English - Banco de Chile

Transcription

2012
ANNUAL REPORT
2012 I POSITIONING BANCO DE CHILE AS:
THE MOST PROFITABLE AND SECURE BANK IN THE CHILEAN FINANCIAL SYSTEM
Banco de Chile has been characterized by a business model that is based on an appropriate balance
of risks and returns in each of the segments it operates. During 2012, the Bank obtained excellent
results which permitted it to become the industry leader in net income and profitability, with an average
return on capital of 26.2%. In addition, we obtained an A+ rating from Standard & Poor’s, the highest
among all private banks in Latin America.
Table of Contents
Introduction 06
Letter from the Chairman
Strategic Priorities
Competitive Advantages
Financial Performance
History
10 Major Achievements in 2012
Recognitions 2012
1
Corporate Governance 20
Board of Directors
Senior Management
Corporate Governance Practices
Ownership of Banco de Chile
Shares of Banco de Chile
2
Economic and Financial Environment
The Global Economy
The Local Economy
Chilean Banking System
3
Strategy 56
Vision
Mission
Strategic Pillars
44
4
Consolidated Performance 2012 44
Management’s Discussion and Analysis 2012
Results and Balance Sheet Analysis
Key Financial Indicators
5
Business Areas
Retail Market
Wholesale Market
Treasury
Subsidiaries
6
Risk Management
Credit Risk
Financial Risk
Operational Risk
84
104
126
7
Corporate Social Responsibility
Associates
Community
Customers
The Environment
Transparency
8
Consolidated Financial Statements
Notes to the Financial Statements
140
Pablo Granifo Lavín
Chairman
Dear Shareholders:
It is my pleasure to present to you our annual report and financial
statements for the year ended December 31, 2012, which was very
favorable for our institution.
On a macroeconomic level, the year was very positive because the Chilean
economy —contrary to all forecasts— has been practically immune to
the weak international conditions lingering after the 2008-2009 financial
crisis. In this context, the Chilean economy’s performance has been
based on sound fundamentals and prudent fiscal and monetary policies,
leading to GDP growth of around 5.6% for the year, which is well above
expectations and growth trends. Similarly, the local economy boasts
historically low unemployment rates while internal demand, especially
consumption, has been driven by increases in wages of nearly 5% real.
The stability of our economy over the last three years and the strength of
consumption and investment have translated into important growth in the
banking industry, reporting a nominal increase of 12% in loan volumes
in 2012 with attractive growth rates across all segments. Banco de Chile
has been no exception, capturing a considerable part of this increase.
As a result, during 2012 Banco de Chile consolidated its leadership
in diverse areas of the financial services industry. First, we completed
the year as the industry leader in net income and profitability, with net
income of $466 billion, representing an annual increase of 9%, which
translated into a return on average capital and reserves of 26%. These
figures place us well above the industry, with net income falling 5% in
2012, and also surpass our main competitors.
In commercial matters, loans expanded 8% in 2012, reaching close
to $19 trillion, which gives us a privileged position within the industry
with 19% market share. As we have stated time and again, Banco de
Chile’s objective is to achieve growth with a solid foundation of a healthy
portfolio and an adequate risk-return ratio. In 2012, we made numerous
commercial decisions in line with this goal.
In keeping with our strategic priorities, during 2012 we continue to
focus our commercial initiatives on areas with greater returns, mainly
in the retail and SME segments. In these particular segments, I would
like to highlight our achievements in mortgage loans, which grew 12%
in number of customers and 16% in volume in 2012 alone. We also
completed ambitious projects to help expand access to banking services,
implementing “Caja Chile” and the “Microenterprises Segment”, both
through Banco CrediChile. These projects will benefit a broad segment
of the population that until now has not been properly covered by the
financial system. In 2012 we also became one of the largest industry
players in government-backed loans for SMEs.
At the same time, we continue to consolidate our wholesale business,
strengthening value propositions through new segmented non-loan
products and services such as collections and payment services and
treasury products, all of which enable us to expand cross sales and
maintain leadership in commercial loans with a market share of 19%. We
are also pleased to report that we are the industry leader in commercial
loans and factoring.
Banco de Chile’s growth in business volumes has always been accompanied
Such performance deserves special recognition since it was obtained
despite regulatory changes and other matters under discussion that
affected default rates in the Retail Segment and negatively impacted the
penetration of banking products. In addition, these results were obtained
with inflation levels well below market expectations and medium-term
values.
In this scenario, we believe that regulations should not materially affect
our operations because our results have been stable and consistent,
confirming that they are the product of a solid business strategy built on
competitive advantages and prudent risk policies across all business lines.
by conservative management of credit and market risks. The emphasis
we place on risk management gives us outstanding loan quality indicators
for the industry in terms of loan loss provisions, past-due portfolio
and deteriorated portfolio, clearly standing out among our peers. The
above, together with our revenue generating capacity, brand positioning,
competitive funding structure and adequate capitalization, led to another
of the year’s major achievements: Standard & Poor’s upgrading of our
international long-term risk rating. In June 2012, this agency awarded us
an ‘A+’ rating, making us the lowest risk private bank in Latin America.
This development is especially relevant given the successive downward
corrections in ratings seen recently in international banking.
7
This exceptional credit rating contributed positively to our plan to diversify
financing sources. We were able to capitalize on market conditions,
placing long-term bonds for almost US$1.3 billion in Chile, together with
private and public issuances in new markets (Hong Kong and Peru) for
close to US$200 million. In 2012, we also became the first commercial
bank in Latin America to register a Commercial Paper Program in the
United States (for US$1 billion). These funds, together with our sustained
leadership in demand deposits—with 22% market share—has made
us the bank with the lowest cost of funding in the local financial system.
Amidst all of these achievements, in 2012 we suffered some unfortunate
setbacks primarily in the IT and operational areas when new platforms
for managing current accounts experienced problems that temporarily
affected customer service levels. Service quality is a strategic pillar for
Banco de Chile and, therefore, we took responsibility for this situation
and responded directly to customers. We delivered real solutions and
provided compensation where warranted. We also reinforced protocols
for maintaining proper control over our services and invested important
resources in technology to ensure that this type of incident never
happens again.
The commitment of Banco de Chile’s team has been fundamental to
our achievements in 2012 and in overcoming the challenges we have
faced. I am deeply grateful for their efforts, which are manifested on a
daily basis in the quality of our external and internal customer service.
We are committed to a better Chile for our associates. In 2012, we
continued to strengthen their potential and contributed to improving
their personal and work conditions. Among other initiatives, I would
like to highlight our organization’s internal mobility programs. We know
that our corporation is an endless source of development and highly
qualified talent. Along these lines, we also offered training programs
8 MemoriaAnual2012
totaling more than 800,000 training hours, with attendance by 97% of
our team members at specialized courses and workshops. This training,
in addition to ongoing skill and performance evaluations, enable us to
provide our associates with concrete development tools.
This positive assessment of our performance is not only based on
internal evaluations, but also on regular feedback from external agents,
including several national and international awards in 2012. Among the
most important distinctions, I would like to mention our recognition as the
Private Bank with the Best Corporate Reputation in Chile, given by Merco;
the award Best Private Banking Service in Chile and Best Bank in Chile,
from the magazine Euromoney; recognition as the Best Sub-Custodian
Bank in Chile and the Safest Private Bank in Latin America from the
World’s Safest Banks ranking by Global Finance. Such acknowledgment
fills us with pride and motivates us to continue building a better Chile
for not only our shareholders but also our customers, associates and
especially for those that need it most.
As a result of this commitment, during 2012 we continued our work with
the Teletón and Astoreca Foundations. We also reinforced our commitment
to contribute to society by partnering with “Desafío Levantemos Chile”
in its program “50 Challenges for Chile”, where we are helping to carry
out social, educational and environmental development projects in 50
communities throughout Chile.
of Directors has proposed an equity offering of $250 billion, intended
primarily to finance the Bank’s organic growth. This strengthening of our
capital base, which will in turn increase liquidity and share depth, will
enable us to meet our positive growth forecasts —which should at least
be in line with industry growth over the next three years— and carry out
strategic projects across all business lines. Although the equity offering
is still in progress, until now this capital increase has been as successful
as others we have conducted in the past, reflecting the considerable
interest in the Bank’s stock and its positive outlook, as well as the trust
that the market places in our corporation.
Ultimately, I would like to close by reiterating my appreciation to our
shareholders and the continued trust that has been placed in the board
I represent, in the Bank’s management and in our commitment to build
a better Chile with more opportunities for everyone.
Best regards,
Chairman
Banco de Chile
Our continual focus on creating value forces us to go the extra mile.
As a result, we believe that the next three years will provide us with
important challenges to our growth. We think that the Chilean economy
will continue down a prosperous path, which should be reflected in
GDP growth rates of close to 5% and an increase in total loans for the
banking system of close to 10% real per year. In this context, the Board
9
Lead
the Retail Business
10 AnnualReport2012
Strengthen
the Wholesale Business
Improve
Operating Efficiency
Strengthen
Service Quality
Exceptional
Human Resources
Sound Brand
Positioning
Large
Business Scale and Market Leadership
Broad
Customer Base and Distribution
Network
Comprehensive Financial
Products and Services
Excellent
Funding Structure
Exceptional
Investment Grade Rating
Strategic Strengths
11
BANCO DE CHILE
BANKING SYSTEM
tBanco de Chile recorded annual growth in total loans
of 8%, closing the year with a portfolio valued at
Ch$18,762 billion.
t5IFCBOLJOHTZTUFNQPTUFEBOOVBMHSPXUIPGJO
total loans in 2012, with a portfolio worth Ch$98,880
billion as of December 31, 2012.
TOTAL LOANS(*)
(Billions of Ch$)
tIn line with its business strategy, the Bank’s growth in
retail loans exceeded system growth, while the system
surpassed the Bank in companies loans.
2012 19.0%
18,762
2011 19.8%
17,378
tAs a result of lower growth in commercial loans, the
Bank’s market share in total loans decreased by 79
basis points in 2012.
2010 19.2%
14,366
2009 19.1%
13,185
t As of December 2012, Banco de Chile’s market share
in total loans was 19.0%.
Loans
t(SPXUIEFDFMFSBUFEJOXJUISFTQFDUUPEVF
to lower consumption and investment figures.
t"UBQSPEVDUMFWFMUIFJODSFBTFXBTMFECZUIFDPNNFSDJBM
portfolio (+13%), followed by consumer (+12%) and
mortgage (+11%) loans.
Market Share
PAST-DUE PORTFOLIO
t As of December 31, 2012, Banco de Chile’s past-due
portfolio amounted to Ch$89 billion, representing 0.5%
of total loans (0.5% in 2011).
(Billions of Ch$)
2012 4.8 x
89
t As of December 31, 2012, the provisions ratio was 4.8
times the past-due portfolio, reflecting the portfolio’s
quality and the Bank’s conservative risk management.
2011 4.7 x
82
2010 5.2 x
73
tThe Bank’s ratio significantly surpasses both the system
and its main competitors.
2009 3.6 x
90
Past-due loans
t During 2012, gross demand deposits expanded 12%,
finishing the year with a market share of 22% (23% as
of December 31, 2011).
tAs a percentage of total loans, demand deposits reached
29%, which compares favorably with the industry and
key competitors.
tThis gives Banco de Chile the lowest cost of funds in the
industry, which is an important competitive advantage
over its peers.
t This figure includes the capitalization of Ch$74 billion
in retained earnings (30% of distributable net income
for 2011), the capitalization of Ch$58 billion from the
price-level restatement of paid-in capital and Ch$119
billion in preferential rights exercised in the first stage
of the capital increase initiated in late 2012.
tAs of December 31, 2012, Banco de Chile recorded a Basel
Index of 13.2%, or 3.2% over its regulatory minimum.
(*) Market share does not include foreign subsidiaries.
12 AnnualReport2012
t"TPG%FDFNCFSUIFJOEVTUSZTQSPWJTJPOT
ratio was equivalent to 2.3 times the past-due portfolio.
t5IJTJTBSFGMFDUJPOPGHPPEEFCUPSQBZNFOUCFIBWJPSBOE
an adequate level of provisions in the banking industry.
Coverage Ratio (times)
GROSS DEMAND DEPOSITS
(Billions of Ch$)
2012 29.2%
5,471
2011 28.2%
4,895
2010 30.9%
4,446
2009 28.2%
3,718
t5IFCBOLJOHTZTUFNQPTUFEBOOVBMHSPXUIPGJO
demand deposits, driven primarily by growth in current
accounts and other demand deposits.
t%FNBOEEFQPTJUTSFQSFTFOUPGUPUBMTZTUFNMPBOT
which is similar to the ratio obtained in 2011.
% of Total Loans
Gross Demand Deposits
t During 2012, the Bank’s equity was Ch$2,007 billion,
equivalent to nominal annual growth of 15%.
t5IFTZTUFNTQBTUEVFQPSUGPMJPSFQSFTFOUFEPGUPUBM
loans in 2012 (1.1% in 2011), reaching Ch$1,004 billion.
EQUITY
SISTEMA BANCARIO
t %VSJOHTZTUFNFRVJUZUPUBMFE$ICJMMJPO
15% higher than in 2011.
(Billions of Ch$)
2012 13.2%
2,007
2011 12.9%
1,739
2010 13.4%
1,404
2009 12.7%
1,393
Tier 1 Capital
Total Capital Ratio
t 5IFJODSFBTFXBTESJWFOCZHSPXUIPGJODBQJUBM
and reserves from capital increases carried out by some
banks and capitalization of a portion of 2011 net income.
t 5IFTZTUFNT#BTFM*OEFYGFMMTMJHIUMZGSPNJO
December 2011 to 13.2% in October 2012(1).
(1) Most recent information published by the Superintendency of Banks
and Financial Institutions.
BANKING SYSTEM
BANCO DE CHILE
tBanco de Chile reported net income of Ch$466 billion,
representing annual growth of 9% over 2011.
tThis figure represented 29% of total system net income,
making Banco de Chile the industry leader.
t This increase in net income was due to the Bank’s
outstanding commercial performance, which prioritized
growth in segments with greater returns, together with
a high-quality portfolio and improvements in efficiency.
tBanco de Chile attained a return on average capital and
reserves (ROAC) of 26% in 2012, leading the industry
in profitability for the second consecutive year.
NET INCOME
t4ZTUFNOFUJODPNFUPUBMFE$ICJMMJPOJO
falling 5% for the year.
(Billions of Ch$)
2012 26.2%
466
2011 27.4%
429
2010 28.8%
379
2009 19.2%
258
Utilidad
t5IJTEFDSFBTFDBOCFFYQMBJOFECZUIFJODSFBTFTJOMPBO
loss provisions and operating expenses, which expanded
comparatively more than revenue as a result of low
inflation and limited growth in net fees.
t5IFCBOLJOHTZTUFNQPTUFEBSFUVSOPOBWFSBHFDBQJUBMBOE
reserves of 16.2% in 2012, which is less than in 2011.
ROAC
OPERATING REVENUE
t During 2012, Banco de Chile reported annual growth of
9.7% in operating revenue.
t This rise is explained by greater business volumes, a large
base of demand deposits in a scenario of higher nominal
interest rates and better returns on investment portfolios,
which were partially offset by lower net fee revenue.
t The ratio of operating revenue to average interest earning
assets was 6.5%, which is slightly below the 2011 figure
as a result of low inflation. However, it remains above the
banking system and key competitors.
(Billions of Ch$)
t4ZTUFNPQFSBUJOHSFWFOVFHSFXPWFS
2012 6.5%
1,342
2011 6.9%
1,224
2010 7.2%
1,169
2009 6.8%
1,026
Operating Income
t%VSJOHUIFZFBSSFWFOVFXBTESJWFOCZHSPXUIJOCVTJOFTT
volumes, increased revenue from trading and foreign
exchange activities and, to a lesser extent, increased
net fee revenue.
t5IFSBUJPPGPQFSBUJOHSFWFOVFUPBWFSBHFJOUFSFTUFBSOJOH
assets was 5.5% in 2012, which is 32 basis points
lower than in 2011.
Op. Income/RWA
OPERATING EXPENSES
tThe Bank’s operating expenses rose slightly by 3% in 2012.
tThese higher expenses can be explained by increased
commercial activity, improvements to IT systems and
increased marketing expenses that resulted in more
administrative expenses, which were offset by lower
payroll expenses.
tThe Bank’s ongoing focus on efficiency was reflected in an
improvement of 300 basis points in the efficiency ratio,
which was 47.2% in 2012 (50.2% in 2011).
(Billions of Ch$)
2012 47.2%
634
2011 50.2%
614
2010 46.6%
545
2009 49.3%
506
Operating Expenses
tDuring 2012, the Bank’s net credit risk expense was
Ch$188 billion, which represents an increase of 51%
over 2011.
tThis increase can be explained by greater growth in
business volumes in the retail segments, increased
delinquency rates in the consumer portfolio and nearly
Ch$45 billion in provisions released in 2011 from the
sale of an impaired corporate portfolio. These aspects
were partially offset by fewer additional provisions.
tAs a result, in 2012 the ratio of loan loss provisions to
average loans resumed previous trends, increasing 20
basis points over 2011, which compares favorably to
competitors.
t4ZTUFNPQFSBUJOHFYQFOTFTQPTUFEBOOVBMHSPXUIPG
11.0% in 2012.
t5IJTSJTFJTFYQMBJOFECZJODSFBTFEQBZSPMMBENJOJTUSBUJWF
and other operating expenses.
t5IFJOEVTUSZTFGGJDJFODZSBUJPXFBLFOFETMJHIUMZGSPN
50% in 2011 to 51% in 2012.
Eficciency Ratio
LOAN LOSS PROVISIONS
(Billions of Ch$)
t 5IFCBOLJOHTZTUFNQPTUFEMPBOMPTTQSPWJTJPOTPG
Ch$1,217 billion in 2012, giving an annual increase of 27%.
2012 1.0%
188
2011 0.8%
125
2010 1.5%
209
2009 1.8%
223
Loan Loss Provision
LLP / Avg. Loans
t5IJTJODSFBTFDBOCFFYQMBJOFECZBNPSFQSVEFOUPVUMPPL
on risk matters given international tensions, an increase
in delinquency rates in the consumer portfolio and larger
one-time charge-offs by an important local bank.
t5IFSBUJPPGMPBOMPTTQSPWJTJPOTUPBWFSBHFMPBOTXBT
1.3% as of December 31, 2012, which is 11 basis points
higher than in 2011.
13
14 AnnualReport2012
Thanks to its solid capital
base, the Bank survives
the crisis that began in
1929 and continues to
develop, sustaining itself
as the country’s main
bank and one of the most
respected and solvent
corporations.
Banco de Chile
contributes to the
reconstruction of the
areas most devastated by
the Valdivia earthquake
with special credit
resources.
Following a government
process to nationalize
the banking industry,
the Chilean State
Development Corporation
(CORFO) becomes
Banco de Chile’s largest
shareholder, with the
right to appoint the
Chairman of the Board.
Banco de Chile is
reprivatized in 1975.
Two years later, it creates
Leasing Andino in
partnership with Banco
de Vizcaya of Spain and
Orient Leasing of Japan. .
1982 - 1983
1940
Consolidation of
Banco de Chile: It
incorporates liabilities of
other financial entities
undergoing liquidation
and purchases shares
of important commercial
and service companies.
The Bank begins the
internationalization
process, opening a
branch in New York in
1982.
1987 - 1990
Banco de Chile’s head
offices are relocated
from the former offices
of Banco Nacional de
Chile at Huérfanos 930
to a brand-new building
at Ahumada 251—its
present headquarters.
1960
The Bank establishes
an agency in London,
which is key in securing
financing from foreign
banks and fostering
foreign trade to and from
Chile.
1973
Banco de Chile is a
banking corporation
established in 1893 that
began to operate under
this name in 1894 with
the merger of Banco
de Valparaíso, Banco
Nacional de Chile and
Banco Agrícola de Chile.
1975-1977
1930
1926
1907
1893 - 1894
History
After a capitalization
process, ownership
and control of the
Bank are transferred
to private investors in
1987, incorporating
more than 30,000 new
shareholders through
“popular capitalism”.
The following year,
authorities intervene and
determine that Banco
de Chile’s loan portfolio
had deteriorated,
compromising its capital
base.
Banco de Chile acquires
the assets and liabilities
of Banco Continental and
absorbs the operations of
Banco Morgan Finansa.
In 1990, it closed its
representation office in
London and moved it to
Frankfurt, which would
later be closed in 2000.
In the 1990s, Banco
de Chile established
representation offices in
Miami, Buenos Aires, Sao
Paulo and Mexico City.
Banco de Chile takes over
the assets and liabilities of
Citibank Chile, the Chilean
subsidiary of Citigroup Inc.
Concurrently, Citigroup
partners with Quiñenco,
entering the ownership
structure of LQ Inversiones
Financieras S.A. Banco de
Chile and Citigroup also
signed the Cooperation
Agreement and the Global
Connectivity Agreement,
providing for mutual
support in executing
diverse transactions and
limited use of the Citi
brand.
2012
2010
2000-2003
Following the February
earthquake in Chile,
Banco de Chile joined
forces with the Teletón
Foundation on the
campaign “Chile Helping
Chile”, which worked
to raise record levels of
donations in benefit of
those affected by this
disaster.
Citigroup exercises
its option to purchase
shares of LQIF, raising
its ownership to 50%,
while Quiñenco holds the
remaining 50%.
2011
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
SAOS S.A., a whollyowned subsidiary of
SM-Chile S.A.
Banco de Chile agrees to
merge with Banco de A.
Edwards. Following the
merger, Quiñenco S.A.,
a company linked to the
Luksic family and the main
shareholder in both banks,
acquires the majority
shareholding in Banco de
Chile.
Under an American
Depositary Shares (ADS)
program, the Bank’s shares
are traded on the New York
Stock Exchange (NYSE)
and one year later on the
London Stock Exchange
(LSE) and the Latibex.
2008
1993
1996
The Bank creates Banco
CrediChile, a division with
its own branch network,
specialized in consumer
loans for middle and
low-income individuals.
In 2002, it absorbs
Finandes, the consumer
division of Banco de A.
Edwards, and in 2008, it
absorbs Financiera Atlas,
the consumer division of
Citibank Chile.
Standard & Poor’s
gives the Bank an ‘A+’
international credit rating,
making it the private
bank with the best risk
rating in Latin America.
In addition to having the
highest profitability, the
Bank also leads in net
income, generating close
to US$1 billion during
the year, equivalent to
29% of total banking
system net income.
It also became the
industry leader in market
capitalization with nearly
US$14.5 billion.
Banco de Chile expands
its business scale,
boasting important
increases in market
share across all loan
products, especially
mortgage loans. This
growth was accompanied
by a successful capital
increase that raised
Ch$210.1 billion. As a
result, Banco de Chile’s
stock increased its depth
in financial markets and
was included on the
MSCI stock index.
As part of these
agreements, Banco de
Chile sells its banking
operations in New York and
Miami to Citigroup Inc.
History
15
1
2
Undisputed Leadership in Net Income and Returns
The successful business model implemented by the Bank in recent years, together with proper management of risks inherent to the business,
enabled Banco de Chile to position itself in 2012 as the banking system leader in net income, reporting after-tax income of Ch$466 billion, which
represented 29% of the banking system’s net income. This achievement also enabled it to continue to lead the industry in terms of return on average
assets (2.1%) and return on average capital and reserves (26.2%), both of which are well above industry averages and our main competitors.
Best Risk Rating for a Private Bank in Latin America
During the year, Banco de Chile’s international credit rating was upgraded from ‘A’ to ‘A+’ by Standard & Poor’s, making it the private bank with the
best risk rating in the region. This achievement is particularly noteworthy in light of the complex international conditions and multiple downgrades
of prestigious global institutions occurring this year. This rating, along with attractive returns, consolidates Banco de Chile as the private bank with
the best risk-return ratio in Latin America.
Pioneers in Debt Issuance in International Markets
3
Following our strategy to diversify sources of financing, Banco de Chile continued to explore new markets. During 2012, the Bank was the first
institution in Latin America to issue short-term commercial paper in the U.S., opening a line for US$1 billion. It was also a pioneer in placing longterm bonds in Hong Kong and Peru. Thanks to the Bank’s upgraded risk rating, these placements were well received by local and foreign investors,
obtaining excellent financial conditions. By year end 2012, the Bank had placed almost US$600 million in these markets.
Caja Chile Project: Boosting Bank Penetration
Banco de Chile’s commitment to being a global institution with presence across all industries throughout Chile was the fundamental reason behind
4
its development of a new customer service channel known as Caja Chile. Under the CrediChile brand, this initiative aims to provide financial services
in towns throughout the country without an established bank branch using a remote banking platform located in small stores. Through Caja Chile,
customers and non-customers alike can carry out basic banking services such as paying bills, making deposits and withdrawals, checking balances
and making payments on consumer loans, all without having to travel to other towns, thus improving their quality of life. As of December 2012, Caja
Chile has enlisted more than 1,000 small stores in 220 districts throughout Chile.
Strengthening Ties with Small and Medium Enterprises
5
Banco de Chile’s desire to be a reference point for entrepreneurs in Chile continues to be one of our strategic priorities. As a result, this segment
reported considerable growth during the year. Through a comprehensive, segmented product offering that includes financial consulting, and customer
service known for its proximity and flexibility, Banco de Chile has positioned itself as a leader in this segment. Along these same lines, in order
to continue strengthening ties with entrepreneurs, during the year the Microenterprises Bank was created. This specialized business area works
through the CrediChile branch network to provide financial services and consulting to small businesses. By the end of 2012, this Project already
boasted 40 customer service platforms in Chile, strengthening the Bank’s position among entrepreneurs of all sizes.
16 AnnualReport2012
6
7
8
9
10
Consolidating Regional Business
In 2012, the Bank concentrated efforts on consolidating its Comprehensive Regional Plan for both the Large Companies segment and its Commercial
Division. This initiative, which began three years ago in order to increase the Bank’s market share throughout Chile, set a three-year goal of attaining
market share of 19%, which would require considerable growth in all products. This goal involved strengthening the Bank’s network of offices, as
well as making important enhancements and changes to customer service models.
Important Growth in the Mortgage Business
Banco de Chile continued to expand its presence in the mortgage business, attaining 16% growth in housing loans, gaining 82 basis points in market
share in 2012 and 283 basis points over the last three years. The growth of the mortgage market is a fundamental part of the Bank’s strategy of
forging long-term relationships with customers and increasing cross sales.
Innovation and Improvement of Digital Channels
Mindful of the Bank’s commitment with its customers, during the year important technological investments were made, improving online services for
current accounts and enhancing the mobile platform. The third version of this mobile application is considered the best in the country and among
the best in Latin America with over 145,000 users. Considerable resources were also allocated to improving the security of online transactions,
providing customers with cutting edge technology for online banking security.
Capital Increase for US$530 Million
The better-than-expected economic expansion and growth in business volumes seen in 2012, in which Banco de Chile has played an important
role, motivated it to begin a new capital increase for US$530 million, which will be used to fund the Bank’s organic growth over the next few years,
to strengthen its future capital requirements and to increase its free float to more than 17%.
Leader in Market Capitalization in Local Banking Industry
Banco de Chile’s excellent financial performance in 2012, the confidence of investors and analysts in its business strategy and the company’s
positive future outlook translated into an exceptional year for the Bank’s shares. In effect, during 2012 Banco de Chile’s stock posted a 16% total
return on its value, which compares quite favorably to the 3% return obtained by the IPSA in the same period. As a result, as of December 2012,
the Bank had positioned itself as the bank with the largest market capitalization in Chile, equivalent to US$14.5 billion.
17
Recognitions 2012
Best Bank
in Chile,
LatinFinance
As part of the LatinFinance
Awards 2012, Banco de Chile
was distinguished as the best
bank in Chile for the second
consecutive year. This award
considers the Bank’s merit
in the retail, commercial and
investment areas. The Bank’s
results in these areas led to
its recognition as the best
bank in Chile.
Best Bank in
Chile, Euromoney
Awards for
Excellence
For the second straight year,
Banco de Chile was recognized
in the category Best Bank in
Chile at the annual award
ceremony held by British
magazine Euromoney. The
Bank’s excellent earnings
and strong market position
stand out among the factors
considered for the award.
18 AnnualReport2012
Best Local
Bank in Chile,
Euromoney Best
Private Banking
Awards
Safest Private
Bank in Latin
America, Global
Finance World’s
Safest Banks
The prestigious British
magazine, Euromoney, which
recognizes the best private
banks in each region, awarded
Banco de Chile first place in
the category Best Local Bank
in Chile in the 9th version of
the annual survey on private
banking.
Banco de Chile was
distinguished as the safest
private bank in Latin
America according to the
ranking published by the
prestigious U.S. magazine
Global Finance. Banks were
selected by comparing longterm credit ratings and total
assets from among the largest
banks. Ratings from Moody’s,
Standard & Poor’s and Fitch
were used.
Bank with
Best Corporate
Reputation in
Chile, MERCO
Merco’s 2012 ranking
of corporate reputation
recognized the Bank for the
third year in a row as the
number one financial institution
in Chile. The same study placed
it third in the general ranking,
which includes companies from
all industries.
Best Corporate
Social
Responsibility
in 5th Region,
ASIVA
At the 59th Annual Meeting of
the Association of Companies
from the 5th Region (ASIVA),
the Bank was recognized for
its contributions in matters of
corporate social responsibility.
“More for Chile”
Seal for work
with Teletón
and Desafío
Levantemos
Chile
Foundations,
Ministry of Social
Development
In recognition of its corporate
social responsibility work,
the Bank received the “More
for Chile” seal granted for
the first time by the Ministry
of Social Development to
projects that contributed to
providing more and better
opportunities for the country’s
most vulnerable individuals
to overcome hardship. The
award was given because
of its alliance with Desafío
Levantemos Chile and the 34
years it has worked with the
Teletón Foundation.
Among the 10
Most Responsible
Companies in
Chile, Hill &
Knowlton
For the tenth consecutive
year, Hill & Knowlton Captiva
and La Tercera, together with
Collect GFK, conducted this
study to measure consumer
perception in Chile.
Best
Subcustodian
Bank in Chile,
Global Finance
Banco de Chile was named
Best Sub Custodian Bank in
Chile for the fourth straight
year by U.S. magazine Global
Finance. This recognition
is given for providing local
and international share
custody services for shares,
money market and fixedincome investments services,
and offering products like
certificates of deposit,
outsourcing, representation
and trusts.
Best Investment
Bank in Chile
(Banchile Citi
Global Markets),
LatinFinance
Local Investment
Bank – Chile
Category
Best Bond
Placement Agent
(Banchile Citi
Global Markets),
Diario Financiero
Financial Leader
Awards and
Deloitte
As part of the LatinFinance
Awards 2012, Banco de Chile
was distinguished as the best
bank in Chile while Banchile
Citi Global Markets was named
the best investment bank in
the country.
Deloitte and Diario Financiero
highlighted the work of
Banchile Citi Global Markets
in the category Best Bond
Placement Agent 2011, for
both its local and international
placements. On the local
market, it led placements with
26.2% of market share thanks
to seven placements totaling
US$1,202 million. It also was
engaged in five international
transactions totaling US$1,243
million.
Best Chilean
Trade Bank,
Trade Finance
The Bank was selected as
the Best Chilean Trade Bank
2012 as part of the awards
for excellence given for more
than a decade by the magazine
Trade Finance to financial
institutions throughout the
world. This award is unique
in that the winners of each
category and country are
selected by their own peers
and by customers of financial
institutions.
Recognitions 2012
19
1
CORPORATE GOVERNANCE
Board of Directors
Andrónico Luksic Craig
Francisco Aristeguieta Silva
CHAIRMAN
VICE CHAIRMAN
VICE CHAIRMAN
Mr. Granifo was reelected as the chairman of our board of
directors in 2011, a position he has held since 2007. He was
our chief executive officer from 2001 to 2007, was 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., Banchile Securitizadora
S.A., and Banchile Factoring S.A., chairman of the executive
committee of Banchile Corredores de Seguros Limitada and
a member of the board of the Santiago Stock Exchange. He
holds a degree in business administration from Pontificia
Universidad Católica de Chile.
Mr. Luksic was reelected as a director and vice chairman
of our board of directors in 2011, a position he has held
every year since 2002. Mr. Luksic is also chairman of LQ
Inversiones Financieras S.A., vice chairman of Quiñenco S.A.,
and a member of the boards of Compañía Cervecerías Unidas
S.A., Manufacturas de Cobre Madeco S.A. and the Federation
of Chilean Industry (SOFOFA). Mr. Luksic is a member of the
APEC Business Advisory Council (ABAC), Vice chairman of the
International Business Leaders’ Advisory Council for the Mayor
of Shanghai, and is also a member of Barrick Gold’s International
Advisory Council, the Brookings Institution’s International
Advisory Council, the Nature Conservancy’s Latin American
Conservation Council, the Panama Canal Authority, and the
Chairman’s Advisory Council of the Council of the Americas.
Mr. Luksic is a member of the board of trustees at Babson
College; the Dean’s Council at Harvard’s Kennedy School of
Government; the International Advisory Committee at Harvard
Business School; the Advisory Committee at Harvard’s David
Rockefeller Center for Latin American Studies; the Advisory
Council at Tsinghua University School of Economics and
Management; the Latin American Executive Council at MIT
Sloan School of Management and the International Advisory
Council at Oxford’s Blavatnik School of Government.
Mr. Aristeguieta was elected as a member of our board and
vice chairman in April 2012. Mr. Aristeguieta joined Citi in
Venezuela in 1994. He is currently the CEO of Citigroup Latin
America, overseeing the 23 countries where Citi operates
in the region. Prior to this position, he was responsible for
Transactional Services for Latin America and Mexico at Citi,
a member of the Executive Committee at Banco Nacional de
México (Banamex), a member of the Executive Committee at
GTS Global, director for the Andean Region, CEO of Colombia and
chairman of Citigroup Venezuela and Ecuador. Mr. Aristeguieta
is a member of Citigroup’s Global Operating Committee and
of Young Presidents’ Organization (YPO) since 2003. He has
also served on the boards of directors of several organizations,
including Junior Achievement Americas; the Banking Association
of Ecuador, Colombia and Venezuela; the American Chambers
of Commerce of Ecuador, Colombia and Venezuela; and the
Colombian Council of American Companies. He was also
chairman of the board of directors of Colfondos. Mr. Aristeguieta
holds an MBA from Brunel University in London, and holds a
postgraduate degree in banking and finance and a degree in
business administration with a master’s in management from
Universidad Metropolitana in Caracas, Venezuela.
22 AnnualReport2012
Raúl Anaya Elizalde
Jorge Awad Mehech
Fernando Concha Ureta
Jorge Ergas Heymann
DIRECTOR
DIRECTOR
DIRECTOR
DIRECTOR
Jaime Estévez Valencia
Guillermo Luksic Craig
Gonzalo Menéndez Duque
Francisco Pérez Mackenna
DIRECTOR
DIRECTOR
DIRECTOR
DIRECTOR
Thomas Fürst Freiwirth
Rodrigo Manubens Moltedo
Hernán Büchi Buc
Francisco Garcés Garrido
Jacob Ergas Ergas
ALTERNATE DIRECTOR
ALTERNATE DIRECTOR
ADVISOR TO THE BOARD
Corporate Governance
23
Board of Directors
DIRECTORS
Raúl Anaya Elizalde
Fernando Concha Ureta
Mr. Anaya was reelected as a member of our board of directors in March 2011. Currently, Mr. Anaya
is the Chief Executive Officer for Citi’s Consumer and Commercial Banking Division in Latin America.
Prior to this, from August 2008 to April 2012, Mr. Anaya served as Global Retail Banking Head for
Citigroup, COO of the Global Consumer Banking Council and as CEO of Citigroup Inc.’s businesses in
Central America and the Caribbean. From December 2005 to July 2008, Mr. Anaya was CEO of Latin
America’s Consumer Group for Citigroup (except Brazil). From February 2005 to December 2005, he
was Director of Retail Banking for Citigroup Inc. in Central and South America. From August 2003
to January 2005, he was Executive Director of Consumer Assets at Banamex in Mexico, responsible
for mortgages, personal loans and car financing. Prior to this position, Mr. Anaya served as Division
Director for the Central Metropolitan Retail Banking Division at Banamex. From May 1999 to January
2002, he was Chairman and Chief Executive Officer of Banco Bansud S.A. (formerly a subsidiary of
Banamex) in Argentina. Mr. Anaya joined Citibank at Banamex’s New York Agency in October 1987 and
later became General Manager of the Banamex Agency in Los Angeles, Executive Vice President of the
Corporate Banking and International Division at California Commerce Bank, General Manager of the
Banamex Agency in Houston and General Manager of the Banamex Agency in New York in charge of
its offices in the United States and Canada. He is a member of the board of directors at LQ Inversiones
Financieras S.A. and was a member of the board of directors at California Commerce Bank from 1996
to 2001. He was chairman of the board of directors of Citigroup’s subsidiaries in Central America from
2008 to 2010. He holds a degree in business administration from Universidad La Salle in Mexico.
Mr. Concha was appointed as a member of our board of directors in March 2011. Currently, Mr. Concha
is Managing Director of Citigroup Chile and a member of the executive committee of Casa de Bolsa
Accival and Wealth Management in Mexico. Prior to this position, he was the General Director for the
Andean, Central American and Caribbean Cluster, excluding Brazil. From January to July 2008, he
worked for Banco de Chile as Corporate and Investment Banking Head after the merger with Citibank
Chile. In addition, Mr. Concha was the Citigroup Country Officer for Chile from April 2006 to December
2007 after working in Banamex-Citigroup, Mexico City, for over eight years in different capacities.
His last position was Mexico Regional Treasurer. Throughout his professional career, Mr. Concha has
occupied positions of leadership, serving as Country Treasurer and Capital Markets Head with Citibank
in Mexico and Divisional Treasurer with Citibank Latin America North Division in Miami, USA. Prior to
his international assignments, Mr. Concha was the Investment Bank Head with Citibank Chile. From
1986 to 1992, he worked as Senior Investment Officer for AFP Provida. He was also appointed as a
member of the board of directors of the Mexican Derivatives Market (Mex-Der) and served as President
of the Brokerage House at Citibank Mexico and vice chairman of the Chilean Electronic Stock Exchange.
He is currently a member of the board of directors of the American Chamber of Commerce in Chile.
Mr. Concha has a degree in business administration from Pontificia Universidad Católica de Chile and
has completed several executive training programs in the United States, Europe and Latin America.
Jorge Awad Mehech
Mr. Ergas was named to our board of directors in March 2011. Formerly, he had been an advisor to
the board of directors since 2007 and from 2002-2005. 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., Nido de Águilas Educational Foundation 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.
Mr. Awad has been a member of our Board of Directors since 1996. From 1989 to 1996 he was a
member of the board of directors at Banco de Santiago. Mr. Awad has served as the president of the
Chilean Association of Banks and Financial Institutions since 2011. He is also a member of the board
of directors of ICARE, Universidad de Talca and Universidad Católica de Valparaíso TV. Previously, Mr.
Awad was chairman of LAN Airlines S.A. for 18 years until September 2012. He has also served as
a director at Codelco Chile, Televisión Nacional de Chile, Laboratorio Chile S.A. and other Chilean
corporations. He is a professor of management at Universidad de Chile’s School of Economics, from
which he holds a degree in business administration.
24 AnnualReport2012
Jorge Ergas Heymann
ALTERNATE DIRECTORS
Mr. Estévez has been a member of our board of directors since 2007. Presently, he is also chairman of
the board of directors of Cruzados SADP. Before that, Mr. Estévez was chairman of the board of directors
at Banco del Estado and was a member of the board of directors of Endesa Chile S.A. He has also
served as a director at AFP Provida and AFP Protección, 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.
Mr. Fürst has been a member of our board of directors since 2004. Previously, Mr. Fürst was vice
chairman of Compañía Cervecerías Unidas and a member of the board of directors of 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 a founder and member of the board of directors of Parque Arauco. He is also a founder, partner
and member of the board of directors of Plaza S.A. and Nuevos Desarrollos S.A., the owners of 12
shopping centers in Chile and three under construction, four shopping centers in Peru and three
under construction and one shopping center in Colombia and three under construction. Grupo Plaza
is the second largest chain in Latin America. He holds a degree in civil construction from Pontificia
Mr. Luksic has been a member of our board of directors since 2001 and was previously the vice
chairman of our board of directors from March 2001 to March 2002. Mr. Luksic is also chairman
of Quiñenco S.A., Compañía Cervecerías Unidas S.A. (CCU), Viña San Pedro Tarapacá S.A., Madeco
S.A. and Compañía Sudamericana de Vapores S.A. and a member of the board of directors of LQ
Inversiones Financieras S.A., Antofagasta PLC, Antofagasta Minerals, Nexans and Empresa Nacional
de Energía Enex S.A. Mr. Luksic is an active member of Centro de Estudios Públicos (CEP), a Chilean
think tank, and a member of the board of directors at Universidad Finis Terrae. Mr. Guillermo Luksic
and Mr. Andrónico Luksic are brothers.
Mr. Menéndez has been a member of our board of directors since 2001. He is also the chairman of
Inversiones Vita S.A., and a member of the board of directors of several other companies, including
Banchile Asesoría Financiera S.A., Banchile Factoring S.A., Banchile Seguros de Vida S.A., Quiñenco
S.A., Compañía Sudamericana de Vapores S.A., Sudamericana Agencias Aéreas y Marítimas S.A.,
Sociedad Matriz SAAM S.A., Antofagasta PLC, Mining Group Antofagasta Minerals S.A., Antofagasta
Railway, Aguas de Antofagasta S.A., Andsberg Investment Ltd. and Andsberg Limited. He is also vice
chairman of Fundación Andrónico Luksic A. and Fundación Pascual Baburizza. Previously, Mr. Menéndez
served as chief executive officer of the Antofagasta Railway to Bolivia, Banco O’Higgins and Empresas
Lucchetti. Since 1990, he has been a director and is now the chairman of the board of directors of
Banco Latinoamericano de Comercio Exterior S.A., Bladex. Mr. 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.
Mr. Perez has been a member of our board of directors since 2001. Since 1998, Mr. Pérez has also
served as the chief executive officer of Quiñenco S.A. He was formerly the chief executive officer at
Compañía Cervecerías Unidas S.A., of which he is still a director. Prior to 1991, Mr. Pérez was chief
executive officer of Citicorp Chile and also was vice president of Bankers Trust in Chile. He holds a
degree in business administration from Pontificia Universidad Católica and a master’s degree in business
administration from the University of Chicago.
Mr. Manubens has been a member of our board of directors since 2001. Mr. Manubens was a member
of the board of directors of Banco A. Edwards from 1999 to 2001. From 1985 to 1999, Mr. Manubens
was a member of the board of directors of Banco O’Higgins and retained this position following its
merger with Banco Santiago. 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. Mr. Manubens
also served for a ten-year period as a director and chairman of Endesa Chile S.A. He is chairman of
Banchile Compañía de Seguros de Vida S.A. and a director and chairman of the Directors’ Committee
of Aguas Andinas S.A. Mr. Manubens holds a degree in business administration from Universidad
Adolfo Ibáñez and a master’s degree from the London School of Economics and Political Science.
ADVISORS TO THE BOARD
Hernán Büchi Buc
Mr. Büchi has served as an advisor to the board since 2008. In 2007, he was a member of our board
of directors. He is the founder of and an advisor to Instituto Libertad y Desarrollo and is currently the
chairman of the managing council at Universidad del Desarrollo. He is also a director of several Chilean
corporations like Quiñenco S.A., Consorcio Nacional de Seguros and Falabella S.A. Previously, he
held multiple public positions such as Minister of Finance (1985 – 1989), Superintendent of Banks,
Minister of Planning and Undersecretary for Health. He holds a degree in civil mining engineer from
Universidad de Chile and a master’s degree from Columbia University.
Jacob Ergas Ergas
Mr. Ergas has been an advisor to the board since 2011. From 2002 to 2011, he was a member of the
board of directors. He is also a director at Banchile Administradora General de Fondos S.A., chairman of
J. Ergas Inversiones y Rentas Limitada, Ever I BAE S.A., Ever II, Inmobiliaria Paidahue S.A. and INERSA
S.A. From 1986 to 2001, he was a member of the board of directors and vice chairman of Banco de A.
Edwards and a director of the Chilean Association of Banks and Financial Institutions.
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 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 Maritime Boundary
Advisory Committee of the Ministry of Foreign Affairs. Prior to this, he was an advisor and member of
the board of directors of Banco O’Higgins and Banco Santiago, a professor at the School of Economics
of Universidad de Chile, Executive Director of the IMF in Washington D.C., and International Director
of the Chilean Central Bank. He holds a degree in business administration from Pontificia Universidad
Católica de Chile and has conducted post-graduate research at the PhD level at Columbia University.
25
Senior Management
Arturo Tagle Quiroz
Jorge Tagle Ovalle
Chief Executive Officer
Commercial Banking Division Manager
since 2010
since 2012
Formerly, he held diverse positions at Banco de Chile
since 1995 such as Strategic Development Division
Manager, Research and Administration Division Manager
and Controller. Before that, he worked as chief executive
officer of the Chilean Association of Banks and Financial
Institutions and as research director for the Superintendency
of Banks and Financial Institutions. He holds a degree in
business administration from Universidad Católica de Chile
and an MBA from the University of Chicago.
Previously, he was the Deputy CEO of Banco de Chile
and before that held numerous executive positions
mainly within the Luksic Group such as Executive Vice
President of Nexans S.A., Corporate CEO of Alusa
S.A., Corporate CFO of Madeco S.A. and New Product
Manager at Quiñenco S.A. Mr. Tagle holds a degree
in industrial engineering from Pontificia Universidad
Católica de Chile and has an MBA from the Wharton
School of the University of Pennsylvania.
Oscar Mehech Castellón
Pedro Samhan Escandar
Controller
Chief Financial Officer
since 2008
since 2008
Prior to this position, he was the Regulatory Policy and
Compliance Division Manager and before that the senior
lawyer for Banco de Chile and Banco de A. Edwards. He
is the chairman of the audit committee of the Association
of Banks and Financial Institutions. He holds a law degree
from Universidad de Chile and an MBA from Pontificia
since 2008. Before that, he was Chief Financial Officer of
Citigroup Chile until it merged with Banco de Chile. He held
several positions at Citibank both in Chile and other Central
American and Caribbean countries, including Chief Executive
Officer of Citicorp Chile between 1988 and 1990. He was also
a member of the board of directors of AFP Habitat between
1996 and 2006, of Cruz Blanca Seguros de Vida between
1994 and 1997 and of Minera Las Luces between 1994 and
1996. Currently, he is a member of the board of directors of
Banchile Trade Services Limited. Mr. Samhan holds a degree
in industrial engineering from Universidad de Chile.
Patricio Melo Guerrero
Cristián Lagos Contardo
Operations and Technology Division
Manager since 2008
since 2012
Before this position, he worked as chief executive officer
and operations and technology division manager in diverse
companies within the Santander Group in Chile, Peru and
Brazil. Mr. Melo has a degree in electronic engineering
from Universidad Federico Santa María.
Previously, he was the Planning and Human Resources Division
Manager at Banco Sudamericano and, later, at Scotiabank,
following the merger of these banks. Before that, he was
the Corporate Human Resources Manager at Chilesat S.A.,
which later merged with Telmex S.A. From 2008 to March
2012, he was Corporate Manager of People and Reputation
at Compañía General de Electricidad S.A. Mr. Lagos holds
a degree in psychology from Universidad Diego Portales
and completed the management development program
from Universidad de los Andes ESE Business School.
Alain Rochette García
Nelson Rojas Preter
Advisor to the Chief Executive Officer for the
Corporate and Investment Banking Division
and General Coordinator for the Treasury,
Investment Banking, and Corporate Divisions
since 2011
Previously, since 2006, Mr. Rochette was Citibank’s Managing
Director of Markets and Treasury for Latin America, based in
the U.S. His 26-year career at Citi included positions such
as Markets Head and Country Treasurer of Citibank Chile
and 15 years in diverse international positions in Japan
and the United States. Mr. Rochette holds a degree in Civil
Industrial engineering from Universidad de Chile.
26 AnnualReport2012
Human Resources Manager
General Counsel and Secretary to the Board
since 2004
In 2002, he joined us as Deputy General Counsel and from
1997 to 2001 he was General Counsel and Secretary to the
Board of Directors of Banco de A. Edwards. Mr. Rojas is the
chairman of the legal affairs committee of the Association
of Banks and Financial Institutions. He holds a law degree
from Universidad de Chile.
Juan Carlos Cavallini Richani
Juan Cooper Álvarez
Corporate Banking Division Manager
Consumer Banking Division Manager
since 2009
since 2003
Prior to this position, he was the Investment Banking and
Capital Markets Division Manager. Before that, he was
the Head of Corporate Banking at Citibank-Chile until its
merger with Banco de Chile and he held several positions
at Citibank N.A., including four years in the International
Corporate Finance Division in New York. Mr. Cavallini holds
a degree in industrial engineering from Pontificia Universidad
Católica de Chile.
Prior to that position, he was the chief executive officer
of the consumer banking division at Banco de Santiago
and previously worked at Altavida insurance company. He
holds a degree in business administration and an MBA
from Pontificia Universidad Católica de Chile.
Felipe Echaiz Bornemann
Eduardo Ebensperger Orrego
Compliance Division Manager
Wholesale, Large Companies and Real
Estate Division Manager. since 2005
desde 2008
Prior to this position, he held numerous positions at Citibank
and Citigroup Chile. In 2003, Mr. Echaiz was Deputy Director
of the Anti-Money Laundering and Organized Crime Unit of
Chile’s Ministry of Public Affairs. He has a law degree from
Universidad Católica de Chile and a master’s in finance and
economics from Universidad de Chile.
From 2002 to 2005, he was the chief executive officer
of Banchile Factoring S.A. and prior to that held diverse
managerial positions in the commercial areas of Banco de
Chile and Banco de A. Edwards. Mr. Ebensperger holds a
degree in business administration from Universidad de Chile.
Mauricio Baeza Letelier
Sergio Karlezi Aboitiz
Corporate Risk Division Manager
Treasury Division Manager
since 2011
since 2011
He was appointed to this position following the merger
of the Companies Credit Risk Division, the Market Risk
Division and the Retail Credit Risk Division. Between 2005
and 2011, he served as the Companies Credit Risk and
Market Risk Division Manager and before that in the credit
risk divisions at Banco de Chile, Banco de A. Edwards
and Banco Santiago. Mr. Baeza holds a degree in civil
engineering from Pontificia Universidad Católica de Chile.
Prior to that, he was the Treasury Manager at Banco de
Chile. Previously, he was the Head Trader at Banco de Chile,
Citibank, Banco Santander New York (Latin America) and
JPM Chase Chile. Mr. Karlezi holds a degree in industrial
engineering from Universidad de Santiago.
Andrés Bucher Cepeda
Esteban Torrent López
Chief Executive Officer of Banchile
Corredores de Bolsa S.A.
Gerente Desarrollo y Calidad
since 2012
Development and Quality Division Manager since 2012.
Formerly, from 2005 to mid-2012, he was the Commercial
Banking Central Regional Manager for Banco de Chile and
prior to that he held several positions in the commercial
and credit risk areas at Banco de Chile and Banco de A.
Edwards. Mr. Torrent holds a degree in agricultural engineering
and an MBA from Pontificia Universidad Católica de Chile.
Formerly, he was the Investment Banking and Capital
Markets Division Manager and Chief Executive Officer of
Banchile Asesoría Financiera S.A. since 2008. Prior to
that, he was Investment Banking Manager at Citigroup
Chile, where he worked for close to 20 years until Citibank
Chile merged with Banco de Chile. He holds a degree in
industrial engineering from Universidad Católica de Chile
and has an MBA from the Wharton School of the University
of Pennsylvania.
since 2012
27
Principles
Our corporate governance practices are governed through by-laws, the
General Banking Law, the Corporations Law, the Securities Market Law
and the applicable regulations of the Chilean Superintendency of Banks
and Financial Institutions (SBIF) and the Superintendency of Securities
and Insurance (SVS).
In order to formalize these practices, in 2011 the Board of Directors
approved a document entitled “General Corporate Governance Principles”,
which summarizes and serves as the basis for a set of policies and
procedures that the Bank has approved over time.
Our corporate governance principles aim to improve internal self-regulation
mechanisms, ensuring full compliance with current regulations, creating
value for the Bank and all customers, associates, the community and
the market in general, and working to safeguard adherence to the
corporation’s values.
Management Committees
Directors’ and Audit Committee
Boards of Subsidiaries
Global Connectivity Committees
Upper Management Committee
Business Area Committees
Other Committees
Banco CrediChile Committee
Retail Business Committee
Companies Committee
Leasing Committee
Finance, International and Financial Risk Committee
Ethics Committee
Disclosure Committee
Risk Committees
Portfolio Risk Committee
Loan Committee
Asset Laundering Prevention Committee
Operational Risk Executive Committee
Internal Modeling Technical Oversight Committee
28 AnnualReport2012
Structure
Our Board, consisting of eleven directors and two alternate directors, is
the entity that defines our organization’s strategic guidelines and plays
a key role in corporate governance.
Our complete Board of Directors is elected every three years. The last
elections took place at the shareholders’ meeting in March 2011.
Currently, the Board is comprised of six directors chosen by Quiñenco,
three by Citigroup and two independent directors.
The Chief Executive Officer is appointed by the Board and holds his
position until the Board decides otherwise. According to the law and
our by-laws, ordinary Board meetings must be held at least once a
month. In practice, the Board meets twice a month, except in February.
Extraordinary meetings may be called by the Chairman of the Board or
at the request of one or more directors.
The Board delegates certain functions and activities to the Directors’
Committees. This allows for in-depth analysis of specific matters and
provides the Board with the information necessary to discuss and debate
general policies and guidelines governing our businesses.
Management Committees
Directors’ and Audit Committee
The Directors’ and Audit Committee is responsible for examining external
auditor reports, balance sheets and other financial statements; proposing
external auditors and risk-rating agencies; examining the details of
related party transactions; and analyzing the remuneration systems and
compensation plans for senior executives. The committee’s operating
budget is approved annually at the Ordinary Shareholders’ Meeting.
Under Chilean law, the Directors’ and Audit Committee should have three
members, the majority of whom should be independent. The members
of the committee remain in their positions for a maximum of three years
or until the end of the Board’s term, if earlier. As of December 2012,
the Committee members were Jorge Awad Mehech (Chairman and
the expert member on financial affairs), Jaime Estévez Valencia and
Fernando Concha Ureta.
As stated in the committee’s by-laws, our Chief Executive Officer, General
Counsel and Controller, or their respective replacements, shall attend the
meetings as well. The committee may also invite certain people to take
part in one or more meetings. The committee’s organization, objectives,
responsibilities and the scope of its work are contained in the by-laws
whose amended and complemented text was approved at a meeting
held on July 27, 2005.
29
The committee’s objectives are to ensure the efficiency, maintenance,
application and functioning of internal control systems; supervise
compliance of standards and procedures governing the banking business
and identify business risks for the Bank and its subsidiaries; supervise
the functions of the Controller’s Office, guaranteeing its independence
from management; supervise the functions of the Compliance Division,
serving as a link and coordinator between internal and external auditors,
as well as between these areas and the Bank’s Board; and perform the
functions and responsibilities set out in the Corporations Law and SBIF
Standards.
The committee held 28 meetings during 2012 and addressed the
following matters, among others:
Review of customer claims filed with the SBIF and the Customer
Defense Division of the Chilean Association of Banks and Financial
Institutions.
Banco de Chile – Citigroup Global Connectivity
Committees
In order permanently monitor the strategic alliance initiatives between Banco
de Chile and Citigroup, in addition to the Global Connectivity Agreement
Executive Committee, the following committees were created: (i) The Global
Transactional Services Committee (GTS); (ii) the International Personal
Banking Committee (IPB); (iii) the Investment Banking Committee; (iv)
the Retail Initiatives Committee and (v) the Financial Control Committee.
Examination of fee proposals from external auditors and risk-rating
agencies.
Analysis of reports, content, procedures and scope of reviews by
external auditors and risk-rating agencies.
Information on and analysis of the annual internal audit program and
the results of internal audits and reviews.
Analysis of the interim and annual financial statements.
Analysis of the Bank’s financial statements included in the form 20F, to be filed with the Securities and Exchange Commission – SEC
The Global Connectivity Agreement Executive Committee and the
committees mentioned above, excluding the Financial Control Committee
meet on a quarterly basis and consist of the Chairman of the Bank, the
chief executive officer and the two members of the board representing
Citigroup. The division managers and/or the managers of the areas directly
responsible for the respective businesses also participate in meetings
of the Global Transactional Services Committee (GTS), the International
Personal Banking Committee (IPB), the Investment Banking Committee,
the Retail Initiatives Committee and the Financial Control Committee.
(USA).
Information on accounting changes occurring during the year and
their effects.
Review of special cases affecting internal control systems.
Analysis of the remuneration systems and compensation plans for
The main objective of the Global Connectivity Agreement Executive
Committee is to act as a communication channel and escalation mechanism
between Banco de Chile and Citigroup regarding the agreements signed
between these parties. The objectives of the four committees mentioned
above are:
managers and senior executives.
Analysis of the 2012 performance self-evaluation process carried
(i) Global Transactional Services Committee (GTS)
out by the Bank.
The main objective of the GTS Committee is to monitor the performance
of the Transactional Services Area and, in particular, the functioning of
local and international cash management services as well as custody
services for foreign investors.
Analysis of related-party transactions as referred to in Title XVI of the
Corporations Law No. 18,046.
Analysis of operational risk policies and development of risk-management
and SOX self-assessment processes.
Information on and analysis of matters related to the Compliance
Division, primarily regarding the revision and enforcement of policies
for detecting and sanctioning money-laundering transactions.
30 AnnualReport2012
(ii) International Personal Banking Committee (IPB)
The primary purpose of the IPB Committee is to monitor services
provided by Banco de Chile to Citibank related to its financial products
and services offered abroad to residents of Chile.
(iii) Investment Banking Committee
The main objective of the Investment Banking Committee is to favor the
development of cross-border merger and acquisition transactions, debt
issuances and acquisitions, and capital markets transactions for the
Bank’s customers and customers of Citigroup that do business in Chile.
This committee is responsible for monitoring transactions performed under
the Global Connectivity Agreement between Banco de Chile and Citigroup,
and for helping explore investment banking business opportunities and
ensuring compliance of agreements related to these matters.
and evaluating the CrediChile Division based on the evolution of its
loans, monthly sales, results and its main financial ratios, ii) assessing
progress in opening branches, strategies for addressing new customer
segments and the development of products and support systems, and
iii) proposing measures to strengthen commercial management and
maximize earnings.
The members of this committee are: The Chairman of the Board of
Directors, three directors appointed by the Bank’s Board, the Chief
(iv) Retail Initiatives Committee
Executive Officer and the managers of the Commercial Banking and
Banco CrediChile Divisions.
The primary purpose of the Retail Initiatives Committee is to share best
practices and business alternatives between both institutions.
Retail Business Committee
Upper Management Committee
This committee meets on a monthly basis to review all commercial initiatives
from major competitors and decide how to confront them, and to review
the market shares of the Bank’s diverse products and services to define
the necessary actions to attain growth levels established in business plans.
This committee is also used to coordinate and make decisions regarding
important matters for the Bank that involve coordinating divisions, and to
present progress reports on the Bank’s most important commercial and
regulatory projects as well as on new product development.
This committee is chaired by the Chief Executive Officer and is the highest
coordinating body of our upper management. It analyzes the market and
the banking industry, discusses our principal strategic guidelines, resolves
issues relating to internal policies and analyses our performance. In
addition, numerous divisions come together to exchange their points of
view and prioritize and coordinate joint initiatives.
The members of this committee are: the Chief Executive Officer and the
managers of the following divisions and areas: Commercial Banking Division;
Banco CrediChile Division; Payment Media Division; Development and
Quality Division; Financial Control and Management Division; Marketing
Area; Operations Area; Retail Credit Risk Area; Mortgage Area and the
Products Area within the Commercial Banking Division.
Each year, the Upper Management Committee outlines the foundations
for our annual plan. After the individual annual plan for each business
area is agreed upon by the Chief Executive Officer and each division
manager, under the coordination of the Chief Financial Officer, the overall
plan is submitted to the Board for approval. This committee reviews plan
progress on a monthly basis and defines corrective actions when necessary.
Companies Committee
(v) Financial Control Committee
The main goal of the Financial Control Committee is to closely monitor the
operating and financial execution of the agreements signed with Citigroup.
At its monthly meetings, this committee receives a report from the Chief
Financial Officer regarding the income statement for the strategic alliance.
Business Area Committees
The objective of this committee is to evaluate the commercial performance
of the Corporate Division and the Wholesale, Large Companies and Real
Estate Division with respect to the market; it also reviews projects and
sales campaigns for each of the segments managed by these divisions. It
is also responsible for assessing the wholesale business from a segment
and product-perspective with special emphasis on revenue, business
volumes and identifying room for growth, generating action plans with
periodic reviews.
Banco CrediChile Committee
The objective of this committee is to review consumer banking activity
on a monthly basis. Its specific functions consist of: i) learning about
31
The members of this committee are: the Chief Executive Officer, the
Advisor to the CEO, and the managers of the following divisions and areas:
Wholesale, Large Companies and Real Estate Division; Financial Control
and Management Division; Corporate Banking Division; Wholesale and
Large Companies Commercial Area; Development and Quality Division;
Marketing, Administration and Market Intelligence Area.
financial exposure of its liabilities and major credit exposures generated
by derivative transactions.
It is responsible for designing our policies and procedures for setting,
measuring, controlling and reporting financial position limits and warning
levels. Policies and procedures are then submitted to our Board of
Directors for approval.
Leasing Committee
The objective of this committee is to review lease activity within the Bank
on a monthly basis. To accomplish this, it reviews a monthly management
and compliance report that consolidates the Bank’s diverse commercial
divisions. The committee analyzes business opportunities and identifies
the steps necessary to achieve growth figures from the business plan
for the product.
The committee is composed of the Chairman of the Board, one director,
the Chief Executive Officer, the Wholesale, Large Companies and Real
Estate Division Manager, the Commercial Banking Division Manager,
branch managers and the managers of the Companies Products and
Lease Areas.
Finance, International and Financial Risk Committee
The main function of the Finance, International and Financial Risk
Committee is to analyze the evolution of our financial positions and
market risks—price and liquidity—both those generated in the past and
those that could potentially arise in the future, particularly the control
of risks related to internal and regulatory limits and/or warning levels.
Knowledge of the current status of market risks allows us to estimate
potential future losses, with a certain defined level of confidence, in the
event of adverse movements in key market variables (exchange rates,
interest rates and options volatility) or illiquidity.
The committee is composed of the Chairman of the Board, four Directors,
the Chief Executive Officer, and the managers of the following divisions
and areas: Corporate Risk Division, the Corporate and Investment Banking
Division, the Financial Control and Management Division, the Corporate
Treasury and the Commercial Banking Division and the Financial Risk Area.
The committee meets once a month. Additional, extraordinary meetings
may be called by the Chairman, two directors or the Chief Executive Officer.
Risk Committees
Banco de Chile has corporate governance policies for managing risk,
which are regulated by laws or by-laws that establish, among other
matters, the objectives, members and duties of the committees.
Portfolio Risk Committee
The main function of this committee is to monitor changes in the
composition of our loan portfolio from an overall perspective, as well as
by industry, business segment, product, maturity and all other aspects
that provide a broad vision of counterparty risk. This committee reviews
in detail the Bank’s main risk exposure per economic group, debtor and
payment behavior parameters such as default rates, past-due loan and
impairment indicators, charge-offs and allowances for the loan portfolio
for each segment.
This committee also reviews the estimated results that these financial
positions generate in isolation in order to measure the risk-return ratio of
the treasury business related to managing financial positions, as well as
changes in the use of capital and estimates of credit and market risk that
we will face in the future. The committee also analyzes the international
32 AnnualReport2012
This committee is responsible for approving and proposing segmented
risk management strategies to the Board of Directors. This includes loan
approval policies, portfolio evaluation methodologies and calculations of
allowances to cover expected losses. The committee is also charged with
analyzing the adequacy of our provisions, authorizing extraordinary loan
charge-offs when recovery efforts have been exhausted, and controlling
the liquidation of assets received in lieu of payment. It also reviews
guidelines for developing credit risk models, which are evaluated by the
Internal Modeling Technical Oversight Committee.
maintain strict compliance with current laws and regulations, promptly
reporting suspicious operations and cash transactions over UF 450 that
are detected by diverse control systems. It also allows us to properly
protect our image and reputation, as well as keep operational, regulatory
or legal risks under control.
The Portfolio Risk Committee meets monthly and is composed of the
Chairman of the Board, two directors, the Chief Executive Officer, the
Corporate Risk Division Manager, the Retail Credit Risk Division Manager
and the Risk Architecture Area Manager. Additional, extraordinary meetings
This committee is comprised of the Chairman of the Board, two Directors,
the Chief Executive Officer, the General Counsel, the Operations and
Technology Division Manager and the Chief Executive Officer of Banchile
Administradora General de Fondos. The Controller and the managers of
the Compliance Division and Asset Laundering Prevention and Terrorism
Finance Area attend meetings and have the right to speak.
may be called by the Chairman, two directors or the Chief Executive Officer.
Loan Committee
Our corporate governance structure calls for various credit committees
responsible for credit decisions in our diverse commercial segments
based on the type of risk involved. The highest of these committees is
the Board Loan Committee, which is comprised of the Chief Executive
Officer, the Corporate Risk Division Manager and at least three directors,
who review all operations exceeding UF750,000 on a weekly basis.
Each credit committee is responsible for defining the terms and conditions
for accepting the counterparty risks considered in the loan evaluation,
and is comprised of individuals with sufficient authority to make such
decisions. The Corporate Risk Division participates in each committee
independently and autonomously from our business areas.
Operational Risk Executive Committee
The Operational Risk Committee is commissioned with identifying,
prioritizing and establishing strategies to mitigate key operating risks;
ensuring implementation of management models; establishing risk
tolerance and appetite levels; and ensuring compliance with programs,
policies and procedures regarding privacy and information security,
business continuity and operational risk.
This year the committee began to meet more frequently, changing from
a monthly committee that reported to upper management to the guiding
body for the Operations and Technological Risk Division. Risk management
also involves the Bank’s directors through quarterly presentations on
such matters to the Directors’ and Audit Committee.
Asset Laundering Prevention Committee
Banco de Chile has an Asset Laundering and Terrorism Finance Prevention
Committee whose main objectives include supervising the Bank’s Asset
Laundering and Terrorism Finance Prevention System and periodically
reviewing and approving corporate policies on the matter. It is also
involved in managing potential risks in a timely manner.
This committee consists of the Chief Executive Officer and the managers
of the following divisions and areas: Corporate Risk Division; Financial
Control and Management Division; Operations and Technology Division;
Commercial Banking Division; Development and Quality Division; Operations
and Technology Area, and the Controller (the latter attends meetings and
has the right to speak).
Policies and procedures related to the Asset Laundering and Terrorism
Finance Prevention System are intended to prevent the Bank from being
used to legitimize assets from illicit activities and/or as a vehicle to finance
acts of terrorism. From a legal perspective, this system enables us to
33
The Committee meets monthly and its functions
involve
Approving corporate policies concerning prevention of asset
laundering and terrorism financing, including information gathering
on customers and their activities, and acceptance and monitoring
of their accounts, products and operations.
Approving policies and special matters concerning detection
systems for unusual transactions, formal channels for reporting to
senior levels and monitoring, analysis and reporting mechanisms.
Appointing persons to perform specific functions in accordance
with current regulations on the prevention of asset laundering
and terrorism financing.
Analyzing the results of independent reviews conducted by both
internal auditors and regulatory authorities to identify opportunities
for improvement and verify compliance with current policies and
procedures.
Approving the training program and being informed of staff training
activities.
Being informed of and approving modifications to relevant risk
procedures proposed by the Compliance Division in order to
strengthen the internal control environment.
Reporting any related regulatory changes to the Board of Directors.
34 AnnualReport2012
Internal Modeling Technical Oversight Committee
The main function of this committee is to provide methodological guidelines
for developing, monitoring and documenting the diverse mathematical
models used by the Bank to manage credit risk in large-scale segments
where automated models are used. It ensures coherence among the
models and compliance with minimum required standards of satisfaction.
In order to fulfill its mission, the committee reviews model development,
verifies compliance with bank guidelines, defines monitoring standards
and outlines action plans for continuous improvement. All models that
need to be approved by the Portfolio Risk Committee or the Board of
Directors must have prior endorsement from this committee.
This committee meets monthly and is comprised of the managers of the
Corporate Risk Division, Retail Risk, Risk Architecture Area and Studies
and Planning Area.
Other Committes
Ethics Committee
The Ethics Committee is responsible for defining, promoting and regulating
professional and personal conduct of excellence by all associates, in line
with our philosophy and values, in response to the trust our customers
place in us.
To comply with these objectives and foster a culture of ethical behavior,
the committee develops a series of activities related to rules, training and
communications. The committee is also the decision making authority
for different situations in which there is a conflict between a certain
conduct and the values promoted by the Bank.
The members of this committee are: the Human Resources Division
Manager, the General Counsel, the Controller and the managers of the
Compliance, Commercial Banking, Operations and Technology, and
Wholesale and Large Companies and Real Estate divisions.
35
Disclosure Committee
the merger between Banco de Chile and Citibank. This Division, which
is responsible for these matters throughout all areas of the Bank and all
Established in 2003, the Disclosure Committee is responsible for ensuring
accurate market disclosure of consolidated financial information for the
Bank and our subsidiaries.
subsidiaries, operates independently and reports directly to the Directors’
and Audit Committee.
Led by the Chief Financial Officer, this committee is comprised of the Chief
Accountant, the senior lawyer for international matters, the Research and
Planning Area Manager and the Controller (the latter attends meetings
and has the right to speak).
Other Corporate Governance Matters
Compliance
One of the most important tasks of the Compliance Division is to define
internal regulations in conjunction with the General Counsel’s Office and
the business, operations and financial control and management areas. It
is also responsible for ensuring compliance with regulatory requirements
established to prevent asset laundering and terrorism financing and for
implementing and controlling the policies and procedures defined after
36 AnnualReport2012
We have defined an asset laundering and terrorism financing prevention
policy, approved by the Board of Directors, which details roles and
responsibilities, committee structures and processes to be used for
making decisions, gathering client information, monitoring transactions
and reporting to the Financial Analysis Unit. All of these procedures
ensure compliance with regulations on this matter, in both the Bank
and its subsidiaries.
This year, the Compliance Division has focused efforts on continuously
strengthening existing automated monitoring processes and incorporating
new warning scenarios and new transactions. It has also continued with
comprehensive training programs for all employees. In compliance with
regulatory requirements on client information and with our current policies,
this division conducts an annual campaign to update client information.
The business and operational areas participate actively in this task
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 sense, Banco
de Chile has implemented a series of policies and control procedures to
comply not only with the laws and regulations governing it, but also to
attain the highest standards in ethics, corporate governance and quality.
In 2012, the Compliance Division spearheaded efforts to implement
and revise policies on personal investments, insider information, the
code of ethics, fiduciary relationships, prohibitions on conditional credit
products, mandatory absence, operational risk, prevention of dishonest
practices and the crime prevention model contained in Chilean criminal
liability law, etc. Both Banco de Chile and its subsidiaries are certified
in accordance with Law 20,393.
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. The Audit Unit reviewed implementation of the
following three policies approved by the Bank’s Board of Directors between
June 2011 and May 2012: The Managing Investments Abroad Policy,
the Market Risk Policy and the Accounting Close Policy. In general, the
review concluded that the implementation and the practices, processes
and control procedures related to these policies function properly.
Directors’ Expenses and Compensation
The total amount paid as director remuneration for the year ended
December 31, 2012 amounted to Ch$2,061 billion, as compensation
for their services and attendance at meetings. No provision has been
established for pensions, retirement or other similar benefits for Board
members or other senior executives. Chilean law does not require a
Compensation Committee to be formed, but the Directors’ Committee
should approve the remuneration and compensation plans of managers
and senior executives. Further details are provided in Note 38 to our
financial statements as of December 31, 2012.
37
Ownership of Banco de Chile
Shareholders
As of December 31, 2012, Banco de Chile has 13,211 shareholders.
LQ Inversiones Financieras S.A. and Inversiones LQ-SM Ltda., subsidiaries
of Quiñenco S.A., and Citigroup Inc., directly control 33.3% of the shares
of Banco de Chile and indirectly control 26.6% through Sociedad Matriz
Banco de Chile S.A., or SM-Chile S.A. (hereinafter “SM-Chile”). In all, LQ
Inversiones Financieras S.A. controls 59.9% of the Bank’s shares and
its voting rights. Under the strategic partnership agreement between
Quiñenco and Citigroup Inc. for the merger by incorporation of Citibank
Chile into Banco de Chile, Citigroup Inc. took a shareholding in LQIF, with
an initial holding of 32.96%, which it later increased to 50% of LQIF.
An essential feature of this partnership is the agreement that Quiñenco
will at all times continue to be the controller of LQIF and the companies
that LQIF directly or indirectly controls.
Formed in 1996, Sociedad Matriz del Banco de Chile S.A. (SM-Chile
S.A.) is a publicly-held corporation that was established to resolve the
subordinated obligation that Banco de Chile had 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 called 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 Superintendency
of Banks and Financial Institutions.
As of December 31, 2012, SM-Chile S.A. has a total of 18,525 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.).
38 AnnualReport2012
SAOS S.A. is a privately-held corporation and wholly-owned subsidiary
of SM-Chile S.A. Its shares are pledged in favor of the Chilean Central
Bank to guarantee payment of its subordinated obligation, pursuant to the
agreement entered into in 1996 between this company and the Central
Bank. The restructuring agreement considers that the subordinated
obligation with the Central Bank is the exclusive responsibility of SAOS S.A.,
establishing a 40-year repayment term in equal annual installments with
annual interest of 5%, denominated in Unidades de Fomento. Dividends
received on these shares are the sole source of income for SAOS S.A.
and are applied each year to repaying this obligation.
The shares pledged in favor of the Chilean Central Bank are equivalent
to 32.5% of the shares of Banco de Chile excluding the Chile-T shares,
which do not have rights to dividends and/or stock dividends payable
from distributable net income for the year, 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. In short, as
of December 31, 2012, 33.1% of the dividends distributed by Banco
de Chile will be used to pay the annual installment on the obligation of
SAOS S.A. As established in article 31 of Law No. 19,396, the Central
Bank has the right to request that 100% of the distributable net income
owed to SAOS S.A. be paid in cash rather than in stock dividends used
to capitalize a portion of net income.
Should the corresponding dividends be insufficient to cover the established
annual installment, SAOS S.A. may maintain an accumulated deficit
balance with the Central Bank that it commits to repay with future
dividends. Should the deficit balance exceed 20% of the Bank’s capital
and reserves, the Central Bank may require SAOS S.A. to sell a number of
shares sufficient to repay the whole accumulated deficit. As of December
31, 2012, SAOS S.A. has an accumulated surplus with the Central Bank
of Ch$272.1 billion. This surplus is denominated in UF and generates
annual interest of 5%.
Direct and Indirect Ownership
Minority Shareholders
(Voting Rights – “Chile” and “Chile T” Series Shares)
Ergas Group
5.8%
As of December 31, 2012, the shareholders of Banco de Chile that do not
belong to the LQIF Group, the Ergas Group, or SM-Chile directly control
15.7% of the Bank’s shares. The shareholders of SM-Chile that do not
belong to the LQIF Group or the Ergas Group control an additional 18.6%
of voting rights in the Bank’s shares, thus giving minority shareholders
a total of 34.3% of the voting rights. This group includes the Chilean
Pension Fund Administrators (AFPs), with 1.4% of the voting rights, and
0.8% held in the form of American Depositary Shares (ADS).
Main shareholders as of december 31, 2012
Shareholders
Other Direct
Shareholders(2)
15.7%
Other Indirect
Shareholders(3)
18.6%
LQIF(1)
59.9%
Participation
LQ Inversiones Financieras S.A.
33.10%
Economic Rights to 2012 Net Income
Sociedad Administradora de la Obligación Subordinada SAOS S.A.
31.81%
(Only “Chile” Series Shares) (5)
Sociedad Matriz del Banco de Chile S.A.
13.50%
Ever 1 BAE S. P. A.
2.14%
Ever Chile S. P. A.
2.14%
Banco de Chile (on behalf of third parties Chap. XIV Res. 5412 and 43)
2.13%
Banchile Corredores de Bolsa S.A.
1.88%
Banco Itaú Chile (on behalf of foreign investors)
1.50%
Inversiones Aspen Ltda.
1.48%
J. P. Morgan Chase Bank
0.83%
Banco Santander por cuenta de inversionistas extranjeros
0.79%
Inversiones Avenida Borgoño Limitada
0.59%
Celfin Capital S.A. Corredores de Bolsa
0.57%
Larraín Vial S.A. Corredora de Bolsa
0.38%
Santander S.A. Corredores de Bolsa
0.37%
BCI Corredor de Bolsa S.A.
AFP Provida S.A.
(for pension fund)
Valores Security S.A. Corredores de Bolsa
0.16%
Inversiones y Asesorías Fabiola S.A.
0.16%
TOTAL
LQIF(4)
39.8%
SAOS(6)
33.1%
0.33%
0.17%
Other shareholders
Other Indirect
Shareholders(3)
5.5%
0.32%
BICE Inversiones Corredores de Bolsa S.A.
Subtotal
Ergas Group
5.9%
Other Direct
Shareholders(2)
15.7%
94.35%
5.65%
100.00%
(1) Includes direct interest of 33.3% and indirect interest via SM Chile S.A. of 26.6%.
(2) Corresponds to direct shareholders of Banco de Chile other than LQIF.
(3) Corresponds to shareholders other than LQIF that, through their interest in SM-Chile S.A.,
have rights in Banco de Chile.
(4) Includes direct interest of 32.2% and indirect interest via SM-Chile S.A. of 7.6%.
(5) Calculation excludes Chile-T shares that do not have rights to dividends and/or stock
dividends charged to net income for 2012. Likewise, shareholders with an indirect interest
in Banco de Chile via SM-Chile S.A. have different voting and economic rights based on
the series of shares they have in SM-Chile.
(6) Includes 0.6% of the dividends received by shareholders of Series A shares of SM-Chile
S.A., which, as committed, must be transferred each year to SAOS S.A.
39
Banco de Chile shares are traded on local stock markets as well as the
New York, London and Madrid (Latibex platform) Stock Exchanges. On
the New York and London Stock Exchanges, the shares are traded in
the form of American Depositary Shares (ADS), each equivalent to 600
shares of Banco de Chile.
date of approximately US$ 14.5 billion and making Banco de Chile
the financial institution with the greatest market capitalization in the
country. Despite complex international conditions and poor local market
performance in 2012, the share price increased by 16.1%, adjusted
for capital events, over the closing value in 2011. This figure compares
favorably with the IPSA, which grew by 3.0% during the same period.
This good performance is the result of the Bank’s successful commercial
and financial management as well as its conservative risk policy.
As of December 31, 2012, there are 88,037,813,511 shares of Banco
de Chile, which are identified with the ticker “Chile”, and 1,861,179,156
shares of Banco de Chile T series (2,078,310,286 T series shares are
still in the process of being placed). The “Chile-T” shares are common
shares and have the same rights as other Banco de Chile shares except
for the right to receive dividends and/or stock dividends, whichever the
case may be, for distributable net income for the year 2012. Once these
dividends and/or stock dividends have been distributed and paid, the
“Chile-T” shares will automatically become “Chile” shares.
Nominal Values
(unadjusted)
Acción
ADS
Closing value 2011
$70.59
US$81.75
Closing value 2012
$77.39
US$96.50
High for the year 2012
$79.49
US$99.11
Low for the year 2012
$64.45
US$80.33
Source: Bloomberg.
Banco de Chile’s Share Price vs. IPSA Index
(Base 100)
120
125
Chilean
Stock
Exchanges
New York
Stock
Exchange
London
Stock
Exchange
Madrid Stock
ExchangeLatibex
110
105
Instrument
Traded
Shares
ADS
ADS
Shares
100
Ticker
Chile
Chile-T
BCH
BODD
XBCH
95
JP Morgan
Chase Bank
JP Morgan
Chase Bank
Santander
Central Hispano
Investment
Link Entity
-
Performance of Banco de Chile’s Shares
As of December 31, 2012, Banco de Chile’s share price on the Santiago
Stock Exchange was $77.39, giving a market capitalization as of that
40 AnnualReport2012
116
103
90
Dic-11
Mar-12
Jun-12
Banco de Chile
Sep-12
Dic-12
IPSA
It is also important to mention that in 2012, as in recent years, the Bank
made an effort to increase the share’s liquidity and visibility in the market.
The Bank participated in several local and international conferences and
met individually with numerous investors. These efforts, together with the
increase in the share’s free float and the Bank’s stable and outstanding
financial results, have increased interest in the share and traded volumes.
Share Trends
Average Daily Traded Volume (Trailing 90 days)
Banco de Chile:
Bank with Best Credit Rating in Latin America
(International Risk Rating – Long-term)
(In millions of US$)
16
14
In 2012, Banco de Chile positioned itself as the private bank with the best
12
risk rating in Latin America, receiving an ‘A+’ rating from international
risk rating agency Standard & Poor’s. This achievement is the result
of a strong market position, outstanding performance in risk matters,
stable returns and adequate capitalization and liquidity. It is particularly
noteworthy in light of the complex international conditions and multiple
downgrades of other international banks occurring this year.
10
8
6
4
2
0
2007
2008
2009
2010
2011
2012
Since January 2002, Banco de Chile’s market capitalization has increased
sevenfold, reaching US$14.5 billion and positioning it as the fourth
largest bank in Latin America, excluding Brazil. These achievements
can be attributed to appropriate growth strategies, limited credit risk
and attractive returns for shareholders. Also during this period, through
successful mergers with Banco Edwards in 2002 and Citibank Chile in
2008, Banco de Chile has strengthened core competitive advantages
such as its strong brand image, sustained market leadership in a wide
range of products, one of the best distribution networks in the country
and a competitive funding structure, all of which have enabled the Bank
to differentiate itself within the banking industry.
Local Rating
Banco de Chile
Fitch
Feller-Rate
Short-term
N 1+
Nivel 1+
Long-term
AAA
AAA
Letters of credit
AAA
AAA
Bonds
AAA
AAA
Subordinated bonds
AA
AA+
Shares
1st Class Nivel 1
1st Class Nivel 1
Outlook
Stable
Stable
Market Capitalization of Banco de Chile
(In millions of US$)
International Rating
16,000
Banco de Chile
and Banco
Edwards merger
Banco de Chile
14,000
Banco de Chile
and Citibank
Chile merger
12,000
10,000
8,000
2002
2004
2006
2008
2010
Moody’s
Foreign Currency
Short-term
Long-term
A-1
P-1
A+
Aa3
Chilean pesos
6,000
2000
S&P
4,000
Short-term
A-1
P-1
2,000
Long-term
A+
Aa3
0
Outlook
Stable
Stable
2012
41
Dividends and Shareholder Return
prior to the balance sheet date. The difference between net income and
distributable net income shall be recorded in a special reserve account
and may not be distributed or capitalized. This transitory article shall be
in effect until the obligation referred to in Law 19,396, which SM-Chile
S.A. holds directly or through its subsidiary SAOS S.A., is extinguished.
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 price-level 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
In the ordinary and extraordinary shareholders’ meetings held in March
2012, shareholders agreed to distribute 70% of 2011 distributable
net income, equivalent to $2.984740 per share, and to capitalize the
remaining 30% by issuing stock dividends, with no par value, distributed
to shareholders in a ratio of 0.018956 stock dividends per original share.
In the financial statements for the year ended December 31, 2012, the
Bank recognizes a liability for 70% of distributable net income.
Ratios per Share(*)
Nominal Values
2009
2010
2011
2012
Total Operating Revenue (Ch$)
12.3
14.2
14.1
15.2
Income before Taxes (Ch$)
3.6
5.1
5.6
5.9
Net Income (Ch$)
3.1
4.6
4.9
5.3
Distributable Net Income (Ch$)
3.5
4.2
4.3
4.9
Price-Earnings (times)
14.4
15.0
14.3
14.6
Price-to-Book (times)
2.9
4.1
3.5
3.6
82,551,699,423
82,551,699,423
86,942,514,973
88,037,813,511
(*)
Total Number of Shares as of December 31 of each year
(*) Does not include the T series equivalent to 1,861,179,256 shares and capital of Ch$119.1 billion as of December 31, 2012.
42 AnnualReport2012
Capital Increase 2012 | 2013
The Bank’s important growth in recent years and the positive economic
outlook for our country and the banking industry led the Bank to begin a
new capital increase process for Ch$250 billion by issuing 3,939,489,442
shares known as Chile-T, equivalent to 4.28% of shares after the placement.
The “Chile-T” shares have the same rights as other Banco de Chile shares
except for the right to receive dividends and/or stock dividends charged to
distributable net income for the year 2012. Afterwards, the T series shares
will automatically become common Banco de Chile shares.
The main objectives of this share issuance were: (i) to take advantage of
positive projections for the economy and the industry, (ii) to sustain the Bank’s
medium-term growth, (iii) to strengthen its capital base and (iv) to increase
the share’s free-float in order to increase its depth in financial markets and
make it more attractive to local and international investors.
The main stages of the 2012/2013 capital increase process are:
Beginning
End
Event
05/12/2012 03/01/2013 Preferential Offer Period (POP)
04/1/2013 18/01/2013 Central Bank sets prices for SAOS options
19/01/2013 17/02/2013 Special Preferential Offer Period (SPOP)
This process, which began at the extraordinary shareholders’ meeting held
October 17, 2012, was well received during the preferential offer period (POP),
which concluded January 3, 2013 with 94% of the shares offered during this
period being subscribed at a price of Ch$64 per share. Afterwards, during
the special preferential offer period (SPOP), which began January 19, 2013,
a share block was successfully sold. The Bank’s controller, LQIF, decided
to cede and transfer its rights to acquire options to purchase these shares.
As of the date of print, the share issuance is still in progress. However, over
80% of all shares for the capital increase have already been subscribed
and paid.
43
2
ECONOMIC AND FINANCIAL
ENVIRONMENT
The Global Economy
Global economic growth continued to decelerate during
2012 because of heightened fiscal and financial concerns in
developed countries, which translated into a new recession in
Europe and moderate growth in the United States.
Contraction intensified in emerging countries, a downward
trend that began in 2011, due to decreased growth in
the developed world and less energetic internal demand
resulting from more restrictive monetary policy and drops in
confidence indicators.
Throughout 2012, markets continued to keep a close watch on Europe
given the lack of concrete measures by authorities to moderate fiscal
and financial problems. The loss of confidence stemming from major
discrepancies and disjointed political viewpoints among European
countries and the severe fiscal adjustment measures implemented by
some countries adversely impacted economic growth, driving figures into
the red and increasing debt levels in the Eurozone. As a result, the risk
profiles of the most vulnerable economies drastically deteriorated. This
weakening, in addition to increasing stock market volatility, was reflected
Global Growth
For 2013, the IMF forecasts global growth of 3.5%, slightly
greater than in 2012, primarily because of an upturn in
emerging economies.
(Real Variation in 12 months,%)
Year
2008
World
Developed Economies
Economía Internacional
The major fiscal and financial imbalances resulting from the most
recent international crisis became more significant during 2012 and
deteriorated global growth. According to the latest IMF estimates, global
GDP increased 3.2% in 2012, which compares unfavorably to 5.1%
and 3.9% in 2010 and 2011, respectively. During the year, growth of
developed countries was affected by declined economic activity in the
Eurozone and, to a lesser extent, by worse-than-expected outcomes in
the United States. Emerging countries were impacted by the slowdown
in developed economies, which, coupled with reduced prices in some
commodities, affected exporters. In addition, internal spending in these
economies was restricted because of increased uncertainty and less
expansionary monetary policy.
46 AnnualReport2012
United States
Eurozone
2.8
2009
-0.6
2010
5.1
2011
3.9
2012(e)
3.2
0.1
-3.5
3.0
1.6
1.3
-0.3
-3.1
2.4
1.8
2.2
0.4
-4.4
2.0
1.4
-0.4
Japan
-1.0
-5.5
4.5
-0.6
2.0
Other
0.9
-2.0
4.4
2.5
1.3
6.1
2.7
7.4
6.3
5.1
China
9.6
9.2
10.4
9.3
7.8
India
6.9
5.9
10.1
7.9
4.5
Brazil
5.2
-0.3
7.5
2.7
1.0
4.5
-0.8
5.3
4.7
4.1
4.3
-1.7
6.2
4.5
3.0
Mexico
1.2
-6.0
5.6
3.9
3.8
Chile
3.3
-1.0
6.1
6.0
5.6
Peru
9.8
0.9
8.8
6.9
6.0
Other
5.2
-0.4
6.2
4.5
2.3
Emerging Economies
Other
Latin America
(e) Estimation.
Source: FMI.
Fiscal Deficit
5.4
4.5
3.9
2.7
10.2
9.8
4.4
5.0
11.2
9.7
9.4
7.0
13.3
11.2
10.1
8.7
(% GDP)
15.6
10.5
9.1
7.5
in the spreads of sovereign bonds and credit default swaps in Spain and
Italy, reaching historical highs during the first half of the year. The swift
spread of global economic tensions forced the European Central Bank
to announce a series of measures in the third quarter to prevent the
crisis from worsening. These announcements, despite not providing a
definitive solution, managed to considerably decrease market uncertainty,
triggering upgrades in risk measurements and lower interest rates for
sovereign bonds. Nonetheless, the difficulty of Eurozone economies
to sustain their budget deficits along with requests by some to delay
adjustment measures keeps uncertainty high. This trend should continue
during 2013 given low growth expectations, high unemployment rates,
growing social tensions and tight financing conditions. For these reasons,
general consensus predicts that the Eurozone will undergo a moderate
recession during 2013, once again affecting global economic growth.
09 10 11 12(e) 09 10 11 12(e) 09 10 11 12(e) 09 10 11 12(e) 09 10 11 12(e)
Greece
U.S.
Spain
Portugal
Italy
(e) Estimation.
Source: FMI y EUROSTAT.
Credit Default Swap (5 years)
(Basis Points)
Among developed countries, the United States continued to report stable
growth, albeit below expectations from the first of the year. According to
the latest information available, GDP grew 2.2% for the year in 2012,
driven by household consumption of goods and services. However,
unemployment levels remained high, at slightly below 8%. These
levels, together with a weak credit market, have not made room for a
major recovery in consumption in the context of monetary policy that
has stayed extremely expansionary in recent years. Despite weak U.S.
households, the domestic real estate market showed signs of recovery
in 2012 following several years of contraction. This is a positive sign
since this sector is expected to drive expansion over the next few years.
700
600
500
400
300
200
100
0
Dec-11
Spain
Mar-12
Italy
Jun-12
Brasil
Sep-12
Chile
Dec-12
Germany
Source: Bloomberg.
47
The Global Economy
During the year, risk in the United States was linked to the sustainability
of public debt and the so-called fiscal cliff. The fiscal cliff entailed the
automatic end of tax benefits and government spending if new laws were
not passed, which would have negatively impacted economic performance
in 2013. This was President Obama’s first challenge after being reelected
last November. As of year-end, and following intense negotiations, U.S.
politicians managed to reach agreement on a large part of the spending
measures, also incorporating capital gains and income tax hikes for the
wealthiest households. Despite this agreement, fiscal negotiations will
continue in 2013, including debate on a new debt ceiling and guidelines
for sustaining the budget deficit in upcoming years.
In 2013, the United States will face slightly more favorable external
prospects, but will not be free of risk. Moderation of public spending
and the slow pace at which unemployment rates have dropped will not
allow growth beyond that seen in the last two years. In fact, the latest
consensus of estimates predicting GDP growth of around 2.0% in 2013
forced the Federal Reserve Board to announce that monetary policy
will remain expansionary for a prolonged period of time and will not be
modified until lasting improvements are seen in the labor market.
Emerging economies, led by China, India and Brazil, have been the
main source of growth in the last two years. After this group resumed
medium-term trends in 2011, some countries experienced greater-thanexpected deceleration. During the year, the Chinese economy reported
the lowest activity indicators in over a decade, while Brazil sharply
decelerated, posting negative industrial production figures for the year.
48 AnnualReport2012
In China, weakened demand from Europe and a new macroeconomic
approach that is less infrastructure intensive detracted momentum
from this major emerging economy, leaving growth figures at 7.8%
for the year in 2012. Investment and exports sharply diminished in
Brazil, with economic activity decelerating to 1.0% for the year. This
led authorities to return to anti-cyclical monetary and fiscal policies
in both these countries and an important number of other economies
throughout the world.
During 2013, the external scenario for developing countries will not
change significantly. Developed nations will continue to show adjusted
growth and Europe will be a focal point of volatility and uncertainty.
The behavior of internal demand in those countries will be crucial to
the evolution of the global economy, which will depend, in part, on the
stability of commodities prices (e.g. oil and food) and the effects of
recently implemented macroeconomic policies.
Even though there are risks in both developed and emerging countries,
expectations are generally optimistic. According to the IMF, emerging
economies will grow around 5.5% in 2013 and China will return to
expansion rates slightly above 8%. It also predicts that developed
countries will expand at around 1.4%.
Global GDP should increase at a rate of 3.5% in 2013. Although this
figure is still below average global growth for the last decade, it leads
us to believe that the global economy will advance toward a more stable
recovery with more limited risks.
The Local Economy
The Chilean economy surprised the world in 2012,
positioning itself among the countries in the region with the
most growth, expanding 5.6% for the year.
12 Month Inflation and Monetary Policy Rate
(12 month variation, %)
8.3%
5.3%
Low unemployment and gains in real salaries kept consumer
expectations at optimal levels, driving growth of around 6.0%
in annual aggregate demand.
7.1%
0.5%
Appropriate macroeconomic policies and strong internal
demand will allow the country to maintain growth in line with
long-term trends in 2013.
4.4%
3.0%
1.5%
-1.4%
2008
The CPI rose 1.5% during 2012 while the Monetary Policy
Rate remained unchanged since January 2012, closing the
year at 5.0% per annum.
5.0%
3.3%
2010
2009
12 Month CPI Variation
2011
2012
Year-end MPR
Source: Banco Central de Chile.
Unemployment Rate
(Annual Average)
10.8%
8.2%
7.8%
2008
2009
7.2%
2010
2011
6.4%
2012
Source: INE.
The Chilean economy grew 5.6% for the year in 2012 in the midst of a
complex international scenario. Despite being a small, open economy, our
country successfully confronted the fall in global demand for commodities
and the deceleration of important commercial partners like Europe
and China. The nation’s economic growth was based on solid internal
demand, which grew 6.0% during the year, more than compensating
for the deterioration in net exports. In fact, internal demand growth
exceeded estimates for a large part of the year. Low unemployment
and gains in real salaries kept consumer expectations at optimal levels,
laying a foundation for the expansion of private consumption, which
would reach 5.5% for the year.
GDP and Internal Demand
(12 month variation, %)
14.8%
8.3%
3.3%
6.1%
9.4%
6.0%
-1.0%
6.0%
5.6%
-5.7%
2008
2009
GDP
2010
2011
2012(e)
Internal Demand
(e) Estimation.
Source: Banco Central de Chile.
49
The Local Economy
Investment also marveled onlookers in 2012, with estimated annual
real growth of 10%. Despite the complex international scenario and the
increased sensitivity of this component of demand to economic cycles,
investment in both construction and fixed assets stayed resilient throughout
the year. Construction investment evolved steadily from one quarter to
the next, achieving an estimated annual rise of 11% (in real terms),
aligned with the performance of the construction industry. Investments
in machinery and equipment posted adjusted figures during the first half
of the year and showed solid recovery in the second half, projecting a
real growth rate of around 9%.
Industry-level GDPs reflected the strength of internal demand and a
weak external scenario. Sectors linked to consumption and internal
investment such as services, commerce and construction drove growth,
while the manufacturing, agriculture and fishing industries performed
below average and showed more volatility. These industries were also
affected by a decline in exchange terms and the continuing appreciation
of real exchange rates, making these sectors less competitive.
Exports of goods totaled US$78.8 billion, dropping 3% over 2011. In
contrast, imports totaled US$74.6 billion, recording an annual rise of
6% and reflecting the strength of internal spending. These figures gave
a trade balance of US$4.2 billion, resulting in a larger current account
deficit equivalent to 4% of GDP. Although this trade deficit exceeds 2011
figures, it is considered sustainable and does not impact our country’s
international positioning in the short term.
In terms of prices, the CPI increased 1.5% in 2012, well below initial
expectations and in the Central Bank’s medium-term target range. During
50 AnnualReport2012
the year, seven of the twelve components of the market basket rose in
price, with the greatest increase in food. Transportation, which reflects
variations in fuel prices, recorded a negative variation as a result of the
fall in oil prices in international markets. In addition, annual decreases
were seen in clothing, basic services and recreation and cultural
activities. Analytical indices like the CPIX (CPI excluding fresh fruits and
vegetables, and fuel) and the CPIX1 (CPIX excluding fresh meat and
fish, regulated rates and financial services) experienced rises of 1.3%
and 1.8%, respectively. Inflation measured by type of good contracted
0.5% annually in tradable goods and 3.9% in non-tradable goods, the
latter of which is linked to internal demand.
In line with the evolution of prices and of the local and global economies,
the Central Bank maintained a neutral monetary policy during the year,
fixing the Monetary Policy Rate (MPR) at 5.0% per annum from its January
meeting until year-end. In 2012, it expressed concern for the financial
tensions and deceleration occurring globally while it indicated that the
domestic economy was expanding in line with trends, with inflation below
target and a lively labor market. Despite decreased inflationary pressure
and a complex external scenario, the Central Bank aptly decided to leave
the Monetary Policy Rate untouched given the greater-than-expected
strength of the local economy.
In 2013, monetary policy will once again face a weakened external
scenario and a local economy that, despite decelerating growth, will
remain strong in aggregate demand. The evolution of the Monetary
Policy Rate will depend on how these factors influence inflation and on
medium-term expectations, which at the time of print are still anchored
to the target value.
In fiscal matters, public spending expanded 4.7% (real terms) and income
grew 1.3%, leaving a budget surplus of 0.6% of GDP. This increase in
government revenue was due, among other factors, to more taxes collected
as a consequence of economic growth over 5% and, to a lesser extent,
to a tax reform implemented during the year. As a result of the budget
surplus, sovereign funds grew by US$3.15 billion, reaching US$31.3
billion as of December 2012, which is undoubtedly a good sign of fiscal
responsibility for two reasons: (1) it is the second consecutive year of
surplus and (2) it entails a reduction of the structural deficit.
the world. This achievement is a reflection of our country’s appropriate
macroeconomic policies and sound institutions. These factors, together
with a competitive, solvent financial system, managed to preserve the trust
of companies and consumers alike in a scenario of significant uncertainty.
For 2013, our economy should report more moderate growth, both because
of the continued complex international scenario and due to normalizing
patterns in personal and corporate spending. As a result, we expect GDP
to grow around 4.5% in 2013 in a scenario of normalized inflation and
unemployment levels slightly about current figures.
In summary, the Chilean economy surprised the world with its vitality
in 2012, positioning itself among the countries with the most growth in
Gross Public Debt and Sovereign Funds(*) / GDP
Trade Balance and Current Account
(% of GDP)
(US$ Millions)
15.4
5.8
4.9
6.8
8.6
11.2 10.3
11.3 10.2
13.4
13.5
3.5
2.0%
3.3
1.5%
8.4
4.9
7.0
4.2
-1.3%
-3.2
-3.6%
-5.8
2008
2009
Gross Public Debt / GDP
2010
2011
2012
Sovereign Funds(*) / GDP
2008
Current Account
2009
2010
Trade Balance
2011
-4.0%
-8.4
2012(e)
Current Account / GDP
(*) Includes stabilization fund and other public treasury reserves. Does not include Central Bank
reserves.
Source: DIPRES.
Source: Banco Central.
51
Consistent with economic growth, total loans for the Chilean
banking system reported a nominal increase of 12.4%(1) over
2011.
On a product level, overall system performance was driven by
a rise of 13% in commercial loans, 12% in consumer loans
and 11% in mortgage loans.
In terms of earnings, system net income totaled Ch$1,629
billion, a 4.8% reduction over the prior year, as a result of
increased risk provisions and operating expenses.
System returns, measured as net income over average capital
and reserves, reached 16%, which is less than the 20% figure
from the previous year.
The banking industry experienced a year of contrasts. In early 2012,
growing financial tensions in international markets caused significant
concern and forced measures to be taken to prepare for a year of less
growth and greater risks. However, the strength of the local economy,
which gained force throughout 2012, sustained internal demand and
household and business expectations, positively impacting the banking
industry’s performance, both in volumes and returns.
Furthermore, many important regulations and initiatives were implemented
in 2012, and debate on several future regulatory projects also began.
(1) Total loan and per-product growth figures exclude foreign subsidiaries.
52 AnnualReport2012
In March 2012 a set of standards creating the Financial Consumer
Protection Agency (Sernac Financiero) came into force, which entailed
new obligations for the banking industry and their relationships with
customers. While these measures have some positive elements, they
have also introduced added inflexibility, increasing the costs of bank
processes. In this context, we hope that these new consumer protection
and oversight standards facilitate and drive the process of expanding
banking access that has occupied the industry in recent years.
Along these same lines, a tax reform was approved during the third
quarter of the year to collect permanent additional fiscal revenue to fund
education. This reform entailed, among other measures, an increase in
corporate income tax and reductions in personal income tax, especially
for the middle class. In banking matters, the reform reduced the stamp
tax, stimulating demand for loans.
Lastly, deliberation on new reforms began during the year, including a
reduction to the maximum conventional interest rate and the consolidated
debt project (positive credit information), both of which seek to expand
consumer protection and increase the amount of information available.
Participation from the banking industry focused on supporting the
consolidated debt project and highlighting its positive impact on risk
assessments. The industry also emphasized the risks of the maximum
conventional interest rate project, which would adversely affect the
process to increase banking access, particularly in lower-income
segments.
12%
loan growth
in 2012
Business Volumes
Total loans reported nominal growth of 12.4% in 2012, a reduction with
respect to the 17.3% recorded in the prior year. The positive evolution of the
local economy enabled the industry to once again attain double-digit increases
in all loan products, led by commercial loans with 13.2% and followed by
consumer and mortgage loans with 11.8% and 10.9%, respectively.
During the year, consumer loans primarily expanded during the second half
of the year, aligned with private consumption figures. Favorable employment
figures and an increase in real wages explain the upward trend for this
product family. Within consumer loans, worth highlighting are increases in
credit card cash advances and revolving credit on credit cards, with annual
increases of 15.2% and 11.2%, respectively.
Commercial loans began the year well only to lose strength in the second half.
Strong investment figures and positive corporate expectations helped sustain
double-digit growth over twelve months. On a product level, commercial
loans rose 17.3% for the year while foreign trade loans grew a mere 5.2%,
partially because of the weakened dollar.
Total Loans(*)
Demand and Time Deposits(*)
(In billions of Chilean pesos)
(In billions of Chilean pesos of each period)
+17.3%
+17.8%
+12.4%
+10.9%
98,880
84,919
87,947
74,954
19,586
24,381
21,993
12,846
11,488
76,544
64,967
24,753
21,730
19,480
9,739
45,629
54,466
61,653
Dec-10
Dec-11
Dec-12
Commercial
(*) Excludes foreign subsidiaries.
Consumer
Mortgage
45,487
Dec-10
Time Deposits
54,814
Dec-11
60,166
Dec-12
Demand Deposits
(*) Excludes foreign subsidiaries.
53
Lastly, mortgage loans performed stably throughout the year, similar to
figures observed during the last three years. In real terms, this product
stands out because it has maintained an expansion rate of around 8%,
driven by a vigorous real estate market, reduced long-term interest rates
and low unemployment.
the Basle index reached 13.2% as of October 2012, which is 13.9% less than
in 2011, reflecting growth in business volumes slightly above the variation in
regulatory capital, consisting principally of capital and subordinated bonds.
In liabilities, demand and time deposits posted nominal growth of 13.9% and
9.8%, respectively, both decelerating with respect to 2011. As of year-end
2012, total deposits represented 86% of industry loans. The decreased
aggregate growth of deposits in comparison to loans was partially offset
by increased issuances of debt instruments, giving annual nominal growth
of 16.9%. Within the sector, senior bonds increased 29.2% over the 6.6%
experienced by subordinated bonds.
Banking system net income reported an annual drop of 4.8%, totaling
Ch$1,629 billion as of December 2012. These decreased earnings, together
with more capital, explain the decline in returns on average capital and
reserves of 16.2%, as compared to the 19.6% obtained in the prior year.
This decrease in net income stems from greater provisions and operating
expenses, which were partially offset by greater operating income.
Financial Results
Funding Structure
Lastly, system capital posted nominal growth of 14.7%, totaling Ch$11,258
billion as of year-end, due principally to capital increases by some banks. Thus,
(% of liabilities)
Banking System Results
(Cifras en millones de pesos)
2010
Operating Revenue
2011
2012
Variation
2012/2011
5,686,799
5,955,746
6,457,885
8.4%
Net Interest Income
3,717,405
4,004,070
4,313,480
7.7%
Net Fees
1,144,449
1,213,751
1,267,567
4.4%
618,014
588,659
716,796
21.8%
149,266
160,042
7.2%
(955,115) (1,217,311)
27.5%
Net Foreign Exchange Transactions
Other Income
Loan Loss Provisions
Operating Expenses
Income Attributable to Affiliates
Income before Income Taxes
Taxes
Net Profit for the Year
206,931
(910,246)
(2,929,308) (2,975,748) (3,303,779)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2004 2005 2006 2007 2008 2009 2010 2011 2012
Time Dep.
Sub. Bonds
16,900
8,443
(50.0)%
1,859,485
2,041,783
1,945,238
(4.7)%
(275,532)
(330,146)
(316,520)
(4.1)%
1,583,953
1,711,637
1,628,718
(4.8)%
Equity
Senior Bonds
Mort. Bonds
Capitalization Ratios
11.0%
12,240
Demand Dep.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
14.3%
14.1%
13.9%
9.6%
10.9%
10.1%
10.1%
9.8%
2008
2009
2010
2011
2012(**)
12.5%
13.2%
Main Ratios
Return on Average Capital and Reserves
20.24%
19.61%
16.19%
(342) pb
Efficiency Ratio
51.51%
49.96%
51.16%
119 pb
Loan Loss Provisions/Avg. Total Loans
Basel Index (*)
(*) To october 2012.
54 AnnualReport2012
1.27%
1.18%
1.29%
11 pb
14.14%
13.93%
13.21%
(72) pb
Tier 1(*)
Rest
(*) Corresponds to Basic Capital over Credit Risk Weighted Assets,
calculated using the Basle I rule.
(**) To october 2012.
During 2012, operating income posted nominal growth of 8.4%, explained
by growing business volumes, higher nominal interest rates that increased
returns on time deposits and greater net fees. These effects were partially
offset by decreased revenue from the industry’s structural asset position in
UF in a scenario of low inflation.
In risk matters, net provision expenses reached Ch$1,217 billion, an annual
increase of 27.5%, which more than doubles the industry’s growth in business
volumes. This evolution is explained mainly by an increase in default rates
in the consumer portfolio, especially during the first half of the year and by
adjustments in risk models that increased provision expenses for one of
the industry’s leading banks. These effects were partially offset by fewer
additional provisions. Overall, the ratio of net provision expenses to average
total loans recorded an 11 basis point rise over 2011, reaching 1.29% as
of year-end 2012.
The greater default rates in the consumer portfolio were partially offset by
improved payment behavior in the commercial and mortgage portfolios. As a
result, the ratio of 90-day past due loans to total loans decreased slightly from
2.4% in December 2011 to 2.2% in 2012. Similarly, the increased provisions
meant that the coverage indicator for this portfolio increased slightly from
0.98 as of year-end 2011 to 1.03 in 2012.
In terms of operating expenses and efficiency, operating expenses increased
11.0% (nominal), totaling Ch$3,304 billion. The system’s greater expense
base arose mainly from increases in administrative expense (13.2% nominal)
and, to a lesser extent, in payroll expenses (8.6%). This growth in expenses
was consistent with the growth in business volumes, which necessitated
disbursements for investments in infrastructure, technology and security. This
spending is reflected in the efficiency ratio, which reached 51.2%, slightly
above the 50.0% from the prior year.
with a deferred asset position. This effect more than compensated for the
increase in current taxes for the year.
Banking System Challenges and Opportunities
The banking system’s positive results in recent years are a notable achievement
considering the complex economic scenario of heightened international
uncertainty and newly introduced regulations.
Vigorous business volumes, expanding banking services and restricted
credit risk are signs of progress that have undoubtedly made a significant
contribution to the country’s development, positioning Chile as the economy
with the highest banking penetration indices in the region and a banking
industry that is globally recognized for its solvency and soundness.
Nevertheless, the challenges facing the industry are great. The good footing
of our economy and the low levels of bank use in comparison to developed
countries leave great potential for growth, especially in the retail and SME
segments, which are key to economic development and job creation. The
banking system has the tools and strength to address these challenges, with
increasing competition and adequate capital. However, we hope that the new
reforms under debate, including the reduction of the maximum conventional
interest rate and the consolidated debt project, are addressed responsibly
and in depth, prioritizing measures that strengthen free competition and
encourage better information and transparency towards consumers.
Without a doubt, Chile is in an excellent position to be categorized as a
developed country in the next few years. Along this path, the banking industry
will continue to fill a fundamental role, providing confidence and security to
economic agents and financing projects and ventures that will make our
country a more advanced, recognized and prosperous nation.
Lastly, income tax expense dropped 4.1%, giving an effective rate of 16%.
This fall was explained by the non-recurring positive effect of the newly
implemented corporate tax rate, which increased from 17% to 20% in banks
55
3
STRATEGY
Vision / Mission
VISION
To be the best bank for our customers, the
best place to work, the best investment for our
shareholders and the bank with the strongest
commitment to the community.
of our actions to gain
substantial knowledge of
their needs and aspirations
and align our value
offerings accordingly,
while building long-term
relationships.
human resources are one
of our core competitive
advantages, given our
team’s commitment,
dedication and distinctive
identity within the financial
system.
We also believe that
We maintain our
shareholders’ trust by
engaging in projects and
businesses intended to
maximize the company’s
long-term value, while
being prudent with regards
to business-related risks.
Through commercial
Our Community
customers at the core
We are convinced that our
Our Shareholders
We seek to place
Our Associates
Our Customers
Throughout our history, we have aspired to be the leading bank in the Chilean financial system. This vision involves all of the diverse stakeholders
related to our business and is shared and internalized by all areas across our organization, senior management and the board of directors.
We believe that our
business actions and
financial performance
depend on our community
involvement. As a result,
we strive to continuously
reinforce our commitment
to the community by
carrying out diverse social
impact initiatives.
Our brand recognition,
promoting a better work
strategies that combine
corporate reputation and
environment is key to
enhanced service quality
We are committed to
market leadership within
providing exceptional
with greater returns, we
entrepreneurship, the
the local financial
customer service. For
have been able to add
integration of the elderly
system represent important
this reason, we focus
significant value for our
and disabled people,
competitive advantages
on creating effective
shareholders. This approach
high-quality education and
that we must capitalize on,
communication channels
– which we expect to
environmental protection.
preserve and improve by
and developing a merit-
maintain– distinguishes us
providing innovative value
based culture by rewarding
within the Chilean financial
offerings tailored to each
our staff’s talents and
system.
segment.
achievements.
58 AnnualReport2012
MISSION
T o be a leading financial institution across
all segments, providing first-class financial
services with innovative solutions that fit our
customers’ needs.
To accomplish this mission, we believe it is essential to be an industry leader in every segment in which we are engaged and across all aspects of
financial activity (i.e. returns, profits, risk management, operating efficiency, business volumes, human capital development and corporate social
responsibility).
This mission requires initiatives aimed at achieving comprehensive excellence in management, with customer satisfaction as our ultimate goal.
This demands of us the best technology, business models and quality standards in the industry.
Value Creation Cycle
Properly segment
the customer base
in order to build and
maintain long-term
relationships.
Build exceptional
human capital,
committed to our
corporate values and
a culture based on
results and customer
service.
Continuously widen
and improve our
financial product
and service offerings
to satisfy diverse
segments.
customer
Prudently manage
business risks,
supporting customer
endeavors with a
long-term perspective.
Develop efficient
processes in terms of
quality and delivery
times that support
superior customer
service standards.
Strategy
59
Strategic Pillars
Strategic Pillars and Business Segments
We aspire to be
the leader in the
retail business
by improving
segmentation
and offering
differentiated value
propositions.
We aim to make
the segment more
profitable through
a broader offering
of products and
services that
enables us
to increase
cross-selling.
We believe
that operating
efficiency makes
the difference in a
highly competitive
market.
We seek to
strengthen
our strategic
development
capabilities.
We focus on
efficiency in
expenses and
internal processes.
Exceptional Human Resources
We encourage a distinctive, merit-based, results-oriented and customer-focused culture.
We promote comprehensive development of human capital.
60 AnnualReport2012
Maximize Service Quality
We believe
there is room to
continue expanding
access to banking
products.
We are the
undisputed leader
in the wholesale
market , which has
low risk and tight
margins.
In order to concentrate our efforts and realize our medium and
long-term goals, we have identified four strategic pillars that we use to
define initiatives and areas of action, based on the priorities, challenges
and goals for each year:
Improve Operating Efficiency
Our focus is based
on profitable
products with
significant future
growth potential.
Strengthen the Wholesale Business
Lead the Retail Business
Our strategy is based on a business model centered around business
initiatives and investment projects that generate significant economic
value for shareholders, have appropriate risk levels and enable us to
build long-term relationships with customers, based on segmented
value propositions.
We strive for
innovation in
customer relations,
developing value
propositions aligned
with their needs and
improving response
time in order to
strengthen long-term
relationships.
In order to more efficiently monitor our strategic efforts, we have divided our commercial and financial operations into four business segments:
Retail
Segment
Wholesale
Segment
Treasury
Subsidiaries
Retail Banking (Individuals and SMEs)
Consumer Banking (CrediChile)
Wholesale, Large Companies and Real Estate Banking
Corporate and Investment Banking
Responsible for managing and monitoring our investment portfolio and
managing our assets and liabilities.
Stock Brokerage | Mutual Funds | Factoring
Insurance Brokerage | Financial Advisory
Securitization | Promarket | Socofin
In keeping with these business segments, we have developed a multibrand focus to position ourselves differently in the diverse segments,
strengthening the brands “Banco de Chile”, “Banco Edwards-Citi” and
“Banco CrediChile” in the traditional banking business and the brand
“Banchile” in specialized financial services.
many years in the corporate segment by capitalizing on our competitive
advantages. These advantages include the scale of our business and
our broad distribution network, a highly competitive funding structure
and the potential synergies that arise from collaboration among our
different commercial divisions.
We strive to achieve sustained growth in market presence within business
segments and areas with greater margins and high growth potential, while
maintaining a large degree of specialization in the segments where we
already lead. Recently, we have strengthened our approach strategies
for the retail, SME, large companies and treasury segments, where
we hope to attain the same leading position that we have enjoyed for
Likewise, in order to enrich the product offerings targeted at each
segment, we have developed a wide range of financial services through
our subsidiaries such as stock brokerage, mutual fund management,
financial consulting, insurance brokerage, factoring and asset securitization.
Since most of these services are fee based, they allow us to diversify our
sources of operating income and ensure profitable growth.
Strategy
61
Strategic Pillars
Lead the Retail Business
In the Retail Banking Segment, our objective is to grow by continuously
developing and improving a global offering of products and services that
provide considerable added value to the customer, which includes developing
innovative service models tailored to each segment. Also, to increase
our presence in this segment, we believe it is important to expand our
customer base and distribution network, grow in SME loans and reinforce
the offering of credit products that build long-term relationships, such as
payment media (e.g. credit and debit cards) and retail mortgage loans. In
the Consumer Banking Division, we intend to consolidate the presence of
CrediChile in products such as payroll deduction loans and to foster bank
use in Chile by promoting access to formal financial services.
Along these lines, we have consolidated our leadership in retail current
accounts, complemented by a sound strategy in retail mortgage loans,
where we have enjoyed the largest increase in market share in recent
years in comparison to other market players. Both elements confirm our
emphasis on the retail market, as well as our interest in strengthening a
business strategy based on long-term customer relationships. In addition,
we are the Chilean bank with the most growth in market share in areas
outside Santiago, thanks to our extensive distribution network covering
a large part of the country.
62 AnnualReport2012
In terms of our contribution to bank penetration (bankarization), we have
made consistent progress, increase our presence the SME segment, reflected
in both the number of new customers and market share, establishing
ourselves as one of the leading banks in volumes of government-backed
loans for this segment. In addition, we implemented two projects (the
Microenterprises Bank and “Caja Chile”) designed to provide access to
segments that normally do not operate in the formal financial system.
Strengthen the Wholesale Business
In the Wholesale Banking Segment, our goal is to maintain our leading
position in loans, but also to improve profitability in this highly competitive
segment. As a result, we concentrate efforts on increasing cross-sales of
non-loan products and services, focusing on improving cash management
services, increasing penetration of treasury products, improving our
presence in leasing and factoring products and promoting international
dealings by taking advantage of the synergies from our strategic alliance
with Citigroup (Global Connectivity Agreement).
As a result, our wholesale divisions have remained focused on profitability,
which has meant not only developing new service models, but also
generating business with adequate risk-return ratios. Worth highlighting
are the leadership positions we have maintained in products such as
factoring as well as the stake we have attained in leasing, which enable
us to build a long-term relationship with customers.
In addition, based on a comprehensive product offering in this segment,
we have been able to increase cross-sales (non-loan income over loan
income), partially due to our growth in business volumes in collections
and payment services managed by our Transactional Banking area, which
we have worked to strengthen over the last three years. This allows us
to better diversify our income sources.
We continue to capitalize on our expertise in Treasury related products,
increasing our penetration of existing products with traditional customers
in this segment (corporations and large companies), as well as to open
new market niches, developing financial products (e.g. hedges) tailored
to the needs of high potential segments such as SMEs. In addition, this
segment continually seeks new, more attractive financing alternatives,
both local and international, in order to sustain business over the long
term by properly diversifying our funding structure.
Improve Operating Efficiency
complex environment. This not only allows us to obtain better financial
results, but also enables us to more efficiently and effectively cover
our customers’ needs using intelligently designed, business-focused
processes that should lead to more attractive value propositions for
customers and longer relationships. In order to meet this objective, we
have invested important resources in information technology as well as
simpler, more manageable and more reliable platforms and operating
processes that permit us to optimize response times and productivity in
customer contact channels.
As a result, since 2008 we have managed to significantly improve operating
efficiency, thanks to the cost synergies generated by the merger with
Citibank Chile, the greater scale we have attained in recent years, and
improvements in our internal processes. In 2012, we continued focusing
on business continuity and IT security for our customers. Consequently,
we have been able to address IT contingencies in a timely manner and
continue improving processes and platforms by simulating IT risks and
implementing first-generation software for online transactions. We believe
that these initiatives, together with a comprehensive distribution network
and significant economies of scale, should enable us to attain higher
levels of efficiency in upcoming years.
CWe believe that controlling expenses and developing more efficient
processes are key elements to competing effectively in an increasingly
Strategy
63
Strategic Pillars
Strengthen Service Quality
We are convinced that our reputation is based to a great extent on the
quality of our products and services. Quality is a differentiating element
that will unquestionably enable us to sustain our business in the long
term, consolidating the loyalty of our current customers and developing
it in new segments. As a result, we are committed to the continuous
improvement of all aspects of our business that impact the customer
experience.
In line with this vision, our strategic priority to provide exceptional service
quality achieved through several concrete initiatives aimed at directly or
indirectly impacting customer satisfaction, including:
64 AnnualReport2012
Ensuring availability and operational continuity for channels, services
and systems.
Automating tasks in order to reduce errors and decrease the number
of manual processes.
Redesigning critical processes that impact customers, improving
availability, training, consistency and the standard response times
for each segment and channel.
Redesigning the request and complaint service with a customercentered vision (time, quality, opportunity).
Streamlining credit approval processes.
Developing specialized solutions and optimizing remote customer
service channels in the wholesale banking segment.
Exceptional Human Resources
We are certain that human capital is a key element for any institution to achieve its objectives. In order to consolidate profitable growth, attain
operating efficiency and achieve high service quality standards over the long term, we believe it essential to have motivated, highly qualified team
members who are aligned with our corporate goals. In this sense, we strive to develop a team of associates committed to both overall excellence
and our corporate values by promoting:
Clear customer focus
Leadership
and trust
Merit-based and
high performance
Results-oriented
performance evaluations
Collaboration and
team work
Innovation and
continuous improvement
During 2012, we implemented diverse projects and initiatives to reinforce these concepts, with a special emphasis on recruiting and selection processes,
including the newly-launched internal mobility website, which enhances talent management. We also improved our competency evaluation methodology
used to identify outstanding behavior and strengthen associate development. In terms of training, we have continued to shape leaders through programs
like “Jefes para el Chile” (Managers for Chile) and “Crece en el Chile” (Grow in Chile). We believe that these initiatives are aligned with our strategy and
the development goals of our team members.
Strategy
65
4
CONSOLIDATED
PERFORMANCE 2012
Arturo Tagle Quiroz
Chief Executive Officer
Consolidated Performance 2012
Management Discussion and Analysis 2012
In 2012, Banco de Chile maintained its leading position within the banking
industry, reporting excellent financial results and making important
progress in diverse business areas.
In regulatory matters, the Bank had to deal with the implementation
of important regulatory and legal changes that involved, among other
measures, higher tax rates, less historical information for assessing risk
and greater obligations and responsibilities towards customers. The Bank
For the year, the Bank posted net income of Ch$466 billion, 9% greater
than the prior year, positioning itself as the market leader with 29% of
total system earnings. It also led the industry in return on capital and
return on assets with 26.2% and 2.1%, respectively.
has actively participated in the debate on new regulatory requirements,
supporting all initiatives that protect consumers but strongly defending
the principles of free competition. It has also counseled authorities on
the undesired effects that some regulations could have on the process
of expanding bank access that has been driven by the financial services
industry, and identified situations that could disrupt the cost and return
equilibriums that have afforded Chile such a sound banking system.
This exceptional performance is the result of a clear and consistent
customer-focused strategy characterized by attractive operating margins,
conservative risk management and a continual focus on efficiency, service
quality and employee development.
These results were recognized by both the market and the financial
community, reflected in the superior performance by Banco de Chile’s
stock, posting total returns of 16% in 2012 and largely exceeding the
IPSA index. Other recognition includes being named the best bank in
the country, the bank with the best corporate reputation and the safest
private bank in Latin America, among other awards.
Worth special mention is another of the year’s milestones: At mid-year,
the risk rating agency Standard & Poor’s upgraded the Bank’s long-term
international rating from ‘A’ to ‘A+’, making Banco de Chile the private
financial institution with the highest rating in Latin America.
This feat is especially noteworthy given the complex global economic
conditions present at the time. Heightened uncertainty because of
the international financial crisis required special attention in order to
maintain an adequate risk-return ratio in loan portfolios. While the local
economy performed well, showing great resilience in the midst of global
deceleration, inflation was limited —even below economic trends—
adversely impacting the industry’s operating revenue.
Regarding business volumes, in 2012 the Bank expanded total loans by
8%, prioritizing growth in areas with greater returns in the retail segment
using segmented value offerings and a broad branch network, which
included 434 service centers as of December 2012. At the same time,
we continued to lead the wholesale loan market in Chile, a position
we reinforced by incorporating new products and services and taking
concrete steps to strengthen customer relationships.
In the retail market, the Commercial Division led loan growth within the
Bank, with 15% annual growth, representing 46% of the Bank’s total
loan portfolio as of year-end, as compared to 41% three years ago. This
expansion is tangible evidence of the successful implementation of the
Bank’s strategic plans.
On a product level, mortgage loans excelled with annual growth of 16%,
increasing market share by 82 basis points to 17.2%. In recent years,
Banco de Chile has increased its market share by more than 283 basis
points in mortgage products.
In consumer loans, the Bank held second place in the industry with
22% market share. Within this product, cash advances on credit cards
69
grew 19%, ending the year with market share of 27% or 95 basis points
more than in 2011. This positive performance can be attributed to the
work of the Payment Media Area, the unit responsible for designing and
executing attractive campaigns to promote credit card issuance and use.
During 2012, 240,000 new cards were issued, consisting of 185,000
new credit cards and 55,000 new debit cards. As of year-end, 19% of
all credit cards in the Chilean market were issued by Banco de Chile,
while the Bank’s customers comprised 28% of all purchases and cash
advances in the industry. This solid position can also be seen in debit
cards with 19% of purchases made.
Within retail banking, Banco de Chile continued to expand its presence in
the SME segment with initiatives such as increasing loan pre-approval, using
a ratings system for loan approval, simplifying customer documentation
requirements, optimizing the use of government-backed financing and
boosting efforts to incorporate lease and factoring products. As a result,
the Bank posted annual growth of 18% in loans in this segment and
positioned itself as one of the industry leaders in government-backed
loans (Corfo) with over 17,000 loans granted, making the Bank a beacon
for entrepreneurs in Chile. The Bank also continued to organize loyalty
events, which are highly valued by customers, that included social
gatherings, workshops, events and webinars.
The Consumer Segment, Banco CrediChile, focused efforts on extending
its reach through initiatives such as Caja Chile and the Microenterprise
Bank, helping expand banking access in Chile. These projects, which
are still in the early stages, will allow the Bank to increase its customer
base, expanding its presence in areas outside Santiago and improving
quality of life for many.
Caja Chile is a remote IT platform used to serve CrediChile customers that
live in towns without a local bank branch, enabling them to carry out basic
transactions in small local businesses. As of year-end 2012, Caja Chile
had enlisted more than 1,000 service centers in 220 districts throughout
the country. The Bank expects to expand services to include all basic
functions for Banco de Chile current account holders. The Microenterprise
Bank is a specialized business area that provides financial and advisory
70 AnnualReport2012
services to small businesses through 40 customer service platforms in
Chile, strengthening the Bank’s position among entrepreneurs of all sizes.
CrediChile reported annual growth of 3.5% in loans. This growth was
particularly strong in the last quarter of the year, consistent with the
conservative risk management required for this segment. As of year-end,
the Bank continued to lead the industry in this segment with close to
25% market share and over 881,000 customers.
In the wholesale market, both the Corporate and the Wholesale, Large
Companies and Real Estate Divisions had an extremely competitive year. In
this context, they implemented a focalized growth strategy that prioritized
an appropriate risk-return ratio for their portfolios, resulting in growth
of 1.5% in business volume in this market, which is lower than figures
for the retail market but consistent with the business strategy defined.
Both business units worked to strengthen ties with customers through
segmentation, an exhaustive focus on service quality and a close relationship
with account executives. They also continued with their regional expansion
plans, developing specific customer service models to provide more efficient,
thorough coverage. By increasing collaboration with the Treasury Division,
they increased cross sales with a greater offering of currency and interest
rate derivatives and specialized advisory services for customers. The Bank
also supported its customers in non-traditional businesses such as bond
placements and international expansion plans, using its strategic alliance
with Citigroup and its international branch network. The Bank established
a Colombia Desk to advise customers with expansion plans in that country.
Additionally, available credit lines were expanded and financing conditions
with correspondent banks were improved, with a positive effect on funding
costs for foreign exchange transactions.
At a product level in the wholesale market, the lease business grew
considerably during the year, reporting 12% annual growth and market
share of 22% as of December 2012. Furthermore, in collaboration with
Banchile Securitizadora, the Bank placed an infrastructure bond for
UF 1.3 million, which is especially noteworthy as it was the only instrument
of its type placed in the local market in 2012.
In terms of liability management, the Bank’s funding sources were
strengthened and diversified during the year. New markets were accessed,
with Banco de Chile being the first institution to issue short-term debt
in the United States through a line of commercial paper and the first
Chilean financial entity to issue long-term bonds on markets in Hong
Kong and Peru. As of December 31, 2012, the Bank had placed US$605
million in these markets, representing close to 9% of all debt issued.
Along these same lines, over US$1.3 billion in bonds were issued on
the local market with the highest risk rating and low spreads just above
Central Bank bonds.
Banco de Chile also continued to be one of the leaders in demand
deposits, representing 29% of the Bank’s total loans as of December,
which compares favorably with financial
system averages and competitor figures.
This is a key competitive advantage as it
gives the Bank the lowest cost of funds
in the Chilean banking industry.
refund percentages in a flexible and simple format. Another high point
in 2012 was the record sales of Obligatory Personal Accident Insurance
(SOAP), with more than 81,000 policies sold through remote channels.
The performance of the Bank’s subsidiaries was recognized by external
entities through several awards, including four from “FundPro” for
Banchile Administradora General de Fondos. The Great Place to Work
Institute also recognized Banchile Corredores de Bolsa as among the
15 best places to work in Chile.
Undoubtedly, the Bank’s positive performance in earnings is also based
on effective risk management. Its consolidated, conservative vision
on risk management helped the Bank attain a ratio of net loan loss
provisions to average loans of 1.0%.
Although higher than in 2011, this
figure is consistent with the Bank’s
historic patterns and compares
favorably with the banking system
and main competitors. The Bank also
reported the lowest past-due portfolio
and impaired portfolio indicators, along
with the highest provision coverage
indices among its most relevant
competitors.
“2012 was a successful year for
In contrast, both the brokerage and
mutual fund subsidiaries faced a complex
year with more risk adverse customers,
which impacted local market returns
and consequently the trading volumes
of shares and variable-income mutual
our institution, where we obtained
important milestones in
our financial and strategic goals”
funds. Nevertheless, the Bank attained
market share of 10% in share trading
volumes and maintained its market leadership in mutual funds with
close to US$9.0 billion in managed assets and market share of 23%.
In addition, in 2012 the Bank added 14 new mutual funds and created
2 new investment funds, giving an offering of 81 mutual funds and 8
investment funds as of year-end with a customer base exceeding 350,000.
The insurance brokerage subsidiary developed new sales platforms, including
a system to offer insurance through CrediChile’s customer website and
a new telemarketing platform known as “Modular Insurance”, designed
to offer customers several options of coverage, assistance and premium
In matters of operating efficiency
—one of the Bank’s strategic pillars—
it doubled expense control efforts, implementing specific projects
throughout the organization. The Bank made improvements to internal
processes, implemented a modern platform for managing financial
derivatives, modernized and consolidated its processing center, acquired
software to facilitate electronic fraud detection and executed multiple
cost savings initiatives identified as part of its continual efforts to
improve productivity. In addition, the Bank increased expense control
incentives using uniform goals throughout the Bank in order to secure
commitment from the entire institution with its objective to be a flexible,
efficient bank.
71
The progress made in the efficiency ratio (operating expenses over
operating revenue) provides evidence of the benefits of these and many
other initiatives implemented by the Bank. In 2012, this ratio had reached
47.2%, which compares favorably to 50.2% in 2011.
Another element that continues to gain importance is service quality.
Significant investments were made to enhance customer service channels
through executive training programs, to modernize IT systems and to
improve branch infrastructure. The Service Quality Area organized training
sessions in almost 200 branches throughout Chile to implement several
measures to improve customer service. It also employed a mystery
shopper system to evaluate compliance with service quality and customer
response standards. The Bank reinforced its protocols for sending account
information through external suppliers and invested important human and
financial resources to resolve IT issues that arose while implementing the
new current account platform. These issues undeniably had a negative
impact on the Bank’s service quality levels during the first half of the
year. Banco de Chile has reiterated its commitment to continuously
seeking quality standards to position itself among the most trustworthy
and distinguished banks in the Chilean financial industry.
72 AnnualReport2012
Another important milestone for the year was the beginning of the new
capital increase process. Chile’s sustained economic growth has driven
expansion of loan volumes for the banking industry more quickly than
expected, which, together with the positive outlook for the local economy
and industry, led the Board of Directors to propose a new capital increase
of Ch$250 billion to shareholders. The expansion of the capital base will
allow the Bank to sustain its medium-term growth strategy, strengthen
its capital base and increase the liquidity and depth of its stock. This
process, which began in early December 2012, has generated significant
interest from the market, demonstrated in the high demand observed
during the preferential option period, with Ch$119 billion subscribed
and paid as of year-end.
On behalf of the Bank’s senior management, I would like to recognize
the effort, professionalism and commitment of our associates, who once
again demonstrated their capacity to get ahead during a year full of
difficulties and challenges when we nevertheless achieved outstanding
results. It is the job of the Bank, and especially of its management, to
continue to form teams that are committed to the work we do, emphasizing
the development of the individuals that make up this team, creating
opportunities for professional growth and strengthening leadership and
team work to constantly outdo ourselves. Consistent with these objectives,
we have placed special emphasis on recruiting and selection processes,
implementing a new internal mobility website, promoting internal talent
and allowing for greater professional development. We also improved
our competency evaluation process used to identify outstanding behavior
and strengthen associate development. In addition, we continued to form
leaders through the “Jefes para el Chile” and “Crece en el Chile” programs
and redesigned our internal communications model to consolidate the
Bank’s organizational culture and optimize the timeliness and means of
internal communications.
In terms of community commitments, the Bank continued to support the
San José de Lampa School and the Astoreca Foundation, which provide
quality education in highly impoverished areas. Likewise, through Banchile
Inversiones we support the Cristo Joven Foundation, an organization that
welcomes at-risk children and youth through a network of centers and
preschools located in more vulnerable communities. During the year, Banco
de Chile once again played an important role in the Teletón campaign,
supplying its entire branch and point of sale network, manned voluntarily
by its employees, to help give life to this emblematic crusade to rehabilitate
disabled children. In the Teletón 2012 campaign, the Bank’s work was
highly visible and well recognized, requiring eight months of preparation.
In addition, thanks to the Bank’s commitment to entrepreneurship, it was
recognized with the “Pro-SME Seal” given by the Ministry of Economy.
In environmental matters, recycling and energy savings initiatives were
expanded, decreasing the use of paper and electricity.
Already immerse in the new challenges that 2013 will bring, Banco de
Chile reaffirms its commitment to the country and the projects and needs
of each of its customers. With its successful business model, based on
sound competitive advantages and a first-rate team of associates, the
Bank will continue with its profitable, yet conservative, expansion plans
across all business areas, in order to consolidate its leadership position
in the industry and strive each day to build the best bank in Chile.
73
Statement of Income
Banco de Chile posted net income of Ch$466 billion and a
return on average capital and reserves of 26.2%, positioning
itself as the industry leader in earnings and returns.
These earnings can be attributed to the growth of the loan
portfolio; increased demand deposits, which reported greater
returns because of higher nominal interest rates; and ongoing
control of operating expenses.
(Figures in millions of Chilean pesos)
Net interest and adjustment revenues
Likewise, the Bank continued to diversify its sources of funds by
issuing debt on foreign markets, including placing bonds in Hong
Kong and Peru and being the first entity to register a commercial
paper program in the United States.
2012
% Variación
871,320
952,838
9.4%
Net gains from trading and brokerage activities
26,927
24,747
(8.1)%
Net foreign exchange transactions
(7,973)
35,136
N/A
Net financial income
890,274
1,012,721
13.8%
Net fees
308,773
307,257
(0.5)%
24,735
22,061
(10.8)%
Operating revenues
1,223,782
1,342,039
9.7%
Provisions for loans losses
(124,840)
(188,190)
50.7%
Net operating revenues
1,098,942
1,153,849
5.0%
Operating expenses
(613,848)
(633,819)
3.3%
3,300
(229)
N/A
Taxes
(59,588)
(53,950)
(9.5)%
Consolidated net income
428,806
465,851
8.6%
1
1
0.0%
428,805
465,850
8.6%
Other operating income
In 2012, Banco de Chile continued focusing its commercial
strategy on retail segments, attaining annual growth of 16%
in mortgage loans, 10% in consumer loans and 18% in SME
loans.
2011
Income attributable to affiliates
Minority interest
Net income for equity holders of parent
Net Income for the Year
During 2012, Banco de Chile reported net income of Ch$465.8 billion,
which represents an increase of 8.6% over 2011. This increase in net
income was the result of a growth strategy focused on the segments with
the greatest returns, a highly competitive funding structure with a large
base of demand deposits, limited risk expense and improved efficiency.
74 AnnualReport2012
$466 Bil ion
in Net Income and 26.2%
Return on Capital
Net Income for the Year and Return on Average Capital and Reserves
(Figures in millions of Chilean pesos and percentages)
+8.6%
465,851
428,806
27.4%
7 4%
2011
Net Income
26.2%
This growth in net income can be attributed to:
Growth of the loan portfolio in retail segments with greater
returns, specifically individuals and small and medium-sized
businesses, together with proactive management of credit spreads
in an increasingly competitive environment across all business
segments.
A funding structure based on a higher proportion of demand and
current account deposits, which, together with higher nominal
interest rates, increased returns from assets financed by this
type of liability.
2012
Return on Average Capital
and Reserves
These excellent earnings figures gave the Bank the leading market
Greater income in the investment portfolio as a result of appropriate
trading strategies and more sales of derivative products because
of increased ties with the commercial areas in the companies
segments.
share in net income for the industry, with 29% of the banking sector’s
total net income in 2012. This figure compares favorably with the 25%
obtained in 2011.
Lower taxes due to the favorable effect on deferred taxes of
a higher corporate tax rate, which generated a non-recurring
positive effect during the year.
Banco de Chile also posted attractive returns. As of December 2012, its
return on average capital (ROAC) was 26.2% while its return on average
These elements were partially offset by increased risk expenses as a
assets (ROAA) was 2.1%, making the Bank the industry leader for these
result of a larger loan portfolio and a moderate deterioration in payment
ratios. Both figures are well above its key competitor, which posted a
behavior in the retail segment. Operating expenses also increased, which
ROAC of 19.3% and a ROAA of 1.4% during the same period.
is consistent with more commercial activity.
75
Net Financial Income
En términos del ingreso financiero neto, Banco de Chile registró
$1.012.721 millones, que significó un incremento anual de 13,8% con
respecto al año 2011. Lo anterior se debió a un aumento de 9,4% en
el Ingreso Neto por Intereses y Reajustes y a un alza de 215,9% en la
Utilidad Neta de Operaciones Financieras y Cambio.
This variation was based mainly on:
Annual growth of 14.2% in the retail loan portfolio, consisting of
(+14%) in retail loans and (+15%) in SME loans, which is in line
with private consumption and in response to low unemployment
and a rise in real salaries. Increased investment positively impacted
loan demand from small and medium-sized businesses.
t 5IF#BOLTNBSLFUMFBEFSTIJQJOEFNBOEEFQPTJUTBOEDVSSFOU
accounts. In a scenario of higher nominal interest rates, its
deposits allowed it to increase the contribution by these noninterest bearing liabilities that finance interest-bearing assets.
In effect, during 2012 the Monetary Policy Rate averaged 5.0%,
The net income recorded in 2012 is especially noteworthy since
inflation was substantially less than in 2011, adversely impacting
the Bank’s operating margins because it, like the banking industry
as a whole, has an asset position in UF.
The net income recorded in 2012 is especially noteworthy since inflation
was substantially less than in 2011, adversely impacting the Bank’s
operating margins because it, like the banking industry as a whole, has
an asset position in UF.
Net Fees and Commissions
In 2012, net fees and commissions fell 0.5% over 2011, explained mostly
by decreased revenue from non-traditional services. In effect, during 2012
securities brokerage and mutual fund services were adversely affected
by lower share transaction volumes and adjustments to mutual fund
portfolios (both variable and fixed-income funds) as a result of greater
uncertainty that made investors more risk averse and limited returns on
local and international stock markets.
which is greater than the 2011 average of 4.7%.
Active management of financial instrument trading to correctly
identify market opportunities, and an increase in sales of derivative
products strengthened by the Bank’s market leadership in the
wholesale segment.
A low basis of comparison because of a loss recognized in 2011
for an impaired portfolio of approximately Ch$42.5 billion (a similar
amount of loan loss provisions were liberated in compensation).
76 AnnualReport2012
Nevertheless, fees and commissions continued to be an important source
of stable revenue for the Bank, representing 23% of operating revenue
in 2012. Fees and commissions from the traditional banking business
increased 5.7% for the year, almost entirely offsetting the adverse effects
in non-traditional business units.
Highlights regarding fees and commissions from the traditional banking
business include:
Net Fees and Commissions per Product
(Figures in millions of nominal Chilean pesos)
% Variación
67,020
64,181
60,481
59,171
56,043
63,809
Current accounts, debit accounts, lines of credit and ATMs
Insurance
Mutual funds
4.4%
2.2%
(12.2)%
Credit cards
43,071
36,948
16.6%
Cash management services
42,939
38,812
10.6%
13,038
11,885
10,236
21,246
Letters of credit, guarantees, endorsements and other
Securities brokerage
6,005
5,387
4,562
4,476
Foreign trade and currency purchases/sales
Loans and factoring
Loan pre-approval services
1.9%
24.1%
(14.9)%
2,130
2,285
Other
2011
Growth of 17% in fees and commissions from the use of credit
cards, consistent with internal demand and the proactive efforts
of the Bank’s Payment Media Area. This area implemented
successful campaigns to attract new customers and encourage
the use of its products.
An increase of 4% in fees and commissions from current accounts,
demand accounts, lines of credit and ATMs, which is also in
keeping with positive consumption figures and the economy’s
(51.8)%
11.5%
3,955
3,186
(2,223)
(2,613)
Financial advisory services
9.7%
(6.8)%
2012
The rise of 11% in income from cash management services
(which includes collections and payment services, etc.)
These good results allowed Banco de Chile to continue leading the
industry in net fees and commissions, generating 24% of total system
commissions.
greater need for liquidity.
77
affected the basis for comparison. The increase from one year to the next
was due primarily to:
In 2012, Banco de Chile continued to stand out because of its prudent risk
policy and superior credit quality with respect to its peers in an environment
of greater uncertainty and new regulations that adversely impacted the
industry’s risk assessment processes.
As of year-end 2012, the Bank’s provisions for loan losses totaled Ch$188.2
billion, which represented 15% of system risk expenses and compares
favorably with its 19% market share in total loans. The 51% rise in provisions
for loan losses was influenced in part by non-recurring effects in 2011 that
Provisions for Loan Losses
2011
2012
% Variation
The sale of an impaired portfolio from the Corporate Banking
Division, which involved releasing provisions for loan losses of
approximately Ch$45.4 billion in December 2011.
A 13.8% increase in average total loans, concentrated mainly in
the retail and SME segments, consistent with the Bank’s strategy
to lead the retail business.
An increase in default rates in the consumer portfolio during the
first half of the year, which led to greater provisions for loan losses
in the retail segment. As a result, the Bank instituted stricter loan
approval policies, particularly in lower income segments and also
strengthened its procedures and collections teams.
Allowances for Loan Losses
Initial allowances
376,987
384,490
2.0%
(134,010)
(182,733)
36.4%
Provisions established (net)
141,513
225,678
59.5%
Final Allowances
384,490
427,435
11.2%
(141,513)
(225,678)
59.5%
(5,614)
(1,204)
(78.6)%
(24,052)
(2,271)
(90.6)%
Charge-offs
Gross provisions
Gross provisions contingent loans
Countercyclical provisions
Recoveries
46,339
40,963
(11.6)%
(124,840)
(188,190)
50.7%
0.79%
1.04%
Credit Quality Ratios
Provisions for Loan Losses / Avg. Loans
Allowances for Loan Losses / Total Past-due
Total Past-due / Total Loans
78 AnnualReport2012
2.15x
2.35x
1.03%
0.97%
These effects were partially offset by:
Additional (countercyclical) provisions established in 2011 for
Ch$24 billion, compared to Ch$2.27 billion in 2012.
The 8% appreciation in the exchange rate, which decreased the
value of dollar-denominated provisions (in comparison to 11%
depreciation in 2011).
Despite increased provisions during the year, the Bank continued to perform
well in all risk indicators, achieving a ratio of provisions for loan losses to
average loans of 1.04%, and of total past-due loans to total loans of 0.97%,
and a coverage ratio of 2.4. These figures all compare favorably to the financial
system and the Bank’s key competitors.
The main factors leading to this increase in 2012 were:
A 5.9% increase in personnel expenses, excluding non-recurring
Operating Expenses and Efficiency
effects, fundamentally as a result of collective bargaining agreements
signed in 2011 and increased hiring for the commercial and
In line with the Bank’s ongoing focus on efficiency, its operating expenses
grew 3.3% during the year, totaling Ch$633.8 billion as of December 2012.
The greatest expenses were related mainly to business volume growth and,
to a lesser extent, to improvements in technology, infrastructure and security.
collections areas. During 2011, the Bank incurred a non-recurring
expense of Ch$28.1 billion as a bonus for concluding union
negotiations, which compares to expenses in 2012 of Ch$4.4
billion and Ch$2.1 billion for extraordinary bonuses for the Bank’s
performance during the year and for the collective bargaining
processes of two subsidiaries, respectively.
Operating Expenses
Administrative expenses increased 7.6% during the year due to
2011
2012
% Variation
improvements in the distribution network, increased IT expenses
Personnel Expenses
(316,991)
(312,065)
(1.6)%
(from modernizing data processing centers and electronic platforms)
Administrative Expenses
(229,919)
(247,459)
7.6%
and greater marketing expenses to strengthen brand recognition
(30,711)
(30,957)
0.8%
(631)
(899)
42.5%
Depreciation and Amortization
Impairments
and launch new products.
Other Operating Expenses
(35,596)
(42,439)
19.2%
Total Operating Exenses
(613,848)
(633,819)
3.3%
Other operating expenses, which increased 19% as a result
Operating Revenue
1,223,782
1,342,039
9.7%
of more charge-offsafter implementing a new current account
50.2%
47.2%
Efficiency Ratio
platform and increased cobranding expenses.
79
Loan Portfolio(*)
In 2012, Banco de Chile reported annual growth of 8.0% in loans,
ending the year with a portfolio of Ch$18.8 trillion and representing
19.0% of industry loans. During the year, in line with its long-term
strategy, commercial efforts focused on segments with greater returns
in the retail market and on strengthening customer relationships and
cross sales with customers from the wholesale segment, maintaining
its historic leadership in commercial loans.
In effect, during 2012 growth of total loans was led by the retail segment
(+14.2%) more so than the wholesale business (+1.5%). This was
possible thanks to the Bank’s solid brand positioning, a large customer
base (which increased 4.0% in retail and 4.5% in the SME segment),
one of the most extensive distribution networks throughout Chile and
an ongoing focus on service quality.
As in 2011, on a product level mortgage loans performed exceptionally,
rising 16.4% in 2012 (23.3% in 2011). This outstanding performance was
aligned with the Bank’s decision to expand this product because it helps
generate long-term relationships with customers. The aggressive growth
over the last three years has been sustained by a competitive funding
structure, an attractive and properly segmented value proposition and the
synergies that come from collaboration among different business units. As
a result, the Bank attained market share of 17.2% as of December 2012,
accumulating an increase of 283 basis points over the last three years.
In consumer loans, the Bank’s growth was slightly below that of the banking
system with a total annual increase of 10.4% (11.8% for the system),
explained mostly by the deceleration that occurred during the first half of
the year. During the year, growth of this product was focused on the medium
and high-income segments, with a more conservative approach for the mass
consumer segment given its higher default rates. Within this product, cash
advances on credit cards grew 19.4%, ending the year with market share
of 26.7% or 95 basis points more than in 2011. This positive performance
Loan Portfolio
can be explained by favorable household consumption patterns during the
(Figures in billions of nominal Chilean pesos)
year and appropriate commercial strategies to attract new customers and
promote credit card use. Thus, as of year-end, the Bank held second place
Mortgage Loans
Consumer Loans
4,199
3,607
segment through Banco CrediChile with a market share of 25%.
+10.4%
+16.4%
2,832
2,566
in consumer loans with 22.0% of the market and led the mass consumer
However, given the economy’s positive performance during the year,
especially in terms of unemployment, Banco de Chile resumed growth
during the fourth quarter, leading the industry with an increase of 5%
2011
2012
2011
2012
Total Loans
Commercial Loans
In commercial loans, the Bank reported an increase of 4.7% during
+8.0%
+4.7%
18,762
17,378
11,205
in consumer loans during that period.
2012. This figure, despite being below industry averages, continued to
position Banco de Chile as the leader in commercial loans. This smaller
11,731
relative growth was exclusively in response to commercial decisions
that prioritized an appropriate risk-return ratio in the loan portfolio and
2011
2012
2011
2012
focused efforts on strengthening the Bank’s positioning in small and
medium-sized businesses and in areas outside Santiago.
(*) Market share does not consider foreign subsidiaries.
80 AnnualReport2012
The composition of loan growth during 2012 reflected the consistency
of the Bank’s strategy, which has allowed it to continue to successfully
improve the mix of the loan portfolio, where the retail segment has
increased its participation in total loans from 49% in 2009 to 52% as of
year-end 2012. This represents a considerable achievement for Banco
In 2012, Banco de Chile reported important achievements in its funding
structure, despite an environment that still has a certain degree of
uncertainty and risk aversion. Accordingly, the Bank increased its external
sources of funding and, at the same time, expanded its demand deposits
and issued debt with excellent financing conditions.
de Chile as this segment offers more growth potential, greater stability
As of December 2012, the Bank has liabilities for Ch$21.3 trillion,
representing an increase of 6.3% over 2011. During the year, the increase
in liabilities was explained primarily by:
in income and deposits and greater returns.
Funding
In 2012, Banco de Chile reported important achievements in its funding
structure, despite an environment that still has a certain degree of
uncertainty and risk aversion. Accordingly, the Bank increased its external
sources of funding and, at the same time, expanded its demand deposits
and issued debt with excellent financing conditions.
As of December 2012, the Bank has liabilities for Ch$21.3 trillion,
representing an increase of 6.3% over 2011. During the year, the increase
in liabilities was explained primarily by:
An increase of 11.8% in current accounts and demand deposits
due in part to a greater appetite for liquidity given the moderate
variation in interest rates and the vitality of consumption and
investment.
Liability Structure
2011
2012
Non-interest Bearing Liabilities
6,232,181 6,869,924
Current Accounts and Other
4,895,426 5,470,971
% Variation
10.2%
11.8%
Demand Deposits
429,913
380,322
Derivative Instruments
155,424
159,218
2.4%
Transactions in the Course of Payment
751,418
859,413
14.4%
13,769,591 14,384,083
4.5%
9,282,324 9,612,950
3.6%
Interest Bearing Liabilities
(11.5)%
Savings Accounts and Time Deposits
Payables from Repurchase Agreements
and Security Lending
Borrowings from Financial Institutions
226,396
1.4%
1,690,939 1,108,681
(34.4)%
Debt Issued
2,388,341 3,273,933
Other Financial Obligations
Total Liabilities
223,202
184,785
The rise of 37% in debt issued, including: (i) placement of Ch$625
billion in long-term bonds on the local market, of which Ch$599
billion were senior bonds and Ch$26 billion were subordinated bonds,
capitalizing on the low spreads to which the Bank had access, (ii)
issuance of debt for more than US$605 million on markets in the
United States, Peru and Hong Kong through commercial paper and
bonds, taking advantage of the Bank’s outstanding international
risk rating.
37.1%
162,123
(12.3)%
20,001,772 21,254,007
6.3%
The rise of 3.6% in time deposits and savings accounts, which
was fully explained by an increase of 15.5% in retail deposits that
more than compensated for the 2.8% contraction in wholesale
deposits. A greater relative proportion of retail deposits makes the
Bank’s sources of funds more stable and more diverse.
The above points reflect a successful funding strategy that aims to diversify
fund suppliers and to access better interest rates. This, together with a
large base of demand deposits representing 22% of the banking system
and 29% of the Bank’s total loans as of December 2012 (25% of the
system and its key competitors), allow Banco de Chile to maintain one
of the lowest cost of funds figures in the banking system.
81
Equity
Specifically, the rise in equity in 2012 was the result of:
As of December 2012, Banco de Chile has equity of Ch$2.0 trillion,
which is 15.4% greater than year-end 2011. This growth, which
was greater than the increase in assets, is in response to a capital
strengthening strategy that included more retained earnings and a
new capital increase that began in October 2012.
Equity
The capital increase initiated in early 2012 that has increased
paid-in capital by Ch$119 billion by issuing Banco de Chile T
series shares on the local market (still in progress as of the date
of print).
The capitalization of Ch$74 billion, which is 30% of distributable
net income from 2011, as approved by shareholders.
Ch$58 billion in retained earnings, which is equivalent to the pricelevel restatement of capital as stipulated in the Bank’s by-laws.
(Figures in millions Chilean pesos)
As of December 31, 2012
1,629,078
177,574
18,935
16,379
165,091
2
Total Equity (Millions of Ch$) 2,007,059
Capital
Retained Earnings
Reserves
Net Income(*)
Other Comprehensive
Minority Interest
(*) Net income includes provision for minimum dividends.
82 AnnualReport2012
As a result, the increased capital base enabled the Bank to increase its
solvency ratios, attaining a Basle Index of 13.2% as of December 2012
(12.9% in December 2011) and positioning the Bank as the institution
with the greatest market capitalization within the banking system,
exceeding US$14.5 billion as of December 31, 2012.
2010
2011
2012
Earnings per Share
Net Income per Share CHILE (Ch$)(1)
Net Income per ADS (Ch$)(1)(2)
Net Income per ADS (US$)(1)(3)
4.59
4.93
5.29
2,751.21
2,959.23
3,174.89
5.87
5.69
6.62
82,552
86,943
88,038
-
-
1,938
Net Interest Margin
4.75%
4.88%
4.62%
Net Financial Margin
5.26%
4.98%
4.91%
Fees / Avg. Interest Earning Assets
1.80%
1.73%
1.49%
Operating Revenues / Avg. Interest Earning Assets
7.21%
6.85%
6.51%
Return on Average Total Assets
2.16%
2.12%
2.08%
28.83%
27.44%
26.24%
Shares Outstanding CHILE (millions)
Shares Outstanding CHILE-T (millions)
Profitability Ratios(4)
Return on Average Capital and Reserves
Capital Ratios
Equity / Total Assets
7.70%
8.00%
8.63%
Basic Capital / Total Assets
6.60%
6.85%
7.33%
Basic Capital / Risk-Weighted Assets
Regulatory Capital / Risk-Weighted Assets
8.54%
8.88%
9.69%
13.39%
12.91%
13.22%
Credit Quality Ratios
Past-Due Loans / Total Loans
1.20%
1.03%
0.97%
219.08%
214.91%
235.03%
Allowances for Loan Losses / Total Loans
2.62%
2.21%
2.28%
Provisions for Loan Losses / Avg. Total Loans(4)
1.54%
0.79%
1.04%
Operating Expenses / Operating Revenue
46.64%
50.16%
47.23%
Operating Expenses / Avg. Total Assets(4)
3.11%
3.03%
2.84%
Average Interest Earning Assets (Ch$ millions)(4)
16,219,299
17,867,129
20,627,817
Average Assets (Ch$ millions)(4)
17,529,404
20,267,708
22,343,333
Allowances for Loan Losses / Past-Due Loans
Operating and Productivity Ratios
Balance Sheet Averages
(4)
Average Capital and Reserves (Ch$ millions)
Average Loans (Ch$ millions)(4)
1,312,860
1,562,469
1,775,665
13,538,600
15,870,478
18,052,920
Average Interest Bearing Liabilities (Ch$ millions)(4)
10,723,557
12,548,034
14,013,935
Risk-Weighted Assets (Ch$ millions)
16,445,695
19,584,871
20,709,524
Exchange Rate (Ch$)
468.37
519.80
479.47
Employees
14,016
14,129
14,581
422
441
434
Other Information
Branches
(1) Excludes Banco de Chile T series shares.
(2) Values expressed in Chilean pesos.
(3) Values calculated using net income, outstanding shares and exchange rates as of each year end.
(4) Ratios calculated as an average of daily balances.
83
5
BUSINESS AREAS
Retail Market
Mission
t 5PMFBEUIFSFUBJMBOE4.&NBSLFUTFHNFOUTXJUIBQSPmUBCMFBTTFU
portfolio and efficient processes, attracting customers that prefer
our bank through motivated and committed teams in a quality work
environment.
Commercial Division
Share of Loans 2012
46%
Target Market
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XJUIBOOVBMTBMFTPGVQ
to Ch$1.6 billion.
54%
Lines of Business and Products
t 3FUBJM4FHNFOU
Product and service offerings include: current accounts, credit
cards, credit lines, mortgage loans, consumer loans, life and general
insurance, savings instruments, mutual funds, time deposits, stock
brokerage, foreign currency and automatic bill payment services.
t 4NBMMBOE.FEJVNTJ[FE$PNQBOZ4FHNFOU
The product offering for this segment includes a wide range of
financing alternatives, assistance with import and export operations,
payment and collections services, factoring services, lease
agreements, current-account related services, international funds
transfers, investment management, insurance brokerage, currency
trading and government-backed loans.
Share of Income Before Taxes 2012
42%
58%
Commercial Division
Other
Commercial Banking Division
Loans (BCh$)
Commercial
Mortgage
Consumer
Total
Summarized Income Statement (BCh$)
Total Operating Revenues
Operating Expenses
Income Before Taxes (IBT)
Ratios
Operating Income / Total Loans
Efficiency Ratio
LLP / Total Loans
IBT / Total Loans
Relevant Information
Number of retail customers (thousands)
Number of SME customers (thousands)
ATMs**
Branches
86 AnnualReport2012
2011
2.120.8
3.546.0
1.868.5
7.535.3
2011
624.5
(70.6)
(327.9)
227.7
2011
8.3%
52.5%
0.9%
3.0%
2011
803.3
66.9
1,998
271
2012
2.438.4
4.128.1
2.119.4
8.685.9
2012
693.2
(115.7)
(358.1)
219.2
2012
8.0%
51.7%
1.3%
2.5%
2012
834.0
69.9
1,915
278
Δ$
317.6
582.1
250.9
1.150.6
Δ$
68.7
(45.1)
(30.2)
(8.5)
Δ
(0.3)%
(0.8)%
0.4%
(0.5)%
Δ
31
3
(83)
7
Δ%
15.0%
16.4%
13.4%
15.3%
Δ%
11.0%
63.9%
9.2%
(3.7)%
Δ%
3.8%
4.5%
(4.2)%
2.6%
Competitive Strengths
t #SBOEQPTJUJPOJOH
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Objectives and Strategic Initiatives 2013
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distribution network.
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Strengthening Customer Relationships
The Commercial Banking Division, which serves individuals and SMEs,
reported positive growth this year despite a complex environment.
The year 2012 was marked by strong growth in the retail and SME segments
both in loans, which expanded 15.3%, and in average demand deposits,
which grew 10.9% over 2011. These achievements are significant given
the complex business scenario plagued with operational, regulatory and
commercial challenges. On a product level, the segment posted growth
of 13.4% in consumer loans, 16.4% in mortgage loans and 15.0% in
commercial loans, thanks to its segmented value offerings, which are
reinforced by the Bank’s branch network and remote channels, that seek
the most appropriate service model for each type of customer.
Retail Segment
Two elements stand out in 2012: the regional expansion project and
growth in mortgage loans. The Regional Expansion Project, which entailed
strengthening the Bank’s presence outside Santiago, was designed three
years ago when regional market share was 16.8%. While the project
hoped to reach 19% by December 2012, it exceeded this goal. Given
the strategic importance of mortgage loans, the division initiated a plan
to increase our market share of this product three years ago, which has
been fully achieved with a 17.2% stake in 2012. Growth in consumer
loans was another great achievement in 2012, stemming primarily from
increased penetration in credit cards and all-purpose loans.
During 2012 efforts were made to strengthen customer service
channels, leading to a considerable increase in sales of revolving credit
on credit cards and new dual cards through the telemarketing channel.
Other developments include opening seven new offices throughout
the country, adding new services to remote channels, implementing
requirements set forth by the new Financial Consumer Protection Agency
(Sernac Financiero) and launching a new version of the Bank’s mobile
application for smartphones with an updated design and revamped
services, which was recognized as one of the best in the region. Other
contributing factors include the increased productivity of sales forces
in acquiring new customers and the high percentage of issues solved
by the Contact Center.
This segment also had to deal with several challenges, such as the
creation of the new Financial Consumer Protection Agency, which required
considerable internal planning. The Bank responded by working vigorously,
with a renewed focus on the quality of the information being provided.
As Jorge Tagle, the Commercial Banking Division Manager, explains,
“we were working against the clock and could not allow there to be any
reservations about the trust placed in the Bank, a key attribute in the
relationship with our customers and society in general.”
SME Segment
In commercial loans, we sought to develop and enhance our offering of
financial products and services for small and medium-sized businesses,
increasing pre-approved loans, optimizing the use of government-backed
financing (Corfo) and enthusiastically incorporating lease and factoring
products. In fact, we estimate that our SME loans rose 40% more than
the market in general, expanding the Bank’s market share from 19.6%
in 2011 to 20.1% in November 2012, with important growth in margins.
Tagle explains that this has been possible because “we have been able to
strongly differentiate ourselves by providing enhanced financial advisory
services and building close relationships with our customers through a
series of meetings, seminars, workshops and Webinars held throughout
Chile, reaching over 10,000 customers during the year.”
Security
In 2012, we also made progress in customer security matters. For
example, we launched a new online configuration service for debit cards
that allows users to restrict use to only Chilean ATMs or to international
ATMs. We also provided them with Trusteer Rapport, a leading online
banking software that detects fraud during banking transactions. Security
measures were also adopted for ATMs, implementing an anti-skimming
system known as Jitter that prevents cards from being cloned in Banco
de Chile ATMs. We also put into operation a network of ATMs that reads
cards with chips. This project is in the final development stage.
Strategy 2013
In the coming year, the division expects to expand its retail banking
area with a greater focus on using appropriate business intelligence
and segmentation to enhance its value offering. This strategy will be
complemented by improving sales productivity, increasing returns and
enhancing products and services. The goal is to create the best offer for
each customer while strengthening the client relationship and maximizing
long-term returns. The general strategy for the SME segment is to
continue expanding loan volumes and improving ties with customers.
Our specific approach for customers with lower product penetration will
be to provide them with financial advising in the hopes of gaining their
loyalty and becoming their main bank.
Business Areas
87
Retail Market
Mission
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companies to work for in Chile
Banco CrediChile Division
Share of Loans 2012
Target Market
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socioeconomic segments.
4%
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services, including: consumer loans, credit cards, life and general
insurance, mortgage loans, microenterprise loans, automatic
payroll deposits and savings accounts.
96%
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7%
93%
t 'JOBMJ[FOFXWBMVFQSPQPTJUJPO
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t 4USFOHUIFODVTUPNFSTFSWJDFQMBUGPSNTBOEQSPUPDPMT
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Banco CrediChile
Other
Banco CrediChile Division
Loans (BCh$)
Commercial
Mortgage
Consumer
Total
Operating Expenses
Ratios
Efficiency Ratio
Loan Loss Provisions / Total Loans
IBT / Total Loans
Number of Customers (thousands)
Branches
88 AnnualReport2012
2011
4.2
52.6
688.7
745.5
2011
149.3
(40.7)
(70.4)
38.8
2011
20.0%
47.2%
5.5%
5.2%
845.8
170
2012
10.8
62.1
698.7
771.6
2012
166.9
(63.8)
(68.0)
35.0
2012
21.6%
40.7%
8.3%
4.5%
880.8
156
Δ$
6.6
9.5
10
26.1
Δ$
17.6
(23.1)
2.4
(3.8)
Δ
1.6%
(6.5)%
2.8%
(0.7)%
Δ
35
(14)
Δ%
157.1%
18.1%
1.5%
3.5%
Δ%
11.8%
56.8%
(3.4)%
(9.8)%
Δ%
4.1%
(8.2)%
From One Chilean to Another
Banco CrediChile is a leader in financial services for the middle and
working class. Its medium-term goal is to secure its market position and
expand its coverage.
The year 2012 was marked with significant achievements for Banco
CrediChile, concluding strategic projects that laid a foundation for addressing
its medium-term challenges of market positioning, penetration of financial
products in its target segments and an adequate risk-return ratio.
The goal of Banco CrediChile is to serve Chile’s middle class and microentrepreneurs, which makes economies of scale a critical variable
in a company’s ability to compete. As of year-end 2012, the division
represented almost 50% (881,000) of all customers and one third of
Banco de Chile’s consumer loans. For Juan Cooper, Division Manager
of Banco CrediChile, “the keys to success lie in the commitment and
professionalism of our team members and a strategy that places strong
emphasis on—in addition to consumer loans—collaborative agreements
with companies, payroll deduction loans and other services for the large
number of individuals that receive payroll direct deposits into CrediChile
demand accounts.”
Banking Access
During 2012, Banco CrediChile took significant steps to increase access
to financial products and services for its target segment. On a retail
level, 2012 witnessed the final implementation of the Caja Chile project,
which enables the Bank to offer primary banking services in areas with
little or no banking coverage. Through POS terminals installed in small
stores, users can carry out basic financial transactions such as checking
balances, making withdrawals and deposits and paying bills during
flexible hours, at low cost and without having to travel to the closest
bank branch. As of year-end 2012, Caja Chile had enlisted more than
1,000 service centers in 220 districts throughout Chile.
The Caja Chile model is aligned with Banco CrediChile’s way of doing
business, which is based on a close customer relationship and a broad
distribution network that affords greater private banking coverage in its
segment. “People feel dignified because we are providing quality financial
services in their own town,” remarked Cooper. This is an important value
attribute for the division since close to 70% of its customer portfolio
resides outside Santiago.
During 2012 the division also focused on consolidating new business
segments, generating an offering of financial services for microenterprises—
companies with annual sales of less than 2,300 UF. Beginning this year,
this segment is covered by a specialized bank with a business model
based on low-cost services and signing cooperative agreements and
commercial alliances with trade unions in key sectors such as commerce,
transportation and services. Over the past year, this business area
implemented 40 specialized customer service platforms throughout
Chile with executives that conduct on-site assessments. Thanks to these
new platforms, Banco CrediChile hopes to become a relevant market
player in this segment.
Culture
Banco CrediChile’s associates, 70% of which are women, and its
merit-based culture are the core pillars on which its successful strategy
is founded. It also has a clear internal promotion policy to foster its
employees’ professional and personal development.
These elements are complemented by ongoing training processes through
AulaChile, an internal training platform (including both e-learning and
classroom learning) that is certified by a prominent Chilean technical
school. AulaChile, implemented in 2007, has enabled 70% of the division’s
associates to become certified in diverse skills, which enhances their
employability and professional development. The goal is to certify 80%
by 2013.
CrediChile’s business model, based on mass consumer services,
requires a structure that more closely resembles a retail store than a
traditional bank, with branches open until 6 p.m. To accomplish this, it
needs committed and motivated associates. For this reason, it conducts
ongoing assessments of employee satisfaction using work climate
committees and close communication, in order to foster an exceptional
work environment. Cooper comments that through these initiatives
“we try to create a unique culture as we believe that productivity and
professional, as well as personal, development, are fully compatible with
each other and ultimately translate into a greater commitment from our
associates with the organization’s strategy.”
Business Areas
89
Wholesale Market
Wholesale, Large Companies
and Real Estate Division
Mission
t 5P DSFBUF WBMVF GPS TIBSFIPMEFST UISPVHI FGGFDUJWF TPMVUJPOT BOE
differentiated value propositions for each customer segment with
high service quality standards that enable it to maintain its leadership
in terms of deposits, market penetration and cross-sales.
Share of Loans 2012
Target Market
t $IJMFBODPNQBOJFTBOEGPSFJHODPNQBOJFTXJUIPQFSBUJPOTJO$IJMF
with annual sales between Ch$1.6 billion and Ch$70.0 billion.
26%
74%
The division has four specialized areas that serve different customer
segments, offering a complete range of products, including:
t 1BZNFOUQSPEVDUTQBZSPMMTVQQMJFSTUBYFTFUD
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17%
83%
t %JTUSJCVUJPOOFUXPSL
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Wholesale, Large Companies and Real Estate Division
Other
Large Companies and Real Estate Division
Loans (BCh$)
Commercial and other
Foreign Trade
Factoring
Leasing
Total
Operating Expenses
Ratios
Efficiency Ratio
IBT / Total Loans
90 AnnualReport2012
2011
2,925.6
894.7
58.9
693.3
4,572.5
2011
181.1
(29.5)
(76.3)
75.7
2011
4.0%
42.1%
0.6%
1.7%
2011
17.8
2012
3,306.4
732.0
63.8
787.1
4,889.3
2012
171.5
(12.5)
(72.4)
86.5
2012
3.5%
42.2%
0.3%
1.8%
2012
17.9
Δ$
380.8
(162.7)
4.9
93.8
316.8
Δ$
(9.6)
17.0
3.9
10.8
Δ
(0.5)%
0.1%
(0.3)%
0.1%
Δ
0.1
Δ%
13.0%
(18.2)%
8.3%
13.5%
6.9%
Δ%
5.3)%
(57.6)%
(5.1)%
14.3%
Δ%
0.6%
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greater synergies with the Citi network.
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channels.
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value proposition and standard of service.
We are the Best Business Partner
for Our Customers
If 2011 was marked by strong expansion of our business scale, 2012
will be remembered by the greater ties we made with customers,
providing comprehensive advisory services to build a closer business
relationship.
Following the solid expansion of loan volumes in 2011, the main task in
2012 for the Wholesale, Large Companies and Real Estate Division was
to strengthen customer relationships, fully understanding their financial
needs in order to position ourselves as their “main bank” based on a
tailored product offering. This strengthening is reflected in the average
number of products per customer, which increased from 3 in 2011 to
3.5 in 2012.
Closer to Our Customers
The trusting relationship we have with our customers was strengthened
through comprehensive consulting and specific customer loyalty activities,
from social gatherings to conferences on economic topics that lead to
a better understanding of the business environment and more efficient
decision making.
Another important element was assistance with specialized financial
services provided to customers on matters such as bond placements and
international transactions as part of their regional expansion plans. Worth
special mention were several new ventures in Colombia. To accomplish
this, the Bank capitalized on the international platform available through
its strategic partnership with Citigroup and the synergies that could
potentially arise from this alliance.
These achievements would not have been possible without a motivated
and skilled team of associates. After all, according to Eduardo Ebensperger,
Wholesale, Large Companies and Real Estate Division Manager, “in these
segments the customer is looking for an advisor, so the executive must
be fully trained and knowledgeable on both the financial solutions offered
by the Bank and the market trends affecting their customer portfolio.”
As part of the Bank’s ongoing focus on human resources management,
it organizes periodic meetings with prominent economists to consistently
inform all team members. During 2012, these activities were complemented
by a graduate certificate at Pontificia Universidad Católica that included
more general finance-related topics as well as specific banking topics,
with the understanding that a trained, professionally realized team is
fundamental to maintaining exceptional performance.
A Path of Growth
Greater proximity to the customer is key to obtaining optimum results,
which has been the theme in recent years, including 2012, for this division.
Ebensperger noted that “2012 stands out because of the division’s
positive commercial and financial performance, upholding its market
leading position in factoring and foreign trade with respective market
shares of 20.7% and 19.5%, and gaps of more than 1% over the closest
competitor in both cases. In leases we have also grown considerably,
gaining 65 basis points to finish 2012 with a market share of 22.8%.
Also worth emphasizing is the progress made in the plan to increase
business volumes outside Santiago, which was possible thanks to new
product specialists assigned to regions with critical customer mass, as
well as expert executives dedicated to serving customers in the real
estate industry.
Objectives for 2013
The closer customer relationship forged in 2012 will be the basis from
which the division will work to improve returns, consolidating defined
value propositions that will be enhanced through specialized solutions
and reinforced remote customer service channels. Another focus will be
on improving segmentation, ensuring that customers are attended by
specialists that can offer business solutions in line with their requirements.
The division will also take steps to develop a comprehensive vision of our
business, acting as a link between retail banking and assisting customers
with their international growth plans.
Business Areas
91
Wholesale Market
Mission
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corporations segment by providing exceptional, comprehensive
universal banking services and assisting Chilean companies with
their international business ventures.
Corporate and Investment
Banking Division
Share of Loans 2012
21%
Target Market
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Ch$70.0 billion.
79%
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financing; transactional banking services such as current account
management, payments, collections, representation and asset
custody both in Chile and abroad; investment banking and capital
markets products as well as advisory services for initial public
offerings, capital increases, sales and purchases of blocks of shares,
private capital placements, public share tenders, mergers and
acquisitions, company valuations, bond issuances and syndicated
loans.
21%
79%
Corporate
Others
Corporate Division
Loans (BCh$)
Commercial and other
Foreign Trade
Factoring
Leasing
Total
Operating Expenses
Ratios
Efficiency Ratio
IBT / Total Loans
92 AnnualReport2012
2011
3,307.0
583.3
124.9
94.9
4,110.1
2011
100.9
18.9
(53.4)
66.8
2011
2.5%
52.9%
(0.5)%
1.6%
2011
4.3
2012
3,306.3
478.9
62.1
76.1
3,923.4
2012
149.5
5.8
(45.0)
110.2
2012
3.8%
30.1%
(0.1)%
2.8%
2012
4.8
Δ$
Δ%
(0.7)
0.0%
(104.4) (17.9)%
(62.8) (50.3)%
(18.8) (19.8)%
(186.7) (4.5)%
Δ$
Δ%
48.6
48.2%
(13.1) (69.3)%
8.4 (15.7)%
43.4 65.0%
Δ
1.3%
(22.8)%
0.4%
1.2%
Δ
Δ%
0.5
11.6%
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The Best Team for the Best Results
to international markets for customers expanding their operations to
countries like Colombia, Peru or Brazil as well as those issuing securities
Professionals with vast experience in the local and international financial
services industry and thorough knowledge of our customers’ needs enable
us to provide tailored solutions that create value and form strategic longterm partnerships. This has made it possible for Banco de Chile to preserve
its leading position in corporate and investment banking.
not only in Chile but also in the United States and Mexico. The same
occurs with multinational companies that invest in Chile. They have
Banco de Chile’s national coverage at their disposal.
During 2012, several transactions were considered milestones in
domestic and international markets, including the capital increases by
Thorough Knowledge of Customer Needs
Sigdo Koppers S.A. and Quiñenco S.A. for US$458 million and US$500
The Corporate Banking Division has a team of dedicated experts that
million, respectively, as well as the local corporate bond placements by
are always attentive to the needs of their customers, which consist of
Empresa de Ferrocarriles del Estado (UF 7.8 million) and Viña Concha
Chile’s largest economic groups, large corporations and subsidiaries
y Toro S.A. (UF 1.5 million), and the fourth bond placement in Mexico
of multinationals. The Bank offers a broad range of financial products
by Molymet.
and services, from traditional to innovative, local to international. The
division’s value lies in “offering the best advisory services with the best
These achievements have been possible thanks to collaboration between
team and a broad portfolio of products and services, enabling us to find
the Investment Banking Division (Banchile Citi Global Markets), the Treasury
the perfect solution for each of our customers,” explains Juan Carlos
Division and Transactional Banking. They are even more remarkable given
Cavallini, Corporate Banking Division Manager.
the volatile economic conditions with markets that closed or experienced
sharp price hikes over short periods of time. As a result, a much closer
Corporate banking executives “are regularly visiting customers with
relationship with customers was needed because “the volatility opened
a team well versed in transactional banking, derivative instruments
windows that could be taken advantage of, but only with a high-level
and investment banking, with local and international expertise, which
team with expertise across all products,” commented Cavallini.
distinguishes the Bank from its competitors and allows us to grow
continuously. In fact, these close ties with customers enabled the Bank
Objectives for 2013
to maintain its leadership in loans for the segment, create a product mix
For 2013, Cavallini indicates that the focus will be on “constantly maintaining
that strengthened customer relations, improve returns on equity and
a close relationship with the customer to satisfy its needs—both in
increase the average balances of demand deposits by 11.7%.
Chile and in the region—enabling us to add value to our services and
preserve our undisputed leadership in the corporate banking segment.”
Regional Platform
Along the same lines, the division served as a regional customer service
platform to assist its local customers with their international expansion
plans. In these cases, the alliance with Citi gave the Bank an important
advantage by generating a unique value proposition that provided access
Business Areas
93
Treasury
Mission
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Investments as Share of Total Assets 2012
6%
Target Market
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Treasury
Other
Treasury
Instrumentos Financieros (MMM$)
2011
Trading Instruments
336.8
Instruments Available for Sale
1,468.9
Instruments Held to Maturity
Total
1,805.7
2011
31.4
(1)
Operating Expenses
(10.2)
20.3
Ratios
2011
Operating Revenue / Total Financial Instruments
1.7%
Efficiency Ratio
32.5%
IBT / Total Financial Instruments
1.1%
94 AnnualReport2012
2012
192.7
1,264.4
1,457.1
2012
32.6
(10.2)
22.4
2012
2.2%
31.3%
1.5%
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(204.5)
(348.6)
Δ$
1.2
1
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2.1
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(13.9)%
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3.8%
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and options.
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We have more diversified sources of funding
than any other bank in Chile
Rooted in an exceptional team of associates, world-class IT support and
a clear strategy to diversify sources of funding, the division has reaffirmed
its significant contribution to the Bank’s success.
Funding
In 2012, Banco de Chile successfully placed bonds in foreign markets and
consolidated itself as the bank with the lowest cost of funds in the Chilean
banking industry. These are two powerful signs of the Treasury Division’s
phenomenal year and its significant contribution to the Bank’s strategy.
These results are even more remarkable if one considers that 2012
was a year of major challenges in a market with lingering effects of
the U.S. banking and European sovereign debt crises. However, given
its exceptional risk rating, the Bank was able to go abroad and diversify
its sources of funding, becoming the first Latin American commercial
bank to open a line of commercial paper for up to US$1.0 billion in the
U.S. market and also the first to place debt in Peru (US$29 million) and
Hong Kong (US$165 million), in addition to issuances of close to Ch$625
billion in bonds on the domestic market with excellent rate conditions.
This is a clear sign that the Bank’s solvency and brand are recognized
in local and international markets, which has also translated into the
lowest cost of funds in Chilean private banking, furthering the Bank’s
commercial strategy.
In addition to diversifying sources of funding, at levels unprecedented
in Chile, the Bank also expanded maturities, with long-term obligations
representing 10% of its liability structure in 2010 and 15% in 2012.
Trading, Sales and Structuring
From the perspective of the Bank’s investment portfolio, the division
achieved historic results in trading, as a result of “capitalizing on the
opportunities that presented themselves during a very difficult year,
with flat interest rate curves, low inflation and little room to move,”
comments Sergio Karlezi, Treasury Division Manager, who adds that “in
this scenario, success was due to a great extent on the commitment and
professionalism of the team we have formed over the past few years.”
In sales and structuring, outcomes were also good thanks in part to
decisions made a few years ago to act conservatively and not develop
and/or sell products that we consider to be illiquid or hard to value.
We have improved our protocol for selling treasury products to diverse
customers and began efforts to select customers from the large companies
division. As part of this initiative, we will increase the number of division
executives outside Santiago and continue to further collaboration
between the Corporate and Large Companies Divisions through training,
integration and incentives for their executives, while developing a pilot
plan for addressing the SME segment. This project is expected to obtain
positive results in the next two to three years, although it is proposed
more as a complement to the Bank’s value offering than as an area with
high income generating potential.
Penetration of treasury products in the different commercial divisions
increased, translating into greater income from cross sales in 2012, in
line with the Bank’s strategy to reinforce and increase returns in the
wholesale business.
Murex Platform
This year’s results were complemented by the implementation of the
second stage of the Murex IT project for options and swap transactions.
This is an integrated front/end system that allows executives to focus on
transactions and customer relationships by automating a large part of
the administrative work and improving monitoring of risk and valuations
of instruments. The third stage, which will be concluded during the first
half of 2013, covers products like forwards and spots, which will enable
penetration of these products to increase in all segments.
“Know Your Customer”
As treasury products are to a certain extent “commoditized”, the executive’s
ability to manage the account and a lower cost of funds become key
differentiating elements. As a result, the business focus adheres increasingly
to the concept ‘Know Your Customer’, since one of the lessons learned
from the U.S. banking crisis taught us that selling excessively complicated
products that are hard for the buyer to understand can damage both the
customer and the bank. Thus, the importance of knowing their needs
and offering solutions, not problems,” Karlezi explains.
Global Platform
Lastly, Sergio Karlezi points out that access to Citibank’s global platform
also contributed to a positive year. This enabled the division to expand
product offerings and market access for customers, proprietary transactions
and also provided an excellent training tool and incentive for associates
who have the option to pursue career opportunities abroad.
Business Areas
95
Subsidiaries
Always in the Lead
Quick and secure management of all transactions, together with the best
combination of returns, flexibility and liquidity for the customer, ensured
good results for the brokerage subsidiary.
Banchile Corredores de Bolsa ended 2012 once again among the industry
leaders, thanks to its quick and secure management of all transactions,
together with the best combination of returns, flexibility and liquidity for
the customer, in order to ensure successful results. Its market share
of share volumes traded was 9.5% while net income for the year was
Ch$10.6 billion.
“In a year with economic ups and downs, we managed to hold our leading
position in the industry, reporting good results across all business lines.
This would not have been possible without a first-rate team of exceptional
professionals with clear leadership abilities, which has allowed us to
be recognized as one of the best places to work in Chile,” commented
Andrés Bucher, Chief Executive Officer of Banchile Corredores de Bolsa.
The Bank’s brokerage subsidiary provides comprehensive share and
bond brokerage services, as well as foreign currency transactions. It
operates in the Santiago Stock Exchange and the Chilean Electronic
96 AnnualReport2012
Stock Exchange. It also engages in securities sales under repurchase
agreements, international investments and other specialized services.
complete, sophisticated solutions encompassing all investment and
savings products available on domestic and international markets.
Bucher highlights that “2012 was a satisfactory year especially in terms
of the product offering for our customers.” Banchile Corredores de Bolsa
was the placement agent in important local debt transactions such as
bond issuances by Aguas Andinas, Carozzi, Viña Concha y Toro and
EFE, among others.
It also has cutting-edge technology, broad coverage, clear guidelines on
loyalty and a differentiated proposal for its diverse customer segments,
enabling it to serve over 160,000 customers.
It had considerable activity in simultaneous operations during 2012,
making it the industry leader in this sophisticated product line with
attractive margins.
Specialized Advisory Services
Highlights for 2012 include selecting Fidessa, a leading English company
that provides IT solutions for the financial sector, to supply IT support
platforms. With this important operational step, the subsidiary is now
connected to Fidessa’s extensive global community, providing support for
its businesses in Latin America. This move undoubtedly places Banchile
Corredores de Bolsa S.A. at the forefront of technology with advantages
such as automatic confirmation and global connectivity for its customers.
The brokerage subsidiary has specialized advisory teams for its diverse
segments: Banchile Wealth Management, Banchile Private Investment
and Banchile Executive Investment. This structure enables it to provide
Business Areas
97
Subsidiaries
Banchile Administradora General de Fondos
A Great Team for Great Results
This subsidiary is the industry leader in mutual funds. Along with its
positive and consistent operating results, it stands out because of its
excellent work climate.
Banchile Administradora General de Fondos (AGF), a subsidiary of
Banco de Chile, has been in this business since 1981 and is currently
the industry leader in asset volume managed. It offers a wide range of
investment alternatives and comprehensive advisory services in asset
management for each customer segment.
For Banchile Administradora General de Fondos, 2012 was characterized
by new products with innovative investment opportunities for customers.
It launched 11 new mutual funds, focusing on developing structured
mutual funds and broadening its offering of investment funds with two
new products that allow customers to access the best opportunities in
the real estate development and rental sectors.
It currently manages 81 mutual funds and eight investment funds,
enabling customers to diversify their portfolios with different financial
instruments, thus taking advantage of the best investment and savings
opportunities in Chile and the world.
98 AnnualReport2012
As of December 31, 2012, the subsidiary has over 350,000 investors and
managed funds over Ch$4.2 billion, giving it a 23.3% share in the mutual
fund industry. These excellent results are a reflection of considerable
efforts to provide customers with sophisticated products and the highest
service quality standards in a motivating work environment with a great
team of professionals.
“In 2012 we were once again recognized as one of the best companies
to work for in Chile by the Great Place to Work Institute, placing 13th.
The superior work climate and professionalism of our associates have
allowed us to consolidate a leading position in the mutual fund industry and
continue to offer attractive investment alternatives to our customers like
the structured mutual funds offered this year,” commented Andrés Lagos,
Chief Executive Officer of Banchile Administradora General de Fondos.
Recognition
The subsidiary received four awards from Fund Pro and was recognized
as the Best Fund Manager of the Year in the Medium to Long-term
Debt” category, evaluated based on the risk-adjusted return of its
funds. The subsidiary was once again honored at the Salmon Awards,
given annually by newspaper Diario Financiero and the Mutual Funds
Association to the mutual funds with the best risk-return ratio in the
Chilean market. This recognition highlights the subsidiary’s commitment
to providing exceptional service and delivering high quality products
to all customers.
Banchile I Citi Global Markets
Leading the Chilean Market
Banco de Chile’s Investment Banking and Capital Markets Area had
an excellent year in 2012, maintaining its leading position in the local
market, obtaining important recognition and positioning itself as a
comprehensive supplier of investment banking products.
Companies seeking financing or planning initial public offerings and
capital increases turn to the expert advice of Banco de Chile’s Investment
Banking and Capital Markets Area, which also provides support and
guidance on strategic decisions, such as mergers and acquisitions and
valuations of companies or business lines, offering solutions on both local
and international financial markets. It also provides exceptional service
for bond issuances, syndicated loans and project financing.
The subsidiary provides these services through Banchile Citi Global
Markets as part of a commercial agreement with Citi that allows it to
serve customers with the local and global capabilities of both institutions.
In the domestic market, it also works in coordination with Banchile
Corredores de Bolsa to distribute publicly offered securities such as
stocks and bonds.
Value Offering
The subsidiary once again positioned itself as the leader in local corporate
bond placements by participating in the market’s most important
transactions during the year: Empresa de Ferrocarriles del Estado issued
bonds for UF 7.8 million, while Viña Concha y Toro S.A. placed bonds
for UF 1.5 million.
Other milestones for the year included advising PreUnic on its association
with the parent company of SalcoBrand S.A.; teaming with Citi to assist
Enagas with the purchase of a share of GNL Quintero S.A. from British
Gas; advising Duke Energy International on its acquisition of IBENER
and counseling Molymet on its fourth bond placement (5 year bonds) in
Mexico for nearly US$130 million.
“Banchile Citi Global Markets fortifies Banco de Chile’s value offering for
its customers, with ongoing effort and commitment to provide exceptional
service on par with international standards,” says Jorge Muñoz, Investing
Banking Manager.
Also, the leadership displayed by Banchile Citi Global Markets in the
different investment banking and capital markets products was honored
by the prestigious magazine LatinFinance, naming it the Best Investment
Bank in Chile for 2012, and by Diario Financiero/Deloitte, who recognized
it as the Best Bond Placement Agent.
Banchile Citi Global Markets posted excellent results in 2012, thanks
to important deals such as capital increases by Sigdo Koppers S.A. and
Quiñenco S.A. for US$458 million and US$500 million, respectively.
Business Areas
99
Subsidiaries
Banchile Corredores de Seguros S.A.
the customer to quote and choose a policy from among several different
insurance companies.
Secure Innovation
Positioned throughout the Bank’s different sales channels, this subsidiary
provides a comprehensive value offering to each customer.
With its customers’ peace of mind and security as its objective, Banchile
Corredores de Seguros launched new, innovative products and secured its
leading position in the banking-insurance market, contributing significant
revenue to the Bank.
The subsidiary primarily uses the different sales channels of Banco
de Chile and Banco CrediChile to sell life and general insurance
policies, offering its products through account executives, service area
executives, investment executives, sales forces and telemarketing and
internet associates, among others. Its multi-channel presence provides
a comprehensive value offering for each banking customer.
“Our mission is to strengthen the Bank’s business, creating value for our
customers with an innovative product offering and first-rate service,”
comments Jorge Yoma, Interim Chief Executive Officer of Banchile
Corredores de Seguros.
2012 Milestones
During the first half of 2012, the insurance brokerage subsidiary launched
its “Full Car” product using a “multi-company” concept, which enables
100 AnnualReport2012
In addition, it developed a new telemarketing sales platform known as
“Modular Insurance”, designed to offer customers several options of
coverage, assistance and premium refund percentages in a flexible
and simple format.
During the second half of the year, the subsidiary implemented its Insurance
Web Platform at Banco CrediChile and launched 13 new products and
plans for customers with life, health, accident and automobile coverage.
In order to provide better service and strengthen sales through remote
channels or the Bank’s web page, the subsidiary began selling its “Total
Insurance” fraud policies on line, enhanced its “Total Travel” travel insurance
plans and in December implemented a system for online quotes and
purchasing of its multi-company car insurance product.
Another high point in 2012 was the record sales of Obligatory Personal
Accident Insurance (SOAP), with more than 81,000 policies sold on line.
The subsidiary was also very active in the companies segment, where
it implemented a new insurance platform. This new platform further
automates the insurance sales process, from quoting to purchasing or
renewing policies, achieving greater overall efficiency. This platform will
help enhance after-sales customer service.
Banchile Factoring S.A.
importers, factoring provides an alternative to traditional letters of credit,
simplifying collections.
Anticipating Needs and Service Quality
Knowing our customer has proved essential to anticipating their needs
and providing a broad product offering with high standards of service.
The emphasis on anticipating customer needs with a broad product
offering yielded fruits for Banchile Factoring. In 2012, the subsidiary
concentrated efforts on developing the SME, large companies, wholesale,
real estate and corporate segments, closing the year with a volume of
Ch$606 billion.
Since its creation in 1999, the subsidiary has held an industry leading
position. As of December 2012, the subsidiary and the Bank had market
share of 20.7% in factoring—first place in the industry.
According to Claudio Martínez, Chief Executive Officer of Banchile
Factoring, “our market leadership is based on anticipating our customers’
needs using specific commercial strategies for each market segment.”
Banchile Factoring was created as a way to expand financing alternatives
for companies. With this in mind, its main product lines include traditional
factoring of invoices, notes and contracts, a service that also includes
debtor risk analysis and collections management.
It also offers specially designed products for large companies with
considerable volumes of supplier payments. These companies, through
an agreement with Banchile Factoring, give advances on invoices to their
suppliers, improving their purchasing position by providing suppliers
with immediate liquidity.
For foreign trade transactions, international factoring gives exporters
returns in advance and eliminates the risk of debtor insolvency. For
For small businesses, this subsidiary offers government-backed factoring
so they can engage in traditional factoring transactions backed by
FOGAPE, a government guarantee.
This product offering is complemented by “first class service and excellent
coordination with the Bank’s other areas,” added Martínez.
Main Initiatives
As part of this subsidiary’s work during the course of the year, it organized
a series of training courses and promotional activities in different bank
branches to explain and highlight the benefits of financing through
factoring, confirming and international factoring.
The subsidiary also participated in numerous meetings and seminars
coordinated by the Commercial Banking Division for its SME customers,
providing information on factoring products to current and potential
clients. To strengthen customer service, Banchile Factoring broadened
its presence in branch offices, incorporating personnel in the cities of
Punta Arenas, Osorno and Melipilla, as well as in the Santiago branches
in Vitacura and Ñuñoa.
Regarding the Large Companies, Wholesale and Real Estate Division, the
subsidiary continued to physically integrate with the Bank’s commercial
platforms, strengthening training for Bank executives and obtaining a
considerable increase in loans of 8% in those segments.
Banchile Factoring attained positive results in confirming and international
factoring thanks to efforts to diversify its target market (wholesale,
corporate and multinational customers) and improve the process for
signing new agreements. As a result, for the subsidiary’s confirming
product, the number of concentrators increased by 32% and suppliers
that trade invoices by 16%.
Business Areas
101
Subsidiaries
Banchile Securitizadora S.A.
Promarket S.A.
Proposing Unconventional Solutions
Closer to Our Customers
In a year plagued with complexities, Banchile Securitizadora was the
only entity to place securitized bonds on the local market.
The international financial crisis and local events in the retail industry
have led to a strong drop in transaction volumes for the securitization
industry in recent years. However, the crisis in the retail industry showed
that securitized bonds outperformed corporate bonds with equivalent
ratings in scenarios of stress, fully meeting their payment calendars.
As a result, relative improvements are expected in the sales price of
securitized bonds, reactivating interest in this type of instrument for
both asset originators and institutional investors. As of December 31,
2012, Banchile Securitizadora managed securitized assets valued at
Ch$144 billion.
Unique Experience
Banchile Securitizadora provides the Bank’s customers with unique
expertise and knowledge in structuring and placing securitized bonds,
responding to companies’ needs to back payment of their obligations
with cash flows from mortgage notes, credit cards, auto loans, accounts
receivable or future cash flows, among others.
“We propose non-traditional solutions using structured financing, seeking
low-liquidity assets that can become the right investment instruments
for institutional investors,” indicated José Vial, Chief Executive Officer
of Banchile Securitizadora S.A.
In 2012, Banchile Securitizadora placed one bond on an asset originated
by the Bank, related to an infrastructure project—the only transaction
of this type during the year. This positive market reception opens up the
possibility of financing large infrastructure projects with direct financing
that can then be securitized and syndicated among institutional investors.
Highly motivated associates helped the subsidiary meet its goals and
built a foundation from which to improve productivity and results.
Promarket is the Bank’s subsidiary that evaluates prospective customers.
In 2012, it had excellent results and significantly increased returns over
the prior year.
“The year 2012 was once again a great year for Promarket with net
income of over Ch$400 million and a large number of successful
customer evaluations that enabled us to exceed expectations and
improve productivity,” commented Guillermo Nicolossi, Chief Executive
Officer of Promarket.
Also in 2012, this subsidiary improved successful pre-approval evaluations
of middle and high-income customers, performing better than forecasts
and the prior year. It also managed to increase individual productivity
by 4% over 2011.
Personalized Offerings
Promarket collaborates mainly with the Commercial Division and
contributes a considerable percentage of the division’s new customers.
Its main strengths include its geographic coverage (from Iquique to
Puerto Montt), increased productivity thanks to specialization and efficient
database management.
In its ongoing search for prospective customers, Promarket comes across
competitors in the field and stands out because of its personalized service
and product offerings for each case. Motivation and a good work climate
are constant concerns for the subsidiary, as they permit associates to
maintain their focus on the search for potential customers. These good
relations allowed the subsidiary to sign the 2012 Collective Bargaining
Agreement with the Promarket union.
In 2013, this subsidiary’s focus will be to continue improving the quality
of pre-approved segments in order to set the foundation for long-term
relationships.
Socofin S.A.
Banchile Trade Services Limited
Optimal Processes
Banchile Trade Services Limited is a subsidiary constituted in Hong Kong
to facilitate foreign trade operations in Asia —especially China— for
Chilean customers. In 2012, this subsidiary reported net income of
Ch$43 million.
The capacity to adapt to regulatory changes enabled the subsidiary to
attain good results in a complex environment.
The new modification to the “Dicom Law (February 2012)”, which prohibits
publication of certain debt and restricts the use of an individual’s financial
and commercial data in evaluating credit risk led to adverse changes in
the payment behavior of some customers, altering their willingness to
comply with financial commitments.
However, Socofin, the subsidiary that provides collections and normalization
of credit portfolios for the Bank, was able to develop complementary
strategies that offset the effects of this law, attaining productivity levels in
line with the objectives set by the diverse business segments. As a result,
the subsidiary reversed charge-offs for the Consumer and Commercial
Banking Divisions of nearly Ch$38 billion and signed customer payment
agreements totaling more than Ch$31 billion.
“The capacity to adapt to regulatory changes was a key factor in
maintaining recovery levels,” assessed Mario Sandoval, Chief Executive
Officer of Socofin. This, together with improvements in segmentation
and coverage, especially in the Metropolitan Region, enabled it to meet
its targets for 2012.
In terms of coverage, the subsidiary expanded its remote points in the
Consumer Segment in the Metropolitan Region and staffed a new branch
in Viña del Mar.
Operational Efficiency
In matters of operational efficiency, it continued to integrate its systems with
those of the Bank and to optimize its internal processes by implementing
new collections management tools.
Since its creation over 12 years ago, Socofin has sought to provide
efficient support and quality collections services and normalization of loan
and credit portfolios for its internal customers (the Bank’s commercial
divisions). Collections services are also offered to other institutions in
order to more efficiently use the resources invested in it.
Business Areas
103
6
RISK MANAGEMENT 2012
Risk Management 2012
I. INTRODUCTION
A strong, deeply-rooted risk culture is a core aspect of the Bank’s efforts
to manage the diverse risks particular to its business. This factor, albeit
abstract and difficult to measure, is fundamental to building a business
that is sustainable over the long term.
Developing such a culture involves aligning the entire organization
behind appropriate risk management. Banco de Chile’s team has broad
experience and knowledge of each aspect of credit, market, operational and
technology risk. This team works to ensure comprehensive, consolidated
risk management at both the Bank and its subsidiaries by identifying and
evaluating the risks generated by customers, within its own operations
and by its suppliers. The focus is on the future, using different tools and
techniques to identify the potential changes that may affect Banco de
Chile’s solvency, liquidity, correct operations or reputation.
The mission of the Corporate Risk Division is to answer the central
question of how to decide how much risk the Bank is willing to accept for
each business segment, product and service in order to maximize value
creation for the Bank. This occurs by providing 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.
As a result, it is faced with the challenge of proposing policies and
processes that allow risks to be managed in accordance with the risk
appetite framework defined by the Board of Directors.
The division has a detailed management system with different metrics
that help verify that risk management falls within this design and allows
the Bank to measure, control and mitigate any deviations that could arise,
whether potential or real.
In managing credit risk, the Bank continuously monitors the main risk
factors that can impair its portfolio. These factors include industry,
segment or product concentration levels; economic and market conditions;
regulatory and payment behavior changes; variations in key economic
variables (exchange rate, inflation, interest rates) and asset valuation
criteria and their evolution over time.
In terms of market risk, in order to ensure adequate liquidity at all
times, the Bank monitors a broad set of financial ratios and economic
and financial market variables. These elements are analyzed to detect
structural movements in the composition of the balance sheet as well
as the Bank’s funding capacity and concentration of funding, either by
maturity or customer segment. This monitoring also focuses on early
identification of illiquidity, whether global or specific to the Bank.
Another dimension of market risk that the Bank and its subsidiaries
protect themselves against is the price risk of their own positions.
These positions are generated in many cases as a result of serving
the needs of customers that cannot be covered perfectly as they are in
different markets; likewise, on other occasions, a price risk is assumed
in the Bank’s own positions because of specific structural visions of
the evolution of certain market variables. The potential loss from the
unfavorable evolution of the value of these positions is monitored using
different tools, including Value at Risk (VaR) for the Trading Book, Earnings
at Risk (EaR) for the Accrual Book, stress exercises for both books and,
lastly, recording of actual outcomes.
Throughout 2012, the Corporate Risk Division placed special emphasis
on controlling and managing operational risk, generating action plans
intended to anticipate stress events that could cause problems with the
Bank’s normal operations. As a result, operational risk management
has centered around analyzing more than 200 processes, determining
(using occurrence scenarios for the Bank) potential expected losses and
maximum annual losses in order to prioritize and estimate future impact,
which represents the first steps in complying with the Basle III Accord.
that is cognizant of operational risk within the Bank and its subsidiaries, a
broad communications plan has been developed to increase awareness
and spread knowledge of the topic throughout the entire organization
in order to adequately and proactively manage risks. Representatives
from all of the Bank’s divisions have been appointed to fulfill the role
of Operational Risk Coordinators and Advisors. These individuals are
responsible for identifying risks within their areas of competence and
establishing measures to mitigate them using a pre-defined methodology.
One important point to analyze is how to control suppliers so that they
comply with standards similar to those the Bank defines for its internal
processes. The Bank has also used testing scenarios that threaten
business continuity to identify a set of key activities that it needs to
maintain proper service and operating levels.
In short, the Bank views risks prospectively, in order to ensure high levels
of solvency, liquidity and operations for doing business.
Likewise, because responsibility for managing operational risk does not
fall only on the Corporate Risk Division, and in order to internalize a culture
107
Credit Risk
II. CREDIT RISK
The main objectives of credit risk management are:
Proposing effective credit risk policies to the Board.
Banco de Chile’s credit risk is managed through a global strategy focused
on the economic environment and target markets. The Bank has defined
credit policies and processes that recognize the singularities of the different
markets and segments, and grant the pertinent credit treatment to each
which, in general terms, translates into mass processes for individuals,
parameters for small and medium-sized businesses and case-by-case
analysis for large companies and corporations.
Establishing the rules and procedures to be followed by each
business segment for loan approval, monitoring and collections.
Having sufficient provisions based on the credit quality of the
portfolio.
Managing limits and warning levels established by the Board for
credit attribution levels.
For the Bank, a basic principle of its credit risk management is its
constant presence throughout the entire credit cycle, including approval,
monitoring and recovery of loans granted.
Consistent with this principle, the Corporate Risk Division is responsible
for the quality of the Bank’s portfolio and for optimizing the risk-return
ratio for all Retail and Companies segments, managing all phases of
the credit cycle. It also works to ensure integral compliance with the
risk management criteria set forth by the Board of Directors, which
participates actively in credit risk management, providing guidance for
management on handling credit risk and receiving periodic briefings on
portfolio behavior.
Bearing in mind the ongoing nature of credit risk management efforts enables
the Bank to conduct a rigorous credit assessment before approving loans
to assure customers fall within the predefined target market; guarantees
exhaustive controls to ensure application of credit policies; and allows for
meticulous monitoring of changes in portfolio risk and the normalization and
collections processes used with delinquent customers. It also enables us
to act early should signs of deterioration arise, mitigating risk and reducing
exposure in order to diminish potential portfolio loss.
Identifying, quantifying and controlling risks arising from loan
transactions.
Evaluating, approving and ensuring correct structuring for loan
transactions, based on the customer’s credit quality.
Resolving exceptions to credit policies.
Constantly supervising operations in order to anticipate events
and react to risk warnings.
Managing groups of customers with above-normal potential risk
and collections from customers with signs of impairment.
Managing recovery of impaired assets.
Ensuring our organization has the knowledge we need for our
different products and segments, and developing a credit culture
that favors high-quality assets.
Generating statistical models for automatic approval processes,
more focused monitoring procedures and provisioning models
based on estimated loss.
II.1 Approval Process
Loan analysis and approval is conducted using a differentiated approach
for each market segment. Each approval process involves:
Policies and procedures
Levels of specialization of the process participants
The type and depth of IT systems required
The type of predictive models/indicators for each segment (scoring
or rating).
Based on these elements, three risk models are used for approving loans:
Automated Model: This model focuses on large-scale markets of individuals
that are not business owners. These models ensure compliance with
three important aspects of approval processes:
-
Minimum credit profile (scoring).
Indebtedness limits (exposure).
Target market policies.
A customer’s credit profile is rated using statistical credit scoring models
segmented for the different types of customers within the retail segment’s
numerous commercial areas. The predictive capacity of our models has
been fundamental in successfully addressing portfolio risk during crisis
scenarios. The Retail Risk Division centralizes its data entry processes
to ensure high quality data.
Regarding target market policies and indebtedness limits, the Bank
identifies market sub-segments based on its objectives, business
strategies and opportunities, establishing definitions to identify acceptable
credit profiles for customers, the products they will be offered, individual
exposure limits and expected returns.
Parametric Model: For the SME segment, the Bank has developed special
evaluation and approval methods based on the segment’s particular
characteristics. A parametric model has been defined that can take into
account the large-scale aspects of the segment but also provides the
opportunity for a case-by-case analysis if needed. It involves evaluating
customers based on three fundamental pillars: Internal and external payment
behavior, an analysis of financial information and an assessment of the
customer’s business. This parametric evaluation process condenses the
customer’s credit quality into a rating, which is directly linked to the credit
attributions required for each transaction. Internal audits are regularly
performed to ensure the quality of the information used.
In addition, the Corporate Risk Division provides considerable assistance
to commercial areas by pre-approving customers for loans, aiming to
optimize the risk-return ratio for these segments. As a result, both the
retail and the SME markets have specialized units that generate loan
offers using strategies previously defined for these segments.
Case-by-case Model: This model is used for large companies and
corporations. It entails an expert, individual assessment, based on the level
of risk, the amount of the transaction and the complexity of the business,
among other variables. This approval process is also supported by a rating
model that makes the evaluation more homogenous and determines the
required credit attributions. For this, it has a strong process and team
with considerable experience in the loan approval process for the diverse
segments and industries in which we do business. Furthermore, in order
to make the approval process more effective, data gathering, analysis
and discussion of the credit proposal are supported by the credit risk
areas in order to ensure a higher quality evaluation and respond more
promptly to customer requests.
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Credit Risk
II.2 Management and Monitoring
Provisions / Past-Due Loans(*)
The Bank continuously monitors our customers’ overdue payments,
financial situation and various risk indicators so that risk measurements fit
within the margins approved by management. On-going management and
monitoring of credit risk is the basis for proactive portfolio management,
which enables potential impairment to be recognized in a timely manner.
Different tools (sensibility, performance or others) are used for each
market, segment or product in order to adequately control our customer
portfolio. The results obtained from these tools help detect both threats
and opportunities in advance, by contrasting them with the strategies
defined for the portfolio.
280%
262%
303%
198%
Dec-09
(*)
Dec-10
Dec-11
Dec-12
Includes additional provisions.
The Bank has increased its coverage of provisions for the 90-day pastdue portfolio in recent years, reaching 303%, which compares favorably
with the industry average.
Evolution of Provisions for Loan Losses
(Figures in millions of Ch$)
223
Distribution of Company Loans by Industry
(% of loans)
209
188
3%
Commercial
3%
Loans to
Utilities Individuals
2%
Fishing
3%
Mining
125
1.8%
1.5%
0.8%
2009
2010
Loan Loss
Provisions
2011
1.0%
2012
7%
Agriculture &
Forestry
19%
Commerce,
Restaurants &
Hotels
LLP Ratio
10%
Manufacturing
19%
Financial
Services
11%
Social and Personal
Services
11%
Transport &
Communications
12%
Construction
II.2.1 Companies Market
In the companies market, management and monitoring are based on a
set of reviews. The most important of these reviews include:
Structured portfolio reviews to identify customers that could
potentially be affected by variations in macroeconomic variables
in specific sectors.
Management of delinquent customers, enriched with predictive risk
level indicators, monitoring and action plans for more important
customers and differentiated strategies for early collections.
Monitoring programs for credit behavior variables and companies’
financial figures, as well as loan-specific conditions and restrictions.
Management of portfolios with special monitoring using committees
that meet periodically to establish action and monitoring plans
for medium-sized businesses that present warning signs of risk.
Risk segmentation strategies for collections processes and
policies, promptly collecting on the Bank’s receivables.
Delinquency Indices
0.69%
0.56%
0.55%
0.44%
0.36%
0.43%
0.36%
0.30%
0.19%
0.14%
0.13%
0.08%
Dec-09
Dec-10
Dec-11
Dec-12
Past-due
30-89
Total
In 2012, the Bank posted low delinquency levels throughout all segments,
which allowed it to maintain stable default and past due ratios in the
companies market.
Loans vs. Risk Indicators (BCh$)
(Figures in millions of Ch$)
10,739
1.95%
13,581
14,277
1.87%
1.89%
11,325
2.08%
0.55%
0.30%
0.36%
Dec-09
Total Loans
Dec-10
Dec-11
Risk Index
0.36%
Dec-12
NPL Ratio
Loans in the companies market have continued to grow, preserving healthy
risk indicators such as the LLR Ratio (0.36%) and the risk index (1.89%).
111
Credit Risk
for the product, this provision ratio has stayed below the aforementioned
figure, closing the year at 5.8%. As with delinquency indices, the Bank’s
expected losses in both segments are lower than financial system figures.
II.2.2 Retail Market
Consumer Loans
Consumer delinquency indices within the Bank’s retail segment remained
stable during the year, characterized by negative seasonality during the
first quarter and more favorable conditions during the second half of
the year explained by positive economic conditions and a decrease in
unemployment figures.
Loan Loss Provisions / Average Loans
(%)
7.0
6.5
6.0
The Bank’s consumer loans reported delinquency indices below industry
levels in both segments: Retail Banking and Banco CrediChile.
5.5
5.0
4.5
4.0
Dec-09
Dec-10
Dec-11
Banco
BancodedeChile
Chile
Dec-12
System
Sistema
90 Days Past-due Loans
(%)
As of year-end 2012, coverage of provisions for the past-due portfolio
(>90 days) reached 3.7 times, while the financial system average was
only 2.7 times. These figures are in line with the institution’s conservative
provision management strategy.
3.0
2.5
2.0
1.5
1.0
0.5
0
Dec-09
Coverage Ratio
(Times)
Dec-10
Banco de Chile
Dec-11
Dec-12
System
Expected losses on this portfolio, represented by the ratio of provisions
to loans, rose during the first quarter of the year, in line with greater
delinquency figures, and peaked at 6.1% in April 2012. Beginning on
that date, with seasonality particular to the productivity figures attained
6.0
5.0
4.0
3.0
2.0
1.0
0
Dec-09
Dec-10
Banco de Chile
Dec-11
System
Dec-12
Mortgage Loans
As a result of better economic conditions than in prior years, the Bank’s
mortgage loan portfolio in the retail segment reported a slight, yet
consistent, drop in delinquency indices, stabilizing at an over 90 day
default rate of 0.7%.
90 days Past-Due Loans
During 2012, estimated losses on the retail portfolio, represented by the
ratio of provisions to loans, posted continuous decreases, stabilizing at
around 0.4%. As with delinquency indices, the Bank’s estimated losses
are below system figures.
Like with consumer loans, the provisions maintained by the Bank for
mortgage loans, as a percentage of total loans over 90 days past due
(53%) is well above the average figure for the financial system (21%).
(%)
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
Coverage Ratio
(Times)
60
50
Dec-09
Dec-10
Dec-11
Dec-12
40
30
Banco de Chile
System
20
10
Banking system delinquency also posted decreases in loans more
than 90 days past due, reaching 3.9%. As with consumer loans, our
delinquency indices for retail mortgage loans are clearly below financial
system averages.
0
Dec-09
Dec-10
Banco de Chile
Dec-11
Dec-12
System
Net portfolio expenses for retail mortgage loans, which include provisions,
charge-offs and amounts recovered from previously charged-off loans,
decreased with respect to prior years, finalizing at 0.06% for the year.
Loan Loss Provisions / Average Loans
(%)
1.2
1.0
0.8
0.6
0.4
0.2
0
Dec-09
Dec-10
Banco de Chile
Dec-11
Dec-12
System
113
Credit Risk
II.3 Quality of Collections Process
The objectives of the collections process are:
To retain and manage customers with temporary cash flow
problems using debt restructuring plans for customers with
payment capacity so the Bank can maintain relationships with
them once their situation has returned to normal.
Maximize recovery of assets at risk. Necessary collections steps
are taken to ensure maximum recovery of debts or to decrease
potential losses.
Debtors with payment problems, reflected in significant delays and/
or evident deterioration of payment sources, are assigned to special
collections units depending on their individual and/or group indebtedness.
Our subsidiary Socofin S.A., which for all practical purposes reports
to the Corporate Risk Division, manages collections from delinquent
customers from the retail and SME segments. The collections strategies
applied by Socofin vary based on customer segment, delinquency status
and exposure level.
Larger debtors from the companies segment are assigned to a specialized
area that reports to the Bank’s Corporate Risk Division and works to restore
normal payment behavior on a case-by-case basis. The procedures
are intended to optimize the amounts recovered by the Bank as timely
and efficiently as possible. Within this context, renegotiations must
be approved by the corresponding committee with sufficient authority
based on the debtor’s and/or the group’s total indebtedness and the
assigned risk rating.
As the goal of renegotiations is to recover debt, customers must have a
real intention to pay and be able to generate future cash flows that make
their compliance with the restructured loan highly probable. This should
allow the Bank to create a new payment plan based on the customer’s
capacity, collateral and/or co-signers, among other factors.
In cases where the customer proves to be viable and shows willingness
to pay, loans are restructured based on expected cash flows, formulating
a proposed solution together with the customer, which is ultimately
evaluated and approved by the Bank’s Corporate Risk Division, applying
the policies and guidelines defined for that purpose.
II.4.2 Group Assessment
II.4 Provisions and Estimated Losses
Group assessments start by grouping loans with similar characteristics
such as type of debt and agreed-upon conditions in order to establish
both the group’s payment behavior and the recovery of delinquent
loans using technically-backed estimates and conservative criteria and,
consequently, to establish the provisions necessary to cover portfolio risk.
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 that it expects to be unable to recover. To do
so, it has policies and procedures that comprehensively assess the
credit risk of its loan portfolio with assessment models based on the
size, nature and complexity of its loan deals.
Provisions are determined for the retail and companies markets using
two models: (i) the Individual Assessment Model and (ii) the Group
Assessment Model.
II.4.1 Individual Assessment
An individual debtor assessment is used when the Bank needs to
understand and analyze a customer in detail because of its size, complexity
or exposure level. The analysis of such debtors focuses on their ability
and willingness to meet their credit obligations based on sufficient and
reliable information.
For the purposes of establishing provisions, each individually assessed
debtor is scored in one of 16 categories provided by the SBIF. We
constantly update each debtor’s risk rating based on changes to its
financial situation and environment. We also review companies within
particular industries that are affected by macroeconomic or sectorspecific variables.
The SBIF permits group assessments to deal with a large number of
transactions with small individual amounts loaned to individuals or small
companies.
As a result, provisions for the consumer, mortgage and commercial loan
portfolios for individuals and small businesses, given their large scale,
are established using group assessments. These provisions are intended
to cover estimated losses over the next twelve months.
For the retail market, this is done 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 variables that make up a debtor’s profile. In particular,
consumer models take into consideration the expected unemployment
rate as a variable that reflects the economic context.
For the SME segment, a model was developed that determines 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).
We use periodic backtesting, by which real losses are contrasted with
model-estimated losses, to validate the consistency of our models.
115
Credit Risk
II.5 Adequacy of Provisions
Each year, we test the adequacy of our provisions to verify our risk
assessment processes and estimated loss approximations for each
segment’s portfolio. To do so, we use migratory analyses, random sampling,
case-history evaluations and back-testing for group models that allow
us to confirm, with a high degree of confidence, that our provisions are
sufficient to cover estimated losses in the different segments.
The results of this analysis are presented to the Board, which then
issues a formal opinion on the adequacy of our provisions for each year.
II.6 Country Risk
Country risk is defined as the inability of a counterparty that is a legal
resident of a foreign country to honor its payment commitment with the
Bank for one or more of the following reasons: An issue with sovereign
risk in the respective country; nationalization or expropriation of the
counterparty’s operations by authorities of the country in question; or
because authorities prevent local currency from being converted to any
convertible currency or they prevent funds in convertible currencies from
being transferred out of the country in question.
The International Risk Unit within the Corporate Risk Division controls
country risk generated by transactions between the Bank and foreign
counterparties. This unit is also responsible for controlling credit risk from
deals with different foreign financial entities. Furthermore, it establishes
guidelines for measuring, limiting and reporting exposure maintained
abroad through the Country Risk Management Policy.
Towards the end of 2011, a new version of the Country Risk Management
Policy was approved. This new policy includes some elements from the
previous version but also introduces several additional concepts for
measuring country status, including economic and financial variables
such as the premium for insuring a country’s default risk (also known
as credit default swap or CDS) and trends in the exchange rate, stock
indices and interest rates, etc.
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. It is common to also have aggregate
limits based on other dimensions such as types of products, geographic
location, etc. The model in place has demonstrated a considerable capacity
to predict trends in country status; it even anticipated the downgrading
of some ratings by respected international risk rating agencies in 2012.
During 2012, the Bank continued its monthly monitoring efforts,
analyzing exposure levels, market variables, financial and macroeconomic
fundamentals in key countries throughout the world as well as countries
where most of the Bank’s foreign transactions take place. All of these
efforts have enabled the Bank to stay informed of developments in
international markets and to take the measures necessary to manage
an international portfolio with adequate and healthy risk-return ratios.
II.7 Regulatory Changes
During 2012, two laws took effect: Law 20,555, which modifies Law 19,496
on Protecting Consumer Rights and Law 20,575, which establishes the
Principle of Finality for the Use of Personal Data, statutes that have an
impact on the financial business, primarily in the retail segment. Other
regulatory initiatives, which are expected to take effect in 2013, are
currently being debated, including: The maximum conventional interest
rate, the consolidated debt system (SOE) and the Personal Bankruptcy Law.
Law N° 20,555 (Sernac Financiero)
On March 5, 2012, the new Financial Consumer Protection Agency
(Sernac Financiero) began operating and was later complemented with
regulations published in July. The provisions of Law 20,555 addressed a
variety of topics such as: the effective period of contracts; mechanisms for
adjusting charges, fees, expenses or rates; the irrevocability of powers of
attorney and the obligation to provide account information; and particular
obligations involving the risk evaluation process and communication of
decisions made:
t Information regarding reasons for denial when contracting a
financial service. In accordance with the new provisions of the
law and the respective regulations, the consumer has the right
to be informed, at his request, of the reasons he was denied
access to a certain financial product, and these reasons may
not be arbitrarily discriminatory.
t The obligation to establish, publicly and in advance, the objective
conditions for accessing loans and other financial transactions. The
consumer has the right to know the objective conditions that the
supplier establishes, publicly and in advance, for accessing loans
and other financial transactions, which involves the obligation
to publish the considerations, elements and requirements that
a bank generally establishes for granting financial products.
Law N° 20,575 (Finality for Use of Personal Data)
On February 17, 2012, Law 20,575 was published, which refers to
the treatment of personal data of an economic, financial, banking or
commercial nature. This law sets forth that the principle of finality should
be respected when dealing with these data, which shall exclusively be
used for commercial risk evaluation and loan processes, regulating the
use of commercial reports for these purposes only.
This law particularly considers a transitory provision that prohibited
unpaid obligations due before December 31, 2011 from being reported,
as long as the total of the obligations on an individual’s record were less
than Ch$2,500,000 in principal as of the date of publication of the law.
Records for approximately three million debtors were eliminated from
databases. This measure restricted an important amount of information
previously used to adequately evaluate risk, mainly affecting applicants
with less banking penetration. Other industries such as the retail sector
were also affected by these measurements, restricting access to credit
and/or limiting exposure (credit limits) of new customers.
117
Financial Risk
III. FINANCIAL RISK
III.1 Liquidity Risk
Financial or market risk is defined as the risk of potential loss to the
Bank from not having perfectly matched financial positions in the event
of adverse changes in market variables or scarce liquidity. The potential
losses generated by the first factor are known as price risk, while the
Scarce liquidity can occur either due to a reduction in available funds
(for a variety of reasons) that affects the Bank’s funding capacity or a
reduction in the traded volumes of the assets (loans, bonds, other bank
deposits, etc.) or derivative instruments entered into by the institution.
Accordingly, liquidity risk is classified into the following categories:
second factor produces liquidity risk. For analysis and management
purposes, the Bank separates market risk into these two components.
1. Funding liquidity risk
The Corporate Risk Division, through the Market Risk Division, is in charge
of managing this risk within the Bank and its subsidiaries in order to
ensure a healthy risk-return ratio in deals that generate these types of
risks. Market risk management is divided into four tasks: measuring,
limiting, controlling and reporting. The Reporting and Financial Risk
Control Unit within the Financial Control and Management Division also
participates in market risk management.
The Bank’s Treasury Division is responsible for managing financial
positions within the limits and parameters proposed by the Market Risk
Division and approved by the Board of Directors. This division manages
these positions through two areas:
Trading Management, which is responsible for handling the
financial positions of the Trading Book. Variations in the value of
these positions are reflected in the income statement.
Risk Treasury Management, which manages the financial positions
of the Banking Book and the liquidity of the entire Bank. Interest
on these positions is reflected in the income statement; also, in
the case of investments available for sale, the variation in value
impacts equity as long as they have not been sold.
2. Trading liquidity risk
Liquidity Risk Limits and Warning Levels
In accordance with the Liquidity Risk Management Policy, each year
the Bank’s Board must approve internal limits and warning levels for
ratios based on internal methodologies that complement regulatory
liquidity limits. The limits and internal warning levels are intended to
control structural liquidity variables that are not covered by regulations,
such as: liquidity ratios; funding of assets in Chilean pesos by liabilities
in foreign currency; the status of market variables that can forecast
illiquidity, etc.
Measuring Liquidity Risk
Funding liquidity is controlled and limited using several reports. The most
basic is the C08 regulatory report, which simulates forecasted cash flows
over the next 30 and 90 days in Chilean pesos and for total amounts
in foreign currencies. In addition, the Bank is authorized by the SBIF to
report cash flows based on behavior assumptions other than contractual
provisions, which results in an adjusted C08 regulatory report.
In the 30-day analysis, the regulatory limit establishes that during the
next 30 days the net cash outflows denominated in foreign currency and,
likewise, the sum of net cash outflows denominated in all currencies
(including Chilean peso-denominated cash flows) should not exceed the
Bank’s Basic Capital. In the 90-day analysis, the regulatory limit establishes
that during the next 90 days the net cash outflows denominated in all
currencies should not exceed twice the Bank’s Basic Capital.
Índice C08 ajustado 1 - 30 días
1.0
0.8
0.6
0.4
0.2
0.0
The chart Adjusted 1-30 day C08 Index shows the Bank’s conservative
management of liquidity during 2012. The index, which includes all
currencies, peaks at the beginning of the third quarter and is reduced
drastically after that date, mainly generating greater liquidity in items
denominated in Chilean pesos. This reduction was due to the perception
of illiquidity towards the end of the year, which was not as severe as
expected particularly because of the measures adopted by monetary
authorities..
-0.2
Mar-12
Jun-12
Adjust. Index FX
Sept-12
Dec-12
Adjusted Index Local Currency + FX
The 1-90 day C08 index evolves more stably throughout the year, but still
indicates that the Bank had greater liquidity towards the end of 2012.
C08 Adjusted Index 1 - 90 DAYS
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Mar-12
Jun-12
Sept-12
Dec-12
Adjusted Index Local Currency + FX
119
Financial Risk
Trading liquidity is strengthened with highly-liquid debt instruments in
the Bank’s Trading Book such as Central Bank and Chilean government
bonds and short-term time deposits. The trading liquidity of derivative
instruments is limited via DV01 limits for certain specific terms for each
swap curve traded. The trading liquidity of debt instruments in the
Accrual Book does not need to be explicitly limited, as in this case the
Bank seeks to obtain purchase yield until maturity or in the medium
term since in the majority of cases they are purchased to hedge stable
balance sheet items, such as current account balances. During 2012,
the Bank approved its Debt Instrument Investment Policy, which formally
governs positions held in such instruments.
In addition, the Bank established an internal limit that aims to protect
the amount of liabilities in foreign currency that fund assets in Chilean
pesos. The maximum use of this limit during 2012 was 57%, which is
considerably less than the prior year. This is due primarily to the absence
of an arbitrage opportunity during the year between the interest rate
curves denominated in USD for the cash market and the equivalent in
the derivatives market.
Lastly, in accordance with the Liquidity Management Policy, the Bank
performs quarterly liquidity stress exercises in order to quantify its cash
needs in the event of material adverse scenarios.
III.2 Price Risk
The Bank separates price risk into three categories:
1. Spot price risks
2. Interest rate risks
3. Options volatility risks
Price Risk Limits and Warning Levels
In accordance with the Market Risk Management Policy, in addition to
regulatory limits, each year the Bank’s Board must approve internal limits and
warning levels for financial positions and/or price risks generated by them.
The approval process for internal limits on price risk is carried out in
order to set maximum levels for our position on a certain market factor
and, therefore, to limit estimated losses that could occur in the event of
adverse variations in market variables. The approval process for warning
levels on price risk is designed to define a tolerance level over which
upper management wishes to be informed of either potential losses in
any business unit or the status of actual losses accumulated during a
period of time by any one unit.
Measuring Price Risk
Price risk is measured using various reports and is assessed separately
for the Trading(2) and Currency Book and the Banking Book (as well as
the Accrual Book(3)).
For the Trading and Currency Book, price risk is measured using
standardized regulatory reports (SBIF reports C41 and C43) and also
(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%.
(2) The Trading Book includes those transactions whose variation in value instantly impacts the Bank’s
income statement, such as financial instruments recorded in these accounts and the majority of derivative
instruments.
(3) The Accrual Book consists of all line items from the Bank’s balance sheet, including those that are
excluded from the definition of the Banking Book such as capital, property and equipment, etc.
Transactions in the Trading Book are represented at a maturity of one day in the Accrual Book, therefore
not generating interest rate risk.
using the parametric Value at Risk (VaR) report with 99% confidence and
a year of daily variations in market variables for calculating volatility and
corrections; this value is scaled by the square root of a 22 day period in
order to reflect estimates that the positions may be effective and totally
closed within a calendar month.
Interest rate positions most contributed to the VaR during 2012. Next
in line were exchange rate positions and then, to a much lesser extent,
small positions in exchange rate options.
The following graph shows the evolution of the historical VaR generated
by all Trading Book positions during 2012 (line entitled TOTAL; 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 Risk Treasury Unit. Risk was used decreasingly over
the year. It was employed on two specific occasions during the year due
to a greater use of financial positions since the volatilities of variations
in market values have remained stable during the period.
VaR Historical Trading Book (Scaled to 22 days)
(In millions of USD)
18
16
14
12
10
8
6
4
2
Mar-12
Total
Jun-12
Trading
Sep-12
Dic-12
Risk Treasury
121
Financial Risk
Also, internal policies call for daily stress tests of Trading and Currency
Book positions, including a comparison of expected potential losses
with regards to defined warning levels (“look forward analysis”) and,
separately, a comparison of actual income during a calendar month with
regards to loss warning levels (“look back analysis”).
Price risk in the Accrual Book is measured using a standardized regulatory
report (SBIF C40 report) and internal metrics. The metrics in the C40
report are calculated using methodologies provided by the SBIF, which
are taken from the Basel Accords on standardized measurement of
these risks. The values of short and long-term risk throughout 2012
are well below the limits established by the Bank for these metrics and
demonstrate a high degree of stability.
The Bank has also established internal metrics for price risk management
in the Accrual Book, defining limits and warning levels for interest rate
exposure. In effect, the Bank measures interest rate positions using the
IRE metric (Interest Rate Exposure), defined as the potential impact of
a standardized parallel movement (100 basis points for interest rates
and 0.1% for monthly inflation) in the forward yield curve of a particular
currency on net profit before taxes.
The Bank calculates and reports interest rate risk for the Accrual Book
using the EaR 12 M (Earnings at Risk 12M), which enables it to estimate
the potential drop in earnings that the Bank may experience over the next
12 months, based on interest rate positions in effect as of each reporting
date, and as the result of a movement in expected forward interest rates
during the last three years with 97.7% confidence. The attached graph
follows the evolution of this metric during 2012. The historical volatilities
of forward interest rates are in an extremely stable cycle and, therefore,
coupled with the fact that structural financial positions remained relatively
stable, they have resulted in little change in the use of risk, totaling around
Ch$50 billion for 2012. As in previous cases, the use of risk decreases
slightly towards the end of the year as a result of the closing of some
positions related to Chilean inflation. In any event, the maximum risk taken
does not exceed 15% of the Bank’s annual earnings.
Lastly, the Bank’s internal policies call for stress tests to be conducted
each month on the Accrual Book and for the results of these tests to be
compared to warning levels approved by upper management.
EaR 12M Accrual Book
(In millons of Pesos)
IV. OPERATIONAL RISK
Banco de Chile has defined controlling risks as one of the key factors
in its business strategy. To accomplish this, it has established diverse
risk management models that are periodically adjusted to adhere to
applicable national and international regulations.
Operational risk is defined as the risk of incurring losses from deficiencies
or failures in internal processes, human resources or systems, or resulting
from external circumstances.
60,000
50,000
40,000
30,000
20,000
10,000
Mar-12
Jun-12
Sept-12
EaR 12M - Shock Expected Rates
Dec-12
The Bank’s objective for operational risk management is to identify,
value, mitigate and monitor this risk. The greatest demand lies in
identifying and eliminating focal points of risk, regardless of whether
they have resulted in losses. Measurement also helps manage this risk
by allowing priorities to be set and decisions to be made based on the
Bank’s established hierarchy.
In this sense, the Bank adheres to local and international regulations
and has established comprehensive plans for operational risk, business
continuity and information security, which has enabled it to strengthen its
current Risk Management System, as approved by upper management
and the Board of Directors.
123
Operational Risk
These plans contribute a global vision of risk as well as integral measurement
systems, quality analysis and mitigation methodologies for different risk
exposures, adequate control of processes and a reduction in the possible
impact on the Bank’s net worth.
Important progress was made in 2012 in operational risk, business
continuity and information security that is in line with national and
international best practices, including:
IV. 1 Operational Risk:
The organizational structure for managing operational risk is based on
the following principles:
The Corporate Risk Division is responsible for controlling and
assessing the value of this type of risk. Within the division, the
Operational Risk and Technology Division is the core unit that
oversees operational risk efforts and is in charge of the Bank’s
overall risk program.
The effective structure for managing operational risk is based on
the knowledge and experience of the executives and professionals
from different areas/units within the Bank, making the role of
the Operational Risk Coordinators and Advisors very important
within the organization.
Thus, the Bank has established a sound structure for managing operational
risk, which includes the Board of Directors, the Directors’ and Audit
Committee, senior management and the Operational Risk Committee, led
by the Chief Executive Officer, as well as diverse operating committees
comprised of personnel from the commercial and business support areas.
Defining the framework for comprehensively managing operational
risk that establishes the general guidelines, tools and processes
used to measure, value and mitigate operational risks.
Establishing loss limits for operational risk by defining tolerance
and risk appetite levels for this type of risk. Approved by upper
management and the Board of Directors.
Carrying out self-assessment processes to evaluate operational
risk at a process level, including identifying and determining the
economic value of residual risk for critical processes, generating
action plans and operational risk indicators to mitigate risks in
critical processes.
Reformulating the functional structure used to address operational
risk and fomenting active management by Operational Risk
Committees. Each entity has specific work plans aimed at
controlling and mitigating the respective risks and monitoring
plans and commitments made by different areas within the Bank.
Periodically assessing suppliers of critical services, which enables
the Bank to ensure fulfillment of agreements and business
requirements, while creating a formal process for communicating
deviations in service levels, alternative solutions and strategic
needs for the Bank’s products and services.
Continuously improving the main tools used for operational risk:
- Awareness of operational risk events. Identification and
analysis of the most significant and most frequent events,
with subsequent adoption of mitigation measures.
- Operational risk indicators, which are defined and periodically
updated by the main responsible units.
- Definition and maintenance of process map for entire Bank.
Testing phone trees throughout the entire organization that
ensure communications channels remain open in the event of
a catastrophe.
IV.3 Information Security
Developing an Information Security Policy, standards and
procedures, which establish the general framework for this topic.
Implementing information security programs to maintain an
adequate level of protection for customer and bank information.
Carrying out monitoring program for behavior indices that
safeguard information security.
Training all bank staff on programs and plans involving different
areas of operational risk and strengthening these training initiatives.
IV.2 Business Continuity:
Developing a Business Continuity Policy, which establishes the
general framework for this topic.
Selecting an alternate contingency site to ensure business
continuity for Banco de Chile’s Money Desk. Perform business
continuity tests under different scenarios.
Generating documentation and tests for IT Disaster Recovery
Plan based on alternate sites.
125
7
CORPORATE
SOCIAL RESPONSIBILITY
Committed to a Better Chile
for our Associates
In keeping with its strategy of forming employees who are committed
Internal Mobility
to their work, Human Resources undertook a variety of projects and
initiatives, after reorganizing itself in order to be closer to the organization’s
units and individuals.
In order to promote individual growth and development, the Bank has made a
new Internal Mobility Site available to employees. Resumes can be uploaded
to the site, where they are continuously available for editing. The site also lists
vacancies and allows employees whose skills and experience match the vacancy’s
requirements to apply.
Team Members
This initiative seeks to motivate employees to take charge of their career
Banco de Chile owes its success to the daily work of its more than 14,000
development and take on new challenges, encouraging them to be top performers
employees. That is why the Bank has strived to create a pleasant, yet challenging,
and enhance their skills. The new site is also meant to allow bank leadership to
work environment that fosters the professional and personal development of
fill vacancies with the Bank’s most talented current employees.
its employees, allowing them to standout in a culture that emphasizes respect,
meritocracy and pride in belonging to the organization. In 2012, the Bank conducted
Corporate Competency Evaluation
a new work climate survey, enhanced the competency evaluation system, and
launched an internal mobility platform to further refine the recruitment process.
In order to enhance employee performance, the Bank conducted a new evaluation
process based on the following corporate competencies: adaptability, business
In its relentless quest to provide the best service to Banco de Chile’s team
focus, teamwork and effective execution. In order to gain a more complete
members, Human Resources reorganized itself into five sub-divisions. The
cross-section of each employee’s performance, two new evaluation factors—(1)
more horizontal structure allows human resources staff members to be closer
service quality and (2) commitment and responsibility—were incorporated.
to employees and improves response times.
The measurement tool is differentiated by position type and business area. It also
As of December 2012, Banco de Chile had 14,567 employees, 10,700 of whom
establishes commitments with each team member in the form of action plans.
work for the Bank itself, while 3,867 work for its subsidiaries. Average tenure
All these enhancements resulted in a more expeditious evaluation process, the
is 8.7 years and 50% of the employees are women.
main focus of which was the supervisor-employee feedback meeting.
The results of the evaluation will be used as data to support employee development
and learning processes and to foster a culture of continuous improvement.
Training
The Bank continued its customary intensive training program, which seeks to
provide each team member the knowledge and skills necessary to achieve
excellent performance and professional growth.
In 2012, 822,590 training hours were logged—52% were “e-learning” courses
while 48% were classroom based. These training initiatives reached 97% of
Banco de Chile employees.
Highlights among the classroom-based courses included the graduate certificate
in Business Management for Large Companies offered by Pontificia Universidad
Católica (PUC), in which 43 employees participated; and the graduate certificate in
Business Management and Marketing, in which 44 bank employees participated.
The 2012 highlight among the e-learning courses was the graduate certificate in
Business offered by Universidad Adolfo Ibáñez, in which 67 employees participated.
The Bank also continued to promote its professional development program
(“Crece en el Chile”), which began in 2011 and focuses on identifying, aligning
and empowering future business leaders from the Banco de Chile, Edwards
Citi and Credichile networks. In 2012, a total of 48 employees were invited to
participate in the program, representing twice the previous year’s openings.
129
for our Associates
Better Communication
At a global level, three dimensions were evaluated: organizational structure,
In order to continue consolidating the Bank’s organizational culture, optimize
clarity of role and identity were among the most emphasized factors.
the timeliness and means of communication and reinforce strategic alignment
using timely, clear and accurate messages and channels, a new communication
career development potential and interpersonal relationships. Flexibility, ethics,
Effective Organization
model was established. The model has three focuses: i) Planning the corporate
communication strategy, ii) Designing and planning a communication strategy
In 2012, the compensation area established a methodology for analyzing,
for the divisions, iii) Advising on specific division management needs or projects
maintaining, consulting and implementing structural modifications in response
that impact one or multiple divisions.
to the Corporation’s needs. The process began in August and proposes
collaborative and coordinated work between Human Resources and the Bank’s
Work Environment
various divisions. The main objective is to achieve an organizational structure
Banco de Chile has always focused on strengthening its employees’ commitment
Corporation, and facilitates professional development. This year, the system
in order to enhance bank culture and cultivate a good work environment. These
was implemented in the Technology, Risk and Development and Quality areas.
efforts are reflected each year in the work climate survey. In 2012, 80% of
employees participated in the survey and the results were positive.
that is aligned with the strategic focus of each business, is efficient for the
Quality of Life
The Bank is concerned with its employees’ quality of life. Consequently, it offers
a series of programs and activities meant to promote physical and psychological
health, as well as to encourage recreation and overall well-being for all Bank
associates. Some of the 2012 highlights in this area were:
The Bank’s counseling program (“Programa Orienta”) for office
employees in the Metropolitan and Fifth Regions, which benefited
nearly 1,377 bank associates.
Implementation of a Human Resources Intervention Plan for
branch robberies, establishing specific duties and a phone tree.
An increase (10% nationally) in the number of calls to the medical
advice phone service, providing coverage to 3,226 users.
A voluntary cardiovascular risk screening pilot program offered
to employees under age 30. In 2012, 349 employees in the
Metropolitan Region were screened. The program granted that
age group a chance for early intervention.
A work group which designed, produced, and proposed a
methodology for incorporating quality of life programs with a
preventive focus on managing people and conflicts into the
annual training program.
The aforementioned initiatives have earned Banco de Chile recognition by the
Chilean Chamber of Construction (“Cámara Chilena de la Construcción”) for
its support of the quality of life of its employees and the community. This was
the first year that the entity had granted this type of award, which recognized
companies that are at the forefront on such issues.
131
for our Community
Banco de Chile believes in a better Chile with more opportunities for
meals and giving them the opportunity to participate in workshops and activities
everyone. Consequently, it has forged a tradition of corporate social
that reinforce autonomy.
responsibility over its more than 100 years of history. Over time, the Bank
has implemented various initiatives that enhance the quality of life of
The Bank’s subsidiary, Socofin, also participates in the corporate matching
program, providing funding for a Hogar de Cristo women’s shelter in Santiago.
the various groups that interact with the Bank, particularly those that are
most vulnerable. Similarly, it supports the country’s major causes, making
concrete contributions to the development of Chile and of all Chileans.
Committed to a Better Chile for our Community
Committed to a Chile that Overcomes Adversity
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In keeping with its commitment to continue building a better Chile with more
opportunities for everyone, Banco de Chile supported the 11 Teletón Foundation
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(“Fundación Teletón”) centers, just as it has for the past 34 years. The centers,
located throughout the country, serve more than 30,000 children and youth
The standard of service at Corporación Educacional y de Beneficencia Cristo
each year. The Bank actively participated in the foundation’s efforts, supporting
Joven, which BanChile Inversiones has supported for 17 years, has positioned
the various activities that took place throughout the year, especially the Teletón
it as a leader among Chilean non-profit organizations. It focuses on prevention
fundraising campaign.
and protection of socially at-risk children.
During each Teletón fundraising campaign, Banco de Chile places its infrastructure
The foundation currently has seven centers and preschools in the municipalities
and technology at the disposal of the foundation and of all Chileans. The technology
of Peñalolén, La Cisterna and La Pintana, where it cares for more than 1,500
is specially designed to safely and efficiently collect and process donations,
low-income children and youth. It also offers nurseries, preschools, day care
providing a running, online count of the total received.
centers, community prevention initiatives and psychosocial support for families.
For the twenty-fifth Teletón, more than 9,000 bank employees volunteered to help all
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Chileans, by collecting donations across the country with their usual generosity and
enthusiasm. To do so, more than 600 points of service between Arica and Puerto
In order to enhance the quality of life of senior citizens, Banco de Chile and its
Williams were set up in addition to on-line donation channels, both in Chile and abroad.
employees make annual donations through Hogar de Cristo’s corporate matching
program. The contributions total 48% of the annual budget for the Hogar de Cristo
Thanks to the effort and solidarity demonstrated by all Chileans, the Teletón was
senior citizen centers (“CEAM” program). The centers offer shelter to individuals
once again a complete success, exceeding the goal and ultimately collecting
in extreme poverty who do not have a suitable place to spend the day, providing
Ch$ 31,255,222,196.
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The Teletón and Banco de Chile joined forces once again to organize SuperArt,
Since Banco de Chile began supporting her, Macarena Cabrillana, a disabled
an artistic exhibit in which children and youth from the Teletón share their talents
tennis player, has made considerable accomplishments. In early 2011, she was
and creativity with the public through a colorful urban intervention.
135th in the women’s world ranking. At the end of 2012, she ranked 36th, a
career best. During the year, she participated in 14 international tournaments and
This time the young Teletón artists turned Paseo Ahumada, in front of Banco
2 national tournaments. She is currently ranked third in Chile. Without a doubt,
de Chile’s headquarters, into a farm using sculptures of native Chilean fauna,
she has made a great contribution and has been an example of perseverance,
like pudús, sea lions and llamas; and real animals, including rabbits, puppies
effort and overcoming adversity.
and alpacas.
Likewise, in the Bank’s constant endeavor to support and encourage activities that
Similar exhibits were displayed simultaneously at Banco de Chile offices in
promote rehabilitation and integration of children and youth with disabilities, Banco
Santiago and nine other cities throughout the country: Arica, Iquique, Antofagasta,
de Chile has organized a wheelchair tennis match (“Tenis en Sillas de Ruedas”)
Coquimbo, Valparaíso, Talca, Temuco, Concepción and Puerto Montt.
for 15 consecutive years. In 2012, fifty disabled tennis players from countries
like Argentina, Peru, Ecuador, Brazil, Colombia, Australia and Spain participated.
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Through the tournament, the Bank provides Chilean tennis players with an
The Color the Teletón (“Pinta el Teletón”) contest was held in mid-2012. The
opportunity to earn points toward the world ranking without the economic and
contest was organized by the Teletón Foundation and encouraged students from
physical sacrifice involved in traveling to tournaments abroad, while reaffirming
across the country to be aware of and respect the rights of disabled children.
its commitment to and encouraging activities that promote the rehabilitation and
Students from pre-school to eighth grade were invited to submit a drawing
integration of the country’s disabled children and youth.
about those rights.
In keeping with its commitment to a country that overcomes adversity, Banco de
Chile outfitted its entire network of branches, between Arica and Puerto Williams,
with boxes specially designed to collect drawings.
More than 60,000 drawings were submitted throughout Chile; a demonstration
of the students’ tremendous motivation and talent. The colorful and cheerful
national prize ceremony was held at Santiago’s interactive children’s museum
(“Museo Interactivo Mirador” (MIM)).
133
for our Community
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Chile Together
Led by one of its most iconic founders, Felipe Cubillos, Desafío Levantemos Chile,
a non-profit organization, was founded in 2010 in the wake of the earthquake
and tsunami that struck the country on February 27th. The organization’s work
initially focused on reconstruction—rebuilding devastated schools and fishing
coves. Today, the group takes on social challenges, transforming initiatives from
fields like entrepreneurship, education, health, culture, sports, renewable energy
and volunteer work into reality. The group puts their skills and resources at the
service of the people, making themselves a true bridge between those in need
and those who can give, whether they are individuals, large or small companies.
On that basis, Desafío Levantemos Chile has been able to respond efficiently
and quickly to the needs of the people, making contributions in various sectors
of society and collaborating with those who want to succeed, enhancing quality
of life in their communities.
A trip to Robinson Crusoe Island was the first joint Banco de Chile-Desafío
Levantemos Chile event, following the signing of a partnership agreement in which
the Bank committed to funding a large portion of the foundation’s operations.
The partnership will allow all donations made to Desafío Levantemos Chile to
fund projects that directly help people throughout the country, primarily small
entrepreneurs who need an opportunity to thrive.
In response to the disaster that struck the city of Punta Arenas, which left
stores, schools and utilities under mud, the Bank and Desafío Levantemos Chile
joined forces to create a system for channeling support from individuals from
anywhere in the country.
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“Levantemos Chile” (Let’s Lift Up Chile), which refers to changing attitudes,
joining forces and doing something great via the sum of small challenges.
Consequently, Banco de Chile and Desafío Levantemos Chile issued an open
invitation for submissions of a “challenge” that would contribute to community
development. Desafío Levantemos Chile selected the 50 best submissions and
will work with Banco de Chile to make them reality.
Excellent Education Available to Everyone
university entrance exam (PSU). This scholarship covers full tuition and fees
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allowance for other expenses.
Banco de Chile is committed to a better Chile and making excellent education
Based on the 2012 PSU results, the scholarship was awarded to María
available to everyone. Consequently, it has been working with Fundación Astoreca,
Magdalena Martin Kommer, from Orchard College in Curicó and Matías Alvo
a non-profit educational foundation, since 2004. Fundación Astoreca provides
Gómez, from Santiago College in Santiago. Magdalena and Matías have chosen
excellent education to underprivileged children and youth through its schools:
to study business administration and civil engineering, respectively, at Pontificia
San Joaquín de Renca and San José de Lampa. The municipalities of Renca
for the duration of the student’s chosen degree program, as well as a monthly
and Lampa have some of the highest poverty rates in the Metropolitan Region.
The eight current Banco de Chile scholarship recipients are pursuing degrees
In 2012, both schools achieved standardized test (SIMCE) results that were
in medicine, civil engineering, business administration and law at Pontificia
far-above municipality averages and also above public and subsidized school
Universidad Católica de Chile and Universidad de Chile.
averages. In fact, the schools’ 2012 scores approximated the average scores
earned at private schools.
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Fundación Astoreca supports the Educating Together (“Educando Juntos”) web
Each year, 17 students and two professors from the Universidad Católica MBA
site initiative, which publishes success stories of underprivileged primary and
program travel to China to learn about Chinese culture and business as part of
secondary schools that have attained outstanding results. The site makes the stories
the Conducting Business in Chile/China program. The Banco de Chile supported
and their best practices available at no cost to schools throughout the country.
initiative, which has been underway for six years, also allows 17 students and
two professors from the MBA program at University of Tsinghua in Beijing to
Another initiative, Astoreca Training (“Astoreca Capacitaciones”), provides
teaching faculty with training on first-rate educational methods. In 2012, 634
visit Chile. In total, 214 persons have participated in the exchange program.
teachers received training.
For a Chile with more Entrepreneurship
Furthermore, as a way of rewarding effort, Banco CrediChile awarded the Academic
tSupporting Internationalization of SMEs
Excellence Award (“Premio de Excelencia Académica”). In 2012, 5 students
from the San José de Lampa School were recognized and awarded academic
In keeping with its commitment to continue contributing to the development
scholarships. Moreover, thanks to the solidarity shown by Banco CrediChile’s
of the country and the progress of all Chileans—especially entrepreneurs and
employees, nearly 900 children from those schools enjoyed a day of joy and
small and medium enterprises (SMEs)—and as part of the Banco de Chile-
happiness, including presents, as part of the Division’s annual Christmas drive
Endeavor Foundation (“Fundación Endeavor”) partnership in place since 2010,
(“Navidad con sentido”),
an internationalization program for SMEs was created this year. The objective
of the program is to increase the number of companies engaging in foreign
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trade and to make better use of the free trade agreements in force. Only 3% of
SMEs currently conduct business outside Chile. The Bank’s objective is to help
To reward effort and academic excellence among the country’s youth, Banco
350 new companies begin engaging in foreign trade in 2013. This new project
de Chile has, for the last 27 years, awarded the PSU Scholarship to the student
aims to take a momentous step toward increasing SME competitiveness, which
who earns the nation’s best average score (language and mathematics) on the
is certainly one of the greatest challenges facing the country.
135
for our Customers
Customers are the primary focus at Banco de Chile. In 2012, the Bank
continued providing excellent service and developing a service qualityoriented culture. That culture is a key factor that will allow the Bank to
The Call Center was also added to the Development and Quality Division in
order to refocus its mission: processing the majority of customer problems and
complaints. This change was an effort to provide timely responses and satisfy
customer needs, thereby boosting confidence levels.
achieve its objective of contributing to the growth of the Organization.
Our Commitment
Banco de Chile is highly committed to service quality. Our customers are our most
valuable asset. It is thanks to their trust and loyalty that the Bank has achieved
its leadership position over the last 119 years.
The Bank’s work has ranked it first in its target segment in market studies, which
Promotion of a service quality-centered culture also facilitated a significant
number of process enhancements benefiting the customer. Those enhancements
were the fruits of the labor of various commercial and support areas. 2012
accomplishments include, among others:
Improvement in average retail and SME loan disbursement time.
Early release of funds from checks from other banks.
indicate that the Bank is perceived as an admirable, trustworthy corporation that
Reduced customer response times by up to 50% for transactional
provides good service. Non-customers also indicate that Banco de Chile would
banking and leasing products.
be their first choice if they were to change banks.
In that context, the challenge for coming years is to innovate and continuously
improve models, processes and skills; aiming for excellence, prioritizing long-term
Reduced the critical error rate in the information submitted by
account executives providing on-line service to transactional
banking customers.
customer relationships, and holding firm to the conviction that today’s customer
Simplification of the required documentation for SME and consumer
expects first-quality service.
banking segments (Banco CrediChile).
2012 Achievements
Improved response protocols with implementation of a specialized
customer service call center.
The Bank currently has a Development and Quality Division. In 2012, its role
Improved customer satisfaction indicators for in-branch teller
was enhanced to encourage concrete, corrective and preventive measures
service.
throughout the organization.
Additional training on in-branch service protocols and dissemination
The division continued strengthening a customer-centered organizational culture
of best practices was achieved through direct consulting offered
with systematic monitoring and improvement plans for critical quality indicators
to 382 branch leaders. The impact of the program is evident in
with an impact on customer service perception.
the latest customer satisfaction indicators.
Strategic Plans for Customer Service
Quality of service is a strategic pillar at Banco de Chile and is strongly endorsed
in the 2013 plan. The following objectives, which directly impact the customer
experience, are among those emphasized in the plan:
Ensure defined availability and operational continuity for channels,
services and systems.
Automate tasks in order to reduce errors and decrease the
number of manual processes.
Redesign critical processes that impact customers, improving
availability, training, consistency and the standard response times
for each segment and channel.
Redesign the request and complaint service with a customercentered vision (time, quality, opportunity).
Streamline credit approval processes.
Develop specialized solutions and optimize remote customer
service channels in the wholesale banking segment.
137
for our Environment
Energy Efficiency and Recycling
Conservation Volunteerism
Reaffirming its commitment to a better Chile and considering the impact a
As part of Banco de Chile’s CSR program and in order to contribute to environmental
company can have on the environment, this year significant changes to data
conservation, the Bank conducted its second volunteer conservation project:
storage regulations were made in order to increase the percentage of paper that
More than 100 Banco de Chile volunteers reforested 3,000 m2 on the slope of
is recycled. Thus, a record 1,432 tons of paper were saved; conserving 24,344
the Laura Vicuña Sanctuary on Cerro Colorado in the municipality of Renca. The
trees, 143,200 liters of water and 10,883,200 kWh of electricity.
new trees will help mitigate the environmental damage caused by high levels
of contamination in the area.
The document storage implementation policy was also modified, resulting in
improvements to the management process and reduced consumption of natural
The trees are maintained by Corporación RPA Cultiva. Banco de Chile funds
resources in years to come.
maintenance costs for the trees as well as other operational costs incurred by the
organization, allowing children from subsidized and public schools to participate
Through efficient use of its resources, Banco de Chile has reduced consumption
by 6,639,344 kWh of electricity—the equivalent of the monthly electrical
consumption of 18,970 homes.
in RPA Cultiva’s educational programs on reforestation.
Committed to a Transparent Chile
The country’s sustained growth has facilitated development of the
Transparency as a Value
financial market, allowing a growing number of people to access banking
services. Banking customers are more informed and more demanding,
which has sparked changes in the industry. Banco de Chile was a
pioneer in adopting a transparency and information disclosure policy,
even before the new regulations were in force.
In 2012, the customer advocate’s role in the organization was enhanced. The
customer advocate’s mission is to create policies that avoid any asymmetry in
the Bank-customer relationship, proactively seeking to implement best practices
in customer service protocols and ensuring customer access to transparent
information. The advocate works primarily with mass banking products and
those products that use funds from outside companies.
Transparency Policy
The advocate is a corporate position, reporting directly to the Development and
Quality Division.
In 2012, Banco de Chile intensified its efforts to ensure transparency of information
about policies, products and services, formalizing a new transparency policy
Transparency with the Financial Community
across the entire Corporation.
Just as in years prior, the Bank continued working toward transparency with the
Mini-websites were one of the channels used to disclose information to
financial community. Special attention was paid to:
customers and the general public. The mini-websites (“Un Chile Abierto” and
“Una Relación Clara”) are available on the Banco de Chile and Banco Edwards
Citi public websites, respectively.
t Providing relevant information, both in English and Spanish, for
shareholders, investors and the general public in a specific section
of the website (www.bancochile.cl).
The sites emphasize financial education and use interactive visual aids to explain
the products’ main characteristics, for example, the contracting requirements,
rates and channels of communication. In the SME Banking segment, the initiative
was successfully complemented with webinars (interactive online conferences)
by experts on various relevant topics.
As has always been characteristic of Banco de Chile, relevant regulatory
changes were adopted with special timeliness. Thus, in 2012, significant steps
were made to fully and opportunely comply with modifications to the Consumer
Law (“Ley del Consumidor”), making the Corporation one of the first financial
institutions to do so.
Also in the consumer banking segment, Banco CrediChile has adopted a series
t Publishing monthly consolidated financial statements, which are
made available within the first nine days of every month.
t Producing a trimester financial report and holding a teleconference
for investors and the general public.
t Early issuance of the Annual Financial Statements, generally one
month before the regulatory deadline.
t Publishing the Annual Report in English and Spanish each year as
well as the 20F Form, required by the US Securities and Exchange
Commission.
of measures to ensure transparency, improving sales protocols, and ensuring
proper implementation through extensive training, audits and monitoring with
“mystery shoppers”.
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8
CONSOLIDATED FINANCIAL
STATEMENTS
Table of Contents
BANCO DE CHILE AND SUBSIDIARIES
I. Consolidated Statements of Financial Position
144
II. Consolidated Statements of Comprehensive Income 146
III. Consolidated Statements of Changes in Equity
148
IV. Consolidated Statements of Cash Flows
150
V. Notes to the Consolidated Financial Statements
152
1. Company Information
152
23. Other Financial Obligations
216
2. Summary of Significant Accounting Principles
152
24. Provisions
216
3. New Accounting Pronouncements
175
25. Other Liabilities
219
4. Changes in Accounting Policies and Disclosures
179
26. Contingencies and Commitments
220
5. Relevant Events
179
27. Equity
223
6. Segment Reporting
182
28. Interest Revenue and Expenses
227
7. Cash and Cash Equivalents
184
29. Income and Expenses from Fees and Commissions
229
8. Financial Assets Held-for-trading
185
30. Net Financial Operating Income
230
31. Foreign Exchange Transactions, net
230
186
32. Provisions for Loan Losses
231
9. Repurchase Agreements and Security
Lending and Borrowing
188
33. Personnel Expenses
232
11. Loans and advances to Banks
193
34. Administrative Expenses
233
12. Loans to Customers, net
10. Derivative Instruments and Accounting Hedges
194
35. Depreciation, Amortization and Impairment
234
13. Investment Securities
199
36. Other Operating Income
235
14. Investments in Other Companies
201
37. Other Operating Expenses
236
15. Intangible Assets
203
38. Related Party Transactions
237
16. Property and equipment
205
39. Fair Value of Financial Assets and Liabilities
241
17. Current and Deferred Taxes:
206
40. Maturity of Assets and Liabilities
248
18. Other Assets:
210
41. Risk Management
250
19. Current accounts and Other Demand Deposits:
211
42. Own assets securitizations
277
20. Savings accounts and Time Deposits:
211
43. Subsequent Events
278
21. Borrowings from Financial Institutions:
212
22. Debt Issued
213
Ch$ or CLP
=
Chilean pesos
MCh$
=
Millions of Chilean pesos
US$ or USD
=
U.S. dollars
IFRS
= International Financial Reporting Standards
IAS
= International Accounting Standards
RAN
= Compilation of Standards of the Chilean Superintendency of Banks
ThUS$
=
Thousands of U.S. dollars
JPY
=
Japanese yen
IFRIC
= International Financial Reporting Interpretations Committee
EUR
=
Euro
SIC
= Standards Interpretation Committee
MXN
=
Mexican pesos
HKD
=
Hong Kong dollars
PEN
=
Peruvian nuevo sol
U.F. or CLF
=
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).
143
Consolidated Statements of Financial Position
Banco de Chile and Subsidiaries
for the years ended December 31, 2012 and 2011
Notes
2012
MCh$
2011
MCh$
ASSETS
Cash and due from banks
7
684,925
881,146
Transactions in the course of collection
7
396,611
373,639
Financial assets held-for-trading
8
192,724
301,771
Receivables from Repurchase agreements and Security Borrowing
9
35,100
47,981
Derivative instruments
10
329,497
385,688
Loans and advances to banks
11
1,343,322
648,425
Loans to customers, net
12
18,334,330
16,993,303
Financial assets available-for-sale
13
1,264,440
1,468,898
Financial assets held-to-maturity
13
—
—
Investments in other companies
14
13,933
15,418
Intangible assets
15
34,290
35,517
Property and equipment
16
205,189
207,888
Current tax assets
17
2,684
1,407
Deferred tax assets
17
127,143
116,282
Other assets
18
296,878
263,584
23,261,066
21,740,947
TOTAL ASSETS
The accompanying notes 1 to 43 form an integral part of these consolidated financial statements
Notes
2012
MCh$
2011
MCh$
LIABILITIES
19
5,470,971
4,895,426
Transactions in the course of payment
Current accounts and other demand deposits
7
159,218
155,424
Payables from Repurchase Agreements and Security Lending
9
226,396
223,202
20
9,612,950
9,282,324
10
380,322
429,913
Borrowings from financial institutions
21
1,108,681
1,690,939
Debt issued
22
3,273,933
2,388,341
Other financial obligations
23
162,123
184,785
Current tax liabilities
17
25,880
4,502
Deferred tax liabilities
17
27,630
23,213
Provisions
24
504,837
457,938
Other liabilities
25
301,066
265,765
21,254,007
20,001,772
Savings accounts and time deposits
TOTAL LIABILITIES
EQUITY
27
Attributable to Bank’s Owners:
Capital
1,629,078
1,436,083
Reserves
177,574
119,482
Other comprehensive income
18,935
(2,075)
Retained earnings:
Retained earnings from previous periods
Income for the year
16,379
16,379
465,850
428,805
(300,759)
(259,501)
2,007,057
1,739,173
Less:
Provision for minimum dividends
SUBTOTAL
Non-controlling interests
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
2
2
2,007,059
1,739,175
23,261,066
21,740,947
145
Consolidated Statements of Comprehensive Income
Notes
2012
MCh$
2011
MCh$
A. CONSOLIDATED STATEMENT OF INCOME
Interest revenue
28
1,661,467
1,495,529
Interest expense
28
(708,629)
(624,209)
952,838
871,320
Net interest income
Income from fees and commissions
29
372,767
367,966
Expenses from fees and commissions
29
(65,510)
(59,193)
307,257
308,773
Net fees and commission income
Net financial operating income
30
24,747
26,927
Foreign exchange transactions, net
31
35,136
(7,973)
36
22,061
24,735
1,342,039
1,223,782
(188,190)
(124,840)
1,153,849
1,098,942
Total operating revenues
Provisions for loan losses
32
OPERATING REVENUES, NET OF PROVISIONS FOR LOAN LOSSES
Personnel expenses
33
(312,065)
(316,991)
Administrative expenses
34
(247,459)
(229,919)
Depreciation and amortization
35
(30,957)
(30,711)
Impairment
35
(899)
(631)
Other operating expenses
37
(42,439)
(35,596)
(633,819)
(613,848)
520,030
485,094
(229)
3,300
519,801
488,394
(53,950)
(59,588)
465,851
428,806
465,850
428,805
1
1
TOTAL OPERATING EXPENSES
NET OPERATING INCOME
Income attributable to associates
14
Income before income tax
Income tax
17
NET INCOME FOR THE YEAR
Attributable to:
Bank’s Owners
Non-controlling interests
Net income per share attributable to Bank’s Owners:
$
$
Basic net income per share
27
5.28
5.01
Diluted net income per share
27
5.28
5.01
Notes
2012
MCh$
2011
MCh$
465,851
428,806
24,510
(9,484)
1,777
(485)
(58)
68
26,229
(9,901)
(5,220)
1,956
21,009
(7,945)
486,860
420,861
486,859
420,860
1
1
B. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET INCOME FOR THE YEAR
OTHER COMPREHENSIVE INCOME
Net unrealized gains (losses):
Net change in unrealized gains (losses) on available for sale instruments
13
Gains and losses on derivatives held as cash flow hedges
Cumulative translation adjustment
Other comprehensive income before income taxes
Income tax related to other comprehensive income
Total other comprehensive income
TOTAL CONSOLIDATED COMPREHENSIVE INCOME
17
Attributable to:
Bank’s owners
Non-controlling interest
Comprehensive net income per share attributable to Bank’s owners:
$
$
Basic net income per share
5.52
4.92
Diluted net income per share
5.52
4.92
147
Consolidated Statements of Changes In Equity
Reserves
Notes
Balances as of December 31, 2010
Capitalization of retained earnings
27
Income retention (released) according to law
Paid-in
Capital
MCh$
Other
reserves
MCh$
Reserves from
earnings
MCh$
1,158,752
32,256
55,130
67,217
—
—
—
—
32,096
Paid and distributed dividends
27
—
—
—
Subscription and payment of shares
27
210,114
—
—
Other comprehensive income:
27
—
—
—
Derivatives cash flow hedge, net
—
—
—
Valuation adjustment on available-for-sale instruments (net)
—
—
—
Equity adjustment in subsidiary
—
—
—
Income for the period 2011
—
—
—
27
—
—
—
1,436,083
32,256
87,226
73,911
—
—
—
—
58,092
—
—
—
—
—
—
Derivatives cash flow hedge, net
—
—
—
Valuation adjustment on available-for-sale instruments (net)
—
—
—
BALANCES AS OF DECEMBER 31, 2011
27
Income retention (released) according to law
Paid and distributed dividends
27
27
Subscription and payment of shares
27
Income for the period 2012
27
119,084
—
—
—
—
—
—
—
—
1,629,078
32,256
145,318
Other comprehensive income
Unrealized
gains (losses)
on availablefor- sale
MCh$
Derivatives
cash flow
hedge
MCh$
Retained earnings
Cumulative
translation
adjustment
MCh$
Retained
earnings
from previous
periods
MCh$
Income for the
year
MCh$
Provision for
minimum
dividends
MCh$
Attributable to
equity holders
of the parent
MCh$
Noncontrolling
interest
MCh$
Total equity
MCh$
5,974
—
(104)
16,091
378,529
(242,503)
1,404,125
2
1,404,127
—
—
—
—
(67,217)
—
—
—
—
—
—
—
—
(32,096)
—
—
—
—
—
—
—
—
(279,216)
242,503
(36,713)
(1)
(36,714)
—
—
—
—
—
—
210,114
—
210,114
—
—
68
—
—
—
68
—
68
—
(395)
—
—
—
—
(395)
—
(395)
(7,618)
—
—
—
—
—
(7,618)
—
(7,618)
—
—
—
288
—
—
288
—
288
—
—
—
—
428,805
—
428,805
1
428,806
—
—
—
—
—
(259,501)
(259,501)
—
(259,501)
(1,644)
(395)
(36)
16,379
428,805
(259,501)
1,739,173
2
1,739,175
—
—
—
—
(73,911)
—
—
—
—
—
—
—
—
(58,092)
—
—
—
—
—
—
—
—
(296,802)
259,501
(37,301)
(1)
(37,302)
—
—
(58)
—
—
—
(58)
—
(58)
—
1,429
—
—
—
—
1,429
—
1,429
19,639
—
—
—
—
—
19,639
—
19,639
—
—
—
—
—
—
119,084
—
119,084
—
—
—
—
465,850
—
465,850
1
465,851
—
—
—
—
—
(300,759)
(300,759)
—
(300,759)
17,995
1,034
(94)
16,379
465,850
(300,759)
2,007,057
2
2,007,059
149
Consolidated Statements of Cash Flows
Notas
2012
MM$
2011
MM$
465,851
428,806
OPERATING ACTIVITIES:
Net income for the year
Items that do not represent cash flows:
35
30,957
30,711
Impairment of intangibles assets and property and equipment
35
899
631
Provision for loan losses, net of recoveries
32
225,631
141,910
Provision of contingent loans
32
1,251
5,219
931
(1,242)
(Income) loss attributable to investments in other companies
14
468
(3,054)
(Income) loss sales of assets received in lieu of payment
36
(5,674)
(5,918)
Fair value adjustment of financial assets held-for-trading
(Income) loss on sales of property and equipment
(Increase) decrease in other assets and liabilities
Charge-offs of assets received in lieu of payment
(318)
(1,311)
34,555
131,430
37
Other credits (debits) that do not represent cash flows
2,600
3,495
1,721
(8,143)
(Gain) loss from foreign exchange transactions of other assets and other liabilities
37,133
17,296
Net changes in interest and fee accruals
4,049
(60,589)
(695,376)
(298,023)
(1,529,338)
(3,024,978)
52,892
9,203
(6,444)
(8,201)
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
Increase (decrease)in current account and other demand deposits
576,301
447,990
Increase (decrease) in payables from repurchase agreements and security lending
(15,277)
196,821
Increase (decrease) in savings accounts and time deposits
327,980
1,540,523
9,510
10,221
(479,698)
(447,203)
295,572
(460,773)
(17,981)
(22,073)
400
1,711
Proceeds from sale of assets received in lieu of payment
TOTAL CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
INVESTING ACTIVITIES:
(Increase) decrease in financial assets available-for-sale
Purchases of property and equipment
16
Proceeds from sales of property and equipment
Purchases of intangible assets
15
(9,116)
(9,597)
14
(71)
—
Dividends received from investments in other companies
14
TOTAL CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
943
761
269,747
(489,971)
Notas
2012
MM$
2011
MM$
FINANCING ACTIVITIES:
Increase in mortgage finance bonds
Repayment of mortgage finance bonds
Proceeds from bond issuances
22
Redemption of bond issuances
—
—
(27,529)
(38,433)
1,233,985
749,586
(389,382)
(109,624)
Proceeds from subscription and payment of shares
27
119,084
210,114
Dividends paid
27
(296,802)
(279,216)
Increase (decrease) in borrowings from financial institutions
142,573
(7,916)
Increase (decrease) in other financial obligations
(16,512)
11,491
Increase (decrease) in Borrowings from Central Bank
(22,793)
22,759
Proceeds from borrowings with Central Bank of Chile (long-term)
Payment of borrowings from Central Bank (long-term)
Proceeds from foreign borrowings
Payment of foreign borrowings
20
91
(56)
(106)
325,247
805,594
(1,013,911)
(446,448)
Proceeds from other long-term borrowings
1,526
3,894
Payment of other long-term borrowings
(7,363)
(9,811)
TOTAL CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
48,087
911,975
(161,864)
(25,199)
(31,720)
7,412
1,429,908
1,447,695
1,236,324
1,429,908
2012
MM$
2011
MM$
Interest received
1,614,122
1,356,265
Interest paid
(657,235)
(545,534)
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
7
OPERATING CASH FLOW OF INTEREST:
151
Notes to the Consolidated Financial Statements
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”). 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’s shares are also listed on the Latin American securities market of the Madrid
Stock Exchange (“LATIBEX”).
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, factoring, insurance
brokerage, financial advisory and securitization.
Banco de Chile’s legal domicile is 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, 2012 were authorized for issuance in accordance with the directors’
resolution on January 24, 2013.
For the convenience of the 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.
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 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, the latter shall prevail.
(b) Basis of consolidation:
The financial statements of Banco de Chile as of December 31, 2012 and 2011 have been consolidated with its Chilean subsidiaries and foreign subsidiary
using the global integration method (line-by-line). They comprise the preparation of the individual financial statements of the Bank and of the companies
that participate in the consolidation, and include the adjustments and reclassifications necessary to homologue the accounting policies and valuation
criteria applied by the Bank, in accordance with the established standards. 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 originated by operations performed between the Bank and its subsidiaries and between the latter 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
Subsidiaries are entities controlled by the Bank. Control exists when the Bank has the power to govern the financial and operating policies of the
entity for the purpose of obtaining benefits from its activities. When evaluating control, one considers the potential voting rights that are currently
executable. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control begins and
until control is last.
The entities controlled by the Bank and which form parts of the consolidation are detailed as follows:
Interest Owned
Rut
Subsidiaries
Country
Functional
Currency
Direct
Indirect
Total
2012
2011
2012
2011
2012
2011
%
%
%
%
%
%
44.000.213-7
Hong Kong
US$
100.00
100.00
—
—
100.00
100.00
96.767.630-6
Banchile Administradora General de Fondos S.A.
Chile
Ch$
99.98
99.98
0.02
0.02
100.00
100.00
96.543.250-7
Banchile Asesoría Financiera S.A.
Chile
Ch$
99.96
99.96
—
—
99.96
99.96
77.191.070-K
Banchile Corredores de Seguros Ltda.
Chile
Ch$
99.83
99.83
0.17
0.17
100.00
100.00
96.894.740-0
Banchile Factoring S.A.
Chile
Ch$
99.75
99.75
0.25
0.25
100.00
100.00
96.571.220-8
Chile
Ch$
99.70
99.70
0.30
0.30
100.00
100.00
96.932.010-K
Banchile Securitizadora S.A.
Chile
Ch$
99.00
99.00
1.00
1.00
100.00
100.00
96.645.790-2
Socofin S.A.
Chile
Ch$
99.00
99.00
1.00
1.00
100.00
100.00
96.510.950-1
Promarket S.A.
Chile
Ch$
99.00
99.00
1.00
1.00
100.00
100.00
(ii) Associates:
An associate is an entity over whose operating and financial management policy decisions the Bank has significant influence, but in which it does not
hold a controlling interest. Significant influence is generally presumed when the Bank holds between 20% and 50% of the voting rights. The existences of
potential voting rights that are currently exercisable or convertible are considered when assessing whether the Bank has significant influence. Investments
in associates are accounted for using the equity method. Other factors considered 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 require the application of the equity method for a particular investment even though the Bank’s holdings are for less than 20% of the voting stock.
153
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.
(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 continuously its consolidation area, considering that the principal criteria are the control
that the Bank has in a entity and not its percentage of equity participation.
Special purpose entities (SPEs) are generally created to comply with a specific and well-defined objective, such as securitizing specific assets or
carrying out a specific loan transaction. A SPE is consolidated if, based on an assessment of its relationship with the Bank and the risks and benefits
of the SPE, the Bank concludes that it has control. As of December 31, 2012 and 2011, the Bank does not control any SPEs.
(v) Fund management
The Bank manages assets maintained in common investment funds and other investment products on behalf of investors. Different entities which
conform consolidation group of Banco de Chile (Banchile Administradora General de Fondos S.A. and Banchile Securitizador S.A) and owned by third
parties are not included in Consolidated Statements of Financial Position, unless the Bank has the control. As of December 31, 2012 and 2011, the
Bank does not control or consolidate any of these funds.
Fees generates by this activity are included in the item “Income from fees and commissions” of Consolidates Statements of Comprehensive Income.
(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.
(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. Goodwill valuation (Note 15);
2. Useful lives of property and equipment and intangible assets (Note 15 and 16);
3. Income taxes and deferred taxes (Note 17);
4. Provisions (Note 24);
5. Commitments and contingencies (Note 26);
6. Provision for loan losses (Note 32);
7. Impairment of other financial assets (Note 35);
8. Fair value of financial assets and liabilities (Note 39)
During the year ended December 31, 2012, there have been no significant changes in the estimates made as of 2011 year-end, other than those indicated
in these Consolidated Financial Statements.
(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) Recognition
Initially, the Bank and its subsidiaries recognize loans to customers, trading and investment securities, deposits, debt issued and subordinated liabilities
on the date they originated. 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. All other assets and liabilities (including assets and liabilities at fair value through profit and loss) are
initially recognized as of the trade date on which the Bank becomes a party to the contractual provisions of the instrument.
(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 transferred. Any portion of
transferred financial assets that is created or retained by the Bank is recognized as a separate asset or liability.
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.
When the Bank transfers a financial asset, it assesses to what extent it has retained the risks and rewards of ownership. In this case:
(a) If substantially all risks and rewards of ownership of the financial asset have been transferred, it is derecognized, and any rights or obligations
created or retained upon transfer are recognized separately as assets or liabilities.
(b) If substantially all risks and rewards of ownership of the financial asset have been retained, the Bank continues to recognize it.
(c) If substantially all risks and rewards of ownership of the financial asset are neither transferred nor retained, the Bank will determine if it has
retained control of the financial asset. In this case:
(i) If it has not retained control, the financial asset will be derecognized, and any rights or obligations created or retained upon transfer will be
recognized separately as assets or liabilities.
(ii) If the entity has retained control, it will continue to recognize the financial asset in the Consolidated Financial Statement by an amount equal
to its exposure to changes in value that can experience and recognize a financial liability associated to the transferred financial asset.
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(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 in determinated date is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction. The most objective and common fair value of a financial instrument is the price you
paid for it on an active, transparent and deep market (“quoted price” or “market price”).
When available, the Bank estimates the fair value of an instrument using quoted prices in an active market for that instrument. A market is considered
active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis.
If a market for a financial instrument is not active, the Bank establishes fair value using a valuation technique. These valuation techniques include
the use of recent market transactions between knowledgeable, willing parties in an arm’s length transaction, if available, as well as references to
the fair value of other instruments that are substantially the same, discounted cash flows and options pricing models.
The chosen valuation technique use the maximum observable market data, relies as little as possible on estimates performed by the Bank, incorporates
factors that market participants would consider in setting a price and is consistent with accepted economic methodologies for pricing financial
instruments. Inputs into the valuation technique reasonably represent market expectations and include risk and return factors that are inherent in
the financial instrument. Periodically, the Bank calibrates the valuation technique and tests it for validity using prices from observable current market
transaction in the same instrument or based on any available observable market data.
The best evidence of the fair value of a financial instrument at initial recognition is the transaction price (i.e. the fair value of the consideration given
or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same
instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.
When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction
price and any difference between this price and the value initially obtained from a valuation model is subsequently recognized in income depending
on the individual facts and circumstances of the transaction but not later than the valuation is supported wholly by observable market data or the
transaction is closed out.
Generally, the Bank has assets and liabilities that offset each other’s market risks. In these cases, average market prices are used as a basis for
establishing these values. In the case of open positions, the Bank applies the current offer or buyer price, as appropriate, for the net open position.
Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties; to the extent that the Bank
believes that a third-party market participant would take them into account in pricing a transaction.
The available-for-sale instruments market valuation process consists in changing the rate from an average rate of sale (mid-rate) at the rate of sale
of these instruments (offer-rate).
When the transaction price is different from the fair value derived from other observable current market transactions in the same instrument or based
on a valuation technique whose variables include only data from observable markets, the Bank immediately recognizes the difference between the
transaction price and fair value (a “Day 1” profit or loss) in “Net financial operating income”. In cases where fair value is determined using data that
is not observable, the difference between the transaction price and model value is only recognized in the Consolidated Statement of Comprehensive
Income when the inputs become observable, or when the document is derecognized.
The Bank’s fair value disclosures are included in Note 39.
(f) Presentation and functional currency
The items included in the financial statements of each of the entities of Banco de Chile and its subsidiaries are valued using the currency of the primary
economic environment in which it operates (functional currency). The functional currency of Banco de Chile is the Chilean peso, which is also the currency
used to present the entity’s consolidated financial statements, that is the currency of the primary economic environment in which the Bank operates, as
well as obeying to the currency that influences in the costs and income structure.
(g) Transactions in foreign currency
Transactions in currencies other than the functional currency are considered to be in foreign currency and are initially recorded at the exchange rate of
the functional currency on the transaction date. Monetary assets and liabilities denominated in foreign currencies are converted using the exchange rate
of the functional currency as of the date of the Statement of Financial Position. All differences are recorded as a debit or credit to income.
As of December 31, 2012, 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$479.47
to US$1. As of December 31, 2011, the Bank used the observed exchange rate equivalent to Ch$519.80 to US$1.
The gain of MCh$35,136 for net foreign exchange income (income of MCh$7,973 in 2011) 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).
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(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 that are presented under “Trading Instruments” in the Consolidated Statement of
Financial Position.
(ii) Operating activities: corresponds to normal activities of banks, as well as other activities that cannot classified like investing or financing activities.
(iii) Investing activities: correspond to the acquisition, sale or disposition other forms, of long-term assets and other investments that not include in cash
and cash equivalent.
(iv) Financing activities: corresponds to the activities that produce changes in the amount and composition of the equity and the liabilities that are not
included in the operating or investing activities.
(j) Financial assets held-for-trading:
Financial assets held-for-trading consist of securities acquired with the intention of generating profits as a result of short-term prices fluctuation or as a
result of brokerage activities, or are part of a portfolio on which a short-term profit-generating pattern exists.
Financial assets held-for-trading are stated at their fair 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”.
All purchases and sales of financial assets held-for-trading that must be delivered within the period established by market regulations or conventions
are recorded using the trade date, which is the date on which the purchase or sale of the asset is committed. Any other purchase or sale is treated as a
derivative (forward) until settlement occurs.
(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.
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.
(l)
Derivative instruments:
Derivative instruments, which include foreign currency and U.F. forwards, interest rate forwards, currency and interest rate swaps, currency and interest rate
options and other financial derivative instruments, are recorded in the Consolidated Statement of Financial Position at their cost (included transactions costs)
and subsequently measured at fair value. Derivative instruments are reported as an asset when their fair value is positive and as a liability when negative
under the item “Derivative Instruments”.
Changes in fair value of derivative contracts held for trading purpose are included under “Profit (loss) net of financial operations”, in the Consolidated Statement
of Comprehensive Income.
Certain embedded derivatives in other financial instruments are treated as separate derivatives when their risk and characteristics are not closely related to
those of the main contract and if the contract in its entirety is not recorded at its fair value with its unrealized gains and losses included in income.
At inception, 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)
(2)
A hedge of the fair value of existing assets or liabilities or firm commitments, or
A hedge of cash flows related to existing assets or liabilities or forecasted transactions.
A hedge relationship for hedge accounting purposes must comply with all of the following conditions:
(a) at its inception, the hedge relationship has been formally documented;
(b) it is expected that the hedge will be highly effective;
(c) the effectiveness of the hedge can be measured in a reasonable manner; and
(d) t h e h e d g e i s h i g h l y e f f e c t i v e w i t h r e s p e c t t o t h e h e d g e d r i s k o n a n o n g o i n g b a s i s a n d t h r o u g h o u t
the entire hedge relationship.
Certain derivatives transactions that do not qualify for hedge accounting are treated and reported as derivatives for trading purposes even though they
provide an effective hedge on the risk of net positions.
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When a derivative instrument hedges the risk of changes in the fair value of an existing asset or liability, the asset or liability is recorded at its fair value
with respect to the specific hedged risk. Gains or losses from fair value adjustments, both the hedged item and the derivative instrument, are recognized
in income.
Should the hedged item in a fair value hedge be a firm commitment, changes in the fair value of the commitment with respect to the hedged risk are
recorded as an asset or liability against net income for the year. Gains or losses from fair value adjustments of the hedging derivative are recorded in
income. When an asset or liability is acquired as a result of the commitment, the initial recognition of the asset or liability acquired is adjusted to incorporate
the accumulated effect of the valuation at fair value of the firm commitment, which was previously recorded in the Consolidated Statement of Financial
Position.
When a derivative hedges the risk of changes in the cash flows of existing assets or liabilities or forecasted transactions, the effective portion of changes
in the fair value related to the hedged risk is recorded in equity net of income taxes. Any ineffective portion is directly recorded in income. The accumulated
amounts recorded in equity are transferred to income at the moment that the hedge item affects income.
When an interest rate fair value hedge is performed on a portfolio basis and the hedged item is an amount instead of individualized assets or liabilities, or
gains or losses from fair value adjustments, both the hedged portfolio and the derivative instrument are recorded in income, but the fair value adjustment
of the hedged portfolio is reported in the Consolidated Statement of Financial Position under “Other assets” or “Other liabilities”, according to the position
of the portfolio hedged at this moment.
(m) Loans to customers:
Loans to customers include originated and purchased non-derivative financial assets with fixed or determinable payments that are not quoted on an active
market and which the Bank does not intend to sell immediately or in the short-term.
(i)
Valuation method
Loans are initially measured at cost plus incremental transaction costs, and subsequently measured at amortized cost using the effective interest rate
method, except when the Bank defined some loans as hedged items, which are measured at fair value, changes are recorded in the Consolidated
Statement of Income, as described in letter (l) of this note.
(ii) Lease contracts:
Accounts receivable for leasing contracts, included under the caption “Loans to customers” are recorded MCh$1,113,272 as of December 31, 2012
(MCh$996,566 in 2011), 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:
The Bank and its subsidiary Banchile Factoring S.A. carry out factoring transactions, where they receive invoices and other commercial instruments
representative of credit, with or without recourse, and they advance to the assignor a percentage of the total amounts to be collected from the original
debtor.
As of December 31, 2012, the item “Loans to customers” includes MCh$606,137 (MCh$589,098 in 2011), corresponding to the amount advanced
to the assignor, plus accrued interest net of payments received.
(iv) Impairment of loans
The impaired portfolio includes loans of debtors for which there is evidence that they will not fulfill some of their obligations on the agreed upon
payment conditions without the possibility of recovering what is owed, having to recur to the guarantees, through exercising judicial payment actions
or agreeing upon other conditions.
The following are certain situations that constitute evidence that the debtors will not fulfill their obligations with the Bank in accordance with what
has been agreed upon, and that their loans are impaired:
t Evident financial difficulties of the debtor or significant worsening of their credit quality.
t Notorious indicators that the debtor will go into bankruptcy or into a forced restructuring of debts or that effectively bankruptcy or a similar measure
has been filed in relation to their payment obligations, including delaying or non-payment of obligations.
t Forced restructuring of a loan due to economic or legal factors related to the debtor, whether by decreasing the payment obligation or delaying
the principal, interest or commissions.
t The obligations of the debtor are negotiated with a significant loss due to the vulnerability of the debtor’s payment capacity.
t Adverse changes produced in the technological, market, economic or legal area in which the debtor operates, which potentially compromise the
debtor’s payment capacity.
In any case, when dealing with debtors subject to individual assessment, are considered in impaired portfolio all credits of debtors classified in some
the “Non-complying Loans “ categories, as well as in categories B3 and B4 of “Substandard Portfolio.” Also, being subject to assessment debtors
group, the impaired portfolio includes all credits of the Non-complying loans.
The Bank incorporates the loans to impaired portfolio and keeps them in that portfolio, until it is not observed a normalization of the capacity or
conduct of payment.
(v) Allowance for loan losses
Allowances are required to cover the risk of loan losses have been established in accordance with the instructions issued by the Superitendency of
Banks. The loans are presented net of those allowances or showing the reduction, 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
An individual analysis of debtors is applied to individuals and companies that are of such significance with respect to size, complexity or level of
exposure to the bank, that they must be analyzed in detail.
Likewise, the analysis of borrowers should focus on its ability to payment, to have sufficient and reliable information, and to analyze in regard to
guarantees, terms, interest rates, currency and revaluation, etc.
For purposes of establish the allowances and before the assignment to one of three categories of loans portfolio: Normal, Substandard and Noncomplying Loans, it must classify the debtors and their operations related to loans and contingent loans in the categories that apply.
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vi.1 Normal Loans and Substandard Loans:
Normal loans correspond to borrowers who are up to date on their payment obligations and show no sign of deterioration in their credit quality.
Loans classified in categories A1 through A6.
Substandard loans includes all borrowers with insufficient payment capacity or significant deterioration of payment capacity that may be reasonably
expected not to comply with all principal and interest payments obligations set forth in the credit agreement.
This category also includes all loans that have been non-performing for more than 30 days. Loans classified in this category are B1 through B4.
As a result of individual analysis of the debtors, the banks must classify them in the following categories, assigning, subsequently, the percentage
of probability of default and loss given default resulting in the corresponding percentage of expected loss:
Classification
Probability of default
(%)
Loss given default
(%)
Expected loss
(%)
0.04
90.0
0.03600
A2
0.10
82.5
0.08250
A3
0.25
87.5
0.21875
Category
A1
Normal Loans
Substandard Loans
A4
2.00
87.5
1.75000
A5
4.75
90.0
4.27500
A6
10.00
90.0
9.00000
B1
15.00
92.5
13.87500
B2
22.00
92.5
20.35000
B3
33.00
97.5
32.17500
B4
45.00
97.5
43.87500
Allowances for Normal and Substandard Loans
To determine the amount of allowances to be constitute for normal and substandard portfolio, previously should be estimated the exposure to subject
to the allowances, which will be applied to respective expected loss (expressed in decimals), which consist of probability of default (PD) and loss
given default (LGD) established for the category in which the debtor and/or guarantor belong, as appropriate.
The exposure affects to allowances applicable to loans plus contingent loans minus the amounts to be recovered by way of the foreclosure of
guarantees. Loans means the book value of credit of the respective debtor, while for contingent loans, the value resulting from to apply the indicated
in No.3 of Chapter B-3 of Compilation of Standards of the Chilean Superintendency of Banks (RAN).
The banks must use the following equation:
Provision = (ESA-GE) x (PD debtor /100)x(LGD debtor/100)+GE x(PD guarantor/100)x(LGD guarantor /100)
Where:
ESA
GE
= Exposure subject to allowances
= Guaranteed exposure
EAP
= (Loans + Contingent Loans) – Financial Guarantees
EAP = (Colocaciones + Créditos Contingentes) – Garantías financieras o reales
However, independent of the results obtained from the equation above, the bank must be assigned a minimum provision level of 0.5% of the Normal
Loans (including contingent loans).
vi.2 Non-complying Loans
The non-complying loans corresponds to borrowers and its credits whose payment capacity is seriously at risk and who have a high likelihood of
filing for bankruptcy or are renegotiating credit terms to avoid bankruptcy. This category comprises all loans and contingent loans outstanding from
debtors that have at least one installment payment of interest or principal overdue for 90 days or more. This group is composed of debtors belonging
to categories C1 through C6 of the classification level and all loans, inclusive contingent loans, which maintain the same debtors.
For purposes to establish the allowances on the non-complying loans, the Bank dispose the use of percentage of allowances to be applied on the
amount of exposure, which corresponds to the amount of loans and contingent loans that maintain the same debtor. To apply that percentage, must
be estimated a expected loss rate, less the amount of the exposure the recoveries by way of foreclosure of guarantees and, if there are available
specific background, also must be deducting present value of recoveries obtainable exerting collection actions, net of expenses associated with them.
This loss percentage must be categorized in one of the six levels defined by the range of expected actual losses by the Bank for all transactions of
the same debtor.
These categories, their range of loss as estimated by the Bank and the percentages of allowance that definitive must be applied on the amount of
exposures, are listed in the following table:
Type of Loan
Non-complying loans
Classification
Expected loss
Allowance (%)
C1
Up to 3 %
C2
More than 3% up to 20%
2
C3
25
C4
More than 30 % up to 50%
40
10
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
R
AP
= total exposure
= recoverable amount based on estimates of collateral value and collection efforts
= allowance percentage (based on the category in which the expected loss should be classified).
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(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.
The estimated losses should be related to the type of portfolio and the operations terms.
In the case of consumer loans are not considered collateral for purposes of estimating the expected loss.
The group analysis is used to analyze a large number of operations whose individual amounts are not significant. For this analysis, the Bank uses models
based on attributes of the debtors and their loans, and on the behavior of a group of loans. In the group evaluations, the allowances are always constituted
in accordance with the estimated loss using the aforementioned models.
Allowances are establish according with the results of the application of the methods used by the Bank, distinguishing between allowances over normal
portfolio and over the non-complying loans, and those that protect the contingent credit risks associated with these portfolios.
The non-complying loans includes loans and contingent credits linked to debtors that have delay more than 90 days in the payment of interest or principal,
including all their credits, even 100% of the amount of contingent credit, related to the same debtor has it .
(vi) Charge-offs
Generally, the charge-offs are produced when the contractual rights on cash flows end. In case of loans, even if the above does not happen, it will
proceed to 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.
b) When past-due term of a transaction complies with the following:
Type of Loan
Term
Consumer loans - secured and unsecured
6 months
Other transactions - unsecured
24 months
Commercial loans - secured
36 months
Residential mortgage loans
48 months
The term represents the time elapsed since the date on which payment of all or part of the obligation in default became due.
(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 can not 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.
(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, as indicated in No. 3 above.
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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. On an ongoing basis the Bank reassesses whether the ability and intention to sell
available-for-sale instruments remains to be given.
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.
Financial assets available for sale are subsequently measured at their fair value based on market prices or valuation models. Unrealized gains or losses
as a result of fair value adjustments are recorded in “Other comprehensive income” within Equity. When these investments are sold, the cumulative fair
value adjustment existing within equity is recorded directly in income under “Net financial operating income”.
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.
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).
Purchases and sales of investment securities that must be delivered within the period established by market regulations or conventions are recorded using
the trade date that is the date on which the purchase or sale of the asset is committed. Any other purchase or sale is treated as a derivative (forward)
until liquidation occurs.
As of December 31, 2012 and 2011, the Bank and its subsidiaries do not hold held to maturity instruments.
(o) Debt issued and other financial liabilities:
Financial instruments issued by the Bank are classified in the Statement of Financial Position under “Debt issued” items, where the substance of the
contractual arrangement results in the Bank having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation
other than by the exchange of a fixed amount of cash.
After initial measurement, debt issued is subsequently measured at amortized cost using the effective interest rate. Amortized cost is calculated by taking
into account any discount or premium on the issue and costs that are an integral part of the effective interest rate.
(p) Intangible assets:
Intangible assets are identified as non-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of
a legal transaction or are 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.
(i)
Goodwill
Goodwill arises on the acquisition of subsidiaries and associates representing the excess of the fair value of the purchase consideration and cost
directly attributable to the acquisition over the net fair value of the Bank’s share of the identifiable assets acquired and the liabilities and contingent
liabilities assumed on the date of the acquisition.
For the purpose of calculating goodwill, fair values of acquired assets, liabilities and contingent liabilities are determined by reference to market
values or by discounting expected future cash flows to present value. This discounting is either performed using market rates or by using risk-free
rates and risk-adjusted expected future cash flows.
Goodwill held as of December 31, 2012 and 2011 is presented at cost, less accumulated amortization in accordance with its remaining useful life.
(ii)
Software or computer programs
Computer software 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.
(iii) Other identifiable intangible assets
This item applies to identifiable intangible assets for which the cost can be reliably measured and which are likely to generate future economic
benefits for the Bank.
(q) 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 or fair value as attributed cost less accumulated depreciation and accumulated
impairment, with price-level restatement applied up to December 31, 2007.
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.
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Estimated useful lives for 2012 and 2011 are as follows:
Buildings
50 years
Installations
10 años
Equipment
10 years
3 years
5 años
Supplies and accessories
5 years
Maintenance expenses relating to those assets held for own uses are recorded as expenses in the period in which they are incurred.
(r) 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.
(s) 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.
(t) Investment properties:
Investments properties are real estate assets held to earn rental income or for capital appreciation or both, but are not held-for-sale in the ordinary course
of business or used for administrative purposes. Investment properties are measured at fair value as attributed cost calculated as of January 1, 2008, less
accumulated depreciation and impairment and are presented under “Other Assets”.
(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)
ii)
a present obligation has arisen from a past event and,
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, as indicated in Chapters 8-38 of that Compilation.
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.
Interbank guarantee: Correspond to letters of guarantee issued as foreseen in Title II of Chapters 8-12 of the Updated Compilation of Standards.
vi. Free disposal lines of credit: The unused amount of credit lines that allow customers to draw without prior approval by the Bank (for example, using
credit cards or overdrafts in checking accounts).
vii. Other credit commitments: Amounts not yet lent under committed loans, which must be disbursed at an agreed future date when events contractually
agreed upon with the customer occur, such as in the case of lines of credit linked to the progress of a construction or similar projects.
viii. Other contingent loans: Includes any other kind of commitment by the Bank which may exist and give rise to lending when certain future events occur.
In general, this includes unusual transactions such as pledges made to secure the payment of loans among third parties or derivative contracts made by
third parties that may result in a payment obligation and are not covered by deposits.
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Exposure to credit risk on contingent loans:
In order to calculate provisions on contingent loans, as indicated in Chapter B-1 of the Compendium of Accounting Standards of the Superintendency of Banks,
the amount of exposure that must be considered shall be equivalent to the percentage of the amounts of contingent loans indicated below:
Type of contingent loan
a) Guarantors and pledges
b) Confirmed foreign letters of credit
Exposure
100%
20%
c) Documentary letters of credit issued
20%
d) Guarantee deposits
50%
e) Interbank letters of guarantee
f) Free disposal lines of credit
100%
50%
g) Other loan commitments
- College education loans Law No. 20,027
- Others
h) Other contingent loans
15%
100%
100%
Notwithstanding the above, when dealing with transactions performed with customers with overdue loans as indicated in Chapter B-1 of the Compendium
of Accounting Standards of the SBIF: Impaired and/or Written-down Loans, that exposure shall be equivalent to 100% of its contingent loans.
Additional provisions:
In accordance to Superintendency of Banks regulations, the Bank has recorded additional allowances for its individually evaluated loan portfolio, taking
into consideration the expected impairment of this portfolio. The calculation of this allowance is performed based on the Bank’s historical experience and
considering possible future adverse macroeconomic conditions or circumstances that could affect a specific sector, industry, groups of debtors or projects.
The provisions made in order to forestall the risk of macroeconomic fluctuations should anticipate situations reversal of expansionary economic cycles in
the future, could translate into a worsening in the conditions of the economic environment and, thus, function as a countercyclical mechanism accumulation
of additional provisions when the scenario is favorable and release or assignment to specific provisions when environmental conditions deteriorate.
According to the above, additional provisions must always correspond to general provisions on commercial, consumer or mortgage loans, or segments
identified, and in no case may be used to offset weaknesses of the models used by the bank.
During the current year, the Bank recorded additional provisions with a charge to income of MCh$2,271 (MCh$24,052 in 2011). As of December 31, 2012
the additional provisions amounted Ch$97,757 million (Ch$95,486 million), which are presents in the item “Provisions” of the liability in the Consolidated
Statement of Financial Position.
(v) Provision for minimum dividends:
According with the Compendium of Accounting Standards of the SBIF, the Bank records within liabilities the portion of net income for the year that should
be distributed to comply with the Corporations Law or its dividend policy. For these purposes, the Bank establishes a provision in a complementary equity
account within retained earnings.
Distributable net income is considered for the purpose of calculating a minimum dividends provision, which in accordance with the Bank’s bylaws is
defined as that which results from reducing or adding to net income the value of price-level restatement for the concept of restatement or adjustment of
paid-in capital and reserves for the year and their corresponding variations.
(w) Employee benefits:
(i)
Staff vacations:
The annual costs of vacations and staff benefits are recognized on an accrual basis.
(ii) Short-term benefits
The Bank has a yearly bonus plan for its employees based on their ability to meet objectives and their individual contribution to the company’s results,
consisting of a given number or portion of monthly salaries. It is provisioned for based on the estimated amount to be distributed.
(iii) Staff severance indemnities:
Banco de Chile has recorded a liability for long-term severance indemnities in accordance with employment contracts it has with certain employees.
The liability, which is payable to specified retiring employees with 30 or 35 years of service, is recorded at the present value of the accrued benefits,
which are calculated by applying a real discount rate to the benefit accrued as of year-end over the estimated average remaining service period.
Obligations for this defined benefits plan are valued according to the projected unit credit actuarial valuation method, using inputs such as staff
turnover rates, expected salary growth in wages and probability that this benefit will be used, discounted at current long-term rates (5.50% as of
December 31, 2012 and 6.04% as of December 31, 2011).
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 recognized as income or expense at the end of each reporting period. There is no past service costs that would have
to be recognized by the Bank.
(x) Earnings per share:
Basic earnings per share is determined by dividing net income for the year attributable to the Bank by the average weighted number of shares in circulation
during that 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, 2012 and 2011, the Bank does not have
any instruments or contracts that could cause dilutions. Therefore, no adjustments have been made.
(y) Interest revenue and expense:
Interest income and expenses are recognized in the income statement using the effective interest rate method. The effective interest rate is the rate which
exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument (or a shorter period) where appropriate,
to the carrying amount of the financial asset or financial liability. To calculate the effective interest rate, the Bank determines cash flows by taking into
account all contractual conditions of the financial instrument, excluding future credit losses.
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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 accrualbasis 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:
t-PBOTDMBTTJGJFEJODBUFHPSJFT$BOE$"DDSVBMJTTVTQFOEFECZUIFTPMFGBDUPGCFJOHJOUIFJNQBJSFEQPSUGPMJP
t-PBOTDMBTTJGJFEJODBUFHPSJFT$BOE$"DDSVBMJTTVTQFOEFEEVFUPIBWJOHCFFOUISFFNPOUITJOUIFJNQBJSFEQPSUGPMJP
Group evaluation loans:
t-PBOTXJUIMFTTUIBOSFBMHVBSBOUFFT"DDSVBMJTTVTQFOEFEXIFOQBZNFOUPGUIFMPBOPSPOFPGJUTJOTUBMMNFOUTIBTCFFOPWFSEVFGPSTJYNPOUIT
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.
(aa) Identifying and measuring impairment:
Financial assets
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 recorded at amortized cost is calculated as the difference between the asset’s carrying amount and the present
value of the estimated future cash flows, discounted using the effective interest rate.
An impairment loss for available-for-sale financial assets is calculated using its fair value, considering fair value changes already recognized in other
comprehensive income.
In the case of equity investments classified as available-for-sale financial assets, objective evidence includes a significant or prolonged decline in the fair
value of the investment below cost. In the case of debt securities classified as available-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 amortized cost, it is no longer considered impaired and subsequent changes
in fair value are reported in equity.
Individually significant financial assets are individually examined to determine impairment. Remaining financial assets are collectively evaluated in groups
that share similar credit risk characteristics.
All impairment losses are recognized in the income statement. Any cumulative loss related to available-for-sale financial assets recognized previously in
equity is transferred to the income statement.
An impairment loss can only be reversed if it can be related objectively to an event occurring after the impairment loss was recognized. Reversal of financial
assets recorded at amortized cost and those classified as available-for-sale that are sales instruments is recorded in the income statement. Reversal of
financial assets that are variable income instruments is recognized directly in equity.
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. The amount of the reversal is recognized in profit
or loss up to the amount previously recognized as impairment. Impairment losses recognized in profit or loss for an investment in an equity instrument
classified as available-for-sale are not reversed through 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 amount that would have been determined, net of depreciation or amortization,
if no impairment loss had been recognized.
The Bank assesses at each reporting date and on an ongoing basis whether there is an indication that an asset may be impaired. If any indication exists, the
Bank estimates the asset’s recoverable amount. An asset’s recoverable amount is the fair value less costs to sell and its value in use. Where the carrying
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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.
For assets, excluding goodwill, impairment losses recognized in prior years are assessed at each reporting date, in search of any indication that the loss
has decreased or disappeared. A previously recognized impairment is reversed only if there has been a change in the assumptions used to determine the
asset’s recoverable amount since the last impairment was recognized. An impairment loss is reversed only to the extent that the book value of the asset
does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Such reversal is recognized in the income statement.
Impairment losses related to goodwill cannot be reversed in future periods.
(ab) Lease transactions:
(i) The Bank acting as lessor
Assets leased to customers under agreements which transfer substantially all the risks and rewards of ownership, with or without ultimate legal title,
are classified as finance leases. When assets held are subject to a finance lease, the leased assets are derecognized and a receivable is recognized
which is equal to the present value of the minimum lease payments, discounted at the interest rate implicit in the lease. Initial direct costs incurred in
negotiating and arranging a finance lease are incorporated into the receivable through the discount rate applied to the lease. Finance lease income
is recognized over the lease term based on a pattern reflecting a constant periodic rate of return on the net investment in the finance lease.
Assets leased to customers under agreements which do not transfer substantially all the risks and rewards of ownership are classified as operating
leases.
The leased assets are include within “Other Assets” on the Group’s balance sheet and depreciation is provided on the depreciable amount of these
assets on a systematic basis over their estimated useful economic lives. Rental income is recognized on a straight-line basis over the period of the
lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized
as an expense on a straight-line basis over the lease term.
(ii) The Bank acting as lessee
Assets held under finance leases are initially recognized on the balance sheet at an amount equal to the fair value of the leased property or, if lower,
the present value of the minimum lease payments. As of December 31, 2012 and 2011, 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.
(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. In accordance with IFRIC 13 the costs which
the Bank incurs providing this incentive are recognized at fair value when the corresponding revenue is recognized, considering the probabilities of being
used by the customers to obtain the third party’s service. The points collected cannot be used to obtain services directly from the Bank.
(ae) Reclassifications
Certain reclassifications have been made on some items of the Consolidated Statement of Financial Position and Consolidated Statement of Comprehensive
Income as of December 31, 2011 in order to maintain an adequate comparability of these states.
3. New Accounting Pronouncements:
The following is a summary of new standards, interpretations and improvements to the international accounting standards issued by the International Accounting
Standards Board (IASB) but which have not come into effect as of December 31, 2012, as per the following detail:
IAS 1 Presentation of Financial Statements
Amendment issued in June 2011. The main change for this is the requirement that the items of “Other Comprehensive Income” are classified and grouped,
evaluating whether potentially be reclassified to earnings in future periods. The amendment is applicable for annual periods beginning on or after July 1, 2012.
The annual improvements to IFRS, issued in May 2012, provide amendments to IAS 1 in order to clarify the requirements to provide comparative information for:
a) The requirements comparative of the opening statement of financial position when an entity applies an accounting policy retrospectively, or makes a
retrospective restatement or reclassification, according to IAS 8 “Accounting policies, changes in accounting estimates and errors”, and
b) The requirement to provide comparative information when an entity provides additional comparative information beyond the minimum comparative information
requirements.
The amendment is applicable for annual periods beginning January 1, 2013 and earlier application is permitted. The amendment is applied retrospectively for
any change accordance with the description in a) and b).
The management estimates that this change has not significant impacts in the consolidated financial statements of Banco de Chile and its subsidiaries.
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IAS 19 Employee Benefits
The amendments to IAS 19 (1,998) remove the option to defer the recognition of actuarial gains and losses (the “corridor method”), streamline the presentation
of changes in assets and liabilities arising from defined benefit plans and enhance the disclosure requirements for defined benefit plans. Entities are required
to apply amendments in the annual periods beginning on or after January 1, 2013, or earlier.
According to the assessment made, this change has not significant impacts in the consolidated financial statements of Banco de Chile and its subsidiaries.
IAS 27 Separate Financial Statements
This standard amended in May 2011, and supersedes IAS 27 (2008). The scope of this standard is restricted only for separate financial statements, as the
concept related to the definition of control and consolidation were removed and included in IFRS 10.
Entities are required to apply amendments in the annual periods beginning on or after January 1, 2013, and early adoption is permitted in conjunction with
IFRS 10, IFRS 11 and IFRS 12 and the amendment to IAS 28.
Banco de Chile has not separate financial statements, so this regulatory change has not impact in the Consolidated Financial Statements.
IAS 28 Investments in Associates and Joint Venture
This standard was reissued in May 2011, regulates the accounting treatment of application of the equity method to investments in joint ventures. Entities are
required to apply amendments in the annual periods beginning on or after January 1, 2013, and early adoption is permitted in conjunction with IFRS 10, IFRS
11 and IFRS 12 and the amendment to IAS 27.
Banco de Chile has not investments in associates and joint ventures, so this regulatory change has not impact in the Consolidated Financial Statements.
IAS 32 Financial Instruments: Presentation
The amendments issued in December 2011, clarify the meaning of “currently has a legally enforceable right to set-off”. The amendments also clarify the
application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are
not simultaneous. The standard is effective for annual periods beginning on or after January 1, 2014 and early adoption is permitted.
In May 2012, the amendments removes a perceived inconsistency between IAS 32 and IAS 12 and indicating that the income tax relating to distributions to
holders of an equity instrument and to transaction costs of an equity transaction should be accounted for in accordance with IAS 12 “Income Taxes”.
This amendment shall apply retroactively for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
According to current rules about netting force in Chile, this rule has no impact on the consolidated financial statements of Banco de Chile and its subsidiaries.
IAS 34 Interim Financial Reporting
The annual improvements to IFRS, issued in May 2012, incorporates amendments to IAS 34, in which it is established that requires disclosure of assets and
total liabilities for a particular segment, if:
a) It report in a regular form the total assets and liabilities to the operation’s responsible.
b) There has been a material change from the amounts disclosed in the last annual financial statements for that reportable segment.
This amendment shall apply retroactively for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
According to the assessment carried out this policy change has no impact on the consolidated financial statements of Banco de Chile and its subsidiaries.
IFRS 7 Financial Instruments: Disclosures
In December 2011, amended the required disclosures to include information that will enable users of an entity’s financial statements to evaluate the effect or
potential effect of netting arrangements, including rights of set-off associated with the entity’s recognized financial assets and recognized financial liabilities,
on the entity’s financial position. An entity shall apply those amendments for annual periods beginning on or after January 1, 2013.
According to the assessment made, this regulatory change has not impacts in the financial statements of Banco de Chile and its subsidiaries. It will be required
additional disclosures, which it is in process to design, for the next quarterly financial statements.
IFRS 9 Financial Instruments: Financial liabilities
In October, 2010, the IASB published the requirements for classifying and measuring financial liabilities were added to IFRS 9. Most of the added requirements
were carried forward unchanged from IAS 39. However, the requirements related to the fair value option for financial liabilities were changed to address the
issue of own credit risk in response to consistent feedback from users of financial statements and others that the effects of changes in a liability’s credit risk
ought not to affect profit or loss unless the liability is held for trading.
The mandatory effective date to annual periods beginning on or after January 1, 2015.
IFRS 9 Financial Instruments: Recognition and Measurement
In November 2009, the IASB issued IFRS 9, “Financial Instruments,” the first step in its project to replace IAS 39, “Financial Instruments: Recognition and
Measurement”. IFRS 9 introduces new requirements for classifying and measuring financial assets that are in the scope of the application of IAS 39. This
new regulation requires that all financial assets be classified in function of the entity’s business model for the management of financial assets and of the
characteristics of the contractual cash flows of financial assets. A financial asset shall be measured at amortized cost if two criteria are fulfilled: (a) the
objective of the business model is to maintain a financial asset to receive contractual cash flows, and (b) contractual cash flows represent principal and interest
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payments. Should a financial asset not comply with the aforementioned conditions, it will be measured at fair value. In addition, this standard allows a financial
asset that fulfills the criteria to be valued at amortized cost to be designated at fair value with changes in income under the fair value option, as long as this
significantly reduces or eliminates an accounting asymmetry. Likewise, IFRS 9 eliminates the requirement of separating embedded derivatives from the host
financial assets. Therefore, it requires that a hybrid contract be classified entirely in amortized cost or fair value.
IFRS 9 is effective for annual periods commencing as of January 1, 2015, and allows adoption prior to that date. IFRS 9 must be applied retroactively, however
if it is adopted before January 1, 2012, there is no need to reformulate comparative periods.
Banco de Chile and its subsidiaries are assessing the possible impact of adoption of these changes on the consolidated financial statements, however, that impact
will depend on the assets maintained by the institution as of the adoption date. It is not practicable to quantify the effect on the issuance of these consolidated
financial statements. To date, neither of these standards has been approved by the Superintendency of Banks, event that is required for their application.
IFRS 10 Consolidated Financial Statement
In May 2011 the IASB issued IFRS 10 establishes a new definition of control applies to all entities including “special purpose entities” or “structured entities”
as they are now referred to in the new standards. The changes introduced by IFRS 10 will require management to exercise significant judgment to determine
which entities are controlled, and therefore are required to be consolidated by a parent.
To date, Banco de Chile and its subsidiaries are evaluating the possible impact that the adoption of
this standard will have on its consolidated financial statements. However, it will be required additional disclosures, which it is in process to design, for the next
quarterly financial statements.
IFRS 11 Joint Arrangements
In May 2011, the IASB issued IFRS 11 which replaces IAS 31 “Interest in Joint Ventures” and SIC-13 “Jointly-Controlled Entities- Non-monetary Contributions
by Ventures”.
IFRS 11 eliminated the option to record the value of investment in a joint venture using proportionate consolidation or recognize its assets and liabilities its
relative shares of those items, if any. The new standards require using the equity method.
These new standard is effective for annual periods beginning on or after January 1, 2013.
According to assessment made this regulatory change has not significant impact in the financial statements of Banco de Chile.
IFRS 12 Disclosure of Interests in Other Entities
In May 2011, the IASB issued IFRS 12 which replaces the disclosure requirements previously included in IAS 27, IAS 31 and IAS 28. This new standard is
aimed at concentrating on a single regulatory body disclosure of subsidiaries, joint agreements, associates and structured entities. One of the most significant
changes introduced by IFRS 12 is required for the parent to disclose the judgment that management has made to determine that it has control to consolidate
or not different entities. The new disclosures will help users of its financial statement evaluate the nature and risks associated with interests in other entities
and the effects of those interests on its financial statements.
According to the assessment made, this regulatory change has not impacts in the financial statements of Banco de Chile and its subsidiaries. It will be required
additional disclosures, which it is in process to design, for the next quarterly financial statements.
IFRS 13 Fair Value Measurement
In May 2011, the IASB issued IFRS 13 Fair Value Measurement. This new standard establishes a new definition of Fair Value (this definition converges with
generally accepted accounting principles in United State). This new standard does not change when an entity must or may use fair value, but changes the way
how to measure the fair value of financial assets and liabilities and non-financial.
According the assessment, this policy change has no impact on the consolidated financial statements of Banco de Chile and its subsidiaries, however the
Bank is working in its disclosures for comply with the further information requests of this rule. This rule will be applicable if Superintendency of Banks and
Financial Institutions allow its adoption.
4. Changes in Accounting Policies and Disclosures:
During the period ended December 31, 2012, have not occurred significant accounting changes that affect the presentation of Consolidated Financial Statements.
5. Relevant Events:
(a) In an ordinary meeting held on January 26, 2012, the Bank’s Board of directors decided to call an ordinary shareholders meeting to be held on March
22, 2012 with the objective of proposing, among other matters, the increase the Banks capital through the capitalization of 30% of the Bank’s net income
for the fiscal year 2011, by means of the issuance of shares without nominal value, set at the value of Ch$67.48 per share and distributed among
shareholders, without charge, at the rate of 0.018956 new shares per each paid for and subscribed share and to adopt all necessary resolutions subject
to the options contemplated in Article 31 of Law N°19,396.
In an ordinary meeting held on March 22, 2012, its shareholders’ approved the distribution and payment of dividend No.200, in the amount of Ch$2.984740
per Banco de Chile common share, which represents 70% of the Bank’s net income for year 2011.
(b) On February 16, 2012 and pursuant to Article 116 of Law No. 18,045, Banco de Chile in his capacity as representative of the bondholders Series A, issued
by Compañía Sud Americana de Vapores S.A., Banco de Chile informed, as an essential information, that because this has occurred the configuration of
the disability cause contemplated in the first paragraph of Article 116 of Law No. 18,045, that is, being the representative of the bondholders related to
the issuer.
The said bond issue is in the public deed dated August 29, 2001, executed in Santiago on behalf of the Public Notary Mr. René Benavente Cash, together
with all the amendments and entered in the Registry of Securities of the Chilean Superintendency of Securities and Insurance under No. 274.
179
(c) On March 27, 2012, the Central Bank of Chile communicated to Banco de Chile that in the Extraordinary Session, No. 1666E, held on the same date, the
Board of the Central Bank of Chile resolved to request its corresponding surplus, from the fiscal year ended December 31, 2011, including the proportional
part of the agreed upon capitalization profits, be paid in cash.
(d) In the Ordinary Meeting held on April 26, 2012, the Board of Directors of Banco de Chile accepted the resignation presented by the Director, Mr. Fernando
Quiroz Robles.
Likewise, the Board of Directors appointed, until the next Ordinary Shareholders Meeting, Mr. Francisco Aristeguieta Silva as Director. Additionally, in the
same session, Mr. Francisco Aristeguieta Silva was appointed as Vice Chairman of the Board of Directors of Banco de Chile.
(e) On June 5, 2012 Banco de Chile informed the capitalization of 30% of the distributable net income obtained during the fiscal year ending the December
31, 2011, through the issuance of fully paid-in shares, of no par value, agreed in the Extraordinary Shareholders Meeting held on March 22, 2012, the
Bank informed the following:
(i)
In the said Extraordinary Shareholders Meeting, it was agreed to increase the Bank´s capital in the amount of Ch$73,910,745,344 through the
issuance of 1,095,298,538 fully paid-in shares, of no par value, payable under the distributable net income for the year ended December 31, 2011
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°118 dated May 17,
2012, which was registered on page 33,050, No. 23,246 on the Chamber of Commerce of Santiago, on May 18, 2012 and was published at “Diario
Oficial” No. 40,267 on May 22, 2012.
The issuance of fully in paid shares was registered in the Securities Register of the Superintendence of Banks and Financial Institutions with No.
4/2012, on June 4, 2012.
(ii) The Board of Directors of Banco de Chile, at the meeting No. 2,754, dated May 24, 2012, set June 28, 2012, 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 0.018956 fully in paid shares for each Banco de Chile share, shall be
those registered in the Registry of Shareholders on June 22, 2012.
(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 88,037,813,511 nominative shares, without
par value.
(f) On July 9, 2012, according to Article 19 of Chilean General Banking Act, the Superintendency of Banks and Financial Institutions imposed a fine of
Ch$40,000,000 (Chilean pesos) to Banco de Chile, in connection with the forwarding and delivering service by electronic mail, of current account
statements corresponding to June 2012.
(g) In the Ordinary Session No. 2,761 held on September 13, 2012, the Board of Directors o Banco de Chile resolve to schedule an Extraordinary Shareholders
Meeting to be held on October 17, 2012, with the purpose of proposing a capital increase in the amount of Ch$250,000,000,000 by means for the
issuance of cash shares that must be subscribed and paid at the price, term and other conditions agreed by the Shareholders Meeting as well as to
modify the Bank’s by-laws by adopting the other necessary agreements so as to make effective the agreed by-laws reform. Cash shares to be issued
will be ordinary Banco de Chile shares having the same rights as all Banco de Chile’s shares, with the exception that they will not allow its shareholders
to receive dividends and/or fully paid-in shares, as the case may be, with respect to the earnings of fiscal year 2012.
(h) On October 17, 2012 pursuant to Articles 9 and 10 of Law No. 18,045 and Chapter 18-10 of the Regulations of the Superintendency of Banks and
Financial Institutions in the Extraordinary Shareholders Meeting held it was agreed to increase the Bank’s capital in the amount of Ch$ 250,000,000,000
by means of the issuance of 3,939,489,442 cash shares, “Banco de Chile-T” series, with same rights as all Banco de Chile’s shares, with the exception
that they will not allow its shareholders to receive dividends and/or fully paid-in shares, with respect to our net distributable earnings for fiscal year 2012.
Once said dividends and/or fully paid-in shares are distributed and paid shares “Banco de Chile-T” will be automatically converted into “Banco de Chile”
shares.
The price of the issuance of the shares will be set by the Board of Directors within a period of 180 days following the aforementioned Shareholders Meeting
according to the terms and conditions agreed upon on therein, having in consideration the market price for the Bank’s shares, and in that case, such price
shall not be more nor less than 8% of the average closing stock market price for Banco de Chile shares in a period of 30 market business days prior to
the determination, minus the net distributable earnings per share accumulated until the last day of the month preceding to the determination date.
Likewise, it was agreed that the shares will be offered to the shareholders in accordance to the law while remaining shares to be offered in the stock
markets of the country, and potentially abroad, at the opportunities determined by the Board of Directors.
On the other hand, in the aforementioned Meeting it was informed that the principal shareholder LQ Inversiones Financieras S.A., has announced by means
of a letter dated October 16, 2012 its intention to underwrite and to pay the aggregate amount of shares corresponding to the Ordinary Preemptive Rights
Period, and to assign and transfer its right to purchase options corresponding to it during the Special Preemptive Rights Period in the aforementioned
capital increase.
(i)
On November 22, 2012 in the Ordinary Meeting No. 2,766 held on this date, the Board of Directors of Banco de Chile resolved the issuance of 3,939,489,442
cash shares, without par value, Series “Banco de Chile-T”, in accordance with the agreements adopted by the Extraordinary Shareholders Meeting held
on October 17, 2012. Likewise, it was agreed that the placement price of the mentioned cash shares will be Ch$64.
(j)
On December 20, 2012 by way of a public deed dated December 19, 2012 issued before the Public Notary of Mr. René Benavente Cash, Banco de
Chile together with its affiliate Banchile Corredores de Seguros Limitada entered into an agreement with Banchile Seguros de Vida S.A. called Collective
Debtor’s Life Insurance Agreement (“Contrato de Seguro Colectivo de Desgravamen”) for loan mortgages.
Said agreement was entered pursuant article 40 of DFL N° 251 of 1931, General Regulation N° 330 of the Superintendency of Securities and Insurance
and Circular N° 3,530 of the Superintendency of Banks and Financial Institutions, both dated March 21, 2012, upon which the public bid for the collective
policy for life insurance covering loan mortgages was adjudicated to Banchile Seguros de Vida S.A., who offered the lowest rate of 0.0119800% monthly,
including a 14.00% commission fee for the insurance broker Banchile Corredores de Seguros Limitada, who will act as intermediary of the policy.
181
6. Segment Reporting:
For management purposes, the Bank has organized its operations and commercial strategies into four business segments, which are defined in accordance
with the type of products and services offered to target customers. These business segments are currently defined as follows:
Retail:
This segment focuses on individuals and small and medium-sized companies with annual sales up to 70,000 UF, where the product offering
focuses primarily on consumer loans, commercial loans, checking accounts, credit cards, credit lines and mortgage loans.
Wholesale:
This segment focused on corporate clients and large companies, whose annual revenue exceed 70,000 UF, where the product offering focuses
primarily on commercial loans, checking accounts and liquidity management services, debt instruments, foreign trade, derivative contracts
and leases.
Treasury and money market operations:
This segment includes revenue associated with managing the Bank’s balance sheet (currencies, maturities and interest rates) and liquidity, including financial
instrument and currency trading on behalf of the Bank itself.
Transactions on behalf of customers carried out by the Treasury are reflected in the respective aforementioned segments. These products are highly transactionfocused and include foreign exchange transactions, derivatives and financial instruments in general.
Subsidiaries:
Corresponds to companies and corporations controlled by the Bank, where income is obtained individually by the respective subsidiary. The
companies that comprise this segment are:
Entity
- Banchile Trade Services Limited
- Banchile Administradora General de Fondos S.A.
- Banchile Asesoría Financiera S.A.
- Banchile Corredores de Seguros Ltda.
- Banchile Factoring S.A.
- Banchile Corredores de Bolsa S.A.
- Banchile Securitizadora S.A.
- Socofin S.A.
- Promarket S.A.
The financial information used to measure the performance of the Bank’s business segments is not necessarily comparable with similar information from other
financial institutions because it is based on internal reporting policies. The accounting policies used to prepare the Bank’s operating segment information are
similar as those described in Note 2 “Summary of Significant Accounting Principles”. The Bank obtains the majority of its income from: interest, revaluations and
fees, discounted the credit cost and expenses. Management is mainly based on these concepts in its evaluation of segment performance and decision-making
regarding goals, allocation of resources for each unit individually. Although the results of the segments reconcile with those of the Bank at total level, it is not thus
necessarily concerning the different concepts, since the management is measured and controls in individual form and additionally applies the following criteria:
t
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.
t
The internal performance profitability system considers capital allocation in each segment in accordance to the Basel guidelines.
t
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 2012 and 2011.
Transfer pricing between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
Taxes are managed at a corporate level and are not allocated to business segments.
The following table presents the income for 2012 and 2011 for each of the segments defined above:
Retail
MCh$
Net interest income
664,861
Net fees and commissions income
178,569
16,628
860,058
(179,524)
TOTAL OPERATING REVENUE
INCOME BEFORE INCOME TAXES
Wholesale
MCh$
252,009
Treasury
MCh$
December 31, 2012
Subsidiaries
Subtotal
MCh$
MCh$
Adjustments(*)
MCh$
Total
MCh$
18,356
6,177
941,403
11,435
952,838
36,130
(512)
104,490
318,677
(11,420)
307,257
32,865
14,746
31,857
96,096
(14,152)
81,944
321,004
32,590
142,524
1,356,176
(14,137)
1,342,039
(6,751)
(21)
(1,894)
(188,190)
—
(188,190)
(20,883)
(7,284)
(1,204)
(1,586)
(30,957)
—
(30,957)
(405,154)
(110,081)
(8,960)
(92,804)
(616,999)
14,137
(602,862)
(288)
(228)
(18)
305
(229)
—
(229)
254,209
196,660
22,387
46,545
519,801
—
519,801
Income taxes
(53,950)
INCOME AFTER INCOME TAXES
465,851
Assets
9,666,888
9,325,032
3,746,908
1,123,750
23,862,578
(731,339)
TOTAL ASSETS
Liabilities
23,131,239
129,827
Current and deferred taxes
23,261,066
7,548,472
8,978,963
4,495,605
908,796
21,931,836
(731,339)
21,200,497
53,510
TOTAL LIABILITIES
21,254,007
(*) This column corresponds to the elimination adjustment to conform to the Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position.
183
Retail
MCh$
Wholesale
MCh$
Treasury
MCh$
December 31, 2011
Subsidiaries
Subtotal
MCh$
MCh$
Adjustments(*)
MCh$
Total
MCh$
Net interest income
589,040
247,471
20,460
4,204
861,175
10,145
871,320
Net fees and commissions income
169,296
33,342
(536)
116,955
319,057
(10,284)
308,773
15,478
1,181
11,508
27,511
55,678
(11,989)
43,689
TOTAL OPERATING REVENUE
773,814
281,994
31,432
148,670
1,235,910
(12,128)
1,223,782
(111,242)
(10,541)
(964)
(2,093)
(124,840)
—
(124,840)
(21,174)
(6,299)
(1,718)
(1,520)
(30,711)
—
(30,711)
(377,165)
(123,355)
(8,486)
(86,259)
(595,265)
12,128
(583,137)
INCOME BEFORE INCOME TAXES
2,252
710
—
338
3,300
—
3,300
266,485
142,509
20,264
59,136
488,394
—
488,394
Income taxes
(59,588)
INCOME AFTER INCOME TAXES
428,806
Assets
8,416,826
9,268,380
3,415,922
1,069,135
22,170,263
(547,005)
21,623,258
117,689
TOTAL ASSETS
Liabilities
21,740,947
6,468,025
8,983,599
4,214,432
855,006
20,521,062
(547,005)
19,974,057
27,715
TOTAL LIABILITIES
20,001,772
(*) This column corresponds to the elimination adjustment to conform to the Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position.
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:
2012
MCh$
2011
MCh$
Cash and due from banks:
Cash (*)
400,249
346,169
Current account with the Chilean Central Bank (*)
67,833
139,328
Deposits in other domestic banks
15,295
106,656
Deposits abroad
201,548
288,993
SUBTOTAL - CASH AND DUE FROM BANKS
684,925
881,146
Net transactions in the course of collection
237,393
218,215
Highly liquid financial instruments
304,886
290,069
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.
9,120
40,478
1,236,324
1,429,908
(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 12 to 24 business hours, and are detailed as follows:
2012
MCh$
2011
MCh$
Assets
Documents drawn on other banks (clearing)
249,019
185,342
Funds receivable
147,592
188,297
SUBTOTAL - ASSETS
396,611
373,639
Liabilities
Funds payable
(159,218)
(155,424)
SUBTOTAL - LIABILITIES
(159,218)
(155,424)
237,393
218,215
2012
MCh$
2011
MCh$
NET TRANSACTIONS IN THE COURSE OF COLLECTION
8. Financial Assets Held-for-trading:
The detail of financial instruments classified as held-for-trading is as follows:
Instruments issued by the Chilean Government and Central Bank of Chile:
Central Bank bonds
Central Bank promissory notes
25,585
66,243
3,068
4,657
43,726
6,942
Deposit promissory notes from domestic banks
—
—
Mortgage bonds from domestic banks
22
61
Bonds from domestic banks
—
585
Deposits in domestic banks
87,093
191,003
—
—
188
370
Instruments from foreign governments or central banks
—
—
Other instruments issued abroad
—
—
33,042
31,910
Other instruments issued by the Chilean Government and Central Bank
Other instruments issued in Chile
Bonds from other Chilean companies
Instruments issued by foreign institutions
Mutual fund investments:
Funds managed by related companies
Funds managed by third parties
TOTAL
—
—
192,724
301,771
185
Instruments issued by the Chilean Government and Central Bank include instruments sold under agreements to repurchase to customers and financial
institutions, for the period 2012 there was not balance for this concept (MCh$29,811 in 2011).
“Other instruments issued in Chile” include instruments sold under agreements to repurchase to customers and financial instruments, amounting to MCh$86,863
as of December 31, 2012 (MCh$152,431 in 2011).
Agreements to repurchase have an average expiration of 11 days as of year-end (7 days in 2011).
Additionally, the Bank holds financial investments in mortgage finance bonds issued by itself in the amount of MCh$51,154 as of December 31, 2012
(MCh$64,929 in 2011), which are presented as a reduction of the liability line item “Debt issued”.
9. Repurchase Agreements and Security Lending and Borrowing:
(a) The Bank provides financing to its customers through “Receivables from Repurchase Agreements and Security Borrowing”, in which the financial
instrument serves as collateral. As of December 31, 2012 and 2011, the Bank has the following receivables resulting from such transactions:
Over 1 month Over 3 months Over 1 year
Over 3 years
and up to 3
and up to 12
and up to 3
and up to 5
Up to 1 month
month
months
years
years
Over 5 years
Total
2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$
Instruments issued by the Chilean
Governments and Central Bank of Chile
Central Bank bonds
—
10,021
—
—
—
—
—
—
—
—
—
—
—
10,021
—
—
—
—
—
—
—
—
—
—
—
—
—
—
582
—
—
—
—
—
—
—
—
—
—
—
582
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Other instruments issued by the Chilean
Government and Central Bank
Other Instruments Issued in Chile
Deposit promissory notes from
domestic banks
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,756
30,191
855
6,270
25,907
1,499
—
—
—
—
—
—
34,518
37,960
Instruments from foreign governments
or central bank
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Other instruments
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,338
40,212
855
6,270
25,907
1,499
—
—
—
—
—
—
35,100
47,981
Instruments issued by foreign
institutions
TOTAL
(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, 2012 and 2011, the Bank has the following payables resulting from such transactions:
Over 1 month Over 3 months Over 1 year
Over 3 years
and up to 3
and up to 12
and up to 3
and up to 5
Up to 1 month
month
months
years
years
Over 5 years
Total
2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
Instruments issued by the Chilean
Governments and Central Bank of Chile
Central Bank bonds
—
49,025
—
1,139
Other instruments issued by the Chilean
Government and Central Bank
—
—
—
—
—
—
—
—
—
—
—
49,025
—
—
—
—
—
—
—
—
—
—
—
1,139
—
—
—
—
—
—
—
—
—
—
—
—
—
219,526 168,414
1,603
4,553
—
71
—
—
—
—
—
— 221,129 173,038
Other Instruments Issued in Chile
Deposit promissory notes from
domestic banks
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,267
—
—
—
—
—
—
—
—
—
—
—
5,267
—
Instruments from foreign governments
or central bank
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Other instruments
—
—
—
—
—
—
—
—
—
—
—
—
—
—
224,793 218,578
1,603
4,553
—
71
—
—
—
—
—
— 226,396 223,202
Instruments issued by foreign
institutions
TOTAL
(c) Securities received:
As part of reverse repurchase and securities borrowing agreements the Bank has received securities that it is allowed to sell or repledge in the absence
of default by the owner. At December 31, 2012 the Bank held securities with a fair value of Ch$34,865 million (Ch$47,022 million in 2011) on such
terms. The Bank has an obligation to return the securities to its counterparties.
(d) Securities given:
The carrying amount of securities lent and of “Payables from Repurchase Agreements and Security Lending” at December 31, 2012 is Ch$266,395
million (Ch$221,528 million in 2011). The counterparty is allowed to sell or repledge those securities in the absence of default by the Bank.
187
10. Derivative Instruments and Accounting Hedges:
(a)
As of December 31, 2012 and 2011, the Bank’s portfolio of derivative instruments is detailed as follows:
Notional amount of contract with final expiration date in
Over 1 month and up to
3 months
Up to 1 month
2012
MCh$
2011
MCh$
2012
MCh$
2011
MCh$
Over 3 months and up to
12 months
2012
MCh$
2011
MCh$
Derivatives held for hedging purposes
Cross currency swap
—
—
—
—
—
—
Interest rate swap
—
—
—
—
—
—
TOTAL DERIVATIVES HELD FOR HEDGING PURPOSES
—
—
—
—
—
—
Derivatives held as cash flow hedges
Interest rate swap and cross currency swap
151,913
57,128
—
—
—
—
TOTAL DERIVATIVES HELD AS CASH FLOW HEDGES
151,913
57,128
—
—
—
—
4,231,746
3,672,500
2,519,046
2,375,832
3,260,326
4,102,695
69,220
133,883
199,338
145,791
1,034,040
1,065,272
Derivatives held-for-trading purposes
Currency forward
Cross currency swap
Interest rate swap
353,133
200,243
905,870
506,595
3,298,276
1,473,712
Call currency options
30,306
11,072
20,938
34,671
46,686
46,262
Put currency options
26,009
468
15,288
988
25,980
3,119
—
—
—
—
—
—
TOTAL DERIVATIVES OF NEGOTIATION
Others
4,710,414
4,018,166
3,660,480
3,063,877
7,665,308
6,691,060
TOTAL
4,862,327
4,075,294
3,660,480
3,063,877
7,665,308
6,691,060
Notional amount of contract with final expiration date in
Over 1 year and up to
3 years
Over 3 year and up to
5 years
2012
MCh$
2012
MCh$
2011
MCh$
31,388
13,376
41,558
2011
MCh$
Fair value
Over 5 years
2012
MCh$
Asset
2011
MCh$
2012
MCh$
Liability
2011
MCh$
2012
MCh$
17,260
74,626
125,952
—
—
10,332
2011
MCh$
11,148
27,570
15,750
17,790
25,108
116,387
184,784
—
—
21,311
27,273
58,958
29,126
59,348
42,368
191,013
310,736
—
—
31,643
38,421
55,382
55,940
14,083
—
78,861
—
22
—
2,055
1,514
55,382
55,940
14,083
—
78,861
—
22
—
2,055
1,514
191,364
325,204
2,458
27,809
65
—
70,166
125,766
81,790
115,797
1,721,408
1,497,511
719,073
685,216
1,026,518
891,617
177,403
181,092
166,182
174,984
3,540,462
1,620,359
1,505,936
621,418
1,650,103
584,082
81,093
77,589
97,870
97,992
4,795
—
—
—
—
—
472
1,239
395
1,149
—
—
—
—
—
—
341
2
387
35
—
—
—
—
—
672,384
—
—
—
21
5,458,029
3,443,074
2,227,467
1,334,443
2,676,686
2,148,083
329,475
385,688
346,624
389,978
5,572,369
3,528,140
2,300,898
1,376,811
2,946,560
2,458,819
329,497
385,688
380,322
429,913
189
(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 variable interest
rate, decreasing the duration and modifying the sensitivity to the shortest segments of the curve.
Below is a detail of the hedged elements and hedge instruments under fair value hedges as of December 31, 2012 and 2011:
2012
MCh$
2011
MCh$
147,572
156,588
Hedged element
Commercial loans
Corporate bonds
161,747
225,642
TOTAL
309,319
382,230
Hedge instrument
(c)
Cross currency swap
147,572
156,588
Interest rate swap
161,747
225,642
TOTAL
309,319
382,230
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 to rate TIIE (Interbank Interest Rate Balance) plus 0.6 percentage points and Hong Kong
dollars to fix rate. 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
MCh$
Over 1 month Over 3 months
and up to 3
and up to 12
months
months
MCh$
MCh$
2012
Over 1 year
and up to 3
years
MCh$
Over 3 years
and up to 5
years
MCh$
Over 5
years
MCh$
Total
MCh$
Hedge item
Outflows:
Corporate Bond MXN
(235)
(470)
(2,348)
(58,199)
—
—
(61,252)
Corporate Bond HKD
—
—
(3,149)
Corporate Bond PEN
—
—
(1,138)
(6,309)
(6,332)
(110,408)
(126,198)
(2,276)
(16,358)
—
(19,772)
Cross Currency Swap MXN
235
470
2,348
58,199
—
—
61,252
Cross Currency Swap HKD
—
Cross Currency Swap PEN
—
—
3,149
6,309
6,332
110,408
126,198
—
1,138
2,276
16,358
—
19,772
NET CASH FLOW
—
—
—
—
—
—
—
Hedge instruments
Inflows:
Up to1
month
MCh$
and up to 12
and up to 3
months
months
MCh$
MCh$
2011
Over 1 year
and up to 3
years
MCh$
Over 3 years
and up to 5
years
MCh$
Over 5
years
MCh$
Total
MCh$
Hedge item
Outflows:
Corporate Bond MXN
(239)
(477)
(2,385)
(62,461)
—
—
(65,562)
239
477
2,385
62,461
—
—
65,562
—
—
—
—
—
—
—
Hedge instrument
Inflows:
Cross Currency Swap MXN
NET CASH FLOW
191
(c.2) Bellow are cash flow of underlying assets portfolio and cash flow of pasive part of derivative:
Up to1
month
MCh$
and up to 3
and up to 12
months
months
MCh$
MCh$
2012
Over 1 year
and up to 3
years
MCh$
Over 3 years
and up to 5
years
MCh$
Over 5
years
MCh$
Total
MCh$
20,317
106,869
198,219
Hedge ítem
Inflows:
Cash flow in CLF
—
—
4,496
66,537
Cross Currency Swap CLF
—
—
(1,644)
(60,173)
—
—
(61,817)
—
—
(2,411)
(5,482)
(5,498)
(106,869)
(120,260)
Hedge instrument
Outflows:
—
—
(441)
(882)
(14,819)
—
(16,142)
NET CASH FLOW
—
—
—
—
—
—
—
Over 5
years
MCh$
Total
MCh$
Up to1
month
MCh$
and up to 12
and up to 3
months
months
MCh$
MCh$
2011
Over 1 year
and up to 3
years
MCh$
Over 3 years
and up to 5
years
MCh$
Hedge ítem
Inflows:
Cash flow in CLF
235
470
2,349
62,048
—
—
65,102
(235)
(470)
(2,349)
(62,048)
—
—
(65,102)
—
—
—
—
—
—
—
Hedge instrument
Outflows:
NET CASH FLOW
Respect to assets hedged, these are revalued monthly according to the variation of the UF, which is equivalent to realize monthly reinvestment of the
assets until maturity of the relationship hedging.
(c.3) The accumulated amount of unrealized gain was an credit to equity for an amount of Ch$1,777 million (charge to equity for Ch$485 million in 2011)
generated from hedging instruments, which has been recorded in equity. The net effect of deferred tax was a credit of equity for Ch$1,429 millions in
2012 (charge to equity for Ch$395 millions in 2011)
The accumulated balance for this concept net of deferred tax as of December 31, 2012 corresponds to a credit of equity amounted Ch$1,034 million
(charge to equity amounted Ch$395 million in 2011)
(c.4) The net effect in income of derivatives cash flow hedges amount to Ch$2,318 million in 2012 (charge to income for Ch$1,029 millions en 2011).
11. Loans and advances to Banks:
(a)
As of December 31, 2012 and 2011, amounts are detailed as follows:
2012
MCh$
2011
MCh$
Domestic Banks
Interbank loans
Other credits with domestic banks
Provisions for loans to domestic banks
SUBTOTAL
14,309
15,059
—
—
(5)
(5)
14,304
15,054
Foreign Banks
Loans to foreign banks
146,980
190,838
Chilean exports trade loans
67,787
127,076
Credits with third countries
14,509
15,639
(954)
(1,001)
228,322
332,552
1,100,000
300,000
Provisions for loans to foreign banks
SUBTOTAL
Central Bank of Chile
Non-available Central Bank deposits
696
819
SUBTOTAL
1,100,696
300,819
TOTAL
1,343,322
648,425
Other Central Bank credits
(b)
Provisions for loans to banks are detailed below:
Detail
Bank’s Location
Chile
Abroad
MCh$
MCh$
Total
MCh$
Balance as of January 1, 2011
—
610
610
Charge-offs
—
—
—
5
391
396
Provisions released
Provisions established
—
—
—
Impairment
—
—
—
5
1,001
1,006
Charge-offs
—
—
—
—
—
—
Provisions released
—
(47)
(47)
Impairment
—
—
—
5
954
959
BALANCE AS OF DECEMBER 31, 2011
193
12. Loans to Customers, net:
(a)
Loans to Customers:
As of December 31, 2012 and 2011, the composition of the portfolio of loans is the following:
Assets before allowance
Normal
Portfolio
MCh$
Impaired
Portfolio
MCh$
Allowances established
Total
MCh$
Individual
Provisions
MCh$
Group
Provisions
MCh$
Total
MCh$
Net assets
MCh$
(67,746)
(161,329)
8,379,845
Commercial loans
Commercial loans
8,294,819
246,355
8,541,174
(93,583)
Foreign trade loans
1,149,923
91,032
1,240,955
(55,216)
(491)
(55,707)
1,185,248
187,246
2,153
189,399
(2,418)
(2,504)
(4,922)
184,477
Current account debtors
Factoring transactions
Commercial lease transactions (1)
Other loans and accounts receivable
SUBTOTAL
597,266
8,871
606,137
(9,535)
(556)
(10,091)
596,046
1,084,877
28,395
1,113,272
(3,528)
(9,136)
(12,664)
1,100,608
35,736
4,911
40,647
(621)
(1,974)
(2,595)
38,052
11,349,867
381,717
11,731,584
(164,901)
(82,407)
(247,308)
11,484,276
Mortgage loans
Mortgage bonds
103,241
5,974
109,215
—
(724)
(724)
108,491
Transferable mortgage loans
148,243
2,963
151,206
—
(527)
(527)
150,679
3,897,642
40,124
3,937,766
—
(14,829)
(14,829)
3,922,937
Credits from ANAP
27
—
27
—
—
—
27
Residential lease transactions
—
—
—
—
—
—
—
Other residential real estate mortgage loans
SUBTOTAL
113
340
453
—
—
—
453
4,149,266
49,401
4,198,667
—
(16,080)
(16,080)
4,182,587
Consumer loans
Consumer loans in installments
1,761,070
145,203
1,906,273
—
(124,886)
(124,886)
1,781,387
235,122
9,944
245,066
—
(6,950)
(6,950)
238,116
Credit card debtors
654,976
25,010
679,986
—
(31,996)
(31,996)
647,990
—
—
—
—
—
—
—
Consumer lease transactions
SUBTOTAL
TOTAL
183
6
189
—
(215)
(215)
(26)
2,651,351
180,163
2,831,514
—
(164,047)
(164,047)
2,667,467
18,150,484
611,281
18,761,765
(164,901)
(262,534)
(427,435)
18,334,330
Assets before allowance
Normal
Portfolio
MCh$
Impaired
Portfolio
MCh$
Total
MCh$
Individual
Provisions
MCh$
Group
Provisions
MCh$
Total
MCh$
Net assets
MCh$
Commercial loans
Commercial loans
7,652,936
210,906
7,863,842
(82,266)
(57,420)
(139,686)
7,724,156
Foreign trade loans
1,442,460
66,687
1,509,147
(58,458)
(504)
(58,962)
1,450,185
212,595
1,884
214,479
(2,178)
(2,074)
(4,252)
210,227
586,576
2,522
589,098
(7,828)
(613)
(8,441)
580,657
Commercial lease transactions (1)
973,013
23,553
996,566
(9,275)
(7,105)
(16,380)
980,186
27,430
4,177
31,607
(372)
(1,905)
(2,277)
29,330
10,895,010
309,729
11,204,739
(160,377)
(69,621)
(229,998)
10,974,741
123,797
10,580
134,377
—
(871)
(871)
133,506
SUBTOTAL
Mortgage loans
Mortgage bonds
Transferable mortgage loans
169,424
5,834
175,258
—
(881)
(881)
174,377
3,250,181
47,096
3,297,277
—
(14,130)
(14,130)
3,283,147
Credits from ANAP
54
—
54
—
(21)
(21)
33
Residential lease transactions
—
—
—
—
—
—
—
64
404
468
—
(1)
(1)
467
3,543,520
63,914
3,607,434
—
(15,904)
(15,904)
3,591,530
1,661,799
101,302
1,763,101
—
(110,190)
(110,190)
1,652,911
Other residential real estate mortgage loans
SUBTOTAL
Consumer loans
Consumer loans in installments
223,871
9,101
232,972
—
(5,806)
(5,806)
227,166
Credit card debtors
553,574
15,716
569,290
—
(22,570)
(22,570)
546,720
Consumer lease transactions
SUBTOTAL
TOTAL
—
—
—
—
—
—
—
251
6
257
—
(22)
(22)
235
2,439,495
126,125
2,565,620
—
(138,588)
(138,588)
2,427,032
16,878,025
499,768
17,377,793
(160,377)
(224,113)
(384,490)
16,993,303
(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, 2012,
MCh$451,647 (MCh$395,600 in 2011) correspond to finance leases for real estate and MCh$661,625 (MCh$600,966 in 2011), correspond to finance leases for other assets.
195
(b) Allowances for loan losses:
Movements in allowances for loan losses during the 2012 and 2011 periods are as follows:
Allowances
Individual
MCh$
Group
MCh$
Total
MCh$
182,440
194,546
376,986
(7,548)
(30,588)
(38,136)
—
(2,923)
(2,923)
Charge-offs:
Commercial loans
Mortgage loans
—
(92,951)
(92,951)
TOTAL CHARGE-OFFS
(7,548)
(126,462)
(134,010)
—
156,029
156,029
Consumer loans
Allowances released (*)
(14,515)
—
(14,515)
160,377
224,113
384,490
160,377
224,113
384,490
(9,144)
(34,020)
(43,164)
—
(4,253)
(4,253)
Charge-offs:
Commercial loans
Mortgage loans
—
(135,316)
(135,316)
TOTAL CHARGE-OFFS
(9,144)
(173,589)
(182,733)
13,668
212,010
225,678
Consumer loans
—
—
—
164,901
262,534
427,435
(*) See note No. 12 (e) - Sale or transfer of credits from the loans to customers.
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, 2012 and 2011, the Bank and its subsidiaries accomplished buy and sell of loan portfolios. The effect in income is no more
than 5% of net income before taxes, as detailed in Note No. 12 (e).
2. As of December 31, 2012 and 2011, the Bank and its subsidiaries derecognized 100% of its sold loan portfolio.
(c) Finance lease contracts:
The Bank’s scheduled cash flows to be received from finance leasing contracts have the following maturities:
Total receivable
2012
2011
MCh$
MCh$
Unearned income
2012
2011
MCh$
MCh$
Net lease receivable (*)
2012
2011
MCh$
MCh$
Due within one year
394,284
338,406
(50,643)
(42,362)
343,641
296,044
Due after 1 year but within 2 years
293,525
257,239
(36,615)
(31,668)
256,910
225,571
Due after 2 years but within 3 years
189,111
176,620
(23,440)
(20,847)
165,671
155,773
112,381
110,512
(15,766)
(14,280)
96,615
96,232
75,451
68,860
(11,339)
(10,089)
64,112
58,771
206,025
183,112
1,134,749
(25,733)
(22,831)
(142,077)
180,292
160,281
992,672
Due after 5 years
TOTAL
1,270,777
(163,536)
1,107,241
(*) The net balance receivable does not include past-due portfolio totaling MCh$6,031 as of December 31, 2012 (MCh$3,894 in 2011).
The bank has entered into commercial leases of real estate, industrial machinery, vehicles and computer equipment. These leases have an average
useful life of between 3 and 8 years.
(d)
Loans by industry sector:
The following table details the Bank’s loan portfolio (before allowances for loans losses) as of December 31, 2012 and 2011 by the customer’s industry
sector:
Location
Chile
Abroad
2012
2011
MCh$
MCh$
Total
2012
MCh$
2011
MCh$
2012
MCh$
2011
MCh$
Commerce
2,286,500
2,275,780
28,173
2,804
2,314,673
12.34
2,278,584
13.11
Transportation
1,470,358
1,407,358
—
—
1,470,358
7.84
1,407,358
8.10
Manufacturing
1,380,994
1,488,819
—
—
1,380,994
7.36
1,488,819
8.57
Services
1,310,573
1,084,380
—
—
1,310,573
6.99
1,084,380
6.24
Construction
1,252,546
944,842
—
—
1,252,546
6.68
944,842
5.44
Financial Services
%
%
Commercial loans:
1,148,094
1,248,729
706,477
772,782
1,854,571
9.88
2,021,511
11.63
Agriculture and livestock
901,300
912,919
—
—
901,300
4.80
912,919
5.25
Electricity, gas and water
328,763
315,338
—
—
328,763
1.75
315,338
1.81
Mining
305,386
333,776
67,051
65,976
372,437
1.99
399,752
2.30
Fishing
233,893
271,901
—
—
233,893
1.25
271,901
1.56
Other
226,999
26,033
84,477
53,302
311,476
1.65
79,335
0.47
10,845,406 10,309,875
886,178
SUBTOTAL
Consumer loans
TOTAL
4,198,667
3,607,434
—
2,831,514
2,565,620
—
17,875,587 16,482,929
886,178
894,864 11,731,584
—
4,198,667
—
2,831,514
894,864 18,761,765
62.53 11,204,739
64.48
22.38
3,607,434
20.76
15.09
2,565,620
14.76
100.00 17,377,793
100.00
197
(e) Sale or transfer of credits from the loans to customers:
During 2012 and 2011 Banco de Chile has carried out transactions of sale or transfer of the loan portfolio according to the following:
Carrying amount
MCh$
MCh$
Sale price
MCh$
Effect on income (loss) gain
MCh$
118,347
(199)
118,347
199
Carrying amount
MCh$
MCh$
Sale price
MCh$
Effect on income (loss) gain
MCh$
51,890
(44,012)
9,373
1,495
(*) This result is included in the release of provisions disclosure in Note No. 32.
During 2012 the Bank carried out a securitization of assets (loans and accounts receivable), which is disclosed in Note 42 Assests Securitization.
13. Investment Securities:
As of December 31, 2012 and 2011, investment securities classified as available-for-sale and held-to-maturity are detailed as follows:
2012
Available
for sale
MCh$
2011
Held to
maturity
MCh$
Available
for sale
MCh$
Total
MCh$
Held to
maturity
MCh$
Total
MCh$
Instruments issued by the Chilean Government and Central
Bank of Chile:
Bonds issued by the Chilean Government and Central Bank
Promissory notes issued by the Chilean Government and Central Bank
Other instruments
110,569
—
110,569
158,865
—
158,865
969
—
969
58,564
—
58,564
140,246
—
140,246
194,965
—
194,965
—
—
—
—
—
—
85,688
—
85,688
87,966
—
87,966
Deposit promissory notes from domestic banks
116,100
—
116,100
124,203
—
124,203
Deposits from domestic banks
560,390
—
560,390
521,881
—
521,881
32,281
—
32,281
48,790
—
48,790
Promissory notes issued by other Chilean companies
Other instruments
—
—
—
5,659
—
5,659
129,693
—
129,693
139,602
—
139,602
Instruments issued abroad
Instruments from foreign governments or central banks
Other instruments
TOTAL
—
—
—
—
—
—
88,504
—
88,504
128,403
—
128,403
1,264,440
—
1,264,440
1,468,898
—
1,468,898
Instruments issued by the Chilean Government and Central Bank include instruments with agreements to repurchase sold to clients and financial institutions, for
December 31, 2012 there are no movements for this item (MCh$26,288 in 2011). The agreements to repurchase have an average maturity of 12 days in 2011.
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$5,266 million (no balance for this item in 2011).
In instruments issued abroad are include mainly bonds banks and shares.
199
As of December 31, 2012, the portfolio of financial assets available-for-sale includes a net unrealized loss of MCh$17,995 (net unrealized loss of MCh$1,644
in 2011), recorded in other comprehensive income within equity.
As of December 31, 2012 there is impairment of financial assets available-for-sale for an amount of Ch$551 millions, in 2011there is no evidence of impairment.
Realized profits and losses are calculated as the proceeds from sales less the cost (specific identification method) of the investments identified as for sale. In
addition, any unrealized profit or loss previously recorded in equity for these investments is reversed when recorded in the income statements.
Gross profits and losses realized on the sale of available-for-sale investments as of December 31, 2012 and 2011 are shown in Note 30 “Net Financial
Operating Income”.
Gross profits and losses realized and unrealized on the sale of available for sale investments for the years-ended December 31, 2012 and 2011 are as follows:
Unrealized (losses)/profits during the period
2012
MCh$
2011
MCh$
26,259
(10,416)
Realized losses/(profits) (reclassified)
(1,749)
932
TOTAL UNREALIZED DURING THE PERIOD
24,510
(9,484)
14.
(a)
Investments in Other Companies:
This item includes investments in other companies for an amount of MCh$13,933 (MCh$15,418 in 2011), which is detailed as follows:
Company
Shareholder
Ownership
Interest
Equity
Investment
2012
%
2011
%
2012
MCh$
2011
MCh$
Book Value
2012
2011
MCh$ MCh$
Income (Loss)
2012
2011
MCh$ MCh$
6,756
7,397
3,378
3,698
(321)
611
Investments valued at equity method:
Servipag Ltda.
Banco de Chile
50.00
50.00
Soc. Operadora de Tarjetas de Crédito Nexus S.A.
Banco de Chile
25.81
25.81
6,412
6,412
1,655
1,655
556
300
Transbank S.A.
Banco de Chile
26.16
26.16
6,306
6,274
1,649
1,641
322
313
Redbanc S.A.
Banco de Chile
38.13
38.13
4,109
5,480
1,567
2,090
(376)
492
Administrador Financiero del Transantiago S.A.
Banco de Chile
20.00
20.00
6,076
8,714
1,215
1,743
(527)
967
Soc. Operadora de la Cámara de Compensación de
Pagos de Alto Valor S.A.
Banco de Chile
15.00
14.17
4,337
3,795
651
538
112
102
Artikos Chile S.A.
Banco de Chile
50.00
50.00
1,129
1,984
564
992
(428)
72
Centro de Compensación Automatizado S.A.
Banco de Chile
33.33
33.33
1,609
1,252
536
417
115
105
Sociedad Interbancaria de Depósitos de Valores S.A.
Banco de Chile
26.81
26.81
SUBTOTAL
1,711
1,573
459
422
79
92
38,445
42,881
11,674
13,196
(468)
3,054
Investments valued at cost (1):
1,646
1,646
239
246
Banco Latinoamericano de Comercio
Exterior S.A. (Bladex)
Bolsa de Comercio de Santiago S.A.
309
309
—
—
Bolsa Electrónica de Chile S.A.
257
257
—
—
8
8
—
—
39
2
—
—
2,259
2,222
239
246
13,933
15,418
(229)
3,300
Cámara de Compensación
Sociedad de Telecomunicaciones Financieras
Interbancarias Mundiales (Swift)
SUBTOTAL
TOTAL
(*) On September 13, 2012 it was made a purchase of 80 shares for an amount of Ch$34 million of the company Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A.
(**) On August 27, 2012 18 shares it was purchase 18 shares of Investment Swift which totaled Ch$37 million
(1) Income from investments at cost, revenues are recognized on a cash basis (dividends).
201
(b)
The financial information of companies valued using the equity method is summarized as follows:
2012
MCh$
2011
MCh$
421,013
479,842
71,580
62,753
TOTAL ASSETS
492,593
542,595
Current liabilities
Share of the associate’s statement of financial position
Current assets
Non-current assets
441,916
493,287
Non-current liabilities
12,232
6,427
TOTAL LIABILITIES
454,148
499,714
Equity
TOTAL LIABILITIES AND EQUITY
38,445
42,881
492,593
542,595
1,339
21,043
1
10,901
11,674
13,196
Share of the associate’s revenue and profit
Revenue
Profit
Carrying amount of the investment
(c)
The reconciliation between opening and ending balance of investments in other companies that are not consolidated in 2012 and 2011 is detailed as
follows:
2011
MCh$
15,418
13,294
Sale of investments
—
—
Acquisition of investments
71
—
Participation in income with significant influence
(468)
3,054
Dividends receivable
(653)
(508)
Dividends received
(943)
(761)
Beginning book value
Payment of reserved dividends
TOTAL
(d)
2012
MCh$
As of December 31, 2012 and 2011 no impairment has incurred in these investments.
508
339
13,933
15,418
15. Intangible Assets:
(a)
As of December 31, 2012 and 2011, Intangible assets are detailed as follows:
Years
Useful Life
2012
2011
Remaining
amortization
2012
2011
Gross balance
2012
2011
MCh$ MCh$
Accumulated
Amortization and
Impairment
2012
2011
MCh$ MCh$
Net balance
2012
2011
MCh$ MCh$
Type of intangible asset:
Goodwill:
7
7
2
3
4,138
Software or computer programs
6
6
3
4
82,736
Intangible assets arising from business combinations
7
7
2
3
1,740
—
—
—
—
4,138
(3,000)
(2,379)
1,138
1,759
74,525 (50,641) (41,538)
32,095
32,987
479
740
Other Intangible Assets:
Other intangible assets
TOTAL
612
89,226
1,740
(1,261)
(1,000)
102
(34)
(71)
578
31
80,505 (54,936) (44,988)
34,290
35,517
203
(b)
El movimiento del rubro intangibles durante los ejercicios 2012 y 2011, es el siguiente:
Investments in
other companies
MCh$
Software or
computer
programs
MCh$
Intangible
assets arising
from business
combinations
MCh$
Other intangible
assets
MCh$
Total
MCh$
Gross Balance
4,138
65,664
1,740
82
71,624
Acquisitions
—
9,577
—
20
9,597
Disposals
—
(716)
—
—
(716)
4,138
74,525
1,740
102
80,505
Acquisitions
—
8,544
—
572
9,116
Disposals
—
(333)
—
(62)
(395)
4,138
82,736
1,740
612
89,226
(1,759)
(32,688)
(740)
(64)
(35,251)
(620)
(9,281)
(260)
(7)
(10,168)
Impairment loss (*)
—
(296)
—
—
(296)
Disposal
—
156
—
—
156
Accumulated Amortization and Impairment
Amortization for the year (*)
—
571
—
—
571
(2,379)
(41,538)
(1,000)
(71)
(44,988)
(621)
(9,436)
(261)
(25)
(10,343)
Other
Amortization for the year (*)
Impairment loss (*)
—
—
—
—
—
Disposals
—
333
—
62
395
—
—
—
—
—
(3,000)
(50,641)
(1,261)
(34)
(54,936)
1,138
32,095
479
578
34,290
Other
NET BALANCE AS OF DECEMBER 31, 2012
(*) See note No. 35 “Depreciation, amortization and impairment”.
(c)
As of December 31, 2012 and 2011, the Bank has made the following commitments to purchase intangible assets, which have not been capitalized:
Detail
Amount of Commitment
2012
2011
MCh$
MCh$
Software and licenses
6,681
6,639
16. Activo Fijo:
(a)
As of December 31, 2012 and 2011, this account and its movements are detailed as follows:
Terrenos y
Construcciones
MCh$
Equipos
MCh$
Others
MCh$
Total
MCh$
173,732
120,913
128,509
423,154
Cost
Additions
3,481
8,797
9,795
22,073
Disposals/write-downs
(947)
(3,893)
(847)
(5,687)
Transfers
—
5
(5)
—
Reclassifications
—
—
—
—
TOTAL
176,266
125,822
137,452
439,540
Accumulated depreciation
(33,503)
(103,015)
(94,799)
(231,317)
—
(3)
(332)
(335)
142,763
22,804
42,321
207,888
176,266
125,819
137,120
439,205
337
7,750
9,894
17,981
Impairment loss (*)
Additions
Disposals/write-downs
(451)
(1,512)
(2,232)
(4,195)
Transfers
—
—
—
—
Reclassifications
—
—
19
19
TOTAL
176,152
132,057
144,801
453,010
Accumulated depreciation
(35,972)
(109,932)
(101,722)
(247,626)
—
(31)
(164)
(195)
140,180
22,094
42,915
205,189
(31,136)
(98,466)
(87,039)
(216,641)
Depreciation charges in the period (*) (**)
(2,960)
(8,439)
(8,763)
(20,162)
Impairment loss (*) (***)
Accumulated Depreciation
Sales and disposals in the period
Reclassifications
Depreciation charges in the period (*) (**)
Sales and disposals in the period
593
3,890
1,003
5,486
(33,503)
(103,015)
(94,799)
(231,317)
—
—
(19)
(19)
(2,920)
(8,429)
(8,884)
(20,233)
451
1,512
1,980
3,943
(35,972)
(109,932)
(101,722)
(247,626)
(*) See Note No. 35 “Depreciation, Amortization and Impairment”.
(**) This amount not includes depreciation charges in the period for investments properties. This amount is include in item “Other Assets” for MCh$381 (MCh$381 in 2011)
(***) Not include provision related to write-offs of property and equipment for an amount of Ch$153 millions
205
(b)
Movements in intangible assets during the 2012 and 2011 periods are as follows:
2012
Expense
for
the year
Lease Agreements
Over 1
month and
up to 3
months
MCh$
MCh$
Up to 1
month
MCh$
28,036
2,274
4,561
MCh$
Up to 1
month
MCh$
Over 1
month and
up to 3
months
MCh$
25.924
2.054
Over 3
months and Over 1 year
up to 12
and up to 3
months
years
MCh$
MCh$
19,219
37,094
Over 3
years and
up to 5
years
MCh$
Over 5
years
MCh$
Total
MCh$
27,066
49,523
139,737
Over 3
years and
up to 5
years
MCh$
Over 5
years
MCh$
Total
MCh$
25.505
54.931
135.614
2011
Expense
for
the year
Lease Agreements
4.017
Over 3
months and Over 1 year
up to 12
and up to 3
months
years
MCh$
MCh$
16.964
32.143
As these lease agreements are operating leases under IAS 17 the leased assets are not presented in the Bank’s statement of financial position.
The Bank has entered into commercial leases of real estate. These leases have an average life of 10 years. There are no restrictions placed upon the
lessee by entering into the lease.
(c)
As of December 31, 2012 and 2011, 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, 2012 and 2011.
17. Current and Deferred Taxes:
(a)
Current Taxes:
As of each year end, the Bank and its subsidiaries have established a First Category Income Tax Provision determined in accordance with current tax
laws. This provision is presented net of recoverable taxes, detailed as follows:
Income taxes
Tax on non-deductible expenses (35%)
Less:
Monthly prepaid taxes (PPM)
Credit for training expenses
Other
TOTAL CURRENT TAXES
Tax rate
2012
MCh$
2011
MCh$
61,876
3,860
64,590
1,701
(41,960)
(1,545)
965
23,196
20%
(62,225)
(742)
(229)
3,095
20%
2012
MCh$
Current tax assets
(b)
2011
MCh$
2,684
1,407
Current tax liabilities
(25,880)
(4,502)
TOTAL CURRENT TAXES
(23,196)
(3,095)
2012
MCh$
2011
MCh$
61,876
64,590
Income Tax:
The Bank’s tax expense recorded for the years ended December 31, 2012 and 2011 is detailed as follows:
Income tax expense:
Current year taxes
Tax from previous periods
(1,147)
(1,203)
SUBTOTAL
60,729
63,387
Credit (charge) for deferred taxes:
Origin and reversal of temporary differences
2,673
(8,479)
Effect of changes in tax rate
(14,206)
2,234
SUBTOTAL
(11,533)
(6,245)
3,860
1,701
894
745
53,950
59,588
Non deducible expenses (Art. 21 “Ley de la Renta”)
Other
NET CHARGE TO INCOME FOR INCOME TAXES
(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,
2012 and 2011:
2012
Tax rate
%
2011
MCh$
Tax rate
%
MCh$
Income tax calculated on net income before tax
20.00
103,960
20.00
97,679
Additions or deductions
(7.13)
(37,056)
(7.56)
(36,929)
Non-deductible expenses
0.74
3,860
0.35
1,701
Tax from previous year
(0.22)
(1,147)
(0.25)
(1,203)
Effect of changes in tax rate (*)
(2.73)
(14,206)
0.46
2,234
Lease deferred tax adjustment
0.57
2,942
—
—
Others
(0.85)
(4,403)
(0.80)
(3,894)
EFFECTIVE RATE AND INCOME TAX EXPENSE
10.38
53,950
12.20
59,588
207
The effective rate for income tax for 2012 is 10.38% (12.20% in 2011).
(*) According to the Law No. 20,630 issued on September 27, 2011 is permanently changed the tax rates of the first category to 20.00%
(d)
Effect of deferred taxes on income and equity:
During the year 2012, the Bank has recorded the effects of deferred taxes in accordance with Note No. 2 (r).
The effects of deferred taxes on assets, liabilities and income accounts are detailed as follows:
Reconocido en
Balances as of
December 31,
2011
MCh$
Unrecognized
temporary
differences
MCh$
Income
MCh$
Equity
MCh$
76,910
—
22,203
—
Balances as of
December 31,
2012
MCh$
Debit Differences:
Allowances for loan losses
Obligations with agreements to repurchase
99,113
1,850
—
(1,736)
—
114
Leasing equipment
12,320
—
(16,038)
—
(3,718)
Personnel provisions
4,930
—
1,162
—
6,092
Staff vacation
3,637
—
421
—
4,058
Accrued interests and indexation adjustments from past due loans
1,573
—
550
—
2,123
Staff severance indemnities provisions
Other adjustments
TOTAL DEBIT DIFFERENCES
1,462
—
665
—
2,127
13,600
119
3,515
—
17,234
116,282
119
10,742
—
127,143
Credit Differences:
Investments with agreements to repurchase
2,111
—
(1,986)
—
125
11,609
—
1,318
—
12,927
(373)
—
—
4,872
4,499
(90)
—
—
348
258
Transitory assets
1,525
—
924
—
2,449
Derivative instrument adjustment
2,057
—
(1,679)
—
378
Other adjustments
6,374
(5)
632
(7)
6,994
Depreciation and price-level restatement of property and equipment
Adjustment for valuation of financial assets available-for-sale
Adjustment for cash flow hedge
TOTAL CREDIT DIFFERENCES
23,213
(5)
(791)
5,213
27,630
DEFERRED TAX ASSETS (LIABILITIES), NET
93,069
124
11,533
(5,213)
99,513
(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.
(e.1) Loans to customers as of December 31, 2012
Loans and advance to banks
Commercial loans
Consumer loans
TOTAL
Past-due loans
with guarantees
MCh$
Tax value assets
Past-due
loans without
guarantees
MCh$
Total
Past-due loans
MCh$
Book value
assets (*)
MCh$
Tax value
assets
MCh$
1,343,322
1,344,281
—
—
—
10,080,225
10,536,629
16,168
33,163
49,331
2,667,467
2,977,357
312
17,131
17,443
4,182,587
4,196,560
3,189
151
3,340
18,273,601
19,054,827
19,669
50,445
70,114
(*) In accordance with the mentioned Circular and instructions from the SII, the value of financial statement assets, are presented on an individual basis net of allowance for loan losses
and do not include lease and factoring operations.
(e.2) Provisions on past-due loans
Saldo al
01.01.2012
MCh$
Castigos contra
provisiones
MCh$
Commercial loans
30,947
(22,135)
44,898
(20,547)
33,163
Consumer loans
11,652
(133,561)
156,933
(17,893)
17,131
390
(3,151)
3,310
(398)
151
42,989
(158,847)
205,141
(38,838)
50,445
TOTAL
Provisiones
constituidas
MCh$
Provisiones
liberadas
MCh$
Saldo al
31.12.2012
MCh$
(e.3) Charge-offs and recoveries
MCh$
Charge-offs Art. 31 No. 4 second subparagraph
Condoning resulting in provisions released
Recovery or renegotiation of written-off loans
29,174
27
39,303
(e.4) Application of Art. 31 No. 4 first & third subsections.
MCh$
Charge-offs in accordance with first subsection
—
Condoning in accordance with third subsection
834
209
18. Other Assets:
(a)
Item detail:
As of December 31, 2012 and 2011, other assets are detailed as follows:
2012
MCh$
Assets held for leasing (*)
2011
MCh$
74,986
74,185
81
1,863
Assets received or awarded as payment
Assets received in lieu of payment
Assets awarded in judicial sale
2,475
2,745
(40)
(1,118)
2,516
3,490
Documents intermediated (***)
89,800
77,613
Guaranteed cash deposits
25,984
35,051
Other accounts and notes receivable
20,001
9,851
Investment properties (Note N° 2 letter t)
16,698
17,079
9,292
9,557
Pending transactions
8,676
1,340
Commissions receivable
6,392
4,193
Recoverable income taxes
6,280
5,373
Prepaid expenses
4,156
5,445
Rental guarantees
1,386
1,344
Provision for assets received in lieu of payment (**)
SUBTOTAL
Other Assets
VAT receivable
Recovered leased assets for sale
777
203
Materials and supplies
610
654
Accounts receivable for sale of assets received in lieu of payment
423
530
Transaction in progress
114
3,532
Other
28,787
14,144
SUBTOTAL
219,376
185,909
TOTAL
296,878
263,584
(*) 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 0.0032% (0.0737% in 2011) 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.
(b)
Movements in the provision for assets received in lieu of payment during the 2012 and 2011 periods are detailed as follows:
MCh$
Provisions used
Provisions released
Provisions used
15
(21)
1,138
(14)
1,118
(1,178)
100
Provisions released
—
40
19. Current accounts and Other Demand Deposits:
As of December 31, 2012 and 2011, current accounts and other demand deposits are detailed as follows:
Cuentas corrientes
Otras obligaciones a la vista
Otros depósitos y cuentas a la vista
TOTAL
2012
MCh$
2011
MCh$
4,495,134
3,968,504
599,320
616,395
376,517
310,527
5,470,971
4,895,426
2012
MCh$
2011
MCh$
9,370,063
9,081,335
179,465
177,900
63,422
23,089
9,612,950
9,282,324
20. Savings accounts and Time Deposits:
As of December 31, 2012 and 2011, savings accounts and time deposits are detailed as follows:
Time deposits
Term savings accounts
Other term balances payable
TOTAL
211
21. Borrowings from Financial Institutions:
(a)
As of December 31, 2012 and 2011, borrowings from financial institutions are detailed as follows:
2012
MCh$
Domestic banks
Foreign banks
Foreign trade financing
Bank of America N.T. & S.A.
Commerzbank A.G.
Wells Fargo Bank
Standard Chartered Bank
Citibank N.A.
The Bank of New York Mellon
Toronto Dominion Bank
JP Morgan Chase Bank
Mercantil Commercebank N.A.
Sumitomo Banking
Zuercher Kantonalbank
Deutsche Bank AG
Bank of China
Banco de Sabadell
Bank of Montreal
Banca Nazionale del Lavoro
Royal Bank of Scotland
ING Bank
Branch Banking and Trust Company
Bank of Nova
Banco Espiritu Santo
Others
Domestic banks
Wells Fargo Bank
Standard Chartered Bank
China Development Bank
Citibank N.A.
Otros
SUBTOTAL
Chilean Central Bank
TOTAL
(b)
Borrowings from domestic banks
As of December 31, 2012 and 2011, the bank has not borrowings from domestic banks.
2011
MCh$
—
—
189,501
182,926
131,763
117,218
107,249
57,161
38,402
24,003
19,184
16,828
14,401
12,003
828
337
—
—
—
—
—
—
—
22
169,482
156,138
197,067
124,412
193,049
36,412
67,682
122,699
—
36,456
41,038
—
1,206
—
125,053
78,198
64,584
39,108
10,413
3,119
2,605
74
96,370
36,084
35,996
27,571
816
1,108,663
104,175
39,591
52,032
1,010
2,481
1,668,084
18
22,855
1,108,681
1,690,939
(c)
Borrowings from foreign banks
These obligations’ maturities are as follows:
2012
MCh$
Up to 1 month
181,954
115,696
Over 1 month and up to 3 months
153,702
200,786
Over 3 months and up to 12 months
631,051
1,079,317
Over 1 year and up to 3 years
141,956
220,368
Over 3 years and up to 5 years
—
51,917
Over 5 years
—
—
1,108,663
1,668,084
TOTAL
(d)
2011
MCh$
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:
2012
MCh$
2011
MCh$
Borrowings and other obligations
—
22,793
Credit lines for the renegotiation of loans
18
62
TOTAL
18
22,855
22. Debt Issued:
As of December 31, 2012 and 2011, debt issued is detailed as follows:
2012
MCh$
Mortgage bonds
Bonds
Subordinated bonds
TOTAL
2011
MCh$
115,196
152,098
2,412,233
1,488,369
746,504
747,874
3,273,933
2,388,341
213
During the period ended as of December 31, 2012, Banco de Chile issued bonds by an amount of MCh$1,233,985, of which corresponds to Unsubordinated
bonds and Subordinated bonds by an amount of MCh$1,207,808 and MCh$26,177 respectively, according to the following details:
Bonds
Series
BCHIUO0911
BCHIUD0510
BCHIUI0611
BCHIUI0611
BCHIUI0611
BCHIUP1211
BCHIUI0611
BCHIUQ1011
BCHIUQ1011
BCHIUQ1011
BCHIUS0212
BCHIUS0212
BCHIUT0112
BCHIUR1011
BCHIUR1011
BCHIUR1011
BCHIUR1011
BCHIUR1011
BCHIUJ0811
BCHIUJ0811
BCHIUV1211
BCHIUJ0811
BCHIUJ0811
BCHIAC1011
BONO HKD (*)
BONO HKD (*)
BONO PEN (**)
SUBTOTAL AS OF DECEMBER 31, 2012
Short-term as of Bonds (***)
TOTAL AS OF DECEMBER 31, 2012
MCh$
89,896
14,109
1,338
3,352
1,116
88,345
2,236
27,343
48,568
12,449
46,428
20,552
66,850
33,295
4,450
13,469
1,799
5,284
1,334
33,456
67,842
1,566
2,241
11,118
24,487
54,374
14,083
691,380
516,428
1,207,808
Term
10 years
6 years
7 years
7 years
7 years
10 years
7 years
11 years
11 years
11 years
11 years
11 years
12 years
12 years
12 years
12 years
12 years
12 years
8 years
8 years
13 years
8 years
8 years
15 years
15 years
15 years
5 years
Interest rate
3.40
2.20
3.20
3.20
3.20
3.40
3.20
3.40
3.40
3.40
3.40
3.40
3.40
3.40
3.40
3.40
3.40
3.40
3.20
3.20
3.50
3.20
3.20
3.50
4.00
4.00
4.04
Currency
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
HKD
PEN
Issue date
02/15/2012
02/16/2012
03/05/2012
03/07/2012
03/23/2012
04/04/2012
04/17/2012
05/08/2012
05/11/2012
06/04/2012
06/04/2012
06/07/2012
06/12/2012
06/20/2012
07/30/2012
09/14/2012
09/24/2012
09/25/2012
05/10/2012
10/10/2012
10/10/2012
10/19/2012
10/22/2012
10/22/2012
09/05/2012
11/07/2012
10/30/2012
Maturity date
02/15/2022
02/16/2018
03/05/2019
03/07/2019
03/23/2019
04/04/2022
04/17/2019
05/08/2023
05/11/2023
06/04/2023
06/04/2023
06/07/2023
06/12/2024
06/20/2024
07/30/2024
09/14/2024
09/24/2024
09/25/2024
05/10/2020
10/10/2020
10/10/2025
10/19/2020
10/22/2020
10/22/2027
09/05/2027
09/09/2027
10/30/2017
(*) On August 9, 2012 it approved in Board Meeting No. 2,759 a bond issue program in Hong Kong, according the Regulation – S of SEC (Securities and Exchange Commission) for an amount
of US$60,000,000 for to be placed in international market, of which on September 5, 2012 it were issued and placed an amount of 400,000,000 Hong Kong dollars.
Later, on October 25, 2012 it was approved in Board Meeting No. 2,764 a complementary program of issue of bonds according to Regulation – S of SEC (Securities and Exchange Commission)
for an amount of US$130.000.000 for to be placed in international market, of which on November 7, 2012 it were issued and placed an amount of 875,000,000 Hong Kong dollars.
(**) On October 11, 2012 it was approved in Board Meeting No. 2,763 a program issue of bonds according to Regulation – S of SEC (Securities and Exchange Commission) for an amount
not greater than US$100,000,000, of which the October 30, 2012 were issued and placed PEN 75,000,000 or US$28,000,000.
(***) On May 4, 2012 Banco de Chile gradually began issuing bonds denominated “Short-term Bonds (Commercial Papers), which have maturity, date of January 15, 2013. The total issuance
was US$1,077,080.
Subordinated Bonds
Term
Interest rate
Currency
Issue date
Maturity date
UCHI-G1111
Series
MCh$
13,191
25 years
3.75
UF
07/30/2012
07/30/2037
UCHI-G1111
1,099
25 years
3.75
UF
07/31/2012
07/31/2037
UCHI-G1111
1,782
25 years
3.75
UF
08/31/2012
08/31/2037
UCHI-G1111
10,105
25 years
3.75
UF
12/28/2012
12/28/2037
TOTAL
26,177
During the year ended December 31, 2011, Banco de Chile issued bonds by an amount of Ch$749,586 million, of which correspond to unsubordinated
bond.
Bonds
Series
MCh$
Term
Interest rate
Currency
Issue date
Maturity date
BCHIUE0510
82,639
6 years
2.20
UF
05/20/2011
05/20/2017
BCHIUG0610
81,802
11 years
2.70
UF
05/27/2011
05/27/2022
BCHIUC0510
37,866
5 years
2.20
UF
07/07/2011
07/07/2016
BCHIUF0610
36,608
10 years
2.70
UF
07/07/2011
07/07/2021
BCHIUI0611
42,944
7 years
3.20
UF
07/12/2011
07/12/2018
BCHIUI0611
34,096
7 years
3.20
UF
07/20/2011
07/20/2018
BCHIUK0611
52,866
11 years
3.50
UF
07/28/2011
07/28/2022
BCHIUD0510
46,014
6 years
2.20
UF
07/28/2011
07/28/2017
BCHIUK0611
33,451
11 years
3.50
UF
07/29/2011
07/29/2022
BCHIUI0611
432
7 years
3.20
UF
08/02/2011
08/02/2018
BCHIUI0611
756
7 years
3.20
UF
08/03/2011
08/03/2018
BCHIUJ0811
48,045
8 years
3.20
UF
09/12/2011
09/12/2019
BCHI-B1208
84,912
7 years
2.20
UF
09/12/2011
09/12/2018
BCHIUD0510
12,790
6 years
2.20
UF
09/22/2011
09/22/2017
BCHIUH0611
21,668
6 years
3.00
UF
09/29/2011
09/29/2017
BCHIUI0611
65,014
7 years
3.20
UF
09/30/2011
09/30/2018
BCHIUD0510
10,675
6 years
2.20
UF
09/30/2011
09/30/2017
BCHIUD0510
1,068
6 years
2.20
UF
10/13/2011
10/13/2017
55,940
3 years
5.41
MXN
12/08/2011
12/04/2014
BNCHIL (*)
TOTAL
749,586
(*) At the Ordinary Meeting No. BCH 2,738 held on August 11, 2011, the minutes of which were recorded in a public deed drawn up at the office of the Public Notary Mr. René Benavente
Cash on August 19, 2011, authorized a program to place certificates in Mexico in an amount of MXN10,000,000,000, of which an amount of MXN1,500,000,000 were issued and placed
on December 8, 2011.
The Bank has not had breaches of capital and interest with respect to its debts instruments during year 2012 and 2011.
215
23. Other Financial Obligations:
As of December 31, 2012 and 2011, other financial obligations are detailed as follows:
2012
MCh$
2011
MCh$
Other Chilean obligations
106,537
123,051
Public sector obligations
55,586
61,734
Other foreign obligations
—
—
162,123
184,785
2012
MCh$
2011
MCh$
300,759
259,501
Provisions for Personnel benefits and payroll expenses
64,546
60,634
Provisions for contingent loan risks
36,585
35,334
97,757
95,486
3,107
4,281
TOTAL
24. Provisions:
(a)
As of December 31, 2012 and 2011, provisions and accrued expenses are detailed as follows:
Provisions for contingencies:
Additional loan provisions (*)
Other provisions for contingencies
Country risk provisions
TOTAL
(*) In 2012, the Bank established an amount of Ch$2,271 million (Ch$24,052 million in 2011) for countercyclical provisions.
2,083
2,702
504,837
457,938
(b)
The following table details the movements in provisions and accrued expenses during the 2012 and 2011 periods:
Balances as of January 1, 2011
Provisions used
Provisions released
Minimum
dividends
MCh$
Contingent
loan Risks
MCh$
Additional loan
provisions
MCh$
242,503
55,434
30,115
71,434
4,617
259,501
47,933
5,368
24,052
2,751
339,605
(242,503)
(41,893)
—
—
(215)
(284,611)
404,103
—
(840)
(149)
—
(170)
(1,159)
259,501
60,634
35,334
95,486
6,983
457,938
Balances as of January 1, 2012
259,501
60,634
35,334
95,486
6,983
457,938
Provisions used
Provisions released
300,759
50,799
1,251
2,271
228
355,308
(259,501)
(46,813)
—
—
(223)
(306,537)
—
(74)
—
—
(1,798)
(1,872)
300,759
64,546
36,585
97,757
5,190
504,837
Provisions for personnel benefits and payroll:
2012
MCh$
2011
MCh$
Short-term personnel benefits
29,649
28,827
Vacation accrual
20,842
20,361
Pension plan- defined benefit plan
10,633
8,511
3,422
2,935
64,546
60,634
2012
MCh$
2011
MCh$
8,511
7,981
Other benefits
TOTAL
(d)
Total
MCh$ BALANCES AS OF DECEMBER 31, 2011
(c)
Country risk
provisions
and other
contingencies
MCh$
Personnel
benefits and
payroll
MCh$
Pension plan – Defined benefit plan:
(i) Movement in the defined benefit obligations are as follow:
Opening defined benefit obligation,
Increase in provisions
Benefit paid
Prepayments
Effect of change in factors
CLOSING DEFINED BENEFIT OBLIGATION
808
886
(864)
(282)
(22)
(20)
2,200
(54)
10,633
8,511
217
(ii) Net benefits expenses:
2012
MCh$
2011
MCh$
Current service cost
808
886
Interest cost of benefits obligations
468
482
Actuarial gains (losses)
1,732
(536)
NET BENEFIT EXPENSES
3,008
832
December 31,
2012
%
December 31,
2011
%
(iii) Assumptions used to determine pension obligations:
The principal assumptions used in determining pension obligations for the Bank’s plan are shown below:
Discount rate
5.50
6.04
Annual salary increase
5.08
2.00
99.99
93.00
Payment probability
The most recent actuarial valuation of the present value of the benefit plan obligation was carried out at December 31, 2012.
(e)
Movements in provisions for incentive plans:
Balances as of January 1,
Provisions used
Provisions release
TOTAL
(f)
2012
MCh$
2011
MCh$
28,827
25,920
28,406
30,655
(27,584)
(27,724)
—
(24)
29,649
28,827
2012
MCh$
2011
MCh$
20,361
18,774
Movements in provisions for vacations:
Balances as of January 1,
Provisions used
Provisions release
TOTAL
5,655
5,821
(4,363)
(4,187)
(811)
(47)
20,842
20,361
(g)
Employee share-based benefits provision:
As of December 31, 2012 and 2011, the Bank and its subsidiaries do not have a stock compensation plan.
(h)
Contingent loan provisions:
As of December 31, 2012 and 2011, the Bank and its subsidiaries maintain contingent loan provisions by an amount of Ch$36,585 million (Ch$35,334
million in 2011). See note No. 26 (d).
25. Other Liabilities:
As of December 31, 2012 and 2011, other liabilities are detailed as follows:
2012
MCh$
2011
MCh$
111,358
79,031
Unearned income
5,357
5,379
Dividends payable
883
786
Accounts and notes payable (*)
Other liabilities
Documents intermediated (**)
132,651
134,820
Cobranding
23,066
20,894
VAT debit
11,689
12,465
Leasing deferred gains
5,900
7,039
Pending transactions
5,080
1,941
135
1,158
Others
4,947
2,252
TOTAL
301,066
265,765
Insurance payments
(*) nclude 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.
219
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:
2012
MCh$
2011
MCh$
Contingent loans
Guarantees and surety bonds
Confirmed foreign letters of credit
Issued foreign letters of credit
323,924
216,249
85,272
137,253
138,714
131,567
Bank guarantees
1,437,312
1,235,031
Immediately available credit lines
5,481,235
4,881,220
122,997
164,361
386,006
582,090
12,144
2,766
—
—
22,802
62,701
—
—
6,237,859
5,613,495
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
Securities held in safe custody in the Bank
Securities held in safe custody in other entities
TOTAL
4,483,567
4,088,670
18,731,832
17,115,403
Above information only includes the most significant balances.
(b)
Lawsuits and legal proceedings:
(b.1) Legal contingencies within the ordinary course of business:
In the ordinary course of business, the Bank and its subsidiaries act as defendant or co-defendant in various litigation matters. Although there can be no
assurances, the Bank’s management believes, based on information currently available, that the ultimate resolution of these legal proceedings are not
likely to have a material adverse effect on its results of operations, financial position, or liquidity. As of December 31, 2012, the Bank has established
provisions for this concept in the amount of MCh$474 (MCh$736 in 2011), recorded within “Provisions” in the statement of financial position. The
following table presents estimated date of completion of the respective litigation:
Contingencias judiciales
2013
MCh$
2014
MCh$
65
5
2015
2016
MCh$
MCh$
16
388
2017
MCh$
Total
MCh$
—
474
(b.2 Contingencies for significant lawsuits:
As of December 31, 2012 and 2011, it does not exist any significant demands in courts that they affect or could affect the current consolidated financial statements.
(c)
Guarantees granted:
i. In subsidiary Banchile Administradora General de Fondos S.A.:
In compliance with article 226 and subsequent articles of Law 18,045, Banchile Administradora General de Fondos S.A., has designated Banco
de Chile as the representative of the beneficiaries of the guarantees it has established and in that character the Bank has issued bank guarantees
totaling UF 2,442,000, maturing January 4, 2013.
In addition to these guarantees for creating mutual funds, there are other guarantees for a guaranteed return on certain mutual funds, totaling
Ch$118,734 million as of December 31, 2012 (Ch$104,302 million in 2011).
Fund
2012
MCh$
Guarantees
Number
Mutual Fund Banca Americana Voltarget - Guaranted
11,878
336723-1
Mutual Fund Estrategia Commodities - Guaranted
6,302
336721-5
Mutual Fund Muralla China - Guaranted
17,795
336716-8
Mutual Fund Potencias Consolidadas - Guaranted
30,381
336718-4
Mutual Fund Ahorro Plus I - Guaranted
730
336720-7
Mutual Fund Ahorro Estable II - Guaranted
11,270
336722-3
Mutual Fund Ahorro Estable III - Guaranted
5,051
336717-6
14,958
004713-3
2,069
004716-7
Mutual Fund Depósito Plus - Guaranted
Mutual Fund Europa Accionario - Guaranted
Mutual Fund Twin Win Europa 103 - Guaranted
3,541
004712-5
Mutual Fund Second Best Chile EEUU - Guaranted
2,207
004820-2
12,552
005272-2
Mutual Fund Depósito Plus II - Guaranted
TOTAL
118,734
ii. In subsidiary Banchile Corredores de Bolsa S.A.:
For the purposes of ensuring correct and complete compliance with all of its obligations as broker-dealer entity, in conformity with the provisions
of article 30 and subsequent articles of Law 18,045 on Securities Markets, the subsidiary established a guarantee in an insurance policy for UF
20,000, insured by Cía. de Seguros de Crédito Continental S.A., that matures April 22, 2014, whereby the Securities Exchange of the Santiago Stock
Exchange was appointed as the subsidiary’s creditor representative.
221
2012
MCh$
2011
MCh$
Guarantees:
Shares to secure short-sale transactions in:
Securities Exchange of the Santiago Stock Exchange
Securities Exchange of the Electronic Stock Exchange of Chile
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
69
15,980
33,693
21,731
3,068
2,987
47
—
36,877
40,698
According to the provisions of internal stock market regulations, and for the purpose of securing the broker’s correct performance, the company
established a pledge on its share of the Santiago Stock Exchange in favor of that institution, as recorded in Public Deed on September 13, 1990, signed
before Santiago public notary Mr. Raúl Perry Pefaur, and on its share in the Electronic Stock Exchange of Chile in favor of that institution, as recorded
in a contract entered into by both parties on May 16, 1990.
Banchile Corredores de Bolsa S.A. keeps an insurance policy current with Chartis Chile – Compañía de Seguros Generales S.A. that expires January
2, 2013, and that covers employee fidelity, physical losses, falsification or adulteration, and currency
fraud with a coverage amount equivalent to US$ 10,000,000.
This secure was renewed on January 2, 2013 with maturity of January 2, 2014 for the same amount with “AIG Chile Compañía de Seguros Generales
S.A.”
(d)
Provisions for contingencies loans:
Established provisions for credit risk from contingencies operations are the followings:
2012
MCh$
2011
MCh$
Credit lines
22,661
20,679
Bank guarantees
11,407
12,520
2,064
1,526
434
523
Guarantees and surety bonds
Letters of credit
Other commitments
TOTAL
19
86
36,585
35,334
27. Equity:
(a)
Capital
i. Authorized, subscribed and paid shares:
As of December 31, 2012, the paid-in capital of Banco de Chile is represented by 89,898,992,667 registered shares (86,942,514,973 in 2011),
with no par value, fully paid and distributed.
Number of
% of Equity
Shares
Holding
Corporate Name or Shareholders’s name
Subscribed and
and paid Chile
Subscribed and
and paid Chile -T
28,241,222,862
1,519,715,819
29,760,938,681
28,593,701,789
—
28,593,701,789
31.81
12,138,537,826
—
12,138,537,826
13.50
Ever 1 BAE S. P. A.
1,926,331,458
—
1,926,331,458
2.14
Ever Chile S. P. A.
1,926,331,453
—
1,926,331,453
2.14
Banco de Chile on behalf others Chapter. XIV Resolution 5412 and 43
1,917,824,777
—
1,917,824,777
2.13
1,634,542,641
55,731,549
1,690,274,190
1.88
Banco Itau Chile (on behalf foreign investors)
1,335,644,830
11,527,535
1,347,172,365
1.50
1,333,288,591
—
1,333,288,591
1.48
33.10
746,580,394
—
746,580,394
0.83
Banco Santander (on behalf foreign investors)
708,503,705
—
708,503,705
0.79
495,315,368
30,675,913
525,991,281
0.59
Celfin Capital S.A. Corredores de Bolsa
499,986,263
13,917,749
513,904,012
0.57
325,708,628
12,306,250
338,014,878
0.38
326,666,567
4,433,433
331,100,000
0.37
280,512,369
12,782,432
293,294,801
0.33
A F P Provida S.A. Para Fondo de Pensiones
287,285,362
—
287,285,362
0.32
BICE Inversiones Corredores de Bolsa S.A.
144,438,155
7,563,024
152,001,179
0.17
Valores Security S.A. Corredores de Bolsa
141,080,250
3,916,384
144,996,634
0.16
Inversiones y Asesorias Fabiola S.A.
135,681,958
6,080,951
141,762,909
0.16
SUBTOTAL
83,139,185,246
1,678,651,039
84,817,836,285
94.35
Otros accionistas
4,898,628,265
182,528,117
5,081,156,382
5.65
TOTAL
88,037,813,511
1,861,179,156
89,898,992,667
100.00
223
Corporate Name or Shareholder’s Name
Shares
% of Equity Holding
28,593,701,789
32.89
27,609,418,295
31.76
12,138,525,772
13.96
Ever 1 BAE S.A.
1,890,495,236
2.17
Ever Chile S.A.
1,890,495,231
2.17
1,637,433,839
1.88
1,308,484,951
1.51
Banco de Chile on behalf others Chapter. XIV Resolution 5412 and 43
1,103,378,195
1.27
1,079,633,755
1.24
Banco Itau Chile (on behalf of foreign investors)
1,037,436,967
1.19
A F P Provida S.A. Para Fondo de Pensiones
783,492,630
0.90
584,793,376
0.67
Celfin Capital S.A. Corredores de Bolsa
558,660,521
0.64
Banco Santander (on behalf of foreign investors)
543,774,674
0.63
307,245,575
0.36
270,466,820
0.31
235,516,687
0.27
A F P Habitat S. A. para el Fondo de Pensiones
209,317,353
0.24
A F P Cuprum S.A. para el Fondo de Pensiones
201,313,870
0.23
MBI Arbitrage Fondo de Inversión
163,096,437
0.19
82,146,681,973
94.48
4,795,833,000
5.52
86,942,514,973
100.00
SUBTOTAL
Other minority holders
TOTAL
(ii) Shares:
(ii.1) On June 5, 2012, Banco de Chile informed of the capitalization of 30% of the distributable net income obtained during the fiscal year ending
December 31, 2011, through the issuance of fully paid-in shares, of no par value, agreed in the Extraordinary Shareholders Meeting held on March
22, 2012, which are as follows:
In the said Extraordinary Shareholders Meeting, it was agreed to increase the Bank´s capital in the amount of Ch$73,910,745,344 through the
issuance of 1,095,298,538 fully paid-in shares, of no par value, payable under the distributable net income for the year 2011 that was not distributed
as dividends as agreed at the Ordinary Shareholders Meeting held on the same day.
The issuance of fully in paid shares was registered in the Securities Register of the Superintendence of Banks and Financial Institutions with No.
4/2012, on June 4, 2012.
The Board of Directors of Banco de Chile, at the meeting No. 2,754, dated May 24, 2012, set June 28, 2012, as the date for issuance and distribution
of the fully paid in shares
(ii.2) According to Note 5 No. (h) of Relevant Events, the Bank is in process of issue, subscription and placement of share. The following table shows
the share movements from December 31, 2011 to December 31, 2012:
Ordinary S
Series Shares
73,834,890,472
8,716,808,951
—
82,551,699,423
1,005,766,185
—
—
1,005,766,185
Transformation of the shares series “Banco de Chile-S” into ordinary
shares “Banco de Chile”
8,716,808,951
(8,716,808,951)
—
—
Fully paid the share capital increase (*)
3,385,049,365
—
—
3,385,049,365
AS OF DECEMBER 31, 2010
TOTAL SHARES AS OF DECEMBER 31, 2011
Capitalization of retained earnings (**)
Shares subscribed and paid
TOTAL SHARES SUBSCRIBED AND PAID AS OF DECEMBER 31, 2012
Shares subscribed and not paid
Shares issued and not subscribed
TOTAL AS OF DECEMBER 31, 2012
Ordinary T Series
Shares (***)
Total
Shares
Ordinary
Shares
86,942,514,973
—
—
86,942,514,973
1,095,298,538
—
—
1,095,298,538
—
—
1,861,179,156
1,861,179,156
1,861,179,156
89,898,992,667
88,037,813,511
—
—
—
76,940,138
76,940,138
—
—
2,001,370,148
2,001,370,148
88,037,813,511
—
3,939,489,442
91,977,302,953
(*) During July of 2011, the Bank concluded the capital increase process by an amount of Ch$210,114 millions, amount net of cost associated with the issuance.
(**) Capitalization of March 22, 2012. See Note No. 5 (a)
(***) See Note No. 5 (h)
(b)
Distributable income:
For purposes of Law No. 19,396 (in particular Articles 24, 25 and 28 of such law) and the Central Bank Contract, Banco de Chile’s distributable net
income will be determined by subtracting or adding to net income the correction of the value of the paid in capital and reserves according to the variation
of the Consumer Price Index between November of the fiscal year prior to the one in which the calculation is made and November of the fiscal year in
which the calculation is made. The difference between net income and distributable net income shall be registered in a reserve account since the first
day of the fiscal year following the date when the calculation is made. This reserve account cannot be distributed or capitalized. Provisional article four
shall be in force until the obligation of Law No. 19,396 owed by Sociedad Matriz del Banco de Chile S.A., directly or through its subsidiary SAOS S.A.,
has been fully paid. The amount distributable income for the period 2012 was by Ch$429,656 million (Ch$370,715 million in 2011).
The above described agreement was subject to the consideration of the Council of the Central Bank of Chile, and such entity approved, in ordinary
meeting that took place on December 3, 2009, determined to resolve in favor regarding the proposal.
As stated, the retention of earnings for the year 2011 made in March 2012 amounted to Ch$58,092 millions (Ch$32,096 millions of income for the
year 2010 retained in March 2011).
225
(c)
Approval and payment of dividends:
At the Ordinary Shareholders’ Meeting held on March 22, 2012, the Bank’s shareholders agreed to distribute and pay dividend No. 200 amounting to
Ch$2.984740 per common share of Banco de Chile, with charge to net income for the year ended December 31, 2011.
At the Ordinary Shareholders’ Meeting held on March 17, 2011, the Bank’s shareholders agreed to distribute and pay dividend No. 199 amounting to
Ch$2.937587 per common share of Banco de Chile, with charge to net income for the year ended December 31, 2010
(d)
Provision for minimum dividends:
The Board of Directors established a minimum dividend distribution policy, where the Bank has to record a provision of 70% of net income as described
in Note 2 (v). Accordingly, the Bank recorded a liability under the line item “Provisions” for an amount of MCh$300,759 (MCh$259,501 in 2011) 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, 2012 and 2011 are shown in the following table, also shows the income and share
data used in the calculation of EPS:
December
2012
December
2011
Basic earnings per share:
Net profits attributable to ordinary equity holders of the bank (in millions)
Weighted average number of “Banco de Chile – T” (*)
Weighted average number of ordinary shares
Dividend per shares (in Chilean pesos)
465,850
428,805
48,987,689
—
88,100,830,689
85,590,444,728
5,28
5,01
465,850
428,805
Diluted earnings per share:
Net profits attributable to ordinary equity holders of the bank (in millions)
Weighted average number of “Banco de Chile – T” (*)
Weighted average number of ordinary shares
Assumed conversion of convertible debt
Adjusted number of shares
Diluted earnings per share (in Chilean pesos)
48,987,689
—
88,100,830,689
85,590,444,728
—
—
88,149,818,378
85,590,444,728
5.28
5.01
(*) According to Note No. 5 (h) of Relevant Events the “Banco de Chile – T” shares, will have de same rights of other shares of Banco de Chile, with the exception that they will not allow its
shareholders to receive dividends and/or fully paid-in shares.
As of December 31, 2012 and 2011, the Bank did not have any instruments that could lead to a dilution of its ordinary shares.
(f)
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 2012 it was made a charge to equity for an amount of Ch$58 million (credit to
equity for Ch$68 millions in 2011).
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 2012 it was made a credit to equity for an amount of Ch$19,639 million (charge to equity for
Ch$7,618 millions in 2011).
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 2012 it was made a credit to equity for an amount of Ch$1,429 million (charge to equity for Ch$395 millions for the period 2011).
28. Interest Revenue and Expenses:
(a)
On the financial statement closing date, the composition of income from interest and adjustments, not including income from hedge accounting, is as
follows:
2012
Interest
MCh$
Adjustment
MCh$
2011
Prepaid
fees
MCh$
Total
MCh$
Interest
MCh$
Adjustment
MCh$
Prepaid
fees
MCh$
Total
MCh$
Commercial loans
691,745
95,691
1,967
789,403
573,171
138,730
3,507
715,408
Consumer loans
514,599
1,063
7,245
522,907
428,144
1,572
6,262
435,978
168,937
93,775
3,913
266,625
138,541
123,899
4,474
266,914
60,791
15,546
—
76,337
49,423
22,000
—
71,423
2,786
—
—
2,786
5,234
—
—
5,234
12,993
—
—
12,993
10,322
—
—
10,322
Financial investment
Other interest revenue
TOTAL
143
1,569
—
1,712
189
2,472
—
2,661
1,451,994
207,644
13,125
1,672,763
1,205,024
288,673
14,243
1,507,940
The amount of interest revenue recognized on a received basis for impaired portfolio in 2012 by Ch$9,038 million (Ch$9,112 million in 2011).
227
(b)
At the period end, the detail of income from suspended interest is as follows:
Interest
Total
2012
Adjustment
MCh$
Commercial loans
6,185
1,961
1,380
772
Consumer loans
TOTAL
(c)
2011
Adjustment
MCh$
8,146
5,288
1,988
7,276
2,152
1,590
932
2,522
MCh$
269
—
269
185
—
185
7,834
2,733
10,567
7,063
2,920
9,983
2011
Reajustes
MCh$
Total
MCh$
As of each year end, interest and adjustment expenses (not including hedge gain) are detailed as follows:
Intereses
MCh$
2012
Reajustes
MCh$
Total
MCh$
Intereses
MCh$
441,256
55,729
496,985
341,842
84,126
425,968
Debt issued
109,742
60,480
170,222
81,554
72,342
153,896
2,117
961
3,078
2,269
1,554
3,823
14,976
10
14,986
10,849
—
10,849
22,308
—
22,308
23,784
—
23,784
76
3,870
3,946
57
5,877
5,934
Demand deposits
Other interest expenses
TOTAL
(d)
MCh$
Interest
Total
15
92
107
—
140
140
590,490
121,142
711,632
460,355
164,039
624,394
As of December 31, 2012 and 2011, the Bank uses interest rate swaps to hedge its position on the fair value of corporate bonds and commercial loans
through micro-hedging
Income (loss)
MCh$
2012
Expenses
MCh$
Total
MCh$
Income (loss)
MCh$
2011
Expenses
MCh$
Total
MCh$
Gain from accounting hedges
3,632
3,003
6,635
249
185
434
Loss from accounting hedges
(12,637)
—
(12,637)
(30,521)
—
(30,521)
Net gain on hedged items
TOTAL
(2,291)
—
(2,291)
17,861
—
17,861
(11,296)
3,003
(8,293)
(12,411)
185
(12,226)
(e)
At the end of the period the summary of interest and expenses is as follows:
2012
MCh$
2011
MCh$
Interest revenue
1,672,763
1,507,940
Interest expenses
(711,632)
(624,394)
SUBTOTAL
961,131
883,546
INCOME ACCOUNTING HEDGES (NET)
(8,293)
(12,226)
952,838
871,320
TOTAL INTEREST REVENUE AND EXPENSES, NET
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:
2012
MCh$
2011
MCh$
102,407
90,758
Collections and payments
60,341
49,764
Investments in mutual funds and other
56,043
63,809
Portfolio management
27,317
28,523
Lines of credit and overdrafts
22,892
22,771
Fees for insurance transactions
17,404
20,480
Trading and securities management
16,892
27,779
Use of distribution channel
15,942
18,430
Guarantees and letters of credit
14,454
12,888
Use Banchile’s brand
12,356
11,264
Income from fees and commission
Card services
Financial advisory services
3,955
3,186
22,764
18,314
372,767
367,966
Credit card transactions
(42,035)
(35,522)
Sales force fees
(10,098)
(8,312)
Other fees earned
TOTAL INCOME FROM FEES AND COMMISSIONS
Expenses from fees and commissions
Fees for collections and payments
(6,534)
(6,619)
Fees for securities transactions
(2,994)
(4,246)
Sale of mutual fund units
(2,488)
(3,038)
Other fees
(1,361)
(1,456)
(65,510)
(59,193)
TOTAL EXPENSES FROM FEES AND COMMISSIONS
229
30. Net Financial Operating Income:
The gain (losses) from trading and brokerage activities is detailed as follows:
Sale of available-for-sale instruments
Net loss on other transactions
Sale of loan portfolios (*)
TOTAL
2012
MCh$
2011
MCh$
18,798
22,757
8,088
2,289
2,567
(353)
(4,852)
44,751
146
(42,517)
24,747
26,927
(*) Includes the net profit or loss on sale of loans, as determined by the difference between cash value and the carrying value at the date of the sale, regardless of the provisions, even
in the case of wholly or partially written-off. See note No. 12 (e)
31. Foreign Exchange Transactions, net:
Net foreign exchange transactions are detailed as follows:
2012
MCh$
2011
MCh$
(Loss) gain on translation difference, net
44,736
(18,495)
Indexed foreign currency
(9,404)
11,489
(Loss) gain from accounting hedges
TOTAL
(196)
(967)
35,136
(7,973)
32. Provisions for Loan Losses:
The movement of the results during 2012 and 2011, by concept of provisions, is summarized as follows:
Loans to customers
Loans and
advances to
Commercial
Mortgage
Consumer
Contingent
banks
loans
loans
loans
Total
loans
Total
2012 2011 loans 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
Provisions established:
- Individual provisions
—
- Group provisions
—
— (46,807) (42,132)
(4,428)
(3,553) (160,775) (110,344) (212,010) (156,029)
(222)
— (212,232) (156,029)
Provisions established, net
—
(396) (60,475) (42,132)
(4,428)
(3,553) (160,775) (110,344) (225,678) (156,029)
(1,251)
(5,368) (226,929) (161,793)
(396) (13,668)
— (*)
—
—
—
— (13,668)
—
(1,029)
(5,368) (14,697)
(5,764)
Provisions released:
- Individual provisions
47
- Group provisions
—
—
—
—
—
—
—
—
—
—
Provisions released, net
47
—
—
14,515
—
—
—
—
—
14,515
PROVISION, NET
47
(396) (60,475) (27,617)
(4,428)
(3,553) (160,775) (110,344) (225,678) (141,514)
(1,251)
ADDITIONAL PROVISION
—
—
(2,271) (24,052)
RECOVERY OF WRITTENOFF ASSETS
—
—
14,893
PROVISIONS, NET
ALLOWANCES FOR
CREDIT RISK
47
—
— 14,515(*)
—
—
—
—
—
—
—
—
16,790
1,971
1,106
24,099
28,445
(396) (47,853) (34,879)
(2,457)
—
14,515
—
—
47
14,515
—
149
—
149
—
149
47
14,664
(5,219) (226,882) (147,129)
(2,271) (24,052)
—
—
(2,271) (24,052)
40,963
46,341
—
—
40,963
(2,447) (136,676) (81,899) (186,986) (119,225)
(1,251)
46,341
(5,219) (188,190) (124,840)
(*) See note No. 30 and No. 12 (e)
According to the Administration, the provisions constituted by credit risk, covers probable losses that could arise from the non-recovery of assets.
231
33. Personnel Expenses:
La composición del gasto por remuneraciones y gastos del personal durante los ejercicios 2012 y 2011, es la siguiente:
2012
MCh$
2011
MCh$
185,479
169,114
Bonuses
71,674
100,494
Lunch and health benefits
21,954
20,272
Staff severance indemnities
12,608
6,167
Remuneration
Training expenses
Other personnel expenses
TOTAL
1,671
1,493
18,679
19,451
312,065
316,991
34. Administrative Expenses:
As of December 31, 2012 and 2011, administrative expenses are detailed as follows:
2012
MCh$
General administrative expenses
Information Technology and communications
Maintenance and repair of property and equipment
Office rental
Securities and valuables transport services
External advisory services
Rent ATM area
Office supplies
Lighting, heating and other utilities
Representation and transferring of personnel
Legal and notary
Insurance premiums
P.O box, mail and postage
Donations
Home delivery products
Equipment rental
Collection sevice
Fees for professional services
SBIF fines
Other general administrative expenses
2011
MCh$
48,670
29,332
19,589
9,217
7,601
7,283
6,346
4,733
3,611
3,291
2,897
2,739
2,029
1,648
1,164
880
776
40
8,871
47,062
28,486
18,211
9,203
7,163
6,462
6,556
5,985
3,850
2,926
2,384
3,182
1,545
1,533
1,251
671
654
—
6,067
160,717
153,191
Outsources services
Credit pre-evaluation services
Data processing
Expenditure on external technological developments
Certification and testing technology
Other
21,316
7,646
6,196
4,342
2,515
22,808
7,275
3,046
2,500
1,972
SUBTOTAL
42,015
37,601
Board expenses
Board remunerations
Other board expenses
2,042
614
2,086
647
SUBTOTAL
2,656
2,733
SUBTOTAL
Marketing expenses
Advertising
30,572
26,515
SUBTOTAL
30,572
26,515
6,434
2,672
1,379
1,014
5,423
2,601
1,240
615
11,499
9,879
247,459
229,919
Taxes, payroll taxes and contributions
Contribution to the Superintendency of Banks
Real estate contributions
Patents
Other taxes
SUBTOTAL
TOTAL
233
35. Depreciation, Amortization and Impairment:
(a)
Amounts charged to income for depreciation and amortization during the 2012 and 2011 periods are detailed as follows:
2012
MCh$
2011
MCh$
Depreciation of property and equipment (Note No.16a)
(b)
20,614
20,543
Amortization of intangibles assets (Note No.15b)
10,343
10,168
TOTAL
30,957
30,711
As of December 31, 2012 and 2011, the impairment loss is detailed as follows:
2012
MCh$
2011
MCh$
Impairment loss
Impairment loss on investment instruments
551
—
Impairment loss on property and equipment (Note No.16a)
348
335
—
296
899
631
Impairment loss on intangibles assets (Note No.15b)
TOTAL
36. Other Operating Income:
During 2012 and 2011, the Bank and its subsidiaries present the following under other operating income:
2012
MCh$
2011
MCh$
Income for assets received in lieu of payment
Income from sale of assets received in lieu of payment
Other income
SUBTOTAL
5,674
5,918
8
115
5,682
6,033
1,174
—
—
—
Release of provisions for contingencies
Special provisions for foreign loans
SUBTOTAL
624
173
1,798
173
Other income
Rental income
6,007
5,614
Expense recovery
2,895
2,372
Recovery from external branches
2,379
2,207
Fiduciary and trustee commissions
466
113
Gain on sale of property and equipment
325
1,338
Monthly prepaid taxes revaluation
315
1,006
Income tax management
275
844
Income from sale of leased assets
135
1,021
51
48
Foreign trade income
Refund of insurance
19
1,594
1,714
2,372
SUBTOTAL
14,581
18,529
TOTAL
22,061
24,735
Others
235
37. Otros Gastos Operacionales:
Durante los ejercicios 2012 y 2011, el Banco y sus filiales presentan otros gastos operacionales de acuerdo a lo siguiente:
2012
MCh$
2011
MCh$
Provisions and expenses for assets received in lieu of payment
Provisions for assets received in lieu of payment
Charge-off assets received in lieu of payment
Expenses to maintain assets received in lieu of payment
SUBTOTAL
100
1,124
2,600
3,495
622
561
3,322
5,180
—
785
Provisions for contingencies
Special provisions for foreign loans
—
—
1,109
2,495
SUBTOTAL
1,109
3,280
18,935
17,360
Write-offs for operating risks
9,526
3,002
Provisions other assets
3,765
—
Card administration
2,163
2,602
Write-offs and provisions for fraud
1,195
754
Operating expenses and charge-off leasing assets
780
792
Mortgage life insurance
309
232
Provision for recovery of leased assets
227
50
Contributions to government organizations
225
208
Civil judgments
224
388
Other expenses
Cobranding
Losses on sale of property and equipment
7
25
652
1,723
SUBTOTAL
38,008
27,136
TOTAL
42,439
35,596
Others
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.
237
(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 (*)
2012
2011
MCh$
MCh$
Investment
Companies (**)
2012
2011
MCh$
MCh$
Individuals (***)
2012
MCh$
Total
2011
MCh$
2012
MM$
2011
MM$
Loans and accounts receivable:
Commercial loans
250,983
209,764
63,576
81,798
704
575
315,263
292,137
—
—
—
—
14,974
13,919
14,974
13,919
Consumer loans
—
—
—
—
3,920
3,387
3,920
3,387
GROSS LOANS
250,983
209,764
63,576
81,798
19,598
17,881
334,157
309,443
(761)
(602)
(136)
(295)
(68)
(68)
(965)
(965)
250,222
209,162
63,440
81,503
19,530
17,813
333,192
308,478
1,864
18,670
—
—
—
—
1,864
18,670
Provision for loan losses
NET LOANS
Off balance sheet accounts
Guarantees
Letters of credits
280
158
—
—
—
—
280
158
24,361
21,313
2,374
2,038
—
—
26,735
23,351
Immediately available credit lines
46,179
32,406
4,532
1,451
9,320
9,393
60,031
43,250
TOTAL OFF BALANCE SHEET ACCOUNT
72,684
72,547
6,906
3,489
9,320
9,393
88,910
85,429
(44)
(95)
(1)
(2)
—
—
(45)
(97)
72,640
72,452
6,905
3,487
9,320
9,393
88,865
85,332
31,034
27,958
55
55
15,325
15,431
46,414
43,444
Banks guarantees
Provision for contingencies loans
OFF BALANCE SHEET ACCOUNT, NET
Amount covered by Collateral
Mortgage
Warrant
—
—
—
—
—
—
—
—
Pledge
13
—
—
—
7
7
20
7
2,842
2,855
17,300
17,300
10
10
20,152
20,165
33,889
30,813
17,355
17,355
15,342
15,448
66,586
63,616
For trading purposes
—
2,154
—
—
—
—
—
2,154
For investment purposes
—
—
—
—
—
—
—
—
TOTAL ACQUIRED INSTRUMENTS
—
2,154
—
—
—
—
—
2,154
Other (****)
TOTAL COLLATERAL
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
(b)
Other assets and liabilities with related parties:
2012
MCh$
2011
MCh$
Assets
Other assets
TOTAL
11,174
97,390
107,487
116,010
2,931
2,665
121,592
216,065
87,480
69,287
Liabilities
Demand deposits
Debt issued
Other liabilities
TOTAL
(c)
378,965
531,448
83,582
100,238
79,821
—
134,820
194,059
9,044
7,969
773,712
903,001
Income and expenses from related party transactions (*):
2012
Type of income or expense recognized
Income
MCh$
2011
Expense
MCh$
Income
MCh$
Expense
MCh$
Interest and revenue expenses
18,759
21,501
15,522
31,190
Fees and commission income
56,717
33,337
56,979
30,647
399,773
Financial operating
188,990
152,819
499,960
Provision for credit risk
—
677
221
—
Operating expenses
—
64,213
—
65,718
Other income and expenses
TOTAL
744
40
843
53
265,210
272,587
573,525
527,381
(*) This detail does not constitute an Income Statement for related party transactions since assets with these parties are not necessarily equal to liabilities and each item reflects total
income and expense and does not correspond to exact transactions..
(d)
Related party contracts:
There are no any contracts entered during 2012 and 2011 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.
239
(e)
Payments to key management personnel:
2012
MCh$
2011
MCh$
Remunerations
3,820
3,629
Short-term benefits
3,871
2,820
668
—
Contract termination indemnity
Stock−based benefits
—
—
Others
—
—
TOTAL
8,359
6,449
Composition of key personnel:
N° de ejecutivos
Position
Deputy general manager
CEOs of subsidiaries
Division Managers
(f)
CEO
2011
1
1
—
1
8
8
Total
12
15
TOTAL
21
25
Gastos y Remuneraciones al Directorio:
Remunerations
Name of Directors
Fees for attending
Board meetings
Fees for attending
Committees and
Subsidiary Board
meetings (1)
2012
2011
MCh$
MCh$
2012
MCh$
2011
MCh$
2012
MCh$
2011
MCh$
358 (*)
347 (*)
45
48
294
147
142
8
14
—
Jorge Awad Mehech
49
47
23
27
49
47
21
49
47
23
49
47
23
26
49
48
49
47
17
22
50
46
Jorge Ergas Heyman
49
36
17
16
47
42
49
47
18
23
37
49
47
4
7
—
Jacob Ergas Ergas
—
10
—
4
9
Felipe Joannon Vergara
—
10
—
7
Otros directores de filiales
—
—
—
897
874
199
Andrónico Luksic Craig
TOTAL
Consulting
2012
MCh$
2011
MCh$
2012
MCh$
2011
MCh$
306
—
—
697
701
—
—
—
155
156
110
107
—
—
182
181
25
112
111
—
—
182
183
26
92
87
—
—
164
160
—
—
121
121
—
—
116
115
—
—
113
94
34
—
—
104
104
—
—
—
53
54
17
—
—
9
31
—
12
—
—
—
29
—
165
166
—
86
165
252
245
965
976
—
86
2.061
2.181
(1) Includes fees paid to members of the Advisory Committee of Banchile Corredores de Seguros Ltda. of MCh$19 (MCh$9 in 2011).
(*) Includes a provision of MCh$210 (MCh$205 in 2011) for an incentive subject to achieving the Bank’s forecasted earnings
Total
Fees paid for advisory services to the Board of Directors amount to MCh$266 (MCh$248 in 2011).
Travel and other related expenses amount to MCh$329 (MCh$304 in 2011).
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 definition in this framework is the Product Control Unit, hereinafter PCU, function. This area is independent from both the
principal management and the business unit, and reports to the CFO of Banco de Chile. This area is responsible for the independent verification of Profit
and Losses, and Fair Value measurement and control for all Treasury transactions; Trading, Funding and gapping and Investments deals.
To accomplish the measurements and controls, Banco de Chile and its subsidiaries, take into account at least the following aspects:
(i) Industry standards of fair value measurements.
In the fair value calculation process, is used standard methodologies; closing prices, discounted cash flows and option models, Black-Scholes
model, in the options case. The input parameters are rates, prices and volatility levels for each term and market factor that can change the fair
value of any instrument in the portfolio.
(ii) Quoted prices in active markets.
The fair value for instruments with quoted prices in active markets is determined using daily quotes from electronic systems information as
Bloomberg and Bolsa de Comercio de Santiago terminals. This quote represents the price at which the instrument is frequently buy and sell in
financial markets.
The prices used for determine the fair value of each instrument corresponds to the midpoint for a specific market factor, currency and term.
(iii) Técnicas de Valorización.
If there is not market quotes in active markets for the financial instrument, valuation techniques will be used to determine the fair value.
Due to the fact that fair value models requires a set of market parameters as inputs, it is part of the fair value process to maximize the utilization
based in observable quoted prices or derived from similar instruments in active markets. Nevertheless there are some cases for which neither
quoted prices nor derived prices are available; in these cases external data from specialized providers, brokers such as ICAP, price for similar
transactions and historical information it is used for validate the parameters that will be used as inputs.
(iv) Fair value adjustments.
Part of the fair value process consist in adjustment, Market Value Adjustments or MVA for short, to take into account two different market facts;
bid/offer spreads and market factors liquidity. These adjustments are calculated and analyzed by the PCU and Risk Market areas.
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.
241
The liquidity adjustment considers the relative size to the market of each position in the portfolio. This adjustment is intended to reflect the relative
size of Banco de Chile and the deepness of the markets. For this adjustment, the size of each position, recent transaction in active markets and
recently observed liquidity are taking into account.
(v) Fair value control.
To ensure that the market input parameters that Banco de Chile is using for fair value calculations represent the state of the market and the best
estimate of fair value, the PCU unit runs on a daily basis an independent verification of prices and rates. This process aims to set a preventive
control on the official market parameters provided by the respective business area. A comparative control based on Mark-to-Market differences,
using one set of inputs prepared by the business area and one set prepared by the PCU, is conducted before fair value calculations. The output
of this process is a set of differences in fair value by currency, product and portfolio. These differences are compared with specific ranges by
grouping level; currency, product and portfolio.
In the event when significant differences were detected, these differences are scaled according to the amount of materiality for each grouping
level, from a single report to the trader until a report to the Board. These ranges of materiality control are approved by the Assets and Liabilities
Committee (ALCO).
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 his subsidiaries, taken into account the preceding statements, classify all the financial instruments among the following levels:
Level 1: Observable, quoted price in active markets for the same instrument or specific type of transaction to be evaluated.
In this level are considered the following instruments: currency futures, Chilean central bank and treasury securities, mutual funds investments and equity.
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 each and every one of these instruments exist daily observable market valuation parameters; internal rates of return and closing prices,
respectively, therefore no assumptions are needed to calculate the fair value. For currency futures as well as mutual funds and equity, closing prices times the number of instruments is used for fair value calculations. For Chilean central bank and treasury securities the internal
rate of return is used to discount every cash flow and obtain the fair value of each instrument, for each currency; CLP or CLF.
The preceding described methodology corresponds to the one utilized for the Bolsa de Comercio de Santiago (Santiago’s main Exchange)
and is recognized as the standard in the market.
Level 2: No market quotes are available for the specific financial instrument, or the observable prices are sporadic and therefore the market
does not have enough depth. For instruments in this level the valuation is done based on inference from observable market parameters; quoted
prices for similar instruments in active markets.
This level is composed mostly by derivatives, currency and rate derivatives, bank’s debt securities, mortgage claims, money market instruments
and less liquid Chilean central bank and treasury securities.
For derivatives the fair value process depend upon his value is impacted by volatility as a relevant market factor; if is the case, Black-ScholesMerton type of formula it is used. For the rest of the derivatives, swaps and forwards, net present value through discounted cash flows is
used. For securities classified as level 2, the obtained internal rate of return is used to discount every cash flow and obtain the fair value of
each instrument, for each currency.
In the event that there is no observable price for an instrument in a specific term, the price will be inferred from the interpolation between
periods that do have observable quoted price in active markets. These models incorporate various market variables, including foreign exchange
rates and interest rate curves. In some cases external data from specialized providers, brokers such as ICAP and Riskamerica, price for similar
transactions and historical information it is used for validate the parameters that will be used as inputs.
The techniques described above are used by the Santiago Stock Exchange in Chile, Bloomberg or the Over-the-Counter, and correspond to
the standard methodology used in the local and international markets.
Nivel 3: The input parameters used in the valuation are not observable through market quotes in active markets neither can be inferred directly
from other transaction information in active markets. This category also includes instruments that are valued based on quoted prices for similar
instruments where adjustments or assumptions are needed to reflect the differences between them.
Instruments classified as level 3 correspond to Corporate Debt issued mainly Chilean and foreign companies, issued both in Chile and abroad.
These instruments are classified, for accounting purposes, as Available for Sale. For this securities classified as level 3, the indicative internal
rate of return is used to discount every cash flow and obtain the fair value of each instrument, for each currency. In this case only external
data from specialized providers, brokers such as ICAP, Riskamerica and Interactive Data, it is used to for validate the parameters that will be
used as inputs.
For this level corresponds to the described technique used by both the Bolsa de Comercio de Santiago de Chile as Bloomberg, and correspond
to the standard methodology used in the local and international market.
243
(b) Level hierarchy classification and figures
The following table shows the figures by hierarchy, for instruments registered at fair value.
Level 1
2012
2011
MCh$
MCh$
Level 2
2012
2011
MCh$
MCh$
Level 3
2012
2011
MCh$
MCh$
Total
2012
MCh$
2011
MCh$
FINANCIAL ASSETS
from the Chilean Government and Central Bank
65,548
72,971
6,831
4,871
—
—
72,379
77,842
188
371
87,115
191,063
—
585
87,303
192,019
—
—
—
—
—
—
—
—
Mutual fund investments
33,042
31,910
—
—
—
—
33,042
31,910
SUBTOTAL
98,778
105,252
93,946
195,934
—
585
192,724
301,771
Forwards
—
—
70,166
125,766
—
—
70,166
125,766
Swaps
—
—
258,496
258,681
—
—
258,496
258,681
Call Options
—
—
472
1,239
—
—
472
1,239
Put Options
—
—
341
2
—
—
341
2
Futures
—
—
—
—
—
—
—
—
SUBTOTAL
—
—
329,475
385,688
—
—
329,475
385,688
Swaps
—
—
22
—
—
—
22
—
SUBTOTAL
—
—
22
—
—
—
22
—
136,554
—
115,230
412,394
—
—
251,784
412,394
—
—
646,079
606,723
278,073
321,378
924,152
928,101
—
128,403
88,504
128,403
Derivative contracts for trading purposes
Hedge accounting derivative contracts
from the Chilean Government and Central Bank
30,538
—
SUBTOTAL
167,092
—
—
57,966
761,309 1,019,117
336,039
449,781 1,264,440 1,468,898
TOTAL
265,870
105,252 1,184,752 1,600,739
336,039
450,366 1,786,661 2,156,357
FINANCIAL LIABILITIES
Derivative contracts for trading purposes
Forwards
—
—
81,790
115,797
—
—
81,790
115,797
Swaps
—
—
264,052
272,976
—
—
264,052
272,976
Call Options
—
—
395
1,149
—
—
395
1,149
Put Options
—
—
387
35
—
—
387
35
Futures
—
—
—
—
—
—
—
—
Other
—
—
—
21
—
—
—
21
SUBTOTAL
—
—
346,624
389,978
—
—
346,624
389,978
Hedge derivative contracts
Swaps
—
—
33,698
39,935
—
—
33,698
39,935
SUBTOTAL
—
—
33,698
39,935
—
—
33,698
39,935
TOTAL
—
—
380,322
429,913
—
—
380,322
429,913
Since last quarter of the present period, it was established a new criteria of classification of the level of financial instruments, according to what
observables are their prices in the market. The new definition is described above of this disclosure. It should be noted that this change has no impact
on the valuation of financial assets and liabilities measured at fair value.
(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:
Purchases,
Sales and
Gain (Loss)
Recognized in Agreements,
net
Equity
MCh$
MCh$
Transfer to
Level 1 and 2
MCh$
Balance as of
December 31,
2012
MCh$
—
(768)
—
—
(768)
—
—
—
—
—
—
—
—
—
—
—
(1,410)
19,666
18,256
—
(43,406)
(59,432)
(102,838)
—
—
(24,958)
(24,958)
—
278,073
57,966
336,039
18,256
(103,606)
(24,958)
336,039
Purchases,
Sales and
Gain (Loss)
Recognized in Agreements,
net
Equity
MCh$
MCh$
Transfer to
Level 1 and 2
MCh$
Balance as of
December 31,
2011
MCh$
Balance as
of January 1,
2012
MCh$
Gain (Loss)
Recognized in
Income
MCh$
—
585
—
—
585
—
183
—
—
183
—
—
—
—
—
Instrumentos de Inversión Disponibles para la Venta:
Del Estado y Banco Central de Chile
Otros instrumentos emitidos en el país
Instrumentos emitidos en el exterior
SUBTOTAL
—
321,378
128,403
449,781
—
1,511
(5,713)
(4,202)
TOTAL
450,366
(4,019)
ACTIVOS FINANCIEROS
Instrumentos para Negociación:
Del Estado y Banco Central de Chile
Otros instrumentos emitidos en el país
Instrumentos emitidos en el exterior
Inversiones en Fondos Mutuos
SUBTOTAL
Balance as
of January 1,
2011
MCh$
Gain (Loss)
Recognized in
Income
MCh$
FINANCIAL ASSETS
Central bank instruments
Mutual funds
SUBTOTAL
—
1,740
—
—
1,740
—
94
—
—
94
—
—
—
—
—
—
(1,249)
—
—
(1,249)
—
—
—
—
—
—
585
—
—
585
Available for Sale Instruments
Central bank instruments
SUBTOTAL
—
230,480
84,072
314,552
—
11,992
16,115
28,107
—
(2,130)
(3,897)
(6,027)
—
81,036
32,113
113,149
—
—
—
—
—
321,378
128,403
449,781
TOTAL
316,292
28,201
(6,027)
111,900
—
450,366
245
(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:
Sensitivity to
changes in key
assumptions of
models
Level 3
MCh$
MCh$
Sensitivity to
changes in key
assumptions of
models
Level 3
MCh$
MCh$
FINANCIAL ASSETS
—
—
585
—
TOTAL
—
—
585
—
Financial assets available-for-Sale
TOTAL
278,073
(802)
321,378
(421)
57,966
(762)
128,403
(249)
336,039
(1,564)
449,781
(670)
The level 3 figures in the precedent matrix represent the fair value calculated using data provided by the Business area, verified by the PCU using prices
from independent market data providers. The following column, sensitivity to changes in key assumptions of models, represents the best proxy for what
could be a variation, or delta, in the fair value of these instruments.
The sensitivity figures are calculated as a difference in fair values. This difference is calculated as the fair value in the precedent column, Banco de
Chile figures, minus the fair value obtained by using other market data set. The rationale behind this way to calculate the sensitivity is based on the
appropriateness of prices and rates provided by independent sources, such as Interactive Data. This brokerage information companies uses all the
available market information and is used by the major financial institutions in Chile such as Banks and Pension Funds.
(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
2012
MCh$
Fair Value
2011
MCh$
2012
MCh$
2011
MCh$
Assets
684,925
881,146
684,925
881,146
396,611
373,639
396,611
373,639
35,100
47,981
35,100
47,981
1,116,636
1,302,766
1,116,636
1,302,766
14,304
15,054
14,304
15,054
Receivables from repurchase agreements and security borrowing
SUBTOTAL
Domestic banks
Central bank
1,100,696
300,819
1,100,696
300,819
Foreign banks
228,322
332,552
228,322
332,552
1,343,322
648,425
1,343,322
648,425
11,484,276
10,974,741
11,473,251
10,973,062
4,182,587
3,591,530
4,201,091
3,557,248
Consumer loans
2,667,467
2,427,032
2,683,593
2,426,959
SUBTOTAL
18,334,330
16,993,303
18,357,935
16,957,269
TOTAL
20,794,288
18,944,494
20,817,893
18,908,460
5,470,971
4,895,426
5,470,971
4,895,426
159,218
155,424
159,218
155,424
SUBTOTAL
Commercial loans
Liabilities
Payables from repurchase agreements and security lending
226,396
223,202
226,396
223,202
9,612,950
9,282,324
9,589,643
9,273,010
1,108,681
1,690,939
1,103,252
1,689,172
162,123
184,785
162,123
184,785
16,740,339
16,432,100
16,711,603
16,421,019
85,967
106,965
87,088
115,825
SUBTOTAL
Debt Issued
Letters of credit for residential purposes
Letters of credit for general purposes
Bonds
Subordinate bonds
SUBTOTAL
TOTAL
29,229
45,133
29,610
48,871
2,412,233
1,488,369
2,282,014
1,459,145
746,504
747,874
726,369
728,330
3,273,933
2,388,341
3,125,081
2,352,171
20,014,272
18,820,441
19,836,684
18,773,190
247
The fair value of assets not presented at fair value in the Statement of Financial Position is derived from balance sheet stocks and cash flows that Banco
de Chile expects to receive, discounted using the relevant market interest rate for each type of transaction. These lasts cash flows are obtained from
regulatory reports, in particular the C40 report.
The C40 report contains cash flows, in future value, for assets and liabilities, by maturity and currency. For long term assets and liabilities, contractual
cash flows are used to calculate the fair value. The cash flows are discounted by type of asset and currency to obtain their present value. The discount
rates used to calculate the present value for each type of asset and liability correspond to the marginal rates of each product, considering specific rates
by currency and term to capture both the risk inherent to the term as well as the expected level of each currency.
For financial assets and liabilities that have a short term maturity (less than three months) it is assumed that the carrying amounts approximate their
fair value. This assumption is also applied to demand deposits and savings accounts without specific maturity.
For loans, contractual cash flows and loan loss provisions are used to calculate the fair value. The cash flows are discounted by type of asset and
currency to obtain their present value. Consecutively, the loan loss provision, by type of asset, is subtracted from the present value to take into account
the fact that the Bank has already model the estimate probability that his customers do not fulfill their obligations.
The fair value of liabilities that do not have quoted market prices, it is based on discounted cash flows, using interest rates to similar terms.
The Bank did not incur any “day 1” profits or losses during the reporting period (difference between mark to market at the end of day and the effective
rate of the transactions).
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, 2012 and 2011, respectively. Trading and available for sale instruments are included at their fair value:
2012
Up to 1
month
MCh$
Over 3
Over 1
month and month and
up to 12
up to 3
months
months
MCh$
MM$
Over 1
year and
up to 3
years
MM$
Over 3
year and
up to 5
years
MCh$
Over 5
years
MCh$
Total
MCh$
ASSETS
684,925
—
—
—
396,611
—
—
—
Financial Assets held-for-trading
192,724
—
—
—
—
—
684,925
—
—
396,611
—
—
192,724
8,338
855
25,907
—
—
—
35,100
19,155
26,190
85,576
93,733
40,801
64,042
329,497
Loans and advances to banks (**)
1,152,642
14,409
177,230
—
—
—
1,344,281
Loans to customers (*) (**)
1,743,729
1,863,499
3,512,461
4,110,399
1,945,584
272,371
171,017
343,665
152,075
132,382
TOTAL ASSETS
—
—
—
—
—
4,470,495
2,075,970
4,144,839
4,356,207
2,118,767
4,653,379 17,829,051
192,930
1,264,440
—
—
4,910,351 22,076,629
2011
Over 3
Over 1
month and month and
up to 12
up to 3
months
months
MCh$
MCh$
Up to 1
month
MCh$
Over 1
year and
up to 3
years
MCh$
Over 3
year and
up to 5
years
MCh$
Over 5
years
MCh$
Total
MCh$
ASSETS
881,146
—
—
—
—
—
881,146
373,639
—
—
—
—
—
373,639
301,771
—
—
—
—
—
301,771
40,212
6,270
1,499
—
—
—
47,981
28,741
32,789
107,867
88,709
59,061
68,521
385,688
300,819
—
348,612
—
—
—
649,431
2,130,411
2,190,492
3,906,372
3,243,770
1,477,637
136,620
231,810
267,521
118,722
222,782
Loans and advances to banks (**)
Loans to customers (*) (**)
—
—
—
—
—
4,193,359
2,461,361
4,631,871
3,451,201
1,759,480
TOTAL ASSETS
3,536,944 16,485,626
491,443
1,468,898
—
—
4,096,908 20,594,180
(*) This only includes loans that are current as of year end. Therefore, it excludes past due loans amounting to MCh$932,714 (MCh$892,167 in 2011) of which MCh$524,552
(MCh$500,603 in 2011) were less than 30 days past due.
(**) The respective provisions, which amount to MCh$427,435 (MCh$384,490 in 2011) for loans to customers and MCh$959 (MCh$1,006 in 2010) for borrowings from financial
institutions, have not been deducted from these balance.
2012
Over 1
month and
up to 3
months
MCh$
Over 3
month and
up to 12
months
MCh$
5,470,971
—
—
—
—
—
5,470,971
159,218
—
—
—
—
—
159,218
224,793
1,603
—
—
—
—
226,396
3,832,539
2,356,386
2,846,609
397,643
279
30
9,433,486
27,981
30,469
60,284
116,048
48,616
96,924
380,322
181,972
153,702
631,051
141,956
—
—
1,108,681
Up to 1
month
MCh$
Over 1 year Over 3 year
and up to 3 and up to 5
years
years
MCh$
MCh$
Over 5
years
MCh$
Total
MCh$
LIABILITIES
Savings accounts and time deposits (***)
Debt issued:
Mortgage bonds
Bonds
Subordinate bonds
TOTAL LIABILITIES
5,351
5,853
15,859
35,502
21,843
30,788
115,196
47,119
133,570
56,633
456,334
358,097
1,360,480
2,412,233
1,164
2,276
34,731
48,378
151,612
508,343
746,504
106,972
1,005
5,140
10,534
7,201
31,271
162,123
10,058,080
2,684,864
3,650,307
1,206,395
587,648
2,027,836
20,215,130
249
2011
Up to 1
month
MCh$
Over 1
month and
up to 3
months
MCh$
Over 3
month and
up to 12
months
MCh$
Over 1 year Over 3 year
and up to 3 and up to 5
years
years
MCh$
MCh$
Over 5
years
MCh$
Total
MCh$
LIABILITIES
Savings accounts and time deposits (***)
4.895.426
—
—
—
—
—
4.895.426
155.424
—
—
—
—
—
155.424
218.578
4.553
71
—
—
—
223.202
4.333.690
1.937.012
2.540.911
292.426
355
30
9.104.424
36.739
34.976
91.148
98.013
58.077
110.960
429.913
138.551
200.786
1.079.317
220.368
51.917
—
1.690.939
6.190
7.063
19.699
44.374
30.581
44.191
152.098
Debt issued:
Mortgage bonds
Bonds
3.149
351
7.656
261.719
370.152
845.342
1.488.369
Subordinate bonds
2.639
2.068
42.599
45.082
162.619
492.867
747.874
123.512
1.009
5.371
12.355
8.191
34.347
184.785
9.913.898
2.187.818
3.786.772
974.337
681.892
1.527.737
19.072.454
TOTAL LIABILITIES
(***) Excluding term saving accounts, which amount to MCh$179,464 (MCh$177,900 in 2011).
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 and Market Risk Management lies at the all levels of the Organization, with a structure that recognizes the relevance of the different risk areas
that exist. Current levels are:
(i) Board of Directors
The Board is responsible for the establishment and monitoring of the Bank’s risk management structure. Due to the above, it is permanently
informed regarding the evolution of the different risk areas, participating through its Finance and Financial Risk Committees, Credit Committees,
Portfolio Committees and Audit Committee, which check the status of credit and market risks. In addition, it actively participates in each of them,
informed of the status of the portfolio and participating in the strategic definitions that impact the quality of the portfolio.
Risk management policies are established in order to identify and analyze the risks faced by the Bank, to set adequate limits and controls and
monitor risks and compliance with limits. The policies and risk management systems are regularly reviewed in order for them to reflect changes in
market conditions and the Bank’s activities. It, through its standards and management procedures intends to develop a disciplined and constructive
control environment in which all employees understand their roles and obligations.
(ii) Finance, International and Financial Risk Committee
This committee meets monthly to review developments and the current status of financial positions and market, price and liquidity risk. It reviews
estimated results from financial positions in order to measure the risk/return ratio of the Bank’s Treasury business, as well as the evolution of and
forecasts regarding use of capital. The knowledge of the current state of the market risks allow to forecast potential future loss, with an important
confidence level, in the case of adverse transactions in the main market variables or illiquidity (exchange rate, interest rates and options volatility)
or a tight liquidity (either liquidity of trading in financial instruments as funding liquidity).
Additionally, the Committee reviews the estimated financial results that generate these positions separately, in order to measure the risk-return
businesses involved in handling financial positions of the Treasury, the evolution of the use of capital, and the estimated credit risk and market that
the Bank will face in the future. The Committee also discussed the international financial exposure and liabilities major credit exposures generated
by derivatives transactions.
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) Credit Committees
The corporate governance structure of the Bank provides various credit committees responsible for credit decisions related to the different business
segments and the type of risk involved. These committees have higher expression in the Credit Committee of the Board, consisting of the General
Manager, the Manager of Corporate Risk Division, and at least three directors who review weekly all operations that exceed UF750,000.
Each credit committee is responsible for defining the terms and conditions of acceptance of counterparty risks considered in the evaluation, and
are comprised of members with sufficient powers for decision-making. The Corporate Risk Division participates in an independently and autonomic
form from commercial areas.
251
(iv) Portfolio Risk Committee
The main function of Portfolio Risk Committee is to know, from a global perspective, the evolution of the composition of the Bank’s loan portfolio.
This is, according to economic sectors, business segments, products, terms, and everything that would have a broad view of counterparty risk is
assumed. This Committee reviews, in detail, the main exposures by economic groups, debtors, and behavioral parameters such as default indicators,
past due loans, impairment, charges-off and provisions for loan losses for each segment.
The mission of this Committee is to approve and propose to the Board risk management strategies differentiated. This includes credit policies, the
portfolio assessment methodologies and calculation of provisions to cover expected losses. Is responsible also know the sufficiency of provision;
authorize extraordinary charge-offs when it exhausted the recoveries instances and management control settlement of assets received in lieu of
payments. It also reviews the methodological guidelines for the development of credit risk models, which are assessed on the Technical Committee
for the Supervision of internal models.
The Portfolio Risk Committee meets monthly and is composed of the Chairman of the Board, two Directors, the General Manager, the Manager
of Corporate Risk Division, the Manager of the Risk Division and the Area Manager Risk Architecture. The Committee may be summoned to an
extraordinary request of the President, two Directors or the General Manager.
(v) Treasury
The Bank’s Treasury Division is responsible for managing price risks (interest rates, exchange rates and options volatility) for its Trading and Accrual
Portfolios, based on limits approved by the Board of Directors. In addition, it is the sole body responsible for ensuring that the Bank maintains
adequate liquidity levels in line with market conditions and the needs of its different business units.
(vi) Corporate Risk Division
Banco de Chile has a team with a vast experience and knowledge in each matter related to risks associated with credit, market, operational and
technology, which ensures comprehensive and consolidated management of the same, including the Bank and its subsidiaries, identifying and
evaluating the risks generated in customers, in their own operations and their suppliers. The focus is on the future, finding determine with different
techniques and tools, the potential changes that could affect the solvency, liquidity, the correct operation or the reputation of Banco of Chile.
Regarding the management of Credit Risk, Corporate Risk Division oversees the quality of the portfolio and optimizing the risk - return to all segments
of people and companies managing the stages of approval, monitoring and recovery of loans granted.
(vii) Operational Risk Committee
The mission of Operational Risk Committee is to identify, prioritize and set strategies to mitigate key operational risk events, ensure the implementation
of the management model, establish tolerances risk, ensure compliance programs, policies and procedures relating to Privacy and Information
Security, Business Continuity and Operational Risk Banco de Chile.
In this year increased the frequency of execution, becoming a monthly Senior Management Committee, becoming the governing body for the
Operational Risk Management and Technology. Risk management also involves the Directors of the Bank through quarterly presentations to Directors
and Audit Committee on these matters.
The Operational Risk Committee is composed of the General Manager, Division Manager Corporate Risk, Manager of Financial Control Division,
Manager of Operations and Technology Division, Manager of Commercial Banking Area and Manager of Operational Risk and Technology.
(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.
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.
(a)
Approval Process
The analysis and credit approval operate under a differentiated approach according to each market segment, distinguishing three risk models.
253
The focus of this type of model evaluation is aimed at the mass market of individuals without commercial purposes. These models ensure compliance
in three areas relevant to the admissions process:
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The credit profile is described by statistical models “Credit Scoring” segmented for different types of customers in the commercial areas of the segment
people. The predictive ability of the models has been fundamental to successfully face the risk management of the portfolio during crisis scenarios. The
Risk Management centralizes data entry processes in order to ensure high standards of data quality.
Regarding the target market and borrowing limits, the Bank identifies the market subsegments based on their objectives, business strategies and
opportunities, establishing definitions that identify acceptable credit profile of customers, products that will be offered, limits individual exposure and
expected returns.
The Bank has also developed a broad level of knowledge regarding selection of customers, with a significant capacity to discriminate between subjects
of different credit bases. Using this model, we have developed separate segmented models for retail banking and Banco CrediChile. In the case of our
Consumer Division (Banco CrediChile), there are further distinctions for customers, which are separated into the following five sub-segments: retired
persons, employees in the public sector, employees in the private sector over 40 years of age, employees in the private sector under 40 years of age
and self-employed.
In retail banking there are also sub-segments divided by activity and length of the customer’s relationship with the Bank.
Parametric Model:
The SME segment is a segment that has developed assessment schemes and ad hoc admission to their characteristics. This segment has defined a
parametric model that is responsible for mass segment features a segment as well as case by case analysis. This model considers the evaluation of
customers based on three pillars. These are payment behavior both internal and external, financial reporting analysis and evaluation of the client’s business.
This process yields a parametric evaluation category that summarizes the credit quality of the customer through a rating, which is linked directly to the
powers of credit required for each operation. Note that internal audits are performed on an ongoing basis to ensure the quality of the information used.
Additionally, the Corporate Risk Division supports business significantly through the process of pre-approval of loans to customers, for optimize the
relation risk-return of these segments. Thus, both the retail market and in the small and medium enterprises has specialized units that generate credit
offers, according to predefined strategies for different segments.
Case to case model:
This type of analysis applies to wholesale market and corporations. It is characterized by individual assessment expert, which provides the level of risk,
transaction amount and complexity of the business, among other variables. This approval process is also supported by a rating model which gives a
more uniform assessment and determines the level of credit. In this sense there are a process and consolidated team with high level of experience
and expertise in approving appropriations for the various segments and sectors in which the Bank operates. Additionally, to make more effective the
admission process, the process of data collection, analysis and discussion of the proposed credit are supported by the areas of credit risk, with the
objective of providing top quality to the assessment and achieve better response times to customer requirements.
(b)
Control and Follow up
The ongoing control and follow-up of credit risk is the basis for proactive portfolio management and enables risk to be recognized opportunely, thus
identifying business opportunities and detecting potential impairment before it occurs.
In the wholesale business segment, control and follow-up are realized through a combination of reviews. The most relevant are the following:
t )JHIMFWFMTUSVDUVSFEQPSUGPMJPSFWJFXTXJUISFTQFDUUPUIFJNQBDUPGTQFDJGJDNBDSPFDPOPNJDGMVDUVBUJPOTJOSFMFWBOUTFDUPSTPGBDUJWJUZEFGJOJOH
case-by-case actions plans.
t $POTUBOUNPOJUPSJOHTZTUFNJOPSEFSUPEFUFDUFBSMZPOUIPTFDVTUPNFSTUIBUTIPXQPUFOUJBMSJTLTBHSFFJOHPOTQFDJGJDBDUJPOQMBOTGPSUIFTF
customers with the corresponding client servicing team.
t 1BZNFOUBSSFBSTNBOBHFNFOUCBDLFECZQSFEJDUJWFJOEJDBUPSTPGSJTLMFWFMXJUIGPMMPXVQBOEBDUJPOQMBOTJOUIFDBTFPGPVSNPTUJNQPSUBOU
customers, plus management of differentiated strategies for early recovery.
t 'PMMPXVQPGUIFDPOEJUJPOTSFTUSJDUJPOTBOEDPWFOBOUTJNQPTFECZUIFDSFEJUDPNNJUUFFUPBMMPQFSBUJPOTSFRVJSJOHJUEVFUPUIFJSJNQPSUBODFPS
complexity.
t $POUSPMPGUIFFYQPTVSFBTXFMMBTUIFTVGGJDJFODZPGHVBSBOUFFTHSBOUFEJOUIFGPSNPGTIBSFTNPOJUPSJOHGMVDUVBUJPOTBOEQSFQBSJOHBDUJPOQMBOT
in the event of insufficient coverage.
t 'PMMPXVQTDIFNFTPGDSFEJUCFIBWJPSWBSJBCMFTBOECPSSPXFSTGJOBODJBMDPOEJUJPO
Risk segmentation strategies for collections processes and policies to a better integration of loan approval and monitoring processes, aligned behind a
single vision of customer credit fundamentals.
(c)
Derivative Instruments
The value of derivative financial instruments is always reflected in the Bank’s balance sheet. The risks derived from these instruments, determined using
SBIF models, are controlled against lines of credit of the counterparty at the inception of each transaction.
(d)
Portfolio Concentration
Maximum credit risk exposure per counterparty without considering collateral or other credit enhancements as of December 31, 2012 and 2011 does
not exceed 10% of the Bank’s effective equity.
255
The following tables show credit risk exposure per balance sheet item, including derivatives, detailed by both geographic region and industry sector as
of December 31, 2012:
Chile
MCh$
United States
MCh$
FINANCIAL ASSETS
Cash and Due from Banks
499,473
167,186
from the Chilean Government and Central Bank of Chile
SUBTOTAL
72,379
87,303
—
33,042
192,724
—
—
—
—
—
35,100
—
57,852
99,245
439
341
—
—
157,877
2,652
123,676
—
—
—
—
126,328
—
22
—
—
—
—
22
—
—
—
—
—
—
—
1,100,696
14,309
80,458
1,195,463
—
—
—
—
11,570,499
4,090,683
2,792,539
18,453,721
17,534
4,277
1,922
23,733
251,784
924,152
—
1,175,936
—
—
83,759
83,759
—
—
Derivative Contracts for Trading Purposes
Forwards
Swaps
Call Options
Put Options
Futures
Other
SUBTOTAL
Hedge Derivative Contracts
Forwards
Swaps
Call Options
Put Options
Futures
Other
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
SUBTOTAL
Financial assets held-to-Maturity
Brazil
MCh$
Other
MCh$
Total
MCh$
—
18,266
684,925
—
—
—
—
—
—
—
—
—
—
72,379
87,303
—
33,042
192,724
—
—
35,100
—
—
—
—
—
—
—
9,662
35,575
33
—
—
—
45,270
70,166
258,496
472
341
—
—
329,475
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
22
—
—
—
—
22
—
—
109,505
109,505
—
—
39,313
39,313
1,100,696
14,309
229,276
1,344,281
15,507
4,107
1,522
21,136
128,044
99,600
35,531
263,175
11,731,584
4,198,667
2,831,514
18,761,765
—
—
4,745
4,745
—
—
—
—
251,784
924,152
88,504
1,264,440
—
—
—
257
Financial
Services
MCh$
Government
MCh$
Retail
(Individuals)
MCh$
Trade
MCh$
Manufacturing
MCh$
Mining
MCh$
FINANCIAL ASSETS
216,843
—
—
—
—
—
SUBTOTAL
—
87,115
—
33,042
120,157
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25,979
—
2,280
3,212
—
—
65,113
232,459
354
85
—
—
298,011
—
—
—
—
—
—
—
1
—
—
—
—
—
1
3,092
6,039
92
215
—
—
9,438
1,084
5,447
26
27
—
—
6,584
53
725
—
—
—
—
778
—
22
—
—
—
—
22
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
14,309
229,276
243,585
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,609
3,131
—
—
—
—
3,503,474
2,557,411
—
80,676
40,109
—
15,970
9,400
—
2,702
1,532
—
801,159
88,504
889,663
—
—
—
—
—
—
—
—
—
18,262
—
18,262
—
—
—
—
—
5,024
—
5,024
—
—
—
—
—
—
Receivables from repurchase agreements and
security borrowing
Forwards
Swaps
Call Options
Put Options
Futures
Other
SUBTOTAL
Forwards
Swaps
Call Options
Put Options
Futures
Other
SUBTOTAL
Domestic banks
Foreign banks
SUBTOTAL
Commercial loans (*)
Consumer loans
SUBTOTAL
(*) See commercial loans by industry sector in Note 12 (d).
Electricity,
Gas and
Water
MCh$
Agriculture
and Livestock
MCh$
MCh$
Forestry
MCh$
Fishing
MCh$
Transportation
and Telecom
MCh$
Construction
MCh$
Services
MCh$
Other
MCh$
Total
MCh$
—
—
—
—
—
—
—
468,082
684,925
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
72,379
188
—
—
72,567
72,379
87,303
—
33,042
192,724
—
160
—
—
—
1,854
1,615
—
35,100
75
4,986
—
—
—
—
5,061
321
1,819
—
—
—
—
2,140
—
—
—
9
—
—
9
114
279
—
5
—
—
398
207
5,569
—
—
—
—
5,776
13
963
—
—
—
—
976
93
210
—
—
—
—
303
—
—
—
—
—
—
—
70,166
258,496
472
341
—
—
329,475
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
22
—
—
—
—
22
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,100,696
—
—
1,100,696
1,100,696
14,309
229,276
1,344,281
—
—
5
—
27,697
33,664
—
—
—
—
1,840
840
—
23,934
16,280
—
17,322
9,870
—
105,181
38,440
—
413,262
120,832
—
4,198,667
2,831,514
—
41,309
—
41,309
—
—
—
—
—
44,303
—
44,303
—
—
—
—
—
7,640
—
7,640
—
—
—
—
—
2,164
—
2,164
251,784
4,291
—
256,075
251,784
924,152
88,504
1,264,440
—
—
—
—
—
—
—
—
—
259
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, 2011:
Chile
MCh$
United States
MCh$
622,082
228,796
SUBTOTAL
77,842
191,857
—
31,910
301,609
—
—
—
—
—
47,945
—
101,356
110,203
1,239
2
—
—
212,800
10,490
117,592
—
—
—
—
128,082
FINANCIAL ASSETS
Forwards
Swaps
Call Options
Put Options
Futures
Other
SUBTOTAL
Forwards
Swaps
Call Options
Put Options
Futures
Other
SUBTOTAL
Central bank of Chile
Domestic banks
Foreign banks
SUBTOTAL
Commercial loans
Consumer loans
SUBTOTAL
SUBTOTAL
—
—
—
—
—
—
—
—
—
—
—
—
—
—
300,819
15,059
182,429
498,307
—
—
—
—
11,011,933
3,508,169
2,528,655
17,048,757
8,952
3,984
1,960
14,896
412,394
928,101
21,870
1,362,365
—
—
71,740
71,740
—
—
Brazil
MCh$
Other
MCh$
Total
MCh$
—
30,268
881,146
—
—
—
—
—
—
162
—
—
162
77,842
192,019
—
31,910
301,771
—
36
47,981
—
—
—
—
—
—
—
13,920
30,886
—
—
—
—
44,806
125,766
258,681
1,239
2
—
—
385,688
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
91,530
91,530
—
—
59,594
59,594
300,819
15,059
333,553
649,431
18,400
3,135
1,243
22,778
165,454
92,146
33,762
291,362
11,204,739
3,607,434
2,565,620
17,377,793
—
—
4,712
4,712
—
—
30,081
30,081
412,394
928,101
128,403
1,468,898
—
—
—
261
Financial
Services
MCh$
Government
MCh$
Retail
(Individuals)
MCh$
Trade
MCh$
Manufacturing
MCh$
Mining
MCh$
FINANCIAL ASSETS
328,933
—
—
—
—
—
SUBTOTAL
—
191,999
—
30,626
222,625
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13,619
—
—
2,780
92
512
60,037
185,892
1,167
—
—
—
247,096
—
672
—
—
—
—
672
9
—
—
—
—
—
9
2,006
3,933
68
2
—
—
6,009
5,787
4,333
—
—
—
—
10,120
1,457
59
—
—
—
—
1,516
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,059
333,404
348,463
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,175
3,250
—
—
—
—
3,101,327
1,957,143
—
71,639
40,137
—
14,687
8,599
—
2,506
1,573
217,429
892,287
113,497
1,223,213
—
—
—
—
—
—
—
—
—
2,393
—
2,393
—
—
—
—
—
67
—
67
—
—
—
—
—
—
Receivables from repurchase agreements and
security borrowing
Forwards
Swaps
Call Options
Put Options
Futures
Other
SUBTOTAL
Forwards
Swaps
Call Options
Put Options
Futures
Other
SUBTOTAL
Domestic banks
Foreign banks
SUBTOTAL
Commercial loans (*)
Consumer loans
SUBTOTAL
(*) See commercial loans by industry sector in Note No.12 (d).
Electricity,
Gas and
Water
MCh$
Agriculture
and Livestock
MCh$
MCh$
Forestry
MCh$
Fishing
MCh$
Transportation
and Telecom
MCh$
Construction
MCh$
Services
MCh$
Other
MCh$
Total
MCh$
—
—
—
—
—
—
72,759
479,454
881,146
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
77,842
20
—
1,284
79,146
77,842
192,019
—
31,910
301,771
21,045
—
57
118
5,959
76
156
3,567
47,981
160
8,394
—
—
—
—
8,554
5,337
18,241
—
—
—
—
23,578
151
34
—
—
—
—
185
326
906
—
—
—
—
1,232
148
2,136
—
—
—
—
2,284
313
909
—
—
—
—
1,222
101
230
—
—
—
—
331
49,934
32,942
4
—
—
—
82,880
125,766
258,681
1,239
2
—
—
385,688
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
300,819
—
149
300,968
300,819
15,059
333,553
649,431
—
—
9
—
21,524
28,208
—
2,819
1,557
—
1,442
728
—
22,073
16,433
—
15,208
8,022
—
95,712
40,244
—
253,322
459,717
—
3,607,434
2,565,620
—
6,097
—
6,097
—
—
14,906
14,906
—
3,247
—
3,247
—
—
—
—
—
15,009
—
15,009
—
2,307
—
2,307
—
—
—
—
194,965
6,694
—
201,659
412,394
928,101
128,403
1,468,898
—
—
—
—
—
—
—
—
—
263
(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:
t 'PSDPNNFSDJBMMPBOT3FTJEFOUJBMBOEOPOSFTJEFOUJBMSFBMFTUBUFMJFOTBOEJOWFOUPSZ
t 'PSSFUBJMMPBOT.PSUHBHFTPOSFTJEFOUJBMQSPQFSUZ
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 policy guidelines and parameters. The Bank has
approximately 182,387 collateral assets, the majority of which consist of real estate.
The Bank also uses mitigating tactics for credit risk on derivative transactions. To date, the following mitigating tactics are used:
t "DDFMFSBUJOHUSBOTBDUJPOTBOEOFUQBZNFOUVTJOHNBSLFUWBMVFTBUUIFEBUFPGEFGBVMUPGPOFPGUIFQBSUJFT
t 0QUJPOGPSCPUIQBSUJFTUPUFSNJOBUFFBSMZBOZUSBOTBDUJPOTXJUIBDPVOUFSQBSUZBUBHJWFOEBUFVTJOHNBSLFUWBMVFTBTPGUIFSFTQFDUJWFEBUF
t .BSHJOTFTUBCMJTIFEXJUIUJNFEFQPTJUTCZDVTUPNFSTUIBUDMPTF'9GPSXBSETXJUITVCTJEJBSZ#BODIJMF$PSSFEPSFTEF#PMTB4"
(f)
Credit Quality by Asset Class
The Bank determines the credit quality of financial assets using internal credit ratings. The rating process is linked to the Bank’s approval and monitoring
processes and is carried out in accordance with risk categories established by current standards. Credit quality is continuously updated based on any
favorable or unfavorable developments to customers or their environments, considering aspects such as commercial and payment behavior as well as
financial information.
The Bank also conducts reviews of companies in certain industry sectors that are affected by macroeconomic or sector-specific variables. Such reviews
allow the Bank to timely establish any necessary allowance loan losses that are sufficient to cover losses for potentially uncollectable loans.
The following table shows credit quality by asset class for balance sheet items, based on the Bank’s credit rating system.
As of December 31, 2012::
Normal
MCh$
Individual Portfolio
Substandard Non-complying
MCh$
MCh$
Group Portfolio
Normal
Non-complying
MCh$
MCh$
Total
MCh$
FINANCIAL ASSETS
Domestic banks
1,100,696
—
—
—
—
1,100,696
14,309
—
—
—
—
14,309
229,276
—
—
—
—
229,276
1,344,281
—
—
—
—
1,344,281
9,331,407
204,369
145,022
1,864,798
185,988
11,731,584
—
—
—
4,148,374
50,293
4,198,667
Consumer loans
—
—
—
2,649,995
181,519
2,831,514
9,331,407
204,369
145,022
8,663,167
417,800
18,761,765
Foreign banks
SUBTOTAL
Loans to customers (before allowances for
loan losses)
Commercial loans
SUBTOTAL
Al 31 de diciembre de 2011:
Normal
MCh$
Individual Portfolio
Substandard Non-complying
MCh$
MCh$
Group Portfolio
Normal
Non-complying
MCh$
MCh$
Total
MCh$
FINANCIAL ASSETS(*)
Domestic banks
300,819
—
—
—
—
300,819
15,059
—
—
—
—
15,059
Foreign banks
333,553
—
—
—
—
333,553
SUBTOTAL
649,431
—
—
—
—
649,431
9,401,508
56,405
163,859
1,443,208
137,812
11,202,792
—
—
—
3,543,520
63,914
3,607,434
Consumer loans
—
—
—
2,439,495
126,125
2,565,620
9,401,508
56,405
163,859
7,426,223
327,851
17,375,846
Loans to customers (before allowances for
loan losses)
Commercial loans
SUBTOTAL
(*) There are loans subject of hedge accounting amounted Ch$1,947 million.
265
Analysis of age of portfolio loan, over-due loans by financial asset class:
Terms:
Default 1: 1 to 29 days
As of December 31, 2012:
Default 1
MCh$
Default 2
MCh$
Default 3
MCh$
52
—
—
Commercial loans
23,049
20,677
3,774
47,500
Import-export financing
22,717
102
193
23,012
Total
MM$
52
38,976
6,289
1,061
46,326
Commercial lease transactions
2,551
750
366
3,667
Other loans and receivables
1,269
1,050
920
3,239
1,111
647
457
2,215
Consumer loans
16,010
6,775
6,873
29,658
105,735
36,290
13,644
155,669
Default 1
MCh$
Default 2
MCh$
Default 3
MCh$
Total
MM$
19,694
—
—
19,694
Commercial loans
16,797
6,206
6,718
29,721
TOTAL
Al 31 de diciembre del 2011:
Import-export financing
15,802
962
406
17,170
32,623
4,701
532
37,856
Commercial lease transactions
2,201
594
292
3,087
Other loans and receivables
1,213
1,115
929
3,257
Consumer loans
TOTAL
205
400
379
984
13,732
6,815
5,575
26,122
102,267
20,793
14,831
137,891
The value of collateral maintained by the Bank for loans individually classified as impaired as of December 31, 2012 and 2011 is MCh$29,952 and
MCh$35,186 respectively.
The value of collateral maintained by the Bank for loans over-due but non-impaired as of December 31, 2012 and 2011 is MCh$214,093 and
MCh$104,543 respectively.
(g)
Assets Received in Lieu of Payment
The Bank has received assets in lieu of payment totaling MCh$2,556 and MCh$4,608 as of December 31, 2012 and 2011, respectively, the majority
of which are properties. All of these assets are managed for sale.
(h)
Renegotiated Assets
The impaired loans are considered to be renegotiated when the corresponding financial commitments are restructured and the Bank assesses the
probability of recovery as sufficiently high.
The following table details the book value of loans with renegotiated terms per financial asset class:
2012
MCh$
2011
MCh$
FINANCIAL ASSETS
—
—
Domestic banks
—
—
Foreign banks
—
—
SUBTOTAL
—
—
96,445
119,637
Commercial loans
23,132
26,286
Consumer loans
220,451
192,802
SUBTOTAL
340,028
338,725
TOTAL RENEGOTIATED FINANCIAL ASSETS
340,028
338,725
The Bank evaluates allowances loan losses in two segments: individually assessed allowances loan losses and group assessed allowances loan losses,
which are described in more detail in Note No. 2(m).
(3)
Market Risk
Market Risk is referred as to the potential loss the Bank may incur due to the scarcity of liquidity or due to an adverse change of market factors levels
(such as FX rates, equity prices, interest rates, options volatility, etc).
267
(a)
Liquidity Risk:
The Bank measures and monitors the Trading Liquidity risk for derivative and debt instruments by establishing DV01 limits to certain specific tenors
for each yield curve. Trading Liquidity for debt instruments of the Accrual Book is not limited explicitly, understanding that in this case the postions are
expected to be held until medium term or even maturity.
Funding Liquidity is controlled and limited using the regulatory C08 Index report.
The SBIF sets the following limits for the C08 index:
t'PSFJHO$VSSFODZCBMBODFTIFFUEBZT$JOEFY
t"MM$VSSFODJFTCBMBODFTIFFUEBZT$JOEFY
t"MM$VSSFODJFTCBMBODFTIFFUEBZT$JOEFY
The SBIF authorized Banco de Chile to utilize the C08 Adjusted Index report, which includes behavioral maturity assumptions for some specific balance
sheet items, such as roll-over or evergreen pattern for some portion of the loan portfolio; some portion of the demand deposits are considered core
and therefore no withdrawal is reported, etc.
As of December 31, 2011, the 1-30 days Adjusted C08 Index for the foreign currency balance sheet items was slightly lower than 0.13. The 1-30 days
Adjusted C08 Index for all currencies balance sheet items on that date is reported as 0.31; the value of the same index for the period 1 to 90 days is 0.39.
The maturity profile of the consolidated financial liabilities of Banco de Chile and its subsidiaries, as of 2012 and 2011 end-of-year, is detailed below:
Up to 1
month
MCh$
Between
1 and 3
months
MCh$
Between
3 and 12
months
MCh$
Between
1 and 3
years
MCh$
Between
3 and 5
years
MCh$
More
than
5 years
MCh$
Total
MCh$
Liabilities as of December 31, 2012
Accounts Payable from repurchase agreements and security lending
5,470,971
—
—
—
—
—
5,470,971
159,218
—
—
—
—
—
159,218
226,396
—
—
—
—
—
226,396
4,271,345 2,508,688
2,814,055
393,247
279
30
9,987,644
231,117
134,729
321,148
244,826
132,688
236,071
1,300,579
135,353
176,467
630,745
141,444
—
—
1,084,009
876,101
606,477
505,718
898,318
713,053
2,377,962
5,977,629
11,370,501
3,426,361
4,271,666
1,677,835
846,020
2,614,063 24,206,446
154,600
79,406
256,717
425,612
229,070
TOTAL UNDISCOUNTED FINANCIAL LIABILITIES
(EXCLUDING DERIVATIVES WITH OFFSETTING AGREEMENTS)
Derivatives with offsetting agreements
434,677
1,580,082
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$
4,895,426
—
—
—
—
—
4,895,426
155,424
—
—
—
—
—
155,424
Accounts Payable from repurchase agreements and security lending
222,756
446
—
—
—
—
223,202
4,441,786
1,951,047
2,607,906
290,481
355
30
9,291,605
515,787
439,237
244,021
48,804
—
—
1,247,849
483,190
800,101
407,648
—
—
—
1,690,939
89,141
13,738
149,234
423,070
603,744
1,559,965 2,838,892
10,803,510 3,204,569 3,408,809
762,355
604,099
1,559,995 20,343,337
3,637,260 4,068,859
2,616,022
944,230 13,004,333
TOTAL UNDISCOUNTED FINANCIAL LIABILITIES
(EXCLUDING DERIVATIVES WITH OFFSETTING AGREEMENTS)
Derivatives with offsetting agreements
671,072
1,066,890
The evolution of the loan-to-deposit ratio for 2012 and 2011 is detailed below:
December 31, 2012
December 31, 2011
Maximum
2.35
2.05
Minimum
2.20
1.93
Average
2.31
1.98
Banco de Chile has established internal liquidity triggers, in addition to those required by the regulatory entities, such as large funds providers ratios in
order to ensure the funding sources diversification; maturity concentration triggers, which avoids large amounts of liabilities maturing in one single day,
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 FX market 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 process is implemented thorough several reports, both regulatory and internal, and also separately for the Trading Book
and the Bank Book (also referred as to the Accrual Portfolio).
For the Trading Book, the regulatory risk measurement is obtained by using standardized methodologies (SBIF C41 report) that estimates the potential
loss that the Bank may face considering interest rate positions reported according to its repricing tenors and fluctuations provided by the regulatory
entity (these fluctuations are taken from Basel Agreement 1993 standardized tables for the Trading Book risk measurement). The impact due to FX
open positions is obtained using huge fluctuations (8% for liquid FX rates and 30% for the illiquid ones). The SBIF does not establish a separate limit for
this particular risk but a global one that includes this risk (also called Market Risk Equivalent or MRE) and 10% of the Risk Weighted Assets (also called
RAAP assets). The sum of MRE and the 10% of the RAAP assets cannot exceed the 100% of the bank’s Tier-1 Capital. In the future, the Operational
Risk will be added to the above sum.
269
Additionally, the Bank has established internal limits for the Trading Book. In fact, there are limits for the FX net open positions (FX Delta), for the interest
rate sensitivities generated by the derivatives and debt securities portfolios (DV01 or also called Rho) and and for the FX volatility sensitivity (Vega).
Limits are established on an aggregate basis but also for some specific repricing tenor points. The use of these limits are monitored, controlled and
reported on a daily basis by independent parties to the senior management of the bank. The internal governance framework also establishes that these
limits are approved by the board and must be reviewed at least annually.
From January 2011, the Bank utilizes the parametric VaR (Value-at-Risk or VaR) as a risk measurement tool for trading portfolios. The model includes
99% confidence level; volatility of market factors fluctuations and correlations between them are obtained from historical observed closing rates for
one-year period. This VaR number is escalated by 22 days (a calendar month) for reporting purposes.
The interest rate risk generated by the Bank Book is measured by using standard regulatory tools (SBIF C40 report) and internal built-in methodologies.
The latter are based on gap analysis of assets/liabilities repricing tenors.
The regulatory risk measurement for the Bank Book due to interest rate fluctuations is obtained through the SBIF C40 report. The report includes models
for reporting interest rate gaps and standardized adverse interest rate fluctuations. The regulatory entity has requested from banks to establish internal
limits for this regulatory risk measurement. Limits must be established separately for short term and long term portfolios. The short term risk limit must
be expressed as a percentage of the NIM and the long term risk limit as a percentage of the Tier-1 Capital. The bank is currently using 25% for both
limits. The use of these limits during 2012 is illustrated below:
Banking Risk Book
Riesgo Libro Banca
Largo Plazo
Maximum Use
Short term
Banking Risk Book
Average Use
Long Term
18.7%
7.7%
18.1%
Minimum Use
Additionally, the Bank during 2011 and 2012 finished the implementation of the internal models for measuring, limiting, controlling and reporting
interest rate exposures (IRE) and interest rate risks (also called Earnings at Risk or EaR) for the Accrual Book. The Accrual book includes all balance
sheet items (even some items that are excluded by the regulators in the analysis of the Bank Book, such as Capital and Fixed Assets, for example). The
internal models consider a more comprehensive and detailed analysis of interest rates fluctuations, exchange rates and inflation than the SBIF C40
report required by regulators.
The Market Risk Policy of Banco de Chile enforces to perform daily stress tests for trading portfolios and on a monthly basis for accrual portfolios. The
output of the stress testing process is compared to corresponding trigger levels: in the case triggers are breached, the senior management is notified in
order to implement further actions, if necessary. Moreover, intra-month actual P&L for trading activities is compared to some trigger levels: escalation
to senior levels is also done when breaches occur.
The following table illustrates the interest rate positions of the Bank Book (repricing tenors) as of December 31, 2012 and 2011:
Up to 1
month
MCh$
Between
1 and 3
months
MCh$
Assets as of December 31, 2012
653,511
—
366,036
—
Accounts receivable from repurchase agreements and security borrowing
582
—
128,964
81,085
1,152,648
14,731
3,172,424 2,390,933
57,370
178,055
—
—
TOTAL ASSETS
5,531,535 2,664,804
Assets as of December 31, 2011
TOTAL ASSETS
Between
1 and 3
years
MCh$
Between
3 and 5
years
MCh$
More
than
5 years
MCh$
Total
MCh$
—
—
—
—
—
—
—
—
—
150,971
7,463
21,564
178,761
—
—
4,769,542 4,329,131 2,083,220
381,448
235,786
192,490
—
—
—
5,480,722 4,572,380 2,297,274
—
653,511
—
366,036
—
582
110,414
500,461
— 1,346,140
5,314,078 22,059,328
323,967 1,369,116
—
—
5,748,459 26,295,174
Between
3 and 12
months
MCh$
Between
1 and 3
years
MCh$
Between
3 and 5
years
MCh$
More
than
5 years
MCh$
827,381
—
—
295,420
—
—
10,023
—
—
173,624
64,468
195,555
390,315
58,436
172,557
3,019,622 2,342,355 4,343,456
121,318
235,860
301,013
—
—
—
4.837.703 2.701.119 5.012.581
—
—
—
—
31,678
4,091,996
194,846
—
4.318.520
—
—
—
—
—
1,920,759
281,719
—
2.202.478
—
827,381
—
295,420
—
10,023
—
433,647
—
652,986
4,537,489 20,255,677
530,203 1,664,959
—
—
5.067.692 24.140.093
Between
1 and 3
months
MCh$
Between
1 and 3
years
MCh$
Between
3 and 5
years
MCh$
More
than
5 years
MCh$
Up to 1
month
MCh$
Up to 1
month
MCh$
Between
1 and 3
months
MCh$
Between
3 and 12
months
MCh$
Between
3 and 12
months
MCh$
Total
MCh$
Total
MCh$
Current accounts and demand deposits
Accounts payable from repurchase agreements and security lending
5,531,827
—
—
—
—
—
5,531,827
127,611
—
—
—
—
—
127,611
—
5,268
5,268
—
—
—
—
4,223,812
2,371,455
2,908,748
417,885
279
30 9,922,209
3,903
3,477
26,924
175,376
83,186
260,272
553,138
304,070
450,332
348,390
—
—
—
1,102,792
Debt issued
119,449
162,656
253,617
683,676
689,980
2,337,558
4,246,936
96,108
1,373
7,246
15,543
11,432
34,754
166,456
10,412,048 2,989,293 3,544,925
1,292,480
784,877
TOTAL LIABILITIES
2,632,614 21,656,237
271
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
Accounts payable from repurchase agreements and security lending
Debt issued
TOTAL LIABILITIES
4,906,774
—
—
—
—
—
4,906,774
87,821
—
—
—
—
—
87,821
48,578
—
—
—
—
—
48,578
4,451,516
1,952,826
2,639,046
343,867
82,220
30
9,469,505
1,739
3,119
20,276
167,445
78,059
246,035
516,673
498,777
788,018
401,493
—
—
—
1,688,288
20,262
24,436
142,005
521,265
700,642
1,759,365
3,167,975
12,650
39,466
189,623
111,134
1,368
7,457
17,548
10,126,601
2,769,767
3,210,277
1,050,125
873,571 2,044,896 20,075,237
Price Risk Sensitivity Analysis
The Bank has focused on stress tests as the main measurement tool for analyzing price risk sensitivity. The analysis is implemented for the Trading
Book and the Bank Book separately. After the financial crisis started during 2008 and based on the various studies and analyses made on this specific
matter, the Bank adopted this tool when it notices that it is more reliable than normal distribution instruments such as VaR for trading portfolios or EaR
for accrual portfolios, since:
(a) The recent financial crisis shows fluctuations that are materially higher than those used through VaR with 99% of confidence level.
(b) The recent financial crisis shows also that correlations between these fluctuations that are materially different to those used through VaR, since
crisis precisely indicate severe disconnections between the behavior of market factors respect to the patterns normally observed.
(c) Trading liquidity dramatically decreased in emerging markets during the financial crisis (in the case of Chile too) and therefore, the escalaltion of
the daily VaR is a very gross approximation of the expected loss.
Stress tests are produced observing historical events and collecting market factors data.
The former allow the Bank to gauge actual distress events in terms of magnitude but mainly focused on detecting unusual fluctuations.
The latter gives the Bank the technical background for implementing statistical analysis. An updated database is maintained including historical data of
foreign exchange rates, debt instruments yields to maturity, derivatives swap yields, foreign exchange volatilities, etc. that enable the Bank to maintain
up-to-date records of historical volatility of market factors fluctuations and correlations between these ones.
Given the above, the stress tests may be implemented modeling directional fluctuations but also knowing the magnitude of the modeled fluctuations
relative to statistical data and also how frequent the fluctuation modeled occurred in the past.
In order to comply with IFRS 7.40, we include the following exercise illustrating an estimation of the impact of feasible but reasonable fluctuations of
interest rates, swaps yield, foreign exchange rates and foreign exchange volatilities embedded in the Trading and Accrual portfolios. Given that the Bank’s
portfolio includes positions denominated in nominal and real interest rates, these fluctuations must be aligned with realistic inflation changes forecast.
The exercise is implemented in a very simplistic way: trading portfolios impacts are estimated by multiplying DV01s by expected interest rates shifts;
accrual portfolios impacts are computed by multiplying cumulative gaps by forward interest rates modeled fluctuations. However, this methodology
includes the limitation that the interest rates convexity is not properly captured when material fluctuations are modeled; additionally, neither convexity
nor prepayments behaviors are captured for the accrual portfolio analysis. In any case, given the magnitude of the shifts, the methodology may be
accurate enough for the purposes and scope of the analysis.
The following table illustrates the fluctuations modeled and used in the stress testing process. Bonds yields, derivatives yields, FX rates, FX CLP/
USD volatility and inflation fluctuations are shown for each tenor point. Equity prices fluctuations are not included given that the positions held in the
stockbrokerage house (Banchile Corredores de Bolsa SA) are negligible. In fact, equity positions are typically very small given that this legal vehicle is
mostly focused on customer driven transactions (brokerage service or equity swaps transactions closed with customers).
The directions of these fluctuations were chosen between four scenarios (two positive economic scenarios and two negative economic scenarios) in
order to generate the worst impact within the four above mentioned:
Market Factor Fluctuations: adverse scenario
3m
CLP
Derivatives
(bps)
CLP
Bonds
(bps)
-110
-101
CLF
Derivatives
(bps)
410
CLF
Bonds
(bps)
395
USD Offshore
3m
Derivatives
(bps)
Spread USD
On/Off
Derivatives
(bps)
-4
335
Vol FX
CLP/USD
(%)
8.0%
Inflation’s
Change
Period n-1 to n
(Monthly Basis)
(%)
-0.47%
6m
-142
-114
49
41
-5
258
6.6%
0.02%
9m
-157
-121
-37
-34
-6
246
5.9%
-0.08%
1 year
-171
-123
-30
-12
-7
224
5.4%
-0.27%
2 years
-166
-111
-10
10
-24
163
5.4%
-0.06%
4 years
-225
-128
-48
-31
-38
78
-
-0.02%
6 years
-205
-125
-67
-58
-45
76
-
0.00%
10 years
-157
-131
-97
-99
-54
83
-
0.02%
16 years
-147
-129
-98
-99
-62
83
-
-0.02%
20 years
-148
-131
-101
-101
-65
83
-
-0.02%
Bps = Basic points
273
The impact on Trading Book as of 31 December 2012 is the following:
Ganancia o Pérdida Potencial
en el Libro de Negociación
BCh
(MCh$)
CLP Interest Rate
(3,169)
Derivatives
(3,197)
Securities
27
CLF Interest Rate
(3,157)
Derivatives
(1,867)
Securities
(1,291)
USD, EUR, JPY Offshore Interest Rate
(175)
USD, EUR, JPY On/Off Spread
(107)
Total Interest Rate
Total FX
Total Vega FX
Potential P&L Impact: Interest Rate + FX + Vega
Banco de Chile Expected P&L (12 Months)
Banco de Chile Tier1 Capital
(6,609)
171
451
(5,986)
490,000
2,007,573
Potential P&L Impact / (Tier1 Capital + Expected P&L next 12 months)
-0.2%
Potential P&L Impact / (expected 12 months annual)
-1.2%
The scenario modeled would generate losses in the Trading Book up to Ch$ 6,000 MM or slightly above USD 12 MM. In any case, these huge fluctuations
would not result in material losses compared to the expected P&L for the next twelve months or the Tier 1 Capital.
The impact of such fluctuations in the Accrual portfolio, which is not necessarily a gain/loss but greater/lower net revenue from funds generation, is
illustrated below:
POTENTIAL MARGINAL NRFF ACCRUAL BOOK (next 12 months)
MCh$
Mayor/(Menor Ingreso)
(62,925)
Libro CLP TOTAL
(61,007)
Libro CLF TOTAL
(3,289)
Libro FCY TOTAL
1,371
The main impact would occur in the CLP book, as the result of a severe drop in the inflations levels. The lower net revenues from funds in the following
12 months would reach CH$ 63,000 MM, which ies equivalent to 1.5 months of P&L budgeted for the year 2013.
Finally, the next table illustrates the shadow mark-to-market impact (the impact on equity but not on income) in the AFS portfolio due to the referred
interest rate fluctuations:
Instrument
Available for Sale Portfolio Impact Adverse Scenario
Impact due to interest rate
DV01(+1 bps)
change
(USD)
(USD)
CLP
(86,798)
(3,4)
(1,645)
CLF
(362,128)
(26,6)
(12,732)
USD
(187,511)
IMPACTO TOTAL
(4)
Impact due to interest
rate change
(MCh$)
(16,0)
(7,670)
(46,0)
(22,047)
Capital Requirements and Capital Management:
The main objectives of the Bank’s capital management are to ensure compliance with regulatory requirements, maintain a strong credit rating and
capital ratios. During 2012, the Bank has fully complied with capital requirements demanded.
As part of its Capital Management Policy, the Bank has established capital adequacy alerts, values more stringent than those required by the regulator,
which are monitored on an ongoing basis. A date has not been activated any alerts on defined internal Capital Management Policy.
The Bank manages capital by making adjustments considering changes in economic conditions and the risk characteristics of their business. For this,
the Bank may adjust the amount of dividend payment to shareholders or issue capital instruments.
The Bank actively manages and core capital to cover the risks inherent in their business. The Bank’s capital adequacy is monitored using, among other
measures, rates and rules established by the SBIF.
Regulatory Capital
In accordance with the Chilean General Banking Law, the Bank must maintain a minimum ratio of Effective Equity to Consolidated Risk-Weighted Assets
of 8%, net of required provisions, and a minimum ratio of Basic Capital to Total Consolidated Assets of 3%, net of required provisions. However, due to
the 2008 merger of Banco de Chile and Citibank Chile, the Superintendency of Banks (SBIF), in Resolution N° 209 from December 26, 2007, increased
the limit on the Bank’s ratio of effective equity to risk-weighted assets to 10%. In this context, the SBIF ratified the use of the 10% as minimum fixed
in December 2001 when authorizing merge by absorption of Banco Edwards in Banco de Chile.
For this purpose, Effective Equity is determined based on Capital and Reserves or Basic Capital, adjusted by: (a) adding subordinated bonds up to 50%
of Basic Capital, (b) adding additional loan provisions, and (c) subtracting the asset balance of goodwill or overpayments and (d) adding unconsolidated
investments in companies.
Assets are weighted using risk categories, which are assigned a risk percentage based on the capital needed to back each asset. There are 5 risk
categories (0%, 10%, 20%, 60% and 100%). For example, cash, due from banks and financial instruments issued by the Chilean Central Bank have
0% risk, which means, in accordance with current standards, no capital is required to back these assets. Property and equipment have 100% risk,
which means that minimum capital equivalent to 8% of the value of these assets is needed (10% in the case of Banco de Chile).
275
All derivative instruments traded off-market are taken into account to determine risk assets using conversion factors over notional values, thus calculating
the value of the credit risk exposure (or “credit equivalent”). For weighting purposes, “credit equivalent” also considers off-balance sheet contingent
loans.
Levels of Basic Capital and Effective Equity as of December 31, 2012 and 2011 are as follows:
Consolidated assets
2012
2011
MCh$
MCh$
Risk-weighted assets
2012
2011
MCh$
MCh$
Balance sheet assets (net of provisions)
684,925
881,146
396,611
192,724
Intangible assets
Property and equipment
Current tax assets
832
16,472
373,639
53,978
100,236
301,771
55,025
78,314
35,100
47,981
35,100
47,981
329,497
385,688
328,642
378,788
1,343,322
648,425
231,182
335,562
18,334,330
16,993,303
16,658,476
15,555,760
1,264,440
1,468,898
416,938
488,760
—
—
—
—
13,933
15,418
13,933
15,418
34,290
35,517
33,151
33,757
205,189
207,888
205,189
207,887
2,684
1,407
268
141
Deferred tax assets
127,143
116,282
12,714
11,628
Other assets
296,878
263,584
SUBTOTAL
296,879
229,650
18,342,307
17,500,354
Off-balance-sheet assets
Contingent loans
3,945,940
3,484,007
TOTAL RISK-WEIGHTED ASSETS
MCh$
%
2,367,215
2,084,517
20,709,522
19,584,871
MCh$
%
Basic Capital (*)
2,007,057
7.33
1,739,173
6.85
Effective Equity
2,738,311
13.22
2,529,135
12.91
(*) Basic Capital corresponds to equity attributable to equity holders in the Statement of Consolidated Financial Position.
42. Own assets securitizations:
During 2012, the Bank subscribed a Securitization agreement issuance and an assignment agreement without responsibility with the subsidiary
Banchile Securitizadora S.A., whereby two fixed rate commercial loans were transferred. Then Banchile Securitizadora S.A. created the Segregated
Equity (“Patrimonio Separado”) according to the title XVIII of the law No. 18,045. The securitizated assets finally became part of the separated equity
in order to support the serie A bond issuance, which were fully transferred to third parties.
As of the transaction date, the book value of the credits assigned was Ch$30,276 million and the effective amount received in the transference was
Ch$30,407 million, which generated an income of Ch$131 million and also a credit provisions release for the amount of Ch$24 million. Furthermore,
the subsidiary Banchile Securitizadora S.A. charged a commission for Ch$160 million, to the bank corresponding to debt structured process services.
The bank acquired the subordinated bond (serie C) issued by Segregated Equity in Ch$22,485 equivalent to UF 1 (Unidad de Fomento), which represented
less than 0.001% of the total amount of the Bond issued by Segregated Equity for the amount of Ch$30,407 million (par value amounted Ch$30,196
million). This bond was registered in available-for-sale and as of December 31, 2012 its fair value is Ch$22,841, this amount represents the maximum
exposure of the bank will have in this transaction.
The bank analyzed all the relevant aspects of the transaction, according to indicated in the NIC 39 and in the SIC 12, related to assets derecognized and
consolidation rules. In this regards the bank concludes that (i) has substantially transferred all benefits and risks of assets assigned to the Segregated
Equity; (ii) do not manage directly nor indirectly the activities of the segregated equity; (iii) do not have decision rights, which allows to obtain substantial
benefits from the assets assigned; (iv) do not maintain any control over assets assigned, neither over the Segregate Equity. As a consequence of this,
the bank proceeded to derecognized the credits involved in transaction and have not consolidated with the Segregated Equity.
Additional information of the transaction
Securitized asset value as of December 31, 2012
$24,795 millones
Securitized bond value as of December 31, 2012
$24,644 millones
Securitized assets - remaining term
5 años
Securitized bond - remaining term
5 años
Rate securitized assets
UF + 4.83%
Rate securitized bond
UF + 4.54%
During 2012 and 2011, the bank has not executed any other securitization transaction involving owns assets.
277
43. Subsequent Events:
(a)
According to Note No. 5 letter (h) of Relevant Events, the Bank is in process of issue, subscription and placement of shares. To date, January 24, 2013
the situation of this process is the following:
Subscribed and paid shares
Subscribed and not paid shares
(b)
Shares number
%
2,504,355,648
63.6
3,306,917
0.1
Shares issued and not subscribed
1,431,826,877
36.3
Total shares
3,939,489,442
100.0
In the Ordinary Meeting No. 2,769 held on the January 24, 2013, the Board of Directors of Banco de Chile resolved to call an Ordinary Shareholders
Meeting to be held on the March 21, 2013 with the objective of proposing, among other matters, the distribution of the Dividend number 201 of
Ch$3.41625263165 per every of the 88.037.813.511 “Banco de Chile” shares, which will be payable at the expense of the distributable net income
obtained during the fiscal year ending the 31st of December, 2012, corresponding to 70% of such income.
Likewise, the Board of Directors resolved to call an Extraordinary Shareholders Meeting to be held on the same date in order to propose, among
other things, the capitalization of 30% of the distributable net income obtained during the fiscal year ending the 31st of December, 2012, through the
issuance of fully paid-in shares, of no par value, with a value of $71.97 per “Banco de Chile” share which will be distributed among the shareholders
in the proportion of 0.02034331347 shares for each “Banco de Chile” share, and to adopt the agreements that are necessary in this regard, subject
to the exercise of the options established in article 31 of Law 19,396.
In Management’s opinion, there are no other significant subsequent events that affect or could affect the consolidated financial statements of the Bank and
its subsidiaries between December 31, 2012 and the date of issuance of these consolidated financial statements.
Héctor Hernández G.
Gerente de Contabilidad
Arturo Tagle Q.
Gerente General
Legal Name: Banco de Chile
Taxpayer ID: 97.004.000-5
Headquarters
Ahumada 251, Santiago, Chile
Phone (56-2) 2637 1111 - Fax (56-2) 2637 3434
www.bancochile.cl
Swift BCHI CL RM
Sao Paulo Representation Office
Rua Haddock Lobo, 746 - 4º andar
Cerqueira Cesar, CEP 01414 - 000
Sao Paulo, Brasil
Phone (55-11) 3060 8686
Fax (55-11) 3083 1888
banchile@vol.com.br
c/o Tricor Services Ltd.
Level 28, Three Pacific Place,
1 Queen’s Road East, Hong Kong
Phone (85-2) 2282 6710 - (85-2) 2282 6707
Fax (85-2) 2375 3372
Design
stormind.cl
Beijing Representation Office
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
Investor Relations
Agustinas 975, piso 3, of 301
Phone (56-2) 2653 5151 - (56-2) 2653 3554
pmejiar@bancochile.cl
Share Department
Agustinas 975, of 541, Santiago, Chile
Phone (56-2) 2653 2980 - (56-2) 2653 2294
Photography
Pedro Pablo Valverde G.
Printing
Fyrma Gráfica

English - Banco de Chile

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