ANNUAL REPORT 2013 YEARS

Transcription

ANNUAL
REPORT 2013
YEARS
SINCE 1893
IN 2013, BANCO DE CHILE
STRENGTHENED ITS COMPETITIVE
ADVANTAGES AND LED THE
BANKING INDUSTRY IN ALL KEY
AREAS.
Throughout its 120-year history, Banco de
Chile has made many important achievements,
consolidating its solid competitive advantages
and successful, consistent business strategy. In
2013 Banco de Chile expanded its undisputed
market leadership in earnings and returns,
reporting a return on average capital and
reserves of 24%, all a result of its solid brand
image, large business scale, excellent funding
structure and outstanding risk management.
Also in 2013, Banco de Chile led corporate
reputation rankings, a reflection of its
organizational values designed to strengthen
relationships with both customers and the
community, leading to important improvements
in service quality and support of several social
initiatives.
01
02
03 04
04Introduction
18 Corporate Governance
38Strategy
46 Corporate Social
Responsibility
Letter from the Chairman
Board of Directors
Purpose, Mission and Vision
Strategic Priorities
Senior Management
Strategic Pillars
Associates
Competitive Advantages
Corporate Governance
Financial Performance
Practices
History
2
Table of Contents
10 Major Achievements in 2013
Recognitions 2013
Customers
Community
Shareholders
05 06 07
08 09
64 Economic and
78Consolidated
120 Risk Management
Financial Environment
Performance 2013
The Global Economy
Management’s Discussion
Retail Market
Credit Risk
The Local Economy
and Analysis 2013
Wholesale Market
Financial Risk
Chilean Banking System
Key Financial Indicators
Treasury
Operational Risk
98 Business Areas
144 Consolidated Financial
Statements
Subsidiaries
Table of Contents
3
LETTER FROM THE CHAIRMAN
Dear Shareholders,
This past year was challenging in every regard, so it is with great
satisfaction that I share this annual report containing the results
obtained by Banco de Chile. In 2013, a combination of factors beyond
our control made achieving of our objectives more complicated. In
response, we have reviewed and modified our value proposals and
intensified the innovative spirit that characterizes the Bank.
Banco de Chile has led and participated in all legal and regulatory
initiatives by authorities to increase transparency and competitiveness,
as well as those initiatives developed within the banking industry
itself. The changes are meant to provide the end-user with the best
tools for making financial decisions, thus contributing to customer
development and the development of the country as a whole.
However, in recent years some well-intentioned laws and regulations
have had undesirable consequences, weakening trust between financial
institutions and consumers and even endangering the reputation of
an industry that has been vital to the country’s economic stability
for the past 30 years. In other countries, similar situations have had
damaging effects on the economy and the population.
In 2013, the banking industry, and particularly Banco de Chile, saw
the first of these consequences, delaying the industry’s long-awaited
project to expand banking access in Chile. We have been working for
years to create products and mechanisms that facilitate and expand
access to formal, experienced, regulated institutions. However, as a
consequence of some of the regulations, the scope and depth of our
objectives have been limited. We are concerned that fewer Chileans
have access to banking services today decreasing banking penetration
for individuals, which detracts from the development of the country,
its citizens and entrepreneurship in general.
4
Introduction
Pablo Granifo Lavín
Chairman of the Board
The second effect that we have observed this year is an increase in
These adjustments to our business strategy have been successful,
portfolio expenses, particularly in the consumer and retail banking
allowing us to maintain the portfolio quality that distinguishes us both
segments. For the first time in Banco de Chile’s history, payments
locally and internationally. We led the banking industry in the key
deteriorated during a period of stable economic growth (4.0% increase
performance indicators of operating revenue, net income and returns.
in GDP), low unemployment, several years of solid macroeconomic
institutions and increased real wages.
These achievements would not have been possible without a clear,
defined focus on service quality. In 2013, we worked hard to continuously
This phenomenon is attributable in part to the new consumer protection
improve our processes, increasing the availability of our remote
mechanisms and regulations, which could have been seen as an
customer service channels and tailoring value proposals to each of
opportunity to default on financial obligations. We expect this initial
the segments we serve: retail, small business, large companies and
impact to be emended as these new trends stabilize.
corporations. From an operational standpoint, we focused on updating
systems and processes in order to ensure the stability, efficiency
In addition, passage of a new law on consolidated debtor information
and quality of all our services. Consequently, we have resolved the
will mitigate these negative consequences by providing additional
problems with some remote channels that surfaced in 2012.
background information for the customer risk assessment processes.
It is important to keep in mind that growth in 2013 was more moderate
In this context, we have put forth our best effort to identify new
than in 2012, when the economy’s vitality surprised everyone.
growth mechanisms and to continue to support our customers. We
This year, we saw a gradual decrease in demand for loans due to
have also strengthened our risk assessment policy. Thanks to a
postponement of some business investment projects. Retail loans
combination of sustained growth in business scale and a conservative,
also grew at a more moderate rate, reflecting gradual deceleration in
balanced risk policy, Banco de Chile ended 2013 with strong revenue
private consumption and more restrictive supply conditions. However,
generating capacity and recorded another year of growth. We have
Banco de Chile achieved above-industry growth rates by selecting and
positioned ourselves to face strong competition in the Chilean
prioritizing the products and segments identified as strategic focuses.
banking industry and international debt markets, in the midst of a
still volatile international context and a local economy showing signs
of deceleration and low inflation.
Introduction
5
LETTER FROM THE CHAIRMAN
We ended 2013 with very satisfactory results. For the second consecutive
The success of these placements is a clear sign of confidence in
year, we led the industry in several key financial indicators such as
our bank. This confidence was further confirmed by Global Finance
earnings and returns. We recorded earnings of Ch$514 billion, a 10%
naming us the safest private bank in Latin America, thanks to our
increase over the prior year. This translated into a return on average
international risk ratings of A+ (Standard & Poor’s) and Aa3 (Moody’s) -
capital and reserves of 24% and an efficiency ratio of 43%; operating
the best in the region for a private bank.
income was also noteworthy. In terms of loans, excluding our foreign
subsidiaries, Banco de Chile achieved 19% market share in Chile,
In terms of our 2013 commercial performance, we continued to
consolidating our leadership in several business areas.
prioritize expansion of the retail segment through growth in consumer
loans, checking accounts, credit cards and mortgage loans. We also
As a result of the organization’s remarkable performance, Banco de
maintained our focus on growing the SME banking segment. SME
Chile’s annual contribution to repay subordinated debt will more than
loans represent 10% of the Bank’s total portfolio. At the same time,
double the minimum amount due for the third straight year.
we continue efforts to make our wholesale product offering more
sophisticated, enhancing our payment and collections systems and
At Banco de Chile, we have expanded our assets and funding sources.
improving our derivatives offerings.
In addition to the successful capital increases in 2011 and 2012, it is
our policy to continuously diversify funding instruments and markets.
Once again, the commitment of the entire Banco de Chile team
While Chile remains an attractive funding market, we upheld our
has been crucial to overcoming challenges and achieving our 2013
strategic decision to combine domestic and international sources
objectives. I particularly appreciate their work and commitment, which
of capital, consolidating and opening new markets to increase the
is manifested daily in improved customer service. Their dedication
market depth of our funding structure and sustain future business
and professionalism is apparent in the Bank’s results and beyond.
volume growth.
In 2013, Banco de Chile had the honor of placing first on MERCO’s
We are constantly searching for the market’s best opportunities. As
overall corporate reputation ranking. The study, conducted for the fourth
an example, last year we pioneered placement of long-term bonds
time in Chile, collected the opinions of 443 corporate executives and
totaling over US$ 1 billion in markets like Hong Kong, Switzerland
and Japan.
6
Introduction
included companies from all industries. It is a great honor to be named
I would like to conclude by recognizing all those who worked
first in Chile and, for the fourth straight year, first in the Banking and
unconditionally to overcome the challenges we faced in 2013, those
Financial Institutions category. Similarly, in 2013, Euromoney named
who strived to provide the best service, those who collaborated to
us the Best Bank in Chile. In the corporate governance category, we
make Chile a better place to live, and those who have placed their
were recognized for having the best 2012 annual report.
confidence in Banco de Chile’s management and the Board of Directors,
which I chair. We are committed to continuing to grow together.
We deeply appreciate these distinctions, which encourage us to
continue improving and to better serve our customers, employees,
Best regards,
shareholders and especially, the people and the community around us.
Banco de Chile has a long, deep-seated tradition of supporting the
Teletón Foundation, even in years when an actual telethon is not
held, like 2013. This year, we participated enthusiastically in the First
Teletón-Banco de Chile Inclusive Art Biennale. We continue working
with the Astoreca Foundation, which provides quality education to
underprivileged children, and developing our partnership with Desafío
Levantemos Chile. We are working with Desafío Levantemos Chile on
the 50 Challenges for Chile program, which is transforming social,
sporting, educational and environmental projects into reality in 50
communities throughout the country. Once again, we are grateful for
Chairman of the Board
Banco de Chile
the opportunity to participate in these initiatives, which help build a
better Chile with more opportunities for everyone.
Introduction
7
STRATEGIC PRIORITIES
OUR
STRATEGIC PRIORITIES
MARKET LEADER IN RETAIL BUSINESS
MARKET LEADER IN WHOLESALE BUSINESS
OPERATIONAL EXCELENCE
MAXIMIZE SERVICE QUALITY
ALIGNING PEOPLE/CULTURE/STRATEGY
BUILDING SOCIAL REPUTATION
8
Introduction
OUR MAIN
COMPETITIVE ADVANTAGES
SOLID BRAND POSITIONING
LARGE BUSINESS SCALE AND MARKET LEADERSHIP
BROAD CUSTOMER BASE AND DISTRIBUTION NETWORK
COMPREHENSIVE FINANCIAL PRODUCTS AND SERVICES
EFFECTIVE RISK MANAGEMENT
EXCELLENT FUNDING STRUCTURE
EXCEPTIONAL INVESTMENT GRADE RATING
Introduction
9
FINANCIAL PERFORMANCE
TOTAL LOANS (*)
Billions of Ch$
2013
19.1 %
20,870
2012
19.0 %
18,762
2011
19.8 %
17,378
2010
19.2 %
14,366
Loans
%
Market Share
Banco de Chile recorded annual growth in total
loans of 11%, closing the year with a portfolio
valued at Ch$ 20,870 billion.
During the year, the Bank reported uniform growth
in both retail and companies loans, in line with its
strategy to prioritize growth in these segments. The
Bank also purchased a high-quality commercial
loan portfolio for approximately Ch$ 500 billion.
As a result, Banco de Chile’s market share in total
loans increased 17 basis points in 2013, reaching
19% in total loans, 19% in commercial loans, 21%
in consumer loans and 17% in mortgage loans.
(*) Market share does not include the banking system’s investments abroad
PAST-DUE PORTFOLIO
Billions of Ch$
2013
0.5 %
111
2012
0.5 %
89
2011
0.5 %
82
2010
0.6 %
73
Past-due Loans
%
Past-due Loans /
Total Loans
As of December 2013, Banco de Chile’s past-due
portfolio amounted to Ch$ 111 billion, representing
0.5% of total loans (0.5% in 2012 and 2011).
As in prior years, the Bank’s ratio significantly
surpasses both the system and its main
competitors.
This figure reflects the quality of the loan portfolio
and the Bank’s conservative risk management
efforts, consistent with the target risk-return ratios
for each segment.
GROSS DEMAND DEPOSITS
Billions of Ch$
28.7 %
5,984
2012
29.2 %
5,471
2011
28.2 %
4,895
2010
30.9 %
4,446
2013
Gross Demand
Deposits
%
During 2013, gross demand deposits expanded
9%, finishing the year as the industry leader with a
market share of 22%.
This gives Banco de Chile the lowest cost of funds
in the industry, which is an important competitive
advantage over its peers.
As a percentage of total loans, demand deposits
reached 29%, which compares favorably with the
industry and key competitors.
% of Total Loans
EQUITY
Billions of Ch$
13.1 %
2,284
2012
13.2 %
2,007
2011
12.9 %
1,739
2010
13.4 %
1,404
2013
Tier 1 Capital
10
Introduction
%
Total Capital Ratio
During 2013, the Bank’s equity was Ch$ 2,284
billion, equivalent to nominal annual growth of
14%.
This growth includes the capitalization of Ch$
134 billion recorded in 2013 from the capital
increase initiated in 2012, Ch$ 86 billion in
retained earnings (30% of distributable net income
for 2012) and Ch$ 36 billion from the price-level
restatement of paid-in capital.
As of December 31, 2013, Banco de Chile
recorded a Basle Index of 13.1%, or 3.1% over its
regulatory minimum.
NET INCOME
(Billions of Ch$)
2013
23.8 %
514
2012
26.5 %
468
2011
27.4 %
429
2010
28.8 %
379
Net Income
%
ROAC
Banco de Chile reported net income of Ch$ 514
billion in 2013, representing record-breaking
annual growth of 10% over 2012.
This figure represented 27% of total system net
income, making Banco de Chile the industry
leader for the second year in a row.
revenue, a significant improvement in operating
efficiency and conservative risk management.
Banco de Chile attained a return on average
capital and reserves (ROAC) of 24% in 2013,
leading the industry in profitability.
The increase in net income was due mainly to
the Bank’s outstanding commercial performance
thanks to its solid ability to generate operating
OPERATING INCOME
Billions of Ch$
2013
6.5 %
1,456
2012
6.4 %
1,322
2011
6.9 %
1,224
2010
7.2 %
1,169
Operating
Income
%
Op. Income / RWA
In 2013, Banco de Chile experienced annual
growth of 10.1% in operating revenue, leading the
industry in this indicator with a market share of
20%.
The ratio of operating revenue to average interest
earning assets was 6.5%, which is slightly above
the 2012 and compares favourably with Banco de
Chile’s main competitors and the banking industry.
The rise is explained mainly by greater business
volumes, a large base of demand deposits and, to
a lesser extent, better returns on investment and
derivative portfolios.
OPERATING EXPENSES
Billions of Ch$
42.8 %
623
2012
46.3 %
612
2011
50.2 %
614
2010
46.6 %
545
2013
Operating
Expenses
%
Efficiency Ratio
The Bank’s operating expenses rose slightly by
1.8% in 2013, reflecting management’s strong
commitment to corporate strategies and expense
control measures.
These higher expenses can be explained by
increased commercial activity and a moderate
increase in the number of employees, which were
partially offset by reduced IT expenses following
major investments during the prior year.
The continued focus on productivity and expense
control was reflected in an efficiency ratio of 43%,
which is the lowest figure in the industry in 2013
and an improvement of 350 basis points over
2012.
LOAN LOSS PROVISIONS
Billions of Ch$
2013
1.23 %
242
2012
1.04 %
188
2011
0.79 %
125
2010
1.54 %
209
Loan Loss
Provisions
%
LLP / Avg. Loans
During 2013, the Bank’s net credit risk expense
was Ch$242 billion, which represents an increase
of 28% over 2012.
This rise can be explained by greater growth in
business volumes, increased expenses in the
wholesale segments, increased delinquency rates
in the commercial portfolio and Ch$ 10 billion in
additional provisions.
As a result, in 2013 the ratio of loan loss provisions
to average loans was 1.2%, or 19 basis points
greater than 2012, which continues to compare
favorably to competitors and the banking system
as a whole.
Introduction
11
1800
1900
1960
1980
1883 - 1894
1907
1960
1982 - 1983
Banco de Chile is established as
a banking corporation in 1893. It
begins to operate under this name in
1894 with the merger of Banco de
Valparaíso, Banco Nacional de Chile
and Banco Agrícola de Chile.
The Bank establishes an agency in
London, which is key in securing funding
from foreign banks and fostering foreign
trade to and from Chile.
Banco de Chile contributes to the
reconstruction of the areas most
devastated by the Valdivia earthquake
with special credit resources.
The Bank begins the
internationalization process,
o p e n i n g a b r a n c h i n N e w Yo r k
in 1982.
1926
1973
Banco de Chile’s head offices are
relocated from the former offices of
Banco Nacional de Chile at Huérfanos
930 to a brand-new building
at Ahumada 251—its present
headquarters.
Following a government process to
nationalize the banking industry, the
Chilean State Development Corporation
(CORFO) becomes Banco de Chile’s
largest shareholder, with the right to
appoint the Chairman of the Board.
T h e f o l l o w i n g y e a r, a u t h o r i t i e s
intervene and determine that
B a n c o d e C h i l e ’s l o a n p o r t f o l i o
had deteriorated, compromising
its capital base.
1930
1975 - 1977
Thanks to its solid capital base, the
Bank survives the crisis that began
in 1929 and continues to develop,
sustaining itself as the country’s main
bank and one of the most respected
and solvent corporations.
Banco de Chile is reprivatized in 1975.
Two years later, it creates Leasing Andino
in partnership with Banco de Vizcaya
of Spain and Orient Leasing of Japan.
1940
Consolidation of Banco de Chile:
It incorporates liabilities of other
financial entities undergoing
liquidation and purchases shares of
important commercial and service
companies.
12
Introduction
1987 - 1990
After a capitalization process, ownership
and control of the Bank are transferred to
private investors in 1987, incorporating
more than 30,000 new shareholders
through “popular capitalism”.
Banco de Chile acquires the assets
and liabilities of Banco Continental
and absorbs the operations of Banco
Morgan Finansa.
In 1990, it closes its representation office
in London and moves it to Frankfurt,
which would later be closed in 2000. In
the 1990s, Banco de Chile establishes
representation offices in Miami, Buenos
Aires, Sao Paulo and Mexico City.
HISTORY
1990
2000
1993
2000 - 2003
2010
2012
The Bank creates Banco CrediChile, a
division with its own branch network,
specialized in consumer loans for middle
and low-income individuals. In 2002, it
absorbs Finandes, the consumer division
of Banco de A. Edwards, and in 2008, it
absorbs Financiera Atlas, the consumer
division of Citibank Chile.
Banco de Chile agrees to merge with
Banco de A. Edwards. Following the
merger, Quiñenco S.A., a company
linked to the Luksic family and the main
shareholder in both banks, acquires the
majority shareholding in Banco de Chile.
Following the February earthquake in
Chile, Banco de Chile joins forces with
the Teletón Foundation on the campaign
“Chile Helping Chile”, working to raise
record levels of donations in benefit of
those affected by this disaster.
Under an American Depositary Shares
(ADS) program, the Bank’s shares are
traded on the New York Stock Exchange
(NYSE) and one year later on the London
Stock Exchange (LSE).
Citigroup exercises its option to purchase
shares of LQIF, raising its ownership
to 50%, while Quiñenco holds the
remaining 50%.
Standard & Poor’s gives the Bank an
‘A+’ international credit rating, making
it the private bank with the best risk
rating in Latin America. In addition to
having the best returns, the Bank also
leads in net income, generating close
to US$1 billion during the year. It also
becomes the industry leader in market
capitalization.
1996
In order to release Banco de Chile from
the financial burden of repaying its debt
to the Central Bank, as a result of the
1982-1983 economic crisis, Banco de
Chile becomes SM-Chile S.A., a publiclyheld corporation established to resolve
the Bank’s subordinated obligation. A new
company is formed (the current Banco
de Chile), a subsidiary of SM-Chile S.A.,
which assumes all assets and liabilities
of the former Banco de Chile, with the
exception of the Central Bank debt,
which is transferred to SAOS S.A., a
wholly-owned subsidiary of SM-Chile S.A.
2008
Banco de Chile takes over the assets and
liabilities of Citibank Chile, the Chilean
subsidiary of Citigroup Inc. Concurrently,
Citigroup partners with Quiñenco, entering
the ownership structure of LQ Inversiones
Financieras S.A. Banco de Chile and
Citigroup also sign the Cooperation
Agreement and the Global Connectivity
Agreement, providing for mutual support
in executing diverse transactions and
limited use of the Citi brand.
As part of these agreements, Banco de
Chile sells its banking operations in New
York and Miami to Citigroup Inc.
2010 - 2011
2011
Banco de Chile expands its business
scale, boasting important increases in
market share across all loan products,
especially mortgage loans. This growth
is accompanied by a successful capital
increase that raises Ch$210.1 billion.
As a result, Banco de Chile’s stock
increases its depth in financial markets
and is included on the MSCI stock index.
2012 - 2013
2013
Banco de Chile celebrates its 120th
anniversary, reaching important
performance milestones in several areas.
Once again, it leads the banking system
in earnings and returns, generating 27%
of the industry’s earnings. Also, for the
first time in its history, Banco de Chile
is the system’s most efficient bank, with
an efficiency ratio of 43%.
Finally, the Bank is recognized as having
the best corporate reputation in Chile. It
also receives a Customer Loyalty award,
reaffirming the Bank’s commitment to
its community and customers.
Introduction
13
10 MAJOR ACHIEVEMENTS IN 2013
01
02
In 2013, Banco de Chile achieved outstanding results once again and far
surpassed our key competitors. In fact, as of December 2013, the Bank had
recorded earnings of more than Ch$514 billion, 27% of the industry total.
Consequently, our institution led the market in profitability indicators, recording
return on capital and reserves of 24% and return on assets of 2.1%; the banking
system averaged 16% and 1.3%, respectively.
Banco de Chile’s growing focus on operating efficiency earned us the industry’s best
efficiency ratio. At 42.8%, the Bank was far below the industry’s 50% and was 19
base points below our main competitor. Building an efficiency-focused culture and
successful expense control policies brought meaningful improvement in this area, as
reflected in the significant decrease in market share of expenditures (from 19% in
December 2012 to 17% as of the end of 2013), all while improving the service level
and quality that characterizes our company.
03
04
Banco de Chile led the industry in operating income, with 20.0% market share.
The Bank sustained its market position with a consistent, successful business
strategy focusing commercial efforts on retail segments with greater returns and
optimizing wholesale market leadership with product and service cross-sales. This
was reflected in the Bank’s steady income generation in the midst of lower inflation,
greater regulation and less economic growth.
In early 2013, we concluded the capital increase process begun in late 2012,
raising Ch$ 253 billion. The increase allowed the Bank to sustain organic growth,
anticipating new international capital demands and maintaining capital adequacy
ratios in line with the Bank’s outstanding international risk rating. As of December
2013, Banco de Chile’s Basel index was 13.1%, well-above the regulatory limit of
10%, thus, making it the most well-capitalized financial institution in the banking
industry.
Leader in Earnings and Returns, Widening the Gap
between Banco de Chile and Our Competitors
Leader in Operating Income
First-time Industry Leader in Operating Efficiency
US$ 530 million Capital Increase
05
Issuance of more than US$ 1 Billion in Bonds in Developed Markets
In 2013, the Bank took advantage of favorable market conditions and our institution’s high international risk ratings to continue diversifying funding sources in highly
demanding, competitive markets. A total of US$ 785 million in bonds was issued in Switzerland, approximately US$ 170 million in Japan and US$ 170 million in Hong Kong.
14
Introduction
06
07
A major development in the realm of asset management was the purchase of a
high credit-quality commercial portfolio from a local competitor for approximately
Ch$ 500 billion. The deal took place quickly, demonstrating Banco de Chile’s
thorough knowledge of the local market and agile decision-making abilities. In
2013, the Bank’s leadership in wholesale loans continued and our market presence
and penetration improved.
We are mindful of the fact that safety and confidence in any banking operation are
essential to our customers. Consequently, Banco de Chile was the first to begin
issuing credit cards with electronic chips. This technology reduces the risk of credit
card cloning and fraud and is gradually being adopted around the world.
08
09
Remaining faithful to our institution’s strategic pillars, tremendous resources and
effort were dedicated to improving service quality this year. Through concrete plans
and the professionalism of our employees, we substantially improved our customer
recommendation rates, reduced desertion rates and increased effectiveness in
resolving customer complaints. This important service level improvement earned us
the Customer Loyalty Award presented by Diario Estrategia and Alco Consultores,
which recognizes companies that excel in customer service.
Climbing two spots since the 2012 study, Banco de Chile earned first place
in the Business Monitor of Corporate Reputation’s (MERCO) 2013 overall
ranking. Along with this distinction, the Bank earned first place in the “Banks
and Financial Institutions” category for the fourth straight year. Similarly, Banco
de Chile earned second place in the Corporate Social Responsibility ranking,
climbing five spots since 2012.
Commercial Portfolio Purchased for Ch$ 500 Billion
Improved Service Quality
Pioneering Credit Cards with Electronic Chips
No. 1 in the Corporate Reputation Ranking
10
Growing Commitment to Our Community
This year, we reinforced our social commitment to the community through various initiatives, the most noteworthy of which are: our ongoing commitment to Fundación Teletón,
the Desafío Levantemos Chile program, our long-standing support of the Astoreca and Debra Foundations, supporting schools in socially at-risk communities, granting
academic excellence scholarships, creating of children’s libraries in the Araucanía region and sponsoring a preschool in the municipality of Peñalolén, among others.
Introduction
15
RECOGNITIONS 2013
Best Bank in Chile, Euromoney Awards for Excellence
Safest Private Bank in Latin America, Global Finance
For the third straight year, Banco de Chile led the category of Best Bank in Chile at
the annual award ceremony held by British magazine, Euromoney, recognizing the
best private banks on each continent.
For the fourth time in a row, Banco de Chile was named the Safest Private Bank in
Latin America in a semi-annual ranking by the prestigious U.S. magazine, Global
Finance. The ranking will be published in the magazine’s April issue. Banks were
selected by comparing long-term credit ratings and total assets from among the
largest banks. Ratings from Moody’s, Standard & Poor’s and Fitch were used.
Best Corporate Reputation 2012, MERCO
Banco de Chile came in first on Merco’s overall 2013 ranking, climbing two
positions relative to the prior year. This recognition also placed it at the top of the
Bank and Financial Institutions category for the fourth straight year.
Best Private Banking Services in Chile, Euromoney
Private Banking Survey
For the second consecutive year, the prestigious financial magazine, Euromoney,
recognized Banco de Chile as offering the Best Private Banking Services in Chile
in three separate categories. This year the Bank won awards for: lending and
financing solutions, super affluent clients and specialized corporate executive
services.
Best Investment Bank, Global Finance
Banco de Chile, through its investment bank, Banchile | Citi Global Markets and
its subsidiary, Banchile Inversiones, was named Chile’s best investment bank by
U.S. magazine, Global Finance. The distinction was awarded by the magazine’s
editors and industry experts, who use a range of criteria such as: market share,
the number and size of deals, services and advising, structuring capabilities,
distribution network, efforts to face market conditions, innovation, pricing and
market reputation.
Best Customer Experience, IZO
This recognition is given by international brand consultant, IZO, based on surveys
of more than 10,000 customers evaluating concepts such as brand, products and
services. Of the five Chilean banks that participated, Banco de Chile placed first in
the last quarter of 2013.
16
Introduction
Banchile | Citi Global Markets, Best Investment Bank
and Banchile Inversiones and Banchile Citi Global
Market, Best Share Placement Agent, Financial Leader
Awards by Diario Financiero and Deloitte
Banchile | Citi Global Markets and Banchile Inversiones were named the 2012 Best
Financial Institution at the Financial Leader awards ceremony by Diario Financiero
and Deloitte. Both Banco de Chile subsidiaries also won the category of 2012 Best
Share Placement Agent in recognition of their active participation in deals by local
and regional issuers.
Banchile Citi Best Debt House in Chile, Euromoney
Awards for Excellence
Banchile Citi won the category of Best Debt House in Chile, an award that
considers the capability of the local debt market and reflects the company’s
leadership as an organizer and underwriter of bonds.
One of the 10 Most Admired Companies, Diario
Financiero and PricewaterhouseCoopers
Banco de Chile placed No. 9 in the 13th edition of the Most Admired Companies
Ranking published by Diario Financiero and PricewaterhouseCoopers. The study
surveyed more than 4,000 executives, who analyzed various aspects including:
business strategy; financial soundness; capacity to innovate; attractiveness of
marketing and corporate image; corporate governance; the quality of executives;
the quality of products and services; stakeholder reporting/external reporting/market
information/public relations and social responsibility.
Bank of the Year in Chile: Banco de Chile and Best
Private Bank in Chile: Banchile Inversiones, The Banker
For the first time ever, Banco de Chile was named Bank of the Year in Chile by the
prestigious British magazine, The Banker, at the 2013 Bank of the Year Awards.
The Bank’s great 2013 performance reaffirmed its position as leader of the Chilean
banking industry and earned it the best risk rating of any private bank in Latin
America.
No. 9 on the 2013 Most Respected Companies Survey
and No. 1 in the Banking Industry, La Segunda and
Adimark
This ranking aims to identify the most respected companies on the basis of 9
attributes, including: self-perception, business and executive leadership and
successfully emerging companies. Banco de Chile climbed from No. 19 in 2012 to
No. 9 in 2013, the largest jump of any company.
Best Sub-Custodian Bank, Global Finance
Banco de Chile was named Best Sub-Custodian Bank in Chile for the fifth straight
year by U.S. magazine, Global Finance. This recognition is given for local and
international share custody services, money market and fixed-income investment
services, and offering products like certificates of deposit and outsourcing and
representation services.
Introduction
17
02
CORPORATE GOVERNANCE
Board of Directors
Senior Management
Corporate Governance Practices
BOARD OF DIRECTORS
Chairman
Mr. Granifo was reelected as the chairman of our board of directors in 2011, a position which
he has held since 2007. He was our chief executive officer from 2001 to 2007, chief executive
officer of Banco de A. Edwards from 2000 to 2001, Commercial Manager at Banco Santiago
from 1995 to 1999 and Corporate Manager at Banco Santiago from 1999 to 2000. Mr. Granifo
is also chairman of the board of directors of Banchile Asesoria Financiera S.A., Socofin S.A.,
Banchile Securitizadora S.A., Banchile Administradora General de Fondos S.A. and a member of
the executive committee of Banchile Corredores de Seguros Limitada. He is also chairman of Vina
San Pedro Tarapaca S.A., vice chairman of Transbank S.A., and a member of the board of directors
of Compania Cervecerias Unidas S.A., Redbanc S.A., Servipag Limitada and Empresa Nacional
de Energia Enex S.A.. He holds a degree in business administration from Pontificia Universidad
Católica de Chile.
Andrónico Luksic Craig
Vice Chairman
Mr. Andrónico Luksic has been a director and the vice chairman of our board of directors since
2002. Mr. Luksic is also the Chairman of LQIF, Quiñenco S.A. and Compania Cervecerias Unidas
S.A., Vice Chairman of Compania Sud Americana de Vapores S.A., and a member of the Board of
Directors of Madeco S.A. and Sociedad de Fomento Fabril (SOFOFA). Mr. Luksic is a member of the
APEC Business Advisory Council (ABAC) and vice chairman of the International Business Leaders’
Advisory Council for the Mayor of Shanghai. He is also a member of the International Advisory
Board of Barrick Gold, the International Advisory Council of the Brookings Institution, the Advisory
Board of the Panama Canal Authority, and the Chairman’s International Council of the Council
of the Americas. In addition, Mr. Luksic is a trustee emeritus at Babson College, and a member
the Harvard Global Advisory Council, the International Advisory Board of the Blavatnik School of
Government at Oxford University, the International Advisory Boards of both the Tsinghua University
School of Economics and Management and the Fudan University School of Management, the
Harvard Business School Latin America Advisory Board, the Dean’s Council at the Harvard
Kennedy School, the Advisory Committee of the David Rockefeller Center at Harvard University,
and the Latin American Executive Board of the MIT Sloan School of Management. Andrónico Luksic
and Jean Paul Luksic are brothers.
Francisco Aristeguieta Silva
Vice Chairman
Mr. Aristeguieta was appointed member and vice chairman of our board in April 2012. He is the
CEO of Citigroup Latin America. Before this role he served as Citi Transaction Services (CTS)
Head for Latin America & Mexico, member of the Banco Nacional de Mexico (Banamex) Executive
Committee, member of the CTS Global Executive Committee, CEO for the Andean region cluster of
countries and Colombia, CEO for Citigroup Venezuela and Ecuador. Mr. Aristeguieta is a member
of the Citigroup Global Executive Committee, member of the board of Citigroup Foundation, the
Association of American Chambers of Commerce of Latin America, the Americas Society and
Council of the Americas. He has been a member of the Young Presidents Organization (YPO)
since 2003. In addition, he served on the board of directors of Junior Achievement Americas
and several other boards including: Banking Association of Ecuador, Colombia and Venezuela;
and American Chambers of Commerce of Ecuador, Colombia and Venezuela, and the Colombian
Council of American Companies. He was also chairman of the board of Colfondos in Colombia.
Mr. Aristeguieta holds an undergraduate degree in business administration with a major in
management and a graduate degree in banking and finance both from Universidad Metropolitana
in Caracas, Venezuela, and an MBA from Brunel University in London.
20
Raúl Anaya Elizalde
Francisco Pérez Mackenna
Director
Director
Jorge Awad Mehech
Thomas Fürst Freiwirth
Director
Alternate Director
Juan Enrique Pino Visinteiner
Rodrigo Manubens Moltedo
Director
Alternate Director
Jorge Ergas Heymann
Hernán Büchi Buc
Director
Advisor to the board
Jaime Estévez Valencia
Francisco Garcés Garrido
Director
Jean Paul Luksic Fontbona
Jacob Ergas Ergas
Director
Gonzalo Menéndez Duque
Director
21
BOARD OF DIRECTORS
DIRECTORS
Raúl Anaya Elizalde
Mr. Anaya has been a member of our board of directors since January 2008. He has
been with Citigroup for 25 years and currently serves as the Latin American CEO for
the Consumer and Commercial Banking Division. Mr. Anaya has previously served
as head of global retail banking and CEO of Citigroup’s Global Consumer Banking
Council. He has also served as CEO of Citigroup Inc.’s businesses in Central America
and the Caribbean, covering corporate, investment and consumer banking. From
December 2005 to July 2008, Mr. Anaya was the CEO of Latin America’s (except
Brazil and Mexico) Consumer Group. Mr. Anaya was named to his position after
serving as Retail Head for Latin America since February 2005. From August 2003
to January 2005, he was Executive Director of Consumer Assets at Banamex in
Mexico and responsible for mortgages, personal loans and car financing. Prior to
this position, Mr. Anaya served as Division Director for the Central Metropolitan Retail
Banking Division at Banamex. From May 1999 to January 2002, he was chairman
and CEO of Banco Bansud S.A. (formerly a subsidiary of Banamex) in Argentina.
Mr. Anaya joined Citibank at Banamex’s New York Agency in October 1987 and
later became General Manager of the Banamex Agency in Los Angeles, Executive
Vice-President of the Corporate Banking and International Division at California
Commerce Bank, General Manager of the Banamex Agency in Houston and General
Manager of the Banamex Agency in New York.
Mr. Estévez has been a member of our board of directors since 2007. Presently, he
is also chairman of the board of directors of Cruzados SADP. Before that, Mr. Estevez
was chairman of the board of directors at Banco del Estado and was a member
of the board of directors of Endesa Chile S.A. He has also served as a director at
AFP Provida and AFP Proteccion, two Chilean private investment pension funds.
He was simultaneously Minister of Public Works and Minister of Transportation and
Telecommunications from January 2005 to March 2006. He was also a congressman
from March 1990 to March 1998 and president of the Lower Chamber of Congress
from March 1995 to November 1996. Mr. Estevez holds a degree in economics from
Universidad de Chile.
Jorge Awad Mehech
Mr. Awad has served on our board since 1996. From 1989 to 1996 he was a
member of the board of Banco de Santiago. Mr. Awad has been president of the
Chilean Association of Banks and Financial Institutions since 2011. He is also a
member of the board of Universidad de Talca and Universidad Católica de Valparaíso
TV and has been president of the Guillermo Subercaseaux Institute of Banking
Studies since 2013. Previously, he was chairman of LAN Airlines S.A. for 18 years
until September 2012. He has also been a director of Codelco, Televisión Nacional de
Chile, Laboratorios Chile, ICARE, and other Chilean companies. He is also a professor
of management and entrepreneurship at the School of Economics at Universidad de
Chile, from where he has a degree in business administration.
Jorge Ergas Heymann
Mr. Ergas was named to our board of directors in March 2011. Formerly, he had
been an advisor to the board of directors since 2007 and from 2002 to 2005.
From 2005 to 2007, he was an alternate director. Currently, he is vice chairman
of Banchile Compania de Seguros de Vida S.A., vice chairman of Orion Seguros
Generales S.A., chairman of the automotive center Movicenter and a director of the
real estate company Inersa S.A., Nido de Aguilas Educational Foundation and Ever
I BAE. He was previously a director of the Plaza San Francisco Hotel, CasaPiedra
Convention Center, Banco HNS and the real estate company Inmobiliaria Paidahue.
22
Jean Paul Luksic Fontbona
Mr. Luksic has been a member of our board of directors since April 2013. Currently,
he is vice chairman of Quiñenco S.A. and Sociedad Matriz SAAM S.A. Mr. Luksic has
been chairman of the board of directors of Antofagasta plc since 2004, after having
served as director for the company since 1990 and deputy chairman since 2000.
Mr. Luksic was the CEO of Antofagasta Minerals until his appointment as chairman of
Antofagasta plc. He is also chairman of the board of Antofagasta Minerals, Ferrocarril
de Antofagasta a Bolivia, and Aguas Antofagasta, as well as chairman of the Mining
Council. Mr. Luksic holds a B.Sc. degree in management and science from the
London School of Economics. Jean Paul Luksic and Andrónico Luksic are brothers.
Mr. Menendez has been a member of our board of directors since 2001. He is also the
chairman of Inversiones Vita S.A., and a member of the board of directors of several
other companies, including Banchile Asesoria Financiera S.A., Banchile Seguros de
Vida S.A., Quiñenco S.A., Compania Sudamericana de Vapores S.A., Sudamericana
Agencias Aereas y Maritimas S.A., Sociedad Matriz SAAM S.A., Antofagasta PLC,
Mining Group Antofagasta Minerals S.A., Antofagasta Railway, Aguas de Antofagasta
S.A., Andsberg Investment Ltd., Andsberg Limited and Inmobiliaria e Inversiones
Rio Claro S.A... He is also vice chairman of Fundacion Andronico Luksic A. and
Fundacion Pascual Baburizza. Previously, Mr. Menendez served as CEO of the
Antofagasta Railway to Bolivia, Banco O’Higgins and Empresas Lucchetti. Since
1990, he has been a director and is now the chairman of the board of directors
of Banco Latinoamericano de Comercio Exterior S.A., Bladex. Mr. Menendez was a
member of the board of directors and the executive committee at Banco Santiago
and a member of the board of directors at Banco de A. Edwards. He has been a
professor of finance, economics and business policy at Universidad de Chile. He
holds a degree in business administration and accounting from Universidad de Chile.
Mr. Perez has been a member of our board since 2001. He has served as CEO of
Quiñenco since 1998. He is currently chairman of the boards of Compania Sud
Americana de Vapores, Enex, Indalum and Madeco Mills, and vice chairman of
Invexans and Madeco. Previously, Mr. Perez was CEO of Compania Cervecerias
Unidas, where he is currently a member of the board. He is also a director of
Embotelladoras Chilenas Unidas, Foods Compania de Alimentos CCU, CCU
Argentina, Cia. Pisquera de Chile, Cervecera CCU Chile, Inversiones y Rentas,
Banchile Corredores de Seguros, LQ Inversiones Financieras, Nexans, SM SAAM,
and SAAM. Mr. Perez is an advisor to the board of Vina San Pedro Tarapaca. Prior
to 1991, Mr. Perez was CEO at Citicorp Chile and vice chairman of Bankers Trust in
Chile. Mr. Perez has a degree in business administration from Universidad Católica
de Chile and an MBA from the University of Chicago.
From 1995 to 1999, he was chairman of Banco Tornquist in Argentina and a member
of the board of directors at Banco Sur in Peru and Banco Asuncion in Paraguay. Mr.
Manubens also served for a ten-year period as a director and chairman of Endesa
Chile S.A. He is chairman of Banchile Compania de Seguros de Vida S.A. and a
director and chairman of the Directors’ Committee of Aguas Andinas S.A., and board
member of the Santiago Stock Exchange. Mr. Manubens holds a degree in business
administration from Universidad Adolfo Ibanez and a master’s degree from the London
School of Economics and Political Science.
ADVISORS TO THE BOARD
Hernán Büchi Buc
Juan Enrique Pino Visinteiner
Mr. Pino was elected as a member of our board of directors in August 2013.
Currently, Mr. Pino is the chief risk officer for Citigroup Latin America, a role that he
has held since January 2010, based in Mexico. He is a member of the Global Risk
Management Executive Committee of Citigroup, and of the Executive Committees
of both Mexico and Latin America. Juan Enrique first joined Citi in 1985, holding
several business and risk management roles since then. He was General Manager
for Citigroup Chile and Citi Accival Corredores de Bolsa in 2008 and part of 2009,
and also director of several companies where Citigroup was a shareholder. Mr. Pino
has a degree in business administration from Universidad Adolfo Ibanez (Chile).
Mr. Buchi has served as an advisor to the board since 2008. In 2007, he was a
member of our board of directors. He is the founder of and an advisor to Instituto
Libertad y Desarrollo and is currently the chairman of the managing council at
Universidad del Desarrollo. He is also a director of several Chilean corporations like
Quiñenco S.A., Consorcio Nacional de Seguros and Falabella S.A. Previously, he held
multiple public positions such as Minister of Finance (1985-1989), Superintendent
of Banks, Minister of Planning and Undersecretary for Health. He holds a degree
in civil mining engineering from Universidad de Chile and a master’s degree from
Columbia University.
Francisco Garcés Garrido
ALTERNATE DIRECTORS
Thomas G. Fürst Freiwirth
Mr. Fürst has been a member of our board of directors since 2004. Previously, Mr.
Fürst was vice chairman of the board of directors at Compania Cervecerias Unidas
S.A. and member of the board of directors of several other companies, including
Embotelladoras Chilenas Unidas S.A., Vina Dassault San Pedro S.A, Southern
Breweries Establishment, CCU Argentina S.A. and Compania Industrial Cerveceria
S.A. (CICSA). Mr. Fürst was founder and member of the board of directors of Parque
Arauco. In addition, he is a partner and member of the board of directors of Plaza
S.A. and Nuevos Desarrollos S.A., the owners of fourteen shopping centers located
in Chile and three under construction, four in Peru and three under construction and
one in Colombia and another three in the project stage. At present, Grupo Plaza is
the second most important chain of malls in South America. Mr. Fürst holds a degree
in civil construction from Pontificia Universidad Católica de Chile.
Mr. Manubens has been a member of our board of directors since 2001. Mr.
Manubens was a member of the board of directors of Banco A. Edwards from 1999 to
2001. From 1985 to 1999, Mr. Manubens was a member of the board of directors of
Banco O’Higgins and retained this position following its merger with Banco Santiago.
Mr. Garces has been an advisor to the board of directors since 2002. He is an
advisor to the vice chairman. He is also an alternate member of the Private Sector
Advisory Council for APEC Leaders, a member of the board of directors of Fundacion
Chilena del Pacifico, the director of the Center for International Economics at Instituto
Libertad y Desarrollo, the chairman of Banchile Corredores de Bolsa, the chairman
of the Asian-Pacific Chamber of Commerce, director of Camara Chileno-India de
Comercio and a member of the Maritime Boundary Advisory Committee of the
Ministry of Foreign Affairs. Prior to this, he was an advisor and member of the board
of directors of Banco O’Higgins and Banco Santiago, a professor at the School of
Economics of Universidad de Chile, Executive Director of the IMF in Washington D.C.,
and International Director of the Chilean Central Bank. He holds a degree in business
administration from Pontificia Universidad Catolica de Chile and has conducted
postgraduate research at the PhD level at Columbia University.
Jacob Ergas Ergas
Mr. Ergas has been an advisor to the board since 2011. From 2002 to 2011, he was
a member of the board of directors. He is also a director at Banchile Administradora
General de Fondos S.A., Chairman of J. Ergas Inversiones y Rentas Limitada, Ever I
BAE S.A., Ever II, Inmobiliaria Paidahue S.A. and INERSA S.A. From 1986 to 2001, he
was a member of the board of directors and vice chairman of Banco de A. Edwards
and a director of the Chilean Association of Banks and Financial Institutions.
23
SENIOR MANAGEMENT
Arturo Tagle Quiroz
Alain Rochette García
Chief Executive Officer since 2010.
Corporate and Investment Banking Division
Manager since 2013.
Formerly, he held diverse positions at Banco de Chile
since 1995 such as Institutional and Investor Relations
Division Manager, Strategic Development Division Manager,
Research and Administration Division Manager and
Controller. Before that, he worked as CEO of the Chilean
Association of Banks and Financial Institutions and as
Research Director for the Superintendency of Banks and
Financial Institutions. Mr. Tagle is currently a member of
the board of directors of Banchile Asesoría Financiera S.A.,
Banchile Securitizadora S.A., Socofin S.A. and a member of
the executive committee of Banchile Corredores de Seguros
Limitada. He holds a degree in business administration from
Pontificia Universidad Católica de Chile and an MBA from the
University of Chicago.
Prior to that, he was advisor to the CEO for the Corporate
and Investment Banking Division and General Coordinator
for the Treasury, Investment and Corporate Divisions.
Before that, his career at Citibank included positions such
as Executive Director of Markets and Treasury for Latin
America based in the U.S., CFO of Citibank Chile and
15 years in diverse regional positions in Japan and the
United States. Mr. Rochette holds a degree in industrial
engineering from Universidad de Chile.
Juan Cooper Alvarez
Andrés Bucher Cepeda
Consumer Banking Division Manager since 2003.
Chief Executive Officer of Banchile Corredores de
Bolsa S.A. since 2012.
Prior to that position, he was the CEO of the consumer
banking division at Banco de Santiago and before that
worked at Altavida insurance company and Santiago
Express. Mr. Cooper is currently a member of the board of
directors of Socofin S.A. and a member of the executive
committee of Banchile Corredores de Seguros Limitada.
He holds a degree in business administration and an MBA
from Pontificia Universidad Católica de Chile.
Jorge Tagle Ovalle
Commercial Banking Division Manager since 2012.
Previously, he was the Deputy CEO of Banco de Chile and
before that held numerous executive positions mainly
within the Luksic Group such as Executive Vice President of
Nexans S.A., Corporate CEO of Alusa S.A., Corporate CFO
of Madeco S.A. and New Product Manager at Quiñenco
S.A. He is currently a member of the board of directors
of Banchile Administradora General de Fondos S.A., a
member of the executive committee of Banchile Corredores
de Seguros Limitada and an advisor to the board of Socofin
S.A. Mr. Tagle holds a degree in industrial engineering from
Pontificia Universidad Católica de Chile and has an MBA
from the Wharton School of the University of Pennsylvania.
Eduardo Ebensperger Orrego
Wholesale, Large Companies and Real Estate
Division Manager since 2005.
Wholesale, Large Companies and Real Estate Division
Manager since 2005.Previously, he was the CEO of
Banchile Factoring S.A. and prior to that held diverse
managerial positions in the commercial areas of Banco
de Chile and Banco de A. Edwards. He is currently the
chairman of the board of directors of Artikos S.A. as well
as a member of the board of Banchile Asesoría Financiera
S.A. and Banchile Securitizadora S.A. Mr. Ebensperger
holds a degree in business administration from Universidad
de Chile.
24
Formerly, he was the Investment Banking and Capital
Markets Division Manager at Banco de Chile and CEO
of Banchile Asesoría Financiera S.A. Before that, he was
Investment Banking Manager at Citigroup Chile, where he
worked for close to 20 years until it merged with Banco de
Chile. Mr. Bucher holds a degree in industrial engineering
from Pontificia Universidad Católica de Chile and has
an MBA from the Wharton School of the University of
Pennsylvania.
Mauricio Baeza Letelier
Corporate Risk Division Manager since 2011.
He was appointed to this position following the merger of
the Companies Credit Risk, Market Risk and Retail Credit
Risk Divisions. Previously, he served as the Companies
Credit Risk and Market Risk Division Manager and before
that in the credit risk divisions at Banco de Chile, Banco de
A. Edwards and Banco Santiago. He is currently an advisor
to the board of Socofin S.A. Mr. Baeza holds a degree in
civil engineering from Pontificia Universidad Católica de
Chile.
Felipe Echaiz Bornemann
Compliance Division Manager since 2008.
Prior to this position, he held numerous positions at
Citibank and Citigroup Chile. In 2003, Mr. Echaiz was
Deputy Director of the Anti-Money Laundering and
Organized Crime Unit of Chile’s Ministry of Public Affairs.
He has a law degree from Universidad Católica de Chile
and a master’s in finance and economics from Universidad
de Chile.
Oscar Mehech Castellón
Álvaro Burrul Cornejo
Controller since 2008.
Products and Services Division Manager.
Prior to this position, he was the Regulatory Policy and
Compliance Division Manager and before that the senior
lawyer for Banco de Chile and Banco de A. Edwards. He is
also the chairman of the audit committee of the Association
of Banks and Financial Institutions. He holds a law degree
from Universidad de Chile and an MBA from Pontificia
Universidad Católica de Chile.
Nelson Rojas Preter
General Counsel and Secretary to the Board since
2004.
Mr. Burrul joined the bank in October 2008. Prior to that, he
worked in the Operations and Technology Division at Banco
de Santiago for 10 years and then in Banco Santander for
16 years within the financial control, commercial, operations
and technology areas. He is currently a member of the board
of directors of Nexus.
Pedro Samhan Escandar
Chief Financial Officer since 2008. Before that, he served as the senior lawyer for Banco de
Chile and as general counsel and secretary to the board of
directors of Banco de A. Edwards. Mr. Rojas is the chairman
of the legal affairs committee of the Association of Banks
and Financial Institutions. He is currently secretary to the
board of directors of Banchile Corredores de Bolsa S.A. Mr.
Rojas holds a law degree from Universidad de Chile.
Before that, he was CFO of Citigroup Chile until it merged
with Banco de Chile. He held numerous positions at Citibank
in Chile and other Central American and Caribbean countries
until 2007, including CEO of Citicorp Chile. He was also a
member of the board of directors of AFP Habitat, Cruz Blanca
Seguros de Vida and Minera Las Luces. He is currently a
member of the board of directors of Banchile Trade Services
Limited. Mr. Samhan holds a degree in industrial engineering
from Universidad de Chile.
Sergio Solari Angelo
Cristián Lagos Contardo
Technology and Systems Division Manager since
2012.
People and Organization Manager since 2012.
Previously, he was Technology and Operations Manager
at Walmart Servicios Financieros, AFP Habitat and Banco
Falabella. Before that, he held diverse positions with Banco
Santander in Chile, Colombia, Peru and Uruguay for nine
years. Mr. Solari holds a degree in industrial engineering
from Pontificia Universidad Católica de Chile.
Before that, he was Corporate Manager of People and
Reputation at Compañía General de Electricidad S.A. Previously, he was the Planning and Human Resources
Division Manager at Banco Sudamericano and, later, at
Scotiabank, following the merger of these banks. Before
that, he was the Corporate Human Resources Manager
at Chilesat S.A., which later merged with Telmex S.A. Mr.
Lagos holds a degree in psychology from Universidad Diego
Portales and completed the management development
program from Universidad de los Andes’ ESE Business
School.
25
CORPORATE
GOVERNANCE PRACTICES
PRINCIPLES
Introduction
Our corporate governance practices are governed through by-laws,
the General Banking Law, the Corporations Law, the Securities
Market Law and the regulations of the Chilean Superintendency of
Banks and Financial Institutions (SBIF) and the Superintendency of
Securities and Insurance (SVS) where applicable.
In order to formalize these practices, the board of directors approved
a document entitled “General Corporate Governance Principles”,
which summarizes and serves as the basis for a set of policies and
procedures that the Bank has approved over time.
Our corporate governance principles aim to improve internal selfregulation mechanisms, ensuring full compliance with current
regulations, creating value for the Bank and all customers,
associates, the community and the market in general, and working
to safeguard adherence to the corporation’s values.
Structure
Our board, consisting of eleven directors and two alternate directors,
is the entity that defines our organization’s strategic guidelines and
plays a key role in corporate governance.
Our complete board of directors is elected every three years. The
last elections took place at the shareholders’ meeting in March
2011. Currently, the board is comprised of six directors chosen by
Quiñenco, three by Citigroup and two independent directors.
The Chief Executive Officer is appointed by the board and holds his
position until the board decides otherwise. According to the law and
our by-laws, ordinary board meetings must be held at least once
a month. In practice, the board meets twice a month, except in
February. Extraordinary meetings may be called by the Chairman of
the board or at the request of one or more directors.
The board delegates certain functions and activities to the directors’
Committees. This allows for in-depth analysis of specific matters and
provides the board with the information necessary to discuss and
debate general policies and guidelines governing our businesses.
26
Main Committees and Meetings of the Board of Directors and
Senior Managment
Management:
Directors’ and Audit
Boards of Subsidiaries
Global Connectivity
Upper Management
Business Area Committees:
Banco CrediChile
Retail Business
Companies
Leasing
Finance, International and Financial Risk
Service Quality
Risk Committees:
Portfolio Risk
Credit Risk
Asset Laundering Prevention
Operational Risk Executive
Internal Modeling Technical Oversight
Other Committees:
Ethics
Disclosure
MANAGEMENT
Directors’ and Audit
The Directors’ and Audit Committee is responsible for examining
external auditor reports, balance sheets and financial statements;
proposing external auditors and risk-rating agencies; examining the
details of related party transactions; and analyzing the remuneration
systems and compensation plans for senior executives. The
committee’s operating budget is approved annually at the Ordinary
Shareholders’ Meeting.
Under Chilean law, the Directors’ and Audit Committee should have
three members, the majority of whom should be independent. The
members of the committee remain in their positions for a maximum
of three years or until the end of the Board’s term, if earlier. As
of December 2013, the Committee members were Jorge Awad
Mehech (chairman and the expert member on financial affairs),
Jaime Estévez Valencia and Juan Enrique Pino Visinteiner.
As stated in the committee’s by-laws, our Chief Executive Officer,
General Counsel and Controller, or their respective replacements,
shall attend the meetings as well. The committee may also invite
certain people to take part in one or more meetings. The committee’s
organization, objectives, responsibilities and the scope of its work
are contained in the by-laws whose amended and complemented
text was approved at a meeting held on July 27, 2005.
The committee’s objectives are to ensure the efficiency, maintenance,
application and functioning of internal control systems; supervise
compliance of standards and procedures governing the banking
business and identify business risks for the Bank and its subsidiaries;
supervise the functions of the Controller’s Office, guaranteeing its
independence from management; supervise the functions of the
Compliance Division, serving as a link and coordinator between
internal and external auditors, as well as between these areas and
the Bank’s Board; and perform the functions and responsibilities set
out in the Corporations Law and SBIF Standards.
The committee held 18 meetings during 2013 and addressed the
following matters, among others:
•Examination of fee proposals from external auditors and riskrating agencies.
•Analysis of reports, content, procedures and scope of reviews by
external auditors and risk-rating agencies.
•Information on and analysis of the annual internal audit program
and the results of internal audits and reviews.
•Analysis of the interim and annual financial statements.
•Analysis of the Bank’s financial statements included in the form
20-F, to be filed with the Securities and Exchange Commission –
SEC (USA).
• Information on accounting changes occurring during the year and
their effects.
•Review of special cases affecting internal control systems.
•Analysis of the remuneration systems and compensation plans
for managers and senior executives.
• Analysis of the 2013 performance self-evaluation process carried
out by the Bank.
• Analysis of related-party transactions as referred to in Title XVI of
the Corporations Law No. 18,046.
•Analysis of operational risk policies and development of riskmanagement and SOX self-assessment processes.
• Information on and analysis of matters related to the Compliance
Division, primarily regarding the revision and application of policies
for detecting and sanctioning money-laundering transactions.
27
CORPORATE GOVERNANCE PRACTICES
•Review of customer claims filed with the SBIF and the Customer
Defense Division of the Chilean Association of Banks and
Financial Institutions.
Banco de Chile – Citigroup Global Connectivity
In order to permanently monitor the strategic alliance initiatives
between Banco de Chile and Citigroup, in addition to the Global
Connectivity Agreement Executive Committee, the following
committees were created: (i) The Global Transactional Services
Committee (GTS); (ii) the International Personal Banking Committee
(IPB); (iii) the Investment Banking Committee; (iv) the Retail Initiatives
Committee and (v) the Financial Control Committee.
The Global Connectivity Agreement Executive, GTS and Investment
Banking Committees meet monthly; the Retail Initiatives and
IPB Committees meets bi-monthly; and the Financial Control
Committee meets quarterly. These committees consist of Pablo
Granifo Lavin, Chairman of the Board; Arturo Tagle Quiroz, CEO;
Francisco Aristeguieta Silva and Raúl Anaya Elizalde (the two
directors appointed by Citigroup). The division managers and/or
the managers of the areas directly responsible for the respective
businesses also participate in meetings of the GTS, IPB, Investment
Banking, Retail Initiatives and Financial Control Committees
The main objective of the GTS Committee is to monitor
the performance of the Transactional Services Area and, in
particular, the functioning of local and international cash
management services as well as custody services for foreign
investors.
(ii) International Personal Banking (IPB)
The primary purpose of the IPB Committee is to monitor services
provided by Banco de Chile to Citibank related to its financial
products and services offered abroad to residents of Chile.
(iii) Investment Banking
The main objective of the Investment Banking Committee
is to promote the development of cross-border merger and
acquisition transactions, debt issuances and acquisitions, and
capital markets transactions for the Bank’s customers and
customers of Citigroup that do business in Chile.
(iv) Iniciativas Retail
The primary purpose of the Retail Initiatives Committee is to
share best practices and business alternatives between both
institutions.
(v) Financial Control
This committee is responsible for monitoring transactions performed
under the Global Connectivity Agreement between Banco de Chile
and Citigroup, and for helping explore investment banking business
opportunities and ensuring compliance of agreements related to
these matters.
The main objective of the Global Connectivity Agreement Executive
Committee is to act as a communication channel and escalation
mechanism between Banco de Chile and Citigroup regarding the
agreements signed between these parties. The objectives of the
four committees mentioned above are:
(i) Global Transactional Services (GTS)
28
The main goal of the Financial Control Committee is to closely
monitor the operating and financial execution of the agreements
signed with Citigroup.
At its monthly meetings, this committee receives a report from
the Chief Financial Officer regarding the income statement for the
strategic alliance.
BUSINESS AREAS
Upper Management
This committee is chaired by the Chief Executive Officer and is the
highest coordinating body of our upper management. It analyzes the
market and the banking industry, discusses our principal strategic
guidelines, resolves issues relating to internal policies and analyses
our performance. In addition, numerous divisions come together to
exchange their points of view and prioritize and coordinate joint
initiatives.
Each year, the Upper Management Committee outlines the
foundations for our annual plan. After the individual annual plan
for each business area is agreed upon by the Chief Executive
Officer and each division manager, under the coordination of the
Chief Financial Officer, the overall plan is submitted to the Board for
approval. This committee reviews plan progress on a monthly basis
and defines corrective actions when necessary.
Banco CrediChile
The objective of this committee is to review consumer banking
activity on a monthly basis. Its specific functions consist of: i)
learning about and evaluating the CrediChile Division based on the
evolution of its loans, monthly sales, results and its main financial
ratios, ii) assessing progress in opening branches, strategies for
addressing new customer segments and the development of
products and support systems, and iii) proposing measures to
strengthen commercial management and maximize earnings.
The members of this committee are: Pablo Granifo Lavín, Chairman
of the Board; Gonzalo Menéndez Duque, Director; Jaime Estévez
Valencia, Director; Jacob Ergas Ergas, Advisor to the Board; Arturo
Tagle Quiroz, CEO; Jorge Tagle Ovalle, Commercial Banking Division
Manager; and Juan Cooper Álvarez, Consumer Banking Division
Manager.
Retail Business
This meeting meets on a monthly basis to review all commercial
initiatives from major competitors and decide how to confront them,
and to review the market shares of the Bank’s diverse products
and services to define the necessary actions to attain growth
levels established in business plans. This meeting is also used to
coordinate and make decisions regarding important matters for the
Bank that involve coordinating divisions, and to present progress
reports on the Bank’s most important commercial and regulatory
projects as well as on new product development.
The participants in this meeting are: Arturo Tagle Quiroz, CEO;
Jorge Tagle Ovalle, Commercial Banking Division Manager; Juan
Cooper Álvarez, Consumer Banking Division Manager; Pedro
Samhan Escandar, CFO; Julio Ramirez Gomez, Marketing and
Product Manager; Hernan Arancibia Sepulveda, Retail Risk Division
Manager; Alvaro Burrull Cornejo, Products and Services Division
Manager; Juan Carlos Alvarez Mateos, Segment Manager; Esteban
Torrent Lopez, Commercial Banking Customer Service Manager; and
Claudio Otto Salinas, Payment Media Manager. Other participants
are incorporated based on the issues addressed.
29
Companies
Finance, International and Financial Risk
The objective of this meeting is to evaluate the commercial
performance of the Corporate Division and the Wholesale, Large
Companies and Real Estate Division with respect to the market; it
also reviews projects and sales campaigns for each of the segments
managed by these divisions. It is also responsible for assessing the
wholesale business from a segment and product-perspective with
special emphasis on revenue, business volumes and identifying
room for growth, generating action plans to maintain the division’s
competitive position.
The main function of the Finance, International and Financial Risk
Committee is to analyze the evolution of our financial positions and
market risks—price and liquidity—both those generated in the
past and those that could potentially arise in the future, particularly
the control of risks related to internal and regulatory limits and/
or warning levels. Knowledge of the current status of market
risks allows us to estimate potential future losses, with a certain
defined level of confidence, in the event of adverse movements in
key market variables (exchange rates, interest rates and options
volatility) or illiquidity.
The members of this meeting are: Arturo Tagle Quiroz, CEO; Alain
Rochette García, Corporate and Investment Banking Division
Manager; Eduardo Ebensperger Orrego, Wholesale, Large
Companies and Real Estate Division Manager; Pedro Samhan
Escandar, CFO; Juan Carlos Cavallini Richani, Corporate Banking
Division Manager; Juan Alberdi Monforte, Wholesale and Large
Companies Commercial Manager; and Gonzalo Campero Peters,
Manager of Companies Marketing, Management and Business
Intelligence.
Leasing
The objective of this committee is to review lease activity within the
Bank on a monthly basis. To accomplish this, it reviews a monthly
management and compliance report that consolidates the Bank’s
diverse commercial divisions. The committee analyzes business
opportunities and identifies the steps necessary to achieve growth
figures from the business plan for the product. This committee also
reviews leasing industry trends and key competitor figures.
The committee is comprised of Pablo Granifo Lavín, Chairman of
the Board; Jorge Ergas Heymann, Director; Arturo Tagle Quiroz,
CEO; Eduardo Ebensperger Orrego, Wholesale, Large Companies
and Real Estate Division Manager; Jorge Tagle Ovalle, Commercial
Banking Division Manager; Maria Soledad Aguad Facusse, Branch
Network Manager; Cristian Peirano Novoa, Companies Product
Manager; and Roberto Anguita Quintero, Lease Area Manager.
30
This committee also reviews the estimated results that these
financial positions generate in isolation in order to measure the riskreturn ratio of the treasury business related to managing financial
positions, as well as changes in the use of capital and estimates of
credit and market risk that we will face in the future. The committee
also analyzes the international financial exposure of its liabilities
and major credit exposures generated by derivative transactions.
It is responsible for designing our policies and procedures for setting
financial position limits and warning levels and for ensuring proper
and timely measurement, control and reporting of these limits and
levels. Policies and procedures are then submitted to our Board of
Directors for approval.
This committee is comprised of: Pablo Granifo Lavín, Chairman of
the Board; Francisco Aristeguieta Silva, Director; Gonzalo Menéndez
Duque; Director; Francisco Pérez Mackenna, Director; Juan Enrique
Pino Visinteiner, Director; Arturo Tagle Quiroz, CEO; Alain Rochette
García, Corporate and Investment Banking Division Manager;
Mauricio Baeza Letelier, Corporate Risk Division Manager; Pedro
Samhan Escandar, CFO; Sergio Karlezi Aboitiz, Treasury Division
Manager; and Gonzalo Jimenez Parada, Financial Risk Area
Manager.
The committee meets once a month. Additional, extraordinary
meetings may be called by the chairman, two directors or the Chief
Executive Officer.
RISK
Service Quality
Credit Risk
This committee meets every two months. Its main objective is
to prepare strategic guidelines for corporate decision making on
customer service issues in all available channels. To accomplish this,
it analyzes key indicators defined to monitor customer perception
at a bank level and for key competitors. It also tracks projects and
initiatives designed to increase the average length of customer
relationships and customer recommendation indices, strengthening
business growth and returns over the long term.
Our corporate governance structure calls for various credit
committees responsible for credit decisions in our diverse
commercial segments based on the type of risk involved.
The committee is led by Pablo Granifo Lavin, Chairman of the
Board and includes Arturo Tagle Quiroz, CEO, Jorge Tagle Ovalle,
Commercial Banking Division Manager; Eduardo Ebensperger
Orrego, Wholesale, Large Companies and Real Estate Division
Manager; Juan Cooper Álvarez, Consumer Banking Division
Manager; the Operations and Technology Division Manager
(currently vacant as of year-end 2013); Esteban Torrent Lopez,
Commercial Banking Customer Service Manager; Julio Ramirez
Gomez, Marketing and Product Manager; and Claudia Hernandez
Soto-Aguilar, Commercial Banking Quality Area Manager. Guest
members include Cristián Lagos Contardo, People and Organization
Division Manager; and Álvaro Burrull Cornejo, Products and Services
Division Manager.
Each credit committee is responsible for defining the terms and
conditions for accepting the counterparty risks considered in the
loan evaluation, and is comprised of individuals with sufficient
authority to make such decisions. The Corporate Risk Division
participates in each committee independently and autonomously
from our business areas.
The highest of these committees is the Board Loan Committee,
which is comprised of Arturo Tagle Quiroz, CEO; Mauricio Baeza
Letelier, Corporate Risk Division Manager and at least three
directors, who review all operations exceeding UF750,000 on a
weekly basis. All Board members may participate in the board Loan
Committee.
Portfolio Risk
The main function of this committee is to monitor changes in the
composition of our loan portfolio from an overall perspective, as
well as by industry, business segment, product, maturity and all
other aspects that provide a broad vision of counterparty risk. This
committee reviews in detail the Bank’s main risk exposure per
economic group, debtor and payment behavior parameters such
as default rates, past-due loan and impairment indicators, chargeoffs and allowances for the loan portfolio for each segment. It also
monitors industry concentration within the framework of the Bank’s
policy on limits per industry sector.
This committee is responsible for approving and proposing
segmented risk management strategies to the Board of Directors.
This includes loan approval policies, portfolio evaluation
methodologies and calculations of allowances to cover expected
losses. The committee is also charged with analyzing the adequacy
of our provisions, authorizing extraordinary loan charge-offs when
recovery efforts have been exhausted, and controlling the liquidation
of assets received in lieu of payment. It also reviews guidelines
and methodologies for developing credit risk models, which are
evaluated by the Internal Modeling Technical Oversight Committee.
31
The Portfolio Risk Committee meets monthly and is comprised of
Pablo Granifo Lavín, Chairman of the Board; Jaime Estévez Valencia,
Director; Gonzalo Menéndez Duque, Director; Arturo Tagle Quiroz,
CEO; Mauricio Baeza Letelier, Corporate Risk Division Manager;
Jorge Tagle Ovalle, Commercial Banking Division Manager; Hernán
Arancibia Sepulveda, Retail Risk Division Manager; and Ruby Rius
Garcia, Risk Architecture Area Manager. Additional, extraordinary
meetings may be called by the chairman, two directors or the Chief
Executive Officer.
annual campaign to update client information. The business and
operational areas participate actively in this task.
Asset Laundering Prevention
•Approving specific initiatives concerning detection systems for
unusual transactions, formal channels for reporting to senior
levels and monitoring, analysis and reporting mechanisms.
We have defined an asset laundering and terrorism financing
prevention policy, approved by the Board of Directors, which details
roles and responsibilities, committee structures and processes to be
used for making decisions, gathering client information, monitoring
transactions and reporting to the Financial Analysis Unit.
Policies and procedures related to the Asset Laundering and
Terrorism Finance Prevention System are intended to prevent the
Bank from being used to legitimize assets from illicit activities and/
or as a vehicle to finance acts of terrorism. From a legal perspective,
this system enables us to maintain strict compliance with current
laws and regulations, promptly reporting suspicious operations
and cash transactions over UF 450 that are detected by diverse
control systems. It also allows us to properly protect our image and
reputation, as well as keep operational, regulatory or legal risks
under control.
This committee’s main objective is to supervise the Bank’s
Asset Laundering and Terrorism Finance Prevention System and
periodically review and approve corporate policies on the matter.
It is also involved in managing potential risks in a timely manner.
In addition, the Compliance Division has focused efforts on
continuously strengthening existing automated monitoring processes
and incorporating new warning scenarios and new transactions. It
has also continued with comprehensive training programs for all
employees. In compliance with regulatory requirements on client
information and with our current policies, this division conducts an
32
The committee meets monthly and its functions involve:
•Approving corporate policies concerning prevention of asset
laundering and terrorism financing, including information
gathering on customers and their activities, and acceptance and
monitoring of their accounts, products and operations.
•Appointing persons to perform specific functions in accordance
with current regulations on the prevention of asset laundering
and terrorism financing.
•Analyzing the results of independent reviews conducted by
both internal auditors and regulatory authorities to identify
opportunities for improvement and verify compliance with current
policies and procedures.
•Approving the training program and being informed of staff
training activities.
•Staying informed of any matter within its scope, whether
regarding customer information processes, customer transaction
monitoring, suspicious transactions reports, cash transactions
reports, regulatory changes, new internal controls, etc.
•Reporting any related regulatory changes to the Board of
Directors.
This committee is comprised of Jorge Awad Mehech, independent
director and chair of this committee; Pablo Granifo Lavín, Chairman
of the Board; Raúl Anaya Elizalde, Director; Arturo Tagle Quiroz,
CEO; Nelson Rojas Preter, General Counsel; the Operations and
Technology Division Manager (currently vacant as of year-end
Internal Modeling Technical Oversight
2013); and Andrés Lagos Vicuña, CEO of Banchile Administradora
General de Fondos. The following individuals attend meetings
and have the right to speak: Oscar Mehech Castellón, Controller;
Felipe Echaiz Bonnemann, Global Compliance Division Manager
and Cristián Rosales Morales, Asset Laundering Prevention and
Terrorism Finance Area Manager.
The main function of this committee is to provide methodological
guidelines for developing, monitoring and documenting the diverse
mathematical models used by the Bank to manage credit risk in
large-scale segments where automated models are used. It ensures
coherence among the models and compliance with minimum required
standards of satisfaction.
Operational Risk Executive
In order to fulfill its mission, the committee reviews model development,
verifies compliance with bank guidelines, defines monitoring standards
and outlines action plans for continuous improvement. All models that
need to be approved by the Portfolio Risk Committee or the Board of
Directors must have prior endorsement from this committee.
The Operational Risk Executive Committee is commissioned with
identifying, prioritizing and establishing strategies to mitigate key
operating risks; ensuring implementation of management models;
establishing risk tolerance and appetite levels; and ensuring
compliance with programs, policies and procedures regarding privacy
and information security, business continuity and operational risk.
This committee consists of Arturo Tagle Quiroz, CEO; Mauricio Baeza
Letelier, Corporate Risk Division Manager; Pedro Samhan Escandar,
CFO; the Operations and Technology Division (currently vacant as of
year-end 2013), Jorge Tagle Ovalle, Commercial Banking Division
Manager; Álvaro Burrul Cornejo, Products and Services Division
Manager and Hugo Baranda Peralta, Operations and Technology
Risk Area Manager. The following individuals attend meetings and
have the right to speak: Oscar Mehech Castellón, Controller; Esteban
Torrent López, Customer Service Manager; Nelson Rojas Preter,
General Counsel and Osvaldo González García, Security Manager.
Risk management also involves the Bank’s directors through quarterly
presentations on such matters to the Directors’ and Audit Committee.
This committee meets monthly and is comprised of Mauricio Baeza
Letelier, Corporate Risk Division Manager; Hernán Arancibia Sepúlveda,
Retail Risk Division Manager; Rolando Arias Sánchez, Research and
Planning Area Manager; Ruby Rius García, Risk Architecture Area
Manager; Roberto Guajardo Jara, Retail Risk Area Manager; and
Guillermo Saez Saez, Information Intelligence Area Manager.
Ethics
The Ethics Committee is responsible for defining, promoting and
regulating professional and personal conduct of excellence by all
associates, in line with our philosophy and values, in response to
the trust our customers place in us.
To comply with these objectives and foster a culture of ethical
behavior, the committee develops a series of activities related to
rules, training and communications. During the year, this committee
approved updates to a series of policies and procedures in light of
new legislation. The committee is also the decision making authority
for different circumstances in which there is a conflict between a
certain conduct and the values promoted by the Bank.
The members of this committee are: Cristián Lagos Contardo,
People and Organization Division Manager; Nelson Rojas Preter,
General Counsel; Oscar Mehech Castellón, CFO; Felipe Echaiz
Bornemann, Global Compliance Division Manager; Jorge Tagle
Ovalle, Commercial Banking Division Manager; Juan Cooper
33
Policies and Procedures
Álvarez, Consumer Banking Division Manager and Eduardo
Ebensperger Orrego, Wholesale, Large Companies and Real Estate
Division Manager.
Disclosure
Established in 2003, the Disclosure Committee is responsible
for ensuring accurate market disclosure of consolidated financial
information for the Bank and our subsidiaries.
This committee is comprised of Pedro Samhan Escandar, CFO;
Hector Hernandez Gonzalez, Chief Accountant; Hector Vallejos
Stockebrand, Senior Lawyer for International Matters; Rolando Arias
Sanchez, Research and Planning Area Manager; Miguel Bozo, Tax
Area Manager; and Oscar Mehech Castellón, Controller (the latter
attends meetings and has the right to speak).
OTHER CORPORATE GOVERNANCE MATTERS
Global Compliance
One of the most important tasks of the Compliance division is
to define internal regulations in conjunction with the General
Counsel’s Office and the business, operations and financial
control and management areas. It is also responsible for ensuring
compliance with regulatory requirements established to prevent
asset laundering and terrorism financing and for implementing and
controlling the policies and procedures defined after the merger
between Banco de Chile and Citibank. This Division, which is
responsible for these matters throughout all areas of the Bank and
all subsidiaries, operates independently and reports directly to the
Directors’ and Audit Committee.
34
The continuous development of the banking industry and the
ongoing creation of new standards impacting it require the Bank to
become a part of these changes and adjust its structure accordingly.
In this sense, Banco de Chile has implemented a series of policies
and control procedures to comply not only with the laws and
regulations governing it, but also to attain the highest standards in
ethics, corporate governance and quality.
In 2013, the Compliance Division spearheaded efforts to implement
and revise policies on personal investments, insider information, the
code of ethics, fiduciary relationships, prohibitions on conditional
credit products, mandatory absence, operational risk, prevention
of dishonest practices and the crime prevention model contained
in Chilean criminal liability law, etc. Both Banco de Chile and its
subsidiaries are certified in accordance with Law 20,393. This
year the Bank was once again certified by an independent entity in
accordance with that law.
DIRECTORS’ EXPENSES AND COMPENSATION
RISK FACTORS
The total amount paid as director remuneration for the year ended
December 31, 2013 amounted to Ch$2.1 billion, as compensation
for their services and attendance at meetings. No provision has
been established for pensions, retirement or other similar benefits
for board members or other senior executives. Chilean law does not
require a Compensation Committee to be formed, but the Directors’
Committee should approve the remuneration and compensation
plans of managers and senior executives. Further details are
provided in Note 38 to our financial statements as of December
31, 2013.
The risks and uncertainties described below are not the only
factors that can affect the shareholders, bondholders or depositors
of Banco de Chile. Additional risks and uncertainties that we do
not know about or that we currently think are immaterial may also
adversely impact our debt and equity instruments.
Our growth and profitability depend on the level of economic activity in
Chile.
Our ability to increase our business volumes and results of operations,
as well as enhance our financial condition depends significantly on
the level of economic activity in Chile. The global financial crisis
that impacted the Chilean economy in 2009 also affected the local
banking industry due to deteriorated credit quality in loan portfolios.
In contrast, the local economy experienced a significant upturn
beginning in 2010, which led to a general improvement in the
banking industry’s credit risk indicators. Nevertheless, we cannot
assure that the Chilean economy will continue to grow in the future
or that developments in the Chilean economy will not materially
and adversely affect our business, financial condition or results of
operations.
35
Increased competition and industry consolidation may adversely affect
our operations.
Inflation, interest rate and exchange rate risk at Banco de Chile.
The Chilean market for financial services is highly competitive.
We compete with other Chilean and foreign banks; with Banco del
Estado de Chile, a government-owned bank; with large department
stores; with private compensation funds, and with savings and
credit cooperatives.
Banco de Chile grants diverse types of loans, including longterm loans (mortgage, general-purpose and commercial loans)
and short or medium-term loans (consumer loans, working capital
loans, special-purpose lines of credit and commercial loans). These
loans can be granted at fixed or variable interest rates and can be
denominated in different currencies.
In addition, we face competition from other types of competitors,
such as leasing, factoring and automobile financing companies
(especially in consumer loan products), as well as mutual funds,
pension funds and insurance companies, within the market for
savings products and mortgage loans.
Increasing competition within the Chilean banking industry has
been accompanied by a consolidation trend in the industry in recent
years. We expect that both of these trends will continue, which
could adversely affect us.
The Bank’s liabilities are also diverse in nature. They may be long,
medium or short-term, at fixed or variable rates, and in different
currencies. A large portion of our liabilities, mainly those generated
through deposits, can be withdrawn on demand.
Banco de Chile has a risk management policy for maintaining
interest rate and currency positions. The Bank’s market risk
management area establishes policies while another control area
continuously monitors the evolution of these positions and the gains
and losses they generate. These policies set limits for different
market factors, which must be at least equal to limits established
in banking regulations from the SBIF and the Chilean Central Bank.
Inflation, interest rates and exchange rates are highly sensitive to
diverse factors beyond our control, including the Central Bank’s
monetary policy, deregulation of the Chilean financial system, local
and international economic conditions, political conditions and other
factors. Shifts in market factors that are unexpected or differ from
expectations can have a material adverse effect on our operations,
including our financial condition and results of operations.
36
Liquidity risk may affect Banco de Chile’s ability to finance its operations
and negatively affect its financial condition.
Dependence on technology and systems.
Immediate access to diverse funding sources is essential in
any banking business, including at Banco de Chile. The normal
functioning of any bank depends on continuous access to financial
markets in order to obtain short and long-term funding. The inability
to opportunely access funds needed for the institution’s normal
operations places it at risk of defaulting on its obligations.
The Bank’s business is highly dependent on information systems
to correctly and reliably process a large number of transactions
each day in diverse markets and product segments both quickly
and efficiently. The proper functioning of diverse systems such
as management control, risk management, accounting, customer
service and other processes and systems is critical to the Bank’s
business. Banco de Chile has back-up systems for its main systems
that can be used in the event of a catastrophe or failures in primary
systems. It has also established alternate communication networks.
However, the Bank does not operate all systems simultaneously in
real time. Business activities may be interrupted in the event of
failure of primary systems or communication networks.
Access to capital markets also forms an integral part of the Bank’s
liquidity strategy. The Chilean banking industry must comply with
regulations regarding the liquidity levels that each institution
maintains. Banco de Chile’s ability to access funds may be affected
by factors that are not specific to its operations, such as general
market conditions, drastic interruptions in financial markets or
adverse financial impacts.
The Bank’s ability to maintain its competitiveness and achieve
greater growth depends in part on constantly updating technology
and systems.
Changes or amendments to banking regulations may restrict our
operations and thereby adversely affect our financial condition and results
of operations.
We are subject to regulation by the Superintendency of Banks (SBIF).
In addition, we are subject to regulation by the Chilean Central Bank
with respect to certain matters, including interest rates and foreign
exchange transactions.
Recently, regulators have issued several standards that affect fees
and limit maximum interest rates that can be charged for financial
transactions. There can be no assurance that regulators will not
impose more restrictive limitations in the future on the activities of
banks. Any such change could have a material adverse effect on us.
37
03
STRATEGY
Purpose, Mission And Vision
Strategic Pillars
PURPOSE, MISSION AND VISION
OUR PURPOSE
Our corporation contributes to the development of the
country. Our purpose is to create conditions where
both people and companies can grow, providing them
with adequate solutions tailored to each stage in their
development process.
40
Strategy
OUR MISSION
We are a leading, globally-connected financial corporation with
a prestigious business tradition. We provide financial services of
excellence to each customer segment, offering creative, flexible
and effective solutions and thus ensuring value creation for our
customers, shareholders and employees as well as the community
at large.
OUR VISION
In everything we do, we constantly seek to be the best bank for
our customers, the best place to work, and the best investment
for our shareholders. We do so in a way that demonstrates our
commitment to the people in our organization and the community
in general.
41
STRATEGY
BANCO DE CHILE HAS MADE A COMMITMENT TO
OUR
CUSTOMERS
OUR
EMPLOYEES
OUR
COMMUNITY
OUR
SHAREHOLDERS
42
Strategy
Offer suitable, innovative products and services
Provide excellent service with personalized, proactive attention
Make customer service channels available at all times
Cultivate relationships built on trust in order to become their main bank
Offer merit-based opportunities for growth
Encourage a respectful and cordial work environment
Offer competitive compensation and benefits
Provide technological tools and appropriate infrastructure
Work to overcome adversity
Strengthen the quality of education in Chile
Finance entrepreneurship at all stages
Care for the environment and support supplier development
Lead the industry in profits and returns
Be the frontrunner in business volumes
Promote operating efficiency and productivity
Conservatively manage risk
STRATEGY
Our business model is focused on business initiatives that generate significant
economic value for shareholders, have appropriate risk levels and enable us to build
long-term relationships with customers, based on segmented value propositions.
LEAD THE
RETAIL SEGMENT
LEAD THE
WHOLESALE
SEGMENT
In order to concentrate our efforts and accomplish our medium and long-term goals,
we have identified six strategic focal points that we use as guidelines for the initiatives
we undertake: During the year, we added two new focal points - ”Reputation” and
“People and Organization of Excellence” - in order to better represent our corporate
values.
OPERATIONAL
EXCELLENCE
MAXIMIZE
SERVICE
QUALITY
ALIGN PEOPLE / CULTURE / STRATEGY
SOCIAL REPUTATION
Strategy
43
STRATEGY
LEAD THE RETAIL SEGMENT
LEAD THE WHOLESALE SEGMENT
Our institution is known for profitability ratios that surpass industry
averages and key competitors. This achievement is the result of
commercial policies focused on segments with large growth
potential and limited risk, appropriately combining our commercial
goals with a suitable risk-return ratio.
In the Wholesale Banking Segment, our efforts are focused on
maintaining our long-standing leading position in loans while
improving returns in this segment, which is characterized for having
tight margins. To accomplish this, we will concentrate on expanding
cross sales of non-loan products and services, specifically cash
management, investment banking and on-line services. We also aim
to provide better coverage for new niche markets in the Companies
Segment by increasing penetration of treasury products, improving
our presence in leasing and factoring and promoting international
deals by taking advantage of our strategic alliance with Citigroup.
Our objective in the Retail Banking Segment is to grow by
continuously developing and improving a global offering of products
and services that provide considerable added value to the customer,
which includes innovative service models tailored to each segment.
We also believe it is important to expand the use of business
intelligence tools to broaden our customer base and increase the
productivity of our customer contact channels. As a result, we will
focus on increasing consumer loan volumes, expanding payroll
service arrangements with companies in order to increase payroll
deduction loans and payroll advances, growing in SME loans and
reinforcing the offering of credit products that build long-term
relationships, such as payment media and retail mortgage loans.
OPERATIONAL EXCELLENCE
Our efforts here are focused on attaining high levels of productivity
and controlling expenses, while strengthening these values within
our organizational culture. We believe that a low-cost structure will
have a growing impact on our ability to improve profitability, even
more so in an increasingly competitive business environment with
tighter regulatory requirements.
In order to meet this goal, we have made progress on important
technological developments, identified more synergies throughout
our extensive branch network, simplified business processes and
created safe, modern platforms to improve response times and
boost productivity.
The Bank has made continuous headway on this strategic pillar in
recent years, and intends to continue improving by enhancing the
use of technology as well as developing quicker and more flexible
processes with an ongoing focus on customer satisfaction.
44
Strategy
MAXIMIZE SERVICE QUALITY
ALIGNING PEOPLE / CULTURE / STRATEGY
Service quality is our main commitment to our customers. It is the
main reason that allows us to sustain our business in the long term,
strengthen the loyalty of our current customers and be the most
recognized brand in the domestic banking industry. As a result, we
are committed to continuously improving the customer experience
in using our products, services and customer service channels. This
vision has brought about concrete initiatives intended to directly or
indirectly impact customer satisfaction, such as important advances
in technology and the availability of remote channels, faster loan
approval processes and response times and additional, bettertrained call center and sales staff.
We are certain that human capital is both our main asset and a
key differentiating element for the Bank to achieve its objectives.
Thus, in order to consolidate our leadership across all focal points,
we believe it is essential to have motivated, highly qualified team
members with deeply ethical conduct who are aligned with our
corporate values and goals. As a result, we seek to promote a
distinctive culture within our team characterized by elements such
as a clear customer focus, trust and responsibility, leadership and
empowerment, collaboration, team work, innovation and ongoing
improvement.
SOCIAL REPUTATION
This strategic focal point arose as a direct result of the profound
changes in our society in recent years that have caused companies
to look for different ways to relate more closely and more positively
with the community in which they do business.
Throughout our history, we have always supported the country’s
development not only in our role as a bank financing the projects
and endeavors of people and companies, but also through longterm commitments with important foundations addressing issues
such as social reintegration, environmental protection, quality
education, poverty and culture. The challenge that we have set for
ourselves through this new focal point is to actively and consistently
manage the Bank’s corporate reputation, strengthening its ties with
Chile and the country’s economic and social issues.
Strategy
45
04
CORPORATE SOCIAL RESPONSIBILITY
Customers
Associates
Community
Shareholders
INTRODUCTION
We recognize that carrying Chile’s name comes with a responsibility
to the country. That is why Banco de Chile seeks to contribute to
Chile’s development and progress for the benefit of all Chileans.
We aim to provide our customers with service characterized by
integrity in order to build long-term relationships built on trust. We
strive to supply customers with pertinent, timely information; offer
differentiated financial solutions; and provide customer service based
on communication and flexible responses.
Our employees are top-level professionals with a deep sense of
ethics and responsibility for their work. We provide them with better
working conditions as well as opportunities for holistic growth and
development.
48
Corporate Social Responsibility
Banco de Chile wants to share the fruits of our success with the
community and continue contributing to the progress of the country
and its people through projects that help shape a society with more
opportunities for quality education, entrepreneurship and inclusion of
disabled individuals. We will achieve our objective through employee
commitment, aided by expert advice and the efficient communication
of our Community Relations Programs.
For our shareholders, we are committed to maximizing the Company’s
long-term value through management based on integrity, transparent
decision-making processes and sustainable growth.
COMMITTED TO A BETTER CHILE
FOR OUR CUSTOMERS
I. CUSTOMERS
In 2013, we worked hard to increase levels of customer satisfaction,
preference and loyalty. Initiatives were implemented within the framework
of the organization’s strategic business and value definitions, where
transparency and trust are fundamental.
2013 Achievements
Pertaining to service quality, all the Bank’s areas and subsidiaries
coordinated efforts to intensify monitoring of operating indicators
that impact quality. Indicators related to stability and availability of
web services, ATMs and mobile banking were monitored in order to
identify necessary improvements in various areas. Additionally, as part
of the effort to fortify a culture of quality, Banco de Chile launched a
major campaign called Our Heart, Our Customers (“Nuestro Corazón,
Nuestros Clientes”) to reinforce everyday employee behaviors that
contribute to greater customer satisfaction. The campaign focused
on four key behaviors: fulfilling commitments responsibly within
realistic, competitive timeframes; responding appropriately and on
time in all processes; providing clear, precise information to encourage
transparency and trust; and finally, getting to know colleagues and
customers in order to understand their needs.
To complement the campaign, significant efforts were made at the
team leader level to include a high level of involvement in customer
requests and complaints in the organization’s distinctive leadership style.
In keeping with the values of trust and transparency, particular
emphasis was placed on sales and post-sale processes for products
and services. A special work flow was designed to keep the customer’s
perspective at the core of all verbal and written communication while
at the same time ensuring regulatory compliance. As a result, the
process for responding to queries, problems and complaints was
improved. Now, executives are responsible for providing comprehensive
solutions to each customer’s problems.
49
COMMITTED TO A BETTER CHILE FOR OUR CUSTOMERS
These and other initiatives resulted in significant and substantial
progress. The Net Promoter Score, a loyalty indicator that is widely
used at the international level, rose more than 7 points relative to
year-end 2012, placing Banco de Chile at the forefront among banks
with loan market share above 10%.
The second distinction was The Best Customer Experience for
a Chilean Bank for the last quarter of 2013, granted by IZO,
a Spanish consulting firm specializing in measuring customer
experience.
RECOMMENDATIONS (%)
68.4
64.9
62.3
61.9
1Q.2013
2Q.2013
58.6
4Q.2012
3Q.2013
4Q.2013
Evolución recomendación Banco
The Bank was also honored with two important industry-level
distinctions. The first was the Consumer Loyalty Award for the banking
category, given by Diario Estrategia newspaper and Consultora Alco, a
company specializing in consulting, research and training on customer
experience and net promoter score methodology.
50
In telephone banking, ratings for contactability and problem-solving
improved by more than 10%. In customer satisfaction surveys on
Internet use and telephone banking, ratings rose by 17% and 10%,
respectively. Satisfaction with in-branch customer service by account
executives, cashiers and the service desk continued to lead the industry.
CUSTOMER SATISFACTION, ALL CHANNELS (%)
88.6
84.4
85.6
84.8
78.0
78.3
77.8
74.9
73.7
76.4
65.4
63.5
55.1
4Q.2012
Service
Desk
90.7
81.1
79.8
77.6
69.0
79.1
65.8
67.5
73.0
61.3
Fostering a service quality-oriented culture also facilitated improved
processing and resolution of customer complaints filed with the
main regulatory bodies. The National Consumer Protection Agency
(SERNAC) complaint rate dropped significantly in the first half of the
year, from 4.0 to 3.3 complaints per 10,000 customers, relative to
the same period in the year prior. Likewise, the SBIF complaint rate
dropped from 3.9 to 2.3, when comparing the second quarters of
each year.
51.5
1Q.2013
Cashiers
2Q.2013
Account
Executives
3Q.2013
Internet
4Q.2013
Telephone
Banking
SERNAC AND SBIF COMPLAINT RATES
(Number per 10,000 Customers)
4.0
3.9
3.3
2.3
1Q 2012
SERNAC
1Q 2013
2Q 2012
2Q 2013
SBIF
In order to consolidate the progress made in 2013 and achieve
leading customer experience standards, the Bank undertook a
challenging company-wide project for 2014. During the first half of
the year, we will work on design and diagnostics of the customer
experience; customers and employees will play a leading role. In
the second half of the year, we will begin implementing a series
of concrete, corrective and preventative measures rooted in the
findings from the initial diagnostic phase. These measures will be
designed to build a solid foundation on which to establish a leading
position that is conducive to sustaining the Bank’s success.
We will continue to constantly innovate and improve our models,
processes and skills. We are committed to achieving the excellent
service standards that our customers deserve and which they repay
with their loyalty and appreciation.
51
FOR OUR ASSOCIATES
II. ASSOCIATES
Development and Training
The year 2013 was one of deep reflection on our organization’s
purpose and mission. As part of this process, we have renewed
our commitment to our employees. The values of excellence, trust,
respect and loyalty are fundamental to Banco de Chile’s human
resource management.
This year, we focused intently on reinforcing and developing our
employees’ skills. More than 10,300 associates participated in
training. Of the total training hours logged, 44% were “e-learning”
courses while 56% were classroom based. These training initiatives
reached 94% of Banco de Chile employees.
Aligning Corporate Culture and Strategy
Highlights include the training provided to more than a thousand
senior employees from all business segments, including managers,
department heads and supervisors. The program taught and
developed practices, skills and tools to help these leaders drive
their respective teams toward the organization’s different objectives.
Seventy four percent of the organization’s management participated
in the program, which involved more than 18,000 training hours.
The program was conducted in strategic partnership with important
academic institutions, including Universidad de los Andes,
Universidad de Chile and prestigious consultants specializing in the
field.
At Banco de Chile, it is essential that we work together to create a
work environment that continuously fosters a culture of excellence,
respect, meritocracy and pride in belonging to the organization.
Based on that conviction, the People and Organization Division took
on the ambitious project of defining the identity and purpose of
each of the Bank’s support divisions, explicitly outlining each area’s
value proposals. The results of this process were distributed and
met with great acceptance by the Bank’s employees and leadership.
The project strengthened the values of belonging and firmly aligned
each team’s behaviors and objectives with the organization’s
mission and strategic objectives.
Along the same vein, a new methodology for managing the
bank’s organizational structure was adopted. The Planning and
Organizational Management Department was created to: bring
the institution into alignment with the strategic focuses of each
business, manage resources more efficiently and emphasize
employee professional development.
As of December 2013, the Bank had 14,723 employees, 11,023 of
whom work for the Bank itself while 3,700 work for its subsidiaries.
Average tenure is nine years and 50% of the employees are women.
52
In addition to the programs listed above, Banco de Chile carried
out initiatives to attract and train young professionals for strategic
positions. The Bank’s division and area managers actively
participated in the various events that were organized to identify
new talent. Managers shared workforce development experiences
and gave presentations on the tasks of each area. To date, 99 job
candidates have been interviewed, 30 of which are in the final stage
of the recruitment process. The individuals selected will take part in
a program that includes an induction process and training rotations
through several business units.
Communication is Always Best
In 2013, internal communication was crucial to developing and
consolidating corporate culture; optimizing the timeliness and
means of communication; and reinforcing strategic alignment
through timely, clear and accurate new messages and channels.
The most noteworthy communication initiatives were the Our Heart,
Our Customers campaign and the Banco de Chile National Team
(“Selección del Chile”), an opportunity for managers to recognize
the member of their team that most embodies corporate conduct
and values.
In addition, the intranet channel and internal magazine (“Contacto”)
were updated and leveraged as simple, effective tools for informing
and promoting our identity.
Quality of Life and Health
In keeping with its commitment to employee well-being, the Bank
offers a range of benefits and programs that promote physical
and psychological health as well as support in several areas of
recreation and overall well-being.
Health initiatives were boosted in 2013, including expansion of the
comprehensive health insurance (“Seguro Integral”). The impact
and tremendous financial support provided by this coverage
makes it one of the most-valued employee benefits. It covers an
average universe of 24,000 beneficiaries (policy holders and legal
dependents, spouse and children), who were reimbursed for more
than 370,000 services this year.
The Bank also continued its flu shot campaign and preventative
health screenings for women and employees over 30, all of which
have high participation rates and are highly valued. Likewise, the
Bank’s counseling program (“Programa Orienta”), which provides
psychological, social, legal and retirement guidance by external
practitioners, is widely used and has provided more than 3,800
counseling sessions. One highlight among the counseling program’s
activities was the I Vote for Me (“Yo Voto Por Mi”) campaign, which
focused on identifying personal strengths and resources as well as
the importance of those elements in building positive interpersonal
relationships. A total of 23 regional offices and more than 400
employees participated.
Finally, the already consolidated ActiveChile (“Chileactivo”) program
offered various sports, cultural and recreational initiatives for
employees and their families. More than 2,000 people participated
in the activities offered outside of Santiago. Within Santiago,
large numbers of employees and their families participate in the
organization’s 13 sports leagues, 7 children’s training camps and
cultural workshops.
The results of the annual Work Climate Survey reflected the
effort and success of these and other People and Organization
Division initiatives. The survey assessed three main dimensions:
organizational structure, career development potential and
interpersonal relationships. The 2013 overall rating of 84% was
noteworthy.
53
FOR THE COMMUNITY
III. COMMUNITY
Our contribution and commitment to the community is embodied
in projects that provide more opportunities, with a particular
focus on: quality education, entrepreneurship, and integration and
development of individuals with different abilities. The organization
and all of its employees are constantly committed to building a
more inclusive, compassionate society.
Desafío Levantemos Chile and Banco de Chile Build a Better Chile Together
Banco de Chile and Desafío Levantemos Chile work hand in hand
in a partnership through which the Bank funds a portion of the
foundation’s operations. This support allows Desafío Levantemos
Chile to focus its energy on helping those who need it most and use
all donations to finance charitable projects. Since the partnership
began in 2012, more than 120,000 Chileans from Arica to Puerto
Williams have benefited in various areas, such as: entrepreneurship,
health, education, culture, sports, emergency response and
volunteering.
The foundation made an especially noteworthy contribution to
entrepreneurship, specifically low-income micro-entrepreneurs,
with the inauguration of Felipe Cubillos Sigall Entrepreneurship
Schools in Estación Central (2012) and Valdivia (2013). These
schools help entrepreneurs better plan their business ventures with
training on subjects such as: management, finance, legal issues
and marketing. To date, more than 500 micro-entrepreneurs have
attended the schools. Likewise, the 50 Challenges for Chile (“50
Desafíos para Chile”) program, sponsored by Banco de Chile and
Desafío Levantemos Chile, issued an open invitation to submit
community development proposals. More than 1,000 proposals
54
were submitted and 50 were chosen, benefiting more than 58,000
Chileans throughout the country.
COMMITTED TO A CHILE THAT OVERCOMES ADVERSITY
Teletón Foundation: A Year of Art and Sports
As for the organization’s commitment to disabled persons, Banco
de Chile continues to support the work of the Teletón Foundation
(“Fundación Teletón”) in its 11 centers throughout the country,
which serve more than 30,000 disabled children and youth each
year. This year, Teletón and Banco de Chile joined forces to organize
the First Inclusive Art Biennale, an innovative project that seeks to
draw attention to the talent and abilities of individuals regardless of
their physical condition. The initiative included a selection of artwork
by Teletón artists and established Chilean artists, displaying the
pieces together, creating a first-of-its-kind exhibit on the Chilean
art-culture circuit.
Similarly, 2013 marked 16 years of uninterrupted support and
promotion of wheelchair tennis. This year, more than 50 disabled
tennis players from Chile and abroad participated. Macarena
Cabillana, a professional tennis player, has logged considerable
accomplishments since our Bank began sponsoring her in 2011.
She went from 135th in the women’s world ranking to 25th at the
end of 2013. Currently ranked second in Chile, she has certainly
made a tremendous contribution to Chilean sports and is an
example of effort, perseverance and overcoming hardship.
Quality Education Available to Everyone
Banco de Chile has been working with and contributing to the
Astoreca Foundation (“Fundación Astoreca”) since 2004. The
Astoreca Foundation provides quality education to underprivileged
children and youth through its schools: San Joaquín de Renca
and San José de Lampa. When it opens in March 2014, a new
school—Colegio San Juan—will serve nearly 1,200 children.
With this new establishment, the three schools will provide an
exceptional education to approximately 3,000 children and youth
from vulnerable sectors of society.
Furthermore, as a way of rewarding effort, Banco CrediChile
awarded the Academic Excellence Award (“Premio de Excelencia
Académica”) for the fourth consecutive year. In 2013, seven
students from the San José de Lampa school were recognized,
awarded academic scholarships and a savings account. All of this
took place during the Banco CrediChile annual Christmas drive
(“Navidad con Sentido”). Thanks to the solidarity shown by division
employees, nearly 900 students from the schools enjoyed a day of
joy and fun, including presents.
In 2012, San Joaquín de Renca and San José de Lampa achieved
standardized test (SIMCE) scores far above municipality averages
as well as national averages for public and subsidized schools. In
fact, the schools’ 2012 scores approximated the average scores
earned at private schools.
Banco de Chile PSU Scholarship
The Astoreca Foundation supports the Educating Together
(“Educando Juntos”) web site initiative, which publishes success
stories of underprivileged primary and secondary schools that
have attained outstanding results. The site makes the stories and
their best practices available at no cost to schools throughout the
country.
Another initiative, Astoreca Training (“Astoreca Capacitaciones”),
provides teaching faculty with training on first-rate educational
methods. Each year, an average of 600 teachers throughout the
country receives training and 270 classrooms receive additional
support in the form of monitoring implementation of those
techniques.
To reward effort and academic excellence among the country’s
youth, Banco de Chile has, for the last 21 years, awarded the PSU
Scholarship to the student who earns the nation’s best average
score (language and mathematics) on the university entrance exam
(PSU). This scholarship covers full tuition and fees for the duration
of the student’s chosen degree program, as well as a monthly
allowance for other expenses.
In 2013, scholarship recipient José González Pincheira obtained the
highest possible scores on the mathematics, language and science
tests. The Instituto Nacional alumnus graduated with a GPA of 6.77
(on a 7.0-point scale).
The eight current Banco de Chile scholarship recipients are pursuing
degrees in medicine, civil engineering, business administration and
law at Pontificia Universidad Católica de Chile and Universidad de
Chile.
55
COMMITTED TO A BETTER CHILE FOR THE COMUNITY
Bridging the Digital Divide
Supporting the Most Vulnerable
In an effort to provide opportunities for low-income communities
to access technology and new ways of communicating, Banco
de Chile donated nearly 3,500 computers and more than 3,700
computing accessories to Fundación Chilenter, an institution
dedicated to bridging the digital divide and fomenting electronic
recycling in Chile.
For the past 18 years, Banchile Inversiones has supported the
Young Christ Educational and Charity Organization (“Corporación
Educacional y de Beneficencia Cristo Joven”), a leader among
Chilean non-profit organizations, which focuses on prevention and
protection of socially at-risk children. The foundation currently has
nine centers and preschools in the municipalities of Peñalolén, La
Cisterna, La Pintana, and Quilicura, where it cares for more than
1,500 low-income children and youth. It also offers nurseries,
preschools, after school care, educational reinsertion, as well as
preventative programs and psychosocial support for families.
International Commitment
Each year, 17 students and two professors from the Universidad
Católica MBA program travel to China to learn about Chinese
culture and business as part of the Conducting Business in Chile/
China program. The Banco de Chile-supported initiative, which has
been underway for seven years, also allows 17 students and three
professors from the MBA program at the School of Economics and
Management at the University of Tsinghua in Beijing to visit Chile.
In total, 240 students have participated in the exchange program.
56
Similarly, Banco de Chile and its employees make annual donations
through Hogar de Cristo’s corporate matching program. The
contributions total 46% of the annual national budget for the Hogar
de Cristo senior citizen centers (“CEAM”). The centers offer shelter to
individuals in extreme poverty, providing meals and giving them the
opportunity to participate in workshops and activities that reinforce
autonomy. The Bank’s subsidiary, Socofin and its employees, also
donate monthly funding for a Hogar de Cristo women’s shelter in
Santiago.
2013 National Encounter of Youth Orchestras
Energy Efficiency and Recycling
With the support of Banco de Chile, CCU and Antofagasta Minerals,
the 2013 National Encounter of Youth Orchestras was held in the city
of Antofagasta. More than 1,200 young people and 16 orchestras
from the Chilean Foundation of Youth and Children’s Orchestras
(“Fundación de Orquestas Juveniles e Infantiles de Chile”) came
together for a variety of musical activities, culminating in a grand
concert in the ruins of Huanchaca.
In 2013, Banco de Chile implemented various initiatives aimed
at reducing its environmental impact and fostering a culture of
environmental awareness. This year, Banco de Chile recycled 145
tons of paper and reduced its energy consumption by more than
three million kWh.
The foundation aims to support the country’s social, cultural and
educational development through participation in orchestras.
It aims to bring music to everyone and to develop the values of
perseverance, solidarity and commitment in its participants.
One of the highlights of the environmental initiatives was Banco
CrediChile’s campaign to collect one million cans at branches
throughout the country. During the campaign, which attracted strong
support, Banco CrediChile employees gave talks on recycling and its
environmental benefits at participating educational institutions. The
campaign culminated in the donation of 300 recycling containers to
participating institutions.
Banco de Chile Supports Women who Make a Difference
In recent decades, we have witnessed a sustained increase in
the number of women holding key positions in several areas of
life, whether economic, social, political or cultural. Women are
experiencing increased autonomy and becoming protagonists in
the new Chilean society that is taking shape.
In Chile, there is a high rate of female heads of household whose
earnings are their family’s primary source of income, making them
financially responsible for others.
Women also play a fundamental role at Banco de Chile, comprising
50% of the workforce.
That is why we have supported the first-ever Women’s Impact Award
(“Mujer Impacta”). The award was bestowed upon five women
throughout Chile who have produced changes in their families,
workplace or home, improving society and their surroundings.
57
FOR OUR SHAREHOLDERS
IV. SHAREHOLDERS
Banco de Chile is constantly committed to creating value for our
shareholders. We understand that conduct through action is the way
to achieve our corporate purpose and mission. The transparency,
timeliness and veracity of the information presented to the financial
community have built trust on a day-to-day basis and have earned
the Bank a distinguished reputation on the market and amongst our
shareholders.
BANCO DE CHILE’S SHARE PRICE VS. IPSA INDEX
(Base 100)
110
105
100
95
90
Banco de Chile: The Financial Institution with the Highest Market Cap in
85
80
Chile
Dec.12
As a result of consistent strategy, successful commercial and
financial management, and conservative risk policies, Banco de
Chile stock performed exceptionally in 2013. As of year-end, Banco
de Chile’s share price on the Santiago Stock Exchange was Ch$
76.3, giving a market capitalization as of that date of approximately
US$ 13.5 billion and making Banco de Chile the most wellcapitalized financial institution in the country. Despite complex
international conditions and poor local market performance in 2013,
the share price increased by 5.2%, adjusted for capital events, over
the closing value in 2012. This figure compares favorably with the
IPSA, which decreased by 14.0% during the same period.
Banco de Chile
Jun.13
Sep.13
Dec.13
IPSA
Nominal Values (unadjusted)
Share
($)
ADS
(US$)
Closing value 2012
77.39
96.50
Closing value 2013
76.30
87.80
High for the year 2013
80.31
102.00
Low for the year 2013
69.01
81.00
Source: Bloomberg
58
Mar.13
Banco de Chile: Bank with Best Credit Rating in Latin America
(Long-term International Risk Rating)
In reflection of the Bank’s performance, Banco de Chile has
positioned itself as the private bank with the best risk rating in
Latin America, earning an ‘A+’ rating from international risk rating
agency Standard & Poor’s. This achievement is the result of a solid
market position, outstanding performance in risk matters, stable
returns and adequate capitalization and liquidity.
Banco de Chile: Solid Capital Base and Increased International Visibility
Banco de Chile began a new capital increase process in late 2012,
issuing 3,939,489,442 new shares, the equivalent of 4.28% of
shares after placement. The process finalized on March 25, 2013,
with a public auction of the unsubscribed shares from the two
preferential offer periods, increasing the Bank’s capital by Ch$
250,000 million. The main objectives of this share issuance were:
(i) to take advantage of positive projections for the economy and
the industry, (ii) to sustain the Bank’s medium-term growth, (iii) to
strengthen its capital base and (iv) to increase the share’s free-float
in order to increase its depth in financial markets and make it more
attractive to local and international investors.
In this context and as a reflection of the commitment of our main
shareholders, the controlling shareholders refrained from exercising
their preferential rights in this process, in favor of increasing freefloat. These initiatives, along with participation in various Chilean
and international conferences, non-deal road shows in Europe and
numerous individual meetings with investors, have increased the
share’s visibility and maintained an attractive traded volume.
INTERNATIONAL RATING
Rating
S&P
MOODY'S
International Currency
Short-term
A-1
P-1
Long-term
A+
Aa3
Short-term
A-1
P-1
Long-term
A+
Aa3
Stable
Stable
Chilean Pesos
Outlook
LOCAL RATING
Rating
Fitch
Feller-Rate
Short-term
L 1+
Level 1+
Long-term
AAA
AAA
Letters of Credit
AAA
AAA
Bonds
AAA
AAA
AA
AA+
Subordinated Bonds
Shares
Outlook
First Class, Level 1 First Class, Level 1
Stable
Stable
59
COMMITTED TO A BETTER CHILE FOR OUR SHAREHOLDERS
Banco de Chile: Attractive Dividends and Returns
Banco de Chile shares are traded on local stock markets as well as
the New York and London stock exchanges. On the New York and
London markets, the shares are traded in the form of American
Depositary Shares (ADS), each equivalent to 600 shares of Banco
de Chile. As of December 31, 2013, there are 93,175,043,991
subscribed and paid shares of Banco de Chile, which is identified
locally with the ticker “Chile.”
Chilean Stock
Exchanges
New York
Stock Exchange
London
Stock Exchange
Shares
ADS
ADS
Chile
BCH
BODD
-
JP Morgan
Chase Bank
JP Morgan
Chase Bank
Instrument
Traded
Ticker
Depositary Bank
DAILY TRADED VOLUME – BANCO DE CHILE
SHARES (1)
(In millions of US$)
Capital Increase
March 2011
Capital Increase
December 2012
Free Float
12.1%
Free Float
15.7%
Free Float
17.6%
Vol. Daily Traded
Volume
MUS$4
Vol. Daily Traded Volume
MUS$8
MUS$7 (ex. MSCI)(2)
Vol. Daily Traded
Volume
MUS$7
Dec.09
Dec.10
Dec.11
Dec.12
Dec.13
(1)Includes volume traded in Chile and the US. Average volume traded in the last
60 days. Closing exchange rate for each day.
60
Banco de Chile’s management is confident in its business strategy
and deeply committed to its shareholders. Over time, the Bank has
established a sound ability to generate income while striking a proven
balance between business development, risk and use of capital.
In its commercial management, Banco de Chile has demonstrated
distinctive agility and flexibility—increasingly relevant strengths in
the face of changing, less predictable environments. As a result of
this coordinated and consistent work, we have become an attractive
and prominent investment alternative. We currently boast some of
the best dividend returns offered by a banking institution, in Chile
and all of Latin America. In comparative terms, the total return on
Banco de Chile’s shares in the last four years has surpassed the
total returns obtained by the IPSA.
Banco de Chile: Dividend Policy
In the ordinary shareholders’ meeting held in March 2010,
shareholders agreed to introduce a transitory article into our bylaws establishing that—for the purposes of Law No. 19,396 and the
agreement signed November 8, 1996 between the Chilean Central
Bank and Banco de Chile, currently SM Chile S.A.—the Bank’s
distributable net income will be calculated by first subtracting or
adding the effect of inflation on paid-in capital and reserves for the
year and their corresponding variations. For the purposes of this
calculation, paid-in capital and reserves shall be adjusted based
on the percent variation in the consumer price index for the period
between the last day of the second month prior to the beginning of
the fiscal year and the last day of the month prior to the balance
sheet date. The difference between net income and distributable net
income shall be recorded in a special reserve account and may not
be distributed or capitalized. This transitory article shall be in effect
until the obligation referred to in Law 19,396, which SM-Chile S.A.
holds directly or through its subsidiary SAOS S.A. with the Chilean
Central Bank, is extinguished. In 2010, the Bank distributed 100%
of its distributable income as cash dividends, while in 2009, 2011
and other prior years, it distributed 70% of its distributable income
as cash dividends and the remaining 30% in stock dividends.
2009
2010
2011
2012
2013
Distributed in cash dividends
70%
100%
70%
70%
70%
Distributed in stock dividends
30%
0%
30%
30%
30%
Ch$ 2.36
Ch$ 3.50
Ch$2.94
Ch$ 2.98
Ch$ 3.42
3.2%
-
1.9%
1.9%
2.0%
Ch$39.50
Ch$34.90
Ch$52.45
Ch$ 63.77
Ch$ 76.34
6.0%
10.0%
5.6%
4.7%
4.5%
Total return2 Banco de Chile
46.0%
61.1%
8.5%
15.9%
5.0%
Total return2 IPSA Index
50.7%
37.6%
-15.2%
3.0%
-14.0%
Cash dividend per share
Stock dividends (per share)
(1) Stock's ex-dividend price from the prior year
Dividend yield 1
(1)Does not include stock dividends.
(2)Source: Bloomberg. “Total return index”, includes capital gains and assumes reinvestment of dividends.
PER SHARE RATIOS
Nominal Values
2009
2010
2011
2012
2013
Net Income (Ch$)
3.1
4.6
4.9
5.3 (**)
5.5
Distributable Net Income (Ch$)
3.5
4.2
4.3
4.9 (**)
5.0
Price-Earnings (times)
14.4
15.0
14.3
14.6
13.8
Price-to-Book(*) (times)
2.9
4.1
3.5
3.4
3.1
82,551,699,423
82,551,699,423
86,942,514,973
88,037,813,511 (**)
93,175,043,991
Total Number of Shares as of
December 31
(*) Includes capital, reserves, valuation accounts and retained earnings from prior years.
61
COMMITTED TO A BETTER CHILE FOR OUR SHAREHOLDERS
Banco de Chile Shareholders
As of December 31, 2013, Banco de Chile has 13,057 shareholders.
LQ Inversiones Financieras S.A. and Inversiones LQ-SM Ltda.,
subsidiaries of Quiñenco S.A., and Citigroup Inc., directly control
32.74% of the shares of Banco de Chile and indirectly control
25.7% through Sociedad Matriz Banco de Chile S.A., or SM-Chile
S.A. (hereinafter “SM-Chile”). In all, LQ Inversiones Financieras S.A.
controls 58.4% of the Bank’s shares and its voting rights. Under the
strategic partnership agreement between Quiñenco and Citigroup
Inc. for the merger by incorporation of Citibank Chile into Banco
de Chile, Citigroup Inc. took a shareholding in LQIF, with an initial
holding of 32.96%, which it later increased to 50% of LQIF. An
essential feature of this partnership is the agreement that Quiñenco
will at all times continue to be the controller of LQIF and the
companies that LQIF directly or indirectly controls.
Formed in 1996, Sociedad Matriz del Banco de Chile S.A. (SMChile S.A.) is a publicly-held corporation that was established to
resolve the subordinated obligation with the Chilean Central Bank
as a result of the 1982-1983 economic crisis. SM-Chile S.A., which
is the entity originally formed as Banco de Chile in 1893, created
a new wholly-owned subsidiary (currently Banco de Chile) to which
it transferred its name, its assets and its liabilities, except for the
subordinated obligation with the Chilean Central Bank.
SM-Chile S.A. trades its shares on local stock markets and is
governed by the provisions of Law 19,396 and regulated by the
SBIF.
As of December 31, 2013, SM-Chile S.A. has a total of 18,116
shareholders who directly exercise their voting rights in the shares
of Banco de Chile held by S.M.-Chile S.A. and its subsidiary
Sociedad Administradora de la Obligación Subordinada S.A. (SAOS
S.A.).
62
SAOS S.A. is a privately-held corporation and wholly-owned
subsidiary of SM-Chile S.A. Its shares are pledged in favor of the
Chilean Central Bank to guarantee payment of its subordinated
obligation, pursuant to the agreement entered into in 1996 between
this company and the Central Bank. The restructuring agreement
considers that the subordinated obligation with the Central Bank
is the exclusive responsibility of SAOS S.A., establishing a 40-year
repayment term in equal annual installments with annual interest of
5%, denominated in Unidades de Fomento. Dividends received on
these shares are the sole source of income for SAOS S.A. and are
applied each year to repaying this obligation.
The shares pledged in favor of the Chilean Central Bank are
equivalent to 30.7% of the shares of Banco de Chile plus 0.6% of
the dividends received by shareholders of Series A shares of SMChile S.A., which, as committed, must be transferred each year to
SAOS. Therefore, the Chilean Central Bank has direct and indirect
rights over 31.3% of shares. As established in article 31 of Law No.
19,396, the Central Bank has the right to request that 100% of the
distributable net income owed to SAOS S.A. be paid in cash rather
than in stock dividends used to capitalize a portion of net income.
Should the corresponding dividends be insufficient to cover the
established annual installment, SAOS S.A. may maintain an
accumulated deficit balance with the Central Bank that it commits to
repay with future dividends. Should the deficit balance exceed 20%
of the Bank’s capital and reserves, the Central Bank may require
SAOS S.A. to sell a number of shares sufficient to repay the whole
accumulated deficit. As of December 31, 2013, SAOS S.A. has an
accumulated surplus with the Central Bank of UF 15,634,989.72.
This surplus is denominated in UF and accrues annual interest of
5%.
Minority Shareholders
20 MAIN SHAREHOLDERS AS OF DECEMBER 31, 2013
Shareholders
Ownership
Interest
LQ Inversiones Financieras S.A.
32.58%
Sociedad Administradora de la Obligación
Subordinada S.A.
30.69%
Sociedad Matriz del Banco de Chile S.A.
13.03%
Banco de Chile (on behalf of third parties)
3.10%
Banco Itau Chile (on behalf of third parties)
2.23%
EVER 1 BAE SPA
2.20%
EVER CHILE SPA
2.20%
Banchile Corredores de Bolsa S.A.
2.04%
Inversiones Aspen Ltda..
1.52%
Banco Santander (on behalf of foreign investors)
1.23%
J.P. Morgan Chase Bank (Depositary Bank)
0.96%
Inversiones Avenida Borgoño Ltda
0.49%
BTG Pactual Chile S.A. Corredores de Bolsa S.A.
0.45%
LarrainVial S.A. Corredores de Bolsa S.A.
0.45%
BCI Corredores de Bolsa S.A.
0.30%
Santander S.A. Corredores de Bolsa S.A.
0.26%
AFP Provida S.A.
0.25%
Inversiones CDP Ltda
0.22%
AFP Cuprum S.A.
0.19%
Inversiones LQ-SM Ltda
0.17%
As of December 31, 2013, the shareholders of Banco de Chile that
do not belong to the LQIF Group, the Ergas Group, or SM-Chile
directly control 17.6% of the Bank’s shares. The shareholders of
SM-Chile that do not belong to the LQIF Group or the Ergas Group
control an additional 18.1% of voting rights in the Bank’s shares,
thus giving minority shareholders a total of 35.7% of the voting
rights. This group includes the Chilean Pension Fund Administrators
(AFPs), with 1.1% of the voting rights, and 1.0% held in the form of
American Depositary Shares (ADS).
DIRECT AND INDIRECT OWNERSHIP (VOTING RIGHTS)
18.1% (3)
58.4% (1) (6)
17.6% (2) (6)
5.9%
LQIF
Ergas Group
Other Direct Shareholders
Other Indirect Shareholders
ECONOMIC RIGHTS TO 2013 NET INCOME (5)
5.3% (3)
17.6% (2)
39.9% (4)
5.9%
31.3% (5)
LQIF
Ergas Group
Other Direct Shareholders
Other Indirect Shareholders
SAOS
(1)Includes direct interest of 32.7% and indirect interest via SM Chile S.A. of 25.7%.
(2)Corresponds to direct shareholders of Banco de Chile other than LQIF and ERGAS.
(3)Corresponds to shareholders other than LQIF and ERGAS that, through their interest in SM Chile S.A., have rights in Banco de Chile.
(4)Includes direct interest of 32.7% and indirect interest via SM Chile S.A. of 7.2%.
(5)Includes 0.6% of the dividends received by shareholders of Series A shares of SM-Chile S.A., which, as committed, must be transferred each year to SAOS S.A.
(6)As a result of the secondary share offering carried out in January 2014 by the Bank’s controller LQIF, its interest was reduced to 51.2% and, consequently, other direct shareholders increased to 24.8%.
63
05
ECONOMIC AND FINANCIAL ENVIRONMENT
The Global Economy
The Local Economy
Chilean Banking System
THE GLOBAL ECONOMY
•Global GDP expanded 3.0% in 2013, which is the lowest
figure seen since the economy began to recover in 2010.
This limited growth is linked to economic stagnation in
developed economies and greater deceleration in emerging
economies.
•Important fiscal adjustments and a decline in private
consumption limited growth in developed countries while
reduced internal demand and a drop in commodities prices
weakened economic activity in emerging countries.
•In this scenario, monetary policies remained highly
expansionary in the developed world and were eased in
some emerging countries, all within a global context of low
inflation.
•For 2014, the IMF forecasts global growth of 3.7%, driven
by the strengthening recovery of developed countries and
an upturn in emerging economies.
In early 2013, global economic outlooks were positive, forecasting
growth beyond 2012 figures. However, despite reduced financial
tensions in the eurozone, the economy lost momentum and posted
weaker figures than the prior year. As a result, global GDP rose
3.0% in 2013 according to the latest estimates from the IMF. This
growth was impacted by the extensive recession in the eurozone,
decreased activity in the United States and greater-than-expected
deceleration in the emerging world. In this scenario, monetary
policies remained highly expansionary in developed countries
and continued to be eased in emerging countries, where drops in
exchange rates, less favorable external financing conditions and
capital outflows impacted their economies.
66
Economic and Financial Environment
In the developed world, the United States posted GDP growth of
1.9% for the year in 2013, below both its average for the last three
years and its forecasted growth potential. This decreased figure
was to a large extent explained by the government’s automatic
spending cuts, the elimination of tax exemptions and increased
taxation of high-income households, measures that are estimated
to have reduced economic expansion by one percentage point. In
this context, the FED sustained its expansionary monetary policy
by maintaining the monetary policy rate at 0.25% (annual) and
continuing its asset purchase program (known as QE3), which
became less effective during the second half of the year because
of positive economic figures, and the announcement from the FED
Chairman to retire this program that raised long-term interest rates.
As a result, the Federal Reserve began to gradually terminate this
program in December 2013, but remained committed to maintaining
the monetary policy rate at the minimum for a prolonged period.
Although the U.S. economy was less active in 2013, a better
performing labor market, which brought unemployment figures
to below 7%; recovering stock markets and housing prices; and
improved household and corporate expectations all point to a more
lasting recovery in 2014. In effect, the positive evolution of these
indicators places growth forecasts at around 3.0% for 2014.
Within the eurozone, the scenario remains complex. GDP contracted
for the second consecutive year, explained in part by fiscal
adjustments in major eurozone countries and the delicate financial
and macroeconomic situation still present in the region, which has
slowed recovery of loans and household consumption. In addition,
the major economies of Germany and France posted near-zero
growth figures for the year. However, the diverse measures adopted
by the European Central Bank over the past few years, including the
recent reduction of the monetary policy rate to 0.25%, have calmed
the market and increased confidence, translating into improved
financing conditions for the most affected countries, recovering
stock markets and the end of the recession during the second half
of the year. For 2014, the eurozone is expected to continue this
recovery process, attaining growth of around 1.0%.
Emerging economies continued to drive global GDP albeit at a
more moderate pace. Within this group, China experienced 7.7%
expansion for the year. Despite being below its average for the last
decade, this figure is consistent with the government’s desire to put
up with lower growth in pursuit of a more balanced internal demand
structure and to resolve some imbalances in the financial market.
The evolution of the Chinese economy adversely affected the rest
of the world, especially those countries with stronger commercial
ties with China such as emerging Asia and Latin America. It also
influenced the declining trend in the price of some commodities.
Accompanied by tighter external financing conditions, these
circumstances set the stage for a less expansive scenario for this
group of countries, reflected in successive downward corrections in
economic expectations.
Within Latin America, most economies decelerated during 2013.
The case of Mexico is worth highlighting because of its importance
in the region; it dropped from 3.7% in 2012 to slightly above 1%
in 2013. Brazil recovered slightly in 2013, posting growth of 2.3%.
However, this figure was not enough to prevent the region as a whole
from decelerating slightly during the year, with aggregate expansion
of 2.6%. For 2014, regional outlooks are less favorable than for the
rest of the emerging world, influenced by discouraging expectations
for Brazil, which represents more than 40% of Latin America’s GDP
and is facing serious inflation problems, more restrictive monetary
policy and major infrastructure challenges. Overall, the region’s
GDP should rise around 3% in 2014.
After three years of deceleration and important macroeconomic
adjustments, the global economy seems to have laid the foundations
for attaining growth more in line with trends in 2014. The end of
the recession in Europe and a more favorable environment in the
rest of the developed world, driven by the recovery of the world’s
largest economy, should invigorate global GDP growth during
2014. However, some risks still threaten this scenario. First, the
withdrawal of monetary stimulus in the U.S. is imminent and will
add uncertainty and volatility to the markets. In addition, China’s
performance and its path toward more balanced growth, together
with the imbalances in its banking system, may considerably
decelerate its economy and, consequently, the rest of the emerging
world. However, in the core scenario, this adjustment is predicted
to be gradual and Chinese authorities are expected to know how to
control these vulnerabilities.
Overall, the IMF forecasts that global GDP will expand 3.7% during
2014.
67
THE GLOBAL ECONOMY
GLOBAL GROWTH
U.S. TREASURY BONDS (10 YEAR)
(Real variation in 12 months, %)
(%)
Period
3.5
2010
2011
2012
2013 (e)
World
5.1
3.9
3.1
3.0
Developed Economies
3.0
1.7
1.4
1.3
United States
2.4
1.8
2.8
1.9
Eurozone
2.0
1.5
-0.7
-0.4
Japan
4.5
-0.6
1.4
1.7
Dec.12
Other
4.4
2.8
1.5
2.0
Source: Bloomberg
7.4
6.2
5.1
5.4
China
10.4
9.3
7.7
7.7
India
10.1
6.3
3.2
4.4
Brazil
7.5
2.7
1.0
2.3
Other
5.3
4.9
4.5
4.6
6.2
4.6
3.0
2.6
Mexico
5.6
4.0
3.7
1.2
Chile
5.8
5.9
5.6
4.0
Colombia
4.0
6.6
4.0
3.7
Peru
8.8
6.9
6.3
5.4
Other
5.8
3.9
1.9
2.4
3.0
2.5
2.0
1.5
1.0
Emerging Economies
Latin America
Mar.13
Source: IMF.
68
Sep.13
Dec.13
METAL PRICES
(Index Dec. 2012 = 100)
110
100
90
80
70
60
50
Dec. 2012
(e) Estimate.
Jun.13
Copper
Apr. 2012
Gold
Source: Banco Central
Silver
Aug. 2013
Dec. 2013
THE LOCAL ECONOMY
•Chilean GDP grew 4.0% during 2013 due to decelerated
internal demand, decreased activity from the country’s main
trade partners and the deterioration of emerging economies
on a global level.
•Gross fixed capital formation was the most affected
component of internal demand, due to the end of the mining
investment cycle, a worsened outlook for copper prices and
less optimistic corporate expectations.
•In this scenario, inflation remained limited during a large
part of the period, ending the year in line with the Central
Bank target at 3.0% as of December 2013.
•Economic deceleration and its possible effects on inflation
forecasts led the Central Bank to reduce the Monetary Policy
Rate by 50 points, leaving it at 4.5% as of year end.
As expected, the local economy was less active in 2013--with
estimated GDP growth of 4.0%--after expanding almost 6% for
three consecutive years. Although below its growth potential, the
2013 figure surpasses global and regional averages.
During the year, deceleration was concentrated in practically all
industries. Internal demand stabilized, influenced by the gradual
deceleration of household consumption patterns and a steeper
adjustment in investment. Inflation remained limited during the
first half of the year and then fell in line with the medium-term
target, ending at 3.0% for the year. In this scenario, the Central
Bank decided to reduce the Monetary Policy Rate by 50 basis points
during the last quarter of the year once deceleration strengthened.
According to its most recent Monetary Policy Report, the Central
Bank expects deceleration to extend into 2014.
On an industry level, economic growth was led by commerce,
financial services, energy and mining, offset by negative
performances in the manufacturing, construction and corporate
services industries. The latter is the result of decreased investment
by large companies.
From a spending perspective, private consumption continued to be
the main component of growth, expanding over 5% for the year.
Durable goods stood out once again with double-digit increases.
Low unemployment, which averaged 6%, together with positive
growth in real salaries, kept household expectations optimistic.
However, along with GDP deceleration, consumption showed signs
of deceleration and held that declining trend from one quarter to
the next. In the future, this variable is expected to gradually stabilize
as a result of decreased growth in private income, more normalized
inflation and currency depreciation, which will affect consumption
of durable goods.
According to the Central Bank’s most recent monetary policy report,
gross fixed capital formation expanded around 4% for the year,
which is around one third of the prior year figure. This can mostly
be explained by decreased spending on machinery and equipment
and, to a lesser extent, by construction investment, which evolved
in line with the industry’s GDP. Given its relative importance, the
mining industry is responsible for a large part of this adjustment.
The maturation of the mining investment cycle at a global level
and the reduced outlooks for copper prices forced companies in
this sector to push back important projects, also affecting miningrelated sectors. Finally, during the year there was also a strong drop
in mining and industrial inventory, which in turn affects production
levels.
Chile’s trade balance totaled US$ 2,377 million, which is lower
than the prior year figure. This decrease resulted from exports of
US$ 77,367 million, or a 1% reduction, and imports of US$ 75,990
million, which is similar to 2012. The contraction of exports was
due entirely to the value of mining shipments, triggered by the fall
in the price of copper. Imports remained stable since increases in
imports of consumer goods more than offset the drop in capital
and intermediate goods as a result of decelerated investment. The
country’s current account deficit was 3.2% of GDP, reflecting strong
internal spending for the third year in a row.
69
THE LOCAL ECONOMY
In this scenario, inflation was contained during a large part of the
year, showing some volatility from month to month and remaining
below the Central Bank’s 12-month target. However, as a result
of increases in tradable goods during the last quarter, the CPI
posted an accumulated rise of 3.0%, while the UF climbed 2.1%
during the same period. The largest increases were in food and,
to a lesser extent, utilities (electricity, gas and water). These were
partially offset by decreases in clothing and footwear; diverse
goods and services; and recreation and cultural activities. In terms
of underlying series, the CPIX and CPIX1 indices, which remove
the most volatile components along with some regulated items,
increased by 2.4% and 2.5%, respectively.
In monetary policy matters, the Chilean Central Bank decided to
cut the reference rate by 25 basis points in October and November
2013, setting it at 4.5% (annual) as of year end. These cuts occurred
following 20 months with no changes in monetary policy and were
related to economic deceleration and the risk of “detachment” from
medium-term inflationary expectations. Nevertheless, this decision
came as a surprise to some market sectors, which expected the first
adjustment in December or even during the first quarter of 2014.
The Central Bank remained neutral in its press releases until July,
when it indicated that economic growth had decelerated beyond
expectations, expressing a clear bias towards more expansionary
monetary policy.
In 2014, the Central Bank will face a more complex scenario, with
a local economy that will continue to slow in line with weakened
private consumption, but a more positive global environment
with the imminent withdraw of monetary stimulus in the U.S.
Furthermore, inflation that should stay within the target range, along
with a depreciated currency, may generate undesired inflationary
pressure that affects the expectations of economic agents. Overall,
as of publication of this report, the Central Bank has announced
the possibility of establishing more monetary stimulus in upcoming
months.
70
In fiscal matters, public spending expanded 4% (real terms) while
income fell 2%, leaving a deficit of 0.6% of GDP. Fiscal revenue
decreased mainly because of reduced taxable income at private
mining companies and lower profits at Codelco (state-owned copper
company) due to falling copper prices. Sovereign funds totaled US$
33,168 million, or approximately 11% of GDP, reflecting an increase
of US$ 1,869 million over year-end 2012. Public debt totaled 13%
of GDP, which is stable with respect to the prior year.
The Chilean economy has performed well over the last four
years, averaging growth above 5% and maintaining very low
unemployment levels. Appropriate macroeconomic policies have
undoubtedly contributed to this success. Other contributing factors
include the soundness and solvency of the Chilean financial system,
which has managed not only to make needed economic resources
available, but also to instill confidence in economic agents during
years of high volatility and uncertainty. In part, the deceleration
observed in 2013 is to be expected after a very expansionary cycle
and should allow our economy to return to more sustainable longterm growth levels once global economic risks have dissipated and
created a more favorable scenario for investment.
The year 2014 will be a challenging period: Although growth figures
should be in line with the previous year, there will be increasing
social and economic demands in education and energy. Also, a
new administration will take power in Chile, which should continue
to drive domestic growth and position our country as a reliable
and sound economy - the most prosperous in the region. As of
publication of this report, forecasts estimate that the economy
should be able to sustain growth of around 4% during the year.
GDP GROWTH EXPECTATIONS FOR 2014
(%)
5.0
4.7
1Q13
4.5
2Q13
4.0
3Q13
4Q13
Source: Banco Central de Chile
INFLATION AND MONETARY POLICY RATE
(%)
8.3
GDP AND INTERNAL DEMAND
(12 month variation, %)
13.6
5.3
9.1
8.3
7.1
3.3
5.8
5.9
5.6
-1.0
5.0
4.5
3.3
7.1
4.0
0.5
4.0
4.4
3.0
3.0
1.5
-1.4
2008
-5.7
2008
2009
2010
2011
2012
2013 (e)
2010
CPI Variation 12 Months
2011
2012
(e) Estimate.
Source: Banco Central de Chile and Banco de Chile
Year-end MPR
GROSS PUBLIC DEBT AND SOVEREIGN FUNDS
(% of GDP)
UNEMPLOYMENT RATE
30.8
(Annual Average, %)
28.1
24.6
10.8
8.2
7.8
2008
Source: INE
2009
2013
Source: Banco Central de Chile
Internal Demand
GDP
2009
2010
20.0
7.1
2011
6.6
2012
5.9
2013
4.9
2008
Public Debt
5.8
2009
23.5
18.8
8.6
2010
11.1
2011
11.9
2012
12.5
2013
Sovereign Funds and International Reserves (*)
Source: DIPRES
(*) Includes stabilization fund. other public treasury reserves and Central Bank
international reserves.
71
CHILEAN BANKING SYSTEM
•Consistent with a less positive economic cycle, total loans
for the Chilean banking system reported decelerated
nominal growth of 10.3%(1), equivalent to 8% in real terms
over 2012, maintaining the historic elasticity of twice GDP
growth.
•The increase in loans was led by a rise of 14% in consumer
loans, 11% in mortgage loans and 9% in commercial loans.
•Industry earnings totaled Ch$ 1,916 billion, an increase of
18% for the year, driven by greater operating revenue that
more than offset increases in risk provisions, operating
expenses and taxes.
•System returns, measured as net income over average
capital and reserves, reached 16% for the year, which is
similar to the figure from the previous year.
The banking industry performed well in a year where attention was
placed on the deceleration of the local economy. Although economic
uncertainty has come from abroad in recent years, during 2013
the loss of vigor in economic activity and internal demand set the
stage for less growth in banking system loans. Even so, the system
was able to maintain double-digit expansion rates both in returns
and in all credit products. Worth special mention are the stability
of mortgage loans and the gradual deceleration of consumer and
commercial loans.
In regulatory matters, after the financial crisis of 2009, the local
and international banking industries began to explore important
regulatory reforms to limit business risks and provide more
protection for consumers. As a result, after two years of debate,
the maximum conventional interest rate project was finally
passed in 2013. This reform has led to tightening of credit
conditions for the lower-income and small business segments.
New requirements were also added for ATM security, which have
significantly increased the cost of providing this service, as well as
additional measures for mortgage insurance tender processes. In
(1) Loan and deposit growth figures exclude foreign subsidiaries.
72
other matters, new corporate governance requirements were also
passed, intended to strengthen the role of the board of directors in
publicly-traded corporations. New definitions for the treatment of
related-party debtors were also enacted. Pending matters include
the establishment of a road map for implementing Basel III and new
liquidity regulations.
As an important industry player, we understand that financial
market development requires modern, efficient regulation and
oversight that protects the consumer and generates the proper
incentives for correctly allocating resources. In that sense, the
Chilean banking industry has supported and participated actively in
the debate on these issues. However, we have also voiced concern
as to the undesired effects of excessive regulation. Overregulation
prevents the market from functioning properly and, therefore, limits
the much needed process of expanding banking access that the
banking industry has promoted in recent years, which in turn affects
opportunities for development and entrepreneurship by people and
companies.
The business environment for the banking industry in 2013 was
characterized by greater international expansion, with local banks
acquiring foreign subsidiaries and increasing their international
presence. In addition, new competitors entered the market through
two channels: regulator authorization for a financial company to
operate as a bank and licenses to open representation offices given
to prestigious international institutions.
Lastly, in regulatory matters, the banking industry continued to
support the consolidated debt project (positive credit information),
which will substantially improve the credit risk assessment
process and increase competition for debtors with good payment
behavior through improved loan conditions, benefiting thousands
of individuals and increasing the population’s incentive to fulfill its
financial commitments.
In 2014, the Chilean banking industry will face two important
reforms. First, the implementation of the maximum conventional
interest rate project, which will gradually reduce the maximum
interest rate that can be applied to transactions under 200 UF.
Second, new insurance regulation that will impact fee revenue as
insurance companies must refund unconsumed premiums in the
event of early termination of single premium and annual insurance
contracts.
Business Volumes
Total banking system loans continued to decelerate during the year,
posting 10.3% growth in 2013 as opposed to 12.4% in 2012 and
17.3% in 2011. Despite this deceleration, the industry managed
to attain double-digit increases in almost all loan products, led
by consumer loans with 14% and followed by mortgage and
commercial loans with 11% and 9%, respectively.
From a product perspective, commercial loans (62% of total loans)
were more active during the first half of the year but then began
to lose momentum, mirroring investment figures, which started the
year with increases of around 9% and ended with limited growth
during the last quarter. Likewise, the expectations of the corporate
sector were less optimistic during the last part of the year, with
major losses of confidence in the construction and real estate
sectors. Worth specifically highlighting are increases in foreign
trade and commercial loans of 13% and 9%, respectively.
are increases in credit card volumes and revolving credit on credit
cards, with annual increases of 34% and 12%, respectively.
Regarding liabilities, total deposits expanded at an annual nominal
rate of 8%, slightly below loans. This expansion was driven by a
10% increase in demand deposits, followed by 8% growth in time
deposits. Thus, total deposits represented 85% of the loan portfolio.
In terms of debt issuances, banking system bonds increased
28% during the year. Growth in senior bonds exceeded that of
subordinated bonds. Positive international funding conditions and
the soundness of the local banking industry have allowed several
local organizations to issue debt instruments on foreign markets,
reaching record levels during the year. In fact, as of December
2013, bonds came to represent 21% of total industry loans, an
increase of 3 basis points over December 2012.
Lastly, system capital posted annual growth of 15%, totaling Ch$
12,902 billion as of year end as a result of capital increases in line
with expanded business volumes. In terms of regulatory ratios, the
Basel index reached 13.0% as of November 2013, which is slightly
less than the 13.3% as of year-end 2012, reflecting growth in riskweighted assets slightly above the variation in regulatory capital.
In the retail segment, mortgage loans once again stand out, with
growth slightly better than in 2012. Positive labor market indicators
and good financial conditions (low long-term interest rates) enabled
these loans to perform exceptionally in recent years.
Consumer loans also posted improved growth over 2012. Between
June and December, consumer loans performed well with a
nominal rise of 10%, giving double-digit growth rates for the fourth
consecutive year. The favorable employment scenario coupled with
rises in salaries and limited inflation set the stage for a reasonable
environment for private consumption, which sustained demand
for mortgage loans. Within consumer loans, worth highlighting
73
Financial Results
Banking system net income totaled Ch$ 1,916 billion as of
December 2013, an improvement of 18% over the prior year.
Despite this achievement and due to greater system capital, system
returns remained stable with respect to 2012 with returns on
average capital and reserves (ROAC) of 16.4%. At an aggregate
level, the rise in net income can be explained entirely by growth in
operating revenue, which more than offset increases in credit risk
provisions, operating expenses and taxes.
Operating revenue expanded by 13% during the year, driven mainly
by increased net interest and adjustment revenues linked to loan
portfolio growth. This growth more than offset the lower returns
from the system’s structural asset position in UF where inflation
measured in UF increased 2.1% in 2013 and 2.5% in 2012.
Furthermore, but to a lesser extent because of reduced interest
rates, operating revenue also rose thanks to increased net gains
from foreign exchange transactions. This positive performance
was achieved despite low growth in net fees, representing 18%
of operating revenue as of December 2013, which is less than the
average for the past few years.
In risk matters, net provision expenses reached Ch$ 1.4 billion, an
annual increase of 12%. This growth was very similar to expansion of
average industry business volumes, maintaining nearly unchanged
the ratio of net loan loss provisions to average loans, which was
1.3% in December 2013, reflecting in general positive payment
behavior for the banking system’s portfolio.
74
The increased provision expenses resulted in part from a slight
deterioration in the companies segment where the 90-day past due
portfolio rose from 1.5% to 1.7% of commercial loans between
year-end 2012 and year-end 2013. However, this effect was more
than offset by an improvement in payment behavior in the retail
segment, especially in mortgage loans. The aggregate ratio of 90day past due loans to total loans improved from 2.2% in December
2012 to 2.1% in 2013. In terms of coverage, provisions represented
113% of the system’s past due portfolio, which compares favorably
to 103% from the prior year.
This was partially offset by a decrease of Ch$ 34 billion in additional
provisions, which represented 0.4% of total system loans as of
December 2013.
System operating expenses rose 10% (nominal), which is less
than the increase in operating revenue. As a result, the efficiency
ratio improved from 51.2% to 49.9% as of December. The rise in
operating expenses during the year can be explained by increased
payroll and personnel expenses as well as administrative expenses,
which posted increases of 11% and 10%, respectively. These
additional disbursements were in line with business volume growth,
increased hiring and added security and technology expenses to
comply with stricter consumer protection standards. They also
arose from efforts to enhance products and services offered to
customers in response to growing competition in the domestic
banking industry.
It is important to highlight that at the end of 2013, the industry
recognized an extraordinary gain of $78 billion pesos from the sale
of an asset management business.
Lastly, in 2013 income tax expense totaled Ch$ 453 billion,
representing a rise of 43% over the prior year. This was explained
by both the increase in the corporate income tax rate during 2012
and the system’s increased pre-tax income. The effective tax rate
rose from 16% as of December 2012 to 19% as of year-end 2013.
Banking System Challenges and Opportunities
A sufficiently capitalized, well-regulated banking system with
appropriate risk policies is key to economic growth. This has
become even more true in recent years, where recovery has been
stronger in economies with a healthy banking system. There is no
doubt that Chile can consider itself among these economies.
As a result, the positive evolution of the banking industry and
the economy in general in recent years have strengthened Chile,
positioning it as an exemplary country in the region and the world.
This has brought with it a greater influx of foreign investment, a
sustained increase in income per capita and the possibility for local
companies to invest abroad under the protection of a responsible,
serious economy with a high risk rating.
In this context, the banking system faces major challenges and
has many commitments to the country that it must fulfill. Among
them is to continue providing quality, safe and transparent financial
services and continue investing in technology, strengthening online and mobile platforms. It must also continue to narrow the gap
with developed countries in terms of expanding banking access
indicators for individuals and small and medium-sized companies
and making progress towards the new Basel III international
standards in order to ensure a modern banking system with global
recognition. To do this, it must continue working together with
authorities and regulators to formulate a road map with mediumterm objectives and to prioritize new reforms that promote free
competition and access to information, such as the consolidated
debt project that is currently in congress.
Finally, the industry must maintain stable growth in business
volumes, contributing needed resources to individuals and
companies in order to sustain a favorable economic cycle in the
near future. At the same time, the banking system must continue
to be a channel for Chile’s integration into the world, exploring new
markets and providing support for those customers that seek to
take their projects beyond its borders.
75
TOTAL LOANS(*)
DEMAND & TIME DEPOSITS(*)
(In billions of chilean pesos)
(In billions of chilean pesos)
109,020
98,880
87,946
21,993
+12.4%
24,381
+10.3%
12,846
27,129
76,544
14,676
21,730
67,215
54,814
92,122
84,919
+10.9%
24,753
+8.5%
27,104
11,488
61,652
54,466
Dec. 11
Commercial
Dec. 12
Consumer
Dec. 13
Mortgage
Dec. 11
Term
(*) Excludes foreign subsidiaries
90 DAY PAST-DUE LOAN PORTFOLIO
BASEL INDEX
(% of total loans)
(%, December of each year)
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
Dec.12Mar.13 Jun.13 Sep.13 Dec.13
Commercial
Consumer
Total
65,018
Dec. 12
Dec. 13
Demand
(*) Excludes foreign subsidiaries
4.5
60,166
14.3
14.1
4.0
13.3
13.0
3.5
3.8
3.3
3.3
10.9
10.1
10.1
10.0
9.7
2009
2010
2011
2012
2013 (*)
13.9
0.0
Mortgage
Tier 1 (**)
Other (***)
(*) November 2013.
(**) Corresponds to Basic Capital to risk weighted assets.
(***) Corresponds mainly to subordinated bonds and voluntary provisions.
76
BANKING SYSTEM RESULTS
(In millions of pesos)
2011
2012
2013
Change
2013/2012
Operating Revenue
5,955,746
6,457,885
7,265,752
12.5%
Net interest income
4,004,070
4,313,480
4,876,514
13.1%
Net fees
1,213,751
1,267,567
1,292,199
1.9%
Net gains from trading and brokerage activities and foreign exange
transactions
588,659
716,796
910,332
27.0%
Other operating income
149,266
160,042
186,707
16.7%
Loan Loss Provisions
(955,115)
(1,217,311)
(1,365,208)
12.1%
(2,975,748)
(3,303,779)
(3,625,218)
9.7%
16,900
8,443
93,401
-
Income before taxes
2,041,783
1,945,238
2,368,727
21.8%
Taxes
(330,146)
(316,520)
(452,735)
43.0%
Net Income
1,711,637
1,628,718
1,915,992
17.6%
Return on Average Capital and Reserves
19.61%
16.19%
16.43%
24 pb
Efficiency
49.96%
51.16%
49.89%
(126 pb)
1.18%
1.29%
1.28%
(1 pb)
13.93%
13.31%
12.97%
(34 pb)
Operating expenses
Income attributable to affiliates
Ratios
LLP / Avg. Loans
Basel Index (*)
(*) November 2013
77
06
CONSOLIDATED PERFORMANCE 2013
Management Discussion and Analysis
CONSOLIDATED PERFORMANCE
CONSOLIDATED PERFORMANCE 2013
It is my privilege to recap our performance in 2013, not only
because of our important financial and strategic achievements we
reached, but also because we celebrated 120 years contributing to
the country’s progress. Our purpose as an institution is to create the
conditions necessary for people and companies to develop. I can
proudly affirm that we work hard every day to attain that goal. Being
recognized as the company with the best corporate reputation in
Chile confirms that our efforts are going in the right direction and
reaffirms our profound commitment to our customers, shareholders,
employees, suppliers and the community as a whole.
In financial terms, our performance in 2013 was outstanding. We
posted net income of Ch$514 billion, 10% greater than the prior
year, positioning us once again as the market leader with 27% of
total system earnings. As a result, our institution ranked first in
return on capital and return on assets with ratios of 24% and 2.1%,
respectively, well exceeding both industry averages and all of our
key competitors. These results are based on a consistent business
strategy that enabled us to lead the market for the first time in
total operating income and generated important results in operating
efficiency. This, together with conservative risk management
practices, allowed us to navigate a more complex external
environment, complete with lower inflation, greater regulation and
economic deceleration.
We began the year 2013 by successfully concluding the capital
increase approved by shareholders in October 2012, raising Ch$
253 billion. These funds will allow the Bank to expand asset volumes,
anticipate new capital demands and maintain capital adequacy
ratios in line with our outstanding risk rating. As of December 2013,
Banco de Chile’s Basel Index was 13.1%, which is well-above the
regulatory limit, making it the most well-capitalized institution in the
Chilean banking industry.
In terms of business volumes, our loan portfolio continued to grow,
breaching the Ch$ 20 trillion mark with nominal annual growth
of 11% and giving the Bank a market share of 19% as of year
end. This growth focused on deals with greater returns in the retail
segment, while at the same time strengthening Banco de Chile’s
historical leadership in the wholesale segment.
80
Consolidated Performance 2013
Arturo Tagle Quiroz
Chief Executive Officer
Within the retail segment, the Commercial Division posted 12%
growth for the year in 2013, representing 47% of the Bank’s total
loans. On a product level, mortgage loans once again excelled with
annual growth of 13%, increasing market share by almost 300
basis points over the past four years to 17.2% in December 2013.
In consumer loans, the Bank reported annual growth of 8%
attributable to a selective growth strategy that prioritized middle
and high-income retail segments with relatively low risk. Within this
product family, credit cards performed exceptionally expanding 15%
during the year thanks in part to 111,000 new cards issued. As of
December 2013, 20% of all credit cards in the Chilean market were
issued by Banco de Chile, while the Bank’s customers comprised
25% of all purchases and cash advances in the industry.
During the year, we continued to increase market penetration in the
SME segment, a portfolio that has gradually expanded its share of
the Bank’s total loan portfolio. As a result, more than 5,500 new
customers were added during 2013. The Bank presents these
customers a unique value offering with specific solutions based
on their particular industry and additional support through advisory
services. In this segment, the Bank has taken concrete steps such
as accelerating loan approval processes, providing a larger variety
of financial products and promoting the use of government-backed
(CORFO) financing lines, positioning itself as one of the industry
leaders in government-backed loans, numbering more than 17,000
in 2013.
The consumer segment, Banco CrediChile, focused efforts on
improving its risk processes, enhancing operating efficiency and
continuing to extend the scope of its business, restricting growth in
loan volumes due to new regulations and a sluggish economy - two
factors that strongly impact risk assessments in this segment. This
segment continued to promote initiatives such as Caja Chile and the
Microenterprise Bank and made considerable progress to enhance
its offering of financial services through alliances with corporate
clients, taking advantage of the Bank’s broad customer base in
the wholesale market. As a result, more than 100,000 employees
were added to the payroll payment service. The Caja Chile network
doubled its number of service centers, totaling nearly 2,000 in over
220 districts throughout the country as of December 2013, while
the Microenterprise Bank now has 50 customer service platforms
and a portfolio of Ch$ 28.0 billion.
Banco CrediChile also undertook important initiatives in service
quality, migrating the operating system for debit accounts to a
system with new functionalities for customers to pay utility bills and
make on-line purchases through the “web-pay” system, meanwhile
allowing for the future growth of this business. It also reduced
customer wait times at branches and optimized the branch network.
CrediChile reported annual growth of 3.0% in loans, maintaining
conservative risk management practices. As of year-end, the Bank
continued to lead the industry in this segment, serving the financial
needs of over 900,000 customers.
In the wholesale segment, the Bank faced a challenging year
with tight competition and decelerating investment. Despite these
challenges, the segment reported 12% growth for the period. Within
this segment, the Corporate Division continued to lead the market
in loans. It also managed to expand its regional-global coverage
and strengthen ties with customers thanks to its exceptional
account executives and the product and service offerings of the
Transactional Bank, Treasury and Investment Banking Areas.
Through the Investment Banking Area, the division continued to
advise important companies on their debt issuance processes
on international and local markets, participating in major bond
issuances during the year. At the same time, we continued to
provide solutions to companies with international expansion plans
through a regional customer service platform as part of our alliance
with Citigroup - an important competitive advantage for the Bank.
In fact, Banco de Chile positioned itself as the market leader in
international loans to Chilean companies in 2013.
The Wholesale, Large Companies and Real Estate Division posted
record growth in business volumes as a result of a consistent,
comprehensive strategy to strengthen ties with customers. In
2013, two areas were created, specializing in investment services
81
GESTIÓN CONSOLIDADA
and family offices. This division also continued to strengthen its
presence and customer relationships in regions outside Santiago,
sponsoring diverse activities such as meetings with Boards of
Directors and other corporate gatherings.
In terms of asset management, the Bank purchased a high creditquality commercial portfolio from a local bank for approximately Ch$
500 billion. This move enabled us to broaden our market leadership
in commercial loans and improve our ties with customers. The
growth achieved in commercial loans is especially commendable
given the fact that many large local companies issued debt on
foreign markets in 2013.
In terms of liability management, Banco de Chile continues to be
the leader in current account balances, with a market share of 22%.
Also, during the year the Bank added 26,000 new current account
holders (net) and boasted extremely low customer loss rates. As of
year end, demand deposits were equivalent to 29% of the Bank’s
total loans, which contributes significantly to positioning us as the
institution with the lowest cost of funds in the Chilean banking
industry.
In other areas, the Bank continued to diversify its sources of external
funding, taking advantage of its outstanding international risk rating.
In fact, in 2013 the Bank placed a total of US$ 785 million in bonds
in new markets like Switzerland. We also established a mediumterm notes (MTN) program for US$ 2 billion, under which we placed
approximately US$ 170 million in Japan and US$ 90 million in Hong
Kong. In addition, we issued close to US$1.0 billion in bonds on the
local market.
Our subsidiaries continued to be a key source of non-banking
products and services for our customers and, likewise, an important
and stable source of operating revenue.
Both the brokerage and mutual fund subsidiaries faced a complex
year with declining stock prices on the local market and riskadverse customers. Nevertheless, the brokerage subsidiary
retained considerable market share in share trading volumes and
82
implemented important innovations such as a new application for
mobile phones. The mutual fund subsidiary preserved its industry
leadership with market share of 22% and a customer base of
360,000. It also broadened its product offering by adding 14 new
mutual funds, ending the year with a portfolio of 86 mutual funds
and 8 investment funds.
The year 2013 was positive for the insurance brokerage subsidiary,
which reported a significant rise in the number of policies issued.
This was accomplished through initiatives designed to strengthen
remote sales channels and broaden the variety of insurance policies
offered. As a result, it posted record on-line sales of Obligatory
Personal Accident Insurance (SOAP) and almost 500,000 new
health, life and/or property insurance policies. In addition, innovative
programs were implemented such as the sale of anti-fraud insurance
with internal loyalty program points and the creation of a specialized
insurance sales platform for SMEs. Lastly, Banchile Corredores
de Seguros implemented a series of new insurance regulations,
successfully completing a bidding process for collective policies for
the mortgage portfolio for the second year in a row.
Undoubtedly, the Bank’s outstanding results can also be attributed
to its efficient risk management, based on a consolidated,
comprehensive vision built on the conservative criteria that have
always shaped the way we do business. Along these lines, the
Bank’s ratio of net loan loss provisions to average loans was 1.2%
in 2013, reflecting a more sluggish economic cycle, the growing
share our retail portfolio holds in our total portfolio and additional
(countercyclical) provisions totaling Ch$ 10 billion. Although this
figure is greater than in 2012, it compares favorably with the rest
of the system and our key competitors. The same occurred with
our past-due portfolio, impaired portfolio and provision coverage
indices, giving us the best credit quality among our peers.
In addition, the Bank has put forth considerable effort in operational
risk matters, identifying risks for all of its main processes and
defining mitigation plans in the event of unexpected adverse
circumstances, as well as enhancing the process of evaluating
critical suppliers. Likewise, in terms of market risk, during the year
the Bank implemented a new credit risk measurement system
for derivatives and devised new country risk models. We made
considerable progress in terms of the accuracy and timing of risk
measurements and controls.
One of the year’s greatest achievements was in operational risk: Our
ongoing focus on efficiency since the merger with Citibank Chile in
2008 led to positive results during the year when we attained-for the first time in the Bank’s history--the lowest efficiency ratio
in the Chilean banking industry with a ratio of 43%. This notable
performance is the result of continuous improvements in business
processes, taking advantage of synergies and economies of scale,
proper expense control policies and the ongoing search for a culture
of operational excellence throughout the entire corporation. We
have made a firm commitment to continue advancing in this area
by implementing new technologies without losing sight of the needs
of our customers and our commitment to providing the best service.
In quality matters, in 2013 we attained substantial improvements in
quality as perceived by our customers thanks to the implementation
of concrete, corporate-wide plans and the professional work
and commitment of our team of associates. The effort put forth
translated into an increase in customer recommendation indices,
lower customer loss rates and greater effectiveness in resolving
problems and complaints, which contrast with 2012 figures when
our service quality was temporarily affected while implementing
technology needed to expand our business.
The following quality initiatives stand out: optimizing the ATM
network, developing new mobile applications, boosting up-time
of remote customer service channels and improving our ability to
contact our customers, among other aspects. We were also the first
bank to issue credit cards with electronic chips, a timely response
to the need for greater security in payment media. This important
improvement in quality earned us the Customer Loyalty Award
from Diario Estrategia and Alco Consultores, which recognizes
companies that excel in customer service.
In operational and technology matters, we successfully implemented
a new digital platform that makes it easier for SME, Transactional
and Commercial Banking executives to handle customer sales
documentation using digital forms. At the same time, we made
progress on implementing a new digital tool that improves the
way customer financial information is handled in the companies
segment, which also helps the loan approval process. During the
year we also implemented new parametrization systems for debit
cards that reduce fraud risks and improve the stability of core
computer systems.
In human resource management, we continued to develop intensive
training programs, placing special emphasis on leadership
development programs. We accomplished this through courses
to reinforce management styles in line with the Bank’s values and
objectives, while strengthening talent and fomenting a merit-based
culture.
Accordingly lines, we followed through with our social commitments
through various initiatives, such as our support of the Astoreca
Foundation in its project to build a new school in the town of Lampa.
We also engaged in multiple activities with the Desafío Levantemos
Chile Foundation, providing support for future entrepreneurs through
workshops and preferential financing conditions. We continued
to fund a university scholarship for academic excellence, support
the Chile-China exchange program between Universidad Católica
and the University of Tsingua, and provide financial support to
programs at Universidad de Chile. The Bank once again supported
the Teletón Foundation in its activities in 2013; supported the Debra
Foundation, which helps children suffering from epidermolysis
bullosa; implemented the “Night of Dignity” program to distribute
food to homeless individuals; provided resources to build children’s
libraries in the Araucania Region and sponsored a preschool
(through Banchile Inversiones) in the district of Peñalolén run by the
Cristo Joven Foundation, among other initiatives.
83
GESTIÓN CONSOLIDADA
As Chief Executive Officer, I must also express my gratitude for
the effort and dedication of all of our employees in both the Bank
and its subsidiaries. Each of the goals met this year is the result of
the perseverance, professionalism and commitment of each and
every one of them. These dedicated individuals identify with the
Bank’s values in their daily work and are motivated by a desire
to overcome challenges within an organization that offers many
opportunities. With this conviction, in 2013 we gave them special
recognition through the “120 Year Bonus” intended to recognize
their exceptional performance in 2013.
Already addressing the new challenges and goals that 2014 will
bring, I reaffirm Banco de Chile’s commitment to its customers,
employees, shareholders and community. We will make sure we
are always up to meeting the country’s challenges, developing a
modern, transparent banking industry of which we can be proud.
Finally, I wish to express special gratitude for the trust that the
Board of Directors has placed in me to lead this corporation and its
more than 14,000 employees, who contribute every day to building
the best bank in Chile.
84
RESULTS AND
BALANCE SHEET ANALYSIS
$514 BILLION IN NET INCOME AND 24% RETURN ON CAPITAL
•
•
Banco de Chile posted net income of Ch$514 billion
and a return on average capital and reserves of 24%,
reaffirming its position as the industry leader in earnings
and returns.
These results can be attributed to a solid capacity to
generate income stemming from focused growth of the
loan portfolio and a successful expense control strategy
that enabled us to lead the industry in operating efficiency
for the first time ever.
•
•
Consistent with its strategy, Banco de Chile continued to
post sharp growth in retail loans, attaining increases of
11% in the SME segment, 13% in mortgage loans and
8% in consumer loans. It also held its leading position in
commercial loans with an annual rise of 11%.
The Bank continued to diversify its sources of funds
by issuing over US$ 1.0 billion in debt on demanding
markets such as Switzerland, Japan and Hong Kong. We
also established a medium-term notes (MTN) program for
US$ 2.0 billion in Luxembourg.
STATEMENT OF INCOME
(In millions of Chilean pesos as of each year)
2012
2013
952,838
1,059,169
11.2
59,883
82,541
37.8
1,012,721
1,141,710
12.7
287,272
287,094
(0.1)
22,061
27,221
23.4
Operating revenue
1,322,054
1,456,025
10.1
Provisions for loan losses
(188,190)
(241,613)
28.4
Net operating revenue
1,133,864
1,214,412
7.1
Operating expenses
(611,634)
(622,944)
1.8
(229)
2,071
-
Taxes
(54,390)
(79,936)
47.0
Consolidated net income
467,611
513,603
9.8
1
1
0
467,610
513,602
9.8
Net interest and adjustment revenues
Net gains from trading and brokerage activities and
foreign exchange transactions
Net financial income
Net fees and commissions
Income attributable to affiliates
Minority interest
Net income for equity holders of parent
% Change
85
RESULTS AND BALANCE SHEET ANALYSIS
NET INCOME FOR THE YEAR AND RETURN ON
AVERAGE CAPITAL AND RESERVES
(Figures in millions of nominal Chilean pesos and percentages)
This growth in net income can be attributed to:
•
513,603
467,611
+ 9.8%
•
26.5%
23.8%
2012
Net Income
2013
In 2013, Banco de Chile reported record net income of Ch$513.6
billion, which represents an increase of 10% over 2012. This rise
in net income was the result of sustained growth in retail segments
offering the greatest returns, a strict expense control policy that
enabled us to lead the market in efficiency and an excellent funding
structure with a large base of demand deposits.
These excellent earnings figures gave the Bank the leading market
share in net income for the industry, with 27% of the banking
sector’s total net income, which is more than 4% over our closest
competitor, equivalent to 1.2 times.
As a result, Banco de Chile also led the industry in returns. As of
December 2013, its return on average capital (ROAC) was 23.8%
while its return on average assets (ROAA) was 2.1%. Both figures
are well above our key competitors, which posted an ROAC of 19%
and an ROAA of 1.4% during the same period.
86
•
Sound capacity to generate operating income thanks to
growth in retail and SME loans which, together with proper
management of credit spreads, helped offset next-to-no
growth in net fees and commissions.
A favorable, reinforced funding structure in 2013, due to stable
growth in demand deposits.
A strict expense control policy that limited the Bank’s
expenditures through economies of scale, improved and
redesigned processes and boosts in productivity in the
distribution network.
These elements were partially offset by increased risk expenses
explained by the growing share of the retail segment within the
loan portfolio; limited deterioration in certain corporate debtors and
additional (anti-cyclical) provisions of US$ 10 billion. Furthermore,
in 2013 the Bank reported a 47% increase for the year in tax
payments as a result of a lower basis for comparison in 2012.
These lower tax figures in 2012 were the result of a modification in
the corporate (first category) tax rate, which in turn had a favorable,
one-time effect on deferred taxes that reduced the effective rate
for 2012.
Net Financial Income
Banco de Chile reported net financial income of Ch$1.1 trillion,
increasing 12.7% over 2012. This variation consists of increases of
11.2% in net interest and adjustment revenues and 37.8% in net
gains from trading and brokerage activities and foreign exchange
transactions. These variations were based mainly on:
•
•
Annual growth of 11% in the retail loan portfolio, which is in
line with solid private consumption and low unemployment
rates.
The positive effect of the 9% growth in demand deposits,
which allowed it to increase the contribution by these noninterest bearing liabilities that finance interest-bearing assets.
•
•
An increase in income from exchange rate hedges for
provisions and expenses denominated in foreign currency that
benefited from the 10% increase in the US dollar during the
year.
Proactive management of credit spreads, which rose on
average 12 basis points during the year.
These positive results are especially noteworthy given the scenario
of lower inflation (measured in UF), financial markets that were
unattractive to investors and tighter banking regulation that
negatively impacted the generation of fee revenue.
87
NET FEES AND COMMISSIONS
(Figures in millions of nominal Chilean pesos)
287,272
287,094
in 2012, the poorly performing local stock market kept customer
risk aversion high, creating a larger appetite for fixed-income
instruments and mutual funds over equities and variable-income
mutual funds.
-0.1%
22%
20%
2012
Net Fees
2013
Fees / Operating Revenue
In 2013, net fees and commissions totaled Ch$287.1 billion, which
is practically the same as the prior year figure. During the year,
this revenue source was affected by greater regulations that limited
income generation from traditional banking business and financial
markets that were unattractive to investors, leading to reduced
commissions from mutual fund and stock brokerage services. As
Nevertheless, within the traditional banking business there was
a rise in fees and commissions from current accounts, demand
accounts and lines of credit stemming from the growth of our
customer base, and a rise in fees and commissions from cash
management, collections and custody services linked to efforts to
strengthen customer relations in the wholesale market.
Fees and commissions continued to be an important source of
stable revenue for the Bank, representing 20% of operating income
in 2012 and making the Bank the industry leader with market share
of 22% of total system fee and commission revenue.
NET FEES AND COMMISSIONS PER PRODUCT
2012
2013
Current accounts, debit accounts, lines of credit and ATMs
67,020
68,971
2.9
Insurance
60,481
62,378
3.1
Mutual funds
56,043
54,833
(2.2)
Credit cards
23,086
16,481
(28.6)
Cash management services
42,939
45,417
5.8
Letters of credit, guarantees, endorsements and other
13,038
15,703
20.4
Securities brokerage
10,236
10,067
(1.7)
Other
14,429
13,244
(8.2)
Total
287,272
287,094
(0.1)
22%
20%
Fees / Operating Revenue
88
% Change
PROVISIONS FOR LOAN LOSSES
2012
2013
% Change
384,490
427,435
11.2
(182,733)
(209,091)
14.4
225,678
262,134
16.2
427,435
480,478
12.4
(225,631)
(262,467)
16.3
Gross provisions contingent loans
(1,251)
(12,692)
914.5
Countercyclical provisions
(2,271)
(10,000)
340.3
Recoveries
40,963
43,546
6.3
(188,190)
(241,613)
28.4
1.04%
1.23%
2.35x
2.03x
0.97%
1.13%
Allowances for Loan Losses
Initial allowances
Charge-offs
Provisions established (net)
Final Allowances
Provisions for Loan Losses
Gross provisions
Provisions for Loan Losses
Credit Quality Ratios
Provisions for Loan Losses / Avg. Loans
Allowances for Loan Losses / Total Past-Due
Total Past-Due / Total Loans
89
Among its peers, Banco de Chile’s risk indicators continued to stand
out because of its recognized sound judgment in risk matters and
superior credit quality in an environment of economic deceleration
and new regulations that adversely impacted the industry’s risk
assessment processes and deteriorated payment behavior in some
segments.
As of year-end 2013, the Bank’s net credit risk provisions amounted
to Ch$241.6 billion, or a rise of 28% for the year. This increase can
be explained mainly by:
•
•
•
•
An 11% increase in retail and SME loans, consistent with the
Bank’s strategy to lead the retail business.
Increased loan loss expenses for the commercial portfolio
resulting from the financial deterioration of certain corporate
clients.
Additional (countercyclical) provisions established in 2013
for Ch$10 billion, compared to Ch$2.27 billion in 2012,
because of the Bank’s conservative approach to risk in a less
expansionary economic cycle.
The 10% rise in the exchange rate, which increased the value
in pesos of provisions denominated in foreign currency.
These effects were partially offset by increased loan recoveries
of Ch$ 2.6 billion thanks to initiatives to improve collections
procedures and productivity.
Despite increased provision expenses during the year, the Bank
continued to perform well in all risk indicators, achieving a ratio
90
of provisions for loan losses to average loans of 1.2%, and of total
past-due loans to total loans of 1.1%, and a coverage ratio for this
portfolio of 2.0. These figures all compare favorably to the financial
system and the Bank’s key competitors.
Operating Expenses and Efficiency
OPERATING EXPENSES
2012
2013
Personnel expenses
309,865
323,236
4.3
Administrative expenses
247,459
252,501
2.0
31,856
31,156
(2.2)
22,454
16,051
(28.5)
611,634
622,944
1.8
1,322,054
1,456,025
10.1
46.3%
42.8%
Depreciation, amortization and impairment
Other operating expenses
Total operating expenses
Operating revenue
Efficiency Ratio
The continued focus on efficiency and on building an organizational
culture centered around expense control generated important
results during 2013. During the year, operating expenses increased
only 1.8%, totaling Ch$ 622.9 billion as of December. This increase
was significantly less than the 10% growth in operating revenue
and the 11% rise in total loans, which allowed for a substantial
improvement in the efficiency ratio (operating expenses / operating
revenue) from 46.3% to 42.8% and in expenses to total loans from
3.3% in December 2012 to 3.0% in December 2013.
% Change
These effects were almost fully offset by decreased expenses for
depreciation and amortization and other operating expenses. The
latter was due to a tight basis of comparison because of increased
costs in 2012 from implementing a new current account platform
and other technology initiatives.
During the year, the main reasons for these increased expenses
were:
•
•
A rise of 4.3% in personnel expenses, which is limited
considering it is only slightly above cumulative inflation for
the year and includes a 1% increase in the total number of
employees as well as a performance bonus for associates
(an extraordinary expense of Ch$ 5.3 billion during the fourth
quarter).
Increased administrative expenses, which grew by merely
2.0% in response to normal operations.
91
Loan Portfolio
LOAN PORTFOLIO
COMMERCIAL LOANS
MORTGAGE LOANS
13,077
11,732
4,732
4,199
+11.5%
+12.7%
2012
2013
CONSUMER LOANS
2012
2013
TOTAL LOANS
20,870
18,762
+11.2%
3,061
2,832
+8.1%
2012
2013
In 2013, Banco de Chile reported annual growth of 11.2% in total
loans, ending the year with a portfolio of Ch$20.9 billion and leaving
the Bank in second place in the industry with 19.1% of industry
loans. During the year, in line with its long-term strategy, commercial
efforts continued to focus on segments with greater returns in the
retail market and on strengthening customer relationships and
cross sales with customers from the wholesale segment, both
through organic growth and initiatives such as the purchase of a
commercial portfolio in the fourth quarter.
92
2012
2013
From a segment-perspective, during 2013 growth of total loans was
relatively homogeneous, led by the wholesale segment (+11.6%),
followed by the retail business (+10.9%). As mentioned before,
this composition can be primarily explained by the purchase of a
portfolio of low-risk commercial loans from a local competitor for
Ch$ 500 billion. Excluding this purchase, growth in the wholesale
segment would have been 6.2%, which is still significantly greater
than 2012 growth, driven mainly by the solid expansion of the Large
Companies Division.
The positive performance of the retail banking segment was
possible thanks to the Bank’s solid brand positioning, a large
customer base (which increased 4.9% in retail and 7.8% in the
SME segment), an extensive distribution network throughout Chile
and an ongoing focus on service quality. Nearly 5,500 new SME
customers were added as a result of the Bank’s diverse programs
to continue expanding this segment, including its “SME Gatherings
and Workshops” and the “Regions” project.
On a product level, mortgage loans once again performed
exceptionally, rising 12.7% in 2013 (16.4% in 2012). This
outstanding performance over the last three years was based
on the Bank’s strategic decision to expand this product because
it helps generate long-term relationships with customers and
greater possibilities for product cross-sales. This strategy has
also been successful because of the Bank’s competitive funding
structure, an attractive, properly segmented value proposition
and the synergies that come from collaboration among different
business units. As a result, the Bank attained market share of
17.4% as of December 2013, accumulating an increase of 300
basis points over the last four years, growth that is in line with our
medium-term targets.
In commercial loans, the Bank reported an increase of 11.5%
during 2013. This figure was above industry averages, preserving
Banco de Chile’s leading position in commercial loans with market
share of 19.5%, or 20 basis points over year-end 2012. In line with
its strategy, the Bank continued to prioritize growth in SMEs and
middle market companies.
Lastly, loan growth during the year continued to reflect the
consistency of the Bank’s strategy and the current market
conditions, which have driven the more focused and restricted
growth of the portfolio, especially in the low-income and corporate
segments. Overall, we continue to observe great growth potential
in the retail market segments, where we will keep strengthening
our value offering and commercial efforts over the next few years.
In consumer loans, the Bank´s performance was below the
banking system´s average with a total annual increase of 8.1%
(14% for the system). This decrease can be explained mostly by
our conservative risk management approach that led to stricter
credit assessments in lower-income segments in response
to greater regulations and general economic deceleration.
Nevertheless, growth of this product was focused on the medium
and high-income segments, where credit cards stand out, with
15.3% annual growth, giving the Bank market share of 23.1%.
This positive performance can be explained by stable household
consumption patterns during the year and appropriate commercial
strategies to attract new customers and promote credit card use.
As of year-end, the Bank held second place in consumer loans
with 22.0% of the market.
93
Funding
LIABILITY STRUCTURE
2012
2013
6,869,924
7,422,712
8.0
5,470,971
5,984,332
9.4
Derivative instruments
380,322
445,132
17.0
Transactions in the course of payment
159,218
126,343
(20.6)
Other non-interest bearing liabilities
859,413
866,905
0.9
14,384,083
16,226,842
12.8
9,612,950
10,402,725
8.2
226,396
256,766
13.4
Borrowings from financial institutions
1,108,681
989,465
(10.8)
Debt issued
3,273,933
4,366,960
33.4
162,123
210,926
30.1
21,254,007
23,649,554
11.3
Non-interest Bearing Liabilities
Current accounts and other demand deposits
Interest Bearing Liabilities
Savings accounts and time deposits
Payables from repurchase agreements and securities lending
Other financial obligations
Total Liabilities
In 2013, Banco de Chile continued to strengthen its sound funding
structure, achieving important advances in diversification and
liquidity. In effect, despite an environment where the gradual
withdrawal of monetary stimulus by U.S. Federal Reserve has
deteriorated access to funding by emerging countries, the Bank
managed to increase its external sources of funding, securing
positive financing conditions and varied maturities, thanks to its
solid international risk rating and growing brand recognition in
foreign markets. Along these same lines, the Bank also established
a medium-term notes (MTN) program in Luxembourg for US$ 2.0
94
% Change
billion, which will ease debt issuance processes in these markets.
Likewise demand deposits increased during the year and bonds
were issued on the local market with excellent financing conditions.
As of December 2013, the Bank has liabilities for Ch$23.7 trillion,
representing an increase of 11.3% over 2012. During the year, the
increase in liabilities was explained primarily by:
•
•
•
21% of the banking system and 29% of the Bank’s total loans as
of December 2013 (25% for the system), allows Banco de Chile to
maintain a highly competitive cost of funds and one of the lowest
figures in the banking system and among relevant competitors.
The rise of 33.4% in debt issued, including: (i) placement of
Ch$509 billion in long-term bonds on the local market, of
which Ch$505 billion were senior bonds and Ch$4 billion were
subordinated bonds, capitalizing on the low spreads available
to the Bank, (ii) issuance of more than US$1.12 billion in bonds
on markets in Switzerland (US$ 785 million), Hong Kong (US$
168 million) and Japan (US$ 167 million).
An increase of 9.4% in current accounts and demand deposits
due in part to growing demand for liquidity given dynamic
private consumption and, to a lesser extent, lower nominal
interest rates.
A rise of 8.2% in time deposits and savings accounts, linked to
a greater appetite for fixed-income instruments from investors.
These elements reflect a successful funding strategy that seeks
greater diversification of international suppliers of funds with
conditions that are similar to or better than those available internally.
This, together with a large base of demand deposits representing
95
As of December 2013, Banco de Chile has equity of Ch$2.28
trillion, representing an increase of 13.8% over December 2012.
This growth, which was greater than the increase in assets, is in
response to a capital strengthening strategy that included more
retained earnings and a new capital increase that began in October
2012 and was completed in March 2013.
Specifically, the rise in equity in 2013 was the result of:
•
•
•
The capital increase initiated in late 2012 that has increased
paid-in capital by Ch$134 billion by issuing shares on the local
market.
The capitalization of Ch$86 billion, which is 30% of distributable
net income from 2012, as approved by shareholders.
Ch$36 billion in retained earnings, which is equivalent to the
inflation adjustment to capital as stipulated in the Bank’s bylaws.
Despite the 11% rise in risk-weighted assets, this increased capital
base enabled the Bank to retain practically the same Basel Index
with 13.1% in December 2013 and 13.2% in December 2012.
EQUITY
AS OF DECEMBER 31, 2012
AS OF DECEMBER 31, 2013
1,629,078
1,849,351
175,814
213,636
18,935
16,379
166,851
15,928
16,379
189,020
2
2
Total Equity (Millions of Ch$) 2,007,059
Capital
Retained Earnings
Reserves
Net Income(*)
Other Comprehensive Income
Minority Interest
*Net income includes provision for minimum dividends.
96
Total Equity (Millions of Ch$) 2,284,316
Capital
Retained Earnings
Reserves
Net Income(*)
Other Comprehensive Income
Minority Interest
*Net income includes provision for minimum dividends.
2011
2012
2013
Earnings per Share
Net Income per Share CHILE (Ch$) (1)
Net Income per ADS (Ch$) (1)
Net Income per ADS (US$) (2)
4.93
5.31
5.51
2,959.23
3,186.88
3,307.34
5.69
6.65
6.29
20.00
22.80
24.52
86,943
88,038
93,175
Net Interest Margin
4.88%
4.62%
4.71%
Net Financial Margin
4.98%
4.91%
5.08%
Fees / Avg. Interest Earning Assets
1.73%
1.39%
1.28%
Operating Revenue / Avg. Interest Earning Assets
6.85%
6.41%
6.47%
Return on Average Total Assets
2.12%
2.09%
2.13%
27.44%
26.50%
23.80%
Equity / Total Assets
8.00%
8.63%
8.81%
Basic Capital / Total Assets
6.85%
7.33%
7.57%
Basic Capital / Risk-Weighted Assets
8.88%
9.69%
9.94%
12.91%
13.22%
13.05%
Book Value per Share CHILE (Ch$) (1)
Shares Outstanding (millions)
Profitability Ratios (3)
Capital Ratios
Regulatory Capital / Risk-Weighted Assets
Credit Quality Ratios
Past-Due Loans / Total Loans
1.03%
0.97%
1.13%
214.91%
235.03%
202.96%
Allowances for Loan Losses / Total Loans
2.21%
2.28%
2.30%
Provisions for Loan Losses / Avg. Total Loans
0.79%
1.04%
1.23%
Operating Expenses / Operating Revenue
50.16%
46.26%
42.78%
Operating Expenses / Avg. Total Assets (3)
3.03%
2.75%
2.58%
Average Interest Earning Assets (Ch$ millions)
17,867,129
20,627,817
22,492,802
Average Assets (Ch$ millions)
20,267,708
22,343,333
24,120,150
Average Equity (Ch$ millions)
1,603,482
1,797,806
2,184,368
Average Capital and Reserves (Ch$ millions)
1,562,469
1,764,326
2,157,975
Average Loans (Ch$ millions)
15,870,478
18,052,920
19,630,953
Average Interest Bearing Liabilities (Ch$ millions)
12,548,034
14,013,935
14,970,184
Risk-Weighted Assets (Ch$ millions)
19,584,871
20,709,524
22,981,095
Exchange Rate (Ch$)
519.80
479.47
525.72
Employees
14,129
14,581
14,723
441
434
430
Allowances for Loan Losses / Past-Due Loans
Operating and Productivity Ratios
Balance Sheet Averages (1) (3)
Other Information
Branches
(1)Values expressed in Chilean pesos.
(2)Values calculated using nominal net income, outstanding shares and exchange rates as of each year end.
(3)Ratios calculated as an average of daily balances.
97
07
BUSINESS AREAS
Retail Market
Wholesale Market
Treasury
Subsidiaries
RETAIL MARKET
COMMERCIAL DIVISION
Cultivating Close Relationships with Our Customers
SHARE OF LOANS 2013
SHARE OF INCOME BEFORE TAXES 2013
45%
47%
53%
Commercial Banking Division
55%
Other
Commercial Banking Division
Other
Mission
Competitive Strengths
To lead the retail and SME market segments with a profitable asset
portfolio and efficient processes, attracting customers that prefer
our bank through motivated and committed teams in a quality work
environment.
• Brand positioning.
• Comprehensive product and service offering.
• Business scale and customer base.
• Extensive distribution network.
Target Market
Objectives and Strategic Initiatives 2014
• Middle to high-income individuals.
• Small and medium-sized companies (SMEs) with annual sales of
up to Ch$1.6 billion.
• Consolidate returns through commercial management and in
distribution network.
• Improve efficiency in branch management and sales channels.
• Strengthen service quality.
• Strengthen leadership in all regions throughout Chile.
• Reinforce multi-channel approach.
• Optimize commercial integration with real estate companies in
mortgage business.
• Modernize sales force through further segmentation/clustering.
Lines of Business and Products
• Retail Segment Product and service offering includes: current
accounts, credit cards, credit lines, mortgage loans, consumer
loans, life and general insurance, savings instruments, mutual
funds, time deposits, stock brokerage, foreign currency and
automatic bill payment services.
Increased customer loyalty and growth focused on key products
Small and Medium-sized Company Segment:
The product offering for this segment includes a wide range
of financing alternatives, assistance with import and export
operations, payment and collections services, factoring services,
lease agreements, current-account related services, international
funds transfers, investment management, insurance brokerage,
currency trading and government-backed loans.
100
Business Areas
were just some of the achievements of the Commercial Banking
Division in 2013. These accomplishments led to improved service
quality indicators and attractive growth in both business volume and
operating revenue.
Important improvements were made in 2013 to the diverse
customer service channels in the retail and SME segments,
consistent with our client-focused strategy. Productivity was also
boosted in the Internet and telemarketing channels. As a result of
these and other initiatives, the division expanded its total loans by
11.6%, strengthening its presence in areas outside Santiago and
giving it market share of 20%.
Noteworthy changes to customer service channels include:
improvements to Internet services that significantly increased
stability; optimization of the ATM network and development of
new mobile applications for smart phones, doubling the number of
customers using these devices for transactions during the second
half of the year. Along these same lines, customer contactability
improved with call abandonment rates dropping sharply. There was
also a rise in the first call resolution rate, an important factor for
today’s customers, who demand better quality service and fast
solutions. According to the division manager, Jorge Tagle, “These
positive contactability and resolution figures help us improve our
customer recommendation and satisfaction rates.”
The market also recognized these achievements with the Customer
Loyalty Award from Diario Estrategia and Alco Consultores, honoring
those companies with the best customer loyalty indices from a total
of 14 industries and 53 participating entities.
COMMERCIAL DIVISION
Loans (BCh$))
2012
2013
∆$
∆%
Commercial
2,460.6 2,725.5
264.9
10.8%
Mortgage
4,127.3 4,656.0
528.6
12.8%
Consumer
2,121.3 2,342.1
220.8
10.4%
Total
8,709.2 9,723.6 1,014.4
11.6%
Summarized Income Statement (BCh$)
2012
2013
∆$
∆%
Total Operating Revenue
675.6
754.4
78.7
11.7%
(116.7)
(144.1)
(27.4)
23.5%
Operating Expenses
(337.1)
(341.5)
(4.5)
1.3%
221.6
269.7
48.1
21.7%
Income Before Taxes (IBT)
Ratios
2012
2013
∆
Operating Income / Total Loans
7.8%
7.8%
0.0%
Efficiency Ratio
49.9%
45.3%
(4.6%)
LLP / Total Loans
1.3%
1.5%
0.2%
IBT / Total Loans
2.5%
2.8%
0.3%
Relevant Information
2012
2013
∆
∆%
Number of Retail Customers (thousands)
840.7
881.9
41.2
4.9%
Number of SME Customers (thousands)
69.8
75.2
5.4
7.8%
1,915.0 1,804.0
(111.0)
(5.8%)
7
2.5%
ATMs
Branches
278
285
Another major development in 2013 was the switch from magnetic
striped credit cards to the chip system used in most developed
countries. This shift arose in response to the need for a system to
prevent fraud and unlawful use of credit cards. Along those lines,
Jorge Tagle explains that Banco de Chile “responded quickly to the
need for security improvements in credit cards and was the first
entity in the local market to begin the process.”
Business Areas
101
RETAIL MARKET
Commercial efforts were also targeted towards expanding the
branch network, incorporating seven new offices in Chile’s northern
and central regions and leading to a rise in new customers mainly
in the young and middle to high-income segments.
In the SME segment, one of the division’s main achievements was
loan growth over 10% with a portfolio of 75,000 customers. This
is in addition to efforts to cultivate customer relationships through
diverse channels. Such efforts included initiatives designed to
expand the Bank’s presence in areas outside Santiago with specific
current account plans and a differentiated offering for small and
medium-sized businesses, business owners and liability-intensive
companies. Another of these initiatives included a customer loyalty
plan implemented through “SME Gatherings and Workshops”,
which were attended by over 5,000 customers in different cities
throughout Chile.
Important progress was made in loan products, specifically leases
and foreign trade products to support our customers’ business
ventures, with annual growth of over 15% and 25%, respectively.
We also formed an alliance with Google to provide digital marketing
tools to help SMEs expand business.
102
Business Areas
The division’s ability to successfully incorporate corporate social
responsibility as a key part of the Bank’s strategy was another
major achievement in 2013. “Our relationship with the community
is now seen as a strategic focal point”, Tagle comments. Our team,
along with the rest of the Bank, works very closely with Desafío
Levantemos Chile and the Astoreca Foundation.
In 2014, our division’s main focus will be to cultivate closer
relationships with customers and improve services and products.
To accomplish this, a wide array of business intelligence initiatives
will be implemented with this particular objective in mind. We will
continue to strengthen our position in the medium to high-income
segments with an appropriate value offering and segmentation,
for which our multi-channel customer service approach is key. In
the SME segment, we will promote working capital and investment
financing with advising from specialized account executives.
Our positive performance in 2013, together with diverse initiatives
for 2014 as part of our long-term, customer-centered strategy,
reinforces the Bank’s decision to work to become the banking
industry’s undisputed leader in the retail segment.
BANCO CREDICHILE DIVISION
Closer to the Chilean People
SHARE OF LOANS 2013
6%
4%
94%
96%
Banco Credichile
Other
Banco Credichile
Other
Mission
To provide our customers with creative and effective solutions that
ensure access to quality financial services, generating value for
our customers, shareholders and employees and supporting the
development of the community at large.
• Wide customer base.
• Largest market share and industry leader in returns.
• High efficiency.
• Excellent service quality.
• Nation-wide coverage.
Target Market
Employees, retirees and micro-entrepreneurs in the C3 and D
socioeconomic segments.
Banco CrediChile features a wide range of financial products and
services, including consumer loans, savings accounts, credit cards,
life and general insurance, mortgage loans, microenterprise loans,
payroll and sight deposit accounts.
•
•
Achieve operational excellence.
Enhance service quality.
• Place emphasis on transparency.
• Renew self-service terminals and PC platform.
• Strengthen indirect channels (Internet, mobile banking and
Caja Chile) by adding 1,000 service centers.
• Diversify sources of revenue.
• Strengthen cooperative agreements with companies and
alliances.
• Consolidate microenterprise segment.
• Develop human capital.
• Conduct leadership and training programs to reinforce a
distinctive culture.
• Engage in corporate social responsibility initiatives.
Business Areas
103
RETAIL MARKET
In 2013, Banco CrediChile consolidated its leadership within the
segment, renewing its technology platforms and opening more
customer service centers to serve its customers more quickly and
efficiently.
The past year was very positive for the division thanks to appropriate
management efforts focused mainly on three areas: enhanced risk
processes, an increase in the gross margin and strict expense
control. As a result of these efforts, the division increased net
income by 17%.
BANCO CREDICHILE DIVISION
Loans (BCh$)
2012
2013
∆$
∆%
Commercial
10.9
18.6
7.8
71.4%
Mortgage
62.7
68.3
5.6
8.9%
Consumer
696.7
706.3
9.6
1.4%
Total
770.3
793.2
23.0
3.0%
According to Juan Cooper, Division Manager of Banco CrediChile,
“Banco CrediChile not only held its leading spot in terms of returns
but also in market share, with 22% of total segment loans.”
2012
2013
∆$
∆%
Operating Revenue
166.4
168.8
2.4
1.4%
(63.8)
(59.4)
4.4
(6.9%)
Operating Expenses
(73.9)
(76.0)
(2.1)
2.8%
The division’s diverse strengths - the foundation for its positive
performance this year - include its extensive customer service
network with close to 150 branches in addition to the Caja Chile
network. With close to 2,000 affiliated businesses, the Caja Chile
network enables customers to access basic financial services such
as checking balances, making withdrawals and deposits and paying
bills.
28.7
33.5
4.9
16.9%
Also in 2013, Banco CrediChile broadened the value offering for
its target segment. It signed a large number of new collaborative
agreements with companies, allowing it to offer payroll deduction
loans and provide more and better services to individuals receiving
payroll direct deposits in demand accounts.
Ratios
2012
2013
∆
21.6%
21.3%
(0.3%)
Efficiency Ratio
44.4%
45.0%
0.6%
LLP / Total Loans
8.3%
7.5%
(0.8%)
IBT / Total Loans
3.7%
4.2%
0.5%
2012
2013
∆
∆%
Number of customers (thousands)
874.2
900.9
27
3.1%
156
145
(11.0)
(7.1%)
Branches
The customer service process was also enhanced through the
use of fingerprint reading devices and improvements to the sales
platform (particularly to loan pre-approvals) that reduced wait times.
In the microenterprise area (companies with annual sales of less
than UF 2,300), Banco CrediChile worked strategically to strengthen
customer loyalty through specialized banking. The business model
for this subsegment is based on providing competitive services
and forming commercial alliances with trade associations. As a
104
Business Areas
reflection of Banco CrediChile’s commitment to its microenterprise
customers, the Retail Trade Confederation recognized it as one of
the sector’s best supporters.
In human resource management, Banco CrediChile worked hard to
reinforce the leadership skills of all personnel in supervisory roles,
understanding that they are key to successfully implementing the
division’s strategy. Juan Cooper explains that “the commitment
and professionalism of each team member are key to generating
opportunities for development.” In addition, this business area
continued to support the program AulaChile, an internal training
platform (including both e-learning and classroom learning) that
is certified by a prominent Chilean technical school. Through this
program, 70% of the division’s associates participated in training
on a variety of topics in 2013.
In terms of corporate social responsibility - one of the Bank’s
strategic pillars - Banco CrediChile participated actively with Desafío
Levantemos Chile, promoting and supporting entrepreneurs with
new and better tools for their business ventures, and giving some
the chance to finish their secondary studies through a tutoring
program.
Lastly, looking towards 2014, Banco CrediChile will continue to
strengthen its value proposals as well as cooperative agreements
with institutions and companies. It also expects to finalize migration
of its demand account customers to a recently developed system
that will enable them to access important services such as a new
Internet platform and mobile banking application. These and many
other initiatives will enable CrediChile to strengthen its position in all
segments, positioning itself as the industry leader and supporting
the development and wellbeing of its customers and the country.
Business Areas
105
WHOLESALE MARKET
WHOLESALE, LARGE COMPANIES AND REAL ESTATE DIVISION
Comprehensive Financial Solutions Tailored to the Customer
SHARE OF LOANS 2013
22%
31%
78%
69%
Other
Other
Mission
To create value for customers through effective solutions and
differentiated value propositions for each segment with high service
quality standards that enable it to maintain its leadership in terms of
deposits, market penetration and cross-sales.
• Customer service model.
• Distribution network.
• Comprehensive product and service offering.
• Positioning and segment leadership.
• Service quality.
Target Market
Chilean companies and foreign companies with operations in Chile
with annual sales between Ch$1.6 billion and Ch$70.0 billion,
including the construction and real estate industries and family
offices.
The division has four specialized areas that serve different customer
segments, offering a complete range of products, including: Loan
products, payment products (payroll, suppliers, taxes, etc.), foreign
trade, leases, factoring, treasury products (spots, forwards, structured
products), investments and financial advisory services.
106
Business Areas
• Improve efficiency and commercial productivity.
• Enhance customer service model in wholesale area.
• Assist customers with their regional growth plans, generating
greater synergies with the Citi network.
• Develop specialized solutions and improve customer experience
in remote service channels.
• Enhance segmentation so that each customer is offered the best
value proposition and standard of service.
The year 2013 was a period of historic growth and consolidation
for the Wholesale, Large Companies and Real Estate Division, as
a result of a strategy based on comprehensive service provided
by specialized account executives. In terms of loan volumes, the
division expanded loans by 23%, nearly doubling the growth posted
by the market as a whole. Worth particular mention is the growth
in business volumes in the Large Companies sub-segment, which
further strengthens the Bank’s already excellent position within this
customer group. A smart business strategy enabled it to also post
growth in operating income of 21%, accompanied by effective risk
management and controlled operating expenses.
The division’s outstanding performance is attributable to its
consistent, long-term strategy focused mainly on cultivating close
relationships with and understanding its customers, backed by
comprehensive, specialized services. The customer service model,
centered around one key relationship executive supported by
a team of specialized executives focused on the same portfolio,
has demonstrated significant commercial effectiveness as well as
a high degree of customer acceptance. In addition, through this
model, division account executives expand their knowledge base as
a result of working closely with experts from other divisions, thus
contributing to their own development and versatility.
In order to develop deeper and stronger relationships with customers
in regions outside Santiago, numerous events were organized,
including holding meetings of the Bank’s boards of directors in new
locations. “Twice each year, the Bank’s board of directors meets
outside Santiago. We have found this to be extremely beneficial.
In fact, we have conducted surveys in these areas that detect
important improvements in customer relationships,” comments
Eduardo Ebensperger, Division Manager of the Wholesale, Large
Companies and Real Estate Division.
WHOLESALE, LARGE COMPANIES AND REAL ESTATE
DIVISION
Loans (BCh$)
Commercial and Other
∆$
∆%
3,328.1 4,458.1 1,129.9
2012
2013
33.9%
Foreign Trade
731.9
751.1
19.2
2.6%
Factoring
348.5
333.7
(14.7)
(4.2%)
Leasing
789.4
860.3
71.0
9.0%
5,197.9 6,403.2 1,205.3
23.2%
Total
2012
2013
∆$
∆%
Operating Revenue
183.1
221.8
38.7
21.2%
(13.2)
(23.2)
(10.0)
75.6%
Operating Expenses
(72.7)
(70.0)
2.7
(3.6%)
97.1
129.0
32.1
32.9%
Ratios
2012
2013
∆
3.5%
3.5%
(0.0%)
39.7%
31.6%
(8.1%)
LLP / Total Loans
0.3%
0.4%
0.1%
IBT / Total Loans
1.9%
2.0%
0.1%
2012
2013
∆
∆%
17.9
18.5
0.6
3.2%
Efficiency Ratio
Business Areas
107
WHOLESALE MARKET
In order to expand the division’s service offering and satisfy new
market requirements, important initiatives were implemented within
the division in 2013, including the creation of two new business
units to serve specialized niches: Investment, which was involved
in important transactions during the period, and Family Office,
with an estimated market of US$ 60.0 billion in managed assets
and attractive growth rates. This type of initiative is the result of
an ongoing process to analyze the needs of current and potential
customers.
The combination of these measures and the division’s distinctive
capacity to relate to customers through customer loyalty events
and more than 17,000 on-site customer visits made each year, has
enabled the division to consolidate its business model, considerably
increasing cross sales and returns on these relationships. Customer
perception of service quality also improved significantly, which has
enabled the division to retain its competitive leading position.
Regarding human resource management, during the year
the division promoted internal mobility among its associates,
transferring and promoting individuals within the division and to or
from other divisions. In 2013, 13.2% of associates were promoted
to positions of greater responsibility. This effort has resulted in
reinforcing associate commitment and motivation, assuring team
members that their effort and hard work can enhance their career
development.
In corporate social responsibility, the division is known for its strong
commitment to the Bank’s activities. In particular, it is especially
close to the Debra Foundation, which helps children suffering from
epidermolysis bullosa. Regarding this work, Eduardo Ebensperger
108
Business Areas
Orrego comments, “This foundation is a part of our division and is
present in all we do. Our commitment to the foundation is a way
of giving back and sharing the division’s success and efforts with
the community.” Also worth mentioning in 2013 was the division’s
contribution to education through the Araucanía Aprende and
Astoreca Foundations.
In 2014, our division’s efforts will focus on cultivating closer
relationships with customers and maintaining our current
commercial leadership. In particular, contact platforms will be
strengthened, mainly remote channels and on-line banking. These
and other initiatives, such as proper risk management and a focus
on commercial control and monitoring, will allow for substantial
progress in the division’s market position, consolidating and
strengthening its achievements in 2013.
CORPORATE AND INVESTMENT BANKING DIVISION
Customized Products for a Highly Competitive Market
SHARE OF LOANS 2013
20%
19%
81%
80%
Other
Other
Mission
To lead the financial products and services market in the large
corporations segment by providing exceptional, comprehensive
universal banking services and assisting Chilean companies with
their international business ventures.
Target Market
• Large customer base.
• Broad product offering with a network of global banking services.
• Comprehensive solutions based on long-term relationships.
• Integration with the Citi global network and Banchile.
• Service quality.
• Brand positioning.
Chilean and multinational companies with annual sales over
Ch$70.0 billion.
The division offers its customers products such as variable term
financing; transactional banking services such as current account
management, payments, collections, representation and asset
custody both in Chile and abroad; investment banking and capital
markets products as well as advisory services for initial public
offerings, capital increases, sales and purchases of shares block
orders, private capital placements, public share tenders, mergers
and acquisitions, company valuations, bond issuances and
syndicated loans.
• Maintain market leadership.
• Focus on sales of transactional and investment banking products.
• Strengthen product cross-sales.
• Support customers with regional business ventures.
Business Areas
109
WHOLESALE MARKET
In 2013, the division consolidated its leadership in the diverse
corporate banking segments, with exceptional performance in
transactional banking and high quality customer service.
CORPORATE AND INVESTMENT BANKING DIVISION
Loans (BCh$)
Involved in the most important transactions within the local corporate
market, Banco de Chile was the first bank in terms of volumes of
pensions paid in the private sector, and was well positioned in the
traditional banking business as well as in transactional banking,
treasury and investment banking, positioning the Bank’s Corporate
and Investment Banking Division as the top player in the corporate
market. This leadership is based on a team of experts that are
always attentive to their customers’ exacting financial needs and
strive to provide the best service to Chile’s largest economic groups,
large corporations and subsidiaries of multinationals.
In terms of transactions, this division ranked first in international
placements by Chilean companies during 2013, taking part in major
bond transactions such as Entel’s first international bond placement
for US$ 1.0 billion; the placement by Falabella to raise US$ 700
million through one issuance in dollars (US$ 500 million) and
another in Chilean pesos (US$ 200 million), also on international
markets.
Regarding payment systems, the division led the local banking
industry with 35% of the multi-bank automatic bill payment
market and 32% of large payment transactions. The Corporate and
Investment Banking Division Manager, Alain Rochette, explains that
the division “is the main supplier of pension payment services for
the private system in Chile, while it also leads in supplier payments
for the mining industry.”
In addition, the Corporate Division posted important growth in
cross-sales of services, with the highest number of products
per customer in the local industry. The division’s focus is to be
extremely close to customers and help them with their regional
and/or global expansion plans through a regional customer service
platform where the alliance with Citi gives it an important advantage
and a unique value proposition: To this effect, Alain Rochette points
out, “There are increasingly more international companies coming
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Business Areas
Commercial and Other
2012
2013
3,310.1 3,376.1
∆$
∆%
66.0
2.0%
Foreign trade
479.3
365.1
(114.2) (23.8%)
Factored receivables
204.2
137.8
(66.4) (32.5%)
77.0
63.3
Leases
Total
4,070.6 3,942.3
(13.8) (17.9%)
(128.4)
2012
2013
155.3
181.3
26.0
16.7%
5.6
(14.9)
(20.5)
(366.6%)
Operating Expenses
(43.7)
(48.4)
(4.7)
10.7%
117.1
118.4
1.3
1.1%
∆$
(3.2%)
∆%
Ratios
2012
2013
∆
3.8%
4.6%
0.8%
Efficiency Ratio
28.2%
26.7%
(1.4%)
LLP / Total Loans
(0.1%)
0.4%
0.5%
IBT / Total Loans
2.9%
3.0%
0.1%
2012
2013
∆
∆%
4.8
5.3
0.5
11.0%
to Chile and Chilean companies going abroad, so it is very important
to try to anticipate the solutions they will need”.
In terms of service quality, important initiatives were implemented
to improve post-sales service and the effectiveness of complaint
resolution processes. As a reflection of these precise efforts, the
Bank was recognized for the fifth year in a row as the Best SubCustodian Bank by the magazine Global Finance, while the division’s
recommendation index increased by over 80%. Lastly, convinced
that excellent service quality is a differentiating element, in 2013
this division began work to obtain ISO 9001 quality certification for
its telephone banking service.
“What makes this differentiation and the division’s leadership
possible are the professionals that work here”, says Alain Rochette.
The vast experience of its associates, together with collaboration
between the Investment Banking Division (Banchile Citi Global
Markets), the Treasury Division and Transactional Banking enable
us to carry out highly challenging transactions seamlessly.
In corporate social responsibility, the division is working alongside
the rest of the Bank to assist Desafío Levantemos Chile, particularly
with its entrepreneur institute. It also participates in the “Night of
Dignity” program, distributing food to homeless individuals living
near the Santiago Central Emergency Room on a monthly basis. In
2013 the Division also sponsored a preschool in Peñalolén where
activities include a Christmas celebration in December.
Based on its performance in 2013, the division has set for itself
the challenges of continuing growth and strengthening leadership.
In this process, proximity to customers will be key, understanding
their needs and assisting them with their regional and/or global
expansion plans. The division will also maintain efforts to attain
excellent service quality, redesigning and strengthening its diverse
customer service channels and positioning this business area at the
core of all new developments and innovations.
“When you are serving the largest and most sophisticated local
and international companies, you must have a team with incredible
expertise in the different products you offer, whether in transactional
banking or the advisory services market,” he comments.
To this end, the division’s team is structured so that key positions
are held by professionals with more than 20 years experience in the
financial market. In order to enhance their professional expertise,
the division actively participates in an exchange program with Citi for
executives to complete a internship abroad to learn about different
products and markets. This is crucial since the division’s services
demand complete knowledge of the processes, requirements and
stages involved in a transaction, generating a better value offering
than our competitors.
Business Areas
111
TREASURY
TREASURY
Conquering New Markets, Instruments and Investors
INVESTMENTS AS SHARE OF TOTAL ASSETS 2013
2%
8%
98%
92%
Treasury
Other
Treasury
Other
Mission
• To strengthen net revenue generated by offering innovative
financial products and services, and implementing best practices
in asset and liability management.
• To ensure compliance with the Bank’s liquidity and market
risk policies, and provide the best support for the rest of the
organization´s business units and their customers.
• Comprehensive product offering.
• Access to global platform through Citi.
• Specialization and know-how.
• Prestige and brand.
• Customer base.
• Size of balance sheet.
Target Market
• Institutional investors.
• Multinational entities, corporations, wholesale customers and
large companies.
• Private banking and preferential customers.
• Focus on generating solutions for customers using structured
products and options.
• Increase coverage of currency trading platform.
• Expand distribution capacity of Sales and Structured Products
Area.
• Continue diversifying sources of funding.
• Derivative products to hedge market risk (currency, inflation,
interest rates).
• Currency trading.
• Repurchase agreements and time deposits.
• Brokerage of financial instruments.
• Distribution and placement of bonds for corporations and large
companies.
112
Business Areas
In 2013, Banco de Chile positioned itself as the main issuer of
debt in foreign markets, in terms of innovation, volume and market
diversification. The Treasury Division reached important milestones,
positioning the Bank as the only bank in Chile that has placed debt
instruments in six different markets: Japan, Switzerland, Hong Kong,
the United States, Mexico and Peru. The Corporation was a trailblazer,
innovating in markets other than the United States and building a more
long-term market for its issuances in Japan and Switzerland, where
several placements were completed during the year.
With respect to its strategy to connect markets, an important
achievement during the year was the creation, in conjunction with Citi,
of Global Depository Notes (GDN), which are instruments issued in the
United States in dollars and linked to an instrument issued in Chile.
With this, the entity introduced local issuers to a new way of financing,
offering foreign institutional investors the opportunity to generate
exposure abroad under US law and jurisdiction for instruments issued
in the local Chilean market.
TREASURY
Financial Instruments (BCh$)
Trading Instruments
2012
2013
192.7
393.1
∆$
∆%
200.4 104.0%
Instruments Available for Sale
1,264.4 1,673.7
409.3
32.4%
Total
1,457.1 2,066.8
609.7
41.8%
∆%
2012
2013
∆$
32.7
16.3
(16.4)
(50%)
0.0
0.0
0.0
(313%)
Operating Expenses
(9.9)
(6.4)
3.5
(36%)
22.8
10.1
(12.7)
(56%)
Ratios
2012
2013
∆
Operating Revenue / Total Financial
Instruments
2.2%
0.8%
(1.5%)
30.2%
39.0%
8.8%
1.6%
0.5%
(1.1%)
Efficiency Ratio
IBT / Total Financial Instruments
In terms of trading, rate mismatches and sales of financial products,
the division also performed well and complemented progress and
initiatives in liability management. To this effect, Alain Rochette points
out, “In both interest rate and exchange rate positioning, we achieved
excellent results, taking advantage of shifts in interest rate curves and
optimizing financing alternatives. We also maintained our leadership in
risk exposure solutions for our customers through derivative products.”
The commitment and professionalism of the division’s team, together
with the Bank’s efforts to supply the tools it needs to do business, are
key to the success of this business unit. Because global connectivity is
one of the Bank’s main strategic focal points, leveraging our strategic
partnership with Citi and our relationships with world-class international
entities, our executives are increasingly in contact with foreign markets
and have taken part in learning opportunities in different countries.
Another milestone for the year, and the result of the division’s drive
for innovation, was the important progress in implementing “Murex”--a
robust IT support platform for derivative transactions and other financial
products. This integrated, front-to-end system automates operating
and accounting processes, improving risk monitoring and valuations of
diverse financial instruments. It also facilitates incorporation of different
local and international regulatory changes that are expected in the near
future as well as those linked to the Dodd Frank reforms. “A platform
like Murex sets the foundations for continuing to automate all treasury
and markets processes,” explains Rochette.
This team spirit is reinforced each day thanks to the work of Desafío
Levantemos Chile, among other corporate social responsibility activities
in which the Bank participates.
Business Areas
113
SUBSIDIARIES
BANCHILE CORREDORES DE BOLSA S.A.
Industry Leaders
During the year, Banchile Corredores de Bolsa consolidated its
market leadership and was recognized by prominent local and
international institutions. These achievements can be attributed
primarily to its mission to offer quick and secure transactions,
identifying the best combination of profitability, flexibility and
liquidity for the customer. Its market share of share volumes traded
was 10.0% while net income for the year was Ch$9.3 billion.
From a product perspective, international and local bond
placements as well as simultaneous transactions did their part to
make 2013 a successful year. These achievements helped position
Banchile Corredores de Bolsa as the market leader in this business,
characterized by sophisticated products and attractive margins.
During the year, the subsidiary played the role of placement agent
in several important share placements, including Banco de Chile,
CMPC, CCU and Enersis. The Enersis placement was the highest
volume transaction on the local capital market. In fixed-income, the
bond issuance for Caja Los Andes--the largest corporate placement
in pesos--as well as those for ENAP, Mall Plaza and Quiñenco, stood
out.
Along with these accomplishments, 2013 was very important in
terms of international recognition. Banchile Corredores de Bolsa
was distinguished as the Best Investment Bank 2012 and the Best
Share Placement Agent 2012 by Diario Financiero and Deloitte.
Global Private Bank also recognized the subsidiary as the Best
Private Bank in Chile for its Wealth Management segment. The
last award recognizes the best private banks for their progress in
matters such as business strategy and growth, as well as customer
relationships. “These accolades further engage our efforts to
contribute to the proper development of the Chilean securities
markets, providing new and better products as well as exceptional
customer service,” comments Andrés Bucher, CEO of the brokerage
subsidiary.
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Business Areas
The subsidiary’s intensive use of state-of-the-art technology also
deserves mention. It has cutting-edge platforms, broad coverage for
services, clear guidelines on loyalty and a differentiated proposal for
its diverse customer segments that enable it to serve over 160,000
customers. One example of this was the launch of a new application
for mobile phones, designed for smartphones (iOS and Android
platforms) towards the end of the year. The version for tablets is
expected to be released in a second stage. This is in addition to
other services that are one-of-a-kind in the market, such as the
On-line Share Market Price (Banchile Market Data) application and
Gain/Loss Notices. Also in 2013, the entity consolidated the Fidessa
platform, a tool that allows customers to route their orders directly
to the Santiago Stock Exchange.
Lastly, during 2013, Banchile Corredores de Bolsa was recognized
for the seventh year in a row by Great Place to Work Chile as one
of the 20 best companies to work for in Chile. It also placed 23rd
among the best ranked companies in Latin America.
Andrés Bucher indicates that “without a doubt, the integrity, respect
and commitment of the associates at Banchile Corredores de Bolsa
S.A. have created an extraordinary work environment, which has
translated into providing exceptional service for our customers.”
BANCHILE ADMINISTRADORA GENERAL DE FONDOS
A Comprehensive Market Outlook
Creating new products and offering innovative investment
opportunities to our customers was one of the focal points of
2013 for Banchile Administradora General de Fondos - the local
market leader in asset management. During this period, the
subsidiary added 14 new mutual funds to complement its broad
offering, including new structured and stock mutual funds. The
new variable-income funds include alternatives to invest in US
and European markets and others to take advantage of a capital
gains tax exemption for investors under law ITL 107 (ex 18 ter).
The subsidiary also launched the first product with a quantitative
strategy that adjusts its investment portfolio each month in different
asset classes.
With these developments, the subsidiary currently manages 86
mutual funds and eight investment funds, enabling its customers
to diversify their portfolios with different financial instruments, thus
taking advantage of the best business opportunities in Chile and
the world.
presented by newspaper Diario Financiero and the Mutual Funds
Association. Among other accolades, it was awarded first place in
the category Developed Stock Fund with the Global Mid Cap Mutual
Fund. The subsidiary - the entity that has received the most awards
from Fund Pro over the six years of the awards’ existence--was also
distinguished as the Best Mutual Fund in 2013, in the Emerging
Stock category (Banchile Dynamic Vision Stock Mutual Fund).
For the seventh year in a row, Banchile Administradora General de
Fondos placed among the top 20 companies to work for in Chile
according to the Great Place to Work Institute.
All of these awards are closely related to the quality of the
company’s associates. It is this group of individuals that work every
day to consolidate the subsidiary’s leadership within the asset
management industry, highlighting its commitment to providing
exceptional service and delivering high quality products to all
customers.
Currently, the subsidiary has more than 379,000 investors and
managed funds over Ch$4.5 trillion as of December 31, 2013,
giving it a 21.9% market share in mutual funds, and making it the
industry leader.
In addition to product innovations, the subsidiary collaborated
closely with the legislative process for the recently approved Sole
Funds Law, which allows product offerings to be broadened and
encourages foreign investors to enter the market. This new law,
which spent years in congress, consolidates the asset management
industry, resolving pending issues and incorporating key elements
for the industry’s development regarding flexibility and product
offerings. The new law also makes the Chilean market more
attractive to foreign investors by giving them the direct benefit of
not paying taxes on capital gains obtained on their investments in
Chile.
The subsidiary’s concern for its customers and the market in general
was also recognized by distinguished industry players. This year
the entity received awards in four categories at the Salmon Awards
Business Areas
115
SUBSIDIARIES
BANCHILE CITI GLOBAL MARKETS
Advising Major Transactions
The combination of local experience and a global service network
has enabled this subsidiary to affirm its national leadership in stock
and debt issuances. Banchile Citi Global Markets performed well in
2013, leading the industry as the top share and bond placement
agent for locally issued securities. This is in addition to its key role
of advising on the most important mergers and acquisitions during
the year.
The subsidiary’s positive performance is based on its strategy
to provide support and guidance for companies during major
transactions such as IPOs, capital increases, debt issuances and
the search for financing. The subsidiary also assists its customers
with strategic decisions, such as mergers and acquisitions and
valuations of companies or business lines, offering solutions on
both local and international financial markets.
In the case of local bonds, the subsidiary led the market for the third
consecutive year, participating in major transactions such as those
for Caja Los Andes and ENAP.
On international markets, BanChile Citi Global Markets together
with Citi took part in transactions of great interest to the market
such as bond placements for Falabella, Latam Airlines Group, Entel
and Gener.
116
Business Areas
On the local stock market, BanChile Citi Global Markets led important
placements during the year, including capital increases by Enersis
for US$6.0 billion, CCU for US$700 million, Quiñenco for US$700
million and CMPC for US$ 500 million. It also led transactions by
regional issuers in Chile such as the Re-IPO of the Colombian
company Avianca and the IPO by Mexico’s Sanborns Group.
In mergers and acquisitions - the third business area managed by
this subsidiary - several transactions deserve mention: advisory
services on financing for the acquisition by Tecno Fast of 50% of
Tecno Fast Atco; services provided together with Citi to Enagás and
Oman Oil Company on the purchase of 40% of GNL Quintero S.A.
and advisory services for U.S. company CHRISTUS Health, which
purchased a 40% interest in Red de Salud UC.
All of these transactions were backed by Citi, serving customers
with the local and global capabilities of both institutions. In the
domestic market, it also works in coordination with Banchile
Corredores de Bolsa to distribute publicly listed securities such as
stocks and bonds.
BANCHILE CORREDORES DE SEGUROS
Broad, Innovative Offering
The excellent positioning of BanChile Citi Global Markets was widely
recognized by the market. For example, it was named the Best
Investment Bank and the Best Share Placement Agent by Diario
Financiero and Deloitte. It was also named “Best Investment Bank
Chile 2013” by the magazine Global Finance and “Best Debt House
Chile 2013” by the magazine Euromoney.
In 2014, Banchile Citi Global Markets will further efforts to
broaden its leadership to all of the products and services it offers,
contributing its profound knowledge of capital markets and offering
its customers exceptional service with an international reach.
In order to provide its customers with peace of mind and security,
Banchile Corredores de Seguros continued to provide an innovative,
comprehensive product offering, securing its leading position in the
local market and surpassing even its own commercial records. This
was achieved by strengthening the diverse sales channels of Banco
de Chile and Banco CrediChile, selling life and general insurance
policies through account executives, service area executives,
investment executives, sales forces and telemarketing, Internet and
contact center associates, among others.
Thanks to this strategy, in 2013 the insurance brokerage subsidiary
made up a significant portion of the Bank’s revenue, increasing
sales of customer protection insurance policies by 24% over the
prior year.
It also posted record on-line sales of Obligatory Personal Accident
Insurance (SOAP) with 124,579 policies and 448,918 new health,
life and/or property insurance policies for customers of Banco de
Chile and Banco CrediChile, which is equivalent to 23% growth over
the prior year.
This subsidiary also managed to expand the number of workers
covered through collective personal injury policies to 57,794
individuals employed by 3,117 corporate customers of Banco de
Chile. This increase translated into annual growth of 32% in policies
sold with respect to 2012.
Business Areas
117
SUBSIDIARIES
Seventy-four percent of current account holders from the Bank’s
Commercial Division had life, health and/or property policies from
the subsidiary. During 2013, Banco de Chile’s Retail Banking
Division channeled sales of 45,579 individual policies, collected
through payment media other than credit.
This outstanding growth in the volume of polices brokered was
accompanied by efforts to strengthen Internet sales channels.
Overall, remote channels played a larger role with 36% of sales
of customer protection insurance within the Commercial Division.
Average monthly sales of catastrophic health insurance policies
doubled with respect to 2012.
In terms of its product offering, the subsidiary introduced 10 new
insurance policies available on its web page and placed greater
emphasis on social networks (Facebook, Google, Twitter) as a way to
promote sales and provide services. One of the biggest innovations
was the sale of insurance using customer loyalty program points.
In the SME segment, which is also served by Banchile Corredores
de Seguros, a new platform was implemented to sell insurance
policies designed specifically for companies of that size.
In 2013, there were major developments to improve the customer
experience with Banchile Corredores de Seguros, including
incorporating a new Customer Service Area. The mission of this new
area is to correctly execute processes and ensure the satisfaction of
customers from the entire corporation that are insured by Banchile
Corredores de Seguros.
In regulatory matters, changes introduced by the new insurance
law, which took effect in December 2013, were fully implemented
thanks to coordinated team work from the Bank’s different business
areas and the respective regulators. These changes called for
modifications to accounting, IT and documentation.
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Business Areas
Finally, we would like to point out that all of the tasks and objectives
successfully accomplished in 2013 were achieved thanks to a great
team of associates that are very committed and willing to work in an
environment built on trust, cooperation and optimism.
In 2014, Banchile Corredores de Seguros expects to strengthen
its product offering with more added value through insurance
coverage that is valued by customers. It also plans to develop new
sales channels that are closer to customers and make purchasing
insurance easy. To do this, it will rely strongly on its team of
associates, individuals who work to cultivate relationships built on
trust and proximity and who seek learning opportunities that allow
them to continuously grow and improve.
PROMARKET S.A.
SOCOFIN S.A.
Our Focus, the Customer
Intelligence-Based Approach
Promarket, the Bank’s subsidiary responsible for evaluating
potential customers, collaborates mainly with the Commercial
Banking Division and contributes a considerable percentage of the
division’s new customers. Its main strengths include its geographic
coverage (from Iquique to Puerto Montt), a sales force of highlycommitted, experienced executives, emphasis on segmentation and
specialized teams.
The focused work by Socofin, the Bank’s subsidiary specializing in
collections and normalization of debt, enabled it to recover more
written-off loans and sign more customer payment agreements
than in 2012. This was possible thanks to the use of business
intelligence derived from collections scoring models that determine
the likelihood of payment. The subsidiary’s work was more focused,
prioritizing customers with greater payment probabilities and taking
specific steps in cases with lower scores.
The sharp rise in evaluations of potential customers from the high
income and SME segments was one of the main achievements
for the year. The entity exceeded its goals for pre-approving highincome and SME segment customers.
As a result, Promarket provided the Bank’s Commercial Banking
Division with around 29,000 successful evaluations of potential
customers. Each evaluation was conducted based on the
requirements for opening a current account, line of credit, Visa,
MasterCard or Redbanc card, ultimately leading customers to open
120,000 new products.
Motivation and a good work climate within the subsidiary were
key to its positive performance in 2013. These good relationships
are reflected in the subsidiary’s work with customers and allow
for continual improvements to the quality of customer service in
diverse segments. These very same reasons enable associates to
maintain their focus on the search for potential customers.
In 2014, this subsidiary will concentrate on improving the quality of
pre-approved segments as defined by the Bank. The focus will still
be on the customer, aiming for cross sales and profitability while
emphasizing higher-income segments.
In addition, Socofin has developed specialized solutions for each
segment, always considering the nature of the customer. This
contributes to the subsidiary’s ongoing search for efficiency, striving
to provide quality support and value-added collections services for
the Bank’s loan portfolios.
Currently, the subsidiary provides national coverage through its 31
offices from Arica to Punta Arentas.
BANCHILE SECURITIZADORA
Unconventional Solutions
Banchile Securitizadora is a subsidiary of Banco de Chile that provides
customers with unique expertise and knowledge in structuring and
placing securitized bonds, responding to companies’ needs to back
payment of their obligations with cash flows from mortgage notes,
credit cards, auto loans, accounts receivable or future cash flows,
among others.
BANCHILE TRADE SERVICES LIMITED
Banchile Trade Services Limited is a subsidiary constituted in Hong
Kong to facilitate foreign trade operations in Asia—especially
China—for Chilean customers.
Business Areas
119
08
RISK MANAGEMENT
Credit Risk
Financial Risk
Operational Risk
I. INTRODUCTION
The design of a governance structure for managing risks has proven
to be a cornerstone of bank management throughout the world.
This element has become even more important after the financial
crisis that strongly impacted developed countries towards the end
of the last decade. The lessons learned from that crisis have been
the focus of many studies, which concur on the importance of the
risk management function within a financial organization. In effect,
one of the first conclusions from this learning process identifies two
key concepts for sustaining a bank’s capacity to generate value
over the long term: how corporate governance for risk is established
and how entrenched its risk culture is.
As a result, risk management at Banco de Chile holds a prominent
position throughout the organization, expressed in our strong
tradition in risk matters, which is maintained and reinforced through
ongoing monitoring of the different risk areas.
The industry’s increased complexity has gradually strengthened
the function of the Corporate Risk Division, which is responsible
for managing the Bank’s credit, financial and operational risk. For
each of these risk areas, the Division evaluates potential sources
that might generate losses for the Bank, and then designs and
implements measures to effectively mitigate them. It devotes
special attention to risks that are less controllable, such as those
arising from shifts in market prices or macroeconomic trends that
affect the Bank’s portfolio, or from flaws in processes or systems.
These efforts are framed within risk guidelines from the board
of directors and are governed by policies and processes for the
different areas. In this mission, our associates play the important
roles of broadening risk awareness and training new teams. Along
these lines, our team of associates is very experienced and known
industry-wide for its expertise in all risk matters. The Bank also
continues to develop systems and metrics that enable it to better
accomplish this important task.
The mission of the Corporate Risk Division is to address the core
question of how to decide how much risk the Bank is willing to
accept for each business segment, product and service in order
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Risk Management
to help guide value creation for the Bank. To accomplish this, the
division has established several committees to help measure,
control and mitigate the risks that fall within this design and to
enable the Bank to minimize any deviations that may arise, whether
potential or real.
In 2013, the Bank conducted an exercise to determine the nature
of its main strategic risks, separated into traditional and nontraditional risks, constructing a map of relevant risks that allow
it to prioritize their source and guide our future actions. Societal
changes have placed greater emphasis on more intangible aspects
we need to address, such as reputation risk, which was identified
as a result of this work.
With the development of conceptual risk maps, Banco de Chile
continues to focus on managing all aspects of risk in order to guide
value creation through its strategic plan. Likewise, the division
always tries to anticipate more complex changes facing the financial
business, which is the subject of increasing local and international
regulations as a result of its close ties to the economic cycle.
Lastly, in its daily risk management efforts, Banco de Chile
addresses a broad range of risks including potential changes in
the macroeconomic environment and the country’s economic cycle,
whether overall or per industry, whose effects can be seen in credit
matters, financial positions and liquidity positions, as well as in
plans to diversify funding sources. In the same way, risks related
to business continuity require robust recovery plans in the event
of unforeseeable disasters that compromise IT security, physical
security or data protection. This also involves our suppliers, who
are an extension of the services offered by the Bank. It is of utmost
importance to fully understand their processes and comply with
commitments made.
CREDIT RISK
II. CREDIT RISK
It has been said that without risk, there is no legitimate gain.
Therefore, the main mission of credit risk management efforts is
to optimize the risk-return ratio given the Bank’s particular risk
tolerance or appetite. Banco de Chile’s credit risk is managed
through a global strategy based on economic conditions and target
markets. The Bank has defined policies and developed processes
that tailor credit risk management based on markets and segments,
which generally translates into mass, automated processes for
individuals, parameters for small and medium-sized businesses
and case-by-case analysis for large companies and corporations.
For the Bank, a basic principle of credit risk management and the
foundation of its model is its constant presence throughout the
entire credit cycle, including approval, monitoring and recovery of
loans granted.
The main objectives of credit risk management are:
•
•
•
•
•
•
Consistent with this principle, the Corporate Risk Division strives to
always assure the quality of the Bank’s portfolio and optimize the
risk-return ratio for all retail and companies segments, managing
all phases of the credit cycle. It also works to ensure integral
compliance with the criteria and guidelines set by the board of
directors, which participates actively in credit risk management,
providing management with guidance on handling credit risk and
receiving periodic briefings on portfolio performance and behavior.
•
•
•
•
Bearing in mind the ongoing nature of credit risk management
enables the Bank to conduct a rigorous credit assessment before
approving loans to assure customers fall within the predefined
target market; guarantees exhaustive controls to ensure application
of credit policies; and allows for meticulous monitoring of changes
in portfolio risk and the loan restructuring and collections processes
used with delinquent customers. It also enables us to act early
before signs of deterioration (warning levels) arise, mitigating risk
and reducing exposure in order to diminish potential portfolio loss.
•
•
•
•
•
Proposing effective credit risk policies to the Board that
guarantee profitability.
Providing an up-to-date understanding of each segment with
broad perspectives that allow plans to be defined based on
segment composition, growth and other critical variables to
success.
Establishing the rules and procedures to be followed by each
business segment for the entire loan process (approval,
monitoring and collections).
Having sufficient provisions based on the credit quality of the
portfolio in order to guarantee recognition of all existing risks.
Managing limits and warning levels established by the board
for credit attribution levels.
Identifying, quantifying and controlling risks arising from loan
transactions.
Evaluating, approving and ensuring correct structuring for loan
transactions, based on the customer’s credit quality, providing
solutions that are suited to their needs and are in line with the
Bank’s policies over time.
Resolving exceptions to credit policies.
Constantly supervising operations in order to anticipate events
and react to risk warnings, ensuring a healthy portfolio.
Managing groups of customers with above-normal potential
risk and collections from customers with signs of impairment.
Managing recovery of impaired assets.
Training our organization so personnel develop knowledge
of different products and segments, and developing a credit
culture that favors high-quality assets and is aligned with our
people and strategy.
Optimizing statistical models for large-scale approval
processes, more focused monitoring procedures and
provisioning models based on estimated loss.
Providing guidance in structuring deals in order to maximize
the risk-return ratio of the portfolio.
Managing talent in order to ensure the continuity of risk
management efforts, while maintaining exceptional results.
Risk Management
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CREDIT RISK
II.1 Approval Process
Given the unique nature of each segment, with different variables
shaping their financial structure and payment capacity, the Bank has
segmented its loan analysis and approval process. Each approval
process specifies:
•
•
•
•
Policies and procedures
Levels of specialization and expertise from participants
The type and depth of IT systems required
The type of predictive models/indicators for each segment
(scoring or rating).
the customer data entry work and, in addition, has ongoing review
and auditing processes to verify that the credit process is being
carried out properly.
Indebtedness limits are established based on different risk profiles
(scoring) and the segment of each customer. They are used to
define the maximum exposure that the Bank is willing to accept with
each customer in its different products, considering the customer’s
current debt with other financial institutions.
Based on these elements, three models are used for approving
loans:
Defining the target market is key to guiding commercial efforts and
business strategy. The most efficient product offering allows the
Bank to maximize individual exposure and expected returns.
Automated Model: This methodology is used recurrently for
Parametric Model: For the SME market, the Bank has developed
individuals in the retail banking and Banco Credichile segments. In
order to evaluate loan applications on a large-scale basis, models
are applied to rate three relevant dimensions of the approval
process:
special evaluation and approval methods based on the segment’s
unique characteristics. A parametric model has been defined that
can take into account the large-scale aspects of the segment
but also provides the opportunity for a case-by-case analysis to
examine the particular situation of a given customer.
•
•
•
Minimum credit profile
Indebtedness limits
Target market
A customer’s credit profile is rated using statistical credit scoring
models, which are different for retail banking and Banco Credichile,
and are also segmented for the different types of customers within
the commercial areas.
The predictive capacity of our models is fundamental in successfully
addressing portfolio risk during crisis scenarios. As a result, the
Bank must constantly review their appropriateness given current
market conditions and modify them when necessary.
In order to ensure quality information is provided by customers
being evaluated, the Retail Risk Division conducts a large part of
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Risk Management
To accomplish this, the model evaluates customers based on
three fundamental pillars: internal and external payment behavior;
an analysis of financial information and an assessment of the
customer’s business, including the experience of its owners and/
or management. This parametric evaluation process condenses the
customer’s credit quality into a rating, which is directly linked to the
credit attributions required to approve each transaction.
Sometimes ratings cannot be obtained either because of a lack of
information and/or due to the industry. These cases are managed
directly by the risk area, which performs a credit evaluation using its
expert judgment. Internal audits are regularly performed to ensure
the quality of the information used to prepare ratings.
In addition, the Corporate Risk Division supplies the commercial
areas with an important tool for good commercial management - its
ongoing process of pre-approving customers for loans. As a result,
both the retail and the SME markets have specialized units that
II.2 Management and Monitoring
generate loan offers using strategies previously defined for these
segments. The strategies employ statistical models calibrated
based on macroeconomic trends and the payment behavior of
these groups over time. These loan offers and approvals are backed
in many cases by guarantees, particularly government-backed
guarantees for these segments.
A key pillar of successful portfolio management consists of managing
and continuously monitoring credit risk in order to identify business
opportunities and detect potential deterioration at an early stage.
Both tasks contribute to an effective process that stems from early
decision making under highly competitive conditions that demand
timely and efficient answers.
Case-by-Case Model: This model is used for all customers
Banco de Chile recognizes the value of anticipating decisions that
need to be made and has therefore developed and used diverse
tools for each market, segment and product that, as a whole, allow
it to properly control its loan portfolio.
from the wholesale segment (companies with annual sales over
Ch$1,600 million). It entails an individual assessment, based on
the level of risk, the term of the loan, the amount of the transaction
and the complexity of and outlooks for the business, among other
variables. This process is also supported by a rating model that
standardizes the evaluation and determines the required credit
attributions.
For this, it has developed a strong process and team with
considerable experience in the loan approval process for the diverse
segments and industries in which we do business, complemented
by a medium and long-term outlook on different industries and
customers. The entire loan approval process (from the initial
application) is supported by the risk area in order to make the
process more effective, improve the quality of the evaluation and
optimize response times.
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125
CREDIT RISK
II.2.1 Companies Market
In the companies market, management and monitoring are based
on a set of systematic processes that have reported positive results.
The most important of these processes include:
LOAN LOSS PROVISIONS
(Billions of Ch$)
242
209
188
125
1.5%
0.8%
1.2%
1.0%
2010
2011
2012
2013
LLP Ratio
DISTRIBUTION OF COMPANY LOANS BY ECONOMIC
SECTOR DECEMBER 2013
(% of loans)
2.7%
4.7%
Utilities
Commercial
Loans To
Individuals
1.4%
Fishing
18.7%
Commerce
3.0%
Mining
6.0%
Agriculture &
Forestry
10.0%
Manufacturing
19.6%
Financial
Services
10.1%
Social & Personal
Services
11.4%
Transport &
Communications
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Risk Management
12.4%
Construction
• Management of delinquent customers, supported by predictive
risk level indicators, monitoring and action plans for more
important customers and differentiated strategies for early
collections.
• Structured controls for customers with loan covenants.
• Quick portfolio review to identify customers that could potentially
be affected by variations in prices or macroeconomic variables in
specific sectors.
• Systematic monitoring programs for credit behavior variables and
companies’ financial figures, as well as loan-specific conditions
and restrictions.
• Management of portfolio classifications to determine the risk and
provisioning rate needed, in accordance with SBIF regulations
that have been incorporated in specific internal policies and that
can be applied to customers that need to be reviewed individually.
• Management of portfolios with special monitoring using
committees that meet periodically and ongoing monitoring to
establish action plans for businesses that present warning signs
of risk.
Banco de Chile’s commercial portfolio continues to present lower
delinquency rates than banking system averages. As of December
2013, the ratio of 90-day past-due loans to total loans was 1.13%,
which compares positively to the industry figure of 1.71% as of
November.
COVERAGE RATIO OVER 90 DAY PAST - DUE
LOANS
90 DAY PAST-DUE LOANS
(%)
(Times)
2.5
2.0
3.2
1.5
2.7
1.0
2.2
0.5
1.7
0.0
1.2
Jan.10
Banco de Chile
Dec.10
Dec.11
Dec.12
Dec.13
0.7
Jan.10
System
Banco de Chile
Banco de Chile has increased its provisions for this portfolio, defined
as reserves for potential losses, giving a provision ratio of 2.20% as
of year end. The financial system mirrors this trend with an identical
ratio of 2.20% as of November.
ALLOWANCES / TOTAL LOANS
(%)
2.5
•
2.3
2.1
1.9
Jan.10
Banco de Chile
Dec.10
Dec.11
Dec.12
Dec.13
•
System
As a result of the decreased delinquency rates and the Bank’s
provisions, Banco de Chile has a good coverage ratio for its 90day past due loans, reaching 1.94 as of December 2013 while the
financial system reported 1.29 in November.
Dec.11
Dec.12
Dec.13
System
II.2.2 Retail Market
In the retail market, control and monitoring are centered around
ongoing monitoring of the main ratios for the aggregate portfolio
and a “litter” analysis (i.e. a review of the evolution of the portfolio
that originated on the same date). The main ratios include:
•
2.7
Dec.10
•
•
Monitoring of expected portfolio losses through a general
provisioning model and backtesting of losses for portfolios with
sufficient maturity.
Litter analysis for new customers and the respective break
down of rate of loss by product, champion/challenger
campaigns, segment, etc.
General delinquency rates for the portfolio with special
monitoring divided by product, segment, income level, branch
office, area, sales campaign, etc., focused mainly on early
detection of potential sources of risks that are greater than
expected for the portfolio.
Approval and denial rates for first-time loan applications as
well as applications submitted for reconsideration, complete
with detailed explanations of trends.
Monitoring of the mortgage portfolio based on policy variables,
financing brackets (debt to collateral ratio), terms, ratio of
dividend to customer income, segments, income segment, etc.
Segmented risk strategies are also defined for collections processes
that combine an appropriate structure, protocol and frequency to
maximize recovery in the different phases of customer delinquency.
Risk Management
127
CREDIT RISK
II. 2.2.1 Consumer Loans
Consumer delinquency indices within the Bank’s retail segment
remained stable during the year, characterized by generally
favorable economic conditions, positive employment and activity
figures and moderate growth in real salaries.
(%)
7.0
6.5
6.0
The Bank’s consumer products continued to report delinquency
indices below industry levels in both segments: retail banking
and Banco CrediChile closed the year with a ratio of 90-day past
due loans to total loans of 1.69% as of December 2013, which
compares positively to the industry figure of 2.09%.
5.5
5.0
4.5
Dec.09
Banco de Chile
Dec.10
Dec.11
Dec.12
Dec.13
System
As of year-end 2013, the coverage ratio for the past-due portfolio
( > 90 days) reached 3.37, while the financial system average was
only 2.99. These figures are in line with the Bank’s conservative
provision management strategy.
(%)
3.0
2.5
2.0
1.5
1.0
0.5
Dec.09
Banco de Chile
Dec.10
Dec.11
Dec.12
Dec.13
System
LOANS
(Times)
6.0
5.0
Expected losses on this portfolio, represented by the ratio of
provisions to loans, remained stable during the year in line with
the delinquency figures mentioned above. In May 2013, the Bank
improved and updated its provisioning models, which had marginal
impacts on coverage ratios but did enable the Bank to be more
discriminate in granting loans, improved the portfolio’s product mix
and aligned the models with new regulatory guidelines. The ratio of
allowances to loans reached 5.70% as of December 2013, which
compares to 5.79% as of the prior year end. As with delinquency
indices, the Bank’s expected losses in both segments are lower
than financial system figures.
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Risk Management
4.0
3.0
2.0
1.0
Dec.09
Banco de Chile
Dec.10
System
Dec.11
Dec.12
Dec.13
II. 2.2.2 Mortgage Loans
As a result of economic conditions similar to prior years and
consistent loan policies aimed at attracting segments with
appropriate risk-return ratios, the Bank’s mortgage loan portfolio in
the retail segment once again led the industry, stabilizing at an over
90 day default rate of 0.79% as of December 2013.
Like with consumer loans, the Bank’s provisions for mortgage loans,
as a percentage of total loans over 90 days past due (50%), are well
above the financial system average of 23%.
LOANS
(Times)
60
(%)
7.0
50
6.0
40
5.0
30
4.0
20
3.0
10
2.0
Dec.09
Dec.10
Dec.11
Dec.12
Dec.13
1.0
Banco de Chile
0.0
Dec.09
Banco de Chile
Dec.10
Dec.11
Dec.12
System
Dec.13
System
Continued economic prosperity allowed for decreases in the
banking system’s delinquency rates, giving an over 90 day default
rate of 3.33% as of November 2013. As with consumer loans, our
delinquency indices for retail mortgage loans are significantly below
financial system averages.
Net portfolio expenses for retail mortgage loans, which include
provisions and charge-offs less amounts recovered from previously
charged-off loans, decreased with respect to prior years, finalizing
at 0.08% for the year.
(%)
1.2
1.0
0.8
0.6
0.4
0.2
Dec.09
Banco de Chile
Dec.10
Dec.11
Dec.12
Dec.13
System
During 2013, estimated losses on the mortgage portfolio,
represented by the ratio of allowances to loans, posted continuous
drops, stabilizing at around 0.39% in December 2013. As with
delinquency indices, the Bank’s estimated losses are below system
figures.
Risk Management
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CREDIT RISK
II.3 Quality of Collections Process
The objectives of the collections process are to:
•
•
Retain and manage customers with temporary cash flow
problems using debt restructuring plans for customers with
payment capacity so the Bank can maintain relationships with
them once their situation has returned to normal.
Maximize recovery of assets at risk. Necessary collections
steps are taken to ensure recovery of debts or to decrease
potential losses.
Debtors with payment problems, reflected in significant delays
and/or evident deterioration of payment sources, are assigned to
special collections units depending on their individual and/or group
indebtedness.
Our subsidiary Socofin S.A., which for all practical purposes reports
to the Corporate Risk Division, manages collections from delinquent
customers from the retail and SME segments. The collections
strategies applied by Socofin vary based on customer segment,
delinquency status and exposure level.
In cases where the customer proves to be viable and shows
willingness to pay, loans are restructured based on expected cash
flows, formulating a proposed solution together with the customer,
which is ultimately evaluated and approved by the Corporate Risk
Division, applying the policies and guidelines defined for that
purpose.
II.4 Provisions and Estimated Losses
Banco de Chile is constantly assessing its entire portfolio of loans
and contingent loans in order to opportunely establish necessary
and sufficient provisions to cover losses in the event they cannot
be recovered. To do so, it has policies and procedures that
comprehensively assess the credit risk of its loan portfolio with
assessment models based on the size, nature and complexity of
its loan deals.
Provisions are determined for the retail and companies markets
using two models: (i) the Individual Assessment Model and (ii) the
Group Assessment Model.
II.4.1 Individual Assessment
Larger debtors from the companies segment are assigned to a
specialized area that reports to the Bank’s Corporate Risk Division
and works to restore normal payment behavior on a case-bycase basis. The procedures are intended to optimize the amounts
recovered by the Bank as timely and efficiently as possible. Within
this context, renegotiations must be approved by the corresponding
committee with sufficient authority based on the debtor’s and/or the
group’s total indebtedness and the assigned risk rating.
As the goal of renegotiations is to recover debt, customers must
have a real intention to pay and be able to generate future cash
flows that make their compliance with the restructured loan highly
probable. This should allow the Bank to create a new payment plan
based on the customer’s capacity, collateral and/or co-signers,
among other factors.
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Risk Management
An individual debtor assessment is used when the Bank needs
to fully get to know a customer because of its size, complexity or
exposure level. A case-by-case analysis of these debtors, although
it is focused on their ability and willingness to meet their loan
obligations, is intended to identify the elements of the customer’s
unique risks, which cannot be established using a group model.
For the purposes of establishing provisions, each individually
assessed debtor is scored in one of 16 categories defined by the SBIF.
We constantly update each debtor’s risk rating based on changes to
its financial situation, payment behavior and environment. We also
review companies within particular industries that are especially
affected by macroeconomic or sector-specific variables.
II.4.2 Group Evaluation
II.5 Adequacy of Provisions
The SBIF permits group assessments to deal with a large number of
transactions involving small individual amounts loaned to individuals
or small companies.
Each year, we test the adequacy of our provisions to verify our
risk assessment processes and estimated loss approximations for
each segment’s portfolio. To do so, we use migratory analyses,
random sampling, case-history evaluations and back-testing
for group models that allow us to confirm, with a high degree of
confidence, that our provisions are sufficient to cover estimated
losses in the different segments. Backtesting is conducted for each
homogeneous group and segment in order to identify in a timely
fashion potential changes to the adequacy of the provisions models
or processes used by the Bank.
Group assessments start by grouping loans with similar
characteristics such as type of debt and agreed-upon conditions in
order to calculate the provisions needed to cover expected losses,
using technically-backed estimates and conservative criteria
regarding payment behavior and the recovery of delinquent loans.
As a result, provisions for the consumer, mortgage and commercial
loan portfolios for individuals and small businesses, given their large
scale, are established using group assessments. These provisions
are intended to cover estimated losses over the next twelve months.
The results of this analysis are presented to the Board, which then
issues a formal opinion on the adequacy of our provisions for each
year.
For each group segment, statistical models were developed that
determine the provision for each customer using an automated
process involving two sub-models, one to estimate probability of
default (PD) and another to estimate loss given default (LGD). The
models are further divided into subsegments using criteria such as
the type of product and the size of the company.
Provisions are calculated on a monthly basis using automated
statistical models based on debtor payment behavior—including
default with other financial system players—in addition to the
degree of delinquency, indebtedness level and other behavioral and
demographic variables that make up a debtor’s profile.
We use periodic backtesting, by which real losses are contrasted
with model-estimated losses, to validate the consistency of our
models.
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CREDIT RISK
II.6 Country Risk
II.7 Regulatory Changes
Country risk is defined as the inability of a counterparty that is a
legal resident of a foreign country to honor its payment commitment
with the Bank for one or more of the following reasons: an issue
with sovereign risk in the respective country; nationalization or
expropriation of the counterparty’s operations by authorities of the
country in question; or because authorities prevent local currency
from being converted to any convertible currency or they prevent
funds in convertible currencies from being transferred out of the
country in question.
II.7.1 Use of Personal Data.
The International Risk Unit within the Corporate Risk Division controls
country risk generated by transactions between the Bank and
foreign counterparties. Furthermore, this unit establishes guidelines
for measuring, limiting and reporting exposure maintained abroad
through the Country Risk Management Policy.
This policy contains an internal rating model for countries, which
is presented, together with a risk limit for each particular country,
to the board of directors for its approval. It is common to also
have aggregate limits based on other dimensions such as types
of products, geographic location, etc. The model in place has
demonstrated a considerable capacity to predict trends in country
status; it has even anticipated changes in the ratings of some
countries.
During 2013, the Country Risk Management Policy was routinely
reviewed but no material changes were made to the previous
version.
The Bank also continued its monthly monitoring efforts, analyzing
exposure levels, market variables, financial and macroeconomic
fundamentals in the main countries with which Banco de Chile
does business. All of these efforts have enabled the Bank to stay
informed of developments in international markets and to implement
- in advance - the measures necessary to manage an international
portfolio with adequate and healthy risk-return ratios.
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Risk Management
The effects of regulatory initiatives implemented in 2012 were seen
in 2013. One such initiative was Law 20,575, which establishes the
principle of purpose when using personal data.
This law includes a transitory provision that prohibited unpaid
obligations due before December 31, 2011 from being reported,
as long as the total obligations were less than Ch$2,500,000 as
of the date of publication of the law. Records for approximately 3
million persons were deleted from the databases, of a total of 3.8
million reported prior to passage of the law. Since that date, 2.7
million persons have been reentered to the database according to
the latest statistics available as of October 2013.
This measure considerably restricted information that was not
otherwise available in a bank’s internal system, justifying the Bank’s
and the industry’s move to reduce this segment’s exposure. The
retail sector were also affected by these measurements, restricting
access to credit and/or limiting exposure (credit limits) of new
customers.
In 2014, we will see the effect of at least two regulatory initiatives
on risk and collections: The Maximum Conventional Interest Rate
Law (Law 20,715, which modifies Law 18,010 and matters
regarding out-of-court collections in Law 19,496) and the Law
on Reorganizations and Liquidations of Companies and Persons
(Bankruptcy Law).
11.7.2 Maximum Conventional Interest Rate
Proceedings:
The modifications introduced by Law 20,715 are mainly changes
to Law 18,010 regarding the maximum conventional interest rate.
It impacts interest revenue by limiting the rate that institutions
can charge based on the amount of the loan and also affects
expansion of banking access into lower-income segments. This law
also modifies Law 19,496 with regards to collections, detailed as
follows:
a) Reorganization Insolvency and Liquidation Insolvency for
Companies.
a) It extends from 15 to 20 days the period of time during which
out-of-court collections fees cannot be charged.
•
•
b) Out-of-court collections fees may not accrue interest at a rate
greater than the current rate and may not be capitalized in order to
increase the permitted amount for collections expenses.
•
Reorganization Proceedings:
•
•
c) Within the first 15 days of each payment coming due, the
company must perform at least one act that guarantees the proper
and timely notification of the debtor regarding the delinquency or
delay. If such act is not performed, the maximum amount that can
be collected is reduced to UF 0.2.
II.7.3 Law on Reorganizations and Liquidations of Companies and Persons
This law, passed in early 2014 and set to take effect in October
2014, is intended to encourage agreements and avoid liquidations.
It distinguishes between the insolvency of an individual and a
company, proposing two simpler procedures for individual debtors.
It also considers liquidation (bankruptcy) as grounds for termination
in a job contract.
•
Insolvency financial protection is provided: The party cannot be
the subject of foreclosure or liquidation proceedings during the
term indicated by law.
Agreements are established by creditor class or category.
The agreement affects creditors with mortgage guarantees
or pledges if the pledged assets are considered essential for
business continuity.
The terms of the agreement are applied to creditors with
personal guarantees if they vote in favor of the agreement.
Mortgage creditors or pledgees will vote based on the
commercial appraisal of the assets.
Loans that are part of the agreement will be considered
transferred, novated or restructured for all legal purposes.
Corporate Liquidation Proceedings:
•
•
The Creditors’ Committee can agree to sell as an economic
unit, in which case the rights of mortgage creditors and
pledgees will be suspended to individually sell the assets
covered by guarantee that are found within the unit.
For leases, one of 3 options must be adopted by the Creditors’
Committee: continuation, early exercising of option or early
termination. Any clause agreed to the contrary shall not be
valid.
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CREDIT RISK
II.7.4 SBIF Complements Standards on Debtors Related to Banking Entities
b) Renegotiation Insolvency (currently Settlements) and Liquidation
Insolvency for Individual Debtors.
Renegotiation Proceedings:
•
•
•
This is a voluntary procedure intended to renegotiate an
individual debtor’s obligations with all of its creditors, with the
Bankruptcy Superintendency acting as the facilitator of the
agreement.
A suspension period is granted for foreclosure and moratory
interest as provisioned by law. Individuals and dependent
employees may file for this type of bankruptcy, as well as any
other individual that is eligible for credit.
Once the agreement has been concluded, unpaid balances
shall be considered extinguished and loans that are part of
the agreement shall be considered transferred, novated or
restructured.
Liquidation Proceedings for Individuals:
•
•
•
•
This applies to individual taxpayers as defined by article 42 No.
1 of the Income Tax Law (dependent employees) and all other
individuals that are eligible for credit (housewives, retirees,
students, etc.).
Forced: At the request of a creditor to the extent that the
grounds established by law are met.
Voluntary: At the debtor’s own request
The objective is to liquidate within less than 11 months.
The impacts of this law may began to appear in the last quarter
of 2014. However, it is expected to involve changes in collections
strategies mainly with regards to initiating court collections
proceedings for debtors owing more than 80 UF.
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Risk Management
In November 2013, the SBIF issued Ruling No. 3,561, which
updates the framework regulating transactions between banks
and their related parties, contained in Chapter 12-4 of the Updated
Compilation of Standards (RAN for its Spanish acronym).
This modification includes new concepts for determining when a
debtor should register itself as a related party and, therefore, be
subject to credit limits:
•
•
When the loan granted is intended, directly or indirectly, to
finance other entities related to the bank, whether through
capital contributions, subscribing shares or any other economic
benefit.
When loans are granted to Investment Funds (different from
Mutual Funds and Pension Funds) and 10% or more of its
participants or contributors cannot be verified.
In this way, the SBIF enhances standards on related entities and
requires complementary information from banks on their related
parties and groups that comprise them and the debt that can be
counted for credit limit purposes.
II.7.5 SBIF Consultation for Modifications to Standards on Provisions and
Credit Risk
In December 2013, the SBIF published for public comment a set
of precisions and modifications to the actual standards on loan
loss provisions contained in Chapter B-1 of the Compendium of
Accounting Standards. Included in the modifications is a new
standard model for calculating provisions for home mortgage loans.
In the Bank´s search for the best standards for provisions and credit
risk, in a context of conservative risk management criteria, the Bank
has developed internal models for conducting group assessments
of loan portfolios, which will be reviewed and aligned with the new
guidelines from the final standard, which we expect to be published
sometime in 2014.
FINANCIAL RISK
III. FINANCIAL RISK
III.1 Liquidity Risk
Financial or market risk is defined as the risk of potential loss to
the Bank from not having perfectly matched financial positions in
the event of adverse changes in market variables or scarce liquidity.
The potential losses generated by the first factor are known as price
risk, while the second factor produces liquidity risk. For analysis and
management purposes, the Bank separates market risk into these
two components.
The Corporate Risk Division, through the Market Risk Division, is
in charge of measuring, limiting, controlling and reporting these
risks within the Bank and its subsidiaries in order to ensure a
healthy risk-return ratio in deals that generate these types of risks.
The Financial Risk Reporting and Control Unit within the Financial
Control and Management Division also takes part in measuring and
reporting these risks. These units perform their duties completely
separately from the business units.
The Bank’s Treasury Division is responsible for managing financial
positions, and therefore market risk, within the limits and parameters
proposed by the Market Risk Division and approved by the Board of
Directors. This division manages these positions through two areas:
•
•
Scarce liquidity can occur either due to a reduction in available
funds (for a variety of reasons) that affects the Bank’s funding
capacity or a reduction in the traded volumes of the assets (loans,
bonds, other bank deposits, etc.) or derivative instruments entered
into by the institution. Accordingly, liquidity risk is classified into the
following categories:
1. Funding liquidity risk.
2. Trading liquidity risk.
Liquidity Risk Limits and Warning Levels
In accordance with the Liquidity Risk Management Policy, each year
the board of directors must approve internal limits and warning
levels based on internal methodologies that complement regulatory
liquidity limits. The Bank has designed limits and internal warning
levels intended to control structural liquidity variables that are not
covered by regulations, such as: liquidity ratios; funding of assets in
Chilean pesos by liabilities in foreign currency; the status of market
variables that can forecast illiquidity; percentage of use of Adjusted
C08 Index; concentration of liability maturities, etc.
Trading Management is responsible for handling the financial
positions of the Trading Book (1). Variations in the value of these
positions are reflected in the income statement.
The Balance Sheet and Investment Unit manages the financial
positions of the Accrual Book (2) and the liquidity of the entire
Bank. Interest accrued on these positions is reflected in the
income statement. Also, in the case of investments available
for sale, the variation in value impacts equity as long as they
have not been sold.
(1)The Trading Book includes those transactions whose variation in value instantly impacts the Bank’s income statement, such as financial instruments recorded in these accounts
(debt instruments with high transactional liquidity) and most derivative instruments.
(2)The Accrual Book consists of all items from the Bank’s balance sheet, including those that are excluded from the definition of the Banking Book such as capital, property and equipment, etc.
Transactions in the Trading Book are represented at a maturity of one day in the Accrual Book, therefore not generating interest rate risk.
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FINANCIAL RISK
Measurement, Control and Reporting of Liquidity Risk
Funding liquidity is measured and controlled using the C08
regulatory index (established by the Chilean Central Bank and SBIF).
This metric simulates forecasted cash flows over the next 30 and 90
days in Chilean pesos and for total amounts in foreign currencies. In
addition, the Bank is authorized by the SBIF to report the cash flows
of some balance sheet items with set terms rather than contractual
maturities by considering behavior assumptions for these flows.
The report that includes these assumptions is commonly called the
Adjusted C08 regulatory report.
CO8 ADJUSTED INDEX 1-30 DAYS
0.8
0.6
0.4
0.2
0.0
-0.2
Jan.13
Apr.13
Adjusted Index Local Currency + FX
In the analysis for the subsequent 30 days, the regulatory
limit establishes that during that period the net cash outflows
denominated in foreign currency and, likewise, the sum of net cash
outflows denominated in all currencies (including Chilean pesodenominated cash flows such as instruments indexed to the UF
inflation index) may not exceed the Bank’s Tier 1 Capital. In the 90day analysis, the regulatory limit establishes that during the next 90
days the net cash outflows denominated in all currencies should not
exceed twice the Bank’s Basic Capital.
The use of these limits is reported on a daily basis to senior
management along with excesses, activation of warning levels, etc.,
including monitoring and corrective action plans, if necessary.
Jul.13
Dec.13
Adjusted Index FX
The Adjusted 1-90 day C08 Index evolves stably during the first
half of the year, hovering around 0.6. After that date, it shows more
variability but still indicates that the Bank had greater liquidity
towards the end of 2013.
CO8 ADJUSTED INDEX 1-90 DAYS
2.0
1.5
1.0
0.5
0.0
The following chart shows the use of the Adjusted 1-30 day
C08 Index during 2013, reflecting the Bank’s conservative risk
management. The index, which includes all currencies, peaks
in September but remains well below the limit and is reduced
drastically after that date, mainly generating greater liquidity in
items denominated in Chilean pesos. This reduction was due to the
perception of illiquidity in late 2013, which was not as severe as
expected particularly because all market players seemed to act in
coordination towards the end of the year.
Jan.13
Apr.13
Jul.13
Dec.13
Adjusted Index Local Currency + FX
Trading liquidity is assured partly through highly-liquid debt
instruments in the Trading Book such as Central Bank and Chilean
government bonds and short-term time deposits, and partly by
maximizing amounts that can theoretically be liquidated quickly in
the secondary market.
The trading liquidity of debt instruments in the Accrual Book does
not need to be measured or limited (unlike the credit risk inherent to
those instruments), as in this case the Bank seeks to obtain a certain
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Risk Management
yield until maturity or in the medium term since they are generally
purchased to hedge stable balance sheet items, such as current
account balances or even time deposit balances. In any case, a
portion of the Banking Book consists of highly liquid instruments
with identical characteristics as those in the Trading Book. Trading
liquidity of financial positions generated by derivative instruments
is restricted using DV01(3) limits with certain specific maturities for
each swap curve traded; likewise, maximum positions in market
factors such as exchange rates or options volatility are limited
based on the amounts that are normally traded in professional
markets, also called market makers.
Regarding cross-currency financing (i.e. financing assets
denominated in one currency with liabilities in another), the Bank
established an internal limit that aims to protect the amount of
liabilities in foreign currency that fund assets in Chilean pesos. The
maximum use of this limit during 2013 was 60%, which is slightly
greater than the peak value for the prior year.
Lastly, in accordance with the Liquidity Management Policy, the
Bank performs quarterly liquidity stress tests in order to quantify its
cash needs in the event of material adverse scenarios. The results
of these tests are presented at meetings of the board of directors
and to regulators during their yearly visits.
III.2 Price Risk
The Bank separates price risk into three categories:
1. Spot price risks.
2. Interest rate risks.
3. Options volatility risks.
Price Risk Limits and Warning Levels
In accordance with the Market Risk Management Policy, in addition
to regulatory limits, each year the Bank’s board must approve
internal limits and warning levels for financial positions and/or price
risks generated by them.
The approval process for internal limits on price risk is carried
out in order to set maximum levels for our position on a certain
market factor and, therefore, to limit estimated losses that could
occur in the event of adverse variations in market variables. The
approval process for warning levels on price risk is designed to
define a tolerance level over which upper management wishes to
be informed of either potential losses in any business unit or the
status of actual losses accumulated during a period of time by any
one unit.
Measuring, Controlling and Reporting Price Risk
Price risk is measured and controlled for management purposes
using various internal metrics and reports and is assessed
separately for the Trading and Currency Book and the Accrual Book.
These methodologies are commonly used by highly-specialized
global banks and financial entities.
Related regulatory reports, like the SBIF’s C41 and C43 reports
for the Trading and Currency Book and the SBIF’s C40 report for
the Banking Book, are used by the Bank solely for purposes of
complying with regulatory requirements and as a complementary
control for the internal metrics designed to manage this risk. These
methodologies rely on standardized reports designed by the Bank
for International Settlements (BIS); in effect, price risk in the Trading
and Currency Book is determined using tables that simulate a
(3)DV01 is the change in value of a financial instrument as a result of an increase in its valuation interest rate by 0.01%.
Risk Management
137
FINANCIAL RISK
shock of fluctuations in market variables increased by correlation
factors. The SBIF does not require specific limits for this type of
risk. Price risk in the Banking Book is measured using standardized
tables of interest rate and inflation fluctuations in Chile. The latter
has no time horizon. Unlike in the preceding case, the SBIF does
require banks to establish internal limits for short and long-term
risk calculated using these methodologies. In 2013, use was well
below the limits established by the Bank, which demonstrates a
high degree of stability.
Regarding internal tools designed for the Trading and Currency
Book, price risk is managed by calculating and reporting financial
positions using greeks(4) and the risk of the entire portfolio. The
latter is determined using the historical Value at Risk metric with
99% confidence and one year of daily fluctuations in market
variables (hereinafter indistinctly “VaR”). This value is raised to the
power of the square root of a 22-day period in order to reflect that
the positions are believed to be effective and totally closed in a
lapse of a calendar month (which is equivalent to saying it is used
in a time horizon of 22 days).
2013 and was mainly due to the increase in positions of the market
factor spread USD On/Off. These positions were gradually closed
in the following months, which explains the fall in VaR. However,
it increased once again towards the end of the year due to the
increase in positions in CLF swap curves. In contrast, the VaR of
the Balance Sheet and Investment Unit is more stable and declines
throughout the year. The first is because the risk of this unit is
generated by very stable positions in short-term derivatives that
economically hedge short-term positions in the Accrual Book; the
second is because the use of these derivatives dropped in late
2013 for strategic reasons.
VAR HISTORICAL TRADING BOOK
(Scaled to 22 Days) (In millions of USD)
12
10
8
6
4
2
0
Jan.13
As in previous years, interest rate positions made the greatest
contribution to VaR during 2013. Following in importance are
exchange rate positions and, much farther behind, the risk
generated by small positions in exchange rate options.
The following graph shows the evolution of the VaR generated by
all Trading Book positions during 2013 (line entitled TOTAL); it also
shows the VaR generated during that period by positions in that
book that are managed by the Trading Unit and, separately, VaR from
positions managed by the Balance Sheet and Investment Unit. One
can appreciate very active and dynamic use of risk throughout the
year by the Trading Unit (line entitled TRADING): This is consistent
with the nature of this business unit. The maximum use for that
unit was slightly less than US$ 12 million, which occurred in July
Total
Apr.13
Trading
Jul.13
Dec.13
Risk Treasury
In 2013, variations in VaR are due specifically to a greater use of
financial positions rather than to an increase in volatilities or the
effect of correlations of fluctuations in market factors. In fact, the
volatilities of fluctuations in market values and the correlations
between these fluctuations remained relatively stable in 2013.
There is no certainty that this trend will hold true in the near future,
especially in the environment expected for emerging markets in
terms of price stability (inflation), variability in the U.S. interest rate
framework and commodities price expectations, etc. As a result,
the Bank will reinforce monitoring of this metric and its main
components and contributing factors.
(4) Greek is defined as the difference in value in a financial instrument as a result of the standardized and isolated fluctuation (“ceteris paribus”) of the value of a market factor that determines the price
of that instrument. In general, the fluctuation for interest rates is 0.01%; the fluctuation for both options volatility and spot positions is 1%.
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Risk Management
Throughout the year, considerable progress has been made in
analyzing the risk of this book as well as in VaR studies. In risk
analysis, the Bank has implemented the practice of issuing a
monthly report that explains changes in the VaR and the origin of
these changes, whether that be variations in financial positions
or changes in the volatilities/correlations in market factors,
or a combination of the two. In VaR studies, the report includes
backtesting to evaluate the model’s forecasting abilities, including
statistical tests, fat tail analysis and contrasts with actual results.
The model is shown to have good forecasting ability based on the
tools commonly used for statistical inference.
Also, internal policies call for daily stress tests of Trading and
Currency Book positions, including a comparison of expected
potential losses for those periods with regards to defined warning
levels (“look forward analysis”). These policies also call for a
separate comparison of actual income during a calendar month
with regards to loss warning levels (“look back analysis”).
The use of limits in the Trading and Currency Book is reported on a
daily basis to the Bank’s senior management, as are excesses and
activation of warning levels, etc., including corrective action plans
and monitoring if necessary.
The Bank has also established internal metrics for price risk
management in the Accrual Book, defining limits and warning levels
for interest rate exposure. In effect, the Bank measures interest
rate positions using the IRE metric (Interest Rate Exposure), defined
as the potential impact of a standardized parallel movement (100
basis points for interest rates and 0.1% for monthly inflation) in the
forward yield curve of a particular currency on net income before
taxes.
The Bank calculates and reports interest rate risk for the Accrual
Book using the EaR 12 M (Earnings at Risk 12M) methodology,
which enables it to estimate the potential drop in earnings that the
Bank may experience over the next 12 months, based on interest
rate positions in effect as of each reporting date, and as the result
of a movement in expected forward interest rates during the last
three years with 97.7% confidence. The attached graph follows
the evolution of this metric during 2013. The historical volatilities
of forward interest rates have been in an extremely stable cycle
for a long time and, therefore, have not contributed significantly
to changes in the EaR 12M. In any event, the maximum risk taken
during the year does not exceed 12% of the Bank’s annual net
income.
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139
FINANCIAL RISK
The use of limits in the Accrual Book is reported each month to the
Bank’s senior management, along with excesses and activation of
warning levels, etc., including corrective action plans and monitoring
if necessary. In any event, additional monitoring is conducted on
a weekly basis using estimated balance sheets during a calendar
month.
EAR 12M ACCRUAL BOOK
(In millions of Chilean pesos)
60,000
50,000
40,000
30,000
20,000
10,000
0
Jan.13
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Risk Management
Apr.13
Jun.13
Dec.13
Lastly, the Bank’s internal policies call for stress tests to be
conducted each month on the Accrual Book and for the results of
these tests to be compared to warning levels approved by upper
management. During 2013, improvements were made to these
tests in order to reflect potential adverse movements in interest
rates; in this particular case, depending on the positions held, the
tests take into account the possibility that if the Bank has assets
with interest rate adjustment dates beyond liability adjustment
dates, in addition to a rise in interbank interest rates, the borrowing
spread that the Bank must pay may also increase and result in
lower future revenue. In contrast, if the Bank has assets with
interest rate adjustment dates before liability adjustment dates,
the Bank is exposed to a decrease in the lending spread of our
customers (improvement in their credit perception) that results in
lower revenue. This effect was also incorporated.
OPERATIONAL RISK
IV OPERATIONAL RISK
Banco de Chile has defined quality risk management as a
cornerstone of sensible banking conduct that, along with advanced
techniques for measuring risk exposure levels, has enabled it to
meet its strategic objectives, be profitable and generate value for
our customers, shareholders and the public in general.
Operational risk is defined as the risk of incurring losses from
deficiencies or failures in internal processes, human resources or
systems, or resulting from external circumstances.
The Bank’s objective for managing operational and technology risk
is to identify, value, mitigate and monitor this risk. The greatest
demand lies in identifying and eliminating focal points of risk,
regardless of whether they have resulted in losses. Measurement
also helps manage this risk by allowing priorities to be set and
decisions to be made based on the Bank’s established hierarchy
before problems arise. All of these efforts are designed to control
risk exposure and keep it within the Bank’s defined tolerance levels.
The organizational structure for managing operational risk is based
on the following roles and responsibilities:
• The Bank’s senior management, which includes the Directors and
Audit Committee and Division Managers. They are represented at
the diverse stages where risk is managed, with the main body
being the Operational Risk Committees, led by the CEO.
• The Corporate Risk Division is responsible for controlling and
assessing the value of this type of risk. Within the division, the
Operational and Technology Risk Division is the core unit that
oversees operational risk efforts and is in charge of the Bank’s
overall risk program.
• The effective structure for managing operational risk is based on
the knowledge and experience of the executives and professionals
from different areas/units within the Bank, making the role of the
Operational Risk Coordinators and advisors very important.
Important progress was made in 2013 in operational risk, business
continuity and information security, including:
In this sense, the Bank adheres to local and international regulations
and has established comprehensive plans for operational risk,
business continuity and information security, which has enabled
it to strengthen the operational risk management model approved
by upper management and the Board of Directors. This model
encompasses policies, procedures, tools, measurement and
analysis systems and specialists in operational risk.
Risk Management
141
OPERATIONAL RISK:
IV.1 Operational Risk:
• Defining the framework for comprehensively managing
operational risk that establishes the general guidelines, tools and
processes used to measure, value and mitigate operational risks.
• Establishing loss limits for operational risk by defining tolerance
and risk appetite levels for this type of risk and obtaining the
approval of the board of directors.
• Carrying out self-assessment processes to comprehensively
evaluate risk, including surveying and identifying the impact of
the following risks: Operational, Technology, Information Security
and Business Continuity.
• Evaluating comprehensive risks applied to 100% of critical
processes.
• Reformulating the functional structure used to address operational
risk and fomenting active management by Operational Risk
Committees and related personnel. Each entity has specific work
plans aimed at controlling and mitigating the respective risks
and monitoring plans and commitments made by different areas
within the Bank.
• Training all bank staff on programs and plans involving different
areas of operational risk and strengthening these training
initiatives.
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Risk Management
• Periodically assessing suppliers of critical services, which enables
the Bank to ensure fulfillment of agreements and business
requirements, while creating a formal process for communicating
deviations in service levels, alternative solutions and strategic
needs for the Bank’s products and services.
• Continuously improving the main tools used for operational risk:
• Awareness of operational risk events. Identification and
analysis of the most significant and most frequent events,
with subsequent adoption of mitigation measures.
• Operational risk indicators, which are defined and
periodically updated by the main responsible units.
• Definition and maintenance of process map for entire Bank.
IV.2 Business Continuity:
IV.3 Information Security
• During the fourth quarter of the year, an alternate contingency
site was set up in order to ensure business continuity for Banco
de Chile core business and operational areas. Business continuity
tests will be conducted at this alternate site during 2014.
• Creating tests or exercises for distinct business continuity
scenarios devised to date based on coverage planned for 2013.
• Testing emergency contact protocols that ensure communications
channels remain open in the event of a catastrophe.
• Training units on their respective business continuity plans in
order to expand the knowledge of all collaborators regarding the
strategies in their respective plans in the event of conditions that
could affect business continuity.
• Monitoring, controlling and testing the continuity plans of critical
suppliers that provide services to Banco de Chile.
• Developing an Information Security Policy, standards and
procedures, which establish the general framework for this topic.
• Implementing information security programs to maintain an
adequate level of protection for customer and bank information.
• Carrying out monitoring program for behavior indices that
safeguard information security.
IV.4 Improvements to Integral Operational and Technology Risk
Management Model:
In order to improve risk management, the information security
and operational continuity functions were transferred during the
second half of 2013 from the Operations and Technology Division
to the Corporate Risk Division, specifically to the Operational and
Technology Risk Division.
This move strengthens risk management efforts, providing an
independent vision, giving upper management a comprehensive
outlook on the risk profile taken on at any given time and adapting
efforts to the previously defined risk appetites.
Given the specificity and complexity of financial markets, a
specialized, highly-trained team was put together to identify, value,
mitigate and monitor risks related to this business line, which allows
strengthening of both operational control efforts for these activities
and the model itself.
Risk Management
143
08
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements
Notes to the Consolidated Financial Statements
BANCO DE CHILE AND SUBSIDIARIES
Consolidated Statements of Financial Position
For the years ended December 31, 2013 and 2012
Notes
2013
MCh$
2012
MCh$
Cash and due from banks
7
873,308
684,925
Transactions in the course of collection
7
374,471
396,611
Financial assets held-for-trading
8
393,134
192,724
Cash collateral on securities borrowers and reverse repurchase
9
82,422
35,100
10
374,688
329,497
Loans and advances to banks
11
1,062,056
1,343,322
Loans to customers, net
12
20,389,033
18,334,330
Financial assets available-for-sale
13
1,673,704
1,264,440
Financial assets held-to-maturity
13
—
—
Investments in other companies
14
16,670
13,933
Intangible assets
15
29,671
34,290
Property and equipment
16
197,578
205,189
Current tax assets
17
3,202
2,684
Deferred tax assets
17
145,904
127,143
Other assets
18
318,029
296,878
25,933,870
23,261,066
ASSETS
TOTAL ASSETS
(To the next page)
The accompanying notes 1 to 42 form an integral part of these consolidated financial statements.
146
Notes
2013
MCh$
2012
MCh$
19
5,984,332
5,470,971
7
126,343
159,218
Cash collateral on securities lent and repurchase agreements
9
256,766
226,396
20
10,402,725
9,612,950
10
445,132
380,322
21
989,465
1,108,681
Debt issued
22
4,366,960
3,273,933
23
210,926
162,123
Current tax liabilities
17
10,333
25,880
Deferred tax liabilities
17
36,569
27,630
Provisions
24
551,898
504,837
Other liabilities
25
268,105
301,066
23,649,554
21,254,007
1,849,351
1,629,078
213,636
175,814
15,928
18,935
16,379
16,379
513,602
467,610
(324,582)
(300,759)
2,284,314
2,007,057
2
2
2,284,316
2,007,059
25,933,870
23,261,066
LIABILITIES
TOTAL LIABILITIES
EQUITY
27
Attributable to equity holders of the parent:
Capital
Reserves
Other comprehensive income
Retained earnings:
Retained earnings from previous periods
Income for the year
Less:
Provision for minimum dividends
Subtotal
Non-controlling interests
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
147
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended December 31, 2013 and 2012
Notes
2013
MCh$
2012
MCh$
Interest revenue
28
1,763,540
1,661,467
Interest expense
28
(704,371)
(708,629)
1,059,169
952,838
Net interest income
Income from fees and commissions
29
386,733
372,767
Expenses from fees and commissions
29
(99,639)
(85,495)
287,094
287,272
Net fees and commission income
Net financial operating income
30
11,084
24,747
Foreign exchange transactions, net
31
71,457
35,136
36
27,221
22,061
1,456,025
1,322,054
(241,613)
(188,190)
1,214,412
1,133,864
Total operating revenues
32
OPERATING REVENUES, NET OF PROVISIONS FOR LOAN LOSSES
Personnel expenses
33
(323,236)
(309,865)
34
(252,501)
(247,459)
Depreciation and amortization
35
(28,909)
(30,957)
Impairment
35
(2,247)
(899)
37
(16,051)
(22,454)
TOTAL OPERATING EXPENSES
(622,944)
(611,634)
NET OPERATING INCOME
591,468
522,230
2,071
(229)
593,539
522,001
(79,936)
(54,390)
513,603
467,611
513,602
467,610
1
1
Ch$
Ch$
Income attributable to associates
14
Income before income tax
Income tax
17
NET INCOME FOR THE YEAR
Attributable to:
Equity holders of the parent
Non-controlling interests
Net income per share attributable to equity holders of the parent:
Basic net income per share
27
5.52
5.30
Diluted net income per share
27
5.52
5.30
148
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Notes
2013
MCh$
2012
MCh$
513,603
467,611
OTHER COMPREHENSIVE INCOME THAT WILL BE RECLASIFFIED
SUBSEQUENTLY TO PROFIT OR LOSS
Net unrealized gains (losses):
Net change in unrealized gains (losses) on available for sale
instruments
13
14,221
24,510
Gains and losses on derivatives held as cash flow hedges
10
(18,069)
1,777
71
(58)
(3,777)
26,229
Income tax related to other comprehensive income that will be
reclassified subsequently to profit or loss
770
(5,220)
Total other comprehensive income items that will be
(3,007)
21,009
(166)
(2,200)
Subtotal Other comprehensive income that will not be reclassified subsequently to profit or loss
(166)
(2,200)
Income tax related to other comprehensive income that will not be
33
440
Total other comprehensive income items that will not be
(133)
(1,760)
510,463
486,860
510,462
486,859
1
1
Ch$
Ch$
Basic net income per share
5.49
5.52
Diluted net income per share
5.49
5.52
Cumulative translation adjustment
Subtotal Other comprehensive income before income taxes
that will be reclassified subsequently to profit or loss
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE
RECLASIFFIED SUBSEQUENTLY TO PROFIT OR LOSS
Loss in defined benefit plans
TOTAL CONSOLIDATED COMPREHENSIVE INCOME
Attributable to:
Equity holders of the parent
Non-controlling interest
Comprehensive net income per share attributable to equity holders
of the parent:
149
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Other comprehensive
income
Reserves
Notes
Balances as of December 31, 2011
Paid-in Capital
MCh$
Other
reserves
MCh$
Unrealized gains
(losses) on
available-forsale
MCh$
1,436,083
32,256
87,226
(1,644)
73,911
—
—
—
—
—
58,092
—
4
—
(1,760)
—
—
Paid and distributed dividends
27
—
—
—
—
Other comprehensive income:
27
Capitalization of retained earnings
27
Income retention (released) according to law
Defined benefit plans adjustment
—
—
—
—
—
—
—
—
Derivatives cash flow hedge, net
—
—
—
—
Valuation adjustment on available-for-sale
instruments (net)
—
—
—
19,639
119,084
—
—
—
—
—
—
—
—
—
—
—
1,629,078
30,496
145,318
17,995
86,202
—
—
—
Income distribution
—
1,760
—
—
Income retention (released) according to law
—
—
36,193
—
Defined benefit plans adjustment
—
(133)
—
—
Equity adjustment investment in other companies
—
2
—
—
—
—
—
—
—
—
—
—
Derivatives cash flow hedge, net
—
—
—
—
Valuation adjustment on available-for-sale
instruments (net)
—
—
—
11,377
134,071
—
—
—
—
—
—
—
—
—
—
—
1,849,351
32,125
181,511
29,372
Subscription and payment of shares
27
Income for the period 2012
27
Capitalization of retained earnings
27
Paid and distributed dividends
27
Other comprehensive income:
27
Subscription and payment of shares
27
Income for the period 2013
27
150
Reserves from
earnings
MCh$
Other comprehensive
income
Derivatives cash
flow hedge
MCh$
Retained earnings
Retained earnings
Cumulative
translation adjustment from previous periods
MCh$
MCh$
Income for the year
MCh$
Provision for
minimum dividends
MCh$
Attributable to equity
holders of the parent
MCh$
Non-controlling
interest
MCh$
Total equity
MCh$
(395)
(36)
16,379
428,805
(259,501)
1,739,173
2
1,739,175
—
—
—
(73,911)
—
—
—
—
—
—
—
(58,092)
—
—
—
—
—
—
—
—
—
(1,760)
—
(1,760)
—
—
—
(296,802)
259,501
(37,301)
(1)
(37,302)
—
—
—
—
—
—
—
—
—
(58)
—
—
—
(58)
—
(58)
1,429
—
—
—
—
1,429
—
1,429
—
—
—
—
—
19,639
—
19,639
—
—
—
—
—
119,084
—
119,084
—
—
—
467,610
—
467,610
1
467,611
—
—
—
—
(300,759)
(300,759)
—
(300,759)
1,034
(94)
16,379
467,610
(300,759)
2,007,057
2
2,007,059
—
—
—
(86,202)
—
—
—
—
—
—
—
(1,760)
—
—
—
—
—
—
—
(36,193)
—
—
—
—
—
—
—
—
—
(133)
—
(133)
—
—
—
—
—
2
—
2
—
—
—
(343,455)
300,759
(42,696)
(1)
(42,697)
—
71
—
—
—
71
—
71
(14,455)
—
—
—
—
(14,455)
—
(14,455)
—
—
—
—
—
11,377
—
11,377
—
—
—
—
—
134,071
—
134,071
—
—
—
513,602
—
513,602
1
513,603
—
—
—
—
(324,582)
(324,582)
—
(324,582)
(13,421)
(23)
16,379
513,602
(324,582)
2,284,314
2
2,284,316
151
CONSOLIDATED STATEMENTS OF CASH FLOWS
Notes
2013
MCh$
2012
MCh$
513,603
467,611
28,909
30,957
OPERATING ACTIVITIES:
Net income for the year
Items that do not represent cash flows:
35
Impairment of intangibles assets and property and equipment
35
2,247
899
Provision for loan losses, net of recoveries
32
262,467
225,631
Provision of contingent loans
32
12,692
1,251
(1,612)
931
14
(1,780)
468
36
(6,126)
(5,674)
(219)
(318)
(42,730)
34,555
1,891
2,600
9,890
5,174
(148,118)
37,133
29,324
4,049
Fair value adjustment of financial assets held-for-trading
(Income) loss attributable to investments in other companies
(Income) loss sales of assets received in lieu of payment
(Income) loss on sales of property and equipment
36 - 37
(Increase) decrease in other assets and liabilities
Charge-offs of assets received in lieu of payment
37
Other credits (debits) that do not represent cash flows
(Gain) loss from foreign exchange transactions of other assets and other
liabilities
Net changes in interest and fee accruals
Changes in assets and liabilities that affect operating cash flows:
(Increase) decrease in loans and advances to banks, net
(Increase) decrease in loans to customers, net
(Increase) decrease in financial assets held-for-trading, net
(Increase) decrease in deferred taxes, net
281,524
(695,376)
(2,259,317)
(1,529,338)
(165,629)
52,892
(12,381)
(11,657)
512,875
576,301
17
Increase (decrease) in current account and other demand deposits
Increase (decrease) in payables from repurchase agreements and security
lending
Increase (decrease) in savings accounts and time deposits
33,016
(15,277)
797,009
327,980
Proceeds from sale of assets received in lieu of payment
Total cash flows provided by (used in) operating activities
8,454
9,510
(144,011)
(479,698)
INVESTING ACTIVITIES:
(Increase) decrease in financial assets available-for-sale
(367,258)
295,572
16
(12,249)
(17,981)
505
400
15
(5,511)
(9,116)
14
(1,440)
(71)
Dividends received from investments in other companies
14
956
943
(384,997)
269,747
Purchases of property and equipment
Proceeds from sales of property and equipment
Purchases of intangible assets
Total cash flows provided by (used in) investing activities
(To the next page)
152
Notas
2013
MM$
2012
MM$
FINANCING ACTIVITIES:
Increase in mortgage finance bonds
—
Repayment of mortgage finance bonds
Proceeds from bond issuances
22
Redemption of bond issuances
—
(20,734)
(27,529)
1,607,265
1,233,985
(536,823)
(389,382)
Proceeds from subscription and payment of shares
27
134,071
119,084
Dividends paid
27
(343,455)
(296,802)
(323,055)
142,573
54,074
(16,512)
Increase (decrease) in Borrowings from Central Bank
—
(22,793)
Proceeds from borrowings with Central Bank of Chile (long-term)
—
20
Increase (decrease) in borrowings from financial institutions
Increase (decrease) in other financial obligations
Payment of borrowings from Central Bank (long-term)
(7)
(56)
Proceeds from foreign borrowings
844,776
325,247
Payment of foreign borrowings
(639,571)
(1,013,911)
609
1,526
Proceeds from other long-term borrowings
Payment of other long-term borrowings
Total cash flows provided by (used in) financing activities
TOTAL NET POSITIVE (NEGATIVE) CASH FLOWS FOR THE YEAR
(6,285)
(7,363)
770,865
48,087
241,857
(161,864)
Net effect of exchange rate changes on cash and cash equivalents
60,437
(31,720)
1,236,324
1,429,908
1,538,618
1,236,324
2013
MCh$
2012
MCh$
Interest received
1,669,559
1,614,122
Interest paid
(581,066)
(657,235)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
7
Operating cash flow of Interest:
153
BANCO DE CHILE Y SUS FILIALES
NOTAS A LOS ESTADOS FINANCIEROS CONSOLIDADOS
Al 31 de diciembre de 2013 y 2012
1. Information:
(b) Basis of consolidation
Banco de Chile is authorized to operate as a commercial bank from September 17,
1996, and according to the Article 25 of the Law 19,396 is the legal continuer of the
Banco de Chile, which in turn resulted from the merger between Banco Nacional of
Chile, Banco Agrícola y Banco de Valparaíso. Banco de Chile was formed on October
28, 1893, granted in front of the Public Notary of Santiago Mr. Eduardo Reyes Lavalle,
authorized by Supreme Decree of November 28, 1893.
The financial statements of Banco de Chile as of December 31, 2013 and 2012
have been consolidated with its Chilean subsidiaries and foreign subsidiary using the
global integration method (line-by-line). They include preparation of individual financial
statements of the Bank and companies that participate in the consolidation, and it
include adjustments and reclassifications necessary to homologue accounting policies
and valuation criteria applied by the Bank. The Consolidated Financial Statements have
been prepared using the same accounting policies for similar transactions and other
events in equivalent circumstances.
Banco de Chile (“Banco de Chile” or the “Bank”) is a Corporation organized under the
laws of the Republic of Chile, regulated by the Superintendency of Banks and Financial
Institutions (“SBIF” or “Superintendencia”). Since 2001, - when the bank was first listed
on the New York Stock Exchange (“NYSE”), in the course of its American Depository
Receipt (ADR) program, which is also registered at the London Stock Exchange – Banco
de Chile additionally follows the regulations published by the United States Securities
and Exchange Commission (“SEC”).
Banco de Chile offers a broad range of banking services to its customers, ranging from
individuals to large corporations. The services are managed in large corporate banking,
middle and small corporate banking, personal banking services and retail. Additionally,
the Bank offers international as well as treasury banking services. The Bank’s
subsidiaries provide other services including securities brokerage, mutual fund and
investment management, insurance brokerage, financial advisory and securitization.
Banco de Chile’s legal domicile is Paseo Ahumada 251, Santiago, Chile and its Web
site is www.bancochile.cl.
The consolidated financial statements of the Bank for the year ended December 31,
2013 were authorized for issuance in accordance with the directors’ resolution on
January 30, 2014.
Significant intercompany transactions and balances (assets, liabilities, equity, income,
expenses and cash flows) originated in operations performed between the Bank and
its subsidiaries and between subsidiaries have been eliminated in the consolidation
process. The non-controlling interest corresponding to the participation percentage of
third parties in subsidiaries, which the Bank does not own directly or indirectly, has
been recognized and is shown separately in the consolidated shareholders’ equity of
Banco de Chile.
(i) Subsidiaries
Consolidated financial statements as of December 31, 2013 and 2012 incorporate
financial statements of the Bank and its subsidiaries. According IFRS 10 –
“Consolidated Financial Statements”, control requires exposure or rights to variable
returns and the ability to affect those returns through power over an investee.
Specifically the Bank controls an investee if and only if the investor has all of the
following elements:
I. power over the investee, i.e. the investor has existing rights that give it the
ability to direct the relevant activities;
For convenience of reader, these financial statements and their accompanying notes
have been translated from Spanish to English. Certain accounting practices applied by
the Bank that conform to rules issued by the Chilean Superintendency of Banks (SBIF)
may not conform to generally accepted accounting principles in the United States (“US
GAAP”) or to International Financial Reporting Standards (IFRS).
II. exposure, or rights, to variable returns from its involvement with the investee;
and
2. Summary of Significant Accounting Principles:
When the Bank has less than a majority of the voting rights of an investee, but
these voting rights are enough to have the ability to direct the relevant activities
unilaterally, then conclude the Bank has control. The Bank considers all factors and
relevant circumstances to evaluate if their voting rights are enough to obtain the
control, which it includes:
(a) Basis of preparation
Legal provisions:
The General Banking Law in its Article No. 15 authorizes the Chilean Superintendency
of Banks (SBIF) to issue generally applicable accounting standards for entities it
supervises. The Corporations Law, in turn, requires generally accepted accounting
principles to be followed.
Based on the aforementioned laws, banks should use the criteria provided by the
Superintendency in accordance with the Compendium of Accounting Standards, and
any matter not addressed therein, as long as it does not contradict its instructions,
should adhere to generally accepted accounting principles in technical standards
issued by the Chilean Association of Accountants, that coincide with International
Accounting Standards and International Financial Reporting Standards agreed upon
by the International Accounting Standards Board (IASB). Should there be discrepancies
between these generally accepted accounting principles and the accounting criteria
issued by the SBIF, these shall prevail.
154
III. the ability to use its power over the investee to affect the amount of the
investor’s returns.
• The amount of voting rights that the Bank has, related to the amount of voting
rights of the others stakeholders.
• Potential voting rights maintained by the Bank, other holders of voting rights or
other parties.
• Rights emanated from other contractual arrangements.
• Any additional circumstance that indicate that the Bank have or have not the
ability to manage the relevant activities when that decisions need to be taken,
including behavior patterns of vote in previous shareholders meetings.
The Bank reevaluates if it has or has not the control over an investee when the
circumstances indicates that exists changes in one or more elements of control
listed above.
The entities controlled by the Bank and which form parts of the consolidation are
detailed as follows:
Interest Owned
Indirect
Direct
Rut
Subsidiaries
country
Functional
Currency
44.000.213-7
Banchile Trade Services Limited
Hong Kong
US$
96.767.630-6
Banchile Administradora
General de Fondos S.A.
Chile
$
2013
%
2012
%
2013
%
Total
2012
%
2013
%
2012
%
100.00
100.00
—
—
100.00
100.00
99.98
99.98
0.02
0.02
100.00
100.00
96.543.250-7
Banchile Asesoría Financiera S.A.
Chile
$
99.96
99.96
—
—
99.96
99.96
77.191.070-K
Banchile Corredores de Seguros Ltda.
Chile
$
99.83
99.83
0.17
0.17
100.00
100.00
96.894.740-0
Banchile Factoring S.A. (*)
Chile
$
—
99.75
—
0.25
—
100.00
96.571.220-8
Chile
$
99.70
99.70
0.30
0.30
100.00
100.00
96.932.010-K
Banchile Securitizadora S.A.
Chile
$
99.00
99.00
1.00
1.00
100.00
100.00
96.645.790-2
Socofin S.A.
Chile
$
99.00
99.00
1.00
1.00
100.00
100.00
96.510.950-1
Promarket S.A.
Chile
$
99.00
99.00
1.00
1.00
100.00
100.00
(*) See note No. 5 (j) about Relevant Events
(ii) Associates and Joint Ventures
For investments defined like “Joint Operation”, their assets, liabilities, income and
expenses are recognised by their participation in joint operation.
Associates:
An associate is an entity over whose operating and financial management policy
decisions the Bank has significant influence, without to have the control over
the associate. Significant influence is generally presumed when the Bank holds
between 20% and 50% of the voting rights. Other considered factors when
determining whether the Bank has significant influence over another entity are the
representation on the board of directors and the existence of material intercompany
transactions. The existence of these factors could determine the existence of
significant influence over an entity even though the Bank had participation less
than 20% of the voting rights.
For investments defined like “Joint Venture”, they will be registered according
equity method.
Investments that, for their characteristics, are defined like “Joint Ventures” are the
following:
• Artikos S.A.
• Servipag Ltda.
(iii) Shares or rights in other companies
Investments in associates where exists significant influence, are accounted for
using the equity method.
These are entities in which the Bank does not have significant influence. They are
presented at acquisition value (historical cost).
In accordance with the equity method, the Bank’s investments are initially recorded
at cost, and subsequently increased or decreased to reflect the proportional
participation of the Bank in the net income or loss of the associate and other
movements recognized in its shareholders’ equity. Goodwill arising from the
acquisition of an associate is included in the net book value, net of any accumulated
impairment loss.
(iv) Special purpose entities
Joint Ventures:
Joint Ventures are joint arrangements whereby the parties that have joint control
of the arrangement have rights to the net assets of the arrangement. Joint control
exists only when decisions about the relevant activities require the unanimous
consent of the parties sharing control.
According to current regulation, the Bank must be analyzing continuously its
consolidation area, considering that the principal criteria are the control that the
Bank has in an entity and not its percentage of equity participation.
The Bank has securitized certain credits and have been transferred to its associate
Banchile Securitizadora, which created the Segregated Equity No. 17, according
established by Law 18,045 and Superintendencia de Valores y Seguros. The Bank
has not maintained control thereon (see details in Note No. 12 (h)). As of December
31, 2013 and 2012 the Bank does not control and has not created any SPEs.
According IFRS 11, an entity shall be determining type of joint arrangement: “Joint
Operation” or “Joint Venture”.
155
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(v) Fund management
The Bank manages assets maintained in common investment funds and other
investment products on behalf of investors. Different entities which conform
consolidation group of Banco de Chile (Banchile Administradora General de Fondos
S.A. and Banchile Securitizador S.A) and owned by third parties are not included
in Consolidated Statements of Financial Position, unless the Bank has the control.
According to IFRS 10, for consolidation a purpose is necessary to evaluate the role
of the Bank and its subsidiaries in the funds that manage, determining its role of
Agent or Principal.
recorded in earnings. The effect of this change involved a charge of income of
Ch$16,413 million.
During the year ended December 31, 2013, there have been no other significant
changes, different to it indicated above.
Estimates and relevant assumptions are regularly reviewed by the Bank’s Management
to quantify certain assets, liabilities, income, expenses and commitments. The
accounting estimations reviewed are recognised in the period in which the estimate
is evaluated.
(e) Financial asset and liability valuation criteria
This assessment should consider the following:
•The scope to make decision over the investee
•The rights held by other parties
•The remuneration according to compensation arrangements
•Exposition, of the decision maker, to the variability of returns from other interests
that keeps the investee.
The Bank and its subsidiaries managed on behalf and for the benefit of investors,
acting in that relationship only as Agent. Under this category, and as provided in the
aforementioned rule, these funds do not control when exercising authority to make
decisions. Therefore, at December 31, 2013 and 2012 the Bank acts as agent, and
therefore do not consolidate any fund.
(c) Non-controlling interest
Non-controlling interest represents the share of losses, income and net assets that the
Bank does not control, neither directly or indirectly. It is presented as a separate item in
the Consolidated Statement of Comprehensive Income and the Consolidated Statement
of Financial Position.
Measurement is the process of determining the monetary amounts at which the
elements of the financial statements are to be recognized and carried in the Statement
of Financial Position and the Comprehensive Income. This involves selecting the
particular basis or method of measurement.
In the Consolidated Financial Statements several measuring bases are used with
different levels mixed among them. These bases or methods include the following:
(i) Initial recognition
The Bank and its subsidiaries recognize loans to customers, trading and investment
securities, deposits, debt issued and subordinated liabilities and other assets o
liabilities on the date of negotiation. Purchases and sales of financial assets
performed on a regular basis are recognized as of the trade date on which the
Bank committed to purchase or sell the asset.
(ii) Classification
Assets, liabilities and income accounts have been classified in conformity with
standards issued by the Superintendency of Banks.
(d) Use of estimates and judgment
(iii) Derecognition
The Consolidated Financial Statements include estimates made by the Senior
Management of the Bank and of the consolidated entities to quantify certain of the
assets, liabilities, income, expenses and commitments that are recorded in them.
Basically, these estimates are made in function of the best information available, and
refer to:
1. Goodwill valuation (Note No. 15);
2. Useful lives of property and equipment and intangible assets (Note No. 15 and
No. 16);
3. Current taxes and deferred taxes (Note No.17);
4. Provisions (Note No. 24);
5. Contingencies and commitments (Note No. 26);
6. Provision for loan losses (Note No.11, Note No. 12 and Note No. 32);
7. Impairment of other financial assets (Note No. 35);
8. Fair value of financial assets and liabilities (Note No. 39)
During period 2013, the Bank has made a modification to the derivatives valuation
model. This consists in the incorporation of “Counterparty Value Adjustment” (CVA)
in the valuation of derivatives, to reflect the counterparty risk in determining the fair
value. This valuation does not consider the credit risk of the issuer “Debit Valuation
Adjustment” (DVA) in accordance with it was established by the SBIF. In accordance
with IAS 8 “Accounting Policies: Changes in Accounting Estimates and Errors”, this
modification has been treated as a change in accounting estimate and its effect
156
The Bank and its subsidiaries derecognize a financial asset (or where applicable
part of a financial asset) from its Consolidated Statement of Financial Position
when the contractual rights to the cash flows of the financial asset have expired
or when the contractual rights to receive the cash flows of the financial asset are
transferred during a transaction in which all ownership risks and rewards of the
financial asset are transferred. Any portion of transferred financial assets that is
created or retained by the Bank is recognized as a separate asset or liability.
When the Bank transfers a financial asset, it assesses to what extent it has retained
the risks and rewards of ownership. In this case:
(a) If substantially all risks and rewards of ownership of the financial asset have
been transferred, it is derecognized, and any rights or obligations created or
retained upon transfer are recognized separately as assets or liabilities.
(b) If substantially all risks and rewards of ownership of the financial asset have
been retained, the Bank continues to recognize it.
(c) If substantially all risks and rewards of ownership of the financial asset are
neither transferred nor retained, the Bank will determine if it has retained
control of the financial asset. In this case:
(i) If it has not retained control, the financial asset will be derecognized,
and any rights or obligations created or retained upon transfer will be
recognized separately as assets or liabilities.
(ii) If the entity has retained control, it will continue to recognize the financial
asset in the Consolidated Financial Statement by an amount equal to its
exposure to changes in value that can experience and recognize a financial
liability associated to the transferred financial asset.
The Bank derecognizes a financial liability (or a portion thereof) from its Consolidated
Statement of Financial Position if, and only if, it has extinguished or, in other words,
when the obligation specified in the corresponding contract has been paid or settled
or has expired.
and return factors that are inherent in the financial instrument. Periodically, the
Bank calibrates the valuation techniques and tests it for validity using prices from
observable current market transaction in the same instrument or based on any
available observable market data.
The best evidence of the fair value of a financial instrument at initial recognition is
the transaction price (i.e. the fair value of the consideration given or received) unless
the fair value of that instrument is evidenced by comparison with other observable
current market transactions in the same instrument (i.e. without modification or
repackaging) or based on a valuation technique whose variables include only data
from observable markets. When transaction price provides the best evidence of
fair value at initial recognition, the financial instrument is initially measured at
the transaction price and any difference between this price and the value initially
obtained from a valuation model is subsequently recognized in income depending
on the individual facts and circumstances of the transaction.
(iv) Offsetting
Financial assets and liabilities are offset and the net amount is reported in the
Statement of Financial Position if, and only if, the Bank has the legally enforceable
right to set off the recognized amounts and there is an intention to settle on a net
basis or to realize an asset and settle the liability simultaneously.
Income and expenses are shown net only if accounting standards allow such
treatment, or in the case of gains and losses arising from a group of similar
transactions such as the Bank’s trading activities.
(v) Valuation at amortized cost
Amortized cost is the amount at which a financial asset or liability is measured
at initial recognition minus principal repayments, plus or minus the cumulative
amortization (calculated using the effective interest rate method) of any difference
between that initial amount and the maturity amount and minus any reduction for
impairment.
(vi) Fair value measurements
Fair value of a financial instrument is the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The most objective and common fair value
is the price that you would pay on an active, transparent and deep market (“quoted
price” or “market price”).
When available, the Bank estimates the fair value of an instrument using quoted
prices in an active market for that instrument. A market is considered active if
quoted prices are readily and regularly available and represent actual and regularly
occurring market transactions on an arm’s length basis.
If a market for a financial instrument is not active, the Bank establishes fair value
using a valuation technique. These valuation techniques include the use of recent
market transactions between knowledgeable, willing parties in an arm’s length
transaction, if available, as well as references to the fair value of other instruments
that are substantially the same, discounted cash flows and options pricing models.
The chosen valuation technique use the maximum observable market data, relies
as little as possible on estimates performed by the Bank, incorporates factors
that market participants would consider in setting a price and is consistent with
accepted economic methodologies for pricing financial instruments. Inputs into
the valuation technique reasonably represent market expectations and include risk
Generally, the Bank has assets and liabilities that offset each other’s market risks.
In these cases, average market prices are used as a basis for establishing these
values.
Fair value estimates obtained from models are adjusted for any other factors, such
as liquidity risk or model uncertainties; to the extent that the Bank believes that a
third-party market participant would take them into account in pricing a transaction.
The available-for-sale instruments market valuation process consists in changing
the rate from an average rate of sale (mid-rate) at the rate of sale of these
instruments (offer-rate).
When the transaction price is different from the fair value derived from other
observable current market transactions in the same instrument or based on a
valuation technique whose variables include only data from observable markets,
the Bank immediately recognizes the difference between the transaction price
and fair value (a “Day 1” profit or loss) in “Net financial operating income”. In
cases where fair value is determined using data that is not observable, the
difference between the transaction price and model value is only recognized in
the Consolidated Statement of Comprehensive Income when the inputs become
observable, or when the document is derecognized.
The Bank’s fair value disclosures are included in Note 39.
(f) Presentation and functional currency
The items included in the financial statements of each of the entities of Banco de Chile
and its subsidiaries are valued using the currency of the primary economic environment
in which it operates (functional currency). The functional currency of Banco de Chile is
the Chilean peso, which is also the currency used to present the entity’s consolidated
financial statements, that is the currency of the primary economic environment in which
the Bank operates, as well as obeying to the currency that influences in the costs and
income structure.
(g) Transactions in foreign currency
Transactions in currencies other than the functional currency are considered to be
in foreign currency and are initially recorded at the exchange rate of the functional
currency on the transaction date. Monetary assets and liabilities denominated in foreign
currencies are converted using the exchange rate of the functional currency as of the
date of the Statement of Financial Position. All differences are recorded as a debit or
credit to income.
157
Transactions in a currency other than the functional currency are considered in foreign
currency and are initially recorded at the exchange rate of the currency at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies are
converted at the exchange rate of the functional currency at the date of the Statement
of Financial Position. All differences are recorded as a charge or credit to income.
(iv)Financing activities: corresponds to the activities that produce changes in the
amount and composition of the equity and the liabilities that are not included in the
operating or investing activities.
As of December 31, 2013, the Bank applied the exchange rate of accounting
representation according to the standards issued by the Superintendency of Banks,
where assets expressed in dollars are shown to their equivalent value in Chilean pesos
calculated using the following exchange rate of Ch$525.72 to US$1. As of December
31, 2012, the Bank used the observed exchange rate equivalent to Ch$479.47 to
US$1.
Financial assets held-for-trading consist of securities acquired with the intention of
generating profits as a result of short-term prices fluctuation or as a result of brokerage
activities, or are part of a portfolio on which a short-term profit-generating pattern
exists.
The gain of MCh$71,457 for net foreign exchange income (MCh$35,136 in 2012)
shown in the Consolidated Statement of Comprehensive Income, includes recognition
of the effects of exchange rate variations on assets and liabilities in foreign currency or
indexed to exchange rates, and the result of foreign exchange transactions conducted
by the Bank and its subsidiaries.
(j) Financial assets held-for-trading
Financial assets held-for-trading are stated at their fair market value as of the
Consolidated Statement of Financial Position date. Gains or losses from their fair market
value adjustments, as well as gains or losses from trading activities, are included in
“Gains (losses) from trading and brokerage activities” in the Consolidated Statement
of Comprehensive Income. Accrued interest and revaluations are reported as “Gains
(losses) from trading and brokerage activities”.
(k) Repurchase agreements and security lending and borrowing transactions
(h) Segment reporting
The Bank’s operating segments are determined based on its different business units,
considering the following factors:
(i) That it conducts business activities from which income is obtained and expenses
are incurred (including income and expenses relating to transactions with other
components of the same entity).
(ii) That its operating results are reviewed regularly by the entity’s highest decisionmaking authority for operating decisions, to decide about resource allocation for the
segment and evaluate its performance; and
The Bank engages in transactions with repurchase agreements as a form of investment.
The securities purchased under these agreements are recognized on the Bank’s
Consolidated Statement of Financial Position under “Receivables from Repurchase
Agreements and Security Lending”, which is valued in accordance with the agreedupon interest rate, through of method of amortised cost.
The Bank also enters into security repurchase agreements as a form of financing.
Investments that are sold subject to a repurchase obligation and serve as collateral for
borrowings are reclassified as “Financial Assets held-for-trading” or “Available-for-sale
Instruments”. The liability to repurchase the investment is classified as “Payables from
Repurchase Agreements and Security Lending”, which is valued in accordance with the
agreed-upon interest rate.
(iii) That separate financial information is available.
(i) Cash and cash equivalents
The Consolidated Statement of Cash Flows shows the changes in cash and cash
equivalents derived from operating activities, investment activities and financing
activities during the year. The indirect method has been used in the preparation of this
statement.
For the preparation of Consolidated Financial Statements of Cash Flow it is considered
the following concepts:
(i) Cash and cash equivalents correspond to “Cash and Bank Deposits”, plus (minus)
the net balance of transactions in the course of collection that are shown in the
Consolidated Statement of Financial Position, plus instruments held-for-trading and
available-for-sale that are highly liquid and have an insignificant risk of change
in value, maturing in less than three months from the date of acquisition, plus
repurchase agreements that are in that situation. Also includes investments in
fixed income mutual funds that are presented under “Trading Instruments” in the
Consolidated Statement of Financial Position.
(ii) Operating activities: corresponds to normal activities of the Bank, as well as other
activities that cannot classify like investing or financing activities.
(iii) Investing activities: correspond to the acquisition, sale or disposition other forms,
of long-term assets and other investments that not include in cash and cash
equivalent.
158
As of December 31, 2013 and 2012 it not exist operations corresponding to securities
lending.
(l) Derivative instruments
The Bank maintains contracts of Derivative financial instruments, for cover the
exposition of risk of foreign currency and interest rate. These contracts are recorded
in the Consolidated Statement of Financial Position at their cost (included transactions
costs) and subsequently measured at fair value. Derivative instruments are reported as
an asset when their fair value is positive and as a liability when negative under the item
“Derivative Instruments”.
Changes in fair value of derivative contracts held for trading purpose are included
under “Profit (loss) net of financial operations”, in the Consolidated Statement of
Comprehensive Income.
Certain embedded derivatives in other financial instruments are treated as separate
derivatives when their risk and characteristics are not closely related to those of the
main contract and if the contract in its entirety is not recorded at its fair value with its
unrealized gains and losses included in income.
At the moment of subscription of a derivative contract must be designated by the Bank
as a derivative instrument for trading or hedging purposes.
If a derivative instrument is classified as a hedging instrument, it can be:
(1) A hedge of the fair value of existing assets or liabilities or firm commitments, or
(2)A hedge of cash flows related to existing assets or liabilities or forecasted
transactions.
which meet the definition to be classified as financial leases and are presented at
their nominal value net of unearned interest as of each year-end.
(iii) Factoring transactions
A hedge relationship for hedge accounting purposes must comply with all of the
following conditions:
The Bank carry out factoring transactions, where they receive invoices and other
commercial instruments representative of credit, with or without recourse, and they
advance to the assignor a percentage of the total amounts to be collected from
the original debtor.
(a) at its inception, the hedge relationship has been formally documented;
(b) it is expected that the hedge will be highly effective;
(c) the effectiveness of the hedge can be measured in a reasonable manner; and
(d) the hedge is highly effective with respect to the hedged risk on an ongoing
basis and throughout the entire hedge relationship.
As of December 31, 2013, the item “Loans to customers” includes MCh$524,059
(MCh$606,137 in 2012), corresponding to the amount advanced to the assignor,
plus accrued interest net of payments received.
The Bank presents and measures individual hedges (where there is a specific
identification of hedged item and hedged instruments) by classification, according to
the following criteria:
Fair value hedges: changes in the fair value of a hedged instruments derivative,
designed like “fair value hedges”, are recognised in income. Hedged item also is
presented to fair value, related to the risk to be hedge. Gains or losses from fair value
adjustments, both the hedged item and the derivative instrument, are recognized in
income.
Cash flow hedge: changes in the fair value of financial instruments derivative
designated like “cash flow hedge” are recognised in “Other Comprehensive Income”, to
the extent that hedge is effective and hedge is reclassified to income when hedged item
affects such income. If the hedge is not effective, changes in fair value are recognised
directly in income.
If the hedged instruments does not comply with criteria of hedge accounting of cash
flow, it expires or is sold, it suspend or executed, this hedge must be discontinued
prospectively. Accumulated gains or losses recognised previously in the equity are
maintained there until projected transactions occur, in that moment will be registered
in Consolidated Statement of Income, lesser than it foresees that the transaction will
not execute, in this case it will be registered immediately in Consolidated Statement
of Income.
(m) Loans to customers
Loans to customers include originated and purchased non-derivative financial assets
with fixed or determinable payments that are not quoted on an active market and which
the Bank does not intend to sell immediately or in the short-term.
(i) Valuation method
Loans are initially measured at cost plus incremental transaction costs, and
subsequently measured at amortized cost using the effective interest rate method,
except when the Bank defined some loans as hedged items, which are measured
at fair value, changes are recorded in the Consolidated Statement of Income, as
described in letter (l) of this note.
(ii) Lease contracts
Accounts receivable for leasing contracts, included under the caption “Loans
to customers” are recorded MCh$1,209,747 as of December 31, 2013
(MCh$1,113,272 in 2012), correspond to periodic rent installments of contracts
In those cases where the transfer of these instruments it was made without
responsibility of the grantor, the Bank assumes the default risk.
(iv) Impairment of loans
The impaired portfolio includes loans of debtors for which there is evidence that
they will not fulfill some of their obligations on the agreed upon payment conditions
without the possibility of recovering what is owed, having to recur to the guarantees,
through exercising judicial payment actions or agreeing upon other conditions.
The following are certain situations that constitute evidence that the debtors will
not fulfill their obligations with the Bank in accordance with what has been agreed
upon, and that their loans are impaired:
•Financial difficulties evident of the debtor or significant worsening of their credit
quality.
•Notorious indicators that the debtor will go into bankruptcy or into a forced
restructuring of debts or that effectively bankruptcy or a similar measure has
been filed in relation to their payment obligations, including delaying or nonpayment of obligations.
•Forced restructuring of a loan due to economic or legal factors related to the
debtor, whether by decreasing the payment obligation or delaying the principal,
interest or commissions.
•The obligations of the debtor are negotiated with a significant loss due to the
vulnerability of the debtor’s payment capacity.
•Adverse changes produced in the technological, market, economic or legal area
in which the debtor operates, which potentially compromise the debtor’s payment
capacity.
In any case, when dealing with debtors subject to individual assessment, are
considered in impaired portfolio all credits of debtors classified in some the “Noncomplying Loans “ categories, as well as in categories B3 and B4 of “Substandard
Portfolio.” Also, being subject to assessment debtors group, the impaired portfolio
includes all credits of the Non-complying loans.
The Bank incorporates the loans to impaired portfolio and keeps them in that
portfolio, until it is not observed a normalization of the capacity or conduct of
payment.
(v) Allowance for loan losses
Allowances are required to cover the risk of loan losses have been established in
accordance with the instructions issued by the Superitendency of Banks. The loans
are presented net of those allowances and, in the case of loans and in the case of
contingent loans, they are shown in liabilities under “Provisions”.
159
In accordance with what is stipulated by the Superintendency of Banks, models
or methods are used based on an individual and group analysis of debtors, to
establish allowance for loan losses.
(v.i) Allowance for individual evaluations
An individual analysis of debtors is applied to individuals and companies that are of
such significance with respect to size, complexity or level of exposure to the bank,
that they must be analyzed in detail.
Likewise, the analysis of borrowers should focus on its ability to payment, to have
sufficient and reliable information, and to analyze in regard to guarantees, terms,
interest rates, currency and revaluation, etc.
For purposes of establish the allowances and before the assignment to one of three
categories of loans portfolio: Normal, Substandard and Non-complying Loans, it
must classify the debtors and their operations related to loans and contingent loans
in the categories that apply.
v.i.1 Normal Loans and Substandard Loans
Normal loans correspond to borrowers who are up to date on their payment
obligations and show no sign of deterioration in their credit quality. Loans
classified in categories A1 through A6.
Substandard loans includes all borrowers with insufficient payment capacity or
significant deterioration of payment capacity that may be reasonably expected
not to comply with all principal and interest payments obligations set forth in
the credit agreement.
This category also includes all loans that have been non-performing for more
than 30 days. Loans classified in this category are B1 through B4.
As a result of individual analysis of the debtors, the banks must classify them in
the following categories, assigning, subsequently, the percentage of probability
of default and loss given default resulting in the corresponding percentage of
expected loss:
Classification
Normal Loans
Substandard Loans
160
Category
Probability of
default (%)
Loss given
default (%)
Expected
loss (%)
A1
0.04
90.0
0.03600
A2
0.10
82.5
0.08250
A3
0.25
87.5
0.21875
A4
2.00
87.5
1.75000
A5
4.75
90.0
4.27500
A6
10.00
90.0
9.00000
B1
15.00
92.5
13.87500
B2
22.00
92.5
20.35000
B3
33.00
97.5
32.17500
B4
45.00
97.5
43.87500
Allowances for Normal and Substandard Loans:
To determine the amount of allowances to be constitute for normal and
substandard portfolio, previously should be estimated the exposure to subject
to the allowances, which will be applied to respective expected loss (expressed
in decimals), which consist of probability of default (PD) and loss given default
(LGD) established for the category in which the debtor and/or guarantor belong,
as appropriate.
The exposure affects to allowances applicable to loans plus contingent loans
minus the amounts to be recovered by way of the foreclosure of guarantees.
Loans means the book value of credit of the respective debtor, while for
contingent loans, the value resulting from to apply the indicated in No.3 of
Chapter B-3 of Compilation of Standards of the Chilean Superintendency of
Banks (RAN).
The banks must use the following equation:
= (ESA-GE) x (PD debtor / 100) x (LGD debtor / 100) + GE x (PD guarantor /
100) x (LGD guarantor / 100)
Provision
Where:
ESA = Exposure subject to allowances
GE = Guaranteed exposure
EAP = (Loans + Contingent Loans) – Financial Guarantees
However, independent of the results obtained from the equation above, the
bank must be assigned a minimum provision level of 0.5% of the Normal Loans
(including contingent loans).
v.i.2 Non-complying Loans
The non-complying loans corresponds to borrowers and its credits whose
payment capacity is seriously at risk and who have a high likelihood of filing for
bankruptcy or are renegotiating credit terms to avoid bankruptcy. This category
comprises all loans and contingent loans outstanding from debtors that have
at least one installment payment of interest or principal overdue for 90 days or
more. This group is composed of debtors belonging to categories C1 through
C6 of the classification level and all loans, inclusive contingent loans, which
maintain the same debtors.
For purposes to establish the allowances on the non-complying loans, the Bank
dispose the use of percentage of allowances to be applied on the amount
of exposure, which corresponds to the amount of loans and contingent loans
that maintain the same debtor. To apply that percentage, must be estimated a
expected loss rate, less the amount of the exposure the recoveries by way of
foreclosure of guarantees and, if there are available specific background, also
must be deducting present value of recoveries obtainable exerting collection
actions, net of expenses associated with them. This loss percentage must be
categorized in one of the six levels defined by the range of expected actual
losses by the Bank for all transactions of the same debtor.
These categories, their range of loss as estimated by the Bank and the
percentages of allowance that definitive must be applied on the amount of
exposures, are listed in the following table:
Type of
Loan
Non-complying
loans
Classification
Expected
loss
Allowance (%)
C1
More than 0% up to 3%
2
C2
10
C3
More than 20 % up to 30%
25
C4
40
C5
65
C6
More than 80%
90
For these loans, the expected loss must be calculated in the following manner:
Expected loss
Allowance = (TE – R) / TE
= TE x (AP/100)
Where:
TE = total exposure
R = recoverable amount based on estimates of collateral value and
collection efforts
AP = allowance percentage (based on the category in which the
expected loss should be classified).
(v.ii) Allowances for group evaluations
Group evaluations are relevant to address a large number of operations whose
individual amounts are low or small companies. Such assessments, and the
criteria for application, must be consistent with the transaction of give the
credit.
Group evaluations requires the formation of groups of loans with similar
characteristics in terms of type of debtors and conditions agreed, to establish
technically based estimates by prudential criteria and following both the
payment behavior of the group that concerned as recoveries of defaulted loans
and consequently provide the necessary provisions to cover the risk of the
portfolio.
Banks may use two alternative methods for determining provisions for retail
loans that are evaluated as a group.
Under first method, it will be used the experience to explain the payment
behavior of each homogeneous group of debtors and recoveries through
collateral and of collection process, when it correspond, with objective of to
estimate directly a percentage of expected losses that will be apply to the
amount of the loans of respective group.
Under second method, the banks will segment to debtors in homogeneous
groups, according described above, associating to each group a determined
probability of default and a percentage of recovery based in a historic analysis.
The amount of provisions to register it will be obtained multiplied the total loans
of respective group by the percentages of estimated default and of loss given
the default.
161
In both methods, estimated loss must be related with type of portfolio and
terms of operations.
The Bank to determine its provisions has opted for using second method.
In the case of consumer loans are not considered collateral for purposes of
estimating the expected loss.
Allowances are establish according with the results of the application of the
methods used by the Bank, distinguishing between allowances over normal
portfolio and over the non-complying loans, and those that protect the
contingent credit risks associated with these portfolios.
The non-complying loans includes loans and contingent credits linked to
debtors that have delay more than 90 days in the payment of interest or
principal, including all their credits, even 100% of the amount of contingent
credit, related to the same debtor has it .
(vi)Charge-offs
Generally, the charge-offs are produced when the contractual rights on cash flows
end. In case of loans, even if the above does not happen, it will proceed to chargeoffs the respective asset balances.
The charge-off refers to derecognition of the assets in the Statement of Financial
Position, related to the respective transaction and, therefore, the part that could not
be past-due if a loan is payable in installments, or a lease.
The charge-off must be to make using credit risk provisions constituted, whatever
the cause for which the charge-off was produced.
(vi.i) Charge-offs of loans to customers
Charge-off loans to customers, other than leasing operations, shall be made in
accordance to the following circumstances occurs:
a) The Bank, based on all available information, concludes that will not obtain
any cash flow of the credit recorded as an asset.
(vi.ii) Charge-offs of lease operations
Assets for leasing operations must be charge-offs against the following
circumstances, whichever occurs first:
a) The bank concludes that there is no possibility of the rent recoveries and
the value of the property cannot be considered for purposes of recovery
of the contract, either because the lessee have not the asset, for the
property’s conditions, for expenses that involve its recovery, transfer and
maintenance, due to technological obsolescence or absence of a history of
your location and current situation.
b) When it complies the prescription term of actions to demand the payment
through executory or upon rejection or abandonment of executory by court.
c) When past-due term of a transaction complies with the following:
Type of Loan Consumer leases
Other non-real estate lease transactions
Real estate leases (commercial or residential)
TERM
6 months
12 months
36 months
The term represents the time elapsed since the date on which payment of all or part of
the obligation in default became due.
(vii) Loan loss recoveries
Cash recoveries on charge-off loans including loans that were reacquired from the
Central Bank of Chile are recorded directly in income in the Consolidated Statement
of Comprehensive Income, as a reduction of the “Provisions for Loan Losses” item.
In the event that there are recovery in assets, is recognized in income the revenues
for the amount they are incorporated in the asset. The same criteria will be followed
if the leased assets are recovered after the charge-off of a lease operation, to
incorporate those to the asset.
(viii) Renegotiations of charge-off transactions
b) When the debt (without “executive title”, a collectability category pursuant
to local law) meets 90 days since it was recorded as an asset.
Any renegotiation of a charge-off loan it not recognize in income, while the
operation continues to have deteriorated quality. Payments must be recognized
as loan recoveries.
c) At the time the term set by the statute of limitations runs out and as result
legal actions are precluded in order to request payment through executive
trial or upon rejection or abandonment of title execution issued by judicial
and non-recourse resolution.
Therefore, renegotiated credit can be recorded as an asset only if it has not
deteriorated quality; also recognizing revenue from activation must be recorded
like recovery of loans.
d) When past-due term of a transaction complies with the following:
The same criteria should apply in the case that was give credit to pay a charge-off
loan.
Type of Loan TERM
(n) Financial assets held-to-maturity and available-for-sale
Consumer loans - secured and unsecured
Other transactions - unsecured
Commercial loans - secured
Residential mortgage loans
6 months
24 months
36 months
48 months
The term represents the time elapsed since the date on which payment of all
or part of the obligation in default became due.
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Financial assets held-to-maturity includes only those securities for which the Bank
has the ability and intention of keeping until maturity. The remaining investments
are considered as financial assets available-for-sale. On an ongoing basis the Bank
reassesses whether the ability and intention to sell available-for-sale instruments
remains to be given.
Financial assets held-to-maturity are recorded at their cost plus accrued interest and
indexations less impairment provisions made when the carrying amount exceeds the
estimated recoverable amount.
The subsequent expense in software assets is capitalized only when it increases
the future economic benefit for the specific asset. All other expenses are recorded
as an expense as incurred.
A financial asset classified as available-for-sale is initially recognized at its fair value
plus transaction costs that are directly attributable to the acquisition of the financial
asset.
Amortization is recorded in income using the straight-line amortization method
based on the estimated useful life of the software, from the date on which it is
available for use. The estimated useful life of software is a maximum of 6 years.
Financial assets available for sale are subsequently measured at their fair value based
on market prices or valuation models. Unrealized gains or losses as a result of fair
value adjustments are recorded in “Other comprehensive income” within Equity. When
these investments are sold, the cumulative fair value adjustment existing within equity
is recorded directly in income under “Net financial operating income”.
(iii) Other identifiable intangible assets
This item applies to identifiable intangible assets for which the cost can be reliably
measured and which are likely to generate future economic benefits for the Bank.
(p) Property and equipment
Interest and indexations of financial assets held-to-maturity and available-for-sale are
included in the line item “Interest revenue”.
Investment securities, which are subject to hedge accounting, are adjusted according
to the rules for hedge accounting as described in Note No. 2 (l).
As of December 31, 2013 and 2012, the Bank and its subsidiaries do not hold held to
maturity instruments.
(o) Intangible assets
Intangible assets are identified as non-monetary assets (separately identifiable from
other assets) without physical substance which arise as a result of a legal transaction
or are developed internally by the consolidated entities. They are assets whose cost
can be estimated reliably and from which the consolidated entities have control and
consider it probable that future economic benefits will be generated.
Property and equipment includes the amount of land, real estate, furniture, computer
equipment and other installations owned by the consolidated entities and which are for
own use. These assets are stated at historical cost less depreciation and accumulated
impairment.
This cost includes expenses than have been directly attributed to the asset’s acquisition.
Depreciation is recognized in income on a straight-line basis over the estimated useful
lives of each part of an item of property and equipment.
Estimated useful lives for 2013 and 2012 are as follows:
Buildings
50 years
Installations 10 years
Equipment
3 years
Supplies and accessories 5 years
Intangible assets are recorded initially at acquisition cost and are subsequently
measured at cost less any accumulated amortization or any accumulated impairment
losses.
Maintenance expenses relating to those assets held for own uses are recorded as
expenses in the period in which they are incurred.
(i) Goodwill
(q) Deferred taxes and income taxes
Goodwill arises on the acquisition of subsidiaries and associates representing the
excess of the fair value of the purchase consideration and cost directly attributable
to the acquisition over the net fair value of the Bank’s share of the identifiable
assets acquired and the liabilities and contingent liabilities assumed on the date
of the acquisition.
For the purpose of calculating goodwill, fair values of acquired assets, liabilities and
contingent liabilities are determined by reference to market values or by discounting
expected future cash flows to present value. This discounting is either performed
using market rates or by using risk-free rates and risk-adjusted expected future
cash flows.
Goodwill is presented at cost, less accumulated amortization in accordance with
its remaining useful life.
(ii) Software or computer programs
The income tax provision of the Bank and its subsidiaries has been determined in
conformity with current legal provisions.
The Bank and its subsidiaries recognize, when appropriate, deferred tax assets and
liabilities for future estimates of tax effects attributable to temporary differences
between the book and tax values of assets and liabilities. Deferred tax assets and
liabilities are measured based on the tax rate expected to be applied, in accordance
with current tax law, in the year that deferred tax assets are realized or liabilities are
settled. The effects of future changes in tax legislation or tax rates are recognized in
deferred taxes starting on the date of publication of the law approving such changes.
Deferred tax assets and liabilities are recorded at their book value as of the date the
deferred taxes are measured. Deferred tax assets are recognized only when it is likely
that future tax profits will be sufficient to recover deductions for temporary differences.
Deferred taxes are classified in conformity with established by Superintendency of
Banks.
Computer software purchased by the Bank and its subsidiaries is accounted for at
cost less accumulated amortization and impairment losses.
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(r) Assets received in lieu of payment
Assets received or awarded in lieu of payment of loans and accounts receivable from
customers are recorded, in the case of assets received in lieu of payment, at the price
agreed by the parties, or otherwise, when the parties do not reach an agreement, at the
amount at which the Bank is awarded those assets at a judicial auction.
Assets received in lieu of payment are classified under “Other Assets” and they are
recorded at the lower of its carrying amount or net realizable value, less charge-off and
presented net of a portfolio valuation allowance. The Superitendency of Banks requires
regulatory charge-offs if the asset is not sold within a one year of foreclosure.
(s) Investment properties
Investments properties are real estate assets held to earn rental income or for capital
appreciation or both, but are not held-for-sale in the ordinary course of business or
used for administrative purposes. Investment properties are measured at fair value
as attributed cost, at the moment of transition to IFRS, calculated as of January 1,
2008, less accumulated depreciation and impairment and are presented under “Other
Assets”.
(t) Debt issued and other financial liabilities
Financial instruments issued by the Bank are classified in the Statement of Financial
Position under “Debt issued” items, where the substance of the contractual arrangement
results in the Bank having an obligation either to deliver cash or another financial asset
to the holder or to satisfy the obligation other than by the exchange of a fixed amount
of cash.
After initial measurement, debt issued is subsequently measured at amortized cost
using the effective interest rate. Amortized cost is calculated by taking into account any
discount or premium on the issue and costs that are an integral part of the effective
interest rate.
(u) Provisions and contingent liabilities
Provisions are liabilities involving uncertainty about their amount or maturity. They are
recorded in the Statement of Financial Position when the following requirements are
jointly met:
(i) a present obligation has arisen from a past event and,
ii) as of the date of the financial statements it is probable that the Bank or its
subsidiaries have to disburse resources to settle the obligation and the amount can
be reliably measured.
A contingent asset or liability is any right or obligation arising from past events whose
existence will be confirmed by one or more uncertain future events which are not within
the control of the Bank.
The following are classified as contingent in the complementary information:
i. Guarantors and pledges: Comprises guarantors, pledges and standby letters
of credit. In addition it includes payment guarantees for purchases in factoring
transactions.
ii. Confirmed foreign letters of credit: Corresponds to letters of credit confirmed by
the Bank.
164
iii. Documentary letters of credit: Includes documentary letters of credit issued by the
Bank which have not yet been negotiated.
iv. Documented guarantee: Guarantee with promissory notes.
v. Interbank guarantee: Correspond to letters of guarantee issued as foreseen in Title
II of Chapters 8-12 of the Updated Compilation of Standards.
vi. Free disposal lines of credit: The unused amount of credit lines that allow
customers to draw without prior approval by the Bank (for example, using credit
cards or overdrafts in checking accounts).
vii. Other credit commitments: Amounts not yet lent under committed loans, which
must be disbursed at an agreed future date when events contractually agreed upon
with the customer occur, such as in the case of lines of credit linked to the progress
of a construction or similar projects.
viii.Other contingent loans: Includes any other kind of commitment by the Bank which
may exist and give rise to lending when certain future events occur. In general,
this includes unusual transactions such as pledges made to secure the payment
of loans among third parties or derivative contracts made by third parties that may
result in a payment obligation and are not covered by deposits.
Exposure to credit risk on contingent loans:
In order to calculate provisions on contingent loans, as indicated in Chapter B-3 of the
Compendium of Accounting Standards of the Superintendency of Banks, the amount of
exposure that must be considered shall be equivalent to the percentage of the amounts
of contingent loans indicated below:
Type of contingent loan
a) Guarantors and pledges
b) Confirmed foreign letters of credit
c) Documentary letters of credit issued
d) Guarantee deposits
e) Interbank letters of guarantee
f) Free disposal lines of credit g) Other loan commitments
- College education loans Law No. 20,027
-Others
h) Other contingent loans
Exposure
100%
20%
20%
50%
100%
50%
15%
100%
100%
Notwithstanding the above, when dealing with transactions performed with customers
with overdue loans as indicated in Chapter B-1 of the Compendium of Accounting
Standards of the SBIF: Impaired and/or Written-down Loans, that exposure shall be
equivalent to 100% of its contingent loans.
Additional provisions:
In accordance to Superintendency of Banks regulations, the Bank has recorded
additional allowances for its individually evaluated loan portfolio, taking into
consideration the expected impairment of this portfolio. The calculation of this
allowance is performed based on the Bank’s historical experience and considering
possible future adverse macroeconomic conditions or circumstances that could affect
a specific sector, industry, groups of debtors or projects.
The provisions made in order to forestall the risk of macroeconomic fluctuations
should anticipate situations reversal of expansionary economic cycles in the future,
could translate into a worsening in the conditions of the economic environment and
thus, function as a countercyclical mechanism accumulation of additional provisions
when the scenario is favorable and release or assignment to specific provisions when
environmental conditions deteriorate.
According to the above, additional provisions must always correspond to general
provisions on commercial, consumer or mortgage loans, or segments identified, and in
no case may be used to offset weaknesses of the models used by the bank.
During the current year, the Bank recorded additional provisions with a charge to
income of MCh$10,000 (MCh$2,271 in 2012). As of December 31, 2013 the additional
provisions amounted Ch$107,757 million (Ch$97,757 million), which are presents in
the item “Provisions” of the liability in the Consolidated Statement of Financial Position.
(v) Provision for minimum dividends
According with the Compendium of Accounting Standards of the SBIF, the Bank records
within liabilities the portion of net income for the year that should be distributed to
comply with the Corporations Law or its dividend policy. For these purposes, the Bank
establishes a provision in a complementary equity account within retained earnings.
Distributable net income is considered for the purpose of calculating a minimum
dividends provision, which in accordance with the Bank’s bylaws is defined as that which
results from reducing or adding to net income the value of price-level restatement for
the concept of restatement or adjustment of paid-in capital and reserves for the year.
Actuarial gains and losses are recognised in “Other Comprehensive Income”. There
are no other additional costs that must be recognised by the Bank.
(x) Earnings per share
Basic earnings per share is determined by dividing net income for the year attributable
to the Bank by the average weighted number of shares in circulation during that year.
Diluted earnings per share is determined in a similar manner as basic earnings per
share, but the average weighted number of shares in circulation is adjusted to account
for the dilutive effect of stock options, warrants and convertible debt. As of December
31, 2013 and 2012, the Bank does not have any instruments or contracts that could
cause dilutions. Therefore, no adjustments have been made.
(y) Interest revenue and expense
Interest income and expenses are recognized in the income statement using the
effective interest rate method. The effective interest rate is the rate which exactly
discounts estimated future cash payments or receipts through the expected life of the
financial instrument (or a shorter period) where appropriate, to the carrying amount of
the financial asset or financial liability. To calculate the effective interest rate, the Bank
determines cash flows by taking into account all contractual conditions of the financial
instrument, excluding future credit losses.
The effective interest rate calculation includes all fees and other amounts paid
or received that form part of the effective interest rate. Transaction costs include
incremental costs that are directly attributable to the purchase or issuance of a financial
asset or liability.
(w) Employee benefits
(i) Staff vacations:
The annual costs of vacations and staff benefits are recognized on an accrual basis.
(ii) Short-term benefits
The Bank has a yearly bonus plan for its employees based on their ability to meet
objectives and their individual contribution to the company’s results, consisting of
a given number or portion of monthly salaries. It is provisioned for based on the
estimated amount to be distributed.
(iii) Staff severance indemnities:
Banco de Chile has recorded a liability for long-term severance indemnities in
accordance with employment contracts it has with certain employees. The liability,
which is payable to specified retiring employees with 30 or 35 years of service,
is recorded at the present value of the accrued benefits, which are calculated
by applying a real discount rate to the benefit accrued as of year-end over the
estimated average remaining service period.
Obligations for this defined benefits plan are valued according to the projected
unit credit actuarial valuation method, using inputs such as staff turnover rates,
expected salary growth in wages and probability that this benefit will be used,
discounted at current long-term rates (5.19% as of December 31, 2013 and
5.50% as of December 31, 2012).
For its impaired portfolio and high risk loans and accounts receivables from clients, the
Bank has applied a conservative position of discontinuing accrual-basis recognition
of interest revenue in the income statement; they are only recorded once received. In
accordance with the above, suspension occurs in the following cases:
Loans with individual evaluation:
• Loans classified in categories C5 and C6: Accrual is suspended by the sole fact of
being in the impaired portfolio.
• Loans classified in categories C3 and C4: Accrual is suspended due to having been
three months in the impaired portfolio.
Group evaluation loans:
• Loans with less than 80% real guarantees: Accrual is suspended when payment of
the loan or one of its installments has been overdue for six months.
Notwithstanding the above, in the case of loans subject to individual evaluation,
recognition of income from accrual of interest and readjustments can be maintained
for loans that are being paid normally and which correspond to obligations whose cash
flows are independent, as can occur in the case of project financing.
The suspension of recognition of revenue on an accrual basis means that, while the
credits are kept in the impaired portfolio, the related assets included in the Consolidated
Statement of Financial Position will increase with no interest, or fees and adjustments
in the Consolidated Statement of Comprehensive Income, and income will not be
recognized for these items, unless they are actually received.
The discount rate used corresponds to the return on bonds of the Central Bank with
maturity in 10 years (BCP).
165
(z) Fees and commissions
Income and expenses from fees and commissions are recognized in income using
different criteria based on the nature of the income or expense: The most significant
criteria include:
• Fees earned from an single act are recognized once the act has taken place.
• Fees earned from transactions or services provided over a longer period of time are
recognized over the life of the transactions or services.
• Loan commitment fees for loans that are likely to be drawn down and other creditrelated fees are deferred (together with incremental costs) and recognized as an
adjustment to the effective interest rate of the loan. When it is unlikely that a loan is
drawn down, the fees are recognized over the commitment period on a straight-line
basis.
(aa) Identifying and measuring impairment
Financial assets, different to loans to customers:
Financial assets are reviewed throughout each year, and especially at each reporting
date, to determine whether there is objective evidence of impairment as a result of a
loss event that occurred after the initial recognition of the asset and the loss event had
an impact on the estimated future cash flows of the financial asset that can be reliably
calculated.
An impairment loss for financial assets (different to loans to customers) recorded at
amortized cost is calculated as the difference between the asset’s carrying amount and
the present value of the estimated future cash flows, discounted using the effective
interest rate.
An impairment loss for available-for-sale financial assets is calculated using its fair
value, considering fair value changes already recognized in other comprehensive
income.
In the case of equity investments classified as available-for-sale financial assets,
objective evidence includes a significant or prolonged decline in the fair value of
the investment below cost. In the case of debt securities classified as available-forsale financial assets, the Bank assesses whether there exists objective evidence for
impairment based on the same criteria as for loans.
If there is evidence of impairment, any amounts previously recognized in equity, in net
gains (losses) not recognized in the income statement, is removed from equity and
recognized in the income statement for the period, reported in net gains (losses) on
financial assets available for sale. This amount is determined as the difference between
the acquisition cost (net of any principal repayments and amortization) and current fair
value of the asset less any impairment loss on that investment previously recognized
in the income statement.
When the fair value of the available-for-sale debt security recovers to at least amortised
cost, it is no longer considered impaired and subsequent changes in fair value are
reported in equity.
All impairment losses are recognized in the income statement. Any cumulative
loss related to available-for-sale financial assets recognized previously in equity is
transferred to the income statement.
An impairment loss can only be reversed if it can be related objectively to an event
occurring after the impairment loss was recognized.
166
The amount of the reversal is recognized in profit or loss up to the amount previously
recognized as impairment.
An impairment loss is reversed if, in a subsequent period, the fair value of the debt
instrument classified as available-for-sale increases and the increase can be objectively
related to an event occurring after the impairment loss was recognized in profit or loss.
Non-financial assets:
The carrying amounts of the non-financial assets of the Bank and its subsidiaries,
excluding investment properties and deferred tax assets, are reviewed throughout the
year and especially at each reporting date, to determine if any indication of impairment
exists. If such indication exists, the recoverable amount of the asset is then estimated.
Impairment losses recognized in prior years are assessed at each reporting date in
search of any indication that the loss has decreased or disappeared. An impairment
loss is reversed if there has been a change in the estimations used to determine the
recoverable amount. An impairment loss is reverted only to the extent that the book
value of the asset does not exceed the carrying.
The Bank assesses at each reporting date and on an ongoing basis whether there is an
indication that an asset may be impaired. If any indication exists, the Bank estimates
the asset’s recoverable amount. An asset’s recoverable amount is the fair value less
costs to sell and its value in use. Where the carrying amount of an asset exceeds
its recoverable amount, the asset is considered impaired and is written down to its
recoverable amount. In assessing value in use, the estimated cash flows are discounted
to their present value using a pre-tax discount rate that reflects the current market
assessments of the time value of money and risks specific to the asset. In determining
fair value less costs to sell, an appropriate valuation model is used. These calculations
are corroborated by valuation multiples, share prices and other available fair value
indicators.
Impairment losses related to goodwill cannot be reversed in future periods.
(ab) Lease transactions
(i) The Bank acting as lessor
Assets leased to customers under agreements which transfer substantially all the
risks and rewards of ownership, with or without ultimate legal title, are classified as
finance leases. When assets held are subject to a finance lease, the leased assets
are derecognized and a receivable is recognized which is equal to the present
value of the minimum lease payments, discounted at the interest rate implicit
in the lease. Initial direct costs incurred in negotiating and arranging a finance
lease are incorporated into the receivable through the discount rate applied to the
lease. Finance lease income is recognized over the lease term based on a pattern
reflecting a constant periodic rate of return on the net investment in the finance
lease.
Assets leased to customers under agreements which do not transfer substantially
all the risks and rewards of ownership are classified as operating leases.
The leased assets are include within “Other Assets” on the Group’s balance
sheet and depreciation is provided on the depreciable amount of these assets on
a systematic basis over their estimated useful economic lives. Rental income is
recognized on a straight-line basis over the period of the lease. Initial direct costs
incurred in negotiating and arranging an operating lease are added to the carrying
amount of the leased asset and recognized as an expense on a straight-line basis
over the lease term.
3. New Accounting Pronouncements:
(ii) The Bank acting as lessee
Assets held under finance leases are initially recognized on the balance sheet at an
amount equal to the fair value of the leased property or, if lower, the present value
of the minimum lease payments. As of December 31, 2013 and 2012, the Bank
and its subsidiaries have not signed contracts of this nature.
The following is a summary of new standards, interpretations and improvements to
the International Financial Reporting Standards issued by the International Accounting
Standards Board (IASB) that it is not effective as of December 31, 2013:
3.1 Accounting rules issued by IASB:
Operating lease rentals payable are recognized as an expense on a straight-line
basis over the lease term, which commences when the lessee controls the physical
use of the property. Lease incentives are treated as a reduction of rental expense
and are also recognized over the lease term on a straight-line basis. Contingent
rentals arising under operating leases are recognized as an expense in the period
in which they are incurred.
(ac) Fiduciary activities
IAS 32 Financial Instruments: Presentation
Amendments issued in December 2011 provide clarifications on the application of
the offsetting rules, clarifying the meaning of the criterion “currently has a legally
enforceable right to set-off” and clarifying the criterion “intention to settle on a net
basis, or to realize assets and settle liabilities simultaneously” and this way reduce
the diversification that exist in actual practices. The standard is effective for annual
periods beginning on or after January 1, 2014 and early adoption is permitted.
The Bank provides trust and other fiduciary services that result in the holding or investing
of assets on behalf of the clients. Assets held in a fiduciary capacity are not reported
in the financial statements, as they are not the assets of the Bank. Contingencies and
commitments arising from this activity are disclosed in Note No. 26 (a).
According the assessment, current rules about netting force in Chile and practice
used by the Bank in financial contracts with foreign counterparties, this rule has
no impact on the consolidated financial statements of Banco de Chile and its
subsidiaries.
(ad) Customer loyalty program
IAS 36 Impairment assets
On May 29, 2013, the IASB issued amendments to IAS 36 respect to disclosures
information related to recoverable amount of impaired assets, if this amount
corresponded to fair value less disposal cost. These modifications are related to
IFRS 13: “Fair Value measurement”.
The Bank maintains a customer loyalty programs as an incentive to its clients. The
scheme grants its customers certain points depending on the value of credit card
purchases they make. The so-collected points can be used to obtain services from a
third party. In accordance with IFRIC 13 the costs which the Bank incurs providing this
incentive are recognized at fair value when the corresponding revenue is recognized,
considering the probabilities of being used by the customers to obtain the third party’s
service. The points collected cannot be used to obtain services directly from the Bank.
(ae) Reclassifications
The amendments will be applied retrospectively to annual periods beginning in
January 1, 2014. Early adoption is permitted for the periods that the entity has
applied IFRS 13.
The Bank and its subsidiaries assess that this amendment will not have impact in
the consolidated financial statements.
During this period, the expense that, by their nature is directly related with credit
cards was reclassified from “Other operational expenses” to “Expenses from fees and
commissions”, in order to relate them better with the revenues from that product. The
effect of this reclassification is the following:
Balance
as of
December
31, 2012
MCh$
Reclassification
MCh$
Reclassified
Balance as of
December
31, 2012
MCh$
Expenses from fees
and commissions
(65,510)
(19,985)
(85,495)
Other operational
expenses
(42,439)
19,985
(22,454)
This reclassification does not affect any comply of covenants.
There are not other significant reclassifications at the end period 2013, different to
described above.
IAS 39 Financial Instruments: Recognition and Measurement
On June 27, 2013 the IASB issue amendments to IAS 39 related to continuing
hedge accounting after novation. This amendment provides an exception to the
requirement to discontinue hedge accounting in situations where over-the-counter
(OTC) derivatives designated in hedging relationships are directly or indirectly,
novated to a central counterparty (CCP) as a consequence of laws or regulations, or
the introduction of laws or regulations.
The effective date for annual periods beginning on or after January 1, 2014. Early
adoption is permitted.
The Bank will make updates related to documentation that will be required and
adjustments in operating process for compliance of novations. Hedges will not be
interrupted for this novation, so there is no impact in financial statements.
IFRS 9 Financial Instruments: Financial liabilities
On October 28, 2010, the IASB incorporated in IFRS 9 accounting treatment of
financial liabilities, maintaining classification and measurement criteria of IAS 39
for all liabilities except those that the entity has used fair value. Entities that their
liabilities are valued through fair value shall determine the amount of variation
related to credit risk and if they not produce accounting mismatch register them
in equity.
167
IFRS 9 Financial Instruments: Recognition and Measurement
In November 2009, the IASB issued IFRS 9, “Financial Instruments,” the first step in
its project to replace IAS 39, “Financial Instruments: Recognition and Measurement”.
IFRS 9 introduces new requirements for classifying and measuring financial assets
that are in the scope of the application of IAS 39. This new regulation requires that
all financial assets be classified in function of the entity’s business model for the
management of financial assets and of the characteristics of the contractual cash
flows of financial assets. A financial asset shall be measured at amortized cost if
two criteria are fulfilled: (a) the objective of the business model is to maintain a
financial asset to receive contractual cash flows, and (b) contractual cash flows
represent principal and interest payments. Should a financial asset not comply with
the aforementioned conditions, it will be measured at fair value. In addition, this
standard allows a financial asset that fulfills the criteria to be valued at amortized
cost to be designated at fair value with changes in income under the fair value
option, as long as this significantly reduces or eliminates an accounting asymmetry.
Likewise, IFRS 9 eliminates the requirement of separating embedded derivatives
from the host financial assets. Therefore, it requires that a hybrid contract be
classified entirely in amortized cost or fair value.
IFRS 9 requires, mandatory and prospective way, that the entity makes
reclassifications of financial assets when the entity modifies the business model.
Under IFRS 9, all equity investments of are measured at fair value. However, the
Management has the option of present the changes of fair value in the item “Other
Comprehensive Income” in equity. This accounting treatment is available for the
initial recognition of an instruments and it is irrevocable. The unrealized income
(loss) recognized in “Other Comprehensive Income”, derived from the changes of
fair value, and must be not included in income statements.
In November 2013 IASB issued amendment to IFRS 9 to introduce a new model of
hedge accounting, which aligns hedge accounting with risk management.
This amendment removes date of adoption date (January 1, 2015). So, effective
date is in process of decision by IASB.
At date, this rule has not approved by the Superintendency of Banks, situation
required for its application.
IFRS 10 Consolidated Financial Statement, IFRS 12 Disclosure of Interests in
Other Entities and IAS 27 Separate Financial Statements
During October 2012, IASB issued amendments to definition of an investment
entity and introduced an exception for consolidate certain subsidiaries pertaining to
investment entity. This modification requires that an entity considered of investment
measures its investments in subsidiaries to fair value with changes in profit or
loss according IFRS 9 – Financial Statements, in its Consolidated and Separated
Financial Statements instead to consolidate such subsidiaries.
Amendments also introduce new disclosure requirements related to investment
entities IFRS 12 and IAS 27.
If an entity applies these amendments but not applies IFRS 9 yet, any reference
in this document to IFRS 9 must be interpreted as a reference to IAS 39 Financial
Instruments: Recognition and Measurement.
The standard is effective for annual periods beginning on or after January 1, 2014
and early adoption is permitted.
These modifications will not affect Consolidated Statement of Financial Position.
168
IAS 19 Employee benefits
On November 2013, IASB modified requirements of IAS 19 respect to employee
contributions or third parties contributions, which are related to defined benefit
plans.
Adoption date of this modification is beginning July 1, 2014, and anticipated
adoption is permitted.
The Bank has not employee contributions related to defined benefit plans, so this
amendment has not impacts over consolidated financial statements of Banco de
Chiles and its subsidiaries.
Annual improvements IFRS 2010 – 2012 Cycle and 2011 – 2013 Cycle
On December 12, 2013, IASB issued two cycles of annual improvements to IFRS:
2010 – 2012 and 2011 – 2013 Cycles, these contain 11 changes in 9 rules:
- IFRS 1 – First time adoption; Meaning of “effective IFRS”. Not applicable.
- IFRS 2 – Share based payments; Definition relating to vesting conditions. Not
applicable.
- IFRS 3 – Business combination; Accounting for contingent consideration in a
business combination. Without impact.
- IFRS 8 – Operating Segments; Aggregation of operating segments and
Reconciliation of the total of the reportable segment assets to the entity’s total
assets. The Bank and its subsidiaries are assessing the impact of adoption of
these changes in its financial position.
- IFRS 13 – Fair Value measurement; Scope of portfolio exception (paragraph 52).
The Bank and its subsidiaries are assessing the impact of adoption of these
changes in its financial position.
- IAS 16 – Property, plant and equipment; Revaluation method proportionate
restatement of accumulated depreciation. Not applicable.
- IAS 24 – Related party disclosures; Key management personnel. Not applicable
- IAS 38 – Intangible assets; Revaluation method proportionate restatement of
accumulated depreciation. Not applicable
- IAS 40 – Investment properties. Interrelationship between IFRS 3 and IAS 40.
Without impact
The effective date of these amendments are beginning on July 1, 2014, except
by modifications of IFRS 13 and IFRS 1, which affect basics of conclusions of
respective rules and, so are effective immediately.
3.2 Accounting rules issued by SBIF:
On March 19, 2013 the Superintendency of Banks issued a Circular No. 3,548 that
modified the following:
a) The instructions relative to the presentation of Statements of Income for
matching the names used in the Compendium of Accounting Standards issued
by the Chilean Superintendency of Banks with last modifications of IAS 1.
The expressions: “Statement of Income” and “Statement of Comprehensive
Income” must be replaced by “Statement of Income for the Period” and
“Statement of Other Comprehensive Income for the Period” respectively.
(b) Accurate presentation of income (loss) that originate in the case of sale portfolio
loans, stipulated that the net income (loss) for sale portfolio loans classified
in the item “Net financial operating income”, corresponds to differences
between the cash perceived (or fair value of the instruments that are received
as consideration) and the value net of provisions of the transferred assets,
registered at the sale date.
4. Changes in Accounting Policies and Disclosures:
Since 2013, IAS 19 “Employee Benefits”, changed the accounting treatment of the
measurements of liability, specifically defined benefit plans and termination benefits.
The main effect on the financial statements is related to accounting for gains and
losses, originated by changes in actuarial variables, which must to be recorded as a
charge or credit to “Other Comprehensive Income” since current year. Until before this
change, these effects affected profit or loss directly.
Before this regulatory change, the net income (loss) of sale portfolio loans,
corresponded to differences between the cash perceived (or fair value of
the instruments that are received as consideration) and the gross value of
transferred assets, proceeding after release of the established provisions for
that loans, being this last effect recognized in the item “Provisions for loan
losses” of the Income Statements of the Periods.
3.3 Rules issued by SVS (Superintendency of Securities and Insurance)
On December 1, 2013, new rules are beginning in application. These are about
return of premiums not accrued for the insurance contracts, according to
established by law No. 20,667 of 9th. of May of 2013 and Circular No. 2,114
issued by the SVS on July 26, 2013. The legal change requires returns of premiums
collected in advance but not accrued, due to the early termination or extinction of
an insurance contract. The premium to return it will be calculated in proportion of
the remaining time.
Before, the premium accrued was returned only if the early termination or extinction
of an insurance contract had produced inside forty five days following to the start of
coverage or if that was produced inside of tenth of the period of effective coverage
insurance, if that was greater.
Delaying the adoption of international financial reporting standards
On January 13, 2014, SVS issued Circular No. 2,137, which includes rules about
form and content of financial statements of Insurance Brokerage. Such rules are
beginning on January 1, 2015. For accounting purposes this rule gives accounting
criteria related to income recognition of commissions. The first criterion establish
the option of the commissions are deferred in lineal form in the term of policies,
while the second criterion allows recognize in income a percentage of the
commission at initial date of policy and the difference in deferred form. Also, this
last criterion requires determination of a provision for this commissions returns,
according to a defined model for such effects.
This rule does not present significant changes in these financial statements, due to
the opportunity of effective date of this new rule.
169
For the purpose of presenting comparative financial statements, the reclassifications
made in the Balance and Income Statement for the year 2012, are detailed as follows:
Balance as of
December 31, 2012
MCh$
Reclassification
MCh$
Proform Balance as
of December 31, 2012
MCh$
Equity:
Attributable to equity holders of the parent:
Capital
Reserves
Other comprehensive income
1,629,078
—
1,629,078
177,574
(1,760)
175,814
18,935
—
18,935
16,379
—
16,379
465,850
1,760
467,610
Retained earnings:
Retained earnings from previous periods
Income for the year
Less
Provision for mínimum dividend
Subtotal
Non-controlling interest
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
(300,759)
—
(300,759)
2,007,057
—
2,007,057
2
—
2
2,007,059
—
2,007,059
23,261,066
—
23,261,066
Balance as of
December 31, 2012
MCh$
Reclassification
MCh$
Proform Balance as
MCh$
Statement of Income:
OPERATING REVENUE, NET OF PROVISION FOR
LOAN LOSSES
1,133,864
—
1,133,864
Personnel expenses
(312,065)
2,200
(309,865)
(247,459)
—
(247,459)
(30,957)
—
(30,957)
Depreciations and amortizations
Impairments
TOTAL OPERATING EXPENSES
NET OPERATING INCOME
—
(899)
—
(22,454)
(613,834)
2,200
(611,634)
520,030
2,200
522,230
(229)
—
(229)
Income before income taxes
519,801
2,200
522,001
Income taxes
(53,950)
(440)
(54,390)
NET INCOME FOR THE PERIOD
465,851
1,760
467,611
170
(899)
(22,454)
Balances as of
December 31, 2012
MCh$
Reclasificación
MCh$
Proform Balance as
MCh$
Consolidated Statement of Comprehensive Income:
465,851
1,760
467,611
21,009
—
21,009
Loss in defined benefit plans
—
(2,200)
(2,200)
Subtotal Other comprehensive income that will not be reclassified
subsequently to profit or loss
—
(2,200)
(2,200)
Income tax related to other comprehensive income will not be reclassified
subsequently to profit or loss
—
440
440
—
(1,760)
(1,760)
486,860
—
486,860
TOTAL OTHER COMPREHENSIVE INCOME ITEMS THAT WILL BE RECLASSIFIED
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECLASSIFIED
TOTAL OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECLASSIFIED
TOTAL CONSOLIDATED COMPREHENSIVE INCOME
During the year ended December 31, 2013, have no other accounting changes that
affect the presentation of these consolidated financial statements.
5. Relevant Events:
(a) On January 04, 2013 Banco de Chile has concluded the execution process of
the insurance agreements between Banco de Chile and its subsidiary Banchile
Corredores de Seguros Limitada, with Banchile Seguros de Vida S.A., which were
entered into through private instruments dated on December 28, 2012, which are:
(b) On January 17, 2013 the Central Bank of Chile, in session No.1730-02-130117
held on that day, agreed and determined, in accordance with article 30 letter b)
of Law No. 19,396, the selling price of the subscription options pertaining the
1,279,502,316 (Banco de Chile-T series) cash shares issued by Banco de Chile as
agreed during the Extraordinary Shareholders Meeting held on October 17, 2012.
Those shares are owned by Sociedad Administradora de la Obligación Subordinada
SAOS S.A. and are pledged as collateral to the Chilean Central Bank.
(1)Brokerage Agreement entered into by the affiliate Banchile Corredores de
Seguros Limitada and the related company Banchile Seguros de Vida S.A.
The above referred subscription options shall be preferentially offered to
shareholders of series A, B and D of Sociedad Matriz del Banco de Chile S.A. during
the so called “Special Preferential Rights Offering Period” which will begin running
on January 19, 2013, and shall be elapsed on February 17, 2013.
(2) Agreements entered into by Banco de Chile and Banchile Seguros de Vida S.A.:
i)
ii)
iii)
iv)
Collection and Data Administration Agreement.
Use Agreement for Distribution Channels.
Banchile’s Trademark License Agreement.
Credit Life Insurance Agreement.
(3) Framework agreement for Insurance Banking, entered into by Banco de Chile,
Banchile Corredores de Seguros Limitada and Banchile Seguros de Vida S.A.
All of the agreements have duration of 3 years effective from January 1, 2013,
excluding those insurances, as applicable, that are related to loan mortgages
subject to public bid in accordance with article 40 of DFL No. 251 of 1931.
It is worth noting that Banchile Seguros de Vida S.A. is a related party to Banco
de Chile in accordance with Article 146 of the Chilean Corporations Law. In
turn, Banchile Corredores de Seguros Limitada is a subsidiary of Banco de
Chile, incorporated pursuant to Article 70 letter a) of the Chilean Banking Act.
In accordance with the above referred resolution of the Council of the Central Bank
of Chile, the price of each option shall be as follows:
“The price of the subscription option, hereinafter the “Option Price”, shall
correspond to the higher value between Ch$0.1 and the value resulting from the
difference obtained after multiplying 0.9752 over the average stock trading price
of Banco de Chile´s shares registered in local stock exchanges during the three
business trading days preceding the date in which the corresponding option is
acquired, hereinafter the “Weighted Average Share Price” (“Precio Promedio
Ponderado de la Acción”), and Ch$62.0920.
For these purposes, the “Weighted Average Share Price” was determined, for
each day, in accordance to the weighted average price of Banco de Chile´s shares
traded during the three business trading days preceding the date in which the
corresponding option is acquired, having in mind that the value corresponding to
the Weighted Average Price, in relation to the beginning of the Special Preferential
Rights Offering Period shall be of Ch$71.4. This value considers the resulting
prices from the Ordinary Preferential Rights Offering Period referred to in letter a)
of article 30 of Law N°19,396, so that, initially, the Option Price shall correspond to
Ch$7.5 per each Banco de Chile´s share, and subsequently, he Option Price shall
171
be determined pursuant to the Weighted Average Share Price, as explained before.
In any event, and for the purposes of selling the subscription options, the Option
Price shall corresponded to Ch$7.5 for each Banco de Chile´s share, as long as the
Weighted Average Share Price, determined as described before, does not exceed
Ch$76.9 nor be less than Ch$71.3.
The Option Price that is determined in accordance with the aforementioned shall be
paid up front pursuant to the conditions set forth by Banco de Chile for purposes of
the Bank’s capital increase and its calculation procedure shall also be governed by
the term established in the final paragraph of letter b) of article 30 of the Law No.
19,396, in accordance to the conditions established by the same legal provision”.
In addition, the Central Bank of Chile resolved that Sociedad Administradora de
la Obligación Subordinada SAOS S.A. shall preferentially offer the options to the
mentioned shareholders at the price singularized before. The price was notified by
Sociedad Administradora de la Obligación Subordinada SAOS S.A. to the Central
Bank of Chile and also be informed to interested persons at the beginning of each
day of the “Special Preferential Rights Offering Period”.
(h) On April 11, 2013 in Extraordinary Meeting appointed to Mr. Jean-Paul Luksic
Fontbona like Director, until the next Ordinary Shareholders Meeting, replacing to
Mr. Guillermo Luksic Craig.
(i) On May 13, 2013, and regarding the capitalization of 30% of the distributable net
income obtained during the fiscal year ending the 31st of December, 2012, through
the issuance of fully paid-in shares, agreed in the Extraordinary Shareholders
Meeting held on the 21th of March, 2013, it was informed the following:
a) In the said Extraordinary Shareholders Meeting, it was agreed to increase the
Bank´s capital in the amount of Ch$86,201,422,505 through the issuance
of 1,197,741,038 fully paid-in shares, of no par value, payable under the
distributable net income for the year 2012 that was not distributed as dividends
as agreed at the Ordinary Shareholders Meeting held on the same day.
(c) On January 24, 2013 in the Ordinary Meeting No. BCH 2,769, the Board of
Directors of Banco de Chile resolved to call an Ordinary Shareholders Meeting to
be held on the 21th of March, 2013 with the objective of proposing, among other
matters, the distribution of the Dividend number 201 of Ch$3.41625263165 per
every of the 88,037,813,511 “Banco de Chile” shares, which will be payable at the
expense of the distributable net income obtained during the fiscal year ending the
31st of December, 2012, corresponding to 70% of such income.
The issuance of fully in paid shares was registered in the Securities Register
of the Superintendence of Banks and Financial Institutions with No.2/2013, on
May 10, 2013.
b) The Board of Directors of Banco de Chile, at the meeting No. 2,775, dated May
9, 2013, set May 30, 2013, as the date for issuance and distribution of the fully
paid in shares.
In the Ordinary and Extraordinary Banco de Chile’s meetings held on March 21,
2013 it was agreed to comply the previous agreements.
Likewise, the Board of Directors resolved to call an Extraordinary Shareholders
Meeting to be held on the same date in order to propose, among other things, the
capitalization of 30% of the distributable net income obtained during the fiscal year
ending the 31st of December, 2012, through the issuance of fully paid-in shares,
of no par value, with a value of Ch$71.97 per “Banco de Chile “share which will be
distributed among the shareholders in the proportion of 0.02034331347 shares
for each “Banco de Chile” share, and to adopt the agreements that are necessary
in this regard, subject to the exercise of the options established in article 31 of
Law 19,396.
c) The shareholders that will be entitled to receive the new shares, at a ratio of
0.02034331347 fully in paid shares for each Banco de Chile share, shall be
those registered in the Register of Shareholders on May 24, 2013.
d) In accordance to the first transitory article of the Bank’s bylaws, Banco de
Chile-T shares issued as a consequence of the capital increase agreed on the
Extraordinary Shareholders Meeting held on October 17, 2012, do not allow
their holders to receive dividends or fully paid-in shares in respect to Banco de
Chile’s net distributable earnings for fiscal year 2012. Once any dividends and/
or fully paid-in shares are distributed, the Banco de Chile-T series shares will
automatically convert to Banco de Chile ordinary shares.
(d) On March 21, 2013 Banco de Chile informed that the Ordinary Shareholders
Meeting of the Bank held today, agreed to definitely appoint Mr. Francisco
Aristeguieta Silva as Director of the Bank, position that he will hold until the next
renewal of the Board.
e) The titles will be duly assigned to each shareholder. The Bank will only print
the titles for those shareholders who request it in writing at the Shareholders
Department of Banco de Chile.
(e) On March 26, 2013 the Central Bank of Chile communicated to Banco de Chile that
in the Extraordinary Session, No. 1742E, held today, the Board of the Central Bank
of Chile resolved to request its corresponding surplus, from the fiscal year ended
on December 31, 2012, including the proportional part of the profits agreed upon
capitalization, be paid in cash currency.
(f) On March 27, 2013 Mr. Guillermo Luksic Craig died an important member of our
Board since 2001 and member of controlling group of our Bank.
(g) According to Note 27 (a) during April concluded the process of subscription and
payment of shares of increase capital authorized in the Extraordinary Shareholders
Meeting held on October 17, 2012.
172
The Chilean Superintendency of Banks and Financial Institutions approved the
amendment of the bylaws, through resolution No.126 dated April 30, 2013,
which was registered on page 34,465, No. 23,083 of the register of the
Chamber of Commerce of Santiago for the year 2013, and was published at
“Diario Oficial” on May 8, 2013.
f) As a consequence of the issuance of the fully in paid shares, the capital of the
Bank will be divided in 93,175,043,991 nominative shares, without par value,
completely subscribed and paid.
(j) On July 1, 2013 it is informed that through Public Deed dated June 19, 2013
in Notary´s office Raul Perry Pefaur of Santiago, Banco de Chile has acquired
the totally of shares of Banchile Asesoría Financiera S.A. in the entity Banchile
Factoring S.A, subsidiary of Banco de Chile, taking over assets and liabilities of
such subsidiary.
According to Article 103 No. 2 of Law No. 18,046 of Corporate Law, it has elapsed
an uninterrupted period of more 10 of days. Consequently as of 30th. of June,
it has dissolved Banchile Factoring S.A., so 100% of shares belong to Banco de
Chile, which since 30th. of June is its legal successor.
(k) On August 9, 2013 it was informed that in Ordinary Board Meeting held on 8th. of
August, the Board accepted resignation of Director Fernando Concha Ureta, with
effective date on August 21, 2013.
Since August 22, 2013 the Board designated to Juan Enrique Pino Visinteiner like
Director until next Ordinary Shareholders Meeting.
(l) On October 17, 2013 Banco de Chile informed that the Board of Directors of
Latibex (“Consejo de Administración de Bolsas y Mercados Españoles Sistemas de
Negociación, S.A.”), within its authority pursuant to the Regulations of the Mercado
de Valores Latinoamericanos (“Latibex”), and based on Banco de Chile’s request,
has resolved to exclude the negotiation of Banco de Chile issued shares from the
“Mercado de Valores Latinoamericanos (“Latibex”)”, effective October 18, 2013.
All the supporting documentation filled by Banco de Chile is publicly available at the
website of Latibex (www.latibex.com) and on our website (www.bancochile.cl).
(m)On December 10, 2013, it was informed that by way of notarized deed in the
public notary of Santiago of Chile Mr. René Benavente Cash, Bank of Chile and
its affiliate Banchile Corredores de Seguros Limitada entered into an agreement
with Banchile Seguros de Vida S.A., namely the Collective Debtor’s Life Insurance
Agreement (“Contrato de Seguro Colectivo de Desgravamen”) and the Collective
Debtor’s Life, Total and Permanent Disability 2/3 Insurance Agreement (“Contrato
de Seguro Colectivo de Desgravamen e Invalidez Total y Permanente 2/3”)(portfolio
in pesos and housing subsidies D.S. No.1 de 2011) both for loan mortgages.
The aforementioned agreements was entered pursuant article 40 of DFL No. 251
of 1931, General Regulation No. 330 of the Superintendency of Securities and
Insurance and Circular No. 3,530 of the Superintendency of Banks and Financial
Institutions, both dated March 21, 2012, upon which the public bid for the
collective policy for life insurance and Total and Permanent Disability 2/3 Insurance
Agreement (portfolio in pesos and housing subsidies D.S. N°1 de 2011) was
adjudicated to Banchile Seguros de Vida S.A. who offered in both cases the lowest
rates of 0.0103% monthly and of 0.0109% monthly, respectively, including a
14.00% commission fee for the insurance broker Banchile Corredores de Seguros
Limitada.
(n) On December 27, 2013, it was informed that on this past December 26th, Bank
of Chile and Banchile Seguros de Vida S.A. have entered into an amendment to
the “Convenio Uso de Canales de Distribución” (Agreement of use of distribution
channels), dated December 28th, 2012, adjusting the percentage of the
commission associated to certain insurances and the base calculation formula of
the commission agreed in the mentioned Agreement.
This amendment is effective from December 1st, 2013, to December 31st, 2015.
It is noted that Banchile Seguros de Vida S.A. is a company related to Bank of Chile,
according to the provisions of article 146 of the “Ley de Sociedades Anonimas”
(Chilean Corporations Law).
6. Segment Reporting:
For management purposes, the Bank has organized its operations and commercial
strategies into four business segments, which are defined in accordance with the type
of products and services offered to target customers. These business segments are
currently defined as follows:
Retail:
This segment focuses on individuals and small and medium-sized
companies with annual sales up to 70,000 UF, where the product
offering focuses primarily on consumer loans, commercial loans,
checking accounts, credit cards, credit lines and mortgage loans.
Wholesale: This segment focused on corporate clients and large companies,
whose annual revenue exceed 70,000 UF, where the product offering
focuses primarily on commercial loans, checking accounts and liquidity
management services, debt instruments, foreign trade, derivative
contracts and leases.
Treasury and money market operations:
This segment includes revenue associated with managing the Bank’s
balance sheet (currencies, maturities and interest rates) and liquidity,
including financial instrument and currency trading on behalf of the
Bank itself.
Transactions on behalf of customers carried out by the Treasury
are reflected in the respective aforementioned segments. These
products are highly transaction-focused and include foreign exchange
transactions, derivatives and financial instruments in general.
Subsidiaries: Corresponds to companies and corporations controlled by the Bank,
where income is obtained individually by the respective subsidiary. The
companies that comprise this segment are:
Entity:
- Banchile Trade Services Limited
- Banchile Administradora General de Fondos S.A.
- Banchile Asesoría Financiera S.A.
- Banchile Corredores de Seguros Ltda.
- Banchile Corredores de Bolsa S.A.
- Banchile Securitizadora S.A.
- Socofin S.A.
- Promarket S.A.
The financial information used to measure the performance of the Bank’s business
segments is not necessarily comparable with similar information from other financial
institutions because it is based on internal reporting policies. The accounting policies
used to prepare the Bank’s operating segment information are similar as those
described in Note 2 “Summary of Significant Accounting Principles”. The Bank obtains
the majority of its income from: interest, revaluations and fees, discounted the credit
cost and expenses. Management is mainly based on these concepts in its evaluation of
segment performance and decision-making regarding goals, allocation of resources for
each unit individually. Although the results of the segments reconcile with those of the
Bank at total level, it is not thus necessarily concerning the different concepts, since
the management is measured and controls in individual form and additionally applies
the following criteria:
• The net interest margin of loans and deposits is measured on an individual
transaction and individual client basis, stemming from the difference between
the effective customer rate and the related Bank’s fund transfer price in terms of
maturity, re-pricing and currency.
173
• The internal performance profitability system considers capital allocation in each
segment in accordance to the Basel guidelines.
• Operating expenses are distributed at each area level. The Bank allocates all of its
indirect operating costs to each business segment by utilizing a different cost driver
in order to allocate such costs to the specific segment
The Bank did not enter into transactions with a particular customer or third party that
exceed 10% of its total income in 2013 and 2012.
Transfer pricing between operating segments are on an arm’s length basis in a manner
similar to transactions with third parties.
Taxes are managed at a corporate level and are not allocated to business segments.
On July 1, 2013, Banco de Chile absorbed its subsidiary Banchile Factoring SA. This
subsidiary was previously presented under the “Subsidiaries” operating segment. As a
result of being absorbed by the Bank, now its operations are presented under “Retail”
and “Wholesale” segments. Operating segment information for prior periods has been
reclassified for comparative purposes.
The following table presents the income for 2013 and 2012 for each of the segments
defined above:
December 31, 2013
Retail
MCH$
Net interest income
737,476
Net fees and commissions income
150,195
35,551
Total operating revenue
923,222
(203,586)
Wholesale
MCH$
303,128
Treasury(1)
MCH$
Subsidiaries
MCH$
23,269
(12,143)
42,615
(1,355)
57,320
(5,607)
403,063
(38,031)
Subtotal
MCH$
Adjustments
MCH$
Total
MCH$
1,051,730
7,439
1,059,169
106,280
297,735
(10,641)
287,094
32,439
119,703
(9,941)
109,762
16,307
126,576
1,469,168
(13,143)
1,456,025
47
(43)
(241,613)
—
(241,613)
(20,068)
(5,912)
(1,182)
(1,747)
(28,909)
—
(28,909)
Other operating expenses (2)
(397,456)
(112,528)
(5,171)
(92,023)
(607,178)
13,143
(594,035)
1,123
814
95
39
2,071
—
2,071
303,235
247,406
10,096
32,802
593,539
—
593,539
(79,936)
Income taxes
513,603
Income after income taxes
Assets
10,943,080
10,941,858
3,456,477
634,466
25,975,881
(191,117)
149,106
Current and deferred taxes
25,933,870
Total assets
Liabilities
Total liabilities
174
25,784,764
8,299,048
9,633,395
5,378,699
482,627
23,793,769
(191,117)
23,602,652
46,902
23,649,554
December 31, 2012
Retail
MCH$
Wholesale
MCH$
Treasury(1)
MCH$
Subsidiaries
MCH$
Subtotal
MCH$
Adjustments
MCH$
Total
MCH$
Net interest income
671,971
263,108
18,356
(12,296)
941,139
11,699
952,838
Net fees and commissions income
153,358
42,229
(367)
103,472
298,692
(11,420)
287,272
16,759
33,069
14,746
31,522
96,096
(14,152)
81,944
Total operating revenue
842,088
338,406
32,735
122,698
1,335,927
(13,873)
1,322,054
(180,559)
(7,622)
(22)
13
(188,190)
—
(188,190)
(20,903)
(7,300)
(1,204)
(1,550)
(30,957)
—
(30,957)
Other operating expenses (2)
(390,055)
(109,105)
(8,672)
(86,718)
(594,550)
13,873
(580,677)
(288)
(228)
(18)
305
(229)
—
(229)
250,283
214,151
22,819
34,748
522,001
—
522,001
Income taxes
(54,390)
Income after income taxes
467,611
9,852,430
Assets
9,614,329
3,746,908
635,225
23,848,892
(717,653)
23,261,066
Total assets
Liabilities
23,131,239
129,827
7,706,834
9,225,881
4,495,605
489,830
21,918,150
(717,653)
21,200,497
53,510
21,254,007
Total liabilities
(1) The Treasury’s income of December 2013 considers effect of Counterparty Value Adjustment described in Note
No. 2 (d), equivalent to Ch$16,413 million, of which MCh$14,289 million corresponds to this segment.
(2) During period 2013 it has modified assignation methodology of direct expenses for business segments, of
demand accounts, related to product “remunerations agreement and settlement”. According to described, it
has updated figures of period 2012.
7. Cash and Cash Equivalents:
(a) Cash and cash equivalents and their reconciliation to the statement of cash flows
at each year-end are detailed as follows:
2013
MCh$
2012
MCh$
Cash and due from banks:
Cash (*)
485,537
400,249
Current account with the Chilean
Central Bank (*)
71,787
67,833
Deposits in other domestic banks
15,588
15,295
300,396
201,548
Subtotal - Cash and due from banks
873,308
684,925
Net transactions in the course of collection
248,128
237,393
Highly liquid financial instruments
358,093
304,886
59,089
9,120
1,538,618
1,236,324
Deposits abroad
Repurchase agreements
Total cash and cash equivalents
(*) Amounts in cash and Central Bank deposits are regulatory reserve deposits for which the Bank must
maintain a certain monthly average.
175
(b) Transactions in the course of collection:
Transactions in the course of settlement are transactions for which the only
remaining step is settlement, which will increase or decrease the funds in the
Central Bank or in foreign banks, normally occurring within 24 to 48 business
hours, and are detailed as follows:
2013
MCh$
2012
MCh$
Assets
Documents drawn on other banks (clearing)
232,698
249,019
Funds receivable
141,773
147,592
374,471
396,611
(126,343)
(159,218)
(126,343)
(159,218)
248,128
237,393
Subtotal - assets
Liabilities
Funds payable
Subtotal - liabilities
Net transactions in the course of collection
8. Financial Assets Held-for-trading:
The detail of financial instruments classified as held-for-trading is as follows:
2013
MCH$
2012
MCh$
34,407
25,585
2,995
3,068
27,535
43,726
—
—
Instruments issued by the Chilean Government and
Central Bank of Chile:
Central Bank bonds
Central Bank promissory notes
Other instruments issued by the Chilean
Government and Central Bank
Other instruments issued in Chile
Deposit promissory notes from domestic banks
14
22
Bonds from domestic banks
1,926
—
Deposits in domestic banks
Mortgage bonds from domestic banks
255,582
87,093
Bonds from other Chilean companies
3,427
—
1,035
188
Instruments from foreign governments or central
banks
—
—
Other instruments issued abroad
—
—
66,213
33,042
Instruments issued by foreign institutions
Mutual fund investments:
Funds managed by related companies
Funds managed by third parties
Total
176
—
—
192,724
Instruments issued by the Chilean Government and Central Bank include instruments
sold under agreements to repurchase to customers and financial institutions, for the
period 2013 there was not balance for this concept (not balance in 2012).
“Other instruments issued in Chile” include instruments sold under agreements to
repurchase to customers and financial instruments, amounting to MCh$227,453 as of
December 31, 2013 (MCh$86,863 in 2012).
Agreements to repurchase have an average expiration of 14 days as of year-end (11
days in 2012).
Additionally, the Bank holds financial investments in mortgage finance bonds issued by
itself in the amount of MCh$41,313 as of December 31, 2013 (MCh$51,154 in 2012),
which are presented as a reduction of the liability line item “Debt issued”.
9. Repurchase Agreements and Security Lending and Borrowing:
(a) The Bank provides financing to its customers through “Receivables from Repurchase
Agreements and Security Borrowing”, in which the financial instrument serves
as collateral. As of December 31, 2013 and 2012, the Bank has the following
receivables resulting from such transactions:
Up to 1 month
2013
Mch$
2012
Mch$
Over 1 month
and up to
3 month
2013
Mch$
2012
Mch$
Over 3 months
and up to
12 months
2013
Mch$
2012
Mch$
Over 1 year
and up to
3 years
2013
Mch$
2012
Mch$
Over 3 years
and up to
5 years
2013
Mch$
2012
Mch$
Over 5 years
2013
Mch$
2012
Mch$
Total
2013
Mch$
2012
Mch$
Instruments issued by the Chilean
Governments and Central Bank of Chile
Central Bank bonds
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
582
—
—
—
—
—
—
—
—
—
—
—
582
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Other Instruments issued in Chile
Deposit promissory notes from domestic
banks
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,443
—
—
—
—
—
—
—
—
—
—
—
8,443
—
Deposits in domestic banks
46,084
—
—
—
—
—
—
—
—
—
—
—
46,084
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,902
7,756
12,250
855
11,743
25,907
—
—
—
—
—
—
27,895
34,518
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Instruments issued by foreign Institutions
Instruments from foreign governments or
central bank
Other instruments
Total
—
—
—
—
—
—
—
—
—
—
—
—
—
—
58,429
8,338
12,250
855
11,743
25,907
—
—
—
—
—
—
82,422
35,100
177
(b) The Bank obtains financing by selling financial instruments and committing to
purchase them at future dates, plus interest at a prefixed rate, As of December
31, 2013 and 2012, the Bank has the following payables resulting from such
transactions:
Up to 1 month
2013
Mch$
2012
Mch$
Over 1 month
and up to
3 month
2013
Mch$
2012
Mch$
Over 3 months
and up to
12 months
2013
Mch$
2012
Mch$
Over 1 year
and up to
3 years
2013
Mch$
2012
Mch$
Over 3 years
and up to
5 years
2013
Mch$
2012
Mch$
Over 5 years
2013
Mch$
Total
2012
Mch$
2013
Mch$
2012
Mch$
Instruments issued by the Chilean
Governments and Central Bank of Chile
Central Bank bonds
16,831
—
—
—
—
—
—
—
—
—
—
—
16,831
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
232,512
219,526
7,217
1,603
—
—
—
—
—
—
—
—
239,729
221,129
Deposit from domestic banks
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
206
5,267
—
—
—
—
—
—
—
—
—
—
206
5,267
Instruments issued by foreign institutions
Instruments from foreign governments or
central bank
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Other instruments
—
—
—
—
—
—
—
—
—
—
—
—
—
—
249,549
224,793
7,217
1,603
—
—
—
—
—
—
—
—
256,766
226,396
Total
(c) Securities received:
As part of reverse repurchase and securities borrowing agreements the Bank has
received securities that it is allowed to sell or repledge in the absence of default
by the owner. At December 31, 2013 the Bank held securities with a fair value of
Ch$81,830 million (Ch$34,865 million in 2012) on such terms. The Bank has an
obligation to return the securities to its counterparties.
(d) Securities given:
The carrying amount of securities lent and of “Payables from Repurchase
Agreements and Security Lending” at December 31, 2013 is Ch$255,302 million
(Ch$266,395 million in 2012). The counterparty is allowed to sell or repledge those
securities in the absence of default by the Bank.
178
10. Derivative Instruments and Accounting Hedges:
(a) As of December 31, 2013 and 2012, the Bank’s portfolio of derivative instruments
is detailed as follows:
Notional amount of contract with final expiration date in
Up to 1 month
2013
Mch$
2012
Mch$
Over 1 month
and up to
3 months
2013
Mch$
2012
Mch$
Over 3 months
and up to
12 months
2013
Mch$
2012
Mch$
Over 1 year
and up to
3 years
2013
Mch$
fair value
Over 3 year
and up to
5 years
2012
Mch$
2013
Mch$
2012
Mch$
Over 5 years
2013
Mch$
2012
Mch$
Asset
2013
Mch$
Liability
2012
Mch$
2013
Mch$
2012
Mch$
Derivatives held for
hedging purposese
Cross currency swap
—
—
—
—
32,032
—
17,094
31,388
13,416
41,558
66,392
74,626
—
—
14,012
10,332
Interest rate swap
8,569
—
—
—
4,731
—
25,394
27,570
8,412
17,790
117,420
116,387
714
—
11,312
21,311
Total derivatives held for
hedging purposes
8,569
—
—
—
36,763
—
42,488
58,958
21,828
59,348
183,812
191,013
714
—
25,324
31,643
—
151,913
—
—
59,730
—
313,263
55,382
209,465
14,083
300,386
78,861
37,971
22
6,681
2,055
—
151,913
—
—
59,730
—
313,263
55,382
209,465
14,083
300,386
78,861
37,971
22
6,681
2,055
2,815,835 4,231,746 2,194,765 2,519,046 3,812,356 3,260,326
323,882
191,364
52,513
2,458
39
Derivatives held as cash
flow hedges
Interest rate swap and
cross currency swap
Total Derivatives held as
cash flow hedges
Derivatives held for trading
purposes
Currency forward
Cross currency swap
124,909
Interest rate swap
567,058
69,220
470,928
353,133 1,318,722
65
41,673
70,166
65,396
81,790
719,073 1,465,280 1,026,518
193,455
177,403
243,979
166,182
905,870 4,275,295 3,298,276 4,767,240 3,540,462 2,919,321 1,505,936 2,549,584 1,650,103
199,338 1,400,553 1,034,040 1,195,627 1,721,408 1,024,721
97,974
81,093
99,488
97,870
Call currency options
12,491
30,306
39,109
20,938
138,809
46,686
6,572
4,795
—
—
—
—
2,301
472
3,559
395
Put currency options
7,034
26,009
31,078
15,288
75,379
25,980
—
—
—
—
—
—
600
341
705
387
Total derivatives of
negotiation
3,527,327 4,710,414 4,054,602 3,660,480 9,702,392 7,665,308 6,293,321 5,458,029 3,996,555 2,227,467 4,014,903 2,676,686
336,003
329,475
413,127
346,624
Total
3,535,896 4,862,327 4,054,602 3,660,480 9,798,885 7,665,308 6,649,072 5,572,369 4,227,848 2,300,898 4,499,101 2,946,560
374,688
329,497
445,132
380,322
(b) Fair value Hedges:
The Bank uses cross-currency swaps and interest rate swaps to hedge its exposure
to changes in the fair value of the hedged elements attributable to interest rates.
The aforementioned hedge instruments change the effective cost of long-term
issuances from a fixed interest rate to a floating interest rate, decreasing the
duration and modifying the sensitivity to the shortest segments of the curve.
Below is a detail of the hedged elements and hedge instruments under fair value
hedges as of December 31, 2013 and 2012:
2013
Mch$
2012
Mch$
Hedged element
Commercial loans
128,934
147,572
Corporate bonds
164,526
161,747
Cross currency swap
128,934
147,572
Interest rate swap
164,526
161,747
Hedge instrument
179
(c) Cash flow Hedges:
(c.1) The Bank uses cross currency swaps to hedge the risk from variability of
cash flows attributable to changes in the interest rates of bonds and foreign
exchange of bonds issued abroad in Mexican pesos, Hong Kong dollars,
Peruvian nuevo sol, Swiss franc, Japanese yen to fix rate and foreign banks
obligations. The cash flows of the cross currency swaps equal the cash flows
of the hedged items, which modify uncertain cash flows to known cash flows
derived from a fixed interest rate.
Additionally, these cross currency swap contracts used to hedge the risk
from variability of the Unidad de Fomento (CLF) in assets flows denominated
in CLF until a nominal amount equal to the portion notional of the hedging
instrument CLF, whose readjustment daily impact the item “interest revenue”
of the financial statements.
(c.2) Below are the cash flows of bonds issued abroad objects of this hedge and
cash flows of the active part of the derivative:
2013
Up to1 month
Over 1 month
and up to
3 months
Over 3
months
and up to
12 months
Mch$
Mch$
Mch$
Over 1 year
and up to
3 years
Over 3 years
and up to
5 years
Over 5 years
Total
Mch$
Mch$
Mch$
Mch$
Hedge item
Outflows:
Corporate Bond MXN
(206)
(619)
(62,275)
—
—
—
(63,100)
Corporate Bond HKD
—
—
(7,011)
(14,022)
(14,009)
(240,224)
(275,266)
Corporate Bond PEN
—
—
(578)
(1,154)
(14,690)
—
(16,422)
Corporate Bond CHF
(216)
—
(4,720)
(143,070)
(229,701)
(105,325)
(483,032)
Obligation USD
(273)
(82)
(1,064)
(135,478)
—
—
(136,897)
—
(76)
(560)
(56,964)
(598)
(29,173)
(87,371)
Cross Currency Swap MXN
206
619
62,275
—
—
—
63,100
Corporate Bond JPY
Hedge instruments
Ingresos de flujo:
Cross Currency Swap HKD
—
—
7,011
14,022
14,009
240,224
275,266
Cross Currency Swap PEN
—
—
578
1,154
14,690
—
16,422
Cross Currency Swap CHF
216
—
4,720
143,070
229,701
105,325
483,032
Cross Currency Swap USD
273
82
1,064
135,478
—
—
136,897
Cross Currency Swap JPY
—
76
560
56,964
598
29,173
87,371
—
—
—
—
—
—
—
Net cash flow
180
2012
Up to1 month
Over 1 month
and up to
3 months
Over 3
months
and up to
12 months
Over 1 year
and up to
3 years
Over 3 years
and up to
5 years
Over 5 years
Total
Mch$
Mch$
Mch$
Mch$
Mch$
Mch$
Mch$
Hedge item
Outflows:
Corporate Bond MXN
(235)
(470)
(2,348)
(58,199)
—
—
(61,252)
Corporate Bond HKD
—
—
(3,149)
(6,309)
(6,332)
(110,408)
(126,198)
Corporate Bond PEN
—
—
(1,138)
(2,276)
(16,358)
—
(19,772)
Hedge instruments
Inflows:
235
470
2,348
58,199
—
—
61,252
—
—
3,149
6,309
6,332
110,408
126,198
—
—
1,138
2,276
16,358
—
19,772
—
—
—
—
—
—
—
Net cash flow
(c.2) Bellow are cash flow of underlying assets portfolio and cash flow of pasive
part of derivative:
2013
Up to1 month
Over 1 month
and up to
3 months
Over 3
months
and up to
12 months
Mch$
Mch$
Mch$
Over 1 year
and up to
3 years
Over 3 years
and up to
5 years
Over 5 years
Total
Mch$
Mch$
Mch$
Mch$
359,407
237,627
351,724
Hedge ítem
Inflows:
2,751
233
82,888
—
—
(61,400)
—
—
—
(61,400)
—
—
(5,791)
(11,617)
(11,562)
(217,999)
(246,969)
—
—
(450)
(898)
(14,673)
—
(16,021)
Cross Currency Swap JPY
—
(233)
(2,099)
(63,679)
(1,846)
(30,920)
(98,777)
Cross Currency Swap USD
—
—
(3,314)
(133,094)
—
—
(136,408)
Cross Currency Swap CHF
(2,751)
—
(9,834)
(150,119)
(209,546)
(102,805)
(475,055)
—
—
—
—
—
—
—
Cash flow in CLF
1,034,630
Hedge instruments
Outflows:
Net cash flow
181
2012
Up to1 month
Over 1 month
and up to
3 months
Over 3
months
and up to
12 months
Over 1 year
and up to
3 years
Over 3 years
and up to
5 years
Over 5 years
Total
Mch$
Mch$
Mch$
Mch$
Mch$
Mch$
Mch$
106,869
198,219
Hedge ítem
Inflows:
—
—
4,496
66,537
—
—
(1,644)
(60,173)
—
—
(61,817)
—
—
(2,411)
(5,482)
(5,498)
(106,869)
(120,260)
—
—
(441)
(882)
(14,819)
—
(16,142)
—
—
—
—
—
—
—
Cash flow in CLF
20,317
Hedge instruments
Outflows:
Net cash flow
Respect to assets hedged, these are revalued monthly according to the
variation of the UF, which is equivalent to realize monthly reinvestment of the
assets until maturity of the relationship hedging.
(c.3) The accumulated amount of unrealized gain was an charge to equity for an
amount of Ch$18,069 million (credit to equity for Ch$1,777 million in 2012)
generated from hedging instruments, which has been recorded in equity. The
net effect of deferred tax was a charge to equity for Ch$14,455 millions in
2013 (credit to equity for Ch$1,429 millions in 2012).
The accumulated balance for this concept net of deferred tax as of December
31, 2013 corresponds to a credit of equity amounted Ch$13,421 million
(credit to equity amounted Ch$1,034 million in 2012).
(c.4)The net effect in income of derivatives cash flow hedges amount to
Ch$51,795 million in 2013 (charge to income for Ch$2,318 millions en
2012).
(c.5) As of December 31, 2013 and 2012, it not exist inefficiency in cash flow
hedge, because both, hedge item and hedge instruments are mirror one of
other, it means that all variation of value attributable to rate and revaluation
components are netted almost totally.
(c.6) As of December 31, 2013 and 2012, the Bank has not hedges of net
investments in foreign business.
182
11. Loans and advances to Banks:
(a) As of December 31, 2013 and 2012, amounts are detailed as follows:
2013
Mch$
2012
Mch$
Domestic Banks
100,012
14,309
Other credits with domestic banks
—
—
Provisions for loans to domestic banks
(36)
(5)
99,976
14,304
Interbank loans
Subtotal
Foreign Banks
252,697
146,980
Chilean exports trade loans
97,194
67,787
Credits with third countries
12,864
14,509
Loans to foreign banks
Provisions for loans to foreign banks
Subtotal
(1,256)
(954)
361,499
228,322
600,000
1,100,000
Central Bank of Chile
Non-available Central Bank deposits
581
696
600,581
1,100,696
1,062,056
1,343,322
Other Central Bank credits
Subtotal
Total
(b) Provisions for loans to banks are detailed below:
bank’s location
detail
chile
MM$
abroad
MM$
Total
MM$
5
1,001
1,006
Charge-offs
—
—
—
Provisions established
—
—
—
Provisions released
—
(47)
(47)
5
954
959
Balance as of January 1, 2012
Balance as of December 31, 2012
Charge-offs
—
—
—
31
302
333
Provisions released
—
—
—
36
1,256
1,292
183
12. Loans to Customers, net:
(a.i) Loans to Customers:
As of December 31, 2013 and 2012, the composition of the portfolio of loans is
the following:
As of December 31, 2013
Assets before allowance
Normal
Portfolio
MCh$
Substandard
Portfolio
MCh$
Non-Complying
Portfolio
MCh$
Allowances established
Individual
Provisions
MCh$
Total
MM$
Group
Provisions
MCh$
Total
Mch$
Net assets
MCh$
Commercial loans
Commercial loans
9,501,576
117,957
269,260
9,888,793
(95,962)
(86,529)
(182,491)
9,706,302
Foreign trade loans
1,027,507
73,090
54,084
1,154,681
(68,272)
(642)
(68,914)
1,085,767
253,198
3,160
2,931
259,289
(3,031)
(3,332)
(6,363)
252,926
Current account debtors
Factoring transactions
Commercial lease transactions (1)
Other loans and accounts receivable
Subtotal
520,776
2,538
745
524,059
(9,570)
(822)
(10,392)
513,667
1,156,350
27,394
26,003
1,209,747
(5,265)
(10,224)
(15,489)
1,194,258
(4,049)
35,890
34,621
307
5,011
39,939
(762)
(3,287)
12,494,028
224,446
358,034
13,076,508
(182,862)
(104,836)
81,704
—
5,650
87,354
—
(220)
(287,698) 12,788,810
Mortgage loans
Mortgage bonds
Transferable mortgage loans
Other residential real estate mortgage loans
Credits from ANAP
Residential lease transactions
Subtotal
(220)
87,134
120,584
—
2,321
122,905
—
(285)
(285)
122,620
4,455,510
—
61,312
4,516,822
—
(17,997)
(17,997)
4,498,825
24
—
—
24
—
—
—
24
—
—
—
—
—
—
—
—
5,155
—
47
5,202
—
—
—
5,202
4,662,977
—
69,330
4,732,307
—
(18,502)
(18,502)
4,713,805
Consumer loans
1,865,945
—
169,216
2,035,161
—
(134,460)
(134,460)
1,900,701
231,493
—
9,459
240,952
—
(7,844)
(7,844)
233,108
Credit card debtors
758,742
—
25,040
783,782
—
(31,666)
(31,666)
752,116
—
—
—
—
—
—
—
—
185
—
616
801
—
(308)
(308)
493
2,886,418
Consumer loans in installments
Consumer lease transactions
Subtotal
Total
184
2,856,365
—
204,331
3,060,696
—
(174,278)
(174,278)
20,013,370
224,446
631,695
20,869,511
(182,862)
(297,616)
(480,478) 20,389,033
31 de diciembre de 2012
Assets before allowance
Normal
Portfolio
MCh$
Substandard
Portfolio
MCh$
Non-Complying
Portfolio
MCh$
Individual
Provisions
MCh$
Total
MM$
Group
Provisions
MCh$
Total
Mch$
Net assets
MCh$
Commercial loans
Commercial loans
8,185,062
112,507
243,605
8,541,174
(93,583)
(67,746)
(161,329)
8,379,845
Foreign trade loans
1,134,137
58,728
48,090
1,240,955
(55,216)
(491)
(55,707)
1,185,248
181,709
5,266
2,424
189,399
(2,418)
(2,504)
(4,922)
184,477
596,916
1,291
7,930
606,137
(9,535)
(556)
(10,091)
596,046
1,061,740
26,317
25,215
1,113,272
(3,528)
(9,136)
(12,664)
1,100,608
36,641
260
3,746
40,647
(621)
(1,974)
(2,595)
38,052
11,196,205
204,369
331,010
11,731,584
(164,901)
(82,407)
Mortgage bonds
103,169
—
6,046
109,215
—
(724)
(724)
108,491
Transferable mortgage loans
148,216
—
2,990
151,206
—
(527)
(527)
150,679
3,897,399
—
40,367
3,937,766
—
(14,829)
(14,829)
3,922,937
Commercial lease transactions (1)
Subtotal
(247,308) 11,484,276
Mortgage loans
Other residential real estate mortgage loans
Credits from ANAP
27
—
—
27
—
—
—
27
Residential lease transactions
—
—
—
—
—
—
—
—
453
—
—
453
—
—
—
453
4,149,264
—
49,403
4,198,667
—
(16,080)
(16,080)
4,182,587
1,761,070
—
145,203
1,906,273
—
(124,886)
(124,886)
1,781,387
235,122
—
9,944
245,066
—
(6,950)
(6,950)
238,116
Credit card debtors
654,976
—
25,010
679,986
—
(31,996)
(31,996)
647,990
—
—
—
—
—
—
—
—
Subtotal
Consumer loans
Consumer loans in installments
Consumer lease transactions
Subtotal
Total
183
—
6
189
—
(215)
(215)
(26)
2,651,351
—
180,163
2,831,514
—
(164,047)
(164,047)
2,667,467
17,996,820
204,369
560,576
18,761,765
(164,901)
(262,534)
(427,435) 18,334,330
(1) In this item, the Bank finances its customers purchases of assets, including real estate and other personal
property, through finance lease agreements. As of December 31, 2013, MCh$503,972 (MCh$451,647
in 2012) correspond to finance leases for real estate and MCh$705,775 (MCh$661,625 in 2012),
correspond to finance leases for other assets.
185
(a.ii) Impaired Portfolio
As of December 31, 2013 and 2012, the Bank presents the following details of
normal and impaired portfolio:
Assets before Allowances
Normal
Portfolio
Impaired
Portfolio
2013
Mch$
2012
Mch$
2013
Mch$
2012
Mch$
12,629,450
11,349,867
447,058
4,662,977
4,149,264
Individual
Provisions
total
2013
Mch$
Group
Provisions
2012
Mch$
2013
Mch$
2012
Mch$
Net assets
total
2013
Mch$
2012
Mch$
2013
Mch$
2012
Mch$
2013
Mch$
381,717
13,076,508
11,731,584
(182,862)
(164,901)
(104,836)
(82,407)
(287,698)
69,330
49,403
4,732,307
4,198,667
—
—
(18,502)
(16,080)
(18,502)
(16,080)
4,713,805
2012
Mch$
Commercial
loans
(247,308) 12,788,810
11,484,276
Mortgage
loans
4,182,587
Consumer
loans
2,856,365
2,651,351
204,331
180,163
3,060,696
2,831,514
—
—
(174,278)
(164,047)
(174,278)
(164,047)
2,886,418
2,667,467
Total
20,148,792
18,150,482
720,719
611,283
20,869,511
18,761,765
(182,862)
(164,901)
(297,616)
(262,534)
(480,478)
(427,435) 20,389,033
18,334,330
(b) Allowances for loan losses:
Movements in allowances for loan losses during the 2013 and 2012 periods are
as follows:
allowances
Other Disclosures:
Individual
Mch$
Group
Mch$
Total
Mch$
160,377
224,113
384,490
(9,144)
(34,020)
(43,164)
—
(4,253)
(4,253)
Charge-offs:
Commercial loans
Mortgage loans
—
(135,316)
(135,316)
Total charge-offs
(9,144)
(173,589)
(182,733)
13,668
212,010
225,678
Consumer loans
—
—
—
164,901
262,534
427,435
164,901
262,534
427,435
(8,648)
(27,381)
(36,029)
—
(3,242)
(3,242)
Allowances released (*)
Charge-offs:
Commercial loans
Mortgage loans
—
(157,264)
(157,264)
(8,648)
(187,887)
(196,535)
Debt exchange (see letter g)
(12,556)
—
(12,556)
39,165
222,969
262,134
Allowances released (*)
—
—
—
182,862
297,616
480,478
Consumer loans
Total charge-offs
(*) See note No. 12 (e) - Sale or transfer of credits from the loans to customers.
186
In addition to these allowances for loan losses, the Bank also establishes country
risk provisions to hedge foreign transactions as well as additional provisions agreed
upon by the Board of Directors, which are presented within liabilities in “Provisions”
(Note No. 24).
1. As of December 31, 2013 and 2012, the Bank and its subsidiaries
accomplished buy and sell of loan portfolios. The effect in income is no more
than 5% of net income before taxes, as detailed in Note No. 12 (e).
2. As of December 31, 2013 and December 31, 2012, the Bank and its
subsidiaries have derecognized 100% of its sold loan portfolio and it has been
transferred all or substantially all risks and benefits related to these financial
assets.
(c) Finance lease contracts:
The Bank’s scheduled cash flows to be received from finance leasing contracts
have the following maturities:
Total receivable
2013
Mch$
Unearned income
2012
Mch$
2013
Mch$
Net lease receivable (*)
2012
Mch$
2013
Mch$
2012
Mch$
Due within one year
435,789
394,284
(53,920)
(50,643)
381,869
343,641
Due after 1 year but within 2 years
314,546
293,525
(39,405)
(36,615)
275,141
256,910
Due after 2 years but within 3 years
197,979
189,111
(25,097)
(23,440)
172,882
165,671
121,241
112,381
(16,987)
(15,766)
104,254
96,615
78,992
75,451
(12,663)
(11,339)
66,329
64,112
232,607
206,025
(29,879)
(25,733)
202,728
180,292
1,381,154
1,270,777
(177,951)
(163,536)
1,203,203
1,107,241
Due after 5 years
Total
(*) The net balance receivable does not include past-due portfolio totaling MCh$6,544 as of December 31,
2013 (MCh$6,031 in 2012).
The bank has entered into commercial leases of real estate, industrial machinery,
vehicles and computer equipment. These leases have an average useful life of
between 3 and 8 years.
(d) Loans by industry sector:
The following table details the Bank’s loan portfolio (before allowances for loans
losses) as of December 31, 2013 and 2012 by the customer’s industry sector:
Location
chile
2013
Mch$
abroad
2012
Mch$
2013
Mch$
total
2012
Mch$
2013
Mch$
%
2012
Mch$
%
Commercial loans:
Commerce
2,513,287
2,286,500
39,677
28,173
2,552,964
12.23
2,314,673
12.34
Transportation
1,602,348
1,470,358
—
—
1,602,348
7.68
1,470,358
7.84
Manufacturing
1,365,562
1,380,994
—
—
1,365,562
6.54
1,380,994
7.36
Services
1,240,028
1,310,573
—
—
1,240,028
5.94
1,310,573
6.99
Construction
1,457,770
1,252,546
311
—
1,458,081
6.99
1,252,546
6.68
Financial Services
1,627,844
1,148,094
415,345
706,477
2,043,189
9.79
1,854,571
9.88
Agriculture and livestock
914,105
901,300
—
—
914,105
4.38
901,300
4.80
Electricity, gas and water
504,088
328,763
27,885
—
531,973
2.55
328,763
1.75
Mining
340,045
305,386
—
67,051
340,045
1.63
372,437
1.99
Fishing
219,173
233,893
—
—
219,173
1.05
233,893
1.25
Other
790,290
226,999
18,750
84,477
809,040
3.87
311,476
1.65
12,574,540
10,845,406
501,968
886,178
13,076,508
62.65
11,731,584
62.53
4,732,307
4,198,667
—
—
4,732,307
22.68
4,198,667
22.38
Subtotal
Consumer loans
Total
3,060,696
2,831,514
—
—
3,060,696
14.67
2,831,514
15.09
20,367,543
17,875,587
501,968
886,178
20,869,511
100.00
18,761,765
100.00
187
(e) Purchase of loan portfolio
During months of August, September and December of 2013, the Bank has
acquired portfolio loans by an amount of MCh$467,717.
(f) Sale or transfer of credits from the loans to customers:
During 2013 and 2012 Banco de Chile has carried out transactions of sale or
transfer of the loan portfolio according to the following:
Carrying
amount
MCh$
Allowances
released
MCh$
Sale price
MCh$
Effect on income
(loss) gain
MCh$
197,820
(355)
198,134
669
Carrying
amount
MCh$
Allowances
released
MCh$
Sale price
MCh$
Effect on income
(loss) gain
MCh$
118,347
(199)
118,347
199
(g) Canje de Créditos por Bonos:
On June 27, 2013, it was proceeded to make a Debt Swap of impaired portfolio.
Representative promissory notes of credit were replaced by financial instruments
(bonds), issued by the same debtor. The credit, at date of exchange, amounted
MCh$13,952 with a provision for loan losses of MCh$12,556. Financial
instruments (bonds) received was classified like financial assets available-for-sale.
At date of exchange, it does not exist active market for this type of financial
instrument, and so, there was not sufficient data available for measure its fair value.
Then it determined that fair value was equivalent to book value of credit exchanged.
For this transaction it was not recognized income effect.
On December 27, 2013, the SBIF instructed to classify instruments mentioned
above like “Financial assets Held-for-Trading”, which it produced a credit to income
for MCh$578 as of December 31, 2013.
(h) Own assets securitizations:
During 2012, the Bank subscribed a Securitization agreement issuance and
an assignment agreement without responsibility with the subsidiary Banchile
Securitizadora S.A., whereby two fixed rate commercial loans were transferred.
Then Banchile Securitizadora S.A. created the Segregated Equity (“Patrimonio
Separado”) according to the title XVIII of the law No. 18,045. The securitizated
assets finally became part of the separated equity in order to support the serie A
bond issuance, which were fully transferred to third parties.
As of the transaction date, the book value of the credits assigned was Ch$30,276
million and the effective amount received in the transference was Ch$30,407
million, which generated an income of Ch$131 million and also a credit provisions
release for the amount of Ch$24 million. Furthermore, the subsidiary Banchile
Securitizadora S.A. charged a commission for Ch$160 million, to the bank
corresponding to debt structured process services.
188
The bank acquired the subordinated bond (serie C) issued by Segregated Equity in
Ch$23,310 as of December 31, 2013, equivalent to UF 1 (Unidad de Fomento),
which represented less than 0.001% of the total amount of the Bond issued by
Segregated Equity for the amount of Ch$30,407 million (par value amounted
Ch$30,196 million). This bond was registered in available-for-sale and as of
December 31, 2012 its fair value is Ch$22,841, this amount represents the
maximum exposure of the bank will have in this transaction.
The bank analyzed all the relevant aspects of the transaction, according to
indicated in the NIC 39 and in the IFRS 10, related to assets derecognized and
consolidation rules. In this regards the bank concludes that (i) has substantially
transferred all benefits and risks of assets assigned to the Segregated Equity; (ii)
do not manage directly nor indirectly the activities of the segregated equity; (iii) do
not have decision rights, which allows to obtain substantial benefits from the assets
assigned; (iv) do not maintain any control over assets assigned, neither over the
Segregate Equity. As a consequence of this, the bank proceeded to derecognized
the credits involved in transaction and have not consolidated with the Segregated
Equity.
Additional information
of the transaction
2013
2012
Securitized asset value
$20,517 millions
$24,795 millions
Securitized bond value
$20,385 millions
$24,644 millions
Securitized
assets - remaining term
4 years
5 years
Securitized bond - remaining term
4 years
5 years
Rate securitized assets
UF + 4.83%
UF + 4.83%
Rate securitized bond
UF + 4.54%
UF + 4.54%
During 2013 the bank has not executed securitization transaction involving owns
assets.
13. Investment Securities:
As of December 31, 2013 and 2012, investment securities classified as available-forsale and held-to-maturity are detailed as follows:
2013
Available
for sale
MCh$
2012
Held to
maturity
MCh$
Total
Mch$
Available
for sale
MCh$
Held to
maturity
MCh$
Total
Mch$
Instruments issued by the Chilean Government and
Central Bank of Chile:
Bonds issued by the Chilean Government and Central Bank
333,035
—
333,035
110,569
—
110,569
Promissory notes issued by the Chilean Government and
Central Bank
50,415
—
50,415
969
—
969
202,958
—
202,958
140,246
—
140,246
Other instruments
—
—
—
—
—
—
96,933
—
96,933
85,688
—
85,688
Deposit promissory notes from domestic banks
128,500
—
128,500
116,100
—
116,100
Deposits from domestic banks
617,816
—
617,816
560,390
—
560,390
13,558
—
13,558
32,281
—
32,281
—
—
—
—
—
—
154,267
—
154,267
129,693
—
129,693
—
—
—
—
—
—
Promissory notes issued by other Chilean companies
Other instruments
Instruments issued abroad
Instruments from foreign governments or central banks
Other instruments
Total
76,222
—
76,222
88,504
—
88,504
1,673,704
—
1,673,704
1,264,440
—
1,264,440
Instruments issued by the Chilean Government and Central Bank include instruments
with agreements to repurchase sold to clients and financial institutions, for December
31, 2013 this amount was $16,840 million (no movements for this item in 2012).
Repurchase agreements had a average maturity of 3 day in December 2013.
Profits and losses realized on the sale of available-for-sale investments as of December
31, 2013 and 2012 are shown in Note 30 “Net Financial Operating Income”.
Gross profits and losses realized and unrealized on the sale of available for sale
investments for the years-ended December 31, 2013 and 2012 are as follows:
Under classification of Other instruments issued in Chile are included securities sold
under repurchase agreements to customers and financial institutions for an amount of
MCh$109 million (MCh$5,266 million in 2012).
In instruments issued abroad are include mainly bonds banks and shares.
As of December 31, 2013, the portfolio of financial assets available-for-sale includes
a net unrealized loss of MCh$29,372 (MCh$17,995 in 2012), recorded in other
comprehensive income within equity.
As of December 31, 2013 there is not impairment of financial assets available-for-sale
(as of December 31, 2012 there was impairment of financial assets available-for-sale
for an amount of Ch$551 millions).
2013
Mch$
2012
Mch$
Unrealized (losses)/profits during
the period
25,972
26,259
Realized losses/(profits) (reclassified)
(11,751)
(1,749)
Subtotal unrealized during the period
14,221
24,510
Income tax
(2,844)
(4,871)
Total unrealized during the period
11,377
19,639
Realized profits and losses are calculated as the proceeds from sales less the cost
(specific identification method) of the investments identified as for sale. In addition, any
unrealized profit or loss previously recorded in equity for these investments is reversed
when recorded in the income statements.
189
14. Investments in Other Companies:
(a) This item includes investments in other companies for an amount of MCh$16,670
(MCh$13,933 in 2012), which is detailed as follows:
Investment
ownership interest
equity
Book Value
Income (Loss)
Shareholder
2013
%
2012
%
2013
Mch$
2012
Mch$
2013
Mch$
2012
Mch$
2013
Mch$
Administrador Financiero del
Transantiago S.A. (*)
Banco de Chile
20.00
20.00
9,737
6,076
1,948
1,215
733
(527)
Soc. Operadora de Tarjetas
de Crédito Nexus S.A.
Banco de Chile
25.81
25.81
7,197
6,412
1,858
1,655
289
556
Redbanc S.A.
Banco de Chile
38.13
38.13
4,401
4,109
1,678
1,567
159
(376)
Sociedad Imerc OTC S.A. (**) (***)
Banco de Chile
12.49
—
11,411
—
1,425
—
(18)
—
Transbank S.A.
Banco de Chile
26.16
26.16
5,232
6,306
1,368
1,649
9
322
Soc. Operadora de la Cámara de
Compensación de Pagos de
Alto Valor S.A (***).
Banco de Chile
15.00
15.00
4,529
4,337
679
651
62
112
Centro de Compensación
Automatizado S.A.
Banco de Chile
33.33
33.33
1,982
1,609
661
536
125
115
Sociedad Interbancaria de Depósitos
de Valores S.A.
Banco de Chile
26.81
26.81
Company
2012
Mch$
Associates
Subtotal Associates
1,978
1,711
530
459
102
79
46,467
30,560
10,147
7,732
1,461
281
3,590
3,378
213
(321)
Joint Ventures
Servipag Ltda.
Banco de Chile
50.00
50.00
7,180
6,756
Artikos Chile S.A.
Banco de Chile
50.00
50.00
1,341
1,129
670
564
106
(428)
8,521
7,885
4,260
3,942
319
(749)
54,988
38,445
14,407
11,674
1,780
(468)
Bolsa de Comercio de Santiago S.A.
1,646
1,646
291
239
Banco Latinoamericano de Comercio
Exterior S.A. (Bladex)
309
309
—
—
Bolsa Electrónica de Chile S.A.
257
257
—
—
8
8
—
—
Subtotal Joint Ventures
Subtotal
Investments valued at cost (1):
Cámara de Compensación
Sociedad de Telecomunicaciones
Financieras Interbancarias
Mundiales (Swift)
Subtotal
Total
(1)
(*)
Income from investments valorized at cost, corresponds to income recognized on cash basis (dividends).
On July 9, 2013 it was published in Diario Oficial of Chile (Federal Register in USA) the resolution No. 285
between Government Department of Transport and Telecommunications and Government Department of
Treasury, which approved a new agreement related to “the delivery of complementary services of financial
management”, whereby the new agreement, AFT only provide services related with financial management
of the resourses of Transantiago system, all of that in the terms and conditions that establish the new
contract.
(**) On June 21, 2013 it was created, with other banks of the Chilean financial system, the subsidiary
banking support called “Servicios de Infraestructura de Mercado OTC S.A.” (IMERC-OTC S.A.), where
190
43
39
—
—
2,263
2,259
291
239
16,670
13,933
2,071
(229)
its objective will be to operate a centralized register of derivatives operations (register, confirmation,
storage, consolidation and conciliation services). This new subsidiary was created with a capital
of Ch$12,957,463,890 divided in 10,000 shares, without nominal value, of which Banco de Chile
subscribed and paid 1,111 shares, equivalents to MCh$1,440 million paid upon constitution of society. It
was subscribed and paid 8,895 shares at the date of these financial statements.
(***) Banco de Chile has significant influence in Sociedad Operadora de la Cámara de Compensación de Pagos
de Alto Valor S.A. y Sociedad Imerc OTC S.A., due to its right to design a member of Board of each entities
mentioned.
(b) Asociadas:
Current assets
2013
Mch$
2012
Mch$
537,515
383,155
64,904
53,946
Total Assets
602,419
437,101
Current liabilities
550,023
397,540
5,919
9,001
555,942
406,541
46,467
30,560
10
—
Total Liabilities and Equity
602,419
437,101
Revenue
184,912
206,069
Operating expenses
(178,081)
(204,929)
Non-current assets
Non-current liabilities
Total Liabilities
Equity
Minority interest
Other income (expenses)
Profit before tax
Income tax
Profit for the year
448
948
7,279
2,088
(982)
(590)
6,297
1,498
(d) The reconciliation between opening and ending balance of investments in other
companies that are not consolidated in 2013 and 2012 is detailed as follows:
Beginning book value
2013
Mch$
2012
Mch$
13,933
15,418
—
—
Acquisition of investments
1,440
71
Participation in income with significant influence
1,780
(468)
Dividends receivable
(187)
(653)
Dividends received
(956)
(943)
Sale of investments
Payment of minimum dividends
Total
660
508
16,670
13,933
(e)As of December 31, 2013 and 2012 no impairment has incurred in these
investments.
(c) Joint Ventures:
The Bank has a 50% interest in Servipag Ltda. and a 50% interest in Artikos S.A.,
two jointly controlled entity. Bank’s interest of both entities is accounted for using
the equity method in the consolidated financial statements.
Below it presents summarised financial information of entities controlled:
Artikos
2013
Mch$
servipag
2012
Mch$
2013
Mch$
2012
Mch$
Current assets
920
442
42,788
37,416
Non-current assets
734
925
16,256
16,708
1,654
1,367
59,044
54,124
313
238
48,343
44,137
—
—
3,521
3,231
Total Assets
Current liabilities
Non-current liabilities
Total Liabilities
313
238
51,864
47,368
Equity
1,341
1,129
7,180
6,756
Total Liabilities and Equity
1,654
1,367
59,044
54,124
Revenue
2,486
2,451
35,371
36,645
Operating expenses
(2,270)
(3,027)
(34,042)
(36,404)
4
(8)
(808)
(729)
220
(584)
521
(488)
(8)
(272)
(97)
(154)
212
(856)
424
(642)
Other income (expenses)
Profit (loss) before tax
Income tax
Profit (loss) for the year
191
15. Intangible Assets:
(a) As of December 31, 2013 and 2012, Intangible assets are detailed as follows:
years
Remaining
amortization
Useful Life
2013
2012
2013
Accumulated
Amortization
and Impairment
Gross balance
2013
Mch$
2012
2012
Mch$
2013
Mch$
2012
Mch$
Net balance
2013
Mch$
2012
Mch$
Type of intangible asset:
Goodwill:
—
7
—
2
4,138
4,138
(4,138)
(3,000)
—
1,138
6
6
2
3
87,014
82,736
(57,795)
(50,641)
29,219
32,095
Other Intangible Assets:
Software or computer programs
Intangible assets arising from business
combinations
—
7
—
2
1,740
1,740
(1,740)
(1,261)
—
479
Other intangible assets
—
—
—
—
501
612
(49)
(34)
452
578
93,393
89,226
(63,722)
(54,936)
29,671
34,290
Total
(b) Movements in intangible assets during the 2013 and 2012 periods are as follows:
Investments in
other companies
MCh$
Software
or computer
programs
MCh$
Intangible
assets arising
from business
combinations
MCh$
Other
intangible
assets
MCh$
total
Mch$
Gross Balance
4,138
74,525
1,740
Acquisitions
—
8,544
Disposals
—
(333)
4,138
Acquisitions
Disposals
102
80,505
—
572
9,116
—
(62)
(395)
82,736
1,740
612
89,226
—
5,137
—
374
5,511
—
(859)
—
(485)
(1,344)
4,138
87,014
1,740
501
93,393
(2,379)
(41,538)
(1,000)
(71)
(44,988)
(621)
(9,436)
(261)
(25)
(10,343)
—
—
—
—
—
Accumulated Amortization and Impairment
Amortization for the year (*)
Impairment loss (*)
—
333
—
62
395
(3,000)
(50,641)
(1,261)
(34)
(54,936)
Amortization for the year (*)
(9,629)
Disposal
(1,138)
(7,985)
(479)
(27)
Impairment loss (*)
—
(28)
—
—
(28)
Disposals
—
859
—
12
871
(4,138)
(57,795)
(1,740)
(49)
(63,722)
—
29,219
—
452
29,671
Net balance as of December 31, 2013
(*) See note No. 35 “Depreciation, amortization and impairment”
192
(c) As of December 31, 2013 and 2012, the Bank has made the following commitments
to purchase intangible assets, which have not been capitalized:
Amount of Commitment
detail
2013
Mch$
2012
Mch$
Software and licenses
9,299
6,681
16. Property and equipment:
(a) As of December 31, 2013 and 2012, this account and its movements are detailed
as follows:
Land and
Buildings
MCh$
Equipment
MCh$
other
MM$
Total
MM$
Cost
176,266
125,819
137,120
439,205
Additions
337
7,750
9,894
17,981
Disposals/write-downs
(451)
(1,512)
(2,232)
(4,195)
—
—
—
—
Transfers
—
—
19
19
Total
176,152
132,057
144,801
453,010
Accumulated depreciation
(35,972)
(109,932)
(101,722)
(247,626)
Reclassifications
—
(31)
(164)
(195)
140,180
22,094
42,915
205,189
176,152
132,026
144,637
452,815
62
7,509
4,678
12,249
Impairment loss (*)
Additions
(365)
(1,406)
(1,710)
(3,481)
Transfers
—
(218)
218
—
Reclassifications
—
—
—
—
Total
175,849
137,911
147,823
461,583
Accumulated depreciation
(38,717)
(116,081)
(108,697)
(263,495)
—
(84)
(426)
(510)
137,132
21,746
38,700
197,578
(33,503)
(103,015)
(94,799)
(231,317)
—
—
(19)
(19)
(2,920)
(8,429)
(8,884)
(20,233)
Disposals/write-downs
Impairment loss (*) (***)
Accumulated Depreciation
Reclassifications
Depreciation charges in the period (*) (**)
Sales and disposals in the period
Reclassifications
Depreciation charges in the period (*) (**)
Sales and disposals in the period
451
1,512
1,980
3,943
(35,972)
(109,932)
(101,722)
(247,626)
—
(19)
19
—
(2,873)
(7,716)
(8,310)
(18,899)
128
1,586
1,316
3,030
(38,717)
(116,081)
(108,697)
(263,495)
(*) See Note No. 35 “Depreciation, Amortization and Impairment”.
(**) This amount not includes depreciation charges in the period for investments properties. This amount is
include in item “Other Assets” for MCh$381 (MCh$381 in 2012)
(***) Not include provision related to write-offs of property and equipment for an amount of Ch$247 million
(Ch$153 million in 2012)
193
(b) As of December 31, 2013 and 2012, the Bank has operating lease agreements in
which it acts as lessee that cannot be terminated unilaterally; information on future
payments is detailed as follows:
2013
Expense
for the year
MCh$
Lease Agreements
28,876
Up to 1
month
MCh$
2,320
Over 1 month
and up to
3 months
MCh$
4,633
Over 3
months
and up to
12 months
MCh$
Over 1 year
and up to
3 years
MCh$
Over 3 years
and up to
5 years
MCh$
Over 5 years
MCh$
19,833
37,497
26,517
48,815
Over 3
months
and up to
12 months
MCh$
Over 1 year
and up to
3 years
MCh$
Over 3 years
and up to
5 years
MCh$
Over 5 years
MCh$
19,219
37,094
27,066
49,523
Total
Mch$
139,615
2012
Expense
for the year
MCh$
Lease Agreements
28,036
Up to 1
month
MCh$
2,274
Over 1 month
and up to
3 months
MCh$
4,561
As these lease agreements are operating leases under IAS 17 the leased assets are
not presented in the Bank’s statement of financial position.
The Bank has entered into commercial leases of real estate. These leases have
an average life of 10 years. There are no restrictions placed upon the lessee by
entering into the lease.
(c) As of December 31, 2013 and 2012, the Bank does not have any finance lease
agreements as lessee and, therefore, there are no property and equipment
balances to be reported from such transactions as of December 31, 2013 and
2012.
Total
Mch$
139,737
17. Current and Deferred Taxes:
(a) Current Taxes:
As of each year end, the Bank and its subsidiaries have established a First Category
Income Tax Provision determined in accordance with current tax laws. This provision
is presented net of recoverable taxes, detailed as follows:
Income taxes
Sole first category tax
Tax on non-deductible expenses (35%)
2013
Mch$
2012
Mch$
85,336
61,876
23
—
1,885
3,860
Less:
Monthly prepaid taxes (PPM)
(73,694)
(41,960)
Credit for training expenses
(1,714)
(1,545)
Other
(4,705)
965
7,131
23,196
20%
20%
2013
Mch$
2012
Mch$
3,202
2,684
(10,333)
(25,880)
(7,131)
(23,196)
Total current taxes
Tax rate
Current tax assets
Current tax liabilities
Total current taxes
194
(b) Income Tax:
The Bank’s tax expense recorded for the years ended December 31, 2013 and
2012 is detailed as follows:
2013
Mch$
2012
Mch$
88,714
61,876
(432)
(1,147)
88,282
60,729
Income tax expense:
Current year taxes
Tax from previous periods
Subtotal
Credit (charge) for deferred taxes:
Origin and reversal of temporary differences
Effect of changes in tax rate
Subtotal
Non deducible expenses
(Art. 21 “Ley de la Renta”)
Other
Net charge to income for income taxes
(12,381)
3,113
—
(14,206)
(12,381)
(11,093)
1,885
3,860
2,150
894
79,936
54,390
(c) Reconciliation of effective tax rate:
The following is reconciliation between income tax rate and effective rate applied
to determine the Bank’s income tax expense as of December 31, 2013 and 2012:
2013
Tax rate
%
2012
Mch$
Tax rate
%
Mch$
Income tax calculated on
net income before tax
20.00
118,708
20.00
104,400
Additions or deductions
(6.85)
(40,653)
(7.10)
(37,056)
Non-deductible expenses
0.32
1,885
0.74
3,860
Tax from previous year
(0.07)
(432)
(0.22)
(1,147)
Effect of changes
in tax rate (*)
—
—
(2.72)
(14,206)
Lease deferred tax
adjustment
—
—
0.56
2,942
0.07
428
(0.84)
(4,403)
13.47
79,936
10.42
54,390
Others
Effective rate and
income tax expense
The effective rate for income tax for 2013 is 13.47% (10.42% in 2012).
(*) According to the Law No. 20,630 issued on September 27, 2011 is permanently changed the tax rates
of the first category to 20.00%
195
(d) Effect of deferred taxes on income and equity:
During the year 2013, the Bank has recorded the effects of deferred taxes in
accordance with Note No. 2 (q).
The effects of deferred taxes on assets, liabilities and income accounts are detailed
as follows:
effect
Balances as of
December 31, 2012
MCh$
Income
MCh$
Equity
MCh$
Balances as of
December 31, 2013
MCh$
Debit Differences:
Allowances for loan losses
99,113
8,989
—
108,102
(11)
216
—
205
Personnel provisions
6,092
(345)
—
5,747
Staff vacation
4,058
321
—
4,379
Accrued interests and indexation adjustments from past
due loans
2,123
290
—
2,413
Obligations with agreements to repurchase
Staff severance indemnities provisions
Provision of credit cards expenses
960
(22)
33
971
4,694
1,799
—
6,493
Provision of accrued expenses
7,382
349
—
7,731
Other adjustments
5,158
4,705
—
9,863
129,569
16,302
33
145,904
15,423
(987)
—
14,436
4,758
—
2,585
7,343
Leasing equipment
4,812
3,688
—
8,500
Transitory assets
2,449
290
—
2,739
378
(240)
—
138
2,236
1,170
7
3,413
Total debit differences
Credit Differences:
Depreciation and price-level restatement of property and
equipment
Adjustment for valuation of financial assets available-for-sale
Derivative instrument adjustment
Other adjustments
196
Total credit differences
30,056
3,921
2,592
36,569
Deferred tax assets (liabilities), net
99,513
12,381
(2,559)
109,335
(e) For the purpose of complying with the Circular No. 47 issued by the Chilean Internal
Revenue Service (SII) and No. 3,478 issued by the Superintendency of Banks, dated
August 18, 2009 the movements and effects generated by the application of Article
31, No. 4 of the Income Tax Law are detailed as follows:
As the circular requires, the information corresponds only to the Bank’s credit
operations and does not consider operations of subsidiary entities that are
consolidated in these consolidated financial statements.
Tax value assets
(e.1) Loans to customers as
Loans and advance to banks
Commercial loans
Book value
assets (*)
MCh$
Tax value assets
MCh$
Past-due loans
with guarantees
MCh$
Past-due loans
without
guarantees
MCh$
Total
Past-due loans
MCh$
1,062,056
1,063,348
—
—
—
10,975,797
11,509,434
18,864
49,184
68,048
Consumer loans
2,886,418
3,244,149
561
17,418
17,979
4,713,805
4,729,085
3,381
111
3,492
19,638,076
20,546,016
22,806
66,713
89,519
Provisions
established
MCh$
Provisions
released
MCh$
Total
(*) In accordance with the mentioned Circular and instructions from the SII, the value of financial statement
assets, are presented on an individual basis (only Banco de Chile) net of allowance for loan losses and do
not include lease and factoring operations.
(e.2) Provisions on past-due loans
Charge-offs
against
provisions
MCh$
Balance as of
January 1, 2013
MCh$
Balance as of
December 31, 2013
MCh$
Commercial loans
33,163
(21,574)
69,021
(31,426)
49,184
Consumer loans
17,131
(148,561)
171,991
(23,143)
17,418
Total
151
(952)
1,195
(283)
111
50,445
(171,087)
242,207
(54,852)
66,713
(e.3) Charge-offs and recoveries
Charge-offs Art. 31 No. 4 second subparagraph
Condoning resulting in provisions released
Recovery or renegotiation of written-off loans
(e.4) Application of Art. 31 No. 4 first & third subsections
2013
Mch$
10,509
1,123
41,802
2013
Mch$
Charge-offs in accordance with first subsection
—
Condoning in accordance with third subsection
1,117
197
18. Other Assets:
(b) Movements in the provision for assets received in lieu of payment during the 2013
and 2012 periods are detailed as follows:
(a) Item detail:
Amortization
As of December 31, 2013 and 2012, other assets are detailed as follows:
2013
Mch$
2012
Mch$
74,723
74,986
2,640
2,475
Assets received in lieu of payment
372
81
Provision for assets received in lieu of payment (**)
(46)
(40)
2,966
2,516
Documents intermediated (***)
74,366
89,800
Deposits by derivatives margin
60,309
25,984
Servipag available funds
19,200
15,534
Investment properties (Note N° 2 letter t)
16,317
16,698
Assets held for leasing (*)
Assets received or awarded as payment
Assets awarded in judicial sale
Subtotal
Other Assets
VAT receivable
9,958
9,292
Other accounts and notes receivable
8,682
20,001
Commissions receivable
7,784
6,392
Prepaid expenses
6,589
3,476
Recoverable income taxes
6,048
7,695
Recovered leased assets for sale
5,463
777
Pending transactions
1,803
8,676
Rental guarantees
1,456
1,386
Accounts receivable for sale of assets received
in lieu of payment
1,118
Provisions used
(1,178)
40
Provisions used
(45)
51
Provisions released
—
46
19. Current accounts and Other Demand Deposits:
As of December 31, 2013 and 2012, current accounts and other demand deposits are
Current accounts
599,320
376,517
5,984,332
5,470,971
Total
20. Savings accounts and Time Deposits:
As of December 31, 2013 and 2012, savings accounts and time deposits are detailed
as follows:
Subtotal
240,340
219,376
Time deposits
Total
318,029
296,878
Term savings accounts
(***) This item mainly includes simultaneous operations carried out by the subsidiary Banchile Corredores de
Bolsa S.A.
4,495,134
593,444
12,632
The provision for assets received in lieu of payment is recorded as indicated in the Compendium of
Accounting Standards, Chapter B-5 No. 3, which indicate to recognize a provision for the difference
between the initial value plus any additions and its realizable value when the former is greater
5,018,155
372,733
20,551
2012
Mch$
Other demand deposits
Other
The assets awarded at judicial sale are assets that have been acquired as payment of debts previously
owed towards the Bank. The assets awarded at judicial sales are not subject to the aforementioned
requirement. These properties are assets available for sale. For most assets, the sale is expected to be
completed within one year from the date on which the asset was received or acquired. If the asset in
question is not sold within the year, it must be written off.
2013
Mch$
Other demand deposits and accounts
610
—
Provisions released
423
(**) Assets received in lieu of payment are assets received as payment of customers’ past-due debts. The
assets acquired must at no time exceed, in the aggregate, 20% of the Bank’s effective equity. These
assets represent 0.0124% (0.0032% in 2012) of the Bank’s effective equity.
100
528
(*) These correspond to property and equipment to be given under a finance lease.
198
1,286
Materials and supplies
MM$
Other term balances payable
Total
2013
Mch$
2012
Mch$
10,151,612
9,370,063
178,012
179,465
73,101
63,422
10,402,725
9,612,950
21. Borrowings from Financial Institutions:
(b) Borrowings from foreign banks
(a) As of December 31, 2013 and 2012, borrowings from financial institutions are
2013
Mch$
Domestic banks
—
2012
Mch$
—
Foreign banks
Foreign trade financing
Citibank N.A.
137,914
107,249
HSBC Bank
134,814
—
Standard Chartered Bank
103,162
117,218
These obligations’ maturities are as follows:
2013
Mch$
99,543
181,954
Over 1 month and up to 3 months
359,752
153,702
Over 3 months and up to 12 months
262,574
631,051
Over 1 year and up to 3 years
267,586
141,956
—
—
Up to 1 month
Over 3 years and up to 5 years
Over 5 years
Total
Deutsche Bank AG
94,327
12,003
Bank of America
78,642
189,501
Commerzbank A.G.
61,958
182,926
Bank of Montreal
52,684
—
The Bank of New York Mellon
37,373
57,161
ING Bank
26,309
—
Wells Fargo Bank
26,298
131,763
Toronto Dominion Bank
23,676
38,402
Mercantil Commercebank N.A.
15,888
19,184
Zuercher Kantonalbank
5,282
14,401
JP Morgan Chase Bank
—
24,003
Sumitomo Banking
—
16,828
Bank of China
—
828
Banco de Sabadell
—
337
4,040
22
105,340
96,370
Citibank N.A.
54,768
27,571
Mortgage bonds
China Development Bank
26,308
35,996
Bonds
Standard Chartered Bank
—
36,084
Other
Other
Subtotal
Chilean Central Bank
Total
672
816
989,455
1,108,663
10
18
989,465
1,108,681
—
—
989,455
1,108,663
(c) Chilean Central Bank
Debts to the Central Bank of Chile include credit lines for the renegotiation of loans
and other Central Bank borrowings.
The outstanding amounts owed to the Central Bank of Chile under these credit
lines are as follows:
2013
Mch$
—
Borrowings and other obligations
2012
Mch$
—
Credit lines for the renegotiation of loans
10
18
Total
10
18
22. Debt Issued:
As of December 31, 2013 and 2012, debt issued is detailed as follows:
Borrowings and other obligations
Wells Fargo Bank
2012
Mch$
2013
Mch$
Subordinated bonds
Total
2012
Mch$
86,491
115,196
3,533,462
2,412,233
747,007
746,504
4,366,960
3,273,933
199
During the period ended as of December 31, 2013, Banco de Chile issued bonds by
an amount of MCh$1,607,265, of which corresponds to Unsubordinated bonds and
Subordinated bonds by an amount of MCh$1,603,669 and MCh$3,596 respectively,
according to the following details:
Bonds
Series
Mch$
term (years)
Interest rate
Currency
Issued date
Maturity date
BCHIUR1011
22,114
12
3.40
UF
01/08/2013
01/08/2025
BCHIUR1011
8,521
12
3.40
UF
01/09/2013
01/09/2025
BCHIUJ0811
1,572
8
3.20
UF
01/29/2013
01/29/2021
BCHIUZ1011
89,313
7
3.20
UF
01/31/2013
01/31/2020
BCHIAC1011
45,456
15
3.50
UF
02/28/2013
02/28/2028
BCHIAC1011
34,185
15
3.50
UF
03/26/2013
03/26/2028
BCHIUN1011
72,022
7
3.20
UF
04/08/2013
04/08/2020
BCHIUU0212
68,379
12
3.40
UF
08/29/2013
08/29/2025
BCHIAU0213
69,746
12
3.60
UF
09/11/2013
09/11/2025
BCHIAG0213
46,585
5
3.40
UF
09/13/2013
09/13/2018
BCHIAV0613
47,283
12
3.60
UF
10/16/2013
09/13/2025
BONO HKD
43,066
10
3.23
HKD
04/22/2013
04/24/2023
BONO HKD
45,133
15
4.25
HKD
10/08/2013
10/16/2028
BONO CHF
100,371
5
1.13
CHF
04/26/2013
05/23/2018
BONO CHF
25,019
5
1.13
CHF
05/07/2013
05/23/2018
BONO CHF
122,380
3
0.60
CHF
06/11/2013
07/18/2016
BONO CHF
66,164
4
1.13
CHF
06/28/2013
05/23/2017
BONO CHF
98,555
6
1.50
CHF
11/07/2013
12/03/2019
BONO JPY
57,716
3
0.74
JPY
11/25/2013
11/25/2016
BONO JPY
30,169
6
1.03
JPY
12/05/2013
03/18/2019
term (years)
Interest rate
Currency
Issued date
Maturity date
25
3.75
UF
01/25/2013
01/25/2038
Subtotal as of December 31, 2013
Short-term Bonds
Total as of December 31, 2013
1,093,749
509,920
1,603,669
Subordinated Bonds
Series
200
Mch$
UCHI-G1111
3,596
Total
3,596
During the period ended as of December 31, 2012, Banco de Chile issued bonds by
an amount of MCh$1,233,985, of which corresponds to Unsubordinated bonds and
Subordinated bonds by an amount of MCh$1,207,808 and MCh$26,177 respectively,
according to the following details:
Bonds
Series
Mch$
term (years)
Interest rate
Currency
Issued date
Maturity date
10
3.40
UF
02/15/2012
02/15/2022
BCHIUO0911
89,896
BCHIUD0510
14,109
6
2.20
UF
02/16/2012
02/16/2018
BCHIUI0611
1,338
7
3.20
UF
03/05/2012
03/05/2019
BCHIUI0611
3,352
7
3.20
UF
03/07/2012
03/07/2019
BCHIUI0611
1,116
7
3.20
UF
03/23/2012
03/23/2019
BCHIUP1211
88,345
10
3.40
UF
04/04/2012
04/04/2022
BCHIUI0611
2,236
7
3.20
UF
04/17/2012
04/17/2019
BCHIUQ1011
27,343
11
3.40
UF
05/08/2012
05/08/2023
BCHIUQ1011
48,568
11
3.40
UF
05/11/2012
05/11/2023
BCHIUQ1011
12,449
11
3.40
UF
06/04/2012
06/04/2023
BCHIUS0212
46,428
11
3.40
UF
06/04/2012
06/04/2023
BCHIUS0212
20,552
11
3.40
UF
06/07/2012
06/07/2023
BCHIUT0112
66,850
12
3.40
UF
06/12/2012
06/12/2024
BCHIUR1011
33,295
12
3.40
UF
06/20/2012
06/20/2024
BCHIUR1011
4,450
12
3.40
UF
07/30/2012
07/30/2024
BCHIUR1011
13,469
12
3.40
UF
09/14/2012
09/14/2024
BCHIUR1011
1,799
12
3.40
UF
09/24/2012
09/24/2024
BCHIUR1011
5,284
12
3.40
UF
09/25/2012
09/25/2024
BCHIUJ0811
1,334
8
3.20
UF
05/10/2012
05/10/2020
BCHIUJ0811
33,456
8
3.20
UF
10/10/2012
10/10/2020
BCHIUV1211
67,842
13
3.50
UF
10/10/2012
10/10/2025
BCHIUJ0811
1,566
8
3.20
UF
10/19/2012
10/19/2020
BCHIUJ0811
2,241
8
3.20
UF
10/22/2012
10/22/2020
BCHIAC1011
11,118
15
3.50
UF
10/22/2012
10/22/2027
BONO HKD
24,487
15
4.00
HKD
09/05/2012
09/05/2027
BONO HKD
54,374
15
4.00
HKD
11/07/2012
09/09/2027
14,083
5
4.04
PEN
10/30/2012
10/30/2017
BONO PEN
Subtotal as of December 31, 2012
Short-term as of Bonds
Total as of December 31, 2012
691,380
516,428
1,207,808
201
Subordinated Bonds
Series
Mch$
term (years)
UCHI-G1111
13,191
25
3.75
UF
07/30/2012
07/30/2037
UCHI-G1111
1,099
25
3.75
UF
07/31/2012
07/31/2037
Currency
Issued date
Maturity date
UCHI-G1111
1,782
25
3.75
UF
08/31/2012
08/31/2037
UCHI-G1111
10,105
25
3.75
UF
12/28/2012
12/28/2037
Total
26,177
The Bank has not had breaches of capital and interest with respect to its debts
instruments and has complied with its debt covenants and other compromises related
to debt issued during periods 2013 and 2012.
23. Other Financial Obligations:
As of December 31, 2013 and 2012, other financial obligations are detailed as follows:
2013
Mch$
2012
Mch$
Other Chilean obligations
160,612
106,537
Public sector obligations
50,314
55,586
Other foreign obligations
Total
—
—
210,926
162,123
24. Provisions:
(a) As of December 31, 2013 and 2012, provisions and accrued expenses are detailed
as follows:
2013
Mch$
2012
Mch$
324,582
300,759
Provisions for Personnel benefits and payroll expenses
67,943
64,546
Provisions for contingent loan risks
49,277
36,585
107,757
97,757
1,770
3,107
569
2,083
551,898
504,837
Provisions for contingencies:
Additional loan provisions (*)
Country risk provisions
Other provisions for contingencies
Total
(*) In 2013, the Bank established an amount of Ch$10,000 million (Ch$2,271 million in 2012) for additional
provisions.
202
Interest rate
(b) The following table details the movements in provisions and accrued expenses
during the 2013 and 2012 periods:
Minimum
dividends
MCh$
Personnel
benefits and
payroll
MCh$
Contingent
loan Risks
MCh$
Additional loan
provisions
MCh$
Country risk
provisions
and other
contingencies
MCh$
Total
Mch$
Balances as of January 1, 2012
259,501
60,634
35,334
95,486
6,983
457,938
300,759
50,799
1,251
2,271
228
355,308
Provisions used
(259,501)
(46,813)
—
—
(223)
(306,537)
—
(74)
—
—
(1,798)
(1,872)
300,759
64,546
36,585
97,757
5,190
504,837
Balances as of January 1, 2013
300,759
64,546
36,585
97,757
5,190
504,837
324,582
52,903
12,692
10,000
230
400,407
Provisions used
(300,759)
(44,240)
—
—
(369)
(345,368)
—
(5,266)
—
—
(2,712)
(7,978)
324,582
67,943
49,277
107,757
2,339
551,898
Provisions released
Provisions released
(c) Provisions for personnel benefits and payroll:
2013
Mch$
2012
Mch$
Short-term personnel benefits
32,000
29,649
Vacation accrual
21,895
20,842
Pension plan- defined benefit plan
10,696
10,633
Other benefits
Total
3,352
3,422
67,943
64,546
(d) Pension plan – Defined benefit plan:
(i) Movement in the defined benefit obligations are as follow:
2013
Mch$
2012
Mch$
10,633
8,511
Increase in provisions
793
808
Benefit paid
(896)
(864)
Prepayments
—
(22)
Opening defined benefit obligation
Effect of change in actuarial factors
Total
166
2,200
10,696
10,633
203
(ii) Net benefits expenses:
(h) Contingent loan provisions:
2013
Mch$
2012
Mch$
Current service cost
288
340
Interest cost of benefits obligations
505
468
Effect of change in actuarial factors
166
2,200
Net benefit expenses
959
3,008
As of December 31, 2013 and 2012, the Bank and its subsidiaries maintain
contingent loan provisions by an amount of Ch$ 49,277 million (Ch$36,585 million
in 2012). See note No. 26 (d).
25. Other Liabilities:
As of December 31, 2013 and 2012, other liabilities are detailed as follows:
2013
Mch$
(iii) Assumptions used to determine pension obligations:
December 31, 2013
%
100,081
111,358
Unearned income
4,592
5,357
Dividends payable
1,145
883
Accounts and notes payable (*)
The principal assumptions used in determining pension obligations for the
Bank’s plan are shown below:
December 31, 2012
%
2012
Mch$
Other liabilities
Discount rate
5.19
5.50
Documents intermediated (**)
108,380
132,651
Annual salary increase
5.19
5.08
Cobranding
32,085
23,066
99.99
99.99
VAT debit
13,158
11,689
Leasing deferred gains
4,207
5,900
Pending transactions
1,144
5,080
Payment probability
The most recent actuarial valuation of the present value of the benefit plan
obligation was carried out at December 31, 2013.
Insurance payments
(e) Movements in provisions for incentive plans:
Balances as of January 1,
Others
2013
Mch$
2012
Mch$
29,649
28,827
32,456
28,406
Provisions used
(27,069)
(27,584)
Provisions release
(3,036)
—
Total
32,000
29,649
Total
476
135
2,837
4,947
268,105
301,066
(*) Include obligations that do not correspond to transactions in the line of business, such as withholding tax,
pension and healthcare contributions, insurance payable, balances of prices for the purchase of materials and
provisions for expenses pending payment.
(**) This item mainly includes financing of simultaneous operations performed by subsidiary Banchile Corredores
de Bolsa S.A.
26. Contingencies and Commitments:
(a) Commitments and responsibilities accounted for in off-balance-sheet accounts:
(f) Movements in provisions for vacations:
Balances as of January 1,
2013
Mch$
2012
Mch$
20,842
20,361
5,410
5,655
Provisions used
(4,181)
(4,363)
(176)
(811)
21,895
20,842
Provisions release
Total
(g) Employee share-based benefits provision:
As of December 31, 2013 and 2012, the Bank and its subsidiaries do not have a
stock compensation plan.
204
In order to satisfy its customers’ needs, the Bank entered into several irrevocable
commitments and contingent obligations. Although these obligations are not
recognized in the Statement of Financial Position, they entail credit risks and,
therefore, form part of the Bank’s overall risk.
The Bank and its subsidiaries record the following balances related to such
commitments and responsibilities, which fall within its line of business, in offbalance-sheet accounts:
2013
Mch$
2012
Mch$
Confirmed foreign letters of credit
491,465
323,924
68,631
85,272
166,849
138,714
Bank guarantees
1,402,399
1,437,312
Immediately available credit lines
5,436,938
5,481,235
—
122,997
Issued foreign letters of credit
Other commitments
Transactions on behalf of third parties
357,672
386,006
1,311
12,144
—
—
44,839
22,802
—
—
Securities held in safe custody in the Bank
7,342,425
6,237,859
Securities held in safe custody in other entities
4,501,555
4,483,567
Collections
Third-party resources managed by the Bank:
Financial assets managed on behalf of third parties
Other assets managed on behalf of third parties
Financial assets acquired on its own behalf
Other assets acquired on its own behalf
Fiduciary activities
Total
2014
Mch$
Legal contingencies
30
2015
Mch$
5
2016
Mch$
2017
Mch$
2018
Mch$
Total
Mch$
72
149
83
339
(b.2) Contingencies for significant lawsuits:
Contingent loans
Guarantees and surety bonds
As of December 31, 2013 and 2012, it does not exist any significant demands
in courts that they affect or could affect the current consolidated financial
statements.
(c) Guarantees granted:
i. In subsidiary Banchile Administradora General de Fondos S.A.:
In compliance with article 226 and subsequent articles of Law 18,045,
Banchile Administradora General de Fondos S.A., has designated Banco
de Chile as the representative of the beneficiaries of the guarantees it has
established and in that character the Bank has issued bank guarantees totaling
UF 2,515,500, maturing January 9, 2014 (UF 2,442,000 maturing January 4,
2013 in December 2012).
For Mutual Funds that have not begin its operations as of December 31, 2013,
it has constituted bank guarantees, which corresponds to Mutual Fund Booster
Brasil 2014 by UF10,000 and Mutual Fund Deposito Plus V – Guaranteed by
UF10,000.
In addition there are other guarantees for a guaranteed return on certain mutual
funds, totaling Ch$75,474 million as of December 31, 2013 (Ch$118,734
million in 2012).
19,814,084 18,731,832
Above information only includes the most significant balances.
(b) Lawsuits and legal proceedings:
(b.1) Legal contingencies within the ordinary course of business:
In the ordinary course of business, the Bank and its subsidiaries act as
defendant or co-defendant in various litigation matters. Although there can
be no assurances, the Bank’s management believes, based on information
currently available, that the ultimate resolution of these legal proceedings
are not likely to have a material adverse effect on its results of operations,
financial position, or liquidity. As of December 31, 2013, the Bank has
established provisions for this concept in the amount of MCh$339 (MCh$474
in 2012), recorded within “Provisions” in the statement of financial position.
The following table presents estimated date of completion of the respective
litigation:
205
Fund
2013
Mch$
Guarantees
Number
Mutual Fund Deposito Plus IV – Guaranted
16,325
006392-7
—
—
Mutual Fund Deposito Plus – Guaranted
14,241
330681-1
14,958
004713-3
Mutual Fund Deposito Plus III – Guaranted
12,937
006033-5
—
—
Mutual Fund Depósito Plus II – Guaranted
9,308
006037-7
12,552
005272-2
Mutual Fund Small Cap USA – Guaranted
5,197
008212-5
—
—
Mutual Fund Chile Bursátil – Guaranted
5,050
006034-3
—
—
Mutual Fund Twin Win Europa 103 – Guaranted
3,537
006035-1
3,541
004712-5
Mutual Fund Global Stocks – Guranted
2,964
007385-9
—
—
Mutual Fund Second Best Chile EEUU – Guaranted
2,207
006032-7
2,207
004820-2
Mutual Fund Europa Accionario – Guaranted
2,059
006036-9
2,069
004716-7
Mutual Fund Second Best Europa China – Guaranted
1,649
007082-7
—
—
Mutual Fund Banca Americana Voltarget – Guaranted
—
—
11,878
336723-1
Mutual Fund Estrategia Commodities – Guaranted
—
—
6,302
336721-5
Mutual Fund Muralla China – Guaranted
—
—
17,795
336716-8
Mutual Fund Potencias Consolidadas – Guaranted
—
—
30,381
336718-4
Mutual Fund Ahorro Plus I – Guaranted
—
—
730
336720-7
Mutual Fund Ahorro Estable II – Guaranted
—
—
11,270
336722-3
Mutual Fund Ahorro Estable III – Guaranted
—
—
5,051
336717-6
Total
In compliance to stablished by the Superintendence of Securities and Insurance
in letter f) of Circular 1,894 of September 24, 2008, the entity has constituted
guarantees, by management portfolio, in benefit of investor. Such guarantee
corresponds to a bank guarantee for UF100,000, with maturity on January
9, 2014.
ii. In subsidiary Banchile Corredores de Bolsa S.A.:
For the purposes of ensuring correct and complete compliance with all of its
obligations as broker-dealer entity, in conformity with the provisions of article 30
and subsequent articles of Law 18,045 on Securities Markets, the subsidiary
established a guarantee in an insurance policy for UF 20,000, insured by Cía.
de Seguros de Crédito Continental S.A., that matures April 22, 2014, whereby
the Securities Exchange of the Santiago Stock Exchange was appointed as the
subsidiary’s creditor representative.
75,474
2012
Mch$
Guarantees
Number
118,734
Guarantees
2013
Mch$
2012
Mch$
Shares to secure short-sale transactions in:
Securities Exchange of the Santiago Stock
Exchange
16,946
69
Securities Exchange of the Electronic Stock
Exchange of Chile
10,644
33,693
2,995
3,068
68
47
30,653
36,877
Fixed income securities to ensure system CCLV,
Bolsa de Comercio de Santiago, Bolsa de Valores
Fixed income securities to ensure stock loan,
Bolsa Eléctronica de Chile, Bolsa de Valores
Total
According to the provisions of internal stock market regulations, and for the
purpose of securing the broker’s correct performance, the company established
a pledge on its share of the Santiago Stock Exchange in favor of that institution,
as recorded in Public Deed on September 13, 1990, signed before Santiago
public notary Mr. Raúl Perry Pefaur, and on its share in the Electronic Stock
Exchange of Chile in favor of that institution, as recorded in a contract entered
into by both parties on May 16, 1990.
Banchile Corredores de Bolsa S.A. keeps an insurance policy current with
Chartis Chile – Compañía de Seguros Generales S.A. that expires January
2, 2013, and that covers employee fidelity, physical losses, falsification
or adulteration, and currency fraud with a coverage amount equivalent to
206
US$ 10,000,000. This secure was renewed on January 2, 2013 with maturity
of January 2, 2014 for the same amount with “AIG Chile Compañía de Seguros
Generales S.A.”
According to disposition of Chilean Central Bank, it was constituted a bank
guarantee corresponding to UF10,500, with purposes to comply with the
contract SOMA (Contract for Service System Open Market Operations) of
Chilean Central Bank. This bank guarantee is revaluated in UF to fixed term, not
endorsable with maturity of July 17, 2014.
It was constituted a bank guarantee No. 373148-0 corresponds to UF272,000,
in benefits of investors with contracts of portfolio management. This bank
guarantee is revaluated in UF to fixed term, not endorsable with maturity of
January 9, 2014.
It was constituted a cash guarantee for an amount of US$122,494.32, whose
purpose is to comply obligations with Pershing, by operations made through
this broker.
iii. In subsidiary Banchile Corredores de Seguros Ltda.
According to established in article No. 58, letter D of D.F.L. 251, as of
December 31, 2013, the entity maintains two insurance policies that protect
it in the face of possible damages that it could affect it, due to infractions of
the law, regulations and complementary rules that regulate insurance brokers,
and specially when the non-compliance is from acts, mistakes or omissions
of the brokers, its represents, agent or dependent that participate in the
intermediation.
The policies contracted are the following:
Matter insured
Amount Insured (UF)
60,000
Responsibility for errors and omissions policy
500
Civil responsibility policy
(d) Provisions for contingencies loans:
Established provisions for credit risk from contingencies operations are the
followings:
2013
Mch$
2012
Mch$
Credit lines
31,664
22,661
Bank guarantees
13,915
11,407
3,135
2,064
563
434
Guarantees and surety bonds
Letters of credit
Other commitments
Total
—
19
49,277
36,585
207
27. Equity:
(a)Capital
(i) Authorized, subscribed and paid shares:
As of December 31, 2013, the paid-in capital of Banco de Chile is represented
by 93,175,043,991 registered shares (89,898,992,667 in 2012), with no par
value, fully paid and distributed.
Corporate Name or Shareholders’s name
% of Equity Holding
30,353,093,809
32.58%
Sociedad Administradora de la Obligacion Subordinada SAOS S.A.
28,593,701,789
30.69%
12,138,543,602
13.03%
Banco de Chile on behalf others Chapter. XIV Resolution 5412 and 43
2,885,367,588
3.10%
Banco Itau Chile (on behalf foreign investors)
2,075,139,427
2.23%
Ever 1 BAE S. P. A.
2,051,718,312
2.20%
Ever Chile S. P. A.
2,051,718,254
2.20%
1,896,640,358
2.04%
Inversiones Aspen Ltda.
1,420,073,692
1.52%
Banco Santander (on behalf foreign investors)
1,143,062,776
1.23%
J. P. Morgan Chase Bank
890,459,393
0.96%
Inversiones Avenida Borgoño Limitada
458,199,794
0.49%
BTG Pactual Chile S. A. Corredores de Bolsa
421,597,879
0.45%
Larraín Vial S.A. Corredora de Bolsa
416,208,843
0.45%
BCI Corredor de Bolsa S.A.
276,974,257
0.30%
Santander S.A. Corredores de Bolsa
238,526,596
0.26%
A F P Provida S.A. for Pension Fund
236,030,921
0.25%
Inversiones CDP Limitada
206,235,748
0.22%
A F P Cuprum S.A. for Pension Fund
177,464,400
0.19%
Inversiones LQ-SM Limitada
154,270,484
0.17%
88,085,027,922
94.56%
5,090,016,069
5.44%
93,175,043,991
100.00%
Subtotal
Other shareholders
Total
208
Number of Shares
Corporate Name or Shareholders’s name
Subscribed and
and paid Chile
Subscribed and
and paid Chile -T
Number
of Shares
% of Equity
Holding
28,241,222,862
1,519,715,819
29,760,938,681
33.10
Sociedad Administradora de la Obligación Subordinada SAOS S.A.
28,593,701,789
—
28,593,701,789
31.81
12,138,537,826
—
12,138,537,826
13.50
Ever 1 BAE S. P. A.
1,926,331,458
—
1,926,331,458
2.14
Ever Chile S. P. A.
1,926,331,453
—
1,926,331,453
2.14
Banco de Chile on behalf others Chapter. XIV Resolution 5412 and 43
1,917,824,777
—
1,917,824,777
2.13
1,634,542,641
55,731,549
1,690,274,190
1.88
Banco Itau Chile (on behalf foreign investors)
1,335,644,830
11,527,535
1,347,172,365
1.50
Inversiones Aspen Ltda.
1,333,288,591
—
1,333,288,591
1.48
J. P. Morgan Chase Bank
746,580,394
—
746,580,394
0.83
Banco Santander (on behalf foreign investors)
708,503,705
—
708,503,705
0.79
Inversiones Avenida Borgoño Limitada
495,315,368
30,675,913
525,991,281
0.59
Celfin Capital S.A. Corredores de Bolsa
499,986,263
13,917,749
513,904,012
0.57
Larraín Vial S.A. Corredora de Bolsa
325,708,628
12,306,250
338,014,878
0.38
Santander S.A. Corredores de Bolsa
326,666,567
4,433,433
331,100,000
0.37
BCI Corredor de Bolsa S.A.
280,512,369
12,782,432
293,294,801
0.33
A F P Provida S.A. for Pension Fund
287,285,362
—
287,285,362
0.32
BICE Inversiones Corredores de Bolsa S.A.
144,438,155
7,563,024
152,001,179
0.17
Valores Security S.A. Corredores de Bolsa
141,080,250
3,916,384
144,996,634
0.16
Inversiones y Asesorias Fabiola S.A.
135,681,958
6,080,951
141,762,909
0.16
83,139,185,246
1,678,651,039
84,817,836,285
94.35
4,898,628,265
182,528,117
5,081,156,382
5.65
88,037,813,511
1,861,179,156
89,898,992,667
100.00
Subtotal
Other shareholders
Total
(ii)Shares:
(ii.1) On May 13, 2013, Banco de Chile informed of the capitalization of 30%
of the distributable net income obtained during the fiscal year ending
December 31, 2012, through the issuance of fully paid-in shares, of
no par value, agreed in the Extraordinary Shareholders Meeting held on
March 21, 2013, which are as follows:
In the said Extraordinary Shareholders Meeting, it was agreed to increase
the Bank´s capital in the amount of Ch$86,201,422,505 through the
issuance of 1,197,741,038 fully paid-in shares, of no par value, payable
under the distributable net income for the year 2012 that was not
distributed as dividends as agreed at the Ordinary Shareholders Meeting
held on the same day.
The issuance of fully in paid shares was registered in the Securities
Register of the Superintendence of Banks and Financial Institutions with
No. 2/2013, on May 10, 2013.
The Board of Directors of Banco de Chile, at the meeting No. 2,775,
dated May 9, 2013, set May 30, 2013, as the date for issuance and
distribution of the fully paid in shares
(ii.2)During the period 2013, it was finished subscription and payment
of 2,078,310,286 shares by an amount of Ch$134,071 million,
corresponding to the capital increase agreed in Extraordinary
Shareholders Meeting held on October 17, 2012.
209
(ii.3)The following table shows the share movements from December 31, 2011 to
December 31, 2013:
Ordinary
shares
86,942,514,973
Capitalization of retained earnings (**)
1,095,298,538
—
1,095,298,538
—
1,861,179,156
1,861,179,156
88,037,813,511
1,861,179,156
89,898,992,667
—
2,078,310,286
2,078,310,286
Conversion of “Banco de Chile- T” shares into “Banco de Chile” shares(***)
3,939,489,442
(3,939,489,442)
—
Capitalization of retained earnings(****)
1,197,741,038
—
1,197,741,038
Total Shares as of December 31, 2013
93,175,043,991
—
93,175,043,991
Total shares subscribed and fully paid as of December 31, 2012
Shares subscribed and paid period 2013
(*) Capital increase as of October 17, 2012.
(**) Capitalization of March 22, 2012
(***) See note No. 5 (i) (d)
(****) Capitalization of May 13, 2013. See note No. 5 (i) (a)
(b) Distributable income:
For purposes of Law No. 19,396 (in particular Articles 24, 25 and 28 of such law)
and the Central Bank Contract, Banco de Chile’s distributable net income will be
determined by subtracting or adding to net income the correction of the value of
the paid in capital and reserves according to the variation of the Consumer Price
Index between November of the fiscal year prior to the one in which the calculation
is made and November of the fiscal year in which the calculation is made. The
difference between net income and distributable net income shall be registered
in a reserve account since the first day of the fiscal year following the date when
the calculation is made. This reserve account cannot be distributed or capitalized.
Provisional article four shall be in force until the obligation of Law No. 19,396 owed
by Sociedad Matriz del Banco de Chile S.A., directly or through its subsidiary SAOS
S.A., has been fully paid. The amount distributable income for the period 2013 was
by Ch$463,688 million (Ch$429,656 million in 2012).
The above described agreement was subject to the consideration of the Council of
the Central Bank of Chile, and such entity approved, in ordinary meeting that took
place on December 3, 2009, determined to resolve in favor regarding the proposal.
As stated, the retention of earnings for the year 2012 made in March 2013
amounted to Ch$36,193 million (Ch$58,092 millions of income for the year 2011
retained in March 2012).
(c) Approval and payment of dividends:
At the Ordinary Shareholders’ Meeting held on March 21, 2013, the Bank’s
shareholders agreed to distribute and pay dividend No. 201 amounting to
Ch$3.41625263165 per common share of Banco de Chile, with charge to net
income for the year ended December 31, 2012. The amount of dividend paid of the
period 2013 was Ch$343,455 million.
At the Ordinary Shareholders’ Meeting held on March 22, 2012, the Bank’s
shareholders agreed to distribute and pay dividend No. 200 amounting to
Ch$2.984740 per common share of Banco de Chile, with charge to net income
for the year ended December 31, 2011. The amount of dividend paid of the period
2012 was Ch$296,802 million.
—
Total
shares
Total shares as of December 31, 2011
Fully paid and subscribed shares
210
Ordinary T
Series shares (*)
86,942,514,973
(d) Provision for minimum dividends:
The Board of Directors established a minimum dividend distribution policy, where
the Bank has to record a provision of 70% of net income as described in Note 2
(v). Accordingly, the Bank recorded a liability under the line item “Provisions” for an
amount of MCh$324,582 (MCh$300,759 in 2012) against “Retained earnings”.
(e) Earnings per share:
(i) Basic earnings per share:
Basic earnings per share are determined by dividing the net income attributable
to the Bank shareholders in a period by the weighted average number of shares
outstanding during the period.
(ii) Diluted earnings per share:
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
account the potential diluting effect of stock options, warrants, and convertible
debt.
The basic and diluted earnings per share as of December 31, 2013 and 2012 are
shown in the following table, also shows the income and share data used in the
calculation of EPS:
2013
2012
Basic earnings per share:
Net profits attributable to ordinary equity holders of the bank (in millions)
Weighted average number of “Banco de Chile – T” (*)
Weighted average number of ordinary shares
Dividend per shares (in Chilean pesos) (**)
513,602
467,610
—
48,987,689
92,991,448,281
88,100,830,689
5.52
5.30
513,602
467,610
Diluted earnings per share:
Net profits attributable to ordinary equity holders of the bank (in millions)
Weighted average number of “Banco de Chile – T” (*)
Weighted average number of ordinary shares
Assumed conversion of convertible debt
Adjusted number of shares
Diluted earnings per share (in Chilean pesos) (**)
—
48,987,689
92,991,448,281
88,100,830,689
—
—
92,991,448,281
88,149,818,378
5.52
5.30
(*) “Banco de Chile – T” shares had same rights of other shares of Banco de Chile, with the exception that
they did not allow its shareholders to receive dividends and/or fully paid-in shares respect income
of 2012.
(**) Capitalization of retained earnings is considered in the calculation of earnings per share.
As of December 31, 2013 and 2012, the Bank did not have any instruments that
could lead to a dilution of its ordinary shares.
211
(f) Other comprehensive income:
The cumulative translation adjustment is generated from the Bank’s translation of
its investments in foreign companies, as it records the effects of foreign currency
translation for these items in equity. During period of 2013 it was made a credit
to equity for an amount of Ch$71 million (charge to equity for Ch$58 millions in
2012).
The fair market value adjustment for available-for-sale instruments is generated by
fluctuations in the fair value of that portfolio, with a charge or credit to equity, net of
deferred taxes. During the period of 2013 it was made a net credit to equity for an
amount of Ch$11,377 million (net credit to equity for Ch$19,639 millions in 2012).
Cash flow hedge adjustment it consists in the portion of income of hedge
instruments registered in equity produced in a cash flow hedge. During the period
of 2013 it was made a charge to equity for an amount of Ch$14,455 million (credit
to equity for Ch$1,429 millions for the period 2012).
28. Interest Revenue and Expenses:
(a) On the financial statement closing date, the composition of income from interest
and adjustments, not including income from hedge accounting, is as follows:
2013
Interest
MCh$
Commercial loans
Adjustment
MCh$
735,513
2012
Prepayment
fees
MCh$
93,758
2,631
Total
Mch$
831,902
Interest
MCh$
691,745
Adjustment
MCh$
Prepayment
fees
MCh$
95,691
1,967
Total
Mch$
789,403
Consumer loans
558,365
1,283
8,339
567,987
514,599
1,063
7,245
522,907
193,135
92,036
3,719
288,890
168,937
93,775
3,913
266,625
66,135
18,698
—
84,833
60,791
15,546
—
76,337
Financial investment
Other interest revenue
Total
1,645
1
—
1,646
2,786
—
—
2,786
15,728
—
—
15,728
12,993
—
—
12,993
265
1,386
—
1,651
143
1,569
—
1,712
1,570,786
207,162
14,689
1,792,637
1,451,994
207,644
13,125
1,672,763
The amount of interest revenue recognized on a received basis for impaired
portfolio in 2013 by Ch$8,734 million (Ch$9,038 million in 2012).
(b) At the period end, the detail of income from suspended interest is as follows:
2013
Interest
MCh$
2012
Total
Mch$
Interest
MCh$
Adjustment
MCh$
Total
Mch$
Commercial loans
8,899
751
9,650
6,185
1,961
8,146
1,342
744
2,086
1,380
772
2,152
Consumer loans
Total
212
Adjustment
MCh$
275
—
275
269
—
269
10,516
1,495
12,011
7,834
2,733
10,567
(c) As of each year end, interest and adjustment expenses (not including hedge gain)
are detailed as follows:
2013
2012
Interest
MCh$
Adjustment
MCh$
Total
Mch$
Interest
MCh$
Adjustment
MCh$
Total
Mch$
439,553
43,047
482,600
441,256
55,729
496,985
Debt issued
134,585
64,745
199,330
109,742
60,480
170,222
1,977
837
2,814
2,117
961
3,078
13,149
—
13,149
14,976
10
14,986
13,791
—
13,791
22,308
—
22,308
168
2,985
3,153
76
3,870
3,946
Demand deposits
—
99
99
15
92
107
603,223
111,713
714,936
590,490
121,142
711,632
Income (loss)
MCh$
Expenses
MCh$
Other interest expenses
Total
(d) As of December 31, 2013 and 2012, the Bank uses interest rate swaps to hedge
its position on the fair value of corporate bonds and commercial loans through
micro-hedging.
2013
2012
Income (loss)
MCh$
Expenses
MCh$
Total
Mch$
Gain from accounting hedges
20,804
14,015
34,819
3,632
3,003
6,635
Loss from accounting hedges
(42,249)
(3,450)
(45,699)
(12,637)
—
(12,637)
(7,652)
—
(7,652)
(2,291)
—
(2,291)
(29,097)
10,565
(18,532)
(11,296)
3,003
(8,293)
Net gain on hedged items
Total
Total
Mch$
(e) At the end of the period the summary of interest and expenses is as follows:
2013
Mch$
Interest revenue
Interest expenses
Subtotal
Income accounting hedges (net)
Total interest revenue and expenses, net
2012
Mch$
1,792,637
1,672,763
(714,936)
(711,632)
1,077,701
961,131
(18,532)
(8,293)
1,059,169
952,838
213
29. Income and Expenses from Fees and Commissions:
30. Net Financial Operating Income:
The income and expenses for fees and commissions shown in the Consolidated
Statements of Comprehensive Income refer to the following items:
The gain (losses) from trading and brokerage activities is detailed as follows:
2013
Mch$
2012
Mch$
Income from fees and commission
108,851
104,007
Collections and payments
64,135
60,341
Investments in mutual funds and other
54,833
56,043
Portfolio management(**)
35,920
31,446
Lines of credit and overdrafts
22,206
22,892
Fees for insurance transactions
18,840
17,404
Guarantees and letters of credit
17,611
14,454
Trading and securities management
17,526
16,892
Use of distribution channel
14,705
15,942
Use Banchile’s brand
12,551
12,356
4,054
3,955
15,501
17,035
386,733
372,767
Card services(*)
Financial advisory services
Other fees earned(**)
Total income from fees and commissions
Expenses from fees and commissions
Credit card transactions(***)
(75,083)
(62,020)
Sales force fees
(11,815)
(10,098)
Fees for collections and payments
(6,658)
(6,534)
Fees for securities transactions
(3,103)
(2,994)
Sale of mutual fund units
(2,318)
(2,488)
(662)
(1,361)
(99,639)
(85,495)
Other fees
Total expenses from fees and commissions
(*) During 2013 it was reclassified fees related to income from card services from “Other fees earned” to “Card
services”. Reclassified amount in the period 2012 was Ch$1,600 millions.
(**) During 2013 it was reclassified fees related to income from portfolio management from “Other fees earned” to
“Portfolio management”. Reclassified amount in the period 2012 was Ch$4,129 millions.
(***) See Note 2 (ae) about Reclassifications
214
2013
Mch$
2012
Mch$
25,434
18,798
Sale of available-for-sale instruments
14,881
8,088
314
146
Sale of loan portfolios
(1,089)
2,567
(28,456)
(4,852)
Total
11,084
24,747
2013
Mch$
2012
Mch$
Net loss on other transactions
31. Foreign Exchange Transactions, net:
Net foreign exchange transactions are detailed as follows:
65,802
(196)
7,451
(9,404)
Indexed foreign currency
(1,796)
44,736
Total
71,457
35,136
(Loss) gain from accounting hedges
(Loss) gain on translation difference, net
32. Provisions for Loan Losses:
The movement of the results during 2013 and 2012, by concept of provisions, is
summarized as follows:
loans to customers
Loans and
advances
to banks
2013
MM$
Mortgage
loans
Commercial
loans
2012
MM$
2013
MM$
2012
MM$
2013
MM$
Consumer
loans
2012
MM$
2013
MM$
Contingent
loans
Subtotal
2012
MM$
2013
MM$
2012
MM$
2013
MM$
Total
2012
MM$
2013
MM$
2012
MM$
Provisions established:
Individual provisions
Group provisions
Provisions established, net
(333)
—
(39,165)
(13,668)
—
—
—
—
(39,165)
(13,668)
(3,955)
(1,029)
(43,453)
(14,697)
—
—
(49,808)
(46,807)
(5,665)
(4,428)
(167,496)
(160,775)
(222,969)
(212,010)
(8,737)
(222)
(231,706)
(212,232)
(333)
—
(88,973)
(60,475)
(5,665)
(4,428)
(167,496)
(160,775)
(262,134)
(225,678)
(12,692)
(1,251)
(275,159)
(226,929)
Provisions released:
Individual provisions
—
47
—
—
—
—
—
—
—
—
—
—
—
47
Group provisions
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Provisions released, net
Provision, net
—
47
—
—
—
—
—
—
—
—
—
—
—
47
(333)
47
(88,973)
(60,475)
(5,665)
(4,428)
(167,496)
(160,775)
(262,134)
(225,678)
(12,692)
(1,251)
(275,159)
(226,882)
Additional provision
—
—
(10,000)
(2,271)
—
—
—
—
(10,000)
(2,271)
—
—
(10,000)
(2,271)
Recovery of written-off assets
—
—
13,921
14,893
1,927
1,971
27,698
24,099
43,546
40,963
—
—
43,546
40,963
(333)
47
(85,052)
(47,853)
(3,738)
(2,457)
(139,798)
(136,676)
(228,588)
(186,986)
(12,692)
(1,251)
(241,613)
(188,190)
Provisions, net allowances for credit risk
According to the Administration, the provisions constituted by credit risk, covers
probable losses that could arise from the non-recovery of assets.
33. Personnel Expenses:
Personnel expenses in 2013 and 2012 are detailed as follows:
2013
Mch$
2012
Mch$
192,182
185,479
Bonuses
76,285
71,674
Lunch and health benefits
22,631
21,954
Staff severance indemnities
10,523
10,408
2,877
1,671
18,738
18,679
323,236
309,865
Remuneration
Training expenses
Other personnel expenses
Total
215
34. Administrative Expenses:
35. Depreciation, Amortization and Impairment:
As of December 31, 2013 and 2012, administrative expenses are detailed as follows:
(a) Amounts charged to income for depreciation and amortization during the 2013 and
2012 periods are detailed as follows:
2013
Mch$
2012
Mch$
Information Technology and communications
50,465
48,670
Maintenance and repair of property and equipment
28,067
29,332
Office rental
20,176
19,589
Depreciation of property and equipment
(Note No.16a)
Securities and valuables transport services
9,741
9,217
Amortization of intangibles assets (Note No.15b)
Office supplies
8,375
6,346
Total
Rent ATM area
7,496
7,283
External advisory services
6,843
7,601
Lighting, heating and other utilities
4,394
4,733
Representation and transferring of personnel
4,359
3,611
Legal and notary
3,781
3,291
Insurance premiums
3,121
2,897
P.O box, mail and postage
2,892
2,739
Impairment loss on investment instruments
—
551
Donations
1,929
2,029
Home delivery products
1,430
1,648
Impairment loss on property and equipment
(Note No.16a)
757
348
Equipment rental
1,204
1,164
Impairment loss on intangibles assets(*)
1,490
—
Collection service
1,012
880
Total
2,247
899
592
776
—
40
General administrative expenses
Fees for professional services
SBIF fines
Other general administrative expenses
Subtotal
8,351
8,871
164,228
160,717
Outsources services
23,471
21,316
Data processing
7,159
7,646
Expenditure on external technological developments
6,430
6,196
Certification and testing technology
4,314
4,342
Other
2,743
2,515
44,117
42,015
2,110
2,042
Credit pre-evaluation services
Subtotal
Board expenses
Board remunerations
479
614
2,589
2,656
Advertising
29,053
30,572
Subtotal
29,053
30,572
Contribution to the Superintendency of Banks
6,949
6,434
Real estate contributions
3,101
2,672
Patents
1,675
1,379
Other board expenses
Subtotal
Marketing expenses
Taxes, payroll taxes and contributions
Other taxes
Subtotal
Total
216
789
1,014
12,514
11,499
252,501
247,459
2013
Mch$
2012
Mch$
19,280
20,614
9,629
10,343
28,909
30,957
(b) As of December 31, 2013 and 2012, the impairment loss is detailed as follows:
2013
Mch$
2012
Mch$
Impairment loss
(*) As of December 31, 2013, it is recognised impairment by an amount of $1,462 million that at the end of
this period it has been not applied.
36. Other Operating Income:
37. Other Operating Expenses:
During 2013 and 2012, the Bank and its subsidiaries present the following under other
operating income:
During 2013 and 2012, the Bank and its subsidiaries incurred the following other
operating expenses:
2013
Mch$
2012
Mch$
Income for assets received in lieu of payment
Income from sale of assets received in lieu of
payment
Other income
Subtotal
6,126
5,674
113
8
6,239
5,682
1,336
1,174
—
—
1,376
624
2,712
1,798
Other income
Rental income
7,440
6,007
Recovery from external branches
2,264
2,379
Expense recovery
2,044
2,782
Sale of recoveries charge-off leased assets
1,626
113
934
315
Monthly prepaid taxes revaluation
Indemnities received
901
—
Income from differences sale leased assets
614
135
Gain on sale of property and equipment
224
325
Fiduciary and trustee commissions
201
466
Refund of insurance
40
18
Foreign trade income
27
51
17
275
Others
1,938
1,715
Subtotal
18,270
14,581
27,221
22,061
Income tax management
Total
1,891
2,600
502
622
51
100
2,444
3,322
—
—
Special provisions for foreign loans
—
—
582
1,109
Subtotal
582
1,109
Provisions and write-off other assets
4,745
6,333
Write-offs for operating risks
4,145
9,526
Card administration
Charge-off assets received in lieu of payment
Expenses to maintain assets received in lieu
of payment
Provisions for assets received in lieu of payment
Special provisions for foreign loans
Subtotal
2012
Mch$
Provisions and expenses for assets received in
lieu of payment
Release of provisions for contingencies
2013
Mch$
Subtotal
Provisions for contingencies
Other expenses
1,106
1,113
Provision for recovery of leased assets
852
227
Mortgage life insurance
432
309
Contributions to government organizations
218
225
Civil judgments
209
224
5
7
Losses on sale of property and equipment
Others
1,313
59
Subtotal
13,025
18,023
16,051
22,454
Total
217
38. Related Party Transactions:
The related parties of companies and their subsidiaries include entities of the
company’s corporate group; corporations which are the company’s parent company,
associated companies, subsidiaries, associates; directors, managers, administrators,
main executives or receivers of the company on their own behalf or in representation
of persons other than the company, and their respective spouses or family members
up to the second degree of consanguinity or affinity, as well as any entity directly
or indirectly controlled through any of them, the partnerships or companies in which
the aforementioned persons are owners, directly or through other individuals or
corporations, of 10% or more of their capital or directors, managers, administrators or
main executives; any person that on their own or with others with whom they have a joint
action agreement can designate at least one member of the company’s management
or controls 10% or more of the capital or of the voting capital, if dealing with a public
corporation; those that establish the company’s bylaws, or with a sound basis identify
the directors’ committee; and those who have held the position of director, manager,
administrator, main executive or receiver within the last eighteen months.
Corporations Art. 147, states that a public corporation can only enter into transactions
with related parties when the objective is to contribute to the company’s interests,
when terms of price, terms and conditions are commensurate to those prevailing in the
market at the time of their approval and comply with the requirements and procedures
stated in the same standard.
Moreover, article 84 of the General Banking Law establishes limits for loans granted
to related parties and prohibits the granting of loans to the Bank’s directors, managers
and general representatives.
218
(a) Loans to related parties:
The following table details loans and accounts receivable, contingent loans and
assets related to trading and investment securities, corresponding to related
entities.
Production
Companies (*)
Investment
Companies (**)
2013
Mch$
2012
Mch$
287,500
—
Individuals (***)
2013
Mch$
2012
Mch$
2013
Mch$
250,983
70,004
63,576
1,199
—
—
—
16,911
Total
2012
Mch$
2013
Mch$
2012
Mch$
704
358,703
315,263
14,974
16,911
14,974
Loans and accounts receivable:
Commercial loans
Consumer loans
Gross loans
—
—
—
—
3,790
3,920
3,790
3,920
287,500
250,983
70,004
63,576
21,900
19,598
379,404
334,157
(929)
(761)
(152)
(136)
(52)
(68)
(1,133)
(965)
286,571
250,222
69,852
63,440
21,848
19,530
378,271
333,192
Guarantees
1,109
1,864
—
—
—
—
1,109
1,864
Letters of credits
3,390
280
—
—
—
—
3,390
280
Banks guarantees
23,172
24,361
1,599
2,374
—
—
24,771
26,735
Immediately available credit lines
58,023
46,179
9,519
4,532
10,165
9,320
77,707
60,031
Total off balance sheet account
85,694
72,684
11,118
6,906
10,165
9,320
106,977
88,910
(34)
(44)
(1)
(1)
—
—
(35)
(45)
85,660
72,640
11,117
6,905
10,165
9,320
106,942
88,865
27,122
31,034
55
55
14,476
15,325
41,653
46,414
Warrant
—
—
—
—
—
—
—
—
Pledge
13
13
—
—
7
7
20
20
2,849
2,842
17,300
17,300
10
10
20,159
20,152
29,984
33,889
17,355
17,355
14,493
15,342
61,832
66,586
Provision for loan losses
Net loans
Off balance sheet accounts
Provision for contingencies loans
Off balance sheet account, net
Amount covered by Collateral
Mortgage
Other (****)
Total collateral
Acquired Instruments
For trading purposes
For investment purposes
Total acquired instruments
1,078
—
—
—
—
—
1,078
—
—
—
—
—
—
—
—
—
1,078
—
—
—
—
—
1,078
—
(*) Production companies are legal entities which comply with the following conditions:
i) They engage in productive activities and generate a separable flow of income,
ii) Less than 50% of their assets are trading securities or investments.
(**) Investment companies include those legal entities that do not comply with the conditions for production
companies and are profit-oriented.
(***)Individuals include key members of the management, who directly or indirectly posses the authority
and responsibility of planning, administrating and controlling the activities of the organization, including
directors. This category also includes their family members who are expected to have an influence or to
be influenced by such individuals in their interactions with the organization.
(****)These guarantees correspond mainly to shares and other financial guarantees
219
(b) Other assets and liabilities with related parties:
2013
Mch$
2012
Mch$
Assets
12,692
11,174
76,532
107,487
2,847
2,931
92,071
121,592
Demand deposits
123,223
87,480
233,172
378,965
Other assets
Total
Liabilities
Other liabilities
Total
85,694
83,582
192,682
134,820
23,836
9,044
658,607
693,891
(c) Income and expenses from related party transactions (*):
2013
Type of income or expense recognized
Expense
MCh$
Income
MCh$
Expense
MCh$
Interest and revenue expenses
21,280
15,917
18,759
21,501
Fees and commission income
61,560
35,897
56,717
33,337
130,344
177,692
188,990
152,819
Provision for credit risk
81
—
—
677
Operating expenses
—
66,313
—
64,213
Financial operating
Other income and expenses
Total
(*) This detail does not constitute an Income Statement for related party transactions since assets with these
parties are not necessarily equal to liabilities and each item reflects total income and expense and does not
correspond to exact transactions.
(d) Related party contracts:
There are no any contracts entered during 2013 and 2012 which does not
represent a customary transaction within the Bank’s line of business with general
customers and which accounts for amounts greater than UF 1,000.
220
Income
MCh$
2012
553
27
744
40
213,818
295,846
265,210
272,587
(e) Payments to key management personnel:
2013
Mch$
2012
Mch$
Remunerations
3,372
3,820
Short-term benefits
3,093
3,871
418
668
Stock−based benefits
—
—
Others
—
—
6,883
8,359
Contract termination indemnity
Total
Conformación del personal clave:
N° of executives
Position
2013
2012
1
CEO
1
6
8
Division Managers
12
12
Total
19
21
CEOs of subsidiaries
(f) Directors’ expenses and remunerations:
Remunerations
Name of Directors
2013
Mch$
2012
Mch$
Fees for attending
Board meetings
2013
Mch$
2012
Mch$
Fees for attending
Committees and
Subsidiary Board
meetings (1)
2013
Mch$
2012
Mch$
Consulting
2013
Mch$
2012
Mch$
Total
2013
Mch$
2012
Mch$
363 (*)
358 (*)
48
45
321
294
—
—
732
697
Andrónico Luksic Craig
149
147
13
8
—
—
—
—
162
155
Jorge Awad Mehech
50
49
24
23
113
110
—
—
187
182
50
49
20
21
110
112
—
—
180
182
50
49
23
23
97
92
—
—
170
164
50
49
21
17
60
50
—
—
131
116
50
49
23
23
52
49
—
—
125
121
Jorge Ergas Heyman
50
49
19
17
46
47
—
—
115
113
Thomas Fürst Freiwirth
50
49
20
18
39
37
—
—
109
104
Jean-Paul Luksic Fontbona
34
—
10
—
2
—
—
—
46
—
Guillermo Luksic Craig
12
49
—
4
—
—
—
—
12
53
Jacob Ergas Ergas
—
—
—
—
8
9
—
—
8
9
Other directors’ subsidiaries
—
—
—
—
149
165
—
—
149
165
908
897
221
199
997
965
—
—
2,126
2,061
Total
(1) Includes fees paid to members of the Advisory Committee of Banchile Corredores de Seguros Ltda. of
MCh$15 (MCh$19 in 2012).
(*) Includes a provision of MCh$214(MCh$210 in 2012) for an incentive subject to achieving the Bank’s
forecasted earnings.
Fees paid for advisory services to the Board of Directors amount to MCh$273
(MCh$266 in 2012).
Travel and other related expenses amount to MCh$190 (MCh$329 in 2012).
221
39. Fair Value of Financial Assets and Liabilities:
The bid/offer spread adjustment reflects the expected impact on fair value due
to close long or short positions in a specific market factor and term, valuated at
midpoint. For example, long positions in an asset will be impacted in order to reflect
the fact that in selling that position will be quoted at bid instead at midpoint. For the
bid/offer spread adjustment, market quotes or indicative prices for each position,
instrument, currency and term are used. Bid, mid and offer market quotes are
considered.
Banco de Chile and its subsidiaries have defined a corporate framework for the Fair
Value measurement and control to accomplish the Fair Value process according to
local regulations, market standards and best practices in the industry. This framework
is contained into the Banco de Chile’s Fair Value Policy.
One of the most important definition in this framework is the Product Control
Unit, hereinafter PCU, function. This area is independent from both the principal
management and the business unit, and reports to the CFO of Banco de Chile. This
area is responsible for the independent verification of Profit and Losses, and Fair Value
measurement and control for all Treasury transactions; Trading, Funding and gapping
and Investments deals.
To accomplish the measurements and controls, Banco de Chile and its subsidiaries,
take into account at least the following aspects:
The liquidity adjustment considers the relative size to the market of each position
in the portfolio. This adjustment is intended to reflect the relative size of Banco
de Chile and the deepness of the markets. For this adjustment, the size of each
position, recent transaction in active markets and recently observed liquidity are
taking into account.
(v) Fair value control
To ensure that the market input parameters that Banco de Chile is using for fair
value calculations represent the state of the market and the best estimate of fair
value, the PCU unit runs on a daily basis an independent verification of prices
and rates. This process aims to set a preventive control on the official market
parameters provided by the respective business area. A comparative control based
on Mark-to-Market differences, using one set of inputs prepared by the business
area and one set prepared by the PCU, is conducted before fair value calculations.
The output of this process is a set of differences in fair value by currency, product
and portfolio. These differences are compared with specific ranges by grouping
level; currency, product and portfolio.
In the event when significant differences were detected, these differences are
scaled according to the amount of materiality for each grouping level, from a single
report to the trader until a report to the Board. These ranges of materiality control
are approved by the Assets and Liabilities Committee (ALCO).
(i) Industry standards of fair value measurements
In the fair value calculation process, is used standard methodologies; closing
prices, discounted cash flows and option models, Black-Scholes model, in the
options case. The input parameters are rates, prices and volatility levels for each
term and market factor that can change the fair value of any instrument in the
portfolio.
(ii) Quoted prices in active markets
The fair value for instruments with quoted prices in active markets is determined
using daily quotes from electronic systems information as Bloomberg and Bolsa
de Comercio de Santiago terminals. This quote represents the price at which the
instrument is frequently buy and sell in financial markets.
The prices used for determine the fair value of each instrument corresponds to the
midpoint for a specific market factor, currency and term.
Complementary and in parallel, the PCU generates daily reports of P&L and
risk market exposure. These two kind of reports allows adequate control and
consistency of the parameters used in the valuation, looking backwards revision.
(iii) Valuation techniques
(vi) Judgmental analysis and information to Senior Management
If there is not market quotes in active markets for the financial instrument, valuation
techniques will be used to determine the fair value.
Due to the fact that fair value models requires a set of market parameters as inputs,
it is part of the fair value process to maximize the utilization based in observable
quoted prices or derived from similar instruments in active markets. Nevertheless
there are some cases for which neither quoted prices nor derived prices are
available; in these cases external data from specialized providers, brokers such as
ICAP, price for similar transactions and historical information it is used for validate
the parameters that will be used as inputs.
(iv) Fair value adjustments
Part of the fair value process consist in adjustment, Market Value Adjustments or
MVA for short, to take into account two different market facts; bid/offer spreads and
market factors liquidity. These adjustments are calculated and analyzed by the PCU
and Risk Market areas.
In particular no cases where there is no market quotations for the instrument,
similar transaction prices or indicative parameters, a reasoned analysis and
specific controls should be made to estimate the fair value of the operation or
transaction. Within the Banco de Chile’s framework for fair value, described in
the Fair Value Policy approved by the Board of Banco de Chile, the approval level
required for operate this kind of instruments, there is no market information or
cannot be inferred from prices or rates, is established.
(a) Fair value hierarchy
Banco de Chile and his subsidiaries, taken into account the preceding statements,
classify all the financial instruments among the following levels:
Level 1: Observable, quoted price in active markets for the same instrument or
specific type of transaction to be evaluated.
In this level are considered the following instruments: currency futures, Chilean
central bank and treasury securities, mutual funds investments and equity.
222
For the Chilean central bank and treasury securities, all instruments that
belong to one of the following benchmark groups will be considered as Level 1:
Pesos-02, Pesos-05, Pesos-07, Pesos-10, UF-02, UF-05, UF-07, UF-10, UF20, UF-30. A benchmark group is composed by a number of instruments that
have similar duration and share the same quoted price within the group. This
condition allows for a greater depth of the market, assuring daily observable
quotes.
For each and every one of these instruments exist daily observable market
valuation parameters; internal rates of return and closing prices, respectively,
therefore no assumptions are needed to calculate the fair value. For currency
futures as well as mutual funds and equity, closing prices times the number
of instruments is used for fair value calculations. For Chilean central bank and
treasury securities the internal rate of return is used to discount every cash flow
and obtain the fair value of each instrument, for each currency; CLP or CLF.
Instruments classified as level 3 correspond to Corporate Debt issued mainly
Chilean and foreign companies, issued both in Chile and abroad. These
instruments are classified, for accounting purposes, as Available for Sale.
For this securities classified as level 3, the indicative internal rate of return is
used to discount every cash flow and obtain the fair value of each instrument,
for each currency. In this case only external data from specialized providers,
brokers such as ICAP, Riskamerica and Interactive Data, it is used to for validate
the parameters that will be used as inputs.
For this level corresponds to the described technique used by both the Bolsa de
Comercio de Santiago de Chile as Bloomberg, and correspond to the standard
methodology used in the local and international market.
The preceding described methodology corresponds to the one utilized for the
Bolsa de Comercio de Santiago (Santiago’s main Exchange) and is recognized
as the standard in the market.
Level 2: No market quotes are available for the specific financial instrument,
or the observable prices are sporadic and therefore the market does not
have enough depth. For instruments in this level the valuation is done based
on inference from observable market parameters; quoted prices for similar
instruments in active markets.
This level is composed mostly by derivatives, currency and rate derivatives,
bank’s debt securities, mortgage claims, money market instruments and less
liquid Chilean central bank and treasury securities.
For derivatives the fair value process depend upon his value is impacted by
volatility as a relevant market factor; if is the case, Black-Scholes-Merton type
of formula it is used. For the rest of the derivatives, swaps and forwards, net
present value through discounted cash flows is used. For securities classified
as level 2, the obtained internal rate of return is used to discount every cash
flow and obtain the fair value of each instrument, for each currency.
In the event that there is no observable price for an instrument in a specific
term, the price will be inferred from the interpolation between periods that
do have observable quoted price in active markets. These models incorporate
various market variables, including foreign exchange rates and interest rate
curves. In some cases external data from specialized providers, brokers
such as ICAP and Riskamerica, price for similar transactions and historical
information it is used for validate the parameters that will be used as inputs.
The techniques described above are used by the Santiago Stock Exchange
in Chile, Bloomberg or the Over-the-Counter, and correspond to the standard
methodology used in the local and international markets.
Level 3: The input parameters used in the valuation of financial instruments
classified in this level, are not observable through market quotes in active
markets neither can be inferred directly from other transaction information in
active markets.
223
(b) Level hierarchy classification and figures
The following table shows the figures by hierarchy, for instruments registered at
fair value.
level 1
Financial Assets
level 2
2013
Mch$
level 3
2013
Mch$
2012
Mch$
2012
Mch$
2013
Mch$
31,326
65,548
33,611
6,831
—
1,034
188
255,597
87,115
5,353
total
2012
Mch$
2013
Mch$
2012
Mch$
—
64,937
72,379
—
261,984
87,303
from the Chilean Government and Central Bank
—
—
—
—
—
—
—
—
Mutual fund investments
66,213
33,042
—
—
—
—
66,213
33,042
Subtotal
98,573
98,778
289,208
93,946
5,353
—
393,134
192,724
Forwards
—
—
41,673
70,166
—
—
41,673
70,166
Swaps
—
—
291,429
258,496
—
—
291,429
258,496
Call Options
—
—
2,301
472
—
—
2,301
472
Put Options
—
—
600
341
—
—
600
341
Futures
—
—
—
—
—
—
—
—
Subtotal
—
—
336,003
329,475
—
—
336,003
329,475
Swaps
—
—
38,685
22
—
—
38,685
22
Subtotal
—
—
38,685
22
—
—
38,685
22
163,875
136,554
422,533
115,230
—
—
586,408
251,784
—
—
714,747
646,079
296,327
278,073
1,011,074
924,152
Derivative contracts for trading purposes
Hedge accounting derivative contracts
42,236
30,538
—
—
33,986
57,966
76,222
88,504
206,111
167,092
1,137,280
761,309
330,313
336,039
1,673,704
1,264,440
304,684
265,870
1,801,176
1,184,752
335,666
336,039
2,441,526
1,786,661
Forwards
—
—
65,396
81,790
—
—
65,396
81,790
Swaps
—
—
343,467
264,052
—
—
343,467
264,052
Opciones Call
—
—
3,559
395
—
—
3,559
395
Opciones Put
—
—
705
387
—
—
705
387
Futures
—
—
—
—
—
—
—
—
Other
—
—
—
—
—
—
—
—
Subtotal
—
—
413,127
346,624
—
—
413,127
346,624
Swaps
—
—
32,005
33,698
—
—
32,005
33,698
Subtotal
—
—
32,005
33,698
—
—
32,005
33,698
—
—
445,132
380,322
—
—
445,132
380,322
Subtotal
Total
Financial Liabilities
Derivative contracts for trading purposes
Hedge derivative contracts
Total
224
(1) As of December 31, 2013, 92% of instruments of level 3 have denomination “Investment Grade”, meaning
are assets with a classification BBB- or higher. Also, 90% of total of these financial instruments correspond
to domestic issuers.
(c) Level 3 reconciliation
The following table shows the reconciliation between stock at the beginning and
the end of balance periods for instruments classified in Level 3:
Financial Assets
Balance
as of
January
1, 2013
MCh$
Gain (Loss)
Recognized
in Income
MCh$
Gain (Loss)
Recognized
in Equity
MCh$
Purchases,
Sales and
Agreements, net
MCh$
Transfer
to Level
1 and 2
MCh$
Balance
as of
December
31, 2013
MCh$
From Government and Chilean Central bank
instruments
—
—
—
—
—
—
—
—
(1,526)
—
—
—
6,879
—
5,353
—
—
—
Mutual funds
—
—
—
—
—
—
Subtotal
—
(1,526)
—
6,879
—
5,353
—
—
—
—
—
—
278,073
(5,441)
4,903
18,792
—
296,327
57,966
(4,320)
412
(20,072)
—
33,986
Available for Sale Instruments
From Government and Chilean Central bank instruments
Subtotal
Total
336,039
(9,761)
5,315
(1,280)
—
330,313
336,039
(11,287)
5,315
5,599
—
335,666
Financial Assets
Balance
as of
January
1, 2012
MCh$
Gain (Loss)
Recognized
in Income
MCh$
Gain (Loss)
Recognized
in Equity
MCh$
Purchases,
Sales and
Agreements, net
MCh$
Transfer
to Level
1 and 2
MCh$
Balance
as of
December
31, 2012
MCh$
Central bank instruments
Mutual funds
Subtotal
—
—
—
—
585
—
—
—
183
—
(768)
—
—
—
—
—
—
—
—
—
—
—
—
—
585
183
—
(768)
—
—
Available for Sale Instruments
—
—
—
—
—
—
321,378
1,511
(1,410)
(43,406)
—
278,073
128,403
(5,713)
19,666
(59,432)
(24,958)
57,966
Subtotal
449,781
(4,202)
18,256
(102,838)
(24,958)
336,039
450,366
(4,019)
18,256
(103,606)
(24,958)
336,039
Central bank instruments
Total
225
(d) Sensitivity of level 3 instruments to changes in key assumptions of the input
parameters for the valuation model.
The following table shows the sensitivity, by instrument, for instruments classified
as level 3 to changes in key assumptions:
Financial Assets
Level 3
MCh$
Sensitivity to
changes in key
assumptions
of models
MCh$
Level 3
MCh$
Sensitivity to
changes in key
assumptions
of models
MCh$
5,353
(320)
—
—
Total
5,353
(320)
—
—
296,327
(3,971)
278,073
(802)
33,986
(227)
57,966
(762)
330,313
(4,198)
336,039
(1,564)
Total
With the purpose to determine the sensitivity of the financial investments to
changes in significant factors market, the Bank has made alternative calculations
at fair value, changing those key parameters for the valuation and which are not
directly observables in screens. In the case of financial assets presented above
table, which corresponds to bank bonds and corporate bonds, considering that
these instruments do not have current prices or observables, was used as inputs
prices, prices based on broker quotes or runs. Prices are generally calculated
as a base rate plus a spread. For local bonds, this was determined by applying
only a 10% impact on the price, while for offshore bonds this was determined by
applying only a 10% impact on the spread because the base rate is hedged with
instruments on interest rate swaps so-called hedge accounting. The impact of 10%
is considered a reasonable move considering the market performance of these
instruments and comparing it against the adjustment bid/offer that is provided for
by these instruments. The methodology described above begins in the period 2013.
Before that date, the methodology consisted in compare the valuation of these
instruments using market rates given by Trading Desk of the Bank, with the same
calculate, but using rates of independent sources. If this methodology had used in
balances as of December 31, 2012, the effect would have been less income of
MCh$5,276 million.
226
(e) Other assets and liabilities
The following table summarizes the fair values of the Bank’s main financial assets
and liabilities that are not recorded at fair value in the Statement of Financial
Position. The values shown in this note do not attempt to estimate the value of the
Bank’s income-generating assets, nor forecast their future behavior. The estimated
fair value is as follows:
Book Value
2013
Mch$
Fair Value
2012
Mch$
2013
Mch$
2012
Mch$
Assets
873,308
684,925
873,308
684,925
374,471
396,611
374,471
396,611
Receivables from repurchase agreements and
security borrowing
Subtotal
82,422
35,100
82,422
35,100
1,330,201
1,116,636
1,330,201
1,116,636
Domestic banks
Central bank
99,976
14,304
99,976
14,304
600,581
1,100,696
600,581
1,100,696
361,499
228,322
361,499
228,322
1,062,056
1,343,322
1,062,056
1,343,322
12,788,810
11,484,276
12,695,722
11,473,251
4,713,805
4,182,587
4,760,593
4,201,091
Consumer loans
2,886,418
2,667,467
2,914,188
2,683,593
Subtotal
20,389,033
18,334,330
20,370,503
18,357,935
Total
22,781,290
20,794,288
22,762,760
20,817,893
Foreign banks
Subtotal
Commercial loans
Liabilities
5,984,332
5,470,971
5,984,332
5,470,971
126,343
159,218
126,343
159,218
Payables from repurchase agreements and
security lending
256,766
226,396
256,766
226,396
10,402,725
9,612,950
10,422,095
9,589,643
989,465
1,108,681
984,999
1,103,252
210,926
162,123
210,926
162,123
17,970,557
16,740,339
17,985,461
16,711,603
Letters of credit for residential purposes
67,514
85,967
70,351
87,088
Letters of credit for general purposes
18,977
29,229
19,775
29,610
3,533,462
2,412,233
3,446,571
2,282,014
747,007
746,504
739,184
726,369
Subtotal
Debt Issued
Bonds
Subordinate bonds
Subtotal
4,366,960
3,273,933
4,275,881
3,125,081
Total
22,337,517
20,014,272
22,261,342
19,836,684
227
The fair value of assets not presented at fair value in the Statement of Financial
Position is derived from balance sheet stocks and cash flows that Banco de Chile
expects to receive, discounted using the relevant market interest rate for each
type of transaction. These lasts cash flows are obtained from regulatory reports, in
particular the C40 report.
The C40 report contains cash flows, in future value, for assets and liabilities, by
maturity and currency. For long term assets and liabilities, contractual cash flows
are used to calculate the fair value. The cash flows are discounted by type of asset
and currency to obtain their present value. The discount rates used to calculate the
present value for each type of asset and liability correspond to the marginal rates of
each product, considering specific rates by currency and term to capture both the
risk inherent to the term as well as the expected level of each currency.
For financial assets and liabilities that have a short term maturity (less than three
months) it is assumed that the carrying amounts approximate their fair value. This
assumption is also applied to demand deposits and savings accounts without
specific maturity.
For loans, contractual cash flows and loan loss provisions are used to calculate
the fair value. The cash flows are discounted by type of asset and currency to
obtain their present value. Consecutively, the loan loss provision, by type of asset,
is subtracted from the present value to take into account the fact that the Bank
has already model the estimate probability that his customers do not fulfill their
obligations.
The fair value of liabilities that do not have quoted market prices, it is based on
discounted cash flows, using interest rates to similar terms.
(f) Offsetting of financial assets and liabilities
The Bank trades financial derivatives with foreign counterparties using ISDA Master
Agreement (International Swaps and Derivatives Association, Inc.), under legal
jurisdiction of the City of New York – USA or London – United Kingdom. Legal
framework in these jurisdictions, along with documentation mentioned, it allows
to Banco de Chile the right to anticipate the maturity of the transaction and then,
offset the net value of those transactions in case of default of counterparty. The
Bank has negotiated with these counterparties an additional annex (CSA Credit
Support Annex), including other credit mitigating, such as margins about a certain
threshold, early termination (optional or mandatory), coupon adjustment transaction
over a certain threshold amount, etc.
Below are detail contracts susceptible to offset:
Fair Value
MCh$
228
Negative Fair
Value of
contracts with
right to offset
MCh$
Positive Fair
Value of contracts with
right to offset
MCh$
Financial
Collateral
MCh$
Net Fair Value
MCh$
Derivative financial assets as of December 31, 2013
374,688
(42,315)
(116,095)
(31,651)
184,627
Derivative financial assets as of December 31, 2012
329,497
(104,142)
(43,099)
(42,635)
139,621
40. Maturity of Assets and Liabilities:
The table below shows details of loans and other financial assets and liabilities grouped
in accordance with their remaining maturity, including accrued interest as of December
31, 2013 and 2012, respectively. Trading and available for sale instruments are
included at their fair value:
2013
Over 1
month
and up to
3 months
MCh$
Over 3
months
and up to
12 months
MCh$
Over 1 year
and up to
3 years
MCh$
Over 3 years
and up to
5 years
MCh$
Assets
Up to 1
month
MCh$
873,308
—
—
—
—
—
873,308
374,471
—
—
—
—
—
374,471
Financial Assets held-for-trading
393,134
—
—
—
—
—
393,134
58,429
12,250
11,743
—
—
—
82,422
security borrowing
Loans and advances to banks (*)
Loans to customers (*)
Total assets
Over 5
years
MCh$
Total
Mch$
15,374
21,074
53,595
94,914
86,438
103,293
374,688
791,112
116,968
155,268
—
—
—
1,063,348
2,962,896
1,988,697
4,014,131
4,543,507
2,252,631
5,107,649
20,869,511
116,319
63,919
184,940
442,170
466,247
400,109
1,673,704
—
—
—
—
—
—
—
5,585,043
2,202,908
4,419,677
5,080,591
2,805,316
5,611,051
25,704,586
Over 3 years
and up to
5 years
MCh$
Over 5
years
MCh$
Total
Mch$
2012
Over 1
month
and up to
3 months
MCh$
Over 3
months
and up to
12 months
MCh$
Over 1 year
and up to
3 years
MCh$
Assets
Up to 1
month
MCh$
684,925
—
—
—
—
—
684,925
396,611
—
—
—
—
—
396,611
192,724
—
—
—
—
—
192,724
8,338
855
25,907
—
—
—
35,100
19,155
26,190
85,576
93,733
40,801
64,042
329,497
security borrowing
Loans and advances to banks (*)
1,152,642
14,409
177,230
—
—
—
1,344,281
Loans to customers (*)
2,676,443
1,863,499
3,512,461
4,110,399
1,945,584
4,653,379
18,761,765
272,371
171,017
343,665
152,075
132,382
192,930
1,264,440
—
—
—
—
—
—
—
5,403,209
2,075,970
4,144,839
4,356,207
2,118,767
4,910,351
23,009,343
Total assets
(*) The respective provisions, which amount to MCh$480,478 (MCh$427,435 in 2012) for loans to customers and
MCh$1,292 (MCh$959 in 2012) for borrowings from financial institutions, have not been deducted from these
balance.
229
2013
Liabilities
Up to 1
month
MCh$
Over 1
month
and up to
3 months
MCh$
Over 3
months
and up to
12 months
MCh$
Over 1 year
and up to
3 years
MCh$
Over 3 years
and up to
5 years
MCh$
Over 5
years
MCh$
Total
Mch$
5,984,332
—
—
—
—
—
5,984,332
126,343
—
—
—
—
—
126,343
security lending
249,549
7,217
—
—
—
—
256,766
4,875,437
2,193,563
2,948,201
207,347
135
31
10,224,714
26,750
37,008
95,582
96,757
67,742
121,293
445,132
99,553
359,752
262,574
267,586
—
—
989,465
Savings accounts and time deposits (**)
Debt issued:
Mortgage bonds
Bonds
Subordinate bonds
Total liabilities
4,554
4,966
13,534
27,826
16,095
19,516
86,491
287,732
117,008
47,271
471,230
797,585
1,812,636
3,533,462
1,560
2,476
34,865
162,382
47,890
497,834
747,007
161,053
901
4,948
8,736
13,503
21,785
210,926
11,816,863
2,722,891
3,406,975
1,241,864
942,950
2,473,095
22,604,638
Up to 1
month
MCh$
Over 1
month
and up to
3 months
MCh$
Over 3
months
and up to
12 months
MCh$
Over 5
years
MCh$
Total
Mch$
2012
Liabilities
Over 1 year
and up to
3 years
MCh$
Over 3 years
and up to
5 years
MCh$
5,470,971
—
—
—
—
—
5,470,971
159,218
—
—
—
—
—
159,218
security lending
224,793
1,603
—
—
—
—
226,396
3,832,539
2,356,386
2,846,609
397,643
279
30
9,433,486
Savings accounts and time deposits (**)
27,981
30,469
60,284
116,048
48,616
96,924
380,322
181,972
153,702
631,051
141,956
—
—
1,108,681
5,351
5,853
15,859
35,502
21,843
30,788
115,196
47,119
133,570
56,633
456,334
358,097
1,360,480
2,412,233
1,164
2,276
34,731
48,378
151,612
508,343
746,504
Debt issued:
Mortgage bonds
Bonds
Subordinate bonds
Total liabilities
106,972
1,005
5,140
10,534
7,201
31,271
162,123
10,058,080
2,684,864
3,650,307
1,206,395
587,648
2,027,836
20,215,130
(**) Excluding term saving accounts, which amount to MCh$178,011 (MCh$179,464 in 2012).
230
41. Risk Management:
(1) Introduction:
The Bank’s risk management is based on specialization, knowledge of the business and
the experience of its teams, with professionals specifically dedicated to each different
type of risks. Our policy is to maintain an integrated, forward looking approach to risk
management, taking into account the current and forecasted economic environment
and the risk/return ratio of all products for both the Bank and its subsidiaries.
Committee is responsible for the design of policies and procedures related
to the establishment of limits and alerts financial positions, as well as
measurement, control and reporting of the same. Subsequently, policies and
procedures are subject to approval by the Bank Board.
Our credit policies and processes acknowledge the particularities of each market and
segment, thus affording specialized treatment to each one of them. The integrated
information prepared for risk analysis is key to developing our strategic plan, this
objectives include: determining the desired risk level for each business line; aligning all
strategies with the established risk level; communicating desired risk levels to Bank’s
commercial areas; developing models, processes and tools for evaluating, measuring
and controlling risk throughout the different business lines and areas; informing the
board of directors about risks and their evolution; proposing action plans to address
important deviations in risk indicators and enforcing compliance of applicable standards
and regulations.
(a) Risk Management Structure
Credit and Market Risk Management lies at the all levels of the Organization, with a
structure that recognizes the relevance of the different risk areas that exist. Current
levels are:
(i) Board of Directors
The Board is responsible for the establishment and monitoring of the Bank’s risk
management structure. Due to the above, it is permanently informed regarding
the evolution of the different risk areas, participating through its Finance and
Financial Risk Committees, Credit Committees, Portfolio Committees and Audit
Committee, which check the status of credit and market risks. In addition, it
actively participates in each of them, informed of the status of the portfolio and
participating in the strategic definitions that impact the quality of the portfolio.
Risk management policies are established in order to identify and analyze the
risks faced by the Bank, to set adequate limits and controls and monitor risks
and compliance with limits. The policies and risk management systems are
regularly reviewed in order for them to reflect changes in market conditions and
the Bank’s activities. It, through its standards and management procedures
intends to develop a disciplined and constructive control environment in which
all employees understand their roles and obligations.
Additionally, the Committee reviews the estimated financial results that generate
these positions separately, in order to measure the risk-return businesses
involved in handling financial positions of the Treasury, the evolution of the use
of capital, and the estimated credit risk and market that the Bank will face in
the future. The Committee also discussed the international financial exposure
and liabilities major credit exposures generated by derivatives transactions.
The Finance, International and Financial Risk Committee comprises the
Chairman, four Directors, the General Manager, the Manager of Corporate Risk
Division, the Manager of the Corporate and Investment Banking Division, the
Manager of Financial Control Division, the Manager of Treasury Division and the
Manager of Financial Risk Area.
The Committee meets in regular session once a month and may be cited
extraordinary request of the President, two Directors or the General Manager.
(iii) Credit Committees
The corporate governance structure of the Bank provides various credit
committees responsible for credit decisions related to the different business
segments and the type of risk involved. These committees have higher
expression in the Credit Committee of the Board, consisting of the General
Manager, the Manager of Corporate Risk Division, and at least three directors
who review weekly all operations that exceed UF750,000.
Each credit committee is responsible for defining the terms and conditions
of acceptance of counterparty risks considered in the evaluation, and are
comprised of members with sufficient powers for decision-making. The
Corporate Risk Division participates in an independently and autonomic form
from commercial areas.
(iv) Portfolio Risk Committee
The main function of Portfolio Risk Committee is to know, from a global
perspective, the evolution of the composition of the Bank’s loan portfolio. This
is, according to economic sectors, business segments, products, terms, and
everything that would have a broad view of counterparty risk is assumed.
This Committee reviews, in detail, the main exposures by economic groups,
debtors, and behavioral parameters such as default indicators, past due loans,
impairment, charges-off and provisions for loan losses for each segment.
(ii) Finance, International and Financial Risk Committee
This committee meets monthly to review developments and the current status
of financial positions and market, price and liquidity risk. It reviews estimated
results from financial positions in order to measure the risk/return ratio of the
Bank’s Treasury business, as well as the evolution of and forecasts regarding
use of capital. The knowledge of the current state of the market risks allow to
forecast potential future loss, with an important confidence level, in the case of
adverse transactions in the main market variables or illiquidity (exchange rate,
interest rates and options volatility) or a tight liquidity (either liquidity of trading
in financial instruments as funding liquidity).
The mission of this Committee is to approve and propose to the Board risk
management strategies differentiated. This includes credit policies, the
portfolio assessment methodologies and calculation of provisions to cover
expected losses. Is responsible also know the sufficiency of provision;
authorize extraordinary charge-offs when it exhausted the recoveries instances
and management control settlement of assets received in lieu of payments. It
also reviews the methodological guidelines for the development of credit risk
models, which are assessed on the Technical Committee for the Supervision of
internal models.
231
The Portfolio Risk Committee meets monthly and is composed of the Chairman
of the Board, two Directors, the General Manager, the Manager of Corporate
Risk Division, the Manager of the Risk Division and the Area Manager Risk
Architecture. The Committee may be summoned to an extraordinary request of
the President, two Directors or the General Manager.
(c) Measurement Methodology
In terms of Credit Risk, provision levels and portfolio expenses are the basic
measurements used to determine the credit quality of our portfolio.
(v) Treasury
The Bank’s Treasury Division is responsible for managing price risks (interest
rates, exchange rates and options volatility) for its Trading and Accrual
Portfolios, based on limits approved by the Board of Directors. In addition, it
is the sole body responsible for ensuring that the Bank maintains adequate
liquidity levels in line with market conditions and the needs of its different
business units.
The Bank’s Chief Executive Officer, on a daily basis, and the Finance, International
and Market Risk Committee, on a monthly basis, receive a report detailing the
evolution of the Bank’s price and liquidity risk, based on both internal and regulatorimposed metrics.
Each year, the Board of Directors is presented with the results of a sufficiency test
for allowances for loan loss. This test shows whether the Bank’s existing level of
allowances for loan loss, both for the individual and group portfolios, is sufficient,
based on historic losses or impairment experienced by the portfolio. The Board of
Directors must issue a formal opinion on its sufficiency.
(vi) Corporate Risk Division
Banco de Chile has a team with a vast experience and knowledge in each
matter related to risks associated with credit, market, operational and
technology, which ensures comprehensive and consolidated management of
the same, including the Bank and its subsidiaries, identifying and evaluating the
risks generated in customers, in their own operations and their suppliers. The
focus is on the future, finding determine with different techniques and tools, the
potential changes that could affect the solvency, liquidity, the correct operation
or the reputation of Banco of Chile.
Regarding the management of Credit Risk, Corporate Risk Division oversees
the quality of the portfolio and optimizing the risk - return to all segments
of people and companies managing the stages of approval, monitoring and
recovery of loans granted.
Risk monitoring and control are performed primarily based on established limits.
These limits reflect the Bank’s business and market strategy as well as the risk
level it is willing to accept, with added emphasis on selected industry sectors.
(2) Credit Risk
Credit risk is the risk that we will incur a loss because a customer or counterparty do
not comply with their contractual obligations, mainly its origin is in account receivable
and financial investments.
This risk is managed using a global, unified and forward-looking strategy, which
recognizes the current and projected economic environment of the markets and
segments in which our different businesses are developing and grants appropriate
credit treatment to each such market or segment by using risk limits that we are willing
to accept from counterparties.
(vii)Operational Risk Committee
The mission of Operational Risk Committee is to identify, prioritize and set
strategies to mitigate key operational risk events, ensure the implementation
of the management model, establish tolerances risk, ensure compliance
programs, policies and procedures relating to Privacy and Information Security,
Business Continuity and Operational Risk Banco de Chile.
Monthly Senior Management Committee, becoming the governing body for the
Operational Risk Management and Technology. Risk management also involves
the Directors of the Bank through quarterly presentations to Directors and Audit
Committee on these matters.
The Operational Risk Committee is composed of the General Manager, Division
Manager Corporate Risk, Manager of Financial Control Division, Manager of
Operations and Technology Division, Manager of Commercial Banking Area and
Manager of Operational Risk and Technology.
Managing credit risk is, therefore, inherent to our business and must be incorporated
into each segment in which we do business: In this way, we may achieve an optimum
balance between assumed risks and attained returns and properly allocate capital to
each business line while complying with regulations and criteria defined by the Board of
Directors, in order to ensure that the Bank has an appropriate capital base for potential
losses that may arise from its credit exposure.
Counterparty limits are established by analyzing financial information, risk ratings,
the nature of the exposure, documentation, guarantees, market conditions and the
pertinent industry sector, among other factors. The process of monitoring credit quality
also includes identifying in advance any possible changes in counterparty’s payment
capacity, which enables us to evaluate the potential loss from these risks and take
corrective actions.
(a) Approval Process
(b) Internal Audit
232
Risk management processes throughout the Bank are continually audited by the
Internal Audit Area, which analyzes the sufficiency of and compliance with risk
management procedures, Internal Audit discusses the results of all evaluations
with management and reports its findings and recommendations to the Board of
Directors.
Examination and approval of Bank loans operating under a differentiated approach,
because there are different nature of the segments, which it characterizes
by different basics in its variables of explanation of its financial structure and
repayment ability. The areas involved in each approval process are:
• Politics and procedures
• Specialization and experience level of participant of the process
• Types and depth of technological platforms required
• Type of model/indicators predictives for each segments (Scoring or Rating)
According to the mentioned above there are three areas relevant to the admissions
process:
Automated Model: This methodology is recurrently used in segments of individuals
without commercial business of Commercial Banking and Bank Credichile. To
assess requests of massive credits, it applies models that must qualify three
important dimensions in the process of admission apply:
Minimum credit profile (scoring)
Borrowing Limits (exposure)
Target Market
The credit profile is evaluated using statistics models of “Credit Scoring”, which
are different for Commercial Area and Credichile, and also are segmented and
specifics for different types of clients.
Case to case model:
This type of analysis applies to wholesale market, corporations and real-state.
Consist in individual assessment expert, which provides the level of risk, terms,
transaction amount and complexity and perspective of the business, among other
variables. This approval process is also supported by a rating model which gives
a more uniform assessment and determines the level of credit. In this sense there
are a process and consolidated team with high level of experience and expertise
in approving appropriations for the various segments and sectors in which the
Bank participates, with a perspective of medium and long term respect different
industries and clients. Additionally, to make more effective the admission process,
improving quality of assessment and optimizing times of responses to clients,
the process of data collection, analysis and discussion of the proposed credit are
supported by the areas of credit risk.
(b) Control and Follow up
The predictive ability of the models is fundamental to do successful risk
management during different economics cycles, which force to be permanently
reviewed actual market conditions.
For ensure high standards in quality of information of customers, Risk area
consolidates an important volume of input data to our clients system and also
it has permanent process of revision or audits to verify the correct application of
process of credit.
Definition of target market is an elemental dimension to guide the commercial
efforts and business strategies. Offer of products more efficient allow to maximize
the individual exposition and expected returns.
Parametric Model:
The SME segment is a segment that has developed assessment schemes and
ad hoc admission to their characteristics. This segment has defined a parametric
model that is responsible for mass segment features a segment as well as case
by case analysis. This model considers the evaluation of customers based on three
pillars. These are payment behavior both, internal and external, financial reporting
analysis and evaluation of the client’s business. This process yields a parametric
evaluation category that summarizes the credit quality of the customer through a
rating, which is linked directly to the powers of credit required for each operation.
Casuistry of cases occur in which lower level of information available and/or
economic sector, do not have a rating, in such cases being managed directly by the
Risk area, which makes the credit assessment criteria applying their expert. Note
that internal audits are performed on an ongoing basis to ensure the quality of the
information used in the preparation of Rating.
Additionally, the Corporate Risk Division supports business significantly through
the process of pre-approval of loans to customers, for optimize the relation
risk-return of these segments. Thus, both the retail market and in the small and
medium enterprises has specialized units that generate credit offers, according
to predefined strategies for the different group of clients, according to statistic
models which it is calibrating based in evolution of macroeconomics variables
and behavior that group of clients have in the time. These offers of credits and
operations approval are supported by the constitution of collateral.
(b.i)Corporations
In the wholesale business segment, control and follow-up are realized through
a combination of reviews. The most relevant are the following:
• Delinquencies management, supported by the information of predictive
indicators of risk level, with follow up and action plans in the case of more
important clients, also manage of different strategies of early collection.
• Structured controls of clients with credit covenants
• Quick review of the portfolio, determining clients potentially affected by a
price change of any macroeconomic variable in specific sector or segment.
• Systematic follow up of variables of credit behavior and financial figures of
the corporations, as well as particular conditions and restrictions of credits.
• Management portfolio classification, which determines risk and
required rate of provision, according to general rules established by the
Superintendency of Banks and Financial Institutions and specific criteria
set out in the Bank, allowing correct application over special clients.
• Management portfolio in special follow up (Vigilance), through committee
periodic and permanent monitoring, allowing establish action plans for
entities that presents risk alerts.
(b.ii)Individuals
In individual markets, control and follow up focus in the permanent monitoring
of principal indicator of aggregate portfolio and by litter analysis; this is revision
of evolution portfolio in a determinate date. Principal index are:
• Follow up of the expected loss of portfolio through of general model of
provision and back-test of loss for portfolio that have maturity required.
• Litter analysis of new clients and respective decomposition of loss rate by
products, campaigns champion/challenger, segments, etc
• Delinquencies general of portfolio with special follow up of products,
segments, income brackets, branches, zones, campaigns, etc., oriented
to early detection of risk sources higher than expected in the portfolio, to
regularization of cases and to integral management of politics of credits
and campaigns of pre-approval.
• Rate of approval and rejection for request presented in first instance
and through appeal, with details of information by different explicative
attributes.
• Follow up of mortgage portfolio according to variables of politics, tranches
(loan to value), terms, relation dividend/income clients, segments, income
brackets, etc.
233
Strategies of Risk Segmentation for processes and collection policies, which
are compatibles with services quality and maximization of recovery, in different
delinquencies stages of customer. Also models are structured to collect
useful information to achieve better integration with granting and monitoring
processes, aligned by a same vision about fundamentals of credit of customer.
(c) Derivative Instruments
The value of derivative financial instruments is always reflected in the Bank’s
balance sheet. The risks derived from these instruments, determined using SBIF
models, are controlled against lines of credit of the counterparty at the inception of
each transaction.
234
(d) Portfolio Concentration
Maximum credit risk exposure per counterparty without considering collateral or
other credit enhancements as of December 31, 2013 and 2012 does not exceed
10% of the Bank’s effective equity.
The following tables show credit risk exposure per balance sheet item, including
derivatives, detailed by both geographic region and industry sector as of December
31, 2013:
Chile
Mch$
united states
Mch$
Brazil
Mch$
Other
Mch$
582,022
268,217
—
23,069
Total
Mch$
Financial Assets
Cash and Due from Banks
873,308
of Chile
Subtotal
security borrowing
64,937
—
—
—
64,937
261,984
—
—
—
261,984
—
—
—
—
—
66,213
—
—
—
66,213
393,134
—
—
—
393,134
82,422
—
—
—
82,422
28,701
1,833
—
11,139
41,673
Derivative Contracts for Trading Purposes
Forwards
158,810
88,495
—
44,124
291,429
Call Options
2,241
—
—
60
2,301
Put Options
525
—
—
75
600
Swaps
Futures
—
—
—
—
—
Subtotal
190,277
90,328
—
55,398
336,003
—
—
—
—
—
Hedge Derivative Contracts
Forwards
2,993
3,971
—
31,721
38,685
Call Options
—
—
—
—
—
Put Options
—
—
—
—
—
Futures
—
—
—
—
—
Subtotal
2,993
3,971
—
31,721
38,685
600,581
—
—
—
600,581
Domestic banks
100,012
—
—
—
100,012
Swaps
Loans and advances to Banks
Foreign banks
Subtotal
—
—
254,977
107,778
362,755
700,593
—
254,977
107,778
1,063,348
Loans to Customers, Net
12,574,539
51,268
270,480
180,221
13,076,508
4,732,307
—
—
—
4,732,307
Consumer loans
3,060,696
—
—
—
3,060,696
20,367,542
51,268
270,480
180,221
20,869,511
586,408
—
—
—
586,408
1,011,074
Commercial loans
Subtotal
Financial Assets Available-for-Sale
of Chile
Subtotal
Financial assets held-to-Maturity
1,011,074
—
—
—
—
71,533
4,689
—
76,222
1,597,482
71,533
4,689
—
1,673,704
—
—
—
—
—
235
ElecChilean
Retail
Financial
Central
Gover-
(Indivi-
Services
Bank
nment
duals)
Trade
turing
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
Trans-
tricity,
Agricul-
Gas and
ture and
and
Cons-
Mining
Water
Livestock
Forestry
Fishing
Telecom
truction
Services
Other
Total
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
Manufac-
portation
Financial Assets
801,521
71,787
—
—
—
—
—
—
—
—
—
—
—
—
—
873,308
from the Chilean Government
and Central Bank of Chile
Subtotal
Receivables from repurchase
agreements and security
borrowing
—
37,402
27,535
—
—
—
—
—
—
—
—
—
—
—
—
64,937
257,523
—
—
—
—
—
—
—
—
—
—
—
—
—
4,461
261,984
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
66,213
—
—
—
—
—
—
—
—
—
—
—
—
—
—
66,213
323,736
37,402
27,535
—
—
—
—
—
—
—
—
—
—
—
4,461
393,134
82,422
—
—
—
—
—
—
—
—
—
—
—
—
—
—
82,422
Derivative Contracts for
Trading Purposes
34,384
—
—
13
1,024
2,885
1,050
25
694
—
546
450
11
105
486
41,673
233,083
—
—
—
7,470
6,613
249
11,660
26,420
—
182
2,353
2,050
1,224
125
291,429
Call Options
446
—
—
—
647
1,017
—
—
48
—
—
60
8
75
—
2,301
Put Options
322
—
—
—
231
42
—
—
—
—
—
—
4
—
1
600
Futures
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Subtotal
268,235
—
—
13
9,372
10,557
1,299
11,685
27,162
—
728
2,863
2,073
1,404
612
336,003
Forwards
Swaps
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
38,685
—
—
—
—
—
—
—
—
—
—
—
—
—
—
38,685
Call Options
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Put Options
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Futures
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Subtotal
38,685
—
—
—
—
—
—
—
—
—
—
—
—
—
—
38,685
Forwards
Swaps
—
600,581
—
—
—
—
—
—
—
—
—
—
—
—
—
600,581
Domestic banks
100,012
—
—
—
—
—
—
—
—
—
—
—
—
—
—
100,012
Foreign banks
362,755
—
—
—
—
—
—
—
—
—
—
—
—
—
—
362,755
Subtotal
462,767
600,581
—
—
—
—
—
—
—
—
—
—
—
—
—
1,063,348
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,393
—
—
3,976,564
90,981
18,879
3,221
—
28,928
—
1,777
26,801
19,539
148,419
407,805
4,732,307
Consumer loans
4,033
—
—
2,772,544
41,052
9,537
1,683
18
34,650
—
823
16,920
10,320
51,633
117,483
3,060,696
—
383,451
202,957
—
—
—
—
—
—
—
—
—
—
—
—
586,408
847,941
—
—
—
15,826
—
13,750
36,861
49
72,804
—
—
1,671
—
22,172
1,011,074
Commercial loans (*)
Financial Assets
Available-for-Sale
Subtotal
76,222
—
—
—
—
—
—
—
—
—
—
—
—
—
—
76,222
924,163
383,451
202,957
—
15,826
—
13,750
36,861
49
72,804
—
—
1,671
—
22,172
1,673,704
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(*) See commercial loans by industry sector in Note 12 (d).
236
The following tables show credit risk exposure per balance sheet item, including
derivatives, detailed by both geographic region and industry sector as of December
31, 2012:
Chile
Mch$
united states
Mch$
Brazil
Mch$
Other
Mch$
Total
Mch$
Financial Assets
499,473
167,186
—
18,266
684,925
from the Chilean Government and Central Bank of Chile
72,379
—
—
—
72,379
87,303
—
—
—
87,303
—
—
—
—
—
Subtotal
security borrowing
33,042
—
—
—
33,042
192,724
—
—
—
192,724
35,100
—
—
—
35,100
Derivative Contracts for Trading Purposes
Forwards
57,852
2,652
—
9,662
70,166
Swaps
99,245
123,676
—
35,575
258,496
Call Options
439
—
—
33
472
Put Options
341
—
—
—
341
Futures
—
—
—
—
—
Subtotal
157,877
126,328
—
45,270
329,475
Forwards
—
—
—
—
—
Swaps
22
—
—
—
22
Call Options
—
—
—
—
—
Put Options
—
—
—
—
—
Futures
—
—
—
—
—
Subtotal
22
—
—
—
22
Central bank of Chile
Domestic banks
Foreign banks
Subtotal
1,100,696
—
—
—
1,100,696
14,309
—
—
—
14,309
—
—
109,505
119,771
229,276
1,115,005
—
109,505
119,771
1,344,281
10,845,406
36,474
200,016
649,688
11,731,584
Commercial loans
4,198,667
—
—
—
4,198,667
Consumer loans
2,831,514
—
—
—
2,831,514
17,875,587
36,474
200,016
649,688
18,761,765
Subtotal
Financial Assets Available-for-Sale
from the Chilean Government and Central Bank of Chile
251,784
—
—
—
251,784
924,152
—
—
—
924,152
—
83,759
4,745
—
88,504
1,175,936
83,759
4,745
—
1,264,440
—
—
—
—
—
Subtotal
237
ElecChilean
Retail
Financial
Central
Gover-
(Indivi-
Services
Bank
nment
duals)
Trade
turing
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
Trans-
tricity,
Agricul-
Gas and
ture and
and
Cons-
Mining
Water
Livestock
Forestry
Fishing
Telecom
truction
Services
Other
Total
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
Manufac-
portation
Financial Assets
617,092
67,833
—
—
—
—
—
—
—
—
—
—
—
—
—
684,925
Subtotal
Receivables from repurchase
agreements and security
borrowing
—
28,653
43,726
—
—
—
—
—
—
—
—
—
—
—
—
72,379
87,115
—
—
—
—
—
—
—
—
—
—
—
—
—
188
87,303
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
33,042
—
—
—
—
—
—
—
—
—
—
—
—
—
—
33,042
120,157
28,653
43,726
—
—
—
—
—
—
—
—
—
—
—
188
192,724
25,979
—
—
2,280
3,212
—
—
—
160
—
—
—
1,854
1,615
—
35,100
Derivative Contracts for
Trading Purposes
65,113
—
—
1
3,092
1,084
53
75
321
—
114
207
13
93
—
70,166
232,459
—
—
—
6,039
5,447
725
4,986
1,819
—
279
5,569
963
210
—
258,496
Call Options
354
—
—
—
92
26
—
—
—
—
—
—
—
—
—
472
Put Options
85
—
—
—
215
27
—
—
—
9
5
—
—
—
—
341
Futures
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Subtotal
298,011
—
—
1
9,438
6,584
778
5,061
2,140
9
398
5,776
976
303
—
329,475
Forwards
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Swaps
22
—
—
—
—
—
—
—
—
—
—
—
—
—
—
22
Call Options
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Put Options
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Futures
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Subtotal
22
—
—
—
—
—
—
—
—
—
—
—
—
—
—
22
1,100,696
Forwards
Swaps
—
1,100,696
—
—
—
—
—
—
—
—
—
—
—
—
—
14,309
—
—
—
—
—
—
—
—
—
—
—
—
—
—
14,309
Foreign banks
229,276
—
—
—
—
—
—
—
—
—
—
—
—
—
—
229,276
Subtotal
243,585
1,100,696
—
—
—
—
—
—
—
—
—
—
—
—
—
1,344,281
Domestic banks
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,609
—
—
3,503,474
80,676
15,970
2,702
—
27,697
—
1,840
23,934
17,322
105,181
413,262
4,198,667
Consumer loans
3,131
—
—
2,557,411
40,109
9,400
1,532
5
33,664
—
840
16,280
9,870
38,440
120,832
2,831,514
Financial Assets
Available-for-Sale
Subtotal
Financial assets
held-to-Maturity
—
111,538
140,246
—
—
—
—
—
—
—
—
—
—
—
—
251,784
801,159
—
—
—
18,262
—
5,024
41,309
—
44,303
—
7,640
—
2,164
4,291
924,152
88,504
—
—
—
—
—
—
—
—
—
—
—
—
—
—
88,504
889,663
111,538
140,246
—
18,262
—
5,024
41,309
—
44,303
—
7,640
—
2,164
4,291
1,264,440
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(*) See commercial loans by industry sector in Note No.12 (d).
238
(e) Collaterals and Other Credit Enhancements
The amount and type of collateral required depends on the counterparty’s credit
risk assessment.
The Bank has guidelines regarding the acceptability of types of collateral and
valuation parameters.
The main types of collateral obtained are:
• For commercial loans: Residential and non-residential real estate, liens and
inventory.
• For retail loans: Mortgages on residential property.
The Bank also obtains collateral from parent companies for loans granted to their
subsidiaries.
Management makes sure its collateral is acceptable according to both external
standards and internal policies guidelines and parameters. The Bank has
approximately 192,200 collateral assets, the majority of which consist of real
estate.
The Bank also uses mitigating tactics for credit risk on derivative transactions. To
date, the following mitigating tactics are used:
• Accelerating transactions and net payment using market values at the date of
default of one of the parties.
• Option for both parties to terminate early any transactions with a counterparty
at a given date, using market values as of the respective date.
• Margins established with time deposits by customers that close FX forwards
with subsidiary Banchile Corredores de Bolsa S.A.
(f) Credit Quality by Asset Class
The Bank determines the credit quality of financial assets using internal credit
ratings. The rating process is linked to the Bank’s approval and monitoring
processes and is carried out in accordance with risk categories established by
current standards. Credit quality is continuously updated based on any favorable or
unfavorable developments to customers or their environments, considering aspects
such as commercial and payment behavior as well as financial information.
The Bank also conducts reviews of companies in certain industry sectors that are
affected by macroeconomic or sector-specific variables. Such reviews allow the
Bank to timely establish any necessary allowance loan losses that are sufficient to
cover losses for potentially uncollectable loans.
The following table shows credit quality by asset class for balance sheet items,
based on the Bank’s credit rating system.
239
As of December 31, 2013:
Individual Portfolio
Normal
MCh$
Substandard
MCh$
Group Portfolio
Non-complying
MCh$
Normal
MCh$
Non-complying
MCh$
Total
Mch$
Financial Assets
600,581
—
—
—
—
600,581
Domestic banks
100,012
—
—
—
—
100,012
Foreign banks
362,755
—
—
—
—
362,755
1,063,348
—
—
—
—
1,063,348
10,482,866
224,446
152,871
2,011,162
205,163
13,076,508
—
—
—
4,662,977
69,330
4,732,307
Consumer loans
—
—
—
2,856,365
204,331
3,060,696
10,482,866
224,446
152,871
9,530,504
478,824
20,869,511
Subtotal
Loans to customers (before allowances
for loan losses)
Commercial loans
Subtotal
Al 31 de diciembre de 2012:
Individual Portfolio
Normal
MCh$
Substandard
MCh$
Group Portfolio
Non-complying
MCh$
Normal
MCh$
Non-complying
MCh$
Total
Mch$
Financial Assets
Domestic banks
Foreign banks
Subtotal
1,100,696
—
—
—
—
1,100,696
14,309
—
—
—
—
14,309
229,276
—
—
—
—
229,276
1,344,281
—
—
—
—
1,344,281
9,331,408
204,369
145,022
1,864,797
185,988
11,731,584
—
—
—
4,149,264
49,403
4,198,667
Loans to customers (before allowances for
loan losses)
Commercial loans
Consumer loans
Subtotal
240
—
—
—
2,651,351
180,163
2,831,514
9,331,408
204,369
145,022
8,665,412
415,554
18,761,765
Analysis of age of portfolio loan, over-due loans by financial asset class:
Terms: Default 1: 1 to 29 days
Default 2: 30 to 59 days
Default 3: 60 to 89 days
Default 1
MCh$
Default 2
MCh$
Default 2
MCh$
1,515
—
—
Total
Mch$
1,515
Commercial loans
23,699
8,281
4,737
36,717
Import-export financing
34,906
230
368
35,504
30,158
5,754
1,606
37,518
2,660
970
723
4,353
Commercial lease transactions
Other loans and receivables
837
808
533
2,178
1,016
642
428
2,086
Consumer loans
Total
19,539
8,148
7,564
35,251
114,330
24,833
15,959
155,122
Default 1
MCh$
Default 2
MCh$
Default 2
MCh$
Total
Mch$
52
—
—
52
Commercial loans
23,049
20,677
3,774
47,500
Import-export financing
22,717
102
193
23,012
38,976
6,289
1,061
46,326
Commercial lease transactions
2,551
750
366
3,667
Other loans and receivables
1,269
1,050
920
3,239
1,111
647
457
2,215
16,010
6,775
6,873
29,658
105,735
36,290
13,644
155,669
Consumer loans
Total
The value of collateral maintained by the Bank for loans individually classified as
impaired as of December 31, 2013 and 2012 is MCh$91,105 and MCh$29,952
respectively.
The value of collateral maintained by the Bank for loans over-due but non-impaired
as of December 31, 2013 and 2012 is MCh$249,058 and MCh$214,093
respectively.
(g) Assets Received in Lieu of Payment
The Bank has received assets in lieu of payment totaling MCh$3,012 and
MCh$2,556 as of December 31, 2013 and 2012, respectively, the majority of
which are properties. All of these assets are managed for sale.
241
(h) Renegotiated Assets
The SBIF sets the following limits for the C08 index:
The impaired loans are considered to be renegotiated when the corresponding
financial commitments are restructured and the Bank assesses the probability of
recovery as sufficiently high.
• Foreign Currency balance sheet:
• All Currencies balance sheet:
• All Currencies balance sheet:
The following table details the book value of loans with renegotiated terms per
financial asset class:
The SBIF authorized Banco de Chile to utilize the C08 Adjusted Index report, which
includes, in addition to the regular report, behavioral maturity assumptions for
some specific balance sheet items, such as roll-over or evergreen pattern for some
portion of the loan portfolio; some portion of the demand deposits are considered
core and therefore no withdrawal is reported, etc.
Financial Assets
2013
Mch$
2012
Mch$
—
—
Domestic banks
—
—
Foreign banks
—
—
Subtotal
—
—
163,827
149,323
21,411
23,132
Consumer loans
311,363
220,451
Subtotal
496,601
392,906
Total renegotiated financial assets
496,601
392,906
(*) Model of calculate of commercial portfolio was modified, incorporating case to case, debtors evaluated in
groups, and maintained the model for debtors evaluated individually.
The Bank evaluates allowances loan losses in two segments: individually assessed
allowances loan losses and group assessed allowances loan losses, which are
described in more detail in Note No. 2(m).
(3) Market Risk
Market Risk is referred as to the potential loss the Bank may incur due to the scarcity of
liquidity or due to an adverse change of market factors levels (such as FX rates, equity
prices, interest rates, options volatility, etc).
(a) Liquidity Risk:
Liquidity Risk Measurement and Limits
The Bank measure and control the Trading Liquidity risk for trading portfolios by
establishing: DV01 limits to certain specific tenors for each yield curve, limits to
spot positions for FX or Equity portfolios and vega limits to FX options portfolios.
Trading Liquidity for debt instruments that are part of the Accrual Book is not limited
explicitly, taking into account that in this case the positions are expected to be held
until medium term or even until maturity.
Funding Liquidity is controlled and limited using the regulatory C08 Index report.
242
1-30 days C08 index < 1x TIER 1 Capital
As of December 31, 2011, the 1-30 days Adjusted C08 Index for the foreign
currency balance sheet items was slightly lower than 0.13. The 1-30 days Adjusted
C08 Index for all currencies balance sheet items on that date is reported as 0.31;
the value of the same index for the period 1 to 90 days is 0.39.
The maturity profile of the consolidated financial liabilities of Banco de Chile and its
subsidiaries, as of 2013 and 2012 end-of-year, is detailed below:
Up to 1
month
MCh$
Between
1 and 3
months
MCh$
Between
3 and 12
months
MCh$
Between 1
and 3 years
MCh$
Between 3
and 5 years
MCh$
More than
5 years
MCh$
Total
Mch$
Liabilities as of December 31, 2013
Accounts Payable from repurchase agreements and
security lending
Debt issued in foreign currency different USD
Total undiscounted financial liabilities (excluding
derivatives with offsetting agreements)
Derivatives with offsetting agreements
5,984,332
—
—
—
—
—
5,984,332
126,343
—
—
—
—
—
126,343
259,688
—
—
—
—
—
259,688
5,009,358
2,351,121
3,005,112
213,203
145
31
10,578,970
301,981
159,374
293,688
236,384
244,998
377,838
1,614,263
95,776
361,825
262,142
—
—
—
719,743
267,881
144,898
259,689
826,803
803,737
2,500,987
4,803,995
437
770
70,215
204,925
248,714
345,363
870,424
12,045,796
3,017,988
3,890,846
1,481,315
1,297,594
3,224,219
24,957,758
45,775
188,282
513,583
688,081
519,512
899,830
2,855,063
Up to 1
month
MCh$
Between
1 and 3
months
MCh$
Between
3 and 12
months
MCh$
Between 1
and 3 years
MCh$
Between 3
and 5 years
MCh$
More than
5 years
MCh$
Total
Mch$
Accounts Payable from repurchase agreements and security lending
5,470,971
—
—
—
—
—
5,470,971
159,218
—
—
—
—
—
159,218
226,396
—
—
—
—
—
226,396
4,271,345
2,508,688
2,814,055
393,247
279
30
9,987,644
231,117
134,729
321,148
244,826
132,688
236,071
1,300,579
135,353
176,467
630,745
141,444
—
—
1,084,009
875,866
606,008
499,644
832,427
691,489
2,267,548
5,772,982
234
469
6,075
65,891
21,564
110,414
204,647
11,370,500
3,426,361
4,271,667
1,677,835
846,020
2,614,063
24,206,446
154,600
79,406
256,717
425,612
229,070
434,677
1,580,082
Debt issued in foreign currency different USD
Total undiscounted financial liabilities (excluding
derivatives with offsetting agreements)
Derivatives with offsetting agreements
The evolution of the loan-to-deposit ratio for 2013 and 2012 is detailed below:
Loans-to-Deposit Ratio
December 31, 2013
December 31, 2012
Maximum
2.47
2.35
Minimum
2.28
2.20
Average
2.38
2.31
243
Banco de Chile has established internal liquidity metrics, in addition to those
required by the regulatory entities, with the objective of covering other dimensions
of liquidity risk, such as large funds providers diversification; maturity concentration
triggers; etc. These and other financial ratios are monthly monitored in order to
early detect structural changes of the balance sheet profile. Additionally, the bank is
closely monitoring market triggers, such as interest rates levels, intervention of the
markets made by the Central Bank, the 5-year Chile CDS spread, etc. These allow
the bank to early prevent systemic crisis due to market conditions.
(b) Price Risk:
The regulatory risk measurement for the Bank Book (SBIF C40 report) due to
interest rate fluctuations is made by using standardized methodologies provided by
the regulatory entities (Central Bank of Chile and SBIF). The report includes models
for reporting interest rate gaps and standardized adverse interest rate fluctuations.
In addition to this, the regulatory entity has requested from banks to establish
internal limits for this regulatory risk measurement. Limits must be established
separately for short term and long term portfolios. The short term risk limit must be
expressed as a percentage of the NIM and the long term risk limit as a percentage
of the Tier-2 Capital. The bank is currently using 25% for both limits. The use of
these limits during 2013 is illustrated below:
Price Risk Measurement and Limits
The Price Risk measurement and management processes are implemented
utilizing various internal metrics and reports. These are built for the Trading portfolio
and separately for the Bank book (also referred as to the Accrual book). In addition
to this, and just on supplementary basis, the bank submits regulatory reports to the
corresponding regulatory entities.
The regulatory risk measurement for the Trading portfolio (SBIF C41 report) is made by
using standardized methodologies provided by the regulatory entities (Central Bank
of Chile and SBIF), which are adopted from BIS 1993 standardized methodologies
for the risk measurement of such portfolios. The referred methodologies estimate
the potential loss that the Bank may incur considering standardized fluctuations of
the market factors (FX rates, interest rates, etc,) relevant market factors that may
adversely impact the value of interest rate positions, FX spot positions and vega
positions generated by either FX or interest rate options portfolios. The interest rate
shifts are provided by the regulatory entity; in addition, very conservative correlation
and tenors factors are included in order to include non-parallel yield curve shifts
reflecting steepening/flattering behaviors. The impact due to FX open positions is
obtained by using huge fluctuations (8% for liquid FX rates and 30% for the illiquid
ones). The SBIF does not establish a separate limit for this particular risk but a
global one that includes this risk (also called Market Risk Equivalent or ERM) and
the Risk Weighted Assets (also called RAAP assets). The sum of ERM and the 10%
of the RAAP assets cannot exceed the 100% of the bank’s Tier2 Capital. In the
future, the Operational Risk will be included to the above sum.
Additionally, the Bank has established internal limits for the Trading Book. In
fact, there are limits for the FX net open positions (FX delta), for the interest rate
sensitivities generated by the derivatives and debt securities portfolios (DV01 or also
referred as to rho) and for the FX volatility sensitivity (vega). Limits are established
on an aggregate basis but also for some specific repricing tenor points. The use of
these limits are monitored, controlled and reported on a daily basis by independent
parties to the senior management of the Bank. The internal governance framework
also establishes that these limits are approved by the board and must be reviewed
at least annually.
The Bank utilizes the parametric VaR (Value-at-Risk or VaR) as the risk measurement
tool for the trading portfolio exposures. The model includes 99% confidence level;
overnight volatility of market factors fluctuations and correlations between them are
obtained from historical closing rates observed the most recent one-year period.
This VaR number is escalated by 22 days (a calendar month) for reporting purposes.
244
Banking Risk Book
Short term
Banking Risk Book
Long Term
11.4%
18.1%
Average Use
9.6%
17.4%
Minimum Use
8.1%
16.8%
Maximum Use
Additionally, the Bank during utilizes build-in models for measuring, limiting,
controlling and reporting interest rate exposures (IRE) and interest rate risks (also
called Earnings at Risk or EaR) for the Accrual Book. The Accrual book includes all
balance sheet items (even some items that are excluded by the regulators in the
analysis of the Bank Book, such as Capital and Fixed Assets, for example). The
internal models consider a more comprehensive and detailed analysis of interest
rates fluctuations, exchange rates and inflation than the SBIF C40 report required
by regulators.
In addition to the above, the Market Risk Policy of Banco de Chile enforces to
perform daily stress tests for trading portfolios and on a monthly basis for accrual
portfolios. The output of the stress testing process is compared to corresponding
trigger levels: in the case triggers are breached, the senior management is notified
in order to implement further actions, if necessary. Moreover, intra-month actual
P&L for trading activities is compared to some trigger levels: escalation to senior
levels is also done when breaches occur.
The following table illustrates the interest rate positions of the Bank Book (repricing
tenors) as of December 31, 2013 and 2012:
Up to 1
month
MCh$
Between
1 and 3
months
MCh$
Between
3 and 12
months
MCh$
Between 1
and 3 years
MCh$
Between 3
and 5 years
MCh$
More than
5 years
MCh$
Total
Mch$
Assets as of December 31, 2013
848,757
—
—
—
—
—
848,757
360,806
—
—
—
—
—
360,806
Accounts receivable from repurchase agreements
and security borrowing
Total assets
54,591
—
—
—
—
—
54,591
361,734
86,268
176,636
80,287
258,915
374,745
1,338,585
791,728
117,220
156,297
—
—
—
1,065,245
3,457,101
2,743,019
5,681,608
4,582,528
2,293,838
5,890,051
24,648,145
85,500
187,044
455,332
174,413
517,638
388,187
1,808,114
—
—
—
—
—
—
—
5,960,217
3,133,551
6,469,873
4,837,228
3,070,391
6,652,983
30,124,243
Between 1
and 3 years
MCh$
Between 3
and 5 years
MCh$
More than
5 years
MCh$
Up to 1
month
MCh$
Between
1 and 3
months
MCh$
Between
3 and 12
months
MCh$
Total
Mch$
Assets as of December 31, 2012
653,511
—
—
—
—
—
653,511
366,036
—
—
—
—
—
366,036
582
—
—
—
—
—
582
Accounts receivable from repurchase agreements
and security borrowing
128,964
81,085
150,971
7,463
21,564
110,414
500,461
1,152,648
14,731
178,761
—
—
—
1,346,140
3,172,424
2,390,933
4,769,542
4,329,131
2,083,220
5,314,078
22,059,328
57,370
178,055
381,448
235,786
192,490
323,967
1,369,116
—
—
—
—
—
—
—
5,531,535
2,664,804
5,480,722
4,572,380
2,297,274
5,748,459
26,295,174
Total assets
245
Up to 1
month
MCh$
Between
1 and 3
months
MCh$
Between
3 and 12
months
MCh$
Between 1
and 3 years
MCh$
Between 3
and 5 years
MCh$
More than
5 years
MCh$
Total
Mch$
6,012,841
—
—
—
—
—
6,012,841
114,589
—
—
—
—
—
114,589
16,964
—
—
—
—
—
16,964
5,141,774
2,211,623
3,005,229
213,224
135
31
10,572,016
12,396
3,372
142,660
435,245
279,419
492,682
1,365,774
279,063
513,096
194,863
—
—
—
987,022
Debt issued
300,614
143,669
259,129
881,605
1,033,552
2,819,652
5,438,221
161,134
1,258
7,013
13,604
17,438
23,840
224,287
12,039,375
2,873,018
3,608,894
1,543,678
1,330,544
3,336,205
24,731,714
Between 1
and 3 years
MCh$
Between 3
and 5 years
MCh$
More than
5 years
MCh$
Current accounts and demand deposits
Accounts payable from repurchase agreements and
security lending
Total liabilities
Up to 1
month
MCh$
Between
1 and 3
months
MCh$
Between
3 and 12
months
MCh$
Total
Mch$
Current accounts and demand deposits
Accounts payable from repurchase agreements and
security lending
5,531,827
—
—
—
—
—
5,531,827
127,611
—
—
—
—
—
127,611
5,268
—
—
—
—
—
5,268
4,223,812
2,371,455
2,908,748
417,885
279
30
9,922,209
3,903
3,477
26,924
175,376
83,186
260,272
553,138
304,070
450,332
348,390
—
—
—
1,102,792
Debt issued
119,449
162,656
253,617
683,676
689,980
2,337,558
4,246,936
Total liabilities
96,108
1,373
7,246
15,543
11,432
34,754
166,456
10,412,048
2,989,293
3,544,925
1,292,480
784,877
2,632,614
21,656,237
Price Risk Sensitivity Analysis
The Bank has focused on stress tests as the main measurement tool for analyzing
price risk sensitivity. The analysis is implemented for the Trading Book and the
Bank Book separately. After the financial crisis started during 2008 and based on
the various studies and analyses made on this specific matter, the Bank adopted
this tool, for sensitivity analysis, when it notices that it is more reliable than normal
distribution instruments such as VaR for trading portfolios or EaR for accrual
portfolios, since:
(a) The financial crisis shows fluctuations that are materially higher than those
used in the VaR with 99% of confidence level.
(b) The financial crisis shows also that correlations between these fluctuations that
are materially different to those used in the VaR, since crisis precisely indicate
severe disconnections between the behavior of market factors respect to the
patterns normally observed.
246
(c)Trading liquidity dramatically decreased in emerging markets during the
financial crisis (in the case of Chile too) and therefore, the escalaltion of the
daily VaR is a very gross approximation of the expected loss.
Stress tests are produced observing historical events and collecting market factors
data.
The former allow the Bank to gauge actual distress events in terms of magnitude
but mainly focused on detecting unusual fluctuations.
The latter gives the Bank the technical background for implementing statistical
analysis. An updated database is maintained including historical data of foreign
exchange rates, debt instruments yields to maturity, derivatives swap yields, foreign
exchange volatilities, etc. that enable the Bank to maintain up-to-date records of
historical volatility of market factors fluctuations and correlations between these
ones.
Given the above, the stress tests may be implemented modeling directional
fluctuations but also knowing the magnitude of the modeled fluctuations relative to
statistical data and also how frequent the fluctuation modeled occurred in the past.
:
In order to comply with IFRS 7.40, we include the following exercise illustrating an
estimation of the impact of feasible but reasonable fluctuations of interest rates,
swaps yield, foreign exchange rates and foreign exchange volatilities embedded
in the Trading and Accrual portfolios. Given that the Bank’s portfolio includes
positions denominated in nominal and real interest rates, these fluctuations must
be aligned with realistic inflation changes forecast. The exercise is implemented
in a very simplistic way: trading portfolios impacts are estimated by multiplying
DV01s by expected interest rates shifts; accrual portfolios impacts are computed
by multiplying cumulative gaps by forward interest rates modeled fluctuations.
It is relevant to note, this methodology includes the limitation that the interest
rates convexity is not properly captured when material fluctuations are modeled;
additionally, neither convexity nor prepayments behaviors are captured for the
accrual portfolio analysis. In any case, given the magnitude of the shifts, the
methodology may be accurate enough for the purposes and scope of the analysis.
The following table illustrates the fluctuations modeled and used in the stress
testing process. Bonds yields, derivatives yields, FX rates, FX CLP/USD volatility and
inflation fluctuations are shown for each tenor point. Equity prices fluctuations are
not included given that the positions held in the stockbrokerage house (Banchile
Corredores de Bolsa SA) are negligible. In fact, equity positions are typically very
small given that this legal vehicle is mostly focused on customer driven transactions
(brokerage service or equity swaps transactions closed with customers).
The directions of these fluctuations were chosen between four scenarios (two
positive economic scenarios and two negative economic scenarios) in order to
generate the worst impact within the four above mentioned:
Market Factor Fluctuations: adverse scenario
CLP
Derivatives
(bps
CLP
Bonds
(bps)
CLF
Derivatives
(bps
CLF
Bonds
(bps)
USD Offshore 3m
Derivatives
(bps)
Spread USD
On/Off
Derivatives
(bps)
Vol FX CLP/USD
(%)
Inflation’s
Change
Period n-1 to n
(Monthly
Basis)
(%)
3 months
( 93 )
( 75 )
533
601
( 2)
295
7.3%
( 0.60% )
6 months
( 116 )
( 88 )
245
267
( 8)
225
6.1%
( 0.12% )
9 months
( 128 )
( 95 )
108
128
( 10 )
213
5.5%
( 0.07% )
1 year
( 140 )
( 99 )
27
55
( 11 )
188
5.1%
( 0.07% )
2 years
( 153 )
( 95 )
( 22 )
4
( 18 )
104
5.1%
-
4 years
( 174 )
( 127 )
( 62 )
( 46 )
( 31 )
76
-
( 0.02% )
6 years
( 162 )
( 127 )
( 76 )
( 70 )
( 38 )
70
-
-
10 years
( 139 )
( 125 )
( 91 )
( 87 )
( 42 )
78
-
( 0.01% )
16 years
( 143 )
( 127 )
( 80 )
( 76 )
( 43 )
83
-
( 0.06% )
20 years
( 151 )
( 127 )
( 79 )
( 71 )
( 44 )
86
-
( 0.06% )
Bps = Basic points
247
The impact on Trading Book as of 31 December 2013 is the following:
POTENTIAL P&L IMPACT TRADING BOOK
Mch$
CLP Interest Rate
(3,383)
Derivatives
(3,578)
AVAILABLE FOR SALE PORTFOLIO IMPACT
ADVERSE SCENARIO
DV01(+1 bps)
(USD)
Impact due to
interest rate
change (USD)
CLP
(189,961)
(11,9)
(6,230)
CLF
(500,888)
(37,6)
(19,781)
USD
(146,947)
(16,1)
(8,442)
(65,6)
(34,453)
195
Securities
CLF Interest Rate
(4,824)
Derivatives
(5,248)
Securities
424
USD, EUR, JPY Offshore Interest Rate
(857)
4,232
USD, EUR, JPY On/Off Spread
Total Interest Rate
(4,831)
Total FX
(100)
Total FX OPTION Vega
1,312
Potential P&L Impact: Interest Rate + FX + Vega
(3,619)
2,284,314
Banco de Chile Tier1 Capital
The scenario modeled would generate losses in the Trading Book up to Ch$ 3,600
MM or slightly above USD 7 MM. In any case, these huge fluctuations would not
result in material losses compared to the historical observed P&L for one month
or the Tier 1 Capital.
The impact of such fluctuations in the Accrual portfolio, which is not necessarily a
gain/loss but greater/lower net revenue from funds generation, is illustrated below:
Instrument
Total
Impact due to
interest rate
change (MCh$)
(4) Capital Requirements and Capital Management:
The main objectives of the Capital Management process are to ensure the compliance
with regulatory requirements, to keep a strong credit rating and healthy capital ratios.
Within 2013, the Bank has complied with all these tasks.
As a part of the Capital Management Policy, it has been established capital sufficiency
triggers in order to prevent capital ratios usage close to the limits. The triggers are
established at levels much lower than the limits and the usage is monitored monthly.
Within 2013, there were no triggers’ breaches.
The capital amount is managed according to the risk environment, the economic
performance of Chile and the main economies and the business cycle. For implementing
this, the board may change the dividend policy or authorize equity issuance or stocks
repurchase programs.
Regulatory Capital:
POTENTIAL MARGINAL NRFF(*) ACCRUAL BOOK
(next 12 months)
Mch$
Higher / (Lower NRFF)
(146,485)
Impact due to Inter-Banking yield curve (Swap yield) shock
(121,170)
Impact due to spreads shock
(25,315)
(*) Net revenue from funds
The adverse impact in the Accrual book would be the result of two events: a severe
drop in the local inflation and the increase of our funding spread. The lower net
revenues from funds in the following 12 months would reach CH$ 146 billion,
which is still much lower of the current annual 12-month rolling P&L generation.
248
The following table illustrates the changes in fair value of Available-for-Sale
securities as the result of stress test modeled above. These changes are recorded
in Other Comprehensive Income, a component of shareholder’s Equity, and not
current earnings:
According to the Chilean Bank Law, banks must comply with a minimum Basel I Tier 2
Capital ratio of 8%. Therefore, the bank must maintain a minimum Tier 2 Capital that
cannot be lower than 8% of the sum of 12,5 times the ERM (market risk computed for
trading portfolios, see 41 (3) (b) above) and RAAP assets. Additionally, the Bank must
comply with a minimum capital to total assets ratio: the law establish that banks must
maintain a minimum Tier 1 Capital that cannot be lower than the 3% of total assets.
The authorities have requested Banco de Chile, due to the merge with the operation
of Citibank, N.A. in Chile that maintains the first percentage as a minimum of 10%.
Tier 1 and Tier 2 Capital are computed according the international standards; assets
are risk weighted, for reporting purposes, according to SBIF instructions which are
adopted from BIS guidelines. For derivatives, the risk weighting process is applied over
the “loan equivalent” of each derivative transaction. The loan equivalent is sum of the
current value of the transaction, if positive, and the maximum exposure the Bank may
face in the future, along the life of the transaction, considering the increase in value of
it due to market factor fluctuations including some confidence level. The loan equivalent
is expressed as a percentage of the notional amount of the transaction, being these
percentages much larger for FX transactions than for interest rate swaps or for longer
tenors than for shorter ones.
The risk-weighted assets and TIER 1 and TIER 2 Capital, as of end of year 2013 and
2012, are the following:
Consolidated assets
2013
Mch$
Risk-weighted assets
2012
Mch$
2013
Mch$
2012
Mch$
Balance sheet assets (net of provisions)
873,308
684,925
20,654
832
374,471
396,611
39,728
53,978
393,134
192,724
124,932
55,025
82,422
35,100
82,422
35,100
Receivables from repurchase agreements and security
borrowing
374,688
329,497
460,537
328,642
1,062,056
1,343,322
381,494
231,182
20,389,033
18,334,330
18,505,593
16,658,476
1,673,704
1,264,440
432,995
416,938
—
—
—
—
16,670
13,933
16,670
13,933
29,671
34,290
29,671
33,151
197,578
205,189
197,578
205,189
3,202
2,684
320
268
Deferred tax assets
145,904
127,143
14,590
12,714
Other assets
318,029
296,878
318,029
296,879
20,625,213
18,342,307
Intangible assets
Property and equipment
Current tax assets
Subtotal
Off-balance-sheet assets
3,927,627
Contingent loans
3,945,940
Total risk-weighted assets
2,355,879
2,367,215
22,981,092
20,709,522
Mch$
%
Mch$
%
TIER 1 Capital (*)
2,284,314
7.57
2,007,057
7.33
TIER 2 Capital
2,999,061
13.05
2,738,311
13.22
(*) Corresponds to equity attributable to equity holders in the Statement of Consolidated Financial Position
42. Subsequent Events:
(a) On January 9, 2014 LQ Inversiones Financieras S.A. (“LQIF”) informed Banco
de Chile that LQIF will carry out a process to offer for sale or transfer up to
6,900,000,000 shares of Banco de Chile (a secondary offering). In addition, LQIF
has requested that Banco de Chile perform all the actions related to the execution
of this kind of transaction in the local and international markets.
Furthermore, the letter indicates that, if consummated, this transaction will reduce
LQIF’s share of outstanding voting rights from 58.4% to 51%, so that the control
status of LQIF with respect to Banco de Chile will not be altered.
249
With regard to the above, on this date the Board of Directors of Banco de Chile
has agreed to LQIF’s request and the conditions under which Banco de Chile will
participate in the appropriate filings with foreign regulators, the entering into of
contracts and other documents required by law and consistent with securities
market practice in the United States of America and other international markets,
and in the performing of such other steps and actions as are necessary for the
consummation of this transaction in the local and international markets and that
are related to the commercial and financial condition of Banco de Chile.
(b) On January 14, 2014, in relation to the relevant event dated January 9, 2014,
it is informed that Banco de Chile has filed with the Securities and Exchange
Commission of the United States of America (SEC), Supplemental Preliminary a
prospectus which contains financial and business information of the Bank.
Also, it has been registered the agreed contract text called Underwriting Agreement
that will be subscribed by LQ Inversiones Financieras S.A. (LQIF), as a seller of
securities, Banco de Chile as issuer, and Citigroup Global Markets Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc. and
Banco BTG Pactual SA - Cayman Branch, as underwriters.
(d) On January 29, 2014, Bank is informed that in relation to the secondary offering
shares of Banco de Chile that is performing with LQ Inversiones Financieras
S.A., in this date Banco de Chile as issuer, LQ Investments SA, as seller of the
securities, and Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Deutsche Bank Securities Inc., and Banco BTG Pactual SA - Cayman
Branch as underwriters, have been subscribed a contract called Underwriting
Agreement, according to relevant event dated January 14, 2014.
Also, later than January 30, 2014, Banco de Chile will proceed to register in
Securities and Exchange Commission of the United States of America (SEC), Final
Prospectus Supplement, which contains financial and commercial information of
the Bank.
(e) On January 31, 2014, it was informed that in the Ordinary Meeting No. BCH 2,790
held on January 30th, 2014, the Board of Directors of Banco de Chile resolved
to call an Ordinary Shareholders Meeting to be held on March 27th, 2014, with
the objective of proposing, among other matters, the distribution of the Dividend
number 202 of $3.48356970828 per each of the 93,175,043,991 “Banco de
Chile” shares, which will be payable at the expense of the distributable net income
obtained during the fiscal year ending on December 31st, 2013, corresponding to
the 70% of such income.
250
Likewise, the Board of Directors resolved to call an Extraordinary Shareholders
Meeting to be held on the same date in order to propose, among other things, the
capitalization of the 30% of the distributable net income of the Bank obtained during
the fiscal year ending on December 31st, 2013, through the issuance of fully paidin shares, of no par value, with a value of $64.56 per “Banco de Chile “share, which
will be distributed among the shareholders in the proportion of 0.02312513083
shares for each “Banco de Chile” share and to adopt the necessary agreements
subject to the exercise of the options established in article 31 of Law 19,396.
(f) By Oficio Reservado N° 064 dated January 30th, 2014 the Superintendency of
Securities and Insurance (“Superintendencia de Valores y Seguros”) brought
charges against Banchile Corredores de Bolsa S.A. for the alleged infringement
of Article 53 second paragraph of Law 18,045 (“Ley de Mercado de Valores”), for
certain specific transactions performed during the years 2009, 2010 and 2011.
In Management’s opinion, there are no other significant subsequent events that
affect or could affect the consolidated financial statements of the Bank and its
subsidiaries between December 31, 2013 and the date of issuance of these
consolidated financial statements.
Additionally, LQIF and Banco de Chile have agreed the terms and general conditions
under which the Bank will participate in this process.
(c) On January 29, 2014, LQ Inversiones Financieras S.A. informed as a relevant event
that was placed of 6,700,000,000 shares of Banco de Chile, in the local market
and the United States of America, by American Depositary Receipts Program, at a
price of $ 67 per share, declaring successful offer for sale. Additionally, it informed
that the 6,700,000,000 shares of Banco de Chile offered for sale will be placed in
stock exchange at price stated on January 29, 2014.
Héctor Hernández G.
General Accounting Manager
Arturo Tagle Q.
Chief Executive Officer

ANNUAL REPORT 2013 YEARS

Transcription

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