Corporate Governance Practices

Transcription

2015
Soundness
SUPPORT
Development
Trust
Leadership
Dreams
Security
At the industry forefront
Technology
Proximity
Excellence
PROJECTS
Solidarity
creativity
Energy
Razón Social:Banco de Chile
RUT: 97.004.000-5
Casa Matriz
Ahumada 251, Santiago, Chile
Phone: (56-2) 2637 1111
Fax: (56-2) 2637 3434
www.bancochile.cl
Swift BCHI CL RM
Oﬁcina de Representación Beijing
606 West Tower, Twin Tower, B-12
Jianguomenwai Avenue,
Chaoyang District, Beijing
Phone: (86-10) 5879 4301
Fax: (86-10) 5109 6040
bro@bancochile.bj.cn
Departamento de Acciones
Agustinas 975, of. 541, Santiago, Chile
Phone: (56-2) 2653 2980
(56-2) 2653 2294
acciones@bancochile.cl
Relaciones con Inversionistas
Ahumada 251, piso 1, Santiago, Chile
Phones: (56-2) 2653 2051
(56-2) 2653 3554
ir@bancochile.cl
Contents
56
4
OUR BANK
Letter from the Chairman
Banco de Chile in 2015
National Presence
History
Achievements in 2015
Recognitions
Shareholders and Stock Performance
RISK
MANAGEMENT
Credit Risk
Market Risk
Operational Risk
78
PERFORMANCE
IN 2015
24
STRATEGy
Business Model
Competitive Advantages
Market Trends
Our Strategic Response
Management’s Discussion and Analysis
Economic Environment
Chilean Banking System
Consolidated Performance
Financial Results for 2015
Risk Factors
Regulatory Changes
124
34
CORPORATE
GOVERNANCE
Board of Directors
Main Committees and Meetings
Senior Management
CORPORATE SOCIAL
RESPONSIBILITY
Our Commitment to the Community
Areas of Action
134
CONSOLIDATED
FINANCIAL STATEMENTS
Banco de Chile
3
Letter
from the Chairman
Dear Shareholders:
I am pleased to present Banco de Chile’s 2015 annual report and financial
statements. In a particularly challenging year for both the domestic economy
and the banking sector, our corporation once again led the industry in several
indicators.
The bank posted a net income of Ch$559 billion for the year, equal to a return
on average capital and reserves of 21.9%, which exceeds the banking system
average by 8.1 percentage points. Excluding the inflation adjustment retained
annually to reflect the real value of our capital and reserves, the bank reported
distributable net income for 2015 of Ch$464 billion, which is nearly unchanged
from the prior year. As a result, the subordinated debt payment that SAOS
S.A. will make to the Chilean Central Bank will once again far exceed the set
minimum.
To this exceptional financial performance we can add important achievements
in several other areas, thus reaffirming the bank’s ability to successfully adapt
to business and market demands. I would like to specifically touch on some
initiatives that work to strengthen our leading position in current accounts
and demand deposits, which is one of the strategic assets that sets our
corporation apart. During the year, we made important strides in innovation
by adding several new mobile applications (Mi Cuenta, Mi Seguro and Mi
Pass) to our existing line, which includes Mi Banco, Mi Pago and Mi Beneficio.
We also added partnerships with Delta and Sky airlines to our current value
proposition, benefiting more than one million credit cardholders that now
have access to an innovative loyalty program for travel throughout Chile and
the United States.
We also implemented initiatives in our ongoing effort to promote entrepreneurship,
including workshops with SME customers and financial education seminars for
microentrepreneurs throughout Chile. In the same spirit, we provided funds
for a large number of entrepreneurs to attend Feria Expo Milán. In response
to our commitment to expand access to financial services, Banco CrediChile’s
network of non-branch service platforms (Caja Chile) was extended during 2015
to reach 264 communities, providing coverage to 76% of Chile’s municipalities,
many of which are located in very remote parts of the country.
We are convinced that our corporation is on the right path, which has been
confirmed by numerous recognitions received during the year. A few major
4
Annual Report 2015
awards I would like to mention include “Best Bank in Chile” from Euromoney,
and Best Financial Institution, Best Sub-custodian Bank and Best Digital Bank
in Chile given by Global Finance and other specialized media. We maintained
our international risk ratings of A+ from Standard & Poor’s and Aa3 from
Moody’s, which position us as the safest private bank in Latin America.
I am convinced that these initiatives and accolades, together with important
strides in service quality, human capital and operating efficiency, help strengthen
our market leadership and provide sustainability for our corporation to face
an increasingly challenging future.
All of these achievements are especially noteworthy given the complex year we
experienced in 2015. For the second year in a row, the Chilean economy reported
lower-than-expected growth, a drop in investment rates and persistently
pessimistic confidence levels. This is partly due to external factors such as
falling copper prices, economic slowdown in China and the end of a prolonged
period of historically low interest rates in the United States. However, as I
cautioned in 2014, it is these very elements that explain how the extraordinarily
positive conditions experienced by Chile in recent years have come to an end,
marking the beginning of a new cycle most likely characterized by reduced
growth and higher unemployment. In this context, since 2015 we have had
to pay special attention to the risk-return relationship of all our assets. They
must be carefully monitored in order to maintain a healthy balance between
prices and risk, which can affect our market share levels in the medium term.
Today it is more important than ever for the country to safeguard the foundations
of sustainable growth, which involves preserving both confidence and private
investment. Growth must be made a priority and debates on structural reforms
must be guided by broad technical debate with a long-term perspective and
active participation and contributions from the private sector.
This outlook will be decisive in addressing the country’s general challenges
as well as those specific to the banking industry. In 2016, the industry can
expect to face a series of reforms and structural discussions that will set the
stage for the future. One of the most important will be the modification of
the General Banking Law (GBL), which was amended in 1997. We are pleased
that our regulator and the industry are moving forward towards new capital
adequacy and liquidity standards, but we would like to emphasize the need
5
Letter
from the Chairman
for new legislation that is suited to our local market. Gradual implementation
and reconciliation with local market operations will be key to making the
amendments a success. We are aware that these changes may involve greater
capital requirements for our bank. However, we believe that we have sufficient
strength and capacity to address these challenges through capital issuances
and/or by revising traditional practices for capitalizing earnings.
The GBL modifications must also improve the corporate governance of the
SBIF, making it more independent from the political cycle, assuring more robust
decision-making processes and promoting a continuous agenda. International
evidence clearly demonstrates the benefits of a deliberative body in place of
a system decided by one person.
As 2016 unfolds, the banking industry will also begin to see the effects of
other major reforms for the industry that have already been approved or
are in process. We will face initiatives such as new structural modifications
to the Consumer Rights Protection Law, among others that may affect the
financial system. We would like to express our concern about this particular
initiative as the bill currently under debate does not include reasonable
proposals intended to enhance the law. Similarly, I would like to point out
that considerable uncertainty still exists regarding the final effect that the
Law on Insolvency and Re-entrepreneurship will have on debtor payment
behavior, especially on renegotiations by individuals, where some impropriety
has been seen. We believe that these matters could exacerbate de-banking
trends already observed after the latest modifications to the conventional
maximum interest rate. It seems unreasonable for the efforts made by the
country and the industry for years to increase individuals’ access to financial
services be curbed by the undesired effects of new regulations.
During 2015, we continued to strive to strengthen our corporate governance,
with special involvement from directors on certain committees to analyze
specific matters in depth and provide the board with more information to
discuss and debate the policies and guidelines that govern the banking
6
Annual Report 2015
business. The board has also traditionally held at least two extraordinary
meetings each year in a location outside Santiago that have included visits
to corporate clients and branch networks.
I would like to thank all of the associates at Banco de Chile, especially the more
than nine thousand individuals that once again generously committed their
time to volunteer for the Teletón, a campaign that we have embraced since
day one and is already a part of our culture and history. The bank makes it a
priority to sustainably contribute to causes that make us a better country,
which is also reflected in the work we do to support both Desafío Levantemos
Chile and Astoreca foundations.
In closing, I would like to specifically recognize the valuable support of our
shareholders, who have placed their trust in our board, in our management and
in the almost fifteen thousand people that make up the Banco de Chile team.
PABLO GRANIFO LAVÍN
Chairman of the Board
Banco de Chile
7
Banco de Chile
in 2015
Ch$31,293
BILLION
IN ASSETS
Ch$18,235
BILLION
IN TOTAL DEPOSITS
Ch$2,740
BILLION
IN EQUITY
Banco de Chile structures its operations into four business segments in order to adequately meet the needs of
its diverse target markets. To accomplish this, it uses differentiated service models tailored to each segment
and develops value propositions for each customer or customer group.
Banco de Chile Segments
AIL
RET ING
K
BAN
Retail and SME
• Middle to highincome individuals.
• Small and mediumsized companies with
annual sales of up to
Ch$1,600 million.
CrediChile
• Employees,
retirees and microentrepreneurs
in the C3 and D
socioeconomic
segments.
• Micro-entrepreneurs.
8
Annual Report 2015
lesale
Who
Banking
Wholesale, Large
Companies and
Real Estate
• Chilean and foreign
companies with
annual sales between
Ch$1,600 million and
Ch$70,000 million.
Corporate and
Investments
• Chilean and foreign
companies with
annual sales over
Ch$70,000 million.
y
sur
Trea
Treasury
• Institutional
investors,
multinational
entities, corporations,
wholesale customers
and large companies.
• Individuals that
are private banking
and preferential
customers.
RIES
SIDIA
SUB
Banchile
• Mutual Fund
Management
• Stock Brokerage
• Insurance Brokerage
• Financial Advisory
• Securitization
Socofin
(Collections)
Promarket
(Pre-evaluation services)
Operating Margin, Net of Risk
(% over average interest earning assets, as of December 2015)
5.1%
4.8%
4.7%
4.6%
4.2%
Industry Leader in Profitability(1)
Return on Average Capital and Reserves
(As of December 2015)
21.9%
Banco de Chile
Bci
Santander
CorpBanca
Itaú
18.5%
17.9%
15.5%
13.9%
Efficiency Ratio
(Operating Expenses / Operating Revenues,
as of December 2015)
44.1%
50.3%
43.3%
48.3%
52.2%
Banco de Chile
Banco de Chile
Bci
Santander
CorpBanca
Itaú
(1)
Bci
Santander
CorpBanca
Itaú
Banks with more than 3% market share in loans.
Local Rating for Banco de Chile
Rating
Safest Private Bank
in Latin America
Banco de Chile maintained its
position 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 exceptional
rating, which allows the bank
to access financial markets
with attractive spreads, is the
result of a solid market position;
outstanding performance in risk
matters; high, stable returns
and adequate capitalization and
liquidity.
Fitch
Feller-Rate
Short-term
Level 1+
Level 1+
Long-term
AAA
AAA
Letters of Credit
AAA
AAA
Bonds
AAA
AAA
AA
AA+
Subordinated Bonds
Shares
First Class Level 1 First Class Level 1
Outlook
Stable
Stable
International Rating for Banco de Chile
Rating
S&P
Moody’s
Short-term
A-1
P-1
Long-term
A+
Aa3
Foreign Currency
Chilean Pesos
Short-term
A-1
P-1
Long-term
A+
Aa3
Stable
Stable
Outlook
Banco de Chile in 2015
9
National
Presence
2Branches
6Cajas Chile
13 ATMs
6Branches
45 Cajas Chile
39 ATMs
Arica and Parinacota Region
16Branches
102 Cajas Chile
69ATMs
Tarapacá Region
Antofagasta Region
8Branches
21 Cajas Chile
22 ATMs
Atacama Region
48
Branches
129Cajas Chile
117ATMs
13Branches
229 Cajas Chile
40ATMs
Coquimbo Region
Valparaíso Region
16Branches
114 Cajas Chile
60ATMs
Libertador Gral. Bernardo
O’higgins Region
34Branches
532 Cajas Chile
96ATMs
Biobío Region
7Branches
39 Cajas Chile
17 ATMs
Los Ríos Region
3 Branches
4 Cajas Chile
6 ATMs
206
429
818
Branches
Cajas Chile
ATMs
Metropolitan Region of Santiago
19Branches
182 Cajas Chile
42ATMs
Maule Region
17Branches
247 Cajas Chile
33ATMs
Araucanía Region
17 Branches
54 Cajas Chile
56 ATMs
Los Lagos Region
Aysén Region
7Branches
5Cajas Chile
13 ATMs
Magallanes Region and
Chilean Antarctic Territory
10
Annual Report 2015
Broad Customer Service Network
THROUGHOUT CHILE
419
2,138
es
Branch
Cajas Chile
1,441
ATMs
Citi and the arc design are registered service marks of Citigroup Inc. Use under license.
National Presence
11
History
1894
1987
Banco de Chile begins operating
in 1893 following the merger of
Banco de Valparaíso (1856), Banco
Nacional de Chile (1865) and Banco
Agrícola de Chile (1869). By 1894 it
boasts a network of 25 branches
throughout Chile.
Ownership and control of the bank
are once again transferred to private
investors. New shareholders are
incorporated through the program
“popular capitalism”.
1977
Over the next two years, the new
institution absorbs three banks:
Crédito Unido, Internacional and
Banco Comercial de Chile.
In partnership with Banco de Vizcaya
of Spain and Orient Leasing of Japan,
Banco de Chile creates Leasing Andino,
a pioneer in the local market that later
becomes the industry leader.
1930
1982
Thanks to its solid capital base,
Banco de Chile survives the global
financial crisis and continues to
develop as the country’s most
important bank and one of its most
respected corporations.
The bank begins the internationalization
process by opening a branch in New York.
1973
As part of a process to nationalize
the banking industry, the Chilean
State Development Corporation
(CORFO) becomes Banco de Chile’s
largest shareholder.
1975
Ownership and control of the bank
are transferred to private investors.
12
Annual Report 2015
1983
Authorities intervene in the operations
of several institutions, including Banco
de Chile, when their capital bases are
compromised by deteriorated loan
portfolios.
1986
Banco de Chile acquires the assets and
liabilities of Banco Continental.
Banco de Chile absorbs the operations
of Banco Morgan Finansa.
1993
The bank creates Banco CrediChile,
a business area with its own branch
network specialized in consumer
loans for middle and low-income
individuals.
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
publicly-held 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 another new
company, SAOS S.A., a wholly-owned
subsidiary of SM-Chile S.A.
2010
2001-2002
Banco de Chile agrees to merge with Banco
de A. Edwards. Following the merger,
Quiñenco S.A., the main shareholder
in both banks, acquires the majority
shareholding in Banco de Chile.
As part of this transaction, Banco
CrediChile absorbs Finandes, the consumer
division of Banco de A. Edwards.
Under an American Depositary Receipts
(ADR) program, Banco de Chile shares are
listed on the New York Stock Exchange.
2008
Banco de Chile takes over the assets and
liabilities of Citibank Chile, the Chilean
subsidiary of Citigroup Inc. Concurrently,
Citigroup partners with Quiñenco to
share ownership of LQ Inversiones
Financieras S.A.
Banco de Chile and Citigroup also sign
a cooperation agreement, a global
connectivity agreement and a licensing
agreement, providing for mutual support
in executing diverse transactions and
limited use of the Citi brand.
Citigroup exercises its option to
purchase shares of LQIF, raising its
ownership to 50%, while Quiñenco
holds the remaining 50%.
2011
Following a successful capital
increase, Banco de Chile’s stock
increases its depth in financial
markets and is included on the
MSCI stock index.
2014
LQIF carries out a secondary offer of
the bank’s shares, boosting the stock’s
free float to 25% and thereby increasing
traded volumes.
2012
2015
Standard & Poor’s gives Banco de
Chile an ‘A+’ international credit
rating, making it the private bank
with the best risk rating in Latin
America.
Banco de Chile acquires a loan portfolio
worth Ch$564 billion from a local financial
institution.
2013
The bank completes a successful
capital increase that raises
Ch$253 billion.
The bank is recognized by the publications
Global Banking & Finance Review and
Global Finance as the best digital bank
in the country.
It signs strategic alliances with Delta
Airlines and Sky Airlines, which enable
the bank to expand benefits offered to
credit cardholders.
As a result of this partnership, Banco
CrediChile absorbs Financiera Atlas,
the consumer division of Citibank Chile.
History
13
Achievements in
2015
01
LEADERSHIP IN NET INCOME AND PROFITABILITY
Banco de Chile once again led the industry with net income of Ch$559 billion
(25% market share) and a return on average capital and reserves of 21.9%.
BEST DIGITAL BANK
Thanks to several new mobile apps added in 2015 to our existing offering
of online platforms, we were recognized as the best digital bank in Chile by
several specialized publications.
03
ATTRACTIVE LOAN PORTFOLIO ACQUIRED
Attentive to market opportunities, in 2015 we purchased Ch$564 billion
in commercial loans from a local financial institution, demonstrating once
more our commercial agility and business acumen.
MAJOR PROGRESS IN SERVICE QUALITY
As a result of ongoing improvements to customer service models, we have
recorded consistent progress in customer recommendation indices, attaining
record figures for the third quarter of 2015.
05
14
Annual Report 2015
02
NEW PARTNERSHIPS THAT STRENGTHEN TIES WITH CUSTOMERS
During the year, we signed two new alliances with Delta Airlines and Sky
Airlines. These initiatives directly benefit 1.5 million credit cardholders that
can now use award dollars for domestic and international travel as well as
other important benefits.
04
06
INCREASED ECONOMIC VALUE OF LOAN PORTFOLIO
As a result of implementing sophisticated customer intelligence tools and
refining our segmentation processes, we increased the retail market share
of our portfolio. This progress is consistent with our long-term strategic
goal of optimizing the risk-return ratio of our assets.
REINFORCED COMMITMENT TO ENTREPRENEURSHIP
In 2015 we organized 75 successful seminars with SMEs in 43 cities throughout
Chile, bringing together over 7,000 participants. We also provided funds
for a large group of entrepreneurs to attend Expo Milán 2015 to explore
business and innovation opportunities.
08
EXPANDING BANK ACCESS AND FINANCIAL LITERACY
In an ongoing effort to expand the coverage of our banking services, Banco
CrediChile focused efforts on the project “CuentaChile”, a demand account
that provides numerous benefits to users, including the chance to use
a national network of 2,138 service platforms. In addition, over 28,000
people throughout Chile participated in classroom and online trainings on
financial literacy.
RECORD BOND PLACEMENTS
In 2015 Banco de Chile issued more than UF 50 million in long-term bonds.
This reinforces our funding structure and better positions us to address the
new liquidity requirements that will take effect soon. It also enables us to
strengthen our value propositions with one of the lowest cost of funds in
the industry.
10
07
09
CONSERVING CHILE’S CULTURAL HERITAGE
In 2015 we embarked on an ambitious project to remodel and conserve our
headquarters, starting with the landmark Oberpaur building located on the
corner of Huérfanos and Estado. Inaugurated in 1929, it was the country’s
first building with an open floor plan and is an icon of modern architecture
in Chile.
15
Recognitions in
2015
Euromoney
Best Bank in Chile
For the fifth straight year, Banco
de Chile was named the Best Bank
in Chile at the 2015 Euromoney
Awards for Excellence organized
by the British magazine of the
same name.
Global Finance
Best Bank in Chile
Banco de Chile obtained the best
bank in Chile in the ranking World’s
Best Emerging Markets Banks
in Latin America 2015, which
is based on information from
banking analysts, executives and
consultants and a survey of the
U.S. magazine’s reader base.
LatinFinance
Bank of the Year IN Chile
LatinFinance, a recognized source of
information on financial markets and
economies in Latin America and the
Caribbean, chose Banco de Chile as
the Bank of the Year in Chile based
on its successful, comprehensive
business and innovation strategy.
Global Banking and Finance Review
Best Internet Bank in Chile
Best Mobile Banking in Chile
At the Global Banking & Finance
Review Awards, Banco de Chile
was honored with two awards:
Best Internet Bank in Chile and
Best Mobile Banking in Chile.
These accolades look to reward
innovation, achievement, strategy
and progressive and inspiring
changes within the global financial
community.
Global Finance
The Best Consumer Digital Bank
This award was received as part
of the annual ranking World’s
Best Consumer Digital Banks in
Latin America 2015, prepared by
Global Finance. Banco de Chile was
identified as the best digital bank and
stood out for the mobile business
applications it has developed.
16
Annual Report 2015
Latin American Banking Federation
(felaban)
FELABAN INNOVATION AWARDS
Banco de Chile was awarded second
place at this prestigious event
organized by the Latin American
Banking Federation. The honor is
given to highlight the best private
banking services by region and
service area.
Merco Talento Chile
MOST ATTRACTIVE FINANCIAL
INSTITUTION,
SECOND AMONG COMPANIES
Banco de Chile moved up one
position with respect to the
inaugural version of this ranking,
being honored as the best financial
institution and the second most
attractive company by Merco
Talento 2015. This study looks to
identify 100 companies with the
best ability to attract and retain
talent using a methodology that
combines several information
sources.
Global Finance
Best Sub-Custodian Bank
For the eighth year in a row, Banco
de Chile was named the best subcustodian bank. This award evaluates
services like local and international
custody of shares, fixed income
instruments and money market
instruments and securities clearing,
representation and outsourcing
services. It also examines customer
relations, service quality, price
competitiveness and technology
platforms, among other criteria.
Euromoney
BEST SOLUTIONS FOR HIGH-INCOME
CUSTOMERS
Banco de Chile has been distinguished
for four straight years in the
Euromoney Private Banking and
Wealth Management Survey. In the
2015 edition, it led in the category
loan and financing solutions; highincome services. This evaluation
takes into account factors such as
business management, returns,
customer numbers, client relations
and services offered.
LVA Índices and Diario Financiero
FIVE SALMÓN AWARDS
Banchile Administradora General de
Fondos received five Salmón Awards
in 2015, bringing its cumulative
total to 75 awards and making
it the most honored institution
in the event’s history. The award
looks to provide clients with an
overall indicator of performance
by identifying the funds with the
best risk-adjusted returns within
several different categories.
Deloitte and Diario Financiero
THREE FINANCIAL LEADER AWARDS
Banchile | Citi Global Markets and
Banchile Inversiones were recognized
in 2015 in the categories Best IPO
2014 and Best IPO Agent 2014.
Banchile | Citi Global Markets also
received an award for the Best Bond
on International or Mixed Markets
placed during the year.
Recognitions in 2015
17
Shareholders
and Stock Performance
With a market capitalization
equivalent to US$9.8 billion
as of year-end 2015, Banco
de Chile positioned itself
once again as the financial
institution with the greatest
market value in Chile.
Banco de Chile continues to prioritize ongoing value creation for its shareholders.
A consistent strategy, effective commercial and financial management and
conservative risk policies have enabled it to fulfill this commitment and perform
well on the Santiago Stock Exchange. In this market, Banco de Chile’s share
outperformed the IPSA (adjusted for capital events) and closed 2015 with a
value of Ch$72.2.
Market Information
The bank’s stock is traded on local markets as well as the New York Stock
Exchange under an American Depositary Receipts (ADR) program, where
one American Depositary Share (ADS) is equivalent to 600 local shares. As
of December 31, 2015, there are 96,129,146,433 subscribed and paid shares,
which are identified locally with the ticker “Chile” and on the New York Stock
Exchange with “BCH”.
Banco de Chile’s Share Price vs. IPSA Index
(Base 100 in December 2014, adjusted for capital events)
120%
115%
110%
105%
100%
95%
90%
85%
80%
Jan-15
Per Share Ratios
Values
Banco de Chile
Mar-15
Jun-15
Sep-15
Dec-15
2011
2012**
2013
2014
2015
Income before Taxes
(Ch$)
5.6
5.9
6.4
6.9
6.5
Net Income (Ch$)
4.9
5.3
5.5
6.2
5.8
Distributable Net Income
(Ch$)
4.3
4.9
5.0
4.9
4.8
Price-Earnings (times)
14.3
14.6
13.8
11.3
12.4
Price-to-Book* (times)
3.5
3.4
3.1
2.6
2.5
Total Number of Shares
as of December 31 of
each year
86,942,514,973
88,037,813,511
* Includes capital, reserves, valuation accounts and retained earnings from prior years.
** Excludes T series.
18
IPSA
Annual Report 2015
93,175,043,991
94,655,367,544
96,129,146,433
Stock Performance by Market
Local Markets
Closing
Price
Average
Price(1)
Number
of Shares
Traded
(millions)
Total
Average Daily
Traded
Traded
(2)
Volume
Volume
(US$ millions) (US$ millions)
2014
70.3
72.2
18,357.4
2,822.9
11.3
1Q
69.0
70.6
9,704.2
1,735.7
27.6
2Q
73.8
73.2
2,892.3
380.0
6.1
3Q
73.8
72.8
2,641.1
332.8
5.4
4Q
70.3
72.2
3,119.8
374.3
6.0
2015
72.2
71.2
9,809.2
1,062.3
4.3
1Q
70.0
71.0
2,643.7
297.4
4.7
2Q
70.1
70.7
2,378.0
271.4
4.4
3Q
72.6
71.3
2,507.0
261.0
4.1
4Q
72.2
71.8
2,280.5
233.3
3.8
ADR
Closing
Price
Average
Price(1)
Number
of Shares
Traded
(millions)
Total
Average Daily
Traded
Traded
(2)
Volume
Volume
(US$ millions) (US$ millions)
2014
68.9
76.0
17.0
1,277.1
5.1
1Q
75.3
76.9
7.7
578.6
9.5
2Q
80.1
79.1
2.9
225.2
3.6
3Q
74.0
75.7
3.1
234.1
3.7
4Q
68.9
72.4
3.3
239.2
3.7
2015
59.4
65.4
12.7
823.9
3.3
1Q
67.1
68.0
2.8
191.3
3.1
2Q
65.4
68.7
2.8
190.5
3.0
3Q
62.8
63.3
3.4
215.9
3.4
4Q
59.4
61.8
3.7
226.1
3.5
Source: Bloomberg.
(1) Average price is calculated as the sum of the monetary value of each transaction, divided by the total
number of shares traded in a given period.
(2) Total traded volume is the sum of the prices of the transactions multiplied by the number of shares
related to each price. Amounts are converted to US dollars using the daily closing exchange rate.
19
Shareholders
Distribution of Earnings and Dividends
In the ordinary shareholders’ meeting held in March 2010, shareholders agreed
to introduce a transitory article into our by-laws 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 determining pricelevel restatement, 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 with the Chilean Central Bank referred to in
Law 19,396, which SM-Chile S.A. holds directly or through its subsidiary SAOS
S.A., is extinguished.
In Ordinary Session No. 2832 on January 28, 2016, the bank’s board of directors
agreed to call an Ordinary Shareholders’ Meeting for March 24, 2016, to propose,
among other matters, distributing dividend No. 204 of Ch$3.37534954173
per share to each of the 96,129,146,433 Banco de Chile shares outstanding,
payable with a charge to net income for the year ended December 31, 2015,
corresponding to 70% of the bank’s net income.
Ownership and Control
As of December 31, 2015, Banco de Chile has 12,489 shareholders.
Historical Dividends
2011
2012
2013
2014
2015
Distributed in cash
dividends (%)
70%
70%
70%
70%
70%
Distributed in stock
dividends (%)
30%
30%
30%
30%
30%
Ch$2.94
Ch$ 2.98
Ch$ 3.42
Ch$3.48
Ch$3.43
1.88%
1.90%
2.03%
2.31%
2.25%
Cash dividend per share
Stock dividends (per
share)
20
Annual Report 2015
LQ Inversiones Financieras S.A. and Inversiones LQ SM Ltda. (LQIF Group),
subsidiaries of Quiñenco S.A., and Citigroup Inc., directly control 26.2% of
the shares of Banco de Chile and indirectly control 24.9% through Sociedad
Matriz Banco de Chile S.A., or SM-Chile S.A. (hereinafter “SM-Chile”). In all,
the LQIF Group controls 51.1% 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.
acquired a shareholding in LQIF, with an initial holding of 32.96%, which it later
increased to 50% of that company. 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. (SM-Chile 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, 2015, SM-Chile S.A. has a total of 16,852 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.).
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 (UF). Dividends received on these
shares are the sole source of income for SAOS S.A. and are applied each year
to repaying this obligation.
21
Shareholders
The shares pledged in favor of the Chilean Central Bank are equivalent to
29.7% of the shares of Banco de Chile plus 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. Therefore, the Chilean Central Bank
has direct and indirect rights of 30.3% 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 which are issued by Banco de Chile 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, 2015, SAOS
S.A. has an accumulated surplus with the Central Bank of UF 23,101,773. This
surplus is denominated in UF and accrues annual interest of 5%.
The subordinated obligation maintained by SAOS S.A. with the Central Bank
as of December 31, 2015, totals UF 18,160,796.
22
Annual Report 2015
20 Main Shareholders as of December 31, 2015
Shareholders
Voting Rights
(Direct and indirect ownership, %)
%
Ownership
Sociedad Administradora de la Obligación Subordinada SAOS S.A.
29.7%
LQ Inversiones Financieras S.A.
26.0%
Sociedad Matriz del Banco de Chile S.A. SM-Chile S.A.
12.6%
Banco de Chile (on behalf of third parties)
3.7%
Banchile Corredores de Bolsa S.A.
2.9%
Banco Itaú Chile (on behalf of foreign investors)
2.8%
Ever 1 Bae SpA
2.2%
Ever Chile SpA
2.2%
J.P. Morgan Chase Bank
2.0%
Banco Santander (on behalf of foreign investors)
1.6%
Inversiones Aspen Limitada
1.5%
A.f.p. Capital S.a.
0.9%
Metlife Chile Acquisition Co. S.a.
0.8%
A.f.p. Cuprum S.a.
0.8%
A.f.p. Habitat S.a.
0.8%
Inversiones Avenida Borgoño Limitada
0.8%
Larraín Vial S.A. Corredora de Bolsa
0.6%
Bci Corredor de Bolsa S.A.
0.4%
Santander S.A. Corredores de Bolsa
0.4%
Inversiones CDP Limitada
Subtotal
Other shareholders
Total
17.5%
Other Indirect
Shareholders(3)
25.4%
Other Direct
Shareholders(2)
51.1%
LQIF
Group(1)
6.0%
Ergas Group
Economic Rights
(Direct and Indirect Ownership, %)
5.1%
Other Indirect
(3)
Shareholders
33.2%
25.4%
LQIF
Other Direct
Shareholders(2)
Group(4)
0.3%
93.0%
7.0%
100.0%
30.3%
SAOS S.A.(5)
6.0%
Ergas Group
(1) Includes direct interest of 26.2% and indirect
interest via SM-Chile S.A. of 24.9%.
(2)Corresponds to direct shareholders of Banco de
Chile other than the LQIF and Ergas groups.
(3) Corresponds to shareholders other than the LQIF
and Ergas groups that, through their interest in
SM Chile S.A., have rights in Banco de Chile.
(4)Includes direct interest of 26.2% and indirect
interest via SM-Chile S.A. of 7.0%.
(5)Includes 0.6% for 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.
23
01
Strategy
Business Model
Market Trends
Business Model
How We Create Value
We offer comprehensive solutions to meet the lending, savings, investment, advising and cash management needs
of individuals and companies of all sizes. The scale and diversification of our businesses, combined with our market
leadership and international connectivity, among other strengths, enable us to cultivate long-term relationships with
our customers, generate significant economic value for our shareholders and create development opportunities
for our associates and the community.
RESOU
S
RCE
re
We a ng
di
a lea bally
glo
and ected
conn ation
or
corp
Sound Brand Positioning
Based on the attributes of trust, solvency and
security.
Financial Solvency
Reflected in the best international risk ratings
among private banks in Latin America.
Business Scale
Synergies, economies of scale and operational
efficiency as a result of a strong position across
all business areas.
Broad Customer Base
Knowing the needs of close to 2.2 million
customers from diverse economic sectors enables
us to maximize opportunities to create value.
Culture of Excellence
A strong business tradition and committed,
highly skilled team of associates.
26
Annual Report 2015
ES
viTI
Acti
ide
rov
We p , flexible
tive
e
crea effectiv
d
n
a
tions
solu
Multi-Channel Customer Service
Traditional physical channels (branches and
ATMs), correspondent banks, remote online
assistance (phone and Internet banking) and
mobile applications.
Effective Risk Management
In-depth knowledge of each business, effective
models and involvement by senior management
in credit decisions.
Business Intelligence
Ability to forecast scenarios and design
appropriate strategies based on an analysis
of customer needs.
International Connectivity
Strategic alliance with Citigroup, representation
office in Beijing and extensive network of
correspondent banks.
s
duct
Pro
to
red
Tailo eeds
the n ur
of o rs
ome
cust
We create specialized value propositions for the
segments we serve, using a universal banking,
multi-brand approach that provides solutions
in several business areas:
•Lending
• Investment management and savings
ults
Res
to
ibute nt
r
t
n
o
To c velopme
e
d
als
the
ividu nd
d
n
i
of
es, a
pani try
m
o
c
oun
the c
In everything we do, we constantly strive to be:
The best
bank for our
customers
71%
Net Recommendation
Index
• Payment media and transactional services
• Hedging risk
• Financial advising
•Securitization
The best
investment for
shareholders
o
N
o
The best place
to work
1
in profits and
returns*
N
1
among financial
institutions that best
manage talent
* Banks with more than 3% market share in loans.
Business Model
27
Competitive
Advantages
o
N
1
Brand(1)
recall
SOLID BRAND POSITIONING
With a successful track record of over 120 years, we have built the most recognized
brand in the Chilean financial market. This allows us to attract customers and
satisfy their financial needs throughout their life cycle, effectively retaining
them as clients and creating long-lasting relationships.
BUSINESS SCALE
A solid market position across all financial products and services we provide,
including loans, current accounts, deposits and mutual funds, affords us economies
of scale to compete efficiently in the market.
2i.lli2ons
m
mers
custo
We also provide our customers with remote customer service channels available
24 hours a day such as Internet, phone and mobile banking.
28
Annual Report 2015
are
et sh
Mark l loans
a
t
o
in t
BROAD CUSTOMER BASE
We have 2.2 million customers, including individuals and companies. Of this
total, 1.0 million are served by CrediChile; 1.1 million are middle and high-income
individuals and SMEs; 20 thousand are large companies, corporations and
multinational organizations; and 93 thousand are served by our subsidiaries.
This gives us critical knowledge of our diverse segments, which in turn enriches
our value proposition.
DIVERSE CUSTOMER SERVICE CHANNELS
We have a network of in-person channels throughout Chile, which consists of
254 branches of Banco de Chile, 39 branches of Banco Edwards|Citi and 126
branches of Banco CrediChile; 2,138 Caja Chile service platforms and 1,441 ATMs.
(1) Adimark GFK, December 2015.
18.3%
419
N1
bran
ches
o
obile
tail m
in rebanking
A+
Aa3
EXCEPTIONAL INVESTMENT GRADE RATING
We are the private bank with the best international risk rating in Latin America,
earning an ‘A+’ from Standard & Poor’s and an Aa3 from Moody’s. These ratings
are based on a solid market position, outstanding performance in risk matters,
stable returns and adequate capitalization and liquidity.
Poor’s
ard &
Stand
y’s
Mood
EXCELLENT FUNDING STRUCTURE
We have one of the lowest costs of funds in the Chilean banking industry thanks
to our leading position in demand deposits with a market share of 23.1% and
to our solid investment grade rating, which enables us to obtain funding with
low risk premiums on our financial obligations.
1.22%
No
2.5x
(2)
tio
an ra
ing lo
orm
n-perf
)
e(3
verag
ion co rtfolio
Provisst-due po
on pa
23.1%
are
et sh
s
Mark d deposit
n
a
m
e
d
in
SUPERIOR RISK MANAGEMENT
The credit quality of Banco de Chile’s loan portfolio is among the highest in
the Chilean financial system. Our conservative approach to risk management
and advanced credit analysis models have allowed us to maintain exceptional
default and coverage ratios that compare favorably with industry averages and
our main competitors.
(2) Past-due loans (>90) over total loans.
(3) Allowances for loan losses (including additional provisions) over past-due loans (>90).
29
Market
Trends
The banking industry is experiencing important changes, some particular to
the sector and others that affect the economy as a whole. An entity’s ability
to anticipate and adapt to this new reality will outline a new competitive map
where transforming these new requirements into opportunities will be key
to business sustainability.
High Customer Expectations
All sectors of the economy are dealing with diminished brand loyalty and
greater demands in terms of quality and transparency. In the banking
industry, a customer-focused strategy is crucial to reinforcing elements
that set an entity apart from its competitors. Such elements go beyond
attractive pricing and a positive customer service experience. Customers
are looking for simple, fast, effective and innovative products and services
and relationships based on good practices.
75%
of Chilean customers acknowledge
having made more informed purchase
decisions ten years ago
Source: Accenture Strategy - Global
Consumer Pulse Research
Strong Potential to Increase Bank Usage
Diverse analyses suggest that bank penetration levels in Chile have
room to expand, particularly in the areas of payment media and cash
management. Based on data from the World Bank, a large number of
people in Chile still receive their wages in cash and there is low penetration
in payment media, which is especially important given the global trend
toward replacing cash with plastic and mobile payments.
Among individuals over the age of 15...
Wages paid in cash
Chile 48%
OECD 12%
Has a bank account
Chile OECD Uses a credit card
Chile 23%
OECD 47%
Source: World Bank
10%
of Chileans over the age of 15
conduct bank transactions on
mobile phones (22% in OCDE)
Source: World Bank 2014
59%
projected global penetration for
mobile banking by 2018
(17% in 2013)
Source: UBS
30
Annual Report 2015
63%
94%
This situation sets for the industry the challenge of broadening coverage
toward segments that currently do not have full access to these services.
This can be accomplished, for instance, through policies focused on
expanding the use of credit or debit cards, introducing prepaid cards,
promoting electronic funds transfers and consolidating correspondent
banking systems.
The Rise of Mobile Banking
Mobile platforms have emerged as an interesting resource that banks
can leverage to add value. Highly secure specific applications (e.g. for
payments, bills, insurance or investments) promise continually available
information, immediate remote assistance, greater interaction and a
deeper knowledge of our customers.
Based on a recent study, mobile banking services have become a key factor
when selecting or recommending a bank or deciding to switch from one
bank to another. In Chile, although Internet access from mobile devices
is broad (accounting for 72% of Internet connections), there is still high
potential for use with banking transactions. Such use will benefit customers
and banks by reducing operating costs, increasing service availability and
improving post-sales customer service.
6.5%
6.0%
5.5%
5.0%
Operating Income /
Average Interest Earning Assets Avg.
2015
2013
2014
2011
2012
2010
2009
2007
2008
2005
2006
2003
4.0%
2004
4.5%
2001
Given this increased competition, efficiency, productivity and quality-based
differentiation emerge as key aspects to ensuring business sustainability.
7.0%
2002
In recent years, the Chilean banking industry has witnessed several mergers
and acquisitions that have created universal banks with multi-segment
strategies and low operating costs, based on growing economies of scale.
In Chile’s small market with diverse financing operations, this trend has
progressively intensified competition and reduced margins as industry
players attempt to gain market share. This trend is expected to continue
with the recent announcement of new mergers and take overs of certain
local banks by new investors.
2000
Intensified Competition
Average Operating Margins for the Chilean
Banking System
Linear Trend
Source: Prepared internally using SBIF data.
The Importance of Sustainability
A sustainable management approach is a necessary and critical element
for long-term subsistence. This involves comprehensive management that
attains economic and financial results while upholding high standards of
social and environmental responsibility and maintaining good relationships
with diverse stakeholders.
In this setting, it will be important for the banking industry to continuously
strengthen its solvency and trust, and to uphold the foundations of
corporate governance policies and best practices, transparency, ethical
conduct and commitment to the community on which the Chilean banking
system’s reputation is built.
Increased Regulation
Global trends are shifting toward greater capital and liquidity requirements
for the banking industry, promoting a stronger foundation for dealing
with crisis scenarios and other challenges.
Chilean regulators are in the process of adding new requirements by
adopting Basel III. Other changes have also been made recently, such
as limits on fees, modifications to the conventional maximum interest
rate, new provisioning standards, changes to the bankruptcy law and the
creation of a legal consumer protection framework for banking products
and services, known as Sernac Financiero. These changes are in addition to
overhauls in several other areas (labor, tax, education and constitutional
reforms), some of which have already been implemented while others
are still in process.
In 2016 the Finance Ministry will
submit amendments
to the General Banking Law
to the Chilean Congress
in order to implement Basel III,
introduce changes to the SBIF’s
corporate governance
and create banking
resolution systems.
These changes undoubtedly put pressure on business profits, making
it crucial for the banking industry to adopt measures to optimize their
processes, reduce operating costs and safeguard their risk-return ratios.
Market Trends
31
Our Strategic
Response
We are…
a leading, globally-connected financial corporation with a prestigious business tradition.
We provide financial services of excellence to all customer types, offering creative,
flexible and effective solutions for each segment and thus ensuring value creation for
our customers, shareholders and employees as well as the community at large.
Always based on
our corporate values
respect
fairness
sound judgment
commitment
loyalty
responsibility
integrity
32
Annual Report 2015
We seek to…
always be the best bank for our customers, the best place to work, and the best investment for our shareholders
in everything we do. We do so in a way that demonstrates our commitment to the people in our organization and
the community in general.
To accomplish this…
we have defined
six strategic priorities
01
02
LEAD THE RETAIL SEGMENT
By being a bank that:
• knows each of its customers;
• is straightforward;
• inspires trust;
• offers the best mobile and
remote banking;
• has easily accessible branches;
• anticipates its customers’ needs,
and
• offers a unique customer
experience.
LEAD THE WHOLESALE
SEGMENT
By being a bank that:
• is fast;
• offers competitive prices;
• offers a variety of services;
• anticipates needs;
• has a significant presence in
all segments, from SMEs to
multinational corporations, and
• boasts the best transactional
banking.
05
04
HIGH SERVICE QUALITY
STRONG CORPORATE
REPUTATION
• A prestigious bank: the
company with the best
corporate reputation;
• recognized for contributing to
the community,
• building social capital and
maintaining the best risk
rating.
• A bank that listens;
• that tailors its products and
services to its customers;
• that adopts service industry
best practices;
• that establishes emotional
bonds based on experience,
and
• that prioritizes closeness and
customer satisfaction.
…that enables
us to face
new challenges:
•
•
•
•
03
OPERATIONAL EXCELLENCE
• A paperless bank;
• with automated controls;
• low processing costs;
• timely, abundant and
accessible information;
• no service interruptions,
• that meets deadlines and
• that quickly incorporates new,
highly secure technologies.
06
THE BEST TEAM
• With a consistent
culture recognized for
its responsibility, ethics,
transparency and respect for
people and the environment;
• that attracts the best talent
from each field of study;
• that is demanding with a
passion for a job well done, and
• that offers opportunities for
personal and professional
growth.
Increasingly stringent customers
The digital revolution
Increased competition and regulatory requirements
Value creation through intangible elements
33
02
Corporate
Governance
Board of Directors
Senior Management
Corporate
Governance
Banco de Chile’s corporate governance model is designed to progressively
improve internal self-regulation mechanisms in order to:
• ensure compliance with current regulations;
• safeguard adherence to corporate values, and
• create value for all shareholders, customers, associates, the community and
the market in general.
The board-approved General Corporate Governance Principles provide performance
guidelines for the bank’s management and all associates, including at its
subsidiaries. The full text is available on our website (www.bancochile.cl).
Corporate Governance Guidelines
External Regulations
• General Banking Law
• Corporations Law
• Securities Market Law
• Applicable regulations from the Superintendency of Banks and Financial
Institutions and the Superintendency of Securities and Insurance
Internal Regulations
• General Corporate Governance Principles
• Code of Ethics
• Code of Conduct and Best Practices for Banks and Financial Institutions
36
Annual Report 2015
Corporate Governance Structure
BOARD OF DIRECTORS
DIRECTORS’ AND AUDIT COMMITTEE
Controller
Compliance Division
CHIEF EXECUTIVE OFFICER
CORPORATE BUSINESS
DIVISIONS
•Commercial
• Corporate and Investment
•Consumer
CORPORATE SUPPORT
DIVISIONS
SUBSIDIARIES
• People and Organization
• Legal Counsel
• Operations and Technology
• Banchile Corredores de Bolsa
S.A.
• Banchile Administradora
General de Fondos S.A.
• Banchile Asesoría Financiera
S.A.
• Banchile Corredores de
Seguros Ltda.
• Promarket S.A.
• Socofin S.A.
• Banchile Securitizadora S.A.
• Banchile Trade Services Ltd.
CORPORATE CONTROL
DIVISIONS
• Corporate Risk
• Financial Reporting and
Control
• Procedures and Rules
BOARD OF DIRECTORS
DIRECTORS’ AND AUDIT COMMITTEE
UPPER MANAGEMENT
BUSINESS
• Retail Business
• Companies
• Leasing
• Factoring
• Executive Insurance
• Finance, International and
Market Risk
• Service Quality
RISK
• Credit Risk
• Portfolio Risk
• Asset Laundering
Prevention
• Superior Operational Risk
• Executive Operational Risk
OTHER
• Ethics
• Disclosure
Corporate Governance
37
Board of
Directors
Composition
Banco de Chile’s board of directors consists of eleven directors and two
alternate directors. The complete board is elected every three years. The last
elections took place in March 2014 at an ordinary shareholders’ meeting, the
bank’s maximum decision-making authority.
At this time, the following directors were elected by the votes of LQ Inversiones
Financieras S.A.: Pablo Granifo Lavín, Andrónico Luksic Craig, Francisco Aristeguieta
Silva, Jean Paul Luksic Fontbona, Gonzalo Menéndez Duque, Francisco Pérez
Mackenna, Juan Enrique Pino Visinteiner and Rodrigo Manubens Moltedo
(alternate). The following directors were elected by other shareholders: Jorge
Awad Mehech, Jaime Estévez Valencia, Jorge Ergas Heymann and Thomas
Fürst Freiwirth (alternate).
In an ordinary meeting on June 25, 2015, the board accepted the resignation
of the director and vice chairman, Francisco Aristeguieta Silva, and appointed
Jane Fraser, CEO of Citigroup Latin America, to replace him until the next
ordinary shareholders’ meeting.
Board Operations
The board of directors is the bank’s highest corporate governance authority.
Board Responsibilities
• Set strategic guidelines;
• Appoint the chief executive officer;
• Approve policies, procedures and mechanisms designed to fulfill the objectives
of the corporate governance system.
Responsibilities of the Chairman of the Board
• Define procedures for board’s work;
• Organize the working agenda for each meeting;
• Ensure that sufficient and timely information is made available to all board
members;
• Guarantee that board deliberations and agreements are recorded fully and
accurately in the respective minutes and are properly stored and backed up.
38
Annual Report 2015
The board meets twice a month, except in February, when it holds only one
meeting. Extraordinary meetings may be called by the chairman of the board
or at the request of one or more directors. According to regulations and our
bylaws, ordinary board meetings must be held at least once a month.
A minimum of once per year, the board meets at one of the bank’s branches
outside Santiago. In 2015, it met in the cities of Puerto Varas (Los Lagos
Region) and Los Ángeles (Biobío Region), and combined these meetings with
customer, associate and community events.
The bank’s board has three standing advisors—Hernán Büchi Buc, Francisco
Garcés Garrido and Andrés Ergas Heymann; a Directors’ and Audit Committee
established in conformity with Chilean law, and support committees on which
one or more directors participate. These support committees allow the board
to analyze specific matters in depth and provide information needed for
discussing and approving policies and strategies. The board delegates certain
functions and activities to these committees.
Compensation
Board compensation is approved annually at the ordinary shareholders’
meeting and may include one or more of the following items: a fixed monthly
honorarium, allowances for attending board or committee meetings, or an
annual incentive set by shareholders that is subject to the bank meeting
earnings targets during the year.
Compensation for the members of the Directors’ and Audit Committee, which
is also set annually at the ordinary shareholders’ meeting, must be at least
one third more than the compensation provided to ordinary board members.
Compensation received by directors during the most recent year is disclosed
in note 38 of the financial statements attached to this annual report.
Board of Directors
39
Board of Directors
40
Annual Report 2015
Pablo Granifo Lavín
Andrónico Luksic Craig
Jane Fraser
CHAIRMAN
Vice CHAIRMAN
Vice CHAIRMAN
Jorge Awad Mehech
Jorge Ergas Heymann
Jaime Estévez Valencia
Samuel Libnic
Director
Director
Director
Director
Jean Paul Luksic Fontbona
Gonzalo Menéndez Duque
Francisco Pérez Mackenna
Juan Enrique Pino Visinteiner
Director
Director
Director
Director
Rodrigo Manubens Moltedo Thomas Fürst Freiwirth
Hernán Büchi Buc
Francisco Garcés Garrido
Andrés Ergas Heymann
ALTERNATE DIRECTOR
ADVISOR TO THE BOARD
ALTERNATE DIRECTOR
Board of Directors
41
Chairman
Mr. Granifo was reelected as the chairman of our board of directors in 2014, a position he has held since 2007. He was our chief executive officer
from 2001 to 2007, the chief executive officer of Banco A. Edwards from 2000 to 2001, corporate manager at Banco Santiago from 1999 to 2000 and
commercial manager at Banco Santiago from 1995 to 1999. Mr. Granifo is also chairman of the board of directors of Banchile Administradora General
de Fondos S.A., Banchile Asesoría Financiera S.A., Socofin S.A., and Banchile Securitizadora S.A., Viña San Pedro Tarapacá S.A., and chairman of the
executive committee of Banchile Corredores de Seguros Limitada. He is also a member of the boards of Compañía Cervecerías Unidas and Empresa
Nacional de Energía. He holds a degree in business administration from Pontificia Universidad Católica de Chile.
VICE ChairmanS
Andrónico Luksic Craig
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 Compañía Cervecerías Unidas S.A., Vice Chairman of Compañía Sud Americana de Vapores S.A., and a member of the Board of Directors of
Techpack 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.
Jane Fraser
Jane Fraser is the CEO of Citigroup Latin America responsible for all businesses in the 24 countries where Citi is present in this important region,
including Mexico. Jane sits on Citi’s Operating Committee. Before this role, she was Chief Executive Officer of U.S. Consumer and Commercial
Banking and CitiMortgage, responsible for Retail Banking, Commercial Banking, Small Business Banking, and Wealth Management in the U.S. and
Citi’s residential home mortgage lending business globally. From 2009 to 2013, Jane served as CEO of Citi’s Global Private Bank. Previously, Jane was
Global Head of Strategy and Mergers & Acquisitions for Citi from 2007 to 2009 and also led the firm’s re-engineering effort. She joined Citi in 2004
to run Client Strategy for the Global Banking division. American Banker has recognized her several times as one of the “Most Powerful Women in
Banking. She is a member of the Board of Directors of Banamex in Mexico and the Council of the Americas. Prior to joining Citi, Jane was a Partner
at McKinsey & Company where she worked in London and New York for 10 years serving clients in the financial services industry. She started her
career at Goldman Sachs in the Mergers & Acquisitions department in London and then worked for Asesores Bursátiles in Madrid, Spain. Jane has
an M.B.A. from Harvard Business School and an M.A. in economics from Cambridge University.
DIRECTORS
Jorge Awad Mehech
Mr. Awad was reelected as a member of our board in 2014, a position he
has held since 1996. From 1989 to 1996 he was a member of the board
of Banco de Santiago. He was president of the Chilean Association of
Banks and Financial Institutions from 2011 to 2015. He is also president
of the boards of Universidad de Talca, Director of Universidad Católica de
Valparaíso TV and Prohumana Foundation. 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 S.A.,
ICARE and other Chilean companies. He is also a professor of management
and business at the School of Economics at Universidad de Chile, from
where he has a degree in business administration. This institution
recognized him as alumnus of the year in 1998 and among the most
distinguished alumni in the school’s 80-year history in November 2014.
He also received the award for Management and Executive Development
at this Faculty in 2011.
Jorge Ergas Heymann
Mr. Ergas was named to our board of directors in March 2011 and reelected
in 2014. Formerly, he had been an advisor to the board since 2007 and
from 2002 to 2005. From 2005 to 2007, he was an alternate director.
Currently, he is vice chairman of Banchile Compañía 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. and Ever I BAE. He was previously a director of the Plaza San
Francisco Hotel, Casa Piedra Convention Center, Banco HNS and the real
estate company Inmobiliaria Paidahue.
Jaime Estévez Valencia
Mr. Estévez has been a member of our board of directors since 2007
and was reelected in 2014. Presently, he is also chairman of the board of
directors of Cruzados SADP. Before that, Mr. Estevez was chairman of the
42
Annual Report 2015
board of directors at Banco del Estado and was a member of the board
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. Estévez
holds a degree in economics from Universidad de Chile.
Samuel Libnic
Samuel Libnic was appointed to our Board of Directors in April 2015. Mr.
Libnic has been the General Counsel for Citigroup’s operations in Latin
America since 2007. Samuel’s current responsibilities include overseeing
legal coverage for all products and businesses throughout Latin America
and Mexico. In April 2010, he became a member of Citigroup’s Legal
Management Committee. Between November 2010 and June 2013, he acted
as Head of Citi Brazil’s Legal Department, in addition to his regional role.
He was appointed Vice President of the Citibank, N.A. Board of Directors
in January 2012. The Legal Department of Banamex, Citigroup’s Mexican
banking subsidiary, began reporting to Samuel in September 2013. Prior
to becoming General Counsel for the Latin America region, Samuel held a
number of positions of increasing responsibility since joining the company
in 1996 as General Counsel of the Global Corporate and Investment Bank
for Citibank Mexico. In 2001, he was named Deputy General Counsel
for Latin America, a position he held until he assumed his current role.
Before joining Citi, Samuel worked at Shearman & Sterling in New York
and with Basham, Ringe and Correa, one of the most prestigious law
firms in Mexico. He holds a Juris Doctor from the Anahuac University in
Mexico, as well as an LLM from Georgetown University Law School and
is licensed to practice law in Mexico and New York.
Jean Paul Luksic Fontbona
Mr. Jean-Paul Luksic was named to our board of directors in April 2013 and
reelected in 2014. Currently, he is vice chairman of the board of Quiñenco
S.A. and Sociedad Matriz SAAM S.A. Mr. Luksic has been chairman of the
board of Antofagasta plc since 2004, after having served as a director for
the company since 1990. He is also chairman of the board of Antofagasta
Minerals S.A. as well as chairman of the Mining Council. Mr. Luksic holds
a B.Sc. degree in management from The London School of Economics
and Political Science, United Kingdom. Mr. Jean-Paul Luksic and Mr.
Andrónico Luksic are brothers.
Gonzalo Menéndez Duque
Mr. Menéndez was reelected as a member of our board of directors in 2014,
a position he has held since 2001. He is also the chairman of Inversiones
Vita S.A., and a member of the boards of several other companies, including
Banchile Asesoría Financiera S.A., Banchile Seguros de Vida S.A., Quiñenco
S.A., Compañía Sudamericana de Vapores S.A., Antofagasta plc, Mining
Group Antofagasta Minerals S.A., Empresa Nacional de Energía Enex
S.A., Andsberg Investment Ltd., Andsberg Limited and Inmobiliaria e
Inversiones Río Claro S.A. He is also vice chairman of Fundación Andrónico
Luksic A. and Fundación Educacional Luksic. Previously, Mr. Menéndez
served as CEO of Ferrocarril de Antofagasta a 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. Menéndez 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 was 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.
Francisco Pérez Mackenna
Mr. Pérez has been a member of our board of directors since 2001 and
was reelected in 2014. He has served as CEO of Quiñenco S.A. since 1998.
He is currently chairman of the boards of Compañía Sud Americana de
Vapores S.A., Empresa Nacional de Energía Enex S.A., Invexans S.A.
(formerly Madeco). and vice chairman of Teck Pack S.A. Previously, he
was CEO of Compañía Cervecerías Unidas S.A., where he is currently a
board member. He is also a director of Embotelladoras Chilenas Unidas
S.A., Viña San Pedro S.A., CCU Argentina S.A., Cía. Pisquera de Chile
S.A., Cervecera CCU Chile Ltda., Inversiones y Rentas S.A., Banchile
Corredores de Seguros S.A., LQ Inversiones Financieras S.A., Nexans,
Sociedad Matriz SAAM S.A., Sudamericana, Agencias Aéreas y Marítimas
S.A. and Hapag-Lloyd. Prior to 1991, he was CEO at Citicorp Chile and
vice chairman of Bankers Trust in Chile. He holds a degree in business
administration from Pontificia Universidad Católica and an MBA from
the University of Chicago.
Juan Enrique Pino Visinteiner
Mr. Pino has been a member of our Board of Directors since August 2013.
Currently, Mr. Pino is the Chief Risk Officer for Citigroup Latin America, a
role that he has held since January 2010, originally based in Mexico City,
and since January 2015 in Miami, Florida. He is a member of the Global
Risk Management Executive Committee of Citigroup, and of the Citigrup
Latin America’s Executive Committee. He first joined Citigroup in 1985,
holding several business and risk management roles since then in Chile
and in other countries within the region. He was CEO for Citigroup Chile
and Citi Accival Corredores de Bolsa in 2008 and part of 2009, and has
also been board member of several companies where Citigroup was or is
a shareholder. Mr. Pino has a Bachelor degree in business administration
from Universidad Adolfo Ibáñez (Chile).
ALTERNATE DIRECTORS
Thomas G. Fürst Freiwirth
Mr. Fürst has been a member of our board of directors since 2004 and
was reelected in 2014. Prior to that, he was the vice chairman of Compañía
Cervecerías Unidas and a director at several other companies, including
Embotelladoras Chilenas Unidas S.A., Viña Dassault San Pedro S.A.,
Southern Breweries Establishment, CCU Argentina S.A. and Compañía
Industrial Cervecería S.A. (CICSA). He 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 . who has 25 years of
existence and Nuevos Desarrollos S.A., the owners of fifteen shopping
centers located in Chile and three under construction, five in Peru and
one in Colombia and another three in the project stage. Grupo Plaza is the
second largest shopping mall chain in Latin America. Mr. Fürst holds a
degree in civil construction from Pontificia Universidad Católica de Chile.
Rodrigo Manubens Moltedo
Mr. Manubens has been a member of our board of directors since 2001 and
was reelected in 2014. 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 a board member of the Santiago Stock
Exchange. Mr. Manubens served on the board of directors of Banco A.
Edwards from 1999 to 2001. From 1985 to 1999, he was a member of the
board of directors of Banco O’Higgins and retained this position following
its merger with Banco Santiago. 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 Asunción in Paraguay. He also served
for a ten-year period as a director and chairman of Endesa Chile S.A. He
received a degree in business administration from Universidad Federico
Santa María and Universidad Adolfo Ibáñez and a master’s degree from
the London School of Economics and Political Science.
Hernán Büchi Buc
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 including Quiñenco S.A., Consorcio Nacional
de Seguros and Falabella S.A.C.I. 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 engineer from Universidad de Chile and a master’s
degree from Columbia University.
Francisco Garcés Garrido
Mr. Garcés 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 and Treasurer of Fundación Chilena del Pacífico,
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 and a member of
the Chamber of Commerce Chile-India and the Chilean-Brazilian Chamber
of Commerce, member of the International Relations and International
Trade of Sociedad de Fomento Fabril (SOFOFA). 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 Director
of International Affairs at the Chilean Central Bank. He holds a degree
in business administration from Pontificia Universidad Católica de Chile
and has taken graduate coursework at Columbia University.
Andrés Ergas Heymann
Mr. Ergas was named an advisor to the board in August 2014. Currently,
he is chairman of the board of Nomads of the Seas and a member
of the boards of Southwest Investment, Ever, Inersa 1 and Shmates.
Previously, he was chairman and CEO of Banco HNS, chairman of the
board of Compañía General de Leasing and vice chairman of Factoring
Finersa. He has also served on the boards of Banco Edwards, Hotel Plaza
San Francisco Kempinsky, BMW Chile, Inmobiliaria Paidahue, Mitsubishi
Motors and Dina Trucks Co. He holds a degree in business administration
from Universidad Diego Portales.
Board of Directors
43
Main Committees
and Meetings
01 DIRECTORS’
AND AUDIT
COMMITTEE
Members
Jaime Estévez Valencia, committee
chairman, expert on financial
matters and independent director
Jorge Awad Mehech, independent
director
Juan Enrique Pino Visinteiner,
director proposed by Citigroup
Director Gonzalo Menéndez Duque is
a standing advisor to the Directors’
and Audit Committee. The members
of the committee remain in their
positions for a maximum of three
years or until the end of the board’s
term. In an ordinary meeting on April
22, 2015, the committee accepted
the resignation of its chairman,
Jorge Awad Mehech, and appointed
director Jaime Estévez Valencia to
replace him. In accordance with the
bylaws, our CEO, General Counsel
and Controller, or their respective
replacements, shall attend the
meetings as well. A partner from the
bank’s external auditing firm also
participates in committee meetings
when invited. The committee may
also invite certain people to take
part in one or more meetings.
44
Annual Report 2015
Objectives
The Directors’ and Audit Committee
works to ensure the efficiency,
maintenance and functioning
of internal control systems and
compliance with standards and
procedures, including:
•possessing a clear understanding of
the risks of the businesses in which
the bank and its subsidiaries are
engaged;
•reinforcing and supporting the
function of the office of the Controller,
as well as its independence from
management;
•serving as a link and coordinator
between internal and external
auditors, as well as between these
areas and the bank’s board, and
•performing the functions and
responsibilities set out in the
Corporations Law and SBIF
standards.
Responsibilities
•Examining external auditor reports,
balance sheets and financial
statements and information on
related party transactions;
•Proposing to the board of directors
the external auditors and risk rating
agencies that will be suggested at
the shareholders’ meeting;
•Examining related party transactions
as referred to in Title XVI of the
Corporations Law and preparing a
report on these transactions;
•Examining remuneration and
compensation systems in place
for the bank’s senior executives
and associates;
•Making a recommendation to the
board as to the appropriateness of
hiring the external audit firm to
provide complementary services
based on whether such services
might lead to the risk of loss of
independence, and
•Performing the other tasks indicated
in the bylaws, or entrusted to it in
a general shareholders’ meeting
or by the board, if appropriate.
Activities
The committee’s operating budget
is approved annually at the ordinary
shareholders’ meeting. During 2015,
the Directors’ and Audit Committee
met 18 times and addressed the
following matters:
•Examination of fee proposals from
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 bank’s financial
statements included in the form
20-F, to be filed with the Securities
and Exchange Commission – SEC
(USA).
•Review of special cases affecting
internal control systems.
•Analysis of the 2015 performance
self-evaluation process carried
out by the bank.
•Review of customer claims filed
with the SBIF, the National
Consumer Protection Service
(Sernac) and the Customer
Defense Division of the Chilean
02 UPPER
MANAGEMENT
Association of Banks and Financial
Institutions.
•Analysis of operational risk policies
and development of risk-management
and SOX self-assessment processes.
•Analysis of reports, content,
procedures and scope of reviews
by external auditors and risk-rating
agencies.
•Analysis of the interim and annual
financial statements.
•Information on accounting changes
occurring during the year and their
effects.
•Analysis of the remuneration systems
and compensation plans for the
bank’s managers, senior executives
and associates.
•Analysis of related-party transactions
as referred to in Title XVI of the
Corporations Law No. 18,046.
•Information on and analysis of matters
related to the Compliance Division,
primarily regarding the revision or
enforcement of policies for detecting
and penalizing money-laundering
transactions.
•Information on compliance with the
institutional policies on observance
of laws, regulations and internal
standards that the bank is obligated
to uphold.
The Upper Management Committee
is the highest coordinating body of
our senior management. Its main
duty is to address core strategic
guidelines, analyze the market, the
banking industry and the regulatory
environment, and evaluate the
bank’s recent performance.
Periodicity: Twice monthly.
Members:
Arturo Tagle Quiroz, CEO (committee
chairman)
Eduardo Ebensperger Orrego,
Commercial Banking Division
Manager
Alain Rochette García, Corporate
and Investment Banking Division
Manager
Juan Cooper Álvarez, Consumer
Banking Division Manager
Mauricio Baeza Letelier, Corporate
Risk Division Manager
Felipe Echaiz Bornemann,
Compliance Division Manager
Cristián Lagos Contardo, People
and Organization Division Manager
Oscar Mehech Castellón, Controller
Nelson Rojas Preter, General
Counsel
Rolando Arias Sánchez, Chief
Financial Officer
Ignacio Vera Asis, Operations and
Technology Division Manager
Armando Ariño Joiro, Procedures
and Rules Division Manager
Andrés Bucher Cepeda, Chief
Executive Officer of Banchile
Corredores de Bolsa S.A.
45
Main Committees
and Meetings
03 BANCO
CREDICHILE
This committee reviews and evaluates
the commercial performance of the
CrediChile division, analyzes the
consumer segment, defines actions
to achieve growth targets in business
plans and monitors quality service,
among other objectives.
Periodicity: Monthly.
Members:
Pablo Granifo Lavín, Chairman of
the Board
Gonzalo Menéndez Duque, Director
Jaime Estévez Valencia, Director
Arturo Tagle Quiroz, CEO
Commercial Banking Division Manager
Banking Division Manager.
04 RETAIL
BUSINESS
This committee evaluates the
commercial performance of the
retail banking division and industry
trends, determining the steps that
need to be taken to execute business
plans. This committee is also used
to coordinate and make decisions
regarding important matters that
involve several divisions.
Members:
Rodrigo Tonda Mitri, Marketing and
Digital Banking Manager
Rolando Arias Sánchez, Chief Financial
Officer
Hernán Arancibia Sepúlveda, Retail
Risk Manager
Juan Carlos Álvarez Mateos, Retail
Business Intelligence Manager
Gonzalo del Real Debesa, Customer
Relations Manager
Sebastián Torrens Herrera, Reporting
and Control Manager for Commercial
Division.
Other individuals may participate
depending on the matters addressed.
05
COMPANIES
This committee reviews the
commercial performance and
development initiatives of the
wholesale business, including market
leadership, opportunities, value
propositions and customer service,
among other matters. This committee
is also used to coordinate and make
decisions regarding important matters
that involve several divisions.
Members:
Alain Rochette García, Corporate
and Investment Banking Division
Manager
Christian Sundblad, Manager of
Multinationals, Infrastructure and
Projects
Financial Officer
Juan Alberdi Monforte, Manager of
Special Business and Foreign Trade
José Francisco Larraín Cruzat,
Companies Segment Manager
Sebastián Torrens Herrera, Reporting
and Control Manager for Commercial
Division.
Other individuals may participate
depending on the matters addressed.
46
Annual Report 2015
06 LEASING
development and evolution of leasing
products at bank and industry level,
analyzes opportunities and defines
action plans to achieve budget figures
in annual business plan.
Members:
the Board
Jorge Ergas Heymann, Director
Patricia Norambuena Bucher,
Wholesale Area Manager
Joaquín Contardo Silva, Branch
Affairs Manager
Roberto Anguita Quintero, Leasing
Manager.
07
FACTORING
development and evolution of factoring
products at bank and industry level,
analyzes opportunities and defines
action plans to achieve budget figures
in annual business plan.
Members:
the Board
Claudia Herrera García, Large
Companies Greater Santiago and
Factoring Area Manager
Joaquín Contardo Silva, Branch
Affairs Manager
Claudio Martínez Figueroa, Factoring
Manager.
09
08
EXECUTIVE
Insurance
This committee meets on a monthly
basis to analyze the administrative and
financial performance and results of
the bank’s insurance business. It also
authorizes and monitors the annual
strategy for the insurance business,
adherence to current regulations,
proposals for new products, advertising
campaigns and new short-, mediumand long-term projects.
Members:
the Board
Francisco Pérez Mackenna, Director
Luis Alberto Saleh Sleiman, CEO of
Banchile Corredores de Seguros
Francisco Torm Silva, lawyer.
FINANCE,
INTERNATIONAL
AND Market
RISK
This committee reviews the bank’s
exposure and market risk over the last
30 days, and estimates potential losses
in the event of adverse movements in
key market variables or scarce liquidity
in different scenarios. This committee
also analyzes estimated results for
certain financial positions in order
to measure the risk-return ratio of
the businesses involved in managing
financial positions and the evolution
of the use of capital, and estimates
the credit exposure of treasury
transactions. It is responsible for
designing our policies and procedures
for setting, accurately measuring,
controlling and reporting financial
position limits and triggers in a timely
manner. Policies and procedures
are then submitted to our board of
directors for approval.
Periodicity: Monthly. Additional,
extraordinary meetings may be
called by the chairman, two directors
or the CEO.
Members:
the Board
Jane Fraser, Vice Chairman of the
Board
Francisco Pérez Mackenna, director
Juan Enrique Pino Visinteiner, director
Alain Rochette García, Corporate and
Investment Banking Division Manager
Sergio Karlezi Aboitiz, Treasury
Division Manager
Gonzalo Jiménez Parada, Market
Risk Manager.
47
Main Committees
and Meetings
10 SERVICE
QUALITY
This committee prepares strategic
corporate guidelines regarding customer
service by analyzing 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.
Periodicity: Twice monthly.
Members:
Gonzalo del Real Debesa, Customer
Relations Manager
Rodrigo Tonda Mitri, Marketing and
Digital Banking Manager
Claudia Hernández Soto-Aguilar,
Quality Area Manager.
Guest members include:
the Board
Patricio Molina Lamilla, Mass
Product Operations Manager
Maximiliano Vliegenthart Estévez,
Head of Large Companies Modeling
and Quality Department.
12 Portfolio
RISK
11 CREDIT
RISK
The loan approval process is mainly
conducted by several loan committees,
which are made up of professionals
with sufficient authority to make
the necessary loan decisions. These
committees meet with different
frequencies and are organized based
on the amounts to be approved and
the commercial segment involved.
Each loan committee is responsible
for defining the terms and conditions
for accepting the counterparty
risks. The Corporate Risk Division
participates in each committee
independently and autonomously
from our business areas. Within the
bank’s risk management structure,
the highest of these committees is
the Board Loan Committee, which
reviews all operations exceeding
UF750,000.
Periodicity: Weekly.
Members:
At least three directors. Board
participation is not limited to three
directors. As a result, any board
member may participate.
The main function of this committee is
to monitor changes in the composition
of our loan portfolio from an overall
perspective by reviewing default, pastdue loan and impairment indicators,
and main former positions. It also
approves and proposes segmented
risk management strategies to the
board of directors. The committee
is also charged with analyzing
the adequacy of our provisions,
authorizing extraordinary loan chargeoffs when recovery efforts have
been exhausted, controlling the
liquidation of assets received in lieu
of payment and reviewing guidelines
and methodologies for developing
credit risk models, which are evaluated
by the Internal Modeling Technical
Oversight Committee.
extraordinary meetings may be called
by the chairman of the board, two
directors or the CEO.
Members:
the Board
Jaime Estévez Valencia, Director
Guillermo Sáez Sáez, Head of
Business Intelligence Area
Guest members:
Hernán Arancibia Sepúlveda, Retail
and SME Risk Area Manager
Ruby Rius García, Risk Architecture
Area Manager
Financial Officer.
48
Annual Report 2015
13
ASSET
LAUNDERING
PREVENTION
This committee is responsible
for comprehensive supervision of
the bank’s Asset Laundering and
Terrorism Finance Prevention System.
Its main functions include:
•Approving and reviewing corporate
policies concerning prevention of
asset laundering and terrorism
financing on an ongoing basis,
including processes to get to know
customers and their activities, and
monitor their accounts, products
and operations;
•Staying informed of any matter
within its scope, know your customer
processes, customer transaction
monitoring, suspicious transactions
reports, cash transactions reports,
regulatory changes, new internal
controls, etc;
•Appointing persons to perform
specific functions in accordance
with current regulations on the
prevention of asset laundering and
terrorism financing;
•Reporting any related regulatory
changes to the board of directors;
•Approving specific initiatives
concerning detection systems
for unusual transactions, formal
channels for reporting to senior
levels and monitoring, analysis and
reporting mechanisms;
•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,
and
•Approving the training program and
being informed of staff training
activities.
Periodicity: Quarterly.
Members:
Jorge Awad Mehech, Independent
Director and Committee Chairman
Pablo Granifo Lavín, Chairman
of the Board
Director
Counsel
Ignacio Vera Asis, Operations
and Technology Division Manager
Andrés Lagos Vicuña, CEO of
Banchile Administradora
General de Fondos.
The following individuals attend
meetings and have the right to
speak:
Cristián Rosales Morales, Asset
Laundering Prevention and
Terrorism Finance Area Manager.
14 SUPERIOR
OPERATIONAL
RISK
The committee’s main functions
include: identifying the bank’s
exposure to operational risk,
analyzing the effectiveness of
strategies adopted to mitigate
operational risk, approving strategies
and policies to be presented to
the board of directors, promoting
steps to appropriately manage and
mitigate operational risk, informing
the board on these matters, ensuring
compliance with the regulatory
framework and policies to guarantee
the bank’s long-term solvency
and avoiding risk factors that can
jeopardize business continuity.
extraordinary meetings may be
called by the chairman or two
directors.
Members:
Pablo Granifo Lavín, Chairman
of the Board
Francisco Pérez Mackenna, Director
Director
Ignacio Vera Asis, Operations
and Technology Division Manager
Armando Ariño Joiro, Procedures
and Rules Division Manager
Hugo Baranda Peralta, Operational
and Technology Risk Manager.
49
Main Committees
and Meetings
15
16
OPERATIONAL
RISK
This committee is commissioned
with defining and prioritizing
the main strategies to mitigate
operational risks and ensuring
implementation of management
models. It also establishes risk
tolerance and appetite levels and
works to ensure compliance with
programs, policies and procedures
regarding privacy and information
security, business continuity and
operational risk.
Members:
Financial Officer
Armando Ariño Joiro, Standards
and Procedures Division Manager
Hugo Baranda Peralta, Operational
and Technology Risk Manager.
meetings and have the right to
speak:
Osvaldo González García, Security
and Risk Prevention Area Manager.
ÉTICA
This committee outlines, reinforces
and regulates the professional and
personal conduct of all associates in
accordance with the bank’s philosophy
and values.
Periodicity: Every four months, or as
necessary in the event of reported
incidents or internal requirements.
Members:
Counsel
17 DIVULGACIÓN
This committee is responsible for
ensuring that financial information
is accurately disclosed to the market.
Periodicity: Quarterly.
Members:
Financial Officer
Héctor Hernández González,
Chief Accountant
Héctor Vallejos Stockebrand, Senior
Lawyer for International Matters
Alex Ladrix Oses, Research and
Planning Area Manager
Ruby Rius García, Risk Architecture
Area Manager.
meetings and have the right to speak:
Oscar Mehech Castellón, Controller.
50
Annual Report 2015
Other Internal
Control Matters
Compliance Division
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 regulations 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. The division, which is responsible for these matters
throughout all bank areas and all subsidiaries, operates independently and reports directly to the Asset
Laundering Prevention Committee and the Directors’ and Audit Committee.
Policies and Procedures
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 spirit, the bank 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 2015, the Compliance Division continued to spearhead efforts to implement and revise policies on
personal investments, insider information, the code of ethics, fiduciary relationships, prohibitions
on conditional credit products, mandatory absence, 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. In 2015, the bank was re-certified by an independent entity
as complying with the requirements established in that law, and Banco de Chile and Banchile Inversiones
implemented the Volcker Rule and underwent a process to obtain approval under this standard.
Banco de Chile has an asset laundering and terrorism financing prevention policy, 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. This prevention
process is applied to all businesses of both the bank and its subsidiaries. In 2015, the bank approved
a new corporate policy entitled “Policy on Politically Exposed Persons”, in accordance with the newly
added Chapter 1-16 of the SBIF Regulations.
As a result of the merger between Banco de Chile and Citibank Chile and in compliance with the agreements
signed as part of that merger, Citigroup’s Internal Audit Unit was authorized to review the degree of
completion of instrumentation and compliance of Banco de Chile’s Approved Policies and Procedures
included in that merger agreement.
In 2015, this same unit reviewed the bank’s “Asset Laundering and Terrorism Financing Prevention Policy”
and issued a final report on its 2014 review of the “Physical Transportation of Electronic Media Policy.”
51
Senior
Management
Arturo Tagle Quiroz
Chief Executive Officer,
since 2010
Eduardo Ebensperger Orrego
Commercial Banking Division Manager,
since 2014
Nelson Rojas Preter
General Counsel and Secretary to the Board,
since 2004
52
Annual Report 2015
Juan Cooper Álvarez
Consumer Banking Division Manager,
since 2003
Rolando Arias Sánchez
Chief Financial Officer,
since 2014
Oscar Mehech Castellón
Controller,
since 2008
Armando Ariño Joiro
Procedures and Rules Division Manager,
since 2015
Mauricio Baeza Letelier
Corporate Risk Division Manager,
since 2011
Alain Rochette García
Corporate and Investment Banking Division Manager,
since 2013
Ignacio Vera Asis
Operations and Technology Division Manager,
since 2014
Andrés Bucher Cepeda
Cristián Lagos Contardo
People and Organization Division Manager,
since 2012
Chief Executive Officer of Banchile Corredores de
Bolsa S.A.,
since 2012
Felipe Echaiz Bornemann
Compliance Division Manager,
since 2008
Senior Management
53
Senior
Management
Arturo Tagle Quiroz
Chief Executive Officer since 2010
Mr. Tagle has held diverse positions at Banco de Chile, including Institutional
and Investor Relations Division Manager (November 2009 - April 2010),
Strategic Development Division Manager (2008 - November 2009),
Research and Administration Division Manager (2002 - 2007) and Controller
(1998 - 2001). He joined the Bank in 1995. Mr. Tagle is currently a member
of the Boards of Directors of Banchile Securitizadora S.A., Socofín S.A.,
Banchile Corredores de Seguros Limitada, Banchile Asesoría Financiera
S.A., and Banchile Administradora General de Fondos S.A. Prior to joining
the bank, he was CEO of the Chilean Association of Banks and Financial
Institutions (1990 - 1994) and Research Director for the Superintendency
of Securities and Insurance (1984 – 1989. He is also currently the CEO
of Sociedad Matriz del Banco de Chile S.A., positions he has held since
1996. He holds a degree in Business Administration from the Pontificia
Universidad Católica de Chile and an MBA from the University of Chicago.
Eduardo Ebensperger Orrego
Commercial Banking Division Manager since 2014
He was the Manager of the Wholesale Division, including Large
Companies and Real Estate for 6 years prior to this. From 2005 to 2007
he was Manager of Large Companies and between 2002 and 2005 he
was the General Manager of the subsidiary Banchile Factoring S.A. Mr.
Ebensperger joined Banco de A. Edwards in 1989. He was appointed
the position of Regional Branch Manager in 1997 and later took on the
role as the Division Manager of Medium Size Companies.He is currently
Chairman of the Board of Artikos S.A, and a member of the Boards of
Banchile Citi Global Market (Banchile Asesoría Financiera S.A.), Banchile
Securitizadora S.A. , Banchile Administradora General de Fondos S.A.,
Banchile Corredores de Seguros S.A., and Socofin. He also participates
in the following Committees: Banchile Leasing, GTS, Factoring, Socofin,
Promarket, Operational Risk Management, Finanzas e Internacional.
Mr. Ebensperger graduated from the University of Chile with a degree
in Business Administration.
Juan Cooper Álvarez
Consumer Banking Division Manager since 2003
Mr. Cooper was CEO of Santander Compañía de Seguros de Vida S.A.
(2001 - 2002) and CEO of Santiago Express, Banco Santiago’s consumer
banking division (1997 - 2000). Currently, he is also a member of the board
Transbank S.A. and Socofin S.A. and member of the executive committee
of Banchile Corredores Seguros Limitada. He holds a degree in business
administration and an MBA from Pontificia Universidad Católica de Chile.
54
Annual Report 2015
Oscar Mehech Castellón
Controller since 2008
Prior to this position, Mr. Mehech was division manager for the Regulatory
Policy and Global Compliance Divisions. Before that, he was deputy
general counsel at Banco de Chile and Banco de A. Edwards, which merged
with Banco de Chile in 2002. Mr. Mehech is the chairman of the audit
committee of the Chilean Association of Banks and Financial Institutions
and the vice chairman of the oversight committee of Depósito Central
de Valores S.A. He holds a law degree from Universidad de Chile and an
MBA from Pontificia Universidad Católica de Chile.
Alain Rochette García
Corporate and Investment Banking Division Manager since 2013
Prior to his current position, Mr. Rochette was advisor to the CEO for the
Corporate and Investment Banking Division and General Coordinator for
the Treasury, Investment and Corporate Divisions. His 15-year career at
Citi has included diverse regional positions in Japan and the United States,
including the position of Executive Director of Markets and Treasury
for Latin America. He was also a member of the regional executive
management committee, based in the U.S. Before that, he was CFO of
Citibank Chile and a board member of several subsidiaries. He currently
serves on the board of Banchile Securitizadora S.A. and participates in
several committees: the Banchile|Citi Global Markets (Banchile Asesoría
Financiera S.A) Committee, the GTS Committee, the Finance Committee
(ALCO) and the Banco de Chile-Citi Management Committee. Mr. Rochette
holds a degree in industrial engineering from Universidad de Chile and
has participated in specialty coursework in the U.S., Europe and Asia,
including the Financial Management Program at Stanford University.
Nelson Rojas Preter
General Counsel and Secretary to the Board since 2004
In 2002, Mr. Rojas joined the bank as our senior lawyer. He joined Banco
de A. Edwards in 1987 and was general counsel and secretary to the
board of Banco A. Edwards from 1997 to 2002. He is also the chairman
of the legal affairs committee of the Association of Banks and Financial
Institutions. He holds a law degree from Universidad de Chile.
Rolando Arias Sánchez
Chief Financial Officer since 2014
Prior to this position, Mr. Arias was Manager of the Research and Planning
Area since 2006. He served as Manager of the Financial Control Area of
Banco de Chile after its merger with Banco de A. Edwards from 2002 to
2006. Before this merger, Mr. Arias was in charge of the Planning Area
of Banco de A. Edwards from 1997 to 2001. Mr. Arias joined Banco de A.
Edwards in 1987 and until 1997 he held various positions related to controlling
and planning. Mr. Arias holds a degree in Business Administration from
the Pontificia Universidad Católica de Chile.
Armando Ariño Joiro
Procedures and Rules Division Manager since March 2015
Mr. Ariño was the manager of the IT Division in Corpbanca since November
2000, and from 2005 to 2011 was responsible for all Corpbanca’s Backoffice
Services. He was the leader executive for design of Operational Model and
IT transformation plan execution and in 2009 he was Vice President of the
Operational Committee of the Chilean Banks and Financial Institutions
Association. From 2011 to 2014 he was a member of the Strategic Project
Office responsible for the acquisition and merger of Santander Colombia
and Helm Bank. Mr. Ariño holds a degree in Systems Engineering from
the Universidad INCCA de Colombia.
Ignacio Vera Asis
Operations and Technology Division Manager since 2014
Mr. Vera worked previously as Manager of Internet, Mobile Telephony and
Offshore Technology Center for Barclays Bank (2009 - 2013). Between
2007 and 2009, he worked as Director of Operations and IT Services for
HSBC México. Before that, he worked for HSBC at their Development
Center in Canada in charge of the Department of Corporate Solutions
and Online Commerce (HSBCnet). Mr. Vera also worked as IT Manager
for the HSBC group in Argentina and before that held several IT-related
positions at Stock Exchange Argentina Bank (1982 - 1991). Mr. Vera has
a degree in computer science from Universidad de Buenos Aires.
Cristián Lagos Contardo
People and Organization Division Manager since 2012
Prior to this position, Mr. Lagos was Corporate Manager of People and
Reputation at Compañía General de Electricidad S.A. (2008 - March
2012). Previously, he was Corporate Human Resources Manager at
Chilesat S.A. and Corporate Manager at Telmex, following its merger
with Chilesat S.A.; Planning and Human Resources Division Manager at
Banco Sudamericano and, later, at Scotiabank, following the merger of
these banks. 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.
Mauricio Baeza Letelier
Corporate Risk Division Manager since 2011
Mr. Baeza was appointed to this position following the merger of the
Companies Credit Risk Division and the Retail Credit Risk Division.
Previously, he served at the Credit Risk and Market Division and since
2005, as the Manager of this Division. Mr. Baeza joined us in 1997 and was
manager of the risk division of Banco de A. Edwards during 2001. He was
risk manager at Banco Santiago from 1993 to 1997. He is the secretary of
our Director’s Loan Committee, SOCOFIN S.A. Committee Advisor, Finance,
International and Market Risk Committee Advisor, and participates of
the Portfolio Risk Committee and the Operational Risk Committee.
Currently he is Chairman of the Risk Committee of the Chilean Banking
Association. Mr. Baeza is also a member of the Investment committee
of Banchile Fondo Inmobiliario and he is a director of the Foundation Villa
Padre Hurtado a charity organization. Mr. Baeza holds a degree in civil
engineering from the Pontificia Universidad Católica de Chile.
Andrés Bucher Cepeda
Chief Executive Officer of Banchile Corredores de Bolsa S.A. since
November 2012
With more than 25 years of professional experience, Mr. Bucher worked
previously as the Investment Banking and Capital Markets Division
Manager at Banco de Chile since 2008. Before that, Mr. Bucher was
Investment Banking head for Citigroup Chile, where he worked for more
than 19 years. Mr. Bucher holds a degree in industrial engineering from
Pontificia Universidad Católica de Chile and an MBA from the Wharton
School of the University of Pennsylvania.
Felipe Echaiz Bornemann
Compliance Division Manager since 2008
Mr. Echaiz worked at Citibank for ten years and was the Compliance
Officer for Citigroup Chile between 2006 and 2007. In 2003, he served as
Deputy Director of the Anti-Money Laundering and Organized Crime Unit
at the Public Prosecutor’s Office. Currently, Mr. Echaiz is a member of the
anti-money laundering executive committee of the Chilean Association
of Banks and Financial Institutions. He has a law degree from Pontificia
Universidad Católica de Chile and a master’s in finance and economics
from Universidad de Chile.
Senior Management
55
03
Risk
Management
Credit Risk
Market Risk
Operational Risk
Risk
Management
Comprehensive risk management is a cornerstone of Banco de Chile’s
business strategy that we recognize as a distinguishing element in our
value proposition.
The risk management spectrum has broadened considerably in recent years,
and currently encompasses areas beyond the traditional fields of credit, market
and operational risks. Many believe that today’s main sources of risk for any
business also extend to cybersecurity threats, internal and external regulatory
risks and impacts on services caused by suppliers, among others. All of this
exposure is exacerbated if it impacts a financial institution’s reputation and,
therefore, its profitability.
Banking Industry Risks
Non-Financial
Operational
Cybersecurity
Suppliers
Identify
Control
Risk
Management
Monitor
58
Annual Report 2015
Analyze
Internal and
External
Regulations
Financial
Credit Risk
Counterparty
Industry/Segment
Concentration
Market
Liquidity
Price
Despite their considerable variety, these risks all share common elements
and must be identified and analyzed in order to design a good metrics and
monitoring system that helps prevent and anticipate them, if possible, in
order to mitigate potential losses. In this process, risk appetite and tolerance
thresholds are entity-wide elements that are strategic for the business. They
must be supported by corporate governance best practices, a preventative
culture and rigorous discipline in the systematic monitoring of trends in
variables. Business opportunities may also be detected as a result of risk
management activities. The risk function must be integrated throughout the
entire organization in order to provide a flexible and comprehensive response
to a rapidly changing business environment.
Banco de Chile has commissioned this important task of globally managing
its most important risks to its Corporate Risk Division. In addition, the bank’s
corporate governance structure calls for significant involvement from both
its board of directors, which sets guidelines, and from senior management,
which works to ensure good overall control of risks. At the executive level,
the Corporate Risk Division is responsible for ensuring effective governance of
risks and focuses its efforts on contributing and adding value while optimizing
the risk-return ratio. The division also works to align risk management efforts
with the risk appetite—defined as the preference for risk at a given time or
the desired level of risk the bank wishes to take on in order to obtain returns
consistent with its global strategy—set by the bank’s board of directors.
Risk Management Structure
Board of Directors
Directors’ and Audit Committee
Risk Committees
Corporate Risk Division
Business Units
Branches
The Corporate Risk Division reports directly to the CEO and works to ensure
comprehensive, consolidated management of credit, market, operational and
technological risks throughout the bank and its subsidiaries. It helps provide
effective governance over the organization’s key risks, aiming to optimize the
risk-return ratio and, at the same time, striving to ensure high levels of solvency.
The different risk areas manage and identify potential losses stemming
from counterparty default, shifts in market factors or unsuitable operating
processes, people or systems.
Corporate
Risk
Division
01 Credit
Risk
02Market
Risk
03Operational
Risk
Risk Management
59
Credit
Risk
The primary objective of credit risk management is to optimize the risk-return ratio in
line with the bank’s defined risk appetite and to manage risk using a global strategy
based on the current and future economic environments and in-depth knowledge of
target customers and markets. The definition of risk appetite is related to the necessary
link between the bank’s global strategy and expected returns on capital.
Credit risk management is conducted within the framework of policies issued by the
bank’s board, which is actively involved in credit risk management, providing guidance
for management on handling credit risk and receiving periodic briefings on portfolio
performance and behavior.
The main objectives addressed by credit risk activities include:
• proposing to the board effective credit risk policies that guarantee profitability,
together with establishing rules and procedures to be followed by each business
segment for the entire loan process (approval, monitoring and collections);
• identifying, quantifying and controlling risks arising from loan transactions, expanding
the evaluation scope beyond credit risk to also include market, operational and
reputational risk;
• training the organization in credit risk matters so personnel develop knowledge of
different products and segments, and developing a credit culture that favors highquality assets and is aligned with the bank’s people and strategy;
• optimizing statistical models for large-scale approval processes, more focused
monitoring procedures and provisioning models based on estimated loss;
• having sufficient provisions based on the credit quality of the portfolio in order to
guarantee recognition of all existing risks;
• 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 for all areas of risk, in order to ensure timely
recovery, and
• constantly supervising operations in order to anticipate events and react to risk
warnings, ensuring a healthy portfolio.
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Annual Report 2015
A fundamental principle of the bank’s credit risk management, and the basis for its
model, is its presence and comprehensive vision of risk throughout the entire credit cycle:
Approval
Monitoring and Control
Collections
The bank has segmented
approaches for loan
analysis and approval
process based on
each particular target
segment:
• Retail Segment
• Wholesale Segment
Ongoing management
and monitoring are key
to successful
portfolio
administration; they
enable potential
impairment to be
detected in a timely
manner and for losses
to be minimized.
We have a first-rate
area that
centralizes collections
management for all
business segments,
in order to target
and specialize the
collections process and
serve the different
segments, based on
their particular needs
and in accordance with
current regulation.
The ongoing nature of credit risk management enables the bank to not only conduct a
rigorous credit assessment before approving loans to assure customers fall within the
predefined target market but also to guarantee exhaustive enforcement of credit policies
and meticulous monitoring of changes in portfolio risk as well as the loan restructuring
and collections processes used with delinquent customers. It also enables us to act early
before potential signs of deterioration arise with respect to conditions evaluated from
the beginning, mitigating risk using a system of triggers.
Banco de Chile manages credit risk in two large segments. First, in the retail segment,
the bank relies on automated processes for individuals and, for the most part, parametric
processes for small and medium-sized businesses. Second, the bank manages credit
risk in the wholesale segment using case-by-case analysis for large companies and
corporations. Organizationally speaking, the bank has tried to place risk teams as close as
possible to business areas. This arrangement allows them to participate throughout the
process until a decision is made and perform subsequent monitoring, ensuring ongoing
control and monitoring and, thus, recovery within the originally agreed time frames.
Credit Risk
61
Credit
Risk
I. Approval Process
The bank has segmented its loan analysis and approval process based on each
particular target segment (retail and wholesale). For this, it applies different
parameters to evaluate credit quality, payment capacity and financing structure,
all by customer type. Each approval process involves:
policies, standards and procedures;
levels of specialization and expertise of participants in the loan process;
the type and depth of IT systems required and
the type of predictive models or indicators for each segment.
To manage credit risk in the retail and wholesale segments, the bank has
developed a robust process and specialized team with considerable experience
in the loan approval process for the diverse segments and industries in which
it does business.
Retail Segment
The following types of approval models are used:
a) Automated Model: The bank uses automated assessment systems mainly
for individuals in the retail segment, applied separately for Banco CrediChile
and Banco de Chile. These systems are programmed to meet current loan
policies and standards, thus providing a flexible, online response and
effective communication toward customers. These models are used to
rate three important dimensions of the approval process: Target market,
minimum credit score and indebtedness limits.
b) Parametric Model: This methodology is used to evaluate individual
applications from the SME segment. The model includes an assessment
of customers or business prospectuses based on three key pillars: internal
and external payment behavior; an analysis of financial information and
an evaluation of the customer’s business, including the owners’ and/or
management’s experience.
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Annual Report 2015
This parametric assessment process condenses the customer’s credit quality
into a rating, which is directly linked to the credit attributions required to
approve each transaction.
c) Pre-approved Model: Using information available on customers, largescale assessment processes are conducted to generate pre-approved loan
offers, following strategies tailored to each customer segment and niche.
These proactive, efficient models are increasingly favored by the bank for
approval processes because of their improved risk-return ratio and enhanced
customer service experience.
Wholesale Segment
In this segment, the bank uses the case-by-case model, which consists of an
individual assessment with specialized knowledge that combines the risk level,
the term of the loan, amounts, products, complexity and business outlooks,
financial analysis and guarantees, among other variables. This process is also
usually supported by a rating model that makes for a more homogeneous
evaluation of the customer and its economic group and also determines the
required credit attributions.
For the case-by-case evaluation, the bank also has specialized areas in some
segments that require more expert knowledge (real estate, construction,
agriculture, financial, international and other industries that require ad hoc
advising when very specific), whose operations are also supported by specially
designed tools based on particular characteristics of the businesses and their
respective risks.
Credit Risk
63
Credit
Risk
II. Monitoring and Control
The bank has areas dedicated to monitoring within its organizational structure.
These areas have developed methodologies and tools for the diverse segments
in which the bank does business and apply them systematically to properly
manage the loan portfolio.
The retail segment controls and tracks the credit risk of its portfolio by
continuously monitoring customers and industry and market trends, which
enables it to identify the corrective measures and adjustments necessary to
maintain desired risk levels.
To accomplish this, the segment prepares reports that address: monitoring
of expected portfolio losses; analysis of new batches of customers; general
default rates for the portfolio with special monitoring by product and segment;
approval standards and monitoring of the mortgage portfolio based on political
variables, debt-collateral ratios, maturities and the customer’s relationship
between dividends/income.
This segment has developed statistical models to be used during the loan
approval process as a specific tool for managing credit risk. These models
were developed using methodologies and minimum quality indicators defined
by the bank. They also closely monitor them using backtesting, variable
stability and segmentation, among other tools, thus ensuring their stability
and predictive ability over time.
In the wholesale segment, the main centralized monitoring processes include
systematic monitoring of triggers on financial indicators and behavior variables;
default management, enhanced using risk level predictors and segmented
strategies for early collections, and management of portfolio ratings. Along
with this, special monitoring is used to manage portfolios. This enables the
bank to establish action plans for companies that activate triggers and monitor
specific market circumstances that necessitate a special portfolio review. The
bank also monitors compliance of conditions set during the approval process,
such as covenants, guarantee coverage or particular conditions and restrictions
for loan approval, etc.
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Annual Report 2015
III. Collections Process
The bank has a department that centralizes collections management for all
business segments, in order to target and specialize the process and serve the
different segments, based on their particular needs and in accordance with
current regulations. In 2015 this department began to operate under the new
Insolvency and Reorganization Law, which has required the bank to adjust
several processes, especially for the consumer segment.
For customers with signs of deterioration, the bank can initiate formal collections
processes in strict adherence to current laws and internal regulations. The
following guidelines are used:
For normally compliant customers with temporary cash flow problems,
the bank tries to negotiate and implement debt restructuring plans that
adjust lending conditions to the customers’ new financial reality. This is
done in order to maintain lasting medium and long-term relationships
with these customers.
For debtors with evident deterioration or payment problems, actions
are taken to maximize recovery of the assets at risk. This process is
carried out by specialized units that take on a direct relationship with
these debtors. The portfolio is assigned to different specialized teams
based on the dynamic and characteristics of each segment:
a) Retail segment debtors (individuals and SMEs): Collections are
managed by the bank’s subsidiary SOCOFIN S.A., which for all practical
purposes reports to the Corporate Risk Division. The collections
strategies applied by this subsidiary vary based on customer segment,
delinquency status and exposure level.
b) Wholesale segment debtors: Customers are managed directly and
globally by executives from the bank’s Special Asset Management
Area. In this case, the plans and actions taken to restore normal
payment behavior are defined and negotiated on a case-by-case
basis.
Credit Risk
65
Credit
Risk
IV. Allowances and Expected 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 of potential default. To do so, it has policies and procedures in place that
comprehensively evaluate the credit risk of its loan portfolio with assessment models
based on the size, nature and complexity of its loan deals. All of these policies and
procedures are in accordance with instructions from the SBIF and have been approved
by the board of directors.
Provisions are determined for the retail and companies markets using two models:
a) Individual assessment: This type of assessment is used when the bank needs to
understand a customer in detail because of its size, complexity or exposure level.
A case-by-case analysis of these debtors, although focused on their ability and
willingness to meet their loan obligations, is intended to identify the elements of
the customer’s unique risks.
For the purposes of establishing provisions, each individually assessed debtor is
scored in one of 16 categories defined by the SBIF. The bank constantly updates each
debtor’s risk rating based on changes to its financial situation, payment behavior
and environment.
b) Group assessment: the SBIF permits group assessments to deal with a large number
of transactions with small individual amounts loaned to individuals or small companies.
Group assessments start by grouping loans with similar characteristics such as type
of debtor and agreed-upon conditions in order to calculate the provisions needed
to cover expected losses. These normally rely on 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 12 months.
Statistical models are developed for each group segment to 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 segmented by type of product.
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.
The bank uses periodic backtesting, by which real losses are contrasted with modelestimated losses, to validate the consistency of its models.
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Annual Report 2015
V. Adequacy of Provisions
Each year, the bank tests the adequacy of its provisions for the individual and group
portfolios to verify its risk assessment processes and estimated loss approximations
for each segment’s portfolio. To do so, the bank uses migratory analyses, charge-off
measurements, loss estimates for the delinquent portfolio and backtesting that allow
it to confirm, with a high degree of confidence, that its provisions are sufficient to
cover estimated losses in the different segments. Provision adequacy testing is done
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. The results of this analysis are presented to the board, which then issues a
formal opinion on the adequacy of the bank’s provisions for each year.
VI. Country Risk
Country risk is the inherent risk to which Banco de Chile is exposed from dealings with
counterparties residing in a foreign country. In light of the possibility that a counterparty
may become unable to honor its payment commitments with the bank, either due
to a sovereign risk in the respective country, expropriation, convertibility or transfer
issues, the bank’s International Risk Unit within the Corporate Risk Division performs
a strict, comprehensive analysis of each of the countries where it does business and
measures, limits and controls the risk generated by all transactions between the bank
and counterparties that are legal residents of foreign countries.
Furthermore, the bank establishes guidelines for measuring, limiting and reporting
exposure maintained abroad through the Country Risk Management Policy. This policy
also 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. The
model in place has demonstrated a considerable capacity to reflect reality in scenarios
of stress and to predict country status; it has even anticipated changes in the ratings
of some countries.
In terms of monitoring, each month the bank reviews current exposures, market variables
and financial, macroeconomic and political fundamentals for the main countries with
which it does business in order to take any measures necessary in advance to manage
its foreign portfolio with a suitable risk-return ratio.
Credit Risk
67
Market
Risk
The bank analyzes and manages price and liquidity risk, which is the risk of
potential loss from not having perfectly matched financial exposure in the
event of adverse changes in market variables or scarce liquidity, respectively.
Within the Corporate Risk Division, the Market Risk Division is responsible of
limiting, controlling and reporting these market exposures and risks within
the bank as well as providing guidelines for its subsidiaries to carry out these
tasks. The Market Risk Reporting and Control Unit within the Financial Control
and Management Division is responsible of measuring these risks and also
takes part in reporting them. These units perform their duties independently
from the business units.
The bank’s Treasury Division is responsible for managing financial exposure,
and therefore market risk, within the limits and parameters proposed by the
Market Risk Division and approved by the board of directors.
I. Liquidity Risk
Scarce liquidity can occur due to:
• a reduction in the bank’s funding capacity (funding liquidity risk), and
• a reduction in the traded volumes of its assets that can be liquidated or
its risk factors from derivatives held in its portfolio (transaction or trading
liquidity risk).
Liquidity Risk Limits and Triggers
The bank has a Liquidity Risk Management Policy, approved annually by the
board, which sets limits and triggers based on internal methodologies that
complement regulatory liquidity limits.
These limits and internal triggers are applied to variables such as: liquidity
ratios; assets denominated in chilean pesos funded by liabilities denominated
in foreign currencies; the status of market variables that can forecast illiquidity;
percentage of use of Adjusted C08 Index and the MAR (market access report)
metric, which estimates cash flows required for normal operating conditions
in different time buckets within the next 90 days.
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Annual Report 2015
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 the SBIF. This metric simulates
forecasted cash flows resulting from the contractual maturities of assets and
liabilities. A new liquidity indicator known as C46 was introduced by the SBIF in
December 2015. In addition, the bank is authorized by the SBIF to report cash
flows of some balance sheet items with different terms than those originally
contracted, by considering benavioral assumptions for these cash flows. The
metric that includes these assumptions is commonly called the Adjusted C08
(or C46) regulatory report.
Regulators establish that the maximum use of the C08 Index for cash flows
in foreign currency and cash flows in all currencies for the next 30 days may
not exceed the bank’s tier 1 capital; similarly, the use of this index for cash
flows in all currencies for the next 90 days should not exceed twice the bank’s
tier 1 capital.
The following charts show the maximum, average and minimum values for
the bank’s use of the Adjusted 1-30 day C08 Index and the Adjusted 1-90 day
C08 Index during 2015.
C08 1-30 days (times tier 1 capital)
All
Currencies
Chilean
Pesos
Foreign
Currency
Maximum
0.63
0.58
0.25
Minimum
0.14
0.04
-0.14
Average
0.37
0.30
0.08
Ítem
C08 1-90 days (times tier 1 capital)
Ítem
All
Currencies
Chilean
Pesos
Foreign
Currency
Maximum
0.90
0.71
0.34
Minimum
0.22
0.10
-0.01
Average
0.63
0.42
0.21
Market Risk
69
Market
Risk
The figures illustrate that liquidity has been managed conservatively and with
considerable margin within regulatory ranges. During the first 30 days, use is
explained to a large extent by cash flows denominated in domestic currency,
with a maximum use of no greater than 65% of the regulatory limit. Including
the next 60 days, maximum use does not exceed 50% of the limit and the
relative weight of cash flows in foreign currency in the use of the index increases.
Trading liquidity is assured by using DV01(1) limits with certain specific maturities
based on the amounts that are normally traded in professional markets
(also known as market makers) for interest rate exposure generated by debt
instruments and derivative instruments containing exposures to swap curves.
The same processes and criteria are used to limit the bank’s global exposure
to each exchange rate and to exchange rate volatility with varying maturities.
Regarding cross-currency funding, the bank limits the amount of liabilities
in foreign currency that fund assets in Chilean pesos. This is implemented in
order to prevent the bank from depending on investors residing abroad for
liquidity, which may be restricted even by factors unrelated to the bank such
as Chile’s country risk, or by the perception of risk in the region or even in
emerging markets as a whole.
In accordance with its Liquidity Management Policy, the bank performs
quarterly liquidity stress exercises in order to quantify its cash needs in the
event of severe adverse scenarios. The results of these tests are presented at
meetings of the board of directors and to regulators during their yearly visits.
Lastly, during 2015 the bank added a new concept and metric in order to ensure
minimum liquidity available under any condition, known as a liquidity buffer.
(1) DV01 is the change in value of a financial instrument as a result of an increase in its valuation interest
rate by 0.01%.
70
Annual Report 2015
II. Price Risk
The bank separates price risk based on the three types of variables that
determine the value of any financial instrument or balance sheet item: spot
prices, interest rates and options volatility.
Price Risk Limits and Triggers
In order to properly manage price risk, the bank has a Market Risk Management
Policy, approved annually by the board, which sets internal limits and triggers,
in addition to regulatory limits, for measuring financial exposures 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 exposure on a certain market factor, which in combination
with other variables does not generate losses above a certain predefined
amount as a result of adverse shifts in market variables. The approval process
for triggers on this type of risk is designed to define a tolerance level over
which senior management wishes to be informed of either potential losses
in any business unit (look forward analysis) or the status of actual losses
accumulated during a period of time by any one unit (look back analysis).
Measurement, Control and Reporting of Price Risk
Price risk is measured and controlled for management purposes using several
different internal metrics and reports depending whether they are used for
exposures in the Trading and Foreign Exchange Book or the Accrual Book (2)
(and the Banking Book only for regulatory purposes).
Related regulatory reports, like the SBIF’s C41 and C43 reports for the Trading
and Foreign Exchange Book and the SBIF’s C40 report for the Banking Book,
are used by the bank only as a complementary control for the internal metrics
designed to manage this risk.
Regarding internal tools designed for the Trading and Foreign Exchange Book,
price risk is managed by calculating and reporting financial exposures using
greeks (3) and the risk of the entire portfolio using the VaR model. The latter
is determined using a historical approach with 99% confidence and one year
of daily fluctuations in market variables (hereinafter indistinctly “VaR”).
(2) The Accrual Book contains all items from the bank’s balance sheet that are not in the Trading Book, even
those that are not reflected in the Banking Book such as capital, property and equipment and others.
(3) 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%. It is common to also use the partial derivatives of the value functions, which
correspond to the concept explained above.
Market Risk
71
Market
Risk
Backtesting is conducted 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.
The following graph shows the evolution of the VaR generated by all Trading
Book exposures during 2015 (line entitled Global Portfolio); it also shows the
VaR generated during that period by positions in that book that are managed
by the Trading Unit separately from the positions managed by the Balance
and Investment Unit.
VaR Historical, 99% Confidence, Scaled to One Month
(Figures in millions of Chilean pesos)
14
12
10
8
6
4
2
0
Jan-15
Feb-15 Mar-15 Apr-15 May-15 Jun-15
Global Portfolio
Trading Unit
Jul-15
Aug-15 Sep-15 Oct-15 Nov-15 Dec-15
Balance and Investment Unit
It can be realized a very active use of risk throughout the year by the Trading
Unit: This is consistent with the nature of this bussiness unit. In 2015, its
VaR ranged from US$4 and US$12 million, with a peak use in October of 2015.
Conversely, the VaR of the Risk Treasury Unit is more stable throughout the
year because the unit’s derivative positions is held to economically hedge the
interest rate exposures generated in the Accrual Book, not being necessary
an active and dynamic exposure management.
The bank has also established internal metrics for price risk management in
the Accrual Book, defining limits and triggers for interest rate exposure. In
effect, the bank measures interest rate exposure using the IRE metric (Interest
Rate Exposure), defined as the potential impact of 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.
72
Annual Report 2015
Using the IRE metric, the bank calculates and reports interest rate risk for the
Accrual Book using the EaR 12 M methodology (Earnings at Risk 12M), which
enables it to estimate the potential drop in earnings that the bank may realize
over the next 12 months, based on interest rate exposures outstanding as of each
reporting date, and as the result of an adverse movement in expected forward
interest rates observed during the last three years with 97.7% confidence level.
The following graph illustrates the evolution of this metric during 2015. It reached
its annual peak of Ch$70,000 million during the first half of the year, but reversed
this trend beginning in June mainly due to a slight reduction in exposure and a
decrease in the expected fluctuations in interest rates and inflation.
Earnings at Risk 12M
70,000
65,000
60,000
55,000
Jan-15
Feb-15 Mar-15 Apr-15 May-15 Jun-15
Jul-15
Aug-15 Sep-15 Oct-15 Nov-15 Dec-15
Also, internal policies call for daily stress tests of Trading and Foreign Exchange
Book positions, and monthly testing of the Accrual Book, including a comparison
of expected potential losses for those periods with regards to defined triggers.
For Trading and Foreign Exchange Book exposures, limits and triggers use is
daily monitored and reported to the senior management, along with excesses,
triggers breaches and, if necessary, corrective action plans. The same is done for
Accrual Book metrics, but on a monthly basis. In any case, weekly monitoring is
implemented for the Accrual Book exposures using estimations of the Accrual
Book generated within the calendar month.
Market Risk
73
Operational
Risk
At Banco de Chile, operational risk management is closely linked to the
strategic objectives it has set for itself. In adherence with local regulations and
international best practices, the organization manages this risk in accordance
with its Operational Risk Management Policy and Model, which is approved
by senior management and the board. This model encompasses procedures,
tools, measurement and analysis systems and specialists in operational risk.
Operational risk is defined as the risk of incurring losses from deficiencies or
failures in internal processes, human factors or systems, or resulting from
external circumstances. It is inherent to the banking business and cannot
be eliminated completely, although it can be managed, controlled and, in
some cases, insured and hedged. As a result, inherent risk is determined by
quantifying the risk implicit to the activity in question, measured in absolute
values that do not take into account the quality of existing controls. Therefore,
in order to quantify the risk that is truly taken on, known as “residual risk”,
the established controls must be examined.
74
Annual Report 2015
The bank’s operational risk management model is divided into the following stages:
Identification and
Evaluation
Monitoring
REPORting
Ongoing
Management
• Surveying the
risks and controls
associated with the
process map for each
business unit.
• Determining the
main real or potential
threats to which the
bank is exposed.
• Determining the
frequency and impact
based on each risk with
the information from
the operational event
database, if any.
• Defining action plans
for relevant risks that
enable the bank to
mitigate exposure, if
necessary.
• Managing the impact
that operational risks
inflict or may inflict on
the bank.
• Communicating
operational risk
exposure throughout
the organization.
Information flows can
be divided into two
levels:
• External: informing
the SBIF and other
regulators about
exposure levels
• Internal: informing
senior management,
periodically, of
incidents and
operational events
as well as all market
aspects that might
affect the risk profile.
• Recurring process
that combines
qualitative and
quantitative factors
in order to keep
the process risk map
up to date.
• This process is fed
by periodic selfassessments
conducted by business
units regarding
the inherent risks
identified in evaluating
new products, services
and changes in
systems or processes.
• It includes
quantitative
factors such as the
identification and
analysis of operational
incidents and events
and their subsequent
entry into the event
database and risk
matrix, thus updating
the data for the
corresponding process.
• It involves managing
triggers by establishing
action plans or
corrective actions to
mitigate such risks.
• Determining
indicators for the
highest impact risks
identified in the
processes, which are to
be monitored based on
defined and approved
thresholds.
Operational Risk
75
Operational
Risk
Governance Structure
Banco de Chile maintains a governance structure in accordance with the guidelines
set forth in the Operational Risk Policy. This structure includes the board, senior
management, the Superior Operational Risk Committee, the Operational Risk
Committee, the Operational and Technology Risk Division and active involvement
from representatives from all business units.
In the bank’s corporate governance structure, managing this risk is the particular
responsibility of the following bodies:
BOARD OF
DIRECTORS
The bank’s board of directors establishes guidelines and
definitions for risk appetite, while several risk-specific
committees ensure management has good control of
the variables behind each risk.
SUPERIOR
OPERATIONAL RISK
COMMITTEE
This committee defines and prioritizes the main strategies
for mitigating related operational risk events, such as:
internal and external fraud; risks associated with client,
product and business practices; damage to tangible
assets; disturbance of normal activity; system failures;
the execution, delivery and processing of internal or
outsourced products and services, in order to mitigate
operational losses. The strategies defined must be
approved by the board.
OPERATIONAL RISK
COMMITTEE
This committee familiarizes itself with the exposure
to operational risk for the bank and its subsidiaries,
both overall as well as by business line, analyzes the
effectiveness of the main strategies adopted to mitigate
the vulnerability and impact of risk events related to
operational risk, information security, business continuity
and reputation risk.
CORPORATE RISK
DIVISION
This division is responsible for defining, assessing and
controlling operational risk in accordance with local
regulations and international best practices. To accomplish
this, the bank has established comprehensive plans for
operational risk, business continuity and information
security, thereby strengthening the operational risk
management model approved by senior management
and the board of directors.
OPERATIONAL AND
TECHNOLOGY RISK
DIVISION
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Annual Report 2015
In 2015 the bank made progress on numerous initiatives and projects in several
areas of operational risk management.
Critical Supplier Risk Management In collaboration with the Chilean Association
of Banks and Financial Institutions, the bank developed a comprehensive risk
assessment methodology that takes into account operational risk, information
security and business continuity for each outsourced service. This allows organizations
to determine a supplier’s maturity and control environment, which complies with
SBIF regulation RAN 20-7. Thus, banks can formulate their own opinion on the
control environment for areas that until now were harder to define. This will also
provide a common set of compliance requirements for operational risk areas for
common banking industry or individual suppliers. In 2015, the pilot phase was
executed by evaluating three common suppliers in the industry— Nexus, Combanc
and ETF, all of which attained excellent results.
Business Continuity and Disaster Recovery The bank implemented and obtained
certification for a continuity program in the event of IT infrastructure failure, known
as disaster recovery planning. As part of the process, it tested critical services and
products to assure availability of those products and services considered priorities
for its customers. The tests considered retail and companies Internet channels
and mobile banking as well as call center and cashier services, all operating in
contingency with functional and operating load tests. The contingency testing
went even further by addressing more complex supplier scenarios and physical
structural failures.
The Operational and Technology Risk Division implemented improvements
to the process evaluation methodology, which will keep it on the forefront of
ongoing operational risk management.
Operational Risk
77
04
Performance
in
2015
Management’s Discussion and
Analysis
Risk Factors
Regulatory Changes
Management’s
Discussion and Analysis
The year 2015 was certainly not easy for either Banco de Chile or the financial
industry as a whole. We faced an economic slowdown and persistently
deteriorating growth expectations, low investment figures and consistently
pessimistic confidence levels. In this difficult setting, the soundness and
consistency of our long-term strategy, together with a solid ability to adapt
to change, enabled us to end the year well with net income of Ch$559 billion
and a return on average capital and reserves of 21.9%. Both of these figures
make us once again the undisputed industry leader.
These achievements were especially noteworthy given the economic context,
as we had to put forth additional effort in several different areas to soften
the impact of less-than-favorable trends in certain market factors. For
example, inflation—measured as the variation in the UF— reached 4.1% in
2015. This is substantially less than the 5.7% posted last year, which resulted
in a reduced contribution to revenue by our structural asset position in UF.
However, we were able to successfully cope with these conditions thanks to a
solid performance from our core business. Loans and demand deposits grew
by 12.3% and 20.1%, respectively, which adequately offset a slight drop in
margins. Similarly, net fees—a key element in our business—expanded 12.4%
for the year, based primarily on contributions from our subsidiaries and higher
fees from transactional services.
From a volume perspective, in 2015 loans totaled Ch$24.6 trillion, leading
to annual growth of 26 basis points in market share and ending the year at
18.3%. The retail segment was the main driver behind this growth with annual
expansion of 15.4%. Without a doubt, mortgage loans set the trend in this
segment with annual growth of 18.2%, closing the year with a balance of
Ch$6.4 trillion. Robust housing demand triggered by the anticipated impact of
Chile’s recent tax reform on prices, coupled with especially favorable interest
rates, explained this phenomenon. This was complemented by an effective
Arturo Tagle Quiroz
Chief Executive Officer
80
Annual Report 2015
commercial strategy that enabled us to earn 47 basis points in market share
in this product, closing 2015 with 17.6%.
In consumer products, we reported growth of 11.5% for the year with a volume
of Ch$3.7 trillion. These results gave us a second-place industry ranking with
a market share of 21.0%, up 48 basis points over 2014. This achievement is
due to a large extent to successful sales campaigns that drove loan revenue,
posting a historical annual maximum of Ch$1.3 trillion in 2015. Consumer
loans include the loan portfolio of Banco CrediChile. Despite a successful
commercial strategy, this portfolio of Ch$803 billion in total loans was stagnant
in 2015. CrediChile’s performance is consistent with our concern regarding
the expected impact of economic deceleration on this segment, particularly
in terms of employment. In this setting, CrediChile has focused on boosting
payroll loans and strengthening sales of pre-approved loans, thus improving
portfolio risk and returns.
In this less dynamic environment, growth in the retail segment (individuals
and SMEs) can be attributed to initiatives focused on knowing our customers
better, strengthening our multi-channel approach and reinforcing service
quality from the perspective of a multidimensional experience in the customerbank relationship. Our progress on these matters has enabled us to develop
comprehensive, personalized value propositions that bring innovation, trust
and opportunity to every interaction.
In 2015 we continued to strengthen our mobile banking platform by adding new
functionalities—Mi Cuenta, Mi Pass and Mi Seguro—to our existing applications—
Mi Banco, Mi Pago and Mi Beneficio. This strategy of innovating in channels
has been valued not only by our customers, but also internationally by the
Latin American Banking Federation for contributing to the development of
the regional financial market and by the publications Global Banking & Finance
Review and Global Finance as the best digital bank in Chile.
Banco de Chile
once again led
the industry in net
income and profitability*,
consolidating
its market leadership.
Flexible commercial
management,
together with a
customer-focused
strategy, were the basis
for our growth in revenue
and business volumes.
We strengthened
our value propositions
through major strides
in digital innovation
and long-term strategic
alliances.
Always attentive to
market opportunities,
we acquired
a portfolio of commercial
loans for Ch$564 billion
and issued Ch$156 billion
in bonds on foreign
markets.
* Banks with more than 3% market
share in loans.
81
Management’s
These awards are a great source of pride and have positioned us as leaders
in innovation. We are convinced that innovation is, and will continue to be,
key in generating value for our customers, which is why we are determined
to continue in this direction. As of year-end 2015, our applications boasted
almost 830,000 downloads and everything indicates that this figure should
continue to increase.
Similarly, we signed strategic alliances with Delta Airlines and Sky Airlines.
These programs will enable TravelClub points accumulated using our credit cards
to be exchanged for airline miles or local and international airfare. We trust
that these agreements will benefit our 1.5 million credit cardholders, who are
the basis for our second place ranking in billing, with a market share of 23.4%.
CrediChile implemented several initiatives to reinforce its service offering,
including “CuentaChile”, a demand account that expands banking access and
enables users to utilize diverse products and benefits (withdrawals, savings,
discounts), as well as make use of the broad network of 2,138 Caja Chile
terminals throughout the country.
Also within the retail segment, in 2015 we renewed our commitment to
entrepreneurship. In this spirit, we reinforced our efforts in the SME market,
strengthening the use of pre-approved loans to reach a loan volume of Ch$2.8
trillion and annual growth of 9.9%. Similarly, Banco CrediChile’s Microenterprise
Area, with Ch$35 billion in loans, expanded the wide variety of agreements
that strengthen its market position. Our commitment to small and midsized
businesses was also evident in the 75 SME gatherings we held in 43 cities
throughout Chile, reaching more than 7,000 participants. We also organized 20
classroom-based financial literacy workshops that, combined with e-learning
platforms, enabled us to train 28,000 micro-entrepreneurs. We provided funds
for 35 entrepreneurs to attend Expo Milán 2015, where they had the chance
to network and generate business opportunities.
In the wholesale segment, we reported interesting achievements in loan
volumes. The Wholesale, Large Companies and Real Estate Division had a
successful year with annual growth of 10.6% in loans. A key milestone for
this division was the effective and timely move to purchase a commercial
loan portfolio for Ch$564 billion from a local bank. This transaction gave the
bank a limited-risk portfolio of loans from companies that, for the most part,
were already bank customers. Our in-depth market knowledge and exceptional
82
Annual Report 2015
teams of professionals enabled us to execute this transaction in record time,
taking advantage of an attractive business opportunity.
In a context of intense competition in the corporate market, we posted growth
of 5.9% in loans within the Corporate and Investment Banking Division,
prioritizing profitable growth at the core of our commercial strategy. This
performance together with our achievements in the SME market provided us
with total commercial loans of Ch$14.4 trillion in 2015, which represented an
annual increase of 10.0% and market share of 18.1%, up 13 basis points from
year-end 2014. Our leadership in the wholesale segment has also benefited by
our strategic alliance with Citigroup Inc. This partnership enables us to provide
comprehensive advisory services to Citi’s foreign customers in Chile as well as
the bank’s customers doing business abroad. I am convinced that the recent
renewal of the Connectivity Agreement between Banco de Chile and Citigroup
will enable us to project in time our Wholesale Banking Division’s success with
multinational companies.
Our subsidiaries are a key complement to our business model. In this spirit, I
would like to touch on the reactivation of the mutual fund and asset management
business managed by Banchile Administradora General de Fondos, which
conserved its market leading position with 21.3% of assets under management
thanks to annual growth of 13.1% in average volume. This subsidiary was also
recognized with 5 Salmón Awards. These accolades honor the subsidiary as
the fund manager with the best risk-return ratio in the market.
Banchile Corredores de Seguros also made considerable progress, confirming
its ability to add value to our business model. In 2015, the subsidiary had a
total stock of 1.2 million policies unrelated to loans, including record sales
of 357,000 obligatory personal accident insurance (SOAP) policies. It also
brokered almost UF 660,000 in insurance for SMEs and large companies,
where interesting innovations in health insurance and the development of
Internet and mobile banking channels played a big part. All of these factors
helped the subsidiary increase its brokered premiums by 19.6% for the year.
Banchile Asesoría Financiera once again played an important role in the local
corporate market, participating in a large percentage of the year’s most
important deals and advising both private sector companies and the Chilean
government. As a result of this performance, the subsidiary received several
awards: Best Investment Bank in Chile (LatinFinance) and Best International
Bond, Best IPO and Best IPO Agent (Deloitte & DF).
83
Management’s
Although 2015 was not attractive in terms of stock market activity, Banchile
Corredora de Bolsa experienced important milestones such as launching an
Internet platform for foreign currency trading, which provides clients enhanced
security and efficiency when conducting trades.
In terms of liabilities, we continued to diversify sources of funding. In 2015 we
issued Ch$1.3 trillion in long-term senior bonds, of which Ch$156 billion were
placed on foreign markets under our medium-term notes program. Added to
this was our commercial paper program registered in the United States, which
has enabled us to successfully fund short-term commercial operations. We held
our leading position in demand deposits with a market share of 23.1%, which
demonstrates our retail and commercial customers’ preference to safeguard
their funds at Banco de Chile in a context of low interest rates. All of these
elements translate into a highly competitive cost of funds.
In addition, we efficiently managed risks, including credit, market and operational
risk. With respect to credit risk, we posted a loan loss provisions ratio of 1.3%
of total loans while our past-due portfolio accounted for 1.2% of total loans,
thus demonstrating our portfolio’s exceptional credit quality and positioning
us favorably with respect to our main competitors. Provision expenses in 2015
include Ch$31 billion in additional provisions, which are not associated with
any specific customer or business but rather with our conservative approach
to risk. Net of this extraordinary effect and the increase in the exchange rate,
charge-offs would have represented 1.1%.
Our commercial achievements reflect our profound commitment to our
customers’ development, accompanying them throughout their life cycle.
In this sense, we are extremely satisfied to know that we are meeting our
customers’ expectations and that they sense ongoing improvement in our
quality standards. Our net customer recommendation index reached 71% in
2015, marking considerable progress over the prior year, which reflects the
results of continuing staff training efforts and improving processes.
In the area of operational risk, we continue to implement improvements in business
continuity, satisfactorily navigating successive stress tests, known as Disaster
Recovery Planning. We have also focused part of our efforts on operational
84
Annual Report 2015
optimization and security. With this in mind, we have implemented document
automation software and image-based approval and clearing processes, changes
that will lead to greater productivity. In parallel, we replaced 60% of our ATMs
to meet better security standards (DL222) and set up transactional terminals at
Servipag locations to provide money transfer services. We also made strides in
technology, applying innovations and best practices in resource management,
thus increasing efficiency and decreasing response time.
To complement these initiatives, we continued to prioritize cost control efforts.
In 2015 we posted an efficiency ratio of 44.1%. Although slightly below the
2014 figure (corrected to account for extraordinary factors), this achievement
gives us a strong industry position in this area.
In matters of human capital, we continued to make progress on efforts to build
a homogeneous, distinctive and unique culture, founded on our commitment
to the beliefs, values and attributes defined by the corporation. During the
year, we implemented important initiatives in this area, including a program
called “Chile’s Team”, to recognize more than two thousand associates for
exemplifying our corporate values.
As part of our corporate social responsibility programs, we participated in
numerous initiatives. Two in particular stand out: our collaboration with the
Teletón campaign, for which we doubled efforts, expanding our presence inperson and remote channels for collecting funds; and the alliance with Desafío
Levantemos Chile, through which we were one of the first companies to provide
support for the victims of the earthquake and mudslides that struck northern Chile.
All these achievements are only possible thanks to the commitment and
dedication of an exceptional team of associates whose professionalism, team
spirit and profound sense of ethics come together each day to build the unique
culture for which Banco de Chile is known.
Lastly, I would like to express my appreciation for the trust placed in me by
the Board of Directors of Banco de Chile and for the dedication of our 14,973
associates. I would like to acknowledge their commitment and invite them
to continue to build the best Banco de Chile.
85
Economic
Environment
The Global Economy
Emerging economies
slowed while oil and
copper prices dropped
substantially
The U.S. economy
continued to gain
momentum and
ultimately raised interest
rates, mainly because of
its robust job market
Europe expanded at the
fastest pace seen in five
years, but continued
its highly expansionary
monetary policy
Dragged down by Brazil,
Latin America posted
zero growth and the
impact of a globally
strong dollar and
reduced prices of export
goods left their mark on
growth
and inflation figures
86
Annual Report 2015
The global economy continued to show diverging trends between developed
and emerging nations, in a context marked by diminishing estimates for
potential growth. The developed world—with important exceptions like
Japan—continued to gain strength, while the emerging world once again
posted declines in GDP growth rates. In particular, despite continuing to
grow by more than double global figures, China’s annual growth rate has
fallen by close to 4 percentage points over the past five years.
The effect of deceleration in emerging economies, especially China, sharply
impacted commodities prices. The WTI oil price fell 30% in 2015 (following
a 46% reduction the prior year), while copper prices dropped 26%. Although
estimates from several sources, including the IMF, point toward a recovery
in raw material prices over the medium term, consensus does not expect
prices to return to 2011 levels.
In addition, in 2015 pronounced differences were observed in economic policy
measures, both within the developed world and in emerging countries.
While the U.S. Federal Reserve raised its monetary policy interest rate
by 25 basis points, the European Central Bank held its refinancing rate at
zero and continued its quantitative easing program, moves that made the
regions’ interest rates more divergent and boosted the global strengthening
of the dollar.
The effect of reduced oil and metals prices was felt strongly in Latin
America. Dragged down by Brazil, estimates for the region for 2015 speak
of contraction while IMF forecasts for 2016 predict limited improvements
in economic activity. As a result of local currencies depreciating against the
dollar, several inflation measurements expanded visibly above averages
from recent years, prompting numerous central banks to raise interest rates
despite low economic growth.
Market consensus points toward a more robust global economy in 2016 with
a growing role played by developed countries. However, certain elements
of risk must be considered, especially given the lack of comparable periods
that enable us to envisage the potential impacts. One of these is the
interest rate hikes that the U.S. Federal Reserve is expected to continue to
implement. Albeit a reflection of a more sound economy, these increases
represent a risk of capital outflows, mainly from emerging economies. A
second risk is related to the potential effects of greater-than expected
deceleration in China. Persistent inflation and weaker terms of exchange
could prompt more severe adjustments in the domestic spending levels of
several emerging economies.
87
Economic
Environment
The Chilean Economy
Once again, the Chilean
economy posted growth
below long-term trends
as a result of sluggish
internal demand
The job market has been
stronger than expected,
although thanks to
exceptional factors such
as expansionary fiscal
policy and a robust
construction industry.
However, unemployment
is expected to rise in 2016
Inflation remained
consistently above the
Central Bank’s target range
as a result of currency
depreciation. Given these
circumstances, the Central
Bank began raising interest
rates
The market consensus
once again points toward
growth below trends in
2016. However, economic
recovery (or weakening)
will depend on the
evolution of global risks
and local expectations
88
Annual Report 2015
Based on official figures for Chile’s monthly economic activity indicator
(Imacec), the economy grew 2.0% in 2015, marking the second straight year
of expansion below long-term trends following growth of 1.9% in 2014. To a
large extent, this was the result of international conditions marked by sluggish
growth in emerging countries, falling commodities prices and a local context
where consumer and corporate confidence remained very low.
From a demand perspective, investment figures once again posted low
growth, driven by a sharp drop in machinery and equipment, which deducted
0.8 percentage points from growth rates in the first half of the year. However,
the third-quarter recovery in this component led investment spending to
expand 0.7% in 2015, in accordance with the base scenario presented by the
Central Bank in its monetary policy report for December. Consumption was
more robust with growth of around 2.4% (based on the Central Bank’s base
scenario) due to, among other things, the impact of expansionary fiscal policy.
Exports fell in 2015, driven by a weak performance from mining shipments,
while imports also decreased with respect to the prior year.
One element that continually surprised the market was the low unemployment
rate (closing the year at 5.8%), despite persistently weak economic growth.
This, to a large extent, was due to job creation of over 2.0% for the year in the
third quarter, although that was influenced by specific factors such as public
employment and a construction boom.
Inflation remained above the Central Bank’s target range (between 2.0% and
4.0%), fundamentally because of the peso’s depreciation with respect to the
dollar. In this context, the CPI posted an annual variation of 4.4% in December
2015, with all underlying measurements above the reference range.
In this setting, the Central Bank began a gradual cycle to withdraw monetary
stimulus and increased the reference rate by 50 basis points (to 3.5%) during
the last quarter. According to both the December monetary policy report and
minutes from its board meetings, the main reason for initiating interest rate
hikes was persistent, above-target inflation and the risk of second-round
effects. Furthermore, the board has implied that there is room to continue
rate hikes in 2016.
The lower copper price strongly impacted the country’s fiscal balance, which was
reflected once again in a budget deficit as a result of reduced mining revenue.
While the 2016 budget calls for smaller growth in spending (to 4.4% from 8.6%
in 2015), the drop in copper prices will once again lead to a deficit this year.
Trends in GDP and Internal Demand
(Annual percent change)
10
8
6
4
2
0
-2
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
GDP
3Q14
4Q14
1Q15
2Q15
3Q15
Internal Demand
Job Market
(Percentage and annual percent change, respectively)
7
6
5
4
3
2
1
0
Dec-12
Dec-13
Dec-14
Unemployment rate
Dec-15
Salaried employment
Inflation
(Annual percent change)
6
5
4
3
2
1
0
Dec-12
Dec-13
CPI
Dec-14
Dec-15
CPI excluding food and energy
89
Chilean
Banking System
During 2015, the local banking industry faced numerous challenges, including a complex economic environment,
increased regulatory and operational requirements and a reduction in brokerage margins as a result of intense
competition. Despite these conditions, the industry’s sound judgment and ability to adapt enabled it to end the
year with favorable results that, although slightly below 2014, demonstrate the soundness for which the Chilean
banking industry is known.
The effects of an economy growing at rates below its potential and outlooks
constantly being revised downward were not fully reflected in the local banking
industry’s business volumes. These impacts were partially offset by variations
in some market factors, mainly by the considerable increase in the exchange
rate. However, tighter competition and reduced inflation impacted margins
and, therefore, results.
Also in 2015, the SBIF instituted a standard method for calculating loan loss
allowances for mortgage loans and introduced new standards for managing
liquidity risk (only for informational purposes in 2016), based on guidelines
established by the Central Bank. The Finance Ministry formed a working
group to draft a proposal to modify the General Banking Law in order to make
progress on three fronts: (i) strengthening the SBIF’s corporate governance and
independence, (ii) implementing Basel III in Chile, and (iii) defining mechanisms
for banking resolutions. Based on that proposal, the Finance Ministry prepared
a bill scheduled to be sent to congress for debate in 2016.
In other industry news, in 2015 the merger between CorpBanca and Itaú was
approved and BCI was authorized by the U.S. Federal Reserve to purchase City
National Bank of Miami. Inversiones La Construcción took control of Banco
Internacional after purchasing a share package from Bainter and BTG Pactual
was licensed by the SBIF to begin banking operations in Chile.
90
Annual Report 2015
Business Volumes
The industry posted nominal growth of 10.7% in total loans, which is slightly
above the 2014 figure. In real terms, industry loans expanded 6.4% in twelve
months, exceeding the 4.7% recorded during the prior year. It is important to
point out that industry loan figures showed several different trends in 2015.
From a product perspective, mortgage loan growth was consistently the main
driver of this expansion throughout the entire year. Commercial and consumer
loans, in turn, performed less well during the year.
Commercial loans—accounting for 60% of total industry loans—reported a
9.2% nominal growth for the year, which represents real growth of 4.9%. In
contrast to consumer loans, this product family modestly accelerated during
the year; from real growth rates LTM of around 3.0% during the first half
of the year to a real annual increase of nearly 4.7% in the second half of the
year. This weak start was a reflection of the corporate sector’s uncertainty in a
context of multiple reforms and contracting investment in the mining industry
as a result of the impact of China’s economic deceleration on metals prices
(especially copper). Furthermore, the slight recovery seen towards the end of
the year seems to be related primarily to the sharp increase in the dollar with
respect to the Chilean peso (16.9% in 2015), a variation that impacted loans
denominated in foreign currency. Similarly, growth in commercial loans and
foreign trade loans was also exceptional.
Mortgage loans, which represent 27% of the industry’s total portfolio, seemed
unaffected by macroeconomic conditions. In line with trends observed in prior
years, these loans reported sustained growth throughout 2015, posting nominal
and real growth of 15.0% and 10.5%, respectively. This can be attributed to
three factors: (i) VAT will begin to be levied on the construction industry in
2016, which boosted property sales to avoid any possible increase transferred to
buyers; (ii) an environment of low long-term interest rates that has stimulated
new loan applications, and (iii) a sustained increase in prices within the real
estate sector over the past five years, which has led consumers to buy now to
dodge further price increases. These trends can be expected to slacken in the
future, although everything indicates that this product family will continue
to be the main driver of business volume expansion in 2016.
Total Loans*
(In billions of nominal Chilean pesos)
133,873
109,020
120,627
14,676
16,005
17,805
27,129
31,656
36,412
67,214
72,966
79,656
2013
Consumer
2014
2015
Mortgage
Commercial
* Excludes foreign subsidiaries.
91
Chilean
Banking System
Consumer loans performed modestly and stably with real LTM growth rates of
around 3.5% during the year. In line with solid private consumption figures, this
figure is well below prior year real annual growth figures of 9.2% and 8.7% in 2012
and 2013, respectively. The expansion recorded in 2015 demonstrates persistently
pessimistic consumer outlooks, accentuated by decelerating purchasing power.
In order to safeguard a suitable risk-return ratio, the banking industry stiffened
its loan assessment processes in light of the prevailing economic environment
and regulations restricting proper allocation of prices in certain segments.
However, consumer loans reported nominal annual growth of 9.0%, equivalent
to only 4.8% in real terms. Cash advances and installment loans on credit cards
were the products that showed the greatest increase, with nominal expansion
of 20.5% and 9.8%, respectively.
In terms of liabilities, demand deposits performed very well with a 16.9% increase,
followed by long-term debt with 14.7% and time deposits with 7.7% (all nominal
terms). The elevated growth in deposits is due to interest rate conditions
that have led to a consumer preference for liquidity. In effect, during 2015 the
monetary policy rate stayed at 3.0% for almost the entire year, while inflation
was persistently above the upper limit of the Central Bank’s target range.
Long-term funding posted double-digit growth, which—albeit less than in
2014—demonstrates the banking industry’s significant activity in local and
international debt markets in recent years, sustained by high credit ratings and
very favorable liquidity conditions. Like last year, senior bonds explained a large
part of the increase in debt issued, growing 19.1% nominally with respect to 2014.
System capital posted nominal annual growth of 7.0%, totaling Ch$15.4
trillion as of year end. Among solvency indicators, the industry’s Basel Index
was 12.6% (in October 2015), down from 13.4% as of year-end 2014, as a result
of the high basis of comparison for financial results and growth in assets.
92
Annual Report 2015
Financial Results
Banking system net income totaled Ch$2.2 trillion as of December 2015, an
11.0% decrease from the prior year. As a result, system profitability fell 3.5
percentage points, posting returns on average capital and reserves of 15.3%.
The main factors for this decrease include increased operating expenses, taxes
and loan loss provisions, partially offset by increased revenue.
In 2015 revenue expanded nominally by 2.4%, explained primarily by an increase
in net fees (7.9% nominal) and net interest income (0.9% nominal).
The increase in net fees is particularly noteworthy given the successive
regulations implemented in the last two years, some of which restrict income
in the brokerage business from insurance and take away flexibility from rate
adjustments contained in financial service transaction agreements. The
instability experienced by financial markets has translated into decreased
securities brokerage and fund management activity.
The moderate growth in net interest income is due mainly to inflation of 4.1%
for 2015 (measured as the variation in UF) falling well below the 5.7% recorded
in 2014. This significantly impacted the contribution from the structural net
asset position in UF maintained by the industry. This was coupled with constant
pressure on credit margins because of intense competition, particularly in
the wholesale market. Both elements were partially offset by growth in loan
volumes and assets in general, ending the year with a ratio of operating
revenue to average interest earning assets of 5.50%, down from 5.94% in 2014.
Results and Returns
(In billions of nominal Chilean pesos, except
percentages)
2,482
16.4%
2013
Net provision expenses increased 2.6% nominally for the year, totaling Ch$1.6
trillion in 2015. This increase compares positively to the 16.7% growth recorded
in 2014. This improvement can be attributed to a moderate increase in loan
loss provisions, partially offset by an increase in recovery of charged-off loans
2,209
1,916
Net income
18.9%
2014
15.3%
2015
Return on average
capital and reserves
93
Chilean
Banking System
(11.3%). The industry also saw a 47.0% decrease in additional provisions. It
is important to note that the portfolio expense ratio (net provision expenses
to average loans) decreased from 1.33% in 2014 to 1.24% in 2015, which
demonstrates the industry’s conservative risk management in a setting of
greater uncertainty, particularly in employment matters.
Operating expenses rose 5.2% in nominal terms. This increase is due to
increased payroll and administrative expenses, which include the effect of
past inflation and an appreciated dollar, as well as regulatory changes that
involved increased costs to prepare and implement technologies to boost
security and maximize operating time for ATMs. This, coupled with limited
growth in operating revenue, led to a weakening of 139 basis points in the
industry’s efficiency ratio.
In 2015 the industry also faced increased tax expenses. This rise can be explained
by a lower basis of comparison in 2014—due to the tax reform—when deferred
tax benefits totaling almost Ch$145 billion were recognized. The income tax
rate also rose from 21.0% in 2014 to 22.5% in 2015.
94
Annual Report 2015
Banking System Results
Income Statement
2013
2014
2015
% Change
2015/2014
7,265,752
8,623,427
8,828,364
2.4%
Net interest income
4,876,514
6,096,646
6,152,502
0.9%
Net fees
Operating revenue
1,292,199
1,394,669
1,504,339
7.9%
Net gains from trading and brokerage activities and
foreign exchange transactions
910,332
968,305
976,290
0.8%
Other operating income
186,707
163,807
195,233
19.2%
Loan loss provisions
(1,365,208)
(1,593,756)
(1,634,424)
2.6%
Operating expenses
(3,625,218)
(4,269,548)
(4,493,450)
5.2%
Investments in other companies
Income before taxes
93,401
19,819
24,610
24.2%
2,368,727
2,779,942
2,725,100
(2.0%)
Taxes
(452,735)
(298,417)
(516,205)
73.0%
Net Income
1,915,992
2,481,525
2,208,895
(11.0%)
2013
2014
2015
16.43%
18.90%
15.28%
Main Ratios
Operating Revenue / Avg. Interest Earning Assets
Efficiency
Loan Loss Allowances / Avg. Loans
Basel Index
5.57%
5.94%
5.50%
49.89%
49.51%
50.90%
1.28%
1.33%
1.24%
13.32%
13.39%
12.61%*
* Value as of October 2015. Most recent figure available.
95
Consolidated
Performance
RETAIL SEGMENT
Individuals and SMEs
Strategic Pillars
• Reinforce commercial productivity and profitability model
in distribution network;
• Enhance service quality and our value offering;
• Strengthen leadership in all regions throughout Chile;
• Continue to promote multi-channel approach;
• Create value through cross-sales between companies
and individuals;
• Further cultivate ties with customers.
Management Perspective
“Because we understand that business is changing and want
to preserve our leadership over time, we are modifying our
branch customer service models, strengthening our advisory
role and placing the customer at the core of what we do,
adapting to new technology and staying at the industry
forefront in mobile banking. We will continue to drive
innovation and business intelligence as the focus of our
commercial model, which we see as opportunities to create
value for customers.” Eduardo Ebensperger, Commercial
Income Before Taxes - BCh$
243
37%
2014
IBT
255
41%
2015
Share of consolidated net income
Performance in 2015
The year 2015 was a period of major achievements in several
different areas. The division had record sales in consumer
and mortgage loans. As a result, the Retail and SME Banking
Division posted total loans of Ch$12.7 trillion, representing
annual growth of 16.5%. This expansion, together with a larger
customer base, especially focused on high-value segments
(+15% YoY), the use of business intelligence to optimize
sales campaigns by channel, a reduction in attrition rates
and excellent credit risk management, in both the retail and
SME sub-segments, enabled this division to attain income
before taxes of Ch$255 billion, marking an improvement of
4.9% over 2014.
Banco CrediChile
Strategic Pillars
• Strengthen the value proposition through CuentaChile;
• Boost use of remote channels;
• Expand corporate social responsibility efforts through
transparent communications and financial literacy;
• Reinforce alliances and agreements with companies;
• Continue to consolidate position in microenterprise
segment;
• Optimize operational excellence.
“We broadened our customer base and reduced risk levels
by selling pre-approved loans and strictly controlling
processes. We continued to improve our value proposition
through CuentaChile, which currently offers the same
features provided to higher-income customers. Lastly, we
are strengthening remote channels and organizing a variety
of activities to expand our customers’ financial literacy.”
Juan Cooper, Consumer Banking Division Manager.
96
Annual Report 2015
41
6%
2014
IBT
Performance in 2015
48
8%
2015
In 2015, we preserved our high market share in loans
(19%), despite low portfolio growth. Average deposits
grew 11% through payroll agreements with companies and
microenterprises (139,000 payroll deposit accounts and 77,000
payroll loan agreements). Growth in remote channels was
key to increasing availability for customers, which enabled
the division to attain a net customer recommendation index
above 84%. These actions, together with effective margin
management, strict cost controls and reduced portfolio
risk, enabled CrediChile to offset to a large extent the drop
in loan activity.
WHOLESALE SEGMENT
Wholesale, Large Companies and Real Estate
Strategic Pillars
• Improve efficiency and commercial productivity;
• Increase cross-sales with retail segments through payroll
deposit services and supplier payments;
• Assist customers with regional growth plans;
• Develop specialized solutions and optimize remote
customer service channels;
• Continue to reinforce commercial systematization model
as the core of business development.
147
23%
2014
IBT
“Staying close to customers is key in this business. We
have strengthened our commercial model to address this
challenge, maintaining excellent quality standards with a
customer recommendation index above 80%. This is based
on 19,900 customer visits conducted in 2015, covering 100%
of our portfolio. This strategy explains the bank’s leading
position as a supplier of financial services to the country’s
most important companies. We will continue to be close to
our customers as we believe that the best formula for taking
advantage of opportunities and mitigating risks in difficult
years is to strengthen this bond.” Eduardo Ebensperger,
Commercial Banking Division Manager.
131
21%
2015
Performance in 2015
The year 2015 was a period of consolidation for this division,
which leveraged its teams’ capacities and its business
vision, capitalizing on attractive opportunities arising in the
market. A relevant milestone for the year was the successful
structuring to purchase a portfolio of Ch$564 billion in loans.
This transaction stood out for its swift and skillful execution.
Overall, the division posted annual growth of 10.6% in loans,
with a portfolio of Ch$6.6 trillion. Similarly, in-depth knowledge
of and closeness to customers enabled it to effectively manage
credit risk. These efforts translated into income before taxes of
Ch$131 billion, or 21% of the bank’s total income before taxes.
Corporate and Investment Banking Division
Strategic Pillars
Maintain market leadership through:
• the best local, regional and global solutions for customers;
• innovative, comprehensive and personalized products
and services;
• simple and effective distribution of products and services
with strategic advising for customers;
• support for local customers with regional business
ventures and for multinational corporations investing
in Chile;
• a strategy of continually evolving solutions and customer
service in remote channels.
“In a competitive market, our constant focus is on
understanding our customers’ needs and providing them
first-rate, comprehensive solutions. Continual improvement
is our basic premise, making our processes more and more
efficient and relying on technology to reach customers
quickly and effortlessly. In this spirit, we have incorporated
new procedures and processes to improve service quality,
which is reflected in a customer recommendation index
above 80% for the Corporate and Investment Banking
Division.” Alain Rochette, Corporate and Investment
143
117
22%
19%
2014
2015
IBT
Performance in 2015
A record number of major deals gave the Corporate and
Investment Banking Division an attractive bottom line
despite unfavorable market factors. Thus, the division’s
2015 performance confirms its leadership in the different
corporate market segments and the confidence placed in it
by local and multinational companies as a result of its highly
skilled team of professionals. This is reflected in loans for
the period expanding 5.9% for the year despite intense price
competition and average demand deposits of Ch$1.9 trillion,
up 19% for the year, prompted by novel transactional products
with international customers, among other factors. These
achievements enabled the division to partially mitigate onetime credit risk incidents, which explain the annual decrease
in income before taxes.
97
Consolidated
Performance
TREASURY
Strategic Pillars
• Generate solutions for customers using financial products;
• Increase coverage of currency trading platform;
• Expand distribution capacity of Sales and Structured
Products Area;
• Continue diversifying sources of funding.
42
7%
2014
IBT
“The focus in 2015 was on preparing the Treasury to face the
new regulatory environment. In this spirit, we successfully
added infrastructure and trained teams to comply with
Dodd Frank, Volker Rule, Emir and local liquidity standards,
based on Basel III. We also began operating with Comder
and continued to complete phases of the Murex project.
Undoubtedly, all of this progress leaves us well prepared
for addressing future challenges.” Sergio Karlezi, Treasury
Division Manager.
98
Annual Report 2015
31
5%
2015
Performance in 2015
In 2015, the Treasury Division set a new record in bond
placements with more than UF50 million issued. This will
enable the bank to competently address regulatory changes
in liquidity matters and to finance the asset growth of the
commercial areas at competitive rates and suitable terms.
In spite of the challenging business environment, the
Treasury Division exceptionally managed interest rate risk,
which partly enabled it to deal with unfavorable interest rate
curves to manage mismatches and reduced inflation. As a
result, the Treasury Division reported income before taxes of
Ch$31 billion, or 5% of the bank’s total income before taxes.
SUBSIDIARIES
Strategic Pillars
• Complement Banco de Chile’s value offering through
specialized financial services;
• Leverage the bank’s customer portfolio through value
propositions strengthened by securities brokerage, mutual
fund management and investment, financial advisory
and insurance brokerage services, among others;
• Maintaining a constant focus on the customer, aligning
strategy, culture and values.
39
34
5%
2014
IBT
6%
2015
Performance in 2015
The bank’s subsidiaries collectively contributed income before taxes of Ch$39 billion in 2015, surpassing the 2014 figure by
16%. The performance by Banchile Administradora General de Fondos was particularly noteworthy, with a large increase
in business volumes, as was that of Banchile Corredores de Seguros, which had a strong commercial performance with
record brokerage levels. Banchile Asesoría Financiera participated in several transactions, boasting an important increase
in revenue.
Banchile Administradora General de Fondos
Average Assets under Management
BCh$
5,507
2014
6,230
2015
Performance in 2015
In 2015, Banchile AGF added eight new funds to its value offering: six
structured funds, one money market fund and one international capitalization
fund. Thanks to client advising through its Active Portfolio program and
other initiatives, the subsidiary posted growth of 13.1% in average assets
under management, mainly due to increased investments in balanced and
international funds, which translated into a market share of 21.3% as of
December 2015. Similarly, the entity registered 5,000 new users in its Active
Portfolio program and 33,400 new investors (443,000 in all). Lastly, the
subsidiary created a Distribution Division for institutional clients. This unit is
charged with covering the segment’s needs, adding value and improving the
bank’s market presence. Banchile AGF’s strong performance was recognized
with 5 Salmón Awards in 2015.
Banchile Corredores de Bolsa
Traded Volumes
BCh$
7,195
2,173
2014
2015
Performance in 2015
In a complex business context and in line with industry figures, Banchile Corredores
de Bolsa posted a reduction in traded volumes in 2015. However, the subsidiary
ended the year among the five brokers with the highest sales volumes. In this
setting, and with a look towards the future, Banchile CB strengthened its value
proposals, especially for institutional investors, promoting comprehensive and
global customer interactions with a broad range of products. The subsidiary
also implemented an online foreign currency trading platform for use by bank
customers from any division, facilitating transactions and increasing security.
Banchile CB was honored, together with Banchile Citi Global Markets, as the
“Best IPO Agent” and “Best IPO” at the 2015 Financial Leader Awards. It was also
included among the 50 best places to work in the ranking Great Place to Work.
99
Consolidated
Performance
Banchile Corredores de Seguros
Brokered Premiums
MCh$
17,474
14,615
2014
2015
Performance in 2015
The year 2015 was a period of major achievements for Banchile Corredores de
Seguros, thanks to an effective strategy to meet the needs of the bank’s different
customer segments. As a result, the subsidiary consolidated its multi-channel
initiative and substantially strengthened the Internet channel and its presence
in digital media and social networks. Along the same lines, in 2015 Banchile
launched “Mi Seguro”, an innovative mobile application that facilitates access to
the subsidiary’s servers and allows customers to resolve their requests quickly and
easily. The subsidiary posted record online sales of 357,000 obligatory personal
accident insurance (SOAP) policies, brokered close to UF660,000 in policies in the
companies segment and surpassed online sales records of customer protection
policies. It also made significant strides on cross-sales to bank customers,
attaining a total stock of 1.2 million in customer protection insurance policies.
Banchile Asesoría Financiera
Total Revenue
MCh$
16,409
10,806
2014
100 Annual Report 2015
2015
Performance in 2015
Despite complex economic conditions, Banchile Asesoría Financiera performed
very well in 2015. The subsidiary had a record year with total revenue of Ch$16.4
billion, up 52% from 2014. It also strengthened its positioning by participating
in and leading several deals on the local market. Worth special mention is its
performance in mergers and acquisitions, where it sought out cross-border
transactions, for which the Citigroup alliance was key. This performance was
confirmed by several recognitions, including “Best Investment Bank in Chile”,
awarded by LatinFinance.
Socofin
Performance in 2015
With one of its best performances in the last three years, Socofin recovered Ch$46
billion in charged-off loans for the Consumer and Commercial Banking Divisions
and signed more than Ch$40 billion in customer payment agreements. More
complex portfolios were incorporated over the year and strategies aligned with
the new insolvency and Re-entrepreneurship Law were defined.
Promarket
Performance in 2015
Promarket comprehensively manages customer pre-approvals for Banco de
Chile with coverage from Iquique to Puerto Montt. In 2015, the subsidiary’s main
focus was on building skills to improve productivity, training 100% of its teams
on its sales methodology. These efforts resulted in sales of more than 110,000
products organization-wide. In 2016, Promarket will concentrate efforts on
moving forward with its sales methodology at all levels, improving coordination
with the bank’s segment and product areas and generating synergies and more
effective management.
Banchile Securitizadora
Performance in 2015
Banchile Securitizadora provides customers with first-rate expertise in structuring
and placing securitized bonds, responding to their needs for financing backed by
cash flows from assets like mortgage notes, accounts receivable, credit cards,
auto loans or future cash flows.
Banchile Trade Services Limited
Performance in 2015
Banchile Trade Services Limited is constituted in Hong Kong to facilitate foreign
trade operations in Asia—especially China—for Chilean customers. On May 29, 2014,
the bank’s board of directors agreed to dissolve this subsidiary. The dissolution
process is currently underway.
101
Financial
Results for 2015
Banco de Chile recorded a net income of Ch$559.0 billion for the year 2015, representing
market share of 25.3%, and a return on average capital and reserves of 21.9%. These
indicators position the bank once more at the top of its industry in both net income
and profitability*.
Income Statement
(In millions of nominal Chilean pesos, except percentages)
Net interest income
Net gains from trading and brokerage activities
and foreign exchange transactions
Net financial income
Net fees and commissions
2014
2015
% Change
1,245,058
1,219,133
(2.1)%
99,684
93,857
(5.8)%
1,344,742
1,312,990
(2.4)%
272,188
305,979
12.4 %
29,472
27,386
(7.1)%
Operating revenue
1,646,402
1,646,355
(0.0)%
(283,993)
(303,062)
6.7 %
Net operating revenue
1,362,409
1,343,293
(1.4)%
Operating expenses
(714,662)
(726,238)
1.6 %
Income attributable to affiliates
2,861
3,672
28.3 %
Taxes
(59,527)
(61,730)
3.7 %
Consolidated net income for the year
591,081
558,997
(5.4)%
In a complex business setting, characterized by continual revisions to economic growth
capacity, the bank’s net income for 2015 was based on:
• A proven revenue generating capacity, which managed to offset the unfavorable
conduct of certain market factors—particularly inflation—as compared to 2014,
thanks to a solid performance from its core business (loans, liabilities and fees,
etc.).
• A highly competitive liability structure, which gives the bank one of the lowest
cost of funds among its peers as a result of the bank’s relative advantage in noninterest bearing liabilities and also from a proactive funding strategy reflected in
the issuance of long-term debt instruments in Chile and abroad, under attractive
conditions.
* Banks with more than 3% market share in loans.
• Efficient credit risk management, with a 6.7% increase in provisions over
2014, explained by an expanded loan portfolio, more additional provisions
and a negative exchange rate effect, among other factors.
• Moderate growth in operating expenses, at a rate of 1.6% for the year, as
a result of a high basis of comparison (due to non-recurring expenses in
2014), which was partially offset by salary adjustments and the effect of
a depreciated Chilean peso on technology and related service contracts.
Operating Revenue
Banco de Chile posted an operating revenue of Ch$1.65 trillion in 2015, which
is practically equal to the 2014 figure. This highlights the bank’s ability to
generate revenue through customer income, which allows it to effectively deal
with the variability of certain uncontrollable market factors like inflation. This is
possible, in part, thanks to its diversified business model, where each segment
accounts for a considerable portion of the corporation’s operating revenue.
Operating Revenue
(In billions of nominal Chilean pesos and percentages)
1,646
1,646
+0.0%
272
306
1,345
1,313
a. Net Financial Income
Banco de Chile’s net financial income totaled Ch$1.31 trillion in 2015, a slight
decline of 2.4% over 2014. This reduction was the result of:
• A lower variation in the UF in 2015 (+4.1%) with respect to 2014 (+5.7%). This
1.6 percentage point gap meant a reduced contribution (inflation revenue)
from the bank’s net asset position. This impact in inflation revenue was
partially offset by the effect of nominal interest rates—which fund part of
this position—slightly below average 2014 rates (especially in the first half
of 2015). The net impact of these two effects was a decrease of around
Ch$58.8 billion in net financial income.
2014
2015
Finance
income
Fees
Other
Operating Revenue by Business Area
(% of total operating revenue)
27.9%
Wholesale
8.9%
2.2% Subsidiaries 61.0%
Retail
Treasury
13.1%
Corporate and
Investment
Banking
• Annual decrease of 5.8% in net gains from trading and brokerage activities
and foreign exchange transactions, which totaled Ch$93.9 billion in 2015.
This reduction stemmed primarily from a lower gain from foreign exchange
transactions of around Ch$12.9 trillion, where the positive effect of the
greater depreciation of the Chilean peso in 2015 on the bank’s asset position
in foreign currency that hedges its exposure to dollar-denominated expenses
was offset by poorer results from accounting hedges (net of adjustments in
14.8%
Wholesale,
Large
Companies
and Real
Estate
10.5%
CrediChile
50.5%
Individuals
and
SMEs
103
Financial
Results for 2015
foreign currency). The lower gain from foreign exchange transactions was,
in turn, partially offset by an increase in financial income of Ch$7.0 billion,
mainly related to a minor charge for derivative counterparty valuation
adjustments in 2015 as compared to 2014.
This suggests that the negative impacts on the bank’s net financial income
were mostly related to external factors. In this sense, the bank’s internal
management efforts are worth highlighting as they allowed it to offset
an important part of the above effects through:
• Annual expansion of 8.4% in average total loans, attributable mainly to
the retail segment (12.3% in average balances) and to a lesser extent in
the wholesale segment (3.5% in average balances). This offsets a slight
reduction in average loan margins as a result of several factors, including:
(i) a change in the product mix stemming from proportionally larger growth
in mortgage loans, (ii) greater competition, particularly in the wholesale
segment and (iii) regulatory effects (adjustments to the maximum
conventional interest rate).
• Annual growth of 14.1% in average demand deposits, which offset the
impact of reduced nominal interest rates (on average as compared to 2014)
on the contribution of this source of funding.
• An increase in income from maturity mismatches, due to greater differentials
between short- and long-term interest rates (a steeper slope in interest
rate curves) in 2015 with respect to 2014.
b. Net Fees and Commissions
Banco de Chile reported net fees and commissions of Ch$306.0 billion in 2015,
which implies annual growth of 12.4% over the Ch$272.2 billion recorded in 2014.
The increase in this item stemmed from improved performances by several
products that generate fees, particularly greater activity in the businesses
managed by some subsidiaries (mainly mutual funds, advisory services and
insurance brokerage), as well as increased revenue from transactional series such
as current accounts, demand accounts, lines of credit and cash management
services, among others. At a segment level, the larger increase in commissions
occurred in the retail segment, where retail transactional services, mutual fund
management and insurance brokerage are concentrated.
Net Fees and Commissions by Product
Product
Change 2015/2014
76,843
65,198
74,648
64,950
58,521
54,345
Mutual funds
Current accounts, debit accounts, lines of
credit and ATMs
Insurance
26,240
25,127
27,342
25,413
25,015
22,437
10,871
6,081
6,325
7,873
7,424
5,010
Loans, factoring and collections
Letters of credit, guarantees and foreign trade
Cash management and custody services
Financial advising
Securities brokerage
Credit cards
2015
+17.9 %
+14.9 %
+7.7 %
+4.4 %
+7.6 %
+11.5 %
+78.8 %
(19.7)%
+48.2 %
(7,250)
(4,246)
Other
% Change
+70.7 %
2014
Net Fees and Commissions by Business Area
(% of total net fees and commissions)
8%
Wholesale,
Large Companies
and Real Estate
5%
Corporate and
Investment
Banking
39%
Individuals
and
SMEs
40%
Subsidiaries
8%
CrediChile
105
Financial
Results for 2015
In mutual fund management, net fees and commissions rose from Ch$65.2
billion to Ch$76.8 billion. This annual increase of 17.9% was due to the market
leadership of the subsidiary Banchile AGF, which in 2015 attained market share
of 21.3% in industry assets under management as a result of annual growth
of 13.1% in average volumes and an 8.2% increase in the number of investors.
In transactional services, the bank recorded an increase of 14.9% in revenue
from managing current accounts, lines of credit and demand accounts as
well as ATM transactions. These items provided net fees and commissions of
Ch$74.6 billion in 2015 (Ch$65.0 billion in 2014), driven by the positive effect
of changes in interbank rates for ATM transactions, in addition to a greater
number of transactions, especially in remote channels.
In the wholesale segment, revenue from cash management and custody
services increased from Ch$22.4 billion in 2014 to Ch$25.0 billion in 2015, as
a result of greater custody activity with average volumes growing 11.5% for
the year.
Insurance brokerage income posted annual growth of 7.7%, to Ch$58.5 billion
in 2015, compared to Ch$54.3 billion in 2014. This increase was the result
of excellent commercial management by Banchile Corredores de Seguros.
The subsidiary managed to expand brokered premiums by 19.6%. This
performance was the result of several initiatives launched during the year that
led to records in variables such as SOAP sales with 357,000 policies, customer
protection insurance with a stock of 1.2 million policies and a cross-sales ratio
of two times the bank’s customers.
Fees and commissions from financial advisory services grew 78.8% for the year
from Ch$6.0 billion in 2014 to Ch$10.9 billion in 2015. This increased revenue
was related mainly to one-time effects for mergers and acquisitions and
liability structuring and restructuring deals for large local and multinational
corporations.
The strong performance from fees and commissions increased its contribution
to operating revenue from 16.5% in 2014 to 18.6% in 2015. Banco de Chile still
maintained its industry leadership in this item with a market share of 20.3%
as of December 2015.
Loan Loss Provisions
Despite the weak economic context prevailing in 2015, Banco de Chile recorded
net provision expenses of Ch$303.1 billion for the year, up only 6.7% from
2014. More importantly, the growth in net provision expenses was related
to non-recurring factors, while the intrinsic credit quality of the aggregate
portfolio actually improved in net annual terms.
Loan Loss Provisions and Allowance for Loan Losses
2014
2015
% Change
(303,479)
(320,068)
5.5 %
(4,324)
(5,022)
16.1 %
(22,499)
(30,921)
37.4 %
46,309
52,949
14.3 %
(283,993)
(303,062)
6.7 %
(480,478)
(528,615)
10.0 %
Gross provisions, loans
Gross provisions, contingent and interbank
loans
Additional provisions
Recoveries
Allowances for loan losses
Initial allowances
Other effects
Charge-offs
Allowances established (net)
Final allowances
993
(9,639)
-
254,349
256,556
0.9 %
(303,479)
(320,068)
5.5 %
(528,615)
(601,766)
13.8 %
Loan Loss Provisions by Business Area
(In millions of Chilean pesos, except percentages)
Banking
Change 2015/2014
176,378
173,438
Individuals and SMEs
Banco CrediChile
53,291
59,364
% Change
+1.7 %
(10.2)%
Wholesale, Large
Companies and Real Estate
30,594
31,596
(3.2)%
Corporate and
Investment Banking
42,916
19,752
+117.3 %
2015
2014
107
Financial
Results for 2015
In summary, the increase of Ch$19.1 billion in loan loss provisions was related to:
• An increase in additional provisions established in 2015 (Ch$30.9 billion),
as compared to 2014 (Ch$22.5 billion). This decision is consistent with the
bank’s forecasts for the local economy and the impact of possibly sharper
economic deceleration.
• Annual expansion of 8.4% in average total loans, especially concentrated
in the retail segment (+12.3%).
• The negative effect of exchange rates on loan loss provisions for dollardenominated loans as a result of the peso’s proportionally greater depreciation
in 2015 (+16.9%) in relation to 2014 (+15.3%), which mainly impacted the
wholesale segment.
• Regulatory changes in provisioning models for mortgage loans, which led
to an increased expense of Ch$5.0 billion.
These effects were partially offset by a change in the composition of the
loan portfolio, with proportionally greater growth in low-risk products such
as mortgage loans, which posted growth in average volumes of 14.5%. This is
coupled with a net improvement in credit risk in retail segment in aggregate.
Loan loss provisions in 2015 represented 1.32% of average loan volumes, compared
to 1.34% in 2014. Furthermore, excluding extraordinary effects (additional
provisions and exchange rates), this ratio totals 1.10% which demonstrates
healthy loan growth, sound credit policies and corporate governance that
promotes comprehensive credit risk management. The bank’s loan portfolio
boasts the highest credit quality among peer banks with a 90-day past due
ratio of 1.22% as of December 2015, which compares favorably to the 1.25%
from 2014.
Operating Expenses
In 2015, Banco de Chile reported operating expenses of Ch$726.2 billion,
representing moderate expansion of 1.6% in the corporation’s cost basis (as
compared to Ch$714.7 billion reported in 2014). This level of spending translated
into an efficiency ratio of 44.1%, which compares favorably with the 52.5%
obtained by the rest of the financial system and preserves the bank’s industry
leading position in operating efficiency.
Operating Expenses
(Figures in billions of nominal Chilean pesos)
715
60
The annual increase of Ch$11.6 billion in operating expenses is explained
mainly by:
• An annual increase of 7.7% in administrative expenses, from Ch$269.4
billion in 2014 to Ch$290.0 billion in 2015. This increase reflects the impact
of past inflation (UF variation of 5.7% in 2014) and a more depreciated
peso in 2015 (16.9%) compared to 2014 (15.3%) on certain items such as
communications and IT expenses (including data processing and equipment
rental), which rose Ch$6.8 billion and real estate-related expenses (leases,
maintenance, insurance and others) which increased Ch$6.2 billion in 2015.
This is in addition to advertising expenses of Ch$3.1 billion for campaigns
to announce the strategic alliances signed in 2015, as well as advertising
to support product and service campaigns.
• Annual reduction of 0.8% in personnel expenses, from Ch$384.5 billion in
2014 to Ch$381.4 billion in 2015. This decrease was the result of a high basis
of comparison due to extraordinary expenses of approximately Ch$45.0
billion in 2014 for signing bonuses for collective bargaining completed
during the period with unions, resulting in four-year agreements. This
disbursement reduced the impact of increases in 2015 related to:
(i) the effect of past inflation on salary adjustments, (ii) personnel benefits
negotiated in 2014 during the collective bargaining process (iii) increased
employee termination benefits from restructuring commercial areas and
(iv) merit-based salary increases.
• There was also a decrease of 9.7% for the year in other operating expenses,
from Ch$60.8 billion in 2014 to Ch$54.9 billion in 2015, explained mainly by
reduced impairment, depreciation and contingency provisions as compared
to 2014.
+1.6%
726
55
271
290
385
381
2014
2015
Personnel
Other
Administrative
Efficiency Ratio
(%)
49.9%
52.2%
52.5%
51.7%
51.0%
42.8%
43.4%
44.1%
2013
2014
2015
50.2%
47.2%
2011
2012
BCH
System (Excluding BCH)
109
Financial
Results for 2015
Loan Portfolio
(In billions of Chilean pesos and percentages)
24,558
3,736
+12.3%
21,877
3,350
6,405
5,419
14,417
13,108
2014
Banco de Chile’s loan portfolio expanded by 12.3% in 2015, with year-end total
volumes of Ch$24.6 trillion. This figure translated into a market share of
18.3%, up 26 basis points from 2014. This growth was driven by advances in
all product categories, particularly in mortgage loans (proportionally speaking)
and commercial loans (in absolute terms). Consumer loans also increased
with respect to 2014 despite economic slowdown. On a segment level, retail
banking (individuals and SME and Banco CrediChile) accounted for 55.1% of
the total loan portfolio, an improvement from the 53.6% recorded in 2014.
2015
Commercial
Mortgage
Consumer
Loans by Business Area
17.8%
4,378
Corporate and
Investment
Banking Division
Loan Portfolio
55.1%
Retail
44.9%
Wholesale
27.0%
6,641
Wholesale,
Large
Companies
and
Real Estate
3.3%
803
CrediChile
Mortgage loans showed annual growth of 18.2% from Ch$5.4 trillion in 2014
to Ch$6.4 trillion in 2015. This increase can be explained by several factors,
including: (i) the sharp growth in the real estate sector, which has generated a
significant real increase in housing prices, encouraging consumers to purchase
property for investment purposes, (ii) the expected impact on housing prices
of VAT being levied on the construction industry beginning in 2016, driving
an increase in property purchases and (iii) a favorable setting of historically
low long-term interest rates.
51.9%
12,735
Individuals
and SMEs
Mortgage Loans
Trends
Market
share
17.6%
gage
in mort
loans
2015
Chile in7 bp.
4
anco de
B
110
Annual Report 2015
owth of
Annual gr
“Mortgage loans have posted substantial growth in recent years. This is
related to several factors that have sustained the real estate boom. From
a demand perspective, the tax reform calls for VAT to now be levied on
the construction industry, which has encouraged consumers to anticipate
purchases. On the supply side, interest rates have remained low. In this
context, our strategy has been targeted toward medium and high-income
segments,” remarked Eduardo Ebensperger, Commercial Division Manager.
In its commercial loan portfolio, the bank saw a significant recovery with respect to the moderate growth seen
in 2014. In effect, this product family expanded 10.0% for the year from Ch$13.1 trillion in 2014 to Ch$14.4
trillion in 2015. In addition to the bank’s commercial efforts to grow organically, particularly in foreign trade
loans and short-term cross-border placements, it made the strategic decision to acquire a commercial loan
portfolio valued for around Ch$564 billion from a local bank during the third quarter of 2015. This decision
was based on strict business considerations, including familiarity with a large number of the portfolio of
customers involved in the transaction, the portfolio’s average duration and attractive spreads. This deal
enabled the bank to increase both its market share and customer base in the wholesale segment.
Commercial Loans
Trends
Market
share
18.1%
ans
ercial lo
in comm hile in 2015
C
e
bp.
Banco d
th of 13
ow
Annual gr
“2015 was challenging. In addition to economic slowdown, there were complex
competitive dynamics that led us to prioritize windows of opportunity to
resume growth, such as the chance to purchase a portfolio of commercial
loans for Ch$564 billion. We completed the deal in record time and added three
percentage points to the bank’s growth figures. We also financed important
projects throughout Chile such as socially integrated housing programs and
electric power plants, among other initiatives, based on our proven service
quality and customer relationships. All these efforts translated into 10.6%
growth in loans in the Wholesale, Large Companies and Real Estate Division.
In the SME segment, we focused on cultivating closer customer relationships
amidst the uncertainty of the economy’s effect on the segment. In this
spirit, we provided funds for 35 entrepreneurs to attend Expo Milán 2015,
where they had the chance to network and survey business opportunities.
This was in addition to 75 SME events with more than 7,000 participants
in 43 towns throughout Chile,” explains Eduardo Ebensperger, Commercial
Division Manager.
“In the corporate segment, we worked hard to maintain growth figures in line
with the market leadership for which the bank is known. Along these lines, we
financed important local transactions and deals and focused growth on products
with an attractive risk-return ratio such as foreign trade loans and cross-selling
loans. To accomplish this, we had a very convenient funding structure based on
an efficient combination of funding alternatives including our commercial paper
program, synthetic financing via derivatives and correspondent banks. Therefore,
despite the complex competitive environment, we increased penetration from
25.7% to 27.9% between 2014 and 2015, respectively,” commented Alain Rochette,
Corporate and Investment Banking Division Manager.
111
Financial
Results for 2015
In consumer loans, the bank’s growth surpassed industry averages. This performance was particularly
noteworthy in a context of persistently pessimistic consumer expectations, which affected variables such
as retail and automobile sales, as well as a reduction in general demand for goods and services. The bank
posted annual growth of 11.5% in consumer loans, totaling Ch$3.7 trillion in 2015. It is important to point
out that despite the complex economic conditions, we achieved record sales of consumer installment loans
through traditional and Internet channels, giving a total gross cash flow of Ch$1.3 trillion, which surpassed
the 14.0% recorded in 2014. In addition, we continued to strengthen credit card penetration with loan volumes
increasing 15.1% for the year, sustained by a total of 1.5 million cardholders and a market share of 23.4% of
total industry billing. All these achievements enabled us to increase market share in 2015.
Consumer Loans
Trends
Market
share
21.0%
mer
in consu
loans
2015
e Chile in
Banco d th of 48 bp.
ow
Annual gr
112
Annual Report 2015
“The success in sales of installment loans through traditional and Internet
channels is attributable to a strategy that seeks to use business intelligence in
designing sales campaigns and defining prices by channel, customer and risk
profile. This has enabled us to coordinate sales efforts among the different
channels, thus optimizing the offer and motivating purchases. Along these
lines, we continued to refine the segmentation of our portfolio and, at the
same time, promote the multi-channel approach as a way to reach out to
customers, which also enables us to enhance commercial productivity in
branches and generate more efficient strategies. We also worked to reinforce
the value proposition from credit cards through two alliances with Delta
Airlines and Sky Airlines that will allow our customers to exchange Travel Club
points for airline miles and travel. These advances will boost our presence in
payment media where considerable growth potential still remains,” explains
Eduardo Ebensperger, Commercial Division Manager.
Banco de Chile continued to diversify its indebtedness structure during 2015,
posting 13.7% growth in liabilities from Ch$25.1 trillion in 2014 to Ch$28.6
trillion in 2015. While the bank was less active in international debt issuances
than in 2014, it took advantage of opportunities and new markets that it
was able to access, maintaining its presence in already penetrated markets
using diverse issuance programs registered in foreign markets. Similarly, the
bank strengthened its presence in demand deposits, demonstrating the trust
placed in it by its customers.
This growth in the bank’s liabilities was related mainly to:
• Annual growth of 20.6% in debt issued, mainly focused on local senior
bond issuances totaling Ch$1.2 trillion, all long-term (over six years) and
denominated in UF, in order to match long-duration assets such as mortgage
loans. The bank also placed bonds in foreign markets for the equivalent of
Ch$156 billion, taking advantage of the medium-term note program registered
in Luxembourg, which was renewed during the year for up to US$3.0 billion.
The bank also continued to use the commercial paper program registered in
the United States (for up to US$1.0 billion). In 2015, the corporation issued
commercial papers for Ch$1.1 trillion, maturing in up to 90 days, to fund
foreign trade and working capital loans under favorable terms. As of December
31, 2015, the bank had an outstanding balance of commercial papers of
Ch$191 billion.
Liability Structure
25,111
+13.7%
906
2,491
5,058
28,553
959
3,257
6,102
6,934
8,327
9,721
9,908
2014
Demand deposits
Time deposits
Debt issued
2015
Other financial obligations
Other liabilities
Changes in Equity
(In billions of Chilean pesos)
Equity 2014
2,535
Retained earnings 2014
96
Funding and Equity
Price-level restatement of capital 2014
Market value adjustment of investments
Change in net income for the year
Equity 2015
127
14
32
2,740
113
Financial
Results for 2015
• An increase of 20.1% in demand deposits, equivalent to Ch$1.4 trillion. This performance was especially
noteworthy given the high basis of comparison from December 2014 when the bank recorded additional
exceptional demand deposits for a particular stock market transaction. This important growth is based
on a setting of low interest rates and customer confidence in the bank’s soundness, which in turn backs
a market share of 23.1% as of December 2015, up from 22.5% in 2014. Equally relevant is the growth
experienced by demand deposits in the retail segment. This product’s 16.2% expansion for the year allowed
the bank to conserve its market leading position in demand deposits with a market share of 28.8% as well
as to preserve an important competitive advantage to face the new liquidity regulations that prioritize
minority deposits.
• Annual growth of 1.9% in time deposits, equivalent to Ch$186 billion. This moderate increase stems
from the aforementioned interest rate conditions and above-expected inflation, which leads customers
to prefer liquidity over returns. This trend should shift in 2016, in a context of hikes in the monetary policy
rate by the Central Bank.
Funding Strategy
Trends
Market
share
23.1%
unts
nt acco
in curre d deposits
n
a
m
and de
in 2015
e Chile
bp.
Banco d
th of 61
ow
Annual gr
“Our funding structure continues to be one of our main competitive advantages.
While the year 2015 relied less intently on foreign bond placements, we continued
to improve the quality of our liabilities in terms of maturity and source. In
this sense, the bonds placed in Chile and abroad seek to efficiently fund the
commercial growth of the bank’s balance sheet and manage liquidity. We also
prioritized retail deposits, which are a stable source of funding and are aligned
with the new liquidity regulations imposed by the Central Bank. Our objective
is to defend this position over the long term, for which we work to continually
optimize costs, maturities and markets. We are convinced that proactive
liability management will enable us to maintain a competitive cost of funds,
which ultimately will translate into attractive value offering for customers,”
explains Sergio Karlezi, Banco de Chile’s Treasury Division Manager.
Banco de Chile recorded an increase of 8.1% in equity, which totaled Ch$2.7 trillion as of December 2015. The
annual increase of Ch$205 billion is explained mainly by: (i) Ch$127 billion in retained earnings from 2014
related to the inflation adjustment to capital, (ii) capitalization of Ch$96 billion in prior year net income (30%
of distributable net income after deducting payments to the Central Bank) and (iii) growth of Ch$14 billion in
valuation accounts attributable to a larger market value adjustment of available-for-sale instruments and cash
flow hedges. These factors were partially offset by a Ch$32 billion reduction in net income for the year 2015
(net of the provision for minimum dividends) as compared to 2014.
The variation in equity accounts, together with the growth in assets (mainly loans), gave a Basel Index of 12.6%
as of year-end 2015, which, although less than the 2014 figure of 13.3%, has reasonable margin with respect
to regulatory requirements (10%).
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Annual Report 2015
Key Financial Indicators
Main Ratios
2013
2014
2015
Earnings per Share (1)
Net Income per Share (Ch$)
5.51
6.24
5.82
93,175
94,655
96,129
Net Interest Margin
4.69%
5.14%
4.60%
Net Financial Margin
5.05%
5.55%
4.96%
Fees / Avg. Interest Earning Assets
1.27%
1.12%
1.16%
Operating Revenue / Avg. Interest Earning Assets
6.44%
6.79%
6.22%
CHILE Shares Outstanding (millions)
Profitability Ratios (2)
Return on Average Total Assets
2.11%
2.24%
1.90%
24.02%
25.70%
21.92%
7.57%
7.89%
7.45%
Basic Capital / Risk-Weighted Assets
9.94%
10.39%
9.97%
Total Capital / Risk-Weighted Assets
13.05%
13.32%
12.58%
1.13%
1.25%
1.22%
202.96%
193.64%
200.73%
2.30%
2.42%
2.45%
1.23%
1.34%
1.32%
42.78%
43.41%
44.11%
Average Interest Earning Assets
22,593,824
24,235,374
26,480,643
Average Assets
24,302,150
26,369,173
29,413,557
2,138,323
2,299,712
2,550,732
Average Loans
19,699,442
21,210,574
22,986,290
Risk-Weighted Assets
22,981,095
24,399,252
27,476,645
Capital Ratios
Basic Capital / Total Assets
Credit Quality Ratios
Past-Due Loans / Total Loans
Loan Loss Allowances / Past-Due Loans
Loan Loss Allowances / Total Loans
Loan Loss Allowances / Avg. Total Loans
(2)
Efficiency Ratios
Operating Expenses / Operating Revenue
Balance Sheet Averages
(2)
(Ch$ millions)
Average Capital and Reserves
(1) Values calculated using nominal net income and subscribed and paid shares.
(2) Ratios calculated as an average of monthly balances.
115
Risk
Factors
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 the bank’s results or financial
position and, therefore, its debt and equity instruments.
Banco de Chile’s growth and profitability depend on the level of
economic activity in Chile
The ability to increase business volumes and results of operations, as well
as enhance the bank’s financial position depends significantly on the level
of economic activity in Chile. Because Chile is an open economy, its growth
depends to a large extent on external factors such as the economic strength of
its main commercial partners and raw material prices, as well as the liquidity
and volatility of external markets. The global financial crisis of 2008 impacted
the Chilean economy and the local banking industry due to lower levels of
consumption and deteriorated customer credit quality prompted by increasing
unemployment and financial stress experienced by certain economic sectors.
Conversely, the local economy experienced a significant upturn between 2010
and 2013, which led to a general improvement in the banking industry’s credit
risk indicators. However, in late 2013, the Chilean economy entered a period of
deceleration, which has worsened in recent years as a result of the contracting
mining cycle, weaker terms of exchange and deteriorating customer and
corporate confidence.
Although the Chilean economy continues to grow, there is no guarantee that
it will continue to expand in the future or that it will resume growth rates
observed in prior years. There is also no assurance that developments in the
Chilean economy and local banking industry will not materially affect the
bank’s business, financial position or results of operations.
The growth of the bank’s loan portfolio and macroeconomic projections
for 2016 may increase default rates
In recent years, the growth of our loan portfolio has been primarily driven by
the expansion in residential mortgage and consumer loans, and, to a lesser
extent, by growth in commercial loans. As a result, the bank’s focus on the
retail banking segment may expose it to higher levels of loan losses and may
require greater credit risk provisions, which may adversely affect results.
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Annual Report 2015
This becomes particularly important in a context of deteriorating expectations
for unemployment rates. Although unemployment has shown resilience in
the current economic cycle, preserving historically low levels, below-potential
economic growth (as has been observed in the last two years), could result in
a contraction of the labor market.
While the bank has strict controls over its loan evaluation and approval processes
in order to maintain adequate levels of loan losses, there is no guarantee
that these controls are effective or that circumstances outside our control,
such as financial or macroeconomic instability or high volatility, do not lead
to default by debtors whose credit capacity seemed acceptable in previous
scenarios. Then, the bank’s liquidity, financial position and operating results
may be negatively affected in the event of a significant increase in loan losses.
Increased competition and industry consolidation may adversely
affect the bank’s business
The Chilean market for financial services is highly competitive. Banco de Chile
competes with other Chilean and foreign banks and with Banco del Estado de
Chile, a government-owned bank. However, the bank also faces competition
from non-bank competitors in some of our credit products, including department
stores, private compensation funds and savings and loan cooperatives. Nonbank competition is particularly concentrated in consumer loans for the low
and middle-income segments.
In addition, the bank faces 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. Although banks continue to be the main suppliers of these products,
these businesses are experiencing fast growth and entry of new players.
The retail market (which includes individuals and small and medium-sized
businesses) has become the focus of growth for many players in the financial
system. Increasing competition within the Chilean banking industry in recent
years has been accompanied by increased industry consolidation. We expect
that both of these trends will continue, which may adversely affect the bank’s
profits because they may increase the interest rates paid to attract depositors
or decrease the interest rates charged to customers for loans, resulting in a
decrease of the net interest margins the bank is able to generate.
Risk Factors
117
Risk
Factors
Inflation, interest rate and exchange rate risk at Banco de Chile
The results of our operations depend to a large extent on our net interest income,
which represents over 70% of our total operating revenues. This income comes
mainly from several types of loans, including long-term loans (mortgage and
general-purpose 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.
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 its liabilities, mainly those generated through deposits, can be withdrawn
on demand.
In order to manage these interest rate and currency risks, 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.
However, changes in inflation and nominal interest rates could affect the interest
rates earned on our interest earning assets differently from the interest rates
paid on our interest bearing liabilities, resulting in a reduction in our net income.
Inflation, interest rates and exchange rates are highly sensitive to diverse
factors beyond the bank’s control, including the Central Bank’s monetary policy,
regulation of the Chilean financial system, local and international economic
conditions, political conditions and other factors.
Although the bank benefits from a higher-than-expected inflation rate in Chile,
due to the structure of its assets and liabilities (i.e. a significant net asset
position indexed to the inflation rate), significant changes in inflation with
respect to medium-term levels could adversely affect its results of operations,
while unexpected volatility in market factors could adversely affect its financial
condition and results.
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Annual Report 2015
Liquidity risk may affect Banco de Chile’s ability to finance its operations
and negatively affect its financial condition
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 quality
and timely short and long-term funding. The inability to opportunely access
funds needed for the institution’s normal operations exposes it to the risk of
defaulting on its obligations.
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 global or local financial impacts.
Operational problems, errors, criminal events or terrorism may have
an adverse impact on the bank’s financial condition and results of
operations
As all large financial institutions, the bank is exposed to many operational
risks, including the risk of fraud by employees and outsiders, failure to obtain
suitable internal authorizations, failure to properly document transactions,
equipment failures, errors made by employees and natural disasters, such
as earthquakes, tsunamis and floods. Furthermore, the bank is exposed
to criminal events or terrorist attacks resulting in physical damage to its
buildings (including its headquarters, offices, branches and ATMs) and/or
injury to customers, employees and others. Although it maintains a system
of operational controls composed of human and technological resources, as
well as comprehensive contingency plans and security procedures, there can
be no assurances that operational problems, errors, criminal events or terrorist
attacks will not occur and that their occurrence will not have a material adverse
impact on the bank’s results of operations, financial condition and the value
of its shares.
Cybersecurity events could negatively affect the bank’s reputation
or results of operations
We have access to large amounts of confidential financial information and hold
substantial financial assets belonging to both the bank and our customers.
In addition, we provide our customers with continuous remote access to their
accounts and the possibility of transferring financial assets by electronic
means. Accordingly, cybersecurity is a material risk for us.
Risk Factors
119
Factores
de Riesgo
The bank depends on a variety of Internet-based data processing, communication,
and information exchange platforms and networks. We cannot assure you that
all of our systems are entirely free from vulnerability. Therefore, if information
security is breached, or if one of our employees breaches compliance procedures,
information could be lost or misappropriated, which may affect the bank’s
results of operations, damage others or result in potential litigation.
We are also exposed to the risk of cyber-attacks and other cybersecurity
incidents, which includes but is not limited to gaining unauthorized access
to digital systems for purposes of misappropriating cash, other assets or
sensitive information, intentionally corrupting data or causing operational
disruption. Cybersecurity incidents such as computer break-ins and other
disruptions and/or criminal activity could negatively affect the security of
information stored in and transmitted through the bank’s computer systems
and network infrastructure, which may result in significant liability in excess
of insurance coverage, and may cause existing and potential customers to
refrain from doing business with the bank. The above also includes phishing
and other criminal incidents that may affect our customers. Although Banco
de Chile continuously implements new security devices and procedures,
the bank cannot assure that these security measures will be successful in
mitigating such events.
Changes or amendments to banking regulations may restrict the
bank’s operations and adversely affect its financial condition and
results of operations
Banco de Chile is subject to the General Banking Law (GBL), which regulates
banking activity, and to regulations issued by the Superintendency of Banks
and Financial Institutions (SBIF), which is also responsible for supervising
the bank. In addition, the bank is subject to regulation by the Chilean Central
Bank with respect to certain matters, including liquidity, interest rates and
foreign exchange transactions.
In recent years the Chilean government has focused on consumer protection
in all relevant aspects of the commercial relationship between consumers
and service providers, which has resulted in the passing of a number of laws
and administrative regulations being amended and revoked. This includes
the enactment of Law 20,715, published December 13, 2013, in the Official
Gazette, which reduced the maximum conventional interest rate applicable
to cash loan transactions. There can be no assurance that regulators will not
impose more restrictive limitations in the future on banking activities. Any
such change could have an adverse effect on the bank’s financial position or
results of operations.
In solvency matters, authorities have expressed their intention to make changes to
the GBL, including converging toward Basel III. This could impose new requirements
for all Chilean banks. Similarly, the Chilean Central Bank, through the SBIF, has
implemented a new standard for managing liquidity risk. Because regulators have
not yet established specific limits on capital or liquidity, the bank cannot guarantee
that these guidelines will not affect its financial performance in the future.
As for credit risk management, the SBIF recently introduced amendments to
provisioning regulations. The most important of these amendments establishes a
standard model for calculating loan loss provisions for mortgage loans, which will
extend to consumer and commercial loans in the future. The effect of implementing
these new regulations for loan loss provisions for mortgage loans was recognized
by the bank in 2015. The impact on results was not material. However, there is
no assurance, with the information available to date, that the potential changes
to regulations on credit risk in consumer and commercial loans will not have
a material adverse effect on the bank’s results of operations. Along the same
lines, the Insolvency and Reorganization Law took effect in 2014, superseding the
Bankruptcy Law. Although this new law has not had a significant impact on the
bank’s delinquency levels and charge-offs up to this point, there is no guarantee
that it will not do so in the future and no way to quantify that effect.
Lastly, there is no assurance that significant economic and social reforms that
may eventually be enacted will not impact economic activity and—as a result—the
bank’s results of operations and financial condition.
Labor strikes or slowdowns could adversely affect the bank’s operations
We are a party to collective bargaining agreements with the bank’s labor
unions. Disputes with regard to the terms of these agreements or the bank’s
potential inability to negotiate acceptable contracts with these unions could
result in strikes, work stoppages, or other interruptions to our operations or
increased expenses, that may have an adverse effect on the bank’s results
of operations.
Currently, congress is debating a labor reform bill submitted by the government
in December 2014. According to the government, this bill aims to strengthen and
give more bargaining power to unions, as well as to prohibit the replacement
of workers during strikes and to establish union control (i.e. the decision to
grant union benefits to non-unionized workers will not be solely up to the
employer). The bill also introduces certain flexibility into the contractual
relationship between workers and companies. There is currently no certainty
as to when or how this bill, if approved, will take effect and, therefore, we
cannot guarantee that it will not have an adverse effect on the business.
Factores de Riesgo
121
Regulatory
Changes
1. ATM Regulations
On March 17, 2015, the SBIF modified Chapter 1-7 of its Updated Regulations
(RAN) to incorporate one new regulation to set minimum operating standards
for ATMs. This standard sets forth that service availability for each bank’s
ATM network may not be less than 95%. As a result, banking institutions
must adopt the measures necessary to ensure compliance with this service
availability standard. Periods of unavailability can be deducted from the
service availability measurement for the following reasons: if caused by acts
of vandalism; in order to make necessary adjustments to ATMs to implement
regulatory changes in matters of public security; to remodel, relocate or
close sites where ATMs are located and due to other situations that may be
categorized as a fortuitous eventor force majeure.
This regulation makes each institution’s board of directors responsible for
providing the guidelines necessary to ensure proper implementation of these
new service standards.
2. SBIF Publishes Modifications to Standards on Provisions and
Credit Risk
In order to provide specific instructions regarding regulations on loan loss
provisions published in December 2014, on June 22, 2015, the SBIF made
changes to Chapter B-1 of its Compendium of Accounting Standards regarding
the default portfolio and the standard method for calculation provisions on
the residential mortgage portfolio. These modifications must be implemented
in January 2016.
3. SBIF Publishes Requirements for Using Internal Methodologies to
Calculate Provisions
In 2014 the SBIF incorporated instructions on a standard method for calculating
provisions on the residential mortgage portfolio into Chapter B-1 of its Compendium
of Accounting Standards, set to take effect in January 2016. Later, in 2015, it
added provisions for the use of internal methodologies through appendices to
Chapter B-1, identified below, which provide a framework for financial entities
to migrate from a standard provisioning model to an internal model previously
authorized by the SBIF, in accordance with the particular characteristics of
each bank’s portfolio. The referenced appendices are:
• APPENDIX 1: “Requirements for the use of internal methodologies for
determining loan loss provisions” and,
• APPENDIX 2: “Information requirements for requesting evaluation of
internal credit risk methodologies.”
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Annual Report 2015
4. Law on Cancellation of Mortgages and Liens (Law No 20,855)
This law was published in the Official Gazette on September 25, 2015, and took
effect on January 23, 2016. The objective of this law is to regulate the cancellation
of mortgage guarantees for loans granted to consumers of financial services—
individuals and SMEs—in the framework of Law No.19,496 on Protection of
Consumer Rights. The law also regulates the cancellation of non-possessory liens
contained in article 14 of Law No. 20,190, for loans granted to individuals, SMEs
or other types of companies.
5. New Liquidity Regulations
In 2015, Chilean banking regulators established a new framework for managing
liquidity for banking entities residing in Chile. These new standards are entering into
force gradually; some in effect since December 2015 establish new guidelines and
criteria, replacing some metrics (the C46 index replaces the C08 index) and adding
new metrics used by developed markets (set forth by the Bank for International
Settlements in Basel, such as liquidity coverage ratio and net stable funding ratio),
reinforcing concern for the concentration of funding in few or certain counterparties
and establishing the concept of monitoring of liquid assets, among others. The
bank has calculated these new metrics and complied with the new guidelines
within the set time frames.
6. Volcker Rule
The Volcker Rule, which is part of the Dodd-Frank Wall Street Reform Act, took
effect in the United States in 2015. For the purposes of the law, Banco de Chile
and its subsidiaries are considered subsidiaries of Citigroup and, therefore, section
619 of that standard applies to them.
The Volcker Rule restricts proprietary trading and investments in certain covered
funds, which means that these activities can only be carried out as set forth in
that rule.
The provision also establishes a strict governance framework regarding how to
conduct these businesses that is particularly focused on ensuring that no conflicts
of interest or high-risk strategies exist.
Banco de Chile established policies and procedures to adjust its operations in
certain activities to ensure reasonable compliance with the Volcker Rule.
Regulatory Changes
123
05
Corporate
Social
Responsibility
Our Commitment to
the Community
Areas of Action
SÉ PARTE DE LA
HINCHADA OFICIAL
#PONTELACAMISETA
Banco de Chile. Infórmese sobre la garantía estatal de los depósitos en su banco o en www.sbif.cl
Our Commitment
to the Community
Throughout its 120-year history, Banco de Chile’s growth has been centered
around the development and progress of Chile and its people. The bank
has sought to promote community well-being, supporting society’s most
vulnerable and their business ventures. Through employee involvement and
alliances with specialized foundations, our organization seeks to provide more
and better opportunities to succeed, grow and improve quality of life for the
underprivileged and their families.
Our community relations programs are designed to provide a framework for
this commitment and to reflect the values of Banco de Chile and its associates
by working toward a more inclusive and caring society.
Areas of Action
Our contribution to the country focuses on three areas of considerable public
concern:
126
Overcoming
adversity
Quality
education
Fostering
entrepreneurship
• Rehabilitation
• Inclusion
• Supporting cancer
patients
• Supporting disaster
victims
• Generating quality
educational
opportunities for atrisk sectors of society
• Fostering microentrepreneurship
• Training microentrepreneurs
• Financial literacy
Annual Report 2015
Overcoming
Adversity
The Teletón Foundation
In its 37 years, the Teletón campaign has helped more than 70,000 children
and has brought about a cultural shift toward dignity and rights for persons
with disabilities. Today, the Teletón foundation serves more than 30,000
children and youth and receives more than 2,500 new patients annually at
its 13 centers throughout the country.
For the 2015
Teletón, we tripled
our collection points
to span from Arica
to Puerto Williams.
Banco de Chile has supported this charity, the country’s largest, since 1978 by
making its infrastructure and technology available to the foundation and the
country as a whole in order to safely and efficiently collect donations from
about three million people in just 27 hours. In addition to making a sizable
donation, the bank reaffirms its commitment during each Teletón, thanks to
the vocations of service demonstrated by more than 9,000 bank associates.
The Teletón is just one of the bank’s ongoing corporate volunteer programs.
In 2015, 87% of associates participated in one of these programs for a total
of 82,693 volunteer hours.
Thousands of storekeepers provided additional support during the 2015 Teletón
fund raising campaign through fifteen hundred Banco CrediChile “Cajas Chile”
collection points added to the donation network. This made it possible to
receive donations in the most remote parts of the country. Ultimately, the goal
was surpassed thanks to the solidarity shown by Chileans as well as efforts
by customers and every associate at Banco de Chile.
Our Commitment to the Community
127
Overcoming
Adversity
Sports and Workforce Inclusion
The Banco de Chile Chilean Open has been held at our company stadium for
18 years. As part of the ATP Tour, it provides an opportunity for professional
athletes to be part of the world ranking in wheelchair tennis.
Since 2011, the bank has provided special support to Chilean tennis player
Macarena Cabrillana, who has climbed from 150th to 27th in global ranking,
making her second in Chile. In October 2015, Macarena won first place in the
Guga Kuerten Week tournament, playing doubles with English tennis player,
Louise Hunt.
The 2015 Banco de Chile
Chilean Open brought together
more than 48 top tennis players
from the Americas and Europe.
In further support of workplace integration, at the November board of directors’
meeting in Los Ángeles, Chile, Banco de Chile made a financial contribution to
the expansion of the Los Coigües workshop run by the National Union of Parents
and Friends of Persons with Mental Disabilities (“Unpade”). This institution
serves 140 highly at-risk youth and adults with intellectual disabilities.
Desafío Levantemos Chile
This organization was created by Felipe Cubillos and a group of people who
mobilized to help coastal communities after the 2010 earthquake. Since then,
it has undertaken numerous initiatives in different areas, like entrepreneurship,
education, health, disasters, culture and sports.
Through a partnership established in 2012, the bank has worked hand in
hand with Desafío to expand its contribution to the community, funding a
large portion of the charity’s operating budget so that 100% of donations go
directly to social programs.
The Levantemos Chile Campaign
When floods and mudslides hit northern Chile in March, Levantemos Chile
immediately initiated a fund raising campaign. The bank’s branches and
website were made available to collect donations from throughout Chile. Our
institution also donated 100 computers and made a financial contribution to
replace work tools for nearly 150 entrepreneurs in Chañaral, El Salado and
Diego de Almagro. Following the earthquake and subsequent tsunami that
struck the fishing coves and coastline of Coquimbo on September 16th, the
fund raising campaign was extended.
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Annual Report 2015
In response to the eruption of the Calbuco volcano in the Los Lagos Region the
bank made a financial contribution toward classroom furnishings and library
books for the Epson School in Ensenada, at the board of directors meeting
in Puerto Montt in May.
A Better Chile for Cancer Patients
In 2014, we partnered with the School of Medicine at Pontificia Universidad
Católica to work on the program “A Better Chile for Cancer Patients”, which
seeks to improve treatment opportunities at the Sótero del Río Oncology Center,
serving patients from seven municipalities in the Metropolitan Region—25%
of Santiago’s cancer population.
In just one year, the program tripled oncological consultations; reduced cancer
committee and oncologist assessment wait time from two months to less
than two weeks; increased annual doctor visits from 7,000 to 11,000; and
began several UC-Sótero del Río research projects.
Supporting the Most Vulnerable
Cristo Joven
For 20 years, our subsidiary, Banchile Inversiones, has been working with
the Cristo Joven foundation, which focuses on prevention and protection for
socially at-risk children.
As of the end of 2015, the foundation had nine nurseries and preschools in the
municipalities of Peñalolén, La Cisterna and La Pintana. Another for 100 children
was under construction in the municipality of Lo Prado. The foundation also
offers extracurricular activities, educational reinsertion, as well as preventative
programs and psychosocial support for families.
It also provides psychosocial support to children and their families in the
municipalities of Peñalolén, Quilicura, El Bosque, San Ramón and La Pintana.
In total, the foundation serves more than 1,800 children under the age of 17.
Areas of Action
129
Overcoming
Adversity
Hogar de Cristo
Through its Hogar de Cristo 1+1 matching program, Banco de Chile and its
associates provide 42% of the total budget for the Hogar de Cristo senior
citizen center program (“CEAM”). The centers offer shelter to individuals
in extreme poverty, providing meals and 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.
Debra Foundation
Since 2006, the bank has supported the Debra Foundation (“Fundación Debra”),
a non-profit organization in existence since 1997 that provides assistance for
200 children suffering from epidermolysis bullosa, more commonly known
as “Butterfly Children”. The purpose of this initiative is to improve quality of
life for these children and their families by remodeling homes and, in some
cases, helping with the high cost of medications.
Women’s Impact Award
For the third straight year, the bank has supported the Women’s Impact
Award (“Mujer Impacta”). In 2015, the accolade was bestowed upon seven
women throughout Chile who have brought about changes in their families,
workplace or communities.
Quality
Education
The Astoreca Foundation
Using a replicable model and demanding methodology that recognizes students’
innate ability, the Astoreca Foundation’s schools, San Joaquín in Renca and
San José and San Juan in Lampa, provide quality education to about 3,000
at-risk children and young people. Furthermore, 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.
Astoreca Training (“Astoreca Capacitaciones”), provides teaching faculty and
school leadership with training on quality educational methods. In 2015, 776
teachers throughout the country received training and 118 classrooms received
additional support.
Nearly 3,000 children and youth
receive quality education at the
Astoreca Foundation’s three
schools located in Renca and
Lampa.
In 2004, Banco de Chile made a long-term commitment to the Astoreca
Foundation, which involved providing financial support and monitoring program
implementation. Furthermore, for the past five years Banco CrediChile has
awarded the Academic Excellence Award (“Premio de Excelencia Académica”),
which includes a savings account, to the student with the best grade point
average in each grade at Colegio San José in Lampa.
Banco de Chile PSU Scholarship
For the last 23 years, Banco de Chile has given the student who earns the
highest score on the University Selection Exam (“PSU”) a scholarship that
covers full tuition and fees for the duration of the student’s degree program,
as well as a monthly allowance for other expenses
In 2015, the scholarship recipient was Alejandro Phillips Becker, alumnus of
Colegio Montemar in Concón, who earned the nation’s best weighted PSU
score of 834.5 points.
Areas of Action
131
Quality
Education
Banco de Chile scholarship recipients generally pursue degrees in medicine,
civil engineering, business administration or law at Pontificia Universidad
Católica de Chile or Universidad de Chile.
Bridging the Digital Divide
In order to assist in bridging the digital divide in low-income communities,
Banco de Chile donated more than 4,300 computers in the last year to the
Chilenter Foundation, which promotes e-waste recycling. The bank also
donated computers to the municipality of San Ramón as part of the microentrepreneurship workshops conducted by CrediChile.
Financial Literacy
As part of the “Twelve Principles of Financial Literacy” workshops, we visited
different cities in northern and southern Chile, providing micro-entrepreneurs
with budget control tools and answering questions related to personal finance
and customer service.
28,000 micro-entrepreneurs
were trained in
20 face-to-face financial
literacy workshops linked to
e-learning platforms.
International Education
Because we understand the importance of global thinking and multiculturalism
in the education of young people, Banco de Chile has supported the Conducting
Business in Chile/China program for eight years. Each year, students and professors
from the Universidad Católica MBA program spend 10 days in China learning about
Chinese culture and business. The program also brings students and professors
from the School of Economics and Management’s MBA program at Tsinghua
University in Beijing to Chile for the same purpose.
In 2015, we renewed our commitment for another two years and increased the
number of participants. To date, more than 300 students and professors have
participated in this exchange program.
132
Annual Report 2015
Promoting
Entrepreneurship
Felipe Cubillos Sigall Entrepreneurship Schools
Entrepreneur Chile Account
Through two entrepreneurship schools—in Santiago
(Estación Central) and Valdivia—this foundation partners
with municipalities and universities to train microentrepreneurs in areas like administration, finance, legal
matters and marketing. Upon completion, students
receive a diploma issued by the host university.
In order to provide another tool to micro-entrepreneurs,
Banco CrediChile has created the Entrepreneur Chile Account
(“Cuenta Chile Emprendedor”), a demand account given
to Desafío Levantemos Chile entrepreneurship program
participants. The account allows entrepreneurs to better
manage their business’s income and expenses without
account opening or maintenance fees.
Banco de Chile contributes to this and other entrepreneurship
initiatives by Desafío Levantemos Chile, participating in
training programs; providing capital or preferential
financing; supporting marketing; and consulting on
business administration, responsible borrowing and
financial literacy.
Preferential Lending to Entrepreneurs
In partnership with Desafío Levantemos Chile, the
bank granted loans of up to Ch$3,000,000 to 21 new
entrepreneurs under preferential conditions in 2015.
The objective of this program is to cultivate responsible
payment behavior. As a result, all interest charges related
to the loan are refunded to borrowers that make all their
payments on time.
Micro-enterprise account executives from Banco CrediChile
visit most of these entrepreneurs at their place of business
to evaluate the business conditions and immediate
family environment. Based on this visit, they determine
the amount of the installment to be paid and secure a
commitment to timely payment.
Online Entrepreneurship Market
Desafío Levantemos Chile developed:
www.mercadoemprendedor.cl, an online platform that sells
products from the entrepreneurship school’s students.
It seeks to generate sales opportunities for those who
would otherwise lack them, by publicizing their work,
inspiration and dedication.
SME Consulting
Associates from Banco de Chile and Banco CrediChile
participated in the SME Consultants Program organized
by Desafío Levantemos Chile’s Entrepreneurship Area.
The program’s goal is to impart knowledge and tools
that can be used in advising and supporting small and
micro-enterprises to be more competitive in domestic
and international markets.
Pro-SME Seal 2015
In 2015 Banco de Chile was once again awarded the ProSME Seal by the Ministry of Economy, Development and
Tourism. This seal recognizes large companies that pay
invoices from small and medium-sized businesses within
30 days. The objective of the program is to improve
the economic conditions of Chile’s SME suppliers while
recognizing major corporations for their support. These
initiatives help build quality relationships, improve
working capital of suppliers and create new jobs, while
contributing to the country’s growth and development.
Areas of Action
133
06
Consolidated
Financial
Statements
Report of Independent Registered
Public Accounting Firm
Consolidated Statements of
Financial Position
Consolidated Statements of Income
Consolidated Statements of Other
Comprehensive Income
Consolidated Statements of
Changes in Equity
Consolidated Statements of Cash
Flows
Notes to the Consolidated Financial
Statements
Banco
de Chile
Banco de Chile
and Subsidiaries
and Subsidiaries
Ch$ or CLP
MCh$
US$ or USD
ThUS$
JPY
EUR
MXN
HKD
PEN
CHF
U.F. or CLF
= Chilean pesos
= Millions of Chilean pesos
= U.S. dollars
= Thousands of U.S. dollars
= Japanese yen
=Euro
= Mexican pesos
= Hong Kong dollars
= Peruvian nuevo sol
= Swiss franc
= Unidad de fomento
(The unidad de fomento is an inflation-indexed, Chilean
peso denominated monetary unit set daily in advance on
the basis of the previous month’s inflation rate).
IFRS
= International Financial Reporting Standards
IAS
= International Accounting Standards
RAN
= Compilation of Standards of the Chilean
Superintendency of Banks
IFRIC
= International Financial Reporting Interpretations
Committee
SIC
= Standards Interpretation Committee
136
Anual Report 2015
Index
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Financial Position
Consolidad Statements of Comprehensive Income
Consolidated Statements of Other Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
1. Company Information:
2. Summary of Significant Accounting Principles:
3. New Accounting Pronouncements:
4. Changes in Accounting Policies and Disclosures:
5. Relevant Events:
6. Segment Reporting:
7. Cash and Cash Equivalents:
8. Financial Assets Held-for-trading:
9. Repurchase Agreements and Security Lending and Borrowing:
10. Derivative Instruments and Accounting Hedges:
11. Loans and advances to Banks:
12. Loans to Customers, net:
13. Investment Securities:
14. Investments in Other Companies:
15. Intangible Assets:
16. Property and equipment:
17. Current and Deferred Taxes:
18. Other Assets:
19. Current accounts and Other Demand Deposits:
20. Savings accounts and Time Deposits:
21. Borrowings from Financial Institutions:
22. Debt Issued:
23. Other Financial Obligations:
24.Provisions:
25. Other Liabilities:
26. Contingencies and Commitments:
27.Equity:
28. Interest Revenue and Expenses:
29. Income and Expenses from Fees and Commissions:
30. Net Financial Operating Income:
31. Foreign Exchange Transactions, net:
32. Provisions for Loan Losses:
33. Personnel Expenses:
34. Administrative Expenses:
35. Depreciation, Amortization and Impairment:
36. Other Operating Income:
37. Other Operating Expenses:
38. Related Party Transactions:
39. Fair Value of Financial Assets and Liabilities:
40. Maturity of Assets and Liabilities:
41. Risk Management:
42. Subsequent Events:
138
140
142
143
144
146
148
148
173
178
179
182
186
187
188
192
198
200
206
208
211
213
215
220
221
221
222
223
228
228
231
232
237
241
244
245
245
246
248
249
250
251
252
253
257
269
271
299
Consolidated Financial Statements
137
Report of Independent
Registered Public Accounting Firm
Señores
Accionistas y Directores
Banco de Chile
Hemos efectuado una auditoría a los estados financieros consolidados adjuntos del Banco de Chile y afiliadas,
que comprenden los estados de situación financiera consolidados al 31 de diciembre de 2015 y 2014 y los
correspondientes estados consolidados de resultados integrales, de cambios en el patrimonio y de flujos
de efectivo por los años terminados en esas fechas y las correspondientes notas a los estados financieros
consolidados.
Responsabilidad de la Administración por los estados financieros consolidados
La Administración es responsable por la preparación y presentación razonable de estos estados financieros
consolidados de acuerdo con normas contables e instrucciones impartidas por la Superintendencia de Bancos
e Instituciones Financieras. Esta responsabilidad incluye el diseño, implementación y mantención de un control
interno pertinente para la preparación y presentación razonable de estados financieros consolidados que estén
exentos de representaciones incorrectas significativas, ya sea debido a fraude o error.
Responsabilidad del auditor
Nuestra responsabilidad consiste en expresar una opinión sobre estos estados financieros consolidados a base
de nuestras auditorías. Efectuamos nuestras auditorías de acuerdo con normas de auditoría generalmente
aceptadas en Chile. Tales normas requieren que planifiquemos y realicemos nuestro trabajo con el objeto
de lograr un razonable grado de seguridad que los estados financieros consolidados están exentos de
representaciones incorrectas significativas.
Una auditoría comprende efectuar procedimientos para obtener evidencia de auditoría sobre los montos y
revelaciones en los estados financieros consolidados. Los procedimientos seleccionados dependen del juicio
del auditor, incluyendo la evaluación de los riesgos de representaciones incorrectas significativas de los estados
financieros consolidados ya sea debido a fraude o error. Al efectuar estas evaluaciones de los riesgos, el auditor
considera el control interno pertinente para la preparación y presentación razonable de los estados financieros
consolidados de la entidad con el objeto de diseñar procedimientos de auditoría que sean apropiados en
las circunstancias, pero sin el propósito de expresar una opinión sobre la efectividad del control interno de
la entidad. En consecuencia, no expresamos tal tipo de opinión. Una auditoría incluye, también, evaluar lo
apropiadas que son las políticas de contabilidad utilizadas y la razonabilidad de las estimaciones contables
significativas efectuadas por la Administración, así como una evaluación de la presentación general de los
estados financieros consolidados.
138
Anual Report 2015
Consideramos que la evidencia de auditoría que hemos obtenido es suficiente y apropiada para proporcionarnos
una base para nuestra opinión de auditoría.
Opinión
En nuestra opinión, los mencionados estados financieros consolidados presentan razonablemente, en todos
sus aspectos significativos, la situación financiera del Banco de Chile y afiliadas al 31 de diciembre de 2015 y
2014 y los resultados de sus operaciones y los flujos de efectivo por los años terminados en esas fechas de
acuerdo con normas contables e instrucciones impartidas por la Superintendencia de Bancos e Instituciones
Financieras.
Rodrigo Arroyo N.
EY LTDA.
Santiago, 28 de enero de 2016
139
Banco de Chile
and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
For the years ended December 31, 2015 and 2014
(Expressed in million of Chilean pesos)
Notes
2015
MCh$
2014
MCh$
Cash and due from banks
7
1,361,222
915,133
Transactions in the course of collection
7
526,046
400,081
ASSETS
Financial assets held-for-trading
8
866,654
548,471
Cash collateral on securities borrowers and reverse repurchase
9
46,164
27,661
Derivative instruments
10
1,127,122
832,193
Loans and advances to banks
11
1,395,195
1,155,365
Loans to customers, net
12
23,956,275
21,348,033
Financial assets available-for-sale
13
1,000,001
1,600,189
Financial assets held-to-maturity
13
—
—
14
28,126
25,312
Intangible assets
15
26,719
26,593
Property and equipment
16
215,671
205,403
Current tax assets
17
3,279
3,468
Deferred tax assets
17
255,972
202,869
Other assets
18
484,498
355,057
31,292,944
27,645,828
TOTAL ASSETS
The accompanying notes 1 to 42 form an integral part of these consolidated financial statements.
140 Anual Report 2015
Notes
2015
MCh$
2014
MCh$
Current accounts and other demand deposits
19
8,327,048
6,933,679
Transactions in the course of payment
7
241,842
96,945
LIABILITIES
Cash collateral on securities lent and repurchase agreements
9
184,131
249,482
Savings accounts and time deposits
20
9,907,692
9,721,246
10
1,127,927
859,752
Borrowings from financial institutions
21
1,529,627
1,098,716
Debt issued
22
6,102,208
5,057,956
23
173,081
186,573
Current tax liabilities
17
27,993
22,498
Deferred tax liabilities
17
32,953
35,029
Provisions
24
639,043
601,714
Other liabilities
25
TOTAL LIABILITIES
EQUITY
259,312
247,082
28,552,857
25,110,672
2,041,173
1,944,920
390,616
263,258
57,709
44,105
16,060
16,379
558,995
591,080
(324,469)
(324,588)
2,740,084
2,535,154
3
2
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
2,740,087
2,535,156
31,292,944
27,645,828
141
Banco de Chile
and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Notes
2015
MCh$
2014
MCh$
Interest revenue
28
1,899,302
2,033,846
Interest expense
28
(680,169)
(788,788)
1,219,133
1,245,058
Net interest income
Income from fees and commissions
29
436,076
387,452
Expenses from fees and commissions
29
(130,097)
(115,264)
305,979
272,188
Net fees and commission income
Net financial operating income
30
36,539
29,459
Foreign exchange transactions, net
31
57,318
70,225
36
27,386
29,472
1,646,355
1,646,402
(303,062)
(283,993)
1,343,293
1,362,409
Total operating revenues
Provisions for loan losses
32
OPERATING REVENUES, NET OF PROVISIONS FOR LOAN LOSSES
Personnel expenses
33
(381,388)
(384,512)
Administrative expenses
34
(289,974)
(269,363)
Depreciation and amortization
35
(29,537)
(30,501)
Impairment
35
(263)
(2,085)
Other operating expenses
37
(25,076)
(28,201)
(726,238)
(714,662)
617,055
647,747
TOTAL OPERATING EXPENSES
NET OPERATING INCOME
Income attributable to associates
14
Income before income tax
Income tax
17
NET INCOME FOR THE YEAR
3,672
2,861
620,727
650,608
(61,730)
(59,527)
558,997
591,081
558,995
591,080
2
1
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
5.82
6.15
Diluted net income per share
27
5.82
6.15
142
Anual Report 2015
Consolidated Statements of Other Comprehensive Income
Notes
NET INCOME FOR THE YEAR
2015
MCh$
2014
MCh$
558,997
591,081
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
8,596
7,107
Gains and losses on derivatives held as cash flow hedges
10
9,971
29,756
2
80
Subtotal other comprehensive income before income taxes that will be
reclassified subsequently to profit or loss
Cumulative translation adjustment
18,569
36,943
Income tax related to other comprehensive income that will be
(4,965)
(8,766)
Total other comprehensive income items that will be reclassified
subsequently to profit or loss
13,604
28,177
Loss in defined benefit plans
(33)
(399)
Subtotal other comprehensive income that will not be reclassified
(33)
(399)
9
103
(24)
(296)
572,577
618,962
572,575
618,961
2
1
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECLASIFFIED
SUBSEQUENTLY TO PROFIT OR LOSS
Income tax related to other comprehensive income that will not be
Total other comprehensive income items that will not be reclassified
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:
$
$
Basic net income per share
5.96
6.44
Diluted net income per share
5.96
6.44
143
Banco de Chile
and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in millions of Chilean pesos)
Reserves
Notes
Balances as of December 31, 2013
Capitalization of retained earnings
Income distribution
27
Income retention (released) according to law
27
Paid and distributed dividends
27
Paid-in
Capital
Other
reserves
Reserves from
earnings
MCh$
MCh$
MCh$
1,849,351
32,125
181,511
95,569
—
—
—
—
49,913
—
—
—
—
5
—
—
(296)
—
—
—
—
Derivatives cash flow hedge, net
—
—
—
Valuation adjustment on available-for-sale
instruments (net)
—
—
—
—
—
—
—
—
—
Equity adjustment investment in other companies
Defined benefit plans adjustment
Other comprehensive income:
27
Income for the period 2014
27
1,944,920
31,834
231,424
Capitalization of retained earnings
27
96,253
—
—
Income retention (released) according to law
27
—
—
127,383
Paid and distributed dividends
27
—
—
—
—
(24)
—
—
(1)
—
Defined benefit plans adjustment
Capital increase investment in other companies
Other comprehensive income:
27
—
—
—
Derivatives cash flow hedge, net
—
—
—
Valuation adjustment on available-for-sale
instruments (net)
—
—
—
—
—
—
—
—
—
—
—
—
2,041,173
31,809
358,807
Income for the period 2015
Equity adjustment investment in other companies
27
144
Anual Report 2015
Other Comprehensive Income
Unrealized
gains
(losses)
Derivatives
on available cash flow
-for- sale
hedge
Retained Earnings
Cumulative
translation
adjustment
Retained
earnings
from
previous
periods
MCh$
MCh$
MCh$
MCh$
Attributable
Provision for to equity
Income for
minimum
holders of
the year
dividends
the parent
Noncontrolling
interest
Total
equity
MCh$
MCh$
MCh$
MCh$
MCh$
29,372
(13,421)
(23)
16,379
513,602
(324,582)
2,284,314
2
2,284,316
—
—
—
—
(95,569)
—
—
—
—
—
—
—
—
(49,913)
—
—
—
—
—
—
—
—
(368,120)
324,582
(43,538)
(1)
(43,539)
—
—
—
—
—
—
5
—
5
—
—
—
—
—
—
(296)
—
(296)
—
—
80
—
—
—
80
—
80
—
23,507
—
—
—
—
23,507
—
23,507
4,590
—
—
—
—
—
4,590
—
4,590
—
—
—
—
591,080
—
591,080
1
591,081
—
—
—
—
—
(324,588)
(324,588)
—
(324,588)
33,962
10,086
57
16,379
591,080
(324,588)
2,535,154
2
2,535,156
—
—
—
—
(96,253)
—
—
—
—
—
—
—
—
(127,383)
—
—
—
—
—
—
—
—
(367,444)
324,588
(42,856)
(1)
(42,857)
—
—
—
—
—
—
(24)
—
(24)
—
—
—
—
—
—
(1)
—
(1)
—
—
2
—
—
—
2
—
2
—
7,728
—
—
—
—
7,728
—
7,728
5,874
—
—
—
—
—
5,874
—
5,874
—
—
—
—
558,995
—
558,995
2
558,997
—
—
—
(319)
—
—
(319)
—
(319)
—
—
—
—
—
(324,469)
(324,469)
—
(324,469)
39,836
17,814
59
16,060
558,995
(324,469)
2,740,084
3
2,740,087
145
Banco de Chile
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in millions of Chilean pesos)
Notes
2015
MCh$
2014
MCh$
558,997
591,081
OPERATING ACTIVITIES:
Net income for the year
Items that do not represent cash flows:
35
29,537
30,501
Impairment of intangibles assets and property and equipment
35
263
2,085
Provision for loan losses, net of recoveries
32
319,954
303,003
Provision of contingent loans
32
5,136
4,800
Additional provision
32
30,921
22,499
1,273
1,764
Fair value adjustment of financial assets held-for-trading
(Income) loss attributable to investments in other companies
14
(3,243)
(2,486)
(Income) loss sales of assets received in lieu of payment
36
(3,470)
(3,484)
(204)
(155)
(112,269)
(33,182)
1,302
1,622
(256)
(244)
(545,380)
(246,060)
132,751
(128,527)
(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
17
(239,618)
(94,186)
(2,735,942)
(944,367)
(336,420)
27,620
(57,790)
(60,919)
Increase (decrease)in current account and other demand deposits
1,392,434
948,593
Increase (decrease) in payables from repurchase agreements and
security lending
(59,374)
5,282
Increase (decrease) in savings accounts and time deposits
189,893
(650,150)
7,769
6,393
(1,423,736)
(218,517)
Proceeds from sale of assets received in lieu of payment
Total cash flows provided by (used in) operating activities
146
Anual Report 2015
2015
MCh$
2014
MCh$
439,168
124,832
16
(31,476)
(31,513)
575
200
Purchases of intangible assets
15
(8,519)
(5,382)
14
(314)
(6,608)
Dividends received from investments in other companies
14
663
195
400,097
81,724
(13,059)
(16,713)
Notes
INVESTING ACTIVITIES:
(Increase) decrease in financial assets available-for-sale
Purchases of property and equipment
Proceeds from sales of property and equipment
Total cash flows provided by (used in) investing activities
FINANCING ACTIVITIES:
Redemption in mortgage finance bonds
Proceeds from bond issuances
22
Redemption of bond issuances
2,470,407
1,826,552
(1,292,647)
(1,149,274)
Proceeds from subscription and payment of shares
Dividends paid
27
Increase (decrease) in borrowings from foreign financial institutions
Increase (decrease) in other financial obligations
Increase (decrease) in other obligations with Chilean Central Bank
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
Net effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Operating cash flow of interest:
7
—
—
(367,444)
(368,120)
430,098
110,091
(9,593)
(18,883)
(3)
(2)
13,803
7,091
(17,745)
(13,211)
1,213,817
377,531
190,178
240,738
78,152
46,222
1,825,578
1,538,618
2,093,908
1,825,578
2015
2014
MCh$
MCh$
Interest received
1,687,598
1,705,103
Interest paid
(335,714)
(588,572)
147
Banco de Chile
and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2015 and 2014
1. Company Information:
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 Agricola y Banco de Valparaiso. 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.
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, 2015 were authorized for
issuance in accordance with the directors’ resolution on January 28, 2015.
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).
2. Summary of Significant Accounting Principles:
(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
148
Anual Report 2015
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.
(b) Basis of consolidation:
The financial statements of Banco de Chile as of December 31, 2015 and 2014 have been consolidated with
its Chilean subsidiaries and foreign subsidiary using the global integration method (line-by-line). They include
preparation of individual financial statements of the Bank and companies that participate in the consolidation,
and it include adjustments and reclassifications necessary to homologue accounting policies and valuation
criteria applied by the Bank. The Consolidated Financial Statements have been prepared using the same
accounting policies for similar transactions and other events in equivalent circumstances.
Significant intercompany transactions and balances (assets, 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, 2015 and 2014 incorporate financial statements of
the Bank and its subsidiaries. According IFRS 10 – “Consolidated Financial Statements”, control requires
exposure or rights to variable returns and the ability to affect those returns through power over an investee.
Specifically the Bank have power over the investee when has existing rights that give it the ability to direct
the relevant activities of the investee.
When the Bank has less than a majority of the voting rights of an investee, but these voting rights are
enough to have the ability to direct the relevant activities unilaterally, then conclude the Bank has control.
The Bank considers all factors and relevant circumstances to evaluate if their voting rights are enough to
obtain the control, which it includes:
•
The amount of voting rights that the Bank has, related to the amount of voting rights of the others
stakeholders.
•
Potential voting rights maintained by the Bank, other holders of voting rights or other parties.
•
Rights emanated from other contractual arrangements.
•
Any additional circumstance that indicate that the Bank have or have not the ability to manage the
relevant activities when that decisions need to be taken, including behavior patterns of vote in previous
shareholders meetings.
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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
Direct
Rut
Subsidiaries
Country
Functional
Currency
Indirect
Total
2015
%
2014
%
2015
%
2014
%
2015
%
2014
%
US$
100.00
100.00
—
—
100.00
100.00
44,000,213-7
Banchile Trade Services
Hong Kong
Limited (*)
96,767,630-6
Banchile Administradora
General de Fondos S.A.
Chile
$
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
96,571,220-8
Banchile Corredores de
Bolsa S.A.
Chile
$
99.70
99.70
0.30
0.30
100.00
100.00
96,932,010-K
Banchile Securitizadora
S.A.
Chile
$
99.01
99.00
0.99
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
(*) On May 29, 2014 the Board of Banco de Chile agreed dissolution, liquidation and termination of this entity. At the end of the presents Financial Statements, the
liquidation process is carried out.
(ii) Associates and Joint Ventures:
Associates
An associate is an entity over whose operating and financial management policy decisions the Bank has
significant influence, without to have the control over the associate. Significant influence is generally
presumed when the Bank holds between 20% and 50% of the voting rights. Other considered factors
when determining whether the Bank has significant influence over another entity are the representation
on the board of directors and the existence of material intercompany transactions. The existence of these
factors could determine the existence of significant influence over an entity even though the Bank had
participation less than 20% of the voting rights.
Investments in associates where exists significant influence, are accounted for using the equity method. In
accordance with the equity method, the Bank’s investments are initially recorded at cost, and subsequently
increased or decreased to reflect the proportional participation of the Bank in the net income or loss of the
associate and other movements recognized in its shareholders’ equity. Goodwill arising from the acquisition
of an associate is included in the net book value, net of any accumulated impairment loss.
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.
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Memoria Anual 2015
According IFRS 11, an entity shall be determining type of joint arrangement: “Joint Operation” or “Joint
Venture”.
For investments defined like “Joint Operation”, their assets, liabilities, income and expenses are recognised
by their participation in joint operation.
For investments defined like “Joint Venture”, they will be registered according equity method.
Investments that, for their characteristics, are defined like “Joint Ventures” are the following:
• Artikos S.A.
• Servipag Ltda.
(iii) Shares or rights in other companies
These are entities in which the Bank does not have significant influence. They are presented at acquisition
value (historical cost).
(iv) Special purpose entities
According to current regulation, the Bank must be analyzing periodically its consolidation area, considering
that the principal criteria are the control that the Bank has in an entity and not its percentage of equity
participation.
As of December 31, 2015 and 2014 the Bank does not control and has not created any SPEs.
(v) Fund management
The Bank and its subsidiaries manage and administer assets held in mutual funds and other investment
products on behalf of investors, perceiving a paid according to the service provided and according to market
conditions. Managed resources are owned by third parties and therefore not included in the Statement
of Financial Position.
According to established in IFRS 10, for consolidation purposes is necessary to assess the role of the Bank
and its subsidiaries with respect to the funds they manage, must determine whether that role is Agent or
Principal. This assessment should consider the following:
•
•
•
•
The scope of their authority to make decisions about the investee.
The rights held by third parties.
The remuneration to which he is entitled under remuneration arrangements.
Exposure, decision maker, the variability of returns from other interests that keeps the investee.
The Bank and its subsidiaries manage on behalf and for the benefit of investors, acting in that relationship
only as Agent. Under this category, and as provided in the aforementioned rule, do not control these funds
when they exercise their authority to make decisions. Therefore, as of December 31, 2015 and 2014 act
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.
Estados Financieros Consolidados
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(d) Use of estimates and judgment:
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.
2. 3.
4.
5.
6.
7.
Goodwill valuation (Note No. 15);
Useful lives of property and equipment and intangible assets (Note No. 15 and No. 16);
Current taxes and deferred taxes (Note No.17);
Provisions (Note No. 24);
Contingencies and commitments (Note No. 26);
Provision for loan losses (Note No.11, Note No. 12 and Note No. 32);
Fair value of financial assets and liabilities (Note No. 39).
During the year ended December 31, 2015, 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:
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.
(iii)Derecognition
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
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Anual Report 2015
transferred. Any portion of transferred financial assets that is created or retained by the Bank is recognized
as a separate asset or liability.
When the Bank transfers a financial asset, it assesses to what extent it has retained the risks and rewards
of ownership. In this case:
(a) If substantially all risks and rewards of ownership of the financial asset have been transferred, it is
derecognized, and any rights or obligations created or retained upon transfer are recognized separately
as assets or liabilities.
(b) If substantially all risks and rewards of ownership of the financial asset have been retained, the Bank
continues to recognize it.
(c) If substantially all risks and rewards of ownership of the financial asset are neither transferred nor
retained, the Bank will determine if it has retained control of the financial asset. In this case:
(i) If the Bank has not retained control, the financial asset will be derecognized, and any rights or
obligations created or retained upon transfer will be recognized separately as assets or liabilities.
(ii) If the Bank has retained control, it will continue to recognize the financial asset in the Consolidated
Financial Statement by an amount equal to its exposure to changes in value that can experience
and recognize a financial liability associated to the transferred financial asset.
The Bank derecognizes a financial liability (or a portion thereof) from its Consolidated Statement of
Financial Position if, and only if, it has extinguished or, in other words, when the obligation specified in the
corresponding contract has been paid or settled or has expired.
(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”).
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When available, the Bank estimates the fair value of an instrument using quoted prices in an active market
for that instrument. A market is considered active if quoted prices are readily and regularly available and
represent actual and regularly occurring market transactions on an arm’s length basis.
If a market for a financial instrument is not active, the Bank establishes fair value using a valuation technique.
These valuation techniques include the use of recent market transactions between knowledgeable, willing
parties in an arm’s length transaction, if available, as well as references to the fair value of other instruments
that are substantially the same, discounted cash flows and options pricing models.
The chosen valuation technique use the maximum observable market data, relies as little as possible on
estimates performed by the Bank, incorporates factors that market participants would consider in setting
a price and is consistent with accepted economic methodologies for pricing financial instruments. Inputs
into the valuation technique reasonably represent market expectations and include risk and return factors
that are inherent in the financial instrument. Periodically, the Bank calibrates the valuation techniques
and tests it for validity using prices from observable current market transaction in the same instrument
or based on any available observable market data.
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.
The Bank has financial 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 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
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Anual Report 2015
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.
As of December 31, 2015, 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$708.24 to US$1. As of
December 31, 2014, the Bank used the observed exchange rate equivalent to Ch$606.09 to US$1.
The gain of MCh$57,318 for net foreign exchange transactions, net (foreign exchange income of MCh$70,225
in 2014) 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.
(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 decision-making authority for
operating decisions, to decide about resource allocation for the segment and evaluate its performance; and
(iii) That separate financial information is available.
(i) Cash and cash equivalents:
The Consolidated Statement of Cash Flows shows the changes in cash and cash equivalents derived from
operating activities, investment activities and financing activities during the year. The indirect method has
been used in the preparation of this statement.
For the preparation of Consolidated Financial Statements of Cash Flow it is considered the following concepts:
(i) Cash and cash equivalents correspond to “Cash and Bank Deposits”, plus (minus) the net balance of
transactions in the course of collection that are shown in the Consolidated Statement of Financial Position,
plus instruments held-for-trading and available-for-sale that are highly liquid and have an insignificant
risk of change in value, maturing in less than three months from the date of acquisition, plus repurchase
agreements that are in that situation. Also includes investments in fixed income mutual funds, according
to instruccions of the SBIF, that are presented under “Trading Instruments” in the Consolidated Statement
(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.
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(iv) Financing activities: corresponds to the activities that produce changes in the amount and composition
of the equity and the liabilities that are not included in the operating or investing activities.
(j) Financial assets held-for-trading:
Financial assets held-for-trading consist of securities acquired with the intention of generating profits as a
result of short-term prices fluctuation or as a result of brokerage activities, or are part of a portfolio on which
a short-term profit-generating pattern exists.
Financial assets held-for-trading are stated at their fair 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:
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 agreed-upon interest rate, through of method of amortised cost. According to rules, the Bank not register
as own portfolio the instruments bought within resale agreements.
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.
As of December 31, 2015 and 2014 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.
In addition, the Bank includes in the valorization of derivatives the “Counterparty Valuation Adjustment” (CVA),
to reflect the counterparty risk in the determination of fair value. This valorization doesn’t consider the Bank’s
own credit risk, known as “Debit Valuation Adjustment” (DVA) in conformity with standards issued by SBIF.
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.
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Anual Report 2015
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.
A hedge relationship for hedge accounting purposes must comply with all of the following conditions:
(a)
(b)
(c)
(d)
at its inception, the hedge relationship has been formally documented;
it is expected that the hedge will be highly effective;
the effectiveness of the hedge can be measured in a reasonable manner; and
the hedge is highly effective with respect to the hedged risk on an ongoing basis and throughout the
entire hedge relationship.
The Bank presents and measures individual hedges (where there is a specific identification of hedged item
and hedged instruments) by classification, according to the following criteria:
Fair value hedges: changes in the fair value of a hedged instruments derivative, designed like “fair value hedges”,
are recognized in income under the line “Net interest income” and/or “Foreign exchange transactions, net”.
Hedged item also is presented to fair value, related to the risk to be hedge. Gains or losses from hedged risk
are recognized in income under the line “Net interest income” and adjust the book value of item hedged.
Cash flow hedge: changes in the fair value of financial instruments derivative designated like “cash flow hedge”
are recognised in “Other Comprehensive Income”, to the extent that hedge is effective and hedge is reclassified
to income in the item “Net interest income” and/or “Foreign exchange transactions, net”, when hedged item
affects the income of the Bank produced for the “interest rate risk” or “foreign exchange risk”, respectively.
If the hedge is not effective, changes in fair value are recognised directly in income in the item “Net financial
operating income”.
If the hedged instruments does not comply with criteria of hedge accounting of cash flow, it expires or is
sold, it suspend or executed, this hedge must be discontinued prospectively. Accumulated gains or losses
recognised previously in the equity are maintained there until projected transactions occur, in that moment will
be registered in Consolidated Statement of Income (in te item “Net interest income” and/or “Foreign exchange
transactions, net”, depend of the hedge), lesser than it foresees that the transaction will not execute, in this
case it will be registered immediately in Consolidated Statement of Income (in te item “Net interest income”
and/or “Foreign exchange transactions, net”, depend of the hedge).
(m) Loans to customers:
Loans to customers include originated and purchased non-derivative financial assets with fixed or determinable
payments that are not quoted on an active market and which the Bank does not intend to sell immediately or
in the short-term.
(i) Valuation method
Loans are initially measured at cost plus incremental transaction costs, and subsequently measured at
amortized cost using the effective interest rate method, except when the Bank defined some loans as
hedged items, which are measured at fair value, changes are recorded in the Consolidated Statement of
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Income, as described in letter (l) of this note.
(ii) Lease contracts
Accounts receivable for leasing contracts, included under the caption “Loans to customers” correspond
to periodic rent installments of contracts which meet the definition to be classified as financial leases and
are presented at their nominal value net of unearned interest as of each year-end.
(iii) Factoring transactions
Corresponds to invoices and other commercial instruments representative of credit, with or without recourse,
received in discount and which are registered to book value plus interest and adjustments until to maturity.
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 loans include the following assets, according to Chapter B-1 of Accounting rules Compendium
of Superintendency of Banks:
a) In case of debtors subject to individual assessment, are considered in impaired portfolio “Non-complying
loans” and the categories B3 y B4 of “Substandar loans”
b) Debtors subject to assessment group evaluation, the impaired portfolio includes all credits of the
“Non-complying loans” defined in Note No. 2 m) v).
(v) Allowance for loan losses
Allowances are required to cover the risk of loan losses have been established in accordance with the
instructions issued by the 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”.
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, continued:
An individual analysis of debtors is applied to individuals and companies that are of such significance
with respect to size, complexity or level of exposure to the bank, that they must be analyzed in detail.
Likewise, the analysis of borrowers should focus on its credit quality related to the ability to payment,
to have sufficient and reliable information, and to analyze in regard to guarantees, terms, interest
rates, currency and revaluation, etc.
For purposes of establish the allowances, the banks must be asses the credit quality, then clasify 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.
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Anual Report 2015
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
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 financial or real guarantees of the operatios. Also, in some
cases, the risk credit of direct debtor can be replaced by credit quality of aval or surety. 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:
Provision debtor = (ESA-GE) x (PD debtor /100)x(LGD debtor/100)+GE x(PD guarantor/100)x(LGD guarantor /100)
Where:
ESA = Exposure subject to allowances
GE = Guaranteed exposure
EAP = (Loans + Contingent Loans) – Financial Guarantees
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and Subsidiaries
However, independent of the results obtained from the equation above, the bank must be assigned a
minimum provision level of 0.50% 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 obvious signs that the will not pay in the future. 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 disposes the use of
percentage of allowances to be applied on the amount of exposure, which corresponds to the amount of
loans and contingent loans that maintain the same debtor. To apply that percentage, must be estimated
a expected loss rate, less the amount of the exposure the recoveries by way of foreclosure of financial
or real guarantees that to support the operation and, if there are available specific background, also
must be deducting present value of recoveries obtainable exerting collection actions, net of expenses
associated with them. This loss percentage must be categorized in one of the six levels defined by
the range of expected actual losses by the Bank for all transactions of the same debtor.
These categories, their range of loss as estimated by the Bank and the percentages of allowance that
definitive must be applied on the amount of exposures, are listed in the following table:
Type of Loan
Non-complying loans
Classification
Expected loss
Allowance (%)
C1
Up to 3 %
2
C2
More than 3% up to 20%
10
C3
25
C4
More than 30 % up to 50%
40
C5
65
C6
More than 80%
90
For these loans, the expected loss must be calculated in the following manner:
Expected loss= (TE – R) / TE
Allowance = TE x (AP/100)
Where:
TE = total exposure
R = recoverable amount based on estimates of collateral value and collection efforts
AP = allowance percentage (based on the category in which the expected loss should be classified).
(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.
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 portfolio include loans and contingent loans related to debtor that present a delay
in payment greater than 90 days, including 100% of the amount of contingent loans, that maintain
those debtors.
(v.iii)Standard method of provisions for Mortgage Loans (See Note No.4)
The provision factor applicable, represented by expected loss over the mortgage loans, it will depend
to the past due of each credit and the relation, at the end of month, between outstanding capital and
the value of the mortgage guarantees (PVG), according the following table:
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Provision factor applicable according past due and PVG
Past due days at the end-month
PVG
PVG ≤ 40%
40% < PVG ≤ 80%
80% < PVG ≤ 90%
PVG > 90%
Concept
0
1-29
30-59
60-89
Non – Complying
Loans
PI (%)
1.0916
21.3407
46.0536
75.1614
100.0000
PDI (%)
0.0225
0.0441
0.0482
0.0482
0.0537
PE (%)
0.0002
0.0094
0.0222
0.0362
0.0537
PI (%)
1.9158
27.4332
52.0824
78.9511
100.0000
PDI (%)
2.1955
2.8233
2.9192
2.9192
3.0413
PE (%)
0.0421
0.7745
1.5204
2.3047
3.0413
PI (%)
2.5150
27.9300
52.5800
79.6952
100.0000
PDI (%)
21.5527
21.6600
21.9200
22.1331
22.2310
PE (%)
0.5421
6.0496
11.5255
17.6390
22.2310
PI (%)
2.7400
28.4300
53.0800
80.3677
100.0000
PDI (%)
27.2000
29.0300
29.5900
30.1558
30.2436
PE (%)
0.7453
8.2532
15.7064
24.2355
30.2436
PI : Non-compliance probability
PDI : Loss by non-compliance
PE : Expected loss
PVG: Outstanding Capital of the Credit/Mortgage Guarantee Value
(vi)Charge-offs
Generally, the charge-offs are produced when the contractual rights on cash flows end. In case of loans,
even if the above does not happen, it will proceed to charge-offs the respective asset balances.
The charge-off refers to derecognition of the assets in the Statement of Financial Position, related to the
respective transaction and, therefore, the part that could not be past-due if a loan is payable in installments,
or a lease.
The charge-off must be to make using credit risk provisions constituted, whatever the cause for which
the charge-off was produced.
(vi.i) Charge-offs of loans to customers
Charge-off loans to customers, other than leasing operations, shall be made in accordance to the
following circumstances occurs:
a) The Bank, based on all available information, concludes that will not obtain any cash flow of the
credit recorded as an asset.
b) When the debt (without “executive title”, a collectability category pursuant to local law) meets 90
days since it was recorded as an asset.
c) At the time the term set by the statute of limitations runs out and as result legal actions are
precluded in order to request payment through executive trial or upon rejection or abandonment
of title execution issued by judicial and non-recourse resolution.
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d) When past-due term of a transaction complies with the following:
Type of Loan
Consumer loans - secured and unsecured
Term
6 months
Other transactions – unsecured
24 months
Commercial loans – secured
36 months
Residential mortgage loans
48 months
The term represents the time elapsed since the date on which payment of all or part of the obligation
in default became due.
(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
Term
6 months
Other non-real estate lease transactions
12 months
Real estate leases (commercial or residential)
36 months
The term represents the time elapsed since the date on which payment of all or part of the obligation
in default became due.
(vii) Loan loss recoveries
Cash recoveries on charge-off loans including loans that were reacquired from the Central Bank of Chile
are recorded directly in income in the Consolidated Statement of 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.
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(viii) Renegotiations of charge-off transactions
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.
Therefore, renegotiated credit can be recorded as an asset only if it has not deteriorated quality; also
recognizing revenue from activation must be recorded like recovery of loans.
The same criteria should apply in the case that was give credit to pay a charge-off loan.
(n) Financial assets held-to-maturity and available-for-sale:
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.
Financial assets held-to-maturity are recorded at their cost plus accrued interest and indexations less impairment
provisions made when the carrying amount exceeds the estimated recoverable amount.
A financial asset classified as available-for-sale is initially recognized at its fair value plus transaction costs
that are directly attributable to the acquisition of the financial asset, subsequently measured at their fair value
based on market prices or valuation models. Unrealized gains or losses as a result of fair value adjustments are
recorded in “Other comprehensive income” within Equity. When these investments are sold, the cumulative fair
value adjustment existing within equity is recorded directly in income under “Net financial operating income”.
Interest and indexations of financial assets held-to-maturity and available-for-sale are included in the line
item “Interest revenue”.
Investment securities, which are subject to hedge accounting, are adjusted according to the rules for hedge
accounting as described in Note No. 2 (l).
As of December 31, 2015 and 2014, the Bank does not 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.
Intangible assets are recorded initially at acquisition cost and are subsequently measured at cost less any
accumulated amortization or any accumulated impairment losses.
Software or computer programse purchased by the Bank and its subsidiaries is accounted for at cost less
accumulated amortization and impairment losses.
The subsequent expense in software assets is capitalized only when it increases the future economic benefit
for the specific asset. All other expenses are recorded as an expense as incurred.
Amortization is recorded in income using the straight-line amortization method based on the estimated useful
life of the software, from the date on which it is available for use. The estimated useful life of software is a
maximum of 6 years.
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(p) Property and equipment:
Property and equipment includes the amount of land, real estate, furniture, computer equipment and other
installations owned by the consolidated entities and which are for own use. These assets are stated at historical
cost less depreciation and accumulated impairment. This cost includes expenses than have been directly
attributed to the asset’s acquisition.
Depreciation is recognized in 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 2015 and 2014 are as follows:
• Buildings
• Installations
• Equipment
• Supplies and accessories
50 years
10 years
5 years
5 years
Maintenance expenses relating to those assets held for own uses are recorded as expenses in the period in
which they are incurred.
(q) Deferred taxes and income taxes:
The income tax provision of the Bank and its subsidiaries has been determined in conformity with current
legal provisions.
The Bank and its subsidiaries recognize, when appropriate, deferred tax assets and liabilities for future estimates
of tax effects attributable to temporary differences between the book and tax values of assets and liabilities.
Deferred tax assets and liabilities are measured based on the tax rate expected to be applied, in accordance
with current tax law, in the year that deferred tax assets are realized or liabilities are settled. The effects of
future changes in tax legislation or tax rates are recognized in deferred taxes starting on the date of publication
of the law approving such changes.
Deferred tax assets 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.
(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.
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(s) Investment properties:
Investments properties are real estate assets held to earn rental income or for capital appreciation or both,
but are not held-for-sale in the ordinary course of business or used for administrative purposes. Investment
properties are measured at cost, less accumulated depreciation and impairment and are presented under
“Other Assets”.
(t) Debt issued:
Financial instruments issued by the Bank are classified in the Statement of Financial Position under “Debt
issued” items, where the substance of the contractual arrangement results in the Bank having an obligation
either to deliver cash or another financial asset to the holder or to satisfy the obligation other than by the
exchange of a fixed amount of cash.
Debt issued is subsequently measured at amortized cost using the effective interest rate. Amortized cost is
calculated by taking into account any discount or premium on the issue and costs that are an integral part of
the effective interest rate.
(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.
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.
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).
vi. Other credit commitments: Amounts not yet lent under committed loans, which must be disbursed at an
agreed future date when events contractually agreed upon with the customer occur, such as in the case
of lines of credit linked to the progress of a construction or similar projects.
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vii. Other contingent loans: Includes any other kind of commitment by the Bank which may exist and give
rise to lending when certain future events occur. In general, this includes unusual transactions such as
pledges made to secure the payment of loans among third parties or derivative contracts made by third
parties that may result in a payment obligation and are not covered by deposits.
Exposure to credit risk on contingent loans:
In order to calculate provisions on contingent loans, as indicated in Chapter B-3 of the 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
Exposure
100%
b) Confirmed foreign letters of credit
20%
c) Documentary letters of credit issued
20%
d) Guarantee deposits
50%
e) Free disposal lines of credit
50%
f) Other loan commitments
- College education loans Law No. 20,027
- Others
15%
100%
g) Other contingent loans
100%
Notwithstanding the above, when dealing with transactions performed with customers with overdue loans as
indicated in Chapter B-1 of the Compendium of Accounting Standards of the SBIF: Impaired and/or Writtendown 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.
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$30,921
(MCh$22,499 in 2014). As of December 31, 2015 the additional provisions amounted Ch$161,177 million
(Ch$130,256 million), which are presents in the item “Provisions” of the liability in the Consolidated Statement
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(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.
(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 (4.60% as of December 31, 2015 and 4.38%
as of December 31, 2014).
The discount rate used corresponds to the return on bonds of the Central Bank with maturity in 10 years
(BCP).
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, 2015 and 2014, the Bank does not have any instruments or contracts
that could cause dilutions. Therefore, no adjustments have been made.
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(y) Interest revenue and expense:
Interest income and expenses are recognized in the income statement using the effective interest rate method.
The effective interest rate is the rate which exactly discounts estimated future cash payments or receipts through
the expected life of the financial instrument (or a shorter period) where appropriate, to the carrying amount of
the financial asset or financial liability. To calculate the effective interest rate, the Bank determines cash flows
by taking into account all contractual conditions of the financial instrument, excluding future credit losses.
The effective interest rate calculation includes all fees and other amounts paid or received that form part of the
effective interest rate. Transaction costs include incremental costs that are directly attributable to the purchase
or issuance of a financial asset or liability.
For its impaired portfolio and high risk loans and accounts receivables from clients, the Bank has applied a
conservative position of discontinuing accrual-basis recognition of interest revenue in the income statement;
they are only recorded once received. In accordance with the above, suspension occurs in the following cases:
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.
(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 credit-related 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.
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(aa)Identifying and measuring impairment:
Financial assets, different to loans to customers
Financial assets are reviewed throughout each year, and especially at each reporting date, to determine whether
there is objective evidence of impairment as a result of a loss event that occurred after the initial recognition
of the asset and the loss event had an impact on the estimated future cash flows of the financial asset that
can be reliably calculated.
An impairment loss for financial assets (different to loans to customers) recorded at amortized cost is calculated
as the difference between the asset’s carrying amount and the present value of the estimated future cash
flows, discounted using the effective interest rate original.
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-for-sale 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-forsale 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.
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 major value between fair value (less costs to sell) and its value in use. Where the
carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written
down to its recoverable amount. In assessing value in use, the estimated cash flows are discounted to their
present value using a pre-tax discount rate that reflects the current market assessments of the time value
of money and risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation
model is used. These calculations are corroborated by valuation multiples, share prices and other available
fair value indicators.
Impairment losses related to goodwill cannot be reversed in future 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 properties investment 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.
(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 future payments guaranteed.
As of December 31, 2015 and 2014, the Bank and its subsidiaries have not signed contracts of this nature.
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.
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(ac)Fiduciary activities:
The Bank provides trust and other fiduciary services that result in the holding or investing of assets on behalf of
the clients. Assets held in a fiduciary capacity are not reported in the financial statements, as they are not the
assets of the Bank. Contingencies and commitments arising from this activity are disclosed in Note No. 26 (a).
(ad)Customer loyalty program:
The Bank maintains a 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. The costs which the Bank incurs are recognized over accrual base
considering total points that probably, it will be changed over the total points dollars accumulated, and the
probability of change.
(ae)Reclassifications
There are no significant reclassifications at the end of period 2015.
3. New Accounting Pronouncements:
Accounting rules issued by IASB:
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, 2015:
IFRS 9 Financial Instruments
The July 24, 2014, IASB completed its upgrade project about accounting for financial instruments with the publication
of IFRS 9 Financial Instruments.
This standard includes new requirements based on new principles for the classification and measurement; it introduces
a “prospective” model of expected credit losses on impairment accounting and changes in hedge accounting.
The classification determines how financial assets and liabilities are accounted in financial statements and, in
particular, how they are measured. IFRS 9 introduces a new approach for the classification of financial assets, based
in the business model of the entity for the management of financial assets and the characteristic of it contractual
flows. The new model also results in a single impairment model being applied to all financial instruments, removing
a source of complexity associated with previous accounting requirements.
The IASB has introduced a new impairment model that will require a timely recognition of expected credit losses.
IFRS 9 introduces a new model for hedge accounting with enhanced disclosures about risk management activity.
The new model represents a substantial overhaul of hedge accounting that aligns the accounting treatment with
risk management activities, enabling entities to better reflect these activities in their financial statements. In addition,
as a result of these changes, users of the financial statements will be provided with better information about risk
management and the effect of hedge accounting on the financial statements
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IFRS 9 removes the volatility in profit or loss originated by changes in the credit risk of designated liabilities at fair
value. This change means that the fair value of credit risk of the entity shall be recognized in Other Comprehensive
Income. IFRS 9 permits early application of this improvement, before any other requirement of IFRS 9.
Adoption date mandatory January 1, 2018. Early application is permitted.
Banco de Chile and its subsidiaries are assessing the possible impact of adoption of these changes on the
consolidated financial statements. To date, this standard has not been approved by the Superintendency of Banks,
event that is required for their application.
IFRS 11 – Joint Arrangements
In May of 2014 the IASB modified IFRS 11, providing guides about the accounting of acquisitions of participations
in joint operations, whose activity constitute a business. This standard requires the acquirer of a participation
in a joint operation, whose activities constitutes a business, apply all the principles on accounting for business
combinations of the IFRS 3.
The effective date is beginning on January 1, 2016 and its early application is permitted.
Banco de Chile has assessing that the impact of this rule will have not significant impact in its consolidated financial
statements.
IAS 16 – Property, plant and equipment and IAS 38 – Intangible assets
In May of 2014 the IASB modified IAS 16 and 38 with purpose of clarifies accepted method of depreciation and
amortization.
The amendment of IAS 16 prohibits for property, plant and equipment, depreciation based on ordinary income.
The amendment of IAS 38 introduces the presumption of ordinary income are not an appropriate base for the
amortization of intangible asset. This presumption only is refuted in two circumstances: (a) intangible asset is
expressed like a unit of ordinary income; and (b) ordinary income and consumption of intangible asset are highly
correlated.
The effective date is beginning on January 1, 2016 its early application is permitted.
This modification does not impact the consolidated financial statements of Banco de Chile and its subsidiaries,
because it is not used a focus of income as a basis of depreciation and amortization.
IFRS 15 – Revenue from Contracts with Customers
In May 2014 was issued IFRS 15, which it has like purpose established the principles that will apply an entity to
present util information to users of financial statements about the nature, amount, opportunity and uncertainty of
the income for ordinaries activities and cash flows that it is related to a contract with a client.
This new rule replace the following current rules and interpretations: IAS 18 – Revenue, IAS 11 – Construction
contracts, IFRIC 13 – Customer Loyalty Programmes, IFRIC 15 – Agreements for the Construction of Real State,
IFRIC 18 – Transfers of Assets from Customers and SIC 31 – Revenue: Barter Transactions involving.
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Banco de Chile
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The new model will apply to all contracts with customers, except those that are inside to the scope of the others
IFRS, such as leases, insurance contracts and financial instruments.
Application of the standard is mandatory for annual reporting periods starting from January 1, 2018 onward, early
application is permitted.
Banco de Chile and its subsidiaries are assessing the impact of the adoption of this rule.
IAS 27 – Consolidated and Separated Financial Statements
In August 2014, the IASB published the amendment that will allow entities to use the equity method to account for
investments in subsidiaries, joint ventures and associates in their separate financial statements.
The effective date is beginning on January 1, 2016 and its early application is permitted.
This amendment does not impact the consolidated financial statements of Banco de Chile and its subsidiaries.
IAS 28 – Investments in Associates and Join Venture and IFRS 10 - Consolidated Financial Statements
In September 2014, the IASB issued this amendment, which clarifies the scope of recognized gains and losses in
a transaction involving an associate or joint venture, and this depends on whether the asset sold or contribution is
a business. Therefore, IASB concluded that all of the profit or loss should be recognized against loss of control of
a business. Likewise, gains or losses resulting from the sale or contribution of a subsidiary that is not a business
(definition of IFRS 3) to an associate or joint venture should be recognized only to the extent of unrelated interests
in the associate or joint venture.
It is permitted its immediately application.
In December 2015 the IASB agreed to determine the application date of this rule in the future.
Annual improvements IFRS
In September 2014, the IASB issued Annual improvements to IFRS: 2012 – 2014 Cycle, which include changes to
the following standards.
• IFRS 5 Non-current assets held for sale and discontinued operations
Add specific guidelines in cases in which an entity reclassify an asset from held for sale to hold for distribution, or
vice versa and cases in which asset held for distribution are accounting like discontinued operations. The effective
date is beginning on January 1, 2016 and its early application is permitted.
Banco de Chile and subsidiaries don’t register non-current asset held for sale and discontinued operations. Therefore,
this modification does not impact the consolidated financial statements of Banco de Chile and its subsidiaries.
• IFRS 7 Financial Instruments: Disclosures
Add guidelines to clarify if a service contract corresponds to a continuing involvement in an asset transfer whit the
purpose to determine the required disclosures. The effective date is beginning on January 1, 2016 and its early
application is permitted.
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Anual Report 2015
• IAS 19 Employee Benefits. Discount rate: topic of the regional market
Clarifies that corporate bonds with high quality credit used in the estimation of the discount rate for post-employment
benefits must be denominated in the same currency as the benefit payed. The effective date is beginning on January
1, 2016 and its early application is permitted.
• IAS 34 Interim Financial Reporting
Clarifies the meaning of disclose information “in some other part of interim financial information” and the need for
a cross-reference. The effective date is beginning on January 1, 2016 and its early application is permitted
The application of this amendment will not have significant impact in disclosures of the consolidated financial
statements of the Bank and its subsidiaries.
IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interest in Other Entities and IAS 28
Investments in Associates and Join Venture.
In December 2014, the IASB has modified IFRS 10, IFRS 12 and IAS 28 related with the application of the exceptions
in the consolidation in investment entities.
The amendments clarify about the requirement for the accounting of investment entities. In addition, these
amendments in certain circumstances reduce the cost in the application of these standards.
The effective date is mandatory on January 1, 2016 and its early application is permitted.
The application of this amendment will not have significant impact in disclosures of the consolidated financial
statements of the Bank and its subsidiaries.
IAS 1 Presentation of Financial Statements
In December, 2014, the IASB has published “Disclosure Initiative (Amendments to IAS 1)”. The amendments aim
at clarifying IAS 1 to improve the presentation and disclosure of information in the financial reports.
These amendments answer to requests about presentation and disclosure and have been designed with the finality
to allow to the entities to apply their professional opinion to determine what information must be disclosed in the
financial statements.
They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.
Banco de Chile and its subsidiaries are assessing that this rule will not have significant impact in disclosures of
the consolidated financial statements.
IFRS 16 Leases
On January 2016 was issued IFRS 16, which has like purpose to stablish principles to recognize, measurement,
presentation and disclosure of leases contracts, for both lessee and lessor.
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Banco de Chile
and Subsidiaries
This new rule is no different to the previous rule, IAS 17 – Lesses, related to the accounting treatment for the
lessor. However, related to the lessee, the new rule requires recognize the assets and liabilities for the most of the
lesses contracts.
IFRS 16 replace to IAS 17 – Leases and its corresponding interpretations.
The effective date of application is beginning January 1, 2019. It is permitted its early application but, only if it is
applied IFRS 15 also.
Banco de Chile and its subsidiaries are assessing the impact of this rule.
Accounting rules issued by Superintendency of Banks and Financial Institutions:
1) On December 30, 2014 the SBIF issue Circular No. 3,573 which established the changes to standards that
regulates determination of “Provision for loan losses”, recorded in chapter B-1 of the compendium of accounting
standards.
Modifications are in the following summary:
• Substitution of Issuer Debtor in Factoring Operations: instructions for calculating provisions on factoring
transactions are modified; allowing, under certain conditions, be considered through the substitution
mechanism of debtors, classification of debtor instead of the transferor of the invoice for purposes of
provisioning.
• The instructions on the portfolio defaulted loans subject to individual assessment are complemented,
including certain conditions must be complied to remove of such portfolio the credits of a debtor, in turn
incorporated the same criteria for group loans. To remove a debtor from Default Portfolio, once overcome
the circumstances that led to classify on this portfolio under these rules, the following conditions must be
complied at least (updated by Circular No. 3,584; June 22, 2015):
i) Any obligation of the debtor with the bank no longer served at the time and in the amount that correspond
(greater than 30 calendar days).
ii) Has not been granted new refinancing to pay its obligations.
iii) At least one of payments including amortization of capital.
iv) If the debtor has some credit with installments in periods of less than six months, has already made
two payments.
v) If the debtor must pay monthly installments for one or more loans, have been paid at least four consecutive
installments.
vi) The debtor does not appear with a direct debt not paid in the information of this Superintendency, at
least that correspond to immaterial amounts.
• Related to the board’s comfort about the sufficiency of provisions, this will be over Consolidated Financial
Statements and the Bank, individually, and the Bank with its domestic and foreign subsidiaries, as correspond.
2) On June 22, 2015 the Superintendency of Banks and Financial Institutions issued Circular No. 3,584, related to
the instructions of the changes in the Chapter B-1 “Provisions for loan losses” that was published on December
30, 2014. These instructions are related to the Standard Method of Mortgage Loans and the treatment of
Non-Complying Loans.
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Anual Report 2015
3) On September 25, 2015 the Superintendency of Banks and Financial Institutions issued Circular No. 3,588, where
includes minor changes in the Chapters A-1, B-1, B-3 and C-3 of the Compendim of Accounting Standards. It
clarifies that Non-complying loans can to exclude the mortgage loans that its past due are less than 90 days,
at least that the same debtor has other credit of the same type with more 90 days of past due.
4) On December 24, 2015 the Superintendency of Banks and Financial Institutions issued Circular No. 3,588,
where are incorporated modifications to the Chapters B-1 “Provison for loan losses” of the Compendium of
Accounting Standards related to the requirements for the use of internal methodologies. It was incorporated
the following modifications:
• Requirements for the internal methodologies with the purpose to determine the provision for loan losses
• Requirements information for the request of assessing of the internal methodologies for the provision for
loan losses.
At the date of issue of present financial statements and, with available information, the Bank believes that the
application of this rule will not have material impact in the income.
The rules related to the Mortgage Matrix, for the determination of Provisions of Mortgage Loans mentioned in
the Circular No. 3,573 it was applied since November 2015. See details in Note No. 4 “Changes in Accounting
Policies and Disclosures”.
4. Changes in Accounting Policies and Disclosures:
On December 30, 2014 the Superintendency of Banks and Financial Institutions issued Circular No. 3,573,
where established changes to the rules of “Provisions of Credit Risk”, contained in Chapter B-1 of Compendium
of accounting rules. These changes corresponds to the implementation of Standar Method of Provisions for
Mortgages Loans, which considers explicitly past due and the relation between outstanding capital amount
of each credits and the value of mortgage guarantees.
This modification corresponds to a change in accounting estimate, so its effect was registered in income for
the period under the item “Provisions for loan losses”. The effect of such change produced an expense in
the period 2015 by an amount of Ch$4,960 millions. Until before this change, the Bank applied according the
previous rules, internal methods for determination of provisions of mortgage loans.
5. Relevant Events:
(a) On January 9, 2015 through Resolución Exenta No. 7 the Superintendency of Securities and Insurance approved
the reform to the by-laws of Banchile Securitizadora S.A. related to a capital increase of Ch$240,000,000 by
means of the issuance of 1,550 shares, as agreed in the fourth Extraordinary Shareholders Meeting of the
company held on December 1, 2014. The capital increase was carried out on January 20, 2015.
(b) On January 26, 2015 the board of Banchile Administradora General de Fondos SA accepted the resignation of
the director of the company Mr. Jorge Tagle Ovalle.
It was also agreed to appoint new director of the company, from the day January 26, 2015 until the next Annual
Meeting, Don Eduardo Ebensperger Orrego.
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Banco de Chile
and Subsidiaries
(c) On January 29, 2015 and Ordinary Meeting No. BCH 2,811 the Board of Banco de Chile agreed to call an Ordinary
Shareholders for the day March 26, 2015 for the purpose of proposing, among other things, the distribution
Dividend No. 203 on $ 3.42915880220, to each of the 94,655,367,544 shares “Banco de Chile”, payable out of
distributable net income for the year ended December 31, 2014, corresponding to 70% of such profits.
The Board also agreed to call an Extraordinary Shareholders for the same date in order to propose among
other matters the capitalization of 30% of the distributable net profit of the Bank for the year 2014, by issuing
bonus shares without nominal value, determined at a value of $ 65.31 per share “Banco de Chile”, distributed
among the shareholders at the rate of 0.02250251855 shares for each share “Banco de Chile” and adopt the
necessary arrangements subject to the exercise of the options provided Article 31 of Law No. 19,396.
(d) On March 23, 2015 the subsidiary Banchile Securitizadora S.A. informed that in ordinary meeting held on March
23, 2015 the Board of Directors accepted the resignation of the Director José Vial Cruz.
(e) On March 24, 2015 the subsidiary Banchile Securitizadora S.A. informed as an Essential Information that in
the Tenth Ordinary Shareholders meeting proceeded to the total renovation of the Board of Directors of the
society.
According to established in seventh and eighth articles of the bylaws, were elected as Directors for a period
of three years, the following persons: Pablo Granifo Lavín, Arturo Tagle Quiroz, Eduardo Ebensperger Orrego,
Alain Rochette García y José Miguel Quintana Malfanti.
(f) On March 30, 2015 it was reported that the Central Bank of Chile has informed the Bank of Chile that the
Council of the Institution, Special Session No. 1894E on the same day, considering the resolutions adopted
by the Shareholders Banco de Chile, held dated March 26, 2015, regarding the distribution of dividends and
capital increase by issuing bonus shares by the share of 30% of profits for the year ended December 31 2014,
decided to opt for the entire surplus that apply, including the part proportional to the agreed cap utility, will be
paid in cash, in accordance with the provisions of subparagraph b) of Article 31 of Law 19,396, on modification
of the payment of the subordinated obligation, and other applicable standards.
(g) The Board of Director’s meeting held on April 9, 2015, it was resolved to accept the resignation of the Director
Mr. Juan José Bruchou.
Also, the Board of Directors appointed Mr. Samuel Libnic as new Director until the next Ordinary Shareholder’s
Meeting.
(h) On April 10, 2015 Mr. Samuel Libnic, Acting Director of subsidiary Banchile Corredores de Bolsa S.A. presented
its resignation to the Board of Director’s.
(i) On June 25, 2015 it was informed as Essential Information that, at the Board of Director’s meeting was resolved
to accept the resignation of the Director and Vice President of the Board Mr. Francisco Aristeguieta Silva.
Also, in the same meeting, the Board of Directors appointed Mrs. Jane Fraser as new Director and new Vice
President of the Board, until the next Ordinary Shareholder’s Meeting.
(j) On July 6, 2015, according to the powers conferred by article 19 of the Chilean General Banking Act, the
Superintendency of Banks and Financial Institutions imposed a fine of 2,000 (two thousand) Unidades de
Fomento to Banco de Chile, in connection with the erroneous delivery to that Superintendency of file D33
contained in the Information System Manual of the Debtors System (“Sistema de Deudores del Manual de
Sistemas de Información”), in which a number of credit lines and overdraft in current account operations
corresponding to December 2014 and month before, were omitted.
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Anual Report 2015
(k) On July 10, 2015 Banco de Chile inform that, on July 3, 2015 Banco Penta informed acceptance of Banco de
Chile’s Offer related to Purchase of Portfolio Loan of that institution. In the same date, Banco Penta informed
to the Superintendency of Banks and Financial Institutions, confidentially, acceptance of the offer, and Banco
Penta requested to Banco de Chile the refrain its divulgation until its communication to the market.
The credits of that offer, approximately amounted to Ch$587,564 million for capital concept as of May 31, 2015
and corresponds to 95.4% of total portfolio of Banco Penta.
The acceptance offer is subject to the compliance of conditions established in it, particularly the legal and
financial due diligences over the portfolio loan of this transaction, and other legal terms agreed with the parties.
(l) On July 23, 2015 and regarding the capitalization of 30% of the distributable net income obtained during the fiscal
year ending the 31st of December, 2014, through the issuance of fully paid-in shares, agreed in the Extraordinary
Shareholders Meeting held on the 26th of March, 2015, it was informed as an essential information:
i.
In the said Extraordinary Shareholders Meeting, it was agreed to increase the Bank´s capital in the amount
of $ 96,252,499,241 through the issuance of 1,473,778,889 fully paid-in shares, of no par value, payable
under the distributable net income for the year 2014 that was not distributed as dividends as agreed at
the Ordinary Shareholders Meeting held on the same day.
The Chilean Superintendency of Banks and Financial Institutions approved the amendment of the bylaws,
through resolution N°285 dated June 5, 2015, which was registered on page 42,128 N° 24,868 of the register
of the Chamber of Commerce of Santiago for the year 2015, and was published at “Diario Oficial” on June
10, 2015.
The issuance of fully in paid shares was registered in the Securities Register of the Superintendence of
Banks and Financial Institutions with N°2/2015, on July 14, 2015.
ii. The Board of Directors of Banco de Chile, at the meeting N°2,821, dated July 23, 2015, set August 6, 2015,
as the date for issuance and distribution of the fully paid in shares.
iii. The shareholders that will be entitled to receive the new shares, at a ratio of 0.02250251855 fully in paid
shares for each Banco de Chile share, shall be those registered in the Register of Shareholders on July
31, 2015.
iv. 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.
v. As a consequence of the issuance of the fully in paid shares, the capital of the Bank will be divided in
96,129,146,433 nominative shares, without par value, completely subscribed and paid.
(m)On October 22, 2015 It was informed as essential information, that Banco de Chile and Citigroup Inc. have
subscribed new Agreements of Cooperation, Global Connectivity and License (“Trademark License Agreement”).
These agreements will have an initial duration period of two years beginning on January 1, 2016. Although, the
parties may convene before August 31, 2017, an extension for another period of two years commencing on
January 1, 2018. In the event that the aforesaid extension is not convened by the parties, these agreements
will be extended for a period of one year starting on January 1, 2018 until January 1, 2019. The same extension
procedure may apply afterwards as many times as agreed by the parties.
Original Cooperation, Global Connectivity and License Agreements, subscribed on December 27, 2008 will
expire on January 1, 2016.
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Banco de Chile
and Subsidiaries
Likewise, the parties have extended the Master Services Agreement for a period of six months, beginning on
January 1, 2016.
The aforementioned agreements and extension were duly authorized by Banco de Chile’s Board of Directors on
Meetings N° 2,825 celebrated on September 24, 2015 and N° 2,827 celebrated on October 22, 2015, according
to the requirements of the Articles 146 and subsequent of the Chilean Corporations Act (Law N° 18,046).
(n) On November 23, 2015 — Banco de Chile informed like essential information that it has made a voluntary
application to each of the UK Listing Authority and the London Stock Exchange for the cancellation of the
standard listing of the Company’s American Depositary Receipts representing shares in the Company’s
common stock (“ADRs”) on the Official List of the UK Listing Authority, which will result in the cancellation of
the trading of its ADRs on the London Stock Exchange.
(o) On December 22, 2015 pursuant to its announcement made on November 23, 2015, Banco de Chile (the
“Company”), applied to each of the UK Listing Authority and the London Stock Exchange for, respectively, the
cancellation of the standard listing of the Company’s American Depositary Receipts representing shares of
its common stock (the “ADRs”) from the Official List and the cancellation of the admission to trading of the
ADRs from the Main Market of the London Stock Exchange.
(p) On December 30, 2015 Banco de Chile informed as an essential information that it 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 the private instruments detailed
below, all of them in force from January 1, 2016 until January 1, 2020, excluding those insurances, as applicable,
related to loan mortgages which must be subject to a public tender in compliance with article 40, DFL 251 of 1931:
1. Brokerage Agreement entered into by the affiliate Banchile Corredores de Seguros Limitada and the related
company Banchile Seguros de Vida S.A.
2. Agreements entered into by Banco de Chile and Banchile Seguros de Vida S.A.:
a. Collection and Data Administration Agreement.
b. Use Agreement for Distribution Channels.
c. Banchile’s Trademark License Agreement.
d. 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.
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.
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 UF 70,000, where the product offering focuses primarily on consumer loans, commercial loans,
checking accounts, credit cards, credit lines and mortgage loans.
Wholesale:
This segment focused on corporate clients and large companies, whose annual revenue exceed UF
70,000, where the product offering focuses primarily on commercial loans, checking accounts and
liquidity management services, debt instruments, foreign trade, derivative contracts and leases.
Treasury 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 Administradora General de Fondos S.A.
Banchile Asesoría Financiera S.A.
Banchile Corredores de Seguros Ltda.
Banchile Securitizadora S.A.
Banchile Trade Services Limited
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 No. 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.
•
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 2015 and 2014.
Taxes are managed at a corporate level and are not allocated to business segments.
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and Subsidiaries
The following tables present the income for 2015 and 2014 for each of the segments defined above:
Retail
Wholesale
Treasury
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
Net interest income
840,333
836,917
355,783
379,456
27,942
35,005
Net fees and commissions income
150,249
134,635
43,853
40,316
(2,163)
(1,825)
24,908
30,582
64,861
60,278
10,355
13,871
Total operating revenue
1,015,490
1,002,134
464,497
480,050
36,134
47,051
Provisions for loan losses
(229,669)
(232,802)
(73,510)
(51,348)
—
—
Other operating expenses
Income attributable to associates
Income before income taxes
(21,275)
(22,497)
(5,364)
(5,324)
(267)
(296)
(464,587)
(464,323)
(138,638)
(134,211)
(4,770)
(4,364)
2,521
1,867
716
584
34
50
302,480
284,379
247,701
289,751
31,131
42,441
Income taxes
Income after income taxes
La siguiente tabla presenta los saldos totales de activos y pasivos de los ejercicios terminados el 31 de diciembre
de 2015 y 2014 por cada segmento definido anteriormente:
Retail
Assets
Wholesale
Treasury
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
14,503,435
11,789,339
11,926,049
10,307,291
4,383,945
4,981,302
9,726,434
8,419,469
9,934,304
9,664,423
8,605,278
6,754,592
Current and deferred taxes
Total assets
Liabilities
Current and deferred taxes
Total liabilities
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Anual Report 2015
Subsidiaries
2015
MCh$
Subtotal
2014
MCh$
Adjustments
2015
MCh$
2014
MCh$
2015
MCh$
Total
2014
MCh$
2015
MCh$
2014
MCh$
(6,380)
(8,834)
1,217,678
1,242,544
1,455
2,514
1,219,133
1,245,058
128,881
114,246
320,820
287,372
(14,841)
(15,184)
305,979
272,188
24,838
29,552
124,962
134,283
(3,719)
(5,127)
121,243
129,156
147,339
134,964
1,663,460
1,664,199
(17,105)
(17,797)
1,646,355
1,646,402
117
157
(303,062)
(283,993)
—
—
(303,062)
(283,993)
(2,631)
(2,384)
(29,537)
(30,501)
—
—
(29,537)
(30,501)
(105,811)
(99,060)
(713,806)
(701,958)
17,105
17,797
(696,701)
(684,161)
401
360
3,672
2,861
—
—
3,672
2,861
39,415
34,037
620,727
650,608
—
—
620,727
650,608
(61,730)
(59,527)
558,997
591,081
Subsidiaries
2015
MCh$
523,080
374,824
2014
MCh$
538,445
391,547
Subtotal
2015
MCh$
31,336,509
28,640,840
Adjustments
2014
MCh$
27,616,377
25,230,031
2015
MCh$
2014
MCh$
(302,816)
(176,886)
(148,929)
(176,886)
Total
2015
MCh$
31,033,693
2014
MCh$
27,439,491
259,251
206,337
31,292,944
27,645,828
28,491,911
25,053,145
60,946
57,527
28,552,857
25,110,672
183
Banco de Chile
and Subsidiaries
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:
2015
MCh$
2014
MCh$
Cash and due from banks:
Cash (*)
672,253
476,429
Current account with the Chilean Central Bank (*)
111,330
147,215
9,676
12,778
Deposits in other domestic banks
Deposits abroad
567,963
278,711
1,361,222
915,133
Net transactions in the course of collection
284,204
303,136
Highly liquid financial instruments
407,111
590,417
41,371
16,892
2,093,908
1,825,578
Subtotal - Cash and due from banks
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.
(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:
2015
MCh$
2014
MCh$
Documents drawn on other banks (clearing)
293,908
290,866
Funds receivable
232,138
109,215
Subtotal - assets
526,046
400,081
Funds payable
(241,842)
(96,945)
Subtotal – liabilities
(241,842)
(96,945)
Net transactions in the course of collection
284,204
303,136
Assets
Liabilities
184
Anual Report 2015
8. Financial Assets Held-for-trading:
The detail of financial instruments classified as held-for-trading is as follows:
2015
MCh$
2014
MCh$
Instruments issued by the Chilean Government and Central Bank of Chile
Central Bank bonds
46,068
13,906
Central Bank promissory notes
103,832
2,996
Other instruments issued by the Chilean Government and Central Bank
100,016
71,968
Deposit promissory notes from domestic banks
—
—
Mortgage bonds from domestic banks
—
9
Other instruments issued in Chile
Bonds from domestic banks
21
3,197
Deposits in domestic banks
583,217
199,665
—
1,351
10,420
366
Instruments from foreign governments or central banks
—
—
Other instruments issued abroad
—
—
23,080
255,013
Bonds from other Chilean companies
Instruments issued by foreign institutions
Mutual fund investments:
Funds managed by related companies
Funds managed by third parties
Total
—
—
866,654
548,471
In “Instruments issued by the Chilean Government and Central Bank of Chile” are classified instruments sold under
agreements to repurchase to customers and financial instruments, by an amount of MCh$9,244 as of December
31, 2015 (as of December 31, 2014 was no balance).
Agreements to repurchase have an average expiration of 6 days as of year-end.
“Other instruments issued in Chile” include instruments sold under agreements to repurchase to customers and
financial instruments, amounting to MCh$149,333 as of December 31, 2015 (MCh$148,525 in 2014).
Agreements to repurchase have an average expiration of 10 days as of year-end (12 days in 2014).
Additionally, the Bank holds financial investments in mortgage finance bonds issued by itself in the amount of
MCh$25,303 as of December 31, 2015 (MCh$32,956 in 2014), which are presented as a reduction of the liability
line item “Debt issued”.
185
Banco de Chile
and Subsidiaries
9. Repurchase Agreements and Security Lending and Borrowing:
(a) The Bank provides financing to its customers through “Receivables from Repurchase Agreements and Security
Borrowing”, in which the financial instrument serves as collateral. As of December 31, 2014 and 2013, the Bank
has the following receivables resulting from such transactions:
Up to 1 month and up
to 3 month
Up to 1 month
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
Central Bank bonds
—
820
—
—
—
—
—
—
Other instruments issued by the Chilean Government and
Central Bank
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,461
—
—
—
—
—
—
—
32,448
11,043
8,704
6,291
Instruments from foreign governments or central bank
—
—
—
—
Other instruments
—
—
—
—
35,909
11,863
8,704
6,291
Instruments issued by the Chilean Governments and
Central Bank of Chile
Other Instruments Issued in Chile
Total
Securities received:
The Bank has received securities that it is allowed to sell or repledge in the absence of default by the owner. At
December 31, 2015 the Bank held securities with a fair value of Ch$ 46,324 million (Ch$27,549 million in 2014)
on such terms. The Bank has an obligation to return the securities to its counterparties.
186
Anual Report 2015
Over 3 months and up
to 12 months
2015
MCh$
2014
MCh$
—
Over 1 year and up
to 3 years
Over 3 years and up
to 5 years
Over 5 years
Total
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
—
—
—
—
—
—
—
—
820
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,461
—
—
—
—
—
—
—
—
—
—
—
1,551
9,507
—
—
—
—
—
—
42,703
26,841
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,551
9,507
—
—
—
—
—
—
46,164
27,661
187
Banco de Chile
and Subsidiaries
(b) (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, 2015 and 2014, the Bank has the following payables
resulting from such transactions:
Up to 1 month and up
to 3 month
Up to 1 month
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
Instruments issued by the Chilean Governments and
Central Bank bonds
3,052
—
—
—
7,301
25,643
—
—
Other instruments issued by the Chilean Government and
Central Bank
1,942
—
—
—
—
—
—
—
—
—
—
—
Other Instruments Issued in Chile
—
3,152
—
—
158,156
220,528
13,680
159
—
—
—
—
—
—
—
—
Instruments from foreign governments or central bank
—
—
—
—
Other instruments
—
—
—
—
170,451
249,323
13,680
159
Total
Securities given:
The carrying amount of securities lent and of “Payables from Repurchase Agreements and Security Lending”
at December 31, 2015 is Ch$184,919 million (Ch$252,465 million in 2014). The counterparty is allowed to sell
or repledge those securities in the absence of default by the Bank.
188
Anual Report 2015
to 12 months
Over 1 year and up
to 3 years
Over 3 years and up
to 5 years
Over 5 years
Total
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
—
—
—
—
—
—
—
—
3,052
—
—
—
—
—
—
—
—
—
7,301
25,643
—
—
—
—
—
—
—
—
1,942
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,152
—
—
—
—
—
—
—
—
171,836
220,687
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
184,131
249,482
189
Banco de Chile
and Subsidiaries
10.Derivative Instruments and Accounting Hedges:
(a) As of December 31, 2015 and 2014, the Bank’s portfolio of derivative instruments is detailed as follows:
Notional amount of contract with final expiration date in
Over 1 month and up
to 3 months
Up to 1 month
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
to 12 months
2015
MCh$
2014
MCh$
Derivatives held for hedging
purposes
Cross currency swap
Interest rate swap
Total derivatives held for
hedging purposes
—
—
—
—
—
—
—
—
—
14,947
—
16,486
—
—
—
—
14,947
16,486
Derivatives held as cash flow
hedges
Interest rate swap and cross
currency swap
Total Derivatives held as cash
flow hedges
—
—
103,638
—
201,723
137,134
—
—
103,638
—
201,723
137,134
Currency forward
Cross currency swap
Interest rate swap
Call currency options
Put currency options
Total derivatives of negotiation
6,361,172
1,444,510
1,283,607
25,127
16,503
9,130,919
4,813,454
1,330,696
109,701
41,715
34,116
6,329,682
5,658,682
3,626,015
835,357
69,802
50,578
10,240,434
4,114,955
1,395,103
260,261
47,586
42,051
5,859,956
6,392,029
8,414,998
1,369,605
77,364
66,038
16,320,034
6,702,632
6,728,804
1,229,651
69,218
40,897
14,771,202
Total
9,130,919
6,329,682
10,344,072
5,859,956
16,536,704
14,924,822
Derivatives held-for-trading
purposes
(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 nominal values of the hedged elements and hedge instruments under fair value hedges as
of December 31, 2015 and 2014:
2015
MCh$
2014
MCh$
Hedged element
Commercial loans
Corporate bonds
19,222
174,054
48,611
146,585
Hedge instrument
Cross currency swap
Interest rate swap
19,222
174,054
48,611
146,585
Monto Nocional de contratos con vencimiento final
Over 1 year and up
to 3 years
Over 3 year and up
to 5 years
2015
MCh$
2015
MCh$
2014
MCh$
2014
MCh$
Valor Razonable
Over 5 years
2015
MCh$
2014
MCh$
Asset
2015
MCh$
Liability
2014
MCh$
2015
MCh$
2014
MCh$
—
11,332
15,565
22,488
—
66,504
11,734
59,942
19,222
81,271
21,312
47,669
—
279
—
101
4,189
10,360
8,730
11,174
11,332
38,053
66,504
71,676
100,493
68,981
279
101
14,549
19,904
441,930
437,575
318,240
411,283
306,582
237,038
203,892
78,703
3,666
17,596
441,930
437,575
318,240
411,283
306,582
237,038
203,892
78,703
3,666
17,596
1,097,148
9,190,933
2,370,091
35
35
12,658,242
589,179
7,376,807
2,003,936
182
182
9,970,286
79,217
5,063,262
1,513,471
—
—
6,655,950
38,389
4,249,358
1,174,052
—
—
5,461,799
—
5,676,905
2,394,036
—
—
8,070,941
1,802
3,809,968
2,039,353
—
—
5,851,123
180,616
173,365
566,412
1,878
680
922,951
140,676
210,900
398,943
2,583
287
753,389
207,961
159,668
737,845
3,689
549
1,109,712
128,117
206,161
485,363
2,249
362
822,252
13,111,504 10,445,914
7,040,694
5,944,758
8,478,016
6,157,142
1,127,122
832,193
1,127,927
859,752
191
Banco de Chile
and Subsidiaries
(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 and Euros. 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:
Up to1 month
Over 1 month and up
to 3 months
2015
MCh$
2014
MCh$
to 12 months
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
Corporate Bond EUR
—
—
—
—
(602)
—
Corporate Bond HKD
—
—
—
—
(12,852)
(9,508)
Corporate Bond PEN
—
—
—
—
(636)
(622)
Corporate Bond CHF
(255)
(219)
(108,678)
(1,135)
(166,473)
(5,413)
Obligation USD
(678)
(498)
—
(95)
(1,736)
(156,333)
—
—
(314)
(271)
(66,316)
(968)
Cross Currency Swap EUR
—
—
—
—
602
—
Cross Currency Swap HKD
—
—
—
—
12,852
9,508
Cross Currency Swap PEN
—
—
—
—
636
622
Cross Currency Swap CHF
255
219
108,678
1,135
166,473
5,413
Cross Currency Swap USD
678
498
—
95
1,736
156,333
Cross Currency Swap JPY
—
—
314
271
66,316
968
Net cash flow
—
—
—
—
—
—
Hedge item
Outflows:
Corporate Bond JPY
Hedge instruments
Inflows:
A continuación se presentan los flujos de caja de la cartera de activos subyacentes y los flujos de caja de la
parte pasiva del instrumento derivado:
192
Anual Report 2015
Over 1 year and up
to 3 years
2015
MCh$
Over 3 years and up
to 5 years
2014
MCh$
2015
MCh$
Over 5 years
2014
MCh$
2015
MCh$
Total
2014
MCh$
2015
MCh$
2014
MCh$
(1,207)
—
(1,207)
—
(39,340)
—
(42,356)
—
(25,658)
(19,070)
(79,631)
(66,617)
(368,924)
(268,771)
(487,065)
(363,966)
(16,219)
(16,442)
—
—
—
—
(16,855)
(17,064)
(279,477)
(317,811)
(217,702)
(344,146)
—
—
(772,585)
(668,724)
(229,377)
(61,751)
—
—
—
—
(231,791)
(218,677)
(1,901)
(58,445)
(76,302)
(41,062)
(29,853)
(51,563)
(174,686)
(152,309)
1,207
—
1,207
—
39,340
—
42,356
—
25,658
19,070
79,631
66,617
368,924
268,771
487,065
363,966
16,219
16,442
—
—
—
—
16,855
17,064
279,477
317,811
217,702
344,146
—
—
772,585
668,724
229,377
61,751
—
—
—
—
231,791
218,677
1,901
58,445
76,302
41,062
29,853
51,563
174,686
152,309
—
—
—
—
—
—
—
—
193
Banco de Chile
and Subsidiaries
Over 1 month and up
to 3 months
Up to1 month
to 12 months
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2,961
2,892
107,007
490,949
231,948
Cross Currency Swap HKD
—
—
—
(14,578)
(9,062)
—
Cross Currency Swap PEN
—
—
—
(15,978)
(493)
—
Cross Currency Swap JPY
—
—
(1,024)
(69,059)
(68,015)
(976)
Cross Currency Swap USD
—
—
—
(58,945)
(3,866)
—
Cross Currency Swap CHF
(2,961)
(2,892)
(105,983)
(332,389)
(149,493)
(2,254)
Cross Currency Swap EUR
—
—
—
—
(1,019)
—
—
—
Hedge ítem
Inflows:
Cash flow in CLF
3,230
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 a credit to equity for an amount of Ch$9,971 million in
2015 (credit to equity for Ch$29,756 million in 2014) generated from hedging instruments, which has been
recorded in equity. The net effect of deferred tax was a credit to equity for Ch$7,728 millions in 2015 (credit
to equity for Ch$23,507 millions in 2014)
The accumulated balance for this concept net of deferred tax as of December 31, 2015 corresponds to a credit
of equity amounted Ch$17,814 million (credit to equity amounted Ch$10,086 million in 2014)
(c.4)The net effect in income of derivatives cash flow hedges was a credit in income for an amount of Ch$148,555
million in 2015 (charge in income for Ch$9,659 million in 2014).
(c.5)As of December 31, 2015 and 2014, it not exist inefficiency in cash flow hedge, because both, hedge
item and hedge instruments are mirror one of other, it means that all variation of value attributable to rate and
revaluation components are netted almost totally.
(c.6)As of December 31, 2015 and 2014, the Bank has not hedges of net investments in foreign business.
194
Anual Report 2015
Over 1 year and up
to 3 years
Over 3 years and up
to 5 years
Over 5 years
Total
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
494,015
165,707
345,015
442,808
359,902
283,714
1,540,848
1,389,300
(17,999)
(7,273)
(63,301)
(59,188)
(288,281)
(224,232)
(378,643)
(305,271)
(16,135)
(475)
—
—
—
—
(16,628)
(16,453)
(5,660)
(3,471)
(79,042)
(48,703)
(30,716)
(59,482)
(184,457)
(181,691)
(216,820)
(141,795)
—
—
—
—
(220,686)
(200,740)
(235,376)
(12,693)
(200,642)
(334,917)
—
—
(694,455)
(685,145)
(2,025)
—
(2,030)
—
(40,905)
—
(45,979)
—
—
—
—
—
—
—
—
—
195
Banco de Chile
and Subsidiaries
11. Loans and advances to Banks:
(a) As of December 31, 2015 and 2014, amounts are detailed as follows:
2015
2014
MCh$
MCh$
Domestic Banks
Interbank loans
Provisions for loans to domestic banks
Subtotal
45,258
170,014
(72)
(61)
45,186
169,953
211,573
216,632
Foreign Banks
Loans to foreign banks
Chilean exports trade loans
47,355
93,366
Credits with third countries
91,278
125,061
Provisions for loans to foreign banks
Subtotal
(630)
(755)
349,576
434,304
1,000,000
550,000
433
1,108
Non-available Central Bank deposits
Other Central Bank credits
196
Anual Report 2015
Subtotal
1,000,433
551,108
Total
1,395,195
1,155,365
(b) Movements in provisions for loans to banks, during periods 2015 and 2014 are detailed below:
Bank’s Location
Detalle
Chile
Abroad
Total
MCh$
MCh$
MCh$
Balance as of January 1, 2014
36
1,256
1,292
Charge-offs
—
—
—
Provisions established
25
—
25
Provisions released
—
(501)
(501)
Balance as of December 31, 2014
61
755
816
Charge-offs
—
—
—
11
—
11
Provisions released
—
(125)
(125)
72
630
702
197
Banco de Chile
and Subsidiaries
12.Créditos y Cuentas por Cobrar a Clientes:
(a.i)Loans to Customers:
As of December 31, 2015 and 2014, the composition of the portfolio of loans is the following:
2015
Assets before allowance
Normal Substandard Non-Complying
Portfolio
Portfolio
Portfolio
MCh$
MCh$
MCh$
Allowances established
Individual
Group
Provisions Provisions
Total
MCh$
MCh$
MCh$
Total
Net assets
MCh$
MCh$
Commercial loans
Commercial loans
10,340,497
89,792
383,965
10,814,254
(154,115)
Foreign trade loans
1,318,078
64,849
60,318
1,443,245
(84,282)
(3,286)
(87,568)
1,355,677
Current account debtors
227,063
2,519
9,646
239,228
(5,728)
(4,082)
(9,810)
229,418
Factoring transactions
483,797
2,282
754
486,833
(10,571)
(1,773)
(12,344)
474,489
1,334,038
15,367
25,651
1,375,056
(6,908)
(11,004)
(17,912)
1,357,144
50,898
257
7,147
58,302
(2,115)
(3,414)
(5,529)
52,773
13,754,371
175,066
(107,080) (370,799)
14,046,119
Mortgage bonds
49,849
—
3,771
53,620
—
(68)
(68)
53,552
Transferable mortgage
loans
82,826
—
1,818
84,644
—
(95)
(95)
84,549
Other residential real
estate mortgage loans
6,146,484
—
111,423
6,257,907
—
(34,760)
(34,760)
6,223,147
Credits from ANAP
17
—
—
17
—
—
—
17
Residential lease
transactions
—
—
—
—
—
—
—
—
8,644
—
154
8,798
—
(29)
(29)
8,769
6,287,820
—
117,166
6,404,986
—
(34,952)
(34,952)
6,370,034
2,188,881
—
233,217
2,422,098
—
(153,216) (153,216)
2,268,882
292,534
—
4,325
296,859
—
(7,476)
(7,476)
289,383
Credit card debtors
991,831
—
24,518
1,016,349
—
(34,968)
(34,968)
981,381
Consumer lease
transactions
—
—
—
—
—
—
—
—
Other loans and
accounts receivable
50
—
781
831
—
(355)
(355)
476
3,473,296
—
262,841
3,736,137
—
(196,015) (196,015)
3,540,122
23,515,487
175,066
867,488 24,558,041 (263,719)
(338,047) (601,766)
23,956,275
Commercial lease
transactions (1)
Other loans and
accounts receivable
Subtotal
487,481 14,416,918 (263,719)
(83,521) (237,636)
10,576,618
Mortgage loans
Other loans and
accounts receivable
Subtotal
Consumer loans
Consumer loans in
installments
Subtotal
Total
198
Anual Report 2015
2014
Assets before allowance
Normal Substandard Non-Complying
Portfolio
Portfolio
Portfolio
MCh$
MCh$
MCh$
Individual
Group
Provisions Provisions
Total
MCh$
MCh$
MCh$
Total
Net assets
MCh$
MCh$
Commercial loans
Commercial loans
9,239,021
76,365
308,808
9,624,194
(106,518)
Foreign trade loans
1,131,926
72,208
62,665
1,266,799
(78,619)
(1,480)
(80,099)
1,186,700
303,906
2,697
3,532
310,135
(3,141)
(4,189)
(7,330)
302,805
474,046
3,164
1,525
478,735
(9,283)
(1,361)
(10,644)
468,091
1,330,752
22,191
28,579
1,381,522
(6,163)
(11,898)
(18,061)
1,363,461
39,274
257
7,320
46,851
(2,298)
(3,426)
(5,724)
41,127
12,518,925
176,882
412,429
13,108,236
(206,022)
(111,746) (317,768)
12,790,468
65,211
—
4,893
70,104
—
(58)
(58)
70,046
Transferable mortgage
loans
101,957
—
2,218
104,175
—
(72)
(72)
104,103
Other residential real
estate mortgage loans
5,151,358
—
86,273
5,237,631
—
(23,857)
(23,857)
5,213,774
Credits from ANAP
21
—
—
21
—
—
—
21
Residential lease
transactions
—
—
—
—
—
—
—
—
6,482
—
210
6,692
—
(34)
(34)
6,658
5,325,029
—
93,594
5,418,623
—
(24,021)
(24,021)
5,394,602
2,003,452
—
190,697
2,194,149
—
(145,439) (145,439)
2,048,710
264,473
—
7,347
271,820
—
(7,331)
(7,331)
264,489
Credit card debtors
856,555
—
26,455
883,010
—
(33,713)
(33,713)
849,297
—
—
—
—
—
—
—
—
106
—
704
810
—
(343)
(343)
467
225,203
3,349,789
—
(186,826) (186,826)
3,162,963
731,226 21,876,648 (206,022)
(322,593) (528,615)
21,348,033
Commercial lease
transactions (1)
Other loans and
accounts receivable
Subtotal
(89,392) (195,910)
9,428,284
Mortgage loans
Mortgage bonds
Other loans and
accounts receivable
Subtotal
Consumer loans
Consumer loans in
installments
Consumer lease
transactions
Other loans and
accounts receivable
Subtotal
Total
3,124,586
—
20,968,540
176,882
(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, 2015, MCh$653,225 (MCh$615,723 in 2014) correspond to finance leases for real estate and MCh$721,831 (MCh$765,799 in 2014), correspond to
finance leases for other assets.
199
Banco de Chile
and Subsidiaries
(a.ii)Impaired Portfolio
As of December 31, 2015 and 2014, the Bank presents the following details of normal and impaired portfolio:
Assets before Allowances
Normal Portfolio
2015
2014
MCh$
MCh$
Commercial loans
Impaired Portfolio
2015
2014
MCh$
MCh$
13,871,526
12,612,620
545,392
Mortgage loans
6,287,820
5,325,029
Consumer loans
3,473,296
3,124,586
23,632,642
21,062,235
Total
Total
2015
MCh$
2014
MCh$
495,616
14,416,918
13,108,236
117,166
93,594
6,404,986
5,418,623
262,841
225,203
3,736,137
3,349,789
925,399
814,413
24,558,041
21,876,648
(b) Allowances for loan losses:
Movements in allowances for loan losses during the 2015 and 2014 periods are as follows:
Allowances
Individual
MCh$
Charge-offs:
Commercial loans
Mortgage loans
Consumer loans
Total charge-offs
Sale or transfer of credit
Charge-offs:
Commercial loans
Mortgage loans
Consumer loans
Total charge-offs
Sale or transfers of credit
Purchase of loans
Group
MCh$
Total
MCh$
182,862
297,616
480,478
(27,573)
—
—
(27,573)
(993)
51,726
206,022
(39,151)
(2,978)
(184,647)
(226,776)
—
251,753
322,593
(66,724)
(2,978)
(184,647)
(254,349)
(993)
303,479
528,615
206,022
322,593
528,615
(13,228)
—
—
(13,228)
(2,690)
12,329
61,286
263,719
(44,760)
(2,553)
(196,015)
(243,328)
—
—
258,782
338,047
(57,988)
(2,553)
(196,015)
(256,556)
(2,690)
12,329
320,068
601,766
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).
Other Disclosures:
1) As of December 31, 2015 and 2014, 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 letter (e).
2) As of December 31, 2015 and 2014, 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 (see note No. 12 letter (f)).
Individual Provisions
2015
2014
MCh$
MCh$
Group Provisions
2015
2014
MCh$
MCh$
(107,080)
(111,746)
Total
2015
MCh$
(263,719)
(206,022)
(370,799)
—
—
(34,952)
(24,021)
—
—
(196,015)
(186,826)
(263,719)
(206,022)
(338,047)
(322,593)
(601,766)
2014
MCh$
Net assets
2015
2014
MCh$
MCh$
(317,768)
14,046,119
12,790,468
(34,952)
(24,021)
6,370,034
5,394,602
(196,015)
(186,826)
3,540,122
3,162,963
(528,615)
23,956,275
21,348,033
201
Banco de Chile
and Subsidiaries
(c) Finance lease contracts:
The Bank’s scheduled cash flows to be received from finance leasing contracts have the following maturities:
Total receivable
Unearned income
Net lease receivable (*)
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
Due within one year
460,004
465,397
(54,353)
(55,663)
405,651
409,734
Due after 1 year
but within 2 years
333,374
328,815
(39,913)
(40,553)
293,461
288,262
Due after 2 years
but within 3 years
218,308
220,128
(27,287)
(27,233)
191,021
192,895
Due after 3 years
but within 4 years
152,329
144,099
(19,090)
(19,753)
133,239
124,346
Due after 4 years
but within 5 years
106,806
107,651
(13,652)
(14,375)
93,154
93,276
Due after 5 years
281,489
296,482
(30,492)
(32,370)
250,997
264,112
1,552,310
1,562,572
(184,787)
(189,947)
1,367,523
1,372,625
Total
(*) The net balance receivable does not include past-due portfolio totaling MCh$7,533 as of December 31, 2015 (MCh$8,897 in 2014).
The bank has entered into commercial leases of real estate, industrial machinery, vehicles and computer
equipment. These leases have an average useful life of between 3 and 8 years.
(d) Loans by industry sector:
The following table details the Bank’s loan portfolio (before allowances for loans losses) as of December 31,
2015 and 2014 by the customer’s industry sector:
Location
Chile
2015
MCh$
Total
Abroad
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
%
2014
MCh$
%
Commercial loans:
Commerce
2,265,154
2,338,393
80,164
66,796
2,345,318
9.55
2,405,189
10.99
Financial Services
2,117,466
1,848,774
13,480
24,381
2,130,946
8.68
1,873,155
8.56
Transportation
1,656,111
1,654,258
12,517
13,845
1,668,628
6.80
1,668,103
7.63
Services
1,668,022
1,565,233
324
544
1,668,346
6.79
1,565,777
7.16
Manufacturing
1,534,131
1,414,821
92,384
84,083
1,626,515
6.62
1,498,904
6.85
Construction
1,585,940
1,423,597
—
—
1,585,940
6.46
1,423,597
6.51
Agriculture and livestock
1,185,113
946,795
—
—
1,185,113
4.83
946,795
4.33
545,375
356,363
—
—
545,375
2.22
356,363
1.63
Mining
Electricity, gas and water
473,172
438,638
—
3,428
473,172
1.93
442,066
2.02
Fishing
351,531
261,189
—
—
351,531
1.43
261,189
1.19
Other
836,034
667,098
—
—
836,034
3.40
667,098
3.05
14,218,049 12,915,159
198,869
58.71 13,108,236
59.92
24.77
Subtotal
Consumer loans
Total
6,404,986
5,418,623
—
3,736,137
3,349,789
—
24,359,172 21,683,571
198,869
193,077 14,416,918
—
6,404,986
26.08
5,418,623
—
3,736,137
15.21
3,349,789
15.31
193,077 24,558,041 100.00 21,876,648
100.00
(e) Purchase of loan portfolio
During the year 2015, the Bank acquired portfolio loans, whose nominal value amounted to Ch$649,144 millions.
The most important transaction was a purchase made to a local bank (See note No. 5 (k)).
During the period 2014 has not acquired portfolio loans.
(f) Sale or transfer of credits from the loans to customers:
During 2015 and 2014 Banco de Chile has carried out transactions of sale or transfer of the loan portfolio
according to the following:
2015
Sale of outstanding loans
Sale of writte-off loans(*)
Totales
Carrying amount
MCh$
Allowances
released
MCh$
Sale price
MCh$
89,085
(2,690)
89,085
Effect on income
(loss) gain
MCh$
2,690
—
—
1,440
1,440
89,085
(2,690)
90,525
4,130
(*) The nominal value of the credits amounted to MCh$327,360 millions.
2014
Carrying amount
MCh$
Sale of outstanding loans
Sale of writte-off loans(*)
Totales
454,465
Allowances
released
MCh$
(993)
Sale price
MCh$
Effect on income
(loss) gain
MCh$
454,465
993
—
—
—
—
454,465
(993)
454,465
993
(g) Own assets securitizations:
During 2015 and 2014 the bank has not executed securitization transaction involving owns assets.
203
Banco de Chile
and Subsidiaries
13. Investment Securities:
As of December 31, 2015 and 2014, investment securities classified as available-for-sale and held-to-maturity
are detailed as follows:
2015
2014
Available for
sale
Held to
maturity
Total
Available for
sale
Held to
maturity
Total
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
Instruments issued by the Chilean
Government and Central Bank of
Chile:
Bonds issued by the Chilean
Government and Central Bank
36,258
—
36,258
28,795
—
28,795
—
—
—
149,755
—
149,755
50,250
—
50,250
160,774
—
160,774
Deposit promissory notes from
domestic banks
—
—
—
—
—
—
Mortgage bonds from domestic
banks
87,610
—
87,610
96,294
—
96,294
Promissory notes issued by the
Chilean Government and Central
Bank
Other instruments
Deposits from domestic banks
Bonds from other Chilean
companies
Promissory notes issued by other
Chilean companies
Other instruments
83,960
—
83,960
251,231
—
251,231
450,976
—
450,976
657,467
—
657,467
17,766
—
17,766
29,519
—
29,519
—
—
—
—
—
—
191,537
—
191,537
162,829
—
162,829
—
—
—
—
—
—
81,644
—
81,644
63,525
—
63,525
1,000,001
—
1,000,001
1,600,189
—
1,600,189
Instruments issued abroad
Instruments from foreign
governments or central banks
Other instruments
Total
Instruments issued by the Chilean Government and Central Bank include instruments with agreements to repurchase
sold to clients and financial institutions, for December 31, 2015 this amount was $3,054 million ($25,673 million in
2014). Repurchase agreements had an average maturity of 6 days in December 2015 (4 days in December 2014).
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$14 as of December 31, 2014. Repurchase agreements
had an average maturity of 5 days in December 2014.
In instruments issued abroad are include mainly banks bonds and shares.
As of December 31, 2015, the portfolio of financial assets available-for-sale includes a net unrealized loss of
MCh$39,836 (MCh$33,962 in 2014), recorded in other comprehensive income within equity.
As of December 31, 2015 and 2014 there is not impairment of financial assets available-for-sale.
Realized profits and losses are calculated as the proceeds from sales less the cost (specific identification method)
of the investments identified as for sale. In addition, any unrealized profit or loss previously recorded in equity for
these investments is reversed when recorded in the income statements.
Profits and losses realized on the sale of available-for-sale investments as of December 31, 2015 and 2014 are
shown in Note No. 30 “Net Financial Operating Income”.
Gross profits and losses realized and unrealized on the sale of available for sale investments for the years-ended
as of December 31, 2015 and 2014 are as follows:
2015
MCh$
2014
MCh$
Unrealized (losses)/profits during the period
17,003
23,593
Realized losses/(profits) (reclassified)
(8,407)
(16,486)
Subtotal
Income tax over other comprehensive income
Net effect
8,596
7,107
(2,722)
(2,517)
5,874
4,590
205
Banco de Chile
and Subsidiaries
14.Investments in Other Companies:
(a) This item includes investments in other companies for an amount of MCh$28,126 in 2015 (MCh$25,312 in
2014), which is detailed s follows:
Ownership
Interest
Equity
Investment
Book Value
Company
Shareholder
Income (Loss)
2015
2014
2015
2014
2015
2014
2015
2014
%
%
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
Associates
Transbank S.A. (*)
Banco de Chile
26.16
26.16 40,302 34,177 10,542
8,939
1,314
1,070
Administrador Financiero del
Transantiago S.A.
Banco de Chile
20.00
20.00 12,758 11,145
2,552
2,229
323
282
Soc. Operadora de Tarjetas de
Crédito Nexus S.A.
Banco de Chile
25.81
25.81
9,472
8,253
2,444
2,130
449
389
Redbanc S.A.
Banco de Chile
38.13
38.13
5,419
4,969
2,066
1,895
245
241
Sociedad Imerc OTC S.A.
Banco de Chile
11.48
11.48
9,823 10,899
1,128
1,252
(119)
(177)
Centro de Compensación
Automatizado S.A.
Banco de Chile
33.33
33.33
3,252
2,615
1,084
871
211
220
Soc. Operadora de la Cámara de
Compensación de Pagos de Alto
Valor S.A.
Banco de Chile
15.00
15.00
4,955
4,643
743
696
136
106
Sociedad Interbancaria de
Depósitos de Valores S.A.
Banco de Chile
26.81
26.81
2,656
2,401
712
644
125
151
88,637 79,102 21,271 18,656
2,684
2,282
Subtotal Associates
Joint Ventures
Servipag Ltda.
Banco de Chile
50.00
50.00
7,778
7,281
3,889
3,641
249
51
Artikos Chile S.A.
Banco de Chile
50.00
50.00
1,378
1,491
689
746
310
153
9,156
8,772
4,578
4,387
559
204
97,793 87,874 25,849 23,043
3,243
2,486
Subtotal Joint Ventures
Subtotales
Investments valued at cost (1):
Bolsa de Comercio de Santiago S.A.
1,646
1,646
370
329
Banco Latinoamericano de
Comercio Exterior S.A. (Bladex)
309
309
59
46
Bolsa Electrónica de Chile S.A.
257
257
—
—
57
49
—
—
Sociedad de Telecomunicaciones
Financieras Interbancarias
Mundiales (Swift)
CCLV Contraparte Central S.A.
Subtotal
Total
8
8
—
—
2,277
2,269
429
375
28,126 25,312
3,672
2,861
(1) Income from investments valorized at cost, corresponds to income recognized on cash basis (dividends).
(*) On April 16, 2015 Transbank S.A. made a capital increase by an amount of MCh$5,328 through of capitalization of earnings and revaluations by an amount of
MCh$4,150 and issue of shares by MCh$1,178. Banco de Chile made the subscription and payment of 1,536 shares by a total amount of MCh$308 (amount does
not include payment of revaluations MCh$6). The shares participation of Banco de Chile in Transbank S.A. did not change with this operation.
(b)Associates:
2015
MCh$
2014
MCh$
620,978
588,635
98,770
74,361
Total Assets
719,748
662,996
Current liabilities
620,951
578,659
Current assets
Non-current assets
Non-current liabilities
Total Liabilities
Equity
Minority interest
Total Liabilities and Equity
Revenue
Operating expenses
Other income (expenses)
10,152
5,227
631,103
583,886
88,637
79,102
8
8
719,748
662,996
221,109
194,145
(211,126)
(186,386)
1,966
1,000
Profit before tax
11,949
8,759
Income tax
(1,880)
(762)
Profit for the year
10,069
7,997
207
Banco de Chile
and Subsidiaries
(c) Joint ventures:
The Bank has a 50% interest in Servipag Ltda. and a 50% interest in Artikos S.A., two jointly controlled entities.
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 jointly:
Artikos S.A.
Current assets
Non-current assets
Total Assets
Current liabilities
Non-current liabilities
Total Liabilities
Servipag Ltda.
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
1,224
1,289
50,449
53,077
755
689
17,193
16,227
1,979
1,978
67,642
69,304
601
487
55,127
59,501
—
—
4,737
2,522
601
487
59,864
62,023
Equity
1,378
1,491
7,778
7,281
Total Liabilities and Equity
1,979
1,978
67,642
69,304
Revenue
3,147
2,659
38,879
37,140
Operating expenses
(735)
(662)
(37,632)
(36,199)
(1,929)
(1,727)
(797)
(781)
483
270
450
160
Other income (expenses)
Profit (loss) before tax
Income tax
137
36
47
(59)
Profit (loss) for the year
620
306
497
101
(d) The reconciliation between opening and ending balance of investments in other companies that are not
consolidated in 2015 and 2014 is detailed as follows:
2015
MCh$
2014
MCh$
25,312
16,670
314
6,608
Participation in income with significant influence
3,243
2,486
Dividends receivable
(535)
(405)
Dividends received
(663)
(195)
Beginning book value
Acquisition of investments
Payment of minimum dividends
Total
455
148
28,126
25,312
(e) As of December 31, 2015 and 2014 no impairment has incurred in these investments.
15. Intangible Assets:
(a) As of December 31, 2015 and 2014, Intangible assets are detailed as follows:
Years
Remaining
Amortization
Useful Life
Accumulated
Amortization and
Impairment
Gross Balance
2015
2014
2015
2014
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
Software or computer
programs
6
6
4
4
100,000
92,225 (73,281) (65,632)
Intangible assets
arising from business
combinations
—
—
—
—
1,740
Net balance
2015
MCh$
2014
MCh$
26,719
26,593
(1,740)
—
—
93,965 (75,021) (67,372)
26,719
26,593
Other Intangible Assets:
Total
101,740
1,740
(1,740)
(b) Movements in intangible assets during the 2015 and 2014 periods are as follows:
2015
Software or
computer
programs
Intangible
assets arising
from business
combinations
Other intangible
assets
Total
MCh$
MCh$
MCh$
MCh$
92,225
1,740
—
93,965
Acquisitions
8,519
—
—
8,519
Disposals
(685)
—
—
(685)
Gross Balance
Impairment loss (*)
(59)
—
—
(59)
100,000
1,740
—
101,740
(65,632)
(1,740)
—
(67,372)
Amortization of the period (*)
(8,331)
—
—
(8,331)
Total
Accumulated Amortization
Disposals
Total
682
—
—
682
(73,281)
(1,740)
—
(75,021)
26,719
—
—
26,719
209
Banco de Chile
and Subsidiaries
2014
Software or
computer
programs
Intangible
assets arising
from business
combinations
Other intangible
assets
Total
MCh$
MCh$
MCh$
MCh$
1,740
501
89,227
Gross Balance
86,986
Acquisitions
5,382
—
—
5,382
Disposals
(504)
—
—
(504)
Reclasification
481
—
(501)
(20)
(120)
—
—
(120)
92,225
1,740
—
93,965
(57,767)
(1,740)
(49)
(59,556)
Amortization of the period (*)
(8,352)
—
—
(8,352)
498
—
—
498
Impairment loss (*)
Total
Accumulated Amortization
Disposals
Reclasification
Total
(11)
—
49
38
(65,632)
(1,740)
—
(67,372)
26,593
—
—
26,593
(*) See note No. 35 “Depreciation, amortization and impairment”
(c) As of December 31, 2015 and 2014, the Bank has made the following commitments to purchase intangible
assets, which have not been capitalized:
Amount of Commitment
2015
2014
Detail
MCh$
MCh$
Software and licenses
5,779
3,508
16.Property and equipment:
(a) As of December 31, 2015 and 2014 property and equipment are detailed as follows:
Gross Balance
Acumulated Depreciation
Net Balance
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
2015
MCh$
2014
MCh$
Land and Buildings
292,166
285,754
(126,568)
(120,084)
165,598
165,670
Equipment
Tipe of Property and
equipment:
167,874
151,911
(127,644)
(119,842)
40,230
32,069
Other
47,960
43,774
(38,117)
(36,110)
9,843
7,664
Total
508,000
481,439
(292,329)
(276,036)
215,671
205,403
(b) As of December 31, 2015 and 2014, this account and its movements are detailed as follows:
2015
Land and
Buildings
Equipment
Other
Total
MCh$
MCh$
MCh$
MCh$
285,755
151,911
Gross Balance
Reclasification
43,773
481,439
625
—
859
1,484
7,909
18,746
4,821
31,476
Disposals
(2,051)
(2,769)
(1,381)
(6,201)
Transfers
—
(11)
11
—
Acquisitions
Impairment loss (*)(***)
Total
(72)
(3)
(123)
(198)
292,166
167,874
47,960
508,000
(120,084)
(119,842)
(36,110)
(276,036)
(110)
—
(882)
(992)
(8,117)
(10,567)
(2,143)
(20,827)
1,743
2,764
1,019
5,526
Reclasification
Transfers
Depreciation of period (*) (**)
Disposals and sales of period
Total
—
1
(1)
—
(126,568)
(127,644)
(38,117)
(292,329)
165,598
40,230
9,843
215,671
211
Banco de Chile
and Subsidiaries
2014
Land and
Buildings
Equipment
Other
Total
MCh$
MCh$
MCh$
MCh$
280,614
137,827
42,632
—
—
(200)
(200)
Acquisitions
6,028
22,776
2,709
31,513
Disposals
(865)
(7,807)
(622)
(9,294)
Transfers
—
485
(485)
—
Gross Balance
Reclasification
Impairment loss (*)(***)
461,073
(23)
(1,370)
(260)
(1,653)
285,754
151,911
43,774
481,439
(112,725)
(116,081)
(34,689)
(263,495)
Depreciation of period (*) (**)
(8,198)
(11,283)
(2,287)
(21,768)
Disposals and sales of period
839
7,808
580
9,227
—
(286)
286
—
(120,084)
(119,842)
(36,110)
(276,036)
165,670
32,069
7,664
205,403
Total
Transfers
Total
(*) 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$379
(MCh$381 in 2014).
(***) Not include provision related to write-offs of property and equipment for an amount of Ch$6 million (Ch$312 million in 2014).
(c) As of December 31, 2015 and 2014, the Bank has operating lease agreements in which it acts as lessee that
cannot be terminated unilaterally; information on future payments is detailed as follows:
2015
Lease Agreements
Expense
for the year
Up to 1
month
MCh$
MCh$
30,984
2,662
Over 1
Over 3
Over 3
month and months and Over 1 year years and
up to 3
up to 12 and up to 3 up to 5
months
months
years
years
MCh$
5,383
Over 5
years
Total
MCh$
MCh$
MCh$
MCh$
MCh$
21,800
39,572
27,613
45,379
142,409
2014
Lease Agreements
212
Anual Report 2015
Expense
for the year
Up to 1
month
MCh$
MCh$
29,588
2,520
Over 1
Over 3
Over 3
month and months and Over 1 year years and
up to 3
up to 12 and up to 3 up to 5
months
months
years
years
MCh$
4,992
Over 5
years
Total
MCh$
MCh$
MCh$
MCh$
MCh$
21,264
40,375
29,612
46,479
145,242
As these lease agreements are operating, 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.
(d) As of December 31, 2015 and 2014, 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, 2015 and 2014.
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, amounts
as of December 31, 2015 and 2014 are detailed as follows:
Income taxes
Tax on non-deductible expenses (35%)
2015
MCh$
2014
MCh$
121,585
106,550
2,805
1,802
(94,813)
(83,050)
Less:
Monthly prepaid taxes (PPM)
Credit for training expenses
(1,931)
(1,818)
(896)
(1,597)
Other
(2,036)
(2,857)
Total current taxes
24,714
19,030
22,5%
21,0%
2015
MCh$
2014
MCh$
3,279
3,468
Current tax liabilities
(27,993)
(22,498)
Total current taxes
(24,714)
(19,030)
Real estate contributions (taxation)
Tax rate
Current tax assets
213
Banco de Chile
and Subsidiaries
(b) Income Tax:
The Bank’s tax expense recorded for the years ended December 31, 2015 and 2014 is detailed as follows:
2015
MCh$
2014
MCh$
119,342
100,302
Income tax expense:
Current year taxes
Tax from previous periods
(1,851)
13,596
117,491
113,898
Origin and reversal of temporary differences
(42,138)
(33,642)
Effect of changes in tax rate
(15,652)
(27,277)
(57,790)
(60,919)
2,805
1,802
Subtotal
Credit (charge) for deferred taxes:
Subtotal
Non deducible expenses (Art. 21 “Ley de la Renta”)
Other
Net charge to income for income taxes
(776)
4,746
61,730
59,527
(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, 2015 and 2014:
2015
2014
Tax rate
%
Income tax calculated on net income before tax
22.50
Tax rate
MCh$
139,664
%
21.00
MCh$
136,628
Additions or deductions
(5.15)
(31,952)
(4.82)
(31,374)
Tax restatement
(4.30)
(26,718)
(5.12)
(33,299)
Non-deductible expenses
0.45
2,805
0.28
1,802
(0.30)
(1,851)
2.09
13,596
Effect in deferred taxes (changes in tax rate)
(2.52)
(15,652)
(4.19)
(27,277)
Others
(0.74)
(4,566)
(0.08)
(549)
9.94
61,730
9.16
59,527
Tax from previous year
Effective rate and income tax expense
The effective rate for income tax for 2015 is 9.94% (9.16% in 2014).
On September 29, 2014, was issued Law 20,780 and published in the Diario Oficial amending Taxation System
of Income and introduces various adjustments in the tax system. In the third paragraph of Article 14 of the
new Law of Income Tax, indicates that companies that do not exercise the option of regime change that by
default corresponds to the semi-integrated, must modify transiently first category tax rate according to the
following intervals:
214
Anual Report 2015
Year
Rate
2014
2015
2016
2017
2018
21.0%
22.5%
24.0%
25.5%
27.0%
The effect in income by deferred taxes produced by the change of tax rate was a credit in income for an amount
of Ch$15,652 million (Ch$27,277 million in 2014).
(d) Effect of deferred taxes on income and equity:
During the year 2015, the Bank has recorded the effects of deferred taxes in financial statements.
As of December 31, 2015 the effects of deferred taxes on assets, liabilities and income accounts are detailed
as follows:
Effect
Balances as
of December
31, 2014
Income
Equity
Balances as
of December
31, 2015
MCh$
MCh$
MCh$
MCh$
146,562
31,606
—
—
—
—
—
Personnel provisions
9,314
(1,447)
—
7,867
Staff vacation
5,489
779
—
6,268
Accrued interests and indexation adjustments from past due
loans
3,738
286
—
4,024
Debit Differences:
Allowances for loan losses
Obligations with agreements to repurchase
Staff severance indemnities provisions
178,168
1,460
(117)
9
1,352
Provision of credit cards expenses
10,637
2,991
—
13,628
Provision of accrued expenses
11,466
220
102
11,788
Leasing
Other adjustments
Total debit differences
—
18,239
—
18,239
14,203
435
—
14,638
202,869
52,992
111
255,972
14,304
(1,141)
—
13,163
12,582
Credit Differences:
Depreciation and price-level restatement of property and
equipment
Adjustment for valuation of financial assets available-for-sale
9,860
—
2,722
Leasing
2,992
(2,992)
—
—
Transitory assets
2,478
162
—
2,640
13
(13)
—
—
2,308
257
—
2,565
Derivative instrument adjustment
Accrued loans to effective rate
Other adjustments
Total credit differences
Deferred tax assets (liabilities), net
3,074
(1,071)
—
2,003
35,029
(4,798)
2,722
32,953
167,840
57,790
(2,611)
223,019
215
Banco de Chile
and Subsidiaries
(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.
2015
Tax value assets
(e.1) Loans to customers as
of December 31, 2015
Loans and advance to banks
Commercial loans
Consumer loans
Total
Past-due
Past-due loans loans without
with guarantees guarantees
Total
Past-due
loans
Book value
assets (*)
Tax value
assets
MCh$
MCh$
1,395,195
1,395,897
—
—
—
12,200,386
12,733,691
29,606
69,942
99,548
3,540,122
3,959,497
448
17,298
17,746
MCh$
MCh$
MCh$
6,370,034
6,402,268
5,803
136
5,939
23,505,737
24,491,353
35,857
87,376
123,233
2014
Tax value assets
(e.1) Loans to customers as
of December 31, 2014
Loans and advance to banks
Book value
assets (*)
Tax value
assets
MCh$
MCh$
Past-due
Past-due loans loans without
with guarantees guarantees
MCh$
MCh$
Total
Past-due
loans
MCh$
1,155,365
1,156,181
—
—
—
10,925,817
11,404,824
19,923
57,350
77,273
Consumer loans
3,162,963
3,597,603
393
18,643
19,036
5,394,602
5,415,279
4,496
93
4,589
20,638,747
21,573,887
24,812
76,086
100,898
Commercial loans
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.
216
Anual Report 2015
2015
(e.2) Provisions
on past-due loans
Balance as of
January 1, 2015
Chargeoffs against
provisions
Provisions
established
Provisions
released
Balance as of
December 31,
2015
MCh$
MCh$
MCh$
MCh$
MCh$
Commercial loans
57,350
(41,860)
108,206
(53,754)
69,942
Consumer loans
18,643
(192,746)
213,756
(22,355)
17,298
93
(921)
1,414
(450)
136
76,086
(235,527)
323,376
(76,559)
87,376
Total
2014
(e.2) Provisions
on past-due loans
Balance as of
January 1, 2014
Chargeoffs against
provisions
Provisions
established
Provisions
released
Balance as of
December 31,
2014
MCh$
MCh$
MCh$
MCh$
MCh$
Commercial loans
49,184
(47,588)
89,368
(33,614)
57,350
Consumer loans
17,418
(175,307)
198,719
(22,187)
18,643
Total
111
(667)
917
(268)
93
66,713
(223,562)
289,004
(56,069)
76,086
(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
2015
2014
MCh$
MCh$
11,908
13,815
794
1,001
48,696
43,683
(e.4) Application of Art. 31 No. 4 first & third subsections
2015
2014
MCh$
MCh$
Charge-offs in accordance with first subsection
—
—
Condoning in accordance with third subsection
794
1,001
217
Banco de Chile
and Subsidiaries
18.Other Assets:
(a) Item detail:
As of December 31, 2015 and 2014, other assets are detailed as follows:
Assets held for leasing (*)
2015
2014
MCh$
MCh$
117,332
87,100
5,644
3,014
Assets received or awarded as payment (**)
Assets awarded in judicial sale
785
934
Provision for assets received in lieu of payment
Assets received in lieu of payment
(176)
(207)
Subtotal
6,253
3,741
Deposits by derivatives margin
226,213
143,379
Documents intermediated (***)
30,729
23,049
Investment properties
15,041
15,937
Servipag available funds
13,922
14,621
Other accounts and notes receivable
11,797
16,124
VAT receivable
10,143
9,731
8,718
8,356
Other Assets
Recoverable income taxes
Commissions receivable
7,558
4,931
Prepaid expenses
6,915
6,240
Rental guarantees
1,743
1,617
752
769
Accounts receivable for sale of assets received in lieu of
payment
Materials and supplies
643
607
Recovered leased assets for sale
625
692
Other
26,114
18,163
Subtotal
360,913
264,216
Total
484,498
355,057
(*)
These correspond to property and equipment to be given under a finance lease.
(**) 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 0.0227% (0.0287% in 2014) of the Bank’s effective equity.
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.
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.
(***) This item mainly includes simultaneous operations carried out by the subsidiary Banchile Corredores de Bolsa S.A.
218
Anual Report 2015
(b) Movements in the provision for assets received in lieu of payment during the 2015 and 2014 periods are detailed
as follows:
Provisiones sobre bienes
Amortization
MCh$
46
Provisions used
(88)
249
Provisions released
—
207
Provisions used
(181)
150
Provisions released
—
176
19. Current accounts and Other Demand Deposits:
As of December 31, 2015 and 2014, current accounts and other demand deposits are detailed as follows:
Current accounts
Other demand deposits
Other demand deposits and accounts
Total
2015
2014
MCh$
MCh$
6,900,590
5,786,805
892,485
680,097
533,973
466,777
8,327,048
6,933,679
20.Savings accounts and Time Deposits:
As of December 31, 2015 and 2014, savings accounts and time deposits are detailed as follows:
Time deposits
Term savings accounts
Other term balances payable
Total
2015
2014
MCh$
MCh$
9,529,974
9,450,224
205,171
188,311
172,547
82,711
9,907,692
9,721,246
219
Banco de Chile
and Subsidiaries
21. Borrowings from Financial Institutions:
(a) As of December 31, 2015 and 2014, borrowings from financial institutions are detailed as follows:
Domestic banks
2015
2014
MCh$
MCh$
—
—
Citibank N.A.
283,803
141,633
Canadian Imperial Bank Of Commerce
166,918
69,750
Bank of America
150,208
126,004
The Bank of New York Mellon
149,617
57,581
HSBC Bank
121,027
155,135
Wells Fargo Bank
112,933
83,015
Foreign banks
Foreign trade financing
Bank of Nova Scotia
94,298
38,804
Bank of Montreal
92,096
139,548
Toronto Dominion Bank
63,788
45,489
Standard Chartered Bank
56,975
106,659
Sumitomo Mitsui Banking
35,421
—
ING Bank
31,873
30,309
Zuercher Kantonalbank
22,011
6,088
1,446
1,631
10,924
Commerzbank A.G.
Royal Bank of Scotland
—
Mercantil Commercebank
—
6,070
Deutsche Bank Trust Company
—
48,037
840
1,526
Others
Borrowings and other obligations
Wells Fargo Bank
Citibank N.A.
China Development Bank
Others
Subtotal
Chilean Central Bank
Total
106,463
—
37,571
12,389
—
15,165
2,333
2,950
1,529,621
1,098,707
6
9
1,529,627
1,098,716
(b) 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:
2015
2014
MCh$
MCh$
Borrowings and other obligations
—
—
Credit lines for the renegotiation of loans
6
9
Total
6
9
22.Debt Issued:
As of December 31, 2015 and 2014, debt issued is detailed as follows:
Mortgage bonds
Bonds
Subordinated bonds
Total
2015
2014
MCh$
MCh$
46,381
64,314
5,270,214
4,223,047
785,613
770,595
6,102,208
5,057,956
221
Banco de Chile
and Subsidiaries
During the period ended as of December 31, 2015, Banco de Chile issued bonds by an amount of MCh$2,470,407,
of which corresponds to Bonds and Commercial Papers by an amount of MCh$1,342,224 and MCh$1,128,183
respectively, according to the following details:
Bonds
Serie
BCHIAI0213
BCHIAM0413
BCHIAB1211
BCHIAM0413
BCHIAM0413
BCHIAM0413
BCHIAM0413
BCHIAZ0613
BONO USD
BCHIAM0413
BCHIAP0213
BCHIAP0213
BCHIAP0213
BCHIAP0213
BCHIAO0713
BCHIAO0713
BCHIAO0713
BCHIAO0713
BCHIAO0713
BCHIAO0713
BCHIAW0213
BCHIAO0713
BCHIAO0713
BCHIAX0613
BCHIAX0613
BCHIAO0713
BCHIAO0713
BCHIAS0513
BCHIUY1211
BCHIAS0513
BCHIAK0613
BCHIAS0513
BCHIAS0513
BCHIUW1011
BCHIUW1011
BCHIAN0513
BCHIAS0513
BCHIUX0212
BONO HKD
BCHIAQ0213
BCHIAT0613
BCHIAR0613
BONO EUR
BONO USD
BCHIAS0513
Total as of
December 31, 2015
222
Anual Report 2015
Amount
MCh$
17,132
40,425
80,282
4,881
5,972
11,225
2,673
53,874
30,596
15,242
29,715
7,435
2,658
13,308
14,072
21,146
4,518
4,653
10,639
9,315
80,003
22,367
3,692
16,068
37,494
4,255
2,681
9,550
80,744
9,334
81,154
3,297
6,046
54,750
55,117
54,642
4,127
80,796
53,957
81,748
82,318
62,985
35,880
35,411
4,047
1,342,224
Terms
Years
Rate
%
6
8
15
8
8
8
8
14
6
8
9
9
9
9
8
8
8
8
8
8
13
8
8
13
13
8
8
10
14
10
7
10
10
13
13
8
10
13
10
10
11
10
10
5
10
3.40
3.60
3.50
3.60
3.60
3.60
3.60
3.60
LIBOR 3 M + 0.69
3.60
3.60
3.60
3.60
3.60
3.40
3.40
3.40
3.40
3.40
3.40
3.60
3.40
3.40
3.60
3.60
3.40
3.40
3.60
3.50
3.60
3.40
3.60
3.60
3.50
3.50
3.60
3.60
3.50
3.05
3.60
3.50
3.60
1.66
LIBOR 3 M + 1.15
3.60
Currency
UF
UF
UF
UF
UF
UF
UF
UF
USD
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
UF
HKD
UF
UF
UF
EUR
USD
UF
Issue
date
Maturity
date
02/17/2015
02/20/2015
27/02/2015
03/13/2015
03/19/2015
04/06/2015
04/07/2015
04/17/2015
04/30/2015
05/08/2015
05/15/2015
05/18/2015
05/22/2015
05/27/2015
06/09/2015
06/10/2015
06/15/2015
06/16/2015
06/18/2015
06/23/2015
06/25/2015
07/03/2015
07/07/2015
07/08/2015
07/09/2015
07/10/2015
07/22/2015
07/28/2015
08/06/2015
08/13/2015
08/14/2015
08/18/2015
08/19/2015
08/24/2015
08/31/2015
10/07/2015
10/14/2015
10/14/2015
10/20/2015
11/06/2015
11/06/2015
11/06/2015
11/16/2015
12/16/2015
12/18/2015
02/17/2021
02/20/2023
02/27/2030
03/13/2023
03/19/2023
04/06/2023
04/07/2023
04/17/2029
04/30/2021
05/08/2023
05/15/2024
05/18/2024
05/22/2024
05/27/2024
06/09/2023
06/10/2023
06/15/2023
06/16/2023
06/18/2023
06/23/2023
06/25/2028
07/03/2023
07/07/2023
07/08/2023
09/09/2028
07/10/2023
07/22/2023
07/28/2025
08/06/2029
08/13/2025
08/14/2022
08/18/2025
08/19/2025
08/24/2028
08/31/2028
10/07/2023
10/14/2025
10/14/2028
10/20/2025
11/06/2025
11/06/2026
11/06/2025
11/16/2025
12/16/2020
12/18/2025
Commercial Papers
Counterparty
Merrill Lynch
Goldman Sachs
Goldman Sachs
Wells Fargo Bank
Wells Fargo Bank
Merrill Lynch
Merrill Lynch
JP. Morgan Chase
Wells Fargo Bank
Wells Fargo Bank
JP. Morgan Chase
Wells Fargo Bank
Merrill Lynch
JP. Morgan Chase
Wells Fargo Bank
Merrill Lynch
Merrill Lynch
JP. Morgan Chase
Wells Fargo Bank
JP. Morgan Chase
JP. Morgan Chase
Goldman Sachs
Citibank N.A.
JP. Morgan Chase
JP. Morgan Chase
Wells Fargo Bank
JP. Morgan Chase
JP. Morgan Chase
Wells Fargo Bank
JP. Morgan Chase
Wells Fargo Bank
Wells Fargo Bank
Wells Fargo Bank
JP. Morgan Chase
Citibank N.A.
Goldman Sachs
Merrill Lynch
Wells Fargo Bank
Wells Fargo Bank
Merrill Lynch
Merrill Lynch
Wells Fargo Bank
Wells Fargo Bank
Wells Fargo Bank
Wells Fargo Bank
Citibank N.A.
JP. Morgan Chase
JP. Morgan Chase
JP. Morgan Chase
Citibank N.A.
JP. Morgan Chase
Merrill Lynch
Merrill Lynch
Merrill Lynch
Wells Fargo Bank
Merrill Lynch
Total as of December
31, 2015
Amount
MCh$
Rate
%
15,425
15,380
30,638
12,255
3,077
9,421
9,421
49,944
16,262
2,502
48,215
4,393
15,690
31,395
2,569
4,975
3,122
31,951
25,079
37,467
14,519
42,858
15,506
16,524
49,536
15,856
48,721
31,567
3,796
32,321
2,620
10,162
12,782
15,222
16,030
45,651
10,419
3,390
33,904
19,664
22,323
11,549
6,773
6,740
13,634
18,710
69,151
34,541
42,393
17,092
17,092
10,224
13,829
26,100
3,554
4,249
0.32%
0.33%
0.33%
0.32%
0.43%
0.46%
0.60%
0.37%
0.32%
0.47%
0.35%
0.82%
0.42%
0.35%
0.48%
0.42%
0.48%
0.38%
0.35%
0.48%
0.38%
0.35%
0.35%
0.40%
0.40%
0.34%
0.40%
0.40%
0.52%
0.36%
0.27%
0.37%
0.59%
0.39%
0.36%
0.36%
0.72%
0.54%
0.31%
0.36%
0.36%
0.93%
0.36%
0.93%
0.45%
0.45%
0.51%
0.51%
0.50%
0.50%
0.50%
0.78%
0.65%
0.45%
0.82%
1.10%
Currency
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
Issue
date
Maturity
date
01/05/2015
01/07/2015
01/08/2015
01/08/2015
01/12/2015
01/21/2015
01/21/2015
01/22/2015
02/10/2015
02/10/2015
03/03/2015
03/06/2015
03/06/2015
03/09/2015
03/17/2015
03/20/2015
03/23/2015
03/23/2015
03/30/2015
04/06/2015
04/06/2015
04/08/2015
04/10/2015
04/17/2015
04/22/2015
05/11/2015
06/02/2015
06/08/2015
06/19/2015
06/22/2015
06/30/2015
06/30/2015
06/30/2015
07/06/2015
07/06/2015
07/08/2015
07/21/2015
08/04/2015
08/04/2015
08/04/2015
08/06/2015
08/06/2015
08/07/2015
08/10/2015
08/11/2015
08/18/2015
09/02/2015
09/08/2015
10/02/2015
10/05/2015
10/05/2015
10/14/2015
11/04/2015
11/04/2015
12/15/2015
12/17/2015
04/06/2015
04/09/2015
04/08/2015
04/08/2015
07/13/2015
07/21/2015
10/16/2015
04/22/2015
05/11/2015
08/10/2015
06/02/2015
03/04/2016
08/06/2015
06/08/2015
09/14/2015
08/06/2015
09/17/2015
06/22/2015
06/30/2015
10/02/2015
07/06/2015
07/08/2015
07/06/2015
08/17/2015
08/03/2015
08/10/2015
09/02/2015
09/08/2015
12/16/2015
09/17/2015
09/17/2015
10/02/2015
01/05/2016
10/05/2015
10/05/2015
10/08/2015
04/15/2016
02/03/2016
09/30/2015
11/04/2015
11/04/2015
08/04/2016
11/13/2015
08/05/2016
12/08/2015
11/16/2015
12/02/2015
12/08/2015
/0105/2016
01/08/2016
01/08/2016
07/11/2016
05/04/2016
02/03/2016
06/13/2016
12/13/2016
1,128,183
As of December 31, 2015 the Bank has no issued subordinated bonds.
223
Banco de Chile
and Subsidiaries
During the period ended as of December 31, 2014, Banco de Chile issued bonds by an amount of MCh$1,826,552,
of which corresponds to Unsubordinated Bonds, Commercial Papers by an amount of MCh$736,212 and
MCh$1,090,340 respectively, according to the following details:
Bonds
Series
BCHIAJ0413
BCHIAH0513
BCHIAL0213
BONO CHF
BONO CHF
BONO JPY
BCHIUN1011
BONO HKD
BCHIUN1011
BCHIAA0212
BONO JPY
BCHIAA0212
BCHIAY0213
BONO JPY
BCHIAI0213
BCHIAI0213
BCHIAI0213
BCHIAI0213
BCHIAI0213
Total as of December,
2014
Amount
MCh$
72,444
47,861
96,796
95,198
79,332
11,226
7,314
43,044
12,224
49,986
27,383
26,110
79,979
28,133
50,481
2,813
1,022
1,664
3,202
736,212
Term
(years)
Rate
(%)
7
5
8
2
5
5
7
6
7
14
8
14
14
6
6
6
6
6
6
3.40
3.40
3.60
3M Libor + 0.75
1.25
0.98
3.20
3.08
3.20
3.50
1.01
3.50
3.60
0.55
3.40
3.40
3.40
3.40
3.40
Currency
UF
UF
UF
CHF
CHF
JPY
UF
HKD
UF
UF
JPY
UF
UF
JPY
UF
UF
UF
UF
UF
Issued
date
Maturity
date
01/27/2014
01/27/2014
02/10/2014
02/28/2014
02/28/2014
03/18/2014
04/16/2014
04/16/2014
04/22/2014
04/29/2014
04/29/2014
07/22/2014
07/31/2014
08/06/2014
08/12/2014
09/15/2014
09/16/2014
09/24/2014
10/02/2014
01/27/2021
01/27/2019
02/10/2022
02/28/2016
02/28/2019
03/18/2019
04/16/2021
04/16/2020
04/22/2021
04/29/2028
04/29/2022
07/22/2028
07/31/2028
08/06/2020
08/12/2020
09/15/2020
09/16/2020
09/24/2020
10/02/2020
Commercial Papers
Counterparty
Citibank N.A.
Goldman Sachs
Merrill Lynch
Citibank N.A.
Wells Fargo Bank
Wells Fargo Bank
JP Morgan Chase
Citibank N.A.
Merrill Lynch
Goldman Sachs
Wells Fargo Bank
Wells Fargo Bank
Goldman Sachs
Merrill Lynch
Wells Fargo Bank
JP Morgan Chase
Wells Fargo Bank
JP Morgan Chase
Merrill Lynch
JP Morgan Chase
JP Morgan Chase
Merrill Lynch
Wells Fargo Bank
Goldman Sachs
JP Morgan Chase
JP Morgan Chase
Wells Fargo Bank
Wells Fargo Bank
Wells Fargo Bank
JP Morgan Chase
Wells Fargo Bank
JP Morgan Chase
JP Morgan Chase
JP Morgan Chase
Wells Fargo Bank
Goldman Sachs
Wells Fargo Bank
Wells Fargo Bank
JP Morgan Chase
JP Morgan Chase
JP Morgan Chase
JP Morgan Chase
Wells Fargo Bank
Wells Fargo Bank
Wells Fargo Bank
Total as of December,
2014
Amount
MCh$
Term
(years)
Rate
(%)
10,888
27,220
10,888
2,712
13,558
27,117
22,384
11,192
11,192
11,192
3,910
55,121
11,024
11,024
27,453
54,984
21,994
27,658
13,829
27,710
3,329
5,526
11,067
27,669
55,337
33,263
17,284
15,556
20,155
58,860
52,974
29,529
29,812
59,860
23,944
29,650
11,860
17,815
47,664
13,366
30,690
35,928
16,693
15,177
24,282
0.30
0.30
0.30
0.30
0.30
0.30
0.30
0.30
0.30
0.30
0.50
0.25
0.23
0.23
0.27
0.30
0.38
0.29
0.50
0.31
0.65
0.50
0.30
0.30
0.30
0.52
0.28
0.64
0.30
0.31
0.35
0.31
0.31
0.31
0.31
0.31
0.31
0.32
0.35
0.58
0.35
0.35
0.40
0.58
0.33
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
Issued
date
Maturity
date
01/21/2014
01/21/2014
01/21/2014
01/22/2014
01/22/2014
01/22/2014
02/05/2014
02/05/2014
02/05/2014
02/05/2014
03/06/2014
05/14/2014
05/28/2014
05/28/2014
05/29/2014
05/30/2014
05/30/2014
06/04/2014
06/04/2014
06/10/2014
06/11/2014
06/23/2014
07/08/2014
07/08/2014
07/08/2014
07/11/2014
08/12/2014
08/12/2014
08/13/2014
09/03/2014
09/03/2014
09/10/2014
09/15/2014
09/26/2014
09/26/2014
10/08/2014
10/08/2014
11/12/2014
12/03/2014
12/03/2014
12/09/2014
12/15/2014
12/15/2014
12/29/2014
12/29/2014
04/22/2014
04/22/2014
04/22/2014
05/14/2014
05/14/2014
05/14/2014
05/06/2014
05/06/2014
05/06/2014
05/06/2014
03/06/2015
08/12/2014
09/02/2014
09/02/2014
09/03/2014
09/03/2014
09/26/2014
09/10/2014
03/06/2015
09/15/2014
06/10/2015
03/20/2015
10/08/2014
10/08/2014
09/26/2014
04/06/2015
11/12/2014
08/06/2015
12/11/2014
12/03/2014
01/12/2015
12/09/2014
12/15/2014
12/23/2014
12/29/2014
01/09/2015
01/09/2015
02/10/2015
03/03/2015
08/28/2015
03/09/2015
03/16/2015
04/13/2015
08/26/2016
03/30/2015
1,090,340
As of December 31, 2014 the Bank has no issued subordinated bonds.
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 2015 and 2014.
225
Banco de Chile
and Subsidiaries
23.Other Financial Obligations:
As of December 31, 2015 and 2014, other financial obligations are detailed as follows:
2015
MCh$
2014
MCh$
Other Chilean obligations
132,136
141,729
Public sector obligations
40,945
44,844
Other foreign obligations
—
—
173,081
186,573
Total
24.Provisions:
(a) As of December 31, 2015 and 2014, provisions and accrued expenses are detailed as follows:
2015
MCh$
2014
MCh$
324,469
324,588
Provisions for Personnel benefits and payroll expenses
74,791
81,515
Provisions for contingent loan risks
59,213
54,077
161,177
130,256
4,260
2,959
Provisions for contingencies:
Additional loan provisions (*)
Country risk provisions
Other provisions for contingencies
Total
15,133
8,319
639,043
601,714
(*) In 2015, the Bank established an amount of Ch$30,921 million (Ch$22,499 million in 2014) for additional provisions. See note 24(b).
(b) The following table details the movements in provisions and accrued expenses during the 2015 and 2014 periods:
Minimum
dividends
MCh$
Country risk
provisions
Contingent Additional loan and other
loan Risks
provisions contingencies
MCh$
MCh$
MCh$
Total
MCh$
Balances as of January 1,
2014
324,582
67,943
49,277
107,757
2,339
551,898
324,588
60,383
4,800
22,499
9,169
421,439
(324,582)
(46,811)
—
—
(230)
(371,623)
—
—
—
—
—
—
Balances as of December
31, 2014
324,588
81,515
54,077
130,256
11,278
601,714
324,469
60,208
5,136
30,921
8,362
429,096
(324,588)
(66,932)
—
—
(247)
(391,767)
—
—
—
—
—
—
324,469
74,791
59,213
161,177
19,393
639,043
Provisions used
Provisions released
Provisions used
Provisions released
Balances as of December
31, 2015
Personnel
benefits and
payroll
MCh$
(c) Provisions for personnel benefits and payroll:
2015
2014
MCh$
MCh$
Vacation accrual
25,480
23,727
Short-term personnel benefits
34,307
29,678
Pension plan- defined benefit plan
10,728
11,471
4,276
16,639
74,791
81,515
Other benefits
Total
(d) Pension plan – Defined benefit plan:
(i) Movement in the defined benefit obligations are as follow:
Opening defined benefit obligation
Increase in provisions
Benefit paid
2015
2014
MCh$
MCh$
11,471
10,696
838
1,020
(1,614)
(644)
Effect of change in actuarial factors
Total
33
399
10,728
11,471
(ii) Net benefits expenses:
2015
2014
MCh$
MCh$
Current service cost
384
580
Interest cost of benefits obligations
454
440
Effect of change in actuarial factors
33
399
871
1,419
Net benefit expenses
(iii) Assumptions used to determine pension obligations:
The principal assumptions used in determining pension obligations for the Bank’s plan are shown below:
December 31, 2015
December 31, 2014
%
%
Discount rate
4.60
4.38
Annual salary increase
5.41
5.12
99.99
99.99
Payment probability
The most recent actuarial valuation of the present value of the benefit plan obligation was carried out at
December 31, 2015.
227
Banco de Chile
and Subsidiaries
(e) Movements in provisions for incentive plans:
2015
2014
MCh$
MCh$
29,678
32,000
35,253
26,971
(30,624)
(29,293)
—
—
34,307
29,678
2015
2014
MCh$
MCh$
23,727
21,895
Provisions used
Provisions release
Total
(f) Movements in provisions for vacations:
Provisions used
Provisions release
Total
6,672
6,268
(4,919)
(4,436)
—
—
25,480
23,727
(g) Employee share-based benefits provision:
As of December 31, 2015 and 2014, the Bank and its subsidiaries do not have a stock compensation plan.
(h) Contingent loan provisions:
As of December 31, 2015 and 2014, the Bank and its subsidiaries maintain contingent loan provisions by an
amount of Ch$ 59,213 million (Ch$54,077 million in 2014). See note No. 26 (d).
25.Other Liabilities:
As of December 31, 2015 and 2014, other liabilities are detailed as follows:
2015
2014
MCh$
MCh$
121,419
121,388
Unearned income
6,644
5,946
Dividends payable
1,255
1,011
Cobranding
54,006
43,291
Documents intermediated (**)
39,735
45,580
VAT debit
13,235
13,605
6,040
6,003
Pending transactions
767
1,391
Insurance payments
634
284
15,577
8,583
259,312
247,082
Accounts and notes payable (*)
Other liabilities
Leasing deferred gains
Others
Total
(*) 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.
229
Banco de Chile
and Subsidiaries
26.Contingencies and Commitments:
(a) Commitments and responsibilities accounted for in off-balance-sheet accounts:
In order to satisfy its customers’ needs, the Bank entered into several irrevocable commitments and contingent
obligations. Although these obligations are not recognized in the Statement of Financial Position, they entail
credit risks and, therefore, form part of the Bank’s overall risk.
The Bank and its subsidiaries record the following balances related to such commitments and responsibilities,
which fall within its line of business, in off-balance-sheet accounts:
2015
2014
MCh$
MCh$
389,727
412,474
33,871
136,846
122,060
152,582
Bank guarantees
2,058,813
1,576,763
Immediately available credit lines
7,224,242
6,084,098
204,862
14,434
217,479
305,384
18,563
13,153
—
—
151,375
67,834
—
—
Securities held in safe custody in the Bank
8,248,416
7,488,897
Securities held in safe custody in other entities
5,006,510
4,865,570
23,675,918
21,118,035
Contingent loans
Guarantees and surety bonds
Confirmed foreign letters of credit
Issued foreign letters of credit
Other commitments
Transactions on behalf of third parties
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
Above information only includes the most significant balances.
(b) Lawsuits and legal proceedings:
(b.1)
Legal contingencies within the ordinary course of business:
At the date of issuance of these consolidated financial statements, there are actions filed against the
Bank and its subsidiaries related with the ordinary course operations. As of December 31, 2015, the
Bank has established provisions for this concept in the amount of MCh$14,877 (MCh$8,073 in 2014),
recorded within “Provisions” in the statement of financial position.
Actions most significatives are the following:
-
Collective action filed by the National Consumer Service (Servicio Nacional del Consumidor) in accordance
with Law No. 19,496. This action seeks to challenge some clauses of the “Person Products Unified
Agreement” (Contrato Unificado de Productos de Personas) regarding fees on credit lines for overdraft
and validity of the tacit consent to changes in fees, charges and other conditions in consumer contracts.
-
Collective action filed by the National Corporation of Consumers and Users of Chile (Corporación Nacional
de Consumidores y Usuarios de Chile) that challenge some clauses of the “Person Products Unified
Agreement” (Contrato Unificado de Productos de Personas) regarding fees on credit lines for overdraft
and validity of the tacit consent to changes in fees, charges and other conditions in consumer contracts,
along with the outsourcing of certain services related to our clients’ current account data.
-
Collective action filed by the National Organization of Consumers and Users of Chile (“Organización de
Consumidores y Usuarios de Chile”) that requests the Court to declare abusive and void certain provisions
of the Person Products Unified Agreement regarding the use of self-service channels (internet, ATMs,
telephone banking) and Credit Cards. Such provisions refer to the user’s duty to act with diligence and
care with respect to passwords as well as the responsibility they have in case of disclosure to third
parties, and the use by such third parties of them.
The following table presents estimated date of completion of the respective litigation:
As of December 31, 2015
Legal contingencies
2016
2017
2018
2019
Total
MCh$
MCh$
MCh$
MCh$
MCh$
14,488
19
370
—
14,877
(b.2) Contingencies for significant lawsuits:
As of December 31, 2015 and 2014, it does not exist any significant demands in courts that they affect
or could affect the current consolidated financial statements.
231
Banco de Chile
and Subsidiaries
(c) Guarantees granted:
i)
In subsidiary Banchile Administradora General de Fondos S.A.:
In compliance with article 12 of Law 20,712, Banchile Administradora General de Fondos S.A., has
designated Banco de Chile as the representative of the beneficiaries of the guarantees it has established
and in that character the Bank has issued bank guarantees totaling UF 2,603,000, maturing January 8,
2016 (UF 2,458,000 maturing January 9, 2015 in December 2014).
In addition there are other guarantees for a guaranteed return on certain mutual funds, totaling Ch$35,861
million as of December 31, 2014. There are not mutual funds guaranteed as of December 31, 2015.
El detalle de las boletas en garantía es el siguiente:
Fund
2015
Guarantees
MCh$
Number
2014
Guarantees
MCh$
Number
Mutual Fund Deposito Plus VI– Guaranted
—
—
5,429
002506-8
Mutual Fund Twin Win Europa 103 – Guaranted
—
—
3,537
006035-1
Mutual Fund Europa Accionario – Guaranted
—
—
2,059
006036-9
Mutual Fund Deposito Plus V – Guaranted
—
—
9,976
001107-7
Mutual Fund Small Cap USA – Guaranted
—
—
5,197
008212-5
Mutual Fund Global Stocks – Guranted
—
—
2,964
007385-9
Mutual Fund Second Best Europa China –
Guaranted
—
—
1,649
007082-7
Mutual Fund Chile Bursátil – Guaranted
—
—
5,050
006034-3
Total
—
35,861
In compliance to stablish 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 UF 175,000, with maturity on January 8, 2016.
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 Mapfre
Seguros Generales S.A., that matures April 22, 2016, whereby the Securities Exchange of the Santiago
Stock Exchange was appointed as the subsidiary’s creditor representative.
232
Anual Report 2015
2015
2014
MCh$
MCh$
Securities Exchange of the Santiago Stock Exchange
14,628
17,158
Securities Exchange of the Electronic Stock Exchange of
Chile
27,981
8,748
2,995
2,996
80
—
45,684
28,902
Guarantees:
Shares to secure short-sale transactions in:
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 AIG Chile – Compañía de Seguros
Generales S.A. that expires January 2, 2016, and that covers employee fidelity, physical losses, falsification
or adulteration, and currency fraud with a coverage amount equivalent to US$ 10,000,000.
According to disposition of Chilean Central Bank, it was constituted a bank guarantee corresponding to
UF 10,500, 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 18, 2016.
It was constituted a bank guarantee No. 356782-3 corresponds to UF 185,000, 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 8, 2016.
It was constituted a cash guarantee for an amount of US$122,494.32, whose purpose is to comply
obligations with Pershing, by operations made through this broker.
233
Banco de Chile
and Subsidiaries
iii) In subsidiary Banchile Corredores de Seguros Ltda.:
According to established in article No. 58, letter D of D.F.L. 251, as of December 31, 2015, the entity maintains
two insurance policies that protect it in the face of possible damages that it could affect it, due to infractions
of the law, regulations and complementary rules that regulate insurance brokers, and specially when the
non-compliance is from acts, mistakes or omissions of the brokers, its represents, agent or dependent
that participate in the intermediation.
The policies contracted are the following:
Matter insured
Responsibility for errors and omissions policy
Amount Insured (UF)
60,000
Civil responsibility policy
500
(d) Provisions for contingencies loans:
Established provisions for credit risk from contingencies operations are the followings:
2015
2014
MCh$
MCh$
Free credit lines available
36,743
34,715
Bank guarantees
18,474
15,372
3,314
3,009
Guarantees and surety bonds
Letters of credit
393
639
Other commitments
289
342
59,213
54,077
Total
(e) In the Eleventh Civil Court of Santiago, Banchile Corredores de Bolsa S.A. presented a reclamation against the
Resolución Exenta No. 270 of October 30, 2014 of the Superintendency of Securities and Insurance (“SVS”),
whereby mentioned Superintendency sanctioned to pay a fine to Banchile Corredores de Bolsa S.A. (“Banchile
Corredores”) by an amount of UF 50,000 for the alleged infringement of Article 53 second paragraph of Law
18,045 (“Ley de Mercado de Valores”), for certain specific transactions related to Sociedad Química y Minera
de Chile S.A.’s shares (SQM-A). For which Banchile appropriated 25% of the amount of the fine. Pursuant to
complaint seeks to rescind the fine. Such reclamation was accumulated to the trial No. rol 25,795-2014 of
22nd. Civil Court of Santiago, in which still has not started the term probative.
According to the current policies, the company has not established provisions because in this judicial process
has not yet been ruled as also in consideration that legal advisors estimate that there are grounds for the
judgment result is favorable for society.
27.Equity:
(a)Capital:
(i) Authorized, subscribed and paid shares:
As of December 31, 2015, the paid-in capital of Banco de Chile is represented by 96,129,146,433 registered
shares (94,665,367,544 in 2014), with no par value, fully paid and distributed.
Corporate Name or Shareholders’s name
Number of Shares
% of Equity Holding
28,593,701,789
29.745%
25,008,633,509
26.016%
Sociedad Matriz del Banco de Chile S.A.
12,138,555,766
12.627%
Banco de Chile on behalf others Chapter XIV Resolution 5412 and 43
3,600,350,244
3.745%
2,765,666,079
2.877%
Banco Itaú Chile (on behalf foreign investors)
2,671,582,247
2.779%
Ever 1 BAE SPA
2,146,401,050
2.233%
Ever Chile SPA
2,146,400,935
2.233%
J. P. Morgan Chase Bank
1,884,488,143
1.960%
Banco Santander (on behalf foreign investors)
1,537,372,070
1.599%
Inversiones Aspen Ltda.
1,485,607,284
1.545%
A.F.P. Capital S.A.
911,465,483
0.948%
Metlife Chile Acquisition CO. S.A.
813,321,479
0.846%
A F P Cuprum S.A. for pension fund
811,048,878
0.844%
A F P Habitat S.A.
765,474,440
0.796%
725,391,056
0.755%
544,835,405
0.567%
BCI Corredor de Bolsa S.A.
409,321,431
0.426%
359,636,083
0.374%
Inversiones CDP limitada
302,266,806
0.314%
89,621,520,177
93.23%
Subtotal
Others shareholders
Total
6,507,626,256
6.77%
96,129,146,433
100.00%
235
Banco de Chile
and Subsidiaries
Corporate Name or Shareholders’s name
Number of Shares
% of Equity Holding
28,593,701,789
30.208%
24,332,365,224
25.706%
Sociedad Matriz del Banco de Chile S.A.
12,138,549,725
12.824%
3,402,522,640
3.595%
Banco de Chile on behalf others Chapter XIV Resolution 5412 and 43
Banco Itaú Chile (on behalf foreign investors)
2,594,927,157
2.741%
2,579,581,607
2.725%
J. P. Morgan Chase Bank
2,212,481,817
2.337%
Ever 1 BAE SPA
2,099,164,561
2.218%
Ever Chile SPA
2,099,164,453
2.218%
Banco Santander (on behalf foreign investors)
1,525,938,119
1.612%
Inversiones Aspen Ltda.
1,452,913,081
1.535%
A F P Provida S.A. for Pension Fund
831,032,632
0.878%
A F P Cuprum S.A. for Pension Fund
721,136,873
0.762%
708,607,074
0.749%
Administradora de Fondos de Pensiones Capital S.A.
666,618,567
0.704%
666,414,671
0.704%
A F P Habitat S.A. for Pension Fund
537,933,217
0.568%
BCI Corredor de Bolsa S.A.
447,368,991
0.473%
BTG Pactual Chile S. A. Corredores de Bolsa
348,610,893
0.368%
323,834,554
0.342%
88,282,867,645
93.27%
6,372,499,899
6.73%
94,655,367,544
100.00%
Subtotal
Others shareholders
Total
(ii)Shares:
(ii.1) On July 23, 2015 and regarding the capitalization of 30% of the distributable net income obtained
during the fiscal year ending the 31st of December, 2014, through the issuance of fully paid-in shares,
agreed in the Extraordinary Shareholders Meeting held on the 26th of March, 2015, were it was agreed to
increase the Bank´s capital in the amount of $96,252,499,241 through the issuance of 1,473,778,889 fully
paid-in shares, of no par value, payable under the distributable net income for the year 2014 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 N°2/2015, on July 14, 2015.
The Board of Directors of Banco de Chile, at the meeting N°2,821, dated July 23, 2015, set August 6, 2015,
as the date for issuance and distribution of the fully paid in shares.
(ii.2) The following table shows the share movements from December 31, 2013 to December 31, 2015:
Total Ordinary Shares
Total shares as of December 31, 2013
Fully paid and subscribed shares
Total shares as of December 31, 2014
Capitalization of retained earnings(*)
Total Shares as of December 31, 2015
93,175,043,991
1,480,323,553
94,655,367,544
1,473,778,889
96,129,146,433
(*) See note No. 5 (l) (i).
(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. Provisional article, was approved in an extraordinary shareholders meeting held
on March 25, 2010 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 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.
The amount distributable income for the period 2015 was by Ch$463,528 million (Ch$463,698 million in 2014).
As stated, the retention of earnings for the year 2014 made in March 2015 amounted to Ch$127,383 million
(Ch$49,913 millions of income for the year 2013 retained in March 2014).
(c) Approval and payment of dividends:
At the Ordinary Shareholders’ Meeting held on March 26, 2015, the Bank’s shareholders agreed the distribution
and payment of the dividend No. 203 amounting to Ch$3.42915880220 per common share of Banco de Chile,
with charge to net income for the year ended December 31, 2014. The amount of dividend paid of the period
2015 was Ch$367,444 million.
At the Ordinary Shareholders’ Meeting held on March 27, 2014, the Bank’s shareholders agreed to distribute
and pay dividend No. 202 amounting to Ch$3.48356970828 per common share of Banco de Chile, with charge
to net income for the year ended December 31, 2013. The amount of dividend paid of the period 2014 was
Ch$368,120 million.
237
Banco de Chile
and Subsidiaries
(d) Provision for minimum dividends:
The Board of Directors established a minimum dividend, where the Bank has to record a provision of 70%
of net income. Accordingly, the Bank recorded a liability under the line item “Provisions” for an amount of
MCh$324,469 (MCh$324,588 in 2014) 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, 2015 and 2014 are shown in the following table, also
shows the income and share data used in the calculation of EPS:
2015
2014
Basic earnings per share:
Net profits attributable to ordinary equity holders of the bank (in
millions)
Weighted average number of ordinary shares
558,995
591,080
96,129,146,433
96,129,146,433
5,82
6,15
558,995
591,080
96,129,146,433
96,129,146,433
Dividend per shares (in Chilean pesos) (*)
Diluted earnings per share:
Net profits attributable to ordinary equity holders of the bank (in
millions)
Weighted average number of ordinary shares
Assumed conversion of convertible debt
Adjusted number of shares
—
—
96,129,146,433
96,129,146,433
5.82
6.15
Diluted earnings per share (in Chilean pesos) (*)
(*) As of December 31, 2014 this calculation considers the effect of fully paid in shares issued during period 2015.
As of December 31, 2015 and 2014, the Bank did not have any instruments that could lead to a dilution of its
ordinary shares.
(f) Other comprehensive income:
This category includes the following items:
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
2015 it was made a credit to equity for an amount of Ch$2 million (credit to equity for Ch$80 millions in 2014).
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 2015 it was made
a net credit to equity for an amount of Ch$5,874 million (net credit to equity for Ch$4,590 millions in 2014).
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 2015 it was made a credit to equity for an amount of
Ch$7,728 million (credit to equity for Ch$23,507 millions for the period 2014).
28.Interest Revenue and Expenses:
(a) On the financial statement closing date, the composition of income from interest and adjustments, not including
income from hedge accounting, is as follows:
Interest
2015
Prepayment
Adjustment
fees
MCh$
MCh$
MCh$
2014
Prepayment
Adjustment
fees
Total
Interest
MCh$
MCh$
MCh$
MCh$
Total
MCh$
Commercial loans
659,787
188,240
3,471
851,498
695,377
260,582
4,682
960,641
Consumer loans
560,590
3,327
9,389
573,306
560,540
4,229
9,133
573,902
Residential mortgage
loans
233,887
230,935
4,811
469,633
216,549
276,363
4,346
497,258
Financial investment
46,376
16,055
—
62,431
55,979
28,371
—
84,350
1,367
—
—
1,367
1,355
—
—
1,355
28,267
—
—
28,267
18,938
—
—
18,938
3,420
497
3,401
—
3,898
1,989,922 1,549,235
572,946
18,161
2,140,342
Repurchase
agreements
Loans and advances
to banks
Other interest revenue
Total
719
2,701
—
1,530,993
441,258
17,671
The amount of interest revenue recognized on a received basis for impaired portfolio in 2015 by Ch$10,126
million (Ch$9,013 million in 2014).
239
Banco de Chile
and Subsidiaries
(b) At the period end, the detail of income from suspended interest is as follows:
2015
Commercial loans
Consumer loans
Total
2014
Interest
Adjustment
Total
Interest
Adjustment
Total
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
8,185
2,187
248
10,620
3,097
2,208
8
5,313
11,282
4,395
256
15,933
9,854
1,609
184
11,647
2,403
1,593
—
3,996
12,257
3,202
184
15,643
(c) As of each year end, interest and adjustment expenses (not including hedge gain) are detailed as follows:
2015
Adjustment
Total
Interest
Adjustment
Total
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
Savings accounts and time
deposits
274,920
67,035
341,955
330,821
104,061
434,882
Debt issued
169,053
160,058
329,111
156,422
187,904
344,326
1,742
507
2,249
1,737
892
2,629
Repurchase agreements
6,948
268
7,216
9,479
102
9,581
Borrowings from financial
institutions
10,171
—
10,171
7,166
—
7,166
Demand deposits
Other interest expenses
Total
2014
Interest
680
7,978
8,658
669
9,279
9,948
—
1,065
1,065
—
1,082
1,082
463,514
236,911
700,425
506,294
303,320
809,614
(d) As of December 31, 2015 and 2014, the Bank uses cross currency swap and interest rate swaps to hedge its
position on the fair value of corporate bonds and commercial loans, and cross currency swaps to hedge its
position on changes in cash flows from obligations with foreign banks and bonds issued in foreign currency.
2015
2014
Income (loss)
Expenses
Total
Income (loss)
Expenses
Total
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
Gain from accounting
hedges on fair value
7,241
—
7,241
5,410
—
5,410
Loss from accounting
hedges on fair value
(6,044)
—
(6,044)
(6,706)
—
(6,706)
Gain from accounting
hedges on cash flow
171,044
212,031
383,075
79,007
96,040
175,047
Loss from accounting
hedges on cash flow
(256,121)
(191,775)
(447,896)
(177,968)
(75,214)
(253,182)
(6,740)
—
(6,740)
(6,239)
—
(6,239)
(90,620)
20,256
(70,364)
(106,496)
20,826
(85,670)
Net gain on hedged items
Total
(e) At the end of the period the summary of interest and expenses is as follows:
2015
2014
MCh$
MCh$
Interest revenue
1,989,922
2,140,342
Interest expenses
(700,425)
(809,614)
Subtotal
1,289,497
1,330,728
(70,364)
(85,670)
1,219,133
1,245,058
Income accounting hedges (net)
Total interest revenue and expenses, net
241
Banco de Chile
and Subsidiaries
29. Income and Expenses from Fees and Commissions:
The income and expenses for fees and commissions shown in the Consolidated Statements of Comprehensive
Income refer to the following items:
2015
MCh$
2014
MCh$
129,962
110,984
Income from fees and commission
Card services
Investments in mutual funds and other
76,843
65,199
Collections and payments
52,657
49,374
Portfolio management
39,276
37,719
Fees for insurance transactions
23,258
19,674
Use of distribution channel
20,679
19,931
Guarantees and letters of credit
20,122
19,389
Trading and securities management
16,438
15,527
Use Banchile’s brand
13,661
13,152
Lines of credit and overdrafts
13,400
20,844
Financial advisory services
10,871
6,081
Other fees earned
18,909
9,578
436,076
387,452
Total income from fees and commissions
Expenses from fees and commissions
Credit card transactions
Fees for interbank transactions
Fees for collections and payments
(88,480)
(14,322)
(11,779)
(6,568)
(6,423)
Sale of mutual fund units
(3,951)
(3,379)
Fees for securities transactions
(3,139)
(2,851)
Sales force fees
(1,343)
(1,885)
Other fees
Total expenses from fees and commissions
(100,231)
(543)
(467)
(130,097)
(115,264)
30.Net Financial Operating Income:
The gain (losses) from trading and brokerage activities is detailed as follows:
2015
2014
MCh$
MCh$
18,659
27,873
Sale of available-for-sale instruments
8,861
18,102
Sale of loan portfolios
4,130
993
3,202
(17,453)
Net loss on other transactions
Total
1,687
(56)
36,539
29,459
31. Foreign Exchange Transactions, net:
Net foreign exchange transactions are detailed as follows:
(Loss) gain from accounting hedges
(Loss) gain on translation difference, net
Indexed foreign currency
Total
2015
2014
MCh$
MCh$
213,376
68,476
21,410
20,493
(177,468)
(18,744)
57,318
70,225
243
Banco de Chile
and Subsidiaries
32.Provisions for Loan Losses:
The movement of the results during 2015 and 2014, by concept of provisions, is summarized as follows:
Loans to customers
Loans and advances
to banks
Commercial
loans
Mortgage
loans
2015
2014
2015
2014
2015
2014
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
Provisions established:
Individual provisions
—
—
(61,286)
(51,726)
—
—
Group provisions
—
—
(40,094)
(46,061)
(13,484)
(8,497)
—
—
(101,380)
(97,787)
(13,484)
(8,497)
114
476
—
—
—
—
—
—
—
—
—
—
Provisions released, net
114
476
—
—
—
—
Provision, net
114
476
(101,380)
(97,787)
(13,484)
(8,497)
Additional provision
—
—
(30,921)
(22,499)
—
—
Recovery of written-off assets
—
—
18,011
14,272
1,895
2,152
114
476
(114,290)
(106,014)
(11,589)
(6,345)
Provisions established, net
Provisions released:
Individual provisions
Group provisions
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, according the reviwed information for the bank.
Consumer
loans
Contingent
loans
Subtotal
Total
2015
2014
2015
2014
2015
2014
2015
2014
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
—
—
(61,286)
(51,726)
(3,723)
(1,882)
(65,009)
(53,608)
(205,204)
(197,195)
(258,782)
(251,753)
(1,413)
(2,918)
(260,195)
(254,671)
(205,204)
(197,195)
(320,068)
(303,479)
(5,136)
(4,800)
(325,204)
(308,279)
—
—
—
—
—
—
114
476
—
—
—
—
—
—
—
—
—
—
—
—
—
—
114
476
(205,204)
(197,195)
(320,068)
(303,479)
(5,136)
(4,800)
(325,090)
(307,803)
—
—
(30,921)
(22,499)
—
—
(30,921)
(22,499)
33,043
29,885
52,949
46,309
—
—
52,949
46,309
(172,161)
(167,310)
(298,040)
(279,669)
(5,136)
(4,800)
(303,062)
(283,993)
245
Banco de Chile
and Subsidiaries
33.Personnel Expenses:
Personnel expenses in 2015 and 2014 are detailed as follows:
Remuneration
2014
MCh$
216,337
201,411
Bonuses
44,245
75,020
Variables compensations
36,855
29,366
Lunch and health benefits
25,339
24,263
Profit-sharing plans
22,703
22,920
Staff severance indemnities
13,386
11,895
Training expenses
Other personnel expenses
Total
2015
MCh$
2,546
2,639
19,977
16,998
381,388
384,512
34.Administrative Expenses:
As of December 31, 2015 and 2014, administrative expenses are detailed as follows:
2015
2014
MCh$
MCh$
60,902
32,816
24,466
11,966
9,427
7,222
6,518
5,741
5,241
4,718
4,434
4,147
2,956
2,873
2,170
8,700
194,297
55,985
30,368
22,705
10,504
8,149
8,350
6,883
4,844
4,416
4,239
4,493
3,339
2,368
2,795
2,358
5,956
177,752
20,683
10,566
8,050
5,141
3,492
47,932
21,916
8,669
8,073
5,476
3,087
47,221
Board expenses
Board remunerations
Other board expenses
Subtotal
2,296
427
2,723
2,235
527
2,762
Marketing expenses
Advertising
Subtotal
32,509
32,509
29,917
29,917
8,084
2,627
1,300
502
12,513
289,974
7,609
2,413
1,255
434
11,711
269,363
General administrative expenses
Information Technology and communications
Maintenance and repair of property and equipment
Office rental
Securities and valuables transport services
External advisory services
Office supplies
Rent ATM area
PO box, mail and postage
Lighting, heating and other utilities
Legal and notary
Representation and transferring of personnel
Insurance premiums
External services of financial information
External services of file custody
Donations
Other general administrative expenses
Subtotal
Outsources services
Credit pre-evaluation services
Data processing
Expenditure on external technological developments
Certification and testing technology
Other
Subtotal
Taxes, payroll taxes and contributions
Contribution to the Superintendency of Banks
Real estate contributions
Patents
Other taxes
Subtotal
Total
247
Banco de Chile
and Subsidiaries
35.Depreciation, Amortization and Impairment:
(a) Amounts charged to income for depreciation and amortization during the 2015 and 2014 periods are detailed
as follows:
2015
2014
MCh$
MCh$
21,206
22,149
Depreciation of property and equipment (Note No. 16b)
Amortization of intangibles assets (Note No. 15b)
Total
8,331
8,352
29,537
30,501
(b) As of December 31, 2015 and 2014, the impairment loss is detailed as follows:
2015
2014
MCh$
MCh$
—
—
204
1,965
59
120
263
2,085
Impairment loss
Impairment loss on investment instruments
Impairment loss on property and equipment (Note No.16b)
Impairment loss on intangibles assets (Note No. 15b)
Total
36.Other Operating Income:
During 2015 and 2014, the Bank and its subsidiaries present the following under other operating income:
2015
2014
MCh$
MCh$
3,470
3,484
Income for assets received in lieu of payment
Income from sale of assets received in lieu of payment
Other income
Subtotal
15
11
3,485
3,495
Release of provisions for contingencies
—
—
280
—
Subtotal
280
—
Rental income
8,537
8,083
Expense recovery
3,814
2,525
Recovery from external branches
2,980
2,525
Credit card income
1,987
2,694
Monthly prepaid taxes revaluation
1,632
1,910
Income from differences sale leased assets
1,520
2,313
Sale of recoveries charge-off leased assets
465
52
Fiduciary and trustee commissions
210
194
Gain on sale of property and equipment
Other income
208
156
Release of provisions
—
2,318
International Fiduciary operating expenses recovery
—
1,263
Others
2,268
1,944
Subtotal
23,621
25,977
Total
27,386
29,472
249
Banco de Chile
and Subsidiaries
37. Other Operating Expenses:
During 2015 and 2014, the Bank and its subsidiaries incurred the following other operating expenses:
2015
2014
MCh$
MCh$
1,302
1,622
Provisions and expenses for assets received in lieu of
payment
Charge-off assets received in lieu of payment
Expenses to maintain assets received in lieu of payment
483
487
Provisions for assets received in lieu of payment
319
260
2,104
2,369
1,301
1,189
6,360
7,750
Subtotal
7,661
8,939
Operating write-offs
4,844
5,076
Card administration
3,373
949
Provisions and write-off other assets
2,361
5,256
Operational expenses and write-offs for leasing
1,096
1,689
692
430
Subtotal
Provisions for contingencies
Other expenses
Provision for recovery of leased assets
Civil judgments
289
286
Contributions to government organizations
234
227
Mortgage life insurance
198
360
Losses on sale of property and equipment
Others
4
1
2,220
2,619
Subtotal
15,311
16,893
Total
25,076
28,201
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.
251
Banco de Chile
and Subsidiaries
(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 (**)
Individuals (***)
Total
2015
2014
2015
2014
2015
2014
2015
2014
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
289,803
287,943
40,916
36,383
7,570
1,878
338,289
326,204
—
—
—
—
27,678
19,970
27,678
19,970
Loans and accounts receivable:
Commercial loans
Consumer loans
Gross loans
Provision for loan losses
—
—
—
—
5,682
4,111
5,682
4,111
289,803
287,943
40,916
36,383
40,930
25,959
371,649
350,285
(921)
(790)
(79)
(132)
(248)
(68)
(1,248)
(990)
288,882
287,153
40,837
36,251
40,682
25,891
370,401
349,295
11,501
3,238
46
40
—
—
11,547
3,278
487
1,344
—
—
—
—
487
1,344
Banks guarantees
63,247
42,195
2,473
387
—
—
65,720
42,582
Immediately available credit lines
60,002
52,900
24,470
24,686
15,319
10,997
99,791
88,583
135,237
99,677
26,989
25,113
15,319
10,997
177,545
135,787
(117)
(89)
(1)
—
—
—
(118)
(89)
135,120
99,588
26,988
25,113
15,319
10,997
177,427
135,698
88,140
62,291
7,619
7,688
39,657
28,646
135,416
98,625
Net loans
Off balance sheet accounts
Guarantees
Letters of credits
Total off balance sheet account
Provision for contingencies loans
Off balance sheet account, net
Amount covered by Collateral
Mortgage
Warrant
—
—
—
—
—
—
—
—
Pledge
—
—
—
—
3
3
3
3
Other (****)
Total collateral
84,913
32,188
11,873
9,005
1,704
2,330
98,490
43,523
173,053
94,479
19,492
16,693
41,364
30,979
233,909
142,151
7,454
—
—
—
—
—
7,454
—
—
—
—
6,015
—
—
—
6,015
7,454
—
—
6,015
—
—
7,454
6,015
Acquired Instruments
For trading purposes
For investment purposes
Total acquired instruments
(*)
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.
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Anual Report 2015
(b) Other assets and liabilities with related parties:
2015
2014
MCh$
MCh$
Assets
10,497
10,478
112,370
85,226
18,378
17,386
141,245
113,090
Demand deposits
133,964
220,603
300,868
423,012
101,433
123,569
321,374
154,022
24,709
26,205
882,348
947,411
Other assets
Total
Liabilities
Other liabilities
Total
(c) Income and expenses from related party transactions (*):
2015
2014
Income
Expense
Income
Expense
MCh$
MCh$
MCh$
MCh$
23,830
14,166
23,873
18,631
Type of income or expense recognized
Interest and revenue expenses
Fees and commission income
Financial operating
Release and Provision for credit risk
Operating expenses
Other income and expenses
Total
54,094
45,291
56,154
40,879
276,154
224,328
130,606
144,403
—
230
141
—
—
115,231
—
100,070
486
29
631
83
354,564
399,275
211,405
304,066
(*) 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.
253
Banco de Chile
and Subsidiaries
(d) Related party contracts:
In the framework of a secondary offering by 6,700,000,000 Banco de Chile’s ordinary shares held in the local
and international market, as of January 29, 2014, Banco de Chile as issuer, LQ Inversiones Financieras S.A.,
as seller of the shares, and Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Deutsche Bank Securities Inc. and Banco BTG Pactual SA - Cayman Branch, as underwriters, proceeded to
sign a contract called Underwriting Agreement, pursuant to which LQ Inversiones Financieras SA sold to the
underwriters a portion of such shares. Additionally, on the same date Banco de Chile and LQ Investments SA
agreed the terms and conditions under which Banco de Chile participated in that process.
There are no any contracts entered during 2015 and 2014 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.
(e) Payments to key management personnel:
2015
2014
MCh$
MCh$
Remunerations
3,798
3,752
Short-term benefits
3,721
4,123
Contract termination indemnity
—
1,251
Stock−based benefits
—
—
7,519
9,126
Total
Composition of key personnel:
N° of executives
2015
2014
CEO
1
1
CEOs of subsidiaries
7
7
Position
254
Anual Report 2015
Division Managers
12
11
Total
20
19
(f) Directors’ expenses and remunerations:
Remunerations
Fees for attending
Committees and
Fees for attending Subsidiary Board
Board meetings
meetings (1)
Consulting
Total
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Name of Directors
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
397 (*)
383 (*)
50
52
363
365
—
—
810
800
162
155
12
10
—
—
—
—
174
165
Jorge Awad Mehech
54
52
25
24
102
130
—
—
181
206
Gonzalo Menéndez
Duque
54
52
21
23
114
115
27
26
216
216
Jaime Estévez
Valencia
54
52
26
26
128
106
—
—
208
184
Rodrigo Manubens
Moltedo
54
52
26
24
56
51
—
—
136
127
Jorge Ergas Heymann
54
52
18
19
47
60
—
—
119
131
Francisco Pérez
Mackenna
54
52
21
22
70
55
—
—
145
129
Thomas Fürst
Freiwirth
54
52
20
19
41
40
—
—
115
111
Jean-Paul Luksic
Fontbona
54
52
11
9
—
—
—
—
65
61
Others
—
—
—
—
153
147
—
—
153
147
991
954
230
228
1,074
1,069
27
26
2,322
2,277
Andrónico Luksic
Craig
Total
(1) Includes fees paid to members of the Advisory Committee of Banchile Corredores de Seguros Ltda, of MCh$17 (MCh$16 in 2014).
(*) Includes a provision of MCh$235 (MCh$226 in 2014) for an incentive subject to achieving the Bank’s forecasted earnings.
Fees paid for advisory services to the Board of Directors amount to MCh$271 (MCh$259 in 2014).
Travel and other related expenses amount to MCh$130 (MCh$226 in 2014).
39.Fair Value of Financial Assets and Liabilities:
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 definitions 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.
255
Banco de Chile
and Subsidiaries
To accomplish the measurements and controls, Banco de Chile and its subsidiaries, take into account at least
the following aspects:
(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 are trade in the local and international markets.
(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, Bolsa de Comercio de Santiago, LVA and Risk America
terminals. This quote represents the price at which the instrument is frequently buy and sell in financial
markets.
(iii) Valuation techniques
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, 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.
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.
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-toMarket 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.
256
Anual Report 2015
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).
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.
(vi) Judgmental analysis and information to Senior Management
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 subsidiaries 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.
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, UF-20, 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 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, in the case of
mutual funds and equity, is used the current price multiplied by the quantity of instruments to calculate
the fair value.
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:Valuation techniques whose inputs are other than quoted prices included within Level 1 that are
observable for the assets or liabilities, either directly or indirectly. For instruments in this level the
valuations is done based on inference from observable market parameters; quoted prices for similar
instruments in active markets. In this level are included the following inputs:
a) Quoted prices for similar assets or liabilities in active markets.
b) Quoted prices for identical or similar assets or liabilities in markets that are not active.
c) Inputs other than quoted prices those are observable for the asset or liability.
d) Inputs those are derived principally from or corroborated by observable market data.
257
Banco de Chile
and Subsidiaries
This level is composed mostly by derivatives, currency and rate derivatives, bank’s debt securities,
debt Chilean and foreign companies, made in Chile and abroad, 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.
Valorization Techniques and Inputs:
Type of Financial
Instrument
Valuation
Method
Description: Inputs and Sources
Prices are provided by third party price providers that are widely used in
the Chilean market.
Local Bank and
Corporate Bonds
Model is based on a Base Yield (Central Bank Bonds) and issuer
spread.
The model is based on daily prices and risk/maturity similarities
between Instruments.
the Chilean market.
Offshore Bank and
Corporate Bonds
Model is based on daily prices.
the Chilean market.
Local Central Bank
and Treasury Bonds
Mortgage
Notes
Discounted cash
flows model
the Chilean market.
spread.
The model takes into consideration daily prices and risk/maturity
similarities between instruments.
the Chilean market.
Time
Deposits
Model is based on daily prices and considers risk/maturity similarities
between instruments.
Zero Coupon rates are calculated by using the bootstrapping method
over swap rates.
Cross Currency
Swaps,
Offshore rates and spreads are obtained from third party price
providers that are widely used in the Chilean market.
Forward Points, Inflation forecast and local swap rates are provided by
market brokers that are widelyused in the Chilean market.
FX Options
258
Anual Report 2015
Black-Scholes
Option Pricing
Model
Prices for volatility surface estimates are obtained from market brokers
that are widely used in the Chilean market.
Level 3: These are financial instruments whose fair value is determined using unobservable inputs. An adjustment
to an input that is significant to the entire measurement can result in a fair value measurement classified
within Level 3 of the fair value hierarchy if the adjustment using significant unobservable data entry.
Instruments classified as level 3 correspond to Corporate Debt issued mainly Chilean and foreign
companies, issued both in Chile and abroad.
Valuation Techniques and Inputs:
Type of Financial
Instrument
Valuation
Method
Description: Inputs and Sources
the Chilean market (input is not observable by the market).
Local Bank and
Corporate Bonds
Discounted cash
flows model
spread.
The model is based on daily prices and risk/maturity similarities
between instruments.
Offshore Bank and
Corporate Bonds
Discounted cash
flows model
the Chilean market. (input is not observable by the market)
259
Banco de Chile
and Subsidiaries
(b) Cuadro de niveles:
La siguiente tabla muestra la clasificación, por niveles, de los instrumentos financieros registrados a valor justo.
Level 1
Level 2
Level 3
Total
2015
2014
2015
2014
2015
2014
2015
2014
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
Financial Assets
From the Chilean Government and
Central Bank
122,920
80,374
126,996
8,496
—
—
249,916
88,870
10,420
364
565,210
202,823
18,028
1,401
593,658
204,588
—
—
—
—
—
—
—
—
23,080
255,013
—
—
—
—
23,080
255,013
156,420
335,751
692,206
211,319
18,028
1,401
866,654
548,471
Mutual fund investments
Subtotal
Derivative contracts for trading purposes
Forwards
—
—
180,616
140,676
—
—
180,616
140,676
Swaps
—
—
739,777
609,843
—
—
739,777
609,843
Call Options
—
—
1,878
2,583
—
—
1,878
2,583
Put Options
—
—
680
287
—
—
680
287
Futures
—
—
—
—
—
—
—
—
—
—
922,951
753,389
—
—
922,951
753,389
Swaps
—
—
279
101
—
—
279
101
Cash flow hedge (Swap)
—
—
203,892
78,703
—
—
203,892
78,703
—
—
204,171
78,804
—
—
204,171
78,804
15,321
86,066
71,187
253,258
—
—
86,508
339,324
—
—
735,724 1,017,962
96,125
179,378
Subtotal
Hedge accounting derivative contracts
Subtotal
Financial assets available-for-sale (1)
From the Chilean Government and
Central Bank
Subtotal
Total
81,644
58,376
96,965
144,442
253,385
—
1,938
831,849 1,197,340
3,211
—
806,911 1,274,431
96,125
181,316 1,000,001 1,600,189
81,644
63,525
480,193 2,626,239 2,317,943
114,153
182,717 2,993,777 2,980,853
Financial Liabilities
Derivative contracts for trading purposes
Forwards
—
—
207,961
128,117
—
—
207,961
128,117
Swaps
—
—
897,513
691,524
—
—
897,513
691,524
Call Options
—
—
3,689
2,249
—
—
3,689
2,249
Put Options
—
—
549
362
—
—
549
362
Futures
—
—
—
—
—
—
—
—
—
— 1,109,712
822,252
—
— 1,109,712
822,252
Fair value hedge (Swap)
—
—
14,549
19,904
—
—
14,549
19,904
Cash flow hedge (Swap)
—
—
3,666
17,596
—
—
3,666
17,596
Subtotal
Hedge derivative contracts
Subtotal
—
—
18,215
37,500
—
—
18,215
37,500
Total
—
— 1,127,927
859,752
—
— 1,127,927
859,752
(1)As of December 31, 2015, 91% of instruments of level 3 have denomination “Investment Grade”, meaning are assets with a classification BBB- or higher. Also, 100%
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:
Balance as Gain (Loss) Gain (Loss)
of January 1, Recognized Recognized
2015
in Income (1) in Equity (2) Purchases
MCh$
MCh$
MCh$
MCh$
Sales
Balance as
Transfer since Transfer to of December
Level 1 and 2 Level 1 and 2
31, 2015
MCh$
MCh$
MCh$
MCh$
Financial Assets
Other instruments
issued in Chile
1,401
(26)
—
18,055
(51)
—
(1,351)
18,028
Subtotal
1,401
(26)
—
18,055
(51)
—
(1,351)
18,028
179,378
11,230
(775)
213
(101,213)
13,336
(6,044)
96,125
1,938
103
—
(2,097)
—
—
—
Subtotal
181,316
11,333
(719)
213
(103,310)
13,336
(6,044)
96,125
Total
182,717
11,307
(719)
18,268
(103,361)
13,336
(7,395)
114,153
Available for Sale Instruments
Other instruments
issued in Chile
Instruments
issued abroad
56
Balance as Gain (Loss) Gain (Loss)
of January 1, Recognized Recognized
2014
in Income (1) in Equity (2) Purchases
MCh$
MCh$
MCh$
MCh$
Sales
MCh$
Balance as
Transfer since Transfer to of December
Level 1 and 2 Level 1 and 2
31, 2014
MCh$
MCh$
MCh$
Financial Assets
Other instruments
issued in Chile
2,439
(1,087)
—
49
—
—
—
1,401
Subtotal
2,439
(1,087)
—
49
—
—
—
1,401
76,975
6,230
784
82,909
(18,483)
30,963
—
179,378
1,679
270
(11)
—
—
—
—
1,938
Subtotal
78,654
6,500
773
82,909
(18,483)
30,963
—
181,316
Total
81,093
5,413
773
82,958
(18,483)
30,963
—
182,717
Available for Sale Instruments
Other instruments
issued in Chile
Instruments
issued abroad
(1) Registered in income under the item “Net financial operating income”.
(2) Registered in equity under the item “Other comprehensive income”.
261
Banco de Chile
and Subsidiaries
(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:
2014
2015
Level 3
Sensitivity to
changes in key
assumptions of
models
Level 3
Sensitivity to
changes in key
assumptions of
models
MCh$
MCh$
MCh$
MCh$
Financial Assets
Total
18,028
(445)
1,401
(150)
18,028
(445)
1,401
(150)
96,125
(1,969)
179,378
(3,542)
Financial assets available-for-Sale
—
—
1,938
(67)
Total
96,125
(1,969)
181,316
(3,609)
Total
114,153
(2,414)
182,717
(3,759)
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.
(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
Fair Value
2015
2014
2015
2014
MCh$
MCh$
MCh$
MCh$
Assets
Receivables from repurchase agreements and
security borrowing
Subtotal
1,361,222
915,133
1,361,222
915,133
526,046
400,081
526,046
400,081
46,164
27,661
46,164
27,661
1,933,432
1,342,875
1,933,432
1,342,875
45,186
169,953
45,186
169,953
1,000,433
551,108
1,000,433
551,108
349,576
434,304
349,576
434,304
1,395,195
1,155,365
1,395,195
1,155,365
12,707,255
Domestic banks
Central bank
Foreign banks
Subtotal
Commercial loans
14,046,119
12,790,468
13,859,949
6,370,034
5,394,602
6,625,557
5,657,988
Consumer loans
3,540,122
3,162,963
3,525,034
3,170,640
Subtotal
23,956,275
21,348,033
24,010,540
21,535,883
Total
27,284,902
23,846,273
27,339,167
24,034,123
Liabilities
Current accounts and other demand deposits
8,327,048
6,933,679
8,327,048
6,933,679
Transactions in the course of payment
241,842
96,945
241,842
96,945
Payables from repurchase agreements and security
lending
184,131
249,482
184,131
249,482
9,907,692
9,721,246
9,902,468
9,719,397
1,529,627
1,098,716
1,522,667
1,094,468
173,081
186,573
173,081
186,573
20,363,421
18,286,641
20,351,237
18,280,544
39,568
52,730
41,849
55,482
6,813
11,584
7,206
12,189
5,270,214
4,223,047
5,302,742
4,283,006
Subtotal
Debt Issued
Letters of credit for residential purposes
Letters of credit for general purposes
Bonds
Subordinate bonds
Subtotal
Total
785,613
770,595
788,883
782,529
6,102,208
5,057,956
6,140,680
5,133,206
26,465,629
23,344,597
26,491,917
23,413,750
Other financial assets and liabilities not measured at fair value, but for which a fair value is estimated even
when not managed based on this value, include assets and liabilities such as loans, deposits and other time
deposits, debt issued and other financial assets and liabilities with different maturities and characteristics. The
fair values of these assets and liabilities are calculated using the model of discounted cash flow (DCF) and
the use of various sources of data such as yield curves, credit risk spreads, etc. Additionally, because some of
these assets and liabilities are not traded in the market, it requires analysis and periodic reviews to determine
the suitability of inputs and fair values determined.
263
Banco de Chile
and Subsidiaries
The following table shows the fair value of financial assets and liabilities not measured at fair value, as of
December 31, 2015 and 2014:
(f) Levels of other assets and liabilities:
Level 1
Estimated Fair
Value
Level 2
Estimated Fair
Value
Level 3
Estimated Fair
Value
Level 4
Estimated Fair
Value
2015
2014
2015
2014
2015
2014
2015
2014
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
Assets
Transactions in the
course of collection
Receivables from
repurchase agreements
and security borrowing
Subtotal
1,361,222
915,133
—
—
—
—
1,361,222
915,133
526,046
400,081
—
—
—
—
526,046
400,081
46,164
27,661
—
—
—
—
46,164
27,661
1,933,432
1,342,875
—
—
—
—
1,933,432
1,342,875
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
45,186
1,000,433
349,576
1,395,195
169,953
551,108
434,304
1,155,365
—
—
13,859,949
12,707,255
13,859,949
12,707,255
—
—
6,625,557
5,657,988
6,625,557
5,657,988
—
—
—
—
3,525,034
3,170,640
3,525,034
3,170,640
— 24,010,540 21,535,883 24,010,540 21,535,883
— 24,010,540 21,535,883 27,339,167 24,034,123
Domestic banks
45,186
169,953
Central bank
1,000,433
551,108
Foreign banks
349,576
434,304
Subtotal
1,395,195 1,155,365
Commercial loans
—
—
—
—
loans
Consumer loans
—
—
Subtotal
—
—
Total
3,328,627 2,498,240
Liabilities
Current accounts and
other demand deposits
Transactions in the
course of payment
Payables from
and security lending
Savings accounts and
time deposits
institutions
Subtotal
Debt Issued
Letters of credit for
residential purposes
Letters of credit for
general purposes
Bonds
Subordinate bonds
Subtotal
Total
8,327,048
6,933,679
—
—
—
—
8,327,048
6,933,679
241,842
96,945
—
—
—
—
241,842
96,945
184,131
249,482
—
—
—
—
184,131
249,482
—
—
—
—
9,902,468
9,719,397
9,902,468
9,719,397
—
—
—
—
1,522,667
1,094,468
1,522,667
1,094,468
173,081
8,926,102
186,573
7,466,679
—
—
—
—
—
11,425,135
—
10,813,865
173,081
20,351,237
186,573
18,280,544
—
—
41,849
55,482
—
—
41,849
55,482
—
—
7,206
12,189
—
—
7,206
12,189
—
— 5,302,742 4,283,006
—
—
5,302,742
4,283,006
—
—
—
—
788,883
782,529
788,883
782,529
—
— 5,351,797 4,350,677
788,883
782,529
6,140,680
5,133,206
8,926,102 7,466,679 5,351,797 4,350,677 12,214,018 11,596,394 26,491,917 23,413,750
The Bank determines the fair value of these assets and liabilities according to the following:
•
Short-term assets and liabilities: For assets and liabilities maturing short-term (less than three months) it
is assumed that the book values approximate their fair value. This assumption is applied to the following
assets and liabilities:
Assets:
Liabilities:
- Cash and due from banks
- Current accounts and other demand deposits
- Transactions in the course of collection
- Transactions in the course of payments
- Cash collateral on securities borrowed and reverse
- Cash collateral on securities lent and repurchase
agreements
- Loans and advance to banks
- Other financial obligations
•
Loans to Customers: Fair value is determined by using the DCF model and internally generated discount
rates, based on internal transfer rates derived from our internal transfer price policy. After we calculate the
present value, we deduct the related loan loss allowances in order to incorporate the credit risk associated
with each contract or loan. As we use internally generated parameters for valuation purposes, we categorize
these instruments in Level 3.
•
Letters of Credit and Bonds: In order to determine the present value of contractual cash flows, we apply the
DCF model by using market interest rates that are available in the market, either for the instruments under
valuation or instruments with similar features that fit valuation needs in terms of currency, maturities and
liquidity. Market interest rates are obtained from third party price providers widely used by the market. As
a result of the valuation technique and the quality of inputs (observable) used for valuation, we categorize
these financial liabilities in Level 2.
•
Saving Accounts, Time Deposits, Borrowings from Financial Institutions and Subordinated Bonds: The
DCF model is used to obtain the present value of committed cash flows by applying a bucket approach
and average adjusted discount rates that are derived from both market rates for instruments with similar
features and our internal transfer price policy. As we use internally generated parameters and/or apply
significant judgmental analysis for valuation purposes, we categorize these financial assets/liabilities in
Level 3.
265
Banco de Chile
and Subsidiaries
(g) Offsetting of financial assets and liabilities:
The Bank trades financial derivatives with foreign counterparties using ISDA Master Agreement (International
Swaps and Derivatives Association, Inc,), under legal jurisdiction of the City of New York – USA or London –
United Kingdom. Legal framework in these jurisdictions, along with documentation mentioned, it allows 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
Negative Fair Value
of contracts with
right to offset
Contratos valor
razonable positivo
con derecho a
compensar
Financial Collateral
Net Fair Value
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
Derivative
financial
assets as of
December
31,
1,127,122
832,193 (258,213)
(169,573) (244,064) (267,053) (148,023) (49,804)
476,822
345,763
Derivative
financial
liabilities as
of December
31,
1,127,927
859,752 (258,213)
(169,573) (244,064) (267,053) (190,563) (124,418)
435,087
298,708
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, 2015 and 2014, respectively. Trading
and available for sale instruments are included at their fair value:
2015
Over 1 month Over 3 month Over 1 year
and up to
and up to
and up to
Up to 1 month 3 months
12 months
3 years
MCh$
MCh$
MCh$
MCh$
Over 3 year
and up to
5 years
Over
5 years
Total
MCh$
MCh$
MCh$
Assets
Transactions in the
Financial Assets held-fortrading
Receivables from
1,361,222
—
—
—
—
—
1,361,222
526,046
—
—
—
—
—
526,046
866,654
—
—
—
—
—
866,654
35,909
8,704
1,551
—
—
—
46,164
74,809
75,895
160,886
323,580
171,498
320,454
1,127,122
Loans and advances to
banks (*)
1,063,248
78,056
224,943
29,650
—
—
1,395,897
Loans to customers (*)
2,670,006
2,935,330
4,586,126
4,873,871
2,843,390
6,649,318
24,558,041
124,174
73,409
343,350
76,834
121,680
260,554
1,000,001
—
—
—
—
—
—
—
6,722,068
3,171,394
5,316,856
5,303,935
3,136,568
7,230,326
30,881,147
Over 3 year
and up to
5 years
Over
5 years
Total
MCh$
MCh$
MCh$
Financial assets
available-for-sale
Financial assets held-tomaturity
Total assets
2014
and up to
and up to
and up to
12 months
3 years
MCh$
MCh$
MCh$
MCh$
Assets
Transactions in the
Receivables from
banks (*)
Loans to customers (*)
Financial assets
available-for-sale
Financial assets held-tomaturity
Total assets
915,133
—
—
—
—
—
915,133
400,081
—
—
—
—
—
400,081
548,471
—
—
—
—
—
548,471
11,863
6,291
9,507
—
—
—
27,661
68,070
55,799
166,519
176,235
153,461
212,109
832,193
809,565
79,583
248,840
18,193
—
—
1,156,181
2,662,866
2,576,105
3,800,448
4,831,285
2,328,610
5,677,334
21,876,648
211,690
163,824
472,944
82,763
123,317
545,651
1,600,189
—
—
—
—
—
—
—
5,627,739
2,881,602
4,698,258
5,108,476
2,605,388
6,435,094
27,356,557
(*)These balances are presented without of the respective provision, which amount to MCh$601,766 (MCh$528,615 in 2014) for loans to customers; and
MCh$702 (MCh$816 in 2014) for borrowings from financial institutions.
267
Banco de Chile
and Subsidiaries
2015
and up to
and up to
and up to
12 months
3 years
MCh$
MCh$
MCh$
MCh$
Over 3 year
and up to
5 years
Over
5 years
Total
MCh$
MCh$
MCh$
Liabilities
8,327,048
—
—
—
—
—
8,327,048
Transactions in the
course of payment
241,842
—
—
—
—
—
241,842
Payables from
170,451
13,680
—
—
—
—
184,131
time deposits (**)
4,575,625
1,687,604
2,975,070
463,454
557
211
9,702,521
84,043
97,292
193,171
289,987
135,760
327,674
1,127,927
340,856
126,034
905,878
156,859
—
—
1,529,627
institutions
Debt issued:
Mortgage bonds
Bonds
Subordinate bonds
Total liabilities
3,226
3,220
8,157
15,035
9,452
7,291
46,381
370,502
141,996
254,426
791,009
1,008,830
2,703,451
5,270,214
2,564
1,756
181,592
52,627
46,038
501,036
785,613
132,762
2,108
9,982
19,237
7,928
1,064
173,081
14,248,919
2,073,690
4,528,276
1,788,208
1,208,565
3,540,727
27,388,385
Over 3 year
and up to
5 years
Over
5 years
Total
MCh$
MCh$
MCh$
2014
and up to
and up to
and up to
12 months
3 years
MCh$
MCh$
MCh$
MCh$
Liabilities
6,933,679
—
—
—
—
—
6,933,679
96,945
—
—
—
—
—
96,945
249,323
159
—
—
—
—
249,482
time deposits (**)
4,854,400
1,969,861
2,559,793
148,527
166
188
9,532,935
37,952
47,779
166,064
208,200
147,078
252,679
859,752
institutions
61,022
159,372
678,067
200,255
—
—
1,098,716
Transactions in the
course of payment
Payables from
Debt issued:
Mortgage bonds
Bonds
Subordinate bonds
Total liabilities
4,035
4,109
10,143
20,487
12,407
13,133
64,314
239,132
294,460
353,568
475,427
973,509
1,886,951
4,223,047
2,050
2,786
36,463
178,298
50,345
500,653
770,595
142,093
792
3,879
7,996
14,350
17,463
186,573
12,620,631 2,479,318
3,807,977
1,239,190
1,197,855
2,671,067
24,016,038
(**) Excluding term saving accounts, which amount to MCh$205,171 (MCh$188,311 in 2014).
41. Risk Management:
(1)Introduction:
The Bank’s risk management is based on specialization, knowledge of the business and the experience of
its teams, with professionals specifically dedicated to each different type of risks. Our policy is to maintain
an integrated, forward looking approach to risk management, taking into account the current and forecasted
economic environment and the risk/return ratio of all products for both the Bank and its subsidiaries.
Our 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, Market and Operational Risk Management are at the all levels of the Organization, with a structure that
recognizes the relevance of the different risk areas that exist.
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 Risk Committee and Senior
Operational Risk Committee, which check the status of credit, market and operating 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.
(ii) Finance, International and Financial Risk Committee
This committee reviews financial positions, marke and liquidity risk, that the Banks maintained the last 30
days. It is responsible by the control of the limits o alerts both, internal and regulatory. 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 liquidity or a tight liquidity (either
liquidity of trading in financial instruments as funding liquidity).
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.
269
Banco de Chile
and Subsidiaries
The Committee also discussed the international financial exposure and liabilities major credit exposures
generated by derivatives transactions.
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.
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) Comités de Crédito
The credit approval process is done mainly through various credit committees, which are composed of
qualified professionals and with the necessary attributions to take decisions required.
These committees have different periodicities and are based on the amounts approved and commercial
segments. Each committee is responsible for defining the terms and conditions under which the Bank
accepts counterparty risks and the Corporate Risk Division participates in them as independent and
autonomous trade areas.
The highest court approval, within the structure of the Bank’s risk management is the Credit Committee
of the Board, which reviews weekly all operations exceeding UF 750,000. The committee is composed of
the General Manager, Corporate Risk Division Manager, and at least three directors. The attendance of
Directors is not limited to the number of Directors required, so all board members can participate in the
Credit Committee.
(iv) Portfolio Risk Committee
The main function is the evolution of the composition of the loan portfolio of the Bank, from a global perspective,
reviewing indicators of default, past due loans, deterioration and major exhibitions by economic groups,
debtors and sectoral concentration in the framework of the Policy Limits sector. The Board approves and
proposes strategies differentiated risk management, including credit policies, assessment methodologies
portfolio, calculation of provisions to cover expected losses, as well as methodologies for determining
additional provisions. It is also responsible for knowing the analysis of adequacy of provisions, authorize
extraordinary write-offs of loans where are exhausted instances of recovery, control the management of
liquidation of foreclosed assets and review the guidelines and methodological advances in the development
of models credit risk assessed on the Technical Committee for the Supervision of Internal Models.
The Portfolio Risk Committee meets monthly and is composed of the Chairman, two Directors, the General
Manager, Corporate Risk Manager, Commercial Manager, the Chief of Intelligence Information Area. Also
participate as permanent guests Individual Risk Manager, Manager of the Area of Architecture and the
CFO. The Committee may be summoned in an extraordinary way at the request of the Chairman, two
Directors or the General Manager.
(v) Comité de Riesgo Operacional
The Operational Risk Committee, is responsible for defining and prioritizing the main strategies to mitigate
operational risk events and thus also ensure the implementation of the management model, set tolerance
levels and risk aversion enforce Programs, related policies and Privacy and Information Security, Business
Continuity and Operational Risk of Banco de Chile.
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.
The Operational Risk Committee is composed of the General Manager, two Directors Manager Corporate
Risk Division, Manager of Financial Control Division, Manager of Operations and Technology Division and
Manager of Operational Risk and Technology. Also, with voice rights Controller Division Manager, Manager
Clients Area, Manager Office Division and Manager Safety and Risk Prevention Area and Division Manager
of Process and Standards.
The committee meets monthly, although it may be cited extraordinarily at the request of the President or
two of its members.
(vi) Senior Operational Risk Committee
The Senior Operational Risk Committee, has among its functions: to know the level of exposure to
operational risk of the Corporation Banco de Chile, analyze the effectiveness of the strategies adopted
to mitigate operational risk events, approve strategies and policies prior the Board, actions and efforts
to promote proper management and mitigation of operational risk, inform the Board of these materials,
ensure regulatory compliance and enforcement policy so as to ensure the solvency of the Corporation in
the long term by avoiding risk factors that could jeopardize the continuity of the Corporation.
The Senior Operational Risk Committee is composed of Chairman, a Director, General Manager, Manager
Corporate Risk Division, Operations and Technology Division Manager, Manager Operational Risk and
Technology and Division Manager of Proccess and Standards.
The committee meets monthly, although it may be cited in an extraordinary way at the request of the
President or two of its members.
(vii) 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.
271
Banco de Chile
and Subsidiaries
(b) Internal Audit
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.
(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.
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.
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 regulator-imposed 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.
(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, and derivative
instruments.
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.
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.
272
Anual Report 2015
(a) Approval Process:
It operates under a differentiated approach, because there are different nature of the segments (Retail and
Wholesale Segments), which it characterizes by different basics in its variables of explanation of its financial
structure and repayment ability. The general concepts involved in each approval process are:
•
•
•
•
Politics, rules 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.
Risk management in the segments Retail and Wholesale has a process and team consolidated, that have a
high level of experience and specialization in the approving of credits, for the different segments and business
in which the Bank operates.
Retail Segments
The following are the types of approval models:
a. Automated Model: This model is used to evaluate credit applications massive segments of individuals
without a commercial business, Commercial Banking and Credichile. The Bank has automatized systems
of evaluations, in which it has programmed the politics and rules applicable in credits. The fundamental
pillars in this model of admission are the following dimensions: Target Market; Minimum Credit Profil
(scoring) and borrowing Limits (exposure).
b. Parametric Model: This methodology is used in individuals in the segment PYME (SME). This model
considers the evaluation of customers based on three pillars: Payment behavior both, internal and external;
Financial reporting analysis and Evaluation of business of each client, including experience of its owners
and management.
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.
c. Pre-approved model: Considering the available information of the clients, it is made massive evaluation
process to obtain credit offer pre-approved, existing different strategies for each segments and customer
niches. These processes permitted proactive and efficient management and a better relation between
risk and return. Also, better quality of services for the clients.
Wholesale Segment
It is applied model case to case, which involves an individual evauation with specialized knowledge and it
integrates the level of risk, deadlines, amounts, products, complexity and business prospects, guarantees,
among other variables applies. This process is also supported by a rating model, which provides greater
consistency in the evaluation of the customer and the economic group, determining also the level of authority
required for the approval of credit risk.
For the evaluation case to case there are specialized areasin some segments that, by its nature, requires an
expert knowledge (real state, construction, agriculture, financial, international and other advisory ad hoc when
there are specific issues).
273
Banco de Chile
and Subsidiaries
(b) Control and Follow up:
The Bank, inside of its structures, has areas responsables of follow up, which it has developed methodologies
and tools for the differents segments, which are applied systematically and has permitted correct manage of
portfolio.
In Retail Segment exists a control and follow up of credit risk, where exists a permanent monitoring of the
customers, of industry and market trend, is possible to determine adjust necessaries to maintain the risk level
adecquated. So, it is made report that includes expected loss of portfolio, analysis of litter of new clients, past
due general of the portfolio with special follow up of products and segments, standards approve, follow up of
mortgage loans according variables of politics, relation debt – guarantee value, term, relation quote/income
of client. It has developed statistics model like support to the correct credit evaluation. This methodology
establishes indicators of minimum quality to operate. They have a straight follow up through back test analysis,
variables stability, and segmentation, among others, ensuring stability and predictive capacity in the time.
In the wholesale segment, the main processes of centralized follow up is established systematic monitoring
alerts on financial indicators and behavioral variables, past due management, including predictors of the
risk level and strategies differentiated for early collection and classification of portfolio management. The
management made of special monitoring portfolio which allows establishing action plans for companies that
have alerts risk. Also, to portfolio that requires special review, it is made tracking market cyclical. In addition,
other monitoring efforts aimed at monitoring compliance with preestablished conditions at the process of
admission, such as controls of financial clauses (covenants), collateral coverage, conditions, and restrictions
of individual credit approval, among others.
(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.
(d) Portfolio Concentration:
Maximum credit risk exposure per counterparty without considering collateral or other credit enhancements
as of December 31, 2015 and 2014 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, 2015:
Chile
United States
Brazil
Others
Total
MCh$
MCh$
MCh$
MCh$
MCh$
793,261
543,492
—
24,469
1,361,222
249,916
—
—
—
249,916
593,658
—
23,080
866,654
—
—
—
—
—
—
—
—
—
—
—
—
593,658
—
23,080
866,654
46,164
—
—
—
46,164
154,367
534,356
1,878
680
—
691,281
4,800
111,636
—
—
—
116,436
—
—
—
—
—
—
21,449
93,785
—
—
—
115,234
180,616
739,777
1,878
680
—
922,951
—
48,133
—
—
—
48,133
—
47,378
—
—
—
47,378
—
—
—
—
—
—
—
108,660
—
—
—
108,660
—
204,171
—
—
—
204,171
1,000,433
45,258
—
1,045,691
—
—
—
—
—
—
190,150
190,150
—
—
160,056
160,056
1,000,433
45,258
350,206
1,395,897
14,218,048
6,404,986
3,736,137
24,359,171
21,261
—
—
21,261
23,333
—
—
23,333
154,276
—
—
154,276
14,416,918
6,404,986
3,736,137
24,558,041
86,508
—
—
—
86,508
831,849
—
918,357
—
81,644
81,644
—
—
—
—
—
—
831,849
81,644
1,000,001
—
—
—
—
—
Financial Assets
Cash and Due from Banks
Financial Assets held-for-trading
From the Chilean Government and Central Bank
of Chile
Subtotal
security borrowing
Derivative Contracts for Trading Purposes
Forwards
Swaps
Call Options
Put Options
Futures
Subtotal
Hedge Derivative Contracts
Forwards
Swaps
Call Options
Put Options
Futures
Subtotal
Loans and advances to Banks
Domestic banks
Foreign banks
Subtotal
Loans to Customers, Net
Commercial loans
Consumer loans
Subtotal
Financial Assets Available-for-Sale
from the Chilean Government and Central Bank
of Chile
Subtotal
Financial assets held-to-Maturity
275
Banco de Chile
and Subsidiaries
Financial
Services
MCh$
Chilean
Central Bank Government
MCh$
MCh$
Retail
(Individuals)
Trade
Manufacturing
Mining
MCh$
MCh$
MCh$
MCh$
Financial Assets
From the Chilean Government
and Central Bank of Chile
Subtotal
1,249,892
111,330
—
—
—
—
—
—
149,900
100,016
—
—
—
—
593,658
—
23,080
616,738
—
—
—
149,900
—
—
—
100,016
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12,473
—
—
—
3,264
797
4,893
Forwards
170,420
Swaps
629,455
Call Options
161
Put Options
1
Futures
—
Subtotal
800,037
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,088
17,538
1,047
616
—
21,289
4,906
21,271
301
36
—
26,514
111
20,485
—
—
—
20,596
Forwards
Swaps
Call Options
Put Options
Futures
Subtotal
—
204,171
—
—
—
204,171
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Domestic banks
Foreign banks
Subtotal
—
45,258
350,206
395,464
1,000,433
—
—
1,000,433
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,130,946
—
—
2,130,946
—
—
—
—
—
—
—
—
—
6,404,986
3,736,137
10,141,123
2,345,319
—
—
2,345,319
1,626,515
—
—
1,626,515
545,375
—
—
545,375
36,258
50,250
—
—
—
—
—
—
36,258
—
—
50,250
—
—
—
23,407
—
23,407
—
—
—
8,436
—
8,436
—
—
—
—
—
—
Receivables from repurchase
agreements and security
borrowing
Commercial loans
Consumer loans
Subtotal
—
709,003
81,644
Subtotal
790,647
Financial assets held-toMaturity
—
Electricity, Gas Agriculture and
and Water
Livestock
MCh$
MCh$
Forestry
Fishing
Transportation
and Telecom
Construction
Services
Others
Total
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
—
—
—
—
—
—
—
—
1,361,222
—
—
—
—
—
—
—
—
249,916
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
593,658
—
23,080
866,654
19,830
282
—
—
3,841
228
—
556
46,164
47
30,361
—
—
—
30,408
2,192
9,926
306
11
—
12,435
—
—
—
—
—
—
8
4,664
—
—
—
4,672
53
2,214
29
—
—
2,296
739
2,597
—
—
—
3,336
52
1,266
34
16
—
1,368
—
—
—
—
—
—
180,616
739,777
1,878
680
—
922,951
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
204,171
—
—
—
204,171
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,000,433
45,258
350,206
1,395,897
473,172
—
—
473,172
1,185,113
—
—
1,185,113
—
—
—
—
351,531
—
—
351,531
1,668,627
—
—
1,668,627
1,585,940
—
—
1,585,940
1,668,346
—
—
1,668,346
836,034
—
—
836,034
14,416,918
6,404,986
3,736,137
24,558,041
—
—
—
—
—
—
—
—
86,508
38,190
—
38,190
51,096
—
51,096
—
—
—
—
—
—
—
—
—
1,717
—
1,717
—
—
—
—
—
—
831,849
81,644
1,000,001
—
—
—
—
—
—
—
—
—
277
Banco de Chile
and Subsidiaries
The following tables show credit risk exposure per balance sheet item, including derivatives, detailed by both geographic reg
Chile
United States
MCh$
MCh$
Financial Assets
636,423
257,476
From the Chilean Government and Central Bank of Chile
Subtotal
88,870
204,588
—
255,013
548,471
—
—
—
—
—
27,360
—
120,718
399,087
2,263
286
—
522,354
3,065
138,894
—
—
—
141,959
—
17,848
—
—
—
17,848
—
23,389
—
—
—
23,389
551,108
170,014
—
721,122
—
—
—
—
12,915,159
5,418,623
3,349,789
21,683,571
—
—
—
—
339,324
1,197,340
—
1,536,664
—
—
58,376
58,376
—
—
Receivables from repurchase agreements and security borrowing
Forwards
Swaps
Call Options
Put Options
Futures
Subtotal
Forwards
Swaps
Call Options
Put Options
Futures
Subtotal
Domestic banks
Foreign banks
Subtotal
Commercial loans
Consumer loans
Subtotal
from the Chilean Government and Central Bank of Chile
Subtotal
Financial assets held-to-Maturity
gion and industry sector as of December 31, 2014:
Brazil
Others
Total
MCh$
MCh$
MCh$
—
21,234
915,133
—
—
—
—
—
—
—
—
—
—
88,870
204,588
—
255,013
548,471
—
301
27,661
—
—
—
—
—
—
16,893
71,862
320
1
—
89,076
140,676
609,843
2,583
287
—
753,389
—
—
—
—
—
—
—
37,567
—
—
—
37,567
—
78,804
—
—
—
78,804
—
—
268,141
268,141
—
—
166,918
166,918
551,108
170,014
435,059
1,156,181
33,295
—
—
33,295
159,782
—
—
159,782
13,108,236
5,418,623
3,349,789
21,876,648
—
—
5,149
5,149
—
—
—
—
339,324
1,197,340
63,525
1,600,189
—
—
—
279
Banco de Chile
and Subsidiaries
Financial
Services
Chilean
Central Bank Government
MCh$
Retail
(Individuals)
Trade
Manufacturing
Mining
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
767,918
147,215
—
—
—
—
—
—
16,902
71,968
—
—
—
—
203,237
—
255,013
458,250
—
—
—
16,902
—
—
—
71,968
—
—
—
—
1,351
—
—
1,351
—
—
—
—
—
—
—
—
19,610
—
—
—
—
—
—
Forwards
133,163
Swaps
550,858
Call Options
819
Put Options
121
Futures
—
Subtotal
684,961
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,475
9,273
177
88
—
11,013
3,514
12,514
1,180
42
—
17,250
1,144
7,335
190
—
—
8,669
Forwards
Swaps
Call Options
Put Options
Futures
Subtotal
—
78,804
—
—
—
78,804
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
170,014
435,059
605,073
551,108
—
—
551,108
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,873,155
—
—
1,873,155
—
—
—
—
—
—
—
—
—
5,418,623
3,349,789
8,768,412
2,405,189
—
—
2,405,189
1,498,904
—
—
1,498,904
356,363
—
—
356,363
178,549
160,775
—
—
—
—
18,675
—
197,224
—
—
160,775
—
—
—
19,025
5,149
24,174
—
—
—
7,288
—
7,288
—
—
—
—
—
—
Financial Assets
Subtotal
Receivables from repurchase
agreements and security
borrowing
Domestic banks
Foreign banks
Subtotal
Commercial loans
Consumer loans
Subtotal
from the Chilean Government
—
Other instruments issued in Chile 1,059,043
58,376
Subtotal
1,117,419
Financial assets held-toMaturity
—
Electricity, Gas Agriculture and
and Water
Livestock
MCh$
MCh$
Forestry
Fishing
Transportation
and Telecom
Construction
Services
Others
Total
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
MCh$
—
—
—
—
—
—
—
—
915,133
—
—
—
—
—
—
—
—
88,870
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
204,588
—
255,013
548,471
—
80
—
—
—
29
287
7,655
27,661
48
20,139
—
—
—
20,187
615
6,108
137
7
—
6,867
—
—
—
—
—
—
50
185
—
—
—
235
443
1,708
25
—
—
2,176
2
1,050
21
29
—
1,102
185
673
34
—
—
892
37
—
—
—
—
37
140,676
609,843
2,583
287
—
753,389
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
78,804
—
—
—
78,804
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
551,108
170,014
435,059
1,156,181
442,066
—
—
442,066
946,795
—
—
946,795
—
—
—
—
261,189
—
—
261,189
1,668,103
—
—
1,668,103
1,423,597
—
—
1,423,597
1,565,777
—
—
1,565,777
667,098
—
—
667,098
13,108,236
5,418,623
3,349,789
21,876,648
—
—
—
—
—
—
—
—
339,324
34,546
—
34,546
51,191
—
51,191
—
—
—
—
—
—
5,859
—
5,859
1,713
—
1,713
—
—
—
—
—
—
1,197,340
63,525
1,600,189
—
—
—
—
—
—
—
—
—
281
Banco de Chile
and Subsidiaries
(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 207,203 collateral assets, the majority of which consist
of real estate. The following table contains guarantees value as of December 31:
2015
Corporate
Lending
Loans
Mortgages
MCh$
MCh$
Pledges
MCh$
Securities
MCh$
Warrants
Others
Total
MCh$
MCh$
MCh$
11,029,022
2,090,295
75,436
464,998
4,854
358,086
2,993,669
Small Business
Lending
3,387,896
2,017,450
32,428
34,853
—
47,844
2,132,575
Consumer
Lending
3,736,137
247,330
1,460
2,872
—
18,390
270,052
Mortgage
Lending
6,404,986
5,573,300
122
598
—
—
5,574,020
24,558,041
9,928,375
109,446
503,321
4,854
424,320
10,970,316
Warrants
Others
Total
MCh$
MCh$
MCh$
Total
2014
Corporate
Lending
Loans
Mortgages
MCh$
MCh$
Pledges
MCh$
Securities
MCh$
10,150,249
1,869,995
92,097
509,345
1,979
348,439
2,821,855
Small Business
Lending
2,957,987
1,712,185
27,989
33,762
85
47,569
1,821,590
Consumer
Lending
3,349,789
222,985
1,639
2,450
—
17,854
244,928
Mortgage
Lending
5,418,623
4,851,400
78
657
—
—
4,852,135
21,876,648
8,656,565
121,803
546,214
2,064
413,862
9,740,508
Total
The Bank also uses mitigating tactics for credit risk on derivative transactions, to date, the following mitigating
tactics are used:
•
•
Accelerating transactions and net payment using market values at the date of default of one of the parties.
Option for both parties to terminate early any transactions with a counterparty at a given date, using market
values as of the respective date.
•
Margins established with time deposits by customers that close FX forwards with subsidiary Banchile
Corredores de Bolsa S.A.
The value guarantees related to loans evaluated individualy classified like for Impaired Loans as of December
31, 2015 and 2014 amounted MCh$118,464 and MCh$116,445, respectively.
The value guarantees related to past due loans but no impaired as of December 31, 2015 and 2014 amounted
MCh$283,718 and MCh$271,899, respectively.
(f) Credit Quality by Asset Class:
The Bank determines the credit quality of financial assets using internal credit ratings. The rating process is
linked to the Bank’s approval and monitoring processes and is carried out in accordance with risk categories
established by current standards. Credit quality is continuously updated based on any favorable or unfavorable
developments to customers or their environments, considering aspects such as commercial and payment
behavior as well as financial information.
The Bank also conducts reviews of companies in certain industry sectors that are affected by macroeconomic
or sector-specific variables. Such reviews allow the Bank to timely establish any necessary allowance loan
losses that are sufficient to cover losses for potentially uncollectable loans.
The following table shows credit quality by asset class for balance sheet items, based on the Bank’s credit
rating system.
As of December 31, 2015:
Individual Portfolio
Normal
MCh$
Group Portfolio
Substandard Non-complying
MCh$
MCh$
Normal
MCh$
Non-complying
MCh$
Total
MCh$
Financial Assets
banks
Domestic banks
Foreign banks
1,000,433
—
—
—
—
1,000,433
45,258
—
—
—
—
45,258
350,206
—
—
—
—
350,206
1,395,897
—
—
—
—
1,395,897
11,543,265
175,066
273,461
2,211,106
214,020
14,416,918
—
—
—
6,287,820
117,166
6,404,986
Subtotal
Loans to customers (before
allowances for loan losses)
Commercial loans
loans
Consumer loans
Subtotal
—
—
—
3,473,296
262,841
3,736,137
11,543,265
175,066
273,461
11,972,222
594,027
24,558,041
283
Banco de Chile
and Subsidiaries
Individual Portfolio
Normal
MCh$
Group Portfolio
Substandard Non-complying
MCh$
MCh$
Normal
MCh$
Non-complying
MCh$
Total
MCh$
Financial Assets
banks
551,108
—
—
—
—
551,108
Domestic banks
170,014
—
—
—
—
170,014
435,059
—
—
—
—
435,059
1,156,181
—
—
—
—
1,156,181
10,576,015
176,882
198,161
1,942,910
214,268
13,108,236
—
—
—
5,325,029
93,594
5,418,623
Foreign banks
Subtotal
CLoans to customers (before
allowances for loan losses)
Commercial loans
loans
Consumer loans
Subtotal
—
—
—
3,124,586
225,203
3,349,789
10,576,015
176,882
198,161
10,392,525
533,065
21,876,648
Analysis of age of portfolio loan, over-due loans by financial asset class. Additionally to the over due portion,
the amounts detailed include remaining balance of the past due credits:
Terms:
Default 1: 1 to 29 days
Default 1
MCh$
Default 2
MCh$
Default 3
MCh$
15,354
—
—
152,739
59,428
19,346
Import-export financing
19,437
1,255
6,096
36,917
5,093
2,757
Commercial lease transactions
2,145
Commercial loans
37,837
8,149
Other loans and receivables
1,021
440
407
132,767
53,915
22,279
Consumer loans
225,577
90,188
33,864
Total
621,649
218,468
86,894
Default 1
MCh$
Default 2
MCh$
Default 3
MCh$
23,176
35,197
—
Commercial loans
140,430
106,844
25,513
Import-export financing
11,939
2,895
563
28,210
4,554
1,170
Commercial lease transactions
54,605
10,958
2,747
Other loans and receivables
1,598
483
311
112,031
49,711
19,030
Consumer loans
219,173
87,774
34,593
Total
591,162
298,416
83,927
The following table presents past due loans not impaired as of December 31:
Past due but not impaired*
Up to 30 days
MCh$
Over 30 days and Over 60 days and
up to 59 days
up to 89 days
MCh$
MCh$
Over 90 days
MCh$
2015
460,401
121,272
34,864
926
2014
482,154
189,117
34,748
1,848
* These amounts include installments that are overdue, plus the remaining balance of principal and interest on such
loans
285
Banco de Chile
and Subsidiaries
(g) Assets Received in Lieu of Payment:
The Bank has received assets in lieu of payment totaling MCh$6,429 and MCh$3,948 as of December 31, 2015
and 2014, respectively, the majority of which are properties. All of these assets are managed for sale.
(h) Renegotiated Assets:
The impaired loans are considered to be renegotiated when the corresponding financial commitments are
restructured and the Bank assesses the probability of recovery as sufficiently high.
The following table details the book value of loans with renegotiated terms per financial asset class:
2015
2014
MCh$
MCh$
Financial Assets
—
—
Domestic banks
—
—
Foreign banks
—
—
Subtotal
—
—
238,491
190,692
18,186
19,585
Commercial loans
Consumer loans
335,489
324,622
Subtotal
592,166
534,899
Total renegotiated financial assets
592,166
534,899
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 an adverse change of market factors
levels, such as FX rates, equity prices, interest rates, options volatility, etc or due to the absence of liquidity.
(a) Liquidity Risk:
Liquidity Risk: Measurement and Limits
The bank measure and control the Trading Liquidity risk for Trading portfolios by establishing limits to certain
specific tenors for each yield curve, limits to spot positions for FX or Equity 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 instruments are expected to be held for longer periods of time or even until maturity.
Funding Liquidity is controlled and limited using the regulatory C08 Index report (from December 2015 onwards,
the SBIF establish the C46 as the new index for reporting regulatory liquidity position; in the meanwhile and
until March 2016, both indexes must be reported and after that date, the reporting of the C08 Index will be
discontinued), which is the estimation of the expected net cash flows within a period of time considering
business-as-usual market conditions.
The SBIF establish the following limits for the C08 Index:
•
•
•
Foreign Currency balance sheet items:
All Currencies balance sheet items:
All Currencies balance sheet items:
1-30 days C08 index < 1 x Tier-1 Capital
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 patterns for some portion of the loan portfolios; stability of some portion of the demand deposits
and therefore no withdrawal is reported for this stable o core portion; etc.
As of December 30, 2015, the 1-30 days Adjusted C08 Index of foreign currency balance sheet items is 0.061
(C46 0.102). The 1-30 days Adjusted C46 Index of all currencies balance sheet items on that date is reported
as 0.358 (C46 0.543); the value of the same index for the period 1 to 90 days is 0.294 (C46 0.496).
287
Banco de Chile
and Subsidiaries
The maturity profile of the consolidated financial liabilities of Banco de Chile and its subsidiaries, as of 2015
and 2014 end-of-year, is illustrated below:
Up to 1
month
Between
1 and 3
months
MCh$
MCh$
Between
3 and 12
months
MCh$
Between
1 and 3
years
MCh$
Between
3 and 5
years
More than
5 years
MCh$
MCh$
Total
MCh$
Liabilities as of December 31, 2015
Current accounts and other
demand deposits
8,327,048
—
—
—
—
—
8,327,048
Transactions in the course of
payment
241,842
—
—
—
—
—
241,842
Instruments sold under repurchase
agreements and security lending
184,041
51
—
—
—
—
184,092
4,637,114
1,788,360
3,128,918
484,858
557
Full delivery derivative transactions
269,483
232,474
364,917
629,015
329,806
640,329
2,466,024
institutions
231,893
125,946
904,310
262,757
—
—
1,524,906
421
1,100
5,535
18,435
23,918
789
50,198
113,758
199,062
766,134
1,157,411
1,384,072
3,756,483
7,376,920
14,005,600
2,346,993
5,169,814
2,552,476
1,738,353
4,397,812 30,211,048
262,962
356,434
809,548
1,053,043
528,528
deposits
Debt issued in non-USD foreign
currency
Total (excluding non-delivery
derivative transactions)
Non-delivery derivative
transactions
Up to 1
month
Between
1 and 3
months
MCh$
MCh$
Between
3 and 12
months
MCh$
Between
1 and 3
years
MCh$
211 10,040,018
1,017,489
Between
3 and 5
years
More than
5 years
MCh$
MCh$
4,028,004
Total
MCh$
Current accounts and other
demand deposits
payment
Instruments sold under repurchase
agreements and security lending
deposits
Full delivery derivative transactions
—
—
—
—
—
6,933,679
96,945
—
—
—
—
—
96,945
249,198
92
—
—
—
—
249,290
4,956,782
2,162,419
2,596,404
154,505
172
188
9,870,470
269,665
278,329
286,634
409,966
296,234
486,087
2,026,915
institutions
59,589
158,480
677,611
200,010
—
—
1,095,690
756
1,140
5,939
12,713
17,685
18,585
56,818
114,339
222,257
566,735
1,134,570
1,219,836
2,882,249
6,139,986
12,680,953
2,822,717
4,133,323
1,911,764
1,533,927
3,387,109 26,469,793
178,635
110,298
727,089
1,208,217
638,045
Debt issued in non-USD foreign
currency
Total (excluding non-delivery
derivative transactions)
Non-delivery derivative
transactions
6,933,679
895,239
3,757,523
The evolution of the loan-to-deposit ratio for 2015 and 2014 is detailed below:
Year 2015
Year 2014
Maximum
3.00
2.74
Minimum
2.70
2.43
Average
2.84
2.61
Banco de Chile has established internal liquidity metrics, in addition to those required by the regulatory entities,
with the purpose 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:
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 Banking book (also referred as to the
Accrual book). In addition to this, and just on supplementary basis and actually not used as a risk management
tool, the bank submits regulatory reports to the corresponding regulatory entities.
The bank has established internal limits for the Trading Book. In fact, the FX net open positions (FX delta), the
interest rate sensitivities generated by the derivatives and debt securities portfolios (DV01 or also referred as
to rho) and the FX volatility sensitivity (vega) are measured and limited. Limits are established on an aggregate
basis but also for some specific repricing tenor points. The use of these limits are daily monitored, controlled
and reported 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 historical VaR (Value-at-Risk) approach as the risk measurement tool for the trading
portfolio exposures. The model includes 99% confidence level and most recent one-year observed rates, prices
and yields data. The VaR number is escalated by 22 days (a calendar month) for reporting purposes.
The regulatory risk measurement for the Trading portfolio (C41 report) is made by utilizing guidelines provided
by the regulatory entities (Central Bank of Chile and SBIF), which are adopted from BIS 1993 standardized
methodologies developed for this specific measurement. The referred methodologies estimate the potential
loss that the Bank may incur considering standardized fluctuations of the value of market factors such as
FX rates, interest rates and volatilities that may adversely impact the value of FX spot positions, interest rate
exposures, and volatility exposures, respectively. 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 labeled as Market Risk Equivalent or
ERM) and the Risk Weighted Assets. The sum of ERM and the 10% of the Risk Weighted Assets cannot exceed
the 100% of the bank’s Tier-2 Capital. In the future, the Operational Risk will be added to the above calculation.
289
Banco de Chile
and Subsidiaries
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 shortterm risk limit must be expressed as a percentage of the NIM and the long term risk limit as a percentage of
the Capital. The bank is currently using 25% for both limits. The percentage use of these metrics during 2015
is illustrated below:
Interest Rate Risk: Regulatory Model for
Banking Book
Short term
Maximum Use
7.9%
Long Term
21.0%
Average Use
7.1%
19.2%
Minimum Use
6.6%
17.9%
Additionally, the Bank utilizes built-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 Banking 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 that 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 cash-flows of the Banking Book (contractual tenors) as of
December 31, 2015 and 2014:
Between
1 and 3
months
MCh$
Up to 1
month
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, 2015
1,336,900
—
—
—
—
—
1,336,900
collection
516,151
—
—
—
—
—
516,151
Securities borrowed or
purchased under agreements
to resell
3,462
—
—
—
—
—
3,462
Derivative instruments under
hedge-accounting treatment
475,630
136,918
160,383
324,360
374,857
438,135
1,910,283
—
1,402,570
Inter-banking loans
1,065,713
78,726
227,895
30,236
—
Customer loans
3,407,077
3,920,279
6,135,079
5,067,738
2,888,550
53,523
76,135
369,755
125,645
151,502
244,707
1,021,267
—
—
—
—
—
—
—
Available-for-sale instruments
Held-to-maturity instruments
Total assets
7,725,546 29,144,269
6,858,456 4,212,058 6,893,112 5,547,979 3,414,909 8,408,388 35,334,902
Between
1 and 3
months
MCh$
Up to 1
month
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, 2014
889,489
—
—
—
—
—
889,489
collection
387,434
—
—
—
—
—
387,434
Securities borrowed or
purchased under agreements
to resell
820
—
—
—
—
—
820
382,138
155,483
113,921
180,892
451,807
320,352
1,604,593
—
1,159,148
Derivative under hedgeaccounting treatment
Inter-banking loans
Customer loans
Available-for-sale instruments
Held-to-maturity instruments
Total assets
810,826
80,057
249,764
18,501
—
3,431,877
3,244,400
5,446,614
4,789,951
2,420,640
166,115
166,562
509,046
153,964
171,256
574,193
1,741,136
—
—
—
—
—
—
—
6,575,962 25,909,444
6,068,699 3,646,502 6,319,345 5,143,308 3,043,703 7,470,507 31,692,064
291
Banco de Chile
and Subsidiaries
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$
Current accounts and demand
deposits
8,338,672
—
—
—
—
—
8,338,672
231,059
—
—
—
—
—
231,059
Securities loaned or sold under
agreements to repurchase
10,358
—
—
—
—
—
10,358
Savings accounts and interestbearing deposits
4,641,021
1,789,871
3,123,713
484,606
557
4,272
107,432
254,360
523,234
427,855
Inter-banking borrowings
826,857
487,504
210,569
—
Long-term debt
381,779
162,304
604,023
1,155,900
197,685
1,100
5,535
18,435
23,918
payment
Other liabilities
Total liabilities
211 10,039,979
446,276
1,763,429
—
—
1,524,930
1,311,992
3,755,090
7,371,088
789
247,462
14,631,703 2,548,211 4,198,200 2,182,175 1,764,322 4,202,366 29,526,977
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$
Current accounts and demand
deposits
6,950,301
—
—
—
—
—
6,950,301
payment
82,932
—
—
—
—
—
82,932
Securities loaned or sold under
agreements to repurchase
25,662
—
—
—
—
—
25,662
Savings accounts and interestbearing deposits
5,141,552
1,977,615
2,596,404
154,511
166
188
9,870,436
3,911
3,808
199,533
542,556
522,765
339,547
1,612,120
Inter-banking borrowings
534,341
435,417
125,985
—
—
—
1,095,743
Long-term debt
251,953
314,199
565,036
902,456
1,218,631
2,880,053
6,132,328
Other liabilities
142,484
1,140
5,939
12,713
17,685
18,585
198,546
Total liabilities
13,133,136 2,732,179 3,492,897 1,612,236 1,759,247 3,238,373 25,968,068
Price Risk Sensitivity Analysis
The Bank has focused on stress tests as the main measurement tool for price risk sensitivity analysis. The
analysis is implemented for the Trading Book and the Bank Book separately. After the financial crisis experienced
during 2008 and based on the various studies and analyses made on this specific matter, the Bank adopted
this methodology when it realized that it is more useful and realistic than business-as-usual tools 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 or EaR with 97.7% 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 behaviors of
market factors fluctuations respect to the patterns normally observed.
(c) Trading liquidity dramatically diminished in emerging markets during the financial crisis (in the case of
Chile too) and therefore, the escalation of the daily VaR is a very gross approximation of the expected loss.
The stress tests impacts are obtained by modeling directional fluctuations on the value of market factors
and calculating the changes of the economic/accounting value of the financial positions due to these shifts.
The fluctuations are inferred from historical events but also taking into account extreme but feasible levels
that the market factors values may reach in stressful environments generated by either economic, political,
foreign issues, etc. factors.
An updated database is maintained including historical data of foreign exchange rates, debt instruments yields,
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.
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 yields, foreign exchange rates and foreign exchange
volatilities, which are used for valuing Trading and Accrual portfolios. Given that the Bank’s portfolio includes
positions denominated in nominal and real interest rates, these fluctuations must be aligned with extreme but
realistic the inflation changes forecasts. 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 fluctuations modeled. It is relevant to
note that the methodology might miss some portion of the interest rates convexity since it 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 and FX CLP/USD volatility 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).
293
Banco de Chile
and Subsidiaries
The directions of these fluctuations were chosen between four scenarios (two positive and two negative economic
scenarios) in order to generate the worst impact for Trading Book exposures within the four above mentioned:
Adverse Scenario Market factors fluctuations
CLP
Derivatives
CLP
Bonds
(bps)
(bps)
27
38
43
47
53
53
51
49
48
48
37
42
47
49
52
63
72
76
76
75
3 months
6 months
9 months
1 year
2 years
4 years
6 years
10 years
16 years
20 years
CLF
Bonds
USD Offshore
3m
Derivatives
(bps)
(bps)
(bps)
(461)
(223)
(143)
(129)
(49)
(28)
(15)
(7)
(7)
(8)
(450)
(200)
(117)
(101)
(18)
16
41
56
59
61
CLF
Derivatives
10
11
10
22
57
66
76
81
83
Spread USD
On/Off
Derivatives
(bps)
(54)
(40)
(22)
(15)
(16)
(34)
(39)
(41)
(43)
(44)
Vol FX
CLP/USD
(%)
(3.1%)
(2.6%)
(2.0%)
(2.1%)
(2.8%)
-
bBps = Basic points
The impact on the Trading Book as of December 31st 2015, is the following:
Potential p&l impact trading book (MCh$)
CLP Interest Rate
Derivatives
(2,389)
(2,260)
Debt instruments
CLF Interest Rate
(129)
(5,329)
Derivatives
(1,886)
Debt instruments
(3,443)
Interest rate USD, EUR, JPY,etc offshore
1,148
Domestic/offshore interest rate spread USD, EUR, JPY
(1,951)
Interest Rate
(8,521)
Foreign exchange
(488)
Options volatility
Total
(798)
(9,807)
The scenario modeled would generate losses in the Trading Book up to MCh$ 9,807 or approximately USD 14
MM. In any case, these fluctuations would not result in material losses compared to the Tier-1 Capital base.
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:
Potential 12 months nrff(*) impact accrualbook (MCh$)
Impact due to Inter-Banking yield curve (Swap yield) shock
Impact due to spreads shock
Higher / (Lower NRFF)
(*) Net revenue from funds.
(189,630)
33,692
(155,938)
The adverse impact in the Accrual book would be the result of two events: a severe drop in the local inflation
and the increase of our funding spread. The lower net revenues from funds in the following 12 months would
reach CH$ 156 billion, which is still much lower of the current annual 12-month rolling P&L generation.
The following table illustrates the changes in fair value of Available-for-Sale debt 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:
Current
Instrument
Potential Available for Sale OCI Impact
Impact due to interest
rate change
DV01(+1 bps)
(USD)
(USD)
Impact due to interest
rate change
(MCh$)
CLP
(71,359)
(3.34)
CLF
(139,768)
(11.98)
(8,488)
USD
(105,345)
(9.27)
(6,566)
(24.59)
(17,417)
Total impact
(2,363)
(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 2015, 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 2015, there were no triggrers 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
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 Capiatl 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.
295
Banco de Chile
and Subsidiaries
Assets are weighted according risk categories, which to assign a percentage of risk to calculate the capital
amount necessary to support each asset. It is applied five categories of risk (0%, 10%, 20%, 60% and 100%).
For example, cash, deposits in other banks and financial instruments issued by Chilean Central Bank have 0%
of risk. That means that, under current rule, it is not required capital to support these assets. Property and
equipment have a 100% of risk. That means it must have a minimum capital of 8% of the amount of these
assets and, in case of Banco de Chile, minimum capital of 10%.
All derivatives instruments traded over are considered with a conversion factor over the nominal amounts.
Then, it is obtained exposition to credit risk (or “credit equivalent”). Also, they are considered with a “credit
equivalent”, for its ponderation, contingent loans off-balance.
The risk-weighted assets and TIER 1 and TIER 2 Capital, as of end of year 2015 and 2014, are the following:
Consolidated assets
2015
Risk-weighted assets
2014
2015
MCh$
MCh$
MCh$
2014
MCh$
Balance sheet assets (net of provisions)
1,361,222
915,133
42,335
3,100
526,046
400,081
59,719
34,741
866,654
548,471
160,150
304,501
46,164
27,661
46,164
27,661
694,632
security borrowing
1,127,122
832,193
1,064,661
1,395,195
1,155,365
358,614
468,293
23,956,275
21,348,033
21,411,781
19,192,870
1,000,001
1,600,189
420,482
472,949
—
—
—
—
28,126
25,312
28,126
25,312
Intangible assets
26,719
26,593
26,719
26,593
215,671
205,403
215,671
205,403
3,279
3,468
328
347
Deferred tax assets
255,972
202,869
25,597
20,287
Other assets
484,498
355,057
Financial assets available-for-sale
Financial assets held-to-maturity
Property and equipment
Current tax assets
Subtotal
484,498
355,057
24,344,845
21,831,746
Off-balance-sheet assets
Contingent loans
5,221,333
4,280,451
Total risk-weighted assets
MCh$
2,567,508
24,399,254
%
MCh$
%
TIER 1 Capital (*)
2,740,084
7.45
2,535,154
7.89
TIER 2 Equity
3,457,523
12.58
3,249,903
13.32
(*) Corresponds to equity attributable to equity holders in the Statement of Consolidated Financial Position.
3,131,800
27,476,645
42.Subsequent Events:
On January 28, 2016, in the Ordinary Meeting No. BCH 2832, the Board of Directors of Banco de Chile resolved
to call an Ordinary Shareholders Meeting to be held on March 24th, 2016, with the objective of proposing, among
other matters, the distribution of the Dividend number 204 of $3.37534954173 per each of the 96,129,146,433
shares, which will be payable at the expense of the distributable net income obtained during the fiscal year
ending on December 31st, 2015, corresponding to the 70% of such income.
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 matters, the capitalization of the 30% of the distributable net income of
the Bank obtained during the fiscal year ending on December 31st, 2015, through the issuance of fully paid-in
shares, of no par value, with a value $64.79 per share, which will be distributed among the shareholders in the
proportion of 0.02232718590 shares for each share and to adopt the necessary agreements subject to the
exercise of the options established in article 31 of Law 19,396.
Moreover, the Board, according to the established in No. 3.2 Chapter B4 of Compendium of Accounting
Standards of the Superintendency of Banks and Financial Institutions, about minimum dividends provision,
agreed to establish that since January 2016 it will constitute provision by the 60% of distributable net income
that it will be accumulating during the each period.
In Management’s opinion, there are no others significant subsequent events that affect or could affect the
consolidated financial statements of the Bank and its subsidiaries between December 31, 2015 and the date
of issuance of these consolidated financial statements.
Héctor Hernández G.
General Accounting Manager
Arturo Tagle Q.
Chief Executive Officer
297
Diseño: Maru Mazzini
Impresión: Fyrma Gráfica
Soundness
SUPPORT
Development
Trust
Leadership
Dreams
Security
At the industry forefront
Technology
Proximity
Excellence
PROJECTS
Solidarity
creativity
Energy
Company Name: Banco de Chile
RUT: 97.004.000-5
Main Office
Ahumada 251, Santiago, Chile
Phone: (56-2) 2637 1111
Fax: (56-2) 2637 3434
www.bancochile.cl
Swift BCHI CL RM
Representation Office in Beijing
606 West Tower, Twin Tower, B-12
Jianguomenwai Avenue,
Chaoyang District, Beijing
Phone: (86-10) 5879 4301
Fax: (86-10) 5109 6040
bro@bancochile.bj.cn
Shareholder Department
Agustinas 975, of. 541, Santiago, Chile
Phone: (56-2) 2653 2980
(56-2) 2653 2294
acciones@bancochile.cl
Investor Relations
Ahumada 251, piso 1, Santiago, Chile
Phones: (56-2) 2653 2051
(56-2) 2653 3554
ir@bancochile.cl
2015

Corporate Governance Practices

Transcription

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