EX-99.1 2 ea140010ex99-1_bankofchile.htm ATTACHED BANCO DE CHILE'S CONSOLIDATED FINANCIAL STATEMENTS WITH NOTES AS OF MARCH 31, 2021

Exhibit 99.1

 

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

 

(Free translation of Consolidated Financial Statements originally issued in Spanish)

 

INDEX

 

I. Interim Consolidated Statements of Financial Position
II. Interim Consolidated Statements of Income
III. Interim Consolidated Statements of Other Comprehensive Income
IV. Interim Consolidated Statements of Changes in Equity
V. Interim Consolidated Statements of Cash Flows
VI. Notes to the Interim Consolidated Financial Statements

 

MCh$ = Millions of Chilean pesos
ThUS$ = Thousands of U.S. dollars
UF or CLF = Unidad de Fomento
    (The UF is an inflation-indexed, Chilean peso denominated monetary unit set daily in advance on the basis of the previous month’s inflation rate).
Ch$ or CLP = Chilean pesos
US$ or USD = U.S. dollar
JPY = Japanese yen
EUR = Euro
HKD = Hong Kong dollar
CHF = Swiss Franc
PEN = Peruvian sol
AUD = Australian dollar
NOK = Norwegian krone
     
IFRS = International Financial Reporting Standards
IAS = International Accounting Standards
RAN = Actualized Standards Compilation of the Chilean Commission for Financial Market (“CMF”)
IFRIC = International Financial Reporting Interpretations Committee
SIC = Standards Interpretation Committee

 

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

 

INDEX

 

  Page
Interim Consolidated Statement of Financial Position 1
Interim Consolidated Statements of Income 2
Interim Consolidated Statements of Other Comprehensive Income 3
Interim Consolidated Statement of Changes in Equity 4
Consolidated Statements of Cash Flows 5
1. Company information: 6
2. Legal regulations, basis of preparation and Other information: 7
3. New Accounting Pronouncements: 10
4. Changes in Accounting Policies and Disclosures: 18
5. Relevant Events: 19
6. Business Segments: 21
7. Cash and Cash Equivalents: 24
8. Financial Assets Held-for-trading: 25
9. Investments under resale agreements and obligations under repurchase agreements: 26
10. Derivative Instruments and Accounting Hedges: 28
11. Loans and Advances to Banks, net: 34
12. Loans to Customers, net: 35
13. Investment Securities: 41
14. Investments in Other Companies: 43
15. Intangible Assets: 45
16. Fixed assets, leased assets and lease liabilities: 47
17. Current Taxes and Deferred Taxes: 52
18. Other Assets: 56
19. Current Accounts and Other Demand Deposits: 57
20. Savings Accounts and Time Deposits: 57
21. Borrowings from Financial Institutions: 58
22. Debt Issued: 59
23. Other Financial Obligations: 62
24. Provisions: 62
25. Other Liabilities: 66
26. Contingencies and Commitments: 67
27. Equity: 72
28. Interest Revenue and Expenses: 75
29. Income and Expenses from Fees and Commissions: 77
30. Net Financial Operating Income: 78
31. Foreign Exchange Transactions, Net: 78
32. Provisions for Loan Losses: 79
33. Personnel Expenses: 80
34. Administrative Expenses: 81
35. Depreciation, Amortization and Impairment: 82
36. Other Operating Income: 83
37. Other Operating Expenses: 84
38. Related Party Transactions: 85
39. Fair Value of Financial Assets and Liabilities: 89
40. Maturity of Assets and Liabilities: 102
41. Subsequent Events: 106

 

i

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

For the periods ended March 31, 2021 and December 31, 2020

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

      March   December 
   Notes  2021   2020 
      MCh$   MCh$ 
ASSETS           
Cash and due from banks  7   2,203,602    2,560,216 
Transactions in the course of collection  7   512,295    582,308 
Financial assets held-for-trading  8   2,229,153    4,666,156 
Investment under resale agreements  9   62,423    76,407 
Derivative instruments  10   1,950,321    2,618,004 
Loans and advances to banks  11   4,554,592    2,938,991 
Loans to customers, net  12   31,047,999    30,190,058 
Financial assets available-for-sale  13   1,064,518    1,060,523 
Financial assets held-to-maturity  13   —    — 
Investments in other companies  14   43,980    44,649 
Intangible assets  15   62,531    60,701 
Property and equipment  16   222,586    217,928 
Leased assets  16   117,940    118,829 
Current tax assets  17   37,132    22,949 
Deferred tax assets  17   353,667    357,945 
Other assets  18   522,626    579,467 
TOTAL ASSETS      44,985,365    46,095,131 
              
LIABILITIES             
Current accounts and other demand deposits  19   15,682,372    15,167,229 
Transactions in the course of payment  7   838,056    1,302,000 
Obligations under repurchase agreements  9   104,176    288,917 
Savings accounts and time deposits  20   8,274,926    8,899,541 
Derivative instruments  10   2,119,562    2,841,756 
Borrowings from financial institutions  21   3,674,566    3,669,753 
Debt issued  22   8,966,980    8,593,595 
Other financial obligations  23   257,319    191,713 
Lease liabilities  16   114,059    115,017 
Current tax liabilities  17   189    311 
Deferred tax liabilities  17   —    — 
Provisions  24   594,979    733,911 
Other liabilities  25   538,057    565,120 
TOTAL LIABILITIES      41,165,241    42,368,863 
              
EQUITY  27          
Attributable to Bank’s Owners:             
Capital      2,418,833    2,418,833 
Reserves      703,373    703,206 
Other comprehensive income      (49,756)   (51,250)
Retained earnings:             
Retained earnings from previous years      655,478    412,641 
Income for the period      162,492    463,108 
Less:             
Provision for minimum dividends      (70,297)   (220,271)
Subtotal      3,820,123    3,726,267 
Non-controlling interests      1    1 
TOTAL EQUITY      3,820,124    3,726,268 
TOTAL LIABILITIES AND EQUITY      44,985,365    46,095,131 

 

The accompanying notes 1 to 41 are an integral part of these interim consolidated financial statements

 

1

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF INCOME

for the three-month ended March 31, 2021 and 2020

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

      March   March 
   Notes  2021   2020 
      MCh$   MCh$ 
            
Interest revenue  28   487,481    554,274 
Interest expense  28   (152,904)   (204,577)
Net interest income      334,577    349,697 
              
Income from fees and commissions  29   136,771    161,671 
Expenses from fees and commissions  29   (28,501)   (36,200)
Net fees and commission income      108,270    125,471 
              
Net financial operating income  30   5,210    9,154 
Foreign exchange transactions, net  31   26,412    19,380 
Other operating income  36   7,956    9,391 
Total operating revenues      482,425    513,093 
              
Provisions for loan losses  32   (54,067)   (125,560)
              
OPERATING REVENUES, NET OF PROVISIONS FOR LOAN LOSSES      428,358    387,533 
              
Personnel expenses  33   (113,696)   (107,043)
Administrative expenses  34   (83,373)   (82,688)
Depreciation and amortization  35   (18,619)   (18,469)
Impairment  35   (1)   — 
Other operating expenses  37   (8,785)   (12,093)
              
TOTAL OPERATING EXPENSES      (224,474)   (220,293)
              
NET OPERATING INCOME      203,884    167,240 
              
Income attributable to associates  14   (657)   1,895 
Income before income tax      203,227    169,135 
              
Income tax  17   (40,735)   (32,253)
              
NET INCOME FOR THE PERIOD      162,492    136,882 
              
Attributable to:             
Bank’s Owners  27   162,492    136,882 
Non-controlling interests      —    — 
              
Net income per share attributable to Bank’s Owners:      Ch$    Ch$ 
Basic net income per share  27   1.61    1.36 
Diluted net income per share  27   1.61    1.36 

 

The accompanying notes 1 to 41 are an integral part of these interim consolidated financial statements

 

2

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF

OTHER COMPREHENSIVE INCOME

for the three-month ended March 31, 2020 and 2020,

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

      March   March 
   Notes  2021   2020 
      MCh$   MCh$ 
            
NET INCOME FOR THE PERIOD      162,492    136,882 
              
OTHER COMPREHENSIVE INCOME THAT WILL BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS             
              
Net gains (losses) on available-for-sale instruments valuation  13   507    (9,768)
Net gains (losses) on derivatives held as cash flow hedges  10   1,539    1,935 
Subtotal Other comprehensive income before income taxes      2,046    (7,833)
              
Income tax relating to the components of other comprehensive income that are reclassified in income for the period      (552)   2,107 
Total other comprehensive income items that will be reclassified subsequently to profit or loss      1,494    (5,726)
              
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS             
              
Adjustment for defined benefit plans  24   229    81 
              
Subtotal other comprehensive income before income taxes      229    81 
              
Income tax relating to the components of other comprehensive income that will not be reclassified to income for the period  17   (62)   (22)
Total other comprehensive income items that will not be reclassified subsequently to profit or loss      167    59 
              
CONSOLIDATED COMPREHENSIVE INCOME FOR THE PERIOD      164,153    131,215 
              
Attributable to:             
Bank’s Owners      164,153    131,215 
Non-controlling interests      —    — 

 

The accompanying notes 1 to 41 are an integral part of these interim consolidated financial statements

 

3

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

for the three-month ended March 31, 2021 and 2020

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

(Expressed in millions of Chilean pesos)

 

          Reserves   Other comprehensive income   Retained earnings     
   Notes  Paid-in
Capital		   Other
reserves		   Reserves
from
earnings		   Unrealized
gains
(losses) on
available-for-sale		   Derivatives
cash flow
hedge		   Income
Tax		   Retained
earnings
from
previous
period		   Income
(losses)
for the
period		   Provision
for
minimum
dividends		   Attributable
to equity
holders of
the parent		   Non-
controlling
interest		   Total
equity		 
      MCh$   MCh$   MCh$   MCh$   MCh$       MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                    
Balances as of December 31, 2019      2,418,833    31,780    671,492    3,827    (81,040)   20,612    170,171    593,008    (300,461)   3,528,222    1    3,528,223 
Retention of profits      —    —    —    —    —    —    242,470    (242,470)   —    —    —    — 
Dividends distributions and paid  27   —    —    —    —    —    —    —    (350,538)   300,461    (50,077)   —    (50,077)
Other comprehensive income:                                                               
Defined benefit plans adjustment, net      —    59    —    —    —    —    —    —    —    59    —    59 
Derivatives cash flow hedge  27   —    —    —    —    1,935    (521)   —    —    —    1,414    —    1,414 
Valuation adjustment on available-for-sale instruments  27
   —    —    —    (9,768)   —    2,628    —    —    —    (7,140)   —    (7,140)
Income for the period 2020  27   —    —    —    —    —    —    —    136,882    —    136,882    —    136,882 
Provision for minimum dividends      —    —    —    —    —    —    —    —    (58,469)   (58,469)   —    (58,469)
Balances as of March 31, 2020      2,418,833    31,780    671,492    3,827    (81,040)   20,612    170,171    593,008    (300,461)   3,528,222    1    3,528,223 
Other comprehensive income:                                                               
Defined benefit plans adjustment, net      —    (125)   —    —    —    —    —    —    —    (125)   —    (125)
Derivatives cash flow hedge, net      —    —    —    —    8,423    (2,276)   —    —    —    6,147    —    6,147 
Valuation adjustment on available-for-sale instruments      —    —    —    6,742    —    (1,812)   —    —    —    4,930    —    4,930 
Income for the period 2020      —    —    —    —    —    —    —    326,226    —    326,226    —    326,226 
Provision for minimum dividends      —    —    —    —    —    —    —    —    (161,802)   (161,802)   —    (161,802)

Balances as of December 31, 2020

      2,418,833    31,714    671,492    801    (70,682)   18,631    412,641    463,108    (220,271)   3,726,267    1    3,726,268 
Retention of profits  27   —    —    —    —    —    —    242,837    (242,837)   —    —    —    — 
Dividends distributions and paid  27   —    —    —    —    —    —    —    (220,271)   220,271    —    —    — 
Other comprehensive income:                                                               
Defined benefit plans adjustment, net      —    167    —    —    —    —    —    —    —    167    —    167 
Derivatives cash flow hedge, net  27
   —    —    —    —    1,539    (415)   —    —    —    1,124    —    1,124 
Valuation adjustment on available-for-sale instruments  27   —    —    —    507    —    (137)   —    —    —    370    —    370 
Income for the period 2021  27   —    —    —    —    —    —    —    162,492    —    162,492    —    162,492 
Provision for minimum dividends  27   —    —    —    —    —    —    —    —    (70,297)   (70,297)   —    (70,297)

Balances as of March 31, 2021

      2,418,833    31,881    671,492    1,308    (69,143)   18,079    655,478    162,492    (70,297)   3,820,123    1    3,820,124 

 

The accompanying notes 1 to 41 are an integral part of these interim consolidated financial statements

 

4

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

for the periods between January 1 and March 31,

(Free translation of Consolidated Financial Statements originally issued in Spanish)

(Expressed in million of Chilean pesos)

 

      March   March 
   Notes  2021   2020 
      MCh$   MCh$ 
CASH FLOWS FROM OPERATING ACTIVITIES:           
Net income for the period      162,492    136,882 
Charges (credits) to income  that do not represent cash flows:             
Depreciation and amortization  35   18,619    18,469 
Impairment  35   1    — 
Provision for loans and accounts receivable from customers and owed by banks  32   32,044    128,356 
Provision of contingent loans  32   (3,234)   7,007 
Additional provisions  32   40,000    — 
Fair value adjustment of financial assets held-for-trading      1,705    1,016 
Changes in assets and liabilities by deferred taxes  17   4,079    7,197 
(Gain) loss attributable to investments in companies with significant influence, net  14   668    (1,876)
(Gain) loss from sales of assets received in lieu of payment,net      (648)   (1,361)
(Gain) loss on sales of property and equipment, net  36   (3)   (18)
Charge-offs of assets received in lieu of payment  37   472    1,245 
Other charges (credits) to income that do not represent cash flows      782    2,695 
Net changes in exchange rate, interest and fees accrued on assets and liabilities      (39,748)   144,753 
              
Changes in assets and liabilities that affect operating cash flows:             
(Increase) decrease in loans and advances to banks, net      (1,615,290)   (203,433)
(Increase) decrease in loans to customers      (813,496)   (866,758)
(Increase) decrease in financial assets held-for-trading, net      128,291    (69,749)
(Increase) decrease in other assets and liabilities      (64,975)   (273,963)
Increase (decrease) in current account and other demand deposits      513,925    543,498 
Increase (decrease) in transactions from reverse repurchase agreements      (175,531)   35,540 
Increase (decrease) in savings accounts and time deposits      (614,684)   630,811 
Sale of assets received in lieu of payment or adjudicated      2,362    4,310 
Total cash flows from operating activities      (2,422,169)   244,621 
              
CASH FLOWS FROM INVESTING ACTIVITIES:             
(Increase) decrease in financial assets available-for-sale, net      (6,803)   (283,201)
Payments for lease agreements  16   (7,401)   (7,509)
Net changes in leased assets  16   (382)   (419)
Purchases of property and equipment  16   (11,878)   (11,999)
Sales of property and equipment      301    18 
Acquisition of intangible assets  15   (6,018)   (4,238)
Acquisition of investments in companies  14   —    — 
Dividends received from investments in companies  14   11    19 
Total cash flows from investing activities      (32,170)   (307,329)
              
CASH FLOWS FROM FINANCING ACTIVITIES:             
Redemption of letters of credit      (505)   (670)
Issuance of bonds  22   415,543    459,510 
Redemption of bonds      (99,489)   (334,388)
Dividends paid  27   (220,271)   (350,538)
Increase (decrease) in borrowings from foreign financial institutions      4,833    142,618 
Increase (decrease) in other financial obligations      65,684    (34,421)
Increase (decrease) in other obligations with Central Bank of Chile      —    — 
Payment of other long-term borrowings      (68)   (147)
Total cash flows from financing activities      165,727    (118,036)
              
TOTAL NET  NEGATIVE CASH FLOWS FOR THE PERIOD      (2,288,612)   (180,744)
              
Effect of exchange rate changes      14,337    34,299 
              
Cash and cash equivalents at beginning of period      6,088,115    3,931,371 
              
Cash and cash equivalents at end of period  7   3,813,840    3,784,926 
              
      March   March 
      2021   2020 
Operational Cash flow interest:     MCh$   MCh$ 
            
Interest received      412,436    466,572 
Interest paid      (103,270)   62,177 

 

The accompanying notes 1 to 41 are an integral part of these interim consolidated financial statements

 

5

 

 

BANCO DE CHILE AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

1.Company information:

 

Banco de Chile is authorized to operate as a commercial bank since September 17, 1996, being, in conformity with the stipulations of article 25 of Law No. 19,396, the legal continuation of Banco de Chile resulting from the merger of the Banco Nacional de Chile, Banco Agrícola and Banco de Valparaiso, which was constituted by public deed dated October 28, 1893, granted before the Notary Public of Santiago, Mr. Eduardo Reyes Lavalle, authorized by Supreme Decree of November 28, 1893.

 

The Bank is a Corporation organized under the laws of the Republic of Chile, regulated by the Chilean Commission for the Financial Market (“CMF”). Since 2001, it is subject to the supervision of the Securities and Exchange Commission of the United States of America (“SEC”), in consideration of the fact that the Bank is registered on the New York Stock Exchange (“NYSE”), through a program of American Depositary Receipt (“ADR”).

 

Banco de Chile offers a broad range of banking services to its customers, ranging from individuals to large corporations. Additionally, the Bank offers international as well as treasury banking services, in addition to those offered by subsidiaries that include securities brokerage, mutual fund and investment management, insurance brokerage and financial advisory services.

 

Banco de Chile’s legal address is Ahumada 251, Santiago, Chile and its website is www.bancochile.cl.

 

The Consolidated Financial Statements of Banco de Chile, for the period ended March 31, 2021 were approved by the Directors on April 29, 2021.

 

6

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

2.Legal regulations, basis of preparation and Other information:

 

(a)Legal regulations:

 

Decree Law No. 3,538 of 1980, in accordance with the text replaced by the first article of Law No. 21,000 that “Creates the Financial Market Commission”, provides in paragraph 6 of its article 5 that the Market Commission Financiero (“CMF”) may “set the rules for the preparation and presentation of the reports, balance sheets, balance sheets and other financial statements of the audited entities and determine the principles according to which they must keep their accounting”.

 

In accordance with the current legal framework, banks must use the accounting principles established by the CMF and in everything that is not dealt with by it or is contrary to its instructions, they must adhere to the generally accepted accounting principles, which correspond to the regulations techniques issued by the Colegio de Contadores de Chile AG, coinciding with the International Financial Reporting Standards (“IFRS”) agreed by the International Accounting Standards Board (“IASB”). In the event of discrepancies between these generally accepted accounting principles and the accounting criteria issued by the CMF, the latter shall prevail.

 

The notes to the Consolidated Financial Statements contain additional information to that presented in the Consolidated Statement of Financial Position, in the Consolidated Statement of Income, Consolidated Statement of Other Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows. They provide narrative descriptions or disaggregation of such statements in a clear, relevant, reliable and comparable way.

 

(b)Basis of preparation:

 

(b.1)These Interim Consolidated Financial Statements are presented according to Chapter C-2 of the Compendium of Accounting Standards, issued by the CMF.

 

(b.2)The following table details the entities in which the Bank has control and are part of this consolidated financial statements:

 

            Interest Owned 
            Direct   Indirect   Total 
         Functional  March   December   March   December   March   December 
RUT  Subsidiaries  Country  Currency  2021   2020   2021   2020   2021   2020 
            %   %   %   %   %   % 
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 
96,571,220-8  Banchile Corredores de Bolsa S.A.  Chile  Ch$   99.70    99.70    0.30    0.30    100.00    100.00 
96,932,010-K  Banchile Securitizadora S.A. (*)  Chile  Ch$   99.01    99.01    0.99    0.99    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 

 

(*)Company in the process of early dissolution. See Note No. 5 b).

 

7

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

2.Legal regulations, basis of preparation and Other information, continued:

 

(c)Use of estimates and judgments:

 

Preparing the Interim Consolidated Financial Statements requires Management to make judgments, estimations and assumptions that affect the application of accounting policies and the valuation of assets, liabilities, income and expenses presented. Actual results could differ from these estimated amounts. The estimates refer to:

 

1.Provision for loan losses (Notes No. 11, No. 12 and No. 32);
2.Useful life of intangible, property and equipment and leased assets and lease liabilities (Notes No. 15 and No. 16);
3.Income taxes and deferred taxes (Note No. 17);
4.Provisions (Note No. 24);
5.Contingencies and Commitments (Note No. 26);
6.Fair value of financial assets and liabilities (Note No. 39).

 

Estimates and relevant assumptions are regularly reviewed by the Management, according to quantify certain assets, liabilities, gains, loss and commitments. Estimates reviewed are registered in income in the period that the estimate is reviewed.

 

During the period ended March 31, 2021, there have been no changes in the estimates made.

 

(d)Seasonality or Cyclical Character of the Transactions of the Intermediate Period:

 

Given the activities to which the Bank and its subsidiaries are engaged, the transactions of the Bank do not have a cyclical or seasonal nature. For this reason, specific breakdowns in these notes to the Interim Consolidated Financial Statements for the three-month period ended March 31, 2021 are not included.

 

(e)Relative Importance:

 

In determining the information to be disclosed on the different items of the financial statements or other matters, the relative importance in relation to the Financial Statements of the period has been taken into account.

 

(f)Leases:

 

The Bank acts as a lessor

 

Assets that are leased to clients under contracts that substantially transfer all risks and property recognition, with or without legal title, are classified as a financial lease. When the retained assets are subject to a financial leasing, the leased assets are no longer recognized and are recorded an account receivable, which is equal to the minimum value of the lease payment, discounted at the interest rate of the lease. The initial negotiation expenses in a financial lease are incorporated into the account receivable through the discount rate applied to the lease. Lease income is recognized on lease terms based on a model that consistently reflects a periodic rate of return on the net investment of the lease.

 

8

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

2.Legal regulations, basis of preparation and Other information, continued:

 

(f)Leases, continued:

 

Assets that are leased to customers under contracts that do not transfer substantially all the risks and benefits of the property are classified as an operating lease.

 

The leased investment properties, under the operating lease modality, are included in “Other assets” in the statement of financial position and depreciation is determined on the book value of these assets, applying a proportion of the value in a systematic way on the economic use of the estimated useful life. Lease income is recognized on a straight-line basis over the lease period.

 

The Bank acts as a lessee

 

A contract is or contains a lease if it has the right to control the use of an identified asset for a period of time in exchange for a consideration.

 

At the start date of a lease, an asset is determined by right of use of the leased asset at cost, which comprises the amount of the initial measurement of the lease liability plus other disbursements made.

 

The amount of the lease liability is measured at the present value of future lease payments that have not been paid on that date, which are discounted using the Bank’s incremental financing interest.

 

The right-of-use asset is measured using the cost model less accumulated depreciation and accumulated impairment losses. The depreciation of the right-of-use asset is recognized in the Income Statement based on the straight-line method of depreciation from the start date and until the end of the term of the lease.

 

The monthly variation of the UF for the contracts established in said monetary unit should be treated as a new measurement, therefore the change in the Consumer Price Index (CPI) modifies the value of the lease liability and in parallel, the amount of the asset for the right to use leased assets must be adjusted for this effect.

 

After the start date, the lease liability is measured by reducing the carrying amount to reflect the lease payments made and the lease contract modifications.

 

According to IFRS 16 “Leases”, the bank does not apply this standard to contracts with duration of 12 months or less and those that contain a low value underlying asset. In these cases, the payments are recognized as a lease expense.

 

(g)Reclassifications:

 

There have not been significant reclassifications at the end of this period 2021.

 

9

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements:

 

Standards approved and/or modified by the International Accounting Standards Board (IASB) and by the Chilean Commission for the Financial Market (CMF):

 

Standards and interpretations that have been adopted in these Interim Consolidated Financial Statements.

 

As of the date of issuance of these Interim Consolidated Financial Statements, the new accounting pronouncements issued by both the IASB and the CMF, which have been adopted by the Bank and its subsidiaries, are detailed below:

 

Accounting standards issued by IASB.

 

IFRS 9 Financial Instruments, IFRS 7 Financial Instruments: Disclosures and IAS 39 Financial Instruments: Recognition and Measurement IFRS 4 Insurance Contracts and IFRS 16 Leases. Interest Rate Benchmark Reform.

 

In August 2020, the IASB issued a set of amendments related to phase 2 of the Benchmark Reform of Interbank Offering Rates (IBOR) and other benchmark interest rates amending IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16.

 

The amendments complement the changes issued during 2019 and focus on the effects on the financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate. The amendments in phase two refer to changes that affect the contractual cash flows. A company does not need to write off / adjust the book value of financial instruments for changes, but rather update the effective interest rate to reflect the change to an alternative benchmark. In the case of hedge accounting, a company does not need to discontinue hedge accounting because it makes the changes required by the reform if the hedge meets other hedge accounting criteria. Regarding disclosures, the company must disclose information about the new risks arising from the reform and how it manages the transition to the alternative benchmark rates.

 

The amendments are effective for annual reporting periods beginning on or after January 1, 2021. Early adoption of modifications is also allowed.

 

Banco de Chile has been working on the transition of reference rates, implementing an action plan that includes, among other aspects, identifying the main exposures and risks related to the LIBOR transition, developing products linked to the new reference rate, reviewing of current contracts and renegotiation with some of our clients, which will allow us to face the challenges imposed by the changes in the reference rates.

 

New standards and interpretations that have been issued but its date of application have not yet come into force:

 

The following is a summary of new standards, interpretations and improvements to the International Financial Reporting Standards issued by IASB that are not yet effective as of March 31, 2021, are detailed below:

 

10

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements, continued:

 

Accounting standards issued by IASB.

 

IAS 28 — Investments in Associates and Joint Venture, and IFRS 10 — Consolidated Financial Statements.

 

In September 2014, the IASB published this modification, which clarifies the scope of the profits and losses recognized in a transaction that involves an associate or joint venture, and that this depends on whether the asset sold or contribution constitutes a business. Therefore, the IASB concluded that all gains or losses should be recognized against loss of control of a business. Likewise, the gains or losses that result from the sale or contribution of a subsidiary that does not constitute a business (definition of IFRS 3) to an associate or joint venture should be recognized only to the extent of unrelated interests in the associate or joint venture.

 

During December 2015, the IASB agreed to set the effective date of this modification in the future, allowing its immediate application.

 

Banco de Chile and its subsidiaries will have no impact on the Interim Consolidated Financial Statements as a result of the application of this amendment.

 

Limited Scope Amendments and Annual Improvements 2018-2020.

 

In May 2020, the IASB published a package of amendments of limited scope, as well as the 2018-2020 Annual Improvements, whose changes clarify the wording or correct minor consequences, omissions or conflicts between the requirements of the Standards.

 

Among other modifications, it contains amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets which specify the costs that an entity should include when evaluating whether a contract will cause losses, these costs include those that are directly related to the contract and may be costs incremental performance of that contract (for example, direct labor and materials), or an allocation of other costs that are directly related to the performance of contracts (for example, the allocation of the depreciation charge for an item of property, plant and equipment used to fulfill the contract).

 

These amendments will be effective as of January 1, 2022 and it is estimated that Banco de Chile and its subsidiaries will not have significant impacts on the Interim Consolidated Financial Statements as a result of the application of these amendments.

 

IAS 1 Presentation of Financial Statements and IFRS Practice Statement No. 2. Accounting Policy Disclosures.

 

In February 2021, the IASB published amendments to IAS 1 to require companies to disclose material information on accounting policies, the foregoing in order to improve the disclosures of their accounting policies and provide useful information to investors and other users of financial statements.

 

To help entities apply the amendments to IAS 1, the Board also amended IFRS Practice Statement No. 2 to illustrate how an entity can judge whether accounting policy information is material to its financial statements.

 

The amendments to IAS 1 will be effective for financial statement presentation periods beginning on or after January 1, 2023. Early application is permitted. If an entity applies those amendments to prior periods, it must disclose that fact.

 

11

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements, continued:

 

The application of this amendment will not generate material impacts on the disclosure of accounting policies in the Interim Consolidated Financial Statements of Banco de Chile and its subsidiaries.

 

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Definition of Accounting Estimate.

 

In February 2021, the IASB incorporated changes to the definition of accounting estimates contained in IAS 8, the amendments to IAS are intended to help entities distinguish changes in accounting estimates from changes in accounting policies.

 

The amendments to IAS 8 will be effective for financial statement presentation periods beginning on or after January 1, 2023. Early application is permitted.

 

The application of this amendment will not have an impact on the Interim Consolidated Financial Statements of Banco de Chile and its subsidiaries.

 

IFRS 16 Leases. Extends the one-year term of Covid-19-related lease concessions.

 

In March 2021, the IASB published modifications to IFRS 16 that allow the accounting of concessions or rental facilities due to the effect of the pandemic declared by Covid-19 to be extended until June 30, 2022. The original amendment to IFRS 16 was issued in May 2020 and applied to lease contract facilities that reduce only lease payments due until June 30, 2021.

 

The implementation of this amendment will have no material impact on Banco de Chile and its subsidiaries.

 

Accounting standards issued by the CMF.

 

Circular No. 2,243. Amends Compendium of Accounting Standards for Banks.

 

On December 20, 2019, the CMF published Circular No. 2,243, which updates the instructions of the Accounting Standards Compendium (CNC) for Banks.

 

The changes seek greater convergence with IFRS, as well as an improvement in the quality of financial information, to contribute to the financial stability and transparency of the banking system.

 

The main changes introduced to the CNC correspond to:

 

1)Incorporation of IFRS 9 with the exception of the Chapter 5.5 on impairment of loans classified as “financial assets at amortized cost”. This exception is mainly due to prudential criteria set by the CMF. These criteria have given rise, over time, to the establishment of standard models that the banking institutions must apply to determine the impairment of the loan portfolio (Chapter B-1 of the CNC, for provisions).

 

2)Changes in the presentation formats of the Statement of Financial Position and Income Statement, when adopting IFRS 9 in replacement of IAS 39.

 

12

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements, continued:

 

3)Incorporation of new presentation formats for the Statement of Other Comprehensive Income and the Statement of Changes in Equity and guidelines on financing and investment activities for the Statement of Cash Flows.

 

4)Incorporation of a financial report “Management Comments” (according to the IASB Practice Document No. 1), which will complement the information provided by the interim and annual financial statements.

 

5)Modifications of some notes of the financial statements, among which are: Financial assets at amortized cost and Risk management, in order to better comply with the disclosure criteria contained in the IFRS 7. In addition, disclosures about related parties are aligned according to IAS 24.

 

6)Changes in the accounting plan of Chapter C-3 of the CNC, both in the accounts coding as well as in their description. The foregoing corresponds to the detailed information of the formats for the Statement of Financial Position, the Income Statement and the Statement of Other Comprehensive Income.

 

7)Modification of the criteria for the suspension of the recognition of interest income and UF indexation on an accrual basis, for any credit with a default equal to or greater than 90 days (Chapter B-2 of the CNC). Currently, the suspension of the recognition of interests and UF indexation occurs after 180 days.

 

8)Adaptation of the limitations and precisions to the use of IFRS contained in Chapter A-2 of the CNC.

 

In accordance with that established under the Circular No. 2,249 dated April 20, 2020, the new standard will be applicable from January 1, 2022, with a transition date of January 1, 2021, for purposes of the comparative Financial Statements that must be published from March 2022.

 

Nevertheless, the change in criteria for the suspension of the recognition of interest income and UF indexation on an accrual basis as provided in Chapter B-2, shall be adopted no later than January 1, 2022.

 

The Bank and its subsidiaries have structured an implementation project and have established various Committees to ensure its implementation. All this in order to comply with the new standards required for the preparation and presentation of the Financial Statements. The application of the rule of suspension of the recognition of interest and UF indexation on an accrual basis after 90 days of default will not have a significant impact on the Interim Consolidated Financial Statements.

 

13

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements, continued:

 

Standards related to the implementation of Basel III.

 

During 2019, the CMF began the regulatory process for the implementation of Basel III standards in Chile, in accordance with the established on Law No. 21,130 that modernizes banking legislation. The new Law adopts the international standards in banking regulation and supervision.

 

On March 30, 2020, the CMF reported that, in coordination with the Central Bank of Chile, it resolved to postpone the implementation of the Basel III requirements for one year and maintain the general regulatory framework in force for banking capital requirements until December 2021.

 

On December 1, 2020, the CMF finalized the process of issuing the necessary regulations for the implementation of the new capital framework. The culmination of this regulatory process, which began with the first standard in public consultation in August 2019, represents a relevant step in strengthening the solvency and stability of the financial system. The new capital framework will allow for a more solid and robust banking system, a fundamental condition to face the impacts of the economic downturn with better tools.

 

The new standards, in addition to increasing the capitalization levels of Chilean banks; facilitate access to new and better sources of financing; harmonize the requirements between subsidiaries of foreign banks and local banks; and they contribute to the internationalization process of Chilean banking.

 

The new regulatory body issued by the CMF for the full implementation of the new capital requirements corresponds to the following:

 

-Equity for legal and regulatory purposes.
-Additional Capital Instruments Level 1 for the constitution of effective equity: preferred shares and bonds without fixed maturity term of article 55 bis of the General Banking Act.
-Level 2 capital instruments for the constitution of effective equity: subordinated bonds of article 55 of the General Banking Act.
-Determination of weighted assets by credit risk.
-Determination of weighted assets by market risk.
-Standardized methodology for calculating weighted assets by operational risk.
-Factors and methodology for banks or group of banks rated as systemically important and requirements that may be imposed as a result of this rating.
-Additional Basic Capital, Articles 66 Bis and 66 Ter of the General Banking Act.
-Evaluation of the Sufficiency of the banks’ Cash Equity.
-Market discipline and transparency.
-Relation between basic capital and total assets.

 

14

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements, continued:

 

Circular 2,270. Updates Chapter 1-13 “Classification of management and solvency” and introduces to the RAN a new Chapter 21-13 “Evaluation of the adequacy of effective equity of banks”.

 

On September 11, 2020, the CMF issued the standard that sets the general criteria and guidelines for the determination of additional equity requirements as a result of the supervision process, called Pillar 2. The new Chapter 21-13, which distinguishes 2 processes (1) The capital self-assessment process, in which the banks themselves will determine their internal objective of effective equity, necessary to cover their risks in a horizon of at least three years and (2) The CMF’s assessment of the adequacy of banks’ effective equity to support their risk profile, as determined in the annual supervisory review process. This regulation will be effective immediately. The effective equity self-assessment report to be submitted by banks during this year will be based only on credit risk, and the one for 2022 will incorporate market and operational risks. Both reports will have a simplified format. As of 2023, the report with all its sections will be required, considering all the material risks of the institution, including those for which there is no measurement standard.

 

Circular No. 2,272, incorporates Chapter 21-12 “Additional basic capital, articles 66 bis and 66 ter of the general banking law” into the RAN.

 

On September 25, 2020, the CMF published the regulations that define the operating procedures for the calculation, implementation and supervision of additional capital charges, known as capital buffers (Conservation Buffer and a Countercyclical Buffer). Both buffers must be constituted with Common Equity Tier 1 (“CET1”), and its fulfillment will be a requirement to qualify with note A of solvency.

 

The Conservation Buffer is a fixed charge equal to 2.5% of the APR net of required provisions. The Cyclical Buffer is a variable charge that ranges between 0% and 2.5% of the RWA net of required provisions.

 

As of December 1, 2021, the requirement of the Conservation Buffer will be 0.625%, increasing by the same percentage each year, until reaching the regime on December 1, 2024. The same transitory requirement will apply to the maximum value of the Countercyclical Buffer that can be defined by the Chile Central Bank.

 

Circular No. 2,273. Incorporates Chapter 21-30 “Relationship between basic capital and total assets” in the RAN.

 

On October 5, 2020, the CMF issued the rule that regulates the calculation of the relationship between basic capital and total assets (leverage ratio). The standard introduces improvements both in the measurement of basic capital (numerator) and of the bank’s total assets (denominator). The lower limit of 3% for the leverage ratio was introduced in Chilean banking regulation in the 1997 LGB reform (Article 66). The regulation is effective as of December 1, 2020, without prejudice to the transitory measures for the calculation of regulatory capital, contemplated in Title V of Chapter 21-1 “Equity for legal and regulatory purposes” of the RAN. The first discount must be made on December 1, 2022, corresponding to 15% of the discounts. This amount will increase to 30% on December 1, 2023 and 65% on December 1, 2024, until full implementation is reached as of December 1, 2025.

 

15

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements, continued:

 

Circular No. 2,274. Incorporates Chapter 21-1 “Equity for legal and regulatory purposes” into the RAN, replacing Chapter 12-1 “Equity for legal and regulatory purposes”.

 

On October 8, 2020, the CMF established the guidelines for calculating equity for legal and regulatory purposes, debugging items of low quality or whose value is uncertain in a settlement scenario and sets prudential rules for concentration, in accordance with the current legal framework. The standard considers the definition of three levels of capital, for which the terminology used by the Basel Committee is used, that is: Common Equity Tier 1 (“CET1”), Additional Tier 1 Capital (“AT1”) and Equity Tier 2 capital (“T2”). The first adjustment must be made on December 1, 2022, corresponding to 15% of the discounts. This amount will increase to 30% on December 1, 2023 and 65% on December 1, 2024, until reaching full implementation as of December 1, 2025.

 

Circular No. 2,276. Incorporates to the RAN Chapter 21-11 “Factors and methodology for banks or group of banks rated as systemically important and requirements that may be imposed as a result of this rating”.

 

On November 2, 2020, the CMF, with the prior favorable agreement of the Central Bank of Chile, established the dispositions that have as a reference framework the evaluation methodology established by the Basel Committee on Banking Supervision and international practice, considered for the identification and treatment of systemically important banks at the local level. Also, in line with the methodology used to classify systemic banks at the global level and the factors established in the General Banking Act, the identification is based on an index or measure of systemic importance per bank, constructed from variables that reflect the local impact of its financial impairment or eventual insolvency. Depending on the value of this index, a range of additional capital requirements is established.

 

The requirements derived from the first application may be gradually established. The initial charge in December 2021 will be 0% and will increase by 25% each year until reaching the regime in December 2025.

 

Circular No. 2,279. Incorporates to the RAN Chapters 21-2 “Additional Capital Instruments Level 1 for the constitution of effective equity: preferred shares and bonds without fixed maturity term of article 55 bis of the General Banking Act” and 21-3 “Level 2 capital instruments for the constitution of effective equity: subordinated bonds of article 55 of the General Banking Act”.

 

On November 24, 2020, the CMF incorporated Chapter 21-2 into the RAN, which contains the minimum requirements and conditions that preference shares and bonds with no fixed maturity term must satisfy in article 55 bis of the General Banking Act and Chapter 21-3 of the RAN which contains the minimum requirements and conditions that subordinate bonds must satisfy in article 55 of the General Banking Act, this chapter repeals and replaces chapter 9-6 of the RAN.

 

16

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements, continued:

 

These regulations came into effect on December 1, 2020, the date on which banks must determine the level of capital AT1 and T2 that is applicable, in accordance with the provisions of the regulations.

 

During the first year of application, subordinated bonds and voluntary provisions may be computed as equivalent to AT1 instruments, with a limit of 1.5% of the RWA net of required provisions. From the second year on, the substitution limit will progressively decrease (by 0.5%) to reach 0% in 4 years.

 

Circular No. 2,280. Standardized methodology for calculating Operational risk weighted assets (“ORWA”). Incorporates to the RAN Chapter 21-8.

 

On December 1, 2020. The CMF published the definitive norm related to the standardized methodology for computing ORWAs, incorporating chapter 21-8 to the RAN. The dispositions of this new Chapter consider the methodology established by the Basel Committee on Banking Supervision as a reference framework.

 

For the computation of operational risk, a single standard method is established, in accordance with the recommendations of the aforementioned Committee, not allowing the use of proprietary methodologies referred to in the second paragraph of article 67 for this type of risk.

 

The regulations entered into force on December 1, 2020. Also, it was established that until December 1, 2021, assets weighted by operational risk are equal to 0.

 

Circular No. 2,281. Determination of Credit Risk Weighted Assets (“CRWA”). Incorporates to the RAN Chapter 21-6.

 

On December 1, 2020, the CMF published the definitive regulations related to the determination of CRWAs, incorporating chapter 21-6 to the RAN. As set out in the Article 67 of the General Banking Act, it is up to the CMF to establish standardized methodologies to cover the relevant risks of banking companies, among which is credit risk, with a prior favorable agreement from the Central Bank of Chile.

 

This new standard includes a transitory provision, which establishes that the computation of assets weighted by credit risk is carried out in accordance with the current dispositions of Title II of Chapter 12-1 of the RAN, until November 30, 2021; The new methodology must be applied as of December 1, 2021.

 

Circular No. 2,282. Incorporates to the RAN the new Chapter 21-7 on the determination of Market Risk Weighted Assets (“MRWA”).

 

On December 1, 2020, the CMF incorporated the new Chapter 21-7 on the determination of MRWA into the RAN.

 

For the application of the provisions of this new Chapter, which will be in force as of December 1, 2020, a transitional disposition is contemplated that considers a market risk weight equal to zero until December 1, 2021.

 

17

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

3.New Accounting Pronouncements, continued:

 

Circular No. 2,283. Promotion of market discipline and transparency through the disclosure of information requirements from banking entities (Pillar 3). Incorporates Chapter 21-20 into the RAN.

 

On December 1, 2020, the CMF published the definitive regulation related to the promotion of market discipline and transparency through the disclosure of information requirements from banking entities (Pillar 3) Incorporating Chapter 21-20 into the Updated Compilation of Standards (RAN).

 

This new chapter contains the dispositions to promote market discipline and financial transparency through the disclosure of meaningful and timely information from banking entities to market agents, based on the international standards proposed by the Basel Committee on Banking Supervision in 2017. The established conditions operate as a complement to the requirements of Pillar 1 and 2 in coherence with the local implementation of each of these standards, in addition to being consistent with the dispositions of the General Banking Act.

 

The information referred to in this new Chapter is effective as of December 1, 2022 and must be published for the first time in 2023 with information regarding the January-March quarter of said year.

 

4.Changes in Accounting Policies and Disclosures:

 

During the period ended March 31, 2021, no significant accounting changes have occurred that affect the presentation of these Interim Consolidated Financial Statements.

 

18

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

5.Relevant Events:

 

a)On January 28, 2021, the Board of Directors of Banco de Chile agreed to convene an Ordinary Shareholders Meeting on March 25, 2021 in order to propose, among other matters, the following distribution of profits for the year ended on December 31, 2020:

 

i.Deduct and withhold from the net income of the year, an amount equivalent to the effect of inflation of the paid capital and reserves according to the variation of the Consumer Price Index that occurred between November 2019 and November 2020, amounting to Ch$95,989,016,547 which will be added to retained earnings from previous periods.

 

ii.From the resulting balance, distribute in the form of a dividend 60% of the remaining liquid profit, corresponding to a dividend of Ch$2.18053623438 to each of the 101,017,081,114 shares of the Bank, retaining the remaining 40%.

 

Consequently, it proposed the distribution as a dividend of 47.6% of the profits for the year ended December 31, 2020.

 

b)On February 4, 2021, the subsidiary Banchile Securitizadora S.A. in an Extraordinary Shareholders’ meeting agreed on the early dissolution of this subsidiary, as previously approved by the Financial Market Commission.

 

c)On March 25, 2021, at the Bank’s Ordinary Shareholders’ Meeting, the shareholders proceeded to make the definitive appointment of Mr. Raúl Anaya Elizalde as Titular Director of Banco de Chile, a position that he will hold until the next renewal of the Board of Directors.

 

d)In the context of the COVID-19 pandemic declared in March 2020 by the World Health Organization (“WHO”), this year, on March 13, 2021 the Chilean Government has decided to extend the State of Exception constitutional, thus allowing to maintain a series of sanitary measures, including mobility restrictions and quarantines in the national territory, as well as the beginning of a mass vaccination process carried out by the Ministry of Health, among other measures, with the purpose of to mitigate and control the spread of contagions. As of the date of issuance of these financial statements, the situation derived from the COVID-19 pandemic still affects a large part of the population of the country and the national territory.

 

The Government and the Central Bank of Chile have maintained countercyclical measures, which have contributed to a gradual recovery in activity. On the fiscal front, the implemented measures have mobilized resources for more than 11% of GDP, including direct transfers and capitalizations to unemployment insurance and Fogape (Fogape COVID-19), among others. On February 3, 2021, Law No. 21,307 was published in the official newspaper, which modifies the Guarantee Fund for Small and Medium-sized Entrepreneurs (Fogape) in order to promote the reactivation and recovery of the economy, which modifies the Decree Law No. 3,472, of 1980, of the Ministry of Finance, which creates the Guarantee Fund for Small Entrepreneurs (Reactive Fogape).

 

19

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

5.Relevant Events, continued:

 

For its part, the Central Bank has lowered the Monetary Policy Rate to a minimum of 0.5% and has maintained a series of unconventional measures, among which the establishment of the Loan Increase Conditional Credit Facility program (FCIC by its Spanish initials) a special financial line for banking companies complemented with the activation of a “Liquidity Credit Line” (LCL) and purchases of bonds in the financial market, among others. As of March 31, 2021, the Bank has made use of these financing facilities for an amount of Ch$3,110,774 million. To access the FCIC, the Bank has established guarantees in favor of the Central Bank of Chile for a total amount of approximately Ch$2,290,381 million, corresponding to commercial placements of the individual portfolio of high credit quality for Ch$2,041,328 million, and securities of fixed income for an approximate amount of Ch$249,053 million. In the case of the LCL, the guarantee provided corresponds to the reserve held by the Bank.

 

Additionally, the National Congress approved two reforms to the constitution that allowed withdrawals of up to 10% of the resources available in the individual capitalization accounts, which allowed an aggregate withdrawal equivalent to Ch$24,500,000 million, a situation that has brought pressure on prices of goods and financial assets. As of the date of issuance of these financial statements, a third withdrawal has been approved.

 

Within this context, our Bank adopted several measures, along with executing contingency plans, in order to: (i) safeguard the health of clients and employees, including the temporary suspension of operation of some branches, (ii) ensure the operational continuity of services and mitigate potential operational risks, and (iii) strengthen service remote channels and the implementation of remote working for a large group of employees.

 

Although as of the date of issuance of these Interim Consolidated Financial Statements, the impact of the pandemic on our operating results is difficult to quantify, it is possible to anticipate certain factors such as: (i) uncertainty in certain economic sectors, (ii) low interest rates for a long period of time, (iii) low level of internal demand, (iv) high levels of unemployment, (v) total or partial quarantines affecting commercial activities, and (vi) mobility restrictions that will have an adverse effect on our operating revenues, loan loss provisions and operating expenses. Although these effects have been significant and will persist even over time, its magnitude will depend on the duration and depth of the effects of the pandemic, as well as the impact on structural variables, including the trend growth of the economy.

 

20

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

6.Business Segments:

 

For management purposes, the Bank is organized into four segments, which are defined based on the types of products and services offered, and the type of client in which focuses as described below:

 

Retail:This segment focuses on individuals and small and medium-sized companies (SMEs) with annual sales up to UF 70,000, where the product offering focuses primarily on consumer loans, commercial loans, checking accounts, credit cards, credit lines and mortgage loans.

 

Wholesale:This segment focused on corporate clients and large companies, whose annual revenue exceed UF 70,000, where the product offering focuses primarily on commercial loans, checking accounts and liquidity management services, debt instruments, foreign trade, derivative contracts and leases.

 

Treasury:This segment includes the associated revenues to the management of the investment portfolio and the business of financial transactions and currency trading.

 

Transactions with customers carried out by the Treasury are reflected in the respective aforementioned segments. These products are highly transaction-focused and include foreign exchange transactions, derivatives and financial instruments in general, among others.

 

Subsidiaries:Corresponds to the businesses generated by the companies controlled by the Bank, which carry out activities complementary to the bank business. The companies that comprise this segment are:

 

Entity

-Banchile Administradora General de Fondos S.A.
-Banchile Asesoría Financiera S.A.
-Banchile Corredores de Seguros Ltda.
-Banchile Corredores de Bolsa S.A.
-Banchile Securitizadora S.A. (*)
-Socofin S.A.

 

(*) Company in the process of early dissolution. See Note No. 5 b).

 

21

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

6.Business Segments, continued:

 

The financial information used to measure the performance of the Bank’s business segments is not comparable with similar information from other financial institutions because each institution relies on its own definitions. The accounting policies applied to the segments is the same as those described in the summary of accounting principles. The Bank obtains the majority of the results for: interest, indexation and commissions and financial operations and changes, discounting provisions for credit risk and operating expenses. Management is mainly based on these concepts to evaluate the performance of the segments and make decisions about the goals and allocations of resources of each unit. Although the results of the segments reconcile with those of the Bank at the total level, this is not necessarily the case in terms of the different concepts, given that management is measured and controlled individually and not on a consolidated basis, applying the following criteria:

 

●The net interest margin of loans and deposits is obtained aggregating the net financial margins of each individual operation of credit and uptake made by the bank. For these purposes, the volume of each operation and its contribution margin are considered, which in turn corresponds to the difference between the effective rate of the customer and the internal transfer price established according to the term and currency of each operation. Additionally, the net margin includes the result of interest and indexation from the accounting hedges.

 

●Provisions for credit risk are determined at the customer level based on the characteristics of each of their operations. In the case of additional provisions, these are assigned to the different business segments based on the credit risk weighted assets that each segment has

 

●The capital and its financial impacts on outcome have been assigned to each segment based on the risk-weighted assets.

 

●Operational expenses are reflected at the level of the different functional areas of the Bank. The allocation of expenses from functional areas to business segments is done using different allocation criteria, at the level of the different concepts and expense items.

 

Taxes are managed at a corporate level and are not allocated to business segments.

 

For the periods ended March 31, 2021 and 2020 there was no income from transactions with a customer or counterparty that accounted for 10% or more of the Bank’s total revenues.

 

22

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

6.Business Segments, continued:

 

The following table presents the income by segment for the periods ended March 31, 2021 and 2020 for each of the segments defined above:

 

   Retail   Wholesale   Treasury   Subsidiaries   Subtotal  

Consolidation

adjustment

   Total 
   March   March   March   March   March   March   March   March   March   March   March   March   March   March 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Total operating revenue   302,295    349,804    128,848    134,228    12,655    (1,848)   42,896    35,215    486,694    517,399    (4,269)   (4,306)   482,425    513,093 
Net interest income   233,584    257,921    98,990    95,916    1,997    (3,597)   (68)   (1,574)   334,503    348,666    74    1,031    334,577    349,697 
Net commissions income (loss)   61,232    78,759    14,740    12,913    (441)   (554)   35,788    37,686    111,319    128,804    (3,049)   (3,333)   108,270    125,471 
Financial and exchange operations results   1,856    7,681    12,210    21,426    11,099    2,303    6,488    (1,889)   31,653    29,521    (31)   (987)   31,622    28,534 
Other operating income   5,623    5,443    2,908    3,973    —    —    688    992    9,219    10,408    (1,263)   (1,017)   7,956    9,391 
Provision for loan losses   (37,082)   (95,334)   (17,403)   (30,158)   —    —    418    (68)   (54,067)   (125,560)   —    —    (54,067)   (125,560)
Total operating expenses   (156,648)   (154,488)   (43,018)   (46,275)   (981)   (792)   (28,096)   (23,044)   (228,743)   (224,599)   4,269    4,306    (224,474)   (220,293)
Personnel expenses   (72,604)   (71,773)   (22,250)   (20,380)   (607)   (470)   (18,239)   (14,422)   (113,700)   (107,045)   4    2    (113,696)   (107,043)
Administrative expenses   (64,063)   (64,523)   (14,946)   (15,354)   (82)   (68)   (8,547)   (7,047)   (87,638)   (86,992)   4,265    4,304    (83,373)   (82,688)
Depreciation and amortization   (15,256)   (15,204)   (1,939)   (1,740)   (7)   (5)   (1,417)   (1,520)   (18,619)   (18,469)   —    —    (18,619)   (18,469)
Other operating expenses   (4,725)   (2,988)   (3,883)   (8,801)   (285)   (249)   107    (55)   (8,786)   (12,093)   —    —    (8,786)   (12,093)
Income attributable to associates   (951)   1,794    270    83    14    14    10    4    (657)   1,895    —    —    (657)   1,895 
Income before income taxes   107,614    101,776    68,697    57,878    11,688    (2,626)   15,228    12,107    203,227    169,135    —    —    203,227    169,135 
Income taxes                                                               (40,735)   (32,253)
Income after income taxes                                                               162,492    136,882 

 

The following table presents assets and liabilities of the periods ended March 31, 2021 and December 31, 2020 by each segment defined above:

 

   Retail   Wholesale   Treasury   Subsidiaries   Subtotal  

Consolidation

adjustment

   Total 
   March   December   March   December   March    December   March    December   March    December   March    December   March    December 
   2021   2020   2021    2020   2021    2020   2021    2020   2021    2020   2021    2020   2021    2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Assets   19,372,779    18,800,897    11,179,780    10,811,021    13,467,741    15,400,139    831,499    830,910    44,851,799    45,842,967    (257,233)   (128,730)   44,594,566    45,714,237 
Current and deferred taxes                                                               390,799    380,894 
Total assets                                                               44,985,365    46,095,131 
                                                                       
Liabilities   14,172,509    13,647,952    9,622,020    9,980,003    16,940,417    18,208,458    687,339    660,869    41,422,285    42,497,282    (257,233)   (128,730)   41,165,052    42,368,552 
Current and deferred taxes                                                               189    311 
Total liabilities                                                               41,165,241    42,368,863 

 

23

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

7.Cash and Cash Equivalents:

 

(a)The detail of the balances included under cash and cash equivalents and their reconciliation with the Statement of Cash Flows at the end of each period are detailed as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Cash and due from banks:        
Cash (*)   1,027,973    615,842 
Deposit in Chilean Central Bank (*)   239,888    641,890 
Deposits in other domestic banks   99,786    14,506 
Deposits abroad   835,955    1,287,978 
Subtotal - Cash and due from banks   2,203,602    2,560,216 
           
Net transactions in the course of collection   (325,761)   (719,692)
Highly liquid financial instruments (**)   1,905,902    4,212,719 
Repurchase agreements (**)   30,097    34,872 
Total cash and cash equivalents   3,813,840    6,088,115 

 

(*)Amounts in cash funds and in Central Bank are regulatory reserve deposits that the Bank must maintain as a monthly average.

 

(**)It corresponds to negotiation instruments and repurchases contracts that meet the definition of cash and cash equivalents.

 

(b)Transactions in course of settlement:

 

Transactions in course of settlement are transactions for which the only remaining step is settlement, which will increase or decrease the funds in the Central Bank or in foreign banks, normally occurring within 24 to 48 business hours, and are detailed as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
Assets        
Documents drawn on other banks (clearing)   70,852    123,267 
Funds receivable   441,443    459,041 
Subtotal - assets   512,295    582,308 
           
Liabilities          
Funds payable   (838,056)   (1,302,000)
Subtotal - liabilities   (838,056)   (1,302,000)
Net transactions in the course of settlement   (325,761)   (719,692)

 

24

 

 


NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

8.Financial Assets Held-for-trading:

 

The detail of financial instruments classified as held-for-trading is as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
Instruments issued by the Chilean Government and Central Bank of Chile        
Central Bank of Chile bonds   1,160    3,186 
Central Bank of Chile promissory notes   1,535,902    4,006,490 
Other instruments issued by the Chilean Government and Central Bank   128,457    149,616 
           
Other instruments issued in Chile          
Bonds from other domestic companies   —    5,396 
Bonds from domestic banks   13,266    5,494 
Deposits in domestic banks   144,926    93,905 
Other instruments issued in Chile   1,618    1,003 
           
Instruments issued Abroad          
Instruments from foreign governments or central banks   —    — 
Other instruments issued abroad   1,295    164 
           
Mutual fund investments          
Funds managed by related companies   402,529    400,902 
Funds managed by third-party   —    — 
Total   2,229,153    4,666,156 

 

Under “Instruments issued by the Chilean Government and Central Bank of Chile” are classified instruments sold under repurchase agreements to customers and financial instruments, by an amount of Ch$217,614 million as of December 31, 2020. Repurchase agreements had a 4 days average expiration at the year 2020. As of March 31, 2021 there is no amount for this concept. Additionally, under this line are maintained instruments to comply with the requirements for the constitution of the technical reserve for an amount equivalent to Ch$1,213,195 million as of March 31, 2021 (Ch$2,986,000 million in December 2020).

 

“Other instruments issued in Chile” include instruments sold under repurchase agreements with customers and financial instruments amounting to Ch$98,256 million as of March 31, 2021 (Ch$52,809 million as of December 31, 2020). The repurchase agreements have an average expiration of 6 days as of period-end 2021 (9 days in December 2020).

 

Additionally, the Bank holds financial investments in mortgage finance bonds issued by itself in the amount of Ch$4,650 million as of March 31, 2021 (Ch$5,156 million as of December 31, 2020), which are presented as a reduction of the liability line item “Debt issued”.

 

25

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

9.Investments under resale agreements and obligations under repurchase agreements:

 

(a)Rights arising from resale repurchase agreements: The Bank provides financing to its customers through repurchase agreements and securities lending, in which the financial instrument serves as collateral. As of March 31, 2021 and December 31, 2020, the detail is as follows:

 

   Up to
1 month		   Over
1 month
and up to
3 months		   Over
3 months
and up to
12 months		   Over
1 year
and up to
3 years		   Over
3 years
and up to
5 years		   Over
5 years		   Total 
   March   December   March   December   March   December   March   December   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   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   —         —    —    —    —    —    —    —    —    —    —    —    — 
Central Bank promissory notes   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Other instruments issued by the Chilean Government and Central Bank of Chile   —    10,006    —    —    —    —    —    —    —    —    —    —    —    10,006 
Subtotal   —    10,006    —    —    —    —    —    —    —    —    —    —    —    10,006 
Other Instruments issued in Chile                                                                      
Deposit promissory notes from domestic banks   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Mortgage bonds from domestic banks   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Bonds from domestic banks   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Deposits in domestic banks   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Bonds from other Chilean companies   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Other instruments issued in Chile   25,921    29,089    18,380    20,591    18,122    16,721    —    —    —    —    —    —    62,423    66,401 
Subtotal   25,921    29,089    18,380    20,591    18,122    16,721    —    —    —    —    —    —    62,423    66,401 
Instruments issued by foreign institutions                                                                      
Instruments from foreign governments or Central Bank   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Other instruments   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Subtotal   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Mutual fund investments                                                                      
Funds managed by related companies   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Funds managed by third-party   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Subtotal   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Total   25,921    39,095    18,380    20,591    18,122    16,721    —    —    —    —    —    —    62,423    76,407 

 

Securities received:  

The Bank and its subsidiaries have received financial instruments that they can sell or give as collateral in case the owner of these instruments enters into default or in bankruptcy. As of March 31, 2021, the fair value of the instruments received amounts to Ch$67,387 million (Ch$82,585 million as of December, 2020). 

26

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

9.Investments under resale agreements and obligations under repurchase agreements, continued:

 

(b)Obligations arising from repurchase agreements: The Bank obtains financing by selling financial instruments and agreeing to repurchase them in the future, plus interest at a prefixed rate. As of March 31, 2021 and December 31, 2020, the repurchase agreements are the following:

 

   Up to 1 month   Over 1 month and up to 3 months   Over 3 months and up to 12 months   Over 1 year and up to 3 years   Over 3 years and up to 5 years   Over 5 years   Total 
   March   December   March   December   March   December   March   December   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   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   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Central Bank promissory notes   —    183,083    —    —    —    —    —    —    —    —    —    —    —    183,083 
Other instruments issued by the Chilean Government and Central Bank of Chile   3,305    47,763    —    —    —    —    —    —    —    —    —    —    3,305    47,763 
Subtotal   3,305    230,846    —    —    —    —    —    —    —    —    —    —    3,305    230,846 
Other Instruments issued in Chile                                                                      
Deposit promissory notes from domestic banks   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Mortgage bonds from domestic banks   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Bonds from domestic banks   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Deposits in domestic banks   98,367    57,648    43    43    40    —    —    —    —    —    —    —    98,450    57,691 
Bonds from other Chilean companies   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Other instruments issued in Chile   2,418    380    —    —    3    —    —    —    —    —    —    —    2,421    380 
Subtotal   100,785    58,028    43    43    43    —    —    —    —    —    —    —    100,871    58,071 
Instruments issued by foreign institutions                                                                      
Instruments from foreign governments or central bank   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Other instruments issued by foreing   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Subtotal   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Mutual fund investments                                                                      
Funds managed by related companies   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Funds managed by third-party   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Subtotal   —    —    —    —    —    —    —    —    —    —    —    —    —    — 
Total   104,090    288,874    43    43    43    —    —    —    —    —    —    —    104,176    288,917 

  

Securities sold:

 

The fair value of the financial instruments delivered as collateral by the Bank and its subsidiaries, in sales transactions with repurchase agreement and securities lending as of March 31, 2021 amounts to Ch$101,829 million (Ch$288,523 million in December 2020). In the event that the Bank and its subsidiaries enter into default or bankruptcy, the counterparty is authorized to sell or deliver these investments as collateral.

 

27

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

10.Derivative Instruments and Accounting Hedges:

 

(a)As of March 31, 2021 and December 31, 2020, the Bank’s portfolio of derivative instruments is detailed as follows:

 

   Notional amount of contract with final expiration date in   Fair Value 
As of March 31, 2021  Up to
1 month		   Over
1 month
and up to
3 months		   Over
3 months
and up to
12 months		   Over
1 year
and up to
3 years		   Over
3 year
and up to
5 years		   Over
5 years		   Total   Assets   Liabilities 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Derivatives held for hedging purposes                                    
Interest rate swap and cross currency swap   —    —    —    5,088    —    —    5,088    —    1,685 
Interest rate swap   —    —    —    —    —    11,109    11,109    —    1,481 
Total derivatives held for hedging purposes   —    —    —    5,088    —    11,109    16,197    —    3,166 
                                              
Derivatives held as cash flow hedges                                             
Interest rate swap and cross currency swap   —    —    166,164    173,844    216,197    674,839    1,231,044    34,386    82,126 
Total derivatives held as cash flow hedges   —    —    166,164    173,844    216,197    674,839    1,231,044    34,386    82,126 
                                              
Trading derivatives                                             
Currency forward   8,657,497    4,411,830    7,418,502    1,100,294    65,268    26,603    21,679,994    305,212    327,420 
Interest rate swap   1,455,772    3,007,717    9,620,932    12,642,453    7,171,995    10,591,785    44,490,654    828,736    818,825 
Interest rate swap and cross currency swap   219,139    1,089,071    3,203,557    6,204,270    3,522,460    4,813,560    19,052,057    780,749    886,527 
Call currency options   12,107    23,032    24,574    745    —    —    60,458    650    257 
Put currency options   12,963    15,450    23,960    —    —    —    52,373    588    1,241 
Total trading derivatives   10,357,478    8,547,100    20,291,525    19,947,762    10,759,723    15,431,948    85,335,536    1,915,935    2,034,270 
                                              
Total   10,357,478    8,547,100    20,457,689    20,126,694    10,975,920    16,117,896    86,582,777    1,950,321    2,119,562 

 

28

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

10.Derivative Instruments and Accounting Hedges, continued:

 

(a)Portfolio of derivative instruments, continued:

 

   Notional amount of contract with final expiration date in   Fair Value 
As of December 31, 2020  Up to
1 month		   Over
1 month
and up to
3 months		   Over
3 months
and up to
12 months		   Over
1 year
and up to
3 years		   Over
3 year
and up to
5 years		   Over
5 years		   Total   Assets   Liabilities 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Derivatives held for hedging purposes                                    
Interest rate swap and cross currency swap   —    —    —    5,031    —    —    5,031    —    1,646 
Interest rate swap   —    —    —    —    —    29,508    29,508    —    4,873 
Total derivatives held for hedging purposes   —    —    —    5,031    —    29,508    34,539    —    6,519 
                                              
Derivatives held as cash flow hedges                                             
Interest rate swap and cross currency swap   —    —    164,330    171,925    213,811    667,391    1,217,457    51,062    65,172 
Total derivatives held as cash flow hedges   —    —    164,330    171,925    213,811    667,391    1,217,457    51,062    65,172 
                                              
Trading derivatives                                             
Currency forward   7,320,775    5,754,021    7,753,967    823,355    60,193    26,340    21,738,651    551,964    637,186 
Interest rate swap   1,516,969    2,797,327    10,330,399    12,705,904    6,658,095    10,180,750    44,189,444    1,167,416    1,189,828 
Interest rate swap and cross currency swap   439,244    809,124    3,459,603    5,892,574    3,442,030    4,850,644    18,893,219    845,831    940,646 
Call currency options   10,581    25,382    34,294    1,657    —    —    71,914    269    306 
Put currency options   9,605    20,470    26,893    427    —    —    57,395    1,462    2,099 
Total trading derivatives   9,297,174    9,406,324    21,605,156    19,423,917    10,160,318    15,057,734    84,950,623    2,566,942    2,770,065 
                                              
Total   9,297,174    9,406,324    21,769,486    19,600,873    10,374,129    15,754,633    86,202,619    2,618,004    2,841,756 

 

29

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

10.Derivative Instruments and Accounting Hedges, continued:

 

(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 in financial instruments or loans. The aforementioned hedge instruments change the effective cost of long-term assets from a fixed interest rate to a floating rate, decreasing the duration and modifying the sensitivity to the shortest segments of the curve.

 

Below is a detail of the hedged elements and instruments under fair value hedges as of March 31, 2021 and December 31, 2020:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
Hedge element        
Commercial loans   5,088    5,031 
Corporate bonds   11,109    29,508 
           
Hedge instrument          
Cross currency swap   5,088    5,031 
Interest rate swap   11,109    29,508 

 

(c)Cash flow Hedges:

 

(c.1)The Bank uses cross currency swaps to hedge the risk from variability of cash flows attributable to changes in the interest rates and foreign exchange of foreign banks obligations and bonds issued abroad in US Dollars, Hong Kong dollars, Swiss Franc, Japanese Yens, Peruvian Sol, Australian Dollars, Euros and Norwegian kroner. 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 Income Financial Statements.

 

30

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

10.Derivative Instruments and Accounting Hedges, continued:

 

(c)Cash flow Hedges, continued:

 

(c.2)Below are the cash flows from bonds issued abroad objects of this hedge and the cash flows of the asset part of the derivative instrument:

 

   Up to 1 month   Over 1 month and up to
3 months		   Over 3 months and up to
12 months		   Over 1 year and up to
3 years		   Over 3 years and up to
5 years		   Over 5 years   Total 
   March   December   March   December   March   December   March   December   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Hedge element                                                        
Outflows:                                                        
Corporate Bond EUR   (764)   —    —    —    (659)   (1,473)   (2,846)   (2,946)   (42,546)   (44,037)   (50,114)   (51,871)   (96,929)   (100,327)
Corporate Bond HKD   (2,091)   —    —    —    (11,356)   (13,352)   (91,635)   (90,988)   (78,926)   (78,369)   (271,815)   (269,894)   (455,823)   (452,603)
Corporate Bond PEN   —    —    —    (775)   (1,509)   (775)   (3,018)   (3,098)   (2,264)   (3,098)   (40,410)   (41,484)   (47,201)   (49,230)
Corporate Bond CHF   —    —    —    —    (784)   (829)   (89,260)   (94,332)   (114,667)   (121,182)   —    —    (204,711)   (216,343)
Corporate Bond USD   (765)   —    —    —    (765)   (1,515)   (3,060)   (3,030)   (3,060)   (3,030)   (40,540)   (40,140)   (48,190)   (47,715)
Obligation USD   (202)   (202)   (77)   (76)   (158,746)   (157,455)   —    —    —    —    —    —    (159,025)   (157,733)
Corporate Bond JPY   —    —    (998)   —    (998)   (2,115)   (35,953)   (38,110)   (3,276)   (3,472)   (180,523)   (191,351)   (221,748)   (235,048)
Corporate Bond AUD   —    —    —    (970)   (4,906)   (3,928)   (9,369)   (9,796)   (9,285)   (9,799)   (207,313)   (206,991)   (230,873)   (231,484)
Corporate Bond NOK   —    —    —    —    (2,305)   (2,275)   (4,611)   (4,550)   (4,611)   (4,550)   (72,450)   (71,491)   (83,977)   (82,866)
                                                                       
Hedge instrument                                                                      
Inflows:                                                                      
Cross Currency Swap EUR   764    —    —    —    659    1,473    2,846    2,946    42,546    44,037    50,114    51,871    96,929    100,327 
Cross Currency Swap HKD   2,091    —    —    —    11,356    13,352    91,635    90,988    78,926    78,369    271,815    269,894    455,823    452,603 
Cross Currency Swap PEN   —    —    —    775    1,509    775    3,018    3,098    2,264    3,098    40,410    41,484    47,201    49,230 
Cross Currency Swap CHF   —    —    —    —    784    829    89,260    94,332    114,667    121,182    —    —    204,711    216,343 
Cross Currency Swap USD   765    —    —    —    765    1,515    3,060    3,030    3,060    3,030    40,540    40,140    48,190    47,715 
Cross Currency Swap USD   202    202    77    76    158,746    157,455    —    —    —    —    —    —    159,025    157,733 
Cross Currency Swap JPY   —    —    998    —    998    2,115    35,953    38,110    3,276    3,472    180,523    191,351    221,748    235,048 
Cross Currency Swap AUD   —    —    —    970    4,906    3,928    9,369    9,796    9,285    9,799    207,313    206,991    230,873    231,484 
Cross Currency Swap NOK   —    —    —    —    2,305    2,275    4,611    4,550    4,611    4,550    72,450    71,491    83,977    82,866 
                                                                       
Net cash flows   —    —    —    —    —    —    —    —    —    —    —    —    —    — 

 

31

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

10.Derivative Instruments and Accounting Hedges, continued:

 

(c)Cash flow Hedges, continued:

 

(c.2)Below are the cash flows from underlying assets and the cash flows of the liability part of the derivative instrument:

 

   Up to
1 month		   Over 1 month and up to
3 months		   Over 3 months and up to
12 months		   Over 1 year and up to
3 years		   Over 3 years and up to
5 years		   Over 5 years   Total 
   March   December   March   December   March   December   March   December   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Hedge element                                                        
Inflows:                                                        
Cash flows in CLF   3,127    160    4,888    280    180,624    186,116    216,059    213,673    248,990    246,244    749,486    741,654    1,403,174    1,388,127 
                                                                       
Hedge instrument                                                                      
Outflows:                                                                      
Cross Currency Swap HKD   (1,852)   (160)   —    —    (7,445)   (9,035)   (73,539)   (72,728)   (76,922)   (76,073)   (208,656)   (206,514)   (368,414)   (364,510)
Cross Currency Swap PEN   —    —    —    (48)   (98)   (49)   (196)   (194)   (196)   (194)   (32,273)   (31,965)   (32,763)   (32,450)
Cross Currency Swap JPY   —    —    (2,107)   —    (2,135)   (4,195)   (40,979)   (40,526)   (6,670)   (6,596)   (204,105)   (201,852)   (255,996)   (253,169)
Cross Currency Swap USD   (894)   —    230    —    (166,820)   (165,634)   (1,326)   (1,311)   (1,331)   (1,317)   (38,004)   (37,584)   (208,145)   (205,846)
Cross Currency Swap CHF   —    —    (1,981)   —    (1,992)   (3,929)   (92,948)   (91,923)   (115,686)   (114,409)   —    —    (212,607)   (210,261)
Cross Currency Swap EUR   (381)   —    (580)   —    (973)   (1,912)   (3,848)   (3,805)   (44,960)   (44,464)   (45,946)   (45,439)   (96,688)   (95,620)
Cross Currency Swap AUD   —    —    (137)   (232)   (843)   (738)   (1,962)   (1,939)   (1,962)   (1,942)   (154,179)   (152,709)   (159,083)   (157,560)
Cross Currency Swap NOK   —    —    (313)   —    (318)   (624)   (1,261)   (1,247)   (1,263)   (1,249)   (66,323)   (65,591)   (69,478)   (68,711)
                                                                       
Net cash flows   —    —    —    —    —    —    —    —    —    —    —    —    —    — 

  

32

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

10.Derivative Instruments and Accounting Hedges, continued:

 

(c)Cash flow Hedges, continued:

 

With respect to CLF assets hedged; these are revalued monthly according to the variation of the UF, which is equivalent to monthly reinvest the assets until maturity of the relationship hedging.

 

(c.3)The unrealized results generated during the period 2021 by those derivative contracts that conform the hedging instruments in this cash flow hedging strategy, have been recorded with credit to equity amounting to Ch$1,539 million (credit to equity of Ch$1,935 million in March 31, 2020). The net effect of taxes credit to equity amounts to Ch$1,124 million (net credit to equity of Ch$1,414 million equity during the period March 2020).

 

The accumulated balance for this concept as of March 31, 2021 corresponds to a charge in equity amounted to Ch$69,143 million (charge to equity of Ch$70,682 million as of December 2020).

 

(c.4)The effect of the cash flow hedging derivatives that offset the result of the hedged instruments corresponds to a charge to income of Ch$33,472 million during the period 2021 (credit to results for Ch$135,650 million during the period March 2020).

 

(c.5)As of March 31, 2021 and 2020, it not exist inefficiency in cash flow hedge, because both, hedge item and hedge instruments, are mirrors of each other, it means that all variation of value attributable to rate and revaluation components are netted totally.

 

(c.6)As of March 31, 2021 and 2020, the Bank does not have hedges of net investments in foreign business.

 

33

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

11.Loans and Advances to Banks, net:

 

(a)At the end of each reporting period, the balances presented in the item “Loans and advances to Banks” are as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
Domestic Banks        
Interbank loans of liquidity   160,000    260,002 
Provisions for loans to domestic banks   (58)   (140)
Subtotal   159,942    259,862 
Foreign Banks          
Interbank loans commercial   137,473    185,858 
Credits with third countries   —    167 
Chilean exports trade loans   147,602    113,596 
Provisions for loans to foreign banks   (425)   (525)
Subtotal   284,650    299,096 
Central Bank of Chile          
Central Bank deposits   4,110,000    2,380,033 
Other Central Bank credits   —    — 
Subtotal   4,110,000    2,380,033 
Total   4,554,592    2,938,991 

 

(b)The changes in provisions of the credits owed by the banks, during the periods 2021 and 2020, are summarized as follows:

 

   Bank’s Location     
Detail  Chile   Abroad   Total 
   MCh$   MCh$   MCh$ 
             
Balance as of January 1, 2020   54    704    758 
Provisions established   4    107    111 
Provisions released   —    —    — 
Balance as of March 31, 2020   58    811    869 
Provisions established   82    —    82 
Provisions released   —    (286)   (286)
Balance as of December 31, 2020   140    525    665 
Provisions established   —    —    — 
Provisions released   (82)   (100)   (182)
Balance as of March 31, 2021   58    425    483 

 

34

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

12.Loans to Customers, net:

 

(a.i)Loans to Customers:

 

As of March 31, 2020 and December 31, 2020, the portfolio of loans is composed as follows:

 

   As of March 31, 2021 
   Assets before allowances   Allowances established     
   Normal Portfolio   Substandard
Portfolio		   Non-Complying
Portfolio		   Total   Individual
Provisions		   Group
Provisions		   Total   Net assets 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Commercial loans                                
Commercial loans   14,225,190    129,541    410,437    14,765,168    (195,093)   (140,134)   (335,227)   14,429,941 
Foreign trade loans   1,053,262    8,365    17,099    1,078,726    (36,875)   (2,217)   (39,092)   1,039,634 
Current account debtors   199,259    3,493    4,282    207,034    (4,170)   (6,825)   (10,995)   196,039 
Factoring transactions   389,712    3,814    439    393,965    (8,131)   (726)   (8,857)   385,108 
Student loans   54,936    —    2,414    57,350    —    (4,238)   (4,238)   53,112 
Commercial lease transactions (1)   1,526,032    44,510    28,552    1,599,094    (7,392)   (5,489)   (12,881)   1,586,213 
Other loans and accounts receivable   75,837    440    15,604    91,881    (7,089)   (5,426)   (12,515)   79,366 
Subtotal   17,524,228    190,163    478,827    18,193,218    (258,750)   (165,055)   (423,805)   17,769,413 
Mortgage loans                                        
Letters of credit   7,942    —    540    8,482    —    (37)   (37)   8,445 
Endorsable mortgage loans   21,489    —    1,082    22,571    —    (77)   (77)   22,494 
Other residential lending   9,153,857    —    290,480    9,444,337    —    (31,480)   (31,480)   9,412,857 
Credit from ANAP   2    —    —    2    —    —    —    2 
Residential lease transactions   —    —    —    —    —    —    —    — 
Other loans and accounts receivable   146,112    —    8,651    154,763    —    (1,197)   (1,197)   153,566 
Subtotal   9,329,402    —    300,753    9,630,155    —    (32,791)   (32,791)   9,597,364 
Consumer loans                                        
Consumer loans in installments   2,468,794    —    255,290    2,724,084    —    (213,910)   (213,910)   2,510,174 
Current account debtors   154,196    —    4,342    158,538    —    (9,730)   (9,730)   148,808 
Credit card debtors   1,039,111    —    21,407    1,060,518    —    (38,774)   (38,774)   1,021,744 
Consumer lease transactions (1)   291    —    —    291    —    (3)   (3)   288 
Other loans and accounts receivable   10    —    594    604    —    (396)   (396)   208 
Subtotal   3,662,402    —    281,633    3,944,035    —    (262,813)   (262,813)   3,681,222 
Total   30,516,032    190,163    1,061,213    31,767,408    (258,750)   (460,659)   (719,409)   31,047,999 

 

(1)In this item, the Bank finances its clients the acquisition of real estate and chattels through financial lease agreements. As of March 31, 2021 Ch$803,822 million correspond to finance leases on real estate and Ch$795,563 million correspond to finance leases on chattels.

 

35

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

12.Loans to Customers net, continued:

 

(a.i)Loans to Customers, continued:

 

   As of December 31, 2020 
   Assets before allowances   Allowances established     
   Normal Portfolio   Substandard
Portfolio		   Non-Complying
Portfolio		   Total   Individual
Provisions		   Group
Provisions		   Total   Net assets 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Commercial loans                                
Commercial loans   13,818,088    136,072    438,535    14,392,695    (197,777)   (139,718)   (337,495)   14,055,200 
Foreign trade loans   941,825    7,347    17,791    966,963    (33,441)   (2,374)   (35,815)   931,148 
Current account debtors   111,888    3,617    4,973    120,478    (2,789)   (6,762)   (9,551)   110,927 
Factoring transactions   369,656    3,617    601    373,874    (8,512)   (837)   (9,349)   364,525 
Student loans   55,058    —    2,449    57,507    —    (4,201)   (4,201)   53,306 
Commercial lease transactions (1)   1,513,776    44,968    33,348    1,592,092    (7,504)   (6,169)   (13,673)   1,578,419 
Other loans and accounts receivable   72,769    455    16,206    89,430    (6,892)   (6,319)   (13,211)   76,219 
Subtotal   16,883,060    196,076    513,903    17,593,039    (256,915)   (166,380)   (423,295)   17,169,744 
Mortgage loans                                        
Letters of credit   8,646    —    692    9,338    —    (44)   (44)   9,294 
Endorsable mortgage loans   22,885    —    1,220    24,105    —    (81)   (81)   24,024 
Other residential lending   8,894,326    —    305,815    9,200,141    —    (32,427)   (32,427)   9,167,714 
Credit from ANAP   2    —    —    2    —    —    —    2 
Residential lease transactions   —    —    —    —    —    —    —    — 
Other loans and accounts receivable   146,174    —    8,894    155,068    —    (1,212)   (1,212)   153,856 
Subtotal   9,072,033    —    316,621    9,388,654    —    (33,764)   (33,764)   9,354,890 
Consumer loans                                        
Consumer loans in installments   2,418,658    —    299,469    2,718,127    —    (236,408)   (236,408)   2,481,719 
Current account debtors   153,855    —    4,869    158,724    —    (10,186)   (10,186)   148,538 
Credit card debtors   1,052,342    —    25,103    1,077,445    —    (42,789)   (42,789)   1,034,656 
Consumer lease transactions (1)   302    —    —    302    —    (3)   (3)   299 
Other loans and accounts receivable   10    —    667    677    —    (465)   (465)   212 
Subtotal   3,625,167    —    330,108    3,955,275    —    (289,851)   (289,851)   3,665,424 
Total   29,580,260    196,076    1,160,632    30,936,968    (256,915)   (489,995)   (746,910)   30,190,058 

 

(1)In this item, the Bank finances its clients the acquisition of real estate and chattels through financial lease agreements. As of December 31, 2020 Ch$802,828 million correspond to finance leases on real estate and Ch$789,566 million correspond to finance leases on chattels.

 

36

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

12.Loans to Customers, net, continued:

 

(a.ii)Impaired Portfolio:

 

As of March 31, 2021 and December 31, 2020, the Bank presents the following details of normal and impaired portfolio:

 

   Assets before Allowances   Allowances established     
   Normal Portfolio   Impaired Portfolio   Total   Individual Provisions   Group Provisions   Total   Net assets 
   March   December   March   December   March   December   March   December   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Commercial loans   17,675,434    17,039,307    517,784    553,732    18,193,218    17,593,039    (258,750)   (256,915)   (165,055)   (166,380)   (423,805)   (423,295)   17,769,413    17,169,744 
Mortgage loans   9,329,402    9,072,033    300,753    316,621    9,630,155    9,388,654    —    —    (32,791)   (33,764)   (32,791)   (33,764)   9,597,364    9,354,890 
Consumer loans   3,662,402    3,625,167    281,633    330,108    3,944,035    3,955,275    —    —    (262,813)   (289,851)   (262,813)   (289,851)   3,681,222    3,665,424 
Total   30,667,238    29,736,507    1,100,170    1,200,461    31,767,408    30,936,968    (258,750)   (256,915)   (460,659)   (489,995)   (719,409)   (746,910)   31,047,999    30,190,058 

 

37

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

12.Loans to Customers, continued:

 

(b)Credit risk provisions:

 

The changes in credits risk provisions, during the period 2021 and 2020, are summarized as follows:

 

   Commercial   Mortgage   Consumer     
   Individual   Group   Group   Group   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$ 
                     
Balance as of January 1, 2020   176,942    150,831    28,047    329,598    685,418 
Charge-offs   (4,655)   (12,835)   (2,231)   (88,035)   (107,756)
Sales or transfers of credits   (41)   —    —    —    (41)
Allowances established   29,183    19,435    911    78,716    128,245 
Allowances released   —    —    —    —    — 
Balance as of March 31, 2020   201,429    157,431    26,727    320,279    705,866 
Charge-offs   (6,174)   (40,482)   (6,647)   (155,501)   (208,804)
Sales or transfers of credits   (290)   —    —    —    (290)
Allowances established   61,950    49,431    13,684    125,073    250,138 
Allowances released   —    —    —    —    — 
Balance as of December 31, 2020   256,915    166,380    33,764    289,851    746,910 
Charge-offs   (3,302)   (15,057)   (2,957)   (38,411)   (59,727)
Sales or transfers of credits   —    —    —    —    — 
Allowances established   5,137    13,732    1,984    11,373    32,226 
Allowances released   —    —    —    —    — 
Balance as of March 31, 2021   258,750    165,055    32,791    262,813    719,409 

 

In addition to these credit risk provisions, also provisions are maintained for country risk to cover foreign operations and additional loan provisions agreed upon by the Board of Directors, which are presented in liabilities under the item Provisions (see Note No. 24).

 

Other disclosures:

 

1.As of December 31, 2020, the Bank and its subsidiaries have made sales of loan portfolios. The effect in income is no more than 5% of net income before taxes, as described in Note No. 12 letter (e).

 

2.As of December 31, 2020, the Bank and its subsidiaries derecognized 100% of its portfolio of loans sold and on which all or substantially all of the risks and benefits associated to these financial assets have been transferred (see Note No. 12 letter (e)).

 

3.As of March 31, 2021 and December 31, 2020, under the Commercial Loans item, operations are maintained that guarantee obligations maintained with the Central Bank of Chile as part of the Loan Increase Conditional Credit Facility (FCIC by its Spanish initials) program for an approximate amount of Ch$2,041,328 million (Ch$2,021,688 million in December 2020).

 

38

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

12.Loans to Customers, continued:

 

(c)Finance lease contracts:

 

The cash flows to be received by the Bank from finance lease contracts have the following maturities:

 

   Total receivable   Unearned income   Net balance receivable (*) 
   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Within one year   520,799    521,445    (51,455)   (52,438)   469,344    469,007 
From 1 to 2 years   373,579    373,304    (37,671)   (37,958)   335,908    335,346 
From 2 to 3 years   250,882    245,667    (24,801)   (25,084)   226,081    220,583 
From 3 to 4 years   164,140    161,492    (17,147)   (17,433)   146,993    144,059 
From 4 to 5 years   114,371    110,743    (12,517)   (12,841)   101,854    97,902 
After 5 years   342,619    350,679    (27,297)   (28,994)   315,322    321,685 
Total   1,766,390    1,763,330    (170,888)   (174,748)   1,595,502    1,588,582 

 

(*)The net balance receivable does not include past-due portfolio totaling Ch$3,883 million as of March 31, 2021 (Ch$3,812 million as of December 2020).

 

The Bank maintains financial lease operations associated with real estate, industrial machinery, vehicles and transportation equipment. These leases contracts have an average term between 2 and 15 years.

 

39

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

12.Loans to Customers, continued:

 

(d)Purchase of loan portfolio:

 

During the period ended March 31, 2021 and the year ended 2020 no portfolio purchases were made.

 

(e)Sale or transfer of loans from the loan portfolio:

 

During the year 2021 no sales or transfers of credit have been made.

 

During the period ended March 31, 2020 there have been operations of sale or transfer of the loan portfolio according to the following:

 

   As of March 31, 2020 
   Carrying amount   Allowances   Sale price  

Effect on income

(loss) gain (*)

 
   MCh$   MCh$   MCh$   MCh$ 
                 
Sale of current loans   30,200    (41)   30,200    41 
Sale of written – off loans   —    —    —    — 
Total   30,200    (41)   30,200    41 

 

(*)See Note No. 30.

 

(g)Securitization of own assets:

 

During the period 2021 and the year 2020, there is no securitization transactions executed involving its own assets.

 

40

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

13.Investment Securities:

 

As of March 31, 2021 and December 31, 2020, investment securities classified as available-for-sale and held-to-maturity are detailed as follows:

 

   March 2021   December 2020 
   Available-
for-sale		   Held-to- maturity   Total   Available-for
-sale		   Held-to- maturity   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Instruments issued by the Chilean Government and Central Bank of Chile                        
Bonds issued by the Central Bank of Chile   106    —    106    109    —    109 
Promissory notes issued by the Central Bank of Chile   —    —    —    —    —    — 
Other instruments of the Chilean Government and the Central Bank of Chile   185,099    —    185,099    163,491    —    163,491 
                               
Other instruments issued in Chile                              
Deposit promissory notes from domestics banks   —    —    —    —    —    — 
Mortgage bonds from domestic banks   125,346    —    125,346    128,763    —    128,763 
Bonds from domestic banks   5,638    —    5,638    15,887    —    15,887 
Deposits from domestic banks   712,465    —    712,465    685,392    —    685,392 
Bonds from other Chilean companies   23,453    —    23,453    34,539    —    34,539 
Promissory notes issued by other Chilean companies   —    —    —    —    —    — 
Other instruments issued in Chile   12,411    —    12,411    32,342    —    32,342 
                               
Instruments issued Abroad                              
Instruments from foreign governments or Central Banks   —    —    —    —    —    — 
Other instruments   —    —    —    —    —    — 
                               
Total   1,064,518    —    1,064,518    1,060,523    —    1,060,523 

 

41

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

13.Investment Securities, continued:

 

Instruments of the Government and the Central Bank of Chile include instruments sold under repurchase agreements to clients and financial institutions for an amount of Ch$3,309 million in March 31, 2021 (Ch$13,268 million in December 2020). The repurchase agreements have an average maturity of 6 days in March 2021 (5 days in December 2020)

 

Under the same item, instruments that guarantee margins for cleared derivatives transactions are classified through Comder Contraparte Central S.A. for an amount of Ch$48,971 million as of March 31, 2021 (Ch$36,146 million as of December 31, 2020).

 

Under Instruments of Other National Institutions are classified instruments delivered as collateral as part of the Loan Increase Conditional Credit Facility program (FCIC by its Spanish initials) granted by the Central Bank of Chile for an approximate amount of Ch$249,053 as of March 31, 2021 (Ch$350,154 million as of December 31, 2020).

 

As of March 31, 2021, the portfolio of financial assets available-for-sale includes an accumulated unrealized gain of Ch$1,308 million (accumulated unrealized gain of Ch$801 million in December 2020), recorded as an equity valuation adjustment.

 

During the periods 2021 and 2020, there is no evidence of impairment of financial assets available-for-sale.

 

Gross profits and losses realized on the sale of available-for-sale investments as of March 31, 2021 and 2020 are shown in Note No. 30 “Net Financial Operating Income”. The changes on results at the end of each period are as fallow:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
         
Unrealized gains   3,486    (7,141)
Realized gains reclassified to income   (2,979)   (2,627)
Subtotal   507    (9,768)
Income tax on other comprehensive income   (137)   2,628 
Net effect in equity   370    (7,140)

 

 

42

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

14.Investments in Other Companies:

 

(a)Investments in other companies include investments of Ch$43,980 million as of March 31, 2021 (Ch$44,649 million as of December 31, 2020), as follows:

 

              Investment 
      Ownership Interest   Equity   Assets   Income 
      March   December   March   December   March   December   March   March 
Company Associates  Shareholder  2021   2020   2021   2020   2021   2020   2021   2020 
      %   %   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Transbank S.A. (*)  Banco de Chile   26.16    26.16    61,499    67,337    16,086    17,613    (1,528)   1,524 
Administrador Financiero del Transantiago S.A.  Banco de Chile   20.00    20.00    19,338    19,171    3,999    3,951    48    56 
Redbanc S.A.  Banco de Chile   38.13    38.13    8,831    8,663    3,375    3,307    71    (25)
Centro de Compensación Automatizado S.A.  Banco de Chile   33.33    33.33    8,576    8,182    2,933    2,787    146    38 
Soc. Operadora de Tarjetas de Crédito Nexus S.A.  Banco de Chile   29.63    29.63    9,639    8,626    2,889    2,556    334    228 
Sociedad Interbancaria de Depósitos de Valores S.A.  Banco de Chile   26.81    26.81    5,707    5,526    1,613    1,564    49    29 
Sociedad Imerc OTC S.A.  Banco de Chile   12.33    12.33    12,204    12,248    1,505    1,510    (4)   1 
Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A.  Banco de Chile   15.00    15.00    6,465    6,436    989    980    9    10 
Subtotal Associates                132,259    136,189    33,389    34,268    (875)   1,861 
                                            
Joint Ventures                                           
Servipag Ltda.  Banco de Chile   50.00    50.00    13,451    13,268    6,726    6,631    92    (94)
Artikos Chile S.A.  Banco de Chile   50.00    50.00    2,777    2,547    1,554    1,439    115    109 
Subtotal Joint Ventures                16,228    15,815    8,280    8,070    207    15 
Subtotal                148,487    152,004    41,669    42,338    (668)   1,876 
                                            
Investments valued at cost (1)                                           
Bolsa de Comercio de Santiago S.A.  Banchile Corredores de Bolsa                       1,646    1,646    —    — 
Banco Latinoamericano de Comercio Exterior S.A. (Bladex)  Banco de Chile                       309    309    11    19 
Bolsa Electrónica de Chile S.A.  Banchile Corredores de Bolsa                       257    257    —    — 
Sociedad de Telecomunicaciones Financieras Interbancarias Mundiales (Swift)  Banco de Chile                       91    91    —    — 
CCLV Contraparte Central S.A.  Banchile Corredores de Bolsa                       8    8    —    — 
Subtotal                          2,311    2,311    11    19 
Total                          43,980    44,649    (657)   1,895 

 

(1)Income from investments valorized at cost, corresponds to income recognized on cash basis (dividends).

 

(*)On April 22, 2021, the Extraordinary Shareholders’ Meeting of the company unanimously approved a capital increase through the issuance of payment shares for an amount of Ch$30,000 million.

 

43

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

14.Investments in Other Companies, continued:

 

(b)The change of investments in companies registered under the equity method in the periods of 2021 and 2020, are as follows:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
         
Initial book value   42,338    48,442 
Acquisition of investments in companies   —    — 
Participation on income in companies with significant influence and joint control   (668)   1,876 
Dividends received   —    — 
Others   (1)   — 
Total   41,669    50,318 

 

(c)During the period ended as of March 31, 2021 and 2020 no impairment has incurred in these investments.

 

44

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

15.Intangible Assets:

 

(a)As of March 31, 2021 and December 31, 2020 intangible assets are composed as follows:

 

   Useful Life   Average remaining amortization   Gross balance   Accumulated Amortization   Net balance 
   March   December   March   December   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   Years   Years   Years   Years   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                         
Other Intangible Assets:                                                  
Software or computer programs   6    6    4    4    186,535    180,669    (124,004)   (119,968)   62,531    60,701 
Total                       186,535    180,669    (124,004)   (119,968)   62,531    60,701 

 

45

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

15.Intangible Assets, continued:

 

(b)The change of intangible assets as of March 31, 2021 and December 31, 2020 are as follows:

 

   Software or computer programs 
   March   December 
   2021   2020 
   MCh$   MCh$ 
Gross Balance        
Balance as of January 1,   180,669    163,485 
Acquisition   6,018    18,631 
Disposals/ write-downs   (352)   (387)
Reclassification   200    (16)
Impairment (*)   —    (1,044)
Total   186,535    180,669 
           
Accumulated Amortization          
Balance as of January 1,   (119,968)   (105,178)
Amortization for the period (*)   (4,110)   (15,865)
Disposals/ write-downs   352    660 
Reclassification   (278)   — 
Impairment (*)   —    415 
Total   (124,004)   (119,968)
           
Balance Net   62,531    60,701 

 

(*)See Note No. 35 Depreciation, amortization and impairment.

 

(c)As of March 31, 2021 and December 31, 2020, the Bank maintains the following amounts with technological developments:

 

Detail  Commitment Amount 
   March   December 
   2021   2020 
   MCh$   MCh$ 
           
Software and licenses   5,053    3,830

 

46

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

16.Fixed assets, leased assets and lease liabilities:

 

(a)The properties and equipment as of March 31, 2021 and December 31, 2020 are composed as follows:

 

   Useful Life   Average remaining depreciation   Gross balance   Accumulated Depreciation   Net balance 
   March   December   March   December   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   Years   Years   Years   Years   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 

Type of property and equipment:

                                        
Land and Buildings   26    26    20    20    307,428    304,951    (144,705)   (142,543)   162,723    162,408 
Equipment   5    5    4    4    231,055    222,624    (179,138)   (175,141)   51,917    47,483 
Others   7    7    4    4    56,229    55,898    (48,283)   (47,861)   7,946    8,037 
Total                       594,712    583,473    (372,126)   (365,545)   222,586    217,928 

 

47

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

16.Fixed assets, leased assets and lease liabilities, continued:

 

(b)The changes in properties and equipment as of March 31, 2021 and December 31, 2020 are as follows:

 

   March 2021 
   Land and Buildings   Equipment   Others   Total 
   MCh$   MCh$   MCh$   MCh$ 
Gross Balance                
Balance as of January 1, 2021   304,951    222,624    55,898    583,473 
Additions   2,485    8,679    714    11,878 
Write-downs and sales of the period   (8)   (248)   (382)   (638)
Impairment (*)   —    —    (1)   (1)
Total   307,428    231,055    56,229    594,712 
                     
Accumulated Depreciation                    
Balance as of January 1, 2020   (142,543)   (175,141)   (47,861)   (365,545)
Depreciation charges of the period (*) (**)   (2,170)   (4,245)   (803)   (7,218)
Write-downs and sales of the period   8    248    381    637 
Impairment (*)   —    —    —    — 
Total   (144,705)   (179,138)   (48,283)   (372,126)
                     
Balance as of March 31, 2021   162,723    51,917    7,946    222,586 

 

   2020 
   Land and Buildings   Equipment   Others   Total 
   MCh$   MCh$   MCh$   MCh$ 
Gross Balance                
Balance as of January 1, 2020   301,619    207,605    55,519    564,743 
Additions   6,303    20,658    1,510    28,471 
Write-downs and sales of the year   (2,903)   (5,606)   (1,105)   (9,614)
Impairment (***)   (68)   (33)   (26)   (127)
Total   304,951    222,624    55,898    583,473 
                     
Accumulated Depreciation                    
Balance as of January 1, 2020   (136,394)   (162,560)   (45,527)   (344,481)
Depreciation charges of the year (**)   (8,844)   (17,273)   (3,371)   (29,488)
Write-downs and sales of the year   2,695    4,692    1,025    8,412 
Impairment (***)   —    —    12    12 
Total   (142,543)   (175,141)   (47,861)   (365,545)
                     
Balance as of December 31, 2020   162,408    47,483    8,037    217,928 

 

(*)See Note No.35 Depreciation, Amortization and Impairment.

 

(**)This amount does not include the depreciation of the year of the Investment Properties, amount is included in “Other Assets” for Ch$89 million (Ch$357 million as of December 2020).

 

(***)As of December 31, 2020 does not include charge-offs of Property and Equipment of Ch$916 million.

 

48

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

16.Fixed assets, leased assets and lease liabilities, continued:

 

(c)The composition of the rights over leased assets as of March 31, 2021 and December 31, 2020 is as follows:

 

  

Gross Balance

   Accumulated Depreciation  

Net Balance

 
   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Categories                        
Buildings   126,922    123,215    (37,848)   (33,560)   89,074    89,655 
Floor space for ATMs   42,157    40,445    (18,671)   (16,496)   23,486    23,949 
Improvements to leased properties   26,889    26,579    (21,509)   (21,354)   5,380    5,225 
Total   195,968    190,239    (78,028)   (71,410)   117,940    118,829 

 

(d)The changes of the rights over leased assets as of March 31, 2021 and December 31, 2020 is as follows:

 

   March 2021 
  

Buildings

  

Floor space for ATMs

   Improvements to leased properties  

Total

 
   MCh$   MCh$   MCh$   MCh$ 
                 
Gross Balance                
Balance as of January 1, 2021   123,215    40,445    26,579    190,239 
Reclassification   25    —    —    25 
Additions   4,021    2,071    382    6,474 
Write-downs   (339)   (180)   (72)   (591)
Remeasurement   —    (179)   —    (179)
Total   126,922    42,157    26,889    195,968 
                     
Accumulated Depreciation                    
Balance as of January 1, 2021   (33,560)   (16,496)   (21,354)   (71,410)
Reclassification   (7)   —    —    (7)
Depreciation of the period (*)   (4,620)   (2,355)   (227)   (7,202)
Write-downs   339    180    72    591 
Total   (37,848)   (18,671)   (21,509)   (78,028)
                     
Balance as of  March 31, 2021   89,074    23,486    5,380    117,940 

 

(*)See Note No.35 Depreciation, Amortization and Impairment.

 

49

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

16.Fixed assets, leased assets and lease liabilities, continued:

 

   December 2020 
  

Buildings

   Floor space for ATMs   Improvements to leased properties  

Total

 
   MCh$   MCh$   MCh$   MCh$ 
                 
Gross Balance                
Balance as of January 1, 2020   130,853    41,960    27,254    200,067 
Additions   7,907    1,319    847    10,073 
Write-downs   (15,538)   (1,197)   (1,522)   (18,257)
Remeasurement   (7)   (1,637)   —    (1,644)
Total   123,215    40,445    26,579    190,239 
                     
Accumulated Depreciation                    
Balance as of January 1, 2020   (18,722)   (9,091)   (21,589)   (49,402)
Depreciation of the year (*)   (18,867)   (7,774)   (1,006)   (27,647)
Write-downs   4,029    369    1,241    5,639 
Total   (33,560)   (16,496)   (21,354)   (71,410)
                     
Balance as of  December 31, 2020   89,655    23,949    5,225    118,829 

 

(*)Does not include provision for impairment of Ch$1 million.

 

(e)The future maturities (including unearned interest) of the lease liabilities as of March 31, 2021 and December 31, 2020 are shown below:

 

   March 2021 
  

Up to
1 month

   Over
1 month
and up to
3 months		   Over
3 months
and up to
12 months		   Over
1 year
and up to
3 years		   Over
3 years
and up to
5 years		  

Over
5 years

  

Total

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Lease associated to:                            
                             
Buildings   1,759    3,493    15,387    29,071    21,764    30,905    102,379 
ATMs   885    1,770    7,773    13,286    402    447    24,563 
Total   2,644    5,263    23,160    42,357    22,166    31,352    126,942 

 

   December 2020 
  

Up to
1 month

   Over
1 month
and up to
3 months		   Over
3 months
and up to
12 months		   Over
1 year
and up to
3 years		   Over
3 years
and up to
5 years		  

Over 5 years

  

Total

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Lease associated to:                            
                             
Buildings   1,646    3,371    14,501    28,663    20,869    30,865    99,915 
ATMs   824    1,644    7,229    14,467    419    483    25,066 
Total   2,470    5,015    21,730    43,130    21,288    31,348    124,981 

 

50

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

16.Fixed assets, leased assets and lease liabilities, continued:

 

The Bank and its subsidiaries maintain contracts with certain renewal options and for which there is reasonable certainty that said option shall be carried out. In such cases, the lease period used to measure the liability and assets corresponds to an estimate of future renewals.

 

The changes of the obligations for lease liabilities and the flows for the periods 2021 and 2020 are as follows:

 

  

Total cash flow

for the period

 
   MCh$ 
Lease liability    
Balances as of January 1, 2020   146,013 
Liabilities for new lease agreements   1,559 
Interest expenses   739 
Payments of capital and interests   (7,509)
Derecognized contracts   (817)
Others   1,449 
Balances as of March 31, 2020   141,434 
Liabilities for new lease agreements   4,209 
Interest expenses   1,793 
Payments of capital and interests   (21,196)
Remeasurement   (1,644)
Derecognized contracts   (11,520)
Others   1,941 
Balances as of December 31, 2020   115,017 
Liabilities for new lease agreements   4,838 
Interest expenses   530 
Payments of capital and interests   (7,401)
Remeasurement   (179)
Derecognized contracts   — 
Others   1,254 
Balances as of March 31, 2021   114,059 

 

(f)The future cash flows related to short-term lease agreements in effect as of March 31, 2021 correspond to Ch$5,243 million (Ch$6,814 as of December 31, 2020).

 

51

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

17.Current Taxes and Deferred Taxes:

 

(a)Current Taxes:

 

The Bank and its subsidiaries at the end of each period, have constituted a First Category Income Tax Provision, which was determined based on current tax regulations, and has been reflected in the Statement of Financial Position net of taxes to be recovered or payable, as applicable, as of March 31, 2021 and December 31, 2020, according to the following detail:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Income tax   35,572    153,084 
Tax Previous year   (27,205)   — 
Less:          
Monthly prepaid taxes   (45,626)   (172,683)
Credit for training expenses   —    (1,900)
Others   316    (1,139)
Total   (36,943)   (22,638)
           
Tax rate   27%   27%

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Current tax assets   37,132    22,949 
Current tax liabilities   (189)   (311)
Total tax receivable (payable), net   36,943    22,638 

 

(b)Income Tax:

 

The effect of the tax expense during the periods between January 1 and March 31, 2021 and 2020, are broken down as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
Income tax expense:        
Current year tax   35,157    25,056 
Subtotal   35,157    25,056 
Charge for deferred taxes:          
Origin and reversal of temporary differences   4,079    7,197 
Subtotal   4,079    7,197 
Others   1,499    — 
Net charge to income for income taxes   40,735    32,253 

 

52

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

17.Current and Deferred Taxes, continued:

 

(c)Reconciliation of effective tax rate:

 

The following is a reconciliation of the income tax rate to the effective rate applied to determine the Bank’s income tax expense as of March 31, 2021 and 2020:

 

   March 2021   March 2020 
   Tax rate         Tax rate     
   %   MCh$   %   MCh$ 
                 
Income tax calculated on net income before tax   27.00    54,871    27.00    45,666 
Additions or deductions   0.28    570    0.03    52 
Price-level restatement   (8.06)   (16,381)   (8.54)   (14,436)
Others   0.82    1,675    0.57    971 
Effective rate and income tax expense   20.04    40,735    19.06    32,253 

 

The effective rate for income tax for the period 2021 is 20.04% (19.06% in March 2020).

 

53

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

17.Current and Deferred Taxes, continued:

 

(d)Effect of deferred taxes on income and equity:

 

The Bank and its subsidiaries have recorded the effects of deferred taxes in their Interim Consolidated Financial Statements. The effects of deferred taxes on assets, liabilities and income accounts as of March 31, 2021 are detailed as follows:

 

   Balances as of December 31,    Effect on   Balances as of
March 31, 		 
  

2020

   Income   Equity  

2021

 
   MCh$   MCh$   MCh$   MCh$ 
Debit Differences:                
Allowances for loan losses   268,482    3,402    —    271,884 
Personnel provisions   16,233    (8,227)   —    8,006 
Staff vacations provisions   9,164    41    —    9,205 
Accrued interests adjustments from impaired loans   4,570    383    —    4,953 
Staff severance indemnities provision   537    2,484    (62)   2,959 
Provision of credit cards expenses   7,959    507    —    8,466 
Provision of accrued expenses   14,083    (633)   —    13,450 
Leasing   28,835    8,654    —    37,489 
Incomes received in advance   16,088    (941)   —    15,147 
Other adjustments   26,905    548    —    27,453 
Total Debit Differences   392,856    6,218    (62)   399,012 
                     
Credit Differences:                    
Depreciation and price-level restatement of property and equipment   17,256    227    —    17,483 
Adjustment for valuation of financial assets available-for-sale   223    —    137    360 
Transitory assets   5,378    2,420    —    7,798 
Loans accrued to effective rate   2,779    (126)   —    2,653 
Prepaid expenses   2,234    6,273    —    8,507 
Other adjustments   7,041    1,503    —    8,544 
Total Credit Differences   34,911    10,297    137    45,345 
                     
Deferred, Net   357,945    (4,079)   (199)   353,667 

 

54

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

17.Current and Deferred Taxes, continued:

 

(d)Effect of deferred taxes on income and equity, continued:

 

The effects of deferred taxes on assets, liabilities and income accounts as of March 31, 2021 and December 31, 2020 are detailed as follows:

 

   Balance as of
December 31,		   Effect on   Balance as of
March 30,		   Effect on   Balance as of
December 31, 		 
   2019   Income   Equity   2020   Income   Equity   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Debit differences:                            
Allowances for loan losses   221,079    5,708    —    226,787    41,695    —    268,482 
Personnel provisions   16,714    (7,157)   —    9,557    6,676    —    16,233 
Staff vacations provisions   7,444    (88)   —    7,356    1,808    —    9,164 
Accrued interest adjustments from impaired loans   3,674    338    —    4,012    558    —    4,570 
Staff severance indemnities provision   607    (54)   (22)   531    (41)   47    537 
Provisions of credit card expenses   8,221    1,053    —    9,274    (1,315)   —    7,959 
Provisions of accrued expenses   10,564    (2,710)   —    7,854    6,229    —    14,083 
Adjustment for valuation financial assets available-for-sale   —    —    1,589    1,589    —    (1,589)   — 
Leasing   41,792    (3,521)   —    38,271    (9,436)   —    28,835 
Incomes received in advance   32,170    (5,554)   —    26,616    (10,528)   —    16,088 
Other adjustments   15,485    4,769    —    20,254    6,651    —    26,905 
Total Assets, Net   357,750    (7,216)   1,567    352,101    42,297    (1,542)   392,856 
                                    
Credit differences:                                   
Depreciation of property and equipment and investment properties   15,524    55    —    15,579    1,677    —    17,256 
Adjustment for valuation financial assets available-for-sale   1,039    —    (1,039)   —    —    223    223 
Transitory assets   7,174    624    —    7,798    (2,420)   —    5,378 
Loans accrued to effective rate   1,386    (448)   —    938    1,841    —    2,779 
Prepaid expenses   3,334    (719)   —    2,615    (381)   —    2,234 
Other adjustments   8,345    469    —    8,814    (1,773)   —    7,041 
Total Liabilities, Net   36,802    (19)   (1,039)   35,744    (1,056)   223    34,911 
                                    
Total Assets (Liabilities), Net   320,948    (7,197)   2,606    316,357    43,353    (1,765)   357,945 

 

55

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

18.Other Assets:

 

(a)Item composition:

 

At the end of each period, the item is composed as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Assets held for leasing (*)   80,880    85,626 
           
Assets received or awarded as payment (**)          
Assets awarded at judicial sale   4,226    5,571 
Assets received in lieu of payment   131    99 
Provision for assets received in lieu of payment or awarded   (40)   (52)
Subtotal   4,317    5,618 
           
Other Assets          
Deposits by derivatives margin   166,216    232,732 
Trading and brokerage (***)   102,951    84,993 
Prepaid expenses   62,251    29,654 
Other accounts and notes receivable   30,104    63,796 
Commissions receivable   12,795    11,810 
Investment properties   12,744    12,833 
VAT receivable   11,029    10,777 
Recoverable income taxes   8,142    8,691 
Servipag available funds   7,498    11,385 
Pending transactions   3,619    1,825 
Rental guarantees   2,015    2,014 
Accounts receivable for sale of assets received in lieu of payment   1,260    715 
Assets recovered from leasing for sale   1,214    2,469 
Materials and supplies   736    784 
Others   14,855    13,745 
Subtotal   437,429    488,223 
Total   522,626    579,467 

 

(*)These correspond to property and equipment to be given under finance lease.

 

(**)Assets received in lieu of payment are assets received as payment of customers’ past-due debts. The assets acquired must not exceed the aggregate 20% of the Bank’s effective equity. These assets currently represent 0.0026% % (0.0024% as of December 31, 2020) of the Bank’s effective equity.

 

(***)This item mainly includes simultaneous operations carried out by the subsidiary Banchile Corredores de Bolsa S.A.

 

56

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

18.Other Assets, continued:

 

(b)The changes of the provision for assets received in lieu of payment during the periods 2021 and 2020 are as follows:

 

   MCh$ 
Provision for assets received in lieu of payment    
     
Balance as of January 1, 2020   188 
Provisions used   (342)
Provisions established   283 
Provisions released   — 
Balance as of March 31, 2020   129 
Provisions used   (746)
Provisions established   669 
Provisions released   — 
Balance as of December 31, 2020   52 
Provisions used   (18)
Provisions established   6 
Provisions released   — 
Balance as of March 31, 2021   40 

 

19.Current Accounts and Other Demand Deposits:

 

At the end of each period, this item is composed as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Current accounts   12,659,901    12,477,719 
Other demand deposits   1,703,971    1,431,904 
Other deposits and sight accounts   1,318,500    1,257,606 
Total   15,682,372    15,167,229 

 

20.Savings Accounts and Time Deposits:

 

At the end of each period, this item is composed as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Time deposits   7,795,413    8,442,536 
Term savings accounts   371,786    342,550 
Other term balances payable   107,727    114,455 
Total   8,274,926    8,899,541 

 

57

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

21.Borrowings from Financial Institutions:

 

At the end of each period, borrowings from financial institutions are detailed as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Domestic banks        
Banco do Brasil   5,850    7,100 
Banco Scotiabank   706    1,257 
Subtotal domestic banks   6,556    8,357 
           
Foreign banks          
Foreign trade financing          
Wells Fargo Bank   122,454    85,734 
The Bank of Nova Scotia   122,314    121,085 
Citibank N.A. United State   54,054    114,525 
Zürcher Kantonalbank   39,506    39,116 
Bank of New York Mellon   35,985    21,389 
Sumitomo Mitsui Banking   35,956    11,394 
Bank of America   23,452    20,475 
Standard Chartered Bank   12,045    715 
Commerzbank AG   1,721    21,687 
Others   —    40 
           
Borrowings and other obligations          
Wells Fargo Bank   108,034    106,965 
Bank of America   1,613    — 
Deutsche Bank Trust Company Americas   —    7,333 
Citibank N.A. United Kingdom   —    233 
Others   102    105 
Subtotal foreign banks   557,236    550,796 
           
Chilean Central Bank (*)   3,110,774    3,110,600 
Total   3,674,566    3,669,753 

 

(*)Financing provided by the Central Bank to deliver liquidity to the economy and support the flow of credit to households and companies, among which are the Conditional Credit Facility to Increase Placements (FCIC by its Spanish initials) and the Liquidity Credit Line (LCL).

 

58

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

22.Debt Issued:

 

At the end of each period, this item is composed as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Mortgage bonds   5,923    6,786 
Bonds   8,064,632    7,700,402 
Subordinated bonds   896,425    886,407 
Total   8,966,980    8,593,595 

 

During the period ended as of March 31, 2021, Banco de Chile issued bonds by an amount of Ch$415,543 million, which corresponds to Short-Term Bonds, according to the following details:

 

Short-term Bonds

 

Counterparty  Currency  Amount
MCh$		   Annual interest
rate %		  Issued
date		  Maturity
date
                 
Wells Fargo Bank  USD   72,240   0.23  20/01/2021  20/04/2021
Wells Fargo Bank  USD   36,736   0.38  09/02/2021  04/02/2022
Citibank N.A.  USD   36,736   0.28  09/02/2021  02/08/2021
Wells Fargo Bank  USD   35,700   0.26  25/02/2021  24/08/2021
Citibank N.A.  USD   71,400   0.23  25/02/2021  01/06/2021
Wells Fargo Bank  USD   35,700   0.26  25/02/2021  26/08/2021
Citibank N.A.  USD   36,295   0.34  04/03/2021  03/09/2021
Citibank N.A.  USD   72,589   0.34  04/03/2021  07/09/2021
Wells Fargo Bank  USD   18,147   0.25  04/03/2021  01/06/2021
Total as of March 31, 2021      415,543          

 

Current Bonds Long-Term

 

During the period ended March 31, 2021, there were no current bonds long-term, issued.

 

Subordinated bonds

 

During the period ended March 31, 2021, there were no subordinated bonds, issued.

 

59

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

22.Debt Issued, continued:

 

During the year ended as of December 31, 2020, Banco de Chile issued bonds by an amount of Ch$889,135 million, from which corresponds to Short-Term Bonds and Current Bonds by an amount of Ch$634,952 million and Ch$254,183 million respectively, according to the following details:

 

Short-term Bonds

 

Counterparty  Currency  Amount
MCh$		   Annual interest
rate %		  Issued
date		  Maturity
date
Citibank N.A.  USD   23,078   2.00  07/01/2020  07/07/2020
Citibank N.A.  USD   38,371   1.95  09/01/2020  09/04/2020
Citibank N.A.  USD   34,886   1.91  13/01/2020  13/04/2020
Citibank N.A.  USD   11,629   1.87  14/01/2020  14/04/2020
Citibank N.A.  USD   31,667   1.91  29/01/2020  31/07/2020
Citibank N.A.  USD   7,917   1.91  29/01/2020  31/07/2020
Citibank N.A.  USD   27,709   1.86  29/01/2020  29/05/2020
Citibank N.A.  USD   10,350   1.85  30/01/2020  01/06/2020
Citibank N.A.  USD   19,720   1.85  03/02/2020  03/06/2020
Citibank N.A.  USD   31,391   1.55  08/04/2020  05/06/2020
Citibank N.A.  USD   21,262   1.30  13/04/2020  12/05/2020
Citibank N.A.  USD   12,758   1.30  13/04/2020  13/05/2020
Citibank N.A.  USD   34,020   1.30  13/04/2020  13/05/2020
Citibank N.A.  USD   25,593   1.55  16/04/2020  16/06/2020
Citibank N.A.  USD   25,593   1.55  16/04/2020  18/06/2020
Citibank N.A.  USD   34,158   1.61  17/04/2020  21/08/2020
Wells Fargo Bank  USD   42,697   1.60  17/04/2020  21/08/2020
Wells Fargo Bank  USD   42,858   1.50  22/04/2020  14/08/2020
Wells Fargo Bank  USD   42,943   1.45  24/04/2020  29/01/2021
Wells Fargo Bank  USD   4,175   1.30  29/04/2020  29/10/2020
Citibank N.A.  USD   32,834   0.45  18/05/2020  20/07/2020
Citibank N.A.  USD   5,089   0.45  18/05/2020  20/07/2020
Wells Fargo Bank  USD   74,254   0.45  07/12/2020  06/12/2021
Total as of December 31, 2020      634,952          

 

60

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

22.Debt Issued, continued:

 

Current Bonds Long-Term

 

Serie  Currency 

Amount

MCh$

  

Terms

Years

  Annual
issue
rate %		  Issue date  Maturity
date
                    
BCHIEM0817   UF   93,096   7  0.80  06/01/2020  06/01/2027
BCHIEL0717   UF   123,957   8  0.72  04/02/2020  04/02/2028
Subtotal UF      217,053             
                     
BONO AUD  AUD   37,130   15  2.65  02/03/2020  02/03/2035
Subtotal Others currency      37,130             
Total as of December 31, 2020      254,183             

 

Subordinated bonds

 

During the year ended December 31, 2020, there were no subordinated bonds, issued.

 

During the period, the Bank has not been in default of principal and interest on its debt instruments. Likewise, there have been no breaches of covenants and other commitments associated with the debt instruments issued.

 

61

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

23.Other Financial Obligations:

 

At the end of each period, this item is composed as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Other Chilean obligations   256,942    191,258 
Public sector obligations   377    455 
Total   257,319    191,713 

 

24.Provisions:

 

(a)At the end of each period, this item is composed as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Provisions for minimum dividends (*)   70,297    220,271 
Provisions for personnel benefits and payroll expenses   83,464    111,243 
Provisions for contingent loan risks   72,957    76,191 
Provisions for contingencies:          
Additional loan provisions (**)   360,252    320,252 
Country risk provisions   7,568    5,446 
Other provisions for contingencies   441    508 
Total   594,979    733,911 

 

(*)See Note No. 27 letter (c).

 

(**)As of March 31, 2021, Ch$40,000 million have been established for additional provisions (Ch$107,000 million in December 2020). See Note No. 24 letter (b).

 

62

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

24.Provisions, continued:

 

(b)The following table shows the changes in provisions and accrued expenses during the period 2021 and 2020:

 

   Minimum
dividends		   Personnel
benefits and
payroll		   Contingent
loan Risks		   Additional
loan
provisions		   Country risk
provisions and
other
contingencies		   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Balances as of January 1, 2020   300,461    109,075    57,042    213,252    4,833    684,663 
Provisions established   58,469    14,204    7,007    —    6,647    86,327 
Provisions used   (300,461)   (51,485)   —    —    —    (351,946)
Provisions released   —    —    —    —    —    — 
Balances as of March 31, 2020   58,469    71,794    64,049    213,252    11,480    419,044 
Provisions established   161,802    68,749    12,142    107,000    (5,526)   344,167 
Provisions used   —    (29,300)   —    —    —    (29,300)
Provisions released   —    —    —    —    —    — 
Balances as of December 31, 2020   220,271    111,243    76,191    320,252    5,954    733,911 
Provisions established   70,297    17,664    —    40,000    2,055    130,016 
Provisions used   (220,271)   (45,443)   —    —    —    (265,714)
Provisions released   —    —    (3,234)   —    —    (3,234)
Balances as of March 31, 2021   70,297    83,464    72,957    360,252    8,009    594,979 

 

(c)Provisions for personnel benefits and payroll:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Staff accrued vacation provision   34,147    33,993 
Provisions for performance bonuses   22,864    43,941 
Staff severance indemnities   7,174    7,581 
Other personnel benefits provision   19,279    25,728 
Total   83,464    111,243 

 

63

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

24.Provisions, continued:

 

(d)Staff severance indemnities:

 

(i)Changes in the staff severance indemnities:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
         
Present value of the obligations at the beginning of the period   7,581    7,566 
Increase in provision   54    67 
Benefit paid   (232)   (453)
Effect of change in actuarial factors   (229)   (81)
Total   7,174    7,099 

 

(ii)Net benefits expenses:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
         
Increase (Decrease)  in provisions   (204)   (159)
Interest cost of benefits obligations   258    226 
Effect of change in actuarial factors   (229)   (81)
Net benefit expenses   (175)   (14)

 

(iii)Factors used in the calculation of the provision:

 

The main assumptions used in the determination of severance indemnity obligations for the Bank’s plan are shown below:

 

   March 31,
2021		   December 31,
2020		 
   %   % 
         
Discount rate   3.50    2.31 
Salary increase rate   3.94    4.04 
Payment probability   99.99    99.99 

 

The most recent actuarial valuation of the staff severance indemnities provision was carried out during the first quarter of 2021.

 

64

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

24.Provisions, continued:

 

(e)Changes in compliance bonuses provision:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
         
Balances as of January 1   43,941    51,051 
Net provisions established   13,206    4,727 
Provisions used   (34,283)   (36,928)
Total   22,864    18,850 

 

(f)Changes in staff accrued vacation provision:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
         
Balances as of January 1   33,993    27,609 
Net provisions established   2,760    1,825 
Provisions used   (2,606)   (2,151)
Total   34,147    27,283 

 

(g)Employee benefits share-based provision:

 

As of March 31, 2021 and 2020, the Bank and its subsidiaries do not have a stock-based compensation plan.

 

(h)Contingent loan provisions:

 

As of March 31, 2021 the Bank and its subsidiaries maintain contingent loan provisions by an amount of Ch$72,957 million (Ch$76,191 million at December 2020). See Note No. 26 letter (d).

 

65

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

25.Other Liabilities:

 

At the end of each period, this item is composed as follows:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Accounts and notes payable   226,520    273,143 
Income received in advance (*)   64,643    68,907 
Dividends payable   5,284    4,309 
           
Other liabilities          
Documents intermediated (**)   158,759    137,546 
Cobranding   31,093    29,213 
VAT debit   17,619    16,519 
Securities unliquidated   2,312    2,725 
Outstanding transactions   882    725 
Insurance payments   676    1,802 
Others   30,269    30,231 
Total   538,057    565,120 

 

(*)In relation to the Strategic Alliance Framework Agreement, on June 4, 2019, Banco de Chile received the payment from the Insurance Companies for an amount of Ch$149,061 million, which was recorded according to IFRS 15. The related income is recognized over time, depending on compliance with the associated performance obligation.

 

(**)This item mainly includes financing of simultaneous operations performed by subsidiary Banchile Corredores de Bolsa S.A.

 

66

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

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 keep recorded in off-balance sheet accounts the main balances related to commitments or with responsibilities inherent to the course of its normal business:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
Contingent loans        
Guarantees and sureties   336,795    224,079 
Confirmed foreign letters of credit   109,216    58,299 
Issued letters of credit   385,066    343,663 
Bank guarantees   2,150,131    2,214,370 
Undrawn credit lines   7,669,703    7,650,382 
Other credit commitments   87,497    107,707 
           
Transactions on behalf of third parties          
Documents in collections   108,966    157,671 
Third-party resources managed by the Bank:          
Financial assets managed on behalf of third parties   4,452    16,024 
Other assets managed on behalf of third parties   —    — 
Financial assets acquired on its own behalf   86,747    80,788 
Other assets acquired on its own behalf   —    — 
           
Custody of securities          
Securities held in safe custody in the Bank and subsidiaries   2,364,929    2,023,313 
Securities held in safe custody in other entities   18,677,424    18,467,801 
Total   31,980,926    31,344,097 

 

67

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

26.Contingencies and Commitments, continued:

 

(b)Lawsuits and legal proceedings:

 

(b.1)Normal judicial contingencies in the industry:

 

At the date of issuance of these Interim Consolidated Financial Statements, there are legal actions filed against the Bank related with the ordinary course operations. As of March 31, 2021 the Bank maintain provisions for judicial contingencies amounting to Ch$177 million (Ch$244 million as of December 2020), which are part of the item “Provisions” in the Statement of Financial Position.

 

The estimated end dates of the respective legal contingencies are as follows:

 

   As of March 30, 2021 
   2021   2022   2023   2024   2025   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                               
Legal contingencies   —    39    11    127    —    177 

  

(b.2)Contingencies for significant lawsuits in courts:

 

As of March 31, 2021 and December 31, 2020 there are not significant lawsuits in court that affect or may affect these Interim Consolidated Financial Statements.

 

68

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

26.Contingencies and Commitments, continued:

 

(c)Guarantees granted by operations:

 

i.In subsidiary Banchile Administradora General de Fondos S.A.:

 

In compliance with Article No, 12 of Law No. 20,712, Banchile Administradora General de Fondos S.A., has designated Banco de Chile as the representative of the beneficiaries of the guarantees it has established, and in such role the Bank has issued bank guarantees totaling UF 4,049,200, maturing January 7, 2022 (UF 3,778,100, maturing on January 8, 2021 as of December 2020). The subsidiary took a policy with Mapfre Seguros Generales S.A. for the Real State Funds by a guaranteed amount of UF 739,700.

 

As of March 31, 2021 and December 31, 2020 the Bank has not guaranteed mutual funds.

 

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 from Article 30 and subsequent of Law No. 18,045 on Securities Markets, the subsidiary established a guarantee in an insurance policy for UF 20,000, insured by Mapfre Seguros Generales S.A., that matures April 22, 2022, whereby the Securities Exchange of the Santiago Stock Exchange was appointed as the subsidiary’s creditor representative.

 

   March   December 
   2021   2020 
Guarantees:  MCh$   MCh$ 
Shares delivered to cover simultaneous forward sales transactions:          
Santiago Securities Exchange, Stock Exchange   29,770    47,684 
Electronic Chilean Securities Exchange, Stock Exchange   11,012    20,227 
           
Fixed income securities to guarantee CCLV system:           
Santiago Securities Exchange, Stock Exchange   10,000    10,000 
Shares delivered to guarantee equity lending and short-selling:           
Santiago Securities Exchange, Stock Exchange   5,424    2,858 
Total   56,206    80,769 

 

69

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

26.Contingencies and Commitments, continued:

 

(c)Guarantees granted, continued:

 

ii.In subsidiary Banchile Corredores de Bolsa S.A., continued:

 

In conformity with the internal regulation of the stock exchange in which this subsidiary participates, and for the purpose of securing the broker’s correct performance, the Company established a pledge over 1,000,000 shares of the Santiago Stock Exchange, in favor of that institution, as stated in the Public Deed dated September 13, 1990 before the notary of Santiago Mr. Raul Perry Pefaur, and over 100,000 shares of the Electronic Chilean Stock Exchange, in favor of that Institution, as stated in a contract signed between both entities dated May 16, 1990.

 

Banchile Corredores de Bolsa S.A. keeps an insurance policy current with Chubb Seguros Chile S.A. that expires April 2, 2021, this considers matters of employee fidelity, physical losses, falsification or adulteration, and currency fraud with a coverage amount equivalent to US$20,000,000.

 

It also provided a bank guarantee in the amount of UF 286,600 for the benefits of investors in portfolio management contracts. This bank guarantee is revaluated in UF to fixed term, non-endorsable and has a maturity date of January 7, 2022.

 

It also provided a cash guarantee in the amount of US$122,494.32 for the purpose of complying with the obligations to Pershing, for any operations conducted through that broker.

 

iii.In subsidiary Banchile Corredores de Seguros Ltda.:

 

According to established in article 58, letter D of D.F.L. 251, as of March 31, 2021 the entity maintains two insurance policies with effect from April 15, 2020 to April 14, 2021 which protect it against of potential damages caused by infractions of the law, regulations and complementary rules that regulate insurance brokers, especially when the non-compliance comes from acts, errors or omissions of the broker, its representatives, agents or dependents that participate in the intermediation.

 

The policies contracted are:

 

Matter insured  Amount Insured (UF) 
     
Errors and omissions liability policy   500 
Civil liability policy   60,000 

 

70

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

26.Contingencies and Commitments, continued:

 

(d)Provisions for contingencies loans:

 

Established provisions for credit risk from contingencies operations are the followings:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
         
Undrawn credit lines   37,676    40,404 
Bank guarantees provision   26,811    27,596 
Guarantees and sureties provision   7,134    7,060 
Letters of credit provision   1,280    1,074 
Other credit commitments   56    57 
Total   72,957    76,191 

 

(e)By Exempt Resolution No. 270 dated October 30, 2014, the Superintendency of Securities and Insurance (current Commission for the Financial Market) imposed a fine of UF 50,000 to Banchile Corredores de Bolsa S.A. for violations of the second paragraph of article 53 of the Securities Market Law, said company filed a claim with the competent Civil Court requesting the annulment of the fine. On December 10, 2019, a judgement in the case was issued reducing the fine to the amount of UF 7,500. The judgment indicated has been subject to cassation appeals filed by both parties, which are pending before the Illustrious Court of Appeals of Santiago.

 

The company has not made provisions considering that the Bank’s legal advisors in charge of the procedure estimate that there are solid grounds that the claim filed by Banchile Corredores de Bolsa S.A. can be accepted.

 

71

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

27.Equity:

 

(a)Capital:

 

(i)Authorized, subscribed and paid shares:

 

As of March 31, 2021, the paid-in capital of Banco de Chile is represented by 101,017,081,114 registered shares (101,017,081,114 shares as of December 31, 2020), with no par value, subscribed and fully paid.

 

(ii)Shares:

 

(ii.1)The following table shows the changes in share from December 31, 2019 to March 31, 2021:

 

   Total 
  

Ordinary

Shares

 
     
Total shares as of December 31, 2019   101,017,081,114 
      
Total shares as of December 31, 2020   101,017,081,114 
      
Total shares as of March 31, 2021   101,017,081,114 

 

(b)Approval and payment of dividends:

 

At the Bank Ordinary Shareholders’ Meeting held on March 25, 2021 it was approved the distribution and payment of dividend No. 209 of Ch$2.18053623438 per share of the Banco de Chile, with charge to the net distributable income for the year ended as of December 31, 2020. The dividends paid in the period 2021 amounted to Ch$220,271 million.

 

At the Bank Ordinary Shareholders’ Meeting held on March 26, 2020 it was approved the distribution and payment of dividend No. 208 of Ch$3.47008338564 per share of the Banco de Chile, with charge to the net distributable income for the year ended as of December 31, 2019. The dividends paid in the year 2020 amounted to Ch$350,538 million.

 

72

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

27.Equity, continued:

 

(c)Provision for minimum dividends:

 

The Board of Directors of Banco de Chile agreed for the purposes of minimum dividends, to establish a provision of 60% of the net income resulting from reducing or adding to the net income for the corresponding period, the value effect of the monetary unit of paid capital and reserves, as a result of any change in the Consumer Price Index (CPI) between the month prior to the current month and the month of November of the previous year. The amount to be reduced of the liquid income for the period ended as of March 31, 2021 amounted to Ch$45,330 million.

 

As indicated, as of March 31, 2021, the amount of the net income determined in accordance with the preceding paragraph is equivalent to Ch$117,162 million (Ch$367,119 million as of December 31, 2020). Consequently, the Bank recorded a provision for minimum dividends under “Provisions” as of March 31, for an amount of Ch$70,297 million (Ch$220,271 million in December 2020), which reflects as a counterpart an equity reduction for the same amount in the item “Retained earnings”.

 

(d)Earnings per share:

 

(i)Basic earnings per share:

 

Basic earnings per share are determined by dividing the net income attributable to the Bank ordinary equity holders in a period between the weighted average number of shares outstanding during that period, excluding the average number of own shares held throughout the period.

 

(ii)Diluted earnings per share:

 

In order to calculate the diluted earnings per share, both the amount of income attributable to common shareholders and the weighted average number of shares outstanding, net of own shares, must be adjusted for all the inherent dilutive effects to the potential common shares (stock options, warrants and convertible debt).

 

73

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

27.Equity, continued:

 

Accordingly, the basic and diluted earnings per share as of March 31, 2021 and 2020 were determined as follows:

 

   March   March 
   2021   2020 
Basic earnings per share:        
Net profits attributable to ordinary equity holders of the bank (in million Chilean pesos)   162,492    136,882 
Weighted average number of ordinary shares   101,017,081,114    101,017,081,114 
Earning per shares (in Chilean pesos)   1.61    1.36 
           
Diluted earnings per share:          
Net profits attributable to ordinary equity holders of the bank (in million Chilean pesos)   162,492    136,882 
Weighted average number of ordinary shares   101,017,081,114    101,017,081,114 
Assumed conversion of convertible debt   —    — 
Adjusted number of shares   101,017,081,114    101,017,081,114 
Diluted earnings per share (in Chilean pesos)   1.61    1.36 

 

As of March 31, 2021 and 2020, the Bank does not have instruments that generate dilutive effects.

 

(e)Other comprehensive income:

 

This item includes the following concepts:

 

The adjustment of cash flow hedge derivatives comprises the portion of income recorded in equity resulting from changes in fair value due to changes in market factors. During the period 2021 it was made a credit to equity for Ch$1,539 million (credit to equity of Ch$1,935 million in 2020). The income tax effect presented a charge to equity of Ch$415 million (charge of Ch$521 million in March 2020).

 

The valuation adjustment of investments available for sale originates from fluctuations in the fair value of such portfolio, with a charge or credit to equity. During the period 2021, it was made a credit to equity for Ch$507 million (charge of Ch$9,768 million during the year 2020). The deferred tax effect meant a charge to equity of Ch$137 million (credit to equity of Ch$2,628 million in March 2020).

 

(f)Retained earnings from previous years:

 

During the year 2021, the Ordinary Shareholders Meeting of Banco de Chile agreed to deduct and withhold from the 2020 liquid income, an amount equivalent to the value effect of the monetary unit of paid capital and reserves according to the variation in the Consumer Price Index, which occurred between November 2019 and November 2020, amounting to Ch$95,989 million. Additionally, the Board determined to withhold 40% of the distributable net income, which was equivalent to Ch$146,848 million.

 

74

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

28.Interest Revenue and Expenses:

 

(a)On the closing date of the Interim Consolidated Financial Statement, the interest and indexation income, excluding hedge results, are composed as follows:

 

   March 2021   March 2020 
   Interest  

UF

Indexation

   Prepaid fees   Total   Interest  

UF

Indexation

   Prepaid fees   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                 
Commercial loans   147,015    68,755    1,208    216,978    170,139    62,946    784    233,869 
Consumer loans   107,496    804    1,298    109,598    150,519    651    1,756    152,926 
Residential mortgage loans   68,371    104,532    804    173,707    68,799    92,265    2,057    163,121 
Financial investment   2,583    2,097    —    4,680    8,522    2,717    —    11,239 
Repurchase agreements   258    —    —    258    545    —    —    545 
Loans to banks   1,748    —    —    1,748    5,087    —    —    5,087 
Other interest and indexation revenue   1,543    364    —    1,907    5,731    1,378    —    7,109 
Total   329,014    176,552    3,310    508,876    409,342    159,957    4,597    573,896 

 

The amount of interest recognized on a received basis for impaired portfolio in the period 2021 amounts to Ch$708 million (Ch$982 million in March 2020).

 

(b)At the each period end, the stock of interest and UF indexation not recognized in incomes is the following:

 

   March 2021   March 2020 
   Interest  

UF

Indexation

   Total   Interest  

UF

Indexation

   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Commercial loans   13,044    1,592    14,636    9,835    1,304    11,139 
Residential mortgage loans   1,986    1,684    3,670    2,082    1,603    3,685 
Consumer loans   25    —    25    25    —    25 
Total   15,055    3,276    18,331    11,942    2,907    14,849 

 

75

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

28.Interest Revenue and Expenses, continued:

 

(c)At each period end, interest and UF indexation expenses excluding hedge results, are detailed as follows:

 

   March 2021   March 2020 
   Interest  

UF

Indexation

   Total   Interest  

UF

Indexation

   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Savings accounts and time deposits   10,012    10,429    20,441    52,665    12,087    64,752 
Debt securities issued   50,323    78,831    129,154    55,277    72,947    128,224 
Other financial obligations   4    4    8    193    9    202 
Repurchase agreements   59    —    59    1,363    —    1,363 
Obligations with banks   4,882    —    4,882    8,970    —    8,970 
Demand deposits   85    4,748    4,833    144    5,960    6,104 
Lease liabilities   530    —    530    739    —    739 
Other interest and indexation expenses   —    86    86    472    297    769 
Total   65,895    94,098    159,993    119,823    91,300    211,123 

 

(d)As of March 31, 2021 and 2020, the Bank uses cross currency and interest rate swaps to hedge its position on movements on the fair value of corporate bonds and commercial loans and cross currency swaps to hedge the risk of variability of obligations flows with foreign banks and bonds issued in foreign currency.

 

   March 2021   March 2020 
   Income   Expense   Total   Income   Expense   Total 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                         
Gain from fair value accounting hedges   3,481    —    3,481    —    —    — 
Loss from fair value accounting hedges   (2,719)   —    (2,719)   (6,220)   —    (6,220)
Gain from cash flow accounting hedges   481    8,800    9,281    34,976    45,455    80,431 
Loss from cash flow accounting hedges   (19,564)   (1,711)   (21,275)   (50,918)   (38,909)   (89,827)
Net gain on hedge items   (3,074)   —    (3,074)   2,540    —    2,540 
Total   (21,395)   7,089    (14,306)   (19,622)   6,546    (13,076)

 

(e)At each period end, the summary of interest is as follows:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
         
Interest revenue   508,876    573,896 
Interest expense   (159,993)   (211,123)
           
Subtotal interest income   348,883    362,773 
           
Net gain (loss) from accounting hedges   (14,306)   (13,076)
           
Total net interest income   334,577    349,697 

 

76

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

29.Income and Expenses from Fees and Commissions:

 

The income and expenses for commissions that are shown in the Interim Consolidated Statement of Income refers to the following items:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
Commission income        
Debit and credit card services   42,926    49,716 
Investments in mutual funds and others   24,722    25,252 
Collections and payments   14,744    14,385 
Portfolio management   13,006    12,657 
Fees for insurance transactions   8,629    8,687 
Use of distribution channel and access to customers   7,232    25,150 
Guarantees and letters of credit   7,088    6,806 
Trading and securities management   5,828    5,304 
Brand use agreement   5,653    6,094 
Lines of credit and overdrafts   1,105    1,125 
Financial advisory services   612    1,083 
Other commission earned   5,226    5,412 
Total commissions income   136,771    161,671 
           
Commission expenses          
Fees for card transactions   (19,037)   (27,041)
Interbank transactions   (6,882)   (5,778)
Securities transactions   (1,149)   (1,163)
Collections and payments   (1,129)   (1,511)
Sales force   (44)   (42)
Other commission   (260)   (665)
Total commissions expenses   (28,501)   (36,200)

 

77

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

30.Net Financial Operating Income:

 

The gains (losses) from trading and brokerage activities are detailed as follows:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
         
Sale of available-for-sale instruments   3,803    3,350 
Trading derivative   2,620    (4,864)
Net income on other transactions   162    (348)
Financial assets held-for-trading   (1,375)   10,975 
Sale of loan portfolios (Note No.12 (e))   —    41 
Total   5,210    9,154 

 

31.Foreign Exchange Transactions, Net:

 

Net foreign exchange transactions are detailed as follows:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
         
Indexed foreign currency   45,747    (138,196)
Exchange difference, net   2,143    12,530 
Gain from accounting hedges   (21,478)   145,046 
Total   26,412    19,380 

 

78

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

32.Provisions for Loan Losses:

 

The change registered in income during the periods 2021 and 2020 due to provisions, are summarized as follows:

 

       Loans to customers             
   Loans and advance to
banks		   Commercial Loans   Mortgage Loans   Consumer Loans  

 

Subtotal

   Contingent Loans  

 

Total

 
   March   March   March   March   March   March   March   March   March   March   March   March   March   March 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Provisions established:                                                        
- Individual provisions   —    (111)   (5,137)   (29,183)   —    —    —    —    (5,137)   (29,183)   —    (4,360)   (5,137)   (33,654)
- Group provisions   —    —    (13,732)   (19,435)   (1,984)   (911)   (11,373)   (78,716)   (27,089)   (99,062)   —    (2,647)   (27,089)   (101,709)
Provisions established, net   —    (111)   (18,869)   (48,618)   (1,984)   (911)   (11,373)   (78,716)   (32,226)   (128,245)   —    (7,007)   (32,226)   (135,363)
                                                                       
Provisions released:                                                                      
- Individual provisions   182    —    —    —    —    —    —    —    —    —    1,070    —    1,252    — 
- Group provisions   —    —    —    —    —    —    —    —    —    —    2,164    —    2,164    — 
Provisions realeased, net   182    —    —    —    —    —    —    —    —    —    3,234    —    3,416    — 
                                                                       
Provision, net   182    (111)   (18,869)   (48,618)   (1,984)   (911)   (11,373)   (78,716)   (32,226)   (128,245)   3,234    (7,007)   (28,810)   (135,363)
                                                                       
Additional provisions   —    —    (40,000)   —    —    —    —    —    (40,000)   —    —    —    (40,000)   — 
                                                                       
Recovery of written-off assets   —    —    2,151    2,116    948    1,045    11,644    6,642    14,743    9,803    —    —    14,743    9,803 
                                                                       
Provision for loan losses, net   182    (111)   (56,718)   (46,502)   (1,036)   134    271    (72,074)   (57,483)   (118,442)   3,234    (7,007)   (54,067)   (125,560)

 

In the opinion of the Administration, provisions constituting for credit risk cover all possible losses that may arise from the non-recovery of assets, according to the records examined by the Bank.

  

79

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

33.Personnel Expenses:

 

Salaries and personnel expenses during the periods 2021 and 2020 are as follows:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
         
Remunerations   64,681    64,332 
Bonuses and incentives   18,051    9,456 
Variable compensation   8,932    9,156 
Gratifications   7,671    7,049 
Lunch and health benefits   6,379    7,093 
Staff severance indemnities   2,652    4,502 
Training expenses   510    708 
Other personnel expenses   4,820    4,747 
Total   113,696    107,043 

 

80

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

34.Administrative Expenses:

 

This item is composed as follows:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
General administrative expenses        
Information technology and communications   25,601    23,587 
Maintenance and repair of property and equipment   11,998    13,817 
External advisory services and professional services fees   3,837    2,516 
Surveillance and securities transport services   3,230    2,920 
Office supplies   1,842    2,707 
Insurance premiums   1,827    1,600 
External service of financial information   1,747    1,545 
Energy, heating and other utilities   1,265    1,742 
Expenses for short-term leases and low value   1,148    1,079 
Postal box, mail, postage and home delivery services   1,096    864 
Legal and notary expenses   1,059    1,127 
Other expenses of obligations for lease agreements   718    721 
External service of custody of documentation   710    911 
Representation and travel expenses   679    618 
Donations   447    585 
Other general administrative expenses   4,712    4,818 
Subtotal   61,916    61,157 
           
Outsource services          
External technological developments expenses   3,563    2,648 
Data processing   2,215    2,714 
Certification and technology testing   2,077    1,421 
Credit pre-evaluation   972    2,712 
Other   472    1,011 
Subtotal   9,299    10,506 
           
Board expenses          
Board of Directors Compensation   706    628 
Other Board expenses   —    18 
Subtotal   706    646 
           
Marketing expenses          
Advertising   6,746    6,183 
Subtotal   6,746    6,183 
           
Taxes, payroll taxes and contributions          
Contribution to the banking regulator   2,965    2,745 
Real estate contributions   971    747 
Patents   379    328 
Other taxes   391    376 
Subtotal   4,706    4,196 
Total   83,373    82,688 

 

81

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

35.Depreciation, Amortization and Impairment:

 

(a)The amounts corresponding to charges to results for depreciation and amortization during the periods 2021 and 2020, are detailed as follows:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
Depreciation and amortization        
Depreciation of property and equipment (Note No. 16 (b))   7,307    7,129 
Depreciation of leased assets (Note No. 16 (d))   7,202    7,554 
Amortization of intangibles assets (Note No. 15 (b))   4,110    3,786 
Total   18,619    18,469 

 

(b)As of March 31, 2021 and 2020 the impairment expenses is composed as follows:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
Impairment        
Impairment of property and equipment (Note No. 16 (b))   1    — 
Impairment of intangible assets (Note No. 15 (b))   —    — 
Impairment of leased assets (Note No. 16 (d))   —    — 
Total   1    — 

 

82

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

36.Other Operating Income:

 

During the periods 2021 and 2020, the Bank and its subsidiaries present other operating income, according to the following:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
Income for assets received in lieu of payment        
Income from sale of assets received in lieu of payment   1,990    1,361 
Other income   34    12 
Subtotal   2,024    1,373 
           
Release of provisions for contingencies          
Country risk provisions   —    — 
Other provisions for contingencies   67    — 
Subtotal   67    — 
           
Other income          
Release of provisions and expense recovery   2,280    2,302 
Rental investment properties   1,605    1,728 
Recovery from correspondent banks   646    841 
Credit/debit card income   346    — 
Income from sale leased assets   159    172 
Reimbursements for insurance policies   90    2,086 
Fiduciary and trustee commissions   72    124 
Gain on sale of fixed assets   3    18 
Others   664    747 
Subtotal   5,865    8,018 
           
Total   7,956    9,391 

 

83

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

37.Other Operating Expenses:

 

During the periods 2021 and 2020, the Bank and its subsidiaries present other operating expenses, according to the following:

  

   March   March 
   2021   2020 
   MCh$   MCh$ 
Provisions and expenses for assets received in lieu of payment        
Charge-off assets received in lieu of payment   472    1,245 
Provisions for assets received in lieu of payment   16    293 
Maintenance expenses of assets received in lieu of payment   98    152 
Subtotal   586    1,690 
           
Provisions for contingencies          
Country risk provisions   2,122    6,605 
Other provisions   —    42 
Subtotal   2,122    6,647 
           
Other expenses          
Write-offs for operating risks   2,751    981 
Leasings operational expenses   995    1,378 
Card administration   744    158 
Correspondent banks   548    453 
Credit life insurance   114    98 
Contribution to other organisms   65    60 
Expenses for charge-off leased assets recoveries   61    112 
Civil lawsuits   25    80 
Others   774    436 
Subtotal   6,077    3,756 
           
Total   8,785    12,093 

 

84

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

38.Related Party Transactions:

 

Related parties are considered to be those natural or legal persons who are in positions to directly or indirectly have significant influence through their ownership or management of the Bank and its subsidiaries, as set out in the Compendium of Accounting Standards and Chapter 12-4 of the current Compilation of Standards issued by the CMF.

 

According to the above, the Bank has considered as related parties those natural or legal persons who have a direct participation or through third parties on Bank ownership, where such participation exceeds 5% of the shares, and also people who, regardless of ownership, have authority and responsibility for planning, management and control of the activities of the entity or its subsidiaries. There also are considered as related the companies in which the parties related by ownership or management of the Bank have a share which reaches or exceeds 5%, or has the position of director, general manager or equivalent.

 

(a)Loans with related parties:

 

The following are the loans and accounts receivable and contingent loans, corresponding to related entities.

 

   Productive and Services
Companies (*)		   Investment and
Commercial
Companies (**)		   Individuals (***)   Total 
   March   December   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Loans and accounts receivable:                                
Commercial loans   211,977    122,716    138,897    164,213    12,345    12,445    363,219    299,374 
Residential mortgage loans   —    —    —    —    62,444    61,131    62,444    61,131 
Consumer loans   —    —    —    —    8,854    8,743    8,854    8,743 
Gross loans   211,977    122,716    138,897    164,213    83,643    82,319    434,517    369,248 
Allowance for loan losses   (1,195)   (1,264)   (443)   (802)   (364)   (390)   (2,002)   (2,456)
Net loans   210,782    121,452    138,454    163,411    83,279    81,929    432,515    366,792 
                                         
Contingent loans:                                        
Guarantees and sureties   7,230    7,277    10,027    9,469    —    —    17,257    16,746 
Letters of credits   780    2,885    —    —    —    —    780    2,885 
Banks guarantees   25,715    25,129    32,113    35,733    —    —    57,828    60,862 
Undrawn credit lines   56,129    46,887    15,078    14,308    19,963    20,306    91,170    81,501 
Other contingencies loans   —    —    —    —    —    —    —    — 
Total contingent loans   89,854    82,178    57,218    59,510    19,963    20,306    167,035    161,994 
Provision for contingencies loans   (223)   (218)   (90)   (55)   (42)   (51)   (355)   (324)
Contingent loans, net   89,631    81,960    57,128    59,455    19,921    20,255    166,680    161,670 
                                         
Amount covered by guarantee:                                        
Mortgage   24,345    15,575    87,344    54,891    85,436    82,777    197,125    153,243 
Warrant   —    —    —    —    —    —    —    — 
Pledge   —    —    —    —    —    —    —    — 
Others (****)   35,077    33,474    13,676    12,117    6,486    6,582    55,239    52,173 
Total collateral   59,422    49,049    101,020    67,008    91,922    89,359    252,364    205,416 

  

85

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

38.Related Party Transactions, continued:

 

(a)Loans with related parties, continued:

 

(*)For these effects are considered productive companies, those that meet the following conditions:

 

i)They engage in production activities and generate a separate flow of income.

 

ii)Less than 50% of their assets are financial assets held-for-trading or investments.

 

Service companies are considered entities whose main purpose is oriented to rendering services to third parties.

 

(**)Investment companies and commercial include those legal entities that do not meet the conditions for productive companies or services providers and are profit-oriented.

 

(***)Individuals include key members of the management and correspond to those who directly or indirectly have authority and responsibility for planning, administrating and controlling the activities of the organization, including directors. This category also includes their family members who influence or are influenced by such individuals in their interactions with the organization.

 

(****)These guarantees mainly correspond to warranty by endorsement and sureties, state guarantees and other financial guarantees.

 

(b)Other assets and liabilities with related parties:

 

   March   December 
   2021   2020 
   MCh$   MCh$ 
Assets        
Cash and due from banks   223,244    261,386 
Transactions in the course of collection   57,670    35,833 
Financial assets held-for-trading   32    96 
Derivative instruments   140,605    252,748 
Investment instruments   10,869    31,548 
Other assets   43,859    96,362 
Total   476,279    677,973 
           
Liabilities          
Demand deposits   168,950    239,139 
Transactions in the course of payment   41,951    37,799 
Obligations under repurchase agreements   169    24,500 
Savings accounts and time deposits   362,069    338,732 
Derivative instruments   206,518    355,099 
Borrowings with banks   54,054    114,758 
Lease liabilities   10,244    10,354 
Other liabilities   12,465    14,699 
Total   856,420    1,135,080 

 

86

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

38.Related Party Transactions, continued:

 

(c)Income and expenses from related party transactions (*):

 

   March 2021   March 2020 
   Income   Expense   Income   Expense 
   MCh$   MCh$   MCh$   MCh$ 
Type of income or expense recognized                
Interest and revenue expenses   3,886    101    4,991    570 
Fees and commissions income   24,107    8,029    33,285    16,165 
Net Financial Operating Income                    
Derivative instruments (**)   5,144    5,756    124,828    105,987 
Other financial operations   3    17    3    — 
Released or established of provision for credit risk   504    —    —    447 
Operating expenses   —    43,770    —    48,540 
Other income and expenses   118    —    116    4 

 

(*)This detail does not constitute a Statement of Comprehensive Income for related party transactions since the assets with these parties are not necessarily equal to liabilities and each item reflects total income and expense and not those corresponding to exact transactions.

 

(**)The outcome of derivative operations is presented net at each related counterparty level. Additionally, this line includes operations with local counterpart banks (unrelated) which have been novated by Comder Contraparte Central S.A. (Related entity) for centralized clearing purposes, which generated a net loss of Ch$3,435 million as of March 31, 2021 (net gain of Ch$121,255 million as of March 31, 2020).

 

(d)Contracts with related parties:

 

During the period ended March 31, 2021, the Bank has signed, renewed or amended the contractual terms and conditions of the following contracts with related parties that do not correspond to the ordinary transactions with clients in general, for above UF 1,000:

 

Company name   Concept or service description
Depósito Central de Valores S.A.   Custodial services

Sistemas Oracle de Chile S.A.

   Licensing services, support renewal and implementation of hardware and software.
Universidad del Desarrollo   Entrepreneurship programs
Artikos S.A.   Software development services
Transbank S.A.   Services associated with credit card transactions
Servipag Ltda.   Collection services
Centro de Compensación Automatizado S.A.   Electronic transfer services
Ionix SpA.   Technical assistance service and platform support
Canal 13 S.A.   Advertising service
Nexus S.A.   Credit card operation services
Redbanc S.A.   Electronic Transfer Services (EFT)

 

87

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

38.Related Party Transactions, continued:

 

(e)Directors’ remunerations and payments to key management personnel:

 

   March   March 
   2021   2020 
   MCh$   MCh$ 
         
Personnel remunerations   1,045    975 
Short-term benefits   3,534    3,642 
Severance pay   —    784 
Directors’ remunerations and fees (*)   706    628 
Total   5,285    6,029 

 

(*)It includes fees paid to members of the Advisory Committee of Banchile Corredores de Seguros Ltda, of Ch$4 million (Ch$3 million in March 2020).

 

The travel and other related expenses amount to Ch$18 million in March 2020. There is no amount for this concept in March 2021.

 

Composition of key personnel:

 

   No. of executives 
   March   March 
   2021   2020 
Position        
CEO   1    1 
CEOs of subsidiaries   6    6 
Division Managers   14    12 
Directors Bank and subsidiaries   20    21 
Total   41    40 

 

88

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial Assets and Liabilities:

 

Banco de Chile and its subsidiaries have defined a corporate framework for valuation and control related with the process to the fair value measurement.

 

Within the established framework includes the Product Control Unit, which is independent of the business areas and reports to the Financial Management and Control Division Manager. This function befall to the Financial Control and Treasury Manager, through the Financial Risk Information and Control Section, is responsible for independent verification of price and results of trading (including derivatives) and investment operations and all fair value measurements.

 

To achieve the appropriate measurements and controls, the Bank and its subsidiaries, take into account at least the following aspects:

 

(i)Industry standard valuation.

 

To value financial instruments, Banco de Chile uses industry standard modeling; quota value, share price, discounted cash flows and valuation of options through Black-Scholes-Merton, according to the case. The input parameters for the valuation correspond to rates, prices and levels of volatility for different terms and market factors that are traded in the national and international market and that are provided by the main sources of the market.

 

(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 (such as Bolsa de Comercio de Santiago, Bloomberg, LVA and Risk America, etc). This quote represents the price at which these instruments are regularly traded in the financial markets.

 

(iii)Valuation techniques.

 

If no specific quotes are available for the instrument to be valued, valuation techniques will be used to determine the fair value.

 

Due to, in general, the valuation models require a set of market parameters as inputs, the aim is to maximize information based on observable or price-related quotations for similar instruments in active markets. To the extent there is no information in direct from the markets, data from external suppliers of information, prices of similar instruments and historical information are used to validate the valuation parameters.

 

89

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(iv)Fair value adjustments.

 

Part of the fair value process considers three adjustments to the market value, calculated based on the market parameters, including; a liquidity adjustment, a Bid/Offer adjustment and an adjustment is made for credit risk of derivatives (CVA and DVA). The calculation of the liquidity adjustment considers the size of the position in each factor, the particular liquidity of each factor, the relative size of Banco de Chile with respect to the market, and the liquidity observed in transactions recently carried out in the market. In turn, the Bid/Offer adjustment, represents the impact on the valuation of an instrument depending on whether the position corresponds to a long (bought) or a short (sold).To calculate this adjustment is used the direct quotes from active markets or indicative prices or derivatives of similar assets depending on the instrument, considering the Bid, Mid and Offer, respectively. Finally, the adjustment made for CVA and DVA for derivatives corresponds to the credit risk recognition of the issuer, either of the counterparty (CVA) or of Banco de Chile (DVA).

 

Liquidity value adjustments are made to trading instruments (including derivatives) only, while Bid / Offer adjustments are made for trading instruments and available for sale. Adjustments for CVA / DVA are carried out only for derivatives.

 

(v)Fair value control.

 

A process of independent verification of prices and rates is executed daily, in order to control that the market parameters used by Banco de Chile in the valuation of the financial instruments relating to the current state of the market and from them the best estimate derived of the fair value. The objective of this process is to control that the official market parameters provided by the respective business area, before being entered into the valuation, are within acceptable ranges of differences when compared to the same set of parameters prepared independently by the Financial Risk Information and Control Section. As a result, value differences are obtained at the level of currency, product and portfolio. In the event significant differences exist, these differences are scaled according to the amount of individual materiality of each market factor and aggregated at the portfolio level, according to the grouping levels within previously defined ranges. These ranges are approved by the Finance, International and Financial Risk Committee.

 

Complementary and in parallel, the Financial Risk Information and Control Section generates and reports on a daily basis Profit and Loss (“P&L”) and Exposure to Market Risks, which allow for proper control and consistency of the parameters used in the valuation.

 

90

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(vi)Judgmental analysis and information to Management.

 

In particular cases, where there are no market quotations for the instrument to be valued and there are no prices for similar transactions instruments or indicative parameters, a specific control and a reasoned analysis must be carried out in order to estimate the fair value of the operation. Within the valuation framework described in the Reasonable Value Policy (and its procedure) approved by the Board of Directors of Banco de Chile, a required level of approval is set in order to carry out transactions where market information is not available or it is not possible to infer prices or rates from it.

 

(a)Hierarchy of instrument valued at Fair value:

 

Banco de Chile and its subsidiaries, classify all the financial instruments among the following levels:

 

Level 1:These are financial instruments whose fair value is calculated at quoted prices (unadjusted) in extracted from liquid and deep markets. For these instruments there are quotes or prices (return internal rates, quote value, price) the observable market, so that assumptions are not required to determine the value.

 

In this level, the following instruments are considered: currency futures, debt instruments issued Chilean Central Bank and Treasury, which belong to benchmarks, mutual fund investments and equity shares.

 

For the instruments of the Central Bank of Chile and the General Treasury of the Republic, all those mnemonics belonging to a Benchmark, in other words corresponding to one of the following categories published by the Santiago Stock Exchange, will be considered as Level 1: Pesos-02, Pesos-03, Pesos-04, Pesos-05, Pesos-07, Pesos-10, UF-02, UF-04, UF-05, UF-07, UF-10, UF-20, UF-30. A Benchmark corresponds to a group of mnemonics that are similar in duration and are traded in an equivalent way, i.e., the price (return internal rates in this case) obtained is the same for all the instruments that make up a Benchmark. This feature defines a greater depth of market, with daily quotations that allow classifying these instruments as Level 1.

 

In the case of debt issued by the Chilean Government, the internal rate of return of the market is used to discount all flows to present value. In the case of mutual funds and equity shares, the current market price per share, which multiplied by the number of instruments results in the fair value.

 

The preceding described valuation methodology is equivalent to the one used by the Bolsa de Comercio de Santiago (Santiago Stock Exchange) and correspond to the standard methodology used in the market.

 

91

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

Level 2:They are financial instruments whose fair value is calculated based on prices other than in quoted in Level 1 that are observable for the asset or liability, directly (that is, as prices or internal rates of return) or indirectly (that is, derived from prices or internal rates of return from similar instruments). These categories include:

 

a)Quoted prices for similar assets or liabilities in active markets.
b)Quoted prices for identical or similar assets or liabilities in markets that are not active.
c)Inputs data other than quoted prices that are observable for the asset or liability.
d)Inputs data corroborated by the market.

 

At this level there are mainly derivatives instruments, debt issued by banks, debt issues of Chilean and foreign companies, issued in Chile or abroad, mortgage claims, financial brokerage instruments and some issuances by the Central Bank of Chile and the General Treasury of the Republic, which do not belong to benchmarks.

 

To value derivatives, depends on whether they are impacted by volatility as a relevant market factor in standard valuation methodologies; for options the Black-Scholes-Merton formula is used; for the rest of the derivatives, forwards and swaps, discounted cash flows method is used.

 

For the remaining instruments at this level, as for debt issues of level 1, the valuation is done through cash flows model by using an internal rate of return that can be derived or estimated from internal rates of return of similar securities as mentioned above.

 

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 have observable quoted price in active markets. These models incorporate various market variables, including the credit quality of counterparties, exchange rates and interest rate curves.

 

92

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

Valuation Techniques and Inputs for Level 2 Instrument:

 

Type of
Financial

Instrument

   Valuation
Method		   Description: Inputs and Sources

Local Bank and

Corporate Bonds

  

Discounted cash

flows model

 

  

Prices (internal rates of return) are provided by third party price providers that are widely used in the Chilean market.

 

Model is based on a Base Yield (Central Bank Bonds) and issuer spread.

 

The model is based on daily prices and risk/maturity similarities between

Instruments.
   

Offshore Bank and

Corporate Bonds

    

Prices are provided by third party price providers that are widely used in the Chilean market.

 

Model is based on daily prices.
   

Local Central Bank

and Treasury Bonds

    

Prices (internal rates of return) are provided by third party price providers that are widely used in the Chilean market.

 

Model is based on daily prices.
    

Mortgage

Notes

    

Prices (internal rates of return) are provided by third party price providers that are widely used in the Chilean market.

 

Model is based on a Base Yield (Central Bank Bonds) and issuer spread.

 

The model takes into consideration daily prices and risk/maturity similarities between instruments.
   

Time

Deposits

    

Prices (internal rates of return) are provided by third party price providers that are widely used in the Chilean market.

 

Model is based on daily prices and considers risk/maturity similarities between instruments.
   

Cross Currency Swaps,

Interest Rate Swaps,

FX Forwards, Inflation

Forwards

    

Forward Points, Inflation forecast and local swap rates are provided by market brokers that are widely used in the Chilean market.

 

Offshore rates and spreads are obtained from third party price providers that are widely used in the Chilean market.

 

Zero Coupon rates are calculated by using the bootstrapping method over swap rates.

 

FX Options  

Black-Scholes

Model

   Prices for volatility surface estimates are obtained from market brokers that are widely used in the Chilean market.

 

93

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

Level 3:These are financial instruments whose fair value is determined using non-observable inputs data neither for the assets or liabilities under analysis nor for similar instruments. An adjustment to an input that is significant to the entire measurement can result in a fair value measurement classified within Level 3 of the fair value hierarchy, if the adjustment uses significant non-observable data entry.

 

The instruments likely to be classified as level 3 are mainly Corporate Debt by Chilean and foreign companies, issued both in Chile and abroad.

 

Valuation Techniques and Inputs for Level 3 Instrument:

 

Type of
Financial
Instrument		   Valuation
Method		   Description: Inputs and Sources
         

Local Bank and

Corporate Bonds

  

Discounted cash flows model

 

   Since inputs for these types of securities are not observable by the market, we model interest rate of returns for them based on a Base Yield (Central Bank Bonds) and issuer spread. These inputs (base yield and issuer spread) are provided on a daily basis by third party price providers that are widely used in the Chilean market.
         
Offshore Bank and Corporate Bonds  

Discounted cash flows model

  

Since inputs for these types of securities are not observable by the market, we model interest rate of returns for them based on a Base Yield (US-Libor) and issuer spread. These inputs (base yield and issuer spread) are provided on a weekly basis by third party price providers that are widely used in the Chilean market.

 

94

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(b)Level chart:

 

The following table shows the classification by levels, for financial instruments registered at fair value.

 

   Level 1   Level 2   Level 3   Total 
   March   December   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020   2021   2020 
Financial Assets  MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Financial assets held-for-trading                                
From the Chilean Government and Central Bank   115,258    75,701    1,550,261    4,083,591    —    —    1,665,519    4,159,292 
Other instruments issued in Chile   1,617    1,002    152,644    99,302    5,549    5,494    159,810    105,798 
Instruments issued abroad   1,295    164    —    —    —    —    1,295    164 
Mutual fund investments   402,529    400,902    —    —    —    —    402,529    400,902 
Subtotal   520,699    477,769    1,702,905    4,182,893    5,549    5,494    2,229,153    4,666,156 
Derivative contracts for trading purposes                                        
Forwards   —    —    305,212    551,964    —    —    305,212    551,964 
Swaps   —    —    1,609,485    2,013,247    —    —    1,609,485    2,013,247 
Call Options   —    —    650    269    —    —    650    269 
Put Options   —    —    588    1,462    —    —    588    1,462 
Futures   —    —    —    —    —    —    —    — 
Subtotal   —    —    1,915,935    2,566,942    —    —    1,915,935    2,566,942 
Hedge derivative contracts                                        
Fair value hedge (Swap)   —    —    —    —    —    —    —    — 
Cash flow hedge (Swap)   —    —    34,386    51,062    —    —    34,386    51,062 
Subtotal   —    —    34,386    51,062    —    —    34,386    51,062 
Financial assets available-for-sale (1)                                        
From the Chilean Government and Central Bank   22,839    —    162,366    163,600    —    —    185,205    163,600 
Other instruments issued in Chile   —    —    850,737    860,327    28,576    36,596    879,313    896,923 
Instruments issued abroad   —    —    —    —    —    —    —    — 
Subtotal   22,839    —    1,013,103    1,023,927    28,576    36,596    1,064,518    1,060,523 
Total   543,538    477,769    4,666,329    7,824,824    34,125    42,090    5,243,992    8,344,683 
                                         
Financial Liabilities                                        
Derivative contracts for trading purposes                                        
Forwards   —    —    327,420    637,186    —    —    327,420    637,186 
Swaps   —    —    1,705,352    2,130,474    —    —    1,705,352    2,130,474 
Call Options   —    —    257    306    —    —    257    306 
Put Options   —    —    1,241    2,099    —    —    1,241    2,099 
Futures   —    —    —    —    —    —    —    — 
Subtotal   —    —    2,034,270    2,770,065    —    —    2,034,270    2,770,065 
Hedge derivative contracts                                        
Fair value hedge (Swap)   —    —    3,166    6,519    —    —    3,166    6,519 
Cash flow hedge (Swap)   —    —    82,126    65,172    —    —    82,126    65,172 
Subtotal   —    —    85,292    71,691    —    —    85,292    71,691 
Total   —    —    2,119,562    2,841,756    —    —    2,119,562    2,841,756 

 

(1)As of March 31, 2021, 100% of instruments of Level 3 have denomination “Investment Grade”. Also, 100% of total of these financial instruments correspond to domestic issuers.

 

95

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(c)Level 3 reconciliation:

 

The following table shows the reconciliation between the balances at the beginning and at the end of period for those instruments classified in Level 3, whose fair value is reflected in the Interim Consolidated Financial Statements:

 

   March 2021 
   Balance as of
January 1,
2021		   Gain (Loss) Recognized in Income
(1)		   Gain (Loss) Recognized in Equity
(2)		   Purchases   Sales   Transfer from
Level 1
and 2		   Transfer to
Level 1
and 2		  

Balance as of
March 31,
2021

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Financial Assets                                
Financial assets held-for-trading:                                
Other instruments issued in Chile   5,494    55    —    —    —    —    —    5,549 
Subtotal   5,494    55    —    —    —    —    —    5,549 
                                         
Available-for-Sale Instruments:                                        
Other instruments issued in Chile   36,596    227    493    —    (11,765)   3,025    —    28,576 
Subtotal   36,596    227    493    —    (11,765)   3,025    —    28,576 
                                         
Total   42,090    282    493    —    (11,765)   3,025    —    34,125 
                                         
   December 2020 
   Balance as of
January 1,
2020		   Gain (Loss) Recognized in Income
(1)		   Gain (Loss) Recognized in Equity
(2)		   Purchases   Sales   Transfer from
Level 1
and 2		   Transfer to
Level 1
and 2		  

Balance as of
December 31,
2020

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Financial Assets                                
Financial assets held-for-trading:                                
Other instruments issued in Chile   55,094    (708)   —    49,424    (98,316)   —    —    5,494 
Subtotal   55,094    (708)   —    49,424    (98,316)   —    —    5,494 
                                         
Available-for-Sale Instruments:                                        
Other instruments issued in Chile   7,069    323    (647)   71,539    (70,897)   29,209    —    36,596 
Subtotal   7,069    323    (647)   71,539    (70,897)   29,209    —    36,596 
                                         
Total   62,163    (385)   (647)   120,963    (169,213)   29,209    —    42,090 

 

(1)Recorded in income under item “Net financial operating income”.
(2)Recorded in equity under item “Other Comprehensive Income”.

 

96

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(d)Sensitivity of instruments classified in Level 3 to changes in key assumptions of models:

 

The following table shows the sensitivity, by type of instrument, of those instruments classified in Level 3 using alternative in key valuation assumptions:

 

   As of March 31, 2021   As of December 31, 2020 
   Level 3   Sensitivity to changes in key assumptions of models   Level 3   Sensitivity to changes in key assumptions of models 
   MCh$   MCh$   MCh$   MCh$ 
Financial Assets                
Financial assets held-for-trading                    
Other instruments issued in Chile   5,549    (7)   5,494    (8)
Subtotal   5,549    (7)   5,494    (8)
Available-for- Sale Instruments                    
Other instruments issued in Chile   28,576    (320)   36,596    (525)
Subtotal   28,576    (320)   36,596    (525)
                     
Total   34,125    (327)   42,090    (533)

 

With the purpose of determining the sensitivity of the financial investments to changes in significant market factors, the Bank has made alternative calculations at fair value, changing those key parameters for the valuation and which are not directly observable in screens. In the case of the financial assets listed in the table above, which correspond to Bank Bonds and Corporate Bonds, it was considered that, since there are no current observables prices, the input prices will be based on brokers’ quotes. The prices are usually calculated as a base rate plus a spread. For Local Bonds it was determined to apply a 10% impact on the price, while for the Off Shore Bonds it was determined to apply a 10% impact only on the spread, since the base rate is covered by interest rate swaps instruments in the so-called accounting hedges. The 10% impact is considered reasonable, taking into account the market performance of these instruments and comparing it against the bid / offer adjustment that is provisioned by these instruments.

 

97

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(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 are 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   Estimated Fair Value 
   March   December   March   December 
   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$ 
Assets                
Cash and due from banks   2,203,602    2,560,216    2,203,602    2,560,216 
Transactions in the course of collection   512,295    582,308    512,295    582,308 
Investments under resale agreements   62,423    76,407    62,423    76,407 
Subtotal   2,778,320    3,218,931    2,778,320    3,218,931 
Loans and advances to banks                    
Domestic banks   159,942    259,862    159,942    259,862 
Central Bank of Chile   4,110,000    2,380,033    4,110,000    2,380,033 
Foreign banks   284,650    299,096    282,763    297,778 
Subtotal   4,554,592    2,938,991    4,552,705    2,937,673 
Loans to customers, net                    
Commercial loans   17,769,413    17,169,744    17,523,301    16,968,143 
Residential mortgage loans   9,597,364    9,354,890    10,246,752    10,075,011 
Consumer loans   3,681,222    3,665,424    3,725,370    3,711,582 
Subtotal   31,047,999    30,190,058    31,495,423    30,754,736 
Total   38,380,911    36,347,980    38,826,448    36,911,340 
                     
Liabilities                    
Current accounts and other demand deposits   15,682,372    15,167,229    15,682,372    15,167,229 
Transactions in the course of payment   838,056    1,302,000    838,056    1,302,000 
Obligations under repurchase agreements   104,176    288,917    104,176    288,917 
Savings accounts and time deposits   8,274,926    8,899,541    8,258,002    8,885,015 
Borrowings from banks   3,674,566    3,669,753    3,503,495    3,415,959 
Other financial obligations   257,319    191,713    277,243    217,311 
Subtotal   28,831,415    29,519,153    28,663,344    29,276,431 
Debt Issued                    
Letters of credit for residential purposes   5,719    6,532    6,288    7,201 
Letters of credit for general purposes   204    254    224    280 
Bonds   8,064,632    7,700,402    8,596,755    8,390,594 
Subordinate bonds   896,425    886,407    975,538    1,004,196 
Subtotal   8,966,980    8,593,595    9,578,805    9,402,271 
Total   37,798,395    38,112,748    38,242,149    38,678,702 

 

Other financial assets and liabilities not measured at their fair value, but for which a fair value is estimated, even if not managed based on such value, include assets and liabilities such as placements, deposits and other time deposits, debt issued, and other financial assets and obligations with different maturities and characteristics. The fair value of these assets and liabilities is calculated using the Discounted Cash Flow model and the use of various data sources such as yield curves, credit risk spreads, etc. In addition, due to some of these assets and liabilities are not traded on the market, periodic reviews and analyzes are required to determine the suitability of the inputs and determined fair values.

 

98

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial assets and liabilities, continued:

 

(f)Levels of other assets and liabilities:

 

The following table shows the estimated fair value of financial assets and liabilities not valued at their fair value, as of March 31, 2021 and December 31, 2020:

 

  

Level 1

Estimated Fair Value

  

Level 2

Estimated Fair Value

  

Level 3

Estimated Fair Value

  

Total

Estimated Fair Value

 
   March   December   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Assets                                
Cash and due from banks   2,203,602    2,560,216    —    —    —    —    2,203,602    2,560,216 
Transactions in the course of collection   512,295    582,308    —    —    —    —    512,295    582,308 
Investments under resale agreements   62,423    76,407    —    —    —    —    62,423    76,407 
Subtotal   2,778,320    3,218,931    —    —    —    —    2,778,320    3,218,931 
Loans and advances to banks                                        
Domestic banks   159,942    259,862    —    —    —    —    159,942    259,862 
Central Bank   4,110,000    2,380,033    —    —    —    —    4,110,000    2,380,033 
Foreign banks   —    —    —    —    282,763    297,778    282,763    297,778 
Subtotal   4,269,942    2,639,895    —    —    282,763    297,778    4,552,705    2,937,673 
Loans to customers, net                                        
Commercial loans   —    —    —    —    17,523,301    16,968,143    17,523,301    16,968,143 
Residential mortgage loans   —    —    —    —    10,246,752    10,075,011    10,246,752    10,075,011 
Consumer loans   —    —    —    —    3,725,370    3,711,582    3,725,370    3,711,582 
Subtotal   —    —    —    —    31,495,423    30,754,736    31,495,423    30,754,736 
Total   7,048,262    5,858,826    —    —    31,778,186    31,052,514    38,826,448    36,911,340 
                                         
Liabilities                                        
Current accounts and other demand deposits   15,682,372    15,167,229    —    —    —    —    15,682,372    15,167,229 
Transactions in the course of payment   838,056    1,302,000    —    —    —    —    838,056    1,302,000 
Obligations under repurchase agreements   104,176    288,917    —    —    —    —    104,176    288,917 
Savings accounts and time deposits   —    —    —    —    8,258,002    8,885,015    8,258,002    8,885,015 
Borrowings from banks   —    —    —    —    3,503,495    3,415,959    3,503,495    3,415,959 
Other financial obligations   —    —    —    —    277,243    217,311    277,243    217,311 
Subtotal   16,624,604    16,758,146    —    —    12,038,740    12,518,285    28,663,344    29,276,431 
Debt Issued                                        
Letters of credit for residential purposes   —    —    6,288    7,201    —    —    6,288    7,201 
Letters of credit for general purposes   —    —    224    280    —    —    224    280 
Bonds   —    —    8,596,755    8,390,594    —    —    8,596,755    8,390,594 
Subordinated bonds   —    —    —    —    975,538    1,004,196    975,538    1,004,196 
Subtotal   —    —    8,603,267    8,398,075    975,538    1,004,196    9,578,805    9,402,271 
Total   16,624,604    16,758,146    8,603,267    8,398,075    13,014,278    13,522,481    38,242,149    38,678,702 

 

99

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(f)Levels of other assets and liabilities, continued:

 

The Bank determines the fair value of these assets and liabilities according to the following:

 

●Short-term assets and liabilities: For assets and liabilities with short-term maturity, it is assumed that the book values approximate to their fair value. This assumption is applied to the following assets and liabilities:

 

Assets: Liabilities:
   
-    Cash and deposits in banks -    Current accounts and other demand deposits
-    Transactions in the course of collection -    Transactions in the course of payments
-    Investments under resale agreements -    Obligations under repurchase agreements
-    Loans and advance to domestic banks  

 

●Loans to Customers and Advance to foreign banks: Fair value is determined by using the discounted cash flow model and internally generated discount rates, based on internal transfer rates derived from our internal transfer price process. Once the present value is determined, we deduct the related loan loss allowances in order to incorporate the credit risk associated with each contract or loan. As we use internally generated parameters for valuation purposes, we categorize these instruments in Level 3.

 

●Letters of Credit and Bonds: In order to determine the present value of contractual cash flows, we apply the discounted cash flow model by using market interest rates that are available in the market, either for the instruments under valuation or instruments with similar features that fit valuation needs in terms of currency, maturities and liquidity. The market interest rates are obtained from third party price providers widely used by the market. As a result of the valuation technique and the quality of inputs (observable) used for valuation, we categorize these financial liabilities in Level 2.

 

●Saving Accounts, Time Deposits, Borrowings from Financial Institutions, Subordinated Bonds and Other borrowings financial: The discounted cash flow model is used to obtain the present value of committed cash flows by applying a bucket approach and average adjusted discount rates that derived from both market rates for instruments with similar features and our internal transfer price process. As we use internally generated parameters and/or apply significant judgmental analysis for valuation purposes, we categorize these financial liabilities in Level 3.

  

100

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

39.Fair Value of Financial Assets and Liabilities, continued:

 

(g)Offsetting of financial assets and liabilities:

 

The Bank trades financial derivatives with foreign counterparties using ISDA Master Agreement (International Swaps and Derivatives Association, Inc.), under legal jurisdiction of the City of New York – USA or London – United Kingdom. Legal framework in these jurisdictions, along with documentation mentioned, it allows Banco de Chile the right to anticipate the maturity of the transaction and then, offset the net value of those transactions in case of default of counterparty. Additionally, the Bank has negotiated with these counterparties an additional annex (CSA Credit Support Annex), that includes other credit mitigating, such as entering margins on a certain amount of net value of transactions, early termination (optional or mandatory) of transactions at certain dates in the future, coupon adjustment of transaction in exchange for payment of the debtor counterpart over a certain threshold amount, etc.

 

Below are detail the contracts susceptible to offset:

 

   Fair Value   Negative Fair Value of contracts with right to offset   Positive Fair Value of contracts with right to offset   Financial Collateral   Net Fair Value 
   March   December   March   December   March   December   March   December   March   December 
   2021   2020   2021   2020   2021   2020   2021   2020   2021   2020 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                         
Derivative financial assets   1,950,321    2,618,004    (582,068)   (653,145)   (1,086,621)   (1,605,409)   (76,292)   (85,614)   205,340    273,836 
                                                   
Derivative financial liabilities   2,119,562    2,841,756    (582,068)   (653,145)   (1,086,621)   (1,605,409)   (146,682)   (218,329)   304,191    364,873 

 

101

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

40.Maturity of Assets and Liabilities:

 

The table below details the main financial assets and liabilities grouped in accordance with their remaining maturity, including accrued interest as of March 31, 2021 and December 31, 2020, respectively. As these are for trading and available-for-sale instruments are included at their fair value:

 

   As of March 31, 2021 
   Demand   Up to
1 month		   Over
1 month and up to
3 months		   Over
3 month and up to
12 months		   Subtotal up to
1 year		   Over
1 year
and up to
3 years		   Over
3 year
and up to
5 years		  

Over

5 years

   Subtotal over
1 year		   Total 
Assets  MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$ 
Cash and due from banks   2,203,602    —    —    —    2,203,602    —    —    —    —    2,203,602 
Transactions in the course of collection   —    512,295    —    —    512,295    —    —    —    —    512,295 
Financial Assets held-for-trading   —    2,229,153    —    —    2,229,153    —    —    —    —    2,229,153 
Investments under resale agreements   —    25,921    18,380    18,122    62,423    —    —    —    —    62,423 
Derivative instruments   —    103,208    129,440    289,292    521,940    527,537    332,436    568,408    1,428,381    1,950,321 
Loans and advances to banks (*)   —    4,362,815    73,530    118,730    4,555,075    —    —    —    —    4,555,075 
Loans to customers (*)   —    3,456,383    2,486,239    5,488,952    11,431,574    7,086,506    3,727,570    9,521,758    20,335,834    31,767,408 
Financial assets available-for-sale   —    7,148    102,679    686,859    796,686    91,121    24,086    152,625    267,832    1,064,518 
Financial assets held-to-maturity   —    —    —    —    —    —    —    —    —    — 
Total financial assets   2,203,602    10,696,923    2,810,268    6,601,955    22,312,748    7,705,164    4,084,092    10,242,791    22,032,047    44,344,795 
                                                   

 

102

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

40.Maturity of Assets and Liabilities, continued:

 

   As of December 31, 2020 
   Demand   Up to
1 month		   Over
1 month and up to
3 months		   Over
3 month
and up to
12 months		   Subtotal up to
1 year		   Over
1 year
and up to
3 years		   Over
3 year
and up to
5 years		  

Over

5 years

   Subtotal over
1 year		   Total 
Assets  MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$ 
Cash and due from banks   2,560,216    —    —    —    2,560,216    —    —    —    —    2,560,216 
Transactions in the course of collection   —    582,308    —    —    582,308    —    —    —    —    582,308 
Financial Assets held-for-trading   —    4,666,156    —    —    4,666,156    —    —    —    —    4,666,156 
Investments under resale agreements   —    39,095    20,591    16,721    76,407    —    —    —    —    76,407 
Derivative instruments   —    131,978    211,871    423,431    767,280    593,691    405,153    851,880    1,850,724    2,618,004 
Loans and advances to banks (*)   —    2,743,134    71,401    125,121    2,939,656    —    —    —    —    2,939,656 
Loans to customers (*)   —    3,135,152    2,173,685    5,791,178    11,100,015    6,876,058    3,711,756    9,249,139    19,836,953    30,936,968 
Financial assets available-for-sale   —    78,180    140,367    487,075    705,622    162,683    16,856    175,362    354,901    1,060,523 
Financial assets held-to-maturity   —    —    —    —    —    —    —    —    —    — 
Total financial assets   2,560,216    11,376,003    2,617,915    6,843,526    23,397,660    7,632,432    4,133,765    10,276,381    22,042,578    45,440,238 

 

(*)These balances are presented without deduction of their respective provisions, which amount to Ch$719,409 million (Ch$746,910 million in December 2020) for loans to customers and Ch$483 million (Ch$665 million in December 2020) for borrowings from financial institutions.

 

103

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

40.Maturity of Assets and Liabilities, continued:

 

   As of March 31, 2021 
   Demand   Up to
1 month		   Over
1 month
and up to
3 months		   Over
3 month
and up to
12 months		   Subtotal up to
1 year		   Over
1 year
and up to
3 years		   Over
3 year
and up to
5 years		  

Over

5 years

   Subtotal over
1 year		   Total 
Liabilities  MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$ 
Current accounts and other demand deposits   15,682,372    —    —    —    15,682,372    —    —    —    —    15,682,372 
Transactions in the course of payment   —    838,056    —    —    838,056    —    —    —    —    838,056 
Obligations under repurchase agreements   —    104,090    43    43    104,176    —    —    —    —    104,176 
Savings accounts and time deposits (**)   —    5,920,356    1,524,474    451,162    7,895,992    6,223    794    131    7,148    7,903,140 
Derivative instruments   —    88,623    155,313    293,186    537,122    606,676    359,618    616,146    1,582,440    2,119,562 
Borrowings from financial institutions   —    20,681    201,225    1,253,914    1,475,820    2,198,746    —    —    2,198,746    3,674,566 
Debt issued:                                                  
Mortgage bonds   —    580    788    1,457    2,825    2,096    631    371    3,098    5,923 
Bonds   —    275,456    287,435    1,107,156    1,670,047    1,687,280    1,684,892    3,022,413    6,394,585    8,064,632 
Subordinate bonds   —    5,758    98,888    16,053    120,699    25,457    17,199    733,070    775,726    896,425 
Lease liabilities   —    256,950    52    147    257,149    161    9    —    170    257,319 
Other financial obligations   —    2,379    4,817    20,742    27,938    37,949    20,101    28,071    86,121    114,059 
Total financial liabilities   15,682,372    7,512,929    2,273,035    3,143,860    28,612,196    4,564,588    2,083,244    4,400,202    11,048,034    39,660,230 

 

104

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

40.Maturity of Assets and Liabilities, continued:

 

   As of December 31, 2020 
   Demand   Up to
1 month		   Over
1 month
and up to
3 months		   Over
3 month
and up to
12 months		   Subtotal up to
1 year		   Over
1 year
and up to
3 years		   Over
3 year
and up to
5 years		  

Over

5 years

   Subtotal over
1 year		   Total 
Pasivos  MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$   MM$ 
Current accounts and other demand deposits   15,167,229    —    —    —    15,167,229    —    —    —    —    15,167,229 
Transactions in the course of payment   —    1,302,000    —    —    1,302,000    —    —    —    —    1,302,000 
Obligations under repurchase agreements   —    288,874    43    —    288,917    —    —    —    —    288,917 
Savings accounts and time deposits (**)   —    5,909,865    1,945,177    642,125    8,497,167    58,441    1,232    151    59,824    8,556,991 
Derivative instruments   —    185,196    243,096    442,551    870,843    666,493    427,190    877,230    1,970,913    2,841,756 
Borrowings from financial institutions   —    76,018    141,809    341,188    559,015    1,020,138    2,090,600    —    3,110,738    3,669,753 
Debt issued:                                                  
Mortgage bonds   —    806    793    1,714    3,313    2,321    838    314    3,473    6,786 
Bonds   —    220,455    113,448    891,973    1,225,876    1,704,497    1,586,221    3,183,808    6,474,526    7,700,402 
Subordinate bonds   —    3,547    1,221    113,397    118,165    29,354    16,688    722,200    768,242    886,407 
Lease liabilities   —    191,303    40    163    191,506    189    18    —    207    191,713 
Other financial obligations   —    2,271    4,621    20,025    26,917    39,697    19,424    28,979    88,100    115,017 
Total financial liabilities   15,167,229    8,180,335    2,450,248    2,453,136    28,250,948    3,521,130    4,142,211    4,812,682    12,476,023    40,726,971 

 

(**)Excludes term saving accounts, which amount to Ch$371,786 million (Ch$342,550 million in December 2020).

 

105

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

41.Subsequent Events:

 

a)On April 20, 2021, Law No. 21,320 that modifies consumer protection law (Law No. 19,496), prohibiting and limiting certain extrajudicial debt collection actions was enacted. Among other matters, this new law (i) limits the number and type of out-of-court collection measures, (ii) requires keeping detailed records of such actions up to two years after they have been initiated, and (iii) prohibits continuing with out-of-court collection actions once a collection has been initiated in court.

 

In the Bank's opinion, this legislation could affect its ability to recover non-performing loans from the loan portfolio granted to individuals and SMEs, affect portfolio expenses, as well as increase collection costs.

 

b)By letter to Management dated April 23, 2021, the CMF reported transitory measures for the exceptional treatment of loan provisions in the commercial portfolio, in order to facilitate the implementation of payment alternatives for debtors who meet certain requirements.

 

The conditions for using the provisioning treatment flexibility measures are:

 

-Fully evaluate the financial and credit condition of the debtors who will be eligible for the granting of the flexibilization conditions. It is not allowed to include debtors in default in accordance with the provisions regulations.

 

-Debtors who are up to date or have a default of no more than 30 days at the time of reprogramming.

 

-Grace periods or postponement credits, of this measure or another, may not add up to more than 6 consecutive months.

 

-Banks must have special consideration with those debtors who have availed themselves of previous postponement measures, and they must have demonstrated good behavior in paying their installments during the period between postponements.

 

In the case of grace periods or deferment credits, and depending on the methodology used in accounting for provisions (standard or internal method) for the group portfolio, the computation of arrears and the expected loss parameters will remain constant until that the payment system is normalized. Once the period of deferment of payments has elapsed and if the debtor does not pay the next obligation to expire, it must be recognized in the next installment of arrears to the one that was pigeonholed in the standard matrix or in the corresponding provision model at the time of easing in order to recognize your credit risk.

 

In the case of debtors evaluated on an individual basis, their risk category will be maintained at the time of reprogramming until the payment regime is normalized in the case of grace periods and deferment credit, which does not prevent them, in the event of signs of deterioration of the debtor’s ability to pay and other variables considered in the internal methods, from being reclassified to the corresponding category.

 

Postponements or reprogramming, in its different modalities, including those that allow to lower the financial burden of the debtors, as long as they comply with the indicated conditions, will not be considered forced renegotiations and therefore, will not lead to the classification of said debtors in default.

 

The validity of the exceptional period for the treatment of provisions is until July 31, 2021.

 

106

 

 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

(Free translation of Interim Consolidated Financial Statements originally issued in Spanish)

 

 

 

41.Subsequent Events, continued:

 

In Management’s opinion, there are no others significant subsequent events that affect or could affect the Interim Consolidated Financial Statements of Banco de Chile and its subsidiaries between March 31, 2021 and the date of issuance of these Interim Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
     

Héctor Hernández G.

General Accounting Manager

  

Eduardo Ebensperger O.

Chief Executive Officer

 

107