to pay.
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 our collection department.
Furthermore, we offer a range of products to renegotiate loans, such as payment extensions or new operations to reduce the probability of write-offs.
Regarding the renegotiated loan portfolio, most of the loans are classified as impaired (i.e., those loans with installments over 60 days past due) and therefore, the associated allowance for loan losses is based on a probability of default of 100%. To reclassify a renegotiated loan out of the impaired classification, the normative criteria is defined by the CMF, i.e. the delinquency of such loans must be for at least four consecutive months with less than 90 days past due, but in the case of IFRS 9, we use an internal criteria, where a renegotiated loan must be in stage three for at least four months after being impaired in order to be cured.
Remedial Management Portfolio
The remedial portfolio table set forth below represents the commercial loan portfolio and leasing portfolio managed by the remedial portfolio management unit (internally named Normalización Mayorista or “Wholesale Remedial”) which is part of the Credit Risk structure. This portfolio includes renegotiated commercial loans and leasing operations, commercial loans paid regularly but with certain delay, and commercial loans undergoing legal collection process.
126
The wholesale remedial management unit (Normalización Mayorista) managed a deteriorated exposure (internal classification of B3 or worse) of over Ch$415,039 million in 2020.
| | | | | | |
| | As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | (in millions of Ch$) | ||||
Opening balance(1) |
| 492,535 |
| 443,042 |
| 459,259 |
Integration Itaú Corpbanca |
| — |
| — |
| — |
Additions to normalization portfolio(2) |
| 57,184 |
| 137,814 |
| 129,626 |
Recovery(3) |
| (61,078) |
| (60,149) |
| (86,067) |
Write-offs(4) |
| (45,599) |
| (61,448) |
| (45,576) |
Final balance(5) |
| 443,042 |
| 459,259 |
| 457,242 |
(1) | Opening balance of the remedial portfolio. |
(2) | Additions to remedial portfolio during each respective period. |
(3) | Recovery (which may include payments, or settlements by judicial action) obtained during each respective period. |
(4) | Loans and leasing operations write-offs of remedial management portfolio during each respective period. |
(5) | Ending balance of the remedial management portfolio (outstanding and contingent exposures). |
Currently, our remedial management portfolio is handled by a designated and specialized team (internally named Normalización Mayorista or “Wholesale Remedial”). The team has activities such as:
● | Analyzing borrowers’ status and viability and to assess the chances of recovery; |
● | Establishing strategies and action plans in order to manage debtors’ portfolio; |
● | Negotiating new payment schedules; |
● | Transferring debtors to collection — legal proceedings; |
● | Supervising and monitoring legal collection progress; and |
● | Assuring appropriate internal classification. |
As established in our remedial management process, customers with a deteriorated economic situation will be transferred to the Remedial Management Unit (Normalization team), under the following conditions:
● | Customers with an internal classification of B3 or worse (note that we will transfer the relationship as a whole); |
● | Defaulted customers (for 89 days or more); |
● | Customers involved in judicial proceedings; |
● | Customers that experience a sudden and severe deterioration in their financial position; and |
● | Any customer that could result in a loss to the bank. |
The remedial portfolio management team is responsible for determining any action that will be taken related to the customer (renegotiation of the exposure or collection), within a period not exceeding 30 days.
127
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, 2018, 2019, and 2020 was 3.4%, 3.5% and 5.0% 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’ business unit, including approval, monitoring and collections practices, using a regulatory and preventive outlook on credit risk. It also actively participates in loan approval and monitoring processes, which has helped us spread a risk-focused culture, 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.
Mortgage loans. The risk index of our residential mortgage loans as of December 31, 2018, 2019 and 2020 was 1.5%, 1.6% and 1.4%, respectively.
Consumer loans. The risk index of our consumer loans as of December 31, 2018, 2019 and 2020 was 8.1%, 9.2% and 8.9%, respectively.
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 unit.
We consider Itaú Corpbanca’s Risk Index to be an important indicator of the quality of Itaú Corpbanca’s loan portfolio.
128
Our Risk Index (calculated using general ledger balances and applying IFRS 9) as of December 31, 2018 and 2019 was:
RISK INDEX
| | | | | | | |
|
| |
| % Change |
| ||
| | As of December 31, | | from |
| ||
|
| 2018 |
| 2019 |
| 2019/2018 |
|
| | (in millions of Ch$ |
| ||||
|
| except for percentages) | | ||||
Total loans |
| 21,482,490 |
| 23,134,814 |
| 7.7 | % |
Commercial loans |
| 14,366,900 |
| 15,460,544 |
| 7.6 | % |
Mortgage loans |
| 4,445,827 |
| 4,876,041 |
| 9.7 | % |
Consumer loans |
| 2,669,763 |
| 2,798,229 |
| 4.8 | % |
Allowances for loan losses(1) |
| 768,120 |
| 880,117 |
| 14.6 | % |
Commercial loans |
| 484,707 |
| 545,199 |
| 12.5 | % |
Mortgage loans |
| 66,117 |
| 78,501 |
| 18.7 | % |
Consumer loans |
| 217,296 |
| 256,417 |
| 18.0 | % |
Allowances for loan losses as a percentage of total loans(1) |
| 3.6 | % | 3.8 | % | 5.6 | % |
Commercial loans |
| 3.4 | % | 3.5 | % | 2.9 | % |
Mortgage loans |
| 1.5 | % | 1.6 | % | 6.7 | % |
Consumer loans |
| 8.1 | % | 9.2 | % | 13.6 | % |
(1) | Allowance for loan losses as of December 31, 2018 corresponds to allowances for loans and accounts receivable from customers at amortized cost according to IFRS 9. |
During 2019, our loan portfolio and, consequently, our allowances for loan losses, were negatively impacted by (i) specific cases in the wholesale segment (one in Chile and one in Colombia); (ii) a higher provisioning level for wholesale and retail clients related to social unrest events in Chile; and (iii) a negative impact on our loan loss provisions associated with loans in foreign currency due to the greater depreciation of the Chilean and Colombian pesos against the U.S. dollar. This decrease was partially offset by a financial hedge that is accounted for in our net income from financial operations.
Our loan portfolio increased 7.7% in 2019, primarily due to both a sound performance in commercial loans and a positive growth trend in our mortgages and consumer loan portfolios (9.7% and 4.8%, respectively). Our mortgage loans, which is the business unit with the lowest level of risk, increased from Ch$4,445,827 million in 2018 to Ch$4,876,041 million in 2019 and our consumer loans, the business unit with the highest level of risk, increased from Ch$2,669,763 million in 2018 to Ch$2,798,229 million in 2019. As of December 31, 2019, commercial loans, mortgage loans and consumer loans represented 66.8%, 21.1% and 12.1% of our total loan portfolio, respectively.
129
Our Risk Index (calculated using general ledger balances and applying IFRS 9) as of December 31, 2019 and 2020 was:
| | | | | | | |
|
| |
| % Change |
| ||
| | As of December 31, | | from |
| ||
|
| 2019 |
| 2020 |
| 2020/2019 |
|
| | (in millions of Ch$ |
| ||||
|
| except for percentages) | | ||||
Total loans |
| 23,134,814 |
| 22,617,981 |
| (2.2) | % |
Commercial loans |
| 15,460,544 |
| 14,808,799 |
| (4.2) | % |
Mortgage loans |
| 4,876,041 |
| 5,316,753 |
| 9.0 | % |
Consumer loans |
| 2,798,229 |
| 2,492,429 |
| (10.9) | % |
Allowances for loan losses |
| 880,117 |
| 1,041,873 |
| 18.4 | % |
Commercial loans |
| 545,199 |
| 747,617 |
| 37.1 | % |
Mortgage loans |
| 78,501 |
| 73,465 |
| (6.4) | % |
Consumer loans |
| 256,417 |
| 220,791 |
| (13.9) | % |
Allowances for loan losses as a percentage of total loans |
| 3.8 | % | 4.6 | % | 21.1 | % |
Commercial loans |
| 3.5 | % | 5.0 | % | 42.9 | % |
Mortgage loans |
| 1.6 | % | 1.4 | % | (12.5) | % |
Consumer loans |
| 9.2 | % | 8.9 | % | (3.3) | % |
During 2020, our loan portfolio and, consequently, our allowances for loan losses, were negatively impacted by the adverse economic impact of the COVID-19 pandemic.
Our loan portfolio decreased 2.2% in 2020, primarily due to the decrease in our Colombian portfolio, which in turn was mainly the result of a 9% devaluation of the COP / CLP exchange rate. Excluding the effect of the exchange variation, at the end of 2020, the most impacted businesses were commercial and consumer lines in Chile. Our mortgage loans, which is the business unit with the lowest level of risk, performed well in both countries, increasing from Ch$4,876,041 million in 2019 to Ch$5,316,753 million in 2020 and our consumer loans, the business unit with the highest level of risk, decreased from Ch$2,798,229 million in 2019 to Ch$2,492,429 million in 2020. As of December 31, 2020, commercial loans, mortgage loans and consumer loans represented 65.5%, 23.5% and 11.0% of our total loan portfolio, respectively.
130
Maturity and Interest Rate Sensitivity of Loans
The following table sets forth an analysis of our loans by type and time remaining to maturity as of December 31, 2020:
| | | | | | | | |
|
| |
| Due after |
| |
| |
| | | | 1 year | | | | Balance as of |
| | Due in 1 | | through | | Due after | | December 31, |
|
| year |
| 5 years |
| 5 years |
| 2020 |
|
| (in millions of Ch$ as of December 31, 2020) | ||||||
Commercial loans |
| 3,710,592 | | 3,935,586 | | 4,526,029 |
| 12,172,207 |
Foreign trade loans |
| 440,214 | | 236,233 | | 170,639 |
| 847,086 |
Checking account debtors |
| 70,126 | | — | | — |
| 70,126 |
Factoring operations |
| 155,488 | | 52 | | — |
| 155,540 |
Student loans |
| 267 | | 8,738 | | 585,683 |
| 594,688 |
Leasing transactions |
| 49,214 | | 390,428 | | 501,347 |
| 940,989 |
Other loans and receivables |
| 26,877 | | 1,286 | | — |
| 28,163 |
Subtotals |
| 4,452,778 |
| 4,572,323 |
| 5,783,698 |
| 14,808,799 |
Letters of credit loans |
| 113 | | 9,035 | | 14,197 |
| 23,345 |
Endorsable mutual mortgage loans |
| 222 | | 5,697 | | 84,537 |
| 90,456 |
Other mutual mortgage loans |
| 3,555 | | 122,807 | | 4,694,501 |
| 4,820,863 |
Leasing transactions |
| 1,160 | | 12,603 | | 293,811 |
| 307,574 |
Other loans and receivables |
| 10 | | 796 | | 73,709 |
| 74,515 |
Subtotals |
| 5,060 |
| 150,938 |
| 5,160,755 |
| 5,316,753 |
Consumer loans |
| 92,341 | | 1,362,951 | | 410,723 |
| 1,866,015 |
Checking account debtors |
| 124,009 | | — | | — |
| 124,009 |
Credit card debtors |
| 429,379 | | 38,236 | | 9 |
| 467,624 |
Consumer leasing transactions |
| 360 | | 1,107 | | — |
| 1,467 |
Other loans and receivables |
| 33,126 | | — | | 188 |
| 33,314 |
Subtotals |
| 679,215 |
| 1,402,294 |
| 410,920 |
| 2,492,429 |
Subtotal loans |
|
|
|
|
|
|
| 22,617,981 |
Loans and receivables to banks |
|
|
|
|
|
|
| 7,131 |
Total loans |
|
|
|
|
|
|
| 22,625,112 |
The following table presents the interest rate analysis of our outstanding loans due after one year as of December 31, 2020.
| | |
|
| |
|
| As of December 31, 2020 |
Variable interest rate |
|
|
Ch$ |
| 1,768,960 |
UF |
| 2,360,061 |
Ch$ indexed to US$ |
| — |
Foreign currency |
| 2,842,070 |
Subtotal |
| 6,971,091 |
Fixed interest rate |
|
|
Ch$ |
| 2,599,176 |
UF |
| 5,757,819 |
Ch$ indexed to US$ |
| 5,989 |
Foreign currency |
| 2,146,853 |
Subtotal |
| 10,509,837 |
Total |
| 17,480,928 |
131
The following table sets forth an analysis of our foreign loans by type and time remaining to maturity as of December 31, 2020:
| | | | | | | | |
| | Due in 1 |
| |
| |
| |
| | year | | Due after 1 year | | Due after 5 | | |
2020 |
| or less |
| through 5 years |
| year |
| Total |
|
| (in millions of Ch$ as of December 31, 2020) | ||||||
Commercial loans |
| 5,336 | | 40,450 | | — | | 45,786 |
Foreign loans (*) |
| 1,302,164 | | 1,797,162 | | 1,989,282 | | 5,088,608 |
Total |
| 1,307,500 |
| 1,837,612 |
| 1,989,282 |
| 5,134,394 |
(*) Includes commercial, mortgage and consumer loans.
Loans by Economic Activity
The following table sets forth as of the dates indicated, an analysis of our gross loan portfolio based on the borrower’s principal business activity. Loans for 2018, 2019 and 2020 refer to loans and accounts receivable from customers at amortized cost:
Loans by Economic Activity
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | |
| | | | | |
| | | | | |
| Distribution |
| ||||
| | Domestic Loans as of | | Foreign Loans as of | | Total Loans as of | | percentage as of |
| ||||||||||||||||
| | December 31, | | December 31, | | December 31, | | December 31, |
| ||||||||||||||||
|
| 2018 |
| 2019 |
| 2020 |
| 2018 |
| 2019 |
| 2020 |
| 2018 |
| 2019 |
| 2020 |
| 2018 |
| 2019 |
| 2020 |
|
Loans by Economic Activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Manufacturing |
| 982,497 |
| 988,739 |
| 973,913 |
| 114,714 |
| 111,000 |
| 87,253 |
| 1,097,211 |
| 1,099,739 |
| 1,061,166 |
| 5.11 | % | 4.75 | % | 4.69% | % |
Mining and Petroleum |
| 424,883 |
| 292,263 |
| 336,354 |
| 252,894 |
| 259,352 |
| 198,635 |
| 677,777 |
| 551,615 |
| 534,989 |
| 3.16 | % | 2.38 | % | 2.37% | % |
Electricity, Gas and Water |
| 600,667 |
| 685,749 |
| 694,970 |
| 356,706 |
| 439,792 |
| 404,875 |
| 957,373 |
| 1,125,541 |
| 1,099,845 |
| 4.46 | % | 4.87 | % | 4.86% | % |
Agriculture and Livestock |
| 207,271 |
| 309,648 |
| 328,563 |
| 139,098 |
| 174,295 |
| 166,191 |
| 346,369 |
| 483,943 |
| 494,754 |
| 1.61 | % | 2.09 | % | 2.19% | % |
Forestry and wood extraction |
| 24,511 |
| 48,192 |
| 51,348 |
| 5,172 |
| 5,136 |
| 4,674 |
| 29,683 |
| 53,328 |
| 56,022 |
| 0.14 | % | 0.23 | % | 0.25% | % |
Fishing |
| 1,945 |
| 42,397 |
| 31,461 |
| 1,530 |
| 4,505 |
| 4,273 |
| 3,475 |
| 46,902 |
| 35,734 |
| 0.02 | % | 0.20 | % | 0.16% | % |
Transport and storage |
| 509,354 |
| 478,737 |
| 498,450 |
| 191,047 |
| 80,534 |
| 88,563 |
| 700,401 |
| 559,271 |
| 587,013 |
| 3.26 | % | 2.42 | % | 2.60% | % |
Communications |
| 23,886 |
| 25,209 |
| 52,911 |
| 62,191 |
| 9,717 |
| 3,254 |
| 86,077 |
| 34,926 |
| 56,165 |
| 0.40 | % | 0.15 | % | 0.25% | % |
Construction |
| 1,436,096 |
| 1,757,874 |
| 1,536,686 |
| 310,530 |
| 348,955 |
| 300,997 |
| 1,746,626 |
| 2,106,829 |
| 1,837,683 |
| 8.13 | % | 9.11 | % | 8.12% | % |
Commerce |
| 861,291 |
| 1,439,969 |
| 1,618,660 |
| 758,817 |
| 689,210 |
| 592,492 |
| 1,620,108 |
| 2,129,179 |
| 2,211,152 |
| 7.54 | % | 9.20 | % | 9.78% | % |
Services |
| 2,735,023 |
| 2,864,307 |
| 2,761,121 |
| 1,137,037 |
| 1,080,264 |
| 839,930 |
| 3,872,060 |
| 3,944,571 |
| 3,601,051 |
| 18.02 | % | 17.05 | % | 15.92% | % |
Others |
| 2,436,337 |
| 2,275,275 |
| 2,207,936 |
| 793,403 |
| 1,049,425 |
| 1,025,289 |
| 3,229,740 |
| 3,324,700 |
| 3,233,225 |
| 15.03 | % | 14.37 | % | 14.30% | % |
Subtotal Commercial Loans |
| 10,243,761 |
| 11,208,359 |
| 11,092,373 |
| 4,123,139 |
| 4,252,185 |
| 3,716,426 |
| 14,366,900 |
| 15,460,544 |
| 14,808,799 |
| 66.88 | % | 66.82 | % | 0.65 | % |
Mortgage Loans(1) |
| 3,852,962 |
| 4,211,094 |
| 4,684,980 |
| 592,865 |
| 664,947 |
| 631,773 |
| 4,445,827 |
| 4,876,041 |
| 5,316,753 |
| 20.70 | % | 21.08 | % | 23.51% | % |
Consumer Loans(1) |
| 1,750,986 |
| 1,923,745 |
| 1,706,234 |
| 918,777 |
| 874,484 |
| 786,195 |
| 2,669,763 |
| 2,798,229 |
| 2,492,429 |
| 12.43 | % | 12.10 | % | 11.02% | % |
Total |
| 15,847,709 |
| 17,343,198 |
| 17,483,587 |
| 5,634,781 |
| 5,791,616 |
| 5,134,394 |
| 21,482,490 |
| 23,134,814 |
| 22,617,981 |
| 100 | % | 100 | % | 1.00 | % |
(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, 2018, 2019 and 2020. This table does not include foreign trade-related loans to Chilean borrowers.
| | | | | | |
|
| As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | (in millions of Ch$) | ||||
Argentina | | 30,939 | | 34,048 | | 31,099 |
Bahamas | | — | | — | | — |
Brazil | | — | | — | | 12,840 |
British Virgin Islands | | — | | — | | — |
Colombia | | 5,087,740 | | 5,196,014 | | 4,649,475 |
Costa Rica | | — | | — | | — |
France | | 1,046 | | 1,129 | | — |
Luxembourg | | — | | — | | — |
Mexico | | 43,327 | | 36,336 | | 31,471 |
Netherlands | | — | | — | | — |
Panama | | 2,983 | | 1,607 | | 8,060 |
Peru | | 262,023 | | 242,795 | | 238,899 |
Switzerland | | — | | — | | — |
United States | | 206,722 | | 279,687 | | 161,666 |
Uruguay | | — | | — | | 884 |
Total | | 5,634,780 | | 5,791,616 | | 5,134,394 |
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We also maintain deposits abroad (primarily demand deposits) in foreign banks, as needed to conduct our foreign trade transactions. The table below lists the amounts of foreign deposits by country as of December 31, 2018, 2019 and 2020.
| | | | | | |
| | As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | (in millions of Ch$) | ||||
Australia | | 147 |
| 130 |
| (17) |
Belgium | | 25 |
| 239 |
| 65 |
Canada | | 315 |
| 376 |
| 272 |
China | | 9 |
| 31 |
| 372 |
Colombia | | 158,787 |
| 203,867 |
| 227,560 |
Denmark | | — |
| (159) |
| — |
England | | 60 |
| 711 |
| — |
Germany | | 8,715 |
| 30,032 |
| 24,141 |
Italy | | — |
| — |
| — |
Japan | | 634 |
| 4,646 |
| 2,054 |
London | | — |
| — |
| — |
Mexico | | 1 |
| 239 |
| 1,098 |
New Zealand | | — |
| 40 |
| 8 |
Norway | | 1 |
| 9 |
| 1 |
Panama | | 242 |
| 74 |
| 40 |
Peru | | 24 |
| 233 |
| 28,003 |
South Korea | | 22 |
| — |
| — |
Spain | | 27 |
| 443 |
| 2,273 |
Sweden | | 3 |
| 14 |
| 158 |
Switzerland | | 770 |
| 152 |
| 210 |
United Kingdom | | 2,988 |
| 19,582 |
| 10,960 |
United States | | 484,595 |
| 377,233 |
| 1,443,236 |
Venezuela | | — |
| — |
| — |
Total | | 657,365 |
| 637,892 |
| 1,740,434 |
Credit Risk Governance
Credit risk management is the responsibility of the Corporate Risk Management Division, which reports to the CEO. Its objective is to ensure that risk management is a competitive advantage for the Bank, through an integral management that allows the business areas to achieve their objectives, in an environment of adequate control and alignment with the risk strategy of the Bank.
To accomplish this goal, the Corporate Risk Management Division combines, among others, a well-defined credit process in terms of approval, monitoring and collection procedures, a strong supervision of all stages of the credit cycle, monitoring the quality and performance of our loan portfolio and taking promptly measures over potentially non-performing loans, while ensuring strong compliance of the legal, regulatory and normative framework.
The Credit Risk Management and Control structure is segregated in Wholesale Credit Risk, Retail Credit Risk, Credit Risk Control, Operational Risk and Compliance, Retail Collection and Risk Architecture:
Wholesale Credit Risk is accountable for the credit process of the wholesale banking business segments comprised of Corporate, Real Estate Companies, Large Enterprises, Financial Institutions, Representative Office in New York and Peru, Risk Countries, Subsidiaries and Wholesale Remedial Unit.
Retail Credit Risk is responsible for the credit acceptance process of the Bank’s retail segments, comprised of Retail Companies, SME’s, Private Bank, Personal Bank, Itaú Branches and Banco Condell.
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Credit Risk Control has a transversal function focused on monitoring the performance of the credit portfolio, assets classification and models development. Additionally, it verifies the consistency of credit policies and procedures and also generates information and analysis related to credit risk for the decision making of the different units.
Retail Collection is responsible for the full collection process, including the strategy and operations of the Bank’s retail segments, composed of Retail Companies, Private Banking, Personal Bank, Itau Branches and Banco Condell. The collection strategy is designed based on the products, business segmentation, days past due, channels, legal actions, geographic cover and collection operations, using an internal collections group and vendors.
Risk Architecture has a transversal function, focused on the analysis and coordination of technological projects that involve the improvement of our business processes. Additionally, Risk Architecture controls the efficiency of our resources, using technological or robotics tools, in addition to the development of analytics and machine learning.
Credit Review Process
Credit risk and the exposure to be assumed with regard to our clients are evaluated in accordance with the credit policies and the risk appetite that have been approved by the board of directors.
In the case of Wholesale Banking customers, the assessment focuses on the credit history and on the reputation and management capacity of its owners, on their market position and on the demand for their products or services, on their current and projected cash, their solvency and, when applicable, on the guarantees offered in connection with the loan. Credit limits are determined not on the basis of individual clients, but on the direct and indirect credit risk of entire financial groups.
In the case of Retail Banking customers, we mainly use a centralized evaluation and decision-making process, but also a case-by-case assessment when the applicant does not fit the standard model. The credit approval process is based on an assessment of the customer’s credit behavior in the financial system, taking into account current debt, credit history, income and expense level, ability to pay, personal assets and previous experience (if any) with the Bank.
Risk analysis, both of our Wholesale and Retail Banking customers, is periodically performed. In Wholesale Banking, customers’ credit exposure is reviewed at least once a year, and credit limits can be reduced if potential weaknesses in loan repayment capability are detected.
Wholesale Credit Risk
The credit evaluation process is carried out on a case-by-case assessment of each of our customers. Our internal approval governance structure ensures that credit decisions are adjusted to the risk acceptance parameters, identifying potential risks while keeping a healthy composition of our loan portfolio, aligned with our strategy, commercial objectives and risk’s appetite.
Before granting credits to a wholesale customer, we perform an analysis to assign an internal credit risk rating to each client. This internal credit risk rating is based on information such as: the client’s financial situation, cash generating capabilities and the current and projected situation on the economic sector in which it operates.
Credit decisions are made on the basis of the precedents indicated in the procedures manual of each business segment, with at least the following elements of analysis: market and competition, current and projected financial situation and cash flow, customer experience, relationship with the Bank and collateral.
Credit committees are structured according to the customer’s credit risk rating and the credit limit submitted to the committee’s decision. Any rejection by the committee of a credit proposal may be raised to be evaluated by the upper committee instance.
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Retail Credit Risk
In Retail Banking, credit risk management is responsible for the credit evaluation of all the segments that are part of the Retail Business Unit.
The credit risk management process for customers of the different segments of Retail Banking is composed of the following stages:
Credit Initiation.
Our credit initiation process consists of:
● | Admission Scores, using internal and external information. Risk cuts are applied according to each customer segment. Credit requests collect socio-demographic information that supports our risk analysis and our control of compliance with credit policies. |
● | Accountability and Responsibility (tied to incentive plans). Branch managers know their customers and they are responsible for credit decisions but they must first seek approval with a credit risk officer. |
● | Analytical Driven Sales Process. We know the customers that we want and we guide the search for prospects, according to this definition. We permanently offer pre-approved offers of consumer loans, credit cards and revolving credit lines to our current customers, whose risk profile is within the cut-off threshold and the parameters established under our credit policy. Additionally, we use traditional credit review processes, where credit proposals are evaluated and authorized by a credit expert. |
● | Control Environment. To assess the loan authorization ability (approving credit worthy customers and declining non-credit worthy customers), early delinquency rates are periodically monitored and the sales mix is controlled frequently, according with risk categories. |
Maintenance.
We strive to have high market share in the most profitable business units (low-medium risk and medium-high usage) and low market share in the lowest profitable business units (high risk or low usage). 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. Credits are offered permanently to our current customers, such as pre-approved installments credits, revolving credit lines and credit cards. Our goal is to maximize the share of client base in our most profitable business units. |
Collection.
We focus on having a high quality collection process, with a consistent strategy in terms of products, policies, suppliers, means of payment and specialized vendors. The collection process is composed of:
● | Collection Strategy. Our collection strategy is currently based on our products, business segments, delinquency lines, collection channels, geographic coverage, and applied test policies (champions and challengers). Delinquent debtors are reported to credit bureaus. |
● | Collection Operations. Our collection operations strategy is based on internal teams and suppliers. The collection operations teams provide coverage through different channels (e.g., digital collection, telephone |
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collection, property collection, collection in branches and judicial collection) and operate under a performance model and merit considerations. In addition, our continuity plan requires the use of external collection emergencies in cases of emergency or union instability, among others. |
● | Policies and Products. Rewrites, standardization offers and payments agreements are made as necessary. Our objective is to maximize the recovery of capital. |
● | Control Environment and Support. Reliable information management systems are used, which allow us to have a controlled process. We have a collection system and predictive dialers for telephony. |
Charge-off Policy, Recovery and Planning.
The charge-off policy, recovery and planning process consists of:
● | Charge-off Policy. As a general rule, charge-offs should be done when all collection efforts have been exhausted. These charge-offs consisted of derecognition from the consolidated statements of financial position of the corresponding loans transactions in their entirety, and, therefore, included portions of loans that were not past due in the case of installments loans or leasing transactions (no partial charge-offs exist). |
● | Loan Loss Allowance. History of defaults, recoveries, write-offs and collection expenses are used to calculate the allowances of each portfolio. Back Testing Analyses are periodically performed in order to ensure the right coverage, as well as the correct models performance. Forward-looking information and all considerations required by applicable regulations and standards are taken into account. |
Classification of Loan Portfolio
Loan portfolio is 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 125% of the amount of the loan); and (3) commercial loans (including all loans other than consumer loans and residential mortgage loans).
Impairment Assessment as of January 1, 2018 (Under IFRS 9)
As of January 1, 2018, we replaced the “incurred loss” model of IAS 39 with an “expected credit loss” (ECL) model established by IFRS 9. The new impairment model applies to all financial assets measured at amortized cost and debt securities measured at fair value through other comprehensive income (FVOCI), including commitment and contingent loans. Investments in equity are outside of the scope of the new impairment requirements.
We accounted for ECL related to financial assets measured at amortized cost as a loss allowance in the statements of financial position, but the carrying amount of these assets is stated net of the loss allowance. ECL related to contingent loans is accounted for as a provision in the statements of financial position. We recognize in profit or loss, as an impairment gain or loss, the amount of ECL (or reversal) that was required to adjust the loss allowance at the reporting date to the amount that is required to be recognized in accordance IFRS 9 for financial assets measured at amortized cost and contingent loans.
The new model uses a dual measurement approach, under which the loss allowance is measured as either:
● | 12-month ECL |
● | Lifetime ECL |
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We have defined default on an individual or collective basis as follows:
● | Individual: when exposure is more than 89 days past due, it is in judicial collection or it has been identified as impaired by an internal risk committee. |
● | Collective: when exposure is more than 89 days past due or has been restructured with more than 60 days past due. |
For collective assessment purposes, financial assets are grouped based on characteristics of shared credit risk, considering the type of instrument, credit risk classifications, initial recognition date, remaining term, industry, geographical location of the counterparty, among other significant factors.
The ECL measurement basis depends on whether there has been a “significant increase in credit risk” (“SICR”) since initial recognition. Based on changes in credit quality since initial recognition, IFRS 9 outlines a “three-stage” model impairment in accordance with the following diagram:
Change in credit quality since initial recognition
| | |||
---|---|---|---|---|
Stage 1 |
| Stage 2 |
| Stage 3 |
Initial recognition | | SICR since initial recognition | | Credit impaired assets |
12-month ECL | | Lifetime ECL | | Lifetime ECL |
At the end of each reporting period, we evaluate whether a financial instrument’s credit risk has significantly increased since initial recognition or whether an asset is considered to be credit-impaired, and consequently classify financial instruments into the respective stage:
● | Stage 1: When loans are first recognized, the Bank recognizes an allowance based on 12-month ECL. Stage 1 loans also include facilities where the credit risk has improved and the loan has been returned to Stage 1. |
● | Stage 2: When a loan has shown a significant increase in credit risk since origination, we record an allowance based on lifetime ECL. Stage 2 loans also include facilities where the credit risk has improved and the loan has been returned to stage 2. |
● | Stage 3: Loans considered credit-impaired. The Bank records an allowance based on lifetime ECL, setting the probability of default (“PD”) at 100%. |
Our assessment of a SICR and the calculation of ECL incorporate forward-looking information. We perform historical analysis and identify the key economic variables that impact credit risk and ECL for each portfolio. These can include GDP, inflation, interest rates and unemployment, among others. Where applicable, we incorporate these economic variables and their associated impacts into our models.
Credit risk assessment and forward looking information (including macro-economic factors), includes quantitative and qualitative information based on our historical experience, some examples are:
a. | Financial or economic conditions that are expected to cause a significant change in the borrower’s ability to meet its debt obligations. |
b. | An actual or expected internal credit rating downgrade for the borrower or decrease in behavioral scoring. |
c. | Significant increases in credit risk on other financial instruments of the same borrower. |
We have considered that if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial credit recognition, but is not an absolute indicator. We did not rebut the backstop presumption of IFRS 9 relating to SICR or default.
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During this last year, considering the impact of the COVID-19 pandemic, the IASB required special attention be paid to assessment of the impairment reflected in the ECL calculation and the SICR triggers, taking in account not only the current conditions and forecast of the economic conditions, but also the government support measures.
In this context, we have decided to use the SICR as the main approach to reflect our current situation, as result of our COVID-19 assessment, detailed as follow:
Expected Credit loss Measurement
The ECL are the probability-weighted estimate of credit losses, i.e. the present value of all cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The three main components to measure the ECL are:
● | PD: The probability of default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognized and is still in the portfolio. |
● | LGD: The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. |
● | EAD: The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdown on committed facilities, and accrued interest from missed payments. |
For measuring 12-month and lifetime ECL, cash shortfalls are identified as follows:
● | 12-month ECL: the portion of lifetime ECL that represents the ECL that result from default events on the financial instruments that are possible within the 12 months after the reporting date. |
● | Lifetime ECL: the ECL that result from all possible default events over the expected life of the financial instrument. |
We considered a multi-factor analysis to perform our credit risk analysis. The type of portfolio or transactions, and whether individually or collectively assessed.
We divide our portfolio into commercial loans, mortgage loans, consumer loans and contingent loans.
We evaluate individually whether objective evidence of impairment exists for loans that are individually significant, then collectively assess loans that are not individually significant and loans which are significant but for which there is no objective evidence of impairment available under individually assessment.
139
Contingent loans
We enter into various irrevocable loan commitments and contingent liabilities. Even though these obligations may not be recognized on our statements of financial position, they contain credit risk and, therefore, form part of our overall risk.
We estimate the ECL for contingent loans, we estimate the expected portion of the loan commitment that will be drawn down over its expected life.
Forward looking information
The ECL model includes a broad range of forward looking information as economic inputs, such as:
● | Exchange Rate (USD/CLP) |
● | Unemployment rates |
● | Central Bank interest rates |
● | Economic Perception Index (IPEC) |
Modifications of financial assets
When a loan measured at amortized cost has been renegotiated or modified but not derecognized, the Bank recognizes the resulting gains or losses as the difference between the carrying amount of the original loans, and modified contractual cash flows discounted using the “Effective Interest Rate” (“EIR”) before modification. The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortized cost of a financial liability.
For ECL estimation purposes of financial assets that have been modified, we are required to distinguish between modification that result in derecognition from those that does not result in derecognition. If the modification does not result in derecognition, then the subsequent assessment of whether there is a significant increase in credit risk is made comparing the risk at the reporting date based on the modified contractual term and the risk at initial recognition based on the original, unmodified contractual term.
If the modification results in derecognition, then the modified asset is considered to be a new asset. Accordingly, the date of modification is treated as the date of initial recognition for the purposes of the impairment requirements.
Collateral
We seek to use collateral to mitigate our credit risks on financial assets, where possible. Types of collateral are cash, securities, letters of credit, real estate and inventories. Our accounting policy for collateral assigned to us through our lending arrangements under IFRS 9 is the same is it was under IAS 39. Collateral, unless repossessed, is not recorded our statements of financial position. However, the fair value of collateral affects the calculation of ECLs. The main collateral associated to mortgage loans are real estate, which are valued based on data provided by specialized third parties.
The estimation of ECL reflects the cash flows expected from collateral and other credit enhancement that are part of the contractual terms of the financial instruments.
Our policy when an asset (real estate) is repossessed, it is transferred to assets held for sale at its fair value less cost to sell and classified as non-financial assets at the repossession date.
140
Guarantees
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it occurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instruments. Such financial guarantees are given to banks, financial institutions and others on behalf of customers to secure loans, overdrafts and other banking facilities.
Financial guarantee contracts are initially measured at fair value and subsequently measured at the higher of:
● | The amount of the loss allowance (calculated as described in Note 21 of our consolidated financial statements); and |
● | The premium received on initial recognition less income recognized in accordance with the principles of IFRS 15. |
Loan commitments provided by us are measured as the amount of the loss allowance (calculated as described in Note 1 of our consolidated financial statements in respect of accounting policies and ECL criteria, with further details contained in Note 36 of our consolidated financial statements in respect of risk management considerations and specific criteria by country). We have not provided any commitment to provide loans at a below-market interest rate, or that can be settled net in cash or by delivering or issuing another financial instrument.
For loan commitments and financial guarantee contracts, the loss allowance is recognized as a provision. However, for contracts that include both a loan and an undrawn commitment and we cannot separately identify the ECLs on the undrawn commitment component from those on the loan component, the ECLs on the undrawn commitment are recognized together with the loss allowance for the loan. To the extent that the combined ECLs exceed the gross carrying amount on the loan, the ECLs are recognized as a provision.
Charge-offs
The gross carrying amount of a financial asset is reduced when there is no reasonable expectation of recovery. A charge-off constitutes a derecognition event of the corresponding loan transaction in its entirety, and therefore, include portions not past-due for installments loans or leasing operation (no partial charge-off).
Subsequent recoveries of amounts previously charge-off are credited to the income statements, as recovery of loans previously charged-off, as a deduction from provisions for loan losses.
Loan and accounts receivable charge-offs are recorded for overdue and current installments based on the time periods expired since reaching overdue status.
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Total Loans — Models Based on Group Analysis
The following tables provide statistical data regarding the classification of our loans as of the dates indicated below, applying the classification methodology described above:
| | | | | | | |
| | As of December 31, 2018 |
| ||||
| | | | Allowances | | |
|
|
| Total Loans |
| for loan losses |
| Risk Index (%) | |
|
| (in millions of Ch$ except for percentages) | | ||||
Commercial |
| 1,208,771 |
| 274,884 |
| 22.7 | % |
Leasing commercial |
| 73,863 |
| 25,113 |
| 34.0 | % |
Factoring commercial |
| 16,418 |
| 9 |
| 0.1 | % |
Student loans |
| 676,689 |
| 51,091 |
| 7.6 | % |
Consumer |
| 2,663,560 |
| 216,820 |
| 8.1 | % |
Leasing consumer |
| 6,203 |
| 476 |
| 7.7 | % |
Mortgage |
| 4,133,709 |
| 61,722 |
| 1.5 | % |
Leasing mortgage |
| 312,118 |
| 4,395 |
| 1.4 | % |
| | | | | | | |
|
| As of December 31, 2019 |
| ||||
| | | | Allowances | | |
|
|
| Total Loans |
| for loan losses |
| Risk Index (%) |
|
| | (in millions of Ch$ except for percentages) | | ||||
Commercial | | 1,204,478 |
| 312,626 |
| 26.0 | % |
Leasing commercial | | 69,668 |
| 16,302 |
| 23.4 | % |
Factoring commercial | | 12,854 |
| 3,694 |
| 28.7 | % |
Student loans | | 654,721 |
| 19,442 |
| 3.0 | % |
Consumer | | 2,795,116 |
| 256,190 |
| 9.2 | % |
Leasing consumer | | 3,113 |
| 227 |
| 7.3 | % |
Mortgage | | 4,539,454 |
| 65,622 |
| 1.5 | % |
Leasing mortgage | | 336,587 |
| 12,879 |
| 3.8 | % |
| | | | | | | |
|
| As of December 31, 2020 |
| ||||
| | | | Allowances | | |
|
|
| Total Loans |
| for loan losses |
| Risk Index (%) |
|
| | (in millions of Ch$ except for percentages) | | ||||
Commercial |
| 1,389,678 |
| 380,016 |
| 27.3 | % |
Leasing commercial |
| 60,736 |
| 24,402 |
| 40.2 | % |
Factoring commercial |
| 10,561 |
| 4,053 |
| 38.4 | % |
Student loans |
| 594,688 |
| 17,702 |
| 3.0 | % |
Consumer |
| 2,490,962 |
| 220,609 |
| 8.9 | % |
Leasing consumer |
| 1,467 |
| 182 |
| 12.4 | % |
Mortgage |
| 5,009,179 |
| 61,747 |
| 1.2 | % |
Leasing mortgage |
| 307,574 |
| 11,718 |
| 3.8 | % |
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Consumer Loans — Models Based on Group Analysis
| | | | | | | |
| | As of December 31, 2018 |
| ||||
| | | | Allowances for loan | | |
|
|
| Total Loans |
| losses |
| Risk Index (%) |
|
| | (in millions of Ch$ except for percentages) |
| ||||
Credit cards |
| 481,567 |
| 38,426 |
| 6.4 | % |
Lines of credit |
| 256,456 |
| 25,585 |
| 10.0 | % |
Other revolving |
| 3,752 |
| 575 |
| 15.3 | % |
Installment consumer loans |
| 1,368,909 |
| 68,237 |
| 5.0 | % |
Card loans |
| 14,676 |
| 769 |
| 5.2 | % |
Salary discount loans |
| 372,671 |
| 23,668 |
| 6.4 | % |
Renegotiation |
| 165,529 |
| 67,200 |
| 40.6 | % |
Others |
| — |
| — |
| — | |
| | | | | | | |
| | As of December 31, 2019 |
| ||||
| | | | Allowances for loan | | |
|
|
| Total Loans |
| losses |
| Risk Index (%) |
|
| | (in millions of Ch$ except for percentages) |
| ||||
Credit cards |
| 537,741 |
| 35,046 |
| 6.5 | % |
Lines of credit |
| 248,678 |
| 24,240 |
| 9.8 | % |
Other revolving |
| 3,394 |
| 552 |
| 16.3 | % |
Installment consumer loans |
| 1,465,987 |
| 94,779 |
| 6.5 | % |
Card loans |
| 7,648 |
| 489 |
| 6.4 | % |
Salary discount loans |
| 330,257 |
| 22,140 |
| 6.7 | % |
Renegotiation |
| 201,406 |
| 78,944 |
| 39.2 | % |
Others |
| 5 |
| — |
| — | |
| | | | | | | |
| | As of December 31, 2020 |
| ||||
| | | | Allowances for loan | | |
|
|
| Total Loans |
| losses |
| Risk Index (%) |
|
| | (in millions of Ch$ except for percentages) |
| ||||
Credit cards |
| 466,804 | | 63,428 | | 13.59 | % |
Lines of credit |
| 154,458 | | 13,391 | | 8.67 | % |
Other revolving |
| 2,680 | | 269 | | 10.04 | % |
Installment consumer loans |
| 1,311,198 | | 68,891 | | 5.25 | % |
Card loans |
| 3,522 | | 1,048 | | 29.76 | % |
Salary discount loans |
| 319,404 | | 16,394 | | 5.13 | % |
Renegotiation |
| 232,896 | | 57,188 | | 24.56 | % |
Others |
| — | | — | | — | |
143
Analysis of Our Loan Classification
The following tables provide statistical data regarding the classification of our loans as of the dates indicated below, applying the classification explained in prior pages:
2018
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Corporate Portfolio | | Group Portfolio |
| ||||||||||||||||||||||||
| | Normal Portfolio | | Impaired Portfolio | | Normal | | Impaired | | | | |
| ||||||||||||||||
As of December 31, 2018 |
| A1 |
| A2 |
| A3 |
| A4 |
| A5 |
| A6 |
| B1 |
| B2 |
| Impaired |
| Total |
| Portfolio |
| Portfolio |
| Total |
| General Total |
|
| | (in millions of Ch$) |
| ||||||||||||||||||||||||||
Loans and receivables from banks |
| 9,648 |
| 256,680 |
| 62,699 |
| 12,680 |
| — |
| — |
| — |
| — |
| — |
| 341,707 |
| — |
| — |
| — |
| 341,707 | |
Allowances for loan losses |
| 3 |
| 414 |
| 46 |
| — |
| — |
| — |
| — |
| — |
| — |
| 463 |
| — |
| — |
| — |
| 463 | |
As percentage of total loans |
| 0.03 | % | 0.16 | % | 0.07 | % | — | % | |
| — |
| — |
| — |
| — |
| 0.14 | % | — |
| — |
| |
| 0.14 | % |
Loans and receivable from customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial loans |
| 77,530 |
| 401,697 |
| 2,825,432 |
| 3,624,000 |
| 2,359,123 |
| 544,098 |
| 230,739 |
| 65,738 |
| 592,765 |
| 10,721,122 |
| 732,307 |
| 3,959 |
| 736,266 |
| 11,457,388 | |
Foreign trade loans |
| — |
| — |
| 120,431 |
| 194,385 |
| 132,301 |
| 10,015 |
| 16,595 |
| 7,695 |
| 71,030 |
| 552,452 |
| 275,178 |
| 100,813 |
| 375,991 |
| 928,443 | |
Checking account debtors |
| — |
| 917 |
| 8,625 |
| 12,407 |
| 13,189 |
| 3,579 |
| 3,420 |
| 383 |
| 8,947 |
| 51,467 |
| 62,083 |
| 17,550 |
| 79,633 |
| 131,100 | |
Factoring operations |
| 33,027 |
| 44,471 |
| 42,572 |
| 36,018 |
| 28,489 |
| 1,092 |
| 4,349 |
| — |
| 4,131 |
| 194,149 |
| 16,305 |
| 113 |
| 16,418 |
| 210,567 | |
Student loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 604,599 |
| 72,090 |
| 676,689 |
| 676,689 | |
Leasing transactions |
| — |
| 6,283 |
| 93,172 |
| 291,530 |
| 302,280 |
| 56,196 |
| 22,572 |
| 2,942 |
| 79,322 |
| 854,297 |
| 68,929 |
| 4,934 |
| 73,863 |
| 928,160 | |
Other loans and receivables |
| 8 |
| 45 |
| 6,769 |
| 3,028 |
| 5,484 |
| 487 |
| 150 |
| 67 |
| 1,634 |
| 17,672 |
| 12,992 |
| 3,889 |
| 16,881 |
| 34,553 | |
Subtotal Commercial loans |
| 110,565 |
| 453,413 |
| 3,097,001 |
| 4,161,368 |
| 2,840,866 |
| 615,467 |
| 277,825 |
| 76,825 |
| 757,829 |
| 12,391,159 |
| 1,772,393 |
| 203,348 |
| 1,975,741 |
| 14,366,900 | |
Allowances for loan losses |
| 508 |
| 475 |
| 3,506 |
| 37,403 |
| 58,360 |
| 27,477 |
| 18,067 |
| 9,793 |
| 233,242 |
| 388,831 |
| 37,352 |
| 58,524 |
| 95,876 |
| 484,707 | |
As percentage of total loans |
| 0.46 | % | 0.10 | % | 0.11 | % | 0.90 | % | 2.05 | % | 4.46 | % | 6.50 | % | 12.75 | % | 30.78 | % | 3.14 | % | 2.11 | % | 28.78 | % | 4.85 | % | 3.37 | % |
Consumer loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 2,532,331 |
| 137,432 |
| 2,669,763 |
| 2,669,763 | |
Allowances for loan losses |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 135,521 |
| 81,775 |
| 217,296 |
| 217,296 | |
As percentage of total loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 5.35 | % | 59.50 | % | 8.14 | % | 8.14 | % |
Mortgage loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 4,235,934 |
| 209,893 |
| 4,445,827 |
| 4,445,827 | |
Allowances for loan losses |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 39,755 |
| 26,362 |
| 66,117 |
| 66,117 | |
As percentage of total loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 0.94 | % | 12.56 | % | 1.49 | % | 1.49 | % |
Total loans and receivable to customers |
| 110,565 |
| 453,413 |
| 3,097,001 |
| 4,161,368 |
| 2,840,866 |
| 615,467 |
| 277,825 |
| 76,825 |
| 757,829 |
| 12,391,159 |
| 8,540,658 |
| 550,673 |
| 9,091,331 |
| 21,482,490 | |
Allowances for loan losses |
| 508 |
| 475 |
| 3,506 |
| 37,403 |
| 58,360 |
| 27,477 |
| 18,067 |
| 9,793 |
| 233,242 |
| 388,831 |
| 212,628 |
| 166,661 |
| 379,289 |
| 768,120 | |
As percentage of total loans |
| 0.46 | % | 0.10 | % | 0.11 | % | 0.90 | % | 2.05 | % | 4.46 | % | 6.50 | % | 12.75 | % | 30.78 | % | 3.14 | % | 2.49 | % | 30.26 | % | 4.17 | % | 3.58 | % |
144
2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Corporate Portfolio | | Group Portfolio |
| ||||||||||||||||||||||||
| | Normal Portfolio | | | | Normal | | Impaired | | | | General |
| ||||||||||||||||
| | A1 | | A2 | | A3 | | A4 | | A5 | | A6 | | B1 | | B2 | | Impaired | | Subtotal | | Portfolio | | Portfolio | | Total | | Total |
|
As of December 31, 2019 |
| (in millions of Ch$) |
| ||||||||||||||||||||||||||
Loans and receivables from banks |
| — |
| 4,570 |
| 37,725 |
| 14,340 |
| — |
| — |
| — |
| — |
| — |
| 56,635 |
| — |
| — |
| — |
| 56,635 | |
Allowances for loan losses |
| — |
| 4 |
| 58 |
| 177 |
| — |
| — |
| — |
| — |
| — |
| 239 |
| — |
| — |
| — |
| 239 | |
As percentage of total loans |
| — | % | 0.09 | % | 0.15 | % | 1.23 | % | — |
| — |
| — |
| — |
| — |
| 0.42 | % | — |
| — |
| — |
| 0.42 | % |
Loans and receivable from customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial loans |
| 11,339 | | 565,824 | | 2,873,658 | | 3,907,004 | | 2,303,624 | | 497,734 | | 176,544 | | 82,783 | | 754,310 | | 11,172,820 | | 988,305 | | 127,685 | | 1,115,990 | | 12,288,810 | |
Foreign trade loans |
| 90,944 | | 63,956 | | 282,215 | | 328,146 | | 250,042 | | 32,251 | | 13,738 | | 267 | | 26,113 | | 1,087,672 | | 20,979 | | 518 | | 21,497 | | 1,109,169 | |
Checking account debtors |
| — | | 288 | | 31,161 | | 24,726 | | 31,864 | | 6,628 | | 3,569 | | 371 | | 5,532 | | 104,139 | | 42,011 | | 8,126 | | 50,137 | | 154,276 | |
Factoring operations |
| 9,205 | | 22,995 | | 69,177 | | 67,888 | | 35,573 | | 2,707 | | 463 | | — | | 242 | | 208,250 | | 12,547 | | 307 | | 12,854 | | 221,104 | |
Student loans |
| — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 576,029 | | 78,692 | | 654,721 | | 654,721 | |
Leasing transactions |
| — | | 3,935 | | 112,762 | | 305,023 | | 353,768 | | 78,534 | | 21,911 | | 8,166 | | 51,442 | | 935,541 | | 64,199 | | 5,469 | | 69,668 | | 1,005,209 | |
Other loans and receivables |
| 2 | | 42 | | 1,292 | | 2,638 | | 3,978 | | 938 | | 269 | | 25 | | 947 | | 10,131 | | 14,666 | | 2,458 | | 17,124 | | 27,255 | |
Subtotal Commercial loans |
| 111,490 | | 657,040 | | 3,370,265 | | 4,635,425 | | 2,978,849 | | 618,792 | | 216,494 | | 91,612 | | 838,586 | | 13,518,553 | | 1,718,736 | | 223,255 | | 1,941,991 | | 15,460,544 | |
Allowances for loan losses |
| 47 | | 420 | | 5,509 | | 40,421 | | 62,860 | | 15,793 | | 7,420 | | 7,483 | | 315,876 | | 455,830 | | 30,277 | | 59,093 | | 89,369 | | 545,199 | |
As percentage of total loans |
| 0.04 | % | 0.06 | % | 0.16 | % | 0.87 | % | 2.11 | % | 2.55 | % | 3.43 | % | 8.17 | % | 37.67 | % | 3.37 | % | 1.76 | % | 26.47 | % | 4.60 | % | 3.53 | % |
Consumer loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 2,623,064 | | 175,165 | | 2,798,229 | | 2,798,229 | |
Allowances for loan losses |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 119,353 | | 137,064 | | 256,417 | | 256,417 | |
As percentage of total loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 4.55 | % | 78.25 | % | 9.16 | % | 9.16 | % |
Mortgage loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 4,644,274 | | 231,767 | | 4,876,041 | | 4,876,041 | |
Allowances for loan losses |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 34,693 | | 43,808 | | 78,501 | | 78,501 | |
As percentage of total loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 0.75 | % | 18.90 | % | 1.61 | % | 1.61 | % |
Total loans and receivable to customers |
| 111,490 | | 657,040 | | 3,370,265 | | 4,635,425 | | 2,978,849 | | 618,792 | | 216,494 | | 91,612 | | 838,586 | | 13,518,553 | | 8,986,074 | | 630,187 | | 9,616,261 | | 23,134,814 | |
Allowances for loan losses |
| 47 | | 420 | | 5,509 | | 40,421 | | 62,860 | | 15,793 | | 7,420 | | 7,483 | | 315,876 | | 455,830 | | 184,323 | | 239,964 | | 424,287 | | 880,117 | |
As percentage of total loans |
| 0.04 | % | 0.06 | % | 0.16 | % | 0.87 | % | 2.11 | % | 2.55 | % | 3.43 | % | 8.17 | % | 37.67 | % | 3.37 | % | 2.05 | % | 38.08 | % | 4.41 | % | 3.80 | % |
145
2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Corporate Portfolio | | Group Portfolio |
| ||||||||||||||||||||||||
| | Normal Portfolio | | | | Normal | | Impaired | | | | General |
| ||||||||||||||||
| | A1 | | A2 | | A3 | | A4 | | A5 | | A6 | | B1 | | B2 | | Impaired | | Subtotal | | Portfolio | | Portfolio | | Total | | Total |
|
As of December 31, 2020 |
| millions of Ch$ |
| ||||||||||||||||||||||||||
Loans and receivables from banks |
| — |
| — |
| 7,131 |
| — |
| — |
| — |
| — |
| — |
| — |
| 7,131 |
| — |
| — |
| — |
| 7,131 | |
Allowances for loan losses |
| — |
| — |
| 10 |
| — |
| — |
| — |
| — |
| — |
| — |
| 10 |
| — |
| — |
| — |
| 10 | |
As percentage of total loans |
| — | % | — | % | 0.14 | % | — | % | — |
| — |
| — |
| — |
| — |
| 0.14 | % | — |
| — |
| — |
| 0.14 | % |
Loans and receivable from customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial loans |
| 75,982 | | 450,537 | | 1,943,514 | | 3,634,056 | | 2,378,316 | | 737,887 | | 360,664 | | 135,586 | | 1,127,771 | | 10,844,313 | | 1,196,835 | | 131,059 | | 1,327,894 | | 12,172,207 | |
Foreign trade loans |
| 86,639 | | 58,437 | | 122,366 | | 248,956 | | 230,882 | | 63,693 | | 14,570 | | — | | 2,386 | | 827,929 | | 14,842 | | 4,315 | | 19,157 | | 847,086 | |
Checking account debtors |
| — | | — | | 1,412 | | 11,007 | | 13,414 | | 7,533 | | 2,757 | | 807 | | 4,297 | | 41,227 | | 22,485 | | 6,414 | | 28,899 | | 70,126 | |
Factoring operations |
| 1,360 | | 4,566 | | 39,089 | | 49,114 | | 37,481 | | 10,873 | | 2,111 | | — | | 385 | | 144,979 | | 10,561 | | — | | 10,561 | | 155,540 | |
Student loans |
| — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 521,846 | | 72,842 | | 594,688 | | 594,688 | |
Leasing transactions |
| — | | 1,355 | | 75,481 | | 279,461 | | 280,605 | | 99,300 | | 51,653 | | 24,978 | | 67,420 | | 880,253 | | 56,112 | | 4,624 | | 60,736 | | 940,989 | |
Other loans and receivables |
| — | | 52 | | 223 | | 923 | | 11,824 | | 757 | | 177 | | 83 | | 396 | | 14,435 | | 12,038 | | 1,690 | | 13,728 | | 28,163 | |
Subtotal Commercial loans |
| 163,981 | | 514,947 | | 2,182,085 | | 4,223,517 | | 2,952,522 | | 920,043 | | 431,932 | | 161,454 | | 1,202,655 | | 12,753,136 | | 1,834,719 | | 220,944 | | 2,055,663 | | 14,808,799 | |
Allowances for loan losses |
| 66 | | 254 | | 3,625 | | 35,619 | | 61,686 | | 38,539 | | 10,755 | | 13,264 | | 497,694 | | 661,502 | | 29,127 | | 56,988 | | 86,115 | | 747,617 | |
As percentage of total loans |
| 0.04 | % | 0.05 | % | 0.17 | % | 0.84 | % | 2.09 | % | 4.19 | % | 2.49 | % | 8.22 | % | 41.36 | % | 5.19 | % | 1.59 | % | 25.79 | % | 4.19 | % | 5.05 | % |
Consumer loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 2,327,924 | | 164,505 | | 2,492,429 | | 2,492,429 | |
Allowances for loan losses |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 101,880 | | 118,911 | | 220,791 | | 220,791 | |
As percentage of total loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 4.38 | % | 72.28 | % | 8.86 | % | 8.86 | % |
Mortgage loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 5,083,078 | | 233,675 | | 5,316,753 | | 5,316,753 | |
Allowances for loan losses |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 29,842 | | 43,623 | | 73,465 | | 73,465 | |
As percentage of total loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 0.59 | % | 18.67 | % | 1.38 | % | 1.38 | % |
Total loans and receivable to customers |
| 163,981 | | 514,947 | | 2,182,085 | | 4,223,517 | | 2,952,522 | | 920,043 | | 431,932 | | 161,454 | | 1,202,655 | | 12,753,136 | | 9,245,721 | | 619,124 | | 9,864,845 | | 22,617,981 | |
Allowances for loan losses |
| 66 | | 254 | | 3,625 | | 35,619 | | 61,686 | | 38,539 | | 10,755 | | 13,264 | | 497,694 | | 661,502 | | 160,849 | | 219,522 | | 380,371 | | 1,041,873 | |
As percentage of total loans |
| 0.04 | % | 0.05 | % | 0.17 | % | 0.84 | % | 2.09 | % | 4.19 | % | 2.49 | % | 8.22 | % | 41.38 | % | 5.19 | % | 1.74 | % | 35.46 | % | 3.86 | % | 4.61 | % |
146
Classification of Loan Portfolio Based on the Customer’s Payment Performance
The following tables set forth the amounts that are current as to payments and interest and the amounts that are overdue under IFRS, as of the dates indicated:
Total Loans
| | | | | | |
| | As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | (in millions of Ch$, except for percentages) | ||||
Current |
| 20,358,662 |
| 21,867,833 |
| 21,403,564 |
Overdue 1-29 days |
| 429,791 |
| 384,973 |
| 362,384 |
Overdue 30-89 days |
| 241,090 |
| 228,343 |
| 348,151 |
Overdue 90-180 days |
| 148,234 |
| 298,718 |
| 140,702 |
Overdue 181-240 days |
| 28,977 |
| 64,964 |
| 42,154 |
Overdue 241-360 days |
| 52,176 |
| 89,723 |
| 100,295 |
Overdue more than 360 days |
| 223,560 |
| 200,260 |
| 220,731 |
Total loans (excludes interbank loans) |
| 21,482,490 |
| 23,134,814 |
| 22,617,981 |
Analysis of Impaired Loans, Non-Performing Loans and Past Due Loans
The following tables analyze our impaired loans and past due loans and the allowances for loan losses existing as of the dates indicated:
| | | | | | | |
| | As of December 31, | |||||
|
| 2018 |
| 2019 |
| 2020 | |
| | (in millions of Ch$ except for percentages) | |||||
Total loans (1) |
| 21,482,490 |
| 23,134,814 |
| 22,617,981 | |
Impaired loans (2) |
| 1,299,226 |
| 1,468,775 |
| 1,821,779 | |
Allowance for loan losses (3) |
| 768,120 |
| 880,117 |
| 1,041,873 | |
Impaired loans as a percentage of total loans |
| 6.0 | % | 6.3 | % | 8.1 | % |
Non-performing loans (4) |
| 452,947 |
| 653,664 |
| 503,882 |
|
Non-performing loans as a percentage of total loans (4) |
| 2.1 | % | 2.8 | % | 2.2 | % |
Past due loans (5) |
| 271,791 |
| 312,510 |
| 291,781 |
|
Past due loans as a percentage of total loans |
| 1.3 | % | 1.4 | % | 1.3 | % |
Allowance for loans losses as a percentage of: |
|
|
|
|
|
|
|
Total loans |
| 3.6 | % | 3.8 | % | 4.6 | % |
Total impaired loans |
| 59.1 | % | 60.6 | % | 57.2 | % |
Total Non-performing loans |
| 169.6 | % | 136.1 | % | 206.8 | % |
Total amounts past due |
| 282.6 | % | 284.7 | % | 357.1 | % |
Reported ECL |
| 768,120 |
| 880,117 |
| 1,041,873 |
|
Reported Coverage (Reported ECL/ loans and accounts receivable at amortized cost) |
| 3.6 | % | 3.8 | % | 4.6 | % |
(1) | Total loans as of December 31, 2018, 2019 and 2020 corresponds to loans and accounts receivable from customers at amortized cost according to IFRS 9. |
(2) | Impaired loans include those loans on which there is objective evidence that debtors will not meet some of their contractual payment obligations. For 2018, 2019 and 2020, impaired loans include loans classified in stage 3 according to IFRS 9. |
(3) | Allowance for loan losses as of December 31, 2018, 2019 and 2020 corresponds to allowances for loans and accounts receivable from customers at amortized cost according to IFRS 9. |
(4) | Non-performing loans include the principal and interest on any loan with one installment more than 90 days overdue. Total loans in 2018, 2019 and 2020 corresponds to loans at amortized cost. Our loan portfolio classified as stage 3 under IFRS 9 was Ch$1,325,218 million as of December 31, 2020, Ch$1,237,205 million in 2019 and Ch$884,977 million in 2018 with an ECL coverage of 40.0%, 34.9% in 2019 and 39.7% in 2018. |
147
(5) | Past due loans include all installments and lines of credit more than 90 days overdue. Past due loans do not include the aggregate principal amount of such loans. |
The following table provides further information on our non-performing loans:
| | | | | | | | | | |
| | Between | | Between | | Between | | More than | | |
As of December 31, 2018 |
| 90-180 days |
| 181-240 days |
| 241-360 days |
| 360 days |
| Total |
| | (in millions of Ch$) | ||||||||
Commercial Loans |
| 98,718 |
| 41,043 |
| 64,904 |
| 110,205 |
| 314,870 |
Mortgages Loans |
| 27,215 |
| 8,868 |
| 18,341 |
| 36,683 |
| 91,107 |
Consumer Loans |
| 46,970 |
| — |
| — |
| — |
| 46,970 |
Total loans (excludes interbank loans) |
| 172,903 |
| 49,911 |
| 83,245 |
| 146,888 |
| 452,947 |
| | | | | | | | | | |
| | Between | | Between | | Between | | More than | | |
As of December 31, 2019 |
| 90-180 days |
| 181-240 days |
| 241-360 days |
| 360 days |
| Total |
| | (in millions of Ch$) | ||||||||
Commercial Loans |
| 211,906 |
| 52,152 |
| 71,557 |
| 154,959 |
| 490,574 |
Mortgages Loans |
| 46,997 |
| 9,236 |
| 12,771 |
| 33,645 |
| 102,649 |
Consumer Loans |
| 60,441 |
| — |
| — |
| — |
| 60,441 |
Total loans (excludes interbank loans) |
| 319,344 |
| 61,388 |
| 84,328 |
| 188,604 |
| 653,664 |
| | | | | | | | | | |
| | Between | | Between | | Between | | More than | | |
As of December 31, 2020 |
| 90-180 days |
| 181-240 days |
| 241-360 days |
| 360 days |
| Total |
| | (in millions of Ch$) | ||||||||
Commercial Loans |
| 82,582 | | 37,147 | | 90,953 | | 170,931 |
| 381,613 |
Mortgages Loans |
| 13,148 | | 4,888 | | 9,341 | | 49,798 |
| 77,175 |
Consumer Loans |
| 28,256 | | 122 | | — | | 16,716 |
| 45,094 |
Total loans (excludes interbank loans) |
| 123,986 |
| 42,157 |
| 100,294 |
| 237,445 |
| 503,882 |
Analysis of Allowances for Loan Losses
The following sets forth the movements in our allowances for loan losses during the years ended December 31, 2018, 2019 and 2020, according to IFRS 9. For a description of the various categories mentioned below, see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Impairment Assessment as of January 1, 2018 (Under IFRS 9).”
148
The following table sets forth information on allowances for loan losses:
| | | | | | | | | | | | | | | | | | |
| | Individually assessed | | Group assessed | | | ||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | Stage 1 | | Stage 2 | | Stage 3 | | | | |
| | 12-Month | | Lifetime | | Lifetime | | | | 12-Month | | Lifetime | | Lifetime | | | | |
|
| ECL |
| ECL |
| ECL |
| Subtotals |
| ECL |
| ECL |
| ECL |
| Subtotals |
| Totals |
Balances as of January 1, 2018 |
| — |
| 49,389 |
| 32,736 |
| 82,125 |
| 126,230 |
| 248,129 |
| 284,089 |
| 658,448 |
| 740,573 |
Changes in the allowances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Net transfers to stage 1 |
| — |
| — |
| — |
| — |
| — |
| 36,325 |
| 41,471 |
| 77,796 |
| 77,796 |
- Net transfer to stage 2 |
| — |
| — |
| — |
| — |
| (5,233) |
| — |
| 49,097 |
| 43,864 |
| 43,864 |
- Net transfer to stage 3 |
| — |
| — |
| — |
| — |
| (4,354) |
| (22,811) |
| — |
| (27,165) |
| (27,165) |
- Increases due to change in credit risk |
| — |
| 3,732 |
| 16,587 |
| 20,319 |
| 18,307 |
| 18,459 |
| 28,670 |
| 65,436 |
| 85,755 |
- Decreases due to change in credit risk |
| — |
| (532) |
| (1,706) |
| (2,238) |
| (23,460) |
| (27,162) |
| (9,105) |
| (59,727) |
| (61,965) |
- Charge-offs |
|
|
| — |
| — |
|
|
| (21,316) |
| (18,559) |
| (95,091) |
| (134,966) |
| (134,966) |
- Changes due to modifications that did not result in derecognition |
|
|
| — |
| — |
|
|
| — |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| — |
| 6,428 |
| 17,037 |
| 23,465 |
| 66,074 |
| 54,568 |
| 77,069 |
| 197,711 |
| 221,176 |
Financial assets that have been derecognized |
| — |
| (20,636) |
| (15,355) |
| (35,991) |
| (19,950) |
| (58,405) |
| (78,728) |
| (157,083) |
| (193,074) |
Net transfer from (to) group assessed |
| — |
| 7,772 |
| 38,158 |
| 45,930 |
| 138 |
| (1,761) |
| (38,158) |
| (39,781) |
| 6,149 |
Foreign exchange and other movements |
|
|
| — |
| — |
| — |
| 2,056 |
| 3,664 |
| 4,257 |
| 9,977 |
| 9,977 |
Balances as of December 31, 2018 |
| — |
| 46,153 |
| 87,457 |
| 133,610 |
| 138,492 |
| 232,447 |
| 263,571 |
| 634,510 |
| 768,120 |
| | | | | | | | | | | | | | | | | | |
| | Individually assessed | | Group assessed | | | ||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | Stage 1 | | Stage 2 | | Stage 3 | | | | |
| | 12-Month | | Lifetime | | Lifetime | | | | 12-Month | | Lifetime | | Lifetime | | | | |
|
| ECL |
| ECL |
| ECL |
| Subtotals |
| ECL |
| ECL |
| ECL |
| Subtotals |
| Totals |
Balances as of January 1, 2019 |
| — |
| 46,153 |
| 87,457 |
| 133,610 |
| 138,492 |
| 232,447 |
| 263,571 |
| 634,510 |
| 768,120 |
Changes in the allowances |
| |
|
|
|
|
|
|
| |
| |
| |
|
|
|
|
- Net transfers to stage 1 |
| — |
| — |
| — |
| — |
| 29,418 |
| (23,245) |
| (6,173) |
| — |
| — |
- Net transfer to stage 2 |
| — |
| — |
| — |
| — |
| (14,077) |
| 28,023 |
| (13,946) |
| — |
| — |
- Net transfer to stage 3 |
| — |
| (22,642) |
| 22,642 |
| — |
| (5,171) |
| (29,876) |
| 35,047 |
| — |
| — |
- Increases due to change in credit risk |
| — |
| 1,216 |
| 62,685 |
| 63,901 |
| 19,691 |
| 80,613 |
| 105,143 |
| 205,447 |
| 269,348 |
- Decreases due to change in credit risk |
| — |
| (7,758) |
| (1,096) |
| (8,854) |
| (51,409) |
| (39,540) |
| (11,452) |
| (102,401) |
| (111,255) |
- Charge-offs |
| — |
| — |
| (13,891) |
| (13,891) |
| (983) |
| (7,631) |
| (144,859) |
| (153,473) |
| (167,364) |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| — |
| 12,496 |
| 7,376 |
| 19,872 |
| 73,009 |
| 91,324 |
| 98,595 |
| 262,928 |
| 282,800 |
Financial assets that have been derecognized |
| — |
| (1,824) |
| (3,152) |
| (4,976) |
| (49,158) |
| (62,668) |
| (82,517) |
| (194,343) |
| (199,319) |
Net transfer from (to) group assessed |
| — |
| 933 |
| — |
| 933 |
| — |
| (933) |
| — |
| (933) |
| — |
Foreign exchange and other movements |
| — |
| 13,426 |
| (10,886) |
| 2,540 |
| 5,603 |
| (8,217) |
| 37,861 |
| 35,247 |
| 37,787 |
Balances as of December 31, 2019 |
| — |
| 42,000 |
| 151,135 |
| 193,135 |
| 145,415 |
| 260,297 |
| 281,270 |
| 686,982 |
| 880,117 |
149
| | | | | | | | | | | | | | | | | | |
| | Individually assessed | | Group assessed | | | ||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | Stage 1 | | Stage 2 | | Stage 3 | | | | |
| | 12-Month | | Lifetime | | Lifetime | | | | 12-Month | | Lifetime | | Lifetime | | | | |
|
| ECL |
| ECL |
| ECL |
| Subtotals |
| ECL |
| ECL |
| ECL |
| Subtotals |
| Totals |
Balances as of January 1, 2020 |
| — |
| 42,000 |
| 151,135 |
| 193,135 |
| 145,415 |
| 260,297 |
| 281,270 |
| 686,982 |
| 880,117 |
Changes in the allowances |
| |
| |
| |
|
|
|
|
|
|
|
|
|
|
|
|
- Net transfers to stage 1 |
| — |
| — |
| — |
| — |
| 49,315 |
| (39,672) |
| (9,643) |
| — |
| — |
- Net transfer to stage 2 |
| (82) |
| 82 |
| — |
| — |
| (19,402) |
| 36,007 |
| (16,605) |
| — |
| — |
- Net transfer to stage 3 |
| (63) |
| (9,055) |
| 9,118 |
| — |
| (2,280) |
| (28,404) |
| 30,684 |
| — |
| — |
- Increases due to change in credit risk |
| — |
| 8,381 |
| 43,940 |
| 52,321 |
| 28,719 |
| 64,496 |
| 138,605 |
| 231,820 |
| 284,141 |
- Decreases due to change in credit risk |
| — |
| (4,761) |
| (2,088) |
| (6,849) |
| (59,996) |
| (37,255) |
| (8,515) |
| (105,766) |
| (112,615) |
- Charge-offs |
| — |
| — |
| (198) |
| (198) |
| (1,390) |
| (14,707) |
| (158,261) |
| (174,358) |
| (174,556) |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| (789) |
| (789) |
| (789) |
New financial assets originated or purchased |
| 46 |
| 12,567 |
| 104,044 |
| 116,657 |
| 80,071 |
| 118,827 |
| 99,210 |
| 298,108 |
| 414,765 |
Financial assets that have been derecognized |
| (500) |
| (4,873) |
| (61,022) |
| (66,395) |
| (50,438) |
| (68,536) |
| (59,044) |
| (178,018) |
| (244,413) |
Net transfer from (to) group assessed |
| — |
| (3,009) |
| 46,698 |
| 43,689 |
| — |
| 3,009 |
| (46,698) |
| (43,689) |
| — |
Foreign exchange and other movements |
| 645 |
| 24,948 |
| (36,509) |
| (10,916) |
| (4,553) |
| (13,652) |
| 24,344 |
| 6,139 |
| (4,777) |
Balances as of December 31, 2020 |
| 46 |
| 66,280 |
| 255,118 |
| 321,444 |
| 165,461 | | 280,410 |
| 274,558 |
| 720,429 |
| 1,041,873 |
Our policy with respect to write-offs is as disclosed in Note 1(t) to our financial statement included herein. The following table shows the write-offs breakdown by loan category:
| | | | | | |
| | As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | (in millions of Ch$) | ||||
Consumer loans |
| 164,680 |
| 160,700 |
| 153,187 |
Mortgage loans |
| 8,035 |
| 7,381 |
| 9,006 |
Commercial loans |
| 102,450 |
| 116,297 |
| 136,621 |
Total |
| 275,165 |
| 284,378 |
| 298,814 |
The following table shows loan loss recoveries by loan category for the periods indicated:
| | | | | | |
| | As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | (in millions of Ch$) | ||||
Interbank loans |
| — |
| — |
| — |
Consumer loans |
| 25,959 |
| 33,661 |
| 32,779 |
Mortgage loans |
| 2,588 |
| 2,791 |
| 2,558 |
Commercial loans |
| 19,921 |
| 22,213 |
| 25,511 |
Total |
| 48,468 |
| 58,665 |
| 60,848 |
Based on information available regarding our debtors, the Bank believes 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.
150
Allocation of Allowances for Loan Losses
The following tables set forth, as of December 31, 2018, 2019 and 2020, 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, 2018 |
| ||||||
|
| |
| |
| |
| Loans in |
|
| | | | Allowance Amount | | Allowance Amount | | category as |
|
| | Allowance | | as a percentage of | | as a percentage of | | percentage of |
|
| | amount | | loans in category | | total loans | | total |
|
| | (in millions of Ch$ except for percentages) |
| ||||||
Commercial loans |
| 484,707 |
| 3.4 | % | 2.2 | % | 65.8 | % |
Consumer loans |
| 217,296 |
| 8.1 | % | 1.0 | % | 12.2 | % |
Residential mortgage loans |
| 66,117 |
| 1.5 | % | 0.3 | % | 20.4 | % |
Loans and receivables to banks |
| 463 |
| 0.1 | % | 0 | % | 1.6 | % |
Total allocated allowances |
| 768,583 |
| 3.0 | % | 3.5 | % | 100 | % |
| | | | | | | | | |
| | As of December 31, 2019 |
| ||||||
|
| |
| |
| |
| Loans in |
|
| | | | Allowance Amount | | Allowance Amount | | category as |
|
| | Allowance | | as a percentage of | | as a percentage of | | percentage of |
|
| | amount | | loans in category | | total loans | | total |
|
| | (in millions of Ch$ except for percentages) |
| ||||||
Commercial loans |
| 545,199 |
| 3.5 | % | 2.4 | % | 66.7 | % |
Consumer loans |
| 256,417 |
| 9.2 | % | 1.1 | % | 12.1 | % |
Residential mortgage loans |
| 78,501 |
| 1.6 | % | 0.3 | % | 21.0 | % |
Loans and receivables to banks |
| 430 |
| 0.8 | % | 0 | % | 0.2 | % |
Total allocated allowances |
| 880,547 |
| 15.1 | % | 3.8 | % | 100.0 | % |
| | | | | | | | | |
| | As of December 31, 2020 |
| ||||||
|
| |
| |
| |
| Loans in |
|
| | | | Allowance Amount | | Allowance Amount | | category as |
|
| | Allowance | | as a percentage of | | as a percentage of | | percentage of |
|
| | amount | | loans in category | | total loans | | total |
|
| | (in millions of Ch$ except for percentages) |
| ||||||
Commercial loans |
| 747,617 |
| 5.0 | % | 3.3 | % | 65.5 | % |
Consumer loans |
| 220,791 |
| 8.9 | % | 1.0 | % | 11.0 | % |
Residential mortgage loans |
| 73,465 |
| 1.4 | % | 0.3 | % | 23.5 | % |
Loans and receivables to banks |
| 10 |
| 0.1 | % | 0.0 | % | 0.0 | % |
Total allocated allowances |
| 1,041,883 |
| 15.4 | % | 4.6 | % | 100.0 | % |
151
Composition of Deposits and Other Commitments
The following table sets forth the composition of our deposits and similar commitments as of December 31, 2018, 2019 and 2020.
| | | | | | |
| | As of December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | (in millions of Ch$) | ||||
Checking accounts |
| 2,570,436 |
| 2,882,535 |
| 4,038,467 |
Other demand liabilities |
| 1,730,039 |
| 1,990,913 |
| 2,158,939 |
Saving accounts |
| 27,156 |
| 20,016 |
| 19,467 |
Time deposits |
| 10,093,703 |
| 11,599,943 |
| 11,413,370 |
Other commitments |
| 252 |
| 228 |
| 227 |
Total |
| 14,421,586 |
| 16,493,635 |
| 17,630,470 |
Maturity of Deposits
The following table sets forth information regarding the currency and maturity of our deposits as of December 31, 2020, expressed in percentages. UF-denominated deposits are similar to Chilean peso-denominated deposits in all respects, except that the principal is readjusted periodically based on variations in the CPI.
| | | | | | | | | |
| | As of December 31, 2020 |
| ||||||
|
| |
| |
| Foreign |
| |
|
| | Ch$ | | UF | | Currency | | Total |
|
| | (In %) |
| ||||||
Demand deposits |
| 28.46 | | — | | 50.07 | | 35.15 | |
Savings accounts |
| — | | — | | 0.33 | | 0.11 | |
Time deposits: |
| | | | | | | | |
Maturing within 3 months |
| 47.07 | | 3.05 | | 28.03 | | 39.60 | |
Maturing after 3 but within 6 months |
| 14.18 | | 0.38 | | 9.02 | | 12.12 | |
Maturing after 6 but within 12 months |
| 6.47 | | 0.14 | | 7.20 | | 6.57 | |
Maturing after 12 months |
| 3.82 | | 96.43 | | 5.35 | | 6.45 | |
Total time deposits |
| 71.54 |
| 100.00 |
| 49.60 |
| 64.74 | |
Total deposits |
| 100 | % | 100 | % | 100 | % | 100 | % |
The following table sets forth information regarding the maturity of the outstanding time deposits in excess of US$100,000 (or its equivalent) issued by us as of December 31, 2020.
| | | | | | | | |
| | As of December 31, 2020 | ||||||
|
| |
| |
| Foreign |
| |
| | Ch$ | | UF | | Currency | | Total |
| | (in millions of Ch$) | ||||||
Maturing within 3 months |
| 4,282,729 | | 5,184 | | 1,600,366 |
| 5,888,279 |
Maturing after 3 but within 6 months |
| 1,578,781 | | 412 | | 498,404 |
| 2,077,597 |
Maturing after 6 but within 12 months |
| 724,390 | | — | | 412,208 |
| 1,136,598 |
Maturing after 12 months |
| 429,189 | | 387,779 | | 309,852 |
| 1,126,820 |
Total time deposits |
| 7,015,089 |
| 393,375 |
| 2,820,830 |
| 10,229,294 |
152
Minimum Capital Requirements
The following table sets forth our minimum capital requirements as of December 31, 2018, 2019 and 2020.
| | | | | | | |
| | As of December 31, |
| ||||
|
| 2018 |
| 2019 |
| 2020 |
|
| | (in millions of Ch$ except for |
| ||||
| | percentages) |
| ||||
Net capital base |
| 3,324,531 |
| 3,346,102 |
| 2,315,411 | |
3% total assets net of provisions |
| (953,445) |
| (1,047,243) |
| (1,060,193) | |
Excess over minimum required equity |
| 2,371,086 |
| 2,298,859 |
| 1,255,218 | |
Net capital base as a percentage of the total assets, net of provisions |
| 10.46 | % | 9.59 | % | 655 | % |
Effective net equity |
| 3,415,845 |
| 3,280,569 |
| 3,044,661 | |
10% of the risk-weighted assets |
| (2,331,556) |
| (2,496,018) |
| (2,244,655) | |
Excess over minimum required equity |
| 1,084,289 |
| 784,551 |
| 800,006 | |
Effective equity as a percentage of the risk-weighted assets |
| 14.6 | % | 13.1 | % | 13.6 | % |
Our capital ratios levels decreased from 14.6% to 13.1% between 2018 and 2019 and increased to 13.6% as of December 31, 2020.
Short-term Borrowings
Our short-term borrowings (other than deposits and other obligations) totaled Ch$2,009,621 million, Ch$1,090,457 million and Ch$1,223,485 million as of December 31, 2018, 2019 and 2020, respectively, in accordance with IFRS.
The principal categories of our short-term borrowings are amounts borrowed under foreign trade lines of credit, domestic interbank loans and repurchase agreements.
The table below presents the amounts outstanding at the end of each period indicated and the weighted average nominal interest rate for each such period by type of short-term borrowing.
| | | | | | | | | | | | | |
| | As of and for the Year Ended December 31, |
| ||||||||||
| | 2018 | | 2019 | | 2020 |
| ||||||
|
| |
| |
| |
| Weighted |
| |
| Weighted |
|
| | | | Weighted | | | | Average | | | | Average |
|
| | | | Average | | | | Nominal | | | | Nominal |
|
| | Year End | | Nominal | | Year End | | Interest | | Year End | | Interest |
|
| | Balance | | Interest Rate | | Balance | | Rate | | Balance | | Rate |
|
| | (in millions of Ch$ except for percentages) |
| ||||||||||
Obligations under repurchase agreements |
| 1,015,614 |
| 0.05 | % | 134,310 |
| 0.00 | % | 638,851 |
| 0.03 | % |
Central Bank borrowings |
| — |
| — |
| - |
| - |
| — |
| — |
|
Domestic interbank loans |
| — |
| — |
| - |
| - |
| — |
| - |
|
Borrowings under foreign trade credit lines |
| 1,000,481 |
| 0.08 | % | 956,147 |
| 0.00 | % | 584,634 |
| 0.06 | % |
Total short-term borrowings |
| 2,016,095 |
| 0.06 | % | 1,090,457 |
| 0.00 | % | 1,223,485 |
| 0.06 | % |
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The following table shows the average balance and the weighted average nominal rate for each short-term borrowing category during the periods indicated:
| | | | | | | | | | | | | |
| | As of and for the Year Ended December 31, |
| ||||||||||
| | 2018 | | 2019 | | 2020 |
| ||||||
|
| |
| |
| |
| Weighted |
| |
| Weighted |
|
| | | | Weighted | | | | Average | | | | Average |
|
| | |
| Average | | |
| Nominal | | |
| Nominal | |
| | Average |
| Nominal | | Average |
| Interest | | Average |
| Interest | |
| | Balance | | Interest Rate | | Balance |
| Rate | | Balance |
| Rate | |
|
| (in millions of Ch$ except for percentages) | | ||||||||||
Obligations under repurchase agreements | | 798,696 | | 0.06 | % | 649,379 | | 0.06 | % | 598,204 | | 0.04 | % |
Central Bank borrowings |
| — |
| — |
| 66,015 |
| 0.06 |
| — |
| 0.00 |
|
Domestic interbank loans |
| 15,417 |
| 0.42 | % | 54,170 |
| 0.15 | % | 8,333 |
| 0.08 | % |
Borrowings under foreign trade credit lines |
| 794,359 |
| 0.10 | % | 826,397 |
| 0.09 | % | 916,580 |
| 0.04 | % |
Total short-term borrowings |
| 1,608,472 |
| 0.08 | % | 1,595,961 |
| 0.07 | % | 1,523,117 |
| 0.04 | % |
The following table presents the maximum month-end balances of our principal sources of short-term borrowings during the periods indicated:
| | | | | | |
|
| Maximum 2018 |
| Maximum 2019 |
| Maximum 2020 |
| | Month-End | | Month-End | | Month-End |
|
| Balance |
| Balance |
| Balance |
|
| (in millions of Ch$) | ||||
Obligations under repurchase agreements |
| 1,015,614 |
| 1,005,514 |
| 885,195 |
Central Bank borrowings |
| — |
| — |
| — |
Domestic interbank loans |
| 132,179 |
| 180,025 |
| 100,000 |
Borrowings under foreign trade credit lines |
| 1,108,097 |
| 999,229 |
| 1,087,699 |
Other obligations |
| 20,642 |
| 14,057 |
| 13,378 |
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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.
Itaú Corredores de Bolsa Ltda., Itaú Administradora General de Fondos S.A., Itaú Asesorías Financieras S.A., Itaú Corredores de Seguros S.A. and Recaudaciones y Cobranzas Ltda. are incorporated and domiciled in Chile. Itaú Corpbanca New York Branch is incorporated and domiciled in the State of New York, United States. Itaú Corpbanca Colombia S.A., Itaú Securities Services Colombia S.A. Sociedad Fiduciaria, Itaú Comisionista de Bolsa Colombia S.A., Itaú Corredor de Seguros Colombia S.A. and Itaú Asset Management Colombia S.A. Sociedad Fiduciaria are incorporated and domiciled in Colombia. Itaú (Panamá) S.A. is incorporated and domiciled in Panama.
For more information about the services our subsidiaries and our New York Branch provide see “Item 4. Information on the Company—B. Business Overview—Principal Business Activities—Financial Services Offered Through Subsidiaries”.
D. PROPERTY
Our principal executive offices are located at Rosario Norte 660, Las Condes, Santiago, Chile since 2007. As of December 31, 2020, we owned 33 of the 342 properties where our branches and corporate facilities were located. Total space as of December 31, 2020 was approximately 183,467 square meters (1,974,822 square feet) from which 64% was total branch space. 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.
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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 financial statements as of December 31, 2016, 2017, 2018, 2019 and 2020 and for the years ended December 31, 2016, 2017, 2018, 2019 and 2020 have been prepared in accordance with IFRS.
Our financial statement data as of and for the year ended December 31, 2016 is not comparable to the data as of and for the years ended December 31, 2017, 2018, 2019 and 2020 because of the Merger, which was consummated on April 1, 2016. The Merger has been accounted for as a reverse acquisition, based on guidance in IFRS 3 “Business Combinations,” with Banco Itaú Chile (the legal acquiree) considered as the accounting acquirer and Corpbanca (the legal acquirer) considered as the accounting acquiree. Accordingly, the financial statements of Itaú Corpbanca for periods prior to the acquisition date of April 1, 2016 reflect the historical financial information of Banco Itaú Chile. Before the Merger, former Banco Itaú Chile (the legal acquiree) only produced financial statements pursuant to Chilean Banking GAAP, while former Corpbanca (the legal acquirer) from 2009 to 2015 issued financial statements according to Chilean Banking GAAP and according to IFRS.
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 the Chilean Electronic Exchange, and our ADSs are listed on the NYSE. We are regulated by the CMF. We offer general commercial and consumer banking services and provide other services including factoring, collection, leasing, securities and insurance brokerage, asset management and investment banking.
The following classification of revenues and expenses is based on our consolidated financial statements:
Revenues
We have three main sources of revenues, which include both cash and non-cash items:
Interest income
We earn interest income from our interest-earning assets, which are mainly represented by loans to customers.
Income from service fees
We earn income from service fees related to checking accounts, loans, mutual funds, credit cards and other financial services.
Other operating income
We earn income relating to changes in the fair value of our securities portfolio, other trading activities and foreign exchange transactions.
Expenses
We have three main sources of expenses, which include both cash and non-cash items:
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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 consolidated 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
As the Chilean economy started to recover from the social unrest experienced in 2019 during the first quarter of 2020, the onset of the COVID-19 pandemic during March resulted in a historic shock that led to the use of unprecedented containment measures and further tapping of reserves to soften the blow of the public health and the economic impact of the COVID-19 pandemic and support a swift labor and business recovery.
The announcement of a state-of-emergency, closure of international borders, and widespread quarantines meant the Chilean economy experienced sizable sequential contractions between March and May of 2020. Thereafter, some loosening of strict social distancing measures in certain areas of the country, based on progress in quantitative metrics, aided a GDP improvement at the margin in June. However, the activity recovery was uneven across sectors, with output in the mining sector increasing in annual terms, and service sectors falling sharply.
The overall policy response was decisive. The Chilean government gradually announced policies that mobilized up to close to US$30 billion in fiscal resources in order to provide adequate resources for the health sector, support households and firms, and inject liquidity into the real economy. Measures were mostly transitory in nature, contributing to the fiscal consolidation process thereafter. Several policies built on existing institutions and mechanisms, such as the state-credit guarantee mechanism (FOGAPE), and the unemployment insurance system. Tax-related measures supported households and firms by postponing and/or suspending tax payments, while 1.6 million households received cash transfers between April and October. From mid-June until October, around 3 million households received a total of around US$2.8 billion in emergency household income from the Chilean governmnet. Meanwhile, there were also populist response measures advanced in Congress that included two pension fund withdrawal requests for around US$30 billion during the second half of 2020, that provided transitory support.
The Central Bank reduced the policy rate to its technical minimum (0.5%) and implemented several unconventional measures to support liquidity and credit. Examples of the latter include: New Conditional Funding Facility (FCIC) where banks have access to 4-year loans at the policy rate, with loan size increasing as a function of additional credit to more stressed segments; Bank bond purchase program (US$8 billion); Special assets purchase program (US$8 billion); Term deposit purchase program (US$8 billion); Repo on instruments issued by banks (US$10 billion); and Liquidity Credit Line where corporate bonds are eligible collateral in peso liquidity facilities.
On the regulation front, transitory adjustments to reserve requirements and relaxation of liquidity requirements for banks were implemented, while legislative adjustments provided the Central Bank the ability to purchase Chilean
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Treasury bonds in the secondary market, under exceptional and transitory circumstances (an authority that has yet to be put to use). The IMF approved the Central Bank’s 2-year precautionary flexible credit line for around US$24 billion. Under such a context, despite local and international developments, domestic financial conditions remained stable, with long-term interest rates falling, corporate and bank spreads narrowing, and the local stock exchange trading sideways. In the credit space, policy measures supported the continued increase of commercial loans (a rarity during economic crises), helping avoid widespread bankruptcies that could have resulted in more permanent economic damage.
From July 2020, the government announced the Paso a Paso plan, a stepwise scheme to provide general guidelines for the gradual lifting of public health measures. The plan is comprised of five stages or gradual steps, ranging from full-fledged quarantine to advanced opening, each with specific restrictions and obligations. Movements between stages depend on epidemiological indicators, healthcare network and traceability. After reaching near country-wide economic reopening by November, the onset of the second wave of the virus led to a return to strict mobility restrictions during December that would slow the economic momentum underway.
Amid restrictions and increased uncertainty, investment fell sharply in 2020. In the fourth quarter of 2020, GDP was generally flat as compared to the fourth quarter of 2019, which was impacted by social unrest. This resulted in a 5.8% GDP contraction in 2020, from 0.9% in 2019. For the full year, gross fixed investment (measured as the net increase in physical assets: investment minus disposals), declined 15.9 percentage points to (11.5)%, while total consumption growth dropped 7.6 percentage points to (6.8)% as compared to the year ended December 31, 2019. Exports of goods and services fell 1.0% ((2.6)% in 2019), aided by mining sales and a milder deceleration in China. Imports of goods and services fell 12.7% ((2.4)% in 2019). The outlook for growth in 2021 is favorable considering the significant stimuli in place and the swift rollout of the COVID-19 vaccination program. Though the ebb and flow of lockdown measures could limit the recovery gains and slow the pace of the labor market recovery before herd immunity is reached, we believe an activity increase this year above 5% is the most likely outcome.
On the other hand, external accounts were supported by the sharp decline in oil prices, weakened domestic demand and upbeat mining sales to China. The 2020 current account recorded a US$3.4 billion surplus (1.4% of GDP), a significant reversal from the US$10.3 billion deficit in 2019 (negative 3.7% of GDP). The trade balance surplus widened to US$18.4 billion in 2020, as compared to US$3.0 billion in 2019. Despite the expectation that copper prices will remain closer to US$4/lb in 2021, it is expected that the current account will return to a deficit on the back of a significant rebound of domestic demand, and oil prices. Foreign direct investment inflows moderated in 2020, with direct investment inflows falling US$4.1 billion, ultimately reaching US$8.5 billion (3.4% of GDP).
Falling copper prices, general global risk aversion and weak domestic activity hurt the Chilean peso in 2020, while the liquidation of US$ assets (pension withdrawals, SWF drawdown) partly countered the weakness. After ending 2019 at Ch$744.62 per US$1.00, the exchange rate depreciated to historic nominal lows (reaching Ch$868 per US$1.00 during the March 20 session). Following the liquidation of US$ assets and improving market sentiment during the second half of 2020, the exchange rate closed at Ch$710.73 per US$1.00 in 2020. Uncertainty regarding the outcome of the Chilean constitution rewrite, risks of a return of social protests and unrest, a presidential election and negative sovereign credit rating action could prevent the Chilean peso from appreciating further in 2021 despite elevated copper prices.
The decline in global oil prices and limited domestic demand led to inflation dropping to 2.4% in August, before returning to 3.0% at the end of 2020 (in line with 2019) following pressure from recovering consumption during the second half of 2020. It is expected that inflation will continue rising beyond the 3% target set by the Central Bank of Chile during the first half of this year as the consumption boost and recovering oil prices lift inflation. Thereafter, convergence to the 3% target by yearend is expected.
At the start of 2020, the Central Bank of Chile was signaling stable rates at 1.75% to support the economic recovery following the disruption from social unrest at the end of 2019. However, at the onset of the COVID-19 pandemic, the Central Bank of Chile reduced the policy rate to its technical minimum (0.5%) and implemented several unconventional measures to support liquidity and credit. Examples of the latter include: New Conditional Funding Facility (FCIC) where banks have access to 4-year loans at the policy rate, with loan size increasing as a function of additional credit to more stressed segments; Bank bond purchase program (US$8 billion); Special assets purchase program (US$8 billion); Term
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deposit purchase program (US$8 billion); Repo on instruments issued by banks (US$10 billion); and Liquidity Credit Line where corporate bonds are eligible collateral in peso liquidity facilities. The signaling for the policy rate was to remain at the technical floor of 0.5% for the entire two-year horizon to help prevent permanent damage to the economy. We expect rates to remain at 0.5% during 2021.
President Piñera’s second administration, which took office in March 2018, made fiscal policy a priority given rating downgrades of one notch from all big three agencies: Fitch Ratings and Standard and Poor’s revised the sovereign debt rating to 'A' and 'A+', respectively in 2017, and Moody’s changed its rating to 'A1' with a stable outlook in mid-2018. However, the government’s plans were impacted following the social movement in the fourth quarter of 2019. As a result, the nominal deficit was 2.8% of the Chilean GDP last year, compared to 1.6% in 2018. With large stimulus packages to address social demands and limit the impact of COVID-19 on the economy , the deficit rose to 7.4% The deteriorating fiscal outlook and swift increase in debt metrics led to all major rating agencies adopting a negative outlook and for Fitch to implement a one notch downgrade to 'A-'. During 2021, further negative rating action is likely.
Looking ahead, besides the potential adoption of a new constitution, there remain other uncertainties and risks ahead. To counter the current crisis, it will be essential to support activities most affected by social distancing (mainly in-person services and hospitality), to fully incorporate the digital economy, recover the labor participation of women, reduce labor informality, and strengthen social protection systems. If not adequately met, reaching the development goals that Chile strives for would not be achievable. To face these challenges, the government will no longer have the same level of resources. Eventual tax and pension reforms will have to dedicate a large part of their resources to only replacing what was lost, rather than boosting reserves. Meanwhile, the constitutional process will hopefully be an opportunity to build a new political-social pact that is expected to generate more solid, reliable and effective institutions that, along with responding to the needs of the population, may also support innovation, entrepreneurship and productivity. Over the long term, copper supply from Chile as well as demand for copper may suffer structural changes. With social demands attracting greater fiscal expenditures (utilizing SWFs and raising debt), the flagship state-owned copper producer Codelco may struggle to find a capital injection needed to modernize its operations and maintain production. Given that the ore-grade quality of copper extracted is decreasing, processing costs may increase, posing a risk to the sustainability of the copper-related fiscal revenue (through Codelco profits and income tax from private operations), while debt metrics for the company may increase. At the same time, private investment in mining may encounter a more challenging scenario, especially considering environmental issues and potential regulatory changes. On the other hand, a meaningful increase of electric car usage and consumption of electronics may boost the demand for copper (while lowering demand for oil) and lithium (used in batteries, an abundant commodity in Chile), lifting Chile’s terms of trade (besides exporting metals, Chile is an oil importer).
Developments in the Colombian Economy
With the onset of the COVID-19 pandemic, the Colombian economy faced an unprecedented shock due to the dual nature of mobility restrictions and the global oil price decline. The intensity of the recession was due to the retention of one of the most stringent and long-lasting nationwide quarantines (through August 2020). The implications for the labor market, already significantly informal, was substantial.
Given the monetary and fiscal policy framework of the Colombian economy, a quick response against the shocks unfolded, although not on the same magnitude as some of its peers in the region given fiscal constraints and concerns about sticky external imbalances.
The Colombian Central Bank responded by lowering interest rates by 250 basis points to a historic low of 1.75%, provided liquidity to avoid disruptions in the payment systems and contribute to the credit supply by financial institutions, and helped stabilize key financial markets suffering liquidity problems and extreme market volatility (through REPOs, an NDF and FX swaps program). Thanks to the Colombian Central Bank’s credibility, and supported by freezing or decreasing utility prices, inflation expectations remained close to the 3% target. Colombia improved its external liquidity situation through the direct purchase of US$3.5 billion from the Colombian government and the augmentation of the Flexible Credit Line with the IMF to US$ 17.2 billion. Furthermore, the Colombian Central Bank has access to the FIMA facility offered by the Federal Reserve. The Colombian fiscal authorities drew a portion of the augmented FCL for budgetary support (around US$5.3 billion). The fiscal response package was around 4% of GDP and
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combined increased spending with tax relief, including cash transfers to the most vulnerable populations, VAT rebates for the poor, subsidizing part of workers’ pay and delaying income tax payments. Credit guarantees for working capital, payrolls, independent workers and microfinance totaled between 5% and 6% of GDP. Considering the liquidity provision implemented by the central bank and the regulator’s decision to lower the reserve requirement ratio, the overall emergency response package sat at around 11% of GDP.
During the second half of 2020, as mobility restrictions were eased, and stimulus measures took hold, the economy showed progress towards recovery.
The Colombian GDP contracted 6.8% in 2020, deteriorating from 3.3% growth in 2019 on a deceleration in internal demand (to (7.6)% from 4.1% in 2019). The sudden loosening of the labor market and falling consumer confidence led to private consumption weakening ((5.8)% in 2020 versus 3.9% in 2019). Investment slumped to (21.1)% (3.1% growth in 2019). Meanwhile, low oil prices exacerbated the export drag. In 2021, we expect activity will recover amid recovering oil prices, rising global demand and stimulus response measures to COVID-19 that consolidate the internal demand rebound. However, we can offer no assurance as to the pace of the expected recovery and whether any factors will affect and negate the expected recovery.
Headline inflation ended 2020 at 1.61%, below the lower bound of the Colombian Central Bank’s range, around the 3% target for the first time in seven years (3.80% in 2019). Meanwhile, annual core inflation (excluding food prices) in 2020 was 1.03%. While part of the low inflation can be attributed to various subsidies and tax breaks amid the COVID-19 pandemic, inflationary pressures remained limited beyond these policy measures. With activity falling and inflation transitorily low, the Central Bank of Colombia lowered the policy rate from 4.25% to a historic low of 1.75% by September. In 2021, as global central banks keep rates low, and inflationary pressures stay limited, the Central Bank of Colombia will likely retain significant stimulus in place for most of the year. Going forward, wide deficits and the potential loss of its investment grade rating may result in Colombia ending certain stimulus programs before other countries.
The external account deficit remains a point of attention. The current account deficit only mildly corrected from 4.4% in 2019 to reach 3.3% in 2020. The correction was far milder than peers in the region, as the cratering of domestic demand was significantly offset by slumping energy exports (oil and coal). With the economy reopening and oil prices recovering, foreign direct investment during the fourth quarter of 2020 (US$2.2 billion) improved from the cycle low in the previous quarter (US$0.6 billion). Nevertheless, FDI remains US$1.3 billion lower than in the fourth quarter of 2019. For 2020, net direct investment covered around three-fifths of the deficit (four-fifths in 2019). Falling oil prices, risk-off mode and fiscal concerns led to further weakening of the Colombian peso. The peso traded at COP3,483.54 per US$1.00 at the end of 2020, as compared to COP3,277,14 per US$1.00 at the end of 2019. We expect that recovering oil prices in 2021 and an activity improvement would support the Colombian peso, but a wide and sticky current account deficit may prevent meaningful appreciation going forward.
The economic crises led to the two-year suspension of the fiscal rule, meanwhile the challenge of attaining a meaningful tax reform outline the difficulties of a credible fiscal consolidation process ahead. On the fiscal side, last year’s nominal deficit was 7.8% of Colombian GDP deficit, an increase from the 2.5% deficit recorded in 2019. Additionally, Colombia revised its fiscal deficit target upward for this year (to 8.6%), as spending to soften the economic effects of the COVID-19 pandemic continues while additional investment to boost the recovery unfolds. Gross debt of the central government rose from 50.3% of GDP in 2019 to 64.8% in 2020. The increased fiscal deficit this year could result in a further debt rise. On April 15, 2021, the Government presented to the Congress a new tax reform bill, but approval by Congress is expected to be challenging. This tax reform bill intends to raise resources that will contribute to reducing debt to prudent levels in the medium term. The Government is committed to implementing a tax increase of at least 1.5% of GDP in 2022, once the greatest challenges of the COVID-19 pandemic on the economy pass.
Given the delayed fiscal consolidation path, and the challenge of raising significant tax revenue, government debt metrics are unlikely to significantly improve over the medium term, resulting in a weaker fiscal profile than investment-grade peers. Both S&P ('BBB-', negative outlook) and Fitch ('BBB-', negative outlook) rate Colombia at the lowest investment-grade mark. This is the key macro risk to monitor in the near term.
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The outlook for 2021 sees recovering oil prices and global activity, along with domestic stimulus measures to support a labor market recovery and internal demand. Nevertheless, room to expand the stimulus is limited and therefore the economy is vulnerable to a subsequent shock in the near-term. We expect rates to be raised near the end of 2021, inflation to converge to the 3% target and for twin deficits to prevent the Colombian peso from appreciating meaningfully from COP3,40.00 per US$1.00.
Impact of COVID-19 on the Economy
Global Context
Global economic activity is expected to improve in 2021, but not fully recover from the shock of 2020, as the COVID-19 pandemic and the measures taken to contain the COVID-19 pandemic remain active. Our GDP growth forecasts are 6.9% for 2021, from (3.2)% in 2020, at the global level; 8.5% from 2.3% in China; 4.5% from (6.8)% in Europe; 6.7% from (3.5)% in the U.S.; and 5.0% from (6.8)% in Latin America.
Governments and central banks around the world announced a series of stimulus measures to provide support against the crisis. The U.S. Federal Reserve has cut the target range for the Federal Funds Rate back to zero, resumed the asset purchase program and reintroduced a series of facilities adopted in response to the 2008 financial crisis. The European Central Bank announced an additional asset purchases program and eased the criteria of its refinancing operations. Further, various countries have announced substantial fiscal stimulus packages have supported growth in the second half of 2020, and that should continue in 2021.
The ongoing COVID-19 pandemic and, to a lesser extent, lower oil prices drove a sharp deterioration in asset prices in emerging markets, which led to a sharp tightening of international capital flows. Though the outlook seemed to improve at the backend of 2020 as vaccine developments progressed and commodity prices began to rebound, uncertainty persists, making asset price recovery in emerging markets unfold somewhat slower.
In 2020, China’s real GDP growth slowed to 2.3%, down from 6.1% in 2019. We forecast China’s real GDP growth rate at 8.5% in 2021, as a result of fiscal and monetary stimuli along with normalizing mobility as vaccination rollout advances support the recovery.
Latin America Context
The ongoing COVID-19 pandemic is still keeping asset prices in Latin America suppressed compared to pre-pandemic levels. Economic activity in the region will likely increase by 5.0% this year, as less stringent social distancing measures, advancement of the vaccination programs, and surging commodity prices cause GDP to increase sharply (also aided by a low base of comparison). However, high public debt levels should limit expansionary fiscal responses persisting beyond 2020, while some countries in the region are contemplating tightening monetary policy. Even though the COVID-19 pandemic initially represented a supply shock, monetary policy was a key instrument used to increase the probability that demand normalizes once the worst has passed. However, the sharp depreciation of currencies in Latin America bars an even more aggressive and rapid response.
Inflation
General
In the past, Chile experienced high levels of inflation, which significantly affected our financial condition and results of operations during such periods. In recent years, Chile has experienced relatively low inflation rates, with sporadic episodes where price growth deviated from the Central Bank of Chile’s 2%-4% target range. In 2018, 2019 and 2020 the inflation rate was 2.6%, 3.0%, and 3.0%, 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 |
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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 Itaú Corpbanca, charge an interest rate that includes an estimate of future inflation. In addition, the peso-denominated value of our assets and liabilities that are denominated in UF fluctuate as the UF is adjusted based on inflation. In the case of assets, these fluctuations are recorded as income (for increases in the peso-denominated value) and losses (for decreases in the peso-denominated value). In the case of liabilities, these fluctuations are recorded as losses (for increases in the peso-denominated value) and income (for decreases in the peso-denominated value).
Colombia has experienced high levels of inflation prior to the COVID-19 pandemic amid its currency depreciation and supply-side shocks affecting food prices. Historically low inflation during 2020 was registered following the significant demand shock and various fiscal subsidies. The rate of inflation in Colombia in 2018, 2019 and 2020 was 3.18%, 3.80% and 1.61%, respectively. At its peak during 2020, the 12-month inflation rate reached 3.86% in March, before slowing to a low of 1.49% in November. The 12-month inflation rate peak during the last decade (2010-2020) was 8.97% in July 2016.
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$27,565.79, Ch$28,309.94 and Ch$29,070.33 as of December 31, 2018, 2019 and 2020, 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$2,659,865 million, Ch$3,345,964 million and Ch$3,933,113 million during the years ended December 31, 2018 ,2019 and 2020, 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.”
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 “Item 5. Operating and Financial Review and Prospects—Interest Rates,” Item 5. Operating and Financial Review and Prospects —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 2.6%, 2.5% and 2.3% during the years ended December 31, 2018, 2019 and 2020, 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.
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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 objective of maintaining currency stability. 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 Depósito a Término Fijo (“Fixed Term Deposit Interest Rate” or “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.
As of March 28, 2021, the DTF rate was 1.77%. 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 average of the interest ordinarily charged by banks within a set period of time. The current banking interest rate is certified by the Colombian Financial Superintendency.
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 Central Bank of Colombia decreased its reference rate to 3.25% on March 26, 2013, and the interest rate remained stable until March of 2014. From April 2014 to August 2014, the Central Bank of Colombia increased the
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reference rate by 125 basis points to 4.50%, a level consistent with neutral conditions. After a year on hold, amid accelerating inflation, which led to increasing inflation expectations, and a rapid deterioration of the current account deficit above 6% of GDP, the Central Bank began a monetary tightening cycle in September 2015, taking the policy rate to 5.75% by year-end. The tightening cycle ended in July 2016, with the policy rate at 7.75%. As inflation began to slow down in the third quarter of the year, the Central Bank moved back to loosening the monetary policy stance with a 25-basis point cut to 7.50% in December 2016. The easing cycle continued in 2017, with further cuts totaling 275 basis points leading to the policy rate ending 2017 at 4.75% and another 50 basis points in 2018 to 4.25%. The policy rate was held stable throughout 2019, ending the year at 4.25% (near neutral conditions), as the economy showed signs of a gradual recovery and inflation remained broadly under control. For 2020, the policy rate was lowered to a historic minimum of 1.75% in response to the significant shock to domestic demand.
On average, the DTF went from 7.96% in 2007 to 3.88% in the first quarter of 2014. In response to the changing monetary policy conditions, the DTF adjusted upward moving to 4.34% by year-end 2014 and to 5.22% at the end of December 2015 and 7.59% by the end of July 2016, before retreating to 6.86% by year-end 2016. As monetary loosening proceeded in 2017, the DTF rate dropped to 5.21% by year-end and to 4.51% by the end of 2018. With the reference rate stable in 2019, the DTF rate was broadly unchanged ending the year at 4.46%. The DTF decreased to 1.89% by the end of 2020 due to the loosening of monetary policy in response in response to the economic crisis.
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 consolidated 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 2014, the Chilean peso depreciated against the U.S. dollar by 15.0% as compared to 2013. In 2015, the Chilean peso depreciated against the U.S. dollar by 17.3% as compared to 2014. In 2016, the Chilean peso appreciated against the U.S. dollar by 5.7% as compared to 2015. In 2017, the Chilean peso appreciated against the U.S. dollar by 1.3% as compared to 2016. In 2018, falling copper prices and a risk aversion sentiment led to a 12% depreciation of the Chilean peso. The exchange rate between the Chilean peso and the U.S. dollar as of December 31, 2018, 2019 and 2020 was Ch$695.69, and Ch$744.62, and Ch$710.73 per US$1.00, respectively. The notable depreciation of the Chilean peso has been due to the global trade war that negatively affected copper prices, the social unrest in late 2019 that raised domestic uncertainty and an overall risk-off market sentiment for emerging currencies during the uncertainty surrounding the global pandemic. The Chilean peso may be subject to significant fluctuations in the future and we note that the Central Bank of Chile foreign exchange intervention strategy remains active with its utilization likely if the value of the Chilean Peso diverges significantly from its fundamental levels.
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, 2018, 2019 and 2020, the gap between foreign currency denominated assets and foreign currency denominated liabilities, including forward contracts, was Ch$793,218 million, Ch$951,558 million and Ch$1,625,828 million, respectively.
Falling oil prices, risk-off mode and fiscal concerns led to further weakening for the Colombian peso in 2020. The peso traded at COP 3,483.54 per US$1.00 at the end of 2020, as compared to COP3,278.19 per US$1.00 at the end of 2019 and COP3,248.52 per US$1.00 at the end of 2018. Recovering oil prices in 2021 and activity improvement may support the Colombian peso, but fiscal concerns and a wide and sticky current account deficit may prevent meaningful appreciation going forward.
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RECENT DEVELOPMENTS
Public health crises, or the public perception of the risks of public health crises, such as the outbreak of the COVID-19 pandemic, have and may continue to negatively impact economic activity in Chile and in other countries in which we operate. Accordingly, our results of operations or financial condition have and may continue to be adversely affected.
The outbreak of COVID-19 was first reported on December 31, 2019 in Wuhan, Hubei Province, China. From Wuhan, the disease spread rapidly to other parts of China, as well as other countries, including the countries in which we operate, growing into a global pandemic, as declared by the World Health Organization. Since the outbreak began, countries have responded by taking various measures including imposing mass quarantines, restricting travel, limiting public gatherings and suspending certain economic activities. In addition, concerns related to COVID-19 have lowered equity market valuations, decreased liquidity in fixed income markets and created significant volatility and disruption in global financial markets, resulting in increased volatility of stock prices (including the price of our stock), a trend which may continue. Also, there are other broad and continuing concerns related to the potential effects of COVID-19 on international trade (including supply chain disruptions and export levels), travel, employee productivity, employee illness, increased unemployment levels, securities markets, and other economic activities that may continue to have a destabilizing effect on financial markets and economic activity, including companies in the financial sector. From a macroeconomic point of view, COVID-19 negatively impacted the Chilean economy, with GDP contracting by 5.8% in 2020 as compared to 2019, and is expected to have a negative impact on the Chilean economy in the early part of 2021, before the impact of the Chilean COVID-19 vaccination program materializes. Furthermore, an unfavorable evolution of the outbreak, including the variant strains of the COVID-19 virus, which have appeared in the U.K, South Africa and Brazil, could translate into liquidity constraints, reduced access to funding, and longstanding contingency plans in order to address the emergency. Please refer to “Item 3—Key Information—Risk Factors—Risks Relating to Chile, Colombia and Other Countries in Which We Operate—COVID-19 or any other pandemic disease and health events could affect the economies of the countries in which we operate, our business operations or our financial condition and results of operations;” and “Item 5—Operating and Financial Review and Prospects—Operating Results—The Economy—Impact of COVID-19 on the Economy” for a discussion of the ways COVID-19 may impact our business and the economies in which we operate.
Further, during this unprecedented health crisis, we are engaged in reducing the transmission of COVID-19 not only within our facilities but also across Chile and in the countries in which we operate, as we are aware of the importance of avoiding the collapse of public and private healthcare systems.
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 consolidated financial statements contains a summary of our significant accounting policies.
In addition to the critical accounting policies described below, information regarding other accounting policies is set forth in the notes to our consolidated financial statements.
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Allowance for Expected Credit Losses
Starting January 1, 2018, we record our allowances for expected credit losses following our internal models for the recording of expected credit losses according to IFRS 9. For further details see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Impairment Assessment as of January 1, 2018.”
The new single impairment model applies to all financial assets measured at amortized cost and fair value through other comprehensive income (“FVOCI”), including loan commitments and contingent loans. The Bank accounted the ECL related to financial assets measured at amortized cost and FVOCI as a loss allowance in the statement of financial position and the carrying amount of these assets is stated net of the loss allowance. The ECL related to contingent loans are accounted as a provision in the statement of financial position. For financial assets that are measured at fair value through other comprehensive income, the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of the financial asset in the statement of financial position. The new model uses a dual measurement approach, under which the loss allowance is measured as either: (a) 12-month expected credit losses or (b) lifetime expected credit losses.
The Bank, at the end of each reporting period, evaluates whether a financial instrument’s credit risk has increased since initial recognition, and consequently classifies the financial instrument in one of the three stages. Stage 1 requires at initial recognition of a loan or when there has been an improved credit risk following a significant increase or impairment of assets, the Bank recognizes an allowance based on 12 months ECL. When a loan has shown a significant increase in credit risk since origination it is classified in Stage 2 and the Bank records an allowance for the lifetime ECL. Stage 2 loans also include loans where the credit risk has improved following a Stage 3 classification. Finally, Stage 3 includes loans considered credit-impaired and the Bank records an allowance for the lifetime ECL, setting the probability of default at 100%.
The expected credit losses is the probability-weighted estimate of credit losses, i.e., the present value of all cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The three main components in measuring expected credit losses are:
● | PD: The probability of default is an estimate of the likelihood of default over a given period of time. A default may only happen at a certain time over the assessed period, if the facility has not been previously de-recognized and is still in the portfolio. |
● | LGD: The loss given default is an estimate of the loss arising after a specific default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. |
● | EAD: The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdown on committed facilities and accrued interest from missed payments. |
For measuring 12-month and lifetime expected credit losses, cash shortfalls are identified as follows:
● | 12-month expected credit losses: the portion of lifetime expected credit losses that represents the expected credit losses that result from default events on the financial instruments that are possible within the 12 months after the reporting date. |
● | Lifetime expected credit losses: the expected credit losses that result from all possible default events over the expected life of the financial instrument. |
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Forward-looking information:
The ECL model includes a broad range of forward-looking information as economic inputs, such as GDP growth, interest rates, unemployment rates, among others.
Derivative Financial Instruments
Derivative financial instruments are recorded at fair value. Fair values are based on market quotes, discounted cash flow models and option valuations, as appropriate. If market information is limited or in some instances, not available, management applies its professional judgment. Other factors that may also affect estimates are incorrect model assumptions, market dislocations and unexpected correlations. Notwithstanding the level of subjectivity in determining fair value, we believe our estimates of fair value are adequate. The use of different models or assumptions could lead to changes in our reported results. See “Note 1 - General Information and Summary of Significant Accounting Policies”.
In addition, we make loans and accept deposits in amounts denominated in foreign currencies, principally the U.S. dollar. Such assets and liabilities are translated at the applicable exchange rate at the balance sheet date.
Estimate of Impairment of Goodwill
We assess annually, or when there is a triggering event, whether goodwill has experienced any impairment, according to the accounting policy described in our consolidated financial statements. The recoverable amount of the cash generating units (“CGUs”) has been determined using the methodology of a dividend discount model. This methodology considers the cash flows that would generate the dividends distributed to its shareholders in a perpetual forecast projection, discounted at their rate of cost of capital at the valuation date. In this way, the economic equity value can be estimated, using projections of cash flows derived from financial budgets and other assumptions approved by the management. The projection of cash flows is carried out using the functional currency of each country and considering a horizon of five years, after which the cash flows are projected to perpetuity using growth rates of the gross domestic product aligned with those rates expected for the markets in which a particular CGU operates. These calculations are carried out by each CGU. The projections are based on historical information from the previous year and the main macroeconomic variables affecting the markets involved in the calculations.
Estimates and judgments included in the calculations of recoverable amounts are based on historical experience and other factors, including the expectations of management for future events that are considered reasonable in the current circumstances. Due to the inherent uncertainty associated with considering these estimates, actual results could differ from those estimates. Future events and changing market conditions may impact the Bank’s assumptions as to future interest and commissions’ revenue, net interest margin growth rates or discount rates, which may result in changes in the estimates of the Bank’s future cash flows.
The following factors, among others, could significantly impact the impairment analysis and may result in aadditional future goodwill impairment charges that, if incurred, could have a material adverse effect on the Company’s financial condition and results of operations:
● | The macroeconomic factors in both the Chilean and Colombian markets may not recover and evolve from 2021 onwards in line with current expectations. |
● | The operational integration of the banks in Chile is not completed by 2021. |
● | The operational integration, introduction of the Itaú brand and client segmentation in the Colombian market may not have the expected impact. Additionally, the Bank may not achieve the change in the product mix as stated in its formal budgets and plans. |
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● | The recovery of the Bank’s pre-merger market share in Colombia expected to occur by 2023, depends on the achievement of the projection of an annual composed average growth rate for the loans portfolio, during the first years. |
As disclosed in “Note 3 – Significant events” and “Note 32 – Depreciation, Amortization and Impairment” to our consolidated financial statements we recorded an impairment loss with no cash effect allocated to (i) the goodwill assigned to the Chile CGU for Ch$412,356 million, (ii) Ch$239,469 million corresponding to the total goodwill assigned to the CGU Colombia and (iii) Ch$113,911 million (Ch$79,364 million net of deferred taxes) that represent all of the intangibles generated in business combinations assigned to the Colombia CGU. The total impact of these effects on the result attributable to the Bank's owners is Ch$720,951 million and Ch$10,276 million corresponding to non-controlling interest. These non-recurring accounting losses are mainly due to the state of the economy as of June 30, 2020, the market valuation of the Bank, the applicable discount rates and other changes in variables caused by uncertainty within the macroeconomic situation, which resulted in a valuation for these business units that was lower than their accounting value.
Recently Adopted and New Accounting Pronouncements
No new accounting pronouncements have been adopted in the year ended December 31, 2020 in the consolidated financial statements.
Starting January 1, 2019 the Bank changed the manner it accounts for leases by adopting IFRS 16 “Leases”. Additionally, it changed the manner in which it accounts for financial instruments starting January 1, 2018 by adopting IFRS 9 “Financial instruments”. See “Note 2 – Accounting Changes”. Further details on recently adopted accounting standards are as follows:
On January 13, 2016, the IASB published IFRS 16 "Leases". The new standard, adopted on January 1, 2019, requires that leases that meet the requirements set by the standard be presented on the tenant balance sheet under a single model, eliminating the distinction between operating and financial leases.
The Bank adopted the "prospectively modified approach” for the initial application of the standard. As of January 1, 2019, the required measurements were performed in order to determine the right of use assets under lease agreements and the lease contracts liabilities to be recognized as of the application date onwards, without considering the date of origin of the contract. Notes 1 (g) and (h) “General Information and Summary of Significant Accounting Policies” to our consolidated financial statements contain more detail on our recognition practices.
Our Management evaluated the impact on the adoption of this standard through the valuation of our executed lease agreements, recognizing a right of use assets under lease agreements and lease contracts liabilities as of January 1, 2019 of Ch$176,795 million, which generated an impact on the consolidated solvency indicators of 11 basis points going from 14.62% to 14.51% (for additional information see Note 36 Risk Management letter d) Capital Requirements of our consolidated financial statements).
Below is a breakdown of the impacts and reclassifications due to initial application of the IFRS 16 standard as of January 1, 2019:
| | | | | | |
| | As of | | | | As of |
| | December 31, | | Initial | | January 1, |
| | 2018 | | recognition | | 2019 |
|
| MCh$ |
| MCh$ |
| MCh$ |
Right of use asset under lease agreements |
| — |
| 176,795 |
| 176,795 |
Subtotals assets |
| — |
| 176,795 |
| 176,795 |
| | | | | | |
Lease contracts liabilities |
| — |
| 176,795 |
| 176,795 |
Subtotals liabilities |
| — |
| 176,795 |
| 176,795 |
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Additional disclosures are presented in Note 15 “Assets for right to use and obligations for lease contracts” to our consolidated financial statements.
IFRS 9 Financial Instruments
We adopted IFRS 9 as issued by the IASB in July 2014 with a date of transition of January 1, 2018, which resulted in changes to our accounting policies. The adoption of IFRS 9 has resulted in changes in our accounting policies for recognition, classification and measurement of financial assets and financial liabilities and impairment of financial assets. IFRS 9 also significantly amends other standards dealing with financial instruments such as IFRS 7 “Financial Instruments: Disclosures”.
As per the permitted transitional provisions of IFRS 9, we elected not to revise comparative figures; accordingly, some IFRS 9 disclosures presented in our consolidated financial statements and this Annual Report with respect to certain financial assets are not comparable since their classification and measurement may differ between IFRS 9 and the prior standard of IAS 39.
Any adjustments to the carrying amounts of financial assets and liabilities as of the date of transition were recognized as an adjustment to the opening retained earnings. We have elected to continue to apply the hedge accounting requirements of IAS 39 on the adoption of IFRS 9.
The comparative period disclosures show those disclosures made in the prior year.
Set out below are disclosures regarding the impact of the adoption of IFRS 9 on us and further details of the specific IFRS 9 accounting policies applied in the current period (as well as the previous IAS 39 accounting policies applied in the comparative period). All information for periods disclosed in in this Annual Report is according to IFRS 9.
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Classification and Measurement of Financial Instruments
| | | | | | | | | | | | |
| | IAS 39 as of December 31, 2018 |
| IFRS 9 as of January 1, 2019 | ||||||||
|
| Measurement |
| |
| Book Value |
| Measurement |
| |
| Book Value |
Balance | | category | | Portfolio | | millions of Ch$ | | category | | Portfolio | | millions of Ch$ |
Trading investments |
| Fair value through profit or loss |
| Financial instruments classified as trading investments |
| 415,061 |
| Financial instruments at fair value through profit or loss |
| Financial instruments at fair value through profit or loss |
| 423,855 |
Investments instruments |
| Fair value through profit or loss |
| Financial assets available for sale (including those that were valued at cost at December) |
| 2,663,478 |
| Financial instruments at fair value through other comprehensive income |
| Financial instruments at fair value through other comprehensive |
| 2,658,739 |
| | | | | | | | | | | | |
|
| Amortized cost |
| Financial assets classified as held to maturity |
| 202,030 |
| Amortized cost | | Financial instruments at fair value through profit or loss |
| 201,993 |
Loans and accounts receivable from customers |
| Amortized cost |
| Loans and accounts receivable from customers, net of allowances for loan losses according to IAS 39. |
| 19,764,078 |
| Amortized cost | | Loans and accounts receivable from customers, net of allowances for loan losses according to IFRS 9. |
| 19,612,201 |
| | | | | | | | | | | | |
Interbank loans |
| Amortized cost |
| Interbank loans, net of allowances for loan losses according to IAS 39. |
| 70,077 |
| Amortized cost | | Interbank loans, net of allowances for loan losses according to IFRS 9. |
| 70,077 |
● | Classification of financial assets |
Financial assets are classified into a measurement category based on both our business model for managing the financial asset and the contractual cash flow characteristics of our financial asset.
Contractual cash flow assessment determine if the cash flows from the financial asset meet the SPPI (solely payment of principal and interest) criterion, i.e. whether the contractual terms of the financial asset give rise, on specific dates, to cash flows that are solely payments of principal and interest. Principal is the fair value of the financial assets at initial recognition, and interest is the consideration for the time value of money, the credit risk associated with the principal outstanding, and also may include liquidity risk, administrative cost and profit margin.
For classification process we perform the SPPI test, which assesses the contractual term to identify whether they meet SPPI criterion, the contract is a basic lending arrangement. We apply judgment and consider relevant factors such as currency in which the financial asset is denominated, and period for which the interest rate is set.
Business model refers to how we manage our financial assets in order to generate cash flows. We determined our business model on initial application of IFRS 9 at the level that best reflects how it manages groups of financial assets to achieve its business objective.
Our business model represents how financial assets are managed to generate cash flows and does not depend on our management’s intention regarding an individual instrument, but at a higher level of aggregated portfolio and is based on observable factors such as: risks that affect the performance of business model; how business managers are compensated; how the performance of business model is assessed and reported to our management.
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In addition, our business model is not assessed on an instrument-by- instrument basis, but at a higher level of aggregated portfolio and is based on observable factors such as: performance of the financial assets, the risk that affect the performance, and the expected frequency, value and timing of sales, among others.
In accordance with IFRS 9 the business models are:
● | Held to collect business model (HTC). Financial assets that are held within a business model whose objective is to hold assets in order to collect contractual cash flows are managed to realize cash flows by collecting contractual payments over the life of the instrument, under this business model sales made when there is an increase in the credit risk, or to manage credit concentration risk are not inconsistent with a business model whose objective is to hold financial assets to collect contractual cash flows. |
● | Held to collect and sell (HTC&S). Financial assets under this business model achieve the objective by both collecting contractual cash flows and selling financial assets, then involve a greater frequency and value of sales than HTC business model. |
● | Other business model. Financial assets held in this business has the objective of realizing cash flows through the sale of the assets. We make decisions based on our assets’ fair values and manage the assets to realize those fair values. |
● | Reclassification |
Reclassification of financial assets is required if, and only if, the objective of our business model for managing those financial assets changes. Financial liabilities cannot be reclassified.
Measurement of Financial Instruments
● | Initial measurement |
On initial recognition, financial assets and financial liabilities are measured at the transaction price, i.e. the fair value of the consideration given or received (IFRS 13). In the case of financial instruments not at fair value through profit or loss, transaction costs of financial assets and financial liabilities carried at fair value are expensed in profit or loss.
● | Subsequent measurement- financial assets |
After initial recognition, we measure a financial asset at :
● | Amortized cost. Financial assets that are held in a business model to collect the contractual cash flows and contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at amortized cost. The effective interest method is used in the calculation of the amortized cost of a financial asset or a financial liability and in the allocation and recognition of the interest revenue or interest expense in profit or loss over the relevant period. |
● | FVOCI. Financial assets that are debt instruments held in a business model that is achieved by both collecting contractual cash flows and selling, and that contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at FVOCI. They are subsequently remeasured at fair value and changes therein (except for those relating to impairment, interest income and foreign currency exchange gains and losses) are recognized in other comprehensive income, until the assets are sold. Upon disposal, the cumulative gain and losses in OCI are recognized in the income statements. |
● | Fair value through profit or loss (FVTPL). Financial assets that do not contain contractual terms that give rise on specified dates to cash flows that are SPPI, or if the financial assets, or if the financial asset is not held in a business model that is either (i) a business model to collect the contractual cash flows or (ii) a business model |
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that is achieved by both collecting contractual cash flows and selling. Financial assets held for trading are recognized at fair value through profit or loss, likewise derivatives contracts for trading purposes. |
For certain equity instruments, we may make an irrevocable election to present subsequent changes in the fair value of the instrument in other comprehensive income, except for dividend income which is recognized in profit or loss. Gains or losses on derecognition of these equity instruments are not transferred to profit or loss.
● | Subsequent measurement- financial liabilities |
After initial recognition, we measure a financial liability at amortized cost, except for derivatives that are measured at fair value through profit or loss.
Derecognition of financial assets and liabilities
Financial assets are derecognized when, and only when:
● | the contractual rights to the cash flows from the financial asset expire, or |
● | we transfer substantially all the risks and rewards of ownership of the financial asset, and therefore we derecognize the financial asset and recognize separately any rights and obligations created or retained in the transfer. |
In some cases, we enter into transactions for which it retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows in an arrangement that meets all the conditions required, i.e. we only transfer collected amounts from original assets, selling or pledging original assets is prohibited, and we have the obligation to remit cash flows collected without material delay.
When a financial asset is sold and we simultaneously agree to repurchase it (or an asset that is substantially the same) at a fixed price on a future date, we continue to recognize the financial assets in their entirety in the statements of financial position because it retains substantially all of the risks and rewards of ownership. The cash consideration received is recognized as a financial asset and a financial liability is recognized for the obligation to pay the repurchase price.
Financial liabilities are derecognized when, and only when, they are extinguished, cancelled or expired.
Contingent loans
We issue contingent loans (including letters of credit, foreign letters of credit and performance guarantee) and loan commitments. Contingent loans and undrawn loan commitments are commitments under which, over the duration of the commitment, we are required to provide a loan with pre-specified term to the customer.
The nominal contractual loan value, when the loan agreed to be provided is on market terms, is not recorded in the statements of financial position. The related ECL allowances are disclosed in Note 21.
Offsetting
Financial assets and financial liabilities are offset in the balance sheet only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
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Derivatives and hedging activities
We have elected to continue applying the hedge accounting requirements of IAS 39 on adoption of IFRS 9. For presentation purposes, derivatives are presented in accordance with their positive or negative fair value as assets or liabilities, respectively, and include trading and hedging instruments separately (see Note 8).
Allowance for expected credit losses – under IFRS 9
Starting from January 1, 2018, we replaced the “incurred loss” model of IAS 39 with an “expected credit loss” (“ECL”) model established by IFRS 9. For a description of the expected credit loss model, see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Impairment Assessment as of January 1, 2018.”
IFRS 15 Revenue from Contracts with Customers
On January 1, 2018, IFRS 15 “Revenues from contracts with customers” became effective. In accordance with our activities, income and expenses arising from fees and commission are under the scope of this new standard. Consequently, a review over fees and commissions has been performed, to ensure the five-step approach is fully met.
We have elected to adopt IFRS 15 using a modified retrospective approach where the cumulative effect of initially applying it was recognized as an adjustment to the opening balance of retained earnings and comparative information was not restated.
We concluded that there was no impact as of January 1, 2018, however new note disclosure requirements were adopted. See Note 1 and Note 26 to our consolidated financial statements included in this Annual Report.
In addition, new amendments and interpretations to IFRS standards have been issued but not yet adopted in our consolidated financial statements as of December 31, 2020, none of them with significant modifications.
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Results of Operations for the Years Ended December 31, 2018, 2019 and 2020
Introduction
We ended 2020 with a Ch$826,155 million consolidated net loss, a decrease of Ch$950,677 million compared to December 31, 2019. These losses are mainly explained by a post-tax non-cash impairment charge of Ch$731,189 million. That impact is composed of Ch$412,356 million as a result of a goodwill impairment of our estimated fair value of the cash generating unit for Chile; and of Ch$318,833 million as a result of impairment of goodwill and intangible assets from business combination of the cash generating unit for Colombia.
Excluding this effect, the consolidated result as of December 2020 would have reached a net loss of Ch$94,966 million, a decrease of Ch$219,488 million compared to December 31, 2019.
From a macroeconomic perspective, the events with the greatest impact on our results were: (i) the effects of the COVID-19 pandemic, which resulted in a reduction in the economic activity in Chile and Colombia; and (ii) the reduction in the monetary policy rate in both countries ‒from 1.75% at the end of 2019 to 0.50% at the end of 2020 in Chile, and from 4.25% to 1.75% in Colombia‒ negatively impacting our liability and capital margins.
We ended 2019 with Ch$124,522 million in consolidated net income, a decrease of 25.4% year-on-year. From a macroeconomic perspective, the events with the greatest impact on our results were: (i) the social unrest that led to a reduction in economic activity in Chile and an increase in delinquencies; (ii) the reduction in the monetary policy rate in Chile, which went from 2.75% at the beginning of the year to 1.75% at the end of December, negatively impacting our liability and capital margins; and (iii) a smaller variation in the UF observed in Chile of 2.7% in 2019 compared to a variation of 2.9% in 2018, which impacts our financial margin with the market and the effective tax rate. Additionally, the higher provisions for loan losses also contributed significantly to the decrease in our consolidated results. This increase was mainly due to one-time events, as detailed below, which were partially offset by a lower effective tax rate.
We ended 2018 with Ch$166,854 million in consolidated net income, the strongest result since the merger, posting a 165.6% increase when compared to 2017 based on stronger loan growth with lower delinquency, the highest net interest income and fee revenues and the lowest cost of credit since the Merger, with operating expenses virtually flat when compared to 2017.
Net Income (Loss)
For the year ended December 31, 2020, our consolidated financial statements reported a consolidated net loss of Ch$826,155 million, a Ch$950,677 million decrease from our consolidated net income of Ch$124,522 million in 2019.
Aside from the non-cash impairment previously mentioned, this decrease in our consolidated net income was primarily due to the increase in provisions for loan losses. In 2020, provisions for loan losses increased by Ch$83,552 million, or 21.8%. We increased our allowances for loan losses to protect our loan portfolio from defaults that we estimate that, as a result of the COVID-19 pandemic, could materialize in the future, taking into account the macroeconomic perspectives in both Chile and Colombia, as well as specific aspects by sector, product and customers.
As part of our continuous credit risk monitoring strategy, we timely update significant parameters to adjust our forward looking provisioning model to protect the balance sheet. As a result, we have increased our allowances for loan losses from Ch$880,117 million in 2019 to Ch$1,041,873 in 2020, mainly to cover expected losses for individually assessed loans. We believe that timely updating our provisioning models allows us to properly capture the expected losses of our portfolio and prepare our balance sheet for a new cycle of growth and sustained improvement in profitability as the economy recovers and we advance with our transformation plan.
174
The following table sets forth the components of our net income for the years ended December 31, 2018, 2019 and 2020:
| | | | | | | | | | | |
| | | | % Change | | % Change |
| ||||
| | For the Year Ended December 31, | | from | | from |
| ||||
|
| 2018 |
| 2019 |
| 2020 |
| 2019/2018 |
| 2020/2019 |
|
|
| (in millions of Ch$ except for percentages) | | ||||||||
Components of net income: |
|
|
|
|
|
| | | | | |
Net interest income |
| 887,663 |
| 900,418 |
| 866,437 |
| 1.4 | % | (3.8) | % |
Net fees and commissions |
| 186,129 |
| 174,404 |
| 140,999 |
| (6.3) | % | (19.2) | % |
Trading and Investment, foreign exchange gains and other operating income |
| 181,446 |
| 216,232 |
| 102,001 |
| 19.2 | % | (52.8) | % |
Provisions for loan losses |
| (279,798) |
| (382,678) |
| (466,230) |
| 11.3 | % | 21.8 | % |
Total operating expenses |
| (741,527) |
| (736,533) |
| (1,581,778) |
| (0.7) | % | 114.8 | % |
Income (loss) before income taxes |
| 233,913 |
| 171,843 |
| (938,571) |
| (26.5) | % | (646.2) | % |
Income (loss) from investment in associates | | — | | 532 | | (2,794) | | — | % | (625.2) | % |
Income taxes |
| (67,059) |
| (47,853) |
| 115,210 |
| (28.6) | % | (340.8) | % |
Income (loss) from continuing operations |
| 166,854 |
| 124,522 |
| (826,155) |
| (25.4) | % | (763.5) | % |
Income (loss) from discontinued operations |
| — |
| — |
| — |
| — | % | — | % |
Net income (loss) for the year | | 166,854 | | 124,522 | | (826,155) | | (25.4) | % | (763.5) | % |
Net Interest Income
The following table sets forth the components of our net interest income for the years ended December 31, 2018, 2019 and 2020:
| | | | | | | | | | | |
| | | | % Change | | % Change |
| ||||
| | For the Year Ended December 31, | | from | | from |
| ||||
|
| 2018 |
| 2019 |
| 2020 |
| 2019/2018 |
| 2020/2019 |
|
|
| (in millions of Ch$ except for percentages) | | ||||||||
Interest income | | 1,739,317 | | 1,773,640 | | 1,549,674 | | 2.0 | % | (12.6) | % |
Interest expense |
| (851,654) |
| (873,222) |
| (683,237) |
| 2.5 | % | (21.8) | % |
Net interest income |
| 887,663 |
| 900,418 |
| 866,437 |
| 1.4 | % | (3.8) | % |
The following table sets forth information as to the components of our interest income for the years ended December 31, 2018, 2019 and 2020:
| | | | | | | | | | | |
| | | | % Change | | % Change |
| ||||
| | For the Year Ended December 31, | | from | | from |
| ||||
|
| 2018 |
| 2019 |
| 2020 |
| 2019/2018 |
| 2020/2019 |
|
|
| (in millions of Ch$ except for percentages) | | ||||||||
Interest income |
| 1,739,317 |
| 1,773,640 |
| 1,549,674 |
| 2.0 | % | (12.6) | % |
Average interest-earning assets: | | | | | | | | | | | |
Loans |
| 20,983,806 |
| 22,239,619 |
| 23,462,068 |
| 6.0 | % | 5.5 | % |
Financial investments |
| 2,986,100 |
| 2,829,393 |
| 3,782,456 |
| (5.2) | % | 33.7 | % |
Interbank deposits |
| 203,672 |
| 192,210 |
| 140,543 |
| (5.6) | % | (26.9) | % |
Total average interest-earning assets |
| 24,173,578 |
| 25,261,222 |
| 27,385,067 |
| 4.5 | % | 8.4 | % |
175
The following table sets forth information as to the components of our interest expense for the years ended December 31, 2018, 2019 and 2020:
| | | | | | | | | | | |
| | | | % Change | | % Change |
| ||||
| | For the year end December 31, | | from | | from |
| ||||
|
| 2018 |
| 2019 |
| 2020 |
| 2019/2018 |
| 2020/2019 |
|
|
| (in millions of Ch$ except for percentages) | | ||||||||
Interest expense |
| 851,654 |
| 873,222 |
| 683,237 |
| 2.5 | % | (21.8) | % |
Average interest-earning liabilities: | | | | | | | | | | | |
Bonds |
| 5,789,542 |
| 6,357,677 |
| 6,358,889 |
| 9.8 | % | 0.0 | % |
Time deposits |
| 10,097,251 |
| 10,611,996 |
| 12,195,779 |
| 5.1 | % | 14.9 | % |
Central Bank borrowings |
| — |
| — |
| 1,539,759 |
| — | % | — | % |
Repurchase agreements |
| 806,223 |
| 716,190 |
| 598,204 |
| (11.2) | % | (16.5) | % |
Mortgage finance bonds |
| 58,939 |
| 45,598 |
| 34,536 |
| (22.6) | % | (24.3) | % |
Other interest-bearing liabilities |
| 4,769,459 |
| 5,107,621 |
| 5,959,330 |
| 7.1 | % | 16.7 | % |
Total average interest-bearing liabilities |
| 21,521,414 |
| 22,839,082 |
| 26,686,497 |
| 6.1 | % | 16.8 | % |
2020 Compared to 2019
Our net interest income (NII) was Ch$866,437 million for the year ended December 31, 2020, a decrease of 3.8% as compared to Ch$900,418 million for the year ended December 31, 2019. This decrease was primarily due to a change in credit portfolio mix, mainly due to the contraction of the consumer portfolio as a result of the COVID-19 pandemic and by a reduction in spreads from deposits resulting from the fall in interest rates. The decrease was partially offset by the positive impact that both loan and deposit volumes had on increasing our NII.
The aforementioned factors had a total Ch$33,981 million impact on our net interest margin (net interest income divided by average interest-earning assets), resulting in a decrease of only 40 basis points to 3.16% in 2020 from 3.56% in 2019, demonstrating that our net interest margin rate has been largely resilient despite the fall in the monetary policy rate year-over-year.
2019 Compared to 2018
Our net interest income was Ch$900,418 million for the year ended December 31, 2019, an increase of 1.4% as compared to Ch$887,663 million for the year ended December 31, 2018. The increase in interest income was primarily the result of (i) a 3% increase in inflation-related income in Chile and (ii) an increase in our loan portfolio in Chile and a better mix of products that helped us offset the decrease in weighted average spread. These factors were partially offset by a decrease in the interest rates in Chile, which in turn negatively impacted our liability and capital margins.
The aforementioned factors were not sufficient to increase our net interest margin (net interest income divided by average interest-earning assets), resulting in a decrease of 11 basis points to 3.56% in 2019 from 3.67% in 2018.
Allowances for Loan Losses
Allowance for loan losses as of December 31, 2018, 2019 and 2020 corresponds to allowances for loans and accounts receivable from customers at amortized cost according to IFRS 9.
176
The following table sets forth information relating to our allowances for loan losses as of December 31, 2018, 2019 and 2020 (at amortized cost according to IFRS 9):
| | | | | | | | | | | |
| | | | | | | | % Change | | % Change |
|
| | As of December 31, | | from | | from |
| ||||
|
| 2018 |
| 2019 |
| 2020 |
| 2019/2018 |
| 2020/2019 |
|
|
| (in millions of Ch$ except for percentages) | | ||||||||
Total loans (excludes interbank loans) | | 21,482,490 |
| 23,134,814 |
| 22,617,981 |
| 7.7 | % | (2.2) | % |
Past due loans(1) |
| 271,791 |
| 312,510 |
| 291,781 |
| 15.0 | % | (6.6) | % |
Non-performing loans(2) |
| 452,947 |
| 653,664 |
| 503,882 |
| 44.3 | % | (22.9) | % |
Impaired loans(3) |
| 1,299,226 |
| 1,468,775 |
| 1,821,779 |
| 13.1 | % | 24.0 | % |
Allowances for loan losses |
| 768,120 |
| 880,117 |
| 1,041,873 |
| 14.6 | % | 18.4 | % |
Allowances for loan losses as a percentage of total loans |
| 3.6 | % | 3.8 | % | 4.6 | % | 17.8 | % | 21.1 | % |
Allowances for loan losses as a percentage of non-performing loans |
| 169.6 | % | 134.6 | % | 206.8 | % | 26.7 | % | 53.6 | % |
Allowances for loan losses as a percentage of impaired loans |
| 59.1 | % | 59.9 | % | 57.2 | % | 21.2 | % | (4.5) | % |
Non-performing loans as a percentage of total loans |
| 2.1 | % | 2.8 | % | 2.2 | % | (7.0) | % | (21.4) | % |
Allowances for loan losses as a percentage of past due loans |
| 282.6 | % | 281.6 | % | 357.1 | % | (14.0) | % | 26.8 | % |
(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. |
2020 Compared to 2019
Allowances for loan losses (excluding allowances for interbank loans) increased by 18.4% to Ch$1,041,873 million as of December 31, 2020 compared to Ch$880,117 million as of December 31, 2019. Higher allowances for loan losses resulted primarily from the credit cycle derived from the COVID-19 pandemic. In this scenario, we focused on properly reflecting these impacts in our models. We increased our allowances for loan losses to protect our balance sheet from possible impacts of the COVID-19 pandemic that could materialize in the future, considering the macroeconomic perspectives in Chile and Colombia, as well as specific aspects of the sector, product and client.
Our non-performing loans, as a percentage of total loans, decreased to 2.2% as of December 31, 2020 compared to 2.8% as of December 31, 2019. This decrease was the result of credit relief measures on one hand, but also from increasing payments from our customers, particularly due to higher liquidity derived from pension funds withdrawals approved by the Chilean government.
As part of the relief plan for our clients, we have granted payment holidays to some of our clients, which mainly consist of the postponement of one to six installments on their loans under certain conditions. As of December 31, 2020, we have rescheduled installments for an approximate amount of Ch$398,086 million. Additionally, under the FOGAPE COVID-19 credit lines program, as of December 31, 2020, we had carried out government-guaranteed operations for an aggregate amount of Ch$803,080 million.
2019 Compared to 2018
Allowances for loan losses (excluding allowances for interbank loans) increased by 14.6% to Ch$880,117 million as of December 31, 2019 compared to Ch$768,120 million as of December 31, 2018. Higher allowances for loan losses resulted primarily from provisions we have constituted for two specific corporate clients, one in Chile and one in Colombia and higher provisioning levels for wholesale and retail clients related to social unrest events in Chile.
177
Our non-performing loans, as a percentage of total loans, increased to 2.8% as of December 31, 2019 compared to 2.1% as of December 31, 2018. This increase resulted from the social unrest in Chile that negatively affected our NPL ratios in the short term as some businesses and individuals were adversely affected by a decrease in economic activity and acts of vandalism. In addition, the NPL ratios of our commercial loans were impacted by the provisions we set aside for the exposures to two corporate clients mentioned above.
Provisions for Loan Losses
2020 Compared to 2019
Provisions for loan losses increased by 21.8% to Ch$466,230 million for the year ended December 31, 2020, compared to Ch$382,678 million for the year ended December 31, 2019. The increase in our provisions for loan losses expense was primarily due to economic environment which led to a significant parameters update seeking to adjust our forward looking provisioning model to protect the balance sheet.
2019 Compared to 2018
Provisions for loan losses increased by 3.8% to Ch$382,678 million for the year ended December 31, 2019, compared to Ch$279,798 million for the year ended December 31, 2018. The increase in our provisions for loan losses was primarily due to an increase in the consumer past due loans as well as in commercial impaired loans, primarily due to the significant downgrading of certain borrowers.
Net Fees and Commission Income
2020 Compared to 2019
Our net service fee income (including income from financial advisory services) for the year ended December 31, 2020 was Ch$140,999 million, representing a 19.2% decrease when compared to Ch$174,404 million for the year ended December 31, 2019. Our income from service fees during the year ended December 31, 2020 decreased by 16.3% to Ch$204,378 million from Ch$244,196 million for the year ended December 31, 2019. Our expenses from service fees decreased by 9.2% to Ch$63,379 million for the year ended December 31, 2020, from Ch$69,792 million for the year ended December 31, 2019.
The decrease in our net service fee income was driven primarily by lower economic activity and the consequent lower credit activity and the reduction in fees from financial advisory services and higher expenses from brokerage commissions.
2019 Compared to 2018
Our net service fee income (including income from financial advisory services) for the year ended December 31, 2019 was Ch$174,404 million, representing a 6.3% decrease when compared to Ch$186,129 million for the year ended December 31, 2018. Our income from service fees during the year ended December 31, 2019 increased by 2.6% to Ch$244,196 million from Ch$237,956 million for the year ended December 31, 2018. Our expenses from service fees increased by 34.7% to Ch$69,792 million for the year ended December 31, 2019, from Ch$51,827 million for the year ended December 31, 2018.
The increase in our net service fee income was driven primarily by higher revenues obtained by credit operations and guarantees provided.
178
Other Net Operating Income
The following table sets forth the components of our other net operating income for the years ended December 31, 2018, 2019 and 2020:
| | | | | | | | | | | |
| | | | | | | | % Change | | % Change |
|
| | For the Year Ended December 31, | | from | | from |
| ||||
|
| 2018 |
| 2019 |
| 2020 |
| 2019/2018 |
| 2020/2019 |
|
|
| (in millions of Ch$ except for percentages) | | ||||||||
Trading and investment income, net |
| 172,755 |
| 143,634 |
| 110,887 |
| (16.9) | % | (22.8) | % |
Foreign exchange gains (losses), net |
| (17,965) |
| 27,626 |
| (74,464) |
| (253.8) | % | (369.5) | % |
Other operating revenue |
| 26,656 |
| 44,972 |
| 65,578 |
| 68.7 | % | 45.8 | % |
Trading and investment, foreign exchange gains and other operating income |
| 181,446 |
| 216,232 |
| 102,001 |
| 19.2 | % | (52.8) | % |
2020 Compared to 2019
In the year ended December 31, 2020, trading and investment, foreign exchange gains and other net operating income decreased by 52.8% to Ch$102,001 million from Ch$216,232 million in 2019. This decrease was mainly the result of negative impacts resulting from higher market volatility in our treasury operations, particularly driven by the decrease in interest rates. This decrease is the result of greater uncertainty in the global markets, impacting interest rates (international and local) and lower results from derivatives contracts with clients, which led to a decrease in trading income.
The reversal in our foreign exchange results from a gain in 2019 to a loss in 2020 was primarily driven by the weakening of the U.S. dollar in Chile. This was partially offset by the increase in results from the sale of financial instruments at FVTOCI, which was driven by the repurchase of bonds from the Central Bank of Chile to increase liquidity in the local market.
2019 Compared to 2018
In the year ended December 31, 2019, trading and investment, foreign exchange gains and other net operating income increased by 19.2% to Ch$216,232 million from Ch$181,446 million in 2018. This increase was mainly the result of the effect of the hedge position for the tax effect of our investments in Colombia and New York (US$1,772 million and US$166 million, respectively), which was partially offset by a lower effective tax rate as well as better market opportunities, which in turn were partially offset by a negative impact on the credit value adjustment (CVA) of derivatives. For tax purposes, the “Servicio de Impuestos Internos” (Chilean Internal Revenue Service) considers that our investments abroad are denominated in U.S. dollars, which for Colombia and our New York Branch, based on the exchange rates of each of the disbursements (not current exchange rates), amounts to US$1,437 million, and for our New York branch amounts to US$166 million, respectively. Because we are obligated to translate the valuation of this investment from U.S. dollars to Chilean pesos in our book, the volatility of the exchange rate generates an impact on the net income attributable to shareholders. In order to limit that effect, management has decided to hedge this exposure with financial instruments to be analyzed along with income tax expenses.
179
Operating Expenses
The following table sets forth the components of our operating expenses for the years ended December 31, 2018, 2019 and 2020:
| | | | | | | | | | | |
| | | | | | | | % Change | | % Change |
|
| | For the Year Ended December 31, | | from | | from |
| ||||
|
| 2018 |
| 2019 |
| 2020 |
| 2019/2018 |
| 2020/2019 |
|
|
| (in millions of Ch$ except for percentages) | | ||||||||
Personnel salary and expenses |
| 294,747 |
| 298,209 |
| 292,191 |
| 1.2 | % | (2.0) | % |
Administration expenses |
| 291,736 |
| 248,881 |
| 257,753 |
| (14.7) | % | 3.6 | % |
Depreciation and amortization |
| 86,817 |
| 127,166 |
| 126,444 |
| 46.5 | % | (0.6) | % |
Impairment |
| 28 |
| 728 |
| 814,879 |
| 2,500.0 | % | 111,833.9 | % |
Other operating expenses |
| 68,199 |
| 61,549 |
| 90,511 |
| (9.8) | % | 47.1 | % |
Total operating expenses |
| 741,527 |
| 736,533 |
| 1,581,778 |
| (0.7) | % | 114.8 | % |
2020 Compared to 2019
Operating expenses increased by 114.8% to Ch$1,581,778 million for the year ended December 31, 2020 from Ch$736,533 million for the year ended December 31, 2019. This increase was primarily the result of the non-cash goodwill impairment previously mentioned. Excluding this impact of Ch$765,736 million (pre tax), operating expenses would have increased by 10.8%. This increase is the result of one-time effects on provisions due to the restructuring of the footprint of our branches and corporate spaces as a consequence of the forthcoming adoption of the "Remote First" work model.
Additionally, our operating expenses were negatively impacted by severance expenses, which were caused by a 7.0% reduction in staff in order to simplify our organizational structure, which was the largest structural adjustment since the Merger.
2019 Compared to 2018
Operating expenses decreased by 0.7% to Ch$736,533 million for the year ended December 31, 2019 from Ch$741,527 million for the year ended December 31, 2018. This decrease was primarily the result a decrease in administration expenses in the amount of Ch$42,855, which in turn was primarily due to the adoption of IFRS 16.
Income Taxes
2020 Compared to 2019
Our income tax for the year ended December 31, 2020 was an income of Ch$115,210 million compared to an expense of Ch$47,853 million for the year ended December 31, 2019. This change is mostly explained by net losses in the period as a result of the aforementioned goodwill impairment of our estimated fair value of the cash generating units for both Chile and Colombia.
2019 Compared to 2018
Our income tax for the year ended December 31, 2019 was an expense of Ch$47,853 million compared to an expense of Ch$67,059 million for the year ended December 31, 2018. This change is mostly explained by a lower taxable base and lower income.
180
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
Reported segments are determined based on our operating segments: Chile—which includes our New York Branch—and Colombia. Each of Chile and Colombia mainly differentiates by the risks and returns that affect them in their own markets. Reported segments are in accordance with IFRS 8 “Operating Segments.” The description of each operating segment is as follows:
Chile. The Bank’s business activities in Chile take place mainly in the local market. The Bank has strategically aligned its operations into the following five business areas that are directly related to its customers’ needs and the Bank’s strategy: 1) Wholesale Banking: (a) Corporate Banking, (b) Large Companies, and (c) Real Estate and Construction; 2) Retail Banking: (a) Itaú Private Bank, (b) Itaú Companies, (c) Itaú Personal Bank (d) Itaú and (e) Banco Condell; 3) Treasury; 4) Corporate; and 5) Other financial services.
The Bank manages these business areas using a reporting system for internal profitability. The operating results are reviewed regularly by the entity’s Chief Operating Decision Maker (CODM) for operating decisions as one single reporting segment, to decide about resource allocation for the segment and evaluate its performance.
Colombia: Colombia has been identified as a separate operating segment based on the business activities. Its operating results are regularly reviewed by the entity’s Chief Operating Decision Maker (CODM) for operating decisions as one single reporting segment, to decide on the resource allocation for the segment and evaluate its performance. Separate financial information is available for this reporting segment.
The commercial activities of this segment are carried out by Itaú Corpbanca Colombia S.A. and subsidiaries.
181
Year Ended December 31, 2018 Results
The following table presents summary information related to each of our operating segments for the year ended December 31, 2018:
| | | | | | |
| | For the year ended December 31, 2018 | ||||
| | Chile | | Colombia | | Total |
|
| (in millions of Ch$) | ||||
Net interest income |
| 591,575 |
| 296,088 |
| 887,663 |
Net fees and commissions |
| 149,673 |
| 36,456 |
| 186,129 |
Net trading and investment income |
| 128,264 |
| 44,491 |
| 172,755 |
Net foreign exchange gains (losses) |
| 5,726 |
| (23,691) |
| (17,965) |
Other operating income |
| 14,337 |
| 12,319 |
| 26,656 |
Provision for loan losses |
| (127,804) |
| (151,994) |
| (279,798) |
Total operating income, net of provision for loan losses |
| 761,771 |
| 213,669 |
| 975,440 |
Depreciation and amortization |
| (53,544) |
| (33,273) |
| (86,817) |
Other operating expenses |
| (442,943) |
| (211,767) |
| (654,710) |
Total operating expenses |
| (496,487) |
| (245,040) |
| (741,527) |
Income before taxes |
| 265,284 |
| (31,371) |
| 233,913 |
Income (loss) taxes |
| (85,269) |
| 18,210 |
| (67,059) |
Income from continuing operations |
| 180,015 |
| (13,161) |
| 166,854 |
Income (loss) discontinued operations |
| — |
| — |
| — |
Net income for the year |
| 180,015 |
| (13,161) |
| 166,854 |
Average loans |
| 16,250,960 |
| 4,732,846 |
| 20,983,806 |
Average investments |
| 1,764,400 |
| 1,303,562 |
| 3,067,962 |
Year Ended December 31, 2019 Results
The following table presents summary information related to each of our operating segments for the year ended December 31, 2019:
| | | | | | |
| | For the year ended December 31, 2019 | ||||
| | Chile | | Colombia | | Total |
|
| (in millions of Ch$) | ||||
Net interest income |
| 614,186 |
| 286,232 |
| 900,418 |
Net fees and commissions |
| 138,007 |
| 36,397 |
| 174,404 |
Net Trading and investment income |
| 152,600 |
| (8,966) |
| 143,634 |
Net foreign exchange gain (loss) |
| (24,389) |
| 52,015 |
| 27,626 |
Other operating income |
| 20,460 |
| 24,512 |
| 44,972 |
Provision for loan losses |
| (295,116) |
| (87,562) |
| (382,678) |
Total operating income, net of provision for loan losses |
| 605,748 |
| 302,628 |
| 908,376 |
Depreciation and amortization |
| (86,593) |
| (40,573) |
| (127,166) |
Other operating expenses |
| (394,271) |
| (215,096) |
| (609,367) |
Total operating expenses |
| (480,864) |
| (255,669) |
| (736,533) |
Income before taxes |
| 124,884 |
| 46,959 |
| 171,843 |
Income from investment in associates and other companies | | 800 |
| (268) | | 532 |
Income (loss) taxes |
| (33,393) | | (14,460) |
| (47,853) |
Income from continuing operations |
| 92,291 |
| 32,231 |
| 124,522 |
Income (loss) discontinued operations |
| — |
| — |
| — |
Net income for the year |
| 92,291 |
| 32,231 |
| 124,522 |
Average loans |
| 17,491,160 |
| 4,748,459 |
| 22,239,619 |
Average investments |
| 2,050,682 |
| 975,404 |
| 3,026,086 |
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Year Ended December 31, 2020 Results
The following table presents summary information related to each of our operating segments for the year ended December 31, 2020:
| | | | | | |
| | For the year ended December 31, 2020 | ||||
| | Chile | | Colombia | | Total |
|
| (in millions of Ch$) | ||||
Net interest income |
| 626,214 | | 240,223 | | 866,437 |
Net fees and commissions |
| 108,140 | | 32,859 | | 140,999 |
Net Trading and investment income |
| 25,031 | | 85,856 | | 110,887 |
Net foreign exchange gain (loss) |
| (20,491) | | (53,973) | | (74,464) |
Other operating income |
| 16,588 | | 48,990 | | 65,578 |
Provision for loan losses |
| (310,429) | | (155,801) | | (466,230) |
Total operating income, net of provision for loan losses |
| 445,053 |
| 198,154 |
| 643,207 |
Depreciation and amortization |
| (96,117) | | (30,327) | | (126,444) |
Impairment | | (457,174) | | (357,705) | | (814,879) |
Other operating expenses |
| (438,978) | | (201,477) | | (640,455) |
Total operating expenses |
| (992,269) |
| (589,509) |
| (1,581,778) |
Income (loss) before taxes |
| (547,216) |
| (391,355) | | (938,571) |
Income (loss) from investment in associates |
| (2,794) | | — | | (2,794) |
Income taxes | | 73,965 | | 41,245 | | 115,210 |
Income (loss) from continuing operations |
| (476,045) |
| (350,110) |
| (826,155) |
Income (loss) discontinued operations | | — | | — | | — |
Net income (loss) for the year |
| (476,045) |
| (350,110) |
| (826,155) |
Average loans |
| 18,792,888 | | 4,669,180 |
| 23,462,068 |
Average investments |
| 3,109,577 | | 1,081,047 |
| 4,190,624 |
Analysis of Segment Results
2020 Compared to 2019
We ended 2020 with a Ch$826,155 million consolidated net loss, which consisted of a loss of Ch$476,045 million in Chile and a loss of Ch$350,110 million in Colombia. We reached a consolidated net loss of Ch$826,155 million in 2020, a decrease of 950,677 million as compared to the year ended December 31, 2019.
Our results in Chile were mainly impacted by the Ch$412,356 million (post tax) aforementioned impairment of goodwill and intangibles from business combinations and also by the increase in provision for loan losses, primarily as a result of the negative affect the COVID-19 pandemic had on the quality of our loan portfolio given an increase in credit risk, among other items.
In 2020, net income for Colombia decreased by Ch$382,341 million, mainly due to the non-cash impairment of Ch$318,833 million (post tax) of goodwill and intangibles from business combinations and also by the increase in provision for loan losses. Operating expenses also increased by 130.6% the impact of the impairment described above as compared to the year ended December 31, 2019.
In addition, the economic volatility in 2020 due to the COVID-19 pandemic was important part of the decrease in operating results and therefore in the profitability of our operation in both countries in 2020.
2019 Compared to 2018
We ended 2019 with Ch$124,522 million in consolidated net income, which consisted of a gain of Ch$92,291 million in Chile and a gain of Ch$32,231 million in Colombia. We reached a consolidated net income of Ch$124,522 in 2019, a decrease of 25.4% as compared to the year ended December 31, 2018.
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Our results in Chile were mainly impacted by: (i) the social unrest that led to a reduction in economic activity in Chile and an increase in delinquencies; (ii) the reduction in the monetary policy rate in Chile, which went from 2.75% at the beginning of the year to 1.75% at the end of December‒, putting pressure on our liability and capital margins; and (iii) a smaller variation in the UF observed in Chile of 2.7% in 2019 compared to a variation of 2.9% in 2018‒, which impacts our financial margin with the market and the effective tax rate. Additionally, higher provisions for loan losses also contributed significantly to the decrease in our consolidated results. This increase in provisioning level was mainly due to specific corporate clients, which were partially offset by a lower effective tax rate.
In 2019, net income for Colombia increased and benefited from a lower cost of credit and a higher financial margin with the market as well as revenues from the sale of non-core assets.
Cost of credit remained under control and benefited from the release of provisions in contingent loans that partially offset additional provisions for a client in the corporate segment.
Operating expenses increased by 4.3% as compared to the year ended December 31, 2018 on the back of higher personnel and administrative expenses. Administrative expenses increased mainly due to software development, security and extraordinary expenses due to branches closure on the back of a footprint optimization.
Our increased financial margins and decreased cost of credit are an important part of the increase in the profitability of our operation in Colombia in 2019.
B. LIQUIDITY AND CAPITAL RESOURCES
We maintain adequate liquidity to ensure our ability to honor withdrawals of deposits, make repayments of other liabilities at maturity, extend loans and meet our own working capital requirements.
Sources of Liquidity
Our funding strategy aims for diversification of counterparties and maturities, both in the domestic and foreign markets. We are permanently monitoring the main vulnerability factors that could affect our current and potential capacity to obtain funding. Our objective is to ensure a diversified funding base by tenors within our risk appetite framework and cost structure. Stable and diversified financing is obtained through different sources in terms of providers, products and markets. In this way, we have generated robust liquidity levels to face potential liquidity stress scenarios.
Regarding mismatches, our Assets and Liabilities Committee (ALCO) defines the limit framework. Within this framework, each unit manages term mismatches. Once the ALCO has set the limits of term mismatches, they are confirmed by our board of directors.
From a liquidity point of view, the ALCO also proposes to the board of directors the liquidity reserves that each unit must maintain and manage. The determination of these limits depends, among other things, on the maturity structure for the next 30 days, on the type of customers holding short-term deposits and on-demand deposits and on other obligations we maintain. The ALCO also defines the type of eligible instruments to be considered liquidity reserves, and it periodically monitors the liquidity levels maintained at all time. Compliance with the entire limit structure is monitored daily by our Market Risk department.
For our operations in Chile, the main source of funding are deposits provided by three major types of clients: (i) institutional investors; (ii) large corporations; and (iii) retail clients.
For short-term funding (less than one year), we usually issue deposits. Interest rates granted to clients consider characteristics of stability of the funding by type of customer and terms associated with the operation.
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If the funding requirements are longer than one year, we may also carry out other operations such as bilateral credits with correspondent banks, syndicated loans with foreign banks, and the issuance of bonds in both the local and foreign markets.
The choice of one or the other of the aforementioned options will depend, among other factors, on the tenor, the specific price conditions and the amount. In general, in transactions between one and three years, bilateral credits are used with correspondent banks and syndicated loans. For operations exceeding these terms, we access the capital markets through bonds. The price conditions and the size of the transaction will determine if the issuance will be carried out in the domestic or in the foreign market.
On the other hand, our funding strategy considers not having currency mismatches and, therefore, for operations carried out in foreign markets to finance operations in local currency, derivatives are used to transform the foreign currency into local currency. Any mismatch of currencies presented on the balance sheet is measured in our currency risk reports that are daily calculated.
Our funding strategy is to optimize all sources of funding in accordance with their costs, their availability, and our general asset and liability management strategy. In this context, long-term funding needs during 2020 were mostly obtained from the Central Bank lines priced at Monetary Policy Rate (MPR). Year-over-year, total deposits have increased by 6.9% and interbank borrowings have expanded 43.5%, mainly due to increased borrowing from the Central Bank within the context of the Central Bank’s COVID-19-related liquidity facitilies (FCIC).
Our strategy in terms of bond issuances is to seek longer maturity tenors and maintain comfortable liquidity levels under BIS III standards. In addition, the spreads obtained in these issuances have allowed an improvement in the cost of funds. In the fourth quarter of 2020 we did not place bonds in the local nor in the international markets, but in the first half of the year we issued bonds in UF and CLP equivalent to US$293 million.
Capital
As of December 31, 2020, our shareholders’ equity was in excess of that required by Chilean regulatory requirements. According to the Chilean General Banking Act (as amended, including by Law No. 21,130), as a general rule a bank must have (i) an effective net equity of at least 8% of its risk-weighted assets, net of required reserves, and (ii) paid-in capital and reserves (basic capital) not lower than (y) 4.5% of its risk weighted assets and (z) 3% of its total assets, in both cases, net of required reserves. Nevertheless, when approving the Merger, the SBIF required that Itaú Corpbanca must have an effective net equity of at least 10% of its risk-weighted assets, net of required reserves. We are currently considering a number of actions to address our capital ratios going forward, in light of the impact of our pending acquisition of additional interest in Itau Colombia and increasingly stringent Basel III capital requirements. Those actions may include an increase in our equity through a potential stock offering. At this time, no firm decision has been made as to any of the foregoing and we continue to evaluate potential alternatives.
See “Item 3. Key Information—Presentation of Financial and Other Information—Specific Loan Information” in this Annual Report for additional information regarding events in which a higher effective net equity and/or a higher basic capital may be required and detail on certain regulations that were issued by the CMF during 2020, which may impose additional capital and reserve requirements.
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 separated basis.
Reserves
Under the Chilean General Banking Act, (1) a bank must have a minimum effective net equity (Patrimonio Efectivo) of at least 8% of its risk weighted assets, net of required allowance for loan losses, as calculated in accordance with Chilean Banking GAAP; and (2) a bank’s paid-in capital and reserves, or basic capital (Capital Básico), must not be lower than 4.5% of its risk weighted assets and 3% of its total assets, in both cases, net of required allowance for loan losses.
185
Note that in certain instances, a higher effective net equity and/or a higher basic capital may be required. In addition, certain regulations that were issued by the CMF during 2020 and 2021 may impose additional capital and reserve requirements. For further information, please see “Item 3. Key Information—Presentation of Financial and Other Information—Specific Loan Information” in this Annual Report.
The following table sets forth our minimum capital requirements as of the dates indicated. See Note 36 to our consolidated financial statements included herein for a description of the minimum capital requirements.
| | | | | | | |
| | As of December 31, |
| ||||
|
| 2018 |
| 2019 |
| 2020 |
|
| | (in millions of Ch$ except |
| ||||
|
| for percentages ) | | ||||
Net capital base | | 3,324,531 |
| 3,346,102 |
| 2,315,411 | |
3% total assets net of provisions |
| (953,445) |
| (1,047,243) |
| (1,060,193) | |
Excess over minimum required equity |
| 2,371,086 |
| 2,298,859 |
| 1,255,218 | |
Net capital base as a percentage of the total assets, net of provisions |
| 10.46 | % | 9.59 | % | 6.55 | % |
Effective net equity |
| 3,415,845 |
| 3,280,569 |
| 3,044,661 | |
10% of the risk-weighted assets |
| (2,336,181) |
| (2,496,018) |
| (2,244,655) | |
Excess over minimum required equity |
| 1,079,664 |
| 784,551 |
| 800,006 | |
Effective equity as a percentage of the risk-weighted assets |
| 14.6 | % | 13.1 | % | 13.6 | % |
Our capital ratio levels increased to 13.6% in 2020 when compared to 2019 primarily due to a decrease in risk weighted assets from wholesale loans and a decrease in U.S. dollar exchange rate with respect to the Chilean peso. This was partially offset by the results of the period and its effect on our core capital. See further details in Note 23 to our consolidated financial statements.
Financial Investments
Since 2018, our financial investments are classified into measurement categories based on both our business model for managing the financial asset and the contractual cash flow characteristics of the financial asset. For periods prior to 2018, our financial investments are classified at the time of purchase, based on our management’s determination, as trading or investment instruments, the latter being categorized as fair value through other comprehensive income or at amortized cost. For additional details on our investment in Chilean government and corporate securities and certain other financial investments as of December 31, 2018, 2019 and 2020, please see “Item 4. Information on the Company—Business Overview—Selected Statistical Information — Investment Portfolio.”
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
186
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 Itaú 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. Itaú Corpbanca Colombia may also transfer funds to Itaú 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 Itaú Corpbanca Colombia) may not transfer funds to us in the form of loans, due to their limited corporate purpose.
Net Cash (Used in) Provided by Operating Activities
| | | | | | |
| | For the Year Ended December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | in millions of Ch$ | ||||
Net cash (used in) provided by operating activities |
| 695,755 |
| 354,497 |
| 1,432,755 |
Our net cash used in operating activities for the year ended December 31, 2020 increased from Ch$354,497 million in 2019 to Ch$1,432,755 million in 2020. This increase in net cash provided by operating activities was mainly due to an increase in customer checking account balances partly offset by a decrease in interbank loans.
Net Cash (Used in) Provided by Investing Activities
| | | | | | |
| | For the Year Ended December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | in millions of Ch$ | ||||
Net cash (used in) provided by investing activities |
| (41,874) |
| (315,627) |
| (66,306) |
Our net cash used in investing activities increased from Ch$(315,627) million for the year ended December 31, 2019 to Ch$(66,306) million for the year ended December 31, 2020. This increase in net cash used in investing activities was mainly due to IT projects.
Net Cash (Used in) Provided by Financing Activities
| | | | | | |
| | For the Year Ended December 31, | ||||
|
| 2018 |
| 2019 |
| 2020 |
| | in millions of Ch$ | ||||
Net cash (used in) provided by financing activities |
| (449,272) |
| (69,923) |
| 1,569,735 |
We saw a reversal in our financing cash flows from a net cash outflow of Ch$349,602 million in 2019 for the year ended December 31, 2019 to a net cash inflow of Ch$1,639,658 million in 2020 for the year ended in December 31, 2020. The reversal was primarily due to the access to preferential credit lines from the Central Bank that allowed us to decrease other funding sources and a larger annual dividend payment.
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Deposits and Other Borrowings
The following table sets forth our average month-end balance of our liabilities for the years ended December 31, 2018, 2019 and 2020, in each case together with the related average nominal interest rates paid thereon.
| | | | | | | | | | | | | | | | | | | |
| | As of December 31, | |||||||||||||||||
| | 2018 | | 2019 | | 2020 | |||||||||||||
| | | | | | Average | | | | | | Average | | | | | | Average | |
| | Average | | Interest | | Normal | | Average | | Interest | | Normal | | Average | | Interest | | Normal | |
|
| Balance |
| Paid |
| Rate |
| Balance |
| Paid |
| Rate | | Balance |
| Paid |
| Rate | |
|
| (in millions of Ch$ except for percentages) | |||||||||||||||||
Time deposits | | 10,097,251 | | 385,734 | | 3.8 | % | 10,611,996 | | 377,090 | | 3.6 | % | 12,195,779 | | 267,482 | | 2.2 | % |
Central Bank borrowings |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,539,759 | | 7,162 | | 0.5 | % |
Repurchase agreements |
| 806,223 |
| 29,664 |
| 3.7 | % | 716,190 |
| 26,349 |
| 3.7 | % | 598,204 | | 8,622 | | 1.4 | % |
Mortgage finance bonds |
| 58,939 |
| 2,963 |
| 5.0 | % | 45,598 |
| 1,993 |
| 4.4 | % | 34,536 | | 1,262 | | 3.7 | % |
Bonds |
| 5,789,542 |
| 319,289 |
| 5.5 | % | 6,357,678 |
| 340,480 |
| 5.4 | % | 6,358,889 | | 290,727 | | 4.6 | % |
Other interest bearing-liabilities |
| 4,769,459 |
| 114,004 |
| 2.4 | % | 5,107,621 |
| 122,230 |
| 2.4 | % | 5,959,330 | | 107,982 | | 1.8 | % |
Subtotal interest-bearing liabilities |
| 21,521,414 |
| 851,654 |
| 4.0 | % | 22,839,083 |
| 868,142 |
| 3.8 | % | 26,686,497 |
| 683,237 |
| 2.6 | % |
Non-interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| |
|
Non-interest bearing deposits |
| 2,334,249 |
|
|
|
|
| 2,322,079 |
|
|
|
| | 2,517,195 |
|
|
| |
|
Derivatives |
| 1,088,108 |
|
|
|
|
| 2,076,047 |
|
|
|
| | 4,320,679 |
|
|
| |
|
Other non-interest bearing liabilities |
| 786,415 |
|
|
|
|
| 936,765 |
|
|
|
| | 942,243 |
|
|
| |
|
Shareholders’ equity |
| 3,490,821 |
|
|
|
|
| 3,586,220 |
|
|
|
| | 2,875,406 |
|
|
| |
|
Subtotal non-interest bearing liabilities |
| 7,699,593 |
|
|
|
|
| 8,921,111 |
|
|
|
| | 10,655,523 |
|
|
| |
|
Total |
| 29,221,007 |
| 851,654 |
|
|
| 31,760,194 |
| 868,142 |
|
| | 37,342,020 |
| 683,237 |
| |
|
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 45.7% of our average interest bearing liabilities for the year ended December 31, 2020. 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 8.4% as of December 31, 2020 compared to December 31, 2019. 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.
188
Total Borrowings
The following tables set forth the long-term, short-term and total outstanding amounts of our principal categories of borrowings for the years ended December 31, 2018, 2019 and 2020.
| | | | | | |
| | As of December 31, 2018 | ||||
| | Long term | | Short term | | Total |
|
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
Loans obtained from the Chilean Central Bank(a) |
| — |
| — |
| — |
Obligations under repurchase agreements |
| — |
| 1,015,614 |
| 1,015,614 |
Loans obtained from domestic financial institutions(b) |
| — |
| 5,863 |
| 5,863 |
Loans obtained from foreign financial institutions(b) |
| 497,909 |
| 1,823,951 |
| 2,321,860 |
Letters of credit(c) |
| 43,029 |
| 10,434 |
| 53,463 |
Bonds(d) |
| 4,220,626 |
| 661,715 |
| 4,882,341 |
Subordinated bonds(e) |
| 1,052,111 |
| 22,209 |
| 1,074,320 |
Other financial obligations(f) |
| — |
| 12,400 |
| 12,400 |
Total borrowings |
| 5,813,675 |
| 3,552,186 |
| 9,365,861 |
| | | | | | |
| | As of December 31, 2019 | ||||
| | Long term | | Short term | | Total |
|
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
Loans obtained from the Chilean Central Bank(a) |
| — | | — |
| — |
Obligations under repurchase agreements |
| — | | 559,457 |
| 559,457 |
Loans obtained from domestic financial institutions(b) |
| — | | — |
| — |
Loans obtained from foreign financial institutions(b) |
| 649,005 | | 1,997,751 |
| 2,646,756 |
Letters of credit(c) |
| 33,046 | | 7,887 |
| 40,933 |
Bonds(d) |
| 4,645,463 | | 643,621 |
| 5,289,084 |
Subordinated bonds(e) |
| 1,078,339 | | — |
| 1,078,339 |
Other financial obligations(f) |
| — | | 12,966 |
| 12,966 |
Total borrowings |
| 6,405,853 |
| 3,221,682 |
| 9,627,535 |
189
| | | | | | |
| | As of December 31, 2020 | ||||
| | Long term | | Short term | | Total |
|
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
Loans obtained from the Chilean Central Bank(a) |
| 2,257,226 | | — | | 2,257,226 |
Obligations under repurchase agreements |
| — | | 638,851 | | 638,851 |
Loans obtained from domestic financial institutions(b) |
| — | | — | | — |
Loans obtained from foreign financial institutions(b) |
| 2,856,838 | | 942,140 | | 3,798,978 |
Letters of credit(c) |
| 24,251 | | 6,595 | | 30,846 |
Bonds(d) |
| 4,771,301 | | 321,678 | | 5,092,979 |
Subordinated bonds(e) |
| 1,081,031 | | — | | 1,081,031 |
Other financial obligations(f) |
| — | | 13,123 | | 13,123 |
Total borrowings |
| 10,990,647 |
| 1,922,387 |
| 12,913,034 |
(a) Loans obtained from the Chilean Central Bank
Central Bank borrowings include liquidity facilities for banks (FCIC and LCL programs) aimed to
promote credit and mitigate pandemic effects on the economy. The maturities of the outstanding amounts due are as follows:
| | | | | | |
|
| As of |
| As of |
| As of |
| | December 31, | | December 31, | | December 31, |
| | 2018 | | 2019 | | 2020 |
| | (in millions of | | (in millions of | | (in millions of |
| | Ch$) | | Ch$) | | Ch$) |
Loans obtained from Chilean Central Bank |
| — |
| — |
| 2,257,226 |
Total |
| — |
| — |
| 2,257,226 |
(b) Loans obtained from domestic and foreign financial institutions (foreign borrowings)
These are short-term and long-term borrowings from domestic and foreign banks used to fund our foreign trade business. The maturities of the outstanding amounts are as follows:
| | | | | | |
|
| As of |
| As of |
| As of |
| | December 31, | | December 31, | | December 31, |
| | 2018 | | 2019 | | 2020 |
| | (in millions of | | (in millions of | | (in millions of |
| | Ch$) | | Ch$) | | Ch$) |
Due within 1 year |
| 1,829,814 |
| 1,997,751 |
| 942,140 |
Due after 1 year but within 2 years |
| 319,870 |
| 442,784 |
| 962,045 |
Due after 2 years but within 3 years |
| 17,595 |
| 83,908 |
| 8,764 |
Due after 3 years but within 4 years |
| 77,993 |
| 80,073 |
| 1,847,890 |
Due after 4 years but within 5 years |
| 11,644 |
| 7,521 |
| 15,675 |
Due after 5 years |
| 70,807 |
| 34,719 |
| 22,464 |
Total |
| 2,327,723 |
| 2,646,756 |
| 3,798,978 |
190
(c) Mortgage finance bonds
These securities are used to finance mortgage loans. The range of maturities of these securities is between five and twenty years. Loans are indexed to UF and pay a yearly interest rate.
| | | | | | |
|
| As of |
| As of |
| As of |
| | December 31, | | December 31, | | December 31, |
| | 2018 | | 2019 | | 2020 |
| | (in millions of | | (in millions of | | (in millions of |
| | Ch$) | | Ch$) | | Ch$) |
Due within 1 year |
| 10,434 |
| 7,887 |
| 6,595 |
Due after 1 year but within 2 years |
| 7,612 |
| 6,508 |
| 5,638 |
Due after 2 years but within 3 years |
| 7,092 |
| 6,072 |
| 5,068 |
Due after 3 years but within 4 years |
| 6,516 |
| 5,524 |
| 4,544 |
Due after 4 years but within 5 years |
| 5,908 |
| 5,121 |
| 3,484 |
Due after 5 years |
| 15,901 |
| 9,821 |
| 5,517 |
Total mortgage finance bonds |
| 53,463 |
| 40,933 |
| 30,846 |
(d) Bonds
The bonds are denominated principally in UFs and are primarily used to fund assets with similar durations. The maturities of these bonds are as follows:
| | | | | | |
|
| As of |
| As of |
| As of |
| | December 31, | | December 31, | | December 31, |
| | 2018 | | 2019 | | 2020 |
| | (in millions of | | (in millions of | | (in millions of |
| | Ch$) | | Ch$) | | Ch$) |
Due within 1 year |
| 661,715 |
| 643,621 |
| 321,678 |
Due after 1 year but within 2 years |
| 637,595 |
| 323,921 |
| 486,427 |
Due after 2 years but within 3 years |
| 216,695 |
| 608,342 |
| 309,111 |
Due after 3 years but within 4 years |
| 446,323 |
| 282,882 |
| 589,699 |
Due after 4 years but within 5 years |
| 276,047 |
| 478,634 |
| 592,851 |
Due after 5 years |
| 2,643,966 |
| 2,951,684 |
| 2,793,213 |
Total bonds |
| 4,882,341 |
| 5,289,084 |
| 5,092,979 |
191
The following table sets forth our bonds issued as of the dates indicated. In 2020, the Bank issued bonds in UF for UF8.0 million and did not issue bonds in Chilean pesos, detailed as follows:
| | | | | | | | | | | | |
| | | | | | | | As of December 31, | ||||
|
| Expiration |
| Interest |
| |
| 2018 |
| 2019 |
| 2020 |
|
| Date |
| rate | | Currency | | millions of Ch$ | | millions of Ch$ | | millions of Ch$ |
A |
| 7-1-2017 |
| 3.75 | % | UF |
| — |
| — |
| — |
B |
| 10-1-2017 |
| 3.50 | % | UF |
| — |
| — |
| — |
E |
| 6-1-2032 |
| 5.00 | % | UF |
| 43,595 |
| 44,680 |
| 45,771 |
F |
| 1-1-2032 |
| 4.00 | % | UF |
| 28,151 |
| 28,894 |
| 29,646 |
G |
| 3-1-2032 |
| 4.00 | % | UF |
| 43,649 |
| 44,749 |
| 45,859 |
H |
| 9-1-2015 |
| 3.00 | % | UF |
| — |
| — |
| — |
I |
| 10-1-2030 |
| 4.00 | % | UF |
| 28,707 |
| 29,442 |
| 30,184 |
J |
| 1-1-2031 |
| 4.00 | % | UF |
| 28,362 |
| 29,089 |
| 29,821 |
K |
| 6-1-2021 |
| 3.50 | % | UF |
| 27,721 |
| 28,534 |
| 29,363 |
L-2 |
| 10-1-2022 |
| 3.50 | % | UF |
| 27,359 |
| 28,174 |
| 29,006 |
M-2 |
| 10-1-2018 |
| 3.50 | % | UF |
| — |
| — |
| — |
N |
| 5-1-2019 |
| 3.50 | % | UF |
| 27,626 |
| — |
| — |
O |
| 3-1-2021 |
| 3.50 | % | UF |
| 27,454 |
| 28,278 |
| 29,120 |
P |
| 3-1-2026 |
| 3.75 | % | UF |
| 27,498 |
| 28,266 |
| 29,046 |
Q-1 |
| 3-1-2023 |
| 3.75 | % | UF |
| 27,683 |
| 28,448 |
| 29,226 |
R-2 |
| 2-1-2028 |
| 3.75 | % | UF |
| 27,616 |
| 28,379 |
| 29,155 |
S |
| 9-1-2020 |
| 3.50 | % | UF |
| 27,621 |
| 28,425 |
| — |
T |
| 9-10-2022 |
| 3.50 | % | UF |
| 27,587 |
| 28,371 |
| 29,170 |
U |
| 9-1-2024 |
| 3.75 | % | UF |
| 27,409 |
| 28,193 |
| 28,991 |
V |
| 9-1-2027 |
| 3.75 | % | UF |
| 27,212 |
| 27,997 |
| 28,796 |
W |
| 9-1-2029 |
| 3.75 | % | UF |
| 27,168 |
| 27,946 |
| 28,738 |
X |
| 3-1-2024 |
| 3.80 | % | UF |
| 55,488 |
| 56,966 |
| 58,462 |
Y |
| 3-1-2028 |
| 3.80 | % | UF |
| 55,357 |
| 56,861 |
| 58,385 |
Z |
| 2-1-2033 |
| 3.80 | % | UF |
| 27,936 |
| 28,681 |
| 29,437 |
AA |
| 6-1-2018 |
| 6.70 | % | CLP |
| — |
| — |
| — |
AB |
| 10-1-2029 |
| 3.80 | % | UF |
| 43,430 |
| 44,475 |
| 45,526 |
AC |
| 10-1-2033 |
| 3.80 | % | UF |
| 57,224 |
| 58,698 |
| 60,187 |
AF |
| 6-1-2022 |
| 3.50 | % | UF |
| 55,828 |
| 57,190 |
| 58,560 |
AG |
| 6-1-2024 |
| 3.50 | % | UF |
| 168,660 |
| 172,751 |
| 176,870 |
AH |
| 6-1-2029 |
| 3.60 | % | UF |
| 57,032 |
| 199,611 |
| 59,854 |
AI |
| 4-1-2020 |
| 3.50 | % | UF |
| 141,066 |
| 143,199 |
| — |
AJ |
| 6-1-2025 |
| 3.60 | % | UF |
| 56,904 |
| 58,214 |
| 59,528 |
AL-2 |
| 7-1-2025 |
| 3.50 | % | UF |
| 56,791 |
| 58,235 |
| 59,692 |
| | | | | | | | | | | | |
Subtotal Former Banco Itaú Chile |
| |
| |
| |
| 1,278,134 |
| 1,422,746 |
| 1,138,393 |
| | | | | | | | | | | | |
BCORAF0710 |
| 7-1-2017 |
| 3.00 | % | UF |
| — |
| — |
| — |
BCORAG0710 |
| 9-10-2018 |
| 3.00 | % | UF |
| — |
| — |
| — |
BCORAI0710 |
| 7-1-2020 |
| 3.00 | % | UF |
| 202,909 |
| 207,682 |
| 204,929 |
BCOR-L0707 |
| 7-1-2017 |
| 3.40 | % | UF |
| — |
| — |
| — |
BCORAJ0710 |
| 8-3-2021 |
| 3.00 | % | UF |
| 107,049 |
| 109,371 |
| 111,621 |
BCOR-P0110 |
| 7-9-2020 |
| 7.30 | % | CLP |
| 23,792 |
| 23,817 |
| — |
BCORBW0914 |
| 8-30-2020 |
| 5.00 | % | CLP |
| 45,254 |
| 47,324 |
| — |
BCOR-R0110 |
| 7-9-2020 |
| 4.00 | % | UF |
| 143,237 |
| 145,243 |
| — |
BCORUSD0118 |
| 1-15-2018 |
| 3.13 | % | USD |
| — |
| — |
| — |
BCORUSD0919 |
| 9-22-2019 |
| 3.88 | % | USD |
| 529,363 |
| — |
| — |
BCORAL0710 |
| 8-3-2023 |
| 3.00 | % | UF |
| 114,787 |
| 117,254 |
| 119,754 |
BCORAN0710 |
| 7-1-2025 |
| 3.00 | % | UF |
| 246,007 |
| 251,430 |
| 256,847 |
BCORAO0710 |
| 7-1-2026 |
| 3.00 | % | UF |
| 332,122 |
| 339,773 |
| 347,543 |
BCORBX0914 |
| 8-30-2021 |
| 5.00 | % | CLP |
| 42,507 |
| 103,454 |
| 102,322 |
BCORCA0914 |
| 9-1-2024 |
| 5.00 | % | CLP |
| 100,303 |
| 100,502 |
| 96,124 |
BCORAR0710 |
| 7-1-2029 |
| 3.00 | % | UF |
| 219,939 |
| 224,871 |
| 229,870 |
BCORBZ0914 |
| 9-1-2023 |
| 5.00 | % | CLP |
| 100,992 |
| 102,595 |
| 100,843 |
BCORBY0914 |
| 9-1-2022 |
| 5.00 | % | CLP |
| 103,268 |
| 103,391 |
| 100,703 |
BCORAP0710 |
| 7-1-2027 |
| 3.00 | % | UF |
| 388,654 |
| 396,368 |
| 404,108 |
BCORAQ0710 |
| 7-1-2028 |
| 3.00 | % | UF |
| 359,509 |
| 366,878 |
| 374,286 |
BCORAK0710 |
| 7-1-2022 |
| 3.00 | % | UF |
| 176,185 |
| 178,553 |
| 180,862 |
BCORAM0710 | | 7-1-2024 | | 3.00 | % | UF | | — | | 152,078 | | 154,269 |
BITACV0418 | | 10-9-2029 | | 2.00 | % | UF | | — | | 114,282 | | 117,305 |
BITACU0418 | | 10-9-2028 | | 2.00 | % | UF | | — | | 114,276 | | 117,293 |
BITACW0418 | | 10-9-2030 | | 2.00 | % | UF | | — | | 72,589 | | 74,414 |
BITACS0418 | | 10-9-2026 | | 2.00 | % | UF | | — | | 60,278 | | 152,160 |
| | | | | % | UF | | — | | — | | 151,340 |
Subtotal Former Corpbanca |
| |
| |
| |
| 3,235,877 |
| 3,332,009 |
| 3,396,593 |
| | | | | | | | | | | | |
BBSA168B18 |
| 3-2-2018 |
| 8.99 | % | COP |
| — |
| — |
| — |
BBSA26SA48 |
| 8-10-2020 |
| 8.74 | % | COP |
| 44,739 |
| 47,573 |
| — |
BBSA316SA060 |
| 11-23-2020 |
| 8.03 | % | COP |
| 39,076 |
| 41,574 |
| 37,714 |
BBCR1109B84 |
| 10-28-2017 |
| 10.33 | % | COP |
| — |
| — |
| — |
BBCR3119B84 |
| 8-3-2018 |
| 10.57 | % | COP |
| — |
| — |
| — |
BBSA4188B024 |
| 6-21-2020 |
| 5.41 | % | COP |
| 53,716 |
| 57,119 |
| — |
BBSA4189C060 |
| 6-21-2023 |
| 6.41 | % | COP |
| 32,585 |
| 34,654 |
| 31,419 |
BBCR1099B120 |
| 12-10-2019 |
| 11.30 | % | COP |
| 18,208 |
| — |
| — |
BBSA69C120 |
| 8-10-2026 |
| 10.68 | % | COP |
| 22,375 |
| 23,810 |
| 21,528 |
BBSA69C180 |
| 8-10-2031 |
| 10.95 | % | COP |
| 41,779 |
| 44,458 |
| 40,194 |
BBSA3169C180 |
| 11-23-2031 |
| 10.80 | % | COP |
| 47,792 |
| 50,786 |
| 45,984 |
BBSA168B18 |
| 9-2-2017 |
| 9.74 | % | COP |
| — |
| — |
| — |
BBCR3117C84 |
| 8-3-2018 |
| 4.58 | % | COP |
| — |
| — |
| — |
BBSA5188B030 |
| 5-22-2021 |
| 1.20 | % | COP |
| 11,964 |
| 12,722 |
| 11,538 |
BBSA5189C048 |
| 11-22-2022 |
| 2.91 | % | COP |
| 56,096 |
| 59,687 |
| 54,024 |
BBSA6199C060 | | 5-21-2024 | | 6,83 | % | COP | | — | | 43,142 | | 39,047 |
BITU719SA060 | | 10-16-2024 | | 5,92 | % | COP | | — | | 39,617 | | 35,936 |
BBSA619SA036 | | 5-21-2022 | | 5,99 | % | COP | | — | | 37,593 | | 34,102 |
BITU7199C084 | | 10-16-2026 | | 6,19 | % | COP | | — | | 11,595 | | 10,482 |
BITU7199C120 | | 10-16-2029 | | 6,69 | % | COP | | — | | 29,999 | | 27,108 |
BITU9208B036 | | 9-29-2023 | | 7.10 | % | COP | | — | | — | | 27,869 |
BITU820SA060 | | 2-27-2025 | | 7.95 | % | COP | | — | | — | | 30,958 |
BITU920SA060 | | 9-29-2025 | | 6.19 | % | COP | | — | | — | | 34,486 |
BITU8207U120 | | 2-27-2030 | | 2.71 | % | COP | | — | | — | | 22,991 |
BITU8207U120 | | 2-27-2030 | | 7.97 | % | COP | | — | | — | | 52,613 |
Subtotal Itaú Corpbanca Colombia |
| |
| |
| |
| 368,330 |
| 534,329 |
| 557,993 |
Total |
| |
| |
| |
| 4,882,341 |
| 5,289,084 |
| 5,092,979 |
192
(e) Subordinated bonds
The following table sets forth our issued subordinated bonds as of the dates indicated. The subordinated bonds are denominated principally in UFs and are primarily used to fund the Bank’s mortgage portfolio. These bonds are considered to be a part of our regulatory capital.
| | | | | | |
|
| As of December 31, 2018 |
| As of December 31, 2019 |
| As of December 31, 2020 |
| | (in millions of Ch$) | | (in millions of Ch$) | | (in millions of Ch$) |
Due within 1 year |
| 22,209 |
| — |
| — |
Due after 1 year but within 2 years |
| — |
| — |
| 10,082 |
Due after 2 years but within 3 years |
| — |
| 14,526 |
| 21,706 |
Due after 3 years but within 4 years |
| 18,604 |
| 23,923 |
| 122,290 |
Due after 4 years but within 5 years |
| 22,484 |
| 128,717 |
| — |
Due after 5 years |
| 1,011,023 |
| 911,173 |
| 926,953 |
Total subordinated bonds |
| 1,074,320 |
| 1,078,339 |
| 1,081,031 |
In 2020, we did not issue subordinated bonds. The following table sets forth our issued subordinated bonds as of the dates indicated:
| | | | | | | | | | | | |
| | | | | | | | As of December 31, | ||||
| | Expiration | | Interest | | | | 2018 | | 2019 | | 2020 |
|
| Date |
| rate |
| Currency |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
AE1 |
| 1-1-2034 |
| 3.80 | % | UF |
| 56,130 |
| 56,596 |
| 59,217 |
C1 |
| 4-1-2033 |
| 3.50 | % | UF |
| 6,051 |
| 5,655 |
| — |
C2 |
| 4-1-2033 |
| 3.50 | % | UF |
| 13,204 |
| 13,141 |
| 17,606 |
D |
| 10-1-2033 |
| 4.50 | % | UF |
| 20,214 |
| 20,153 |
| 18,550 |
Subtotal Former Banco Itaú Chile |
| |
| |
| | | 95,599 | | 95,545 | | 95,373 |
UCOR-V0808 |
| 8-1-2033 |
| 4.60 | % | UF |
| 163,359 |
| 167,030 |
| 170,743 |
UCOR-Y1197 |
| 11-1-2022 |
| 6.50 | % | UF |
| 5,580 |
| 4,357 |
| 3,024 |
UCOR-Z1197 |
| 11-1-2022 |
| 6.50 | % | UF |
| 13,024 |
| 10,169 |
| 7,058 |
UCORAA0809 |
| 8-9-2035 |
| 4.90 | % | UF |
| 148,585 |
| 151,801 |
| 155,048 |
UCORBF0710 |
| 7-1-2032 |
| 4.00 | % | UF |
| 14,395 |
| 14,763 |
| 15,139 |
UCORBI0710 |
| 7-1-2035 |
| 4.00 | % | UF |
| 33,121 |
| 33,979 |
| 34,854 |
UCORBJ0710 |
| 7-1-2036 |
| 4.00 | % | UF |
| 157,602 |
| 161,730 |
| 165,943 |
UCORBL0710 |
| 7-1-2038 |
| 4.00 | % | UF |
| 114,789 |
| 117,795 |
| 120,888 |
UCORBN0710 |
| 7-1-2040 |
| 4.00 | % | UF |
| 88,378 |
| 90,711 |
| 93,093 |
UCORBP0710 |
| 7-1-2042 |
| 4.00 | % | UF |
| 43,092 |
| 44,229 |
| 45,395 |
Subtotal Former Corpbanca |
| |
| |
| |
| 781,925 |
| 796,564 |
| 811,185 |
US05968TAB17 |
| 3-8-2024 |
| LIBOR +SPREAD 4 |
| USD |
| 120,535 |
| 128,717 |
| 122,290 |
BBSA1099B1 |
| 3-30-2019 |
| 10.79 | % | COP |
| 463 |
| — |
| — |
BBSA1099B4 |
| 3-30-2019 |
| 12.85 | % | COP |
| 21,746 |
| — |
| — |
BBSA1139AS10 |
| 2-7-2023 |
| 10.08 | % | COP |
| 22,484 |
| 23,923 |
| 21,706 |
BBSA1139AS15 |
| 2-7-2028 |
| 10.20 | % | COP |
| 31,568 |
| 33,590 |
| 30,477 |
Subtotal Itaú Corpbanca Colombia |
| | | | | |
| 196,796 |
| 186,230 |
| 174,473 |
Total |
| | | | | |
| 1,074,320 |
| 1,078,339 |
| 1,081,031 |
193
(f) Other financial obligations
Other obligations are summarized as follows:
| | | | | | |
|
| As of December 31, 2018 |
| As of December 31, 2019 |
| As of December 31, 2020 |
| | (in millions of Ch$) | | (in millions of Ch$) | | (in millions of Ch$) |
Due within 1 year |
| — |
| — |
| — |
Due after 1 year but within 2 years |
| — |
| — |
| — |
Due after 2 years but within 3 years |
| — |
| — |
| — |
Due after 3 years but within 4 years |
| — |
| — |
| — |
Due after 4 years but within 5 years |
| — |
| — |
| — |
Due after 5 years |
| — |
| — |
| — |
Total long obligation |
| — |
| — |
| — |
The detail of other short term financial obligations is as follows: |
|
|
|
|
|
|
Amounts due to credit card operations |
| 12,400 |
| 12,956 |
| 13,123 |
Others |
| — |
| 10 |
| — |
Total short term financial obligations |
| 12,400 |
| 12,966 |
| 13,123 |
Total other financial obligations |
| 12,400 |
| 12,966 |
| 13,123 |
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, 2020 decreased to (Ch$32,796) million, or by 3.6%, when compared to the year ended December 31, 2019. 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, 2018, 2019 and 2020, net interest income over total operating income before provision for loan losses represented 70.7% , 69.8% and 78.1%, 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.
194
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; |
● | Uncertainty relating to the implementation of the Labor Reform do not allow us to predict its effects; and |
● | The uncertainties relating to the extent and duration of the COVID-19 pandemic and the related disruption to regional and global economic activity (please see “Item 3—Key Information—Risk Factors— Risks Associated with our Business—We are subject to market risk;” “Item 3—Key Information—Risk Factors— Risks Relating to Chile, Colombia and Other Countries in Which We Operate —COVID-19 or any other pandemic disease and health events could affect the economies of the countries in which we operate, our business operations or our financial condition and results of operations;” and “Item 5—Operating and Financial Review and Prospects—Operating Results—The Economy—Impact of COVID-19 on the Economy.” |
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 our consolidated financial statements and include commitments to extend credit. These commitments include contractual arrangements to which an unconsolidated entity is a party, under which Itaú 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 Itaú Corpbanca in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to Itaú Corpbanca, or engages in leasing, hedging or research and development services Itaú 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$5,393,860 million as of December 31, 2020.
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.
195
The total amount of contingent loans held off balance sheet as of December 31, 2018, 2019 and 2020 was Ch$5,383,914 million, Ch$5,940,086 million and Ch$5,393,860 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 23 “Contingencies, Commitments and Responsibilities” to our 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 35 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, 2020, 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, 2020. For variable rate debt and interest rate swaps and other derivatives, where applicable, the interest rates upon which we based our contractual obligations going forward are based on the applicable forward curves. For any cross-currency swaps or other derivatives as applicable, the foreign currency exchange rate used was spot.
| | | | | | | | | | |
| | Less than | | | | | | More than | | |
Contractual Obligations(*) |
| 1 year |
| 1-3 years |
| 3-5 years |
| 5 years |
| Total |
|
| (in millions of Ch$) | ||||||||
Time deposits and other time liabilities |
| 10,336,686 | | 660,888 | | 98,316 | | 658,778 | | 11,754,668 |
Deposits and other demand liabilities |
| 6,197,406 | | — | | — | | — | | 6,197,406 |
Interbank borrowings |
| 1,555,939 | | 442,001 | | 1,843,405 | | — | | 3,841,345 |
Obligations under repurchase agreements |
| 638,851 | | — | | — | | — | | 638,851 |
Debt instruments issued |
| 1,342,653 | | 973,755 | | 1,298,862 | | 3,782,486 | | 7,397,756 |
Other financial liabilities |
| 120 | | — | | — | | — | | 120 |
Financial derivative contracts | | 3,670,663 | | 1,819,755 | | 995,928 | | 1,248,415 | | 7,734,761 |
Lease contracts liabilities | | 30,829 | | 51,862 | | 37,618 | | 31,576 | | 151,885 |
Total contractual obligations |
| 23,773,147 | | 3,948,261 | | 4,274,129 | | 5,721,255 | | 37,716,792 |
(*) The variable rates projections are obtained from the Forward Rate Agreement (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.
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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 11 directors and two alternates who are elected at our annual ordinary shareholders’ meetings. Pursuant to the provisions of our bylaws, members of the board of directors are generally elected for three-year terms. All of the members of the board of directors, except for Mr. Rogério Carvalho Braga and Mr. Matias Granata, were elected on March 19, 2019 for a three-year period at which the board of directors was renewed in its entirely. Mr. Carvalho Braga was appointed by the board of director in April 2020 for a term until the Annual Ordinary Shareholders’ Meeting held on March 18, 2021. Mr. Granata was appointed by the board of director in January 2021 for a term until the Annual Ordinary Shareholders’ Meeting held on March 18, 2021. In the Annual Ordinary Shareholder’s Meeting held on March 18, 2021, our shareholders agreed –among other matters– to appoint Messrs. Rogerio Braga and Matias Granata as members of our Board of Directors.
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 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 |
| 49 |
Ricardo Villela Marino |
| Vice chairman and director |
| 47 |
Jorge Selume Zaror |
| Director |
| 69 |
Fernando Aguad Dagach |
| Director |
| 61 |
Gustavo Arriagada Morales |
| Director |
| 67 |
Matias Granata |
| Director |
| 46 |
Milton Maluhy Filho |
| Director |
| 44 |
Rogério Carvalho Braga |
| Director |
| 65 |
Pedro Samhan Escandar |
| Director |
| 70 |
Fernando Concha Ureta |
| Director |
| 61 |
Bernard Pasquier |
| Director |
| 67 |
Diego Fresco Gutiérrez |
| Alternate director |
| 51 |
Jessica López Saffie |
| Alternate director |
| 64 |
| | | | |
| | | | |
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. Concurrently, he is the chairman of CorpGroup, also serves as the chairman of the board of directors for Consorcio Periodístico de Chile S.A. and of Vivocorp Real Estate Company. Mr. Saieh Guzmán serves as well as member of the board of the Banking and Financial Institutions Association of Chile and as member of the Advisory Council of the Becker Friedman Institute for Economics at the University of Chicago (BFI), among others. Previously, he has served as member of the Council of the Chilean Union Association of Companies and Union of the Industrial Sector (Sociedad de Fomento Fabril, or “SOFOFA”), as the vice chairman of the board of AFP Protección and of the Chilean National Press Association, as a member of the board of AFP Provida, as member of the board of the World Association of Newspapers, as member of the board of Telmex Chile, as member of the Council of Telmex Internacional Mexico, as member of the board of VTR Cable Co., as member of the board of Corpseguros Insurance Company, and as a member of the board of a former affiliate of Corpbanca, Corpbanca
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Venezuela. Mr. Saieh Guzmán also serves similar positions on a variety of different business councils. Mr. Saieh Guzmán received a B.A. in Business and Administration and graduated from the Universidad Gabriela Mistral. Mr. Saieh Guzmán holds a Masters in Economics and a Master in Business and Administration from the University of Chicago. Alvaro Saieh Bendeck is the father of Mr. Saieh Guzmán.
Ricardo Villela Marino became a director on April 11, 2016 and was appointed as the vice-chairman of our board of directors. Mr. Marino has served as a member of the board of Itaú Unibanco Holding S.A. since August 2010 and as its vice-chairman since April 2020. Mr. Marino is also the chairman of Itaú Unibanco’s Latam Strategic Council since April of 2018. He served as Executive Officer (September 2006 to August 2010), Senior Managing Director (August 2005 to September 2006), Managing Director (December 2004 to August 2005) at Itaú Unibanco. He served as a member and chairman of the board of directors of Banco Itaú Chile since April 2011. He has served as an Alternate Member of the board of directors of Duratex S.A., Elekeiroz S.A. and Itautec S.A. since April 2009. He was President of the Latin American Federation of Banks (FELABAN) (2008 to 2010). He has a B.A. degree in Mechanical Engineering from the Polytechnic School of USP in Brazil and a Master degree in Business Administration from MIT Sloan School of Management.
Jorge Selume Zaror became a director on May 23, 2001. Mr. Selume also serves as director of the board, among others, for Clínica Indisa, Inmobiliaria Moller y Pérez-Cotapoz, Universidad Andrés Bello, Universidad Las Américas and Instituto Profesional AIEP. Prior to this, Mr. Selume was a member of the board of Uno Salud, a director on the board of directors of Banco Osorno y La Unión, Budget Director of the Republic, 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.
Fernando Aguad Dagach became a director on June 18, 1996. 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.
Gustavo Arriagada Morales became a director on September 28, 2010. He has held different senior positions since 1979 in the Chilean Production Development Corporation (Corporación para el Fomento de la Producción or CORFO), Banco de Talca, Chilean Copper Commission (Comisión Chilena del Cobre), Banco de Chile and Banco del Estado, among others. Mr. Arriagada also served in the Chilean Superintendency of Banks and Financial Institutions (Superintendencia de Bancos e Instituciones Financieras or SBIF, today the Chilean Financial Market Commission or CMF) as director and as intendent between 1997 and 2005 and as superintendent between 2005 and 2010. He received a B.A. in Business and Administration and an Economics degree from the Universidad de Chile.
Milton Maluhy Filho became a director on January 1, 2019. Previously, Mr. Maluhy was CEO of Itaú Corpbanca between April 1, 2016 and December 31, 2018. Mr. Maluhy joined Itaú Unibanco in 2002 and became a partner in 2010. He was appointed CEO of Itaú Unibanco in February 2021. From 2019 to 2020, he was Chief Financial Officer and Chief Risk Officer of the bank. Between 2012 and December 2015, he was CEO of Rede S.A. (former Redecard S.A.), a card-processing subsidiary, and Executive Director at Itaú Unibanco, responsible for the management of the credit card segment and retail store alliances. Previously, he worked at Itaú BBA, holding leadership positions in areas such as international, products, operations, treasury, and trading desk. Prior to joining the Bank, he worked at J.P. Morgan, Crédit Commercial de France (CCF Brazil) and Lloyds TSB. Mr. Maluhy holds a B.A. in Business Administration from Fundação Armando Álvares Penteado - FAAP.
Matias Granata became a director on January 27, 2021. Mr. Granata is a Partner and Member of the Executive Committee of Itaú Unibanco and he is currently Chief Risk Officer, responsible for the market, credit and operational risk, cybersecurity, capital management, and compliance and anti-money laundering. He joined Itaú Unibanco in 2002 and has held various positions within the Group for the last 19 years. Mr. Granata holds a bachelor’s degree in Economics from Universidad de Buenos Aires (UBA), Argentina, a master’s degree in International Political Economy from University of Warwick, UK, and a postgraduate degree in Economics from Universidad Torcuato Di Tella (UTDT), Argentina.
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Rogério Carvalho Braga became a director on April 29, 2020. Mr. Braga is a former senior executive of Itaú Unibanco and also a former corporate director of Marketing & Products of Itaú Corpbanca serving between April 1, 2016 and December 31, 2018. During his career in the Itaú group, he led various business areas such as Premium Bonds, Individuals, Payroll Loans, Marketing, Channels, Personal Banking Products, Vehicle Financing, and Commercial Branches. Before joining Itaú Unibanco, Mr. Braga worked for six years in AIG (American International Group) in New York and Lisbon, and for 11 years with the Moreira Sales group, in charge of the food industry sector. Mr. Braga received a law degree from the Pontificia Universidade Católica de São Paulo and an M.B.A. from Pepperdine University.
Pedro Samhan Escandar became a director on September 27, 2016. Mr. Samhan was formerly a member of the board of Citibank in Panama and Costa Rica. Before that, he was the CFO of Banco de Chile and was appointed as director of Banchile Trade Services Limited. Previously, Mr. Samhan was the CFO of Citigroup Chile for several years. He served as a member of the board of directors of Cruz Blanca Seguros de Vida from 1994 to 1997, AFP Habitat from 1996 to 2006 and Compañía Minera Las Luces from 1994 to 1996. Mr. Samhan was CFO of Citicorp for Caribbean and Central America from 1990 to 1993 and Investment Bank Head of Citicorp Chile from 1988 to 1990. Mr. Samhan holds a degree in civil industrial engineering from Universidad de Chile.
Fernando Concha Ureta became a director on April 11, 2016. Mr. Concha is a co-founding partner at Falcom Capital. He has more than 30 years of experience in the financial industry in Chile and the region. While at Citigroup, he held several leading positions, including Banamex Corporate Director of Treasure Operations, CEO at Citibank Chile and CEO of the Andean Cluster and Central America, among others. In addition, he has also represented Citi as member in several boards and committees, such as Banco de Chile board, among others. He holds a degree in Business from the Pontificia Universidad Católica de Chile.
Bernard Pasquier became a director on May 31, 2017. Mr. Pasquier has served as consultant and independent board director since 2008 and as a secretary general in Compagnie Monegasque de Banque in Monaco between 2004 and 2007. Mr. Pasquier was appointed by IFC on the board of directors of Grupo Mundial, Panama (2008-2013), Gorenje (Slovenia), Davivienda (Colombia 2011 to 2017), and Sogebank (Haïti). He was elected to Monaco Parliament in 2013. He has also served as a director of South Asia Department and as manager in the Africa Department at the IFC. He has also served as senior adviser in the office of the president of the World Bank, as a principal economist and country officer of Africa Region (1985 to 1990), and as an investment officer at the World Bank Group. Mr. Pasquier received a Master of Public Administration and a Major in Business and Economic Development from the Harvard University.
Diego Fresco Gutiérrez became an alternate director on March 28, 2018. Mr. Fresco is currently a member of the Audit Committee of Itaú Unibanco Holding S.A., of Itaú Corpbanca and of Itaú Corpbanca Colombia as well of Votorantim Cimentos S.A. He previously served as a partner at PwC – São Paulo (2000 to June 2013) in the Capital Markets and Accounting Advisory Services area and prior to that held several positions at PwC in Uruguay (1998 to 2000 and 1990 to 1997) and in the United States (1997 to 1998). He has a B.A. in Accounting from Universidad de la República Oriental del Uruguay in 1994. He is a Certified Public Accountant registered in the State of Virginia (United States) since 2002 (Registration 27,245) and a Contador registered with the Regional Council of Accountancy of the State of São Paulo. He is a member of the Commission of Governance in Financial Institutions of the Brazilian Institute of Corporate Governance (IBGC) since 2013.
Jessica López Saffie became an alternate director on March 19, 2019. Ms. López is currently the Executive Chairwoman of the National Association of Water and Sewerage Services Companies (Asociación Nacional de Empresas de Servicios Sanitarios, ANDESS AG). She has more than 35 years of executive and management experience in financial institutions in Chile. Between 1981 and 1989, she served at Banco del Desarrollo, today Scotiabank Chile, where she held various positions. Later, Ms. López served at Banco del Estado de Chile, the Chilean state-owned bank, for 24 years (1990-2010 and 2014-2018) where she held several positions: Chief Executive Officer, Vice-Chair of the board of directors, member of the executive committee and the audit committee, and Chair of the ethics committee and the operational risk committee. Ms. López also served as Chief Internal Auditor and Risk Manager of Banco del Estado de Chile and its 10 subsidiaries. She received a B.A. in Business and Administration and an Economics degree from the Universidad de Chile.
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Our current Executive Officers are as follows:
| | | | |
Executive Officer |
| Position |
| Age |
Gabriel Amado de Moura |
| Chief Executive Officer |
| 45 |
Rodrigo Luis Rosa Couto |
| Chief Financial Officer |
| 45 |
Christian Tauber Domínguez |
| Corporate Director ‒ Wholesale Banking |
| 49 |
Julián Acuña Moreno |
| Corporate Director ‒ Retail Banking |
| 55 |
Pedro Silva Yrarrázaval |
| Corporate Director ‒ Treasury |
| 60 |
Jorge Novis Neto |
| Corporate Director ‒ Digital Business Development |
| 43 |
Mauricio Baeza Letelier |
| Chief Risk Officer |
| 58 |
Eduardo Neves |
| Corporate Director ‒ IT |
| 47 |
Cristián Toro Cañas |
| General Counsel |
| 50 |
Marcela Jiménez Pardo |
| Corporate Director ‒ People Management and Performance |
| 45 |
Emerson Bastian Vergara |
| Chief Audit Officer* |
| 42 |
Cristóbal Ortega Soto |
| Chief Compliance Officer* |
| 38 |
Joaquín Rojas Walbaum |
| General Manager ‒ New York Branch |
| 41 |
Baruc Sáez |
| Chief Executive Officer ‒ Itaú Corpbanca Colombia |
| 51 |
| | | | |
* Mr. Emerson Bastian reports to the audit committee. Mr. Ortega coordinates with senior management through the Chief Risk Officer and has direct communication with the audit committee and the board of directors.
Gabriel Amado de Moura became Chief Executive Officer on January 30, 2020, after serving as Chief Financial Officer of Itaú Corpbanca since April 1, 2016. Mr. Moura joined Itaú Unibanco in 2000 and became a partner in 2017. He has more than 23 years of experience in investment management, risk management, finance and M&A. Mr. Moura held the position of Chief Investment Officer for Itaú’s pension funds, endowments and insurance businesses. He was also Chief Risk Officer for Wealth Management as well as member of the board of directors of different companies in Brazil and abroad. Prior to joining the Bank, he worked at BBVA Asset Management and Itaú Bankers Trust. Mr. Moura holds a M.B.A. from the Wharton School at the University of Pennsylvania.
Rodrigo Luis Rosa Couto became Chief Financial Officer on September 1, 2020. Mr. Couto joined Itaú Unibanco in 2008 where he worked in both risk and finance, notably as head of capital management for the last 10 years as well as CFO for both the Wholesale and Retail divisions. Previously, he was a consultant at McKinsey & Company, specializing in corporate finance and risk management, as well as a bank supervisor at the Central Bank of Brazil. Mr. Couto has a business degree from the Federal University of Rio Grande do Sul and holds a M.B.A from the Wharton School at the University of Pennsylvania.
Christian Tauber Domínguez became corporate director of Wholesale Banking in October 2016. Previously, he served as Corporate Banking director in BBVA. He joined Banco Itaú Chile in October 2007 as the Corporate Banking manager, and from 2011 to 2016 he served as the Corporate Banking manager of Itaú Chile. In 2016 Mr. Tauber took office as the Corporate Manager of Corporate Banking. Mr. Tauber received a B.A. in Business and Economics from the Pontificia Universidad Católica de Chile.
Julián Acuña Moreno became corporate director of Retail Banking in September 2016. Mr. Acuña has vast experience in both national and international banking, having worked as Commercial Division Manager in Chile and in Colombia in Banco Santander-Chile and in Banco Santander Colombia, respectively. Mr. Acuña holds an Accountant Auditor degree from the Universidad Diego Portales, Chile.
Pedro Silva Yrarrázaval became corporate director of Treasury on April 1, 2016. Between October 2006 and March 2016, Mr. Silva held the same position at Corpbanca. 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 and also a M.B.A. from the University of Chicago.
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Jorge Novis Neto became Corporate Director of Digital Business Development in March 2021, leading the digital transformation of Itaú in Chile. Mr. Novis previously served as Corporate Director of Operations between April 2018 and February 2021. He joined Itaú Corpbanca in May 2017 as Head of Strategic Planning and Quality Service. He previously worked at Itaú Unibanco for approximately four years, leading several business transformation programs. He also worked as a management consultant between 2002 and 2014, working in Latin America, the US, Europe, and Asia. Mr. Novis received a Civil Engineer degree from Universidade Federal da Bahia, an M.B.A. from Harvard Business School and a Master of Science in Finance from Fundação Getulio Vargas.
Mauricio Baeza Letelier became Chief Risk Officer in September 2016. With 30 years of experience in the banking industry, Mr. Baeza Letelier has held diverse executive positions in risk management areas of local banking institutions. Previously, and for over five years he was the Corporate Credit Risk Officer of Banco de Chile, while leading the Risk Committee of the Bank and Financial institution Association of Chile (Asociación de Bancos e Instituciones Financieras de Chile). Mr. Baeza received an undergraduate degree in Civil Engineering from the Pontificia Universidad Católica de Chile.
Eduardo Neves became Corporate Director of IT on April 2, 2021. Mr. Neves has more than 25 years of experience in technology, working mainly in the financial and telecommunications sectors. Previously, he served as Vice President of Cloud Applications and Innovation for Latin America at IBM, from Brazil, where he led large-scale projects since joining in 2013. He was responsible for the accounts of Bradesco and later Itaú Unibanco, managing most of the IBM Consulting business for Latin America. He studied Engineering in Technology, and has an MBA from the Federal University of Rio de Janeiro (UFRJ).
Cristián Toro Cañas became General Counsel in June 2016. Mr. Toro worked for more than 10 years in Citibank Chile, acting as general counsel since 2004. In 1999 he worked at Shearman & Sterling in New York. In 2008 he joined Lan Airlines as legal vice-president. After the merger of Lan and Tam, he continued to work as legal vice-president and as the secretary of the board of directors of Latam Airlines Group. Mr. Toro received a law degree from the Pontificia Universidad de Católica de Chile and an MCJ law degree from the New York University School of Law.
Marcela Jiménez Pardo became Corporate Director of People and Management Performance in April 2016. Between July 2012 and March 2016 she held the same position at Corpbanca. Previously, she served in the Global Banking Consulting Group at Banco de Chile from 2008 to 2012. Mrs. Jiménez received an undergraduate degree in Psychology from the Pontificia Universidad Católica de Chile and a postgraduate degree in Human Resources Management from Universidad Adolfo Ibáñez.
Emerson Bastian Vergara became Chief Audit Executive in April 2017. Previously, Mr. Bastian was a partner in Deloitte Chile´s Governance, Regulatory and Risk Strategies practice. Mr. Bastian received an undergraduate degree in Accounting from Universidad de Chile and a Master degree in Business Administration from Universidad Adolfo Ibáñez.
Cristóbal Ortega Soto became Chief Compliance Officer in July 2018. He has 15 years of experience working in compliance, AML, risks and internal control, developing several compliance projects to adapt to local and international regulations. He previously worked at Banco de Chile as an operational processes analyst at the money desk and in 2008 he joined Itaú Corpbanca initially as an operational risk analyst at the Bank and later as Compliance Officer at Itaú Asset Management. Mr. Ortega holds a degree in civil industrial engineering from Universidad de Santiago.
Joaquín Rojas Walbaum became General Manager of Itaú Corpbanca’s New York Branch in October 2017. Previously he was Treasury Director at the New York Branch since September 2009 and beforehand worked in the investment division at MetLife Chile and credit division at MetLife Investments Latin America. Mr. Rojas has more than 14 years of experience. He holds an undergraduate degree in Economics from Universidad de Chile and a Master of Business Administration from Columbia University.
Baruc Sáez became Chief Executive Officer on November 1, 2020, after serving as director of investment banking for Itaú BBA for Latin America, based in New York. With 10 years of experience in the Itaú group, he has been responsible for consolidating and leading the regional investment banking team. He also directed the international fixed income platform for debt capital markets, loan syndication and credit structuring. Before joining Itaú, he worked at
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Marathon Asset Management, Deutsche Bank, ABN AMRO and ING Barings, always in positions linked to the wholesale and investment world. He has a Master in International Economics and Finance from Brandeis University and a Bachelor from Bard College.
B. COMPENSATION
Consistent with Chilean law, we do not disclose to our shareholders, or otherwise make public, information regarding the individual compensation of our officers. However, we publicly disclose the fees paid to each of our directors and members of the board committees.
For the year ended December 31, 2020, we paid the following to each: director UF100 per month, vice-chairman UF450 per month and chairman UF600 per month.
Also, our shareholders agreed to an annual budget of UF7,000 for the Directors’ Committee and a monthly compensation of UF150 for each of its member and UF250 for it chairman.
Finally, our ordinary shareholders’ meeting held on March 18, 2020 approved additional compensation for the directors participating in the following committees:
a) | Audit Committee: UF50 per month for each member and UF150 per month for its chairman; |
b) | Credit Committee: UF200 per month for each member; |
c) | Assets and Liabilities Committee: UF50 per month for each member; and |
d) | Other committees: UF50 for attendance at committee meetings. |
No amounts were set aside or accrued by us to provide pension, retirement or similar benefits for our directors and executive officers. In the year ended December 31, 2020, we paid our middle management and senior management an aggregate of Ch$32,799 million (Ch$32,163 million in 2019) and our directors an aggregate of Ch$1,194 million (Ch$1,208 million in 2019). Chilean law does not require us to have a compensation committee.
Finally, at our ordinary shareholders’ meeting held on March 18, 2021, our shareholders approved to continue to pay monthly fee of UF100 for each director, UF450 for vice-chairman and UF600 for chairman, and an annual budget of UF7,000 for the Directors’ Committee. Also our shareholders approved continuing to pay monthly compensation of UF150 for each member of the Directors’ Committee and UF250 for its chairman, and approved additional compensation for the directors and external advisors participating in the following committees:
a) | Audit Committee: UF50 per month for each member and UF150 per month for its chairman; |
b) | Credit Committee: UF200 per month for each member; |
c) | Assets and Liabilities Committee: UF50 per month for each member; and |
d) | Other committees: UF50 for attendance at committee meetings. |
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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 2022 |
Ricardo Villela Marino |
| March 2022 |
Jorge Selume Zaror |
| March 2022 |
Fernando Aguad Dagach |
| March 2022 |
Gustavo Arriagada Morales |
| March 2022 |
Matias Granata |
| March 2022 |
Milton Maluhy Filho |
| March 2022 |
Rogério Carvalho Braga |
| March 2022 |
Pedro Samhan Escandar |
| March 2022 |
Fernando Concha Ureta |
| March 2022 |
Bernard Pasquier |
| March 2022 |
Diego Fresco Gutiérrez |
| March 2022 |
Jessica López Saffie |
| March 2022 |
Pursuant to the provisions of our bylaws, the members of the board are generally renewed every three years, based on length of service and according to the date and order of their respective appointments. In the Annual Ordinary Shareholders’ Meeting held on March 19, 2019 the board of directors was renewed in its entirety except for Mr. Rogério Carvalho Braga and Mr. Matias Granata, who were appointed by the board of directors in April 2020 for a term until the Annual Ordinary Shareholders’ Meeting held on March 18, 2021. Mr. Matias Granata was appointed by the board of director in January 2021 for a term until the Annual Ordinary Shareholders’ Meeting held on March 18, 2021. In the Annual Ordinary Shareholder’s Meeting held on March 18, 2021, our shareholders agreed –among other matters– to appoint Messrs. Rogerio Braga and Matias Granata as members of our Board of Directors. Consequently, the first eleven individuals listed above were elected to the board of directors with Diego Fresco Gutiérrez and Jessica López Saffie elected as alternate directors.
BOARD COMMITTEES
Audit Committee
Our board of directors maintains an audit committee which is currently comprised of five members, including two directors, one alternate director and two non-director members. The current members of the audit committee are Messrs. Pedro Samhan Escandar, who chairs it, Gustavo Arriagada Morales, Diego Fresco Gutiérrez, Juan Echeverría González and Antonio de Lima Neto.
A description of the experience and qualifications for Messrs. Pedro Samhan Escandar, Gustavo Arriagada Morales, and Diego Fresco Gutiérrez, each of whom is a director of our 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 qualifications for Mr. Juan Echeverría González and Mr. Antonio de Lima Neto, who are non-director members of the Audit Committee.
Juan Echeverría González currently serves as Corporate Chief Compliance Officer at CorpGroup. He was previously a partner in charge of Deloitte’s audits of Corpbanca, Banco Osorno y la Unión, Banco Bilbao Vizcaya Argentaria, Chile, 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 Itaú Corpbanca Colombia, Consorcio Periodístico de Chile (COPESA), Grupo de Radios DIAL S.A., Centro Cultural CorpGroup SpA, and an advisor to the board of directors and audit committee of Compañía Minera San Gerónimo. He has participated in several local and international seminars regarding corporate governance, restructurings and business acquisitions. Mr. Echeverría received a B.A. in Accounting from Universidad de
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Chile and received two Master degrees from Universidad Adolfo Ibáñez in Business Law and Tax Law. He also holds two Diplomas in Tax Law from Universidad Adolfo Ibáñez.
Antonio de Lima Neto has served as President (August 2009 to October 2013) at Banco Fibra S.A. He has worked as President (December 2006 to April 2009); Vice President of Retail and Distribution (July 2005 to December 2006); Vice President of International Business and wholesale (November 2004 to July 2005); Commercial Director (September 2001 to November 2004); Executive Superintendent of the Commercial Board (July 2000 to September 2001); Tocantins State Superintendent (May 1999 to May 2000) and Regional Superintendent of Belo Horizonte (January 1997 to May 1999) at Banco do Brasil S.A. He has also served as member of the board of directors (2007 to 2009) at Brasilprev Seguros e Previdência S.A.; member of the board of directors (2006 to 2009) at FEBRABAN Brazilian Federation of Banks; member of the board of directors (2004 to 2005) at BB Seguridade e Participações S.A; member of the board of directors (2003 to 2005) at Brasilsaúde Companhia de Seguros; Member of the board of directors (2001 to 2009) at Alliance Insurance Company of Brazil; member of the board of directors (2000 to 2007) at BB Securities Limited Pension Fund. He holds a Master’s degree in Economics from Fundação Getulio Vargas (2017); a Course for board members from the Brazilian Institute of Corporate Governance (2014); a Postgraduate degree in Marketing from PUC-Rio (2001); Training for Executive M.B.A. from Fundação Dom Cabral (1997); and a B.A. in Economics from Universidade Federal de Pernambuco (UFPE), 1996.
The local regulator (CMF) recommends for the banking industry that at least one of the members of the audit committee be experienced with respect to the accounting procedures and financial aspects of banking operations. Moreover, the members of the audit committee are appointed by the board of directors and must be independent according to the criteria set forth by the board of directors, and they cannot accept any payment or other compensatory fee from the Company, other than in their role and responsibility as members of the board of directors, of the audit committee or of other established Committees. Members of the audit committee receive a monthly remuneration.
The audit committee has one charter that establishes its composition, objectives, roles, responsibilities and extension of its activities. The CMF requires the audit committee to meet at least every four months and to provide an annual written report to the board of directors informing it of its activities. This report must also be presented to the annual shareholders’ meeting. According to their charter, the audit committee meetings take place at least twice a month.
The main objectives of the audit committee are to oversee the effectiveness of the internal controls established by management, as well as to oversee compliance with laws and regulations. Other specific responsibilities of the audit committee include:
● | propose to the directors’ committee the firm of external auditors and the rating agencies to be engaged; |
● | review the reports, content and procedures applied by the rating agencies; |
● | approve the annual internal audit plan and its modifications; |
● | approve the annual budget, oversee the activities of and evaluate the performance of internal audit, who reports directly to the audit committee; |
● | receive and review reports issued by internal auditors; |
● | review with management and the external auditors the annual and interim financial statements and report the results to the board of directors; |
● | review the reports issued by regulators; |
● | be informed about relevant internal frauds or about misconduct cases related to employees; and |
● | report to the board of directors changes in accounting policies and its effects. |
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Directors’ Committee
Our board maintains a directors’ committee which is currently comprised of three members, all of which are considered under Chilean law as independent directors of our board of directors. Also, a fourth director participates as a guest member. The current members of the directors committee are Messrs. Gustavo Arriagada Morales, who chairs it, Fernando Concha Ureta and Bernard Pasquier, as office-holders, and Pedro Samhan as permanent guest.
A description of the experience and qualifications for Messrs. Gustavo Arriagada Morales, Fernando Concha Ureta, Pedro Samhan and Bernard Pasquier, each of whom is a director of the Company is included in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.”
The directors’ committee has bylaws that establish their composition, organization, objectives, duties, responsibilities and extension of its activities. The CMF 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 its charter, the directors committee meets once per month.
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; and |
● | other duties required by our bylaws, a shareholders meeting and our board of directors. |
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 regulated by its bylaws, 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.
The committee is composed of three directors and one non-director member and is empowered to engage external consultants. This committee is currently comprised by Messrs. Ricardo Villela Marino, Bernard Pasquier, Jessica López Saffie and Alejandro Ferreiro Yazigi (non-director member).
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Anti-Money Laundering and Anti-Terrorism Finance Prevention Committee
This committee is in charge of preventing money laundering and terrorism financing. Its main purposes include planning and coordinating activities to comply with related policies and procedures, staying informed about the work carried out by the Compliance Officer and making decisions on any improvements to control measures proposed by the Compliance Officer. This committee 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.
This committee is currently comprised by Mr. Gustavo Arriagada Morales and six non-director 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 currently comprised by Mr. Gustavo Arriagada Morales and four non-director members.
Assets and Liabilities Committee
The main purpose of this committee is to monitor compliance with the financial guidelines established by our board of directors. In this regard, it approves and follows up on the financial strategies that guide the Bank regarding the composition of its assets and liabilities, income and expenditure flows and operations with financial instruments.
This committee is currently comprised by two directors, Messrs. Jorge Andrés Saieh Guzmán and Jorge Selume Zaror, three non-director members, plus one director as permanent guest, Mr. Pedro Samhan Escándar.
Credit Committee
The purpose of this committee is to (i) establish the limits and procedures of the credit policy of the Bank and its subsidiaries and to establish approval exceptions for financial decisions exceeding certain thresholds and (ii) evaluate and resolve lending operations in general that are of competence of this committee.
This committee is currently comprised by two directors, Messrs. Jorge Andrés Saieh Guzmán and Fernando Aguad Dagach, and three non-director members.
Management and Talent Committee
The purpose of this committee is to determine an objective process to recommend the appointment of the senior management and perform an advisory role in relation with the administration of the senior management, including the right to make non-binding recommendations to the board of directors relating to the compensation, the milestones to be achieved and the evaluation of the CEO and other senior officers.
This committee is currently comprised by four directors, Messrs. Jorge Andrés Saieh Guzmán, Ricardo Villela Marino, Fernando Aguad Dagach and Milton Maluhy Filho.
D. EMPLOYEES
As of December 31, 2020, on a consolidated basis, we had 8,364 employees. At the same date, approximately 56.1% of our employees were unionized. 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 collective bargaining agreements, which Itaú Corpbanca entered into in 2017 for former
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Corpbanca’s unions and for former Banco Itaú Chile’s unions. These agreements were renewed in 2020 and will expire in 2023. All agreements provide for improved benefits and have a term of three years.
The table below shows our employees by geographic area:
| | | | | | |
|
| Year Ended December 31, | ||||
| | 2018 | | 2019 | | 2020 |
Chile |
| 5,653 |
| 5,629 |
| 5,234 |
Colombia |
| 3,445 |
| 3,279 |
| 3,058 |
Panama |
| 49 |
| 48 |
| 40 |
United States |
| 32 |
| 31 |
| 32 |
Total |
| 9,179 |
| 8,987 |
| 8,364 |
E. CONTROLLING SHAREHOLDER’S SHARE OWNERSHIP
As of March 31, 2021, Itaú Unibanco is the sole controlling shareholder of Itaú Corpbanca with a total share of capital of 39.22% through Itaú Unibanco Holding S.A., ITB Holding Brasil Participações Limitada, CGB II SpA, SAGA II SpA, SAGA III SpA and CGB III SpA who beneficially own approximately 22.45%, 12.21%, 2.13%, 1.37%, 0.71% and 0.35% of our outstanding shares, respectively.
The following chart is an overview of our ownership structure as of March 31, 2021:
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Our directors and senior managers do not have different or preferential voting rights with respect to those shares they own.
We do not have any arrangements for issuing capital to our employees, including any arrangements that involve the issue or grant of options of our shares or securities.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
Our only outstanding voting securities are our common shares. As of March 31, 2021, we had 512,406,760,091 common shares outstanding.
The following table sets forth information with respect to the record and beneficial ownership of our capital stock as of March 31, 2021:
| | | | | | | | | |
|
| |
| Percentage |
| |
| |
|
| | | | of Total | | | | Percentage of |
|
| | | | Share | | | | Voting and |
|
Shareholders | | Number of Shares | | Capital | | Number of Votes | | Dividend Rights |
|
Itaú Unibanco |
| 200,966,823,626 |
| 39.22 | % | 200,966,823,626 |
| 39.22 | % |
Itaú Unibanco Holding S.A. |
| 115,039,610,411 |
| 22.45 | % | 115,039,610,411 |
| 22.45 | % |
ITB Holding Brasil Participações Limitada |
| 62,567,655,359 |
| 12.21 | % | 62,567,655,359 |
| 12.21 | % |
CGB II SpA |
| 10,908,002,836 |
| 2.13 | % | 10,908,002,836 |
| 2.13 | % |
Saga II SpA |
| 7,000,000,000 |
| 1.37 | % | 7,000,000,000 |
| 1.37 | % |
Saga III SpA |
| 3,651,555,020 |
| 0.71 | % | 3,651,555,020 |
| 0.71 | % |
CGB III SpA |
| 1,800,000,000 |
| 0.35 | % | 1,800,000,000 |
| 0.35 | % |
Saieh Family |
| 139,186,760,455 |
| 27.16 | % | 139,186,760,455 |
| 27.16 | % |
Corp. Group Banking S.A.(1) |
| 134,442,850,073 |
| 26.24 | % | 134,442,850,073 |
| 26.24 | % |
Cía. Inmob. y de Inversiones Saga SpA |
| 4,743,910,382 |
| 0.93 | % | 4,743,910,382 |
| 0.93 | % |
IFC |
| 17,017,909,711 |
| 3.32 | % | 17,017,909,711 |
| 3.32 | % |
Others |
| 155,235,266,299 |
| 30.30 | % | 155,235,266,299 |
| 30.30 | % |
Securities Brokerage |
| 77,171,380,216 |
| 15.06 | % | 77,171,380,216 |
| 15.06 | % |
ADSs holders and Foreign Inst. Investors |
| 37,515,568,965 |
| 7.32 | % | 37,515,568,965 |
| 7.32 | % |
Local Institutional Investors |
| 27,569,181,307 |
| 5.38 | % | 27,569,181,307 |
| 5.38 | % |
Other minority shareholders |
| 12,979,135,811 |
| 2.53 | % | 12,979,135,811 |
| 2.53 | % |
Total |
| 512,406,760,091 |
| 100.00 | % | 512,406,760,091 |
| 100.00 | % |
(1) | Includes 36,000,000 shares owned by Corp Group Banking S.A. that are under custody. |
As of March 31, 2021, ADS holders (through the depositary) and foreign institutional investors held approximately 10.6% of our total common shares, represented by eleven registered shareholders (The Bank of New York Mellon ADRs; Banco de Chile on behalf of non-resident third parties; Banco de Chile on behalf of Citi N.A. London Clients; Banco de Chile on behalf of State Street; Banco de Chile on behalf of Citi N.A. New York Clients; Banco de Chile on behalf of MS; Itaú Corpbanca on behalf of investors; Banco Santander on behalf of foreign investors; Banco Santander-HSBC Bank PLC London Client Account; Banco Santander HSBC Global Custody Clients; IFC and Sierra Nevada Investments Chile Dos Limitada). The remaining 89.4% of our total shares were held by both Itaú Unibanco and locally, in Chile, represented by 457,873,281,415 shares. All of our shareholders have identical voting rights.
Itaú Unibanco Holding S.A., ITB Holding Brasil Participações Limitada, CGB II SpA, Saga II SpA, Saga III SpA and CGB III SpA, accounted for approximately 22.45%, 12.21%, 2.13%, 1.37%, 0.71% and 0.35%, respectively, of our
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outstanding common shares as of March 31, 2021. Itaú Unibanco Holding S.A., ITB Holding Brasil Participações Limitada, CGB II SpA, Saga II SpA, Saga III SpA and CGB III SpA are each controlled by Itaú Unibanco who is the sole controlling shareholder of Itaú Corpbanca.
Itaú Unibanco and CorpGroup have signed the Itaú CorpGroup Shareholders’ Agreement to determine aspects related to corporate governance, dividend policy (based on performance and capital metrics), transfer of shares, liquidity and other matters. For a description of the Itaú CorpGroup 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 CMF.
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.
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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.
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, 2018, 2019 and 2020, loans to related parties totaled Ch$263,338 million, Ch$163,088 million and Ch$197,097 million, respectively. See Note 34 to our consolidated financial statements for a more detailed accounting of transactions with related parties.
LOANS TO RELATED PARTIES
As of December 31, 2018, 2019 and 2020, loans to related parties were as follows (loans for 2018, 2019 and 2020 refer to loans and accounts receivable from customers at amortized cost):
| | | | | | |
| | Operating | | Investment | | |
|
| Companies |
| Companies |
| Individuals |
As of December 31, 2018 | | (in millions of Ch$ as of December 31, 2018) | ||||
Loans and receivables to customers: |
|
|
|
|
|
|
Commercial loans |
| 170,873 |
| 64,073 |
| 3,960 |
Mortgage Loans |
| — |
| — |
| 21,154 |
Consumer Loans |
| — |
| — |
| 5,961 |
Loans and receivables to customers—gross |
| 170,873 |
| 64,073 |
| 31,075 |
Provision for loan losses |
| (2,550) |
| (70) |
| (63) |
Loans and receivables to customers, net |
| 168,323 |
| 64,003 |
| 31,012 |
| | | | | | |
| | Operating | | Investment | | |
|
| Companies |
| Companies |
| Individuals |
As of December 31, 2019 | | (in millions of Ch$ as of December 31, 2019) | ||||
Loans and receivables to customers: |
|
|
|
|
|
|
Commercial loans |
| 109,840 | | 11,910 | | 5,054 |
Mortgage Loans |
| - | | - | | 29,419 |
Consumer Loans |
| - | | - | | 8,987 |
Loans and receivables to customers—gross |
| 109,840 |
| 11,910 |
| 43,460 |
Allowances for loan losses |
| (1,705) | | (134) | | (283) |
Loans and receivables to customers, net |
| 108,135 |
| 11,776 |
| 43,177 |
| | | | | | |
| | Operating | | Investment | | |
|
| Companies |
| Companies |
| Individuals |
As of December 31, 2020 |
| (in millions of Ch$ as of December 31, 2020) | ||||
Loans and receivables to customers: |
|
|
|
|
|
|
Commercial loans |
| 150,796 | | 10,037 | | 6,517 |
Mortgage Loans |
| - | | - | | 30,124 |
Consumer Loans |
| - | | - | | 7,189 |
Loans and receivables to customers—gross |
| 150,796 |
| 10,037 |
| 43,830 |
Allowances for loan losses |
| (6,333) | | (885) | | (348) |
Loans and receivables to customers, net |
| 144,463 |
| 9,152 |
| 43,482 |
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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 2018, 2019 and 2020, in accordance with IFRS, the total gross amounts of related party loans outstanding amounted to Ch$266,021 million, Ch$165,210 million and Ch$204,663 million, respectively.
OTHER TRANSACTIONS WITH RELATED PARTIES
During 2018, 2019 and 2020, we had the following income (expenses) from services provided to (by) related parties:
| | | | | | |
| | 2018 | | 2019 | | 2020 |
| | Income | | Income | | Income |
Company |
| (expenses) |
| (expenses) |
| (expenses) |
| | (in Ch$) | ||||
Redbanc S.A. | | (3,002) | | (3,388) | | (3,094) |
Transbank S.A. |
| (15,469) |
| (14,208) |
| (13,177) |
Combanc S.A. |
| (350) |
| (366) |
| (472) |
Itaú Chile Cía. de Seguros de Vida S.A. |
| (613) |
| (202) |
| — |
Corp Research S.A. |
| (463) |
| (474) |
| — |
Recuperadora de Créditos S.A. |
| — |
| — |
| — |
Itaú Chile Inv. Serv. y Administración S.A. |
| 63 |
| (510) |
| (1,143) |
Compañía de Seguros Confuturo S. A. |
| — |
| — |
| — |
Instituto de Estudios Bancarios Guillermo Subercaseaux |
| (121) |
| — |
| — |
VIP Asesorías y Servicios Integrales Limitada |
| (129) |
| — |
| — |
Everis Chile S.A. |
| (906) |
| — |
| — |
CAI Gestión Inmobiliaria S.A. |
| (103) |
| (3) |
| — |
Promoservice S.A. |
| — |
| — |
| — |
Comder Contraparte Central S.A |
| (902) |
| (910) |
| (826) |
Operadora de Tarjeta de Crédito Nexus S.A. |
| (2,909) |
| (3,037) |
| (3,319) |
Pulso Editorial S.A. |
| (471) |
| (23) |
| (24) |
Inmobiliaria Edificio CorpGroup S.A. |
| (4,693) |
| (4,431) |
| (4,693) |
Hotel Corporation of Chile S.A. |
| (94) |
| (39) |
| (8) |
Corp Imagen y diseños S.A. |
| (99) |
| (101) |
| — |
CorpGroup Holding Inversiones Limitada |
| (408) |
| (382) |
| (382) |
SMU S.A., Rendic Hnos. S.A. |
| (2,262) |
| (2,319) |
| (2,388) |
Inversiones Corp Group Interhold Limitada |
| (2,476) |
| (2,537) |
| (2,613) |
Bcycle Latam SPA |
| (4,048) |
| (1,518) |
| (2,165) |
Bolsa de Comercio de Santiago |
| (204) |
| — |
| — |
Adexus S.A. |
| (254) |
| (567) |
| (8) |
Itaú Unibanco | | — | | 2,051 | | 2,213 |
Compañía Chilena de Televisión S.A. | | — | | (47) | | (8) |
Inmobiliaria Gabriela S.A | | — | | (121) | | (128) |
Total |
| (39,913) |
| (33,132) |
| (32,235) |
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.
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See “Item 17. Financial Statements.”
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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 23 to our consolidated financial statements included herein.
On August 22, 2019, the CMF Investigation Unit pressed administrative charges against Itaú Corpbanca in relation to the past tenure of Mr. Héctor Valdés as member of our board. Mr. Valdés left our board of directors in August 2016. The bill of charges comprises three different allegations. First, that Itaú Chile breached Section 84 No. 4 of the Chilean General Banking Act by lending UF45,000 (Ch$1,273.9 million or US$1.70 million as of December 31, 2019) to Inmobiliaria Zurich Tres S.A. (“Zurich Tres”). Section 84 No. 4 of the Chilean General Banking Act prohibits granting loans to directors, relatives, and entities in which directors hold an interest. At the time of the loan (June 2015), Mr. Valdés was a director of Itaú Chile and held a non-controlling, indirect stake (11.04%) in Zurich Tres. Second, that after the merger between Itaú Chile and Corpbanca, Itaú Corpbanca breached Section 84 No. 4 of the Chilean General Banking Act by failing to adjust Mr. Valdés’s financial situation before allowing his appointment as director in April 2016. According to the CMF’s investigation unit, the adjustment of Mr. Valdés’s financial situation would have required the full payment of Zurich Tres’s outstanding debt at the time (UF116,187 (Ch$3,289.2 million or US$4.4 million as of December 31, 2019)). And lastly, that Itaú Corpbanca breached Section 50 bis of the Chilean Corporations Act, by allowing the appointment of Mr. Valdés as an independent director when he must have been disqualified for such position. According to the CMF Investigation Unit, Mr. Valdés was not independent. The grounds for lack of independence were: (a) the indirect financial relationship with the bank through Zurich Tres, (b) the former tenure as director of Itaú Chile within the 18 months prior to his appointment as independent director of Itaú Corpbanca, and (c) the former tenure as an advisor of Corpbanca’s board within the 18 months prior to his appointment as independent director of Itaú Corpbanca.
On October 1, 2019, Itaú Corpbanca filed its statement of defense, claiming that Zurich Tres would have been covered by a regulatory provision (CMF’s RAN 12-12), which exempts, under certain conditions, loans granted to legal entities in which a director only holds an indirect stake. In addition, Itaú Corpbanca argued that the first and second charges would be time-barred. Finally, Itaú Corpbanca asserted that Mr. Valdés qualified as an independent director in April 2016, notwithstanding Zurich Tres’s financial commitments with the Bank and Mr. Valdés’s former tenure as director of Itaú Chile. Itaú Corpbanca denied that Mr. Valdés acted as an advisor of Corpbanca’s board within the 18 months prior to the appointment as independent director.
On December 9, 2019, the Chief of the CMF Investigation Unit recommended the CMF Council to: (i) declare the first charge as time-barred; (ii) impose a fine of UF173,000 (Ch$4,897.6 million or US$6.54 million as of December 31, 2019) in connection with the second charge; and (iii) declare Itaú Corpbanca liable for the third charge, without giving advice on a specific fine. Under regular conditions, the maximum statutory fine for such charge would be UF15,000 (Ch$424.6 million or US$567,129 as of December 31, 2019).
On January 9, 2020 the CMF Council held a final hearing on the case. On March 25, 2020, the CMF Council dismissed all charges pressed against Itaú Corpbanca, ruling that (a) the loans granted to Zurich Tres were indeed covered by the regulatory exemption (CMF’s RAN 12-12) and thus did not infringe the General Banking Act and that (b) a director could only be liable for applying to an independent seat at a board without meeting the independence criteria set forth in Section 50 bis of the Corporations Act. The CMF Investigation Unit cannot seek judicial review of the CMF Council’s decision, which should be deemed as final and non-appealable.
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 our lending limits.
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On the other hand, the Itaú CorpGroup Shareholders’ Agreement provides for a dividend policy that targets, in the following order of priority: (i) first, complying with the Optimal Regulatory Capital for such fiscal year, as this term is defined therein, (ii) second, the payment of cash dividends aggregating at least US$370 million for each year and (iii) third, achieving a growth rate of the total assets of Itaú Corpbanca and Itaú Corpbanca Colombia above the Minimum Growth Rate (as this term is defined therein) and other reasonable objectives as determined by the board of Itaú Corpbanca. See “Item 10. Additional Information—C. Material Contracts — Itaú CorpGroup Shareholders’ Agreement.”
The Itaú CorpGroup Shareholders’ Agreement provides for the distribution of the 100% of the fiscal year’s net income, calculated as total net income for the period less an amount provisioned to comply with the Optimal Minimum Regulatory Capital, as this term is defined in the Itaú CorpGroup Shareholders’ Agreement.
In accordance with the Itaú CorpGroup Shareholders’ Agreement, at our ordinary shareholders’ meeting held on March 18, 2020, our shareholders approved a dividend payout ratio of 100% of 2019 net income. As a result, in 2020, we paid an annual dividend of Ch$0.2479770771/share, equivalent to a dividend yield of 7.8%. In addition, as for the year end as of December 31, 2020 we reported a net a loss of Ch$925,479 million, no dividends could be distributed at our ordinary shareholder’s meeting held on March 18, 2021 in accordance with the provisions set forth in article 78 of Law No. 18,046. Dividends can be paid exclusively from the net income for the year, after absorbing accumulated losses, if any.
The actual 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.
In the event that dividends are paid, holders of ADSs will be entitled to receive dividends to the same extent as the owners of common shares. Dividends received by holders of ADSs will, absent changes in Chilean exchange controls or other laws, be converted into U.S. dollars and distributed net of currency exchange expenses and fees of the depositary and will be subject to Chilean withholding tax, currently imposed at the rate of 35% (which may be subject to credits in certain cases). Owners of ADSs are not charged with any fees with respect to cash or stock dividends.
B. SIGNIFICANT CHANGES
There have been no significant changes since the date of our annual financial statements.
ITEM 9. OFFER AND LISTING DETAILS
Not applicable.
A. OFFER AND LISTING DETAILS
Not applicable.
B. PLAN OF DISTRIBUTION
Not applicable.
C. MARKETS
Our common shares are traded on the Santiago Stock Exchange and the Chilean Electronic Stock Exchange under the symbol “ITAUCORP.” Our ADSs have been listed since November 1, 2004 on the New York Stock Exchange under the symbol “ITCB.”
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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) are subject to the regulations of open stock corporations (Sociedades Anónimas Abiertas or “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 CMF under the Chilean Securities Market Act and the Chilean Corporations Act. 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, securities 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 kept by the CMF.
BOARD OF DIRECTORS
Our board of directors has 11 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.
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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 90 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 CMF 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 and a 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 and the 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 six 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.
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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 CMF. 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 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 (which cannot be longer than three years) are cancelled and are no longer available for issuance by the company, unless in case of an issuance of convertible bonds (in which case the unsubscribed portion of the capital increase shall remain in place for a number of shares sufficient to comply with the option) or when reserved for compensation plans for employees (in which case the maximum term for subscription and payment cannot be longer than five years).
Article 22 of Chilean Corporations Act states that the purchaser of shares of a company implicitly accepts 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 CMF, shareholders of Public Companies are required to report the following to the CMF 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 CMF, 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 CMF, the stock exchanges and the companies controlled by and that control the target and through a notice published
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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 CMF, and to the Chilean stock exchanges on which the securities are listed.
In addition to the foregoing, Article 54A of the Chilean Securities Market Act requires that within two business days of the completion of the transactions pursuant to which a person has acquired control of a Public Company, a notice shall be published in the same newspapers in which the notice referred to above was published and notices shall be sent to the same persons mentioned in the preceding paragraphs.
A beneficial owner of ADSs intending to acquire control of us is also subject to the foregoing reporting requirements.
The provisions of the aforementioned articles do not apply whenever the acquisition is being made through a tender or exchange offer.
Title XXV of the Chilean Securities Market Act on tender offers and the regulations of the CMF 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
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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 CMF 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. |
Likewise, the CMF 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 CMF 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; |
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● | 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 CMF, 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 CMF considers a number of factors enumerated in the Chilean General Banking Act, including the financial stability of the purchasing party.
Article 35 bis of the Chilean General Banking Act establishes that prior authorization of the CMF is required for:
● | the merger of two or more banks, where the absorbing bank becomes a bank of systemic importance; |
● | the acquisition of all or a substantial portion (equal to or more than one third) of a bank’s assets and liabilities by another bank, where the acquiring bank becomes a bank of systemic importance; |
● | the control by the same person, or controlling group, of two or more banks, where the banks become banks of systemic importance; 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), where the controlled bank becomes a bank of systemic importance. |
Such prior authorization is required solely when the acquiring bank or the resulting group of banks becomes a bank of systemic importance. With respect to the qualification of a bank of systemic importance, on November 2, 2020, the CMF published the regulation (Circular No. 2,276) setting forth the factors and methodologies to be considered to determine whether a bank or group of banks qualifies as of systemic importance.
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 CMF 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 CMF, Chilean banks that issue ADSs are required to inform the CMF 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 16 bis 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 CMF reliable information on their financial situation in the form and within the time set forth in Chapter 1-3 of the regulations of the CMF (Recopilación Actualizada de Normas). Also, controlling shareholders must submit information regarding their financial situation pursuant to Chapter 1-17 of said regulations.
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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 annual ordinary meeting of shareholders is held within the first four months of each year, generally in March and must be called by the board of directors. The annual ordinary meeting of shareholders is the corporate body that approves the annual financial statements, approves all dividends in accordance with the dividend policy proposed by the board of directors, elects the members of our board of directors and approves any other matter which does not require an extraordinary shareholders’ meeting. The last annual ordinary meeting of our shareholders was held on March 18, 2021.
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 CMF.
Notice to convene the annual ordinary 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 CMF and the Santiago and Chilean Electronic stock exchanges. Currently, we publish our official notices in the Diario Pulso.
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The quorum for a shareholders’ meeting is established by the presence, in person or by proxy, of shareholders representing at least an absolute majority of the issued common shares; if a quorum is not present at the first meeting, the meeting can be reconvened (in accordance with the procedures described in the previous paragraph) and, upon the meeting being reconvened, shareholders present at the reconvened meeting are deemed to constitute a quorum regardless of the percentage of the shares represented. The shareholders’ meetings pass resolutions by the affirmative vote of an absolute majority of those voting shares present or represented at the meeting.
Only shareholders registered with us on the fifth business day prior to the date of a meeting are entitled to attend and vote their shares. A shareholder may appoint another individual (who need not be a shareholder) as his proxy to attend and vote on his behalf. Every shareholder entitled to attend and vote at a shareholders’ meeting has one vote for every share subscribed. Under 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; |
● | the approval of capital contributions in kind and a valuation of the assets contributed; |
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● | 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. |
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.
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DIVIDEND, LIQUIDATION AND APPRAISAL RIGHTS
Under the Chilean Corporations Act, Chilean companies are generally required to distribute at least 30% of their earnings as dividends, unless there is unanimous consent to the contrary. In the event of any loss of capital or of the legal reserve, no dividends can be distributed so long as such loss is not recovered. Also, no dividends of a bank can be distributed if doing so would result in the bank exceeding certain capital ratios.
Dividends that are declared but not paid by the date set for payment at the time of declaration are adjusted from the date set for payment to the date such dividends are actually paid. The right to receive dividends lapses if it is not claimed within five years from the date the dividend is payable.
We may declare a dividend in cash or in shares. When a share dividend is declared above the legal minimum (which minimum must be paid in cash), our shareholders must be given the option to elect to receive cash. Our ADS holders may, in the absence of an effective registration statement under the Securities Act or an available exemption from the registration requirement thereunder, effectively be required to receive a dividend in cash.
In the event of our liquidation, the holders of fully paid shares would participate equally and ratably, in proportion to the number 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 former Corpbanca, CorpGroup Parent, Itaú Unibanco and former Itaú Chile on January 29, 2014, and amended on June 2, 2015 and on January 20, 2017; and (ii) the text of the Itaú CorpGroup Shareholders’ Agreement contemplated by the Transaction Agreement and executed by Itaú Unibanco Holding S.A., Inversiones Gasa Limitada, CorpGroup Holding Inversiones Limitada, CorpGroup Banking S.A., Compañía Inmobiliaria y de Inversiones Saga SpA and CorpGroup Interhold SpA on April 1, 2016.
The rights and obligations of the parties to the Transaction Agreement and the Itaú CorpGroup Shareholders’ Agreement are governed by the express terms and conditions of such agreement and not by this summary or any other information contained in this Form 20-F. The description in this section and elsewhere in this Form 20-F is qualified in
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its entirety by reference to the complete text of the Transaction Agreement and the form of Itaú CorpGroup Shareholders’ Agreement, copies of which are attached as Exhibit 10.C.1 and are incorporated by reference herein. This summary does not purport to be complete and may not contain all of the information about the Transaction Agreement or the Itaú CorpGroup Shareholders’ Agreement. Itaú Corpbanca encourages you to read the Transaction Agreement and the Itaú CorpGroup Shareholders’ Agreement carefully and in their entirety.
Capitalized terms used but not defined herein shall have the same meaning as in the Transaction Agreement or the Itaú CorpGroup Shareholders’ Agreement, as applicable.
Explanatory Note Regarding the Transaction Agreement
The following summary is included to provide you with information regarding the terms of the Transaction Agreement. This section is not intended to provide you with any factual information about Itaú Corpbanca. Such information can be found elsewhere in this Annual Report and in the public filings that Itaú Corpbanca makes with the SEC.
The representations, warranties and covenants made in the Transaction Agreement by former Itaú Chile and former Corpbanca were qualified and subject to important limitations agreed to by Itaú Chile and Corpbanca 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 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 the parties delivered in connection with the Transaction Agreement. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Transaction Agreement, which subsequent information may or may not be fully reflected in public disclosures by Itaú Unibanco or former Corpbanca. The representations and warranties and other provisions in the Transaction Agreement should not be read alone but instead together with the information provided elsewhere in this Form 20-F and in the documents incorporated by reference hereto. We 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 Merger and the other transactions contemplated by the Transaction Agreement the charts below illustrate, in simplified form, the organizational structure of former Corpbanca and Itaú Chile in Chile and Colombia.
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The Merger
The following transactions occurred prior to the Merger:
● | The Saieh Family divested 5,208,344,218 shares it held in former Corpbanca which, collectively, amounted to 1.53% of the capital stock of Corpbanca. Such shares were divested to third parties other than the Saieh Family and Itaú Unibanco, and were intended to be transferred to minority shareholders of CorpGroup Parent. |
● | Itaú Chile increased its capital by US$652 million through the issuance of shares that were fully subscribed and paid for by Itaú Unibanco. |
After these transactions occurred, Itaú Chile merged with and into Corpbanca, with Corpbanca as surviving entity under the name of “Itaú Corpbanca.” The Merger resulted in the issuance of 172,048,565,857 shares of Corpbanca (representing 33.58% of the shares of Itaú Corpbanca) to Itaú Unibanco. The Saieh Family retained 33.13% of the
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capital stock of Itaú Corpbanca and the remaining 33.29% of the capital stock was held by public shareholders. After the Merger, Itaú Unibanco indirectly acquired an additional 2.13% and 0.35% interest in our share capital from the Saieh Family, on October 26, 2016 and on September 15, 2017, respectively, which resulted in an aggregate holding of 36.06% of the capital stock of Itaú Corpbanca.
Consummation of the Merger
In an extraordinary shareholders’ meeting held on June 26, 2015, our shareholders approved the Merger and the other Transactions contemplated in the Transaction Agreement. On September 4, 2015 the SBIF issued Resolution No. 409 approving the Merger. Pursuant to the agreements adopted and the approval by the SBIF, the Merger was consummated on April 1, 2016.
After the Merger, and according to the Transaction Agreement and its amendment on January 20, 2017, the following transactions will be implemented:
● | Itaú Corpbanca Colombia shall purchase all of the assets and liabilities of Itaú BBA Colombia in accordance with the terms and conditions agreed by Itaú Corpbanca Colombia and Itaú BBA Colombia on November 1, 2016 (the “Itaú Colombian Asset Acquisition”). The Itaú Colombian Asset Acquisition was approved by the shareholders of Itaú Corpbanca Colombia and the Colombian Financial Superintendency, and completed on June 16, 2017, as established in the agreement signed on June 1, 2017, between Itaú Corpbanca Colombia, as assignee, and Itaú BBA Colombia S.A. Corporación Financiera, as assignor. Pursuant to the Itaú Colombian Asset Acquisition transaction, Itaú Corpbanca Colombia acquired Itaú BBA Colombia S.A. Corporación Financiera assets and liabilities. In relation to this transaction, Itaú Corpbanca Colombia S.A. paid Ch$33,205 million to Itaú BBA Colombia S.A Corporación Financiera. This agreement also contemplated the rendering of certain services by Itaú Corpbanca Colombia in favor of Itaú BBA Colombia and the hiring of the senior management of Itaú BBA Colombia by Itaú Corpbanca Colombia. |
● | Itaú Corpbanca shall acquire of the shares of Banco Corpbanca Colombia S.A., now Itaú Corpbanca Colombia, held by CorpGroup (currently representing 12.36% of shares outstanding) no later than January 28, 2022, subject to receipt of the applicable regulatory approvals. The purchase price for the shares will be US$3.5367 per share (US$330 million in total) plus (i) interest from (and including) August 4, 2015 until (but excluding) the payment date at an annual interest rate equal to Libor plus 2.7% minus (ii) the sum of (x) the aggregate amount of dividends paid by Itaú Corpbanca Colombia to CorpGroup since the date of the Transaction Agreement, plus (y) the accrued interest with respect to the amount of such dividends since the date of their payment until the payment date of the purchase price, at an annual interest rate equal to Libor plus 2.7%. |
The foregoing transactions are collectively referred to as the Transactions.
Employee Matters
Following completion of the Merger, Itaú Corpbanca had the discretion to either (i) offer generally to officers and employees of Itaú Chile and its subsidiaries that have or will become employees of Itaú 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 former Corpbanca and its subsidiaries and/or (ii) maintain for the benefit of Itaú Chile Continuing Employees, the compensation and benefit plans maintained by former Itaú Chile immediately before the 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 former Corpbanca’s compensation and benefit plans, service with or credited by former Itaú Chile or any of its subsidiaries or any of their predecessors shall be treated as service with former Corpbanca.
Indemnification of Officers and Directors
From and after completion of the 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 was a director or officer of former
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Corpbanca or former Itaú Chile or any of their subsidiaries, or the Indemnified Parties, is, or is threatened to be, made a party on the basis of the Transaction Agreement or the Transactions, Itaú 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.
Registration of the Shares of Itaú Corpbanca Colombia S.A.
Itaú Corpbanca and CorpGroup will carry out commercially reasonable efforts, in accordance with the shareholders agreement of Itaú Corpbanca Colombia S.A., in order to cause Itaú Corpbanca Colombia to be registered as a public company in the National Registry of Securities and Issuers of the Colombian Financial Superintendency and its shares to be listed in the Colombian Stock Market (the “CSM”). The registration process is subject to the approval of Itaú Corpbanca Colombia’s extraordinary shareholders’ meeting.
Itaú Corpbanca and CorpGroup, pursuant to the terms of the shareholders’ agreement dated July 1, 2013 entered into with Helm LLC and other shareholders of Itaú Corpbanca Colombia, requested to submit for the shareholders’ approval the registration of Itaú Corpbanca Colombia in the National Registry of Securities and Issuers of the Colombian Financial Superintendency and the listing of its shares in the CSM. On February 1, 2017, in a meeting of shareholders of Itaú Corpbanca Colombia called for the decision of the above-mentioned matters, Helm LLC voted against such registration and listing and, therefore, those matters were rejected. Following this rejection, Itaú Corpbanca and CorpGroup filed a counterclaim in the Arbitration held in New York against Helm LLC for breaching the shareholders’ agreement. See “Item 8. Financial Information—A. Consolidated Statements and other Financial Information—Legal Proceedings.”
Insurance Matters
Following completion of the Merger, Itaú Unibanco is required to cause Itaú Chile Compañía de Seguros de Vida S.A. to provide life insurance-related products to all the clients of Itaú Corpbanca 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.
Itaú CorpGroup Shareholders’ Agreement
The following summary is included to provide you with information regarding the terms of the form of Itaú CorpGroup Shareholders’ Agreement executed by Itaú Unibanco Holding S.A. and CorpGroup on April 1, 2016 and amended on September 10, 2020. This section is not intended to provide you with any factual information about Itaú Corpbanca. Such information can be found elsewhere in the public filings that Itaú Corpbanca makes with the SEC.
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Corporate Governance
Composition and size of the Board of Directors of Itaú Corpbanca and its subsidiaries.
Itaú Unibanco and CorpGroup Parent agreed that of the number of directors of each of the board of (i) Itaú Corpbanca and Itaú 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 Itaú 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 11 directors and two alternate directors (one selected by Itaú Unibanco and one selected by CorpGroup Parent). The board of Itaú Corpbanca Colombia shall be comprised of nine director (note that after the acquisition of shares representing approximately 20.82% of Itaú Corpbanca Colombia from Helm LLC and Kresge Stock Holding Company on December 3, 2019, the board of Itaú Corpbanca Colombia is currently comprised of five directors). 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 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 Itaú 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 Itaú 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, Itaú 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 agreed to cause Itaú Corpbanca and Itaú Corpbanca Colombia to each create the following committees of the board of directors: Directors Committee, Audit Committee, Management and Talent Committee, Assets and Liabilities 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 approval of Itaú Unibanco will be required. In connection with the latter, Itaú Unibanco shall
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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 CEO of Itaú Corpbanca or its relevant subsidiary, as applicable.
Officers
The board of directors of Itaú Corpbanca shall appoint from time to time the CEO, the country heads and other senior management of Itaú Corpbanca and Itaú Corpbanca Colombia. 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 Itaú Corpbanca Colombia if during three consecutive years (excluding the year of the closing of the 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 Itaú 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 Itaú CorpGroup Shareholders’ Agreement, Itaú Unibanco and CorpGroup Parent 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; |
● | effect 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; |
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● | 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; |
● | 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. |
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 Itaú CorpGroup Shareholders’ Agreement (i.e. at the closing of the Transactions) or (ii) the minimum percentage of such shares that allows Itaú Unibanco and CorpGroup Parent to hold such aggregate direct or indirect participation in the voting shares of Itaú Corpbanca. Such number of shares will be pledged by CorpGroup Parent in favor of Itaú Unibanco.
Right of First Offer, Tag-Along and Drag-Along Rights
Right of first offer
Subject to the terms set forth on the Itaú CorpGroup Shareholders’ Agreement, Itaú Unibanco and CorpGroup Parent shall have a right of first offer with regard to potential transfers of shares of the Companies. If either Itaú Unibanco or CorpGroup Parent intend to transfer shares of the Companies, such party shall notify in writing to the other party of such intention, stating the number of shares, the price and other terms and conditions of the proposed transfer. The recipient party shall have the right to purchase all such shares for a price and under terms and conditions equal to those notified by the selling shareholder. If the recipient party elects not to purchase all the shares intended to be transferred, the selling shareholder shall be permitted for a period of six (6) months from the date the notice to purchase the shares was due to be received by the selling party, to transfer to a third party not less than the number of shares, at a price not less than and on terms and conditions not materially less favorable to the selling shareholder than those stated in the notice of such proposed transfer.
Tag-along
CorpGroup Parent will have the right 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,
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(i) the name of the proposed transferee, (ii) the number of shares proposed to be transferred, (iii) the proposed purchase price and (iv) any other material terms and conditions of the proposed transfer.
The proposed transferee will not be obligated to purchase a number of shares exceeding that set forth in the notification of the proposed transfer. In the event such transferee elects to purchase less than all of the total shares sought to be transferred by CorpGroup Parent and Itaú Unibanco, CorpGroup Parent shall be entitled to transfer to the proposed transferee a number of shares equal to (i) the total number of shares originally proposed to be transferred by Company One and Itaú Unibanco multiplied by (ii) a fraction, (A) the numerator of which is the total number of shares of Itaú Corpbanca 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 Itaú CorpGroup Shareholders’ Agreement, CorpGroup Parent shall notify Itaú Unibanco prior to consummating a Change of Control of CorpGroup Parent and provide Itaú Unibanco a right of first offer to purchase a number shares of Company Two equal to the number required by Itaú Unibanco to hold an aggregate direct or indirect participation in the voting shares of Itaú Corpbanca 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
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Unibanco shall be entitled to unilaterally terminate the Itaú CorpGroup Shareholders’ Agreement during a period of 60 days after receipt of notice from CorpGroup notifying of the consummation of such Change of Control.
For purposes of the Itaú CorpGroup Shareholders’ Agreement, Change of Control shall mean, with respect to CorpGroup Parent, the Saieh Group ceasing to own, directly and indirectly, in a single transaction or in a series of related transactions, at least 50% plus one additional share of the issued voting stock of CorpGroup Parent.
Right to Exchange Shares for Shares of Itaú Unibanco
In the event Itaú Unibanco issues or sells certain equity securities of Itaú Unibanco to any third-party as consideration for or in connection with a transaction or series of transactions involving the direct or indirect investment by Itaú Unibanco in such equity securities or assets of any other third party, Itaú Unibanco shall inform CorpGroup Parent of such issuance or sale and shall offer to CorpGroup Parent the right to exchange for the same type of equity securities of Itaú Unibanco. CorpGroup Parent shall be entitled to exchange any or all of its shares of Company Two (or shares of Itaú Corpbanca) 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 Itaú CorpGroup 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 Itaú CorpGroup 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 Itaú CorpGroup Shareholders’ Agreement and shall in any event satisfy its obligation (whether through the tender offer or a subsequent purchase thereafter) within 90 calendar days.
CorpGroup Parent Liquidity Put and Call Options
During a period of 18 months from the closing date of the 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.
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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 Chilean Índice 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 Chilean Índice 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 Itaú CorpGroup 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.
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 any sociedad de apoyo al giro in which Itaú Corpbanca has an ownership interest.
For purposes of the Itaú CorpGroup Shareholders’ Agreement, Banking Business shall mean providing (i) consumer financial products and/or services, including secured and/or unsecured consumer lending, consumer mortgage products, consumer card products, retail banking products and/or services, and consumer leasing; and/or (ii) deposit-taking services including both consumer and commercial deposits, and payroll services; and/or (iii) credit and/or debit card transaction processing services (which transaction processing services, for the avoidance of doubt, include merchant acquiring); and/or (iv) commercial financial products and/or services, including bilateral and syndicated loans, trustee and depositary services; and/or (v) investment banking services; and/or (vi) financial advisory services related to the services described in clauses (i) through (v) above; and/or (vii) all businesses related or reasonably incidental thereto.
Notwithstanding the foregoing, the Itaú CorpGroup Shareholders’ Agreement permits the following activities: (i) providing consumer financing and other financial products or services offered from time to time by supermarkets and other nonbank retailers in the applicable jurisdiction; (ii) financing or providing asset management products and
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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 CorpGroup Parent is the investing party, or by Itaú Corpbanca to CorpGroup Parent, if Itaú Unibanco is the investing party, and CorpGroup 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 Itaú CorpGroup Shareholders’ Agreement) or prohibit any activities currently conducted by the MCC Entities.
Non-Solicit
Neither Itaú Unibanco nor CorpGroup Parent shall, directly or indirectly, solicit for hire, hire or otherwise induce or attempt to induce any officer of Itaú Corpbanca 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.
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 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 Itaú 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 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 Itaú 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 Itaú 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 Itaú Corpbanca Colombia, as the case may be, as of the date one year from the
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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 Itaú 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 Itaú 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 Chilean Índice 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 Chilean Índice 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.
Use of Brands
Itaú Unibanco and CorpGroup Parent have agreed that for so long as Itaú Unibanco owns shares of Itaú Corpbanca, Itaú Corpbanca and its subsidiaries shall have a royalty-free, perpetual license to use the Itaú Brand, whether alone or in conjunction with other trademarks.
Preapproved Matters
CorpGroup Parent 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 securities broker (Corredora) subsidiary and MCC at such time as MCC is wholly owned by an Affiliate of Itaú Unibanco. This transaction may be structured as an acquisition of equity securities of MCC by Itaú Corpbanca (followed by a merger of such subsidiary and MCC). As of the date of this Annual Report, the potential acquisition and subsequent merger remain contingent on the issuance of the required regulatory approvals.
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Strategic Transactions
Pursuant to the terms of the Itaú CorpGroup 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 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 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 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 May 1, 2019 until April 30, 2021. A new extension has been renegotiated until December 2021. Under this agreement, IBM provides outsourcing computer system operations services to us and we are obligated to pay fees amounting to UF 2,421.4 per month.
Service Contracts
On July 6, 2001, we entered into a Services Agreement with our affiliate Inversiones CorpGroup Interhold Limitada pursuant to which CorpGroup provides us with professional and technical consulting services including preparation of financial statements, implementing financial and administrative procedures; preparing, analyzing, and providing legal advisory services; and analyzing economic, financial sectors and feasibility of investment plans; we pay fees of approximately UF6,250 per month. On January 27, 2014, we entered into an amendment to the agreement which took effect as of January 1, 2015. Pursuant to this amendment, the agreement was 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.
On April 10, 2008, we entered into a Services Agreement with our affiliate Inversiones CorpGroup Interhold Limitada, pursuant to which CorpGroup provides us with professional and technical consulting services in the finance, capital markets, real estate and operations areas; we pay fees of approximately UF1,350 per month. On January 27, 2014, we entered into an amendment to the agreement which took effect as of January 1, 2015. Pursuant to the amendment, the agreement was extended for a further 10-year term beginning on January 1, 2015, subject to certain
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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 CorpGroup Holding Inversiones Limitada, pursuant to which CorpGroup 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 UF1,250 per month. On January 27, 2014, we entered into an amendment to the agreement which took effect as of January 1, 2015. Pursuant to the amendment, the agreement was 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 entered into an agreement dated as of April 1, 2001 to participate in the automated teller machine network operated by Redbanc S.A. Due to the Merger, on October 11, 2016, this agreement was amended and restated in order to (i) terminate the equivalent agreement entered into by former Banco Itaú Chile with Redbanc S.A. prior to the Merger and (ii) recognize and confirm the agreement entered into by former Corpbanca, which remains in full force and effect.
The agreement 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 the Ley Orgánica Constitucional del Banco Central de Chile, or the Chilean Central Bank Act and the Compendio 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 the Comité 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, as amended by Law No. 20,899, 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
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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 ADS facility. The Central Bank of Chile only requires that (i) any foreign investor acquiring shares to be converted into ADSs who has actually brought funds into Chile for that purpose shall bring those funds through the Formal Exchange Market, (ii) any foreign investor acquiring shares to be converted into ADSs informs the Central Bank of Chile of the investment in the terms and conditions described below, (iii) all remittances of funds from Chile to the foreign investor upon the sale of the shares underlying the ADSs or from dividends or other distributions made in connection therewith, shall be made through the Formal Exchange Market, and (iv) all remittances of funds to the foreign investor, whether or not from Chile, shall be informed to the Central Bank of Chile in the terms and conditions described below.
When the shares to be converted into ADSs have been acquired by the foreign investor with funds brought into Chile through the Formal Exchange Market, a registration form shall be filed with the Department of International Financial Operations of the Central Bank of Chile by the foreign investor acting through an entity of the Formal Exchange Market on or before the date on which the foreign currency is brought into Chile. However, if the funds were brought into Chile with a different purpose and subsequently were used to acquire shares to be converted into ADSs, the Department of International Financial Operations of the Central Bank of Chile then shall be informed of such investment by the Custodian within ten days following the end of each 15-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 ADS facilities subject to the provisions of Chapter XIV of the Compendium. All foreign investment contracts executed under the
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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.
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, given the amendments introduced by Law No. 21,210, as of March 1, 2020, an individual holder is a resident of Chile if he or she stays in Chile for more than 183 days in any given period of 12 months. 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.
Under the Tax Reform and given that the Bank is subject to the partially integrated system, the first category tax may be credited partially (65%). Nevertheless, the foreign holder shall be entitled to a full first category tax credit, regardless of the tax regime chosen by the company, if such holder is established or domiciled in, or is a resident of, a country with which Chile maintains a double taxation treaty in force or, until December 31, 2026, if Chile has signed a double taxation treaty with such country, even if not in force, and the holder duly credits his tax residency according to
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the regulations issued by the Chilean Internal Revenue Service on the matter, which are currently contained on Exempt Resolution No. 151, issued on December 9, 2020.
Under Chilean income tax law, credits for the first category tax are allocated to the corresponding distribution at a factor calculated using the same rate as the first category tax rate in force at the end of the business year in which the profits were distributed, up to their complete depletion. The first category tax rate is currently 27%. However, profit distributions allocated to profits generated prior to January 1, 2017 must consider a weighted average credit rate for the first category tax effectively paid in the corresponding tax periods. Available foreign tax credits are also allocated to the distribution at a maximum rate of 8%, up to their depletion.
Distribution of book income in excess of retained taxable income is subject to the Chilean withholding tax, without any credit. In case the Chilean 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.
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 ADSs 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 will be subject to the Chilean withholding tax cases with a rate of 35%, which must be withheld by the purchaser. However, if it is impossible to determine the taxable capital gain at the time of sale, 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 duly adjusted for local inflation. The valuation procedure set forth in the deposit agreement, which values common shares that are being exchanged at the highest price at which they trade on the Santiago Stock Exchange on the date of the exchange, generally will determine the acquisition value for this purpose. Consequently, the conversion of ADSs into common shares and sale of such common shares for the value established under the deposit agreement will not generate a capital gain subject to taxation in Chile, to the extent that the sale price is equal to the acquisition value at the time of redemption as discussed above. In the event the sale price exceeds the acquisition value of such shares determined, as explained above, such capital gain will be subject to the Chilean withholding tax.
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 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 CMF 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 |
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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 CMF Ruling No. 327 dated January 17, 2012. Currently, our shares are considered to be significantly traded on a Chilean stock exchange. Please note that the Tax Reform sets forth a new article 110 of the Chilean Income Tax Law, pursuant to which if the shares are considered to be significantly traded on a Chilean Stock exchange due to a “Market Maker”, capital gains arising from the sale and disposition of such shares will be tax exempt only to the extent that such sale occurs within one year counted from the first public offer performed upon registration of the issuer or from the deposit of the regulations in the corresponding Financial Market Commission’s registry. Regarding issuers already registered or regulations already deposited as of this date, the one-year term will be counted as of March 1, 2020.
OTHER CHILEAN TAXES
No Chilean inheritance, gift, or succession taxes apply to the transfer or disposition of the ADSs by a foreign holder but such taxes generally will apply to the transfer at death or by a gift of common shares by a foreign holder. No Chilean stamp, issue, registration or similar taxes or duties apply to foreign holders of ADSs or common shares.
WITHHOLDING TAX CERTIFICATES
Upon request, we will provide to foreign holders appropriate documentation evidencing the payment of the Chilean withholding tax.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
This section is a summary of certain U.S. federal income tax consequences applicable to the acquisition, ownership and disposition by a U.S. holder (as defined below) of ADSs or common shares. This summary applies to you only if you are a U.S. holder and you hold your ADSs or common shares as capital assets (generally, property held for investment) for U.S. federal income tax purposes. This summary is not a comprehensive description of all of the tax consequences that may be relevant to a decision to purchase, hold or dispose of our ADSs or common shares.
This section does not apply to you if you are a U.S. holder subject to special rules, including for example:
● | 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; |
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● | a life insurance company; |
● | a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) or a partner, member 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 by vote or value; |
● | 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, for U.S. federal income tax purposes, any of the following:
● | 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 or arrangement treated as a partnership for U.S. federal income tax purposes) holds the ADSs or common shares, the U.S. federal income tax treatment of a partner, member or owner of such entity or arrangement 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.
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OWNERSHIP OF ADSs
In general
The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the relevant deposit agreement and any related agreement will be performed in accordance with the terms set forth therein. For U.S. federal income tax purposes, if you are a holder of ADSs, you generally will be treated as the owner of our common shares represented by such ADSs. Accordingly, deposits or withdrawals of common shares for ADSs will not be subject to U.S. federal income tax. The U.S. Treasury Department has expressed concern that depositaries for depositary receipts, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. holders of such receipts or shares. These actions would also be inconsistent with claiming the reduced rate for “qualified dividend income” described below. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Chilean withholding taxes and sourcing rules described below and availability of the reduced rate for qualified dividend income could be affected by future actions that may be taken by the U.S. Treasury Department.
Taxation of distributions
Subject to the PFIC rules discussed below, if you are a U.S. holder, the gross amount of any distribution of cash or property (including the net amount of Chilean taxes withheld, if any, on the distribution, after taking into account the credit for first category tax, as discussed above under “—Chilean Tax Considerations—Cash Dividends and Other Distributions”), paid by the bank out of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will be includable in gross income as ordinary dividend income. You must include the net amount of Chilean tax withheld, if any, from such distribution in gross income even though you do not in fact receive it. The dividend is taxable to you when you, in the case of common shares, or the depositary, in the case of ADSs, receive the dividend, actually or constructively. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as 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 2020 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
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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 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 will 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.
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If 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 present regulatory status under Chilean law, 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 2020, our current taxable year or in the foreseeable future, 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, 2021 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 2021.
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 1995 and will not be effective unless finalized. Nevertheless, we believe that we should qualify as an active bank under the requirements of both the notice and the proposed regulations, assuming that the proposed regulations are finalized in their current form.
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.
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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. |
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 than de 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
247
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, in the future, be imposed on all or some of the payments on the ADSs or our common stock 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 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 a significant administrative burden. U.S. holders are urged to consult their tax advisors 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.
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Backup withholding is not an additional tax. Any U.S. backup withholding tax generally will be allowed as a credit against the holder’s U.S. federal income tax liability or, to the extent the withheld amount exceeds such liability, refunded upon the timely filing of a U.S. federal income tax return.
Information with respect to foreign financial assets
Certain U.S. investors are subject to reporting requirements in connection with the holding of certain foreign financial assets, including our ADSs or common shares that they own, either directly or through certain foreign financial institutions, but only if the aggregate value of all of such assets exceeds US$50,000. Such investors are subject to penalties if they are required to submit such information to the IRS and fail to do so. You should consult your tax advisor regarding the application of these new reporting requirements to your particular situation.
The above description is not intended to constitute a complete analysis of all tax consequences relating to the purchase, ownership or disposition of the ADSs or common shares. Investors deciding on whether or not to invest in ADSs or common shares should consult their own tax advisors concerning the tax consequences of their particular situations.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by us with the SEC are available electronically at the SEC’s website: https://www.sec.gov. Copies of such material may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, on which our ADSs are listed. In addition, the SEC maintains a website that contains information filed electronically with the SEC, which can be accessed on the internet at http://www.sec.gov. The information contained on this website does not form part of this annual report on 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.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT FINANCIAL RISK
A. DEFINITION AND PRINCIPLES OF FINANCIAL RISK MANAGEMENT
Following the consummation of the Merger, as part of the integration process of the merged banks, we amended our risk management policies and procedures in order to adopt Itaú Unibanco’s risk policies and procedures according to Basel III framework.
While there is no single definition of financial risk, the Bank defines this risk as the possibility of an event having unexpected financial consequences on the institution. Although this definition involves a strong adversity component, it also involves an important opportunity component. Therefore, the purpose of financial risk management is not to eliminate this risk, but rather to limit its exposure to negative events in line with the risk appetite of the Bank’s shareholders and the regulations that govern the institution. The main financial risks to which the Bank is exposed are: Market Risk, Liquidity Risk and Counterparty Risk.
1. Market Risk
Market risk is the exposure to economic gains or losses caused by movements in prices and market variables. This risk stems from the activities of the Trading and Banking Books. The Trading Book includes non-derivative financial instruments that have been classified as trading instruments and all derivative positions that have not been classified as hedging instruments, according to accounting standards. The Banking Book includes all positions in derivative and non-derivative instruments that do not form part of the Trading Book. In the first case, it comes from activities intended to obtain short-term gains and from the intensive use of instruments recorded at fair value. In the second case, with a more long-term vision, it stems from commercial activities with products valued at amortized cost. The following section describes the main market risk factors to which the Bank and its subsidiaries are exposed:
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, UVR or others) linked to domestic or foreign currency in which any instruments, contracts or other transactions recorded in the statement of financial position may be denominated.
c) Interest Rate Risk
Interest rate risk is the exposure to movements in market interest rates. Changes in market interest rates can affect both the price of instruments recorded at fair value and the financial margin and other gains from the Banking Book such as fees. Fluctuations in interest rates also affect the Bank’s economic value.
250
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, equity and economic value.
d) 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 exposure to changes in the price volatility of the underlying asset.
2. Funding Liquidity Risk
Funding liquidity risk is the exposure of the Bank and its subsidiaries to events that affect their ability to meet, in a timely manner and at reasonable costs, cash payment obligations arising from maturities of time deposits that are not renewed, withdrawals from demand accounts, maturities or settlements of derivatives, liquidations of investments or any other payment obligation.
Financial institutions are exposed to funding liquidity risk that is intrinsic to the role of intermediary that they play in the economy. In general, in financial markets demand for medium or long-term financing is usually much greater than the supply of funds for those terms while short-term financing is in considerable supply. In this sense, the role of intermediary played by financial institutions, which assume the risk of satisfying the demand for medium and long-term financing by brokering short-term available funds, is essential for the economy to function properly.
Appropriately managing funding liquidity risk not only allows contractual obligations to be met in a timely manner, but also enables:
● | The 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 penalties for not complying with regulations. |
3. Counterparty Risk
Counterparty 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 concentration limits on different groups. Exposure to credit risk is evaluated using an individual analysis of the payment capacity of debtors and potential debtors to meet their obligations on time and as agreed.
B. FINANCIAL RISK MANAGEMENT
The process of managing financial risks is an ongoing, interlinked process that begins by identifying the risks to which the institution is exposed. After that, the Bank calculates the potential impact of that exposure on its profit or loss and limits it to a desired level. This involves actively monitoring risk and studying how it evolves over time. The risk management process can be subdivided into the following stages:
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1) Identification of Financial Risks
The Financial Risk Division has a highly technical team that is constantly monitoring the activities of the Bank and its subsidiaries to search for potential risks that have not been quantified and controlled. The bank’s Treasury Division serves as a first line of defense and plays an essential role in risk detection. Itaú Corpbanca’s structure facilitates this role of identifying risks by preserving the division’s independence and ensuring active participation from management in creating/modifying products. After a risk is identified, it is quantified to see the potential impact on value creation within the institution.
2) Quantification and Control of Financial Risk Exposure
Once a risk has been identified, the Financial Risk Division is responsible for mapping the risk using the appropriate quantification metrics. Our board of directors and senior management are aware of the methods used to measure exposure and are responsible for setting the institution’s desired risk appetite levels (by business unit, associate, risk factor, area, etc.), always taking care to adhere to current regulations. The limit setting process is the instrument used to establish the equity available to each activity. Limit determination is, by design, a dynamic process that responds to the risk level considered acceptable by senior management.
The Financial Risk Division requests and proposes a system of quantitative and qualitative limits and warning levels that affect liquidity and market risk. This request must be authorized by the Assets and Liabilities Committee, or ALCO, and our board of directors. It also regularly measures risk incurred, develops valuation tools and models, performs periodic stress testing, measures the degree of concentration with interbank counterparties, drafts policy and procedure handbooks and monitors authorized limits and warning levels, which are reviewed at least once per year.
The limit structure requires the division to carry out a process that includes the following steps:
● | Efficiently and comprehensively identify and outline the main types of financial risks incurred so that they are consistent with the running of the business and the defined strategy. |
● | Quantify and communicate to business areas the risk levels and profile that senior management considers acceptable in order to avoid incurring undesired risks. |
● | Give business areas flexibility to take on financial risks in an efficient and timely manner based on changes in market and business strategies, and always within the risk levels considered acceptable by the entity. |
● | Enable business generators to take on a cautious yet sufficient level of risk in order to achieve budgeted results. |
● | Outline the range of products and underlying assets with which each treasury unit can operate, based on characteristics like the model, valuation systems and liquidity of the instruments involved, among other factors. |
The metrics, by type of risk, used to quantify exposure or demonstrate that a risk has been materialized are detailed below:
a) Market Risk Metrics and Limits
Given the complexity and relevance of the portfolios managed by Itaú Corpbanca, diverse instruments have been chosen to control market risk based on the characteristics of the financial products in the Trading and Banking Books.
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The following regulatory and internal metrics are used to monitor and control market risk:
Regulatory Risk Measurements for the Trading and Banking Books
The bank measures regulatory exposure using the standardized methodology provided by the Central Bank of Chile (Chapter III-B-2.2 “Standards on Measuring and Controlling Market Risks in Banking Companies” of the Compendium of Financial Standards) and complemented by the CMF (Chapter 12-21 —Standards on Measuring and Controlling Market Risks), which is a risk measurement based on the standard methodology of the Basel Committee and is designed to quantify exposure to market risks for the Banking and Trading Books.
The regulatory measurement of market risk in the Trading Book allows the Bank to estimate its potential losses from fluctuations standardized by the regulator. The regulatory limit is the sum of this risk (also known as Market Risk Exposure or MRE) and 10% of the credit risk weighted assets. This sum cannot be greater than the Bank’s minimum capital requirement.
The bank, on an individual level, must continuously observe those limits and report to the CMF on a weekly basis its positions at risk and compliance with those limits (Regulatory Report CMF C41—Weekly information on market risk using standardized methodology). It must also inform the CMF each month on the consolidated positions at risk of subsidiaries and foreign subsidiaries (Regulatory Report CMF C43—Consolidated information on market risk using standardized methodology).
The following table details regulatory limit consumption for market risk, specifically for the Trading Book as of December 31, 2018, 2019 and 2020.
Trading Book
| | | | | | | |
| | As of December 31, |
| ||||
Limit Consumption |
| 2018 |
| 2019 |
| 2020 |
|
Market risk exposure (MRE) |
| 71.8 | % | 80.1 | % | 83.3 | % |
The regulatory risk measurement for the Banking Book (Regulatory Report CMF C40—Cashflows related to interest rate and indexation risk in the Banking Book) is used to estimate the Bank’s potential losses from standardized adverse movements in interest and exchange rates. For regulatory reporting purposes, the Trading Book includes the interest rate risk of derivatives managed in the Banking Book.
The standardized regulatory report for the Banking Book (Regulatory Report CMF C40) is used to estimate the Bank’s potential economic losses from standardized adverse movements in interest rates defined by the CMF. Currently, limits for short-term exposure (STE) to interest rate and indexation risk in the Banking Book must not exceed 35% of annual operating income (LTM moving period) and long-term limit consumption (LTE) must be less than 20% of the Bank’s minimum capital requirement.
The following table details regulatory limit consumption for market risk, specifically for the Banking Book as of December 31, 2018, 2019 and 2020:
Banking Book
| | | | | | | |
| | As of December 31, |
| ||||
Limit Consumption | | 2018 |
| 2019 |
| 2020 |
|
Short-term exposure to interest rate risk (STE) |
| 51.4 | % | 48.9 | % | 63.0 | % |
Long-term exposure to interest rate risk (LTE) |
| 50.3 | % | 57.8 | % | 63.9 | % |
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Value at Risk (VaR) Calculation
Calculation of Historical Value at Risk (non-parametric): This measurement provides the maximum potential economic loss at a certain confidence level and a given time horizon. Historical VaR, as opposed to Statistical or Parametric VaR, is based on the observed distribution of past returns, does not need to make assumptions of probability distributions (frequently normal distribution) and, therefore, does not need a mean (assumed 0), standard deviation and correlations across returns (parameters). The bank’s uses a 99% confidence level and a time horizon of one day.
Calculation of volatility-adjusted Historical Value at Risk (non-parametric): This measurement is based on the above and the profit and loss (P&L) vector is adjusted according to whether it is facing a period of greater or less volatility.
Our board of directors defines limits on the Value at Risk (as of the end of the first half of 2016 it uses the volatility-adjusted Historical VaR method) that can be maintained, which is monitored on a daily basis. The measurement is also subjected to back testing to verify that the daily losses that effectively occurred do not exceed VaR more than once every 100 days. The result is monitored daily to confirm the validity of the assumptions, hypothesis and the adequacy of the parameters and risk factors used in the VaR calculation. The bank in turn calculates VaR for sub/portfolios and risk factors, which allows it to quickly detect pockets of risk. Since VaR does not consider stress scenarios, it is complemented by stress testing. Specifically, the Bank uses metrics that take into account prospective, historical and standardized scenarios.
(i) Limitations of VaR Model
Although the VaR model is one of the models most frequently used by the local financial industry, like any model it has limitations that must be considered:
● | It does not take into account the expected loss in the event that the portfolio return is above the confidence level defined in the VaR. In other words, in the Bank’s case it does not reflect what happens in the 1% of the tail. This is mitigated with the stress measures detailed below. |
● | It does not consider intraday results, but only reflects the potential loss given current positions. |
● | It does not take into account potential changes in the dynamics of movements in market variables (i.e. potential changes in the matrix of variance and covariance). |
(ii) Sensitivity Measurements
Sensitivity measurements are based on estimated scenarios for positions in the Trading and Banking Books.
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Trading Book Positions by Risk Factor: The table below sets forth the Trading Book positions by risk factor as of December 31, 2018, 2019 and 2020:
| | | | | | |
| | Position | ||||
Risk Factor / Products |
| 2018 |
| 2019 |
| 2020 |
| | millions of Ch$ | | millions of Ch$ | | millions of Ch$ |
CLP rates |
|
|
|
|
|
|
Derivatives |
| 120 |
| 45 |
| 170 |
Investments |
| 0 |
| 0 |
| 0 |
CLF rates | | | | | | |
Derivatives |
| (78) |
| (11) |
| (123) |
Investments |
| — |
| — |
| — |
COP rates | | | | | | |
Derivatives |
| (5) |
| 37 |
| 3 |
Investments |
| (1) |
| (3) |
| (22) |
UVR rates | | | | | | |
Derivatives |
| 10 |
| 6 |
| 2 |
Investments |
| (1) |
| (0) |
| (1) |
USD rates |
| 58 |
| 20 |
| (27) |
OM rates |
| (1) |
| (1) |
| 0 |
FX (exchange rate) |
| 2,403 |
| 968 |
| 874 |
Inflation (CLF) |
| — |
| — |
| — |
Optionality (Gamma, Vega) |
| 156 |
| 89 |
| 16 |
Trading Book positions by risk factor correspond to the fair and equivalent nominal value (exchange rate or “FX,” inflation and optionality) of the portfolios within the Trading Book. The Trading Book is made up of the financial assets presented in Notes 6 and 8, and financial liabilities presented in Note 8, all of them included in our consolidated financial statements. The currency position incorporates the amortized cost positions from the statement of financial position, excluding the positions related to the foreign investment with their respective hedges. The currency positions in the Trading Book have limits for each currency.
Banking Book by risk factor:
FX and Inflation Positions in Banking Book:
The following table sets forth the foreign currency and inflation positions in the Banking Book as of December 31, 2018, 2019 and 2020:
| | | | | | |
|
| Year End |
| Year End |
| Year End |
| | 2018 | | 2019 | | 2020 |
CLF Position |
| 1,783,587 |
| 2,091,756 |
| 2,227,846 |
FX Position |
| 167,260 | | 4,635,953 |
| (5,824) |
Positions in currencies other than Chilean pesos and exposure to indexation are classified by book and by their effect on the Bank’s financial statements, reflecting the spot exposure to each risk factor. It is important to highlight the impact of structural exchange rate risk arising from the Bank’s positions in currencies other than the Chilean peso related primarily to the consolidation of investments in subsidiaries or affiliates and the results and hedges of these investments. The process of managing structural exchange rate risk is dynamic and attempts to limit the impact of currency depreciation, thus optimizing the financial cost of hedges. The general policy for managing this risk is to finance them in the currency of the investment provided that the depth of the market so allows and the cost is justified by the expected depreciation. One-time hedges are also taken out when the Bank considers that any currency may weaken beyond market expectations with respect to the Chilean peso. As of December 31, 2020, greater ongoing exposure was concentrated in Colombian pesos (approximately US$674.36 million). The bank hedges part of these positions on a permanent basis using currency derivatives. The currency positions in the Banking Book have limits for each currency.
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Structural Interest Rate Position in Banking Book (Interest Rate Gap):
Structural interest rate risk is measured using representation by risk factor of cash flows expressed at fair value, assigned at the repricing date and by currency. This methodology facilitates the detection of concentrations of interest rate risk over different time frames. All positions in and outside the statement of financial position must be ungrouped into cash flows and placed at the repricing / maturity point. For those accounts that do not have contractual maturities, an internal model is used to analyze and estimate their durations and sensitivities.
The following table shows the Banking Book positions for the most important currencies in which the Bank does business as of December 31, 2018, 2019 and 2020 (products valued at amortized cost and fair value through other comprehensive income instruments and derivatives valued at fair value).
The exposures presented are the present values resulting from:
● | Modeling contractual cash flows based on behaviors that affect market risk exposure (for example, prepayment and renewal, among others). |
● | Discounting cash flows from items accounted for on an accrual basis at a rate that represents the opportunity cost of the liability/asset. |
● | Discounting cash flows from items accounted for at market value at the market rate. |
| | | | | | | | | | |
| | Year-End 2018 | ||||||||
|
| |
| |
| 3 Months to 1 |
| 1 to 3 |
| More than |
CLP Position | | <1 Month | | 1 - 3 Months | | Year | | Years | | 3 Years |
ASSETS |
| 3,519,008 |
| 1,000,478 |
| 1,753,132 |
| 1,800,011 |
| 1,181,156 |
Cash |
| 222,836 |
| — |
| — |
| — |
| — |
Investments under resale agreements |
| 76,610 |
| — |
| — |
| — |
| — |
Loans to customers, net |
| 1,873,406 |
| 939,865 |
| 1,727,959 |
| 1,345,348 |
| 952,614 |
Financial instruments at FVTOCI |
| 122,284 |
| 60,613 |
| 25,173 |
| 454,663 |
| 228,542 |
Financial instruments at amortized cost |
| — |
| — |
| — |
| — |
| — |
PP&E and intangible assets |
| 709,488 |
| — |
| — |
| — |
| — |
Other assets |
| 514,384 |
| — |
| — |
| — |
| — |
LIABILITIES |
| (8,733,561) |
| (1,463,211) |
| (2,101,204) |
| (560,099) |
| (330,000) |
Checking accounts and demand deposits |
| (2,071,099) |
| — |
| — |
| — |
| — |
Time deposits and other time liabilities |
| (2,700,406) |
| (1,453,468) |
| (2,090,629) |
| (407,126) |
| — |
Debt instruments issued |
| (832) |
| (9,743) |
| (10,575) |
| (152,973) |
| (330,000) |
Other liabilities |
| (349,465) |
| — |
| — |
| — |
| — |
Capital and reserves |
| (3,328,337) |
| — |
| — |
| — |
| — |
Repos |
| (283,422) |
| — |
| — |
| — |
| — |
DERIVATIVES |
| (209,799) |
| 1,521,695 |
| 394,300 |
| 209,804 |
| 65,913 |
Financial derivative instruments |
| (209,799) |
| 1,521,695 |
| 394,300 |
| 209,804 |
| 65,913 |
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| | | | | | | | | | |
| | Year-End 2018 | ||||||||
| | | | | | 3 Months to 1 | | 1 to 3 | | More than |
CLF Position |
| <1 Month |
| 1 - 3 Months |
| Year |
| Years |
| 3 Years |
ASSETS | | 466,115 |
| 447,398 |
| 1,329,598 |
| 1,845,603 |
| 6,182,033 |
Cash |
| — |
| — |
| — |
| — |
| — |
Investments under resale agreements |
| — |
| — |
| — |
| — |
| — |
Loans to customers, net |
| 452,555 |
| 441,731 |
| 1,309,397 |
| 1,293,838 |
| 6,059,288 |
Financial instruments at FVTOCI |
| 5,773 |
| 5,667 |
| 20,201 |
| 551,765 |
| 122,745 |
Financial instruments at amortized cost |
| — |
| — |
| — |
| — |
| — |
PP&E and intangible assets |
| — |
| — |
| — |
| — |
| — |
Other assets |
| 7,787 |
| — |
| — |
| — |
| — |
LIABILITIES |
| (214,266) |
| (181,744) |
| (190,917) |
| (1,072,879) |
| (5,201,884) |
Checking accounts and demand deposits |
| — |
| — |
| — |
| — |
| — |
Time deposits and other time liabilities |
| (34,503) |
| (173,824) |
| (55,268) |
| — |
| (625,916) |
Debt instruments issued |
| (46,657) |
| (7,920) |
| (135,649) |
| (1,072,879) |
| (4,575,968) |
Other liabilities |
| (133,106) |
| — |
| — |
| — |
| — |
| | | | | | | | | | |
| | Year-End 2018 | ||||||||
|
| |
| |
| 3 Months to |
| 1 to 3 |
| More than |
COP and UVR Position | | <1 Month | | 1 - 3 Months | | 1 Year | | Years | | 3 Years |
ASSETS |
| 1,907,247 |
| 661,084 |
| 1,229,626 |
| 1,015,315 |
| 849,150 |
Cash |
| 176,062 |
| — |
| — |
| — |
| — |
Investments under resale agreements |
| 10,864 |
| — |
| — |
| — |
| — |
Loans to customers, net |
| 1,083,664 |
| 582,098 |
| 714,268 |
| 724,255 |
| 713,988 |
Financial instruments at FVTOCI |
| — |
| 15,338 |
| 515,216 |
| 290,669 |
| 133,015 |
Financial instruments at amortized cost |
| 2 |
| 63,648 |
| 142 |
| 391 |
| 2,147 |
PP&E and intangible assets |
| — |
| — |
| — |
| — |
| — |
Other assets |
| 636,655 |
| — |
| — |
| — |
| — |
LIABILITIES |
| (3,742,035) |
| (397,056) |
| (681,848) |
| (399,100) |
| (317,788) |
Checking accounts and demand deposits |
| (1,505,615) |
| — |
| — |
| — |
| — |
Time deposits and other time liabilities |
| (438,977) |
| (390,936) |
| (623,200) |
| (288,729) |
| (116,165) |
Debt instruments issued |
| (65,209) |
| (6,120) |
| (58,545) |
| (110,184) |
| (200,206) |
Other liabilities |
| (991,270) |
| — |
| (103) |
| (187) |
| (1,417) |
Capital and reserves |
| (740,964) |
| — |
| — |
| — |
| — |
Repos |
| — |
| — |
| — |
| — |
| — |
DERIVATIVES |
| (102,723) |
| (119,945) |
| (125,485) |
| 137,443 |
| (35,028) |
257
| | | | | | | | | | |
| | Year-End 2018 | ||||||||
|
| |
| |
| 3 Months to 1 |
| |
| More than 3 |
FX Position | | <1 Month | | 1 -3 Months | | Year | | 1 to 3 Years | | Years |
ASSETS |
| 1,502,806 |
| 632,091 |
| 1,202,832 |
| 126,122 |
| 102,349 |
Cash |
| 339,679 |
| — |
| — |
| — |
| — |
Investments under resale agreements |
| — |
| — |
| — |
| — |
| — |
Loans to customers, net |
| 790,001 |
| 631,796 |
| 1,167,302 |
| 115,097 |
| 73,616 |
Financial instruments at FVTOCI |
| 288 |
| 295 |
| 35,530 |
| 11,025 |
| 28,733 |
Financial instruments at amortized cost |
| — |
| — |
| — |
| — |
| — |
PP&E and intangible assets |
| — |
| — |
| — |
| — |
| — |
Other assets |
| 372,838 |
| — |
| — |
| — |
| — |
LIABILITIES |
| (1,329,014) |
| (643,544) |
| (1,750,440) |
| (173,922) |
| — |
Checking accounts and demand deposits |
| (255,343) |
| — |
| — |
| — |
| — |
Time deposits and other time liabilities |
| (724,941) |
| (271,892) |
| (577,917) |
| — |
| — |
Debt instruments issued |
| — |
| (131,356) |
| (533,810) |
| — |
| — |
Other liabilities |
| (300,129) |
| (240,296) |
| (638,713) |
| (173,922) |
| — |
Capital and reserves |
| (41,766) |
| — |
| — |
| — |
| — |
Repos |
| (6,835) |
| — |
| — |
| — |
| — |
| | | | | | | | | | |
| | Year-End 2019 | ||||||||
|
| | | | | 3 Months to 1 | | | | More than 3 |
CLP Position |
| <1 Month |
| 1 - 3 Months |
| Year |
| 1 to 3 Years |
| Years |
ASSETS |
| 3,507,090 |
| 965,331 |
| 2,382,124 |
| 1,924,538 |
| 1,365,975 |
Cash |
| 265,308 | | — | | — | | — | | — |
Investments under resale agreements |
| 75,775 | | — | | — | | — | | — |
Loans to customers, net |
| 1,664,084 | | 915,555 | | 1,894,953 | | 1,566,750 | | 809,105 |
Financial instruments at FVTOCI |
| 217,128 | | 49,776 | | 487,171 | | 357,788 | | 556,870 |
Financial instruments at amortized cost |
| — | | — | | — | | — | | — |
PP&E and intangible assets |
| 903,517 | | — | | — | | — | | — |
Other assets |
| 381,278 | | — | | — | | — | | — |
LIABILITIES |
| (8,633,089) |
| (2,251,174) |
| (3,200,762) |
| (632,972) |
| (215,000) |
Checking accounts and demand deposits |
| (2,271,434) |
| — | | — | | — | | — |
Time deposits and other time liabilities |
| (2,697,902) |
| (1,833,340) |
| (3,119,242) |
| (397,972) |
| — |
Debt instruments issued |
| (1,052) |
| (21,492) |
| (81,520) |
| (235,000) |
| (215,000) |
Other liabilities |
| (268,096) |
| — | | — | | — | | — |
Capital and reserves |
| (3,346,102) |
| — | | — | | — | | — |
Repos |
| (48,503) |
| (396,342) |
| — |
| — |
| — |
DERIVATIVES |
| 988,919 |
| 1,140,587 |
| 900,023 |
| 664,608 |
| (407,679) |
Financial derivative instruments |
| 988,919 |
| 1,140,587 |
| 900,023 |
| 664,608 |
| (407,679) |
258
| | | | | | | | | | |
| | Year-End 2019 | ||||||||
|
| |
| |
| 3 Months to |
| |
| More than 3 |
CLF Position | | <1 Month |
| 1 - 3 Months |
| 1 Year | | 1 to 3 Years |
| Years |
ASSETS |
| 536,884 |
| 595,857 |
| 1,670,189 |
| 2,172,579 |
| 6,662,306 |
Cash |
| — |
| — |
| — |
| — |
| — |
Investments under resale agreements |
| — |
| — |
| — |
| — |
| — |
Loans to customers, net |
| 445,023 |
| 589,307 |
| 1,656,631 |
| 1,402,913 |
| 6,429,371 |
Financial instruments at FVTOCI |
| 405 |
| 6,550 |
| 13,558 |
| 769,666 |
| 232,935 |
Financial instruments at amortized cost |
| — |
| — |
| — |
| — |
| — |
PP&E and intangible assets |
| — |
| — |
| — |
| — |
| — |
Other assets |
| 91,456 |
| — |
| — |
| — |
| — |
LIABILITIES |
| (432,799) |
| (47,785) |
| (655,079) |
| (752,948) |
| (5,426,561) |
Checking accounts and demand deposits |
| — |
| — |
| — |
| — |
| — |
Time deposits and other time liabilities |
| (11,768) |
| (8,797) |
| (6,433) |
| — |
| (642,792) |
Debt instruments issued |
| (152,346) |
| (38,988) |
| (648,646) |
| (752,948) |
| (4,783,769) |
Other liabilities |
| (268,685) |
| — |
| — |
| — |
| — |
Capital and reserves |
| — |
| — |
| — |
| — |
| — |
Repos |
| — |
| — |
| — |
| — |
| — |
DERIVATIVES |
| (936,785) |
| (814,209) |
| (485,247) |
| (904,781) |
| 910,135 |
Financial derivative instruments |
| (936,785) |
| (814,209) |
| (485,247) |
| (904,781) |
| 910,135 |
| | | | | | | | | | |
| | Year-End 2019 | ||||||||
|
| | | |
| 3 Months to |
| |
| More than 3 |
COP and UVR Position | | <1 Month |
| 1 - 3 Months | | 1 Year | | 1 to 3 Years | | Years |
ASSETS |
| 9,635,709 |
| 3,158,773 |
| 3,439,333 |
| 4,757,799 |
| 3,877,019 |
Cash |
| 1,114,972 |
| — |
| — |
| — |
| — |
Investments under resale agreements |
| 118,798 |
| — |
| — |
| — |
| — |
Loans to customers, net |
| 5,877,580 |
| 2,791,395 |
| 2,957,266 |
| 3,175,338 |
| 2,781,453 |
Financial instruments at FVTOCI |
| 110,977 |
| 109,252 | | 444,583 |
| 1,537,289 |
| 1,080,606 |
Financial instruments at amortized cost |
| 219,852 |
| 51,991 |
| 586 |
| 1,649 |
| 9,479 |
PP&E and intangible assets |
| 15,068 |
| 206,135 |
| 36,898 |
| 43,523 |
| 5,481 |
Other assets |
| 2,178,462 |
| — |
| — |
| — |
| — |
LIABILITIES |
| (9,664,703) |
| (1,425,144) |
| (2,909,463) |
| (2,277,722) |
| (1,660,168) |
Checking accounts and demand deposits |
| (8,091,259) |
| — |
| — |
| — |
| — |
Time deposits and other time liabilities |
| (1,573,669) |
| (1,389,229) |
| (2,595,308) |
| (1,512,255) |
| (421,580) |
Debt instruments issued |
| (310,411) |
| (35,915) |
| (314,155) |
| (765,467) |
| (1,238,588) |
Other liabilities |
| (3,323,133) |
| — |
| — |
| — |
| — |
Capital and reserves |
| 3,633,769 |
| — |
| — |
| — |
| — |
Repos |
| — |
| — |
| — |
| — |
| — |
DERIVATIVES |
| 1,041,162 |
| (2,616,302) |
| (1,426,370) |
| (262,333) |
| 22,897 |
Financial derivative instruments |
| 1,041,162 |
| (2,616,302) |
| (1,426,370) |
| (262,333) |
| 22,897 |
259
| | | | | | | | | | |
| | Year-End 2019 | ||||||||
|
| | | |
| 3 Months to |
| |
| More than 3 |
FX Position | | <1 Month |
| 1 - 3 Months |
| 1 Year |
| 1 to 3 Years |
| Years |
ASSETS |
| 2,104,020 |
| 919,634 |
| 1,907,220 |
| 88,732 |
| 125,788 |
Cash |
| 297,733 |
| — |
| — |
| — |
| — |
Investments under resale agreements |
| 72,114 |
| — |
| — |
| — |
| — |
Loans to customers, net |
| 999,873 |
| 897,137 |
| 1,907,186 |
| 86,681 |
| 125,682 |
Financial instruments at FVTOCI |
| 112,316 |
| 22,497 |
| 34 |
| 2,051 |
| 106 |
Financial instruments at amortized cost |
| — |
| — |
| — |
| — |
| — |
PP&E and intangible assets |
| — |
| — |
| — |
| — |
| — |
Other assets |
| 621,984 |
| — |
| — |
| — |
| — |
LIABILITIES |
| (1,312,536) |
| (1,418,655) |
| (3,610,347) |
| (69,784) |
| — |
Checking accounts and demand deposits | | (329,762) |
| — |
| — | | — | | — |
Time deposits and other time liabilities |
| (1,158,605) |
| (701,454) |
| (2,494,262) |
| (32,270) |
| — |
Debt instruments issued |
| — |
| (570,793) |
| — | | — | | — |
Other liabilities |
| 499,617 |
| (146,408) |
| (1,116,085) |
| (37,514) |
| — |
Capital and reserves |
| (323,786) |
| — |
| — | | — | | — |
Repos |
| — |
| — |
| — | | — | | — |
DERIVATIVES |
| 787,971 |
| 524,265 |
| 806,558 |
| 77,221 |
| 15,380 |
Financial derivative instruments |
| 787,971 |
| 524,265 |
| 806,558 |
| 77,221 |
| 15,380 |
|
| | | | | | | | | |
| | | | | | | | | | |
| | Year-End 2020 | ||||||||
|
| | | |
| 3 Months to 1 |
| |
| More than 3 |
CLP Position | | <1 Month |
| 1 - 3 Months |
| Year | | 1 to 3 Years |
| Years |
ASSETS |
| 4,885,890 | | 845,251 | | 2,289,124 | | 2,252,567 | | 1,918,038 |
Cash |
| 1,232,012 | | — | | — | | — | | — |
Investments under resale agreements |
| 25,500 | | 40,648 | | 43,946 | | — | | — |
Loans to customers, net |
| 1,232,959 | | 786,017 | | 1,992,513 | | 1,950,752 | | 1,047,865 |
Financial instruments at FVTOCI |
| 1,168,120 | | 18,586 | | 252,665 | | 301,815 | | 870,173 |
Financial instruments at amortized cost |
| — | | — | | — | | — | | — |
PP&E and intangible assets |
| 732,017 | | — | | — | | — | | — |
Other assets |
| 495,282 | | — | | — | | — | | — |
LIABILITIES |
| (10,169,966) | | (1,637,063) | | (2,477,284) | | (661,668) | | (1,950,515) |
Checking accounts and demand deposits |
| (3,198,645) |
| — | | — | | — | | — |
Time deposits and other time liabilities |
| (3,660,382) | | (1,627,063) | | (2,365,174) | | (432,449) | | — |
Debt instruments issued |
| — | | (10,000) | | (112,110) | | (229,219) | | (107,110) |
Other liabilities |
| (690,254) | | — | | — | | — | | — |
Capital and reserves |
| (2,315,411) | | — | | — | | — | | — |
Repos |
| (305,274) | | — | | — | | — | | (1,843,405) |
DERIVATIVES |
| 830,637 | | 1,429,392 | | 516,336 | | 272,765 | | 24,985 |
Financial derivative instruments |
| 830,637 | | 1,429,392 | | 516,336 | | 272,765 | | 24,985 |
260
| | | | | | | | | | |
| | Year-End 2020 | ||||||||
| | | | | | 3 Months to | | | | More than 3 |
CLF Position |
| <1 Month |
| 1 - 3 Months |
| 1 Year |
| 1 to 3 Years |
| Years |
ASSETS |
| 539,005 | | 502,506 | | 1,683,797 | | 1,586,457 | | 6,989,722 |
Cash |
| — | | — | | — | | — | | — |
Investments under resale agreements |
| — | | — | | — | | — | | — |
Loans to customers, net |
| 525,727 | | 482,619 | | 1,579,094 | | 1,438,439 | | 6,594,948 |
Financial instruments at FVTOCI |
| 1,395 | | 19,887 | | 104,703 | | 148,018 | | 394,774 |
Financial instruments at amortized cost |
| — | | — | | — | | — | | — |
PP&E and intangible assets |
| — | | — | | — | | — | | — |
Other assets |
| 11,883 | | — | | — | | — | | — |
LIABILITIES |
| (223,471) | | (14,789) | | (284,994) | | (768,465) | | (5,616,884) |
Checking accounts and demand deposits |
| (13,448) |
| — |
| — |
| — |
| — |
Time deposits and other time liabilities |
| (5,628) | | (6,575) | | (2,139) | | (21,493) | | (638,607) |
Debt instruments issued |
| (44,561) | | (8,214) | | (282,855) | | (746,972) | | (4,978,277) |
Other liabilities |
| (159,834) | | — | | — | | — | | — |
Capital and reserves |
| — | | — | | — | | — | | — |
Repos |
| — | | — | | — | | — | | — |
DERIVATIVES |
| (1,263,538) | | (795,275) | | (662,416) | | (444,847) | | 1,001,038 |
Financial derivative instruments |
| (1,263,538) | | (795,275) | | (662,416) | | (444,847) | | 1,001,038 |
| | | | | | | | | | |
| | Year-End 2020 | ||||||||
| | | | | | 3 Months to | | | | More than 3 |
COP and UVR Position |
| <1 Month |
| 1 - 3 Months |
| 1 Year |
| 1 to 3 Years |
| Years |
ASSETS |
| 1,869,283 | | 646,379 | | 727,989 | | 1,211,813 | | 684,493 |
Cash |
| 248,360 | | — | | — | | — | | — |
Investments under resale agreements |
| 14,064 | | — | | — | | — | | — |
Loans to customers, net |
| 1,297,544 | | 562,571 | | 580,659 | | 618,423 | | 551,642 |
Financial instruments at FVTOCI |
| 6,487 | | 36,183 | | 90,616 | | 416,823 | | 5,371 |
Financial instruments at amortized cost |
| 41,277 | | 26,643 | | 123 | | 355 | | 2,072 |
PP&E and intangible assets |
| 2,089 | | 20,982 | | 56,591 | | 176,212 | | 125,408 |
Other assets |
| 259,462 | | — | | — | | — | | — |
LIABILITIES |
| (2,603,311) | | (271,657) | | (661,856) | | (384,765) | | (415,621) |
Checking accounts and demand deposits |
| (1,959,635) |
| — |
| — |
| — |
| — |
Time deposits and other time liabilities |
| (201,206) | | (263,924) | | (606,142) | | (210,874) | | (74,293) |
Debt instruments issued |
| (40,351) | | (7,733) | | (55,714) | | (173,891) | | (341,328) |
Other liabilities |
| (965,043) | | — | | — | | — | | — |
Capital and reserves |
| 562,924 | | — | | — | | — | | — |
Repos |
| — | | — | | — | | — | | — |
DERIVATIVES |
| 180,149 | | (743,503) | | (74,962) | | (180,337) | | (64,380) |
Financial derivative instruments |
| 180,149 | | (743,503) | | (74,962) | | (180,337) | | (64,380) |
261
| | | | | | | | | | |
| | Year-End 2020 | ||||||||
| | | | | | 3 Months to | | | | More than 3 |
FX Position |
| <1 Month |
| 1 - 3 Months |
| 1 Year |
| 1 to 3 Years |
| Years |
ASSETS |
| 2,557,632 | | 578,295 | | 894,517 | | 124,463 | | 201,010 |
Cash |
| 1,390,180 | | — | | — | | — | | — |
Investments under resale agreements |
| 91,215 | | — | | — | | — | | — |
Loans to customers, net |
| 565,954 | | 578,263 | | 892,605 | | 124,457 | | 200,912 |
Financial instruments at FVTOCI |
| — | | 32 | | 1,912 | | 6 | | 98 |
Financial instruments at amortized cost |
| — | | — | | — | | — | | — |
PP&E and intangible assets |
| — | | — | | — | | — | | — |
Other assets |
| 510,283 | | — | | — | | — | | — |
LIABILITIES |
| (2,190,757) | | (884,847) | | (939,503) | | (3,591) | | — |
Checking accounts and demand deposits |
| (494,283) |
| — |
| — | | — | | — |
Time deposits and other time liabilities |
| (728,796) | | (404,727) | | (228,942) | | (49) | | - |
Debt instruments issued |
| - | | (123,708) | | - | | - | | - |
Other liabilities |
| (917,957) | | (356,412) | | (710,561) | | (3,542) | | - |
Capital and reserves |
| (49,721) | | - | | - | | - | | - |
Repos |
| - | | - | | - | | - | | - |
DERIVATIVES |
| 103,599 | | (24,269) | | 87,848 | | (24,433) | | (12,182) |
Financial derivative instruments |
| 103,599 | | (24,269) | | 87,848 | | (24,433) | | (12,182) |
The following table summarizes the aforementioned exposures:
| | | | | | |
|
| 2018 |
| 2019 |
| 2020 |
| | Exposure | | Exposure | | Exposure |
|
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
CLP |
| (1,952,375) |
| (1,501,478) |
| (1,631,511) |
CLF |
| 1,783,587 |
| 2,091,756 |
| 2,227,846 |
COP-UVR |
| (121,146) |
| (3,690,487) |
| (80,286) |
FX |
| 288,406 |
| 945,466 |
| 467,782 |
(iii) Sensitivity Analysis for Financial Risks
The bank uses stress testing as a sensitivity analysis tool in order to control financial risk. This measurement is performed separately for each class of financial instruments.
Sensitivity is estimated using the DV01 indicator, which is a measure of sensitivity of the portfolio results considering an increase of one basis point (0.01%) of the zero coupon interest rate of the financial risk factor for different maturities in annualized terms.
The following table presents an estimate of the likely, but reasonable impact of the fluctuations in interest rates, exchange rates and implicit volatilities (market factors) that would have an impact the based on a scenario of each class of financial instrument.
The estimated economic impact derived from the scenarios of changes in market factors presents effects in profit and loss for trading instruments and instruments measured at amortized cost, as well as impacts in other comprehensive income relating to investment instruments at fair value through other comprehensive income (FVTOCI), cash flow hedges and foreign investments portfolios.
The scenarios presented below correspond to the probable worst-case scenarios chosen from a set of scenarios agreed upon based on the opinions of specialists in economics, financial risk and traders. In order to estimate the economic impact, sensitivities (DV01) and scenario related changes must be multiplied for each market factor.
Scenarios are presented separately for Chile and Colombia.
262
Interest Rate Scenarios — Chile (basis points — 0.01%):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Scenarios for impact on instruments measured | ||||||
Scenarios for impact on financial trading instruments | | Scenarios for impact on financial intruments at FVTOCI | | at amortized cost | ||||||||||||||||||||||||||||||
| | Overnight | | Gov’t | | Overnight | | Gov’t | | Curve | | Curves | | | | Overnight | | Gov’t | | Overnight | | Gov’t | | Curve | | Curves | | | | Overnight | | Overnight | | Curve |
Term |
| CLP |
| CLP |
| CLF |
| CLF |
| USD |
| MX |
| Term |
| CLP |
| CLP |
| CLF |
| CLF |
| USD |
| MX |
| Term |
| CLP |
| CLF |
| USD |
1D | | (39) | | 39 | | 87 | | 162 | | (51) | | 51 | | 1D | | 39 | | 39 | | (87) | | 162 | | 51 | | (51) | | 1D | | | | | | |
3M |
| (39) | | 39 | | 87 | | 162 | | (51) | | 51 |
| 3M |
| 39 | | 39 | | (87) | | 162 | | 51 | | (51) |
| 1M |
| 39 | | 87 | | 51 |
6M |
| (39) | | 39 | | 87 | | 162 | | (51) | | 51 |
| 6M |
| 39 | | 39 | | (87) | | 162 | | 51 | | (51) |
| 3M |
| 39 | | 87 | | 51 |
9M |
| (36) | | 42 | | 87 | | 159 | | (67) | | 67 |
| 9M |
| 36 | | 42 | | (87) | | 159 | | 67 | | (67) |
| 6M |
| 39 | | 87 | | 51 |
1Y |
| (33) | | 46 | | 93 | | 155 | | (86) | | 86 |
| 1Y |
| 33 | | 46 | | (93) | | 155 | | 86 | | (86) |
| 9M |
| 36 | | 87 | | 67 |
2Y |
| (37) | | 39 | | 70 | | 93 | | (101) | | 101 |
| 2Y |
| 37 | | 39 | | (70) | | 93 | | 101 | | (101) |
| 1Y |
| 33 | | 93 | | 86 |
3Y |
| (47) | | 52 | | 68 | | 88 | | (103) | | 103 |
| 3Y |
| 47 | | 52 | | (68) | | 88 | | 103 | | (103) |
|
|
|
|
|
|
|
|
4Y |
| (57) | | 65 | | 68 | | 83 | | (105) | | 105 |
| 4Y |
| 57 | | 65 | | (68) | | 83 | | 105 | | (105) |
|
|
|
|
|
|
|
|
5Y |
| (67) | | 77 | | 67 | | 79 | | (106) | | 106 |
| 5Y |
| 67 | | 77 | | (67) | | 79 | | 106 | | (106) |
|
|
|
|
|
|
|
|
7Y |
| (65) | | 66 | | 74 | | 81 | | (103) | | 103 |
| 7Y |
| 65 | | 66 | | (74) | | 81 | | 103 | | (103) |
|
|
|
|
|
|
|
|
10Y |
| (63) | | 50 | | 83 | | 85 | | (98) | | 98 |
| 10Y |
| 63 | | 50 | | (83) | | 85 | | 98 | | (98) |
|
|
|
|
|
|
|
|
20Y |
| (63) | | 50 | | 80 | | 81 | | (115) | | 115 |
| 20Y |
| 63 | | 50 | | (80) | | 81 | | 115 | | (115) |
|
|
|
|
|
|
|
|
Exchange Rate Scenarios — Chile:
| | | | | | | |
|
| Scenarios for impact |
| Scenarios for impact |
| Scenarios for impact on |
|
| | on financial trading | | on financial instruments | | instruments measured at |
|
Exchange Rate | | instruments | | at FVTOCI | | amortized cost |
|
USD-CLP |
| (10.9) | % | (10.9) | % | (10.9) | % |
USD-COP |
| 10.4 | % | 10.4 | % | 10.4 | % |
Interest Rate Scenarios — Colombia (basis points — 0.01%):
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Scenarios for impact on | ||||
| | | | | | | | Scenarios for impact on financial instruments | | measured at amortized | ||||||||||
Scenarios for impact on financial trading instruments | | at FVTOCI | | instruments cost | ||||||||||||||||
| | | | | | | | |
| | | Swap | | Curve | | |
| Swap |
| Curve |
Term |
| Gov’t COP |
| Swap IBR |
| Curve USD |
| Term | | Gov’t COP |
| IBR |
| USD |
| Term | | IBR | | USD |
1D |
| 137 | | 37 | | 13 |
| 1D |
| 137 | | 37 | | 13 |
| 1D |
| 37 | | 13 |
3M |
| 133 | | 40 | | 17 |
| 3M |
| 133 | | 40 | | 17 |
| 1M |
| 79 | | 14 |
6M |
| 130 | | 78 | | 19 |
| 6M |
| 130 | | 78 | | 19 |
| 3M |
| 40 | | 17 |
9M |
| 126 | | 77 | | 27 |
| 9M |
| 126 | | 77 | | 27 |
| 6M |
| 78 | | 19 |
1Y |
| 122 | | 75 | | 35 |
| 1Y |
| 122 | | 75 | | 35 |
| 9M |
| 77 | | 27 |
2Y |
| 108 | | 96 | | 39 |
| 2Y |
| 108 | | 96 | | 39 |
| 1Y |
| 75 | | 35 |
3Y |
| 93 | | 94 | | 35 |
| 3Y |
| 93 | | 94 | | 35 |
|
|
|
|
|
|
4Y |
| 85 | | 95 | | 36 |
| 4Y |
| 85 | | 95 | | 36 |
|
|
|
|
|
|
5Y |
| 86 | | 96 | | 37 |
| 5Y |
| 86 | | 96 | | 37 |
|
|
|
|
|
|
7Y |
| 88 | | 98 | | 39 |
| 7Y |
| 88 | | 98 | | 39 |
|
|
|
|
|
|
10Y |
| 91 | | 101 | | 42 |
| 10Y |
| 91 | | 101 | | 42 |
|
|
|
|
|
|
20Y |
| 93 | | 111 | | 51 |
| 20Y |
| 93 | | 111 | | 51 |
|
|
|
|
|
|
Exchange Rate Scenarios — Colombia:
| | | | | | | |
|
| Scenario for impact on |
| Scenario for impact |
| |
|
| | financial trading | | on financial instruments | | Scenario for impact on |
|
Exchange Rate | | instruments | | at FVTOCI | | Amortized Cost Book |
|
USD-COP |
| (5.1) | % | (5.1) | % | (5.1) | % |
263
The consolidated effects in profit or loss of the scenarios are presented below:
● | The following table presents the impact on profit and loss (P&L) for the years ended December 31, 2018, 2019 and 2020 derived from the aforementioned scenarios applied to our financial trading instruments as of year-end: |
| | | | | | |
Potential Impact on P&L |
| 2018 |
| 2019 |
| 2020 |
|
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
CLP Rate Risk |
| (5,019) |
| (4,881) |
| (8,403) |
Derivatives |
| (5,018) |
| (4,879) |
| (8,403) |
Investments |
| (1) |
| (2) |
| — |
CLF Rate Risk |
| (5,942) |
| (5,130) |
| (8,488) |
Derivatives |
| (5,942) |
| (5,130) |
| (8,488) |
Investments |
| — |
| — |
| — |
COP Rate Risk |
| (29,182) |
| (1,200) |
| (3,104) |
Derivatives |
| (29,094) |
| (1,086) |
| (2,508) |
Investments |
| (88) |
| (114) |
| (596) |
UVR Rate Risk |
| (375) |
| (108) |
| (133) |
Derivatives |
| (364) |
| (102) |
| 3 |
Investments |
| (11) |
| (6) |
| (136) |
USD Rate Risk |
| (2,810) |
| (2,711) |
| (2,648) |
Other Currencies Rate Risk |
| (42) |
| (177) |
| (249) |
Total Rate Risk |
| (43,370) |
| (14,207) |
| (23,025) |
Foreign Exchange Risk |
| 150 |
| (763) |
| (163) |
Options Risk(1) |
| 156 |
| 89 |
| 16 |
Total Impact |
| (43,064) |
| (14,881) |
| (23,172) |
(1) | Option Risk includes the (Vega) and Gamma volatility risks. |
● | The following table presents the consolidated impact on the net interest income derived from the aforementioned scenarios on the financial instruments measured at amortized cost for the periods ended December 31, 2018, 2019 and 2020: |
| | | | | | | |
Potential impact on instruments measured at amortized cost |
| 2018 |
| 2019 |
| 2020 | |
| | millions of Ch$ | | millions of Ch$ | | millions of Ch$ | |
Impact of Interbank Rate Risk |
| (12,359) |
| (13,981) |
| (9,626) | |
The impact on the Banking Book does not necessarily mean a gain/loss but it does mean smaller/larger net income from the generation of funds (net funding income, which is the net interest from the financial instruments measured at amortized cost portfolio) for the next 12 months.
264
● | Changes in market factors derived from the aforementioned scenarios also generate an impact on equity accounts as a result of the potential change in FVTOCI instruments portfolio and the cash flow and net foreign investment hedges portfolios, which are presented in the following table: |
As of December 31, 2018:
| | | | | | |
| | Potential Impact on Equity | ||||
Interest Rate | | DV01 (+1 bp) | | Impact of Change in Interest Rate | ||
|
| US$ |
| MUS$ |
| millions of Ch$ |
CLP |
| (254,636) |
| (11.73) |
| (8,180) |
CLF |
| (177,471) |
| (26.29) |
| (18,328) |
COP |
| (189,242) |
| (5.74) |
| (3,988) |
UVR |
| (29,763) |
| (0.55) |
| (380) |
USD |
| (33,769) |
| (2.44) |
| (1,701) |
Other |
| — |
| — |
| — |
Total Rate Impact |
| (684,881) |
| (46.75) |
| (32,577) |
| | | | |
Exchange Rate | | Impact of Change in Prices | ||
|
| MUS$ |
| millions of Ch$ |
USD |
| (3.77) |
| (2,624) |
COP |
| (3.72) |
| (2,594) |
Total Impact on Exchange Rate |
| (7.49) |
| (5,218) |
Total Impact |
| (54.24) |
| (37,795) |
As of December 31, 2019:
| | | | | | |
| | Potential Impact on Equity | ||||
Interest Rate | | DV01 (+1 bp) | | Impact of Change in Interest Rate | ||
|
| US$ |
| MUS$ |
| millions of Ch$ |
CLP |
| (377,765) |
| (31.16) |
| (23,334) |
CLF |
| (221,758) |
| (49.07) |
| (36,744) |
COP |
| (49,254) |
| (1.37) |
| (1,023) |
UVR |
| (142,663) |
| (5.25) |
| (3,931) |
USD |
| (2,353) |
| (0.14) |
| (105) |
Other |
| 888 |
| (0.08) |
| (56) |
Total Rate Impact |
| (792,905) |
| (87.07) |
| (65,193) |
| | | | |
Exchange Rate | | Impact of Change in Prices | ||
|
| MUS$ |
| millions of Ch$ |
USD |
| (134.51) |
| (100,719) |
COP |
| (146.36) |
| (109,591) |
Total Impact on Exchange Rate |
| (280.87) |
| (210,310) |
Total Impact |
| (367.94) |
| (275,503) |
265
As of December 31, 2020:
| | | | | | |
| | Potential Impact on Equity | ||||
Interest Rate | | DV01 (+1 bp) | | Impact of Change in Interest Rate | ||
|
| US$ |
| MUS$ |
| millions of Ch$ |
CLP |
| (707,409) | | (40.13) | | (28,609) |
CLF |
| (201,548) | | (23.15) | | (16,505) |
COP |
| 35,889 | | (8.13) | | (5,780) |
UVR |
| (36,520) | | (3.88) | | (2,755) |
USD |
| (42,030) | | (4.36) | | (3,107) |
Other |
| 11,624 | | (0.59) | | (419) |
Total Rate Impact |
| (939,994) | | (80.24) | | (57,175) |
| | | | |
Exchange Rate | | Impact of Change in Prices | ||
|
| MUS$ |
| millions of Ch$ |
USD |
| (67.25) | | (47,942) |
COP |
| (63.65) | | (45,380) |
Total Impact on Exchange Rate |
| (130.90) | | (93,322) |
Total Impact |
| (211.14) | | (150,497) |
The bank uses accounting hedges to efficiently manage accounting asymmetries present in financial risk exposure. The use of accounting hedges is dependent on limits defined by our board of directors, definitions from the ALCO and our hedging policy. The ALM Division is responsible for designing and implementing strategies and the Financial Risk Management Division for measuring and monitoring the effectiveness of hedges, generating effectiveness indicators that are continuously monitored.
For further details on accounting hedge strategies, see Note 8 of our consolidated financial statements.
b) Liquidity Risk Metrics and Limits
Liquidity risk measurements are focused mainly on quantifying whether the institution has sufficient resources to meet its obligations under both normal and stressed conditions. The bank monitors its liquidity position every day, determining the future flows of its outlays and revenues. In addition, stress tests are performed at the close of each quarter, for which a variety of scenarios encompassing both normal market conditions and stress scenario conditions. The liquidity policy and procedures are subject to review and approval by the Bank’s Board. Periodic reports are generated by the Financial Risk Department, providing a breakdown of the liquidity position of the Bank and its subsidiaries, including any exceptions and the corrective measures adopted, which are regularly submitted to the ALCO for review. The following regulatory and internal metrics are used to monitor and control liquidity risk.
The following regulatory and internal metrics are used to monitor and control liquidity risk.
(i) Regulatory Measurement of Liquidity Risk
Adjusted liquidity gap: CMF Chapter 12-20 (“Management and Measurement of Liquidity Position”) establishes that, with prior authorization from the regulator, cash outflows to retail counterparties may be assigned a different maturity than their contractual maturity based on their statistical behavior. Adjusted mismatches (local consolidated) are restricted to a maximum of:
● | 330-day mismatches in consolidated and foreign currency: 100% of core capital. |
● | 90-day mismatches in consolidated currency: 200% of core capital. |
266
The bank, on a local consolidated level, must continuously observe those limits and periodically report to the CMF its positions at risk and compliance with those limits.
The following table sets forth the use of the liquidity regulatory limit as of December 31, 2018, 2019 and 2020:
| | | | | | |
| | As of December 31, | ||||
| | 2018 | | 2019 | | 2020 |
|
| % |
| % |
| % |
Regulatory Liquidity Indicator | | | | | | |
At 30 days |
| 33 |
| 48 |
| 53 |
At 30 days in foreign currency |
| 12 |
| 17 |
| 0 |
At 90 days |
| 20 |
| 23 |
| 50 |
Note: Negative percentage means that cash inflows exceed cash outflows at maturity
(ii) Regulatory Measurement of Contractual Liquidity Gap
In accordance with CMF Chapter 12-20, all cash flows in and outside the statement of financial position are analyzed provided that they contribute cash flows at their contractual maturity point.
267
Balances of the Bank’s consolidated undiscounted contractual cash flows from financial assets and liabilities as of December 31, 2018, 2019 and 2020, are detailed as follows:
| | | | | | | | | | | | |
| | December 31, 2018 | ||||||||||
| | | | | | 3 Months to | | | | More than | | |
| | <1 Month | | 1 - 3 Months | | 1 Year | | 1 to 3 Years | | 3 Years | | Total |
|
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
Assets |
| 8.514.257 |
| 2.011.569 |
| 4.198.963 |
| 4.769.910 |
| 11.995.096 |
| 31.489.795 |
Cash | | 824,917 |
| — |
| — |
| — |
| — |
| 824,917 |
Financial instruments at fair value through profit or loss |
| 2,482,559 |
| 53,064 |
| 48,895 |
| 21,194 |
| 21,448 |
| 2,627,160 |
Interbank loans at amortized cost without lines of credit |
| 101,070 |
| — |
| — |
| — |
| — |
| 101,070 |
Lines of credit granted to other domestic banks |
| — |
| — |
| — |
| — |
| — |
| — |
Loans and accounts receivable from customers at amortized cost: |
|
|
|
|
|
|
|
|
|
|
| — |
Commercial loans without lines of credit |
| 1,938,742 |
| 1,692,639 |
| 3,091,234 |
| 2,794,506 |
| 6,114,028 |
| 15,631,149 |
Commercial lines of credit and overdrafts |
| 353,608 |
| — |
| — |
| — |
| — |
| 353,608 |
Consumer loans without lines of credit |
| 238,599 |
| 144,822 |
| 530,210 |
| 1,042,725 |
| 764,555 |
| 2,720,911 |
Consumer lines of credit and overdrafts |
| 1,631,979 |
| — |
| — |
| — |
| — |
| 1,631,979 |
Residential mortgage loans |
| 34,982 |
| 71,301 |
| 307,770 |
| 805,994 |
| 4,981,583 |
| 6,201,630 |
Financial instruments at fair value through other comprehensive income |
| 138,948 |
| 42,419 |
| 180,970 |
| 432 |
| 4,245 |
| 367,014 |
Other transactions or commitments without lines of credit |
| 920,134 |
| — |
| — |
| 147 |
| — |
| 920,281 |
Other lines of credit granted |
| — |
| — |
| — |
| — |
| — |
| — |
Derivative instruments |
| (151,281) |
| 7,324 |
| 39,884 |
| 104,912 |
| 109,237 |
| 110,076 |
Liabilities |
| (10,384,693) |
| (2,757,796) |
| (5,299,034) |
| (2,474,632) |
| (6,369,021) |
| (27,285,176) |
Checking accounts and other demand deposits |
| (4,182,632) |
| — |
| — |
| — |
| — |
| (4,182,632) |
Term savings accounts—unconditional withdrawal |
| (2,415) |
| — |
| — |
| — |
| — |
| (2,415) |
Term savings accounts—deferred withdrawal |
| (5,028) |
| — |
| — |
| — |
| — |
| (5,028) |
Obligations with Chilean Central Bank without lines of credit |
| (290,257) |
| — |
| — |
| — |
| — |
| (290,257) |
Lines of credit secured from Chilean Central Bank |
| — |
| — |
| — |
| — |
| — |
| — |
Obligations with other domestic banks without lines of credit |
| (5,863) |
| — |
| — |
| — |
| — |
| (5,863) |
Lines of credit secured from other domestic banks |
| — |
| — |
| — |
| — |
| — |
| — |
Savings accounts and time deposits |
| (4,238,085) |
| (2,315,021) |
| (3,163,485) |
| (798,613) |
| (802,788) |
| (11,317,992) |
Foreign loans without lines of credit |
| (662,358) |
| (404,470) |
| (1,389,725) |
| (352,214) |
| (211,913) |
| (3,020,680) |
Lines of credit from foreign banks |
| (3,026) |
| — |
| — |
| — |
| — |
| (3,026) |
Letter of credit obligations |
| (2,482) |
| (443) |
| (8,211) |
| (17,492) |
| (30,792) |
| (59,420) |
Bonds payable |
| (166,271) |
| (37,862) |
| (737,613) |
| (1,306,313) |
| (5,323,528) |
| (7,571,587) |
Other obligations or payment commitments without |
| (826,276) |
| — |
| — |
| — |
| — |
| (826,276) |
lines of credit |
| | | | | | | | | | | — |
Other lines of credit secured | | — |
| — |
| — |
| — |
| — |
| — |
Net band | | (1,870,436) |
| (746,227) |
| (1,100,071) |
| 2,295,278 |
| 5,626,075 |
| 4,204,619 |
268
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
| | | | | | 3 Months to | | | | More than | | |
| | <1 Month | | 1 - 3 Months | | 1 Year | | 1 to 3 Years | | 3 Years | | Total |
| | millions of Ch$ | | millions of Ch$ | | millions of Ch$ | | millions of Ch$ | | millions of Ch$ | | millions of Ch$ |
Assets |
| 7.290.597 |
| 2.513.201 |
| 4.598.604 |
| 6.174.755 |
| 12.519.277 |
| 33.096.434 |
Cash |
| 840,950 |
| — |
| — |
| — |
| — |
| 840,950 |
Financial instruments recorded at market value |
| 2,988,831 |
| 16,339 |
| 22,998 |
| 34,114 |
| 44,549 |
| 3,106,831 |
Loans to other domestic banks without lines of credit |
| 73,871 |
| — |
| — |
| — |
| — |
| 73,871 |
Lines of credit granted to other domestic banks |
| — |
| — |
| — |
| — |
| — |
| — |
Commercial loans without lines of credit |
| 1,351,426 |
| 1,837,226 |
| 3,480,106 |
| 3,862,542 |
| 6,279,222 |
| 16,810,522 |
Commercial lines of credit and overdrafts |
| 133,856 |
| — |
| — |
| (4) |
| — |
| 133,852 |
Consumer loans without lines of credit |
| 460,594 |
| 134,413 |
| 560,936 |
| 1,074,368 |
| 769,891 |
| 3,000,202 |
Consumer lines of credit and overdrafts |
| 278,985 |
| — |
| — |
| — |
| — |
| 278,985 |
Residential mortgage loans |
| 36,184 |
| 72,739 |
| 329,714 |
| 863,034 |
| 5,300,068 |
| 6,601,739 |
Financial instruments recorded based on issuer’s flow |
| 228,588 |
| 432,020 |
| 123,159 |
| 19 |
| 12 |
| 783,798 |
Other transactions or commitments without lines of credit |
| 973,966 |
| 6,489 |
| 125,128 |
| 248,169 |
| — |
| 1,353,752 |
Other lines of credit granted |
| — |
| — |
| — |
| — |
| — |
| — |
Derivative instruments |
| (76,654) |
| 13,975 |
| (43,437) |
| 92,513 |
| 125,535 |
| 111,932 |
Liabilities |
| (10,209,490) |
| (3,277,951) |
| (6,811,428) |
| (2,201,789) |
| (6,614,381) |
| (29,115,039) |
Checking accounts and other demand deposits |
| (4,718,777) |
| — |
| — |
| — |
| — |
| (4,718,777) |
Term savings accounts - unconditional withdrawal |
| — |
| — |
| — |
| — |
| — |
| — |
Term savings accounts - deferred withdrawal |
| (20,016) |
| — |
| — |
| — |
| — |
| (20,016) |
Obligations with Chilean Central Bank without lines of credit |
| (164,524) |
| (396,408) |
| — |
| — |
| — |
| (560,932) |
Lines of credit secured from Chilean Central Bank |
| — |
| — |
| — |
| — |
| — |
| — |
Obligations with other domestic banks without lines of credit |
| — |
| — |
| — |
| — |
| — |
| — |
Lines of credit secured from other domestic banks |
| — |
| — |
| — |
| — |
| — |
| — |
Savings accounts and time deposits |
| (3,969,193) |
| (2,489,593) |
| (4,035,847) |
| (832,938) |
| (793,531) |
| (12,121,102) |
Foreign loans without lines of credit |
| (232,236) |
| (360,526) |
| (1,918,154) |
| (82,368) |
| (140,861) |
| (2,734,145) |
Lines of credit from foreign banks |
| (47,728) |
| — |
| — |
| — |
| — |
| (47,728) |
Letter of credit obligations |
| (1,467) |
| (327) |
| (4,994) |
| (11,501) |
| (19,631) |
| (37,920) |
Bonds payable |
| (53,876) |
| (31,097) |
| (852,433) |
| (1,214,851) |
| (5,660,358) |
| (7,812,615) |
Other obligations or payment commitments without lines of credit |
| (1,001,673) |
| — |
| — |
| (60,131) |
| — |
| (1,061,804) |
Other lines of credit secured |
| — |
| — |
| — |
| — |
| — |
| — |
Net band | | (2,918,893) |
| (764,750) |
| (2,212,824) |
| 3,972,966 |
| 5,904,896 |
| 3,981,395 |
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| | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||
| | | | | | 3 Months to | | | | More than | | |
| | <1 Month | | 1 - 3 Months | | 1 Year | | 1 to 3 Years | | 3 Years | | Total |
| | millions of Ch$ | | millions of Ch$ | | millions of Ch$ | | millions of Ch$ | | millions of Ch$ | | millions of Ch$ |
Assets |
| 7.853.977 | | 1.865.203 | | 4.229.759 | | 6.585.579 | | 13.831.662 | | 34.366.180 |
Cash |
| 2,944,906 | | — | | — | | — | | — | | 2,944,906 |
Financial instruments recorded at market value |
| 2,710,090 | | 132,637 | | 213,667 | | 620,662 | | 252,199 | | 3,929,255 |
Loans to other domestic banks without lines of credit |
| 14,021 | | 40,648 | | 43,946 | | — | | — | | 98,615 |
Lines of credit granted to other domestic banks |
| — | | — | | — | | — | | — | | — |
Commercial loans without lines of credit |
| 1,060,762 | | 1,500,138 | | 2,935,477 | | 3,650,372 | | 6,795,123 | | 15,941,872 |
Commercial lines of credit and overdrafts |
| (37,094) | | — | | — | | — | | — | | (37,094) |
Consumer loans without lines of credit |
| 52,522 | | 124,295 | | 541,773 | | 1,005,486 | | 766,218 | | 2,490,294 |
Consumer lines of credit and overdrafts |
| (66,702) | | — | | — | | — | | — | | (66,702) |
Residential mortgage loans |
| 71,013 | | 77,691 | | 315,418 | | 914,108 | | 5,510,336 | | 6,888,566 |
Financial instruments recorded based on issuer’s flow |
| 352,299 | | — | | 85,023 | | 16 | | 321,064 | | 758,402 |
Other transactions or commitments without lines of credit |
| 745,736 | | 4,995 | | 195 | | 377,022 | | — | | 1,127,948 |
Other lines of credit granted |
| — | | — | | — | | — | | — | | — |
Derivative instruments |
| 6,424 | | (15,201) | | 94,260 | | 17,913 | | 186,722 | | 290,118 |
Liabilities |
| (14,834,148) | | (2,840,448) | | (4,387,325) | | (2,147,037) | | (7,737,413) | | (31,946,371) |
Checking accounts and other demand deposits |
| (7,101,902) | | — | | — | | — | | — | | (7,101,902) |
Term savings accounts - unconditional withdrawal |
| — | | — | | — | | — | | — | | — |
Term savings accounts - deferred withdrawal |
| (19,403) | | — | | — | | — | | — | | (19,403) |
Obligations with Chilean Central Bank without lines of credit |
| (636,894) | | (1,101) | | — | | — | | — | | (637,995) |
Lines of credit secured from Chilean Central Bank |
| — | | — | | — | | (418,140) | | (1,843,405) | | (2,261,545) |
Obligations with other domestic banks without lines of credit |
| — | | — | | — | | — | | — | | — |
Lines of credit secured from other domestic banks |
| — | | — | | — | | — | | — | | — |
Savings accounts and time deposits |
| (4,612,696) | | (2,441,779) | | (3,357,507) | | (660,888) | | (757,094) | | (11,829,964) |
Foreign loans without lines of credit |
| (561,978) | | (375,610) | | (618,351) | | (23,861) | | — | | (1,579,800) |
Lines of credit from foreign banks |
| (120) | | — | | — | | — | | — | | (120) |
Letter of credit obligations |
| (1,305) | | (364) | | (4,861) | | (12,132) | | (15,533) | | (34,195) |
Bonds payable |
| (938,590) | | (17,783) | | (390,330) | | (961,623) | | (5,065,815) | | (7,374,141) |
Other obligations or payment commitments without lines of credit |
| (961,260) | | (3,811) | | (16,276) | | (70,393) | | (55,566) | | (1,107,306) |
Other lines of credit secured |
| — | | — | | — | | — | | — | | — |
Net band |
| (6,980,171) | | (975,245) | | (157,566) | | 4,438,542 | | 6,094,249 | | 2,419,809 |
The preceding tables present undiscounted cash flows from the Bank’s assets (Notes 5 — 11 of our consolidated financial statements) and liabilities (Notes 16 — 18 of our consolidated financial statements) on the basis of maturity estimation models. The bank’s expected cash flows could vary as a function of changes in the variables that are used to estimate asset and liability maturities.
The grouping corresponds to regulatory categories that bring together financial items with similar characteristics from the perspective of liquidity risk. These categories are modeled separately and reported in cash flows.
(iii) Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
In line with international risk management practices, the Bank uses the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to manage liquidity risk.
The LCR aims to measure the sufficiency of high-quality assets to face a 30-day funding stress scenario. At a minimum, the Bank must survive until the 30th day of the stress scenario with funding from liquid assets in its portfolio because, as described in the standard, managers and/or supervisors would have been able to establish timely corrective measures. On the other hand, the NSFR focuses on maintaining sufficient stable funding to meet (long-term) stable funding needs. We calculate LCR and NSFR using the methodologies defined by the CMF and the Brazilian Central Bank (BACEN). Both regulators set a limit for LCR, while only the BACEN establishes a limit for NSFR. The methodology used to estimate LCR and NSFR consists of liquidity ratios proposed by the “Basel III Committee on Banking Supervision” (“BIS III”) that were adopted by the CMF and the BACEN.
270
By January 2020, Chilean banks began reporting their local LCR figures with a minimum level of 70%. This minimum will gradually rise to 100% by 2023. As of December 31, 2020 the Bank’s LCR was 212.31%.
(iv) Deposits / Loans
Structurally, the Bank’s liquidity can be quantified based on the level of assets and liabilities in its balance sheet. In particular, the following table shows the ratio of deposits / loans in Itaú Corpbanca’s balance sheet. Deposits refer to the carrying amount of funds (demand and time deposits) that customers deposit in the Bank, while loans are credits that the Bank grants. This is a measurement of the reciprocity between the Bank’s commercial activity and the stability of its funding.
| | | | | | | |
|
| Dec 2018 |
| Dec 2019 |
| Dec 2020 | |
Year-End |
| 69.2 | % | 73.7 | % | 81.3 | % |
Minimum |
| 68.5 | % | 65.4 | % | 73.7 | % |
Maximum |
| 72.7 | % | 74.1 | % | 81.3 | % |
Average |
| 70.6 | % | 69.8 | % | 78.5 | % |
Note: Loans are reported net of provisions
(v) Liquidity Warning Levels
Warning levels seek to provide evidence or signs of potential adverse liquidity events. The most relevant warning levels include: counterparty and maturity concentration, currency concentration, product concentration, reserve management, evolution of funding rates and diversification of Liquid Assets.
(vi) Analysis of Pledged and Unpledged Assets
The following presents an analysis of the Bank’s pledged and uncommitted assets that will be available to generate additional funding as fixed-income instruments. For this, pledged assets are.
● | Assets that have been committed or received in guarantee. |
● | Assets that an entity considers that it are restricted from using. |
The following table sets forth our available assets and investments adjusted for the delivery or receipt of guarantees as of December 31, 2018, 2019 and 2020:
| | | | | | | | |
|
| |
| Guarantees |
| Guarantees |
| |
| | Amount | | Furnished | | Received | | Cash |
| | millions of Ch$ | | millions of Ch$ | | millions of Ch$ | | millions of Ch$ |
|
| (i) |
| (ii) |
| (iii) |
| (i-ii+iii) |
Year |
|
|
|
|
|
|
|
|
2018 |
| 2,347,920 |
| 955,979 |
| 85,709 |
| 1,477,650 |
2019 |
| 2,721,893 |
| 505,208 |
| 101,571 |
| 2,318,256 |
2020 |
| 4,406,396 | | 543,736 | | 124,118 | | 3,986,778 |
(vii) Counterparty Risk
Exposure to derivative counterparty risk is measured by recognizing the different contracts maintained with the Bank’s customers, including contracts without mitigating clauses, contracts with netting, contracts with Credit Support Annex (CSA) and with clearing houses, which receive a differentiated treatment.
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The following table details the netting of these transactions:
| | | | | | | | | | | | | | | | | | |
| | 12/31/2018 | | 12/31/2019 | | 12/31/2020 | ||||||||||||
| | | | | | | | | | | | | | | | | | |
| | Gross | | Gross | | | | Gross | | Gross | | | | Gross | | Gross | | |
| | amount | | amount | | Net | | amount | | amount | | Net | | amount | | amount | | Net |
| | assets | | liabilities | | amounts | | assets | | liabilities | | amounts | | assets | | liabilities | | amounts |
|
| (a) |
| (b) |
| (c) = (a) + (b) |
| (a) |
| (b) |
| (c) = (a) + (b) |
| (a) |
| (b) |
| (c) = (a) + (b) |
|
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
Derivatives with netting agreement |
| 148,410 |
| (154,578) |
| (6,168) |
| 2,730,110 |
| (2,752,567) |
| (22,457) |
| 3,829,995 | | (3,510,234) | | 319,761 |
Derivatives without netting agreement |
| 1,220,547 |
| (958,228) |
| 262,319 |
| 424,847 |
| (185,467) |
| 239,380 |
| (675,038) | | 572,200 | | (102,838) |
Total Derivatives |
| 1,368,957 |
| (1,112,806) |
| 256,151 |
| 3,154,957 |
| (2,938,034) |
| 216,923 |
| 3,154,957 | | (2,938,034) | | 216,923 |
Net guarantees delivered in compensation houses (*) |
| — |
| 23,145 |
| 23,145 |
| 215,015 |
| (49,850) |
| 165,165 |
| 174,426 | | (49,955) | | 124,471 |
Net guarantees delivered in bilateral agreements (*) |
| (85,789) |
| 90,098 |
| 4,309 |
| 208,998 |
| (17,544) |
| 191,454 |
| 185,775 | | (33,313) | | 152,463 |
Net guarantees |
| (85,789) |
| 113,243 |
| 27,454 |
| 424,013 |
| (67,394) |
| 356,619 |
| 360,201 | | (83,268) | | 276,934 |
Derivatives net of guarantees |
| 1,283,168 |
| (999,563) |
| 283,605 |
| 3,578,970 |
| (3,005,428) |
| 573,542 |
| 3,515,158 | | (3,021,302) | | 493,857 |
(*) Clearing Houses: centralized counterparties that play the counterparty role for all participants.
(**) Bilateral agreements: contractual agreements between both parties for delivery of guarantees under certain conditions.
Market values of derivatives that are reported in accounting do not reflect counterparty risk management using guarantees as they do not reveal the true exposures with the counterparties. The guarantees delivered (received) must be added (subtracted) from the market value in order to correctly reflect these exposures.
It is important to highlight that counterparty risk management is framed within the Bank’s corporate credit policies.
3) Monitoring and Governance of Financial Risks
Our board of directors is the body in charge of the Bank’s management. Its duties include defining the institution’s strategic guidelines and supervising its risk management structure.
Risk management policies are established with the objective of identifying and analyzing the risks faced by the Bank, setting adequate limits and controls and monitoring risks and compliance with limits. Risk management policies and structures are reviewed regularly so that they reflect changes in the Bank’s activities. The bank, through its standards and procedures, aims to develop an appropriate control environment in which all employees understand their roles and responsibilities.
The Audit Committee supervises the way in which the Bank monitors and manages risk and compliance with the Bank’s risk management policies and procedures and checks that the risk management framework is appropriate for the risks faced by the Bank. This committee is assisted by the Internal Audit Department in its supervisory role. Internal Audit performs reviews of risk management controls and procedures, whose results are reported to the Audit Committee.
In accordance with the Bank’s governance outlook, the Financial Risk Department is responsible for identifying, quantifying, analyzing, controlling and monitoring financial risk at the Bank. The Credit Risk Division is responsible for managing credit risk for the Corporate Banking, Treasury, Companies and Retail divisions. The Financial Risk Department is part of the Planning and Control Division. The other departments within this division include Accounting, Management Control, Planning and Development, Capital Management and Investor Relations. The main objective of this corporate division is to provide accurate, timely and high-quality information to support decision making by internal and external stakeholders.
The Corporate Treasury Division is charged with managing financial risk in the Bank’s Trading and Banking Books. In the Banking Book, this consists of managing inflation, interest rate and liquidity risk in the Bank’s balance sheet in order to maximize returns in compliance with corporate policies and current laws and regulations. The Trading Book refers to the portfolio of financial instruments acquired to obtain short-term gains from increases in fair value arising from changes in the values of underlying variables. This book is responsible for managing currency risk for the entire balance sheet. Management of the Bank’s funding structure is an important component of managing liquidity and interest rate risk within the Banking Book or balance sheet.
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The Financial Risk Department is independent from the business areas and is responsible for controlling and measuring the Bank’s financial risks (market and liquidity risk) as well as supplying, along with the Treasury Division, the ALCO with the metrics and limits for those risks, which are established in the respective policies.
The bank’s financial risk management efforts are framed within the Financial Risk Policy, which is comprised of the Liquidity Management Policy, the Market Risk Management Policy and the Valuation Policy.
a) Financial Risk Management Principles
● | 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. |
b) Financial Risk Management Meetings and Committee
In order to guarantee the flexibility of management efforts and communication of risk levels to senior management, the following network of meetings and committee has been established:
● | Daily Committees: Meets daily to review financial conditions and the latest market movements. This committee reviews the relevance of positions on a daily basis in order to detect in advance any scenarios that could negatively impact returns and liquidity. It also monitors the performance of strategies used for each of the portfolios. |
● | Proprietary Trading and Market Making Committees: Meets weekly to analyze strategies for managing investment portfolio or directional positions. This committee reviews local and global economic conditions and projections in order to analyze the potential benefits and risks of the strategies executed and evaluate new strategies. |
● | ALM Committees: This committee meets biweekly to analyze management of structural interest rate and indexation risk in the Banking Book. |
● | Liquidity and Market Committee: This committee meets biweekly to analyze management of funding liquidity risk. |
● | Treasury Committee: This committee meets monthly to analyze matters related to treasury activity and establish agreements and strategies on related matters, always in line with current ALCO policies and guidelines. |
● | Assets-Liabilities Committee (ALCO): This committee meets monthly to analyze economic and financial conditions and inform senior management of market and liquidity risk levels assumed by presenting indexes of market and funding liquidity risk, limit consumption and results of stress tests. |
● | Board of Directors: Our board of directors is informed each quarter of the market and funding liquidity risk levels assumed by presenting established risk indexes, limit consumption and results of stress tests. |
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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
AMERICAN DEPOSITARY SHARES
Fees and Expenses
Effective as of June 4, 2018, The Bank of New York Mellon serves as the depositary for our ADSs. Holders of the ADSs 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
274
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 ADS holders |
Issuance and delivery of ADSs, 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$0.05 (or less) per ADS (or fraction thereof) |
| | |
Operation and maintenance costs. |
| US$0.05 (or less) per ADS (or fraction thereof) |
| | |
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. |
| — |
275
Any other charges and expenses of the depositary under the deposit agreement will be paid by Itaú Corpbanca upon agreement between the depositary and Itaú 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 ADS.
The depositary reimburses Itaú Corpbanca for certain expenses incurred by Itaú Corpbanca that are related to the ADS facility upon such terms and conditions as Itaú Corpbanca and the depositary have agreed and may hereinafter agree from time to time. The depositary may make available to Itaú Corpbanca a set amount or a portion of the depositary fees charged in respect of the ADS facility or otherwise upon such terms and conditions as Itaú Corpbanca and the depositary may agree from time to time.
Please refer to Exhibit 2.(a).1 of this Annual Report for the remaining information relating to our ADSs as required under Item 12.D of Form 20-F.
276
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, 2020.
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, 2020.
ITEM 15. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As of December 31, 2020, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO, and our CFO, of the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act.
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Therefore, our management does not expect that the controls will prevent all errors and all fraud.
Based upon the evaluation performed, our CEO and CFO have concluded that as of December 31, 2020, our disclosure controls and procedures were effective to provide reasonable assurance that material information relating to us and our consolidated subsidiaries 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 our management, including our principal executive officers and principal financial officers, 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 Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes, in accordance with IFRS, and 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 the assets of the Bank; |
● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that our receipts and expenditures are being made only in accordance with authorizations of the Bank’s 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 our financial statements. |
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that a decline in the level of compliance with policies or procedures may occur.
277
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria set forth in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its evaluation and those criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2020.
The effectiveness of our Company’s internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers Consultores Auditores SpA, an independent registered public accounting firm.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
In connection with the evaluation required by Rule 13a-15(d) under the Exchange Act, our management, including our CEO and CFO, concluded that the changes that occurred during the year ended December 31, 2020 have not materially affected, and are not reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The report of PricewaterhouseCoopers Consultores Auditores SpA, our independent registered public accounting firm, dated April 22, 2020, on the effectiveness of our internal control over financial reporting as of December 31, 2020 is presented on pages F-1 and F-2 of this Annual Report.
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Pedro Samhan Escandar, Diego Fresco Gutiérrez and Juan Echeverría González qualify as “audit committee financial experts” 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.
All three meet the independence requirements set forth in Rule 10A-3(b)(1) under the Exchange Act.
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.itau.cl under the heading “Sobre Itaú Corpbanca—Políticas, Manuales y Códigos.”
No waivers have been granted to the code of ethics since its adoption that applies to the persons indicated above.
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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, 2019 and 2020 following the accounting form:
| | | | |
| | Year Ended December 31 | ||
|
| 2019 |
| 2020 |
|
| (in millions of Ch$) | ||
Principal accountant fees and services |
|
|
|
|
Audit fees |
| 1,373 |
| 1,293 |
Audit-related fees |
| 147 |
| 58 |
Tax fees |
| — |
| — |
All other fees |
| — |
| — |
Total |
| 1,520 |
| 1,351 |
Audit fees in the above table are the aggregate fees billed by PwC for 2019 and 2020, in connection with the audit of our consolidated financial statements and services that are normally provided by PwC in connection with statutory and regulatory filings or engagements.
Audit-related fees in the above table are the aggregate fees billed by PwC for 2019 and 2020, for assurance services required by regulators on internal control and certain accounting requirements, agreed upon procedures on quarterly disclosures to investors, and procedures in connection with implementation of accounting standards.
PRE-APPROVAL POLICIES AND PROCEDURES
Our audit committee approves all audit, audit-related services, tax services and other services provided by PwC. Any services provided by PwC that are not specifically included within the scope of the audit must be pre-approved by the audit committee prior to any engagement.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Itaú Corpbanca’s audit committee meets the requirements of Exchange Act Rule 10A-3. However, Itaú Corpbanca is subject to the general exemption contained in Exchange Act Rule 10A-3, which provides an exemption from NYSE’s listing standards relating to audit committees for foreign companies like Itaú Corpbanca.
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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 2020:
| | | | | | | | |
| | | | | | | | (d) Maximum |
| | | | | | | | number of shares |
| | | | (b) Average | | (c) Total number of | | that may yet be |
| | (a) Total number | | price paid | | shares purchased | | purchased under |
| | of shares | | per share | | as part of publicly | | the plan or |
Period (*) |
| purchased |
| (in Ch$) |
| announced plans or programs |
| programs |
January 2020 |
| — |
| — |
| — |
| — |
February 2020 |
| — |
| — |
| — |
| — |
March 2020 |
| — |
| — |
| — |
| — |
April 2020 |
| — |
| — |
| — |
| — |
May 2020 |
| — |
| — |
| — |
| — |
June 2020 |
| — |
| — |
| — |
| — |
July 2020 |
| — |
| — |
| — |
| — |
August 2020 |
| — |
| — |
| — |
| — |
September 2020 |
| 5,558,780,153 |
| 5.96 |
| — |
| — |
October 2020 |
| — |
| — |
| — |
| — |
November 2020 |
| — |
| — |
| — |
| — |
December 2020 |
| — |
| — |
| — |
| — |
Total |
| 5,558,780,153 |
| 5.96 |
| — |
| — |
(*) Itaú 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
Not applicable.
280
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 CMF. 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 1,500,000 unidades 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. |
| | |
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 CMF 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 unit 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. |
| | |
281
NYSE Corporate Governance Standards |
| Chilean Corporate Governance Standards |
---|---|---|
| | |
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 ethical 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 CMF 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.
282
Not applicable.
See the following items starting at page F-3:
(a) | Report of independent registered public accounting firm; |
(b) | Consolidated Statements of Financial Position as of December 31, 2020 and 2019; |
(c) | Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018; |
(d) | Consolidated Statements of Other Comprehensive Income for the years ended December 31, 2020, 2019 and 2018; |
(e) | Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019 and 2018; |
(f) | Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018; and |
(g) | Notes to the Consolidated Financial Statements. |
283
The following exhibits are filed as part of this Annual Report:
| | |
Exhibit 1.1 |
| |
| | |
Exhibit 2.(a).1 | | |
| | |
Exhibit 2.(a).2 | | |
| | |
Exhibit 2.(b).1 | | |
Exhibit 2.(b).2 | | |
| | |
Exhibit 2.(b).3 | | |
| | |
Exhibit 3.1 | | |
| | |
Exhibit 3.2 | | |
| | |
Exhibit 4.(a).1 | | |
| | |
Exhibit 4.(a).2(i) | | |
| | |
284
Exhibit 4.(a).2.(i)(a) | | |
| | |
Exhibit 4.(a).2(ii) | | |
| | |
Exhibit 4.(a).2.(ii)(a) | | |
| | |
Exhibit 4.(a).2(iii) | | |
| | |
Exhibit 4.(a).2(iii)(a) | | |
| | |
Exhibit 4.(a).3.1 | | |
| | |
Exhibit 4.(a).4.1 | | |
| | |
Exhibit 4.(a).4.2 | | |
| | |
Exhibit 4.(a).5 | | |
| | |
Exhibit 4.(a).6(i) | | |
| | |
285
Exhibit 4.(a).6(ii) | | |
| | |
Exhibit 4.(a).6(iii) | | |
| | |
Exhibit 4.(b).1 | | |
| | |
Exhibit 4.(b).2 | | |
| | |
Exhibit 4.(b).3 | | |
| | |
Exhibit 4.(b).4 | | |
| | |
Exhibit 8.1* | | |
| | |
Exhibit 11.1 | | |
| | |
Exhibit 11.2 | | |
| | |
Exhibit 12.1* | | |
| | |
Exhibit 12.2* | | |
| | |
Exhibit 13.1* | | |
| | |
Exhibit 13.2* | | |
| | |
Exhibit 101.INS* | | XBRL Instance Document. |
286
| | |
Exhibit 101.SCH* | | XBRL Taxonomy Extension Schema Document. |
| | |
Exhibit 101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
Exhibit 101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
Exhibit 101.LAB* | | XBRL Taxonomy Extension Labels Linkbase Document. |
| | |
Exhibit101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document. |
* Filed herewith.
287
SIGNATURES
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.
| | | |
|
| ITAÚ CORPBANCA | |
| | | |
| | | /s/ Gabriel Moura |
| | Name: | Gabriel Moura |
| | Title: | Chief Executive Officer |
| |||
| | | /s/ Rodrigo Luis Rosa Couto |
| | Name: | Rodrigo Luis Rosa Couto |
| | Title: | Chief Financial Officer |
| | | |
Date: April 23, 2021 | | | |
288
Itaú Corpbanca and subsidiaries
Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the
years ended December 31, 2020, 2019, and 2018
Content
| |
F-2 | |
| |
F-6 | |
| |
F-7 | |
| |
Consolidated Statements of Other Comprehensive Income (Loss) | F-8 |
| |
F-9 | |
| |
F-10 | |
| |
F-13 |
$ | = | Amounts expressed in Chilean pesos. |
MCh$ | = | Amounts expressed in millions of Chilean pesos. |
US$ | = | Amounts expressed in US dollars. |
ThUS$ | = | Amounts expressed in thousands of US dollars. |
MUS$ | = | Amounts expressed in millions of US dollars. |
COP$ | = | Amounts expressed in Colombian pesos. |
MCOP$ | = | Amounts expressed in millions of Colombian pesos. |
UF | = | Amounts expressed in Unidades de Fomento |
| | (a Chilean inflation-indexed, peso-denominated monetary unit that is set daily based on changes in the Chilean Consumer Price Index). |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-1 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Itaú Corpbanca
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Itaú Corpbanca and its subsidiaries (“the Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income (loss), of other comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for financial instruments in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-2 |
Definition and Limitations of Internal Control over Financial Reporting
A company’s 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 generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Expected Credit Loss Allowance for Commercial, Mortgage and Consumer Loans - Collective Basis
As described in Notes 1 t), 10 and 36 to the consolidated financial statements, management assesses the adequacy of the collective basis expected credit loss allowance for commercial, mortgage and consumer loans using expected credit loss models. As of December 31, 2020, the collective basis expected credit loss allowance was Ch$720,429 million on total commercial, mortgage and consumer loan of Ch$22,617,981 million. As disclosed by management, the estimation of the collective basis expected credit loss allowance considers qualitative and quantitative information that may affect the changes in credit risk and the development of assumptions related to the probabilities of default and loss given default, including forward looking information, multi-factor analysis such as type of portfolio or transaction and macroeconomic factors. Management subjectively assesses the adequacy of the qualitative information used to assess the change in credit risk since initial recognition and the development of assumptions such as probabilities of default and loss given default.
The principal considerations for our determination that performing procedures relating to the collective basis expected credit loss allowance for commercial, mortgage and consumer loan is a critical audit matter are (i) the significant judgment by management in determining the collective basis expected credit loss allowance for commercial, mortgage and consumer loan, which in turn led to a high degree of auditor judgement subjectivity, and effort in performing procedures and evaluating audit evidence obtained relating to the assumptions related to the probabilities of default and loss given default, including forward looking information, multi-factor analysis such as type of portfolio or transaction and macroeconomic factors; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-3 |
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the collective basis expected credit loss allowance for commercial, mortgage and consumer loans estimation process, which included controls over the assumptions used in the estimation of the collective basis expected credit loss allowance, within the qualitative information. These procedures also included, among others, (i) testing management´s process for estimating the collective basis expected credit loss allowance for commercial, mortgage and consumer loans, (ii) testing the completeness, accuracy, and relevance of underlying data used in the model and (iii) the involvement of professionals with specialized skill and knowledge to assist in testing management’s process for estimating the collective basis expected credit loss allowance for commercial, mortgage and consumer loans, including evaluating the appropriateness of the methodologies and models, testing data used in the estimate and evaluating the reasonableness of significant assumptions such as the probabilities of default and loss given default, including forward looking information, multi-factor analysis such as type of portfolio or transaction and macroeconomic factors, used in the qualitative information.
Goodwill Impairment Assessment
As described in Notes 1 o), 3, 13 and 32 to the consolidated financial statements, the Company’s goodwill balance was Ch$492,512 million as of December 31, 2020. Management conducts an annual impairment test and whenever there is an indication that the carrying value may be impaired. An impairment loss is recognized for the amount by which the carrying amount of the cash generating units exceeds its recoverable amount. In the second quarter of 2020, the Company concluded that due to the negative effects of the COVID-19 pandemic on the cost of credit, portfolio growth and capital costs, a triggering event existed for all of the Company’s cash generating units containing a goodwill balance as of June 30, 2020. The second quarter goodwill impairment test resulted in impairment charges of Ch$412,356 and Ch$239,469 million in the Chile and Colombia cash generating units, respectively. The recoverable amount of the cash generating units is determined by management using the dividend discounted model. This methodology considers the cash flows that would be generated by dividends distributed to shareholders at perpetuity, discounted at their rate of cost of capital at the valuation date. Management’s cash flow projections included significant judgments and assumptions related to perpetuity rate, projected inflation rate, discount rate, loans growth and solvency index limit.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is a critical audit matter are (i) the significant judgment by management when developing the recoverable amount of the cash generating units, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to perpetuity rate, projected inflation rate, discount rate, loans growth and solvency index limit, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Company’s cash generating units. These procedures also included, among others, (i) testing management’s process for developing the estimate; (ii) evaluating the appropriateness of the dividend discounted model; (iii) testing the completeness and accuracy of underlying data used in the model; and (iv) evaluating the significant assumptions used by management related to perpetuity rate, projected inflation rate, discount rate, loans growth and solvency index limit. Evaluating management’s assumptions related to perpetuity rate, projected inflation rate, discount rate, loans growth and solvency index limit involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the cash generating units, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s dividend discounted model and certain significant assumptions, including the discount rate.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-4 |
Valuation of Level 3 - Financial Derivative Contracts
As described in Notes 1 m), and 35 to the consolidated financial statements, the Company utilized internal pricing methods to value its level 3 financial derivative contracts, which includes financial derivative contract assets of Ch$27,265 million and liabilities of Ch$840 million as of December 31, 2020. These internal pricing methods use prices and assumptions that management believes are commonly used by the financial services industry. The significant assumptions used by management to value financial derivative contracts included adjustment curves, spreads, volatilities and other variables. These valuation techniques require management to make estimates and judgments for complex instruments involving pricing models.
The principal considerations for our determination that performing procedures relating to the valuation of the Company’s Level 3 financial derivative contracts is a critical audit matter are (i) the significant judgment by management to determine the fair value of these derivative financial contracts due to the use of valuation techniques, which included significant assumptions related to adjustment curves, spreads, volatilities and other variables, which in turn led to a high degree of auditor subjectivity and judgment to evaluate the audit evidence obtained related to the valuation, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of level 3 derivative financial contracts, including controls over the Company’s methods, significant assumptions, and data. These procedures also included, among others (i) the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of prices for a sample of derivative financial contracts and (ii) comparing the independent estimate to management’s estimate to evaluate the reasonableness of management’s estimate. Developing the independent estimate involved (i) testing the completeness and accuracy of data provided by management, and (ii) evaluating management’s assumptions related to the adjustment curves, spreads, volatilities and other variables.
/s/ PricewaterhouseCoopers Consultores Auditores SpA
Santiago, Chile
April 22, 2021
We have served as the Company’s auditor since 2006.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-5 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Consolidated Statements of Financial Position
(In millions of Chilean pesos - MCh$)
| | | | | | |
| | | | As of December 31, | ||
|
| Notes |
| 2020 |
| 2019 |
| | | | MCh$ | | MCh$ |
ASSETS | |
| |
| |
|
Cash and deposits in banks |
| 5a) |
| 3,089,072 |
| 1,009,681 |
Cash items in process of collection |
| 5b) |
| 173,192 |
| 231,305 |
Financial instruments at fair value through profit or loss |
| 6 |
| 582,710 |
| 183,702 |
Financial instruments at fair value through other comprehensive income |
| 11 |
| 3,970,899 |
| 3,598,890 |
Interbank loans at amortized cost |
| 9 |
| 7,121 |
| 56,396 |
Loans and accounts receivable from customers at amortized cost |
| 10 |
| 21,576,108 |
| 22,254,697 |
Financial instruments at amortized cost |
| 11 |
| 111,542 |
| 115,658 |
Investments under resale agreements |
| 7 |
| 105,580 |
| 75,975 |
Financial derivative contracts |
| 8 |
| 3,982,803 |
| 3,154,957 |
Investments in associates |
| 12 |
| 7,149 |
| 9,605 |
Intangible assets |
| 13 |
| 718,683 |
| 1,574,433 |
Property, plant, and equipment |
| 14 |
| 80,615 |
| 95,080 |
Right of use assets under lease agreements |
| 15 |
| 146,008 |
| 167,441 |
Current taxes |
| 16 |
| 64,699 |
| 85,516 |
Deferred taxes |
| 16 |
| 312,556 |
| 208,657 |
Other assets |
| 17a) |
| 542,633 |
| 770,861 |
Other non-current assets held for sale |
| 17b) |
| 15,078 |
| 17,202 |
TOTAL ASSETS |
|
|
| 35,486,448 |
| 33,610,056 |
LIABILITIES |
|
|
| |
|
|
Deposits and other demand liabilities |
| 18a) |
| 6,197,406 |
| 4,873,448 |
Cash in process of being cleared |
| 5b) |
| 154,232 |
| 164,573 |
Obligations under repurchase agreements |
| 7b) |
| 638,851 |
| 559,457 |
Time deposits and other time liabilities |
| 18b) |
| 11,433,064 |
| 11,620,187 |
Financial derivative contracts |
| 8 |
| 3,673,591 |
| 2,938,034 |
Interbank borrowings |
| 19 |
| 3,798,978 |
| 2,646,756 |
Debt instruments issued |
| 20 |
| 6,204,856 |
| 6,408,356 |
Other financial liabilities |
| 20 |
| 13,123 |
| 12,966 |
Lease contracts liabilities |
| 15 |
| 151,885 |
| 172,924 |
Current taxes |
| 16 |
| 1,766 |
| 13 |
Deferred taxes |
| 16 |
| 237 |
| 263 |
Provisions |
| 21 |
| 135,090 |
| 177,827 |
Other liabilities |
| 22a) |
| 700,034 |
| 708,914 |
Liabilities directly associated with non-current assets held for sale |
| 22b) |
| — |
| — |
TOTAL LIABILITIES |
|
|
| 33,103,113 |
| 30,283,718 |
EQUITY |
|
|
| |
|
|
Attributable to equity holders of the Bank: |
|
|
| |
|
|
Capital |
| 24 |
| 1,862,826 |
| 1,862,826 |
Reserves |
| 24 |
| 1,195,849 |
| 1,195,849 |
Valuation accounts |
| 24 |
| 26,824 |
| 47,117 |
Retained earnings (losses): |
|
|
| (771,251) |
| 126,101 |
Retained earnings (accumulated losses) from prior years |
| 24 |
| 37,533 |
| 50,537 |
Net income (loss) for the year |
| 24 |
| (808,784) |
| 113,684 |
Less: Provision for mandatory dividends |
| 21, 24 |
| — |
| (38,120) |
Total equity attributable to equity holders of the Bank |
|
|
| 2,314,248 |
| 3,231,893 |
Non-controlling interest |
| 24 |
| 69,087 |
| 94,445 |
TOTAL EQUITY |
|
|
| 2,383,335 |
| 3,326,338 |
TOTAL LIABILITIES AND EQUITY |
|
|
| 35,486,448 |
| 33,610,056 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-6 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
(In millions of Chilean pesos - MCh$)
| | | | | | | | |
| | | | For the years ended December 31, | ||||
|
| Notes |
| 2020 |
| 2019 |
| 2018 |
| | | | MCh$ | | MCh$ | | MCh$ |
Interest income | | 25a) | | 1,549,674 | | 1,773,640 | | 1,739,317 |
Interest expense |
| 25b) |
| (683,237) |
| (873,222) |
| (851,654) |
Net interest income |
|
|
| 866,437 |
| 900,418 |
| 887,663 |
Fee and commission income |
| 26a) |
| 204,378 |
| 244,196 |
| 237,956 |
Fee and commission expense |
| 26b) |
| (63,379) |
| (69,792) |
| (51,827) |
Net fee and commission income |
|
|
| 140,999 |
| 174,404 |
| 186,129 |
Net income from financial operations |
| 27 |
| 110,887 |
| 143,634 |
| 172,755 |
Net foreign exchange gain (loss) |
| 28 |
| (74,464) |
| 27,626 |
| (17,965) |
Other operating income |
| 33a) |
| 65,578 |
| 44,972 |
| 26,656 |
Net operating profit before provision for loan losses |
|
|
| 1,109,437 |
| 1,291,054 |
| 1,255,238 |
Provision for loan losses |
| 29 |
| (466,230) |
| (382,678) |
| (279,798) |
NET OPERATING PROFIT |
|
|
| 643,207 |
| 908,376 |
| 975,440 |
Personnel salaries and expenses |
| 30 |
| (292,191) |
| (298,209) |
| (294,747) |
Administrative expenses |
| 31 |
| (257,753) |
| (248,881) |
| (291,736) |
Depreciation and amortization |
| 32a) |
| (126,444) |
| (127,166) |
| (86,817) |
Impairment |
| 32a) |
| (814,879) |
| (728) |
| (28) |
Other operating expenses |
| 33b) |
| (90,511) |
| (61,549) |
| (68,199) |
Total operating expenses |
|
|
| (1,581,778) |
| (736,533) |
| (741,527) |
TOTAL OPERATING INCOME (LOSS) |
|
|
| (938,571) |
| 171,843 |
| 233,913 |
Income (loss) from investments in associates |
| 12 |
| (2,794) |
| 532 |
| — |
Operating (loss) income before income taxes |
|
|
| (941,365) |
| 172,375 |
| 233,913 |
Income taxes |
| 16 |
| 115,210 |
| (47,853) |
| (67,059) |
Consolidated income (loss) from continuing operations |
|
|
| (826,155) |
| 124,522 |
| 166,854 |
Income (loss) from discontinued operations |
|
|
| — |
| — |
| — |
TOTAL CONSOLIDATED INCOME (LOSS) FOR THE YEAR |
|
|
| (826,155) |
| 124,522 |
| 166,854 |
Attributable to: |
|
|
| |
| |
|
|
Equity holders of the Bank |
| 24c) |
| (808,784) |
| 113,684 |
| 171,331 |
Non-controlling interest |
| 24c) |
| (17,371) |
| 10,838 |
| (4,477) |
Earnings (losses) per share attributable to equity holders of the Bank |
|
|
| |
| |
|
|
(in Chilean pesos) | | | | | | | | |
Basic earnings (loss) per share |
| 24a) |
| (1.578) |
| 0.222 |
| 0.334 |
Diluted earnings (loss) per share |
| 24a) |
| (1.578) |
| 0.222 |
| 0.334 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-7 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Consolidated Statements of Other Comprehensive Income (Loss)
(In millions of Chilean pesos - MCh$)
| | | | | | | | |
| | | | For the years ended December 31, | ||||
|
| Notes |
| 2020 |
| 2019 |
| 2018 |
| | |
| MCh$ |
| MCh$ |
| MCh$ |
CONSOLIDATED INCOME (LOSS) FOR THE YEAR |
| 24d) | | (826,155) |
| 124,522 |
| 166,854 |
OTHER COMPREHENSIVE INCOME (LOSS) WHICH MAY BE |
|
| | |
| |
|
|
RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS: |
|
| | |
| |
|
|
Debt instruments at fair value through other comprehensive income |
| 24d) | | (8,235) |
| 21,703 |
| (1,441) |
Exchange differences on investment in Colombia and New York branch |
| 24d) | | (71,771) |
| 73,855 |
| 48,610 |
Gain (loss) from hedge of net investments in foreign operations |
| 24d) | | 80,722 |
| (46,786) |
| (36,533) |
Gain (loss) from cash flows hedges |
| 24d) | | (5,682) |
| (6,792) |
| 11,289 |
Other comprehensive income (loss) before income taxes |
| | | (4,966) |
| 41,980 |
| 21,925 |
Income taxes related to debt instruments at FV through OCI |
| | | 1,558 |
| (5,926) |
| (2,172) |
Income taxes related to hedge of net investment in foreign operations |
| 24d) | | (21,795) |
| 14,373 |
| 10,565 |
Income taxes related to cash flows hedges |
| 24d) | | (3,034) |
| (162) |
| (1,669) |
Income taxes on other comprehensive income (loss) |
| | | (23,271) |
| 8,285 |
| 6,724 |
Other comprehensive income (loss) which may be reclassified |
| | | (28,237) |
| 50,265 |
| 28,649 |
subsequently to profit or loss, net of income taxes |
|
| | |
| |
|
|
OTHER COMPREHENSIVE INCOME (LOSS) WHICH MAY NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS: |
|
| | |
| |
|
|
Defined benefits obligations |
| 24d) | | (3) |
| (4,432) |
| (754) |
Income taxes related to defined benefits obligations |
| 24d) | | (19) |
| 1,542 |
| (44) |
Changes in the fair value of equity investments at fair value through other comprehensive income | | 24d) | | 356 | | 814 | | 482 |
Other comprehensive loss which may not be reclassified subsequently to profit or loss, net of income taxes |
| | | 334 |
| (2,076) |
| (316) |
| | | | | | | | |
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) FOR THE YEAR |
| | | (27,903) |
| 48,189 |
| 28,333 |
CONSOLIDATED COMPREHENSIVE INCOME (LOSS) FOR THE YEAR |
| | | (854,058) |
| 172,711 |
| 195,187 |
Attributable to: |
|
| | |
| |
|
|
Equity holders of the Bank |
| 24d) | | (828,700) |
| 144,817 |
| 191,228 |
Non-controlling interest |
| 24d) | | (25,358) |
| 27,894 |
| 3,959 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-8 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
(In millions of Chilean pesos - MCh$)
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Retained earnings |
| Total | | | | | ||||
| | | | | | Reserves | | |
| Retained | | |
| Provision |
| attributable |
| | | | ||
|
| |
| |
| Reserves |
| Other non- |
| |
| earnings |
| Income (loss) |
| for |
| to equity |
| Non- |
| |
|
| Number of | | |
| from |
| earnings |
| Valuation |
| from prior |
| for |
| mandatory |
| holders of |
| controlling | | |
| | shares | | Capital |
| earnings |
| reserves | | accounts |
| years | | the year |
| dividends |
| the Bank | | interest | | Total equity |
|
| Millions |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Equity as of January 1, 2018 | | 512,407 | | 1,862,826 | | 451,011 | | 839,120 | | (4,735) | | 80,489 | | — | | (17,234) | | 3,211,477 | | 217,280 | | 3,428,757 |
Changes due to initial application of IFRS 9 | | — | | — | | — | | — | | 997 | | (126,865) | | — | | — | | (125,868) | | (3,157) | | (129,025) |
Equity as of January 1, 2018 |
| 512,407 | | 1,862,826 | | 451,011 | | 839,120 | | (3,738) | | (46,376) | | — | | (17,234) | | 3,085,609 | | 214,123 | | 3,299,732 |
Distribution of prior year's net income |
| — | | — | | — | | — | | — | | (22,979) | | — | | 17,234 | | (5,745) | | — | | (5,745) |
Provision for mandatory dividends |
| — | | — | | — | | — | | — | | — | | — | | (51,614) | | (51,614) | | — | | (51,614) |
Comprehensive income (loss) for the year |
| — | | — | | — | | — | | 19,897 | | — | | 171,331 | | — | | 191,228 | | 3,959 | | 195,187 |
Equity as of December 31, 2018 |
| 512,407 | | 1,862,826 | | 451,011 | | 839,120 | | 16,159 | | (69,355) | | 171,331 | | (51,614) | | 3,219,478 | | 218,082 | | 3,437,560 |
Reclassification of income from previous year |
| — |
| — |
| — |
| — |
| — |
| 171,331 |
| (171,331) |
| — |
| — |
| — |
| — |
Equity as of January 1, 2019 |
| 512,407 |
| 1,862,826 |
| 451,011 |
| 839,120 |
| 16,159 |
| 101,976 |
| — |
| (51,614) |
| 3,219,478 |
| 218,082 |
| 3,437,560 |
Distribution of prior year's net income |
| — |
| — |
| — |
| — |
| — |
| (51,614) |
| — |
| 51,614 |
| — |
| — |
| — |
Provision for mandatory dividends |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (38,120) |
| (38,120) |
| — |
| (38,120) |
Transfer of gain on disposal of equity investments at fair value through other comprehensive income to retained earnings |
| — |
| — |
| — |
| — |
| (175) |
| 175 |
| — |
| — |
| — |
| — |
| — |
Comprehensive income for the year | | — | | — | | — | | — | | 31,133 | | — | | 113,684 | | — | | 144,817 | | 27,894 | | 172,711 |
Increase participation in Colombia | | — | | — | | — | | (94,282) | | — | | — | | — | | — | | (94,282) | | (151,531) | | (245,813) |
Equity as of December 31, 2019 |
| 512,407 |
| 1,862,826 |
| 451,011 |
| 744,838 |
| 47,117 |
| 50,537 |
| 113,684 |
| (38,120) |
| 3,231,893 |
| 94,445 |
| 3,326,338 |
Reclassification of income from previous year |
| — |
| — |
| — |
| — |
| — |
| 113,684 |
| (113,684) |
| — |
| — |
| — |
| — |
Equity as of January 1, 2020 |
| 512,407 |
| 1,862,826 |
| 451,011 |
| 744,838 |
| 47,117 |
| 164,221 |
| — |
| (38,120) |
| 3,231,893 |
| 94,445 |
| 3,326,338 |
Distribution of prior year's net income |
| — |
| — |
| — |
| — |
| — |
| (127,065) |
| — |
| — |
| (127,065) |
| — |
| (127,065) |
Provision for mandatory dividends |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 38,120 |
| 38,120 |
| — |
| 38,120 |
Transfer of gain on disposal of equity investments at fair value through other comprehensive income to retained earnings | | | | — | | — | | — | | (377) | | 377 | | — | | — | | — | | — | | — |
Comprehensive income (loss) for the year |
| — |
| — |
| — |
| — | | (19,916) | | — | | (808,784) | | — | | (828,700) | | (25,358) | | (854,058) |
Equity as of December 31, 2020 |
| 512,407 |
| 1,862,826 |
| 451,011 |
| 744,838 |
| 26,824 |
| 37,533 |
| (808,784) |
| — |
| 2,314,248 |
| 69,087 |
| 2,383,335 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-9 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In millions of Chilean pesos - MCh$)
| | | | | | | | |
| | | | For the years ended December 31, | ||||
| | Notes | | 2020 | | 2019 | | 2018 |
|
| |
| MCh$ |
| MCh$ |
| MCh$ |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | |
| |
| |
Operating income (loss) before income taxes | | | | (941,365) | | 172,375 | | 233,913 |
Debits (credits) to income that do not represent cash flows |
| | | | | | | |
Depreciation and amortization | | 32 | | 126,444 |
| 127,166 |
| 86,817 |
Provisions for loans and accounts receivable from customers and interbank loans |
| 29 | | 527,077 |
| 441,343 |
| 328,266 |
Provisions and write-offs for assets received in lieu of payment |
| 33 |
| 4,006 |
| 18,284 |
| 16,132 |
Provisions for contingencies |
| 33 |
| 3,119 |
| 507 |
| 1,998 |
Impairment |
| 32 |
| 814,879 |
| 728 |
| 28 |
Net gain on sale of loans and accounts receivable from customers |
| 27 |
| (6,476) |
| (14,588) |
| (1,602) |
Income received from Financial instruments at fair value through profit or loss |
| |
| (64,410) |
| (92,959) |
| (74,071) |
Income received from sale of Financial instruments at fair value through other comprehensive income |
| |
| (58,092) |
| (33,867) |
| (13,765) |
Net interest income |
| 25 |
| (866,437) |
| (900,418) |
| (887,663) |
Fee and commission income |
| 26 |
| (204,378) |
| (244,196) |
| (237,956) |
Fee and commission expense |
| 26 |
| 63,379 |
| 69,792 |
| 51,827 |
Net foreign exchange gain (loss) |
| 20 |
| 74,464 |
| (27,626) |
| 17,965 |
Net gain on sale of property, plant and equipment |
| |
| 131 |
| (1,593) |
| (5,212) |
Net gain on sale of assets received in lieu of payment | | | | (3,287) | | (5,671) | | (1,223) |
Net gain on sale of assets held for sale | | | | (970) | | — | | — |
Net gain on sale of participation in companies | | | | — | | (1,028) | | (22) |
Increase on deferred tax assets and liabilities | | | | (109,848) | | (33,727) | | (28,110) |
Other charges (credits) that do not represent cash flows | | | | 39,014 | | 90,848 | | 50,039 |
Subtotal |
| |
| (602,750) |
| (434,630) |
| (462,639) |
Loans and accounts receivable from customers and interbank loans |
| |
| 745,029 |
| (1,254,664) |
| (1,610,676) |
Investments under resale agreements |
| 5c) i |
| (45,109) |
| 33,492 |
| (80,943) |
Obligations under repurchase agreements |
| 5c) i |
| 79,394 |
| (456,157) |
| 594,694 |
Financial instruments at fair value through profit or loss |
| 5c) ii |
| 17,895 |
| (55,236) |
| 326,131 |
Financial instruments at fair value through other comprehensive income |
| 5c) ii |
| (1,749,279) |
| (941,256) |
| 166,753 |
Financial instruments at amortized cost |
| 5c) ii |
| 4,039 |
| 83,228 |
| 3,120 |
Other assets and liabilities |
| |
| 111,619 |
| (41,251) |
| (99,717) |
Time deposits and other time liabilities |
| |
| (187,123) |
| 1,499,076 |
| 430,141 |
Deposits and other demand liabilities |
| |
| 1,323,958 |
| 572,973 |
| 159,296 |
Foreign borrowings obtained |
| 5c) iii |
| 3,326,628 |
| 3,163,543 |
| 2,741,786 |
Repayment of foreign borrowings |
| 5c) iii |
| (2,450,227) |
| (2,928,952) |
| (2,636,867) |
Interest paid |
| |
| (597,602) |
| (590,814) |
| (873,121) |
Interest received |
| |
| 1,471,570 |
| 1,663,507 |
| 1,951,250 |
Net fee and commission income |
| |
| 110,902 |
| 171,682 |
| 186,258 |
Taxes paid |
| |
| (152,593) |
| (152,681) |
| (105,683) |
Repayment of other borrowings |
| 5c) iv |
| 157 |
| (566) |
| (4,666) |
Proceeds from sale of assets received in lieu of payment |
| |
| 26,247 |
| 23,203 |
| 10,638 |
Net cash flows provided by (used in) operating activities |
| |
| 1,432,755 |
| 354,497 |
| 695,755 |
CASH FLOWS FROM INVESTMENT ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment and intangible assets |
| 13-14 |
| (67,675) |
| (65,716) |
| (82,952) |
Sales of property, plant and equipment |
| |
| 157 |
| 18,263 |
| 41,078 |
Proceeds from sale of assets held for sale | | | | 1,550 | | — | | — |
Payments for investments in subsidiaries |
| |
| — |
| (268,174) |
| — |
Payments for investments in associates | | | | (338) | | — | | — |
Net cash flows provided by (used in) investing activities |
| |
| (66,306) |
| (315,627) |
| (41,874) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| |
|
|
Borrowing obtained from the Central Bank of Chile | | | | 3,781,200 | | — | | — |
Payments of borrowings from the Central Bank of Chile | | | | (1,524,000) | | | | |
Debt instruments issued |
| |
| 408,402 |
| 649,321 |
| 484,754 |
Redemption of debt issued |
| |
| (935,094) |
| (633,671) |
| (911,047) |
Dividends paid |
| 24 |
| (127,086) |
| (51,347) |
| (22,979) |
Payments of lease liabilities | | | | (33,687) | | (34,226) | | — |
Net cash flows provided by financing activities |
| |
| 1,569,735 |
| (69,923) |
| (449,272) |
Effect of changes in exchange rates |
| |
| 122,133 |
| 115,940 |
| 83,354 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| |
| 3,058,317 |
| 84,887 |
| 287,963 |
Cash and cash equivalents at the beginning of the year |
| |
| 1,447,939 |
| 1,363,052 |
| 1,075,089 |
Cash and cash equivalents at end of the year |
| 5 |
| 4,506,256 |
| 1,447,939 |
| 1,363,052 |
Net increase (decrease) in cash and cash equivalents |
| |
| 3,058,317 |
| 84,887 |
| 287,963 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-10 |
| | | | | | | | | | | | | | | | | | |
| | As of | | | | | | Changes other than cash | | | | | | | | As of | ||
|
| January 1, | | Cash flows |
| Changes other | | |
| Interest and |
| Currency |
| Fair value |
| December 31, | ||
Item | | 2020 | | Received | | Paid | | than cash | | Acquisition | | readjustment | | exchange effects | | changes | | 2020 |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Debt instruments issued | | | | | | | | | | | | | | | | | | |
Borrowing obtained from Chilean Central Bank | | — | | 3,781,200 | | (1,524,000) | | — | | — | | 26 | | — | | — | | 2,257,226 |
Mortgage finance bonds |
| 40,933 |
| — |
| (11,349) |
| — |
| — |
| 1,262 |
| — |
| — |
| 30,846 |
Bonds (senior and subordinated) |
| 6,367,423 |
| 408,402 |
| (923,745) |
| — |
| — |
| 328,348 |
| (59,631) |
| 53,213 |
| 6,174,010 |
Lease contracts liabilities | | 172,924 | | — | | (33,687) | | 4,100 | | 7,279 | | 4,919 | | (3,650) | | — | | 151,885 |
Totals |
| 6,581,280 |
| 4,189,602 |
| (2,492,781) |
| 4,100 |
| 7,279 |
| 334,555 |
| (63,281) |
| 53,213 |
| 8,613,967 |
| | | | | | | | | | | | | | | | | | |
Dividends approved and paid in 2020 |
| — |
| — |
| (127,065) |
| — |
| — |
| — |
| — |
| — |
| — |
Dividends approved in prior years and paid in 2020 |
| — |
| — |
| (21) |
| — |
| — |
| — |
| — |
| — |
| — |
Total Dividends paid | | — |
| — |
| (127,086) |
| — |
| |
| |
| |
| — |
| |
Subtotal cash flows from (used in) financing activities |
| — |
| 4,189,602 | | (2,619,867) |
| — |
| — |
| — |
| — |
| — |
| — |
Total cash flows from financing activities (net) |
| | | 1,569,735 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | As of | | | | | | Changes other than cash | | | | | | | | As of | ||
|
| January 1, | | Cash flows |
| Changes other | | |
| Interest and |
| Currency |
| Fair value |
| December 31, | ||
Item | | 2019 | | Received | | Paid | | than cash | | Acquisition | | readjustment | | exchange effects | | changes | | 2019 |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Debt instruments issued | | | | | | | | | | | | | | | | | | |
Mortgage finance bonds |
| 53,463 |
| — |
| (14,523) |
| — |
| — |
| 1,993 |
| — |
| — |
| 40,933 |
Bonds (senior and subordinated) |
| 5,956,661 |
| 649,321 |
| (619,148) |
| — |
| — |
| 340,480 |
| 40,109 |
| — |
| 6,367,423 |
Lease contracts liabilities | | 176,795 | | — | | (34,226) | | — | | 12,998 | | 15,561 | | 1,796 | | — | | 172,924 |
Totals |
| 6,186,919 |
| 649,321 |
| (667,897) |
| — |
| 12,998 |
| 358,034 |
| 41,905 |
| — |
| 6,581,280 |
| | | | | | | | | | | | | | | | | | |
Dividends paid |
| — |
| — |
| (51,347) |
| — |
| — |
| — |
| — |
| — |
| — |
Capital increase |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Subtotal cash flows from financing activities |
| — |
| 649,321 |
| (719,244) |
| — |
| — |
| — |
| — |
| — |
| — |
Total cash flows from financing activities (net) |
| — |
| (69,923) |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-11 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Index | | Page |
GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | F-13 | |
F-54 | ||
F-55 | ||
F-57 | ||
F-62 | ||
FINANCIAL INSTRUMENT AT FAIR VALUE THROUGH PROFIT OR LOSS AND TRADING INVESTMENT | F-64 | |
INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS | F-65 | |
F-66 | ||
F-76 | ||
LOANS AND ACCOUNTS RECEIVABLE AT AMORTIZED COST AND LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS | F-77 | |
F-91 | ||
F-96 | ||
F-98 | ||
F-102 | ||
F-105 | ||
F-108 | ||
F-112 | ||
F-113 | ||
F-114 | ||
F-116 | ||
F-120 | ||
OTHER LIABILITIES AND LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE | F-127 | |
F-128 | ||
F-133 | ||
F-142 | ||
F-143 | ||
F-145 | ||
F-146 | ||
F-147 | ||
F-149 | ||
F-150 | ||
F-151 | ||
F-157 | ||
F-159 | ||
F-165 | ||
F-183 | ||
F-215 | ||
F-217 | ||
F-219 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-12 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies
General Information – Background of Itaú Corpbanca and subsidiaries
Itaú Corpbanca (the “Bank”) is a corporation incorporated under the laws of the Republic of Chile and regulated by the Commission for the Financial Market (onwards “CMF”) which, as of June 1, 2019, assumed the functions of the Superintendency of Banks and Financial Institutions (“SBIF”), according to the Decree with Force of Law (DFL) No.3 of January 12, 2019, which sets a new consolidated, systematized and agreed text for the General Bank Law. The entity is the merger result between Banco Itaú Chile and Corpbanca (the latter is the legal successor) which was consummated on April 1, 2016, the date on which the Bank was renamed “Itaú Corpbanca”1.
The current ownership structure is 39.22% owned by Itaú Unibanco, 27.49% owned by CorpGroup (Saieh Family) and 33.29% owned by minority shareholders. Itaú Unibanco is the sole controlling shareholder of the merged bank. Within this context and without limiting the above, Itaú Unibanco and CorpGroup have signed a shareholders’ agreement relating to corporate governance, dividend policy (based on performance and capital metrics), transfer of shares, liquidity, and other matters.
Itaú Corpbanca is headquartered in Chile and has operations in Colombia and Panama. In addition, Itaú Corpbanca has a branch in New York and a representative office in Lima. The Bank has total consolidated assets for MCh$35,486,448 (MMUS$49,930) and total equity attributable to holders of the Bank for MCh$2,314,248 (MMUS$3,256).
The legal address of Itaú Corpbanca is Rosario Norte No. 660, Las Condes, Santiago, Chile, and its website is www.itau.cl
These Consolidated Financial Statements as of December 31, 2020, were approved by the Board of Directors on April 22, 2021.
Significant Accounting Policies and Others
a) | Accounting period |
The Consolidated Financial Statements are referred as of December 31, 2020 and 2019 and comprise the years ended December 31, 2020, 2019 and 2018.
b) | Basis of preparation of the Consolidated Financial Statements |
These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”).
Notes to these Consolidated Financial Statements contain information additional to that disclosed in the Consolidated Statements of Financial Position, Consolidated Statements of Income, Consolidated Statements of Other Comprehensive Income, Consolidated Statements of Changes in Equity, and Consolidated Statements of Cash Flows.
1. | The business combination was a “reverse acquisition” as established in IFRS 3 “Business Combinations”, in which Banco Itaú Chile is the successor for accounting purposes and Corpbanca is the legal successor. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-13 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
c) | Consolidation criteria |
These Consolidated Financial Statements comprise the preparation of the Financial Statements of the Bank and the controlled entities which participate in the consolidation as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018, and include the necessary adjustments and reclassifications to standardize the accounting policies and valuation criteria applied by the Bank, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”).
Intercompany balances and any unrealized income or loss arising from intercompany transactions are eliminated upon consolidation during the preparation of the Consolidated Financial Statements.
(i) | Controlled entities |
The Bank, regardless of the nature of its involvement with an entity (the investee), shall determine whether it is a parent by assessing whether it controls the investee.
The Bank controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Thus, the Bank controls an investee if and only if has all the following:
1) | Power over the investee, which is related to the existing rights that give the Bank the current ability to direct the relevant activities, these being those that significantly affect the investee’s returns; |
2) | Exposure, or rights, to variable returns from its involvement with the investee; |
3) | Ability to use its power over the investee to affect the amount of the Bank’s returns; |
When the Bank has less than a majority of the voting rights over an investee, but such voting rights are sufficient to have the actual ability to direct the relevant activities, then it will be concluded that the Bank has control over the investee.
The Bank considers all relevant factors and circumstances when assessing if the voting rights are sufficient to obtain control, these include:
● | The amount of voting rights held by the Bank in relation to the amount and dispersion of those held by other vote holders. |
● | Potential voting rights held by the Bank, other voting holders or other parties. |
● | Rights that arise from other contractual agreements. |
● | Any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time those decisions need to be made, including the patterns of voting behavior in previous shareholders meetings. |
The Bank reassesses whether or not it has control over an investee when facts and circumstances indicate that there are changes in one or more of the control elements listed above.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-14 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The financial statements of the controlled companies are consolidated with those of the Bank through the global integration method (line by line). In accordance with this method, all balances and transactions between consolidated companies are eliminated upon consolidation. Therefore, the Consolidated Financial Statements refer to assets, liabilities, equity, income, expenses, and cash flows of the parent and its subsidiaries presented as if they were a single economic entity. The Bank prepares Consolidated Financial Statements using uniform accounting policies for transactions and other events that, being similar, have occurred in similar circumstances.
The following table details the entities controlled by Itaú Corpbanca:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | Ownership percentage | ||||||||||
| | | | | | Functional | | As of December 31, 2020 | | As of December 31, 2019 | ||||||||
|
| Market |
| Country |
| currency |
| Direct |
| Indirect |
| Total |
| Direct |
| Indirect |
| Total |
| | | | | | | | % | | % | | % | | % | | % | | % |
Itaú Corredores de Bolsa Limitada (1) |
| National |
| Chile |
| $ | | 99.990 |
| 0.010 |
| 100.000 |
| 99.990 | | 0.010 |
| 100.000 |
Itaú Administradora General de Fondos S.A. (1) | | |
| Chile |
| $ | | 99.994 |
| 0.006 |
| 100.000 |
| 99.994 | | 0.006 |
| 100.000 |
Itaú Corredores de Seguros S.A. (1) | | |
| Chile |
| $ | | 99.990 |
| 0.010 |
| 100.000 |
| 99.990 | | 0.010 |
| 100.000 |
Itaú Asesorías Financieras Limitada (1) (7) | | |
| Chile |
| $ | | 99.990 |
| 0.010 |
| 100.000 |
| 99.990 | | 0.010 |
| 100.000 |
Recaudaciones y Cobranzas Limitada (1) (6) | | |
| Chile |
| $ | | 99.990 |
| 0.010 |
| 100.000 |
| 99.990 | | 0.010 |
| 100.000 |
Itaú Corpbanca New York Branch (1) (5) |
| Foreign |
| USA |
| US$ | | 100.000 |
| — |
| 100.000 |
| 100.000 |
| — |
| 100.000 |
Itaú Corpbanca Colombia S.A. (2) (8) | | |
| Colombia |
| COP$ | | 87.100 |
| — |
| 87.100 |
| 87.100 |
| — |
| 87.100 |
Itaú Corredor de Seguro Colombia S.A. (2) | | |
| Colombia |
| COP$ | | 79.985 |
| — |
| 79.985 |
| 79.985 |
| — |
| 79.985 |
Itaú Securities Services Colombia S.A. (2) (10) (11) | | |
| Colombia |
| COP$ | | 5.499 |
| 82.310 |
| 87.809 |
| 5.499 |
| 82.310 |
| 87.809 |
Itaú Comisionista de Bolsa Colombia S.A (2) (12) | | |
| Colombia |
| COP$ | | 2.219 |
| 85.166 |
| 87.385 |
| 2.219 |
| 85.166 |
| 87.385 |
Itaú Asset Management Colombia S.A. Sociedad Fiduciaria (2) | | |
| Colombia |
| COP$ | | — |
| 87.083 |
| 87.083 |
| — |
| 87.083 |
| 87.083 |
Itaú (Panamá) S.A. (3) | | |
| Panama |
| US$ | | — |
| 87.100 |
| 87.100 |
| — |
| 87.100 |
| 87.100 |
Itaú Casa de Valores S.A (4) (9) | | |
| Panama |
| US$ | | — |
| — |
| — |
| — |
| 87.100 |
| 87.100 |
(1) | Companies regulated by the Commission for the Financial Market, hereinafter CMF (formerly Superintendency of Securities and Insurance – SVS). |
(2) | Companies regulated by the Colombian Financial Superintendency (SFC), which has a supervision agreement with the CMF. |
(3) | Company regulated by the Superintendency of Banks of Panama. |
(4) | Company regulated by the Superintendency of the Securities Market of Panama. |
(5) | Company regulated by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve (FED). |
(6) | On May 2, 2019, Itaú Corpbanca Recaudaciones y Cobranzas S.A (Instacob) acquired from Itaú Corredores de Bolsa its participation in Itaú Asesorías Financieras. |
(7) | On May 2, 2019 Itaú Asesoría Financieras modifies its legal statute turning from a public company (S.A.) to a private limited company. |
(8) | On December 3, 2019 Itaú Corpbanca completed the acquisition of Itaú Corpbanca Colombia shares owned by Helm LLC and Kresge Stock Holding Company Inc. |
(9) | On January 23, 2020, Itaú Comisionista de Bolsa Colombia S.A., a subsidiary of Itaú Corpbanca Colombia S.A., completed the process of selling its participation (100%) held in Itaú Casa de Valores S.A., domiciled in Panama. |
(10) | On July 8, 2020, Recaudaciones y Cobranza Ltda. acquired 1 share of Itaú Securities Services Colombia S.A. for the price of US$2.29 equivalent to Ch$1.799 pesos. |
(11) | On July 8, 2020, Itaú Asesorías Financieras Ltda. acquired 1 share of Itaú Securities Services Colombia S.A. for the price of US$2.29 equivalent to Ch$1.799 pesos. |
(12) | On July 8, 2020, Itaú Asesorías Financieras Ltda. acquired 6 shares of Itaú Comisionista de Bolsa S.A. for the price of US$7.19 equivalent to Ch$5.648 pesos. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-15 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
(ii) | Associates |
Associated entities are those over which the Bank has significant influence; although not control or joint control. If the Bank holds, directly or indirectly (e.g. through subsidiaries), 20% or more of the voting power of the investee, it is presumed that the Bank has significant influence, unless it can be clearly demonstrated that this is not the case, and subsequently increased or decreased to recognize either the Bank’s proportional share in the net profit or loss of the associate and other movements recognized in its equity. The lower value arising from the acquisition of an associate is included in the book value of the investment net of any accumulated impairment loss.
Other factors considered to determine the significant influence on an entity are the representations in the Board of Directors and the existence of material transactions. The existence of these factors could determine the existence of significant influence on an entity, despite having a participation of less than 20% of the shares with the right to vote.
The following entities are classified as “Associates”, were the Bank has an interest and are accounted for using the equity method, according to IAS 28:
| | | | | | | | | | |
|
| |
| |
| As of December 31, |
| | As of December 31, |
|
Associate | | Main Operation | | Operation Place |
| 2020 |
| | 2019 |
|
| | | | |
| % Share | | % Share | ||
Nexus S.A |
| Credit and debit card operator |
| Santiago, Chile |
| 14.8148 | % | | 12.9000 | % |
Transbank S.A |
| Credit card operator |
| Santiago, Chile |
| 8.7188 | % | | 8.7188 | % |
Itaú Corpbanca exercises significant influence by virtue of its voting right to appoint a representative in the Board of Directors for each one of these entities. This, among other business considerations, led management to conclude that, in 2019, Itaú Corpbanca gained significant influence over the aforementioned entities.
(iii)Investments in other companies
Shares or rights in other companies are those in which the Bank has no control or significant influence. Such holdings are recorded at fair value through profit and loss or at fair value through other comprehensive income, when the Bank has irrevocably elected at initial recognition to recognize in this category, without recycling to profit or loss, according to IFRS 9 “Financial instruments”.
(iv)Funds management, trust business and other related businesses
The Bank and its subsidiaries manage assets held in publicly offered investment funds and other investment vehicles on behalf of investors and receive market-rate compensation for providing this type of services. Managed funds belong to third parties and, therefore, are not included in the Consolidated Statement of Financial Position.
The Bank provides trust commissions and other fiduciary services that result in the participation or investment of assets by clients. Assets held in a fiduciary activity are not reported in the Consolidated Financial Statements, since they are not Bank assets and there is no control over them. Contingencies and commitments arising from this activity are disclosed in Note 23 - Contingencies, Commitments, and Responsibilities, letter c), related to Responsibilities recorded in off-balance-sheet accounts.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-16 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
In accordance with IFRS 10 “Consolidated Financial Statements,” for consolidation purposes, the role of the Bank and its subsidiaries with respect to the managed funds must be evaluated to determine whether it is acting as Agent or Principal. According to this standard, an Agent is a party primarily engaged in acting on behalf and for the benefit of another party or parties (the Principal or Principals) and, therefore, it does not control the investee when it exercises decision-making authority. This evaluation must take into account the following aspects:
● | Scope of its decision-making authority over the investee. |
● | Rights held by other parties |
● | The remuneration to which it is entitled to in accordance with the remuneration agreements. |
● | Decision-maker’s exposure to variability of returns from other interests that it holds in the investee. |
The Bank does not control or consolidate any trusts or other entities related to this type of business.
The Bank manages the funds on behalf and for the benefit of investors, acting solely as an Agent. The assets managed by the Bank and its subsidiaries are owned by third parties. Under this category, and in accordance with the aforementioned standard, they do not control the assets when they exercise their decision-making authority. Therefore, as of December 31, 2020 and 2019 they act as Agent and none of these investment vehicles is consolidated.
d)Non-controlling interest
Non-controlling interest represents the portion of net income or loss and net assets which the Bank does not own, either directly or indirectly. It is disclosed as “Attributable to non-controlling interest” separately in the Consolidated Statement of Income (Loss).
Additionally, non-controlling interests are presented in the Consolidated Statement of Financial Position under the heading "Non-controlling interest", separately from the equity attributable to owners 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 owners in their capacity as owners).
The Bank attributes the profit or loss for the period and each component of other comprehensive income to the owners of the Bank and to non-controlling interests. The Bank also attributes total comprehensive income to the owners of the Bank and non-controlling interests even if the results of the non-controlling interests result in a debit balance.
e)Business combination and goodwill
Business combinations 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 Itaú Corpbanca and its subsidiaries (the Group) acquires a business, evaluates the identifiable assets acquired and liabilities assumed to determine proper classification and designation based on contractual conditions, economic circumstances, and other relevant conditions as of the acquisition date. This includes the assessment of whether an embedded derivative should be separated from a host contract in accordance with IFRS 9.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-17 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Goodwill, defined as the difference between the consideration transferred and the amount recognized for the non-controlling interest in the net identifiable assets acquired and liabilities assumed, is measured initially at cost. If this consideration is less than the fair value of the net assets of the acquired subsidiary, the difference is recognized directly in profit or loss as of the acquisition date.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill acquired in a business combination is assigned, from the date of acquisition, to each of the Group’s cash generating units (CGU) (or group of CGUs) that are expected to benefit from the combination, independently of whether other assets or liabilities of the acquiree are assigned to those units.
When goodwill is allocated to a CGU (or group of CGUs) and an operation within that unit is sold, the goodwill associated with that operation is included in the carrying amount of the operation sold when determining the gain or loss on disposal. Goodwill that is derecognized under such circumstances is measured on the basis of the relative values of the operation disposed of and the retained portion of the CGU (or group of CGUs).
f)Functional and presentation currency
The Bank has defined as its functional and presentation currency the Chilean peso, which is the currency of the primary economic environment in which the Bank operates and the currency that influences its costs and revenue structure. Therefore, all balances and transactions denominated in currencies other than the Chilean peso are treated as "foreign currency".
The Bank translates accounting records of its New York branch and subsidiaries in Colombia and Panama into Chilean pesos from US dollars and Colombian pesos, as applicable, in accordance with IAS 21 "Effects of the Variations in the Exchange Rates of the Foreign Currency". All amounts in the Consolidated Statements of Income, Consolidated Statements of Other Comprehensive Income and the Consolidated Statements of Financial Position are translated into Chilean pesos according to the exchange rate indicated in letter g) below. None of the markets in which Itaú Corpbanca and its subsidiaries operate qualify as a hyperinflationary economy.
g)Foreign currency
Transactions in foreign currency are initially recorded by the Bank at the exchange rates of their respective functional currencies at the date these transactions first meet the conditions for their recognition.
Monetary assets and liabilities denominated in foreign currency are converted at the closing exchange rate of the functional currency in force at the closing date of the reporting period.
All differences arising from the settlement or conversion of monetary items are recorded in income, except for those that correspond to monetary items that are part of the hedge of a net investment in a foreign operation, for which the cumulative difference is recorded in equity and subsequently reclassified to profit and loss (on disposal). Tax effects attributable to the exchange differences on such monetary items are also recorded in Other Comprehensive Income.
Non-monetary items in foreign currency, which are measured in terms of historical cost, are converted using the exchange rate on the date of the transaction. Non-monetary items that are measured at their fair value in foreign currency are translated using the exchange rates on the date on which that fair value is measured. Gains or losses arising from the translation of non-monetary items measured at their fair value are recognized based on how the gains and losses arising from the change in fair value are recognized in Other Comprehensive Income or in Income, in accordance with IAS 21.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-18 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The Bank grants loans and receives deposits in amounts denominated in foreign currency, mainly in US dollars and Colombian pesos.
Balances in the financial statements of the consolidated entities whose functional currency is different from the Chilean peso are converted into the presentation currency, according to the following criteria:
● | Assets and liabilities, by using exchange rates as of the date of the Consolidated Financial Statements. |
● | Income and expenses and cash flows, by using the exchange rates as of the date of each transaction. |
Exchange differences arising from translating balances into functional currencies of the consolidated entities other than Chilean pesos into Chilean pesos, are recorded as "Exchange differences" in Equity under the line item "Valuation accounts", until they meet the derecognition criteria for the Consolidated Statement of Financial Position, and is subsequently recorded in profit or loss.
The net amount of foreign exchange gains and losses includes the recognition of the effects of changes in the exchange rates over assets and liabilities denominated in foreign currencies and gains and losses arising from exchange rates changes affecting current and future transactions (highly probable transactions) entered into by the Bank.
Assets and liabilities in foreign currencies are shown at their equivalent amount in Chilean pesos, calculated using the exchange rate of $710.73 per US$1 (US dollar) as of December 31, 2020 ($748.77 as of December 31, 2019 and $694.73 as of December 31, 2018) and the exchange rate of $0.2078 per COP$1 (Colombian peso) as of December 31, 2020 ($0.2284 as of December 31, 2019 and $0.2139 as of December 31, 2018). The financial statements of the New York branch, as well as the Colombian and Panamanian subsidiaries, have been translated using these exchange rates for consolidation purposes, in accordance with IAS 21, related to the valuation of investments abroad in countries with stable economies.
h)Use of estimates and judgments
The preparation of the Consolidated Financial Statements requires the Bank’s management to make estimates, judgments and assumptions that affect the application of the accounting policies and the reported balances of assets and liabilities, disclosures of contingencies with respect to assets and liabilities as of the date of the Consolidated Financial Statements, as well as income and expenses during the year. Actual results may differ from these estimates.
Estimates and relevant assumptions are regularly reviewed by Management in order to properly measure some assets, liabilities, income, and expenses. Accounting estimates changes due to reviews are recognized in the year in which the estimate is reviewed and in any future period affected.
In certain cases, International Financial Reporting Standards requires that assets and liabilities be recorded or disclosed at their fair values. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. When market prices in active markets are available, they have been used as a basis for valuation. When market prices in active markets are not available, the Bank has estimated those values as values based on the best available information, including the use of modeling and other valuation techniques.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-19 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The Bank has established allowances to cover expected credit losses over its loan portfolio and other financial assets. These allowances must be regularly reviewed 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’ ability to pay. Increases in the allowances for loan losses are reflected as “Provision for loan losses” in the Consolidated Statement of Income (Loss). Loans are charged-off when the Bank’s management determines that a loan or a portion thereof is impaired. Charge-offs are recorded as a reduction of the allowance for loan losses.
In particular, information on significant areas of estimate due to uncertainties and critical judgments in the application of accounting policies that have the most important effect on the amounts recorded in the Consolidated Financial Statements are the following:
● | Allowances for loan losses |
● | Fair value of financial assets and liabilities |
● | Contingencies and commitments |
● | Impairment losses of certain assets, including Goodwill |
● | Current taxes and deferred taxes |
Due to changes in the macroeconomic environment during the last year, adjustments have been made to the estimates of allowances for credit risk (see Note 36) and impairment losses on Goodwill (see Note 32).
During the year ended December 31, 2020, there were no other significant changes in estimates made at the end of 2019.
i)Operating segments
The Bank provides financial information for each operating segment in conformity with IFRS 8 “Operating Segments” in order to disclose information that enables financial statement users to evaluate the nature and financial effects of the business activities in which the Bank engages and the economic environments in which it operates and to allow them to:
● | Better understand the Bank’s performance. |
● | Better evaluate its future cash flow projections. |
● | Form better opinions regarding the Bank as a whole. |
To comply with IFRS 8, Itaú Corpbanca identifies operating segments (Chile and Colombia) used by the Executive Committee, which is defined as the chief operating decision maker, to analyze and make decisions regarding operating, financing and investment matters, based on the following elements:
(1) | The nature of the products and services; |
(2) | The nature of the processes; |
(3) | The type or class of customer for their products and services; |
(4) | The methods used to distribute their products or provide their services; and |
(5) | If applicable, the nature of the regulatory environment, for example, banking, insurance or public utilities. |
The Executive Committee manages these segments using an in-house system of internal profitability reports and reviews its segments on the basis of the operating results and uses efficiency, profitability and other indicators to evaluate performance and allocate resources. The Bank has also included geographic disclosures on its operations in New York and Colombia. More information on each segment is presented in Note 4 - Reporting Segments.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-20 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
j)Operations with repurchase and resale agreements
Transactions with resale agreements are entered into as a form of investment. Under these agreements, financial instruments are sold, which are included as assets under "Investments under resale agreement” and are accounted for at amortized cost using the effective interest rate of the agreement.
There are also sales transactions with a repurchase agreement as a form of financing. In this regard, the investments that are sold subject to a repurchase obligation and that serve as collateral for the loan, form part of the investment items of "Financial instruments at fair value through profit or loss" or "Financial instruments at fair value through profit or loss". The obligation to repurchase the investment is classified in liabilities as "Repurchase agreements and securities loans", recognizing interest and inflation-indexation adjustments accrued as of the closing date.
k)Classification and measurement of financial instruments
I. Classification of financial instruments
(i) Classification of financial assets
Financial assets are classified into a measurement category based on both the Bank’s business model for managing the financial asset and the contractual cash flow characteristics of the financial asset.
Contractual cash flow assessment determine if the cash flows from the financial asset meet the SPPI (solely payment of principal and interest) criterion, i.e. whether the contractual terms of the financial asset give rise, on specific dates, to cash flows that are solely payments of principal and interest. Principal is the fair value of the financial assets at initial recognition, and interest is the consideration for the time value of money, the credit risk associated with the principal outstanding, and also may include liquidity risk, administrative cost and profit margin.
For classification process the Bank perform the SPPI test, which assesses the contractual term to identify whether they meet SPPI criterion, the contract is a basic lending arrangement. The Bank applies judgment and considers relevant factors such as currency in which the financial asset is denominated, and period for which the interest rate is set.
Business model refers to how the Bank manages its financial assets in order to generate cash flows. The Bank determined its business model on initial application of IFRS 9 at the level that best reflects how it manages groups of financial assets to achieve its business objective.
The Bank’s business model represents how financial assets are managed to generate cash flows and does not depend on the Management’s intention regarding an individual instrument, but at a higher level of aggregated portfolio and is based on observable factors such as: risks that affect the performance of business model; how business managers are compensated; how the performance of business model is assessed and reported to Management.
In addition, the Banks’s business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolio and is based on observable factors such as: performance of the financial assets, the risk that affect the performance, and the expected frequency, value and timing of sales, among others.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-21 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
In accordance with IFRS 9 the business models are:
● | Held to collect business model (HTC) - financial assets that are held within a business model whose objective is to hold assets in order to collect contractual cash flows are managed to realize cash flows by collecting contractual payments over the life of the instrument, under this business model sales made when there is an increase in the credit risk, or to manage credit concentration risk are not inconsistent with a business model whose objective is to hold financial assets to collect contractual cash flows. |
● | Held to collect and sell (HTC&S) - financial assets under this business model achieve the objective by both collecting contractual cash flows and selling financial assets, then involve a greater frequency and value of sales than HTC business model. |
● | Other business model - financial assets held in this business has the objective of realizing cash flows through the sale of the assets. The Bank makes decisions based on the assets’ fair values and manages the assets to realize those fair values. |
(ii) Reclassifications
Reclassification of financial assets is required if, and only if, the objective of the Bank’s business model for managing those financial assets changes. Financial liabilities cannot be reclassified. There are no reclassifications in these Consolidated Financial Statements.
II. Measurement of financial instruments
(i) Initial measurement
On initial recognition, financial assets and financial liabilities are measured at the transaction price, i.e. the fair value of the consideration given or received (IFRS 13). In the case of financial instruments not at fair value through profit or loss, transaction costs of financial assets and financial liabilities carried at fair value are expensed in profit or loss.
(ii) Subsequent measurement - Financial assets
After initial recognition, the Bank shall measures a financial asset at:
(a) Amortized cost
Financial assets that are held in a business model to collect the contractual cash flows and contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at amortized cost.
The effective interest method is used in the calculation of the amortized cost of a financial asset or a financial liability and in the allocation and recognition of the interest revenue or interest expense in profit or loss over the relevant period. The effective interest rate (EIR) is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortized cost of a financial liability.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-22 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
(b) Fair value through other comprehensive income (FVTOCI)
Financial assets that are debt instruments held in a business model that is achieved by both collecting contractual cash flows and selling, and that contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at FVTOCI. They are subsequently remeasured at fair value and changes therein (except for those relating to impairment, interest income and foreign currency exchange gains and losses) are recognized in other comprehensive income, until the assets are sold. Upon disposal, the cumulative gain and losses in other comprehensive income are recognized in the income statements.
(c) Fair value through profit or loss (FVTPL)
Financial assets that do not contain contractual terms that give rise on specified dates to cash flows that are SPPI, or if the financial assets, or if the financial asset is not held in a business model that is either (i) a business model to collect the contractual cash flows or (ii) a business model that is achieved by both collecting contractual cash flows and selling.
Financial assets held for trading are recognized at fair value through profit or loss, likewise derivatives contracts for trading purposes.
(d) Equity instruments
For certain equity instruments, the Bank may make an irrevocable election to present subsequent changes in the fair value of the instrument in other comprehensive income, except for dividend income which is recognized in profit or loss.
Gains or losses on derecognition of these equity instruments are not transferred to profit or loss.
(iii) Subsequent measurement - Financial liabilities
After initial recognition, the Bank shall measure a financial liability at amortized cost, except for derivatives that are measured at fair value through profit or loss.
III. Derecognition of financial assets and liabilities
Financial assets are derecognized when, and only when:
● | the contractual rights to the cash flows from the financial asset expire, or |
● | the Bank transfers substantially all the risks and rewards of ownership of the financial asset, and therefore the Bank derecognizes the financial asset and recognize separately any rights and obligations created or retained in the transfer. |
In some cases, the Bank enters into transactions for which it retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows in an arrangement that meets all the conditions required, i.e. the Bank only transfers collected amounts from original assets, selling or pledging original assets is prohibited, and the Bank has the obligation to remit cash flows collected without material delay.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-23 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
When a financial asset is sold and the Bank simultaneously agrees to repurchase it (or an asset that is substantially the same) at a fixed price on a future date, the Bank continues to recognize the financial assets in their entirety in the statements of financial position because it retains substantially all of the risks and rewards of ownership. The cash consideration received is recognized as a financial asset and a financial liability is recognized for the obligation to pay the repurchase price.
Financial liabilities are derecognized when, and only when, they are extinguished, cancelled or expired.
Derecognition due to substantial modification of terms and conditions
The Bank derecognizes a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to the extent that it essentially has become a new asset, with the difference recognized as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded.
A modification of terms and conditions does not lead to derecognition if it does not result in cash flows that are substantially different. Based on the change in cash flows discounted at the original EIR, the Bank records a modification gain or loss, to the extent that an impairment loss has not already been recorded. For financial liabilities, the Bank considers a modification substantial based on qualitative factors, and whether it results in a difference between the adjusted discounted present value and the original carrying amount of the financial liability of, or greater than, ten percent. For financial assets, this assessment is based on qualitative factors.
IV. Renegotiated and modified loans
The Bank sometimes makes concessions or modifications to the original terms of loans as a response to the borrower’s financial difficulties, rather than taking possession or otherwise enforcing collection of collateral, or in some cases in order to renegotiate loans. The Bank considers a loan forborne when such concessions or modifications are provided as a result of the borrower’s present or expected financial difficulties and the Bank would not have agreed to them if the borrower had been financially healthy. Indicators of financial difficulties include defaults on covenants, or significant concerns raised by the Credit Risk Department. Forbearance may involve extending the payment arrangements and the agreement of new loan conditions. It is the Bank’s policy to monitor forborne loans to help ensure that future payments are likely to occur.
If the modifications are substantial, the loan is derecognized, as explained in “III. Derecognition of financial assets and liabilieties”. If the terms have been renegotiated without resulting in the derecognition of the loan, any impairment is measured using the original EIR as calculated before the modification of terms. The Bank also reassesses whether there has been a significant increase in credit risk and whether the assets should be classified as another Stage. Derecognition decisions and classifications of Stage 2 and Stage 3 are determined on a case-by case basis. If these procedures identify a loss in relation to a loan, it is disclosed and managed as an impaired Stage 3 forborne asset until it is collected or written off.
Due to the COVID-19 pandemic, the Chilean Government issued a number of measures in order to support the economy. The Bank implemented these measures and carried out additional measures to support its customers, whereby the Bank and its customers agreed upon modifications to loans, including in cases where the customers did not necessarily face financial difficulties. The modifications carried out consisted of payment deferral arrangements, which were not necessarily prompted by an assessment of the financial condition of the borrower. As such, these customers were not identified as showing significant increase in credit risk (SICR) and remained in their current stage, unless they had previously triggered other SCIR criteria.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-24 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
V. Contingent loans
The Bank issues contingent loans (including letters of credit, foreign letters of credit and performance guarantee) and loan commitments.
Contingent loans and undrawn loan commitments are commitments under which, over the duration of the commitment, the Bank is required to provide a loan with pre-specified term to the customer.
The nominal contractual loan value, when the loan agreed to be provided is on market terms, is not recorded in the statements of financial position. The related expected credit loss allowance is disclosed in Note 21.
VI. Offsetting
Financial assets and financial liabilities are offset in the balance sheet only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
l)Derivatives and hedging activities
The Bank has elected to continue applying the hedge accounting requirements of IAS 39 on adoption of IFRS 9.
For presentation purposes, derivatives are presented in accordance with its positive or negative fair value as assets or liabilities, respectively, and include trading and hedging instruments separately (see Note 8).
Hedging transactions
The Bank has elected to continue applying the hedge accounting requirements in IAS 39 instead of the requirements of IFRS 9, thus the Bank uses financial derivatives for the following purposes:
i. | to sell to customers who request these instruments in the management of their market and credit risks; |
ii. | to use these derivatives in the management of the risks of the Bank entities’ own positions and assets and liabilities (“hedging derivatives”), and |
iii. | to obtain profits from changes in the price of these derivatives (trading derivatives). |
All financial derivatives that are not held for hedging purposes are accounted for as trading derivatives.
A derivative qualifies for hedge accounting if all the following conditions are met:
i. | The derivative hedges one of the following three types of exposure: |
a. | Changes in the value of assets and liabilities due to fluctuations, among others, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”); |
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-25 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
b. | Changes in the estimated cash flows arising from financial assets and liabilities, and highly probable forecasted transactions (“cash flow hedge”); |
c. | The net investment in a foreign operation (“hedge of a net investment in a foreign operation”). |
ii. | It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that: |
a. | At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”). |
b. | There is sufficient evidence that the hedge was actually effective during the life of the hedged item or position (“retrospective effectiveness”). |
iii. | There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks. |
The changes in the value of financial instruments qualifying for hedge accounting are recorded as follows:
a. | For fair value hedges, the gains or losses arising on both hedging instruments and the hedged items (attributable to the type of risk being hedged) are included as “Net income (expense) from financial operations” in the Consolidated Statement of Income. |
b. | For fair value hedges of interest rate risk on a portfolio of financial instruments, gains or losses that arise in measuring hedging instruments within “Interest income and expense”, and other gains or losses due to changes in fair value of the underlying hedged item (attributable to the hedged risk) are recorded in the Consolidated Statement of Income (Loss) under “Net income (expense) from financial operations”. |
c. | For cash flow hedges, the change in fair value of the hedging instrument is included as “Cash flow hedge” in “Other comprehensive income”. |
d. | The differences in valuation of the hedging instrument corresponding to the ineffective portion of the cash flow hedging transactions are recorded directly in the Consolidated Statements of Income (Loss) under “Net income (expense) from financial operations”. |
If a derivative designated as a hedging instrument no longer meets the conditions described above due to expiration, ineffectiveness or for any other reason, hedge accounting treatment is discontinued. When “fair value hedging” is discontinued, the fair value adjustments to the carrying amount of the hedged item arising from the hedged risk are amortized to gain or loss from that date, where applicable.
Sources of hedge ineffectiveness may arise from basis risk, including but not limited to the discount rates used for calculating the fair value of derivatives, hedges using instruments with a non-zero fair value, and notional and timing differences between the hedged items and hedging instruments.
When cash flow hedges are discontinued, any cumulative gain or loss of the hedging instrument recognized under “Other comprehensive income (loss)” (from the period when the hedge was effective) remains recorded in equity until the hedged transaction occurs, at which time it is recorded in the Consolidated Statements of Income, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recorded immediately in the Consolidated Statement of Income (Loss).
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-26 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
m)Fair value measurement
In general, financial assets and liabilities are initially recognized at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. Financial instruments, other than those measured at fair value through profit or loss, are initially recognized at fair value plus transaction costs. Subsequently, and at the end of each reporting period, financial instruments are measured pursuant to the following criteria:
(i) Valuation of financial instruments
Financial assets are measured according to their fair value, gross of any transaction costs that may be incurred in the course of a sale, except for loans and accounts receivable from customers.
According to IFRS 13 “Fair Value Measurement”, “Fair value” is defined as 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. When measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.
The fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either: (a) in the principal market for the asset or liability, or (b) in the absence of a principal market, the most advantageous market for the asset or liability.
Even when there is no observable market to provide pricing information in connection with the sale of an asset or the transfer of a liability at the measurement date, the fair value measurement shall assume that the transaction takes place, considered from the perspective of a potential market participant who intends to maximize value associated with the asset or liability.
When using valuation techniques, the Bank shall maximize the use of relevant observable inputs and minimize the use of unobservable inputs as available. If an asset or a liability measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is most representative of fair value in the circumstances shall be used to measure fair value regardless of where the input is categorized within the fair value hierarchy (i.e. Level 1, 2 or 3). IFRS 13 establishes 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 or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
All derivatives are recorded in the Consolidated Statements of Financial Position at the fair value previously described. This value is compared to the valuation as at the trade date. If the fair value is subsequently measured positive, this is recorded as an asset. If the fair value is subsequently measured negative, this is recorded as a liability. The fair value on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price.
The changes in the fair value of derivatives from the trade date are recorded in “Net income (expense) from financial operations” in the Consolidated Statement of Income.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-27 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Specifically, the fair value of financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price. If, for exceptional reasons, the quoted price cannot be determined on a given date, the fair value is determined using similar methods to those used to measure over the counter (OTC) derivatives. The fair value of OTC derivatives is the sum of the future cash flows resulting from the instrument, discounted to present value at the date of valuation (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV) and option pricing models, among other methods.
Also, within the fair value of derivatives are included Credit Valuation Adjustment (CVA) and Debit Valuation Adjustment (DVA), all with the objective that the fair value of each instrument includes the credit risk of its counterparty and Bank’s own risk. The Credit valuation adjustment (CVA) is a valuation adjustment to OTC derivatives as a result of the risk associated with the credit exposure assumed by each counterparty. The CVA is calculated taking into account potential exposure to each counterparty in each future period. The debit valuation adjustment (DVA) is a valuation adjustment similar to the CVA but, in this case, it arises as a result of the Bank’s own risk assumed by its counterparties in OTC derivatives.
(ii) Valuation techniques
Financial instruments at fair value, determined on the basis of price quotations in active markets, include government debt securities, private sector debt securities, equity shares, short positions, and fixed-income securities issued.
In cases where price quotations cannot be observed in available markets, the Bank’s management determines a 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 however for some valuations of financial instruments, significant inputs are unobservable in the market. To determine a value for those instruments, various techniques are employed to make these estimates, including the extrapolation of observable market data.
The most reliable evidence of the fair value of a financial instrument on initial recognition usually is the transaction price, however due to lack of availability of market information, the value of the instrument may be derived from other market transactions performed with the same or similar instruments or may be measured by using a valuation technique in which the variables used include only observable market data, mainly interest rates.
The main techniques used as of December 31, 2020 and 2019 by the Bank’s internal models to determine the fair value of the financial instruments 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. |
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-28 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The fair value of the financial instruments calculated by the aforementioned internal models considers contractual terms and observable market data, which include interest rates, credit risk, exchange rates, quoted market price of shares, volatility and prepayments, among others. The Bank’s management considers that its 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.
n)Recognizing income and expenses
The most significant criteria used by the Bank to recognize its revenues and expenses are summarized as follows:
(i) Interest income, interest expense, and similar items
Interest income and expense are recorded on an accrual basis using the effective interest method.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for financial assets that have subsequently become credit-impaired (or ‘stage 3’), for which interest revenue is calculated by applying the effective interest rate to their amortized cost (i.e. net of the ECL provision).
(ii) Dividends received
Dividends received from investments in other companies are recognized on income when the right to receive them arises and are recorded in the item “Income from investments in companies”.
(iii) Commissions, fees, and similar items
Fee and commission income and expenses are recognized in the Consolidated Statement of Income (Loss) as set forth on IFRS 15 “Revenue from contracts with customers”, based on the terms of the contract held with customers, excluding amounts collected on behalf of third parties. The Bank recognizes revenue as the performance obligations is fulfilled by transferring a service to a customer; under this definition an asset is transferred when (or as) the customer obtains control of that asset or a services is rendered. The Bank considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
The Bank transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time, and/or the Bank satisfies the performance obligation at a point in time.
The main revenues arising from commissions, fees and similar items correspond to:
● | Fees and commissions for lines of credits and overdrafts: includes accrued fees related to granting lines of credit and overdrafts in checking accounts. |
● | Fees and commissions for guarantees and letters of credit: includes accrued fees in the period relating to granting of guarantee payment for current and contingent third party obligations. |
● | Fees and commissions for card services: includes accrued and earned commissions in the period related to use of credit cards, debit cards and other cards. |
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-29 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
● | Fees and commissions for management of accounts: includes accrued commissions for the maintenance of checking, savings and other accounts |
● | Fees and commissions for collections and payments: includes income arising from collections and payments services provided by the Bank. |
● | Fees and commissions for intermediation and management of securities: includes income from brokerage, placements, administration and securities’ custody services. |
● | Fees and commissions for insurance brokerage fees: includes income arising for insurances distribution. |
● | Other fees and commissions: includes income arising from currency changes, financial advisory, cashier check issuance, placement of financial products and online banking services. |
The main expenses arising from commissions, fees and similar items correspond to:
● | Compensation for card operation: includes commission expenses for credit and debit card operations related to income commissions’ card services. |
● | Fees and commissions for securities transactions: includes commissions’ expense for deposits, securities custody service and securities’ brokerage. |
● | Other fees and commissions: includes mainly expenses generated from online services. |
The Bank has incorporated disaggregated revenue and expense disclosures and reportable segment relationship in Note 26.
Additionally, the Bank grants a group of benefits to its cardholders for which, in accordance with IFRS 15, has established provisions enough to comply with its performance obligations when these benefits become enforceable.
(iv) Loan arrangement fees
Fees that arise as a result of the origination of a loan, mainly application and analysis-related fees, are deferred and charged to the Consolidated Statement of Income (Loss) over the term of the loan. In the case of commitment fees these are immediately recorded in the Consolidated Statement of Income (Loss) when it is unlikely that a specific lending arrangement will be entered into and the loan commitment is not measured at FVTPL.
o)Impairment
Assets are acquired or purchased based on the future economic benefits they produce. Accordingly, impairment is recorded when the carrying amount of those assets is lower than the recoverable amount, assets are subject to impairment tests in order to properly reflect the future economic benefits that assets are capable to produce when used by the Bank.
The Bank assesses on a forward-looking basis the expected credit losses (ECL) associated with its debt instrument assets carried at amortized cost and FVTOCI and with the exposure arising from loan commitments and financial guarantee contracts. The Bank recognizes a loss allowance for such losses at each reporting date. The measurement of ECL reflects:
● | An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes; |
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-30 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
● | The time value of money; and |
Reasonable and supportable information that is available without undue cost or effort at the repotting date about past events, current conditions and forecasts of future economic conditions.
The Bank follows the criteria described below in order to assess impairment, when applicable:
(i)Financial assets
A financial asset, other than those recorded at fair value through profit and loss, is evaluated on each financial statement reporting date in order to determine whether objective evidence of impairment exists. At the end of each reporting period the Bank assesses if objective evidence exist for a financial asset or group of financial assets to be impaired.
A financial asset or group of financial assets will be impaired if, and only if, objective evidence of impairment exists as a result of one or more events that occurred after initial recognition of the asset (“event causing the loss”), and this event or events causing the loss have an impact on the estimated future cash flows of a financial asset or group of financial assets.
An impairment loss relating to financial assets recorded at amortized cost is calculated as the difference between the recorded amount of the asset and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
Objective evidence for an asset or group of assets to be impaired includes the following events that cause losses: (i) significant financial difficulties of the issuer or debtor; (ii) noncompliance of the terms of the contract; (iii) the lender, due to economic or legal reasons related to financial difficulties of the debtor, grants waivers or give unusual conditions that will not be granted in normal circumstances; (iv) it is probable that the debtor is in bankruptcy or in another form of financial reorganization; (v) there is no longer a market for the financial asset due to financial difficulties; or (vi) observable data indicates that since initial recognition of a group of financial assets there is a decrease in the estimated future cash flows regardless of individual identification for each asset, including data about: (a) adverse changes in the payment behavior of debtors in the group; or (b) local or national economic conditions correlated to non-compliant in the group.
Individually significant financial assets are individually assessed to determine their impairment. The remaining financial assets are collectively evaluated in groups that share similar credit risk characteristics.
The ECL for investments measured at FVTOCI do not reduce the carrying amount of these financial assets in the statement of financial position, which remains at fair value. Instead, an amount equal to the allowance that would arise if the assets were measured at amortised cost is recognised in other comprehensive income as an accumulated impairment amount, with a corresponding charge to profit or loss. The accumulated loss recognised in other comprehensive income is recycled to the profit and loss upon derecognition of the assets.
If impairment evidence exists, any amount previously recorded in equity is transferred from equity to the Consolidated Statement of Income (Loss), presented as FVTOCI investments net gains or losses. This amount is calculated as the difference between acquisition cost (net of any amortization and reimbursement) and the current fair value of the asset, less any impairment loss on the investment previously recorded in the Consolidated Statement of Income (Loss).
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-31 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
In respect to equity financial investments, impairment losses previously recognized in the Consolidated Statement of Income (Loss) are not reversed through income. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income and accumulated under FVTOCI as part of “Valuation accounts”.
All impairment losses are recorded in income. Any impairment loss relating to a financial asset FVTOCI previously recorded in equity is transferred to profit or loss. 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. The reversal of an impairment loss shall not exceed the carrying amount that would have been determined if no impairment loss has been recognized for the asset in prior years. The reversal is recorded in income with the exception of FVTOCI equity financial assets, in which case it is recorded in other comprehensive income (loss).
(ii)Non-financial assets
The Bank’s non-financial assets, are reviewed at each reporting date to determine whether they show signs of impairment (i.e. its carrying amount exceeds its recoverable amount). If any such evidence exists, the recoverable amount of the asset is estimated, in order to determine the extent of the impairment loss.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
In connection with other assets, impairment losses recorded in prior periods are assessed at each reporting date to determine whether the loss has decreased and should be reversed. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years. Goodwill impairment is not reversed.
The Bank shall assess at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased.
If any such indication exists, the entity shall estimate the recoverable amount of that asset.
In assessing whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased, an entity shall consider, as a minimum, external sources of information, such as there are observable indications that the asset’s value has increased significantly during the period; significant changes with a favorable effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which the asset is dedicated; market interest rates or other market rates of return on investments have decreased during the period, and those decreases are likely to affect the discount rate used in calculating the asset’s value in use and increase the asset’s recoverable amount materially and internal sources of information such as significant changes with a favorable effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, the asset is used or is expected to be used. These changes include costs incurred during the period to improve or enhance the asset’s performance or restructure the operation to which the asset belongs.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-32 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
In the case of goodwill and indefinite useful life intangible assets or not yet available for use the recoverable amount is estimated at least annually.
When impairment exists the carrying amount of the asset shall be reduced to its recoverable amount if, and only if, the recoverable amount of an asset is less than its carrying amount. This reduction is an impairment loss.
An impairment loss shall be recognized immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another standard. Any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with that other standard.
When the amount estimated for an impairment loss is greater than the carrying amount of the asset to which it relates, an entity shall recognize a liability if, and only if, that is required by another standard. After the recognition of an impairment loss, the depreciation (amortization) charge for the asset shall be adjusted in future periods to allocate the asset’s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.
If an impairment loss is recognized, any related deferred tax assets or liabilities are determined in accordance with IAS 12 “Income Taxes” by comparing the revised carrying amount of the asset with its tax base.
Impairment losses recognized in previous years are assessed at the end of each reporting period in order to identify any indication for impairment reduction or disappearance. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years.
(iii)Goodwill
Goodwill is tested annually in order to determine if impairment losses exist and whenever there is an indication that the carrying value may be impaired. The impairment of goodwill is determined by evaluating the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. An impairment loss is recognized when the recoverable amount of the CGU is less than its carrying amount.
For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’s cash-generating units, or groups of cash-generating units irrespective of whether other assets or liabilities of the acquire are assigned to those units or groups of units. An impairment loss recognized for goodwill shall not be reversed in a subsequent period.
According to IAS 36 “Impairment of Assets” the annual impairment test for a cash-generating unit to which goodwill has been allocated or for intangible assets with indefinite useful lives may be performed at any time during an annual period, provided the test is performed at the same time every year. Different cash-generating units may be tested for impairment at different times.
p)Property, plant and equipment
Items of property, plant and equipment are measured at acquisition cost, net of accumulated depreciation and impairment, if any.
In addition to the price paid to acquire each item, the cost also includes, where applicable, the capitalized cost. The capitalized cost includes expenses attributed directly to the asset acquisition and any other costs directly attributable to the process of placing the asset in conditions to be used.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-33 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
When some part of an item of the plan and equipment are measured has a different useful life to that fixed asset, it is recognized as a separate component (significant components of plan and equipment are measured).
This item includes the amounts of property, land, furniture, vehicles, technological equipment and other facilities own by the consolidated entities or acquired under financial leases. These assets are classified based on their use in:
(i)Property, plant and equipment for own use
Property, plant and equipment for own use includes but is not limited to tangible assets received by the consolidated entities in full or partial satisfaction of financial assets representing accounts receivable from third parties which are intended to be held for continuing own use and tangible assets acquired under finance leases. These assets are presented at acquisition cost less the related accumulated depreciation and, if applicable, any impairment losses (when net carrying amount was higher than recoverable amount). For accounting purposes, acquisition cost of the received asset is considered to be its net amount.
Depreciation is calculated using the straight line method over the acquisition cost of assets less their residual value, assuming that the land on which buildings and other structures stand has an indefinite life and, therefore, is not subject to depreciation. Property, plant and equipment in leased properties are depreciated over the shorter period of time between their useful lives or the term of the lease, unless it is certain that the Bank will acquire the property at the end of the lease.
Maintenance expenses relating to tangible assets held for own use are recorded as an expense in the period in which they are incurred.
(ii)Assets leased out under operating leases
The criteria used to record the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives, and to record the impairment losses thereof, are consistent with those described in relation to property, plant and equipment held for own use. As of January 1, 2019 the Bank has started to apply IFRS 16 “Leases”, see letter t) in this Note.
q)Intangible assets
Intangible assets are identified as non-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of legal or contractual rights or it is separable. The Bank recognizes an intangible asset, whether purchased or self-created (at cost), when the cost of the asset can be measured reliably and it is probable that the future economic benefits that are attributable to the asset will flow to the Bank. The cost of intangible assets acquired in a business combination correspond to its fair value at the acquisition date.
Intangible assets are recorded initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortization and any accumulated impairment losses.
An entity shall assess whether the useful life of an intangible asset is finite or indefinite and, if finite, the length of, or number of production or similar units constituting, that useful life. An intangible asset shall be regarded by the entity as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-34 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The accounting for an intangible asset is based on its useful life. An intangible asset with a finite useful life is amortized over its useful life, and it is reviewed in order to determine if the asset is impaired, the amortization period and the amortization method shall be reviewed at least at each financial year-end. An intangible asset with an indefinite useful life are not amortized and the entity tests for impairment by comparing its recoverable amount with its carrying amount annually and whenever there is an indication that the intangible asset may be impaired.
Internally developed computer software is recorded as an intangible asset if, among other requirements (basically the Bank’s ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated.
Expenditure on research activities is recorded as an expense in the year in which it is incurred and cannot be subsequently capitalized.
(i)Software
Software acquired by the Bank is recognized at cost less the accumulated amortization and impairment, if any.
The expenses in software developed internally are recorded as assets when the Bank is capable of proving its intention and ability to complete development, when internal use will generate future economic benefits, and when the cost of completing its development can be reliably measured. The capitalized costs of the software developed internally include all the direct costs attributable to the development of the software, and it is amortized over the course of its useful life. Software developed internally is recorded at cost less the accumulated amortization and losses from impairment.
The subsequent expenditures associated with the asset are capitalized only when future economic benefits from them will flow to the entity. The rest of the expenditures are recognized in income. Intangible assets are amortized on a straight-line basis over their estimated useful life; starting on the date it is ready for use.
(ii)Generated in a business combination
According to IFRS 3 “Business combinations”, when an intangible asset is acquired or generated in a business combination its cost will be the fair value at the acquisition date. The fair value of an intangible asset represents expectations of market participants at the acquisition date over the probability that future economic benefits from the asset will flow to the entity. In other words, the entity expects that economic benefits flows to it, even though there is uncertainty about the date or the amount of them.
As set forth by IAS 38 “Intangibles assets” and IFRS 3 “Business combinations”, the acquirer will recognize an intangible asset from the acquiree at the acquisition date separately from Goodwill independently if the asset was previously recognized by the acquiree before the business combination.
In connection with the aforementioned, the business combination between Banco Itaú Chile and Corpbanca gave rise to intangible assets and Goodwill as indicated in Note 13 Intangible Assets.
(iii)Other identifiable intangibles
Correspond to those intangible assets that can be identified, the Bank controls them, can be reliably measured and it is probable that future benefits will flow to the Bank.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-35 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
r)Factoring transactions
The Bank performs operations with their clients, in which they receive invoices and other credit representative trading instruments with or without recourse to the transferor, anticipating a percentage of the total amount receivable of the borrower upon collection. These transactions are valued at the disbursed amounts by the Bank in exchange for invoices or other credit representative trading instruments.
The price differences between the disbursed amounts and the notional amount of the documents are recorded in the Consolidated Statement of Income (Loss) as interest income applying the effective interest rate method, over the term of the transaction. The responsibility of payment remains with the client (assignor).
s)Leases
As of January 1, 2019 the Bank adopted IFRS 16 “Leases”, using the modified retrospective method and therefore, no comparative information is required; 2018 balances continue to be reported under IAS 17 “Leases”.
On the date of commencement of a lease the Bank recognizes a right-of-use asset and a lease liability in accordance with the provisions set forth on IFRS 16 “Leases”.
Policy applicable as of January 1, 2019
(i) Right-of-use assets
At commencement date, the right-of-use asset is measured at cost. The cost of right-of-use asset includes (a) the amount of the initial measurement of the lease liability; (b) any lease payments made at or before the commencement date, less any lease incentives received; (c) the initial direct costs incurred by the Bank; and (d) an estimate of the costs to be incurred by the Bank in dismantling and disposing of the underlying asset, restoring the place where it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.
After the initial recognition date, the Bank measures the assets by the right of use by applying the cost model, which is defined as the asset by the right of use measured at cost (a) less any accumulated depreciation and any accumulated impairment losses; and (b) adjusted by any new measurement of the lease liability.
The Bank applies the depreciation requirements established by IAS 16 "Property, plant and equipment" when depreciating the right of use asset.
If the lease transfers ownership of the underlying asset to the Bank at the end of the lease term or if the cost of the right-of-use asset reflects that the Bank will exercise a purchase option, the Bank depreciates the right-of-use asset from the start date of the lease to the end of the useful life of the underlying asset. Otherwise, the Bank depreciates the right-of-use asset from the start date to the end of the useful life of the asset to which it has a right of use or to the end of the lease term, whichever occurs first.
The Bank applies IAS 36 "Impairment of assets" to determine whether a right of use asset is impaired and to account for identified impairment losses.
As of December 31, 2020, the Bank has not identified any impairment for the right-of-use assets under lease.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-36 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
(ii) Lease liability
The Bank measured the lease liability as the present value of lease payments that have not been paid as of that date. Lease payments are discounted using the interest rate implicit in the lease, if that rate can be easily determined. If that rate cannot be readily determined, the Bank uses its incremental borrowing rate (cost of funding).
The lease payments included in the measurement of the lease liability comprise the following payments for the right-of-use the underlying asset during the term of the not cancelable at the measurement date, which includes (a) fixed payments, less any lease incentive receivable; (b) variable lease payments, which depend on an index or a rate, recently measured using the index or rate on the start date; (c) it matters that the lessee expects to pay as residual value guarantees; (d) the exercise price of a purchase option if the lessee is reasonably sure to exercise that option; and (e) payments for penalties arising from the termination of the lease, if the term of the lease reflects that the lessee exercises an option to terminate the lease.
After the date of initial recognition, the Bank measures the lease liability in order to recognize (a) the interest on the lease liability; (b) lease payments made; and (c) the new measurements or modifications of the lease, and also for fixed lease payments that have essentially been reviewed.
The Bank makes new measures of the lease liability discounting the modified lease payments, if (a) there is a change in the expected amounts payable related to a residual value guarantee. A lessee will determine the lease payments to determine the change in the amounts expected to be paid under the residual value guarantee; (b) there will be a change in future lease payments determined from a change in an index or a rate used to determine those payments. The Bank measures the lease liability again to modify the modified lease payments only when there is a change in cash flows. The Bank will determine the revised lease payments, for the remainder of the lease term, based on the revised contractual payments.
The rent of the lease agreements is agreed in UF and paid in Chilean pesos. According to that, monthly variation in UF should be treated as a new measurement, and therefore, inflation-indexation adjustments should be recognized as a modification to the obligation and the right-of-use asset.
In applying IFRS 16 for the first time, the Bank has used the following practical expedients permitted by the standard:
● | accounting for operating leases with a remaining lease term of less than 12 months as of January 1, 2019 as short-term leases |
● | excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application. |
The Bank has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Bank relied on its assessment made applying IAS 17.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-37 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
As of January 1, 2019, the Bank measured the lease liability at the present value of the lease payments discounted using the incremental interest rate for loans (cost of funding), which was 2.01%. The average incremental interest rate as of December 31, 2019 is 2.04%.
Policy applicable prior to January 1, 2019
(i) Finance leases
Finance leases are leases that substantially transfer all the risks and rewards incidental to ownership of the leased asset to the lessee.
The Bank recognized as lending to third parties under “Loans and accounts receivable from customers” in the Consolidated Statements of Financial Position, the sum of the present value of the lease payments receivable from the lessee, including the exercise price of the lessee’s purchase option at the end of the lease term, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.
When consolidated entities acts as lessees, the leased assets are classified based on their nature in the Consolidated Statements of Financial Position, and recognizing an asset and liability at the same amount (the lower between the fair value of the leased property and the present value of the minimum lease payments, plus purchase option). These assets are depreciated in accordance with property, plant and equipment for own use criterion.
In both cases, income and expenses arising from these contracts are recorded under “Interest income and expense” in the Consolidated Statement of Income (Loss) to achieve constant return rate over the lease term.
(ii) Operating leases
In operating leases, the ownership of the leased asset and substantially all the risks and rewards incidental thereto remain with the lessor.
When the consolidated entities act as a lessor, the leased assets are classified at their acquisition cost under “Property, plant and equipment”. The depreciation criterion for these assets is consistent with that for similar items of property, plant and equipment held for own use and revenues from operating leases are recorded on a straight-line basis under “Other operating income” in the Consolidated Statement of Income (Loss).
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 expenses” in the Consolidated Statement of Income (Loss).
(iii) Sale and leaseback transactions
For sale at fair value and operating leasebacks, the profit or loss generated is recorded at the time of the sale except in the case of excess of proceeds over fair value, which is amortized over the period of use of the asset. In the case of finance leasebacks, the profit or loss generated is amortized over the lease term.
t)Expected credit losses allowance
The Bank uses an “expected credit loss (ECL)” model. The impairment model applies to all financial assets measured at amortized cost and debt securities measured at fair value through other comprehensive income (FVOCI), including commitment and contingent loans. Investments in equity are outside of the scope of the new impairment requirements.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-38 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The Bank accounted ECL related to financial assets measured at amortized cost as a loss allowance in the statements of financial position, but the carrying amount of these assets is stated net of the loss allowance. ECL related to contingent loans is accounted for as a provision in the statements of financial position. The Bank recognizes in profit or loss, as an impairment gain or loss, the amount of ECL (or reversal) required to adjust the loss allowance at the reporting date, for financial assets measured at amortized cost and contingent loans.
The model uses a dual measurement approach, under which the loss allowance is measured as either:
● | 12-month expected credit losses |
● | Lifetime expected credit losses |
The Bank has defined default on an individual or collective basis as follows:
● | Individual: when exposure is more than 89 days past due, it has been restructured, it is in judicial collection, or it has been written-off. |
● | Collective: when exposure is more than 89 days past due, it has been restructured, or has been identified as impaired by an internal risk committee. |
For collective assessment purposes, financial assets are grouped based on characteristics of shared credit risk, considering the type of instrument, credit risk classifications, initial recognition date, remaining term, industry, geographical location of the counterparty, among other significant factors.
An instrument is considered to be no longer in default when it no longer meets the default criteria for a consecutive period between 4-11 months, depending on the type of loan.
The ECL measurement basis depends on whether there has been a significant increase in credit risk since initial recognition. Based on changes in credit quality since initial recognition, IFRS 9 outlines a “three-stage” model impairment in accordance with the following diagram:
Change in credit quality since initial recognition | ||||
Stage 1 |
| Stage 2 |
| Stage 3 |
Initial recognition | | Significant increase in credit risk (“SICR”) since initial recognition | | Credit impaired assets |
12-month expected credit losses | | Lifetime expected credit losses | | Lifetime expected credit losses |
The Bank, at the end of each reporting period, evaluates whether a financial instrument’s credit risk has significantly increased since initial recognition or whether an asset is considered to be credit-impaired, and consequently classify financial instrument in the respective stage:
● | Stage 1: When loans are first recognized, the Bank recognizes an allowance based on 12 months ECL. Stage 1 loans also include facilities where the credit risk has improved and the loan has been returned to Stage 1. |
● | Stage 2: When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance based on lifetime ECL. Stage loans also include facilities where the credit risk has improved and the loan has been returned to stage 2. |
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-39 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
● | Stage 3: Loans considered credit-impaired. The Bank records an allowance based on lifetime ECL, setting the Probability of Default (“PD”) at 100%. |
The Banks assessment of a SICR and the calculation of ECL both incorporate forward-looking information. The Bank performs historical analysis and identify the key economic variables that impacts credit risk and ECL for each portfolio. These can include GDP, inflation, interest rates, and unemployment, among others. Where applicable, we incorporate these economic variables and their associated impacts into our models.
Credit risk assessment and forward looking information (including macro-economic factors), includes quantitative and qualitative information based on the Bank’s historical experience, some examples are:
a. | Financial or economic conditions that are expected to cause a significant change in the borrower’s ability to meet its debt obligations |
b. | An actual or expected internal credit rating downgrade for the borrower or decrease in behavioral scoring |
c. | An actual or expected significant change in the operating results of the borrower. |
d. | Significant increases in credit risk on other financial instruments of the same borrower. |
e. | Significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements. |
f. | Reductions in financial support from a parent entity or other affiliate. |
g. | Expected changes in the loan documentation including an expected breach of contract that may lead to covenant waivers or amendments, interest payment holidays, interest rate step-ups, requiring additional collateral or guarantees, or other changes to the contractual framework of the instrument. |
The Bank has considered that if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial credit recognition, but is not an absolute indicator. The bank did not rebut the backstop presumption of IFRS 9 relating to SICR or default.
(i) Expected credit loss measurement
The ECL are the probability-weighted estimate of credit losses, i.e. the present value of all cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The three main components to measure the ECL are:
PD: The Probability of default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognized and is still in the portfolio.
LGD: The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral.
EAD: The Exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdown on committed facilities, and accrued interest from missed payments.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-40 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
For measuring 12-month and lifetime ECL, cash shortfalls are identified as follows:
● | 12-month expected credit losses: the portion of lifetime expected credit losses that represents the expected credit losses that result from default events on the financial instruments that are possible within the 12 months after the reporting date. |
● | Lifetime expected credit losses: the expected credit losses that result from all possible default events over the expected life of the financial instrument. |
The Bank considered a multi-factor analysis to perform credit risk analysis. The type of portfolio or transactions, and whether individually or collectively assessed.
The Bank divides its portfolio in commercial loans, mortgage loans, consumer loans and contingent loans.
The Bank assesses individually whether objective evidence of impairment exists for loans that are individually significant, then collectively assesses loans that are not individually significant and loans which are significant but for which there is no objective evidence of impairment available under individually assessment.
(ii) Contingent loans
The Bank enters into various irrevocable loan commitments and contingent liabilities. Even though these obligations may not be recognized on the statements of financial position, they contain credit risk and, therefore, form part of the overall risk of the Bank.
When the Bank estimates the ECL for contingent loans, it estimates the expected portion of the loan commitment that will be drawn down over its expected life.
(iii) Forward looking information
The ECL model includes a broad range of forward looking information as economic inputs, such as:
● | GDP growth |
● | Unemployment rates |
● | Central Banks interest rates |
● | Real estate prices |
(iv) Modifications of financial assets
When a loan measured at amortized cost has been renegotiated or modified but not derecognized, the Bank recognizes the resulting gains or losses as the difference between the carrying amount of the original loans, and modified contractual cash flows discounted using the EIR before modification.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-41 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
For ECL estimation purposes of financial assets that have been modified, the Bank is required to distinguish between modification that result in derecognition from those that does not result in derecognition. If the modification does not result in derecognition, then the subsequent assessment of whether there is a significant increase in credit risk is made comparing the risk at the reporting date based on the modified contractual term and the risk at initial recognition based on the original, unmodified contractual term.
If the modification results in derecognition, then the modified asset is considered to be a new asset. Accordingly, the date of modification is treated as the date of initial recognition for the purposes of the impairment requirements.
(v) Collateral
The Banks seeks to use collateral to mitigate its credit risks on financial assets, where possible. Types of collateral are cash, securities, letters of credit, real estate and inventories. Collateral, unless repossessed, is not recorded on the Bank’s statements of financial position. However, the fair value of collateral affects the calculation of ECLs. The main collateral associated to mortgage loans are real estate, which are valued based on data provided by specialized third parties.
The estimation of ECL reflects the cash flows expected from collateral and other credit enhancement that are part of the contractual terms of the financial instruments.
According to the Bank’s policy when an asset (real estate) is repossessed, it is transferred to assets held for sale at its fair value less cost to sell and classified as non-financial assets at the repossession date.
(vi) Charge-offs
The gross carrying amount of a financial asset is reduced when there is no reasonable expectation of recovery and all collection efforts have been exhausted. A charge-off constitutes a derecognition event of the corresponding loan transaction in its entirety, and therefore, include portions not past-due for installments loans or leasing operation (no partial charge-off).
Subsequent recoveries of amounts previously charge-off are credited to the income statements, as recovery of loans previously charged-off, as a deduction from provisions for loan losses.
u)Income taxes and deferred taxes
The Bank has recognized an expense (income) arising from gains or losses for each year, according to the applicable taxation rules for each country or jurisdiction it operates.
The Bank records, when appropriate, deferred tax assets and liabilities for the estimated future tax effects attributable to differences between the carrying amount of assets and liabilities and their tax bases. The measurement of deferred tax assets and liabilities is based on the tax rate, in accordance with the applicable tax laws, using the tax rate that applies to the period when the deferred asset and liability will be settled. The future effects of changes in tax legislation or tax rates are recorded in deferred taxes beginning on the date on which the law is enacted or substantially enacted.
v)Provisions and contingent assets and liabilities
When preparing the financial statements of the consolidated entities, the Bank’s directors made a distinction between:
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-42 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Provisions: credit balances covering present obligations at the reporting date arising from past events which could give rise to a loss for the consolidated entities, which is considered to be more likely than not to occur and certain as to its nature but uncertain as to its amount and/or timing.
Contingent liabilities: possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events not wholly within the control of the consolidated entities. They include the present obligations of the consolidated entities when it is not probable that an outflow of resources embodying economic benefits will be required to settle them. The Group does not recognize the contingent liability. The Group will disclose a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote.
Contingent assets: possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by, the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Contingent assets are not recognized in the consolidated balance sheet or in the consolidated income statement, but rather are disclosed in the notes, provided that it is probable that these assets will give rise to an increase in resources embodying economic benefits.
The Group’s consolidated financial statements include all the material provisions with respect to which it is considered that it is more likely than not the obligation will have to be settled. In accordance with accounting standards, contingent liabilities must not be recognized in the consolidated financial statements, but must rather be disclosed in the notes.
Provisions, which are quantified on the basis of the best information available on the consequences of the event giving rise to them and are reviewed and adjusted at the end of each year, are used to cater for the specific obligations for which they were originally recognized. Provisions are fully or partially reversed when such obligations cease to exist or are reduced.
Provisions are classified according to the obligations covered as follows (See Note 21):
Provision for pensions and similar obligations: includes the amount of all the provisions made to cover post-employment benefits, including obligations to pre-retirees and similar obligations.
Provisions for contingent liabilities and commitments: include the amount of the provisions made to cover contingent liabilities -defined as those transactions in which the Group guarantees the obligations of a third party, arising as a result of financial guarantees granted or contracts of another kind- and contingent commitments -defined as irrevocable commitments that may give rise to the recognition of financial assets.
Provisions for taxes and other legal contingencies and other provisions: include the amount of the provisions recognized to cover tax and legal contingencies and litigation and the other provisions recognized by the consolidated entities. Other provisions includes, inter alia, any provisions for restructuring costs and environmental measures.
Provisions for restructuring cost: these are constructive obligations that arise from a restructuring plan. A restructuring plan is a program that is planned and controlled by management, which changes either the scope of the business undertaken, or the manner in which that business is conducted.
The provisions for restructuring cost are recognized in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” once the Bank has a real expectation of executing the plan, either by having started to execute the plan or by having announced its main characteristics to those who are going to be affected.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-43 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
w)Employee benefits
Short-term benefits
Correspond to personnel benefits (other than termination benefits) that are expected to be settled within twelve months after year end over which the employees have rendered their services.
These are recognized when the employee has rendered the service and are measured at the undiscounted amount of benefits expected to be paid in exchange for that service:
● | as a liability (accrued expense), after deducting any obligation already satisfied. If the amount already paid is higher than the gross amount of the benefits, the Bank will recognize this excess as an asset (amount paid in advance), when it represents a reduction of future payments or a recoverable amount in cash. |
● | as an expense when the entity consumes the economic benefit arising from the service provided by an employee in exchange for employee benefits, unless other IFRS requires or allows the recognition of those disbursements as part of the cost of an asset. |
Personnel vacations
The annual cost of personnel vacations and benefits are recognized on an accrual basis.
Post-employment benefits
Correspond to employee benefits (other than termination benefits and short-term employee benefits) that are expected to be settled after the completion of employment. Post-employment benefits plans are agreements, formal and informal, in which the Bank is committed to provide benefits to one or more employees after termination of their employment. Plans providing these benefits are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions.
Defined contribution plans: the obligation is recognized for the amounts to be contributed in the period.
Defined benefit plans: a liability is recognized based on the estimated benefit cost that employees have accrued for services rendered, less the present value of the defined benefit obligation and present value of present services. Present service cost and gain or loss upon settlement will be recognized in the income statement for the period. Gains and losses generated from the remeasurement of the liability will be recognized in other comprehensive income.
Other long-term benefits
Other long-term employee benefits are employee benefits, other than short-term, post-employment and termination benefits, which are not due for payment within 12 months after the end of the period in which the employees render the service.
The regulations require the recognition of a liability for the present value of the defined benefit obligation less the fair value of the plan assets, if any. The results generated from its remediation will be recognized in the results of the period.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-44 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Termination benefits
Termination benefits are employee benefits provided in exchange for the termination of an employee’s employment, as a consequence of:
● | a decision of the entity to terminate the employee’s employment before the normal termination date; or |
● | the decision of an employee to accept an offer with benefits in order to terminate the employment before the normal termination date. |
An entity recognizes a liability and expense for termination benefits at the earlier of the following dates:
● | when the entity can no longer withdraw the offer of those benefits; and |
● | when the entity recognizes costs for a restructuring that is within the scope of IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” and involves the payment of termination benefits. |
x)Provision for mandatory dividends
The Bank recorded a provision for mandatory dividends calculated as a portion of income for the year in order to comply with dispositions of the Chilean Corporations Act (Ley de Sociedades Anónimas) which requires to distribute at least 30% of income of the year, consistent with the Bank’s internal policy. For fiscal year 2019, the Bank provisioned 30% of its profits. For fiscal year 2020, no provision was recorded given the loss reported for the year. This provision is recorded as a decrease in “Retained earnings” under the line item “Provision for minimum dividends” within the Statement of Changes in Consolidated Equity.
In the Bank’s bylaws, title VII, it is established that the Bank should distribute annually as a dividend to its shareholders, as a proposal of the Board of Directors and based on the number of shares, at least thirty percent (30%) of the net income of the year. Furthermore, no dividends distribution will take place if there are equity losses (negative reserves) until these losses are recovered or if a dividend distribution will cause a non-compliance of the capital requirements established by the Ley General de Bancos (General Bank Law).
For all matters related to dividends distributions, the Bank is subject to the terms incorporated in the Transaction Agreement (dated January 29, 2014 and its subsequent modifications), which was approved by the Ordinary Shareholders Meeting (dated March 11, 2016).
y) Assets received or awarded in lieu of payment
Assets received or awarded in lieu of payment of loans and accounts receivable from clients are recognized at their fair value (as determined by an independent appraisal). A price is agreed upon by the parties through negotiation or, when
the parties do not reach an agreement, at the amount at which the Bank is awarded those assets at a judicial auction. In both cases, an independent appraisal is performed.
The excess of the outstanding loan balance over the fair value is charged to net income for the year, under “Provision for loan losses”.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-45 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Any excess of the fair value over the outstanding loan balance, less costs to sell of the collateral, is returned to the client. These assets are subsequently adjusted to their net realizable value less cost to sale, and the difference between the carrying value of the asset and the estimated fair value less costs to sell is charged to income, under “Other operating expenses”.
z)Customer loyalty programs
The Bank maintains a loyalty program to provide incentives to its customers, allowing them to purchase goods or services with certain benefits which are granted through credit cards issued by the Bank when they purchase according to the conditions established for each loyalty program.
The Bank has an adequate level of provisions in order comply with its current obligations and to properly reflect the associated expense when providing the benefits.
aa)Non- current assets held for sale (in “Other Assets”)
Non-current assets (or a group holding assets and liabilities for disposal) expected to be recovered mainly through the sale of these items rather than through the continued use, are classified as held for sale. Immediately prior to this classification, assets (or elements of a disposable group) are re-measured in accordance with the Bank’s policies. The assets (or disposal group) are measured at the lower of carrying amount and fair value less cost to sell.
Impairment losses in initial classification of non-current assets held for sale and with subsequent gains and losses are recorded in income. Gains are not recorded over previously recorded losses.
bb)Earnings per share
Basic earnings per share are determined by dividing the net income attributable to the equity holders of the Bank for the reported period by the weighted average number of shares outstanding during the reported period.
Diluted earnings per share are determined in the same way as basic earnings, but the weighted average number of outstanding shares is adjusted to take into consideration the potential diluting effect of stock options, warrants, and convertible debt.
As of December 31, 2020, 2019 and 2018 the Bank did not have any instruments that generated dilution.
cc)Consolidated Statement of Cash Flows
The Bank presents cash flows from operating activities, investing activities, and financing activities in a manner that best represent the nature of its activities. The classification of cash flows into the aforementioned categories provides information that allows users to evaluate the impact of the transactions in the financial position of the Bank, as well as over the ending balance of cash and cash equivalents. This information can be also useful when evaluating the relation between those activities (IAS 7).
For the preparation of the cash flow statement, the indirect method was used, starting with the Bank’s consolidated pre-tax income (loss) and incorporating non-cash transactions, as well as income and expenses associated with cash flows, which are classified as operating, investment or financing activities.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-46 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
For the preparation of the cash flow statement, the following items are considered:
● | Cash flows: Inflows and outflows of cash and cash equivalents, such as deposits with the Central Bank of Chile, deposits in domestic banks, and deposits in foreign banks. |
● | Operating activities: Principal revenue-producing activities performed by banks and other activities that cannot be classified as investing or financing activities. This section includes, among others, foreign loans obtained, dividends received, FVTOCI investments and held to maturity. |
● | Investing activities: Correspond to the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents. |
● | Financing activities: Activities that result in changes in the size and composition of the equity and liabilities that are not part of operating activities nor investing activities. |
For cash flows statement purposes, it has been considered as cash and cash equivalents amounts included in “Cash and deposits in banks” plus the net amount of cash items in process of collection, plus trading investment and FVTOCI investment instruments highly liquid and minimal value change risk which due date is less than three months since the acquisition date and investments under resale agreements under the same terms.
Includes also investments in fixed income mutual funds which are presented under FVTPL / trading investments in the Consolidated Statement of Financial Position. The amounts for cash and cash equivalents and the corresponding reconciliation to the Consolidated Statement of Cash Flows are detailed in Note 5 “Cash and Cash Equivalents”.
The provision for loan losses included under the operating activities section differs from the amount presented in the Consolidated Statement of Income (Loss), because such amount excludes recoveries of transactions previously charged-off for cash flows purposes.
dd)Consolidated Statement of Changes in Equity
The Consolidated Statement of Changes in Equity presents all movements affecting net equity, including those originated by accounting changes or errors recognition. This statement shows a conciliation between opening and ending balances for the year for all items that form part of consolidated equity, grouping transactions based on their nature, according to the following:
● | Adjustments due to accounting changes related to prior periods: Includes changes in equity as a consequence of restating amounts previously reported in the Consolidated Financial Statements resulting from accounting changes related to prior periods recognition. |
● | Net comprehensive income for the year: Includes, in an aggregated manner, net income for the year and other comprehensive income for the year. |
● | Other changes in equity: Includes retained earnings distributions, equity increases, provision for mandatory dividends, dividends paid, among other increases or decreases in consolidated equity. |
This information is presented in two statements: The Consolidated Statement of Other Comprehensive Income (Loss) and the Consolidated Statement of Changes in Equity.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-47 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
ee)Consolidated Statement of Other Comprehensive Income (Loss)
In the Consolidated Statement of Other Comprehensive Income (Loss) are presented income and expenses generated by the Bank as a consequence of its regular activities during the year, clearly identifying those recorded in profit and loss from those recorded in net equity.
Due to this, in this statement the following is shown:
● | Income (loss) for the year. |
● | Net amount of income and expenses recorded in equity as “Valuation accounts”. |
● | Deferred income taxes originated by transactions described above, except for those amounts related to exchange differences from foreign net investments. |
Total amount of consolidated income and expenses recorded attributable to the equity holders of the Bank, calculated as the sum of the items listed above, is presented separately from non-controlling interest.
ff) New and revised accounting pronouncements introduced by IASB
1) | Standards and interpretations that are effective from January 1, 2020 |
1.1) Conceptual framework
In March 2018, the International Accounting Standards Board (the Board) issued a complete set of concepts for financial reporting, the revised Conceptual Framework for Financial Information (Conceptual Framework), replacing the previous version of the Conceptual Framework issued in 2010.
The revised Conceptual Framework has an effective date from January 1, 2020.
The amendment introduces new definitions and includes guidance on certain considerations. Given the nature of the amendment, it had no material impact on the Consolidated Financial Statements.
1.2) IFRS 3 "Business Combinations" - Business definition
In October 2018, the International Accounting Standards Board (IASB) issued the Definition of a Business to make it easier for companies to decide whether the activities and assets they acquire are a business or simply a group of assets. Reduce the limitations of a company to the center of the definition of products in goods and services provided to customers and other income from ordinary activities, instead of providing dividends or other economic benefits directly to investors or reducing costs. The amendment to IFRS 3 has an effective date of January 1, 2020.
The new standard had no material impact on the Consolidated Financial Statements.
1.3) Amendments to IAS 1 "Presentation of financial statements" and IAS 8 "Accounting policies, policy changes and accounting errors"
On October 31, 2018, the IASB published “Definition of material (amendments to IAS 1 and IAS 8)” to clarify the definition of “material” and to align the definition used in the Conceptual Framework and similar standards.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-48 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The changes relate to a revised definition of “material” that is cited following the final amendments: "Information is material if its omission, misstatement or concealment could reasonably be expected to influence the decisions that primary users of general purpose financial statements make on the basis of those statements, which provide financial information about a specific reporting entity”.
The new definition of material is found in IAS 1 “Presentation of Financial Statements”. The definition of material in IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” has been replaced with a reference to IAS 1.
The amendments are effective for annual periods beginning on or after January 1, 2020. Early application is allowed.
The new standard had no material impact on the Consolidated Financial Statements.
1.4) Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reform
In September 2019, the amendments were modified to provide for certain exceptions in relation to the interest rate benchmark reform. The exceptions relate to hedging relationships and are intended to avoid disruption and inconsistency in hedge accounting as a result of interest rate benchmark reform. However, any inefficiency of coverage must continue to be recorded in income.
The amendments apply retrospectively to annual periods beginning on or after January 1, 2020.
The nature of the amendment includes simplifying requirements relating to interest rate benchmark reform, the adoption of which did not have a material impact on the Consolidated Financial Statements.
1.5) Amendment to IFRS 16 regarding COVID-19-related rent concession
On May 28, 2020, The International Accounting Standards Board (IASB) published “COVID-19-Related Rent Concessions (Amendment to IFRS 16)”, amending the standard for providing lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification. Concurrently, the IASB also published a proposed Taxonomy IFRS 2020 Update to reflect this amendment.
When there is a change in lease payments, the accounting consequences will depend on whether the change meets the definition of a lease modification, which IFRS 16 Leases defines as “a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease (for example, adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term)”.
The changes in COVID-19-Related Rent Concessions (Amendment to IFRS 16) amend IFRS 16 to
a) | provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification; |
b) | require lessees that apply the exemption to account for COVID-19-related rent concessions as if they were not lease modifications; |
c) | require lessees that apply the exemption to disclose that fact; and |
d) | require lessees to apply the exemption retrospectively in accordance with IAS 8, but not require them to restate prior period figures |
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-49 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The exemption applies to those reductions in payments as a result of the COVID-19, due on or before June 30, 2021 in order to capture the lease concessions granted as of June and with a duration of 12 months.
The amendment is effective for annual reporting periods beginning on or after June 1, 2020. Earlier application is permitted, including in financial statements not yet authorized for issue on May 28, 2020. The amendment is also available for interim reports.
The IFRS 2020 Taxonomy included elements of the IFRS taxonomy to reflect the new disclosure requirements introduced by the amendment, issued in May 2020.
The adoption of the amendment did not have a material impact on the Consolidated Financial Statements, since to date there have been no material changes on current contracts utilizing this amendment.
2) | New standards and interpretations that are not yet effective |
2.1) Amendment to Sale or Contribution of assets between an investor and its Association or Joint Business (amendments to IFRS 10 and IAS 28)
The amendments to IFRS 10 and IAS 28 address situations where there is a sale or contribution of assets between an investor and its associate or joint venture. Specifically, the amendments provide that gains or losses, resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate or joint venture, accounted for using the equity method are recognized in the parent's profit or loss only to the extent of the unrelated investors' interests in that associate or joint venture. Similarly, gains or losses resulting from the remeasurement to fair value of investments held in a former subsidiary (which has become an associate or joint venture that is accounted for using the equity method) are recognized in the results of the former parent only to the extent of the unrelated investors' interests in the new associate or joint venture.
The effective date of the amendments was initially from January 1, 2016, however the IASB on December 17, 2015 indefinitely postponed their entry into force.
The Bank's Management will evaluate the potential impacts of these amendments, once the new implementation date for these amendments is announced.
2.2) Amendment to IAS 1 "Presentation of Financial Statements" - Classification of liabilities as current or non-current
On January 23, 2020, the IASB published the amendment to IAS 1, which addresses the classification of liabilities and clarifies their presentation as current or non-current. This amendment applies as of January 1, 2023 retroactively and its early application is permitted.
Among the modifications are the following:
● | An entity shall classify a liability as current when it does not have a right to postpone its liquidation for at least twelve months following the date of the reporting period. The amendment removes the factor of "unconditionality" from this right |
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-50 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
● | The right to defer settlement of the liability must have substance and must exist at the end of the reporting period. If this right is subject to the entity that covers any condition, such right only exists if it is effectively fulfilled by fulfilling these conditions at the end of the reporting period and can be classified as non-current. The entity must comply with these conditions, although the counterparty does not carry out a testing of these. |
● | The classification of the liability will not be affected by the probability that the entity exercises its right to defer its settlement. Therefore, if the liability meets the non-current condition specified in the standard, it will be classified as non-current, even if the entity plans to liquidate it in less than 12 months from the period in which it is reported or between the periods in which it is reported. And the one that is reported to the regulator. If any of the above cases occurs, it must be disclosed in the Financial Statements to understand the impact of the entity's financial position. |
● | The liability is understood as liquid when the entity extinguishes the obligation to control its effective counterparty, other economic resources, or its own equity instruments. |
The Bank's Management is currently assessing the potential impact of the adoption of these amendments on the Consolidated Financial Statements..
2.3) Amendments to IFRS 3 to update a reference to the Conceptual Framework
On May 14, 2020, the IASB published, amendments to IFRS 3 'Business Combinations' that update an outdated reference in IFRS 3 without significantly changing its requirements.
The changes in Reference to the Conceptual Framework (Amendments to IFRS 3):
● | update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework; |
● | add to IFRS 3 a requirement that, for transactions and other events within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 (instead of the Conceptual Framework) to identify the liabilities it has assumed in a business combination; and |
● | add to IFRS 3 an explicit statement that an acquirer does not recognize contingent assets acquired in a business combination. |
The amendments published are effective for annual periods beginning on or after January 1, 2022. Early application is permitted if an entity also applies all other updated references (published together with the updated Conceptual Framework) at the same time or earlier.
The adoption of the amendment will not have a material impact on the Consolidated Financial Statements.
2.4) Amendments to IAS 37 “Onerous Contracts” — Cost of Fulfilling a Contract
On May 14, 2020, the IASB published “Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37)” amending the standard regarding costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-51 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The changes in Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37) specify that the “cost of fulfilling” a contract comprises the “costs that relate directly to the contract”. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labor, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract).
The amendments published today are effective for annual periods beginning on or after January 1, 2022. Early application is permitted.
The Bank's Management is currently evaluating the potential impact of the adoption of these amendments on the Consolidated Financial Statements.
2.5) Annual improvements to IFRS standards 2018–2020
On May 14, 2020, the IASB published Annual Improvements to IFRS Standards 2018–2020, making amendments to the following standards:
IFRS 1 First-time Adoption of International Financial Reporting Standards - Subsidiary as a first-time adopter. The amendment permits a subsidiary that applies paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by its parent, based on the parent’s date of transition to IFRSs.
IFRS 9 Financial Instruments - Fees in the “10 percent” test for derecognition of financial liabilities. The amendment clarifies which fees an entity includes when it applies the ‘10 percent’ test in paragraph B3.3.6 of IFRS 9 in assessing whether to derecognize a financial liability. An entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other’s behalf.
IFRS 16 Leases Lease incentives. The amendment to Illustrative Example 13 accompanying IFRS 16 removes from the example the illustration of the reimbursement of leasehold improvements by the lessor in order to resolve any potential confusion regarding the treatment of lease incentives that might arise because of how lease incentives are illustrated in that example.
IAS 41 Agriculture. Taxation in fair value measurements. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flows when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13.
The amendments to IFRS 1, IFRS 9, and IAS 41 published today are all effective for annual periods beginning on or after January 1, 2022. Early application is permitted.
The amendment to IFRS 16 only regards an illustrative example, so no effective date is stated.
The Bank's Management is currently evaluating the potential impact of the adoption of these amendments on the Consolidated Financial Statements.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-52 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 1 – General Information and Summary of Significant Accounting Policies, continued
2.7) Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The amendments in Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) introduce a practical expedient for modifications required by the reform, clarify that hedge accounting is not discontinued solely because of the IBOR reform, and introduce disclosures that allow users to understand the nature and extent of risks arising from the IBOR reform to which the entity is exposed to and how the entity manages those risks as well as the entity’s progress in transitioning from IBORs to alternative benchmark rates, and how the entity is managing this transition. Currently, the IASB updated the Taxonomy as of September 2, 2020
The amendments are effective for annual periods beginning on or after January 1, 2021 and are to be applied retrospectively.
As of the date of issuance of the Consolidated Financial Statements, the Bank’s Management has decided to incorporate the disclosures required by the amendment. Information regarding the exposure and the transition process to address the interest rate benchmark reform is disclosed in Note 36.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-53 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
No new accounting pronouncements have been adopted in the year ended December 31, 2020 in the consolidated financial statements.
Starting January 1, 2019 the Bank changed the manner it accounts for leases by adopting IFRS 16 “Leases”. Additionally, it changed the manner in which it accounts for financial instruments starting January 1, 2018 by adopting IFRS 9 “Financial instruments”.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-54 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
As of December 31, 2020, the following significant events have influenced the operations of the Bank and its subsidiaries or the Consolidated Financial Statements:
ITAÚ CORPBANCA
Chief Executive Officer appointment
On January 9, 2020, Mr. Manuel Olivares Rossetti, the Board of Directors, and the main shareholders communicated the decision to allow Mr. Olivares to serve as Chief Executive Officer of Itaú Corpbanca until January 29, 2020.
The Board also agreed to appoint Mr. Gabriel Moura as the new Chief Executive Officer of Itaú Corpbanca, starting on January 30, 2020.
Investment increase in Nexus S.A.
On January 22, 2020 Itaú Corpbanca acquired 79,577 shares of Nexus S.A., corresponding to 1.9148% of its total equity, for an approximated amount of MCh$338. With this transaction the Bank’s participation increased to 14.8148%.
Annual Ordinary Shareholders’ Meeting Agreements
At the Ordinary Shareholders’ Meeting of Itaú Corpbanca, held on March 18, 2020, it was approved to distribute a dividend equivalent to 100% of the net income attributable to equity holders of the Bank for the year ended December 31, 2019, which represents an aggregate amount equal to MCh$127,065 payable to the shareholders of the Bank entitled to receive dividends in a proportion of $0.2479770771 per share.
Payment Holiday, Relief Measures for our Clients and Government Aid Programs
As part of the relief plan for our clients, the Bank granted a series of payment holidays to our clients, which mainly consist of the postponement of one to six installments on their loans under certain conditions. As of December 31, 2020 the Bank rescheduled installments for an approximated amount of Ch$398,086 million.
Additionally, on April 28, 2020, the Chilean government through a governmental mechanism to guarantee loans for SMEs (FOGAPE) implemented the "FOGAPE COVID-19 credit lines" as a measure to aid the local economy. The program is aimed to aid clients in the commercial portfolio with annual sales of less than UF1,000,000 affected by the Covid-19 pandemic. The coverage of the guarantees is determined based on their sales which can range between 60% to 85% of the financing, after applying a deductible that may not exceed 5% of the guaranteed amount. Since the beginning of the program and until December 31, 2020, the Bank has carried out operations for an aggregate amount of Ch$803,080 million.
The Central Bank of Chile (BCCh) created the new Conditional Funding Facility (FCIC) and the Liquidity Credit Line (LCL) in response to financial needs generated by the spread of the COVID-19 virus. Funds obtained through FCIC are guaranteed by high credit quality loans and / or bonds issued by the BCCh and have automatic and successively monthly renewal maturities, with a maximum term of 4 years from March 30, 2020 until March 30, 2024. The LCL differs from FCIC as is not guaranteed, has a maximum term of 2 years and is granted based on the amount of the Bank's average reserve requirements. Both, the FCIC and the LCL, accrue interests at the BCCh overnight rate in force on the date of each operation.
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Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-55 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 3 - Significant Events, continued
Goodwill and Assets Generated in Business Combination Impairment
As a result of the application of the requirements established in International Accounting Standard 36 “Impairment of assets”, the Bank, at the end of each reporting period, assess impairment indicators that affect the determination of the recoverable amount for its assets.
During 2020, considering the evolution of the economic and health situation, the Bank continued to monitor and permanently assess the impacts of the pandemic caused by COVID-19 in its results, as well as the effects on significant estimates and judgments including provisions for credit risk and impairment on assets in general, and on Goodwill in particular.
In consideration to the impacts on the economy, both in Chile, Colombia, Peru and the United States (main markets where Itaú Corpbanca operates), which have had various factors, including the COVID-19 pandemic, as has been described above and in accordance with the constant monitoring carried out by the Bank, we cconcluded that there was concrete evidence of impairment as a result of the deterioration of financial indicators such as the cost of credit, portfolio growth and capital cost. As a consequence of this assessment, an impairment test was performed as of June 30, 2020, on the valuation of the Goodwill and the intangibles assets generated in business combination assigned to the Chile and Colombia CGUs.
During the period ended June 30, 2020 (1) an impairment loss allocated to the Goodwill assigned to the Chile CGU for Ch$412,356 million, (2) Ch$239,469 million corresponding to the total Goodwill assigned to the CGU Colombia and (3) Ch$113,911 million (Ch$79,364 million net of deferred taxes) that represent all of the intangibles generated in business combinations assigned to the Colombia CGU. The total impact of these effects on the result attributable to the Bank's owners is Ch$720,951 million and Ch$10,238 million corresponding to non-controlling interest. For further information see Note 32.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-56 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
The information reported by segments is determined by the Bank on the basis of its operating segments (Chile, which includes the New York branch, and Colombia), which are mainly differentiated by the risks and rewards that affect them.
The reporting segments and the criteria used to inform the highest authority of the Bank on the decision making of the operation are in accordance with what is set forth in IFRS 8 “Operating segments”.
a) | Segments |
According to the above, the descriptions of each operating segment are as follows:
i) Chile
The Bank’s business activities in Chile take place mainly in the local market. It has strategically aligned its operations into the following five business areas that are directly related to its customers’ needs and the Bank’s strategy: 1) Wholesale Banking (a) Corporate Banking, (b) Large Companies, and (c) Real Estate and Construction; 2) Retail Banking (a) Itaú Private Bank, (b) Itaú Companies, (c) Itaú Personal Bank (d) Itaú and (e) Banco Condell; 3) Treasury; 4) Corporate; and 5) Other financial services.
The Bank manages these business areas using a reporting system for internal profitability. The operating results are reviewed regularly by the entity’s Chief Operating Decision Maker (CODM) for operating decisions as one single reporting segment, to decide about resource allocation for the segment and evaluate its performance.
ii) Colombia
Colombia has been identified as a separate operating segment based on the business activities. Its operating results are regularly reviewed by the entity’s Chief Operating Decision Maker (CODM) for operating decisions as one single reporting segment, to decide on the resource allocation for the segment and evaluate its performance. Separate financial information is available for this reporting segment.
The commercial activities of this segment are carried out by Itaú Corpbanca Colombia S.A. and subsidiaries
The Bank did not enter into transactions with a particular customer or third party that exceed 10% of its total revenue in 2020, 2019 and 2018.
b) | Geographical information |
The segments reported by Itaú Corpbanca, discloses revenue from ordinary activities from external clients:
(i) | attributed to the entity’s country of domicile and |
(ii) | attributed, in aggregate, to all foreign countries where the entity obtains revenue. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-57 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 4 - Reporting Segments, continued
When revenue from external customers attributed to a particular foreign country is significant, it is disclosed separately. Pursuant to the foregoing, the Bank operates in two main geographic areas: Chile and Colombia.
Chile reporting segment includes operations carried out by Itaú Corpbanca New York branch and the Colombia reporting segment includes the operations carried out by Itaú S.A. (Panama) and Itaú Casa de Valores S.A.
The information on interest income and interest expenses for the years ended December 31, 2020, 2019 and 2018 of the aforementioned reporting segments is presented below:
| | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 | ||||||||||||
|
| Chile |
| Colombia |
| Total |
| Chile |
| Colombia |
| Total |
| Chile |
| Colombia |
| Total |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Interest income |
| 1,116,943 |
| 432,731 |
| 1,549,674 |
| 1,245,465 |
| 528,175 |
| 1,773,640 |
| 1,208,481 |
| 530,836 |
| 1,739,317 |
Interest expense |
| (490,729) |
| (192,508) |
| (683,237) |
| (631,279) |
| (241,943) |
| (873,222) |
| (593,796) |
| (257,858) |
| (851,654) |
Net interest income |
| 626,214 | | 240,223 | | 866,437 |
| 614,186 |
| 286,232 |
| 900,418 |
| 614,685 |
| 272,978 |
| 887,663 |
c) | Information on assets, liabilities and income |
Segment information on assets and liabilities is presented as of December 31, 2020 and 2019.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-58 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 4 - Reporting Segments, continued
c.1) Assets and Liabilities
| | | | | | | | |
| | | | As of December 31, 2020 | ||||
| | Note | | Chile | | Colombia | | Total |
|
| |
| MCh$ |
| MCh$ |
| MCh$ |
Cash and deposits in banks | | 5a) | | 2,761,202 | | 327,870 | | 3,089,072 |
Cash items in process of collection | | 5b) | | 173,099 | | 93 | | 173,192 |
Financial instruments at fair value through profit or loss | | 6 | | 145,671 | | 437,039 | | 582,710 |
Financial instruments at fair value through other comprehensive income | | 11 | | 3,353,241 | | 617,658 | | 3,970,899 |
Loans and accounts receivable at amortized cost and interbank loans | | 9-10 | | 17,503,371 | | 4,079,858 | | 21,583,229 |
Investment in associates | | 12 | | 7,149 | | — | | 7,149 |
Financial instruments at amortized cost | | 11 | | 7,202 | | 104,340 | | 111,542 |
Investments under resale agreements | | 7 | | 84,173 | | 21,407 | | 105,580 |
Financial derivative contracts | | 8 | | 3,817,286 | | 165,517 | | 3,982,803 |
Intangible assets (*) | | 13 | | 682,695 | | 35,988 | | 718,683 |
Property, plant, and equipment | | 14 | | 56,756 | | 23,859 | | 80,615 |
Right of use assets under lease agreements | | 15 | | 117,513 | | 28,495 | | 146,008 |
Current taxes | | 16 | | 44,976 | | 19,723 | | 64,699 |
Deferred taxes | | 16 | | 264,668 | | 47,888 | | 312,556 |
Other assets | | 17a) | | 453,702 | | 88,931 | | 542,633 |
Other non-current assets held for sale | | 17b) | | 10,818 | | 4,260 | | 15,078 |
TOTAL ASSETS | | | | 29,483,522 | | 6,002,926 | | 35,486,448 |
| | | | | | | | |
| | | | | | | | |
| | | | As of December 31, 2020 | ||||
| | Note | | Chile | | Colombia | | Total |
| | |
| MCh$ |
| MCh$ |
| MCh$ |
LIABILITIES | | |
|
|
|
|
|
|
Deposits and other demand liabilities | | 18a) |
| 3,939,501 |
| 2,257,905 |
| 6,197,406 |
Cash in process of being cleared | | 5b) |
| 154,231 |
| 1 |
| 154,232 |
Obligations under repurchase agreements | | 7b) |
| 399,593 |
| 239,258 |
| 638,851 |
Time deposits and other time liabilities | | 18b) |
| 9,984,010 |
| 1,449,054 |
| 11,433,064 |
Financial derivative contracts | | 8 |
| 3,494,611 |
| 178,980 |
| 3,673,591 |
Interbank borrowings | | 19 |
| 3,393,160 |
| 405,818 |
| 3,798,978 |
Debt instruments issued | | 20 |
| 5,472,392 |
| 732,464 |
| 6,204,856 |
Other financial liabilities | | 20 |
| 13,123 |
| — |
| 13,123 |
Lease contracts liabilities | | 15 |
| 125,265 |
| 26,620 |
| 151,885 |
Current taxes | | 16 |
| 596 |
| 1,170 |
| 1,766 |
Deferred taxes | | 16 |
| — |
| 237 |
| 237 |
Provisions | | 21 |
| 33,310 |
| 101,780 |
| 135,090 |
Other liabilities | | 22a) |
| 619,955 |
| 80,079 |
| 700,034 |
Liabilities directly associated with non-current assets held for sale | | 22b) |
| — |
| — |
| — |
TOTAL LIABILITIES | | |
| 27,629,747 |
| 5,473,366 |
| 33,103,113 |
(*) This includes goodwill generated in business combination between Itaú Chile and Corpbanca totaling MCh$492,512 as of December 31, 2020.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-59 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 4 - Reporting Segments, continued
| | | | | | | | |
| | | | As of December 31, 2019 | ||||
| | Note | | Chile | | Colombia | | Total |
|
| |
| MCh$ |
| MCh$ |
| MCh$ |
Cash and deposits in banks |
| 5a) | | 610,901 | | 398,780 |
| 1,009,681 |
Cash items in process of collection |
| 5b) | | 230,595 | | 710 |
| 231,305 |
Financial instruments at fair value through profit or loss |
| 6 | | 112,224 | | 71,478 |
| 183,702 |
Financial instruments at fair value through other comprehensive income |
| 11 | | 2,751,959 | | 846,931 |
| 3,598,890 |
Loans and accounts receivable at amortized cost and interbank loans |
| 9-10 | | 17,651,839 | | 4,659,254 |
| 22,311,093 |
Investment in associates |
| 12 | | 5,833 | | 3,772 |
| 9,605 |
Financial instruments at amortized cost |
| 11 | | 30,123 | | 85,535 |
| 115,658 |
Investments under resale agreements |
| 7 | | 46,686 | | 29,289 |
| 75,975 |
Financial derivative contracts |
| 8 | | 3,061,530 | | 93,427 |
| 3,154,957 |
Intangible assets (*) |
| 13 | | 1,154,457 | | 419,976 |
| 1,574,433 |
Property, plant, and equipment | | 14 | | 73,169 | | 21,911 | | 95,080 |
Right of use assets under lease agreements |
| 15 | | 128,868 | | 38,573 |
| 167,441 |
Current taxes |
| 16 | | 30,773 | | 54,743 |
| 85,516 |
Deferred taxes |
| 16 | | 200,747 | | 7,910 |
| 208,657 |
Other assets |
| 17a) | | 699,679 | | 71,182 |
| 770,861 |
Other non-current assets held for sale |
| 17b) | | 10,291 | | 6,911 |
| 17,202 |
TOTAL ASSETS | | | | 26,799,674 | | 6,810,382 | | 33,610,056 |
| | | | | | | | |
|
| | | As of December 31, 2019 | ||||
|
| Note | | Chile | | Colombia | | Total |
|
| |
| MCh$ |
| MCh$ |
| MCh$ |
LIABILITIES | | | | | | | | |
Deposits and other demand liabilities |
| 18a) |
| 2,765,496 |
| 2,107,952 |
| 4,873,448 |
Cash in process of being cleared |
| 5b) |
| 164,573 |
| — |
| 164,573 |
Obligations under repurchase agreements |
| 7b) |
| 499,136 |
| 60,321 |
| 559,457 |
Time deposits and other time liabilities |
| 18b) |
| 9,700,785 |
| 1,919,402 |
| 11,620,187 |
Financial derivative contracts |
| 8 |
| 2,839,914 |
| 98,120 |
| 2,938,034 |
Interbank borrowings |
| 19 |
| 1,883,900 |
| 762,856 |
| 2,646,756 |
Debt instruments issued |
| 20 |
| 5,687,763 |
| 720,593 |
| 6,408,356 |
Other financial liabilities |
| 20 |
| 12,966 |
| — |
| 12,966 |
Lease contracts liabilities |
| 15 |
| 137,334 |
| 35,590 |
| 172,924 |
Current taxes |
| 16 |
| 13 |
| — |
| 13 |
Deferred taxes |
| 16 |
| — |
| 263 |
| 263 |
Provisions |
| 21 |
| 88,579 |
| 89,248 |
| 177,827 |
Other liabilities |
| 22a) |
| 653,786 |
| 55,128 |
| 708,914 |
Liabilities directly associated with non-current assets held for sale |
| 22b) |
| — |
| — |
| — |
TOTAL LIABILITIES |
| |
| 24,434,245 |
| 5,849,473 |
| 30,283,718 |
(*) This includes goodwill generated in business combination between Itaú Chile and Corpbanca totaling MCh$1,194,331 as of December 31, 2019.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-60 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 4 - Reporting Segments, continued
c.2) Income for the years ended December 31, 2020, 2019, and 2018
| | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 | ||||||||||||
|
| Chile |
| Colombia |
| Total |
| Chile |
| Colombia |
| Total |
| Chile |
| Colombia |
| Total |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Net interest income | | 626,214 | | 240,223 | | 866,437 |
| 614,186 | | 286,232 | | 900,418 |
| 614,685 | | 272,978 |
| 887,663 |
Net fee and commission income | | 108,140 | | 32,859 | | 140,999 |
| 138,007 | | 36,397 | | 174,404 |
| 149,673 |
| 36,456 |
| 186,129 |
Net income from financial operations |
| 25,031 |
| 85,856 |
| 110,887 |
| 152,600 |
| (8,966) |
| 143,634 |
| 128,264 |
| 44,491 |
| 172,755 |
Net foreign exchange gain (loss) |
| (20,491) |
| (53,973) |
| (74,464) |
| (24,389) |
| 52,015 |
| 27,626 |
| 5,726 |
| (23,691) |
| (17,965) |
Other operating income |
| 16,588 |
| 48,990 |
| 65,578 |
| 20,460 |
| 24,512 |
| 44,972 |
| 14,337 |
| 12,319 |
| 26,656 |
Provision for loan losses |
| (310,429) |
| (155,801) |
| (466,230) |
| (295,116) |
| (87,562) |
| (382,678) |
| (127,804) |
| (151,994) |
| (279,798) |
NET OPERATING PROFIT |
| 445,053 | | 198,154 |
| 643,207 |
| 605,748 | | 302,628 |
| 908,376 |
| 784,881 |
| 190,559 |
| 975,440 |
Depreciation and amortization |
| (96,117) |
| (30,327) |
| (126,444) |
| (86,593) |
| (40,573) |
| (127,166) |
| (53,544) |
| (33,273) |
| (86,817) |
Operating expenses (*) (**) |
| (896,152) |
| (559,182) |
| (1,455,334) |
| (394,271) |
| (215,096) |
| (609,367) |
| (442,943) |
| (211,767) |
| (654,710) |
OPERATING INCOME (LOSS) |
| (547,216) |
| (391,355) |
| (938,571) |
| 124,884 |
| 46,959 |
| 171,843 |
| 288,394 |
| (54,481) |
| 233,913 |
Income from investment in associates |
| (2,794) | | — | | (2,794) |
| 800 |
| (268) |
| 532 |
| — | | — | | — |
Income taxes |
| 73,965 |
| 41,245 |
| 115,210 |
| (33,393) |
| (14,460) |
| (47,853) |
| (85,269) |
| 18,210 |
| (67,059) |
CONSOLIDATED INCOME (LOSS) FOR THE YEAR |
| (476,045) |
| (350,110) |
| (826,155) |
| 92,291 |
| 32,231 |
| 124,522 |
| 203,125 |
| (36,271) |
| 166,854 |
(*) Includes personnel salaries and expenses, administrative expenses, impairment, and other operating expenses
(**) As of December 31, 2020, includes the recognition of an impairment loss of MCh$814,879. The impairment is broken down into MCh$651,825 corresponding to the impairment on Goodwill, MCh$412,356 and MCh$239,469 of CGUs of Chile and Colombia, respectively, and MCh$113,911 corresponding to the intangibles generated in the business combination of the CGU Colombia. Intangible assets include impairment on Softwares and Licenses of MCh$38,849, which is broken down into MCh$ 34,524 and MCh$4,325 in the Chile CGU and Colombia CGU, respectively. In addition, the Chile CGU includes impairment of property, plant and equipment for MCh$10,294.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-61 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 5 - Cash and Cash Equivalents
a) | Detail of cash and cash equivalents |
The detail of balances included under cash and cash equivalents is as follows:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Cash and deposits in banks | | | | |
Cash |
| 254,200 |
| 253,779 |
Deposits in the Central Bank of Chile |
| 1,067,421 |
| 103,756 |
Deposits in local banks |
| 27,017 |
| 14,254 |
Deposits in foreign banks |
| 1,740,434 |
| 637,892 |
Subtotals cash and deposits in banks |
| 3,089,072 |
| 1,009,681 |
Cash items in process of collection, net (1) |
| 18,960 |
| 66,732 |
Highly liquid financial instruments (2) |
| 1,337,754 |
| 295,551 |
Investments under resale agreements (3) |
| 60,470 |
| 75,975 |
Totals cash and cash equivalents |
| 4,506,256 |
| 1,447,939 |
(1) | See letter b. “Cash in process of collection and in process of being cleared” on the next page. |
(2) | Highly liquid financial instruments: Corresponds to financial instruments at fair value through profit and loss and financial instrument at fair value through othercomprehensive income with maturities that do not exceed three months from the acquisition date and the detail is as follows: |
| | | | | | |
| | | | As of December 31, | ||
|
| Notes |
| 2020 |
| 2019 |
| | | | MCh$ | | MCh$ |
Highly liquid financial instruments | | | | | | |
Financial instruments at fair value through profit or loss |
| 6 | | 132,043 |
| 28,772 |
Financial instruments at fair value through other comprehensive income |
| 11 | | 1,205,711 |
| 266,779 |
Totals |
| | | 1,337,754 |
| 295,551 |
(3) | Investments under resale agreements: Corresponds to resale agreements with maturities that do not exceed three months from the acquisition date, which are presented under the item "Investments under resale agreements" in the Consolidated Statement of Financial Position. The detail is as follows: |
| | | | | | |
| | | | As of December 31, | ||
|
| Notes |
| 2020 |
| 2019 |
|
| |
| MCh$ |
| MCh$ |
Investment under resale agreements |
| 7a) |
| 60,470 |
| 75,975 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-62 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 5 - Cash and Cash Equivalents, continued
b) | Cash in the process of collection and in process of being cleared |
Cash items in process of collection and in process of being cleared represent domestic transactions, which have not been processed through the central domestic clearinghouse, or international transactions that may be delayed in settlement due to timing differences. The detail of these balances is as follows:
| | | | |
| | As of December 31, | ||
|
| 2020 |
| 2019 |
|
| MCh$ |
| MCh$ |
Assets | | | | |
Documents held by other banks (documents to be cleared) |
| 37,030 | | 76,922 |
Funds receivable |
| 136,162 |
| 154,383 |
Subtotals assets |
| 173,192 |
| 231,305 |
Liabilities |
| |
| |
Funds payable |
| 154,232 |
| 164,573 |
Subtotals liabilities |
| 154,232 |
| 164,573 |
Cash items in process of collection, net |
| 18,960 |
| 66,732 |
c) | Other operating cash flows |
Based on the nature of its activities, the Bank considers that its funding has a direct relationship with its loan and investing portfolio; for such purpose all those activities are taken into consideration to determine, approve and monitor the financial strategies that guide the Bank with respect to the composition of its assets and liabilities, cash inflows and outflows and transactions with financial instruments.
Finally, the Bank, based on its overall business strategy, considers that gains and losses derived from these transactions are part of the main revenue generating activities and core business, and that the presentation of the cash flows from those items under operating activities consequently shows consistency between our Consolidated Statement of Income (Loss) and our Consolidated Statement of Cash Flows.
Examples of cash flows from operating activities are:
i. | Investments under resale agreements and obligations under repurchase agreements. These items represent the cash flows (collections and payments) corresponding to the purchase and sale of obligations and securities lending associated with financial intermediation activities (see Note 7). |
ii. | Investments portfolio. This item represents the cash flows (collections and payments) of our trading and investment portfolios (see Notes 6 and 11). |
iii. | Foreign borrowings and repayment of foreign borrowings. These items represent the cash flows (collections and payments) of obligations with foreign banks (see Note 19) for the financing of foreign trade loans, which are included as part of the following items: “Loans and receivables from banks” (see Note 9) and “Loans and receivables from customers” (see Note 10). |
iv. | Increase and repayment of other borrowings. These items represent the cash flows (collections and payments) arising from the obligations corresponding to financing or operations specific to the business (see Note 20). |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-63 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 6 - Financial Instruments at Fair Value through Profit or Loss
The detail of the financial instruments at fair value through profit or loss is as follows:
| | | | |
| | As of December 31, | ||
|
| 2020 |
| 2019 |
|
| MCh$ |
| MCh$ |
Chilean Central Bank and Government securities |
| |
|
|
Central Bank of Chile securities |
| 21,369 |
| 52,019 |
Other Chilean Central Bank and Government securities |
| 86,673 |
| 28,879 |
Other Chilean securities |
| |
| |
Bonds |
| 271 |
| 905 |
Notes |
| — |
| — |
Other securities | | — | | 22,218 |
Foreign financial securities |
| |
| |
Bonds |
| 432,178 |
| 67,088 |
Other securities |
| — |
| 4,390 |
Investments in mutual funds |
| |
| |
Funds managed by related entities |
| 4,861 |
| 5,870 |
Funds managed by third parties | | 35017 | | 33 |
Other investments |
| |
| |
Other financial instruments at FVTPL | | 2,341 | | 2,300 |
Totals |
| 582,710 |
| 183,702 |
As of December 31, 2020, financial instruments at fair value through profit or loss include MCh$132,043 (MCh$28,772 as of December 31, 2019) in instruments with maturities which do not exceed three months from the acquisition date and are considered as cash equivalents (see Note 5).
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-64 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 7 - Investments under Resale Agreements and Obligations under Repurchase Agreements
a) | The Bank purchases financial instruments to resell them on a future date. As of December 31, 2020 and 2019 the instruments acquired under agreements to resell are as follows: |
| | | | | | | | | | | | | | | | |
| | As of December 31, 2020 | | As of December 31, 2019 | ||||||||||||
|
| |
| Between 3 |
| |
| |
| |
| Between 3 |
| |
| |
| | Up to 3 | | months and | | Over 1 | | | | Up to 3 | | months and | | Over 1 | | |
| | months | | 1 year | | year | | Totals | | months | | 1 year | | year | | Totals |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Chilean Central Bank and Government securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank securities |
| — |
| — |
| — |
| — |
| 20,593 |
| — |
| — |
| 20,593 |
Government securities |
| — |
| 43,633 |
| — |
| 43,633 |
| 17,491 |
| — |
| — |
| 17,491 |
Other Chilean Central Bank and Government securities |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Other Chilean securities |
| |
| |
| |
| |
|
|
|
|
|
|
| |
Bonds |
| 40,540 |
| — |
| — |
| 40,540 |
| 8,603 |
| — |
| — |
| 8,603 |
Notes |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Other securities |
| — | | — | | — | | — |
| — |
| — |
| — |
| — |
Foreign financial securities |
| |
| |
| |
|
|
| |
| |
| |
| |
Central Banks and Government securities |
| 14,072 |
| — |
| 1,477 |
| 15,549 |
| 27,546 |
| — |
| — |
| 27,546 |
Other foreign instruments |
| 5,858 |
| — |
| — |
| 5,858 |
| 1,742 |
| — |
| — |
| 1,742 |
Totals |
| 60,470 |
| 43,633 |
| 1,477 |
| 105,580 |
| 75,975 |
| — |
| — |
| 75,975 |
b) | As of December 31, 2020 and 2019, the instruments acquired under agreements to repurchase are as follows: |
| | | | | | | | | | | | | | | | |
| | As of December 31, 2020 | | As of December 31, 2019 | ||||||||||||
| | | | Between 3 | | | | | | | | Between 3 | | | | |
| | Up to 3 | | months and | | Over 1 | | | | Up to 3 | | months and | | Over 1 | | |
| | months | | 1 year | | year | | Totals | | months | | 1 year | | year | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Chilean Central Bank and Government securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank securities |
| 310,565 |
| — |
| — |
| 310,565 |
| 168,778 |
| — |
| — |
| 168,778 |
Government securities |
| 49,337 |
| — |
| — |
| 49,337 |
| 11,970 |
| — |
| — |
| 11,970 |
Other Chilean Central Bank and Government securities |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Other Chilean securities |
| |
|
|
|
|
| |
|
|
|
|
|
|
| |
Bonds |
| 39,691 |
| — |
| — |
| 39,691 |
| 318,389 |
| — |
| — |
| 318,389 |
Notes |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Other Chilean securities |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Foreign financial securities |
| |
|
|
|
|
| |
|
|
| | | |
| |
Central Banks and Government securities |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Other foreign instruments |
| 239,258 |
| — |
| — |
| 239,258 |
| 60,320 |
| — |
| — |
| 60,320 |
Totals |
| 638,851 |
| — |
| — |
| 638,851 |
| 559,457 |
| — |
| — |
| 559,457 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-65 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 8 - Financial Derivative Contracts and Hedge Accounting
a) | Total derivative contracts portfolio |
The Bank and subsidiaries use the following derivative financial instruments for hedge accounting and trading purposes, which, in order to capture the credit risk in the valuation, are adjusted to reflect the CVA (Credit Value Adjustment) and DVA (Debit Value Adjustment). The detail of these instruments is presented below:
| | | | | | | | |
| | As of December 31, 2020 | | As of December 31, 2019 | ||||
| | Assets | | Liabilities | | Assets | | Liabilities |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Derivatives held for hedge accounting |
| 306,472 |
| 162,450 |
| 203,868 |
| 144,069 |
Derivatives held for trading |
| 3,676,331 |
| 3,511,141 |
| 2,951,089 |
| 2,793,965 |
Totals |
| 3,982,803 |
| 3,673,591 |
| 3,154,957 |
| 2,938,034 |
a.1) Financial derivative assets
| | | | | | | | |
| | As of December 31, 2020 | ||||||
| | Notional | | | ||||
|
| |
| Between 3 months |
| |
| |
| | Up to 3 months | | and 1 year | | Over 1 year | | Fair value |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Currency forwards |
| 7,882,839 |
| 2,358,854 |
| 417,178 | | 472,208 |
Currency swaps |
| 246,599 |
| 932,372 |
| 8,656,771 | | 938,762 |
Interest rate swaps |
| 3,828,930 |
| 6,424,682 |
| 26,020,406 | | 2,570,553 |
Call currency options |
| 13,402 |
| 15,483 |
| — | | 195 |
Put currency options |
| 7,797 |
| 10,514 |
| — | | 1,085 |
Totals |
| 11,979,567 |
| 9,741,905 |
| 35,094,355 | | 3,982,803 |
| | | | | | | | |
| | As of December 31, 2019 | ||||||
| | Notional | | | ||||
|
| |
| Between 3 months |
| |
| |
| | Up to 3 months | | and 1 year | | Over 1 year | | Fair value |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Currency forwards |
| 8,174,950 |
| 3,931,647 |
| 1,234,741 |
| 454,300 |
Currency swaps |
| 217,953 |
| 923,526 |
| 6,640,937 |
| 855,780 |
Interest rate swaps |
| 4,125,562 |
| 7,225,228 |
| 31,308,891 |
| 1,840,855 |
Call currency options |
| 34,713 |
| 49,753 |
| 748 |
| 3,805 |
Put currency options |
| 5,067 |
| 15,940 |
| — |
| 217 |
Totals |
| 12,558,245 |
| 12,146,094 |
| 39,185,317 |
| 3,154,957 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-66 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 8 - Financial Derivative Contracts and Hedge Accounting, continued
a.2) Financial derivative liabilities
| | | | | | | | |
| | As of December 31, 2020 | ||||||
| | Notional | | | ||||
|
| |
| Between 3 months |
| |
| |
| | Up to 3 months | | and 1 year | | Over 1 year | | Fair value |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Currency forwards |
| 7,913,739 |
| 1,989,333 |
| 935,565 | | 433,863 |
Currency swaps |
| 335,192 |
| 953,275 |
| 7,480,516 | | 775,122 |
Interest rate swaps |
| 3,509,633 |
| 6,205,021 |
| 27,404,647 | | 2,463,249 |
Call currency options |
| 9,434 |
| 15,404 |
| — | | 271 |
Put currency options |
| 5,753 |
| 5,786 |
| — | | 1,086 |
Totals |
| 11,773,751 |
| 9,168,819 |
| 35,820,728 | | 3,673,591 |
| | | | | | | | |
| | As of December 31, 2019 | ||||||
| | Notional | | | ||||
|
| |
| Between 3 months |
| |
| |
| | Up to 3 months | | and 1 year | | Over 1 year | | Fair value |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Currency forwards |
| 11,622,926 |
| 4,440,565 |
| 830,870 |
| 504,276 |
Currency swaps |
| 182,481 |
| 831,635 |
| 6,249,881 |
| 769,072 |
Interest rate swaps |
| 2,939,069 |
| 6,101,205 |
| 29,362,545 |
| 1,662,363 |
Call currency options |
| 31,482 |
| 51,810 |
| — |
| 1,758 |
Put currency options |
| 18,837 |
| 39,941 |
| 374 |
| 565 |
Totals |
| 14,794,795 |
| 11,465,156 |
| 36,443,670 |
| 2,938,034 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-67 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 8 - Financial Derivative Contracts and Hedge Accounting, continued
a.3) Portfolio detail
As of December 31, 2020 and 2019, the portfolio of financial derivative instruments held for hedge accounting and trading purposes is as follows:
| | | | | | | | | | |
| | As of December 31, 2020 | ||||||||
| | Notional | | Fair value | ||||||
| | | | Between 3 | | | | | | |
| | | | months and | | | | | | |
| | Up to 3 months | | 1 year | | Over 1 year | | Assets | | Liabilities |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Derivatives held for hedge accounting |
| 3,704,562 |
| 965,569 |
| 2,261,626 |
| 306,472 |
| 162,450 |
Fair value hedge |
|
|
|
|
|
|
|
|
|
|
Currency forwards |
| — |
| — |
| — |
| — |
| — |
Currency swaps |
| — |
| — |
| 74,894 |
| 9,666 |
| — |
Interest rate swaps |
| — |
| 201,193 |
| 1,960,759 |
| 203,913 |
| 61,705 |
Subtotals |
| — |
| 201,193 |
| 2,035,653 |
| 213,579 |
| 61,705 |
Cash flow hedge |
|
|
|
|
|
|
|
|
|
|
Currency forwards |
| 1,657,848 |
| 716,842 |
| 178,107 |
| 3,919 |
| 33,112 |
Currency swaps |
| — |
| — |
| — |
| — |
| — |
Interest rate swaps |
| 4,000 |
| 29,233 |
| 47,866 |
| 2,094 |
| 238 |
Subtotals |
| 1,661,848 |
| 746,075 |
| 225,973 |
| 6,013 |
| 33,350 |
Hedge of net investment in a foreign operation |
|
|
|
|
|
|
|
|
|
|
Currency forwards |
| 2,042,714 | | 18,301 |
| — |
| 86,880 |
| 67,395 |
Subtotals |
| 2,042,714 |
| 18,301 |
| — |
| 86,880 |
| 67,395 |
| | | | | | | | | | |
Derivatives held for trading |
| 20,048,756 |
| 17,945,155 |
| 68,653,457 |
| 3,676,331 |
| 3,511,141 |
Currency forwards |
| 12,096,016 |
| 3,613,044 |
| 1,174,636 |
| 381,409 |
| 333,356 |
Currency swaps |
| 581,791 |
| 1,885,647 |
| 16,062,393 |
| 929,096 |
| 775,122 |
Interest rate swaps |
| 7,334,563 |
| 12,399,277 |
| 51,416,428 |
| 2,364,546 |
| 2,401,306 |
Call currency options |
| 22,836 |
| 30,887 |
| — |
| 195 |
| 271 |
Put currency options |
| 13,550 |
| 16,300 |
| — |
| 1,085 |
| 1,086 |
Subtotals |
| 20,048,756 |
| 17,945,155 |
| 68,653,457 |
| 3,676,331 |
| 3,511,141 |
Totals |
| 23,753,318 |
| 18,910,724 |
| 70,915,083 |
| 3,982,803 |
| 3,673,591 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-68 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 8 - Financial Derivative Contracts and Hedge Accounting, continued
| | | | | | | | | | |
| | As of December 31, 2019 | ||||||||
| | Notional | | Fair value | ||||||
| | | | Between 3 | | | | | | |
| | | | months and | | | | | | |
| | Up to 3 months | | 1 year | | Over 1 year | | Assets | | Liabilities |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Derivatives held for hedge accounting |
| 3,679,576 |
| 1,371,790 |
| 3,072,685 |
| 203,868 |
| 144,069 |
Fair value hedge |
| |
| |
| |
| |
| |
Currency forwards |
| — |
| — |
| — |
| — |
| — |
Currency swaps |
| — |
| — |
| 47,463 |
| — |
| 1,479 |
Interest rate swaps |
| — |
| 29,342 |
| 1,952,968 |
| 152,011 |
| 50,247 |
Subtotals |
| — |
| 29,342 |
| 2,000,431 |
| 152,011 |
| 51,726 |
Cash flow hedge |
| |
| |
| |
| |
| |
Currency forwards |
| 1,426,697 |
| 849,243 |
| 556,633 |
| 4,174 |
| 17,798 |
Currency swaps |
| — |
| 47,155 |
| 78,592 |
| 6,145 |
| 2,703 |
Interest rate swaps |
| 32,408 |
| — |
| 437,029 |
| 2,722 |
| 5,820 |
Subtotals |
| 1,459,105 |
| 896,398 |
| 1,072,254 |
| 13,041 |
| 26,321 |
Hedge of net investment in a foreign operation |
| |
| |
| |
| |
| |
Currency forwards |
| 2,220,471 |
| 446,050 |
| — |
| 38,816 |
| 66,022 |
Subtotal |
| 2,220,471 |
| 446,050 |
| — |
| 38,816 |
| 66,022 |
| | | | | | | | | | |
Derivatives held for trading |
| 23,673,464 |
| 22,239,460 |
| 72,556,302 |
| 2,951,089 |
| 2,793,965 |
Currency forwards |
| 16,150,708 |
| 7,076,919 |
| 1,508,978 |
| 411,310 |
| 420,456 |
Currency swaps |
| 400,434 |
| 1,708,006 |
| 12,764,763 |
| 849,635 |
| 764,890 |
Interest rate swaps |
| 7,032,223 |
| 13,297,091 |
| 58,281,439 |
| 1,686,122 |
| 1,606,296 |
Call currency options |
| 66,195 |
| 101,563 |
| 748 |
| 3,805 |
| 1,758 |
Put currency options |
| 23,904 |
| 55,881 |
| 374 |
| 217 |
| 565 |
Subtotals |
| 23,673,464 |
| 22,239,460 |
| 72,556,302 |
| 2,951,089 |
| 2,793,965 |
Totals |
| 27,353,040 |
| 23,611,250 |
| 75,628,987 |
| 3,154,957 |
| 2,938,034 |
b) | Hedge accounting |
b.1) Fair value hedges
The Bank uses interest rate derivatives to manage its structural risk by minimizing accounting asymmetries in the Statement of Financial Position. Through different hedging strategies, it redenominates an element originally at a fixed rate to a floating rate, thus decreasing the financial duration and consequently risk, aligning the balance sheet structure with expected movements in the yield curve.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-69 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 8 - Financial Derivative Contracts and Hedge Accounting, continued
The following table presents the hedged items and the hedging instrument at fair value as of December 31, 2020 and 2019, detailed by maturity:
| | | | | | | | | | |
| | As of December 31, 2020 | ||||||||
| | Notional | ||||||||
| | | | Between 1 | | Between 3 and | | | | |
| | Up to 1 year | | and 3 years | | 6 years | | Over 6 years | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Hedged items |
|
|
|
|
|
|
|
|
|
|
Loans and accounts receivable from customers |
|
|
|
|
|
|
|
|
|
|
Mortgage loans (1) | | 162,429 | | 242,180 | | 16,753 | | 241,691 | | 663,053 |
Time deposits and other time liabilities | | | | | | | | | | |
Time deposits | | — | | 20,472 | | 5,817 | | — | | 26,289 |
Financial instruments at FVTPL |
|
|
|
|
|
|
|
|
|
|
Treasury bonds |
| 9,950 |
| 187,635 |
| 20,540 |
| 37,527 |
| 255,652 |
Debt instruments issued |
|
|
|
|
|
|
|
|
|
|
Senior bonds |
| 29,070 |
| 70,000 |
| 428,077 |
| 688,967 |
| 1,216,114 |
Interbank borrowings | | | | | | | | | | |
Interbank loans | | — | | 75,994 | | — | | — | | 75,994 |
Totals |
| 201,449 |
| 596,281 |
| 471,187 |
| 968,185 |
| 2,237,102 |
Hedging instruments |
|
|
|
|
|
|
|
|
|
|
Currency swaps |
| — |
| 74,894 |
| — |
| — |
| 74,894 |
Interest rate swaps |
| 201,193 |
| 521,387 |
| 471,187 |
| 968,185 |
| 2,161,952 |
Totals |
| 201,193 |
| 596,281 |
| 471,187 |
| 968,185 |
| 2,236,846 |
(1) | Colombia: The information includes the effects on the hedge item generated by prepayments; therefore, cash flows from the hedge item and the hedging instrument are not perfectly balanced. |
| | | | | | | | | | |
| | As of December 31, 2019 | ||||||||
| | Notional | ||||||||
| | | | Between 1 | | Between 3 and | | | | |
| | Up to 1 year | | and 3 years | | 6 years | | Over 6 years | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Hedged items |
|
|
|
|
|
|
|
|
|
|
Loans and accounts receivable from customers |
|
|
|
|
|
|
|
|
|
|
Commercial and mortgage loans |
| 1,032 |
| — | | — | | — |
| 1,032 |
Mortgage loans (1) | | — | | 342,159 |
| 80,629 |
| 263,067 | | 685,855 |
Financial instruments at FVTPL |
|
|
|
|
|
|
|
|
|
|
Treasury bonds |
| — |
| 52,704 |
| 49,932 |
| 25,458 |
| 128,094 |
Debt instruments issued |
|
|
|
|
|
|
|
|
|
|
Senior bonds |
| 28,310 |
| 98,310 |
| 80,620 |
| 1,007,834 |
| 1,215,074 |
Totals |
| 29,342 |
| 493,173 |
| 211,181 |
| 1,296,359 |
| 2,030,055 |
Hedging instruments |
|
|
|
|
|
|
|
|
|
|
Currency swaps |
| — |
| 47,463 |
| — |
| — |
| 47,463 |
Interest rate swaps |
| 29,342 |
| 445,428 |
| 211,181 |
| 1,296,359 |
| 1,982,310 |
Totals |
| 29,342 |
| 492,891 |
| 211,181 |
| 1,296,359 |
| 2,029,773 |
| | | | | | | | | | |
(1) | Colombia: The information includes the effects on the hedge item generated by prepayments; therefore, cash flows from the hedge item and the hedging instrument are not perfectly balanced. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-70 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 8 - Financial Derivative Contracts and Hedge Accounting, continued
Below is an estimate of the periods in which flows are expected to be produced:
Forecasted cash flows by interest rate risk:
| | | | | | | | | | |
| | As of December 31, 2020 | ||||||||
| | Notional | ||||||||
| | | | Between 1 and | | Between 3 and | | | | |
| | Up to 1 year | | 3 years | | 6 years | | Over 6 years | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Hedged items |
|
|
| |
|
|
|
|
|
|
Inflows (*) |
| 12,496 |
| 191,835 |
| 11,437 |
| 3,563 |
| 219,331 |
Outflows |
| (18,448) |
| (130,799) |
| (48,778) |
| (43,439) |
| (241,464) |
Net Flows |
| (5,952) |
| 61,036 |
| (37,341) |
| (39,876) |
| (22,133) |
Hedging instruments (**) |
|
|
|
|
|
|
|
|
|
|
Outflows |
| 18,448 |
| 130,799 |
| 48,778 |
| 43,439 |
| 241,464 |
Inflows |
| (12,240) |
| (191,835) |
| (11,437) |
| (3,563) |
| (219,075) |
Net flows |
| 6,208 |
| (61,036) |
| 37,341 |
| 39,876 |
| 22,389 |
(*) Colombia: The information includes the effects on the hedge item generated by prepayments; therefore, cash flows from the hedge item and the hedging instrument are not perfectly balanced.
(**) Only includes cash flows forecast portion of the hedge instruments used to cover interest rate risk.
| | | | | | | | | | |
| | As of December 31, 2019 | ||||||||
| | Notional | ||||||||
| | | | Between 1 and | | Between 3 and | | | | |
| | Up to 1 year | | 3 years | | 6 years | | Over 6 years | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Hedged items |
|
|
|
|
|
|
|
|
|
|
Inflows (*) |
| 9,890 |
| 66,797 |
| 13,343 |
| 4,570 |
| 94,600 |
Outflows |
| (45,795) |
| (36,038) |
| (129,595) |
| (54,460) |
| (265,888) |
Net flows |
| (35,905) |
| 30,759 |
| (116,252) |
| (49,890) |
| (171,288) |
Hedging instruments (**) |
|
|
|
|
|
|
|
|
|
|
Outflows |
| (9,890) |
| (66,515) |
| (13,343) |
| (4,570) |
| (94,318) |
Inflows |
| 45,795 |
| 36,038 |
| 129,595 |
| 54,460 |
| 265,888 |
Net flows |
| 35,905 |
| (30,477) |
| 116,252 |
| 49,890 |
| 171,570 |
(*) Colombia: The information includes the effects on the hedge item generated by prepayments; therefore, cash flows from the hedge item and the hedging instrument are not perfectly balanced.
(**) Only includes cash flows forecast portion of the hedge instruments used to cover interest rate risk.
b.2) Cash flow hedges:
Cash flow hedge is used by the Bank mainly to:
● | Reduce the volatility of cash flows in items in the Statement of Financial position that are indexed to inflation through the use of inflation forwards and combinations of swaps in pesos and indexed units. |
● | 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. This is achieved by setting the cash flows of the hedged items equal to those of the derivative instruments, modifying uncertain cash flows for certain cash flows. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-71 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 8 - Financial Derivative Contracts and Hedge Accounting, continued
● | It also sets the rate of funding sources at a floating rate, decreasing the risk that its funding costs increase. |
The following table presents the nominal values of the hedged item as of December 31, 2020 and 2019:
| | | | | | | | | | |
| | As of December 31, 2020 | ||||||||
| | Notional | ||||||||
| | | | Between 1 and | | Between 3 and | | | | |
| | Up to 1 year | | 3 years | | 6 years | | Over 6 years | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Hedged item |
|
|
|
|
|
|
|
|
|
|
Loans and accounts at amortized cost |
|
|
|
|
|
|
|
|
|
|
Loans (inflation-indexed) |
| 2,103,296 |
| 174,422 |
| — |
| — |
| 2,277,718 |
Commercial loans (interest rate) |
| 23,000 |
| 20,000 |
| — |
| — |
| 43,000 |
Debt instruments issued |
|
|
|
|
|
|
|
|
|
|
Senior bonds |
| — |
| 27,866 |
| — |
| — |
| 27,866 |
Interbank borrowings | |
|
|
|
|
|
|
|
|
|
Interbank loans | | 240,831 |
| 3,685 |
| — |
| — |
| 244,516 |
Forecast transaction |
| | | | | | | | | |
Payment in USD |
| 40,796 | | — | | — | | — | | 40,796 |
Totals |
| 2,407,923 |
| 225,973 |
| — |
| — |
| 2,633,896 |
Hedging instruments |
|
|
|
|
|
|
|
|
|
|
Currency forwards |
| 2,374,690 |
| 178,107 |
| — |
| — | | 2,552,797 |
Currency swaps |
| — |
| — |
| — |
| — |
| — |
Interest rate swaps |
| 33,233 |
| 47,866 |
| — |
| — |
| 81,099 |
Totals |
| 2,407,923 |
| 225,973 |
| — |
| — |
| 2,633,896 |
| | | | | | | | | | |
| | As of December 31, 2019 | ||||||||
| | Notional | ||||||||
| | | | Between 1 and | | Between 3 and | | | | |
| | Up to 1 year | | 3 years | | 6 years | | Over 6 years | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Hedged item |
|
|
|
|
|
|
|
|
|
|
Loans and accounts at amortized cost |
|
|
|
|
|
|
|
|
|
|
Loans (inflation-indexed) |
| 1,804,079 |
| 566,729 |
| — |
| — |
| 2,370,808 |
Commercial loans (interest rate) |
| 5,000 |
| 43,000 |
| — |
| — |
| 48,000 |
Time deposits and other time liabilities |
|
|
|
|
|
|
|
|
|
|
Time deposits |
| 27,408 |
| — |
| 342,633 |
| 41,300 |
| 411,341 |
Interbank borrowings | |
| |
| |
| |
| | |
Interbank loans | | 476,036 | | — | | 78,592 | | — | | 554,628 |
Forecast transaction |
| |
| |
| |
| |
|
|
Payment in USD |
| 42,979 |
| — |
| — |
| — |
| 42,979 |
Totals |
| 2,355,502 |
| 609,729 |
| 421,225 |
| 41,300 |
| 3,427,756 |
Hedging instruments |
|
|
|
|
|
|
|
|
|
|
Currency forwards |
| 2,275,939 |
| 556,633 |
| — |
| — | | 2,832,572 |
Currency swaps |
| 47,155 |
| — |
| 78,592 |
| — |
| 125,747 |
Interest rate swaps |
| 32,408 |
| 53,096 |
| 342,633 |
| 41,300 |
| 469,437 |
Totals |
| 2,355,502 |
| 609,729 |
| 421,225 |
| 41,300 |
| 3,427,756 |
| | | | | | | | | | |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-72 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 8 - Financial Derivative Contracts and Hedge Accounting, continued
Below is an estimate of the periods in which flows are expected to occur.
| | | | | | | | | | |
| | As of December 31, 2020 | ||||||||
| | Notional | ||||||||
| | | | Between 1 and | | Between 3 and | | | | |
| | Up to 1 year | | 3 years | | 6 years | | Over 6 years | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Hedged items |
|
|
|
|
|
|
|
|
|
|
Inflows |
| 47,490 |
| 5,925 |
| — |
| — |
| 53,415 |
Outflows |
| (240,854) |
| (31,551) |
| — |
| — |
| (272,405) |
Net Flows |
| (193,364) |
| (25,626) |
| — |
| — |
| (218,990) |
Hedging instruments (*) |
|
|
|
|
|
|
|
|
|
|
Outflows |
| 240,854 |
| 31,551 |
| — |
| — |
| 272,405 |
Inflows |
| (47,490) |
| (5,925) |
| — |
| — |
| (53,415) |
Net flows |
| 193,364 |
| 25,626 |
| — |
| — |
| 218,990 |
| | | | | | | | | | |
| | As of December 31, 2019 | ||||||||
| | Notional | ||||||||
| | | | Between 1 and | | Between 3 and | | | | |
| | Up to 1 year | | 3 years | | 6 years | | Over 6 years | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Hedged items |
|
|
|
|
|
|
|
|
|
|
Inflows |
| 43,430 |
| 23,797 |
| — |
| — |
| 67,227 |
Outflows |
| (484,997) |
| (17,615) |
| (13,260) |
| (941) |
| (516,813) |
Net Flows |
| (441,567) |
| 6,182 |
| (13,260) |
| (941) |
| (449,586) |
Hedging instruments (*) |
|
|
|
|
|
|
|
|
|
|
Outflows |
| (43,430) |
| (23,797) |
| — |
| — |
| (67,227) |
Inflows |
| 484,997 |
| 17,615 |
| 13,260 |
| 941 |
| 516,813 |
Net flows |
| 441,567 |
| (6,182) |
| 13,260 |
| 941 |
| 449,586 |
(*) Only includes cash flows forecast portion of the hedge instruments used to cover interest rate risk.
| | | | | | | | |
| | As of December 31, | ||||||
| | 2020 | | 2019 | ||||
| | Effective | | Ineffective | | Effective | | Ineffective |
| | portion | | portion | | portion | | portion |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Hedged item | | | | | | | | |
Loans and accounts receivables from customers |
|
|
|
|
|
|
|
|
Loans (inflation-indexed) | | (527) | | (37) |
| (3,698) | | (516) |
Commercial loans (interest rate) | | 1,654 | | 140 |
| 1,135 | | 289 |
Time deposits and other time liabilities | | | | |
| | | |
Time deposits | | (1,090) | | (1) |
| (4,275) | | 91 |
Debt instruments issued | | | | |
| | | |
Senior bonds | | (34) | | — |
| — | | — |
Interbank borrowings | | | | | | | | |
Interbank loans | | 2,320 | | (7) | | (3,019) | | (8) |
Forecast transaction | | | | |
| | | |
Payment in USD | | 882 | | — |
| 3,065 | | — |
Totals | | 3,205 | | 95 |
| (6,792) |
| (144) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-73 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 8 - Financial Derivative Contracts and Hedge Accounting, continued
The effective portion generated by cash flow derivatives recorded in the Statement of Changes in Equity as of December 31, 2020 and 2019. The ineffective portion is recognized immediately in the Consolidated Statement of Income (Loss). This ineffectiveness is generated because both the hedged item and the hedged object do not mirror each other, which means that changes in value attributable to rate and reset components are not fully offset, but remain within the effectiveness range defined by the standard.
The income generated by cash flow hedge derivatives whose effect was transferred from Other Comprehensive Income (Loss) to Income for the year, is as follow:
| | | | |
| | For the year ended | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Hedged item | | | | |
Loans and accounts receivables from customers |
|
|
|
|
Loans (inflation-indexed) |
| 1,617 |
| 3,681 |
Commercial loans (interest rate) |
| 505 |
| (1,134) |
Time deposits and other time liabilities |
| |
|
|
Time deposits (*) | | (4,324) |
| 4,088 |
Debt instruments issued |
|
|
|
|
Senior bonds |
| — |
| — |
Interbank borrowings | | | | |
Interbank loans | | — | | — |
Forecast Transaction |
|
|
|
|
Payment in USD |
| — |
| — |
Totals | | (2,202) |
| 6,635 |
(*) Includes the effects of the discontinuing cash flow hedge strategy on time deposits.
b.3) Hedge of net investment in foreign operations:
Itaú Corpbanca, the parent company whose functional currency is the Chilean peso, has foreign business investments consisting of a branch in New York and subsidiaries in Colombia. As a result of the proper accounting treatment for these investments, fluctuations in the value of the investments as a result of changes in the Chilean peso-Colombian peso exchange rate alter the parent company’s equity. The objective of these hedges is to safeguard the value of equity by managing exchange rate risk affecting the investments.
Hedges of a net investment in a foreign operation, including hedges of monetary items that are accounted for as part of a net investment, are recorded to cash flow hedges, where:
● | The portion of the gain or loss from the hedge instrument that is determined to be an effective hedge is recognized in equity. As of December 31, 2020, this was a credit of MCh$48,171 (debit of MCh$10,756 net of deferred taxes as of December 31, 2019). |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-74 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 8 - Financial Derivative Contracts and Hedge Accounting, continued
● | The ineffective portion is recognized in profit or loss. No such amounts were recorded in 2020 and 2019. |
| | | | | | |
| | | | As of December 31, | ||
|
| Notes |
| 2020 |
| 2019 |
| | | | MCh$ | | MCh$ |
Opening balances | | | | (10,756) |
| 21,657 |
Gains (losses) on hedge of net investment in foreign operation, before tax |
| 24 b. | | 80,722 |
| (46,786) |
Income tax relating to hedges of net investment in foreign operations |
| 24 b. | | (21,795) |
| 14,373 |
Ending balances |
|
| | 48,171 |
| (10,756) |
Each hedge is detailed in the table below:
Hedge of net investment
| | | | | | | | | | | | |
| | As of December 31, 2020 | ||||||||||
| | | | | | | | | | Statements of | | |
| | | | | | | | | | Changes in | | Statement |
| | Notional | | Equity | | of Income | ||||||
| | | | | | | | | | Effective | | |
| | | | Between 1 and | | Between 3 and | | | | portion for the | | Ineffective |
| | Up to 1 year | | 3 years | | 6 years | | Over 6 years | | year | | portion |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Hedged items |
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in New York Branch |
| 1,897,025 |
| — |
| — |
| — |
| 51,803 |
| — |
Net investment in Itaú Corpbanca Colombia |
| 163,990 |
| — |
| — |
| — |
| (8,231) |
| — |
Total |
| 2,061,015 | | — | | — | | — | | 43,572 | | — |
Hedging instrument |
|
|
| — |
| — |
| — |
|
|
| — |
Foreign currency forwards |
| 2,061,015 |
| — |
| — |
| — |
| 43,572 |
| — |
| | | | | | | | | | | | |
| | As of December 31, 2019 | ||||||||||
| | | | | | | | | | Statements of | | |
| | | | | | | | | | Changes in | | Statement |
| | Notional | | Equity | | of Income | ||||||
| | | | | | | | | | Effective | | |
| | | | Between 1 and | | Between 3 and | | | | portion for the | | Ineffective |
| | Up to 1 year | | 3 years | | 6 years | | Over 6 years | | year | | portion |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Hedged items |
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in New York Branch |
| 2,360,798 |
| — |
| — |
| — |
| (35,744) |
| — |
Net investment in Itaú Corpbanca Colombia |
| 305,723 |
| — |
| — |
| — |
| (11,042) |
| — |
Total |
| 2,666,521 |
| — |
| — |
| — |
| (46,786) |
| — |
Hedging instrument |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards |
| 2,666,521 |
| — |
| — |
| — |
| (46,786) |
| — |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-75 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
a) | As of December 31, 2020 and 2019, the balances presented under the item "Interbank loans, net" are as follow: |
| | | | |
|
| As of December 31, | ||
| | 2020 | | 2019 |
| | MCh$ | | MCh$ |
Local banks | | | | |
Loans to local banks |
| — |
| — |
Allowances for loans losses |
| — |
| — |
Subtotals |
| — |
| — |
Foreign banks |
|
|
|
|
Interbank cash loans |
| — |
| 37,048 |
Loans to foreign banks |
| — |
| 755 |
Non-transferable deposits with foreign banks |
| 7,131 |
| 18,832 |
Allowances for loans losses |
| (10) |
| (239) |
Subtotals |
| 7,121 |
| 56,396 |
Chilean Central Bank |
|
|
|
|
Deposits with the Chilean Central Bank not available |
| — |
| — |
Subtotals |
| — |
| — |
Totals |
| 7,121 |
| 56,396 |
b) | Movements in provisions and impairment for local and foreign interbank loans during the year ended December 31, 2020 and 2019 are as follows: |
| | | | | | | | | | | | | | | | |
| | Foreign banks | ||||||||||||||
| | 2020 | | 2019 | ||||||||||||
| | Stage 1 | | Stage 2 | | Stage 2 | | | | Stage 1 | | Stage 2 | | Stage 2 | | |
| | 12-Month ECL | | Lifetime ECL | | Lifetime ECL | | Totals | | 12-Month ECL | | Lifetime ECL | | Lifetime ECL | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| | | | | | | | | | | | | | | | |
Opening balances as of January 1, | | (239) | | — |
| — |
| (239) |
| (463) | | — |
| — |
| (463) |
Changes in the allowances | | | | |
|
|
| |
| | | |
|
|
| |
- Transfer to stage 1 | | — | | — |
| — |
| — |
| — | | — |
| — |
| — |
- Transfer to stage 2 | | — | | — |
| — |
| — |
| — | | — |
| — |
| — |
- Transfer to stage 3 | | — | | — |
| — |
| — |
| — | | — |
| — |
| — |
- Increases due to change in credit risk | | — | | — |
| — |
| — |
| — | | — |
| — |
| — |
- Decreases due to change in credit risk | | — | | — |
| — |
| — |
| — | | — |
| — |
| — |
- Charge-offs | | — | | — |
| — |
| — |
| — | | — |
| — |
| — |
- Changes due to modifications that did not result in derecognition | | — | | — |
| — |
| — |
| — | | — |
| — |
| — |
New financial assets originated or purchased | | (10) | | — |
| — |
| (10) |
| (316) | | — |
| — |
| (316) |
Financial assets that have been derecognized | | 218 | | — |
| — |
| 218 |
| 574 | | — |
| — |
| 574 |
Changes in models/risk parameters | | — | | — |
| — |
| — |
| — | | — |
| — |
| — |
Foreign exchange and other movements | | 21 | | — |
| — |
| 21 |
| (34) | | — |
| — |
| (34) |
Ending balances as of December 31, | | (10) | | — |
| — |
| (10) |
| (239) |
| — |
| — |
| (239) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-76 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers
a) | Loans and accounts receivable from customers |
As of December 31, 2020, the loan portfolio is detailed as follows:
| | | | | | | | | | |
| | | | Allowances for loan losses | | | ||||
| | | | Individual | | Group | | | | |
As of December 31, 2020 | | Gross Assets | | allowances | | allowances | | Totals | | Net assets |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
Commercial loans |
| 12,172,207 |
| (321,444) |
| (347,928) |
| (669,372) |
| 11,502,835 |
Foreign trade loans |
| 847,086 |
| — |
| (21,641) |
| (21,641) |
| 825,445 |
Checking account debtors |
| 70,126 |
| — |
| (8,080) |
| (8,080) |
| 62,046 |
Factoring transactions |
| 155,540 |
| — |
| (4,053) |
| (4,053) |
| 151,487 |
Student loans |
| 594,688 |
| — |
| (17,702) |
| (17,702) |
| 576,986 |
Leasing transactions |
| 940,989 |
| — |
| (24,402) |
| (24,402) |
| 916,587 |
Other commercial loans and receivables |
| 28,163 |
| — |
| (2,367) |
| (2,367) |
| 25,796 |
Subtotals |
| 14,808,799 |
| (321,444) |
| (426,173) |
| (747,617) |
| 14,061,182 |
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
Loans with mortgage finance bonds |
| 23,345 |
| — |
| (232) |
| (232) |
| 23,113 |
Endorsable mutual mortgage loans |
| 90,456 |
| — |
| (1,047) |
| (1,047) |
| 89,409 |
Other mutual mortgage loans |
| 4,820,863 |
| — |
| (59,799) |
| (59,799) |
| 4,761,064 |
Mortgage leasing transactions |
| 307,574 |
| — |
| (11,718) |
| (11,718) |
| 295,856 |
Other mortgage loans and receivables |
| 74,515 |
| — |
| (669) |
| (669) |
| 73,846 |
Subtotals |
| 5,316,753 |
| — |
| (73,465) |
| (73,465) |
| 5,243,288 |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
Installment consumer loans |
| 1,866,015 |
| — |
| (181,319) |
| (181,319) |
| 1,684,696 |
Checking account debtors |
| 124,009 |
| — |
| (11,064) |
| (11,064) |
| 112,945 |
Credit card balances |
| 467,624 |
| — |
| (24,770) |
| (24,770) |
| 442,854 |
Consumer leasing transactions |
| 1,467 |
| — |
| (182) |
| (182) |
| 1,285 |
Other consumer loans and receivables |
| 33,314 |
| — |
| (3,456) |
| (3,456) |
| 29,858 |
Subtotals |
| 2,492,429 |
| — |
| (220,791) |
| (220,791) |
| 2,271,638 |
Totals |
| 22,617,981 |
| (321,444) |
| (720,429) |
| (1,041,873) |
| 21,576,108 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-77 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
As of December 31, 2019, the loan portfolio is detailed as follows:
| | | | | | | | | | |
| | | | Allowances for loan losses | | | ||||
| | | | Individual | | Group | | | | |
As of December 31, 2019 | | Gross Assets | | allowances | | allowances | | Totals | | Net assets |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
Commercial loans |
| 12,288,810 |
| (193,135) |
| (224,925) |
| (418,060) |
| 11,870,750 |
Foreign trade loans |
| 1,109,169 |
| — |
| (74,488) |
| (74,488) |
| 1,034,681 |
Checking account debtors |
| 154,276 |
| — |
| (10,508) |
| (10,508) |
| 143,768 |
Factoring transactions |
| 221,104 |
| — |
| (3,694) |
| (3,694) |
| 217,410 |
Student loans |
| 654,721 |
| — |
| (19,442) |
| (19,442) |
| 635,279 |
Leasing transactions |
| 1,005,209 |
| — |
| (16,302) |
| (16,302) |
| 988,907 |
Other commercial loans and receivables |
| 27,255 |
| — |
| (2,705) |
| (2,705) |
| 24,550 |
Subtotals |
| 15,460,544 |
| (193,135) |
| (352,064) |
| (545,199) |
| 14,915,345 |
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
Loans with mortgage finance bonds |
| 30,269 |
| — |
| (378) |
| (378) |
| 29,891 |
Endorsable mutual mortgage loans |
| 103,850 |
| — |
| (1,408) |
| (1,408) |
| 102,442 |
Other mutual mortgage loans |
| 4,384,547 |
| — |
| (63,528) |
| (63,528) |
| 4,321,019 |
Mortgage leasing transactions |
| 336,587 |
| — |
| (12,879) |
| (12,879) |
| 323,708 |
Other mortgage loans and receivables |
| 20,788 |
| — |
| (308) |
| (308) |
| 20,480 |
Subtotals |
| 4,876,041 |
| — |
| (78,501) |
| (78,501) |
| 4,797,540 |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
Installment consumer loans |
| 2,005,038 |
| — |
| (193,726) |
| (193,726) |
| 1,811,312 |
Checking account debtors |
| 206,738 |
| — |
| (20,106) |
| (20,106) |
| 186,632 |
Credit card balances |
| 537,741 |
| — |
| (37,998) |
| (37,998) |
| 499,743 |
Consumer leasing transactions |
| 3,113 |
| — |
| (227) |
| (227) |
| 2,886 |
Other consumer loans and receivables |
| 45,599 |
| — |
| (4,360) |
| (4,360) |
| 41,239 |
Subtotals |
| 2,798,229 |
| — |
| (256,417) |
| (256,417) |
| 2,541,812 |
Totals |
| 23,134,814 |
| (193,135) |
| (686,982) |
| (880,117) |
| 22,254,697 |
Guarantees received by the Bank to secure collections of rights reflected in its loan portfolios are real mortgage-type guarantees (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, 2020 and 2019, the fair value of guarantees received corresponds to 145.15% and 135.51% of the assets guaranteed, respectively.
In the case of mortgage guarantees, as of December 31, 2020 and 2019, the fair value of the guarantees received corresponds to 96.88% and 89.87% of the outstanding receivable balance on loans, respectively.
The Bank finances its customers’ purchases of assets, including real estate and other personal property, through financial lease agreements that are presented within this item. As of December 31, 2020, the Bank recorded MCh$877,510 in finance leases for property (MCh$628,823 as of December 31, 2019) and MCh$372,827 in financial leases for real estate assets (MCh$716,401 as of December 31, 2019).
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-78 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
As of December 31, 2020, the Bank pledged as collateral to the Central Bank of Chile (BCCh) loans from the commercial portfolio in order to access the new Conditional Funding Facility (FCIC). The program includes access to 4-year funds at the BCCh overnight rate, with available funds size increasing as a function of additional loans pledged as collateral. The pledged loans have an outstanding principal balance of Ch$1,766,997 million. Additional disclosures on FCIC are included in Notes 19 and 23, letter e).
The following tables present the movements for the total loan portfolio disaggregated by individually and group assesed loans for the year ended December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | |
| | Individually assessed | | Group assessed | ||||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | Stage 1 | | Stage 2 | | Stage 3 | | | | |
|
| 12-Month |
| Lifetime |
| Lifetime |
| |
| 12-Month |
| Lifetime |
| Lifetime |
| |
| |
|
| ECL | | ECL | | ECL | | Subtotals | | ECL | | ECL | | ECL | | Subtotals | | Totals |
Loan portfolio | | | | | | | | | | | | | | | | | | |
Opening balances as of January 1, 2020 |
| 20,807 |
| 321,488 |
| 268,211 |
| 610,506 |
| 18,691,115 |
| 2,864,199 |
| 968,994 |
| 22,524,308 |
| 23,134,814 |
Changes in the allowances |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
| |
- Transfer to stage 1 |
| — |
| — |
| — |
| — |
| 627,546 |
| (601,963) |
| (25,583) |
| — |
| — |
- Transfer to stage 2 |
| (7,573) |
| 7,573 |
| — |
| — |
| (1,791,800) |
| 1,876,532 |
| (84,732) |
| — |
| — |
- Transfer to stage 3 |
| (5,410) |
| (84,512) |
| 89,922 |
| — |
| (69,979) |
| (153,174) |
| 223,153 |
| — |
| — |
- Charge-offs |
| — |
| — |
| (198) |
| (198) |
| (15,705) |
| (38,228) |
| (261,634) |
| (315,567) |
| (315,765) |
- Changes due to modifications that did not result in derecognition |
| — |
| (1,810) |
| (1,279) |
| (3,089) |
| (235,650) |
| (25,330) |
| (1,908) |
| (262,888) |
| (265,977) |
New financial assets originated or purchased |
| 32,170 |
| 80,355 |
| 122,624 |
| 235,149 |
| 6,798,612 |
| 1,474,294 |
| 408,576 |
| 8,681,482 |
| 8,916,631 |
Financial assets that have been derecognized |
| (13,399) |
| (73,546) |
| (104,964) |
| (191,909) |
| (7,224,940) |
| (837,836) |
| (195,902) |
| (8,258,678) |
| (8,450,587) |
Net transfer (from) group to individually assessed | | 49,231 |
| 170,722 |
| 152,019 | | 371,972 | | (49,231) |
| (170,722) |
| (152,019) | | (371,972) | | — |
Foreign exchange and other movements |
| 25,096 |
| 79,267 |
| (37,840) |
| 66,523 |
| (402,950) |
| (110,636) |
| 45,928 |
| (467,658) |
| (401,135) |
Ending balances as of December 31, 2020 |
| 100,922 |
| 499,537 |
| 488,495 |
| 1,088,954 |
| 16,327,018 |
| 4,277,136 |
| 924,873 |
| 21,529,027 |
| 22,617,981 |
| | | | | | | | | | | | | | | | | | |
| | Individually assessed | | Group assessed | ||||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | Stage 1 | | Stage 2 | | Stage 3 | | | | |
|
| 12-Month |
| Lifetime |
| Lifetime |
| |
| 12-Month |
| Lifetime |
| Lifetime |
| |
| |
|
| ECL | | ECL | | ECL | | Subtotals | | ECL | | ECL | | ECL | | Subtotals | | Totals |
Loan portfolio | | | | | | | | | | | | | | | | | | |
Opening balances as of January 1, 2019 |
| — |
| 367,611 |
| 140,943 |
| 508,554 |
| 17,697,774 |
| 2,532,128 |
| 744,034 |
| 20,973,936 |
| 21,482,490 |
Changes in the allowances |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| — |
| — |
- Transfer to stage 1 |
| — |
| — |
| — |
| — |
| 392,454 |
| (371,983) |
| (20,471) |
| — |
| — |
- Transfer to stage 2 |
| — |
| — |
| — |
| — |
| (749,463) |
| 816,577 |
| (67,114) |
| — |
| — |
- Transfer to stage 3 |
| — |
| (116,202) |
| 116,202 |
| — |
| (113,903) |
| (192,565) |
| 306,468 |
| — |
| — |
- Charge-offs |
| — |
| — |
| (21,841) |
| (21,841) |
| (13,979) |
| (22,862) |
| (114,590) |
| (151,431) |
| (173,272) |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| — |
| 55,367 |
| 32,129 |
| 87,496 |
| 6,487,407 |
| 583,765 |
| 184,664 |
| 7,255,836 |
| 7,343,332 |
Financial assets that have been derecognized |
| — |
| (46,681) |
| (11,754) |
| (58,435) |
| (5,024,522) |
| (771,046) |
| (201,451) |
| (5,997,019) |
| (6,055,454) |
Net transfer (from) group to individually assessed | | 20,807 | | 25,659 | | — | | 46,466 | | (20,807) | | (25,659) | | — | | (46,466) | | — |
Foreign exchange and other movements |
| — |
| 35,734 |
| 12,532 |
| 48,266 |
| 36,154 |
| 315,844 |
| 137,454 |
| 489,452 |
| 537,718 |
Ending balances as of December 31, 2019 |
| 20,807 |
| 321,488 |
| 268,211 |
| 610,506 |
| 18,691,115 |
| 2,864,199 |
| 968,994 |
| 22,524,308 |
| 23,134,814 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-79 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
The following table presents the movements for the Commercial loans portfolio disaggregated by individually and group assessed loans for the year ended December 31, 2020:
| | | | | | | | | | | | | | | | | | |
| | Individually assessed | ��� | Group assessed | ||||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | Stage 1 | | Stage 2 | | Stage 3 | | | | |
|
| 12-Month |
| Lifetime |
| Lifetime |
| |
| 12-Month |
| Lifetime |
| Lifetime |
| |
| |
|
| ECL | | ECL | | ECL | | Subtotals | | ECL | | ECL | | ECL | | Subtotals | | Totals |
| | | | | | | | | | | | | | | | | | |
Opening balances as of January 1, 2020 |
| 20,807 |
| 321,488 |
| 268,211 |
| 610,506 |
| 12,445,411 |
| 1,725,817 |
| 678,810 |
| 14,850,038 |
| 15,460,544 |
Changes in the allowances |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
| |
- Transfer to stage 1 |
| — | | — | | — |
| — |
| 196,395 | | (188,266) | | (8,129) |
| — |
| — |
- Transfer to stage 2 |
| (7,573) | | 7,573 | | — |
| — |
| (829,499) | | 848,497 | | (18,998) |
| — |
| — |
- Transfer to stage 3 |
| (5,410) | | (84,512) | | 89,922 |
| — |
| (37,142) | | (95,739) | | 132,881 |
| — |
| — |
- Charge-offs |
| — | | — | | (198) |
| (198) |
| (443) | | (2,370) | | (165,651) |
| (168,464) |
| (168,662) |
- Changes due to modifications that did not result in derecognition |
| — | | (1,810) | | (1,279) |
| (3,089) |
| (156,731) | | (11,529) | | (2,906) |
| (171,166) |
| (174,255) |
New financial assets originated or purchased |
| 32,170 | | 80,355 | | 122,624 |
| 235,149 |
| 5,000,040 | | 1,070,353 | | 357,615 |
| 6,428,008 |
| 6,663,157 |
Financial assets that have been derecognized |
| (13,399) | | (73,546) | | (104,964) |
| (191,909) |
| (5,865,418) | | (508,072) | | (143,255) |
| (6,516,745) |
| (6,708,654) |
Net transfer (from) group to individually assessed | | 49,231 | | 170,722 | | 152,019 | | 371,972 | | (49,231) | | (170,722) | | (152,019) | | (371,972) | | — |
Foreign exchange and other movements |
| 25,096 | | 79,267 | | (37,840) |
| 66,523 |
| (275,404) | | (103,453) | | 49,003 |
| (329,854) |
| (263,331) |
Ending balances as of December 31, 2020 |
| 100,922 |
| 499,537 |
| 488,495 |
| 1,088,954 |
| 10,427,978 |
| 2,564,516 |
| 727,351 |
| 13,719,845 |
| 14,808,799 |
The following table presents the movements for the Commercial loans portfolio disaggregated by individually and group assessed loans for the year ended December 31, 2019:
| | | | | | | | | | | | | | | | | | |
| | Individually assessed | | Group assessed | ||||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | Stage 1 | | Stage 2 | | Stage 3 | | | | |
|
| 12-Month |
| Lifetime |
| Lifetime |
| |
| 12-Month |
| Lifetime |
| Lifetime |
| |
| |
|
| ECL | | ECL | | ECL | | Subtotals | | ECL | | ECL | | ECL | | Subtotals | | Totals |
| | | | | | | | | | | | | | | | | | |
Opening balances as of January 1, 2019 |
| — |
| 367,611 |
| 140,943 |
| 508,554 |
| 11,935,270 |
| 1,428,951 |
| 494,125 |
| 13,858,346 |
| 14,366,900 |
Changes in the allowances |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
| |
- Transfer to stage 1 |
| — | | — | | — |
| — |
| 158,836 | | (145,228) | | (13,608) |
| — |
| — |
- Transfer to stage 2 |
| — | | — | | — |
| — |
| (430,358) | | 454,203 | | (23,845) |
| — |
| — |
- Transfer to stage 3 |
| — | | (116,202) | | 116,202 |
| — |
| (85,689) | | (113,481) | | 199,170 |
| — |
| — |
- Charge-offs |
| — | | — | | (21,841) |
| (21,841) |
| (654) | | (1,314) | | (74,877) |
| (76,845) |
| (98,686) |
- Changes due to modifications that did not result in derecognition |
| — | | — | | — |
| — |
| — | | — | | — |
| — |
| — |
New financial assets originated or purchased |
| — | | 55,367 | | 32,129 |
| 87,496 |
| 4,901,848 | | 341,720 | | 115,347 |
| 5,358,915 |
| 5,446,411 |
Financial assets that have been derecognized |
| — | | (46,681) | | (11,754) |
| (58,435) |
| (4,049,247) | | (506,777) | | (149,445) |
| (4,705,469) |
| (4,763,904) |
Net transfer (from) group to individually assessed | | 20,807 | | 25,659 | | — | | 46,466 | | (20,807) | | (25,659) | | — | | (46,466) | | — |
Foreign exchange and other movements |
| — | | 35,734 | | 12,532 |
| 48,266 |
| 36,212 | | 293,402 | | 131,943 |
| 461,557 |
| 509,823 |
Ending balances as of December 31, 2019 |
| 20,807 |
| 321,488 |
| 268,211 |
| 610,506 |
| 12,445,411 |
| 1,725,817 |
| 678,810 |
| 14,850,038 |
| 15,460,544 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-80 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
The following table presents the movements of the Mortgage loans portfolio for the year ended December 31, 2020:
| | | | | | | | |
| | Group assessed | ||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | |
|
| 12-Month |
| Lifetime |
| Lifetime |
| |
|
| ECL | | ECL | | ECL | | Totals |
| | | | | | | | |
Opening balances as of January 1, 2020 |
| 4,043,765 |
| 656,010 |
| 176,266 |
| 4,876,041 |
Changes in the allowances |
|
|
|
|
|
|
| |
- Transfer to stage 1 |
| 265,412 | | (259,632) | | (5,780) |
| — |
- Transfer to stage 2 |
| (613,181) | | 669,912 | | (56,731) |
| — |
- Transfer to stage 3 |
| (7,706) | | (36,114) | | 43,820 |
| — |
- Charge-offs |
| — | | (63) | | (12,428) |
| (12,491) |
- Changes due to modifications that did not result in derecognition |
| (27,511) | | (6,693) | | 612 |
| (33,592) |
New financial assets originated or purchased |
| 971,616 | | 76,558 | | 2,117 |
| 1,050,291 |
Financial assets that have been derecognized |
| (411,059) | | (71,328) | | (22,524) |
| (504,911) |
Foreign exchange and other movements |
| (54,821) | | (2,729) | | (1,035) |
| (58,585) |
Ending balances as of December 31, 2020 |
| 4,166,515 |
| 1,025,921 |
| 124,317 |
| 5,316,753 |
The following table presents the movements of the Mortgage loans portfolio for the year ended December 31, 2019:
| | | | | | | | |
| | Group assessed | ||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | |
|
| 12-Month |
| Lifetime |
| Lifetime |
| |
|
| ECL | | ECL | | ECL | | Totals |
| | | | | | | | |
Opening balances as of January 1, 2019 |
| 3,626,811 |
| 659,119 |
| 159,897 |
| 4,445,827 |
Changes in the allowances |
|
|
|
|
|
|
| |
- Transfer to stage 1 |
| 112,611 | | (112,195) | | (416) |
| — |
- Transfer to stage 2 |
| (174,723) | | 210,287 | | (35,564) |
| — |
- Transfer to stage 3 |
| (12,815) | | (64,770) | | 77,585 |
| — |
- Charge-offs |
| (36) | | (115) | | (12,230) |
| (12,381) |
- Changes due to modifications that did not result in derecognition |
| — | | — | | — |
| — |
New financial assets originated or purchased |
| 763,342 | | 17,230 | | 2,298 |
| 782,870 |
Financial assets that have been derecognized |
| (330,014) | | (62,240) | | (20,063) |
| (412,317) |
Foreign exchange and other movements |
| 58,589 | | 8,694 | | 4,759 |
| 72,042 |
Ending balances as of December 31, 2019 |
| 4,043,765 |
| 656,010 |
| 176,266 |
| 4,876,041 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-81 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
The following table presents the movements of the Consumer loans portfolio for the year ended December 31, 2020:
| | | | | | | | |
| | Group assessed | ||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | |
|
| 12-Month |
| Lifetime |
| Lifetime |
| |
|
| ECL | | ECL | | ECL | | Totals |
| | | | | | | | |
Opening balances as of January 1, 2020 |
| 2,201,939 |
| 482,372 |
| 113,918 |
| 2,798,229 |
Changes in the allowances |
| | | | | |
| |
- Transfer to stage 1 |
| 165,739 |
| (154,065) |
| (11,674) |
| — |
- Transfer to stage 2 |
| (349,120) |
| 358,123 |
| (9,003) |
| — |
- Transfer to stage 3 |
| (25,131) |
| (21,321) |
| 46,452 |
| — |
- Charge-offs |
| (15,262) | | (35,795) | | (83,555) |
| (134,612) |
- Changes due to modifications that did not result in derecognition |
| (51,408) | | (7,108) | | 386 |
| (58,130) |
New financial assets originated or purchased |
| 826,956 | | 327,383 | | 48,844 |
| 1,203,183 |
Financial assets that have been derecognized |
| (948,463) | | (258,436) | | (30,123) |
| (1,237,022) |
Foreign exchange and other movements |
| (72,725) | | (4,454) | | (2,040) |
| (79,219) |
Ending balances as of December 31, 2020 |
| 1,732,525 |
| 686,699 |
| 73,205 |
| 2,492,429 |
The following table presents the movements of the Consumer loans portfolio for the year ended December 31, 2019:
| | | | | | | | |
| | Group assessed | ||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | |
|
| 12-Month |
| Lifetime |
| Lifetime |
| |
|
| ECL | | ECL | | ECL | | Totals |
| | | | | | | | |
Opening balances as of January 1, 2019 |
| 2,135,693 |
| 444,058 |
| 90,012 |
| 2,669,763 |
Changes in the allowances |
| | | | | |
| |
- Transfer to stage 1 |
| 121,007 |
| (114,560) |
| (6,447) |
| — |
- Transfer to stage 2 |
| (144,382) |
| 152,087 |
| (7,705) |
| — |
- Transfer to stage 3 |
| (15,399) |
| (14,314) |
| 29,713 |
| — |
- Charge-offs |
| (13,289) | | (21,433) | | (27,483) |
| (62,205) |
- Changes due to modifications that did not result in derecognition |
| — | | — | | — |
| — |
New financial assets originated or purchased |
| 822,217 | | 224,815 | | 67,019 |
| 1,114,051 |
Financial assets that have been derecognized |
| (645,261) | | (202,029) | | (31,943) |
| (879,233) |
Foreign exchange and other movements |
| (58,647) | | 13,748 | | 752 |
| (44,147) |
Ending balances as of December 31, 2019 |
| 2,201,939 |
| 482,372 |
| 113,918 |
| 2,798,229 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-82 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
b) | Portfolio characteristics |
The following table details the Bank's loan portfolio (before allowances) as of December 31, 2020 and 2019, by the customer's industry sector:
| | | | | | | | |
| | As of December 31, 2020 | ||||||
| | Local loans | | Foreign loans | | Totals | | Distribution percentage |
|
| MCh$ |
| MCh$ |
| MCh$ |
| % |
Commercial loans |
|
|
|
|
|
|
|
|
Manufacturing |
| 973,913 |
| 87,253 |
| 1,061,166 |
| 4.69% |
Mining |
| 336,354 |
| 198,635 |
| 534,989 |
| 2.37% |
Electricity, gas and water |
| 694,970 |
| 404,875 |
| 1,099,845 |
| 4.86% |
Agriculture and livestock |
| 328,563 |
| 166,191 |
| 494,754 |
| 2.19% |
Forestry and wood extraction |
| 51,348 |
| 4,674 |
| 56,022 |
| 0.25% |
Fishing |
| 31,461 |
| 4,273 |
| 35,734 |
| 0.16% |
Transport |
| 498,450 |
| 88,563 |
| 587,013 |
| 2.60% |
Communications |
| 52,911 |
| 3,254 |
| 56,165 |
| 0.25% |
Construction |
| 1,536,686 |
| 300,997 |
| 1,837,683 |
| 8.12% |
Commerce |
| 1,618,660 |
| 592,492 |
| 2,211,152 |
| 9.78% |
Services |
| 2,761,121 |
| 839,930 |
| 3,601,051 |
| 15.92% |
Others |
| 2,207,936 |
| 1,025,289 |
| 3,233,225 |
| 14.29% |
Subtotals |
| 11,092,373 |
| 3,716,426 |
| 14,808,799 |
| 65.48% |
Mortgage loans |
| 4,684,980 |
| 631,773 |
| 5,316,753 |
| 23.51% |
Consumer loans |
| 1,706,234 |
| 786,195 |
| 2,492,429 |
| 11.02% |
Totals |
| 17,483,587 |
| 5,134,394 |
| 22,617,981 |
| 100% |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-83 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
| | | | | | | | | |
| | As of December 31, 2019 | | ||||||
| | Local loans | | Foreign loans | | Totals | | Distribution percentage | |
|
| MCh$ |
| MCh$ |
| MCh$ |
| % | |
Commercial loans |
|
|
|
|
|
|
|
| |
Manufacturing |
| 988,739 |
| 111,000 |
| 1,099,739 |
| 4.75% | |
Mining |
| 292,263 |
| 259,352 |
| 551,615 |
| 2.38% | |
Electricity, gas and water |
| 685,749 |
| 439,792 |
| 1,125,541 |
| 4.87% | |
Agriculture and livestock |
| 309,648 |
| 174,295 |
| 483,943 |
| 2.09% | |
Forestry and wood extraction |
| 48,192 |
| 5,136 |
| 53,328 |
| 0.23% | |
Fishing |
| 42,397 |
| 4,505 |
| 46,902 |
| 0.20% | |
Transport |
| 478,737 |
| 80,534 |
| 559,271 |
| 2.42% | |
Communications |
| 25,209 |
| 9,717 |
| 34,926 |
| 0.15% | |
Construction |
| 1,757,874 |
| 348,955 |
| 2,106,829 |
| 9.11% | |
Commerce |
| 1,439,969 |
| 689,210 |
| 2,129,179 |
| 9.20% | |
Services |
| 2,864,307 |
| 1,080,264 |
| 3,944,571 |
| 17.05% | |
Others |
| 2,275,275 |
| 1,049,425 |
| 3,324,700 |
| 14.37% | |
Subtotals |
| 11,208,359 |
| 4,252,185 |
| 15,460,544 |
| 66.82% | |
Mortgage loans |
| 4,211,094 |
| 664,947 |
| 4,876,041 |
| 21.08% | |
Consumer loans |
| 1,923,745 |
| 874,484 |
| 2,798,229 |
| 12.10% | |
Totals |
| 17,343,198 |
| 5,791,616 |
| 23,134,814 |
| 100% | |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-84 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
c) | Allowances for loans losses |
Movements in allowances for loan losses during the years ended December 31, 2020 and 2019, are as follows:
| | | | | | | | | | | | | | | | | | |
| | Individually assessed | | Group assessed | ||||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | Stage 1 | | Stage 2 | | Stage 3 | | | | |
|
| 12-Month |
| Lifetime |
| Lifetime |
| |
| 12-Month |
| Lifetime |
| Lifetime |
| |
| |
|
| ECL | | ECL | | ECL | | Subtotals | | ECL | | ECL | | ECL | | Subtotals | | Totals |
Opening balances as of January 1, 2020 |
| — |
| (42,000) |
| (151,135) |
| (193,135) |
| (145,415) |
| (260,297) |
| (281,270) |
| (686,982) |
| (880,117) |
Changes in the allowances |
| — |
|
|
|
|
| |
|
|
|
|
|
|
| |
| |
- Net transfer to stage 1 |
| — |
| — |
| — |
| — |
| (49,315) |
| 39,672 |
| 9,643 |
| — |
| — |
- Net transfer to stage 2 |
| 82 |
| (82) |
| — |
| — |
| 19,402 |
| (36,007) |
| 16,605 |
| — |
| — |
- Net transfer to stage 3 |
| 63 |
| 9,055 |
| (9,118) |
| — |
| 2,280 |
| 28,404 |
| (30,684) |
| — |
| — |
- Increases due to change in credit risk |
| — |
| (8,381) |
| (43,940) |
| (52,321) |
| (28,719) |
| (64,496) |
| (138,605) |
| (231,820) |
| (284,141) |
- Decreases due to change in credit risk |
| — |
| 4,761 |
| 2,088 |
| 6,849 |
| 59,996 |
| 37,255 |
| 8,515 |
| 105,766 |
| 112,615 |
- Charge-offs |
| — |
| — |
| 198 |
| 198 |
| 1,390 |
| 14,707 |
| 158,261 |
| 174,358 |
| 174,556 |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| 789 |
| 789 |
| 789 |
New financial assets originated or purchased |
| (46) |
| (12,567) |
| (104,044) |
| (116,657) |
| (80,071) |
| (118,827) |
| (99,210) |
| (298,108) |
| (414,765) |
Financial assets that have been derecognized |
| 500 |
| 4,873 |
| 61,022 |
| 66,395 |
| 50,438 |
| 68,536 |
| 59,044 |
| 178,018 |
| 244,413 |
Net transfer (from) to group and individually assessed |
| — |
| 3,009 |
| (46,698) |
| (43,689) |
| — |
| (3,009) |
| 46,698 |
| 43,689 |
| — |
Foreign exchange and other movements |
| (645) |
| (24,948) |
| 36,509 |
| 10,916 |
| 4,553 |
| 13,652 |
| (24,344) |
| (6,139) |
| 4,777 |
Ending balances as of December 31, 2020 |
| (46) |
| (66,280) |
| (255,118) |
| (321,444) |
| (165,461) |
| (280,410) |
| (274,558) |
| (720,429) |
| (1,041,873) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-85 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
| | | | | | | | | | | | | | | | | | |
| | Individually assessed | | Group assessed | ||||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | Stage 1 | | Stage 2 | | Stage 3 | | | | |
|
| 12-Month |
| Lifetime |
| Lifetime |
| |
| 12-Month |
| Lifetime |
| Lifetime |
| |
| |
|
| ECL |
| ECL |
| ECL |
| Subtotals |
| ECL |
| ECL |
| ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2019 |
| — |
| (46,153) |
| (87,457) |
| (133,610) |
| (138,492) |
| (232,447) |
| (263,571) |
| (634,510) |
| (768,120) |
Changes in the allowances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
- Net transfer to stage 1 |
| — |
| — |
| — |
| — |
| (29,418) |
| 23,245 |
| 6,173 |
| — |
| — |
- Net transfer to stage 2 |
| — |
| — |
| — |
| — |
| 14,077 |
| (28,023) |
| 13,946 |
| — |
| — |
- Net transfer to stage 3 |
| — |
| 22,642 |
| (22,642) |
| — |
| 5,171 |
| 29,876 |
| (35,047) |
| — |
| — |
- Increases due to change in credit risk |
| — |
| (1,216) |
| (62,685) |
| (63,901) |
| (19,691) |
| (80,613) |
| (105,143) |
| (205,447) |
| (269,348) |
- Decreases due to change in credit risk |
| — |
| 7,758 |
| 1,096 |
| 8,854 |
| 51,409 |
| 39,540 |
| 11,452 |
| 102,401 |
| 111,255 |
- Charge-offs |
| — | | — |
| 13,891 |
| 13,891 |
| 983 |
| 7,631 |
| 144,859 |
| 153,473 |
| 167,364 |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| — |
| (12,496) |
| (7,376) |
| (19,872) |
| (73,009) |
| (91,324) |
| (98,595) |
| (262,928) |
| (282,800) |
Financial assets that have been derecognized |
| — |
| 1,824 |
| 3,152 |
| 4,976 |
| 49,158 |
| 62,668 |
| 82,517 |
| 194,343 |
| 199,319 |
Net transfer (from) to group and individually assessed |
| — |
| (933) |
| — |
| (933) |
| — |
| 933 |
| — |
| 933 |
| — |
Foreign exchange and other movements |
| — |
| (13,426) |
| 10,886 | | (2,540) |
| (5,603) |
| 8,217 |
| (37,861) |
| (35,247) |
| (37,787) |
Ending balances as of December 31, 2019 |
| — |
| (42,000) |
| (151,135) |
| (193,135) |
| (145,415) |
| (260,297) |
| (281,270) |
| (686,982) |
| (880,117) |
The following analysis details the movement on allowances by type of portfolio (commercial, mortgage and consumer) is as follow:
| | | | | | | | | | | | | | | | | | |
| | Individually assessed | | Group assessed | ||||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | Stage 1 | | Stage 2 | | Stage 3 | | | | |
|
| 12-Month |
| Lifetime |
| Lifetime |
| |
| 12-Month |
| Lifetime |
| Lifetime |
| |
| |
Commercial |
| ECL |
| ECL |
| ECL |
| Subtotals |
| ECL |
| ECL |
| ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2020 |
| — |
| (42,000) |
| (151,135) |
| (193,135) |
| (73,036) |
| (109,671) |
| (169,357) |
| (352,064) |
| (545,199) |
Changes in the allowances |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
| - |
- Net transfer to stage 1 |
| — |
| — |
| — |
| — |
| (10,902) |
| 9,080 |
| 1,822 |
| — |
| — |
- Net transfer to stage 2 |
| 82 |
| (82) |
| — |
| — |
| 6,731 |
| (10,831) |
| 4,100 |
| — |
| — |
- Net transfer to stage 3 |
| 63 |
| 9,055 |
| (9,118) |
| — |
| 797 |
| 15,934 |
| (16,731) |
| — |
| — |
- Increases due to change in credit risk |
| — |
| (8,381) |
| (43,940) |
| (52,321) |
| (18,554) |
| (33,761) |
| (102,904) |
| (155,219) |
| (207,540) |
- Decreases due to change in credit risk |
| — |
| 4,761 |
| 2,088 |
| 6,849 |
| 18,779 |
| 12,941 |
| 4,913 |
| 36,633 |
| 43,482 |
- Charge-offs |
| — |
| — |
| 198 |
| 198 |
| 72 |
| 305 |
| 86,507 |
| 86,884 |
| 87,082 |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| (869) |
| (869) |
| (869) |
New financial assets originated or purchased |
| (46) |
| (12,567) |
| (104,044) |
| (116,657) |
| (43,530) |
| (57,865) |
| (73,813) |
| (175,208) |
| (291,865) |
Financial assets that have been derecognized |
| 500 |
| 4,873 |
| 61,022 |
| 66,395 |
| 30,039 |
| 27,096 |
| 38,989 |
| 96,124 |
| 162,519 |
Net transfer (from) to group and individually assessed |
| — |
| 3,009 |
| (46,698) |
| (43,689) |
| — |
| (3,009) |
| 46,698 |
| 43,689 |
| — |
Foreign exchange and other movements |
| (645) |
| (24,948) |
| 36,509 |
| 10,916 |
| 1,524 |
| 23,238 |
| (30,905) |
| (6,143) |
| 4,773 |
Ending balances as of December 31, 2020 |
| (46) |
| (66,280) |
| (255,118) |
| (321,444) |
| (88,080) |
| (126,543) |
| (211,550) |
| (426,173) |
| (747,617) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-86 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
| | | | | | | | | | | | | | | | | | |
|
| Individually assessed | | Group assessed | ||||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | Stage 1 | | Stage 2 | | Stage 3 | | | | |
| | 12-Month | | Lifetime | | Lifetime | | | | 12-Month | | Lifetime | | Lifetime | | | | |
Commercial |
| ECL |
| ECL |
| ECL |
| Subtotals |
| ECL |
| ECL |
| ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2019 |
| — |
| (46,153) |
| (87,457) |
| (133,610) |
| (61,971) |
| (109,805) |
| (179,321) |
| (351,097) |
| (484,707) |
Changes in the allowances |
| — |
|
|
|
|
| |
|
|
|
|
|
|
| |
| |
- Net transfer to stage 1 |
| — |
| — |
| — |
| — |
| (9,243) |
| 7,555 |
| 1,688 |
| — |
| — |
- Net transfer to stage 2 |
| — |
| — |
| — |
| — |
| 6,626 |
| (10,260) |
| 3,634 |
| — |
| — |
- Net transfer to stage 3 |
| — |
| 22,642 |
| (22,642) |
| — |
| 1,927 |
| 11,340 |
| (13,267) |
| — |
| — |
- Increases due to change in credit risk |
| — |
| (1,216) |
| (62,685) |
| (63,901) |
| (13,071) |
| (32,280) |
| (46,212) |
| (91,563) |
| (155,464) |
- Decreases due to change in credit risk |
| — |
| 7,758 |
| 1,096 |
| 8,854 |
| 18,572 |
| 19,449 |
| 8,373 |
| 46,394 |
| 55,248 |
- Charge-offs |
| — |
| — |
| 13,891 |
| 13,891 |
| 28 |
| 179 |
| 68,119 |
| 68,326 |
| 82,217 |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| — |
| (12,496) |
| (7,376) |
| (19,872) |
| (36,672) |
| (35,008) |
| (45,007) |
| (116,687) |
| (136,559) |
Financial assets that have been derecognized |
| — |
| 1,824 |
| 3,152 |
| 4,976 |
| 23,152 |
| 28,514 |
| 58,013 |
| 109,679 |
| 114,655 |
Net transfer (from) to group and individually assessed |
| — |
| (933) |
| — |
| (933) |
| — |
| 933 |
| — |
| 933 |
| — |
Foreign exchange and other movements |
| — |
| (13,426) |
| 10,886 | | (2,540) |
| (2,384) |
| 9,712 |
| (25,377) |
| (18,049) |
| (20,589) |
Ending balances as of December 31, 2019 |
| — |
| (42,000) |
| (151,135) |
| (193,135) |
| (73,036) |
| (109,671) |
| (169,357) |
| (352,064) |
| (545,199) |
| | | | | | | | | | |
| | Group assessed | | | ||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | |
Mortgage |
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2020 |
| (5,680) |
| (49,072) |
| (23,749) |
| (78,501) |
| (78,501) |
Changes in the allowances |
| - |
| - |
|
|
| |
| |
- Transfer to stage 1 |
| (8,391) |
| 7,706 |
| 685 |
| — |
| — |
- Transfer to stage 2 |
| 1,243 |
| (8,157) |
| 6,914 |
| — |
| — |
- Transfer to stage 3 |
| 29 |
| 3,576 |
| (3,605) |
| — |
| — |
- Increases due to change in credit risk |
| (3,313) |
| (8,190) |
| (3,238) |
| (14,741) |
| (14,741) |
- Decreases due to change in credit risk |
| 6,499 |
| 4,572 |
| 2,870 |
| 13,941 |
| 13,941 |
- Charge-offs |
| — |
| 9 |
| 2,700 |
| 2,709 |
| 2,709 |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| 1,344 |
| 1,344 |
| 1,344 |
New financial assets originated or purchased |
| (2,010) |
| (1,626) |
| 5,948 |
| 2,312 |
| 2,312 |
Financial assets that have been derecognized |
| 557 |
| 2,561 |
| 2,198 |
| 5,316 |
| 5,316 |
Changes in models/risk parameters |
| — |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| 334 |
| 107 |
| (6,286) |
| (5,845) |
| (5,845) |
Ending balances as of December 31, 2020 |
| (10,732) |
| (48,514) |
| (14,219) |
| (73,465) |
| (73,465) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-87 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
| | | | | | | | | | |
| | Group assessed | | | ||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | |
Mortgage |
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2019 |
| (5,756) |
| (37,800) |
| (22,561) |
| (66,117) |
| (66,117) |
Changes in the allowances |
| - |
| - |
|
|
| |
|
|
- Transfer to stage 1 |
| (3,316) |
| 2,901 |
| 415 |
| — |
| — |
- Transfer to stage 2 |
| 484 |
| (5,430) |
| 4,946 |
| — |
| — |
- Transfer to stage 3 |
| 244 |
| 7,413 |
| (7,657) |
| — |
| — |
- Increases due to change in credit risk |
| (530) |
| (25,837) |
| (5,502) |
| (31,869) |
| (31,869) |
- Decreases due to change in credit risk |
| 4,200 |
| 8,916 |
| 2,564 |
| 15,680 |
| 15,680 |
- Charge-offs |
| — |
| 16 |
| 2,624 |
| 2,640 |
| 2,640 |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| (1,347) |
| (1,622) |
| (512) |
| (3,481) |
| (3,481) |
Financial assets that have been derecognized |
| 605 |
| 2,553 |
| 2,343 |
| 5,501 |
| 5,501 |
Changes in models/risk parameters |
| — |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| (264) |
| (182) |
| (409) |
| (855) |
| (855) |
Ending balances as of December 31, 2019 |
| (5,680) |
| (49,072) |
| (23,749) |
| (78,501) |
| (78,501) |
| | | | | | | | | | |
| | Group assessed | | | ||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | |
Consumer |
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2020 |
| (66,692) |
| (113,507) |
| (76,218) |
| (256,417) |
| (256,417) |
Changes in the allowances |
| — |
| — |
|
|
| |
| |
- Transfer to stage 1 |
| (30,022) |
| 22,886 |
| 7,136 |
| — | | — |
- Transfer to stage 2 |
| 11,428 |
| (17,019) |
| 5,591 |
| — |
| — |
- Transfer to stage 3 |
| 1,454 |
| 8,894 |
| (10,348) |
| — |
| — |
- Increases due to change in credit risk |
| (6,852) |
| (22,545) |
| (32,463) |
| (61,860) |
| (61,860) |
- Decreases due to change in credit risk |
| 34,718 |
| 19,742 |
| 732 |
| 55,192 |
| 55,192 |
- Charge-offs |
| 1,318 |
| 14,393 |
| 69,054 |
| 84,765 |
| 84,765 |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| 314 |
| 314 |
| 314 |
New financial assets originated or purchased |
| (34,531) |
| (59,336) |
| (31,345) |
| (125,212) |
| (125,212) |
Financial assets that have been derecognized |
| 19,842 |
| 38,879 |
| 17,857 |
| 76,578 |
| 76,578 |
Changes in models/risk parameters |
| — |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| 2,688 |
| 2,260 |
| 901 |
| 5,849 |
| 5,849 |
Ending balances as of December 31, 2020 |
| (66,649) |
| (105,353) | | (48,789) |
| (220,791) | | (220,791) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-88 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
| | | | | | | | | | |
| | Group assessed | | | ||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | | | |
Consumer |
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2019 |
| (70,765) |
| (84,842) |
| (61,689) |
| (217,296) |
| (217,296) |
Changes in the allowances |
| - |
| - |
|
|
| |
| |
- Transfer to stage 1 |
| (16,859) |
| 12,789 |
| 4,070 |
| — |
| — |
- Transfer to stage 2 |
| 6,968 |
| (12,334) |
| 5,366 |
| — |
| — |
- Transfer to stage 3 |
| 3,000 |
| 11,123 |
| (14,123) |
| — |
| — |
- Increases due to change in credit risk |
| (6,090) |
| (34,493) |
| (53,429) |
| (94,012) |
| (94,012) |
- Decreases due to change in credit risk |
| 28,637 |
| 11,175 |
| 515 |
| 40,327 |
| 40,327 |
- Charge-offs |
| 955 |
| 7,436 |
| 74,116 |
| 82,507 |
| 82,507 |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| (34,990) |
| (54,694) |
| (53,076) |
| (142,760) |
| (142,760) |
Financial assets that have been derecognized |
| 25,401 |
| 31,601 |
| 22,161 |
| 79,163 |
| 79,163 |
Changes in models/risk parameters |
| — |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| (2,949) |
| (1,268) |
| (129) |
| (4,346) |
| (4,346) |
Ending balances as of December 31, 2019 |
| (66,692) |
| (113,507) |
| (76,218) |
| (256,417) |
| (256,417) |
d) | Portfolio sales |
As of December 31, 2019, the Bank sold part of its current and written-off loan portfolios, recognizing a profit of Ch$6,004 million. During the year ended December 31, 2020, no sales of this type were performed. See detail in section d.1).
Additionally, as of December 31, 2020, the Bank sold part of its Government guaranteed students loan portfolio (Law No. 20,027) which generated a profit, net of provisions for loan losses, of Ch$6,476 million (Ch$8,584 million in 2019). The provisions for loan losses of the sold portfolio amount to Ch$2,123 million. See details in section d.2).
These results are included in the caption “Net income from financial operations” in the Consolidated Income Statement for that year (see Note 27).
d.1) Current and charged-off portfolios sales
As of December 31, 2019, the Bank and its subsidiaries derecognized 100% of its sold portfolio, thus complying with the requirements of the accounting policy for derecognizing financial assets and liabilities as set forth in Note 1, letter k), section iv) of these Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, 2020 | | For the year ended December 31, 2019 | ||||||||||||||||
| | | | | | | | Adjustment | | Net effect on | | | | | | | | Adjustment | | Net effect on |
Portfolio |
| Loan Value |
| Allowances |
| Sale price |
| to EIR |
| income |
| Loan Value |
| Allowances |
| Sale price |
| to EIR |
| income |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Current | | — | | — | | — | | — | | — | | 14,231 | | (14,113) | | 4,130 | | (207) | | 3,805 |
Charged-off | | — | | — | | — | | — | | — | | — | | — | | 2,199 | | — | | 2,199 |
Totals | | — | | — | | — | | — | | — | | 14,231 | | (14,113) | | 6,329 | | (207) | | 6,004 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-89 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 10 - Loans and Accounts Receivable from Customers, continued
d.2) CAE portfolio sale
For the year ended on December 31, 2020, gains recognized from sales of the portfolio amount to MCh$6,476 (MCh$8,584 for the year ended December 31, 2019). These amounts are presented in the Consolidated Statement of Income (Loss) under the line item “Net income from financial operations”. The portion to be deferred amounts to MCh$6,717 as of December 31, 2020 (MCh$9,079 as of December 31, 2019) and is recognized as interest income throughout the term of each loan by applying the effective interest rate method, according to IFRS 9.
| | | | | | | | | | | | | | | | | | | | |
|
| For the year ended December 31, 2020 |
| For the year ended December 31, 2019 | ||||||||||||||||
| | | | | | | | Adjustment | | Net effect on | | | | | | | | Adjustment | | Net effect on |
Portfolio |
| Loan Value |
| Allowances |
| Sale price |
| to EIR |
| income |
| Loan Value |
| Allowances |
| Sale price |
| to EIR |
| income |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
CAE |
| 81,697 |
| 2,123 |
| 92,767 |
| 6,717 |
| 6,476 |
| 103,201 |
| (849) |
| 120,015 |
| 9,079 |
| 8,584 |
e) | Lease |
As of December 31, 2020 and 2019, the Bank’s scheduled cash flows to be received from finance lease contracts have the following maturities:
| | | | | | | | | | | | |
| | Total receivable | | Unearned income | | Net lease receivable | ||||||
| | As of December 31, | | As of December 31, | | As of December 31, | ||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Up to one month |
| 30,141 |
| 13,793 |
| 144 |
| 7 |
| 29,997 |
| 13,786 |
More than 1 month to 3 months |
| 3,400 |
| 4,033 |
| 86 |
| 54 |
| 3,314 |
| 3,979 |
More than 3 months up to 1 year |
| 38,446 |
| 39,184 |
| 1,525 |
| 1,839 |
| 36,921 |
| 37,345 |
More than 1 year up to 3 years |
| 189,921 |
| 263,280 |
| 11,253 |
| 23,286 |
| 178,668 |
| 239,994 |
More than 3 years up to 6 years |
| 338,156 |
| 413,066 |
| 42,164 |
| 71,543 |
| 295,992 |
| 341,523 |
More than 6 years |
| 1,121,390 |
| 1,172,198 |
| 416,252 |
| 463,916 |
| 705,138 |
| 708,282 |
Totals |
| 1,721,454 |
| 1,905,554 |
| 471,424 |
| 560,645 |
| 1,250,030 |
| 1,344,909 |
| | | | |
| | As of December 31, | ||
Leasing transactions | | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Commercial |
| 940,989 |
| 1,005,209 |
Mortgage |
| 307,574 |
| 336,587 |
Consumer |
| 1,467 |
| 3,113 |
Totals |
| 1,250,030 |
| 1,344,909 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-90 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 11 – Investment instruments
a) | Investment instruments at fair value through other comprehensive income and at amortized cost |
As of December 31, 2020 and 2019, the detail of financial instruments measured at FVOCI and at amortized cost is as follows:
| | | | | | | | | | | | |
| | As of December 31, 2020 | | As of December 31, 2019 | ||||||||
| | At FVOCI | | At amortized cost | | Totals | | At FVOCI | | At amortized cost | | Totals |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Debt instruments | | 3,960,104 | | 111,542 | | 4,071,646 | | 3,588,214 | | 115,658 | | 3,703,872 |
Equity instruments | | 10,795 | | — | | 10,795 | | 10,676 | | — | | 10,676 |
Totals | | 3,970,899 | | 111,542 | | 4,082,441 | | 3,598,890 | | 115,658 | | 3,714,548 |
b) | Debt instruments at fair value through other comprehensive income and at amortized cost |
As of December 31, 2020 and 2019, the detail of financial instruments measured at FVOCI and at amortized cost is as follows:
| | | | | | | | | | | | |
| | As of December 31, 2020 | | As of December 31, 2019 | ||||||||
| | At FVOCI | | At amortized cost | | Totals | | At FVOCI | | At amortized cost | | Totals |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Securities quoted in active markets | |
|
|
|
|
| | | | | | |
Chilean Central Bank and Government securities | |
|
|
|
|
| | | | | | |
Chilean Central Bank instruments | | 1,170,841 |
| — |
| 1,170,841 | | 477,900 | | — | | 477,900 |
Chilean Treasury bonds | | 1,783,765 |
| — |
| 1,783,765 | | 1,609,397 | | — | | 1,609,397 |
Other goverment securities | | 101,573 |
| — |
| 101,573 | | 86,981 | | — | | 86,981 |
Other local institutions financial instruments | |
|
|
|
| | | | | | | |
Time deposits in local banks | | 14,856 |
| — |
| 14,856 | | 412,962 | | — | | 412,962 |
Mortgage finance bonds | | 30 |
| — |
| 30 | | 41 | | — | | 41 |
Chilean financial institutions bonds | | 277,163 |
| — |
| 277,163 | | 118,583 | | — | | 118,583 |
Other local financial investments | | — |
| — |
| — | | — | | — | | — |
Foreign institutions financial instruments | |
|
|
|
| | | | | | | |
Foreign Governments and Central Banks financial instruments | | 217,185 |
| — |
| 217,185 | | 165,927 | | — | | 165,927 |
Other foreign financial instruments | | 394,691 |
| 111,542 |
| 506,233 | | 716,423 | | 115,658 | | 832,081 |
Investments not quoted in active markets |
|
|
|
|
| — |
|
|
|
|
| — |
Corporate bonds | | — |
| — |
| — | | — | | — | | — |
Totals |
| 3,960,104 |
| 111,542 |
| 4,071,646 |
| 3,588,214 |
| 115,658 |
| 3,703,872 |
As of December 31, 2020 this total includes MCh$1,205,711, included in Note 5 “Cash and cash equivalents,” which corresponds to those financial instruments with maturities that do not exceed three months from their dates of acquisition.
As of December 31, 2020, the portfolio at FVTOCI includes an unrealized gain of MCh$42,407, presented in Equity as valuation accounts, distributed among a gain of MCh$34,814 attributable to equity holders and a gain of MCh$7,593 attributable to non-controlling interest.
As of December 31, 2020, the portfolio of financial instruments at FVTOCI includes financial instruments for an amount of Ch$319,213 million pledged as collateral to the Central Bank of Chile (BCCh) in order to access the new Conditional Funding Facility (FCIC). This program was implemented by the BCCh as a measure to support liquidity and credit access as a response to the financial needs generated by the Covid-19 pandemic. Further disclosures on FCIC are included in Note 19 and Note 23.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-91 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 11 – Investment instruments, continued
c) | Impairment of debt instruments at fair value through other comprehensive income and at amortized cost |
As of December 31, 2020 and 2019 the portfolios of debt securities classified as investment instruments at fair value through other comprehensive income includes impairment movements as summarized below:
| | | | | | | | |
| | Financial instruments at FVOCI | | | ||||
| | Stage 1 | | Stage 2 | | Stage 3 | | |
|
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Totals |
Opening balances as of January 1, 2020 |
| (2,310) |
| — |
| — |
| (2,310) |
Changes in the allowances |
|
|
|
|
|
|
| |
- Transfer to stage 1 |
| — |
| — |
| — |
| — |
- Transfer to stage 2 |
| — |
| — |
| — |
| — |
- Transfer to stage 3 |
| — |
| — |
| — |
| — |
- Increases due to change in credit risk |
| (210) |
| — |
| — |
| (210) |
- Decreases due to change in credit risk |
| 1,127 |
| — |
| — |
| 1,127 |
- Charge-Offs |
| — |
| — |
| — |
| — |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| (40) |
| — |
| — |
| (40) |
Financial assets that have been derecognized |
| 522 |
| — |
| — |
| 522 |
Changes in models/risk parameters |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| — |
| — |
| — |
| — |
Ending balances as of December 31, 2020 |
| (911) |
| — |
| — |
| (911) |
| | | | | | | | |
| | Financial instruments at FVOCI | | | ||||
| | Stage 1 | | Stage 2 | | Stage 3 | | |
|
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Totals |
Opening balances as of January 1, 2019 |
| (134) |
| — |
| — |
| (134) |
Changes in the allowances |
|
|
|
|
|
|
| |
- Transfer to stage 1 |
| — |
| — |
| — |
| — |
- Transfer to stage 2 |
| — |
| — |
| — |
| — |
- Transfer to stage 3 |
| — |
| — |
| — |
| — |
- Increases due to change in credit risk |
| — |
| — |
| — |
| — |
- Decreases due to change in credit risk |
| — |
| — |
| — |
| — |
- Charge-Offs |
| — |
| — |
| — |
| — |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| (2,195) |
| — |
| — |
| (2,195) |
Financial assets that have been derecognized |
| 19 |
| — |
| — |
| 19 |
Changes in models/risk parameters |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| — |
| — |
| — |
| — |
Ending balances as of December 31, 2019 | | (2,310) | | — | | — | | (2,310) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-92 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 11 – Investment instruments, continued
As of December 31, 2020 and 2019 the portfolios of investment instruments at amortized cost includes impairment movements as summarized below:
| | | | | | | | |
| | Financial instruments at Amortized cost | | | ||||
| | Stage 1 | | Stage 2 | | Stage 3 | | |
|
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Totals |
Opening balances as of January 1, 2020 |
| (24) |
| — |
| — |
| (24) |
Changes in the allowances |
|
|
|
|
|
|
| |
- Transfer to stage 1 |
| — |
| — |
| — |
| — |
- Transfer to stage 2 |
| — |
| — |
| — |
| — |
- Transfer to stage 3 |
| — |
| — |
| — |
| — |
- Increases due to change in credit risk |
| — |
| — |
| — |
| — |
- Decreases due to change in credit risk |
| — |
| — |
| — |
| — |
- Charge-offs |
| — |
| — |
| — |
| — |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| (86) |
| — |
| — |
| (86) |
Financial assets that have been derecognized |
| 9 |
| — |
| — |
| 9 |
Changes in models/risk parameters |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| — |
| — |
| — |
| — |
Ending balances as of December 31, 2020 |
| (101) |
| — | | — |
| (101) |
| | | | | | | | |
|
| Financial instruments at Amortized cost | | | ||||
| | Stage 1 | | Stage 2 | | Stage 3 | | |
|
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Totals |
Opening balances as of January 1, 2019 |
| (13) |
| — |
| — |
| (13) |
Changes in the allowances |
|
|
|
|
|
|
|
|
- Transfer to stage 1 |
| — |
| — |
| — |
| — |
- Transfer to stage 2 |
| — |
| — |
| — |
| — |
- Transfer to stage 3 |
| — |
| — |
| — |
| — |
- Increases due to change in credit risk |
| — |
| — |
| — |
| — |
- Decreases due to change in credit risk |
| — |
| — |
| — |
| — |
- Charge-offs |
| — |
| — |
| — |
| — |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| (24) |
| — |
| — |
| (24) |
Financial assets that have been derecognized |
| 13 |
| — |
| — |
| 13 |
Changes in models/risk parameters |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| — |
| — |
| — |
| — |
Ending balances as of December 31, 2019 |
| (24) |
| — | | — |
| (24) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-93 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 11 – Investment instruments, continued
d) | Unrealized gains and losses of the portfolio at FVTOCI |
Unrealized gains and losses of the FVTOCI portfolio as of December 31, 2020 and 2019 are detailed as follows:
| | | | | | | | | | | | | | | | |
| | As of December 31, 2020 |
| As of December 31, 2019 | ||||||||||||
| | Acquisition | | Unrealized | | Fair | | Acquisition | | Unrealized | | Fair | ||||
|
| cost |
| Gain |
| Losses |
| value |
| cost |
| Gain |
| Losses |
| value |
| | | | | | | | | | | | | | | | |
Securities quoted in active markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank and Government securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank instruments |
| 1,171,350 |
| 29 |
| (538) |
| 1,170,841 |
| 477,127 |
| 2,023 |
| (1,250) |
| 477,900 |
Chilean Treasury bonds |
| 1,781,626 |
| 8,989 |
| (6,850) |
| 1,783,765 |
| 1,593,550 |
| 19,865 |
| (4,018) |
| 1,609,397 |
Other government securities |
| 96,924 |
| 4,409 |
| 240 |
| 101,573 |
| 86,454 |
| 626 |
| (99) |
| 86,981 |
Other local institutions financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits in local banks |
| 14,622 |
| 252 |
| (18) |
| 14,856 |
| 412,936 |
| 85 |
| (59) |
| 412,962 |
Mortgage finance bonds |
| 29 |
| 1 |
| — |
| 30 |
| 40 |
| 1 |
| — |
| 41 |
Chilean financial institutions bonds |
| 273,028 |
| 4,135 |
| — |
| 277,163 |
| 117,641 |
| 1,008 |
| (66) |
| 118,583 |
Foreign institutions financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Governments and Central Banks financial instruments |
| 193,389 |
| 23,848 |
| (52) |
| 217,185 |
| 160,481 |
| 5,520 |
| (74) |
| 165,927 |
Other foreign financial instruments |
| 391,058 |
| 3,724 |
| (91) |
| 394,691 |
| 697,663 |
| 18,965 |
| (205) |
| 716,423 |
Investments not quoted in active markets | �� |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Equity instruments | | | | | | | | | | | | | | | | |
Unlisted securities | | 6,466 | | 4,329 | | — | | 10,795 | | 6,965 | | 3,711 | | — | | 10,676 |
Totals |
| 3,928,492 |
| 49,716 |
| (7,309) |
| 3,970,899 |
| 3,552,857 |
| 51,804 |
| (5,771) |
| 3,598,890 |
e) | Equity instruments at fair value through other comprehensive income |
As of December 31, 2020 and 2019 the portfolio of equity investment instruments at fair value through comprehensive income are detail as follows:
| | | | |
|
| 2020 |
| 2019 |
Unlisted securities | | MCh$ | | MCh$ |
Domestic entities |
|
|
|
|
Stock Exchanges |
| 4,616 |
| 4,990 |
| | | | |
Foreign entities |
|
|
|
|
A.C.H Colombia |
| 1,173 |
| 989 |
Redeban Multicolor S.A. |
| 717 |
| 634 |
Cámara de Compensación Divisas de Colombia S.A. |
| 309 |
| 270 |
Cámara de Riesgo Central de Contraparte S.A. (*) |
| — |
| 160 |
Bolsa de Valores de Colombia |
| 969 |
| 781 |
Credibanco |
| 2,990 |
| 2,831 |
Others |
| 21 |
| 21 |
Totals |
| 10,795 |
| 10,676 |
(*) In August 2020, the Cámara de Riesgo Central de Contraparte S.A. participation was sold, corresponding to 2.43% of the total equity, generating a profit of Ch$449 million recorded in income from investments in companies.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-94 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 11 – Investment instruments, continued
Amounts recognized in profit and loss and other comprehensive income
For the years ended December 31, 2020 and 2019, the following gains and losses were recognized in profit or loss and other comprehensive income:
| | | | |
|
| 2020 |
| 2019 |
| | MCh$ | | MCh$ |
Dividends from equity investments held at FVOCI recognized in profit or loss |
| 979 |
| 904 |
Related to investments derecognized during the period |
| 56,838 |
| 35,489 |
Related to investments held at the end of the reporting period |
| — |
| — |
Totals |
| 57,817 |
| 36,393 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-95 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 12 – Investments in Associates
In 2019, the Bank gained significant influence over Nexus S.A. and Transbank S.A. Management concluded that, by the election of one of the Board members for each one on these entities, in addition to other factors, such as material transactions between the Bank and these entities, exchange of essential technical information with its investees and other factors, the Bank has the power to participate in the financial and operating policy decisions of these investees, but does not control them. Consequently, the equity method has been applied.
a) | As of December 31, 2020 and 2019, investments in associates are as follows: |
| | | | | | | | | | | | |
| | | Investment | | | | Investment | |||||
| Entity's share | | Investment amount | | Income | | Entity's share | | Investment amount | | Income | |
| as of December 31, | | as of December 31, | | as of December 31, |
| as of December 31, | | as of December 31, | | as of December 31, | |
Entity | 2020 |
| 2020 |
| 2020 | | 2019 |
| 2019 |
| 2019 |
|
| % | | MM$ |
| MM$ | | % | | MM$ |
| MM$ |
|
Nexus S.A (**) | 14.8148 | % | 1,278 |
| (1,341) | | 12.9000 | % | 2,281 |
| (133) |
|
Transbank S.A (*) | 8.7188 | % | 5,871 | | (1,453) | | 8.7188 | % | 7,324 | | 665 | |
Totals | 23.63 | | 7,149 |
| (2,794) | | | | 9,605 |
| 532 |
|
(*) In 2019, these investments were previously classified as “Financial instruments at fair value through profit or loss” and classified as associates since significant influence was gained. Acquisition cost is deemed to be equivalent to the fair value of each investment as of the date in which it became an associate.
(**) On January 22, 2020, Itaú Corpbanca acquired 79,577 shares of Nexus S.A., corresponding to a 1.9148% participation over the total equity. With this transaction, the Bank's total participation increased to 14.8148%.
b) | Summarized financial information of associates as of December 31, 2020 and 2019: |
| | | | | | | | | | | | | | | | |
| As of December 31, | | As of December 31, | | ||||||||||||
| 2020 | | 2019 |
| ||||||||||||
| Assets |
| Liabilities |
| Equity | | Loss | | Assets | | Liabilities |
| Equity |
| Income |
|
| MCh$ |
| MCh$ |
| MCh$ | | MCh$ | | MCh$ | | MCh$ |
| MCh$ |
| MCh$ |
|
Nexus S.A | 19,210 | | 10,585 | | 17,676 | | (9,051) | | 31,147 | | 13,472 |
| 4,097 |
| 13,578 |
|
Transbank S.A | 1,006,137 | | 938,800 | | 84,007 | | (16,670) | | 1,217,448 | | 1,134,781 | | 69,265 | | 13,402 | |
Totals | 1,025,347 |
| 949,385 |
| 101,683 | | (25,721) | | 1,248,595 | | 1,148,253 |
| 73,362 |
| 26,980 |
|
c) | During the year ended December 31, 2020 and 2019, the Bank received dividends from its associates, as detailed below: |
| | | |
| 2020 | | 2019 |
| MCh$ | | MCh$ |
Dividends received (*) | — | | 268 |
Totals | — | | 268 |
(*) Dividends for the year ended December 31, 2019 are considered as received before significant influence was obtained, thus are presented under “Net income from financial operations” in the Consolidated Statement of Income (Loss) in accordance with the previous classification and measurement as financial instruments at fair value through profit and loss according with IFRS 9.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-96 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 12 – Investments in Associates, continued
d) | Investment in associates movements for the years ended December 31, 2020 and 2019 are as follows: |
| | | |
| 2020 | | 2019 |
| MCh$ | | MCh$ |
Balances as of January 1, | 9,605 | | — |
Investment acquisition | 338 | | — |
Sale of investments | — | | — |
Initial application of the equity method (*) | — | | 9,073 |
Participation in income | (2,794) | | 532 |
Totals | 7,149 | | 9,605 |
(*) As indicated in a) above “significant influence” was gained in 2019, thus the equity method was initially applied that year.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-97 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
a) | Composition of intangibles assets as of December 31, 2020 and 2019 is as follows: |
| | | | | | | | | | | | |
| | | | Remaining | | Net assets as | | | | | | Net assets as |
| | Useful | | amortization | | of January 1, | | Gross | | Accumulated | | of December |
Concept |
| life years |
| years |
| 2020 |
| balance |
| amortization |
| 31, 2020 |
| | | | | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Computer equipment system or software |
| 5 |
| 4 |
| 179,743 |
| 221,070 |
| (94,407) |
| 126,663 |
IT projects and licenses |
| 2 |
| 2 |
| 5,192 |
| 13,484 |
| (654) |
| 12,830 |
Assets generated in business combination |
|
|
|
|
| 1,388,302 |
| 681,556 |
| (103,053) |
| 578,503 |
Goodwill |
| — |
| — |
| 1,151,019 |
| 492,512 |
| — |
| 492,512 |
Trademarks |
| 10 |
| 5 |
| 31,898 |
| 51,037 |
| (24,243) |
| 26,794 |
Customer relationship |
| 10 |
| 5 |
| 63,317 |
| 26,371 |
| (12,526) |
| 13,845 |
Core deposits |
| 8 |
| 3 |
| 142,068 |
| 111,636 |
| (66,284) |
| 45,352 |
Other projects |
| 10 |
| 4 |
| 1,196 |
| 4,055 |
| (3,368) |
| 687 |
Totals |
|
|
|
|
| 1,574,433 |
| 920,165 |
| (201,482) |
| 718,683 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | Remaining | | Net assets as | | | | | | Net assets as |
|
| Useful |
| amortization |
| of January 1, |
| Gross |
| Accumulated |
| of December |
Concept |
| life years |
| years |
| 2019 |
| balance |
| amortization |
| 31, 2019 |
|
| | | | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Computer equipment system or software |
| 6 |
| 3 |
| 151,840 |
| 314,200 |
| (134,457) |
| 179,743 |
IT projects and licenses |
| 6 |
| 2 |
| 12,614 |
| 33,352 |
| (28,160) |
| 5,192 |
Assets generated in business combination |
|
|
|
| | 1,406,016 |
| 1,544,767 |
| (156,465) |
| 1,388,302 |
Goodwill |
| — |
| — |
| 1,135,392 |
| 1,151,019 |
| — |
| 1,151,019 |
Trademarks |
| 10 |
| 8 |
| 37,002 |
| 51,459 |
| (19,561) |
| 31,898 |
Customer relationship |
| 12 |
| 10 |
| 69,259 |
| 98,268 |
| (34,951) |
| 63,317 |
Core deposits |
| 9 |
| 7 |
| 164,363 |
| 244,021 |
| (101,953) |
| 142,068 |
Other projects |
| 10 |
| 1 |
| 494 |
| 4,055 |
| (2,859) |
| 1,196 |
Totals |
| | | | | 1,570,964 |
| 1,896,374 |
| (321,941) |
| 1,574,433 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-98 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 13 - Intangible assets, continued
b) | Movements on gross balances of intangible assets as of December 31, 2020 and 2019 are as follows: |
| | | | | | | | | | | | |
|
| Computer |
| |
| Assets |
| |
| |
| |
|
| equipment |
| |
| generated in | | | | | | |
|
| system or | | IT projects |
| business | | | | | | |
|
| software | | and licenses |
| combination | | Goodwill | | Other projects | | Total |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Opening balances as of January 1, 2020 |
| 314,200 |
| 33,352 |
| 393,748 |
| 1,151,019 |
| 4,055 |
| 1,896,374 |
Additions |
| 43,747 |
| 12,002 |
| — |
| — |
| — |
| 55,749 |
Disposals | | (47,746) | | (8,388) | | — | | — | | — | | (56,134) |
Impairment (1) (2) (3) | | (67,363) | | (32,334) | | (195,596) | | (651,825) | | — | | (947,118) |
Reclassifications | | (9,752) | | 9,752 | | — | | — | | — | | — |
Exchange differences |
| (12,016) |
| (900) | | (9,108) |
| (6,682) | | — |
| (28,706) |
Ending balances as of December 31, 2020 |
| 221,070 |
| 13,484 |
| 189,044 |
| 492,512 |
| 4,055 |
| 920,165 |
(1) | Impairment loss on "Computer equipment software or system" and "IT projects and licenses" was recorded due to the systems integration; mainly due to the derecognition of the systems from Corpbanca. Impairment on Computer equipment system or software recorded in the Chile CGU had a net effect of Ch$31,426 million (Ch$59,525 million on the gross value of the asset and Ch$28,099 million on accumulated amortization). Impairment on System and software recorded in the Colombia CGU had a net effect of Ch$4,325 million (Ch$7,838 million on the gross value of the asset and Ch$3,513 million). Finally, impairment on IT projects and licenses recorded in the Chile CGU had a net effect of Ch$3,098 million (Ch$32,334 million gross value of the asset and Ch$29,236 million in accumulated amortization). |
(2) | Impairment loss on intangible assets generated in business combinations recorded in the Colombia CGU had a net effect of Ch$113,911 million (Ch$195,596 million on the gross value of the asset and Ch$81,685 million on accumulated amortization). (, which is broken down between an effect on the gross balance of and an effect on the accumulated amortization of. Itaú Corpbanca Colombia recognized an impairment for the gross value of the asset of Ch$193,761 million and Ch$80,623 million in accumulated amortization, generating a loss effect of Ch$113,138 million, as a result. Itaú Corredor de Seguro Colombia recognized an impairment for the gross asset value of Ch$1,835 million and Ch$1,062 million in accumulated amortization, generating a loss effect of Ch$773 million. |
(3) | Goodwill impairment was allocated between the Chile CGU in Ch$412,356 million and the Colombia CGU in Ch$239,469 million.See additional disclosures in Note 32. |
| | | | | | | | | | | | |
| | Computer | | | | Assets | | | | | | |
|
| equipment |
| |
| generated in | | | | | | |
|
| system or | | IT projects |
| business | | | | | | |
|
| software | | and licenses |
| combination | | Goodwill | | Other projects | | Total |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Opening balances as of January 1, 2019 |
| 263,179 |
| 42,601 |
| 383,207 |
| 1,135,392 |
| 3,645 |
| 1,828,024 |
Additions |
| 53,140 |
| 80 |
| — |
| — |
| — |
| 53,220 |
Exchange differences |
| 5,308 |
| 20 |
| 12,876 |
| 15,627 |
| — |
| 33,831 |
Others | | (7,427) |
| (9,349) |
| (2,335) |
| — |
| 410 | | (18,701) |
Ending balances as of December 31, 2019 |
| 314,200 | | 33,352 | | 393,748 | | 1,151,019 | | 4,055 |
| 1,896,374 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-99 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 13 - Intangible assets, continued
c) | Movements on accumulated amortization of intangible assets for the years ended December 31, 2020 and 2019 are as follows: |
| | | | | | | | | | |
| | Computer |
| |
| Assets | | |
| |
|
| equipment |
| |
| generated in | | | | |
|
| system or | | IT projects |
| business | | | | |
| | software | | and licenses | | combination | | Other projects | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Opening balances as of January 1, 2020 |
| (134,457) |
| (28,160) |
| (156,465) | | (2,859) |
| (321,941) |
Amortization for the year |
| (40,632) |
| (1,748) |
| (31,736) | | (509) |
| (74,625) |
Disposals | | 44,490 | | — | | — | | — | | 44,490 |
Impairment (1) (2) | | 31,612 |
| 29,236 |
| 81,685 | | — |
| 142,533 |
Exchange differences |
| 4,580 | | 18 | | 3,463 | | — | | 8,061 |
Ending balances as of December 31, 2020 |
| (94,407) |
| (654) |
| (103,053) | | (3,368) |
| (201,482) |
(1) | Impairment loss on "Computer equipment software or system" and "IT projects and licenses" was recorded due to the systems integration; caused by the usage discontinuation of the Corpbanca systems. Impairment on Computer equipment system or software recorded in the Chile CGU had a net effect of loss Ch$31,426 million (Ch$59,525 million on the gross value of the asset and Ch$28,099 million on accumulated amortization). Impairment on System and software recorded in the Colombia CGU had a net effect of Ch$4,325 million (Ch$7,838 million on the gross value of the asset and Ch$3,513 in accumulated amortization). Finally, impairment on IT projects and licenses recorded in the Chile CGU had a net effect of Ch$3,098 million ( Ch$32,334 million on the gross asset value of and Ch$29,236 million in accumulated amortization). |
(2) | Impairment loss on intangible assets generated in business combinations recorded in the Colombia CGU had a net effect of Ch$113,911 million ( Ch$195,596 million on the gross value of the asset and Ch$81,685 million on the accumulated amortization). |
| | | | | | | | | | |
| | Computer | | | | Assets | | | | |
|
| equipment |
| |
| generated in | | | | |
|
| system or | | IT projects |
| business | | | | |
| | software | | and licenses | | combination | | Other projects | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Opening balances as of January 1, 2019 |
| (111,339) |
| (29,987) |
| (112,583) | | (3,151) |
| (257,060) |
Amortization for the year |
| (30,363) |
| (2,809) |
| (40,816) | | (152) |
| (74,140) |
Disposals | | 3 | | — | | — | | — | | 3 |
Exchange differences |
| (2,995) | | (14) | | (4,648) | | — |
| (7,657) |
Others | | 10,237 |
| 4,650 |
| 1,582 | | 444 | | 16,913 |
Ending balances as of December 31, 2019 |
| (134,457) | | (28,160) | | (156,465) | | (2,859) |
| (321,941) |
d) | Impairment |
Itaú Corpbanca evaluates, at the end of each reporting period, whether there is any indication of impairment of any asset (including Goodwill). If this indication exists, or when an impairment test is required, the Bank estimates the recoverable amount of the asset.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-100 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 13 - Intangible assets, continued
As indicated in Note 3 “Significant events”, an impairment test was performed as of June 30, 2020 and, as a result, impairment losses were recorded for intangible assets generated in the business combination and Goodwill for Ch$113,911 million and Ch$651,825 million, respectively. See additional information in Note 32.
Since the merger of CorpBanca and Itaú Chile, the Bank has utilized systems of both institutions in order to manage its operations entities and has established an integration plan to eliminate duplication and improve efficiency. During the 2020 financial year, the migration project in relation to this integration process was substantially completed, and an impairment of Ch$38,849 million has been recognized, corresponding to systems and licenses that will not continue to be used.
e) | Restrictions |
Itaú Corpbanca and its subsidiaries have no restrictions on intangible assets as of December 31, 2020 and December 31, 2019. In addition, no intangible assets have been pledged as collateral to secure the fulfillment of any obligations.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-101 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 14 - Property, plant and equipment
a) | Property, plant and equipment as of December 31, 2020 and 2019 are broken down as follows. |
| | | | | | | | | | | | |
| | | | Remaining | | Net assets as | | | | | | Net assets |
| | Useful life | | depreciation | | of January | | Gross | | Accumulated | | as of December |
|
| years |
| years |
| 1, 2020 |
| Balance |
| depreciation |
| 31, 2020 |
| | | | | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Land and buildings |
| 19 |
| 14 |
| 50,222 |
| 76,818 |
| (36,658) |
| 40,160 |
Equipment |
| 3 |
| 1 |
| 27,551 |
| 85,404 |
| (57,754) |
| 27,650 |
Others |
| 3 |
| 2 |
| 17,307 |
| 35,664 |
| (22,859) |
| 12,805 |
Furniture |
|
| | |
| 8,879 |
| 21,203 |
| (14,217) |
| 6,986 |
Others |
|
|
|
|
| 8,428 |
| 14,461 |
| (8,642) |
| 5,819 |
Totals |
|
|
|
|
| 95,080 |
| 197,886 |
| (117,271) |
| 80,615 |
| | | | | | | | | | | | |
| | | | Remaining | | Net assets as | | | | | | Net assets |
| | Useful life | | depreciation | | of January | | Gross | | Accumulated | | as of December |
|
| years |
| years |
| 1, 2019 |
| Balance |
| depreciation |
| 31, 2019 |
| | | | | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Land and buildings |
| 19 |
| 14 |
| 43,065 |
| 89,290 |
| (39,068) |
| 50,222 |
Equipment |
| 3 |
| 1 |
| 32,607 |
| 81,423 |
| (53,872) |
| 27,551 |
Others |
| 3 |
| 2 |
| 19,892 |
| 47,748 |
| (30,441) |
| 17,307 |
Furniture |
|
|
|
|
| 9,373 |
| 27,088 |
| (18,209) |
| 8,879 |
Others |
|
|
|
|
| 10,519 |
| 20,660 |
| (12,232) |
| 8,428 |
Totals |
|
|
|
|
| 95,564 |
| 218,461 |
| (123,381) |
| 95,080 |
The useful life presented in the preceding tables, corresponds to the total useful life and residual useful life for the property, plant and equipment. Total useful lives have been determined based on our expected use of the assets, considering quality of the original construction, the environment in which the assets are located, quality and degree of maintenance carried out, and appraisals performed by external experts of the Bank.
b) | Movements on gross balances as of December 31, 2020 and 2019, are as follows: |
| | | | | | | | |
|
| Land and buildings |
| Equipment |
| Other |
| Totals |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Opening balances as of January 1, 2020 |
| 89,290 |
| 81,423 |
| 47,748 |
| 218,461 |
Additions | | 5,203 |
| 9,964 |
| 1,803 |
| 16,970 |
Sales and/or disposals for the year | | (381) |
| (1,855) |
| (1,974) |
| (4,210) |
Impairment (1)(2) | | (20,981) | | (578) | | (9,862) | | (31,421) |
Reclassification from assets held for sale (3) |
| 5,622 | | — | | — | | 5,622 |
Exchange differences | | (1,935) |
| (3,550) |
| (1,173) |
| (6,658) |
Others |
| — | | — | | (878) | | (878) |
Ending balances as of December 31, 2020 |
| 76,818 |
| 85,404 |
| 35,664 |
| 197,886 |
(1) | Corresponds to ATM equipment impairment loss of Ch$24 million(Ch$53 million million on the gross value of the asset and Ch$29 million on accumulated depreciation) |
(2) | Impairment on property, plant and equipment was recorded as a result of the restructuring plan implemented and controlled by Management in Chile. This plan aims to capture efficiencies from the closure of branches and by the offering our clients digital solutions for their financial needs. As a result, impairment losses for an amount of Ch$867 million have been recorded on land and buildings, equipment and other assets (Ch$11,005 million on the gross value of the asset and Ch$10,138 million on accumulated depreciation). Also includes impairment recorded on improvements in leased properties for an amount of Ch$9,403million (Ch$20,363 million on the gross value of the asset of and Ch$10,960 million in accumulated depreciation) |
(3) | Assets classified as available for sale that came out of the sales plan in Colombia and are reclassified back to fixed assets. See note 17. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-102 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 14 - Property, plant and equipment, continued
| | | | | | | | |
|
| Land and buildings |
| Equipment |
| Other |
| Totals |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Opening balances as of January 1, 2019 |
| 65,843 |
| 80,383 |
| 50,248 |
| 196,474 |
Additions |
| 9,449 | | 8,503 | | 2,488 |
| 20,440 |
Sales and/or disposals for the year |
| (3,592) | | (4,493) | | (4,014) |
| (12,099) |
Reclassification from assets held for sale (*) | | 9,863 |
| — |
| — | | 9,863 |
Exchange differences |
| 507 | | 2,514 | | 969 |
| 3,990 |
Others | | 7,220 |
| (5,484) |
| (1,943) | | (207) |
Ending balances as of December 31, 2019 |
| 89,290 |
| 81,423 |
| 47,748 |
| 218,461 |
(1) | Corresponds to buildings owned by Itaú Corpbanca Colombia S.A. held for sale, as approved by the Board of Directors of said company. See detail in Note 17 - Other assets and non-current assets held for sale. |
c) | Movements of accumulated depreciation of property, plant and equipment for years ended December 31, 2020 and 2019, are as follows: |
| | | | | | | | |
|
| Land and buildings |
| Equipment |
| Other |
| Total |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Opening balances as of January 1, 2020 |
| (39,068) |
| (53,872) |
| (30,441) |
| (123,381) |
Depreciation for the year |
| (8,279) |
| (8,967) |
| (4,580) |
| (21,826) |
Sales and/or disposals for the year | | 287 |
| 1,855 |
| 1,893 |
| 4,035 |
Reclasification from asset held for sale (1) |
| (1,634) | | — |
| — | | (1,634) |
Impairment (2)(3) |
| 11,211 |
| 526 |
| 9,390 |
| 21,127 |
Exchange differences | | 825 |
| 2,704 |
| 879 |
| 4,408 |
Ending balances as of December 31, 2020 |
| (36,658) | | (57,754) |
| (22,859) | | (117,271) |
(1) | Corresponds to properties reincorporated to land and buildings that were previously classified as held for the sale of Itaú Corpbanca Colombia S.A. See Note 17 - Other assets and non-current assets held for sale. |
(2) | Corresponds to Impaired ATM equipment with a gross value of MCh$53 and MCh$29 on accumulated depreciation, generating a net loss of MCh$24. |
(3) | Impairment on fixed assets due to the restructuring plan in Chile had an effect on the gross value of the asset of MCh$11,005 and MCh$10,138 on accumulated depreciation, generating a loss of MCh$867. Also includes impairment recognized on improvements in leased properties due to the restructuring plan, with an effect on the gross value of the asset of MCh$20,363 and MCh$10,960 in accumulated depreciation, generating a loss of MCh$9,403. |
| | | | | | | | |
|
| Land and buildings |
| Equipment |
| Other |
| Total |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Opening balances as of January 1, 2019 |
| (22,778) |
| (47,776) |
| (30,356) |
| (100,910) |
Depreciation for the year |
| (7,814) |
| (9,026) |
| (4,329) |
| (21,169) |
Sales and/or disposals for the year |
| 2,884 | | 3,622 | | 2,079 |
| 8,585 |
Reclasification from asset held for sale (1) |
| (6,829) |
| — |
| — |
| (6,829) |
Impairment |
| (241) |
| (11) |
| (476) |
| (728) |
Exchange differences | | (79) | | (2,110) | | (705) | | (2,894) |
Others | | (4,211) |
| 1,429 |
| 3,346 | | 564 |
Ending balances as of December 31, 2019 |
| (39,068) |
| (53,872) |
| (30,441) |
| (123,381) |
(1) | Corresponds to properties reincorporated to land and buildings that were previously classified as held for the sale of Itaú Corpbanca Colombia S.A. See Note 17 - Other assets and non-current assets held for sale. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-103 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 14 - Property, plant and equipment, continued
e) | Impairment |
Since the COVID-19 health emergency, the Bank accelerated its digital transformation as a means to take care of both its customers and workforce. For this purpose, processes have been digitized, so that its clients may access its products and make use of the various services provided by the Bank from its digital platform. The Bank adopted remote working as a means to minimize the exposure of its workforce to COVID-19.
One of the main effects of the pandemic has been the preference of the Bank’s clients to use digital channels over performing in-person transactions in its branches, which has led to a decrease in the flow of clients in certain branches. As a result, the Bank has initiated a restructuring plan in order to improve efficiency, closing branches that have lower customer demand. The plan also contemplates the closure of certain offices, given the Bank's adoption of remote working.
Within the framework of the aforementioned restructuring plan, during this fiscal year, the Bank has recognized the impairment of certain assets associated with branches and offices that were closed during fiscal year 2020.
f) | Restrictions |
The Bank and subsidiaries have no restrictions on property, plant and equipment as of December 31, 2020 and 2019. Additionally, property, plant and equipment has not been pledged to ensure compliance with obligations. Furthermore, there are no amounts owed by the Bank on property, plant and equipment as of the aforementioned dates.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-104 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 15 - Assets for Rights-of-Use and Obligations for Lease Contracts
a) | Asset for right-of-use |
(i) | The Bank has mainly lease agreements for its branches and corporate building. The composition of this item as of December 31, 2020 and 2019, is as follows: |
| | | | | | | | | | | | |
| | Years | | Years of | | | | | | | | |
| | of | | average | | | | | | | | |
| | useful | | remaining | | Net Assets as of | | | | Accumulated | | Net Assets as of |
|
| life |
| useful life |
| January 1, 2020 |
| Gross Balances |
| Depreciation |
| December 31, 2020 |
| | N° | | N° | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Land and buildings |
| 7 |
| 6 |
| 167,265 |
| 195,992 |
| (50,086) |
| 145,906 |
Others leased assets | | 3 | | 3 | | 176 | | 173 | | (71) | | 102 |
Totals |
| | | |
| 167,441 |
| 196,165 |
| (50,157) |
| 146,008 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Years | | Years of | | | | | | | | |
| | of | | average | | | | | | | | |
| | useful | | remaining | | Net Assets as of | | | | Accumulated | | Net Assets as of |
|
| life |
| useful life |
| January 1, 2019 |
| Gross Balances |
| Depreciation |
| December 31, 2019 |
| | N° | | N° | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Land and buildings |
| 5 |
| 5 |
| 176,795 |
| 197,065 |
| (29,800) |
| 167,265 |
Others leased assets |
| 3 |
| 3 |
| — |
| 190 |
| (14) |
| 176 |
Totals |
| | | |
| 176,795 |
| 197,255 |
| (29,814) |
| 167,441 |
(ii) | Movement in the gross balance of assets for the right to use assets under lease at 31 December 2020 and 2019, is as follows |
| | | | | | |
|
| Land and buildings |
| Others leased assets |
| Totals |
| | MCh$ | | MCh$ | | MCh$ |
Opening balance as of January 1, 2020 |
| 197,065 |
| 190 | | 197,255 |
Additions | | 9,250 | | — | | 9,250 |
Disposals due to early termination |
| (9,707) |
| — | | (9,707) |
Remeasurements of the liability due to modifications (1) |
| 747 |
| — | | 747 |
Inflation indexation adjustments (2) |
| 2,701 |
| — | | 2,701 |
Exchange differences |
| (4,064) |
| (17) | | (4,081) |
Ending balances as of December 31, 2020 |
| 195,992 |
| 173 |
| 196,165 |
(1) | Corresponds to remeasurements of the recognized liability due to contracts modifications. |
(2) | Corresponds to subsequent adjustments due to liabilities remeasurements due to index changes, according to each lease agreement. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-105 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 15 - Assets for Rights-of-Use and Obligations for Lease Contracts, continued
| | | | | | |
| | | | | | |
|
| Land and buildings |
| Others leased assets |
| Totals |
| | MCh$ | | MCh$ | | MCh$ |
Opening balance as of January 1, 2019 |
| 176,795 |
| — |
| 176,795 |
Additions | | 25,624 | | 190 | | 25,814 |
Disposals due to early termination |
| (16,953) |
| — |
| (16,953) |
Inflation indexation adjustments (1) |
| 9,488 |
| — |
| 9,488 |
Exchange differences |
| 2,111 |
| — |
| 2,111 |
Ending balances as of December 31, 2019 |
| 197,065 |
| 190 |
| 197,255 |
(1) | Corresponds to subsequent adjustments due to liabilities remeasurements due to index changes, according to each lease agreement. |
(iii) | The movement in the accumulated depreciation of assets for the right to use assets under lease agreements as of December 31, 2020 and 2019, is as follows |
| | | | | | |
|
| Land and buildings |
| Other leased assets |
| Totals |
| | MCh$ | | MCh$ | | MCh$ |
Opening balance as of January 1, 2020 |
| (29,800) |
| (14) |
| (29,814) |
Depreciation (1) | | (29,936) | | (57) | | (29,993) |
Disposals due to early termination |
| 8,738 |
| — |
| 8,738 |
Exchange differences |
| 912 |
| — |
| 912 |
Reclassifications | | — | | — | | — |
Remeasurements of the liability due to modifications (1) | | — | | — | | |
Ending balances as of December 31, 2020 |
| (50,086) |
| (71) |
| (50,157) |
(1) | See Note 32, Depreciation, amortization and impairment. |
| | | | | | |
| | | | | | |
|
| Land and buildings |
| Other leased assets |
| Totals |
| | MCh$ | | MCh$ | | MCh$ |
Opening balance as of January 1, 2019 |
| — |
| — |
| — |
Depreciation (1) | | (31,843) | | (14) | | (31,857) |
Disposals due to early termination |
| 2,590 |
| — |
| 2,590 |
Exchange differences |
| (547) |
| — |
| (547) |
Reclassifications | | — | | — | | — |
Impairment |
| — |
| — |
| — |
Ending balances as of December 31, 2019 |
| (29,800) |
| (14) |
| (29,814) |
(1) | See note 32 "Depreciation, amortization and impairment" |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-106 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 15 - Assets for Rights-of-Use and Obligations for Lease Contracts, continued
b) Lease contracts liabilities
i) | As of December 31, 2020 and 2019, the obligations for lease contracts are as follows |
| | | |
| As of December 31, 2020 | | As of December 31, 2019 |
| MCh$ | | MCh$ |
Lease contract liabilities | 151,885 | | 172,924 |
Totals | 151,885 | | 172,924 |
The Bank and its subsidiaries have contracts, with certain renewal options, for which there is reasonable certainty that the option will be exercised. In such cases, the lease period used to measure the liabilities and assets corresponds to an estimate of future renewals.
ii) | Movement in lease liabilities and cash flows for the period is shown below |
| | | |
| 2020 | | 2019 |
| MCh$ | | MCh$ |
Opening balance as of January 1, | 172,924 | | 176,795 |
Additions due to new contracts | 9,250 | | 25,624 |
Disposals due to early termination | (1,971) | | (10,808) |
Interest expenses | 4,923 | | 5,034 |
Remeasurements of the liability due to modifications (1) | 1,399 | | — |
Inflation indexation adjustments | 2,701 | | 9,488 |
Exchange rate adjustments | (4) | | — |
Exchange difference | (3,650) | | 2,868 |
Capital and interest payments | (33,687) | | (36,077) |
Ending balance as of December 31, | 151,885 | | 172,924 |
(1) | Corresponds to reameasurements of the recognized liability due to contract modifications. |
iii) | Future maturities of lease liabilities are as follows |
| | | |
| As of December 31, 2020 | | As of December 31, 2019 |
| MCh$ | | MCh$ |
Within 1 year | 30,829 | | 32,628 |
After 1 year but within 2 years | 27,779 | | 28,462 |
After 2 years but within 3 years | 24,083 | | 25,084 |
After 3 years but within 4 years | 20,991 | | 22,098 |
After 4 years but within 5 years | 16,627 | | 19,042 |
After 5 years | 31,576 | | 45,610 |
Totals | 151,885 | | 172,924 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-107 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 16 - Current Taxes and Deferred Taxes
a) | Current taxes |
At the end of each reporting period, the Bank and subsidiaries recognize a First Category Income Tax Provision, which is determined based on currently enacted tax legislation. The net provision for current taxes recognized as of December 31, 2020 was MCh$62,933 (MCh$85,503 as of December 31, 2019), according to the following detail:
a.1) Current taxes assets and liabilities by geographical area:
| | | | | | | | | | | | | | | | |
| | As of December 31, 2020 | | As of December 31, 2019 | ||||||||||||
| | Chile | | USA (*) | | Colombia | | Totals | | Chile | | USA (*) | | Colombia | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Current tax assets | | 43,533 | | 1,443 | | 19,723 | | 64,699 |
| 30,773 | | — | | 54,743 |
| 85,516 |
Current tax liabilities | | (596) | | — | | (1,170) | | (1,766) |
| (13) | | — | | — |
| (13) |
Totals, net | | 42,937 | | 1,443 | | 18,553 | | 62,933 |
| 30,760 |
| — |
| 54,743 |
| 85,503 |
a.2) Details of current tax items by geographical area:
| | | | | | | | | | | | | | | | |
| | As of December 31, 2020 | | As of December 31, 2019 | ||||||||||||
| | Chile | | USA (*) | | Colombia | | Total | | Chile | | USA (*) | | Colombia | | Total |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Income tax with effect in profit and loss | | 12,348 | | — | | (4,284) | | 8,064 |
| (68,075) | | — | | (9,062) |
| (77,137) |
Income tax effect on equity, net investments hedge | | (21,795) | | — | | — | | (21,795) | | 6,124 | | — | | — | | 6,124 |
Income tax effect on equity cash flows hedge | | (5) | | — | | — | | (5) | | 964 | | — | | — | | 964 |
Income tax, rate 27% | | (9,452) | | — | | (4,284) | | (13,736) | | (60,987) | | — | | (9,062) | | (70,049) |
| | | | | | | | | | | | | | | | |
Less: | | | | | | | | |
| | | | | |
|
|
Monthly Provisional Payments | | 49,340 | | — | | 21,268 | | 70,608 |
| 61,621 | | — | | 27,218 |
| 88,839 |
Tax credit for training costs | | 800 | | — | | — | | 800 |
| 850 | | — | | — |
| 850 |
Tax credit donations | | 264 | | — | | — | | 264 |
| 802 | | — | | — |
| 802 |
4% event capital credit | | 2,920 | | — | | — | | 2,920 | | — | | — | | — | | |
Other taxes to be recovered (paid) (**) | | (935) | | 1,443 | | 1,569 | | 2,077 |
| 28,474 | | — | | 36,587 |
| 65,061 |
Totals | | 42,937 | | 1,443 | | 18,553 | | 62,933 |
| 30,760 |
| — |
| 54,743 |
| 85,503 |
(*) Corresponds to the branch located in New York.
(**) The other taxes to be recovered correspond mainly to monthly provisional payments and credits for training expenses paid in previous years, provisional payments for absorbed utilities with right to return, among others.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-108 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 16 - Current Taxes and Deferred Taxes, continued
b) | Effect on income |
The tax expense for the years ended December 31, 2020, 2019 and 2018 is comprised of the following items:
| | | | | | |
|
| 2020 |
| 2019 |
| 2018 |
| | MCh$ | | MCh$ | | MCh$ |
Income tax expense |
|
|
|
|
|
|
Current tax expense |
| 8,064 |
| (77,137) |
| (95,760) |
Deferred taxes |
|
|
|
|
|
|
Deferred tax expenses |
| 109,848 |
| 33,727 |
| 28,110 |
Subtotals |
| 117,912 |
| (43,410) |
| (67,650) |
Others |
| (2,702) |
| (4,443) |
| 591 |
Net expense for income taxes |
| 115,210 |
| (47,853) |
| (67,059) |
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, 2020, 2019 and 2018.
The nominal tax rates of the countries where consolidated subsidiaries are located are:
| | | | | | | |
|
| 2020 |
| 2019 |
| 2018 |
|
| | Tax rates | | Tax rates | | Tax rates |
|
Chile |
| 27% |
| 27% | | 27% | |
Colombia |
| 36% |
| 33% | | 37% | |
USA |
| 24.1% |
| 21% | | 21% | |
| | | | | | | | | | | | |
| | For the years ended December 31, | ||||||||||
| | 2020 | | 2019 | | 2018 | ||||||
| | Tax rate | | Amount | | Tax rate | | Amount | | Tax rate | | Amount |
|
| % |
| MCh$ |
| % |
| MCh$ |
| % |
| MCh$ |
Amount calculated by using the statutory rates | | 27.00 | | 254,169 |
| 27.00 | | (46,541) |
| 27.00 |
| (63,157) |
Exchange differences due to investments in Colombia |
| 1.94 | | 18,285 |
| 9.51 |
| (16,399) |
| 13.47 |
| (31,499) |
Equity price level restatement for tax purposes |
| 2.53 | | 23,814 |
| (13.94) |
| 24,037 |
| (9.49) |
| 22,188 |
Exchange differences due to investments in USA |
| 0.18 | | 1,665 |
| 1.76 |
| (3,030) |
| 0.02 |
| (54) |
Effect of rate change Colombia |
| (0.40) | | (3,804) |
| (2.29) |
| 3,954 |
| (0.01) |
| 20 |
Effect of rates New York branch (**) |
| — | | 10 |
| 0.05 |
| (81) |
| (0.18) |
| 433 |
Effect of rates Colombia subsidiary (**) |
| 1.37 | | 12,884 |
| 3.42 |
| (5,896) |
| 0.50 |
| (1,173) |
Penalty fee SBIF (currently CMF) |
| — | | — |
| — |
| — |
| 0.69 |
| (1,616) |
Goodwill impairment effect | | (19.93) | | (187,633) | | — | | — | | — | | — |
Tax effect due to intangible assets impairment | | (0.70) | | (6,561) | | — | | — | | — | | — |
Permanent and other differences (*) |
| 0.25 | | 2,381 |
| 2.26 |
| (3,897) |
| (3.33) | | 7,799 |
Totals |
| 12.24 |
| 115,210 |
| 27.77 |
| (47,853) |
| 28.67 |
| (67,059) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-109 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 16 - Current Taxes and Deferred Taxes, continued
d) | Other comprehensive income – tax effects |
The table below sets for a summary of the deferred tax effect on other comprehensive income for the years ended December 31, 2020, 2019 and 2018, which consists of the following items:
d.1) Tax effect of “OCI” that may be reclassified subsequently to profit or loss:
| | | | | | |
|
| 2020 |
| 2019 |
| 2018 |
| | MCh$ | | MCh$ | | MCh$ |
Debt instruments at fair value through other comprehensive income |
| 1,558 |
| (5,926) |
| (2,172) |
Hedge of a net investment in foreign operations |
| (21,795) |
| 14,373 |
| 10,565 |
Cash flows hedge |
| (3,034) |
| (162) |
| (1,669) |
Total charge to other comprehensive income |
| (23,271) |
| 8,285 |
| 6,724 |
d.2) “OCI” that may not be reclassified subsequently to profit or loss:
| | | | | | |
|
| 2020 |
| 2019 |
| 2018 |
| | MCh$ | | MCh$ | | MCh$ |
Income tax relating to defined benefit obligation | | (19) |
| 1,542 |
| (44) |
Total charge to other comprehensive income | | (19) |
| 1,542 |
| (44) |
e) | Effect of deferred taxes |
e.1) Totals deferred taxes
Detail of effects for deferred taxes presented in assets and liabilities is as follows:
| | | | | | | | | | | | |
| | As of December 31, 2020 | | As of December 31, 2019 | ||||||||
| | Assets | | Liabilities | | Net | | Assets | | Liabilities | | Net |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Allowances for loan losses | | 242,422 | | — | | 242,422 |
| 162,874 | | — |
| 162,874 |
Accrued interest on past due portfolio |
| 6,031 |
| — |
| 6,031 |
| 8,214 |
| — |
| 8,214 |
Unearned price differences |
| 183 |
| — |
| 183 |
| 324 |
| — |
| 324 |
Personnel provisions |
| 10,183 |
| 17 |
| 10,200 |
| 20,618 |
| — |
| 20,618 |
Miscellaneous provisions |
| 1,693 |
| — |
| 1,693 |
| 41,576 |
| — |
| 41,576 |
Tax losses |
| 51,546 |
| — |
| 51,546 |
| 55,598 |
| — |
| 55,598 |
Net tax value of amortizable assets |
| 2,231 |
| — |
| 2,231 |
| 16,051 |
| — |
| 16,051 |
Depreciation of property, plant and equipment |
| (30,697) |
| (274) |
| (30,971) |
| (47,423) |
| — |
| (47,423) |
Lease division and others |
| 10,803 |
| — |
| 10,803 |
| 18,925 |
| — |
| 18,925 |
Mark to market of financial instruments |
| 37,727 |
| — |
| 37,727 |
| (15,846) |
| — |
| (15,846) |
Itaú-Corpbanca business combination |
| (30,263) |
| — |
| (30,263) |
| (57,996) |
| — |
| (57,996) |
IFRS 16 leases effect | | 1,643 | | — | | 1,643 | | 1,403 | | — | | 1,403 |
Others |
| 9,054 |
| 20 |
| 9,074 |
| 4,339 |
| (263) |
| 4,076 |
Totals assets (liabilities) for deferred taxes |
| 312,556 |
| (237) |
| 312,319 |
| 208,657 |
| (263) |
| 208,394 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-110 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 16 - Current Taxes and Deferred Taxes, continued
e.2) Deferred taxes by geographic area:
| | | | | | | | | | | | | | | | |
|
| As of December 31, 2020 |
| As of December 31, 2019 | ||||||||||||
|
| Chile |
| USA |
| Colombia |
| Total |
| Chile |
| USA |
| Colombia |
| Total |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Deferred tax assets |
| 250,260 | | 14,408 | | 47,888 | | 312,556 |
| 182,657 |
| 18,527 |
| 7,473 |
| 208,657 |
Deferred tax liabilities |
| — | | — | | (237) | | (237) |
| — |
| — |
| (263) |
| (263) |
Net by geographic area |
| 250,260 |
| 14,408 |
| 47,651 |
| 312,319 |
| 182,657 |
| 18,527 |
| 7,210 |
| 208,394 |
Effects of deferred taxes on assets and liabilities arising from temporary differences (by geographic area) are as follows:
| | | | | | | | | | | | | | | | |
| | As of December 31, 2020 | | As of December 31, 2019 | ||||||||||||
| | Chile | | USA | | Colombia | | Total | | Chile | | USA | | Colombia | | Total |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Allowances for loan losses | | 212,344 | | (91) | | 30,169 | | 242,422 | | 155,115 | | 358 | | 7,401 | | 162,874 |
Accrued interest on past due portfolio | | 6,031 | | — | | — | | 6,031 | | 8,214 | | — | | — | | 8,214 |
Unearned price differences | | 183 | | — | | — | | 183 | | 324 | | — | | — | | 324 |
Personnel provisions | | 6,449 | | 195 | | 3,556 | | 10,200 | | 16,860 | | (91) | | 3,849 | | 20,618 |
Miscellaneous provisions | | 25,532 | | (3,588) | | (20,251) | | 1,693 | | 49,335 | | 856 | | (8,615) | | 41,576 |
Tax losses | | 1,744 | | 15,500 | | 34,302 | | 51,546 | | 1,912 | | 15,750 | | 37,936 | | 55,598 |
Net tax value of amortizable assets | | 2,231 | | — | | — | | 2,231 | | 16,051 | | — | | — | | 16,051 |
Depreciation of property, plant and equipment | | (31,611) | | (68) | | 708 | | (30,971) | | (50,746) | | — | | 3,323 | | (47,423) |
Lease division and others | | 3,682 | | — | | 7,121 | | 10,803 | | 11,619 | | — | | 7,306 | | 18,925 |
Mark to market of financial instruments | | 41,149 | | (448) | | (2,974) | | 37,727 | | (13,484) | | — | | (2,362) | | (15,846) |
Itaú-Corpbanca business combination | | (27,673) | | — | | (2,590) | | (30,263) | | (16,584) | | — | | (41,412) | | (57,996) |
IFRS 16 leases effect | | 1,080 | | 48 | | 515 | | 1,643 | | 905 | | — | | 498 | | 1,403 |
Others | | 9,119 | | 2,860 | | (2,905) | | 9,074 | | 3,136 | | 1,654 | | (714) | | 4,076 |
Totals assets (liabilities), net | | 250,260 | | 14,408 | | 47,651 | | 312,319 | | 182,657 | | 18,527 | | 7,210 | | 208,394 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-111 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 17 - Other Assets and Non-current Assets Held for Sale
a) | The detail of other assets is as follows: |
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Assets for leasing (1) | | 10,807 |
| 18,724 |
Other assets |
| 531,826 |
| 752,137 |
Deposits in guarantee |
| 11,230 |
| 33,786 |
Accounts and notes receivable (2) |
| 37,070 |
| 48,017 |
Rights on brokerage transactions |
| 26,589 |
| 158,687 |
Repossessed assets from leasing transactions |
| 3,809 |
| 1,787 |
Prepaid expenses (3) |
| 26,629 |
| 21,179 |
Collateral for financial transactions (threshold) |
| 413,439 |
| 407,529 |
Claims receivable from insurance companies | | 230 | | 1,933 |
Asset management fees receivable | | 811 | | 816 |
Insurance brokerage fees receivable |
| 6,741 |
| 5,654 |
Other assets | | 5,278 | | 72,749 |
Totals |
| 542,633 |
| 770,861 |
(1) | Property, plant and equipment acquired to be ceded under financial leases. |
(2) | This includes rights and accounts receivable that fall outside the Bank’s line of business such as tax credits, cash guarantee deposits and other balances pending of collection. |
(3) | Includes payments made in advance for different services that will be received (leases, insurance, and others). |
b) | The detail of non-currents assets held for sale is as follows: |
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Assets received in lieu of payment |
| 13,269 |
| 10,291 |
Property, plant and equipment held for sale (1) | | 1,809 | | 6,911 |
Totals |
| 15,078 |
| 17,202 |
(1) | Corresponds to buildings owned by Itaú Corpbanca Colombia S.A. held for sale, as approved by the Board of Directors of the entity, during the meeting held on July 31, 2018. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-112 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 18 - Deposits and Other Demand Liabilities and Time Deposits
a) | As of December 31, 2020 and 2019, deposits and other demand liabilities are as follow: |
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Checking accounts |
| 4,038,467 |
| 2,882,535 |
Other deposits and demand accounts |
| 1,852,355 |
| 1,698,439 |
Advance payments received from customers |
| 40,032 |
| 45,902 |
Other demand liabilities |
| 266,552 |
| 246,572 |
Totals |
| 6,197,406 |
| 4,873,448 |
b) | As of December 31, 2020 and 2019, time deposits and other time liabilities are as follows: |
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Time deposits |
| 11,413,370 |
| 11,599,943 |
Time savings accounts |
| 19,467 |
| 20,016 |
Other time liabilities |
| 227 |
| 228 |
Totals |
| 11,433,064 |
| 11,620,187 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-113 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 19 - Interbank Borrowings
a) | As of December 31, 2020 and 2019, interbank borrowings are as follows: |
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Loans obtained from local financial institutions | |
|
|
|
Chilean Central Bank (*) | | 2,257,226 |
| — |
Subtotals | | 2,257,226 |
| — |
Loans obtained from foreign financial institutions | |
|
|
|
Apple Bank for Saving | | — | | 34,195 |
Bancaribe Curacao Bank N.V. | | — | | 2,411 |
Banco Crédito del Perú | | — | | 104,831 |
Banco de Bogotá | | 4,156 | | 8,250 |
Banco Latinoamericano de Exportación (BLADEX) | | 60,759 | | 63,991 |
Banco República | | — | | 1,403 |
Bancoldex S.A. (Colombia) | | 11,123 | | 46,390 |
Bank of America, N.A. | | 92,395 | | 160,243 |
Bank of Montreal | | 113,404 | | 104,331 |
Bank of New York | | 56,858 | | — |
Bank of Nova Scotia | | 82,324 | | 101,989 |
Bayern Landesbank | | — | | 2,411 |
BBVA Asset Management Continental S.A. (Perú) | | 75,057 | | 86,709 |
BNP Paribas | | 92,167 | | 98,817 |
China Construction Bank | | — | | 5,556 |
Citibank N.A. | | 37,522 | | 206,549 |
Cobank C.B. | | 16,258 | | 30,882 |
Commerzbank A.G. | | 24,055 | | 71,646 |
Corporación Andina de Fomento | | 71,073 | | 75,149 |
Credicorp Capital SASAF | | 175,854 | | 200,374 |
Deutsche Bank A.G. | | 74,220 | | — |
Export Development Canada | | — | | 12,078 |
Findeter S.A. Financiera del Desarrollo Territorial | | 44,100 | | 44,552 |
HSBC USA | | — | | 74,877 |
IFC Corporación Financiera Internacional | | 82,561 | | 118,065 |
Ing Bank NV | | — | | 14,870 |
Interfondos S.A. Sociedad Administradora de Fondos | | 20,105 | | 55,596 |
KBC Bank NV | | — | | 21,896 |
La Caixa | | 25,690 | | 13,961 |
Mizuho Corporate Bank | | — | | 2,411 |
Scotia Fondos Sociedad Administradora de Fondos S.A. | | 24,280 | | 34,951 |
Shanghai Commercial & Savings Bank | | — | | 279,202 |
Standard Chartered Bank | | — | | 229,063 |
Sumitomo Mitsui Banking Corporation | | 217,347 | | 44,826 |
The Export-Import Bank of Korea | | — | | 146,549 |
Unicredit Bank | | 14,220 | | — |
Wells Fargo Bank, N.A. | | 67,519 | | 82,480 |
Zuercher Kantonalbank | | 7,044 | | — |
Others | | 51,661 | | 65,252 |
Subtotals | | 1,541,752 |
| 2,646,756 |
Totals | | 3,798,978 |
| 2,646,756 |
(*) Corresponds to funds obtained through the new Conditional Funding Facility (FCIC) and the Liquidity Credit Line (LCL), granted by the Central Bank of Chile (BCCh) in response to the financials needsgenerated by the spread of the COVID-19 virus. Funds obtained through FCIC are guaranteed by high credit quality loans and / or bonds issued by the BCCh and have automatic and successively monthly renewal maturities, with a maximum term of 4 years from March 30, 2020 until March 30, 2024. The LCL differs from FCIC as is not guaranteed, has a maximum term of 2 years and is granted based on the amount of the Bank's average reserve requirements. Both, the FCIC and the LCL, accrue interests at the BCCh overnight rate in force on the date of each operation.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-114 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 19 - Interbank Borrowings, continued
b) | Interbank borrowings by maturity are as follows: |
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Within 1 year | | 942,140 |
| 1,997,751 |
After 1 year but within 2 years |
| 962,045 |
| 442,784 |
After 2 years but within 3 years |
| 8,764 |
| 83,908 |
After 3 years but within 4 years |
| 1,847,890 |
| 80,073 |
After 4 years but within 5 years |
| 15,675 |
| 7,521 |
After 5 years |
| 22,464 |
| 34,719 |
Totals |
| 3,798,978 |
| 2,646,756 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-115 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 20 - Debt Instruments Issued and Other Financial Liabilities
As of December 31, 2020 and 2019, composition of debt instruments issued and other financial liabilities is as follows:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Debt instruments issued |
|
|
|
|
Mortgage finance bonds |
| 30,846 |
| 40,933 |
Senior bonds |
| 5,092,979 |
| 5,289,084 |
Subordinated bonds |
| 1,081,031 |
| 1,078,339 |
Subtotals |
| 6,204,856 |
| 6,408,356 |
Other financial liabilities |
| |
|
|
Liabilities with the public sector |
| — |
| 10 |
Borrowings from local financial institutions |
| 13,123 |
| 12,956 |
Subtotals |
| 13,123 |
| 12,966 |
Totals |
| 6,217,979 |
| 6,421,322 |
Debts classified as short-term are those that constitute demand obligations or will mature within a year. All other debts are classified as long-term. Detail is as follows
| | | | | | |
| | As of December 31, 2020 | ||||
|
| Long term |
| Short term |
| Totals |
| | MCh$ | | MCh$ | | MCh$ |
Mortgage finance bonds |
| 24,251 |
| 6,595 |
| 30,846 |
Senior bonds |
| 4,771,301 |
| 321,678 |
| 5,092,979 |
Subordinated bonds |
| 1,081,031 |
| — |
| 1,081,031 |
Debt instruments issued |
| 5,876,583 |
| 328,273 |
| 6,204,856 |
Other financial liabilities |
| — |
| 13,123 |
| 13,123 |
| | | | | | |
| | As of December 31, 2019 | ||||
|
| Long term |
| Short term |
| Totals |
| | MCh$ | | MCh$ | | MCh$ |
Mortgage finance bonds |
| 33,046 |
| 7,887 |
| 40,933 |
Senior bonds |
| 4,645,463 |
| 643,621 |
| 5,289,084 |
Subordinated bonds |
| 1,078,339 |
| — |
| 1,078,339 |
Debt instruments issued |
| 5,756,848 |
| 651,508 |
| 6,408,356 |
Other financial liabilities |
| — |
| 12,966 |
| 12,966 |
The following tables provide with additional information, including maturities, for each type of debt issued as of December 31, 2020 and 2019.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-116 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 20 - Debt Instruments Issued and Other Financial Liabilities, continued
a) | Mortgage finance bonds |
Detail of maturities for mortgage finance bonds is as follows:
| | | | |
| | As of December 31, | ||
|
| 2020 |
| 2019 |
| | MCh$ | | MCh$ |
Within 1 year |
| 6,595 |
| 7,887 |
After 1 year but within 2 years |
| 5,638 |
| 6,508 |
After 2 years but within 3 years |
| 5,068 |
| 6,072 |
After 3 years but within 4 years |
| 4,544 |
| 5,524 |
After 4 years but within 5 years |
| 3,484 |
| 5,121 |
After 5 years |
| 5,517 |
| 9,821 |
Totals |
| 30,846 |
| 40,933 |
b) | Senior bonds |
Details for senior bonds, by currency, are as follows:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Bonds in UF |
| 4,134,994 |
| 4,273,637 |
Bonds in CLP |
| 399,992 |
| 481,083 |
Bonds in COP |
| 557,993 |
| 534,364 |
Totals |
| 5,092,979 |
| 5,289,084 |
Detail of maturities for senior bonds is as follows:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Due within 1 year |
| 321,678 |
| 643,621 |
After 1 year but within 2 years |
| 486,427 |
| 323,921 |
After 2 years but within 3 years |
| 309,111 |
| 608,342 |
After 3 years but within 4 years |
| 589,699 |
| 282,882 |
After 4 years but within 5 years |
| 592,851 |
| 478,634 |
After 5 years |
| 2,793,213 |
| 2,951,684 |
Totals |
| 5,092,979 |
| 5,289,084 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-117 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 20 - Debt Instruments Issued and Other Financial Liabilities, continued
The following table presents details for senior bonds issued:
Senior bonds issued during the year ended December 31, 2020:
| | | | | | | | | | | | |
Serie |
| Currency |
| Amount |
| Term |
| Issuance rate |
| Placement date |
| Maturity date |
BITACR0418 |
| UF |
| 500,000 |
| 5 years and 8 months |
| 2% annual |
| 01/14/2020 |
| 10/09/2025 |
BITACR0418 |
| UF |
| 1,000,000 |
| 5 years and 8 months |
| 2% annual |
| 01/14/2020 |
| 10/09/2025 |
BITACR0418 |
| UF |
| 500,000 |
| 5 years and 8 months |
| 2% annual |
| 01/14/2020 |
| 10/09/2025 |
BITACR0418 |
| UF |
| 3,000,000 |
| 5 years and 9 months |
| 2% annual |
| 04/08/2020 |
| 10/09/2025 |
BITACS0418 |
| UF |
| 3,000,000 |
| 6 years and 6 months |
| 2% annual |
| 04/08/2020 |
| 10/09/2026 |
Totals |
| |
| 8,000,000 |
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Serie |
| Currency |
| Amount |
| Term |
| Issuance rate |
| Placement date |
| Maturity date |
SERIE A - 60 |
| COP |
| 148,100,000,000 |
| 5 years |
| 6.00% annual |
| 02/27/2020 |
| 02/27/2025 |
SERIE U - 120 |
| COP |
| 351,837,710,484 |
| 10 years |
| 2.71% annual |
| 02/27/2020 |
| 02/27/2030 |
SERIE A SUBSERIE A60 |
| COP |
| 165,915,000,000 |
| 5 years |
| 4.83% annual |
| 09/29/2020 |
| 09/29/2025 |
SUBSERIE B36 |
| COP |
| 134,100,000,000 |
| 3 years |
| 1.28% annual |
| 09/29/2020 |
| 09/29/2023 |
Totals |
| |
| 799,952,710,484 |
|
|
|
|
|
|
|
|
Senior bonds issued during the year ended December 31, 2019:
| | | | | | | | | | | | |
Serie |
| Currency |
| Amount |
| Term |
| Issuance rate |
| Placement date |
| Maturity date |
BCORAM0710 |
| UF |
| 2,000,000 |
| 5 years and 5 months |
| 3% annual |
| 02/11/2019 |
| 07/01/2024 |
BCORAM0710 |
| UF |
| 3,000,000 |
| 5 years and 5 months |
| 3% annual |
| 02/15/2019 |
| 07/01/2024 |
BITACU0418 |
| UF |
| 2,000,000 |
| 9 years and 7 months |
| 2% annual |
| 02/25/2019 |
| 10/09/2028 |
BITACU0418 |
| UF |
| 2,000,000 |
| 9 years and 7 months |
| 2% annual |
| 02/26/2019 |
| 10/09/2028 |
BITACV0418 |
| UF |
| 2,000,000 |
| 10 years and 7 months |
| 2% annual |
| 03/07/2019 |
| 10/09/2029 |
BITACV0418 |
| UF |
| 2,000,000 |
| 10 years and 7 months |
| 2% annual |
| 03/14/2019 |
| 10/09/2029 |
BITACW0418 |
| UF |
| 2,500,000 |
| 11 years and 5 months |
| 2% annual |
| 05/07/2019 |
| 10/09/2030 |
BITACS0418 |
| UF |
| 2,000,000 |
| 7 years and 3 months |
| 2% annual |
| 07/03/2019 |
| 10/09/2026 |
Totals |
| |
| 17,500,000 |
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Serie |
| Currency |
| Amount |
| Term |
| Issuance rate |
| Placement date |
| Maturity date |
BCORBX0914 |
| CLP |
| 40,000,000 |
| 2 years and 2 months |
| 5% annual |
| 07/04/2019 |
| 09/01/2021 |
BCORBX0914 |
| CLP |
| 1,000,000 |
| 2 years and 2 months |
| 5% annual |
| 07/05/2019 |
| 09/01/2021 |
BCORBX0914 |
| CLP |
| 14,500,000 |
| 2 years and 2 months |
| 5% annual |
| 07/10/2019 |
| 09/01/2021 |
BCORBX0914 |
| CLP |
| 1,500,000 |
| 2 years and 2 months |
| 5% annual |
| 07/15/2019 |
| 09/01/2021 |
Totals |
| |
| 57,000,000 |
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Serie |
| Currency |
| Amount |
| Term |
| Issuance rate |
| Placement date |
| Maturity date |
SUBSERIE A36 |
| COP |
| 163,035,000,000 |
| 3 years |
| 6.13% annual |
| 05/21/2019 |
| 05/21/2022 |
SUBSERIE C60 |
| COP |
| 186,965,000,000 |
| 5 years |
| 2.86% annual |
| 05/21/2019 |
| 05/21/2024 |
SERIE A SUBSERIE A60 – 60 |
| COP |
| 170,820,000,000 |
| 5 years |
| 6.05% annual |
| 10/16/2019 |
| 10/16/2024 |
SERIE C SUBSERIE C84 – 84 |
| COP |
| 50,000,000,000 |
| 7 years |
| 2.28% annual |
| 10/16/2019 |
| 10/16/2026 |
SERIE C SUBSERIE C120 |
| COP |
| 129,180,000,000 |
| 10 years |
| 2.76% annual |
| 10/16/2019 |
| 10/16/2029 |
Totals |
| |
| 700,000,000,000 |
|
|
|
|
|
|
|
|
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-118 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 20 - Debt Instruments Issued and Other Financial Liabilities, continued
c) | Subordinated bonds |
Details of subordinated bonds, by currency, are as follows:
| | | | |
| | As of December 31, | ||
|
| 2020 |
| 2019 |
| | MCh$ | | MCh$ |
Bonds in UF |
| 95,373 |
| 95,545 |
Bonds in CLP |
| 811,185 |
| 796,564 |
Bonds in COP |
| 174,473 |
| 186,230 |
Totals |
| 1,081,031 |
| 1,078,339 |
Detail of maturities for subordinated bonds is as follows:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Within 1 year |
| — |
| — |
After 1 year but within 2 years |
| 10,082 |
| — |
After 2 years but within 3 years |
| 21,706 |
| 14,526 |
After 3 years but within 4 years |
| 122,290 |
| 23,923 |
After 4 years but within 5 years |
| — |
| 128,717 |
After 5 years |
| 926,953 |
| 911,173 |
Totals |
| 1,081,031 |
| 1,078,339 |
For the years ended December 31, 2020 and 2019 no issuance of subordinated bonds took place.
d) | Others financial obligations |
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Within 1 year |
| — |
| — |
After 1 year but within 2 years |
| — |
| — |
After 2 years but within 3 years |
| — |
| — |
After 3 years but within 4 years |
| — |
| — |
After 4 years but within 5 years |
| — |
| — |
After 5 years |
| — |
| — |
Totals financial liabilities |
| — |
| — |
Short-term financial liabilities |
|
|
|
|
Amounts due to credit card transactions |
| 13,123 |
| 12,956 |
Others |
| — |
| 10 |
Totals short-term financial liabilities |
| 13,123 |
| 12,966 |
Totals other financial liabilities |
| 13,123 |
| 12,966 |
As of December 31, 2020 and 2019, the Bank has not incurred in any default in the payments of principal, interest or others in regard to debt instruments issued.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-119 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
As of December 31, 2020 and 2019, the Bank has registered the following movements in its provisions:
a) Other Provisions
Provisions disclosed in liabilities as of December 31, 2020 and 2019 present the following detail:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Provisions for personnel salaries and expenses | | 90,739 | | 102,877 |
Provisions for mandatory dividends |
| — |
| 38,120 |
Provisions for contingent loans risk |
| 39,775 |
| 34,271 |
Provisions for contingencies | | 4,576 | | 2,559 |
Totals |
| 135,090 |
| 177,827 |
b) Movements in provisions for contingent loans risk, for the year ended December 31, 2020 are as follows:
| | | | | | | | |
| | Provisions for contingent loans risk | ||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | |
|
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Totals |
Opening balances as of January 1, 2020 |
| 13,889 |
| 14,172 |
| 6,210 |
| 34,271 |
Changes in provisions |
|
|
|
|
|
|
|
|
- Transfers to stage 1 |
| 574 |
| (549) |
| (25) |
| — |
- Transfers to stage 2 |
| (1,991) |
| 2,037 |
| (45) |
| — |
- Transfers to stage 3 |
| (73) |
| (112) |
| 185 |
| — |
- Increases due to change in credit risk |
| 3,554 |
| 4,347 |
| 724 |
| 8,625 |
- Decreases due to change in credit risk |
| (3,475) |
| (6,466) |
| (205) |
| (10,146) |
- Charge-offs |
| (14) |
| (28) |
| (6) |
| (48) |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| 6,365 |
| 1,780 |
| 7,357 |
| 15,502 |
Financial assets that have been derecognized |
| (4,633) |
| (1,282) |
| (5,410) |
| (11,325) |
Changes in models/risk parameters |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| 4,391 |
| (1,720) |
| 224 |
| 2,896 |
Ending balances as of December 31, 2020 |
| 18,587 |
| 12,179 |
| 9,009 |
| 39,775 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-120 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 21 – Provisions, continued
Movements in provisions for contingent loans risk, for the year ended December 31, 2019 are as follows:
| | | | | | | | |
| | Provisions for contingent loans risk | ||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | |
|
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Totals |
Opening balances as of January 1, 2019 |
| 15,879 |
| 28,112 |
| 1,857 |
| 45,848 |
Changes in provisions |
|
|
|
|
|
|
|
|
- Transfers to stage 1 |
| 1,123 |
| (1,036) |
| (87) |
| — |
- Transfers to stage 2 |
| (521) |
| 570 |
| (49) |
| — |
- Transfers to stage 3 |
| (90) |
| (161) |
| 251 |
| — |
- Increases due to change in credit risk |
| 1,932 |
| 1,618 |
| 4,605 |
| 8,155 |
- Decreases due to change in credit risk |
| (5,695) |
| (802) |
| (157) |
| (6,654) |
- Charge-offs |
| — |
| — |
| — |
| — |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| 5,490 |
| 1,193 |
| 780 |
| 7,463 |
Financial assets that have been derecognized |
| (4,927) |
| (15,322) |
| (990) |
| (21,239) |
Changes in models/risk parameters |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| 698 |
| — |
| — |
| 698 |
Ending balances as of December 31, 2019 |
| 13,889 |
| 14,172 |
| 6,210 |
| 34,271 |
c) The following table details the movements in provision during 2020 and 2019:
| | | | | | | | | | |
| | Provisions for personnel | | Provision for | | Provisions for | | Provisions for | | |
| | salaries and expenses | | mandatory dividends | | contingent loans risk | | contingencies | | |
| | (i) | | (ii) | | | | (iii) | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Opening balances as of January 1, 2020 |
| 102,877 |
| 38,120 |
| 34,271 | | 2,559 |
| 177,827 |
Provisions applied |
| (55,487) |
| (38,120) |
| — | | (85) |
| (93,692) |
Provisions established |
| 133,055 |
| — |
| 16,366 | | 4,593 |
| 154,014 |
Provisions released |
| (85,078) |
| — |
| (10,861) | | (2,016) |
| (97,955) |
Other movements |
| (4,628) |
| — |
| (1) | | (475) |
| (5,104) |
Ending balances as of December 31, 2020 |
| 90,739 |
| — |
| 39,775 |
| 4,576 |
| 135,090 |
| | | | | | | | | | |
| | Provisions for personnel | | Provisions for | | Provisions for | | Provisions for | | |
| | salaries and expenses | | mandatory dividends | | contingent loans risk | | contingencies | | |
| | (i) | | (ii) | | | | (iii) | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Opening balances as of January 1, 2019 |
| 99,945 |
| 51,614 |
| 45,848 |
| 17,496 |
| 214,903 |
Provisions applied |
| (71,020) |
| (51,614) |
| (23,804) |
| 5,601 |
| (140,837) |
Provisions established |
| 82,456 |
| 38,120 |
| 18,483 |
| 5,408 |
| 144,467 |
Provisions released |
| (17,514) |
| — |
| (6,954) |
| (26,367) |
| (50,835) |
Other movements |
| 9,010 |
| — |
| 698 |
| 421 |
| 10,129 |
Ending balances as of December 31, 2019 |
| 102,877 |
| 38,120 |
| 34,271 |
| 2,559 |
| 177,827 |
(i) | Employee benefits and staff salaries are recorded in “Personnel salaries and expenses.” |
(ii) | Mandatory dividends is recorded in the Consolidated Statement of Financial Position in equity, against “Provision for mandatory dividends.” |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-121 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 21 – Provisions, continued
(iii) | The provisions for contingencies (established) or released are included in Other operating (expenses)/income, depending on whether they are debit or a credit. |
d) Provisions for payroll and employee benefits
| | | | | | |
| | | | As of December 31, | ||
| | | | 2020 | | 2019 |
|
| |
| MCh$ |
| MCh$ |
Provision for long-term termination benefits |
| (e.1) | | 9,300 |
| 9,814 |
Provision for pension plan |
| (e.2) | | 31,531 |
| 35,166 |
Provision for retroactive unemployment plan |
| (e.3) | | 296 |
| 334 |
Provision for retirements bonus plan |
| (e.4) | | 689 |
| 687 |
Provision for compensation due to years of service (short term) | | | | 716 | | — |
Provision for other employee benefits |
| (*) | | 31,000 |
| 41,645 |
Vacation accrual |
| (**) | | 17,207 |
| 15,231 |
Totals |
| | | 90,739 |
| 102,877 |
(*) Short-term benefits
(**) Includes provision for performance compensations, holiday benefits, year-end bonuses and other similar employee compensation.
e) | The main aspects of the Bank’s long term employee benefits are detailed below: |
e.1) Other long-term employee benefits
Description: Annual payment during the month in which the employee completes a given number of years of service (in five-year intervals from 5 to 50).
Financing: The projected unit credit method was used to determine the present value of the defined-benefit obligation and the corresponding service cost. For all active plan participants, the “projected accrued benefit” is based on the plan formula and years of service as of the date of calculation, but using an average salary and social security benefits, etc., projected to the age at which it is assumed that the employee will stop providing services. The total benefit is used for inactive members. The plan does not have any related policies (and therefore no reimbursements) or assets, but rather uses structured funding based on the entity's financial conditions
The economic assumptions are summarized as follows:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| % |
| % |
Summary of economic assumptions |
|
|
|
|
Discount rate | | 5.00 |
| 6.25 |
Expected rate of salary increase | | 4.50 |
| 5.50 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-122 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 21 – Provisions, continued
The movements of the present value of the obligation for this type of benefit and the amounts recognized in the Consolidated Statements of Income are determined using the projected credit unit method and it consist of the following:
| | | | |
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Opening balances as of January 1, |
| 9,814 |
| 8,298 |
Net cost of benefits (*) |
| 1,191 |
| 1,490 |
Payments |
| (820) |
| (815) |
Provisions recorded |
| — |
| 278 |
Exchange differences |
| (885) |
| 563 |
Ending balances as of December 31, |
| 9,300 |
| 9,814 |
(*) Detail of net cost of benefit is as follows:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Current services cost | | 681 |
| 962 |
Interest expense on obligation | | 510 |
| 528 |
Total | | 1,191 |
| 1,490 |
e.2) Pension plan
Description: Old-age pension or Survivors in accordance with the Social Security Law in Colombia and benefits acquired with the Entity.
Financing: The projected unit credit method is used to determine the present value of the benefit obligation and related service costs. Using this method the benefit obligation is determined as the present value of current benefits for past services, but calculating the plan benefit based on the salary projected to the date on which it is assumed that the participant receives the benefit. The plan has no policy (without refund) or associated assets, being a structured financing according to the financial conditions of the entity.
The summary of the economic assumptions is as follows:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| % |
| % |
Assumptions |
|
|
|
|
Discount rate |
| 4.25 |
| 6.50 |
Expected rate of salary increases |
| 3.00 |
| 3.00 |
Inflation rate |
| 3.00 |
| 3.00 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-123 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 21 – Provisions, continued
The detail of Pension plan balances movements is as follows:
| | | | |
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Opening balances as of January 1, |
| 35,166 |
| 30,908 |
Interest expense on obligation |
| 1,911 |
| 2,120 |
Payments |
| (3,260) |
| (3,768) |
Actuarial losses (gains) |
| 885 |
| 4,512 |
Exchange differences |
| (3,171) |
| 1,394 |
Ending balances as of December 31, |
| 31,531 |
| 35,166 |
e.3) Retroactive unemployment plan
Description: Retroactive unemployment plan prior to Law 50 from 1990 in Colombia.
Financing: The projected unit credit method is used to determine the present value of the benefit obligation and related service costs. For all active plan participants, the “projected accrued benefit” is based on the plan formula and years of service as of the date of calculation, but using an average salary and social security benefits, etc., projected to the age at which it is assumed that the employee will stop providing services. The total benefit is used for inactive members. The plan does not have any related policies (and therefore no reimbursements) or assets, but rather uses structured funding based on the entity's financial conditions.
The economic assumptions are summarized as follows:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| % |
| % |
Assumptions |
|
|
|
|
Discount rate |
| 4.25 |
| 5.50 |
Expected rate of salary increases |
| 4.50 |
| 5.50 |
Inflation rate |
| 3.00 |
| 3.00 |
The details of movements for this benefits during years ended December 31, 2020 and 2019 are as follows:
| | | | |
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Opening balances as of January 1, |
| 334 |
| 373 |
Current services costs |
| 87 |
| 136 |
Interest expense on obligations |
| 15 |
| 21 |
Actuarial gains |
| (29) |
| (113) |
Payments of benefits |
| (80) |
| (108) |
Exchange differences |
| (31) |
| 25 |
Ending balances as of December 31, |
| 296 |
| 334 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-124 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 21 – Provisions, continued
e.4) Retirement Bonus Plan
Description: Fixed payment upon retirement
Financing: The projected unit credit method is used to determine the present value of the benefit obligation and related service costs. Under this method, the benefit obligation is determined by the present value of the current benefits for past service but calculating the plan benefit based on the projected salary as of the date in which it is assumed that the participant will receive the benefit.
The economic assumptions are summarized as follows:
| | | | |
| | As of December 31, | ||
|
| 2020 |
| 2019 |
| | % | | % |
Summary of economic hypothesis |
|
|
|
|
Discount rate(s) | | 5.50 |
| 6.50 |
Expected rate(s) of salary increase | | 4.00 |
| 5.00 |
Inflation rate | | 3.00 |
| 3.00 |
The movements in amounts recognized for this benefit are as follows:
| | | | |
|
| 2020 |
| 2019 |
| | MCh$ | | MCh$ |
Opening balances as of January 1, |
| 687 |
| 542 |
Current service costs |
| 46 |
| — |
Interest expense on obligation |
| 39 |
| 81 |
Actuarial (gains) losses |
| (13) |
| 33 |
Payments of benefits |
| (7) |
| (6) |
Exchange differences |
| (63) |
| 37 |
Ending balances as of December 31, |
| 689 |
| 687 |
The effect on Other Comprehensive Income is summarized as follows:
| | | | | | | | |
| | | | For the years ended December 31, | ||||
| | | | 2020 | | 2019 | | 2018 |
|
| |
| MCh$ |
| MCh$ |
| MCh$ |
Pension plan | | (e.2) | | 885 | | (4,512) | | (698) |
Retroactive unemployment plan | | (e.3) | | (29) | | 113 | | (32) |
Retirement bonus plan | | (e.4) | | 33 | | (33) | | (24) |
Total recognition of obligations for defined benefits | | | | 889 | | (4,432) | | (754) |
Future payments
Future actuarial calculations may differ with respect to the calculations presented, due to the following factors:
● | The experience of the plans differs from those anticipated by the selected economic and demographic hypotheses. |
● | Changes in economic and demographic assumptions. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-125 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 21 – Provisions, continued
● | Expected increases or decreases as a natural part of the functioning of the methodology for these calculations (for example, the end of the amortization period or additional costs based on the financing situation of the plan). |
● | Changes in the characteristics of the applicable plan or law, and with respect thereto, there are no significant events affecting the results presented since the last assessment. |
The following is a detail of future payments for the year 2020 and 2019:
| | | | | | | | |
|
| Long-term |
| |
| Retroactive |
| Retirement |
| | termination | | | | unemployment | | benefit |
2020 | | benefits | | Pension plan | | plan | | plan |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Fiscal year 2021 |
| 953 | | 2,614 | | 65 | | 72 |
Fiscal year 2022 |
| 1,105 | | 2,471 | | 56 | | 42 |
Fiscal year 2023 |
| 1,105 | | 2,410 | | 66 | | 48 |
Fiscal year 2024 |
| 877 | | 2,388 | | 29 | | 38 |
Fiscal year 2025 |
| 786 | | 2,360 | | 15 | | 40 |
Fiscal year 2026-2030 (combined) |
| 4,612 | | 11,161 | | 43 | | 197 |
| | | | | | | | |
|
| Long-term |
| |
| Retroactive |
| |
| | termination | | | | unemployment | | Retirement |
2019 | | benefits | | Pension plan | | plan | | benefit plan |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Fiscal year 2020 |
| 948 |
| 3,116 |
| 69 |
| 64 |
Fiscal year 2021 |
| 1,058 |
| 2,960 |
| 16 |
| 28 |
Fiscal year 2021 |
| 1,250 |
| 2,793 |
| 70 |
| 47 |
Fiscal year 2023 |
| 1,245 |
| 2,725 |
| 77 |
| 50 |
Fiscal year 2024-2031 (combined) |
| 915 |
| 2,698 |
| 29 |
| 42 |
Fiscal year 2025-2031 (combined) |
| 5,134 |
| 12,844 |
| 71 |
| 222 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-126 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 22 - Other liabilities and liabilities directly associated with non-current assets held for sale
a) As of December 31, 2020 and 2019 the other liabilities are as follows:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Accounts and notes payable (1) | | 310,713 |
| 382,271 |
Dividends payable |
| 246 |
| 267 |
Unearned income (2) |
| 5,946 |
| 5,644 |
Unearned fees | | 7,690 | | 8,321 |
Payables due to brokerage transactions |
| 24,572 |
| 140,799 |
Collateral for financial transactions (threshold) |
| 308,674 |
| 116,654 |
Other liabilities |
| 42,193 |
| 54,958 |
Totals |
| 700,034 |
| 708,914 |
(1) | Obligations other than those directly related to the business operations, such as payable withholding taxes, payable social security contributions, balances due on purchases of materials, balances due on obligations under lease agreements for the acquisition of fixed assets, accounts payable for expenses, and others. |
(2) | It corresponds to commissions associated with financial advisory and insurance brokerage businesses that must be deferred in accordance with applicable regulations. |
b) | As of December 31, 2020 and 2019 there are no liabilities directly associated with non-current assets held for sale. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-127 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 23 - Contingencies, Commitments, and Responsibilities
a) Lawsuits and Legal Proceedings
Lawsuits against the Bank with provision
As of the date of issuance of these Consolidated Financial Statements, legal actions have been filed against the Bank and its subsidiaries involving its transactions in the ordinary course of business. They are mainly lawsuits pending against the Bank related to loans and other matters, most of which, according to the Bank’s Legal Services Divisions involved in the suits, present no risk of significant loss. Notwithstanding the above, provisions for MCh$545 and MCh$280 as of December 31, 2020 and December 31, 2019, respectively have been established in the Consolidated Financial Statements.
Other lawsuits against the Bank without provision
Other legal actions have been filed against the Bank and its subsidiaries involving transactions carried out in the ordinary course of business. The Bank’s maximum exposure for these lawsuits amounts to approximately MCh$22,737 as of December 31, 2020 and MCh$22,207 as of December 31, 2019. In Management’s opinion based on reports from the Legal Division as of December 31, 2020, considering the procedural status of these lawsuits, it is not possible at the moment to conclude whether they may result in significant losses not contemplated by the Bank in the Consolidated Financial Statements.
Itaú Corpbanca Colombia S.A.
The Bank and its subsidiaries are involved in civil, administrative and labor proceedings. The outstanding civil and administrative proceedings, them are related to banking transactions, and the remaining ones derive from the ownership of leased assets.
Such claims amount, in the aggregate, to MCh$35,043 as of December 31, 2020 (MCh$38,503 as of December, 2019). According to the evaluation of the expected results in each lawsuit the Bank has recorded a provision of MCh$94 as of December 31, 2020 (MCh$141 as of December 31, 2019).
b) Commitments
Transaction Agreement
On January 29, 2014, Inversiones Corp Group Interhold Limitada, Inversiones Saga Limitada ( both together “CorpGroup”), Itaú-Unibanco Holding S.A., Corpbanca, and Banco Itaú Chile, subscribed a contract called “Transaction Agreement”, in accordance to the contract, they agreed a strategic association of its operations in Chile and Colombia. This strategic association gave rise to the merger of Corpbanca and Banco Itaú Chile, which was renamed “Itaú Corpbanca” and took place on April 1, 2016
The Transaction Agreement (from January 2014 and its subsequent modifications) also contemplates that on January 28, 2022 Itaú Corpbanca will purchase from CorpGroup the 12.36% of shares in Itaú Corpbanca Colombia, equivalent to the participation that CorpGroup held (directly or through other entities) in said entity at the merger date, corresponding to 93,306,684 shares. The purchase price agreed will be US$3.5367 per share, amounting to US$329,997,749.30, plus interest from August 4, 2015 until the payment date at an annual interest rate equal to Libor plus 2.7% minus the sum of the aggregate amount of dividends paid by Itaú Corpbanca Colombia to CorpGroup for the corresponding shares. This agreement, as explicitly noted, is subject to the prior approvals from the regulators, as applicable, in Chile and abroad.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-128 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 23 - Contingencies, Commitments, and Responsibilities, continued
According to article 76 of the General Banking Law, investments in shares of banks established abroad are subject to the prior approval of the Superintendency of Banks and Financial Institutions in Chile (currently CMF), as well as the Central Bank of Chile (BCCH), which in turn is subject to compliance with the conditions set forth in article 78 of said legal corp.
Additionally, in the case of banks incorporated in Colombia, an eventual acquisition of shares in Itaú Corpbanca Colombia by Itaú Corpbanca is also subject to the prior authorization of the Financial Superintendency of Colombia (SFC).
Consequently, the aforementioned transaction must be confirmed only by the occurrence of one or more future and uncertain events that are not entirely under the control of the Bank.
Acquisition of the MCC entities
In accordance with the Transaction Agreement executed on January 29, 2014 between Inversiones Corp Group Interhold SpA, Inversiones Saga Limitada (these last two, together “CorpGroup”), Itaú Unibanco Holding S.A., Corpbanca and Banco Itaú Chile, subsequently modified on June 2, 2015 and January 20, 2017, hereinafter the “Transaction Agreement”, Itaú Unibanco Holding S.A. assumed the obligation to transfer to Itaú Corpbanca, and the latter the obligation to acquire, 100% of its shares in MCC Securities Inc., MCC Asesorías S.A., and MCC S.A. Corredores de Bolsa (herein “MCC entities”) in accordance with the terms agreed upon and subject to normal terms and conditions for this kind of transactions.
On May 28, 2019, the Board of Directors of Itaú Corpbanca approved to proceed with the acquisition of the MCC entities, in accordance with the provisions of the Transaction Agreement and in compliance with the provisions of Title XVI of Law No. 18,046 on Corporations.
The acquisition of the shares of the MCC entities by Itaú Corpbanca is subject to the corresponding regulatory approvals, including approval from the Commission for the Financial Market.
Acquisition of 20% ownership in Itaú Corredor de Seguros Colombia S.A.
On November 5, 2019, Itaú Corpbanca committed to acquire 20% of the shares that Helm LLC holds in Itaú Corredor de Seguros de Colombia S.A.
The acquisition of the shares of Itaú Corredor de Seguros de Colombia S.A. by Itaú Corpbanca, is subject to the corresponding regulatory approvals, including the approval from the Commission for the Financial Market.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-129 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 23 - Contingencies, Commitments, and Responsibilities, continued
c) | Contingent loans and provisions |
The following table contains the amounts for which the Bank and its subsidiaries are contractually obliged to grant loans together with the relevant allowances for loan losses:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Collateral and guarantees |
| 437,396 |
| 548,521 |
Confirmed foreign letters of credit |
| 2,207 |
| 509 |
Letters of credit issued |
| 136,561 |
| 97,553 |
Documented guarantees |
| 1,407,102 |
| 1,501,957 |
Available on demand credit lines |
| 2,656,219 |
| 2,623,744 |
Other credit commitments |
| 754,375 |
| 1,167,802 |
Totals |
| 5,393,860 |
| 5,940,086 |
For information on provisions for contingent loans, see Note 21, letter b.
d) Responsibilities
The Bank and its subsidiaries have the following responsibilities arising from its regular course of business:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Third party operations |
|
|
|
|
Collections | | 16,540 |
| 17,985 |
Transferred financial assets managed by the Bank | | 1,183,053 |
| 1,200,155 |
Third party funds under management | | — |
| 2,541,495 |
Subtotals | | 1,199,593 |
| 3,759,635 |
Custody of securities | | |
|
|
Securities held in custody | | 2,269,967 |
| 5,229,078 |
Securities held in custody deposited in other entities | | 259 |
| — |
Securities issued by the Bank held in custody | | 105,585 |
| 131,648 |
Subtotals | | 2,375,811 |
| 5,360,726 |
Totals | | 3,575,404 |
| 9,120,361 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-130 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 23 - Contingencies, Commitments, and Responsibilities, continued
e) Guarantees, Contingencies and other
Itaú Corpbanca
As a result of the financial needs generated by the Covid-19 pandemic, the Central Bank of Chile (BCCh) has implemented the new Conditional Funding Facility (FCIC) and the Liquidity Credit Line (LCL) as measures to support liquidity and credit access for the Chilean economy. The FCIC program is guaranteed by high credit quality loans and/or bonds issued by the BCCh. The FCIC program provides banks access to 4-year loans at the policy rate, with available funds size increasing as a function of additional loans and financial instruments pledged as collateral .This measure includes the possibility to substitute the financial instruments on which the collateral was initially pledged to the BCCh, if required.
As of December 31, 2020, the Bank has pledged 162 loans to guarantee the access to the new Conditional Funding Facility (FCIC) provided by the BCCh. The principal of the loans amounts to Ch$1,766,997 million, while the credit quality of the loans varies between A1 and A4 according to our loans rating policy, which are from the highest quality. Additionally, the Bank has pledged as collateral, financial instruments from the FVTOCI portfolio for an amount of Ch$319,213 million.
Itaú Corredores de Seguros S.A.
In order to comply with Article 58, letter d) of the Chilean Decree with Force of Law (“DFL”) 251 of 1930, which states that, “Insurance brokers, in order to conduct business, must comply with the requirement of contracting insurance policies as determined by the Commission for the Financial Market (Ex- Superintendency of Securities and Insurance), in order to correctly and fully comply with the obligations arising from its activities and especially regarding damages that may be incurred by insured parties taking policies through the brokerage house,” the subsidiary has renewed the following insurance policies:
| | | | | | | | |
Entity |
| From |
| To |
| Amount (UF) |
| Beneficiary |
Consorcio Nacional de Seguros S.A. |
| 04-15-2020 |
| 04-14-2021 |
| 60,000 and 500 |
| Itaú Corredores de Seguros S.A. |
Itaú Corredores de Bolsa Limitada
In order to comply with articles 30 and 31 of Chilean Law 18,045, this subsidiary kept a bank guarantee certificate with the Chilean Electronic Stock Exchange and Santiago Stock Exchange, to ensure the correct and complete fulfillment of its obligations as stockbroker. The beneficiaries are the current or future creditors that the subsidiary has or will have derived from its transactions. The detail of the bank guarantee certificate is as follows:
| | | | | | | | �� |
Entity |
| From |
| To |
| Amount (UF) |
| Beneficiary |
Itaú Corpbanca Chile |
| 04-22-2020 |
| 04-22-2021 |
| 16,000 |
| Bolsa Electrónica de Chile |
Mapfre Compañía de Seguros S.A |
| 04-22-2020 |
| 04-22-2022 |
| 4,000 |
| Bolsa de Comercio de Santiago |
Itaú Corpbanca Chile |
| 04-22-2020 |
| 06-22-2021 |
| 10,000 |
| Comisión para el Mercado Financiero |
In addition, the Company has contracted a comprehensive insurance policy to provide for possible situations of operational fidelity. The detail of the comprehensive insurance policy is as follows:
| | | | | | | | |
Entity |
| From |
| To |
| Amount (UF) |
| Beneficiary |
Orión Seguros Generales S.A |
| 06-26-2020 |
| 05-31-2021 |
| 5,000 and 10,000 |
| Bolsa Electrónica de Chile |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-131 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 23 - Contingencies, Commitments, and Responsibilities, continued
The Company pledged the shares of the Santiago Stock Exchange in favor of said company, to guarantee compliance with the obligations with respect to transactions carried out with other brokers. The amount amounts to MCh$5,325 as of December 31, 2020 (MCh$18,479 as of December 31, 2019).
The Broker is registered in the Registry of Portfolio Administrators since November 22, 2017, for which it maintains a guarantee ticket in Itaú Corpbanca with an expiration date of June 22, 2021, for an amount of UF10,000 as representative of the beneficiaries of the guarantee in articles 98 and 99 of Law No. 20,172, in order to guarantee the faithful and full compliance of the Portfolio Administration obligations.
There are guarantees for ThUS$100 equivalent to ThCh$71, to guarantee operations with foreign traders Pershing.
As of December 31, 2020, the Broker maintains in the Santiago Stock Exchange, cash and fixed income securities to guarantee operations in the Securities Clearing and Settlement House for MCh$5,988 (MCh$9,067 as of December 31, 2019).
Itaú Administradora General de Fondos S.A.
On April 9, 2020, Itaú Administradora General de Fondos S.A. contracted a new guarantee certificate of UF10,000 in favor of Fundación DUOC Pontificia Universidad Católica de Chile, to guarantee faithful compliance with Articles 12, 13 and 14 of Law No. 20,712 on Administration of Third Party Funds and Individual Portfolios, maturing on January 10, 2021. Itaú Corpbanca is the representative of its beneficiaries.
Below are the guarantee slips and beneficiaries that Corpbanca Administradora General de Fondos S.A. maintains in effect to date, which were required to comply with the obligations of portfolio management contracts, their committees, Funds, payment of labor and social obligations with the contractor’s workers
| | | | | | | | | | |
Entity |
| From |
| To |
| Amount (UF) |
| Amount (MCh$) |
| Beneficiary |
Banco Santander Chile |
| 06-02-2017 |
| 08-31-2021 |
| 15,000 | | — |
| Corporación de Fomento de la Producción CORFO |
Banco Santander Chile |
| 08-14-2017 |
| 08-30-2021 |
| 500 | | — |
| Corporación de Fomento de la Producción CORFO |
Itaú-Corpbanca |
| 07-02-2020 |
| 07-01-2021 |
| — | | 50 |
| Ferrocarriles del Estado |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-132 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
a) Movements in equity accounts and reserves (attributable to the equity holders of the Bank):
As of December 31, 2020, 2019 and 2018, the paid-in capital of the Bank is represented by common shares subscribed and paid, with no par value, and its motion presented below:
| | | | | | |
| | Common shares | ||||
| | 2020 | | 2019 | | 2018 |
|
| (number) |
| (number) |
| (number) |
Issued as of January 1, | | 512,406,760,091 |
| 512,406,760,091 | | 512,406,760,091 |
Issuance of paid shares |
| — |
| — |
| — |
Increase in share for Itaú-Corpbanca business combination |
| — |
| — |
| — |
Issuance of shares pending payment |
| — |
| — |
| — |
Repurchase of own shares |
| — |
| — |
| — |
Sale of own shares |
| — |
| — |
| — |
Issued as of December 31, |
| 512,406,760,091 |
| 512,406,760,091 |
| 512,406,760,091 |
● | Subscribed and paid shares |
As of December 31, 2020, 2019 and 2018, the Bank has a capital in the amount of MCh$1,862,826, consisting of 512,406,760,091 common shares subscribed and paid, with no par value.
● | Purchase and sale of own shares |
During the years ended December 31, 2020 and 2019, there were no transactions to buy and sell shares of own issuance.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-133 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 24 – Equity, continued
● | List of major shareholders |
The shareholders list as of December 31, 2020, 2019 and 2018, is as follows:
| | | | | | | | | | | | | |
| | Shares |
| ||||||||||
| | 2020 | | 2019 | | 2018 |
| ||||||
|
| Number of |
| Ownership |
| Number of |
| Ownership | | Number of |
| Ownership |
|
Company name or shareholder name | | shares | | % | | shares | | % | | shares | | % |
|
Itaú Unibanco |
| 200,966,823,626 |
| 39.22 | % | 195,408,043,473 |
| 38.14 | % | 195,408,043,473 |
| 38.14 | % |
Itaú Unibanco Holding S.A. |
| 115,039,610,411 | | 22.45 | % | 115,039,610,411 |
| 22.45 | % | 115,039,610,411 |
| 22.45 | % |
ITB Holding Brasil Participaçoes Ltda. |
| 62,567,655,359 | | 12.21 | % | 57,008,875,206 |
| 11.13 | % | 57,008,875,206 |
| 11.13 | % |
CGB II SpA |
| 10,908,002,836 | | 2.13 | % | 10,908,002,836 |
| 2.13 | % | 10,908,002,836 |
| 2.13 | % |
CGB III SpA |
| 1,800,000,000 | | 0.35 | % | 1,800,000,000 |
| 0.35 | % | 1,800,000,000 |
| 0.35 | % |
Saga II SpA |
| 7,000,000,000 | | 1.37 | % | 7,000,000,000 |
| 1.37 | % | 7,000,000,000 |
| 1.37 | % |
Saga III SpA |
| 3,651,555,020 | | 0.71 | % | 3,651,555,020 |
| 0.71 | % | 3,651,555,020 |
| 0.71 | % |
| | | | | | | | | | | | | |
Saieh Family |
| 140,835,760,455 |
| 27.49 | % | 146,394,540,608 |
| 28.57 | % | 146,394,540,608 |
| 28.57 | % |
Corp Group Banking S.A. |
| 136,127,850,073 | | 26.57 | % | 136,127,850,073 |
| 26.57 | % | 136,127,850,073 |
| 26.57 | % |
Compañía Inmobiliaria y de Inversiones Saga SpA (1) |
| 4,707,910,382 | | 0.92 | % | 10,266,690,535 |
| 2.00 | % | 10,266,690,535 |
| 2.00 | % |
| | | | | | | | | | | | | |
International Finance Corporation |
| 17,017,909,711 |
| 3.32 | % | 17,017,909,711 |
| 3.32 | % | 17,017,909,711 |
| 3.32 | % |
| | | | | | | | | | | | | |
Others |
| 153,586,266,299 |
| 29.97 | % | 153,586,266,299 |
| 29.97 | % | 153,586,266,299 |
| 29.97 | % |
Stock brokers |
| 80,382,817,848 | | 15.69 | % | 63,397,824,244 |
| 12.37 | % | 55,791,614,655 |
| 10.89 | % |
ADR holders and foreign investors |
| 35,127,077,810 | | 6.86 | % | 50,376,882,652 |
| 9.83 | % | 42,838,887,354 |
| 8.36 | % |
Local institutional investors | | 25,351,261,131 | | 4.95 | % | 27,989,426,434 | — | 5.46 | % | 26,979,482,570 | — | 5.26 | % |
Santo Domingo Group |
| — | | — | % | 11,822,132,969 |
| 2.31 | % | 9,817,092,180 |
| 1.92 | % |
Other minority shareholders |
| 12,725,109,510 | | 2.47 | % | — |
| — | % | 18,159,189,540 |
| 3.54 | % |
Totals |
| 512,406,760,091 |
| 100 | % | 512,406,760,091 |
| 100 | % | 512,406,760,091 |
| 100 | % |
(4) | As of December 31, 2019, includes 1,005,897,850 shares owned by Saga held in custody. |
b) Dividends
At the Ordinary Meeting of the Shareholders of Itaú Corpbanca held on March 18, 2020, the shareholders agreed to distribute net income for MCh$127,065 representing 100% of the profits for 2019 (as filed with the CMF) and at an Ordinary Meeting of the Shareholders of Itaú Corpbanca held on March 19, 2019, the shareholders agreed to distribute profits for MCh$51,614, representing 30% of the 2018 net income (as filed with the CMF).
| | | | | | | | | | | | |
| | Income | | Allocated to | | | | | | | | |
| | attributable to | | reserves and | | | | | | | | Dividend per |
| | equity holders | | retained | | Allocated to | | Percentage | | | | share |
Years | | (*) | | earnings (*) | | dividends | | distributed | | Number of shares | | (in pesos) |
|
| MCh$ |
| MCh$ |
| MCh$ |
| % |
| |
| |
Year 2019 (Shareholders’ Meeting March 2020) |
| 127,065 |
| — |
| 127,065 |
| 100% |
| 512,406,760,091 |
| 0.24798 |
Year 2018 (Shareholders’ Meeting March 2019) |
| 172,047 |
| 120,433 |
| 51,614 |
| 30% |
| 512,406,760,091 |
| 0.10073 |
(*) According to the Consolidated Financial Statements filed with the CMF.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-134 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 24 – Equity, continued
As of December 31, 2020 and 2019 and for the year ended December 31, 2020, 2019 and 2018, the basic earnings and diluted earnings are as follows:
| | | | | | | | | | | | |
| | As of and for the years ended December 31, | ||||||||||
| | 2020 | | 2019 | | 2018 | ||||||
| | N° of Shares | | Amount | | N° of Shares | | Amount | | N° of Shares | | Amount |
|
| Millions |
| MCh$ |
| Millions |
| MCh$ |
| Millions |
| MCh$ |
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
| — | | (808,784) |
| — |
| 113,684 |
| — |
| 171,331 |
Weighted average number of outstanding shares |
| 512,407 | | — |
| 512,407 |
| — |
| 512,407 |
| — |
Assumed convertible debt conversion |
| — | | — |
| — |
| — |
| — |
| — |
Adjusted number of outstanding shares |
| 512,407 | | — |
| 512,407 |
| — |
| 512,407 |
| — |
Basic earnings per share (Chilean pesos) |
| — | | (1.578) |
| — |
| 0.222 |
| — |
| 0.334 |
Diluted earnings per share |
| | | |
|
|
|
|
|
|
|
|
Net income for the year |
| — | | (808,784) |
| — |
| 113,684 |
| — |
| 171,331 |
Weighted average number of outstanding shares |
| 512,407 | | — |
| 512,407 |
| — |
| 512,407 |
| — |
Dilutive effects |
| | | |
|
|
|
|
|
|
|
|
Assumed convertible debt conversion |
| — | | — |
| — |
| — |
| — |
| — |
Conversion of common shares |
| — | | — |
| — |
| — |
| — |
| — |
Options rights |
| — | | — |
| — |
| — |
| — |
| — |
Adjusted number of shares |
| 512,407 | | — |
| 512,407 |
| — |
| 512,407 |
| 512,407 |
Diluted earnings per share (Chilean pesos) |
| — | | (1.578) |
| — |
| 0.222 |
| — |
| 0.334 |
During the years ended December 31, 2020, 2019 and 2018, there were no dilutive effects.
c) Valuation accounts
Financial instruments at FVTOCI: It includes accumulated net changes in the fair value of investments at FVTOCI for the years ended on December 31, 2020, 2019 and 2018
Hedge of net investment in foreign operations: Corresponds to adjustments for hedges of net investments in foreign operations.
Cash flows hedge: It 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, which may affect the results of the period.
Exchange differences on investments in Colombia and New York branch: It 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 Bank Itaú Corpbanca (Chilean peso).
Defined benefits obligations: This includes the effects of complying with IAS 19 “Employees Benefit”.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-135 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 24 – Equity, continued
The following are the equity effects and income taxes for years ended December 31, 2020, 2019 and 2018:
| | | | | | | | | | | | | | |
| | | | | | | | Exchange | | | | | | |
| | | | | | | | differences on | | | | | | |
| | | | | | Hedge of net | | investment in | | | | | | |
| | Debt | | | | investments in | | Colombia and | | Defined | | Equity | | |
| | instruments | | Cash flow | | foreign | | New York | | benefits | | instruments | | |
As of December 31, 2020 | | at FVTOCI |
| hedge |
| operations |
| branch |
| obligations | | at FVTOCI |
| Totals |
| | MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | | MCh$ |
| MCh$ |
Other comprehensive income (loss) before income taxes | |
|
|
|
|
|
|
|
|
| | |
|
|
Opening balances as of January 1, 2020 | | 37,484 |
| (822) |
| (17,383) |
| 37,328 |
| (6,484) | | 1,739 |
| 51,862 |
Effects for the year | | (4,330) |
| (7,799) |
| 80,722 |
| (64,169) |
| (1,632) | | 310 |
| 3,102 |
Transfer of gain on disposal of equity investments at fair value through other comprehensive income to retained earnings | | — | | — | | — | | 12 | | — | | (389) | | (377) |
Ending balances as of December 31, 2020 | | 33,154 |
| (8,621) |
| 63,339 |
| (26,829) |
| (8,116) | | 1,660 |
| 54,587 |
| | | | | | | | | | | | | | |
Income taxes related to components of other comprehensive income (loss) | |
|
|
|
|
|
|
|
|
| | |
|
|
Opening balances as of January 1, 2020 | | (12,705) | | (465) | | 6,627 | | — | | 1,798 | | — |
| (4,745) |
Effects for the period | | (55) |
| (1,602) |
| (21,795) |
| — |
| 434 | | — |
| (23,018) |
Ending balances as of December 31, 2020 | | (12,760) |
| (2,067) |
| (15,168) |
| — |
| 2,232 | | — |
| (27,763) |
Net balances as of December 31, 2020 | | 20,394 |
| (10,688) |
| 48,171 |
| (26,829) |
| (5,884) | | 1,660 |
| 26,824 |
| | | | | | | | | | | | | | |
| | | | | | | | Exchange | | | | | | |
| | | | | | | | differences on | | | | | | |
| | | | | | Hedge of net | | investment in | | | | | | |
| | Debt | | | | investments | | Colombia and | | Defined | | Equity | | |
| | instruments | | Cash flow | | in foreign | | New York | | benefits | | instruments | | |
As of December 31, 2019 | | at FVTOCI |
| hedge |
| operations |
| branch |
| obligations | | at FVTOCI |
| Totals |
| | MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | | MCh$ |
| MCh$ |
Other comprehensive income (loss) before income taxes | |
| |
| |
| |
| |
| | | |
|
Opening balances as of January 1, 2019 | | 16,459 |
| 5,559 |
| 29,403 |
| (19,119) |
| (3,236) | | 1,334 |
| 30,400 |
Effects for the year | | 21,025 |
| (6,381) |
| (46,786) |
| 56,487 |
| (3,248) | | 540 |
| 21,637 |
Transferof hain on disponsal of equity investments at fair value through other comprehensive income to retainedearnings | | — |
| — |
| — |
| (40) |
| — | | (135) |
| (175) |
Ending balances as of December 31, 2019 | | 37,484 |
| (822) |
| (17,383) |
| 37,328 |
| (6,484) | | 1,739 |
| 51,862 |
| | | | | | | | | | | | | | |
Income taxes related to components of other comprehensive income (loss) | |
|
|
|
|
|
|
|
|
| | |
|
|
Opening balances as of January 1, 2019 | | (6,904) |
| (280) |
| (7,746) |
| — |
| 689 | | — |
| (14,241) |
Effects for the year | | (5,801) |
| (185) |
| 14,373 |
| — |
| 1,109 | | — |
| 9,496 |
Ending balances as of December 31, 2019 | | (12,705) |
| (465) |
| 6,627 |
| — |
| 1,798 | | — |
| (4,745) |
| | | | | | | | | | | | | | |
Net balances as of December 31, 2019 | | 24,779 |
| (1,287) |
| (10,756) |
| 37,328 |
| (4,686) | | 1,739 |
| 47,117 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-136 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 24 – Equity, continued
| | | | | | | | | | | | | | |
| | | | | | | | Exchange | | | | | | |
| | | | | | | | differences on | | | | | | |
| | | | | | Hedge of net | | investment | | | | | | |
| | Debt | | | | investments | | in Colombia | | Defined | | Equity | | |
| | instruments | | Cash flow | | in foreign | | and New York | | benefits | | instruments | | |
As of December 31, 2018 | | at FVTOCI | | hedge |
| operations | | branch | | obligations | | at FVTOCI | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | | MCh$ |
Other comprehensive income (loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
| | |
|
Opening balances as of January 1, 2018 |
| 16,592 |
| (5,730) |
| 64,741 |
| (57,485) |
| (2,736) |
| — | | 15,382 |
Changes due initial adoption IFRS 9 | | 481 | | — | | — | | — | | — | | 1,015 | | 1,496 |
Restated opening balances as of January 1, 2018 | | 17,073 | | (5,730) | | 64,741 | | (57,485) | | (2,736) | | 1,015 | | 16,878 |
Effects for the period |
| (614) |
| 11,289 |
| (35,338) |
| 38,366 |
| (500) |
| 319 | | 13,522 |
Ending balances as of December 31, 2018 |
| 16,459 |
| 5,559 |
| 29,403 |
| (19,119) |
| (3,236) |
| 1,334 | | 30,400 |
| | | | | | | | | | | | | | |
Income taxes related to components of other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| | |
|
Opening balances as of January 1, 2018 |
| (4,937) |
| 1,389 |
| (17,287) |
| — |
| 718 |
| — | | (20,117) |
Changes due initial adoption IFRS 9 | | (499) | | — | | — | | — | | — | | — | | (499) |
Restated opening balances as of January 1, 2018 | | (5,436) | | 1,389 | | (17,287) | | — | | 718 | | — | | (20,616) |
Effects for the period |
| (1,468) |
| (1,669) |
| 9,541 |
| — |
| (29) |
| — | | 6,375 |
Ending balances as of December 31, 2018 |
| (6,904) |
| (280) |
| (7,746) |
| — |
| 689 |
| — | | (14,241) |
| | | | | | | | | | | | | | |
Net balances as of December 31, 2018 |
| 9,555 |
| 5,279 |
| 21,657 |
| (19,119) |
| (2,547) |
| 1,334 | | 16,159 |
d) Reserves
This item corresponds to “Other non-earnings reserves” corresponding to the adjustments recorded as a result of the business combination between Banco Itaú Chile and Corpbanca for MCh$744,838 as of December 31, 2020 and 2019, and reserves from Banco Itaú Chile before the business combination for MCh$451,011 as of December 31, 2020 and 2019.
e) Retained earnings from prior years
This item corresponds to profits for the years ended December 31, 2020 and 2019 not distributed to shareholders for a total of MCh$37,533 and MCh$50,362. In consideration of the net loss recorded as of December 31, 2020 and according to local regulations (which do not contradict IFRS), it is important to consider that the accumulated losses must be absorbed, at the time of the opening balance of the next year, against retained earnings and reserves, in case retained earnings are not sufficient.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-137 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 24 – Equity, continued
f) Non-controlling interest
This corresponds to the net amount of equity in the consolidated subsidiaries attributable to capital that does not belong, directly or indirectly, to the Bank, including the part of profit for the period that is attributed to them. Non-controlling interest in the subsidiary’s equity and profit for the year is detailed as follows:
| | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2020 | | | | | | | | Other Comprehensive Income | ||||||||||||||
| | | | | | | | | | | | Hedge of | | | | | | | | | | |
| | | | | | | | | | Exchange | | net | | | | | | | | | | |
| | | | | | | | Financial | | differences | | investment | | Cash | | Defined | | | | Total other | | Total |
| | Non- | | | | Net | | instruments at | | on | | in foreign | | flows | | benefits | | Deferred | | comprehensive | | comprehensive |
Subsidiaries |
| controlling |
| Equity |
| income |
| FVTOCI (1) |
| translation |
| operations |
| hedge |
| obligations |
| Tax |
| income |
| income |
| | % | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
| | | | | | | | | | | | | | | | | | | | | | |
Itaú Corredor de Seguro Colombia S.A. (1) | | 20.200 | % | 404 | | (33) | | — |
| — |
| — |
| — |
| — |
| — |
| — | | (33) |
Itaú Corpbanca Colombia S.A. and subsidiaries | | 12.900 | % | 68,683 | | (17,338) | | (3,859) |
| (7,602) |
| — |
| 2,117 |
| 1,629 |
| (272) |
| (7,987) |
| (25,325) |
Totals | | | | 69,087 | | (17,371) | | (3,859) |
| (7,602) |
| — |
| 2,117 |
| 1,629 |
| (272) |
| (7,987) |
| (25,358) |
(1) | Financial instruments at FVOCI include debt instruments for MCh$3,807 and equity instruments MCh$52 loss. |
| | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2019 | | | | | | | | Other Comprehensive Income | ||||||||||||||
| | | | | | | | | | | | Hedge of | | | | | | | | | | |
| | | | | | | | | | Exchange | | net | | | | | | | | | | |
| | | | | | | | Financial | | differences | | investment | | Cash | | Defined | | | | Total other | | Total |
| | Non- | | | | Net | | instruments at | | on | | in foreign | | flows | | benefits | | Deferred | | comprehensive | | comprehensive |
Subsidiaries |
| controlling |
| Equity |
| income |
| FVTOCI (2) |
| translation |
| operations |
| hedge |
| obligations |
| Tax |
| income |
| income |
| | % | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
| | | | | | | | | | | | | | | | | | | | | | |
Itaú Corredor de Seguro Colombia S.A. | | 20.200 | % | 478 | | 125 | | — | | — | | — | | — | | — | | — | | — | | 125 |
Itaú Corpbanca Colombia S.A. and subsidiaries (2)(3) | | 12.900 | % | 93,967 | | 10,713 | | 952 | | 17,368 | | — | | (411) | | (1,184) | | 331 | | 17,056 | | 27,769 |
Itaú Corredores de Seguros S.A. | | — | % | — | | — | | — | | — | | — | | — | | — | | — | | — | | — |
Totals | | | | 94,445 | | 10,838 | | 952 | | 17,368 | | — | | (411) | | (1,184) | | 331 | | 17,056 | | 27,894 |
(2) | Financial instruments at FVOCI include debt instruments for MCh$678 loss and equity instruments MCh$274 gain. |
(3) | On December 3, 2019, after obtaining regulatory approvals from banking supervisors in Chile, Colombia and Brazil, Itaú Corpbanca completed the acquisition of the Itaú Corpbanca Colombia shares owned by Helm LLC and Kresge Stock Holding Company Inc. As a result of these acquisitions, Itaú Corpbanca owns approximately 87.10% of the shares of Itaú Corpbanca Colombia. |
| | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2018 | | | | | | | | Other Comprehensive Income | ||||||||||||||
| | | | | | | | | | | | Hedge of | | | | | | | | | | |
| | | | | | | | | | Exchange | | net | | | | | | | | | | |
| | | | | | | | Financial | | differences | | investment | | Cash | | Defined | | | | Total other | | |
| | Non- | | | | Net | | instruments at | | on | | in foreign | | Flows | | benefits | | Deferred | | comprehensive | | Comprehensive |
Subsidiaries | | controlling | | Equity | | income | | FVTOCI (4) | | translation | | operations | | hedges | | obligations | | Tax | | income | | income |
|
| % |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| | | | | | | | | | | | | | | | | | | | | | |
Itaú Corredor de Seguro Colombia S.A. | | 20.200 | % | 409 | | 15 | | — | | — | | — | | — | | — | | — | | — | | 15 |
Itaú Corpbanca Colombia S.A. y filiales (4) | | 33.721 | % | 217,673 | | (4,500) | | (664) |
| 10,244 |
| (1,195) |
| — |
| (254) |
| 305 |
| 8,436 | | 3,936 |
Itaú Corredores de Seguros S.A. (5) | | — | % | — | | 8 | | — |
| — |
| — |
| — |
| — |
| — | | — | | 8 |
Totals | | | | 218,082 | | (4,477) | | (664) |
| 10,244 |
| (1,195) |
| — |
| (254) |
| 305 |
| 8,436 | | 3,959 |
(4) | Financial instruments at FVOCI includes debt instruments for MCh$827 loss and equity instruments MCh$163 gain. |
(5) | On April 1, 2018, the merger of Corpbanca Corredores de Seguro S.A. and Itaú Chile Corredora de Seguros Limitada through the absorption of this last entity in the first took place, being its new name Itaú Corredores de Seguros S.A. On September 10, 2018, Itaú Corpbanca acquired 127,901 shares from minority investors. As a result, the Bank and its subsidiaries own a 100% of the Company shares. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-138 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 24 – Equity, continued
(6) | On December 10, 2018, Itaú Corpbanca acquired 1 share from minority investors. As a result, the Bank and its subsidiaries own a 100% of the Company shares. |
(7) | On July 4, 2018, Itaú Asesorías Financieras acquired 2 shares from minority investors. As a result, the Bank and its subsidiaries own a 100% of the Company shares. |
The following table shows the non-controlling interest movements for the year ended December 31, 2020, 2019 and 2018:
| | | | | | |
| | As of December 31, | ||||
| | 2020 | | 2019 | | 2018 |
|
| MCh$ |
| MCh$ |
| MCh$ |
Opening balances as of January 1, | | 94,445 | | 218,082 | | 217,280 |
Changes due to initial application of IFRS 9 |
| — |
| — |
| (3,157) |
Restated opening balances as of January 1, |
| 94,445 |
| 218,082 |
| 214,123 |
Increase participation in Colombia |
| — |
| (151,531) |
| — |
Comprehensive income |
| (25,358) |
| 27,894 |
| 3,959 |
Ending balances as of December 31, |
| 69,087 |
| 94,445 |
| 218,082 |
Details for the main subsidiary of Itaú Corpbanca with non-controlling interest are as follows:
| | | | | | | | | | | |
| | | | As of December 31, | |||||||
| | | | 2020 | | 2019 | | ||||
|
| |
| Group |
| Non-controlling |
| Group |
| Non-controlling | |
Entity Name |
| Country |
| participation |
| participation |
| participation |
| participation |
|
Itaú Corpbanca Colombia S.A. and subsidiaries | | Colombia | | 87.100 | % | 12.900 | % | 87.100 | % | 12.900 | % |
Summarized financial information for the main subsidiary with non-controlling interest, is as follows:
| | | | |
| | As of December 31, | ||
Summary Statements of Financial Position | | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
Current assets |
| 5,177,419 |
| 5,383,819 |
Current liabilities |
| (3,184,281) |
| (3,112,252) |
Net current assets (liabilities) |
| 1,993,138 |
| 2,271,567 |
| | | | |
Non-current assets |
| 856,927 |
| 1,174,958 |
Non-current liabilities |
| (2,286,951) |
| (2,729,714) |
Net non-current assets (liabilities) |
| (1,430,024) |
| (1,554,756) |
| | | | |
Total net assets (liabilities) |
| 563,114 |
| 716,811 |
| | | | |
Accumulated non-controlling interest | | 68,683 | | 93,967 |
| | | | |
| | For the years ended December 31, | ||
Summary Income Statements |
| 2020 |
| 2019 |
| | MCh$ | | MCh$ |
Interest income and readjustments |
| 418,477 |
| 528,150 |
Income for the year |
| (101,498) |
| 16,490 |
Non-controlling interests income |
| (17,338) |
| 10,713 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-139 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 24 – Equity, continued
| | | | |
| | For the years ended December 31, | ||
Summary Cash Flows Statements | | 2020 | | 2019 |
|
| MCh$ |
| MCh$ |
| | | | |
Net cash flows provided by (used in) operating activities |
| (109,188) |
| (359,168) |
Net cash flows provided by (used in) investing activities |
| 27,673 |
| 111,607 |
Net cash flows provided by (used in) financing activities |
| 74,137 |
| 115,303 |
Net increase (decrease) in cash flows |
| (7,378) |
| (132,258) |
g) Consolidated comprehensive income for the years ended December 31, 2020, 2019 and 2018
hfs | | | | | | |
| | 2020 | ||||
| | Equity holders | | Non-controlling | | |
Concepts | | of the Bank | | interest | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
Income (loss) for the year |
| (808,784) | | (17,371) |
| (826,155) |
Other comprehensive income (loss) before income taxes |
| | | |
|
|
Debt instruments at fair value through other comprehensive income |
| (4,330) | | (3,905) |
| (8,235) |
Hedge of net investment in foreign operations |
| 80,722 | | — |
| 80,722 |
Cash flows hedge |
| (7,799) | | 2,117 |
| (5,682) |
Exchange differences |
| (64,169) | | (7,602) |
| (71,771) |
Changes in the fair value of equity investments at fair value through other comprehensive income |
| 310 | | 46 |
| 356 |
Defined benefits obligation | | (1,632) | | 1,629 | | (3) |
Subtotals |
| 3,102 |
| (7,715) |
| (4,613) |
Income taxes |
|
|
|
|
|
|
Debt instruments at fair value through other comprehensive income |
| (55) | | 1,613 |
| 1,558 |
Hedge of net investment in foreign operations |
| (21,795) | | — |
| (21,795) |
Cash flows hedge |
| (1,602) | | (1,432) |
| (3,034) |
Defined benefits obligation |
| 434 | | (453) |
| (19) |
Subtotals |
| (23,018) |
| (272) |
| (23,290) |
Other comprehensive loss for the year |
| (19,916) |
| (7,987) |
| (27,903) |
Comprehensive loss for the year |
| (828,700) |
| (25,358) |
| (854,058) |
| | | | | | |
| | 2019 | ||||
| | Equity holders | | Non-controlling | | |
Concepts | | of the Bank | | interest | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
Income (loss) for the year |
| 113,684 |
| 10,838 |
| 124,522 |
Other comprehensive income (loss) before income taxes |
|
|
|
|
|
|
Debt instruments at fair value through other comprehensive income |
| 21,025 |
| 678 |
| 21,703 |
Hedge of net investment in foreign operations |
| (46,786) | | — |
| (46,786) |
Cash flow hedge |
| (6,381) | | (411) |
| (6,792) |
Exchange differences |
| 56,487 | | 17,368 |
| 73,855 |
Changes in the fair value of equity investments at fair value through other comprehensive income |
| 540 | | 274 |
| 814 |
Defined benefits obligation | | (3,248) | | (1,184) | | (4,432) |
Subtotals |
| 21,637 |
| 16,725 |
| 38,362 |
Income taxes |
|
|
|
|
|
|
Debt instruments at fair value through other comprehensive income |
| (5,801) |
| (125) |
| (5,926) |
Hedge of net investment in foreign operations |
| 14,373 |
| — |
| 14,373 |
Cash flow hedge |
| (185) |
| 23 |
| (162) |
Defined benefits obligation |
| 1,109 |
| 433 |
| 1,542 |
Subtotals |
| 9,496 |
| 331 |
| 9,827 |
Other comprehensive income for the year |
| 31,133 |
| 17,056 |
| 48,189 |
Comprehensive income for the year |
| 144,817 |
| 27,894 |
| 172,711 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-140 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 24 – Equity, continued
| | | | | | |
| | 2018 | ||||
| | Equity holders | | Non-controlling | | |
Concepts | | of the Bank | | interest | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
Income (loss) for the year |
| 171,331 |
| (4,477) |
| 166,854 |
Other comprehensive income (loss) before income taxes |
|
|
|
|
| |
Debt instruments at fair value through other comprehensive income |
| (614) |
| (827) |
| (1,441) |
Net investment in foreign operations hedges |
| (35,338) |
| (1,195) |
| (36,533) |
Cash flow hedges |
| 11,289 |
| — |
| 11,289 |
Exchange differences |
| 38,366 |
| 10,244 |
| 48,610 |
Changes in the fair value of equity investments at fair value through other comprehensive income | | 319 | | 163 | | 482 |
Defined benefits obligations |
| (500) |
| (254) |
| (754) |
Subtotals |
| 13,522 |
| 8,131 |
| 21,653 |
Income taxes |
|
|
|
|
|
|
Debt instruments at fair value through other comprehensive income |
| (1,468) |
| (704) |
| (2,172) |
Net investment in foreign operations hedges |
| 9,541 |
| 1,024 |
| 10,565 |
Cash flows hedges |
| (1,669) |
| — |
| (1,669) |
Defined benefits obligations |
| (29) |
| (15) |
| (44) |
Subtotals |
| 6,375 |
| 305 |
| 6,680 |
Other comprehensive income (loss) for the year |
| 19,897 |
| 8,436 |
| 28,333 |
Comprehensive income (loss) for the year |
| 191,228 |
| 3,959 |
| 195,187 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-141 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 25 - Interest Income and Interest Expense
This item comprises interest accrued in the year by all financial assets and liabilities, interest income and expenses, whose implicit or explicit performance is measured by applying the effective interest rate method, independently if these are measured at fair value, as well as the effects from accounting hedges, which are part of the interest income and expenses included in the Consolidated Statement of Income (Loss) for the year.
a) The composition of interest income and inflation-indexing for the years ended December 31, 2020, 2019 and 2018 is as follows:
| | | | | | | | | | | | | | | | | | |
| | For the years ended December 31, | ||||||||||||||||
| | 2020 | | 2019 | | 2018 | ||||||||||||
|
| |
| Inflation |
| |
| |
| Inflation |
| |
| |
| Inflation |
| |
| | Interest | | adjustments (1) | | Totals | | Interest | | adjustments (1) | | Totals | | Interest | | adjustments (1) | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Investments under agreements to resell |
| 3,567 |
| — |
| 3,567 |
| 4,996 |
| (2) |
| 4,994 |
| 4,988 |
| — |
| 4,988 |
Interbank loans |
| 1,541 |
| — |
| 1,541 |
| 4,361 |
| — |
| 4,361 |
| 5,013 |
| — |
| 5,013 |
Commercial loans |
| 732,791 |
| 116,425 |
| 849,216 |
| 850,212 |
| 119,461 |
| 969,673 |
| 816,193 |
| 115,468 |
| 931,661 |
Mortgage loans |
| 189,833 |
| 116,993 |
| 306,826 |
| 202,945 |
| 107,352 |
| 310,297 |
| 196,598 |
| 107,364 |
| 303,962 |
Consumer loans |
| 323,836 |
| 130 |
| 323,966 |
| 379,030 |
| 135 |
| 379,165 |
| 372,148 |
| 194 |
| 372,342 |
Financial investments |
| 58,083 |
| 20,955 |
| 79,038 |
| 79,114 |
| 15,539 |
| 94,653 |
| 101,274 |
| 19,060 |
| 120,334 |
Other interest income |
| 7,624 |
| 1,821 |
| 9,445 |
| 17,588 |
| 2,543 |
| 20,131 |
| 10,882 |
| 9,850 |
| 20,732 |
Gain (loss) from accounting hedges (*) |
| 25,980 |
| (49,905) |
| (23,925) |
| (9,634) |
| — |
| (9,634) |
| (19,715) |
| — |
| (19,715) |
Totals |
| 1,343,255 |
| 206,419 |
| 1,549,674 |
| 1,528,612 |
| 245,028 |
| 1,773,640 |
| 1,487,381 |
| 251,936 |
| 1,739,317 |
b) For the years ended December 31, 2020, 2019 and 2018, the detail of the amount of interest and inflation-indexation adjustment expense is as follows:
| | | | | | | | | | | | | | | | | | |
| | For the years ended December 31, | ||||||||||||||||
| | 2020 | | 2019 | | 2018 | ||||||||||||
|
| |
| Inflation |
| |
| |
| Inflation |
| |
| |
| Inflation |
| |
| | Interest | | adjustments (1) | | Totals | | Interest | | adjustments (1) | | Totals | | Interest | | adjustments (1) | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Deposits and other demand liabilities |
| (46,530) |
| (312) |
| (46,842) |
| (52,181) |
| (220) |
| (52,401) |
| (49,536) |
| (141) |
| (49,677) |
Obligations under repurchase agreements |
| (8,621) |
| (1) |
| (8,622) |
| (26,349) |
| — |
| (26,349) |
| (29,660) |
| (4) |
| (29,664) |
Time deposits and other time liabilities |
| (254,633) |
| (7,764) |
| (262,397) |
| (369,048) |
| (8,560) |
| (377,608) |
| (370,206) |
| (15,528) |
| (385,734) |
Interbank borrowings |
| (55,541) |
| — |
| (55,541) |
| (81,557) |
| — |
| (81,557) |
| (69,054) |
| (206) |
| (69,260) |
Debt instruments issued |
| (200,911) |
| (129,539) |
| (330,450) |
| (212,346) |
| (130,127) |
| (342,473) |
| (199,420) |
| (122,832) |
| (322,252) |
Other financial liabilities |
| (215) |
| — |
| (215) |
| (501) |
| — |
| (501) |
| (752) |
| — |
| (752) |
Lease obligations | | (4,923) | | 4 | | (4,919) | | (5,034) | | (92) | | (5,126) | | — | | — | | — |
Other Interest expense |
| (84) |
| (7,543) |
| (7,627) |
| (79) |
| (3,227) |
| (3,306) |
| (397) |
| (4,292) |
| (4,689) |
Gain (loss) from hedge accounting (*) |
| 33,376 |
| — |
| 33,376 |
| 16,099 |
| — |
| 16,099 |
| 10,374 |
| — |
| 10,374 |
Totals |
| (538,082) |
| (145,155) |
| (683,237) |
| (730,996) |
| (142,226) |
| (873,222) |
| (708,651) |
| (143,003) |
| (851,654) |
(1) The inflation indexation adjustment 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 28 “Net foreign exchange income (losses)”).
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-142 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 26 - Fee and Commission Income and Expense
This item comprises the amount of all commissions accrued and paid in the year, except for those that form an integral part of the effective interest rate of the financial instruments.
a) Fee and commission income
This item comprises the financial income for the year corresponding to remunerations generated by the services rendered by the Bank and its subsidiaries and corresponds to the following items:
| | | | | | |
| | For the years ended December 31, | ||||
|
| 2020 |
| 2019 |
| 2018 |
| | MCh$ | | MCh$ | | MCh$ |
Fees and commissions from lines of credits and overdrafts |
| 1,990 |
| 1,553 |
| 5,292 |
Fees and commissions from guarantees and letters of credit |
| 20,043 |
| 15,147 |
| 15,317 |
Fees and commissions from card services |
| 58,359 |
| 75,574 |
| 72,932 |
Fees and commissions from accounts management |
| 12,438 |
| 15,406 |
| 11,512 |
Fees and commissions from collections and payments |
| 24,419 |
| 23,921 |
| 20,359 |
Fees and commissions from brokerage and securities management |
| 9,365 |
| 9,844 |
| 10,966 |
Fees and commissions from asset management |
| 23,086 |
| 25,845 |
| 24,718 |
Compensation for insurance brokerage |
| 30,097 |
| 35,783 |
| 36,693 |
Investment banking and advisory fees |
| 7,471 |
| 20,657 |
| 19,403 |
Fees and commissions from student loans ceded |
| 5,639 |
| 5,735 |
| 5,300 |
Commissions on loan transactions |
| 742 |
| 893 |
| 651 |
Commissions for mortgage loans |
| 39 |
| 1,300 |
| 1,486 |
Other fees from services rendered |
| 6,838 |
| 10,321 |
| 10,982 |
Other commissions earned |
| 3,852 |
| 2,217 |
| 2,345 |
Totals |
| 204,378 |
| 244,196 |
| 237,956 |
b) Fee and commission expense
This item includes expenses for commissions accrued during the year from operations, and corresponds to the following items:
| | | | | | |
| | For the years ended December 31, | ||||
|
| 2020 |
| 2019 |
| 2018 |
| | MCh$ | | MCh$ | | MCh$ |
Compensation for cards transactions |
| (38,822) |
| (55,232) |
| (35,676) |
Fees and commissions for securities transactions |
| (4,660) |
| (2,716) |
| (2,963) |
Commissions paid for foreign trade transactions |
| (2,438) |
| (2,300) |
| (2,550) |
Commissions paid for customer loyalty program benefits |
| (11,082) |
| (3,725) |
| (2,607) |
Commissions paid for services to customers management |
| (1,808) |
| (3,905) |
| (3,455) |
Other commissions paid |
| (4,569) |
| (1,914) |
| (4,576) |
Totals |
| (63,379) |
| (69,792) |
| (51,827) |
Commissions earned on loans with mortgage finance bonds are recorded in the Consolidated Statement of Income (Loss) under “Interest income.”
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-143 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 26 - Fee and Commission Income and Expense, continued
c) Below are the income and expenses for commissions generated by segment and the revenue recognition calendar for ordinary activities, for the year ended December 31, 2020 according to IFRS 15.
| | | | | | | | | | | | |
| | | | | | | | Revenue recognition calendar | ||||
| | Segments | | for ordinary activities | ||||||||
| | | | | | | | | | Transferred | | |
| | | | | | | | Transferred | | at a point in | | Accrual |
|
| Chile |
| Colombia |
| Total |
| over time |
| time |
| model |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Fees and commissions from lines of credits and overdrafts | | 1,870 | | 120 | | 1,990 | | 1,990 | | — | | — |
Fees and commissions from guarantees and letters of credit | | 16,077 | | 3,966 | | 20,043 | | 20,043 | | — | | — |
Fees and commissions from card services | | 35,234 | | 23,125 | | 58,359 | | — | | 58,359 | | — |
Fees and commissions from accounts management | | 10,906 | | 1,532 | | 12,438 | | — | | 12,438 | | — |
Fees and commissions from collections and payments | | 12,244 | | 12,175 | | 24,419 | | — | | 10,500 | | 13,919 |
Fees and commissions from brokerage and securities management | | 4,375 | | 4,990 | | 9,365 | | — | | 9,365 | | — |
Fees and commissions from asset management | | 12,641 | | 10,445 | | 23,086 | | — | | 23,086 | | — |
Compensation for insurance brokerage | | 29,025 | | 1,072 | | 30,097 | | — | | 1,072 | | 29,025 |
Investment banking and advisory fees | | 7,237 | | 234 | | 7,471 | | 223 | | 7,248 | | — |
Fees and commissions from student loans ceded | | 5,639 | | — | | 5,639 | | — | | 5,639 | | — |
Commissions on loan transactions | | 616 | | 126 | | 742 | | — | | 742 | | — |
Commissions for mortgage loans | | 39 | | — | | 39 | | — | | 39 | | — |
Other commissions earned | | 6,371 | | 4,319 | | 10,690 | | — | | 10,690 | | — |
Totals | | 142,274 |
| 62,104 | | 204,378 | | 22,256 | | 139,178 | | 42,944 |
| | | | | | | | | | | | |
| | | | | | | | Revenue recognition calendar | ||||
| | Segments | | for ordinary activities | ||||||||
| | | | | | | | | | Transferred | | |
| | | | | | | | Transferred | | at a point in | | Accrual |
|
| Chile |
| Colombia |
| Total |
| over time |
| time |
| model |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Compensation for cards transactions |
| (17,687) | | (21,135) |
| (38,822) | | — | | (38,822) |
| — |
Fees and commissions for securities transactions |
| (3,604) | | (1,056) |
| (4,660) | | — | | (4,660) |
| — |
Commissions paid for foreign trade transactions |
| — | | — |
| — | | — | | — |
| — |
Commissions paid for customer loyalty program benefits |
| — | | — |
| — | | — | | — |
| — |
Commissions paid for services to customers management |
| — | | — |
| — | | — | | — |
| — |
Other commissions paid |
| (12,843) | | (7,054) |
| (19,897) | | — | | (19,897) |
| — |
Totals |
| (34,134) |
| (29,245) |
| (63,379) |
| — |
| (63,379) |
| — |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-144 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 27 - Net Income (Expense) from Financial Operations
This item includes the amount of changes in the fair value of financial instruments, except those attributable to interest accrued by applying the effective interest rate method, as well as the results obtained in the purchase and sale thereof.
Net income (expense) from financial operations in the Consolidated Statements of Income for the year is as follows:
| | | | | | |
| | For the years ended December 31, | ||||
|
| 2020 |
| 2019 |
| 2018 |
| | MCh$ | | MCh$ | | MCh$ |
Trading instruments (securities) |
| 23,696 |
| 17,287 |
| 2,527 |
Financial derivative contracts (trading) |
| 40,714 |
| 77,040 |
| 152,732 |
Sale of loans and accounts receivable from customers (*) |
| 6,476 |
| 14,588 |
| 1,602 |
Net gain on sale of financial instruments at fair value through other comprehensive income | | 58,092 |
| 35,489 | | 13,765 |
Net result of ineffectiveness and discontinuation of hedge accounting |
| (19,890) | | (2,597) |
| — |
Others |
| 1,799 |
| 1,827 |
| 2,129 |
Totals |
| 110,887 |
| 143,634 |
| 172,755 |
(*) See details Note 10, letter d.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-145 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 28 - Net Foreign Exchange Gain (Loss)
This item includes the income earned from foreign currency trading, differences arising from converting monetary items in a foreign currency to the functional currency, and those generated by non-monetary assets in foreign currency at the time of their disposal. Net foreign exchange gains (losses) details are as follows:
| | | | | | |
| | For the years ended December 31, | ||||
|
| 2020 |
| 2019 |
| 2018 |
| | MCh$ | | MCh$ | | MCh$ |
Net foreign exchange gain (loss) |
|
|
|
|
|
|
Gain (loss) on net foreign currency exchange positions |
| (50,822) |
| 37,404 |
| (64,278) |
Other foreign currency exchange gains (losses) |
| 2,651 |
| 4,128 |
| 5,421 |
Subtotals |
| (48,171) |
| 41,532 |
| (58,857) |
Net exchange rate adjustments gain (loss) |
|
|
|
|
|
|
Adjustments for loans and accounts receivable from customers |
| (538) |
| 702 |
| 93 |
Adjustment for investment instruments |
| — |
| — |
| 105 |
Adjustment for other assets and liabilities |
| (4) |
| 2 |
| (322) |
Net gain (loss) from hedge accounting |
| (25,751) |
| (14,610) |
| 41,016 |
Subtotals |
| (26,293) |
| (13,906) |
| 40,892 |
Totals |
| (74,464) |
| 27,626 |
| (17,965) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-146 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 29 - Provisions for Impairment of Financial Assets
The movement registered in income for the year related to allowances and impairment due to credit risk, for the year ended December 31, 2020 and 2019, is summarized as follows:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | Financial | | Financial | | | | |
| | Interbank | | Loans and accounts receivable from customers at amortized cost | | instruments at | | instruments at | | Contingent | | | ||||
2020 | | loans | | Commercial | | Mortgage | | Consumer | | FVTOCI | | amortized cost | | loans | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Loss for provisions established |
| (10) |
| (541,857) |
| (27,516) |
| (223,664) |
| (250) |
| (86) |
| (16,366) |
| (809,749) |
Income for provisions released |
| 218 |
| 173,955 |
| 9,667 |
| 86,312 |
| 1,649 |
| 9 |
| 10,861 |
| 282,671 |
Recovery of loans previously charged-off |
| — |
| 25,511 |
| 2,558 |
| 32,779 |
| |
| |
| — |
| 60,848 |
Net charge to income |
| 208 |
| (342,391) |
| (15,291) |
| (104,573) |
| 1,399 |
| (77) |
| (5,505) |
| (466,230) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | Financial | | Financial | | | | |
| | Interbank | | Loans and accounts receivable from customers at amortized cost | | instruments at | | instruments at | | Contingent | | | ||||
2019 | | loans | | Commercial | | Mortgage | | Consumer | | FVTOCI | | amortized cost | | loans | | Totals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | | MCh$ |
Loss for provisions established |
| (507) |
| (423,043) |
| (35,031) |
| (279,002) |
| (2,223) |
| (9) |
| (25,577) | | (765,392) |
Income for provisions released |
| 765 |
| 178,243 |
| 9,102 |
| 89,247 |
| 19 |
| — |
| 46,673 | | 324,049 |
Recovery of loans previously charged-off |
| — |
| 22,213 |
| 2,791 |
| 33,661 |
| — |
| — |
| — | | 58,665 |
Net charge to income |
| 258 |
| (222,587) |
| (23,138) |
| (156,094) |
| (2,204) |
| (9) |
| 21,096 | | (382,678) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Financial | | Financial | | | | | |
| | Interbank | | Loans and accounts receivable from customers at amortized cost | | instruments at | | instruments at | | Contingent | | | | ||||
2018 | | loans | | Commercial | | Mortgage | | Consumer | | FVTOCI | | amortized cost | | loans | | Totals | |
| | MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Loss for provisions established | | (344) |
| (634,886) |
| (78,185) |
| (562,620) |
| (25) |
| — |
| (14,511) |
| (1,290,571) | (*) |
Income for provisions released | | 131 |
| 474,192 |
| 78,873 |
| 380,294 |
| 411 |
| 50 |
| 28,354 |
| 962,305 | (*) |
Recovery of loans previously charged-off | | — |
| 19,921 |
| 2,588 |
| 25,959 |
| — |
| — |
| — |
| 48,468 | |
Net charge to income | | (213) |
| (140,773) |
| 3,276 |
| (156,367) |
| 386 |
| 50 |
| 13,843 |
| (279,798) | |
(*) | The amounts in the Consolidated Statements of Cash Flows for the year are as follows: |
| | | | | | |
| | For the years ended December 31, | ||||
|
| 2020 |
| 2019 |
| 2018 |
| | MCh$ | | MCh$ | | MCh$ |
Charge to income for provisions established |
| 809,749 |
| 765,392 |
| 1,290,571 |
Credit to income for provisions used |
| (282,671) |
| (324,049) |
| (962,305) |
| | 527,078 |
| 441,343 |
| 328,266 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-147 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 29 - Provisions for Impairment of Financial Assets, continued
The detail by type of loans, analyzed collectively and individually, which were constituted and released by way of provision, is as follows:
| | | | | | | | |
| | | | As of December 31, 2020 | ||||
|
| Note |
| Provision established |
| Provision released |
| Totals |
| | | | MCh$ | | MCh$ | | MCh$ |
Commercial |
|
|
| (541,857) | | 173,955 |
| (367,902) |
Mortgage |
|
|
| (27,516) |
| 9,667 |
| (17,849) |
Consumer |
|
|
| (223,664) |
| 86,312 |
| (137,352) |
Subtotals |
| 10 |
| (793,037) |
| 269,934 |
| (523,103) |
Interbank loans, net |
| 9 |
| (10) |
| 218 |
| 208 |
Totals |
|
|
| (793,047) |
| 270,152 |
| (522,895) |
| | | | | | | | |
| | | | As of December 31, 2019 | ||||
|
| Note |
| Provision established |
| Provision released |
| Totals |
| | | | MCh$ | | MCh$ | | MCh$ |
Commercial |
|
|
| (423,043) | | 178,243 |
| (244,800) |
Mortgage |
|
|
| (35,031) |
| 9,102 |
| (25,929) |
Consumer |
|
|
| (279,002) |
| 89,247 |
| (189,755) |
Subtotals |
| 10 |
| (737,076) |
| 276,592 |
| (460,484) |
Interbank loans, net |
| 9 |
| (507) |
| 765 |
| 258 |
Totals |
|
|
| (737,583) |
| 277,357 |
| (460,226) |
| | | | | | | | | |
| | | | As of December 31, 2018 | |||||
| | | | Provisions established | | ||||
|
| Note |
| Provision established |
| Provision released |
| Totals |
|
| | | | MCh$ | | MCh$ | | MCh$ | |
Commercial |
|
|
| (634,886) |
| 474,192 |
| (160,694) |
|
Mortgage |
|
|
| (78,185) |
| 78,873 |
| 688 |
|
Consumer |
|
|
| (562,620) |
| 380,294 |
| (182,326) |
|
Subtotals |
| 10 |
| (1,275,691) |
| 933,359 |
| (342,332) |
|
Interbank loans, net |
| 9 |
| (344) |
| 131 |
| (213) |
|
Totals |
|
|
| (1,276,035) |
| 933,490 |
| (342,545) |
|
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-148 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 30 - Personnel Salaries and Expenses
Personnel salaries expenses for the years ended December 31, 2020, 2019 and 2018 are broken down as follows:
| | | | | | |
| | For the years ended December 31, | ||||
|
| 2020 |
| 2019 |
| 2018 |
| | MCh$ | | MCh$ | | MCh$ |
Personnel compensation |
| (185,677) |
| (181,431) |
| (176,083) |
Bonuses or gratifications |
| (68,154) |
| (82,129) |
| (84,754) |
Compensation for years of service |
| (17,292) |
| (12,830) |
| (12,477) |
Training expenses |
| (931) |
| (825) |
| (804) |
Health and life insurance |
| (2,831) |
| (2,910) |
| (2,590) |
Other personnel expenses |
| (17,306) |
| (18,084) |
| (18,039) |
Totals |
| (292,191) |
| (298,209) |
| (294,747) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-149 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 31 - Administrative Expenses
For the years ended as of December 31, 2020, 2019 and 2018, the composition of this item is as follows:
| | | | | | |
| | For the years ended December 31, | ||||
|
| 2020 |
| 2019 |
| 2018 |
| | MCh$ | | MCh$ | | MCh$ |
Administrative expenses |
| (181,514) |
| (177,919) |
| (214,666) |
Maintenance and repair of fixed assets |
| (32,637) |
| (35,213) |
| (31,673) |
Office lease |
| — |
| — |
| (36,201) |
Equipment lease |
| — |
| — |
| (2,925) |
Insurance payments |
| (17,428) |
| (16,389) |
| (20,704) |
Office supplies |
| (1,756) |
| (1,679) |
| (1,885) |
IT and communications expenses |
| (53,839) |
| (47,878) |
| (43,667) |
Utilities and other services |
| (3,931) |
| (4,558) |
| (4,443) |
Security and transportation of securities services |
| (6,754) |
| (5,232) |
| (5,250) |
Representation and personnel travel expenses |
| (1,263) |
| (3,345) |
| (3,612) |
Legal and notarial expenses |
| (21,675) |
| (20,384) |
| (15,112) |
Technical report fees |
| (13,180) |
| (13,647) |
| (11,626) |
Professional services fees |
| (1,629) |
| (1,656) |
| (1,825) |
Fees for classification of titles |
| — |
| — |
| (134) |
Fines |
| (133) |
| (1,947) |
| (6,059) |
ATM maintenance and management services |
| (2,460) |
| (2,436) |
| (2,630) |
Temporary external services |
| (372) |
| (1,032) |
| (545) |
Postage and mailing expenses |
| (1,752) |
| (1,110) |
| (1,341) |
Internal events |
| (330) |
| (648) |
| (248) |
Commercial programs |
| (706) |
| (1,246) |
| (1,242) |
Credit card management services |
| (1,180) |
| (4,051) |
| (3,102) |
Other administrative expenses |
| (20,489) |
| (15,468) |
| (20,442) |
|
| |
|
|
|
|
Subcontracted services |
| (28,539) |
| (22,134) |
| (22,303) |
Data processing |
| (10,929) |
| (12,990) |
| (13,044) |
Products sales |
| (865) |
| — |
| (275) |
Others |
| (16,745) |
| (9,144) |
| (8,984) |
|
| |
|
|
|
|
Board of Directors compensation |
| (1,310) |
| (1,350) |
| (1,529) |
|
|
|
|
|
|
|
Marketing and advertising |
| (11,914) |
| (13,353) |
| (14,384) |
|
|
|
|
|
|
|
Real estate taxes, contributions and levies |
| (34,476) |
| (34,125) |
| (38,854) |
Real estate taxes |
| (347) |
| (286) |
| (393) |
Patents |
| (1,353) |
| (1,206) |
| (1,121) |
Other taxes (*) |
| (23,660) |
| (24,467) |
| (29,324) |
Contributions to CMF |
| (9,116) |
| (8,166) |
| (8,016) |
Totals |
| (257,753) |
| (248,881) |
| (291,736) |
(*) These amounts primarily correspond to taxes other than income taxes that affect Itaú Corpbanca Colombia and its subsidiaries (Colombian segment). These are taxes on local financial transactions, ongoing performance of commercial activities or services, non-discountable value added tax and equity tax, among others.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-150 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 32 - Depreciation, Amortization, and Impairment
a) Depreciation and amortization
The amounts corresponding to charges to results for depreciation and amortization for the years ended December 31, 2020, 2019 and 2018, are detailed below:
| | | | | | | | |
| | | | For the years ended December 31, | ||||
|
| Notes |
| 2020 |
| 2019 |
| 2018 |
| | | | MCh$ | | MCh$ | | MCh$ |
Depreciation of property, plant and equipment |
| 14 |
| (21,826) |
| (21,169) |
| (20,659) |
Amortization of intangible assets | | 13 |
| (74,625) |
| (74,140) |
| (66,158) |
Depreciation of assets for right to use of assets |
| 15 |
| (29,993) |
| (31,857) |
| — |
Totals |
|
|
| (126,444) |
| (127,166) |
| (86,817) |
b) Impairment
For the years ended December 31, 2020, 2019 and 2018, the composition of this item is as follows:
| | | | | | |
| | For the years ended December 31, | ||||
|
| 2020 |
| 2019 |
| 2018 |
| | MCh$ | | MCh$ | | MCh$ |
Impairment of financial investments at FVOCI |
| — |
| — |
| — |
Impairment of financial investments at amortized cost |
| — |
| — |
| — |
Subtotal financial assets |
| — |
| — |
| — |
Impairment of intangible assets (1) | | (38,849) | | — | | — |
Impairment of intangibles generated in business combinations (2) | | (113,911) | | — | | — |
Impairment of goodwill (3) | | (651,825) | | — | | — |
Impairment of property, plant and equipment (4) (5) (6) |
| (10,294) |
| (728) |
| (28) |
Subtotal Non-financial assets |
| (814,879) |
| (728) |
| (28) |
Totals |
| (814,879) |
| (728) |
| (28) |
(1) | Impairment of intangibles due to the integration of the systems in Chile: MCh$31,426 for systems and MCh$3,098 for projects. Also includes deterioration of systems and software in Colombia of MCh$4,325. |
(2) | Impairment of intangibles generated in business combinations includes MCh$113,138 from Itaú Corpbanca Colombia and MCh$773 from Itaú Corredor de Seguros Colombia. |
(3) | Impairment of Goodwill for MCh$412,356 in Chile CGU and MCh$239,469 in Colombia CGU. |
(4) | Impairment of ATM equipment for MCh$24. |
(5) | Impairment of fixed assets due to restructuring plan for MCh$867. |
(6) | Impairment of improvements in leased properties due to restructuring due to the restructuring plan for MCh$9,403. |
The Bank has defined two CGUs: CGU Chile (Itaú Corpbanca and its Chileans subsidiaries and subsidiary allocated in New York) and CGU Colombia (Itaú Corpbanca Colombia and its subsidiaries and Itaú Corredores de Seguros S.A.). These CGUs were defined based on their main geographic areas. Their cash flow generation and performance are analyzed separately by the Executive Committee (C-suite) because their contributions to the consolidated entity may be identified independently. It is worth mentioning that these CGUs are consistent with the Bank’s operating segments (see Note 4).
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-151 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 32 - Depreciation, Amortization, and Impairment, continued
Carrying amount of these CGUs, in a pre-taxes basis before impairment losses recognition, is as follows:
| | | | |
| | As of June 30, | | As of December 31, |
CGU |
| 2020 |
| 2019 |
| | MCh$ | | MCh$ |
Chile |
| 2,261,620 |
| 2,366,517 |
Colombia |
| 942,653 |
| 959,821 |
(*) | Includes the effects of the acquisition of minority interests in Colombia that took place on December 3, 2019. See Note 1, letter c) |
b.1) Impairment test results and impairment losses recognition as of June 30, 2020
i) Impairment test results
As a consequence of the aforementioned impairment evaluation process, Management concludes that the recoverable amount and carrying amounts ratio of the CGUs as of June 30, 2020 is as follows:
| | | | |
| | | | |
| | As of June 30, 2020 | ||
Main assumptions |
| Chile |
| Colombia |
Recoverable Amount / Carrying Value | (%) | 86.81% | | 62.50% |
The recoverable amount for each CGU corresponds to the value in use, the higher of the fair value less costs to sell and the value in use.
ii) Assumptions used in calculations of the recoverable amount
The key assumptions used in calculating the recoverable amount, defined as those to which the calculation is most sensitive, are presented below:
| | | | |
| | | | |
| | As of June 30, 2020 | ||
| | 2020 | ||
|
| Chile |
| Colombia |
Perpetuity rate | (%) | 5.20 | | 6.50 |
Projected inflation rate | (%) | 3.00 | | 3.00 |
Discount rate | (%) | 10.40 | | 12.31 |
Loans growth | (%) | 5.67 - 7.41 | | 6.25 - 8.82 |
Solvency index limit | (%) | 10.81 - 12.12 | | 10.00 - 11.70 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-152 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 32 - Depreciation, Amortization, and Impairment, continued
iii) Impairment loss recognition
As a result of the recent development of events described in Note 3 “Significant events”, recoverable amount for the CGUs was estimated at the end of the second quarter of 2020, resulting in the recognition of an impairment loss of Ch$765,736 million (Ch$731,189 net of deferred taxes) on the following assets of the respective CGUs as of June 30, 2020:
| | | |
| | | |
Impairmente of intangible assets (1) | CGU Chile | CGU Colombia | Totals |
| MCh$ | MCh$ | MCh$ |
Goodwill impairment loss | (412,356) | (239,469) | (651,825) |
Intangibles assets generated in a business combination impairment loss | — | (113,911) | (113,911) |
Total impairment of Chile and Colombia CGUs | (412,356) | (353,380) | (765,736) |
(1) | As reported in 2016 in the original recognition of the business combination between Banco Itaú Chile and Corpbanca, as described in Note 1, resulted in a registration of a goodwill not deductible for income tax purposes, therefore, the recognition of impairment loss does not generate effects on tax results. On the other hand, the intangibles assets generated in the business combination had an associated deferred tax liability of Ch$34,547 million, which generated an impact on income tax results equivalent to that amount, by recognizing the impairment. Considering the above, the effect on income net of taxes generated by the recognition of the impairment loss amounts to Ch$731,189 million, distributed between Ch$720,951 million attributable to the owners of the Bank and Ch$10,238 million attributable to non-controlling interest. |
As of December 31, 2020, the Bank has updated the impairment test in order to determine the impairment at the end of this fiscal year and concluded that there was no need to record an additional goodwill impairment loss.
b.2) Goodwill impairment test as of December 31, 2020
i) Goodwill allocation
The Goodwill allocated to each of the identified CGUs1 generated in the reverse acquisition described in Note 1, section “General Information – Background of Itaú Corpbanca and subsidiaries”, and the movements experienced during the year, are presented below:
| | |
| | |
Goodwill | Chile CGU | Colombia CGU |
| MCh$ | MCh$ |
Opening balances as of January 1, 2020 | 904,868 | 235,159 |
Exchange differences | — | 4,310 |
Impairment (1) | (412,356) | (239,469) |
Ending balances as of December 31, 2020 | 492,512 | — |
(1) | Goodwill generated by the acquisition of a business combination (Colombia) is expressed in the functional currency of the aforementioned business (Colombian peso), converted at the closing exchange rate (exchange rate COP to Ch$ for the purpose of accounting recognition in Chile) in accordance with IAS 21 "Effects of Changes in Exchange Rates of the Foreign Currency" (see Note 13). Figures presented as of June 30, 2020 have been adjusted to their recoverable amount, recognizing an impairment loss in accordance with the aforementioned information. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-153 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 32 - Depreciation, Amortization, and Impairment, continued
ii) Methodology used by the Bank
Consistent with the prior year, the recoverable amounts of Chile CGU and Colombia CGU have been determined using the dividend discount model. This methodology considers the cash flows that would be generated by dividends distributed to shareholders at perpetuity, discounted to their cost of capital rate as of the valuation date. Therefore, the economic value of equity can be estimated using cash flow projections derived from financial budgets and other assumptions approved by management.
In testing goodwill for impairment, management considered different sources of information, including:
● | Historical information existing for both Banks post-merger and, if relevant, pre-merger. Historical information for events assessed as one-time and non-recurring was excluded. |
● | Assumptions approved by management. |
● | Information from external sources such as analyst reports, regulators, central Banks and press releases. |
● | Observable market information such as rate curves, inflation and growth projections. |
● | The competitive strategy defined for both Banks. |
The projected funding structure and its impact on the Bank’s capital requirements and internal policy
iii) Key assumptions used in calculating the recoverable amount.
The key assumptions used in calculating recoverable amount, defined as those variables to which the calculation is more sensitive, are presented below:
| | | | | | | | |
| | As of December 31, | ||||||
| | 2020 | | 2019 | ||||
|
| Chile |
| Colombia |
| Chile |
| Colombia |
Perpetuity rate | (%) | 5.20 | | — | | 5.20 | | 6.50 |
Projected inflation rate (*) | (%) | 3.00 | | — |
| 3.00 |
| 3.00 |
Discount rate | (%) | 9.50 | | — |
| 10.00 |
| 11.30 |
Loans growth | (%) | 7.00 – 10.00 | | — |
| 9.05 – 10.28 |
| 9.70 – 10.30 |
Solvency index limit | (%) | 12.77– 13.11 | | — |
| 11.40 – 12.40 |
| 10.60 – 14.00 |
(*) Corresponds to the long-term projected inflation rate.
● | Period of Projection and Perpetuity |
When performing the goodwill impairment in 2020, cash flow projections are prepared for a period of 5 years from 2020 to 2025. After this period, the present value of cash flows for the year 2024 are calculated, projected to perpetuity using GDP growth rates expected for the markets in which the aforementioned CGUs operate.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-154 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 32 - Depreciation, Amortization, and Impairment, continued
● | Loans and deposits |
Loans were projected considering an increase of around 7.3% per year in Chile. Anticipated changes in the product mix were also modeled for both countries. The deposit portfolio was projected using target reciprocity.
● | Income |
Interest and fee income were projected in line with loans, modeling interest rates and commissions expected for each portfolio and type of product. Other relevant macroeconomic variables were also considered such as inflation and base interest rates.
● | Costs of funding |
The cost projections are mainly determined based on demand deposits and term deposits balances, considering an annual average ratio of 3.7% for Chile and 4.0% for Colombia. In the cost of funding, the Bank models the impact of the aforementioned reciprocity strategy with no significant changes in the funding structure.
● | Discount rate |
Estimated as the discount rate of the Cost of Capital (Ke) in local currency, which was used to discount the cash flows of each CGU. This calculation considers a premium for the risk of the country for each CGU.
● | Perpetuity rate |
The perpetuity growth rates are aligned with the growth of the economy in both jurisdictions. Consequently, these were built considering local inflation and GDP growth projections
● | Dividend payment |
The payment of dividends was made by maximizing the cash flows of the shareholder taking as a restriction that the solvency indicator (ratio of technical equity with risk-weighted assets) does not fall below the minimum limits required by the regulatory entities. In this way, a dividend for the CGU of Chile of 30% for the first 5 years and 50% in perpetuity was considered.
iv) Impairment test results
As a result of the impairment test performed, Management concludes that the recoverable amount of the CGUs exceeds their carrying amount, as shown in the following table:
| | | | | | | | |
| | As of December 31, | ||||||
| | 2020 | | 2019 | ||||
|
| Chile |
| Colombia |
| Chile |
| Colombia |
Recoverable Amount / Carrying Value | (%) | 137.80 | | — | | 121.38 | | 107.09 |
The recoverable amount for each CGU corresponds to the value in use, the higher of the fair value less costs to sell and the value in use.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-155 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 32 - Depreciation, Amortization, and Impairment, continued
As of December 31, 2020, Management carried out an impairment test, concluding that the recoverable amount exceeds the carrying value, thus no further impairment is required, other than the impairment recorded as of June 30, 2020.
v) Reconciliation between pre and post-tax basis
The Bank has used the cost of own capital (Ke) rate as a discount rate in its calculation of the recoverable amount, a rate that is observable after taxes. The following table shows the effect of considering the flows and the discount rate before taxes.
| | | | | | | | |
| | As of December 31, | ||||||
| | 2020 | | 2019 | ||||
|
| Chile |
| Colombia |
| Chile |
| Colombia |
Discount rates | (%) | 10.52 | | — | | 12.55 | | 16.90 |
Recoverable amount/Carrying value | (%) | 158.32 |
| — |
| 145.80 |
| 134.43 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-156 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 33 - Other Operating Income and Expenses
a) Other operating income
The detail of other operating income is as follows:
| | | | | | |
| | For the years ended December 31, | ||||
| | 2020 | | 2019 | | 2018 |
|
| MCh$ |
| MCh$ |
| MCh$ |
Income from assets received in lieu of payment | |
| |
| |
|
Gain on sales of assets received in lieu of payment |
| 3,287 |
| 5,449 | | 8,562 |
Other income |
| 30,622 |
| 13,163 | | 30 |
Subtotals |
| 33,909 | | 18,612 | | 8,592 |
Other income |
|
|
|
| |
|
Compensations from insurance companies |
| 693 |
| 6 | | 53 |
Lease contracts related income | | 819 | | 280 | | 724 |
Gain on sale of property, plant and equipment |
| 14 |
| 2,248 | | 5,519 |
Recovery of leased assets |
| 59 |
| 73 | | 1,349 |
Other leasing transactions operating income, subsidiaries |
| 4,604 |
| 3,020 | | 2,158 |
Gain on sale of leased assets |
| 688 |
| 1,914 | | 1,447 |
Other operating income |
| 933 |
| 432 | | 199 |
Revenue from insurance companies agreement |
| 1,537 |
| 4,538 | | 3,626 |
Income from recovery of foreign expenses |
| 895 |
| 747 | | 620 |
Recoveries from expenses provisions |
| 15,739 |
| 7,243 | | 1,166 |
Other income |
| 5,688 |
| 5,859 | | 1,203 |
Subtotals |
| 31,669 |
| 26,360 | | 18,064 |
Totals |
| 65,578 |
| 44,972 | | 26,656 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-157 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 33 - Other Operating Income and Expenses continued
b) Other operating expenses
During the years ended December 31, 2020, 2019 and 2018, the Bank presents other operating expenses according to the following detail:
| | | | | | |
| | For the years ended December 31, | ||||
| | 2020 | | 2019 | | 2018 |
|
| MCh$ |
| MCh$ |
| MCh$ |
Provisions for assets received in lieu of payment | | (4,006) | | (18,062) | | (16,132) |
Maintenance expenses for assets received in lieu of payment | | (1,086) |
| (1,663) |
| (1,301) |
Subtotals | | (5,092) |
| (19,725) |
| (17,433) |
Provisions for contingencies | | |
|
|
|
|
Other provisions for contingencies | | (3,119) |
| (507) |
| (1,998) |
Subtotals | | (3,119) |
| (507) |
| (1,998) |
Other expenses | | |
|
|
|
|
Loss on sale of property, plant and equipment | | (145) |
| (655) |
| (307) |
Credit card loyalty point benefits expenses | | — |
| — |
| (14,306) |
Restructuring costs | | (7,190) | | — | | — |
Operating loss expenses | | (5,219) |
| (17,468) |
| (10,589) |
Insurance expense (law 20,027) | | (36,075) |
| (802) |
| (622) |
Provision expense for recovered leased assets | | (1,191) |
| (3,105) |
| (4,170) |
Expenses loss on sale of assets | | (16,262) | | (9,386) | | — |
Banking expenses | | (2,754) |
| (1,932) |
| (2,450) |
Fines and penalties | | (4,502) |
| (2,454) |
| (13,110) |
Loss on damaged assets | | — |
| (696) |
| (2,311) |
Other expenses | | (8,962) |
| (4,819) |
| (903) |
Subtotals | | (82,300) |
| (41,317) |
| (48,768) |
Totals | | (90,511) |
| (61,549) |
| (68,199) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-158 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 34 - Related Party Transactions
In accordance with the provisions set forth in the Chilean General Banking Law and the instructions issued by the CMF, related parties are those individuals or corporations related to the ownership or management of the Institution directly or through third parties.
Article 89 of the Ley de Sociedades Anónimas (Chilean Companies Law), which also applies to Banks, establishes that any transaction with a related party must be carried out on an arm’s length basis.
In the case of sociedades anónimas abiertas (publicly traded companies) and their subsidiaries, transactions with related parties involve any negotiation, act, contract or transaction in which the company must intervene; the following are considered as parties related to them: those entities of the corporate group to which the company belongs; the corporations that, with respect to the company, have the status as parent, controlling entity, affiliate, subsidiary; the Directors, Managers, Administrators, Chief Executive Officer or Liquidators of the company, acting in their own names or on behalf of individuals other than the company, and their respective spouses or their relatives up to the second degree of consanguinity, as well as any entity controlled either directly or indirectly, through any of them; and any person who either acting individually or jointly with others with whom it has executed a joint operation agreement, may appoint at least one member of the management of the company or controls 10% or more of its capital stock, with the right to vote, in the case of a sociedad por acciones (stock corporation); those established by the bylaws of the company, or justifiably identified by the Directors’ Committee; and those in which it has acted as Director, Manager, Administrator, Chief Executive Officer or Liquidator of the company, during the last eighteen months. Article 147 of the Ley de Sociedades Anónimas (Chilean Companies Law) sets forth that a sociedad anónima abierta (publicly traded company) may only carry out transactions with related parties when they are intended to contribute to the corporate interest, are adjusted in the price, terms and conditions to those prevailing in the market at the time of their approval and comply with the requirements and the procedure indicated by it. Moreover, Article 84 of the Chilean General Banking Law establishes limits for the loans that may be granted to related parties and the prohibition to grant loans to the Directors, Managers or General Attorneys of the Bank
a) Loans granted to related parties
As of December 31, 2020 and 2019, the loans granted to related persons are detailed below:
| | | | | | | | | | | | |
| | As of December 31, 2020 | | As of December 31, 2019 | ||||||||
| | Productive | | Investment | | | | Productive | | Investment | | |
| | companies | | companies | | Individuals | | companies | | companies | | Individuals |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Loans and accounts receivable from customers | |
| |
| |
| |
| |
| |
|
Commercial loans |
| 150,796 | | 10,037 | | 6,517 |
| 109,840 | | 11,910 | | 5,054 |
Mortgage loans |
| — | | — | | 30,124 |
| — | | — | | 29,419 |
Consumer loans |
| — | | — | | 7,189 |
| — | | — | | 8,987 |
Gross loans and accounts receivable from customers |
| 150,796 |
| 10,037 |
| 43,830 |
| 109,840 |
| 11,910 |
| 43,460 |
Allowance for loan losses |
| (6,333) | | (885) | | (348) |
| (1,705) | | (134) | | (283) |
Loans and receivables to customers, net |
| 144,463 |
| 9,152 |
| 43,482 |
| 108,135 |
| 11,776 |
| 43,177 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-159 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 34 - Related Party Transactions, continued
b) Other transactions and contracts with related parties
Below are the balances as of December 31, 2020 and 2019, for transactions with related parties and the impact on results for the years ended December 31, 2020 and 2019:
| | | | | | | | |
| | | | As of and for the year ended December 31, 2020 | ||||
| | | | Balances receivable | | Effect on income (loss) | ||
Name or Corporate Name |
| Description |
| (payable) |
| Income |
| Expense |
| | | | MCh$ | | MCh$ | | MCh$ |
Adexus S.A. |
| Data transmission services |
| — | | — | | (8) |
Bcycle Latam SPA |
| Administrative consulting |
| — | | — | | (2,165) |
CAI Gestion Inmobiliaria S.A. |
| Department stores |
| — | | — | | — |
Combanc S.A. |
| Data transmission services |
| — | | — | | (472) |
Comder Contraparte Central S.A |
| Banking services |
| — | | — | | (826) |
Compañía Chilena de Televisión S.A. | | Tv broadcasting services | | — | | — | | (8) |
Corp Group Holding Inversiones Limitada |
| Advisory services |
| — | | — | | (537) |
Corp Imagen y diseños S.A. |
| Marketing |
| — | | — | | — |
Corp Research S.A. |
| Advisory services |
| — | | — | | — |
Hotel Corporation of Chile S.A. |
| Hotel, events |
| — | | — | | (8) |
Inmetrics Chile S.A | | Other services | | — | | — | | (1,470) |
Inmobiliaria Edificio Corpgroup S.A. |
| Office lease and building fees (*) |
| (14,175) | | — | | (4,693) |
Inmobiliaria Gabriela S.A | | Other services | | (708) | | — | | (128) |
Inversiones Corp Group Interhold Ltda. |
| Administrative consulting |
| — | | — | | (2,613) |
Itaú Chile Cía. de Seguros de Vida S.A. |
| Life insurance |
| — | | — | | — |
Itaú Chile Inv. Serv. y Administración S.A. |
| Leases (*) |
| (198) | | — | | (1,143) |
Itaú Unibanco | | Business management reimbursement | | 1,549 | | 2,213 | | — |
Operadora de Tarjeta de Crédito Nexus S.A. |
| Credit card management |
| — | | — | | (3,319) |
Pulso Editorial S.A. |
| Publishing services |
| — | | — | | (24) |
Redbanc S.A. | | ATM management | | — | | — | | (3,094) |
SMU S.A., Rendic Hnos. S.A. |
| Lease of ATM (Note 17) |
| 991 | | — | | (2,388) |
Transbank S.A. |
| Credit card management |
| — | | — | | (13,177) |
These transactions were carried out at normal market prices prevailing on the date of the transactions.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-160 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 34 - Related Party Transactions, continued
| | | | | | | | |
| | | | As of and for the year ended December 31, 2019 | ||||
| | | | Balances receivable | | Effect on income (loss) | ||
Name or Corporate Name |
| Description |
| (payable) |
| Income |
| Expense |
| | | | MCh$ | | MCh$ | | MCh$ |
Adexus S.A. |
| Data transmission services |
| — | | — | | (567) |
Bcycle Latam SPA |
| Administrative consulting |
| — | | — | | (1,518) |
CAI Gestion Inmobiliaria S.A. |
| Department stores |
| — | | — | | (3) |
Combanc S.A. |
| Data transmission services |
| — | | — | | (366) |
Comder Contraparte Central S.A |
| Banking services |
| — | | — | | (910) |
Compañía Chilena de Televisión S.A. | | Tv broadcasting services | | — | | — | | (47) |
Corp Group Holding Inversiones Limitada |
| Advisory services |
| — | | — | | (382) |
Corp Imagen y diseños S.A. |
| Marketing |
| — | | — | | (101) |
Corp Research S.A. |
| Advisory services |
| — | | — | | (474) |
Hotel Corporation of Chile S.A. |
| Hotel, events |
| — | | — | | (39) |
Inmobiliaria Edificio Corpgroup S.A. |
| Office lease and building fees (*) |
| (15,625) | | — | | (1,994) |
Inmobiliaria Gabriela S.A | | Other services | | (809) | | — | | (121) |
Inversiones Corp Group Interhold Ltda. |
| Administrative consulting |
| — | | — | | (2,537) |
Itaú Chile Cía. de Seguros de Vida S.A. |
| Life insurance |
| — | | 46 | | (248) |
Itaú Chile Inv. Serv. y Administración S.A. |
| Leases (*) |
| (441) | | — | | (220) |
Itaú Unibanco | | Business management reimbursement | | 349 | | 2,051 | | — |
Operadora de Tarjeta de Crédito Nexus S.A. |
| Credit card management |
| — | | — | | (3,037) |
Pulso Editorial S.A. |
| Publishing services |
| — | | — | | (23) |
Redbanc S.A. | | ATM management | | — | | — | | (3,388) |
SMU S.A., Rendic Hnos. S.A. |
| Lease of ATM (Note 17) |
| 3,379 | | — | | (2,319) |
Transbank S.A. |
| Credit card management |
| — | | — | | (14,208) |
(*) | As of and for the year ended December 31, 2019, due to the adoption of IFRS 16, leases are recognized as a financial obligation and a right-of-use asset. See Note 1 letter s). For disclosure purposes we have included the unpaid balance of the liability and the interest expense. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-161 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 34 - Related Party Transactions, continued
| | | | | | | | |
| | | | | | | | |
| | | | As of and for the year ended December 31, 2018 | ||||
| | | | Balances receivable | | Effect on income (loss) | ||
Name or Corporate Name |
| Description |
| (payable) |
| Income |
| Expense |
| | | | MCh$ | | MCh$ | | MCh$ |
Adexus S.A. |
| Data transmission services |
| — |
| — |
| (254) |
Bcycle Latam SPA |
| Administrative consulting |
| — |
| — |
| (4,048) |
Bolsa de Comercio de Santiago |
| Other services |
| — |
| — |
| (204) |
CAI Gestion Inmobiliaria S.A. |
| Department stores |
| — |
| — |
| (103) |
Combanc S.A. |
| Data transmission services |
| — |
| — |
| (350) |
Comder Contraparte Central S.A |
| Banking services |
| — |
| — |
| (902) |
Corp Group Holding Inversiones Limitada |
| Advisory services |
| — |
| — |
| (408) |
Corp Imagen y diseños S.A. |
| Marketing |
| — |
| — |
| (99) |
Corp Research S.A. |
| Advisory services |
| — |
| — |
| (463) |
Everis Chile S.A. |
| Advisory services |
| — |
| — |
| (906) |
Hotel Corporation of Chile S.A. |
| Hotel, events |
| — |
| — |
| (94) |
Inmobiliaria Edificio Corpgroup S.A. |
| Office lease and building fees |
| — |
| — |
| (4,693) |
Instituto de Estudios Bancarios Guillermo Subercaseaux |
| Education services |
| — |
| — |
| (121) |
Inversiones Corp Group Interhold Ltda. |
| Administrative consulting |
| — |
| — |
| (2,476) |
Itaú Chile Cía. de Seguros de Vida S.A. |
| Life insurance |
| — |
| 93 |
| (706) |
Itaú Chile Inv. Serv. y Administración S.A. |
| Leases |
| — |
| 204 |
| (141) |
Operadora de Tarjeta de Crédito Nexus S.A. |
| Credit card management |
| — |
| — |
| (2,909) |
Pulso Editorial S.A |
| Publishing services |
| — |
| — |
| (471) |
Redbanc S.A. | | ATM management | | — | | — | | (3,002) |
SMU S.A., Rendic Hnos. S.A. |
| Lease of ATM (Note 17) |
| 5,698 |
| — |
| (2,262) |
Transbank S.A. |
| Credit card management |
| — |
| — |
| (15,469) |
VIP Asesorias y Servicios Integrales Ltda. |
| Advisory services |
| — |
| — |
| (129) |
These transactions were carried out at normal market prices prevailing at the day of the transactions.
c) Donations
| | | | | | | | |
| | | | For the years ended December 31, | ||||
Name or corporate name |
| Description |
| 2020 |
| 2019 |
| 2018 |
| | | | MCh$ | | MCh$ | | MCh$ |
Fundación Corpgroup Centro Cultural |
| Donations | | 1,556 |
| 1,325 |
| 1,225 |
Fundación Descúbreme |
| Donations | | 235 |
| 204 |
| 194 |
Fundación Itaú |
| Donations | | 196 |
| 170 |
| 157 |
d) Other assets and liabilities with related parties.
| | | | |
| | As of December 31, | ||
|
| 2020 |
| 2019 |
| | MCh$ | | MCh$ |
ASSETS | | 34,416 |
| 28,474 |
Derivative financial instruments |
| 33,875 |
| 27,458 |
Other assets |
| 541 |
| 1,016 |
LIABILITIES |
| 447,306 |
| 420,273 |
Derivative financial instruments |
| 2,778 |
| 1,565 |
Current accounts and demand deposits |
| 179,067 |
| 34,416 |
Time deposits and saving accounts |
| 239,709 |
| 354,794 |
Other liabilities |
| 25,752 |
| 29,498 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-162 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 34 - Related Party Transactions, continued
e) Results of transactions with related parties
| | | | | | | | | | | | |
| | For the years ended December 31, | ||||||||||
| | 2020 | | 2019 | | 2018 | ||||||
Type of recognized income or expense |
| Income |
| Expenses |
| Income |
| Expenses |
| Income |
| Expenses |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Interest and readjustments income (expenses) | | 8,532 | | (4,955) |
| 11,269 | | (7,328) |
| 3,748 |
| (2,970) |
Fee and commissions income and (expenses) |
| 504 | | — |
| 3,232 |
| — |
| 829 |
| — |
Net income (loss) from financial operations |
| 26,636 | | (10,033) |
| 2,585 |
| (888) |
| 1,146 |
| (501) |
Operational support related income |
| 500 | | — |
| 901 |
| — |
| 1,075 |
| — |
Other income and (expenses) |
| 211 | | (310) |
| 207 |
| (327) |
| 84 |
| (222) |
Totals |
| 36,383 |
| (15,298) |
| 18,194 |
| (8,543) |
| 6,882 |
| (3,693) |
f) Payments to Board members and key management personnel.
Compensation received by key personnel of Management as follow:
| | | | | | |
| | As of December 31, | ||||
|
| 2020 |
| 2019 |
| 2018 |
| | MCh$ | | MCh$ | | MCh$ |
Short-term employee benefits | | 31,868 |
| 31,364 |
| 31,892 |
Post-employment benefits |
| — |
| — |
| — |
Other long-term benefits |
| — |
| — |
| — |
Compensation for termination of contract |
| 931 |
| 799 |
| 1,337 |
Totals |
| 32,799 |
| 32,163 |
| 33,229 |
g) Key personnel
As of December 31, 2020 and 2019, the headcount of the Bank's key staff is composed as follows:
| | | | |
| | Number of executives | ||
| | As of December 31, | ||
Position |
| 2020 |
| 2019 |
Board Member | | 14 |
| 14 |
Chief Executive Officer |
| 10 |
| 10 |
Corporate Director |
| 24 |
| 25 |
Area Manager |
| 146 |
| 162 |
Manager | | 128 | | 143 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-163 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 34 - Related Party Transactions, continued
h) Transactions with key personnel
The next transactions has been realized during the years ended December 31, 2020 and 2019:
| | | | |
| | As of December 31, | ||
|
| 2020 |
| 2019 |
| | MCh$ | | MCh$ |
Credits cards | | 115 |
| 122 |
Consumer loans | | 389 |
| 421 |
Commercial loans | | 534 |
| 546 |
Mortgage loans | | 366 |
| 826 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-164 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities
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 Bank:
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 principal2 or most advantageous3market and is not forced (i.e. it does not consider factors specific to the Bank 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:
● | 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. |
● | 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. |
● | They are able to enter into a transaction for the asset or liability. |
● | 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 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.
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 an 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.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-165 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
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.
Bank’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:
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 cancelled 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 Bank of assets and liabilities (e.g. a business). |
b) | 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. |
c) | Cost approach. Reflects the amount that would be required currently to replace the service capacity of an asset (current replacement cost). |
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.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-166 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
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. |
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.
The following tables summarizes the fair values of the Bank’s main financial assets and liabilities as of December 31, 2020 and 2019, including those that are not recorded at fair value in the Consolidated Statement of Financial Position.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-167 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
Determination of the fair value as of December 31, 2020 and 2019
| | | | | | |
| | As of December 31, 2020 | ||||
| | | | Estimated fair value | ||
|
| Book value |
| Recurring |
| Non-recurring (*) |
| | MCh$ | | MCh$ | | MCh$ |
ASSETS | | | | | | |
Cash and deposits in banks |
| 3,089,072 |
| — |
| 3,089,072 |
Cash items in process of collection |
| 173,192 |
| — |
| 173,192 |
Financial instruments at fair value through profit or loss |
| 582,710 |
| 582,710 |
| — |
Financial instruments at fair value through other comprehensive income |
| 3,970,899 |
| 3,970,899 |
| — |
Loans and accounts receivable at amortized cost |
| 21,576,108 |
| — |
| 22,767,597 |
Financial instruments at amortized cost |
| 111,542 |
| — |
| 110,608 |
Investments under resale agreements |
| 105,580 |
| — |
| 105,580 |
Financial derivative contracts |
| 3,982,803 |
| 3,982,803 |
| — |
Interbank loans, net |
| 7,121 |
| — |
| 7,121 |
Totals |
| 33,599,027 |
| 8,536,412 |
| 26,253,170 |
LIABILITIES |
|
|
|
|
|
|
Deposits and other demand liabilities |
| 6,197,406 |
| — |
| 6,197,406 |
Cash in process of being cleared |
| 154,232 |
| — |
| 154,232 |
Obligations under repurchase agreements |
| 638,851 |
| — |
| 638,851 |
Time deposits and other time liabilities |
| 11,433,064 |
| — |
| 11,574,924 |
Financial derivative contracts |
| 3,673,591 |
| 3,673,591 |
| — |
Interbank borrowings |
| 3,798,978 |
| — |
| 3,794,375 |
Debt instruments issued |
| 6,204,856 |
| — |
| 7,330,126 |
Lease contract liabilities | | 151,885 |
| — |
| 164,304 |
Other financial liabilities |
| 13,123 |
| — |
| 13,123 |
Totals |
| 32,265,986 |
| 3,673,591 |
| 29,867,341 |
(*) Non-recurring items correspond to those line items that are carried at cost, but their corresponding fair value has been estimated for disclosure purposes only.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-168 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
| | | | | | |
| | As of December 31, 2019 | ||||
| | | | Estimated fair value | ||
|
| Book value |
| Recurring |
| Non-recurring |
| | MCh$ | | MCh$ | | MCh$ |
ASSETS | | | | | | |
Cash and deposits in banks |
| 1,009,681 |
| — |
| 1,009,681 |
Cash items in process of collection |
| 231,305 |
| — |
| 231,305 |
Financial instruments at fair value through profit or loss |
| 183,702 |
| 183,702 |
| — |
Financial instruments at fair value through other comprehensive income |
| 3,598,890 |
| 3,598,890 |
| — |
Loans and accounts receivable at amortized cost |
| 22,254,697 |
| — |
| 23,313,453 |
Financial instruments at amortized cost |
| 115,658 |
| — |
| 114,175 |
Investments under resale agreements |
| 75,975 |
| — |
| 75,975 |
Financial derivative contracts |
| 3,154,957 |
| 3,154,957 |
| — |
Interbank loans, net |
| 56,396 |
| — |
| 56,396 |
Totals |
| 30,681,261 |
| 6,937,549 |
| 24,800,985 |
LIABILITIES |
|
|
|
|
|
|
Deposits and other demand liabilities |
| 4,873,448 |
| — |
| 4,873,448 |
Cash in process of being cleared |
| 164,573 |
| — |
| 164,573 |
Obligations under repurchase agreements |
| 559,457 |
| — |
| 559,457 |
Time deposits and other time liabilities |
| 11,620,187 |
| — |
| 11,692,076 |
Financial derivative contracts |
| 2,938,034 |
| 2,938,034 |
| — |
Interbank borrowings |
| 2,646,756 |
| — |
| 2,646,176 |
Debt instruments issued |
| 6,408,356 |
| — |
| 7,244,551 |
Lease contract liabilities | | 172,924 | | — | | 175,263 |
Other financial liabilities |
| 12,966 |
| — |
| 12,966 |
Totals |
| 29,396,701 |
| 2,938,034 |
| 27,368,510 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-169 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
Fair Value Measurements of assets and liabilities only for disclosure purposes (non-recurring) :
| | | | |
|
| As of December 31, | ||
Non-recurring fair value measurement | | 2020 | | 2019 |
| | MCh$ | | MCh$ |
ASSETS |
|
|
|
|
Cash and deposits in banks |
| 3,089,072 |
| 1,009,681 |
Cash items in process of collection |
| 173,192 |
| 231,305 |
Loans and accounts receivable at amortized cost |
| 22,767,597 |
| 23,313,453 |
Investments under resale agreements |
| 105,580 |
| 75,975 |
Interbank loans, net |
| 7,121 |
| 56,396 |
Financial instruments at amortized cost |
| 110,608 |
| 114,175 |
Totals |
| 26,253,170 |
| 24,800,985 |
LIABILITIES |
|
|
|
|
Deposits and other demand liabilities |
| 6,197,406 |
| 4,873,448 |
Cash in process of being cleared |
| 154,232 |
| 164,573 |
Obligations under repurchase agreements |
| 638,851 |
| 559,457 |
Time deposits and other time liabilities |
| 11,574,924 |
| 11,692,076 |
Interbank borrowings |
| 3,794,375 |
| 2,646,176 |
Debt issued |
| 7,330,126 |
| 7,244,551 |
Lease contract liabilities | | 164,304 | | 175,263 |
Other financial obligations |
| 13,123 |
| 12,966 |
Totals |
| 29,867,341 |
| 27,368,510 |
The following section describes the methods used to estimate fair value:
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 |
● | Financial instruments at fair value through profit or loss |
● | Checking accounts and demand deposits |
● | Other financial obligations |
Loans
The fair value of loans is determined using a discounted cash flow analysis, using a risk-free interest rate adjusted for expected losses from debtors based on their credit quality. The credit risk adjustment is based on the Bank’s credit risk policies and methodologies: These items include:
● | Interbank loans |
● | Loans and receivables from customers |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-170 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
Financial instruments at amortized cost
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 other time liabilities |
● | Interbank borrowings |
● | Debt instruments issued |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-171 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
Fair Value measurement of financial assets and liabilities (recurring) -:
| | | | |
|
| As of December 31, | ||
Fair value measurement of recurring items | | 2020 | | 2019 |
| | MCh$ | | MCh$ |
ASSETS |
|
|
|
|
Financial instruments at fair value through profit or loss |
| 582,710 |
| 183,702 |
Central Bank of Chile and Government securities |
| 108,042 |
| 80,898 |
Other securities issued in Chile |
| 271 |
| 23,123 |
Foreign government and Central Bank instruments |
| 432,178 |
| 67,088 |
Other instruments issued abroad |
| 4,861 |
| 4,390 |
Investments in mutual funds |
| 35,017 |
| 5,903 |
Other investments at FVTPL |
| 2,341 |
| 2,300 |
Financial instruments at fair value through other comprehensive income |
| 3,970,899 |
| 3,598,890 |
Central Bank of Chile and Government securities |
| 3,056,179 |
| 2,174,278 |
Other securities issued in Chile |
| 296,665 |
| 536,576 |
Foreign government and Central Bank instruments |
| 217,185 |
| 165,927 |
Other instruments issued abroad |
| 394,691 |
| 716,423 |
Other investments at FVOCI |
| 6,179 |
| 5,686 |
Financial derivative contracts |
| 3,982,803 |
| 3,154,957 |
Forwards |
| 472,208 |
| 454,300 |
Swaps |
| 3,509,315 |
| 2,696,635 |
Call options |
| 195 |
| 3,805 |
Put options |
| 1,085 |
| 217 |
Totals |
| 8,536,412 |
| 6,937,549 |
LIABILITIES |
|
|
|
|
Financial derivative contracts |
| 3,673,591 |
| 2,938,034 |
Forwards |
| 433,863 |
| 504,275 |
Swaps |
| 3,238,371 |
| 2,431,436 |
Call options |
| 271 |
| 1,758 |
Put options |
| 1,086 |
| 565 |
Totals |
| 3,673,591 |
| 2,938,034 |
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 at FVTOCI |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-172 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
Financial Derivative Instruments
The estimated fair value of derivative instruments is calculated using prices quoted in the market for financial instruments with similar characteristics. Therefore, the methodology recognizes the credit risk of each counterparty.
The adjustments are known internationally as the counterparty value adjustment (“CVA”), which consists of an adjustment for debtor risk (credit value adjustment or CVA) and for creditor risk (debit value adjustment or “DVA”). The sum of these adjustments gives the effective counterparty risk that the derivative contract must have.
These adjustments are recorded periodically in the financial statements. As of December 2020, 2019 and 2018, the portfolio of derivative contracts in both Chile and Colombia is detailed as follows:
| | | | | | | | | | | | |
| | As of December 31, | ||||||||||
| | 2020 | | 2019 | | 2018 | ||||||
|
| CVA |
| DVA |
| CVA |
| DVA |
| CVA |
| DVA |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Derivatives held for hedging |
| — | | — |
| (2) | | 1 |
| — |
| — |
Fair value hedge |
| — |
| — |
| — |
| — |
| — |
| — |
Currency forwards |
| — |
| — |
| — |
| — |
| — |
| — |
Currency swaps |
| — |
| — |
| — |
| — |
| — |
| — |
Interest rate swaps |
| — |
| — |
| — |
| — |
| — |
| — |
Cash flow hedge |
| — |
| — |
| (2) |
| 1 |
| — |
| — |
Currency forwards |
| — |
| — |
| (2) |
| 1 |
| — |
| — |
Currency swaps |
| — |
| — |
| — |
| — |
| — |
| — |
Interest rate swaps |
| — |
| — |
| — |
| — |
| — |
| — |
Hedge of net investments in a foreign operation |
| — |
| — |
| — |
| — |
| — |
| — |
Currency forwards |
| — |
| — |
| — |
| — |
| — | | — |
Currency swaps |
| — |
| — |
| — |
| — |
| — |
| — |
Interest rate swaps |
| — |
| — |
| — |
| — |
| — |
| — |
Derivatives held for trading |
| (40,971) |
| 589 |
| (28,172) |
| 446 |
| (37,821) |
| 340 |
Currency forwards |
| (443) | | 205 |
| (341) |
| 123 |
| (127) |
| 65 |
Currency swaps |
| (36,363) | | 37 |
| (4,642) |
| 295 |
| (31,167) |
| 127 |
Interest rate swaps |
| (4,165) | | 347 |
| (23,189) | | 28 |
| (6,527) |
| 148 |
Call currency options |
| — | | — |
| — |
| — |
| — |
| — |
Put currency options |
| — | | — |
| — |
| — |
| — |
| — |
Total financial derivative contracts |
| (40,971) |
| 589 |
| (28,174) |
| 447 |
| (37,821) |
| 340 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-173 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
Fair value hierarchy
IFRS 13 establishes a fair value hierarchy that classifies assets and liabilities based on the characteristics of the data that the technique requires for its valuation:
Level 1:
Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Entity can access at the measurement date. The inputs needed to value the instruments in this category are available daily and used directly.
In the case of currency, shares and mutual funds, prices are observed directly in over-the-counter (OTC) markets and the stock exchange. These prices correspond to the values at which the exact same assets are traded. As a result, the portfolio valuation does not require assumptions or models of any type.
For instruments issued by the Central Bank of Chile and the Chilean Treasury, a price provider is used, which corresponds to a public quotation. The comparative prices are defined under the criterion of similarity in duration, type of currency and they are traded equivalently on a daily basis. The valuation of these instruments is identical to the Stock Exchange Comercio de Santiago, which is a standard and international methodology. This methodology uses the rate of internal return to discount the flows of the instrument.
Level 2:
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). In general, they are diverse combinations of pseudo-arbitration. Although the inputs are not directly observable, observable inputs are available with the needed periodicity.
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 (OTC) transactions reported by the most important brokers in the Chilean market and the Bloomberg platform are used. The inputs observed include forward prices, interest rates and volatilities. Based on these inputs, market curves are modeled. They are a numerical representation of the opportunity costs of the instrument’s cash flows or the price volatility of an asset. Finally, cash flows are discounted.
The Black and Scholes model is used for options based on prices of brokers in 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.
For corporate or Bank bonds, given the lack of market depth, the Bank uses transactions (if any) in the Chilean market, on foreign markets, zero-coupon curves of risk-free instruments, adjustment curves, spread modeling, correlation with similar financial instruments, etc. and creates market curves for use in the final result. These market curves are provided by a pricing supplier and are widely accepted by the market, regulators and scholars.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-174 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
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 are subjective in nature. Therefore, they base their estimate of prices on a series of assumptions that Management believes are commonly used by the financial services industry. The Bank has two 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, 2020 | | As of December 31, 2019 | ||||||||
|
| Forward |
| |
| |
| Forward |
| |
| |
| | Americano | | Basis TAB | | Basis TAB | | Americano | | Basis TAB | | Basis TAB |
Impact calibration | | USD-CLP | | CLP | | CLF | | USD-CLP | | CLP | | CLF |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Volatility exchange rate USD-CLP | | — | | — | | — |
| — | | — | | — |
TAB 30 | | — | | 76 | | — |
| — | | 98 | | — |
TAB 90 | | — | | 1 | | — |
| — | | 4 | | — |
TAB 180 | | — | | 33 | | 15 |
| — | | 39 | | 18 |
TAB 360 | | — | | — | | 3 |
| — | | — | | 4 |
Totals | | — | | 110 | | 18 |
| — |
| 141 |
| 22 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-175 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
The following table summarizes the fair value hierarchy for the Bank’s recurring valuation of financial instruments:
| | | | | | | | |
Level |
| Instrument |
| Issuer |
| Price Source |
| Model |
I |
| Currencies |
| Not Applicable |
| OTC, Bloomberg |
| Directly observable price. |
|
| Shares |
| Others |
| Santiago Exchange |
| Directly observable price. |
|
| Mutual Funds |
| Asset Managers |
| CMF (formerly the SVS) |
| Directly observable price. |
|
| Bonds |
| Chilean Central Bank and Chilean Treasury |
| Santiago Exchange |
| Internal rate of return (“IRR”) based on prices. |
II |
| Derivatives |
| Not Applicable |
| OTC (brokers), Bloomberg |
| Interest rate curves based on forward prices and coupon rates. |
|
| Money market |
| Chilean Central Bank and Chilean Treasury |
| Santiago Exchange |
| Interest rate curves based on prices. |
|
| Money market |
| Banks |
| Santiago Exchange |
| Interest rate curves based on prices. |
|
| Bonds |
| Companies, Banks |
| Pricing provider |
| Interest rate curves based on correlations, spreads, extrapolations, etc. |
III |
| Derivatives, active Banking rate (TAB) |
| Not Applicable |
| OTC (brokers) |
| Interest rate curves based on modeling of TAB - Chamber spread. |
|
| Derivatives, American forwards |
| Not Applicable |
| Bloomberg |
| Black and Scholes with inputs from European options. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-176 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
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, as of December 31, 2020 and 2019 :
| | | | | | | | |
| | As of December 31, 2020 | ||||||
| | | | Market value of the | | Other observable | | Non-observable |
Measurement at fair value of instruments | | | | asset for identified assets | | significant inputs | | significant inputs |
on a recurring basis using |
| Fair value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ |
ASSETS | | | | | | | | |
Financial instruments at fair value through profit or loss | | 582,710 | | 575,237 | | 7,473 | | — |
Central Bank of Chile and Government securities | | 108,042 | | 108,042 | | — | | — |
Other securities issued locally | | 271 | | — | | 271 | | — |
Foreign government and Central Bank instruments | | 432,178 | | 432,178 | | — | | — |
Other securities issued abroad | | 4,861 | | — | | 4,861 | | — |
Investments in mutual funds | | 35,017 | | 35,017 | | — | | — |
Other investments at FVTPL | | 2,341 | | — | | 2,341 | | — |
Financial instruments at fair value through other comprehensive income | | 3,970,899 | | 3,608,717 | | 362,182 | | — |
Central Bank of Chile and Government securities | | 3,056,179 | | 3,056,179 | | — | | — |
Other securities issued locally | | 296,665 | | — | | 296,665 | | — |
Foreign government and Central Bank instruments | | 217,185 | | 217,185 | | — | | — |
Other securities issued abroad | | 394,691 | | 335,353 | | 59,338 | | — |
Other investments at FVOCI | | 6,179 | | — | | 6,179 | | — |
Financial derivative contracts | | 3,982,803 | | — | | 3,955,538 | | 27,265 |
Forwards | | 472,208 | | — | | 468,632 | | 3,576 |
Swaps | | 3,509,315 | | — | | 3,485,626 | | 23,689 |
Call options | | 195 | | — | | 195 | | — |
Put options | | 1,085 | | — | | 1,085 | | — |
Totals | | 8,536,412 | | 4,183,954 | | 4,325,193 | | 27,265 |
LIABILITIES | | | | | | | | |
Financial derivative contracts | | 3,673,591 | | — | | 3,672,751 | | 840 |
Forwards | | 433,863 | | — | | 433,747 | | 116 |
Swaps | | 3,238,371 | | — | | 3,237,647 | | 724 |
Call options | | 271 | | — | | 271 | | — |
Put options | | 1,086 | | — | | 1,086 | | — |
Totals | | 3,673,591 | | — | | 3,672,751 | | 840 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-177 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
| | | | | | | | |
| | As of December 31, 2019 | ||||||
| | | | Market value of the | | Other observable | | Non-observable |
Measurement at fair value of instruments |
| | | asset for identified assets | | significant inputs | | significant inputs |
on a recurring basis using |
| Fair value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
|
| MCh$ | | MCh$ | | MCh$ | | MCh$ |
ASSETS |
|
|
|
|
|
|
|
|
Financial instruments at fair value through profit or loss |
| 183,702 | | 177,009 | | 6,693 | | — |
Central Bank of Chile and Government securities |
| 80,898 | | 80,898 | | — | | — |
Other securities issued locally |
| 23,123 | | 23,120 | | 3 | | — |
Foreign government and Central Bank instruments |
| 67,088 | | 67,088 | | — | | — |
Other securities issued abroad |
| 4,390 | | — | | 4,390 | | — |
Investments in mutual funds |
| 5,903 | | 5,903 | | — | | — |
Other investments at FVTPL |
| 2,300 | | — | | 2,300 | | — |
Financial instruments at fair value through other comprehensive income |
| 3,598,890 | | 3,009,607 | | 589,283 | | — |
Central Bank of Chile and Government securities |
| 2,174,278 | | 2,174,278 | | — | | — |
Other securities issued locally |
| 536,576 | | — | | 536,576 | | — |
Foreign government and Central Bank instruments |
| 165,927 | | 165,927 | | — | | — |
Other securities issued abroad |
| 716,423 | | 669,402 | | 47,021 | | — |
Other investments at FVOCI |
| 5,686 | | — | | 5,686 | | — |
Financial derivative contracts |
| 3,154,957 | | — | | 3,127,525 | | 27,432 |
Forwards |
| 454,299 | | — | | 449,239 | | 5,060 |
Swaps |
| 2,696,636 | | — | | 2,674,264 | | 22,372 |
Call options |
| 3,805 | | — | | 3,805 | | — |
Put options |
| 217 | | — | | 217 | | — |
Totals |
| 6,937,549 | | 3,186,616 | | 3,723,501 | | 27,432 |
LIABILITIES |
| | | | | | | |
Financial derivative contracts |
| 2,938,034 | | — | | 2,936,915 | | 1,119 |
Forwards |
| 504,275 | | — | | 504,094 | | 181 |
Swaps |
| 2,431,436 | | — | | 2,430,498 | | 938 |
Call options |
| 1,758 | | — | | 1,758 | | — |
Put options |
| 565 | | — | | 565 | | — |
Totals |
| 2,938,034 | | — | | 2,936,915 | | 1,119 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-178 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
Transfers between level 1 and 2
As of December 31, 2020 and 2019 no transfers were observed between Level 1 and Level 2, as shown below
| | | | | | |
| | As of December 31, | ||||
Measurement at fair value of instruments | | 2020 | ||||
that are valued recurrently | | Fair value | | Level 1 to 2 | | Level 2 to 1 |
|
| MCh$ |
| MCh$ |
| MCh$ |
ASSETS | | | | | | |
Financial instruments at fair value through profit or loss |
| 582,710 |
| — |
| — |
Financial instruments at fair value through other comprehensive income |
| 3,970,899 |
| — |
| — |
Financial derivative contracts |
| 3,982,803 |
| — |
| — |
Totals |
| 8,536,412 |
| — |
| — |
LIABILITIES |
|
|
|
|
|
|
Financial derivative contracts |
| 3,673,591 |
| — |
| — |
Totals |
| 3,673,591 |
| — |
| — |
| | | | | | |
| | As of December 31, | ||||
Measurement at fair value of instruments | | 2019 | ||||
that are valued recurrently |
| Fair value |
| Level 1 to 2 |
| Level 2 to 1 |
|
| MCh$ |
| MCh$ |
| MCh$ |
ASSETS |
|
|
|
|
|
|
Financial instruments at fair value through profit or loss |
| 183,702 |
| — |
| — |
Financial instruments at fair value through other comprehensive income |
| 3,598,890 |
| — |
| — |
Financial derivative contracts |
| 3,154,957 |
| — |
| — |
Totals |
| 6,937,549 |
| — |
| — |
LIABILITIES |
|
|
|
|
|
|
Financial derivative contracts |
| 2,938,034 |
| — |
| — |
Totals |
| 2,938,034 |
| — |
| — |
Disclosures regarding level 3 assets and liabilities
During 2019 and 2018, no assets were transferred between levels 1 and 2.
Disclosures Regarding Level 3 Assets and Liabilities
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:
● | Financial derivative 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. |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-179 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
As none of these products has a market, the Bank uses financial engineering valuation techniques that use unobservable variables.
These techniques use the following inputs: transaction prices from the main financial instrument markets and assumptions that Management believes are commonly used 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 December 31, 2020 and 2019.
| | | | | | | | | | | | |
| | As of December 31, 2020 | ||||||||||
| | | | Gain (loss) | | Gain (loss) | | Purchases, | | Transfers | | |
| | Opening | | recognized in | | recognized in | | sales and | | from level 1 | | Ending |
Level 3 reconciliation | | balance | | profit or loss | | equity | | agreements | | or level 2 | | balance |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Financial derivative contracts |
| 27,432 |
| 28,603 |
| — |
| (28,770) |
| — |
| 27,265 |
Forwards |
| 5,060 |
| 23,803 |
| — |
| (25,287) |
| — |
| 3,576 |
Swaps |
| 22,372 |
| 4,800 |
| — |
| (3,483) |
| — |
| 23,689 |
Call options |
| — |
| — |
| — |
| — |
| — |
| — |
Put options |
| — |
| — |
| — |
| — |
| — |
| — |
Totals |
| 27,432 |
| 28,603 |
| — |
| (28,770) |
| — |
| 27,265 |
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Financial derivative contracts |
| 1,119 |
| 725 |
| — |
| (1,004) |
| — |
| 840 |
Forwards |
| 181 |
| 2,397 |
| — |
| (2,462) |
| — |
| 116 |
Swaps |
| 938 |
| (1,672) |
| — |
| 1,458 |
| — |
| 724 |
Call options |
| — |
| — |
| — |
| — |
| — |
| — |
Put options |
| — |
| — |
| — |
| — |
| — |
| — |
Totals |
| 1,119 |
| 725 |
| — |
| (1,004) |
| — |
| 840 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-180 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
| | | | | | | | | | | | |
| | As of December 31, 2019 | ||||||||||
|
| |
| Gain (loss) |
| Gain (loss) |
| Purchases, |
| Transfers |
| |
| | Opening | | recognized in | | recognized in | | sales and | | from level 1 | | Ending |
Level 3 reconciliation | | balance | | profit or loss | | equity | | agreements | | or level 2 | | balance |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
ASSETS | | | | | | | | | | | | |
Financial derivative contracts |
| 27,156 |
| 17,328 |
| — |
| (17,052) |
| — |
| 27,432 |
Forwards |
| 618 |
| 12,398 |
| — |
| (7,956) |
| — |
| 5,060 |
Swaps |
| 26,538 |
| 4,930 |
| — |
| (9,096) |
| — |
| 22,372 |
Call options |
| — |
| — |
| — |
| — |
| — |
| — |
Put options |
| — |
| — |
| — |
| — |
| — |
| — |
Totals |
| 27,156 |
| 17,328 |
| — |
| (17,052) |
| — |
| 27,432 |
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Financial derivative contracts |
| 569 |
| 3,208 |
| — |
| (2,658) |
| — |
| 1,119 |
Forwards |
| 49 |
| 2,565 |
| — |
| (2,433) |
| — |
| 181 |
Swaps |
| 520 |
| 643 |
| — |
| (225) |
| — |
| 938 |
Call options |
| — |
| — |
| — |
| — |
| — |
| — |
Put options |
| — |
| — |
| — |
| — |
| — |
| — |
Totals |
| 569 |
| 3,208 |
| — |
| (2,658) |
| — |
| 1,119 |
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 hierarchy as of December 31, 2020 and 2019.
| | | | | | | | |
| | As of December 31, 2020 | ||||||
| | | | Market value of the | | Other observable | | Non-observable |
| | Estimated fair | | asset for identified | | significant inputs | | significant inputs |
Measurement at fair value of items on a non-recurring basis |
| value |
| assets (Level 1) |
| (Level 2) |
| (Level 3) |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
ASSETS | | | | | | | | |
| | | | | | | | |
Cash and deposits in banks |
| 3,089,072 | | 3,089,072 | | — | | — |
Cash items in process of collection |
| 173,192 | | 173,192 | | — | | — |
Loans and accounts receivable at amortized cost |
| 22,767,597 | | — | | — | | 22,767,597 |
Financial instruments at amortized cost |
| 110,608 | | 110,608 | | — | | — |
Investments under resale agreements |
| 105,580 | | 105,580 | | — | | — |
Interbank loans, net |
| 7,121 | | 7,121 | | — | | — |
Totals |
| 26,253,170 | | 3,485,573 | | — | | 22,767,597 |
LIABILITIES | | | | | | | | |
Deposits and other demand liabilities |
| 6,197,406 | | 6,197,406 | | — | | — |
Cash in process of being cleared |
| 154,232 | | 154,232 | | — | | — |
Obligations under repurchase agreements |
| 638,851 | | 638,851 | | — | | — |
Time deposits and other time liabilities |
| 11,574,924 | | — | | 11,574,924 | | — |
Interbank borrowings |
| 3,794,375 | | 3,794,375 | | — | | — |
Debt instruments issued |
| 7,330,126 | | — | | 7,330,126 | | — |
Lease contract liabilities | | 164,304 | | — | | 164,304 | | — |
Other financial liabilities |
| 13,123 | | 13,123 | | — | | — |
Totals |
| 29,867,341 | | 10,797,987 | | 19,069,354 | | — |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-181 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 35 - Fair Value of Financial Assets and Liabilities, continued
| | | | | | | | |
| | As of December 31, 2019 | ||||||
| | | | Market value of the | | Other observable | | Non-observable |
| | Estimated fair | | asset for identified | | significant inputs | | significant inputs |
Measurement at fair value of items on a non-recurring basis |
| value |
| assets (Level 1) |
| (Level 2) |
| (Level 3) |
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
ASSETS | | | | | | | | |
| | | | | | | | |
Cash and deposits in banks |
| 1,009,681 | | 1,009,681 | | — | | — |
Cash items in process of collection |
| 231,305 | | 231,305 | | — | | — |
Investments under resale agreements |
| 23,313,453 | | — | | — | | 23,313,453 |
Interbank loans, net |
| 114,175 | | 114,175 | | — | | — |
Loans and accounts receivable from customers, net |
| 75,975 | | 75,975 | | — | | — |
Held to maturity investments |
| 56,396 | | 56,396 | | 191 | | 191 |
Totals |
| 24,800,985 |
| 1,487,532 |
| 191 |
| 23,313,644 |
LIABILITIES | | | | | | | | |
Deposits and other demand liabilities |
| 4,873,448 | | 4,873,448 | | — | | — |
Cash in process of being cleared |
| 164,573 | | 164,573 | | — | | — |
Obligations under repurchase agreements |
| 559,457 | | 559,457 | | — | | — |
Time deposits and other time liabilities |
| 11,692,076 | | — | | 11,692,076 | | — |
Interbank borrowings | | 2,646,176 | | 2,646,176 | | — | | — |
Debt instruments issued |
| 7,244,551 | | — | | 7,244,551 | | — |
Lease contract liabilities | | 175,263 | | — | | 175,263 | | — |
Other financial liabilities |
| 12,966 | | 12,966 | | — | | — |
Totals |
| 27,368,510 |
| 8,256,620 |
| 19,111,890 |
| — |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-182 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
The Bank and its subsidiaries, through their activity, are exposed to several types of risk mainly related to loans portfolio and financial instruments. Risk management policies are established in order to identify and analyze the risks faced by the Bank, set limits and adequate controls, monitor risks and comply with limits. The risk management policies and risk administration structures are reviewed periodically in order to reflect changes in the institution’s activities. The Bank, through its rules and procedures, intends to develop an appropriate control environment, in which all employees understand their roles and responsibilities.
The following is a description of the main business activities and policies of the Bank in terms of risk management.
Risk Management Structure
Board of Directors
At the Bank and its Subsidiaries, the Board of Directors plays a leading role in corporate governance. It is responsible for establishing and monitoring the Bank’s risk management structure, for which it has a corporate governance system aligned with international best practices and Chilean regulations, mainly from the CMF. One of the principal functions of the Board of Directors is to ensure that measures are in place to monitor, evaluate and guide senior management to ensure that their actions are in line with best practices and defined risk appetite levels. To accomplish this, a governance structure made up of various committees has been created. These committees 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.
Audit Committee
The Audit Committee’s objective is to monitor the Bank’s internal control systems and its compliance with regulations and other internal standards. It is also responsible for the oversight of the different aspects of maintenance, application and functioning of the Bank’s internal controls, monitoring compliance with standards and procedures regulating its practices, and having an understanding of the risks that can arise from the business conducted by the Bank.
The committee is linked to the Board of Directors through the participation of at least two board members named by the Board itself. These members must report to the Board situations and events analyzed by the Committee, thus holding the Bank’s Board members responsible for complying with both self-control policies established and practiced by the entity as well as laws and regulations to which it is subject.
The Audit Committee must reinforce and support Internal Audit function including its independence from management and serve, at the same time, as a link between the internal audit department and the independent auditors as well as between both auditors and the Board of Directors.
Directors’ Committee
The Directors’ Committee’s objective is to strengthen the self-regulation of the Bank and other entities under its control, making the Board’s work more efficient through increased oversight of management’s activities.
Likewise, responsible for making the agreements necessary to protect shareholders, especially minority shareholders, examining executive compensation systems and analyzing and issuing a report on the transactions referenced in title XVI of Law 18,046. A copy of this report is sent to the Board, which must read the report and approve or reject each respective transaction.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-183 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
In its role as overseer of corporate activity, the committee must inform the market of any violations or major corporate events as well as transactions that the company carries out with related parties of the controlling shareholder or takeovers of any form.
Corporate Governance Committee
For the purposes of this committee, which is aware of how difficult it is to bring together all aspects of good corporate governance under one definition, corporate governance shall be defined as the set of bodies and institutional practices that impact a company’s decision making process, contributing to sustainable value creation in a framework of transparency, proper management, risk control and corporate responsibility towards the market.
Therefore, appropriate corporate governance in a Bank must align organizational incentives and promote the rights of shareholders and other direct or indirect stakeholders.
The Corporate Governance Committee is a consultation body of the Board of Directors whose mission is to ensure the existence and development within the Bank of the best corporate governance practices for financial entities. To this end, it will evaluate the current practices and policies, propose and make recommendations to the Board of Directors on improvements, reforms and adjustments that it deems appropriate and work to ensure proper implementation and application of these corporate governance practices and policies defined by the Board of Directors.
Asset-Liability Committee (ALCO)
After the Board and its specialized committees, the Asset-Liability Committee (hereinafter also “ALCO”) is the next highest body involved in managing the institution’s financial policies.
The committee’s main purpose is to comply with the financial guidelines set by the Board of Directors. In this spirit, it must approve and monitor the financial strategies that guide the Bank with respect to the composition of its assets and liabilities, cash inflows and outflows and transactions with financial instruments.
It will consider the diverse alternatives available to make decisions that ensure the highest and most sustainable returns with financial risk levels that are compatible with the business, current regulations and internal standards.
Anti-Money Laundering and Anti-Terrorism Finance Prevention Committee
This committee’s main purpose is to plan and coordinate activities to comply with policies and procedures to prevent asset laundering, terrorism financing and bribery, to maintain itself informed of the work carried out by the Compliance Officer, who has also been designated as the head of prevention in conformity with Law No. 20,393, as well as to adopt agreements to improve prevention and control measures proposed by the Compliance Officer.
Operational Risk Committee
This committee’s objective is to evaluate the status of critical processes that are directly related to the Bank’s Operational Risk and Internal Controls, in accordance with current Commission for the Financial Market standards in order to improve any weaknesses that the Bank may present and ensure proper implementation of regulatory changes. It is also responsible for attaining critical processes under an internal control environment that enables the Bank to operate stably and consistently, thus procuring desired levels of reliability, integrity and availability for information resources.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-184 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
Compliance Committee
The Compliance Committee’s main purpose is to define, promote and ensure that the conduct of all Itaú Corpbanca employees meets the highest possible standards of personal and professional excellence. Employee conduct should, at all times, be guided by the principles and values that embody our organization’s spirit, philosophy and good business practices. It is also responsible for ensuring that the Regulatory Compliance Model is properly applied in accordance with definitions set by this committee, and for maintaining itself informed of the work carried out by the Compliance Officer on such matters, as well as adopting agreements to improve control measures proposed by the him.
Committee on Risk Methodologies
The objective of the Risk Methodologies Committee is to ensure the quality of all methodologies for estimating the Bank’s provisions for all business areas.
This Committee - which exercises its functions with respect to the Bank, its Divisions and Subsidiaries - deals with certain corporate aspects such as policies, manuals and procedures related to the methodologies of Bank provisions, as well as the statistical models of admission, behavior and provisions.
Its main members are: Corporate Risk Manager, Risk Control Manager, Retail Credit Manager, Financial Risk Manager, Responsible for Monitoring and Control of Retail and Responsible for Risk Models.
Portfolio Committee
The objective of the Portfolio Committee is to monitor the evolution of the Bank’s wholesale and retail portfolios in terms of their risk-return ratio, their adjustment to the defined risk appetite and the progress made in materializing short-term strategies or instructions. Also, long term that this committee has defined.
As a result, it considers in its analysis the competition, the movements of its most relevant actors and the main risks that affect the management of the portfolios, as well as the projects that have an impact on the matter.
Its main members are: General Manager, Corporate Risk Manager, Risk Control Manager, Wholesale Credit Manager, Wholesale Banking Manager, Retail Credit Manager, Retail Banking Manager, Financial Planning and Control Manager and Product Manager and Marketing
Internal Audit
The main function of Internal Audit is to support the Board of Directors and senior management to independently asses the 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
The objective is to continue progressing to become the best bank and have first-rate human capital. All associates, directors and subsidiaries must adhere to ethical standards based on principles and values designed to guide and maintain the highest possible standards.
In response to the clients’ trust and recognition, which are vital to the Bank’s success, all associates and directors should strive to retain this trust, strictly complying with the General Code of Conduct.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-185 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
Main Risks and Requirements Affecting the Bank and its Subsidiaries:
Credit risk
Credit risk is the risk that a customer or counterparty will default on its contractual obligations resulting in financial loss to the Bank. The Bank’s main income generating activity is lending to customers and therefore credit risk is a principal risk. Credit risk mainly arises from loans and advances to customers and other Banks (including related commitments to lend such as loan or credit card facilities), investments in debt securities and derivatives that are an asset position. The Bank considers all elements of credit risk exposure such as counterparty default risk, geographical risk and sector risk for risk management purposes.
Credit risk management
The Bank’s credit committee is responsible for managing the Bank’s credit risk by:
● | Ensuring that the Bank has appropriate credit risk practices, including an effective system of internal control, to consistently determine adequate allowances in accordance with the Bank’s stated policies and procedures, IFRS and relevant supervisory guidance. |
● | Identifying, assessing and measuring credit risk across the Bank, from an individual instrument to a portfolio level. |
● | Creating credit policies to protect the Bank against the identified risks including the requirements to obtain collateral from borrowers, to perform robust ongoing credit assessment of borrowers and to continually monitor exposures against internal risk limits. |
● | Limiting concentrations of exposure by type of asset, counterparties, industry, credit rating, geographic location etc. |
● | Establishing a robust control framework regarding the authorization structure for the approval and renewal of credit facilities. |
● | Developing and maintaining the Bank’s risk grading to categorize exposures according to the degree of risk of default. Risk grades are subject to regular reviews. |
● | Developing and maintaining the Bank’s processes for measuring ECL including monitoring of credit risk, incorporation of forward looking information and the method used to measure ECL. |
● | Ensuring that the Bank has policies and procedures in place to appropriately maintain and validate models used to assess and measure ECL. |
● | Establishing a sound credit risk accounting assessment and measurement process that provides it with a strong basis for common systems, tools and data to assess credit risk and to account for ECL. Providing advice, guidance and specialist skills to business units to promote best practice throughout the Bank in the management of credit risk. |
The internal audit function performs regular audits making sure that the established controls and procedures are adequately designed and implemented.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-186 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
Significant increase in credit risk
The Bank analyzes all data collected using statistical models and estimates the remaining lifetime PD of exposures and how these are expected to change over time. The factors taken into account in this process include macro-economic data such as GDP growth, unemployment, benchmark interest rates and house prices. The Bank generates a ‘base case’ scenario of the future direction of relevant economic variables as well as a representative range of other possible forecast scenarios. The Bank then uses these forecasts, which are probability-weighted, to adjust its estimates of PDs.
Under the Bank’s monitoring procedures a significant increase in credit risk is identified before the exposure has defaulted, and at the latest when the exposure becomes 30 days past due, unless the Bank has reasonable and supportable information that demonstrates otherwise.
As of December 31, 2020 and considering the current pandemic situation, the IASB required special attention to the assets of the impairment reflected in the ECL calculation and the SICR triggers, taking in account not only the current conditions and forecast of the economic factors, but also the Government support measures. As part of our permanent monitoring process to properly reflect expected credit losses some improvements have been implemented during 2020, mainly related to SICR which now is calculated for each category of loans and SICR related to Covid-19 relief measures for our clients.
The Bank uses different criteria to determine whether credit risk has increased significantly per portfolio of assets. The criteria used are both quantitative changes in PDs as well as qualitative. The table below summarizes per type of asset the range above which an increase in lifetime PD is determined to be significant, as well as some indicative qualitative indicators assessed.
Criteria used for Chile
| | | | | | | | | | |
| | | | | | % of | | | | |
| | | | | | absolute | | | | |
| | | | | | increase | | | | |
| | | | PD ranges per |
| in lifetime | | | | |
Type of portfolio |
| Debtor category |
| debtor category |
| PD |
| Stages |
| Days of arrears to the end of the month |
|
| A1, A2, A3 |
| 0.04 – 0.25% | | 0.13% | | Stage 1 |
| Up to 29 days |
|
| A4 |
| 2% | | 1.62% | | Stage 1 | | Up to 29 days |
Corporate |
| A5 (*), A6 |
| 4.75 – 10% | | 3.52% | | Stage 1 |
| Up to 29 days |
|
| B1, B2, B3 |
| 15 - 45% | | 23.05% | | Stage 2 | | From 30 to 89 days |
|
| B4, C1, C2, C3, C4, C5, C6 | | 100% | | 100% | | Stage 3 | | 90 days or more |
(*) Loans originated in A5 are considered Stage 1 at inception. Loans that were originated in a higher category and subsequently downgraded to A5 are considered Stage 2.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-187 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
| | | | | | |
| | | | | | Days of arrears to the end of the month, |
| | | | | | probability of default (PD) and |
Type of portfolio |
| Portfolio | | Stages |
| qualitative considerations |
|
| | | Stage 1 |
| Up to 29 days |
| | CAE | | Stage 2 | | From 30 to 89 days or (difference Referential Life Time PD >=1.61 and difference PD Life Time at origination >= 0.13) combinated with a client with a extension and (with a protest or a debt increase in 25%) |
|
| | | Stage 3 |
| 90 days or more |
| | | | Stage 1 | | Up to 29 days |
| | Condell / Restructured Condell | | Stage 2 (Condell) | | From 30 to 89 days or (difference Referential Life Time PD >=1.59 and difference PD Life Time at origination >= 0.04) combinated with a client with a extension and (with a protest or a debt increase) |
| | | | Stage 2 (Restructured Condell) | | From 30 to 89 days or (difference Referential Life Time PD >=1.47 and difference PD Life Time at origination >= 0.08) combinated with a client with a extension and (with a protest or a debt increase) |
| | | | Stage 3 | | 90 days or more |
| | | | Stage 1 | | Up to 29 days |
| | Commercial/ | | Stage 2 (Commercial) | | From 30 to 89 days or (difference Referential Life Time PD >=1.71 and difference PD Life Time at origination >= 0.11) combinated with a client with a extension and (with a protest or a debt increase in 25%) |
Group | | | | Stage 2 (Rotative Commercial) | | From 30 to 89 days or (difference Referential Life Time PD >=2.25 and difference PD Life Time at origination >= 0.07) combinated with a client with a extension and (with a protest or a debt increase in 25%) |
| | | | Stage 3 | | 90 days or more |
| | | | Stage 1 | | Up to 29 days |
| | | | Stage 2 (Consumer) | | From 30 to 89 days or (difference Referential Life Time PD >=2.08 and difference PD Life Time at origination >= 0.08) combinated with a client with a extension and (with a protest or a debt increase in 25%) |
| | Consumer/ | | Stage 2 (Renegotiated Consumer) | | From 30 to 89 days or (difference Referential Life Time PD >=1.79 and difference PD Life Time at origination >= 0.20) combinated with a client with a extension and (with a protest or a debt increase in 25%) |
| | | | Stage 2 (Rotative Consumer) | | From 30 to 89 days or (difference Referential Life Time PD >=2.46 and difference PD Life Time at origination >= 0.08) combinated with a client with a extension and (with a protest or a debt increase in 25%) |
| | | | Stage 3 | | 90 days or more |
| | | | Stage 1 |
| Up to 29 days |
| | Mortgage | | Stage 2 | | From 30 to 89 days or (difference Referential Life Time PD >=2.41 and difference PD Life Time at origination >= 0.20) combinated with a client with a extension and (with a protest or a debt increase in 25%) |
| | | | Stage 3 |
| 90 days or more |
The quantitative criteria is used to identify where an exposure has increased in credit risk and it is applied based on whether an increase in the lifetime PD since the recognition date exceeds the threshold set in absolute and relative terms. The following formulas are used to determine such thresholds:
Relative comparison formula
Threshold = Lifetime PD (at reporting date) - 1
Lifetime PD (at origination)
Absolute comparison formula
Threshold = Lifetime PD (at reporting date) – Lifetime PD (at origination)
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-188 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
Criteria used for Colombia
| | | | | | |
|
| % of absolute increase in |
| % of relative increase |
| Qualitative |
| | lifetime PD | | in lifetime PD | | indicators assessed |
Corporate portfolio | | | | | | Debt restructuring and increase in credit risk of other financial instruments |
Without information |
| 6,909 | % | 2,558.55 | % | |
Small company |
| 1,751 | % | 2,027.22 | % | |
Small company |
| 2,008 | % | 1,156.16 | % |
|
Medium company |
| 492 | % | 1,181.62 | % | |
Medium company |
| 946 | % | 81.69 | % | |
Large company |
| 597 | % | 738.75 | % |
|
Low default |
| 161 | % | 149.62 | % |
|
Low default (Government and Financial) |
| 4 | % | 621.57 | % |
|
Group portfolio |
|
|
|
|
| Increase in credit risk of other financial instruments |
Leasing |
| 5,056 | % | 236.20 | % | |
Payroll deductible loan |
| 5,344 | % | 424.01 | % |
|
Revolving line of credit |
| 4,095 | % | 221.72 | % |
|
Overdraft limit |
| 5,532 | % | 2.29 | % | |
Credit card |
| 2,383 | % | 42.33 | % |
|
Mortgage loan |
| 261 | % | 137.24 | % |
|
Personal debt restructuring |
| 4,169 | % | 879.62 | % | |
Other loans |
| 5,826 | % | 286.72 | % |
|
Loan commitments are assessed along with the category of loan the Bank is committed to provide, i.e. commitments to provide mortgages are assessed using similar criteria to mortgage loans, while commitments to provide a corporate loan are assessed using similar criteria to corporate loans.
The Bank has monitoring procedures in placfe to make sure that the criteria used to identify significant increases in credit are effective, meaning that significant increase in credit risk is identified before the exposure is defaulted or when the asset becomes 30 days past due. The Bank performs periodic back-testing of its ratings to consider whether the drivers of credit risk that led to default were accurately reflected in the rating in a timely manner.
Incorporation of forward-looking information
The Bank uses forward-looking information that is available without undue cost or effort in its assessment of significant increase of credit risk as well as in its measurement of ECL. The Bank employs experts who use external and internal information to generate a ‘base case’ scenario of future forecast of relevant economic variables along with a representative range of other possible forecast scenarios. The external information used includes economic data and forecasts published by governmental bodies and monetary authorities.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-189 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
The Bank applies probabilities to the forecast scenarios identified. The base case scenario is the single most-likely outcome and consists of information used by the Bank for strategic planning and budgeting. The Bank has identified and documented key drivers of credit risk and credit losses for each portfolio of financial instruments and, using a statistical analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit losses. The Bank has not made changes in the estimation techniques or significant assumptions made during the reporting period.
The table below summarizes the principal macroeconomic indicators included in the economic scenarios used as of December 31, 2020 until December 31, 2023 in the countries where the Bank and its subsidiaries operate and therefore are the countries that have a material impact on ECLs.
Criteria for Chile
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2021 | | 2022 | | 2023 |
| ||||||||||||||||||
Indicators |
| Portfolio |
| Q1 |
| Q2 |
| Q3 |
| Q4 |
| Q1 |
| Q2 | | Q3 | | Q4 | | Q1 |
| Q2 |
| Q3 |
| Q4 | |
Unemployment rate |
| Base scenario |
| 8.73% | | 8.89% | | 8.53% | | 8.15% | | 7.53% | | 7.69% | | 7.33% | | 6.95% | | 7.03% | | 7.19% | | 6.83% | | 6.45% | |
|
| Range of upside scenarios |
| 10.98% | | 10.69% | | 10.58% | | 10.35% | | 9.08% | | 9.19% | | 8.85% | | 8.39% | | 8.53% | | 8.72% | | 8.33% | | 7.91% | |
|
| Range of downside scenarios |
| 7.77% | | 7.81% | | 7.45% | | 6.95% | | 6.73% | | 6.89% | | 6.53% | | 6.15% | | 6.15% | | 6.37% | | 6.05% | | 5.73% | |
Consumer's price index (IPC) |
| Base scenario |
| 107.66 | | 108.18 | | 108.54 | | 109.46 | | 111.02 | | 111.46 | | 112.01 | | 112.75 | | 114.35 | | 114.79 | | 115.37 | | 116.14 | |
|
| Range of upside scenarios |
| 108.93 | | 108.85 | | 108.92 | | 110.93 | | 112.81 | | 112.49 | | 112.78 | | 114.81 | | 116.70 | | 116.32 | | 116.55 | | 118.60 | |
|
| Range of downside scenarios |
| 107.16 | | 107.24 | | 107.70 | | 108.58 | | 109.70 | | 109.91 | | 110.39 | | 111.30 | | 112.50 | | 112.76 | | 113.32 | | 114.30 | |
Interbank interest rate |
| Base scenario |
| 0.50% | | 0.50% | | 0.50% | | 0.50% | | 0.50% | | 0.75% | | 1.00% | | 1.25% | | 1.50% | | 2.00% | | 2.50% | | 3.00% | |
|
| Range of upside scenarios |
| 0.50% | | 0.50% | | 0.50% | | 0.75% | | 1.00% | | 1.50% | | 2.00% | | 2.50% | | 3.00% | | 3.50% | | 4.00% | | 4.00% | |
|
| Range of downside scenarios |
| 0.50% | | 0.50% | | 0.50% | | 0.50% | | 0.50% | | 0.50% | | 0.50% | | 0.50% | | 0.50% | | 0.75% | | 1.00% | | 1.50% | |
Exchange Rate (USD/CLP) |
| Base scenario |
| 760.00 | | 760.00 | | 760.00 | | 760.00 | | 760.00 | | 760.00 | | 760.00 | | 760.00 | | 757.50 | | 755.00 | | 752.50 | | 745.00 | |
|
| Range of upside scenarios |
| 788.75 | | 802.50 | | 816.25 | | 830.00 | | 830.00 | | 830.00 | | 830.00 | | 830.00 | | 822.50 | | 815.00 | | 807.50 | | 775.00 | |
| | Range of downside scenarios |
| 713.75 | | 712.50 | | 711.25 | | 710.00 | | 710.00 | | 710.00 | | 710.00 | | 710.00 | | 707.50 | | 705.00 | | 702.50 | | 715.00 | |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-190 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
Criteria for Colombia
| | | | | | |
| | As of December 31, | ||||
|
| 2021 |
| 2022 |
| 2023 |
GDP growth |
|
|
|
|
|
|
Base scenario |
| 1.45 | | 3.54 | | 3.29 |
Range of upside scenarios |
| 1.85 | | 4.64 | | 4.39 |
Range of downside scenarios |
| 0.35 | | 2.44 | | 2.19 |
Unemployment rates |
| | | | | |
Base scenario |
| 14.36 | | 13.65 | | 11.95 |
Range of upside scenarios |
| 12.36 | | 11.65 | | 9.95 |
Range of downside scenarios |
| 16.36 | | 15.65 | | 13.95 |
Benchmark interest rates |
| | | | | |
Base scenario |
| 2.00 | | 3.50 | | 4.50 |
Range of upside scenarios |
| 3.25 | | 4.75 | | 5.00 |
Range of downside scenarios |
| 1.25 | | 2.00 | | 3.50 |
currency exchange rate |
| | | | | |
Base scenario |
| 3,650 | | 3,600 | | 3,600 |
Range of upside scenarios |
| 3,450 | | 3,400 | | 3,300 |
Range of downside scenarios |
| 3,950 | | 3,900 | | 3,800 |
Consumer’s Price Index |
| | | | | |
Base scenario |
| 3.00 | | 3.00 | | 3.00 |
Range of upside scenarios |
| 3.48 | | 3.84 | | 4.20 |
Range of downside scenarios |
| 2.52 | | 2.16 | | 1.80 |
Predicted relationships between the key indicators and default and loss rates on various portfolios of financial assets have been developed based on analyzing historical data over the past 3 years.
Sensitivity analysis
The most significant assumptions affecting the ECL allowance, as indicated in the tables above by country, are as follows:
Chile:
● | Unemployment rate, given its impact on secured and unsecure borrowers’ ability to meet their contractual repayments. |
● | Consumer’s Price Index (IPC), given its impact on housing prices, mortgage collateral valuations, and consumers acquisition power |
● | Interbank interest rate, given its impact on companies’ likelihood of default |
● | Exchange rate (USD/CLP) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-191 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
Colombia:
● | GDP growth, given the significant impact on companies’ performance and collateral valuations |
● | Unemployment rates, given its impact on secured and unsecure borrowers’ ability to meet their contractual repayments. |
● | Interest rate, given its impact on companies’ likelihood of default |
● | Exchange rates, given its impact on companies’ financial position and debt |
● | Consumer’s Price Index (IPC), given its impact on housing prices and consumers acquisition power |
Set out below are the changes to ECL as of December 31, 2020 that would result from reasonably possible changes in these parameters from the actual assumptions used in the Bank’s economic variable assumptions as set forth in the tables above for Base scenarios, upside scenarios, and downside scenarios.
| | | | |
ECL coverage of loans and accounts receivable at amortized cost subject to significant measurement uncertainty as of December 31, 2020 |
| Chile |
| Colombia |
| | MCh$ | | MCh$ |
Reported ECL | | 737,016 | | 304,848 |
Loans and accounts receivable at amortized cost | | 18,250,479 | | 4,367,502 |
| | | | |
Reported Coverage (Reported ECL/ loans and accounts receivable at amortized cost) | % | 4.04 | | 6.98 |
Consensus upside scenario (Upside scenario for ECL/ loans and accounts receivable at amortized cost) | % | 3.95 | | 6.70 |
Consensus central scenario (Base scenario for ECL/ loans and accounts receivable at amortized cost) | % | 4.01 | | 6.96 |
Consensus downside scenario (Downside scenario for ECL/ loans and accounts receivable at amortized cost) | % | 4.13 | | 7.16 |
ECL coverage rates reflect the underlying observed credit defaults, the sensitivity to economic environment, extent of collateral and the effective maturity of the book.
Measurement of ECL
The key inputs used for measuring ECL are:
● | probability of default (PD); |
● | loss given default (LGD); and |
● | exposure at default (EAD). |
As explained above these figures are generally derived from internally developed statistical models and other historical data and they are adjusted to reflect probability-weighted forward-looking information.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-192 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
PD is an estimate of the likelihood of default over a given time horizon. It is estimated as at a point in time. The calculation is based on statistical rating models, and assessed using rating tools tailored to the various categories of counterparties and exposures. These statistical models are based on market data (where available), as well as internal data comprising both quantitative and qualitative factors. PDs are estimated considering the contractual maturities of exposures and estimated prepayment rates. The estimation is based on current conditions, adjusted to take into account estimates of future conditions that will impact PD.
LGD is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, taking into account cash flows from any collateral. The LGD models for secured assets consider forecasts of future collateral valuation taking into account sale discounts, time to realization of collateral, cross-collateralization and seniority of claim, cost of realization of collateral and cure rates (i.e. exit from non-performing status). LGD models for unsecured assets consider time of recovery, recovery rates and seniority of claims. The calculation is on a discounted cash flow basis, where the cash flows are discounted by the current interest rate.
EAD is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities. The Bank’s modelling approach for EAD reflects expected changes in the balance outstanding over the lifetime of the loan exposure that are permitted by the current contractual terms, such as amortization profiles, early repayment or overpayment, changes in utilization of undrawn commitments and credit mitigation actions taken before default. The Bank uses EAD models that reflect the characteristics of the portfolios.
The Bank measures ECL considering the risk of default over the maximum contractual period (including extension options) over which the entity is exposed to credit risk and not a longer period, even if contact extension or renewal is common business practice. However, for financial instruments such as credit cards, revolving credit facilities and overdraft facilities that include both a loan and an undrawn commitment component, the Bank’s contractual ability to demand repayment and cancel the undrawn commitment does not limit the Bank’s exposure to credit losses to the contractual notice period. For such financial instruments the Bank measures ECL over the period that it is exposed to credit risk and ECL would not be mitigated by credit risk management actions, even if that period extends beyond the maximum contractual period. These financial instruments do not have a fixed term or repayment structure and have a short contractual cancellation period. However, the Bank does not enforce in the normal day-to-day management the contractual right to cancel these financial instruments. This is because these financial instruments are managed on a collective basis and are canceled only when the Bank becomes aware of an increase in credit risk at the facility level. This longer period is estimated taking into account the credit risk management actions that the Bank expects to take to mitigate ECL, e.g. reduction in limits or cancellation of the loan commitment.
The measurement of ECL is based on probability weighted average credit loss. As a result, the measurement of the loss allowance should be the same regardless of whether it is measured on an individual basis or a collective basis (although measurement on a collective basis is more practical for large portfolios of items). In relation to the assessment of whether there has been a significant increase in credit risk it can be necessary to perform the assessment on a collective basis as noted below.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-193 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
Credit quality
A detail by credit quality, which includes loans and accounts receivable from customers and interbank loans as of December 31, 2020 and 2019 is summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 | ||||||||||||||||||
Corporate |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Totals corporate |
| Percentage |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Totals allowance |
| Percentage |
|
| MCh$ | | MCh$ | | MCh$ | | MCh$ | | % | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | % |
A1 |
| 163,981 | | — | | — |
| 163,981 |
| 1.29% | | (66) | | — |
| — |
| (66) |
| 0.01% |
A2 |
| 514,946 | | — | | — |
| 514,946 |
| 4.04% | | (254) | | — |
| — |
| (254) |
| 0.04% |
A3 |
| 2,182,085 | | — | | — |
| 2,182,085 |
| 17.11% | | (3,624) | | — |
| — |
| (3,624) |
| 0.59% |
A4 |
| 4,223,518 | | — | | — |
| 4,223,518 |
| 33.12% | | (35,625) | | — | | — |
| (35,625) |
| 5.75% |
A5 |
| 2,952,521 | | — | | — |
| 2,952,521 |
| 23.15% | | (19,474) | | — | | — |
| (19,474) |
| 3.14% |
A6 |
| — | | 920,044 | | — |
| 920,044 |
| 7.21% | | — | | (38,540) | | — |
| (38,540) |
| 6.22% |
B1 |
| — | | 431,934 | | — |
| 431,934 |
| 3.39% | | — | | (10,757) | | — |
| (10,757) |
| 1.74% |
B2 |
| — | | 161,455 | | — |
| 161,455 |
| 1.27% | | — |
| (13,265) | | — |
| (13,265) |
| 2.14% |
B3 |
| — | | 163,779 | | — |
| 163,779 |
| 1.28% | | — |
| (16,242) | | — |
| (16,242) |
| 2.62% |
B4 |
| — | | 208,409 | | — |
| 208,409 |
| 1.63% | | — |
| (56,413) | | — |
| (56,413) |
| 9.11% |
C1 |
| — | | — | | 97,306 | | 97,306 |
| 0.76% | | — |
| — | | (2,193) | | (2,193) |
| 0.35% |
C2 |
| — | | — | | 63,842 | | 63,842 |
| 0.50% | | — |
| — | | (7,146) | | (7,146) |
| 1.15% |
C3 |
| — | | — | | 166,229 | | 166,229 |
| 1.30% | | — |
| — | | (46,524) | | (46,524) |
| 7.51% |
C4 |
| — | | — | | 185,893 | | 185,893 |
| 1.46% | | — |
| — | | (83,164) | | (83,164) |
| 13.43% |
C5 |
| — | | — | | 128,699 | | 128,699 |
| 1.01% | | — |
| — |
| (94,140) | | (94,140) |
| 15.20% |
C6 |
| — | | — | | 188,493 | | 188,493 |
| 1.48% | | — |
| — |
| (191,900) | | (191,900) |
| 30.99% |
Subtotals corporate |
| 10,037,051 |
| 1,885,621 |
| 830,462 |
| 12,753,134 |
| 56.38% |
| (59,043) |
| (135,217) |
| (425,067) |
| (619,327) |
| 59.44% |
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 | ||||||||||||||||||
Group |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total group |
| Percentage |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Totals allowance |
| Percentage |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | % | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | % |
Commercial loans |
| 491,849 | | 1,178,431 | | 385,385 | | 2,055,665 | | 20.84% | | (29,083) | | (57,606) | | (41,601) | | (128,290) | | 30.36% |
Mortgage loans |
| 4,166,515 | | 1,025,921 | | 124,317 | | 5,316,753 | | 53.90% | | (10,732) | | (48,514) | | (14,219) | | (73,465) | | 17.39% |
Consumer loans |
| 1,732,525 | | 686,699 | | 73,205 | | 2,492,429 | | 25.27% | | (66,649) | | (105,353) | | (48,789) | | (220,791) | | 52.25% |
Subtotals group |
| 6,390,889 |
| 2,891,051 |
| 582,907 |
| 9,864,847 |
| 43.62% |
| (106,464) |
| (211,473) |
| (104,609) |
| (422,546) |
| 40.56% |
Totals portfolio |
| 16,427,940 |
| 4,776,672 |
| 1,413,369 |
| 22,617,981 |
| 100% |
| (165,507) |
| (346,690) |
| (529,676) |
| (1,041,873) |
| 100% |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-194 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
| | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2019 |
| ||||||||||||||||||
Corporate |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Totals corporate |
| Percentage |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Totals allowance |
| Percentage |
|
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | % | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | % | |
A1 |
| 101,936 | | — |
| — |
| 101,936 |
| 0.44% |
| (14) |
| — |
| — |
| (14) |
| 0.00% | |
A2 |
| 600,732 | | — |
| — |
| 600,732 |
| 2.60% |
| (124) |
| — |
| — |
| (124) |
| 0.01% | |
A3 |
| 3,063,847 | | — |
| — |
| 3,063,847 |
| 13.24% |
| (1,636) |
| — |
| — |
| (1,636) |
| 0.19% | |
A4 |
| 4,238,157 | | — |
| — |
| 4,238,157 |
| 18.32% |
| (12,582) |
| — |
| — |
| (12,582) |
| 1.43% | |
A5 |
| 2,723,568 | | — |
| — |
| 2,723,568 |
| 11.77% |
| (21,246) |
| — |
| — |
| (21,246) |
| 2.41% | |
A6 |
| — |
| 1,041,531 | | — |
| 1,041,531 |
| 4.50% |
| — |
| (25,533) |
| — |
| (25,533) |
| 2.90% | |
B1 |
| — |
| 364,393 | | — |
| 364,393 |
| 1.58% |
| — |
| (11,971) |
| — |
| (11,971) |
| 1.36% | |
B2 |
| — |
| 154,200 | | — |
| 154,200 |
| 0.67% |
| — |
| (12,071) |
| — |
| (12,071) |
| 1.37% | |
B3 |
| — |
| 73,505 | | — |
| 73,505 |
| 0.32% |
| — |
| (11,058) |
| — |
| (11,058) |
| 1.26% | |
B4 |
| — |
| 413,676 | | — |
| 413,676 |
| 1.79% |
| — |
| (91,038) |
| — |
| (91,038) |
| 10.34% | |
C1 |
| — |
| — |
| 167,177 |
| 167,177 |
| 0.72% |
| — |
| — |
| (8,126) |
| (8,126) |
| 0.92% | |
C2 |
| — |
| — |
| 43,587 |
| 43,587 |
| 0.19% |
| — |
| — |
| (3,213) |
| (3,213) |
| 0.37% | |
C3 |
| — |
| — |
| 80,574 |
| 80,574 |
| 0.35% |
| — |
| — |
| (14,848) |
| (14,848) |
| 1.69% | |
C4 |
| — |
| — |
| 91,831 |
| 91,831 |
| 0.40% |
| — |
| — |
| (27,076) |
| (27,076) |
| 3.08% | |
C5 |
| — |
| — |
| 205,639 |
| 205,639 |
| 0.88% |
| — |
| — |
| (98,523) |
| (98,523) |
| 11.19% | |
C6 |
| — |
| — |
| 144,115 |
| 144,115 |
| 0.62% |
| — |
| — |
| (95,606) |
| (95,606) |
| 10.86% | |
Subtotals corporate |
| 10,728,240 |
| 2,047,305 |
| 732,923 |
| 13,508,468 |
| 58.39% | | (35,602.00) |
| (151,671.00) |
| (247,392.00) |
| (434,665) |
| 49.38% | |
| | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2019 |
| ||||||||||||||||||
Group | | Stage 1 | | Stage 2 | | Stage 3 | | Total group | | Percentage | | Stage 1 | | Stage 2 | | Stage 3 | | Totals allowance | | Percentage |
|
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| % |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| % |
|
Commercial loans |
| 1,737,978 | | — | | 214,098 |
| 1,952,076 |
| 8.44% |
| (37,434) | | — | | (73,100) |
| (110,534) |
| 12.56% | |
Mortgage loans |
| 4,043,765 | | 656,010 | | 176,266 |
| 4,876,041 |
| 21.08% |
| (5,680) | | (49,072) | | (23,749) |
| (78,501) |
| 8.92% | |
Consumer loans |
| 2,201,939 | | 482,372 | | 113,918 |
| 2,798,229 |
| 12.10% |
| (66,692) | | (113,507) | | (76,218) |
| (256,417) |
| 29.13% | |
Subtotals group |
| 7,983,682 |
| 1,138,382 |
| 504,282 |
| 9,626,346 |
| 42% | | (109,806) |
| (162,579) |
| (173,067) |
| (445,452) |
| 51% | |
Totals portfolio |
| 18,711,922 |
| 3,185,687 |
| 1,237,205 |
| 23,134,814 |
| 100% | | (145,408) |
| (319,912) |
| (414,797) |
| (880,117) |
| 100% | |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-195 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
The table below provides an analysis of the gross carrying amount of loans and advances to customers by past due:
| | | | | | | | |
| | | ||||||
| | Less than 30 days overdue | | Between 30 and 89 days overdue | | More than 90 days overdue | | Total overdue |
|
| MCh$ |
| MCh$ |
| MCh$ | | MCh$ |
Interbank loans |
| — |
| — |
| — | | — |
Loans and accounts receivable from customers |
|
|
| |
| | | |
Commercial loans |
| 195,865 |
| 260,792 |
| 381,611 | | 838,268 |
Mortgage loans |
| 87,946 |
| 37,084 |
| 77,175 | | 202,205 |
Consumer loans |
| 78,573 |
| 50,275 |
| 45,096 | | 173,944 |
Totals |
| 362,384 |
| 348,151 |
| 503,882 | | 1,214,417 |
| | | | | | | | |
| | | ||||||
| | Less than 30 days overdue | | Between 30 and 89 days overdue | | More than 90 days overdue | | Total overdue |
|
| MCh$ |
| MCh$ |
| MCh$ | | MCh$ |
Interbank loans |
| — |
| — |
| — | | — |
Loans and accounts receivable from customers |
|
|
| |
| | | |
Commercial loans |
| 542,648 |
| 134,505 |
| 490,641 | | 1,167,794 |
Mortgage loans |
| 166,105 |
| 88,072 |
| 102,650 | | 356,827 |
Consumer loans |
| 152,507 |
| 73,347 |
| 60,373 | | 286,227 |
Totals |
| 861,260 |
| 295,924 |
| 653,664 | | 1,810,848 |
| | | | | | | | |
| | | | | | | | |
An analysis for the movement of the allowance for losses during the year by individual and group portfolio is included in Note 10, letter c.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-196 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
Maximum Exposure to Credit Risk
The following table shows the Bank’s maximum credit risk exposure by financial asset as of December 31, 2020, 2019, 2018 for different balance sheet items, including derivatives, without deducting real guarantees or other credit enhancements received:
| | | | | | | | | | | | | | | | | | | | |
| | Maximum Exposure as of December 31, 2020 | ||||||||||||||||||
| | Balance sheet asset | | | | Off-balance sheet | | Collateral | | | ||||||||||
| | Notes | | Gross amounts | | Allowances | | Net amounts | | Gross amounts | | Allowances | | Net amounts | | Cash | | Non-cash | | Net exposure |
|
| |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Financial instruments at fair value through other comprehensive income | | 11 | | 3,971,810 | | (911) | | 3,970,899 | | — | | — | | — | | — | | — | | 3,970,899 |
Loans and accounts receivable at amortized cost |
| 10 |
| 22,617,981 | | (1,041,873) |
| 21,576,108 |
| 5,393,860 | | (39,775) |
| 5,354,085 |
| — | | 23,428,761 |
| 3,501,432 |
Commercial loans |
|
|
| 14,808,799 |
| (747,617) |
| 14,061,182 |
| 5,393,860 | | (39,775) |
| 5,354,085 |
| — | | 13,348,809 |
| 6,066,458 |
Mortgage loans |
|
|
| 5,316,753 | | (73,465) |
| 5,243,288 |
| — | | — |
| — |
| — | | 9,844,723 |
| (4,601,435) |
Consumer loans |
|
|
| 2,492,429 | | (220,791) |
| 2,271,638 |
| — | | — |
| — |
| — | | 235,229 |
| 2,036,409 |
Financial instruments at amortized cost |
| 11 |
| 111,643 | | (101) |
| 111,542 |
| — | | — |
| — |
| — | | — |
| 111,542 |
Investments under resale agreements |
| 7 |
| 105,580 | | — |
| 105,580 |
| — | | — |
| — |
| — | | 105,580 |
| — |
Financial derivative contracts |
| 8 |
| 3,982,803 | | — |
| 3,982,803 |
| — | | — |
| — |
| 308,674 | | — |
| 3,674,129 |
Interbank loans, net |
| 9 |
| 7,131 | | (10) |
| 7,121 |
| — | | — |
| — |
| — | | — |
| 7,121 |
Other assets |
| 15 |
| — | | — |
| — |
| — | | — |
| — |
| — | | — |
| — |
Totals | | | | 30,796,948 | | (1,042,895) | | 29,754,053 | | 5,393,860 | | (39,775) | | 5,354,085 | | 308,674 | | 23,534,341 | | 11,265,123 |
| | | | | | | | | | | | | | | | | | | | |
| | Maximum Exposure as of December 31, 2019 | ||||||||||||||||||
| | Balance sheet asset | | | | Off-balance sheet | | Collateral | | | ||||||||||
| | Notes | | Gross amounts | | Allowances | | Net amounts | | Gross amounts | | Allowances | | Net amounts | | Cash | | Non-cash | | Net exposure |
|
| |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Financial instruments at fair value through other comprehensive income | | 11 | | 3,598,890 | | — | | 3,598,890 | | — | | — |
| — |
| — | | — | | 3,598,890 |
Loans and accounts receivable at amortized cost |
| 10 |
| 23,134,814 |
| (880,117) |
| 22,254,697 |
| 5,895,139 |
| (34,271) |
| 5,860,868 |
| — |
| 27,344,699 |
| 770,866 |
Commercial loans |
|
|
| 15,460,544 |
| (545,199) |
| 14,915,345 |
| 5,895,139 | | (34,271) |
| 5,860,868 |
| — |
| 17,686,941 |
| 3,089,272 |
Mortgage loans |
|
|
| 4,876,041 | | (78,501) |
| 4,797,540 |
| — | | — |
| — |
| — |
| 7,424,712 |
| (2,627,172) |
Consumer loans |
|
|
| 2,798,229 | | (256,417) |
| 2,541,812 |
| — | | — |
| — |
| — |
| 2,233,046 |
| 308,766 |
Financial instruments at amortized cost |
| 11 |
| 115,682 | | (24) |
| 115,658 |
| — | | — |
| — |
| — |
| — |
| 115,658 |
Investments under resale agreements |
| 7 |
| 75,975 | | — |
| 75,975 |
| — | | — |
| — |
| — |
| 75,975 |
| — |
Financial derivative contracts |
| 8 |
| 3,154,957 | | — |
| 3,154,957 |
| — | | — |
| — |
| 116,654 |
| — |
| 3,038,303 |
Interbank loans, net |
| 9 |
| 56,396 | | (239) |
| 56,157 |
| — | | — |
| — |
| — |
| — |
| 56,157 |
Other assets |
| 15 |
| — | | — |
| — |
| — | | — |
| — |
| — |
| — |
| — |
Totals |
| |
| 30,136,714 |
| (880,380) |
| 29,256,334 |
| 5,895,139 |
| (34,271) |
| 5,860,868 |
| 116,654 |
| 27,420,674 |
| 7,579,874 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-197 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
A summary for the allowances for loan losses is as follows:
| | | | |
| | As of December 31, | ||
| | 2020 | | 2019 |
|
| MCh$ | | MCh$ |
Loans and accounts receivable at amortized cost |
| (1,041,873) | | (880,117) |
Interbank loans, net |
| (10) | | (239) |
Provisions for contingent loans risk |
| (39,775) | | (34,271) |
Total allowances |
| (1,081,658) | | (914,627) |
For more detail on maximum credit risk exposure and concentration by type of financial instrument, see the specific Notes.
The following table displays the concentration of credit risk by industry for financial assets:
| | | | | | | | | | | | | | | |
| | | | As of December 31, |
| ||||||||||
| | | | 2020 | | 2019 |
| ||||||||
| | | | Maximum | | Maximum | | | | Maximum | | Maximum | | |
|
| | | | gross | | net | | | | gross | | net | | |
|
| | Note | | exposure | | exposure (1) | | % | | exposure | | exposure (1) | | % |
|
|
|
|
| MCh$ |
| MCh$ |
|
|
| MCh$ |
| MCh$ |
|
|
|
Manufacturing |
|
|
| 1,060,837 |
| 1,004,437 |
| 4.69 | % | 1,099,739 |
| 1,037,275 |
| 4.66 | % |
Mining |
| |
| 534,823 |
| 465,405 |
| 2.36 | % | 551,615 |
| 479,190 |
| 2.15 | % |
Electricity, gas and water |
|
|
| 1,099,504 |
| 863,573 |
| 4.86 | % | 1,125,541 |
| 989,433 |
| 4.45 | % |
Agriculture and livestock |
|
|
| 494,601 |
| 470,250 |
| 2.19 | % | 483,943 |
| 455,842 |
| 2.05 | % |
Forestry and wood extraction |
|
|
| 56,005 |
| 54,607 |
| 0.25 | % | 53,328 |
| 51,864 |
| 0.23 | % |
Fishing |
|
|
| 35,723 |
| 30,882 |
| 0.16 | % | 46,902 |
| 45,992 |
| 0.21 | % |
Transport |
|
|
| 586,831 |
| 527,557 |
| 2.59 | % | 559,271 |
| 510,333 |
| 2.29 | % |
Communications |
|
|
| 56,148 |
| 53,659 |
| 0.25 | % | 34,926 |
| 33,720 |
| 0.15 | % |
Construction |
|
|
| 1,837,114 |
| 1,799,216 |
| 8.12 | % | 2,106,829 |
| 2,076,668 |
| 9.33 | % |
Commerce |
|
|
| 2,210,467 |
| 2,099,734 |
| 9.77 | % | 2,129,179 |
| 2,019,636 |
| 9.08 | % |
Services |
|
|
| 3,599,936 |
| 3,527,342 |
| 15.92 | % | 3,944,571 |
| 3,908,000 |
| 17.56 | % |
Others |
|
|
| 3,237,714 |
| 3,237,323 |
| 14 | % | 3,324,700 |
| 3,307,390 |
| 14.86 | % |
Subtotal commercial loans |
| 10 a) |
| 14,809,703 |
| 14,133,985 |
| 65.47 | % | 15,460,544 |
| 14,915,343 |
| 67.02 | % |
Consumer loans |
| 10 a) |
| 5,317,000 |
| 5,225,837 |
| 23.51 | % | 2,798,229 |
| 2,541,812 |
| 11.42 | % |
Mortgage loans |
| 10 a) |
| 2,492,464 |
| 2,325,447 |
| 11.02 | % | 4,876,041 |
| 4,797,540 |
| 21.56 | % |
Totals |
|
|
| 22,619,167 |
| 21,685,269 |
| 100 | % | 23,134,814 |
| 22,254,695 |
| 100 | % |
(1) | Net of allowances |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-198 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
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 individuals, the main guarantees are: |
| For loans to companies, the main guarantees are: |
- Machinery and/or equipment | | - Urban plots or land |
- Buildings for specific purposes under construction | | |
- Agricultural land | | |
- Maritime ships and aircrafts | | |
- Mining infrastructure | | |
- Inventory | | |
- Agricultural assets | | |
- Industrial assets | | |
- Biological assets | | |
- Other warranties | | |
Guarantees taken by the Bank to secure collections of rights reflected in its loan portfolios are mortgage-type guarantees (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).
b.2) Financial Risk
Definition and Principles of Financial Risk Management
The Bank defines this risk as the possibility of an event having unexpected financial consequences on the institution. Although this definition involves a strong adversity component, it also involves an important opportunity component. Therefore, the purpose of financial risk management is not to eliminate this risk, but rather to limit its exposure to negative events in line with the risk appetite of the Bank’s shareholders and the regulations that govern the institution. The main financial risks to which the Bank is exposed are: Market Risk, Liquidity Risk and Counterparty Risk.
b.2.1) Market Risk
Market Risk is the exposure to economic gains or losses caused by movements in prices and market variables. This risk stems from the activities of the Trading and Banking Books. In the first case, it comes from activities intended to obtain short-term gains and from the intensive use of fair value instruments. In the second case, with a more long-term vision, it stems from commercial activities with products valued at amortized cost.
The following section describes the main market risk factors to which the Bank and its subsidiaries are exposed:
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-199 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
b.2.1.1) Currency Risk
Currency risk is the exposure to adverse movements in the exchange rates of currencies other than their base currency (CLP in the case of operations in Chile and COP in the case of operations in Colombia) for all those positions inside and outside of balance. The main sources of exchange risk are:
● Positions in foreign currency (MX) within the attributions of the Trading Book.
● Currency mismatches between the assets and liabilities of the Banking Book.
● Currency flow mismatches.
● Structural positions, generated by consolidating the financial statements, assets and liabilities denominated in currencies other than the Chilean peso registered in branches and subsidiaries abroad.
The foregoing means that movements in exchange rates can generate volatility in both the result and the Bank’s equity. This effect is known as "translation risk".
b.2.1.2) Inflation and other indexes adjustments Risk
The inflation and other indexes adjustment risk is the exposure due to changes in units or indexes of readjustment (such as UF, UVR or others) defined in national or foreign currency, in which some of the instruments, contracts or other transactions registered in the balance with such characteristics.
b.2.1.3) 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 instruments recorded at fair value and the financial margin and other gains from the Banking Book such as fees. Fluctuations in interest rates also affect the Bank’s economic 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, equity and economic value.
The measurement of the structural interest rate risk is carried out through the representation by risk factor of the cash flows expressed in fair value, assigned on the dates of repricing and by currency. This methodology facilitates the detection of concentrations of interest risk in the different terms.
All the balance sheet and off balance sheet items are unbundled in their flows and placed at the repricing/maturity. In the case of those accounts that do not have a contractual maturity, an internal model of analysis and estimation of their durations and sensitivities is used.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-200 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
The following are the Banking Book items (products valued at amortized cost and FVTOCI and derivatives valued at fair value) for the most relevant currencies in which the Bank trades at the end of the year ended December 31, 2020 and 2019:
| | | | | | | | | | | | |
| | As of December 31, 2020 | ||||||||||
| | | | Between 1 and 3 | | More than 3 months | | Between 1 and 3 | | More than 3 | | |
Positions |
| Up to 1 month |
| months |
| and less 1 year |
| years |
| years |
| Totals |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
ASSETS |
| 9,817,266 |
| 2,565,202 |
| 5,585,956 |
| 5,174,445 |
| 9,793,262 |
| 32,936,131 |
CLP |
| 4,885,891 |
| 845,251 |
| 2,289,124 |
| 2,252,567 |
| 1,918,038 |
| 12,190,871 |
CLF |
| 539,004 |
| 502,506 |
| 1,683,797 |
| 1,586,457 |
| 6,989,721 |
| 11,301,485 |
USD |
| 2,523,089 |
| 571,066 |
| 885,045 |
| 123,608 |
| 201,009 |
| 4,303,817 |
COP |
| 1,869,282 |
| 646,379 |
| 727,990 |
| 1,211,813 |
| 684,494 |
| 5,139,958 |
LIABILITIES |
| (15,149,162) |
| (2,808,356) |
| (4,363,629) |
| (1,818,488) |
| (7,983,018) |
| (32,122,653) |
CLP |
| (10,169,966) |
| (1,637,063) |
| (2,477,283) |
| (661,668) |
| (1,950,514) |
| (16,896,494) |
CLF |
| (223,471) |
| (14,789) |
| (284,994) |
| (768,465) |
| (5,616,883) |
| (6,908,602) |
USD |
| (2,152,414) |
| (884,847) |
| (939,496) |
| (3,590) |
| — |
| (3,980,347) |
COP |
| (2,603,311) |
| (271,657) |
| (661,856) |
| (384,765) |
| (415,621) |
| (4,337,210) |
Derivatives |
| (149,153) |
| (133,655) |
| (133,194) |
| (376,852) |
| 949,461 |
| 156,607 |
CLP |
| 830,637 |
| 1,429,392 |
| 516,336 |
| 272,765 |
| 24,985 |
| 3,074,115 |
CLF |
| (1,263,538) |
| (795,275) |
| (662,416) |
| (444,847) |
| 1,001,038 |
| (2,165,038) |
USD |
| 103,599 |
| (24,269) |
| 87,848 |
| (24,433) |
| (12,182) |
| 130,563 |
COP |
| 180,149 |
| (743,503) |
| (74,962) |
| (180,337) |
| (64,380) |
| (883,033) |
| | | | | | | | | | | | |
| | As of December 31, 2019 | ||||||||||
| | | | Between 1 and 3 | | More than 3 months | | Between 1 and 3 | | More than 3 | | |
Positions |
| Up to 1 month |
| months |
| and less 1 year |
| years |
| years |
| Totals |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
ASSETS |
| 15,718,342 |
| 5,631,115 |
| 9,384,357 |
| 8,943,449 |
| 12,031,089 | | 51,708,352 |
CLP |
| 3,507,091 |
| 965,331 |
| 2,382,124 |
| 1,924,539 |
| 1,365,975 |
| 10,145,060 |
CLF |
| 536,885 |
| 595,857 |
| 1,670,189 |
| 2,172,579 |
| 6,662,306 |
| 11,637,816 |
USD |
| 2,038,658 |
| 911,154 |
| 1,892,712 |
| 88,532 |
| 125,788 |
| 5,056,844 |
COP |
| 9,635,708 |
| 3,158,773 |
| 3,439,332 |
| 4,757,799 |
| 3,877,020 |
| 24,868,632 |
LIABILITIES |
| (20,036,030) |
| (5,142,757) |
| (10,375,645) |
| (3,733,426) |
| (7,301,728) |
| (46,589,586) |
CLP |
| (8,633,088) |
| (2,251,174) |
| (3,200,762) |
| (632,972) |
| (215,000) |
| (14,932,996) |
CLF |
| (432,799) |
| (47,785) |
| (655,079) |
| (752,948) |
| (5,426,561) |
| (7,315,172) |
USD |
| (1,305,440) |
| (1,418,654) |
| (3,610,341) |
| (69,784) |
| — |
| (6,404,219) |
COP |
| (9,664,703) |
| (1,425,144) |
| (2,909,463) |
| (2,277,722) |
| (1,660,167) |
| (17,937,199) |
Derivatives |
| 1,881,267 |
| (1,765,659) |
| (205,036) |
| (425,285) |
| 540,733 |
| 26,020 |
CLP |
| 988,919 |
| 1,140,587 |
| 900,023 |
| 664,608 |
| (407,679) |
| 3,286,458 |
CLF |
| (936,785) |
| (814,209) |
| (485,247) |
| (904,781) |
| 910,135 |
| (2,230,887) |
USD |
| 787,971 |
| 524,265 |
| 806,558 |
| 77,221 |
| 15,380 |
| 2,211,395 |
COP |
| 1,041,162 |
| (2,616,302) |
| (1,426,370) |
| (262,333) |
| 22,897 |
| (3,240,946) |
The expositions presented above correspond to the present values resulting from:
● Model contract flows according to their behaviors that affect market risk exposure. Example: prepayment, renewal, etc.
● Discount the flows of the items recorded to accrual at a rate that represents the opportunity cost of the liability/ asset.
● Discount the flows of items accounted to the market at the market rate.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-201 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
b.2.1.4) 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 exposure to changes in the price volatility of the underlying asset.
b.2.2) Liquidity Risk
Liquidity Risk is the exposure of the Bank’s 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 penalties for not complying with regulations. |
b.3) Financial Risk Management
Continuous and interconnected process that originates in the first instance with the identification of the risks to which the Institution is exposed, in order to then quantify the potential impact as a result of said exposure and to limit it to the level desired by the Bank. The above implies an active monitoring of the risks, studying their temporal evolution. The risk management process can be subdivided into the following stages:
b.3.1) Identification of Financial Risks
The Financial Risk Management has a high-level technical team that constantly monitors the activities of the Bank transfer and its subsidiaries in search of potential unquantified and controlled risks. In addition, the Bank Treasury as the first line of defense also plays a fundamental role in the detection of risks. Itaú Corpbanca provides a structure that facilitates this risk identification role by maintaining independence in its tasks and ensuring the active participation of management in the creation / modification of products. After a risk is identified, it is quantified to see the potential impact on the creation of value of the Institution.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-202 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
b.3.2) Quantification and Control of Exposure to Financial Risk
Once the risk has been identified, the Financial Risk Management is in charge of mapping it into the appropriate metrics for its quantification. The way to measure the exposure is the knowledge of top management and the Board of Directors from which the appetite for risk desired for the Institution and the different openings thereof (business unit, manager, risk factor, area, etc.) always taking into account not to transgress the current norms. The process of establishing limits is the instrument used to establish the assets available to each activity. The determination of limits is conceived as a dynamic process that responds to the level of risk considered acceptable by top management.
The Financial Risk Management requests and proposes a framework of limits and warnings, quantitative and qualitative that affect the liquidity and market risk; this request must be authorized by the ALCO and the Board of Directors.
In addition, it carries out periodic measurements of the risk incurred, develops tools and valuation models, conducts periodic stress analysis, measures the degree of concentration with inter-Bank counterparts, draws up the policy and procedures manual, as well as the monitoring of authorized limits and alerts, which are reviewed at least annually.
The structure of limits requires carrying out a process that takes into account, among others, the following aspects:
● | Identify and delimit efficiently and comprehensively the financial risks incurred, so that they are consistent with the management of the business and with the defined strategy. |
● | Quantify and communicate to the business areas the levels and the risk profile that Top management considers acceptable, in order to avoid incurring unwanted risks. |
● | Give flexibility to the business areas in the taking of financial risks in an efficient and timely manner according to changes in the market and in business strategies, always within the levels of risk that are considered acceptable by the entity. |
● | Allowing business generators to take prudent but sufficient risks to achieve the budgeted results. |
● | Delimit the range of products and underlying assets in which each Treasury unit can operate, taking into account characteristics such as the model, valuation systems and the liquidity of the instruments involved, among others. |
The metrics, by type of risk, used to quantify the exposures or demonstrate a materialization of the same are detailed below:
Metrics and limits of Market Risk
According to the complexity and relevance of the portfolios managed by Itaú Corpbanca, different instruments have been established to control market risks, according to the characteristics of the financial products of the Trading Book and Banking Book.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-203 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
The following are the normative and internal metrics used for the monitoring and control of market risk:
Normative Risk Measures for the Trading Book and Banking Book
The Bank measures regulatory exposure in line with the standardized methodology set forth by the Central Bank of Chile (Chapter III-B-2.2 "Standards on the measurement and control of market risks of Banking companies" of the Compendium of Financial Regulations) and complemented by the Commission for the Financial Market (Chapter 12-21 “Measurement and control of market risks rules”), which corresponds to a risk measure based on the standard methodology of the Basel Committee, which look for quantify exposure to market risks for the Trading Book and the Banking Book.
The normative measurement of the market risk of the Trading Book allows estimating the potential loss that the Bank could face from fluctuations standardized by the regulator. The regulatory limit corresponds to the sum of this risk (also called Market Risk Exposure or MRE) and 10% of the Weighted Assets for Credit Risk; Said sum may in no case be greater than once the effective Equity of the Bank.
The Bank, must permanently observe these limits and the data in turn to the Commission for the Financial Market on the positions in the risk and compliance with said limits (regulatory report CMF C41). It must also inform the Commission monthly about the positions in the consolidated risk with the subsidiaries and foreign branches (regulatory report CMF C43).
The consumption of regulatory limit of market risk, specifically for the Trading Book as of December 31, 2020, 2019 and 2018, is presented below:
| | | | | | | |
|
| As of December 31, | | ||||
Limit consumption |
| 2020 |
| 2019 |
| 2018 | |
Market risk exposure (MRE) |
| 83.34 | % | 80.10 | % | 71.80 | % |
The regulatory risk measurement for the Banking Book (CMF C40 regulatory report) is used to estimate the Bank’s potential losses from standardized adverse movements in interest and exchange rates. It is important to specify that for regulatory reporting purposes, the Trading Book includes the interest rate risk of derivatives managed in the Banking Book.
The standardized regulatory report for the Banking Book (CMF C40 regulatory report) is used to estimate the Bank’s potential economic losses from standardized adverse movements in interest rates defined by the CMF. Currently, limits for short-term exposure (STE) to interest rate and indexation risk in the Banking Book must not exceed 35% of annual operating income (LTM moving period) and long-term limit consumption (LTE) must be less than 20% of the Bank’s regulatory capital.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-204 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
The following table details regulatory limit consumption for market risk, considered as the limit to be 100% calculated based on the rules indicated above, specifically for the Banking Book as of December 31, 2020, 2019 and 2018:
| | | | | | | |
| | As of December 31, |
| ||||
Limit consumption |
| 2020 |
| 2019 |
| 2018 | |
Short-term exposure to interest rate risk | | 62.99 | % | 48.92 | % | 51.40 | % |
Long-term exposure to interest rate risk |
| 63.86 | % | 57.82 | % | 50.30 | % |
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 the Bank has complied with all regulatory requirements and limits, as well as with all financial covenants, such as risk weighed capital adequacy ratio, single borrower exposure, aggregate large exposure, concentration risk, equity to assets ratio, coverage ratio of provisions, among others.
Value at risk (VaR)
● | Calculation of Historical Value at Risk (Non-parametric). This measurement provides the maximum potential economic loss at a certain confidence level and a given time horizon. Historical VaR, as opposed to Statistical or Parametric VaR, is based on the observed distribution of past returns, does not need to make assumptions of probability distributions (frequently normal distribution) and, therefore, does not need a mean (assumed 0), standard deviation and correlations across returns (parameters). The Bank’s uses a 99% confidence level and a time horizon of 1 day. |
● | Calculation of Volatility-Adjusted Historical Value at Risk (Non-parametric). This measurement is based on the above and the profit and loss vector is adjusted according to whether it is facing a period of greater or less volatility. |
The Board and Top Management define limits on the Value at Risk (as of the end of the first half of 2016 it uses the volatility-adjusted Historical VaR method) that can be maintained, which is monitored on a daily basis. The measurement is also subjected to back testing to verify that the daily losses that effectively occurred do not exceed VaR more than once every 100 days. The result is monitored daily to confirm the validity of the assumptions, hypothesis and the adequacy of the parameters and risk factors used in the VaR calculation.
The Bank in turn calculates VaR for sub/portfolios and risk factors, which allows it to quickly detect pockets of risk. Since VaR does not consider stress scenarios, it is complemented by stress testing. Specifically, the Bank uses metrics that take into account prospective, historical and standardized scenarios.
Although the Value at Risk model is one of the models most frequently used by the local financial industry, like any model it has limitations that must be considered:
● | It does not take into account the expected loss in the event that the portfolio return is above the confidence level defined in the VaR. In other words, in the Bank’s case it does not reflect what happens in the 1% of the tail. This is mitigated with the stress measures detailed below. |
● | It does not consider intraday results, but only reflects the potential loss given current positions. |
● | It does not take into account potential changes in the dynamics of movements in market variables (i.e. potential changes in the matrix of variance and covariance). |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-205 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
Sensitivity Measurements
The Bank uses stress testing as a sensitivity analysis tool in order to control financial risk. This measurement is performed separately for the Trading and Banking Books.
Sensitivity is estimated using the DV01 indicator, which is a measure of sensitivity of portfolio results if the zero coupon interest rate of the risk factor increases by 1 basis point (0.01%) for different maturities and in annualized terms. Although the use of DV01 to estimate potential impacts on the economic, book and equity value is easy to understand and implement, it excludes both correlations among risk factors and second-order effects.
In accordance with IFRS 7, the following table presents an estimate of the likely, but reasonable impact of fluctuations in interest rates, exchange rates and implicit volatilities (market factors) that would impact the Trading and Banking Book.
The fluctuations in market factors correspond to highly probable scenarios chosen from among a set of scenarios agreed upon based on the opinions of specialists in economics and financial risk and operators. In order to estimate sensitivity, sensitivity (DV01) and the reasonably likely scenarios must be multiplied by market factor.
Interest rate scenarios - Chile (basis points – 0.01%)
The table below presents a sensitivity analysis for changes of 0.01% in interest rates by term and type of interest rate, and its corresponding impact on profit and loss (net interest margin) and equity (valuation accounts for financial instruments at FVTOCI).
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Scenarios for impacts on P&L | | Scenarios for impacts on FVTOCI | ||||||||||||||||||||
|
| Chamber |
| Government |
| Chamber |
| Government |
| Curve |
| Curve |
| Chamber |
| Government |
| Chamber |
| Government |
| Curve |
| Curve |
Term | | CLP | | CLP | | CLF | | CLF | | USD | | MX | | CLP | | CLP | | CLF | | CLF | | USD | | MX |
1 day | | (39) | | 39 | | 87 | | 162 | | (51) | | 51 | | 39 | | 39 | | (87) | | 162 | | 51 | | (51) |
3 months |
| (39) |
| 39 |
| 87 |
| 162 |
| (51) |
| 51 |
| 39 |
| 39 |
| (87) |
| 162 |
| 51 |
| (51) |
6 months |
| (39) |
| 39 |
| 87 |
| 162 |
| (51) |
| 51 |
| 39 |
| 39 |
| (87) |
| 162 |
| 51 |
| (51) |
9 months |
| (36) |
| 42 |
| 87 |
| 159 |
| (67) |
| 67 |
| 36 |
| 42 |
| (87) |
| 159 |
| 67 |
| (67) |
1 year |
| (33) |
| 46 |
| 93 |
| 155 |
| (86) |
| 86 |
| 33 |
| 46 |
| (93) |
| 155 |
| 86 |
| (86) |
2 years |
| (37) |
| 39 |
| 70 |
| 93 |
| (101) |
| 101 |
| 37 |
| 39 |
| (70) |
| 93 |
| 101 |
| (101) |
3 years |
| (47) |
| 52 |
| 68 |
| 88 |
| (103) |
| 103 |
| 47 |
| 52 |
| (68) |
| 88 |
| 103 |
| (103) |
4 years |
| (57) |
| 65 |
| 68 |
| 83 |
| (105) |
| 105 |
| 57 |
| 65 |
| (68) |
| 83 |
| 105 |
| (105) |
5 years |
| (67) |
| 77 |
| 67 |
| 79 |
| (106) |
| 106 |
| 67 |
| 77 |
| (67) |
| 79 |
| 106 |
| (106) |
7 years |
| (65) |
| 66 |
| 74 |
| 81 |
| (103) |
| 103 |
| 65 |
| 66 |
| (74) |
| 81 |
| 103 |
| (103) |
10 years |
| (63) |
| 50 |
| 83 |
| 85 |
| (98) |
| 98 |
| 63 |
| 50 |
| (83) |
| 85 |
| 98 |
| (98) |
20 years |
| (63) |
| 50 |
| 80 |
| 81 |
| (115) |
| 115 |
| 63 |
| 50 |
| (80) |
| 81 |
| 115 |
| (115) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-206 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
Interest rate scenarios - Colombia (basis points – 0.01%)
The table below presents a sensitivity analysis for changes of 0.01% in interest rates by term and type of interest rate, and its corresponding impact on profit and loss (net interest margin) and equity (valuation accounts for financial instruments at FVTOCI).
| | | | | | | | | | | | |
| | Scenarios for impacts on P&L | | Scenarios for impacts on FVTOCI | ||||||||
Tenor |
| Government COP |
| Swap IBR |
| Curve USD |
| Government COP |
| Swap IBR |
| Curve USD |
1 day |
| 137 | | 37 | | 13 | | 137 | | 37 | | 13 |
3 months |
| 133 | | 40 | | 17 | | 133 | | 40 | | 17 |
6 months |
| 130 | | 78 | | 19 | | 130 | | 78 | | 19 |
9 months |
| 126 | | 77 | | 27 | | 126 | | 77 | | 27 |
1 year |
| 122 | | 75 | | 35 | | 122 | | 75 | | 35 |
2 years |
| 108 | | 96 | | 39 | | 108 | | 96 | | 39 |
3 years |
| 93 | | 94 | | 35 | | 93 | | 94 | | 35 |
4 years |
| 85 | | 95 | | 36 | | 85 | | 95 | | 36 |
5 years |
| 86 | | 96 | | 37 | | 86 | | 96 | | 37 |
7 years |
| 88 | | 98 | | 39 | | 88 | | 98 | | 39 |
10 years |
| 91 | | 101 | | 42 | | 91 | | 101 | | 42 |
20 years |
| 93 | | 111 | | 51 | | 93 | | 111 | | 51 |
| | | | |
| | Scenarios for impacts on accrual book | ||
Tenor |
| Government COP |
| Curve USD |
1 day |
| 37 |
| 13 |
1 month |
| 79 |
| 14 |
3 months |
| 40 |
| 17 |
6 months |
| 78 |
| 19 |
9 months |
| 77 |
| 27 |
1 year |
| 75 |
| 35 |
Exchange rate scenarios Chile
The table below presents the assumptions used in the sensitivity analysis for changes in the relevant exchanges rates, were by the Bank determined that its relevants exchange rate are USD-CLP and USD-COP using a 10.86% and 10.42% change over the closing rates, respectively, to each of the portfoliosand its corresponding impact on profit and loss (net income from financial operations and net foreign exchange gain/loss) and equity (valuation accounts for financial instruments at FVTOCI).
| | | | | | |
| | Change in scenario impacting | | Change in scenario impacting | | Change in scenario impacting |
Exchange rate |
| P&L |
| FVTOCI |
| accrual book |
| | % | | % | | % |
USD – CLP |
| (10.86) |
| (10.86) |
| (10.86) |
USD - COP |
| 10.42 |
| 10.42 |
| 10.42 |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-207 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
Exchange rate scenarios Colombia
The table below presents the assumption used in the sensitivity analysis for changes in the relevant exchanges rates, were by the Bank used a 5.08% change over the closing rates of USD - COP to each of the portfolios, and its corresponding impact on profit and loss (net income from financial operations and exchange differences) and equity (valuation accounts for financial instruments at FVTOCI).
| | | | | | |
| | Change in scenario | | Change in scenario | | Change in scenario impacting |
Exchange rate |
| impacting P&L |
| impacting FVTOCI |
| accrual book |
| | % | | % | | % |
USD - COP |
| (5.08) | | (5.08) | | (5.08) |
Impact on P&L derived from sensitivity analysis
The following table presents the impact of movements or reasonably likely scenarios explained above applied to positions in the Trading Book that affect P&L (net income from financial operations, net foreign exchange gain/losses, and net interest margin as applicable) as of December 31, 2020, 2019 and 2018:
| | | | | | |
| | As of December 31, | ||||
Potential impact on P&L | | 2020 | | 2019 | | 2018 |
|
| MCh$ |
| MCh$ |
| MCh$ |
CLP rate risk |
| (8,403) |
| (4,881) |
| (5,019) |
Derivatives |
| (8,403) |
| (4,879) |
| (5,018) |
Debt instruments |
| — |
| (2) |
| (1) |
CLF rate risk |
| (8,488) |
| (5,130) |
| (5,942) |
Derivatives |
| (8,488) |
| (5,130) |
| (5,942) |
Debt instruments |
| — |
| — |
| — |
COP rate risk |
| (3,104) |
| (1,200) |
| (29,182) |
Derivatives |
| (2,508) |
| (1,086) |
| (29,094) |
Debt instruments |
| (596) |
| (114) |
| (88) |
UVR rate risk |
| (133) |
| (108) |
| (375) |
Derivatives |
| 3 |
| (102) |
| (364) |
Debt instruments |
| (136) |
| (6) |
| (11) |
USD rate risk |
| (2,648) |
| (2,711) |
| (2,810) |
Other currencies rate risk |
| (249) |
| (177) |
| (42) |
Total rate risk |
| (23,025) |
| (14,207) |
| (43,370) |
Exchange rate risk |
| (163) |
| (763) |
| 150 |
Options risk |
| 16 |
| 89 |
| 156 |
Total impact |
| (23,172) |
| (14,881) |
| (43,064) |
The following table presents the impact on the net interest margin of movements or reasonably likely scenarios on positions in the Accrual Book for the years ended December 31, 2020, 2019 and 2018:
| | | | | | |
| | For the years ended December 31, | ||||
Potential impact on Accrual Book |
| 2020 |
| 2019 |
| 2018 |
Interest rate shock sensitivity impact | | (9,626) |
| (13,981) |
| (12,359) |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-208 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
The impact on the Banking Book does not necessarily mean a gain/loss but it does mean smaller/larger net income from the generation of funds (net funding income, which is the net interest from the accrual portfolio) for the next 12 months.
Impact on Equity derived from sensitivity analysis
In line with the effects on P&L of positions accounted for at fair value and amortized cost, the changes in market factors because of reasonably possible movements in interest and exchange rates also generate impacts on equity accounts as a result of the potential change in market value of the portfolio of investments at FVTOCI and the portfolios of cash flow and net foreign investment hedges, DV01 represents the impact on equity using the scenarios were by management used the assumption to use +1bp over the yield curves to estimate the efect over our FVTOCI portfolio, which are presented in the following table:
| | | | | | | | | | | | | | | | | | |
| | For the years ended December 31, | ||||||||||||||||
| | 2020 | | 2019 | | 2018 | ||||||||||||
Potential Impact | | DV01 | | Impact of Change in | | DV01 | | Impact of Change in | | DV01 | | Impact of Change in | ||||||
on FVTOCI |
| (+1 bp) |
| Interest Rate |
| (+1 bp) |
| Interest Rate |
| (+1 bp) |
| Interest Rate | ||||||
| | US$ | | MUS$ | | MCh$ | | US$ | | MUS$ | | MCh$ | | US$ | | MUS$ | | MCh$ |
CLP | | (707,409) | | (40.13) | | (28,609) |
| (377,765) | | (31.16) | | (23,334) |
| (254,636) |
| (11.73) |
| (8,180) |
CLF | | (201,548) | | (23.15) | | (16,505) |
| (221,758) | | (49.07) | | (36,744) |
| (177,471) |
| (26.29) |
| (18,328) |
COP | | 35,889 | | (8.13) | | (5,780) |
| (49,254) | | (1.37) | | (1,023) |
| (189,242) |
| (5.74) |
| (3,988) |
UVR | | (36,520) | | (3.88) | | (2,755) |
| (142,663) | | (5.25) | | (3,981) |
| (29,763) |
| (0.55) |
| (380) |
USD | | (42,030) | | (4.36) | | (3,107) |
| (2,353) | | (0.14) | | (105) |
| (33,769) |
| (2.44) |
| (1,701) |
Other | | 11,624 | | (0.59) | | (419) |
| 888 | | (0.08) | | (56) |
| — |
| — |
| — |
Total interest rate impact | | (939,994) | | (80.24) | | (57,175) |
| (792,905) |
| (87.07) |
| (65,243) |
| (684,881) |
| (46.75) |
| (32,577) |
| | | | | | | | |
| | Impact due to changes in prices | ||||||
Exchange rate |
| As of December 31, 2020 | | As of December 31, 2019 | ||||
| | ThUS$ | | MCh$ | | ThUS$ | | MCh$ |
USD | | (67.25) | | (47,942) | | (134.51) | | (100,719) |
COP | | (63.65) | | (45,380) | | (146.36) | | (109,591) |
Total risk exchange rate | | (130.90) | | (93,322) | | (280.87) | | (210,310) |
Total impact | | (211.14) | | (150,497) | | (367.94) | | (275,553) |
Hedging
The Bank uses accounting hedges to manage efficiently the accounting asymmetries present in financial risk exposure.
The use of accounting hedges is subject to the limits defined by the Board of Directors, the definitions of the Assets and Liabilities Committee (ALCO) and the Hedging Policy.
The Treasury is responsible for designing and implementing the strategies and the Financial Risk Management is responsible for measuring and monitoring the effectiveness of the hedges, generating indicators of effectiveness that are constantly monitored. (For more detail on the accounting hedging strategies, review Note 8).
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-209 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
LIBOR discontinuation (London Interbank Offered Rate)
The LIBOR has been the main reference to determine the price of financial instruments from mortgages, loans, bond, derivatives, as well as for the construction of discount rates and transfer prices. However, it has recently been challenged its reliability and methodological definition, prompting the UK's Financial Conduct Authority (FCA) to dictate in 2017 and propose the cesation of the LIBOR benchmart December 31, 2021 as the deadline for LIBOR.
By virtue of the foregoing, as of December 31, 2020, the bank has completed the diagnostic phase to determine the impact of transitioning to an alternative rate and is in the process of drawing up a plan for its implementation.
The following table details the exposure based on financial instruments subject to the reform of the reference interest rate, presenting the balances as of December 31, 2020:
| | |
| | |
Financial intruments based on libor | ||
| Exposure | |
Financial Statements line item | Assets | Liabilities |
| MCh$ | MCh$ |
Non-derivative financial instruments | 1,632,335 | 1,107,483 |
Loans and accounts receivable from customers | 1,632,335 | — |
Interbank borrowings | — | 1,107,483 |
Financial derivative contracts (1) (2) | 12,988,222 | 9,228,125 |
Totals | 14,620,557 | 10,335,608 |
(1) | Correspond to the fair value of the operations. |
(2) | The total notional amount associated with derivative operations corresponds to MCh$32,966,228, |
The main items identified included in Loans and accounts receivable from customers correspond to commercial loans in the form of working capital funding, while the operations included in the Interbank borrowings item correspond mainly to international trade financing operations. The derivative items are mainly composed of interest rate swaps.
Additionally, based on Management’s analysis, no risks have been identified that would required meaningful modifications in the risk management strategy implemented by the Bank.
C) Operational Risk
The Bank and its subsidiaries define operational risk as the possibility of occurrence of losses resulting from failures, deficiencies or inadequacies in internal processes, people, and systems or external events, including in this definition the legal risk and excluding strategic risks and reputational. Operational risk is recognized as a manageable risk, for which it has defined a function in charge of this task within its corporate structure.
Operational risk management is executed, mainly, through the Operational Risk Management function. The Bank adopts a model of three lines of defense as the primary way to implement its operational risk management structure, internal controls and compliance, ensuring compliance with corporate guidelines.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-210 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
The defense lines are composed by; the business and support areas (first line of defense) responsible for managing the risks related to their processes; Operational Risk, Internal Controls, and Compliance (second line of defense) area in charge of supporting the first line of defense in relation to the fulfillment of its direct responsibilities; and Internal Audit function (third line of defense) responsible for verifying, independently and periodically, the adequacy of the risk identification and management processes and procedures, in accordance with the guidelines established in the Internal Audit Policy and submitting the results of its recommendations for improvement to the Audit Committee.
The risk management program contemplates that all relevant risk issues must be reported to the higher levels and to the Operational Risk Committee.
Our methodology consists in the evaluation of the risks and controls of a business from a broad perspective and includes a plan to monitor the effectiveness of such controls and the identification of eventual weaknesses. The main objectives of the Bank and its subsidiaries in terms of operational risk management are the following:
● | Identification, evaluation, information, management, and monitoring of the operational risk in connection with activities, products, and processes carried out or commercialized by the Bank and its subsidiaries; |
● | Build a strong culture of operational risk management and internal controls, with clearly defined and adequately segregated responsibilities between business and support functions, whether these are internally developed or outsourced to third parties; |
● | Generate effective internal reports in connection with issues related to operational risk management, with a clearly defined escalation protocol; |
● | Control the design and application of effective plans to deal with contingencies that ensure business continuity and losses control. |
Regarding training and awareness, the risk culture continues to be reinforced through face-to-face training in the field of operational risk, internal control, prevention of external and internal fraud, and the implementation of the annual "more security" program for all collaborators and induction programs for new employees.
Finally, it is worth mentioning that Sarbanes-Oxley methodologies (SOX) continue to be applied for their main products and processes, the application of this methodology is annually certified by the Operational Risk Team.
The Bank and its affiliated companies collect and process personal and confidential information from its clients as an integral part in the conduct of banking operations and the various services offered through the Internet and other electronic channels. The secure transmission of information through the different electronic channels is essential to maintain the trust of its customers in online services. The use of the Internet and electronic channels exposes the Bank to risks associated with cybersecurity.
Cybersecurity is defined as the set of actions for the protection of digital information assets, as well as the infrastructure that supports it, with the objective of preventing or mitigating the adverse effects of risks and threats on information security and maintaining the continuity of the Bank's business.
Given the importance of cybersecurity and security of the clients' information, the Bank has a Cybersecurity and Fraud Management team, which reports directly to the Corporate Risk Manager.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-211 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
The Bank's Cybersecurity Management model is based on four (4) Macro processes:
● | Security and Cybersecurity Governance: focused on risk management, regulatory framework, supplier cybersecurity management and culture and awareness of Cybersecurity culture, for clients and collaborators. |
● | Information protection: Responsible for the identification, classification, protection and authorization of access to information. |
● | Systems security: Definition of security architecture and adherence to cybersecurity guidelines in the technological environment. |
● | Cyber defense: Application of industry leading practices in security and assurance of technological equipment (Baseline), detection and remediation of vulnerabilities and detection and response to cybersecurity incidents; evaluation of the Bank's current cybersecurity controls and detection of cybersecurity breaches, evaluation of response to a crisis scenario through cybersecurity exercises and ethical hacking. |
E) Shareholders’ equity requirements
The primary objectives of capital management are to ensure compliance with regulatory requirements and to maintain a solid risk rating and healthy capital ratios. During 2020 and 2019, the Bank has complied fully with all capital requirements.
In accordance with the General Banking Law, the Bank must maintain a minimum ratio of Regulatory Capital to Consolidated Risk-Weighted Assets of 8%, net of required provisions, and a minimum ratio of Core Capital to Total Consolidated Assets of 3%, net of required provisions. However, after the merger, the CMF determined that the Bank’s Regulatory Capital could not be less than 10% of its Risk-Weighted Assets. For this purpose, the Bank has applied the dispose in the Chapter 12-1 “Heritage for legal and regulatory purposes” of RAN.
Assets are weighted using risk categories, which are assigned a risk percentage based on the capital needed to back up each asset. There are 5 risk categories (0%, 10%, 20%, 60% and 100%) and additionally a category intermediate with a risk weighting percentage of 2%. For example, cash, due from Banks and financial instruments issued by the Chilean Central Bank have 0% risk, which means that, in accordance with current standards, no capital is required to back these assets. Bank have 100% risk, which means that a minimum capital equivalent to 8% of the value of these assets is needed. In the case of Itaú, it uses 10%.
All derivative instruments traded off-market are taken into account to determine risk assets using conversion factors over notional values, thus calculating the value of the credit risk exposure (or "credit equivalent"). For weighting purposes, “credit equivalent” also considers contingent loans not recorded in the Consolidated Statement of Financial Position.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-212 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
According to local regulations, as of December 31, 2020 and 2019, the relation between assets and risk weighted assets is as follow:
| | | | | | | | |
| | Consolidated assets | | Risk-weighted assets | ||||
| | As of December 31, | | As of December 31, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Assets balance (net of allowances) |
|
|
|
|
|
|
|
|
Cash and deposits in banks |
| 3,089,072 |
| 1,009,681 |
| — |
| — |
Cash items in process of collection |
| 173,192 |
| 231,305 |
| 30,919 |
| 40,916 |
Trading securities |
| 580,369 |
| 181,402 |
| 90,149 |
| 21,755 |
Investments under resale agreements |
| 105,580 |
| 75,975 |
| 97,525 |
| 57,622 |
Financial derivative contract (*) |
| 1,302,692 |
| 1,674,743 |
| 859,464 |
| 1,215,171 |
Interbank loans |
| 7,115 |
| 56,205 |
| 7,115 |
| 56,205 |
Loans and accounts receivable from customers |
| 21,685,269 |
| 22,373,638 |
| 18,634,870 |
| 20,112,889 |
Available for sale investments |
| 3,964,720 |
| 3,593,204 |
| 334,632 |
| 387,692 |
Held to maturity investments |
| 111,643 |
| 115,682 |
| 49,627 |
| 52,527 |
Investments in companies |
| 11,983 |
| 14,938 |
| 11,983 |
| 14,938 |
Intangible |
| 718,683 |
| 1,617,745 |
| 226,171 |
| 423,414 |
Fixed assets |
| 56,020 |
| 57,962 |
| 56,020 |
| 57,962 |
Right-of-use asset under lease agreements | | 170,603 | | 204,559 | | 170,603 | | 204,559 |
Current taxes |
| 64,699 |
| 85,516 |
| 6,470 |
| 8,552 |
Deferred taxes |
| 314,112 |
| 184,167 |
| 31,411 |
| 18,417 |
Other assets |
| 602,769 |
| 783,447 |
| 410,854 |
| 698,801 |
Off-balance sheet assets |
|
|
|
|
|
|
|
|
Contingent loans |
| 2,381,233 |
| 2,647,938 |
| 1,428,740 |
| 1,588,763 |
Totals |
| 35,339,754 |
| 34,908,107 |
| 22,446,553 |
| 24,960,183 |
(*) Items presented at their Equivalent Credit Risk value, in accordance with the provisions of Chapter 12-1 “Equity for Legal and Regulatory Effects” of the RAN, issued by the Commission for the Financial Market (former SBIF).
| | | | | | | | | |
| | Amount | | Ratio |
| ||||
| | As of December 31, | | As of December 31, |
| ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| | MCh$ | | MCh$ | | % | | % |
|
Basic capital |
| 2,315,411 |
| 3,346,102 | (a) | 6.54 |
| 9.59 | (c) |
Effective equity |
| 3,044,661 |
| 3,280,569 | (b) | 13.56 |
| 13.14 | (d) |
(a) Basic Capital Corresponds to the net amount that must be shown in the Consolidated Financial Statements filed with the CMF under the line item “Equity attributable to equity holders of the Bank” as indicated in the Compendium of Accounting Standards.
(b) Based on the consolidated financial statements filed with CMF, 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.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-213 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 36 - Risk management, continued
(c) Consolidated basic capital ratio corresponding to basic capital divided by total assets for capital purposes (includes items outside the Consolidated Financial Statements).
(d) Consolidated solvency ratio corresponds to the ratio of effective equity to weighted assets.
The shareholders’ agreement established an “Optimal Regulatory Capital” with respect to Itaú Corpbanca Chile and Colombia, which must be, at any date, the highest between 120% of the minimum regulatory capital ratio established by the respective legislation and the average of the regulatory capital ratio of the 3 largest private Banks in the respective country, multiplied by the consolidated risk-weighted assets (APR) of the Chilean or Colombian Bank, as applicable, on the date that is one year from the last day of the fiscal year more recent, assuming that the assets weighted by their level of risk grow during that year at a rate equal to the Minimum Growth Rate. The Bank, in consolidated terms (owners of the Bank), maintains a total equity of MCh$2,315,411 (MCh$3,346,102 in December 2019) in the Consolidated Financial Statements filed with the CMF, according to local regulations.
As of December 31, 2020 and 2019, the Bank is in compliance with the “Optimal Regulatory Capital” requirements, as well as with all financial covenants related to regulatory capital requirements.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-214 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
���
Note 37 - Maturity of assets and liabilities
The main assets grouped by maturity, including interest accrued as of December 31, 2020 and 2019, are detailed as follows:
| | | | | | | | | | | | | | |
| | As of December 31, 2020 | ||||||||||||
| | | | Between | | | | | | Between | | | | |
| | | | 1 month | | Between | | Between | | 3 years | | | | |
| | | | to 3 | | 3 month | | 1 year to | | to 6 | | Over 6 | | |
|
| Up to 1 month |
| months |
| to 1 year |
| 3 years |
| years |
| years |
| Totals |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments at fair value through profit or loss |
| 55,516 |
| 65,370 |
| 77,021 |
| 176,681 |
| 192,719 |
| 15,403 |
| 582,710 |
Financial instruments at fair value through other comprehensive income |
| 1,127,310 |
| 97,970 |
| 486,354 |
| 870,028 |
| 1,312,994 |
| 76,243 |
| 3,970,899 |
Loans and accounts receivable from customers at amortized cost (**) |
| 1,956,465 |
| 1,457,769 |
| 2,260,698 |
| 2,834,427 |
| 3,929,783 |
| 10,178,839 |
| 22,617,981 |
Commercial loans |
| 1,387,069 |
| 1,436,296 |
| 2,167,838 |
| 2,258,716 |
| 2,769,842 |
| 4,789,038 |
| 14,808,799 |
Mortgage loans |
| 1,980 |
| 420 |
| 2,952 |
| 26,153 |
| 181,838 |
| 5,103,410 |
| 5,316,753 |
Consumer loans |
| 567,416 |
| 21,053 |
| 89,908 |
| 549,558 |
| 978,103 |
| 286,391 |
| 2,492,429 |
Financial instruments at amortized cost |
| 18,197 |
| — |
| 92,698 |
| 647 |
| — |
| — |
| 111,542 |
Investments under resale agreements |
| 19,933 | | 40,537 | | 43,633 | | 692 | | 785 | | — | | 105,580 |
Financial derivative contracts |
| 173,313 |
| 10,258 |
| 526,205 |
| 639,459 |
| 918,637 |
| 1,714,931 |
| 3,982,803 |
Interbank loans (*) |
| — |
| 7,131 |
| — |
| — |
| — |
| — |
| 7,131 |
Subtotal | | 3,350,734 | | 1,679,035 | | 3,486,609 | | 4,521,934 | | 6,354,918 | | 11,985,416 | | 31,378,646 |
| | | | | | | | | | | | | | |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Obligations under repurchase agreements |
| 637,751 |
| 1,100 |
| — |
| — |
| — |
| — |
| 638,851 |
Time deposits and other time liabilities |
| 4,627,676 |
| 2,385,542 |
| 3,311,082 |
| 661,139 |
| 123,689 |
| 323,936 |
| 11,433,064 |
Financial derivative contracts |
| 171,119 |
| 18,551 |
| 483,102 |
| 669,539 |
| 878,157 |
| 1,453,123 |
| 3,673,591 |
Interbank borrowings | | 103,194 |
| 119,061 |
| 719,886 |
| 970,810 |
| 1,874,093 |
| 11,934 |
| 3,798,978 |
Lease obligations |
| 2,927 | | 7,258 | | 20,645 | | 51,861 | | 49,170 | | 20,024 | | 151,885 |
Debt instruments issued |
| 1,640 |
| 545 |
| 326,088 |
| 838,032 |
| 1,873,627 |
| 3,164,924 | | 6,204,856 |
Subtotal |
| 5,544,307 |
| 2,532,057 |
| 4,860,803 |
| 3,191,381 |
| 4,798,736 |
| 4,973,941 |
| 25,901,225 |
(*) Interbank loans are presented gross. The amount of allowances corresponds to MCh$10.
(**) Loans and accounts receivable from customers at amortized cost are presented gross. Allowances by loan type are detailed as follows: Commercial MCh$747,617; Mortgage MCh$73,465; and Consumer MCh$220,791.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-215 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 37 - Maturity of assets and liabilities, continued
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | As of December 31, 2019 | ||||||||||||
| | | | Between | | | | | | Between | | | | |
| | | | 1 month | | Between | | Between | | 3 years | | | | |
| | | | to 3 | | 3 month | | 1 year to | | to 6 | | Over 6 | | |
|
| Up to 1 month |
| months |
| to 1 year |
| 3 years |
| years |
| years |
| Totals |
| | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Assets | | | | | | | | | | | | | | |
Financial instruments at fair value through profit or loss |
| 20,465 |
| 54,382 |
| 39,730 |
| 39,822 |
| 26,703 |
| 2,600 |
| 183,702 |
Financial instruments at fair value through other comprehensive income |
| 258,843 |
| 151,014 |
| 609,862 |
| 1,515,340 |
| 896,383 |
| 167,448 |
| 3,598,890 |
Loans and accounts receivable from customers at amortized cost (**) |
| 1,641,670 |
| 2,723,589 |
| 2,796,116 |
| 2,576,345 |
| 3,778,435 |
| 9,618,659 |
| 23,134,814 |
Commercial loans |
| 1,443,029 |
| 2,209,624 |
| 2,693,582 |
| 1,962,306 |
| 2,516,050 |
| 4,635,953 |
| 15,460,544 |
Mortgages loans |
| 3,040 |
| 550 |
| 2,760 |
| 22,657 |
| 115,878 |
| 4,731,156 |
| 4,876,041 |
Consumer loans |
| 195,601 |
| 513,415 |
| 99,774 |
| 591,382 |
| 1,146,507 |
| 251,550 |
| 2,798,229 |
Financial instruments at amortized cost |
| 29,026 |
| 7,543 |
| 78,138 |
| 951 |
| — |
| — |
| 115,658 |
Investments under resale agreements |
| 75,975 |
| — |
| — |
| — |
| — |
| — |
| 75,975 |
Financial derivative contracts |
| 151,952 |
| 160,523 |
| 306,284 |
| 602,190 |
| 662,530 |
| 1,271,478 |
| 3,154,957 |
Interbank loans (*) |
| 55,881 |
| — |
| 945 |
| — |
| — |
| — |
| 56,826 |
Subtotal | | 2,233,812 | | 3,097,051 | | 3,831,075 | | 4,734,648 | | 5,364,051 | | 11,060,185 | | 30,320,822 |
| | | | | | | | | | | | | | |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments under resale agreements |
| 559,457 |
| — |
| — |
| — |
| — |
| — |
| 559,457 |
Deposits and other demand liabilities |
| 3,946,542 |
| 2,432,029 |
| 3,913,833 |
| 827,802 |
| 128,756 |
| 371,225 |
| 11,620,187 |
Financial derivative contracts |
| 235,652 |
| 145,905 |
| 283,404 |
| 580,829 |
| 703,285 |
| 988,959 |
| 2,938,034 |
Interbank borrowings |
| 90,251 | | 246,214 | | 1,781,437 | | 406,539 | | 96,281 | | 26,034 |
| 2,646,756 |
Lease obligations |
| 1,177 |
| 76,333 |
| 52,074 |
| 14,561 |
| 20,734 |
| 8,045 |
| 172,924 |
Debt instruments issued | | 30,419 |
| 378 |
| 620,710 |
| 959,369 |
| 1,375,640 |
| 3,421,840 | | 6,408,356 |
Subtotal | | 4,863,498 |
| 2,900,859 |
| 6,651,458 |
| 2,789,100 |
| 2,324,696 |
| 4,816,103 |
| 24,345,714 |
(*) Interbank loans are presented gross. The amount of allowances corresponds to MCh$239.
(**) Loans and accounts receivable from customers at amortized cost are presented gross. Allowances by loan type are detailed as follows: Commercial MCh$545,119; Mortgage MCh$78,501; and Consumer MCh$256,417.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-216 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 38 - Foreign currency position
In the Consolidated Statements of Financial Position as of December 31, 2020 and 2019, assets and liabilities are included in local and foreign currency, as well as inflation-indexation adjustable and adjustable by the variation of the exchange rate, for the amounts indicated below:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Others | | Exchange rate | | |
As of December 31, 2020 |
| Note |
| CLP (*) |
| UF |
| USD |
| COP |
| EUR |
| currency |
| adjustable |
| Totals |
| | | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Cash and deposits in banks |
| 5a) |
| 1,232,614 | | — | | 1,501,888 | | 294,522 | | 28,315 | | 31,733 | | — | | 3,089,072 |
Cash items in process of collection |
| 5b) |
| 110,503 |
| — |
| 61,819 |
| 93 |
| 9 |
| 768 |
| — |
| 173,192 |
Financial instruments at fair value through profit or loss |
| 6 |
| 145,316 |
| 355 |
| — |
| 437,039 |
| — |
| — |
| — |
| 582,710 |
Financial instruments at fair value through other comprehensive income |
| 11 |
| 2,556,706 | | 696,307 | | 103,503 | | 614,383 | | — | | — | | — |
| 3,970,899 |
Loans and accounts receivable at amortized cost |
| 10 |
| 5,768,428 |
| 8,959,138 |
| 2,859,253 |
| 3,955,993 |
| 23,704 |
| — |
| 9,592 |
| 21,576,108 |
Financial instruments at amortized cost |
| 11 |
| — | | — | | 7,202 | | 104,340 | | — | | — | | — | | 111,542 |
Investments under resale agreements |
| 7 |
| 84,173 |
| — |
| — |
| 21,407 |
| — |
| — |
| — | | 105,580 |
Investments in companies | | | | 7,149 | | — | | — | | — | | — | | — | | — | | 7,149 |
Financial derivative contracts |
| 8 |
| 2,529,980 |
| 387,035 |
| 1,039,536 |
| 19,967 |
| 6,285 |
| — |
| — |
| 3,982,803 |
Interbank loans, net |
| 9 |
| — |
| — |
| 7,121 |
| — |
| — |
| — |
| — |
| 7,121 |
Intangible assets |
| 13 |
| 682,523 |
| — |
| 172 |
| 35,988 |
| — |
| — |
| — |
| 718,683 |
Property, plant, and equipment |
| 14 |
| 56,274 | | — | | 482 | | 23,859 | | — | | — | | — | | 80,615 |
Right-of-use asset under lease agreements | | 15 | | 111,452 | | — | | 6,061 | | 28,495 | | — | | — | | — | | 146,008 |
Current taxes |
| 16 |
| 43,132 | | — | | 1,844 | | 19,723 | | — | | — | | — | | 64,699 |
Deferred taxes |
| 16 |
| 250,023 | | — | | 14,645 | | 47,888 | | — | | — | | — | | 312,556 |
Other assets |
| 17 |
| 87,378 |
| 11,883 |
| 388,141 |
| 54,961 |
| — |
| — |
| 270 |
| 542,633 |
Other non-current assets held for sale |
| 17 |
| 13,269 |
| — |
| — |
| 1,809 |
| — |
| — |
| — |
| 15,078 |
TOTAL ASSETS |
|
|
| 13,678,920 |
| 10,054,718 |
| 5,991,667 |
| 5,660,467 |
| 58,313 |
| 32,501 |
| 9,862 |
| 35,486,448 |
| | | | | | | | | | | | | | | | | | |
Deposits and other demand liabilities |
| 18 |
| 3,186,296 |
| 13,448 |
| 737,892 |
| 2,238,247 |
| 21,435 |
| 88 |
| — |
| 6,197,406 |
Cash in process of being cleared |
| 5b) |
| 82,287 |
| — |
| 52,244 |
| 1 |
| 1,528 |
| 18,172 |
| — |
| 154,232 |
Obligations under repurchase agreements |
| 7 |
| 399,593 |
| — |
| — |
| 239,258 |
| — |
| — |
| — |
| 638,851 |
Time deposits and other time liabilities |
| 18 |
| 8,042,117 |
| 402,118 |
| 1,539,760 |
| 1,449,054 |
| 14 |
| — |
| 1 |
| 11,433,064 |
Financial derivative contracts |
| 8 |
| 2,031,193 | | 476,910 | | 986,508 | | 170,598 | | 8,382 | | — | | — |
| 3,673,591 |
Interbank borrowings |
| 19 |
| 2,257,226 |
| — |
| 1,384,248 |
| 47,768 |
| 368 |
| 109,368 |
| — |
| 3,798,978 |
Debt instruments issued |
| 20 |
| 835,961 |
| 4,636,431 |
| 122,734 |
| 609,730 |
| — |
| — |
| — |
| 6,204,856 |
Other financial liabilities |
| 20 |
| 13,123 |
| — |
| — |
| — |
| — |
| — |
| — |
| 13,123 |
Lease contracts liabilities | | 15 | | 561 | | 118,189 | | 6,987 | | 25,992 | | — | | — | | 156 | | 151,885 |
Current taxes |
| 16 |
| 596 |
| — |
| — |
| 1,170 |
| — |
| — |
| — |
| 1,766 |
Deferred taxes |
| 16 |
| — |
| — |
| — |
| 237 |
| — |
| — |
| — |
| 237 |
Provisions |
| 21 |
| 84,190 |
| — |
| 5,814 |
| 45,086 |
| — |
| — |
| — |
| 135,090 |
Other liabilities |
| 22 |
| 175,812 |
| 159,834 |
| 274,827 |
| 79,442 |
| 66 |
| — |
| 10,053 |
| 700,034 |
Liabilities directly associated with non-current assets held for sale |
| 22 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
TOTAL LIABILITIES |
|
|
| 17,108,955 |
| 5,806,930 |
| 5,111,014 |
| 4,906,583 |
| 31,793 | — | 127,628 |
| 10,210 |
| 33,103,113 |
Assets (liabilities) net |
|
|
| (3,430,035) |
| 4,247,788 |
| 880,653 |
| 753,884 |
| 26,520 | | (95,127) |
| (348) |
| 2,383,335 |
(*) Includes transactions denominated in foreign currencies but that are settled in pesos.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-217 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Note 38 - Foreign currency position, continued
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Others | | Exchange rate | | |
As of December 31, 2019 |
| Note |
| CLP (*) |
| UF |
| USD |
| COP |
| EUR |
| currency |
| adjustable |
| Totals |
| | | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ | | MCh$ |
Cash and deposits in banks |
| 5a) |
| 243,754 | | — | | 364,594 | | 398,780 | | 2,553 | | — | | — |
| 1,009,681 |
Cash items in process of collection |
| 5b) |
| 150,463 |
| — |
| 80,132 |
| 710 |
| — |
| — |
| — |
| 231,305 |
Financial instruments at fair value through profit or loss |
| 6 |
| 112,224 |
| — |
| — |
| 71,478 |
| — |
| — |
| — |
| 183,702 |
Financial instruments at fair value through other comprehensive income |
| 11 |
| 1,600,147 | | 1,023,726 | | 124,310 | | 850,707 | | — | | — | | — |
| 3,598,890 |
Loans and accounts receivable at amortized cost |
| 10 |
| 5,678,458 |
| 8,749,298 |
| 3,459,607 |
| 4,355,845 |
| 841 |
| — |
| 10,648 |
| 22,254,697 |
Financial instruments at amortized cost |
| 11 |
| — | | — | | 30,123 | | 85,535 | | — | | — | | — |
| 115,658 |
Investments under resale agreements |
| 7 |
| 46,686 |
| — |
| — |
| 29,289 |
| — |
| — |
| — |
| 75,975 |
Investments in companies | | | | 5,833 | | — | | — | | 3,772 | | — | | — | | — | | 9,605 |
Financial derivative contracts |
| 8 |
| 2,199,266 |
| 324,414 |
| 536,936 |
| 93,427 |
| 914 |
| — |
| — |
| 3,154,957 |
Interbank loans, net |
| 9 |
| — |
| — |
| 35,944 |
| 20,452 |
| — |
| — |
| — |
| 56,396 |
Intangible assets |
| 13 |
| 1,400,449 |
| — |
| 1,104 |
| 172,880 |
| — |
| — |
| — |
| 1,574,433 |
Property, plant, and equipment |
| 14 |
| 72,766 | | — | | 422 | | 21,892 | | — | | — | | — |
| 95,080 |
Right-of-use asset under lease agreements | | 15 | | 121,241 | | — | | 7,936 | | 38,264 | | — | | — | | — | | 167,441 |
Current taxes |
| 16 |
| 30,773 | | — | | — | | 54,743 | | — | | — | | — |
| 85,516 |
Deferred taxes |
| 16 |
| 182,302 | | — | | 20,942 | | 5,413 | | — | | — | | — |
| 208,657 |
Other assets |
| 17 |
| 248,755 |
| 91,456 |
| 359,198 |
| 71,182 |
| — |
| — |
| 270 |
| 770,861 |
Other non-current assets held for sale |
| 17 |
| 17,202 |
| — |
| — |
| — |
| — |
| — |
| — |
| 17,202 |
TOTAL ASSETS |
|
|
| 12,110,319 |
| 10,188,894 |
| 5,021,248 |
| 6,274,369 |
| 4,308 |
| — |
| 10,918 |
| 33,610,056 |
| | | | | | | | | | | | | | | | | | |
Deposits and other demand liabilities |
| 18 |
| 2,255,736 |
| 2,855 |
| 534,005 |
| 2,079,465 |
| 1,387 |
| — |
| — |
| 4,873,448 |
Cash in process of being cleared |
| 5b) |
| 100,395 |
| — |
| 64,178 |
| — |
| — |
| — |
| — |
| 164,573 |
Obligations under repurchase agreements |
| 7 |
| 499,136 |
| — |
| — |
| 60,321 |
| — |
| — |
| — |
| 559,457 |
Time deposits and other time liabilities |
| 18 |
| 7,952,973 |
| 391,679 |
| 1,356,132 |
| 1,919,402 |
| — |
| — |
| 1 |
| 11,620,187 |
Financial derivative contracts |
| 8 |
| 1,960,447 | | 402,899 | | 476,568 | | 97,212 | | 908 | | — | | — |
| 2,938,034 |
Interbank borrowings |
| 19 |
| — |
| — |
| 2,563,630 |
| 83,126 |
| — |
| — |
| — |
| 2,646,756 |
Debt instruments issued |
| 20 |
| 763,503 |
| 4,924,260 |
| 129,281 |
| 590,471 |
| 841 |
| — |
| — |
| 6,408,356 |
Other financial liabilities |
| 20 |
| 12,956 |
| 10 |
| — |
| — |
| — |
| — |
| — |
| 12,966 |
Lease contracts liabilities | | 15 | | 659 | | 129,034 | | 7,689 | | 35,273 | | — | | — | | 269 | | 172,924 |
Current taxes |
| 16 |
| 13 |
| — |
| — |
| — |
| — |
| — |
| — |
| 13 |
Deferred taxes |
| 16 |
| — |
| — |
| — |
| 263 |
| — |
| — |
| — |
| 263 |
Provisions |
| 21 |
| 106,456 |
| — |
| — |
| 71,371 |
| — |
| — |
| — |
| 177,827 |
Other liabilities |
| 22 |
| 265,814 |
| 268,685 |
| 115,196 |
| 54,446 |
| — |
| — |
| 4,773 |
| 708,914 |
Liabilities directly associated with non-current assets held for sale |
| 22 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
TOTAL LIABILITIES |
|
|
| 13,918,088 |
| 6,119,422 |
| 5,246,679 |
| 4,991,350 |
| 3,136 |
| — |
| 5,043 |
| 30,283,718 |
Assets (liabilities) net |
|
|
| (1,807,769) |
| 4,069,472 |
| (225,431) |
| 1,283,019 |
| 1,172 |
| — |
| 5,875 |
| 3,326,338 |
(*) Includes transactions denominated in foreign currencies but that are settled in pesos.
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-218 |
ITAÚ CORPBANCA AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018
Discontinuation of the net investment in Itaú Corpbanca Colombia hedge
During January 2021, by decision of Management, the hedge of net investment in Itaú Corpbanca Colombia was discontinued. The impact of discontinuing the hedge relationship was reclassified from valuation accounts to reserves, without generating an effect on the Consolidated Statement of Income.
Changes in the Board of Directors
In ordinary session held on January 27, 2021, the Board of Directors of Itaú Corpbanca was informed and resolved to accept the resignation of director Mr. Caio Ibrahim David, effective as of the same date. In his replacement, the Board of Directors agreed to appoint Mr. Matias Granata, who served as a director until the Annual Ordinary Shareholder’s Meeting held on March 18, 2021 and was elected as a director in the same meeting.
New alliance between Itaú and Rappi
On March 29, 2021 the Bank announced to the market and communicated to the SEC a new alliance with Rappi, as part of our digital transformation strategy. This agreement aims to revolutionize the local financial market with simple, innovative and unique digital products, allowing an increasing number of individuals to access new financial solutions in an agile and digital way. Itaú and Rappi expect the new offer of digital financial products and services to be available during the third quarter of 2021, through the new business model resulting from this alliance.
Others
Between January 1 and April 22, 2021, 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 results of the financial statements.
Roxana Zamorano |
| Gabriel Moura | |
Chief Accounting Officer | | Chief Executive Officer | |
| |
Itaú Corpbanca and subsidiaries – Consolidated Financial Statements – December 31, 2020 | F-219 |