A summary of the main milestones in the history of the Bank is set forth in the following chart:
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ANNUAL REPORT FOR THE FISCAL YEAR ENDING DECEMBER 31, 2022
As filed with the Securities and Exchange Commission on April 27, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
OR | |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended | |
OR | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
OR | |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number
BANCO ITAÚ CHILE
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
Republic of
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Investor Relations, Telephone: +(
Address:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
* Not for trading purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities registered for which there is a reporting obligation pursuant Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Accelerated filer ☐ | Non-accelerated filer ☐ | Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ |
| Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
INTRODUCTION
About This Report
We file our annual report on Form 20-F and other information with the U.S. Securities and Exchange Commission.
We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. The materials included in this Annual Report on Form 20-F may be downloaded at the SEC’s website: http://www.sec.gov. Any filings we make are also available to the public over the Internet at the SEC’s website at www.sec.gov and at our website at https://ir.itau.cl. (This URL is intended to be an inactive textual reference only. It is not intended to be an active hyperlink to our website. The information on our website, which might be accessible through a hyperlink resulting from this URL, is not and shall not be deemed to be incorporated into this Annual Report.)
The terms “Banco Itaú Chile,” “Itaú Chile,” “Banco Itaú,” “Itaú,” “the Bank,” “Company,” “we,” “us” and “our” in this Annual Report refer to Banco Itaú Chile together with its subsidiaries unless otherwise specified or the context so requires. The Bank changed its name effective as of March 28, 2023, see Item 4.A. “Information on the Company —History and Development of the Company” for more information.
The term “Chile” refers to the Republic of Chile and the phrase “Chilean government” refers to the government of Chile. The term “Colombia” refers to the Republic of Colombia and the phrase “Colombian government” refers to the government of Colombia.
All references to common shares are to our authorized and outstanding common shares with no par value. All references to “ADSs” are to American Depositary Shares, each representing 1,500 common shares, without par value. The ADSs are evidenced by American Depositary Receipts, or “ADRs,” issued by The Bank of New York Mellon, or the “BNY Mellon.”
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SUMMARY OF RISK FACTORS
An investment in our securities and ADSs is subject to a number of risks, including Risks Associated with our Business, Risks Relating to Chile, Colombia and Other Countries in Which we Operate, Risks Relating to Expansion and Integration of Acquired Businesses and Risks Related to our Securities, the ADSs, our Common Shares and Proposed Tender Offer. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.
Risks Associated with Our Business
Composition of Loan Portfolio: Through the further expansion of our loan portfolio in retail segments, we are seeking to decrease our corporate segment concentration and, as a result, balance our loan portfolio and strengthen our retail operation (particularly in the consumer segment), which may expose us to a higher level of loan losses and require us to establish higher levels of provisions for loan losses, which may in turn have a material adverse effect on our results of operations.
Growth of Loan Portfolio: Our loan portfolio may not continue to grow at the same or similar rates as the growth rate that we historically experienced. In addition, the growth of our loan portfolio may expose us to a higher level of loan losses and require us to establish proportionately higher levels of provisions for loan losses, which would offset the increased income that we can expect to receive as our loan portfolio grows.
Capital and Liquidity Adequacy Requirements: Although we have historically complied with our capital and liquidity adequacy obligations in the jurisdictions where we operate, there can be no assurance that we will continue to do so in the future. If we fail to meet the capital and liquidity adequacy requirements, we may be required to take corrective actions or be subject to sanctions in the jurisdictions where we operate, which could materially and adversely affect our business reputation, financial condition and results of operations.
Interest Rate Volatility: In the current global economic climate, there is a greater degree of uncertainty and unpredictability in the policy decisions and the setting of interest rates by the Central Bank of Chile and the Central Bank of Colombia. Volatility in interest rates could adversely affect us, including our future financial performance and the market value of our securities. In addition, inflation rate volatility, particularly in the event that inflation drops sharply, could adversely affect our net interest income due to the structural gap that exists between inflation-indexed assets and liabilities.
Competition and Consolidation: The Chilean and Colombian markets for financial services are highly competitive and competition is likely to increase, including as a result of the proliferation of non-traditional providers of banking services. In addition, our efforts to offer new services and products may not succeed if product or market opportunities develop more slowly than expected or if the profitability of opportunities is undermined by competitive pressures. Increased competition and industry consolidation may adversely affect the results of our operations.
Risk Management: We use various processes to identify, analyze, manage and control our risk exposure, both in favorable and adverse market conditions. However, these processes involve subjective and complex judgments and assumptions and we cannot guarantee that our risk management efforts will prevent us from experiencing losses that could have a material adverse effect on our business, financial conditions and results of operations.
Concentration Risk: Concentration risk is associated with potentially high financial losses triggered by significant exposure to a particular component of risk. We are subject to concentration risk and an excessive concentration in a particular component of risk could have a material adverse effect on our business, financial condition and results of operations.
Reliance on Short-term Deposits: Time deposits and other term deposits are our primary sources of funding. Our reliance on short-term deposits as our principal source of funds exposes us to sudden increases in our costs of funding which could have a material adverse effect on our revenue.
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Banking Regulations: We are subject to constantly evolving regulation in the markets in which we operate. If enacted, new regulations could require us to inject further capital into our business, restrict the type or volume of transactions we enter into, or set limits on or require the modification of rates or fees that we charge on certain loans or other products, any of which could lower the return on our investments, assets and equity. We may also face increased compliance costs and limitations on our ability to pursue certain business opportunities, which may restrict our operations and thereby adversely affect our financial condition and results of operations.
Government Debt Exposure: We invest in debt securities issued by the Chilean and Colombian governments and the Central Bank of Chile, which, for the most part, are short-term and highly liquid instruments. If the Chilean or Colombian governments default on the timely payment of such securities, our business, financial condition and results of operations may be adversely affected by this exposure.
Our Business Strategy May Not Provide Us the Results We Expect: The success of our business strategy is determined among other things by assumptions made by management about the economic, regulatory, political, and social scenarios. These assumptions are subjective and may not accurately identify potential risks. Failure to implement the strategy could result in financial losses and reduced value creation for our stockholders.
Risks Relating to Chile, Colombia and Other Countries in Which We Operate
Pension Fund Regulations: Pension funds are important funding providers to us and to the Chilean banking system in general. Currently, private pension fund administrators manage approximately one third of the assets under management, with the remaining two thirds being part of the pay-as-you-go system. Therefore, changes in pension fund regulations, including as a result of the expected proposed pension reform, that reduce the funds available to pension funds or constrain their ability to invest in bank deposits and securities (for example, if exposure limits to individual issuers are reduced) would lead us to seek alternative sources of funding that could be more expensive and, as a consequence, might have a material adverse effect on our business, financial condition and results of operations. While a draft is not yet available, bills regarding pension reform in Colombia are expected to be presented to Congress in the upcoming months.
Government Influence: Chilean and Colombian authorities exercise influence on or intervene, from time to time, in the Chilean and Colombian economies (through changes in monetary, fiscal and foreign exchange policies) or in the Chilean and Colombian governments’ structures, which may adversely affect us, as our profitability depends on the levels of economic activity in these countries. For example, in 2022, the governments of Colombia and Venezuela resumed trade relations, and entered into agreements to allow transportation of cargo and passengers between the two countries. Although continuity in political relations is expected, the result of these relations remains uncertain.
Social and Political Environment: The ongoing constitution rewriting process in Chile and internal security issues in Colombia have had or could have in the future a negative effect on the economies in which we operate and in turn could negatively impact our business and/or financial performance.
Risks Related to Our Securities, the ADSs, Our Common Shares and Proposed Tender Offers
Controlling Shareholder: Itaú Unibanco Holding S.A. (“Itaú Unibanco Holding”) is the sole controlling shareholder of Itaú Chile. Our controlling shareholder is able to exercise significant control over us which could result in potential conflicts of interest.
Other Risks: Investors may find it difficult to enforce civil liabilities against us or our directors, officers and controlling persons, most of whom reside outside of the United States. In addition, investors may have fewer and less well-defined shareholders’ rights than with shares of a company in the United States. Further, holders of ADSs are not entitled to attend shareholders’ meetings, and they may only vote through the depositary. Also, if the proposed tender offer is consummated, our controlling shareholder may take or cause certain actions to be taken, including delisting our ADSs from the NYSE, which could limit the liquidity in and price of the ADSs, and adversely affect our business and access to future capital.
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CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 20-F contains statements that constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements preceded by, followed by or that include “believes,” “expects,” “intends,” “plans,” “projects,” “estimates” or “anticipates” and similar expressions. These statements appear throughout this Annual Report, including, without limitation, under “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects,” are not based on historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control and include statements regarding our current intent, belief or expectations with respect to (1) our asset growth and financing plans, (2) trends affecting our financial condition or results of operations, (3) the impact of competition and regulations, (4) projected capital expenditures, and (5) liquidity. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those described in such forward-looking statements included in this Annual Report as a result of various factors (including, without limitation, the actions of competitors, future global economic conditions, market conditions, currency exchange rates and operating and financial risks), many of which are beyond our control. The occurrence of any such factors, not currently expected by us, would significantly alter the results set forth in these statements.
Factors that could cause actual results to differ materially and adversely include, but are not limited to:
● | trends affecting our financial condition or results of operations; |
● | our dividend policy; |
● | changes in the participation of our shareholders or any other factor that may result in a change of control; |
● | the amount of our indebtedness; |
● | adverse developments with respect to the financial stability and conditions of our shareholders, counterparties, joint venture partners and business partners; |
● | natural disasters and pandemics, including the SARS-CoV-2 (“COVID-19”) pandemic and its variant strains that have surfaced globally; |
● | cyber-attacks, terrorism and other criminal activities; |
● | changes in general economic, business, regulatory or political conditions in Chile, Colombia, Latin America and the rest of the world; |
● | the developing conflicts between Russia and Ukraine and any restrictive actions that may be taken by the United States and other countries in response, such as sanctions; |
● | changes in capital markets in general that may affect policies or attitudes towards lending to Chile or Colombia, Chilean or Colombian companies or securities issued by Chilean companies; |
● | the monetary and interest rate policies of the Central Bank of Chile (Banco Central de Chile), or the Central Bank of Colombia (Banco de la República de Colombia); |
● | inflation or deflation; |
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● | unemployment; |
● | social unrest; |
● | our counterparties’ failure to meet contractual obligations; |
● | unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms; |
● | unanticipated turbulence in interest rates; |
● | movements in currency exchange rates; |
● | movements in equity prices or other rates or prices; |
● | changes in Chilean, Colombian and foreign laws and regulations; |
● | changes in Chilean or Colombian tax rates or tax regimes; |
● | competition, changes in competition and pricing environments; |
● | concentration of financial exposure; |
● | our inability to hedge certain risks economically; |
● | the adequacy of our loss allowances, provisions or reserves; |
● | technological changes; |
● | changes in consumer spending and saving habits; |
● | successful implementation of new technologies; |
● | loss of market share; |
● | changes in, or failure to comply with, applicable banking, insurance, securities or other regulations; |
● | changes in accounting standards; |
● | difficulties in successfully integrating recent and future acquisitions into our operations; |
● | consequences of the merger of the former Itaú Chile with and into the former Corpbanca on April 1, 2016 (the “Merger”), the consolidation of the assets and liabilities of Itaú BBA Colombia S.A., Corporación Financiera (“Itaú BBA Colombia”) by us (the “Itaú Colombia Acquisition”), and the acquisition of an additional 12.36% share ownership in Itaú Corpbanca Colombia, S.A. (“ Itaú Colombia”) by us on February 22, 2022; |
● | our ability to address and forecast economic and social trends affecting our business, and to effectively implement the appropriate strategies; |
● | the recent turmoil in global banking industry, after the failure of two U.S. banks and the forced sale of Credit Suisse; and |
● | the other factors identified or discussed under “Item 3. Key Information—D. Risk Factors” in this Annual Report. |
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You should not place undue reliance on such statements, which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may make in the future. We do not undertake any obligation to release publicly any revisions to such forward-looking statements after the date of this Annual Report to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
ENFORCEMENT OF CIVIL LIABILITIES
We are a banking corporation organized under the laws of Chile. Our directors or executive officers are not residents of the United States and a substantial portion of our assets and the assets of these persons are located outside the United States. As a result, it may not be possible for you to effect service of process within the United States upon us or such persons or to enforce against them or us in the United States or other foreign courts, judgments obtained in the United States predicated upon the civil liability provisions of the federal securities laws of the United States.
No treaty exists between the United States and Chile for the reciprocal enforcement of court judgments. Chilean courts, however, have enforced final judgments rendered in the United States, subject to the review in Chile of the United States judgment in order to ascertain whether certain basic principles of due process and public policy have been respected, without reviewing the merits of the subject matter of the case. If a United States court grants a final judgment in an action based on the civil liability provisions of the federal securities laws of the United States, enforceability of this judgment in Chile will be subject to the obtaining of the relevant “exequatur” (i.e., recognition and enforcement of the foreign judgment) according to Chilean civil procedure law in force at that time, and consequently, subject to the satisfaction of certain factors. Currently, the most important of these factors are the absence of any conflict between the foreign judgment and Chilean laws (excluding for this purpose the laws of civil procedure) and public policies; the absence of a conflicting judgment by a Chilean court relating to the same parties and arising from the same facts and circumstances; the absence of any further means for appeal or review of the judgment in the jurisdiction where judgment was rendered; the Chilean courts’ determination that the United States courts had jurisdiction; that service of process was appropriately served on the defendant and that the defendant was afforded a real opportunity to appear before the court and defend its case; and that enforcement would not violate Chilean public policy.
In general, the enforceability in Chile of final judgments of United States courts does not require retrial in Chile.
6
TABLE OF CONTENTS
7
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
We are a Chilean bank and maintain our financial books and records in Chilean pesos and prepare our consolidated financial statements presented herewith in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. As required by local regulations, our consolidated financial statements filed with the Chilean Commission for the Financial Market (Comisión para el Mercado Financiero) also referred to as the “CMF”, and that are the basis for dividend distributions, have been prepared in accordance with Chilean accounting principles or Chilean Banking GAAP, issued by the CMF. CMF regulations provide that for those matters not specifically regulated by this agency, our financial statements prepared under Chilean Banking GAAP should follow the accounting principles established by IFRS. Unless otherwise indicated herein, as used hereafter IFRS refers to the standards issued by the IASB. Therefore, our consolidated financial statements filed herewith differ from the financial statements prepared in accordance with Chilean Banking GAAP. We have included herein certain information in Chilean Banking GAAP with respect to the Chilean financial system and the financial performance of the Bank. These disclosures are not considered non-GAAP measures as they are required for regulatory purposes in Chile.
The selected consolidated financial information included herein as of December 31, 2021, and 2022, and for the years ended December 31, 2020, 2021 and 2022 is derived from, and presented on the same basis as, our consolidated financial statements prepared under IFRS and should be read together with such consolidated financial statements.
Readers should exercise caution in determining trends based on prior annual reports. See “Item 5. Operating and Financial Review and Prospects—E. Critical Accounting Policies and Estimates.”
Our auditors, PricewaterhouseCoopers Consultores, Auditores y Compañía Limitada, or “PwC”, an independent registered public accounting firm, have audited our consolidated financial statements included in this Annual Report.
Foreign Currency Markets
In this Annual Report, references to “$,” “US$,” “U.S. dollars” and “dollars” are to United States dollars, references to “Chilean pesos,” “Ch$” or “CLP” are to Chilean pesos, references to “UF” are to Unidades de Fomento and references to “Colombian pesos” or “COP$” are to Colombian pesos. The UF is an inflation-indexed, Chilean peso-denominated unit that is linked to and adjusted daily to reflect changes in the previous month’s Chilean Consumer Price Index, or “CPI”, of the Chilean National Statistics Institute (Instituto Nacional de Estadísticas). As of December 31, 2022, one UF equaled US$41.10, Ch$35,110.98 and COP$199,380.92, and as of March 31, 2023, one UF equaled US$44.87, Ch$35,575.48 and COP$207,679.39. See “Item 5. Operating and Financial Review and Prospects.”
This Annual Report contains translations of certain Chilean peso amounts into U.S. dollars and Colombian pesos at specified rates solely for the convenience of the reader. These translations should not be construed as representations that such Chilean peso amounts actually represent such U.S. dollar or Colombian pesos amounts, were converted from U.S. dollars or Colombian pesos amounts at the rate indicated in preparing our consolidated financial statements or could be converted into U.S. dollars or Colombian pesos amounts at the rate indicated or any particular rate at all. Unless otherwise indicated, such U.S. dollar and Colombian pesos amounts have been translated from Chilean pesos based on our own exchange rate of Ch$854.31 and COP$4,851.28, respectively, per US$1.00, as the case may be, as of December 31, 2022.
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Specific Loan Information
Unless otherwise specified, all references in this Annual Report to total loans are to loans and financial leases before deduction for allowances for loan losses, and they do not include loans to banks or unfunded loan commitments. In addition, all market share data and financial indicators for the Chilean banking system when compared to Itaú Chile’s financial information, presented in this Annual Report or incorporated by reference into this Annual Report, are based on information published periodically by the CMF, which is published under Chilean Banking GAAP and prepared on a consolidated basis. Non-performing loans include the principal and accrued interest on any loan with at least one installment more than 89 days overdue. Impaired loans include those loans on which there is objective evidence that customers will not meet some of their contractual payment obligations. At the end of each reporting period, the Bank evaluates the impairment of the loan portfolio in accordance with IFRS 9. Past due loans include all installments and lines of credit more than 89 days overdue, provided that the aggregate principal amount of such loans is not included.
Under Decree with Force of Law No. 3 of 1997, as amended from time to time (including by Law No. 21,130, which sets forth new capital requirements for banks in Chile that are in line with Basel III standards), also called the Ley General de Bancos or the “Chilean General Banking Act”, unless an exception applies, a bank must have an (1) effective net equity (Patrimonio Efectivo) of at least 8% of its risk-weighted assets, net of required allowance for loan losses, as calculated in accordance with Chilean Banking GAAP; and (2) paid-in capital and reserves, or basic capital (Capital Básico), not lower than (y) 4.5% of its risk-weighted assets and (z) 3% of its total assets, in both cases, net of required allowance for loan losses.
Note, however, that a higher effective net equity and/or a higher basic capital may be required in certain cases, including in the following which are subject to regulations issued by the CMF to implement in Chile the new capital requirements established by Law No. 21,130:
a. | From December 1, 2020, a bank is required to have an additional basic capital (Conservation Buffer) equal to 2.5% of its risk-weighted assets, net of required allowances, above the minimum requirements. This additional requirement is going into effect progressively during a 4-year term at a ratio of 0.625% per year, starting on December 1, 2021. Note that during the year 2020 the CMF issued and published the regulations that triggered the applicability of this additional basic capital requirement; |
b. | Beginning on December 1, 2020, the Central Bank of Chile may impose an additional basic capital requirement (Counter-Cyclical Buffer) of up to 2.5% of a bank’s risk-weighted assets, net of required allowances, above the minimum requirements. This additional requirement may be imposed by the Central Bank of Chile on a general basis applicable to all banking institutions, as a contra-cyclical measure. Note that, on September 25, 2020, the CMF published the regulation setting forth the Counter-Cyclical Buffer that may be applicable to banks in Chile; |
c. | In case of a bank or group of banks of a systemic importance (as determined by the CMF through a grounded resolution and with the affirmative consent of the Counsel of the Central Bank of Chile), the CMF is entitled to impose, among others, one or more of the following conditions: (y) an increase between 1% and 3.5% to the basic capital over risk-weighted assets, net of required allowances, above the aforementioned 8% minimum effective net equity (Patrimonio Efectivo) requirement and (z) an increase of up to 2% to the basic capital over total assets, net of required allowances, above the aforementioned 3% minimum basic capital requirement. The conditions imposed on a bank qualified of systemic importance may be terminated in the event the Council of the CMF determines that a bank no longer has systemic importance. |
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On November 2, 2020, the CMF published a regulation setting forth the factors and methodologies to be considered to determine whether a bank or group of banks qualifies as of systemic importance – which includes Banco Itaú; this regulation also provides the additional basic capital requirements to be imposed on a bank if it is considered of systemic importance. This regulation, which became effective on December 1, 2020, provides that the additional basic capital requirements will be applied progressively from December 1, 2022, to December 1, 2025, at a ratio of 25% per year until reaching 100% on December 1, 2025.
d. | If after a review process, to the judgment of the CMF, a bank presents risks not properly protected with the equity requirements mentioned above, the CMF may impose additional equity requirements, starting in the fourth quarter of 2020. Such additional equity requirements may consist of an additional basic capital requirement, or one or more of the instruments that make up the additional tier 1 (AT1) capital and tier 2 (T2) capital as per clauses (y)(2) and (z) described two paragraphs below. In any event, the additional equity requirements shall not exceed 4% of its risk-weighted assets, net of required allowances. For these purposes, the CMF has issued the regulation setting forth the general criteria and guidelines to determine the additional equity requirements as a result of this CMF supervision process. This regulation imposes on banks the obligation to prepare and deliver a Self-Assessment Report on the Effective Net Equity (Informe de Autoevaluación de Patrimonio Efectivo or the “IAPE”) to the CMF on a yearly basis, no later than April each year. This new regulation became fully effective in April 2023. We expect to timely deliver the first IAPE at the end of April 2023. |
To determine the effective net equity of a bank (Patrimonio Efectivo), the Chilean Banking Act authorizes the CMF to set forth, through a general regulation, adjustments or exclusions of assets and liabilities, including risk mitigators, that impact its value. Pursuant to this authorization, on October 8, 2020, the CMF published the regulation containing the elements of and discounts to the regulatory capital of Chilean banks. This regulation became effective on December 1, 2020, and the regulatory adjustments and exclusions will be applied progressively during a 5-year term, without discounts in 2021, and with progressive increases beginning with 15% on December 1, 2022, 30% from December 1, 2023, 65% from December 1, 2024, and reaching 100% on December 1, 2025.
Pursuant to the above-mentioned regulation, the effective net equity (Patrimonio Efectivo) or regulatory capital of a bank is the sum of the following factors: (a) tier 1 (T1) capital, plus (b) tier 2 (T2) capital. In turn, (y) tier 1 (T1) capital is the sum of (1) the bank’s basic capital or common equity tier 1 (CET1) (i.e., paid-in capital and reserves) and (2) the additional tier 1 (AT1) capital (i.e., bonds issued without a maturity date and preferred stocks valued at their issue price, for an amount up to one third of the banks’ basic capital), and (z) tier 2 (T2) capital corresponds to (1) subordinated bonds issued by the bank valued at their issue price and for an amount of up to 50% of its basic capital (provided that the value of the bonds shall decrease by 20% for each year that elapses during the period commencing six years prior to their maturity) and (2) the bank’s voluntary allowances for loan losses up to (A) 1.25% of its credit risk-weighted assets, if standard methodologies are applied, or (B) 0.625% in the event non-standard methodologies are applied.
The following table sets forth the Basel III Implementation Calendar for Chilean banks:
December 31, | ||||||||||||
2020 | 2021 | 2022 | 2023 | 2024 | 2025 | |||||||
Credit Risk (1) | Basel I | Basel III | Basel III | Basel III | Basel III | Basel III | ||||||
Market Risk (2) | N/A | Basel III | Basel III | Basel III | Basel III | Basel III | ||||||
Operational Risk (3) | N/A | Basel III | Basel III | Basel III | Basel III | Basel III | ||||||
Conservation Buffer | 0.0 | % | 0.625 | % | 1.125 | % | 1.875 | % | 2.500 | % | 2.500 | % |
AT1 | 0.0 | % | 0.0 | % | 0.5 | % | 1.0 | % | 1.5 | % | 1.5 | % |
SIB (4) | 0.0 | % | 0.0 | % | 25.0 | % | 50.0 | % | 75.0 | % | 100.0 | % |
Capital discounts | 0.0 | % | 0.0 | % | 15.0 | % | 30.0 | % | 65.0 | % | 100.0 | % |
Pillar III | First report | |||||||||||
Pillar II | In effect | First IAPE | Second IAPE | IAPE full | ||||||||
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(1) | The Basel Committee on Banking Supervision (BCBS) defines Credit Risk as the risk that a debtor or bank counterparty does not meet its obligations in accordance with the agreed terms. |
(2) | BCBS defines Market Risk as the risk of losses arising from movements in market prices. |
(3) | BCBS defines Operational Risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. |
(4) | Systemically Important Banks. The Bank has been designated as an SIB by the CMF. |
Rounding and Other Matters
Certain figures included in this Annual Report and in our consolidated financial statements as of December 31, 2021, and 2022 and for each of the three years in the period ended December 31, 2022, have been rounded for ease of presentation. Percentage figures included in this Annual Report have in all cases not been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Annual Report may vary slightly compared to those obtained by performing the same calculations using the figures in our consolidated financial statements as of December 31, 2021, and 2022 and for the years ended December 31, 2020, 2021 and 2022. Certain other amounts that appear in this Annual Report may similarly not sum due to rounding.
Inflation figures relating to Chile are those reported by the Chilean National Statistics Institute (Instituto Nacional de Estadísticas) or “INE”, unless otherwise stated herein or required by the context. Inflation figures relating to Colombia are those reported by the Colombian National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadística) or “DANE”, unless otherwise stated herein or required by the context. See “Item 3. Key Information—Exchange Rate Information” below.
In this Annual Report, all macroeconomic data related to the Chilean economy is based on information published by the Central Bank of Chile and all macroeconomic data related to the Colombian economy is based on information published by the Central Bank of Colombia or DANE. All market share and other data related to the Chilean financial system is based on information published by the CMF as well as other publicly available information and all market share and other data related to the Colombian financial system is based on information published by the Colombian Financial Superintendency (Superintendencia Financiera de Colombia) as well as other publicly available information. The CMF publishes the consolidated risk index (ratio of allowance for loans losses over total loans) of the Chilean financial system on a monthly basis. The Colombian Financial Superintendency publishes every month the consolidated data required to calculate the risk index of the Colombian banking system (loan loss allowances and total loans).
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EXCHANGE RATE INFORMATION
Exchange Rates
Chile has two currency markets, the Formal Exchange Market (Mercado Cambiario Formal) and the Informal Exchange Market (Mercado Cambiario Informal). The Formal Exchange Market is comprised of banks and other entities authorized by the Central Bank of Chile. The Informal Exchange Market is comprised of entities that are not expressly authorized to operate in the Formal Exchange Market, such as certain foreign exchange houses and travel agencies, among others. The Central Bank of Chile is empowered to require that certain purchases and sales of foreign currencies be carried out on the Formal Exchange Market. Both the Formal and Informal Exchange Markets are driven by free market forces. Current regulations require that the Central Bank of Chile be informed of certain transactions and that they be effected through the Formal Exchange Market.
The U.S. dollar observed exchange rate (dólar observado), or the Observed Exchange Rate, which is reported by the Central Bank of Chile and published daily in the Official Gazette (Diario Oficial) is the weighted average exchange rate of the previous business day’s transactions in the Formal Exchange Market. Nevertheless, the Central Bank of Chile may intervene by buying or selling foreign currency on the Formal Exchange Market to attempt to maintain the Observed Exchange Rate within a desired range. Even though the Central Bank of Chile is authorized to carry out its transactions at the Observed Exchange Rate, it often uses spot rates instead. Many other banks carry out foreign exchange transactions at spot rates as well.
The Informal Exchange Market reflects transactions carried out at an informal exchange rate. There are no limits imposed on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the Observed Exchange Rate.
The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.
As of December 31, 2022, the Bank’s U.S. dollar exchange rate was Ch$854.31 per US$1.00 and the Bank’s Colombian peso exchange rate was COP$4,851.28 per US$1.00.
Exchange Controls Considerations
Investments made in our common shares and our American Depositary Shares, or “ADSs”, are subject to the following requirements:
● | any foreign investor acquiring common shares to be deposited into an ADS facility who brought funds into Chile for that purpose must bring those funds through an entity participating in the Formal Exchange Market; |
● | the entity participating in the Formal Exchange Market through which the funds are brought into Chile must report such investment to the Central Bank of Chile; |
● | all remittances of funds from Chile to the foreign investor upon the sale of common shares underlying ADSs, or from dividends or other distributions made in connection therewith must be made through the Formal Exchange Market; and |
● | all remittances of funds made to the foreign investor must be reported to the Central Bank of Chile. |
When funds are brought into Chile for a purpose other than to acquire common shares to convert them into ADSs and subsequently are used to acquire common shares to be deposited into the ADS facility, such investment must be reported to the Central Bank of Chile by the custodian within ten days following the end of each month within which the custodian is obligated to deliver periodic reports to the Central Bank of Chile.
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All payments made within Chile in foreign currency in connection with ADSs through the Formal Exchange Market must be reported to the Central Bank of Chile by the entity participating in the transaction. In the event there are payments made outside of Chile, the foreign investor must provide the relevant information to the Central Bank of Chile directly or through an entity of the Formal Exchange Market within the first ten calendar days of the month following the date on which the payment was made.
We cannot assure you that additional Chilean restrictions applicable to the holders of the ADSs, the disposition of shares underlying ADSs or the conversion or repatriation of the proceeds from such disposition will not be imposed in the future, nor can we assess the duration or impact of such restriction if imposed.
This summary does not purport to be complete and is qualified by reference to Chapter XIV of the Central Bank Foreign Exchange Regulations, a copy of which is available in the original Spanish version at the Central Bank of Chile’s website at www.bcentral.cl.
A. [RESERVED]
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
We wish to caution readers that the following important factors, and those important factors described in other reports submitted to, or filed with the Securities and Exchange Commission, or the SEC, among other factors, could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. In particular, as we are a non-U.S. company, there are risks associated with investing in our ADSs that are not typical for investments in the shares of U.S. companies. Prior to making an investment decision, you should carefully consider all of the information contained in this document, including the following factors.
Risks Associated with Our Business
The growth and composition of our loan portfolio may expose us to increased loan losses.
In 2022, our aggregate gross loan portfolio increased by increased 7.5%, which was mainly driven by an increase in mortgage and consumer loans in Chile, as well as in the mortgage business in Colombia. Our business strategy is to grow profitably while increasing our loan portfolio size. Through the further expansion of our loan portfolio in retail segments, we are seeking to decrease our corporate segment concentration and, as a result, balance our loan portfolio and strengthen our retail operation (particularly in the consumer segment), which may expose us to a higher level of loan losses and require us to establish higher levels of provisions for loan losses.
As of December 31, 2022, commercial loans represented 61.9% of our total loan portfolio, a decrease when compared to the 63.3% of the same period in 2021. As of December 31, 2022, mortgage loans represented 26.4% of our total loan portfolio, compared to 25.2% as of December 31, 2021, and consumer loans represented 11.7% of our total loan portfolio as of December 31, 2022, compared to 11.4% as of December 31, 2021.
The consumer loans portfolio represents the single highest level of risk in our loan portfolio. As of December 31, 2022, the risk index (ratio of allowance for loans losses over total loans) of the consumer segment was 8.8% while other business units of our loan portfolio, such as mortgage loans and commercial loans, had lower risk indexes of 1.4% and 3.2% respectively.
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Our consumer loan portfolio may experience loan losses due to the absence of collateral in respect of unsecured loans, insufficient collateral in collateralized loans, and risks relating to the circumstances of individual borrowers, including unemployment or incapacitation of our consumer borrowers.
We believe our total allowances for loan losses is adequate as of the date hereof to cover all known and expected losses in our total loan portfolio. The growth of our loan portfolio may expose us to a higher level of loan losses and require us to establish proportionately higher levels of provisions for loan losses, which would offset the increased income that we can expect to receive as our loan portfolio grows.
Our loan portfolio may not continue to grow at the same or similar rate.
Past performance of our loan portfolio may not be indicative of future performance. Our loan portfolio may not continue to grow at the same or similar rates as the growth rate that we historically experienced. Additionally, changes in the Chilean or Colombian economies, a slowdown in the growth of customer demand, an increase in market competition or changes in governmental regulations could also adversely affect the rate of growth of our loan portfolio and our risk index.
Our allowances for loan losses may not be adequate to cover the future actual losses to our loan portfolio.
As of December 31, 2022, our allowance for loan losses was Ch$895,974 million (excluding allowances for loan losses on loans and receivable to banks) and the risk index (or allowances for loan losses to total loans) was 3.4%. The amount of allowance for loan losses is based on our current assessment and expectations concerning various factors affecting the quality of our loan portfolio. These factors include, among others, our customers’ financial condition, repayment abilities and repayment intentions, the realizable value of any collateral, the prospects for support from any guarantor, the condition of the Chilean and Colombian economies, government macroeconomic policies, interest rates and the legal and regulatory environment. Many of these factors are beyond our control. In addition, as these factors evolve, the models we use to determine the appropriate level of allowance for loan losses require recalibration, which may lead to increased provision for loan losses. If our assessment of, and expectations concerning, the abovementioned factors differ from actual developments, if the quality of our loan portfolio deteriorates or if the future actual losses exceed our estimates, our provisions may not be adequate to cover actual losses and we may need to make additional reserves, which may materially and adversely affect our results of operations and financial condition.
If we are unable to maintain the quality of our loan portfolio, our financial condition and results of operations may be materially and adversely affected.
As of December 31, 2022, our non-performing loans were Ch$525,500 million, which resulted in a non-performing to total loans ratio of 2.0% as of December 31, 2022. Further, our loan portfolio classified as stage 3, under IFRS 9, was Ch$1,408,669 million with an expected credit loss (“ECL”) coverage of 28.7% as of December 31, 2022. We seek to continue to improve our credit risk management policies and procedures. However, we cannot assure you that our credit risk management policies, procedures, and systems are free from any deficiency. Failure of credit risk management policies may result in an increase in the level of non-performing loans and adversely affect the quality of our loan portfolio. In addition, the quality of our loan portfolio may also deteriorate due to various other reasons, including factors beyond our control, such as the macroeconomic factors affecting the Chilean or Colombian economies, and the recent turmoil in global banking industry, after the failure of two U.S. banks and the forced sale of Credit Suisse. If such deterioration were to occur, it could materially and adversely affect our financial conditions and results of operations.
Additionally, due to limitations in the availability of information and the developing information infrastructure in Chile and Colombia, our assessment of the credit risks associated with a particular customer may not be based on complete, accurate or reliable information. In addition, although we have been improving our credit scoring systems to better assess borrowers’ credit risk profiles, we cannot assure you that our credit scoring systems collect complete or accurate information reflecting the actual behavior of customers or that their credit risk can be assessed correctly.
Furthermore, a substantial number of our customers consist of individuals and small-to-medium-sized enterprises, or “SMEs”. Our business results relating to our lower-income individual and SME customers are, however, more likely to be adversely affected by downturns in the Chilean and Colombian economies, including increases in unemployment, than our
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business from large corporations and high-income individuals. For example, unemployment directly affects the capacity of individuals to obtain and repay consumer loans. Consequently, this could materially and adversely affect the liquidity, business and financial condition of our customers, which may in turn cause us to experience higher levels of past due loans, and result in higher allowances for loan losses, which could in turn materially affect our asset quality, results of operations and financial conditions.
The value of any collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.
From time to time, we require our borrowers to collateralize their loans with guarantees, pledges of particular assets or other security. The value of any collateral securing our loan portfolio may significantly fluctuate or decline due to factors beyond our control. Such factors include market factors, environmental risks, natural disasters, macroeconomic factors and political events affecting the Chilean or Colombian economies. Any decline in the value of the collateral securing our loans may result in a reduction in the recovery from collateral realization and may have an adverse impact on our results of operations and financial condition.
In addition, we may face difficulties in perfecting our liens and enforcing our rights as a secured creditor. In particular, timing delays and procedural problems in enforcing against collateral and local protectionism in the markets in which we operate may make foreclosures on collateral and enforcement of judgments difficult and may result in losses that could materially and adversely affect our results of operations and financial condition.
We may be unable to meet requirements relating to capital and liquidity adequacy.
Under the Chilean General Banking Act, unless an exception applies, a bank must have an (1) effective net equity (Patrimonio Efectivo) of at least 8% of its risk-weighted assets, net of required allowance for loan losses, as calculated in accordance with Chilean Banking GAAP; and (2) paid-in capital and reserves, or basic capital (Capital Básico), not lower than (y) 4.5% of its risk-weighted assets and (z) 3% of its total assets, in both cases, net of required allowance for loan losses. See “Item 3. Key Information—Presentation of Financial and Other Information—Specific Loan Information” in this Annual Report for additional information regarding events in which a higher effective net equity and/or a higher basic capital may be required and detail on certain regulations that were issued by the CMF during 2020, which may impose additional capital and reserve requirements.
Due to the Merger and considering that the market participation of the merged bank was higher than 15% and below 20%, the CMF considered the Bank to have a material market share and therefore imposed a larger regulatory minimum capital of 10% on the Bank instead of the previous 8%. However, in December 2022, this additional capital requirement that Banco Itaú was subject to due to its merger was derogated. In addition, the CMF introduced new capital requirements on systemically important banks (such as Banco Itaú), which capital requirements must be met before the established deadlines: (i) 25% of the total required by December 1, 2022, (ii) 50% by December 1, 2023, (iii) 75% by December 1, 2024, and (iv) 100% by December 1, 2025.
For the purposes of maintaining a high solvency classification from the CMF and continued compliance with the CMF’s capital requirements on us, our intention is to have the highest classification from the CMF. As of December 31, 2022, our regulatory capital to risk-weighted assets ratio was 15.3% according to the rules issued by the CMF under the Basel III capital requirements standards in Chile, in full compliance with the capital adequacy requirements under the Chilean General Banking Act (as amended) and CMF regulations. See “Item 4. Information on the Company—B. Business Overview—Chilean Banking Regulation and Supervision—Capital Adequacy Requirements” for more information on capital adequacy requirements in Chile.
Additionally, Colombian financial institutions are subject to capital adequacy requirements that are based on applicable Basel Committee standards. Current regulations establish three categories of risk-weighted assets, which are credit, market and operational risks, and require that a credit institution’s Technical Capital (as defined below) be at least 9% of that institution’s total risk-weighted assets, and that its minimum basic solvency ratio be at least 4.5%, which is defined as the ordinary basic capital after deductions divided by the financial institution’s total risk-weighted assets of that institution’s total risk-weighted assets. Technical Capital for the purposes of the Colombian regulations consists of the sum of tier one
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capital (ordinary basic capital), additional tier one capital (additional basic capital) and tier two capital (secondary capital) (“Technical Capital”). As of December 31, 2022, the consolidated solvency ratio for our Colombian operations (calculated according to the Colombian Financial Superintendency definitions for “Total Solvency” (Solvencia Total)) was 15.2%. See “Item 4. Information on the Company—B. Business Overview—Colombian Banking Regulation and Supervision—Capital Adequacy Requirements” for more information on capital adequacy requirements in Colombia.
Furthermore, the Colombian government issued Decree No. 1,477 of 2018 and Decree No. 1,421 of 2019, amending Decree 2,555. Decree No. 1,477 creates complementary ratio mechanisms, such as an additional primary solvency ratio (Relación de Solvencia Básica Adicional) and a leverage ratio (Relación de Apalancamiento), and it also adds certain buffers (Colchones). These complementary ratio mechanisms have been implemented to adopt the recommendations set forth by Basel III. Decree No. 1,421, among other matters, provides a formula for calculating the operational exposure value, using a business indicator (indicador de negocio) multiplied by the coefficient of operational risk (coeficiente de riesgo operacional) and by the internal loss (indicador de pérdida interna). Financial institutions have been required to comply with Decrees No. 1,477 and 1,421 since January 1, 2021, except for matters regarding the additional primary solvency ratio and the buffers, which are subject to a four-year term gradual implementation, starting on January 1, 2021. See “Item 4. Information on the Company—B. Business Overview—Colombian Banking Regulation and Supervision – Capital Adequacy Requirements.”
Certain developments could affect our ability to continue to satisfy the current capital adequacy requirements applicable to us, including:
● | the increase of risk-weighted assets as a result of the expansion of our business; |
● | the failure to increase our capital correspondingly; |
● | losses resulting from a deterioration in our asset quality; |
● | declines in the value of our financial instruments at fair value through other comprehensive income; |
● | increases in deductions from capital, including such decreases related to goodwill and other intangible assets, deferred tax assets and minority interest; |
● | mergers and acquisitions; |
● | changes in accounting rules; |
● | changes in the guidelines regarding the calculation of the capital adequacy ratios of banks in the countries we operate; and |
● | fluctuations in exchange rates that could impact our loan portfolio, valuation adjustments due to the translation effects in equity or hedging strategies. |
Although we have historically complied with our capital adequacy obligations in the jurisdictions where we operate, there can be no assurance that we will continue to do so in the future. We may be required to raise additional capital in the future in order to maintain our capital adequacy ratios above the minimum required levels. Our ability to raise additional capital may be limited by numerous factors, including: our future financial condition, results of operations and cash flows; any necessary government regulatory approvals; our credit ratings; general market conditions for capital raising activities by commercial banks and other financial institutions; and domestic and international economic, political and other conditions. If we require additional capital in the future, we cannot assure you that we will be able to obtain such capital on favorable terms, in a timely manner or at all. For information on actions we are considering to address our capital adequacy ratios going forward, see “Item 5—Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital”.
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Furthermore, if we fail to meet the capital adequacy requirements, we may be required to take corrective actions or be subject to sanctions in the jurisdictions where we operate. These measures or sanctions could materially and adversely affect our business reputation, financial condition and results of operations.
On March 3, 2022, the Central Bank of Chile amended Chapter III.B.2.1 of the Compendio de Normas Financieras, or the Central Bank Financial Regulations containing the rules for local banks with respect to management and measurement of banks’ liquidity positions, compelling banks to share financial information with the regulator and the general public regarding liquid assets, liabilities, concentration of financial instruments by type of liability and counterparty and weighted maturity by type of liability, among other metrics. Pursuant to the new rules, the Liquidity Coverage Ratio (or, the “LCR”) is required at a minimum level of 100% as of June 1, 2022. The Net Stable Funding Ratio (or, the “NSFR”) is required at a minimum level of 70% as of January 1, 2023 and will increase by 10% per year until it reaches 100% as of January 1, 2026. As of December 31, 2022, the LCR and NSFR for our Chilean operations were 219.5% and 114.5%, respectively. We cannot assure you that any future liquidity requirements imposed by our regulators will not have a material impact on our financial condition or results of operations in the future. See “Item 4. Information on the Company—B. Business Overview—Chilean Banking Regulation and Supervision—Reserve Requirements” for more information on liquidity requirements in Chile.
Liquidity adequacy requirements for Colombian financial institutions (as set forth in Resolution 5 of 2008 issued by the board of directors of the Central Bank of Colombia, as amended) include reserves of 8% over the following deposits, cash demands and other passive obligations: private demand deposits, government demand deposits, other deposits and liabilities, and saving deposits. Credit institutions must maintain reserves of 3.5% for term deposits with maturities under 18 months, but no reserves are required for term deposits with maturities that exceed that term. As of December 31, 2022, the LCR and NSFR for our Colombian operations (calculated according to the Colombian Financial Superintendency) were 182.5% and 100.7%, respectively (152.23% and 98.78% under our internal models based on Basel III standards). Although we have historically complied with our required liquidity ratios, there can be no assurance that we will continue to do so in the future. See “Item 4. Information on the Company—B. Business Overview—Colombian Banking Regulation and Supervision—Reserve Requirements” for more information on liquidity requirements in Colombia.
We are dependent on key personnel.
Our development, operation and growth depend significantly upon the efforts and experience of our board of directors, senior management and other key executives. The loss of key personnel for any reason, including retirement or our inability to timely attract and retain qualified management personnel to replace them, could have a material adverse effect on our business, financial condition and results of operations.
We are subject to market risk.
We are affected by changes in local and global economic conditions as both domestic and international idiosyncratic factors and market structures have an impact in our activities. As a bank with regional exposure, market risk, or the risk of losses in positions arising from movements in market prices, is inherent in the products and instruments associated with our operations, including loans, deposits, securities, bonds, long-term debt, short-term borrowings, proprietary trading in assets and liabilities and derivatives. Moreover, as we operate in financially integrated economies, changes in market conditions that may affect our financial condition and results of operations include fluctuations in interest and currency exchange rates, securities prices, and changes in the implied volatility of interest rates and foreign exchange rates, among others.
For example, the recent action of Russian military forces and support personnel in Ukraine has escalated tensions between Russia and the United States, the North Atlantic Treaty Organization (“NATO”), the European Union and the United Kingdom (“U.K”). The United States has imposed, and is likely to impose material additional, financial and economic sanctions and export controls against certain Russian organizations and/or individuals, with similar actions either implemented or planned by the EU and the U.K. and other jurisdictions. To date, these financial and economic sanctions in various ways constrain: (i) transactions with numerous Russian entities and individuals; (ii) transactions in Russian sovereign debt; and (iii) investment, trade, and financing to, from, or in certain regions of Ukraine. In addition, the military conflict between Russia and Ukraine has been a factor behind increases in many commodity prices, such as the prices of
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energy and oil. While the invasion continues, the United States, the European Union and the U.K. and other jurisdictions are likely to impose additional material, financial and economic, sanctions and export controls, including against the Russian energy sector, in which the country is an important global producer. The aforementioned actions and sanctions, and any similar future actions or sanctions, could have or continue to have negative impacts on regional and global financial markets and economic conditions, including disruptions/ interruptions in distribution channels, new price surges and increases in inflation across countries. Such events could have a material adverse effect on our business and financial performance, including through increased costs of compliance, restrictions on our and our clients’ ability to enter into transactions with counterparties in specific regions of the world, higher volatility in foreign currency exchange rates, and increased input costs (such as energy).
While authorities around the world have largely ceased to take measures aimed at containing the spread of the COVID-19 virus and new variants, risks of reinstatement of restrictions remain in place, which could depress economic activity. COVID-19 affected global growth in the past and may continue to add uncertainty to global economic activity. These risks could decrease the investors’ interest in assets in Chile, Colombia and other countries in which we do business, which has already impacted the market price of our securities and may continue to do so, possibly making it more difficult for us to access capital markets and, as a result, to finance our operations in the future.
Furthermore, the impact on global macroeconomic performance may be adversely affected by current turmoil in global banking industry, after the failure of two U.S. banks and the forced sale of Credit Suisse.
Our results of operations are affected by interest rate volatility and inflation rate volatility.
Our results of operations depend to a great extent on our net interest income. In 2020, 2021, and 2022 our ratio of net interest income to total operating income before provision for loan losses was 78.1%, 71.6% and 76.7%, respectively. Changes in market interest rates in Chile or Colombia could affect the interest rates earned on our interest-earning assets differently from the interest rates paid on our interest-bearing liabilities and could result in a reduction of our net interest income. Interest rates are highly sensitive to many factors beyond our control, including the monetary policies of the Central Bank of Chile and the Central Bank of Colombia, changes in regulation of the financial sector in Chile and Colombia, domestic and international economic and political conditions and other factors. Yields on the Chilean government’s 90-day benchmark rate reached a high of 1.8% and a low of 0.5% in 2020, a high of 4.0% and a low of 0.5% in 2021 and a high of 11.25% and a low of 4.0% in 2022. The Colombian government does not issue short-term bonds of 30, 60 or 90 days as the Chilean government does. Instead, every month the board of directors of the Central Bank of Colombia determines the benchmark rate in order to achieve a specific goal of inflation. Yields on the Colombian benchmark rate reached a high of 4.25% and a low of 1.75% in 2020, reached a high of 3.0% and a low of 1.75% in 2021, and reached a high of 12% and a low of 3.0% in 2022. As of December 31, 2020, and 2021, we had Ch$3,599 million and Ch$3,660 million, respectively, in financial instruments at fair value through other comprehensive income. As of December 31, 2022, we had Ch$3,735 million in financial instruments at fair value through other comprehensive income.
In the current global economic climate, there is a greater degree of uncertainty and unpredictability in the policy decisions and the setting of interest rates by the Central Bank of Chile and the Central Bank of Colombia and, as a result, any volatility in interest rates could adversely affect us, including our future financial performance and the market value of our securities. In addition, inflation rate volatility, particularly in the event of sharp inflation drops, could adversely affect our net interest income due to the structural gap that exists between inflation-indexed assets and liabilities.
Furthermore, any increase in interest rates in other countries, especially the United States, could reduce overall liquidity and investor interest in the Chilean and Colombian capital markets. While tight monetary policies in Chile and Colombia with high interest rates may restrict their growth and the availability of credit, more lenient government and Central Bank policies and interest rate decreases may trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could adversely affect us.
Increased competition and industry consolidation may adversely affect the results of our operations.
The Chilean and Colombian markets for financial services are highly competitive and competition is likely to increase.
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In Chile, we face competition from banking and non-banking institutions with respect to the different products we offer. In the consumer and other loans businesses, we compete with other banks, credit unions and public social security funds (cajas de compensación). In some of our credit products, we face competition from department stores, large supermarket chains and leasing, factoring and automobile finance companies, and other non-banking businesses involved in the issuance of private-label credit cards. And in the saving products and mortgage loans businesses we compete with mutual funds, pension funds, insurance companies and with residential mortgage loan managers (Administradoras de Mutuos Hipotecarios). Furthermore, under the Chilean General Banking Act, representative offices of non-Chilean banks are allowed to promote the credit products and services of their headquarters, which has increased, and may further increase, competition in our industry and, thus, have an adverse effect on our results of operation and financial condition.
Non-traditional providers of banking services, such as fintech companies, e-commerce providers, mobile telephone companies and internet companies may offer and/or increase their offerings of financial products and services directly to customers. These non-traditional providers of banking services currently have an advantage over traditional providers because they are not subject to banking regulations. Several of these competitors may have long operating histories, large customer bases, strong brand recognition and significant financial, marketing and other resources. They may adopt more aggressive pricing and rates and devote more resources to technology, infrastructure and marketing. In particular, we face the challenge to compete in an ecosystem where the relationship with the consumer is based on access to digital data. This access is increasingly dominated by digital platforms and fintech companies, which already have a significant presence in relevant markets, such as payments. This privileged access to data can be used as an advantage to compete with us in other adjacent markets and may reduce our operations and margins in core businesses such as lending or wealth management. The alliances that our competitors are starting to build with big technology companies can make it more difficult for us to successfully compete with them and could adversely affect us.
In Colombia, we also operate in a highly competitive environment and increased competitive conditions are to be expected in the jurisdictions where we operate. Intensified merger activity in the financial services industry produces larger, better capitalized and more geographically diverse firms that are capable of offering a wider array of financial products and services at more competitive prices. Our ability to maintain our competitive position in Colombia depends mainly on our ability to fulfill new customers’ needs through the development of new products and services and to offer adequate services as well as to strengthen our customer bases through cross-selling. In addition, our efforts to offer new services and products may not succeed if product or market opportunities develop more slowly than expected or if the profitability of opportunities is undermined by competitive pressures.
Increased competition and industry consolidation may adversely affect the results of our operations. See “Item 4. Information on the Company—B. Business Overview—Competition.”
Our risk management system may not be sufficient to avoid losses that could have a material adverse effect on our business, financial condition and results of operations.
In addition to lending, our financial activities also involve trading of securities and derivatives by our treasury division. Our financial success depends on, among other factors, our ability to accurately balance risks and returns from our operations. We use various processes to identify, analyze, manage and control our risk exposure, both in favorable and adverse market conditions. However, these processes involve subjective and complex judgments and assumptions, including projections of economic conditions and assumptions on the ability of our borrowers to repay their loans, or the ability of our other counterparties to perform under various contracts and instruments. Because of the nature of these risks, we cannot guarantee that our risk management efforts will prevent us from experiencing losses that could have a material adverse effect on our business, financial conditions and results of operations. In particular, we may experience losses that could have a material adverse effect on our business, financial condition and results of operations if, among other factors:
● | we are not capable of identifying all the risks that may affect our portfolio; |
● | our risk analysis or our measures taken in response to such risks are inadequate or inaccurate; |
● | the markets move in an unexpected and adverse way with respect to speed, direction, strength or other aspects and our ability to manage risks in such a scenario is restricted; |
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● | our clients are affected by unforeseen events resulting in their default or losses in an amount higher than those considered in our risk analyses; or |
● | collateral pledged in our favor is insufficient to cover our clients’ obligations to us if they default. |
We are subject to concentration risk.
Concentration risk is the risk associated with potentially high financial losses triggered by significant exposure to a particular component of risk, whether it is related to a particular counterparty, industry, geographic region, mitigating instruments, index or currency. Examples of such risks include significant exposure to a single counterparty, to counterparties operating in the same economic sector or geographical region, to businesses segments or credit products, or to financial instruments that depend on the same index or currency.
While our risk appetite statement and risk management policies and controls are designed to mitigate concentration risk, we cannot assure you that they will prevent the existence of concentrated risk exposures that could have a material adverse effect on our business, financial condition and results of operations.
We make estimates and assumptions in connection with the preparation of our consolidated financial statements, and any changes to those estimates and assumptions could have a material adverse effect on our operating results.
In connection with the preparation of our consolidated financial statements, we use certain estimates and assumptions based on historical experience and other factors. While we believe that these estimates and assumptions are reasonable under the current circumstances, they are subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, our reported operating results could be materially adversely affected. See “Item 5. Operating and Financial Review and Prospects—E. Critical Accounting Policies and Estimates.” for specific information regarding estimates and assumptions.
Changes in accounting standards could impact reported earnings.
The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. We cannot assure you that future changes in financial accounting and reporting standards will not substantially affect our results of operations or performance indicators, as we do not know the extent of future changes.
The preparation of our tax returns requires the use of estimates and interpretations of complex tax laws and regulations and is subject to review by taxing authorities.
We are subject to the tax laws and regulations of Chile, Colombia and certain foreign countries. These tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental taxing authorities, which are sometimes subject to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense and filing returns, we must make judgments and interpretations about the application of these inherently complex tax laws.
If the judgment, estimates and assumptions we use in preparing our tax returns are subsequently found to be incorrect, there could be a material adverse effect on our results of operations.
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As a result of the inherent limitations in our disclosure and accounting controls, misstatements due to error or misconduct may occur and not be detected.
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports we file with or submit to the SEC under the Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to management, recorded, processed summarized and reported within the time periods specified in SEC rules and forms. We believe that any disclosure controls and procedures or internal controls and procedures, including related accounting controls, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. As a result, misstatements due to error or misconduct may occur and may not be detected.
Any failure by us to maintain effective internal control over financial reporting may adversely affect investor confidence and, as a result, the value of investments in our securities.
We are required under the Sarbanes-Oxley Act of 2002 to furnish a report by our management on the effectiveness of our internal control over financial reporting and to include a report by our independent registered public accounting firm attesting to such effectiveness. Any failure by us to maintain effective internal control over financial reporting could adversely affect our ability to report accurately our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent auditors determine that we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market prices of our shares and ADSs could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies subject to SEC regulation, also could restrict our future access to the capital markets.
Our reliance on short-term deposits as our principal source of funds exposes us to sudden increases in our costs of funding which could have a material adverse effect on our revenue.
Time deposits and other term deposits are our primary sources of funding, which represented 34.3% of our liabilities as of December 31, 2022. If a substantial number of our depositors withdraw their demand deposits or do not roll over their time deposits upon maturity, our liquidity position, results of operations and financial condition may be materially and adversely affected. We cannot assure you that in the event of a sudden or unexpected shortage of funds, any money markets in which we operate will be able to maintain levels of funding without incurring higher funding costs or the liquidation of certain assets. If this were to happen, our business, results of operations and financial condition may be materially and adversely affected.
Currency fluctuations could adversely affect our financial condition and results of operations and the value of our securities.
Economic policies and any future changes in the value of the Chilean peso or the Colombian peso against the U.S. dollar could affect the dollar value of our securities, since our equity value is denominated in Chilean and Colombian pesos and not hedged against fluctuations of these currencies against U.S. dollars. The Chilean peso and the Colombian peso have been subject to significant fluctuations in their value against the U.S. dollar in the past and could be subject to similar fluctuations in the future. As of December 31, 2020, the Chilean peso appreciated against the U.S. dollar by 4.5% and the Colombian peso depreciated against the U.S. dollar by 5.4%, each as compared to December 31, 2019. As of December 31, 2021, the Chilean peso depreciated against the U.S. dollar by 19.5% and the Colombian peso depreciated against the U.S. dollar by 15.9%, each as compared to December 31, 2020. As of December 31, 2022, the Chilean peso depreciated against the U.S. dollar by 1.1% and the Colombian peso depreciated against the U.S. dollar by 20.1%, each as compared to December 31, 2021.
Our results of operations may be affected by fluctuations in exchange rates between and among the Chilean peso, the Colombian peso and the U.S. dollar despite our internal policy and Chilean and Colombian regulations relating to the
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general avoidance of material exchange rate gaps. As of December 31, 2020, 2021 and 2022, the gap between foreign currency denominated assets and foreign currency denominated liabilities, excluding derivatives, was Ch$974,361 million, Ch$1,936,599 million and Ch$1,089,135 million, respectively.
We may decide to change our policy regarding exchange rate gaps. Regulations that limit such gaps may also be amended or eliminated. Greater exchange rate gaps could increase our exposure to the devaluation of the Chilean peso and/or the Colombian peso, and any such devaluation may impair our capacity to service our foreign-currency obligations and may, therefore, materially and adversely affect our financial condition and results of operations.
Our business is highly dependent on proper functioning and improvement of information technology systems.
Our business is highly dependent on the ability of our information technology systems to accurately process a large number of transactions across numerous and diverse markets and products in a secure and timely manner. The proper functioning of our financial control, risk management, accounting, customer service and other data processing systems is critical to our business and our ability to compete effectively. We have backup data for our key data processing systems that could be used in the event of a catastrophe or a failure of our primary systems and have established alternative communication networks where available. However, we cannot assure you that our business activities would not be materially disrupted if we experience a partial or complete failure of any of these primary information technology systems or communication networks. Such failures could be caused by, among other things, software bugs, computer virus attacks, cyber-attacks or conversion errors due to system upgrading. In addition, a cyber-attack, including any security breach caused by unauthorized access to information or systems, intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, could have a material adverse effect on our business, results of operations and financial condition. As the cyber-threat landscape evolves, these attacks are growing in frequency, sophistication and intensity, and due to the nature of some of these attacks, there is also a risk that they may remain undetected for a period of time.
Our ability to remain competitive and achieve further growth will depend in part on our ability to upgrade our information technology systems and increase our capacity on a timely and cost-effective basis. Any substantial failure to improve or upgrade information technology systems effectively or on a timely basis could materially and adversely affect our business, financial condition and results of operations.
Further, during the last four years, the number of our employees working remotely has increased. This may cause increases in the unavailability of our systems and infrastructure, interruption of telecommunication services, generalized system failures and heightened vulnerability to cyberattacks. Accordingly, our ability to conduct our business may be adversely impacted.
See “Item 4. Information on the Company—B. Business Overview—Distribution Channels, Electronic Banking and Technology” for more information about our technology systems.
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Chile’s continuous political, legal and economic uncertainty arising from social unrest could adversely impact our business.
A series of extreme disruptive protests over economic inequality in Chile were initially sparked by the announcement of a subway fare increase in Santiago in 2019. Important political and social actors claim that this and other events of social unrest reflect the desire for a new social contract. Chile’s current Constitution dates to August 11, 1980 and has been subject to several amendments. On November 15, 2019, the majority of the local political parties agreed on a new constitutional process, which was initiated by a referendum held on October 25, 2020, in which the choice for a new Constitution obtained 78% of the votes and 79% of voters determined that a convention entirely comprised of citizens will draft the new Constitution. On July 4, 2021, a Civic Constitutional Convention was installed with the purpose of drafting a proposal for a new Constitution within a year. The proposal drafted by the Civic Constitutional Convention was widely rejected by the Chilean citizens in the national mandatory referendum held on September 4, 2022. As a result of this rejection, the 1980 Constitution remained effective. However, on December 12, 2022, almost all political parties represented in the Congress agreed upon the basis for the drafting and approval of a new Constitution. This agreement led to the enactment of Law No. 21,533, which was published in the Official Gazette on January 17, 2023. For further details, please see “Item 4. Information on the Company—B. Business Overview— Recent Regulatory Developments in Chile— Referendum to Amend the Chilean Constitution.”
Even though the unrest has subsided, and the long-term effects of this social unrest are difficult to predict, they could include, for example, slower economic growth and higher unemployment rates that could adversely affect our profitability and prospects. Overall, we cannot assure you that the level of social unrest will not worsen in Chile in the near future, and therefore, we can offer no assurance that social unrest will not have a negative impact on economic growth, the overall Chilean business environment and our results of operations and financial condition.
Adverse changes in labor relations in Chile or Colombia could impact our business.
As of December 31, 2022, on a consolidated basis, we had: (i) 5,163 employees in Chile, in our New York Branch and in our representative office in Peru (considered together), of which 61.4% were unionized, and 2,395 employees in Colombia and Panama (considered together), of which 39% were unionized. We are parties to collective bargaining agreements with unions representing our employees in Chile and Colombia. Itaú Chile’s current labor agreements with five unions in Chile were subscribed in September 2020, in September 2022 and in December 2022, and will expire in August 2023, in September 2025, and in December 2025, respectively. Itaú Colombia’s collective bargaining agreement with eight unions in Colombia was subscribed on September 1, 2021, and will expire on August 31, 2023. We generally apply the relevant terms of our collective bargaining agreement to unionized and non-unionized employees in each of the markets in which we operate. We have traditionally enjoyed good relations with our employees and their unions, and expect to continue to renew our collective bargaining agreements as the expire. However, there can be no assurance that we will be able to renew our collective bargaining agreements on satisfactory terms or at all. This could result in strikes or work stoppages, which could result in substantial losses. The terms of existing or renewed agreements could also significantly increase our costs or negatively affect us. Also, a strengthening of cross-industry labor movements may result in increased employee or labor costs that could materially and adversely affect our business, financial condition or results of operations.
Law No. 20,940, which became effective on April 1, 2017, introduced significant amendments to the Chilean labor system. The principal amendments enacted by Law No. 20,940 to the existing labor framework in Chile included the expansion of collective bargaining coverage, a limitation on employer’s ability to replace workers on strike, the establishment of a baseline for negotiating new collective bargaining agreements, disclosure requirements regarding employee benefits and in the case of unions that represent employees of various companies in one industry, a requirement that employers negotiate with the union and not just their employees, among others.
Although said reform was intended to encourage collective bargaining and increase unionization rates, the implementation of Law No. 20,940 has not produced a substantive change in the effect of collective bargaining laws in Chile, and consequently unionization rates, collective bargaining agreements and strikes have not noticeably increased. However, according to the agenda of the new administration of President Gabriel Boric, appointed on March 11, 2022, new changes in this area might be introduced to increase the power of unions, and, therefore, potentially, the ability of employees to strike.
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A new Chilean labor reform (Law No. 21,561)was published in the Chilean Official Gazzette on April 26, 2023. Among other items, this law will shorten the work week from 45 hours to 40 hours, excluding lunch breaks. The new law will become effective gradually starting 12 months from April 26, 2023 and is expected to be fully implemented by April 26, 2028. This Law will have an impact on every employer’s labor expenses, including the Bank’s. The weekly working hours agreed under the collective bargaining agreements we have with our employees are 45 hours (excluding lunch breaks) and our minimum wage is set above the legal minimum. Despite this, we cannot assure you, at this time, that the new labor reform will not have a material impact on our expenses. Shortened work hours are expected to lead to higher labor costs and other related expenses. For more information on Chile recent labor regulations, see “Item 4. Information on the Company. B. Business Overview— Chilean Banking Regulation and Supervision—Recent Labor Laws.”
Further, Law No. 21,360, published in July 2021, establishes an increment of the Minimum Monthly Income based on the variation of the seasonally adjusted Monthly Economic Activity Index (IMACEC). Based on this law, as of January 1, 2022, the Minimum Monthly Income is equivalent to Ch$350,000 (US$414.7). As per recent statements made by President Gabriel Boric, the new administration is expected to promote an increase the current Minimum Monthly Income to Ch$500,000 (US$592.4).
Among the bills that could give rise to higher costs from a labor point of view in Chile, the universal childcare bill, the bill establishing severance payments without caps, and the bill that reduces the maximum working day (as described above) are worth noting. Bill No. 14,782-13 relates to childcare and aims to create a solidarity fund that would contribute to the financing of nursery care for working mothers’ children with ages between six months and two years old. Today, only employees of companies with 20 or more women are entitled to nursery care and this bill would remove such differentiation based on the size of the company. The solidarity fund would be financed by a contribution from the employer equivalent to 0.1% of the taxable salaries of its employees, with a cap of UF60 (Ch$1.9 million, or US$2,203). It would finance 100% of the costs incurred by micro and small companies with respect to this benefit, while medium and large-sized companies would be only partially financed, subject to the size of the company. This bill has not reported any change of status since June 2022. Bill No. 14,698-13 rules on severance payments and aims to eliminate the current 11-year cap applicable to severance payments which a dismissed employee may be entitled to. Thus, if an employee has worked for more than 11 years for an employer, at the time of dismissal he/she would be paid a severance payment equivalent to all his/her working years. This bill has not advanced in the legislative process since November 2021, but if legislators decide to speed it up to become law, this could mean a considerable increase in dismissal costs.
In Colombia, Law 2,101 was issued in 2021 to gradually reduce the weekly regular working hours, without affecting the employees’ salary or acquired rights. This law intends to reduce the weekly regular working hours from 48 hours to 42 hours by 2026. The first gradual reduction (from 48 to 47 hours per week) will be effective by July 2023. This reduction may directly affect our labor costs considering the working hours reduction and the impact that this law would have on the payment of overtime surcharges to non-exempt employees with ordinary salaries. In addition, Law 2,114 of 2021 increased the statutory paternity leave from eight business days to two weeks. Additional statutory paid leaves were introduced, allowing parents to share the last six weeks of the maternity leave between them (shared parental leave), or allowing them to work part time resulting in an increase of the length of the maternity and paternity leaves (flexible part time parental leave). Additional job security protection was also established for employees during paternity leave or when the spouse or permanent companion is unemployed, pregnant or on maternity leave, and is covered by the social security services of his/her partner (Law 2,141 of August 10, 2021). Furthermore, Law 2,174 of 2021 was issued to introduce a new paid leave applicable to employees who are parents and/or caregivers of a minor who suffers from a terminal illness or medical condition, or has a severe medical condition derived from a serious accident and who requires permanent care. Such paid leave will be granted once a year for a total of ten business days. Moreover, there are, at least, 18 bills currently under review by the Colombian Congress with direct impact on employment and social security matters. If approved, changes to working schedules, overtime surcharges, additional leaves, increase in the number of days for paid annual leave (vacation), the legal minimum monthly wage per industry and geographic zone, and compulsory salary increases in light of inflation, among others, may be effected. In addition, the Colombian Congress is currently reviewing three bills proposing changes to the current health care system, the pension system, and the labor regime in Colombia. It is expected that these bills will be discussed during the current legislature and are likely be approved by October 2023.
These and any additional legislative or regulatory actions in Chile, Colombia, Panama, the United States or other countries, and any required changes to our business operations resulting from such labor legislation and regulations, could result, for
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example, in reduced capital availability, significant loss of revenue, limit our ability to continue organic growth (including increased lending), pursue business opportunities in which we might otherwise consider engaging to provide certain products and services, affect the value of the assets that we hold, require us to increase our prices, and therefore, reduce demand for our products, impose additional costs on us or otherwise adversely affect our businesses, results of operations or financial condition. Accordingly, we cannot provide assurance that any such new legislation or regulations would not have an adverse effect on our business, results of operations or financial condition in the future.
We are subject to counterparty risk.
We are exposed to counterparty risk in addition to credit risks associated with our lending and other financial activities. We routinely conduct transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients. Many of the routine transactions we enter into expose us to significant credit risk in the event of default by one of our significant counterparties.
We may incur losses if any of our counterparties fail to meet their contractual obligations, due to bankruptcy, lack of liquidity, operational failure or other reasons that are exclusively attributable to our counterparties. Counterparty risk may arise from, for example, investing in securities of third parties, entering into derivative contracts under which counterparties have obligations to make payments to us or executing securities, futures, currency or commodity trades from proprietary trading activities that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, clearing houses or other financial intermediaries. Failure to meet contractual obligations by our counterparties could have a material adverse effect on our business, financial condition and results of operations. Moreover, we are following closely the market turmoil generated by bank failures in the United States in March 2023, and the forced sale of Credit Suisse, and the related impact these and other similar events may have on us and our counterparties.
We rely on third parties for important products and services.
Third party vendors provide key components of our business infrastructure such as loan and deposit servicing systems, back office and business process support, information technology production and support, internet connections and network access. Relying on these third parties and affiliated companies can be a source of operational and regulatory risk to us, including with respect to security breaches affecting such parties. We are also subject to risk with respect to security breaches affecting the vendors and other parties that interact with these service providers. As our interconnectivity with these third parties and affiliated companies increases, we increasingly face the risk of operational failure with respect to their systems. We may be required to take steps to protect the integrity of our operational systems, thereby increasing our operational costs and potentially decreasing customer satisfaction. In addition, any problems caused by these third parties or affiliated companies, including as a result of them not providing us their services for any reason, or performing their services poorly, could adversely affect our ability to deliver products and services to customers and otherwise conduct our business, which could lead to reputational damage and regulatory investigations and intervention. Replacing these third party vendors could also entail significant delays and expense, which could negatively impact our business.
We may experience operational problems, errors or misconduct.
We are exposed to many types of operational risks, including the risk of misconduct by employees and outsiders, failure to obtain proper authorizations, failure to properly document transactions, equipment failures and errors by employees. Although we maintain a system of operational controls, there can be no assurances that operational problems or errors will not occur and that their occurrence will not have a material adverse effect on our business, financial condition and results of operations.
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Our anti-money laundering and anti-terrorist financing measures may not prevent third parties from using us as a conduit for those activities, which could have a material adverse effect on our business, financial condition and results of operations.
We are required to comply with applicable anti-money laundering and anti-terrorist financing laws and regulations, and we have adopted various policies and procedures, including internal controls and “know-your customer” procedures, aimed at preventing money laundering and terrorist financing. In addition, we also rely on our correspondent banks having their own appropriate anti-money laundering and anti-terrorist financing procedures, and use what we believe are commercially reasonable procedures for monitoring our correspondent banks. However, these measures, procedures and compliance may not be entirely effective in preventing third parties from using us (and our correspondent banks) as a conduit for money laundering (including illegal cash operations) or terrorist financing without our (and our correspondent banks’) knowledge or consent. If we were to be associated with money laundering (including illegal cash operations) or terrorist financing, our reputation could be harmed and we could become subject to fines, sanctions or legal enforcement (including being added to any “blacklists” that would prohibit certain parties from engaging in transactions with us), which could have a material adverse effect on our business, financial condition and results of operation. For more information, see “Item 4. Information on the Company—B. Business Overview—Anti-Money Laundering, Anti-Terrorist Financing and Foreign Corrupt Practices Act Regulations.”
Banking regulations may restrict our operations and thereby adversely affect our financial condition and results of operations.
We are subject to regulation in the markets in which we operate, including by the CMF and by the Central Bank of Chile in Chile, and by the Central Bank of Colombia, by the Colombian Ministry of Finance and Public Credit (Ministerio de Hacienda y Crédito Público), by the Colombian Financial Superintendency, by the Superintendency of Industry and Commerce (Superintendencia de Industria y Comercio or the “SIC”), and by the Self-Regulatory Organization (Autorregulador del Mercado de Valores-AMV, or the “SRO”) in Colombia.
Pursuant to the Chilean General Banking Act in Chile and the Financial System Organic Act (Estatuto Orgánico del Sistema Financiero) in Colombia, we may, subject to the necessary regulatory approvals, engage in the commercial banking business and in certain businesses in addition to traditional commercial banking. Such additional businesses may include securities brokerage, mutual fund management, securitization, insurance brokerage, leasing, factoring, financial advisory, custody and transportation of securities, loan collection and financial services. Regulators may in the future impose more restrictive limitations on the activities of banks, including us.
Regulation may also be increased in Chile and/or in Colombia, including the imposition of higher capital requirements, heightened disclosure standards and restrictions on certain types of transaction structures. For example, as a result of the 2008 global financial crisis, there was an increase in government regulation of the financial services industry in many countries, including in Chile and Colombia. On August 4, 2022, the Colombian Ministry of Finance and Public Credit issued Decree 1,533 of 2022 modifying the rules regarding large exposures and risk concentration of credit institutions. Through this Decree, credit institutions must identify connected groups of counterparties (“CGCCs”). Once these CGCCs have been identified, exposures to any or all the entities that make up a CGCC is subject to a maximum limit. Financial institutions (including the Bank) must comply with this regulation by August 4, 2025, and the Colombian Financial Superintendency will issue compliance instructions within 18 months from August 4, 2022. In addition, numerous novel regulatory proposals have been discussed or proposed. If and when enacted, new regulations could require us to inject further capital into our business, restrict the type or volume of transactions we enter into, or set limits on or require the modification of rates or fees that we charge on certain loans or other products, any of which could lower the return on our investments, assets and equity. Moreover, new capital adequacy requirements could require us to inject further capital into our business as well as in businesses we acquire, or to capitalize dividends, restrict the type or volume of transactions we enter into, or set limits on or require the change of rates or fees that we charge on certain loans or other products, any of which could lower the return on our investments, assets and equity. We may also face increased compliance costs and limitations on our ability to pursue certain business opportunities.
For more information, see “Item 4. Information on the Company—B. Business Overview—Chilean Banking Regulation and Supervision” and “—B. Business Overview—Chilean Banking Regulation and Supervision.”
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The banking regulatory and capital markets environment in which we operate is continually evolving and may change.
Changes in banking regulations may materially and adversely affect our business, financial condition and results of operations. Chilean laws, regulations, policies and interpretations of laws relating to the financial system are continually evolving and changing. For more information, see “Item 4. Information on the Company—B. Business Overview—Chilean Banking Regulation and Supervision—Recent Regulatory Developments in Chile.”
Colombia has also experienced changes in applicable laws, regulations and policies, such as those regarding financial inclusion and consumer protection. In order to promote financial inclusion, the Colombian Congress passed Law No. 1,735 of 2014, which created a new type of financial entity called Specialized Electronic Deposit and Payment Institutions (Sociedades Especializadas en Depósitos y Pagos Electrónicos, or “SEDPEs”). SEDPEs are now authorized to use correspondent networks and open accounts remotely, and SEDPE customers are authorized to have more than one account per SEDPE, which may further encourage the utilization of SEDPEs in the Colombian financial market. Additionally, along with the global trend to increase the use of technology for different financial services, new regulations may be issued by the Colombian government in order to facilitate the incorporation of these entities into the financial system. Such changes and trends may increase competition in the Colombian financial market and may impair our ability to expand or retain our customer base. On July 31, 2018, the Colombian Ministry of Finance and Public Credit issued Decree No. 1,357, which permitted the creation of companies with the purpose of managing electronic systems destined for crowdfunding. The creation of these companies may have an adverse impact on our business, given that they offer an alternative to finance projects that is different from traditional loans.
In addition, Decree 1,234 of 2020 sets out a mechanism of procedures, plans, conditions, and requirements to enable testing of innovative technological developments in the activities of the entities supervised by the Colombian Financial Superintendency. The innovative technological developments permitted under Decree 1,234 must have one of the following purposes: increasing efficiency in the provision of services or offering of financial products; solving a problem for financial consumers; facilitating financial inclusion; improving regulatory compliance; and developing financial markets or improving their competitiveness. The Colombian Financial Superintendency reported that as of March 2022, 16 alliances were approved to test operations in deposit products, among others, on behalf of cryptoactive platforms in the “sandbox” implemented by the Colombian regulator. These alliances will have a trial year during which participants can develop their activities. The financial system in Colombia, including its participants such as ITCB, could be impacted to the extent that these technological developments provide for new clients (e.g., crypto-asset platforms) that are formally linked to the financial system and require new types of assets or funds to be deposited in banks.
On July 14, 2022, the Colombian Financial Superintendency presented an external circular bill (Proyecto de Circular) aiming to regulate virtual assets such as crypto assets. The bill provides for: (i) a definition of virtual asset; (ii) elements that Colombian financial entities (such as the Bank) must consider before contracting with a client that provides virtual assets; (iii) the information required to be provided to the financial consumer when contracting with virtual asset service providers (including market and liquidity risks related thereto); (iv) a clarification of which supervised entities and the operations that may be carried out with virtual assets. All virtual asset service providers (Proveedor de Servicios de Activos Virtuales) must comply with the foreign exchange regulations established by the Colombian Central Bank, and have technological platforms and procedures to prevent money laundering and financing of terrorism. The bill is expected to become effective in the first half of 2023. In addition, on October 31, 2022, Bill 139 of 2021, which seeks to regulate crypto-asset exchange services and the platforms that offer these services, was discussed and debated in Congress. The above bills are aimed at setting forth rules (operational, know-your-customer, and security standards) to be applied for transactions in virtual assets with a view to ensure that financial institutions (such as the Bank) can enter the crypto-asset ecosystem with a focus on transparency and security.
Additionally, on July 25, 2022, the Colombian Ministry of Finance and Public Credit issued Decree 1,297 of 2022 in order to improve financial inclusion, diversify the products that Colombian financial institutions can offer, and implement international Open Banking standards. Under this Decree, financial institutions in Colombia (such as the Bank) may provide for storing and sharing of consumer’s financial information in a standardized manner with other financial entities or third parties, provided they have the prior, express, and informed authorization of the consumer, and can prove compliance with Colombian data processing laws. Digital financial migration in Colombia in recent years has led to an
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increase in financial data, including from people who previously did not have access to banking services. This new regulation defines more clearly the actors that may operate with supervised entities (such as the Bank), and establishes the operating rules for carrying out an Open Banking system.
Moreover, the Ministry of Finance and Public Credit, the Colombian Central Bank, the Colombian Financial Superintendency and the entities that make up the regulatory financial network have adopted different measures aimed at protecting the stability of the financial system and the proper functioning of the markets, promoting access to liquidity and adequate management of the risks related to the COVID-19 pandemic, and especially protecting financial consumers in this context. One of these measures was Decree 817 of 2020, which took extraordinary measures to allow joint-stock companies (sociedad por acciones simplificada) to issue debt securities and trade them on stock exchanges for a two-year term. The Colombian Government intends to make this provision permanent and allow joint-stock companies to register their securities in the National Registry of Securities and Issuers.
In addition, pursuant to the objective of the Colombian government in adopting the recommendations set forth by Basel III, the Colombian Ministry of Finance and Public Credit issued Decree No. 1,477 of 2018 and Decree No. 1,421 of 2019, amending Decree 2,555. Decree No. 1,477 creates complementary ratio mechanisms, such as an additional primary solvency ratio (Relación de Solvencia Básica Adicional) and a leverage ratio (Relación de Apalancamiento), and it also adds certain buffers (Colchones). These complementary ratio mechanisms have been implemented to adopt the recommendations set forth by Basel III. Decree No. 1,421, among other matters, provides a formula for calculating the operational exposure value, using a business indicator (indicador de negocio) multiplied by the coefficient of operational risk (coeficiente de riesgo operacional) and by the internal loss (indicador de pérdida interna). Financial institutions have been required to comply with Decrees No. 1,477 and 1,421 since January 1, 2021, except for matters regarding the additional primary solvency ratio and the buffers, which are subject to a four-year term gradual implementation, starting on January 1, 2021. However, due to the COVID-19 pandemic, the Basel Committee announced on March 27, 2020, a series of measures aimed at providing additional operational capacity to enable financial entities and their supervisors to respond proactively to the impact that the COVID-19 pandemic has had on the global financial system. Among the measures designed are the following: (i) delaying the final implementation date of certain new Basel III regulations; and (ii) allowing financial institutions to adopt a new market risk framework and make clearer disclosures about their solvency ratios and leverage ratios. The measures adopted by the Basel Committee allow financial entities to allocate resources that were aimed at strengthening their solvency to respond to the adverse impact that the COVID-19 pandemic has had on global financial markets. The measures allow banks to have greater liquidity in order to promote financing to companies and households. Finally, through the measures implemented by the Basel Committee, supervisors will free up credit capacity by reducing the capital reserves that are required for banks in scenarios in which losses on loans must be covered. As of March 2023, several financial entities are implementing financial instruments to adapt to Basel III requirements. See “Item 4. Information on the Company—B. Business Overview—Colombian Banking Regulation and Supervision.”
We also have limited operations or offices outside of Chile and Colombia, including the United States, Panama and Peru. Changes in the laws or regulations applicable to our business in the countries where we operate, or the adoption of new laws, and related regulations or their applicability or interpretation, may have an adverse effect on our operations and financial condition.
We are subject to regulatory inspections, examinations and to the imposition of fines by regulatory authorities in Chile and in Colombia.
We are also subject to various inspections, examinations, inquiries, audits and other regulatory requirements by Chilean and Colombian regulatory authorities, certain of them annually.
We cannot assure you that we will be able to meet all of the applicable regulatory requirements and guidelines, or that we will not be subject to other sanctions, fines, restrictions on our business or other penalties in the future as a result of non-compliance. If other sanctions, fines, restrictions on our business or other penalties are imposed on us for failure to comply with applicable requirements, guidelines or regulations, our business, financial condition, results of operations and our reputation and ability to engage in business may be materially and adversely affected.
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Deficiencies in the implementation of Risk Management System for Money Laundering and Terrorism Financing parameters and the performance of unauthorized financial activities were the most common reasons for the opening of these examination processes during these years.
Security breaches, including cyber-attacks, could materially and adversely affect our business, financial condition and results of operations.
We manage and hold confidential personal information of customers in the conduct of our banking operations, and offer various internet-based services to our clients, including online banking services and mobile banking apps. A portion of those services are provided through our reliance on third-party systems. We could be liable for breaches of security in our online banking services, including cybersecurity breaches. The secure transmission of confidential information over the internet is essential to maintain our clients’ confidence in our online services. In certain cases, we are responsible for protecting customers’ proprietary information as well as their accounts with us. We have security measures and processes in place to defend against cybersecurity risks; however, cyber-attacks are rapidly evolving (including computer viruses, malicious code, ransomware, phishing or other information security breaches), and we may not be able to anticipate or prevent all such attacks, which could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information. Individuals may also seek to intentionally disrupt our online banking services or compromise the confidentiality of customer information with criminal intent. Although we have (and we believe our third-party providers have) procedures and controls to safeguard personal information in our (or their) possession, as well as systems and processes that are designed to recognize and assist in preventing security breaches, failure to protect against or mitigate breaches of security or other unauthorized disclosures remains a possibility. If such event occurs, the Bank could be in breach of privacy laws or other laws and/or regulations, which could make us subject to legal proceedings and administrative sanctions, including damages, and, in turn, adversely affect our ability to offer and grow our online services, cause a loss of customer relationships, negatively impact our reputation, and have an adverse effect on our business, results of operations and financial condition.
In recent years, computer systems of companies and organizations have been targeted, not only by cyber criminals, but also by activists and rogue states. Cyber-attacks could give rise to the loss of significant amounts of customer data and other sensitive information, as well as significant levels of liquid assets (including cash). In addition, cyber-attacks could disrupt our electronic systems (or the systems of our third-party providers) used to service our customers. As attempted attacks continue to evolve in scope and sophistication, we may incur significant costs in order to modify or enhance our protective measures against such attacks, or to investigate or remediate any vulnerability or resulting breach, or in communicating cyber-attacks to our customers. If we fail to effectively manage our cyber security risk, for example by failing to update our systems and processes in response to new threats (or by failing to ensure that our third-party providers have adequate systems and process in place for such purposes), our reputation could be harmed and our operating results, financial condition and prospects could be adversely affected through the payment of customer compensation, regulatory penalties and fines and/or through the loss of assets. In addition, we may also be impacted by cyber-attacks against national critical infrastructures of the countries where we operate, for example, the telecommunications network. Our information technology systems are dependent on such national critical infrastructure and any cyber-attack against such critical infrastructure could negatively affect our ability to service our customers. As we do not operate such national critical infrastructure, we have limited ability to protect our information technology systems from the adverse effects of such a cyber-attack. For more information, see “Item 4. Information on the Company—B. Business Overview—Distribution Channels, Electronic Banking and Technology.”
Our loan and investment portfolios are subject to risk of prepayment, which may result in reinvestment of assets on less profitable terms.
Our loan and investment portfolios are subject to prepayment risk, which results from the ability of a borrower or issuer to pay a debt obligation prior to maturity without adequate (or any) prepayment penalties. Increases in repayment activity reduce the weighted average lives of our earning assets and may adversely affect our operating results. Prepayment risk also has an adverse impact on our residential mortgage portfolio, since prepayments could shorten the weighted average life of this portfolio, which may result in a mismatch in funding or in reinvestment at lower yields. Prepayment risk is inherent to our commercial activity and an increase in prepayments could have a material adverse effect on our business, financial condition and results of operations.
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Exposure to government debt could have an adverse effect on our business, financial condition and results of operations.
We invest in debt securities issued by the Chilean and Colombian governments and the Central Bank of Chile, which, for the most part, are short-term and highly liquid instruments. If the Chilean or Colombian governments default on the timely payment of such securities, our business, financial condition, and results of operations may be adversely affected.
A downgrade of Itaú Chile’s credit ratings by international or domestic credit rating agencies could materially and adversely affect the availability and cost of domestic and international funding to us, which may have an adverse impact on our business, our future financial performance, our shareholders’ equity and the value of our securities.
On September 8, 2022, Moody’s affirmed our “A3” long-term deposit ratings, as well as our “A2” long-term counterparty risk ratings. At the same time, Moody’s also upgraded our baseline credit assessment from “baa3” to “baa2”, and our adjusted baseline credit assessment from “baa2” to “baa1”, reflecting improvements in our standalone credit strength, in particular future earnings generation and capital position. In addition, Moody’s revised our outlook on the deposit ratings from “negative” to “stable”. On April 26, 2022, S&P upgraded our long-term issuer credit and issue-level ratings from “BBB” to “BBB+”, reflecting the capital injection of CLP830 billion we received in 2021 and improved profitability due to stronger margins. Our short-term issuer credit rating from S&P remained at “A-2”. At the same time, S&P revised its assessment of our capital and earnings to “adequate” from “moderate”, reflecting stronger risk-adjusted capital (RAC) and earnings prospects. S&P’s continued “negative” outlook for the next 18-24 months reflects the negative trend in the economic risk of Chile’s Banking Industry Country Risk Assessment.
In addition, we are rated by the domestic rating agencies Feller Rate Clasificadora de Riesgo Ltda. (“Feller Rate”) and Clasificadora de Riesgo Humphreys Ltda. (“Humphreys”). On March 31, 2022, Feller Rate upgraded our long-term issuer credit rating from “AA” to “AA+”, but revised our outlook from “positive” to “stable”. On August 31, 2022, Humphreys also upgraded our long-term issuer credit rating from “AA” to “AA+”, but revised our outlook from “favorable” to “stable”.
We cannot predict the actions rating agencies may take in the future and our ratings or outlook could be revised (including downwards) at any time and without any notice by any ratings agency. Any such adverse revision to our credit ratings in Chile or Colombia for domestic and international debt by international and domestic rating agencies may adversely affect our debt ratings, and, as a result, our cost of funding, including interest rates paid on our deposits and securities. If this were to happen, it could have a material adverse effect on our business, future financial performance, shareholders’ equity and the value of our securities.
Mismatches in the maturity of our loan portfolio and our funding sources as well as exchange rate fluctuations related to our funding sources could materially and adversely affect our business, financial condition and results of operations and our capacity to expand our loan business.
We are exposed to maturity mismatches between our loans and sources of funding. The majority of our loan portfolio consists of fixed interest rate loans, and the yield from our loans depends on our ability to balance our cost of funding with the interest rates we charge our borrowers. An increase in market interest rates in Chile or Colombia could increase our cost of funding, especially the cost of time deposits, and could reduce the spread we earn on our loans, materially and adversely affecting our business, financial condition and results of operations. For example, in Chile interest rates increased from 0.5% to 11.25% in a short space of time (from July 2021 to October 2022) in response to the rapid inflation increase. In Colombia, the monetary policy rate increased from a minimum cycle of 1.75% during 2020 and 2021 to what is expected to be a peak cycle of 13.25% in early 2023. Moreover, any increase in interest rates in other countries, especially the United States, could reduce overall liquidity and investor interest in the capital markets where we operate.
Any mismatch between the maturity of our loan portfolio and our sources of funding would magnify the effect of any imbalance in interest rates, also representing a liquidity risk if we fail to obtain funding on an ongoing basis. In addition, since part of our funding comes from securities denominated in U.S. dollars or other foreign currencies that we issue abroad, any devaluation of the Chilean or Colombian peso against the U.S. dollar or such other foreign currencies could increase the cost of funding in relation to these securities. While we seek to avoid significant mismatches between assets
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and liabilities due to foreign currency exposure, we may have mismatches from time to time. The Chilean peso has experienced large devaluations and appreciations in the past and could be subject to significant fluctuations in the future. Our results of operations may be affected by fluctuations in the exchange rates between the Chilean peso and the U.S. dollar despite our policy and Chilean regulations relating to the general avoidance of material exchange rate exposure, especially if there is a lack of sources of funding in foreign currency. Greater exchange rate risk will increase our exposure to the devaluation of the Chilean peso, and any such devaluation may impair our capacity to service foreign currency obligations and may, therefore, materially and adversely affect our financial condition and results of operations. We enter into forward exchange transactions or other derivatives to avoid material exchange rate exposure, but our policy regarding exchange rate exposure is subject to change and regulations limiting such exposures may also be amended or eliminated. An increase in our total cost of funds for any of these reasons could result in an increase in the interest rates on our loans, which could, as a result, affect our business, financial condition and results of operations and our ability to attract new customers and expand our loan business.
For information on our structural gap between assets and liabilities, see “Item 11— Quantitative and Qualitative Disclosures About Financial Risk B. Financial Risk Management—2) Quantification and Control of Financial Risk Exposure—a) Market Risk Metrics and Limits—(i) Limitations of VaR Model—Structural Interest Rate Position in Banking Book (Interest Rate Gap)”.
We are subject to financial and operational risks associated with derivative transactions.
We enter into derivative transactions primarily to deliver services to our clients, for hedging purposes and, on a limited basis, for trading purposes. These transactions are subject to market, liquidity, counterparty (the risk of insolvency or other inability of a counterparty to perform its obligations to us) and operational risks.
Market practices and documentation for derivative transactions in Chile and Colombia may differ from those in other countries. For example, documentation may not incorporate terms and conditions of derivatives transactions as commonly understood in other countries. In addition, the execution and performance of these transactions depend on our ability to develop adequate control and management systems and to hire and retain qualified personnel. Moreover, our ability to monitor and analyze these transactions relies on our information technology systems. These factors may further increase risks associated with derivative transactions and, if they are not adequately controlled, could materially and adversely affect the results of our operations and financial condition in general.
Our level of insurance might not be sufficient to fully cover all liabilities that may arise in the course of our business and insurance coverage might not be available in the future.
We maintain insurance for losses resulting from fire, explosions, floods and electrical shorts and outages at our various buildings and facilities. We also have civil liability insurance covering material and physical losses and damages that may be suffered by third parties. We cannot assure you that our level of insurance is sufficient to fully cover all liabilities that may arise in the course of our business or that insurance will continue to be available in the future. In addition, we may not be able to obtain insurance on comparable terms in the future. Our business and results of operations may be adversely affected if we incur liabilities that are not fully covered by our insurance policies.
The occurrence of natural disasters or terrorist events or events of civil unrest in the regions where we operate could impair our ability to conduct business effectively and could adversely affect our results of operations.
We are exposed to the risk of natural disasters such as earthquakes or tsunamis as well as floods, mudslides and volcanic eruptions in the regions where we operate. We also recognize that natural disasters could be amplified by the effects of climate change. In the event of a natural disaster, unanticipated problems with our disaster recovery systems could have a material adverse impact on our ability to conduct business in the affected region, particularly if those problems affect our computer-based data processing, transmission, storage and retrieval systems and destroy valuable data. In addition, if a significant number of our local employees and managers were unavailable in the event of a disaster, our ability to effectively conduct business could be severely compromised. A natural disaster, such as the earthquake and tsunami that affected Chile in 2010, could damage some of our branches and automated teller machines, or ATMs, forcing us to close damaged facilities or locations, increasing recovery costs as well as causing economic harm to our clients. A natural
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disaster or multiple catastrophic events could have a material adverse effect on local businesses in the affected region and could result in substantial volatility or adverse harm in our business, financial condition and results of operations for any fiscal quarter or year. Furthermore, we could be exposed to terrorist events and events of civil unrest (including, for example, as we experienced in October 2019) resulting in physical damage to our buildings (including our headquarters, offices, branches and ATMs) and/or injury to customers, employees and others. Although we maintain comprehensive contingency plans and security procedures, there can be no assurance that terrorist events or events of civil unrest will not occur and that their occurrence will not have a material adverse impact on our business and results of operations for any fiscal quarter or year.
Climate change may have adverse effects on our business.
The risks associated with climate change are gaining increasing social, regulatory, economic and political relevance, both nationally and internationally. New regulations related to climate change may affect our operations and business strategy, leading us to incur financial costs resulting from: (i) the physical risk of climate change and (ii) the risk of transition to a low-carbon or carbon-neutral economy.
The physical risks of climate change are related to the gradual increase in the average temperature of the planet and to the increase in the intensity and frequency of extreme weather events. Despite uncertainties with regard to the intensity and location of these events, their impact on the economy is expected to be more acute in the future. The potential impact on the economy includes, but is not limited to, significant changes in asset prices and industry profitability. Damage to borrowers’ properties and operations may impair asset values and credit quality of customers, leading to more non-performing loans, write-offs and impairment charges in our portfolios. In addition, our facilities may also suffer physical damage due to weather events, leading to increased costs for us.
As the economy transitions to a low-carbon or carbon-neutral model, financial institutions may face significant and rapid developments in stakeholder expectations, policy, law and regulation, which could impact the lending activities we undertake, as well as the risks associated with our lending portfolios, and the value of our financial assets. As concerns about climate change increase and societal preferences change, we may face greater scrutiny for the type of business we conduct, adverse media coverage and reputational damage, which may in turn impact customer demand for our products, returns on certain business activities and the value of certain assets and trading positions, leading to impairment charges. The impacts of climate change may also increase losses for sensitive sectors, as a result of the effects of both physical and transition risks, causing loss of profitability for companies exposed to these risks and impairing their ability to repay any loans. Possible carbon pricing can affect companies’ costs and compromise their ability to generate cash flows. Any subsequent increase in defaults and rising unemployment could create recessionary pressures, which may lead to an increased deterioration in the creditworthiness of our clients, higher ECL, and increased charge-offs and defaults among wholesale and retail customers. If we do not adequately reflect risks associated with climate change into our risk framework to appropriately assess, manage and disclose the various financial and operational risks we face as a result of climate change, or fail to adapt our strategy and business model to the changing regulatory requirements and market expectations on a timely basis, it may have a material and adverse impact on our business growth rate, competitiveness, profitability, capital requirements, cost of funding, and financial condition.
Other potential risks arise from climate-related litigation claims, which are compelling governments and corporate actors to purse actions or better practices to adapt to changes in order to mitigate the impacts resulting from loss and damage due to climate change. Financial institutions are exposed to the risk of being defendants in a climate-related suit, and they may also be indirectly affected through their client’s portfolio. Clients can be directly or indirectly held legally liable for a climate-related event or impact, which may result in associated repairment costs, potential impact on the value of our client’s own company, and even difficulty in recovering after paying for damages. Litigation can also cause stranded assets, mainly in the carbon-intensive industries, due to unanticipated, premature write-downs or devaluations caused by climate change.
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Other businesses controlled by Itaú Unibanco Holding may face difficulties from a business or reputational standpoint and affect us.
We are currently controlled by Itaú Unibanco Holding and its affiliates, which as of the date of this report had a 65.62% beneficial ownership stake in us. Since we are part of a larger conglomerate of companies owned by Itaú Unibanco Holding, if other businesses controlled by Itaú Unibanco Holding face difficulties from a business or reputational standpoint, we may suffer adverse consequences. If we were to be associated with these events, our reputation could be harmed, which could have a material adverse effect on our business, financial condition and results of operations.
We are subject to arbitration and litigation proceedings that could materially adversely affect our business, financial position and results of operations if an unfavorable ruling were to occur.
We are currently subject to legal proceedings, as indicated in our financial statements. Litigation is subject to inherent uncertainties, and unfavorable rulings may occur. From time to time, we may become involved in arbitration, litigation and other legal proceedings relating to claims arising from our operations in the normal course of business. We cannot assure you that the current or other legal proceedings will not materially affect our ability to conduct our business in the manner that we expect or otherwise have a material adverse effect on our business, financial condition and results of operations should an unfavorable ruling occur. See Note 23 of our consolidated financial statements in respect of lawsuits and legal proceedings.
We may incur financial losses and damages to our reputation from environmental and social risks.
In recent years, environmental and social risks have been recognized as increasingly relevant, since they can affect the creation of shared value in the short, medium and long terms from the standpoint of the organization and its main stakeholders.
Environmental and social issues may affect our activities and the revenue of our clients, causing reputational damage, delays in payments or default, especially in the case of significant environmental and social incidents. We could also be deemed to be indirectly responsible for environmental damages caused by projects we finance, and could consequently be held liable for certain damages.
We may not effectively manage risks associated with the replacement of benchmark indices.
A significant portion of our income, expenses and liabilities is directly tied to interest rates. Therefore, our results of operations and financial condition are significantly affected by inflation, interest rate fluctuations and related government monetary policies. In addition, various interbank offered rates which are deemed to be “benchmarks” (the “IBORs”, including LIBOR and EURIBOR) have been the subject of increased regulatory scrutiny. Some of these reforms are already effective while others are yet to be implemented. In particular and since 2021, the U.K. Financial Conduct Authority (“FCA”) does not oblige banks to contribute to the calculation of LIBOR. In addition, LIBOR settings (in the case of all sterling, euro, Swiss franc, Japanese yen, and the 1-week and 2-month U.S. dollar settings) either ceased to be provided by any administrator or are no longer representative after December 31, 2021, and will cease to be provided immediately after June 30, 2023, in the case of the remaining US dollar settings.
The cessation of LIBOR for various currencies at the end of 2021 (and in 2023 for certain tenors of USD LIBOR) has resulted in replacement rates being used more widely, including in the instruments documenting certain of our financial obligations. For example, in the U.S., a group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, called the Alternative Reference Rate Committee (“ARRC”) and comprised of a diverse set of private sector entities, has identified the Secured Overnight Financing Rate (or “SOFR”) as its preferred alternative rate for the USD LIBOR and the Federal Reserve Bank of New York publishes SOFR daily. Many, if not most banks in the U.S., now enter into transactions where interest is determined based on SOFR, as recommended by ARRC and certain regulators. Additionally, many financial contracts, including some which govern our financial obligations, include replacement alternatives for LIBOR upon the cessation of LIBOR. It is also possible that some U.S. lenders will elect to use alternative rates other than SOFR. In the UK, the Bank of England and the FCA have proposed the Sterling Overnight Index Average (“SONIA”) as the primary sterling interest rate benchmark, the transition to which is being finalized as of the date of this
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Annual Report. The European Central Bank published the Euro short-term rate (“€STR”) as the new risk-free rate for the euro area for the first time on October 2, 2019. Although EURIBOR is expected to continue alongside €STR, it remains uncertain as to how long EURIBOR will continue in its current form, or whether it will be further reformed. Central banks in several other jurisdictions have also announced plans for publishing alternative reference rates for other currencies.
This and other reforms may cause IBORs to perform differently than in the past, or to disappear entirely, or have other consequences, which cannot be fully anticipated, which introduce a number of risks for us, including legal risks arising from potential changes required to document new and existing transactions, financial risks arising from any changes in the valuation of financial instruments linked to benchmark rates and hedging mismatches, pricing risks arising from how changes to benchmark indices could impact pricing mechanisms on some instruments, operational risks arising from the potential requirement to adapt information technology systems, trade reporting infrastructure and operational processes, and commercial risks arising from the potential impact of communication with customers and engagement during the transition period. Accordingly, the implementation of alternative benchmark rates may have a material adverse effect on our business, results of operations, financial condition and prospects.
The Bank has developed a “transition program” from existing benchmark indices focused on the following stages:
a) Front book (new operations)
b) Discontinuation of new operations indexed in LIBOR
c) Curves and impacts on collateral
d) Back book, or LIBOR portfolio migration to risk-free rates.
As of December 31, 2022, the exposure of our financial assets and liabilities impacted by the LIBOR reform are presented below:
Financial Instruments based on Libor | |||||||
As of December 31, 2022 | As of December 31, 2021 | ||||||
Exposure | Exposure | ||||||
Assets |
| Liabilities |
| Assets |
| Liabilities | |
(in millions of Ch$) | |||||||
Non-derivative financial instruments | 1,267,787 | 568,892 | 2,790,568 |
| 1,533,951 | ||
Loans and accounts receivable from customers | 1,267,787 | — | 2,790,568 | — | |||
Interbank borrowings | — | 568,892 | — |
| 1,533,951 | ||
Financial derivative contracts (1) (2) | 1,041,682 | 1,052,780 | 1,032,033 |
| 1,154,080 | ||
Total | 2,309,469 | 1,621,672 | 3,822,601 |
| 2,688,031 | ||
(1) | Correspond to the fair value of the operations. |
(2) | The total notional amount associated with derivative operations corresponds to Ch$26,498,012 million. |
The uncertainties resulting from the discontinuation of LIBOR and implementation of alternative benchmark rates may have a material adverse effect on our business, results of operations, financial conditions and prospects.
Our business strategy may not provide us the results we expect.
Our business strategy and our focus on related challenges are determined by management based on assumptions they deem relevant, such as the future economic environment, and the regulatory, political and social scenarios in the regions in which we operate. These assumptions are subject to subjective elements and other potential inaccuracies which could result in certain risks not being correctly (or not at all) identified or anticipated. Accordingly, the results and consequences arising from any possible inaccurate assumptions may compromise our capacity to fully or partially implement our business strategy, as well as to achieve the results and benefits expected therefrom, which might give rise to financial losses and reduce the value creation to our stockholders. For instance, as mentioned in “Item 4. Information on the Company—Strategy” below, we have developed and are implementing a transformation plan with five key pillars: disruption, customer-centricity, simplicity and digitization, agile working model and disciplined approach to achieve sustainable results. The implementation of our transformation plan will depend on, among other things: (1) our senior management’s
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focus in order to adequately manage our transformation and hiring additional personnel with specific training in the five key pillars, and (2) the incorporation of our pillars without disruption into our various business-specific operating procedures and systems, including our financial, accounting, information and other systems. To the extent we are not able to implement fully the items mentioned above, our transformation plan may not materialize as currently expected or could even be delayed indefinitely.
For example, we are implementing a transformation program in Itaú Colombia with the objective of improving performance in a similar way to what we achieved in our operations in Chile. In the context of this transformation program, we have changed strategy in retail to focus on affluent customers and we are pursuing several initiatives to improve commercial performance and efficiency. We cannot assure you that we will be able to fully implement the new strategy in Colombia or that it will be successful. The failure of Itaú Colombia’s transformation program could have a material adverse effect on our business, financial condition and results of operations.
Additionally, factors beyond our control, such as, but not limited to, economic and market conditions, changes in laws and regulations, including regulations limiting fees or interest rates and fostering an increasingly competitive scenario, and other risk factors stated in this annual report may make it difficult or impossible to implement fully or partially our business strategy and also our achieving the results and benefits expected therefrom.
Risks Relating to Chile, Colombia and Other Countries in Which We Operate
Chile has different corporate disclosure and accounting standards than those you may be familiar with in the United States.
As a regulated financial institution, we are required to submit to the CMF unaudited consolidated and unconsolidated balance sheets and income statements on a monthly basis. These statements have to be prepared in accordance with the Compendium of Accounting Standards (Compendio de Normas Contables y Manual del Sistema de Información), or the “Compendium,” and the rules of the CMF. Certain exceptions introduced by the CMF prevent banks from achieving full convergence, for example, with respect to loan loss provisions and assets received in lieu of payment, among others. Also, the CMF is vested with the authority to issue specific orders to banks, including on accounting matters. In situations not addressed by the guidance issued by the CMF, institutions must follow IFRS. However, our consolidated financial statements as of December 31, 2022 and 2021 and for each of the three years in the period ended December 31, 2022 have been prepared in accordance with IFRS in order to comply with SEC requirements.
Our consolidated financial statements include the necessary adjustments and reclassifications to the incorporated financial statements of each of Itaú Chile’s subsidiaries and the New York Branch to bring their accounting policies and valuation criteria into line with those applied by the Bank, in accordance with IFRS.
The securities laws of Chile, which govern open or publicly listed companies such as ours, have as one of their principal objectives promoting disclosure of all material corporate information to the public. Chilean disclosure requirements, however, differ from those applicable in the United States in some important respects. Although Chilean law imposes restrictions on insider trading and price manipulation, applicable Chilean laws are different from those applicable in the United States and in certain respects the Chilean securities markets are not as highly regulated and supervised as the United States securities markets.
Chile may impose controls on foreign investment and repatriation of investments that may affect our investors’ investment in, and earnings from, our ADSs.
Investors who are not Chilean residents are required to provide the Central Bank of Chile with information related to equity investments and conduct such operations within the Formal Exchange Market. See “Item 10. Additional Information—D. Exchange Controls” for a discussion of the types of information required to be provided.
Owners of ADSs are entitled to receive dividends on the underlying shares to the same extent as the holders of shares. Dividends received by holders of ADSs will be converted into U.S. dollars and distributed net of foreign currency exchange fees and fees of the depositary and will be subject to Chilean withholding tax, currently imposed at a rate of 35% (subject
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to credits in certain cases). If for any reason, including changes in Chilean laws or regulations, the depositary is not able to convert Chilean pesos to U.S. dollars, investors in our ADSs may receive dividends and other distributions, if any, in Chilean pesos.
Additional Chilean restrictions applicable to holders of our ADSs, the disposition of the shares underlying them or the repatriation of the proceeds from such disposition or the payment of dividends could be imposed in the future, and we cannot advise you as to the duration or impact of such restrictions, if imposed.
The legal restrictions on the exposure of Chilean pension funds may adversely affect our access to funding.
Pension funds are important funding providers to us and to the Chilean banking system in general. Chilean regulations impose restrictions on the share of assets that a Chilean pension fund management company (Administradora de Fondos de Pensiones, or “AFP”) may allocate: (i) per fund (considering all sub-funds within an AFP (A, B, C, D or E)), to deposits in checking accounts and term deposit accounts and in debt securities issued by a single banking institution (or guaranteed by such bank); (ii) per type of sub-fund, to shares, deposits, derivatives and debt securities of a single banking institution (or guaranteed by such bank); and (iii) per fund (considering all sub-funds), to shares issued by a single banking institution. Additionally, each fund managed by an AFP is permitted to make deposits with a bank for an amount not to exceed the equivalent of such bank’s equity. If the exposure of a pension fund managed by an AFP to a single bank exceeds such limit for investments in securities, the AFP for such pension fund is required to reduce the fund’s exposure below the limit within three years.
As of December 31, 2022, the aggregate exposure of AFPs to us was US$ 6,012 million or 3.41% of their total assets. If the exposure of any AFP to us exceeds the regulatory limits, or if changes in pension fund regulations that reduce the funds available to pension funds or constrain their ability to invest in bank deposits and securities are implemented, this could lead us to seek alternative sources of funding, which could be more expensive and, as a consequence, may have a material adverse effect on our business, financial condition and results of operations.
Future increases in the corporate tax rate or additional modifications to the tax systems of the countries in which we operate may have a material adverse effect on us.
The Chilean government has introduced a series of tax reforms over the past 10 years aimed at increasing revenue and limiting tax exemptions, and new reforms are expected in the near future. Examples include Law No. 20,780 of 2014, which introduced significant changes to the Chilean tax system and strengthening the powers of the Chilean IRS (Servicio de Impuestos Internos) to control and prevent tax avoidance, Law No. 20,899 of 2016, which simplifies the income tax system and modifies other legal tax provisions, Law No. 21,210 of 2020, which introduced additional amendments and modifications to the Chilean tax system (including new rules on deductible expenses), and Law No. 21,420 of 2022, which, among other provisions, reduced or repealed, from September 2, 2022, onwards, certain tax exemptions. In addition, in July 2022, President Boric presented a new tax reform bill, which would introduce substantial and structural changes into the Chilean tax system for the purpose of adding new revenue streams. Although this tax reform was recently rejected by the House of Representatives, we cannot assure you that similar measures will be implemented in the future.
According to current regulations, and given that the Bank’s average annual amount of gross revenues would be higher than UF75,000, we are subject to the general tax regime (corporate tax of 27%). Under this regime, when the income is actually withdrawn from a company, non-Chilean resident shareholders would be subject to a 35% withholding tax, while Chilean resident shareholders would be required to pay the progressive Complementary Global Tax, with rates ranging between 0% and 40%, against which only a 65% of the corporate tax will be allowed to be used as a credit against the withholding tax or the Complementary Global Tax, with the final tax burden being a maximum of 44.45%; provided that, the deduction available to shareholders established in, domiciled in, or residents of a country with which Chile has a double taxation treaty in force or, until December 31, 2026, with which Chile has signed a double taxation treaty, although not in force, would be 100%, with the tax burden then remaining at 35%. See “Item 4. Chilean Banking Regulation and Supervision—Recent Tax Reforms and Future Changes in Chilean Tax Regulations” and “Item 10. Additional Information—Chilean Tax Considerations.”
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In addition, on December 13, 2022, Law 2,277 was enacted in Colombia as a tax and fiscal policy aimed at promoting equality and social justice. See “Item 4. Information on the Company—B. Business Overview— Recent Regulatory Developments in Colombia—Tax Reform (2022-2023)”.
Changes in legislation, regulation and jurisprudence can affect tax burdens by increasing tax rates and fees, creating new taxes, limiting stated expenses and deductions, and eliminating incentives and non-taxed income. We cannot assure you that the manner in which corporate taxes are interpreted and applied in the jurisdictions where we operate will not change in the future. In addition, governments may decide to levy additional taxes in the jurisdictions where we operate. The recent tax reforms and any further changes to taxes in the jurisdictions where we operate could have a material adverse effect on our business, financial condition and results of operations. Furthermore, uncertainty relating to tax legislation in the jurisdictions where we operate poses a constant risk to the Bank and our operations.
Potential changes to the pension system in Chile may impose an increase in our labor costs and therefore have a material adverse effect on our financial results.
In November 2018, President Sebastián Piñera submitted a proposed bill (No. 12,212-13) intended to introduce changes to the existing Chilean pension funds system, specifically related to solidary pensions, the individual capitalization pension system and new pension systems for the middle class and women.
Under this proposal, employer companies (including the Bank) would have to make a 4% contribution to the pension system, with a gradual implementation over a period of five years. Additionally, employers (including the Bank) would be obliged to contribute 0.2% of the gross salary of their employees to fund disability insurance. Further, the bill proposal states that the solidarity fund (Pilar Solidario) would increase approximately 40% given that the Chilean government is expected to contribute 1.12% of the GDP to the fund.
Notwithstanding the fact that this bill is still being discussed in Congress, there has been no progress since January 2022, and it is likely that it will not move forward considering that President Boric indicated during his presidential campaign and in his government program that he intends to end the AFPs and replace the current pension system in Chile with one that will be managed by a public entity. Although there are no details as to how these reforms would be implemented, it has been announced that one of the measures would be increasing the employer’s contribution by 6%, reaching a total contribution of 18%. Any such new contribution requirements may impose an increase in our labor costs and in turn have a material adverse effect on our financial results.
For more information on recent changes to the pension system in Chile, see “Item 4. Information on the Company—B. Business Overview—Chilean Banking Regulation and Supervision—Recent Regulatory Developments in Chile—Changes to the Pension System in Chile”.
Colombian tax haven regulation could adversely affect our business and financial results.
A 2014 Colombian tax decree designates 37 jurisdictions (including Panama) as tax havens for Colombian tax purposes. However, in October 2014, Panama and Colombia signed a memorandum of understanding by which they agreed to execute a double taxation treaty. Therefore, Panama is currently not considered a tax haven for Colombian tax purposes. If in the future Panama is considered a tax haven under Colombian tax regulations, the clients of our Colombian subsidiaries in Panama who are residents in such jurisdiction would be subject to the following regulations: (i) higher withholding tax rates (up to 35%), including higher withholding rates over financial yields derived from investments in the Colombian securities market, (ii) the Colombian transfer pricing regime and its reporting duties, (iii) an assumption for Colombian authorities of residency for the purposes of qualifying a conduct as abusive under tax regulations, (iv) the disallowance of payments made to residents or entities located in tax havens as costs or deductions, unless the respective withholding tax has been applied and (v) other additional information disclosure requirements. In October 2021, the Colombian Government issued a decree that regulates the criteria for classifying a ring-fencing regime, i.e., a kind of preferential regime which is subject to the same regulations of tax havens. Since Colombia is a member of the Organization for Economic Co-operation and Development, or “OECD” since April 2020, the criteria for assessing preferential tax regimes are based on certain key factors described by the OECD in its Harmful Tax Practices Report from 2019. These key factors include: (i) the imposition of no or low effective tax rates on income from geographically mobile financial and
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other service activities, (ii) the regime is ring-fenced from the domestic economy, (iii) the regime lacks transparency, (iv) there is no effective exchange of information with respect to the regime, and (v) the regime fails to require substantial activities. Every corporate income taxpayer should apply these criteria to the list of preferential regimes issued by the Forum on Harmful Tax Practices.
There are no special exceptions from the rules above for financial entities situated in tax havens, low tax jurisdictions or that belong to a preferential tax regime.
Any downgrading of Chile’s or Colombia’s debt credit rating for domestic and international debt by international credit rating agencies may also affect our business and future financial performance.
On September 15, 2022, Moody’s changed Chile’s credit rating outlook from “negative” to “stable”, while changing the government of Chile’s long-term local and foreign-currency issuer and senior unsecured ratings from “A1” to “A2”, and the outlook from “negative” to “stable”. On December 8, 2022, Fitch affirmed Chile’s rating of “A-” as well as the “stable” outlook. On October 21, 2022, S&P affirmed Chile’s long-term foreign currency rating of “A”, with a “stable” outlook. We cannot assure you that Chile’s credit ratings or rating outlook will remain at the levels indicated above or change (including downgrades) in the future.
On May 5, 2022, S&P affirmed its foreign currency sovereign credit rating on Colombia of “BB+/B” and its local currency rating of “BBB-/A-3” with a “stable” outlook. On December 15, 2022, Fitch affirmed its rating “BB+” rating for Colombia with a “stable” outlook. On October 6, 2022, Moody’s maintained Colombia’s credit rating at “Baa2” with a “stable” outlook. We cannot assure you that Colombia’s credit rating or rating outlook will remain at the levels indicated above or change (including downgrades) in the future.
If adverse revisions to Chile’s or Colombia’s credit ratings or rating outlook were to occur, this could have a material adverse effect on our business, future financial performance, shareholders’ equity and the value of our securities. In addition, any adverse revisions to Chile’s or Colombia’s credit ratings by international rating agencies may adversely affect our ratings, and, as a result, our cost of funding, including interest rates paid on our deposits and securities.
Chilean and Colombian authorities exercise influence on the Chilean and Colombian economies. Changes in monetary, fiscal and foreign exchange policies or in the Chilean and Colombian governments’ structures may adversely affect us.
Chilean and Colombian authorities exercise influence on or intervene, from time to time, in the Chilean and Colombian economies, through changes in fiscal, monetary, and foreign exchange policies, which may adversely affect us. These changes may impact variables that are crucial for our growth strategy (such as foreign exchange and interest rates, liquidity in the currency market, tax burden, and economic growth), thus limiting our operations in certain markets, affecting our liquidity and our clients’ ability to pay and, consequently, affecting us. For example, in July 2022, the Central Bank of Chile announced an exchange rate intervention program, mirroring the 2019 intervention. Before announcing the intervention in the FX market, the exchange rate reached an historical $1.042 per dollar. The effect of the intervention in the following days was around a 14% appreciation of the CLP. The program was valued at US$20 billion, through auctions of up to US$10 billion in the spot market and up to US$10 billion in the non-deliverable forwards (“NDFs”) market. In addition, the provision of liquidity in dollars through a swap program of up to US$5 billion was also offered. On September 30, 2022, the Central Bank of Chile ended its exchange rate intervention program with a total sales of US$6.1 billion in the spot market and has a total of US$9.04 billion outstanding in NDFs until June 2, 2023. In this way, the Central Bank of Chile announced that it will renew the outstanding NDF stock until mid-year 2023.
In addition, changes in the Chilean and Colombian governments’ structures may result in changes in government policies, which may affect us. This uncertainty may, in the future, contribute to an increase in the volatility of the Chilean and Colombian capital markets, which, in turn, may have an adverse impact on us. Other political, diplomatic, social and economic developments in Chile, Colombia or other countries that affect Chile and Colombia may also affect us.
Prior to the COVID-19 pandemic, the Chilean fiscal outlook had deteriorated in response to increased social spending following the social unrest in October 2019. This was worsened by the fiscal response implemented by the Chilean
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government to mitigate the impacts of COVID-19, which temporarily led to larger deficits, debt issuances and use of rainy-day funds. Nevertheless, during 2022, the government implemented a fast fiscal consolidation process, supported by expenditure contraction and cyclical revenue, allowing for a 1.1% of GDP surplus in the year. However, pressure to raise social spending remains, which, if not funded by structural revenues, may lead to the rising of debt issuance, a weaker CLP and higher interest rates and in turn a deceleration of economic growth, which could adversely affect our business, results of operations and financial condition.
Our growth and profitability depend on the level of economic activity in Chile, Colombia and other markets.
Substantially all of our loans are to borrowers doing business in Chile or Colombia. Accordingly, the recoverability of these loans in particular, our ability to increase the amount of loans outstanding and our results of operations and financial condition in general, are dependent to a significant extent on the level of economic activity in Chile and Colombia. The Chilean and Colombian economies have been influenced, to varying degrees, by economic conditions in other Latin American and emerging markets, as well as the United States, Europe and other countries. To the extent the conditions of the global markets or global economy deteriorate, Chilean and Colombian companies may have their businesses adversely affected. The weakness in the global economy has been marked by, among other adverse factors, lower levels of consumer and corporate confidence, decreased business investment and consumer spending, increased unemployment, reduced income and asset values, reduction of global growth rates, bank failures, persistent inflation, currency volatility and limited availability of credit and access to capital. The economic and market conditions of other countries, including the United States, European countries, other Latin American and emerging markets, may affect the availability of credit and the volume of foreign investments in Chile, Colombia and in the countries in which we do business, to varying degrees. The market turmoil generated by bank failures in the United States in March 2023, and the forced sale of Credit Suisse, are two examples of international financial events that may have an adverse impact on our business. Developments or economic conditions in other emerging market countries have at times significantly affected the availability of credit to Chilean and Colombian companies and resulted in considerable outflows of funds from Chile and Colombia, decreasing the amount of foreign investments in those countries, which impacted overall growth expectations for the Chilean and Colombian economy. Any of these factors could have a material adverse effect on our results of operations and financial condition.
In addition, future developments in or adversely affecting the Chilean or Colombian economies and other emerging and developed markets, such as those of our neighbor countries, and a deceleration in the economic growth of Asian or other developed nations to which Chile and Colombia export a majority of their respective goods, could materially and adversely affect our business, financial condition or results of operations. In this regard, with over one third of exports, of which approximately two thirds were copper in 2022, sent to China, developments in the Chinese economy have relevant implications in the investment, growth and exchange valuation in Chile. Additionally, changes in the economic and political outlook in the United States, Europe and the members of Mercosur influence our growth prospects, with 14%, 10% and 6% of exports sent to these regions in 2022, respectively.
Our results of operations and financial condition could also be affected by changes in economic or other policies of the Chilean or Colombian governments, which have each exercised and continue to exercise a substantial influence over many aspects of the private sector, or other political or economic developments in Chile. In addition, our financial condition and results of operations could also be affected by regulatory changes in administrative practices or other political or economic developments in or affecting Chile or Colombia, over which we have no control.
Inflation and government measures to curb inflation could adversely affect our financial condition and results of operations.
Although Chilean and Colombian inflation have been low in past years, Chile and Colombia have experienced high inflation in the double-digit levels following an increase since 2021 amid spending measures to support households during the pandemic, and the effect of global shocks on prices (food, oil) following the war in Ukraine. Recent increased inflation in Chile or Colombia has adversely affected the Chilean and Colombian economies and have had an adverse effect on our results of operations, even in light of recent measures taken by the respective governments in Chile and Colombia, such as the increase in the maximum interest rate for loan portfolios in Colombia in order to control the inflation and consumption levels, as well as strong contractionary fiscal and monetary macroeconomic policies. We cannot make any
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assurances that such measures will be sufficient to curb inflation, or that Chilean or Colombian inflation will continue to increase in the future. Continued high levels of inflation could have an adverse effect on our results of operations mainly through increases in credit losses and expenses, which may not be fully offset by higher revenues or other positive impacts on earnings due to high inflation. Contractionary fiscal and monetary macroeconomic policies could also have an adverse effect on our results of operations and financial condition mainly through lower revenues, higher funding costs, higher credit losses or potential devaluation of our securities portfolio due to higher interest rates.
We may be unsuccessful in addressing the challenges and risks presented by our operations in countries outside Chile.
We now operate a banking business in Colombia through Itaú Colombia. Our operations are focused on retail banking, as well as wholesale and commercial banking and providing financing and deposit services to SMEs and individuals with medium-high income levels. Itaú Colombia provides a broad range of commercial and retail banking services to its customers, operating principally in the cities of Bogotá, Medellín, Cali, Bucaramanga, Cartagena and Barranquilla. We have limited experience conducting credit card and consumer finance businesses in countries outside Chile. Accordingly, we may not be successful in managing credit card and consumer finance operations outside of our traditional domestic market in Chile. We may face a variety of risks presented by our operations in countries outside Chile, including delays in payments by customers and higher delinquency rates in any market we enter into, which could necessitate higher provisions for loan losses.
We cannot assure you that we will be successful in adequately addressing the risks presented by our operations outside Chile, and these risks could have an adverse effect on our financial performance.
Colombia has experienced and continues to experience internal security issues that have had or could have a negative effect on the Colombian economy and in turn could negatively impact our business and/or financial performance.
Colombia has experienced internal security issues, primarily due to the activities of paramilitary and guerrilla groups, such as the National Liberation Army (Ejército de Liberación Nacional or “ELN”), urban militias, former members of the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia or “FARC”) and of drug cartels. These groups have exerted influence over the local population and funded their activities by protecting and rendering services to drug traffickers. Any breakdown in peace, renewed or continuing drug-related crime and guerilla and paramilitary activities may have a negative impact on the Colombian economy in the future. Our business or financial condition could be adversely affected by rapidly changing economic or social conditions, including any peace negotiation with guerilla, paramilitary or other groups, which may result in legislation that increases our tax burden, or that of other Colombian companies, which could, in turn, impact the overall economy.
Tensions with Venezuela and Ecuador may affect the Colombian economy and, consequently, our results of operations and financial condition.
Diplomatic relations with Venezuela and Ecuador, two of Colombia’s historical main trading partners, have from time to time been tense and affected by events surrounding the Colombian armed forces combat of the FARC throughout Colombia, particularly on Colombia’s borders with Venezuela and Ecuador.
Additionally, further deterioration in relations with Venezuela and Ecuador may result in the closing of borders, the imposition of trade barriers or a breakdown of diplomatic ties, any of which could have a negative impact on Colombia’s trade balance, economy and general security situation, which may adversely affect our results of operations and financial condition. Trade with Venezuela has constantly decreased over the last decade. However, in 2022, for example, the governments of Colombia and Venezuela resumed trade relations, and entered into agreements to allow transportation of cargo and passengers between the two countries. As a result of these recent re-establishment of political relations between Presidents Petro and Maduro, total exports from Colombia to Venezuela were US$632.3 million in 2022, compared to US$331.1 million in 2021. Although continuity in political relations is expected, the result of these relations remains uncertain.
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Colombia has recently faced an increase in migration from Venezuela. As of December 2022, approximately 2.48 million Venezuelan immigrants are based in Colombia. The unprecedented migration wave is putting strains on Colombia. Mass migration threatens to increase political instability and social conflict in Colombia. In a move to regulate and benefit from the migration, Colombia now gives temporary protective legal status (limited to 10 years) to Venezuelan migrants, potentially increasing the working-age population and boosting economic growth.
Constitutional collective actions (Acciones Populares), class actions (Acciones de Grupo) and other similar legal actions in Chile and Colombia involving claims for significant monetary awards against financial institutions may have an adverse effect on our business and results of operations.
Under Law No. 19,496, or the “Chilean Consumer Protection Act”, and under the Colombian Constitution and Law 472 of 1998, individuals may initiate collective or class actions to protect their collective or class rights, as applicable. In the past few years, Chilean financial institutions have experienced limited numbers of collective and class actions, mostly relating to abusive clauses in standard contracts.
In the past few years, Colombian financial institutions, including Itaú Colombia, have experienced a substantial increase in the aggregate number of these actions. The great majority of such actions have been related to fees, financial services and interest rates, and their outcome is uncertain. Pursuant to Law No. 1,425 of 2010, monetary incentives for plaintiffs in constitutional collective actions have been eliminated since 2011. Nevertheless, individuals continue to have the right to initiate constitutional or class actions against financial institutions, including Itaú Colombia.
Current and future restrictions on interest rates or banking fees could negatively affect our profitability.
The Colombian Commerce Code limits the amount of interest that may be charged in commercial transactions. In the future, regulations could impose limitations regarding interest rates or fees we charge. Any such limitations could materially and adversely affect our results of operations and financial position. In the past, there have been disputes in Colombia among merchants, payment services and banks regarding interchange fees. Although such disputes have been resolved, the SIC may initiate new investigations relating to the interchange fees. This possibility may lead to additional decreases in such fees, which in turn could adversely affect our operations in Colombia and our consolidated financial results.
The Colombian government has the authority to establish and define criteria and formulas applicable to the calculation of banking fees and other charges and to establish caps on the banking fees, credit card fees, and other charges that we impose on our customers. Pursuant to that authority, the Colombian government has established a cap on the fees banks can charge on withdrawals from ATMs outside their own networks. Additionally, under Colombian regulation, other than in connection with mortgage loans, banks are prohibited from charging prepayment penalties or fees on loans, other than in mortgage loans, except when the outstanding amount of a loan is more than the equivalent of 880 monthly minimum wages, or “SMMLV” (approximately US$180,000). In other loans in which the outstanding amount is greater than 880 SMMLV, prepayment penalties or fees may be charged but only when expressly contemplated under the governing loan agreement. With respect to long-term mortgage loans granted in connection with the acquisition of homes, banks are prohibited from charging prepayment penalties. In addition, Law 2,009 of 2019 provides that financial institutions, including banks (such as Itaú Colombia), which are authorized to collect public savings and charge management fees for savings accounts, debit cards and credit cards, must grant their clients access to a minimum package of products and services at no additional cost. Further limits or regulations regarding banking fees and services, and uncertainties with respect thereto could have a negative effect on Itaú Colombia and our results of operations and financial condition.
In the future, additional regulations in Colombia or in other jurisdictions where we operate could impose new or stricter limitations regarding interest rates or fees we are permitted to use or charge. Any such limitations could materially and adversely affect our results of operations and financial situation.
Insolvency laws may limit our monetary collection and ability to enforce our rights.
Colombian insolvency laws provide that creditors of an insolvent debtor in default are prohibited from initiating collection proceedings outside the bankruptcy or reorganization process of such debtor. In addition, all collection proceedings
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outstanding at the beginning of any bankruptcy or reorganization process of any insolvent debtor must be suspended and creditors are prevented from enforcing their rights against the collateral and other assets of the debtor until the reorganization has been agreed (in which case the collection proceeding is resolved within the reorganization agreement) or it is declared that no reorganization was agreed. Additionally, Colombian laws provide insolvency protection for non-merchant individuals. This insolvency protection entails that, once a non-merchant individual has ceased paying his or her debts, such individual can initiate a voluntary insolvency proceeding before a notary public or mediator to reach an agreement with its creditors. The terms of any agreement reached with a group (two or more) of creditors that represent more than 50% of the total amount of the claims will be mandatorily applicable to all relevant creditors. There are other protections such as an automatic stay for 80 days, which could be extended by 30 additional days. These legal limitations make it difficult to recover on defaulted loans, and as a result, may cause Itaú Colombia to enhance its credit requirements, which would result in decreased lending to individuals by making it more expensive. In addition, increased difficulties in enforcing debt and other monetary obligations due to this insolvency law could have an adverse effect on Itaú Colombia and our results of operations and financial condition.
Due to the adverse impact of the COVID-19 pandemic, the Colombian government issued several amendments to the Colombian insolvency regime aimed at mitigating the adverse effects of the COVID-19 pandemic on the economy. These amendments are expected to be in place until December 2023. Pursuant to these amendments (i) a company in Colombia can enter into an emergency negotiating proceeding or a business recovery proceeding created under Decree 560 of 2020 as non-judicial insolvency proceedings and (ii) Colombian companies subject to a reorganization proceeding in Colombia are permitted to obtain additional financing in order to continue performing their business activities within the ordinary course of business without the insolvency court’s prior authorization. This transitory regulation seeks to protect the company as a unit of economic productivity and a source of employment and is aimed at those companies that have been affected by the government’s declaration of a state of emergency in response to the COVID-19 pandemic and may further limit our monetary collection efforts at such companies.
Insolvency proceedings may adversely affect our foreclosure rights in respect to security registered as personal property.
Pursuant to Article 50 of Law No. 1676 of 2013, secured creditors in Colombia with collateral registered as personal property (i) may be allowed to foreclose the respective collateral owned by the debtor subject to a reorganization proceeding, provided that the assets under the security do not constitute essential assets for the economic activity of the debtors or such assets are at risk of being destroyed and the competent judge authorizes such foreclosure, and (ii) once the reorganization agreement is confirmed, each secured creditor may have priority over the other creditors that are part of the agreement. However, in accordance with recent judicial precedent, such rights will only be available to the secured creditors to the extent that the other assets of the debtor are sufficient to ensure the payment of the salary and benefits derived from the employment contracts as well as alimony, if any. Any inability to enforce our foreclosure rights under this Law could have a material adverse effect on our results of operations and financial condition.
The Central Bank of Colombia may impose requirements on our (and other Colombian residents’) ability to obtain loans in foreign currency.
The Central Bank of Colombia may impose certain mandatory deposit requirements in connection with foreign currency denominated loans obtained by Colombian residents, including Itaú Colombia, although no such mandatory deposit requirement is currently in effect. We cannot predict or control future actions by the Central Bank of Colombia in respect of deposit requirements, which may involve the establishment of a mandatory deposit percentage, and the use of such measures by the Central Bank of Colombia may raise our cost of raising funds and reduce our financial flexibility.
COVID-19 or any other pandemic disease and health events could affect the economies of the countries in which we operate, our business operations or our financial condition and results of operations.
Public health crises, or the public perception of the risks of public health crises, such as the COVID-19 pandemic, have negatively impacted and may continue to negatively impact economic activity in Chile, in Colombia and in other countries in which we operate. Accordingly, our results of operations or financial condition have been and may continue to be adversely affected.
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Since the outbreak of the COVID-19 pandemic in 2020, countries responded by taking various measures, including imposing mass quarantines, restricting travel, limiting public gatherings, closing businesses and schools, suspending certain economic activities, and imposing vaccine and testing mandates. While certain government regulations and/or mandates have eased and multiple COVID-19 vaccines have become broadly available in certain areas, certain governmental authorities may continue monitoring the situation and may take various actions in an effort to slow or prevent an increase in the spread of COVID-19. Additionally, variant strains of the COVID-19 virus have appeared, further complicating efforts of the medical community and governmental authorities in response to the COVID-19 pandemic. Concerns related to the COVID-19 pandemic lowered equity market valuations, decreased liquidity in fixed income markets and created significant volatility and disruption in global financial markets, resulting in increased volatility of stock prices (including the price of our stock), a trend that could continue. The COVID-19 pandemic has also had, and may continue to have negative effects on international trade (including as a result of supply chain disruptions and lower export levels), travel, employee productivity, unemployment levels, securities markets, and other economic activities that may have a destabilizing effect on financial markets and economic activity, including companies in the financial sector. While both Chile and Colombia moved to reopen their economies fully in 2022, the Chinese government held on to its strict zero-covid policy that limited global trade for longer, which continued to disrupt global supply chains in 2022. Furthermore, any actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic and economic conditions resulting from the COVID-19 pandemic may negatively impact our business, results of operations and financial condition. For example, the withdrawal of economic relief and stimulus measures and the tightening of monetary policy in response to rising inflation levels in developed economies may affect emerging economies and thus affect our operations.
Since the outbreak in 2020, the Chilean national and subnational governments, for example, have taken various measures to contain and control the spread of COVID-19, including a declaration of a state of emergency, partial or total lockdown for some regions, closure of public venues (including educational institutions) and mass events. Most of these measures have since been relaxed, especially in light of the rollout of various COVID-19 vaccines. In Colombia, for example, some of the measures implemented to mitigate the effects of COVID-19, including access to credit and financial relief, have expired.
From a macroeconomic point of view, the overall impact of the COVID-19 pandemic in Chile was significant, but several support measures led to swift recovery. Chile’s GDP grew over 11.7% in 2021 (while it saw a 6% fall in 2020), in part as a result of fiscal stimulus measures and the rapid rollout of COVID-19 vaccines. However, the fading of previous liquidity injections, a tightening of fiscal and monetary policies, and the persistence of high domestic uncertainty led to a significant slowdown in 2022, with GDP growth decelerating to 2.7%. Annual inflation rose to 7.2% in 2021 (3% in 2020), exceeding the previous projections and the Central Bank of Chile’s target range. Annual inflation continued to rise in 2022, ending the year at 12.8%. The Central Bank of Chile has raised interest rates in order to rein in inflation and currently has a target inflation of 3%. The hiking cycle peaked with rates reaching 11.25% in 2022 up from the technical minimum of 0.5% during the pandemic. We cannot assure you that the Chilean economy will grow at forecasted levels or meet the target range of inflation, and there is no guarantee that future events, such as rising inflation levels, interest rate hikes, or developments of the COVID-19 pandemic or other macroeconomic factors will not depress economic activities and negatively impact our business, results of operations and financial condition.
The overall impact of the COVID pandemic in Colombia was also significant but the economy continues along its recovery path. Colombia’s GDP contracted 7.3% in 2020 during the worst of the pandemic’s economic impact, but grew by a record 11% in 2021, as a result of the easing of COVID-19 related restrictions, increase in household consumption and historically low interest rates. However, lower fiscal spending and interest rate hikes, ending the year at 26.64%, to counter inflation, which increased to 13.12% by the end of 2022, has slowed the growth of the Colombian economy in 2022, which still showed a relatively high growth rate of 7.5% during the last quarter of 2022. We cannot assure you that the period of economic stability that Colombia experienced prior to the COVID-19 pandemic will resume, or that the growth the Colombian economy achieved over the past decade prior to the COVID-19 pandemic will continue in future periods.
The COVID-19 pandemic has also resulted in increased volatility in both the local and the international financial markets and economic indicators, such as exchange rates, interest rates and credit spreads. Any shocks or unexpected movements in these market factors could result in financial losses associated with our trading portfolio or financial assets, which could
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deteriorate our financial condition. Furthermore, market concerns could translate into liquidity constraints and reduced access to funding in both the local and the international markets, negatively affecting our business.
As the effects of the COVID-19 pandemic continues to impact economic activity globally, we, our employees, contractors, suppliers, customers and other business partners may continue to experience restrictions in the ability to conduct certain business activities. In addition, preventive measures—either imposed by governments or voluntarily adopted by companies—may prevent our customers from transacting their businesses effectively and meeting their obligations with us. Adverse changes in the economy, such as interest rate hikes in response to rising inflation levels, may also continue to have a negative effect on the ability of our borrowers to make timely repayments of their loans, which could have an adverse impact on our earnings. Consequently, the COVID-19 pandemic and related government measures has had and may continue to have an adverse effect on our operations. Because there have been no comparable recent global pandemics that resulted in a similar global impact, we do not yet know the full extent of the COVID-19 pandemic’s effects on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic, the effectiveness of our remote working arrangements, third party providers’ ability to support our operations, and any further action taken by governmental authorities and other third parties in response to the COVID-19 pandemic.
Risks Relating to Expansion and Integration of Acquired Businesses
We may not be able to manage our growth successfully.
We have been expanding the scope of our operations over the past few years, and we expect that this expansion will continue. As we continue to grow, we must improve our operational, technical and managerial knowledge and compliance systems in order to effectively manage our operations across the expanded group. Failure to integrate, monitor and manage expanded operations could have a material adverse effect on our business, reputation and financial results. Our future growth will also depend on our access to internal and external financing sources. We may be unable to access such financing on commercially acceptable terms or at all.
Integration of acquired or merged businesses involves certain risks that may have a material adverse effect on us.
We have engaged in a number of mergers and acquisitions in the past, including the Merger, the Santander Colombia Acquisition, the Helm Bank Acquisition (and the subsequent merger of Helm Bank with and into Itaú Colombia in 2014), as well as, more recently, the acquisition and integration of MCC S.A. Corredores de Bolsa (“MCC Corredores”) and MCC Asesorías SpA (“MCC Asesorías” and, jointly with MCC Corredores, “MCC”) in 2022. Furthermore, we may make additional mergers and acquisitions in the future as part of our growth strategy. We believe that these transactions will contribute to our continued growth and competitiveness in the Chilean, Colombian, and international banking sectors.
These acquisitions and mergers and the integration of such institutions and assets involve certain risks, which as of the current stage of such transactions may still include remaining risks such as:
● | integrating new networks, information systems, financial and accounting systems, risk and other management systems, financial planning and reporting, products and customer bases into our existing business may prove difficult, cause us to incur unexpected costs and operating expenses and place additional demands on management’s time; and |
● | the expected operational and financial synergies and other expected benefits from such mergers or acquisitions may not be fully achieved. |
If we fail to achieve the business growth opportunities, cost savings and other benefits we anticipate from mergers and acquisition transactions, or incur greater integration costs than we have estimated, our results of operations and financial condition may be materially and adversely affected.
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Acquisitions and strategic partnerships may not perform in accordance with expectations or may disrupt our operations and adversely affect our business financial condition and results of operations.
A component of our strategy is to identify and pursue growth-enhancing strategic opportunities. As part of that strategy, we have consummated (i) the Santander Colombia Acquisition in 2012; (ii) the Helm Bank Acquisition in 2013 (Helm Bank was merged with and into Itaú Colombia on June 1, 2014); (iii) the Merger in 2016; and (iv) the acquisition of MCC in 2022. We expect to continue to consider additional strategic acquisitions and alliances from time to time, inside and outside of Chile and Colombia. Strategic acquisitions and alliances could expose us to risks with which we have limited or no experience. Future acquisitions may also be subject to regulatory approval, which we may not receive, particularly in view of our increasing market share in the Colombian banking industry.
We must necessarily base any assessment of potential acquisitions and alliances on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. Future acquisitions and alliances may not produce anticipated synergies or perform in accordance with our expectations and could adversely affect our business, financial condition and results of operations.
In addition, new demands on our existing organization, management and employees resulting from the integration of new acquisitions could disrupt our operations and adversely affect our business, financial condition and results of operations.
Risks Relating to Our Securities
Our controlling shareholder is able to exercise significant control over us which could result in conflicts of interest.
Itaú Unibanco Holding is the sole controlling shareholder of Itaú Chile. As of March 31, 2023, Itaú Unibanco Holding beneficially owned, directly and indirectly, approximately 65.62% of our voting common shares. Under Chilean Corporations Law, directors elected by a group or class of shareholders have a duty to act in the interest of the Bank and have the same duties towards the Bank and the other shareholders as the remaining directors. However, based on Itaú Unibanco Holding’s ownership percentage of 65.62% as of the date of this report, Itaú Unibanco Holding is able to control the actions taken by the board of directors of Itaú Chile on most matters on its own, which could result in potential conflicts of interest.
U.S. securities laws do not require us to disclose as much information to investors as a U.S. issuer is required to disclose.
The corporate disclosure requirements applicable to us may not be equivalent to the requirements applicable to a U.S. company and, as a result, you may receive less information about us than you might otherwise receive in connection with a comparable U.S. company. We are subject to the periodic reporting requirements of the Exchange Act that apply to “foreign private issuers.” The periodic disclosure required of foreign private issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers, for example:
● | we are required to file an annual report on Form 20-F, but we are not required to file any quarterly reports. A U.S. registrant must file an annual report on Form 10-K and three quarterly reports on Form 10-Q; |
● | we are required to furnish current reports on Form 6-K, but the information that we must disclose in those reports is governed primarily by Chilean law disclosure requirements and may differ from Form 8-K’s current reporting requirements imposed on a U.S. issuer; and |
● | we are not subject to the proxy requirements of Section 14 of the Exchange Act and our officers, directors and principal shareholders are not subject to the short swing insider trading reporting and recovery requirements under Section 16 of the Exchange Act. |
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Our status as a controlled company and a foreign private issuer exempts us from certain of the corporate governance standards of the New York Stock Exchange.
We are a “controlled company” and a “foreign private issuer” within the meaning of the New York Stock Exchange (NYSE) corporate governance standards, which exempts us from certain NYSE corporate governance requirements. In addition, a foreign private issuer may elect to comply with the practice of its home country and not to comply with certain NYSE corporate governance requirements, including the requirements that (i) a majority of our board of directors (Directorio), consist of independent directors, (ii) a nominating and corporate governance committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, (iii) a compensation committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, and (iv) an annual performance evaluation of the nominating and corporate governance and compensation committees be undertaken. A foreign private issuer may also reply on certain exemptions from the independence requirements for members of its audit committee under the Exchange Act Rule 10A-3(b)(1). We currently use these exemptions and intend to continue using these exemptions. Accordingly, you will not have the same protections afforded to investors in companies that are subject to all NYSE corporate governance requirements. See “Item 16G. Corporate Governance” for a comparison of the corporate governance standards of the NYSE and Chilean practice.
Investors may find it difficult to enforce civil liabilities against us or our directors, officers and controlling persons.
We are organized under the laws of Chile and our principal place of business (domicilio social) is in Santiago, Chile. Most of our directors, officers and controlling persons reside outside of the United States. In addition, all or a substantial portion of our assets are located outside of the United States. As a result, it may be difficult for investors to effect service of process within the United States on such persons or to enforce judgments against them, including in any action based on civil liabilities under the United States federal securities laws.
Risks Relating to Our ADSs and Common Shares
There may be a lack of liquidity and market for our ADSs and common shares.
Our common shares underlying the ADSs are listed and traded on the Santiago Stock Exchange and the Chilean Electronic Exchange, although the trading market for the common shares is small by international standards. A lack of liquidity in the markets may impact our ADSs, which would negatively affect the ability of the holders to sell our ADSs or the price at which holders of our ADSs desire to sell them. Future trading prices of our ADSs will depend on many factors, including, among other factors, prevailing interest rates, our operating results and the market for similar securities.
In addition, according to Article 14 of the Ley No. 18,045 de Mercado de Valores (the “Chilean Securities Market Act”), the CMF may suspend the offer, quotation or trading of shares of any company listed on the Chilean stock exchanges (including our securities) for up to 30 days if, in its opinion, such suspension is necessary to protect investors or is justified for reasons of public interest. Such suspension may be extended for up to 120 days. If, at the expiration of the extension, the circumstances giving rise to the original suspension have not changed, the CMF will then cancel the relevant listing in the registry of securities. These and other factors may substantially limit your ability to sell the common shares underlying your ADSs at a price and time at which you wish to do so.
Also, the recent turmoil in global banking industry, after the failure of two U.S. banks and the forced sale of Credit Suisse in March 2023, may have a negative impact on the trading prices, liquidity and market for our ADSs and common shares.
You may be unable to exercise preemptive rights.
The Ley 18,046 sobre Sociedades Anónimas and the Regulamento de Sociedades Anónimas, which we refer to collectively as the “Chilean Corporations Act”, and applicable regulations establish that whenever we issue new common shares for cash, we are obligated by law to grant preemptive rights to all of our shareholders (including the depositary on behalf of the holders of ADSs), giving them the right to purchase a sufficient number of shares to maintain their existing ownership percentage. However, we may not be able to offer shares to United States holders of ADSs pursuant to
46
preemptive rights granted to our shareholders in connection with any future issuance of common shares unless a registration statement under the U.S. Securities Act of 1933, as amended (the “Securities Act”), is effective with respect to such rights and common shares, or an exemption from the registration requirements of the Securities Act is available.
Our existing shareholders who do not participate in any future preemptive rights offering will suffer an immediate dilution of their percentage equity participation in us. In addition, investors who purchase ADSs or common shares may be subject to dilution of their equity participation in us upon the completion of any future preemptive rights offering. Investors will not know the extent to which they will be diluted until the expiration of any future preemptive rights offering in Chile. For more information, see “Item 10. Additional Information. Preemptive Rights and Increases of Share Capital.”
You may have fewer and less well defined shareholders’ rights than with shares of a company organized in the United States.
Our corporate affairs are governed by our Estatutos Sociales, or By-laws, and the laws of Chile. Under such laws, our shareholders may have fewer or less well-defined rights than they might have as shareholders of a company organized in a U.S. jurisdiction. For example, under legislation applicable to Chilean banks, our shareholders would not be entitled to appraisal rights in the event of a merger or other business combination undertaken by us.
Holders of ADSs are not entitled to attend shareholders’ meetings, and they may only vote through the depositary.
Under Chilean law, a shareholder is required to be registered in our shareholders’ registry at least five business days before a shareholders’ meeting in order to vote at such meeting. A holder of ADSs will not be able to meet this requirement, and accordingly is not entitled to vote at shareholders’ meetings, because the shares underlying the ADSs will be registered in the name of the depositary. While a holder of ADSs is entitled to instruct the depositary as to how to vote the shares represented by such holder’s ADSs in accordance with the procedures provided for in the deposit agreement, a holder of ADSs will not be able to vote its ADSs or underlying shares directly at a shareholders’ meeting or to appoint a proxy to do so. In certain instances, a discretionary proxy may vote our shares underlying the ADSs if a holder of ADSs does not instruct the depositary with respect to voting. In addition, the vote of a holder of ADSs may not be necessary to approve certain matters since, under Chilean law, substantially all of the forms of corporate action can be approved with the votes of our controlling shareholder, Itaú Unibanco Holding, in a duly summoned shareholders’ meeting, except for certain matters requiring supermajority approval according to Chilean law.
U.S. holders of our ADSs or common shares could suffer adverse tax consequences if we are characterized as a passive foreign investment company.
If you are a U.S. holder (as defined in “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations”) and we are a passive foreign investment company, or “PFIC”, for any taxable year during which you own our ADSs or common shares, you could be subject to adverse U.S. tax consequences. As of the date of this Annual Report, we do not expect to be classified as a PFIC for U.S. federal income tax purposes for our current taxable year or for any taxable year in the foreseeable future. However, the determination of whether we are a PFIC is made on an annual basis and will depend on the composition and nature of our income and the composition, nature and value of our assets from time to time, and therefore no assurance can be provided regarding our PFIC status. You should consult your tax advisor regarding the U.S. federal, state and local and other tax consequences of owning and disposing of the ADSs or common shares in your particular circumstances. See “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations” for additional information related to the PFIC rules and their application to the Bank.
Holders of the ADSs or our common shares could be subject to a 30% U.S. withholding tax.
Pursuant to Sections 1,471 through 1,474 of the Internal Revenue Code of 1986, as amended, or the Code, and U.S. Treasury Regulations promulgated thereunder, a 30% withholding tax may, in the future, be imposed on all or some of the payments on the ADSs or our common shares to holders and non-U.S. financial institutions receiving payments on behalf of holders that, in each case, fail to comply with information reporting, certification and related requirements. This withholding tax, if it applies, could apply to any payment made with respect to the ADSs or our common shares, and ADSs or shares of our common shares held through a non-compliant institution may be subject to withholding even if the holder
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otherwise would not be subject to withholding. U.S. holders are urged to consult their tax advisors regarding the application of these rules to their ownership of the ADSs or our common shares. See “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations” for additional information related to these rules and their application to holders of ADSs or our common shares.
Exchange controls and withholding taxes in Chile may limit repatriation of your investment.
Equity investments in Chile by persons who are not Chilean residents may be subject to exchange control regulations that govern the repatriation of investments and earnings.
Dividends received by holders of ADSs are paid net of foreign currency exchange fees and fees and expenses of the depositary and are subject to Chilean withholding tax, currently imposed at a rate of 35%, subject to credits in certain cases as described under “Item 10. Additional Information—E. Taxation—Chilean Tax Considerations.” In order to facilitate capital movements from and into Chile and to encourage foreign investment, the Central Bank of Chile eliminated many foreign exchange restrictions and adopted the Compendium of Foreign Exchange Regulations (Compendio de Normas de Cambios Internacionales) effective April 19, 2001.
We cannot assure you that additional Chilean restrictions applicable to the holders of ADSs, the disposition of the shares underlying the ADSs or the repatriation of the proceeds from such disposition or the payment of dividends will not be imposed in the future, nor can we advise as to the duration or impact of such restrictions, if imposed. If for any reason, including changes in the Foreign Investment Agreement or Chilean law or regulations, the depositary is not able to convert Chilean pesos to U.S. dollars, investors may receive dividends or other distributions, if any, in Chilean pesos.
Risks Related to the Proposed Tender Offer
If the proposed tender offer is consummated, our controlling shareholder may take or cause certain actions to be taken, including delisting our ADSs from the NYSE, which could limit liquidity of the ADSs and adversely affect our business and access to future capital.
On March 2, 2023, our controlling shareholder Itaú Unibanco Holding announced its intention to make a voluntary tender offer for all of the outstanding shares of Itaú Chile not held by Itaú Unibanco Holding or its affiliates. The proposed tender offer has not yet commenced and is expected to be conducted in the first half of 2023. The proposed tender offer is subject to, among other conditions, regulatory approvals from the Central Bank of Brazil and CMF.
Although it has not announced its intention to do so, our controlling shareholder may, upon consummation of the proposed tender offer, take or cause Itaú Chile to take certain actions to delist the ADSs and suspend the public reporting obligations of Itaú Chile in the United States, including, but not limited to, delisting the ADSs from the NYSE, terminating of our SEC registration and our reporting requirements under the United States Exchange Act of 1934, as amended (the “Exchange Act”), and terminating the Deposit Agreement governing our ADSs.
Upon a consummation of the proposed tender offer, the number of our ADSs that are publicly held may be so small that the liquidity of our ADSs may be significantly reduced, there may no longer be an active trading market for our ADSs and the market value of our ADSs may be significantly reduced. The extent of the public market for our ADSs and the availability of price quotations would depend upon factors such as, among others:
● | the number of holders of ADSs and the number of ADSs in public ownership; |
● | the aggregate market value of our shares, including shares represented by ADSs in public ownership; |
● | the trading volume of the remaining ADSs on NYSE; |
● | whether securities firms remain interested in maintaining a market in ADSs or providing research on Itaú Chile; |
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● | the possible termination of the Deposit Agreement governing our ADSs; |
● | the possible de-listing of our ADSs from NYSE following completion of the proposed tender offer; and |
● | the possible termination of our SEC registration. |
If the proposed tender offer is consummated, our controlling shareholder may cause the delisting of our ADSs from the NYSE and, in any event, we may no longer be eligible to maintain a listing with the NYSE. According to NYSE’s guidelines, our ADSs would not meet the criteria for continued listing on the NYSE if, among other things, the total number of our shareholders is not at least 400.
In addition, a delisting from the NYSE could have an adverse effect on our business, including our ability to access future capital, including making it more difficult for us to issue additional securities or secure additional financing, particularly in the United States.
In the event our controlling shareholder consummates the proposed tender offer and you remain a shareholder of Itaú Chile, you may have limited rights to information and we may no longer be required to follow certain United States disclosure and corporate governance standards.
In the event our controlling shareholder consummates the proposed tender offer and you do not tender your ADSs or underlying shares and remain a shareholder after expiration of the proposed tender offer, you may have limited rights to information and we may not be required to maintain certain currently applicable corporate governance standards. For example, a termination of our SEC registration would substantially reduce the information required to be furnished by us to such remaining holders and to the SEC, and would make certain provisions of the Exchange Act no longer applicable to us, such as the requirements of filing annual reports on Form 20-F and other reports on Form 6-K with the SEC. In addition, following a possible delisting from the NYSE, we would no longer be required to follow mandatory corporate governance standards in the United States, including those promulgated by the listing rules of the NYSE.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
We are a publicly traded company (sociedad anónima) organized under the laws of Chile and licensed by the CMF to operate as a commercial bank. Our legal name is Banco Itaú Chile, and our marketing names are Banco Itaú, Itaú Chile and/or Itaú. Our principal executive offices are located at Presidente Riesco 5537, Las Condes, Santiago, Chile. Our telephone number is +(562) 2660 8000 and our main websites are www.itau.cl and ir.itau.cl. Our agent in the United States is Itaú Chile New York Branch, Attention: Joaquín Rojas Walbaum, located at 885 Third Avenue, 33rd Floor, New York, NY 10022. Information set forth on our websites does not constitute a part of this Annual Report. Itaú Chile is organized under the laws of Chile and its subsidiaries are organized under the laws of Chile and Colombia.
History
Itaú Chile is the resulting entity from the merger of two leading banks in Chile: Corpbanca and Itaú Chile. Corpbanca, the oldest private bank in Chile and the legal surviving entity, and Itaú Chile, a wholly-owned subsidiary of Itaú Unibanco, the largest private bank in Latin America and a wholly-owned subsidiary of Itaú Unibanco Holding that, since the Merger on April 1, 2016, has been the sole controlling shareholder of Itaú Chile.
The Bank’s history has been extensive and full of challenges. The Bank was incorporated as Banco de Concepción by Decree No. 180 of the Chilean Ministry of Finance on October 3, 1871, and legally began operations as a bank on October 16 of the same year. Over the next 150 years, the Bank went through a number of changes in control from private to government agency and back to private, and also through several mergers and acquisitions.
In 1971, Banco de Concepción was transferred to a government agency, Corporación de Fomento de la Producción (the Chilean Corporation for the Development of Production, or “CORFO”). Also in 1971, Banco de Concepción acquired
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Banco Francés e Italiano in Chile, which provided for the expansion of Banco de Concepción into Santiago. In 1972 and 1975, the Bank acquired Banco de Chillán and Banco de Valdivia, respectively. In November 1975, CORFO sold its shares of the Bank to private business persons, who took control of the Bank in 1976. In 1980, the name of the Bank was changed to Banco Concepción. In 1983, control of Banco Concepción was assumed by the CMF. The bank remained under the control of the CMF through 1986, when it was acquired by Sociedad Nacional de Minería (the Chilean National Mining Society, or “SONAMI”). Under SONAMI’s control, Banco Concepción focused on providing financing to small- and medium-sized mining interests, increased its capital and sold a portion of its high-risk portfolio to the Central Bank of Chile.
Investors led by Mr. Alvaro Saieh Bendeck purchased a majority interest of Banco Concepción from SONAMI in 1996. Following the acquisition by Mr. Alvaro Saieh Bendeck in 1996, the brand name changed to Corpbanca, a management team with substantial experience in the Chilean financial services industry was hired and the Bank commenced a period of significant growth fueled by organic expansion and acquisitions. Our first significant transactions were the acquisition of the assets of the consumer loan division of Corfinsa and the finance company Financiera Condell S.A. in 1998. Both combined created the Bank’s Consumer Division, Banco Condell, focused on the middle-low income segment of the population in Chile.
With a view to its internationalization in November 2004, the Bank completed the listing process that enabled it to trade its ADSs on the NYSE. Five years later, the New York Branch was opened as a support for clients who can see their possibilities of financing in the United States expanded.
Itaú financial group expanded into Chile in September 2006 after the acquisition of BankBoston (Chile). In February 2007, BankBoston (Chile) was named “Banco Itaú Chile,” after the former Superintendency of Banks and Financial Institutions (Superintendencia de Bancos e Instituciones Financieras, or “SBIF”) approved the acquisition.
In June 2012, former Corpbanca finalized the acquisition of Banco Santander Colombia S.A. (now, Itaú Colombia). With this acquisition, we became the first Chilean bank to have a banking subsidiary outside the country. In 2013, we acquired Helm Bank S.A., and the following year, merged it with and into Itaú Colombia, maintaining the networks of branches separately: Itaú Colombia and Helm.
With a view of becoming a larger bank with a regional presence, our former controlling shareholder entered, in early 2014, into a merger agreement (the “Transaction Agreement”) with Itaú Unibanco Holding and “Banco Itaú Chile.” On January 29, 2014, Corpbanca and Itaú Chile agreed to merge. In June 2015, the Extraordinary Shareholders Meetings of Corpbanca and Itaú Chile agreed to the Merger, which was approved by the SBIF in September of the same year. On April 1, 2016, the Merger was consummated and Itaú Chile was merged with and into Corpbanca, and the Bank was renamed “Itaú Corpbanca”.
Immediately following the Merger, the corresponding subsidiaries of Itaú Chile and Corpbanca continued to operate independently, and their respective clients were served by their current executives. In January 2017, December 2017, and April 2018, respectively, our securities brokerages’ (Corredoras de Bolsa) subsidiaries, our asset managers’ (Administradoras Generales de Fondos) subsidiaries, and our insurance broker’s subsidiaries, were each consolidated into one single company for each line of business.
In this way, the stories of Itaú Chile and Corpbanca were merged into a single one, with Corpbanca contributing a long and successful business trajectory with a clear goal: offering clients a service of excellence, being faithful to what inspired its founders. On the other hand, Itaú Unibanco, with more than 90 years of history in Brazil, contributed all its experience as the largest private bank in Latin America and one of the largest banks in the world, measured by market capitalization with a leading presence in the Brazilian market.
Our business model is the result of the combination of the local banks’ strengths and local knowledge, which will allow us to reach more clients, with an extended range of products and financial solutions.
By consolidating operations in Chile and Colombia, the new bank became one of Chile’s largest private financial institutions, ranking fifth largest financial institution among private Chilean banks, as measured by loans, with a market share by loans of 10.1% in Chile as of December 31, 2022. The Merger and combination of the strengths of both banks
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have translated into an expansion in the offer of products and services for our clients, with a large branch platform in Chile. Indeed, as of December 31, 2022, we operated 179 branch offices in Chile, one branch in New York, 74 branches in Colombia, and representative offices in Panama and Peru.
After the Merger, Itaú Unibanco Holding indirectly acquired an additional 2.13%, 0.35%, 2.08% and 1.08% share capital of Itaú Chile from the Saieh Family, on October 26, 2016, on September 15, 2017, on October 12, 2018, and September 10, 2020, respectively.
In October and November of 2021, we conducted three rights offerings as a result of which a total of 455,243,347,249 common shares (including 517,837,500 common shares representing ADSs) were subscribed and paid, in the Chilean and international markets, representing 98.73% of the total new common shares issued in the aforementioned rights offerings, with a total of 5,867,763,862 new common shares remaining unsubscribed and unpaid. In November 2021, through an auction in the Santiago Stock Exchange in Chile, the Bank placed in full the 5,867,763,862 remaining shares unsubscribed and unpaid after the end of the aforementioned rights offerings. Itaú Unibanco Holding, the Bank’s controlling shareholder, and its affiliates subscribed and paid for a total of 350,048,242,004 new common shares, representing 76.89% of the total new common shares subscribed in the aforementioned rights offerings. After the placement in full of the new common shares issued in the aforementioned rights offerings, Itaú Unibanco Holding and its affiliates held 551,015,065,630 common shares of the Bank, representing 56.60% of the Bank’s common shares as of November 30, 2021. See “Item 4. Information on the Company-B. Business Overview—Ownership Structure”.
On March 22, 2022, Itaú Unibanco Holding indirectly sold 0.64% share capital of Itaú Chile, decreasing its percentage of ownership in the Bank’s common shares to 55.96%.
Further, in the context of the bankruptcy proceeding under Chapter 11 of Title 11 of the United States Code filed by Corp Group Banking S.A., Compañía Inmobiliaria y de Inversiones SAGA SpA and certain affiliates of Corp Group Banking S.A. as debtors before the United States Bankruptcy Court for the District of Delaware and the implementation of the Seventh Amended Joint Plan of Liquidation of Corp Group Banking S.A. and its Debtor Affiliates Docket No. 815 (the “Plan”), which was confirmed by the Bankruptcy Court on June 16, 2022, and which Plan became effective on July 14, 2022, (i) on June 3, 2022, Itaú Chile, Itaú Unibanco Holding, CorpGroup Interhold SpA, Inversiones GASA Limitada and other related companies of Corp Group Banking S.A., executed a Mutual Termination Letter, to terminate, among other agreements, the Transaction Agreement, effective as of July 14, 2022, and (ii) CorpGroup Interhold SpA, Inversiones Gasa Limitada, Corp Group Banking S.A., CorpGroup Holding Inversiones Limitada, SAGA, ITB Holding Brasil Participações Ltda and Itaú Unibanco Holding, executed a Financial Colombia S.A.S. in Itaú Corpbanca Colombia Mutual Termination Letter on July 14, 2022, to terminate the Itaú CorpGroup Shareholders Agreement originally dated as of April 1, 2016, as well as certain share purchase agreements, in each case effective as of July 14, 2022, under which a subsidiary of Itaú Unibanco Holding – ITB Holding Brasil Participações Ltda.—acquired a total of 94,077,808,763 shares of Itaú Chile from Corp Group Banking S.A..
On March 28, 2023, the CMF approved the by-laws amendment resolved at our extraordinary shareholders meeting held on January 19, 2023, including among other things the change of our legal name from Itaú Corpbanca to “Banco Itaú Chile.” This name change became effective retroactively as of March 28, 2023, following the completion of the required registration and publication on April 3 and 6, 2023, respectively. In connection with this change, the ticker symbol for American Depositary Shares of Banco Itaú Chile traded on the New York Stock Exchange will change from “ITCB” to “ITCL,” effective from May 1, 2023.
As of the date of this report, Itaú Unibanco Holding and its affiliates beneficially owned 65.62% of our outstanding common shares.
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A summary of the main milestones in the history of the Bank is set forth in the following chart:
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The Itaú Colombia Acquisition
On February 22, 2022, following receipt of regulatory approvals from the banking regulators in Chile, Colombia and Brazil, and in compliance with the Transaction Agreement (at that time, still in force), the Bank completed the acquisition—directly and indirectly—of all the shares of Itaú Colombia owned by CorpGroup Interhold S.p.A., CorpGroup Banking S.A. and CG Financial Colombia S.A.S. in Itaú Colombia, representing approximately 12.36% of the then subscribed and paid capital of Itaú Colombia for a total consideration of US$414,142,063.6. As a result of these transactions, Itaú Chile owns, directly and indirectly, approximately 99.4617% of the subscribed and paid capital of Itaú Colombia (out of which approximately 94.99% is directly owned by Itaú Chile). Itaú Chile directly acquired approximately 7.89% of Itaú Colombia’s subscribed and paid capital, and its new subsidiary in Colombia, Itaú Holding Colombia S.A.S., acquired the remaining approximately 4.47%. The formation by Itaú Chile in Colombia of its subsidiary Itaú Holding Colombia S.A.S., whose subscribed and paid capital is wholly-owned by Itaú Chile, was duly authorized by the CMF and by the Central Bank of Chile for this purpose. The total price of US$414,142,063.6 resulted in a negative impact of 1.42% on Itaú Chile’s Common Equity Tier 1 (CET1) capital, on a fully loaded basis, under the Basel III standards.
Capital Expenditures
The following table reflects our capital expenditures in the years ended December 31, 2020, 2021 and 2022:
For the Year Ended December 31, | ||||||
| 2020 |
| 2021 |
| 2022 | |
(in millions of Ch$) | ||||||
Land and buildings |
| 159 |
| 24 |
| 143 |
Computer systems and equipment |
| 65,713 |
| 43,511 |
| 54,507 |
Furniture and fixtures |
| — |
| — |
| — |
Vehicle |
| — |
| — |
| — |
Other |
| 1,803 |
| 2,635 |
| 3,162 |
Total |
| 67,675 |
| 46,170 |
| 57,812 |
Total capital expenditures in 2022 of Ch$ 57,812 million consisted mainly of Ch$54,507 million in computer software, IT projects and equipment. For further details relating to these results and related divestitures, see Notes 13 and 14 of our consolidated financial statements included herein.
B. BUSINESS OVERVIEW
COMPETITIVE STRENGTHS
Our business model is based on the combination of local bank strengths and local knowledge and benefits from Itaú Unibanco’s experience and global platform. In the seven years since the Merger, we believe we have emerged as a leading banking platform and deepened our expansion in the Andean Region as a result of the following strengths:
1. | Key banking player in two of the most developed economies and sound financial systems in Latin America. We conduct the majority of our business in Chile and a significant share in Colombia. Both countries have been the Andean Region’s fastest growing economies and are considered to be among the best business environments in Latin America. The Chilean and Colombian economies have generally demonstrated stable macroeconomic conditions in terms of growth and inflation, with growing per capita GDP and solid credit ratings, and have shown strong signs of ongoing recovery following the COVID-19 pandemic. We believe that our increased footprint in Chile and Colombia gives us an enhanced ability to grow and compete more effectively within these countries, further strengthening our market position there. |
2. | Attractive portfolio in Chile with a strong wholesale segment and increasing retail share. We have the scale and resources to grow and compete effectively, particularly in Chile where we were the fifth largest financial institution among private Chilean banks, as measured by loans, with a 10.1% market share as of December 31, |
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2022. We have an attractive credit portfolio in Chile, which is currently focused on the wholesale segment but has opportunities to grow in the retail segment as well. The wholesale segment accounted for 61.9%, or Ch$16,457,021 million of our consolidated gross loans, as of December 31, 2022, while our mortgage portfolio and consumer loans accounted for 26.4%, or Ch$7,030,610 million, and 11.7%, or Ch$3,120,154 million, respectively, of our consolidated gross loans as of December 31, 2022. Our retail share in gross loans increased 149 basis points, from 36.7% as of December 31, 2021, to 38.1% as of December 31, 2022.
Our strategy to become the fastest growing bank in Chile compared to the peer groups (Scotiabank, BCI, Santander and Banco de Chile) is already delivering results according to CMF data: (i) we ranked as the second bank in Chile in terms of the growth of our gross loan portfolio (12.9%) in the 12-month period ended December 31, 2022; (ii) we ranked as the second bank in Chile in terms of the growth of both our mortgage (16.0%) and commercial loans (9.5%) in the 12-month period ended December 31, 2022; (iii) we ranked as the first bank in Chile in terms of growth of our consumer loans (26.1%) in the 12-month period ended December 31, 2022; (iv) we ranked as the first bank in Chile in terms of consumer installment loans (21.9%), factoring (44.4%) and leasing loans (13.9%) growth in the 12-month period ended December 31, 2022 and (v) we ranked as the first bank in Chile in terms of the total trade finance loan with 17.7% of the market share.17
3. | Customer-centric business model. We have a strategic customer-centric business model with strong focus on digital transformation, including a program that aims to transform us into a customer-centric organization, that is agile, digital and simple, data-driven, and that takes risks and experiments. |
4. | Successful turnaround process in Chile and clear plan in Colombia. We are one of the fastest growing banks in Chile, which has been fueled by the digital transformation described above. As of December 31, 2022, we have had eight consecutive quarters with positive results, and maintained a consistent improvement in returns on tangible assets. In Colombia, we have defined a clear action plan, which focuses on our commercial strategy, enhancements in digital products and key structural changes, such as adjustments to our back office and improved integration with our Chilean operations. |
5. | Sponsorship and support from the largest private bank in Latin America, Itaú Unibanco. Itaú Unibanco is the largest private financial institution in Latin America and a premier banking franchise. We believe its sponsorship and support provides us with an opportunity to leverage its strong global client relationships and enhance our opportunities to grow regionally, adapt more quickly to changing trends in the banking sector and share best practices. We have been able to expand our offering of banking products by learning from Itaú Unibanco’s management model, as well as its segmentation and digitalization strategies. |
6. | Experienced management team. We have an experienced management team, and strive to ensure that we have the right structure and the right talent with the necessary skillset to lead our transformation. As part of these efforts, we have (i) created the Digital Business Development Management Division, which is in charge of our digital transformation overall and takes the lead in innovation; (ii) decentralized back-office operations, which is key to reinforce customer centricity and agility; and (iii) we have strengthened our leadership team in Colombia. |
STRATEGY
Our strategy aims to develop a leading bank in terms of sustainable performance and customer satisfaction. Our culture helps us attract and retain talent, guide our business trajectory and promote a competitive advantage. Our culture is defined by a set of key principles, which we call “Our Way,” that keeps us current with the context, demands and changes in our business and organizational culture.
The development of our strategy is based on five pillars, which aim is to transform us into a simple, agile, efficient and disruptive bank, creating the path today, for the bank of the future. Our five key pillars are disruption, customer-centricity, simplicity and digitization, agile working model and disciplined approach to achieve sustainable results.
1. | Disruption: the first pillar is about disrupting the market by creating new strategies and products. The methodology we are following to ensure a disciplined execution of our transformation plan, called “ItaúGo,” |
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leverages the experience of Itaú Unibanco in Brazil and is based on a structured process of defining a high-level strategic direction and then developing the bottom-up initiatives that will take us there.
Within this plan, we are giving priority to the most disruptive initiatives, including, among others: (i) our alliance with Rappi; (ii) our investment business growth ambition; and (iii) our mortgage alliance with Toc Toc, each as further described below.
Since March 2021, we have a strategic alliance with Rappi, a leading digital player in South America, through which we seek to bring innovative and disruptive ways of providing financial services to both individuals and companies in Chile. Through this partnership, we are integrating financial services into a large ecosystem, which enables us to access a greater customer base pursuant to which we expect to boost our growth while adding value to the ecosystem.
As a strengthening step to support our growth ambitions in the investment business and complementing our last year’s Independent Financial Advisor Program (“IFA Program”), we launched a new financial advisory model for clients, called “Itaú Advisors”, aimed mainly at high-net-worth individuals. The first office is in the heart of Santiago’s financial district, where we will be able to work with our clients to understand their profile, including providing customized financial plans to help them achieve their goals with appropriate risk levels.
As part of our efforts to increase our participation in retail segments, we launched in 2022 an alliance with local real estate browsing website Toc Toc. This website lists and provides a variety of tools for buyers, sellers, lessees and landlords to buy, sell and rent real estate, including houses, apartments, offices, lands and warehouses. This alliance seeks to provide buyers the best experience in the mortgage process, providing online mortgage pre-approval, support from specialized mortgage executives and priority during the loan process.
2. | Customer centricity: the second pillar is about putting our clients at the center of everything we do with easy-to-use products and driven by our deep understanding of our customers’ needs, obtained through analytics. Examples of how we plan on executing this strategy include the following: |
● | As part of our strategy for the wealth management business, we have acquired MCC, a financial boutique with more than 40 years of experience, enhancing our capabilities as well as our scale by effectively tripling our assets on the management for private banking clients. Along with the integration of MCC, we have launched Itaú Private Bank backed by the largest private bank in Latin America. Through our private banking platform, our customers will have access to a broad range of investment services locally and internationally, including the possibility of opening accounts and invest in our banks in Miami and also in Switzerland. The value proposition for our clients is to offer a comprehensive advisory service through a multidisciplinary team of bankers and investment specialists supported by the Itau international network to deliver the best investment alternatives, advice, and also our experience. |
· | We ranked number one in customer recommendations in the latest ServiTest Personas 2022 independent measurement for individuals, issued by Ipsos. This was one of our key objectives for the year 2022. While we are proud of our achievement, our ambition is much bigger. There are still enormous business opportunities to be captured by providing the best customer experience. |
● | We have strengthened our leadership position in customer satisfaction for SMEs by improving our net promoter score, or “NPS,” by 12 percentage points and increasing the business to our competitors according to the most recent Servitest. Our NPS for SMEs is now 20 percentage points better than the industry average. |
● | We were considered by SMEs as the best bank in all dimensions of the Servitest poll. This clearly demonstrates that we have a competitive advantage in terms of customer experience in this segment and our SME business is thriving as a result. We will continue moving forward with this same guiding philosophy because client orientation has been engrained in our culture as seen by the strong positive progression in all areas. |
● | We have become the biggest player in foreign exchange loans in Chile. One key element of our trade finance value proposition is our trade finance portal, which has been chosen by Global Finance Magazine |
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as the best trade finance solution for the third consecutive year. The fact that we were also selected by the best supply chain finance application for 2022 by the same publication confirms that we are on the right track when it comes to creating products and services that make life simpler for our clients.
● | In terms of investment banking, in 2022, we reached the second position in Latin America in Environmental, Social and Governance, or “ESG,” transactions and the third in liability management. We also reached fourth positions in local debt capital markets. Investment banking is a key area of focus for us as we continue to develop a regional franchise together with Itaú Unibanco, leveraging our combined presence in Latin America, which will enable us to continue rising on the lead tables. |
● | We highlight our progress in cash management. Over the last 12 months, we have seen a growth of 20.2% in supplier payments, and 18.1% in transactional cash. That increase in transactions resulted from our efforts to digitize our value proposition, introduce transactional solutions and get a closer operational integration with key wholesale clients. |
3. | Simple and digital: the third pillar is to be simple and digital, not only in the way we interact with our clients but also in our internal processes. |
Simplification is a key element of our strategy to drive customer satisfaction and efficiency. We are working to increase our customers’ use of online and mobile banking by offering them better technological solutions. Our senior management is focused on implementing technological solutions that will allow us to identify means of improving our overall profitability and to optimize our cost structure.
Digital banking is essential to boosting our retail banking segment and further improving our efficiency and profitability. Delivering a digital experience that allows us to offer a simple and convenient experience adapted to the needs of our clients is key, as the strong trend towards digital channels and transactions continues.
As a result, we have been able to reduce the number of duplicative systems and to develop more than 800 Application Programming Interfaces, or APIs.
As part of our simplification efforts, we have (i) increased monitoring of failed customer interactions and (ii) increased the usage of artificial intelligence programs for automating internal processes. We expect these efforts to provide efficiencies in the short to medium term.
4. | Agile working model: the fourth pillar is about building an innovative organization and culture that is fit for the direction and challenges ahead. We are moving away from a traditional hierarchical structure to a new and modern organization in which we expect to structure our teams in multidisciplinary working communities to generate a more agile and efficient working model. These communities are based on continuous interactions with our clients, in order to create an ongoing feedback process that leads to a better product offering, captures value in the short-term and allows us to adjust products and functionalities to meet the evolving needs of our customers. We started in March 2021 with the first three agile communities, and, by the end of 2021, we had 500 staff (internal and external) working in the agile model. As of December 31, 2022, we had over 650 staff (internal and external) in the agile working model distributed across an increasing number of communities covering all or our main products and service lines, completely transforming the way our teams work together, especially in our commercial, products and IT departments. The implementation of agile at scale has been very important in increasing the speed of product innovation and adaptation to customer preferences, which has been a key driver for improving our NPS. |
On talent attraction, we have partnered with The Pontifical Catholic University of Chile (Pontificia Universidad Católica de Chile) to develop a finance laboratory as a magnet for students interested in finance. In addition, we have also launched the Itaú Tech Talent initiative, where we set out challenges to attract and select the best talent. We are also committed to promoting diversity and gender equality. We have taken concrete steps, such as making sure that at least one female candidate is considered for every manager level position, as well as ensuring that employees on maternity leave are paid full bonuses. Finally, we have launched our “Itaú is orange
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and also of all colors” campaign, which aims to promote LGBTIQ+ inclusion. The market recognizes us as one of the best companies to work, scoring 90 points in the 2022 Great Place to Work survey and reaching the first place in the banking sector in the Best Internship Experiences Ranking of Firstjob.
5. | Sustainable results: the fifth pillar is sustainability of our results. We embrace ESG criteria in our different operations and subsidiaries, seeking to mobilize capital in a sustainable way. |
In line with our vision of “being the leading bank in sustainable performance and customer satisfaction”, we are convinced that maintaining a solid and ethical corporate governance, reducing our energy and water consumption, and providing more and better opportunities to our stakeholders, allow us to generate a positive impact on society, while providing a profitable performance to our investors.
To this end, in 2022, we promoted a renewed sustainability strategy through which we were able to place more than US$100 million in sustainable loans to wholesale banking clients.
In the social front, we continue to promote educational initiatives for kindergartens and schools in low-income communities. Additionally, we have communities of collaborators to make gender equality and LGBTIQ+ challenges visible through a renewed promotion of our values, among which are diversity and inclusion.
In 2022, we renewed our governance, creating a new Sustainability Management that consolidates Environmental, Social and Governance management to drive our sustainable initiatives.
We also have a Senior Sustainability and Diversity Commission—a supervisory C-level body that meets on a quarterly basis to discuss our sustainability management and different areas of the bank report on the progress on ESG matters.
As part of our commitment to the climate challenge, Itaú has been a signatory to the Task Force on Climate-related Financial Disclosure (TCFD) since July 2022, which will accelerate the identification, management and disclosure of financial risks related to climate change.
Considering the above, a cross-cutting diagnostic process was initiated in the bank to evaluate the integration of the TCFD recommendations and estimate the levels of effort required. In 2022 alone, approximately CLP$60 million were invested in evaluation and diagnostic consulting, which process was led by our Corporate Risk Management Division.
In addition, a series of internal training sessions were held to strengthen capacities for the identification, management and evaluation of climate scenarios and their relationship with the bank’s economic performance. The first TCFD report on financial risks related to climate change is expected to be published by 2025.
Our sustainable performance has allowed us to stand out internationally and during 2022 and our ESG efforts have been recognized and awarded. We scored 70 out of 100 on the latest S&P Global Corporate Sustainability Assessment questionnaire (CSA). The CSA serves as the basis for ESG Scores, which power the iconic Dow Jones Sustainability Indices (DJSI). For the fourth consecutive year, we qualified as a constituent of the two of the DJSI: i) the DJSI Pacific Alliance MILA, joining the world leaders in sustainability; and ii) we remained as a constituent of the DJSI Chile. Our CSA score allowed us to achieve percentile 82 among the 44 banks listed globally that are a part of one or more DJSI family and the percentile 94 among 755 banks that were assessed globally by S&P in the CSA. Also, our CSA score allowed us to be included as “Member” in the 2023 version of the S&P Sustainability Yearbook, being part of the 75 banks (listed or not listed) with the best scores worldwide. For the fifth time, our asset management subsidiary, (or the “IAM”) was chosen as the leader in sustainable investing in the 2022 edition of ALAS20 Awards. In addition, the IAM achieved the first place in responsible investing and sustainability research, as well as the second place in corporate governance investing. As asset managers and lenders, we understand we have a key role in promoting sustainable investing and we are committed to fulfilling that role as part of generating sustainable results. Therefore, the IAM is signatory to the Principles for Responsible Investment.
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These are the pillars and steps towards achieving our strategy and bringing us to the forefront of banking in the region. We believe that the union of the initiatives described above will allow us to deliver sustainable and recurring results for our shareholders and investors, because as Our Way says: we act and think like owners.
OWNERSHIP STRUCTURE
As of the date of this report, Itaú Chile capital stock is composed of 973,517,871,202 common shares traded on the Santiago Stock Exchange and the Chilean Electronic Stock Exchange. Shares are also traded as depositary receipts on the NYSE in the form of ADSs. At our Extraordinary Shareholders’ Meeting held on January 19, 2023, several amendments to our by-laws were approved; one of those amendments was the decrease of the number of shares into which the Bank’s equity capital is divided from 973,517,871,202 common shares to 216,347,305 common shares (i.e., in the proportion of 4,500 current shares for each new share) (the “Reverse Stock Split”). This by-laws amendment was approved by the CMF through Resolution 2,215, dated March 28, 2023. The effectiveness of the Reverse Stock Split is subject to certain conditions precedent, including registration and publication of the amended by-laws (which has already been completed), registration of the new common shares in the CMF securities registry (which request was filed on April 14, 2023), and notification to the Chilean stock exchanges. As anticipated in said Extraordinary Shareholder’s Meeting, we expect such conditions precedents to be completed in May 2023.
As of the date of this report, Itaú Unibanco Holding and its affiliates beneficially owned 65.62% of our outstanding common shares.
On March 2, 2023, Itaú Unibanco Holding announced its intention to make a voluntary tender offer for all of the outstanding shares of Itaú Chile not held by Itaú Unibanco Holding or its affiliates. The tender offer has not yet commenced and is expected to be conducted in the first half of 2023. The proposed tender offer is subject to, among other conditions, regulatory approvals from the Central Bank of Brazil and the CMF.
PRINCIPAL BUSINESS ACTIVITIES
We are a full-service commercial bank based in Chile that, in addition to our presence in every region in Chile, has operations in Colombia, a branch in New York and representative offices in Panama and Peru.
We provide a broad range of wholesale and retail banking services to our customers in Chile and Colombia. In addition, we provide financial advisory services, asset management, insurance brokerage and securities brokerage services through our subsidiaries, and banking services through our New York Branch.
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We operate in two main geographic areas: Chile and Colombia. The Chilean business unit also includes operations carried out by the Itaú Chile New York Branch. The following table sets forth a breakdown of our revenue by geographic market for the years ended December 31, 2020, 2021 and 2022 in accordance with IFRS 9:
| Net Interest Income by Geographic Market | |||||||||||||||||
2020 | 2021 | 2022 | ||||||||||||||||
| Chile |
| Colombia |
| Total |
| Chile |
| Colombia |
| Total |
| Chile |
| Colombia |
| Total | |
| (in millions of Ch$) | |||||||||||||||||
Interest income |
| 1,116,943 | 432,731 |
| 1,549,674 |
| 1,324,275 | 363,227 |
| 1,687,502 |
| 2,668,383 |
| 508,750 | 3,177,133 | |||
Interest expense |
| (490,729) | (192,508) |
| (683,237) |
| (580,997) | (130,198) |
| (711,195) |
| (1,726,924) |
| (279,742) | (2,006,666) | |||
Net interest income |
| 626,214 |
| 240,223 |
| 866,437 |
| 743,278 |
| 233,029 |
| 976,307 |
| 941,459 |
| 229,008 |
| 1,170,467 |
The following tables provide information on the composition of our loan portfolio at amortized cost net of allowances as of December 31, 2020 and 2021, and as of December 31, 2021 and 2022, respectively:
As of December 31, |
| |||||||
2020 | 2021 | Variation | Variation | |||||
(in millions of Ch$) | % |
| ||||||
Commercial loans |
|
|
|
| ||||
Commercial loans | 11,502,835 | 12,066,715 | 563,880 | 4.9 | % | |||
Foreign trade loans | 825,445 | 1,140,822 | 315,377 | 38.2 | % | |||
Current account debtors | 62,046 | 64,141 | 2,095 | 3.4 | % | |||
Factoring operations | 151,487 | 238,407 | 86,920 | 57.4 | % | |||
Student loans | 576,986 | 530,653 | (46,333) | (8.0) | % | |||
Leasing transactions | 916,587 | 929,990 | 13,403 | 1.5 | % | |||
Other loans and receivables | 25,796 | 20,913 | (4,883) | (18.9) | % | |||
Subtotals | 14,061,182 | 14,991,641 | 930,459 | 6.6 | % | |||
Mortgage loans |
|
|
|
| ||||
Letters of credit loans | 23,113 | 18,291 | (4,822) | (20.9) | % | |||
Endorsable mutual mortgage loans | 89,409 | 77,847 | (11,562) | (12.9) | % | |||
Other mutual mortgage loans | 4,761,064 | 5,713,703 | 952,639 | 20.0 | % | |||
Leasing transactions | 295,856 | 301,553 | 5,697 | 1.9 | % | |||
Other loans and receivables | 73,846 | 56,279 | (17,567) | (23.8) | % | |||
Subtotal | 5,243,288 | 6,167,673 | 924,385 | 17.6 | % | |||
Consumer loans |
|
|
|
| ||||
Consumer loans | 1,684,696 | 1,914,901 | 230,205 | 13.7 | % | |||
Current account debtors | 112,945 | 101,365 | (11,580) | (10.3) | % | |||
Credit card debtors | 442,854 | 584,714 | 141,860 | 32.0 | % | |||
Consumer leasing transactions | 1,285 | 738 | (547) | (42.6) | % | |||
Other loans and receivables | 29,858 | 34,516 | 4,658 | 15.6 | % | |||
Subtotal | 2,271,638 | 2,636,234 | 364,596 | 16.0 | % | |||
Total | 21,576,108 | 23,795,548 | 2,219,440 | 10.3 | % | |||
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| As of December 31, |
| |||||||
| 2021 |
| 2022 |
| Variation |
| Variation |
| |
| (in millions of Ch$) |
| (%) | ||||||
Commercial loans | |||||||||
Commercial loans |
| 12,066,715 |
| 12,368,467 |
| 301,752 |
| 2.5 | % |
Foreign trade loans |
| 1,140,822 |
| 1,658,667 |
| 517,845 |
| 45.4 | % |
Current account debtors |
| 64,141 |
| 106,408 |
| 42,267 |
| 65.9 | % |
Factoring operations |
| 238,407 |
| 342,814 |
| 104,407 |
| 43.8 | % |
Student loans |
| 530,653 |
| 534,008 |
| 3,355 |
| 0.6 | % |
Leasing transactions |
| 929,990 |
| 925,458 |
| (4,532) |
| (0.5) | % |
Other loans and receivables |
| 20,913 |
| — |
| (20,913) |
| (100.0) | % |
Subtotals |
| 14,991,641 |
| 15,935,822 |
| 944,181 |
| 6.3 | % |
Mortgage loans |
|
|
|
|
|
|
|
| |
Letters of credit loans |
| 18,291 |
| 13,106 |
| (5,185) |
| (28.3) | % |
Endorsable mutual mortgage loans |
| 77,847 |
| 73,801 |
| (4,046) |
| (5.2) | % |
Other mutual mortgage loans |
| 5,713,703 |
| 6,531,814 |
| 818,111 |
| 14.3 | % |
Leasing transactions |
| 301,553 |
| 265,177 |
| (36,376) |
| (12.1) | % |
Other loans and receivables |
| 56,279 |
| 45,868 |
| (10,411) |
| (18.5) | % |
Subtotal |
| 6,167,673 |
| 6,929,766 |
| 762,093 |
| 12.4 | % |
Consumer loans |
|
|
|
|
|
|
|
| |
Consumer loans |
| 1,914,901 |
| 1,961,911 |
| 47,010 |
| 2.5 | % |
Current account debtors |
| 101,365 |
| 130,259 |
| 28,894 |
| 28.5 | % |
Credit card debtors |
| 584,714 |
| 720,660 |
| 135,946 |
| 23.2 | % |
Consumer leasing transactions |
| 738 |
| 625 |
| (113) |
| (15.3) | % |
Other loans and receivables |
| 34,516 |
| 32,768 |
| (1,748) |
| (5.1) | % |
Subtotal |
| 2,636,234 |
| 2,846,223 |
| 209,989 |
| 8.0 | % |
Total |
| 23,795,548 |
| 25,711,811 |
| 1,916,263 |
| 8.1 | % |
Business segments in Chile have been strategically aligned onto three areas directly related not only to our medium-term strategy but to our customers’ needs: 1) Wholesale Banking (a. Corporate, b. Large Companies and c. Real Estate and Construction); 2) Retail Banking (a. Itaú Personal Bank, b. Itaú Branches, c. Itaú Private Bank, d. Midsize Companies, e. SMEs and f. Banco Condell, our Consumer Finance Division); and 3) Treasury.
A description of each of the segments in Chile, along with our Colombian banking subsidiary as well as of our New York Branch, is presented below.
Wholesale Banking
Wholesale Banking serves large economic groups, state-owned and private companies, mining companies, utilities, energy, seaports, airports, public hospitals or any business. Wholesale Banking also serves our real estate and project finance customers. It focuses on offering clients a broad range of services tailored to fit their specific needs. These services include deposit-taking and lending in both Chilean pesos and foreign currencies, trade financing, general commercial loans, working capital loans, letters of credit, interest rate, foreign exchange derivatives (including foreign exchange options) and cash flow management.
Corporate Banking. This area specializes in institutional customers and customers with annual sales in excess of US$100 million.
Large Companies. This area includes a wide range of products and financial services to companies with annual sales between US$8 million to US$100 million.
Real Estate and Construction Companies. This area is focused on companies or economic groups in the real estate or construction industry with annual sales in excess of US$100,000.
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Retail Banking
Retail Banking serves retail individuals customers across all income levels, from low-income to high-income individuals, and also targets midsize companies and SMEs, the latter two grouped under “Itaú Companies.” Retail Banking is organized into the main following four areas:
Itaú Personal Bank. This area specializes in high-income individuals, with a monthly income between Ch$2.5 million and Ch$8.0 million. This is the first high-income individuals’ segment in Chile with differentiated branches, mobile and web channels. The service model is based on relationships and constant advising on financial products, investment and/or protection. Itaú Personal Bank offers a specialized, differentiated value proposition based on customer relationships. Its three pillars are highly qualified executives, with a systematic work standard; smaller portfolios per executive in relation to the traditional model, in order to facilitate management; and certified investment consultants who specialize in providing exclusive, timely advising. The network in Chile included 21 premium branches and 5 digital branches for this segment as of December 31, 2022.
Itaú Branches. Our Traditional Banking Division is mainly oriented toward individuals with medium-high income levels (focused on clients between Ch$600,000 and Ch$2.5 million monthly income). We offer our traditional and private banking clients products such as checking accounts, credit lines, credit and debit cards, personal installment loans, mortgage loans, insurance banking, time deposits and savings accounts in Chilean pesos, Euros, UF and U.S. dollars, among others. In addition, we provide mutual fund and securities brokerage services. This mass-market model is focused on customer self-service through various channels: face-to-face at our branches, digitally through the website and App, and through direct e-mail contact with account executives and through calls to the Contact Center. Our goal is to face our customers’ changes and needs with them, offering agile, simple options that enable them interface with the Bank autonomously. This segment was served by 95 physical branches and 7 digital branches as of December 31, 2022.
Itaú Private Banking. Within our Private Banking Division, we provide private banking services to our high-income and high net worth customers. We consider high-income individuals to be customers with a monthly income in excess of Ch$8.0 million. Each client under our private banking or “Private Banking” program is provided with a liaison officer who oversees the client’s entire relationship with us across all product lines. The relationship model is based on providing each customer with the comprehensive, personalized and professional advising service for managing their net worth, major investments, banking and credit structuring needs in a way that best fits the investor and financing profile. In addition to the products and services we provide to private banking customers, we offer tailored lending products designed to help keep their businesses growing. Our specialized team of business executives and investment bankers aims to maximize gains for our customers based on their investor profile.
Banco Condell (Consumer Finance). Our Consumer Finance Division operates under the trade name Banco Condell and specializes in financing for middle and low-income segments who have low banking access and monthly income between Ch$200,000 and Ch$600,000. A financial inclusiveness mechanism, Banco Condell’s business model enables it to provide services to people with informal, non-accreditable income. Through Banco Condell we offer our customers insurance policies, certificates of deposit and consumer loans, products that represent the essence of our business. In an effort to drive down costs without compromising excellent customer service, in 2018 we started integrating Banco Condell offices with Itaú branches, maintaining an experience of closeness and trust with this segment in an effort to provide agile financing solutions. The plan is to follow along these lines to bring our different segments to more places while maintaining our customers’ satisfaction. Also, we are aiming to make Banco Condell a point of access for future Itaú customers who demonstrate good credit and meet the requirements for a business area upgrade. As of December 2022, Banco Condell had 50 branches and its own brand identity.
Treasury
Our Treasury manages the Bank’s liquidity and market risks (including interest rate, currency and inflation risk) acting in accordance with internal policies as well as regulatory and corporate limits. Also, it is responsible for optimizing the funding structure and providing transfer prices to the Bank’s various products and business units. Through its International Financial Institutions department, the Treasury establishes and maintains relationships with foreign banks and other
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financial institutions. Finally, this area offers financial products to the Bank’s clients such as currency, derivative and money market transactions.
As of December 31, 2022, the outstanding loans from foreign banks to Itaú Chile (considering interbank loans) were US$1,246 million with approximately 14 financial institutions from the U.S., England, Canada, Germany, France, Japan, China and Spain. The international global risk assets outstanding as of December 31, 2022, were US$4,218 million.
Itaú Colombia
Itaú Colombia provides a broad range of commercial and retail banking services to its customers in Colombia, operating principally in the cities of Bogotá, Medellín, Cali, Bucaramanga, Cartagena and Barranquilla. As of December 2022, according to the Colombian Financial Superintendency, Itaú Colombia was the tenth largest bank in Colombia in terms of total assets, the eight largest bank in Colombia in terms of total loans and the tenth largest bank in Colombia, in terms of total deposits as reported under local regulatory and accounting principles. According to Circular 075 of 2022, Itaú Colombia is the 12th largest bank in Colombia within the classification of systemically important entities.
As of December 31, 2022, Itaú Colombia had total assets of Ch$5,447,328 million (US$6,376.29 million), including total loans of Ch$4,073,644 million (US$4,768.34 million), and total equity of Ch$467,026 million (US$546.67 million). In comparative terms, Itaú Colombia had, as of December 31, 2022, a market share of 3.1% of the total assets in the Colombian Banking Industry, and as of the same date its total assets represented 13.5% of Itaú Chile’s total assets.
For the year ended December 31, 2022, Itaú Colombia had total net interest income of Ch$229,008 million (US$268.06 million) and a net income of Ch$13,373 million (US$15.65 million). As of December 31, 2022, Itaú Colombia had 74 branches and 103 ATMs in Colombia, and 2,395 employees in Colombia and Panama.
New York Branch
Our New York Branch supports the commercial needs of Chilean and other Latin American companies that conduct business overseas. Operating with an offshore foreign branch of a Chilean bank is especially attractive to clients abroad as it provides a sense of proximity and it allows us to accompany our customers as they operate internationally, responding to their needs and service requirements. Our target market consists of medium and large Chilean companies, other Latin American companies, and Chilean and other Latin American banks without offshore branch offices, among others.
Our New York Branch has a Yankee Certificate of Deposits program that is placed directly to clients or through U.S. dealers. Also, the Branch funds its operation through interbank and financial institution deposits with a broad variety of customers. The New York Branch participates in bilateral and syndicated loans, together with other international institutions, to finance a variety of investment projects. As of December 31, 2022, the branch had US$2,849 million in assets and had a net income of US$17 million for the year ended December 31, 2022.
Financial Services Offered Through Subsidiaries
We have several strategic long-term investments in financial services companies in Chile (each of which are regulated and supervised by the CMF), which are engaged in activities complementary to our core banking activities. Through wholly-owned subsidiaries, we intend to continue to develop a comprehensive financial services group able to meet the diverse financial needs of our current and potential clients. As of December 31, 2022, assets of our subsidiaries represented 1% of our total consolidated asset. For the year ended December 31, 2022, the net income of our subsidiaries totaled Ch$44,506 million (US$52.1 million).
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The following table sets forth certain financial information with respect to our financial services subsidiaries as of December 31, 2020, 2021 and 2022, in millions of Chilean pesos. Amounts relating to inter-company transactions have not been removed for purposes of this table:
| As of and for the Year Ended December 31, | |||||||||||||||||
2020 | 2021 | 2022 | ||||||||||||||||
Net | Net | Net | ||||||||||||||||
| Assets |
| Equity |
| Income |
| Assets |
| Equity |
| Income |
| Assets |
| Equity |
| Income | |
(in millions of Ch$) | ||||||||||||||||||
Itaú Corredores de Bolsa Ltda.(1) |
| 196,374 | 43,414 | 1,927 |
| 131,588 | 35,711 | (7,037) |
| 254,760 | 40,349 | 2,647 | ||||||
Itaú Adm. General de Fondos S.A.(2) |
| 12,540 | 11,528 | 5,395 |
| 13,642 | 12,051 | 5,919 |
| 14,221 | 12,284 | 6,152 | ||||||
Itaú Asesorías Financieras Ltda.(3) |
| 10,530 | 9,298 | 805 |
| 13,867 | 12,217 | 2,919 |
| 6,538 | 4,390 | 1,288 | ||||||
Itaú Corredores de Seguros S.A. |
| 32,984 | 25,895 | 17,058 |
| 39,339 | 30,717 | 21,880 |
| 50,023 | 38,946 | 30,108 | ||||||
Recaudaciones y Cobranzas Ltda.(4) |
| 4,384 | 1,984 | 1,199 |
| 4,459 | 3,140 | 1,156 |
| 2,971 | 2,226 | 1,440 | ||||||
Itaú Corredor de Seguros Colombia S.A. |
| 3,650 | 2,017 | (166) |
| 3,959 | 2,429 | 366 |
| 3,630 | 2,214 | 205 | ||||||
Itaú Securities Services Colombia S.A. Sociedad Fiduciaria |
| 14,198 | 13,694 | 506 |
| 12,862 | 12,480 | (1,403) |
| 10,778 | 10,472 | 21 | ||||||
Itaú Asset Management Colombia S.A. Sociedad Fiduciaria |
| 24,410 | 21,810 | 2,755 |
| 15,517 | 13,573 | 1,723 |
| 13,168 | 10,976 | 1,071 | ||||||
Itaú Comisionista de Bolsa S.A. |
| 15,112 | 12,736 | 2,679 |
| 15,156 | 13,062 | 3,421 |
| 9,238 | 8,213 | 1,513 | ||||||
Itaú Bank (Panamá) S.A. |
| 393,558 | 91,108 | 6,015 |
| 513,408 | 112,123 | 5,725 |
| 485,050 | 72,511 | 11,778 | ||||||
(1) | On January 1, 2017, Itaú BBA Corredor de Bolsa Limitada merged into Itaú Corpbanca Corredores de Bolsa S.A. The legal name of the merged entity was changed to “Itaú Corpbanca Corredores de Bolsa S.A.” and the commercial name was changed to “Itaú Corredores de Bolsa.” On August 1, 2018 “Itaú CorpBanca Corredores de Bolsa S.A.” changed its legal name to “Itaú Corredores de Bolsa Ltda.” |
(2) | On December 29, 2017, Itaú Chile Administradora General de Fondos S.A. merged into Corpbanca Administradora General de Fondos S.A. The legal name of the merged entity was changed to “Itaú Administradora General de Fondos S.A.” and the commercial name was changed to “Itaú Asset Management.” |
(3) | On April 21, 2016, the legal name of Corpbanca Asesorías Financieras S.A. was changed to Itaú Asesorías Financieras S.A. On May 2, 2019 “Itaú Asesorías Financieras S.A.” changed its legal name to “Itaú Asesorías Financieras Ltda.” |
(4) | On October 25, 2017, the legal name of “Recaudaciones y Cobranzas S.A.” was changed to “Itaú Corpbanca Recaudaciones y Cobranzas S.A.” On November 5, 2018 “Itaú CorpBanca Recaudaciones y Cobranzas S.A.” changed its legal name to “Recaudaciones y Cobranzas Ltda.” |
Itaú Corredores de Bolsa Ltda.
Our subsidiary Itaú Corredores de Bolsa Ltda., or ICB, is a member of the Santiago Stock Exchange and is registered with the CMF as a security broker. ICB’s primary activities are providing brokerage services in equities and fixed income. ICB offers our clients a unique investment platform, with a diversified offering of investment alternatives.
For the years ended December 31, 2020, 2021 and 2022, ICB had net income of Ch$1,927 million, a net loss of Ch$7,037 million and net income of Ch$2,647, respectively, and it had assets of Ch$196,374 million, Ch$131,588 billion and Ch$254,760 billion as of December 31, 2020, 2021 and 2022, respectively. ICB had assets under custody of Ch$454 billion, Ch$551 billion and Ch$579 billion as of December 31, 2020, 2021 and 2022, respectively. For the year ended December 31, 2022, ICB’s net income increase was driven by higher gains from UF readjustments generated from higher inflation and an increase in fixed income instrument results, positively impacted by a higher interest rate environment.
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In June 2021, Itaú Chile, BICSA Holdings Ltd. and Itaú Consultoria de Valores Mobiliários e Participações S.A. entered into a stock purchase agreement (the “MCC SPA”) related to the acquisition of MCC Corredores and MCC Asesorías. This acquisition was completed on June 1, 2022, following regulatory approval from the CMF and the BACEN. As a result of the acquisition, MCC Asesorías was dissolved following its merger into Itaú Chile. Additionally, on the same date, an extraordinary shareholders’ meeting of MCC Corredores was held approving its merger into Itaú Corredores de Bolsa Limitada.
Itaú Administradora General de Fondos S.A.
Itaú Administradora General de Fondos S.A., or IAGF, whose commercial name is “Itaú Asset Management”, complements our banking services offered to our individual and corporate clients. IAGF’s currently provides asset management services to individual, corporate and institutional clients.
Itaú Asset Management believes that its role in the management of third-party resources is not limited only to management, but also to deliver investment tools that adjust to the needs and investor profile of each client, and offer a variety of products. For this reason, our objectives are focused on improving processes, products, and digital solutions for our clients, in a changing and dynamic market scenario.
During 2022, inflation was one of our main concerns, therefore we continued developing simple, digital and performance-focused investment alternatives. As part of this development, we offered a new product to all our clients called “Fondo Mutuo Ahorro UF”, which allows them to maintain the real value of their investments (protects against inflation), without minimum investment amount or investment term requirements.
We also continued to strengthen our “Open Investment Platform” (developed in 2021), by making an alliance with Principal Asset Management and offering clients the possibility to increase their voluntarily pension savings through four mutual funds named “Itaú Principal Lifetime”, which are specially designed to change their investment allocations based on retirement ages.
In addition to expanding the options for our clients in 2022, we also focused on improving their experience by making the investment process easier, more agile, more transparent and with greater liquidity. We reduced the amount of share classes offered and lowered the redemption settlement period in some of our funds to one day. Additionally, we strengthened our communication tools (Youtube lives, Instagram feeds, LinkedIn, and direct reports to clients).
Regarding our sustainability agenda, we are very committed with the Principles for Responsible Investment (PRI) and promoting ESG best practices within our investment processes. We are also very proud of being recognized in 2022 as “Institución ALAS20 en Chile por la Agenda Líderes Sustentables 2020 (ALAS20)” for the fifth time, acknowledging our leadership, consistency, and excellence regarding our responsible investment practices.
For the years ended December 31, 2020, 2021 and 2022, IAGF had net income of Ch$5,395 million, Ch$5,919 million and Ch$6,152 million, respectively. IAGF had total assets of Ch$12,540 million, Ch$13,642 million and Ch$14,221 million as of December 31, 2020, 2021 and 2022, respectively. As of December 31, 2022, IAGF managed 49 funds, including equity funds, fixed income funds, investment funds and ETFs and had total assets under management amounting to Ch$1,987 billion, a decrease of Ch$573 billion as compared to December 31, 2021.
During 2022, IAGF experienced an increase of 3.9% in net income, primarily driven by positive impacts from the normalization on money market funds fees due to higher interest rates, reallocation of assets under management towards funds with higher income, as well as changes in income tax.
Itaú Asesorías Financieras Ltda.
Itaú Asesorías Financieras Ltda., or IAF, provides a broad range of financial advisory services to a variety of corporations and government agencies. We offer our clients specialized and tailored solutions, among which are the structuring and implementation of corporate financing in the banking market, syndicated and bilateral loans, debt restructuring and project financing structuring under the Project Finance modality according to the Equator Principles.
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Additionally, this subsidiary offers debt structuring services in the capital markets through the structuring, issuance and placement of bonds and commercial papers, as well as advice for mergers, acquisitions and capital increases, or advice and studies in general.
For the years ended December 31, 2020, 2021 and 2022, IAF had net income of Ch$805 million, Ch$2,919 million and Ch$1,288 million, respectively. IAF had total assets of Ch$10,530 million, Ch$13,867 million and Ch$6,538 million as of December 31, 2020, 2021 and 2022, respectively.
Itaú Corredores de Seguros S.A.
In accordance with our strategy of expanding the breadth of financial services that we offer, our subsidiary Itaú Corredores de Seguros S.A., operating under the commercial name “Itaú Corredores de Seguros” (“ICS”), offers a full line of insurance products. Many of these products complement our banking services by offering clients unemployment and life insurance related to personal loans, as well as insurances in connection with mortgage loans. Through ICS, we also provide non-credit-related insurance to existing clients and the general public.
For the years ended December 31, 2020, 2021 and 2022, ICS had net income of Ch$17,058 million, Ch$21,880 million and Ch$30,108 million, respectively. ICS had total assets of Ch$32,984 million, Ch$39,339 million and Ch$50,023 million, as of December 31, 2020, 2021 and 2022, respectively.
Recaudaciones y Cobranzas Ltda.
This subsidiary is a banking support company engaged in legal and out-of-court collections services for any type of loans, titles or notes on its own behalf or on behalf of third parties.
In 2015, former Corpbanca acquired all of the issued and outstanding shares of Recaudaciones y Cobranzas S.A, or Instacob, a debt collection company providing court and out-of-court collections services for loans. As a result of this transaction, Instacob became a wholly-owned subsidiary of ours.
In 2018, Itaú Corpbanca Recaudaciones y Cobranzas S.A. changed its legal name to Recaudaciones y Cobranzas Ltda.
During 2022, the company focused on delinquency management, either enabling payment channels or restructuring offers that would provide solutions for customers’ needs. The company implemented models that allowed us to focus on early signals of delinquencies, in order to proactively address them. In general terms, this allowed us to improve performance related to the impact in provisioning expenses and delinquency balances, as well as to improve the satisfaction and perception of our clients in terms of quality of service.
For the years ended December 31, 2020, 2021 and 2022, Instacob had net income of Ch$1,199 million, Ch$1,156 million and Ch$1,440 million, respectively. Instacob had total assets of Ch$4,384 million, Ch$4,459 million and Ch$2,971 million, as of December 31, 2020, 2021 and 2022, respectively.
Itaú Corredor de Seguros Colombia S.A.
Itaú Corredor de Seguros Colombia S.A. is a Colombian corporation (sociedad anónima), which acts as an insurance broker. It has its main domicile in the city of Bogota, D.C., Colombia, and the Colombian Financial Superintendency regulates it.
In March 2022, Itaú Chile and its wholly-owned subsidiary Itaú Holding Colombia S.A.S. acquired 20% of the shares that Helm LLC held in Itaú Corredor de Seguros Colombia S.A. at a total price of approximately US$3.2 million.
For the years ended December 31, 2020, 2021 and 2022, Itaú Corredor de Seguros Colombia S.A. had net income of Ch$(166 million) (losses), Ch$366 million and Ch$205 million, respectively. It had total assets of Ch$3,650 million, Ch$3,959 million and Ch$3,630 million, as of December 31, 2020, 2021 and 2022, respectively.
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Itaú Securities Services Colombia S.A. Sociedad Fiduciaria
In 2012, we acquired a 91.9% equity interest in Corpbanca Investment Trust Colombia S.A. Sociedad Fiduciaria, now Itaú Securities Services Colombia S.A. Sociedad Fiduciaria, or ISS Colombia, as part of the acquisition of Banco Santander Colombia. ISS Colombia is a financial services company operating in Colombia that specializes in trust and custodial services.
We are in the process of liquidating ISS Colombia. On September 2, 2022, the Colombian Financial Superintendency approved the voluntary liquidation of ISS Colombia, and from that date, ISS Colombia is not permitted to initiate new operations in the development of its corporate capacity and may only execute acts aimed at its liquidation. On October 19, 2022, the Colombian Financial Superintendency issued a resolution for the voluntary cancellation of the registration of ISS Colombia in the National Registry of Securities and Issuers, and with the cancellation of this registration, ISS Colombia terminated its activities as custodian and securities intermediary. On December 6, 2022, the Colombian Financial Superintendency issued a resolution for the cancellation of all operations of ISS Colombia. The voluntary liquidation process has continued in 2023 and is currently at the stage of cancellation of all the company’s tax and chamber of commerce registrations.
Itaú Asset Management Colombia S.A. Sociedad Fiduciaria
Itaú Asset Management Colombia S.A. Sociedad Fiduciaria, is a Colombian corporation (sociedad anónima) engaged in trust portfolio management, including investment trust management, administration, security, real estate trusts and fund administration. It has its main domicile in the city of Bogota, D.C., Colombia and is regulated by the Colombian Financial Superintendency.
For the years ended December 31, 2020, 2021 and 2022, Itaú Asset Management Colombia S.A. Sociedad Fiduciaria had net income of Ch$2,755 million, Ch$1,723 million and Ch$1,071 million, respectively. It had total assets of Ch$24,410 million, Ch$15,517 million and Ch$13,168 million, as of December 31, 2020, 2021 and 2022, respectively.
Itaú Comisionista de Bolsa S.A.
Itaú Comisionista de Bolsa S.A. is a licensed securities broker dealer operating in Colombia that is the result of the consolidation of two previously separate subsidiaries of Itaú Colombia, Corpbanca Investment Valores Colombia S.A. and Helm Comisionista de Bolsa S.A.
Itaú Comisionista de Bolsa S.A. offers and maintains a complete portfolio of products and services dedicated especially to the distribution of investments, and it complements its value proposition with financial advisory services.
For the years ended December 31, 2020, 2021 and 2022, Itaú Comisionista de Bolsa S.A. had net income of Ch$2,679 million, Ch$3,421 million and Ch$1,513 million, respectively. It had total assets of Ch$15,112 million, Ch$15,156 million and Ch$9,238 million, as of December 31, 2020, 2021 and 2022, respectively.
SEASONALITY
Our business is not materially affected by seasonality.
RAW MATERIALS
On a consolidated basis, Itaú Chile is not dependent on sources or availability of raw materials.
DISTRIBUTION CHANNELS, ELECTRONIC BANKING AND TECHNOLOGY
As a bank, we provide a wide range of financial services and products to our clients, from commercial banking to asset management and investment banking. Based on our strategy, we began to build a digital bank in 2021, while maintaining our physical presence. Our digital first model is customer-centric, offering channels with simple and convenient digital solutions so that our customers can have the bank and its services on the palm of their hands. Our digital channels are operated remotely, via the internet or mobile phones. We currently have 12 digital branches.
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Our traditional channels are composed of physical branches, digital branches and ATMs. Our network of 253 branches (as of December 31, 2022) distributes all our products and services in Chile and Colombia, and our 462 ATMs (as of December 31, 2022) are a convenient and efficient way of serving clients, due to low operating costs, 24/7 availability and a very complete services offering.
Customers are increasingly connected and prioritize online services for their speed and convenience. People expect service in just a few steps, but with maximum security. At Itaú Chile, we enable new ways of working, along with a technological infrastructure that allows us to operate with speed and flexibility. Our Information Technology (IT) architecture is constantly evolving to provide the support that both our customers and our operation require, seeking to be industry leaders in mobile app and website, and to have a pioneering presence in social networks.
To complement our digital offer in retail banking, we are also working on expanding our digital payment solutions. Following the same rationale of providing innovative and digital option to our customers, we have implemented our digital wallet application and we are now working to deliver additional functionalities, such as QR and P2P payments as well as digital and virtual credit cards.
Our payments solutions should help us deliver a distinctive digital experience. When fully implemented, we aim to become the main payment partner of our clients, which in turn, should enhance our principality as a bank. Furthermore, this interaction with different payment options, especially the use of our app, should help us deliver complete offerings and increase cross selling within our product base.
Transforming ourselves not only implies an investment in technology that enables hybrid work, but also new ways of understanding and using available information so that our business intelligence can make data-driven decisions, and at the same time provide digital experiences that meet the expectations of our customers.
Cybersecurity risk culture is relevant, especially for our customers since they are the most vulnerable link in the fraud chain. That is why we focus efforts on ongoing education regarding the required precautions, protecting their passwords and avoiding falling victim to phishing or pharming schemes.
We continue to operate in an increasingly hostile cyber threat environment, which requires ongoing investment in business and technical controls to defend against these threats. Although there can be no assurance that the measures implemented will be fully effective to prevent or mitigate future attacks or breaches, the consequences of which could be significant to the Bank, we continue to strengthen and invest in both business and technical controls in order to prevent, detect and respond to an increasingly hostile cyber threat environment. We continually evaluate the threat environment for the most prevalent attack types and their potential outcomes to determine the most effective controls to mitigate those threats.
Itaú Chile
Our distribution network provides integrated financial services and products to our customers through diverse channels, including ATMs, traditional branches, mobile banking, internet banking and telephone banking. Our distribution network is based on a segmentation model with well-defined identity and value proposition, aimed at optimizing service level, satisfaction and profitability per client.
As of December 31, 2022, we operated 179 branch offices in Chile, out of which 116 branches operating as Itaú (21 exclusively for Itaú Personal Bank), 50 branches operating as Banco Condell, our consumer finance division, and 12 digital branches. We also operated one branch office in New York.
In each of 2019 and 2020, we launched two digital branches, one for Personal Bank and the other focused on Itaú Branches. In 2021, we launched two additional digital branches. In 2022, we launched six digital branches, five for Itaú Branches and one for Personal Bank.
Our digital branches are mainly aimed at our clients with a digital profile, who value a fast, simple and tailor-made service. Currently, this model serves approximately 107,000 clients from our Personal Bank and Itaú segments, has multiple service channels and operates during extended hours.
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In addition, as of December 31, 2022, we owned and operated 359 ATMs in Chile, and our customers had access to 7,538 additional ATMs (including Banco del Estado de Chile and Banco Falabella’s ATMs) in Chile through our agreement with Redbanc. We utilize a number of different sales channels including account executives, telemarketing and the internet to attract new clients. Our branch system serves as the main distribution network for our full range of products and services.
We also offer internet and mobile banking to our customers 24 hours a day through our password-protected internet site, www.itau.cl. Our internet site offers a broad range of services, including up-to-date information on balances in deposit, checking, loan, credit card and other accounts and transactional capabilities, such as transfers and payments.
We have an app that offers direct access to the functionalities most used by our users: it allows them to make transfers, check their balance, contract products, pay, block, and unblock their credit card, among other actions. During 2022, we had more than 60 million logins, a monthly average of 250,000 accesses of individual users and maintained the highest ranking among Chilean bank Apps in the Apple, Google, and Huawei stores.
Through our Itaú Pass app, our customers can approve transactions in a simple and secure way through unique and unrepeatable codes called Itaú Pass. This allows our clients to carry out transactions through the app, either exclusively with their cell phones and/or by entering the corresponding code on a desktop.
We are a member of the Sociedad Interbancaria de Transferencias Electrónicas S.A., an organization that facilitates electronic banking transactions on behalf of our customers as well as other Chilean banks. We also provide our customers with access to a 24-hour phone-banking call center that grants them access to account information and allows them to effect certain payments by telephone.
Itaú Colombia
Itaú Colombia’s distribution channels provide also integrated financial services and products to its customers in Colombia through several mechanisms, including ATMs, branches, internet banking, mobile app, and telephone banking.
As of December 31, 2022, Itaú Colombia operated 74 branch offices and 103 ATMs in Colombia, also providing its customers with access to 15,903 additional ATMs through Colombia’s other financial institutions. Itaú Colombia utilizes different sales channels including account executives, telemarketing and the internet to attract new clients. Itaú Colombia’s branch system serves as the main distribution network for its full range of products and services.
Itaú Colombia offers internet banking to its customers 24 hours a day through its password-protected internet site, www.itau.co. Itaú Colombia’s internet site offers a broad range of services, including up-to-date information on balances in deposit, checking, loan, credit card and other accounts and transactional capabilities such as transfers and payments. As of December 31, 2022, Itaú Colombia had approximately 199,274 customers with activated internet passwords who use the electronic banking service, allowing them to access Itaú Colombia’s internet banking services. In addition, as of December 31, 2022, we had more than 150,425 users of our Itaú mobile app in Colombia.
Itaú Colombia is a member of ACH Colombia S.A. and Cenit S.A., organizations that facilitate electronic banking transactions on behalf of its customers as well as other Colombian banks. Itaú Colombia also provides its customers with access to a 24-hour phone-banking call center that grants them access to account information and allows them to effect certain payments by telephone.
PATENTS, LICENSES AND CONTRACTS
Itaú Chile is not dependent on patents or licenses, nor is it substantially dependent on any industrial, commercial or financial contracts (including contracts with customers or suppliers).
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COMPETITION
Competition in Chile
The Chilean financial services market consists of a variety of largely distinct sectors. “See Item 3. Key Information. D. Risk Factors— Increased competition and industry consolidation may adversely affect the results of our operations.”
The most significant sector, commercial banking, included 17 privately-owned banks and one state-owned bank, Banco del Estado de Chile (which operates within the same legal and regulatory framework as the private sector banks) as of December 31, 2022. The private sector banks include those that are Chilean-owned, i.e., controlled by a Chilean entity, as well as a number of foreign-owned banks which are operated in Chile but controlled by a foreign entity. Five private sector banks accounted for 72.9% of all outstanding loans by Chilean financial institutions as of December 31, 2022: Banco Santander-Chile (17.2%), Banco de Chile (16.7%), Scotiabank Chile (14.7%), Banco de Crédito e Inversiones, or “Bci” (14.2%), and Itaú Chile (10.1%). All market share statistics in this paragraph are presented as reported to the CMF calculated under local regulatory and accounting principles on an unconsolidated basis.
With respect to traditional banking institutions, the Chilean banking system has experienced a consolidation process in the past decades with mergers and acquisitions of banking entities in line with global trends. Following rapid consolidation among Chilean banks commencing in the late 1990s through today, the traditional banking market has become characterized by fewer larger players. In Chile, our principal competitors in this market are Banco de Chile, Banco Santander-Chile, Bci, and Scotiabank Chile. In the consumer and other loans businesses, we compete with other banks, credit unions and public social security funds (cajas de compensación). In some of our credit products, we face competition from department stores, large supermarket chains and leasing, factoring and automobile finance companies, and other non-banking businesses involved in the issuance of private-label credit cards. And in the savings products and mortgage loans businesses, we compete with mutual funds, pension funds, insurance companies and with residential mortgage loan managers (Administradoras de Mutuos Hipotecarios). Furthermore, under the Chilean General Banking Act, representative offices of non-Chilean banks are allowed to promote the credit products and services of their headquarters. Acquisitions of non-banking credit card and consumer loans businesses between 2018 and 2019, such as Promotora CMR by Banco Falabella, Walmart Servicios Financieros by Bci and Santander Consumer by Banco Santander-Chile, have increased competition in the credit card and consumer business. As compared to other Chilean banks, we believe our position in the Chilean banking industry enables us to compete with international banks seeking to provide loans to companies operating in Chile, especially since we have scale and resources to grow and compete more effectively. Additionally, we have a unique control and support from a leading institution such as Itaú Unibanco. In addition to the other banks that operate in Chile, our main competitors in the credit card business are department stores. We intend to remain competitive in the mortgage loan services and credit card markets through product innovation.
Commercial banks, such as us, face increasing competition from other financial intermediaries who can provide larger companies with access to the capital markets as an alternative to bank loans. To the extent permitted by the Chilean General Banking Act, we seek to maintain a competitive position in this respect through the investment banking activities of our subsidiary Itaú Asesorías Financieras.
We also experience competition from banks that provide international private banking services such as JPMorgan Chase and BNP Paribas, among others. We believe our main competitive advantage in our private banking has been our ability to provide our customers with tailored lending products and to respond fast to their needs. Our lower income retail banking, Banco Condell, competes with consumer finance divisions of other banks such as Banco CrediChile and Bci Nova, among others, as well as certain consumer credit providers, including department stores.
Non-traditional providers of banking services, such as fintech companies, e-commerce providers, mobile telephone companies and internet companies may also offer and/or increase their offerings of financial products and services directly to customers. These non-traditional providers of banking services currently have an advantage over traditional providers because they are not subject to banking regulations. Several of these competitors may have long operating histories, large customer bases, strong brand recognition and significant financial, marketing and other resources. They may adopt more aggressive pricing and rates and devote more resources to technology, infrastructure and marketing. In particular, we face the challenge to compete in an ecosystem where the relationship with the consumer is based on access to digital data. This
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access is increasingly dominated by digital platforms and fintech companies, which already have a significant presence in relevant markets, such as payments. This privileged access to data can be used as an advantage to compete with us in other adjacent markets and may reduce our operations and margins in core businesses such as lending or wealth management. The alliances that our competitors are starting to build with big technology companies can make it more difficult for us to successfully compete with them and could adversely affect us.
Competition in Colombia
In recent years, the Colombian banking system has seen new participants that used to have different licenses as financial corporations and financing companies in order to offer a wider range of financial services. According to the Colombian Financial Superintendency, as of December 2022, there were 29 commercial banks (19 domestic private banks, one state-owned bank and nine foreign banks), five finance corporations and 10 financing companies. In addition, trust companies, cooperatives, insurance companies, insurance brokerage firms, bonded warehouses, special state-owned institutions, and pension and severance pay funds also participated in the Colombian financial system.
Between 2015 and 2022, the number of commercial banks increased from 25 to 29. Following a stable 2017, 2018 brought a change involving two players of the Colombian banking system, with Citibank Colombia’s decision to sell its retail business, including individuals and small enterprises, to Scotiabank Colpatria, approved by the Colombian Financial Superintendency in June 2018. During 2019, Banco Serfinanza began operating as a new commercial bank in Colombia when the former financing company Serfinanza received authorization from the Colombian Financial Superintendency to function as a bank in February 2019. During January 2020, Lulo Bank S.A., an entity owned by the local Gilinski family which is also behind Banco GNB Sudameris, was authorized by the Colombian Financial Superintendency to establish itself as a commercial bank in Colombia. This entity is the first fully digital bank in Colombia and received an operating license following the Colombian Financial Superintendency’s verification of its compliance with all the requirements to operate as a commercial bank. Additionally, in December 2020, J.P. Morgan, previously a finance corporation, received authorization from the Colombian Financial Superintendency to begin operating a new commercial bank in Colombia. In 2022, Banco Union, another previous financing company (Giros y Finanzas), became a new commercial bank in Colombia.
In August 2022, Nequi (a former innovation app developed by Grupo Bancolombia S.A.) received authorization from the Colombian Financial Superintendency to incorporate as a financing company in Colombia. In order to start operations, it will first need to prove to the Colombian Financial Superintendency that it has complied with all the activities required to obtain the authorization certificate or operating permit, upon application to be submitted no later than July 2023.
In terms of presence, Colombian banks have been expanding abroad over the last decade, mostly in Central America. Bancolombia, Davivienda and Banco de Bogotá lead the presence in Central America through their subsidiaries, aiming to grow their businesses. Nevertheless, in 2022, Banco Bogotá divested the majority of its investment in Central America, maintaining a regional presence limited to Colombia and Panama.
“See Item 3. Key Information. D. Risk Factors— Increased competition and industry consolidation may adversely affect the results of our operations.”
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Loans
As of December 31, 2021, and 2022, our gross consolidated loan portfolio, as reported to the CMF (and excluding interbank loans), was Ch$24,790,535 million and Ch$26,658,385 million, respectively, as reported to the CMF calculated under local regulatory and accounting principles. This placed us as the fifth largest financial institution among private Chilean banks, and sixth place among all banks operating in Chile, both as measured by loans. Our gross consolidated loan portfolio represented 10.1% of the market for loans in the Chilean financial system (comprising all commercial banks) as of December 31, 2022. In 2022, our loan portfolio—as reported to the CMF—increased 7.5%, which was mainly driven by an increase in mortgage and consumer loans in Chile, as well as in the mortgage business in Colombia.
The following table sets forth the aggregate outstanding loans for us and the five other private sector banks with the largest market shares in Chile as of December 31, 2020, 2021 and 2022, based on information as reported to the CMF calculated under local regulatory and accounting principles:
Bank Loans(1) | ||||||
As of December 31, | ||||||
|
| 2020 |
| 2021 |
| 2022 |
| (in millions of Ch$) | |||||
Banco Santander-Chile |
| 34,390,240 |
| 36,634,340 |
| 38,696,410 |
Banco de Chile |
| 30,936,968 |
| 34,256,184 |
| 36,694,804 |
Banco de Crédito e Inversiones (Bci) |
| 35,508,713 |
| 40,982,542 |
| 46,176,296 |
Itaú Chile(2) |
| 22,635,560 |
| 24,790,535 |
| 26,658,385 |
Scotiabank Chile |
| 25,376,523 |
| 28,957,856 |
| 33,168,783 |
Others |
| 50,432,778 |
| 55,488,537 |
| 61,823,958 |
Total |
| 199,280,782 |
| 221,109,994 |
| 243,218,636 |
Source: CMF monthly consolidated financial information
(1) | Excludes interbank loans. |
(2) | The amounts under IFRS for 2020, 2021 and 2022 are Ch$22,617,981 million, Ch$24,743,360 million, and Ch$26,607,785 million, respectively. |
Deposits
We had consolidated deposits of Ch$18,258,838 million as of December 31, 2022, as reported under local regulatory and accounting principles, which consisted of our checking accounts, bankers’ drafts, savings accounts, time deposits and other commitments. Our market share of 9.6% for deposits and other obligations as of such date ranks us in fifth place among private sector banks in Chile.
The following table sets forth the aggregate deposits for us and the five other private sector banks with the largest market share as of December 31, 2020, 2021 and 2022, based on information as reported to the CMF calculated under local regulatory and accounting principles:
Bank Deposits and Other Obligations(1) | ||||||
|
| As of December 31, | ||||
| 2020 |
| 2021 |
| 2022 | |
| (in millions of Ch$) | |||||
Banco Santander-Chile |
| 25,142,684 |
| 28,031,993 |
| 27,065,015 |
Banco de Chile |
| 24,066,770 |
| 27,682,797 |
| 27,540,373 |
Banco de Crédito e Inversiones (Bci) |
| 30,566,185 |
| 38,518,590 |
| 42,368,129 |
Itaú Chile |
| 17,630,470 |
| 17,673,538 |
| 18,258,838 |
Scotiabank Chile |
| 15,645,249 |
| 16,684,772 |
| 19,048,847 |
Others |
| 50,867,265 |
| 52,154,915 |
| 56,100,181 |
Total |
| 163,918,623 |
| 180,746,605 |
| 190,381,383 |
Source: CMF monthly consolidated financial information
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(1) | Our aggregate deposits as calculated under IFRS for the years ended December 31, 2020, 2021 and 2022 were Ch$17,630,470 million, Ch$17,673,538 million, and Ch$18,258,838 million, respectively. |
Shareholders’ Equity
We were the fourth largest among private sector banks in Chile with Ch$3,320,109 million in shareholders’ equity (excluding net income and provision for mandatory dividends) as of December 31, 2022, as reported to the CMF calculated under local regulatory and accounting principles.
The following table sets forth the level of shareholders’ equity for us and the five largest private sector banks in Chile (measured by shareholders’ equity) as of December 31, 2020, 2021 and 2022, based on information as reported to the CMF calculated under local regulatory and accounting principles:
Shareholders’ Equity(1)(2) | ||||||
|
| As of December 31, | ||||
| 2020 |
| 2021 |
| 2022 | |
| (in millions of Ch$) | |||||
Banco Santander-Chile |
| 3,567,916 |
| 3,400,220 |
| 4,128,808 |
Banco de Chile |
| 3,726,267 |
| 4,223,013 |
| 4,858,326 |
Banco de Crédito e Inversiones (Bci) |
| 3,893,620 |
| 4,500,076 |
| 4,775,478 |
Itaú Chile (3) |
| 2,315,411 |
| 3,277,800 |
| 3,320,109 |
Scotiabank Chile |
| 2,398,357 |
| 2,673,703 |
| 3,047,091 |
Others |
| 5,807,823 |
| 6,197,271 |
| 7,697,527 |
Total |
| 21,709,394 |
| 24,272,083 |
| 27,827,338 |
Source: CMF monthly consolidated financial information
(1) | Shareholders equity = Equity attributable to shareholders excluding net income and provision for mandatory dividend. |
(2) | For comparison purposes with other banks, the information is presented under standards issued by the CMF. |
(3) | The amounts under IFRS, excluding net income (loss) and provision for mandatory dividends, for the years ended December 31, 2020, 2021 and 2022, were Ch$3,123,032 million, and Ch$3,057,442 million, and Ch$3,003,484 million, respectively. |
CHILEAN BANKING REGULATION AND SUPERVISION
General
In Chile, only banks may maintain checking accounts for their customers and accept time deposits. The principal financial institutions regulators in Chile are the CMF and the Central Bank of Chile. Chilean banks are primarily subject to the Chilean General Banking Act and, secondarily, to the extent not inconsistent with such statute, the provisions of the Chilean Corporations Act governing public corporations, except for certain provisions which are expressly excluded.
The modern Chilean banking system dates from 1925 and has been characterized by periods of substantial regulation and state intervention, as well as periods of deregulation. The most recent period of deregulation commenced in 1975 and culminated in the adoption of a series of amendments to the Chilean General Banking Act. The Chilean General Banking Act sets forth the regulatory framework to which banks are subject outlining the activities that a bank may and may not carry out in Chile and their attributions—in addition to traditional banking activities—including general underwriting powers for new issuances of certain debt and equity securities and the power to create subsidiaries to engage in activities related to banking, such as brokerage, investment advisory, mutual fund services, administration of investment funds, factoring, securitization products and financial leasing services.
Following the Chilean banking crisis of 1982 and 1983, the CMF assumed control of 21 financial institutions representing approximately 51% of the total loans in the banking system. As part of the solution to this crisis, the Central Bank of Chile acquired from financial institutions a certain portion of their distressed loan portfolios, at the book value of such loan portfolios. Each institution then repurchased such loans at their economic value (which, in most cases, was much lower than the book value at which the Central Bank of Chile had acquired the loans) and the difference was to be repaid to the
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Central Bank of Chile out of future income. Pursuant to Law No. 18,818 of 1989, this difference was converted into a subordinated obligation with no fixed term, known as deuda subordinada or subordinated debt, which in the event of liquidation of the institution, would be paid after the institution’s other debts had been paid in full.
Central Bank of Chile
The Central Bank of Chile is an autonomous legal entity created by the Chilean Constitution. It is subject to the Chilean Constitution and its own ley orgánica constitucional, or Constitutional Act. To the extent not inconsistent with the Chilean Constitution or the Central Bank of Chile’s Constitutional Act, the Central Bank of Chile is also subject to private sector laws (but in no event it is subject to the laws applicable to the public sector). It is directed and administered by a council composed of five members designated by the President of Chile, subject to the approval of the Senate.
The legal purpose of the Central Bank of Chile is to maintain the stability of the Chilean peso and the orderly functioning of Chile’s internal and external payment system. The Central Bank of Chile’s powers include setting reserve requirements, regulating the amount of money and credit in circulation, establishing regulations and guidelines regarding finance companies, foreign exchange (including the Formal Exchange Market) and banks’ deposit-taking activities.
CMF
On June 1, 2019, the SBIF, as former banking regulator, was replaced by the Commission for the Financial Market (Comisión para el Mercado Financiero or CMF). The CMF is an independent Chilean governmental agency responsible for overseeing the correct functioning, development and stability of the financial market, facilitating the participation of market agents and promoting the protection of the public interest. It is in charge of regulating and supervising banks and the entities part of the securities and insurance market. With respect to banks, the main responsibilities of the CMF are to authorize the incorporation of new banks and to interpret and enforce, with broad powers, legal and regulatory requirements applicable to Chilean banks and other entities. Furthermore, in case of non-compliance with such legal and regulatory requirements, the CMF may impose sanctions, including fines payable by the directors, managers and employees of a bank as well as the bank itself. In extreme cases it can appoint, by special resolution with the prior approval of the board of directors of the Central Bank of Chile, a provisional administrator to manage a bank. It must also approve any amendment to a bank’s by-laws (except for capital increases paid in legal tender).
The CMF examines all banks from time to time, generally at least once a year. Banks are also required to submit monthly unaudited consolidated and unconsolidated financial statements to the CMF and publish their quarterly and annual financial statements in a newspaper with countrywide coverage. In addition, banks are required to provide extensive information regarding their operations at various periodic intervals to the CMF. Financial statements as of December 31 of any given year must be audited. A bank’s annual financial statements and the opinion of its independent auditors must also be submitted to the CMF for review.
The CMF must approve in advance any direct or indirect acquisition of more than 10% of the share capital of a bank. The absence of such approval will cause the acquirer to lose the voting rights of such shares. The CMF may only refuse to grant its approval based on specific grounds set forth in the Chilean General Banking Act and its regulations.
Limitations on Types of Activities
Chilean banks can only conduct those activities allowed by the Chilean General Banking Act: making loans, accepting deposits, issuing bonds, engaging in certain international operations, performing specially entrusted activities (Comisiones de Confianza) and, subject to limitations, making investments and performing financial services related to banking. Investments are restricted to real estate and physical asset for the bank’s own use, gold, foreign exchange and debt securities. In addition, local banks are allowed to engage in certain derivatives such as options, swaps and forward contracts over certain underlying assets. Through subsidiaries, banks may also engage in other specific financial service activities such as securities brokerage services, mutual fund management, investment fund management, factoring, securitization, financial advisory and leasing activities. Subject to specific limitations and the prior approval of the CMF and the Central Bank of Chile, Chilean banks may own majority or minority interests in foreign banks.
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Deposit Insurance
In Chile, the government guarantees up to 100% of the aggregate amount of certain time deposits held by individuals in the Chilean banking system. The government guarantee covers those obligations with a maximum value, in each calendar year, of UF200 per person (Ch$7.0 million or US$8,218 as of December 31, 2022) in a single bank and UF400 per person (Ch$14.0 million or US$16,436 as of December 31, 2022) in the whole Chilean banking system.
Reserve Requirements
Deposits are subject to a reserve requirement (Encaje) of 9% for all demand deposits and obligations that are payable on demand, and 3.6% for time deposits and deposits in savings accounts in any currency of any term, judicially ordained deposits, and any other deposit (Captación) for a term of up to one year. For purposes of calculating this reserve requirement, banks are authorized to make certain daily deductions from their liabilities in Chilean pesos, the most relevant of which include:
● | cash clearance account, which should be deducted from demand deposits for calculating reserve requirements; |
● | certain payment orders issued by pension providers; and |
● | the amount subject to “technical reserve” (as described below), which can be deducted from reserve requirements. |
In the case of liabilities in foreign currency, banks are authorized to deduct for this purpose the amounts mentioned in the first and third bullet above.
The Central Bank of Chile has statutory authority to require banks to maintain reserves of up to an average of 40% for demand deposits and up to 20% for time deposits (irrespective, in each case, of the currency in which they are denominated) to implement monetary policy. In addition, according to the Chilean General Banking Act and the regulations issued by the CMF and the Central Bank of Chile, Chilean banks must maintain a technical reserve (Reserva Técnica) of 100% of all deposits and obligations a bank has acquired in its financial business that are payable on demand, except for obligations with other banks, whenever such deposits and obligations exceed 2.5 times their basic effective net equity (Patrimonio Efectivo). This technical reserve must be calculated daily, and must be kept in deposits in the Central Bank of Chile or documents issued by the Central Bank of Chile or the Chilean Treasury of any term. If the technical reserve is breached, the bank is sanctioned with a fine calculated by applying the maximum conventional interest rate (Interés Máximo Convencional) for non-adjustable transactions (Operaciones no Reajustables) to the daily deficit; provided, however, that the CMF may decide not to apply this fine if the deficit lasts up to three business days and the bank has not incurred in further deficits during the same calendar month.
On March 3, 2022, the Central Bank of Chile amended Chapter III.B.2.1 of the Compendio de Normas Financieras, or the Central Bank Financial Regulations containing the rules for local banks with respect to management and measurement of banks’ liquidity positions, compelling banks to share financial information with the regulator and the general public regarding liquid assets, liabilities, concentration of financial instruments by type of liability and counterparty and weighted maturity by type of liability, among other metrics. The most significant liquidity ratios to be adopted by Chilean banks are:
| a) | Liability concentration per institutional and wholesale counterparty. Banks will have to calculate the percentage of their liabilities coming from institutional and wholesale counterparties, including ratios regarding renewals, restructurings, maturity and product concentration of these counterparties. |
| b) | Liquidity Coverage Ratio (LCR), which measures the percentage of liquid assets over net cash outflows. The new guidelines also define liquid assets and the formulas for calculating net cash outflows. |
| c) | Net Stable Funding Ratio (NSFR) which measures a bank’s available stable funding relative to its required stable funding. Both concepts are also defined in the new regulations. |
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In addition, the new rules require the incorporation of the internal liquidity adequacy assessment process (ILLAP) by April 2023. Pursuant to the new rules, the LCR is required at a minimum level of 100% as of June 1, 2022. The NSFR is required at a minimum level of 70% as of January 1, 2023, and will increase by 10% per year until it reaches 100% as of January 1, 2026.
Minimum Capital
Under the Chilean General Banking Act, a bank must have a minimum paid-in capital and reserves of UF800,000 (Ch$28,088.8 million or US$32.9 million as of December 31, 2022).
Capital Adequacy Requirements
Under the Chilean General Banking Act, unless an exception applies, a bank must have an (1) effective net equity (Patrimonio Efectivo) of at least 8% of its risk-weighted assets, net of required allowance for loan losses, as calculated in accordance with Chilean Banking GAAP; and (2) paid-in capital and reserves, or basic capital (Capital Básico), not lower than (y) 4.5% of its risk-weighted assets and (z) 3% of its total assets, in both cases, net of required allowance for loan losses. The CMF introduced new capital requirements on systemically important banks (such as Banco Itaú), which capital requirements must be met before the established deadlines: (i) 25% of the total required by December 1, 2022, (ii) 50% by December 1, 2023, (iii) 75% by December 1, 2024, and (iv) 100% by December 1, 2025. See “Item 3. Key Information—Presentation of Financial and Other Information—Specific Loan Information” in this Annual.
Basic capital or common equity tier 1 (CET1) is defined as a bank’s paid-in capital and reserves. Regulatory capital or effective net equity is defined as the aggregate of: (a) tier 1 (T1) capital, plus (b) tier 2 (T2) capital. In turn, (y) tier 1 (T1) capital is the sum of (1) the bank’s basic capital or common equity tier 1 (CET1) (i.e., paid-in capital and reserves) and (2) the additional tier 1 (AT1) capital (i.e., bonds issued without a maturity date and preferred stocks valued at their issue price, for an amount up to one third of the banks’ basic capital), and (z) tier 2 (T2) capital corresponds to (1) subordinated bonds issued by the bank valued at their issue price and for an amount of up to 50% of its basic capital (provided that the value of the bonds shall decrease by 20% for each year that elapses during the period commencing six years prior to their maturity) and (2) the bank’s voluntary allowances for loan losses up to (A) 1.25% of its credit risk-weighted assets, if standard methodologies are applied, or (B) 0.625% in the event non-standard methodologies are applied.
As provided in Article 68 of the Chilean General Banking Act, if a bank fails at any time to meet the legal requirements relating to the maintenance of regulatory capital (which is comprised of effective net worth and basic capital, as both concepts are defined in Article 66 of the Chilean General Banking Act and Chapter 21-1 of the Regulations of the CMF), the bank would have to comply with such legal requirements within a period of 60 days. Further, if the bank fails to comply with such legal requirements, it would be subject to the sanctions set forth in Title III of Law No. 21,000 which created the CMF (i.e., the CMF may impose one or more of the following sanctions: (i) censure; (ii) fines up to the following amounts: (x) UF15,000 (approximately US$616,479.6 as of December 31, 2022), but in the event the entity is sanctioned for breaches of similar nature before, the amount of the fine could be up to five times the aforementioned amount, (y) 30% of the irregular operation or (z) double of the benefits realized as a result of the irregular operation; and/or (iii) the revocation of its authorization of existence).
As of December 31, 2022, we fully complied with all of the above capital adequacy requirements. Our regulatory capital to risk-weighted assets ratio, CET1 to risk-weighted assets ratio and CET1 to total assets ratio (also known as leverage ratio), under Basel III standards, were 15.3%, 10.5%, and 7.1%, respectively, as of December 31, 2022.
Lending Limits
Under the Chilean General Banking Act, Chilean banks are subject to certain lending limits, including the following:
| ● | a bank cannot extend to any entity or individual, directly or indirectly, unsecured credit in an amount that exceeds 10% of the bank’s effective net equity, or in an amount up to 30% of its effective net equity if the excess over 10% is secured by certain assets with a value equal to or higher than such excess. In the case of foreign currency export trade financing, the cap for secured credits is also established at 30%. In the case of |
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| financing infrastructure projects built through the concession mechanism, the 10% cap for unsecured credits is 15% if secured by a pledge over the concession, or if granted by two or more banks or finance companies which have executed a credit agreement with the builder or holder of the concession, while the cap for secured credits remains at 30%; |
| ● | a bank cannot extend loans to another bank subject to the Chilean General Banking Act in an aggregate amount exceeding 30% of the effective net equity of the lender bank; |
| ● | the total amount of loans granted by a bank to a group of persons or entities belonging to the same business group (grupo empresarial) as this term is defined in Title XV of the Chilean Securities Market Act, cannot exceed 30% of the actual equity of the lending bank. For these purposes, the loans mentioned in the preceding bullet shall not be considered; |
| ● | a bank cannot directly or indirectly grant a loan whose purpose is to allow an individual or entity to acquire shares of the lender bank; |
| ● | a bank cannot lend, directly or indirectly, to a director or any other person who has the power to act on behalf of such bank; and |
| ● | a bank cannot grant loans to related parties (which relation can arise from management or for ownership reasons, including holders of more than 1% of its shares, except in the case of companies which are actively traded on the Santiago Stock Exchange, like Itaú Chile, in which case the limit is 5%) on more favorable terms than those generally offered to non-related parties. In addition, the aggregate amount of loans to a single group of related parties cannot exceed 5% of the bank’s effective net equity or 25% if the excess thereof is secured by certain assets with a value equal to or greater than such excess, or by certain other collateral specified in the Chilean General Banking Act. The definitions of “related” and “group” for these purposes are determined by the CMF. The aggregate amount of all credits granted to related parties of the bank cannot exceed its effective net equity. |
To determine the lending limits with respect to a particular person, the obligations undertaken by partnerships in which the relevant person is an unlimited partner or by companies of any nature in which such person has more than 50% of their capital or more than 50% of their profits, will be accounted as obligations of such person. Likewise, if the participation of the relevant person in a company is higher than 2% but not higher than 50% of its capital or profits, then the obligations of such company will be accounted for as obligations of such person in proportion to its actual participation. Finally, when there is a plurality of debtors of the same obligation, then the obligation will be deemed joint and several with respect to each and all of the debtors, unless expressly undertaken in other terms.
Any breach of the lending limits set forth in clauses a), b) and c) above, will be subject to a fine equivalent to 10% of the excess amount. In case of breach of the rules set forth in clause f) above, it will be subject to a fine equivalent to 20% of the loan granted.
Main Differences Between the Accounting Policies under IFRS and Chilean Banking GAAP
The financial information included herein is prepared and presented in accordance with IFRS. Certain differences exist between Chilean Banking GAAP and IFRS which might be material to the financial information contained herein. The matters described below summarize certain differences between Chilean Banking GAAP and IFRS that may be material. We are responsible for preparing the summary below. We have not prepared a comprehensive reconciliation of our consolidated financial statements and related footnote disclosures between Chilean Banking GAAP and IFRS and have not quantified such differences. Accordingly, no assurance is provided that the following summary of differences between Chilean Banking GAAP and IFRS is complete.
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Suspension of interest income and inflation-indexation adjustments recognition. Financial institutions must suspend recognition of income on an accrual basis in their statements of income for all loans overdue for more than 89 days. IFRS 9 did not allow the suspension of accrual of interest on financial assets for which an impairment loss has been determined. Under IFRS 9, interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for financial assets that have subsequently become credit-impaired (or “Stage 3”), for which interest revenue is calculated by applying the effective interest rate to their amortized cost (i.e., net of the ECL provision). Off-balance interests are recorded as interest income only if the Bank receives the related payments.
Allowances for Loan losses. The main difference between Chilean Banking GAAP and IFRS 9 regarding loan loss allowances is that loan loss allowances under Chilean Banking GAAP are calculated using expected loss models based on specific guidelines set by the CMF, which in turn are based on a 12-month period expected losses approach while IFRS 9 additionally requires that, if a financial assets has experienced a significant increase in credit risk or is impaired, it requires a lifetime expected losses approach. Even though both models are constructed on an expected losses approach, the models adopted under IFRS 9 are not in accordance with specific guidelines under Chilean Banking GAAP given by the CMF. The CMF has not yet adopted IFRS 9 requirement regarding its impairment section and therefore we have adjusted the consolidated financial statements to fully comply with IFRS standards. The most significant impact of IFRS 9 on our financial statements arises from estimating our allowances for loan losses with our IFRS 9 models.
Loans and accounts receivable charge-offs. Under Chilean Banking GAAP, charge-offs of loans and accounts receivable are based on due, past due and current installments, and the term begins at the moment of default, i.e., when the default time of an installment or a portion of a loan reaches the charge-off term established by the CMF in the Compendium of Accounting Standards. The term corresponds to the time elapsed since the date on which payment of all or part of the obligation in default became due. IFRS does not require any such deadline for charge-offs. A charge-off due to impairment would be recorded, if and only if, all efforts at collection of the loan or account receivable have been exhausted. This difference does not materially impact our consolidated financial statements.
Assets received in lieu of payment—Other non-current assets held for sale. Under Chilean Banking GAAP it is required that the initial value of assets received in lieu of payment be the value agreed upon with a debtor as a result of the loan settlement or the value awarded in an auction, as applicable. These assets are required to be written off one year after their acquisition, without Financial Market Commission of an extended period, if the assets have not been previously disposed of. IFRS requires that assets received in lieu of payment be initially accounted for at fair value. Subsequently, asset valuation depends on the classification provided by the entity for that type of asset. No deadline is established for charging-off an asset. Assets in lieu of payment were reclassified and recognized in accordance with IFRS 5.
Country risk and contingent loans provisions. Under Chilean Banking GAAP, the Bank establishes provisions for country risk and provisions related to the undrawn available credit lines and contingent loans in accordance with local regulations. In accordance with IFRS 9, ECL for contingent loans are recorded in our consolidated financial statements. Provisions for country risk are not contemplated under IFRS 9.
Improvements in leased properties. As instructed by the CMF, improvements in leased properties should be disclosed together with right-of-use assets under the same line item in the Consolidated Statement of Financial Position. While there is no difference with IFRS in terms of measurement, there is a significant difference in terms of disclosures. These assets have been properly reclassified in the consolidated financial statements.
Deferred taxes. The Bank records, when appropriate, deferred tax assets and liabilities for the estimated future tax effects attributable to the differences between the carrying amount of assets and liabilities and their tax bases. Due to the adjustments made to the consolidated financial statements for IFRS, we adjust deferred taxes accordingly.
Capital Markets
Under the Chilean General Banking Act, banks in Chile may purchase, sell, place, underwrite and act as paying agents with respect to certain debt securities. In addition, banks in Chile may place and underwrite certain equity securities. Bank
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subsidiaries may also engage in debt placement and dealing, equity issuance advisory services and securities brokerage, as well as in financial leasing, mutual fund and investment fund administration, investment advisory services and merger and acquisition services. These subsidiaries are regulated by the CMF.
Subsidiaries and Affiliated Companies
Chilean banks are authorized to create subsidiaries to engage in (1) brokerage of securities, (2) management of mutual funds, investment funds, offshore funds, housing funds or all the foregoing, (3) insurance brokerage, (4) leasing operations, (5) factoring operations, (6) securitization, (7) financial advisory, (8) custody and transportation of funds, (9) provision of other financial services as authorized by the CMF, (10) real estate leasing, and (11) social security advice. These subsidiaries are regulated by the CMF except with respect to social security, in which case the entities are regulated by the Superintendency of Pensions (Superintendencia de Pensiones), or “SP”. Currently, banks are not authorized to create or engage in the business of insurance companies (other than as insurance brokers) and pension funds or health insurance administrators.
Banks may also, with the prior authorization of the CMF, create and participate in companies exclusively destined to the carrying out of activities in support of the main banking operations, such as payment card operators.
Legal Provisions Regarding Banking Institutions with Financial Instability or Poor Management
Liquidation of Chilean banks may not be ordered in bankruptcy procedures, except when undergoing voluntary liquidation. The Chilean General Banking Act sets forth that if a bank is under certain specific adverse circumstances that are indicative of financial instability or poor management, the bank must (i) immediately inform the CMF of the occurrence of any such circumstance, and (ii) submit to the CMF within five days (extendable up to 10 days), a remediation plan approved by its board of directors. The remediation plan must include concrete measures towards the remediation of the situation affecting the bank and secure its normal operation. The CMF is also authorized to request such remediation plan in the event it becomes aware that a bank has been affected by any such circumstances without having received timely notice thereof from the affected bank. The CMF shall communicate, on a confidential basis, to the Financial Stability Council the bank’s submission of a remediation plan, as well as its approval, rejection and/or comments made by the CMF. The remediation plan submitted by the bank must be approved by the CMF and shall set forth a maximum six-month term from the date of its approval by the CMF for its satisfaction, unless otherwise expressly authorized by the CMF.
Additionally, the bank must provide the CMF with periodic reports as to the implementation of the remediation plan. If the remediation plan includes, as one of its remediation measures, a capital increase, with the prior approval of the CMF, the board of directors of the bank must summon a shareholders meeting to approve such increase. If the shareholders reject the capital increase, or if approved, it is not paid within the approved term, or if the CMF rejects for a second time the conditions to summon the shareholders meeting, the CMF may prohibit the bank for a maximum term of six months, renewable once for the same period, among others, from granting new loans, extending any loans beyond 180 days and releasing or limiting the collateral on existing loans. The Chilean General Banking Act provides that the remediation plan can include a three-year term loan from another bank which will be subordinated to other liabilities of the bank. The terms and conditions of such a loan must be approved by the directors of both banks, as well as by the CMF, but need not be submitted to the borrowing bank’s shareholders for their approval. In any event, a creditor bank cannot grant interbank loans to an insolvent bank in an amount exceeding 25% of the creditor bank’s effective net equity.
If a bank does not submit a remediation plan, or if the remediation plan is rejected by the CMF, or if the bank breaches any of the measures set forth therein, or has incurred in repeated breaches or fines, or is reluctant to comply with the CMF’s orders or has incurred in any material fact that threatens its financial stability, or if the CMF does not approve the remediation plan, or if such plan is not timely submitted by the bank or the terms of such plan are breached by the bank, or if the capital increase included in the remediation plan is approved by the shareholders of the bank but not paid within the approved term, or if the CMF rejects for the second time the conditions to summon the shareholders meeting that shall approve the capital increase, the CMF is authorized to appoint a delegated inspector and/or, with the prior consent of the Council of the Central Bank of Chile, to appoint a provisional administrator who will be in charge of the bank’s administration. The appointment of a delegated inspector or provisional administrator shall be for a period no longer than
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one year, renewable for one additional year in case of the delegated inspector, and indefinitely in the case of the provisional administrator.
Dissolution and Liquidation of Banks
The CMF may provide that a bank must be liquidated if the safety of its depositors or other creditors so demands it, or when such bank does not have the necessary solvency to continue its operations. In such case, the CMF must revoke such bank’s authorization of existence and mandate its liquidation, subject to approval by the Central Bank of Chile. The CMF’s resolution must state the reason for ordering the liquidation and must appoint a liquidator, who shall be a person that meets the suitability and technical capacity requirements to be determined by the CMF pursuant to a regulation to be issued by the CMF. Upon a liquidation order, all checking accounts deposits and obligations payable on demand from the ordinary course of business are required to be paid by using the bank’s existing funds, its deposits with the Central Bank of Chile or its investments in instruments that represent its reserves.
If these funds are insufficient to pay these obligations, the liquidator may seize the rest of the bank’s assets, as needed. If necessary and in specified circumstances, the Central Bank of Chile will lend the bank the funds necessary to pay these obligations. Any such on demand obligations are preferential to any claims of other creditors of the liquidated bank.
Investments in Foreign Securities
Under current Chilean banking regulations, banks in Chile may grant loans to foreign individuals and entities and invest in certain foreign currency securities. Chilean banks may only invest in equity securities of foreign banks and certain other foreign companies, which may be affiliates of the bank or which would support the bank’s business if such companies were incorporated in Chile. Banks in Chile may also invest in debt securities traded in formal secondary markets. Within certain limits, banks in Chile may invest in such debt securities, in the event such debt securities qualify as securities issued or guaranteed by (1) foreign sovereign states or their central banks or (2) other foreign or international financial institutions of which Chile is a member or bonds issued by foreign corporations. Such foreign currency securities must have a minimum rating as follows:
Rating Agency |
| Short Term |
| Long Term |
Moody’s |
| P-2 |
| Baa3 |
Standard and Poor’s |
| A-2 |
| BBB- |
Fitch Rating Service |
| F2 |
| BBB- |
Dominion Bond Rating Service (DBRS) |
| R-2 |
| BBB (low) |
A Chilean bank may invest in securities having a minimum rating as follows, provided that in case the total amount of these investments, together with the loans granted to certain classes of foreign debtors, exceeds 20% (or 30% for banks with a BIS ratio equal or exceeding 10%) of the effective net equity of the bank, a provision of 100% of the excess shall be es
Rating Agency |
| Short Term |
| Long Term |
Moody’s |
| P-2 |
| Ba3 |
Standard and Poor’s |
| A-2 |
| BB- |
Fitch Rating Service |
| F2 |
| BB- |
Rating Agency |
| Short Term |
| Long Term |
Dominion Bond Rating Service |
| R-2 |
| BB (low) |
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If investments in these securities and certain loans referred to below exceed 70% of the effective net equity of the bank, a provision for 100% of the excess shall be established, unless the excess, up to 70% of the bank’s effective net equity, is invested in securities having a minimum rating as follows:
Rating Agency |
| Short Term |
| Long Term |
Moody’s |
| P-1 |
| Aa3 |
Standard and Poor’s |
| A-1+ |
| AA- |
Fitch Rating Service |
| F1+ |
| AA- |
Dominion Bond Rating Service |
| R-1 (high) |
| AA (low) |
Additionally, a Chilean bank may invest in foreign securities, with ratings equal to or exceeding those set forth in the table above, in: (1) overnight and term deposits with foreign banks, subject to a limit of up to 30% of the effective net equity of the Chilean bank that makes the investment (or limit of 25% of its effective net equity regarding deposits with certain related parties); and (2) securities issued or guaranteed by sovereign states or their central banks or those securities issued or guaranteed by international institutions of which Chile is a part, subject to a limit of up to 50% of the effective net equity of the Chilean bank.
Subject to specific conditions, a bank may grant loans in dollars to subsidiaries or branches of Chilean companies located abroad, to companies listed on foreign stock exchanges authorized by the Central Bank of Chile and, in general, to individuals and entities domiciled abroad, as long as the Central Bank of Chile is kept informed of such activities. A bank may also grant loans in dollars to finance exports to or from Chile.
In the event that the sum of the investments of a bank in foreign currency and of the commercial and foreign trade loans granted to foreign individuals and entities exceeds 70% of the effective net equity of such bank, the excess is subject to a mandatory reserve of 100%.
Financial Stability Council
Law No. 20,789 created the Financial Stability Council, composed by the Minister of Finance (Ministro de Hacienda), the chairman of the CMF and the SP. The purpose of this council is to facilitate the technical coordination and the exchange of information by these market regulators in all matters related to the prevention and management of situations which may involve a risk for the financial system.
This law also expanded the authority of the CMF to request information regarding controlling shareholders of banks and entities which are part of their corporate group.
Recent Regulatory Developments in Chile
Constitutional reform diminishing the quorums required for the approval, amendment or abrogation of organic constitutional laws
On January 27, 2023, Law No. 21,535 was published in the Official Gazette. This law became effective on January 27, 2023, and diminishes the quorums required for the approval, amendment or abrogation of organic constitutional laws from 4/7 of the seats in each chamber of the National Congress to their absolute majority (i.e., 50% +1). Amongst the laws classified as “organic constitutional laws” are those concerning the composition, organization, functions and authorities of the Central Bank of Chile.
Referendum to Amend the Chilean Constitution
A referendum took place on October 25, 2020, where a wide majority of the Chilean voters chose to approve the drafting of a new Constitution and having such document written by a Civic Constitutional Convention. On July 4, 2021, the Civic Constitutional Convention was installed with the purpose of drafting a proposal of new Constitution within one year. Such proposal was submitted to a national mandatory referendum held on September 4, 2022, which resulted into its rejection. 61.86% of voters rejected the proposal drafted by the Civic Constitutional Convention, whereas 37.14% of them approved it. Consequently, the 1980 Constitution – also known as the 2005 Constitution – remained in force.
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On December 12, 2022, almost all political parties represented in the Congress agreed upon the basis for the drafting and approval of a new Constitution. This agreement led to the enactment of Law No. 21,533, which was published in the Official Gazette on January 17, 2023. This law creates the following institutions: (i) a Commission of Experts; (ii) a Constitutional Council; and (iii) an Admissibility Technical Committee. The Commission of Experts will be responsible for writing a preliminary draft of the new Constitution, which will be used by the Constitutional Council as basis for the discussion and composition of a proposal of new Constitution. Both the Commission of Experts and the Constitutional Council must respect certain minimal contents called “essential institutional principles”. For example, (i) Chile is a democratic republic; (ii) the Chilean State is unitary and decentralized; (iii) the Chilean nation is only one and indivisible; (iv) Chile is a social and democratic State governed by the rule of law, that promotes the progressive development of social rights in accordance with the principle of fiscal responsibility, and through State and private institutions; (v) the Chilean State is divided into three separate and independent branches, i.e. the Executive, Legislative and Judicial Powers; (vi) the head of the government will have exclusive initiative of the bills of law that involve public expenditure; (vii) the Legislative Power will be composed of a Chamber of Representatives and a Senate; (viii) the recognition of the right to property and its different manifestations, amongst other rights.
In order to ensure that the essential institutional principles are respected and included in the new constitutional proposal, the Admissibility Technical Committee will be in charge of: (i) determining – upon request of the members of the Constitutional Council or Commission of Experts – whether an approved provision should be declared inadmissible on the ground that it contradicts the essential institutional principles; or (ii) instructing the Commission of Experts to draft a proposal of a certain provision in case one or more of the referred principles have been omitted.
The final proposal of the new Constitution must be approved by 3/5 of the seats in the Constitutional Council. This proposal will be submitted on December 17, 2023, to a new national mandatory referendum in which citizens will vote whether to approve or reject it.
The installation of the Commission of Experts and the Admissibility Technical Committee occurred on March 6, 2023, whereas the investiture of the Constitutional Council is scheduled for June 7, 2023. Consequently, as of the date of this annual report on Form 20-F, we cannot anticipate whether the new Constitution will be approved and, if approved, whether and to what extent the new Constitution will affect our business.
Recent Tax Reforms and Future Changes in Chilean Tax Regulations
On February 24, 2020, Law No. 21,210 was published in the Official Gazette, which introduces additional amendments and modifications to the Chilean tax system.
Pursuant to Law No. 21,210, and given that the Bank’s average annual amount of gross revenues would be higher than UF75,000, the Bank is subject to the general system, where companies are subject to a corporate tax of 27%. Under this regime, when the income is actually withdrawn from a company, non-Chilean resident shareholders would be subject to a 35% withholding tax, while Chilean resident shareholders would be required to pay the progressive Complementary Global Tax, with rates ranging between 0% and 40%, against which only 65% of the corporate tax will be allowed to be used as a credit against the withholding tax or the Complementary Global Tax. In any case, the final tax burden cannot exceed a rate of 44.45%. Foreign holders, on the other hand, shall be entitled to full corporate tax credit, if such holders are established in, domiciled in, or residents of a country with which Chile has a double taxation treaty in force or, until December 31, 2026, with which Chile has signed a double taxation treaty, although not in force, given that the foreign holders credits their tax residency under the Chilean IRS’s regulations on the matter. In this case, the tax burden would than remain 35%. These regulations are currently contained in Exempt Resolution No. 151, issued on December 9, 2020, which provides the requirements that must be met by foreign investors and their tax certificates in order to be eligible for this benefit.
Foreign source income obtained by taxpayers domiciled or resident in Chile is generally subject to taxes in Chile on a cash basis. However, in the case of branches or other permanent establishments located abroad, both accrual and received income are considered in Chile for tax purposes. Also, taxpayers who obtain passive income from foreign companies in which they have control, as defined by law, will have to pay taxes on accrual and cash basis, for the passive income accrued or perceived by those controlled entities.
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Bonds and other debt instruments issued in Chile by Chilean companies are deemed to be located in Chile for capital gains purposes. However, bonds issued outside of Chile by Chilean companies are not deemed located in Chile for capital gain purposes and, consequently, the sale of such bonds by a non-Chilean resident is not subject to capital gains tax in Chile. According to section 11 of the Ley Sobre Impuesto a la Renta, or the “Chilean Income Tax Law,” it would be considered a foreign source income obtained by a non-Chilean resident.
On January 27, 2022, Law No. 21,420 was published in the Official Gazette, which reduces or repeals certain tax exemptions. Notably, Law No. 21,420 repeals, from September 2, 2022, onwards, the Chilean capital gains exemption regime contained in Article 107 of the Income Tax Law (as further discussed below) and replaces it with a sole 10% tax on capital gains derived from the alienation of significantly traded stock. However, institutional investors, both Chilean and foreign, remain exempt from this tax. In addition, Law No. 21,420 extends the services taxed with VAT in Chile, modifies the estate and gifts tax and property tax, and introduces a new wealth tax of 2% on certain land, sea, and air vehicles.
Lastly, in July 2022, President Boric presented a new tax reform bill, which would introduce substantial and structural changes into the Chilean tax system for the purpose of adding new revenue streams. Proposed changes include: a reduction of the corporate tax to 25%; the introduction of a new 2% development tax aimed at promoting R&D expenditure; the disintegration of the income tax system, which means that the corporate tax could no longer be used as a credit against personal income taxes on dividend distributions (or the withholding taxes imposed on non-residents, as the case may be); the introduction of a new capital income tax of 22% on dividends and certain capital gains; and the creation of a new tax applied to undistributed taxable profits held by Chilean companies, among others important amendments to Chilean tax laws. However, on March 8, 2023, the bill was rejected by the House of Representatives. The government may insist that the bill be approved by the Senate (which would require a quorum of 2/3), or it may re-submit the bill to the House of Representatives after a 1-year period.
On June 30, 2022, Law No. 21,453 was published in the Official Gazette. Law No. 21,453 amended the Tax Code by requiring banks, financial institutions, insurance companies and other companies to annually provide information to the Chilean Internal Revenue Service concerning the following products or services: (a) checking accounts; (b) fixed-term deposits; (c) on demand deposits; (d) savings accounts, and other types of accounts. For such purpose, banks and the other obliged entities must complete a report including the following data: (i) the identification of the financial entity; (ii) the identity of the holder of the product (including its controllers and beneficial owners); (iv) the reporting period; (v) the, type of product; (vi) the internal registration number of the product; (vi) the amount concerned; (vii) the validity status of the product; and (viii) if applicable, the closing date of the product, when applicable.
This report must only be completed if the amounts, balances or payments that are daily, weekly or monthly registered in connection with the abovementioned products and services, individually or jointly represent UF1,500 or more (approximately US$61,648). In case the obliged entities do not timely or completely provide the required information, they may be subject to a fine of maximum UTA500 (approximately US$429,519).
Please note that the first report should be submitted to the Chilean Internal Revenue Service before March 21, 2023. This report must consider the amounts, balances or payments registered from September 1, 2022. We timely submitted our first report under this law on March 21, 2023.
In addition, two bills of law were submitted last year proposing to amend the Chilean Banking Act, and, if approved, would oblige certain municipal and administrative authorities to authorize banks, in which they have deposits or investments of any kind, to provide information about their accounts to the following institutions upon their request: Unit of Financial Analysis, the Commission for the Financial Market and the Chilean Internal Revenue Service:
· | A bill submitted on January 25, 2023 (Bill No. 15,697-03), proposes to oblige certain municipal authorities and directors of municipal associations or foundations to deliver the abovementioned authorization. Once the authorization is obtained, banks would have to inform the relevant entities within the next fifteen days. The bill includes administrative sanctions for noncompliance with this obligation. |
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· | A bill submitted on May 6, 2022 (Bill No. 14,955-03), proposes to oblige certain administrative authorities, such as the President of the Republic, State Ministries, congressmen, judges of the Supreme Court or the Courts of Appeal, commanders in Chief of the Armed Forces, the General Director of the Police, regional authorities, and members of the boards of State enterprises, to deliver the abovementioned authorization. Once such authorization is granted, banks would have to inform the relevant entities within the next fifteen days. The bill includes administrative sanctions in case of noncompliance with this obligation. |
See “Item 4. Chilean Banking Regulation and Supervision—Recent Tax Reforms and Future Changes in Chilean Tax Regulations” and “Item 10. Additional Information—Chilean Tax Considerations.”
Amendments to Chilean Personal Data Protection Act
On November 10, 2022, Law No. 21,504 was published in the Official Gazette. This law will become effective on May 9, 2023, and amends the Chilean Personal Data Protection Act, by prohibiting managers of data banks to publish or disclose the information related to loans contracted to finance health services or health actions.
Additionally, several bills have been submitted to the Chilean Congress related to Personal Data Protection in the following matters:
● | A bill submitted on October 5, 2022, proposes the recognition of the “financial right to be forgotten” (Bill No. 15,407-03). Such right would allow all individuals to request the deletion of their personal financial data related to debts and overdue payments, when there are no legitimate reasons to keep them (i.e., when the respective obligation has become unenforceable). Likewise, the recognition of the financial right to be forgotten would prevent banks and other entities from denying a financial service or product on the basis of the requestor’s historic record of debts or default. This bill of law is still at an early stage of discussion. |
● | A bill submitted on September 14, 2022, proposes: (i) to ban the mass dissemination of personal data, unless otherwise authorized by law; and (ii) to sanction offenders with criminal penalties (Bill No. 15,353-07). This bill is still at an early stage of discussion. |
● | A bill submitted on April 6, 2022 proposes to forbid managers of data banks and distributors of economic, commercial or financial data (i.e., anyone who directly uses, communicates or commercializes such data) to use personal data related to debts, provided that: (i) such debts became enforceable before April 30, 2022, and are still unpaid; and (ii) the respective debtor registers a total amount of unpaid obligations, which is less than Ch$ 2,500,000 in capital (approximately, US$ 2,92), excluding interests or readjustments (Bill No. 14,888-03). This bill is still at an early stage of discussion. |
Recent Labor Laws
On April 1, 2020, Law No. 21,220 went into effect. This law modifies the Chilean Labor Code with respect to remote work and teleworking, such as the working day, minimum breaks and control and supervision by the employer. The main aspects regulated by the law are: (i) the obligation to agree and establish the modality of telework in an employment contract or annex, which must be registered with the Labor Office (Dirección del Trabajo), (ii) the employer’s duty to supply the employees with all work tools, and (iii) the employees’ right to a minimum total disconnection time of 12 continuous hours between each workday.
On April 20, 2021, Law No 21,325 went into effect. This law contemplates rules on migration and foreigners, in order to regulate the entry, stay, residence and departure of foreigners from the country, and the exercise of rights and duties, establishing a new institutional framework for these purposes. This regulation comes to replace the one established by Decree Law No 1,094 of 1975. The law provides migrants with the protection of labor rights, access to health, social security and tax benefits, the right to education, housing ownership, sending and receiving remittances and due process. New migratory categories and subcategories and new requirements to apply for the different categories of residence are established. This new law establishes that employers may only hire foreigners who are in possession of a residence or permanence permit that enables them to work, or those who are authorized to do so. Finally, this law creates the new
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National Migration Service, which is in charge of carrying out the national migration policy, resolving applications for residence and permanence permits and determining their validity.
On April 30, 2021, Law No. 21,327 was published in the Official Gazette. This law became effective as of October 1, 2021, and its main purpose was modernizing the Labor Office through the introduction of new technologies and digitalization of procedures. A noteworthy feature is the so-called electronic registry of labor documentation, which imposes the obligation on the employer to register electronically on the website of the Labor Office the employment contracts (indicating therein all the agreed stipulations) and documents related to the termination of an employment relationship. The law also adds new contents to the employment contract, including the inclusion of the e-mail addresses of both parties as a minimum requirement of the employment contract. It expressly regulates the possibility that the payment of remuneration by electronic transfer to the employee’s bank account. This same law establishes certain special considerations, stating that, in the case of a group of companies that has been declared as a single employer by a court, provided that at least two years have elapsed since such judgment became final and that the corporate group has substantially modified its structure, it will be possible to request the termination of the classification of the companies as a single employer. The two-year term may be waived if the modification involves a change of ownership and there is no common controller.
On June 1, 2021, Law No. 21,342 was published on the Official Gazette. This law establishes the obligation to implement a COVID-19 occupational health safety protocol for the safe return to work by setting forth a series of sanitary measures to be taken by employers at its own expense. Companies that do not have an occupational health and safety protocol will not be authorized to resume or continue on-site work activities. Additionally, this law provides for special liability and penalties in the event that an occupational accident or illness results from the negligence or willful misconduct of the employer, which applies to COVID-19 infections. Law No. 21,342 establishes that while the health alert lasts, employers must offer employees who have a serious illness or serious health condition (and are at greater risk) the option of remote work or telecommuting, provided the nature of their functions allows it, without pay reduction. According to Law No. 21,391 (published on November 24, 2021), the same applies to employees who are responsible for the care of at least one child in the preschool stage (up to 6 years old) and to employees who are in charge of the care of a person with a disability, or a child between 6 and 12 years old, if and when schools are closed due to an infectious disease. Finally, it establishes the obligation to implement a mandatory individual health insurance associated with COVID-19. This insurance must be paid by the employer to the employees and is intended to cover the hospitalization and rehabilitation expenses of the employee associated with COVID-19. Employees who are subject to telecommuting or teleworking regimes on an exclusive basis are exempt from the insurance obligation.
On May 26, 2022, Law No. 21,456 was published in the Official Gazette. This law readjusts the amount of the minimum monthly wage, as well as the family and maternal allowance, the family subsidy, and grants a temporary subsidy for micro, small and medium sized companies. As of August 1, 2022, the law increased the minimum monthly salary from CLP$380,000 to CLP$400,000. The increase in the minimum salary impacts the amount of the legal-profit sharing bonus (gratificación legal). In this sense, we must make a readjustment of the legal profit-sharing bonus amount corresponding to the new minimum salary.
On November 15, 2022, Law No. 21,498 was published in the Official Gazette. This law establishes that if the authorities declare a Constitutional Emergency State or a Health Alert due to an epidemic or contagious disease, the employer will be obliged to offer teleworking modality to pregnant employees as long as the nature of the employee’s function allows teleworking.
On April 26, 2023, Law No. 21,561 was published in the Offcial Gazzette. Law 21,561 reduces the maximum of working weekly hours from 45 hours to 40 hours per week, excluding lunch breaks.
For more information, see “Item 3. Key Information. Risk Factors—Adverse Changes in Labor Relations in Chile or Colombia could Impact our Business.”
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Law Regulating Responsibilities of Market Agents
On April 13, 2021, Law No. 21,314, a part of the anti-abuse agenda, was published. This law regulates the responsibility and transparency requirements for market agents.
This law introduces various modifications to several legal provisions, but mainly to the Chilean Securities Market Act and the Chilean Corporations Act. The main modifications introduced by this law can be summarized as follows: (i) new information and transparency rules applicable to the stock markets, (ii) prohibition imposed on directors, managers, administrators and executives of a securities issuer (e.g., a public limited company) to, directly or indirectly, execute transactions related to the securities issued by an issuer, (iii) obligation of the stock markets or securities exchanges to establish a real-time interconnection system among them in order to provide better service for investors, (iv) prohibition against price manipulation, (v) new regulations for the relationships among related parties and delegation of power to the CMF to request information about the transactions made with related parties and regulated companies, (vi) new regulations and responsibilities for social security advisors, and (vii) creation of the role of financial and social security advisors or entities that perform a financial and social security advisory function.
Fintech Law
On January 4, 2023, Law No. 21,521 which promotes competition and financial inclusion through innovation and technology in the provision of financial services, known as the “Fintech Law,” was published in the Official Gazette. The Fintech Law establishes a regulatory framework for services based on technology, such as crowdfunding platforms, alternative transaction systems, credit and investment advice, custody of financial instruments, order routers and financial instrument intermediaries, which previously were not regulated or supervised by the CMF.
In addition, an Open Banking System (Open Banking) was created to enable financial and related service providers to exchange customer information, thus addressing the information asymmetry faced by new participants and facilitating the development of new financial products and service offerings.
With some exceptions, this law became effective on February 3, 2023. Among these exceptions, is Title III, which sets forth the provisions on Open Banking. This Title will be effective as of the date of entry into force of the regulations to be issued by the CMF to regulate, among other aspects, the institutions and information that will be subject to the open finance system; the requirements for consultation, access, delivery and exchange of this information; the operation of the various registries that the CMF must create in accordance with this Title; the minimum standards and security mechanisms to be set for the operation of the interfaces involved in the operation of the system and for the entities that are part of it, as well as the requirements for the consent given by the clients. Such CMF regulation must be issued within a period of 18 months from January 4, 2023.
Bills on Mandatory Security Measures applicable to banks
Three bills were submitted in 2022 with the purpose of requiring banks and other financial entities to adopt mandatory security measures aimed at preventing clients from being robbed while leaving branch offices. All of them are at an early stage of discussion.
● | A bill submitted on September 9, 2022 (Bill No. 15,341-03), would require the adoption of measures such as the installation of visual barriers to guarantee privacy during withdrawal and deposit operations, as well as the adoption of biometric or fingerprint registration mechanisms for individuals entering a branch office. Additionally, the bill states that banks failing to adopt required security measures will be deemed liable for any civil damages suffered by victims of robbery while leaving a branch office. |
● | A bill submitted on July 13, 2022 (Bill No. 15,199-25), would require banks and other financial institutions to have a screen folder to protect the privacy of operations in the bank’s withdrawal box. |
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● | The bill submitted on October 6, 2022 (Bill No. 15,413-25), would require measures such as the installation of camera systems, as well as the obscuring and silencing of money counting machines. The bill includes provisions for imposing fines on infringers. |
Bills Amending the Chilean Consumer Protection Act
Several bills have been submitted to the Chilean Congress containing amendments to the Chilean Consumer Protection Act in the following matters:
● | Two bills were submitted on September 9, 2022, and December 20, 2022 (bills No. 15,343-03 and 15,610-03), with the intention of amending the Chilean Consumer Protection Act and prevent phone spam. One of them, would require the suppliers of goods and services to identify themselves before asking for personal data of the holder of the telephone number, and to register their call centers under their company’s name. The other would establish the right to not receive phone calls from suppliers of goods and services, unless express consent has been previously given. In both cases, infringement is sanctioned with a fine. Both bills of law are currently at an early stage of discussion. |
● | A bill submitted on November 15, 2021 (Bill No. 14,709-03), proposes to amend the Chilean Consumer Protection Act in order to: (i) reduce the amount that may be charged for collection costs to customers; and (ii) regulate the means and manner of debt collection. In addition, the bill proposes to amend Law No. 20,720, or the “Chilean Insolvency Act” to reduce the requirements for individuals to submit to the procedure regulated by such law. This bill of law has not reported any change of status since November 24, 2021. |
● | A bill submitted on June 29, 2021 (Bill No. 14,448-03), proposes to amend the Chilean Consumer Protection Act in order to prohibit suppliers of financial products or services to reject the contracting of any kind of financial product or service for the sole reason that the consumer has been a debtor in a terminated insolvency proceeding. In addition to this proposal, the bill proposes to amend several norms that regulate the personal data of debtors, so that they are deleted once their debts are paid. This bill of law has not reported any change of status since June 29, 2021. |
● | A bill submitted on December 11, 2019 (Bill No. 13,150-03) proposes to amend the Chilean Consumer Protection Act and Law No. 18,010, or the “Chilean Money Loan Transactions Act”, prohibiting: (i) compound interests in respect of interests and default interests in money loan transactions, even if none of the parties qualifies as a consumer; (ii) compound interests in any contract in which a consumer is a party; and (iii) the inclusion of early maturity provisions in a consumer contract. It should be noted that an earlier bill submitted on November 11, 2019 (Bill No. 13,067-03) also proposes to amend the Chilean Money Loan Transactions Act prohibiting compound interests in money loan transactions below UF4,000 (Ch$124.0 million or US$145,146 as of December 31, 2022). The abovementioned bills of law have not reported any change of status since September 2021. |
● | A bill submitted on August 5, 2019 (Bill No. 12858-03) is currently under discussion to amend the Chilean Consumer Protection Act to provide that the operational expenses arising from the renegotiation of mortgage loans will be borne by the loan provider. This bill of law has not reported any change of status since March 2021. |
● | A bill submitted on March 22, 2023 (Bill No. 15,762-03) proposes to amend the Consumer Protection Act in order to establish the right of consumers to choose the means of payment in any transaction regulated by the law. |
Bill Amending the Chilean Money Loan Transactions Act in respect of the Conventional Maximum Interest Rate
A bill submitted to the Chilean Congress on December 9, 2019 (Bill No. 13,117-03) proposes to amend the Chilean Money Loan Transactions Act by reducing the conventional maximum interest rate (tasa máxima convencional) applicable to certain loan transactions, including those in Chilean pesos with a principal amount of up to UF200 (Ch$7.0 million or US$8,218 as of December 31, 2022). This bill has not been discussed since its submission to the Chilean Congress.
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A bill submitted on September 20, 2022 (Bill No. 15,356-03), proposes to amend the Chilean Money Loan Transactions Act in order to forbid acceleration clauses on mortgage loans not exceeding UF4,500 (approximately US$ 184,943). This bill of law is still at an early stage of discussion.
Bill Amending the Chilean Insolvency Act
A bill submitted to the Chilean Congress on August 14, 2019 (Bill No. 12,850-03) proposes to amend the Chilean Insolvency Act setting forth special requirements in order for individuals over 60 years of age to be subject to a renegotiation procedure (aimed to assist debtor and creditors in reaching an agreement for renegotiation the former’s debt). This bill is currently in its second stage of discussion at the Economy Commission of the Chamber of Representatives, and it has not reported any change of status since June 2020.
Bill Regulating Expenses Associated with Execution and Liquidation of Money Loan Transactions
On May 19, 2020, a bill was submitted to the Chilean Congress proposing a series of amendments and modifications to several acts regarding expenses associated with the execution and liquidation of money loan transactions (Bill No. 13,526-03). These amendments can be summarized as follows: (i) amends the Chilean Consumer Protection Act in terms of prohibiting the transfer to the consumer of extrajudicial debt collection costs. Such costs would have to first be proved before the civil courts like other damages; (ii) modifies the Chilean Consumer Protection Act by expressly regulating the operational costs in the procurement of financial products; and (iii) amends the Chilean Money Loan Transactions Act in terms of limiting the maximum amounts of prepayment commissions and default interest for loan transactions below UF5,000. This bill has not reported any change of status since its day of submission.
Bill Regulating Reverse Mortgage
On January 25, 2022, a bill was submitted to the Chilean Congress (Bill No. 14,822-07) proposing to regulate reverse mortgage. The bill of law would establish the following central elements for reverse mortgages: (i) only persons aged at least 60 or disabled persons are entitled to enter into or benefit from reverse mortgages; (ii) the mortgaged real estate must be the mortgagor’s or beneficiary’s primary residence and have a tax appraisal of at least UF1,000 (approximately US$41,099); (iii) mortgagees are limited to banks, financial institutions, insurance companies or family compensation funds. This bill of law is still at an early stage of discussion.
Changes to the Pension System in Chile
On November 6, 2018, President Sebastián Piñera submitted Bill No. 12,212-13 with the purpose of introducing changes to the existing Chilean pension funds system, specifically related to solidary pensions, the individual capitalization pension system and new pension systems for the middle class and women.
Under this proposal, employers companies (including the Bank) would have to make a 4% contribution to the pension system, with a gradual implementation over a period of five years. This amendment would have a gradual implementation during a period of five years. Additionally, employers (including the Bank) would be obliged to contribute 0.2% of the gross salary of their employees to fund disability insurance. This insurance would be applicable to all elderly employees with a serious physical or mental disability. Further, the bill proposal states that the solidarity fund (Pilar Solidario) would increase approximately 40% given that the Chilean government is expected to contribute 1.12% of the GDP to the fund. Notwithstanding the fact that this bill is still being discussed in Congress, there has been no progress since January 2022, and it is likely that it will not move forward considering that President Boric indicated during his presidential campaign and in his government program that he intends to end the AFPs and replace the current pension system in Chile with one that will be managed by a public entity. Although there are no details as to how these reforms would be implemented, it has been announced that one of the measures would be increasing the employer’s contribution by 6%, reaching a total contribution of 18%. Any such new contribution requirements may impose an increase in our labor costs and in turn have a material adverse effect on our financial results.
Although this bill is still formally in process in the Chilean Congress, it is unlikely to advance since President Boric stated during his presidential campaign and in his government program that he intends to end AFPs and replace the current
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pension system with one managed by a public entity. Although no details have been provided on how he intends to replace the pension system, his government program states that pension contributions will be increased by an additional 6% to be paid by the employer. This bill has not reported any change of status since January 2022.
On November 26, 2019, the Ministry of Finance and the Chilean Senate reached an agreement to increase the basic pension for pensioners aged 80 years or older by 50% starting on December 1, 2019. The agreement resulted in Law No. 21,190, which provides for a 50% increase in the pension for pensioners aged 80 years (and older), and a 30% increase in basic pensions for pensioners between 75 to 79 years of age by December 1, 2019, which would be equalized to the basic pension for pensioners aged 80 years (and older) by January 1, 2021. Basic pensions for pensioners under 75 years of age increased by 25% on December 1, 2019, by 40% in the aggregate by January 1, 2021, and will be equalized to the basic pensions for pensioners between 75 to 79 years of age by January 1, 2022. Law No. 21,190 is financed by the treasury of the Chilean government.
Most recently, Law No. 21,419 was issued on January 26, 2022, creating the universal guaranteed pension (“PGU” for its acronym in Spanish). This law guarantees a minimum pension of Ch$185,000 (or US$219.17) and an increase in pensions of people over 65 years old, who are not among the 10% richest people in Chile. Subsequently, on January 27, 2022, Law No. 21,420 was published in the Official Gazette, which, among other provisions, reduces or repeals, from September 2, 2022, onwards, certain tax exemptions and imposes taxes on activities and contracts that were not previously taxed, with the aim to, among other purposes, finance the PGU. See “Item 4. Information on the Company—B. Business Overview—Recent Regulatory Developments in Chile—Recent Tax Reforms and Future Changes in Chilean Tax Regulations.”
Amendments to Allow Withdrawal of 10% of the Pension Funds Administered by Pension Funds Managers
On April 20, 2020, the first bill proposing an amendment to the Chilean Constitution to allow individuals to exceptionally request a one-time withdrawal of 10% of their pension funds administered by the AFP due to the adverse economic and social effects of the COVID-19 pandemic was submitted to the Chilean Congress. This first bill was enacted into Law No. 21,248 on July 30, 2020, which introduced a transitory provision in the Chilean Constitution in order to allow this one-time withdrawal that could be requested by the individual until 365 days after the publication of the law.
Considering that the adverse effects of the COVID-19 pandemic persisted during 2020, on August 27, 2020, several congressmen presented a second bill of law to amend the Chilean Constitution and allow individuals to withdraw another 10% of their pension funds. However, since this bill was initiated by congressmen and has other constitutional and validity issues, the Constitutional Tribunal declared the unconstitutionality of the bill.
On November 11, 2020, the President of the Republic submitted to the Chilean Congress a third bill proposing to allow a second withdrawal by individuals of 10% of their pension funds. This bill was enacted into Law No. 21,295 on December 10, 2020, with similar conditions to the ones described under Law No. 21,248 except that it was not enacted as an amendment to the Chilean Constitution.
A third withdrawal of up to 10% of pension funds was authorized by Law No. 21,330, which was enacted on April 28, 2021. In addition to authorizing the withdrawal of up to 10% of pension funds, this law authorized the advance payment of annuities up to 10% of the value of the technical reserve that the pensioners had in the respective insurance companies. Several insurance companies filed actions in the courts of justice and the Constitutional Tribunal against the provisions of this law on the grounds that their property rights were affected. Some of these actions were accepted by the Constitutional Tribunal.
Government Actions to Address COVID-19
On September 30, 2021, the constitutional state of emergency under catastrophic circumstances that had been in effect in Chile since March 19, 2020, ended. The end of the state of emergency and the improved health conditions have led the government to withdraw several of the health and economic measures it had adopted because of the COVID-19 pandemic. However, in February 2022, former President Sebastián Piñera announced the extension until June 2022 of some subsidies, including the Emergency Family Income (known as IFE laboral). This benefit is an incentive that aims to encourage workers to be formally employed, granting them a subsidy of up to 60% of their remuneration.
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In addition, in April 2022, the Chilean Ministry of Finance announced the implementation of an economic recovery plan to address issues related to the COVID-19 pandemic and inflation. For such purpose, the government submitted to the Chilean National Congress several bills of law throughout the year 2022, which led to the approval of the following laws: (i) Law No. 21,443, published in April 22, 2022; (ii) Law No.21,456, published on May 26, 2022; (iii) Law No. 21,452, published on May 19, 2022; (iv) Law No. 21,465, published on June 14, 2022; and (v) Law No. 21,474, published on July 27, 2022. The enactment of such laws provided for the implementation of the following main measures:
1. Extending protection subsidies for people who have children up to four years of age and who are registered in the social registry of households.
2. Extending IFE laboral to until September 2022. The IFE laboral is an unemployment benefit to encourage workers to be formally employed, granting them a subsidy of up to 60% of their remuneration and payable for three months. It is financed with public funds and granted to workers who, after being previously unemployed, begin to render services under a formal labor relationship of dependency and subordination to a new employer in exchange for a monthly wage of maximum Ch$1,230,000 (approximately US$1,439).
3. In the event of a general lockdown, an IFE with broad coverage will be activated to help compensate families for the loss of income.
4. 30,000 cultural workers will be provided with a bonus of up to Ch$450,000 (approximately US$526) per person, to compensate for the decrease in their income during the COVID-19 pandemic.
5. Subsidies for regulated, regional and rural public transportation, in order to freeze fares for the entire public throughout the country.
6. Resources will be provided to contain the increase in kerosene, oil and gasoline prices.
7. To promote activity, employment, private investment and local power, a US$300 million fund will be created for new labor-intensive, green investment projects by municipalities, regional governments and public services.
8. The existing financing programs of the Chilean Corporation for the Development of Production (or “CORFO”, for its acronym in Spanish) will be strengthened, aimed at providing more loans to non-banking small and medium-sized companies within four years starting in August 2022. It will be implemented through non-bank financial intermediaries.
9. Guarantee programs will be made more flexible to support companies that did not have access to loans from the Guarantee Fund for Small Entrepreneurs (or “Fogape”, for its acronym in Spanish). In this regard, on December 3, 2022, Law No. 21,514 was published. This law created new credit lines guaranteed against the Fogape Fund with the purpose of financially supporting micro, small and medium-sized businesses. The guarantee will remain valid for a maximum of 12 years, regardless of the financing period. In addition, this law allows for the extension of the term of the loans granted before April 25, 2020, and guaranteed against the Fogape Fund, and the period of such guarantees may be extended up to 12 years counted from the date those loans were originally guaranteed.
10. The government announced that it has set the target of reaching a minimum wage of Ch$400,000 in 2022. A special support program will be designed for small and medium-sized companies facing difficulties.
The aforementioned measures were complemented by two bills of law submitted to the Chilean National Congress in January 2023, which led to the approval of Law No. 21,543, published on February 13, 2023; and Law No. 21,550, published on March 25, 2023. Such laws implement the following measures:
1. | The creation, increase and/or readjustment of subsidies for the most vulnerable families and individuals in order to counteract the inflationary pressure currently affecting the country (e.g., Aporte Familiar Permanente, Subsidio Único Familiar, Asignación Familiar and Bolsillo Familiar Electrónico). |
2. | The extension of the IFE laboral until the end of the first half of 2023. |
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3. | The creation of a permanent fund for guaranteeing the loans granted for the development of certain economic activities. In particular, this measure would: (i) confer guarantees against the referred permanent fund for loans granted to construction companies whose annual net sales exceed UF100,000 (approximately US$ 4.1 million); and (ii) guarantee up to 10% of the value of mortgaged loans in connection with the acquisition of a first residence for an amount equal to or less than UF4,500 (approximately US$ 184,943). |
On March 23, 2023, Decree No. 10/2023 of the Ministry of Health was published in the Official Gazette. It extends, until August 31, 2023, the status of the sanitary alert in Chile in response to the COVID-19. Such extension allows health authorities to exercise extraordinary powers to prevent the spread of COVID-19, or to take measures to address such emergency, such as powers to: (i) directly acquire goods, services and/or equipment necessary to address the emergency (e.g., without the need of tenders); (ii) order the isolation of persons infected with COVID-19, or other serious respiratory virus, or under suspicion of being infected with such illnesses; (iii) deny or restrict the entry of non-resident foreigners to Chile; and (iv) order the isolation of non-resident foreigners in case they are infected with COVID-19, or are under suspicion of being infected with such disease.
COLOMBIAN BANKING REGULATION AND SUPERVISION
Colombian Banking Regulators
Pursuant to the Colombian Constitution, the Colombian Congress has the power to prescribe the general legal framework within which the government may regulate the financial system. The agencies vested with the authority to regulate the financial system are the board of directors of the Central Bank of Colombia, the Colombian Ministry of Finance and Public Credit, the Colombian Financial Superintendency, the SIC, the Normative Projection and Financial Regulation Studies Unit (Unidad de Proyección Normativa y Estudios de Regulación Financiera, or the “URF”), the Deposit Insurance Fund (Fondo de Garantías de Instituciones Financieras, or the “FOGAFIN”) and the SRO.
Central Bank of Colombia
The Central Bank of Colombia exercises the customary functions of a central bank, including price stabilization, monetary policy, regulation of currency circulation, regulation of credit, exchange rate monitoring and management of international reserves. Its board of directors is the regulatory authority for monetary, currency exchange and credit policies, and is responsible for the direction of the Central Bank of Colombia’s duties. The Central Bank of Colombia also acts as lender of last resort to financial institutions.
Colombian Ministry of Finance and Public Credit
One of the functions of the Colombian Ministry of Finance and Public Credit is to regulate all aspects of finance and insurance activities. As part of its duties, the Colombian Ministry of Finance and Public Credit issues decrees relating to financial matters that may affect banking operations in Colombia. In particular, the Colombian Ministry of Finance and Public Credit is responsible for regulations relating to capital adequacy, risk limitations, authorized operations, disclosure of information and accounting of financial institutions.
Colombian Financial Superintendency
The Colombian Financial Superintendency is the authority responsible for supervising and regulating financial institutions, including commercial banks such as Itaú Colombia, finance companies, financial services companies and insurance companies. The Colombian Financial Superintendency has broad discretionary powers to supervise financial institutions, including the authority to impose fines on financial institutions and their directors and officers for violations of applicable regulations and certain judicial attributions regarding controversies among customers and banks. The Colombian Financial Superintendency can also conduct on-site inspections of Colombian financial institutions.
The Colombian Financial Superintendency is also responsible for monitoring and regulating the market for publicly traded securities in Colombia and for monitoring and supervising securities market participants, including the Colombian Stock Exchange, brokers, dealers, mutual funds and issuers.
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Financial institutions must obtain the prior authorization of the Colombian Financial Superintendency before commencing operations.
Violations of the financial system rules and regulations are subject to administrative, and in some cases, criminal sanctions.
Self-Regulatory Organization—SRO (Autorregulador del Mercado de Valores—AMV)
The SRO is a private entity responsible for the regulation of intermediaries participating in the Colombian capital markets. The SRO may issue mandatory instructions to its members and supervise its members’ compliance and impose sanctions for violations.
The sanctions of the SRO can coexist with the sanctions of the Colombian Financial Superintendency. Itaú Colombia and Itaú Asset Management Colombia are members of the SRO and are subject to its regulations.
Normative Projection and Financial Regulation Studies Unit (Unidad de Proyección Normativa y Estudios de Regulación Financiera—URF)
The URF, within the policy framework established by the Colombian Ministry of Finance and Public Credit and without prejudice to the board of directors of the Colombian Central Bank, is responsible for the preparation of regulations for the exercise of the power of regulation in exchange matters and monetary, credit, regulation and intervention in financial, stock market, insurance activities and any other activities related to the management, use and investment of the resources captured from the public, for their subsequent issuance by the Colombian government.
Deposit Insurance Fund (Fondo de Garantías de Instituciones Financieras)—FOGAFIN
The FOGAFIN is in charge of protecting the savings of citizens deposited in banks, financial corporations, financing companies, and companies specialized in SEDPEs that, by obligation, are registered in the FOGAFIN. The FOGAFIN is part of the Safety Network of the Colombian Financial System, formed by the Colombian Ministry of Finance and Public Credit, the Colombian Central Bank and the Colombian Financial Superintendency.
To protect the public’s savings and thereby ensure the stability of the financial sector, the FOGAFIN applies, if necessary, different support operations to its registered entities to reduce or minimize the adverse effects of crisis situations in the financial system; administers and pays out deposit insurance; and monitors financial entities in possession and in liquidation of such funds.
Capital Adequacy Requirements
Capital adequacy requirements for Colombian financial institutions (as set forth in Decree 2,555 of 2010, as amended, or “Decree 2,555”) are based on applicable Basel Committee standards. Decree 2,555 establishes three categories of assets, which are each assigned different risk weights, and require that a credit institution’s Technical Capital be at least 9% of that institution’s total risk-weighted assets.
Currently, Decree 2,555 sets forth, among other things:
● | that Technical Capital is the sum of ordinary basic capital (Patrimonio Básico Ordinario or tier one capital), additional basic capital (Patrimonio Básico Adicional or additional tier one), and secondary capital (Patrimonio Adicional or tier two capital); |
● | the criteria for debt and equity instruments to be considered ordinary basic capital, additional basic capital and secondary capital. The Colombian Financial Superintendency will review whether a given instrument adequately complies with these criteria in order for an instrument to be considered tier one, additional tier one or tier two capital, upon request of the issuer. Debt and equity instruments that have not been classified by the Colombian Financial Superintendency as ordinary basic capital or secondary capital, will not be considered tier one, additional tier one or tier two capital for purposes of capital adequacy requirements; |
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● | the minimum total solvency ratio of 9% of the financial institution’s technical capital divided by total risk-weighted assets; furthermore, each entity must comply with a minimum basic solvency ratio of 4.5%, which is defined as the ordinary basic capital after deductions divided by the financial institution’s total risk-weighted assets. In addition, solvency ratios must be met individually, by each credit institution, and must be met and monitored on a consolidated basis; |
● | that the calculation of the total solvency ratio will take into account operational risk; however the Colombian Financial Superintendency has not yet defined the methodology to be used to estimate such effect; and |
● | that credit institutions are able to include hybrids instruments designed to have characteristics of a fixed income and characteristics of equity market security, as part of its basic additional capital. |
When the solvency ratio of a financial institution is below 10%, the Colombian Financial Superintendency implements a closer supervision on banking activities of the entity based on the supervision policy implemented by the Colombian Financial Superintendency. If a bank fails to comply with the capital adequacy requirements applicable to Colombian financial institutions, it may be subject to certain penalties and sanctions that are graduated depending on the level of compliance failure, and which may include an administrative take-over by the government with the purpose of administration or liquidation.
On August 6, 2018, the Colombian Ministry of Finance and Public Credit issued Decree No. 1,477, amending Decree No. 2,555, regarding the capital adequacy requirements for financial institutions. Decree No. 1,477 creates two complementary ratio mechanisms called (i) additional primary solvency ratio (Relación de Solvencia Básica Adicional) and (ii) leverage ratio (Relación de Apalancamiento). Additional primary solvency ratio is defined as the sum of the ordinary basic capital net of deductions and the additional basic capital, divided by the value of the weighted assets by their level of credit and market risk. The additional primary solvency of a financial institution must be at least 6%. In the case of the leverage ratio, this term is defined as the sum of the ordinary basic capital net of deductions and the additional basic capital, divided by the leverage value. This leverage ratio must be at least 3%.
Furthermore, Decree No. 1,477 added the following buffers (Colchones), in order to increase both the quality and the amount of capital, to provide greater coverage to the risks assumed by the entity:
· | Conservation Buffer (Colchón de Conservación): 1.5% of RWA covered with ordinary basic capital; |
· | Buffer for entities of systemic importance (Colchón para las Entidades con Importancia Sistémica): 1.0% of RWA covered with ordinary basic capital; and |
· | Combined Buffer (Colchón Combinado). |
In addition, on August 6, 2019, the Colombian Ministry of Finance and Public Credit issued Decree No. 1,421, amending Decree No. 2,555, regarding capital adequacy requirements by operational risk for credit institutions. This Decree, among other matters, provides a formula for calculating the operational exposure value, using a business indicator (indicador de negocio) multiplied by the coefficient of operational risk (coeficiente de riesgo operacional) and by the internal loss (indicador de pérdida interna).
Financial institutions were required to comply with Decrees No. 1,477 and No. 1,421 since January 1, 2021, except on the matters regarding the additional primary solvency ratio and the buffers, which are subject to a four-year term gradual implementation, from January 2021 until January 2024.
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However, due to the COVID-19 pandemic, the Basel Committee announced on March 27, 2020, a series of measures aimed at providing additional operational capacity to enable financial entities and their supervisors to respond proactively to the impact that the COVID-19 pandemic has had on the global financial system. Among the measures designed are the following: (i) delaying the final implementation date of certain new Basel III regulations; and (ii) allowing financial institutions to adopt a new market risk framework and make clearer disclosures about their solvency ratios and leverage ratios. The measures adopted by the Basel Committee allow financial entities to allocate resources that were aimed at strengthening their solvency to respond to the adverse impact that the COVID-19 pandemic has had on global financial markets. The measures allow banks to have greater liquidity in order to promote financing to companies and households. Finally, through the measures implemented by the Basel Committee, supervisors will free up credit capacity by reducing the capital reserves that are required for banks in scenarios in which losses on loans must be covered. As of March 2023, several financial entities are implementing financial instruments to adapt to Basel III requirements.
Minimum Capital Requirements
The minimum capital requirement for banks on an unconsolidated basis set forth in the Financial System Organic Act was COP$100,492 million (Ch$20,503 million) for 2020, COP$102,110 million (Ch$20,037 million) for 2021, COP$107,849 million (Ch$22,681.7 million) for 2022, and COP$121,998 million (Ch$21,484 million) for 2023. Failure to meet such requirement can result in the relevant financial institution take over (Toma de Posesión) by the Colombian Financial Superintendency. Minimum capital requirements are adjusted in January each year based on the inflation percentage for the precedent year. The capital requirements for each type of financial institution (financial corporations, financing companies, trust companies, etc.) are different, with banks having the highest minimum amount. Additionally, there are capital requirements above this minimum for the purposes of credit exposure and derivatives transactions.
Capital Investment Limit
All investments in subsidiaries and other authorized capital investments, other than those made in order to abide by legal requirements, may not exceed 100% of the total aggregate of capital, equity reserves and the equity re-adjustment account of the respective bank, financial corporation or commercial finance company, excluding unadjusted fixed assets and including deductions for accumulated losses.
Mandatory Investments
The Central Bank of Colombia’s regulations require financial institutions, including Itaú Colombia, to make mandatory investments in securities issued by the Fund for the Financing of the Agricultural Sector (El Fondo para el Financiamiento del Sector Agropecuario, or the “Finagro”), a Colombian public financial institution that finances production and rural activities, to support the agricultural sector. The amount of these mandatory investments is calculated based on the current Colombian peso-denominated obligations of the relevant financial institution.
Foreign Currency Position Requirements
According to Resolution 1, issued by the Central Bank of Colombia issued in 2018, as amended, a financial institution’s foreign currency position (Posición Propia en Moneda Extranjera) is the difference between such institution’s foreign-currency-denominated assets and liabilities (including any off-balance sheet items), made or contingent, including those that may be sold in Colombian legal currency.
Resolution 1 provides that the average of a bank’s foreign currency position for three business days cannot exceed the equivalent in Colombian pesos of 20% of the bank’s Technical Capital. Currency exchange intermediaries such as Itaú Colombia are permitted to hold a three-business-days average negative foreign currency position not exceeding the equivalent in foreign currency of 5% of its Technical Capital (with penalties being payable after the first business day).
Resolution 1 also defines foreign currency position in cash (Posición Propia de Contado en Moneda Extranjera), as the difference between all foreign-currency-denominated assets and liabilities. A bank’s three business days average foreign currency position has no limit.
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Finally, Resolution 1 requires banks to comply with a gross position of leverage (Posición Bruta de Apalancamiento). Gross position of leverage is defined as the sum of (i) the rights and obligations of term and future contracts denominated in foreign currency, excluding obligations of a transaction that imply either the right or an obligation on foreign currency, plus (ii) foreign currency cash operations with settlement higher or equal to one banking day, excluding obligations of a transaction that imply either the right or an obligation on foreign currency, plus (iii) the exchange rate risk exposure associated with debtor and creditor contingencies acquired in the trading of exchange rate options and derivatives. Resolution 1 sets no limit on the gross position of leverage with respect to the currency position in cash.
Deposit Insurance
In Colombia, the FOGAFIN guarantees up to COP$50 million (US$10,395 as of December 31, 2022) per person, for each institution calculated as the aggregate amount of time, savings and demand deposits held by individuals in a Colombian financial institution. Payment will be made in case of an administrative compulsory liquidation of the financial institution.
Reserve Requirements
Commercial banks are required by the board of directors of the Central Bank of Colombia to satisfy reserve requirements with respect to deposits and other cash demands. Such reserves are held by the Central Bank of Colombia in the form of cash deposits. According to Resolution 5 of 2008 issued by the board of directors of the Central Bank of Colombia, as amended, the reserve requirements for Colombian banks are measured bi-weekly and the amounts depend on the class of deposits.
Credit institutions must maintain reserves of 8% over the following deposits, cash demands and other passive obligations:
● | Private demand deposits; |
● | Government demand deposits; |
● | Other deposits and liabilities; and |
● | Savings deposits. |
In addition, credit institutions must maintain reserves of 3.5% for term deposits with maturities under 18 months, but no reserves are required for term deposits with maturities that exceed 18 months.
Credit institutions may maintain these reserves in their accounts at the Central Bank of Colombia, or cash.
Marginal reserve requirements were eliminated by the Central Bank of Colombia in 2008. Since 2009, the reserve requirements have no remuneration.
Also, pursuant to the Circular Básica Contable y Financiera (Basic Accounting and Financial Circular), to measure liquidity risk exposure on internal models, banks are required to calculate a liquidity risk indicator (LRI) accumulated for the band periods of 7, 15 and 30 days, as established by the Colombian Financial Superintendency’s standard model.
Foreign Currency Loans
Residents of Colombia may obtain foreign currency loans from foreign residents and from Colombian currency exchange intermediaries or by placing debt securities abroad. Foreign currency loans must be either disbursed through a foreign exchange intermediary or deposited in offshore compensation accounts.
According to regulations issued by the Central Bank of Colombia, every Colombian resident and institution borrowing funds in foreign currency is generally required to post with the Central Bank of Colombia non-interest-bearing deposits for a specified term, although the size of the required deposit is currently zero.
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Notwithstanding the foregoing, such deposits would not be required in certain cases set forth in the External Resolution 1, including in the case of foreign currency loans aimed at financing Colombian investments abroad. Moreover, Resolution 1 sets forth a number of restrictions and limitations as to the use of proceeds in the case of foreign currency loans obtained by Colombian currency exchange intermediaries (including Itaú Colombia) and also provides that deposits would not be required in the event such restrictions and limitations are observed. Such foreign currency loans may be used, among others, for lending activities in a foreign currency with a tenor equal to, or shorter than, the tenor of the foreign financing.
As a general rule, interest payments to foreign currency loans granted by foreign residents to Colombian residents are currently subject to the following income tax rate: (i) the general tax rate applicable to entities that are not Colombian residents for tax purposes (35% as of 2023) in case the foreign resident is liable to file an income tax return in Colombia), and withholdings tax at 35% when such payments are made to entities located in a preferential tax regime jurisdiction, non-cooperative jurisdiction or low-tax jurisdiction, according to paragraph of section 408 of the Colombian Tax Code; (ii) 5% when those interest payments are (a) derived from loans with an eight-year or longer term and (b) related to infrastructure projects under Law 1,508 of 2012; (iii) 15% when interest payments are related to a loan of one year or longer; and (iv) 20% as a general rule (i.e., in cases other than (i), (ii) and (iii) above) according to section 408 of the Colombian Tax Code. The withholdings are the final income tax and thus the foreign resident would not have to file an income tax return in Colombia if they are applied.
Finally, pursuant to Law 9 of 1991, the board of directors of the Central Bank of Colombia is entitled to impose conditions and limitations on the incurrence of foreign currency indebtedness, as an exchange control policy, in order to avoid pressure in the currency exchange market.
Non-Performing Loan Allowance
The Colombian Financial Superintendency maintains guidelines on non-performing loan allowances for financial institutions. This information has been provided in order to provide the reader with a more in-depth analysis. Notwithstanding, our allowance and provision for loan losses as recorded in our consolidated financial statements included herein have been determined in accordance with IFRS.
Recent Regulatory Developments in Colombia
Tax Reform (2022-2023)
On December 13, 2022, a new tax reform for the equality and social justice was approved through Law 2,277. This Law modified section 240 the Colombian Tax Code which includes the corporate income tax rates. The table below sets forth the rates that will apply to financial entities until year 2027.
2023 | 2024 | 2025 | 2026 | 2027 | 2028 and onwards | ||
General tax rate | 35% | 35% | 35% | 35% | 35% | 35% | |
Surcharge | 5% | 5% | 5% | 5% | 5% | 0% | |
Total | 40% | 40% | 40% | 40% | 40% | 35% | |
● | Financial entities are subject to a corporate income tax rate of 40% (regular income tax rate of 35% plus a surcharge of 5%) in the years 2023 to 2027 if the net taxable income is or exceeds 120.000 UVTs (taxable units), which currently amounts to approximately US$1.1 million. The value of one UVT is $42.412 or approximately US$9 for the year 2023. |
● | Section 36-1 of the Colombian Tax Code was modified and, starting in 2023, profits from the sale of shares registered on the Colombian Stock Exchange, with the same final beneficiary, will not be subject to capital gains taxation (ordinary income or occasional gain) when the sale does not exceed 3% of the outstanding shares of the respective company in the same tax year. Until year 2022, the threshold was 10%. |
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● | The industry and trade tax (ICA as per its abbreviation in Spanish) will no longer be creditable against the income tax, but can only be deducted from the income of the taxpayer. |
● | The 50% of the financial movement tax (GMF as per its abbreviation in Spanish ) continues to be deductible against the income of the taxpayer. |
● | For national and foreign companies, and their respective permanent establishments, the benefits of certain non-taxable income, non-taxable capital gain, exempt income, special deductions, and tax credits may not exceed 3% of the annual net taxable income calculated before the limited benefits. |
● | A new minimum tax rate was introduced for companies (excluding the foreign entities without residence in the country), that is calculated based on the adjusted financial profit. The minimum tax rate shall be at least 15% and would be the result of dividing the income tax after certain adjustments (as the numerator) by the financial profit before taxes and after certain adjustments (as the denominator). The minimum tax rate will not apply to taxpayers without consolidated financial statements with an adjusted income that equals or is below to zero, or to those taxpayers with consolidated financial statements with a consolidated adjusted income that equals or is below to zero. |
● | The tax rate on dividends distributed to foreign companies, out of profits that were taxed at the corporate level is 20% for 2023 and onwards. The new bundled rate on dividends distributed to foreign entities, out of profits non-taxed at the level of the distributing entity, is 48%. |
● | The dividends distributed between Colombian companies are subject to a 10% withholding tax rate, which may be offset as a tax credit by the beneficial owner (either an individual tax resident or a foreign investor) against its withholding tax on dividends. Dividends distributed among Colombian entities duly registered as a corporate group or under a controlled situation (situación de control) before the Chamber of Commerce and to Colombian holding companies (CHC as per its acronym in Spanish), are not subject to this withholding tax. |
● | The new rate on capital gains (e.g., profits on the sale of fixed assets held for two years or more) would be 15%. |
● | A new equity tax was introduced. While national companies are not subject to this tax, foreign entities (such as the Bank) that are not obliged to file an income tax return will be subject to taxation on assets owned in Colombia other than shares, receivables, and portfolio investments. The taxable event will be the possession of equity on January 1 of each year that equals or exceeds 72,000 UVTs (US$ 634,857 for year 2023) and the rates would range from 0% to 1.5% (reduced to 1% as from year 2027). |
● | The law maintained the following provisions from previous legislation: |
o | Private equity funds and collective investment funds remain as non-taxpayers and its beneficiaries may defer the realization of income provided certain conditions are met, |
o | Input VAT in the acquisition of fixed assets may be treated as a tax credit and may be offset against the income tax due. |
o | The thin capitalization rule will apply only to indebtedness between related parties. If the debt-to-equity ratio is in excess of 2:1, interest payable on any such excess debt amount is not deductible. For the deductibility of interest, taxpayers will have to prove to the Colombian Tax Administration, upon request and through a certification of the creditor issued under oath, that there is no indebtedness between related parties through back-to-back operations or any other kind of operation in which the creditor is a substantially related party. In such case, the parties involved in the operation may be jointly liable for the taxes, sanctions and interest. |
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o | Colombia may levy a capital gains tax on the sale of shares of a non-Colombian entity when such non-Colombian entity owns directly or indirectly assets/shares in Colombia (enajenaciones indirectas). |
o | Entities and individuals involved in operations considered as tax abuse or tax fraud by the Colombian Tax Administration may be jointly liable for the taxes, sanctions and interest, pursuant to Section 793 of the Colombian Tax Code. |
o | The definition of beneficial owner is now unified. The registry of beneficial owners includes both legal entities and non-legal entities and structures. |
o | The percentage of net equity to calculate “the deemed income” (renta presuntiva) remains at 0%. |
Specialized Electronic Deposit and Payment Institutions (Sociedades Especializadas en Depósitos y Pagos Electrónicos, or “SEDPE”)
On December 7, 2017, the Colombian Ministry of Finance and Public Credit issued its Decree No. 2,076, which amended Decree No. 2,555 to, among other things: (i) provide that SEDPEs shall establish a consumer advocate to protect consumers’ rights, (ii) authorize SEDPEs the use of correspondent networks and establish rules regarding cash payments through the correspondent network, (iii) authorize SEDPEs the opening of accounts through non-presential means, and (iv) authorize SEDPEs customers to have more than one account per SEDPE.
In February 2020, the Colombian Ministry of Finance and Public Credit issued Decree 222 of 2020 that modifies Decree 2,555 which regulates, among other instruments, low-amount deposits, low-amount credits, correspondents and microcredit. This decree was created to channel resources during the COVID-19 pandemic. One of the features is, among others, that people will be able to open low-amount demand deposits in SEDPEs and cooperatives with specific characteristics of the amount through a simplified procedure.
On April 11, 2020, the Colombian Financial Superintendency issued External Circular No. 15 to impart instructions related to the treatment of resources injected by the Colombian government through SEDPEs within the framework of the Solidarity Income Program. This regulatory instrument was later amended by the External Circular No. 32, to add new instructions related to abusive practices and the automatic debit.
On August 2020, the board of directors of the Financial Institutions Securities Fund (Fondo de Garantías de Instituciones Financieras) issued Resolution No. 03 of 2020 to regulate the Financial Institutions Securities Fund Insurance Policies, which cover the deposits collected through SEDPEs in the event of a compulsory administrative liquidation.
Financial Conglomerates
On September 21, 2017, Law 1,870 was enacted. This law establishes that financial holdings will be subject to the inspection and oversight of the Colombian Financial Superintendency under the terms of said law and of the decrees issued in the future for this regulation. A financial holding is understood as any legal person or investment vehicle that exercises the first level of control or significant influence over the entities that make up the financial conglomerate. Furthermore, this law gives the Colombian Financial Superintendency the option to request information regarding the members of the financial conglomerate to verify if they meet requirements regarding: (i) the appropriate levels of capital; (ii) solvency margins; (iii) exposure limits; and (iv) concentration risks. Also, this law permits the Colombian Financial Superintendency to verify if each member entity of the conglomerate complies with applicable regulations in relation to risk management, internal control, disclosure of information, conflicts of interest, and corporate governance. Such requirements will not be applicable if the foreign financial holding proves to the Colombian Financial Superintendency that is already subject to an equivalent regime of prudential regulation and consolidated supervision.
As a result, the Colombian Ministry of Finance and Public Credit enacted (i) Decree 246 of 2018 to provide criteria to exclude certain entities from the financial conglomerates, (ii) Decree 774 of 2018 to determine appropriate levels of capital
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for financial conglomerates, and (iii) Decree 1,486 of 2018 to establish criteria for determining linked entities, exposure limits, risk concentration and conflicts of interest of financial conglomerates.
In addition, the Colombian Financial Superintendency issued (i) External Circular No. 012 of 2019, regarding appropriate levels of capital for financial conglomerates and (ii) External Circular No. 013 of 2019 giving instructions related to the Risk Management Framework for Financial Conglomerates (Marco de Gestión de Riesgos para los Conglomerados Financieros).
Further, the Colombian Financial Superintendency issued External Circular No. 030 of 2020, which sets forth rules applicable to related parties, exposure limits and concentration of risks of financial conglomerates. External Circular No.041 of 2020 further modifies existing rules to control aggregate exposure limits and risk concentration between entities of a financial conglomerate and their related parties.
Finally, the Colombian Financial Superintendency issued Resolution 826 of 2022, pursuant to which it defines the policies and rules applicable to the supervision of the financial conglomerates under an integral supervision scheme.
Properties and Investments of Financial Institutions
On November 30, 2017, the Colombian Financial Superintendency issued its external Circular No. 33, which amends Chapter V, Title I, Part I of the Basic Legal Circular, with the purpose of updating the accounts that compute the calculation of fixed assets and investments.
On December 19, 2019, the Colombian Financial Superintendency modified Chapter XVIII of its Basic Financial Circular to adjust the requirements for the management and measurement of risks associated to transactions in derivative operations and structured products. The financial institutions were required to implement these modifications by December 31, 2020.
In addition, in March and April of 2020, the Colombian Financial Superintendency issued instructions related to the strengthening of operational risk management and the adoption of measures to mitigate negative effects in response to the adverse financial and economic impact of the COVID-19 pandemic.
Capital Adequacy levels for Financial Conglomerates
On May 8, 2018, the Colombian Ministry of Finance and Public Credit issued Decree No. 774, amending Decree No. 2,555, which regulates the adequate capital levels that must be complied with by financial conglomerates. Applicable financial institutions will have an 18-month term to comply with Decree No. 774.
Foreign Exchange
On May 25, 2018, the Central Bank of Colombia issued External Resolution No. 1, repealing the previous resolutions on foreign exchange, compiling and amending various matters on this subject that were established on External Resolutions (i) 8 of 2000, (ii) 3 of 2006, (iii) 1 of 2012, (iv) 9 of 2013, (v) 6 of 2015, and (vi) 3 of 2016. External Resolution No. 1 defines the parameters of the intervention of the Colombian Central Bank in the foreign exchange market and the mechanisms to channel foreign currency into the Colombian exchange system.
Microcredits segmentation
On March 29, 2023, the Ministry of Finance and Public Credit issued Decree 455 of 2023, segmenting the microcredit product into modalities whose interest rates must be certified by the Colombian Financial Superintendency and modifying the rules related to the methodology to be applied by the Colombian Financial Superintendency in the calculation of the current banking interest rate. This rule aims at developing the Credit Inclusion Policy that has been implemented by the government to promote sustainable financing of the different productive activities developed in the country.
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The segmentation of current banking interest is focused on the amounts and uses of funds, rather than on the legal modality of the operation. Under this regulation, the Colombian Financial Superintendency issued Resolution No. 0,475 of 2023, certifying the current banking interests for the new modalities, which will remain in force from April 1, 2023, until September 30, 2023.
Cybersecurity and Technology
On, June 5, 2018, the Colombian Financial Superintendency issued External Circular No. 007, which sets the minimum requirements that must be set by entities supervised by the Colombian Financial Superintendency in their management systems for cybersecurity risks.
In addition, in 2019, the Colombian Financial Superintendency issued the following regulations: (i) External Circular No. 005, regarding the minimum requirements for the use of cloud services by its supervised entities; (ii) External Circular No. 006, which provides instructions related to safety and quality of operations using QR codes; and (iii) External Circular No. 029, which sets forth the minimum security and quality requirements for carrying out operations, access and information for financial consumers and the use of biometric factors.
In addition, the Colombian Financial Superintendency issued External Circular No.033 of 2020, which (i) regulates the minimum requirements for the management of information security and cybersecurity and (ii) defines the single taxonomy for the reporting of cybersecurity incidents by adopting the Traffic Light Protocol (TLP) for the report of cyber incidents to the Colombian regulator.
Investments in Companies of Innovation and Financial Technology
On December 27, 2018, the Colombian Ministry of Finance and Public Credit issued Decree No. 2,443, amending Decree No. 2,555, authorizing credit establishments to invest in companies, which sole purpose is to develop and /or apply innovations and technology related to the corporate purpose of the investing credit establishment. On October 7, 2021, the Colombian Financial Superintendency issued the External Circular 019 providing instructions regarding the development of the advisory activity in the securities market, criteria for the classification of simple or complex products and their distribution, and requirements for the implementation of technological tools for the provision of professional recommendations.
Advisory Regime Regulation
On April 17, 2018, the Colombian Presidency issued Decree 661 of 2018, which regulates the advisory regime for financial entities advising on investment decisions and the instruments required for investors to be able to make investment decisions. This regulation provides a transition period for its application and became binding as of June 2022. As described above, on October 7, 2021, the Colombian Financial Superintendency issued the External Circular 019 providing, among other things, requirements for the implementation of technological tools for the provision of professional recommendations. The Colombian Financial Superintendency also provided guidelines to be complied with by supervised entities that use technological tools for the provision of such recommendations.
Controlled Area for Financial Innovation Activities
On August 26, 2021, the Colombian Financial Superintendency issued External Circular No. 0016 to include Chapter VIII of Title I, Part I of the Basic Legal Circular, which sets out the parameters related to the provisions applicable in the controlled test area for financial innovation activities. This new chapter of the Basic Legal Circular establishes guidelines on (i) accessing the controlled area, (ii) the request of authorization to operate within the controlled area, and (iii) finalization of the operation in the controlled area.
Technical equity regime for companies that administer third party funds
On February 3, 2022, the Colombian Ministry of Finance and Public Credit issued Decree 175 of 2022, which modifies the technical equity regime for trust companies, pension management companies, stock brokerage firms, and investment
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management companies (Sociedades Administradoras de Fondos de Terceros). This Decree increases the equity requirements for these types of financial institutions and is aimed at giving them greater financial strength in the event of events that could cause them to lose significant equity.
For the reasons mentioned above, and despite the fact that these companies have enough shareholders-equity that allow them to face loss events, the Colombian Ministry of Finance and Public Credit decided to issue this Decree to incorporate international standards and recommendations on the quality of technical equity and update the methodologies for measuring risks associated with the nature of the operations carried out by these entities.
The Decree does this through three actions: (i) establishing that the solvency ratio must be met both individually and on a consolidated basis; (ii) implementing the criteria established by the Basel Committee on Banking Supervision for the classification of equity and debt in the technical equity; and (iii) establishing a unified definition of technical equity for these companies.
On February 3, 2023, the Colombian Financial Superintendency issued External Circular No. 003 of 2023 to regulate the classification of equity and debt that these companies must meet to comply with the Decree and strengthen their technical equity. Pursuant to this Circular, such companies must submit an implementation plan for the instructions of Decree 175 and the Circular by April 28, 2023, and the provisions of both standards will be fully enforceable on February 3, 2024.
Colombia, Peru, and Chile stock exchanges integration
The stock exchanges of Santiago (Chile), Colombia, and Lima (Peru) are currently conducting a process towards their integration which, at a corporate level, consists of the creation, through a merger, of a regional holding company. The holding company, to be created through a merger to be approved by the shareholders of each of the stock exchanges, would be based in Chile, and it intends to increase the number of debt issuers, attract international participation, increase regional investment in pension funds and up the volume of derivatives.
The proposed integration is currently expected to be in a position to commence formal operations at the beginning of 2024. The initiative seeks to take advantage of the geographical proximity, affinity in economic policy and the size of their markets to achieve integration, although without ignoring the historical regulatory and fiscal limits that need to be solved to materialize the proposal, something that the Latin American Integrated Market (MILA) did not fully achieve when it was created in 2010.
The participation of Itaú Chile in the proposed integration through the contribution of its shares in the Santiago and Colombian stock exchanges into the future regional holding company, and to vote in favor of the merger, is subject to the prior approval from the banking regulators in Chile and Brazil.
ANTI-MONEY LAUNDERING, ANTI-TERRORIST FINANCING AND FOREIGN CORRUPT PRACTICES ACT REGULATIONS
United States
We, as a foreign private issuer whose securities are registered under the Exchange Act, are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the “FCPA”. The FCPA generally prohibits issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. The accounting provisions of the FCPA require an issuer to maintain books and records and have a system of internal accounting controls sufficient to, among other things, provide reasonable assurances that transactions are executed and assets are accessed and accounted for in accordance with management’s authorization. Significant penalties and fines may be imposed against us, and/or our officers, directors, employees, and agents, for violations of the FCPA. Furthermore, we may be subject to a variety of U.S. anti-money laundering and anti-terrorist financing laws and regulations, including, but not limited to, the Bank Secrecy Act of 1970, as amended, and the USA PATRIOT Act of 2001, as amended. A violation of such laws and regulations may result in substantial penalties, fines and imprisonment of our officers and/or directors.
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Chile
The Anti-Money Laundering Act No. 19,913, or the “AML Act”, requires banks, among others, to report any “suspicious transactions or activities” that they may become aware of in the ordinary course of business to the Chilean Financial Analysis Unit (Unidad de Análisis Financiero), or “FAU”. “Suspicious activities or transactions” are defined by the AML Act as any act, operation or transaction that, in accordance with the uses and customs of the relevant activity, is considered unusual or devoid of apparent economic or legal justification or that may constitute any of the actions described in Article 8 of Law No. 18,314 (terrorist actions), or entered into by an individual or a legal entity included in any resolution issued by the United Nations Security Council, whether carried out in an isolated or recurrent basis.
According to Article 27 of the AML act, the crime of money laundering consists of concealing or disguising the illicit origin of money or goods knowing that they proceed from certain crimes, or acquiring, possessing, or using them knowing or ought to know that they have an illicit origin.
In accordance with the AML Act, banks must keep special records for any transaction in cash for amounts exceeding US$10,000, and report them to the FAU if so required by the latter authority.
In addition, the entities subject to the AML Act are also subject to Circular No. 49, amended by Circular No. 59 and Circular No. 60, and other regulations issued by the FAU (including Circular No. 57), which provides additional guidelines for the prevention of money laundering.
With regard to Chilean banks, the CMF has also provided rules and guidelines for banks to set up an AML and Combating Financing of Terrorism, or “CFT”, prevention system applicable in their ordinary course of business, which must take into consideration the volume and complexity of their transactions, including their affiliates and supporting entities, and their international presence. In case of non-compliance of these rules and guidelines, the CMF may impose administrative sanctions upon the infringing bank such as fines and warnings. Among other requirements, such system shall include at least (1) “know your customer” policies, (2) a manual of policies and procedures, (3) the appointment of a compliance officer, and (4) all necessary technological tools to develop red-flag systems to identify and detect unusual operations.
On December 2, 2009, Chilean Law No. 20,393 came into effect. Law No. 20,393 regulates and provides for the criminal liability of legal entities for certain crimes, such as money laundering, financing of terrorism, bribery, misappropriation (Apropiación Indebida), unfair administration (Administración Desleal), incompatible negotiation (Negociación Incompatible), and corruption between private parties (Corrupción entre Particulares). Pursuant to Law No. 20,393, a legal entity will be exempted from criminal liability if it has adopted and implemented a crime prevention model (Modelo de Prevención de Delitos) which shall include, at a minimum, (i) the appointment of a compliance officer, who shall be given enough powers and resources to exercise its duties and (ii) a system to prevent the commission of crimes, which must be certified by external auditors, the respective risk classification entities and other specialized entities registered with the CMF. In this regard, Itaú Chile and its subsidiaries have adopted and implemented a Crime Prevention Model which has been certified by BH Compliance Limitada. Finally, on November 9, 2022, CMF published Circular No. 2,325, which updates the regulations on the prevention of money laundering, terrorism financing, and proliferation of weapons of massive destruction, considering the recommendations of the International Financial Action Task Force, or “FATF”. It gives a special focus on the minimum level of information that must be maintained for electronic transfer of funds, risk assessment in due diligence processes, and the relationship with correspondent banks. Moreover, it considers it important to raise the risks related to the proliferation of weapons of massive destruction and the importance of considering the results of the initiatives of the intersectional board and of the National Strategy to Prevent and Combat Money Laundering and Terrorism Financing. It also emphasizes the measures that must be taken for the identification of the ultimate beneficiary owner and the evaluation of politically exposed persons.
In 2015, Law No. 20,818 was enacted, amending certain provisions of the AML Act by: (i) increasing the authority of the FAU; (ii) increasing the scope of entities that are subject to the AML Act; (iii) amending the definition of “suspicious activities or transactions”; (iv) reducing the minimum amounts of the cash transactions to be registered and potentially reported to the FAU; (v) amending the sanctions applicable to any breach to the AML Act; (vi) adding new
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base crimes for the crime of money laundering; (vii) requiring entities subject to the AML Act to report to the FAU any transaction entered into by any individual or entity contained in any resolution issued by the United Nations Security Council; and (viii) establishing the obligation of the entities subject to the AML Act to register with the FAU, among other things.
In 2018, Law No. 21,121 was enacted amending, among others, the AML Act by including misappropriation (Apropiación Indebida) and unfair administration (Administración Desleal) as crimes of money laundering. In February 2020, Law No. 21,211 and, in April 2021, Law No. 21,314 further amended the AML Act by (i) increasing the authority of the FAU; and (ii) supplementing its existing attributions. In June 2022, Law No. 21,459 on cybercrimes was enacted, adding the following crimes in the context of money laundering under the AML Act, and of criminal liability of legal entities under Law No. 20,393: attack to the integrity of a computing system; illicit access to a computing system; illicit interception of digital communication; attack to a digital data; computing falsification; receiving of digital data (receptación de información obtenida a partir de un cibercrimen); computing fraud; and abuse of devices for a cybercrime. Further on, in September 2022, Law No. 21,488 was enacted, amending the AML act to include the crime of illegal commerce described in the Tax Code (Article 97, No. 8 and 9) among the offenses that may give rise to money laundering. The same Law introduced an amendment to Law 20,393, including human trafficking (trata de personas), holding of stolen goods (receptación), and timber theft (robo de madera) in the list of crimes that could trigger criminal liability for legal entities.
Colombia
The regulatory framework to prevent and control money laundering and terrorism financing is established by, among others, Decree 663 of 1993, and External Circular No. 029 of 2014 (Basic Legal Circular), Part I, Title IV, Chapter IV, “Instructions Related to Risk Management of Laundering and Terrorist Financing,” as amended by External Circular No. 011 of 2022, and Part III, Title I, Chapter VII, “SARLAFT for Securities Issuers”, issued by the Colombian Financial Superintendency, as well as Law 599 of 2000 (Colombian Criminal Code, as amended).
Colombian laws adopt the latest guidelines related to anti-money laundering and other terrorist activities established by the FATF. Colombia, as a member of the GAFI-SUD (Grupo de Acción Financiera de Sudamérica) (a FATF style regional body), follows all of FATF’s 41 recommendations.
Anti-money laundering provisions have been complemented with provisions aimed at deterring terrorism financing. For that purpose, by means of External Circular No. 029 of 2014 (Basic Legal Circular), Part I, Title IV, Chapter IV, the Colombian Financial Superintendency has issued regulations requiring the implementation by financial institutions of a risk management system for money laundering and terrorism financing. These regulations emphasize “know your customer” policies and knowledge of customers and markets. They also establish processes and parameters to identify and monitor a financial institution’s customers and implement independent matrices for the measurement and management of money laundering risk and terrorist financing. According to these regulations, financial institutions must cooperate with the appropriate authorities to prevent and control money laundering and terrorism.
In addition, the Colombian Financial Superintendency issued External Circular No. 11 of 2022, which includes several new provisions. The most relevant provisions include, among others, the inclusion of the concept of high management in PEP’s discovery process, the alignment of the concept of Suspicious Operations Reporting with FATF Recommendation No. 10, the recognition of the complementary definition of ultimate beneficiary provided under tax law, the admission of the concept of investment vehicles and the changes in deadlines for tax assessments and internal audits.
For Securities Issuers, the Colombian Financial Superintendency also established an independent FAFT set of policies and procedures, aimed at preventing and controlling the risk of money laundering or terrorism financing in new securities issuances through appropriate investor knowledge procedures.
In any case, the scope of the customer knowledge procedures applicable to the employees, suppliers and administrators (in terms of Article 22 of Law 222 of 1995) of the supervised entity, must include, as a minimum,
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compliance with the subnumeral 4.2.2.1.4 of the chapter, provided that such measure allows the supervised entity to carry out an adequate and effective management of FATF risk according to its FATF risk analysis.
In addition to Law 1,778, the Colombian Congress enacted Law 2,014 of 2019, which permanently bans companies from entering contracts with the Colombian government if employees, directors, partners, final beneficiaries, shareholders, or administrators (in terms of Article 22 of Law 1995 of 2022) if such companies have been criminally convicted of acts of corruption. This ban extends to the companies’ parent corporations, their subsidiaries, and all their employees, directors, partners, final beneficiaries, shareholders, or administrators.
Regarding foreign corrupt practices regulations, the Colombian Congress enacted Law 2,195, of 2022, which increases the administrative liability for acts of corruption. This Law establishes that if a company’s employee, shareholder, or manager (in terms of Article 22 of Law 222 of 1995) is criminally convicted of acts of corruption (defined by Article 3 of Law 2,195), the company can be administratively convicted if it benefited from the act of corruption, promoted it, was used for its commission, or by negligence tolerated it. Sanctions include fines of up to 200,000 Colombian current monthly legal minimum wages (COP232,000,000,000 or approximately US$48,120,000), the removal of the company’s administrators or employees, the banning to the company from receiving subsidies from the Colombian government for 10 years, the publication of the administrative conviction in the company’s website for a year and piercing of the corporate veil. Law 2,195 also establishes a requirement for all companies in Colombia to investigate its counterpart’s ownership structure, and especially for its final beneficiaries (i.e., natural persons who, directly or indirectly, own or control 5% or more of the company’s stock or voting rights), when undertaking due diligence activities for know-your-counterpart purposes. For financial institutions, this obligation to inquire extends to all shareholders and stakeholders of a counterpart, pursuant to the Basic Legal Circular of the Colombian Financial Superintendency. The duty of due diligence established in Article 12 of Law 2,195 of 2022 is an obligation of means and not of result. More specifically, it is an obligation imposed on the subject entities to require information on the beneficial owners of their counterparties and take all reasonable measures to have an adequate knowledge of their counterparties, their ownership and control structure, and other relevant information, commensurate with the level of risk of each counterparty. The inspection, control, and surveillance entities (including the Colombian Financial Superintendency and Superintendence of Companies) were expected to define, within six months after the enactment of the law, the conditions under which due diligence processes must be carried out and the penalties for non-compliance. However, to date, the referred regulations have not been issued yet.
Finally, the Colombian Criminal Code includes rules and regulations to prevent, control, detect, eliminate and adjudicate all matters related to financing terrorism and money laundering. The criminal rules and regulations cover the omission of reports on cash transactions, and the lack of controls.
SELECTED STATISTICAL INFORMATION
The following information is included for analytical purposes and should be read in conjunction with our consolidated financial statements as well as “Item 5. Operating and Financial Review and Prospects.” Unless otherwise indicated, financial data in the following tables as of December 31, 2020, 2021 and 2022 has been expressed in Chilean pesos as of December 31, 2022. The UF is linked to, and is adjusted daily to reflect changes in, the previous month’s CPI.
Average Balance Sheets, Income Earned from Interest-Earning Assets, and Interest Paid on Interest-Bearing Liabilities
The average balances for interest-earning assets and interest-bearing liabilities, including interest and readjustments received and paid, have been calculated on the basis of monthly balances on an unconsolidated basis. Unless otherwise set forth herein, such average balances as they apply to the operations of our subsidiaries were calculated on the basis of month-end balances. Such average balances are presented in Chilean pesos, in UFs and in foreign currencies (principally US$).
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The nominal interest rate has been calculated by dividing the amount of interest and principal readjustment due to changes in the UF index (gain or loss) during the period by the related average balance, both amounts expressed in Chilean pesos. The nominal rates calculated for each period have been converted into real rates using the following formulas:
Rp= | 1 + Np | -1 | Rd= | (1 + Nd)(1 + D) | -1 |
1 + I | 1+I |
Where:
Rp= real average interest rate for Chilean peso-denominated assets and liabilities (in Ch$ and UF) for the period,
Rd= real average interest rate for foreign currency denominated assets and liabilities for the period,
Np= average nominal interest rate for Chilean peso-denominated assets and liabilities for the period,
Nd= average nominal interest rate for foreign currency denominated assets and liabilities for the period,
D= devaluation rate of the Chilean peso to the U.S. dollar for the period, and
I= inflation rate in Chile for the period (based on the variation of the Chilean consumer price index).
The real interest rate can be negative for a portfolio of Chilean peso-denominated loans when the inflation rate for the period is higher than the average nominal rate of the loan portfolio for the same period. A similar effect could occur for a portfolio of foreign currency denominated loans when the inflation rate for the period is higher than the sum of the devaluation rate for the period and the corresponding average nominal rate of the portfolio. The formula for the average real rate for foreign currency denominated assets and liabilities (Rd) reflects a gain or loss in purchasing power caused by the difference between the devaluation rate of the Chilean peso and the inflation rate in Chile during the period.
The following example illustrates the calculation of the real interest rate for a dollar-denominated asset bearing a nominal annual interest rate of 10% (Nd = 0.10), assuming a 5% annual devaluation rate (D = 0.05) and a 12% annual inflation rate (I = 0.12):
Rd= | (1 + 0.10)(1 + 0.05) | -1= 3.125% per year |
1 + 0.12 |
In the example, since the inflation rate was higher than the devaluation rate, the real rate is lower than the nominal rate in dollars. If, for example, the annual devaluation rate were 15%, using the same numbers, the real rate in Chilean pesos would be 12.9%, which is higher than the nominal rate in U.S. dollars. Using the initial example, if the annual inflation rate were greater than 15.5%, the real rate would be negative.
Interest and average balances have been calculated by taking into consideration the following:
● | Foreign exchange gains or losses on foreign currency denominated assets and liabilities have not been included in interest income or expense; |
● | Interest on financial investments does not include trading gains or losses on these investments; |
● | Past due loans only include the payments that are 90 or more days overdue, and do not include the portion of such loan that is not overdue (principal amount) or those payments which are less than 90 days overdue, unless legal proceedings have been commenced for the entire outstanding balance according to the terms of the loan. This practice differs from that normally followed in the United States where the amount classified as past due would include the total principal, payments and interest on all loans which have any portion overdue; |
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● | Penalty interest is not recognized on past due payments (loans with more than one payment) or past due loans (one payment); |
● | The interest earned from past due loans is only the proportion of interest earned on each of these payments. We do not accrue penalty interest on these payments; |
● | Loans that are not yet 90 days or more overdue have been included in each of the various categories of loans, and affect the various averages; |
● | Non-performing commercial loans (those loans which do not accrue interest) consist of loans included in Categories C4-C6 and loans (or portions thereof) that are overdue; |
● | Included in loans and receivables to banks are interbank deposits maintained in the Central Bank of Chile and foreign banks. Such assets have a distorting effect on the average interest rate earned on total interest-earning assets because currently balances maintained in Chilean peso amounts do not earn interest, and the only balances held in a foreign currency that earn interest are those maintained in U.S. dollars, but those only earn interest on the amounts that are legally required to be held for liquidity purposes. Additionally, this account includes interest earned by overnight investments. Consequently, the average interest earned on such assets is comparatively low. We maintain these deposits in these accounts to comply with statutory requirements and to facilitate international business, rather than to earn income; and |
● | The monetary gain or loss on interest-earning assets and interest-bearing liabilities is not included as a component of interest income or interest expense because inflation effects are taken into account in the calculation of real interest rates. |
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The following tables show, by currency of denomination, average balances and, where applicable, interest amounts, nominal rates and rates for our assets and liabilities for the years ended December 31, 2020, 2021 and 2022.
Year Ended December 31, |
| ||||||||||||||||||||||||
2020 | 2021 | 2022 |
| ||||||||||||||||||||||
| Average | Inflation | Average | Inflation | Average | Inflation |
| ||||||||||||||||||
Average | Interest | Nominal | Adjusted | Average | Interest | Nominal | Adjusted | Average | Interest | Nominal | Adjusted |
| |||||||||||||
| Balance |
| Earned |
| Rate |
| Yield |
| Balance |
| Earned |
| Rate |
| Yield |
| Balance |
| Earned |
| Rate |
| Yield | ||
(in millions of Ch$ except for percentages) | |||||||||||||||||||||||||
INTEREST EARNING ASSETS | |||||||||||||||||||||||||
Deposits in Central Bank | |||||||||||||||||||||||||
Ch$ |
| 1,326,438 |
| 2,708 |
| 0.2 | % | (2.7) | % | 1,215,013 | 7,255 | 0.6 | % | (6.2) | % | 676,600 | 44,644 | 6.6 | % | (5.5) | % | ||||
UF |
| — |
| — |
| — | — | % | — | — | — | — | — | — | — | — | |||||||||
Foreign currency |
| 25,104 |
| 861 |
| 3.4 | % | 8.2 | % | 53,529 | 7 | 0.0 | % | 8.1 | % | 47,138 | 770 | 1.6 | % | (8.8) | % | ||||
Total |
| 1,351,542 |
| 3,569 |
| 0.3 | % | (2.5) | % | 1,268,542 |
| 7,262 |
| 0.6 | % | (5.6) | % | 723,738 |
| 45,414 |
| 6.3 | % | (5.7) | % |
Financial investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Ch$ |
| 2,082,428 |
| 24,088 |
| 1.2 | % | (1.8) | % | 2,259,447 | 20,687 | 0.9 | % | (5.9) | % | 3,246,481 | 224,433 | 6.9 | % | (5.2) | % | ||||
UF |
| 735,578 |
| 22,051 |
| 3.0 | % | — | % | 678,188 | 44,918 | 6.6 | % | (0.5) | % | 564,469 | 73,417 | 13.0 | % | 0.2 | % | ||||
Foreign currency |
| 964,450 |
| 32,899 |
| 3.4 | % | 8.2 | % | 853,317 | 24,679 | 2.9 | % | 11.2 | % | 934,063 | 35,950 | 3.9 | % | (6.8) | % | ||||
Total |
| 3,782,456 |
| 79,038 |
| 2.1 | % | 1.1 | % | 3,790,952 |
| 90,284 |
| 2.4 | % | (1.1) | % | 4,745,012 |
| 333,800 |
| 7.0 | % | (4.9) | % |
Total loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Ch$ |
| 6,456,845 |
| 475,776 |
| 7.4 | % | 4.2 | % | 6,580,264 | 437,650 | 6.7 | % | (0.5) | % | 7,041,874 | 559,457 | 7.9 | % | (4.3) | % | ||||
UF |
| 8,911,447 |
| 449,809 |
| 5.0 | % | 2.0 | % | 9,321,694 | 717,486 | 7.7 | % | 0.5 | % | 10,650,604 | 1,582,706 | 14.9 | % | 1.8 | % | ||||
Foreign currency |
| 8,093,776 |
| 530,497 |
| 6.6 | % | 11.5 | % | 7,453,100 | 420,819 | 5.6 | % | 14.2 | % | 8,422,770 | 594,259 | 7.1 | % | (3.9) | % | ||||
Total |
| 23,462,068 |
| 1,456,082 |
| 6.2 | % | 5.9 | % | 23,355,058 |
| 1,575,955 |
| 6.7 | % | 4.6 | % | 26,115,248 |
| 2,736,422 |
| 0.1 | % | (1.7) | % |
Interbank loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Ch$ |
| 84,917 |
| 736 |
| 0.9 | % | (2.1) | — | — | — | — | — | — | — | — | |||||||||
UF |
| — |
| — |
| — | % | — |
| — | — | — | — |
| — | — | — | — | |||||||
Foreign currency |
| 55,626 |
| 805 |
| 1.4 | % | 6.2 | % | 55,623 | 621 | 1.1 | % | 9.3 | % | 48,182 | 2,009 | 4.2 | % | (6.5) | % | ||||
Total |
| 140,543 |
| 1,541 |
| 1.1 | % | 1.2 | % | 55,623 |
| 621 |
| 1.1 | % | 9.3 | % | 48,182 |
| 2,009 |
| 4.2 | % | (6.5) | % |
Investment under resale agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ch$ |
| 85,353 |
| 1,959 |
| 2.3 | % | (0.7) | % | 124,143 | 2,822 | 2.3 | % | (4.6) | % | 135,598 | 11,894 | 8.8 | % | (3.6) | % | ||||
UF |
| — |
| — |
| — | — |
| — | — | — | — |
| — | — | — | — | ||||||||
Foreign currency |
| 63,936 |
| 1,608 |
| 2.5 | % | 7.3 | % | 51,120 | 890 | 1.7 | % | 10.0 | % | 151,794 | 6,370 | 4.2 | % | (6.5) | % | ||||
Total |
| 149,289 |
| 3,567 |
| 2.4 | % | 2.7 | % | 175,263 |
| 3,712 | 2.1 | % | (0.4) | % | 287,393 |
| 18,265 | 6.4 | % | (5.1) | % | ||
Other interest earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Ch$ |
| 229,507 |
| 383 |
| 0.2 | % | (2.8) | % | 92,451 | 128 | 0.1 | % | (6.6) | % | 40,530 | 16,868 | 41.6 | % | 25.6 | % | ||||
UF |
| — |
| — |
| — | — |
| — | — | — | — |
| — | — | — | — | ||||||||
Foreign currency |
| 1,077,850 |
| 5,494 |
| 0.5 | % | 5.2 | % | 1,459,104 | 9,540 | 0.7 | % | 8.8 | % | 637,157 | 24,357 | 3.8 | % | (6.8) | % | ||||
Total |
| 1,307,357 |
| 5,877 |
| 0.4 | % | 3.8 | % | 1,551,555 |
| 9,668 | 0.6 | % | 7.9 | % | 677,686 |
| 41,225 | 6.1 | % | (4.9) | % | ||
Total interest earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Ch$ |
| 10,265,488 |
| 505,650 |
| 4.9 | % | 1.9 | % | 10,271,318 | 468,542 | 4.6 | % | (2.5) | % | 11,141,083 | 857,296 | 7.7 | % | (4.5) | % | ||||
UF |
| 9,647,025 |
| 471,860 |
| 4.9 | % | 1.8 | % | 9,999,882 | 762,404 | 7.6 | % | 0.4 | % | 11,215,073 | 1,656,123 | 14.8 | % | 1.7 | % | ||||
Foreign currency |
| 10,280,742 |
| 572,164 |
| 5.6 | % | 10.5 | % | 9,925,793 | 456,556 | 4.6 | % | 13.0 | % | 10,241,104 | 663,715 | 6.5 | % | (4.5) | % | ||||
Total |
| 30,193,255 |
| 1,549,674 |
| 5.1 | % | 4.8 | % | 30,196,993 |
| 1,687,502 |
| 5.6 | % | 3.6 | % | 32,597,259 |
| 3,177,134 |
| 9.7 | % | (2.3) | % |
106
Year Ended December 31, | ||||||||||||||||||||||||
2020 | 2021 | 2022 | ||||||||||||||||||||||
| Average | Average | Average | |||||||||||||||||||||
Average | Interest | Nominal | Average | Average | Interest | Nominal | Average | Average | Interest | Nominal | Average | |||||||||||||
| Balance |
| Earned |
| Rate |
| Yield |
| Balance |
| Earned |
| Rate |
| Yield |
| Balance |
| Earned |
| Rate |
| Yield | |
(in millions of Ch$) | ||||||||||||||||||||||||
NON-INTEREST EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$ |
| 434,581 |
| — |
| — |
| — |
| 407,543 |
| — | — |
| — |
| 601,079 |
| — | — |
| — | ||
UF |
| — |
| — |
| — |
| — |
| — |
| — | — |
| — |
| — |
| — | — |
| — | ||
Foreign currency |
| 306,202 |
| — |
| — |
| — |
| 307,298 |
| — | — |
| — |
| 386,698 |
| — | — |
| — | ||
Total |
| 740,783 |
| — |
| — |
| — |
| 714,841 |
| — | — |
| — |
| 987,777 |
| — | — |
| — | ||
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ch$ |
| (551,386) |
| — |
| — |
| — |
| (542,693) |
| — | — |
| — |
| (382,007) |
| — | — |
| — | ||
UF |
| (2,262) |
| — |
| — |
| — |
| (2,683) |
| — | — |
| — |
| — |
| — | — |
| — | ||
Foreign currency |
| (281,992) |
| — |
| — |
| — |
| (279,013) |
| — | — |
| — |
| (381,074) |
| — | — |
| — | ||
Total |
| (835,640) |
| — |
| — |
| — |
| (824,389) |
| — | — |
| — |
| (763,080) |
| — | — |
| — | ||
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ch$ |
| 35,482 |
| — |
| — |
| — |
| 31,105 |
| — | — |
| — |
| 29,775 |
| — | — |
| — | ||
UF |
| — |
| — |
| — |
| — |
| — |
| — | — |
| — |
| — |
| — | — |
| — | ||
Foreign currency |
| 21,137 |
| — |
| — |
| — |
| 22,629 |
| — | — |
| — |
| 18,072 |
| — | — |
| — | ||
Total |
| 56,619 |
| — |
| — |
| — |
| 53,734 |
| — | — |
| — |
| 47,848 |
| — | — |
| — | ||
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ch$ |
| 2,738,668 |
| — |
| — |
| — |
| 1,949,562 |
| — | — |
| — |
| 2,639,433 |
| — | — |
| — | ||
UF |
| 361,193 |
| — |
| — |
| — |
| 227,722 |
| — | — |
| — |
| 136,903 |
| — | — |
| — | ||
Foreign currency |
| 1,211,278 |
| — |
| — |
| — |
| 703,530 |
| — | — |
| — |
| 654,886 |
| — | — |
| — | ||
Total |
| 4,311,139 |
| — |
| — |
| — |
| 2,880,814 |
| — | — |
| — |
| 3,431,223 |
| — | — |
| — | ||
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ch$ |
| 1,713,607 |
| — |
| — |
| — |
| 1,411,612 |
| — | — |
| — |
| 1,498,061 |
| — | — |
| — | ||
UF |
| 64,946 |
| — |
| — |
| — |
| 13,764 |
| — | — |
| — |
| 15,982 |
| — | — |
| — | ||
Foreign currency |
| 1,097,310 |
| — |
| — |
| — |
| 839,525 |
| — | — |
| — |
| 978,542 |
| — | — |
| — | ||
Total |
| 2,875,863 |
| — |
| — |
| — |
| 2,264,901 |
| — | — |
| — |
| 2,492,586 |
| — | — |
| — | ||
Total non-interest earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ch$ |
| 4,370,952 |
| — |
| — |
| — |
| 3,257,129 |
| — | — |
| — |
| 4,386,343 |
| — | — |
| — | ||
UF |
| 423,877 |
| — |
| — |
| — |
| 238,803 |
| — | — |
| — |
| 152,885 |
| — | — |
| — | ||
Foreign currency |
| 2,353,935 |
| — |
| — |
| — |
| 1,593,969 |
| — | — |
| — |
| 1,657,125 |
| — | — |
| — | ||
Total |
| 7,148,764 |
| — |
| — |
| — |
| 5,089,901 |
| — | — |
| — |
| 6,196,353 |
| — | — |
| — | ||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Ch$ |
| 14,636,440 |
| 505,650 |
| — |
| — |
| 13,528,447 |
| 468,542 |
| — |
| — |
| 15,527,425 |
| 857,296 |
| — |
| — |
UF |
| 10,070,902 |
| 471,860 |
| — |
| — |
| 10,238,685 |
| 762,404 |
| — |
| — |
| 11,367,958 |
| 1,656,123 |
| — |
| — |
Foreign currency |
| 12,634,677 |
| 572,164 |
| — |
| — |
| 11,519,762 |
| 456,556 |
| — |
| — |
| 11,898,229 |
| 663,715 |
| — |
| — |
Total |
| 37,342,019 |
| 1,549,674 |
| — |
| — |
| 35,286,894 |
| 1,687,502 |
| — | — |
| 38,793,612 |
| 3,177,134 |
| — | — | ||
107
Year Ended December 31, | |||||||||||||||||||||||||
2020 | 2021 | 2022 | |||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | ||||||||||||||||||||
Average | Interest | Nominal | Paid | Average | Interest | Nominal | Paid | Average | Interest | Nominal | Paid | ||||||||||||||
| Balance |
| Paid |
| Rate |
| Rate |
| Balance |
| Paid |
| Rate |
| Rate |
| Balance |
| Paid |
| Rate |
| Rate | ||
| (in millions of Ch$ except for percentages) | ||||||||||||||||||||||||
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
INTEREST BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Time Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Ch$ |
| 8,417,414 |
| 140,558 |
| 1.7 | % | (0.9) | % | 6,712,461 |
| 76,813 |
| 1.1 | % | (5.6) | % | 6,778,144 |
| 545,702 |
| 8.1 | % | (4.2) | % |
UF |
| 403,581 |
| 23,615 |
| 5.9 | % | 3.2 | % | 426,302 |
| 41,344 |
| 9.7 | % | 2.3 | % | 1,031,288 |
| 149,476 |
| 14.5 | % | 1.5 | % |
Foreign currency |
| 3,374,784 |
| 103,309 |
| 3.1 | % | 8.3 | % | 3,183,277 |
| 54,347 |
| 1.7 | % | 9.9 | % | 3,414,999 |
| 137,413 |
| 4.0 | % | (6.7) | % |
Total |
| 12,195,779 |
| 267,482 |
| 2.2 | % | 1.8 | % | 10,322,040 |
| 172,504 |
| 1.7 | % | (0.5) | % | 11,224,431 |
| 832,590 |
| 7.4 | % | (4.4) | % |
Central Bank borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ch$ |
| 1,539,759 |
| 7,162 |
| 0.5 | % | (2.1) | % | 2,794,810 |
| 13,903 |
| 0.5 | % | (6.3) | % | 3,007,334 |
| 15,245 |
| 0.5 | % | (10.9) | % |
UF |
| — |
| — |
| — | — |
| — |
| — |
| — | — | — |
| — |
| — | - | |||||
Foreign currency |
| — |
| — |
| — | — |
| — |
| — |
| — | — | — |
| — |
| — | - | |||||
Total |
| 1,539,759 |
| 7,162 |
| 0.5 | % | (2.1) | % | 2,794,810 |
| 13,903 |
| 0.5 | % | (6.3) | % | 3,007,334 |
| 15,245 |
| 0.5 | % | (10.9) | % |
Repurchase agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ch$ |
| 409,857 |
| 3,204 |
| 0.8 | % | (1.8) | % | 208,730 |
| 2,001 |
| 1.0 | % | (5.8) | % | 302,300 |
| 22,084 |
| 7.3 | % | (4.9) | % |
UF |
| — |
| — |
| — | — | — |
| — |
| — | — | — |
| 0 |
| — | — | ||||||
Foreign currency |
| 188,347 |
| 5,418 |
| 2.9 | % | 8.1 | % | 198,336 |
| 3,788 |
| 1.9 | % | 10.1 | % | 133,331 |
| 5,985 |
| 4.5 | % | (6.3) | % |
Total |
| 598,204 |
| 8,622 |
| 1.4 | % | 1.3 | % | 407,066 |
| 5,789 |
| 1.4 | % | 2.0 | % | 435,631 |
| 28,069 |
| 6.4 | % | (5.3) | % |
Mortgage finance bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ch$ |
| — |
| — |
| — | — | — |
| — |
| — | — | — |
| — |
| — | — | ||||||
UF |
| 34,536 |
| 1,262 |
| 3.7 | % | 0.6 | % | 26,148 |
| 2,214 |
| 8.5 | % | 1.2 | % | 20,645 |
| 3,474 |
| 16.8 | % | 3.6 | % |
Foreign currency |
| — |
| — |
| — | — | — |
| — |
| — | — | — |
| — |
| — | — | ||||||
Total |
| 34,536 |
| 1,262 |
| 3.7 | % | 0.6 | % | 26,148 |
| 2,214 |
| 8.5 | % | 1.2 | % | 20,645 |
| 3,474 |
| 16.8 | % | 3.6 | % |
Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ch$ |
| 839,586 |
| 60,282 |
| 7.2 | % | 4.1 | % | 756,997 |
| 54,428 |
| 7.2 | % | (0.0) | % | 561,104 |
| 14,766 |
| 2.6 | % | (9.0) | % |
UF |
| 4,761,392 |
| 188,066 |
| 3.9 | % | 0.9 | % | 4,836,218 |
| 353,120 |
| 7.3 | % | 0.1 | % | 4,998,818 |
| 864,312 |
| 17.3 | % | 4.0 | % |
Foreign currency |
| 757,911 |
| 42,379 |
| 5.6 | % | 10.5 | % | 748,826 |
| 44,011 |
| 5.9 | % | 14.4 | % | 542,084 |
| 69,618 |
| 12.8 | % | 1.3 | % |
Total |
| 6,358,889 |
| 290,727 |
| 4.6 | % | 2.5 | % | 6,342,041 |
| 451,559 |
| 7.1 | % | 1.8 | % | 6,102,006 |
| 948,697 |
| 15.6 | % | 2.5 | % |
Commercial paper | |||||||||||||||||||||||||
Ch$ | — |
| — |
| — | — | — |
| — |
| — | — | — |
| — |
| — | — | |||||||
UF | — |
| — |
| — | — | — |
| — |
| — | — | — |
| — |
| — | — | |||||||
Foreign currency | — |
| — |
| — | — | — |
| — |
| — | — | — |
| — |
| — | — | |||||||
Total | — |
| — |
| — | — | — |
| — |
| — | — | — |
| — |
| — | — | |||||||
Other interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Ch$ |
| 2,236,779 |
| 8,195 |
| 0.4 | % | (2.6) | % | 2,964,506 |
| 6,590 |
| 0.2 | % | (6.5) | % | 2,587,404 |
| 18,491 |
| 0.7 | % | (10.7) | % |
UF |
| 121,987 |
| 330 |
| 0.3 | % | (2.7) | % | 104,505 |
| 16,116 |
| 15.4 | % | 7.7 | % | 107,027 |
| 25,383 |
| 23.7 | % | 9.7 | % |
Foreign currency |
| 3,600,564 |
| 99,457 |
| 2.8 | % | 7.5 | % | 3,064,690 |
| 42,520 |
| 1.4 | % | 9.6 | % | 3,901,683 |
| 134,717 |
| 3.5 | % | (7.2) | % |
Total |
| 5,959,330 |
| 107,982 |
| 1.8 | % | 3.5 | % | 6,133,701 |
| 65,226 |
| 1.1 | % | 1.8 | % | 6,596,115 |
| 178,590 |
| 2.7 | % | (8.3) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ch$ |
| 13,443,396 |
| 219,401 |
| 1.6 | % | (1.3) | % | 13,437,504 |
| 153,735 |
| 1.1 | % | (5.6) | % | 13,236,286 |
| 616,288 |
| 4.7 | % | (7.2) | % |
UF |
| 5,321,495 |
| 213,273 |
| 4.0 | % | 1.0 | % | 5,393,173 |
| 412,794 |
| 7.7 | % | 0.4 | % | 6,157,778 |
| 1,042,645 |
| 16.9 | % | 3.7 | % |
Foreign currency |
| 7,921,605 |
| 250,563 |
| 3.2 | % | 7.9 | % | 7,195,129 |
| 144,666 |
| 2.0 | % | 10.2 | % | 7,992,098 |
| 347,732 |
| 4.4 | % | (6.4) | % |
Total |
| 26,686,496 |
| 683,237 |
| 2.6 | % | 1.9 | % | 26,025,806 |
| 711,195 |
| 2.7 | % | 0.0 | % | 27,386,161 |
| 2,006,666 |
| 7.3 | % | (4.5) | % |
108
Year Ended December 31, | ||||||||||||||||||||||||
2020 | 2021 | 2022 | ||||||||||||||||||||||
| Average | Average | Average | Average | Average | Average | ||||||||||||||||||
Average | Interest | Nominal | Paid | Average | Interest | Nominal | Paid | Average | Interest | Nominal | Paid | |||||||||||||
| Balance |
| Paid |
| Rate |
| Rate |
| Balance |
| Paid |
| Rate |
| Rate |
| Balance |
| Paid |
| Rate |
| Rate | |
| (in millions of Ch$) | |||||||||||||||||||||||
NON-INTEREST EARNING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing demand deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$ |
| 680,483 |
| — |
| — |
| — |
| 866,289 |
| — |
| — |
| — |
| 826,140 |
| — |
| — |
| — |
UF |
| 5,294 |
| — |
| — |
| — |
| 19,225 |
| — |
| — |
| — |
| 24,671 |
| — |
| — |
| — |
Foreign currency |
| 1,831,418 |
| — |
| — |
| — |
| 1,908,078 |
| — |
| — |
| — |
| 2,065,739 |
| — |
| — |
| — |
Total |
| 2,517,195 |
| — |
| — |
| — |
| 2,793,592 |
| — |
| — |
| — |
| 2,916,551 |
| — |
| — |
| — |
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Ch$ |
| 2,582,756 |
| — |
| — |
| — |
| 1,809,955 |
| — |
| — |
| — |
| 2,712,668 |
| — |
| — |
| — |
UF |
| 449,618 |
| — |
| — |
| — |
| 252,001 |
| — |
| — |
| — |
| 103,514 |
| — |
| — |
| — |
Foreign currency |
| 1,288,305 |
| — |
| — |
| — |
| 734,176 |
| — |
| — |
| — |
| 685,355 |
| — |
| — |
| — |
Total |
| 4,320,679 |
| — |
| — |
| — |
| 2,796,132 |
| — |
| — |
| — |
| 3,501,536 |
| — |
| — |
| — |
Other non-interest-bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Ch$ |
| 368,659 |
| — |
| — |
| — |
| 502,891 |
| — |
| — |
| — |
| 617,766 |
| — |
| — |
| — |
UF |
| 234,737 |
| — |
| — |
| — |
| 238,520 |
| — |
| — |
| — |
| 142,524 |
| — |
| — |
| — |
Foreign currency |
| 338,847 |
| — |
| — |
| — |
| 338,883 |
| — |
| — |
| — |
| 430,636 |
| — |
| — |
| — |
Total |
| 942,243 |
| — |
| — |
| — |
| 1,080,294 |
| — |
| — |
| — |
| 1,190,925 |
| — |
| — |
| — |
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Ch$ |
| 2,636,110 |
| — |
| — |
| — |
| 2,313,955 |
| — |
| — |
| — |
| 2,863,372 |
| — |
| — |
| — |
UF |
| 126,645 |
| — |
| — |
| — |
| 174,063 |
| — |
| — |
| — |
| 338,104 |
| — |
| — |
| — |
Foreign currency |
| 112,651 |
| — |
| — |
| — |
| 103,051 |
| — |
| — |
| — |
| 55,815 |
| — |
| — |
| — |
Total |
| 2,875,406 |
| — |
| — |
| — |
| 2,591,069 |
| — |
| — |
| — |
| 3,257,290 |
| — |
| — |
| — |
Total non-interest-bearing liabilities and shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Ch$ |
| 6,268,008 |
| — |
| — |
| — |
| 5,493,090 |
| — |
| — |
| — |
| 7,019,946 |
| — |
| — |
| — |
UF |
| 816,294 |
| — |
| — |
| — |
| 683,809 |
| — |
| — |
| — |
| 608,812 |
| — |
| — |
| — |
Foreign currency |
| 3,571,221 |
| — |
| — |
| — |
| 3,084,188 |
| — |
| — |
| — |
| 3,237,544 |
| — |
| — |
| — |
Total |
| 10,655,523 |
| — |
| — |
| — |
| 9,261,087 |
| — |
| — |
| — |
| 10,866,302 |
| — |
| — |
| — |
Total liabilities and equity(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Ch$ |
| 19,711,404 | 219,401 | — | — | 18,930,595 | 153,735 | — | — | 20,256,232 | 616,288 | — | — | |||||||||||
UF |
| 6,137,789 | 213,273 | — | — | 6,076,982 | 412,794 | — | — | 6,766,590 | 1,042,645 | — | — | |||||||||||
Foreign currency |
| 11,492,826 |
| 250,563 |
| — |
| — |
| 10,279,317 |
| 144,666 |
| — |
| — |
| 11,229,642 |
| 347,732 |
| — |
| — |
Total |
| 37,342,019 |
| 683,237 |
| — |
| — |
| 35,286,894 |
| 711,195 |
| — |
| — |
| 38,252,464 |
| 2,006,666 |
| — |
| — |
(1) | Represents total of interest-bearing and non-interest-bearing liabilities and shareholders’ equity. |
Interest-earning Assets—Net Interest Margin
The following tables analyze, by currency of denomination, our levels of average interest-earning assets and net interest, and illustrate the comparative margins obtained, for each of the periods indicated:
| Year Ended December 31, |
| |||||
| 2020 |
| 2021 |
| 2022 |
| |
| (in millions of Ch$ | ||||||
| except for percentages) | ||||||
Total average interest earning assets |
|
|
|
|
|
| |
Ch$ |
| 10,265,488 |
| 10,271,318 |
| 11,141,083 | |
UF |
| 9,647,025 |
| 9,999,882 |
| 11,215,073 | |
Foreign currency |
| 10,280,742 |
| 9,925,793 |
| 10,241,104 | |
Total |
| 30,193,255 |
| 30,196,993 |
| 32,597,260 | |
Net interest earned(1) |
|
|
|
|
|
| |
Ch$ |
| 286,249 |
| 314,807 |
| 221,879 | |
UF |
| 258,587 |
| 349,610 |
| 628,739 | |
Foreign currency |
| 321,601 |
| 311,890 |
| 319,851 | |
Total |
| 866,437 |
| 976,307 |
| 1,170,469 | |
Net interest margin, nominal basis(2) |
|
|
|
|
|
| |
Ch$ |
| 2.8 | % | 3.06 | % | 1.99 | % |
UF |
| 2.7 | % | 3.50 | % | 5.61 | % |
Foreign currency |
| 3.1 | % | 3.14 | % | 3.12 | % |
Total |
| 2.9 | % | 3.23 | % | 3.59 | % |
109
(1) | Net interest earned is defined as interest revenue earned less interest expense incurred. |
(2) | Net interest margin is defined as net interest earned divided by average interest earning assets. |
Changes in Net Interest Income and Interest Expense—Volume and Rate Analysis
The following tables allocate, by currency of denomination, changes in our net interest income between changes in the average volume of interest-earning assets and interest-bearing liabilities and changes in their respective nominal interest rates from 2020 to 2021 and from 2021 to 2022.
Volume and rate variances have been calculated based on movements in average balances over the year and changes in nominal interest rates, average interest-earning assets and average interest-bearing liabilities. The net change attributable to changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate.
Increase (Decrease) | ||||||
from 2020 to 2021 due to changes in | ||||||
Net Change | ||||||
from 2020 | ||||||
| Volume |
| Rate |
| to 2021 | |
| (in millions of Ch$) | |||||
ASSETS | ||||||
INTEREST EARNING ASSETS | ||||||
Deposits in Central Bank | ||||||
Ch$ |
| (227) |
| 4,774 |
| 4,547 |
UF |
| — |
| — |
| — |
Foreign currency |
| 975 |
| (1,829) |
| (854) |
Total |
| 748 |
| 2,945 |
| 3,693 |
Financial Investments |
|
|
|
|
|
|
Ch$ |
| 2,048 |
| (5,449) |
| (3,401) |
UF |
| (1,720) |
| 24,587 |
| 22,867 |
Foreign currency |
| (3,791) |
| (4,429) |
| (8,220) |
Total |
| (3,463) |
| 14,709 |
| 11,246 |
Total Loans |
|
|
|
|
|
|
Ch$ |
| 9,094 |
| (47,220) |
| (38,126) |
UF |
| 20,707 |
| 246,970 |
| 267,677 |
Foreign currency |
| (41,992) |
| (67,686) |
| (109,678) |
Total |
| (12,191) |
| 132,064 |
| 119,873 |
Interbank Loans |
|
|
| |||
Ch$ |
| (736) |
| — |
| (736) |
UF |
| — |
| — |
| — |
Foreign currency |
| — |
| (184) |
| (184) |
Total |
| (736) |
| (184) |
| (920) |
Investment under resale agreements |
|
|
| |||
Ch$ |
| 890 |
| (27) |
| 863 |
UF |
| — |
| — |
| — |
Foreign currency |
| (322) |
| (396) |
| (718) |
Total |
| 568 |
| (423) |
| 145 |
Other interest earning assets |
|
|
| |||
Ch$ |
| (229) |
| (26) |
| (255) |
UF |
| — |
| — |
| — |
Foreign currency |
| 1,943 |
| 2,103 |
| 4,046 |
Total |
| 1,714 |
| 2,077 |
| 3,791 |
Total interest earning assets |
|
|
| |||
Ch$ |
| 10,840 |
| (47,948) |
| (37,108) |
UF |
| 18,987 |
| 271,557 |
| 290,544 |
Foreign currency |
| (43,187) |
| (72,421) |
| (115,608) |
Total |
| (13,360) |
| 151,188 |
| 137,828 |
110
Increase (Decrease) | ||||||
from 2020 to 2021 due to changes in | ||||||
Net change | ||||||
from 2020 | ||||||
| Volume |
| Rate |
| to 2021 | |
| (in millions of Ch$) | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY INTEREST BEARING LIABILITIES |
|
|
|
|
|
|
Time deposits |
|
|
|
|
|
|
Ch$ |
| (28,470) |
| (35,275) |
| (63,745) |
UF |
| 1,330 |
| 16,399 |
| 17,729 |
Foreign currency |
| (5,862) |
| (43,100) |
| (48,962) |
Total |
| (33,002) |
| (61,976) |
| (94,978) |
Central Bank borrowings |
|
|
|
|
|
|
Ch$ |
| 5,838 |
| 903 |
| 6,741 |
UF |
| — |
| — |
| — |
Foreign currency |
| — |
| — |
| — |
Total |
| 5,838 |
| 903 |
| 6,741 |
Repurchase agreements |
|
|
|
|
|
|
Ch$ |
| (1,572) |
| 369 |
| (1,203) |
UF |
| — |
| — |
| — |
Foreign currency |
| 287 |
| (1,917) |
| (1,630) |
Total |
| (1,285) |
| (1,548) |
| (2,833) |
Mortgage finance bonds |
|
|
|
|
|
|
Ch$ |
| — |
| — |
| — |
UF |
| (306) |
| 1,258 |
| 952 |
Foreign currency |
| — |
| — |
| — |
Total |
| (306) |
| 1,258 |
| 952 |
Bonds |
|
|
|
|
|
|
Ch$ |
| (5,930) |
| 76 |
| (5,854) |
UF |
| 2,955 |
| 162,099 |
| 165,054 |
Foreign currency |
| (508) |
| 2,140 |
| 1,632 |
Total |
| (3,483) |
| 164,315 |
| 160,832 |
Commercial paper | ||||||
Ch$ | — | — | — | |||
UF | — | — | — | |||
Foreign currency | — | — | — | |||
Total | — | — | — | |||
Other interest bearing liabilities |
|
|
|
|
|
|
Ch$ |
| 2,666 |
| (4,271) |
| (1,605) |
UF |
| (47) |
| 15,833 |
| 15,786 |
Foreign currency |
| (14,802) |
| (42,135) |
| (56,937) |
Total |
| (12,183) |
| (30,573) |
| (42,756) |
Total interest bearing liabilities |
|
|
|
|
| |
Ch$ |
| (27,468) |
| (38,198) |
| (65,666) |
UF |
| 3,932 |
| 195,589 |
| 199,521 |
Foreign currency |
| (20,885) |
| (85,012) |
| (105,897) |
Total |
| (44,421) |
| 72,379 |
| 27,958 |
111
Increase (Decrease) | ||||||
from 2021 to 2022 due to changes in | ||||||
|
|
| Net Change | |||
from 2021 | ||||||
Volume | Rate | to 2022 | ||||
| (in millions of Ch$) | |||||
ASSETS |
|
|
|
|
|
|
INTEREST EARNING ASSETS |
|
|
|
|
|
|
Deposits in Central Bank |
|
|
|
|
|
|
Ch$ |
| (3,215) |
| 40,604 |
| 37,389 |
UF |
| — |
| — |
| — |
Foreign currency |
| (1) |
| 764 |
| 763 |
Total |
| (3,216) |
| 41,368 |
| 38,152 |
Financial Investments |
|
|
|
|
|
|
Ch$ |
| 9,037 |
| 194,709 |
| 203,746 |
UF |
| (7,532) |
| 36,031 |
| 28,499 |
Foreign currency |
| 2,335 |
| 8,936 |
| 11,271 |
Total |
| 3,840 |
| 239,676 |
| 243,516 |
Total Loans |
|
|
|
|
|
|
Ch$ |
| 30,701 |
| 91,106 |
| 121,807 |
UF |
| 102,286 |
| 762,934 |
| 865,220 |
Foreign currency |
| 54,750 |
| 118,690 |
| 173,440 |
Total |
| 187,737 |
| 972,730 |
| 1,160,467 |
Interbank Loans |
|
|
|
|
|
|
Ch$ |
| — |
| — |
| — |
UF |
| — |
| — |
| — |
Foreign currency |
| (83) |
| 1,471 |
| 1,388 |
Total |
| (83) |
| 1,471 |
| 1,388 |
Investment under resale agreements |
|
|
|
|
|
|
Ch$ |
| 260 |
| 8,812 |
| 9,072 |
UF |
| — |
| — |
| — |
Foreign currency |
| 1,753 |
| 3,728 |
| 5,481 |
Total |
| 2,013 |
| 12,540 |
| 14,553 |
Other interest earning assets |
|
|
|
|
|
|
Ch$ |
| (72) |
| 16,812 |
| 16,740 |
UF |
| — |
| — |
| — |
Foreign currency |
| (5,374) |
| 20,191 |
| 14,817 |
Total |
| (5,446) |
| 37,003 |
| 31,557 |
Total interest earning assets |
|
|
|
|
|
|
Ch$ |
| 36,711 |
| 352,043 |
| 388,754 |
UF |
| 94,754 |
| 798,965 |
| 893,719 |
Foreign currency |
| 53,380 |
| 153,780 |
| 207,160 |
Total |
| 184,845 |
| 1,304,788 |
| 1,489,633 |
112
| Increase (Decrease) | |||||
from 2021 to 2022 due to changes in | ||||||
Net Change | ||||||
from 2021 | ||||||
| Volume |
| Rate |
| to 2022 | |
| (in millions of Ch$) | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
INTEREST BEARING LIABILITIES |
|
|
|
|
|
|
Time deposits |
|
|
|
|
|
|
Ch$ |
| 723 |
| 471,142 |
| 471,865 |
UF |
| 58,684 |
| 49,441 |
| 108,125 |
Foreign currency |
| 3,939 |
| 78,128 |
| 82,067 |
Total |
| 63,346 |
| 598,711 |
| 662,057 |
Central Bank borrowings |
|
|
|
|
|
|
Ch$ |
| 1,063 |
| 208 |
| 1,271 |
UF |
| — |
| — |
| — |
Foreign currency |
| — |
| — |
| — |
Total |
| 1,063 |
| 208 |
| 1,271 |
Repurchase agreements |
|
|
|
|
|
|
Ch$ |
| 936 |
| 19,061 |
| 19,997 |
UF |
| — |
| — |
| — |
Foreign currency |
| (1,235) |
| 3,452 |
| 2,217 |
Total |
| (299) |
| 22,513 |
| 22,214 |
Mortgage finance bonds |
|
|
|
|
|
|
Ch$ |
| — |
| — |
| — |
UF |
| (468) |
| 1,720 |
| 1,252 |
Foreign currency |
| — |
| — |
| — |
Total |
| (468) |
| 1,720 |
| 1,252 |
Bonds |
|
|
|
|
|
|
Ch$ |
| (14,104) |
| (26,214) |
| (40,318) |
UF |
| 11,870 |
| 466,315 |
| 475,003 |
Foreign currency |
| (12,198) |
| 34,984 |
| 22,786 |
Total |
| (14,432) |
| 475,085 |
| 457,471 |
Commercial paper | ||||||
Ch$ | — | — | — | |||
UF | — | — | — | |||
Foreign currency | — | — | — | |||
Total | — | — | — | |||
Other interest bearing liabilities |
|
|
|
|
|
|
Ch$ |
| (754) |
| 33,026 |
| 32,272 |
UF |
| 388 |
| 26,723 |
| 27,111 |
Foreign currency |
| 11,718 |
| 80,105 |
| 91,823 |
Total |
| 11,352 |
| 139,854 |
| 151,206 |
Total interest bearing liabilities |
|
|
|
|
| |
Ch$ |
| (12,136) |
| 497,223 |
| 485,087 |
UF |
| 70,474 |
| 544,199 |
| 611,491 |
Foreign currency |
| 2,224 |
| 196,669 |
| 198,893 |
Total |
| 60,562 |
| 1,238,091 |
| 1,295,471 |
113
Return on Equity and Assets
The following table sets forth our return on average shareholders’ equity and average total assets and related information for each of the periods indicated.
|
| Years ended December 31, |
| ||||
| 2020 |
| 2021 |
| 2022 | ||
| (in millions of Ch$, except for percentages) | ||||||
Net income (loss) |
| (826,155) |
| 276,237 |
| 443,360 | |
Net income (loss) attributable to equity holders of the Bank |
| (808,784) |
| 273,410 |
| 443,288 | |
Average total assets |
| 37,342,019 |
| 35,286,894 |
| 38,793,612 | |
Average equity |
| 2,875,406 |
| 2,591,069 |
| 3,257,290 | |
Net income (loss) as a percentage of: |
|
|
|
|
|
| |
Average total assets |
| (2.24) | % | 0.77 | % | 1.14 | % |
Average equity |
| (29.18) | % | 10.55 | % | 13.61 | % |
Average equity as a percentage of: |
|
|
| ||||
Average total assets |
| 7.69 | % | 7.34 | % | 8.40 | % |
Annual cash dividend |
| 127,065 |
| — |
| 83,332 | |
Dividend payout ratio, based on net income attributable to shareholders under local GAAP |
| 100.00 | % | — | % | 30.00 | % |
Investment Portfolio
Our financial investments are classified into measurement categories based on both our business model for managing the financial asset and the contractual cash flow characteristics of the financial asset.
Financial investments as of December 31, 2020, 2021 and 2022 are as follows:
| As of December 31, | |||||
|
| 2020 |
| 2021 |
| 2022 |
| (in millions of Ch$) | |||||
Financial Instruments at Fair Value Through Profit or Loss | ||||||
Chilean Central Bank and Government securities |
|
|
|
|
|
|
Central Bank of Chile securities |
| 21,369 |
| 50,743 |
| 160,751 |
Other Chilean Central Bank and Government securities |
| 86,673 |
| — |
| — |
Other Chilean securities |
|
|
| |||
Bonds |
| 271 |
| 111 |
| 22,877 |
Notes |
| — |
| — |
| — |
Other securities |
| — |
| — |
| — |
Foreign financial securities |
|
|
| |||
Bonds |
| 432,178 |
| 232,083 |
| 182,268 |
Other securities |
| 4,861 |
| 8,824 |
| 4,658 |
Investments in mutual funds |
|
|
| |||
Funds managed by related entities |
| 35,017 |
| 39,842 |
| 47,598 |
Funds managed by third parties |
| — |
| — |
| — |
Financial assets not held for trading valued mandatorily at fair value through profit or loss | ||||||
Loans originated and acquired by the entity at fair value | — |
| — | 53,206 | ||
Other investments | ||||||
Other financial instruments at FVTPL | 2,341 | 1,121 | 925 | |||
Totals |
| 582,710 |
| 332,724 |
| 472,283 |
114
| As of December 31, | |||||
|
| 2020 |
| 2021 |
| 2022 |
| (in millions of Ch$) | |||||
Financial Instruments at Fair Value Through Other Comprehensive Income |
|
|
|
|
|
|
Chilean Central Bank and Government securities |
|
|
|
|
|
|
Chilean Central Bank instruments |
| 1,170,841 |
| 1,918,659 |
| 2,227,029 |
Chilean Treasury bonds |
| 1,783,765 |
| 1,060,379 |
| 618,208 |
Other goverment securities |
| 101,573 |
| 123,991 |
| 126,669 |
Other local institutions financial instruments |
|
|
|
| ||
Time deposits in local banks |
| 14,856 |
| — |
| 114,567 |
Mortgage finance bonds |
| 30 |
| — |
| — |
Chilean financial institutions bonds |
| 277,163 |
| 119,302 |
| — |
Other local financial investments |
| — |
| 15,840 |
| 90,790 |
Foreign institutions financial instruments |
|
|
|
| ||
Foreign Governments and Central Banks financial instruments |
| 217,185 |
| 45,386 |
| 311,319 |
Other foreign financial instruments |
| 394,691 |
| 366,487 |
| 236,843 |
Investments not quoted in active markets |
| |||||
Corporate bonds |
| — |
| — |
| — |
Equity instruments |
| — |
| — |
| — |
Other financial instruments |
| 10,795 |
| 10,406 |
| 9,865 |
Total |
| 3,970,899 |
| 3,660,450 |
| 3,735,290 |
As of December 31, | ||||||
|
| 2020 |
| 2021 |
| 2022 |
| (in millions of Ch$) | |||||
Financial Instruments at Amortized Cost |
|
|
|
|
| |
Chilean Central Bank and Government securities |
|
|
|
|
| |
Chilean Central Bank instruments |
| — |
| — |
| — |
Chilean Treasury bonds |
| — |
| — |
| 854,361 |
Other goverment securities |
| — |
| — |
| — |
Other local institutions financial instruments |
| |||||
Time deposits in local banks |
| — |
| — |
| — |
Mortgage finance bonds |
| — |
| — |
| — |
Chilean financial institutions bonds |
| — |
| — |
| — |
Other local financial investments |
| — |
| — |
| — |
Foreign institutions financial instruments |
|
|
|
|
| |
Foreign Governments and Central Banks financial instruments |
| — |
| — |
| — |
Other foreign financial instruments |
| 111,542 |
| 187,455 |
| 159,582 |
Investments not quoted in active markets |
| — |
| — |
| |
Corporate bonds |
|
|
|
|
| — |
Equity instruments |
| — |
| — |
| |
Other financial instruments |
| — |
| — |
| — |
Total |
| 111,542 |
| 187,455 |
| 1,013,943 |
115
The following tables set forth an analysis of our investments, by time remaining to maturity and the weighted average nominal rates of such investments, as of December 31, 2022:
Within | Weighted | After one | Weighted | After | Weighted | After ten | Weighted | Total | ||||||||||
|
| Ch$ |
| % |
| Ch$ |
| % |
| Ch$ |
| % |
| Ch$ |
| % |
| Ch$ |
| (in millions of Ch$, except for percentages) | |||||||||||||||||
Financial Instruments at Fair Value Through Profit or Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank and Government securities |
|
|
| |||||||||||||||
Central Bank of Chile securities |
| 160,578 | 51.47% | 173 | 0.13% | — | — | — | — |
| 160,751 | |||||||
Other Chilean Central Bank and Government securities |
| — | — | — | — | — | — | — | — |
| — | |||||||
Other Chilean securities |
|
|
| |||||||||||||||
Notes |
| — | — | — | — | — | — | — | — |
| — | |||||||
Other securities |
| — | — | — | — | — | — | — | — |
| — | |||||||
Bonds |
| — | — | 22,744 | 17.21% | 129 | 0.64% | 4 | 0.05% |
| 22,877 | |||||||
Foreign financial securities |
|
|
| |||||||||||||||
Bonds |
| 44,990 | 14.42% | 109,211 | 82.66% | 20,118 | 99.36% | 7,949 | 99.95% |
| 182,268 | |||||||
Other securities |
| 4,658 | 1.49% | — | — | — | — | — | — |
| 4,658 | |||||||
Investments in mutual funds |
|
|
| |||||||||||||||
Funds managed by related entities |
| 47,598 | 15.26% | — | — | — | — | — | — |
| 47,598 | |||||||
Funds managed by third parties | — | — | — | — | — | — | — | — | — | |||||||||
Financial assets not held for trading valued mandatorily at fair value through profit or loss | ||||||||||||||||||
Loans originated and acquired by the entity at fair value |
| 53,206 | 17.06% | — | — | — | — | — | — |
| 53,206 | |||||||
Other investments | ||||||||||||||||||
Other financial instruments at FVTPL | 925 | 0.30% | — | — | — | — | — | — | 925 | |||||||||
Totals |
| 311,955 |
| 33.84% |
| 132,128 |
| 71.28% |
| 20,247 |
| 98.73% |
| 7,953 |
| 99.90% |
| 472,283 |
116
Within one year | Weighted average Nominal Rate | After one year but within five years | Weighted average Nominal Rate | After | Weighted | After ten years | Weighted average Nominal Rate | Total | ||||||||||
|
| Ch$ |
| % |
| Ch$ |
| % |
| Ch$ |
| % |
| Ch$ |
| % |
| Ch$ |
| (in millions of Ch$, except for percentages) | |||||||||||||||||
Securities quoted in active markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank and Government securities |
|
|
| |||||||||||||||
Chilean Central Bank instruments |
| 2,226,482 | 72.23% | — | — | 547 | 0.46% | — | — |
| 2,227,029 | |||||||
Chilean Treasury bonds |
| 479,464 | 15.55% | 126,786 | 33.00% | 11,958 | 10.05% | — | — |
| 618,208 | |||||||
Other I Securities |
| — | — | 28,303 | 7.37% | 98,366 | 82.70% | — | — |
| 126,669 | |||||||
Other local institutions financial instruments |
|
|
| |||||||||||||||
Time deposits in local banks |
| 96,815 | 3.14% | 17,752 | 4.62% | — | — | — | — |
| 114,567 | |||||||
Mortgage finance bonds |
| — | — | — | — | — | — | — | — |
| — | |||||||
Chilean financial institutions bonds |
| — | — | — | — | — | — | — | — |
| — | |||||||
Other local financial investments |
| — | — | 90,790 | 23.63% | — | — | — | — |
| 90,790 | |||||||
Foreign institutions financial instruments |
|
|
| |||||||||||||||
Foreign Governments and Central Banks financial instruments |
| 51,106 | 1.66% | 104,031 | 27.07% | 6,687 | 5.62% | 149,495 | 100.00% |
| 311,319 | |||||||
Other foreign financial instruments |
| 218,884 | 7.10% | 16,580 | 4.31% | 1,379 | 1.16% | — | — |
| 236,843 | |||||||
Investments not quoted in active markets |
| — | — | — | — | — | — | — | — |
| — | |||||||
Corporate bonds |
|
|
| |||||||||||||||
Equity instruments |
| — | — | — | — | — | — | — | — |
| — | |||||||
Other financial instruments |
| 9,865 | 0.32% | — | — | — | — | — | — |
| 9,865 | |||||||
Total |
| 3,082,617 |
| 55.22% |
| 384,242 |
| 24.74% |
| 118,937 |
| 69.74% |
| 149,495 |
| 100.00% |
| 3,735,290 |
| Within |
| Weighted |
| After one year but withing five years |
| Weighted |
| After five years but within ten years |
| Weighted |
| Ater ten |
| Weighted |
| Total | |
| Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | % | Ch$ | |||||||||
| (in millions of Ch$, except for percentages) | |||||||||||||||||
Securities quoted in active markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank and Government securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank instruments |
| — | — | — | — | — | — | — | — |
| — | |||||||
Chilean Treasury bonds |
| 686,826 | 81.23% | 124,031 | 99.33% | 43,504 | 100.00% | — | — |
| 854,361 | |||||||
Other I Securities |
| — | — | — | — | — | — | — | — |
| — | |||||||
Other local institutions financial instruments |
|
|
| |||||||||||||||
Time deposits in local banks |
| — | — | — | — | — | — | — | — |
| — | |||||||
Mortgage finance bonds |
| — | — | — | — | — | — | — | — |
| — | |||||||
Chilean financial institutions bonds |
| — | — | — | — | — | — | — | — |
| — | |||||||
Other local financial investments |
| — | — | — | — | — | — | — | — |
| — | |||||||
Foreign institutions financial instruments |
|
|
| |||||||||||||||
Foreign Governments and Central Banks financial instruments |
| — | — | — | — | — | — | — | — |
| — | |||||||
Other foreign financial instruments |
| 158,742 | 18.77% | 840 | 0.67% | — | — | — | — |
| 159,582 | |||||||
Investments not quoted in active markets |
| — | — | — | — | — | — | — | — |
| — | |||||||
Corporate bonds |
|
|
| |||||||||||||||
Equity instruments |
| — | — | — | — | — | — | — | — |
| — | |||||||
Other financial instruments |
| — | — | — | — | — | — | — | — |
| — | |||||||
Total |
| 845,568 |
| 69.50% | 124,871 |
| 98.66% | 43,504 |
| 100.00% | — |
| — |
| 1,013,943 | |||
117
Loan Portfolio
The following table presents our loans by type of loan as of December 31, 2020, 2021 and 2022. Except where otherwise specified, all loan amounts stated below are before deduction for the allowance for loan losses. Total loans reflect our loan portfolio, including past due principal amounts. For 2020, 2021 and 2022, our loan portfolio refers to loans and accounts receivable from customers at amortized cost.
As of December 31, | ||||||
|
| 2020 |
| 2021 |
| 2022 |
Commercial loans: |
|
|
|
|
|
|
Commercial loans |
| 12,172,207 |
| 12,664,323 |
| 12,798,454 |
Foreign trade loans |
| 847,086 |
| 1,168,577 |
| 1,692,494 |
Checking account debtors |
| 70,126 |
| 70,461 |
| 117,197 |
Factoring operations |
| 155,540 |
| 243,667 |
| 350,952 |
Student loans |
| 594,688 |
| 554,096 |
| 554,513 |
Leasing transactions |
| 940,989 |
| 948,807 |
| 943,411 |
Other loans and receivables |
| 28,163 |
| 22,739 |
| — |
Subtotals |
| 14,808,799 |
| 15,672,670 |
| 16,457,021 |
Mortgage loans: |
|
|
|
|
|
|
Letters of credit loans |
| 23,345 |
| 18,563 |
| 13,368 |
Endorsable mutual mortgage loans |
| 90,456 |
| 78,637 |
| 75,536 |
Other mutual mortgage loans |
| 4,820,863 |
| 5,777,121 |
| 6,620,099 |
Leasing transactions |
| 307,574 |
| 313,167 |
| 274,536 |
Other loans and receivables |
| 74,515 |
| 57,483 |
| 47,071 |
Subtotals |
| 5,316,753 |
| 6,244,971 |
| 7,030,610 |
Consumer loans: |
|
|
|
|
|
|
Consumer loans |
| 1,866,015 |
| 2,069,548 |
| 2,176,507 |
Checking account debtors |
| 124,009 |
| 109,143 |
| 143,491 |
Credit card debtors |
| 467,624 |
| 609,078 |
| 763,486 |
Consumer leasing transactions |
| 1,467 |
| 783 |
| 669 |
Other loans and receivables |
| 33,314 |
| 37,167 |
| 36,001 |
Subtotals |
| 2,492,429 |
| 2,825,719 |
| 3,120,154 |
Loans |
| 22,617,981 |
| 24,743,360 |
| 26,607,785 |
Loans and receivables from Banks |
| 7,131 |
| 80,907 |
| 46,441 |
Total |
| 22,625,112 |
| 24,824,267 |
| 26,654,226 |
The loan categories are as follows:
Commercial Loans
Commercial loans: Commercial loans are long- and short-term loans granted to companies, including checking overdraft lines for companies, in Chilean pesos, inflation-linked UF, US$ or Colombian pesos on an adjustable or fixed rate basis, primarily to finance working capital or investments. Commercial loans represent the largest portion of our loan portfolio. Interest accrues daily on a 30-day or 360-day basis. Loan payments are scheduled monthly, biannually or yearly, depending on the terms of the loan.
Foreign trade loans: Foreign trade loans are fixed rate, short-term loans made in foreign currency (principally US$) to finance imports or exports.
Current account debtors: The term “current account debtors” refers to our customers that receive short-term operating loans with a pre-approved credit limit. This category includes overdraft loans.
Factoring operations: Factoring operations refer to the transactions in which our customers assign their accounts receivable (invoices, bills, among others) to us, which allows them to convert their sales into cash regardless of the original terms agreed upon for payment, improving their liquidity, financial indices and also delegating the collection management efforts to us and/or our subsidiaries.
118
Student loans: Loans with a government guarantee for college education, known as Créditos con Aval del Estado (“CAE”), established by law No. 20,027.
Leasing transactions: Leasing transactions are agreements for the financial lease of capital equipment and other property of our clients.
Other loans and receivables: Other loans and receivables refer to outstanding loans including commercial loans not classified in any of the categories described above.
Mortgage Loans
Mortgage loans: This category includes mortgage loans granted to individuals in order to acquire, expand, repair or build residential houses or apartments. Mortgage loans are granted in the form of endorsable or non-endorsable instruments/credit operations and letters of credit, with the former being the most frequently used in the market. This category also includes liaison credits granted before the mortgage loans are perfected; bilateral loans for purposes ancillary to the ones mentioned above; housing leasing operations and other receivables. Any loan granted to repay or restructure all or part of the credits described above belongs in this category.
Mortgage loans include the following sub-categories:
Endorsable mutual mortgage loans: This sub-category includes outstanding balances due from housing loans with mortgage loans which funding was obtained by the placement of mortgage bonds.
Mortgage bonds backed loans: This sub-category includes long-term inflation-indexed mortgage loans (fixed and variable rate) with monthly payments of principal and interest secured by a real property mortgage that are financed by mortgage bonds.
Other mutual mortgage loans: This sub-category includes inflation-indexed long-term mortgage loans (fixed and variable rate) with monthly payments of principal and interest secured by a real property mortgage that are financed by our general borrowings.
Housing Leasing transactions: This sub-category includes outstanding balances owed by tenants in financial leases transactions
Letters of credit loans: This sub-category includes inflation-indexed, fixed or variable rate, long-term loans with monthly payments of principal and interest secured by a real property mortgage that are financed with mortgage notes.
Other loans and receivables: This sub-category includes loans that are ancillary or that complement mutual mortgage loans.
The balances of the renegotiated mortgage loans as of December 31, 2020, 2021 and 2022 were as follows:
As of December 31, | ||||||
| 2020 |
| 2021 |
| 2022 | |
(in millions of Ch$) | ||||||
Opening balance(1) |
| 12,080 |
| 12,893 |
| 12,676 |
Renegotiated(2) |
| 4,021 |
| 4,533 |
| 1,554 |
Recovery(3) |
| (3,010) |
| (4,750) |
| (4,724) |
Write-offs(4) |
| (198) |
| — |
| (198) |
Final balance |
| 12,893 |
| 12,676 |
| 9,308 |
(1) | Corresponds to the renegotiated portfolio opening balance. |
(2) | Corresponds to the additions to the renegotiated loans portfolio during each respective period. |
119
(3) | Corresponds to the recovery (which may include payments, or settlements by judicial action) obtained from renegotiated loans during each respective period. |
(4) | Corresponds to write-offs of renegotiated loans during each respective period. |
Consumer Loans
Consumer loans: This category includes all loans granted to individuals for the purpose of acquiring consumer goods or services, except for student loans. It includes different types of loans (such as loans payable in installments or revolving loans) and outstanding balances arising from the use of credit cards by individuals or overdrafts on checking accounts. In addition, this category includes leasing operations for consumer purposes and other receivables. Any loan granted to repay or restructure all or part of the credits described above belongs in this category.
Consumer loans include the following sub-categories:
Consumer loans: This sub-category comprises loans granted to individuals in Chilean pesos, generally on a fixed rate nominal basis, to finance the purchase of consumer goods or to pay for services. These loans are generally paid in monthly installments which include principal amortization and interest payments.
Current account debtors: This sub-category includes checking overdraft lines granted to individuals, in Chilean pesos, generally on a fixed rate nominal basis and linked to an individual’s checking account.
Credit card debtors: This sub-category includes outstanding balances arising from the use of credit cards by individuals.
Consumer leasing transactions: This sub-category includes outstanding balances owed by tenants of consumer goods under financial leasing transactions.
Other loans and receivables: This sub-category includes other revolving consumer loans and other accounts receivable granted to individuals not included in the above categories.
The balances of the renegotiated consumer loans as of December 31, 2020, 2021 and 2022 were as follows:
As of December 31, | ||||||
| 2020 |
| 2021 |
| 2022 | |
(in millions of Ch$) | ||||||
Opening balance(1) |
| 236,689 |
| 333,080 |
| 336,833 |
Renegotiated(2) |
| 133,404 |
| 49,792 |
| 72,926 |
Recovery(3) |
| (42,103) |
| (50,195) |
| (37,279) |
Write-offs(4) |
| 5,090 |
| 4,156 |
| 1,332 |
Final balance |
| 333,080 |
| 336,833 |
| 373,812 |
(1) | Corresponds to the renegotiated portfolio opening balance. |
(2) | Corresponds to the additions to the renegotiated loans portfolio during each respective period. |
(3) | Corresponds to the recovery (which may include payments, or settlements by judicial action) obtained from renegotiated loans during each respective period. |
(4) | Corresponds to write-offs of renegotiated loans during each respective period. |
As part of our business model we seek to be able to assist our customers when they are experiencing financial problems that cause them to fall behind on their payments. As a result, we make certain concessions when we renegotiate a loan, which may include the following: (i) extension of the payment period; and (ii) modifications to the interest rate based on each customer’s ability to pay.
The above-mentioned concessions are considered on a case-by-case basis. The grant of any concessions will depend on the situation of each customer and pursuant to the analysis by our collection department.
120
Furthermore, we offer a range of products to renegotiate loans, such as payment extensions or new operations to reduce the probability of write-offs.
Regarding the renegotiated loan portfolio, they are classified as impaired when the loan has 90 days past due or when a new loan is approved to customers with over 60 days past due. Therefore, the associated allowance for loan losses is based on a probability of default of 100%. To reclassify a renegotiated loan out of the impaired classification, the normative criteria are defined by the CMF, i.e. the customer must be for at least four consecutive installments and less than 30 days past due. In the case of IFRS 9, we use additional internal criteria, where a renegotiated loan must remain in Stage 3 for at least five months after having fulfilled the normative cure conditions.
Remedial Management Portfolio
The remedial portfolio table set forth below represents the commercial loan portfolio and leasing portfolio managed by the remedial portfolio management unit (internally named Gerencia Mayorista de Reestructuración y Negocios Especiales, or “GERNE”, or “Wholesale Restructuring and Special Situations”), which is part of the credit risk structure. This portfolio includes clients who have sought bankruptcy protection or are in liquidation, renegotiated commercial loans and leasing operations, commercial loans paid regularly but with a certain delay, and commercial loans undergoing legal collection process.
The wholesale restructuring and special situations unit (GERNE) managed a deteriorated exposure (internal classification of B3 or worse according to CMF criteria) of over Ch$500 million in 2022.
As of December 31, | ||||||
| 2020 |
| 2021 |
| 2022 | |
(in millions of Ch$) | ||||||
Opening balance(1) |
| 459,259 |
| 457,242 |
| 658,344 |
Additions to normalization portfolio(2) |
| 129,626 |
| 355,675 |
| 94,007 |
Recovery(3) |
| (86,067) |
| (118,434) |
| (47,728) |
Write-offs(4) |
| (45,576) |
| (36,139) |
| (60,829) |
Final balance(5) |
| 457,242 |
| 658,344 |
| 643,794 |
(1) | Opening balance of the remedial portfolio. |
(2) | Additions to remedial portfolio during each respective period. |
(3) | Recovery (which may include payments, or settlements by judicial action) obtained during each respective period. |
(4) | Loans and leasing operations write-offs of remedial management portfolio during each respective period. |
(5) | Ending balance of the remedial management portfolio (outstanding and contingent exposures). |
Currently, our remedial management portfolio is handled by GERNE. The team has activities such as:
● | Analyzing borrowers’ status and viability and to assess the chances of recovery; |
● | Establishing strategies and action plans in order to manage debtors’ portfolio; |
● | Restructuring debt negotiating new payment schedules; |
● | Transferring debtors to the collection—legal proceedings; |
● | Supervising and monitoring legal collection progress; |
● | Assuring appropriate internal classification; |
● | Assisting and coordinating with the clients, when possible, if a plan of assets disposals is needed to ensure their financial feasibility; |
121
● | Sale of non-performing or distressed portfolio; and |
● | Returning to the commercial areas of the bank, those clients already performing that have overcome their financial stress. |
As established in our remedial management process, customers with a deteriorated economic situation will be transferred to the remedial management unit (normalization team), under the following conditions:
● | Customers with an internal classification of B3 or worse (note that we will transfer the relationship as a whole); |
● | Defaulted customers (for 89 days or more); |
● | Customers involved in judicial proceedings; |
● | Customers that experience a sudden and severe deterioration in their financial position; and |
● | Any customer that could result in a loss to the bank. |
The remedial portfolio management team is responsible for determining any action that will be taken related to the customer (restructuring of debt collection, judicial proceeding, etc.), within a period not exceeding 30 days.
Risk Index of Our Loan Portfolio
The risk index is calculated as ratio of the allowance for loan losses over total loans. Our risk index for commercial loans is calculated by including commercial current account debtors, foreign trade loans, commercial leases, factoring and other commercial loans. Mortgage loans include mortgage leasing arrangements and consumer mortgage loans, which include consumer leasing.
Commercial loans. Our risk index as of December 31, 2020, 2021 and 2022, was 5.0%, 4.3% and 3.2%, respectively. The quality of our commercial loans depends on Chilean GDP growth, interest rates, changes in regulations, the general level of indebtedness and other economic conditions. Commercial loans include foreign trade loans, leasing contracts and factored receivables.
The main objective of our Corporate Risk Management Division is to maintain an adequate risk-return ratio for our assets, providing balance between commercial business goals and sound risk acceptance criteria, in accordance with our strategic objectives. This division’s work is based on its associates’ experience in evaluating credit risk using specialized, segmented management techniques, which has enabled it to build a sound, risk-conscious culture aligned with our strategy.
The Corporate Risk Management Division helps define credit processes for the companies’ business unit, including approval, monitoring and collections practices, using a regulatory and preventive outlook on credit risk. It also actively participates in loan approval and monitoring processes, which has helped us spread a risk-focused culture, reinforced by ongoing training for sales and risk executives. The division also directly manages higher risk loans in order to maximize recovery using a specialized approach.
Mortgage loans. The risk index of our residential mortgage loans as of December 31, 2020, 2021 and 2022, was 1.4%, 1.2% and 1.4%, respectively.
Consumer loans. The risk index of our consumer loans as of December 31, 2020, 2021 and 2022, was 8.9%, 6.7% and 8.8%, respectively.
122
We consider Itaú Chile’s Risk Index to be an important indicator of the quality of Itaú Chile’s loan portfolio.
Our Risk Index (calculated using general ledger balances and applying IFRS 9) as of December 31, 2020 and 2021 was:
|
| % Change |
| ||||
As of December 31, | from |
| |||||
| 2020 |
| 2021 |
| 2021/2020 |
| |
(in millions of Ch$ except for percentages) |
| ||||||
Total loans |
| 22,617,981 |
| 24,743,360 |
| 9.4 | % |
Commercial loans |
| 14,808,799 |
| 15,672,670 |
| 5.8 | % |
Mortgage loans |
| 5,316,753 |
| 6,244,971 |
| 17.5 | % |
Consumer loans |
| 2,492,429 |
| 2,825,719 |
| 13.4 | % |
Allowances for loan losses |
| 1,041,873 |
| 947,812 |
| (9.0) | % |
Commercial loans |
| 747,617 |
| 681,029 |
| (8.9) | % |
Mortgage loans |
| 73,465 |
| 77,298 |
| 5.2 | % |
Consumer loans |
| 220,791 |
| 189,485 |
| (14.2) | % |
Allowances for loan losses as a percentage of total loans |
| 4.6 | % | 3.8 | % | (17.4) | % |
Commercial loans |
| 5.0 | % | 4.3 | % | (14.0) | % |
Mortgage loans |
| 1.4 | % | 1.2 | % | (14.3) | % |
Consumer loans |
| 8.9 | % | 6.7 | % | (24.7) | % |
During 2021, our loan portfolio and, consequently, our allowances for loan losses, were positively impacted due to better payment performance and recovery from the COVID-19 pandemic lockdowns as well as a low comparison base given lower economic growth in 2020.
Our loan portfolio increased 9.4% in 2021, driven by both the Chilean and Colombian portfolios. Mortgage and commercial loans in Chile, as well as the retail business in Colombia, particularly the expansion of consumer loans, led to the overall portfolio increase. Our mortgage loans, which is the business unit with the lowest level of risk, performed well in both countries, increasing from Ch$5,316,753 million in 2020 to Ch$6,244,971 million in 2021 and our consumer loans, the business unit with the highest level of risk, increased from Ch$2,492,429 million in 2020 to Ch$2,825,719 million in 2021. As of December 31, 2021, commercial loans, mortgage loans and consumer loans represented 63.3%, 25.2% and 11.4% of our total loan portfolio, respectively.
Our Risk Index (calculated using general ledger balances and applying IFRS 9) as of December 31, 2021 and 2022 was:
|
| % Change |
| ||||
As of December 31, | from |
| |||||
| 2021 |
| 2022 |
| 2022/2021 |
| |
(in millions of Ch$ except for percentages) |
| ||||||
Total loans |
| 24,743,360 |
| 26,607,785 |
| 7.5 | % |
Commercial loans |
| 15,672,670 |
| 16,457,021 |
| 5.0 | % |
Mortgage loans |
| 6,244,971 |
| 7,030,610 |
| 12.6 | % |
Consumer loans |
| 2,825,719 |
| 3,120,154 |
| 10.4 | % |
Allowances for loan losses |
| 947,812 |
| 895,974 |
| (5.5) | % |
Commercial loans |
| 681,029 |
| 521,199 |
| (23.5) | % |
Mortgage loans |
| 77,298 |
| 100,844 |
| 30.5 | % |
Consumer loans |
| 189,485 |
| 273,931 |
| 44.6 | % |
Allowances for loan losses as a percentage of total loans |
| 3.8 | % | 3.4 | % | (10.5) | % |
Commercial loans |
| 4.3 | % | 3.2 | % | (25.6) | % |
Mortgage loans |
| 1.2 | % | 1.4 | % | 16.7 | % |
Consumer loans |
| 6.7 | % | 8.8 | % | 31.3 | % |
During 2022, our loan portfolio and, consequently, our allowances for loan losses, were positively impacted primarily due to an improvement in the commercial segment, offset by deterioration in the consumer segment.
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Our loan portfolio increased 7.5%, which was mainly driven by an increase in mortgage and consumer loans in Chile, as well as in the mortgage business in Colombia. Our mortgage loans, which is the business unit with the lowest level of risk, performed well, increasing from Ch$6,244,971 million in 2021 to Ch$7,030,610 million in 2022, and our consumer loans, the business unit with the highest level of risk, increased from Ch$2,825,719 million in 2021 to Ch$3,120,154 million in 2022. As of December 31, 2022, commercial loans, mortgage loans and consumer loans represented 61.9%, 26.4% and 11.7% of our total loan portfolio, respectively.
Maturity and Interest Rate Sensitivity of Loans
The following table sets forth an analysis of our loans by type and time remaining to maturity as of December 31, 2022:
|
|
| Due after |
| Due after | |||||
1 year | 5 year | Balance as of | ||||||||
Due in 1 | through | through | Due after | December 31, | ||||||
| year or less |
| 5 years |
| 15 years | 15 years | 2022 | |||
| (in millions of Ch$ as of December 31, 2022) | |||||||||
Commercial loans |
| 7,199,681 | 4,184,349 | 904,692 | 509,732 | 12,798,454 | ||||
Foreign trade loans |
| 1,657,399 | 4,201 | 431 | 30,463 | 1,692,494 | ||||
Current account debtors |
| 85,903 | — | — | 31,294 | 117,197 | ||||
Factoring operations |
| 350,952 | — | — | — | 350,952 | ||||
Student loans |
| 11,075 | 41,134 | 210,662 | 291,642 | 554,513 | ||||
Leasing transactions |
| 36,601 | 477,813 | 408,847 | 20,150 | 943,411 | ||||
Other loans and receivables |
| — | — | — | — | — | ||||
Subtotals |
| 9,341,611 |
| 4,707,497 |
| 1,524,632 | 883,281 | 16,457,021 | ||
Letters of credit loans |
| 239 | 7,776 | 5,343 | 10 | 13,368 | ||||
Endorsable mutual mortgage loans |
| 488 | 18,921 | 7,078 | 49,049 | 75,536 | ||||
Other mutual mortgage loans |
| 480,978 | 1,568,777 | 88,012 | 4,482,332 | 6,620,099 | ||||
Leasing transactions |
| 1,045 | 9,901 | 263,590 | — | 274,536 | ||||
Other loans and receivables |
| — | 29,569 | 55 | 17,447 | 47,071 | ||||
Subtotals |
| 482,750 |
| 1,634,944 |
| 364,078 | 4,548,838 | 7,030,610 | ||
Consumer loans |
| 761,114 | 1,126,666 | 287,270 | 1,457 | 2,176,507 | ||||
Current account debtors |
| 143,491 | — | — | — | 143,491 | ||||
Credit card debtors |
| 763,486 | — | — | — | 763,486 | ||||
Consumer leasing transactions |
| 29 | 47 | — | 593 | 669 | ||||
Other loans and receivables |
| 35,876 | — | 125 | — | 36,001 | ||||
Subtotals |
| 1,703,996 |
| 1,126,713 |
| 287,395 | 2,050 | 3,120,154 | ||
Subtotal loans |
|
|
|
|
|
| 26,607,785 | |||
Loans and receivables to banks |
|
|
|
|
|
| 46,441 | |||
Total loans |
|
|
|
|
|
| 26,654,226 | |||
The following table presents the interest rate analysis of our outstanding loans due after one year as of December 31, 2022.
| ||
| As of December 31, 2022 | |
Variable interest rate |
|
|
Ch$ |
| 488,384 |
UF |
| 1,759,060 |
Ch$ indexed to US$ |
| 319,113 |
Foreign currency |
| 1,558,115 |
Subtotal |
| 4,124,672 |
Fixed interest rate |
|
|
Ch$ |
| 2,019,526 |
UF |
| 5,981,365 |
Ch$ indexed to US$ |
| 1,659,675 |
Foreign currency |
| 1,294,191 |
Subtotal |
| 10,954,756 |
Total |
| 15,079,428 |
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The following table sets forth an analysis of our foreign loans by type and time remaining to maturity as of December 31, 2022:
Due in 1 |
|
|
| |||||||
year | Due after 1 year | Due after 5 | Due after 5 year | |||||||
2022 |
| or less |
| through 5 years |
| year |
| through 15 years |
| Total |
| (in millions of Ch$ as of December 31, 2022) | |||||||||
Commercial loans |
| 4,405 | — | — | — | 4,405 | ||||
Foreign loans (*) |
| 1,768,614 | 1,655,959 | 1,412,489 | — | 4,837,062 | ||||
Total |
| 1,773,019 |
| 1,655,959 | 1,412,489 |
| — |
| 4,841,467 | |
(*) Includes commercial, mortgage and consumer loans.
Foreign Country Outstanding Loans
Our cross-border outstanding loans are principally trade-related. The table below lists our total amounts outstanding to borrowers in foreign countries as of December 31, 2020, 2021 and 2022. This table does not include foreign trade-related loans to Chilean borrowers.
| As of December 31, | |||||
| 2020 |
| 2021 |
| 2022 | |
(in millions of Ch$) | ||||||
Argentina | 31,099 | 30,883 | 25,329 | |||
Bahamas | — | — | — | |||
Brazil | 12,840 | 42,341 | 44,167 | |||
British Virgin Islands | — | — | — | |||
Colombia | 4,649,475 | 4,944,875 | 4,073,644 | |||
Denmark | — | — | 52,308 | |||
El Salvador | — | 26,179 | 33,292 | |||
France | — | — | — | |||
Luxembourg | — | — | — | |||
Mexico | 31,471 | 17,807 | 12,856 | |||
Netherlands | — | — | ||||
Panama | 8,060 | 9,296 | 27,050 | |||
Perú | 238,899 | 310,929 | 389,945 | |||
Switzerland | — | — | — | |||
United States | 161,666 | 128,060 | 182,073 | |||
Uruguay | 884 | 997 | 803 | |||
Total | 5,134,394 | 5,511,367 | 4,841,467 | |||
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We also maintain deposits abroad (primarily demand deposits) in foreign banks, as needed to conduct our foreign trade transactions. The table below lists the amounts of foreign deposits by country as of December 31, 2020, 2021 and 2022.
| As of December 31, | |||||
| 2020 |
| 2021 |
| 2022 | |
(in millions of Ch$) | ||||||
Australia | (17) |
| 37 |
| 1 | |
Belgium | 65 |
| — |
| — | |
Canadá | 272 |
| 89 |
| 153 | |
China | 372 |
| 35 |
| 11,138 | |
Colombia | 227,560 |
| 34,292 |
| 18,621 | |
Denmark | — |
| — |
| — | |
England | — |
| — |
| — | |
Germany | 24,141 |
| 14,107 |
| 21,783 | |
Italy | — |
| — |
| — | |
Japan | 2,054 |
| 8,365 |
| 530 | |
London | — |
| — |
| — | |
México | 1,098 |
| 12 |
| — | |
New Zealand | 8 |
| — |
| — | |
Norway | 1 |
| — |
| 9 | |
Panama | 40 |
| 91 |
| 716 | |
Peru | 28,003 |
| 276 |
| 254 | |
South Korea | — |
| — |
| — | |
Spain | 2,273 |
| 4,277 |
| 1,623 | |
Sweden | 158 |
| 72 |
| 206 | |
Switzerland | 210 |
| 486 |
| 290 | |
United Kingdom | 10,960 |
| 13,045 |
| 7,378 | |
United States | 1,443,236 |
| 1,917,244 |
| 365,586 | |
Venezuela | — |
| — |
| — | |
Total | 1,740,434 |
| 1,992,428 |
| 428,288 | |
Credit Risk Governance
Credit risk management is the responsibility of the Corporate Risk Management Division, which reports to the chief executive officer (or the “CEO”). Its objective is to ensure that risk management is a competitive advantage for the Bank, through an integral management that allows the business areas to achieve their objectives, in an environment of adequate control and alignment with the risk strategy of the Bank.
To accomplish this goal, the Corporate Risk Management Division combines, among others, a well-defined credit process in terms of approval, monitoring and collection procedures, a strong supervision of all stages of the credit cycle, monitoring the quality and performance of our loan portfolio and taking promptly measures over potentially non-performing loans, while ensuring strong compliance of the legal, regulatory and normative framework.
The credit risk management and control structure is segregated in Wholesale Credit Risk, Retail Credit Risk, Credit Risk Control, Operational Risk and Compliance, Cybersecurity and Fraud.
Wholesale Credit Risk is accountable for the credit process of the wholesale banking business segments comprised of Corporate, Real Estate Companies, Large Enterprises, Financial Institutions, Representative Office in New York and Peru, Risk Countries, Subsidiaries and Wholesale Remedial Unit.
Retail Credit Risk is responsible for the credit acceptance process of the Bank’s retail segments, comprised of Retail Companies, SME’s, Private Bank, Personal Bank, Itaú Branches and Banco Condell.
Credit Risk Control has a transversal function focused on monitoring the performance of the credit portfolio, assets classification and models development. Additionally, it verifies the consistency of credit policies and procedures and also generates information and analysis related to credit risk for the decision making of the different units. Finally, Credit Risk
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Control is responsible for monitoring the risk appetite by client, economic sectors, business groups and type of financing, among others.
Operational Risk and Compliance is responsible for developing and supplying the methodologies, tools, systems, infrastructure and governance necessary to support the integrated management of operational risk and internal controls in the Bank’s activities. Additionally, it is responsible for ensuring that the Bank is in full compliance with relevant laws and regulations and protecting the Bank against money laundering and the financing of terrorism.
Cybersecurity and Fraud has a transversal function, focused on the application of principles and guidelines to maintain the confidentiality, integrity, and availability of information of the Bank, its clients and the general public, as well as the prevention, detection and containment of cyberattacks. Additionally, it is responsible for avoiding, mitigating, investigating and managing fraud (contingent or potential) targeting our clients, whether carried out through internal or external threats.
Credit Review Process
Credit risk and the exposure to be assumed with regard to our clients are evaluated in accordance with the credit policies and the risk appetite that have been approved by the board of directors.
In the case of Wholesale Banking customers, the assessment focuses on the credit history and on the reputation and management capacity of their owners, on their market position and on the demand for their products or services, on their current and projected cash, their solvency and, when applicable, on the guarantees offered in connection with the loan. Credit limits are determined not only on the basis of individual clients, but on the direct and indirect credit risk of entire business groups.
In the case of Retail Banking customers, we mainly use a centralized evaluation and decision-making process, but also a case-by-case assessment when the applicant does not fit the standard model. The credit approval process is based on an assessment of the customer’s credit behavior in the financial system, considering current debt, credit history, income and expense level, ability to pay, personal assets and previous experience (if any) with the Bank.
Risk analysis, both of our Wholesale and Retail Banking customers, is periodically performed. In Wholesale Banking, customers’ credit exposure is reviewed at least once a year, and credit limits can be reduced if potential weaknesses in loan repayment capability are detected.
Wholesale Credit Risk
The credit evaluation process is carried out on a case-by-case assessment of each of our customers. Our internal approval governance structure ensures that credit decisions are adjusted to the risk acceptance parameters, identifying potential risks while keeping a healthy composition of our loan portfolio, aligned with our strategy, commercial objectives and risk appetite.
Before granting credits to a wholesale customer, we perform an analysis to assign an internal credit risk rating to each client. This internal credit risk rating is based on information such as: the client’s financial situation, cash generating capabilities and the current and projected situation on the economic sector in which it operates.
Credit decisions are made on the basis of the precedents indicated in the procedures manual of each business segment, with at least the following elements of analysis: market and competition, current and projected financial situation and cash flow, customer experience, relationship with the Bank and collateral.
Credit committees are structured according to the customer’s credit risk rating and the credit limit submitted to the committee’s decision. Any rejection by the committee of a credit proposal may be raised to be evaluated by the upper committee instance.
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Retail Credit Risk
In Retail Banking, credit risk management is responsible for the credit evaluation of all the segments that are part of the Retail Business Unit.
The credit risk management process for customers of the different segments of Retail Banking is composed of the following stages:
Credit Initiation
Our credit initiation process consists of:
● | Admission Scores, using internal and external information. Risk cuts are applied according to each customer segment. Credit requests collect socio-demographic information that supports our risk analysis and our control of compliance with credit policies. |
● | Accountability and Responsibility (tied to incentive plans). Branch managers know their customers and they are responsible for credit decisions, but they must first seek approval with a credit risk officer. |
● | Analytical Driven Sales Process. We know the customers that we want, and we guide the search for prospects, according to this definition. We permanently offer pre-approved offers of consumer loans, credit cards and revolving credit lines to our current customers, based on advanced analytics and ensuring that the risk profile is within the cut-off threshold and the parameters established under our credit policy. Additionally, we use traditional credit review processes, where credit proposals are evaluated and authorized by a credit expert. |
● | Control Environment. To assess the loan authorization ability (approving credit worthy customers and declining non-credit worthy customers), early delinquency rates are periodically monitored, and the sales mix is controlled frequently, according to risk categories. |
Maintenance.
We strive to have high market share in the most profitable business units (low-medium risk and medium-high usage) and low market share in the lowest profitable business units (high risk or low usage). The maintenance process is composed of:
● | Renewals/Non-Renewals (Revolving Products). Renewals and non-renewals are based on customer payment behavior and profitability. |
● | Campaigns. Top-up and cross-selling offers are implemented. Credits are offered permanently to our current customers, such as pre-approved installments credits, revolving credit lines and credit cards. Our goal is to maximize the share of client base in our most profitable business units. |
The maintenance process is based on the analysis of databases, development of behavior models and gradually incorporating new advanced analytics methodologies.
Collection.
We focus on having a high-quality collection process, with a consistent strategy in terms of products, policies, suppliers, means of payment and specialized vendors. The collection process is composed of:
● | Collection Strategy. Our collection strategy is currently based on our products, business segments, delinquency lines, collection channels, geographic coverage, and applied test policies (champions and challengers). Delinquent debtors are reported to credit bureaus. |
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● | Collection Operations. Our collection operations strategy is based on internal teams and suppliers. The collection operations teams provide coverage through different channels (e.g., digital collection, telephone collection, property collection, collection in branches and judicial collection) and operate under a performance model and merit considerations. In addition, our continuity plan requires the use of external collection emergencies in cases of emergency or union instability, among others. |
● | Policies and Products. Rewrites, standardization offers, and payments agreements are made as necessary. Our objective is to maximize the recovery of capital. |
● | Control Environment and Support. Reliable information management systems are used, which allow us to have a controlled process. We have a collection system and predictive dialers for telephony. |
Charge-off Policy, Recovery and Planning.
The charge-off policy, recovery and planning process consists of:
● | Charge-off Policy. As a general rule, charge-offs should be done when all collection efforts have been exhausted. These charge-offs consist of derecognition from the consolidated statements of financial position of the corresponding loans transactions in their entirety, and, therefore, include portions of loans that were not past due in the case of installments loans or leasing transactions (no partial charge-offs exist). |
● | Loan Loss Allowance. History of defaults, recoveries, write-offs, and collection expenses are used to calculate the allowances of each portfolio. Back testing analyses are periodically performed in order to ensure the right coverage, as well as the correct models performance. Forward-looking information and all considerations required by applicable regulations and standards are considered. |
Classification of Loan Portfolio
Loan portfolio is divided into: (1) consumer loans (including loans granted to individuals for the purpose of financing the acquisition of consumer goods or payment of services); (2) mortgage loans (including loans granted to individuals in order to acquire, expand, repair or build residential houses or apartments, in which the value of the property covers at least 125% of the amount of the loan); and (3) commercial loans (long- and short-term loans granted to companies).
Impairment Assessment
The impairment model applies to all financial assets measured at amortized cost and debt securities measured at fair value through other comprehensive income, or “FVTOCI”, including commitment and contingent loans. Investments in equity are outside of the scope of the new impairment requirements.
We account for ECL related to financial assets measured at amortized cost as a loss allowance in the statements of financial position, but the carrying amount of these assets is stated net of the loss allowance. ECL related to contingent loans is accounted for as a provision in the statements of financial position. We recognize in profit or loss, as an impairment gain or loss, the amount of ECL (or reversal) that was required to adjust the loss allowance at the reporting date to the amount that is required to be recognized in accordance with IFRS 9 for financial assets measured at amortized cost and contingent loans.
The model uses a dual measurement approach, under which the loss allowance is measured as either:
● | 12-month ECL |
● | Lifetime ECL |
We have defined default on an individual or collective basis as follows: Individually assessed loans are those for which the allowance for loan losses is calculated on an individual basis by applying the discounted cash flows methodology.
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Collectively assessed customers are divided into two main groups in order to leverage available information. These groups are (i) the “corporate portfolio” comprised of those customers for which we have a credit risk rating according to the internal risk rating policy that is consistent with the CMF rules and (ii) the “retail or group portfolio” comprised of those customers which are aggregated into pools of loans that share similar characteristics in terms of risk profile. In addition, the customers’ risk profile groups within the corporate portfolio are built using the CMF classification as the base to assess the IFRS 9 Probability of Default (“PD”).
● | Individual: when exposure is more than 89 days past due, it has been restructured, it is in judicial collection, or it has been written-off. |
● | Collective: when exposure is more than 89 days past due, it has been restructured, or it has been identified as impaired by an internal risk committee. |
For collective assessment purposes, financial assets are grouped based on characteristics of shared credit risk, considering the type of instrument, credit risk classifications, initial recognition date, remaining term, industry, geographical location of the counterparty, among other significant factors.
The ECL measurement basis depends on whether there has been a “significant increase in credit risk” (“SICR”) since initial recognition. Based on changes in credit quality since initial recognition, IFRS 9 outlines a “three-stage” model impairment in accordance with the following diagram:
Change in credit quality since initial recognition
Stage 1 |
| Stage 2 |
| Stage 3 |
|---|---|---|---|---|
Initial recognition | SICR since initial recognition | Credit impaired assets | ||
12-month ECL | Lifetime ECL | Lifetime ECL |
At the end of each reporting period, we evaluate whether a financial instrument’s credit risk has significantly increased since initial recognition or whether an asset is considered to be credit-impaired, and consequently classify financial instruments into the respective stage:
● | Stage 1: When loans not purchased as credit-impaired are first recognized, the Bank recognizes an allowance based on 12-month ECL. Stage 1 loans also include facilities where the credit risk has improved, and the loan has been returned to Stage 1. |
● | Stage 2: When a loan has shown a significant increase in credit risk since origination, we record an allowance based on lifetime ECL. Stage 2 loans also include facilities where the credit risk has improved, and the loan has been returned to Stage 2. |
● | Stage 3: Loans considered credit-impaired. The Bank records an allowance based on lifetime ECL, setting the Probability of Default (“PD”) at 100%. |
Our assessment of a SICR and the calculation of ECL incorporate forward-looking information. We perform historical analysis and identify the key economic variables that impact credit risk and ECL for each portfolio. These can include GDP, inflation, interest rates and unemployment, among others. Where applicable, we incorporate these economic variables and their associated impacts into our models.
Credit risk assessment and forward-looking information (including macro-economic factors), includes quantitative and qualitative information based on our historical experience, some examples are:
a. | Financial or economic conditions that are expected to cause a significant change in the borrower’s ability to meet its debt obligations. |
b. | An actual or expected internal credit rating downgrade for the borrower or decrease in behavioral scoring. |
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c. | Significant increases in credit risk on other financial instruments of the same borrower. |
If contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial credit recognition, but we do not consider this an absolute indicator. We did not rebut the backstop presumption of IFRS 9 relating to SICR or default.
Additionally, we use the below criteria for SICR based on increased risk:
● | Individual: the risk classifications granted by the CMF, looking for changes between the initial recognition and the reference in time of the expected credit loss calculation is made. |
● | Collective: comparing lifetime PDs of operations at the time of initial recognition against the reference in time of the ECL calculation is made. |
Expected Credit Loss Measurement
The ECL is the probability-weighted estimate of credit losses, i.e. the present value of all cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The three main components to measure the ECL are:
● | PD: The probability of default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period if the facility has not been previously derecognized and is still in the portfolio. |
● | LGD: The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. |
● | EAD: The exposure at default is an estimate of the exposure at a future default date, considering expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdown on committed facilities, and accrued interest from missed payments. |
For measuring 12-month and lifetime ECL, cash shortfalls are identified as follows:
● | 12-month ECL: the portion of lifetime ECL that represents the ECL that result from default events on the financial instruments that are possible within the 12 months after the reporting date. |
● | Lifetime ECL: the ECL that result from all possible default events over the expected life of the financial instrument. |
We use a multi-factor analysis to perform our credit risk analysis. The type of portfolio or transactions, and whether individually or collectively assessed.
We divide our portfolio into commercial loans, mortgage loans, consumer loans and contingent loans.
We evaluate individually whether objective evidence of impairment exists for loans that are individually significant, then collectively assess loans that are not individually significant and loans which are significant but for which there is no objective evidence of impairment available under individual assessment.
Contingent loans
We enter into various irrevocable loan commitments and contingent liabilities. Even though these obligations may not be recognized on our statements of financial position, they contain credit risk and, therefore, form part of our overall risk.
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When we estimate the ECL for contingent loans, we estimate the expected portion of the loan commitment that will be drawn down over its expected life.
Forward-looking information
The ECL model includes a broad range of forward-looking information as economic inputs, such as:
● | Copper Price |
● | Unemployment rates |
● | Central Bank interest rates |
● | GDP |
● | Monthly Index of Economic Activity |
● | Inflation rates |
Modifications of financial assets
When a loan measured at amortized cost has been renegotiated or modified but not derecognized, the Bank recognizes the resulting gains or losses as the difference between the carrying amount of the original loans and modified contractual cash flows discounted using the “Effective Interest Rate” (“EIR”) before modification. The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortized cost of a financial liability.
For ECL estimation purposes of financial assets that have been modified, we are required to distinguish between modification that results in derecognition from those that do not result in derecognition. By internal definition, the generation of a modified asset must derecognize the original asset. However, there are specific situations whereby a modified asset may have not been derecognized, for a limited period of time. Due to the above, the SICR evaluation is made by comparing the risk of the financial asset at the reporting date versus the initial recognition date. Additionally, for the calculation of ECL, modified assets recognize a higher risk than the original asset in order to differentiate their risk with respect to unmodified assets.
Collateral
We seek to use collateral to mitigate our credit risks on financial assets, where possible. Types of collateral are cash, securities, letters of credit, real estate, and inventories. Collateral, unless repossessed, is not recorded in our statements of financial position. However, the fair value of collateral affects the calculation of ECLs. The main collateral associated with mortgage loans, for example, are real estate, which is valued based on data provided by specialized third parties.
The estimation of ECL reflects the cash flows expected from collateral and other credit enhancement that are part of the contractual terms of the financial instruments.
When an asset (real estate) is repossessed, it is transferred to assets held for sale at its fair value less cost to sell and classified as non-financial assets at the repossession date.
Guarantees
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it occurs because a specified debtor fails to make payment when due, in accordance with the terms of a debt instruments. Such financial guarantees are given to banks, financial institutions, and others on behalf of customers to secure loans, overdrafts and other banking facilities.
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Financial guarantee contracts are initially measured at fair value and subsequently measured at the higher of:
● | The amount of the loss allowance (calculated as described in Note 1 of our consolidated financial statements); and |
● | The premium received on initial recognition less income recognized in accordance with the principles of IFRS 15. |
Loan commitments provided by us are measured as the amount of the loss allowance (calculated as described in Note 1 of our consolidated financial statements in respect of accounting policies and ECL criteria, with further details contained in Note 36 of our consolidated financial statements in respect of risk management considerations and specific criteria by country). We have not provided any commitment to provide loans at a below-market interest rate, or that can be settled net in cash or by delivering or issuing another financial instrument.
Charge-offs
The gross carrying amount of a financial asset is reduced when there is no reasonable expectation of recovery. A charge-off constitutes a derecognition event of the corresponding loan transaction in its entirety, and therefore, include portions not past-due for installments loans or leasing operation (no partial charge-off).
Subsequent recoveries of amounts previously charged-off are credited to the income statements, as recovery of loans previously charged-off, as a deduction from provisions for loan losses.
Loan and accounts receivable charge-offs are recorded for overdue and current installments based on the time periods expired since reaching overdue status.
Total Loans—Models Based on Collective Analysis
The following tables provide statistical data regarding the classification of our loans as of the dates indicated below, applying the classification methodology described above:
As of December 31, 2020 |
| ||||||
Allowances |
| ||||||
| Total Loans |
| for loan losses |
| Risk Index (%) | ||
| (in millions of Ch$ except for percentages) | ||||||
Commercial |
| 12,028,628 |
| 380,016 |
| 3.16 | % |
Leasing commercial |
| 940,989 |
| 24,402 |
| 2.59 | % |
Factoring commercial |
| 155,540 |
| 4,053 |
| 2.61 | % |
Student loans |
| 594,688 |
| 17,702 |
| 2.98 | % |
Consumer |
| 2,490,962 |
| 220,609 |
| 8.86 | % |
Leasing consumer |
| 1,467 |
| 182 |
| 12.41 | % |
Mortgage |
| 5,009,179 |
| 61,747 |
| 1.23 | % |
Leasing mortgage |
| 307,574 |
| 11,718 |
| 3.81 | % |
| As of December 31, 2021 |
| |||||
Allowances |
| ||||||
| Total Loans |
| for loan losses |
| Risk Index (%) |
| |
(in millions of Ch$ except for percentages) | |||||||
Commercial | 12,729,331 |
| 377,418 |
| 2.96 | % | |
Leasing commercial | 948,807 |
| 18,817 |
| 1.98 | % | |
Factoring commercial | 243,667 |
| 5,260 |
| 2.16 | % | |
Student loans | 554,096 |
| 23,443 |
| 4.23 | % | |
Consumer | 2,824,936 |
| 189,440 |
| 6.71 | % | |
Leasing consumer | 783 |
| 45 |
| 5.75 | % | |
Mortgage | 5,931,804 |
| 65,684 |
| 1.11 | % | |
Leasing mortgage | 313,167 |
| 11,614 |
| 3.71 | % | |
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| As of December 31, 2022 |
| |||||
Allowances |
| ||||||
| Total Loans |
| for loan losses |
| Risk Index (%) |
| |
(in millions of Ch$ except for percentages) | |||||||
Commercial |
| 13,563,149 | 328,253 | 2.42 | % | ||
Leasing commercial |
| 943,411 | 17,953 | 1.90 | % | ||
Factoring commercial |
| 350,952 | 8,138 | 2.32 | % | ||
Student loans |
| 554,513 | 20,505 | 3.70 | % | ||
Consumer |
| 3,119,485 | 273,887 | 8.78 | % | ||
Leasing consumer |
| 669 | 44 | 6.58 | % | ||
Mortgage |
| 6,756,074 | 91,485 | 1.35 | % | ||
Leasing mortgage |
| 274,536 | 9,359 | 3.41 | % | ||
Consumer Loans—Models Based on Retail Analysis
As of December 31, 2020 |
| ||||||
Allowances for loan |
| ||||||
| Total Loans |
| losses |
| Risk Index (%) |
| |
(in millions of Ch$ except for percentages) |
| ||||||
Credit cards |
| 466,804 |
| 63,428 |
| 13.6 | % |
Lines of credit |
| 154,458 |
| 13,391 |
| 8.7 | % |
Other revolving |
| 2,680 |
| 269 |
| 10.0 | % |
Installment consumer loans |
| 1,311,198 |
| 68,891 |
| 5.3 | % |
Card loans |
| 3,522 |
| 1,048 |
| 29.8 | % |
Salary discount loans |
| 319,404 |
| 16,394 |
| 5.1 | % |
Renegotiation |
| 232,896 |
| 57,188 |
| 24.6 | % |
Others |
| 1,467 |
| 182 |
| 12.4 | % |
As of December 31, 2021 |
| ||||||
Allowances for loan |
| ||||||
| Total Loans |
| losses |
| Risk Index (%) |
| |
(in millions of Ch$ except for percentages) |
| ||||||
Credit cards |
| 607,931 | 39,862 | 6.6 | % | ||
Lines of credit |
| 144,917 | 10,038 | 6.9 | % | ||
Other revolving |
| 1,210 | 99 | 8.2 | % | ||
Installment consumer loans |
| 1,507,754 | 77,185 | 5.1 | % | ||
Card loans |
| 1,510 | 127 | 8.4 | % | ||
Salary discount loans |
| 391,577 | 18,848 | 4.8 | % | ||
Renegotiation |
| 170,037 | 43,281 | 25.5 | % | ||
Others |
| 783 | 45 | 5.7 | % | ||
As of December 31, 2022 |
| ||||||
Allowances for loan |
| ||||||
| Total Loans |
| losses |
| Risk Index (%) |
| |
(in millions of Ch$ except for percentages) |
| ||||||
Credit cards |
| 762,478 | 79,027 | 10.4 | % | ||
Lines of credit |
| 178,488 | 24,720 | 13.8 | % | ||
Other revolving |
| 1,005 | 73 | 7.3 | % | ||
Installment consumer loans |
| 1,731,945 | 107,283 | 6.2 | % | ||
Card loans |
| 514 | 34 | 6.6 | % | ||
Salary discount loans |
| 287,800 | 16,609 | 5.8 | % | ||
Renegotiation |
| 157,256 | 46,143 | 29.3 | % | ||
Others |
| 669 | 44 | 6.6 | % | ||
134
Analysis of Our Loan Classification
The following tables provide statistical data regarding the classification of our loans as of the dates indicated below, applying the classification explained in prior pages:
2020
Corporate Portfolio | Group Portfolio |
| |||||||||||||||||||||||||||
As of December 31, 2020 |
| A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Impaired | Subtotal | Normal | Impaired | Total | General |
| |||||||||||||
(in millions of Ch$) |
| ||||||||||||||||||||||||||||
Loans and receivables from banks |
| — |
| — |
| 7,131 |
| — |
| — |
| — |
| — |
| — |
| — |
| 7,131 |
| — |
| — |
| — |
| 7,131 | |
Allowances for loan losses |
| — |
| — |
| 10 |
| — |
| — |
| — |
| — |
| — |
| — |
| 10 |
| — |
| — |
| — |
| 10 | |
As percentage of total loans |
| — | % | — | % | 0.14 | % | — | % | — |
| — |
| — |
| — |
| — |
| 0.14 | % | — |
| — |
| — |
| 0.14 | % |
Loans and receivable from customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial loans |
| 75,982 | 450,537 | 1,943,514 | 3,634,056 | 2,378,316 | 737,887 | 360,664 | 135,586 | 1,127,771 | 10,844,313 | 1,196,835 | 131,059 | 1,327,894 | 12,172,207 | ||||||||||||||
Foreign trade loans |
| 86,639 | 58,437 | 122,366 | 248,956 | 230,882 | 63,693 | 14,570 | — | 2,386 | 827,929 | 14,842 | 4,315 | 19,157 | 847,086 | ||||||||||||||
Checking account debtors |
| — | — | 1,412 | 11,007 | 13,414 | 7,533 | 2,757 | 807 | 4,297 | 41,227 | 22,485 | 6,414 | 28,899 | 70,126 | ||||||||||||||
Factoring operations |
| 1,360 | 4,566 | 39,089 | 49,114 | 37,481 | 10,873 | 2,111 | — | 385 | 144,979 | 10,561 | — | 10,561 | 155,540 | ||||||||||||||
Student loans |
| — | — | — | — | — | — | — | — | — | — | 521,846 | 72,842 | 594,688 | 594,688 | ||||||||||||||
Leasing transactions |
| — | 1,355 | 75,481 | 279,461 | 280,605 | 99,300 | 51,653 | 24,978 | 67,420 | 880,253 | 56,112 | 4,624 | 60,736 | 940,989 | ||||||||||||||
Other loans and receivables |
| — | 52 | 223 | 923 | 11,824 | 757 | 177 | 83 | 396 | 14,435 | 12,038 | 1,690 | 13,728 | 28,163 | ||||||||||||||
Subtotal Commercial loans |
| 163,981 | 514,947 | 2,182,085 | 4,223,517 | 2,952,522 | 920,043 | 431,932 | 161,454 | 1,202,655 | 12,753,136 | 1,834,719 | 220,944 | 2,055,663 | 14,808,799 | ||||||||||||||
Allowances for loan losses |
| 66 | 254 | 3,625 | 35,619 | 61,686 | 38,539 | 10,755 | 13,264 | 497,694 | 661,502 | 29,127 | 56,988 | 86,115 | 747,617 | ||||||||||||||
As percentage of total loans |
| 0.04 | % | 0.05 | % | 0.17 | % | 0.84 | % | 2.09 | % | 4.19 | % | 2.49 | % | 8.22 | % | 41.36 | % | 5.19 | % | 1.59 | % | 25.79 | % | 4.19 | % | 5.05 | % |
Consumer loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 2,327,924 | 164,505 | 2,492,429 | 2,492,429 | ||||
Allowances for loan losses |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 101,880 | 118,911 | 220,791 | 220,791 | ||||
As percentage of total loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 4.38 | % | 72.28 | % | 8.86 | % | 8.86 | % |
Mortgage loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 5,083,078 | 233,675 | 5,316,753 | 5,316,753 | ||||
Allowances for loan losses |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 29,842 | 43,623 | 73,465 | 73,465 | ||||
As percentage of total loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 0.59 | % | 18.67 | % | 1.38 | % | 1.38 | % |
Total loans and receivable to customers |
| 163,981 | 514,947 | 2,182,085 | 4,223,517 | 2,952,522 | 920,043 | 431,932 | 161,454 | 1,202,655 | 12,753,136 | 9,245,721 | 619,124 | 9,864,845 | 22,617,981 | ||||||||||||||
Allowances for loan losses |
| 66 | 254 | 3,625 | 35,619 | 61,686 | 38,539 | 10,755 | 13,264 | 497,694 | 661,502 | 160,849 | 219,522 | 380,371 | 1,041,873 | ||||||||||||||
As percentage of total loans |
| 0.04 | % | 0.05 | % | 0.17 | % | 0.84 | % | 2.09 | % | 4.19 | % | 2.49 | % | 8.22 | % | 41.38 | % | 5.19 | % | 1.74 | % | 35.46 | % | 3.86 | % | 4.61 | % |
135
2021
Corporate Portfolio | Group Portfolio |
| |||||||||||||||||||||||||||
As of December 31, 2021 | A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Impaired | Subtotal | Normal | Impaired | Total | General |
| ||||||||||||||
| (in millions of Ch$) |
| |||||||||||||||||||||||||||
Loans and receivables from banks |
| — | 28,327 | 38,557 | 14,023 | — | — |
| — |
| — |
| — |
| 80,907 |
| — |
| — |
| — | 80,907 | |||||||
Allowances for loan losses |
| — | 23 | 84 | 246 | — | — |
| — |
| — |
| — |
| 353 |
| — |
| — |
| — | 353 | |||||||
As percentage of total loans |
| — | % | 0.08 | % | 0.22 | % | 1.75 | % | — |
| — |
| — |
| — |
| — |
| 0.69 | % | — |
| — |
| — | 0.69 | % | |
Loans and receivable from customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial loans |
| 94,155 | 479,911 | 2,012,206 | 3,747,293 | 1,998,548 | 912,369 | 512,972 | 221,975 | 1,270,957 | 11,250,386 | 1,312,658 | 101,279 | 1,413,937 | 12,664,323 | ||||||||||||||
Foreign trade loans |
| — | 114,185 | 316,063 | 304,671 | 311,225 | 87,872 | 6,872 | — | 958 | 1,141,846 | 23,999 | 2,732 | 26,731 | 1,168,577 | ||||||||||||||
Checking account debtors |
| — | — | 560 | 9,630 | 14,761 | 8,079 | 4,755 | 1,169 | 2,842 | 41,796 | 24,203 | 4,462 | 28,665 | 70,461 | ||||||||||||||
Factoring operations |
| 10,694 | 28,203 | 42,950 | 51,831 | 73,433 | 20,878 | 255 | 39 | 528 | 228,811 | 14,856 | — | 14,856 | 243,667 | ||||||||||||||
Student loans |
| — | — | — | — | — | — | — | — | — | — | 485,977 | 68,119 | 554,096 | 554,096 | ||||||||||||||
Leasing transactions |
| — | 1,271 | 84,140 | 283,619 | 316,158 | 84,201 | 38,128 | 16,884 | 63,188 | 887,589 | 57,785 | 3,433 | 61,218 | 948,807 | ||||||||||||||
Other loans and receivables |
| 38 | 43 | 355 | 1,431 | 3,207 | 1,067 | 268 | 39 | 357 | 6,805 | 14,647 | 1,287 | 15,934 | 22,739 | ||||||||||||||
Subtotal Commercial loans |
| 104,887 | 623,613 | 2,456,274 | 4,398,475 | 2,717,332 | 1,114,466 | 563,250 | 240,106 | 1,338,830 | 13,557,233 | 1,934,125 | 181,312 | 2,115,437 | 15,672,670 | ||||||||||||||
Allowances for loan losses |
| 45 | 337 | 5,729 | 42,196 | 26,295 | 36,245 | 10,564 | 13,190 | 419,961 | 554,562 | 38,473 | 87,994 | 126,467 | 681,029 | ||||||||||||||
As percentage of total loans |
| 0.04 | % | 0.05 | % | 0.23 | % | 0.96 | % | 0.97 | % | 3.25 | % | 1.88 | % | 5.49 | % | 31.37 | % | 4.09 | % | 1.99 | % | 48.53 | % | 5.98 | % | 4.35 | % |
Consumer loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 2,706,428 | 119,291 | 2,825,719 | 2,825,719 | ||||
Allowances for loan losses |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 97,425 | 92,060 | 189,485 | 189,485 | ||||
As percentage of total loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 3.60 | % | 77.17 | % | 80.77 | % | 80.77 | % |
Mortgage loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 6,038,193 | 206,778 | 6,244,971 | 6,244,971 | ||||
Allowances for loan losses |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 35,811 | 41,487 | 77,298 | 77,298 | ||||
As percentage of total loans |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 0.59 | % | 20.06 | % | 20.65 | % | 20.65 | % |
Total loans and receivable to customers |
| 104,887 | 623,613 | 2,456,274 | 4,398,475 | 2,717,332 | 1,114,466 | 563,250 | 240,106 | 1,338,830 | 13,557,233 | 1,934,125 | 181,312 | 2,115,437 | 24,743,360 | ||||||||||||||
Allowances for loan losses |
| 45 | 337 | 5,729 | 42,196 | 26,295 | 36,245 | 10,564 | 13,190 | 419,961 | 554,562 | 38,473 | 87,994 | 126,467 | 681,029 | ||||||||||||||
As percentage of total loans |
| 0.04 | % | 0.05 | % | 0.23 | % | 0.96 | % | 0.97 | % | 3.25 | % | 1.88 | % | 5.49 | % | 31.37 | % | 4.09 | % | 1.99 | % | 48.53 | % | 5.98 | % | 4.35 | % |
136
2022
Corporate Portfolio | Group Portfolio |
| |||||||||||||||||||||||||||
As of December 31, 2022 | A1 | A2 | A3 | A4 | A5 | A6 | B1 | B2 | Impaired | Subtotal | Normal | Impaired | Total | General |
| ||||||||||||||
| millions of Ch$ |
| |||||||||||||||||||||||||||
Loans and receivables from banks |
| — | 7,940 | 8,474 | 27,383 | 2,644 | — | — | — | — | 46,441 | — | — | — | 46,441 | ||||||||||||||
Allowances for loan losses |
| — | 7 | 19 | 180 | 113 | — | — | — | — | 319 | — | — | — | 319 | ||||||||||||||
As percentage of total loans |
| 0.00 | % | 0.09 | % | 0.22 | % | 0.66 | % | 4.28 | % | 0.00 | % | — | — | — | 0.69 | % | — | — | — | 0.69 | % | ||||||
Loans and receivable from customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Commercial loans |
| 71,888 | 304,431 | 1,763,428 | 3,654,936 | 2,018,973 | 952,161 | 520,140 | 229,280 | 1,275,541 | 10,790,778 | 1,809,671 | 198,005 | 2,007,676 | 12,798,454 | ||||||||||||||
Foreign trade loans |
| 4,530 | 201,204 | 583,500 | 375,587 | 353,664 | 76,247 | 12,058 | 274 | 7,881 | 1,614,945 | 76,518 | 1,031 | 77,549 | 1,692,494 | ||||||||||||||
Checking account debtors |
| 25 | 46,788 | 1,593 | 8,715 | 13,801 | 5,382 | 3,257 | 291 | 3,317 | 83,169 | 32,846 | 1,182 | 34,028 | 117,197 | ||||||||||||||
Factoring operations |
| 28,444 | 48,434 | 16,032 | 64,080 | 69,245 | 23,445 | 3,427 | 556 | 1,744 | 255,407 | 91,169 | 4,376 | 95,545 | 350,952 | ||||||||||||||
Student loans |
| — | — | — | — | — | — | — | — | — | — | 492,424 | 62,089 | 554,513 | 554,513 | ||||||||||||||
Leasing transactions |
| — | 22,756 | 91,721 | 295,157 | 261,649 | 57,231 | 24,368 | 9,705 | 50,347 | 812,934 | 124,885 | 5,592 | 130,477 | 943,411 | ||||||||||||||
Other loans and receivables |
| — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||
Subtotal Commercial loans |
| 104,887 | 623,613 | 2,456,274 | 4,398,475 | 2,717,332 | 1,114,466 | 563,250 | 240,106 | 1,338,830 | 13,557,233 | 2,627,513 | 272,275 | 2,899,788 | 16,457,021 | ||||||||||||||
Allowances for loan losses |
| 58 | 432 | 5,208 | 36,522 | 46,620 | 16,575 | 6,383 | 8,412 | 219,504 | 339,714 | 104,230 | 77,255 | 181,485 | 521,199 | ||||||||||||||
As percentage of total loans |
| 0.06 | % | 0.07 | % | 0.21 | % | (0.83) | % | 1.72 | % | 1.49 | % | 1.13 | % | 3.50 | % | 16.40 | % | 2.51 | % | 3.97 | % | 28.37 | % | 6.26 | % | 1.96 | % |
Consumer loans |
| — | — | — | — | — | — | — | — | — | — | 2,966,005 | 154,149 | 3,120,154 | 3,120,154 | ||||||||||||||
Allowances for loan losses |
| — | — | — | — | — | — | — | — | — | — | 142,315 | 131,616 | 273,931 | 273,931 | ||||||||||||||
As percentage of total loans |
| — | — | — | — | — | — | — | — | — | — | 4.80 | % | 85.38 | % | 90.18 | % | 90.18 | % | ||||||||||
Mortgage loans |
| — | — | — | — | — | — | — | — | — | — | 6,789,206 | 241,404 | 7,030,610 | 7,030,610 | ||||||||||||||
Allowances for loan losses |
| — | — | — | — | — | — | — | — | — | — | 49,129 | 51,715 | 100,844 | 100,844 | ||||||||||||||
As percentage of total loans |
| — | — | — | — | — | — | — | — | — | — | 0.72 | % | 21.42 | % | 22.15 | % | 22.15 | % | ||||||||||
Total loans and receivable to customers |
| 104,887 | 623,613 | 2,456,274 | 4,398,475 | 2,717,332 | 1,114,466 | 563,250 | 240,106 | 1,338,830 | 13,557,233 | 2,627,513 | 272,275 | 2,899,788 | 26,607,785 | ||||||||||||||
Allowances for loan losses |
| 58 | 432 | 5,208 | 36,522 | 46,620 | 16,575 | 6,383 | 8,412 | 219,504 | 339,714 | 104,230 | 77,255 | 181,485 | 521,199 | ||||||||||||||
As percentage of total loans |
| 0.06 | % | 0.07 | % | 0.21 | % | (0.83) | % | 1.72 | % | 1.49 | % | 1.13 | % | 3.50 | % | 16.40 | % | 2.51 | % | 3.97 | % | 28.37 | % | 6.26 | % | 1.96 | % |
137
Classification of Loan Portfolio Based on the Customer’s Payment Performance
The following tables set forth the amounts that are current as to payments and interest and the amounts that are overdue under IFRS, as of the dates indicated:
Total Loans
As of December 31, | ||||||
| 2020 |
| 2021 |
| 2022 | |
(in millions of Ch$, except for percentages) | ||||||
Current |
| 21,403,564 |
| 23,683,993 |
| 25,225,573 |
Overdue 1-29 days |
| 362,384 |
| 399,850 |
| 573,123 |
Overdue 30-89 days |
| 348,151 |
| 194,696 |
| 283,589 |
Overdue 90-180 days |
| 140,702 |
| 125,677 |
| 190,292 |
Overdue 181-240 days |
| 42,154 |
| 33,254 |
| 47,879 |
Overdue 241-360 days |
| 100,295 |
| 79,881 |
| 120,484 |
Overdue more than 360 days |
| 220,731 |
| 226,009 |
| 166,845 |
Total loans (excludes interbank loans) |
| 22,617,981 |
| 24,743,360 |
| 26,607,785 |
Analysis of Impaired Loans, Non-Performing Loans and Past Due Loans
The following tables analyze our impaired loans and past due loans and the allowances for loan losses existing as of the dates indicated:
As of December 31, | |||||||
| 2020 |
| 2021 |
| 2022 | ||
(in millions of Ch$ except for percentages) | |||||||
Total loans (1) |
| 22,617,981 |
| 24,743,360 |
| 26,607,785 | |
Impaired loans (2) |
| 1,821,779 |
| 1,520,142 |
| 1,611,105 | |
Allowance for loan losses (3) |
| 1,041,873 |
| 947,812 |
| 895,974 | |
Impaired loans as a percentage of total loans |
| 8.1 | % | 6.5 | % | 6.1 | % |
Non-performing loans (4) |
| 503,882 |
| 464,821 |
| 525,500 |
|
Non-performing loans as a percentage of total loans (4) |
| 2.2 | % | 1.9 | % | 2.0 | % |
Past due loans (5) |
| 291,781 |
| 309,050 |
| 313,613 |
|
Past due loans as a percentage of total loans |
| 1.3 | % | 1.2 | % | 1.2 | % |
Allowance for loans losses as a percentage of: |
|
|
|
|
|
|
|
Total loans |
| 4.6 | % | 3.8 | % | 3.4 | % |
Total impaired loans |
| 57.2 | % | 59.0 | % | 55.6 | % |
Total Non-performing loans |
| 206.8 | % | 203.9 | % | 170.5 | % |
Total amounts past due |
| 357.1 | % | 306.7 | % | 285.7 | % |
Reported ECL |
| 1,041,873 |
| 947,812 |
| 895,974 |
|
Reported Coverage (Reported ECL/ loans and accounts receivable at amortized cost) |
| 4.6 | % | 3.8 | % | 3.4 | % |
Write-offs as a percentage of average loans | |||||||
Commercial loans | 0.9 | % | 0.6 | % | 0.8 | % | |
Mortgage loans | 0.2 | % | 0.2 | % | 0.1 | % | |
Consumer loans | 0.9 | % | 0.6 | % | 0.8 | % | |
(1)Total loans as of December 31, 2020, 2021 and 2022 corresponds to loans and accounts receivable from customers at amortized cost according to IFRS 9.
(2)Impaired loans include those loans on which there is objective evidence that debtors will not meet some of their contractual payment obligations. For 2020, 2021 and 2022, impaired loans include loans classified in stage 3 according to IFRS 9.
(3)Allowance for loan losses as of December 31, 2020, 2021 and 2022 corresponds to allowances for loans and accounts receivable from customers at amortized cost according to IFRS 9.
138
(4)Non-performing loans include the principal and interest on any loan with one installment more than 89 days overdue. Total loans in 2020, 2021 and 2022 corresponds to loans at amortized cost. Our loan portfolio classified as stage 3 under IFRS 9 was Ch$1,237,205 million in 2022, Ch$1,449,145 million as of December 31, 2021, and Ch$1,325,218 million in 2020 and Ch$1,237,205 million in 2019 with an ECL coverage of 28.7% in 2022, 33.4% in 2021 and 40.0% in 2020.
(5) | Past due loans include all installments and lines of credit more than 89 days overdue. Past due loans do not include the aggregate principal amount of such loans. |
The following table provides further information on our non-performing loans:
Between | Between | Between | More than | |||||||
As of December 31, 2020 |
| 90-180 days |
| 181-240 days |
| 241-360 days |
| 360 days |
| Total |
(in millions of Ch$) | ||||||||||
Commercial Loans |
| 82,582 |
| 37,147 |
| 90,953 |
| 170,929 |
| 381,611 |
Mortgages Loans |
| 13,148 |
| 4,888 |
| 9,341 |
| 49,799 |
| 77,176 |
Consumer Loans |
| 28,256 |
| 122 |
| — |
| 16,718 |
| 45,096 |
Total loans (excludes interbank loans) |
| 123,986 |
| 42,157 |
| 100,294 |
| 237,446 |
| 503,882 |
Between | Between | Between | More than | |||||||
As of December 31, 2021 |
| 90-180 days |
| 181-240 days |
| 241-360 days |
| 360 days |
| Total |
(in millions of Ch$) | ||||||||||
Commercial Loans |
| 65,636 | 27,896 | 73,233 | 194,319 |
| 361,084 | |||
Mortgages Loans |
| 18,248 | 5,194 | 6,628 | 36,795 |
| 66,865 | |||
Consumer Loans |
| 36,689 | 163 | 20 | — |
| 36,872 | |||
Total loans (excludes interbank loans) |
| 120,573 |
| 33,253 |
| 79,881 |
| 231,114 |
| 464,821 |
Between | Between | Between | More than | |||||||
As of December 31, 2022 |
| 90-180 days |
| 181-240 days |
| 241-360 days |
| 360 days |
| Total |
(in millions of Ch$) | ||||||||||
Commercial Loans |
| 101,713 | 40,289 | 107,801 | 139,090 |
| 388,894 | |||
Mortgages Loans |
| 26,211 | 5,721 | 12,682 | 27,756 |
| 72,371 | |||
Consumer Loans |
| 62,367 | 1,868 | — | — |
| 64,235 | |||
Total loans (excludes interbank loans) |
| 190,292 |
| 47,878 |
| 120,484 |
| 166,847 |
| 525,500 |
Analysis of Allowances for Loan Losses
The following tables set forth the information regarding movements in our allowances for loan losses during the years ended December 31, 2020, 2021 and 2022, according to IFRS 9. For a description of the various categories mentioned below, see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Impairment Assessment.”
Individually assessed | Group assessed | |||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||
12-Month | Lifetime | Lifetime | 12-Month | Lifetime | Lifetime | |||||||||||||
| ECL |
| ECL |
| ECL |
| Subtotals |
| ECL |
| ECL |
| ECL |
| Subtotals |
| Totals | |
Balances as of January 1, 2020 |
| — |
| 42,000 |
| 151,135 |
| 193,135 |
| 145,415 |
| 260,297 |
| 281,270 |
| 686,982 |
| 880,117 |
Changes in the allowances |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
- Net transfers to stage 1 |
| — |
| — |
| — |
| — |
| 49,315 |
| (39,672) |
| (9,643) |
| — |
| — |
- Net transfer to stage 2 |
| (82) |
| 82 |
| — |
| — |
| (19,402) |
| 36,007 |
| (16,605) |
| — |
| — |
- Net transfer to stage 3 |
| (63) |
| (9,055) |
| 9,118 |
| — |
| (2,280) |
| (28,404) |
| 30,684 |
| — |
| — |
- Increases due to change in credit risk |
| — |
| 8,381 |
| 43,940 |
| 52,321 |
| 28,719 |
| 64,496 |
| 138,605 |
| 231,820 |
| 284,141 |
- Decreases due to change in credit risk |
| — |
| (4,761) |
| (2,088) |
| (6,849) |
| (59,996) |
| (37,255) |
| (8,515) |
| (105,766) |
| (112,615) |
- Charge-offs |
| — |
| — |
| (198) |
| (198) |
| (1,390) |
| (14,707) |
| (158,261) |
| (174,358) |
| (174,556) |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| (789) |
| (789) |
| (789) |
New financial assets originated or purchased |
| 46 |
| 12,567 |
| 104,044 |
| 116,657 |
| 80,071 |
| 118,827 |
| 99,210 |
| 298,108 |
| 414,765 |
Financial assets that have been derecognized |
| (500) |
| (4,873) |
| (61,022) |
| (66,395) |
| (50,438) |
| (68,536) |
| (59,044) |
| (178,018) |
| (244,413) |
Net transfer from (to) group assessed |
| — |
| (3,009) |
| 46,698 |
| 43,689 |
| — |
| 3,009 |
| (46,698) |
| (43,689) |
| — |
Foreign exchange and other movements |
| 645 |
| 24,948 |
| (36,509) |
| (10,916) |
| (4,553) |
| (13,652) |
| 24,344 |
| 6,139 |
| (4,777) |
Balances as of December 31, 2020 |
| 46 |
| 66,280 |
| 255,118 |
| 321,444 |
| 165,461 |
| 280,410 |
| 274,558 |
| 720,429 |
| 1,041,873 |
139
Individually assessed | Group assessed | |||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||
12-Month | Lifetime | Lifetime | 12-Month | Lifetime | Lifetime | |||||||||||||
| ECL |
| ECL |
| ECL |
| Subtotals |
| ECL |
| ECL |
| ECL |
| Subtotals |
| Totals | |
Balances as of January 1, 2021 |
| 46 |
| 66,280 |
| 255,118 |
| 321,444 |
| 165,461 |
| 280,410 |
| 274,558 |
| 720,429 |
| 1,041,873 |
Changes in the allowances |
| — |
| — |
| — |
|
|
| — |
| — |
| — |
|
|
|
|
- Net transfers to stage 1 |
| — |
| — |
| — |
| — |
| 59,643 |
| (54,981) |
| (4,662) |
| — |
| — |
- Net transfer to stage 2 |
| (434) |
| 896 |
| (462) |
| — |
| (14,455) |
| 25,098 |
| (10,643) |
| — |
| — |
- Net transfer to stage 3 |
| — |
| (38,161) |
| 38,161 |
| — |
| (3,441) |
| (27,535) |
| 30,976 |
| — |
| — |
- Increases due to change in credit risk |
| 551 |
| 13,174 |
| 30,885 |
| 44,610 |
| 18,682 |
| 67,529 |
| 103,802 |
| 190,013 |
| 234,623 |
- Decreases due to change in credit risk |
| — |
| (1,033) |
| (252) |
| (1,285) |
| (89,207) |
| (27,141) |
| (8,353) |
| (124,701) |
| (125,986) |
- Charge-offs |
| — |
| — |
| (538) |
| (538) |
| (2,050) |
| (12,455) |
| (138,659) |
| (153,164) |
| (153,702) |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| (26,842) |
| (26,842) |
| (26,842) |
New financial assets originated or purchased |
| 923 |
| 9,685 |
| 56,866 |
| 67,474 |
| 76,803 |
| 86,958 |
| 96,889 |
| 260,650 |
| 328,124 |
Financial assets that have been derecognized |
| (54) |
| (16,584) |
| (135,218) |
| (151,856) |
| (55,342) |
| (80,384) |
| (70,292) |
| (206,018) |
| (357,874) |
Net transfer from (to) group assessed |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| 441 |
| 7,182 |
| (31,381) |
| (23,758) |
| 1,420 |
| 5,967 |
| 23,967 |
| 31,354 |
| 7,596 |
Balances as of December 31, 2021 |
| 1,473 |
| 41,439 |
| 213,179 |
| 256,091 |
| 157,514 | 263,466 |
| 270,741 |
| 691,721 |
| 947,812 | |
Individually assessed | Group assessed | |||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||
12-Month | Lifetime | Lifetime | 12-Month | Lifetime | Lifetime | |||||||||||||
| ECL |
| ECL |
| ECL |
| Subtotals |
| ECL |
| ECL |
| ECL |
| Subtotals |
| Totals | |
Balances as of January 1, 2022 |
| 1,473 |
| 41,439 |
| 213,179 |
| 256,091 |
| 157,514 |
| 263,466 |
| 270,741 |
| 691,721 |
| 947,812 |
Changes in the allowances |
|
|
|
|
|
|
|
|
|
| ||||||||
- Net transfers to stage 1 |
| — |
| — |
| — |
| — |
| 42,333 |
| (37,546) |
| (4,787) |
| — |
| — |
- Net transfer to stage 2 |
| (42) |
| 42 |
| — |
| — |
| (13,819) |
| 22,291 |
| (8,472) |
| — |
| — |
- Net transfer to stage 3 |
| — |
| (2,186) |
| 2,186 |
| — |
| (5,437) |
| (38,399) |
| 43,836 |
| — |
| — |
- Increases due to change in credit risk |
| — |
| 5,371 |
| 5,254 |
| 10,625 |
| 30,680 |
| 94,015 |
| 121,323 |
| 246,018 |
| 256,643 |
- Decreases due to change in credit risk |
| — |
| (3,515) |
| (10,267) |
| (13,782) |
| (55,723) |
| (53,623) |
| (14,735) |
| (124,081) |
| (137,863) |
- Charge-offs |
| — |
| — |
| (20,031) |
| (20,031) |
| (2,155) |
| (12,899) |
| (161,071) |
| (176,125) |
| (196,156) |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| (810) |
| (810) |
| (810) |
New financial assets originated or purchased |
| (630) |
| 2,229 |
| 10,507 |
| 12,106 |
| 86,195 |
| 68,560 |
| 102,873 |
| 257,628 |
| 269,734 |
Financial assets that have been derecognized |
| (871) |
| (3,227) |
| (49,681) |
| (53,779) |
| (34,463) |
| (31,720) |
| (58,520) |
| (124,703) |
| (178,482) |
Net transfer from (to) group assessed |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| 70 |
| (15,730) |
| (29,220) |
| (44,880) |
| (11,591) |
| (337) |
| (8,096) |
| (20,024) |
| (64,904) |
Balances as of December 31, 2022 |
| — |
| 24,423 |
| 121,927 |
| 146,350 |
| 193,534 | 273,808 |
| 282,282 |
| 749,624 |
| 895,974 | |
Our policy with respect to write-offs is as disclosed in Note 10 to our financial statements included herein. The following table shows the write-offs breakdown by loan category:
As of December 31, | ||||||
| 2020 |
| 2021 |
| 2022 | |
(in millions of Ch$) | ||||||
Consumer loans |
| 153,187 |
| 144,443 |
| 156,384 |
Mortgage loans |
| 9,006 |
| 10,092 |
| 9,212 |
Commercial loans |
| 136,621 |
| 94,473 |
| 131,745 |
Total |
| 298,814 |
| 249,008 |
| 297,341 |
The following table shows loan loss recoveries by loan category recognized during the years indicated in the table, as disclosed in Note 29 to our financial statements included herein:
For the year ended | ||||||
| 2020 |
| 2021 |
| 2022 | |
(in millions of Ch$) | ||||||
Interbank loans |
| — |
| — |
| — |
Consumer loans |
| 32,779 |
| 35,150 |
| 34,028 |
Mortgage loans |
| 2,558 |
| 5,500 |
| 7,438 |
Commercial loans |
| 25,511 |
| 22,865 |
| 43,250 |
Total |
| 60,848 |
| 63,515 |
| 84,716 |
Based on information available regarding our debtors, the Bank believes that our allowances for loan losses are sufficient to cover known probable losses and losses inherent in a loan portfolio of the size and nature of our loan portfolio.
140
Allocation of Allowances for Loan Losses
The following tables set forth, as of December 31, 2020, 2021 and 2022, allowances for loan losses that were attributable to our commercial, consumer and mortgage loans as of each date.
As of December 31, 2020 |
| ||||||||
|
|
|
| Loans in |
| ||||
Allowance Amount | Allowance Amount | category as |
| ||||||
Allowance | as a percentage of | as a percentage of | percentage of |
| |||||
amount | loans in category | total loans | total |
| |||||
(in millions of Ch$ except for percentages) |
| ||||||||
Commercial loans |
| 747,617 |
| 5.0 | % | 3.3 | % | 65.5 | % |
Consumer loans |
| 220,791 |
| 8.9 | % | 1.0 | % | 11.0 | % |
Residential mortgage loans |
| 73,465 |
| 1.4 | % | 0.3 | % | 23.5 | % |
Loans and receivables to banks |
| 10 |
| 0.1 | % | 0.0 | % | 0.0 | % |
Total allocated allowances |
| 1,041,883 |
| 15.4 | % | 4.6 | % | 100.0 | % |
As of December 31, 2021 |
| ||||||||
|
|
|
| Loans in |
| ||||
Allowance Amount | Allowance Amount | category as |
| ||||||
Allowance | as a percentage of | as a percentage of | percentage of |
| |||||
amount | loans in category | total loans | total |
| |||||
(in millions of Ch$ except for percentages) |
| ||||||||
Commercial loans |
| 681,029 |
| 4.3 | % | 2.7 | % | 63.1 | % |
Consumer loans |
| 189,485 |
| 6.7 | % | 0.8 | % | 11.4 | % |
Residential mortgage loans |
| 77,298 |
| 1.2 | % | 0.3 | % | 25.2 | % |
Loans and receivables to banks |
| 353 |
| 0.4 | % | 0.0 | % | 0.3 | % |
Total allocated allowances |
| 948,165 |
| 12.7 | % | 3.8 | % | 100.0 | % |
As of December 31, 2022 |
| ||||||||
|
|
|
|
| Loans in |
| |||
Allowance Amount | Allowance Amount | category as |
| ||||||
Allowance | as a percentage of | as a percentage of | percentage of |
| |||||
amount | loans in category | total loans | total |
| |||||
(in millions of Ch$ except for percentages) |
| ||||||||
Commercial loans |
| 521,199 |
| 3.2 | % | 2.0 | % | 61.7 | % |
Consumer loans |
| 273,931 |
| 8.8 | % | 1.0 | % | 11.7 | % |
Residential mortgage loans |
| 100,844 |
| 1.4 | % | 0.4 | % | 26.4 | % |
Loans and receivables to banks |
| 319 |
| 0.7 | % | 0.0 | % | 0.2 | % |
Total allocated allowances |
| 896,293 |
| 14.1 | % | 3.4 | % | 100.0 | % |
141
Composition of Deposits and Other Commitments
The following table sets forth the composition of our deposits and similar commitments as of December 31, 2020, 2021 and 2022.
As of December 31, | ||||||
|
| 2020 |
| 2021 |
| 2022 |
(in millions of Ch$) | ||||||
Checking accounts |
| 4,038,467 |
| 4,664,214 |
| 3,813,559 |
Other demand liabilities |
| 2,158,939 |
| 2,911,881 |
| 1,741,626 |
Saving accounts |
| 19,467 |
| 21,112 |
| 17,943 |
Time deposits |
| 11,413,370 |
| 10,076,331 |
| 12,685,710 |
Other commitments |
| 227 |
| — |
| — |
Total |
| 17,630,470 |
| 17,673,538 |
| 18,258,838 |
Maturity of Deposits
The following table sets forth information regarding the currency and maturity of our deposits as of December 31, 2022, expressed in percentages. UF-denominated deposits are similar to Chilean peso-denominated deposits in all respects, except that the principal is readjusted periodically based on variations in the CPI.
As of December 31, 2022 |
| ||||||||
|
|
|
| Foreign |
|
| |||
Ch$ | UF | Currency | Total |
| |||||
(In %) |
| ||||||||
Demand deposits |
| 32.00 | 1.84 | 34.05 | 30.42 | ||||
Savings accounts |
| — | 0.00 | 0.23 | 0.10 | ||||
Time deposits: |
| ||||||||
Maturing within 3 months |
| 46.63 | 33.12 | 44.71 | 44.69 | ||||
Maturing after 3 but within 6 months |
| 6.99 | 12.27 | 6.28 | 7.11 | ||||
Maturing after 6 but within 12 months |
| 11.15 | 15.01 | 9.23 | 10.63 | ||||
Maturing after 12 months |
| 3.23 | 37.76 | 5.51 | 7.05 | ||||
Total time deposits |
| 68.00 |
| 98.16 |
| 65.72 |
| 69.48 | |
Total deposits |
| 100 | % | 100 | % | 100 | % | 100 | % |
The following table sets forth information regarding the maturity of the outstanding time deposits in excess of US$100,000 (or its equivalent) issued by us as of December 31, 2022.
As of December 31, 2022 | ||||||||
|
|
| Foreign |
| ||||
Ch$ | UF | Currency | Total | |||||
(in millions of Ch$) | ||||||||
Maturing within 3 months |
| 6,829,962 | 454,547 | 3,298,858 |
| 10,583,367 | ||
Maturing after 3 but within 6 months |
| 573,478 | 160,013 | 441,768 |
| 1,175,259 | ||
Maturing after 6 but within 12 months |
| 958,174 | 199,768 | 687,921 |
| 1,845,863 | ||
Maturing after 12 months |
| 284,587 | 563,919 | 416,650 |
| 1,265,156 | ||
Total time deposits |
| 8,646,201 |
| 1,378,247 |
| 4,845,197 |
| 14,869,645 |
In Chile, the government guarantees up to 100% of the aggregate amount of certain time deposits held by individuals in the Chilean banking system. The government guarantee covers those obligations up to a maximum value, in each calendar year, of UF200 per person (Ch$7.0 million or US$8,218 as of December 31, 2022) in a single bank and
142
UF400 per person (Ch$14.0 million or US$ 16,436 as of December 31, 2022) in the whole Chilean banking system. The following tables use an estimate of uninsured deposits which are not covered by the Chilean government guarantees:
As of December 31, 2022 | |
(in millions of CH$) | |
Ch$ | |
Insured deposits | 498,310 |
Uninsured deposits | 5,140,422 |
Of which: | |
Excees over guaranteed limit | 932,524 |
Otherwise uninsured | 4,256,457 |
Total | 5,638,732 |
As of December 31, 2022 | ||||||||
|
| Foreign |
| |||||
Ch$ | UF | Currency | Total | |||||
Time deposits otherwise uninsured with a maturity of: | ||||||||
3 months or less | 3,427,532 | 63,045 | 678,950 | 4,169,526 | ||||
Over 3 months through 6 months | 42,900 | 45,061 | 214,225 | 302,186 | ||||
Over 6 months through 12 months | 28,172 | 40,087 | 276,673 | 344,933 | ||||
Over 12 months | 44 | 532 | 323,202 | 323,777 | ||||
Total | 3,498,648 | 148,724 | 1,493,050 | 5,140,422 | ||||
Minimum Capital Requirements
The following table sets forth our minimum capital requirements as of December 31, 2020, 2021 and 2022.
As of December 31, |
| ||||||
|
| 2020 |
| 2021 |
| 2022 |
|
(in millions of Ch$ except for |
| ||||||
percentages) |
| ||||||
Common Equity Tier 1 |
| 2,315,411 |
| 2,859,830 |
| 2,790,694 | |
3% total assets net of provisions |
| (1,060,193) |
| (1,113,274) |
| (1,175,551) | |
Excess over minimum required equity |
| 1,255,218 |
| 1,746,556 |
| 1,615,143 | |
Net capital base as a percentage of the total assets, net of provisions |
| 6.55 | % | 7.71 | % | 7.12 | % |
Effective equity |
| 3,044,661 |
| 4,036,480 |
| 4,086,900 | |
10% of the risk-weighted assets |
| (2,244,655) |
| (2,488,069) |
| (2,678,895) | |
Excess over minimum required equity |
| 800,006 |
| 1,548,411 |
| 1,408,005 | |
Capital Adequacy Ratio |
| 13.6 | % | 16.2 | % | 15.3 | % |
Our capital ratios levels increased from 13.6% to 16.2% between 2020 and 2021, and decreased to 15.3% as of December 31, 2022. The 2021 variation is explained mainly by the rights offerings conducted in 2021. The 2022 variation is explained by the purchase of Itaú Colombia required by the Transaction Agreement between Itaú Unibanco and Corpgroup, the growth of our portfolio and consequently our risk weighted assets compensated by the 2022 net income.
Short-term Borrowings
Our short-term borrowings (other than deposits and other obligations) totaled Ch$1,223,485 million, Ch$1,359,468 million and Ch$445,840 million as of December 31, 2020, 2021 and 2022, respectively, in accordance with IFRS.
143
The principal categories of our short-term borrowings are amounts borrowed under foreign trade lines of credit, domestic interbank loans and repurchase agreements.
The table below presents the amounts outstanding at the end of each period indicated and the weighted average nominal interest rate for each such period by type of short-term borrowing.
As of and for the Year Ended December 31, |
| ||||||||||||
2020 | 2021 | 2022 |
| ||||||||||
|
|
|
| Weighted |
|
| Weighted |
| |||||
Weighted | Average | Average |
| ||||||||||
Average | Nominal | Nominal |
| ||||||||||
Year End | Nominal | Year End | Interest | Year End | Interest |
| |||||||
Balance | Interest Rate | Balance | Rate | Balance | Rate |
| |||||||
(in millions of Ch$ except for percentages) |
| ||||||||||||
Obligations under repurchase agreements |
| 638,851 |
| 0.03 | % | 466,006 |
| 0.02 | % | 354,088 |
| 0.19 | % |
Central Bank borrowings |
| — |
| — |
| — |
| — |
| — |
| — |
|
Domestic interbank loans |
| — |
| — |
| — |
| — |
| — |
| — |
|
Borrowings under foreign trade credit lines |
| 584,634 |
| 0.06 | % | 893,462 |
| 0.02 | % | 157,393 |
| 0.01 | % |
Total short-term borrowings |
| 1,223,485 |
| 0.06 | % | 1,359,468 |
| 0.02 | % | 511,481 |
| 0.17 | % |
The following table shows the average balance and the weighted average nominal rate for each short-term borrowing category during the periods indicated:
As of and for the Year Ended December 31, |
| ||||||||||||
2020 | 2021 | 2022 |
| ||||||||||
|
|
|
| Weighted |
|
| Weighted |
| |||||
Weighted | Average | Average |
| ||||||||||
| Average |
| Nominal |
| Nominal | ||||||||
Average |
| Nominal | Average |
| Interest | Average |
| Interest | |||||
Balance | Interest Rate | Balance |
| Rate | Balance |
| Rate | ||||||
| (in millions of Ch$ except for percentages) | ||||||||||||
Obligations under repurchase agreements | 598,204 | 0.04 | % | 407,066 | 0.02 | % | 327,277 | 0.21 | % | ||||
Central Bank borrowings |
| — |
| 0.00 |
| — |
| — |
| — |
| — |
|
Domestic interbank loans |
| 8,333 |
| 0.08 | % | — |
| — | % | — |
| — | % |
Borrowings under foreign trade credit lines |
| 916,580 |
| 0.04 | % | 698,032 |
| 0.02 | % | 206,442 |
| 0.80 | % |
Total short-term borrowings |
| 1,523,117 |
| 0.07 | % | 1,105,098 |
| 0.02 | % | 533,719 |
| 0.16 | % |
The following table presents the maximum month-end balances of our principal sources of short-term borrowings during the periods indicated:
| Maximum 2020 |
| Maximum 2021 |
| Maximum 2022 | |
Month-End | Month-End | Month-End | ||||
| Balance |
| Balance |
| Balance | |
| (in millions of Ch$) | |||||
Obligations under repurchase agreements |
| 885,195 |
| 695,034 |
| 984,910 |
Central Bank borrowings |
| — |
| — |
| — |
Domestic interbank loans |
| 100,000 |
| — |
| — |
Borrowings under foreign trade credit lines |
| 1,087,699 |
| 989,360 |
| 367,248 |
Other obligations |
| 13,378 |
| 42,435 |
| 355,733 |
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C. ORGANIZATIONAL STRUCTURE
The following diagram presents our current corporate structure, including our principal subsidiaries, as of the date of this Annual Report.
Itaú Corredores de Bolsa Ltda., Itaú Administradora General de Fondos S.A., Itaú Asesorías Financieras Ltda., Itaú Corredores de Seguros S.A. and Recaudaciones y Cobranzas Ltda. Are incorporated and domiciled in Chile. Itaú Chile New York Branch is incorporated and domiciled in the State of New York, United States. Itaú Colombia S.A., Itaú Securities Services Colombia S.A. Sociedad Fiduciaria, Itaú Comisionista de Bolsa Colombia S.A., Itaú Corredor de Seguros Colombia S.A., Itaú Asset Management Colombia S.A. Sociedad Fiduciaria and Itaú Holding Colombia S.A.S. are incorporated and domiciled in Colombia. Itaú (Panamá) S.A. is incorporated and domiciled in Panama.
For more information about the services our subsidiaries and our New York Branch provide see “Item 4. Information on the Company—B. Business Overview—Principal Business Activities—Financial Services Offered Through Subsidiaries.”
D. PROPERTY
Our principal executive offices are located at Presidente Riesco 5537, Las Condes, Santiago, Chile since 2007. As of December 31, 2022, we owned 21 of the 244 properties where our branches and corporate facilities were located. Total space as of December 31, 2022, was approximately 120,352 square meters (1,295,455 square feet) from which 58.1% was total branch space. Our branches are located throughout Chile, including the Santiago metropolitan region, Colombia, including in the cities of Bogotá, Medellín, Cali, Bucaramanga and Barranquilla.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. OPERATING RESULTS
The following discussion should be read in conjunction with our consolidated financial statements, together with the notes thereto, included elsewhere in this Annual Report, and in conjunction with the information included under “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information.” Our consolidated financial statements as of December 31, 2021 and 2022 and for the years ended December 31, 2020, 2021 and 2022 have been prepared in accordance with IFRS.
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The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in any such forward-looking statements as a result of various factors, including those set forth in “Cautionary Language Regarding Forward-Looking Information” and “Item 3 Key Information. D. Risk Factors.”
INTRODUCTION
We are a banking corporation organized under the laws of Chile. Our common shares are listed on the Santiago Stock Exchange and the Chilean Electronic Exchange, and our ADSs are listed on the NYSE. We are regulated by the CMF. We offer general commercial and consumer banking services and provide other services including factoring, collection, leasing, securities and insurance brokerage, asset management and investment banking.
The following classification of revenues and expenses is based on our consolidated financial statements:
Revenues
We have three main sources of revenues, which include both cash and non-cash items:
Interest income
We earn interest income from our interest-earning assets, which are mainly represented by loans to customers.
Income from service fees
We earn income from service fees related to checking accounts, loans, mutual funds, credit cards and other financial services.
Other operating income
We earn income relating to changes in the fair value of our securities portfolio, other trading activities and foreign exchange transactions.
Expenses
We have three main sources of expenses, which include both cash and non-cash items:
Interest Expense
We incur interest expense on our interest-bearing liabilities, such as deposits, short-term borrowings, and long-term debt.
Provisions for Loan Losses
Our allowance and provision for loan losses as recorded in our consolidated financial statements included herein have been determined in accordance with IFRS.
Other Operating Expenses
We incur expenses relating to salaries and benefits, administrative expenses, and other non-interest expenses.
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THE ECONOMY
Primary Markets in Which We Operate
A majority of our investments and operations are located in Chile and Colombia. Accordingly, our financial condition and results of operations are substantially dependent upon economic conditions prevailing in Chile and Colombia.
Developments in the Chilean Economy
On the political front, Gabriel Boric, took office with the promise of structural reforms and greater social spending. In particular, campaign promises included significant reforms on the Tax, Pension and Labor fronts. The process to approve a new constitution began in November 2019 and was rejected by a wide margin in a national referendum on September 4, 2022. Thereafter, the main parties in Congress reached an agreement to continue the process, but with a different structure. Voters will head to the polls on December 17, 2023, to approve or reject the new constitutional draft.
Activity adjusted more gradually than anticipated. According to the monthly GDP proxy (El Índice Mensual de Actividad Económica, or “IMACEC”), the Chilean economy is estimated to have grown by 2.7% in 2022, above market expectations at the start of the year. Going forward, consumption is expected to continue to adjust from current levels, while downbeat private sentiment and tight financial conditions point to a continued weakening of investment dynamics. We expect the economy to contract 0.7% in 2023, while 2024 would see a return to growth closer to potential reaching a rate of 2%.
Last year ended with record inflation not seen since 1992. The inflationary cycle that began in 2021 accelerated throughout 2022, ending the year at 12.8%, and peaking in August at 14.1%. The upward pressures were widespread, however, the strong pressures in food and energy stand out. In any case, during the final quarter of 2022, there were signs of lower price pressures, in line with the significant monetary tightening implemented by the Central Bank, which has also contributed to a slow return of medium-term inflation expectations back towards the 3% target.
The high volatility in the exchange rate triggered a new foreign exchange intervention by the Central Bank of Chile. The Central Bank of Chile announced a new intervention program in the foreign exchange market on July 14 last year. The program was similar to that of 2019, contemplating up to US$20 billion, through auctions of US$10 billion in the spot market and US$10 billion in the NDF market. Finally, on September 30, 2022, the Central Bank of Chile decided to end the program, selling a total of US$6.1 billion in the spot market, and deciding to maintain a total of US$9.04 billion outstanding NDFs until June 2, 2023. In this way, the Central Bank of Chile announced that it will renew the outstanding NDF stock until mid-year 2023.
After a substantial fiscal expansion in 2021, last year ended with a contraction in real spending of about 23%. For its part, total real revenues had a 6.3% growth in 2022. With this, the Ministry of Finance of Chile announced a nominal fiscal surplus of 1.1% of GDP in 2022. In addition, gross public debt reached 37.3% of GDP. Given this, the 2023 budget law continues the path of fiscal consolidation, contemplating a real increase in fiscal spending of 4.2% in 2023, with a special focus on pensions and public investment.
The Central Bank of Chile acted in a timely manner in response to rising inflationary pressures and resolve the accumulated macroeconomic imbalances. The board of the Central Bank of Chile reached a terminal rate of the hiking cycle at 11.25% in October 2022, the highest policy rate since 1998. This response is consistent in offsetting the significant accumulated macroeconomic imbalances, reflected in historically high inflationary pressures, together with medium-term inflation expectations above the 3% target, and a current account deficit almost reaching 10% during the third quarter of 2022. Going forward, the board is expected to wait for inflation to consolidate its decline to the 3% target, and for medium-term inflation expectations to re-anchor before initiating an easing cycle.
Over the long term, copper supply from Chile as well as global demand for copper may go through structural changes. With the social demands for greater fiscal expenditure, the flagship state-owned copper producer Codelco could face difficulties to inject the necessary capital needed to modernize its operations and maintain production levels. At the same time, private investment in mining is likely to encounter a more challenging scenario, especially considering uncertainties
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related to more stringent environmental legislation and regulation, as well as discussions in the Chilean Congress towards a new mining tax, in addition to the current royalty tax. A meaningful increase of electric car usage and consumption of electronics may boost global demand for copper and lithium while lowering demand for oil, lifting Chile’s terms of trade, as Chile is an oil importer and has abundant lithium reserves. Fast progress towards renewable, cleaner sources of energy also presents opportunities to attract foreign investment.
Developments in the Colombian Economy
Gustavo Petro began his mandate with great expectations and broad public support. The leader of the Historic Pact became the new president with a 64% approval rating in July, following moderation of his positions during the runoff vote and negotiations to consolidate political alliances in Congress. The administration’s tax reform was approved in November 2022. The initiative expects to raise 1.4% of GDP in 2023. However, the government expects to raise another 25 trillion Colombian pesos with lower tax evasion over the next four years. The reform has a focus on extractive activities, with measures including the non-deductibility of royalties from income tax and a surcharge tax on coal and oil companies. Under this scenario and with the reform approved, the economic policy discussion for 2023 will move to the labor and pension reforms.
As the fourth wave of Covid infections began to subside at the beginning of 1Q22, and restrictions on mobility and the use of health protection items were gradually phased out, economic activity rebounded significantly, even above initial forecasts. The economy grew 7.5% year-on-year in 2022, down from 11.0% growth in 2021, surpassing several forecasts at the beginning of the year.
The government anticipates somewhat faster fiscal consolidation than planned in 2023, but weaker growth than estimated will pose risks to official tax revenue estimates. In its updated fiscal plan, the Ministry of Finance of Colombia projected a nominal fiscal deficit of 5.5% in 2022 (7.1% in 2021). For 2023, the Treasury projects growth of 1.3%. Treasury forecasts net debt to fall to 59.6% of GDP by the end of 2022 (60.8% in 2021), and to 57.5% in 2023.
In the midst of higher commodity prices, a worsening rainy season, currency devaluation and stronger domestic demand, inflation was characterized by marked upward surprises. In annual terms, the indicator closed 2022 at 13.12%, up from 5.62% in 2021, considerably deviating from the maximum range of the Central Bank of Colombia target of 4%. On the other hand, core inflation increased from 2.49% in 2021 to 9.51% in 2022. In this context, unions and the government reached an agreement to raise the minimum wage by 16% nominal in 2023. The adjustment is higher than the 10% in 2022 and represents the largest minimum wage increase since 1999, which will likely pose further risks to future inflationary pressures.
The Central Bank of Colombia adjusted the interest rate upward by 9pp over 2022 to 12%, a level not seen in the 2000s. This policy followed consecutive upward surprises in inflation, the pressures exerted by the weakening of the exchange rate on consumer prices, indexation, and high employment levels and the upbeat activity dynamics. The decision has also been framed in a global upward cycle in interest rates, higher local debt costs, and a large current account deficit.
Risks for the Colombian economic outlook include the domestic political scenario, Venezuela’s crisis, and external financial conditions. The troubled political environment makes fiscal consolidation difficult, putting upward pressure on public debt, increasing credit risk premium and reducing potential growth. A further increase in the flow of Venezuelans to the country may put additional pressure on fiscal accounts, which may potentially be mitigated by the orderly integration of Venezuelan immigrants into the economy. The long-term challenges include export diversification, labor-market formalization and infrastructure advancement.
Impact of COVID-19 on the Economy
Global Context
At the beginning of last year, the world was preparing to consolidate the economic recovery after the various shocks resulting from the sanitary restrictions caused by the pandemic. However, at the end of February 2022, Russia’s invasion
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of Ukraine came as a surprise and significant shock, affecting global activity and commodity prices. Among the most important effects was the significant increase in the prices of raw materials, mainly in global energy prices. Meanwhile, in China, the real estate sector did not appear to respond to the stimulus provided by the authorities as in previous cycles, which, together with sanitary restrictions related to its zero Covid strategy, delayed the economic recovery.
Inflationary pressures worsened, reaching highs not seen in decades. Despite the fact that the slowdown in global demand resulting from the end of stimulus by the authorities, together with the normalization in global supply chains, caused goods inflation to slow, the effects of the war in Ukraine, together with higher inflation inertia, caused total inflationary pressures to reach highs not seen in decades. In addition, high energy prices significantly increased business costs in an already high inflation scenario. Higher global risk was an important factor that contributed to the dollar’s strength globally, driving up exchange rates in both emerging and developed economies. These factors led to year-on-year inflation reaching double-digit peaks in Europe, figures not seen since the creation of the European Union in 1999, while in the U.S. inflation exceeded 9% in twelve months, a result only seen since the 1980s.
The significant inflationary scenario triggered responses of further monetary policy tightening. The world’s main central banks began to rapidly withdraw the expansionary monetary impulses implemented in the context of the health crisis. In response, most of them quickly entered contractionary territory, with significant increases in policy rates and the withdrawal of extraordinary liquidity measures. The U.S. Federal Reserve (FED) announced that the federal funds rate would exceed 5%, and would remain at that level for quite some time. While the European Central Bank made substantial progress in removing accommodating monetary policy, bringing rates into positive territory for the first time since 2014. In the region, monetary policy rate hikes were slower last year, considering that several countries started hiking cycles earlier.
Latin America Context
Stronger-than-expected data and higher global growth forecasts led to increased activity dynamics for Latin American countries at the backend of 2022. However, economic policy uncertainty is increasing in the region, with several countries facing serious political crises. The crisis stemming from the impeachment of Pedro Castillo in Peru, political polarization in Brazil, a new constitutional process in Chile, and Petro’s reform plan in Colombia, are the main economic policy concerns in the region that increase uncertainty. In addition, most countries reached historically high policy rates, with Brazil, Chile, Colombia, and Mexico reaching double-digit rates, and Peru exceeding 7%, reflecting the greater contraction needed in monetary policy to curb historical inflationary pressures.
Inflation
General
In the past, Chile experienced high levels of inflation, which significantly affected our financial condition and results of operations during such periods. In the period leading up to 2021, Chile experienced relatively low inflation rates, with sporadic episodes where price growth deviated from the Central Bank of Chile’s 2%-4% target range. For example, during the period from 2018 to 2020, the inflation rate stayed at or below approximately 3%. However, inflation has since increased and reached 7.2% in 2021 and 12.8% in 2022, the highest level since the early 90s, primarily as a result of increased public spending and individual withdrawals from private pension funds as well as global supply chain issues, leading to price increases mainly with respect to food, energy, and services. Our results of operations reflect the effect of inflation in the following ways:
● | a substantial portion of our assets and liabilities are denominated in UF. The UF is a unit of account, the peso value of which is indexed daily to reflect inflation recorded in the previous month. The net increase or decrease in the nominal peso value of our UF-denominated assets and liabilities is reflected as income or loss in our income statement, and |
● | the rates of interest earned and paid on peso-denominated assets and liabilities reflect, to a certain degree, inflation, and expectations regarding inflation. |
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Under Chilean law, banks are authorized to earn interest income on loans that are adjustable for the effects of inflation. Most banks, including Itaú Chile, charge an interest rate that includes an estimate of future inflation. In addition, the peso-denominated value of our assets and liabilities that are denominated in UF fluctuate as the UF is adjusted based on inflation. In the case of assets, these fluctuations are recorded as income (for increases in the peso-denominated value) and losses (for decreases in the peso-denominated value). In the case of liabilities, these fluctuations are recorded as losses (for increases in the peso-denominated value) and income (for decreases in the peso-denominated value).
Colombia has experienced high levels of inflation prior to the COVID-19 pandemic amid its currency depreciation and supply-side shocks affecting food prices. Historically low inflation during 2020 was registered following the significant demand shock and various fiscal subsidies. The rate of inflation in Colombia in 2019 and 2020 was 3.80% and 1.61%, respectively. Inflation closed 2021 at 5.6% and 2022 at 13.1%, the highest level since the late 90s, primarily due to increases in food price, minimum wage adjustments and global supply chain issues.
UF-Denominated Assets and Liabilities
The UF is revalued by the INE on a monthly basis. Every day in the period beginning the tenth day of the current month through the ninth day of the succeeding month, the nominal Chilean peso value of the UF is indexed up (or down in the event of deflation) in order to reflect each day a proportional amount of the prior calendar month’s change in the CPI. One UF was equal to Ch$29,070.33, Ch$30,991.74 and Ch$35,110.98 as of December 31, 2020, 2021 and 2022, respectively. The effect of any changes in the nominal Chilean peso value of our UF-denominated assets and liabilities is reflected in our results of operations as an increase (or decrease, in the event of deflation) in interest income and expense, respectively. Generally, our net interest income is positively affected by an inflationary environment to the extent that our average UF-denominated assets exceed our average UF-denominated liabilities, while our net interest income is negatively affected by inflation in any period in which our average UF-denominated liabilities exceed our average UF-denominated assets. Currently, we have more UF-denominated assets than liabilities. Our average UF-denominated assets exceeded our average UF-denominated liabilities by Ch$3,933,113 million, Ch$4,161,703 million and Ch$4,603,818 million during the years ended December 31, 2020, 2021 and 2022, respectively. For more information, see “Item 3. Key Information. Presentation of Financial and Other Information— Foreign Currency Markets,” and “Item 4. Information on the Company—B. Business Overview—Principal Business Activities—Selected Statistical Information—Average Balance Sheets, Income Earned from Interest-Earning Assets, and Interest Paid on Interest-Bearing Liabilities.”
Chilean Peso-Denominated Assets and Liabilities
Interest rates prevailing in Chile are materially affected by the current rate of inflation during the period and market expectations concerning future inflation. The responsiveness to such prevailing rates of our Chilean peso-denominated interest-earning assets and interest-bearing liabilities varies. See “Item 5. Operating and Financial Review and Prospects—Interest Rates,” “Item 5. Operating and Financial Review and Prospects—Results of Operations for the Years Ended December 31, 2020, 2021 and 2022” below, and “Item 11. Quantitative and Qualitative Disclosures about Financial Risk.” We maintain a substantial amount of non-interest-bearing Chilean peso-denominated demand deposits. The ratio of the average balance of such demand deposits to average interest-earning assets was 2.3%, 2.9% and 2.5% during the years ended December 31, 2020, 2021 and 2022, respectively. Any decline in prevailing interest rates or the rate of inflation adversely affects our net interest margin on assets funded with such deposits, and any increase in the prevailing interest rates or the rate of inflation increases the net interest margin on such assets.
Interest Rates
Interest rates earned and paid on our assets and liabilities, respectively, reflect, to a certain degree, inflation, expectations regarding inflation, shifts in short-term interest rates set by the Central Bank of Chile and the Central Bank of Colombia and movements in long-term real rates.
Interest Rates in Chile
The Central Bank of Chile manages short-term interest rates based on its objective of maintaining currency stability. Because our liabilities are generally re-priced to reflect interest rate changes more frequently than our interest-earning
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assets, changes in the rate of inflation or in the monetary policy interest rate published by the Central Bank of Chile are reflected in the interest rates we pay on our liabilities before such changes are reflected in the interest rates we earn on our assets. Therefore, when short-term interest rates fall, our net interest margin is positively impacted, but when short-term rates increase, our interest margin is negatively affected. At the same time, our net interest margin tends to be adversely affected in the short-term by a decrease in inflation because, generally, our UF-denominated assets exceed our UF-denominated liabilities. See “Item 5. Operating and Financial Overview and Prospects—A. Operating Results—The Economy—Developments in the Chilean Economy” and “—UF-Denominated Assets and Liabilities”. An increase in long-term interest rates also has a positive effect on our net interest margin because our interest-earning assets generally have a longer duration than our interest-bearing liabilities.
In addition, because our Chilean peso-denominated liabilities have relatively short re-pricing periods, they are generally more responsive to changes in inflation or short-term rates than our UF-Denominated liabilities. As a result, during periods when current inflation or expected inflation exceeds the previous month’s inflation, customers often switch funds from Chilean peso-denominated deposits to more expensive UF-Denominated deposits, thereby adversely affecting our net interest margin. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Sources of Liquidity.”
Interest Rates in Colombia
The Central Bank of Colombia manages short-term interest rates based on its objectives of maintaining a low and stable inflation rate, stabilizing output around its natural levels, and contributing to the preservation of financial stability.
Colombian commercial banks, finance corporations and financing companies are required to report data to the Central Bank of Colombia on a weekly basis regarding the total volume (in Colombian pesos) of certificates of deposit issued during the prior week and the average interest rates paid for certificates of deposit with maturities of 90 days. Based on such reports, the Central Bank of Colombia calculates the Fixed Term Deposit Interest Rate (Depósito a Término Fijo, or “DTF”) rate, which is the main benchmark interest rate in Colombia and is published at the beginning of the following week. The DTF is the weighted average interest rate paid by commercial banks, finance corporations and financing companies for certificates of deposit with maturities of 90 days. A significant portion of our banking subsidiaries’ assets are linked to the DTF; accordingly, changes in the DTF affect our banking subsidiaries’ net interest income. The DTF increased to 13.7% by the end of 2022 from 3.21% at the end of 2021, as a result of changing monetary conditions. As of March 31, 2023, the DTF rate was 12.7%.
The Central Bank of Colombia also calculates the interbank rate (Interés Bancario de Referencia or “IBR”), which acts as a reference of overnight and one-month interbank loans, based on quotations submitted each business day by eight participating banks to the Central Bank of Colombia. Using a weighted average of the quotations submitted, the Central Bank of Colombia calculates the overnight IBR each business day. The one-month IBR is calculated each Tuesday. Article 884 of the Colombian Commercial Code provides for a limit on the amount of interest that may be charged in commercial transactions. The limit is 1.5 times the current banking interest rate (Interés Bancario Corriente), calculated as the average of the interest ordinarily charged by banks within a set period of time. The current banking interest rate is certified by the Colombian Financial Superintendency.
Currency Exchange Rates
A material portion of our assets and liabilities is denominated in foreign currencies, principally the U.S. dollar and the Colombian peso. Our reported income is affected by changes in the value of the Chilean peso with respect to foreign currencies (principally the U.S. dollar and Colombian peso) because such assets and liabilities, as well as interest earned or paid on such assets and liabilities, and gains (losses) realized upon the sale of such assets, are converted to Chilean pesos in preparing our consolidated financial statements. The Chilean government’s economic policies and any future changes in the value of the Chilean peso against the U.S. dollar could adversely affect our financial condition and results of operations. In the past, the Chilean peso has been subject to significant volatility when compared to the U.S. dollar. The exchange rate between the Chilean peso and the U.S. dollar as of December 31, 2020, 2021 and 2022 was Ch$710.73, Ch$844.08 and Ch$854.31 per US$1.00, respectively. The notable depreciation of the Chilean peso has been due to the global trade war that negatively affected copper prices, the social unrest in late 2019 that raised domestic uncertainty and an overall risk-off market sentiment for emerging currencies during the uncertainty surrounding the
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global pandemic. The several partial pension withdrawals played a role in shallowing the domestic financial market and significantly increased local liquidity. The Chilean peso may be subject to significant fluctuations in the future and we note that the Central Bank of Chile foreign exchange intervention strategy remains active with its utilization likely if the value of the Chilean Peso diverges significantly from its fundamental levels.
Entering into forward exchange transactions enables us to reduce the negative impact of material gaps between the balances of our foreign currency-denominated assets and liabilities. As of December 31, 2020, 2021 and 2022, the gap between foreign currency denominated assets and foreign currency denominated liabilities, including forward contracts, was Ch$974,361 million, Ch$1,936,599 million and Ch$1,089,135 million, respectively.
The risk-off mode due to large external trade imbalances, higher risk premium and political volatility, and tightening of global financial conditions led to further weakening of the Colombian peso in 2022. The peso traded at COP$4,013.51 per US$1.00 at the end of 2021, as compared to COP$3,483.54 per US$1.00 at the end of 2020, and COP$3,278.19 per US$1.00 at the end of 2019. The measures adopted by the Colombian government to mitigate the inflationary effects in the Colombian economy may impact the Colombian peso, preventing its meaningful appreciation.
Results of Operations for the Years Ended December 31, 2020, 2021 and 2022
Introduction
We ended 2022 with Ch$443,360 million consolidated net income, an increase of Ch$167,123 million compared to the year ended December 31, 2021. This increase is mainly explained by higher operating income, mainly from net interest income and inflation adjustments, as well as higher net fees that offset the decrease in net foreign exchange results and the rise in credit provision expenses.
We ended 2021 with Ch$276,237 million consolidated net income, an increase of Ch$1,102,392 million compared to December 31, 2020. This increase was mainly a result of a decrease in both operating expenses and provisions for loan losses.
Also, operating expenses decreased as compared to 2020, primarily as a result of the post-tax non-cash impairment charge of Ch$731,189 million relating to a goodwill impairment of our estimated fair value of the cash generating unit for Chile and Colombia that we took in 2020.
Net Income (Loss)
For the year ended December 31, 2022, our consolidated financial statements reported consolidated net income of Ch$443,360 million, a Ch$167,123 million increase from our consolidated net income of Ch$276,237, million in 2021. This increase is mainly explained by a higher net interest income and inflation adjustments, due to the growth of the loan portfolio and higher interest rate scenario. Also, in 2022, there was an increase in net fees related to insurance income, driven by higher consumer activity, as well as higher credit card fees.
For the year ended December 31, 2021, our consolidated financial statements reported a consolidated net income of Ch$276,237 million, a Ch$1,102,392 million increase from our consolidated net loss of Ch$826,155 million in 2020. This increase was mainly a result of a decrease in both operating expenses and provisions for loan losses. In 2021, an improved credit cycle resulted in a decrease in provisions for loan losses as compared to 2020. Also, operating expenses decreased as compared to 2020, primarily as a result of the post-tax non-cash impairment charge of Ch$731,189 million relating to a goodwill impairment of our estimated fair value of the cash generating unit for Chile and Colombia that we took in 2020.
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The following table sets forth the components of our net income for the years ended December 31, 2020, 2021 and 2022:
% Change | % Change |
| |||||||||
For the Year Ended December 31, | from | from |
| ||||||||
| 2020 |
| 2021 |
| 2022 |
| 2021/2020 |
| 2022/2021 |
| |
| (in millions of Ch$ except for percentages) | ||||||||||
Components of net income: |
|
|
|
|
|
| |||||
Net interest income |
| 866,437 |
| 976,307 |
| 1,170,467 |
| 12.7 | % | 19.9 | % |
Net fees and commissions |
| 140,999 |
| 153,542 |
| 172,999 |
| 8.9 | % | 12.7 | % |
Trading and Investment, foreign exchange gains and other operating income |
| 102,001 |
| 234,353 |
| 183,554 |
| 129.8 | % | (21.7) | % |
Provisions for loan losses |
| (466,230) |
| (262,440) |
| (333,663) |
| (43.7) | % | 27.1 | % |
Total operating expenses |
| (1,581,778) |
| (709,607) |
| (782,984) |
| (55.1) | % | 10.3 | % |
Income (loss) before income taxes |
| (938,571) |
| 392,155 |
| 410,373 |
| (141.8) | % | 4.6 | % |
Income (loss) from investment in associates | (2,794) | (287) | 2,429 | (89.7) | % | (946.3) | % | ||||
Income taxes |
| 115,210 |
| (115,631) |
| 30,558 |
| (200.4) | % | (126.4) | % |
Income (loss) from continuing operations |
| (826,155) |
| 276,237 |
| 443,360 |
| (133.4) | % | 60.5 | % |
Income (loss) from discontinued operations |
| — |
| — |
| — |
| — | % | — | % |
Net income (loss) for the year | (826,155) | 276,237 | 443,360 | (133.4) | % | 60.5 | % | ||||
Net Interest Income
The following table sets forth the components of our net interest income for the years ended December 31, 2020, 2021 and 2022:
| % Change | % Change |
| ||||||||
For the Year Ended December 31, | from | from |
| ||||||||
|
| 2020 |
| 2021 |
| 2022 |
| 2021/2020 |
| 2022/2021 |
|
|
| (in millions of Ch$ except for percentages) | |||||||||
Interest income | 1,549,674 | 1,687,502 | 3,177,133 | 8.9 | % | 88.3 | % | ||||
Interest expense |
| (683,237) |
| (711,195) |
| (2,006,666) |
| 4.1 | % | 182.2 | % |
Net interest income |
| 866,437 |
| 976,307 |
| 1,170,467 |
| 12.7 | % | 19.9 | % |
The following table sets forth information as to the components of our interest income for the years ended December 31, 2020, 2021 and 2022:
| % Change | % Change |
| ||||||||
For the Year Ended December 31, | from | from |
| ||||||||
|
| 2020 |
| 2021 |
| 2022 |
| 2021/2020 |
| 2022/2021 |
|
|
| (in millions of Ch$ except for percentages) | |||||||||
Interest income |
| 1,549,674 |
| 1,687,502 |
| 3,177,133 |
| 8.9 | % | 88.3 | % |
Average interest-earning assets: | |||||||||||
Loans |
| 23,462,068 |
| 23,355,058 |
| 26,115,248 |
| (0.5) | % | 11.8 | % |
Financial investments |
| 3,782,456 |
| 3,790,952 |
| 4,745,012 |
| 0.2 | % | 25.2 | % |
Interbank deposits |
| 140,543 |
| 55,623 |
| 48,182 |
| (60.4) | % | (13.4) | % |
Total average interest-earning assets |
| 27,385,067 |
| 27,201,633 |
| 30,908,442 |
| (0.7) | % | 13.6 | % |
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The following table sets forth information as to the components of our interest expense for the years ended December 31, 2020, 2021 and 2022:
| % Change | % Change |
| ||||||||
For the year end December 31, | from | from |
| ||||||||
|
| 2020 |
| 2021 |
| 2022 |
| 2021/2020 |
| 2022/2021 |
|
|
| (in millions of Ch$ except for percentages) | |||||||||
Interest expense |
| 683,237 |
| 711,195 |
| 2,006,666 |
| 4.1 | % | 182.2 | % |
Average interest-earning liabilities: | |||||||||||
Bonds |
| 6,358,889 |
| 6,342,041 |
| 6,102,006 |
| (0.3) | % | (3.8) | % |
Time deposits |
| 12,195,779 |
| 10,322,040 |
| 11,224,431 |
| (15.4) | % | 8.7 | % |
Central Bank borrowings |
| 1,539,759 |
| 2,794,810 |
| 3,007,334 |
| 81.5 | % | 7.6 | % |
Repurchase agreements |
| 598,204 |
| 407,066 |
| 435,631 |
| (32.0) | % | 7.0 | % |
Mortgage finance bonds |
| 34,536 |
| 26,148 |
| 20,645 |
| (24.3) | % | (21.0) | % |
Commercial papers | — | — | — | — | — | ||||||
Other interest-bearing liabilities |
| 5,959,330 |
| 6,133,701 |
| 6,596,115 |
| 2.9 | % | 7.5 | % |
Total average interest-bearing liabilities |
| 26,686,497 |
| 26,025,806 |
| 27,386,162 |
| (2.5) | % | 5.2 | % |
2022 Compared to 2021
Our net interest income (NII) was Ch$1,170,467 million for the year ended December 31, 2022, an increase of 19.9% as compared to Ch$976,307 million for the year ended December 31, 2021. The increase in NII was primarily the result of (i) a higher income generated from higher inflation and policy rate hikes, both in Chile and Colombia, and (ii) the growth in our loan portfolio. On the liability side, the increase in the volume of time deposits was the most relevant factor in the variation of the liability portfolio. This also increased our interest expense given the higher interest rate scenario.
The aforementioned factors are part of the key drivers that combined had a total Ch$194,160 million impact on our net interest margin (net interest income divided by average interest-earning assets), resulting in an increase of 20 basis points to 3.79% in 2022 from 3.59% in 2021.
2021 Compared to 2020
Our net interest income (NII) was Ch$976,307 million for the year ended December 31, 2021, an increase of 12.7% as compared to Ch$866,437 million for the year ended December 31, 2020. The increase in NII was primarily the result of (i) an increase in inflation-related income in Chile and (ii) an increase in our loan portfolio in Chile. Lower time deposit volumes are the main reason for the decrease in our liabilities and interest expense that have offset the increase in monetary policy interest rates in Chile.
The aforementioned factors are part of the key drivers that combined had a total Ch$109,870 million impact on our net interest margin (net interest income divided by average interest-earning assets), resulting in an increase of 43 basis points to 3.59% in 2021 from 3.16% in 2020.
Allowances for Loan Losses
Allowance for loan losses as of December 31, 2020, 2021 and 2022 corresponds to allowances for loans and accounts receivable from customers at amortized cost according to IFRS 9.
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The following table sets forth information relating to our allowances for loan losses as of December 31, 2020, 2021 and 2022 (at amortized cost according to IFRS 9):
| % Change | % Change |
| ||||||||
As of December 31, | from | from |
| ||||||||
|
| 2020 |
| 2021 |
| 2022 |
| 2021/2020 |
| 2022/2021 |
|
|
| (in millions of Ch$ except for percentages) | |||||||||
Total loans (excludes interbank loans) | 22,617,981 |
| 24,743,360 |
| 26,607,785 |
| 9.4 | % | 7.5 | % | |
Past due loans(1) |
| 291,781 |
| 309,050 |
| 313,613 |
| 5.9 | % | 1.5 | % |
Non-performing loans(2) |
| 503,882 |
| 464,821 |
| 525,500 |
| (7.8) | % | 13.1 | % |
Impaired loans(3) |
| 1,821,779 |
| 1,520,142 |
| 1,611,105 |
| (16.6) | % | 6.0 | % |
Allowances for loan losses |
| 1,041,873 |
| 947,812 |
| 895,974 |
| (9.0) | % | (5.5) | % |
Allowances for loan losses as a percentage of total loans |
| 4.6 | % | 3.8 | % | 3.4 | % | 17.8 | % | (10.5) | % |
Allowances for loan losses as a percentage of non-performing loans |
| 206.8 | % | 203.9 | % | 170.5 | % | 26.7 | % | (16.4) | % |
Allowances for loan losses as a percentage of impaired loans |
| 57.2 | % | 59.3 | % | 56.9 | % | 21.2 | % | (4.0) | % |
Non-performing loans as a percentage of total loans |
| 2.2 | % | 1.9 | % | 2.0 | % | (7.0) | % | 5.3 | % |
Allowances for loan losses as a percentage of past due loans |
| 357.1 | % | 306.7 | % | 285.7 | % | (14.0) | % | (6.8) | % |
Write-offs as a percentage of average loans | |||||||||||
Commercial loans | 0.9 | % | 0.6 | % | 0.8 | % | (0.3) | % | 0.3 | % | |
Mortgage loans | 0.2 | % | 0.2 | % | 0.1 | % | — | % | (0.4) | ||
Consumer loans | 0.9 | % | 0.6 | % | 0.8 | % | (0.3) | % | 0.3 | % | |
(1) | Past due loans include all installments and lines of credit more than 89 days overdue. Do not include the aggregate principal amount of such loans. |
(2) | Non-performing loans include the principal and interest on any loan with one installment more than 89 days overdue. |
(3) | Impaired loans include those loans on which there is objective evidence that debtors will not meet some of their contractual payment obligations. |
2022 Compared to 2021
Allowances for loan losses (excluding allowances for interbank loans) decreased by 5.5% to Ch$895,974 million as of December 31, 2022, compared to Ch$947,812 million as of December 31, 2021. Lower allowances for loan losses resulted primarily from an improvement in our commercial portfolio quality.
Our non-performing loans, as a percentage of total loans, increased to 2.0% as of December 31, 2022, compared to 1.9% as of December 31, 2021. This increase was primarily due to less liquidity in the consumer segment, related to a normalization in the fiscal stimulus that offsets the better credit performance of the Wholesale portfolio in both Chile and Colombia
2021 Compared to 2020
Allowances for loan losses (excluding allowances for interbank loans) decreased by 9.0% to Ch$947,812 million as of December 31, 2021, compared to Ch$1,041,873 million as of December 31, 2020. Lower allowances for loan losses resulted primarily from a positive credit cycle. In 2020, we increased our allowances for loan losses to protect our balance sheet from possible impacts of the COVID-19 pandemic that could materialize in the future, considering the macroeconomic perspectives in Chile and Colombia, as well as specific aspects of the sector, product and client.
Our non-performing loans, as a percentage of total loans, decreased to 1.9% as of December 31, 2021, compared to 2.2% as of December 31, 2020. This decrease was primarily due to a decrease in commercial loans - non-performing loans (NPLs).
Provisions for Loan Losses
2022 Compared to 2021
Provisions for loan losses increased by 27% to Ch$333,663 million for the year ended December 31, 2022, compared to Ch$262,440 million for the year ended December 31, 2021. The increase in our provisions for loan losses expense was primarily due to the rise in delinquency in our retail portfolio (mainly consumer), which is returning to pre-pandemic levels
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considering there was an extraordinary improvement in 2021, driven by the economic support measures granted by the Chilean government in the context of the COVID-19 pandemic.
2021 Compared to 2020
Provisions for loan losses decreased by 43.7% to Ch$262,440 million for the year ended December 31, 2021, compared to Ch$466,230 million for the year ended December 31, 2020. The decrease in our provisions for loan losses expense was primarily due to lower delinquency ratio of our retail portfolio during the year, which was positively affected by the economic support measures provided by the Chilean government to counteract the negative financial impact of the COVID-19 pandemic, namely withdrawals from pension accounts.
Net Fees and Commission Income
2022 Compared to 2021
Our net service fee income (including income from financial advisory services) for the year ended December 31, 2022, was Ch$172,999 million, representing an 12.7% increase when compared to Ch$153,542 million for the year ended December 31, 2021. The increase in our net service fee income was driven primarily by higher insurance commissions, derived from the growth in the commercial activity of the consumer portfolio. The increase in our net service fee income was also driven by higher transaction commissions for credit cards and use of the ATM network, services that showed an increase in transactions as a result of the lower restrictions applicable in 2022 due to the COVID 19 pandemic.
2021 Compared to 2020
Our net service fee income (including income from financial advisory services) for the year ended December 31, 2021, was Ch$153,542 million, and represented an 8.9% increase when compared to Ch$140,999 million for the year ended December 31, 2020. The increase in our net service fee income was driven primarily by the increase in card and insurance brokerage services and, to a lesser extent, financial advisory services. This reflected greater levels of economic activities in the second half of 2021.
Other Net Operating Income
The following table sets forth the components of our other net operating income for the years ended December 31, 2020, 2021 and 2022:
| % Change | % Change |
| ||||||||
For the Year Ended December 31, | from | from |
| ||||||||
|
| 2020 |
| 2021 |
| 2022 |
| 2021/2020 |
| 2022/2021 |
|
|
| (in millions of Ch$ except for percentages) | |||||||||
Trading and investment income, net |
| 110,887 |
| 55,910 |
| 200,841 |
| (49.6) | % | 259.2 | % |
Foreign exchange gains (losses), net |
| (74,464) |
| 149,165 |
| (51,516) |
| (300.3) | % | (134.5) | % |
Other operating revenue |
| 65,578 |
| 29,278 |
| 34,229 |
| (55.4) | % | 16.9 | % |
Trading and investment, foreign exchange gains and other operating income |
| 102,001 |
| 234,353 |
| 183,554 |
| 129.8 | % | (21.7) | % |
2022 Compared to 2021
In the year ended December 31, 2022, trading and investment, foreign exchange gains and other net operating income decreased by 21.7% to Ch$183,554 million from Ch$234,353 million in 2021. This decrease was mainly the result of lower results from foreign exchange gains, which were affected by the devaluation of the Chilean peso against the U.S. dollar, considering that the exchange rate exceeded $900 per dollar in several months of the year.
156
2021 Compared to 2020
In the year ended December 31, 2021, trading and investment, foreign exchange gains and other net operating income increased by 129.8% to Ch$234,353 million from Ch$102,001 million in 2020. This increase was mainly the result of higher foreign exchange gains resulting from an appreciation of the U.S. dollar against the Chilean peso given our net asset position in U.S. dollars.
Operating Expenses
The following table sets forth the components of our operating expenses for the years ended December 31, 2020, 2021 and 2022:
% Change | % Change |
| |||||||||
For the Year Ended December 31, | from | from |
| ||||||||
| 2020 |
| 2021 |
| 2022 |
| 2021/2020 |
| 2022/2021 |
| |
| (in millions of Ch$ except for percentages) | ||||||||||
Personnel salary and expenses |
| 292,191 |
| 306,720 |
| 341,498 |
| 5.0 | % | 11.3 | % |
Administration expenses |
| 257,753 |
| 257,970 |
| 298,112 |
| 0.1 | % | 15.6 | % |
Depreciation and amortization |
| 126,444 |
| 101,583 |
| 96,187 |
| (19.7) | % | (5.3) | % |
Impairment |
| 814,879 |
| 91 |
| 10 |
| (100.0) | % | (89.0) | % |
Other operating expenses |
| 90,511 |
| 43,243 |
| 47,177 |
| (52.2) | % | 9.1 | % |
Total operating expenses |
| 1,581,778 |
| 709,607 |
| 782,984 |
| (55.1) | % | 10.3 | % |
2022 Compared to 2021
Operating expenses increased by 10.3% to Ch$782,984 million for the year ended December 31, 2022, from Ch$709,607 million for the year ended December 31, 2021. This increase was primarily the result of the effect of higher inflation observed in 2022 and its impact on the revaluation of the Bank’s various obligations. In addition, there was an increase in administrative expenses as part of our strategic transformation plan. However, despite inflationary pressures and local currency devaluation, operating expenses ended the year below the inflation increase.
Additionally, depreciation and amortization expenses increased by 5.3% as compared to 2021, mainly due to optimization of the footprint made within the context of the abovementioned transformation plan developed in Chile and Colombia.
2021 Compared to 2020
Operating expenses decreased by 55.1% to Ch$709,607 million for the year ended December 31, 2021, from Ch$1,581,778 million for the year ended December 31, 2020. This decrease was primarily the result of the non-cash goodwill impairment we took in June 2020 as previously discussed above.
Additionally, depreciation and amortization expenses decreased by 19.7% as compared to 2020, mainly due to a decrease in our intangible assets as a result of the aforementioned impairment.
Income Taxes
2022 Compared to 2021
Our income tax for the year ended December 31, 2022, was a benefit of Ch$30,558 million compared to an expense of Ch$115,631 million for the year ended December 31, 2021. This change was mostly a result of the higher inflation observed in 2022 and its implications on the permanent differences affecting the taxable base.
157
2021 Compared to 2020
Our income tax for the year ended December 31, 2021, was an expense of Ch$115,631 million compared to a benefit of Ch$115,210 million for the year ended December 31, 2020. This change is mostly explained by the net income in 2021 as opposed to the net loss for 2020. The latter was a result of the aforementioned goodwill impairment of our estimated fair value of our cash generating units in both Chile and Colombia.
RESULTS OF OUR OPERATING SEGMENTS
The following discussion should be read in conjunction with our consolidated financial statements, especially Note 4 thereto regarding segment information, included elsewhere in this Annual Report. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from these discussed in forward-looking statements as a result of various factors, including those set in forth in “Cautionary Language Regarding Forward-Looking Statements” and “Item 3D. Risk Factors.”
Overview
Reporting segments are determined based on our main operating segments: Chile—which includes our New York Branch—and Colombia. Each of Chile and Colombia are mainly differentiated by the risks and returns that affect them in their own markets. Reporting segments are aggregate in accordance with IFRS 8 “Operating Segments.” The description of each operating segment is as follows:
Chile: The Bank’s business activities in Chile take place mainly in the local market. The Bank has strategically aligned its operations into the following business areas that are directly related to its customers’ needs and the Bank’s strategy: 1) Wholesale Banking (a. Corporate, b. Large Companies and c. Real Estate and Construction); 2) Retail Banking (a. Itaú Personal Bank, b. Itaú Branches, c. Itaú Private Bank, d. Midsize Companies, e. SMEs and f. Banco Condell, our Consumer Finance Division); and 3) Treasury.
The Bank manages these business areas using a reporting system for internal profitability. The operating results are reviewed regularly by the entity’s Chief Operating Decision Maker, or the “CODM” for operating decisions as one single reporting segment, to decide about resource allocation for the segment and evaluate its performance.
Colombia: Colombia has been identified as a separate reporting segment based on the business activities. Its operating results are regularly reviewed by the CODM for operating decisions as one single reporting segment, to decide on the resource allocation for the segment and evaluate its performance. Separate financial information is available for this reporting segment.
The commercial activities of this segment are carried out by Itaú Colombia S.A. and subsidiaries.
158
Year Ended December 31, 2022 Results
The following table presents summary information related to each of our reporting segments for the year ended December 31, 2022:
| For the year ended December 31, 2022 | |||||
| Chile | Colombia | Total | |||
|
| (in millions of Ch$) | ||||
Net interest income |
| 941,459 | 229,008 | 1,170,467 | ||
Net fees and commissions |
| 141,667 | 31,332 | 172,999 | ||
Net Trading and investment income |
| 162,539 | 38,302 | 200,841 | ||
Net foreign exchange gain (loss) |
| (30,621) | (20,895) | (51,516) | ||
Other operating income |
| 23,599 | 10,630 | 34,229 | ||
Provision for loan losses |
| (269,321) | (64,342) | (333,663) | ||
Total operating income, net of provision for loan losses |
| 969,322 |
| 224,035 |
| 1,193,357 |
Depreciation and amortization |
| (80,083) |
| (16,104) | (96,187) | |
Other operating expenses |
| (490,409) |
| (196,388) | (686,797) | |
Total operating expenses |
| (570,492) |
| (212,492) |
| (782,984) |
Income (loss) before taxes |
| 398,830 |
| 11,543 | 410,373 | |
Income (loss) from investment in associates |
| 2,429 | — | 2,429 | ||
Income taxes | 28,728 |
| 1,830 | 30,558 | ||
Income (loss) from continuing operations |
| 429,987 |
| 13,373 |
| 443,360 |
Income (loss) discontinued operations | — | — | — | |||
Net income (loss) for the year |
| 429,987 |
| 13,373 |
| 443,360 |
Average loans |
| 21,448,397 | 4,666,852 |
| 26,115,248 | |
Average investments |
| 4,190,718 | 554,295 |
| 4,745,012 | |
Year Ended December 31, 2021 Results
The following table presents summary information related to each of our reporting segments for the year ended December 31, 2021:
| For the year ended December 31, 2021 | |||||
| Chile | Colombia | Total | |||
|
| (in millions of Ch$) | ||||
Net interest income |
| 743,278 | 233,029 | 976,307 | ||
Net fees and commissions |
| 123,612 | 29,930 | 153,542 | ||
Net Trading and investment income |
| 11,934 | 43,976 | 55,910 | ||
Net foreign exchange gain (loss) |
| 169,188 | (20,023) | 149,165 | ||
Other operating income |
| 15,295 | 13,983 | 29,278 | ||
Provision for loan losses |
| (184,155) | (78,285) | (262,440) | ||
Total operating income, net of provision for loan losses |
| 879,152 |
| 222,610 |
| 1,101,762 |
Depreciation and amortization |
| (82,479) | (19,104) | (101,583) | ||
Impairment | (90) | (1) | (91) | |||
Other operating expenses |
| (420,872) | (187,061) | (607,933) | ||
Total operating expenses |
| (503,441) |
| (206,166) |
| (709,607) |
Income (loss) before taxes |
| 375,711 |
| 16,444 | 392,155 | |
Income (loss) from investment in associates |
| (1,610) | 1,323 | (287) | ||
Income taxes | (118,366) | 2,735 | (115,631) | |||
Income (loss) from continuing operations |
| 255,735 |
| 20,502 |
| 276,237 |
Income (loss) discontinued operations | — | — | — | |||
Net income (loss) for the year |
| 255,735 |
| 20,502 |
| 276,237 |
Average loans |
| 18,875,852 | 4,479,206 |
| 23,355,058 | |
Average investments |
| 3,243,999 | 910,094 |
| 4,154,093 | |
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Year Ended December 31, 2020 Results
The following table presents summary information related to each of our reporting segments for the year ended December 31, 2020:
| For the year ended December 31, 2020 | |||||
| Chile | Colombia | Total | |||
|
| (in millions of Ch$) | ||||
Net interest income |
| 626,214 | 240,223 | 866,437 | ||
Net fees and commissions |
| 108,140 | 32,859 | 140,999 | ||
Net Trading and investment income |
| 25,031 | 85,856 | 110,887 | ||
Net foreign exchange gain (loss) |
| (20,491) | (53,973) | (74,464) | ||
Other operating income |
| 16,588 | 48,990 | 65,578 | ||
Provision for loan losses |
| (310,429) | (155,801) | (466,230) | ||
Total operating income, net of provision for loan losses |
| 445,053 |
| 198,154 |
| 643,207 |
Depreciation and amortization |
| (96,117) | (30,327) | (126,444) | ||
Other operating expenses |
| (457,174) | (357,705) | (814,879) | ||
Total operating expenses |
| (438,978) | (201,477) | (640,455) | ||
Income before taxes |
| (992,269) |
| (589,509) |
| (1,581,778) |
Income from investment in associates and other companies | (547,216) |
| (391,355) | (938,571) | ||
Income (loss) taxes |
| (2,794) | — | (2,794) | ||
Income from continuing operations |
| 73,965 | 41,245 | 115,210 | ||
Income (loss) discontinued operations |
| (476,045) |
| (350,110) |
| (826,155) |
Net income for the year |
| — | — | — | ||
Average loans |
| (476,045) |
| (350,110) |
| (826,155) |
Average investments |
| 18,792,888 | 4,669,180 |
| 23,462,068 | |
Analysis of Segment Results
2022 Compared to 2021
We ended 2022 with a Ch$443,360 million consolidated net income, an increase of Ch$167,123 million as compared to the year ended December 31, 2021, which consisted of a net income of Ch$429,987 million in Chile and an income of Ch$13,373 million in Colombia.
Our results in Chile were mainly driven by an increase in net interest income and adjustments, as a result of the growth of the loan portfolio and a higher generation of results from the management of the Bank’s net active gap in UF, in a macroeconomic scenario marked by strong inflationary pressures; effects that were partially offset the increase in loan provisions resulting from the higher delinquency of the portfolio and the recognition of additional provisions mainly related to consumer loans, which is complemented by the expansion in operating expenses that were also impacted by higher inflation. Our results in Colombia were mainly impacted by lower net interest income and financial operation results, given the market volatility, the increase in the monetary policy rate and the currency movements that occurred during the year.
2021 Compared to 2020
We ended 2021 with a Ch$276,237 million consolidated net income, an increase of Ch$1,102,392 million as compared to the year ended December 31, 2020, which consisted of a net income of Ch$255,735 million in Chile and an income of Ch$20,502 million in Colombia.
Our results in both Chile and Colombia benefited from a decrease in operating expenses and provisions for loan losses. In terms of operating expenses, we benefited in 2021 because operating expenses were significantly impacted in 2020 by the previously mentioned impairment of our estimated fair value of our cash generating units in both countries. In terms of provisions for loan losses, the decrease was due to an improved credit cycle in both countries.
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B. LIQUIDITY AND CAPITAL RESOURCES
We maintain adequate liquidity to ensure our ability to honor withdrawals of deposits, repayments of other liabilities at maturity, and meet our own working capital requirements.
Sources of Liquidity
Our funding strategy aims for diversification of counterparties and maturities, both in the domestic and foreign markets. We are permanently monitoring the main factors that could affect our current and potential capacity to obtain funding. Our objective is to ensure a diversified funding base within our risk appetite framework and cost structure. Stable and diversified funding is obtained through different sources, products, and markets.
The liquidity reserves that each area must maintain and manage are approved by the Assets and Liabilities Committee, or the “ALCO”, and the board of directors. These limits depend, among other things, on the maturity structure, the type of customers holding short-term deposits and on-demand deposits and other obligations we maintain. Additionally, the ALCO defines the type of eligible instruments to be considered liquidity reserves, and it periodically monitors the liquidity levels maintained at all times. Compliance with the limit structure is monitored on a daily basis by our market risk department.
For our operations in Chile, the main source of funding are deposits provided by three major types of clients: (i) institutional investors; (ii) large corporations; and (iii) retail clients.
For short-term funding (less than one year), we usually issue deposits. Interest rates granted to clients consider stability of the funding by type of customer and market conditions.
If the funding requirements are longer than one year, we may also carry out other operations such as bilateral loans with correspondent banks, syndicated loans with foreign banks, and the issuance of bonds in both the local and foreign markets.
The choice of one or the other of the aforementioned options will depend, among other factors, on the tenor, the specific price conditions, the currency, and the market. In general, in transactions between one and three years, we negotiate bilateral and syndicated loans. For operations exceeding these terms, we access the capital markets through bonds. The price conditions and the size of the transaction will determine if the issuance will be carried out in the domestic or in the foreign market.
On the other hand, our funding strategy considers not having currency mismatches and, therefore, for operations carried out in foreign markets to finance operations in local currency, derivatives are used to convert the foreign currency into local currency we required. Any mismatch of currencies presented on the balance sheet is measured in our currency risk reports that are daily calculated.
Our funding strategy aims to optimize all sources of funding in accordance with their costs, their availability, and our general asset and liability management strategy. In this context, in 2022, demand deposits decreased mainly driven by less liquidity in the system due to permitted pension funds withdrawals in previous years. Interbank borrowings and bonds expanded during 2022. Time deposits increased in 2022, mainly as a result of the increase in interest rates. The monetary policy interest rate rose from 4.0% in December 2021 to 11.25% in December 2022.
Our strategy in terms of bond issuances is to seek longer maturity tenors and maintain comfortable liquidity levels under BIS III standards. In addition, we have not observed relative changes in the spreads obtained in these new. In 2022, we issued bonds for UF29.5 million in face value (equivalent to Ch$889,608 million and US$1,041.32 million).
Capital
Under the Chilean General Banking Act, unless an exception applies, a bank must have an (1) effective net equity (Patrimonio Efectivo) of at least 8% of its risk-weighted assets, net of required allowance for loan losses, as calculated in
161
accordance with Chilean Banking GAAP; and (2) paid-in capital and reserves, or basic capital (Capital Básico), not lower than (y) 4.5% of its risk-weighted assets and (z) 3% of its total assets, in both cases, net of required allowance for loan losses.
Notwithstanding the above, when approving the Merger in 2016, the former SBIF required Itaú Chile to have an effective net equity of at least 10% of its risk-weighted assets, net of required reserves. In December 2022, the additional capital requirement that Banco Itaú was subject to due to its merger was derogated. In addition, the CMF introduced new capital requirements on systemically important banks (such as Banco Itaú), that must be met before the established deadlines: (i) 25% of the total required by December 1, 2022, (ii) 50% by December 1, 2023, (iii) 75% by December 1, 2024, and (iv) 100% by December 1, 2025. See “Item 3. Key Information—Presentation of Financial and Other Information—Specific Loan Information” in this Annual Report.
As of December 31, 2022, our shareholders’ equity was in excess of that required by Chilean regulatory requirements, since we had a Total Capital Adequacy Ratio of 15.3% and Common Equity Tier 1 Ratio of 10.5%.
Reserves
Under the Chilean General Banking Act, unless an exception applies, a bank must have an (1) effective net equity (Patrimonio Efectivo) of at least 8% of its risk-weighted assets, net of required allowance for loan losses, as calculated in accordance with Chilean Banking GAAP; and (2) paid-in capital and reserves, or basic capital (Capital Básico), not lower than (y) 4.5% of its risk-weighted assets and (z) 3% of its total assets, in both cases, net of required allowance for loan losses. See “Item 3. Key Information—Presentation of Financial and Other Information—Specific Loan Information” in this Annual Report for additional information regarding events in which a higher effective net equity and/or a higher basic capital may be required and detail on certain regulations that were issued by the CMF during 2020, which may impose additional capital and reserve requirements.
The following table sets forth our minimum capital requirements as of the dates indicated. See also Note 36 to our consolidated financial statements included herein for a description of the minimum capital requirements.
| As of December 31, |
| |||||
|
| 2020 |
| 2021 |
| 2022 |
|
| (in millions of Ch$ except |
| |||||
| for percentages ) | ||||||
Common Equity Tier 1 | 2,315,411 |
| 2,859,830 |
| 2,790,694 | ||
3% total assets net of provisions |
| (1,060,193) |
| (1,113,274) |
| (1,175,551) | |
Excess over minimum required equity |
| 1,255,218 |
| 1,746,556 |
| 1,615,143 | |
Net capital base as a percentage of the total assets, net of provisions |
| 6.55 | % | 7.71 | % | 7.12 | % |
Effective equity |
| 3,044,661 |
| 4,036,480 |
| 4,086,900 | |
10% of the risk-weighted assets |
| (2,244,655) |
| (2,488,069) |
| (2,678,895) | |
Excess over minimum required equity |
| 800,006 |
| 1,548,411 |
| 1,408,005 | |
Capital Adequacy Ratio |
| 13.6 | % | 16.2 | % | 15.3 | % |
As of December 31, 2022, we fully complied with all of the above capital adequacy requirements. Our capital ratio levels decreased to 15.3% in 2022 when compared to 16.2% in 2021, primarily due to capital deductions under Basel III and an increase of RWA (Risk-Weighted Assets) as a result of wholesale and retail loans (FX effect). This was partially offset by an increase net income of the year, and an increase in computable subordinated debt (FX effect).
Financial Investments
We classify our financial investments into measurement categories based on both our business model for managing the financial asset and the contractual cash flow characteristics of the financial asset. For additional details on our investment in Chilean government and corporate securities and certain other financial investments as of December 31, 2020, 2021 and 2022, please see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Investment Portfolio.”
162
Unused Sources of Liquidity
As part of our liquidity policy, we maintain at all times a diversified portfolio of highly liquid assets that can be quickly monetized, including cash, financial investments and Central Bank of Chile and other government securities.
Working Capital
The majority of our funding is derived from deposits and other borrowings from the public. In the opinion of management, our working capital is sufficient for our present needs.
Liquidity Management
We seek to ensure that, even under adverse conditions, we have access to the funds necessary to cover client needs, maturing liabilities and capital requirements. Liquidity risk arises in the general funding for our financing, trading, and investment activities. It includes the risk of unexpected increases in the cost of funding the portfolio of assets at appropriate maturities and rates, and the risk of being unable to liquidate a position in a timely manner at a reasonable price. In addition, it is important to highlight that early withdrawal for time deposits are not allowed and demand deposits have government insurance without limit amount. See “Item 11. Quantitative and Qualitative Disclosures about Financial Risk” for more detailed information relating to the methods we employ in managing our liquidity.
Cash Flow
The tables below set forth information about our main sources and uses of cash. No legal or economic restrictions exist on the ability of our Chilean subsidiaries to transfer funds to us in the form of loans or cash dividends as long as these subsidiaries abide by the regulations in the Chilean Corporations Law regarding loans to related parties, and dividend payments. In addition, no legal or economic restrictions exist on the ability of our Colombian subsidiaries to transfer funds to us in the form of cash dividends. However, in the case of Itaú Colombia, there is a possibility that shareholders may vote to capitalize such dividends either for growth or to meet capital adequacy requirements following Basel standards. Itaú Colombia may also transfer funds to Itaú Chile in the form of loans, as long as they abide by the regulations in the Colombian financial law regarding loans to related parties. Colombian subsidiaries (other than Itaú Colombia) may not transfer funds to us in the form of loans, due to their limited corporate purpose.
Net Cash (Used in) Provided by Operating Activities
| For the Year Ended December 31, | |||||
|
| 2020 |
| 2021 |
| 2022 |
| in millions of Ch$ | |||||
Net cash (used in) provided by operating activities |
| 1,432,755 |
| (1,189,252) |
| (391,544) |
Our net cash used in operating activities for the year ended December 31, 2022, decreased from Ch$(1,189,252) million in 2021 to Ch$(391,544) million in 2022. This decrease in net cash used in operating activities was mainly due to the increase in time deposits during the year 2022, which was mainly driven by the increase in rates and the expiration of investments under resale agreements.
Net Cash (Used in) Provided by Investing Activities
| For the Year Ended December 31, | |||||
|
| 2020 |
| 2021 |
| 2022 |
in millions of Ch$ | ||||||
Net cash (used in) provided by investing activities |
| (66,306) |
| (46,178) |
| (403,407) |
Our net cash used in investing activities increased from Ch$(46,178) million for the year ended December 31, 2021, to Ch$(403,407) million for the year ended December 31, 2022. This increase in net cash used in investing activities was primarily due to the increased participation in Colombia and MCC.
163
Net Cash (Used in) Provided by Financing Activities
| For the Year Ended December 31, | |||||
|
| 2020 |
| 2021 |
| 2022 |
in millions of Ch$ | ||||||
Net cash (used in) provided by financing activities |
| 1,569,735 |
| 1,813,707 |
| 134,218 |
Our net cash used in financing activities decreased from Ch$1,813,707 million for the year ended December 31, 2021, to Ch$134,218 million for the year ended December 31, 2022. This decrease in net cash used in financing activities was mainly due to our capital increase process completed during the fourth quarter of 2021 and borrowings obtained from the Central Bank of Chile.
Deposits and Other Borrowings
The following table sets forth the average month-end balances of our liabilities for the years ended December 31, 2020, 2021 and 2022, in each case together with the related average nominal interest rates paid thereon.
| As of December 31, | ||||||||||||||||||
| 2020 | 2021 | 2022 | ||||||||||||||||
| Average | Average | Average | ||||||||||||||||
Average | Interest | Normal | Average | Interest | Normal | Average | Interest | Normal | |||||||||||
| Balance |
| Paid |
| Rate |
| Balance |
| Paid |
| Rate | Balance |
| Paid |
| Rate | |||
|
| (in millions of Ch$ except for percentages) | |||||||||||||||||
Time deposits | 12,195,779 | 267,482 | 2.2 | % | 10,322,040 | 172,504 | 1.7 | % | 11,224,431 | 831,361 | 7.4 | % | |||||||
Central Bank borrowings |
| 1,539,759 |
| 7,162 |
| 1 |
| 2,794,810 | 13,903 | 1 |
| 3,007,334 | 15,245 | 1.0 | % | ||||
Repurchase agreements |
| 598,204 |
| 8,622 |
| 1.4 | % | 407,066 | 5,789 | 1.4 | % | 435,631 | 28,069 | 6.4 | % | ||||
Mortgage finance bonds |
| 34,536 |
| 1,262 |
| 3.7 | % | 26,148 | 2,214 | 8.5 | % | 20,645 | 3,474 | 16.8 | % | ||||
Bonds |
| 6,358,889 |
| 290,727 |
| 4.6 | % | 6,342,041 | 451,559 | 7.1 | % | 6,102,006 | 912,381 | 15.0 | % | ||||
Commercial papers | — |
| — |
| — | — |
| — |
| — | — |
| — |
| 0.0 | ||||
Other interest bearing-liabilities |
| 5,959,330 |
| 107,982 |
| 1.8 | % | 6,133,701 | 65,226 | 1.1 | % | 6,596,115 | 216,135 | 3.0 | % | ||||
Subtotal interest-bearing liabilities |
| 26,686,497 |
| 683,237 |
| 2.6 | % | 26,025,806 |
| 711,195 |
| 2.7 | % | 27,386,161 |
| 2,006,665 |
| 7.3 | % |
Non-interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Non-interest bearing deposits |
| 2,517,195 |
|
|
|
|
| 2,793,592 |
|
|
| 2,916,551 |
|
|
|
| |||
Derivatives |
| 4,320,679 |
|
|
|
|
| 2,796,132 |
|
|
| 3,501,536 |
|
|
|
| |||
Other non-interest bearing liabilities |
| 942,243 |
|
|
|
|
| 1,080,294 |
|
|
| 1,190,925 |
|
|
|
| |||
Shareholders’ equity |
| 2,875,406 |
|
|
|
|
| 2,591,069 |
|
|
| 3,257,290 |
|
|
|
| |||
Subtotal non-interest bearing liabilities |
| 10,655,523 |
|
|
|
|
| 9,261,087 |
|
|
| 10,866,302 |
|
|
|
| |||
Total |
| 37,342,020 |
| 683,237 |
|
|
| 35,286,893 |
| 711,195 |
| 38,252,464 |
| 2,006,665 |
|
| |||
Our current funding strategy is to continue to utilize all funding sources in accordance with their cost, availability and our general asset and liability management strategy. Time deposits are our most important funding source. They represented 41% of our average interest-bearing liabilities for the year ended December 31, 2022. The strategy seeks to increase deposits from retail customers, which consist primarily of checking accounts that do not bear interest and therefore are an inexpensive funding source. Our total checking accounts and other demand liabilities increased by 4.4% during 2022. We also intend to continually broaden our customer deposit base, and thus, rely on a solid core deposit funding. Management believes that broadening our deposit base by increasing the number of accountholders has created a more stable funding source.
164
Total Borrowings
The following tables set forth the long-term, short-term, and total outstanding amounts of our principal categories of borrowings for the years ended December 31, 2020, 2021 and 2022.
| As of December 31, 2020 | |||||||
| On demand | Short term | Long term | Total | ||||
|
| millions of Ch$ | millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ | |
Cash in process of being cleared (a) | — | — | — | — | ||||
Obligations under repurchase agreements (b) | — | 638,851 | — | 638,851 | ||||
Deposits and other demand liabilities (c) | 6,197,406 | — | — | 6,197,406 | ||||
Time deposits and other time liabilities (d) | 308,348 | 10,015,952 | 1,108,764 | 11,433,064 | ||||
Financial derivative contracts held for hedge accounting (e) | — | 104,024 | 58,426 | 162,450 | ||||
Financial derivatives contracts held for trading (f) | — | 569,317 | 2,941,824 | 3,511,141 | ||||
Interbank borrowings (g) | — | 942,140 | 2,856,838 | 3,798,978 | ||||
Lease obligations (h) | — | 30,829 | 121,056 | 151,885 | ||||
Debt instruments issued (i) | — | 328,273 | 4,795,552 | 5,123,825 | ||||
Financial instruments of regulatory capital issued (j) | — | — | 1,081,031 | 1,081,031 | ||||
Other financial liabilities (k) | — | 13,123 | — | 13,123 | ||||
Total |
| 6,505,754 | 12,642,509 |
| 12,963,491 |
| 32,111,754 | |
| As of December 31, 2021 | |||||||
| On demand | Short term | Long term | Total | ||||
|
| millions of Ch$ | millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ | |
Cash in process of being cleared (a) | 424,358 | — | — | 424,358 | ||||
Obligations under repurchase agreements (b) |
| — | 466,006 | — | 466,006 | |||
Deposits and other demand liabilities (c) |
| 7,576,095 | — | — | 7,576,095 | |||
Time deposits and other time liabilities (d) |
| 314,373 | 9,002,589 | 780,481 | 10,097,443 | |||
Financial derivative contracts held for hedge accounting (e) |
| — | 86,022 | 82,223 | 168,245 | |||
Financial derivatives contracts held for trading (f) | — | 533,384 | 2,223,958 | 2,757,342 | ||||
Interbank borrowings (g) | — | 1,724,265 | 3,194,158 | 4,918,423 | ||||
Lease obligations (h) |
| — | 25,362 | 90,182 | 115,544 | |||
Debt instruments issued (i) |
| — | 512,872 | 5,096,923 | 5,609,795 | |||
Financial instruments of regulatory capital issued (j) |
| — | 5,448 | 1,147,597 | 1,153,045 | |||
Other financial liabilities (k) |
| — | 42,435 | — | 42,435 | |||
Total |
| 8,314,826 | 12,398,383 |
| 12,615,522 |
| 33,328,731 | |
165
| As of December 31, 2022 | |||||||
| On demand | Short term | Long term | Total | ||||
|
| millions of Ch$ | millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ | |
Cash in process of being cleared (a) | 456,947 | — | — | 456,947 | ||||
Obligations under repurchase agreements (b) |
| — | 354,088 | — | 354,088 | |||
Deposits and other demand liabilities (c) |
| 5,555,185 | — | — | 5,555,185 | |||
Time deposits and other time liabilities (d) |
| 314,829 | 11,077,965 | 1,310,859 | 12,703,653 | |||
Financial derivative contracts held for hedge accounting (e) |
| — | 122,996 | 95,737 | 218,733 | |||
Financial derivatives contracts held for trading (f) | — | 840,528 | 2,585,613 | 3,426,141 | ||||
Interbank borrowings (g) | — | 1,623,609 | 3,104,714 | 4,728,323 | ||||
Lease obligations (h) |
| — | 22,091 | 72,484 | 94,575 | |||
Debt instruments issued (i) |
| — | 321,731 | 6,226,076 | 6,547,807 | |||
Financial instruments of regulatory capital issued (j) |
| — | 18,754 | 1,244,415 | 1,263,169 | |||
Other financial liabilities (k) |
| — | 312,897 | 46,676 | 359,573 | |||
Total |
| 6,326,961 | 14,694,659 |
| 14,686,574 |
| 35,708,194 | |
| As of |
| As of |
| As of | |
December 31, | December 31, | December 31, | ||||
2020 | 2021 | 2022 | ||||
(in millions of | (in millions of | (in millions of | ||||
Ch$) | Ch$) | Ch$) | ||||
On demand |
| — | 424,358 | 456,947 | ||
Up to 1 month | — | — | — | |||
Over 1 month less than 3 months | — | — | — | |||
Over 3 months up to 1 year | — | — | — | |||
Over between 1 and 3 years | — | — | — | |||
Over 3 up to 5 years | — | — | — | |||
More than 5 years | — | — | — | |||
Total |
| — |
| 424,358 |
| 456,947 |
(a) Obligations under repurchase agreements
The maturities of the outstanding amounts due are as follows:
| As of |
| As of |
| As of | |
December 31, | December 31, | December 31, | ||||
2020 | 2021 | 2022 | ||||
(in millions of | (in millions of | (in millions of | ||||
Ch$) | Ch$) | Ch$) | ||||
On demand |
| — | — | — | ||
Up to 1 month | 637,751 | 465,842 | 354,074 | |||
Over 1 month less than 3 months | 1,100 | 164 | 14 | |||
Over 3 months up to 1 year | — | — | — | |||
Over between 1 and 3 years | — | — | — | |||
Over 3 up to 5 years | — | — | — | |||
More than 5 years | — | — | — | |||
Total |
| 638,851 |
| 466,006 |
| 354,088 |
166
(b) Deposits and other demand liabilities
The maturities of the outstanding amounts are as follows:
| As of |
| As of |
| As of | |
December 31, | December 31, | December 31, | ||||
2020 | 2021 | 2022 | ||||
(in millions of | (in millions of | (in millions of | ||||
Ch$) | Ch$) | Ch$) | ||||
On demand |
| 6,197,406 | 7,576,095 | 5,555,185 | ||
Up to 1 month |
| — | — | — | ||
Over 1 month less than 3 months |
| — | — | — | ||
Over 3 months up to 1 year |
| — | — | — | ||
Over between 1 and 3 years | — | — | — | |||
Over 3 up to 5 years |
| — | — | — | ||
More than 5 years |
| — | — | — | ||
Total |
| 6,197,406 |
| 7,576,095 |
| 5,555,185 |
(c) Time deposits and other time liabilities
| As of |
| As of |
| As of | |
December 31, | December 31, | December 31, | ||||
2020 | 2021 | 2022 | ||||
(in millions of | (in millions of | (in millions of | ||||
Ch$) | Ch$) | Ch$) | ||||
On demand | 308,348 | 314,373 | 314,829 | |||
Up to 1 month | 4,319,328 | 4,572,769 | 4,738,021 | |||
Over 1 month less than 3 months | 2,385,542 | 2,087,560 | 3,079,014 | |||
Over 3 months up to 1 year | 3,311,082 | 2,342,260 | 3,260,930 | |||
Over between 1 and 3 years | 661,139 | 326,276 | 762,345 | |||
Over 3 up to 5 years | 80,662 | 152,633 | 164,548 | |||
More than 5 years | 366,963 | 301,572 | 383,966 | |||
Total |
| 11,433,064 |
| 10,097,443 |
| 12,703,653 |
167
(d) Financial derivative contracts held for hedge accounting
Financial derivative contracts are as follows:
| As of |
| As of |
| As of | |
December 31, | December 31, | December 31, | ||||
2020 | 2021 | 2022 | ||||
(in millions of | (in millions of | (in millions of | ||||
Ch$) | Ch$) | Ch$) | ||||
On demand |
| — | — | — | ||
Up to 1 month |
| 23,655 | 11,305 | 461 | ||
Over 1 month less than 3 months |
| 53,744 | 45,617 | 97,331 | ||
Over 3 months up to 1 year |
| 26,625 | 29,100 | 25,204 | ||
Over between 1 and 3 years | 20,298 | 44,566 | 12,878 | |||
Over 3 up to 5 years |
| 2,841 | 4,883 | 24,076 | ||
More than 5 years |
| 35,287 | 32,774 | 58,783 | ||
Total |
| 162,450 |
| 168,245 |
| 218,733 |
(e) Financial derivative contracts
Financial derivative contracts are as follows:
| As of |
| As of |
| As of | |
December 31, | December 31, | December 31, | ||||
2020 | 2021 | 2022 | ||||
(in millions of | (in millions of | (in millions of | ||||
Ch$) | Ch$) | Ch$) | ||||
On demand |
| — | — | — | ||
Up to 1 month |
| 147,464 | 66,530 | 211,116 | ||
Over 1 month less than 3 months |
| 158,637 | 143,133 | 157,721 | ||
Over 3 months up to 1 year |
| 263,216 | 323,721 | 471,691 | ||
Over between 1 and 3 years | 648,841 | 620,192 | 743,983 | |||
Over 3 up to 5 years |
| 855,266 | 591,023 | 550,042 | ||
More than 5 years |
| 1,437,717 | 1,012,743 | 1,291,588 | ||
Total |
| 3,511,141 |
| 2,757,342 |
| 3,426,141 |
168
(f) Interbank borrowings
Interbank borrowings are as follows:
| As of |
| As of |
| As of | |
December 31, | December 31, | December 31, | ||||
2020 | 2021 | 2022 | ||||
(in millions of | (in millions of | (in millions of | ||||
Ch$) | Ch$) | Ch$) | ||||
On demand |
| — | — | — | ||
Up to 1 month |
| 103,194 | 171,624 | 246,742 | ||
Over 1 month less than 3 months |
| 119,061 | 132,457 | 241,425 | ||
Over 3 months up to 1 year |
| 719,885 | 1,420,184 | 1,135,442 | ||
Over between 1 and 3 years | 970,809 | 3,137,074 | 2,979,900 | |||
Over 3 up to 5 years |
| 1,863,565 | 45,985 | 37,550 | ||
More than 5 years |
| 22,464 | 11,099 | 87,264 | ||
Total |
| 3,798,978 |
| 4,918,423 |
| 4,728,323 |
(g) Lease obligations
Lease obligations are as follows:
As of |
| As of |
| As of | ||
December 31, | December 31, | December 31, | ||||
2020 | 2021 | 2022 | ||||
(in millions of | (in millions of | (in millions of | ||||
Ch$) | Ch$) | Ch$) | ||||
On demand | — | — | — | |||
Up to 1 month | 10,288 | 4,847 | 2,008 | |||
Over 1 month less than 3 months | 4,980 | 4,808 | 3,667 | |||
Over 3 months up to 1 year | 15,561 | 15,707 | 16,416 | |||
Over between 1 and 3 years | 51,862 | 41,933 | 39,249 | |||
Over 3 up to 5 years | 37,618 | 27,501 | 22,807 | |||
More than 5 years | 31,576 | 20,748 | 10,428 | |||
Total | 151,885 |
| 115,544 |
| 94,575 |
169
(h) Debt instruments issued
Debt instruments issued are as follows:
As of |
| As of |
| As of | ||
December 31, | December 31, | December 31, | ||||
2020 | 2021 | 2022 | ||||
(in millions of | (in millions of | (in millions of | ||||
Ch$) | Ch$) | Ch$) | ||||
On demand | — | — | — | |||
Up to 1 month | 31,003 | 90,750 | 100 | |||
Over 1 month less than 3 months | 545 | 32,551 | (4,470) | |||
Over 3 months up to 1 year | 296,725 | 389,571 | 326,101 | |||
Over between 1 and 3 years | 806,244 | 980,552 | 1,354,462 | |||
Over 3 up to 5 years | 1,190,578 | 1,552,661 | 1,525,199 | |||
More than 5 years | 2,798,730 | 2,563,710 | 3,346,415 | |||
Total | 5,123,825 |
| 5,609,795 |
| 6,547,807 |
(i) Financial instruments of regulatory capital issued
Financial instruments of regulatory capital issued are as follows:
As of |
| As of |
| As of | ||
December 31, | December 31, | December 31, | ||||
2020 | 2021 | 2022 | ||||
(in millions of | (in millions of | (in millions of | ||||
Ch$) | Ch$) | Ch$) | ||||
On demand | — | — | — | |||
Up to 1 month | — | — | — | |||
Over 1 month less than 3 months | — | — | 18,754 | |||
Over 3 months up to 1 year | — | 5,448 | — | |||
Over between 1 and 3 years | 31,788 | 165,936 | 147,150 | |||
Over 3 up to 5 years | 122,290 | — | — | |||
More than 5 years | 926,953 | 981,661 | 1,097,265 | |||
Total | 1,081,031 |
| 1,153,045 |
| 1,263,169 |
(j) Other financial liabilities
Other financial liabilities are as follows:
As of |
| As of |
| As of | ||
December 31, | December 31, | December 31, | ||||
2020 | 2021 | 2022 | ||||
(in millions of | (in millions of | (in millions of | ||||
Ch$) | Ch$) | Ch$) | ||||
On demand | — | — | — | |||
Up to 1 month | 13,123 | 42,435 | 126,090 | |||
Over 1 month less than 3 months | — | — | 97,153 | |||
Over 3 months up to 1 year | — | — | 89,654 | |||
Over between 1 and 3 years | — | — | 46,676 | |||
Over 3 up to 5 years | — | — | — | |||
More than 5 years | — | — | — | |||
Total | 13,123 |
| 42,435 |
| 359,573 |
170
Off-Balance Sheet Arrangements
We are party to transactions with off-balance-sheet risk in the normal course of our business. These transactions expose us to credit risk in addition to amounts recognized in our consolidated financial statements and include commitments to extend credit. These commitments include contractual arrangements to which an unconsolidated entity is a party, under which Itaú Chile has:
· | Any obligation under certain guarantee contracts; |
· | A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets; |
· | Any obligation under certain derivative instruments; |
· | Any obligation under a material variable interest held by Itaú Chile in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to Itaú Chile, or engages in leasing, hedging or research and development services for Itaú Chile. |
Such commitments are agreements to lend money to a customer at a future date, subject to the customer’s compliance with contractual terms. Since a substantial portion of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent our actual future cash requirements. The aggregate amount outstanding of these commitments was Ch$8,079,306 million as of December 31, 2022.
The Bank keeps a record of the following balances related to commitments or to liabilities of its own line of business in memorandum accounts: collateral and guarantees, confirmed foreign letters of credit, letters of credit, bank guarantees, cleared lines of credit, other credit commitments and other contingencies.
The total amount of contingent loans held off balance sheet as of December 31, 2020, 2021 and 2022 was Ch$5,393,860 million, Ch$7,859,923 million and Ch$8,079,306 million, respectively. Contingent loans are considered in the calculation of risk-weighted assets and capital requirements as well as for credit risk reserve requirements.
See Note 1 “General Information and Summary of Significant Accounting Policies” and Note 23 “Contingencies, Commitments and Responsibilities” to our consolidated financial statements included herein for a better understanding and analysis of the figures held off sheet balance.
We use the same credit policies in making commitments to extend credit as we do for granting loans. In the opinion of our management, our outstanding off-balance sheet commitments do not represent an unusual credit risk.
Traditional financial instruments which meet the definition of a “derivative,” such as forwards in foreign currency, UF, interest rate futures currency and interest rate swaps, currency and interest rate options and others, are initially recognized on the balance sheet at their fair value. Fair value is obtained from market quotes, discounted cash flow models and option valuation models, as applicable. For further details of fair value, see Note 35 of our consolidated financial statements included herein.
In terms of outstanding exposure to credit risk, the true measure of risk from derivative transactions is the marked-to-market value of the contracts at a point in time (i.e., the cost to replace the contract at the current market rates should the counterparty default prior to the settlement). For most derivative transactions, the notional principal amount does not change hands; it is simply an amount that is used as a reference upon which to calculate payments.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
We do not currently conduct any significant research and development activities.
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D. TREND INFORMATION
Our net interest income for the year ended December 31, 2022, increased to Ch$194,160 million, or by 19.9%, when compared to the year ended December 31, 2021. Generally, our net interest income is positively affected by an inflationary environment to the extent that our average UF-denominated assets exceed our average UF-denominated liabilities, while our net interest income is negatively affected by inflation in any period in which our average UF-denominated liabilities exceed our average UF-denominated assets. Currently, we have more UF-denominated assets than liabilities.
Our operating income depends significantly on our net interest income. For the years ended December 31, 2020, 2021 and 2022, net interest income over total operating income before provision for loan losses represented 78.1%, 71.6% and 76.7%, respectively. Changes in market interest rates may affect the interest rates earned on our interest-earning assets and the interest rates paid on our interest-bearing liabilities, which may result in a further reduction in our net interest income.
Consolidation in the market, which can result in the creation of larger and stronger competitors, may adversely affect our financial condition and results of operations by decreasing the net interest margins we are able to generate and increasing our costs of operation. In addition, we expect to continue to face competition from non-banking financial entities such as department stores, leasing, factoring and automobile finance companies, mutual funds, pension funds and insurance companies.
The following are the most important trends, uncertainties and events that are reasonably likely to affect us or that would cause the financial information disclosed herein not to be indicative of our future operating results or financial condition:
● | Higher levels of uncertainty related to the impact of the conflicts between Russia and Ukraine and any restrictive actions that may be taken by the United States and other countries in response, such as sanctions, a possible economic recession in the U.S and Europe, and a faster than expected slowdown of Chinese economic activity, which may translate into an upward adjustment of risk premium and higher global interest rates. |
● | The materialization of these risks could lead to a greater impact on economic activity in Chile and Colombia. Higher than anticipated unemployment rates and lower economic growth could increase provision expenses and decrease our rate of loan growth in the future. |
● | Uncertainty relating to the content and eventual approval of the Constitutional Convention and the breadth, depth, and timing of the structural reform agenda in Chile, and the recently reestablished political relationship between Colombia and Venezuela. |
● | Global macroeconomic performance may be adversely affected by current turmoil in global banking industry, particularly after the failure of two U.S. banks and the forced sale of Credit Suisse in March 2023. |
● | Uncertainties relating to the extent and duration of the COVID-19 pandemic and the related disruption to regional and global economic activity (please see “Item 3—Key Information—Risk Factors— Risks Associated with our Business—We are subject to market risk;” “Item 3—Key Information—Risk Factors— Risks Relating to Chile, Colombia and Other Countries in Which We Operate —COVID-19 or any other pandemic disease and health events could affect the economies of the countries in which we operate, our business operations or our financial condition and results of operations;” and “Item 5—Operating and Financial Review and Prospects—Operating Results—The Economy—Impact of COVID-19 on the Economy.”) |
Please also see “Item 5. Operating and Financial Review and Prospects—A. Operating Results.”
E. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General
In our filings with the SEC, we prepare our consolidated financial statements in accordance with IFRS. In preparing our consolidated financial statements, we use estimates and assumptions to account for certain assets, liabilities,
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revenues, expenses, and other transactions. While we review these estimates and assumptions in the ordinary course of business, the portrayal of our financial condition and results of operations often require our management to make judgments regarding the effects on our financial condition and results of operations on matters that are inherently uncertain. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. The following discussion describes those areas that require the most judgment or involve a higher degree of complexity in the application of the accounting policies that currently affect our financial condition and results of operations. Actual results may differ from those estimated under different variables, assumptions, or conditions, and if these differences could have a material impact on our reported results of operations. Note 1 to our consolidated financial statements contains a summary of our significant accounting policies.
In addition to the critical accounting policies described below, information regarding other accounting policies is set forth in the notes to our consolidated financial statements.
Allowance for Expected Credit Losses
The single impairment model applies to all financial assets measured at amortized cost and FVTOCI, including loan commitments and contingent loans. The Bank accounted the ECL related to financial assets measured at amortized cost and FVTOCI as a loss allowance in the statement of financial position and the carrying amount of these assets is stated net of the loss allowance. The ECL related to contingent loans are accounted as a provision in the statement of financial position. For financial assets that are measured at fair value through other comprehensive income, the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of the financial asset in the statement of financial position. The new model uses a dual measurement approach, under which the loss allowance is measured as either: (a) 12-month expected credit losses or (b) lifetime expected credit losses.
The Bank, at the end of each reporting period, evaluates whether a financial instrument’s credit risk has increased since initial recognition, and consequently classifies the financial instrument in one of the three stages. Stage 1 requires at initial recognition of a loan or when there has been an improved credit risk following a significant increase or impairment of assets, the Bank recognizes an allowance based on 12 months ECL. When a loan has shown a significant increase in credit risk since origination, it is classified in Stage 2 and the Bank records an allowance for the lifetime ECL. Stage 2 loans also include loans where the credit risk has improved following a Stage 3 classification. Finally, Stage 3 includes loans considered credit-impaired and the Bank records an allowance for the lifetime ECL, setting the probability of default at 100%.
The expected credit losses are the probability-weighted estimate of credit losses, i.e., the present value of all cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The three main components in measuring expected credit losses are:
· | PD: The probability of default is an estimate of the likelihood of default over a given period of time. A default may only happen at a certain time over the assessed period if the facility has not been previously de-recognized and is still in the portfolio. |
· | LGD: The loss given default is an estimate of the loss arising after a specific default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. |
· | EAD: The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdown on committed facilities, and accrued interest from missed payments. |
For measuring 12-month and lifetime expected credit losses, cash shortfalls are identified as follows:
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· | 12-month expected credit losses: the portion of lifetime expected credit losses that represents the expected credit losses that result from default events on the financial instruments that are possible within the 12 months after the reporting date. |
· | Lifetime expected credit losses: the expected credit losses that result from all possible default events over the expected life of the financial instrument. |
Forward-looking information:
The ECL model includes a broad range of forward-looking information as economic inputs, such as GDP growth, interest rates, unemployment rates, among others.
Derivative Financial Instruments
Derivative financial instruments are recorded at fair value. Fair values are based on market quotes, discounted cash flow models and option valuations, as appropriate. If market information is limited or in some instances, not available, management applies its professional judgment. Other factors that may also affect estimates are incorrect model assumptions, market dislocations and unexpected correlations. Notwithstanding the level of subjectivity in determining fair value, we believe our estimates of fair value are adequate. The use of different models or assumptions could lead to changes in our reported results. See “Note 1 - General Information and Summary of Significant Accounting Policies”.
In addition, we make loans and accept deposits in amounts denominated in foreign currencies, principally the U.S. dollar. Such assets and liabilities are translated at the applicable exchange rate at the balance sheet date.
A hypothetical increase/decrease of 0.01% in the yield curves applied to our 2022 year-end financial trading instruments portfolio would have an impact on rate sensibility of Ch$5 million.
See “Item 11. Quantitative and Qualitative Disclosures About Financial Risk B. Financial Risk Management—2) Quantification and Control of Financial Risk Exposure—a) Market Risk Metrics and Limits” for more information on the sensitivity analysis.
Estimate of Impairment of Goodwill
We assess annually, or when there is a triggering event, whether goodwill has experienced any impairment, according to the accounting policy described in our consolidated financial statements. The recoverable amount of the cash generating units (“CGUs”) has been determined using the methodology of a dividend discount model. This methodology considers the cash flows that would generate the dividends distributed to its shareholders in a perpetual forecast projection, discounted at their rate of cost of capital at the valuation date. In this way, the economic equity value can be estimated, using projections of cash flows derived from financial budgets and other assumptions approved by the management. The projection of cash flows is carried out using the functional currency of each country and considering a horizon of five years, after which the cash flows are projected to perpetuity using growth rates of the gross domestic product aligned with those rates expected for the markets in which a particular CGU operates. These calculations are carried out by each CGU. The projections are based on historical information from the previous year and the main macroeconomic variables affecting the markets involved in the calculations.
Estimates and judgments included in the calculations of recoverable amounts are based on historical experience and other factors, including the expectations of management for future events that are considered reasonable in the current circumstances. Due to the inherent uncertainty associated with considering these estimates, actual results could differ from those estimates. Future events and changing market conditions may impact the Bank’s assumptions as to future interest and commissions’ revenue, net interest margin growth rates or discount rates, which may result in changes in the estimates of the Bank’s future cash flows.
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The following factors, among others, could significantly impact the impairment analysis and may result in additional future goodwill impairment charges that, if incurred, could have a material adverse effect on the Company’s financial condition and results of operations:
· | The macroeconomic factors in Chilean economy may not recover and evolve from 2023 onwards in line with current expectations. |
· | The Bank may not execute its strategic objectives according to budgets and plans. |
A hypothetical increase/decrease of 0.1% in the discount rate uses in the goodwill impairment test would have resulted in an increase/decrease of approximately Ch$57,176 million. This change will not result in an impairment of the goodwill.
For additional information, see Note 32 “Depreciation, Amortization and Impairment” to our consolidated financial statements.
Recently Adopted and New Accounting Pronouncements
New amendments and interpretations to IFRS standards have been issued but not yet adopted in our consolidated financial statements as of December 31, 2022, none of them with significant modifications.
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
In addition to the scheduled maturities of our contractual obligations which are included under “—Liquidity and Capital Resources—Sources of Liquidity” above, as of December 31, 2022, we also had other commercial commitments which mainly consist of open and unused letters of credit, together with guarantees granted by us in Ch$, UF and foreign currencies (principally U.S. dollars). We expect most of these commitments to expire unused.
The following table includes both the accrued interest and the interest expense projected over time of each contractual obligation as of December 31, 2022. For variable rate debt and interest rate swaps and other derivatives, where applicable, the interest rates upon which we based our contractual obligations going forward are based on the applicable forward curves. For any cross-currency swaps or other derivatives as applicable, the foreign currency exchange rate used was spot.
Less than 1 | More than | |||||||||
Contractual Obligations(*) |
| year |
| 1-3 years |
| 3-5 years |
| 5 years |
| Total |
|
| (in millions of Ch$) | ||||||||
Deposits and other demand liabilities |
| (5,574,147) | — | — | — | (5,574,147) | ||||
Time deposits and other time liabilities |
| (11,451,252) | (835,639) | (194,504) | (862,437) | (13,343,832) | ||||
Interbank borrowings |
| (1,867,987) | (3,145,029) | (58,229) | (149,580) | (5,220,825) | ||||
Obligations under repurchase agreements |
| (200,264) | — | — | — | (200,264) | ||||
Debt instruments issued and financial instruments of regulatory capital issued |
| (600,860) | (1,932,161) | (1,904,631) | (5,095,048) | (9,532,700) | ||||
Other financial liabilities |
| (1,015,433) | (194,900) | (16,020) | (7,898) | (1,234,251) | ||||
Financial derivative contracts help for trading and for hedge accounting | (918,250) | (714,057) | (539,760) | (1,295,654) | (3,467,721) | |||||
Lease contracts liabilities | (20,510) | (35,797) | (19,165) | (11,129) | (86,601) | |||||
Total contractual obligations |
| (21,648,703) | (6,857,583) | (2,732,309) | (7,421,746) | (38,660,341) | ||||
(*) The variable rates projections are obtained from the Forward Rate Agreement (FRA) rates of the respective projection curves. The parities used to convert the amounts to Chilean pesos correspond to the accounting parities used in the referred date.
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
We are managed by our CEO (Gerente General) under the direction of our board of directors, which, in accordance with the Bank’s by-laws, as amended at the Extraordinary Shareholders’ Meeting of the Bank held on January 19, 2023, and approved by the CMF on March 28, 2023, consists of seven directors and one alternate who are elected at our annual ordinary shareholders’ meetings. Pursuant to the provisions of our bylaws, members of the board of directors are generally elected for three-year terms. All of the members of the board of directors were elected on April 20, 2023, at our annual ordinary shareholders’ meeting for a three-year period at which the board of directors was renewed in its entirely.
Cumulative voting is permitted for the election of directors. The board of directors may appoint replacements to fill any vacancies that occur during periods between elections. Our principal executive officers are appointed by the board of directors and the CEO and hold their offices at the discretion of the board of directors and the CEO. Scheduled meetings of the board of directors are held monthly. Extraordinary meetings can be held whenever called by the chairman, whether at his own will or upon the request of one or more directors, so long as the chairman determines in advance that the meeting is justified, except if the request is made by the absolute majority of the directors in office, in which case the meeting shall be held without such prior determination. None of the members of our board of directors has a contract or agreement which entitles any director to any benefits upon termination of employment with us.
Our current directors are as follows:
Directors |
| Position |
| Age |
Ricardo Villela Marino |
| Chairman and Director |
| 49 |
Milton Maluhy Filho |
| Vice Chairman and Director |
| 47 |
Diego Fresco Gutiérrez |
| Director |
| 53 |
Matias Granata |
| Director |
| 48 |
Pedro Paulo Giubbina Lorenzini |
| Director |
| 55 |
Luis Octavio Bofill Genzsch |
| Independent Director |
| 59 |
Pedro Samhan Escandar |
| Independent Director |
| 73 |
Rogério Carvalho Braga |
| Alternate Board Member |
| 67 |
Ricardo Villela Marino became a director on April 11, 2016. Since July 27, 2022 he is the Chairman of our board of directors. Mr. Marino has served as a member of the board of Itaú Unibanco Holding since 2010 and as its non-executive vice chairman since 2020. Mr. Marino has also been the chairman of Itaú Unibanco’s Latin America Strategic Council since 2018. He has held several positions at the Itaú Unibanco Group since 2002, including Vice President (2010 to 2018). He has also been an alternate member of the board of directors of Itaúsa S.A. since 2011; alternate member of the board of directors of Duratex S.A. since 2009; alternate member of the board of directors of Itautec S.A. (2009 to 2019); and alternate member of the board of directors of Elekeiroz S.A. (2009 to 2018). He holds a Bachelor’s degree in Mechanical Engineering from the Escola Politécnica da Universidade de São Paulo (USP), São Paulo, Brazil, and a Master’s degree in Business Administration from the MIT Sloan School of Management, Cambridge, Massachusetts, U.S.
Milton Maluhy Filho became a director on January 1, 2019. Since July 27, 2022 he is the Vice Chairman of our board of directors. Mr. Maluhy has been the chief executive officer at the Itaú Unibanco Group since 2021, having served as chief financial officer and chief risk officer as well. Previously, Mr. Maluhy was the chief executive officer of Itaú Chile between April 1, 2016 and December 31, 2018, responsible for the merger of Corpbanca and Itaú Chile. He joined the Itaú Unibanco Group in 2002, was elected officer in 2007 and became a partner in 2010. Previously, he was the chief executive officer of Rede S.A. (former Redecar S.A.), a card-processing subsidiary, and executive director at Itaú Unibanco, responsible for the management of the credit card segment and retail store alliances. Previously, he worked at Itaú BBA, holding leadership positions in areas such as international, products, operations, treasury, and trading desk. Prior to joining the Bank, he worked at J.P. Morgan, Crédit Commercial de France (CCF Brazil) and Lloyds TSB. Mr. Maluhy holds a B.A. in Business Administration from Fundação Armando Álvares Penteado—FAAP.
Diego Fresco Gutiérrez became a director on March 24, 2022 and he was reelected on April 20, 2023. He previously served as an alternate director between March 28, 2018 and March 23, 2022. Mr. Fresco is currently a member of the audit
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committee of Itaú Chile and of Itaú Colombia. He is director and audit committee member of StoneCo as well as audit committee member of Votorantim Cimentos S.A. Mr. Fresco previously served as a partner at PwC – São Paulo (2000 to June 2013) in the capital markets and accounting advisory services area, and prior to that he held several positions at PwC in Uruguay (1998 to 2000 and 1990 to 1997) and in the United States (1997 to 1998). He has a B.A. in Accounting from Universidad de la República Oriental del Uruguay in 1994. He is a certified public accountant registered in the State of Virginia (United States) since 2002 (Registration 27,245) and an accountant registered with the Regional Council of Accountancy of the State of São Paulo.
Matias Granata became a director on January 27, 2021 and he was reelected on April 20, 2023. Mr. Granata is a partner in the Partners Program and a member of the executive committee at the Itaú Unibanco Group. He is currently the chief risk officer of the Itaú Unibanco Group, responsible for the risks department since 2021. He has held several positions at the Itaú Unibanco Group, including officer responsible for AML, credit risk, modeling and market and liquidity risks (2014 to 2021). He holds a Bachelor’s degree in Economics from the Universidad de Buenos Aires (UBA), Buenos Aires, Argentina, a postgraduate degree in Economics from the Universidad Torcuato Di Tella (UTDT), Buenos Aires, Argentina, and a Master’s degree in International Economic Policy from the University of Warwick, United Kingdom with the British Chevening Scholarship.
Pedro Paulo Giubbina Lorenzini became a director on March 24, 2022 and he was reelected on April 20, 2023. Mr. Lorenzini is a Member of the Partners Program and has been an officer of the executive committee at the Itaú Unibanco Group since 2021. He is currently responsible for the treasury, client and product desks and macroeconomics departments at the Itaú Unibanco Group and for its operations in South America (Argentina, Paraguay, Uruguay and Itaú Chile), having held the position of executive officer (2021). He is a member of the board of directors and a member of the risk and financial committee at B3 S.A. – Brasil, Bolsa, Balcão (2021-2023 two-year period). Mr. Lorenzini was responsible for the markets, securities services and treasury (2008 to 2021); sales and structuring, ALM management (2004 to 2008); trading and currency management (2000 to 2004); management of the ALM department (1997 to 2000); several departments of the treasury products sales to corporate clients (1995 to 1997); structuring and development of treasury products (1993 to 1995); product and risk management manager (1992 to 1993); and responsible for controllership and management of managerial results from corporate products (1991 to 1992) at Citigroup Brazil, and was a trainee (1989 to 1991) at Citibank Brazil. He was the chairman of the treasury committee (2010 to 2013) and Citibank’s representative at the board of executive officers at the Federação Brasileira de Bancos (FEBRABAN) (2013 to 2021), and chairman of the treasury committee (2010 to 2012) and vice president of the Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais (ANBIMA) (2010 to 2021). He holds a Bachelor’s degree in Business Administration from the Pontifícia Universidade Católica de São Paulo (PUC-SP), São Paulo, Brazil.
Luis Octavio Bofill Genzsch became a director on April 20, 2023. He received a law degree from the Pontificia Universidad Católica de Valparaíso. He is a partner and founder of Bofill Mir Abogados. He has focused his more than 30 years of legal professional practice in corporate and commercial matters, advising local and international clients in several areas and industries, including public and private organizations. He has also been an academic since 1991, including Professor of Commercial Law at the School of Law of the Universidad de Chile. He is a member of the list of arbitrators at the Center of Arbitration and Mediation of the Santiago Chamber of Commerce, member of the List of Experts for the Integration of the Arbitration Court for the Concessions Law, and member of the Chilean Bar Association. He has been a board member at several closed and publicly-held companies in Chile, in several industries.
Pedro Samhan Escandar became a director on September 27, 2016 and he was reelected on April 20, 2023. Mr. Samhan was formerly a member of the board of Citibank in Panama and Costa Rica. Before that, he was the chief financial officer of Banco de Chile between 2008 and 2014 and was appointed as director of Banchile Trade Services Limited. Previously, Mr. Samhan was the chief financial officer of Citigroup Chile for several years. He served as a member of the board of directors of Cruz Blanca Seguros de Vida from 1994 to 1997, AFP Habitat from 1996 to 2006 and Compañía Minera Las Luces from 1994 to 1996. Mr. Samhan was the chief financial officer of Citicorp for Caribbean and Central America from 1990 to 1993 and investment banking head of Citicorp Chile from 1988 to 1990. Mr. Samhan holds a degree in civil industrial engineering from Universidad de Chile.
Rogério Carvalho Braga became a director on April 29, 2020 and in April 20, 2023 he became and an alternate member of the board of directors. Mr. Braga is a former senior executive of Itaú Unibanco and also a former corporate director of
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marketing & products at Itaú Chile between April 1, 2016 and December 31, 2018. He has been a member of the audit committee at the Itaú Unibanco Group since 2021. He has held a number of positions at the Itaú Unibanco Group, including officer (2020). He joined the Itaú Unibanco Group in 1999 and was elected officer in 2000. Before joining Itaú Unibanco, Mr. Braga worked for six years in AIG (American International Group) in New York and Lisbon, and for 11 years with the Moreira Sales group, in charge of the food industry sector. Mr. Braga holds a degree law degree from the Pontificia Universidade Católica de São Paulo and an M.B.A. from Pepperdine University.
Executive Officer |
| Position |
| Age |
Gabriel Amado de Moura | Chief Executive Officer | 47 | ||
Rodrigo Luis Rosa Couto | Chief Financial Officer | 47 | ||
Sebastián Romero Evans | Corporate Director ‒ Wholesale and Investment Banking | 48 | ||
Julián Acuña Moreno | Corporate Director ‒ Retail Banking | 57 | ||
Daniel Brasil | Corporate Director ‒ Treasury | 40 | ||
Jorge Novis Neto | Corporate Director ‒ Digital Business Development | 45 | ||
Mauricio Baeza Letelier | Chief Risk Officer | 59 | ||
Eduardo Oliveira Neves | Corporate Director ‒ IT | 49 | ||
Cristián Toro Cañas | General Counsel | 52 | ||
Marcela Jiménez Pardo | Corporate Director ‒ Human Resources and Sustainability | 47 | ||
Emerson Bastian Vergara | Chief Audit Officer* | 44 | ||
Max Montencino | Chief Compliance Officer* | 48 | ||
Joaquín Rojas Walbaum | General Manager ‒ New York Branch | 43 | ||
Baruc Sáez | Chief Executive Officer ‒ Itaú Colombia | 53 |
* Mr. Emerson Bastian reports to the audit committee. Mr. Montecino coordinates with senior management through the chief risk officer and has direct communication with the audit committee and the board of directors.
Our current executive officers are as follows:
Gabriel Amado de Moura became chief executive officer on January 30, 2020, after serving as chief financial officer of Itaú Chile since April 1, 2016. Mr. Moura joined Itaú Unibanco in 2000 and became a partner in 2017. He has more than 24 years of experience in investment management, risk management, finance and M&A. Mr. Moura held the position of chief investment officer for Itaú’s pension funds, endowments and insurance businesses. He was also chief risk officer for wealth management, as well as a member of the board of directors of different companies in Brazil and abroad. Prior to joining the Bank, he worked at BBVA Asset Management and Itaú Bankers Trust. Mr. Moura holds an M.B.A. from the Wharton School at the University of Pennsylvania.
Rodrigo Luis Rosa Couto became the chief financial officer, or the “CFO”, on September 1, 2020. Mr. Couto joined Itaú Unibanco in 2008, where he worked in both risk and finance departments, notably as head of capital management for the last 11 years as well as chief financial officer for both the Wholesale and Retail divisions. Previously, he was a consultant at McKinsey & Company, specializing in corporate finance and risk management, as well as a bank supervisor at the Central Bank of Brazil. Mr. Couto holds a degree in business from the Federal University of Rio Grande do Sul and holds an M.B.A from the Wharton School at the University of Pennsylvania.
Sebastián Romero became corporate director of the Wholesale and Investment Banking on September 20, 2021. Mr. Romero has extensive experience leading teams that serve global corporations, financial institutions, and financial sponsors. Prior to joining us, Mr. Romero held a wide range of executive roles at Santander Group in Chile, Spain, and London. He served as global head of multinational corporations based in London, being a member of the global executive committee of banking & corporate finance. Previously, he led the Corporate and Investment Banking unit in Chile. In March 2009, Mr. Romero was appointed managing director and global head of export & agency finance based in Madrid, with global responsibilities to oversee all structured export finance activities of the Santander Group. Mr. Romero received a B.A. in Business and Administration from Universidad Gabriela Mistral and a post-degree from Universidad Adolfo Ibáñez and Universidad de los Andes.
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Julián Acuña Moreno became corporate director of the Retail Banking in September 2016. Mr. Acuña has vast experience in both national and international banking, having worked as commercial division manager at Banco Santander-Chile, in Chile, and at Banco Santander Colombia, in Colombia. Mr. Acuña holds an Accountant Auditor degree from the Universidad Diego Portales, Chile.
Daniel Brasil became corporate director of Treasury on January 1, 2023. Mr. Brasil has more than 17 years of experience in the Latin American banking industry in the Treasury area. He began his career at Citibank Brazil as a trader banking, then he joined Itaú Unibanco, where, for nine years, he also worked as a trader banking, was in charge of the functions of transfer price, hedge investments abroad and Latam market trader, in addition to participating in the merger of Itaú Unibanco. He has spent the last six years of his career at Itaú Chile as Banking Manager and ALM. He also participated in the merger process of Itaú with Corpbanca. Mr. Brasil holds a degree in Engineer from University of São Paulo.
Jorge Novis became corporate director of digital business development in March 2021, leading the digital transformation of Itaú in Chile. Mr. Novis previously served as corporate director of operations between April 2018 and February 2021. He joined Itaú Chile in May 2017 as head of strategic planning and quality service. He previously worked at Itaú Unibanco for approximately four years, leading several business transformation programs. He also worked as a management consultant between 2002 and 2014, working in Latin America, the U.S., Europe, and Asia. Mr. Novis received a degree in Civil Engineer from Universidade Federal da Bahia, an M.B.A. from Harvard Business School and a Master of Science in Finance from Fundação Getulio Vargas.
Mauricio Baeza Letelier became chief risk officer in September 2016. With more than 33 years of experience in the banking industry, Mr. Baeza Letelier has held diverse executive positions in risk management areas of local banking institutions. He served as chief risk officer of Banco de Chile and is currently the vice president of the Risk Committee of the Bank and of the Financial Institution Association of Chile (Asociación de Bancos e Instituciones Financieras de Chile). Mr. Baeza holds an undergraduate degree in Civil Engineering from the Pontificia Universidad Católica de Chile.
Eduardo Neves became corporate director of IT on April 2, 2021. Mr. Neves has more than 26 years of experience in technology, working mainly in the financial and telecommunications sectors. Previously, he served as vice president of Cloud Applications and Innovation for Latin America at IBM, from Brazil, where he led large-scale projects since joining in 2013. He was responsible for the accounts of Bradesco and later Itaú Unibanco, managing most of the IBM consulting business for Latin America. He studied Engineering in Technology and has an MBA from the Federal University of Rio de Janeiro (UFRJ).
Cristián Toro Cañas became general counsel in June 2016. Mr. Toro worked for more than 10 years in Citibank Chile, acting as general counsel since 2004. In 1999 he worked at Shearman & Sterling in New York. In 2008 he joined Lan Airlines as legal vice-president. After the merger of Lan and Tam, he continued to work as legal vice-president and as the secretary of the board of directors of Latam Airlines Group. Mr. Toro received a law degree from the Pontificia Universidad de Católica de Chile and a Master of Law degree from the New York University School of Law.
Marcela Jiménez Pardo became corporate director of human resources in April 2016 and since April 2022 also became responsible for sustainability. She also served as chief human resources officer at Corpbanca between July 2012 and March 2016. Previously, she served in the global banking consulting group at Banco de Chile from 2008 to 2012. Mrs. Jiménez received an undergraduate degree in Psychology from the Pontificia Universidad Católica de Chile and a postgraduate degree in Human Resources Management from Universidad Adolfo Ibáñez.
Emerson Bastian Vergara became chief audit executive in April 2017. Previously, Mr. Bastian was a partner at Deloitte Chile’s governance, regulatory and risk strategies practices. Mr. Bastian received an undergraduate degree in Accounting from Universidad de Chile and a Master’s degree in Business Administration from Universidad Adolfo Ibáñez.
Max Montecino Malky became chief compliance officer in January 2023. Mr. Montecino has an extensive career in both the public and private sectors, having served as head of the financial division at the Superintendency of Pensions and Head of Intelligence at the Financial Intelligence Unit of Chile for 11 years. Previously, he worked for 12 years in various management positions related to investments, finance, and financial risk control in international insurance
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companies, such as the Interamericana Insurance Company, a subsidiary of AIG, and BNP Paribas Cardif. Mr. Montecino received a B.A. in Business and Administration from Universidad de Chile and a master’s in Financial Direction from Universidad Adolfo Ibañez.
Joaquín Rojas Walbaum became general manager of Itaú Chile New York Branch in October 2017. Mr. Rojas has more than 19 years of experience in the financial industry. Prior to his current position he was the head of Treasury at the New York Branch. Before that, he worked in the investment division at MetLife Chile and credit division at MetLife Investments Latin America. He holds an undergraduate degree in Economics from Universidad de Chile and a Master of Business Administration from Columbia University.
Baruc Sáez became chief executive officer of Itaú Colombia on November 1, 2020, after serving as director of investment banking for Itaú BBA for Latin America, based in New York. With 10 years of experience in the Itaú group, he has been responsible for consolidating and leading the regional investment banking team. He also directed the international fixed income platform for debt capital markets, loan syndication and credit structuring. Before joining Itaú, he worked at Marathon Asset Management, Deutsche Bank, ABN AMRO, and ING Barings, always in positions linked to the wholesale and investment world. He holds a Bachelor’s degree from Bard College and a Master’s degree in International Economics and Finance from Brandeis University.
B. COMPENSATION
Consistent with Chilean law, we do not disclose to our shareholders, or otherwise make public, information regarding the individual compensation of our officers. However, we publicly disclose the fees paid to each of our directors and members of the board committees.
As approved in our ordinary shareholders’ meeting held on March 24, 2022, for the year ended December 31, 2022, we paid the following to each: director UF150 per month, vice-chairman UF450 per month and chairman UF600 per month. Also, our shareholders agreed to an annual budget of UF5,400 for the directors’ committee and a monthly compensation of UF100 for each of its member and UF150 for its chairman and approved additional compensation for the directors and external advisors participating in the following committees:
a) | Audit Committee: UF100 per month for each member and UF150 per month for its chairman; |
b) | Other committees: UF50 for attendance at committee meetings. |
No amounts were set aside or accrued by us to provide pension, retirement or similar benefits for our directors and executive officers. In the year ended December 31, 2022, we paid our middle management and senior management an aggregate of Ch$37,146 million (Ch$32,801 million in 2021) and our directors an aggregate of Ch$1,238 million (Ch$1,358 million in 2021). Chilean law does not require us to have a compensation committee.
Finally, at our ordinary shareholders’ meeting held on April 20, 2023, our shareholders approved to pay a monthly fee of UF150 for each director, UF450 for vice-chairman and UF600 for chairman, and an annual budget of UF5,400 for the directors’ committee. Our shareholders also approved to pay a monthly compensation of UF100 for each member of the directors’ committee and UF150 for its chairman, and approved additional compensation for the directors and external advisors participating in the following committees:
a) | Audit Committee: UF100 per month for each member and UF150 per month for its chairman; and |
b) | Other committees: UF50 for attendance at committee meetings. |
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C. BOARD PRACTICES
The period during which the directors have served in their office is shown in the table under Section A of this Item 6. The date of expiration of the current term of office is shown in the table below:
Director |
| Date of Expiration of Term |
Ricardo Villela Marino | April 2026 | |
Milton Maluhy Filho | April 2026 | |
Diego Fresco Gutiérrez | April 2026 | |
Matias Granata | April 2026 | |
Pedro Paulo Giubbina Lorenzini | April 2026 | |
Luis Octavio Bofill Genzsch | April 2026 | |
Pedro Samhan Escandar | April 2026 | |
Rogério Carvalho Braga | April 2026 |
Pursuant to the provisions of our bylaws, the members of the board are generally renewed every three years, based on length of service and according to the date and order of their respective appointments. At the annual ordinary shareholders’ meeting held on April 20, 2023, and pursuant to the amendments to the by-laws resolved in the Extraordinary General Meeting of Shareholders held on January 19, 2023 as approved by the Comsion para el Mercado Financiero on March 28, 2023, the board of directors was renewed in its entirety as indicated above. The next annual general meeting of shareholders of the Bank is expected to be held in April 2024.
D. BOARD COMMITTEES
Audit Committee
Our board of directors maintains an audit committee which currently comprises four members, including two directors and two non-director members. The current members of the audit committee are Messrs. Pedro Samhan Escandar, who chairs it, Diego Fresco Gutiérrez, María Ximena Cisternas Peñailillo and Antonio de Lima Neto.
A description of the experience and qualifications for Messrs. Pedro Samhan Escandar and Diego Fresco Gutiérrez, each of whom is a director of the Bank, is included in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.” Below we include a summary of the experience and qualifications for Ms. María Ximena Cisternas Peñailillo and Mr. Antonio de Lima Neto, who are non-director members of the Audit Committee.
María Ximena Cisternas Peñailillo, is the Founder and CEO of RoMax Technologies, Vicepresident at IGNIBRUM, with more than 25 years of experience in information security, cibersecurity and technological risk. Mrs. Cisternas has held several senior positions in information security at companies such as NTT Data, Falabella Group and Banco del Desarrollo. Also, she is a professor at the Master in Cibersecurity at the Universidad Adolfo Ibañez. Ms. Peñailillo received a degree in Computer Engineer from the Universidad Técnico Federico Santa María.
Antonio de Lima Neto has served as president (August 2009 to October 2013) at Banco Fibra S.A. He has worked as president (December 2006 to April 2009); vice president of retail and distribution (July 2005 to December 2006); vice president of international business and wholesale (November 2004 to July 2005); commercial director (September 2001 to November 2004); executive superintendent of the commercial board (July 2000 to September 2001); Tocantins State superintendent (May 1999 to May 2000) and regional superintendent of Belo Horizonte (January 1997 to May 1999) at Banco do Brasil S.A. He has also served as member of the board of directors (2007 to 2009) at Brasilprev Seguros e Previdência S.A.; member of the board of directors (2006 to 2009) at the Brazilian Federation of Banks (FEBRABAN—Federação Brasileira de Bancos); member of the board of directors (2004 to 2005) at BB Seguridade e Participações S.A; member of the board of directors (2003 to 2005) at Brasil Saúde Companhia de Seguros; member of the board of directors (2001 to 2009) at Alliance Insurance Company of Brazil; member of the board of directors (2000 to 2007) at BB Securities Limited Pension Fund. He holds a Master’s degree in Economics from Fundação Getulio Vargas (2017); a course for board members from the Brazilian Institute of Corporate Governance (IBGC) (2014); a Postgraduate degree
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in Marketing from PUC-Rio (2001); Training for Executive M.B.A. from Fundação Dom Cabral (1997); and a B.A. in Economics from Universidade Federal de Pernambuco (UFPE), 1996.
The local regulator (CMF) recommends for the banking industry that at least one of the members of the audit committee, who must also be a member of the board of directors, be experienced with respect to the accounting procedures and financial aspects of banking operations. Moreover, the members of the audit committee are appointed by the board of directors and must be independent according to the criteria set forth by the board of directors, and they cannot accept any payment or other compensatory fee from the Bank, other than in their role and responsibility as members of the board of directors, of the audit committee or of other established committees. Members of the audit committee receive a monthly remuneration.
The audit committee has one charter that establishes its composition, objectives, roles, responsibilities, and extension of its activities. The CMF requires the audit committee to meet at least every four months and to provide an annual written report to the board of directors informing it of its activities. This report must also be presented to the annual shareholders’ meeting. According to their charter, the audit committee meetings take place at least twice a month.
The main objectives of the audit committee are to oversee the effectiveness of the internal controls established by management, as well as to oversee compliance with laws and regulations. Other specific responsibilities of the audit committee include:
● | propose to the directors’ committee the firm of external auditors and the rating agencies to be engaged; |
● | review the reports, content and procedures applied by the rating agencies; |
● | approve the annual internal audit plan and its modifications; |
● | approve the annual budget, oversee the activities of and evaluate the performance of internal audit, who reports directly to the audit committee; |
● | receive and review reports issued by internal auditors; |
● | review with management and the external auditors the annual and interim financial statements and report the results to the board of directors; |
● | review the reports issued by regulators; |
● | be informed about relevant internal frauds or about misconduct cases related to employees; and |
● | report to the board of directors changes in accounting policies and its effects. |
Directors’ Committee
Our board maintains a directors’ committee which currently comprises three members Two of them are considered under Chilean law as independent directors of our board of directors. The current members of the directors committee are Messrs. Pedro Samhan Escandar, who chairs it, Luis Octavio Bofill Genzsch and Diego Fresco Gutiérrez, as office-holders.
A description of the experience and qualifications for Messrs. Pedro Samhan Escandar, Luis Octavio Bofill Genzsch and Diego Fresco Gutiérrez is included in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.”
The directors’ committee has bylaws that establish their composition, organization, objectives, duties, responsibilities, and extension of its activities. The directors’ committee is required to meet once per month and provide an annual written report to the board of directors informing it of its activities. The report must also be presented to the annual shareholders’ meeting.
The directors committee’s responsibilities are, among others:
● | reviewing the reports of the internal and external auditors, the balance sheet and any other financial statements presented by the administration to the shareholders, and to sign-off on it prior to its presentation to the shareholders for approval; |
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● | recommending external auditors and rating agencies to the board of directors; |
● | reviewing operations with related parties and reporting to the board of directors; |
● | reviewing the compensation plans of executive officers and principal officers; |
● | examining the systems of remuneration and compensation plans for managers, senior executives and employees of the company; |
● | preparing an annual report about its activities, including its main recommendations to shareholders; and |
● | other duties required by our bylaws, a shareholders meeting and our board of directors. |
E.OTHER COMMITTEES
Integral Risk Committee
The main objective of this committee is to support the board of directors in the identification, evaluation, management and control of all its risks and management and definition of the Bank’s risk appetite, including its dimensions of capitalization, credit risk, financial and liquidity risk, earnings composition, operational risk, cybersecurity risk and reputational risk; as well as to support the dissemination and strengthening of a risk culture in the bank.
This committee currently comprises five members, Messrs. Matias Granata, Pedro Paulo Giubbina Lorenzini, Rogério Carvalho Braga, Gabriel Amado de Moura and Mauricio Baeza Letelier. A description of the experience and qualifications for Messrs. Matias Granata, Pedro Paulo Giubbina Lorenzini, Rogério Carvalho Braga, Gabriel Amado de Moura and Mauricio Baeza Letelier is included in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.”
Management and Talent Committee
The purpose of this committee is to recommend the appointment of the Bank’s senior management and approve evaluation, compensation and long-term incentive policies and mechanisms.
This committee currently comprises five members, Messrs. Ricardo Villela Marino, Milton Maluhy Filho, Pedro Paulo Giubbina Lorenzini, Gabriel Amado de Moura and Sergio Fajerman. A description of the experience and qualifications for Messrs. Ricardo Villela Marino, Milton Maluhy Filho, Pedro Paulo Giubbina Lorenzini and Gabriel Amado de Moura is included in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.” Below we include a summary of the experience and qualifications for Sergio Fajerman.
Sergio Fajerman, a member of the Partners Program, and has been an officer, member of the Executive Committee of the Itaú Unibanco Group since 2021. He is currently responsible for the personnel department. He has held several positions at the Itaú Unibanco Group, including executive officer from 2017 to 2021 and corporate personnel management officer and personnel officer for the Wholesale Banking Office from 2010 to 2017. He holds a bachelor’s degree in economics from Universidade Federal do Rio de Janeiro (“UFRJ”), Rio de Janeiro, Brazil; an MBA in corporate finance from Instituto Brasileiro de Mercado de Capitais (“IBMEC”), Brazil; an MBA from INSEAD, Fontainebleau, France. He has also attended the Advanced Human Resources Executive Program at the University of Michigan, Michigan, U.S.
F. EMPLOYEES
As of December 31, 2022, on a consolidated basis, we had 7,558 employees. At the same date, approximately 54% of our employees were unionized. All management positions are held by non-unionized employees. We believe that we have good relationships with our employees and the unions to which some of our employees belong. Our employees are covered by collective bargaining agreements, which Itaú Chile entered into in 2017 for former Corpbanca’s unions and for former Itaú Chile’s unions. These agreements were renewed in 2020 and 2022 and will expire between December 2022 and December 2025. All agreements provide for improved benefits and have a term of three years.
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The table below shows our employees by geographic area:
| Year Ended December 31, | |||||
| 2020 |
| 2021 |
| 2022 | |
Chile |
| 5,234 |
| 5,091 |
| 5,131 |
Colombia |
| 3,058 |
| 2,651 |
| 2,356 |
Panama |
| 40 |
| 40 |
| 39 |
United States |
| 32 |
| 34 |
| 32 |
Total |
| 8,364 |
| 7,816 |
| 7,558 |
G. CONTROLLING SHAREHOLDER’S SHARE OWNERSHIP
As of the date of this report, Itaú Unibanco Holding is the sole controlling shareholder of Itaú Chile with a total share of capital of 65.62% held directly or indirectly through its affiliates.
On March 2, 2023, our controlling shareholder Itaú Unibanco Holding announced its intention to make a voluntary tender offer for all of the outstanding shares of Itaú Chile not held by Itaú Unibanco Holding or its affiliates. The proposed tender offer has not yet commenced and is expected to be conducted in the first half of 2023. The proposed tender offer is subject to, among other conditions, regulatory approvals from the Central Bank of Brazil and CMF.
The following chart is an overview of our ownership structure as of the date of this report:
Our directors and senior managers do not have different or preferential voting rights with respect to those shares they own.
We do not have any arrangements for issuing capital to our employees, including any arrangements that involve the issue or grant of options of our shares or securities.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
Our only outstanding voting securities are our common shares. As of the date of this report, we had 973,517,871,202 common shares outstanding traded on the Santiago Stock Exchange and the Chilean Electronic Stock Exchange. Shares are also traded as depositary receipts on the NYSE in the form of ADSs. At our Extraordinary Shareholders’ Meeting held on January 19, 2023, several amendments to our by-laws were approved; one of those amendments was the Reverse Stock Split, which effectiveness is subject to certain conditions precedent, including registration and publication of the amended by-laws (which has already been completed), registration of the new common shares in the CMF securities registry (which
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request was filed on April 14, 2023), and notification to the Chilean stock exchanges. As anticipated in said Extraordinary Shareholder’s Meeting, we expect such conditions precedents to be completed in May 2023. For more information, see Item 4. Information on the Company. B. Business Overview—Ownership Structure.”
The following table sets forth information with respect to the record and beneficial ownership of our capital stock as of the date of this report:
|
| Percentage |
|
|
| ||||
of Total | Percentage of |
| |||||||
Share | Voting and |
| |||||||
Shareholders |
| Number of Shares |
| Capital |
| Number of Votes |
| Dividend Rights |
|
Itaú Unibanco |
| 638,826,855,128 |
| 65.62 | % | 638,826,855,128 |
| 65.62 | % |
ITB Holding Brasil Participações Limitada (1) |
| 337,067,239,334 |
| 34.62 | % | 337,067,239,334 |
| 34.62 | % |
Itaú Unibanco Holding S.A. |
| 256,035,852,654 |
| 26.30 | % | 256,035,852,654 |
| 26.30 | % |
CGB II SpA |
| 18,011,182,273 |
| 1.85 | % | 18,011,182,273 |
| 1.85 | % |
CGB III SpA |
| 4,006,137,826 |
| 0.41 | % | 4,006,137,826 |
| 0.41 | % |
Saga II SpA |
| 15,579,424,880 |
| 1.60 | % | 15,579,424,880 |
| 1.60 | % |
Saga III SpA |
| 8,127,018,161 |
| 0.83 | % | 8,127,018,161 |
| 0.83 | % |
Others |
| 334,691,016,074 |
| 34.38 | % | 334,691,016,074 |
| 34.38 | % |
Securities Brokerage |
| 165,940,410,837 |
| 17.05 | % | 165,940,410,837 |
| 17.05 | % |
ADSs holders and Foreign Inst. Investors |
| 83,516,432,592 |
| 8.58 | % | 83,516,432,592 |
| 8.58 | % |
Local Institutional Investors |
| 63,717,964,499 |
| 6.55 | % | 63,717,964,499 |
| 6.55 | % |
Other minority shareholders |
| 21,516,208,146 |
| 2.21 | % | 21,516,208,146 |
| 2.21 | % |
Total |
| 973,517,871,202 |
| 100.00 | % | 973,517,871,202 |
| 100.00 | % |
(1) | Includes 103,736,846,776 shares owned by ITB Holding Brasil Participações Ltda. that are under custody. |
As of the date of this report, ADS holders (through the depositary) and foreign institutional investors held approximately 8.58% of our total common shares, represented by sixteen registered shareholders (The Bank of New York Mellon—ADRs; Banco de Chile on behalf of non-resident third parties; Banco de Chile on behalf of Citi N.A. London Clients; Banco de Chile on behalf of State Street; Banco de Chile on behalf of Citi N.A. New York Clients; Banco de Chile on behalf of CEP Luxembourg Clients; Banco de Chile on behalf of MS; Banco de Chile on behalf of Merrill L.; Banco de Chile on behalf of Citi NA Hong Kong Clients; Banco Santander on behalf of foreign investors; Banco Santander-HSBC Bank PLC London Client Account; BNP Paribas Securities Services Sociedad Fiduciaria; BNP Paribas Arbitrage SNC; JP Morgan Securities Limited; Dimensional Investments Chile Fund Ltda. and IFC). The remaining 91.42% of our total shares were held by both Itaú Unibanco and locally, in Chile, represented by 890,001,438,610 shares. All of our shareholders have identical voting rights.
Itaú Unibanco Holding, directly and, through ITB Holding Brasil Participações Limitada, CGB II SpA, Saga II SpA, Saga III SpA and CGB III SpA, held approximately 65.62% of our outstanding common shares as of the date of this report. ITB Holding Brasil Participações Limitada, CGB II SpA, Saga II SpA, Saga III SpA and CGB III SpA, are controlled by Itaú Unibanco Holding, which is the sole controlling shareholder of Itaú Chile.
B. RELATED PARTY TRANSACTIONS
GENERAL
In the ordinary course of our business, we engage in a variety of transactions with certain of our affiliates and related parties. The Chilean Corporations Act requires that our transactions with related parties be in our interest and also on an arm’s-length basis or on similar terms to those customarily prevailing in the market. We are required to compare the terms of any such transaction to those prevailing in the market at the date the transaction is to be entered into. In the event that the transaction is not within the ordinary course of business, prior to its effectiveness, the directors committee must prepare a report describing the conditions of the operation and present it to the board of directors for its express
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approval. Directors of companies that violate this provision are liable for the resulting losses. Under the Chilean General Banking Act, transactions between a bank and its affiliates are subject to certain additional restrictions.
Under the Chilean Corporations Act, a “related party transaction,” in the case of an open stock corporation, is any operation between such corporation and (i) one or more related persons under Article 100 of the Securities Market Act (see below), (ii) a director, manager, administrator, principal officer or liquidator of the corporation, by him/herself or on behalf of persons other than the corporation, or their respective spouses or blood or marriage relatives to the second degree, (iii) an entity of which any of the persons indicated in the previous numeral is the direct or indirect owner of 10% or more of its capital or a director, manager or officer, (iv) a person or entity determined as such by the by-laws of the corporation or the board committee, and (v) an entity in which a director, manager, administrator, principal officer or liquidator of the corporation, has acted in any of those capacities during the immediately previous 18 months.
Article 100 of the Securities Market Act provides that the following persons are “related” to a company: (i) the other entities of the business conglomerate to which the company belongs, (ii) parents, subsidiaries and equity-method investors and investees of the company, (iii) all directors, managers, officers and liquidators of the company and their spouses or blood relatives to the second degree, or any entity controlled, directly or indirectly, by any of the referred individuals, (iv) any person that, by him/herself or with other persons under a joint action agreement, may appoint at least one member of the management of the company or control ten percent or more of the capital or voting capital of a stock company and (v) other entities or persons determined as such by the CMF.
A publicly-traded corporation may only enter into a related transaction when its aim is to contribute to the corporate general interests, its conditions are set at arm’s length and the corporation has followed the procedure indicated in the Chilean Corporations Act. The procedure to approve a related transaction can be summarized as follows: (i) the directors, managers, administrators, principal officers and liquidators involved in the potential transaction must give notice thereof to the board (these persons are obligated to disclose their interest in the transaction and, if required by the board, the director involved will be obliged to make public his/her opinion on the transaction), (ii) the absolute majority of the board, excluding any director involved in the transaction, must approve the transaction, (iii) the approval given by the board must be announced in the next shareholders’ meeting, (iv) if the directors involved in the transaction form the majority of the board, the transaction may only be approved by the unanimity of the remaining directors or by two-thirds of the issued voting shares in the corporation in a shareholders’ meeting, and (v) where the approval of the shareholders’ meeting is required, the board will request an independent appraiser to submit to the shareholders the conclusions regarding the conditions of the transaction.
These rules are not applicable to non-material transactions in terms of amounts involved, transactions included in the ordinary course of business of the corporation, according to the policies approved by the board and transactions with another entity of which the corporation owns at least 95% of its shares or rights.
Non-compliance with these rules does not invalidate the transaction, but the persons involved will be obligated to transfer the benefit accrued thereby from the transaction to the corporation and will be held liable for the potential damages suffered by the corporation. These rules apply to all publicly-traded corporations and to their subsidiaries, regardless of their corporate type.
We believe that we have complied with the applicable requirements of the Chilean Corporations Act in all transactions with related parties and affirm that we will continue to comply with such requirements.
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As of December 31, 2020, 2021 and 2022, loans to related parties totaled Ch$197,097 million, Ch$103,518 million and Ch$81,378 million, respectively. See Note 34 to our consolidated financial statements for a more detailed accounting of transactions with related parties.
LOANS TO RELATED PARTIES
As of December 31, 2020, 2021 and 2022, loans to related parties were as follows (loans for 2020, 2021 and 2022 refer to loans and accounts receivable from customers at amortized cost):
Productive | Investment | |||||
| Companies |
| Companies |
| Individuals | |
As of December 31, 2020 | (in millions of Ch$ as of December 31, 2020) | |||||
Loans and receivables to customers: |
|
|
|
|
|
|
Commercial loans |
| 150,796 | 10,037 | 6,517 | ||
Mortgage Loans |
| — | — | 30,124 | ||
Consumer Loans |
| — | — | 7,189 | ||
Loans and receivables to customers—gross |
| 150,796 |
| 10,037 |
| 43,830 |
Allowances for loan losses |
| (6,333) | (885) | (348) | ||
Loans and receivables to customers, net |
| 144,463 |
| 9,152 |
| 43,482 |
Productive | Investment | |||||
| Companies |
| Companies |
| Individuals | |
As of December 31, 2021 | (in millions of Ch$ as of December 31, 2021) | |||||
Loans and receivables to customers: |
|
|
|
|
|
|
Commercial loans |
| 47,792 | 19,208 | 5,758 | ||
Mortgage Loans |
| — | — | 33,701 | ||
Consumer Loans |
| — | — | 8,058 | ||
Loans and receivables to customers—gross |
| 47,792 |
| 19,208 |
| 47,517 |
Allowances for loan losses |
| (9,592) | (1,182) | (225) | ||
Loans and receivables to customers, net |
| 38,200 |
| 18,026 |
| 47,292 |
Productive | Investment | |||||
| Companies |
| Companies |
| Individuals | |
As of December 31, 2022 |
| (in millions of Ch$ as of December 31, 2022) | ||||
Loans and receivables to customers: |
|
|
|
|
|
|
Commercial loans |
| — | 5,743 | 9,842 | ||
Mortgage Loans |
| — | — | 53,872 | ||
Consumer Loans |
| — | — | 11,771 | ||
Loans and receivables to customers—gross |
| — |
| 5,743 |
| 75,485 |
Allowances for loan losses |
| — | (469) | (381) | ||
Loans and receivables to customers, net |
| — |
| 5,274 |
| 75,104 |
All loans to related parties were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present other unfavorable features. During 2020, 2021 and 2022, in accordance with IFRS, the total gross amounts of related party loans outstanding amounted to Ch$204,663 million, Ch$114,517 million and Ch$81,228 million, respectively.
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OTHER TRANSACTIONS WITH RELATED PARTIES
During 2020, 2021 and 2022, we had the following income (expenses) from services provided to (by) related parties:
2020 | 2021 | 2022 | ||||
Income | Income | Income | ||||
Company |
| (expenses) |
| (expenses) |
| (expenses) |
(in Ch$) | ||||||
Redbanc S.A. | (3,094) | (3,566) | (4,678) | |||
Transbank S.A. |
| (13,177) |
| (8,218) |
| (13,037) |
Combanc S.A. |
| (472) |
| (464) |
| (534) |
Itaú Chile Cía. de Seguros de Vida S.A. |
| — |
| — |
| — |
Centro Cultural Corpgroup SpA | — | — | (311) | |||
Corp Research S.A. |
| — |
| — |
| — |
Recuperadora de Créditos S.A. |
| — |
| — |
| — |
Itaú Chile Inv. Serv. y Administración S.A. |
| (1,143) |
| (818) |
| (113) |
Compañía de Seguros Confuturo S. A. |
| — |
| — |
| — |
Instituto de Estudios Bancarios Guillermo Subercaseaux |
| — |
| — |
| — |
VIP Asesorías y Servicios Integrales Limitada |
| — |
| — |
| — |
Everis Chile S.A. |
| — |
| — |
| — |
CAI Gestión Inmobiliaria S.A. |
| — |
| — |
| — |
Promoservice S.A. |
| — |
| — |
| — |
Comder Contraparte Central S.A |
| (826) |
| (849) |
| (1,482) |
Operadora de Tarjeta de Crédito Nexus S.A. |
| (3,319) |
| (3,740) |
| (3,248) |
Pulso Editorial S.A. |
| (24) |
| (70) |
| — |
Inmobiliaria Edificio CorpGroup S.A. |
| (4,693) |
| (2,166) |
| — |
Hotel Corporation of Chile S.A. |
| (8) |
| — |
| — |
Corp Imagen y diseños S.A. |
| — |
| — |
| — |
CorpGroup Holding Inversiones Limitada |
| (382) |
| (447) |
| (239) |
SMU S.A., Rendic Hnos. S.A. |
| (2,388) |
| (991) |
| — |
Inversiones Corp Group Interhold Limitada |
| (2,613) |
| (2,711) |
| (1,447) |
Bcycle Latam SPA |
| (2,165) |
| — |
| — |
Bolsa de Comercio de Santiago |
| — |
| — |
| — |
Adexus S.A. |
| (8) |
| — |
| — |
Itaú Unibanco | 2,213 | (655) | (1,507) | |||
Itaú BBA Securities NY | — | 2,065 | 1,342 | |||
Banco Itaú International | — | — | 1,713 | |||
Banco Itaú (Suisse) S.A. | — | — | 7 | |||
Compañía Chilena de Televisión S.A. | (8) | — | — | |||
Inmobiliaria Gabriela S.A | (128) | (132) | — | |||
Total |
| (32,235) |
| (22,762) |
| (23,534) |
These transactions were carried out on terms normally prevailing in the market at the date of the transaction.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
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ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See “Item 18. Financial Statements.”
LAWSUITS AND LEGAL PROCEEDINGS
We are involved in collections proceedings initiated by us in the normal course of business and certain proceedings against us in the ordinary course of banking business as disclosed in Note 23 to our consolidated financial statements included herein.
DIVIDEND POLICY
Under the Chilean Corporations Act, Chilean publicly-held companies, which rules are generally applicable to us, are generally required to distribute at least 30% of their net income each year, unless otherwise agreed by the unanimous consent of our shareholders. In the event of any loss of capital or of the legal reserve, no dividends can be distributed so long as such loss is not recovered from earnings or otherwise. No dividends above the legal minimum can be distributed if doing so would result in the Bank exceeding its indebtedness ratio or our lending limits.
At our ordinary annual shareholders’ meeting held on April 20, 2023, our shareholders approved a dividend payout ratio of 30% of our distributable 2022 net income. As a result, in 2023, we paid an annual dividend of Ch$0.1336629158920/share, equivalent to a dividend yield of 6.89%. In addition, as for the year end as of December 31, 2022, we reported a net income of Ch$433,744 million calculated under local regulatory and accounting principles. An annual dividend of Ch$130,123,237,338 was distributed at our ordinary shareholder’s meeting held on April 20, 2023 in accordance with the provisions set forth in Article 78 of Law No. 18,046.
Dividends can be paid exclusively from the net income for the year, after absorbing accumulated losses, if any. The actual amount of dividend payments will depend upon, among other factors, our then current level of earnings, capital and legal reserve requirements, as well as market conditions, and there can be no assurance as to the amount or timing of future dividends.
In the event that dividends are paid, holders of ADSs will be entitled to receive dividends to the same extent as the owners of common shares. Dividends received by holders of ADSs will, absent changes in Chilean exchange controls or other laws, be converted into U.S. dollars and distributed net of currency exchange expenses and fees of the depositary and will be subject to Chilean withholding tax, currently at the rate of 35% (which may be subject to credits in certain cases). Owners of ADSs are not charged with any fees with respect to cash or stock dividends.
B. SIGNIFICANT CHANGES
There have been no significant changes since the date of our annual financial statements.
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ITEM 9. OFFER AND LISTING DETAILS
Not applicable.
A. OFFER AND LISTING DETAILS
Not applicable.
B. PLAN OF DISTRIBUTION
Not applicable.
C. MARKETS
Our common shares are traded on the Santiago Stock Exchange and the Chilean Electronic Stock Exchange under the symbol “ITAUCL,” (prior to April 24, 2023, the symbol was “ITAUCORP.”) Our ADSs have been listed since November 1, 2004, on the NYSE under the symbol “ITCB.” The ticker symbol for our ADSs trading on the NYSE will change from “ITCB” to “ITCL,” effective on May 1, 2023.
D. SELLING SHAREHOLDER
Not applicable.
E. DILUTION
Not applicable.
F. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF INCORPORATION
Set forth below is material information concerning our share capital and a brief summary of the significant provisions of our by-laws and Chilean law. This description contains material information concerning the shares but does not purport to be complete and is qualified in its entirety by reference to our by-laws, the Chilean General Banking Act, the Chilean Corporations Act and the Chilean Securities Market Act, each referred to below.
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GENERAL
Shareholders rights in a Chilean bank that is also a special corporation (Sociedad Anónima Especial) (i) are subject to the regulations of publicly-held companies (Sociedades Anónimas Abiertas or “Public Companies”); (ii) are governed by the bank’s by-laws, which effectively serve the purpose of both the articles or certificate of incorporation and the by-laws of a company incorporated in the United States, (iii) are subject to the Chilean General Banking Act, and secondarily, to the extent not inconsistent with the latter, to the provisions of Chilean Corporations Act applicable to publicly-held companies, except for certain provisions which are expressly excluded. Article 137 of the Chilean Corporations Act sets forth that all provisions of the Chilean Corporations Act take precedence over any contrary provision in a corporation’s by-laws. Both the Chilean Corporations Act and our by-laws provide that legal actions by shareholders against us (or our officers or directors) to enforce their rights as shareholders or by one shareholder against another in their capacity as such, are to be brought in Chile, in arbitration proceedings, notwithstanding, the plaintiff’s right pursuant to Article 125 of the Chilean Corporations Act to submit the action to the ordinary courts of Chile.
The Chilean securities markets are principally regulated by the CMF under the Chilean Securities Market Act and the Chilean Corporations Act. These two acts provide for disclosure requirements, restrictions on insider trading and price manipulation, and protection of minority investors. The Chilean Securities Market Act sets forth requirements relating to public offerings, stock exchanges, securities brokers and dealers, and outlines disclosure requirements for companies that issue publicly offered securities. The Chilean Corporations Act sets forth the rules and requirements for establishing public companies while eliminating government supervision of closed (closely-held) corporations. Public companies are those that voluntarily, or are legally required to, register their shares in the Securities Registry kept by the CMF.
BOARD OF DIRECTORS
At our Extraordinary Shareholders’ Meeting held on January 19, 2023, our shareholders approved an amendment to our by-laws decreased (i) the number of directors from eleven to seven and (ii) the number of alternate directors from two to one. This amendment was approved by the CMF on March 28, 2023. Consequently, and following our annual ordinary shareholders’ meeting held on April 20, 2023, our board of directors currently has seven regular members and one alternate member, elected by shareholders’ vote at ordinary shareholders’ meetings. The directors may be either shareholders or non-shareholders of the Bank.
A director remains in office for three years and may be re-elected indefinitely. If, for any reason, the ordinary shareholders’ meeting in which the new appointments of directors are to be made is not held, the duties of those serving as such shall be extended until their replacements are designated, in which case, the board of directors shall convene a meeting at the earliest possible time in order to effect the appointments.
The directors are entitled to compensation for the performance of their duties. The amount of their compensation is determined annually at the ordinary shareholders’ meeting. In addition, payments in the form of wages, fees, travel accounts, expense accounts, dues as representatives of the board of directors and other cash payments, payments in kind or royalties of any sort whatsoever, may be paid to certain directors for the performance of specific duties or tasks in addition to their functions as directors imposed upon them specifically by the ordinary shareholders’ meeting. Any special compensation must be reported at the ordinary shareholders’ meeting, and for that purpose, a detailed and separate entry shall be made in our annual report to investors, which shall expressly indicate the complete name of each of the directors receiving special compensation.
Without prejudice to any other incapacity or incompatibility established by the Chilean Corporations Act, according to the Chilean General Banking Act, the following may not be directors: (i) those persons who have been sentenced or are being tried for crimes punishable with a principal or accessory penalty of temporary or permanent suspension from or incapacity to hold public office, (ii) those persons who have been declared bankrupt and have not been rehabilitated, (iii) members of the Chilean Congress, (iv) directors or employees of any other financial institutions, brokers and security traders, together with its directors, officers, executives and managers; employees appointed by the President of Chile and employees or officers of (x) the State, (y) any public service, public institution, semi-public institution, autonomous entity or state-controlled company, or any such entity, a Public Entity, or (z) any enterprise, corporation or public or private entity in which the State or a Public Entity has a majority interest, has made capital contributions, or is
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represented or participating, provided that persons holding positions in teaching activities in any of the above entities may be directors, and (v) the Bank’s employees, which shall not prevent a director from holding on a temporary basis and for a term not to exceed 90 days the position of manager. The chief executive officer may not be elected as a director.
For purposes of the election of directors, each shareholder shall have the right to one vote per share for purposes of electing a single person, or to distribute his votes among candidates as he or she may deem convenient, and the persons obtaining the largest number of votes in the same and single process shall be awarded positions, until all positions have been filled. The elections of regular and alternate board members are carried out separately. For purposes of casting votes, the chairman and the secretary, together with any other persons that may have been previously designated at the meeting to sign the minutes thereof, shall issue a certificate giving evidence of the oral votes of shareholders attending, following the order of the list of attendance being taken.
Each shareholder is entitled to cast his or her vote by means of a ballot signed by him or her, stating whether he or she signs for his own account or as a representative. This entitlement notwithstanding, in order to expedite the voting process, it can be ordered that the vote be taken alternatively or by oral vote or by means of ballots. At the time of polling, the chairman may instruct that the votes be read aloud, in order for those in attendance to count the number of votes issued and verify the outcome of the voting process.
Every election of directors, or any changes in the election of directors, shall be transcribed into a public deed before a notary public, published in a newspaper of Santiago and notified to the CMF by means of the filing of a copy of the respective public deed. Likewise, the appointments of general manager, manager and deputy managers shall be communicated and transcribed into a public deed.
If a director ceases to be able to perform his or her duties, whether by reason of conflict of interest, limitation, legal incapacity, impossibility, resignation or any other legal cause, the vacancy is filled as follows: (i) the positions of regular director is filled by a member appointed by the board of directors on its first meeting after the vacancy occurs and such member appointed by the board of directors will remain in the position until the next ordinary shareholders’ meeting, where the appointment may be ratified, in which case, the replacement director will remain in his or her position until the expiration of the term of the director he or she replaced and act as full director; and (ii) while the vacancy has not been filled by the board of directors, an alternate director shall act as regular member.
The alternate directors may temporarily replace regular directors in case of their absence or temporary inability to attend a board meeting. Alternate board members are always entitled to attend and speak at board meetings. They are entitled to vote at such meetings only when a regular member is absent and such alternate member acts as the absent member’s replacement.
During the first meeting following the ordinary shareholders’ meeting, the board of directors elects, by an absolute majority and in separate and secret votes, from among its members, a chairman and a vice chairman. If no director obtains such majority, the election is repeated among those two directors who obtained the most votes, adding any blank votes to the person who obtained the greatest number of votes. In case of a tie, the vote is repeated and, if a tie were to occur again, there is a drawing. The chairman and the vice president may be reelected indefinitely.
The board of directors meets in ordinary sessions at least once a month, held on pre-set dates and times determined by the board. Extraordinary meetings are held whenever called by the chairman, whether at his own will or upon the request of one or more directors, so long as the chairman determines in advance that the meeting is justified, except if the request is made by the absolute majority of the directors in office, in which case the meeting shall be held without such prior determination. The extraordinary meetings may only address those matters specifically included in the agenda for the extraordinary meeting, except that, if the meeting is attended by all the directors in office, they may agree otherwise by a unanimous vote. Notifications of meetings of the board of directors shall be made by certified letter sent to the address of each director registered with the bank, at least, five days in advance of the date on which the ordinary or extraordinary session should be held; provided, however, that urgent extraordinary meetings can be summoned by the chairman with one business day advance notice. The five-day period shall be calculated from the date on which the letter is placed in the mail.
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The five-day period shall be calculated from the date on which the letter is placed in the mail.
The quorum for the board of directors’ meeting is majority of its members in office, which is four directors. Resolutions shall be adopted by the affirmative vote of the absolute majority of the attending directors. In the event of a tie, the person acting as the chairman of the meeting does not have a casting vote.
Directors having a vested interest in a negotiation, act, contract, or transaction that is not related to the Bank business, either as principal or as representative of another person, shall communicate such fact to the other directors. If the respective resolutions are approved by the board, it shall be in accordance with the prevailing company’s interest and fair market conditions and such director’s interest must be disclosed at the next ordinary shareholders’ meeting.
The discussions and resolutions of the board of directors shall be recorded in a special book of minutes maintained by the secretary. The relevant minutes shall be signed by the directors that attended the relevant meeting. If a director determines that the minutes for a meeting are inaccurate or incomplete, he or she is entitled to record an objection before actually signing the minutes. The minutes shall be deemed approved from the moment it is signed by all the directors that attended such meeting and all the resolutions adopted may be carried out upon the approval. However, by unanimous consent of the directors that attended the meeting, the resolutions adopted by the board may be carried out before the approval of the minutes, provided that the agreement is recorded in a written document signed by all the relevant directors. In the event of death, refusal or incapacity for any reason of any of the directors attending to sign the minutes, such circumstance shall be recorded at the end of the minutes stating the reason for the impediment.
The directors are personally liable for all of the acts they effect in the performance of their duties. Any director who wishes to disclaim responsibility for any act or resolution of the board of directors must record his or her opposition in the minutes, and the chairman must report such opposition at the following ordinary shareholders’ meeting.
The board will represent us in and out of court and, for the performance of the Bank’s business, a circumstance that will not be necessary to prove before third parties, it will be empowered with all the authorities and powers of administration that the law or the by-laws do not set as exclusive to the ordinary shareholders’ meeting, without being necessary to grant any special power of attorney, even for those acts that the law requires to do so. This provision is notwithstanding the judicial representation of the Bank that is part of the general manager’s authorities. The board may delegate part of its authority to the general manager, to the managers, deputy managers or attorneys of the Bank, a director, a commission of directors, and for specifically determined purposes, in other persons.
CAPITALIZATION
Under Chilean law, the shareholders of a bank, acting at an extraordinary shareholders’ meeting, have the power to authorize an increase in such company’s capital with the authorization of the CMF, except for capital increases paid in Chilean legal tender. When an investor subscribes for issued shares, the shares are registered in such investor’s name, even if not paid for, and the investor is treated as a shareholder for all purposes except with regard to receipt of dividends and the return of capital; provided that the shareholders may, by amending the by-laws, also grant the right to receive dividends or distributions of capital. An investor becomes eligible to receive dividends and returns of capital once it has paid for the shares (if it has paid for only a portion of such shares, it is entitled to receive a corresponding pro-rata portion of the dividends declared and/or returns of capital with respect to such shares unless the company’s by-laws provide otherwise). Pursuant to the Bank’s by-laws, if an investor does not pay for shares for which it has subscribed on or prior to the date agreed upon for payment, the Bank may elect between: (a) selling on a stock exchange, at the expense and risk of the defaulting shareholder, the number of shares necessary to pay for the unpaid balances and related expenses, reducing the share certificate to the amount of remaining shares; (b) render without effect the subscription in whole or in part and reduce the share certificate to the number of paid shares, selling the remaining shares on a stock exchange, and (c) collect payment through ordinary or summary procedures on all the debtor’s assets. Upon termination of the actions for collection, the board of directors shall propose to the shareholders meeting the write-off of the non-paid amount and the reduction of the capital of the company to the amount effectively paid in. Authorized shares and issued shares which have not been subscribed and paid for within the period fixed for their payment (which cannot be longer than three years) are cancelled and are no longer available for issuance by the company, unless in case of an issuance of convertible bonds (in which case the unsubscribed portion of the capital increase shall remain in place for a number of shares sufficient to comply with the
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option) or when reserved for compensation plans for employees (in which case the maximum term for subscription and payment cannot be longer than five years).
Article 22 of Chilean Corporations Act states that the purchaser of shares of a company implicitly accepts its by-laws and any agreements adopted at shareholders’ meetings.
OWNERSHIP RESTRICTIONS
Under Article 12 of the Chilean Securities Market Act and the regulations of the CMF, shareholders of Public Companies are required to report the following to the CMF and the Chilean stock exchanges:
● | any direct or indirect acquisition or sale of shares that results in the holder’s acquiring or ceasing to own, directly or indirectly, 10% or more of a Public Company’s share capital; and |
● | any direct or indirect acquisition or sale of shares or options to buy or sell shares, in any amount, if made by a holder of 10% or more of a Public Company’s capital or if made by a director, liquidator, main officer, general manager or manager of such corporation. |
The foregoing requirements also apply to the acquisition or sale of securities or agreements which price or return depends or is conditioned (all or in a significant part) on changes or movements in the price of such shares. Such report shall be made the day following the execution of the transaction.
In addition, majority shareholders must state in any such report whether their purpose is to acquire control of the company or if they are making a financial investment. Any beneficial owner of ADSs representing 10% or more of our share capital is subject to these reporting requirements under Chilean law. The Chilean Securities Market Act also sets forth certain regulations on takeovers of corporations.
Under Article 54 of the Chilean Securities Market Act and the regulations of the CMF, persons or entities intending to acquire control, directly or indirectly, of a Public Company, regardless of the acquisition vehicle or procedure, and including acquisitions made through direct subscriptions or private transactions, are also required to inform the public of such acquisition at least ten business days before the date of perfection of the acts which allow it to obtain control of the company, but in any case, as soon as negotiations regarding the change of control are formalized and/or as soon as reserved information and/or documents concerning the target are delivered to the potential acquirer through a filing with the CMF, the stock exchanges and the companies controlled by and that control the target and through a notice published in two Chilean newspapers, which notice must disclose, among other information, the person or entity purchasing or selling and the price and conditions of any negotiations.
Within the same term, a written communication to such effect must be sent to the target corporation, the controlling corporation, the corporations controlled by the target corporation, the CMF, and to the Chilean stock exchanges on which the securities are listed.
In addition to the foregoing, Article 54A of the Chilean Securities Market Act requires that within two business days of the completion of the transactions pursuant to which a person has acquired control of a Public Company, a notice shall be published in the same newspapers in which the notice referred to above was published and notices shall be sent to the same persons mentioned in the preceding paragraphs.
A beneficial owner of ADSs intending to acquire control of us is also subject to the foregoing reporting requirements.
The provisions of the aforementioned articles do not apply whenever the acquisition is being made through a tender or exchange offer.
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Title XXV of the Chilean Securities Market Act on tender offers and the regulations of the CMF provide that the following transactions shall be carried out through a tender offer:
● | an offer which allows a person to take control of a Public Company; |
● | an offer for all the outstanding shares of a Public Company upon acquiring two-thirds or more of its voting shares, in which case such controlling shareholder must offer to purchase the remaining shares from the investing shareholders in a tender offer, unless (i) the controlling shareholder has reached two-thirds of the voting shares through a tender offer for all of the shares of the company or due to any of the situations exempted, or (ii) it reaches such percentage as a result of a reduction of the capital of the company by operation of law: such offer must be made at a price not lower than the price at which appraisal rights may be exercised, that is, book value if the shares of the company are not actively traded or, if the shares of the company are actively traded, the weighted average price at which the stock has been traded during the 60 stock exchange business days between the thirtieth and the ninetieth stock exchange business days immediately preceding the acquisition; and |
● | an offer for a controlling percentage of the shares of a listed operating company if such person intends to take control of the company (whether listed or not) controlling such operating company, to the extent that the operating company represents 75% or more of the consolidated net worth of the holding company. |
Nevertheless, the following exceptions are applicable to all the cases described above (i) the shares are being sold by a controlling shareholder of such company at a price in cash which is not substantially higher than the market price and the shares of such company are actively traded on a stock exchange, or (ii) those shares are acquired (a) through a capital increase, (b) as a consequence of a merger, (c) by inheritance, or (d) through a forced sale.
Article 200 of the Chilean Securities Market Act prohibits any shareholder that has taken control of a Public Company to acquire, within the period of 12 months from the date of the transaction that permitted such shareholder to take control of the Public Company, a number of shares equal to or higher than 3% of the outstanding issued shares of the target without making a tender offer at a price per share not lower than the price paid at the time of the change of control transaction. However, if the acquisition is made on a stock exchange and on a pro rata basis, the controlling shareholder may purchase a higher percentage of shares, if so permitted by the regulations of the stock exchange.
Title XV of the Chilean Securities Market Act sets forth the basis to determine what constitutes control of a business group and a related party while Title XXV establishes a special procedure for acquiring control of a Public Company through a tender offer. The Chilean Securities Market Act defines control as the power of a person, or group of persons acting pursuant to a joint action agreement, to direct the majority of the votes in the shareholders meetings of the corporation, or to elect the majority of members of its board of directors, or to influence the management of the corporation significantly. Significant influence is deemed to exist in respect of the person or group of persons acting together pursuant to a joint action agreement holding, directly or indirectly, at least 25% of the voting share capital, unless:
● | another person or group of persons acting pursuant to a joint action agreement, directly or indirectly, control a stake equal to or higher than the percentage controlled by such person or group; |
● | the person or group does not control, directly or indirectly, more than 40% of the voting share capital and the percentage controlled is lower than the sum of the shares held by other shareholders holding more than 5% of the voting share capital; and |
● | in cases where the CMF has ruled otherwise, based on the distribution or atomization of the overall shareholding. |
According to the Chilean Securities Market Act, a joint action agreement is an agreement among two or more parties which, directly or indirectly, own shares in a corporation at the same time and whereby they agree to participate with the
195
same interest in the management of the corporation or in taking control of the same. The law presumes that such an agreement exists between:
● | a principal and its agents; |
● | spouses and relatives up to certain level of kindred; |
● | entities within the same business group; and |
● | an entity and its controller or any of its members. |
Likewise, the CMF may determine that a joint action agreement exists between two or more entities considering, among others, the number of companies in which they simultaneously participate and the frequency with which they vote identically in the election of directors, appointment of managers and other resolutions passed at shareholders’ meetings.
According to Article 96 of the Chilean Securities Market Act, a business group is a group of entities with such ties in their ownership, management or credit liabilities that it may be assumed that the economic and financial action of such members is directed by, or subordinated to, the joint interests of the group, or that there are common credit risks in the credits granted to, or securities issued by, them. According to the Chilean Securities Market Act, the following entities are part of the same business group:
● | a company and its controlling person; |
● | all the companies with a common controlling person and the common controlling person; |
● | all the entities that the CMF declare to be part of the business group due to one or more of the following reasons: |
● | a substantial part of the assets of the company are involved in the business group, whether as investments in securities, equity rights, loans or guaranties; |
● | the company has a significant level of indebtedness and that the business group has a material participation as a lender or guarantor; |
● | when the controller is a group of entities, that the company is a member of a controlling person of the entities mentioned in the first two bullets above and there are grounds to include it in the business group based on the definitions above; and |
● | the company is controlled by one or more member of the controlling group of any of the entities of the business group, when such controller is composed of more than one person and there are grounds to include the company in the business group based on the definition above. |
Article 36 of the Chilean General Banking Act states that, as a matter of public policy, no person or company may acquire, directly or indirectly, shares that alone or jointly with the shares previously owned by it, represent more than 10% of the shares of a bank without the prior authorization of the CMF, which may not be unreasonably withheld. The prohibition also applies to beneficial owners of ADSs. In the absence of such authorization, any person or group of persons acting in concert would not be permitted to exercise voting rights with respect to the shares or ADSs acquired. In determining whether or not to issue such an authorization, the CMF considers a number of factors enumerated in the Chilean General Banking Act, including the financial stability of the purchasing party.
Article 35 bis of the Chilean General Banking Act establishes that prior authorization of the CMF is required for:
● | the merger of two or more banks, where the absorbing bank becomes a bank of systemic importance; |
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● | the acquisition of all or a substantial portion (equal to or more than one third) of a bank’s assets and liabilities by another bank, where the acquiring bank becomes a bank of systemic importance; |
● | the control by the same person, or controlling group, of two or more banks, where the banks become banks of systemic importance; or |
● | a substantial increase in the share ownership by a controlling shareholder of one of the banks controlled by the same person or controlling group (understood as either acquiring a majority or two thirds of the bank’s shares), where the group of banks become a bank of systemic importance. |
Such prior authorization is required solely when the acquiring bank or the resulting group of banks becomes a bank of systemic importance. With respect to the qualification of a bank of systemic importance, on November 2, 2020, the CMF published the regulation (Circular No. 2,276) setting forth the factors and methodologies to be considered to determine whether a bank or group of banks qualifies as of systemic importance.
According to the Chilean General Banking Act a bank may not grant loans to related parties on more favorable terms than those generally offered to non-related parties. Article 84 No. 2 of the Chilean General Banking Act and the Regulations of the CMF create the presumption, among other cases, that natural persons who are holders of shares and who beneficially own more than 1% of the shares (or 5% in the case of bank’s shares actively traded) are related to the bank and imposes certain restrictions on the amounts and terms of loans made by banks to related parties. This presumption would also apply to beneficial owners of ADSs representing more than 1% of the shares, and accordingly the limitations of Article 84 No. 2 would be applicable to such beneficial owners. Finally, according to the regulations of the CMF, Chilean banks that issue ADSs are required to inform the CMF if any person, directly or indirectly, acquires ADSs representing 5% or more of the total amount of shares of capital stock issued by such bank.
Article 16 bis of the Chilean General Banking Act provides that the individuals or legal entities which, individually or with other people, directly control a bank and who individually own more than 10% of its shares shall send to the CMF reliable information on their financial situation in the form and within the time set forth in Chapter 1-3 of the regulations of the CMF (Recopilación Actualizada de Normas). Also, controlling shareholders must submit information regarding their financial situation pursuant to Chapter 1-17 of said regulations.
PREEMPTIVE RIGHTS AND INCREASES OF SHARE CAPITAL
The Chilean Corporations Act provides that whenever a Chilean company issues new shares for consideration, it must offer to its existing shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentages in the company. Pursuant to this requirement, preemptive rights in connection with any future issuance of shares will be offered by us to the depositary as the registered owner of the shares underlying the ADSs. However, the depositary will not be able to make such preemptive rights available to holders of ADSs unless a registration statement under the Securities Act is effective with respect to the underlying shares or an exemption from the registration requirements thereunder is available.
We intend to evaluate, at the time of any preemptive rights offering, the practicality under Chilean law and Central Bank of Chile regulations in effect at the time of making such rights available to our ADS holders, as well as the costs and potential liabilities associated with registration of such rights and the related common shares under the Securities Act, and the indirect benefits to us of thereby enabling the exercise by all or certain holders of ADSs of their preemptive rights and any other factors we consider appropriate at the time, and then to make a decision as to whether to file such registration statement. We cannot assure you that any registration statement would be filed. If we do not file a registration statement and no exemption from the registration requirements under the Securities Act is available, the depositary will attempt to sell such holders’ preemptive rights and distribute the proceeds thereof, after deduction of its expenses and fees, if a premium can be recognized over the cost of such sale. In the event that the depositary is not able, or determines that it is not feasible, to sell such rights at a premium over the cost of any such sale, all or certain holders of ADSs may receive no value for such rights. The inability of all or certain holders of ADSs to exercise preemptive rights in respect of common shares underlying such ADSs could result in such holders not maintaining their percentage ownership of the common
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shares following such preemptive rights offering unless such holder made additional market purchases of ADSs or common shares.
Under Chilean law, preemptive rights are exercisable or freely transferable by shareholders during a period that cannot be less than 30 days following the grant of such rights. During such period (except for shares as to which preemptive rights have been waived), Chilean Public Companies are not permitted to offer any newly issued shares for sale to any third party. For an additional 30-day period thereafter, a Chilean company is not permitted to offer any unsubscribed shares for sale to third parties on terms which are more favorable than those offered to its shareholders. Thereafter, unsubscribed shares may be offered through any Chilean stock exchange without any indication of price. Unsubscribed shares that are not sold on a Chilean stock exchange can be sold to third parties only on terms no more favorable for the purchaser than those offered to shareholders.
SHAREHOLDERS’ MEETINGS AND VOTING RIGHTS
An annual ordinary meeting of shareholders is held within the first four months of each year, generally in March and must be called by the board of directors. The annual ordinary meeting of shareholders is the corporate body that approves the annual financial statements, approves all dividends in accordance with the dividend policy proposed by the board of directors, elects the members of our board of directors and approves any other matter which does not require an extraordinary shareholders’ meeting. The last annual ordinary meeting of our shareholders was held on April 20, 2023.
Extraordinary meetings may be called by our board of directors when deemed appropriate, and ordinary or extraordinary meetings must be called by our board of directors when requested by shareholders representing at least 10% of the issued voting shares or by the CMF.
Notice to convene the annual ordinary meeting or an extraordinary meeting is given by means of written notice, which must be published at least on three different days in a newspaper of our corporate domicile (currently Santiago) designated by the shareholders at their annual meeting and if a shareholder fails to make such designation, the notice must be published in the Official Gazette pursuant to legal regulations. The first notice must be published not less than 10 days in advance of the scheduled meeting. Additionally, with the same minimum 10-day notice, the fact that a shareholders’ meeting will be held must be disclosed to the market (including the CMF and the Santiago and Electronic Stock Exchanges), indicating the date, the matters to be dealt with therein and how to obtain full copies of documents related to items submitted for voting; all of which must also be made available to shareholders on the website of the company. Currently, we publish our official notices in the Diario La Tercera.
The quorum for a shareholders’ meeting is established by the presence, in person or by proxy, of shareholders representing at least an absolute majority of the issued common shares; if a quorum is not present at the first meeting, the meeting can be reconvened (in accordance with the procedures described in the previous paragraph) and, upon the meeting being reconvened, shareholders present at the reconvened meeting are deemed to constitute a quorum regardless of the percentage of the shares represented. The shareholders’ meetings pass resolutions by the affirmative vote of an absolute majority of those voting shares present or represented at the meeting.
Only shareholders registered with us on the fifth business day prior to the date of a meeting are entitled to attend and vote their shares. A shareholder may appoint another individual (who need not be a shareholder) as his proxy to attend and vote on his behalf. Every shareholder entitled to attend and vote at a shareholders’ meeting has one vote for every share subscribed. Under our by-laws, directors are elected by cumulative voting. Each shareholder has one vote per share and may cast all of his or her votes in favor of one nominee or may apportion is or her votes among any number of nominees.
The following matters can only be agreed upon at an extraordinary shareholders’ meeting:
● | our dissolution; |
● | a merger, transformation, division or other change in our corporate form or the amendment of our by-laws; |
● | the issuance of bonds or debentures convertible into shares; |
● | the conveyance of 50% or more of our assets or the submission of, or changes to any business plan that contemplates the sale of more than 50% of the assets of the company; |
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● | the conveyance of 50% or more of the assets of a subsidiary, if represent at least 20% of our total assets, and any transfer of shares of a subsidiary that implies the Company loses control of such subsidiary; |
● | granting of a security interest or a personal guarantee in each case to secure the obligations of third parties, unless (i) to secure or guarantee the obligations of a subsidiary, in which case the approval of the board of directors will suffice (although this restriction is not applicable to banks: (a) granting sureties, (b) becoming jointly and/or jointly and severally liable with clients or (c) issuing bank guarantees within their course of business) and (ii) in those cases exempted by the Chilean General Banking Act; and |
● | other matters that require shareholder approval according to Chilean law or our by-laws. |
The matters referred to in the first five items listed above may only be approved at a meeting held before a notary public, who shall certify that the minutes are a true record of the events and resolutions of the meeting.
The by-laws establish that resolutions are passed at shareholders’ meetings by the affirmative vote of an absolute majority of those shares present or represented at the meeting. However, under the Chilean Corporations Act, the vote of a two-thirds majority of the outstanding voting shares is required to approve any of the following actions:
●a change in corporate form, merger or spin-off;
●an amendment to our term of existence or early dissolution;
●a change in corporate domicile;
●a decrease of corporate capital;
●the approval of capital contributions in kind and a valuation of the assets contributed;
●a modification of the authority reserved for the shareholders’ meetings or limitations on the powers of our board of directors;
●a reduction in the number of members of our board of directors;
●the conveyance of 50% or more of the corporate assets, regardless of whether it includes liabilities, or the submission of or change to any business plan that contemplates the conveyance of 50% or more of the corporate assets;
●the conveyance of 50% or more of the assets of a subsidiary, if those assets represent at least 20% of our total assets, and any transfer of shares of a subsidiary that implies the Company loses control of such subsidiary;
●the manner in which the corporation’s profits shall be distributed;
●the creation of security interests to secure third-party obligations in excess of 50% of the corporate assets, unless granted to a subsidiary or when exempted by the Chilean General Banking Act (although this restriction is not applicable to banks: (i) granting sureties, (ii) becoming jointly and/or jointly and severally liable with clients or (iii) issuing bank guarantees within their course of business);
●the acquisition of our own shares, when, and or the terms and conditions permitted by law;
●the cure of formal defects in the incorporation of the corporation or an amendment to its by-laws related to any of the matters referred to in the preceding bullets;
●to establish the right of the controller to force other shareholders to sell their shares in case the controller has surpassed 95% of the shares of the company as a result of a tender offer for 100% of its shares under certain circumstances;
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●the approval of material related-party transactions according to Article 147 of the Chilean Corporations Act; or
●all other matters provided for in our by-laws.
In general, Chilean law does not require a Chilean public company to provide the level and type of information that U.S. securities laws require a reporting company to provide to its shareholders in connection with a solicitation of proxies. However, shareholders are entitled to examine the books of the company within the 15-day period before the ordinary annual meeting. Under Chilean law, a notice of a shareholders’ meeting listing matters to be addressed at the meeting must be published not fewer than 10 days prior to the date of such meeting, and, in cases of an ordinary annual meeting, shareholders must have available an annual report of the company’s activities which includes audited financial statements. In addition to these requirements, we regularly provide, and management currently intends to continue to provide, together with the notice of shareholders’ meeting, a proposal for the final annual dividend.
The Chilean Corporations Act provides that whenever shareholders representing 10% or more of the issued voting shares so request, a Chilean company’s annual report must include, in addition to the materials provided by the board of directors to shareholders, such shareholders’ comments and proposals in relation to the company’s affairs. Similarly, the Chilean Corporations Act provides that whenever the board of directors of a public company convenes an ordinary meeting of the shareholders and solicits proxies for that meeting, or distributes information supporting its decisions, or other similar material, it is obligated to include as an annex to its said materials any pertinent comments and proposals that may have been made by shareholders owning 10% or more of the company’s voting shares who have requested that such comments and proposals be so included.
It is worth noting that a holder of ADSs will not be able to meet this requirement, and accordingly is not entitled to vote at shareholders’ meetings, because the shares underlying the ADSs will be registered in the name of the depositary. While a holder of ADSs is entitled to instruct the depositary as to how to vote the shares represented by such holder’s ADSs in accordance with the procedures provided for in the deposit agreement, a holder of ADSs will not be able to vote its ADSs or underlying shares directly at a shareholders’ meeting or to appoint a proxy to do so. In certain instances, a discretionary proxy may vote our shares underlying the ADSs if a holder of ADSs does not instruct the depositary with respect to voting. In addition, the vote of a holder of ADSs may not be necessary to approve certain matters since, under Chilean law, substantially all of the forms of corporate action can be approved with the votes of our controlling shareholder, Itaú Unibanco Holding, in a duly summoned shareholders’ meeting, except for certain matters requiring supermajority approval according to Chilean law.
DIVIDEND, LIQUIDATION AND APPRAISAL RIGHTS
Under the Chilean Corporations Act, Chilean companies are generally required to distribute at least 30% of their net income each year, unless otherwise agreed by the unanimous consent of our shareholders. In the event of any loss of capital or of the legal reserve, no dividends can be distributed so long as such loss is not recovered from earnings or otherwise. No dividends above the legal minimum can be distributed if doing so would result in the Bank exceeding its indebtedness ratio or our lending limits.
Dividends that are declared but not paid by the date set for payment at the time of declaration are adjusted from the date set for payment to the date such dividends are actually paid. The right to receive dividends lapses if it is not claimed within five years from the date the dividend is payable.
We may declare a dividend in cash or in shares. When a share dividend is declared above the legal minimum (which minimum must be paid in cash), our shareholders must be given the option to elect to receive cash. Our ADS holders may, in the absence of an effective registration statement under the Securities Act or an available exemption from the registration requirement thereunder, effectively be required to receive a dividend in cash.
In the event of our liquidation, the holders of fully paid shares would participate equally and ratably, in proportion to the number of paid-in shares held by them, in the assets available after payment of all creditors.
In accordance with the Chilean General Banking Act, our shareholders have no appraisal rights.
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APPROVAL OF FINANCIAL STATEMENTS
Our board of directors is required to submit our audited financial statements to the shareholders annually for their approval at the ordinary shareholders meeting. The approval or rejection of such financial statements is entirely within our shareholders’ discretion. If our shareholders reject our financial statements, our board of directors must submit new financial statements not later than 60 days from the date of such rejection. If our shareholders reject our new financial statements, our entire board of directors is deemed removed from office and a new board of directors is elected at the same meeting. Directors who individually approved such rejected financial statements are disqualified for re-election for the ensuing period.
REGISTRATIONS AND TRANSFERS
Our common shares are registered by an administration agent named DCV Registros S.A. This entity is responsible for our shareholders’ registry. In the case of jointly owned common shares, an attorney-in-fact must be appointed to represent the joint owners in dealings with us.
C. MATERIAL CONTRACTS
Not applicable.
D. EXCHANGE CONTROLS
The Central Bank of Chile is responsible for, among other things, monetary policies and exchange controls in Chile. Foreign investments must be registered with the Central Bank of Chile under the Ley Orgánica Constitucional del Banco Central de Chile, or the Chilean Central Bank Act and the Compendio de Normas de Cambios Internacionales, or the Central Bank Foreign Exchange Regulations or the Compendium. The Chilean Central Bank Act is a constitutional law requiring a “special majority” vote of the Chilean Congress to be modified. Until January 1, 2016, foreign investments could be registered with the Comité de Inversiones Extranjeras or the Foreign Investment Committee under Decree Law No. 600 of 1974, as amended or DL 600, as an alternative to the registration with the Central Bank of Chile. The Tax Reform, as amended by Law No. 20,899, however, repealed DL 600 as of January 1, 2016. As from 2016, the Foreign Investment Committee shall not be entitled to register new foreign investments. All foreign investments previously registered with the Foreign Investment Committee under DL 600, shall continue to be subject to the provisions of DL 600.
Pursuant to the Central Bank Foreign Exchange Regulations, investors are allowed to freely enter into any kind of foreign exchange transaction, the only restriction being that investors must inform the Central Bank of Chile about certain operations which they have conducted and must conduct certain operations through the Formal Exchange Market. The type of information related to equity investment that must be reported to the Central Bank of Chile by non-Chilean residents include the occurrence of, among other things, any assignment, substitution, changes in organizational status, change in the form of the investment, or material changes to the terms of the agreement governing the foreign currency transaction. Transactions that are required to be conducted through the Formal Exchange Market include transactions involving foreign commercial bank loans or Chilean company issued bonds, deposits made in Chilean financial institutions by foreign depositors, and equity investments and contributions of capital by foreign investors. The Formal Exchange Market entities through which transactions are conducted will report such transactions to the Central Bank of Chile.
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Pursuant to the provisions of Chapter XIV of the Compendium, it is not necessary to seek the Central Bank of Chile’s prior approval in order to establish an ADS facility. The Central Bank of Chile only requires that (i) any foreign investor acquiring shares to be converted into ADSs who brought funds into Chile for that purpose must bring those funds through an entity participating in the Formal Exchange Market, (ii) the entity participating in the Formal Exchange Market through which the funds are brought into Chile must report such investment to the Central Bank of Chile in the terms and conditions described below, (iii) all remittances of funds from Chile to the foreign investor upon the sale of common shares underlying ADSs, or from dividends or other distributions made in connection therewith must be made through the Formal Exchange Market, and (iv) all remittances of funds made to the foreign investor must be reported to the Central Bank of Chile in the terms and conditions described below.
When the shares to be converted into ADSs have been acquired by the foreign investor with funds brought into Chile through the Formal Exchange Market, a registration form shall be filed with the Department of International Financial Operations of the Central Bank of Chile by the foreign investor acting through an entity of the Formal Exchange Market on or before the date on which the foreign currency is brought into Chile. However, if the funds were brought into Chile with a different purpose and subsequently were used to acquire shares to be converted into ADSs, the Department of International Financial Operations of the Central Bank of Chile then shall be informed of such investment by the custodian within 10 days following the end of each 15-day period on which the Custodian has to deliver periodic reports to the Central Bank of Chile. If the funds were not brought into Chile, a registration form shall be filed with the Department of International Financial Operations of the Central Bank of Chile by the foreign investor itself or through an entity of the Formal Exchange Market within first 10 days of the month following the date on which the proceeds were used.
All payments in U.S. dollars in connection with the ADS facility made from Chile shall be made through the Formal Exchange Market. Pursuant to Chapter XIV of the Compendium no previous authorization from the Central Bank of Chile is required for the remittance of U.S. dollars obtained in the sale of the shares underlying ADSs or from dividends or other distributions made in connection therewith. The entity of the Formal Exchange Market participating in the transfer shall provide certain information to the Central Bank of Chile on the next banking business day. In the event there are payments made outside Chile, the foreign investor shall provide the relevant information to the Central Bank of Chile directly or through an entity of the Formal Exchange Market within the first 10 days of the month following the date on which the payment was made.
Under Chapter XIV of the Compendium, payments and remittances of funds from Chile are governed by the rules in effect at the time the payment or remittance is made. Therefore, any change made to Chilean laws and regulations after the date hereof will affect foreign investors who have acquired ADSs or shares to be converted into ADSs. There can be no assurance that further Central Bank of Chile regulations or legislative changes to the current foreign exchange control regime in Chile will not restrict or prevent foreign investors to purchase and remit abroad U.S. dollars, nor can there be any assessment to the duration or impact of such restrictions, if imposed.
This situation is different from the one governing ADSs issued by Chilean companies prior to April 19, 2001. Prior to such date, ADSs representing shares of stock of Chilean corporations were subject to Chapter XXVI of the Compendium, which addressed the issuance of ADSs by Chilean companies and foreign investment contracts entered into among the issuer of the shares, the Central Bank of Chile, and the depository pursuant to Article 47 of the Central Bank Act. Chapter XXVI of the Compendium and the corresponding foreign investment contracts granted foreign investors the vested right to acquire dollars with the proceeds obtained in the sale of the underlying shares of stock, or from dividends or other distributions made in connection therewith and remit them abroad. On April 19, 2001, the Central Bank of Chile eliminated Chapter XXVI of the Compendium and made the establishment of new ADS facilities subject to the provisions of Chapter XIV of the Compendium. All foreign investment contracts executed under the provisions of Chapter XXVI of the Compendium remain in full force and effect and are governed by the provisions in effect at the time of their execution.
The foregoing is a summary of the Central Bank of Chile’s regulations with respect to the issuance of ADSs representing common shares as in force and effect as of the date hereof. This summary does not purport to be complete and is qualified in its entirety by reference to the provisions of Chapter XIV of the Compendium, a copy of which is available from Itaú Chile upon request.
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There can be no assurance that further Central Bank of Chile regulations or legislative changes to the current foreign exchange control regime in Chile will not restrict or prevent foreign investors from purchasing or remitting U.S. dollars, or that further restrictions applicable to foreign investors which affect their ability to remit the capital, dividends or other benefits in connection with the shares of stock will not be imposed by the Central Bank of Chile in the future, nor can there be any assessment to the duration or impact of such restrictions, if imposed.
E. TAXATION
CHILEAN TAX CONSIDERATIONS
The following discussion is based on material Chilean income tax laws presently in force, including Ruling No. 324 of January 29, 1990, of the Chilean Internal Revenue Service and other applicable regulations and rulings. The discussion summarizes the material Chilean income tax consequences of an investment in the ADSs or common shares received in exchange for ADSs by an individual who is not domiciled in or a resident of Chile, or a legal entity that is not organized under the laws of Chile and does not have a permanent establishment located in Chile, which we refer to as a foreign holder. For purposes of Chilean law, given the amendments introduced by Law No. 21,210, as of March 1, 2020, an individual holder is a resident of Chile if he or she stays in Chile for more than 183 days in any given period of 12 months. An individual holder is domiciled in Chile if he or she resides in Chile with the purpose of staying in Chile (such purpose to be evidenced by circumstances such as the acceptance of employment within Chile or the relocation of his or her family to Chile). This discussion is not intended as tax advice to any particular investor, which can be rendered only in light of that investor’s particular tax situation.
Under Chilean law, provisions contained in statutes such as tax rates applicable to foreign holders, the computation of taxable income for Chilean purposes and the manner in which Chilean taxes are imposed and collected may be amended only by another statute. In addition, the Chilean tax authorities issue rulings and regulations of either general or specific application interpreting the provisions of Chilean tax law. Absent a retroactive law, Chilean taxes may not be assessed retroactively against taxpayers who act in good faith relying on such rulings and regulations, but Chilean tax authorities may change said rulings and regulations prospectively. There is no general income tax treaty in force between Chile and the United States (although a treaty has been signed, it has not yet been ratified by United States’ Congress and therefore is not yet effective).
CASH DIVIDENDS AND OTHER DISTRIBUTIONS
Cash dividends paid by us with respect to the ADSs or common shares held by a foreign holder will be subject to a 35% Chilean withholding tax, which is withheld and paid to the Chilean tax authorities by us. We refer to this as the Chilean withholding tax. A credit against the Chilean withholding tax may be available based on the level of corporate income tax, or first category tax, currently set at 27%, actually paid by us on the taxable income to which the dividend is imputed; however, this credit does not reduce the Chilean withholding tax on a one-for-one basis because it also increases the base on which the Chilean withholding tax is imposed.
Under Income Tax Law and given that the Bank is subject to the general taxation regime, the first category tax may be credited partially (65%). Nevertheless, the foreign holder shall be entitled to a full first category tax credit, if such holder is established or domiciled in, or is a resident of, a country with which Chile maintains a double taxation treaty in force or, until December 31, 2026, if Chile has signed a double taxation treaty with such country, even if not in force, and the holder duly credits his tax residency according to the regulations issued by the Chilean Internal Revenue Service on the matter, which are currently contained on Exempt Resolution No. 151, issued on December 9, 2020.
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Under Chilean income tax law, credits for the first category tax are allocated to the corresponding distribution at a factor calculated using the same rate as the first category tax rate in force at the end of the business year in which the profits were distributed, up to their complete depletion. The first category tax rate is currently 27%. However, profit distributions allocated to profits generated prior to January 1, 2017, must consider a weighted average credit rate for the first category tax effectively paid in the corresponding tax periods. Available foreign tax credits are also allocated to the distribution at a maximum rate of 8%, up to their depletion.
Distribution of book income in excess of retained taxable income is subject to the Chilean withholding tax, without any credit. In case the Chilean withholding is determined to be excessive at the end of the year, foreign holders will have rights to file for the reimbursement of the excess withholding.
The foregoing tax consequences apply to cash dividends paid by us. Dividend distributions made in property (other than common shares) will be subject to the same Chilean tax rules as cash dividends.
CAPITAL GAINS
Gains realized on the sale, exchange, or other disposition by a foreign holder of ADSs (or ADRs evidencing ADSs) will not be subject to Chilean taxation, provided that such disposition occurs outside Chile (confirmed by the Chilean IRS in ruling No. 1,307 of 2013). The deposit and withdrawal of common shares in exchange for ADSs will not be subject to any Chilean taxes.
Gains recognized on a sale or exchange of common shares received in exchange for ADSs (as distinguished from sales or exchanges of ADSs representing such common shares) by a foreign holder will be subject to the Chilean withholding tax cases with a rate of 35%, which must be withheld by the purchaser. However, if it is impossible to determine the taxable capital gain at the time of sale, a 10% withholding will be imposed on the total amount to be remitted abroad without any deductions as a provisional payment of the total tax due, the latter which must be declared, and any difference paid, by the seller.
The tax basis of common shares received in exchange for ADSs will be the acquisition value of such shares duly adjusted for local inflation. The valuation procedure set forth in the deposit agreement, which values common shares that are being exchanged at the highest price at which they trade on the Santiago Stock Exchange on the date of the exchange, generally will determine the acquisition value for this purpose. Consequently, the conversion of ADSs into common shares and sale of such common shares for the value established under the deposit agreement will not generate a capital gain subject to taxation in Chile, to the extent that the sale price is equal to the acquisition value at the time of redemption as discussed above. In the event the sale price exceeds the acquisition value of such shares determined, as explained above, such capital gain will be subject to the Chilean withholding tax.
The distribution and exercise of preemptive rights relating to the common shares will not be subject to Chilean taxation. Amounts received in exchange for the assignment of preemptive rights relating to the shares will be subject to the Chilean withholding tax with a rate of 35% over the gain realized by the foreign seller.
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Preferential Regime of Certain Capital Gains - Article 107 of the Chilean Income Tax Law
According to Article 107 of the Chilean Income Tax Law (as amended by Law No. 21,420), the sale and disposition of shares of Chilean Public Companies, which are significantly traded on a Chilean stock exchange is subject to a 10% capital gains tax, if the sale or disposition was made:
● | on a local stock exchange authorized by the CMF or in a tender offer process according to Title XXV of the Chilean Securities Market Act, so long as the shares (1) were purchased on a public stock exchange or in a tender offer process pursuant to Title XXV of the Chilean Securities Market Act, (2) are newly issued shares issued in a capital increase or incorporation of the corporation, (3) were acquired as a result of the exchange of convertible securities, or (4) were a contribution or redemption of securities in accordance with Article 109 of the Chilean Income Tax Law. In this case, gains exempted from Chilean taxes shall be calculated using the criteria set forth in the Chilean Income Tax Law; or |
● | within 90 days after the shares would have ceased to be significantly traded on the stock exchange. In such case, the gains exempted from Chilean taxes on capital gains will be up to the average price per share of the last 90 days in which the shares were significantly traded on the stock exchange. Any gains above the average price will be taxable capital gains. |
For purpose of the bullets above, shares are considered to be significantly traded on a Chilean stock exchange when they (1) are registered in the securities registry, (2) are registered in a Chilean Stock Exchange and (3) have an adjusted presence equal to or above 25% or have a “Market Maker,” according to the CMF Ruling No. 327 dated January 17, 2012. Currently, our shares are considered to be significantly traded on a Chilean stock exchange. Please note that Law No. 21,210 sets forth a new Article 110 of the Chilean Income Tax Law, pursuant to which if the shares are considered to be significantly traded on a Chilean Stock exchange due to a “Market Maker”, capital gains arising from the sale and disposition of such shares will be tax exempt only to the extent that such sale occurs within one year counted from the first public offer performed upon registration of the issuer or from the deposit of the regulations in the corresponding Financial Market Commission’s registry. Regarding issuers already registered or regulations already deposited as of this date, the one-year term will be counted as of March 1, 2020. See “Item 4. Chilean Banking Regulation and Supervision—Recent Tax Reforms and Future Changes in Chilean Tax Regulations.”
In the case of foreign holders, the applicable tax must be withheld by the acquirer or by the stockbroker or securities agent acting on behalf of the foreign seller. If it is impossible to determine the taxable capital gain at the time of sale, a 1% withholding will be imposed on the total amount to be remitted abroad without any deductions as a provisional payment of the total tax due, the latter which must be declared, and any difference paid, by the seller. Nonetheless, gains realized by Chilean or foreign “institutional investors”—as the term is defined in the Chilean Securities Market Law (Law No. 18,045) – on the disposition of such stock, provided all the requirements described in Article 107 are complied with, will not be subject to taxes in Chile.
OTHER CHILEAN TAXES
No Chilean inheritance, gift, or succession taxes apply to the transfer or disposition of the ADSs by a foreign holder, but such taxes generally will apply to the transfer at death or by a gift of common shares by a foreign holder. No Chilean stamp, issue, registration or similar taxes or duties apply to foreign holders of ADSs or common shares.
WITHHOLDING TAX CERTIFICATES
Upon request, we will provide to foreign holders appropriate documentation evidencing the payment of the Chilean withholding tax.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
This section is a summary of certain U.S. federal income tax consequences applicable to the acquisition, ownership, and disposition by a U.S. holder (as defined below) of ADSs or common shares. This summary applies to you only if you are
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a U.S. holder and you hold your ADSs or common shares as capital assets (generally, property held for investment) for U.S. federal income tax purposes. This summary is not a comprehensive description of all of the tax consequences that may be relevant to a decision to purchase, hold or dispose of our ADSs or common shares.
This section does not apply to you if you are a U.S. holder subject to special rules, including for example:
● | a dealer in securities; |
● | a trader in securities that elects to use a mark-to-market method of accounting for securities holdings; |
● | a regulated investment company; |
● | a real estate investment trust; |
● | a tax-exempt organization; |
● | a bank or other financial institution; |
● | a life insurance company; |
● | a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) or a partner, member or owner therein; |
● | a person liable for alternative minimum tax; |
● | a person that actually or constructively owns 10% or more of the bank’s shares by vote or value; |
● | a person that holds ADSs or common shares as part of a straddle, a hedging, conversion or constructive sale transaction; or |
● | a person whose functional currency is not the U.S. dollar. |
This section is based on the Internal Revenue Code of 1986, as amended, or the “Code”, its legislative history, existing and proposed U.S. Treasury Regulations, published rulings, and court decisions, all as of the date of this Annual Report. These laws are subject to change, possibly on a retroactive basis, and subject to differing interpretations. This summary does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift or alternative minimum tax considerations. On February 4, 2010, a comprehensive income tax treaty between the United States and Chile was signed, however such treaty has not yet been ratified by each country and therefore is not yet effective. It is unclear at this time when such treaty will be ratified by both countries. You should consult your tax advisor regarding the ongoing status of this treaty and, if ratified, the impact such treaty would have on the consequences described in this Annual Report.
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As used herein, the term “U.S. holder” means a beneficial owner of ADSs or common shares who is, for U.S. federal income tax purposes, any of the following:
● | an individual who is a citizen or resident of the United States, |
● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, |
● | an estate whose income is subject to U.S. federal income tax regardless of its source, or |
● | a trust if such trust validly elects to be treated as a United States person (as defined under the Code) for U.S. federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over its administration, and (2) one or more United States persons have the authority to control all of the substantial decisions of such trust. |
If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds the ADSs or common shares, the U.S. federal income tax treatment of a partner, member or owner of such entity or arrangement will generally depend on the status of the partner, member or owner and the tax treatment of such entity. A partner, member or owner in an entity holding the ADSs or common shares should consult its tax advisor with regard to the U.S. federal income tax treatment of its investment in the ADSs or common shares.
Prospective investors should consult their tax advisors as to the particular tax considerations applicable to them relating to the acquisition, ownership, and disposition of our ADSs or common shares, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.
OWNERSHIP OF ADSs
In general
The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the relevant deposit agreement and any related agreement will be performed in accordance with the terms set forth therein. For U.S. federal income tax purposes, if you are a holder of ADSs, you generally will be treated as the owner of our common shares represented by such ADSs. Accordingly, deposits or withdrawals of common shares for ADSs will not be subject to U.S. federal income tax. The U.S. Treasury Department has expressed concern that depositaries for depositary receipts, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. holders of such receipts or shares. These actions would also be inconsistent with claiming the reduced rate for “qualified dividend income” described below. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Chilean withholding taxes and sourcing rules described below and availability of the reduced rate for qualified dividend income could be affected by future actions that may be taken by the U.S. Treasury Department.
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Taxation of distributions
Subject to the PFIC rules discussed below, if you are a U.S. holder, the gross amount of any distribution of cash or property (including the net amount of Chilean taxes withheld, if any, on the distribution, after taking into account the credit for first category tax, as discussed above under “—Chilean Tax Considerations—Cash Dividends and Other Distributions”), paid by the bank out of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will be includable in gross income as ordinary dividend income. You must include the net amount of Chilean tax withheld, if any, from such distribution in gross income even though you do not in fact receive it. The dividend is taxable to you when you, in the case of common shares, or the depositary, in the case of ADSs, receive the dividend, actually or constructively. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the ADSs or common shares and thereafter as either long-term or short-term capital gain, depending on whether you have held our ADSs or common shares for more than one year at the time of the distribution. The bank does not currently maintain, and does not intend to maintain, calculations of our earnings and profits in accordance with U.S. federal income tax principles. Consequently, a U.S. holder should treat the entire amount of any distribution received as a dividend. As used below, the term “dividend” means a distribution that constitutes a dividend for U.S. federal income tax purposes.
If you are a non-corporate U.S. holder, dividends paid to you may constitute qualified dividend income and be taxable to you at a reduced rate provided that (1) certain holding period requirements are met, (2) the ADSs or common shares are considered to be readily tradable on an “established securities market” in the United States, and (3) the bank is not a PFIC. Under U.S. Internal Revenue Service, or IRS, authority, ADSs are considered for purposes of clause (2) above to be readily tradable on an established securities market in the United States because they are listed on the NYSE. Based on existing guidance, it is not entirely clear whether dividends received with respect to the common shares will be treated as qualified dividend income because the common shares are not themselves listed on a U.S. exchange. Moreover, as discussed below, under “—Passive Foreign Investment Company Rules,” we believe that we will not be treated as a PFIC for U.S. federal income tax purposes with respect to our 2022 and current taxable year, and based on our current expectations regarding the value and nature of our assets, the sources and nature of our income, relevant market and shareholder data and our current business plans, we do not anticipate becoming a PFIC in the future. However, there can be no assurance in this regard because the PFIC determination is made annually and is based on the portion of our assets (including goodwill) and income that is characterized as passive under the PFIC rules and our continued qualification for an exception to the PFIC rules for certain foreign banks. You should consult your tax advisor regarding the availability of the reduced rate for dividends paid with respect to our ADSs or common shares. Dividends paid by us generally will not be eligible for the dividends-received deduction available to certain U.S. corporations.
The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the Chilean peso payments made, determined at the spot Chilean peso/U.S. dollar rate on the date the dividend distribution is actually or constructively received by you or the depositary, regardless of whether the payment is in fact converted into U.S. dollars at that time. If the dividend is converted to U.S. dollars on the date of receipt, a U.S. holder generally will not recognize a foreign currency gain or loss. However, if the U.S. holder converts the Chilean pesos into U.S. dollars on a later date, the U.S. holder must include in income any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the difference between (1) the U.S. dollar value of the amount included in income when the dividend was received, and (2) the amount received on the conversion of the Chilean pesos into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the reduced tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. U.S. holders should consult their own tax advisors regarding the tax consequences to them if the bank pays dividends in Chilean pesos or any other non-U.S. currency. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution.
Subject to certain limitations (including minimum holding period requirements), the net amount of Chilean income tax withheld and paid over to the Chilean taxing authorities (after taking into account the credit for first category tax, when available) will generally be creditable or deductible against your U.S. federal income tax liability. However, if the amount of Chilean withholding tax initially withheld from a dividend is determined under applicable Chilean law to be excessive
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(as described above under “—Chilean Tax Considerations—Cash Dividends and Other Distributions”), the excess tax may not be creditable. Special rules apply in determining the foreign tax credit limitation with respect to dividends received by individuals that are subject to the reduced tax rate for qualified dividends. Dividends will be treated as income from sources outside the United States and will generally be categorized as “passive category income” for most U.S. holders for U.S. foreign tax credit purposes. A U.S. holder that does not elect to claim a credit for any foreign income taxes paid during the taxable year may instead claim a deduction in respect of such foreign income taxes, provided that the U.S. holder elects to deduct (rather than credit) all foreign income taxes paid or accrued during the taxable year. This discussion does not address special rules that apply to U.S. holders who, for purposes of determining the amount of the foreign tax credit, take foreign income taxes into account when accrued. The rules governing foreign tax credits are complex and a U.S. holder should consult its own tax advisor regarding the availability of foreign tax credits under its particular circumstances.
Taxation of dispositions
Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell, exchange or otherwise dispose of your ADSs or common shares in a taxable disposition, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your ADSs or common shares. Any such gain or loss will be long-term capital gain or loss if your ADSs or common shares have been held for more than one year. Certain non-corporate U.S. holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. The deductibility of capital losses is subject to limitations.
If you are a U.S. holder of our ADSs or common shares, the initial tax basis of your ADSs or common shares will be the U.S. dollar purchase price or, if purchased in Chilean pesos, the U.S. dollar value of the Chilean peso-denominated purchase price determined on the date of purchase. If the common shares are treated as being traded on an “established securities market,” a cash basis U.S. holder, or, if it elects, an accrual basis U.S. holder, will determine the U.S. dollar value of the cost of such common shares by translating the amount paid at the spot rate of exchange on the settlement date of the purchase. If you convert U.S. dollars to Chilean pesos and immediately use the currency to purchase common shares, such conversion generally will not result in taxable gain or loss to you.
The amount realized generally will be equal to the amount of cash or the fair market value of any other property received. With respect to the sale, exchange or other taxable disposition of our common shares, if the payment received is in Chilean pesos, the amount realized generally will be the U.S. dollar value of the payment received determined on (1) the date of receipt of payment in the case of a cash basis U.S. holder, and (2) the date of disposition in the case of an accrual basis U.S. holder. If our common shares are treated as being traded on an “established securities market,” a cash basis U.S. holder, or, if it elects, an accrual basis U.S. holder, will determine the U.S. dollar value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale.
If Chilean income tax is withheld on the sale, exchange or other taxable disposition of our ADSs or common shares, the amount realized by a U.S. holder will include the gross amount of the proceeds of that sale, exchange or other taxable disposition before deduction of the Chilean income tax. Capital gain or loss, if any, realized by a U.S. holder on the sale, exchange or other taxable disposition of ADSs or common shares generally will be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. Consequently, in the case of a gain from the disposition of a common share that is subject to Chilean income tax, the U.S. holder may not be able to benefit from the foreign tax credit for that Chilean income tax (i.e., because the gain from the disposition would be U.S. source), unless the U.S. holder can apply the credit against U.S. federal income tax payable on other income from foreign sources. Alternatively, the U.S. holder may take a deduction for the Chilean income tax, provided that the U.S. holder elects to deduct all foreign taxes paid or accrued during the taxable year. The rules governing foreign tax credits are complex and a U.S. holder should consult its own tax advisor regarding the availability of foreign tax credits under its particular circumstances.
Passive Foreign Investment Company Rules
Based upon our present regulatory status under Chilean law, current estimates, expectations and projections of the value and classification of our assets and the sources and nature of our income, we believe that the bank’s ADSs and common shares should not be treated as stock of a PFIC for U.S. federal income tax purposes for 2021, our current taxable year or in the foreseeable future, but this conclusion is a factual determination that is made annually and there can be no assurance
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that we will not be considered a PFIC for the current taxable year or any subsequent taxable year. Our actual PFIC status for our current taxable year ending December 31, 2022 will not be determinable until after the close of such taxable year and, accordingly, there is no guarantee that we will not be a PFIC for 2022.
In general, if you are a U.S. holder, the bank will be a PFIC with respect to you if for any taxable year in which you held the bank’s ADSs or common shares:
● | at least 75% of the bank’s gross income for the taxable year is “passive income;” or |
● | at least 50% of the value, determined on the basis of a quarterly average, of the bank’s assets is attributable to assets that produce or are held for the production of passive income. |
Passive income for this purpose generally includes dividends, interest, royalties, rents, annuities and gains from assets that produce passive income. We will be treated as owning our proportionate share of the assets and earnings and our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% by value of the stock of another corporation. If we are a PFIC for any year during which you hold our ADSs or common shares, you will generally be required to treat our ADSs or common shares as stock in a PFIC for all succeeding years during which you hold our ADSs or common shares, even if the Bank does not otherwise meet the PFIC tests for any such succeeding year.
We are unable to determine with certainty that we are not a PFIC because the application of the PFIC rules to banks is unclear under present U.S. federal income tax law. Banks generally derive a substantial part of their income from assets that are interest-bearing or that otherwise could be considered passive under the PFIC rules. The IRS has issued a notice and has proposed regulations, which together describe what is referred to as the “active bank exception.” For purposes of the PFIC test, the active bank exception excludes from passive income any income derived in the active conduct of a banking business by a qualifying foreign bank. The IRS notice and proposed regulations each have different requirements for qualifying as a foreign bank and for determining the banking income that may be excluded from passive income under the active bank exception. Moreover, the proposed regulations have been outstanding since 1995 and will not be effective unless finalized. Nevertheless, we believe that we should qualify as an active bank under the requirements of both the notice and the proposed regulations, assuming that the proposed regulations are finalized in their current form.
In addition, because a PFIC determination is a factual determination that must be made following the close of each taxable year and is based on, among other things, the market value of our assets and shares, and because the proposed regulations (although proposed to be retroactive in application) are not currently in force, our PFIC status may change and there can be no assurance that we will not be considered a PFIC for the current taxable year or any subsequent taxable year. If the bank is treated as a PFIC for any year in which you hold ADSs or common shares, and you are a U.S. holder that did not make a mark-to-market election, as described below, you will be subject to special rules with respect to:
● | any gain you realize on the sale, exchange or other taxable disposition (including certain pledges) of your ADSs or common shares; and |
● | any “excess distribution” that the bank makes to you (generally, any distributions to you during a single taxable year that are greater than 125% of the average annual distributions received by you in respect of the ADSs or common shares during the three preceding taxable years or, if shorter, your holding period for the ADSs or common shares). |
Under these rules:
● | the gain or excess distribution will be allocated ratably over your holding period for the ADSs or common shares; |
● | the amount allocated to the taxable year in which you realized the gain or excess distribution will be taxed as ordinary income; |
● | the amount allocated to each prior year, with certain exceptions, will be taxed at the highest tax rate in effect for that year; and |
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● | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ADSs or common shares cannot be treated as capital, even if you hold the ADSs or ordinary shares as capital assets. If we were a PFIC, certain subsidiaries and other entities in which we have a direct or indirect interest may also be PFICs, or Lower-tier PFICs. Under attribution rules, U.S. holders would be deemed to own their proportionate shares of Lower-tier PFICs and would be subject to U.S. federal income tax according to the rules described above on (1) certain distributions by a Lower-tier PFIC and (2) certain dispositions of shares of a Lower-tier PFIC, in each case as if the U.S. holder held such shares directly, even though such U.S. holder had not received the proceeds of those distributions or dispositions.
Alternatively, a U.S. holder of “marketable stock” (as defined below) may make a mark-to-market election. If you make this election, you will not be subject to the PFIC rules described above. Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of your ADSs or common shares at the end of the taxable year over your adjusted basis in your ADSs or common shares. These amounts of ordinary income will not be eligible for the reduced tax rates applicable to qualified dividend income or long-term capital gains. You will also be allowed to take an ordinary loss in respect of both (1) the excess, if any, of the adjusted basis of your ADSs or common shares over their fair market value at the end of the taxable year and (2) any loss realized on the actual sale or disposition of the ADSs or common shares, but in each case only to the extent of the net amount of previously included income as a result of the mark-to-market election. Any loss on an actual sale of your ADSs or common shares would be a capital loss to the extent it exceeds any previously included mark-to-market income not offset by previous ordinary deductions. Your basis in the ADSs or common shares will be adjusted to reflect any such income or loss amounts.
The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange, including the NYSE, or other market, as defined in applicable regulations. The ADSs are listed on the NYSE, and we expect, although no assurance can be given, that they will be regularly traded on the NYSE. It is unclear whether the common shares will be treated as “marketable stock” for purpose of the mark-to-market rules. In addition, the mark-to-market election generally would not be effective for any Lower-tier PFICs. You are urged to consult your own tax advisors regarding the U.S. federal income tax consequences that would arise if we are treated as a PFIC while you hold ADSs or common shares.
Notwithstanding any election you make with regard to the ADSs or common shares, dividends that you receive from us will not constitute qualified dividend income to you, and therefore are not eligible for the reduced tax rate described above, if the bank is a PFIC either in the taxable year of the distribution or any preceding taxable year during which you held our ADSs or common shares. Instead, you must include the gross amount of any such dividend paid by us out of the bank’s accumulated earnings and profits (as determined for U.S. federal income tax purposes) in your gross income, and these amounts will be subject to tax at rates applicable to ordinary income.
If you directly (and, in some cases, indirectly) own ADSs or common shares that are treated as PFIC shares with respect to you during a taxable year, you will be required to file an annual report for such taxable year.
In addition, if we are a PFIC, we do not intend to prepare or provide you with the information necessary to make a “qualified electing fund” election, which, like the mark-to-market election, is a means by which U.S. taxpayers may elect out of the tax treatment that generally applies to PFICs.
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE APPLICATION OF THE PFIC RULES TO YOUR INVESTMENT IN ADSS OR COMMON SHARES, INCLUDING THE AVAILABILITY AND ADVISABILITY OF MAKING AN ELECTION TO AVOID THE ADVERSE TAX CONSEQUENCES OF THE PFIC RULES SHOULD WE BE CONSIDERED A PFIC FOR ANY TAXABLE YEAR.
Possible Foreign Account Tax Compliance Act Withholding
Pursuant to Sections 1,471 through 1,474 of the Code and U.S. Treasury Regulations promulgated thereunder, commonly referred to as FATCA, a 30% withholding tax may, in the future, be imposed on all or some of the payments on the ADSs or our common stock to holders and non-U.S. financial institutions receiving payments on behalf of holders that, in each
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case, fail to comply with information reporting, certification and related requirements. Under current guidance, the amount to be withheld is not defined, and it is not yet clear whether or to what extent payments on the ADSs or shares of our common stock may be subject to this withholding tax. This withholding tax, if it applies, could apply to any payment made with respect to the ADSs or our common stock. Moreover, withholding may be imposed at any point in a chain of payments if a non-U.S. payee fails to comply with U.S. information reporting, certification and related requirements. Accordingly, ADSs or shares of our common stock held through a non-compliant institution may be subject to withholding even if the holder otherwise would not be subject to withholding. You should consult your tax advisor regarding potential U.S. federal withholding taxes imposed under FATCA.
If FATCA withholding is required, the bank will not be required to pay any additional amounts with respect to any amounts withheld. Certain beneficial owners of ADSs or our common stock that are not foreign financial institutions generally will be entitled to refunds of any amounts withheld under FATCA, but this may entail a significant administrative burden. U.S. holders are urged to consult their tax advisors regarding the application of FATCA to their ownership of the ADSs or our common stock.
Medicare tax
A 3.8% tax is imposed on the lesser of (1) modified adjusted gross income in excess of US$200,000 (US$250,000 for joint-filers), and (2) net investment income of certain individuals, trusts and estates. For these purposes, net investment income will generally include any dividends paid to you with respect to the ADSs or common shares and any gain realized on the sale, exchange or other taxable disposition of an ADS or common share.
Backup withholding tax and information reporting requirements
U.S. backup withholding tax and information reporting requirements generally apply to certain payments to certain non-exempt holders of ADSs or common shares. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, ADSs or common shares made within the United States, or by a U.S. payor or U.S. middleman, to a holder of ADSs or common shares, other than an exempt recipient. A payor will be required to withhold U.S. backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ADSs or common shares within the United States, or by a U.S. payor or U.S. middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such U.S. backup withholding tax requirements.
Backup withholding is not an additional tax. Any U.S. backup withholding tax generally will be allowed as a credit against the holder’s U.S. federal income tax liability or, to the extent the withheld amount exceeds such liability, refunded upon the timely filing of a U.S. federal income tax return.
Information with respect to foreign financial assets
Certain U.S. investors are subject to reporting requirements in connection with the holding of certain foreign financial assets, including our ADSs or common shares that they own, either directly or through certain foreign financial institutions, but only if the aggregate value of all of such assets exceeds US$50,000. Such investors are subject to penalties if they are required to submit such information to the IRS and fail to do so. You should consult your tax advisor regarding the application of these new reporting requirements to your particular situation.
The above description is not intended to constitute a complete analysis of all tax consequences relating to the purchase, ownership or disposition of the ADSs or common shares. Investors deciding on whether or not to invest in ADSs or common shares should consult their own tax advisors concerning the tax consequences of their particular situations.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
Not applicable.
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H. DOCUMENTS ON DISPLAY
We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by us with the SEC are available electronically at the SEC’s website: https://www.sec.gov. Copies of such material may also be inspected at the offices of the NYSE, 11 Wall Street, New York, New York 10005, on which our ADSs are listed. In addition, the SEC maintains a website that contains information filed electronically with the SEC, which can be accessed on the internet at http://www.sec.gov. The information contained on this website does not form part of this annual report on Form 20-F.
Additional documents concerning Itaú Chile which are referred to in this annual report may be inspected at our offices at Presidente Riesco 5537, Las Condes, Santiago, Chile.
I. SUBSIDIARY INFORMATION
Not applicable.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT FINANCIAL RISK
A. DEFINITION AND PRINCIPLES OF FINANCIAL RISK MANAGEMENT
Following the consummation of the Merger, as part of the integration process of the merged banks, we amended our risk management policies and procedures in order to adopt Itaú Unibanco’s risk policies and procedures according to Basel III framework.
While there is no single definition of financial risk, the Bank defines this risk as the possibility of an event having unexpected financial consequences on the institution. Although this definition involves a strong adversity component, it also involves an important opportunity component. Therefore, the purpose of financial risk management is not to eliminate this risk, but rather to limit its exposure to negative events in line with the risk appetite of the Bank’s shareholders and the regulations that govern the institution. The main financial risks to which the Bank is exposed are: Market Risk, Funding Liquidity Risk and Counterparty Risk.
1. Market Risk
Market risk is the exposure to economic gains or losses caused by movements in prices and market variables. This risk stems from the activities of the trading and Banking Books. The trading book includes non-derivative financial instruments that have been classified as trading instruments and all derivative positions that have not been classified as hedging instruments, according to accounting standards. The Banking Book includes all positions in derivative and non-derivative instruments that do not form part of the trading book. In the first case, it comes from activities intended to obtain short-term gains and from the intensive use of instruments recorded at fair value. In the second case, with a more long-term vision, it stems from commercial activities with products valued at amortized cost. The following section describes the main market risk factors to which the Bank and its subsidiaries are exposed:
a) Foreign Exchange Risk
Foreign exchange risk is the exposure to adverse movements in the exchange rates of currencies other than the base currency for all balance sheet and off-balance sheet positions. The main sources of foreign exchange risk are:
● | positions in foreign currency (FX) within the trading book; |
● | currency mismatches between assets and liabilities in the Banking Book; |
● | cash flow mismatches in different currencies; and |
● | structural positions produced from consolidating assets and liabilities from our foreign branches and subsidiaries denominated in currencies other than the Chilean peso. As a result, movements in exchange rates can generate volatility within the Bank’s income statement and equity. This effect is known as “translation risk.” |
b) Indexation Rate Risk
Indexation risk is the exposure to changes in indexed units (e.g. UF, UVR or others) linked to domestic or foreign currency in which any instruments, contracts or other transactions recorded in the statement of financial position may be denominated.
c) Interest Rate Risk
Interest rate risk is the exposure to movements in market interest rates. Changes in market interest rates can affect both the price of instruments recorded at fair value and the financial margin and other gains from the Banking Book such as fees. Fluctuations in interest rates also affect the Bank’s economic value.
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Interest rate risk can be represented by sensitivities to parallel and/or non-parallel yield shifts with the effects reflected in the prices of instruments, the financial margin, equity and economic value.
d) Volatility Risk
In addition to the exposure related to the underlying asset, issuing options has other risks. These risks arise from the non-linear relationship between the gain generated by the option and the price and level of the underlying factors, as well as exposure to changes in the price volatility of the underlying asset.
2. Funding Liquidity Risk
Funding liquidity risk is the exposure of the Bank and its subsidiaries to events that affect their ability to meet, in a timely manner and at reasonable costs, cash payment obligations arising from maturities of time deposits that are not renewed, withdrawals from demand accounts, maturities or settlements of derivatives, liquidations of investments or any other payment obligation.
Financial institutions are exposed to funding liquidity risk that is intrinsic to the role of intermediary that they play in the economy. In general, in financial markets demand for medium or long-term financing is usually much greater than the supply of funds for those terms while short-term financing is in considerable supply. In this sense, the role of intermediary played by financial institutions, which assume the risk of satisfying the demand for medium and long-term financing by brokering short-term available funds, is essential for the economy to function properly.
Appropriately managing funding liquidity risk not only allows contractual obligations to be met in a timely manner, but also enables:
● | The liquidation of positions, when it so decides, to occur without significant losses. |
● | The commercial and treasury activities of the Bank and its subsidiaries to be financed at competitive rates. |
● | The bank to avoid fines or regulatory penalties for not complying with regulations. |
3. Counterparty Risk
Counterparty risk is the risk of loss arising from non-compliance by a given counterparty, for whatever reason, in paying all or part of its obligations with the Bank under contractually agreed-upon conditions. This risk also includes a given counterparty’s inability to comply with obligations to settle derivative operations with bilateral risk.
The bank diversifies credit risk by placing concentration limits on different groups. Exposure to credit risk is evaluated using an individual analysis of the payment capacity of debtors and potential debtors to meet their obligations on time and as agreed.
B. FINANCIAL RISK MANAGEMENT
The process of managing financial risks is an ongoing, interlinked process that begins by identifying the risks to which the institution is exposed. After that, the Bank calculates the potential impact of that exposure on its profit or loss and limits it to a desired level. This involves actively monitoring risk and studying how it evolves over time. The risk management process can be subdivided into the following stages:
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1) Identification of Financial Risks
The Financial Risk Division has a highly technical team that is constantly monitoring the activities of the Bank and its subsidiaries to search for potential risks that have not been quantified and controlled. The bank’s Treasury Division serves as a first line of defense and plays an essential role in risk detection. Itaú Chile’s structure facilitates this role of identifying risks by preserving the division’s independence and ensuring active participation from management in creating/modifying products. After a risk is identified, it is quantified to see the potential impact on value creation within the institution.
2) Quantification and Control of Financial Risk Exposure
Once a risk has been identified, the Financial Risk Division is responsible for mapping the risk using the appropriate quantification metrics. Our board of directors and senior management are aware of the methods used to measure exposure and are responsible for setting the institution’s desired risk appetite levels (by business unit, associate, risk factor, area, etc.), always taking care to adhere to current regulations. The limit setting process is the instrument used to establish the equity available to each activity. Limit determination is, by design, a dynamic process that responds to the risk level considered acceptable by senior management.
The Financial Risk Division requests and proposes a system of quantitative and qualitative limits and warning levels that affect liquidity and market risk. This request must be authorized by the ALCO and our board of directors. It also regularly measures risk incurred, develops valuation tools and models, performs periodic stress testing, measures the degree of concentration with interbank counterparties, drafts policy and procedure handbooks and monitors authorized limits and warning levels, which are reviewed at least once per year.
The limit structure requires the division to carry out a process that includes the following steps:
● | Efficiently and comprehensively identify and outline the main types of financial risks incurred so that they are consistent with the running of the business and the defined strategy. |
● | Quantify and communicate to business areas the risk levels and profile that senior management considers acceptable in order to avoid incurring undesired risks. |
● | Give business areas flexibility to take on financial risks in an efficient and timely manner based on changes in market and business strategies, and always within the risk levels considered acceptable by the entity. |
● | Enable business generators to take on a cautious yet sufficient level of risk in order to achieve budgeted results. |
● | Outline the range of products and underlying assets with which each treasury unit can operate, based on characteristics like the model, valuation systems and liquidity of the instruments involved, among other factors. |
The metrics, by type of risk, used to quantify exposure or demonstrate that a risk has been materialized are detailed below:
a) Market Risk Metrics and Limits
Given the complexity and relevance of the portfolios managed by Itaú Chile, diverse instruments have been chosen to control market risk based on the characteristics of the financial products in the trading and Banking Books.
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The following regulatory and internal metrics are used to monitor and control market risk:
Regulatory Risk Measurements for the Trading and Banking Books
The bank measures regulatory exposure using the standardized methodology provided by the Central Bank of Chile (Chapter III-B-2.2 “Standards on Measuring and Controlling Market Risks in Banking Companies” of the Compendium of Financial Standards) and complemented by the CMF (Chapter 12-21 —Standards on Measuring and Controlling Market Risks and Chapter 21-7 – Determination of Assets Weighted by Market Risk), which is a risk measurement based on the standard methodology of the Basel Committee and is designed to quantify exposure to market risks for the banking and trading books.
The regulatory measurement of market risk in the trading book allows the Bank to estimate its potential losses from fluctuations standardized by the regulator. The regulatory limit is the sum of this risk (also known as market risk exposure or MRE) and 10% of the credit risk-weighted assets. This sum cannot be greater than the Bank’s minimum capital requirement.
The Bank, on an individual level, must continuously observe those limits and report to the CMF on a weekly basis its positions at risk and compliance with those limits (Regulatory Report CMF C41 and R07—Weekly information on market risk using standardized methodology). It must also inform the CMF each month on the consolidated positions at risk of subsidiaries and foreign subsidiaries (Regulatory Report CMF C43 and R07—Consolidated information on market risk using standardized methodology).
The following table details regulatory limit consumption for market risk, specifically for the trading book as of December 31, 2020, 2021 and 2022.
Trading Book
| As of December 31, |
| |||||
Limit Consumption |
| 2020 |
| 2021 |
| 2022 |
|
Market risk exposure (MRE) |
| 83.3 | % | 65.6 | % | 58.7 | % |
The regulatory risk measurement for the Banking Book (Regulatory Report CMF C40—Cashflows related to interest rate and indexation risk in the Banking Book) is used to estimate the Bank’s potential losses from standardized adverse movements in interest and exchange rates. For regulatory reporting purposes, the trading book includes the interest rate risk of derivatives managed in the Banking Book.
The standardized regulatory report for the Banking Book (Regulatory Report CMF C40) is used to estimate the Bank’s potential economic losses from standardized adverse movements in interest rates defined by the CMF. Currently, limits for short-term exposure (STE) to interest rate and indexation risk in the Banking Book must not exceed 35% of annual operating income (LTM moving period) and long-term limit consumption (LTE) must be less than 20% of the Bank’s minimum capital requirement.
The following table details regulatory limit consumption for market risk, specifically for the Banking Book as of December 31, 2020, 2021 and 2022:
Banking Book
| As of December 31, |
| |||||
Limit Consumption | 2020 |
| 2021 |
| 2022 |
| |
Short-term exposure to interest rate risk (STE) |
| 62.99 | % | 47.21 | % | 32.62 | % |
Long-term exposure to interest rate risk (LTE) |
| 63.86 | % | 23.21 | % | 6.45 | % |
217
Value at Risk (or the “VaR”) Calculation
Calculation of historical value at risk (non-parametric): This measurement provides the maximum potential economic loss at a certain confidence level and a given time horizon. Historical VaR, as opposed to statistical or parametric VaR, is based on the observed distribution of past returns, does not need to make assumptions of probability distributions (frequently normal distribution) and, therefore, does not need a mean (assumed 0), standard deviation and correlations across returns (parameters). The Bank uses a 99% confidence level and a time horizon of one day.
Calculation of volatility-adjusted historical value at risk (non-parametric): This measurement is based on the above and the profit and loss (P&L) vector is adjusted according to whether it is facing a period of greater or less volatility.
Our board of directors defines limits on the VaR (using the volatility-adjusted historical VaR method) that can be maintained, which is monitored on a daily basis. The measurement is also subjected to back testing to verify that the daily losses that effectively occurred do not exceed VaR more than once every 100 days. The result is monitored daily to confirm the validity of the assumptions, hypothesis and the adequacy of the parameters and risk factors used in the VaR calculation. The Bank in turn calculates VaR for sub/portfolios and risk factors, which allows it to quickly detect pockets of risk. Since VaR does not consider stress scenarios, it is complemented by stress testing. Specifically, the Bank uses metrics that consider prospective, historical and standardized scenarios.
(i) Limitations of VaR Model
Although the VaR model is one of the models most frequently used by the local financial industry, like any model it has limitations that must be considered:
● | It does not consider the expected loss in the event that the portfolio return is above the confidence level defined in the VaR. In other words, in the Bank’s case it does not reflect what happens in the 1% of the tail. This is mitigated with the stress measures detailed below. |
● | It does not consider intraday results, but only reflects the potential loss given current positions. |
● | It does not take into account potential changes in the dynamics of movements in market variables (i.e. potential changes in the matrix of variance and covariance). |
(ii) Sensitivity Measurements
Sensitivity measurements are based on estimated scenarios for positions in the trading and Banking Books.
218
Trading Book Positions by Risk Factor: The table below sets forth the trading book positions by risk factor as of December 31, 2020, 2021 and 2022:
| Position | |||||
Risk Factor / Products |
| 2020 |
| 2021 |
| 2022 |
| millions of Ch$ | millions of Ch$ | millions of Ch$ | |||
CLP rates |
|
|
|
|
|
|
Derivatives |
| 170 |
| (10) |
| (26) |
Investments |
| 0 |
| 0 |
| 0 |
CLF rates | ||||||
Derivatives |
| (123) |
| 0 |
| 22 |
Investments |
| — |
| 37 |
| — |
COP rates | ||||||
Derivatives |
| 3 |
| 85 |
| 34 |
Investments |
| (22) |
| (70) |
| — |
UVR rates | ||||||
Derivatives |
| 2 |
| 0 |
| 0 |
Investments |
| (1) |
| (408) |
| — |
USD rates |
| (27) |
| 135 |
| 48 |
OM rates |
| 0 |
| 0 |
| 0 |
FX (exchange rate) |
| 874 |
| (9) |
| (823) |
Inflation (CLF) |
| — |
| — |
| — |
Optionality (Gamma, Vega) |
| 16 |
| 5 |
| 3 |
Trading book positions by risk factor correspond to the fair and equivalent nominal value (exchange rate or “FX,” inflation and optionality) of the portfolios within the trading book. The trading book is made up of the financial assets presented in Notes 6 and 8, and financial liabilities presented in Note 8, all of them included in our consolidated financial statements. The currency position incorporates the amortized cost positions from the statement of financial position, excluding the positions related to the foreign investment with their respective hedges. The currency positions in the trading book have limits for each currency.
Banking book by risk factor:
FX and Inflation Positions in Banking Book:
The following table sets forth the foreign currency and inflation positions in the Banking Book as of December 31, 2020, 2021 and 2022:
|
| Year End |
| Year End |
| Year End |
2020 | 2021 | 2022 | ||||
CLF Position |
| 2,227,846 |
| 2,219,300 |
| 1,258,812 |
FX Position |
| (5,824) |
| 675 |
| 12,498 |
Positions in currencies other than Chilean pesos and exposure to indexation are classified by book and by their effect on the Bank’s financial statements, reflecting the spot exposure to each risk factor. It is important to highlight the impact of structural exchange rate risk arising from the Bank’s positions in currencies other than the Chilean peso related primarily to the consolidation of investments in subsidiaries or affiliates and the results and hedges of these investments. The process of managing structural exchange rate risk is dynamic and attempts to limit the impact of currency depreciation, thus optimizing the financial cost of hedges. The general policy for managing this risk is to finance them in the currency of the investment provided that the depth of the market so allows, and the cost is justified by the expected depreciation. One-time hedges are also taken out when the Bank considers that any currency may weaken beyond market expectations with respect to the Chilean peso. As of December 31, 2022, greater ongoing exposure was concentrated in Colombian pesos (approximately US$576.4 million). The Bank can hedge part of these positions using currency derivatives. The currency positions in the Banking Book have limits for each currency.
219
Structural Interest Rate Position in Banking Book (Interest Rate Gap):
Structural interest rate risk is measured using representation by risk factor of cash flows expressed at fair value, assigned at the repricing date and by currency. This methodology facilitates the detection of concentrations of interest rate risk over different time frames. All positions in and outside the statement of financial position must be ungrouped into cash flows and placed at the repricing /maturity point. For those accounts that do not have contractual maturities, an internal model is used to analyze and estimate their durations and sensitivities.
The following tables show the Banking Book positions for the most important currencies in which the Bank does business as of December 31, 2020, 2021 and 2022 (products valued at amortized cost and fair value through other comprehensive income instruments and derivatives valued at fair value).
The exposures presented are the present values resulting from: (1) Model contract flows according to their behaviors that affect market risk exposure. Example: prepayment, renewal, etc. (2) Discounting the cash flows of instruments accounted for at amortized cost by the opportunity cost. (3) Discounting the cash flows of instruments accounted for through mark to market at market rates.
| Year-End 2020 | |||||||||
|
|
| 3 Months to 1 |
| 1 to 3 |
| More than | |||
CLP Position | <1 Month | 1 - 3 Months | Year | 1 to 3 Years | Years | |||||
ASSETS |
| 4,885,890 |
| 845,251 |
| 2,289,124 |
| 2,252,567 |
| 1,918,038 |
Cash |
| 1,232,012 | — | — | — | — | ||||
Investments under resale agreements |
| 25,500 | 40,648 | 43,946 | — | — | ||||
Loans to customers, net |
| 1,232,959 | 786,017 | 1,992,513 | 1,950,752 | 1,047,865 | ||||
Financial instruments at FVTOCI |
| 1,168,120 | 18,586 | 252,665 | 301,815 | 870,173 | ||||
Financial instruments at amortized cost |
| — | — | — | — | — | ||||
PP&E and intangible assets |
| 732,017 | — | — | — | — | ||||
Other assets |
| 495,282 | — | — | — | — | ||||
LIABILITIES |
| (10,169,966) |
| (1,637,063) |
| (2,477,284) |
| (661,668) |
| (1,950,515) |
Checking accounts and demand deposits |
| (3,198,645) |
| — | — | — | — | |||
Time deposits and other time liabilities |
| (3,660,382) |
| (1,627,063) |
| (2,365,174) |
| (432,449) |
| — |
Debt instruments issued |
| — |
| (10,000) |
| (112,110) |
| (229,219) |
| (107,110) |
Other liabilities |
| (690,254) |
| — | — | — | — | |||
Capital and reserves |
| (2,315,411) |
| — | — | — | — | |||
Repos |
| (305,274) |
| — |
| — |
| — |
| (1,843,405) |
DERIVATIVES |
| 830,637 |
| 1,429,392 |
| 516,336 |
| 272,765 |
| 24,985 |
Financial derivative instruments |
| 830,637 |
| 1,429,392 |
| 516,336 |
| 272,765 |
| 24,985 |
220
| Year-End 2020 | |||||||||
3 Months to 1 | 1 to 3 | More than | ||||||||
CLF Position |
| <1 Month |
| 1 - 3 Months |
| 1 Year | 1 to 3 Years |
| Years | |
ASSETS | 539,005 | 502,506 | 1,683,797 | 1,586,457 | 6,989,722 | |||||
Cash |
| — | — | — | — | — | ||||
Investments under resale agreements |
| — | — | — | — | — | ||||
Loans to customers, net |
| 525,727 | 482,619 | 1,579,094 | 1,438,439 | 6,594,948 | ||||
Financial instruments at FVTOCI |
| 1,395 | 19,887 | 104,703 | 148,018 | 394,774 | ||||
Financial instruments at amortized cost |
| — | — | — | — | — | ||||
PP&E and intangible assets |
| — | — | — | — | — | ||||
Other assets |
| 11,883 | — | — | — | — | ||||
LIABILITIES |
| (223,471) | (14,789) | (284,994) | (768,465) | (5,616,884) | ||||
Checking accounts and demand deposits |
| (13,448) |
| — |
| — |
| — |
| — |
Time deposits and other time liabilities |
| (5,628) | (6,575) | (2,139) | (21,493) | (638,607) | ||||
Debt instruments issued |
| (44,561) | (8,214) | (282,855) | (746,972) | (4,978,277) | ||||
Other liabilities |
| (159,834) | — | — | — | — | ||||
Capital and reserves | — | — | — | — | — | |||||
Repos | — | — | — | — | — | |||||
DERIVATIVES | (1,263,538) | (795,275) | (662,416) | (444,847) | 1,001,038 | |||||
Financial derivative instruments | (1,263,538) | (795,275) | (662,416) | (444,847) | 1,001,038 | |||||
Year-End 2020 | ||||||||||
|
|
| 3 Months to |
| 1 to 3 |
| More than | |||
COP and UVR Position | <1 Month |
| 1 - 3 Months | 1 Year | 1 to 3 Years | Years | ||||
ASSETS |
| 1,869,283 | 646,379 | 727,989 | 1,211,813 | 684,493 | ||||
Cash |
| 248,360 | — | — | — | — | ||||
Investments under resale agreements |
| 14,064 | — | — | — | — | ||||
Loans to customers, net |
| 1,297,544 | 562,571 | 580,659 | 618,423 | 551,642 | ||||
Financial instruments at FVTOCI |
| 6,487 | 36,183 | 90,616 | 416,823 | 5,371 | ||||
Financial instruments at amortized cost |
| 41,277 | 26,643 | 123 | 355 | 2,072 | ||||
PP&E and intangible assets |
| 2,089 | 20,982 | 56,591 | 176,212 | 125,408 | ||||
Other assets |
| 259,462 | — | — | — | — | ||||
LIABILITIES |
| (2,603,311) | (271,657) | (661,856) | (384,765) | (415,621) | ||||
Checking accounts and demand deposits |
| (1,959,635) |
| — |
| — |
| — |
| — |
Time deposits and other time liabilities |
| (201,206) | (263,924) | (606,142) | (210,874) | (74,293) | ||||
Debt instruments issued |
| (40,351) | (7,733) | (55,714) | (173,891) | (341,328) | ||||
Other liabilities |
| (965,043) | — | — | — | — | ||||
Capital and reserves |
| 562,924 | — | — | — | — | ||||
Repos |
| — | — | — | — | — | ||||
DERIVATIVES |
| 180,149 | (743,503) | (74,962) | (180,337) | (64,380) | ||||
Financial derivative instruments | 180,149 | (743,503) | (74,962) | (180,337) | (64,380) | |||||
221
Year-End 2020 | ||||||||||
|
| 3 Months to |
|
| More than 3 | |||||
FX Position | <1 Month |
| 1 - 3 Months |
| 1 Year |
| 1 to 3 Years |
| Years | |
ASSETS |
| 2,557,632 | 578,295 | 894,517 | 124,463 | 201,010 | ||||
Cash |
| 1,390,180 | — | — | — | — | ||||
Investments under resale agreements |
| 91,215 | — | — | — | — | ||||
Loans to customers, net |
| 565,954 | 578,263 | 892,605 | 124,457 | 200,912 | ||||
Financial instruments at FVTOCI |
| — | 32 | 1,912 | 6 | 98 | ||||
Financial instruments at amortized cost |
| — | — | — | — | — | ||||
PP&E and intangible assets |
| — | — | — | — | — | ||||
Other assets |
| 510,283 | — | — | — | — | ||||
LIABILITIES |
| (2,190,757) | (884,847) | (939,503) | (3,591) | — | ||||
Checking accounts and demand deposits | (494,283) |
| — |
| — | — | — | |||
Time deposits and other time liabilities |
| (728,796) | (404,727) | (228,942) | (49) | — | ||||
Debt instruments issued |
| — | (123,708) | — | — | — | ||||
Other liabilities |
| (917,957) | (356,412) | (710,561) | (3,542) | — | ||||
Capital and reserves |
| (49,721) | — | — | — | — | ||||
Repos |
| — | — | — | — | — | ||||
DERIVATIVES |
| 103,599 | (24,269) | 87,848 | (24,433) | (12,182) | ||||
Financial derivative instruments |
| 103,599 | (24,269) | 87,848 | (24,433) | (12,182) | ||||
Year-End 2021 | ||||||||||
| 3 Months to 1 | More than 3 | ||||||||
CLP Position |
| <1 Month |
| 1 - 3 Months |
| Year |
| 1 to 3 Years |
| Years |
ASSETS |
| 5,650,471 | 1,515,577 | 2,131,454 | 2,161,385 | 1,408,683 | ||||
Cash |
| 1,307,604 | — | — | — | — | ||||
Investments under resale agreements |
| 82,324 | 46,067 | 66,399 | — | — | ||||
Loans to customers, net |
| 1,548,724 | 894,516 | 2,017,938 | 2,059,750 | 892,938 | ||||
Financial instruments at FVTOCI |
| 1,315,413 | 574,994 | 47,116 | 101,635 | 515,744 | ||||
Financial instruments at amortized cost |
| — | — | — | — | — | ||||
PP&E and intangible assets |
| 776,121 | — | — | — | — | ||||
Other assets |
| 620,285 | — | — | — | 1 | ||||
LIABILITIES |
| (7,652,765) | (2,034,059) | (2,487,949) | (5,147,050) | (63,157) | ||||
Checking accounts and demand deposits |
| (356,887) |
| (193,090) | (868,903) | (2,317,075) | — | |||
Time deposits and other time liabilities |
| (3,367,769) | (1,415,329) | (1,508,535) | (15,500) | — | ||||
Debt instruments issued |
| — | (7,500) | (110,511) | (221,022) | (63,157) | ||||
Other liabilities |
| (480,244) | (418,140) | — | — | — | ||||
Capital and reserves |
| (3,277,800) | — | — | — | — | ||||
Repos |
| (170,065) | — | — | (2,593,452) | — | ||||
DERIVATIVES |
| 543,341 | 749,393 | 383,356 | 224,949 | 0 | ||||
Financial derivative instruments |
| 543,341 | 749,393 | 383,356 | 224,949 | 0 | ||||
222
Year-End 2021 | ||||||||||
|
|
| 3 Months to |
|
| More than 3 | ||||
CLF Position | <1 Month |
| 1 - 3 Months |
| 1 Year | 1 to 3 Years |
| Years | ||
ASSETS |
| 510,552 | 441,744 | 1,857,539 | 2,528,482 | 6,554,363 | ||||
Cash |
| — | — | — | — | — | ||||
Investments under resale agreements |
| — | — | — | — | — | ||||
Loans to customers, net |
| 498,476 | 438,479 | 1,822,195 | 2,447,397 | 6,011,688 | ||||
Financial instruments at FVTOCI |
| 7,655 | 3,265 | 35,344 | 81,085 | 542,672 | ||||
Financial instruments at amortized cost |
| — | — | — | — | — | ||||
PP&E and intangible assets |
| — | — | — | — | — | ||||
Other assets |
| 4,421 | — | — | — | 3 | ||||
LIABILITIES |
| (315,900) | (16,842) | (479,329) | (984,178) | (6,147,733) | ||||
Checking accounts and demand deposits |
| (21,653) |
| — |
| — |
| — |
| — |
Time deposits and other time liabilities |
| (5,222) | (7,464) | (40,557) | (67,449) | (665,663) | ||||
Debt instruments issued |
| (44,453) | (9,378) | (438,772) | (916,728) | (5,482,070) | ||||
Other liabilities |
| (244,572) | — | — | — | — | ||||
Capital and reserves |
| — | — | — | — | — | ||||
Repos |
| — | — | — | — | — | ||||
DERIVATIVES |
| (969,261) | (906,260) | (517,836) | (795,785) | 1,017,743 | ||||
Financial derivative instruments |
| (969,261) | (906,260) | (517,836) | (795,785) | 1,017,743 | ||||
Year-End 2021 | ||||||||||
|
| 3 Months to |
|
| More than 3 | |||||
COP and UVR Position | <1 Month |
| 1 - 3 Months | 1 Year | 1 to 3 Years | Years | ||||
ASSETS |
| 1,275,676 | 849,004 | 1,107,691 | 950,109 | 688,228 | ||||
Cash |
| 201,596 | — | — | — | — | ||||
Investments under resale agreements |
| 28,392 | — | — | — | — | ||||
Loans to customers, net |
| 742,853 | 770,763 | 994,123 | 702,720 | 562,545 | ||||
Financial instruments at FVTOCI |
| 14,884 | 28,311 | 33,450 | 221,173 | 0 | ||||
Financial instruments at amortized cost |
| 21,097 | 49,598 | 70,521 | 337 | 1,662 | ||||
PP&E and intangible assets |
| 421 | 332 | 9,597 | 25,879 | 124,021 | ||||
Other assets |
| 266,435 | — | — | — | — | ||||
LIABILITIES |
| (4,134,791) | (285,410) | (525,272) | (413,688) | (351,245) | ||||
Checking accounts and demand deposits |
| (2,556,223) |
| — |
| (0) |
| (0) |
| — |
Time deposits and other time liabilities |
| (274,984) | (246,086) | (412,658) | (219,410) | (59,076) | ||||
Debt instruments issued |
| (1,281) | (39,324) | (112,589) | (194,234) | (291,830) | ||||
Other liabilities |
| (751,403) | — | (25) | (44) | (338) | ||||
Capital and reserves |
| (550,900) | — | — | — | — | ||||
Repos |
| — | — | — | — | — | ||||
DERIVATIVES |
| (393,301) | 536,996 | (164,788) | 148,342 | (172,999) | ||||
Financial derivative instruments |
| (393,301) | 536,996 | (164,788) | 148,342 | (172,999) | ||||
223
Year-End 2021 | ||||||||||
|
| 3 Months to |
|
| More than 3 | |||||
FX Position | <1 Month |
| 1 - 3 Months |
| 1 Year |
| 1 to 3 Years |
| Years | |
ASSETS |
| 3,387,014 | 720,611 | 1,321,122 | 150,411 | 155,892 | ||||
Cash |
| 1,721,240 | — | — | — | — | ||||
Investments under resale agreements |
| 52,498 | — | — | — | — | ||||
Loans to customers, net |
| 772,297 | 720,609 | 1,304,238 | 147,484 | 155,779 | ||||
Financial instruments at FVTOCI |
| — | 2 | 16,883 | 7 | 113 | ||||
Financial instruments at amortized cost |
| — | — | — | — | — | ||||
PP&E and intangible assets |
| — | — | — | — | — | ||||
Other assets |
| 840,979 | — | — | 2,921 | — | ||||
LIABILITIES |
| (2,333,456) | (866,228) | (1,705,776) | (335,808) | — | ||||
Checking accounts and demand deposits | (157,617) | (81,252) | (561,066) | (335,808) | — | |||||
Time deposits and other time liabilities |
| (1,006,725) | (491,787) | (265,081) | — | — | ||||
Debt instruments issued |
| — | (145,433) | — | — | — | ||||
Other liabilities |
| (1,095,157) | (147,756) | (879,630) | — | — | ||||
Capital and reserves |
| (73,958) | — | — | — | — | ||||
Repos |
| — | — | — | — | — | ||||
DERIVATIVES |
| 220,633 | 416,053 | 737,494 | 79,486 | 155,436 | ||||
Financial derivative instruments |
| 220,633 | 416,053 | 737,494 | 79,486 | 155,436 | ||||
Year-End 2022 | ||||||||||
|
| 3 Months to 1 |
|
| More than 3 | |||||
CLP Position | <1 Month |
| 1 - 3 Months |
| Year | 1 to 3 Years |
| Years | ||
ASSETS |
| 7,157,674 | 1,765,564 | 3,190,416 | 2,741,373 | 829,155 | ||||
Cash |
| 1,472,038 | — | — | — | — | ||||
Repurchase agreements |
| 61,240 | 10,676 | — | — | — | ||||
Loans to customers, net |
| 2,226,803 | 1,239,225 | 2,573,352 | 2,205,503 | 813,173 | ||||
Financial assets available for sale |
| 1,720,702 | 515,663 | 617,064 | 535,870 | 15,982 | ||||
Financial assets held to maturity |
| — | — | — | — | — | ||||
PP&E and intangible assets |
| 789,458 | — | — | — | — | ||||
Other assets |
| 887,433 | — | — | — | — | ||||
LIABILITIES |
| (8,779,726) | (1,878,165) | (2,369,324) | (4,975,733) | (40,601) | ||||
Checking accounts and demand deposits |
| (532,711) | (130,949) | (589,269) | (1,571,383) | — | ||||
Savings accounts and time deposits |
| (4,006,263) | (1,742,216) | (1,707,137) | (322,440) | — | ||||
Debt issued |
| — | (5,000) | (72,918) | (74,418) | (40,601) | ||||
Other liabilities |
| (728,500) | — | — | (3,007,492) | — | ||||
Capital and reserves |
| (3,320,109) | — | — | — | — | ||||
Repos |
| (192,143) | — | — | — | — | ||||
DERIVATIVES |
| 764,227 | 1,201,861 | (36,443) | 173,728 | (40,003) | ||||
Financial derivative instruments |
| 764,227 | 1,201,861 | (36,443) | 173,728 | (40,003) | ||||
224
| Year-End 2022 | |||||||||
3 Months to | More than 3 | |||||||||
CLF Position |
| <1 Month |
| 1 - 3 Months |
| 1 Year |
| 1 to 3 Years |
| Years |
ASSETS |
| 737,276 | 663,488 | 1,828,641 | 3,312,304 | 5,904,065 | ||||
Cash |
| — | — | — | — | — | ||||
Repurchase agreements |
| — | — | — | — | — | ||||
Loans to customers, net |
| 732,507 | 655,264 | 1,826,039 | 3,069,278 | 5,707,782 | ||||
Financial assets available for sale |
| 4 | 8,224 | 2,602 | 243,026 | 196,283 | ||||
Financial assets held to maturity |
| — | — | — | — | — | ||||
PP&E and intangible assets |
| — | — | — | — | — | ||||
Other assets |
| 4,765 | — | — | — | — | ||||
LIABILITIES |
| (313,228) | (355,245) | (735,452) | (1,591,910) | (7,370,234) | ||||
Checking accounts and demand deposits |
| (27,427) | — | — | — | — | ||||
Savings accounts and time deposits |
| (83,480) | (340,430) | (417,389) | (104,183) | (754,139) | ||||
Debt issued |
| (47,151) | (14,576) | (316,309) | (1,484,420) | (6,609,073) | ||||
Other liabilities |
| (155,170) | (239) | (1,754) | (3,307) | (7,022) | ||||
Capital and reserves |
| — | — | — | — | — | ||||
Repos |
| — | — | — | — | — | ||||
DERIVATIVES |
| (1,641,889) | (854,681) | (427,100) | (170,723) | 1,536,175 | ||||
Financial derivative instruments |
| (1,641,889) | (854,681) | (427,100) | (170,723) | 1,536,175 | ||||
| Year-End 2022 | |||||||||
3 Months to | More than 3 | |||||||||
COP & UVR Position |
| <1 Month |
| 1 - 3 Months |
| 1 Year |
| 1 to 3 Years |
| Years |
ASSETS |
| 1,379,156 | 800,792 | 611,597 | 887,026 | 402,518 | ||||
Cash |
| 184,414 | — | — | — | — | ||||
Repurchase agreements |
| 10,565 | — | — | — | — | ||||
Loans to customers, net |
| 901,517 | 717,391 | 522,745 | 627,395 | 300,119 | ||||
Financial assets available for sale |
| 15,368 | 7,641 | 9,481 | 83,490 | 16,118 | ||||
Financial assets held to maturity |
| 13 | 74,863 | 70,614 | 83,093 | 54,334 | ||||
PP&E and intangible assets |
| 4,648 | 897 | 8,757 | 93,048 | 31,947 | ||||
Other assets |
| 262,631 | — | — | — | — | ||||
LIABILITIES |
| (2,342,358) | (378,921) | (697,445) | (585,876) | (138,008) | ||||
Checking accounts and demand deposits |
| (1,086,316) | (32,265) | (135,063) | (155,931) | — | ||||
Savings accounts and time deposits |
| (170,516) | (294,678) | (510,638) | (272,685) | (31,308) | ||||
Debt issued |
| (1,618) | (51,978) | (51,744) | (157,260) | (106,700) | ||||
Other liabilities |
| (559,083) | — | — | — | — | ||||
Capital and reserves |
| (524,825) | — | — | — | — | ||||
Repos |
| — | — | — | — | — | ||||
DERIVATIVES |
| (57,442) | (89,697) | (143,830) | (95,323) | (29,160) | ||||
Financial derivative instruments |
| (57,442) | (89,697) | (143,830) | (95,323) | (29,160) | ||||
225
| Year-End 2022 | |||||||||
3 Months to | More than 3 | |||||||||
FX Position |
| <1 Month |
| 1 - 3 Months |
| 1 Year |
| 1 to 3 Years |
| Years |
ASSETS |
| 2,997,252 | 720,242 | 1,207,912 | 182,464 | 308,802 | ||||
Cash |
| 1,164,016 | — | — | — | — | ||||
Repurchase agreements |
| 10,165 | — | — | — | — | ||||
Loans to customers, net |
| 1,158,531 | 711,697 | 1,158,533 | 163,535 | 138,030 | ||||
Financial assets available for sale |
| 3,216 | 8,545 | 49,379 | 18,929 | 170,772 | ||||
Financial assets held to maturity |
| — | — | — | — | — | ||||
PP&E and intangible assets |
| — | — | — | — | — | ||||
Other assets |
| 661,324 | — | — | — | — | ||||
LIABILITIES |
| (2,821,489) | (937,125) | (1,486,713) | (322,632) | (7,610) | ||||
Checking accounts and demand deposits |
| (151,379) | (66,626) | (502,777) | (286,617) | (7,610) | ||||
Savings accounts and time deposits |
| (1,054,468) | (530,602) | (262,950) | (10,365) | — | ||||
Debt issued |
| — | (149,085) | — | — | — | ||||
Other liabilities |
| (1,568,967) | (190,812) | (720,986) | (25,650) | — | ||||
Capital and reserves |
| (38,554) | — | — | — | — | ||||
Repos |
| (8,121) | — | — | — | — | ||||
DERIVATIVES |
| (312,992) | 16,018 | 417,240 | (10,369) | (163,181) | ||||
Financial derivative instruments |
| (312,992) | 16,018 | 417,240 | (10,369) | (163,181) | ||||
The following table summarizes the aforementioned exposures:
|
| 2020 |
| 2021 |
| 2022 |
| Exposure | Exposure | Exposure | |||
|
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
CLP |
| (1,631,511) |
| (2,616,370) |
| (295,997) |
CLF |
| 2,227,846 |
| 1,777,299 |
| 521,487 |
COP-UVR |
| (80,286) |
| (885,449) |
| (476,971) |
FX |
| 467,782 |
| 2,102,883 |
| (212,181) |
(iii) Sensitivity Analysis for Financial Risks
The bank uses stress testing as a sensitivity analysis tool in order to control financial risk. This measurement is performed separately for each class of financial instruments.
Sensitivity is estimated using the DV01 indicator, which is a measure of sensitivity of the portfolio results considering an increase of one basis point (0.01%) of the zero-coupon interest rate of the financial risk factor for different maturities in annualized terms.
The following tables present an estimate of the likely, but reasonable impact of the fluctuations in interest rates, exchange rates and implicit volatilities (market factors) that would have an impact based on a scenario of each class of financial instrument.
The estimated economic impact derived from the scenarios of changes in market factors presents effects in profit and loss for trading instruments and instruments measured at amortized cost, as well as impacts in other comprehensive income relating to investment instruments at FVTOCI, cash flow hedges and foreign investments portfolios.
The scenarios presented below correspond to the probable worst-case scenarios chosen from a set of scenarios agreed upon based on the opinions of specialists in economics, financial risk, and traders. In order to estimate the economic impact, sensitivities (DV01) and scenario related changes must be multiplied for each market factor.
Scenarios are presented separately for Chile and Colombia.
226
Interest Rate Scenarios — Chile (basis points — 0.01%):
| ||||||||||||||||||||||||||||||||||
Scenarios for impact on financial trading instruments | Scenarios for impact on Available-for-Sale Assets (AFS) | Scenarios for impact on instruments measured at amortized cost | ||||||||||||||||||||||||||||||||
Overnight | Gov’t | Overnight | Gov’t | Curve | Curves | Overnight | Gov’t | Overnight | Gov’t | Curve | Curves | Overnight | Overnight | Curve | ||||||||||||||||||||
Term |
| CLP |
| CLP |
| CLF |
| CLF |
| USD |
| MX |
| Term |
| CLP |
| CLP |
| CLF |
| CLF |
| USD |
| MX |
| Term |
| CLP |
| CLF |
| USD |
1D | 132 | 117 | 113 | 135 | (113) | (113) | 1D | 132 | 117 | (113) | 135 | 113 | 113 | 1D | ||||||||||||||||||||
3M |
| 132 | 117 | 113 | 135 | (113) | (113) | 3M | 132 | 117 | (113) | 135 | 113 | 113 |
| 1M |
| 132 | 113 | 113 | ||||||||||||||
6M |
| 132 | 117 | 113 | 135 | (113) | (113) | 6M | 132 | 117 | (113) | 135 | 113 | 113 |
| 3M |
| 132 | 113 | 113 | ||||||||||||||
9M |
| 133 | 102 | 110 | 122 | (115) | (115) | 9M | 133 | 102 | (110) | 122 | 115 | 115 |
| 6M |
| 132 | 113 | 113 | ||||||||||||||
1Y |
| 139 | 98 | 115 | 108 | (118) | (118) | 1Y | 139 | 98 | (115) | 108 | 118 | 118 |
| 9M |
| 133 | 110 | 115 | ||||||||||||||
2Y |
| 137 | 141 | 153 | 141 | (84) | (84) | 2Y | 137 | 141 | (153) | 141 | 84 | 84 |
| 1Y |
| 139 | 115 | 118 | ||||||||||||||
3Y |
| 121 | 125 | 148 | 133 | (90) | (90) | 3Y | 121 | 125 | (148) | 133 | 90 | 90 |
|
|
|
|
|
|
|
| ||||||||||||
4Y |
| 105 | 110 | 141 | 125 | (98) | (98) | 4Y | 105 | 110 | (141) | 125 | 98 | 98 |
|
|
|
|
|
|
|
| ||||||||||||
5Y |
| 88 | 94 | 134 | 117 | (105) | (105) | 5Y | 88 | 94 | (134) | 117 | 105 | 105 |
|
|
|
|
|
|
|
| ||||||||||||
7Y |
| 95 | 84 | 140 | 102 | (97) | (97) | 7Y | 95 | 84 | (140) | 102 | 97 | 97 |
|
|
|
|
|
|
|
| ||||||||||||
10Y |
| 106 | 108 | 149 | 78 | (86) | (86) | 10Y | 106 | 108 | (149) | 78 | 86 | 86 |
|
|
|
|
|
|
|
| ||||||||||||
20Y |
| 106 | 108 | 109 | 95 | (91) | (91) | 20Y | 106 | 108 | (109) | 95 | 91 | 91 |
|
|
|
|
|
|
|
| ||||||||||||
Exchange Rate Scenarios — Chile:
| Scenarios for impact |
| Scenarios for impact |
| Scenarios for impact on |
| |
on financial trading | on Available | instruments measured at |
| ||||
Exchange Rate | instruments | for-Sale Assets (AFS) | amortized cost |
| |||
USD-CLP |
| (24.7) | % | (24.7) | % | (24.7) | % |
USD-COP |
| 7.2 | % | 7.2 | % | (24.7) | % |
Interest Rate Scenarios — Colombia (basis points — 0.01%):
Scenarios for impact on Available | Scenarios for impact on instruments | |||||||||||||||||||
Scenarios for impact on financial trading instruments | for-Sale Assets (AFS) | measured at amortized cost | ||||||||||||||||||
| Swap | Curve |
| Swap |
| Curve | ||||||||||||||
Term |
| Gov’t COP |
| Swap IBR |
| Curve USD |
| Term | Gov’t COP |
| IBR |
| USD |
| Term | IBR | USD | |||
1D |
| 151 | 46 | 58 |
| 1D |
| 151 | 46 | 58 |
| 1D |
| 46 | 58 | |||||
3M |
| 154 | 99 | 22 |
| 3M |
| 154 | 99 | 22 |
| 1M |
| 92 | 46 | |||||
6M |
| 159 | 87 | 27 |
| 6M |
| 159 | 87 | 27 |
| 3M |
| 99 | 22 | |||||
9M |
| 165 | 61 | 27 |
| 9M |
| 165 | 61 | 27 |
| 6M |
| 87 | 27 | |||||
1Y |
| 173 | 58 | 28 |
| 1Y |
| 173 | 58 | 28 |
| 9M |
| 61 | 27 | |||||
2Y |
| 169 | 89 | 38 |
| 2Y |
| 169 | 89 | 38 |
| 1Y |
| 58 | 28 | |||||
3Y |
| 179 | 103 | 37 |
| 3Y |
| 179 | 103 | 37 |
|
|
|
|
|
| ||||
4Y |
| 163 | 117 | 36 |
| 4Y |
| 163 | 117 | 36 |
|
|
|
|
|
| ||||
5Y |
| 153 | 129 | 34 |
| 5Y |
| 153 | 129 | 34 |
|
|
|
|
|
| ||||
7Y |
| 142 | 121 | 28 |
| 7Y |
| 142 | 121 | 28 |
|
|
|
|
|
| ||||
10Y |
| 125 | 86 | 23 |
| 10Y |
| 125 | 86 | 23 |
|
|
|
|
|
| ||||
20Y |
| 106 | 19 | 24 |
| 20Y |
| 106 | 19 | 24 |
|
|
|
|
|
| ||||
Exchange Rate Scenarios — Colombia:
| Scenario for impact on |
| Scenario for impact |
|
| ||
financial trading | on Available | Scenario for impact on |
| ||||
Exchange Rate | instruments | for-Sale Assets (AFS) | Amortized Cost Book |
| |||
USD-COP |
| 5.6 | % | 5.6 | % | 5.6 | % |
227
The consolidated effects in profit or loss of the scenarios are presented below:
● | The following table presents the impact on profit and loss (P&L) for the years ended December 31, 2020, 2021 and 2022 derived from the aforementioned scenarios applied to our financial trading instruments as of year-end: |
Potential Impact on P&L |
| 2020 |
| 2021 |
| 2022 |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ | |
CLP Rate Risk |
| (8,403) |
| (1,679) |
| (12,333) |
Derivatives |
| (8,403) |
| (1,679) |
| (12,333) |
Investments |
| — |
| — |
| — |
CLF Rate Risk |
| (8,488) |
| (7,248) |
| (3,648) |
Derivatives |
| (8,488) |
| (7,248) |
| (3,648) |
Investments |
| — |
| — |
| — |
COP Rate Risk |
| (3,104) |
| 829 |
| 12,267 |
Derivatives |
| (2,508) |
| 5,469 |
| 12,267 |
Investments |
| (596) |
| (4,640) |
| — |
UVR Rate Risk |
| (133) |
| (30,766) |
| 8 |
Derivatives |
| 3 |
| — |
| 8 |
Investments |
| (136) |
| (30,766) |
| — |
USD Rate Risk |
| (2,648) |
| (12,000) |
| (4,203) |
Other Currencies Rate Risk |
| (249) |
| (16) |
| (35) |
Total Rate Risk |
| (23,025) |
| (50,880) |
| (7,944) |
Foreign Exchange Risk |
| (163) |
| 7 |
| (1,626) |
Options Risk(1) |
| 16 |
| 5 |
| 3 |
Total Impact |
| (23,172) |
| (50,868) |
| (9,567) |
(1) | Option Risk includes the (Vega) and Gamma volatility risks. |
● | The following table presents the consolidated impact on the net interest income derived from the aforementioned scenarios on the financial instruments measured at amortized cost for the periods ended December 31, 2020, 2021 and 2022: |
Potential impact on instruments measured at amortized cost |
| 2020 |
| 2021 |
| 2022 |
|
millions of Ch$ | millions of Ch$ | millions of Ch$ | |||||
Impact of Interbank Rate Risk |
| (9,626) |
| (16,349) |
| 10,488 |
The impact on the Banking Book does not necessarily mean a gain/loss but it does mean smaller/larger net income from the generation of funds (net funding income, which is the net interest from the financial instruments measured at amortized cost portfolio) for the next 12 months.
228
● | Changes in market factors derived from the aforementioned scenarios also generate an impact on equity accounts as a result of the potential change in FVTOCI instruments portfolio and the cash flow and net foreign investment hedges portfolios, which are presented in the following tables: |
As of December 31, 2020:
Potential Impact on Equity | ||||||
Interest Rate | DV01 (+1 bp) | Impact of Change in Interest Rate | ||||
| US$ |
| MUS$ |
| millions of Ch$ | |
CLP |
| (707,409) |
| (40.13) |
| (28,609) |
CLF |
| (201,548) |
| (23.15) |
| (16,505) |
COP |
| 35,889 |
| (8.13) |
| (5,780) |
UVR |
| (36,520) |
| (3.88) |
| (2,755) |
USD |
| (42,030) |
| (4.36) |
| (3,107) |
Other |
| 11,624 |
| (1) |
| (419) |
Total Rate Impact |
| (939,994) |
| (80.24) |
| (57,175) |
Exchange Rate | Impact of Change in Prices | |||
| MUS$ |
| millions of Ch$ | |
USD |
| (67.25) | (47,942) | |
COP |
| (63.65) | (45,380) | |
Total Impact on Exchange Rate |
| (130.90) | (93,322) | |
Total Impact |
| (211.13) | (150,498) | |
As of December 31, 2021:
Potential Impact on Equity | ||||||
Interest Rate | DV01 (+1 bp) | Impact of Change in Interest Rate | ||||
| US$ |
| MUS$ |
| millions of Ch$ | |
CLP |
| (73,433) | (6.99) | (5,897) | ||
CLF |
| 43,232 | (33.24) | (28,055) | ||
COP |
| (65,627) | (5.36) | (4,525) | ||
UVR |
| (83,203) | (6.96) | (5,875) | ||
USD |
| (80,331) | (8.64) | (6,797) | ||
Other |
| — | — | — | ||
Total Rate Impact |
| (259,362) | (61.19) | (51,149) | ||
Exchange Rate | Impact of Change in Prices | |||
| MUS$ |
| millions of Ch$ | |
USD |
| 145.47 | 122,874 | |
COP |
| — | — | |
Total Impact on Exchange Rate |
| 145.47 | 122,874 | |
Total Impact |
| 84.29 | 71,725 | |
As of December 31, 2022:
Potential Impact on Equity | ||||||
Interest Rate | DV01 (+1 bp) | Impact of Change in Interest Rate | ||||
| US$ |
| MUS$ |
| millions of Ch$ | |
CLP |
| (82,235) | (12.43) | (10,635) | ||
CLF |
| 38,676 | (9.30) | (7,958) | ||
COP |
| (25,265) | (4.15) | (4,186) | ||
UVR |
| (25,947) | (2.53) | (2,553) | ||
USD |
| (68,562) | (5.94) | (5,032) | ||
Other |
| — | — | — | ||
Total Rate Impact |
| (163,333) | (34.35) | (30,364) | ||
229
Exchange Rate | Impact of Change in Prices | |||
| MUS$ |
| millions of Ch$ | |
USD |
| (31.19) | (26,689) | |
COP |
| (37) | (31,419) | |
Total Impact on Exchange Rate |
| (67.90) | (58,108) | |
Total Impact |
| (102.25) | (88,472) | |
The Bank uses accounting hedges to efficiently manage accounting asymmetries present in financial risk exposure. The use of accounting hedges is dependent on limits defined by our board of directors, definitions from the ALCO and our hedging policy. The ALM Division is responsible for designing and implementing strategies and the Financial Risk Management Division for measuring and monitoring the effectiveness of hedges, generating effectiveness indicators that are continuously monitored.
For further details on accounting hedge strategies, see Note 8 of our consolidated financial statements.
b) Liquidity Risk Metrics and Limits
Liquidity risk measurements are focused mainly on quantifying whether the institution has sufficient resources in terms of high liquid assets to meet its obligations under both normal and stressed conditions. The Bank monitors its liquidity position every day, determining the future inflows and cash outflows of its outlays and revenues. In addition, stress tests are performed at the close of each quarter, for which a variety of scenarios encompassing both normal market conditions and stress scenario conditions. The liquidity policy and procedures are subject to review and approval by the Bank’s board. Periodic reports are generated by the Financial Risk Department, providing a breakdown of the liquidity position of the Bank and its subsidiaries, including any exceptions and the corrective measures adopted, which are regularly submitted to the ALCO for review. The following regulatory and internal metrics are used to monitor and control liquidity risk.
The following regulatory and internal metrics are used to monitor and control liquidity risk.
(i) Regulatory Measurement of Liquidity Risk
Adjusted liquidity gap: CMF Chapter 12-20 (“Management and Measurement of Liquidity Position”) establishes that, with prior authorization from the regulator, cash outflows to retail counterparties may be assigned a different maturity than their contractual maturity based on their statistical behavior. Adjusted mismatches (local consolidated) are restricted to a maximum of 30-day mismatches in foreign currency: 100% of core capital.
The bank, on a local consolidated level, must continuously observe those limits and periodically report to the CMF its positions at risk and compliance with those limits. As of June 1, 2022, the CMF derogated the 30-day and 90-day mismatches in consolidated currency limits. As of the date of this Annual Report, only the 30-day mismatches in foreign currency will have a regulatory limit.
The following table sets forth the use of the liquidity regulatory limit as of December 31, 2020, 2021 and 2022:
| As of December 31, | |||||
| 2020 | 2021 | 2022 | |||
|
| % |
| % |
| % |
Regulatory Liquidity Indicator | ||||||
At 30 days in foreign currency |
| — |
| — | 13 | |
Note: Negative percentage means that cash inflows exceed cash outflows at maturity
230
(ii) Regulatory Measurement of Contractual Liquidity Gap
In accordance with CMF Chapter 12-20, all cash flows in and outside the statement of financial position are analyzed provided that they contribute cash flows at their contractual maturity point.
Balances of the Bank’s consolidated undiscounted contractual cash flows from financial assets and liabilities as of December 31, 2020, 2021 and 2022, are detailed as follows:
| December 31, 2020 | |||||||||||
| 3 Months to | More than | ||||||||||
<1 Month | 1 - 3 Months | 1 Year | 1 to 3 Years | 3 Years | Total | |||||||
|
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
Assets |
| 7,853,977 |
| 1,865,203 |
| 4,229,759 |
| 6,585,579 |
| 13,831,662 |
| 34,366,180 |
Cash |
| 2,944,906 |
| — |
| — |
| — |
| — |
| 2,944,906 |
Financial instruments recorded at market value |
| 2,710,090 |
| 132,637 |
| 213,667 |
| 620,662 |
| 252,199 |
| 3,929,255 |
Loans to other domestic banks without lines of credit |
| 14,021 |
| 40,648 |
| 43,946 |
| — |
| — |
| 98,615 |
Lines of credit granted to other domestic banks |
| — |
| — |
| — |
| — |
| — |
| — |
Commercial loans without lines of credit |
| 1,060,762 |
| 1,500,138 |
| 2,935,477 |
| 3,650,372 |
| 6,795,123 |
| 15,941,872 |
Commercial lines of credit and overdrafts |
| (37,094) |
| — |
| — |
| — |
| — |
| (37,094) |
Consumer loans without lines of credit |
| 52,522 |
| 124,295 |
| 541,773 |
| 1,005,486 |
| 766,218 |
| 2,490,294 |
Consumer lines of credit and overdrafts |
| (66,702) |
| — |
| — |
| — |
| — |
| (66,702) |
Residential mortgage loans |
| 71,013 |
| 77,691 |
| 315,418 |
| 914,108 |
| 5,510,336 |
| 6,888,566 |
Financial instruments recorded based on issuer’s flow |
| 352,299 |
| — |
| 85,023 |
| 16 |
| 321,064 |
| 758,402 |
Other transactions or commitments without lines of credit |
| 745,736 |
| 4,995 |
| 195 |
| 377,022 |
| — |
| 1,127,948 |
Other lines of credit granted |
| — |
| — |
| — |
| — |
| — |
| — |
Derivative instruments |
| 6,424 |
| (15,201) |
| 94,260 |
| 17,913 |
| 186,722 |
| 290,118 |
Liabilities |
| (14,834,148) |
| (2,840,448) |
| (4,387,325) |
| (2,147,037) |
| (7,737,413) |
| (31,946,371) |
Checking accounts and other demand deposits |
| (7,101,902) |
| — |
| — |
| — |
| — |
| (7,101,902) |
Term savings accounts - unconditional withdrawal |
| — |
| — |
| — |
| — |
| — |
| — |
Term savings accounts - deferred withdrawal |
| (19,403) |
| — |
| — |
| — |
| — |
| (19,403) |
Obligations with Chilean Central Bank without lines of credit |
| (636,894) |
| (1,101) |
| — |
| — |
| — |
| (637,995) |
Lines of credit secured from Chilean Central Bank |
| — |
| — |
| — |
| (418,140) |
| (1,843,405) |
| (2,261,545) |
Obligations with other domestic banks without lines of credit |
| — |
| — |
| — |
| — |
| — |
| — |
Lines of credit secured from other domestic banks |
| — |
| — |
| — |
| — |
| — |
| — |
Savings accounts and time deposits |
| (4,612,696) |
| (2,441,779) |
| (3,357,507) |
| (660,888) |
| (757,094) |
| (11,829,964) |
Foreign loans without lines of credit |
| (561,978) |
| (375,610) |
| (618,351) |
| (23,861) |
| — |
| (1,579,800) |
Lines of credit from foreign banks |
| (120) |
| — |
| — |
| — |
| — |
| (120) |
Letter of credit obligations |
| (1,305) |
| (364) |
| (4,861) |
| (12,132) |
| (15,533) |
| (34,195) |
Bonds payable |
| (938,590) |
| (17,783) |
| (390,330) |
| (961,623) |
| (5,065,815) |
| (7,374,141) |
Other obligations or payment commitments without lines of credit |
| (961,260) |
| (3,811) |
| (16,276) |
| (70,393) |
| (55,566) |
| (1,107,306) |
Other lines of credit secured |
| — |
| — |
| — |
| — |
| — |
| — |
Net band | (6,980,171) |
| (975,245) |
| (157,566) |
| 4,438,542 |
| 6,094,249 |
| 2,419,809 | |
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| December 31, 2021 | |||||||||||
| 3 Months to | More than | ||||||||||
<1 Month | 1 - 3 Months | 1 Year | 1 to 3 Years | 3 Years | Total | |||||||
| millions of Ch$ | millions of Ch$ | millions of Ch$ | millions of Ch$ | millions of Ch$ | millions of Ch$ | ||||||
Assets |
| 8,502,743 |
| 1,856,945 |
| 4,306,295 |
| 9,775,825 |
| 13,120,736 |
| 37,562,544 |
Cash |
| 3,296,776 | — | — | — | — | 3,296,776 | |||||
Financial instruments recorded at market value |
| 1,441,644 | 39,696 | 29,874 | 303,792 | 296,289 | 2,111,295 | |||||
Loans to other domestic banks without lines of credit |
| 486,633 | 46,067 | 66,399 | — | — | 599,099 | |||||
Lines of credit granted to other domestic banks |
| — | — | — | — | — | — | |||||
Commercial loans without lines of credit |
| 1,391,251 | 1,595,929 | 3,028,831 | 6,264,116 | 4,625,936 | 16,906,063 | |||||
Commercial lines of credit and overdrafts |
| (31,685) | — | — | — | — | (31,685) | |||||
Consumer loans without lines of credit |
| 59,416 | 153,154 | 628,950 | 1,205,581 | 786,844 | 2,833,945 | |||||
Consumer lines of credit and overdrafts |
| (59,358) | — | — | — | — | (59,358) | |||||
Residential mortgage loans |
| 80,881 | 92,798 | 369,388 | 1,079,718 | 6,579,868 | 8,202,653 | |||||
Financial instruments recorded based on issuer’s flow |
| 471,950 | 6,666 | 140,824 | 537,060 | 740,138 | 1,896,638 | |||||
Other transactions or commitments without lines of credit |
| 1,314,484 | 7,649 | 490 | 353,828 | — | 1,676,451 | |||||
Other lines of credit granted |
| — | — | — | — | — | — | |||||
Derivative instruments |
| 50,751 | (85,014) | 41,539 | 31,730 | 91,661 | 130,667 | |||||
Liabilities |
| (16,468,779) | (3,370,411) | (3,915,257) | (4,114,200) | (6,332,999) | (34,201,646) | |||||
Checking accounts and other demand deposits |
| (8,199,948) | — | — | — | — | (8,199,948) | |||||
Term savings accounts - unconditional withdrawal |
| — | — | — | — | — | — | |||||
Term savings accounts - deferred withdrawal |
| (21,112) | (164) | — | — | — | (21,276) | |||||
Obligations with Chilean Central Bank without lines of credit |
| (465,743) | (418,140) | — | (2,593,452) | — | (3,477,335) | |||||
Lines of credit secured from Chilean Central Bank |
| — | — | — | (326,965) | — | (326,965) | |||||
Obligations with other domestic banks without lines of credit |
| — | — | — | — | — | — | |||||
Lines of credit secured from other domestic banks |
| — | — | — | — | — | — | |||||
Savings accounts and time deposits |
| (4,668,386) | (2,248,430) | (2,404,062) | — | (754,555) | (10,075,433) | |||||
Foreign loans without lines of credit |
| (767,919) | (205,714) | (954,684) | — | — | (1,928,317) | |||||
Lines of credit from foreign banks |
| (18,995) | — | — | — | — | (18,995) | |||||
Letter of credit obligations |
| (165) | (318) | (3,153) | (9,510) | (10,338) | (23,484) | |||||
Bonds payable |
| (1,058,289) | (16,414) | (537,419) | (1,116,564) | (5,526,598) | (8,255,284) | |||||
Other obligations or payment commitments without lines of credit |
| (1,268,222) | (481,231) | (15,939) | (67,709) | (41,508) | (1,874,609) | |||||
Other lines of credit secured |
| — | — | — | — | — | — | |||||
Net band |
| (7,966,036) | (1,513,466) | 391,038 | 5,661,625 | 6,787,737 | 3,360,898 | |||||
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December 31, 2022 | ||||||||||||
3 Months to | More than | |||||||||||
<1 Month | 1 - 3 Months | 1 Year | 1 to 3 Years | 3 Years | Total | |||||||
millions of Ch$ | millions of Ch$ | millions of Ch$ | millions of Ch$ | millions of Ch$ | millions of Ch$ | |||||||
Assets |
| 9,628,637 |
| 3,159,065 |
| 6,389,889 |
| 11,122,626 |
| 12,851,051 |
| 43,151,267 |
Cash |
| 2,428,943 | - | - | - | — | 2,428,943 | |||||
Financial instruments recorded at market value |
| 1,841,893 | 514,549 | 622,290 | 128,183 | 172,711 | 3,279,626 | |||||
Loans to other domestic banks without lines of credit |
| 20,752 | 4,420 | 11,980 | 117,992 | — | 155,144 | |||||
Lines of credit granted to other domestic banks |
| — | — | — | — | — | — | |||||
Commercial loans without lines of credit |
| 2,142,972 | 2,270,020 | 4,413,236 | 6,495,720 | 3,967,089 | 19,289,038 | |||||
Commercial lines of credit and overdrafts |
| — | — | — | — | — | — | |||||
Consumer loans without lines of credit |
| 947,183 | 179,489 | 698,458 | 1,330,556 | 774,231 | 3,929,916 | |||||
Consumer lines of credit and overdrafts |
| — | — | — | — | — | — | |||||
Residential mortgage loans |
| 49,165 | 102,984 | 451,789 | 1,186,604 | 7,585,932 | 9,376,475 | |||||
Financial instruments recorded based on issuer’s flow |
| 368,402 | 69,820 | 188,504 | 1,109,232 | 277,510 | 2,013,468 | |||||
Other transactions or commitments without lines of credit |
| 1,876,803 | 10,676 | — | 686,607 | — | 2,574,085 | |||||
Other lines of credit granted |
| — | — | — | — | — | — | |||||
Derivative instruments |
| (47,478) | 7,107 | 3,632 | 67,732 | 73,579 | 104,572 | |||||
Liabilities |
| (13,230,051) | (3,594,875) | (4,913,180) | (6,108,250) | (7,821,989) | (35,668,346) | |||||
Checking accounts and other demand deposits |
| (5,615,295) | — | — | — | — | (5,615,295) | |||||
Term savings accounts - unconditional withdrawal |
| — | — | — | — | — | — | |||||
Term savings accounts - deferred withdrawal |
| (17,938) | — | — | — | — | (17,938) | |||||
Obligations with Chilean Central Bank without lines of credit |
| (65,628) | — | — | (2,991,289) | — | (3,056,918) | |||||
Lines of credit secured from Chilean Central Bank |
| — | — | — | — | — | — | |||||
Obligations with other domestic banks without lines of credit |
| — | — | — | — | — | — | |||||
Lines of credit secured from other domestic banks |
| — | — | — | — | — | — | |||||
Savings accounts and time deposits |
| (5,361,331) | (3,164,038) | (3,127,807) | (835,639) | (823,042) | (13,311,858) | |||||
Foreign loans without lines of credit |
| (266,066) | (369,513) | (1,282,950) | (260,194) | — | (2,178,723) | |||||
Lines of credit from foreign banks |
| (133) | — | — | — | — | (133) | |||||
Letter of credit obligations |
| (168) | (341) | (3,314) | (10,969) | (6,546) | (21,337) | |||||
Bonds payable |
| (48,461) | (57,334) | (484,485) | (1,916,837) | (6,992,401) | (9,499,517) | |||||
Other obligations or payment commitments without lines of credit |
| (1,855,031) | (3,650) | (14,624) | (93,323) | — | (1,966,628) | |||||
Other lines of credit secured |
| — | — | — | — | — | — | |||||
Net band |
| (3,601,415) | (435,809) | 1,476,709 | 5,014,375 | 5,029,062 | 7,482,921 | |||||
The preceding tables present undiscounted cash flows from the Bank’s assets (Notes 7—13 of our consolidated financial statements) and liabilities (Notes 18—20 of our consolidated financial statements) on the basis of maturity estimation models. The bank’s expected cash flows could vary as a function of changes in the variables that are used to estimate asset and liability maturities.
The grouping corresponds to regulatory categories that bring together financial items with similar characteristics from the perspective of liquidity risk. These categories are modeled separately and reported in cash flows.
(iii) Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
In line with international risk management practices, the Bank uses the LCR and NSFR to manage liquidity risk.
The LCR, which measures the percentage of liquid assets over net cash outflows and aims to measure the sufficiency of high-quality assets to face a 30-day funding stress scenario. At a minimum, the Bank must survive until the 30th day of the stress scenario with funding from liquid assets in its portfolio because managers and/or supervisors would have been able to establish timely corrective measures. On the other hand, the NSFR measures a bank’s available stable funding relative to its required stable funding and focuses on maintaining sufficient stable funding to meet (long-term) stable funding needs. We calculate LCR and NSFR using the methodologies defined by the CMF and the BACEN. Both regulators set limits for LCR and NSFR. The methodology used to estimate LCR and NSFR consists of liquidity
233
ratios proposed by the “Basel III Committee on Banking Supervision” (“BIS III”) that were adopted by the CMF and the BACEN.
Pursuant to the rules issued by the Central Bank of Chile, the LCR is required at a minimum level of 100% as of June 1, 2022. The NSFR is required for informational purposes and at a minimum level of 70% as of January 1, 2023, and will increase by 10% per year until it reaches 100% as of January 1, 2026. As of December 31, 2022, the Bank’s LCR and NSFR were 219.5% and 114.5%, respectively.
(iv) Deposits / Loans
Structurally, the Bank’s liquidity can be quantified based on the level of assets and liabilities in its balance sheet. In particular, the following table shows the ratio of deposits / loans in Itaú Chile’s balance sheet. Deposits refer to the carrying amount of funds (demand and time deposits) that customers deposit in the Bank, while loans are credits that the Bank grants. This is a measurement of the reciprocity between the Bank’s commercial activity and the stability of its funding.
| Dec 2020 | Dec 2021 | Dec 2022 | ||||
Year-End |
| 81.3 | % | 73.8 | % | 70.4 | % |
Minimum |
| 73.7 | % | 73.8 | % | 69.2 | % |
Maximum |
| 81.3 | % | 78.4 | % | 73.5 | % |
Average |
| 78.5 | % | 75.8 | % | 70.8 | % |
Note: Loans are reported net of provisions
(v) Liquidity Warning Levels
Warning levels seek to provide evidence or signs of potential adverse liquidity events. The most relevant warning levels include: counterparty and maturity concentration, currency concentration, product concentration, reserve management, evolution of funding rates and diversification of Liquid Assets.
(vi) Analysis of Pledged and Unpledged Assets
The following presents an analysis of the Bank’s pledged and uncommitted assets that will be available to generate additional funding as fixed-income instruments. For this, pledged assets are.
● | Assets that have been committed or received in guarantee. |
● | Assets that an entity considers that are restricted from using. |
The following table sets forth our available assets and investments adjusted for the delivery or receipt of guarantees as of December 31, 2020, 2021 and 2022:
|
|
| Guarantees |
| Guarantees |
| ||
Amount | Furnished | Received | Cash | |||||
| millions of Ch$ | millions of Ch$ | millions of Ch$ | millions of Ch$ | ||||
| (i) |
| (ii) |
| (iii) |
| (i-ii+iii) | |
Year |
| 4,406,396 |
| 543,736 |
| 124,118 |
| 3,986,778 |
2020 |
| 3,887,680 |
| 423,671 |
| 627,791 |
| 4,091,801 |
2021 |
| 4,498,680 | 162,774 | 354,088 | 4,686,994 | |||
2022 |
|
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(vii) Counterparty Risk
Exposure to derivative counterparty risk is measured by recognizing the different contracts maintained with the Bank’s customers, including contracts without mitigating clauses, contracts with netting, contracts with Credit Support Annex, or the “CSA”, and with clearing houses, which receive a differentiated treatment.
The following table details the netting of these transactions:
| 12/31/2020 | 12/31/2021 | 12/31/2022 | |||||||||||||||
| Gross | Gross | Gross | Gross | Gross | Gross | ||||||||||||
amount | amount | Net | amount | amount | Net | amount | amount | Net | ||||||||||
assets | liabilities | amounts | assets | liabilities | amounts | assets | liabilities | amounts | ||||||||||
|
| (a) |
| (b) |
| (c) = (a) + (b) |
| (a) |
| (b) |
| (c) = (a) + (b) |
| (a) |
| (b) |
| (c) = (a) + (b) |
|
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
| millions of Ch$ |
Derivatives with netting agreement |
| 3,829,995 |
| (3,510,234) |
| 319,761 |
| 2,844,333 | (2,836,363) | 7,970 |
| 3,543,050 | (3,465,447) | 77,603 | ||||
Derivatives without netting agreement |
| (675,038) |
| 572,200 |
| (102,838) |
| 136,593 | (89,224) | 47,369 |
| 931 | (151) | 780 | ||||
Total Derivatives |
| 3,154,957 |
| (2,938,034) |
| 216,923 |
| 2,980,926 | (2,925,587) | 55,339 |
| 3,543,982 | (3,465,598) | 78,384 | ||||
Net guarantees delivered in compensation houses (*) |
| 174,426 |
| (49,955) |
| 124,471 |
| 288,104 | (48,563) | 239,541 |
| 43,899 | (21,303) | 22,596 | ||||
Net guarantees delivered in bilateral agreements (*) |
| 185,775 |
| (33,313) |
| 152,463 |
| 329,399 | (6,658) | 322,740 |
| 304,721 | (18,122) | 286,599 | ||||
Net guarantees |
| 360,201 |
| (83,268) |
| 276,934 |
| 617,503 | (55,222) | 562,281 |
| 348,620 | (39,425) | 309,195 | ||||
Derivatives net of guarantees |
| 3,515,158 |
| (3,021,302) |
| 493,857 |
| 3,598,429 | (2,980,809) | 617,620 |
| 3,892,602 | (3,505,023) | 387,579 | ||||
(*) Clearing Houses: centralized counterparties that play the counterparty role for all participants.
(**) Bilateral agreements: contractual agreements between both parties for delivery of guarantees under certain conditions.
Market values of derivatives that are reported in accounting do not reflect counterparty risk management using guarantees as they do not reveal the true exposures with the counterparties. The guarantees delivered (received) must be added (subtracted) from the market value in order to correctly reflect these exposures.
It is important to highlight that counterparty risk management is framed within the Bank’s corporate credit policies.
3) Monitoring and Governance of Financial Risks
Our board of directors is the body in charge of the Bank’s management. Its duties include defining the institution’s strategic guidelines and supervising its risk management structure.
Risk management policies are established with the objective of identifying and analyzing the risks faced by the Bank, setting adequate limits and controls and monitoring risks and compliance with limits. Risk management policies and structures are reviewed regularly so that they reflect changes in the Bank’s activities. The Bank, through its standards and procedures, aims to develop an appropriate control environment in which all employees understand their roles and responsibilities.
The audit committee supervises the way in which the Bank monitors and manages risk and compliance with the Bank’s risk management policies and procedures and checks that the risk management framework is appropriate for the risks faced by the Bank. This committee is assisted by the internal audit department in its supervisory role. Internal audit performs reviews of risk management controls and procedures, which results are reported to the audit committee.
In accordance with the Bank’s governance outlook, the Financial Risk Department is responsible for identifying, quantifying, analyzing, controlling, and monitoring financial risk at the Bank. The Credit Risk Division is responsible for managing credit risk for the Corporate Banking, Treasury, Companies and Retail divisions. The Financial Risk Department is part of the Planning and Control Division. The other departments within this division include Accounting, Management Control, Planning and Development, Capital Management and Investor Relations. The main objective of
235
this corporate division is to provide accurate, timely and high-quality information to support decision making by internal and external stakeholders.
The Corporate Treasury Division is charged with managing financial risk in the Bank’s trading and Banking Books. In the Banking Book, this consists of managing inflation, interest rate and liquidity risk in the Bank’s balance sheet in order to maximize returns in compliance with corporate policies and current laws and regulations. The trading book refers to the portfolio of financial instruments acquired to obtain short-term gains from increases in fair value arising from changes in the values of underlying variables. This book also consists of managing currency risk for the entire balance sheet. Management of the Bank’s funding structure is an important component of managing liquidity and interest rate risk within the Banking Book or balance sheet.
The Financial Risk Department is independent from the business areas and is responsible for controlling and measuring the Bank’s financial risks (market and liquidity risk) as well as supplying, along with the Treasury Division, the ALCO with the metrics and limits for those risks, which are established in the respective policies.
The bank’s financial risk management efforts are framed within the Financial Risk Policy, which is comprised of the Liquidity Management Policy, the Market Risk Management Policy and the Valuation Policy.
a) Financial Risk Management Principles
● | Risk is monitored and controlled by parties independent from those managing risk, thus correctly aligning incentives. |
● | Management efforts should be flexible, within the framework permitted by policies, rules and current regulations. |
● | Senior management establishes the guidelines for risk appetite and is informed periodically on risk levels assumed, contingencies and instances when limits are exceeded. |
b) Financial Risk Management Meetings and Committee
In order to guarantee the flexibility of management efforts and communication of risk levels to senior management, the following network of meetings and committee has been established:
● | Daily Committee: Meets daily to review financial conditions and the latest market movements. This committee reviews the relevance of positions on a daily basis in order to detect in advance any scenarios that could negatively impact returns and liquidity. It also monitors the performance of strategies used for each of the portfolios. |
● | Market Making Committee: Meets weekly to analyze strategies for managing investment portfolio or directional positions. This committee reviews local and global economic conditions and projections in order to analyze the potential benefits and risks of the strategies executed and evaluate new strategies. |
● | ALM Committee: This committee meets biweekly to analyze management of structural interest rate and indexation risk in the Banking Book. |
● | Liquidity Committee: This committee meets biweekly to analyze management of funding liquidity risk. |
● | Assets-Liabilities Committee (ALCO): This committee meets monthly to analyze economic and financial conditions and inform senior management of market and liquidity risk levels assumed by presenting indexes of market and funding liquidity risk, limit consumption and results of stress tests. |
● | Board of Directors: Our board of directors is informed each quarter of the market and funding liquidity risk levels assumed by presenting established risk indexes, limit consumption and results of stress tests. |
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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
AMERICAN DEPOSITARY SHARES
Fees and Expenses
Effective as of June 4, 2018, The Bank of New York Mellon serves as the depositary for our ADSs. Holders of the ADSs are required to pay the fees set forth in the table below to the depositary, and the depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid. The depositary may decide, in its sole discretion, to seek payment by either billing holders or by deducting the fee from one or more cash dividends or other cash distributions.
Persons depositing or withdrawing shares or ADS holders must pay: | For: |
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates |
$.05 (or less) per ADS | Any cash distribution to ADS holders |
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs | Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders |
$.05 (or less) per ADS per calendar year | Depositary services |
Registration or transfer fees | Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares |
Expenses of the depositary | Cable (including SWIFT) and facsimile transmissions (when expressly provided in the deposit agreement) Converting foreign currency to U.S. dollars |
Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes | As necessary |
Any charges incurred by the depositary or its agents for servicing the deposited securities | As necessary |
Any other charges and expenses of the depositary under the deposit agreement will be paid by Itaú Chile upon agreement between the depositary and Itaú Chile. All fees and charges may, at any time and from time to time, be changed by agreement between the depositary and the Bank but, in the case of fees and charges payable by ADS holders and beneficial owners, only in the manner contemplated by Article 20 of the ADS.
The depositary reimburses Itaú Chile for certain expenses incurred by Itaú Chile that are related to the ADS facility upon such terms and conditions as Itaú Chile and the depositary have agreed and may hereinafter agree from time to time. The depositary may make available to Itaú Chile a set amount or a portion of the depositary fees charged in respect of the ADS facility or otherwise upon such terms and conditions as Itaú Chile and the depositary may agree from time to time.
Please refer to Exhibit 2.(a).1 of this Annual Report for the remaining information relating to our ADSs as required under Item 12.D of Form 20-F.
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
There have been no defaults, dividend arrearages or delinquencies in any payments for the year ended December 31, 2022.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
There have been no material modifications to the rights of security holders for the year ended December 31, 2022.
ITEM 15. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As of December 31, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO, and our CFO, of the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act.
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Therefore, our management does not expect that the controls will prevent all errors and all fraud.
Based upon the evaluation performed, our CEO and CFO have concluded that as of December 31, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that material information relating to us and our consolidated subsidiaries is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officers and principal financial officers, to allow timely decisions regarding required disclosure.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes, in accordance with IFRS, and includes those policies and procedures that:
● | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Bank; |
● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that our receipts and expenditures are being made only in accordance with authorizations of the Bank’s management and directors; and |
● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
238
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that a decline in the level of compliance with policies or procedures may occur.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria set forth in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its evaluation and those criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2022.
The effectiveness of our internal control over financial reporting as of December 31, 2022, has been audited by PricewaterhouseCoopers Consultores, Auditores y Compañía Limitada, an independent registered public accounting firm.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
In connection with the evaluation required by Rule 13a-15(d) under the Exchange Act, our management, including our CEO and CFO, concluded that the changes that occurred during the year ended December 31, 2022, have not materially affected, and are not reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The report of PricewaterhouseCoopers Consultores, Auditores y Compañía Limitada, our independent registered public accounting firm, dated April 25, 2023, on the effectiveness of our internal control over financial reporting as of December 31, 2022, is presented on page F-2 to F-5 of this Annual Report.
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Pedro Samhan Escandar, Diego Fresco Gutiérrez, María Ximena Cisternas Peñailillo and Antonio de Lima Neto qualify as “audit committee financial experts” within the meaning of this Item 16A, in that: (i) each has an understanding of IFRS and financial statements; (ii) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves; (iii) significant experience auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the financial statements and experience supervising persons engaged in such activities; (iv) an understanding of internal control over financial accounting and reporting; and (v) an understanding of the functions of an audit committee.
All three meet the independence requirements set forth in Rule 10A-3(b)(1) under the Exchange Act.
239
ITEM 16B. CODE OF ETHICS
We have adopted a code of ethics, as defined in Item 16B of Form 20-F under the Exchange Act. Our code of ethics applies to our CEO, CFO, principal accounting officer and persons performing similar functions, as well as to our directors and other employees without exception. A copy of our code of ethics, as amended, along with our Code of Conduct in the Securities Market, is attached as an exhibit to this Annual Report.
Our code of ethics is available on our website, at www.itau.cl under the heading “Sobre Itaú Chile—Documentación Normativa—Políticas, Manuales y Códigos.”
No waivers have been granted to the code of ethics since its adoption that applies to the persons indicated above.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the fees billed to us by our independent auditors during the fiscal years ended December 31, 2021 and 2022 following the accounting form:
| Year Ended December 31 | |||
|
| 2021 |
| 2022 |
|
| (in millions of Ch$) | ||
Principal accountant fees and services |
|
|
|
|
Audit fees |
| 1,517 |
| 1,339 |
Audit-related fees |
| 49 |
| 46 |
Tax fees |
| — |
| — |
All other fees |
| — |
| — |
Total |
| 1,566 |
| 1,385 |
Audit fees in the above table are the aggregate fees billed by PwC for 2021 and 2022, in connection with the audit of our consolidated financial statements and services that are normally provided by PwC in connection with statutory and regulatory filings or engagements.
Audit-related fees in the above table are the aggregate fees billed by PwC for 2021 and 2022, for assurance services required by regulators on internal control and certain accounting requirements, agreed upon procedures on quarterly disclosures to investors, and procedures in connection with implementation of accounting standards.
PRE-APPROVAL POLICIES AND PROCEDURES
Our audit committee approves all audit, audit-related services, tax services and other services provided by PwC. Any services provided by PwC that are not specifically included within the scope of the audit must be pre-approved by the audit committee prior to any engagement.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Itaú Chile’s audit committee meets the requirements of Exchange Act Rule 10A-3. However, Itaú Chile may utilize the general exemption contained in Exchange Act Rule 10A-3(c)(3), which provides an exemption from NYSE’s listing standards relating to audit committees for foreign private issuers like Itaú Chile.
240
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following table sets out certain information concerning purchases of our shares registered under Section 12 of the Exchange Act by us or any affiliated purchaser during fiscal year 2022:
(d) Maximum | ||||||||
| number of shares | |||||||
(b) Average | (c) Total number of | that may yet be | ||||||
(a) Total number | price paid | shares purchased | purchased under | |||||
of shares | per share | as part of publicly | the plan or | |||||
Period (*) |
| purchased |
| (in Ch$) |
| announced plans or programs |
| programs |
January 2022 |
| — |
| — |
| — |
| — |
February 2022 |
| — |
| — |
| — |
| — |
March 2022 |
| — |
| — |
| — |
| — |
April 2022 |
| — |
| — |
| — |
| — |
May 2022 |
| — |
| — |
| — |
| — |
June 2022 |
| — |
| — |
| — |
| — |
July 2022 |
| — |
| — |
| — |
| — |
August 2022 |
| — |
| — |
| — |
| — |
September 2022 |
| — |
| — |
| — |
| — |
October 2022 |
| — |
| — |
| — |
| — |
November 2022 |
| — |
| — |
| — |
| — |
December 2022 |
| — |
| — |
| — |
| — |
Total |
| — |
| — |
| — |
| — |
(*) Itaú Chile and our affiliates did not purchase any of our shares registered under Section 12 of the Exchange Act.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
241
ITEM 16G. CORPORATE GOVERNANCE
Our ADSs are listed on the NYSE. As we are a “controlled company” and a “foreign private issuer” within the meaning of the NYSE corporate governance standards, we are exempt from certain NYSE corporate governance requirements. In addition, a foreign private issuer may elect to comply with the practice of its home country and not to comply with certain NYSE corporate governance requirements. Pursuant to Section 303A.11 of the Listed Company Manual of the NYSE, foreign private issuers are required to provide a summary of the significant ways in which their corporate governance practices differ from those corporate governance standards required of U.S. companies by the NYSE. As a Chilean bank, our corporate governance standards are governed by our by-laws, the Chilean General Banking Act, the Chilean Securities Market Act, the Chilean Corporations Act and the Regulations of the CMF. The following chart notes these differences:
NYSE Corporate Governance Standards |
| Chilean Corporate Governance Standards |
|---|---|---|
Listed companies must have a majority of independent directors and independence test. | Publicly traded companies (sociedades anónimas abiertas) must designate at least one independent director and a directors committee, if they have a market capitalization equal to or greater than the equivalent of 1,500,000 unidades de fomento, and at least 12.5% of its issued shares with voting rights are held by shareholders who individually control or own less than 10% of such shares. Under Chilean law, directors elected by a group or class of shareholders have the same duties to the company and to the shareholders as do the remaining directors, and all transactions with the company in which a director has an interest, either personally (which includes the director’s spouse and certain relatives) or as a representative of a third party, requires a report from the directors committee and the prior approval by the board of directors and must be entered into the interest of the Company and on market terms and conditions. Such transactions must be reviewed by the directors committee and disclosed at the subsequent shareholders’ meeting. | |
Non-management directors must meet at regularly scheduled executive sessions without management. | Chilean law establishes that our executive officers may not serve as directors and, therefore, all of our directors are non-management. Our board of directors meets regularly on a monthly basis. | |
Listed companies must have a nominating/corporate governance committee composed entirely of independent directors. The committee must have a written charter addressing the committee’s purpose and responsibilities, which must include (i) identifying, and selecting or recommending, qualified individuals to serve as board members, (ii) developing and recommending corporate governance guidelines; and (iii) overseeing the evaluation of the board and management. | Under Chilean law, we are not required to have, and do not have, a nominating/corporate governance committee. Under Chilean law, the only committees that are required are the audit committee and the directors committee. | |
Listed companies must have a compensation committee composed entirely of independent directors. The committee must have a written charter addressing an annual performance evaluation of the committee and addressing the committee’s purpose and responsibilities, which must include (i) determining and approving the CEO’s compensation level based on an evaluation of the CEO’s performance in light of relevant corporate goals and objectives, (ii) making recommendations with respect to non-CEO executive officer compensation and (iii) producing a committee report on executive officer compensation. | Under Chilean law we are not required to have a compensation committee. Our board of directors establishes the compensation of our CEO and does a performance evaluation. The directors committee examines the compensation program of executive officers. | |
Shareholders must have the opportunity to vote on all equity-compensation plans and material revisions thereto, subject to limited exemptions. | Our compensation policies do not provide for equity compensation plans. |
242
Listed companies must adopt and disclose corporate governance guidelines. The guidelines must address (i) director qualification standards, (ii) director responsibilities, (iii) director access to management, (iv) director compensation, (v) director orientation and continuing education, (vi) management succession, and (vii) annual performance evaluation of the board. | We follow corporate governance guidelines established by Chilean laws and by the regulations of the CMF which include, among others (i) active participation of directors in our main committees, (ii) the requirement that all employees sign and be knowledgeable of our code of ethics, (iii) a separation of functions — our commercial unit is separated from the back office and risk segments and main credit decisions are taken in committee, (iv) monthly review by the audit committee of internal audit reports and (v) the appointment of an officer who oversees compliance with the code of ethics. | |
Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose waivers thereof for directors or executive officers. | We have a code of business and ethics conduct which drives business and ethical conduct of our CEO, CFO and each employee. This code must be signed by each of our employees and is published in our intranet; it is included as an exhibit in this Annual Report. | |
Listed companies must have an audit committee that meets the requirements of Exchange Act Rule 10A-3 or be exempt therefrom. If the company has an audit committee, each member must meet Exchange Act Rule 10A- independence requirements or be exempt therefrom. In particular, Exchange Act Rule 10A-3(b)(1) requires that each member of the audit committee be a member of the board of directors of the issuer, and must otherwise be independent. | Under Chilean law, all Chilean banks must establish an audit committee composed of two directors. Also, the CMF recommends that at least one of the members of the audit committee, who must also be a member of the board of directors, be experienced with respect to the accounting procedures and financial aspects of banking operations. The members of the audit committee appointed by the board of directors must be independent according to the criteria set by the board of directors. In furtherance of the independence of the audit committee, the board of directors has determined that audit committee members should not, for the last three years, have held positions as our principal executive officers, have performed professional services for us, have commercial commitments with us or with any of our affiliates or related persons or have relations with other entities related to us from which they have received material payments. Moreover, they may not accept any payment or other compensatory fee from us, other than in their capacity as members of the board of directors, the audit committee or of other committees. All the members of the audit committee receive a monthly remuneration. |
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADE POLICIES
Not applicable.
243
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
See the following items starting at page F-2:
(a) | Report of independent registered public accounting firm (PCAOB ID 1364); |
(b) | Consolidated Statements of Financial Position as of December 31, 2022 and 2021; |
(c) | Consolidated Statements of Income (Loss) for the years ended December 31, 2022, 2021 and 2020; |
(d) | Consolidated Statements of Other Comprehensive Income for the years ended December 31, 2022, 2021 and 2020; |
(e) | Consolidated Statements of Changes in Equity for the years ended December 31, 2022, 2021 and 2020; |
(f) | Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020; and |
(g) | Notes to the Consolidated Financial Statements. |
244
ITEM 19. EXHIBITS
The following exhibits are filed as part of this Annual Report:
Exhibit 1.1* |
| |
Exhibit 2.(a).1 | ||
Exhibit 2.(a).2 | ||
Exhibit 2(d)* | Description of Securities Registered Under Section 12 of the Exchange Act | |
Exhibit 4.(a).5 | ||
Exhibit 4.(b).1 | ||
Exhibit 4.(b).2 | ||
Exhibit 4.(b).3 | ||
Exhibit 4.(b).4 | ||
Exhibit 8.1* | ||
Exhibit 11.1* | Itaú Chile’s Code of Ethics (General code of conduct. English language translation). | |
Exhibit 11.2* | Itaú Chile’s Code of Conduct in the Securities Market (English language translation). | |
Exhibit 12.1* |
245
Exhibit 12.2* | ||
Exhibit 13.1* | ||
Exhibit 13.2* | ||
Exhibit 23.1* | Consent of PricewaterhouseCoopers Consultores, Auditores y Compañía Limitada | |
Exhibit 101.INS* | Inline XBRL Instance Document. | |
Exhibit 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
Exhibit 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
Exhibit 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
Exhibit 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document. | |
Exhibit101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
Exhibit 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
246
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| ITAÚ CHILE | ||
/s/ Gabriel Amado de Moura | |||
Name: | Gabriel Moura | ||
Title: | Chief Executive Officer | ||
/s/ Rodrigo Luis Rosa Couto | |||
Name: | Rodrigo Luis Rosa Couto | ||
Title: | Chief Financial Officer | ||
Date: April 27, 2023 | |||
247
Banco Itaú Chile and Subsidiaries
Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the
years ended December 31, 2022, 2021, and 2020
Content
Report of Independent Registered Public Accounting Firm (PCAOB ID | F--2 |
F-6 | |
F-7 | |
Consolidated Statements of Other Comprehensive Income (Loss) | F-8 |
F-9 | |
F-10 | |
F-12 |
Ch$ | = | Amounts expressed in Chilean pesos. |
MCh$ | = | Amounts expressed in millions of Chilean pesos. |
US$ | = | Amounts expressed in US dollars. |
ThUS$ | = | Amounts expressed in thousands of US dollars. |
MUS$ | = | Amounts expressed in millions of US dollars. |
COP$ | = | Amounts expressed in Colombian pesos. |
MCOP$ | = | Amounts expressed in millions of Colombian pesos. |
UF | = | Amounts expressed in Unidades de Fomento. |
(a Chilean inflation-indexed, peso-denominated monetary unit that is set daily based on changes in the Chilean Consumer Price Index). |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Banco Itaú Chile
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Banco Itaú Chile and its subsidiaries (“the Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income (loss), of other comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting, appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Expected Credit Loss Allowance for Commercial, Mortgage and Consumer Loans - Collective Basis
As described in Notes 1 u), 10 and 36 to the consolidated financial statements, management assesses the adequacy of the collective basis expected credit loss allowance for commercial, mortgage and consumer loans using expected credit loss models. As of December 31, 2022, the collective basis expected credit loss allowance was Ch$ 749,624 million on total commercial, mortgage and consumer loan of Ch$ 26,607,785 million. As disclosed by management, the estimation of the collective basis expected credit loss allowance considers qualitative and quantitative information that may affect the changes in credit risk and the development of assumptions related to the probabilities of default and loss given default, including forward looking information, multi-factor analysis such as type of portfolio or transaction and macroeconomic factors. Management subjectively assesses the adequacy of the qualitative information used to assess the change in credit risk since initial recognition and the development of assumptions such as probabilities of default and loss given default.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-3 |
The principal considerations for our determination that performing procedures relating to the collective basis expected credit loss allowance for commercial, mortgage and consumer loans is a critical audit matter are (i) the significant judgment by management in determining the collective basis expected credit loss allowance for commercial, mortgage and consumer loans, which in turn led to a high degree of auditor judgement subjectivity, and effort in performing procedures and evaluating audit evidence obtained relating to the assumptions related to the probabilities of default and loss given default, including forward looking information, multi-factor analysis such as type of portfolio or transaction and macroeconomic factors; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the collective basis expected credit loss allowance for commercial, mortgage and consumer loans estimation process, which included controls over the assumptions used in the estimation of the collective basis expected credit loss allowance, within the qualitative information. These procedures also included, among others, (i) testing management´s process for estimating the collective basis expected credit loss allowance for commercial, mortgage and consumer loans, (ii) testing the completeness, accuracy, and relevance of underlying data used in the model and (iii) the involvement of professionals with specialized skill and knowledge to assist in testing management’s process for estimating the collective basis expected credit loss allowance for commercial, mortgage and consumer loans, including evaluating the appropriateness of the methodologies and models, testing data used in the estimate and evaluating the reasonableness of significant assumptions such as the probabilities of default and loss given default, including forward looking information, multi-factor analysis such as type of portfolio or transaction and macroeconomic factors, used in the qualitative information.
Goodwill Impairment Assessment
As described in Notes 1 p), 13 and 32 to the consolidated financial statements, the Company’s goodwill balance was Ch$492,512 million as of December 31, 2022. Management conducts an annual impairment test and whenever there is an indication that the carrying value may be impaired. An impairment loss is recognized for the amount by which the carrying amount of the cash generating units exceeds its recoverable amount. The recoverable amount of the cash generating units is determined by management using the dividend discounted model. This methodology considers the cash flows that would be generated by dividends distributed to shareholders at perpetuity, discounted at their rate of cost of capital at the valuation date. Management’s cash flow projections included significant judgments and assumptions related to perpetuity rate, projected inflation rate, discount rate, loans growth and solvency index limit.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is a critical audit matter are (i) the significant judgment by management when developing the recoverable amount of the cash generating units, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to perpetuity rate, projected inflation rate, discount rate, loans growth and solvency index limit, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Company’s cash generating units. These procedures also included, among others, (i) testing management’s process for developing the estimate; (ii) evaluating the appropriateness of the dividend
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-4 |
discounted model; (iii) testing the completeness and accuracy of underlying data used in the model; and (iv) evaluating the significant assumptions used by management related to perpetuity rate, projected inflation rate, discount rate, loans growth and solvency index limit. Evaluating management’s assumptions related to perpetuity rate, projected inflation rate, discount rate, loans growth and solvency index limit involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the cash generating units, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s dividend discounted model and certain significant assumptions, including the discount rate.
/s/
April 25, 2023
We have served as the Company’s auditor since 2006.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-5 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Consolidated Statements of Financial Position
(In millions of Chilean pesos - MCh$)
As of December 31, | ||||||
| Notes |
| 2022 |
| 2021 | |
MCh$ | MCh$ | |||||
ASSETS |
|
|
| |||
Cash and deposits in banks |
| 5 a) |
| |
| |
Cash items in process of collection |
| 5 b) |
| |
| |
Financial instruments at fair value through profit or loss |
| 6 |
| |
| |
Financial instruments at fair value through other comprehensive income |
| 11 |
| |
| |
Interbank loans at amortized cost |
| 9 |
| |
| |
Financial derivatives contracts held for hedge accounting | 8 b) | | | |||
Loans and accounts receivable from customers at amortized cost |
| 10 |
| |
| |
Financial instruments at amortized cost |
| 11 |
| |
| |
Investments under resale agreements |
| 7 |
| |
| |
Financial derivatives contracts held for trading |
| 8 a) |
| |
| |
Investments in associates |
| 12 |
| |
| |
Intangible assets |
| 13 |
| |
| |
Property, plant, and equipment |
| 14 |
| |
| |
Right of use assets under lease agreements |
| 15 |
| |
| |
Current taxes |
| 16 |
| |
| |
Deferred taxes |
| 16 |
| |
| |
Other assets |
| 17 a) |
| |
| |
Other non-current assets held for sale |
| 17 b) |
| |
| |
TOTAL ASSETS |
|
|
| |
| |
LIABILITIES |
|
|
|
|
| |
Deposits and other demand liabilities |
| 18 a) |
| |
| |
Cash in process of being cleared |
| 5 b) |
| |
| |
Obligations under repurchase agreements |
| 7 b) |
| |
| |
Time deposits and other time liabilities |
| 18 b) |
| |
| |
Financial derivatives contracts held for trading |
| 8 a) |
| |
| |
Financial derivatives contracts held for hedge accounting | 8 b) | | | |||
Interbank borrowings |
| 19 |
| |
| |
Debt instruments issued |
| 20 a) |
| |
| |
Financial instruments of regulatory capital issued | 20 b) | | | |||
Other financial liabilities |
| 20 |
| |
| |
Lease contracts liabilities |
| 15 |
| |
| |
Current taxes |
| 16 |
| |
| |
Deferred taxes |
| 16 |
| — |
| — |
Provisions |
| 21 |
| |
| |
Other liabilities |
| 22 a) |
| |
| |
Liabilities directly associated with non-current assets held for sale |
| 22 b) |
| — |
| — |
TOTAL LIABILITIES |
|
|
| |
| |
EQUITY |
|
|
|
|
| |
Attributable to equity holders of the Bank: |
|
|
|
|
| |
Capital |
| 24 |
| |
| |
Reserves |
| 24 |
| |
| |
Valuation accounts |
| 24 |
| ( |
| ( |
Retained earnings (losses): |
|
|
| |
| |
Retained earnings (accumulated losses) from prior years |
| 24 |
| |
| — |
Net income (loss) for the year |
| 24 |
| |
| |
Less: Provision for mandatory dividends |
| 21, 24 |
| ( |
| ( |
Total equity attributable to equity holders of the Bank |
|
|
| |
| |
Non-controlling interest |
| 24 |
| |
| |
TOTAL EQUITY |
|
|
| |
| |
TOTAL LIABILITIES AND EQUITY |
|
|
| |
| |
The accompanying notes are an integral part of these Consolidated Financial Statements.
BANCO ITAÚ CHILE AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
(In millions of Chilean pesos - MCh$)
For the years ended December 31, | ||||||||
| Notes |
| 2022 |
| 2021 |
| 2020 | |
MCh$ | MCh$ | MCh$ | ||||||
Interest income | 25 a) | | | | ||||
Interest expense |
| 25 b) |
| ( |
| ( |
| ( |
Net interest income |
|
|
| |
| |
| |
Fee and commission income |
| 26 a) |
| |
| |
| |
Fee and commission expense |
| 26 b) |
| ( |
| ( |
| ( |
Net fee and commission income |
|
|
| |
| |
| |
Net income from financial operations |
| 27 |
| |
| |
| |
Net foreign exchange gain (loss) |
| 28 |
| ( |
| |
| ( |
Other operating income |
| 33 a) |
| |
| |
| |
Net operating profit before provision for loan losses |
|
|
| |
| |
| |
Provision for loan losses |
| 29 |
| ( |
| ( |
| ( |
NET OPERATING PROFIT |
|
|
| |
| |
| |
Personnel salaries and expenses |
| 30 |
| ( |
| ( |
| ( |
Administrative expenses |
| 31 |
| ( |
| ( |
| ( |
Depreciation and amortization |
| 32 a) |
| ( |
| ( |
| ( |
Impairment |
| 32 a) |
| ( |
| ( |
| ( |
Other operating expenses |
| 33 b) |
| ( |
| ( |
| ( |
Total operating expenses |
|
|
| ( |
| ( |
| ( |
TOTAL OPERATING INCOME (LOSS) |
|
|
| |
| |
| ( |
Income (loss) from investments in associates |
| 12 |
| |
| ( |
| ( |
Operating (loss) income before income taxes |
|
|
| |
| |
| ( |
Income taxes |
| 16 |
| |
| ( |
| |
Consolidated income (loss) from continuing operations |
|
|
| |
| |
| ( |
Income (loss) from discontinued operations |
|
|
| — |
| — |
| — |
TOTAL CONSOLIDATED INCOME (LOSS) FOR THE YEAR |
|
|
| |
| |
| ( |
Attributable to: |
|
|
|
|
|
| ||
Equity holders of the Bank |
| 24 c) |
| |
| |
| ( |
Non-controlling interest |
| 24 c) |
| |
| |
| ( |
Earnings (losses) per share attributable to equity holders of the Bank |
|
|
|
|
|
| ||
(in Chilean pesos) | ||||||||
Basic earnings (loss) per share |
| 24 a) |
| |
| |
| ( |
Diluted earnings (loss) per share |
| 24 a) |
| |
| |
| ( |
The accompanying notes are an integral part of these Consolidated Financial Statements.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-7 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Consolidated Statements of Other Comprehensive Income (Loss)
(In millions of Chilean pesos - MCh$)
For the years ended December 31, | ||||||||
| Notes |
| 2022 |
| 2021 |
| 2020 | |
| MCh$ |
| MCh$ |
| MCh$ | |||
CONSOLIDATED INCOME (LOSS) FOR THE YEAR |
| 24 d) | |
| |
| ( | |
OTHER COMPREHENSIVE INCOME (LOSS) WHICH MAY BE |
|
|
|
|
| |||
RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS: |
|
|
|
|
| |||
Debt instruments at fair value through other comprehensive income |
| 24 d) | |
| ( |
| ( | |
Exchange differences on investment in Colombia and New York branch |
| 24 d) | ( |
| |
| ( | |
Gain (loss) from hedge of net investments in foreign operations |
| 24 d) | ( |
| ( |
| | |
Gain (loss) from cash flows hedges |
| 24 d) | ( |
| |
| ( | |
Other comprehensive income (loss) before income taxes |
| ( |
| ( |
| ( | ||
Income taxes related to debt instruments at FV through OCI |
| ( |
| |
| | ||
Income taxes related to hedge of net investment in foreign operations |
| 24 d) | |
| |
| ( | |
Income taxes related to cash flows hedges |
| 24 | |
| ( |
| ( | |
Income taxes on other comprehensive income (loss) |
| |
| |
| ( | ||
Other comprehensive income (loss) which may be reclassified |
| ( |
| ( |
| ( | ||
subsequently to profit or loss, net of income taxes |
|
|
|
|
| |||
OTHER COMPREHENSIVE INCOME (LOSS) WHICH MAY NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS: |
|
|
|
|
| |||
Defined benefits obligations |
| 24 d) | |
| |
| ( | |
Income taxes related to defined benefits obligations |
| 24 d) | ( |
| ( |
| ( | |
Changes in the fair value of equity investments at fair value through other comprehensive income | 24 d) | | ( | | ||||
Other comprehensive loss which may not be reclassified subsequently to profit or loss, net of income taxes |
| |
| |
| | ||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) FOR THE YEAR |
| ( |
| ( |
| ( | ||
CONSOLIDATED COMPREHENSIVE INCOME (LOSS) FOR THE YEAR |
| |
| |
| ( | ||
Attributable to: |
|
|
|
|
| |||
Equity holders of the Bank |
| 24 d) | |
| |
| ( | |
Non-controlling interest |
| 24 d) | ( |
| |
| ( | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-8 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
(In millions of Chilean pesos - MCh$)
Retained earnings |
| Total | ||||||||||||||||||||
Reserves |
| Retained |
| Provision |
| attributable |
| |||||||||||||||
|
|
| Reserves |
| Other non- |
|
| earnings |
| Income (loss) |
| for |
| to equity |
| Non- |
| |||||
| Number of |
| from |
| earnings |
| Valuation |
| from prior |
| for |
| mandatory |
| holders of |
| controlling | |||||
shares | Capital |
| earnings |
| reserves | accounts |
| years | the year |
| dividends |
| the Bank | interest | Total equity | |||||||
| Millions |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Equity as of January 1, 2020 | |
| |
| |
| |
| |
| |
| — |
| ( |
| |
| |
| | |
Reclassification of income from previous year | ||||||||||||||||||||||
Equity as of January 1, 2020 |
| | | | | | | — | ( | | | | ||||||||||
Distribution of prior year's net income |
| — | — | — | — | — | ( | — | — | ( | — | ( | ||||||||||
Provision for mandatory dividends | | | | |||||||||||||||||||
Transfer of gain on disposal of equity investments at fair value through other comprehensive income to retained earnings | — | — | — | — | ( | | — | — | — | — | — | |||||||||||
Comprehensive income for the year |
| — | — | — | — | ( | — | ( | — | ( | ( | ( | ||||||||||
Equity as of December 31, 2020 |
| | | | | | | ( | — | | | | ||||||||||
Reclassification of income from previous year |
| — |
| — |
| ( |
| ( |
| — |
| ( |
| |
| — |
| — |
| — |
| — |
Equity as of January 1, 2021 |
| |
| |
| — |
| |
| |
| — |
| — |
| — |
| |
| |
| |
Capital increase | | | — | — | — | — | — | — | | — | | |||||||||||
Provision for mandatory dividends |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( |
| — |
| ( |
Reclassifications due to the discontinuation of the net investment in Itaú Colombia hedge |
| — |
| — |
| — |
| |
| ( |
| — |
| — |
| — |
| — |
| — |
| — |
Comprehensive income for the year | — | — | — | — | ( | — | | — | | | | |||||||||||
Equity as of December 31, 2021 |
| |
| |
| — |
| |
| ( |
| — |
| |
| ( |
| |
| |
| |
Reclassification of loss from previous year |
| — |
| — |
| — |
| — | — | |
| ( |
| — |
| — |
| — |
| — | ||
Reclasification new business model according to IFRS 9 | — | — | — | — | | — | — | — | | — | | |||||||||||
Equity as of January 1, 2022 |
| |
| |
| — |
| |
| ( |
| |
| — |
| ( |
| |
| |
| |
Distribution of prior year's net income | ( | — | | — | — | — | ||||||||||||||||
Provision for mandatory dividends |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( |
| — |
| ( |
Termination of accounting hedges highly probable transactions | — | — | — | | ( | — | — | — | — | — | — | |||||||||||
Other equity movements | — | ( | — | | — | — | — | — | ( | — | ( | |||||||||||
Acquision of MCC entities | — | — | — | ( | — | — | — | — | ( | — | ( | |||||||||||
Increase participation in Colombia | — | — | — | ( | — | — | — | — | ( | ( | ( | |||||||||||
Comprehensive income (loss) for the year |
| — |
| — |
| — |
| — | ( | — | | — | | ( | | |||||||
Equity as of December 31, 2022 |
| | |
| — |
| |
| ( |
| |
| |
| ( |
| |
| |
| | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-9 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In millions of Chilean pesos - MCh$)
For the years ended December 31, | ||||||
2022 | 2021 | 2020 | ||||
| MCh$ |
| MCh$ |
| MCh$ | |
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
| ||||
Operating income (loss) before income taxes | | | ( | |||
Debits (credits) to income that do not represent cash flows |
| |||||
Depreciation and amortization | |
| |
| | |
Provisions for loans and accounts receivable from customers and interbank loans |
| |
| |
| |
Provisions and write-offs for assets received in lieu of payment |
| |
| |
| |
Provisions for contingencies |
| |
| |
| |
Impairment |
| |
| |
| |
Net gain on sale of loans and accounts receivable from customers |
| ( |
| ( |
| ( |
Income received from Financial instruments at fair value through profit or loss |
| |
| ( |
| ( |
Income received from sale of Financial instruments at fair value through other comprehensive income |
| ( |
| |
| ( |
Net interest income |
| ( |
| ( |
| ( |
Fee and commission income |
| ( |
| ( |
| ( |
Fee and commission expense |
| |
| |
| |
Net foreign exchange gain (loss) |
| |
| ( |
| |
Net gain on sale of property, plant and equipment |
| |
| ( |
| |
Net gain on sale of assets received in lieu of payment | ( | ( | ( | |||
Net gain on sale of assets held for sale | — | — | ( | |||
Increase (decrease) on deferred tax assets and liabilities | | ( | ( | |||
Other charges (credits) that do not represent cash flows | ( | ( | | |||
Subtotal |
| ( |
| ( |
| ( |
Loans and accounts receivable from customers and interbank loans |
| ( |
| ( |
| |
Investments under resale agreements |
| |
| ( |
| ( |
Obligations under repurchase agreements |
| |
| ( |
| |
Financial instruments at fair value through profit or loss |
| ( |
| |
| |
Financial instruments at fair value through other comprehensive income |
| |
| |
| ( |
Financial instruments at amortized cost |
| ( |
| ( |
| |
Other assets and liabilities |
| ( |
| ( |
| |
Time deposits and other time liabilities |
| |
| ( |
| ( |
Deposits and other demand liabilities |
| ( |
| |
| |
Foreign borrowings obtained |
| |
| |
| |
Repayment of foreign borrowings |
| ( |
| ( |
| ( |
Interest paid |
| ( |
| ( |
| ( |
Interest received |
| |
| |
| |
Net fee and commission income |
| |
| |
| |
Taxes paid |
| ( |
| ( |
| ( |
Repayment of other borrowings |
| — |
| |
| |
Proceeds from sale of assets received in lieu of payment |
| |
| |
| |
Net cash flows provided by (used in) operating activities |
| ( |
| ( |
| |
CASH FLOWS FROM INVESTMENT ACTIVITIES: |
|
|
|
|
|
|
Purchase of property, plant and equipment and intangible assets |
| ( |
| ( |
| ( |
Sales of property, plant and equipment |
| |
| |
| |
Proceeds from sale of assets held for sale | — | — | | |||
Payments for investments in subsidiaries, net of cash acquired |
| ( |
| — |
| — |
Proceeds (payments) for investments in associates | | ( | ( | |||
Net cash flows provided by (used in) investing activities |
| ( |
| ( |
| ( |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| |
Borrowing obtained from the Central Bank of Chile | — | | | |||
Payments of borrowings from the Central Bank of Chile | — | — | ( | |||
Debt instruments issued |
| |
| |
| |
Financial instruments of regulatory capital issued | — | — | — | |||
Payments of debt issued |
| ( |
| ( |
| ( |
Payments of financial intrumentos of regulatory capital | ( | ( | — | |||
Dividends paid |
| ( |
| ( |
| ( |
Payments of lease liabilities | ( | ( | ( | |||
Capital increase | — | | — | |||
Net cash flows provided by financing activities |
| |
| |
| |
Effect of changes in exchange rates |
| |
| |
| |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| ( |
| |
| |
Cash and cash equivalents at the beginning of the year |
| |
| |
| |
Cash and cash equivalents at end of the year |
| |
| |
| |
Net increase (decrease) in cash and cash equivalents |
| ( |
| |
| |
COMPONENTS OF CASH AND CASH EQUIVALENT AT END OF PERIOD | ||||||
Cash and deposits in bank | | | | |||
Cash items in process of collection net (1) | | | | |||
Highly liquid financial instruments (2) | | | | |||
Investments under resale agreements (3) | | | | |||
Totals cash and cash equivalents | | | | |||
(1) | Cash items in process of collection and in process of being cleared represent domestic transactions, which have not been processed through the central domestic clearinghouse, or international transactions that may be delayed in settlement due to timing difference. |
(2) | Correspond to financial instruments at fair value through profit and loss and financial instrument at fair value through other comprehensive income with maturities that do not exceed three months as of December 31, 2022, the financial instruments at fair value through profit and loss include MCh$ |
(3) | Corresponds to resale agreement with maturities that do not exceed three months from the acquisition date. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-10 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In millions of Chilean pesos - MCh$)
As of | Changes other than cash | As of | ||||||||||||||||
| January 1, | Cash flows |
| Changes other |
| Interest and |
| Currency |
| Fair value |
| December 31, | ||||||
Item | 2022 | Received | Paid | than cash | Acquisition | readjustment | exchange effects | changes | 2022 | |||||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Debt instruments issued | ||||||||||||||||||
Borrowing obtained from Chilean Central Bank | | — | — | — | — | — | | — | | |||||||||
Mortgage finance bonds |
| |
| — | ( | — | — | — | — | — | | |||||||
Senior Bonds |
| |
| | ( | — | — | | ( | ( | | |||||||
Subordinate Bonds | | — | ( | | ( | | ||||||||||||
Lease contracts liabilities | | — | ( | ( | | | ( | — | | |||||||||
Totals |
| |
| |
| ( |
| ( |
| |
| |
| ( |
| ( |
| |
Dividends approved and paid in 2022 |
| — |
| — |
| ( |
| — |
| — |
| — |
| — |
| — |
| — |
Dividends approved in prior years and paid in 2022 |
| — |
| ( |
|
| — |
| — |
| — |
| — |
| — |
| — | |
Total Dividends paid | — |
| ( |
| ( |
| — |
| — |
| — |
| — |
| — |
| — | |
Subtotal cash flows from (used in) financing activities |
| — |
| | ( |
| — |
| — |
| — |
| — |
| — |
| — | |
Total cash flows from financing activities from liabilities (net) |
| — | | — | — | — | — | — | — | — | ||||||||
As of | Changes other than cash | As of | ||||||||||||||||
| January 1, | Cash flows |
| Changes other |
| Interest and |
| Currency |
| Fair value |
| December 31, | ||||||
Item | 2021 | Received | Paid | than cash | Acquisition | readjustment | exchange effects | changes | 2021 | |||||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Debt instruments issued | ||||||||||||||||||
Borrowing obtained from Chilean Central Bank | | | — | — | — | | — | — | | |||||||||
Mortgage finance bonds |
| |
| — |
| ( |
| — |
| — |
| |
| — |
| — |
| |
Senior Bonds |
| |
| |
| ( |
| |
| — |
| |
| ( |
| ( |
| |
Subordinate Bonds | | — | ( | — | — | | — | — | | |||||||||
Lease contracts liabilities | | — | ( | | ( | | | — | | |||||||||
Totals |
| |
| |
| ( |
| |
| ( |
| |
| ( |
| ( |
| |
Capital increase | — | | — | — | — | — | — | — | — | |||||||||
Dividends approved and paid in 2022 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Dividends approved in prior years and paid in 2022 |
| — |
| — |
| ( |
| — |
| — |
| — |
| — |
| — |
| — |
Total Dividends paid | — |
| |
| ( |
| — |
| — |
| — |
| — |
| — |
| — | |
Subtotal cash flows from financing activities |
| — |
| |
| ( |
| — |
| — |
| — |
| — |
| — |
| — |
Total cash flows from financing activities from liabilities (net) |
| — |
| |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-11 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Index | Page | |
GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | F-13 | |
F-52 | ||
F-57 | ||
F-62 | ||
F-64 | ||
INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS | F-65 | |
F-66 | ||
F-76 | ||
LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS AT AMORTIZED COST | F-77 | |
F-89 | ||
F-94 | ||
F-95 | ||
F-97 | ||
F-99 | ||
F-101 | ||
F-105 | ||
F-106 | ||
F-107 | ||
F-108 | ||
F-111 | ||
OTHER LIABILITIES AND LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE | F-118 | |
F-119 | ||
F-125 | ||
F-134 | ||
F-135 | ||
F-137 | ||
F-138 | ||
F-139 | ||
F-141 | ||
F-142 | ||
F-143 | ||
F-150 | ||
F-152 | ||
F-157 | ||
F-171 | ||
F-197 | ||
F-199 | ||
F-201 |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-12 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies
General Information – Background of Banco Itaú Chile and subsidiaries
Banco Itaú Chile (the “Bank”) is a corporation incorporated under the laws of the Republic of Chile and regulated by the Commission for the Financial Market (hereinafter, “CMF”, for its acronym in Spanish). The entity is the consequence of the merger of Banco Itaú Chile and Corpbanca, which took place on April 1, 2016, with the latter being the legal successor.
As approved in the Extraordinary Shareholders’ Meeting held on January 19, 2023 and pursuant to Resolution No. 2,215, issued on March 28, 2023 by the Commission for the Financial Market, the Bank modified its bylaw and changed the name to Banco Itaú Chile and subsidiaries, formerly named Itau CorpBanca and subsidiaries, further information is presented on Note 39. As of December 31, 2022 the Bank is controlled by Itaú Unibanco, which holds a
Banco Itaú Chile is headquartered in Chile and has operations in Colombia and Panama, In addition, Banco Itaú Chile has a branch in New York and a representative office in Lima, The Bank has total consolidated assets for MCh$
The legal address of Banco Itaú Chile is Presidente Riesco No 5537, Las Condes, Santiago, Chile, and its website is www.itau.cl
These Consolidated Financial Statements as of December 31, 2022, were approved by the Board of Directors on April 25, 2023.
Significant Accounting Policies and Others
a) | Accounting period |
The Consolidated Financial Statements are referred as of December 31, 2022 and 2021 and comprise the years ended December 31, 2022, 2021 and 2020.
b) | Basis of preparation of the Consolidated Financial Statements |
These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”).
Notes to these Consolidated Financial Statements contain information additional to that disclosed in the Consolidated Statements of Financial Position, Consolidated Statements of Income, Consolidated Statements of Other Comprehensive Income, Consolidated Statements of Changes in Equity, and Consolidated Statements of Cash Flows.
c) | Consolidation criteria |
These Consolidated Financial Statements comprise the preparation of the Financial Statements of the Bank and the controlled entities which participate in the consolidation as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020, and include the necessary adjustments and reclassifications to standardize the accounting policies and valuation criteria applied by the Bank, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”).
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-13 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Intercompany balances and any unrealized income or loss arising from intercompany transactions are eliminated upon consolidation during the preparation of the Consolidated Financial Statements.
(i) | Controlled entities |
The Bank, regardless of the nature of its involvement with an entity (the investee), shall determine whether it is a parent by assessing whether it controls the investee.
The Bank controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Thus, the Bank controls an investee if and only if has all the following:
1) | Power over the investee, which is related to the existing rights that give the Bank the current ability to direct the relevant activities, these being those that significantly affect the investee’s returns; |
2) | Exposure, or rights, to variable returns from its involvement with the investee; |
3) | Ability to use its power over the investee to affect the amount of the Bank’s returns; |
When the Bank has less than a majority of the voting rights over an investee, but such voting rights are sufficient to have the actual ability to direct the relevant activities, then it will be concluded that the Bank has control over the investee.
The Bank considers all relevant factors and circumstances when assessing if the voting rights are sufficient to obtain control, these include:
● | The amount of voting rights held by the Bank in relation to the amount and dispersion of those held by other vote holders. |
● | Potential voting rights held by the Bank, other voting holders or other parties. |
● | Rights that arise from other contractual agreements. |
● | Any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time those decisions need to be made, including the patterns of voting behavior in previous shareholders meetings. |
The Bank reassesses whether or not it has control over an investee when facts and circumstances indicate that there are changes in one or more of the control elements listed above.
The financial statements of the controlled companies are consolidated with those of the Bank through the global integration method (line by line). In accordance with this method, all balances and transactions between consolidated companies are eliminated upon consolidation. Therefore, the Consolidated Financial Statements refer to assets, liabilities, equity, income, expenses, and cash flows of the parent and its subsidiaries presented as if they were a single economic entity. The Bank prepares Consolidated Financial Statements using uniform accounting policies for transactions and other events that, being similar, have occurred in similar circumstances.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-14 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The following table details the entities controlled by Banco Itaú Chile:
Ownership percentage | ||||||||||||||||||
Functional | As of December 31, 2022 | As of December 31, 2021 | ||||||||||||||||
| Market |
| Country |
| currency |
| Direct |
| Indirect |
| Total |
| Direct |
| Indirect |
| Total | |
% | % | % | % | % | % | |||||||||||||
Itaú Corredores de Bolsa Limitada (1) |
| National |
| Chile |
| Ch$ |
|
|
|
| ||||||||
Itaú Administradora General de Fondos S.A. (1) |
| Chile |
| Ch$ |
|
|
|
| ||||||||||
Itaú Corredores de Seguros S.A. (1) |
| Chile |
| Ch$ |
|
|
|
| ||||||||||
Itaú Asesorías Financieras Limitada (1) |
| Chile |
| Ch$ |
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Recaudaciones y Cobranzas Limitada (1) |
| Chile |
| Ch$ |
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Itaú Corpbanca New York Branch (1) (4) |
| Foreign |
| USA |
| US$ |
| — |
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| — |
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Itaú Colombia S.A. (2) (6) (8) |
| Colombia |
| COP$ |
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| — |
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Itaú Corredor de Seguro Colombia S.A. (2) |
| Colombia |
| COP$ |
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| — |
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Itaú Securities Services Colombia S.A. (2) |
| Colombia |
| COP$ |
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Itaú Comisionista de Bolsa Colombia S.A (2) |
| Colombia |
| COP$ |
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Itaú Asset Management Colombia S.A. Sociedad Fiduciaria (2) |
| Colombia |
| COP$ | — |
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| — |
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Itaú (Panamá) S.A. (3) |
| Panama |
| US$ | — |
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| — |
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Itaú Holding Colombia S.A.S (5) (7) (9) |
| Colombia | COP$ | — | — | — | — | |||||||||||
(1) Company regulated by the Commision for the Financial Market (CMF) of Chile.
(2) Companies regulated by the Colombian Financial Superintendency (SFC), which has a supervision agreement with the CMF.
(3) Company regulated by the Superintendency of Banks of Panama.
(4) Company regulated by Office of the Comptroller of the Currency (OCC) and Federal Reserve (FED).
(5) On February 1, 2022, Itaú Holding Colombia S.A. was created.
(6) On February 22, 2022, the Bank acquired
(7) On February 22, 2022, Itaú Holding Colombia S.A acquired
(8) On March 25, 2022, the Bank acquired
(9) On March 25, 2022, Itaú Holding Colombia S.A. acquired
(ii) | Associates |
Associated entities are those over which the Bank has significant influence; although not control or joint control. If the Bank holds, directly or indirectly (e.g. through subsidiaries), 20% or more of the voting power of the investee, it is presumed that the Bank has significant influence, unless it can be clearly demonstrated that this is not the case, and subsequently increased or decreased to recognize either the Bank’s proportional share in the net profit or loss of the associate and other movements recognized in its equity. The lower value arising from the acquisition of an associate is included in the book value of the investment net of any accumulated impairment loss.
Other factors considered to determine the significant influence on an entity are the representations in the Board of Directors and the existence of material transactions. The existence of these factors could determine the existence of significant influence on an entity, despite having a participation of less than 20% of the shares with the right to vote.
The following entities are classified as “Associates” and are accounted for using the equity method, according to IAS 28:
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| As of December 31, |
| As of December 31, |
| |||
Associate | Main Operation | Operation Place | 2022 |
| 2021 |
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% Share | % Share | ||||||||
Transbank S.A |
| Credit card operator | Santiago, Chile | | % | | % | ||
Combanc S.A (1) | High value payment clearing house | Santiago, Chile | | % | | % | |||
Imerc OTC S.A (1) | Administration of clearing and settlement systems for financial instruments | Santiago, Chile | | % | | % | |||
(1) As of the second quarter of 2021, the Bank gained significant influence over Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A. (hereinafter, “Combanc S.A.”) and over Servicios de Infraestructura de Mercado OTC S.A (hereinafter, “Imerc OTC S.A.”). Management concluded that, because of fact that the Bank can elect one of the members of the Board of Directors in each of these entities, in addition to other factors, such as significant transactions between the Bank and these entities, exchange of essential technical information with its investees and other factors, the Bank has a say in the financial and operating decision-making of these investees, but does not control them. Consequently, the equity method has been applied.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-15 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
(iii)Investments in other companies
Investments in other companies, represented by shares or rights in other companies, are those in which the Bank has neither control nor significant influence. These equity instruments must be measured in compliance with IFRS 9, at their fair value; however, equity instruments that are neither held for trading and on which the equity method is not applied for investments in companies with significant influence (“associates” or “joint ventures”) according to IAS 28, may be recorded after their initial recognition and irrevocably at fair value, with variations recognized in Other Comprehensive Income instead of as “Non-trading financial assets mandatorily at fair value through profit or loss”. Dividends received from these investments are recorded in "Income (loss) from investments in companies" in the Consolidated Statement of Income. These instruments are not subject to the impairment model of IFRS 9.
(iv)Funds management, trust business and other related businesses
The Bank and its subsidiaries manage assets held in publicly offered investment funds and other investment vehicles on behalf of investors and receive market-rate compensation for providing this type of services. Managed funds belong to third parties and, therefore, are not included in the Consolidated Statement of Financial Position.
The Bank provides trust commissions and other fiduciary services that result in the participation or investment of assets by clients. Assets held in a fiduciary activity are not reported in the Consolidated Financial Statements, since they are not Bank assets and there is no control over them. Contingencies and commitments arising from this activity are disclosed in Note 23 - Contingencies, Commitments, and Responsibilities, letter c), related to Responsibilities recorded in off-balance-sheet accounts.
In accordance with IFRS 10 “Consolidated Financial Statements,” for consolidation purposes, the role of the Bank and its subsidiaries with respect to the managed funds must be evaluated to determine whether it is acting as Agent or Principal. According to this standard, an Agent is a party primarily engaged in acting on behalf and for the benefit of another party or parties (the Principal or Principals) and, therefore, it does not control the investee when it exercises decision-making authority. This evaluation must take into account the following aspects:
●Scope of its decision-making authority over the investee.
●Rights held by other parties.
●The remuneration to which it is entitled to in accordance with the remuneration agreements.
●Decision-maker’s exposure to variability of returns from other interests that it holds in the investee.
The Bank does not control or consolidate any trusts or other entities related to this type of business.
The Bank manages the funds on behalf and for the benefit of investors, acting solely as an Agent. The assets managed by the Bank and its subsidiaries are owned by third parties. Under this category, and in accordance with the aforementioned standard, they do not control the assets when they exercise their decision-making authority. Therefore, as of December 31, 2022 and 2021 they act as Agent and none of these investment vehicles is consolidated.
d)Non-controlling interest
Non-controlling interest represents the portion of net income or loss and net assets which the Bank does not own, either directly or indirectly. It is disclosed as “Attributable to non-controlling interest” separately in the Consolidated Statement of Income (Loss).
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-16 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Additionally, non-controlling interests are presented in the Consolidated Statement of Financial Position under the heading "Non-controlling interest", separately from the equity attributable to owners of the Bank. Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control are equity transactions (i.e. transactions with owners in their capacity as owners).
The Bank attributes the profit or loss for the period and each component of other comprehensive income to the owners of the Bank and to non-controlling interests. The Bank also attributes total comprehensive income to the owners of the Bank and non-controlling interests even if the results of the non-controlling interests result in a debit balance.
e)Business combination and goodwill
Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Bank, liabilities incurred by the Bank to the former owners of the acquiree and the equity interests issued by the Bank in exchange for control of the acquiree. Acquisition costs incurred are expensed and included in administrative expenses.
When Banco Itaú Chile and its subsidiaries (the Group) acquires a business, evaluates the identifiable assets acquired and liabilities assumed to determine proper classification and designation based on contractual conditions, economic circumstances, and other relevant conditions as of the acquisition date. This includes the assessment of whether an embedded derivative should be separated from a host contract in accordance with IFRS 9.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity, and acquisition-date fair value of any previous equity interest in the acquired entity; over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill acquired in a business combination is assigned, from the date of acquisition, to each of the Group’s cash generating units (CGU) (or group of CGUs) that are expected to benefit from the combination, independently of whether other assets or liabilities of the acquiree are assigned to those units.
When goodwill is allocated to a CGU (or group of CGUs) and an operation within that unit is sold, the goodwill associated with that operation is included in the carrying amount of the operation sold when determining the gain or loss on disposal. Goodwill that is derecognized under such circumstances is measured on the basis of the relative values of the operation disposed of and the retained portion of the CGU (or group of CGUs).
f) Common control transaction
A common control transaction is a transfer of assets or an exchange of equity interests among entities under the same parent’s control.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-17 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
A common-control transaction has no effect on the parent´s consolidated financial statements. The net assets are derecognized by the transferring entity and recognized by the receiving entity at their historical carrying amount. Any difference between the proceeds transferred or received and the carryng amount of the net assets is recognized in equity in the transferring and receiving entities separatd financial statements and eliminated in consolidation.
g) Functional and presentation currency
The Bank has defined as its functional and presentation currency the Chilean peso, which is the currency of the primary economic environment in which the Bank operates and the currency that influences its costs and revenue structure.
Therefore, all balances and transactions denominated in currencies other than the Chilean peso are treated as "foreign currency".
The Bank translates accounting records of its New York branch and subsidiaries in Colombia and Panama into Chilean pesos from US dollars and Colombian pesos, as applicable, in accordance with IAS 21 "Effects of the Variations in the Exchange Rates of the Foreign Currency". All amounts in the Consolidated Statements of Income, Consolidated Statements of Other Comprehensive Income and the Consolidated Statements of Financial Position are translated into Chilean pesos according to the exchange rate indicated in letter h) below. None of the markets in which Banco Itaú Chile and its subsidiaries operate qualify as a hyperinflationary economy.
h)Foreign currency
Transactions in foreign currency are initially recorded by the Bank at the exchange rates of their respective functional currencies at the date these transactions first meet the conditions for their recognition.
Monetary assets and liabilities denominated in foreign currency are converted at the closing exchange rate of the functional currency in force at the closing date of the reporting period.
All differences arising from the settlement or conversion of monetary items are recorded in income, except for those that correspond to monetary items that are part of the hedge of a net investment in a foreign operation, for which the cumulative difference is recorded in equity and subsequently reclassified to profit and loss (on disposal). Tax effects attributable to the exchange differences on such monetary items are also recorded in Other Comprehensive Income.
Non-monetary items in foreign currency, which are measured in terms of historical cost, are converted using the exchange rate on the date of the transaction. Non-monetary items that are measured at their fair value in foreign currency are translated using the exchange rates on the date on which that fair value is measured. Gains or losses arising from the translation of non-monetary items measured at their fair value are recognized based on how the gains and losses arising from the change in fair value are recognized in Other Comprehensive Income or in Income, in accordance with IAS 21.
The Bank grants loans and receives deposits in amounts denominated in foreign currency, mainly in US dollars and Colombian pesos.
Balances in the financial statements of the consolidated entities whose functional currency is different from the Chilean peso are converted into the presentation currency, according to the following criteria:
● | Assets and liabilities, by using exchange rates as of the date of the Consolidated Financial Statements. |
● | Income and expenses and cash flows, by using the exchange rates as of the date of each transaction. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-18 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Exchange differences arising from translating balances into functional currencies of the consolidated entities other than Chilean pesos into Chilean pesos, are recorded as "Exchange differences" in Equity under the line item "Valuation accounts", until they meet the derecognition criteria for the Consolidated Statement of Financial Position, and is subsequently recorded in profit or loss.
The net amount of foreign exchange gains and losses includes the recognition of the effects of changes in the exchange rates over assets and liabilities denominated in foreign currencies and gains and losses arising from exchange rates changes affecting current and future transactions (highly probable transactions) entered into by the Bank.
Assets and liabilities in foreign currencies are shown at their equivalent amount in pesos, calculated using the exchange rate of $
i)Use of estimates and judgments
The preparation of the Consolidated Financial Statements requires the Bank’s management to make estimates, judgments and assumptions that affect the application of the accounting policies and the reported balances of assets and liabilities, disclosures of contingencies with respect to assets and liabilities as of the date of the Consolidated Financial Statements, as well as income and expenses during the year. Actual results may differ from these estimates.
Estimates and relevant assumptions are regularly reviewed by Management in order to properly measure some assets, liabilities, income, and expenses. Accounting estimates changes due to reviews are recognized in the year in which the estimate is reviewed and in any future period affected.
In certain cases, International Financial Reporting Standards requires that assets and liabilities be recorded or disclosed at their fair values. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. When market prices in active markets are available, they have been used as a basis for valuation. When market prices in active markets are not available, the Bank has estimated those values as values based on the best available information, including the use of modeling and other valuation techniques.
The Bank has established allowances to cover expected credit losses over its loan portfolio and other financial assets. These allowances must be regularly reviewed taking into consideration factors such as changes in the nature and volume of the loan portfolio, trends in forecasted portfolio quality, credit quality and economic conditions that may adversely affect the borrowers’ ability to pay. Increases in the allowances for loan losses are reflected as “Provision for loan losses” in the Consolidated Statement of Income (Loss). Loans are charged-off when the Bank’s management determines that a loan or a portion thereof is impaired. Charge-offs are recorded as a reduction of the allowance for loan losses.
In particular, information on significant areas of estimate due to uncertainties and critical judgments in the application of accounting policies that have the most important effect on the amounts recorded in the Consolidated Financial Statements are the following:
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-19 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
● | Allowances for loan losses |
● | Fair value of financial assets and liabilities |
● | Contingencies and commitments |
● | Impairment losses of certain assets, including Goodwill |
● | Current taxes and deferred taxes |
During the year ended December 31, 2022, there have been no significant changes in estimates made compared to the estimates at the end of 2021 (see Note 32).
j)Operating segments
The Bank provides financial information for each operating segment in conformity with IFRS 8 “Operating Segments” in order to disclose information that enables financial statement users to evaluate the nature and financial effects of the business activities in which the Bank engages and the economic environments in which it operates and to allow them to:
● | Better understand the Bank’s performance. |
● | Better evaluate its future cash flow projections. |
● | Form better opinions regarding the Bank as a whole. |
To comply with IFRS 8, Banco Itaú Chile identifies operating segments (Chile and Colombia) used by the Executive Committee, which is defined as the chief operating decision maker, to analyze and make decisions regarding operating, financing and investment matters, based on the following elements:
(1) | The nature of the products and services; |
(2) | The nature of the processes; |
(3) | The type or class of customer for their products and services; |
(4) | The methods used to distribute their products or provide their services; and |
(5) | If applicable, the nature of the regulatory environment, for example, banking, insurance or public utilities. |
The Executive Committee manages these segments using an in-house system of internal profitability reports and reviews its segments on the basis of the operating results and uses efficiency, profitability and other indicators to evaluate performance and allocate resources. The Bank has also included geographic disclosures on its operations in New York and Colombia. More information on each segment is presented in Note 4 - Reporting Segments.
k)Operations with repurchase and resale agreements
Transactions with resale agreements are entered into as a form of investment. Under these agreements, financial instruments are sold, which are included as assets under "Investments under resale agreement” and are accounted for at amortized cost using the effective interest rate of the agreement.
There are also sales transactions with a repurchase agreement as a form of financing. In this regard, the investments that are sold subject to a repurchase obligation and that serve as collateral for the loan, form part of the investment items of "Financial Instruments at Fair Value Through Profit or Loss" or "Financial Instruments at Fair Value Through Other Comprehensive Income". The obligation to repurchase the investment is classified in liabilities as "Repurchase agreements and securities loans", recognizing interest and inflation-indexation adjustments accrued as of the closing date.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-20 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
l)Classification and measurement of financial instruments
I. Classification of financial instruments
(i) Classification of financial assets
Financial assets are classified into a measurement category based on both the Bank’s business model for managing the financial asset and the contractual cash flow characteristics of the financial asset.
Contractual cash flow assessment determine if the cash flows from the financial asset meet the SPPI (solely payment of principal and interest) criterion, i.e. whether the contractual terms of the financial asset give rise, on specific dates, to cash flows that are solely payments of principal and interest. Principal is the fair value of the financial assets at initial recognition, and interest is the consideration for the time value of money, the credit risk associated with the principal outstanding, and also may include liquidity risk, administrative cost and profit margin.
For classification process the Bank perform the SPPI test, which assesses the contractual term to identify whether they meet SPPI criterion, the contract is a basic lending arrangement. The Bank applies judgment and considers relevant factors such as currency in which the financial asset is denominated, and period for which the interest rate is set.
Business model refers to how the Bank manages its financial assets in order to generate cash flows. The Bank determined its business model on initial application of IFRS 9 at the level that best reflects how it manages groups of financial assets to achieve its business objective.
The Bank’s business model represents how financial assets are managed to generate cash flows and does not depend on the Management’s intention regarding an individual instrument, but at a higher level of aggregated portfolio and is based on observable factors such as: risks that affect the performance of business model; how business managers are compensated; how the performance of business model is assessed and reported to Management.
In addition, the Banks’s business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolio and is based on observable factors such as: performance of the financial assets, the risk that affect the performance, and the expected frequency, value and timing of sales, among others.
In accordance with IFRS 9 the business models are:
● | Held to collect business model (HTC) - financial assets that are held within a business model whose objective is to hold assets in order to collect contractual cash flows are managed to realize cash flows by collecting contractual payments over the life of the instrument, under this business model sales made when there is an increase in the credit risk, or to manage credit concentration risk are not inconsistent with a business model whose objective is to hold financial assets to collect contractual cash flows. |
● | Held to collect and sell (HTC&S) - financial assets under this business model achieve the objective by both collecting contractual cash flows and selling financial assets, then involve a greater frequency and value of sales than HTC business model. |
● | Other business model - financial assets held in this business has the objective of realizing cash flows through the sale of the assets. The Bank makes decisions based on the assets’ fair values and manages the assets to realize those fair values. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-21 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
(ii) Reclassifications
Reclassification of financial assets is required if, and only if, the objective of the Bank’s business model for managing those financial assets changes. Financial liabilities cannot be reclassified.
In January 2019, Law No. 21,130 was issued, which modernizes the banking legislation with the objective of implementing the practices promoted at international level by the Basel III. The new regulation was effective as of December 1, 2021 and will be implemented gradually until it is fully established as of December 1, 2025. Due to these changes, the bank performed a capital increase which in part was executed in order to comply with the new capital requirements. In connection with the new requirements and its capital management strategy the bank in Chile created a new portfolio which is managed on a segregated basis and under a held to collect business model with the purpose of managing the capital adequacy under the new capital requirements. As of January 1, 2022, securities classified under “Fair value through other comprehensive income¨ were derecognized for an amount of MCh$
As a result of the adoption of Basel III, the Bank has greater capital requirements in Colombia, making it necessary to protect this capital from credit and market risks. In August 2022 the Bank entered into a new capital management business model which will generate a reclassification from Debt Instruments measured at Fair Value through Other Comprehensive Income to “Financial instruments at amortized cost¨ as they are part of this portfolio, this reclassification will come into effect as of January 1, 2023.
II. Measurement of financial instruments
(i) Initial measurement
On initial recognition, financial assets and financial liabilities are measured at the transaction price, i.e. the fair value of the consideration given or received (IFRS 13). In the case of financial instruments not at fair value through profit or loss, transaction costs of financial assets and financial liabilities carried at fair value are expensed in profit or loss.
(ii) Subsequent measurement - Financial assets
After initial recognition, the Bank shall measure a financial asset at:
(a) Amortized cost
Financial assets that are held in a business model to collect the contractual cash flows and contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at amortized cost.
The effective interest method is used in the calculation of the amortized cost of a financial asset or a financial liability and in the allocation and recognition of the interest revenue or interest expense in profit or loss over the relevant period. The effective interest rate (EIR) is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortized cost of a financial liability.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-22 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
(b) Fair value through other comprehensive income (FVTOCI)
Financial assets that are debt instruments held in a business model that is achieved by both collecting contractual cash flows and selling, and that contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at FVTOCI. They are subsequently remeasured at fair value and changes therein (except for those relating to impairment, interest income and foreign currency exchange gains and losses) are recognized in other comprehensive income, until the assets are sold. Upon disposal, the cumulative gain and losses in other comprehensive income are recognized in the income statements.
(c) Fair value through profit or loss (FVTPL)
Financial assets that do not contain contractual terms that give rise on specified dates to cash flows that are SPPI, or if the financial assets, or if the financial asset is not held in a business model that is either (i) a business model to collect the contractual cash flows or (ii) a business model that is achieved by both collecting contractual cash flows and selling.
Financial assets held for trading are recognized at fair value through profit or loss, likewise derivatives contracts for trading purposes.
(d) Equity instruments
For certain equity instruments, the Bank may make an irrevocable election to present subsequent changes in the fair value of the instrument in other comprehensive income, except for dividend income which is recognized in profit or loss.
Gains or losses on derecognition of these equity instruments are not transferred to profit or loss.
(iii) Subsequent measurement - Financial liabilities
After initial recognition, the Bank shall measure a financial liability at amortized cost, except for derivatives that are measured at fair value through profit or loss.
III. Derecognition of financial assets and liabilities
Financial assets are derecognized when, and only when:
● | the contractual rights to the cash flows from the financial asset expire, or |
● | the Bank transfers substantially all the risks and rewards of ownership of the financial asset, and therefore the Bank derecognizes the financial asset and recognize separately any rights and obligations created or retained in the transfer. |
In some cases, the Bank enters into transactions for which it retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows in an arrangement that meets all the conditions required, i.e. the Bank only transfers collected amounts from original assets, selling or pledging original assets is prohibited, and the Bank has the obligation to remit cash flows collected without material delay.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-23 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
When a financial asset is sold and the Bank simultaneously agrees to repurchase it (or an asset that is substantially the same) at a fixed price on a future date, the Bank continues to recognize the financial assets in their entirety in the statements of financial position because it retains substantially all of the risks and rewards of ownership. The cash consideration received is recognized as a financial asset and a financial liability is recognized for the obligation to pay the repurchase price.
Financial liabilities are derecognized when, and only when, they are extinguished, cancelled or expired.
Derecognition due to substantial modification of terms and conditions
The Bank derecognizes a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to the extent that it essentially has become a new asset, with the difference recognized as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded.
A modification of terms and conditions does not lead to derecognition if it does not result in cash flows that are substantially different. Based on the change in cash flows discounted at the original EIR, the Bank records a modification gain or loss, to the extent that an impairment loss has not already been recorded. For financial liabilities, the Bank considers a modification substantial based on qualitative factors, and whether it results in a difference between the adjusted discounted present value and the original carrying amount of the financial liability of, or greater than, ten percent. For financial assets, this assessment is based on qualitative factors.
IV. Renegotiated and modified loans
The Bank sometimes makes concessions or modifications to the original terms of loans as a response to the borrower’s financial difficulties, rather than taking possession or otherwise enforcing collection of collateral, or in some cases in order to renegotiate loans. The Bank considers a loan forborne when such concessions or modifications are provided as a result of the borrower’s present or expected financial difficulties and the Bank would not have agreed to them if the borrower had been financially healthy. Indicators of financial difficulties include defaults on covenants, or significant concerns raised by the Credit Risk Department. Forbearance may involve extending the payment arrangements and the agreement of new loan conditions. It is the Bank’s policy to monitor forborne loans to help ensure that future payments are likely to occur.
If the modifications are substantial, the loan is derecognized, as explained in “III. Derecognition of financial assets and liabilities”. If the terms have been renegotiated without resulting in the derecognition of the loan, any impairment is measured using the original EIR as calculated before the modification of terms. The Bank also reassesses whether there has been a significant increase in credit risk and whether the assets should be classified as another Stage. Derecognition decisions and classifications of Stage 2 and Stage 3 are determined on a case-by case basis. If these procedures identify a loss in relation to a loan, it is disclosed and managed as an impaired Stage 3 forborne asset until it is collected or written off.
V. Contingent loans
The Bank issues contingent loans (including letters of credit, foreign letters of credit and performance guarantee) and loan commitments.
Contingent loans and undrawn loan commitments are commitments under which, over the duration of the commitment, the Bank is required to provide a loan with pre-specified term to the customer.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-24 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The nominal contractual loan value, when the loan agreed to be provided is on market terms, is not recorded in the statements of financial position. The related expected credit loss allowance is disclosed in Note 21.
VI. Offsetting
Financial assets and financial liabilities are offset in the balance sheet only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
m)Derivatives and hedging activities
The Bank has elected to continue applying the hedge accounting requirements of IAS 39 on adoption of IFRS 9.
For presentation purposes, derivatives are presented in accordance with its positive or negative fair value as assets or liabilities, respectively, and include trading and hedging instruments separately (see Note 8).
Hedging transactions
The Bank uses financial derivatives for the following purposes:
i. | to sell to customers who request these instruments in the management of their market and credit risks; |
ii. | to use these derivatives in the management of the risks of the Bank entities’ own positions and assets and liabilities (“hedging derivatives”), and |
iii. | to obtain profits from changes in the price of these derivatives (trading derivatives). |
All financial derivatives that are not held for hedging purposes are accounted for as trading derivatives.
A derivative qualifies for hedge accounting if all the following conditions are met:
i. | The derivative hedges one of the following three types of exposure: |
a. | Changes in the value of assets and liabilities due to fluctuations, among others, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”); |
b. | Changes in the estimated cash flows arising from financial assets and liabilities, and highly probable forecasted transactions (“cash flow hedge”); |
c. | The net investment in a foreign operation (“hedge of a net investment in a foreign operation”). |
ii. | It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that: |
a. | At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”). |
b. | There is sufficient evidence that the hedge was actually effective during the life of the hedged item or position (“retrospective effectiveness”). |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-25 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
iii. | There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks. |
The changes in the value of financial instruments qualifying for hedge accounting are recorded as follows:
a. | For fair value hedges, the gains or losses arising on both hedging instruments and the hedged items (attributable to the type of risk being hedged) are included as “Net income (expense) from financial operations” in the Consolidated Statement of Income. |
b. | For fair value hedges of interest rate risk on a portfolio of financial instruments, gains or losses that arise in measuring hedging instruments within “Interest income and expense”, and other gains or losses due to changes in fair value of the underlying hedged item (attributable to the hedged risk) are recorded in the Consolidated Statement of Income (Loss) under “Net income (expense) from financial operations”. |
c. | For cash flow hedges, the change in fair value of the hedging instrument is included as “Cash flow hedge” in “Other comprehensive income”. |
d. | The differences in valuation of the hedging instrument corresponding to the ineffective portion of the cash flow hedging transactions are recorded directly in the Consolidated Statements of Income (Loss) under “Net income (expense) from financial operations”. |
If a derivative designated as a hedging instrument no longer meets the conditions described above due to expiration, ineffectiveness or for any other reason, hedge accounting treatment is discontinued. When “fair value hedging” is discontinued, the fair value adjustments to the carrying amount of the hedged item arising from the hedged risk are amortized to gain or loss from that date, where applicable.
Sources of hedge ineffectiveness may arise from basis risk, including but not limited to the discount rates used for calculating the fair value of derivatives, hedges using instruments with a non-zero fair value, and notional and timing differences between the hedged items and hedging instruments.
When cash flow hedges are discontinued, any cumulative gain or loss of the hedging instrument recognized under “Other comprehensive income (loss)” (from the period when the hedge was effective) remains recorded in equity until the hedged transaction occurs, at which time it is recorded in the Consolidated Statements of Income, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recorded immediately in the Consolidated Statement of Income (Loss).
n)Fair value measurement
In general, financial assets and liabilities are initially recognized at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. Financial instruments, other than those measured at fair value through profit or loss, are initially recognized at fair value plus transaction costs. Subsequently, and at the end of each reporting period, financial instruments are measured pursuant to the following criteria:
(i) Valuation of financial instruments
Financial assets are measured according to their fair value, gross of any transaction costs that may be incurred in the course of a sale, except for loans and accounts receivable from customers.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-26 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
According to IFRS 13 “Fair Value Measurement”, “Fair value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.
The fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either: (a) in the principal market for the asset or liability, or (b) in the absence of a principal market, the most advantageous market for the asset or liability.
Even when there is no observable market to provide pricing information in connection with the sale of an asset or the transfer of a liability at the measurement date, the fair value measurement shall assume that the transaction takes place, considered from the perspective of a potential market participant who intends to maximize value associated with the asset or liability.
When using valuation techniques, the Bank shall maximize the use of relevant observable inputs and minimize the use of unobservable inputs as available. If an asset or a liability measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is most representative of fair value in the circumstances shall be used to measure fair value regardless of where the input is categorized within the fair value hierarchy (i.e. Level 1, 2 or 3). IFRS 13 establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
All derivatives are recorded in the Consolidated Statements of Financial Position at the fair value previously described. This value is compared to the valuation as at the trade date. If the fair value is subsequently measured positive, this is recorded as an asset. If the fair value is subsequently measured negative, this is recorded as a liability. The fair value on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price.
The changes in the fair value of derivatives from the trade date are recorded in “Net income (expense) from financial operations” in the Consolidated Statement of Income.
Specifically, the fair value of financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price. If, for exceptional reasons, the quoted price cannot be determined on a given date, the fair value is determined using similar methods to those used to measure over the counter (OTC) derivatives. The fair value of OTC derivatives is the sum of the future cash flows resulting from the instrument, discounted to present value at the date of valuation (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV) and option pricing models, among other methods.
Specifically, the fair value of financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price. If, for exceptional reasons, the quoted price cannot be determined on a given date, the fair value is determined using similar methods to those used to measure over the counter (OTC) derivatives. The fair value of OTC derivatives is the sum of the future cash flows resulting from the instrument, discounted to present value at the date of valuation (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV) and option pricing models, among other methods.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-27 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Also, within the fair value of derivatives are included Credit Valuation Adjustment (CVA) and Debit Valuation Adjustment (DVA), all with the objective that the fair value of each instrument includes the credit risk of its counterparty and Bank’s own risk. The Credit valuation adjustment (CVA) is a valuation adjustment to OTC derivatives as a result of the risk associated with the credit exposure assumed by each counterparty. The CVA is calculated taking into account potential exposure to each counterparty in each future period. The debit valuation adjustment (DVA) is a valuation adjustment similar to the CVA but, in this case, it arises as a result of the Bank’s own risk assumed by its counterparties in OTC derivatives.
(ii) Valuation techniques
Financial instruments at fair value, determined on the basis of price quotations in active markets, include government debt securities, private sector debt securities, equity shares, short positions, and fixed-income securities issued.
In cases where price quotations cannot be observed in available markets, the Bank’s management determines a best estimate of the price that the market would set using its own internal models. In most cases, these models use data based on observable market parameters as significant inputs however for some valuations of financial instruments, significant inputs are unobservable in the market. To determine a value for those instruments, various techniques are employed to make these estimates, including the extrapolation of observable market data.
The most reliable evidence of the fair value of a financial instrument on initial recognition usually is the transaction price, however due to lack of availability of market information, the value of the instrument may be derived from other market transactions performed with the same or similar instruments or may be measured by using a valuation technique in which the variables used include only observable market data, mainly interest rates.
The main techniques used as of December 31, 2022 and 2021 by the Bank’s internal models to determine the fair value of the financial instruments are as follows:
i. | In the valuation of financial instruments permitting static hedging (mainly forwards and swaps), the present value method is used. Estimated future cash flows are discounted using the interest rate curves of the related currencies. The interest rate curves are generally observable market data. |
ii. | In the valuation of financial instruments requiring dynamic hedging (mainly structured options and other structured instruments), the Black- Scholes model is normally used. Where appropriate, observable market inputs are used to obtain factors such as the bid-offer spread, exchange rates, volatility, correlation indexes and market liquidity. |
iii. | In the valuation of certain financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors, the present value method (futures) and the Black-Scholes model (plain vanilla options) are used. The main inputs used in these models are observable market data, including the related interest rate curves, volatilities, correlations and exchange rates. |
The fair value of the financial instruments calculated by the aforementioned internal models considers contractual terms and observable market data, which include interest rates, credit risk, exchange rates, quoted market price of shares, volatility and prepayments, among others. The Bank’s management considers that its valuation models are not significantly subjective, since these methodologies can be adjusted and evaluated, as appropriate, through the internal calculation of fair value and the subsequent comparison with the related actively traded price.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-28 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
o)Recognizing income and expenses
The most significant criteria used by the Bank to recognize its revenues and expenses are summarized as follows:
(i) Interest income, interest expense, and similar items
Interest income and expense are recorded on an accrual basis using the effective interest method.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for financial assets that have subsequently become credit-impaired (or ‘stage 3’), for which interest revenue is calculated by applying the effective interest rate to their amortized cost (i.e. net of the ECL provision).
(ii) Dividends received
Dividends received from investments in other companies are recognized on income when the right to receive them arises and are recorded in the item “Income from investments in companies”.
(iii) Commissions, fees, and similar items
Fee and commission income and expenses are recognized in the Consolidated Statement of Income (Loss) as set forth on IFRS 15 “Revenue from contracts with customers”, based on the terms of the contract held with customers, excluding amounts collected on behalf of third parties. The Bank recognizes revenue as the performance obligations is fulfilled by transferring a service to a customer; under this definition an asset is transferred when (or as) the customer obtains control of that asset or a services is rendered. The Bank considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
The Bank transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time, and/or the Bank satisfies the performance obligation at a point in time.
The main revenues arising from commissions, fees and similar items correspond to:
● | Fees and commissions for lines of credits and overdrafts: includes accrued fees related to granting lines of credit and overdrafts in checking accounts. |
● | Fees and commissions for guarantees and letters of credit: includes accrued fees in the period relating to granting of guarantee payment for current and contingent third party obligations. |
● | Fees and commissions for card services: includes accrued and earned commissions in the period related to use of credit cards, debit cards and other cards. |
● | Fees and commissions for management of accounts: includes accrued commissions for the maintenance of checking, savings and other accounts |
● | Fees and commissions for collections and payments: includes income arising from collections and payments services provided by the Bank. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-29 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
● | Fees and commissions for intermediation and management of securities: includes income from brokerage, placements, administration and securities’ custody services. |
● | Fees and commissions for insurance brokerage fees: includes income arising for insurances distribution. |
● | Other fees and commissions: includes income arising from currency changes, financial advisory, cashier check issuance, placement of financial products and online banking services. |
The main expenses arising from commissions, fees and similar items correspond to:
● | Compensation for card operation: includes commission expenses for credit and debit card operations related to income commissions’ card services. |
● | Fees and commissions for securities transactions: includes commissions’ expense for deposits, securities custody service and securities’ brokerage. |
● | Other fees and commissions: includes mainly expenses generated from online services. |
The Bank has incorporated disaggregated revenue and expense disclosures and reportable segment relationship in Note 26.
Additionally, the Bank grants a group of benefits to its cardholders for which, in accordance with IFRS 15, has established provisions enough to comply with its performance obligations when these benefits become enforceable.
(iv) Loan arrangement fees
Fees that arise as a result of the origination of a loan, mainly application and analysis-related fees, are deferred and charged to the Consolidated Statement of Income (Loss) over the term of the loan. In the case of commitment fees these are immediately recorded in the Consolidated Statement of Income (Loss) when it is unlikely that a specific lending arrangement will be entered into and the loan commitment is not measured at FVTPL.
p)Impairment
Assets are acquired or purchased based on the future economic benefits they produce. Accordingly, impairment is recorded when the carrying amount of those assets is lower than the recoverable amount, assets are subject to impairment tests in order to properly reflect the future economic benefits that assets are capable to produce when used by the Bank.
The Bank assesses on a forward-looking basis the expected credit losses (ECL) associated with its debt instrument assets carried at amortized cost and FVTOCI and with the exposure arising from loan commitments and financial guarantee contracts. The Bank recognizes a loss allowance for such losses at each reporting date. The measurement of ECL reflects:
● An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;
● The time value of money; and
● Reasonable and supportable information that is available without undue cost or effort at the repotting date about past events, current conditions and forecasts of future economic conditions.
The Bank follows the criteria described below in order to assess impairment, when applicable:
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-30 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
(i)Financial assets
A financial asset, other than those recorded at fair value through profit and loss, is evaluated on each financial statement reporting date in order to determine whether objective evidence of impairment exists. At the end of each reporting period the Bank assesses if objective evidence exist for a financial asset or group of financial assets to be impaired.
A financial asset or group of financial assets will be impaired if, and only if, objective evidence of impairment exists as a result of one or more events that occurred after initial recognition of the asset (“event causing the loss”), and this event or events causing the loss have an impact on the estimated future cash flows of a financial asset or group of financial assets.
An impairment loss relating to financial assets recorded at amortized cost is calculated as the difference between the recorded amount of the asset and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
Objective evidence for an asset or group of assets to be impaired includes the following events that cause losses: (i) significant financial difficulties of the issuer or debtor; (ii) noncompliance of the terms of the contract; (iii) the lender, due to economic or legal reasons related to financial difficulties of the debtor, grants waivers or give unusual conditions that will not be granted in normal circumstances; (iv) it is probable that the debtor is in bankruptcy or in another form of financial reorganization; (v) there is no longer a market for the financial asset due to financial difficulties; or (vi) observable data indicates that since initial recognition of a group of financial assets there is a decrease in the estimated future cash flows regardless of individual identification for each asset, including data about: (a) adverse changes in the payment behavior of debtors in the group; or (b) local or national economic conditions correlated to non-compliant in the group.
Individually significant financial assets are individually assessed to determine their impairment. The remaining financial assets are collectively evaluated in groups that share similar credit risk characteristics.
FVTOCI investments are presented at its fair value and its changes in fair value are recorded within equity. The accumulated changes in fair value are transferred to profit or loss when the investment is derecognized or impaired. The ECL from investments measured at FVTOCI are transferred to profit or loss.
If impairment evidence exists, any amount previously recorded in equity is transferred from equity to the Consolidated Statement of Income (Loss), presented as FVTOCI investments net gains or losses. This amount is calculated as the difference between acquisition cost (net of any amortization and reimbursement) and the current fair value of the asset, less any impairment loss on the investment previously recorded in the Consolidated Statement of Income (Loss).
In respect to equity financial investments, impairment losses previously recognized in the Consolidated Statement of Income (Loss) are not reversed through income. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income and accumulated under FVTOCI as part of “Valuation accounts”.
All impairment losses are recorded in income. Any impairment loss relating to a financial asset FVTOCI previously recorded in equity is transferred to profit or loss. The reversal of an impairment loss occurs only if it can be objectively related to an event occurring after the initial impairment loss was recorded. The reversal of an impairment loss shall not exceed the carrying amount that would have been determined if no impairment loss has been recognized for the asset in prior years. The reversal is recorded in income with the exception of FVTOCI equity financial assets, in which case it is recorded in other comprehensive income (loss).
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-31 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
(ii)Non-financial assets
The Bank’s non-financial assets, are reviewed at each reporting date to determine whether they show signs of impairment (i.e. its carrying amount exceeds its recoverable amount). If any such evidence exists, the recoverable amount of the asset is estimated, in order to determine the extent of the impairment loss.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
In connection with other assets, impairment losses recorded in prior periods are assessed at each reporting date to determine whether the loss has decreased and should be reversed. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years. Goodwill impairment is not reversed.
The Bank shall assess at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased.
If any such indication exists, the entity shall estimate the recoverable amount of that asset.
In assessing whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased, an entity shall consider, as a minimum, external sources of information, such as there are observable indications that the asset’s value has increased significantly during the period; significant changes with a favorable effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which the asset is dedicated; market interest rates or other market rates of return on investments have decreased during the period, and those decreases are likely to affect the discount rate used in calculating the asset’s value in use and increase the asset’s recoverable amount materially and internal sources of information such as significant changes with a favorable effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, the asset is used or is expected to be used. These changes include costs incurred during the period to improve or enhance the asset’s performance or restructure the operation to which the asset belongs.
In the case of goodwill and indefinite useful life intangible assets or not yet available for use the recoverable amount is estimated at least annually.
When impairment exists the carrying amount of the asset shall be reduced to its recoverable amount if, and only if, the recoverable amount of an asset is less than its carrying amount. This reduction is an impairment loss.
An impairment loss shall be recognized immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another standard. Any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with that other standard.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-32 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
When the amount estimated for an impairment loss is greater than the carrying amount of the asset to which it relates, an entity shall recognize a liability if, and only if, that is required by another standard. After the recognition of an impairment loss, the depreciation (amortization) charge for the asset shall be adjusted in future periods to allocate the asset’s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.
If an impairment loss is recognized, any related deferred tax assets or liabilities are determined in accordance with IAS 12 “Income Taxes” by comparing the revised carrying amount of the asset with its tax base.
Impairment losses recognized in previous years are assessed at the end of each reporting period in order to identify any indication for impairment reduction or disappearance. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years.
(iii)Goodwill
Goodwill is tested annually in order to determine if impairment losses exist and whenever there is an indication that the carrying value may be impaired. The impairment of goodwill is determined by evaluating the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. An impairment loss is recognized when the recoverable amount of the CGU is less than its carrying amount.
For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’s cash-generating units, or groups of cash-generating units irrespective of whether other assets or liabilities of the acquire are assigned to those units or groups of units. An impairment loss recognized for goodwill shall not be reversed in a subsequent period.
According to IAS 36 “Impairment of Assets” the annual impairment test for a cash-generating unit to which goodwill has been allocated or for intangible assets with indefinite useful lives may be performed at any time during an annual period, provided the test is performed at the same time every year. Different cash-generating units may be tested for impairment at different times.
q)Property, plant and equipment
Items of property, plant and equipment are measured at acquisition cost, net of accumulated depreciation and impairment, if any.
In addition to the price paid to acquire each item, the cost also includes, where applicable, the capitalized cost. The capitalized cost includes expenses attributed directly to the asset acquisition and any other costs directly attributable to the process of placing the asset in conditions to be used.
When some part of an item of the plan and equipment are measured has a different useful life to that fixed asset, it is recognized as a separate component (significant components of plan and equipment are measured).
This item includes the amounts of property, land, furniture, vehicles, technological equipment and other facilities own by the consolidated entities or acquired under financial leases. These assets are classified based on their use in:
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-33 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
(i)Property, plant and equipment for own use
Property, plant and equipment for own use includes but is not limited to tangible assets received by the consolidated entities in full or partial satisfaction of financial assets representing accounts receivable from third parties which are intended to be held for continuing own use and tangible assets acquired under finance leases. These assets are presented at acquisition cost less the related accumulated depreciation and, if applicable, any impairment losses (when net carrying amount was higher than recoverable amount). For accounting purposes, acquisition cost of the received asset is considered to be its net amount.
Depreciation is calculated using the straight line method over the acquisition cost of assets less their residual value, assuming that the land on which buildings and other structures stand has an indefinite life and, therefore, is not subject to depreciation. Property, plant and equipment in leased properties are depreciated over the shorter period of time between their useful lives or the term of the lease, unless it is certain that the Bank will acquire the property at the end of the lease.
Maintenance expenses relating to tangible assets held for own use are recorded as an expense in the period in which they are incurred.
(ii)Assets leased out under operating leases
The criteria used to record the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives, and to record the impairment losses thereof, are consistent with those described in relation to property, plant and equipment held for own use.
r)Intangible assets
Intangible assets are identified as non-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of legal or contractual rights or it is separable. The Bank recognizes an intangible asset, whether purchased or self-created (at cost), when the cost of the asset can be measured reliably and it is probable that the future economic benefits that are attributable to the asset will flow to the Bank. The cost of intangible assets acquired in a business combination correspond to its fair value at the acquisition date.
Intangible assets are recorded initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortization and any accumulated impairment losses.
An entity shall assess whether the useful life of an intangible asset is finite or indefinite and, if finite, the length of, or number of production or similar units constituting, that useful life. An intangible asset shall be regarded by the entity as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.
The accounting for an intangible asset is based on its useful life. An intangible asset with a finite useful life is amortized over its useful life, and it is reviewed in order to determine if the asset is impaired, the amortization period and the amortization method shall be reviewed at least at each financial year-end. An intangible asset with an indefinite useful life are not amortized and the entity tests for impairment by comparing its recoverable amount with its carrying amount annually and whenever there is an indication that the intangible asset may be impaired.
Internally developed computer software is recorded as an intangible asset if, among other requirements (basically the Bank’s ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-34 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Expenditure on research activities is recorded as an expense in the year in which it is incurred and cannot be subsequently capitalized.
(i)Software
Software acquired by the Bank is recognized at cost less the accumulated amortization and impairment, if any.
The expenses in software developed internally are recorded as assets when the Bank is capable of proving its intention and ability to complete development, when internal use will generate future economic benefits, and when the cost of completing its development can be reliably measured. The capitalized costs of the software developed internally include all the direct costs attributable to the development of the software, and it is amortized over the course of its useful life. Software developed internally is recorded at cost less the accumulated amortization and losses from impairment.
The subsequent expenditures associated with the asset are capitalized only when future economic benefits from them will flow to the entity. The rest of the expenditures are recognized in income. Intangible assets are amortized on a straight-line basis over their estimated useful life; starting on the date it is ready for use.
(ii)Generated in a business combination
According to IFRS 3 “Business combinations”, when an intangible asset is acquired or generated in a business combination its cost will be the fair value at the acquisition date. The fair value of an intangible asset represents expectations of market participants at the acquisition date over the probability that future economic benefits from the asset will flow to the entity. In other words, the entity expects that economic benefits flows to it, even though there is uncertainty about the date or the amount of them.
As set forth by IAS 38 “Intangibles assets” and IFRS 3 “Business combinations”, the acquirer will recognize an intangible asset from the acquiree at the acquisition date separately from Goodwill independently if the asset was previously recognized by the acquiree before the business combination.
In connection with the aforementioned, the business combination between Banco Itaú Chile and Corpbanca gave rise to intangible assets and Goodwill as indicated in Note 13 Intangible Assets.
(iii)Other identifiable intangibles
Correspond to those intangible assets that can be identified, the Bank controls them, can be reliably measured and it is probable that future benefits will flow to the Bank.
s)Factoring transactions
The Bank performs operations with their clients, in which they receive invoices and other credit representative trading instruments with or without recourse to the transferor, anticipating a percentage of the total amount receivable of the borrower upon collection. These transactions are valued at the disbursed amounts by the Bank in exchange for invoices or other credit representative trading instruments.
The price differences between the disbursed amounts and the notional amount of the documents are recorded in the Consolidated Statement of Income (Loss) as interest income applying the effective interest rate method, over the term of the transaction. The responsibility of payment remains with the client (assignor).
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-35 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
t)Leases
(i) Right-of-use assets
At commencement date, the right-of-use asset is measured at cost. The cost of right-of-use asset includes (a) the amount of the initial measurement of the lease liability; (b) any lease payments made at or before the commencement date, less any lease incentives received; (c) the initial direct costs incurred by the Bank; and (d) an estimate of the costs to be incurred by the Bank in dismantling and disposing of the underlying asset, restoring the place where it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.
After the initial recognition date, the Bank measures the assets by the right of use by applying the cost model, which is defined as the asset by the right of use measured at cost (a) less any accumulated depreciation and any accumulated impairment losses; and (b) adjusted by any new measurement of the lease liability.
The Bank applies the depreciation requirements established by IAS 16 "Property, plant and equipment" when depreciating the right of use asset.
If the lease transfers ownership of the underlying asset to the Bank at the end of the lease term or if the cost of the right-of-use asset reflects that the Bank will exercise a purchase option, the Bank depreciates the right-of-use asset from the start date of the lease to the end of the useful life of the underlying asset. Otherwise, the Bank depreciates the right-of-use asset from the start date to the end of the useful life of the asset to which it has a right of use or to the end of the lease term, whichever occurs first.
The Bank applies IAS 36 "Impairment of assets" to determine whether a right of use asset is impaired and to account for identified impairment losses.
As of December 31, 2022, the Bank has not identified any impairment for the right-of-use assets under lease.
(ii) Lease liability
The Bank measured the lease liability as the present value of lease payments that have not been paid as of that date. Lease payments are discounted using the interest rate implicit in the lease, if that rate can be easily determined. If that rate cannot be readily determined, the Bank uses its incremental borrowing rate (cost of funding).
The lease payments included in the measurement of the lease liability comprise the following payments for the right-of-use the underlying asset during the term of the not cancelable at the measurement date, which includes (a) fixed payments, less any lease incentive receivable; (b) variable lease payments, which depend on an index or a rate, recently measured using the index or rate on the start date; (c) it matters that the lessee expects to pay as residual value guarantees; (d) the exercise price of a purchase option if the lessee is reasonably sure to exercise that option; and (e) payments for penalties arising from the termination of the lease, if the term of the lease reflects that the lessee exercises an option to terminate the lease.
After the date of initial recognition, the Bank measures the lease liability in order to recognize (a) the interest on the lease liability; (b) lease payments made; and (c) the new measurements or modifications of the lease, and also for fixed lease payments that have essentially been reviewed.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-36 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The Bank makes new measures of the lease liability discounting the modified lease payments, if (a) there is a change in the expected amounts payable related to a residual value guarantee. A lessee will determine the lease payments to determine the change in the amounts expected to be paid under the residual value guarantee; (b) there will be a change in future lease payments determined from a change in an index or a rate used to determine those payments. The Bank measures the lease liability again to modify the modified lease payments only when there is a change in cash flows. The Bank will determine the revised lease payments, for the remainder of the lease term, based on the revised contractual payments.
The rent of the lease agreements is agreed in UF and paid in Chilean pesos. According to that, monthly variation in UF should be treated as a new measurement, and therefore, inflation-indexation adjustments should be recognized as a modification to the obligation and the right-of-use asset.
u)Expected credit losses allowance
The Bank uses an “expected credit loss (ECL)” model. The impairment model applies to all financial assets measured at amortized cost and debt securities measured at fair value through other comprehensive income (FVTOCI), including commitment and contingent loans. Investments in equity are outside of the scope of the impairment requirements.
The Bank accounted ECL related to financial assets measured at amortized cost as a loss allowance in the statements of financial position, but the carrying amount of these assets is stated net of the loss allowance. ECL related to contingent loans is accounted for as a provision in the statements of financial position. The Bank recognizes in profit or loss, as an impairment gain or loss, the amount of ECL (or reversal) required to adjust the loss allowance at the reporting date, for financial assets measured at amortized cost and contingent loans.
The model uses a dual measurement approach, under which the loss allowance is measured as either:
● | 12-month expected credit losses |
● | Lifetime expected credit losses |
The Bank has defined default on an individual or collective basis as follows:
● | Individual: when exposure is more than 89 days past due, it has been restructured, it is in judicial collection, or it has been written-off. |
● | Collective: when exposure is more than 89 days past due, it has been restructured, or has been identified as impaired by an internal risk committee. |
For collective assessment purposes, financial assets are grouped based on characteristics of shared credit risk, considering the type of instrument, credit risk classifications, initial recognition date, remaining term, industry, geographical location of the counterparty, among other significant factors.
An instrument is considered to be no longer in default when it no longer meets the default criteria for a consecutive period between 4-11 months, depending on the type of loan.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-37 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The ECL measurement basis depends on whether there has been a significant increase in credit risk since initial recognition. Based on changes in credit quality since initial recognition, IFRS 9 outlines a “three-stage” model impairment in accordance with the following diagram:
Change in credit quality since initial recognition | ||||
Stage 1 |
| Stage 2 |
| Stage 3 |
Initial recognition | Significant increase in credit risk (“SICR”) since initial recognition | Credit impaired assets | ||
12-month expected credit losses | Lifetime expected credit losses | Lifetime expected credit losses | ||
The Bank, at the end of each reporting period, evaluates whether a financial instrument’s credit risk has significantly increased since initial recognition or whether an asset is considered to be credit-impaired, and consequently classify financial instrument in the respective stage:
● | Stage 1: When loans are first recognized, the Bank recognizes an allowance based on 12 months ECL. Stage 1 loans also include facilities where the credit risk has improved and the loan has been returned to Stage 1. |
● | Stage 2: When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance based on lifetime ECL. Stage loans also include facilities where the credit risk has improved and the loan has been returned to stage 2. |
| ● | Stage 3: Loans considered credit-impaired. The Bank records an allowance based on lifetime ECL, setting the Probability of Default (“PD”) at |
Our assessment of a SICR and the calculation of ECL incorporate forward-looking information. We perform historical analysis and identify the key economic variables that impact credit risk and ECL for each portfolio. These can include GDP, inflation, interest rates and unemployment, among others. Where applicable, we incorporate these economic variables and their associated impacts into our models.
Credit risk assessment and forward-looking information (including macro-economic factors), includes quantitative and qualitative information based on our historical experience, some examples are:
| a. | Financial or economic conditions that are expected to cause a significant change in the borrower’s ability to meet its debt obligations. |
| b. | An actual or expected internal credit rating downgrade for the borrower or decrease in behavioral scoring. |
| c. | Significant increases in credit risk on other financial instruments of the same borrower. |
If contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial credit recognition, but we do not consider this an absolute indicator. We did not rebut the backstop presumption of IFRS 9 relating to SICR or default.
Additionally, we use the below criteria for SICR based on increased risk:
| ● | Individual: the risk classifications granted by the CMF, looking for changes between the initial recognition and the reference in time of the expected credit loss calculation is made. |
Collective: comparing lifetime PDs of operations at the time of initial recognition against the reference in time of the ECL calculation is made.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-38 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
(i) Expected credit loss measurement
The ECL are the probability-weighted estimate of credit losses, i.e. the present value of all cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The three main components to measure the ECL are:
PD: The Probability of default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognized and is still in the portfolio.
LGD: The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral.
EAD: The Exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdown on committed facilities, and accrued interest from missed payments.
For measuring 12-month and lifetime ECL, cash shortfalls are identified as follows:
● | 12-month expected credit losses: the portion of lifetime expected credit losses that represents the expected credit losses that result from default events on the financial instruments that are possible within the 12 months after the reporting date. |
● | Lifetime expected credit losses: the expected credit losses that result from all possible default events over the expected life of the financial instrument. |
The Bank considered a multi-factor analysis to perform credit risk analysis. The type of portfolio or transactions, and whether individually or collectively assessed.
The Bank divides its portfolio in commercial loans, mortgage loans, consumer loans and contingent loans.
The Bank assesses individually whether objective evidence of impairment exists for loans that are individually significant, then collectively assesses loans that are not individually significant and loans which are significant but for which there is no objective evidence of impairment available under individually assessment.
(ii) Contingent loans
The Bank enters into various irrevocable loan commitments and contingent liabilities. Even though these obligations may not be recognized on the statements of financial position, they contain credit risk and, therefore, form part of the overall risk of the Bank.
When the Bank estimates the ECL for contingent loans, it estimates the expected portion of the loan commitment that will be drawn down over its expected life.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-39 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
(iii) Forward looking information
The ECL model includes a broad range of forward looking information as economic inputs, such as:
| ● | Copper Price |
| ● | Unemployment rates |
| ● | Central Bank interest rates |
| ● | GDP |
| ● | Monthly Index of Economic Activity |
| ● | Inflation rates |
(iv) Modifications of financial assets
When a loan measured at amortized cost has been renegotiated or modified but not derecognized, the Bank recognizes the resulting gains or losses as the difference between the carrying amount of the original loans, and modified contractual cash flows discounted using the EIR before modification. The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortized cost of a financial liability.
For ECL estimation purposes of financial assets that have been modified, we are required to distinguish between modification that results in derecognition from those that do not result in derecognition. By internal definition, the generation of a modified asset must derecognize the original asset. However, there are specific situations whereby a modified asset may have not been derecognized, for a limited period of time. Due to the above, the SICR evaluation is made by comparing the risk of the financial asset at the reporting date versus the initial recognition date. Additionally, for the calculation of ECL, modified assets recognize a higher risk than the original asset in order to differentiate their risk with respect to unmodified assets
(v) Collateral
The Banks seeks to use collateral to mitigate its credit risks on financial assets, where possible. Types of collateral are cash, securities, letters of credit, real estate and inventories. Collateral, unless repossessed, is not recorded on the Bank’s statements of financial position. However, the fair value of collateral affects the calculation of ECLs. The main collateral associated to mortgage loans are real estate, which are valued based on data provided by specialized third parties.
The estimation of ECL reflects the cash flows expected from collateral and other credit enhancement that are part of the contractual terms of the financial instruments.
According to the Bank’s policy when an asset (real estate) is repossessed, it is transferred to assets held for sale at its fair value less cost to sell and classified as non-financial assets at the repossession date.
(vi) Charge-offs
The gross carrying amount of a financial asset is reduced when there is no reasonable expectation of recovery and all collection efforts have been exhausted. A charge-off constitutes a derecognition event of the corresponding loan transaction in its entirety, and therefore, include portions not past-due for installments loans or leasing operation (no partial charge-off).
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-40 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Subsequent recoveries of amounts previously charge-off are credited to the income statements, as recovery of loans previously charged-off, as a deduction from provisions for loan losses.
v)Income taxes and deferred taxes
The Bank has recognized an expense (income) arising from gains or losses for each year, according to the applicable taxation rules for each country or jurisdiction it operates.
The Bank records, when appropriate, deferred tax assets and liabilities for the estimated future tax effects attributable to differences between the carrying amount of assets and liabilities and their tax bases. The measurement of deferred tax assets and liabilities is based on the tax rate, in accordance with the applicable tax laws, using the tax rate that applies to the period when the deferred asset and liability will be settled. The future effects of changes in tax legislation or tax rates are recorded in deferred taxes beginning on the date on which the law is enacted or substantially enacted.
w)Provisions and contingent assets and liabilities
When preparing the financial statements of the consolidated entities, the Bank’s directors made a distinction between:
Provisions: credit balances covering present obligations at the reporting date arising from past events which could give rise to a loss for the consolidated entities, which is considered to be more likely than not to occur and certain as to its nature but uncertain as to its amount and/or timing.
Contingent liabilities: possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events not wholly within the control of the consolidated entities. They include the present obligations of the consolidated entities when it is not probable that an outflow of resources embodying economic benefits will be required to settle them. The Group does not recognize the contingent liability. The Group will disclose a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote.
Contingent assets: possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by, the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Contingent assets are not recognized in the consolidated balance sheet or in the consolidated income statement, but rather are disclosed in the notes, provided that it is probable that these assets will give rise to an increase in resources embodying economic benefits.
The Group’s consolidated financial statements include all the material provisions with respect to which it is considered that it is more likely than not the obligation will have to be settled. In accordance with accounting standards, contingent liabilities must not be recognized in the consolidated financial statements, but must rather be disclosed in the notes.
Provisions, which are quantified on the basis of the best information available on the consequences of the event giving rise to them and are reviewed and adjusted at the end of each year, are used to cater for the specific obligations for which they were originally recognized. Provisions are fully or partially reversed when such obligations cease to exist or are reduced.
Provisions are classified according to the obligations covered as follows (See Note 21):
Provision for pensions and similar obligations: includes the amount of all the provisions made to cover post-employment benefits, including obligations to pre-retirees and similar obligations.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-41 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Provisions for contingent liabilities and commitments: include the amount of the provisions made to cover contingent liabilities -defined as those transactions in which the Group guarantees the obligations of a third party, arising as a result of financial guarantees granted or contracts of another kind- and contingent commitments -defined as irrevocable commitments that may give rise to the recognition of financial assets.
Provisions for taxes and other legal contingencies and other provisions: include the amount of the provisions recognized to cover tax and legal contingencies and litigation and the other provisions recognized by the consolidated entities. Other provisions includes, inter alia, any provisions for restructuring costs and environmental measures.
Provisions for restructuring cost: these are constructive obligations that arise from a restructuring plan. A restructuring plan is a program that is planned and controlled by management, which changes either the scope of the business undertaken, or the manner in which that business is conducted.
The provisions for restructuring cost are recognized in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” once the Bank has a real expectation of executing the plan, either by having started to execute the plan or by having announced its main characteristics to those who are going to be affected.
x)Employee benefits
Short-term benefits
Correspond to personnel benefits (other than termination benefits) that are expected to be settled within twelve months after year end over which the employees have rendered their services.
These are recognized when the employee has rendered the service and are measured at the undiscounted amount of benefits expected to be paid in exchange for that service:
● | as a liability (accrued expense), after deducting any obligation already satisfied. If the amount already paid is higher than the gross amount of the benefits, the Bank will recognize this excess as an asset (amount paid in advance), when it represents a reduction of future payments or a recoverable amount in cash. |
● | as an expense when the entity consumes the economic benefit arising from the service provided by an employee in exchange for employee benefits, unless other IFRS requires or allows the recognition of those disbursements as part of the cost of an asset. |
Personnel vacations
The annual cost of personnel vacations and benefits are recognized on an accrual basis.
Post-employment benefits
Correspond to employee benefits (other than termination benefits and short-term employee benefits) that are expected to be settled after the completion of employment. Post-employment benefits plans are agreements, formal and informal, in which the Bank is committed to provide benefits to one or more employees after termination of their employment. Plans providing these benefits are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-42 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
Defined contribution plans: the obligation is recognized for the amounts to be contributed in the period.
Defined benefit plans: a liability is recognized based on the estimated benefit cost that employees have accrued for services rendered, less the present value of the defined benefit obligation and present value of present services. Present service cost and gain or loss upon settlement will be recognized in the income statement for the period. Gains and losses generated from the remeasurement of the liability will be recognized in other comprehensive income.
Other long-term benefits
Other long-term employee benefits are employee benefits, other than short-term, post-employment and termination benefits, which are not due for payment within 12 months after the end of the period in which the employees render the service.
The regulations require the recognition of a liability for the present value of the defined benefit obligation less the fair value of the plan assets, if any. The results generated from its remediation will be recognized in the results of the period.
Termination benefits
Termination benefits are employee benefits provided in exchange for the termination of an employee’s employment, as a consequence of:
● | a decision of the entity to terminate the employee’s employment before the normal termination date; or |
● | the decision of an employee to accept an offer with benefits in order to terminate the employment before the normal termination date. |
An entity recognizes a liability and expense for termination benefits at the earlier of the following dates:
● | when the entity can no longer withdraw the offer of those benefits; and |
● | when the entity recognizes costs for a restructuring that is within the scope of IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” and involves the payment of termination benefits. |
y)Provision for mandatory dividends
The Bank recorded a provision for mandatory dividends calculated as a portion of income for the year in order to comply with dispositions of the Chilean Corporations Act (Ley de Sociedades Anónimas) which requires to distribute at least
In the Bank’s bylaws, title VII, it is established that the Bank should distribute annually as a dividend to its shareholders, as a proposal of the Board of Directors and based on the number of shares, at least thirty percent (
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-43 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
z) Assets received or awarded in lieu of payment
Assets received or awarded in lieu of payment of loans and accounts receivable from clients are recognized at their fair value (as determined by an independent appraisal). A price is agreed upon by the parties through negotiation or, when
the parties do not reach an agreement, at the amount at which the Bank is awarded those assets at a judicial auction. In both cases, an independent appraisal is performed.
The excess of the outstanding loan balance over the fair value is charged to net income for the year, under “Provision for loan losses”.
Any excess of the fair value over the outstanding loan balance, less costs to sell of the collateral, is returned to the client. These assets are subsequently adjusted to their net realizable value less cost to sale, and the difference between the carrying value of the asset and the estimated fair value less costs to sell is charged to income, under “Other operating expenses”.
aa)Customer loyalty programs
The Bank maintains a loyalty program to provide incentives to its customers, allowing them to purchase goods or services with certain benefits which are granted through credit cards issued by the Bank when they purchase according to the conditions established for each loyalty program.
The Bank has an adequate level of provisions in order comply with its current obligations and to properly reflect the associated expense when providing the benefits.
bb)Non- current assets held for sale (in “Other Assets”)
Non-current assets (or a group holding assets and liabilities for disposal) expected to be recovered mainly through the sale of these items rather than through the continued use, are classified as held for sale. Immediately prior to this classification, assets (or elements of a disposable group) are re-measured in accordance with the Bank’s policies. The assets (or disposal group) are measured at the lower of carrying amount and fair value less cost to sell.
Impairment losses in initial classification of non-current assets held for sale and with subsequent gains and losses are recorded in income. Gains are not recorded over previously recorded losses.
cc)Earnings per share
Basic earnings per share are determined by dividing the net income attributable to the equity holders of the Bank for the reported period by the weighted average number of shares outstanding during the reported period.
Diluted earnings per share are determined in the same way as basic earnings, but the weighted average number of outstanding shares is adjusted to take into consideration the potential diluting effect of stock options, warrants, and convertible debt.
For the years ended December 31, 2022, 2021 and 2020 the Bank did not have any instruments that generated dilution.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-44 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
dd)Consolidated Statement of Cash Flows
The Bank presents cash flows from operating activities, investing activities, and financing activities in a manner that best represent the nature of its activities. The classification of cash flows into the aforementioned categories provides information that allows users to evaluate the impact of the transactions in the financial position of the Bank, as well as over the ending balance of cash and cash equivalents. This information can be also useful when evaluating the relation between those activities (IAS 7).
For the preparation of the cash flow statement, the indirect method was used, starting with the Bank’s consolidated pre-tax income (loss) and incorporating non-cash transactions, as well as income and expenses associated with cash flows, which are classified as operating, investment or financing activities.
For the preparation of the cash flow statement, the following items are considered:
● | Cash flows: Inflows and outflows of cash and cash equivalents, such as deposits with the Central Bank of Chile, deposits in domestic banks, and deposits in foreign banks. |
● | Operating activities: Principal revenue-producing activities performed by banks and other activities that cannot be classified as investing or financing activities. This section includes, among others, foreign loans obtained, dividends received, FVTOCI investments and held to maturity. |
● | Investing activities: Correspond to the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents. |
● | Financing activities: Activities that result in changes in the size and composition of the equity and liabilities that are not part of operating activities nor investing activities. |
For cash flows statement purposes, it has been considered as cash and cash equivalents amounts included in “Cash and deposits in banks” plus the net amount of cash items in process of collection, plus trading investment and FVTOCI investments highly liquid and minimal value change risk which due date is less than three months since the acquisition date and investments under resale agreements under the same terms.
Includes also investments in fixed income mutual funds which are presented under FVTPL / trading investments in the Consolidated Statement of Financial Position. The amounts for cash and cash equivalents and the corresponding reconciliation to the Consolidated Statement of Cash Flows are detailed in Note 5 “Cash and Cash Equivalents”.
The provision for loan losses included under the operating activities section differs from the amount presented in the Consolidated Statement of Income (Loss), because such amount excludes recoveries of transactions previously charged-off for cash flows purposes.
ee)Consolidated Statement of Changes in Equity
The Consolidated Statement of Changes in Equity presents all movements affecting net equity. This statement shows a reconciliation between opening and ending balances for the year for all items that form part of consolidated equity, grouping transactions based on their nature, according to the following:
● | Adjustments due to accounting changes related to prior periods: Includes changes in equity as a consequence of restating amounts previously reported in the Consolidated Financial Statements resulting from accounting changes related to prior periods recognition. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-45 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
● | Net comprehensive income for the year: Includes, in an aggregated manner, net income for the year and other comprehensive income for the year. |
● | Other changes in equity: Includes retained earnings distributions, equity increases, provision for mandatory dividends, dividends paid, among other increases or decreases in consolidated equity. |
This information is presented in two statements: The Consolidated Statement of Other Comprehensive Income (Loss) and the Consolidated Statement of Changes in Equity.
ff)Consolidated Statement of Other Comprehensive Income (Loss)
In the Consolidated Statement of Other Comprehensive Income (Loss) are presented income and expenses generated by the Bank as a consequence of its regular activities during the year, clearly identifying those recorded in profit and loss from those recorded in net equity.
Due to this, in this statement the following is shown:
● | Income (loss) for the year. |
● | Net amount of income and expenses recorded in equity as “Valuation accounts”. |
● | Deferred income taxes originated by transactions described above, except for those amounts related to exchange differences from foreign net investments. |
Total amount of consolidated income and expenses recorded attributable to the equity holders of the Bank, calculated as the sum of the items listed above, is presented separately from non-controlling interest.
gg) New and revised accounting pronouncements introduced by IASB
1) | Standards and interpretations that are effective from January 1, 2022. |
1.1) Amendment to IFRS 3 “Business Combinations” to update a reference to the Conceptual Framework.
On May 14, 2020, the IASB published, amendments to IFRS 3 ‘Business Combinations’ that update an outdated reference in IFRS 3 without significantly changing its requirements.
The changes in Reference to the Conceptual Framework (Amendments to IFRS 3):
- Update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework;
- Add to IFRS 3 a requirement that, for transactions and other events within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 (instead of the Conceptual Framework) to identify the liabilities it has assumed in a business combination; and
- Add to IFRS 3 an explicit statement that an acquirer does not recognize contingent assets acquired in a business combination.
The amendment is effective for annual reporting periods beginning on or after January 1, 2022. Early application is permitted if an entity also applies all other updated references (published together with the updated Conceptual Framework) at the same time or earlier.
The Bank’s management has concluded that the adoption of the amendment had no significant impact on the Consolidated Financial Statements.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-46 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
1.2) Amendments to IAS 16 ‘Property, Plant and Equipment — Proceeds before Intended Use.
On May 14, 2020, the IASB published amendments to IAS 16 regarding proceeds from selling items produced while bringing an asset into the location and condition necessary for it to be capable of operating in the manner intended by management.
Amends the standard to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the cost of producing those items, in profit or loss.
The amendments is effective for annual periods beginning on or after 1 January 2022. Early application is permitted.
The Bank’s management has concluded that the adoption of the amendment has no significant impact on the Consolidated Financial Statements.
1.3) Amendments to IAS 37 ‘Onerous Contracts — Cost of Fulfilling a Contract.
On May 14, 2020, the IASB published ‘Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37)’ amending the standard regarding costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous.
The changes in Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37) specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract may be incremental costs of performing that contract (examples would be direct labor, materials) or an allocation of other costs that relate directly to the performance of contracts (an example would be the allocation of the depreciation charge for a contract). Item of property, plant and equipment used to fulfill the contract).
The amendment is effective for annual reporting periods beginning on or after January 1, 2022. Early application is permitted.
The Bank’s management has concluded that the adoption of the amendment has no significant impact on the Consolidated Financial Statements.
1.4) Annual improvements to IFRS standards 2018–2020.
On May 14, 2020, the IASB issued Annual Improvements to IFRS 2018-2020. The pronouncement contains amendments to four International Financial Reporting Standards (IFRS):
IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter: The amendment permits a subsidiary that applies paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by its parent, based on the parent’s date of transition to IFRS.
IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities: The amendment clarifies which fees an entity includes when it applies the ’10 per cent’ test in paragraph B3.3.6 of IFRS 9 in assessing whether to derecognize a financial liability. An entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other’s behalf.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-47 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
IFRS 16 Leases- Lease incentives: The amendment to Illustrative Example 13 accompanying IFRS 16 removes from the example the illustration of the reimbursement of leasehold improvements by the lessor in order to resolve any potential confusion regarding the treatment of lease incentives that might arise because of how lease incentives are illustrated in that example.
IAS 41 Agriculture. Taxation in fair value measurements: The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flows when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13.
The amendments to IFRS 1, IFRS 9, and IAS 41 published today are all effective for annual periods beginning on or after 1 January 2022. Early application is permitted.
The amendment to IFRS 16 only regards an illustrative example, so no effective date is stated.
The Bank’s management has concluded that the adoption of the improvements has no significant impact on the Consolidated Financial Statements.
2) | Standards and interpretations that have been issued but are not yet effective |
2.1) Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 – Making Materiality Judgments.
On February 12, 2021, the IASB issued amendments to IAS 1 that require companies to disclose their significant accounting policy information rather than their significant accounting policies and issued amendments to IFRS Practice Statement 2 to provide guidance on how to apply the concept of materiality to accounting policy disclosures. The amendments to IAS 1 will be effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted.
The Bank’s management is evaluating the potential impact of the adoption of these amendments on its Consolidated Financial Statements.
2.2) Amendment to IAS 1 and IFRS Practice Statement 2 – Disclosures of accounting policies.
On February 12, 2021, the IASB issued this amendment which is intended to assist preparers in deciding which accounting policies should be disclosed in their financial statements. The amendments include:
− An entity is required to disclose its material accounting policy information rather than its significant accounting policies;
− An explanation is provided on how an entity can identify material accounting policies and examples are given of when accounting policies are likely to be material;
− The amendments clarify that accounting policy information may be material because of its nature, even if the related amounts are immaterial; the amendments clarify that accounting policy information is material if users of an entity’s financial statements would need it to understand other material information in the financial statements; and
− The amendments clarify that, if an entity discloses immaterial accounting policy information, such information does not obscure material accounting policy information.
In addition, IFRS Practice Statement 2 has been amended by adding examples to explain and demonstrate the application of the “four-step materiality process” to accounting policy information to support the amendments to IAS 1.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-48 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
The amendments are applied prospectively. The amendments to IAS 1 are effective for annual periods beginning on or after January 1, 2023. Earlier application is permitted. Once an entity applies the amendments to IAS 1, it is also permitted to apply the amendments to IFRS Practice Statement 2.
The Bank’s management will evaluate the impact that this amendment will have on the presentation of the Consolidated Financial Statements.
2.3) Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
On February 12, 2021, the IASB published amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The amendments clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. That distinction is important because changes in accounting estimates apply prospectively only to future transactions and other future events, but changes in accounting policies generally also apply retrospectively to past transactions and other past events.
The amendments to IAS 8 will be effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted.
The Bank’s management is evaluating the potential impact of the adoption of these amendments on its Consolidated Financial Statements.
2.4) Amendment to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction.
On May 7, 2021, an amendment was issued on the treatment of deferred taxes on transactions such as leases and decommissioning obligations. In these situations, entities must recognize deferred assets and liabilities in the event that there are deductible and taxable temporary differences for the same amount. The amendments are effective for years beginning on January 1, 2023, with early application permitted.
The Bank’s management is evaluating the potential impact of the adoption of this amendment on its Consolidated Financial Statements.
2.5) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (amendments to IFRS 10 and IAS 28).
The amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011) address a recognized inconsistency between the requirements of IFRS 10 and those of IAS 28 (2011) in the treatment of the sale or contribution of assets between an investor and its associate or joint venture. The amendments, issued in September 2014, state that when the transaction involves a business (whether it is in a subsidiary or not) the entire generated gain or loss is recognized. A partial gain or loss is recognized when the transaction involves assets that do not constitute a business, even when the assets are in a subsidiary.
The effective date for these amendments is yet to be determined because the IASB is awaiting the results of its research project on the equity method accounting. These amendments must be applied retrospectively and early adoption is permitted, which must be disclosed.
The Bank’s management will await the new effective date to evaluate the potential effects of these amendments.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-49 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 1 – General Information and Summary of Significant Accounting Policies, continued
2.6) Amendments to IFRS 16 – Lease liability on a sale and leaseback.
On September 22, 2022, the IASB issued this amendment which clarifies how a selling lessee subsequently measures sale and leaseback transactions that meet the requirements of IFRS 15 to be accounted for as a sale.
The new requirements do not prevent a seller-lessee from recognizing in profit or loss any gain or loss related to the partial or total termination of a lease.
The effective date for the amendments is January 1, 2024.
The Bank’s management is assessing the potential impact of the adoption of this amendment on its Consolidated Financial Statements.
2.7) Amendment to IAS 1 Presentation of Financial Statements – Non-current Liabilities with Covenants.
On October 31, 2022, Amendments to IAS 1 was issued, which aims to improve the information companies provide about long-term debt with covenants. Such amendment specifies that covenants to be complied with after the reporting date do not affect the classification of debt as current or non-current at the reporting date. Instead, the amendments require a company to disclose information about these covenants in the notes to the financial statements.
The IASB expects the amendments to improve the information a company provides about long-term debt with covenants by enabling investors to understand the risk that such debt could become repayable early.
The amendments are effective for annual reporting periods beginning on or after January 1, 2024, with early adoption permitted.
The Bank’s management is assessing the potential impact of the adoption of this amendment on its Consolidated Financial Statements.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-50 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
JNote 2 – Accounting Changes
No new accounting pronouncements have been adopted in the year ended December 31, 2022 in the Consolidated Financial Statements.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-51 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 3 – Significant Events
As of December 31, 2022, the following significant events have influenced the operations of the Bank and its subsidiaries or the Consolidated Financial Statements:
ITAÚ CORPBANCA
Acquisition of Itaú Corpbanca Colombia shares owned by CorpGroup
On February 22, 2022, Itaú Corpbanca acquired, directly and indirectly, all of the shares of Itaú Corpbanca Colombia S.A. owned by CorpGroup Interhold S.P.A., CorpGroup Banking S.A. and CG Financial Colombia S.A.S., representing approximately
Itaú Corpbanca directly acquired approximately
Additional information regarding capital requirements is presented in Note 26.
2022 Ordinary Shareholders’ Meeting Resolutions
At the Ordinary Shareholders’ Meeting of Itaú Corpbanca, held on March 24, 2022, the following resolutions, among others, were adopted:
a) Total Renewal of the Board of Directors
The following eleven (
- Regular directors:
1. Jorge Andrés Saieh Guzmán;
2. Ricardo Villela Marino;
3. Diego Fresco Gutiérrez;
4. Leila Cristiane Barboza Braga de Melo;
5. Matías Granata;
6. Milton Maluhy Filho;
7. Pedro Paulo Giubbina Lorenzini;
8. Rogerio Carvalho Braga;
9. Pedro Samhan Escándar;
10. Gustavo Arriagada Morales; and
11. Fernando Concha Ureta
- Alternate directors:
1. Álvaro F. Rizzi Rodrigues.
2. Tatiana Grecco.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-52 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 3 – Significant Events, continued
Gustavo Arriagada Morales, Pedro Samhan Escándar and Fernando Concha Ureta were appointed as independent directors, in accordance with Article 50 bis of Law No. 18,046 on Corporations.
b) Distribution of dividends
The meeting approved the distribution of
Acquisition of shares of Itaú Corredor de Seguros Colombia S.A. owned by Helm LLC
On November 5, 2019, Itaú Corpbanca entered into a purchase and sale agreement, as subsequently amended on December 18, 2020, whereby it agreed to acquire shares representing approximately
On March 25, 2022, after obtaining regulatory approvals in Colombia, Chile and Brazil, Itaú Corpbanca acquired, directly and indirectly,
Itaú Corpbanca directly acquired approximately
Acquisition of MCC Entities
On June 1, 2022, after obtaining the regulatory approvals from the banking regulators in Chile and Brazil, and in accordance with the provisions of the Transaction Agreement entered into between Itaú Corpbanca (the “Bank”), Itaú Unibanco Holding S.A., Itaú Unibanco Holding S.A., CorpGroup Interhold SpA, CorpGroup Interhold SpA and Inversiones Gasa Limitada on January 29, 2014, as amended on June 2, 2015 and January 20, 2017 (the “Transaction Agreement”), Itaú Corpbanca moved forward and acquired all of the shares in MCC Asesorías SpA, and, together with its subsidiary Itaú Asesorías Financieras Ltda., it acquired all of the shares in MCC S.A. Corredores de Bolsa. The total price for all the above transactions was US$
As a result of the acquisition of all the shares in MCC Asesorías SpA, this company was dissolved, in accordance with the provisions in its bylaws, resulting in its merger with Itaú Corpbanca, which absorbed said company by owning 100% of its shares. Additionally, on June 1, 2022, an extraordinary shareholders’ meeting took place which decided to merge MCC S.A. Corredores de Bolsa into Itaú Corredores de Bolsa Limitada. As a result, Itaú Corredores de Bolsa Limitada emerged as the subsisting entity, holding all the equity, rights, obligations, assets and liabilities of MCC S.A. Corredores de Bolsa, which was dissolved and then absorbed by Itaú Corredores de Bolsa Limitada, which will be the legal successor to MCC S.A. Corredores de Bolsa.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-53 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 3 – Significant Events, continued
Termination of the Transaction Agreement and the Shareholders Agreement
On July 14, 2022, Itaú Corpbanca informed by means of an Essential Event the following:
As is publicly known, Corp Group Banking S.A. (“CG Banking”), Compañía Inmobiliaria y de Inversiones SAGA SpA (“SAGA”) and certain subsidiaries of CG Banking (SAGA and such subsidiaries, the “Debtors”), are in the process of exiting reorganization proceedings in the United States of America pursuant to the rules set forth in Chapter 11 of the U.S. Bankruptcy Code, initiated in June 2021 before the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”), and as part of that proceeding, both CG Banking and SAGA would cease to own shares issued by Itaú Corpbanca.
The foregoing is pursuant to the Seventh Joint Plan of Liquidation of CG Banking and its Related Debtors Docket No. 815 (the “Plan”) approved by the Bankruptcy Court on June 16, 2022 and effective as of July 14, 2022 (the “Plan Effective Date”). The Plan contemplates for the Debtors, among other things, the delivery of all of their shares issued by Itaú Corpbanca pledged in favor of their secured creditors on, or promptly after, the Plan Effective Date, the sale of a portion of their non-pledged shares issued by Itaú Corpbanca to generate cash to pay bankruptcy expenses and certain of their creditors on or promptly after the Plan Effective Date, and the transfer of the balance of their non-pledged shares issued by Itaú Corpbanca to their unsecured creditors on or promptly after the Plan Effective Date.
In this regard, on June 3, 2022, Itaú Corpbanca, Itaú Unibanco Holding S.A., CorpGroup Interhold SpA, Inversiones Gasa Limitada and other entities related to CG Banking entered into a “Termination Letter”, in order to terminate, among others, the Transaction Agreement entered into by and between those same parties on January 29, 2014, as amended on June 2, 2015 and January 20, 2017 (the “Transaction Agreement” or the “TA”). The Termination Letter is effective as of the Plan Effective Date.
In addition, the Bank has been advised that, on July 14, the entities CorpGroup Interhold SpA, Inversiones Gasa Limitada, CG Banking, CorpGroup Holding Inversiones Limitada, SAGA, ITB Holding Brasil Participações Ltda. and Itaú Unibanco Holding S.A. have entered into a “Mutual Termination Letter” whereby they have terminated the Shareholders Agreement dated April 1, 2016 (as amended, restated, supplemented or modified from time to time, the “Shareholders Agreement”) as well as certain other share purchase agreements entered into on October 26, 2016, September 13, 2017, October 12, 2018 and September 10, 2020, effective as of the Plan Effective Date.
As part of the implementation of the Plan, CG Banking transferred to an Itaú Unibanco Holding S.A. subsidiary. – ITB Holding Brasil Participações Ltda. –
Management Changes – Resignation of Director
On July 27, 2022, Itaú Corpbanca informed by means of an Essential Event the following:
At an ordinary meeting held on July 27, 2022, the Board of Directors of Itaú Corpbanca was presented with the resignation of Mr. Jorge Andrés Saieh Guzmán as a director of the Bank, effective as of that same date.
In connection with the above, it was informed that the Board of Directors of Itaú Corpbanca resolved to elect Mr. Ricardo Villela Marino as Chairman and Mr. Milton Maluhy Filho as Vice-Chairman.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-54 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 3 – Significant Events, continued
Finally, and in accordance with Article 9 of the Bank’s bylaws, the Board of Directors resolved that the deputy director, Mr. Álvaro F. Rizzi Rodrigues, will take over the position of director until the definitive appointment is made at the next Ordinary Shareholders’ Meeting.
Sale by Itaú Corpbanca, and the rest of the shareholder banks, of
On September 30, 2022, Itaú Corpbanca informed by means of an Essential Event the following:
As informed by means of an Essential Event on November 30, 2021, Itaú Corpbanca and the rest of the shareholder banks of the banking support company “Operadora de Tarjetas de Crédito Nexus S.A.” (hereinafter, “Nexus”) reached an agreement with Minsait Payments Systems Chile S.A. (a subsidiary of the Spanish company Indra Sistemas S. A.) for the sale of
The conditions for the closing of the Transaction were met, and on September 30 of this year the Transaction was closed and, as a result, Minsait Payments Systems Chile S.A. acquired
As of September 30, 2022, the price of the Transaction was
As a result, Minsait Payments Systems Chile S.A. took over Nexus; and Itaú Corpbanca and the rest of the shareholder banks ceased to be shareholders of Nexus, which was reported to the Financial Market Commission by means of an Essential Event on September 30, 2022.
Notice of Extraordinary Shareholders’ Meeting
As of November 30, 2022, the Financial Market Commission was informed that the Board of Directors, agreed to notice and decide at the Extraordinary Shareholders’ Meeting held on January 19, the following matters:
a) Amendments:
(i) Article 1 of the Bylaws, the business name was changed to “Banco Itaú Chile”, modified and/or expanded the trade names; (ii) Article 9 of the Bylaws, decreased the number of regular directors from
b) Decreasing the number of shares into which the Bank’s share capital is divided (the “reverse stock split”), in the proportion of
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-55 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 3 – Significant Events, continued
c) Agreeing to the issuance of
d) Agreeing to the additional issuance of
e) Determining the form, time, procedure and other conditions for the performance and implementation of the proposed reverse stock split, including its effects on the American Depositary Shares; and authorize the Board of Directors, among other things, to determine, fix and agree, with the broadest powers, the effective date of the share exchange and all those aspects of form and procedure aimed at the materialization and implementation of the proposed reduction in the number of shares, the issuance of supporting shares that are agreed upon and the treatment of those remaining after the share exchange is completed;
f) Amending Articles 5 and Transitory Article 1 of the Bylaws, relating to share capital, so as to reflect the resolutions adopted by virtue of paragraphs b) to e) above; g) Setting one or more conditions for the effectiveness of the amendments to the Bylaws that are finally agreed upon at the Meeting;
h) Approving the new version of the Bank’s Bylaws and replaced the current Bylaws, which includes the amendments to the Bylaws adopted at the Shareholders’ Meeting, and which contains changes to adapt the Bylaws to legal modifications, including, among others, the replacement of references to the Superintendency of Banks and Financial Institutions with references to the Financial Market Commission; i) Broadly empower the Bank’s Board of Directors and/or the General Manager to resolve and implement all aspects, modalities, modifications, actions and details that may arise in connection with the resolutions adopted at the Shareholders’ Meeting; and
j) In general, adopt all other resolutions and amendments to the Bylaws that may be necessary or convenient for the materialization of the decisions resolved by the Shareholders’ Meeting.
Changes to Management. Resignation of Director
On December 15, 2022, Itaú Corpbanca informed through an Essential Event the following: At the ordinary meeting held on December 15, 2022, the Board of Directors of Itaú Corpbanca learned of the resignation of director Leila Cristiane Barboza Braga de Melo, effective as of that date, from the position of director of the Bank.
In addition, and in accordance with Article 9 of the Bank’s bylaws, the Board of Directors resolved that the alternate director, Mrs. Tatiana Grecco, will be appointed as regular director until the definitive appointment of the replacement for Mrs. Leila Cristiane Barboza Braga de Melo is made.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-56 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 4 – Reporting Segments
The information reported by segments is determined by the Bank on the basis of its operating segments (Chile, which includes the New York branch, and Colombia), which are mainly differentiated by the risks and rewards that affect them.
The reporting segments and the criteria used to inform the highest authority of the Bank on the decision making of the operation are in accordance with what is set forth in IFRS 8 “Operating segments”.
a) | Segments |
According to the above, the descriptions of each operating segment are as follows:
i) Chile
The Bank’s business activities in Chile take place mainly in the local market. It has strategically aligned its operations into the following
The Bank manages these business areas using a reporting system for internal profitability. The operating results are reviewed regularly by the entity’s Chief Operating Decision Maker (CODM) for operating decisions as
ii) Colombia
Colombia has been identified as a separate operating segment based on the business activities. Its operating results are regularly reviewed by the entity’s Chief Operating Decision Maker (CODM) for operating decisions as
The commercial activities of this segment are carried out by Itaú Colombia S.A. and subsidiaries
The Bank did not enter into transactions with a particular customer or third party that exceed 10% of its total revenue in 2022, 2021 and 2020.
b) | Geographical information |
The segments reported by Banco Itaú Chile, discloses revenue from ordinary activities from external clients:
(i) | attributed to the entity’s country of domicile and |
(ii) | attributed, in aggregate, to all foreign countries where the entity obtains revenue. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-57 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 4 – Reporting Segments, continued
When revenue from external customers attributed to a particular foreign country is significant, it is disclosed separately. Pursuant to the foregoing, the Bank operates in two main geographic areas: Chile and Colombia.
Chile reporting segment includes operations carried out by Itaú Corpbanca New York branch and the Colombia reporting segment includes the operations carried out by Itaú S.A. (Panama).
The information on interest income and interest expenses for the years ended December 31, 2022, 2021 and 2020 of the aforementioned reporting segments is presented below:
2022 | 2021 | 2020 | ||||||||||||||||
| Chile |
| Colombia |
| Total |
| Chile |
| Colombia |
| Total |
| Chile |
| Colombia |
| Total | |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Interest income |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Interest expense |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Net interest income |
| | | |
| |
| |
| |
| |
| |
| | ||
c) | Information on assets, liabilities and income |
Segment information on assets and liabilities is presented as of December 31, 2022 and 2021.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-58 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 4 – Reporting Segments, continued
c.1) Assets and Liabilities
As of December 31, 2022 | ||||||||
Note | Chile | Colombia | Total | |||||
|
| MCh$ |
| MCh$ |
| MCh$ | ||
Cash and deposits in banks | 5 a) | | | | ||||
Cash items in process of collection | 5 b) | | | | ||||
Financial instruments at fair value through profit or loss | 6 | | | | ||||
Financial instruments at fair value through other comprehensive income | 11 | | | | ||||
Loans and accounts receivable at amortized cost and interbank loans | 9-10 | | | | ||||
Investment in associates | 12 | | ( | | ||||
Financial instruments at amortized cost | 11 | | | | ||||
Investments under resale agreements | 7 | | | | ||||
Financial derivatives contracts held for trading | 8 a) | | | | ||||
Financial derivative contracts held for hedge accounting | 8 b) | | | | ||||
Intangible assets (1) | 13 | | | | ||||
Property, plant, and equipment | 14 | | | | ||||
Right of use assets under lease agreements | 15 | | | | ||||
Current taxes | 16 | | | | ||||
Deferred taxes | 16 | | | | ||||
Other assets | 17 a) | | | | ||||
Other non-current assets held for sale | 17 b) | | | | ||||
TOTAL ASSETS | | | | |||||
As of December 31, 2022 | ||||||||
Note | Chile | Colombia | Total | |||||
|
| MCh$ |
| MCh$ |
| MCh$ | ||
LIABILITIES |
|
|
|
|
|
| ||
Deposits and other demand liabilities | 18 a) |
| | | | |||
Cash in process of being cleared | 5 b) |
| | | | |||
Obligations under repurchase agreements | 7 b) |
| | | | |||
Time deposits and other time liabilities | 18 b) |
| | | | |||
Financial derivatives contracts held for trading | 8 a) |
| | | | |||
Financial derivative contracts held for hedge accounting | 8 b) | | | | ||||
Interbank borrowings | 19 |
| | | | |||
Debt instruments issued | 20 |
| | | | |||
Financial instruments of regulatory capital issued | 20 | | | | ||||
Other financial liabilities | 20 |
| | — | | |||
Lease contracts liabilities | 15 |
| | | | |||
Current taxes | 16 |
| — | | | |||
Deferred taxes | 16 |
| — | — | — | |||
Provisions | 21 |
| | | | |||
Other liabilities | 22 a) |
| | | | |||
Liabilities directly associated with non-current assets held for sale | 22 b) |
| — | — | — | |||
TOTAL LIABILITIES |
| | |
| | |||
(1) This includes goodwill generated in business combination between Itaú Chile and Corpbanca totaling MCh$
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-59 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 4 – Reporting Segments, continued
As of December 31, 2021 | ||||||||
Note | Chile | Colombia | Total | |||||
|
| MCh$ |
| MCh$ |
| MCh$ | ||
Cash and deposits in banks | 5 a) | | | | ||||
Cash items in process of collection | 5 b) | | | | ||||
Financial instruments at fair value through profit or loss | 6 | | | | ||||
Financial instruments at fair value through other comprehensive income | 11 | | | | ||||
Loans and accounts receivable at amortized cost and interbank loans | 9-10 | | | | ||||
Investment in associates | 12 | | — | | ||||
Financial instruments at amortized cost | 11 | — | | | ||||
Investments under resale agreements | 7 | | | | ||||
Financial derivatives contracts held for trading | 8 a) | | | | ||||
Financial derivative contracts held for hedge accounting | 8 b) | | | | ||||
Intangible assets (1) | 13 | | | | ||||
Property, plant, and equipment | 14 | | | | ||||
Right of use assets under lease agreements | 15 | | | | ||||
Current taxes | 16 | | | | ||||
Deferred taxes | 16 | | | | ||||
Other assets | 17 a) | | | | ||||
Other non-current assets held for sale | 17 b) | | | | ||||
TOTAL ASSETS | | | | |||||
| As of December 31, 2021 | |||||||
| Note | Chile | Colombia | Total | ||||
|
| MCh$ |
| MCh$ |
| MCh$ | ||
LIABILITIES | ||||||||
Deposits and other demand liabilities | 18 a) |
| | |
| | ||
Cash in process of being cleared | 5 b) |
| | — |
| | ||
Obligations under repurchase agreements | 7 b) |
| | |
| | ||
Time deposits and other time liabilities | 18 b) |
| | |
| | ||
Financial derivatives contracts held for trading | 8 a) |
| | |
| | ||
Financial derivative contracts held for hedge accounting | 8 b) | | | | ||||
Interbank borrowings | 19 |
| | |
| | ||
Debt instruments issued | 20 |
| | |
| | ||
Financial instruments of regulatory capital issued | 20 | | | | ||||
Other financial liabilities | 20 |
| | — |
| | ||
Lease contracts liabilities | 15 |
| | |
| | ||
Current taxes | 16 |
| | |
| | ||
Deferred taxes | 16 |
| — | — |
| — | ||
Provisions | 21 |
| | |
| | ||
Other liabilities | 22 a) |
| | |
| | ||
Liabilities directly associated with non-current assets held for sale | 22 b) |
| — | — |
| — | ||
TOTAL LIABILITIES |
|
| |
| |
| | |
(1) This includes goodwill generated in business combination between Itaú Chile and Corpbanca totaling MCh$
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-60 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 4 – Reporting Segments, continued
c.2) Income for the years ended December 31, 2022, 2021, and 2020
2022 | 2021 | 2020 | ||||||||||||||||
| Chile |
| Colombia |
| Total |
| Chile |
| Colombia |
| Total |
| Chile |
| Colombia |
| Total | |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Net interest income | | | |
| | | |
| | | | |||||||
Net fee and commission income | | | |
| | | |
| | | | |||||||
Net income from financial operations |
| | | |
| | |
| |
| |
| |
| | |||
Net foreign exchange gain (loss) |
| ( | ( | ( |
| | ( |
| |
| ( |
| ( |
| ( | |||
Other operating income |
| | | |
| | |
| |
| |
| |
| | |||
Provision for loan losses |
| ( | ( | ( |
| ( | ( |
| ( |
| ( |
| ( |
| ( | |||
NET OPERATING PROFIT |
| | |
| |
| | |
| |
| |
| |
| | ||
Depreciation and amortization |
| ( |
| ( | ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( | |
Operating expenses (1) (2) |
| ( |
| ( | ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( | |
OPERATING INCOME (LOSS) |
| |
| |
| |
| |
| |
| |
| ( |
| ( |
| ( |
Income from investment in associates |
| | — | |
| ( | | ( |
| ( | — |
| ( | |||||
Income taxes |
| |
| | |
| ( |
| |
| ( |
| |
| |
| | |
CONSOLIDATED INCOME (LOSS) FOR THE YEAR |
| |
| |
| |
| |
| |
| |
| ( |
| ( |
| ( |
(1) Includes personnel salaries and expenses, administrative expenses, impairment, and other operating expenses
(2) As of December 31, 2020, includes the recognition of an impairment loss of MCh$
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-61 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 5 – Cash and Cash Equivalents
a) | Detail of cash and cash equivalents |
The detail of balances included under cash and cash equivalents is as follows:
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Cash and deposits in banks | ||||
Cash |
| |
| |
Deposits in the Central Bank of Chile |
| |
| |
Deposits in local banks |
| |
| |
Deposits in foreign banks |
| |
| |
Subtotals cash and deposits in banks |
| |
| |
Cash items in process of collection, net (1) |
| |
| |
Highly liquid financial instruments (2) |
| |
| |
Investments under resale agreements (3) |
| |
| |
Totals cash and cash equivalents |
| |
| |
(1) | Refer to letter b. “Cash in process of collection and in process of being cleared” below. |
(2) | Highly liquid financial instruments: Corresponds to financial instruments at fair value through profit and loss (see note 6) and financial instrument at fair value through other comprehensive income (see note 11) with maturities that do not exceed three months from the acquisition date. |
(3) | Investments under resale agreements: Corresponds to resale agreements with maturities that do not exceed three months from the acquisition date, which are presented under the item “Investments under resale agreements” in the Consolidated Statement of Financial Position. |
b) | Cash in the process of collection and in process of being cleared |
Cash items in process of collection and in process of being cleared represent domestic transactions, which have not been processed through the central domestic clearinghouse, or international transactions that may be delayed in settlement due to timing differences. The detail of these balances is as follows:
As of December 31, | ||||
| 2022 |
| 2021 | |
| MCh$ |
| MCh$ | |
Assets | ||||
Documents held by other banks (documents to be cleared) |
| | | |
Funds receivable |
| |
| |
Subtotals assets |
| |
| |
Liabilities |
|
| ||
Funds payable |
| |
| |
Subtotals liabilities |
| |
| |
Cash items in process of collection, net |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-62 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 5 – Cash and Cash Equivalents, continued
c) | Other operating cash flows |
Based on the nature of its activities, the Bank considers that its funding has a direct relationship with its loan and investing portfolio; for such purpose all those activities are taken into consideration to determine, approve and monitor the financial strategies that guide the Bank with respect to the composition of its assets and liabilities, cash inflows and outflows and transactions with financial instruments.
Finally, the Bank, based on its overall business strategy, considers that gains and losses derived from these transactions are part of the main revenue generating activities and core business, and that the presentation of the cash flows from those items under operating activities consequently shows consistency between our Consolidated Statement of Income (Loss) and our Consolidated Statement of Cash Flows.
Examples of cash flows from operating activities are:
i. | Investments under resale agreements and obligations under repurchase agreements. These items represent the cash flows (collections and payments) corresponding to the purchase and sale of obligations and securities lending associated with financial intermediation activities (see Note 7). |
ii. | Investments portfolio. This item represents the cash flows (collections and payments) of our trading and investment portfolios (see Notes 6 and 11). |
iii. | Foreign borrowings and repayment of foreign borrowings. These items represent the cash flows (collections and payments) of obligations with foreign banks (see Note 19) for the financing of foreign trade loans, which are included as part of the following items: “Loans and receivables from banks” (see Note 9) and “Loans and receivables from customers” (see Note 10). |
iv. | Increase and repayment of other borrowings. These items represent the cash flows (collections and payments) arising from the obligations corresponding to financing or operations specific to the business (see Note 20). |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-63 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 6 – Financial Instruments at Fair Value through Profit or Loss
The detail of the financial instruments at fair value through profit or loss is as follows:
As of December 31, | ||||
| 2022 |
| 2021 | |
| MCh$ |
| MCh$ | |
Chilean Central Bank and Government securities |
|
|
| |
Central Bank of Chile securities |
| |
| |
Other Chilean Central Bank and Government securities |
| — |
| — |
Other Chilean securities |
|
| ||
Bonds |
| |
| |
Notes |
| — |
| — |
Other securities | — | — | ||
Foreign financial securities |
|
| ||
Bonds |
| |
| |
Other securities |
| — |
| |
Investments in mutual funds |
|
| ||
Funds managed by related entities |
| | | |
Funds managed by third parties | — | — | ||
Financial assets not held for trading valued mandatorily at fair value through profit or loss | ||||
Loans originated and acquired by the entity at fair value | | — | ||
Other investments |
|
| ||
Other financial instruments at FVTPL | | | ||
Totals |
| |
| |
As of December 31, 2022, financial instruments at fair value through profit or loss include MCh$
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-64 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 7 – Investments under Resale Agreements and Obligations under Repurchase Agreements
a) | The Bank purchases financial instruments to resell them on a future date. As of December 31, 2022 and 2021 the instruments acquired under agreements to resell are as follows: |
As of December 31, | |||||
2022 | 2021 | ||||
MCh$ | MCh$ | ||||
Chilean Central Bank and Government securities |
|
|
|
| |
Chilean Central Bank securities |
| — |
| | |
Government securities |
| — |
| | |
Other Chilean Central Bank and Government securities |
| — |
| — | |
Other Chilean securities |
|
| |||
Bonds |
| |
| | |
Notes |
| — |
| | |
Other securities |
| — |
| — | |
Foreign financial securities |
|
| |||
Central Banks and Government securities |
| |
| | |
Other foreign instruments |
| — |
| | |
Totals |
| |
| | |
b) | As of December 31, 2022 and 2021, the instruments acquired under agreements to repurchase are as follows: |
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ | MCh$ | ||
Chilean Central Bank and Government securities |
|
|
|
|
Chilean Central Bank securities |
| — |
| |
Government securities |
| — |
| |
Other Chilean Central Bank and Government securities |
| — |
| — |
Other Chilean securities |
|
| ||
Bonds |
| |
| |
Notes |
| — |
| — |
Other Chilean securities |
| — |
| — |
Foreign financial securities |
|
| ||
Central Banks and Government securities |
| — |
| — |
Other foreign instruments |
| |
| |
Totals |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-65 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 8 – Financial Derivative Contracts and Hedge Accounting
a) | Total derivative contracts portfolio |
The Bank and subsidiaries use the following derivative financial instruments for hedge accounting and trading purposes, which, in order to capture the credit risk in the valuation, are adjusted to reflect the CVA (Credit Value Adjustment) and DVA (Debit Value Adjustment). The detail of these instruments is presented below:
As of December 31, 2022 | As of December 31, 2021 | |||||||
Assets | Liabilities | Assets | Liabilities | |||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Financial derivatives contracts held for trading |
| | |
| | | ||
Financial derivatives contracts held for hedge accounting |
| | |
| | | ||
Totals |
| |
| |
| |
| |
a) Financial derivatives contracts held for trading
a.1) Assets
As of December 31, 2022 | ||||||||||||||||||
Notional | ||||||||||||||||||
| Over | Over |
|
| ||||||||||||||
1 month | 3 months | Between | Over | |||||||||||||||
On | Up to | less than | up to | 1 and | 3 up to | More than | ||||||||||||
demand | 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | Total | Fair value | ||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||
Currency forwards |
| — | | | | | | | | |||||||||
Currency swaps |
| — | | | | | | | | |||||||||
Interest rate swaps |
| — | | | | | | | | | ||||||||
Call currency options |
| — | | | | — | — | | | |||||||||
Put currency options |
| — | — | — | — | — | — | — | — | — | ||||||||
Totals |
| — |
| | | | | | |
| | | ||||||
As of December 31, 2021 | ||||||||||||||||||
Notional | ||||||||||||||||||
| Over | Over |
|
| ||||||||||||||
1 month | 3 months | Between | Over | |||||||||||||||
On | Up to | less than | up to | 1 and | 3 up to | More than | ||||||||||||
demand | 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | Total | Fair value | ||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||
Currency forwards |
| — | | | | | | | ||||||||||
Currency swaps |
| — | | | | | | | ||||||||||
Interest rate swaps |
| — | | | | | | | | | ||||||||
Call currency options |
| — | | | — | — | — | | | |||||||||
Put currency options |
| — | — | — | — | — | — | — | — | — | ||||||||
Totals |
| — |
| | | | | | |
| |
| | |||||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-66 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 8 – Financial Derivative Contracts and Hedge Accounting, continued
a.2) Liabilities
As of December 31, 2022 | ||||||||||||||||||
Notional | ||||||||||||||||||
| Over | Over |
|
| ||||||||||||||
1 month | 3 months | Between | Over | |||||||||||||||
On | Up to | less than | up to | 1 and | 3 up to | More than | ||||||||||||
demand | 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | Total | Fair value | ||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||
Currency forwards |
| — | | | | | | | | | ||||||||
Currency swaps |
| — | | | | | | | | | ||||||||
Interest rate swaps |
| — | | | | | | | | | ||||||||
Call currency options |
| — | — | | — | — | — | — | | | ||||||||
Put currency options |
| — | | | | — | — | — | | | ||||||||
Totals |
| — | | | | | |
| |
| | | ||||||
As of December 31, 2021 | ||||||||||||||||||
Notional | ||||||||||||||||||
| Over | Over |
|
| ||||||||||||||
1 month | 3 months | Between | Over | |||||||||||||||
On | Up to | less than | up to | 1 and | 3 up to | More than | ||||||||||||
| demand | 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | Total | Fair value | |||||||||
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Currency forwards |
| — | | | | | | | | | ||||||||
Currency swaps |
| — | | | | | | | | | ||||||||
Interest rate swaps |
| — | | | | | | | | | ||||||||
Call currency options | — | | | | — | — | — | | | |||||||||
Put currency options | — | | | | — | — | — | | | |||||||||
Totals | — | | | | | |
| |
| |
| | ||||||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-67 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 8 – Financial Derivative Contracts and Hedge Accounting, continued
b) Financial derivatives contracts held for hedge accounting
b.1) Portfolio detail
As of December 31, 2022 and 2021, the portfolio of financial derivative instruments held for hedge accounting and trading purposes is as follows:
As of December 31, 2022 | ||||||||||||||||||||
Notional | Fair value | |||||||||||||||||||
Over | Over | |||||||||||||||||||
1 month | 3 months | Between | Over | |||||||||||||||||
On | Up to | less than | up to | 1 and | 3 up to | More than | ||||||||||||||
demand | 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | Total | Assets | Liabilities | |||||||||||
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ |
| MCh$ |
| MCh$ | MCh$ |
| MCh$ |
| MCh$ | ||||||
Derivatives held for hedge accounting |
| |||||||||||||||||||
Fair value hedge |
|
|
|
|
|
|
|
|
|
| ||||||||||
Currency forwards |
| — | — | — | — | — | — | — | — | — | — | |||||||||
Currency swaps |
| — | — | — | — | — | — | — | — | — | — | |||||||||
Interest rate swaps |
| — | | | | | | | | | | |||||||||
Subtotals |
| — | | | | |
| |
| | |
| |
| | |||||
Cash flow hedge |
|
|
|
|
|
|
|
|
|
| ||||||||||
Currency forwards |
| — | — | | | — | — | — | | | | |||||||||
Currency swaps |
| — | — | — | | — | — | | | | | |||||||||
Interest rate swaps |
| — | — | — | | | | — | | | | |||||||||
Subtotals |
| — | — | | | |
| |
| | |
| |
| | |||||
Hedge of net investment in a foreign operation |
|
|
|
|
|
|
|
|
|
| ||||||||||
Currency forwards |
| — | | | | — | — | — | | | | |||||||||
Subtotals |
| — | | | | — | — | — | | | | |||||||||
Totals |
| — | | | | |
| |
| | |
| |
| | |||||
As of December 31, 2021 | ||||||||||||||||||||
Notional | Fair value | |||||||||||||||||||
Over | Over | |||||||||||||||||||
1 month | 3 months | Between | Over | |||||||||||||||||
On | Up to | less than | up to | 1 and | 3 up to | More than | ||||||||||||||
demand | 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | Total | Assets | Liabilities | |||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ |
| MCh$ |
| MCh$ | MCh$ |
| MCh$ |
| MCh$ | |||||||
Derivatives held for hedge accounting |
| |||||||||||||||||||
Fair value hedge |
|
|
|
|
|
|
|
|
|
| ||||||||||
Currency forwards |
| — | — | — | — | — | — | — | — | — | — | |||||||||
Currency swaps |
| — | — | — | | — | — | — | | | — | |||||||||
Interest rate swaps |
| — | | — | | | | | | | | |||||||||
Subtotals |
| — | | — | | |
| |
| | |
| |
| | |||||
Cash flow hedge |
|
|
|
|
|
|
|
|
|
| ||||||||||
Currency forwards |
| — | | | | | — | — | | | | |||||||||
Currency swaps |
| — | — | — | — | | — | — | | — | | |||||||||
Interest rate swaps |
| — | | | | | — | — | | | | |||||||||
Subtotals |
| — | | | | |
| — |
| — | |
| |
| | |||||
Hedge of net investment in a foreign operation |
|
|
|
|
|
|
|
|
|
| ||||||||||
Currency forwards |
| — | | | | — | — | — | | | | |||||||||
Subtotal |
| — | | | | — | — | — | | | | |||||||||
Totals |
| — | | | | |
| |
| | |
| |
| | |||||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-68 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 8 – Financial Derivative Contracts and Hedge Accounting, continued
b.2) Fair value hedges
The Bank uses interest rate derivatives to manage its structural risk by minimizing accounting asymmetries in the Statement of Financial Position. Through different hedging strategies, it redenominates an element originally at a fixed rate to a floating rate, thus decreasing the financial duration and consequently risk, aligning the balance sheet structure with expected movements in the yield curve.
The following table presents the hedged items and the hedging instrument at fair value as of December 31, 2022 and 2021, detailed by maturity:
As of December 31, 2022 | ||||||||||||||||
Notional | ||||||||||||||||
On | Up to | Over 1 month | Over 3 months | Over between | Over 3 up to | More than | Total | |||||||||
demand | less than | up to | 1 and | |||||||||||||
1 month | 3 months | 1 year | 3 years | 5 years | 5 years | |||||||||||
| MCh$ |
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Hedged items |
|
|
| |||||||||||||
Loans and accounts receivable from customers |
|
|
| |||||||||||||
Commercial and mortgage loans | — | | | | | | | | ||||||||
Mortgage loans (1) | — | — | — | — | — | — | — | — | ||||||||
Time deposits and other time liabilities | ||||||||||||||||
Time deposits | — | | | | | | — | | ||||||||
Financial instruments at FVTOCI |
|
|
|
|
|
|
|
|
|
|
| |||||
Treasury bonds |
| — | — | — | | | | | | |||||||
Interbank borrowings |
| |||||||||||||||
Interbank loans |
| — | — | — | — | — | — | — | — | |||||||
Debt instruments issued | ||||||||||||||||
Senior bonds | — | — | — | | | | | | ||||||||
Totals |
| — |
| | | | | | | | ||||||
Hedging instruments |
|
|
| |||||||||||||
Currency swaps |
| — | — | — | — | — | — | — | — | |||||||
Currency forwards | — | — | — | — | — | — | — | — | ||||||||
Interest rate swaps |
| — | | | | | | | | |||||||
Totals |
| — |
| | | | | | | | ||||||
As of December 31, 2021 | ||||||||||||||||
Notional | ||||||||||||||||
On | Up to | Over 1 month | Over 3 months | Over between | Over 3 up to | More than | Total | |||||||||
demand | less than | up to | 1 and | |||||||||||||
1 month | 3 months | 1 year | 3 years | 5 years | 5 years | |||||||||||
| MCh$ |
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Hedged items |
|
|
| |||||||||||||
Loans and accounts receivable from customers |
|
|
| |||||||||||||
Mortgage loans (1) | — | — | — | | | | | | ||||||||
Time deposits and other time liabilities | ||||||||||||||||
Time deposits | — | | — | | | | — | | ||||||||
Financial instruments at FVTPL |
|
|
|
|
|
|
|
| ||||||||
Treasury bonds |
| — | — | — | — | | | | | |||||||
Interbank borrowings | ||||||||||||||||
Interbank loans | — | — | — | | — | — | — | | ||||||||
Debt instruments issued |
|
|
|
|
|
|
|
| ||||||||
Senior bonds |
| — | — | — | | | | | | |||||||
Totals |
| — |
| | — | | | | | | ||||||
Hedging instruments |
|
|
| |||||||||||||
Currency swaps |
| — | — | — | | — | — | — | | |||||||
Interest rate swaps |
| — | | — | | | | | | |||||||
Totals |
| — |
| | — | | | | | | ||||||
(1) | Colombia: The information includes the effects on the hedge item generated by prepayments; therefore, cash flows from the hedge item and the hedging instrument are not perfectly balanced. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-69 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 8 – Financial Derivative Contracts and Hedge Accounting, continued
Below is an estimate of the periods in which flows are expected to be produced:
Forecasted cash flows by interest rate risk:
As of December 31, 2022 | ||||||||||||||||
Notional | ||||||||||||||||
Over 1 month | Over 3 months | Over between | ||||||||||||||
On | Up to | less than | up to | 1 and | Over 3 up to | More than | Total | |||||||||
demand | 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | ||||||||||
| MCh$ |
| MCh$ | MCh$ | MCh$ | MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | ||||
Hedged items |
|
|
|
|
|
|
|
|
| |||||||
Inflows (1) |
| — | | | | | | | | |||||||
Outflows |
| — | ( | ( | ( | ( | ( | ( | ( | |||||||
Net Flows |
| — | ( | ( | ( | ( | ( | ( | ( | |||||||
Hedging instruments (2) |
|
|
|
|
|
|
|
|
|
| ||||||
Outflows |
| — | ( | ( | ( | ( | ( | ( | ( | |||||||
Inflows |
| — | | | | | | | | |||||||
Net flows |
| — | | | | |
| |
| |
| | ||||
As of December 31, 2021 | ||||||||||||||||
Notional | ||||||||||||||||
Over 1 month | Over 3 months | Over between | ||||||||||||||
On | Up to | less than | up to | 1 and | Over 3 up to | More than | Total | |||||||||
demand | 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | ||||||||||
| MCh$ |
| MCh$ | MCh$ | MCh$ | MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | ||||
Hedged items |
|
|
|
|
|
|
|
|
|
| ||||||
Inflows (1) |
| — | | | | | | |
| | ||||||
Outflows |
| — | ( | ( | ( | ( | ( | ( |
| ( | ||||||
Net flows |
| — |
| ( | ( | ( | ( |
| ( |
| ( |
| ( | |||
Hedging instruments (2) |
|
|
|
|
|
|
|
|
|
| ||||||
Outflows |
| — | ( | ( | ( | ( | ( | ( |
| ( | ||||||
Inflows |
| — | | | | | | |
| | ||||||
Net flows |
| — |
| | | | |
| |
| |
| | |||
(1) Colombia: The information includes the effects on the hedge item generated by prepayments; therefore, cash flows from the hedge item and the hedging instrument are not perfectly balanced.
(2) Only includes cash flows forecast portion of the hedge instruments used to cover interest rate risk.
b.3) Cash flow hedges:
Cash flow hedge is used by the Bank mainly to:
● | Reduce the volatility of cash flows in items in the Statement of Financial position that are indexed to inflation through the use of inflation forwards and combinations of swaps in pesos and indexed units. |
● | Set the rate of a portion of the pool of short-term liabilities in pesos, thus reducing the risk of an important part of the Bank’s cost of funding, although still maintaining the liquidity risk of the pool. This is achieved by setting the cash flows of the hedged items equal to those of the derivative instruments, modifying uncertain cash flows for certain cash flows. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-70 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 8 – Financial Derivative Contracts and Hedge Accounting, continued
● | It also sets the rate of funding sources at a floating rate, decreasing the risk that its funding costs increase. |
The following table presents the notional values of the hedged item as of December 31, 2022 and 2021:
As of December 31, 2022 | ||||||||||||||||
Notional | ||||||||||||||||
Over 1 month | Over 3 months | Over between | ||||||||||||||
On | Up to | less than | up to | 1 and | Over 3 up to | More than | Total | |||||||||
demand | 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | ||||||||||
| MCh$ |
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Hedged item |
|
|
|
|
|
| ||||||||||
Loans and accounts at amortized cost |
|
|
|
|
|
| ||||||||||
Loans (inflation-indexed) |
| — | — | | | — | — | — | | |||||||
Commercial loans (interest rate) |
| — | — | — | — | | | — | | |||||||
Time deposits and other deposits | ||||||||||||||||
Time deposits | — | — | — | | | | — | | ||||||||
Debt instruments issued |
| |||||||||||||||
Senior bonds |
| — | — | — | | — | — | | | |||||||
Interbank borrowings | ||||||||||||||||
Interbank loans | — | — | | | — | — | — | | ||||||||
Forecast transaction |
| |||||||||||||||
Payment in USD |
| — | — | | | — | — | — | | |||||||
Totals |
| — |
| — | | | | | |
| | |||||
Hedging instruments |
|
|
|
|
|
| ||||||||||
Currency forwards |
| — | — | | | — | — | — | | |||||||
Currency swaps |
| — | — | — | | — | — | | | |||||||
Interest rate swaps |
| — | — | — | | | | — | | |||||||
Totals |
| — |
| — | | | | | |
| | |||||
As of December 31, 2021 | ||||||||||||||||
Notional | ||||||||||||||||
Over 1 month | Over 3 months | Over between | ||||||||||||||
On | Up to | less than | up to | 1 and | Over 3 up to | More than | Total | |||||||||
demand | 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | ||||||||||
| MCh$ |
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Hedged item |
|
|
|
|
|
| ||||||||||
Loans and accounts at amortized cost |
|
|
|
|
|
| ||||||||||
Loans (inflation-indexed) |
| — | | | | | — | — | | |||||||
Commercial loans (interest rate) |
| — | | | | — | — | — | | |||||||
Time deposits and other deposits | ||||||||||||||||
Time deposits | — | — | — | — | | — | — | | ||||||||
Debt instruments issued |
|
| ||||||||||||||
Senior bonds |
| — | — | — | — | | — | — | | |||||||
Interbank borrowings | ||||||||||||||||
Interbank loans | — | | | | | — | — | | ||||||||
Forecast transaction |
| |||||||||||||||
Payment in USD |
| — | | | — | — | — | — | | |||||||
Totals |
| — |
| | | | | — | — |
| | |||||
Hedging instruments |
|
|
|
|
|
|
|
|
|
|
| |||||
Currency forwards |
| — | | | | | — | — | | |||||||
Currency swaps |
| — | — | — | — | | — | — | | |||||||
Interest rate swaps |
| — | | | | | — | — | | |||||||
Totals |
| — |
| | | | | — | — |
| | |||||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-71 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 8 – Financial Derivative Contracts and Hedge Accounting, continued
Below is an estimate of the periods in which flows are expected to occur.
As of December 31, 2022 | ||||||||||||||||
Notional | ||||||||||||||||
Over 1 month | Over 3 months | Over between | ||||||||||||||
On | Up to | less than | up to | 1 and | Over 3 up to | More than | Total | |||||||||
demand | 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | ||||||||||
| MCh$ |
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Hedged items |
|
|
|
|
|
|
|
|
|
| ||||||
Inflows |
| — | | | | | | — | | |||||||
Outflows |
| — | — | ( | ( | ( | ( | ( | ( | |||||||
Net Flows |
| — |
| | | ( | |
| |
| ( |
| ( | |||
Hedging instruments (1) |
|
|
|
|
|
|
|
|
|
| ||||||
Outflows |
| — | ( | ( | ( | ( | ( | — | ( | |||||||
Inflows |
| — | — | | | | | | | |||||||
Net flows |
| — |
| ( | ( | | ( |
| ( |
| |
| | |||
As of December 31, 2021 | ||||||||||||||||
Notional | ||||||||||||||||
Over 1 month | Over 3 months | Over between | ||||||||||||||
On | Up to | less than | up to | 1 and | Over 3 up to | More than | Total | |||||||||
demand | 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | ||||||||||
| MCh$ |
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Hedged items |
|
|
|
|
|
|
|
|
|
| ||||||
Inflows |
| — | | | | | — | — |
| | ||||||
Outflows |
| — | ( | ( | ( | ( | — | — |
| ( | ||||||
Net Flows |
| — |
| ( | ( | ( | ( |
| — |
| — |
| ( | |||
Hedging instruments (1) |
|
|
|
|
|
|
|
|
|
| ||||||
Outflows |
| — | ( | ( | ( | ( | — | — |
| ( | ||||||
Inflows |
| — | | | | | — | — |
| | ||||||
Net flows |
| — |
| | | | |
| — |
| — |
| | |||
| (1) | Only includes cash flows forecast portion of the hedge instruments used to cover interest rate risk. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-72 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 8 – Financial Derivative Contracts and Hedge Accounting, continued
The effective portion generated by cash flow derivatives is recorded in the Statement of Changes in Equity as of December 31, 2022 and 2021. The ineffective portion is recognized immediately in the Consolidated Statement of Income (Loss). This ineffectiveness is generated because both the hedged item and the hedged object do not mirror each other, which means that changes in value attributable to rate and reset components are not fully offset, but remain within the effectiveness range defined by the standard.
As of December 31, | ||||||||
2022 | 2021 | |||||||
Effective | Ineffective | Effective | Ineffective | |||||
portion | portion | portion | portion | |||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Hedged item | ||||||||
Loans and accounts receivables from customers |
|
|
|
|
|
|
|
|
Loans (inflation-indexed) | | — |
| ( | — | |||
Commercial loans (interest rate) | ( | ( |
| ( | | |||
Time deposits and other time liabilities |
| |||||||
Time deposits | | — |
| | | |||
Debt instruments issued |
| |||||||
Senior bonds | ( | — |
| ( | — | |||
Interbank borrowings | ||||||||
Interbank loans | ( | — | | ( | ||||
Forecast transaction |
| |||||||
Payment in USD | | — |
| | — | |||
Totals | | ( |
| |
| | ||
The income generated by cash flow hedge derivatives whose effect were recorded on Other Comprehensive Income (Loss), is as follow:
For the year ended | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Hedged item | ||||
Loans and accounts receivables from customers |
|
|
| |
Loans (inflation-indexed) |
| ( |
| |
Commercial loans (interest rate) |
| |
| |
Time deposits and other time liabilities |
|
| ||
Time deposits (1) | ( |
| ( | |
Debt instruments issued |
|
| ||
Senior bonds |
| |
| — |
Interbank borrowings | ||||
Interbank loans | ( | — | ||
Forecast Transaction |
|
| ||
Payment in USD |
| |
| ( |
Totals | |
| ( | |
(1) Includes the effects of the discontinuing cash flow hedge strategy on time deposits.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-73 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 8 – Financial Derivative Contracts and Hedge Accounting, continued
b.4) Hedge of net investment in foreign operations:
Banco Itaú Chile, the parent company whose functional currency is the Chilean peso, has foreign business investments consisting of a branch in New York and subsidiaries in Colombia. As a result of the proper accounting treatment for these investments, fluctuations in the value of the investments as a result of changes in the Chilean peso-Colombian peso exchange rate alter the parent company’s equity. The objective of these hedges is to safeguard the value of equity by managing exchange rate risk affecting the investments.
Hedges of a net investment in a foreign operation, including hedges of monetary items that are accounted for as part of a net investment, are recorded to cash flow hedges, where:
● | The portion of the gain or loss from the hedge instrument that is determined to be an effective hedge is recognized in equity. As of December 31, 2022, this was a credit of MCh$ |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-74 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 8 – Financial Derivative Contracts and Hedge Accounting, continued
Each hedge is detailed in the table below:
Hedge of net investment
As of December 31, 2022 | ||||||||||||||||||||
Notional | ||||||||||||||||||||
Over 1 month | Over 3 months | Over between | Effective | |||||||||||||||||
On demand | Up to | less than | up to | 1 and | Over 3 up to | More than | Total | portion for the | Ineffective | |||||||||||
1 month | 3 months | 1 year | 3 years | 5 years | 5 years | year | portion | |||||||||||||
| MCh$ |
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ |
| MCh$ |
| MCh$ | |||||||
Hedged items |
|
|
|
|
|
| ||||||||||||||
Net investment in Itaú Colombia |
| — | — | — | — | — | — | | | ( | — | |||||||||
Net investment in New York Branch |
| — | | | — | — | — | — | | ( | — | |||||||||
Total |
| — | | | — | — | — | | | ( | — | |||||||||
Hedging instrument |
| |||||||||||||||||||
Currency Forwards | — | | | | — | — | — | | ( | — | ||||||||||
Total |
| — | | | | — | — | — | | ( | — | |||||||||
As of December 31, 2021 | ||||||||||||||||||||
Notional | ||||||||||||||||||||
Over 1 month | Over 3 months | Over between | Effective | |||||||||||||||||
On demand | Up to | less than | up to | 1 and | Over 3 up to | More than | Total | portion for the | Ineffective | |||||||||||
1 month | 3 months | 1 year | 3 years | 5 years | 5 years | year | portion | |||||||||||||
| MCh$ |
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ |
| MCh$ |
| MCh$ | |||||||
Hedged items |
|
|
|
|
|
| ||||||||||||||
Net investment in New York Branch |
| — | | | | — | — | — | | ( | — | |||||||||
Total |
| — |
| |
| | | — | — | — | | ( | — | |||||||
Hedging instrument |
| |||||||||||||||||||
Foreign currency forwards |
| — |
| | | | — | — | — | | ( | — | ||||||||
Total |
| — |
| |
| | | — | — | — | | ( | — | |||||||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-75 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 9 – Interbank Loans at amortized cost
As of December 31, 2022 and 2021, the balances presented under the item “Interbank loans, net” are as follow:
| As of December 31, | |||
2022 | 2021 | |||
MCh$ | MCh$ | |||
Local banks | ||||
Loans to local banks |
| — |
| — |
Allowances for loans losses |
| — |
| — |
Subtotals |
| — |
| — |
Foreign banks |
|
|
|
|
Interbank cash loans |
| — |
| |
Loans to foreign banks |
| |
| — |
Non-transferable deposits with foreign banks |
| — |
| — |
Allowances for loans losses |
| ( |
| ( |
Subtotals |
| |
| |
Chilean Central Bank |
|
|
|
|
Deposits with the Chilean Central Bank not available |
| — |
| — |
Subtotals |
| — |
| — |
Totals |
| |
| |
Movements in provisions and impairment for local and foreign interbank loans during the year ended December 31, 2022 and 2021 are as follows:
Foreign banks | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Stage 1 | Stage 2 | Stage 2 | Stage 1 | Stage 2 | Stage 2 | |||||||||||
12-Month ECL | Lifetime ECL | Lifetime ECL | Totals | 12-Month ECL | Lifetime ECL | Lifetime ECL | Totals | |||||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Opening balances as of January 1, | ( | — | — | ( |
| ( | — | — |
| ( | ||||||
Changes in the allowances | — | — | — |
|
|
|
| |||||||||
- Transfer to stage 1 | — | — | — | — |
| — | — |
| — |
| — | |||||
- Transfer to stage 2 | — | — | — | — |
| — | — |
| — |
| — | |||||
- Transfer to stage 3 | — | — | — | — |
| — | — |
| — |
| — | |||||
- Increases due to change in credit risk | ( | — | — | ( |
| ( | — |
| — |
| ( | |||||
- Decreases due to change in credit risk | | — | — | |
| | — |
| — |
| | |||||
- Charge-offs | — | — | — | — |
| — | — |
| — |
| — | |||||
- Changes due to modifications that did not result in derecognition | — | — | — | — |
| — | — |
| — |
| — | |||||
New financial assets originated or purchased | — | — | — | — |
| — | — |
| — |
| — | |||||
Financial assets that have been derecognized | — | — | — | — |
| — | — |
| — |
| — | |||||
Changes in models/risk parameters | — | — | — | — |
| — | — |
| — |
| — | |||||
Foreign exchange and other movements | | — | — | |
| ( | — |
| — |
| ( | |||||
Ending balances as of December 31, | ( | — |
| — |
| ( |
| ( |
| — |
| — |
| ( | ||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-76 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 10 – Loans and Accounts Receivable from Customers, continued
a) | Loans and accounts receivable from customers |
As of December 31, 2022, the loan portfolio is detailed as follows:
Allowances for loan losses | ||||||||||
Individual | Collective | |||||||||
As of December 31, 2022 | Gross Assets | allowances | allowances | Totals | Net assets | |||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
Commercial loans |
| |
| ( |
| ( | ( | | ||
Foreign trade loans |
| |
| — |
| ( | ( | | ||
Checking account debtors |
| |
| — |
| ( | ( | | ||
Factoring transactions |
| |
| — |
| ( | ( | | ||
Student loans |
| |
| — |
| ( | ( | | ||
Leasing transactions |
| |
| — |
| ( | ( | | ||
Other commercial loans and receivables |
| — |
| — |
| — | — | — | ||
Subtotals |
| |
| ( |
| ( |
| ( |
| |
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
Loans with mortgage finance bonds |
| |
| — |
| ( |
| ( |
| |
Endorsable mutual mortgage loans |
| |
| — |
| ( |
| ( |
| |
Other mutual mortgage loans |
| |
| — |
| ( |
| ( |
| |
Mortgage leasing transactions |
| |
| — |
| ( |
| ( |
| |
Other mortgage loans and receivables |
| |
| — |
| ( |
| ( |
| |
Subtotals |
| |
| — |
| ( |
| ( |
| |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
Installment consumer loans |
| |
| — |
| ( |
| ( |
| |
Checking account debtors |
| |
| — |
| ( |
| ( |
| |
Credit card balances |
| |
| — |
| ( |
| ( |
| |
Consumer leasing transactions |
| |
| — |
| ( |
| ( |
| |
Other consumer loans and receivables |
| |
| — |
| ( |
| ( |
| |
Subtotals |
| |
| — |
| ( |
| ( |
| |
Totals |
| |
| ( |
| ( |
| ( |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-77 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 10 – Loans and Accounts Receivable from Customers, continued
As of December 31, 2021, the loan portfolio is detailed as follows:
Allowances for loan losses | ||||||||||
Individual | Collective | |||||||||
As of December 31, 2021 | Gross Assets | allowances | allowances | Totals | Net assets | |||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
Commercial loans |
| | ( | ( |
| ( |
| | ||
Foreign trade loans |
| | — | ( |
| ( |
| | ||
Checking account debtors |
| | — | ( |
| ( |
| | ||
Factoring transactions |
| | — | ( |
| ( |
| | ||
Student loans |
| | — | ( |
| ( |
| | ||
Leasing transactions |
| | — | ( |
| ( |
| | ||
Other commercial loans and receivables |
| | — | ( |
| ( |
| | ||
Subtotals |
| |
| ( |
| ( |
| ( |
| |
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
Loans with mortgage finance bonds |
| |
| — |
| ( |
| ( |
| |
Endorsable mutual mortgage loans |
| |
| — |
| ( |
| ( |
| |
Other mutual mortgage loans |
| |
| — |
| ( |
| ( |
| |
Mortgage leasing transactions |
| |
| — |
| ( |
| ( |
| |
Other mortgage loans and receivables |
| |
| — |
| ( |
| ( |
| |
Subtotals |
| |
| — |
| ( |
| ( |
| |
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
Installment consumer loans |
| |
| — |
| ( |
| ( |
| |
Checking account debtors |
| |
| — |
| ( |
| ( |
| |
Credit card balances |
| |
| — |
| ( |
| ( |
| |
Consumer leasing transactions |
| |
| — |
| ( |
| ( |
| |
Other consumer loans and receivables |
| |
| — |
| ( |
| ( |
| |
Subtotals |
| |
| — |
| ( |
| ( |
| |
Totals |
| |
| ( |
| ( |
| ( |
| |
Guarantees received by the Bank to secure collections of rights reflected in its loan portfolios are real mortgage-type guarantees (urban and rural property, farm land, ships and aircraft, mining claims and other assets) and pledges (inventory, farm assets, industrial assets, plantings and other pledged assets). As of December 31, 2022 and 2021, the fair value of guarantees received corresponds to
In the case of mortgage guarantees, as of December 31, 2022 and 2021, the fair value of the guarantees received corresponds to
The Bank finances its customers’ purchases of assets, including real estate and other personal property, through financial lease agreements that are presented within this item. As of December 31, 2022, the Bank recorded MCh$
As of December 31, 2022, the Bank pledged as collateral to the Central Bank of Chile (BCCh) loans from the commercial portfolio in order to access the new Conditional Funding Facility (FCIC). The program includes access to 4-year funds at the BCCh overnight rate in force on the date of each operation, with available funds size increasing as a function of additional loans pledged as collateral. The pledged loans have an outstanding principal balance of Ch$
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-78 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 10 – Loans and Accounts Receivable from Customers, continued
The following tables present the movements for the total loan portfolio disaggregated by individually and group assessed loans for the year ended December 31, 2022 and 2021:
Individually assessed | Collectively assessed | |||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||
| 12-Month |
| Lifetime |
| Lifetime |
|
| 12-Month |
| Lifetime |
| Lifetime |
|
| ||||
| ECL | ECL | ECL | Subtotals | ECL | ECL | ECL | Subtotals | Totals | |||||||||
Loan portfolio | ||||||||||||||||||
Opening balances as of January 1, 2022 |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Changes in the allowances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
- Transfer to stage 1 |
| — |
| — |
| — |
| — |
| |
| ( |
| ( |
| — |
| — |
- Transfer to stage 2 |
| ( |
| |
| — |
| — |
| ( |
| |
| ( |
| — |
| — |
- Transfer to stage 3 |
| — |
| ( |
| |
| — |
| ( |
| ( |
| |
| — |
| — |
- Charge-offs |
| — |
| — |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
- Changes due to modifications that did not result in derecognition |
| — |
| ( |
| |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
New financial assets originated or purchased |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Financial assets that have been derecognized due to collections |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Net transfer (from) collectively to individually assessed | — |
| — |
| — | — | — |
| — |
| — | — | — | |||||
Foreign exchange and other movements |
| ( |
| |
| ( |
| ( |
| ( |
| ( |
| |
| ( |
| ( |
Ending balances as of December 31, 2022 |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Individually assessed | Collectively assessed | |||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||
| 12-Month |
| Lifetime |
| Lifetime |
|
| 12-Month |
| Lifetime |
| Lifetime |
|
| ||||
| ECL | ECL | ECL | Subtotals | ECL | ECL | ECL | Subtotals | Totals | |||||||||
Loan portfolio | ||||||||||||||||||
Opening balances as of January 1, 2021 |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Changes in the allowances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
- Transfer to stage 1 |
| — |
| — |
| — |
| — |
| |
| ( |
| ( |
| — |
| — |
- Transfer to stage 2 |
| ( |
| |
| ( |
| — |
| ( |
| |
| ( |
| — |
| — |
- Transfer to stage 3 |
| — |
| ( |
| |
| — |
| ( |
| ( |
| |
| — |
| — |
- Charge-offs |
| — |
| — |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
- Changes due to modifications that did not result in derecognition |
| — |
| ( |
| |
| |
| ( |
| ( |
| ( |
| ( |
| ( |
New financial assets originated or purchased |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Financial assets that have been derecognized due to collections |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Net transfer (from) collectively to individually assessed | — |
| — |
| — | — | — |
| — |
| — | — | — | |||||
Foreign exchange and other movements |
| ( |
| |
| ( |
| |
| |
| ( |
| |
| |
| |
Ending balances as of December 31, 2021 |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-79 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 10 – Loans and Accounts Receivable from Customers, continued
The following table presents the movements for the commercial loans portfolio disaggregated by individually and group assessed loans for the years ended December 31, 2022 and 2021:
Individually assessed | Collectively assessed | |||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||
| 12-Month |
| Lifetime |
| Lifetime |
|
| 12-Month |
| Lifetime |
| Lifetime |
|
| ||||
| ECL | ECL | ECL | Subtotals | ECL | ECL | ECL | Subtotals | Totals | |||||||||
Opening balances as of January 1, 2022 |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Changes in the allowances |
|
|
|
|
| |||||||||||||
- Transfer to stage 1 |
| — | — | — |
| — |
| | ( | ( |
| — |
| — | ||||
- Transfer to stage 2 |
| ( | | — |
| — |
| ( | | ( |
| — |
| — | ||||
- Transfer to stage 3 |
| — | ( | |
| — |
| ( | ( | |
| — |
| — | ||||
- Charge-offs |
| — | — | ( |
| ( |
| ( | ( | ( |
| ( |
| ( | ||||
- Changes due to modifications that did not result in derecognition |
| — | ( | |
| ( |
| ( | ( | ( |
| ( |
| ( | ||||
New financial assets originated or purchased |
| | | |
| |
| | | |
| |
| | ||||
Financial assets that have been derecognized due to collections |
| ( | ( | ( |
| ( |
| ( | ( | ( |
| ( |
| ( | ||||
Net transfer (from) collectively to individually assessed | — | — | — | — | — | — | — | — | — | |||||||||
Foreign exchange and other movements |
| ( | | ( |
| ( |
| ( | ( | |
| ( |
| ( | ||||
Ending balances as of December 31, 2022 |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Individually assessed | Collectively assessed | |||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||
| 12-Month |
| Lifetime |
| Lifetime |
|
| 12-Month |
| Lifetime |
| Lifetime |
|
| ||||
| ECL | ECL | ECL | Subtotals | ECL | ECL | ECL | Subtotals | Totals | |||||||||
Opening balances as of January 1, 2021 |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Changes in the allowances |
|
|
|
|
| |||||||||||||
- Transfer to stage 1 |
| — | — | — |
| — |
| | ( | ( |
| — |
| — | ||||
- Transfer to stage 2 |
| ( | | ( |
| — |
| ( | | ( |
| — |
| — | ||||
- Transfer to stage 3 |
| — | ( | |
| — |
| ( | ( | |
| — |
| — | ||||
- Charge-offs |
| — | — | ( |
| ( |
| ( | ( | ( |
| ( |
| ( | ||||
- Changes due to modifications that did not result in derecognition |
| — | ( | |
| |
| ( | ( | ( |
| ( |
| ( | ||||
New financial assets originated or purchased |
| | | |
| |
| | | |
| |
| | ||||
Financial assets that have been derecognized due to collections |
| ( | ( | ( |
| ( |
| ( | ( | ( |
| ( |
| ( | ||||
Net transfer (from) collectively to individually assessed | — | — | — | — | — | — | — | — | — | |||||||||
Foreign exchange and other movements |
| ( | | ( |
| |
| | ( | |
| |
| | ||||
Ending balances as of December 31, 2021 |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-80 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 10 – Loans and Accounts Receivable from Customers, continued
The following tables presents the movements of the mortgage loans portfolio for the years ended December 31, 2022 and 2021.
Collectively assessed | ||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||
| 12-Month |
| Lifetime |
| Lifetime |
| ||
| ECL | ECL | ECL | Totals | ||||
Opening balances as of January 1, 2022 |
| |
| |
| |
| |
Changes in the allowances |
|
| ||||||
- Transfer to stage 1 |
| | ( | ( |
| — | ||
- Transfer to stage 2 |
| ( | | ( |
| — | ||
- Transfer to stage 3 |
| ( | ( | |
| — | ||
- Charge-offs |
| ( | ( | ( |
| ( | ||
- Changes due to modifications that did not result in derecognition |
| ( | ( | |
| ( | ||
New financial assets originated or purchased |
| | | |
| | ||
Financial assets that have been derecognized due to collections |
| ( | ( | ( |
| ( | ||
Foreign exchange and other movements |
| ( | ( | ( |
| ( | ||
Ending balances as of December 31, 2022 |
| |
| |
| |
| |
Collectively assessed | ||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||
| 12-Month |
| Lifetime |
| Lifetime |
| ||
| ECL | ECL | ECL | Totals | ||||
Opening balances as of January 1, 2021 |
| |
| |
| |
| |
Changes in the allowances |
|
| ||||||
- Transfer to stage 1 |
| | ( | ( |
| — | ||
- Transfer to stage 2 |
| ( | | ( |
| — | ||
- Transfer to stage 3 |
| ( | ( | |
| — | ||
- Charge-offs |
| — | ( | ( |
| ( | ||
- Changes due to modifications that did not result in derecognition |
| ( | ( | |
| ( | ||
New financial assets originated or purchased |
| | | |
| | ||
Financial assets that have been derecognized due to collections |
| ( | ( | ( |
| ( | ||
Foreign exchange and other movements |
| ( | | |
| ( | ||
Ending balances as of December 31, 2021 |
| |
| |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-81 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 10 – Loans and Accounts Receivable from Customers, continued
The following tables presents the movements of the consumer loans portfolio for the years ended December 31, 2022 and 2021:
Collectively assessed | ||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||
| 12-Month |
| Lifetime |
| Lifetime |
| ||
| ECL | ECL | ECL | Totals | ||||
| — | |||||||
Opening balances as of January 1, 2022 |
| |
| |
| |
| |
Changes in the allowances |
|
| ||||||
- Transfer to stage 1 |
| |
| ( |
| ( |
| — |
- Transfer to stage 2 |
| ( |
| |
| ( |
| — |
- Transfer to stage 3 |
| ( |
| ( |
| |
| — |
- Charge-offs |
| ( | ( | ( |
| ( | ||
- Changes due to modifications that did not result in derecognition |
| ( | ( | |
| ( | ||
New financial assets originated or purchased |
| | | |
| | ||
Financial assets that have been derecognized due to collections |
| ( | ( | ( |
| ( | ||
Foreign exchange and other movements |
| ( | ( | ( |
| ( | ||
Ending balances as of December 31, 2022 |
| |
| |
| |
| |
Collectively assessed | ||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||
| 12-Month |
| Lifetime |
| Lifetime |
| ||
| ECL | ECL | ECL | Totals | ||||
Opening balances as of January 1, 2021 |
| |
| |
| |
| |
Changes in the allowances |
|
| ||||||
- Transfer to stage 1 |
| |
| ( |
| ( |
| — |
- Transfer to stage 2 |
| ( |
| |
| ( |
| — |
- Transfer to stage 3 |
| ( |
| ( |
| |
| — |
- Charge-offs |
| ( | ( | ( |
| ( | ||
- Changes due to modifications that did not result in derecognition |
| ( | ( | |
| ( | ||
New financial assets originated or purchased |
| | | |
| | ||
Financial assets that have been derecognized due to collections |
| ( | ( | ( |
| ( | ||
Foreign exchange and other movements |
| | | ( |
| | ||
Ending balances as of December 31, 2021 |
| |
| |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-82 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 10 – Loans and Accounts Receivable from Customers, continued
b) | Portfolio characteristics |
The following table details the Bank’s loan portfolio (before allowances) as of December 31, 2022 and 2021, by the customer’s industry sector:
As of December 31, 2022 | ||||||||
Local loans | Foreign loans | Totals | Distribution percentage | |||||
| MCh$ |
| MCh$ |
| MCh$ |
| % | |
Commercial loans |
|
|
|
|
|
|
|
|
Manufacturing |
| |
| |
| |
| |
Mining |
| |
| |
| |
| |
Electricity, gas and water |
| |
| |
| |
| |
Agriculture and livestock |
| |
| |
| |
| |
Forestry and wood extraction |
| |
| |
| |
| |
Fishing |
| |
| |
| |
| |
Transport |
| |
| |
| |
| |
Communications |
| |
| |
| |
| |
Construction |
| |
| |
| |
| |
Commerce |
| |
| |
| |
| |
Services |
| |
| |
| |
| |
Others |
| |
| |
| |
| |
Subtotals |
| |
| |
| |
| |
Mortgage loans |
| |
| |
| |
| |
Consumer loans |
| |
| |
| |
| |
Totals |
| |
| |
| |
| |
As of December 31, 2021 | |||||||||
Local loans | Foreign loans | Totals | Distribution percentage | ||||||
| MCh$ |
| MCh$ |
| MCh$ |
| % | ||
Commercial loans |
|
|
|
|
|
|
|
| |
Manufacturing |
| | |
| |
| |||
Mining |
| | |
| |
| |||
Electricity, gas and water |
| | |
| |
| |||
Agriculture and livestock |
| | |
| |
| |||
Forestry and wood extraction |
| | |
| |
| |||
Fishing |
| | |
| |
| |||
Transport |
| | |
| |
| |||
Communications |
| | |
| |
| |||
Construction |
| | |
| |
| |||
Commerce |
| | |
| |
| |||
Services |
| | |
| |
| |||
Others |
| | |
| |
| |||
Subtotals |
| |
| |
| |
| ||
Mortgage loans |
| | |
| |
| |||
Consumer loans |
| | |
| |
| |||
Totals |
| |
| |
| |
| ||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-83 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 10 – Loans and Accounts Receivable from Customers, continued
c) | Allowances for loans losses |
Movements in allowances for loan losses during the years ended December 31, 2022 and 2021, are as follows:
Individually assessed | Collectively assessed | |||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||
| 12-Month |
| Lifetime |
| Lifetime |
|
| 12-Month |
| Lifetime |
| Lifetime |
|
| ||||
| ECL | ECL | ECL | Subtotals | ECL | ECL | ECL | Subtotals | Totals | |||||||||
Opening balances as of January 1, 2022 |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Changes in the allowances |
|
|
|
|
| |||||||||||||
- Transfer to stage 1 |
| — |
| — |
| — |
| — |
| ( |
| |
| |
| — |
| — |
- Transfer to stage 2 |
| |
| ( |
| — |
| — |
| |
| ( |
| |
| — |
| — |
- Transfer to stage 3 |
| — |
| |
| ( |
| — |
| |
| |
| ( |
| — |
| — |
- Increases due to change in credit risk |
| — |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
- Decreases due to change in credit risk |
| — |
| |
| |
| |
| |
| |
| |
| |
| |
- Charge-offs |
| — |
| — |
| |
| |
| |
| |
| |
| |
| |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| |
| |
New financial assets originated or purchased |
| |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Financial assets that have been derecognized |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Net transfer (from) to collectively and individually assessed |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| ( |
| |
| |
| |
| |
| |
| |
| |
| |
Ending balances as of December 31, 2022 |
| — |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Individually assessed | Collectively assessed | |||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||
| 12-Month |
| Lifetime |
| Lifetime |
|
| 12-Month |
| Lifetime |
| Lifetime |
|
| ||||
| ECL |
| ECL |
| ECL |
| Subtotals |
| ECL |
| ECL |
| ECL |
| Subtotals |
| Totals | |
Opening balances as of January 1, 2021 |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Changes in the allowances |
|
|
|
|
| |||||||||||||
- Transfer to stage 1 |
| — |
| — |
| — |
| — |
| ( |
| |
| |
| — |
| — |
- Transfer to stage 2 |
| |
| ( |
| |
| — |
| |
| ( |
| |
| — |
| — |
- Transfer to stage 3 |
| — |
| |
| ( |
| — |
| |
| |
| ( |
| — |
| — |
- Increases due to change in credit risk |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
- Decreases due to change in credit risk |
| — |
| |
| |
| |
| |
| |
| |
| |
| |
- Charge-offs |
| — |
| — |
| |
| |
| |
| |
| |
| |
| |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| |
| |
New financial assets originated or purchased |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Financial assets that have been derecognized due to collections |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Net transfer (from) to collectively and individually assessed |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| ( |
| ( |
| |
| |
| ( |
| ( |
| ( |
| ( |
| ( |
Ending balances as of December 31, 2021 |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-84 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 10 – Loans and Accounts Receivable from Customers, continued
The following analysis details the movement on allowances by type of portfolio (commercial, mortgage and consumer) is as follow:
Individually assessed | Collective assessed | |||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||
| 12-Month |
| Lifetime |
| Lifetime |
|
| 12-Month |
| Lifetime |
| Lifetime |
|
| ||||
Commercial |
| ECL |
| ECL |
| ECL |
| Subtotals |
| ECL |
| ECL |
| ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2022 |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Changes in the allowances |
|
|
|
|
| - | ||||||||||||
- Transfer to stage 1 |
| — |
| — |
| — |
| — |
| ( |
| |
| |
| — |
| — |
- Transfer to stage 2 |
| |
| ( |
| — |
| — |
| |
| ( |
| |
| — |
| — |
- Transfer to stage 3 |
| — |
| |
| ( |
| — |
| |
| |
| ( |
| — |
| — |
- Increases due to change in credit risk |
| — |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
- Decreases due to change in credit risk |
| — |
| |
| |
| |
| |
| |
| |
| |
| |
- Charge-offs |
| — |
| — |
| |
| |
| |
| |
| |
| |
| |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
New financial assets originated or purchased |
| |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Financial assets that have been derecognized |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Net transfer (from) to collective and individually assessed |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| ( | | |
| |
| | ( | |
| |
| | ||||
Ending balances as of December 31, 2022 |
| — |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| Individually assessed | Collectively assessed | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Stage 1 | Stage 2 | Stage 3 | |||||||||||||
12-Month | Lifetime | Lifetime | 12-Month | Lifetime | Lifetime | |||||||||||||
Commercial |
| ECL |
| ECL |
| ECL |
| Subtotals |
| ECL |
| ECL |
| ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2021 |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Changes in the allowances |
|
|
|
|
| |||||||||||||
- Transfer to stage 1 |
| — |
| — |
| — |
| — |
| ( |
| |
| |
| — |
| — |
- Transfer to stage 2 |
| |
| ( |
| |
| — |
| |
| ( |
| |
| — |
| — |
- Transfer to stage 3 |
| — |
| |
| ( |
| — |
| |
| |
| ( |
| — |
| — |
- Increases due to change in credit risk |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
- Decreases due to change in credit risk |
| — |
| |
| |
| |
| |
| |
| |
| |
| |
- Charge-offs |
| — |
| — |
| |
| |
| |
| |
| |
| |
| |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| |
| |
New financial assets originated or purchased |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Financial assets that have been derecognized due to collections |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Net transfer (from) to collectively and individually assessed |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Foreign exchange and other movements |
| ( | ( | |
| |
| ( | ( | ( |
| ( |
| ( | ||||
Ending balances as of December 31, 2021 |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-85 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 10 – Loans and Accounts Receivable from Customers, continued
Collectively assessed | ||||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||||
Mortgage |
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2022 |
| ( |
| ( |
| ( |
| ( |
| ( |
Changes in the allowances |
|
|
| |||||||
- Transfer to stage 1 |
| ( |
| |
| |
| — |
| — |
- Transfer to stage 2 |
| |
| ( |
| |
| — |
| — |
- Transfer to stage 3 |
| |
| |
| ( |
| — |
| — |
- Increases due to change in credit risk |
| ( |
| ( |
| ( |
| ( |
| ( |
- Decreases due to change in credit risk |
| |
| |
| |
| |
| |
- Charge-offs |
| |
| |
| |
| |
| |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| |
| |
| |
New financial assets originated or purchased |
| ( |
| ( |
| ( |
| ( |
| ( |
Financial assets that have been derecognized |
| |
| |
| |
| |
| |
Foreign exchange and other movements |
| | | |
| |
| | ||
Ending balances as of December 31, 2022 |
| ( |
| ( |
| ( |
| ( |
| ( |
Collectively assessed | ||||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||||
Mortgage |
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2021 |
| ( |
| ( |
| ( |
| ( |
| ( |
Changes in the allowances |
|
|
|
| ||||||
- Transfer to stage 1 |
| ( |
| |
| |
| — |
| — |
- Transfer to stage 2 |
| |
| ( |
| |
| — |
| — |
- Transfer to stage 3 |
| |
| |
| ( |
| — |
| — |
- Increases due to change in credit risk |
| ( |
| ( |
| ( |
| ( |
| ( |
- Decreases due to change in credit risk |
| |
| |
| |
| |
| |
- Charge-offs |
| — |
| |
| |
| |
| |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| |
| |
| |
New financial assets originated or purchased |
| ( |
| ( |
| ( |
| ( |
| ( |
Financial assets that have been derecognized due to collections |
| |
| |
| |
| |
| |
Foreign exchange and other movements |
| ( | ( | |
| ( |
| ( | ||
Ending balances as of December 31, 2021 |
| ( |
| ( |
| ( |
| ( |
| ( |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-86 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 10 – Loans and Accounts Receivable from Customers, continued
Collectively assessed | ||||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||||
Consumer |
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2022 |
| ( |
| ( |
| ( |
| ( |
| ( |
Changes in the allowances |
|
|
| |||||||
- Transfer to stage 1 |
| ( |
| |
| |
| — | — | |
- Transfer to stage 2 |
| |
| ( |
| |
| — |
| — |
- Transfer to stage 3 |
| |
| |
| ( |
| — |
| — |
- Increases due to change in credit risk |
| ( |
| ( |
| ( |
| ( |
| ( |
- Decreases due to change in credit risk |
| |
| |
| |
| |
| |
- Charge-offs |
| |
| |
| |
| |
| |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| |
| |
| |
New financial assets originated or purchased |
| ( |
| ( |
| ( |
| ( |
| ( |
Financial assets that have been derecognized |
| |
| |
| |
| |
| |
Foreign exchange and other movements |
| |
| |
| |
| |
| |
Ending balances as of December 31, 2022 |
| ( |
| ( | ( |
| ( | ( | ||
Collectively assessed | ||||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||||
Consumer |
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Subtotals |
| Totals |
Opening balances as of January 1, 2021 |
| ( |
| ( |
| ( |
| ( |
| ( |
Changes in the allowances |
|
|
| |||||||
- Transfer to stage 1 |
| ( |
| |
| |
| — |
| — |
- Transfer to stage 2 |
| |
| ( |
| |
| — |
| — |
- Transfer to stage 3 |
| |
| |
| ( |
| — |
| — |
- Increases due to change in credit risk |
| ( |
| ( |
| ( |
| ( |
| ( |
- Decreases due to change in credit risk |
| |
| |
| |
| |
| |
- Charge-offs |
| |
| |
| |
| |
| |
- Changes due to modifications that did not result in derecognition |
| — |
| — |
| |
| |
| |
New financial assets originated or purchased |
| ( |
| ( |
| ( |
| ( |
| ( |
Financial assets that have been derecognized due to collections |
| |
| |
| |
| |
| |
Foreign exchange and other movements |
| ( |
| ( |
| ( |
| ( |
| ( |
Ending balances as of December 31, 2021 |
| ( |
| ( |
| ( |
| ( |
| ( |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-87 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 10 – Loans and Accounts Receivable from Customers, continued
d) | Portfolio sales |
The following tables presents portfolio sales from our current and written off portfolio detailed in section d.1) and part of the loan portfolio of its Government guaranteed students (Law No. 20,027) detailed in section d.2).
For the year ended on December 31, 2022 and 2021, the total of the portfolio sales generated gains of MCh$
d.1) Current and charged-off portfolios sales
As of December 31, 2022 and 2021, the Bank and its subsidiaries derecognized 100% of its sold portfolio, thus complying with the requirements of the accounting policy for derecognizing financial assets and liabilities set in Note 1, letter l), point iv) of the annual Consolidated Financial Statements. The main sales were loans related to Law 20,027, wich are detailed in point d.2.
For the year ended December 31, 2022 | For the year ended December 31, 2021 | |||||||||||||||||||||||
Adjustment | Exchange | Net effect on | Adjustment | Exchange | Net effect on | |||||||||||||||||||
Portfolio |
| Loan Value |
| Allowances |
| Sale price |
| to EIR |
| I |
| income |
| Loan Value |
| Allowances |
| Sale price |
| to EIR |
| I |
| income |
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Current | — | — | — | — | — | — | | | | — | | | ||||||||||||
Charged-off | — | — | — | — | — | — | — | — | | — | ( | | ||||||||||||
Totals | — | — | — | — | — | — | | | | — | | | ||||||||||||
d.2) CAE portfolio sale
For the year ended on December 31, 2022, gains recognized from sales of the portfolio amount to MCh$
| For the year ended December 31, 2022 |
| For the year ended December 31, 2021 | |||||||||||||||||
Adjustment | Net effect on | Adjustment | Net effect on | |||||||||||||||||
Portfolio |
| Loan Value |
| Allowances |
| Sale price |
| to EIR |
| income |
| Loan Value |
| Allowances |
| Sale price |
| to EIR |
| income |
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||
CAE |
| | ( | | | |
| | ( | | | | ||||||||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-88 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 11 – Investment instruments
a) | Investment instruments at fair value through other comprehensive income and at amortized cost |
As of December 31, 2022 and 2021, the detail of financial instruments measured at FVTOCI and at amortized cost is as follows:
As of December 31, 2022 | As of December 31, 2021 | |||||||||||
| At FVTOCI |
| At amortized cost |
| Totals |
| At FVTOCI |
| At amortized cost |
| Totals | |
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Debt instruments | | | | | | | ||||||
Equity instruments | | — | | | — | | ||||||
Totals | | | | | | | ||||||
b) | Debt instruments at fair value through other comprehensive income and at amortized cost |
As of December 31, 2022 and 2021, the detail of financial instruments measured at FVTOCI and at amortized cost is as follows:
As of December 31, 2022 | As of December 31, 2021 | |||||||||||
| At FVTOCI |
| At amortized cost (1) |
| Totals |
| At FVTOCI |
| At amortized cost (1) |
| Totals | |
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Securities quoted in active markets |
|
|
|
|
| |||||||
Chilean Central Bank and Government securities |
|
|
|
|
| |||||||
Chilean Central Bank instruments | |
| — |
| | |
| — | | |||
Chilean Treasury bonds | |
| |
| | |
| — | | |||
Other I securities | |
| — |
| | |
| — | | |||
Other local institutions financial instruments |
| |||||||||||
Time deposits in local banks | |
| — |
| | — |
| — | — | |||
Mortgage finance bonds | — |
| — |
| — | — |
| — | — | |||
Chilean financial institutions bonds | — |
| — |
| — | |
| — | | |||
Other local financial investments | |
| — |
| | |
| — | | |||
Foreign institutions financial instruments |
| |||||||||||
Foreign Governments and Central Banks financial instruments | |
| — |
| | |
| — | | |||
Other foreign financial instruments | |
| |
| | |
| | | |||
Investments not quoted in active markets |
|
| — |
|
| — | ||||||
Corporate bonds | — |
| — |
| — | — | — | — | ||||
Equity instruments | ||||||||||||
Other financial instruments | |
| — |
| | | — | | ||||
Totals |
| |
| |
| |
| |
| |
| |
(1) | Financial assets at amortized cost are presented net of allowances for credit loss further disclosures are presented under section “c) Impairment of debt instruments at fair value through other comprehensive income and at amortized cost” |
As of December 31, 2022, this total includes Ch$
As of December 31, 2022, the portfolio at FVTOCI includes an unrealized loss of Ch$
As of December 31, 2022, the portfolio of financial instruments at FVTOCI includes financial instruments for an amount of Ch$
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-89 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 11 – Investment instruments, continued
c) | Impairment of debt instruments at fair value through other comprehensive income and at amortized cost |
As of December 31, 2022 and 2021 the portfolios of debt securities classified as investment instruments at fair value through other comprehensive income includes impairment movements as summarized below:
Financial instruments at FVTOCI | ||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Totals | |
Opening balances as of January 1, 2022 |
| ( | | |
| ( | ||
Changes in the allowances |
|
| ||||||
- Transfer to stage 1 |
| | | |
| | ||
- Transfer to stage 2 |
| | | |
| | ||
- Transfer to stage 3 |
| | | |
| | ||
- Increases due to change in credit risk |
| ( | | |
| ( | ||
- Decreases due to change in credit risk |
| | | |
| | ||
- Charge-Offs |
| | | |
| | ||
- Changes due to modifications that did not result in derecognition |
| | | |
| | ||
New financial assets originated or purchased |
| ( | | |
| ( | ||
Financial assets that have been derecognized |
| | | |
| | ||
Changes in models/risk parameters |
| | | |
| | ||
Foreign exchange and other movements |
| | | |
| | ||
Ending balances as of December 31, 2022 |
| ( |
| |
| |
| ( |
Financial instruments at FVTOCI | ||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Totals | |
Opening balances as of January 1, 2021 |
| ( | | |
| ( | ||
Changes in the allowances |
|
| ||||||
- Transfer to stage 1 |
| | | |
| | ||
- Transfer to stage 2 |
| | | |
| | ||
- Transfer to stage 3 |
| | | |
| | ||
- Increases due to change in credit risk |
| ( | | |
| ( | ||
- Decreases due to change in credit risk |
| | | |
| | ||
- Charge-Offs |
| | | |
| | ||
- Changes due to modifications that did not result in derecognition |
| | | |
| | ||
New financial assets originated or purchased |
| ( | | |
| ( | ||
Financial assets that have been derecognized |
| | | |
| | ||
Changes in models/risk parameters |
| | | |
| | ||
Foreign exchange and other movements |
| ( | | |
| ( | ||
Ending balances as of December 31, 2021 | ( | | | ( | ||||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-90 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 11 – Investment instruments, continued
As of December 31, 2022 and 2021 the portfolios of investment instruments at amortized cost includes impairment movements as summarized below:
Financial instruments at Amortized cost | ||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Totals | |
Opening balances as of January 1, 2022 |
| ( |
| | |
| ( | |
Changes in the allowances |
|
| ||||||
- Transfer to stage 1 |
| | | |
| | ||
- Transfer to stage 2 |
| | | |
| | ||
- Transfer to stage 3 |
| | | |
| | ||
- Increases due to change in credit risk |
| ( | | |
| ( | ||
- Decreases due to change in credit risk |
| | | |
| | ||
- Charge-offs |
| | | |
| | ||
- Changes due to modifications that did not result in derecognition |
| | | |
| | ||
New financial assets originated or purchased |
| ( | | |
| ( | ||
Financial assets that have been derecognized |
| | | |
| | ||
Changes in models/risk parameters |
| | | |
| | ||
Foreign exchange and other movements |
| | | |
| | ||
Ending balances as of December 31, 2022 |
| ( |
| | |
| ( | |
| Financial instruments at Amortized cost | |||||||
Stage 1 | Stage 2 | Stage 3 | ||||||
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Totals | |
Opening balances as of January 1, 2021 |
| ( |
| | |
| ( | |
Changes in the allowances |
|
|
| |||||
- Transfer to stage 1 |
| | | |
| | ||
- Transfer to stage 2 |
| | | |
| | ||
- Transfer to stage 3 |
| | | |
| | ||
- Increases due to change in credit risk |
| ( | | |
| ( | ||
- Decreases due to change in credit risk |
| | | |
| | ||
- Charge-offs |
| | | |
| | ||
- Changes due to modifications that did not result in derecognition |
| | | |
| | ||
New financial assets originated or purchased |
| | |
| | |||
Financial assets that have been derecognized |
| | |
| | |||
Changes in models/risk parameters |
| | | |
| | ||
Foreign exchange and other movements |
| | | |
| | ||
Ending balances as of December 31, 2021 |
| ( |
| | |
| ( | |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-91 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 11 – Investment instruments, continued
d) | Unrealized gains and losses of the portfolio at FVTOCI |
Unrealized gains and losses of the FVTOCI portfolio as of December 31, 2022 and 2021 are detailed as follows:
As of December 31, 2022 |
| As of December 31, 2021 | ||||||||||||||
Acquisition | Unrealized | Fair | Acquisition | Unrealized | Fair | |||||||||||
| cost |
| Gain |
| Losses |
| value |
| cost |
| Gain |
| Losses |
| value | |
Securities quoted in active markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank and Government securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean Central Bank instruments |
| |
| |
| ( |
| |
| |
| |
| ( |
| |
Chilean Treasury bonds |
| |
| |
| ( |
| |
| |
| |
| ( |
| |
Other government securities |
| |
| — |
| ( |
| |
| |
| |
| ( |
| |
Other local institutions financial instruments |
|
|
|
|
|
| ||||||||||
Time deposits in local banks |
| |
| |
| ( |
| |
| — |
| — |
| — |
| — |
Mortgage finance bonds |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Chilean financial institutions bonds |
| — |
| — |
| — |
| — |
| |
| |
| ( |
| |
Other local financial investments | |
| — |
| ( |
| | |
| |
| ( | | |||
Foreign institutions financial instruments |
|
|
|
|
|
| ||||||||||
Foreign Governments and Central Banks financial instruments |
| |
| |
| ( |
| |
| |
| |
| ( |
| |
Other foreign financial instruments |
| |
| — |
| ( |
| |
| |
| |
| ( |
| |
Investments not quoted in active markets |
|
|
|
|
|
| ||||||||||
Corporate bonds |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Equity instruments | ||||||||||||||||
Unlisted securities | | |
| — | | | | — | | |||||||
Totals |
| |
| |
| ( |
| |
| |
| |
| ( |
| |
e) | Equity instruments at fair value through other comprehensive income |
As of December 31, 2022 and 2021 the portfolio of equity investment instruments at fair value through comprehensive income are detail as follows:
| 2022 |
| 2021 | |
Unlisted securities | MCh$ | MCh$ | ||
Domestic entities |
|
|
|
|
Stock Exchanges |
| |
| |
Foreign entities |
|
| ||
A.C.H Colombia |
| |
| |
Redeban Multicolor S.A. |
| |
| |
Cámara de Compensación Divisas de Colombia S.A. (1) |
| — |
| — |
Cámara de Riesgo Central de Contraparte S.A |
| |
| |
Bolsa de Valores de Colombia |
| |
| |
Credibanco |
| |
| |
Patrimonio Autónomo Fiducredicorp (Comisionista) |
| |
| |
Totals |
| |
| |
(1) In August 2020, the Cámara de Compensación Divisas de Colombia S.A. participation was sold, corresponding to
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-92 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 11 – Investment instruments, continued
Amounts recognized in profit and loss and other comprehensive income
For the years ended December 31, 2022 and 2021, the following gains and losses were recognized in profit or loss and other comprehensive income:
| 2022 |
| 2021 | |
MCh$ | MCh$ | |||
Dividends from equity investments held at FVTOCI recognized in profit or loss |
| |
| |
Related to investments derecognized during the period |
| ( |
| ( |
Related to investments held at the end of the reporting period |
| — |
| — |
Totals |
| ( |
| ( |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-93 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 12 – Investments in Associates
a) | As of December 31, 2022 and 2021, investments in associates are as follows: |
Investment | Investment | |||||||||||
Entity's share | Investment amount | Income | Entity's share | Investment amount | Income | |||||||
as of December 31, | as of December 31, | as of December 31, | as of December 31, | as of December 31, | as of December 31, | |||||||
Entity | 2022 |
| 2022 |
| 2022 | 2021 |
| 2021 |
| 2021 | ||
% | MM$ |
| MM$ | % | MM$ |
| MM$ | |||||
Nexus S.A. (3) | — | % | — | — | | % | — | | ||||
Transbank S.A.(1) | | % | | | | % | | ( | ||||
Combanc S.A.(2) | | % | | | | % | | | ||||
IMERC OTC S.A.(2) | | % | | | | % | | | ||||
Totals | |
| | |
| ( | ||||||
(1) | On November 30, 2021, a purchase sale agreement was executed over the total participation held over Operadora de Tarjeta de Crédito Nexus SA (“Nexus”), together with the rest of current shareholder of Nexus, in order to sell to Minsait 100% of the equity held. As of December 31, 2022, the transaction was completed and Banco Itaú Chile ceased to be a shareholder of Nexus (See Note 3). |
(2) | As of the second quarter of 2021, the Bank gained significant influence over Combanc S.A. and Imerc OTC S.A. Management concluded that, because of fact that the Bank can elect one of the members of the Board of Directors in each of these entities, in addition to other factors, such as significant transactions between the Bank and these entities, exchange of essential technical information with its investees and other factors, the Bank has significant influece in the financial and operating decision-making of these investees, but does not control them. With this transaction, the Bank’s total interest increased to |
b) | Summarized financial information of associates as of December 31, 2022 and 2021: |
As of December 31, | As of December 31, | |||||||||||||||
2022 | 2021 | |||||||||||||||
Assets |
| Liabilities |
| Equity | Income | Assets | Liabilities |
| Equity |
| Income | |||||
MCh$ |
| MCh$ |
| MCh$ | MCh$ | MCh$ | MCh$ |
| MCh$ |
| MCh$ | |||||
Nexus S.A | — | — | — | — | | | | | ||||||||
Transbank S.A | | | | | | | | ( | ||||||||
Combanc S.A. | | | | | | | | | ||||||||
IMERC OTC S.A. | | | | | | | | | ||||||||
Totals | |
| |
| | | | |
| |
| ( | ||||
c) | Investment in associates movements for the years ended December 31, 2022 and 2021 are as follows: |
2022 | 2021 | ||
MCh$ | MCh$ | ||
Balances as of January 1, | | | |
Investment acquisition (2) | — | | |
Investments reclassified to held for sale (3) | — | ( | |
Participation in income (1) | | | |
Transbank capital | — | | |
Other | | — | |
Totals | | |
(1) | Refer to reference (2) within section a) “Associated entities” regarding to 2021. |
(2) | In November 2021, Banco Itaú Chile acquired |
(3) | Refer to reference (1) within section a) “Associated entities”. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-94 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 13 – Intangible assets
a) | Composition of intangibles assets as of December 31, 2022 and 2021 is as follows: |
Average | ||||||||||||
Remaining | Net assets as | Net assets as | ||||||||||
Useful | amortization | of January 1, | Gross | Accumulated | of December | |||||||
Concept |
| life years |
| years |
| 2022 |
| balance |
| amortization |
| 31, 2022 |
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Software or computer programs | | | ( |
| | |||||||
Goodwill from business combinations | | | — |
| | |||||||
Other intangible assets arising from | | | ( |
| | |||||||
Totals |
|
|
|
|
| |
| |
| ( |
| |
Average | ||||||||||||
Remaining | Net assets as | Net assets as | ||||||||||
| Useful |
| amortization |
| of January 1, |
| Gross |
| Accumulated |
| of December | |
Concept |
| life years |
| years |
| 2021 |
| balance |
| amortization |
| 31, 2021 |
| MCh$ | MCh$ | MCh$ | MCh$ | ||||||||
Software or computer programs | | | ( | | ||||||||
Goodwill from business combinations | | | — | | ||||||||
Other intangible assets arising from | | | ( | | ||||||||
Totals |
| |
| |
| ( |
| |
b) | Movements on gross balances of intangible assets as of December 31, 2022 and 2021 are as follows: |
|
| |||||||
Software or | Goodwill from | Other intangible assets | ||||||
| computer | business | arising from | |||||
| programs | combinations | business combinations | Total | ||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Opening balances as of January 1, 2022 |
| | | | | |||
Additions |
| | — | — |
| | ||
Disposals | ( | — | — | ( | ||||
Exchange differences | ( | — | — | ( | ||||
Others |
| ( | — | — |
| ( | ||
Ending balances as of December 31, 2022 |
| |
| |
| |
| |
| Software or | Goodwill from | Other intangible assets | |||||
| computer | business | arising from | |||||
| programs | combinations | business combinations | Total | ||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Opening balances as of January 1, 2021 |
| | | | | |||
Additions |
| | — | — |
| | ||
Disposals | ( | — | — | ( | ||||
Exchange differences | | — | — | | ||||
Others | | — | — |
| | |||
Ending balances as of December 31, 2021 |
| | | | |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-95 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 13 – Intangible assets, continued
c) | Movements on accumulated amortization of intangible assets for the years ended December 31, 2022 and 2021 are as follows: |
| Software or | Goodwill | Other intangible assets | |||||
| computer | from business | arising from | |||||
programs | combinations | business combinations | Totals | |||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Opening balances as of January 1, 2022 |
| ( | — | ( |
| ( | ||
Amortization for the year |
| ( | — | ( |
| ( | ||
Exchange differences | | — | — |
| | |||
Others |
| | — | — | | |||
Ending balances as of December 31, 2022 | ( |
| — |
| ( |
| ( |
| Software or | Goodwill | Other intangible assets | |||||
| computer | from business | arising from | |||||
programs | combinations | business combinations | Totals | |||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Opening balances as of January 1, 2021 |
| ( | — | ( |
| ( | ||
Amortization for the year |
| ( | — | ( |
| ( | ||
Exchange differences | ( | — | — | ( | ||||
Others | | — | — |
| | |||
Ending balances as of December 31, 2021 |
| ( | — | ( |
| ( |
d) Impairment
As required by International Accounting Standard 36 “Impairment of assets”, the Bank performs at the end of each reporting period an evaluation of the impairment indicators that affect the determination of the recoverable amount of its assets.
As of December 31, 2022 and 2021, no indications of impairment have been identified that affect the balances of intangible assets.
Goodwill and indefinite useful life intangible assets, the recoverable amount is estimated on annual basis, as described on Note 1.p) . Further revelations on the recoverable amount estimated are presentes on Note 32 b).
e) Restrictions
Banco Itaú Chile and its subsidiaries have no restrictions on intangible assets as of December 31, 2022 and 2021. In addition, no intangible assets have been pledged as collateral to secure the fulfillment of any obligations.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-96 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 14 – Property, plant and equipment
a) | Property, plant and equipment as of December 31, 2022 and 2021 are broken down as follows. |
Average | ||||||||||||
remaining | Net assets as | Net assets | ||||||||||
Useful life | depreciation | of January | Gross | Accumulated | as of December | |||||||
| years |
| years |
| 1, 2022 |
| Balance |
| depreciation |
| 31, 2022 | |
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Buildings |
| | | ( |
| | ||||||
Land | — | — | | | — | | ||||||
Equipment |
| | | ( |
| | ||||||
Others |
| | | ( |
| | ||||||
Totals |
|
|
|
|
| |
| |
| ( |
| |
Average | ||||||||||||
remaining | Net assets as | Net assets | ||||||||||
Useful life | depreciation | of January | Gross | Accumulated | as of December | |||||||
| years |
| years |
| 1, 2021 |
| Balance |
| depreciation |
| 31, 2021 | |
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Buildings |
|
|
| |
| |
| ( |
| | ||
Land | — | — | | | — | | ||||||
Equipment |
|
|
| |
| |
| ( |
| | ||
Others |
|
|
| |
| |
| ( |
| | ||
Totals |
|
|
|
|
| |
| |
| ( |
| |
The useful life presented in the preceding tables, corresponds to the total useful life and residual useful life for the property, plant and equipment. Total useful lives have been determined based on our expected use of the assets, considering quality of the original construction, the environment in which the assets are located, quality and degree of maintenance carried out, and appraisals performed by external experts of the Bank.
b) | Movements on gross balances as of December 31, 2022 and 2021, are as follows: |
| Buildings | Land |
| Equipment |
| Other |
| Totals | ||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||
Opening balances as of January 1, 2022 |
| | |
| |
| | | ||
Additions | | — | | | | |||||
Sales and/or retirements for the year | ( | ( | ( | ( | ( | |||||
Impairment | — | — | — | ( | ( | |||||
Exchange differences | ( | ( | ( | ( | ( | |||||
Reclassification to assets held for sale | ( | ( | — | — | ( | |||||
Other | — | ( | — | — | ( | |||||
Ending balances as of December 31, 2022 |
| | |
| |
| |
| |
| Buildings | Land |
| Equipment |
| Other |
| Totals | ||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||
Opening balances as of January 1, 2021 | | |
| |
| | | |||
Additions | | — |
| |
| | | |||
Sales and/or disposals for the year | — | — |
| ( |
| ( | ( | |||
Impairment (1) | — | — |
| ( |
| ( | ( | |||
Exchange differences | ( | | | | | |||||
Others |
| — | — | ( | | ( | ||||
Ending balances as of December 31, 2021 |
| | |
| |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-97 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 14 – Property, plant and equipment
c) | Movements of accumulated depreciation of property, plant and equipment for years ended December 31, 2022 and 2021, are as follows: |
| Buildings | Land |
| Equipment |
| Other |
| Total | ||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||
Opening balances as of January 1, 2022 |
| ( | — |
| ( |
| ( |
| ( | |
Depreciation for the year | ( | — | ( | ( |
| ( | ||||
Sales and/or disposals for the year | | — | | |
| | ||||
Impairment | — | — | — | ( | ( | |||||
Exchange differences |
| | — | | |
| | |||
Reclassification to assets held for sale | | — | — | — |
| | ||||
Other | — | — | — | — |
| — | ||||
Ending balances as of December 31, 2022 |
| ( | — | ( |
| ( | ( |
| Buildings | Land |
| Equipment |
| Other |
| Total | ||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Opening balances as of January 1, 2021 |
| ( | — |
| ( |
| ( |
| ( | |
Depreciation for the year |
| ( | — |
| ( |
| ( |
| ( | |
Sales and/or disposals for the year |
| — | — |
| |
| |
| | |
Impairment |
| | — |
| |
| |
| | |
Exchange differences |
| ( | — |
| ( |
| ( |
| ( | |
Others | — | — | — |
| ( |
| ( | |||
Ending balances as of December 31, 2021 |
| ( | — |
| ( |
| ( |
| ( |
e) | Impairment |
Banco Itaú Chile evaluates, at the end of each reporting period, whether there is any indication of impairment of any asset. If this indication exists, or when an impairment test is required, the Bank estimates the recoverable amount of the asset.
As of December 31, 2022 and 2021 there is no indication nor concrete evidence of impairment (see details in note 32). As of the date of these Consolidated Financial Statements, there have been no events that require the recognition of impairment.
f) | Restrictions |
The Bank and subsidiaries have no restrictions on property, plant and equipment as of December 31, 2022 and 2021. Additionally, property, plant and equipment has not been pledged to ensure compliance with obligations. Furthermore, there are no amounts owed by the Bank on property, plant and equipment as of the aforementioned dates.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-98 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 15 – Assets for Rights-of-Use and Obligations for Lease Contracts
a) | Asset for right-of-use |
(i) | The Bank has mainly lease agreements for its branches and corporate building. The composition of this item as of December 31, 2022 and 2021, is as follows: |
Years of | Years of average | |||||||||||
useful | remaining | Net Assets as of | Accumulated | Net Assets as of | ||||||||
| life |
| useful life |
| January 1, 2022 |
| Gross Balances |
| Depreciation |
| December 31, 2022 | |
N° | N° | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Buildings |
| | | ( |
| | ||||||
Land | — | — |
| — | — | — | — | |||||
Others leased assets | — | | — | — | — | |||||||
Totals |
|
| |
| |
| ( |
| |
Years of | Years of average | |||||||||||
useful | remaining | Net Assets as of | Accumulated | Net Assets as of | ||||||||
| life |
| useful life |
| January 1, 2021 |
| Gross Balances |
| Depreciation |
| December 31, 2021 | |
N° | N° | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Buildings |
|
|
| |
| |
| ( |
| | ||
Land | — | — | — | — | — | — | ||||||
Others leased assets |
|
| | | ( | | ||||||
Totals |
|
| |
| |
| ( |
| |
(ii) | Movement in the gross balance of assets for the right to use assets under lease at 31 December 2022 and 2021, is as follows |
| Buildings | Land |
| Others leased assets |
| Totals | ||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Opening balance as of January 1, 2022 |
| |
| | | |||
Additions | | — | — | | ||||
Disposals due to early termination (1) |
| ( | — | ( | ( | |||
Remeasurements of the liability due to modifications (2) | ( | — | ( | ( | ||||
Inflation indexation adjustments (3) |
| | — | — | | |||
Exchange differences |
| ( | — | ( | ( | |||
Ending balances as of December 31, 2022 |
| | — |
| — |
| |
| Buildings | Land |
| Others leased assets |
| Totals | ||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Opening balance as of January 1, 2021 |
| | — |
| | | ||
Additions | | — | — | | ||||
Disposals due to early termination (1) |
| ( | — | ( | ( | |||
Remeasurements of the liability due to modifications (2) |
| ( | — | — | ( | |||
Inflation indexation adjustments (3) |
| | — | ( | | |||
Exchange differences |
| | — | | | |||
Ending balances as of December 31, 2021 |
| | — |
| |
| |
(1) | Corresponds to early terminations due to the restructuring plan |
(2) | Corresponds to remeasurements of the recognized liability due to contracts modifications. |
(3) | Corresponds to subsequent adjustments due to liabilities remeasurements due to index changes, according to each lease agreement. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-99 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 15 – Assets for Rights-of-Use and Obligations for Lease Contracts, continued
(iii) | The movement in the accumulated depreciation of assets for the right to use assets under lease agreements as of December 31, 2022 and 2021, is as follows: |
| Buildings | Land |
| Other leased assets |
| Totals | ||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Opening balance as of January 1, 2022 |
| ( | — | ( | ( | |||
Depreciation | ( | — |
| ( | ( | |||
Disposals due to early termination |
| | — |
| | | ||
Exchange differences | | — | | | ||||
Reclassifications |
| | — |
| — | | ||
Impairment | — | — | — | — | ||||
Ending balances as of December 31, 2022 |
| ( | — |
| — |
| ( |
| Buildings | Land |
| Other leased assets |
| Totals | ||
MCh$ | MCh$ | MCh$ | ||||||
Opening balance as of January 1, 2021 |
| ( | — | ( |
| ( | ||
Depreciation (1) | ( | — |
| ( | ( | |||
Disposals due to early termination (2) |
| | — |
| |
| | |
Exchange differences |
| ( | — |
| — |
| ( | |
Ending balances as of December 31, 2021 |
| ( | — |
| ( |
| ( |
(1) | See note 32 “Depreciation, amortization and impairment” |
(2) | Corresponds to early terminations due to the restructuring plan |
b) Lease contracts liabilities
i) | As of December 31, 2022 and 2021, the obligations for lease contracts are as follows |
December 31, 2022 |
| December 31, 2021 | |
MCh$ | MCh$ | ||
Lease contract liabilities | | | |
Totals | | |
The Bank and its subsidiaries have contracts, with certain renewal options, for which there is reasonable certainty that the option will be exercised. In such cases, the lease period used to measure the liabilities and assets corresponds to an estimate of future renewals.
ii) | Movement in lease liabilities and cash flows for the period is shown below |
2022 |
| 2021 | |
MCh$ | MCh$ | ||
Opening balance as of January 1, | | | |
Additions due to new contracts | | | |
Disposals due to early termination (2) | ( | ( | |
Interest expenses | | | |
Remeasurements of the liability due to modifications (1) | ( | ( | |
Inflation indexation adjustments | | | |
Exchange rate adjustments | ( | | |
Exchange difference | ( | | |
Capital and interest payments | ( | ( | |
Ending balance as of December 31, | | |
(1) | Corresponds to remeasurements of the recognized liability due to contract modifications. |
(2) | Corresponds to early terminations due to the restructuring plan |
(3)
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-100 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 16 – Current Taxes and Deferred Taxes
a) | Current taxes |
At the end of each reporting period, the Bank and subsidiaries recognize a First Category Income Tax Provision, which is determined based on substantially enacted tax legislation. The net provision for current taxes recognized as of December 31, 2022 was MCh$
a.1) Current taxes assets and liabilities by geographical area:
As of December 31, 2022 | As of December 31, 2021 | |||||||||||||||
Chile | USA (1) | Colombia | Totals | Chile | USA (1) | Colombia | Totals | |||||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Current tax assets | | — | | |
| | | | | |||||||
Current tax liabilities | — | — | ( | ( |
| ( | — | ( | ( | |||||||
Totals, net | | — | | |
| |
| |
| |
| | ||||
a.2) Details of current tax items by geographical area:
As of December 31, 2022 | As of December 31, 2021 | |||||||||||||||
Chile | USA (1) | Colombia | Total | Chile | USA (1) | Colombia | Total | |||||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Income tax with effect in profit and loss | ( | — | ( | ( |
| ( | — | ( | ( | |||||||
Income tax effect on equity, net investments hedge | — | — | — | — | ( | — | — | ( | ||||||||
Income tax, rate 27% | ( | — | ( | ( | ( | — | ( | ( | ||||||||
Less: |
| |||||||||||||||
Monthly Provisional Payments | | — | | |
| | — | | | |||||||
Tax credit for training costs | | — | — | |
| | — | — | | |||||||
Tax credit donations | | — | — | |
| | — | — | | |||||||
4% event capital credit | | — | — | | | — | — | | ||||||||
Other taxes to be recovered (paid) (2) | | — | | |
| | | | | |||||||
Totals | | — | | |
| | | |
| | ||||||
(1) Corresponds to the branch located in New York.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-101 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 16 – Current Taxes and Deferred Taxes, continued
b) | Effect on income |
The tax expense for the years ended December 31, 2022, 2021 and 2020 is comprised of the following items:
| 2022 |
| 2021 |
| 2020 | |
MCh$ | MCh$ | MCh$ | ||||
Income tax expense |
|
|
|
|
|
|
Current tax expense |
| ( |
| ( |
| |
Deferred taxes |
|
|
|
| ||
Deferred tax expenses |
| |
| ( |
| |
Subtotals |
| |
| ( |
| |
Others |
| |
| ( |
| ( |
Net expense for income taxes |
| |
| ( |
| |
c) | Effective tax rate reconciliation |
The following table reconciles the income tax rate to the effective rate applied to determine the Bank’s income tax expense for the year ended December 31, 2022, 2021 and 2020.
The nominal tax rates of the countries where consolidated subsidiaries are located are:
| 2022 |
| 2021 |
| 2020 |
| |
Tax rates | Tax rates | Tax rates |
| ||||
Chile |
|
|
| ||||
Colombia |
|
|
| ||||
USA |
|
|
|
For the years ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Tax rate | Amount | Tax rate | Amount | Tax rate | Amount | |||||||
| % |
| MCh$ |
| % |
| MCh$ |
| % |
| MCh$ | |
Amount calculated by using the statutory rates | | ( |
| | ( |
| | | ||||
Equity price level restatement for tax purposes (1) |
| ( | |
| ( | |
| | | |||
Effect of rates Colombia subsidiary (2) |
| ( | |
| ( | |
| | | |||
Effect of rates New York branch |
| ( | |
| ( | | | | ||||
Goodwill impairment effect | — | — | — | — | ( | ( | ||||||
Capital investments tax exemptions (3) |
| | ( |
| | ( |
| | | |||
Effect of rate change Colombia |
| ( | |
| ( | |
| ( | ( | |||
Exchange differences due to investments in Colombia (4) |
| | ( |
| | ( |
| | | |||
Taxes in USA | | ( | | ( | ( | ( | ||||||
Permanent and other differences (5) |
| ( | |
| | ( |
| ( | ( | |||
Totals |
| ( |
| |
| |
| ( |
| | | |
(1) During the year ended December 31, 2022, the CPI factor used to adjust the Tax-basis Equity was equal to
(2) This line reflects the differences in tax rates from other jurisdictions, based on the Bank’s consolidated result,
(3) Capital gains from sales of fixed income instruments qualifying for tax exemption under Article 104 of the Chilean Income Tax Act are not subject to income tax,
(4) For tax purposes, the investment in Colombia is measured in U,S, dollars, The devaluation (appreciation) of the Chilean peso against the U,S, dollar generates income (expense) for tax purposes without a corresponding effect on the accounting results, The amount presented here represents the income tax expense (income) due to the effect of the exchange rate on the investment in Colombia, As part of its exchange rate risk management policy, the Bank has managed this exposure through instruments available in the market to protect itself economically from the tax effect generated by the variation in the exchange rate, The effect of these instruments (which offset the tax effect presented here) is recognized in the Net foreign exchange gain (loss) line of the Consolidated Statement of Income for the year,
(5) This line provides the effects of the variation in the exchange rate for the US dollar reported by the Chilean Central Bank that affects the valuation of the tax investment of the New York branch; and other effects,
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-102 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 16 – Current Taxes and Deferred Taxes, continued
d) | Other comprehensive income – tax effects |
The table below sets for a summary of the deferred tax effect on other comprehensive income for the years ended December 31, 2022, 2021 and 2020, which consists of the following items:
d.1) Tax effect of “OCI” that may be reclassified subsequently to profit or loss:
| 2022 |
| 2021 |
| 2020 | |
MCh$ | MCh$ | MCh$ | ||||
Debt instruments at fair value through other comprehensive income |
| ( |
| |
| |
Hedge of a net investment in foreign operations |
| |
| |
| ( |
Cash flows hedge |
| |
| ( |
| ( |
Total charge to other comprehensive income |
| |
| |
| ( |
d.2) “OCI” that may not be reclassified subsequently to profit or loss:
| 2022 |
| 2021 |
| 2020 | |
MCh$ | MCh$ | MCh$ | ||||
Income tax relating to defined benefit obligation | ( |
| ( |
| ( | |
Total charge to other comprehensive income | ( |
| ( |
| ( |
e) | Effect of deferred taxes |
e.1) Totals deferred taxes
Detail of effects for deferred taxes presented in assets and liabilities is as follows:
As of December 31, 2022 | As of December 31, 2021 | |||||||||||
Assets | Liabilities | Net | Assets | Liabilities | Net | |||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Allowances for loan losses | | — | | | — | | ||||||
Accrued interest on past due portfolio |
| |
| — | | |
| — |
| | ||
Unearned price differences |
| |
| — | | |
| — |
| | ||
Personnel provisions |
| |
| — | | |
| — |
| | ||
Contingencie provisions |
| |
| — | | |
| — |
| | ||
Tax losses |
| |
| — | | |
| — |
| | ||
Net tax value of amortizable assets |
| |
| — | | |
| — |
| | ||
Depreciation of property, plant and equipment |
| ( |
| — | ( | ( |
| — |
| ( | ||
Lease division and others |
| ( |
| — | ( | |
| — |
| | ||
Mark to market of financial instruments |
| ( |
| — | ( | ( |
| — |
| ( | ||
Itaú-Corpbanca business combination |
| ( |
| — | ( | ( |
| — |
| ( | ||
IFRS 16 leases effect | |
| — | | ( |
| — | ( | ||||
Others |
| | — | | | — |
| | ||||
Totals assets (liabilities) for deferred taxes |
| |
| — |
| |
| |
| — |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-103 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 16 – Current Taxes and Deferred Taxes, continued
e.2) Deferred taxes by geographic area:
| As of December 31, 2022 |
| As of December 31, 2021 | |||||||||||||
| Chile |
| USA |
| Colombia |
| Total |
| Chile |
| USA |
| Colombia |
| Total | |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Deferred tax assets |
| | | |
| |
| |
| |
| | | |||
Deferred tax liabilities |
| — |
| — |
| — |
| — |
| — |
| — |
| — | — | |
Net by geographic area |
| |
| |
| |
| |
| |
| |
| |
| |
Effects of deferred taxes on assets and liabilities arising from temporary differences (by geographic area) are as follows:
As of December 31, 2022 | As of December 31, 2021 | |||||||||||||||
Chile | USA | Colombia | Total | Chile | USA | Colombia | Total | |||||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Allowances for loan losses | | | | | | ( | | | ||||||||
Accrued interest on past due portfolio | | — | — | | | — | — | | ||||||||
Unearned price differences | | — | — | | | — | — | | ||||||||
Personnel provisions | | | | | | | | | ||||||||
Contingencie provisions | | ( | | | | ( | | | ||||||||
Tax losses | | | | | | | | | ||||||||
Net tax value of amortizable assets | | — | — | | | — | — | | ||||||||
Depreciation of property, plant and equipment | ( | ( | | ( | ( | ( | ( | ( | ||||||||
Lease division and others | ( | — | | ( | | — | | | ||||||||
Mark to market of financial instruments | ( | | ( | ( | ( | | ( | ( | ||||||||
Itaú-Corpbanca business combination | ( | — | — | ( | ( | — | | ( | ||||||||
IFRS 16 leases effect | | — | | | ( | ( | ( | ( | ||||||||
Others | ( | — | | | | — | | | ||||||||
Totals assets (liabilities), net | | | | | | | | | ||||||||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-104 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 17 – Other Assets and Non-current Assets Held for Sale
a) | The detail of other assets is as follows: |
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Assets to be leased out as lessor (1) | | | ||
Collateral for financial transactions (threshold) | | | ||
Receivables from brokerage of financial instruments | | | ||
Accounts receivable from third parties | | | ||
Investment properties | | | ||
VAT credit receivable | | | ||
Prepaid expenses | | | ||
Assets for revenue from contracts with customers | | | ||
Other cash collateral provided (2) | | | ||
Other assets | | | ||
Totals |
| |
| |
(1) | Property, plant and equipment acquired to be ceded under financial leases. |
(2) | Includes payments made in advance for different services that will be received (leases, insurance, and others). |
b) | The detail of non-currents assets held for sale is as follows: |
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Assets received in payment or foreclosed at judicial auction | ||||
Assets received in lieu of payment | | | ||
Property, plant and equipment held for sale | | | ||
Investment held for sale (1) | — | | ||
Total | | | ||
(1) | The investment in companies held for sale includes the investment held in Nexus S.A. that provides support to the Bank, on November 30, 2021, subscribed a purchase and sale commitment for |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-105 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 18 – Deposits and Other Demand Liabilities and Time Deposits
a) | As of December 31, 2022 and 2021, deposits and other demand liabilities are as follow: |
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Checking accounts |
| |
| |
Other deposits and demand accounts |
| |
| |
Advance payments received from customers |
| |
| |
Other demand liabilities |
| |
| |
Totals |
| |
| |
b) | As of December 31, 2022 and 2021, time deposits and other time liabilities are as follows: |
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Time deposits |
| |
| |
Time savings accounts |
| |
| |
Other time liabilities |
| — |
| — |
Totals |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-106 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 19 – Interbank Borrowings
a) | As of December 31, 2022 and 2021, interbank borrowings are as follows: |
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Loans obtained from local financial institutions |
|
|
| |
Chilean Central Bank (1) | |
| | |
Banks in the country | | — | ||
Subtotals | |
| | |
Loans obtained from foreign financial institutions |
|
|
| |
Banco Caja Social | — | | ||
Banco Itaú Paraguay S.A. | — | | ||
Banco de crédito e inversiones | | — | ||
Banco Latinoamericano de Exportación (BLADEX) | | | ||
Banco República | — | | ||
Bancoldex S.A. (Colombia) | | | ||
Bank of America, N.A. | | | ||
Bank of Montreal | | | ||
Bank of New York | | | ||
Bank of Nova Scotia | | | ||
BBVA Asset Management Continental S.A. (Perú) | — | | ||
BNP Paribas | | | ||
Citibank N.A. | | | ||
Cobank C.B. | | | ||
Commerzbank A.G. | | | ||
Corporación Andina de Fomento | — | | ||
Credicorp Capital SASAF | — | | ||
Deutsche Bank A.G. | | | ||
Findeter S.A. Financiera del Desarrollo Territorial | | | ||
IFC Corporación Financiera Internacional | — | | ||
La Caixa | | | ||
Mizuho Corporate Bank | | — | ||
Scotia Fondos Sociedad Administradora de Fondos S.A. | — | | ||
Standard Chartered Bank | | — | ||
Sumitomo Mitsui Banking Corporation | | | ||
Unicredit Bank | — | | ||
Wells Fargo Bank, N.A. | | | ||
Zuercher Kantonalbank | | — | ||
Others | | | ||
Subtotals | |
| | |
Totals | |
| | |
(1) Corresponds to funds obtained through the new Conditional Funding Facility (FCIC) and the Liquidity Credit Line (LCL), granted by the Central Bank of Chile (BCCh) in response to the financials needs generated by the spread of the COVID-19 virus. Funds obtained through FCIC are guaranteed by high credit quality loans and / or bonds issued by the BCCh and have automatic and successively monthly renewal maturities, with a maximum term of
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-107 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 20 – Debt Instruments Issued and Other Financial Liabilities
As of December 31, 2022 and 2021, composition of debt instruments issued and other financial liabilities is as follows:
As of December 31, | ||||
2022 | 2021 | |||
MCh$ |
| MCh$ | ||
Debt instruments issued | |
| | |
Regulatory capital financial instruments issued | | | ||
| | |||
a) Debt instruments issued
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Debt instruments issued |
|
|
|
|
Mortgage finance bonds |
| |
| |
Senior bonds |
| |
| |
Subtotals |
| |
| |
Other financial liabilities |
|
| ||
Liabilities with the public sector |
| — |
| — |
Borrowings from local financial institutions |
| |
| |
Subtotals |
| |
| |
Totals |
| |
| |
a.1) Mortgage finance bonds
Debts classified as short-term are those that constitute demand obligations or will mature within a year. All other debts are classified as long-term. Detail is as follows
As of December 31, 2022 | ||||||
| Short term |
| Long term |
| Totals | |
MCh$ | MCh$ | MCh$ | ||||
Mortgage finance bonds |
| | | | ||
Senior bonds |
| | | | ||
Debt instruments issued |
| |
| |
| |
Other financial liabilities |
| | — | | ||
As of December 31, 2021 | ||||||
| Short term |
| Long term |
| Totals | |
MCh$ | MCh$ | MCh$ | ||||
Mortgage finance bonds |
| | | | ||
Senior bonds |
| | | | ||
Debt instruments issued |
| |
| |
| |
Other financial liabilities |
| |
| — |
| |
The following tables provide with additional information, including maturities, for each type of debt issued as of December 31, 2022 and 2021.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-108 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 20 – Debt Instruments Issued and Other Financial Liabilities, continued
a.2) Senior bonds
Details for senior bonds, by currency, are as follows:
| As of December 31, | |||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Bonds in UF |
| |
| |
Bonds in CLP |
| |
| |
Bonds in COP |
| |
| |
Totals |
| |
| |
The following table presents details for senior bonds issued:
Senior bonds issued during the year ended December 31, 2022:
Serie |
| Currency |
| Amount |
| Term |
| Issuance rate |
| Placement date |
| Maturity date |
BITACT0418 | UF | | 02/25/2022 | 10/09/2027 | ||||||||
BITACV0418 | UF | | 03/03/2022 | 10/09/2029 | ||||||||
BITACU0418 | UF | | 03/18/2022 | 10/09/2028 | ||||||||
BITADL0321 | UF | | 05/27/2022 | 03/09/2032 | ||||||||
BITADK0821 | UF | | 05/31/2022 | 08/09/2031 | ||||||||
BITADJ0321 | UF | | 06/16/2022 | 08/09/2031 | ||||||||
BITADI0521 | UF | | 08/01/2022 | 05/09/2030 | ||||||||
BITADH0321 | UF | | 08/25/2022 | 03/09/2030 | ||||||||
BITADO0622 | UF | | 11/04/2022 | 06/09/2033 | ||||||||
BITADN0322 | UF | | 11/29/2022 | 09/09/2032 | ||||||||
BITADP0222 | UF | | 12/27/2022 | 08/09/2034 | ||||||||
BITADP0222 | UF | | 12/27/2022 | 09/08/2034 | ||||||||
Totals |
|
| | |||||||||
Senior bonds issued during the year ended December 31, 2021:
Serie |
| Currency |
| Amount |
| Term |
| Issuance rate |
| Placement date |
| Maturity date |
BITADD0919 | UF | | 01/15/2021 | 03/09/2029 | ||||||||
BITADD0919 | UF | | 01/19/2021 | 03/09/2029 | ||||||||
BITADB0919 | UF | | 02/10/2021 | 03/09/2027 | ||||||||
BITADB0919 | UF | | 03/11/2021 | 03/09/2027 | ||||||||
BITADD0919 | UF | | 04/09/2021 | 03/09/2029 | ||||||||
BITADD0919 | UF | | 05/31/2021 | 03/09/2029 | ||||||||
BITACW0418 | UF | | 08/27/2021 | 10/09/2030 | ||||||||
BITADB0919 | UF | | 09/14/2021 | 03/09/2027 | ||||||||
BITADB0919 | UF | | 09/15/2021 | 03/09/2027 | ||||||||
BITACN0419 | CLP | | 10/21/2021 | 04/01/2026 | ||||||||
BITACW0418 | UF | | 10/26/2021 | 10/09/2030 | ||||||||
BITACT0418 | UF | | 10/26/2021 | 10/09/2027 | ||||||||
BITACV0418 | UF | | 11/03/2021 | 10/09/2029 | ||||||||
BITACT0418 | UF | | 11/03/2021 | 10/09/2027 | ||||||||
Totals UF |
|
| | |||||||||
Serie |
| Currency |
| Amount |
| Term |
| Issuance rate |
| Placement date |
| Maturity date |
BITACN0419 | CLP | | 10/21/2021 | 04/01/2026 | ||||||||
Totals CLP | |
|
|
|
|
|
|
|
|
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-109 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 20 – Debt Instruments Issued and Other Financial Liabilities, continued
b) Regulatory capital financial instruments issued |
Details of subordinated bonds, by currency, are as follows:
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Subordinated bonds |
| |||
Subordinated bonds with transitional recognition |
| — | — | |
Subordinated bonds | | | ||
Regulatory capital financial instruments issued | | | ||
As of December 31, | ||||
| 2022 |
| 2021 | |
MCh$ | MCh$ | |||
Bonds in UF |
| |
| |
Bonds in CLP |
| |
| — |
Bonds in COP |
| |
| |
Totals |
| |
| |
For the years ended December 31, 2022 and 2021
As of December 31, 2022 and 2021, the Bank has not incurred in any default in the payments of principal, interest or others in regard to debt instruments issued.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-110 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 21 – Provisions
As of December 31, 2022 and 2021, the Bank has registered the following movements in its provisions:
a) Other Provisions
Provisions disclosed in liabilities as of December 31, 2022 and 2021 present the following detail:
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Provisions for personnel salaries and expenses | | | ||
Provisions for mandatory dividends |
| |
| |
Provisions for contingent loans risk |
| |
| |
Provisions for contingencies | | | ||
Totals |
| |
| |
b) Movements in provisions for contingent loans risk, for the year ended December 31, 2022 and 2021 are as follows:
Provisions for contingent loans risk | ||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Totals | |
Opening balances as of January 1, 2022 |
| |
| |
| |
| |
Changes in provisions |
|
|
|
|
|
|
|
|
- Transfers to stage 1 |
| | ( | ( | — | |||
- Transfers to stage 2 |
| ( | | ( | | |||
- Transfers to stage 3 |
| ( | ( | | | |||
- Increases due to change in credit risk |
| | | | | |||
- Decreases due to change in credit risk |
| ( | ( | ( | ( | |||
- Charge-offs |
| ( | ( | ( | ( | |||
- Changes due to modifications that did not result in derecognition |
| | | | | |||
New financial assets originated or purchased |
| | | | | |||
Financial assets that have been derecognized |
| ( | ( | ( | ( | |||
Changes in models/risk parameters |
| | | | | |||
Foreign exchange and other movements |
| ( | ( | | ( | |||
Ending balances as of December 31, 2022 |
| |
| |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-111 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 21 – Provisions, continued
Provisions for contingent loans risk | ||||||||
Stage 1 | Stage 2 | Stage 3 | ||||||
| 12-Month ECL |
| Lifetime ECL |
| Lifetime ECL |
| Totals | |
Opening balances as of January 1, 2021 |
| |
| |
| |
| |
Changes in provisions |
|
|
|
|
|
|
|
|
- Transfers to stage 1 |
| |
| ( |
| ( |
| — |
- Transfers to stage 2 |
| ( |
| |
| ( |
| |
- Transfers to stage 3 |
| ( |
| ( |
| |
| |
- Increases due to change in credit risk |
| |
| |
| |
| |
- Decreases due to change in credit risk |
| ( |
| ( |
| ( |
| ( |
- Charge-offs |
| ( |
| ( |
| ( |
| ( |
- Changes due to modifications that did not result in derecognition |
| |
| |
| |
| |
New financial assets originated or purchased |
| |
| |
| |
| |
Financial assets that have been derecognized |
| ( |
| ( |
| ( |
| ( |
Changes in models/risk parameters |
| |
| |
| |
| |
Foreign exchange and other movements |
| |
| |
| |
| |
Ending balances as of December 31, 2021 |
| |
| |
| |
| |
c) The following table details the movements in provision during 2022 and 2021:
Provisions for personnel | Provision for | Provisions for | Provisions for | |||||||
salaries and expenses | mandatory dividends | contingent loans risk | contingencies | |||||||
(1) | (2) | (3) | Totals | |||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Opening balances as of January 1, 2022 |
| | | | | | ||||
Provisions applied |
| ( |
| ( |
| — | — | ( | ||
Provisions established |
| |
| |
| | | | ||
Provisions released |
| ( |
| — |
| ( | ( | ( | ||
Exchange differences |
| ( |
| — |
| ( | ( | ( | ||
Ending balances as of December 31, 2022 |
| |
| |
| |
| |
| |
Provisions for personnel | Provisions for | Provisions for | Provisions for | |||||||
salaries and expenses | mandatory dividends | contingent loans risk | contingencies | |||||||
(1) | (2) | (3) | Totals | |||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Opening balances as of January 1, 2021 |
| |
| — |
| | |
| | |
Provisions applied |
| ( |
| — |
| — | ( |
| ( | |
Provisions established |
| |
| |
| | ( |
| | |
Provisions released |
| ( |
| — |
| ( | |
| ( | |
Exchange differences |
| ( |
| — |
| | ( |
| ( | |
Ending balances as of December 31, 2021 |
| |
| |
| |
| |
| |
(1) | Employee benefits and staff salaries are recorded in “Personnel salaries and expenses.” |
(2) | Mandatory dividends is recorded in the Consolidated Statement of Financial Position in equity, against “Provision for mandatory dividends.” |
(3) | The provisions for contingencies (established) or released are included in Other operating (expenses)/income, depending on whether they are debit or a credit. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-112 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 21 – Provisions, continued
d) Provisions for payroll and employee benefits
As of December 31, | ||||||
2022 | 2021 | |||||
|
| MCh$ |
| MCh$ | ||
Provision of short-term employee benefits |
| (1) | | | ||
Provision of benefits to post-employment employees |
| — | — | |||
Provision of long-term employee benefits |
| (2) | | | ||
Provision of benefits to employees for termination of employment contract |
| (d.1)(d.3)(d.4) | | | ||
Provision for payments to employees based on shares or equity instruments | — | — | ||||
Provision for obligations for defined contribution post-employment plans |
| — | — | |||
Provision for obligations for post-employment defined benefit plans |
| (d.2) | | | ||
Provision for other staff obligations | | | ||||
Totals |
| |
| | ||
(1) | Short-term benefits includes provision for performance compensations, holiday benefits, year-end bonuses and other similar employee compensation. |
(2) | During 2021 and 2022, the Bank entered into an agreement consisting of an extraordinary long-term variable remuneration which will be paid in April 2024 and 2025, respectively. The remuneration is determined based on a nominal amount adjusted by the variation of the share price at closing date, which will be settled in cash when the milestones of the agreement are met. As of December 31, 2022 and 2021, a provision of MCh$ |
The main aspects of the Bank’s long term employee benefits are detailed below:
d.1) Other long-term employee benefits
Description: Annual payment during the month in which the employee completes a given number of years of service (in five-year intervals from 5 to 50).
Financing: The projected unit credit method was used to determine the present value of the defined-benefit obligation and the corresponding service cost. For all active plan participants, the “projected accrued benefit” is based on the plan formula and years of service as of the date of calculation, but using an average salary and social security benefits, etc., projected to the age at which it is assumed that the employee will stop providing services. The total benefit is used for inactive members. The plan does not have any related policies (and therefore no reimbursements) or assets, but rather uses structured funding based on the entity’s financial conditions.
The economic assumptions are summarized as follows:
As of December 31, | ||||
2022 | 2021 | |||
| % |
| % | |
Summary of economic assumptions |
|
|
|
|
Discount rate | |
| | |
Expected rate of salary increase | |
| | |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-113 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 21 – Provisions, continued
The movements of the present value of the obligation for this type of benefit and the amounts recognized in the Consolidated Statements of Income are determined using the projected credit unit method and it consist of the following:
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Opening balances as of January 1, |
| |
| |
Net cost of benefits (1) |
| ( |
| |
Payments |
| ( |
| ( |
Provisions recorded |
| — |
| — |
Exchange differences |
| ( |
| |
Ending balances as of December 31, |
| |
| |
(1) Detail of net cost of benefit is as follows:
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Current services cost | |
| | |
Reduction – service costs | ( | — | ||
Interest expense on obligation | |
| | |
Total | ( |
| | |
d.2) Pension plan
Description: Old-age pension or Survivors in accordance with the Social Security Law in Colombia and benefits acquired with the Entity.
Financing: The projected unit credit method is used to determine the present value of the benefit obligation and related service costs. Using this method the benefit obligation is determined as the present value of current benefits for past services, but calculating the plan benefit based on the salary projected to the date on which it is assumed that the participant receives the benefit. The plan has no policy (without refund) or associated assets, being a structured financing according to the financial conditions of the entity.
The summary of the economic assumptions is as follows:
As of December 31, | ||||
2022 | 2021 | |||
| % |
| % | |
Assumptions |
|
|
|
|
Discount rate |
| |
| |
Expected rate of salary increases |
| |
| |
Inflation rate |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-114 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 21 – Provisions, continued
The detail of Pension plan balances movements is as follows:
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Opening balances as of January 1, |
| |
| |
Interest expense on obligation |
| |
| |
Payments |
| ( |
| ( |
Actuarial losses (gains) |
| ( |
| ( |
Exchange differences |
| ( |
| |
Ending balances as of December 31, |
| |
| |
d.3) Retroactive unemployment plan
Description: Retroactive unemployment plan prior to Law 50 from 1990 in Colombia.
Financing: The projected unit credit method is used to determine the present value of the benefit obligation and related service costs. For all active plan participants, the “projected accrued benefit” is based on the plan formula and years of service as of the date of calculation, but using an average salary and social security benefits, etc., projected to the age at which it is assumed that the employee will stop providing services. The total benefit is used for inactive members. The plan does not have any related policies (and therefore no reimbursements) or assets, but rather uses structured funding based on the entity’s financial conditions.
The economic assumptions are summarized as follows:
As of December 31, | ||||
2022 | 2021 | |||
| % |
| % | |
Assumptions |
|
|
|
|
Discount rate |
| |
| |
Expected rate of salary increases |
| |
| |
Inflation rate |
| |
| |
The details of movements for this benefits during years ended December 31, 2022 and 2021 are as follows:
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Opening balances as of January 1, |
| |
| |
Current services costs |
| |
| |
Interest expense on obligations |
| |
| |
Actuarial gains |
| ( |
| ( |
Payments of benefits |
| ( |
| ( |
Exchange differences |
| ( |
| |
Ending balances as of December 31, |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-115 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 21 – Provisions, continued
d.4) Retirement Bonus Plan
Description: Fixed payment upon retirement
Financing: The projected unit credit method is used to determine the present value of the benefit obligation and related service costs. Under this method, the benefit obligation is determined by the present value of the current benefits for past service but calculating the plan benefit based on the projected salary as of the date in which it is assumed that the participant will receive the benefit.
The economic assumptions are summarized as follows:
As of December 31, | ||||
| 2022 |
| 2021 | |
% | % | |||
Summary of economic hypothesis |
|
|
|
|
Discount rate(s) |
| |||
Expected rate(s) of salary increase |
| |||
Inflation rate |
| |||
The movements in amounts recognized for this benefit are as follows:
| 2022 |
| 2021 | |
MCh$ | MCh$ | |||
Opening balances as of January 1, |
| |
| |
Current service costs |
| ( |
| |
Interest expense on obligation |
| |
| |
Actuarial (gains) losses |
| ( |
| ( |
Payments of benefits |
| ( |
| ( |
Exchange differences |
| ( |
| |
Ending balances as of December 31, |
| |
| |
The effect on Other Comprehensive Income is summarized as follows:
For the years ended December 31, | ||||||||
2022 | 2021 | 2020 | ||||||
|
| MCh$ |
| MCh$ |
| MCh$ | ||
Pension plan | (e.2) | ( | ( | | ||||
Retroactive unemployment plan | (e.3) | ( | ( | ( | ||||
Retirement bonus plan | (e.4) | ( | ( | | ||||
Total recognition of obligations for defined benefits | ( | ( | | |||||
Future payments
Future actuarial calculations may differ with respect to the calculations presented, due to the following factors:
● | The experience of the plans differs from those anticipated by the selected economic and demographic hypotheses. |
● | Changes in economic and demographic assumptions. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-116 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 21 – Provisions, continued
● | Expected increases or decreases as a natural part of the functioning of the methodology for these calculations (for example, the end of the amortization period or additional costs based on the financing situation of the plan). |
● | Changes in the characteristics of the applicable plan or law, and with respect thereto, there are no significant events affecting the results presented since the last assessment. |
The following is a detail of future payments for the year 2022 and 2021:
| Long-term |
|
| Retroactive |
| Retirement | ||
termination | unemployment | benefit | ||||||
2022 | benefits | Pension plan | plan | plan | ||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Year 2023 |
| | | | | |||
Year 2023 |
| | | | | |||
Year 2024 |
| | | | | |||
Year 2025 |
| | | | | |||
Year 2026 |
| | | | | |||
Years 2028- 2032 |
| | | | |
| Long-term |
|
| Retroactive |
| |||
termination | unemployment | Retirement | ||||||
2021 | benefits | Pension plan | plan | benefit plan | ||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Fiscal year 2022 |
| | | | | |||
Fiscal year 2023 |
| | | | | |||
Fiscal year 2024 |
| | | | | |||
Fiscal year 2025 |
| | | | | |||
Fiscal year 2026 – 2030 |
| | | | | |||
Fiscal year 2027 – 2031 |
| | | | |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-117 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 22 – Other liabilities and liabilities directly associated with non-current assets held for sale
a) As of December 31, 2022 and 2021 the other liabilities are as follows:
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Accounts and notes payable (1) | |
| | |
Dividends payable |
| |
| |
Unearned income (2) |
| |
| |
Unearned fees | | | ||
Payables due to brokerage transactions |
| |
| |
Collateral for financial transactions (threshold) |
| |
| |
Other liabilities |
| |
| |
Totals |
| |
| |
(1) | Obligations other than those directly related to the business operations, such as payable withholding taxes, payable social security contributions, balances due on purchases of materials, balances due on obligations under lease agreements for the acquisition of fixed assets, accounts payable for expenses, and others. |
(2) | It corresponds to commissions associated with financial advisory and insurance brokerage businesses that must be deferred in accordance with applicable regulations. |
b) | As of December 31, 2022 and 2021 there are |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-118 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 23 – Contingencies, Commitments, and Responsibilities
a) Lawsuits and Legal Proceedings
Lawsuits against the Bank with provision
As of the date of issuance of these Consolidated Financial Statements, legal actions have been filed against the Bank and its subsidiaries involving its transactions in the ordinary course of business. They are mainly lawsuits pending against the Bank related to loans and other matters, most of which, according to the Bank’s Legal Services Divisions involved in the suits, present no risk of significant loss.
The amount of the claims amounts to approximately MCh$
Itaú Colombia S.A.
The Bank and its subsidiaries are involved in civil, administrative and labor proceedings. The outstanding civil and administrative proceedings, them are related to banking transactions, and the remaining ones derive from the ownership of leased assets.
Such claims amounts to MCh$
b) Commitments
Transaction Agreement
On January 29, 2014, Inversiones Corp Group Interhold Limitada, Inversiones Saga Limitada (together “CorpGroup”), Itaú-Unibanco Holding S.A. Corpbanca, and Banco Itaú Chile, entered into a contract called “Transaction Agreement” (hereinafter, the “Transaction Agreement” or the “TA”) as amended, supplemented and replaced from time to time; in accordance with the contract, they agreed a strategic association of their operations in Chile and Colombia, This strategic association gave rise to the merger of Corpbanca and Banco Itaú Chile, which was renamed “Itaú Corpbanca” and took place on April 1, 2016.
Acquisition of shares of Itaú Corpbanca Colombia owned by CorpGroup
The Transaction Agreement (from January 2014 and its subsequent modifications) also contemplates that on January 28, 2022 Itaú Corpbanca will purchase from CorpGroup the
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-119 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 23 – Contingencies, Commitments, and Responsibilities, continued
By Resolution No. 8159 dated December 28, 2021, and in accordance with the provisions of Article 76 et seq. of the General Banking Law, the Financial Market Commission authorized Itaú Corpbanca to make investments abroad consisting of: i) incorporating a simplified joint stock company in the Republic of Colombia, called Itaú Holding Colombia S.A.S., as a subsidiary of the Bank; ii) to acquire, directly and indirectly, through Itaú Holding Colombia S.A.S., a total of up to
Additionally, in the case of banks incorporated in Colombia, a possible acquisition of shares in Itaú Corpbanca Colombia by Itaú Corpbanca is also subject to the prior authorization of the Colombian Financial Superintendency (SFC).
On February 22, 2022, Itaú Corpbanca acquired, directly and indirectly, all of the shares of Itaú Corpbanca Colombia S.A. owned by CorpGroup Interhold S.p.A., CorpGroup Banking S.A. and CG Financial Colombia S.A.S., representing approximately
Itaú Corpbanca directly acquired approximately
1. Acquisition of the MCC entities
In accordance with the Transaction Agreement and Itaú Unibanco Holding S.A. assumed the obligation to transfer to Itaú Corpbanca, and the latter the obligation to acquire,
The Board of Directors’ authorization to acquire the MCC entities under the Transaction Agreement and in accordance with the provisions of Title XVI of Law No, 18,046 on Corporations is contained in agreements reached in ordinary Board meetings dated May 29, 2019 and April 28, 2021.
The acquisition of the shares of the MCC entities by Itaú Corpbanca is subject to the corresponding regulatory approvals, including approval from the Commission for the Financial Market and from the Central Bank of Brazil.
Through Resolution No, 1847 dated March 21, 2022, the Financial Market Commission authorized Itaú Corpbanca to proceed with: (i) acquire, directly and indirectly, together with its subsidiary Itaú Asesorías Financieras Limitada,
On June 1, 2022, after obtaining the regulatory approvals from the banking regulators in Chile and Brazil, and in accordance with the provisions of the Transaction Agreement entered into by Itaú Corpbanca, Itaú Unibanco Holding S.A. Itaú Unibanco Holding S.A. CorpGroup Interhold SpA, CorpGroup Interhold SpA and Inversiones Gasa Limitada on January 29, 2014, and as amended on June 2, 2015 and January 20, 2017, Itaú Corpbanca acquired all of the shares in
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-120 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 23 – Contingencies, Commitments, and Responsibilities, continued
MCC Asesorías SpA, and, together with its subsidiary Itaú Asesorías Financieras Ltda,, it acquired all of the shares in MCC S.A. Corredores de Bolsa, The total price for all the above transactions was US$
As a result of the acquisition of all the shares in MCC Asesorías SpA, this company was dissolved in accordance with the provisions in its bylaws, resulting in its merger with Itaú Corpbanca, which absorbed said company by owning 100% of its shares, and which then will become the legal successor to MCC S.A. Corredores de Bolsa, In addition, on the same date, an extraordinary shareholders’ meeting took place which decided to merge MCC S.A. Corredores de Bolsa into Itaú Corredores de Bolsa Limitada, As a result, Itaú Corredores de Bolsa Limitada emerged as the subsisting entity, holding all the equity, rights, obligations, assets and liabilities of MCC S.A. Corredores de Bolsa, which was dissolved and then absorbed by Itaú Corredores de Bolsa Limitada, which will be the legal successor to MCC S.A. Corredores de Bolsa.
2. Termination of Transaction Agreement
On July 14, 2022, a Material Event of Itaú Corpbanca reported, among other facts, the following: that on June 3, 2022, Itaú Corpbanca, Itaú Unibanco Holding S.A. CorpGroup Interhold SpA, CorpGroup Interhold SpA, Inversiones Gasa Limitada and other entities related to CG Banking, entered into a “Termination Letter”, in order to terminate, among others, the Transaction Agreement entered into between those same parties on January 29, 2014, as amended on June 2, 2015 and January 20, 2017 (the “Transaction Agreement” or the “TA”), The Termination Letter took effect on July 14, 2022.
Acquisition of
On November 5, 2019, Itaú Corpbanca committed to acquire
By Resolution No, 8159 dated December 28, 2021, and in accordance with the provisions of Article 76 and subsequent articles of the General Banking Law, the Financial Market Commission authorized Itaú Corpbanca to make investments abroad consisting of directly and indirectly acquiring, through Itaú Holding Colombia S.A.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-121 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 23 – Contingencies, Commitments, and Responsibilities, continued
c) | Contingent loans |
The following table contains the amounts for which the Bank and its subsidiaries are contractually obliged to grant loans together with the relevant allowances for loan losses:
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ | MCh$ | ||
Collateral and guarantees | | | ||
Confirmed foreign letters of credit | | | ||
Letters of credit issued | | | ||
Documented guarantees | | | ||
Available on demand credit lines | | | ||
Other credit commitments | | | ||
Totals |
| | | |
For information on provisions for contingent loans, see Note 21, letter b.
d) Responsibilities
The Bank and its subsidiaries have the following responsibilities arising from its regular course of business:
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Third-party transactions | ||||
Debt Collections | | | ||
Transferred financial assets managed by the Bank | | | ||
Third-party resources managed by the Bank and its subsidiaries | | — | ||
Subtotal | | | ||
Custody of securities | ||||
Safeguarded securities held by the Bank and its affiliates | | | ||
Safeguarded securities deposited in another entity | | | ||
Securities issued by the Bank itself | | | ||
Subtotal | | | ||
Totals | | | ||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-122 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 23 – Contingencies, Commitments, and Responsibilities, continued
e) Guarantees, Contingencies and other
Banco Itaú Chile
As a result of the financial tensions generated by the pandemic Covid-19, the Central Bank of Chile has made available to the banks the Conditional Credit Facility to Increase Loans (FCIC) and the Liquidity Credit Line (LCL), This special financial line FCIC is guaranteed by high quality credit and/or bonds issued by the Central Bank of Chile (BCCh), They do not have a secondary market and, therefore, their value is estimated using an extension of the Hull-White model, used widely by the financial services industry. On January 31, 2022, the Central Bank established an optional mecanisim in order to incorporate LCL into the FCIC. The bank consolidate both instruments into FCIC extending its maturity for an additional two years.
As of December 31, 2022, the bank has endorsed loans to guarantee the use of the Facility of Credit Conditional on the Increase in Loans (FCIC) provided by the Central Bank of Chile, The outstanding principal amount of the pledged loans totals MCh$
Itaú Corredores de Seguros S.A.
In order to comply with Article 58, letter d) of the Chilean Decree with Force of Law (“DFL”) 251 of 1930, which states that, “Insurance brokers, in order to conduct business, must comply with the requirement of contracting insurance policies as determined by the Commission for the Financial Market (Ex- Superintendency of Securities and Insurance), in order to correctly and fully comply with the obligations arising from its activities and especially regarding damages that may be incurred by insured parties taking policies through the brokerage house,” the subsidiary has renewed the following insurance policies:
Entity |
| From |
| To |
| Amount (UF) |
| Beneficiary |
Consorcio Nacional de Seguros S.A |
| 4-15-2022 |
| 4-14-2023 (1) |
|
| Itaú Corredores de Seguro S.A |
(1) Policy N°6302137 and N° 6302138 were renewed on April 15, 2023, for UF
Itaú Corredores de Bolsa Limitada
In order to comply with articles 30 and 31 of Chilean Law 18,045, this subsidiary kept a bank guarantee certificate with the Chilean Electronic Stock Exchange and Santiago Stock Exchange, to ensure the correct and complete fulfillment of its obligations as stockbroker. The beneficiaries are the current or future creditors that the subsidiary has or will have derived from its transactions. The detail of the bank guarantee certificate is as follows:
Entity |
| From |
| To |
| Amount (UF) |
| Beneficiary |
Mapfre Compañía de Seguros S.A |
| 4-22-2022 |
| 4-22-2024 |
| |
| Bolsa Electrónica de Chile |
Mapfre Compañía de Seguros S.A |
| 4-22-2022 |
| 4-22-2024 |
| |
| Bolsa de Comercio de Santiago |
In addition, the Company has contracted a comprehensive insurance policy to provide for possible situations of operational fidelity. The detail of the comprehensive insurance policy is as follows:
Entity |
| From |
| To |
| Amount (UF) |
| Beneficiary |
Orion Seguros Generales S.A. |
| 06-30-2022 |
| 06-30-2023 |
|
| Bolsa Electrónica de Chile |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-123 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 23 – Contingencies, Commitments, and Responsibilities, continued
The Company pledged the shares of the Santiago Stock Exchange in favor of said company, to guarantee compliance with the obligations with respect to transactions carried out with other brokers. The amount amounts to MCh$
The Broker is registered in the Registry of Portfolio Administrators since November 22, 2017, for which it maintains a guarantee ticket in Banco Itaú Chile with an expiration date of June 18, 2022, for an amount of UF
There are guarantees constituted of US$
As of December 31, 2022, the Broker maintains in the Santiago Stock Exchange, cash and fixed income securities to guarantee operations in the Securities Clearing and Settlement House for MCh$
Itaú Administradora General de Fondos S.A.
During the year 2022, the Company has contracted a guarantee certificate in order to guarantee the faithful fulfillment of the obligations of the Administrator for the administration of third party funds and the indemnification of the damages resulting from its non-compliance in accordance with the provisions of articles 12 and 13 of the Sole Law of Funds No. 20,712.
Below are the guarantee slips and beneficiaries that Itaú Administradora General de Fondos S.A. maintains in effect to date, which were required to comply with the obligations of portfolio management contracts, their committees, Funds, payment of labor and social obligations with the contractor’s workers:
Entity |
| From |
| To |
| Amount (UF) |
| Beneficiary |
Banco Bice | 12-30-2021 | 12-29-2023 | | Corporación del fomento de la producción CORFO | ||||
Banco Bice | 12-30-2021 | 12-29-2023 | | Corporación del fomento de la producción CORFO |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-124 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 24 – Equity
a) Movements in equity accounts and reserves (attributable to the equity holders of the Bank):
As of December 31, 2022, 2021 and 2020, the paid-in capital of the Bank is represented by common shares subscribed and paid, with no par value, and its motion presented below:
| Common shares | |||||
2022 | 2021 | 2020 | ||||
|
| (number) |
| (number) |
| (number) |
Issued as of January 1, | |
| | | ||
Issuance of paid shares |
|
| |
| — | |
Increase in share for Itaú-Corpbanca business combination |
| — |
| — |
| — |
Issuance of shares pending payment |
| |
| |
| |
Repurchase of own shares |
| |
| |
| |
Sale of own shares |
| |
| |
| |
Issued as of December 31, |
| |
| |
| |
● | Subscribed and paid shares |
As of December 31, 2022 and 2021, the Banks capital is represented by
During 2021 the Bank carried out a capital increase process, where were subscribed and paid
● | Purchase and sale of own shares |
During the years ended December 31, 2022, 2021 and 2020 there were no transactions for the purchase and sale of company-issued shares. During fiscal year 2021, the bank entered into a capital increase process where the aforementioned shares were subscribed.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-125 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 24 – Equity, continued
● | List of major shareholders |
The shareholders list as of December 31, 2022, 2021 and 2020, is as follows:
Shares |
| ||||||||||||
2022 | 2021 | 2020 |
| ||||||||||
| Number of |
| Ownership |
| Number of |
| Ownership | Number of |
| Ownership |
| ||
Company name or shareholder name | shares | % | shares | % | shares | % |
| ||||||
Itaú Unibanco |
| | | % | | | % | |
| | % | ||
ITB Holding Brasil Participaçoes Ltda. (1) |
| | | % | | | % | | | % | |||
Itaú Unibanco Holding S.A. |
| | | % | | | % | | | % | |||
CGB II SpA |
| | | % | | | % | | | % | |||
CGB III SpA |
| | | % | | | % | | | % | |||
Saga II SpA |
| | | % | | | % | | | % | |||
Saga III SpA |
| | | % | | | % | | | % | |||
Saieh Family |
| | | % | | | % | |
| | % | ||
Corp Group Banking S.A. (2) |
| | | % | | | % | | | % | |||
Compañía Inmobiliaria y de Inversiones Saga SpA |
| | | % | | | % | | | % | |||
International Finance Corporation |
| | | % | | | % | |
| | % | ||
Others |
| | | % | | | % | | | % | |||
Local Securities Brokerage |
| | | % | | | % | | | % | |||
ADRs Holders and Inst. Foreign Investors |
| | | % | | | % | | | % | |||
Local institutional investors | | | % | | | % | | | % | ||||
Other minority shareholders |
| | | % | | | % | | | % | |||
Totals |
| |
| | % | | | % | | | % | ||
(1)Includes
(2)As of December 31, 2022 and 2021 includes
(3) The percentages included in this column have been rounded for ease of presentation. These Percentages have been calculated on the basis of the unrounded figures presented in the “No. Shares” column.
b) Dividends
At the Ordinary Meeting of the Shareholders of Banco Itaú Chile held on March 24, 2022 the shareholders agreed to distribute profits for MCh$
Income | Allocated to | |||||||||||
attributable to | reserves and | Dividend per | ||||||||||
equity holders | retained | Allocated to | Percentage | share | ||||||||
Years | (1) | earnings (1) | dividends | distributed | Number of shares | (in pesos) | ||||||
| MCh$ |
| MCh$ |
| MCh$ |
| % |
|
| |||
Year 2021 (Shareholders’ Meeting March 2022) |
| | | | % | | ||||||
Year 2020 (Shareholders’ Meeting March 2021) |
| ( |
| ( |
| — |
| % | |
| — |
(1) According to the Consolidated Financial Statements filed with the CMF.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-126 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 24 – Equity, continued
As of December 31, 2022, 2021 and 2020, the basic earnings and diluted earnings are as follows:
As of and for the years ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
N° of Shares | Amount | N° of Shares | Amount | N° of Shares | Amount | |||||||
| Millions |
| MCh$ |
| Millions |
| MCh$ |
| Millions |
| MCh$ | |
Basic earnings per share |
|
|
|
|
|
|
|
|
| |||
Net income for the year |
| — | |
| — | |
| — |
| ( | ||
Weighted average number of outstanding shares |
| | — |
| | — |
| |
| — | ||
Assumed convertible debt conversion |
| — | — |
| — | — |
| — |
| — | ||
Adjusted number of outstanding shares |
| | — |
| | — |
| |
| — | ||
Basic earnings per share (Chilean pesos) |
| — | |
| — | |
| — |
| ( | ||
Diluted earnings per share |
|
|
|
|
|
| ||||||
Net income for the year |
| — | |
| — | |
| — |
| ( | ||
Weighted average number of outstanding shares |
| | — |
| | — |
| |
| — | ||
Dilutive effects |
|
|
|
|
|
| ||||||
Assumed convertible debt conversion |
| — | — |
| — | — |
| — |
| — | ||
Conversion of common shares |
| — | — |
| — | — |
| — |
| — | ||
Options rights |
| — | — |
| — | — |
| — |
| — | ||
Adjusted number of shares |
| | — |
| | — |
| |
| — | ||
Diluted earnings per share (Chilean pesos) |
| — | |
| — | |
| — |
| ( | ||
During the years ended December 31, 2022, 2021 and 2020, there were no dilutive effects.
c) Valuation accounts
Financial instruments at FVTOCI: It includes accumulated net changes in the fair value of investments at FVTOCI for the years ended on December 31, 2022, 2021 and 2020.
Hedge of net investment in foreign operations: Corresponds to adjustments for hedges of net investments in foreign operations.
Cash flows hedge: It includes the effects of hedges on the Bank’s exposure to variations in cash flows that are attributed to a particular risk related to a recognized asset and/or liability, which may affect the results of the period.
Exchange differences on investments in Colombia and New York branch: It includes the effects of converting the financial statements of the New York branch and Colombian subsidiaries, whose functional currencies are the US dollar and Colombian peso, respectively, to the presentation currency of Banco Itaú Chile (Chilean peso).
Defined benefits obligations: This includes the effects of complying with IAS 19 “Employees Benefit”.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-127 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 24 – Equity, continued
The following are the equity effects and income taxes for years ended December 31, 2022, 2021 and 2020:
Exchange | ||||||||||||||
differences on | ||||||||||||||
Hedge of net | investment in | |||||||||||||
Debt | investments in | Colombia and | Defined | Equity | ||||||||||
instruments | Cash flow | foreign | New York | benefits | instruments | |||||||||
As of December 31, 2022 |
| at FVTOCI |
| hedge |
| operations |
| branch |
| obligations |
| at FVTOCI |
| Totals |
MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | MCh$ |
| MCh$ | |||
Other comprehensive income (loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
| |||
Opening balances as of January 1, 2022 | ( |
| |
| ( |
| |
| ( | |
| ( | ||
Effects for the year | |
| |
| ( |
| ( |
| | | ( | |||
Reclasification new bussines model according to IFRS 9 | | — | — | — | — | — | | |||||||
Termination of accounting hedges highly probable transactions | — | ( | — | — | — | — | ( | |||||||
Ending balances as of December 31, 2022 | |
| |
| ( |
| ( |
| ( | |
| ( | ||
Income taxes related to components of other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| |||
Opening balances as of January 1, 2022 | ( | ( | | — | | — |
| ( | ||||||
Effects for the period | ( |
| ( |
| |
| — |
| ( | — |
| ( | ||
Reclasification new bussines model according to IFRS 9 | ( | — | — | — | — | — | ( | |||||||
Termination of accounting hedges highly probable transactions | — | | — | — | — | — | | |||||||
Ending balances as of December 31, 2022 | ( |
| ( |
| |
| — |
| | — |
| ( | ||
Net balances as of December 31, 2022 | ( |
| |
| ( |
| ( |
| ( | |
| ( |
Exchange | ||||||||||||||
differences on | ||||||||||||||
Hedge of net | investment in | |||||||||||||
Debt | investments | Colombia and | Defined | Equity | ||||||||||
instruments | Cash flow | in foreign | New York | benefits | instruments | |||||||||
As of December 31, 2021 |
| at FVTOCI |
| hedge |
| operations |
| branch |
| obligations |
| at FVTOCI |
| Totals |
MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | MCh$ |
| MCh$ | |||
Other comprehensive income (loss) before income taxes |
|
|
|
|
|
| ||||||||
Opening balances as of January 1, 2021 | |
| ( |
| |
| ( |
| ( | — | |
| | |
Effects for the year | ( |
| |
| ( |
| |
| | ( |
| ( | ||
Reclassifications due to the discontinuation of the net investment in Itaú Colombia hedge | — | — | ( | — | — | — | ( | |||||||
Ending balances as of December 31, 2021 | ( |
| |
| ( |
| |
| ( | |
| ( | ||
Income taxes related to components of other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| |||
Opening balances as of January 1, 2021 | ( |
| ( |
| ( |
| — |
| | — | — |
| ( | |
Effects for the year | |
| ( |
| |
| — |
| ( | — |
| | ||
Reclassifications due to the discontinuation of the net investment in Itaú Colombia hedge | — | — | | — | — | — | | |||||||
Ending balances as of December 31, 2021 | ( |
| ( |
| |
| — |
| | — |
| ( | ||
Net balances as of December 31, 2021 | ( |
| |
| ( |
| |
| ( | |
| ( |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-128 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 24 – Equity, continued
Exchange | ||||||||||||||
differences on | ||||||||||||||
Hedge of net | investment | |||||||||||||
Debt | investments | in Colombia | Defined | Equity | ||||||||||
instruments | Cash flow | in foreign | and New York | benefits | instruments | |||||||||
As of December 31, 2020 | at FVTOCI | hedge |
| operations | branch | obligations | at FVTOCI |
| Totals | |||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | MCh$ | ||
Other comprehensive income (loss) before income taxes |
|
|
|
|
|
| ||||||||
Opening balances as of January 1, 2020 | |
| ( |
| ( |
| |
| ( | — | |
| | |
Effects for the year | ( |
| ( |
| |
| ( |
| ( | |
| | ||
Transfer of gain on disposal of equity investments at fair value through other comprehensive income to retained earnings | — |
| — |
| — |
| |
| — | ( |
| ( | ||
Ending balances as of December 31, 2020 |
| |
| ( |
| |
| ( |
| ( | |
| | |
|
|
|
|
| ||||||||||
Income taxes related to components of other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| |||
Opening balances as of January 1, 2020 | ( |
| ( |
| |
| — |
| | — | — |
| ( | |
Effects for the year | ( |
| ( |
| ( |
| — |
| | — |
| ( | ||
Ending balances as of December 31, 2020 | ( |
| ( |
| ( |
| — |
| | — |
| ( | ||
|
|
|
|
| ||||||||||
Net balances as of December 31, 2020 |
| |
| ( |
| |
| ( |
| ( | |
| |
d) Reserves
This item includes “Reserves from earnings” and “Other non-earnings reserves”.
Reserves from earning includes reserves from Banco Itaú Chile before the business combination which as of January 1, 2020 amounted to MCh$
Reserves from “Other non-earnings reserves”:
As of December 31, 2022, the reserve amounted to MCh$
As of December 31, 2021, the reserve amounted to MCh$
As of December 31, 2020 included the adjustments recorded as a result of the business combination between Banco Itaú Chile and Corpbanca for MCh$
e) Retained earnings from prior years
This item includes MCh$
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-129 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 24 – Equity, continued
f) Non-controlling interest
This corresponds to the net amount of equity in the consolidated subsidiaries attributable to capital that does not belong, directly or indirectly, to the Bank, including the part of profit for the period that is attributed to them. Non-controlling interest in the subsidiary’s equity and profit for the year is detailed as follows:
As of December 31, 2022 | Other Comprehensive Income | |||||||||||||||||||||
Hedge of | ||||||||||||||||||||||
Exchange | net | |||||||||||||||||||||
Financial | differences | investment | Cash | Defined | Total other | Total | ||||||||||||||||
Non- | Net | instruments at | on | in foreign | flows | benefits | Deferred | comprehensive | comprehensive | |||||||||||||
Subsidiaries |
| controlling |
| Equity |
| income |
| FVTOCI (1) |
| translation |
| operations |
| hedge |
| obligations |
| Tax |
| income |
| income |
% | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||
Itaú Corredor de Seguro Colombia S.A. (1) | | % | — | — | — |
| — |
| — |
| — |
| — |
| — |
| — | — | ||||
Itaú Colombia S.A. and subsidiaries | | % | | | |
| ( |
| ( |
| ( |
| |
| ( |
| ( |
| ( | |||
Totals | | | |
| ( |
| ( |
| ( |
| |
| ( |
| ( |
| ( | |||||
(1) | Financial instruments at FVTOCI include debt instruments for MCh$ |
As of December 31, 2021 | Other Comprehensive Income | |||||||||||||||||||||
Hedge of | ||||||||||||||||||||||
Exchange | net | |||||||||||||||||||||
Financial | differences | investment | Cash | Defined | Total other | Total | ||||||||||||||||
Non- | Net | instruments at | on | in foreign | flows | benefits | Deferred | comprehensive | comprehensive | |||||||||||||
Subsidiaries |
| controlling |
| Equity |
| income |
| FVTOCI (1) |
| translation |
| operations |
| hedge |
| obligations |
| Tax |
| income |
| income |
% | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||
Itaú Corredor de Seguro Colombia S.A. (1) | | % | | | — |
| — |
| — |
| — |
| — |
| — |
| — | | ||||
Itaú Colombia S.A. and subsidiaries | | % | | | ( |
| |
| |
| ( |
| |
| |
| |
| | |||
Totals | | | ( | | | ( | | | | | ||||||||||||
(1) | Financial instruments at FVTOCI include debt instruments for MCh$ |
As of December 31, 2020 | Other Comprehensive Income | |||||||||||||||||||||
Hedge of | ||||||||||||||||||||||
Exchange | net | |||||||||||||||||||||
Financial | differences | investment | Cash | Defined | Total other | |||||||||||||||||
Non- | Net | instruments at | on | in foreign | Flows | benefits | Deferred | comprehensive | Comprehensive | |||||||||||||
Subsidiaries |
| controlling |
| Equity |
| income |
| FVTOCI (2) |
| translation |
| operations |
| hedges |
| obligations |
| Tax |
| income |
| income |
% | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||
Itaú Corredor de Seguro Colombia S.A. | | % | | ( | — | — | — | — | — | — | — | ( | ||||||||||
Itaú Colombia S.A. and subsidiaries (1)(2) | | % | | ( | ( | ( | — | | | ( | ( | ( | ||||||||||
Itaú Corredores de Seguros S.A. | — | % | — | — | — | — | — | — | — | — | — | — | ||||||||||
Totals | | ( | ( |
| ( |
| — |
| |
| |
| ( |
| ( | ( | ||||||
(1) | Financial instruments at FVTOCI include debt instruments for MCh$ |
(2) | On December 3, 2019, after obtaining regulatory approvals from banking supervisors in Chile, Colombia and Brazil, Banco Itaú Chile completed the acquisition of the Itaú Colombia shares owned by Helm LLC and Kresge Stock Holding Company Inc. As a result of these acquisitions, Banco Itaú Chile owns approximately |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-130 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 24 – Equity, continued
The following table shows the non-controlling interest movements for the year ended December 31, 2022, 2021 and 2020:
As of December 31, | ||||||
2022 | 2021 | 2020 | ||||
| MCh$ |
| MCh$ |
| MCh$ | |
Opening balances as of January 1, | | | | |||
Increase participation in Colombia |
| ( |
| — |
| — |
Comprehensive income |
| ( |
| |
| ( |
Ending balances as of December 31, |
| |
| |
| |
Details for the main subsidiary of Banco Itaú Chile with non-controlling interest are as follows:
As of December 31, | |||||||||||
2022 | 2021 | ||||||||||
|
| Group |
| Non-controlling |
| Group |
| Non-controlling | |||
Entity Name |
| Country |
| participation |
| participation |
| participation |
| participation |
|
Itaú Colombia S.A. and subsidiaries | Colombia | | % | | % | % | % | ||||
Summarized financial information for the main subsidiary with non-controlling interest, is as follows:
As of December 31, | ||||
Summary Statements of Financial Position | 2022 | 2021 | ||
| MCh$ |
| MCh$ | |
Current assets |
| |
| |
Current liabilities |
| ( |
| ( |
Net current assets (liabilities) |
| |
| |
Non-current assets |
| |
| |
Non-current liabilities |
| ( |
| ( |
Net non-current assets (liabilities) |
| ( |
| ( |
Total net assets (liabilities) |
| |
| |
Accumulated non-controlling interest | | | ||
For the years ended December 31, | ||||
Summary Income Statements |
| 2022 |
| 2021 |
MCh$ | MCh$ | |||
Interest income and readjustments |
| |
| |
Income for the year |
| |
| |
Non-controlling interests income |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-131 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 24 – Equity, continued
For the years ended December 31, | ||||
Summary Cash Flows Statements | 2022 | 2021 | ||
| MCh$ |
| MCh$ | |
Net cash flows provided by (used in) operating activities |
| ( |
| |
Net cash flows provided by (used in) investing activities |
| ( |
| |
Net cash flows provided by (used in) financing activities |
| ( |
| |
Net increase (decrease) in cash flows |
| ( |
| |
g) Consolidated comprehensive income for the years ended December 31, 2022, 2021 and 2020
2022 | ||||||
Equity holders | Non-controlling | |||||
Concepts | of the Bank | interest | Totals | |||
| MCh$ |
| MCh$ |
| MCh$ | |
Income (loss) for the year |
| | |
| | |
Other comprehensive income (loss) before income taxes |
|
|
| |||
Debt instruments at fair value through other comprehensive income |
| | | | ||
Hedge of net investment in foreign operations |
| ( | ( | ( | ||
Cash flows hedge |
| ( | ( | ( | ||
Exchange differences |
| ( | ( | ( | ||
Changes in the fair value of equity investments at fair value through other comprehensive income |
| | — | | ||
Defined benefits obligation | | | | |||
Subtotals |
| ( |
| ( |
| ( |
Income taxes |
|
|
|
|
|
|
Debt instruments at fair value through other comprehensive income |
| ( | ( | ( | ||
Hedge of net investment in foreign operations |
| | | | ||
Cash flows hedge |
| | | | ||
Defined benefits obligation |
| ( | ( | ( | ||
Subtotals |
| |
| ( |
| |
Other comprehensive loss for the year |
| ( |
| ( |
| ( |
Comprehensive loss for the year |
| |
| ( |
| |
2021 | ||||||
Equity holders | Non-controlling | |||||
Concepts | of the Bank | interest | Totals | |||
| MCh$ |
| MCh$ |
| MCh$ | |
Income (loss) for the year |
| | |
| | |
Other comprehensive income (loss) before income taxes |
|
|
| |||
Debt instruments at fair value through other comprehensive income |
| ( | ( |
| ( | |
Hedge of net investment in foreign operations |
| ( | |
| ( | |
Cash flows hedge |
| | ( |
| | |
Exchange differences |
| | |
| | |
Changes in the fair value of equity investments at fair value through other comprehensive income |
| ( | ( |
| ( | |
Defined benefits obligation | | | | |||
Subtotals |
| ( |
| |
| ( |
Income taxes |
|
|
|
|
|
|
Debt instruments at fair value through other comprehensive income |
| | |
| | |
Hedge of net investment in foreign operations |
| | |
| | |
Cash flows hedge |
| ( | ( |
| ( | |
Defined benefits obligation |
| ( | ( |
| ( | |
Subtotals |
| |
| |
| |
Other comprehensive income for the year |
| ( |
| |
| ( |
Comprehensive income for the year |
| |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-132 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 24 – Equity, continued
2020 | ||||||
Equity holders | Non-controlling | |||||
Concepts | of the Bank | interest | Totals | |||
| MCh$ |
| MCh$ |
| MCh$ | |
Income (loss) for the year |
| ( |
| ( |
| ( |
Other comprehensive income (loss) before income taxes |
|
|
|
|
|
|
Debt instruments at fair value through other comprehensive income |
| ( |
| ( |
| ( |
Hedge of net investment in foreign operations |
| | — |
| | |
Cash flow hedge |
| ( | |
| ( | |
Exchange differences |
| ( | ( |
| ( | |
Changes in the fair value of equity investments at fair value through other comprehensive income |
| | |
| | |
Defined benefits obligation | ( | | ( | |||
Subtotals |
| |
| ( |
| ( |
Income taxes |
|
|
|
|
|
|
Debt instruments at fair value through other comprehensive income |
| ( |
| |
| |
Hedge of net investment in foreign operations |
| ( |
| — |
| ( |
Cash flow hedge |
| ( |
| ( |
| ( |
Defined benefits obligation |
| |
| ( |
| ( |
Subtotals |
| ( |
| ( |
| ( |
Other comprehensive income (loss) for the year |
| ( |
| ( |
| ( |
Comprehensive income (loss) for the year |
| ( |
| ( |
| ( |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-133 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 25 – Interest Income and Interest Expense
This item comprises interest accrued and inflation adjustment in the year by all financial assets and liabilities, interest income and expenses, whose implicit or explicit performance is measured by applying the effective interest rate method, independently if these are measured at fair value, as well as the effects from accounting hedges, which are part of the interest income and expenses included in the Consolidated Statement of Income (Loss) for the year.
a) The composition of interest income and inflation-indexing for the years ended December 31, 2022, 2021 and 2020 is as follows:
For the years ended December 31, | |||||||||||||||||||
2022 | 2021 | 2020 | |||||||||||||||||
|
| Inflation |
|
|
| Inflation |
|
|
| Inflation |
| ||||||||
Interest | adjustments (1) | Totals | Interest | adjustments (1) | Totals | Interest | adjustments (1) | Totals | |||||||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | ||
Investments under agreements to resell |
| | — | | |
| — |
| |
| |
| — |
| | ||||
Loans and receivables to banks |
| | — | | |
| — |
| |
| |
| — |
| | ||||
Commercial loans |
| | | | |
| |
| |
| |
| |
| | ||||
Mortgage loans |
| | | | |
| |
| |
| |
| |
| | ||||
Consumer loans |
| | | | |
| |
| |
| |
| |
| | ||||
Financial investments |
| | | | |
| |
| |
| |
| |
| | ||||
Other interest income |
| | | | |
| |
| |
| |
| |
| | ||||
Gain (loss) from accounting hedges (2) |
| | ( | ( | |
| ( |
| ( |
| |
| ( |
| ( | ||||
Totals |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
b) For the years ended December 31, 2022, 2021 and 2020, the detail of the amount of interest and inflation-indexation adjustment expense is as follows:
For the years ended December 31, | ||||||||||||||||||
2022 | 2021 | 2020 | ||||||||||||||||
|
|
| Inflation |
|
|
| Inflation |
|
|
| Inflation |
| ||||||
Interest | adjustments (1) | Totals | Interest | adjustments (1) | Totals | Interest | adjustments (1) | Totals | ||||||||||
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
Deposits and other demand liabilities |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Obligations under repurchase agreements |
| ( |
| — |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Time deposits and other time liabilities |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Interbank borrowings |
| ( |
| ( |
| ( |
| ( |
| — |
| ( |
| ( |
| — |
| ( |
Debt instruments issued |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Other financial liabilities |
| ( |
| ( |
| ( |
| ( |
| — |
| ( |
| ( |
| — |
| ( |
Lease obligations | ( | — | ( | ( | — | ( | ( | | ( | |||||||||
Other Interest expense |
| — |
| — |
| — |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Gain (loss) from hedge accounting (2) |
| |
| — |
| |
| |
| — |
| |
| |
| — |
| |
Totals |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
(1) The inflation indexation adjustment is the result of changes in the Unidades de Fomento (“UF”). The UF is an inflation-index Chilean monetary unit with a value in Chilean pesos that changes daily to reflect changes in the Official Consumer Price Index (“CPI”) of the Instituto Nacional de Estadísticas (the Chilean National Institute of Statistics) for the previous month. The effect of any changes in the nominal peso value of our UF-denominated interest earning assets and interest bearing liabilities is reflected in our results of operations as an increase (or decrease, in the event of deflation) in interest income and expense respectively.
(2) The mark to market adjustments are presented in this line for hedging derivatives used in hedging of assets except in the case of foreign currency hedges and cash flow hedges (cross-currency), their all-in mark to market adjustment is included in the foreign exchange gain (losses) (see Note 28 “Net foreign exchange income (losses)”).
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-134 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 26 – Fee and Commission Income and Expense
This item comprises the amount of all commissions accrued and paid in the year, except for those that form an integral part of the effective interest rate of the financial instruments.
a) Fee and commission income
This item comprises the financial income for the year corresponding to remunerations generated by the services rendered by the Bank and its subsidiaries and corresponds to the following items:
For the years ended December 31, | ||||||
| 2022 |
| 2021 |
| 2020 | |
| MCh$ | MCh$ | MCh$ | |||
Fees and commissions from lines of credits and overdrafts | |
| |
| | |
Fees and commissions from guarantees and letters of credit | |
| |
| | |
Fees and commissions from card services | |
| |
| | |
Fees and commissions from accounts management | |
| |
| | |
Fees and commissions from collections and payments | |
| |
| | |
Fees and commissions from brokerage and securities management | |
| |
| | |
Fees and commissions from asset management | |
| |
| | |
Compensation for insurance brokerage | |
| |
| | |
Investment banking and advisory fees | |
| |
| | |
Fees and commissions from student loans ceded | |
| |
| | |
Commissions on loan transactions | |
| |
| | |
Commissions for mortgage loans | |
| |
| | |
Other fees from services rendered | |
| |
| | |
Other commissions earned | |
| |
| | |
Totals |
| |
| |
| |
b) Fee and commission expense
This item includes expenses for commissions accrued during the year from operations, and corresponds to the following items:
For the years ended December 31, | ||||||
| 2022 |
| 2021 |
| 2020 | |
| MCh$ | MCh$ | MCh$ | |||
Compensation for cards transactions |
| ( |
| ( |
| ( |
Fees and commissions for securities transactions |
| ( |
| ( |
| ( |
Commissions paid for foreign trade transactions |
| ( |
| ( |
| ( |
Commissions paid for customer loyalty program benefits |
| ( |
| ( |
| ( |
Commissions paid for services to customers management |
| — |
| ( |
| ( |
Other commissions paid |
| ( |
| ( |
| ( |
Totals |
| ( |
| ( |
| ( |
Commissions earned on loans with mortgage finance bonds are recorded in the Consolidated Statement of Income (Loss) under “Interest income.”
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-135 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 26 – Fee and Commission Income and Expense, continued
c) Below are the income and expenses for commissions generated by segment and the revenue recognition calendar for ordinary activities, for the year ended December 31, 2022 according to IFRS 15.
For the year ended December 31, 2022 | ||||||||||||
Revenue recognition calendar | ||||||||||||
Segments | for ordinary activities | |||||||||||
Transferred | ||||||||||||
Transferred | at a point in | Accrual | ||||||||||
| Chile |
| Colombia |
| Total |
| over time |
| time |
| model | |
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||
Fees and commissions from lines of credits and overdrafts | | | | — | | — | ||||||
Fees and commissions from guarantees and letters of credit | | | | — | | — | ||||||
Fees and commissions from card services | | | | | | — | ||||||
Fees and commissions from accounts management | | | | — | | — | ||||||
Fees and commissions from collections and payments | | | | | | | ||||||
Fees and commissions from brokerage and securities management | | | | | | — | ||||||
Fees and commissions from asset management | | | | — | | — | ||||||
Compensation for insurance brokerage | | | | — | — | | ||||||
Investment banking and advisory fees | | | | | | — | ||||||
Fees and commissions from student loans ceded | | — | | — | | — | ||||||
Commissions on loan transactions | | — | | — | | — | ||||||
Commissions for mortgage loans | | — | | — | | — | ||||||
Other fees from services rendered | | | | — | | — | ||||||
Other commissions earned | | | | — | | — | ||||||
Totals | |
| | | | | | |||||
For the year ended December 31, 2022 | ||||||||||||
Revenue recognition calendar | ||||||||||||
Segments | for ordinary activities | |||||||||||
Transferred | ||||||||||||
Transferred | at a point in | Accrual | ||||||||||
| Chile |
| Colombia |
| Total |
| over time |
| time |
| model | |
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||
Commission expenses | ||||||||||||
Commissions from card operation | ( | ( | ( | ( | ( | — | ||||||
Fees and commissions for securities transactions | ( | ( | ( | ( | ( | — | ||||||
Commissions paid for foreign trase transactions | ( | — | ( | — | — | — | ||||||
Commissions paid for customer loyalty program benefits | ( | ( | ( | — | ( | — | ||||||
Commissions paid for services to customers management | — | — | — | — | — | — | ||||||
Other commissiones paid | ( | ( | ( | ( | ( | ( | ||||||
Totals |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-136 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 27 – Net Income (Expense) from Financial Operations
This item includes the amount of changes in the fair value of financial instruments, except those attributable to interest accrued by applying the effective interest rate method, as well as the results obtained in the purchase and sale thereof.
Net income (expense) from financial operations in the Consolidated Statements of Income for the year is as follows:
For the years ended December 31, | ||||||
|
| 2022 |
| 2021 |
| 2020 |
| MCh$ | MCh$ | MCh$ | |||
Trading instruments (securities) |
| |
| ( |
| |
Financial derivative contracts (trading) |
| |
| |
| |
Financial assets measured at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition | ( | — | — | |||
Sale of loans and accounts receivable from customers (1) |
| |
| |
| |
Net gain on sale of financial instruments at fair value through other comprehensive income | ( |
| ( |
| | |
Net result of ineffectiveness and discontinuation of hedge accounting |
| | | ( | ||
Others |
| |
| |
| |
Totals |
| |
| |
| |
(1) See details Note 10, letter d.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-137 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 28 – Net Foreign Exchange Gain (Loss)
This item includes the income earned from foreign currency trading, differences arising from converting monetary items in a foreign currency to the functional currency, and those generated by non-monetary assets in foreign currency at the time of their disposal. Net foreign exchange gains (losses) details are as follows:
For the years ended December 31, | ||||||
| 2022 |
| 2021 |
| 2020 | |
| MCh$ | MCh$ | MCh$ | |||
Net foreign exchange gain (loss) |
|
|
|
|
|
|
Gain (loss) on net foreign currency exchange positions |
| ( |
| |
| ( |
Other foreign currency exchange gains (losses) |
| |
| |
| |
Subtotals |
| ( |
| |
| ( |
Net exchange rate adjustments gain (loss) |
|
|
|
|
|
|
Adjustments for loans and accounts receivable from customers |
| |
| |
| ( |
Adjustment for other assets and liabilities |
| |
| ( |
| ( |
Net gain (loss) from hedge accounting |
| |
| |
| ( |
Subtotals |
| |
| |
| ( |
Totals |
| ( |
| |
| ( |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-138 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 29 – Provisions for Impairment of Financial Assets
The movement registered in income for the year related to allowances and impairment due to credit risk, for the years ended December 31, 2022, 2021 and 2020, is summarized as follows:
Financial | Financial | |||||||||||||||
Interbank | Loans and accounts receivable from customers at amortized cost | instruments at | instruments at | Contingent | ||||||||||||
2022 | loans | Commercial | Mortgage | Consumer | FVTOCI | amortized cost | loans | Totals | ||||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Loss for provisions established |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( | ( | |
Income for provisions released |
| |
| |
| |
| |
| |
| |
| | | |
Recovery of loans previously charged-off |
| — |
| |
| |
| |
| — |
| — |
| — | | |
Net charge to income |
| ( |
| ( |
| ( |
| ( |
| |
| |
| ( |
| ( |
Financial | Financial | |||||||||||||||
Interbank | Loans and accounts receivable from customers at amortized cost | instruments at | instruments at | Contingent | ||||||||||||
2021 | loans | Commercial | Mortgage | Consumer | FVTOCI | amortized cost | loans | Totals | ||||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Loss for provisions established |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Income for provisions released |
| |
| |
| |
| |
| |
| |
| |
| |
Recovery of loans previously charged-off |
| — |
| |
| |
| |
| — |
| — |
| — |
| |
Net charge to income |
| ( |
| ( |
| ( |
| ( |
| |
| ( |
| | ( | |
Financial | Financial | ||||||||||||||||
Interbank | Loans and accounts receivable from customers at amortized cost | instruments at | instruments at | Contingent | |||||||||||||
2020 | loans | Commercial | Mortgage | Consumer | FVTOCI | amortized cost | loans | Totals | |||||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | ||
Loss for provisions established | ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( | ( | |||
Income for provisions released | |
| |
| |
| |
| |
| |
| | | |||
Recovery of loans previously charged-off | — |
| |
| |
| |
| — |
| — |
| — | | |||
Net charge to income | |
| ( |
| ( |
| ( |
| |
| ( |
| ( |
| ( | ||
(1) | The amounts in the Consolidated Statements of Cash Flows for the year are as follows: |
For the years ended December 31, | ||||||
| 2022 |
| 2021 |
| 2020 | |
MCh$ | MCh$ | MCh$ | ||||
Charge to income for provisions established |
| |
| |
| |
Credit to income for provisions used |
| ( |
| ( |
| ( |
|
| |
| | ||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-139 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 29 – Provisions for Impairment of Financial Assets, continued
The detail by type of loans, analyzed collectively and individually, which were constituted and released by way of provision, is as follows:
As of December 31, 2022 | |||||||||
| Note |
| Provision established |
| Provision released | Totals |
| ||
MCh$ | MCh$ | MCh$ | |||||||
Commercial |
|
|
| ( | | ( | |||
Mortgage |
|
|
| ( |
| | ( | ||
Consumer |
|
|
| ( |
| | ( | ||
Subtotals |
| 10 |
| ( |
| | ( |
| |
Interbank loans, net |
| 9 |
| ( |
| | ( |
| |
Totals |
|
|
| ( |
| | ( |
| |
As of December 31, 2021 | |||||||||
| Note |
| Provision established |
| Provision released | Totals |
| ||
MCh$ | MCh$ | MCh$ | |||||||
Commercial |
|
|
| ( | | ( | |||
Mortgage |
|
|
| ( |
| | ( | ||
Consumer |
|
|
| ( |
| | ( | ||
Subtotals |
| 10 |
| ( |
| | ( |
| |
Interbank loans, net |
| 9 |
| ( |
| | ( |
| |
Totals |
|
|
| ( |
| | ( |
| |
As of December 31, 2020 | |||||||||
Provisions established | |||||||||
| Note |
| Provision established |
| Provision released | Totals |
| ||
MCh$ | MCh$ | MCh$ | |||||||
Commercial |
|
|
| ( | | ( |
| ||
Mortgage |
|
|
| ( |
| | ( |
| |
Consumer |
|
|
| ( |
| | ( |
| |
Subtotals |
| 10 |
| ( |
| | ( |
| |
Interbank loans, net |
| 9 |
| ( |
| | |
| |
Totals |
|
|
| ( |
| | ( |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-140 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 30 – Personnel Salaries and Expenses
Personnel salaries expenses for the years ended December 31, 2022, 2021 and 2020 are broken down as follows:
For the years ended December 31, | ||||||
| 2022 |
| 2021 |
| 2020 | |
| MCh$ | MCh$ | MCh$ | |||
Personnel compensation | ( |
| ( |
| ( | |
Bonuses or gratifications | ( |
| ( |
| ( | |
Compensation for years of service | ( |
| ( |
| ( | |
Training expenses | ( |
| ( |
| ( | |
Health and life insurance | ( |
| ( |
| ( | |
Other personnel expenses | ( |
| ( |
| ( | |
Totals |
| ( |
| ( |
| ( |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-141 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 31 – Administrative Expenses
For the years ended as of December 31, 2022, 2021 and 2020, the composition of this item is as follows:
For the years ended December 31, | ||||||
| 2022 |
| 2021 |
| 2020 | |
| MCh$ | MCh$ | MCh$ | |||
Administrative expenses | ( | ( | ( | |||
Expenses for short-term leases | ( | ( | ( | |||
Other expenses of obligations for lease contracts | ( | ( | ( | |||
Maintenance and repair of fixed assets | ( | ( | ( | |||
Insurance payments | ( | ( | ( | |||
Office supplies | ( | ( | ( | |||
IT and communications expenses | ( | ( | ( | |||
Utilities and other services | ( | ( | ( | |||
Security and transportation of securities services | ( | ( | ( | |||
Representation and personnel traverl expenses | ( | ( | ( | |||
Legal and notarial expenses | ( | ( | ( | |||
Professional services fees | ( | ( | ( | |||
Technical report fees | ( | ( | ( | |||
Fines applied by the Financial Market Commission | ( | ( | — | |||
Fines | ( | ( | ( | |||
Other administrative expense | ( | ( | ( | |||
Outsourced services | ( | ( | ( | |||
Data processing | ( | ( | ( | |||
Appraisal service | ( | ( | — | |||
Call center service for sales, marketing, quality assurance and costumer service | ( | ( | ( | |||
External collection service | ( | ( | — | |||
External cleaning service, casino, files and documents custody, furniture and equipment storage | ( | ( | — | |||
Sale services and product distribution | ( | ( | — | |||
Other outsourced services | ( | ( | ( | |||
Board of directors compensations | ( | ( | ( | |||
Board of directors compensations | ( | ( | ( | |||
Marketing and advertising | ( | ( | ( | |||
Taxes, real estate tax and other legal charges | ( | ( | ( | |||
Real estate taxes | ( | ( | ( | |||
Patents | ( | ( | ( | |||
Other taxes (1) | ( | ( | ( | |||
Contributions to CMF | ( | ( | ( | |||
Total | ( | ( | ( | |||
(1) These amounts primarily correspond to taxes other than income taxes that affect Itaú Colombia and its subsidiaries (Colombian segment). These are taxes on local financial transactions, ongoing performance of commercial activities or services, non-discountable value added tax and equity tax, among others.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-142 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 32 – Depreciation, Amortization, and Impairment
a) Depreciation and amortization
The amounts corresponding to charges to results for depreciation and amortization for the years ended December 31, 2022, 2021 and 2020, are detailed below:
For the years ended December 31, | |||||||||
| Notes |
| 2022 |
| 2021 | 2020 |
| ||
| MCh$ | MCh$ | MCh$ | ||||||
Amortization of intangible assets |
| 13 |
| ( | ( | ( |
| ||
Depreciación of property plant and equipment | 14 |
| ( | ( | ( |
| |||
Depreciation of assets for rights to use of assets | 15 | ( | ( | ( | |||||
Totals |
|
|
| ( |
| ( | ( |
| |
b) Impairment
For the years ended December 31, 2022, 2021 and 2020, the composition of this item is as follows:
For the years ended December 31, | ||||||
| 2022 |
| 2021 |
| 2020 | |
| MCh$ | MCh$ | MCh$ | |||
Impairment of financial investments at FVTOCI |
| — |
| — |
| — |
Impairment of financial investments at amortized cost |
| — |
| — |
| — |
Subtotal financial assets |
| — |
| — |
| — |
Impairment of intangible assets (1) | — | — | ( | |||
Impairment of intangibles generated in business combinations (2) | — | — | ( | |||
Impairment of goodwill (3) | — | — | ( | |||
Impairment of property, plant and equipment (4) (5) (6) |
| ( |
| ( |
| ( |
Subtotal Non-financial assets |
| ( |
| ( |
| ( |
Totals |
| ( |
| ( |
| ( |
(1) | Impairment of intangibles due to the integration of the systems in Chile: MCh$ |
(2) | Impairment of intangibles generated in business combinations includes MCh$ |
(3) | Impairment of Goodwill for MCh$ |
(4) | For the year ended December 31, 2020 an impairment of ATM equipment for MCh$ |
(5) | For the year ended December 31, 2020 an impairment of fixed assets due to restructuring plan for MCh$ |
(6) | For the year ended December 31, 2020 an impairment of improvements in leased properties due to restructuring due to the restructuring plan for MCh$ |
The Bank has defined
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-143 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 32 – Depreciation, Amortization, and Impairment, continued
Carrying amount of these CGUs, in a pre-taxes basis before impairment losses recognition, is as follows:
As of December 31, | ||||
CGU |
| 2022 |
| 2021 |
MCh$ | MCh$ | |||
Chile |
| | | |
Colombia |
| | | |
b.1) Goodwill impairment test as of December 31, 2022
i) Impairment test results
| CGU Chile | |||
Goodwill | 2022 | 2021 | ||
MCh$ | MCh$ | |||
Balances as of January 01, | | | ||
Conversion difference | — | — | ||
Impairment | — | — | ||
Balances as of December 31, | | | ||
ii) Methodology used by the Bank
Consistent with prior years, the recoverable amounts of the Chilean CGU have been determined using the discounted dividend model methodology. This methodology considers the cash flow that would be generated by the dividends distributed to shareholders over a perpetual projection horizon, discounted at their cost rate projection horizon, discounted at their cost of capital rate at the valuation date. In this way, it is possible to economic value of equity can be estimated using dividend flow projections derived from financial budgets and other approved assumptions financial budgets and other assumptions approved by management.
In its process to perform the impairment test of Goodwill, Management considered different sources of information, among which the following can be mentioned of information, among which the following can be mentioned:
● | Existing historical information for both banks post-merger and if relevant also pre-merger. The historical information was reconciled considering those events considered as one-time and non-recurring. |
● | Budgets approved by Management. |
● | Information from external sources, such as analysts’ reports, supervisors, Central Banks and press releases. |
● | Observable market information, such as rate curves, inflation and growth projections. |
● | The competitive strategy defined for both banks. |
● | The projected funding structure and its impact on the Bank’s capital requirements and internal policy. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-144 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 32 – Depreciation, Amortization, and Impairment, continued
iii) Assumptions used in calculations of the recoverable amount
The key assumptions used in calculating the recoverable amount, defined as those to which the calculation is most sensitive, are presented below:
As of December, | ||||
2022 | 2021 | |||
| Chile | |||
Perpetuity rate | (%) | | | |
Projected inflation rate (1) | (%) | | | |
Discount rate | (%) | | | |
Loans growth | (%) | |||
Solvency index limit | (%) | |||
● | Projection period and perpetuity |
For 2022, flow projections were performed for a 5-year period through 2027. After this period, a present value of cash flows is calculated for the year 2027, projected to perpetuity using Gross Domestic Product growth rates aligned with those expected for the markets in which the CGUs described above operate.
For the year 2021 the flow projections were made for a period of 5 years until 2026 (2020 – 5 years). After this period, a present value of the flows for the year 2026 is calculated, projected to perpetuity using Gross Domestic Product growth rates aligned with those expected for the markets in which the CGUs described operate.
● | Loans and deposits |
Loans were projected for the periods prior to perpetuity considering an increase in the order of
● | Net income |
Projected net income was estimated based on the sensitization of GDP growth and the effects of inflation with respect to the banking industry, which resulted in a projected growth rate based on the product mix (consumer, housing and commercial loans) and the target market share established by management. The projection of funding costs is mainly determined by the average balances of demand deposits, time deposits and other liabilities.
● | Discount rate |
The discount rate used was the Cost of Equity (Ke) in local currency, which was used to discount the cash flows of each CGU. This calculation considered a premium for country risk, where the CGUs maintain their operations.
● | Perpetuity rate |
A perpetuity growth rate was considered in accordance with the rates observed in the market where each CGU operates. Consequently, they were constructed considering local inflation and nominal GDP growth projections.
● | Dividend payment |
Dividend payments were made maximizing shareholder cash flows, taking as a restriction that the solvency indicator (ratio of technical equity to risk-weighted assets) should not be below the limits required by regulatory entities. Thus, a dividend for the Chilean CGU was considered to be
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-145 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 32 – Depreciation, Amortization, and Impairment, continued
was considered, while for the year ended December 31, 2021 a dividend for Chile CGU of
iv) Impairment loss recognition
As a result of the impairment testing process described above, management concludes that the relation of the recoverable amount and its carrying amount for the Chile CGUs as of December 31, 2022, is as follow:
As of December 31, | ||||
2022 | 2021 | |||
| Chile |
| Chile | |
Recoverable Amount / Carrying Value | (%) | | | |
The recoverable amount for the CGU corresponds to the value in use, since it is the highest amount when comparing the fair value less costs to sell and the value in use.
As of December 31, 2022, Management has not identified an impairment charge that should be recognized in these Consolidated Financial Statements.
v) Reconciliation of rates before and after taxes.
The Bank has used the cost of equity (Ke) rate as the discount rate in its calculation of the recoverable amount, a rate that is observable after tax recoverable amount, a rate that is observable after tax. The following table shows the effect of considering the pre-tax cash flows and discount rate:
As of December 31, | |||||
2022 | 2021 | ||||
| Chile |
| Chile | ||
Discount rates | (%) | ||||
Recoverable amount/Carrying value | (%) | |
| | |
b.2) Impairment test results and impairment losses recognition as of June 30, 2020
i) Impairment test results
Impairmente of intangible assets (1) | CGU Chile | CGU Colombia | Totals |
MCh$ | MCh$ | MCh$ | |
Goodwill impairment loss | | | |
Intangibles assets generated in a business combination impairment loss | — | | |
Total impairment of Chile and Colombia CGUs | | | |
(1) | As reported in 2016 in the original recognition of the business combination between Banco Itaú Chile and Corpbanca, as described in Note 1, resulted in a registration of a goodwill not deductible for income tax purposes, therefore, the recognition of impairment loss does not generate effects on tax results. On the other hand, the intangibles assets generated in the business combination had an associated deferred tax liability of Ch$ |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-146 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 32 – Depreciation, Amortization, and Impairment, continued
ii) Goodwill allocation
The Goodwill allocated to each of the identified CGUs generated in the reverse acquisition described in Note 1, section “General Information – Background of Banco Itaú Chile and subsidiaries”, and the movements experienced during the year, are presented below:
Goodwill | Chile CGU | Colombia CGU |
MCh$ | MCh$ | |
Balances as of January 1, 2020 | | |
Exchange differences | — | ( |
Impairment | ( | ( |
Ending balances as of December 31, 2020 | | — |
(1) | Goodwill generated by the acquisition of a business combination (Colombia) is expressed in the functional currency of the aforementioned business (Colombian peso), converted at the closing exchange rate (exchange rate COP to Ch$ for the purpose of accounting recognition in Chile) in accordance with IAS 21 “Effects of Changes in Exchange Rates of the Foreign Currency” (see Note 13). Figures presented as of June 30, 2020 have been adjusted to their recoverable amount, recognizing an impairment loss in accordance with the aforementioned information. |
iii) Methodology used by the Bank
Consistent with the prior year, the recoverable amounts of Chile CGU and Colombia CGU have been determined using the dividend discount model. This methodology considers the cash flows that would be generated by dividends distributed to shareholders at perpetuity, discounted to their cost of capital rate as of the valuation date. Therefore, the economic value of equity can be estimated using cash flow projections derived from financial budgets and other assumptions approved by management.
In testing goodwill for impairment, management considered different sources of information, including:
● | Historical information existing for both Banks post-merger and, if relevant, pre-merger. Historical information for events assessed as one-time and non-recurring was excluded. |
● | Assumptions approved by management. |
● | Information from external sources such as analyst reports, regulators, central Banks and press releases. |
● | Observable market information such as rate curves, inflation and growth projections. |
● | The competitive strategy defined for both Banks. |
● | The projected funding structure and its impact on the Bank’s capital requirements and internal policy |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-147 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 32 – Depreciation, Amortization, and Impairment, continued
iv) Key assumptions used in calculating the recoverable amount.
The key assumptions used in calculating recoverable amount, defined as those variables to which the calculation is more sensitive, are presented below:
As of June 30, 2020 | ||||||
| Chile |
| Colombia | |||
Perpetuity rate | (%) | | | |||
Projected inflation rate (1) | (%) | |
| | ||
Discount rate | (%) | |
| | ||
Loans growth | (%) | |
| |||
Solvency index limit | (%) |
| ||||
(1) Corresponds to the long-term projected inflation rate.
● | Period of Projection and Perpetuity |
When performing the goodwill impairment in June 2020, cash flow projections are prepared for a period of 5 years from 2020 to 2025. After this period, the present value of cash flows for the year 2024 are calculated, projected to perpetuity using GDP growth rates expected for the markets in which the aforementioned CGUs operate.
● | Loans and deposits |
Loans were projected considering an increase of around
● | Income |
Interest and fee income were projected in line with loans, modeling interest rates and commissions expected for each portfolio and type of product. Other relevant macroeconomic variables were also considered such as inflation and base interest rates.
● | Costs of funding |
The cost projections are mainly determined based on demand deposits and term deposits balances, considering an annual average ratio of
● | Discount rate |
Estimated as the discount rate of the Cost of Capital (Ke) in local currency, which was used to discount the cash flows of each CGU. This calculation considers a premium for the risk of the country for each CGU.
● | Perpetuity rate |
The perpetuity growth rates are aligned with the growth of the economy in both jurisdictions. Consequently, these were built considering local inflation and GDP growth projections
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-148 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 32 – Depreciation, Amortization, and Impairment, continued
● | Dividend payment |
The payment of dividends was made by maximizing the cash flows of the shareholder taking as a restriction that the solvency indicator (ratio of technical equity with risk-weighted assets) does not fall below the minimum limits required by the regulatory entities. In this way, a dividend for the CGU of Chile of
v) Impairment test results
As a result of the impairment test performed, Management concludes that the recoverable amount of the CGUs exceeds their carrying amount, as shown in the following table:
As of June 30, 2021 | ||||
Main assumptions |
| Chile |
| Colombia |
Recoverable Amount / Carrying Value | (%) | | | |
vi) Reconciliation of rates before and after taxes
The Bank has used the cost of own capital (Ke) rate as a discount rate in its calculation of the recoverable amount, a rate that is observable after taxes. The following table shows the effect of considering the flows and the discount rate before taxes.
As of June 30, 2020 | ||||
| Chile |
| Colombia | |
Discount rates | (%) | | | |
Perpetuity growth rate | (%) | |
| |
As of December 31, 2020, the Bank has updated the impairment test in order to determine the impairment at the end of this fiscal year and concluded that there was no need to record an additional goodwill impairment loss.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-149 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 33 – Other Operating Income and Expenses
a) Other operating income
The detail of other operating income is as follows:
For the years ended December 31, | ||||||
2022 | 2021 | 2020 | ||||
| MCh$ |
| MCh$ |
| MCh$ | |
Income from assets received in lieu of payment |
|
|
| |||
Gain on sales of assets received in lieu of payment |
| |
| |
| |
Other income |
| |
| |
| |
Subtotals |
| | | | ||
Other income |
|
|
|
|
|
|
Compensations from insurance companies |
| — |
| |
| |
Lease contracts related income | | | | |||
Gain on sale of property, plant and equipment |
| — |
| |
| |
Recovery of leased assets |
| — |
| — |
| |
Other leasing transactions operating income, subsidiaries |
| |
| |
| |
Gain on sale of leased assets |
| |
| |
| |
Other operating income |
| |
| |
| |
Revenue from insurance companies agreement |
| — |
| |
| |
Income from recovery of foreign expenses |
| |
| |
| |
Recoveries from expenses provisions |
| |
| |
| |
Other minor income | | | | |||
Other income |
| |
| |
| |
Subtotals |
| |
| |
| |
Totals |
| |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-150 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 33 – Other Operating Income and Expenses continued
b) Other operating expenses
During the years ended December 31, 2022, 2021 and 2020, the Bank presents other operating expenses according to the following detail:
For the years ended December 31, | ||||||
2022 | 2021 | 2020 | ||||
| MCh$ |
| MCh$ |
| MCh$ | |
Provisions for assets received in lieu of payment | ( | ( | ( | |||
Maintenance expenses for assets received in lieu of payment | ( |
| ( |
| ( | |
Subtotals | ( |
| ( |
| ( | |
Provisions for contingencies |
|
|
|
| ||
Other provisions for contingencies | ( |
| ( |
| ( | |
Subtotals | ( |
| ( |
| ( | |
Other expenses |
|
|
|
| ||
Loss on sale of property, plant and equipment | |
| ( |
| ( | |
Restructuring costs | — | ( | ( | |||
Operating expenses | ( |
| ( |
| ( | |
Insurance expense (law 20,027) | ( |
| ( |
| ( | |
Provision expense for recovered leased assets | ( |
| ( |
| ( | |
Expenses and losses on sale of assets | ( | ( | ( | |||
Banking expenses | ( |
| ( |
| ( | |
Fines and penalties | ( |
| ( |
| ( | |
Loss on damaged assets | — |
| — |
| — | |
Other expenses | ( |
| ( |
| ( | |
Subtotals | ( |
| ( |
| ( | |
Totals | ( |
| ( |
| ( | |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-151 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 34 – Related Party Transactions
In accordance with the provisions set forth in the Chilean General Banking Law and the instructions issued by the CMF, related parties are those individuals or corporations related to the ownership or management of the Institution directly or through third parties.
Article 89 of the Ley de Sociedades Anónimas (Chilean Companies Law), which also applies to Banks, establishes that any transaction with a related party must be carried out on an arm’s length basis.
In the case of sociedades anónimas abiertas (publicly traded companies) and their subsidiaries, transactions with related parties involve any negotiation, act, contract or transaction in which the company must intervene; the following are considered as parties related to them: those entities of the corporate group to which the company belongs; the corporations that, with respect to the company, have the status as parent, controlling entity, affiliate, subsidiary; the Directors, Managers, Administrators, Chief Executive Officer or Liquidators of the company, acting in their own names or on behalf of individuals other than the company, and their respective spouses or their relatives up to the second degree of consanguinity, as well as any entity controlled either directly or indirectly, through any of them; and any person who either acting individually or jointly with others with whom it has executed a joint operation agreement, may appoint at least one member of the management of the company or controls 10% or more of its capital stock, with the right to vote, in the case of a sociedad por acciones (stock corporation); those established by the bylaws of the company, or justifiably identified by the Directors’ Committee; and those in which it has acted as Director, Manager, Administrator, Chief Executive Officer or Liquidator of the company, during the last eighteen months. Article 147 of the Ley de Sociedades Anónimas (Chilean Companies Law) sets forth that a sociedad anónima abierta (publicly traded company) may only carry out transactions with related parties when they are intended to contribute to the corporate interest, are adjusted in the price, terms and conditions to those prevailing in the market at the time of their approval and comply with the requirements and the procedure indicated by it. Moreover, Article 84 of the Chilean General Banking Law establishes limits for the loans that may be granted to related parties and the prohibition to grant loans to the Directors, Managers or General Attorneys of the Bank
a) Loans granted to related parties
As of December 31, 2022 and 2021, the loans granted to related persons are detailed below:
As of December 31, 2022 | As of December 31, 2021 | |||||||||||
Productive | Investment | Productive | Investment | |||||||||
companies | companies | Individuals | companies | companies | Individuals | |||||||
| MCh$ |
| MCh$ |
| MCh$ |
|
| MCh$ |
| MCh$ | ||
Loans and accounts receivable from customers |
|
|
|
|
| |||||||
Commercial loans |
| — | | | |
| | | ||||
Mortgage loans |
| — | — | | — | — | | |||||
Consumer loans |
| — | — | | — |
| — | | ||||
Gross loans and accounts receivable from customers |
| — |
| |
| | |
| |
| | |
Allowance for loan losses |
| — | ( | ( | ( |
| ( | ( | ||||
Loans and receivables to customers, net |
| — |
| |
| | |
| |
| | |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-152 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 34 – Related Party Transactions, continued
b) Other transactions and contracts with related parties
Below are the balances as of December 31, 2022, 2021 and 2020, for transactions with related parties and the impact on results for the years ended December 31, 2022, 2021 and 2020:
As of and for the year ended December 31, 2022 | ||||||||
Balances receivable | Effect on income (loss) | |||||||
Name or Corporate Name |
| Description |
| (payable) |
| Income | Expense | |
MCh$ | MCh$ | MCh$ | ||||||
Centro Cultural Corpgroup SpA (1) | Sponsors | — | — | ( | ||||
Combanc S.A. |
| Data transmission services |
| — | — | ( | ||
Comder Contraparte Central S.A |
| Banking services |
| — | — | ( | ||
Corp Group Holding Inversiones Ltda (1) |
| Advisory services |
| — | — | ( | ||
Inmobiliaria Gabriela S.A | Other services | ( | — | — | ||||
Inversiones Corp Group Interhold Ltda. (1) |
| Administrative consulting |
| — | — | ( | ||
Itau BBA securities NY | Buisness management reimbursement | | | — | ||||
Itaú Chile Inv. Serv. y Administración S.A. |
| Leases |
| ( | — | ( | ||
Itaú Unibanco | Business management reimbursement | — | — | ( | ||||
Banco Itaú International | Business management reimbursement | | | — | ||||
Banco Itaú (Suisse) S.A. | Business management reimbursement | | | — | ||||
Operadora Tarjeta de Crédito Nexus S.A. |
| Credit card management |
| — | — | ( | ||
Redbanc S.A. | ATM management | — | — | ( | ||||
Transbank S.A. |
| Credit card management |
| — | — | ( | ||
These transactions were carried out at normal market prices prevailing on the date of the transactions.
(1) As informed by a Material Event dated July 14, 2022, on June 3, 2022, Banco Itaú Chile, Itaú Unibanco Holding S.A., CorpGroup Interhold SpA, Inversiones Gasa Limitada and other entities related to CG Banking entered into a “Termination Letter”, in order to terminate, among others, the Transaction Agreement entered into by and between the same parties on January 29, 2014, as amended on June 2, 2015 and on January 20, 2017 (the “Transaction Agreement” or the “TA”), The Termination Letter took effect on July 14, 2022.
The Termination Letter contained, among other things, the following agreements:
- | The termination, effective December 31, 2022, of the technical and professional advisory agreements entered into with Inversiones CorpGroup Interhold Ltda, (formerly CorpGroup Interhold S.A.) on July 6, 2001 (as amended on January 27, 2014 and on October 30, 2015), with Inversiones CorpGroup Interhold Ltda, (formerly CorpGroup Interhold S.A. ) on April 10, 2008 (as amended on January 27, 2014) and with CorpGroup Holding Inversiones Limitada on March 27, 2012 (as amended on January 27, 2014 and on October 30, 2015). |
- | Maintain in force the Sponsorship Agreement entered into on January 28, 2011 (and amended on January 27, 2014) between Inmobiliaria Edificio CorpGroup S.A. and Corpbanca, which was assigned on October 16, 2020 to Centro Cultural CorpGroup SpA, until July 31, 2024, in accordance with its current terms. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-153 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 34 – Related Party Transactions, continued
As of and for the year ended December 31, 2021 | ||||||||
Balances receivable | Effect on income (loss) | |||||||
Name or Corporate Name |
| Description |
| (payable) |
| Income | Expense | |
MCh$ | MCh$ | MCh$ | ||||||
Combanc S.A. |
| Data transmission services |
| — | — | ( | ||
Comder Contraparte Central S.A |
| Banking services |
| — | — | ( | ||
Corp Group Holding Inversiones Ltda |
| Advisory services |
| — | — | ( | ||
Inmobiliaria Edificio Corpgroup S.A. |
| Office lease and building fees |
| ( | — | ( | ||
Inmobiliaria Gabriela S.A | Other services | ( | — | ( | ||||
Inversiones Corp Group Interhold Ltda. |
| Administrative consulting |
| — | — | ( | ||
Itau BBA securities NY | Buisness management reimbursement | | | — | ||||
Itaú Chile Inv. Serv. y Administración S.A. |
| Leases |
| ( | — | ( | ||
Itaú Unibanco | Business management reimbursement | — | — | ( | ||||
Operadora Tarjeta de Crédito Nexus S.A. |
| Credit card management |
| — | — | ( | ||
Pulso Editorial S.A. |
| Publishing services |
| — | — | ( | ||
Redbanc S.A. | ATM management | — | — | ( | ||||
SMU S.A., Rendic Hnos. S.A. |
| Lease of ATM (Note 17) |
| — | — | ( | ||
Transbank S.A. |
| Credit card management |
| — | — | ( | ||
As of and for the year ended December 31, 2020 | ||||||||
Balances receivable | Effect on income (loss) | |||||||
Name or Corporate Name |
| Description |
| (payable) |
| Income |
| Expense |
MCh$ | MCh$ | MCh$ | ||||||
Adexus S.A. |
| Data transmission services |
| — | — | ( | ||
Bcycle Latam SPA |
| Administrative consulting |
| — | — | ( | ||
Combanc S.A. |
| Data transmission services |
| — | — | ( | ||
Comder Contraparte Central S.A |
| Banking services |
| — | — | ( | ||
Compañía Chilena de Televisión S.A. | Tv broadcasting services | — | — | ( | ||||
Corp Group Holding Inversiones Limitada |
| Advisory services |
| — | — | ( | ||
Hotel Corporation of Chile S.A. |
| Hotel, events |
| — | — | ( | ||
Inmobiliaria Edificio Corpgroup S.A. |
| Office lease and building fees |
| ( | — | ( | ||
Inmobiliaria Gabriela S.A | Other services | ( | — | ( | ||||
Inversiones Corp Group Interhold Ltda. |
| Administrative consulting |
| — | — | ( | ||
Itaú Chile Inv. Serv. y Administración S.A. |
| Leases |
| ( | — | ( | ||
Itaú Unibanco | Business management reimbursement | | | — | ||||
Operadora de Tarjeta de Crédito Nexus S.A. |
| Credit card management |
| — | — | ( | ||
Pulso Editorial S.A. |
| Publishing services |
| — | — | ( | ||
Redbanc S.A. | ATM management | — | — | ( | ||||
SMU S.A., Rendic Hnos. S.A. |
| Lease of ATM (Note 17) |
| | — | ( | ||
Transbank S.A. |
| Credit card management |
| — | — | ( | ||
These transactions were carried out at normal market prices prevailing at the day of the transactions.
Note 34 – Related Party Transactions, continued
c) Donations
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-154 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
For the years ended December 31, | |||||||||
Name or corporate name |
| Description |
| 2022 |
| 2021 | 2020 |
| |
MCh$ | MCh$ | MCh$ | |||||||
Fundación Corpgroup Centro Cultural |
| Donations | |
| | |
| ||
Fundación Descúbreme |
| Donations | |
| | |
| ||
Fundación Itaú |
| Donations | |
| | | |||
Totales | |
| | |
| ||||
d) Other assets and liabilities with related parties.
As of December 31, | ||||
| 2022 |
| 2021 | |
MCh$ | MCh$ | |||
Assets | ||||
Derivative financial instruments |
| — |
| |
Other assets |
| — |
| |
Total Assets | — | | ||
Liabilities |
| |||
Derivative financial instruments |
| — |
| |
Current accounts and demand deposits |
| |
| |
Time deposits and saving accounts |
| |
| |
Other liabilities |
| — |
| |
Total Liabilities |
| |
| |
e) Results of transactions with related parties
For the years ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Type of recognized income or expense |
| Income |
| Expenses |
| Income | Expenses |
| Income |
| Expenses | |
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Interest and readjustments income (expenses) | | ( |
| | ( | | ( | |||||
Fee and commissions income and (expenses) |
| | ( |
| | — | | — | ||||
Net income (loss) from financial operations |
| | ( |
| | ( | | ( | ||||
Operational support related income |
| — | ( |
| | — | | — | ||||
Other income and (expenses) |
| | — |
| | ( | | ( | ||||
Totals |
| |
| ( |
| | ( |
| |
| ( | |
f) Payments to Board members and key management personnel.
Compensation received by key personnel of Management as follow:
As of December 31, | ||||||
| 2022 |
| 2021 |
| 2020 | |
MCh$ | MCh$ | MCh$ | ||||
Board of directors compensations | ( | ( | ( | |||
Short-term employee benefits | |
| |
| | |
Post-employment benefits |
| — |
| — |
| — |
Other long-term benefits |
| |
| |
| — |
Compensation for termination of contract |
| |
| |
| |
Totals |
| |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-155 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 34 – Related Party Transactions, continued
g) Key personnel
As of December 31, 2022 and 2021, the headcount of the Bank’s key staff is composed as follows:
Number of executives | ||||
As of December 31, | ||||
Position |
| 2022 |
| 2021 |
Board Member | |
| | |
Chief Executive Officer |
| |
| |
Corporate Director |
| |
| |
Area Manager |
| |
| |
Totals |
| |
| |
h) Transactions with key personnel
The next transactions has been realized during the years ended December 31, 2022 and 2021:
As of December 31, | ||||
| 2022 |
| 2021 | |
MCh$ | MCh$ | |||
Credits cards | |
| | |
Consumer loans | |
| | |
Commercial loans | |
| | |
Mortgage loans | |
| | |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-156 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities
This disclosure was prepared based on the guidelines “Fair Value of Financial Instruments” from the IFRS 13 “Fair Value Measurements”.
The following section details the main guidelines and definitions used by the Bank:
Fair value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The transaction is carried out in the principal2 or most advantageous3 market and is not forced (i.e. it does not consider factors specific to the Bank that may influence a real transaction).
Market participants: Buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics:
a) | They are independent of each other, i.e. they are not related parties as defined in IAS 24 “Related Party Disclosures,” although the price in a related party transaction may be used as an input to a fair value measurement if the entity has evidence that the transaction was entered into at market terms. |
b) | They are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information, including information that might be obtained through due diligence efforts that are usual and customary. |
c) | They are able to enter into a transaction for the asset or liability. |
d) | They are willing to enter into a transaction for the asset or liability (i.e. they are motivated, but not forced or otherwise compelled, to do so). |
Fair value measurement: When measuring fair value, the Bank takes into account the same characteristics of the asset or liability that market participants would consider in pricing that asset or liability on the measurement date.
Aspects of the transaction: A fair value measurement assumes that the asset or liability is exchanged in an orderly transaction between market participants to sell the asset or transfer the liability at the measurement date under current market conditions. The measurement assumes that the transaction to sell the asset or transfer the liability takes place: (a) on the principal market for the asset or liability; or (b) in the absence of a principal market, on the most advantageous market for the asset or liability.
Market participants: The fair value measurement measures the fair value of the asset or liability using the assumptions that the market participants would use in pricing the asset or liability, assuming that the participants act in their best economic interest.
Prices: Fair value is the price that will be received for the sale of an asset or paid for the transfer of a liability in an orderly transaction on the main (or most advantageous) market as of the measurement date under current market conditions (i.e. exit price) regardless of whether that price is directly observable or estimated using another valuation technique.
2 | The market with the greatest volume and level of activity for the asset or liability |
3 | The market that maximizes the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-157 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
Highest and best use of non-financial assets: The fair value measurement of these assets takes into account the market participant’s ability to generate economic benefits through the highest and best use of the asset or through the sale of the asset to another market participant that would maximize the value of the asset.
Bank’s own liabilities and equity instruments: The fair value measurement assumes that these items are transferred to a market participant on the date of measurement. The transfer of these items assumes that:
a) | A liability would remain outstanding and the market participant transferee would be required to fulfill the obligation. The liability would not be settled with the counterparty or otherwise extinguished on the measurement date. |
b) | An entity’s own equity instrument would remain outstanding and the market participant transferee would take on the rights and responsibilities associated with the instrument. The instrument would not be cancelled or otherwise extinguished on the measurement date. |
Default risk: The fair value of a liability reflects the effect of the default risk. This risk includes, but is not limited to, the entity’s own credit risk. This risk is assumed to be the same before and after the liability is transferred.
Initial recognition: When an asset is acquired or a liability assumed in an exchange transaction involving that asset or liability, the transaction price is the price paid to acquire the asset or received to assume the liability (the entry price). In contrast, the fair value of the asset or liability is the price received to sell the asset or paid to transfer the liability (the exit price). Entities do not necessarily sell assets at the prices paid to acquire them. Likewise, they do not necessarily transfer liabilities at the price received to assume them.
Valuation techniques: The Bank will use techniques that are appropriate for the circumstances and for which sufficient data is available to measure the fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. The following approaches deserve mention:
a) | Market approach. Uses prices and other relevant information generated by market transactions involving identical or comparable (similar) assets, liabilities, or a Bank of assets and liabilities (e.g. a business). |
b) | Income approach. Converts future amounts (cash flows or income and expenses) to a single current (discounted) amount, reflecting current market expectations about those future amounts. The fair value measurement is determined based on the value indicated by the current market expectations about those future amounts. |
c) | Cost approach. Reflects the amount that would be required currently to replace the service capacity of an asset (current replacement cost). |
Present value techniques: Technique to adjust the discount rate and expected cash flows (expected present value). The present value technique used to measure the fair value will depend on the specific facts and circumstances of the asset or liability being measured and the availability of sufficient data.
Components of the present value measurement: Present value is the tool used to link future amounts (e.g. cash flows or values) to a present amount using a discount rate. A fair value measurement of an asset or a liability using a present value technique captures all the following elements from the perspective of market participants at the measurement date:
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-158 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
a) | An estimate of future cash flows for the asset or liability being measured. |
b) | Expectations about possible variations in the amount and timing of the cash flows representing the uncertainty inherent in the cash flows. |
c) | The time value of money, represented by the rate on risk-free monetary assets that have maturity dates or durations that coincide with the period covered by the cash flows and pose neither uncertainty in timing nor risk of default to the holder (i.e. a risk-free interest rate). |
d) | The price for bearing the uncertainty inherent in the cash flows (i.e. a risk premium). |
e) | Other factors that market participants would take into account in the circumstances. |
f) | For a liability, the non-performance risk relating to that liability, including the entity’s (i.e. the debtor’s) own credit risk. |
Fair value hierarchy: Gives the highest priority to quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1 inputs) and lowest priority to unobservable inputs (Level 3 inputs). Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
The following tables summarizes the fair values of the Bank’s main financial assets and liabilities as of December 31, 2022 and 2021, including those that are not recorded at fair value in the Consolidated Statement of Financial Position.
Determination of the fair value as of December 31, 2022 and 2021
As of December 31, 2022 | ||||||
Estimated fair value | ||||||
| Book value |
| Recurring |
| Non-recurring (1) | |
MCh$ | MCh$ | MCh$ | ||||
Assets | ||||||
Cash and deposits in banks |
| |
| — | | |
Cash items in process of collection |
| |
| — | | |
Financial instruments at fair value through profit or loss |
| |
| | — | |
Financial instruments at fair value through other comprehensive income |
| |
| | — | |
Loans and accounts receivable at amortized cost |
| |
| — | | |
Financial instruments at amortized cost |
| |
| — | | |
Investments under resale agreements |
| |
| — | | |
Financial derivatives contracts held for trading |
| |
| | — | |
Financial derivatives contracts held for hedge accounting | | | — | |||
Interbank loans, net |
| |
| — | | |
Totals Assets |
| |
| |
| |
Liabilities |
|
|
|
|
|
|
Deposits and other demand liabilities |
| | — | | ||
Cash in process of being cleared |
| | — | | ||
Obligations under repurchase agreements |
| | — | | ||
Time deposits and other time liabilities |
| | — | | ||
Financial derivatives contracts held for trading |
| | | — | ||
Financial derivatives contracts held for hedge accounting | | | — | |||
Interbank borrowings |
| | — | | ||
Debt instruments issued |
| | — | | ||
Financial instruments of regulatory capital issued | | — | | |||
Lease contract liabilities | | — | | |||
Other financial liabilities |
| | — | | ||
Totals Liabilities |
| |
| |
| |
(1) Non-recurring items correspond to those line items that are carried at cost, but their corresponding fair value has been estimated for disclosure purposes only.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-159 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
As of December 31, 2021 | ||||||
Estimated fair value | ||||||
| Book value |
| Recurring |
| Non-recurring(1) | |
MCh$ | MCh$ | MCh$ | ||||
Assets | ||||||
Cash and deposits in banks |
| |
| — |
| |
Cash items in process of collection |
| |
| — |
| |
Financial instruments at fair value through profit or loss |
| |
| |
| — |
Financial instruments at fair value through other comprehensive income |
| |
| |
| — |
Loans and accounts receivable at amortized cost |
| |
| — |
| |
Financial instruments at amortized cost |
| |
| — |
| |
Investments under resale agreements |
| |
| — |
| |
Financial derivatives contracts held for trading |
| |
| |
| — |
Financial derivatives contracts held for hedge accounting | | | — | |||
Interbank loans, net |
| |
| — |
| |
Totals Assets |
| |
| |
| |
Liabilities |
|
|
|
|
|
|
Deposits and other demand liabilities |
| |
| — |
| |
Cash in process of being cleared |
| |
| — |
| |
Obligations under repurchase agreements |
| |
| — |
| |
Time deposits and other time liabilities |
| |
| — |
| |
Financial derivatives contracts held for trading |
| |
| |
| — |
Financial derivatives contracts held for hedge accounting | | | — | |||
Interbank borrowings |
| |
| — |
| |
Debt instruments issued |
| |
| — |
| |
Financial instruments of regulatory capital issued | | — | | |||
Lease contract liabilities | |
| — |
| | |
Other financial liabilities |
| |
| — |
| |
Totals Liabilities |
| |
| |
| |
(1) Non-recurring items correspond to those line items that are carried at cost, but their corresponding fair value has been estimated for disclosure purposes only.
Fair Value Measurements of assets and liabilities only for disclosure purposes (non-recurring) :
| As of December 31, | |||
Non-recurring fair value measurement | 2022 | 2021 | ||
MCh$ | MCh$ | |||
Assets |
|
|
|
|
Cash and deposits in banks |
| |
| |
Cash items in process of collection |
| |
| |
Loans and accounts receivable at amortized cost |
| |
| |
Investments under resale agreements |
| |
| |
Interbank loans, net |
| |
| |
Financial instruments at amortized cost |
| |
| |
Totals Assets |
| |
| |
Liabilities |
|
|
|
|
Deposits and other demand liabilities |
| |
| |
Cash in process of being cleared |
| |
| |
Obligations under repurchase agreements |
| |
| |
Time deposits and other time liabilities |
| |
| |
Interbank borrowings |
| |
| |
Debt instruments issued |
| |
| |
Financial instruments of regulatory capital issued | | | ||
Lease contract liabilities | | | ||
Other financial obligations |
| |
| |
Totals Liabilities |
| |
| |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-160 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
The following section describes the methods used to estimate fair value:
Cash, short-term assets and short-term liabilities
The fair value of these items approximates their book value given their short-term nature. These items include:
● | Cash and deposits in Banks |
● | Cash in the process of collection |
● | Financial instruments at fair value through profit or loss |
● | Deposits and other demand liabilities |
● | Other financial obligations |
Loans
The fair value of loans is determined using a discounted cash flow analysis, using a risk-free interest rate adjusted for expected losses from debtors based on their credit quality. The credit risk adjustment is based on the Bank’s credit risk policies and methodologies: These items include:
● | Interbank loans |
● | Loans and accounts receivable at amortized cost |
Financial instruments at amortized cost
The estimated fair value of these financial instruments is determined using quotes and transactions observed in the main market for identical instruments, or in their absence, for similar instruments. Fair value estimates of debt instruments or securities representative of debt take into account additional variables and inputs to the extent that they apply, including estimates of prepayment rates and the credit risk of issuers.
Medium and long-term liabilities
The fair value of medium and long-term liabilities is determined using a discounted cash flow analysis, using an interest rate curve that reflects current market conditions at which the entity’s debt instruments are traded. Medium and long-term liabilities include:
● | Time deposits and other time liabilities |
● | Interbank borrowings |
● | Debt instruments issued |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-161 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
Fair Value measurement of financial assets and liabilities (recurring):
| As of December 31, | |||
Fair value measurement of recurring items | 2022 | 2021 | ||
MCh$ | MCh$ | |||
Assets |
|
|
|
|
Financial instruments at fair value through profit or loss |
| |
| |
Central Bank of Chile and Government securities |
| |
| |
Other securities issued in Chile |
| |
| |
Foreign government and Central Bank instruments |
| |
| |
Other instruments issued abroad |
| |
| |
Investments in mutual funds |
| |
| |
Financial assets not held for trading valued mandatorily at fair value through profit or loss | | — | ||
Other financial instruments at FVTPL |
| |
| |
Financial instruments at fair value through other comprehensive income |
| |
| |
Central Bank of Chile and Government securities |
| |
| |
Other securities issued in Chile |
| |
| |
Foreign government and Central Bank instruments |
| |
| |
Other instruments issued abroad |
| |
| |
Other investments at FVOCI |
| |
| |
Financial derivative contracts |
| |
| |
Forwards |
| |
| |
Swaps |
| |
| |
Call options |
| |
| |
Put options |
| — |
| — |
Totals Assets |
| |
| |
Liabilities |
|
|
|
|
Financial derivative contracts |
| |
| |
Forwards |
| |
| |
Swaps |
| |
| |
Call options |
| |
| |
Put options |
| |
| |
Totals Liabilities |
| |
| |
Financial Instruments
The estimated fair value of these financial instruments is determined using quotes and transactions observed in the main market for identical instruments, or in their absence, for similar instruments. Fair value estimates of debt instruments or securities representative of debt take into account additional variables and inputs to the extent that they apply, including estimates of prepayment rates and the credit risk of issuers. These financial instruments are classified as follows:
● | Financial instruments at fair value through profit or loss |
● | Financial instruments at fair value through other comprehensive income |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-162 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
Financial Derivative Instruments
The estimated fair value of derivative instruments is calculated using prices quoted in the market for financial instruments with similar characteristics. Therefore, the methodology recognizes the credit risk of each counterparty.
The adjustments are known internationally as the counterparty value adjustment (“CVA”), which consists of an adjustment for debtor risk (credit value adjustment or CVA) and for creditor risk (debit value adjustment or “DVA”). The sum of these adjustments gives the effective counterparty risk that the derivative contract must have.
These adjustments are recorded periodically in the financial statements. As of December 2022, 2021 and 2020, the portfolio of derivative contracts in both Chile and Colombia is detailed as follows:
As of December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
| CVA |
| DVA |
| CVA |
| DVA |
| CVA |
| DVA | |
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Derivatives held for hedging |
| — | — |
| — | — |
| — | — | |||
Fair value hedge |
|
|
|
| — |
| — | |||||
Currency forwards |
| — | — |
| — |
| — |
| — |
| — | |
Currency swaps |
| — | — |
| — |
| — |
| — |
| — | |
Interest rate swaps |
| — | — |
| — |
| — |
| — |
| — | |
Cash flow hedge |
| — |
|
| — |
| — |
| — | |||
Currency forwards |
| — | — |
| — |
| — |
| — |
| — | |
Currency swaps |
| — | — |
| — |
| — |
| — |
| — | |
Interest rate swaps |
| — | — |
| — |
| — |
| — |
| — | |
Hedge of net investments in a foreign operation |
| — | — |
| — |
| — |
| — |
| — | |
Currency forwards |
| — | — |
| — |
| — |
| — |
| — | |
Currency swaps |
| — | — |
| — |
| — |
| — |
| — | |
Interest rate swaps |
| — | — |
| — |
| — |
| — |
| — | |
Derivatives held for trading |
| ( |
| |
| ( |
| |
| ( |
| |
Currency forwards |
| ( | |
| ( |
| |
| ( |
| | |
Currency swaps |
| ( | |
| ( | |
| ( |
| | ||
Interest rate swaps |
| ( | |
| ( | |
| ( | | |||
Call currency options |
| — | — |
| — | — |
| — |
| — | ||
Put currency options |
| — | — |
| — | — |
| — |
| — | ||
Total financial derivative contracts |
| ( | |
| ( |
| |
| ( |
| | |
Fair value hierarchy
IFRS 13 establishes a fair value hierarchy that classifies assets and liabilities based on the characteristics of the data that the technique requires for its valuation:
Level 1:
Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Entity can access at the measurement date. The inputs needed to value the instruments in this category are available daily and used directly.
In the case of currency, shares and mutual funds, prices are observed directly in over-the-counter (OTC) markets and the stock exchange. These prices correspond to the values at which the exact same assets are traded. As a result, the portfolio valuation does not require assumptions or models of any type.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-163 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
For instruments issued by the Central Bank of Chile and the Chilean Treasury, a price provider is used, which corresponds to a public quotation. The comparative prices are defined under the criterion of similarity in duration, type of currency and they are traded equivalently on a daily basis. The valuation of these instruments is identical to the Stock Exchange Comercio de Santiago, which is a standard and international methodology. This methodology uses the rate of internal return to discount the flows of the instrument.
Level 2:
The specific instrument does not have daily quotes. However, similar instruments can be observed (e.g. same issuer, different maturity; or different issuer, same maturity and risk rating). In general, they are diverse combinations of pseudo-arbitration. Although the inputs are not directly observable, observable inputs are available with the needed periodicity.
In this category, instruments are valued by discounting contractual cash flows based on a zero-coupon curve determined through the price of instruments with similar characteristics and a similar issuer risk. The income approach is used, which converts future amounts to present amounts.
For derivative instruments within this category, quotes from over-the-counter (OTC) transactions reported by the most important brokers in the Chilean market and the Bloomberg platform are used. The inputs observed include forward prices, interest rates and volatilities. Based on these inputs, market curves are modeled. They are a numerical representation of the opportunity costs of the instrument’s cash flows or the price volatility of an asset. Finally, cash flows are discounted.
The Black and Scholes model is used for options based on prices of brokers in the Over-The-Counter market. For money market instruments, prices of transactions on the Santiago Stock Exchange are observed and used to model market curves.
For corporate or Bank bonds, given the lack of market depth, the Bank uses transactions (if any) in the Chilean market, on foreign markets, zero-coupon curves of risk-free instruments, adjustment curves, spread modeling, correlation with similar financial instruments, etc. and creates market curves for use in the final result. These market curves are provided by a pricing supplier and are widely accepted by the market, regulators and scholars.
Level 3:
Inputs are unobservable inputs for the asset or liability.
This is used when prices, data or necessary inputs are not directly or indirectly observable for similar instruments for the asset or liability as of the valuation date. These fair value valuation models are subjective in nature. Therefore, they base their estimate of prices on a series of assumptions that are widely accepted by the market.
Due to the lack of liquidity in the basis of the active banking rate (TAB) over the chamber rate (camera), the price is not observable and, therefore, models must be used to estimate the future cash flows of the contract. This spread is calculated on a historical basis using the IRS with the greatest market depth, which is the chamber swap.
In addition, the Bank offers American forwards to meet its customers’ needs. They do not have a secondary market and, therefore, their value is estimated using an extension of the Hull-White model, used widely by the financial services industry.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-164 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
With respect to financial assets, a negotiation is not required, mandatorily valued at fair value with changes in results, the valuation is made based on the determination of a rate that allows obtaining the fair value based on market references:
Determining an average rate from “Comparable Instruments” according to the rating of the issuer and term of the instrument.
- | Decomposing the rate into a risk-free base observable in the market and a spread that represents the credit risk of the issuer. |
- | The periodic valuation of the instrument is carried out based on the value of the risk-free rate of each day plus the determined credit spread. |
The table below summarizes the impacts on the portfolio of a recalibration of the models based on a stress scenario, recalibrating parameters with the shock incorporated.
As of December 31, 2022 | As of December 31, 2021 | |||||||||||
| Forward |
|
|
| Forward |
|
| |||||
Americano | Basis TAB | Basis TAB | Americano | Basis TAB | Basis TAB | |||||||
Impact calibration | USD-CLP | CLP | CLF | USD-CLP | CLP | CLF | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Volatility exchange rate USD-CLP |
| |||||||||||
TAB 30 | — | | — |
| — | | — | |||||
TAB 90 | — | — | — |
| — | — | — | |||||
TAB 180 | — | | |
| — | | | |||||
TAB 360 | — | — | ( |
| — | — | ( | |||||
Totals | — | | |
| — |
| |
| | |||
The following table summarizes the fair value hierarchy for the Bank’s recurring valuation of financial instruments:
Level |
| Instrument |
| Issuer |
| Price Source |
| Model |
1 |
| Currencies |
| Not Applicable |
| OTC, Bloomberg |
| Directly observable price. |
| Shares |
| Others |
| Santiago Exchange |
| Directly observable price. | |
| Mutual Funds |
| Asset Managers |
| CMF (formerly the SVS) |
| Directly observable price. | |
| Bonds |
| Chilean Central Bank and Chilean Treasury |
| Santiago Exchange |
| Internal rate of return (“IRR”) based on prices. | |
2 |
| Derivatives |
| Not Applicable |
| OTC (brokers), Bloomberg |
| Interest rate curves based on forward prices and coupon rates. |
| Money market |
| Chilean Central Bank and Chilean Treasury |
| Santiago Exchange |
| Interest rate curves based on prices. | |
| Money market |
| Banks |
| Santiago Exchange |
| Interest rate curves based on prices. | |
| Bonds |
| Companies, Banks |
| Pricing provider |
| Interest rate curves based on correlations, spreads, extrapolations, etc. | |
3 |
| Derivatives, active Banking rate (TAB) |
| Not Applicable |
| OTC (brokers) |
| Interest rate curves based on modeling of TAB – Chamber spread. |
| Derivatives, American forwards |
| Not Applicable |
| Bloomberg |
| Black and Scholes with inputs from European options. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-165 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
The following table classifies assets and liabilities measured at fair value on a recurring basis, in accordance with the fair value hierarchy established in IFRS 13, as of December 31, 2022 and 2021 :
As of December 31, 2022 | ||||||||
Market value of the | Other observable | Non-observable | ||||||
Measurement at fair value of instruments | asset for identified assets | significant inputs | significant inputs | |||||
on a recurring basis using |
| Fair value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Assets | ||||||||
Financial instruments at fair value through profit or loss | | | | | ||||
Central Bank of Chile and Government securities | | | — | — | ||||
Other securities issued locally | | — | | — | ||||
Foreign government and Central Bank instruments | | | — | — | ||||
Other securities issued abroad | | — | | — | ||||
Investments in mutual funds | | | — | — | ||||
Financial assets not held for trading valued mandatorily at fair value through profit or loss | | — | — | | ||||
Other financial instruments at FVTPL |
| |
| | | — | ||
Financial instruments at fair value through other comprehensive income | | | | | ||||
Central Bank of Chile and Government securities | | | — | — | ||||
Other securities issued locally | | — | | — | ||||
Foreign government and Central Bank instruments | | | — | — | ||||
Other securities issued abroad | | | | | ||||
Other investments at FVOCI | | — | | — | ||||
Financial derivative contracts | | — | | | ||||
Forwards | | — | | | ||||
Swaps | | — | | | ||||
Call options | | — | | | ||||
Put options | — | — | — | — | ||||
Totals Assets | | | | | ||||
Liabilities | ||||||||
Financial derivative contracts | | — | | | ||||
Forwards | | — | | | ||||
Swaps | | — | | | ||||
Call options | | — | | | ||||
Put options | | — | | — | ||||
Totals Liabilities | | — | | | ||||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-166 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
As of December 31, 2021 | ||||||||
Market value of the | Other observable | Non-observable | ||||||
Measurement at fair value of instruments |
| asset for identified assets | significant inputs | significant inputs | ||||
on a recurring basis using |
| Fair value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| MCh$ | MCh$ | MCh$ | MCh$ | ||||
Assets |
|
|
|
|
|
|
|
|
Financial instruments at fair value through profit or loss |
| | | | — | |||
Central Bank of Chile and Government securities |
| | | — | — | |||
Other securities issued locally |
| | — | | — | |||
Foreign government and Central Bank instruments |
| | | — | — | |||
Other securities issued abroad |
| | — | | — | |||
Investments in mutual funds |
| | | — | — | |||
Other financial instruments at FVTPL |
| | | | — | |||
Financial instruments at fair value through other comprehensive income |
| | | | — | |||
Central Bank of Chile and Government securities |
| | | — | — | |||
Other securities issued locally |
| | — | | — | |||
Foreign government and Central Bank instruments |
| | | — | — | |||
Other securities issued abroad |
| | | | — | |||
Other investments at FVOCI |
| | | | — | |||
Financial derivative contracts |
| | — | | | |||
Forwards |
| | — | | | |||
Swaps |
| | — | | | |||
Call options |
| | — | | — | |||
Put options |
| — | — | — | — | |||
Totals Assets |
| | | | | |||
Liabilities |
| |||||||
Financial derivative contracts |
| | — | | | |||
Forwards |
| | — | | | |||
Swaps |
| | — | | | |||
Call options |
| | — | | — | |||
Put options |
| | — | | — | |||
Totals Liabilities |
| | — | | | |||
Transfers between level 1 and 2
As of December 31, 2022 and 2021 no transfers were observed between Level 1 and Level 2, as shown below
As of December 31, | ||||||
Measurement at fair value of instruments | 2022 | |||||
that are valued recurrently | Fair value | Level 1 to 2 | Level 2 to 1 | |||
| MCh$ |
| MCh$ |
| MCh$ | |
Assets | ||||||
Financial instruments at fair value through profit or loss |
| |
| — |
| — |
Financial instruments at fair value through other comprehensive income |
| |
| — |
| — |
Financial derivative contracts |
| |
| — |
| — |
Totals Assets |
| |
| — |
| — |
Liabilities |
|
|
|
|
|
|
Financial derivative contracts |
| |
| — |
| — |
Totals Liabilities |
| |
| — |
| — |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-167 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
As of December 31, | ||||||
Measurement at fair value of instruments | 2021 | |||||
that are valued recurrently |
| Fair value |
| Level 1 to 2 |
| Level 2 to 1 |
| MCh$ |
| MCh$ |
| MCh$ | |
Assets |
|
|
|
|
|
|
Financial instruments at fair value through profit or loss |
| |
| — |
| — |
Financial instruments at fair value through other comprehensive income |
| |
| — |
| — |
Financial derivative contracts |
| |
| — |
| — |
Totals Assets |
| |
| — |
| — |
Liabilities |
|
|
|
|
|
|
Financial derivative contracts |
| |
| — |
| — |
Totals Liabilities |
| |
| — |
| — |
Disclosures Regarding Level 3 - Transfer from /to Level 3 of Assets and Liabilities
During 2022 and 2021, no assets were transferred from/to level 3 from/to levels 1 and 2.
Disclosures Regarding Level 3 Assets and Liabilities
Level 3 assets and liabilities are valued using techniques that require inputs that are not observable on the market, for which the income approach is used to convert future amounts to present amounts.
This category includes:
● | Financial derivative instruments indexed to the TAB rate. This rate is comprised of an interbank rate and a liquidity premium charged to financial institutions and is determined using a short-rate model with mean reversion. |
● | American forward options. |
● | Financial assets whose contractual cash flows have not met the conditions of the SPPI test, |
● | Corporate bond whose data are not observable in the market. |
As none of these products has a market, the Bank uses financial engineering valuation techniques that use unobservable variables.
These techniques use the following inputs: transaction prices from the main financial instrument markets and assumptions that Management believes are commonly used by the financial services industry. Using this information, unobservable variables are constructed such as: adjustment curves, spreads, volatilities and other variables necessary for the valuation. Lastly, all of the models are subject to internal contrasts by independent areas and have been reviewed by internal auditors and regulators.
None of these products generate significant impacts on the Bank’s results as a result of recalibration. The American Forward is only offered for the US dollar-Chilean peso market and until now, given the important differential between these interest rates, the product behaves like a traditional forward. The TAB swap does not have significant impacts on the valuation as the modeled liquidity premiums have a quick mean reversion for the short part and low volatility for the long part, concentrating on the book’s sensitivity in the longest part of the curve.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-168 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
The following table reconciles assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021.
As of December 31, 2022 | ||||||||||||
Gain (loss) | Gain (loss) | Purchases, | Transfers | |||||||||
Opening | recognized in | recognized in | sales and | from level 1 | Ending | |||||||
Level 3 reconciliation | balance | profit or loss | equity | agreements | or level 2 | balance | ||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Assets | ||||||||||||
Financial instruments at fair value through profit or loss | ||||||||||||
Financial assets not held for trading valued mandatorily at fair value through profit or loss | — | ( | — | | — | | ||||||
Financial instruments at fair value throught other comprehensive income | ||||||||||||
Other securities issued abroad | — | — | ( | | — | | ||||||
Financial derivative contracts | ||||||||||||
Forwards | | ( | — | ( | — | | ||||||
Swaps | | | — | ( | — | | ||||||
Totals Assets | | | ( | | — | | ||||||
Liabilities | ||||||||||||
Financial derivative contracts | ||||||||||||
Forwards | | ( | — | ( | — | | ||||||
Swaps | | ( | — | | — | | ||||||
Totals Liabilities | | ( | — | | — | | ||||||
As of December 31, 2021 | ||||||||||||
|
| Gain (loss) |
| Gain (loss) |
| Purchases, |
| Transfers |
| |||
Opening | recognized in | recognized in | sales and | from level 1 | Ending | |||||||
Level 3 reconciliation | balance | profit or loss | equity | agreements | or level 2 | balance | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Assets | ||||||||||||
Financial instruments at fair value through profit or loss | ||||||||||||
Financial assets not held for trading valued mandatorily at fair value through profit or loss | — | — | — | — | — | — | ||||||
Financial instruments at fair value throught other comprehensive income | ||||||||||||
Other securities issued abroad | — | — | — | — | — | — | ||||||
Financial derivative contracts | ||||||||||||
Forwards | | | — | ( | — | | ||||||
Swaps | | ( | — | ( | — | | ||||||
Totals Assets | | | — | ( | — | | ||||||
Liabilities | ||||||||||||
Financial derivative contracts | ||||||||||||
Forwards | | | — | ( | — | | ||||||
Swaps | | ( | — | | — | | ||||||
Totals Liabilities | | ( | — | | — | | ||||||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-169 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 35 – Fair Value of Financial Assets and Liabilities, continued
Hierarchy for remaining assets and liabilities
The following table classifies assets and liabilities measured at fair value on a non-recurring basis, in accordance with the fair value hierarchy as of December 31, 2022 and 2021:
As of December 31, 2022 | ||||||||
Market value of the | Other observable | Non-observable | ||||||
Estimated fair | asset for identified | significant inputs | significant inputs | |||||
Measurement at fair value of items on a non-recurring basis |
| value |
| assets (Level 1) |
| (Level 2) |
| (Level 3) |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Assets | ||||||||
Cash and deposits in banks |
| | | — | — | |||
Cash items in process of collection |
| | | — | — | |||
Loans and accounts receivable at amortized cost |
| | — | — | | |||
Financial instruments at amortized cost |
| | | — | — | |||
Investments under resale agreements |
| | | — | — | |||
Interbank loans, net |
| | | — | — | |||
Totals Assets |
| | | — | | |||
Liabilities | ||||||||
Deposits and other demand liabilities |
| | | — | — | |||
Cash in process of being cleared |
| | | — | — | |||
Obligations under repurchase agreements |
| | | — | — | |||
Time deposits and other time liabilities |
| | — | | — | |||
Interbank borrowings |
| | | — | — | |||
Debt instruments issued |
| | — | | — | |||
Financial instruments of regulatory capital issued | | — | | — | ||||
Lease contract liabilities | | | — | — | ||||
Other financial liabilities |
| | | — | — | |||
Totals Liabilities |
| |
| |
| |
| — |
As of December 31, 2021 | ||||||||
Market value of the | Other observable | Non-observable | ||||||
Estimated fair | asset for identified | significant inputs | significant inputs | |||||
Measurement at fair value of items on a non-recurring basis |
| value |
| assets (Level 1) |
| (Level 2) |
| (Level 3) |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | |
Assets | ||||||||
Cash and deposits in banks |
| | | — | — | |||
Cash items in process of collection |
| | | — | — | |||
Loans and accounts receivable at amortized cost |
| | — | — | | |||
Financial instruments at amortized cost |
| | | — | — | |||
Investments under resale agreements |
| | | — | — | |||
Interbank loans, net |
| | | — | — | |||
Totals Assets |
| |
| |
| — |
| |
Liabilities | ||||||||
Deposits and other demand liabilities | | | — | — | ||||
Cash in process of being cleared | | | — | — | ||||
Obligations under repurchase agreements | | | — | — | ||||
Time deposits and other time liabilities | | — | | — | ||||
Interbank borrowings | | | — | — | ||||
Debt instruments issued | | — | | — | ||||
Financial instruments of regulatory capital issued | | — | | — | ||||
Lease contract liabilities | | | — | — | ||||
Other financial liabilities | | | — | — | ||||
Totals Liabilities |
| |
| |
| |
| — |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-170 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management
The Bank and its subsidiaries, through their activity, are exposed to several types of risk mainly related to loans portfolio and financial instruments. Risk management policies are established in order to identify and analyze the risks faced by the Bank, set limits and adequate controls, monitor risks and comply with limits. The risk management policies and risk administration structures are reviewed periodically in order to reflect changes in the institution’s activities. The Bank, through its rules and procedures, intends to develop an appropriate control environment, in which all employees understand their roles and responsibilities.
The following is a description of the main business activities and policies of the Bank in terms of risk management.
A) Risk Management Structure
i) Board of Directors
In the Bank and its Subsidiaries, the Board of Directors plays a prominent role in corporate governance. It is responsible for establishing and monitoring the Bank’s risk management structure, for which it has a corporate governance system aligned with international best practices and Chilean regulations, mainly from the CMF. One of its main functions is to ensure the existence of measures that allow senior management to be supervised, evaluated and guided so that their actions are in line with best practices and defined levels of risk appetite. To this end, a governance structure has been created made up of various committees and internal standards. These committees and standards establish behavioral guidelines for the Bank’s employees and help them perform their functions related to risk control and management.
ii) Audit Committee
The Audit Committee is responsible for monitoring the control environment and the effectiveness and efficiency of the company’s internal control systems as well as the compliance with regulations and internal standards, including oversight of the internal audit unit. The Audit Committee is also responsible for proposing to the Directors’ Committee a list of external auditors and risk rating agencies for the Bank and subsidiaries. In addition, the Audit Committee shall be responsible for supervising the different aspects that have to do with the maintenance, application and operation of the Bank’s internal controls, and shall be responsible also for closely monitoring compliance with the standards and procedures that govern its practice. It must also have a clear understanding of the risks that the Bank’s business may pose to the institution and their mitigation.
To establish a link with the Audit Committee, the Board of Directors will appoint at least two of its members to this Committee. These members must inform the Board of Directors of the situations and facts the Committee is dealing with, thus committing the responsibility of the Bank’s directors, both in self-control policies that are established and practiced by the institution, as well as in the compliance with the legal and regulatory standards to which the Bank is subject.
The Audit Committee must reinforce and support both the role of the Bank’s Internal Audit (also called Internal Comptroller in the CMF regulations) and its independence from management, and act as a liaison and coordinator of the tasks between the internal audit and the external auditors, acting as a liaison between the latter and the Bank’s Board of Directors.
ii) Director’s Committee
The purpose of the Directors Committee is to make the self-regulation of the Bank and other entities within the scope of its competence stronger, thus making the performance of the Board of Directors more efficient by incorporating greater oversight over the activities carried out by management.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-171 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management, continued
It will also be responsible for adopting the necessary resolutions to protect shareholders, especially minority shareholders, examining executive compensation systems and approving related party transactions.
In its role as overseer of corporate activity, the Directors’Committee must inform the market in the event of violations or major corporate events, as well as transactions that the company carries out with parties related to the controlling shareholder or takeovers in any form.
iv) Integral Risk Management Committee
The objective of this Committee is to propose, and support the Board of Directors in, the definition of the risk appetite and the general policy framework that allows an adequate alignment with the Bank’s global strategy. Oversee the correct identification, measurement and control of all risks, allocate capital to identified risks and meet regulatory requirements.
v) Superior Asset and Liabilities Committee (ALCO)
After the Board of Directors and its specialized committees, the Assets and Liabilities Committee (hereinafter, also “ALCO”) is the highest body involved in the management of the institution’s financial policies.
The main objective of the Commission is to follow the financial guidelines established by the Board of Directors. In this regard, it must approve and supervise the financial strategies that guide the Bank in terms of the composition of its assets and liabilities, cash inflows and outflows, and transactions with financial instruments.
It must ponder the various alternatives available to make decisions that ensure the highest and most sustainable profitability with financial risk levels compatible with the business, current regulations and internal standards.
vi) Superior Anti-Money Laundering and Anti-Terrorism Finance Prevention Committee
The main purpose of this Committee is to plan and coordinate the activities of compliance with the policies and procedures for anti-money laundering and prevention of funding of terrorism, to pay attention to the work carried out by the Compliance Officer, in accordance with the applicable regulations in force, as well as to adopt agreements aimed at obtaining improvements to the prevention and control measures proposed by the Compliance Officer.
vii) Superior Operational Risk Committee
The purpose of this Committee is to identify, understand and evaluate the risks involved in the Bank’s processes and businesses and to define operational risk management guidelines for the Bank and evaluate the results of the audit and compliance systems. It is also responsible for defining the operational risk management framework and the structure and policies for the identification, measurement, evaluation and monitoring of risk and business continuity. In addition, it reviews the follow-up and adequacy of regulatory commitments and emerging regulations.
Evaluate the status of critical processes that are directly related to the Bank’s operational risk, according to the current regulations of the Commission for the Financial Market, in order to detect and correct the deficiencies that may be affecting the Bank and ensure proper implementation of regulatory changes.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-172 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management, continued
The goal is to ensure that critical processes run under a control environment that allows the Bank to operate with stability and consistency, achieving the objectives consisting in confidentiality, integrity and availability of information resources.
viii) Ethics and Compliance Committee
The main purpose of this Committee is to define, promote and ensure high standards of professional and personal excellence in the behavior of all Banco Itaú Chile employees, its local subsidiaries, and the representation office in Peru (the “Representation Office”). This Committee must always be guided by corporate principles and values that reflect Banco Itaú Chile vision, philosophy and good business practices.
The Committee must evaluate, and make decisions on, issues of conduct and ethics in business and operations. Monitor and examine compliance with policies and procedures related to the ethical conduct of the Bank’s employees and suppliers.
Also, ensure the application of the Regulatory Compliance Model within the framework of the definitions established by this Committee; pay attention to the work performed by the Compliance Officer and the AML in these matters; and make agreements to obtain improvements to the control measures proposed by the Compliance Officer.
The Committee must promote, and may request, information from the international units, through the Compliance & AML Sub-Management, on the matters discussed herein, in order to align the ethical and regulatory standards across the Banco Itaú Chile Group entities.
ix) Senior Capital Management Commission
The Senior Capital Management Commission was created to assist the Board of Directors and the Bank’s management in the evaluation and management of market and liquidity risks, earnings, and capital adequacy, in accordance with the economic principles and standards established in local regulations, and in Basel I, II and III as applicable, in order to provide oversight and management of market and liquidity risks, accounting management and capital principles, to review the effectiveness of risk and capital policies and limits, and to review compliance with risk, liquidity and capital policies and procedures in the company.
x) Senior Credit Commission
The purpose of this Commission is to resolve the transactions and matters submitted to its knowledge, under the defined limits and procedures, ensuring the application of and compliance with the current credit risk policies defined by Banco Itaú Chile (the “Bank”).
xi) Senior Wholesale Credit Commission
The objective of the Senior Wholesale Credit Commission is to monitor the evolution of the Bank’s wholesale portfolios in terms of their risk-return ratio, the adjustment to the risk appetite defined by the Bank and the status of progress of the short and long term strategies or instructions defined by this Commission. Analyze the behavior of the wholesale portfolio, elinquency, cost of credit, industry or economic groups oncentrations and watchlist. Evaluate debt collection management and strategy, collateral structure and market benchmarks.
Discuss and propose credit and credit appetite policies for the wholesale segment. Identify emerging portfolio
risks and prioritize mitigation initiatives.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-173 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management, continued
(xii) Senior Retail Credit Commission
The objective of the Higher Retail Credit Commission is to monitor the evolution of the Bank’s retail portfolio in terms of its risk-return ratio, the adjustment to the risk appetite defined by the Bank and the status of progress of the short and long term strategies or instructions defined by this Commission. In this regard, the Commission must consider in its analysis the competition, the movements of the most relevant players and the main risks that may affect portfolio management, as well as the projects that have an impact on this matter.
xiii) Model Evaluation Technical Commission
The purpose of this Commission is to analyze and propose the credit risk, financial risk and operational risk management models according to the different levels determined by the Models Policy.
xiv) Internal Audit Corporate Management
The main function of Internal Audit is to assist the Board of Directors and Senior Management by independently evaluating the maintenance, implementation and proper operation of the Bank’s internal control system, which also involves the oversight of compliance with standards and procedures.
xv) Code of Conduct and Market Information Manual
Our clients’ trust is critical to our success. Therefore, all employees and directors must strive to preserve this trust by strictly complying with the General Code of Conduct.
B) Main Risks and Requirements Affecting the Bank and its Subsidiaries:
i) Credit risk
Credit risk is the risk that a client or a counterparty fails to meet its contractual obligations, resulting in a financial loss for the Bank. The Bank’s main income-generating activity is lending to customers, so credit risk is one of the main risks to be managed. Credit risk arises primarily from loans and advances to customers and other banks (including related loan commitments such as loan or credit card facilities), investments in debt securities and derivatives that constitute an asset position. The Bank takes into account all the elements of exposure to credit risk, such as counterparty default risk, geographic risk and sectoral risk, for the purposes of its management.
Credit risk management
The Bank’s credit committee is responsible for managing the Bank’s credit risk by:
- | Ensure that the Bank has appropriate credit risk practices, including an effective internal control system, to systematically determine adequate provisions in accordance with the policies and procedures established by the Bank, IFRS and supervisory guidance relevant. |
- | Identify, assess and measure credit risk across the Bank, from an individual instrument to a portfolio level. |
- | Create credit policies to protect the Bank against identified risks, including the requirement to obtain guarantees from borrowers, perform a solid ongoing credit assessment of borrowers and continuously monitor exposures against internal risk limits. |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-174 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management, continued
- | Limit concentrations of exposure by type of asset, counterparties, sector, credit rating, geographic location, etc. |
- | Establish a solid control framework in relation to the authorization structure for the approval and renewal of lines of credit. |
- | Develop and maintain the Bank’s risk classification to categorize exposures according to the degree of default risk. The degrees of risk are subject to periodic review. |
- | Develop and maintain the Bank’s processes to measure the Expected Credit Loss “ECL”, including credit risk monitoring, the incorporation of prospective information and the method used to measure ECL. |
- | Ensure that the Bank has policies and procedures to properly maintain and validate the models used to assess and measure PCE. |
- | Provide advice, guidance and expertise to business units to promote best practices across the Bank in credit risk management. |
Significant increase in credit risk
The Bank analyzes all data collected using statistical models and estimates the remaining lifetime PD of exposures and how these are expected to change over time. The factors taken into account in this process include macro-economic data such as GDP growth, unemployment, benchmark interest rates, among others. The Bank generates a ‘base case’ scenario of the future direction of relevant economic variables as well as a representative range of other possible forecast scenarios. The Bank then uses these projections to macroeconomically adjust its estimated PD and LGD parameters.
Under the Bank’s monitoring procedures a significant increase in credit risk is identified before the exposure has defaulted, and at the latest when the exposure becomes 30 days past due, unless the Bank has reasonable and supportable information that demonstrates otherwise.
In 2022, the measures considered for the determination of the SICR contemplate differentials of PD between origination and reference.
The quantitative criteria are used to identify where an exposure has increased in credit risk and it is applied based on whether an increase in the lifetime PD since the recognition date exceeds the threshold set in absolute and relative terms. The following formulas are used to determine such thresholds:
Relative comparison formula
Threshold = Lifetime PD (at reporting date) - 1
Lifetime PD (at origination)
Absolute comparison formula
Threshold = Lifetime PD (at reporting date) – Lifetime PD (at origination)
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-175 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management, continued
Criteria used for Chile
Type of portfolio |
| Debtor category |
| Stages |
| Days of arrears to the end of the month |
| A1, A2, A3, A4 |
| Stage 1 |
| Up to | |
Individual |
| A5 (1) |
| Stage 1 |
| Up to |
| A6, B1, B2, B3, B4 |
| Stage 2 | From | ||
| C1, C2, C3, C4, C5, C6 | Stage 3 |
(1) Loans originated in A5 are considered Stage 1 at inception. Loans that were originated in a higher category and subsequently downgraded to A5 are considered Stage 2.
Days of arrears to the end of the month, | ||||||
probability of default (PD) and | ||||||
Type of portfolio |
| Portfolio | Stages |
| qualitative considerations | |
| Stage 1 |
| Up to | |||
CAE | Stage 2 | From | ||||
| Stage 3 |
| ||||
Stage 1 | Up to | |||||
Condell / Restructured Condell | Stage 2 (Condell) | From | ||||
Stage 2 (Restructured Condell) | From | |||||
Stage 3 | ||||||
Stage 1 | Up to | |||||
Commercial/ | Stage 2 (Commercial) | From | ||||
Collective | Stage 2 (Rotative Commercial) | From | ||||
Stage 3 | ||||||
Stage 1 | Up to | |||||
Stage 2 (Consumer) | From | |||||
Consumer/ | Stage 2 (Renegotiated Consumer) | From | ||||
Stage 2 (Rotative Consumer) | From | |||||
Stage 3 | ||||||
Stage 1 |
| Up to | ||||
Mortgage | Stage 2 | From | ||||
Stage 3 |
|
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-176 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management, continued
Criteria used for Colombia
| % of absolute increase in |
| % of relative increase |
| Qualitative | |
lifetime PD | in lifetime PD | indicators assessed | ||||
Corporate portfolio | Debt restructuring and increase in credit risk of other financial instruments | |||||
Other loans not classified |
| | % | | % | |
Small company 1 |
| | % | | % | |
Small company 2 |
| | % | | % |
|
Medium company 1 |
| | % | | % | |
Medium company 2 |
| | % | | % | |
Large company |
| | % | | % |
|
Low default |
| | % | | % |
|
Low default (Government and Financial) |
| | % | | % |
|
Collective portfolio |
|
|
|
|
| Increase in credit risk of other financial instruments |
Leasing |
| | % | | % | |
Payroll deductible loan |
| | % | | % |
|
Revolving line of credit |
| | % | | % |
|
Overdraft limit |
| | % | | % | |
Credit card |
| | % | | % |
|
Mortgage loan |
| | % | | % |
|
Personal debt restructuring |
| | % | | % | |
Other loans |
| | % | | % |
|
Loan commitments are assessed along with the category of loan the Bank is committed to provide, i.e. commitments to provide mortgages are assessed using similar criteria to mortgage loans, while commitments to provide a corporate loan are assessed using similar criteria to corporate loans.
The Bank has monitoring procedures in place to make sure that the criteria used to identify significant increases in credit risk are effective, meaning that significant increases in credit risk are identified before the exposure is defaulted or when the asset becomes 30 days past due. The Bank performs periodic back-testing of its ratings to consider whether the drivers of credit risk that led to default were accurately reflected in the rating in a timely manner.
Incorporation of forward-looking information
The Bank uses forward-looking information that is available without undue cost or effort in its assessment of significant increase of credit risk as well as in its measurement of ECL. The Bank employs experts who use external and internal information to generate a ‘base case’ scenario of future forecast of relevant economic variables along with a representative range of other possible forecast scenarios. The external information used includes economic data and forecasts published by governmental bodies and monetary authorities.
The Bank applies probabilities to the forecast scenarios identified. The base case scenario is the single most-likely outcome and consists of information used by the Bank for strategic planning and budgeting. The Bank has identified and documented key drivers of credit risk and credit losses for each portfolio of financial instruments and, using a statistical analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit losses. The Bank has not made changes in the estimation techniques or significant assumptions made during the reporting period.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-177 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management, continued
The table below summarizes the principal macroeconomic indicators included in the economic scenarios used as of December 31, 2022 until December 31, 2023 in the countries where the Bank and its subsidiaries operate and therefore are the countries that have a material impact on ECLs.
Criteria for Chile
2022 | 2023 | 2024 |
| |||||||||||||||||||
Indicators |
| Portfolio |
|
| Q4 |
| Q1 |
| Q2 |
| Q3 |
| Q4 |
| Q1 |
| Q2 | Q3 | Q4 | |||
Unemployment rate |
| Base scenario |
| |||||||||||||||||||
| Range of upside scenarios |
| ||||||||||||||||||||
| Range of downside scenarios |
| ||||||||||||||||||||
Consumer’s price index (IPC) |
| Base scenario |
| | | | | | | | | | ||||||||||
| Range of upside scenarios |
| | | | | | | | | | |||||||||||
| Range of downside scenarios |
| | | | | | | | | | |||||||||||
Interbank interest rate |
| Base scenario |
| |||||||||||||||||||
| Range of upside scenarios |
| ||||||||||||||||||||
| Range of downside scenarios |
| ||||||||||||||||||||
Exchange Rate (USD/CLP) |
| Base scenario |
| | | | | | | | | | ||||||||||
| Range of upside scenarios |
| | | | | | | | | | |||||||||||
Range of downside scenarios |
| | | | | | | | | | ||||||||||||
Criteria for Colombia
As of December 31, | ||||||
| 2022 |
| 2023 |
| 2024 | |
GDP growth |
|
|
|
|
|
|
Base scenario |
| | | | ||
Range of upside scenarios |
| | | | ||
Range of downside scenarios |
| | ( | | ||
Unemployment rates |
| |||||
Base scenario |
| | | | ||
Range of upside scenarios |
| | | | ||
Range of downside scenarios |
| | | | ||
Benchmark interest rates |
| |||||
Base scenario |
| | | | ||
Range of upside scenarios |
| | | | ||
Range of downside scenarios |
| | | | ||
currency exchange rate |
| |||||
Base scenario |
| | | | ||
Range of upside scenarios |
| | | | ||
Range of downside scenarios |
| | | | ||
Consumer’s Price Index |
| |||||
Base scenario |
| | | | ||
Range of upside scenarios |
| | | | ||
Range of downside scenarios |
| | | | ||
Predicted relationships between the key indicators and default and loss rates on various portfolios of financial assets have been developed based on analyzing historical data over the past 3 years.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-178 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management, continued
Sensitivity analysis
The most significant assumptions affecting the ECL allowance, as indicated in the tables above by country, are as follows:
Chile:
● | Unemployment rate, given its impact on secured and unsecure borrowers’ ability to meet their contractual repayments. |
● | Consumer’s Price Index (IPC), given its impact on housing prices, mortgage collateral valuations, and consumers purchasing power |
● | Interbank interest rate, given its impact on companies’ likelihood of default |
● | Copper Price, given its impact on national economy |
Colombia:
● | GDP growth, given the significant impact on companies’ performance and collateral valuations |
● | Unemployment rates, given its impact on secured and unsecure borrowers’ ability to meet their contractual repayments. |
● | Interest rate, given its impact on companies’ likelihood of default |
● | Exchange rates, given its impact on companies’ financial position and debt |
● | Consumer’s Price Index (IPC), given its impact on housing prices and consumers purchasing power |
Set out below are the changes to ECL as of December 31, 2022 that would result from reasonably possible changes in these parameters from the actual assumptions used in the Bank’s economic variable assumptions as set forth in the tables above for Base scenarios, upside scenarios, and downside scenarios.
ECL coverage of loans and accounts receivable at amortized cost subject to significant measurement uncertainty as of December 31, 2022 |
| Chile |
| Colombia |
MCh$ | MCh$ | |||
Reported ECL | | | ||
Loans and accounts receivable at amortized cost | | | ||
Reported Coverage (Reported ECL/ loans and accounts receivable at amortized cost) | % | | | |
Consensus upside scenario (Upside scenario for ECL/ loans and accounts receivable at amortized cost) | % | | | |
Consensus central scenario (Base scenario for ECL/ loans and accounts receivable at amortized cost) | % | | | |
Consensus downside scenario (Downside scenario for ECL/ loans and accounts receivable at amortized cost) | % | | |
ECL coverage rates reflect the underlying observed credit defaults, the sensitivity to economic environment, extent of collateral and the effective maturity of the book.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-179 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management, continued
Measurement of ECL
The key inputs used for measuring ECL are:
● | probability of default (PD); |
● | loss given default (LGD); and |
● | exposure at default (EAD). |
As explained above these figures are generally derived from internally developed statistical models and other historical data and they are adjusted to reflect probability-weighted forward-looking information.
PD is an estimate of the likelihood of default over a given time horizon. It is estimated as at a point in time. The calculation is based on statistical rating models, and assessed using rating tools tailored to the various categories of counterparties and exposures. These statistical models are based on market data (where available), as well as internal data comprising both quantitative and qualitative factors. PDs are estimated considering the contractual maturities of exposures and estimated prepayment rates. The estimation is based on current conditions, adjusted to take into account estimates of future conditions that will impact PD.
LGD is an estimate of the loss given on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, taking into account cash flows from any collateral. The LGD models for secured assets consider forecasts of future collateral valuation taking into account sale discounts, time to realization of collateral, cross-collateralization and seniority of claim, cost of realization of collateral and cure rates (i.e. exit from non-performing status). LGD models for unsecured assets consider time of recovery, recovery rates and seniority of claims. The calculation is on a discounted cash flow basis, where the cash flows are discounted by the current interest rate.
EAD is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, as well as expected drawdowns on committed facilities. The Bank’s modelling approach for EAD reflects expected changes in the balance outstanding over the lifetime of the loan exposure that are permitted by the current contractual terms, such as amortization profiles, early repayment or overpayment, changes in utilization of undrawn commitments and credit mitigation actions taken before default. The Bank uses EAD models that reflect the characteristics of the portfolios.
The Bank measures ECL considering the risk of default over the maximum contractual period (including extension options) over which the entity is exposed to credit risk and not a longer period, even if contact extension or renewal is common business practice. However, for financial instruments such as credit cards, revolving credit facilities and overdraft facilities that include both a loan and an undrawn commitment component, the Bank’s contractual ability to demand repayment and cancel the undrawn commitment does not limit the Bank’s exposure to credit losses to the contractual notice period. For such financial instruments the Bank measures ECL over the period that it is exposed to credit risk and ECL would not be mitigated by credit risk management actions, even if that period extends beyond the maximum contractual period. These financial instruments do not have a fixed term or repayment structure and have a short contractual cancellation period. However, the Bank does not enforce in the normal day-to-day management the contractual right to cancel these financial instruments. This is because these financial instruments are managed on a collective basis and are canceled only when the Bank becomes aware of an increase in credit risk at the facility level. This longer period is estimated taking into account the credit risk management actions that the Bank expects to take to mitigate ECL, e.g. reduction in limits or cancellation of the loan commitment.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-180 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management, continued
The measurement of ECL is based on probability weighted average credit loss. As a result, the measurement of the loss allowance should be the same regardless of whether it is measured on an individual basis or a collective basis (although measurement on a collective basis is more practical for portfolios with large numbers of loans). The assessment of significant increases in credit risks may at times be made on a collective basis asnoted below.
Credit quality
A detail by credit quality, which includes loans and accounts receivable from customers and interbank loans as of December 31, 2022 and 2021 is summarized as follows:
As of December 31, 2022 | ||||||||||||||||||||
Corporate |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Totals corporate |
| Percentage |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Totals allowance |
| Percentage |
| MCh$ | MCh$ | MCh$ | MCh$ | % | MCh$ | MCh$ | MCh$ | MCh$ | % | ||||||||||
A1 |
| | — |
| — |
| |
|
| ( | — |
| — |
| ( |
| ||||
A2 |
| | — |
| — |
| |
|
| ( | — |
| — |
| ( |
| ||||
A3 |
| | — |
| — |
| |
|
| ( | — |
| — |
| ( |
| ||||
A4 |
| | — |
| — |
| |
|
| ( | — |
| — |
| ( |
| ||||
A5 |
| | — |
| — |
| |
|
| ( | — |
| — |
| ( |
| ||||
A6 |
| |
| | — |
| |
|
| ( |
| — | — |
| ( |
| ||||
B1 |
| — |
| | — |
| |
|
| — |
| ( | — |
| ( |
| ||||
B2 |
| — |
| | — |
| |
|
| — |
| ( | — |
| ( |
| ||||
B3 |
| — |
| | — |
| |
|
| — |
| ( | — |
| ( |
| ||||
B4 |
| — |
| | — |
| |
|
| — |
| ( | — |
| ( |
| ||||
C1 |
| — |
| — |
| | |
|
| — |
| — |
| ( | ( |
| ||||
C2 |
| — |
| — |
| | |
|
| — |
| — |
| ( | ( |
| ||||
C3 |
| — |
| — |
| | |
|
| — |
| — |
| ( | ( |
| ||||
C4 |
| — |
| — |
| | |
|
| — |
| — |
| ( | ( |
| ||||
C5 |
| — |
| — |
| | |
|
| — |
| — |
| ( | ( |
| ||||
C6 |
| — |
| — |
| | |
|
| — |
| — |
| ( | ( |
| ||||
Subtotals corporate |
| |
| |
| |
| |
|
| ( |
| ( |
| ( |
| ( |
| ||
As of December 31, 2021 |
| ||||||||||||||||||||
Corporate |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Totals corporate |
| Percentage |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Totals allowance |
| Percentage |
|
MCh$ | MCh$ | MCh$ | MCh$ | % | MCh$ | MCh$ | MCh$ | MCh$ | % | ||||||||||||
A1 |
| | — |
| — |
| |
|
| ( | — |
| — |
| ( |
| |||||
A2 |
| | — |
| — |
| |
|
| ( | — |
| — |
| ( |
| |||||
A3 |
| | — |
| — |
| |
|
| ( | — |
| — |
| ( |
| |||||
A4 |
| | — |
| — |
| |
|
| ( | — | — |
| ( |
| ||||||
A5 |
| | — |
| — |
| |
|
| ( | — | — |
| ( |
| ||||||
A6 |
| — |
| | — |
| |
|
| — |
| ( | — |
| ( |
| |||||
B1 |
| — |
| | — |
| |
|
| — |
| ( | — |
| ( |
| |||||
B2 |
| — |
| | — |
| |
|
| — |
| ( | — |
| ( |
| |||||
B3 |
| — |
| | — |
| |
|
| — |
| ( | — |
| ( |
| |||||
B4 |
| — |
| | — |
| |
|
| — |
| ( | — |
| ( |
| |||||
C1 |
| — |
| — |
| | |
|
| — |
| — | ( | ( |
| ||||||
C2 |
| — |
| — |
| | |
|
| — |
| — |
| ( | ( |
| |||||
C3 |
| — |
| — |
| | |
|
| — |
| — |
| ( | ( |
| |||||
C4 |
| — |
| — |
| | |
|
| — |
| — |
| ( | ( |
| |||||
C5 |
| — |
| — |
| | |
|
| — |
| — |
| ( | ( |
| |||||
C6 |
| — |
| — |
| | |
|
| — |
| — |
| ( | ( |
| |||||
Subtotals corporate |
| |
| |
| |
| |
| ( |
| ( |
| ( |
| ( |
| ||||
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-181 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management, continued
As of December 31, 2022 | ||||||||||||||||||||
Collectively assessed portfolio |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
| Percentage |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Totals |
| Percentage |
MCh$ | MCh$ | MCh$ | MCh$ | % | MCh$ | MCh$ | MCh$ | MCh$ | % | |||||||||||
Commercial loans |
| | | | | | ( | ( | ( | |||||||||||
Mortgage loans |
| | | | | ( |
| ( |
| ( | ( | |||||||||
Consumer loans |
| | | | | ( |
| ( |
| ( | ( | |||||||||
Subtotals collectively assessed portfolio |
| |
| |
| |
| |
|
| ( |
| ( | ( |
| ( |
| |||
Totals portfolio |
| |
| |
| |
| |
|
| ( |
| ( |
| ( |
| ( |
| ||
As of December 31, 2021 |
| ||||||||||||||||||||
Collectively assessed portfolio | Stage 1 | Stage 2 | Stage 3 | Total | Percentage | Stage 1 | Stage 2 | Stage 3 | Totals | Percentage |
| ||||||||||
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| % |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| % |
| |
Commercial loans |
| | | |
| |
| ( | ( | ( |
| ( |
| ||||||||
Mortgage loans |
| | | |
| |
| ( | ( | ( |
| ( |
| ||||||||
Consumer loans |
| | | |
| |
| ( | ( | ( |
| ( |
| ||||||||
Subtotals collectively assessed portfolio |
| |
| |
| |
| |
| ( | ( | ( |
| ( |
| ||||||
Totals portfolio |
| |
| |
| |
| |
| ( |
| ( |
| ( |
| ( |
| ||||
The table below provides an analysis of the gross carrying amount of loans and advances to customers by past due:
As of December 31, 2022 | ||||||||
| Less than 30 days overdue | Between 30 and 89 days overdue | More than 90 days overdue | Total overdue | ||||
| MCh$ |
| MCh$ |
| MCh$ | MCh$ | ||
Interbank loans |
| — |
| — |
| — | — | |
Loans and accounts receivable from customers |
|
|
|
| ||||
Commercial loans |
| | | | | |||
Mortgage loans |
| | | | | |||
Consumer loans |
| | | | | |||
Totals |
| |
| |
| | | |
As of December 31, 2021 | ||||||||
| Less than 30 days overdue | Between 30 and 89 days overdue | More than 90 days overdue | Total overdue | ||||
| MCh$ |
| MCh$ |
| MCh$ | MCh$ | ||
Interbank loans |
| — |
| — |
| — | — | |
Loans and accounts receivable from customers |
|
|
|
| ||||
Commercial loans |
| | | | | |||
Mortgage loans |
| | | | | |||
Consumer loans |
| | | | | |||
Totals |
| |
| |
| | | |
An analysis for the movement of the allowance for losses during the year by individual and group portfolio is included in Note 10, letter c.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-182 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 – Risk management, continued
Maximum Exposure to Credit Risk
For financial assets recognized in the Consolidated Statements of Financial Position, exposure to credit risk is equal to their book value. For the financial guarantees granted, the maximum exposure to credit risk is the maximum amount that the Bank would have to pay if the guarantee were called.
The following table shows the Bank’s maximum credit risk exposure by financial asset as of December 31, 2022 and 2021 for different balance sheet items, including derivatives, without deducting real guarantees or other credit enhancements received:
Maximum Exposure as of December 31, 2022 | ||||||||||||||||||||
Balance sheet asset | Off-balance sheet | Collateral | ||||||||||||||||||
Notes | Gross amounts | Allowances | Net amounts | Gross amounts | Allowances | Net amounts | Cash | Non-cash | Net exposure | |||||||||||
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | ||
Financial instruments at fair value through other comprehensive income | 11 | | ( | | — |
| — |
| — | — | — | | ||||||||
Loans and accounts receivable at amortized cost |
| 10 |
| | ( |
| |
| |
| ( |
| |
| — |
| |
| ( | |
Commercial loans |
|
|
| | ( |
| |
| | ( |
| |
| — |
| |
| ( | ||
Mortgage loans |
|
|
| | ( |
| |
| — | — |
| — |
| — |
| |
| ( | ||
Consumer loans |
|
|
| | ( |
| |
| — | — |
| — |
| — |
| |
| | ||
Financial instruments at amortized cost |
| 11 |
| | ( |
| |
| — |
| — |
| — |
| — |
| — |
| | |
Investments under resale agreements |
| 7 |
| | — |
| |
| — |
| — |
| — |
| — |
| |
| — | |
Financial derivative contracts |
| 8 |
| | — |
| |
| — |
| — |
| — |
| |
| — |
| | |
Interbank loans, net |
| 9 |
| | ( |
| |
| — | — |
| — |
| — |
| — |
| | ||
Other assets |
| 15 |
| | — |
| |
| — | — |
| — |
| — |
| — |
| | ||
Totals | | ( | | | ( | | | | | |||||||||||
Maximum Exposure as of December 31, 2021 | ||||||||||||||||||||
Balance sheet asset | Off-balance sheet | Collateral | ||||||||||||||||||
Notes | Gross amounts | Allowances | Net amounts | Gross amounts | Allowances | Net amounts | Cash | Non-cash | Net exposure | |||||||||||
|
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ |
| MCh$ | ||
Financial instruments at fair value through other comprehensive income | 11 | | ( | | — | — | — | — | — | | ||||||||||
Loans and accounts receivable at amortized cost |
| 10 |
| | ( |
| |
| | ( |
| |
| — | |
| ( | |||
Commercial loans |
|
|
| |
| ( |
| |
| | ( |
| |
| — | |
| ( | ||
Mortgage loans |
|
|
| | ( |
| |
| — | — |
| — |
| — | |
| ( | |||
Consumer loans |
|
|
| | ( |
| |
| — | — |
| — |
| — | |
| | |||
Financial instruments at amortized cost |
| 11 |
| | ( |
| |
| — | — |
| — |
| — | — |
| | |||
Investments under resale agreements |
| 7 |
| | — |
| |
| — | — |
| — |
| — | |
| — | |||
Financial derivative contracts |
| 8 |
| | — |
| |
| — | — |
| — |
| | — |
| | |||
Interbank loans, net |
| 9 |
| | ( |
| |
| — | — |
| — |
| — | — |
| | |||
Other assets |
| 15 |
| | — |
| |
| — | — |
| — |
| — | — |
| | |||
Totals |
|
| |
| ( |
| |
| |
| ( |
| |
| |
| |
| | |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-183 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
A summary for the allowances for loan losses is as follows:
As of December 31, | ||||
2022 | 2021 | |||
| MCh$ |
| MCh$ | |
Loans and accounts receivable at amortized cost |
| ( | ( | |
Interbank loans, net |
| ( | ( | |
Provisions for contingent loans risk |
| ( | ( | |
Total allowances |
| ( | ( | |
For more detail on maximum credit risk exposure and concentration by type of financial instrument, see the specific Notes.
The following table displays the concentration of credit risk by industry for the loan portfolio:
As of December 31, |
| ||||||||||||||
2022 | 2021 |
| |||||||||||||
Maximum | Maximum | Maximum | Maximum |
| |||||||||||
gross | net | gross | net |
| |||||||||||
Note | exposure | exposure (1) | % | exposure | exposure (1) | % |
| ||||||||
|
|
| MCh$ |
| MCh$ |
|
|
| MCh$ |
| MCh$ |
|
|
| |
Manufacturing |
|
| | | |
| |
| % | ||||||
Mining |
|
| | | |
| |
| % | ||||||
Electricity, gas and water |
|
|
| | | |
| |
| % | |||||
Agriculture and livestock |
|
|
| | | |
| |
| % | |||||
Forestry and wood extraction |
|
|
| | | |
| |
| % | |||||
Fishing |
|
|
| | | |
| |
| % | |||||
Transport |
|
|
| | | |
| |
| % | |||||
Communications |
|
|
| | | |
| |
| % | |||||
Construction |
|
|
| | | |
| |
| % | |||||
Commerce |
|
|
| | | |
| |
| % | |||||
Services |
|
|
| | | |
| |
| % | |||||
Others |
|
|
| | | |
| |
| % | |||||
Subtotal commercial loans |
| 10 a) |
| |
| |
| |
| |
| % | |||
Consumer loans |
| 10 a) |
| |
| | |
| |
| % | ||||
Mortgage loans |
| 10 a) |
| |
| | |
| |
| % | ||||
Totals |
|
|
| |
| |
| |
| |
| % | |||
(1) | Net of allowances |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-184 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
Guarantees and Other Credit Enhancements
In order to mitigate credit risk, guarantees have been established in favor of the Bank, credit enhancements and other actions that mitigate total exposure.
The main types of guarantees provided by customers are as follows:
For loans to companies, the main guarantees are: |
| For loans to individuals, the main guarantees are: |
- Machinery and/or equipment | - Urban plots or land | |
- Buildings for specific purposes under construction | ||
- Agricultural land | ||
- Maritime ships and aircrafts | ||
- Mining infrastructure | ||
- Inventory | ||
- Agricultural assets | ||
- Industrial assets | ||
- Biological assets | ||
- Other warranties |
The guarantees taken by the Bank to ensure the collection of the rights reflected in its loan portfolios are mortgage-type guarantees (urban and rural properties, agricultural land, ships and aircraft, mining claims and other assets) and pledges (inventory, agricultural assets , industrial assets, plantations and other pledged assets).
ii) Financial Risk
● | Definition and Principles of Financial Risk Management |
The Bank defines this risk as the possibility of an event having unexpected financial consequences on the institution. Although this definition involves a strong adversity component, it also involves an important opportunity component. Therefore, the purpose of financial risk management is not to eliminate this risk, but rather to limit its exposure to negative events in line with the risk appetite of the Bank’s shareholders and the regulations that govern the institution. The main financial risks to which the Bank is exposed are: Market Risk, Liquidity Risk and Counterparty Risk.
● | Market Risk: |
Market Risk is the exposure to economic gains or losses caused by movements in prices and market variables. This risk stems from the activities of the Trading and Banking Books. In the first case, it comes from activities intended to obtain short-term gains and from the intensive use of fair value instruments. In the second case, with a more long-term vision, it stems from commercial activities with products valued at amortized cost.
The following section describes the main market risk factors to which the Bank and its subsidiaries are exposed:
● | Currency Risk |
Currency risk is the exposure to adverse movements in the exchange rates of currencies other than their base currency (CLP in the case of operations in Chile and COP in the case of operations in Colombia) for all those positions inside and outside of balance. The main sources of exchange risk are:
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-185 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
• Trading Book Positions in foreign currency (MX).
• Currency mismatches between the assets and liabilities of the Banking Book.
• Currency flow mismatches.
• Structural positions, generated by consolidating the financial statements, assets and liabilities denominated in currencies other than the Chilean peso registered in branches and subsidiaries abroad.
The foregoing means that movements in exchange rates can generate volatility in both the Bank’s net income and equity. This effect is known as "translation risk"
● | Inflation Risk and Indexes Adjuntments Risk |
The risk of readjustment is the exposure due to changes in the units or indexes of readjustment (such as UF, UVR or others) defined in national or foreign currency, in which some of the instruments, contracts or other operations registered in the balance with such characteristics.
● | Interest Rate Risk |
Interest Rate Risk is the exposure to movements in market interest rates. Changes in market interest rates can affect both the price of instruments recorded at fair value and the financial margin and other gains from the Banking Book such as fees. Fluctuations in interest rates also affect the Bank's economic value.
Interest rate risk can be represented by sensitivities to parallel and/or non-parallel yield shifts with the effects reflected in the prices of instruments, the financial margin, equity and economic value.
The measurement of the structural interest rate risk is carried out through the representation by risk factor of the cash flows expressed in fair value, assigned on the dates of re-pricing and by currency. This methodology facilitates the detection of interest risk concentrations in the different terms.
All balance sheet and off balance sheet items are broken down into their cash flows and assigned to repricing and maturity buckets. In the case of those accounts that do not have a contractual maturity, an internal model is used to estimate their durations and interest rate sensitivities.
The exposures presented above correspond to the present values resulting from:
● Model contract flows according to their behaviors that affect market risk exposure. Example: prepayment, renewal, etc.
● Discounting the cash flows of instruments accounted for at amortized cost by the opportunity cost.
● Discounting the cash flows of instruments accounted for through mark to market at market rates.
● | Volatility Risk |
In addition to the exposure related to the underlying asset, buying or selling options has other risks. These risks arise from the non-linear relationship between the gains or losses generated by options and the prices of the underlying factors, as well as from the exposure to changes in the price volatility of the underlying asset, among other factors.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-186 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
● | Liquidity Risk |
Liquidity Risk is the exposure of the Bank's and its subsidiaries to events that affect their ability to meet, in a timely manner and at reasonable costs, cash payment obligations arising from maturities of time deposits that are not renewed, withdrawals from demand accounts, maturities or settlements of derivatives, liquidations of investments or any other payment obligation.
Financial institutions are exposed to funding liquidity risk that is intrinsic to the role of intermediary that they play in the economy. In general, in financial markets demand for medium or long-term financing is usually much greater than the supply of funds for those terms while short-term financing is in considerable supply. In this sense, the role of intermediary played by financial institutions, which assume the risk of satisfying the demand for medium and long-term financing by brokering short-term available funds, is essential for the economy to function properly.
Appropriately managing funding liquidity risk not only allows contractual obligations to be met in a timely manner, but also enables:
- | The liquidation of positions, when it so decides, to occur without significant losses. |
- | The commercial and treasury activities of the Bank and its subsidiaries to be financed at competitive rates. |
- | The Bank to avoid fines or regulatory penalties for not complying with regulations. |
iii) Financial Risk Management
We define financial risk management as the process of identifying the risks to which the Institution is exposed, quantifying those risks and then managing them according to the Bank’s risk appetite and business objectives. The above implies an active monitoring of the risks, studying their evolution over time. The risk management process can be broken down into the following stages:
● | Identification of Financial Risks |
Financial Risk Management has a high-level technical team that constantly monitors the activities of the Bank and its subsidiaries to identify, quantify and control financial risks. In addition, the Bank’sTreasury function acts as the first line of defense playing a key role in the detection of risks. Banco Itaú Chile has a structure in place that facilitates this risk identification role by maintaining independence in its activities as well as actively participating in the creation / modification of products.
● | Quantification and Control of Exposure to Financial Risk |
Once all financial risks have been identified, the Financial Risk Management function is responsible for their quantification. Financial risk factors are subject to limits at various levels, according to the Risk Appetite set by the Board as well as applicable regulations.
The Financial Risk Management function proposes a framework of limits and warnings, quantitative and qualitative that are reviewed and approved by the ALCO and the Board of Directors. Additionally, the Financial Risk Management function develops tools and valuation models, conducts stress tests, measures the degree of concentration with inter-Bank counterparts, draws up the policies and procedures manual, as well as monitors authorized limits and alerts, which are reviewed at least annually.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-187 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
The metrics, by type of risk, used to quantify the exposures are detailed below:
● | Metrics and limits of Market Risk |
Taking into account the complexity and relevance of the portfolios managed by Banco Itaú Chile different instruments have been established to control market risks, according to the characteristics of the financial products of the Trading Book and Banking Book
The following are the regulatory and internal metrics used for the monitoring and control of market risk:
● | Market Risk Metrics and Limits for the Trading and Banking Portfolio |
The Bank´s measures regulatory exposures in line with the standardized methodologies established by the Central Bank (Chapter III B-2 Standard of measurement and control of market risk for Banks", of the Compendium of Financial Regulations), supplemented by the CMF in Chapter 12 21 “Measurement and control of market risks rules”, which correspond to the methodologies standardized by the Basel Committee to quantify the market risk exposures of the Trading and Banking Books.
The regulatory measurement of Trading Book market risk allows estimating the potential loss that the Bank could face from market fluctuations according to standardized shocks defined by the regulator. The regulatory limit corresponds to the sum of this risk (also called Market Risk Exposure or MRE) and 10% of the Risk-weighted Assets for Credit Risk; Said sum may in no case be greater than the Effective Equity of the Bank.
The Bank must permanently observe these limits and report them to the CMF, also reporting monthly on the consolidated risk position, including subsidiaries and branches abroad.
Below is the consumption of the regulatory market risk limit, specifically for the Trading Portfolio as of December 31, 2022, 2021 and 2020.
| As of December 31, | ||||||
Limit consumption |
| 2022 |
| 2021 |
| 2020 | |
Market risk exposure (MRE) |
| | % | | % | | % |
The regulatory risk measurement for the Banking Book is used to estimate the Bank’s potential losses from standardized adverse movements in interest and exchange rates.
The standardized regulatory report for the Banking Book is used to estimate the Bank’s potential economic losses from standardized adverse movements in interest rates defined by the CMF. Currently, limits for short-term exposure (STE) to interest rate and inflation risk in the Banking Book are set at 35% of annual operating income (LTM moving period) and for long-term limit consumption (LTE) at less than 20% of the Bank’s regulatory capital.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-188 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
The following table details regulatory limit consumption for market risk, as a percentage of the limit calculated based on the rules indicated above, specifically for the Banking Book as of December 31, 2022, 2021 and 2020:
As of December 31, |
| ||||||
Limit consumption |
| 2022 |
| 2021 |
| 2020 | |
Short-term exposure to interest rate risk | | % | | % | | % | |
Long-term exposure to interest rate risk |
| | % | | % | | % |
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020 the Bank has complied with all regulatory requirements and limits, as well as with all financial covenants, such as risk weighed capital adequacy ratio, single borrower exposure, aggregate large exposure, concentration risk, equity to assets ratio, coverage ratio of provisions, among others.
Value at risk (VaR)
● | Calculation of Historical Value at Risk (Non-parametric), which is an estimate of the maximum potential economic loss at a certain confidence level and a given time horizon. Historical VaR, as opposed to Statistical or Parametric VaR, is based on the observed distribution of past returns, does not need to make assumptions of probability distributions (frequently normal distribution) and, therefore, does not need a mean (assumed 0), standard deviation and correlations across returns (parameters). The Bank’s uses a 99% confidence level and a time horizon of 1 day. |
● | Calculation of Volatility-Adjusted Historical Value at Risk (Non-parametric). This measurement is based on the above and the profit and loss vector is adjusted according to whether it is facing a period of greater or less volatility. |
The Board and Top Management define limits on the Value at Risk which are monitored on a daily basis. The measurement is also subjected to backtesting to verify that the daily losses that effectively occurred do not exceed VaR more than once every 100 days. The result is monitored daily to confirm the validity of the assumptions, hypotheses as well as the adequacy of the parameters and risk factors used in the VaR calculation.
The Bank in turn calculates VaR for sub/portfolios and risk factors, which allows it to quickly detect risk concentrations. The VaR metrics are complemented by stress testing taking into account prospective, historical and standardized scenarios.Although the Value at Risk model is one of the models most frequently used by the local financial industry, like any model it has limitations that must be considered
● | It does not take into account the expected loss in the event that the return on the portfolio is above the confidence level defined in the VaR. That is, in the case of the Bank it does not reflect what happens in the 1% of the queue. This is mitigated with the stress measures detailed below. |
● | It does not consider intraday results, but only reflects the potential loss given current positions. |
● | It does not take into account potential changes in the dynamics of movements in market variables (i.e. potential changes in the matrix of variance and covariance). |
Sensitivity Measurements
The Bank uses stress testing as a sensitivity analysis tool in order to control financial risk. This measurement is performed separately for the Trading and Banking Books.
Sensitivity is estimated using the DV01 indicator, which is a measure of sensitivity of portfolio results if the zero coupon interest rate of the risk factor increases by 1 basis point (0.01%) for different maturities and in annualized terms.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-189 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
In accordance with IFRS 7, the following table presents an estimate of the likely, but reasonable impact of fluctuations in interest rates, exchange rates and implicit volatilities (market factors) that would impact the Trading and Banking Book.
The fluctuations in market factors correspond to highly probable scenarios chosen from among a set of scenarios agreed upon based on the opinions of specialists in economics and financial risk and operators. In order to estimate sensitivity, sensitivity (DV01) and the reasonably likely scenarios must be multiplied by risk factor.
Interest rate scenarios - Chile (basis points – 0.01%)
The interest rate shock scenarios on income accounting average +
In the case of interest rate shocks associated with fair value accounting in other comprehensive income, the shock also averages +
Interest rate scenarios - Colombia (basis points – 0.01%)
The interest rate shock scenarios on income accounting average +
In the case of interest rate shocks associated with fair value accounting in other comprehensive income, the shock also averages +
Chile exchange rate scenarios
As of December 31, 2022 for the exchange rate impact scenarios, in results, in fair value accounting in other comprehensive income, and in equity, the worst case shock would imply a change of -
As of December 31, 2021 for the exchange rate impact scenarios, in results, in fair value accounting in other comprehensive income, and in equity, the worst case shock would imply a change of +
Colombia exchange rate scenarios
As of December 31, 2022 for the exchange rate impact scenarios, in results, in fair value accounting in other comprehensive income, and in equity, the worst case shock would imply a change of +
As of December 31, 2021 for the exchange rate impact scenarios, in results, in fair value accounting in other comprehensive income, and in equity, the worst case shock would imply a change of +
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-190 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
Impact on P&L derived from sensitivity analysis
The following table presents the impact of the movements or reasonably likely scenarios explained above applied to positions in the Trading Book that affect the P&L (net income from financial operations, net foreign exchange gains/losses and interest margin, as applicable) as of December 31, 2022, 2021 and 2020.
As of December 31, | ||||||
Potential impact on P&L | 2022 | 2021 | 2020 | |||
| MCh$ |
| MCh$ |
| MCh$ | |
CLP rate risk |
| ( |
| ( |
| ( |
Derivatives |
| ( |
| ( |
| ( |
Debt instruments |
| — |
| — |
| — |
CLF rate risk |
| ( |
| ( |
| ( |
Derivatives |
| ( |
| ( |
| ( |
Debt instruments |
| — |
| — |
| — |
COP rate risk |
| |
| |
| ( |
Derivatives |
| |
| |
| ( |
Debt instruments |
| — |
| ( |
| ( |
UVR rate risk |
| |
| ( |
| ( |
Derivatives |
| |
| — |
| |
Debt instruments |
| — |
| ( |
| ( |
USD rate risk |
| ( |
| ( |
| ( |
Other currencies rate risk |
| ( |
| ( |
| ( |
Total rate risk |
| ( |
| ( |
| ( |
Exchange rate risk |
| ( |
| |
| ( |
Options risk |
| |
| |
| |
Total impact |
| ( |
| ( |
| ( |
The following table presents the impact on the net interest margin of movements or reasonably likely scenarios on positions in the Accrual Book for the years ended December 31, 2022, 2021 and 2020:
For the years ended December 31, | ||||||
Potential impact on Accrual Book |
| 2022 |
| 2021 |
| 2020 |
Interest rate shock sensitivity impact | |
| ( |
| ( | |
The impact on the Banking Book does not necessarily mean a gain/loss but it does mean smaller/larger net income from the generation of funds (net funding income, which is the net interest from the accrual portfolio) for the next 12 months.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-191 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
Impact on net equity derived from sensitivity analysis
As well as the effects on profit and loss of positions carried at fair value and at amortized cost, variations in market factors due to reasonably possible movements in interest rates and exchange rates also generate impacts on the equity accounts as a result of the possible variation in the market value of the investment portfolio at fair value/available-for-sale instruments and of the cash flow hedge and net foreign investment portfolios, which are presented in the following table:
For the years ended December 31, | ||||||||||||||||||
2022 | 2021 | 2020 | ||||||||||||||||
Potential Impact | DV01 | Impact of Change in | DV01 | Impact of Change in | DV01 | Impact of Change in | ||||||||||||
on FVTOCI |
| (+1 bp) |
| Interest Rate |
| (+1 bp) |
| Interest Rate |
| (+1 bp) |
| Interest Rate | ||||||
US$ | MUS$ | MCh$ | US$ | MUS$ | MCh$ | US$ | MUS$ | MCh$ | ||||||||||
CLP | ( | ( | ( |
| ( | ( | ( |
| ( | ( | ( | |||||||
CLF | | ( | ( |
| | ( | ( |
| ( | ( | ( | |||||||
COP | ( | ( | ( |
| ( | ( | ( |
| | ( | ( | |||||||
UVR | ( | ( | ( |
| ( | ( | ( |
| ( | ( | ( | |||||||
USD | ( | ( | ( |
| ( | ( | ( |
| ( | ( | ( | |||||||
Other | — | — | — |
| — | — | — |
| | ( | ( | |||||||
Total interest rate impact | ( | ( | ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( | |||
Impact due to changes in prices | ||||||||
Exchange rate |
| As of December 31, 2022 |
| As of December 31, 2021 | ||||
ThUS$ | MCh$ | ThUS$ | MCh$ | |||||
USD | ( | ( | | | ||||
COP | ( | ( | — | — | ||||
Total risk exchange rate | ( | ( | | | ||||
Total impact | ( | ( | ( | ( | ||||
Hedging
The Bank utilizes a variety of hedging strategies and instruments to manage financial risks arising from trading book and banking book exposures. In cases where the hedging instruments are subject to an accounting treatment different from that of the underlying exposures that are the object of the hedge, the Bank may employ hedge accounting treatment to eliminate accounting asymmetries that could generate undue volatility in the Bank’s earnings, equity and/or capital positions.
The use of accounting hedges is subject to the limits defined by the Board of Directors, the definitions of the Assets and Liabilities Committee (ALCO) and the Hedging Policy.
The Treasury is responsible for designing and implementing the hedging strategies and the Financial Risk Management function is responsible for measuring and monitoring the effectiveness of the hedges, generating indicators of effectiveness that are constantly monitored. (For more detail on the accounting hedging strategies, review Note 8).
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-192 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
Operational Risk
The Bank and its subsidiaries define operational risk as the possibility of losses resulting from failures, deficiencies or inadequacies in internal processes, people, and systems or external events, including in this definition the legal risk and excluding strategic and reputational risks. Operational risk is recognized as a manageable risk, for which the Bank has established an Operational Risk Management function.
The Bank adopts a model of three lines of defense as the primary way to implement its operational risk management structure, internal controls and compliance, ensuring compliance with corporate guidelines.
The defense lines are composed by; the business and support areas (first line of defense), which are primarily responsible for managing the risks related to their processes; Operational Risk, Internal Controls, and Compliance (second line of defense) area in charge of supporting the first line of defense in relation to the fulfillment of its direct responsibilities; and the Internal Audit function (third line of defense) responsible for independently verifying the adequacy of the risk identification and management processes and procedures, in accordance with the guidelines established in the Internal Audit Policy and submitting the results of its recommendations for improvement to the Audit Committee.
The risk management program contemplates that all relevant risk issues must be reported to the higher levels of the organization and to the Operational Risk Committee.
Our methodology consists in the evaluation of risks and controls of a business from a broad perspective and includes a plan to monitor the effectiveness of such controls and the identification of eventual weaknesses. The main objectives of the Bank and its subsidiaries in terms of operational risk management are the following:
● | Identification, evaluation, information, management, and monitoring of the operational risk in connection with activities, products, and processes carried out or commercialized by the Bank and its subsidiaries; |
● | Build a strong culture of operational risk management and internal controls, with clearly defined and adequately segregated responsibilities between business and support functions. |
● | Generate effective internal reports in connection with issues related to operational risk management, with a clearly defined escalation protocol; |
● | Control the design and application of effective plans to deal with contingencies that ensure business continuity and losses control. |
Regarding training and awareness, the risk culture continues to be reinforced through face-to-face training in the field of operational risk, internal control, prevention of external and internal fraud, and the implementation of the annual "more security" program for all staff and introduction programs for new employees.
Finally, it is worth mentioning that Sarbanes-Oxley methodologies (SOX) continue to be applied for their main products and processes, the application of this methodology is annually certified by an external consultant.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-193 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
Capital Management
The primary objectives of the Bank's capital management are to ensure compliance with regulatory requirements, maintain a strong credit rating and healthy capital ratios. During the years ended December 31, 2022 and 2021, the Bank has fully complied with the capital requirements.
In January 2019, Law No. 21,130 was issued, which modernizes the banking legislation with the objective of implementing the practices promoted at international level by the Basel III agreement, introducing amendments to the General Banking Law (hereinafter "LGB"). In order to implement the standards, the Financial Market Commission initiated the regulatory process for their implementation by incorporating amendments and new chapters to the Updated Compilation of Standards (hereinafter "RAN").
The application of the regulatory adjustments and exclusions from the capital base will be gradual, in accordance with the transitional provisions of Chapter 21-1, starting with a
Assets are weighted according to risk categories as established in Chapter 21-6 "Determination of assets weighted by credit risk", Chapter 21-7 "Determination of assets weighted by market risk" and Chapter 21-8 "Standardized methodology for the computation of assets weighted by operational risk".
All derivative instruments traded outside of stock exchanges are considered in the determination of risk assets with a conversion factor on the notional values, thus obtaining the amount of exposure to credit risk (or "credit equivalent"). Off-balance sheet contingent credits are also considered as "credit equivalent" for their weighting, in accordance with the provisions of Chapter 21-6 of the RAN.
Regarding its implementation, the new regulation for solvency measurement purposes and regulatory minimum requirements will be effective as of December 1, 2021 and will be implemented gradually until it is fully established as of December 1, 2025.
Finally, on March 30, 2022, the Financial Market Commission (CMF in Spanish) informed the Bank of the result obtained in its annual review, in order to qualify the quality of a systemic bank at the local level. The Board of the CMF, with the prior favorable agreement of the Central Bank of Chile, determined to maintain Banco Itaú Chile rating as systemically important, determining in this regard a basic capital requirement on risk-weighted assets of
In accordance with the General Banking Law (LGB), the Bank must maintain a minimum ratio of Cash Equity to Consolidated Risk-Weighted Assets of 8% in accordance with article 66 of the LGB, In addition to the above, it must maintain an additional core capital equivalent to 0.625% of its risk-weighted assets in accordance with article 66 bis of the General Banking Law, net of required provisions, and a minimum ratio of Core Capital to Total Consolidated Assets of 3%, net of required provisions, However, as of the Bank's merger, the regulator determined that the resulting Bank's Cash Equity must consider an additional
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-194 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
This way, the capital requirement determined as the minimum ratio of Cash Equity to Consolidated Risk-Weighted Assets is composed considering the regulatory minimum of 8% (article 66 General Banking Law),
a) According to local regulations, as of December 31, 2022 the relation between assets and risk weighted assets based on Basel III is as follow:
Global consolidated | ||||||
No. Item | Note | As of December 31, | ||||
2022 | 2021 | |||||
MCh$ | MCh$ | |||||
1 | Total assets according to the statement of financial position, excluding financial derivative contracts | | | |||
2 | Investment in subsidiaries that are not consolidated | a | — | — | ||
3 | Assets discounted from regulatory capital, other than item 2 | b | | | ||
4 | Credit equivalent | c | | | ||
5 | Contingent receivables | d | | | ||
6 | Assets arising from the intermediation of financial instruments | e | | | ||
7 | = (1-2-3+4+5-6) Total assets for regulatory purposes | | | |||
8.a | Credit risk-weighted assets, estimated using standard methodology (APRC) | f | | | ||
8.b | Credit risk-weighted assets, estimated according to internal methodology (APRC) | f | — | — | ||
9 | Assets weighted by market risk (APRM) | g | | | ||
10 | Assets weighted by operational risk (APRO) | h | | | ||
11.a | = (8.a/8.b+9+10) Risk-weighted assets (RWA) | | | |||
11.b | = (8.b/8.b+9+10) Risk-weighted assets, after application of the output floor (APR) | — | | |||
12 | Equity attributable to equity holders of the Bank | | | |||
13 | Non-controlling interest | i | | | ||
14 | Goodwill | j | | | ||
15 | Excess minority investments | k | — | — | ||
16 | = (12+13-14-15) Common Equity Tier 1 Equivalent (CET1) | | | |||
17 | Additional deductions to common equity tier 1, other than item 2 | l | | — | ||
18 | = (16-17-2) Common equity common equity tier 1 (CET1) | | | |||
19 | Voluntary provisions (additional) incorporated as Additional Capital Tier 1 (AT1) | m | — | — | ||
20 | Subordinated bonds imputed as Additional Capital Tier 1 (AT1) | m | | | ||
21 | Preferred shares imputed as Additional Capital Tier 1 (AT1) | — | — | |||
22 | Bonds with no fixed term to maturity imputed to Additional Capital Tier 1 (AT1) | — | — | |||
23 | Discounts applied to AT1 | l | — | — | ||
24 | = (19+20+21+22+22-23) Additional capital level 1 (AT1) | | | |||
25 | = (18+24) Tier 1 capital | | | |||
26 | Voluntary (additional) provisions imputed as Tier 2 capital (T2) | n | | | ||
27 | Subordinated bonds imputed as Tier 2 capital (T2) | n | | | ||
28 | = (26+27) Equivalent Tier 2 capital (T2) | | | |||
29 | Discount applied to T2 | l | — | — | ||
30 | = (28-29) Tier 2 capital (T2) | | | |||
31 | = (25+30) Effective equity | | | |||
32 | Additional core capital required for the constitution of the conservation buffer | p | | | ||
(a) Corresponds to the value of the investment in subsidiaries that are not consolidated. Applies only in local consolidation when the bank has subsidiaries abroad, and their value is fully deducted from assets and CET1. b) Corresponds to the value of the asset items that are deducted from regulatory capital, in accordance with the provisions of paragraph a) of Title No, 3 of Chapter 21 30 of the RAN, Item No Note Total assets, risk-weighted assets and components of effective equity according to Basel III-tem Description.
c) Corresponds to the credit equivalents of derivative instruments in accordance with paragraph (b) of title No, 3 of Chapter 21 30 of the RAN.
d) Corresponds to the contingent exposures as established in paragraph c) of title No, 3 of Chapter 21 30 of the RAN.
e) Corresponds to the assets from the intermediation of financial instruments in its own name on behalf of third parties, which are within the bank's consolidation perimeter, as established in paragraph (c) of Title No, 3 of Chapter 21 30 of the RAN.
f) Corresponds to the assets weighted by credit risk, estimated according to RAN Chapter 21 6, If the bank is not authorized to apply internal methodologies, it must report field 8,b with zero and add 8,a in field 11,a, If it has the authorization, it must add 8.b in 11.a.
g) Corresponds to the assets weighted by market risk, estimated according to Chapter 21 7 of the RAN.
h) Corresponds to the assets weighted by market risk, estimated according to Chapter 21 8 of the RAN.
i) Corresponds to the non-controlling interest, according to the level of consolidation, up to 20% of the owners' equity.
j) Assets corresponding to goodwill.
k) Corresponds to the balances of the assets of investments in companies other than business support companies that do not participate in the consolidation, in excess of 5% of the owners' equity.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-195 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 36 - Risk management, continued
l) In the case of CET1 and T2, banks must estimate the equivalent value for each level of capital, as well as that obtained by fully applying Chapter 21 1 of the RAN, Then, the difference between the equivalent value and the fully applied value must be weighted by the discount factor in effect at the reporting date according to the transitional provisions of Chapter 21 1 of the RAN, and reported in this row, In the case of AT1, discounts are applied directly if any.
m) Provisions and subordinated debentures imputed to additional tier 1 capital (AT1), as established in Chapter 21 2 of the RAN.
n) Provisions and subordinated debentures imputed to the equivalent definition of Tier 2 capital (T2), as established in Chapter 21 1 of the RAN.
o) In accordance with the transitory provisions, as of December 1, 2022, the solvency requirements will also be made at the local consolidated level, reporting the figures at this level in this column, Bank without subsidiaries abroad should not fill in these data.
p) Corresponds to the additional core capital (CET1) for the constitution of the conservation buffer, as established in Chapter 21 12 of the RAN.
q) Corresponds to the additional core capital (CET1) for the constitution of countercyclical buffer, as established in Chapter 21 12 of the RAN.
r) Corresponds to the additional basic capital (CET1) for banks qualified as systemic, as established in Chapter 21 11 of the RAN.
s) Corresponds to the additional capital for the evaluation of the adequacy of the effective equity (Pillar 2) of the bank, as established in Chapter 21 13 of the RAN.
b) Below are the solvency indicators and regulatory compliance indicators according to Basel III (in % with two decimals).
Global consolidated | ||||||
No. Item | Solvency ratios and regulatory compliance ratios according to Basel III | Note | As of December 31, | |||
2022 | 2021 | |||||
% | % | |||||
1 | Leverage ratio (T1_I18/T1_I7) | | | |||
3 | Common equity tier 1 ratio (T1_I18/T1_I11.b) | | | |||
5 | Tier 1 capital ratio (T1_I25/T1_I11.b) | | | |||
6 | Capital Adequacy ratio (T1_I31/T1_I11.b) | | | |||
7 | Solvency rating (Level A, B or C) | a | A | A | ||
Regulatory compliance ratios for solvency | ||||||
8 | Voluntary (additional) provisions imputed in Tier 2 capital (T2) in relation to APRCs (T1_I26/(T1_I8.a or 8.b)) | b | | | ||
9 | Subordinated bonds imputed in tier 2 capital (T2) in relation to common equity tier 1(CET1) | c | | | ||
10 | Additional tier 1 capital (AT1) relative to common equity tier 1 (CET1) (T1_I24/T1_I18) | d | | | ||
11 | Voluntary (additional) provisions and subordinated debentures that are imputed to Additional Tier 1 capital (AT1) in relation to RWA ((T1_I19+T1_I20)/T1_I11.b) | e | | | ||
a) In the case of leverage, the minimum level is
b) The capital buffer deficit must be estimated in accordance with the provisions of Chapter 21-12 of the RAN, This value defines the restriction on the distribution of dividends if it were positive, according to the provisions of the Chapter mentioned above, In the case of effective equity, the value of the current conservation and countercyclical buffer must be added according to transitory provisions at the date of the report, the value defined in note a), even when there is a requirement by article 35 bis of the LGB,
c) If the bank had a current effective equity requirement by article 35 bis of the LGB, it must report its value in this cell in accordance with the transitory provisions,
d) (Corresponds to the solvency classification as established in Article 61 of the General Banking Law,
e) Limit of
f) Subordinated bonds imputed to Tier 2 capital must not exceed 50% of Common Equity Tier 1 (CET1), taking into account the discounts applied to these instruments according to Chapter 21-1, instruments according to Chapter 21-1 of the RAN,
g) Additional tier 1 capital (AT1) cannot exceed of ordinary tier 1 capital (CET1),
h) The additional provisions and subordinated bonds imputed to AT1 cannot exceed
In accordance with the transitory provisions, as of December 1, 2022, the solvency requirements will also be made at the local consolidated level, reporting the figures at this level in this column, Bank without subsidiaries abroad should not fill in these data.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-196 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 37 - Maturity of assets and liabilities
The main assets grouped by maturity, including interest accrued as of December 31, 2022 and 2021, are detailed as follows:
As of December 31, 2022 | ||||||||||||||||
Over 1 month | Over 3 months | Over between | ||||||||||||||
On demand | Up to | less than | up to | 1 and | Over 3 up to | More than | Total | |||||||||
| 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | ||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and deposits in banks | | — | — | — | — | — | — | | ||||||||
Cash in process of collection | | — | — | — | — | — | — | | ||||||||
Financial instruments at fair value through profit or loss |
| — | | | | | | |
| | ||||||
Financial instruments at fair value through other comprehensive income |
| — | | | | | | |
| | ||||||
Loans and accounts receivable from customers at amortized cost (2) |
| | | | | | | |
| | ||||||
Commercial loans |
| | | | | | | |
| | ||||||
Mortgage loans |
| | | | | | | |
| | ||||||
Consumer loans |
| | | | | | | |
| | ||||||
Financial instruments at amortized cost |
| — | ( | | | | | |
| | ||||||
Investments under resale agreements |
| — | | | — | — | — | — | | |||||||
Financial derivative contracts held for hedge accounting | — | | | | | | | | ||||||||
Financial derivatives contracts held for trading |
| — | | | | | | |
| | ||||||
Interbank loans (1) |
| — | | | | — | — | — |
| | ||||||
Subtotal | | | | | | | | | ||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash in process of being cleared | | — | — | — | — | — | — | | ||||||||
Obligations under repurchase agreements |
| — | | | — | — | — | — |
| | ||||||
Deposits and other demand liabilities | | — | — | — | — | — | — | | ||||||||
Time deposits and other time liabilities |
| | | | | | | |
| | ||||||
Financial derivative contracts held for hedge accounting | — | | | | | | | | ||||||||
Financial derivatives contracts held for trading |
| — | | | | | | |
| | ||||||
Interbank borrowings | — | | | | | | |
| | |||||||
Lease obligations |
| — | | | | | | | | |||||||
Debt instruments issued |
| — | | ( | | | | | | |||||||
Financial instruments of regulatory capital issued | — | — | | — | | — | | | ||||||||
Other financial liabilities | — | | | | | — | — | | ||||||||
Subtotal |
| |
| | |
| |
| |
| |
| |
| | |
(1) Interbank loans are presented gross. The amount of allowances corresponds to MCh$
(2) Loans and accounts receivable from customers at amortized cost are presented gross. Allowances by loan type are detailed as follows: Commercial
MCh$
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-197 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 37 - Maturity of assets and liabilities, continued
As of December 31, 2021 | ||||||||||||||||
Over 1 month | Over 3 months | Over between | ||||||||||||||
On demand | Up to | less than | up to | 1 and | Over 3 up to | More than | Total | |||||||||
| 1 month | 3 months | 1 year | 3 years | 5 years | 5 years | ||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Assets | ||||||||||||||||
Cash and deposits in banks | | — | — | — | — | — | — | | ||||||||
Cash in the process of collection | | — | — | — | — | — | — | | ||||||||
Financial instruments at fair value through profit or loss |
| — | | | | | | |
| | ||||||
Financial instruments at fair value through other comprehensive income |
| — | | | | | | |
| | ||||||
Loans and accounts receivable from customers at amortized cost (2) |
| | | | | | | |
| | ||||||
Commercial loans |
| | | | | | | |
| | ||||||
Mortgage loans |
| | | | | | | |
| | ||||||
Consumer loans |
| | | | | | | |
| | ||||||
Financial instruments at amortized cost |
| — | | | | | | — |
| | ||||||
Investments under resale agreements |
| — | | | | — | — | — | | |||||||
Financial derivative contracts held for hedge accounting | — | | | | | | | | ||||||||
Financial derivatives contracts held for trading |
| — | | | | | | |
| | ||||||
Interbank loans (1) |
| — | | — | — | — | — | — |
| | ||||||
Subtotal | | | | | | | | | ||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash in process of being cleared | | — | — | — | — | — | — | | ||||||||
Obligations under repurchase agreements |
| — | | | — | — | — | — |
| | ||||||
Deposits and other demand liabilities | | — | — | — | — | — | — | | ||||||||
Time deposits and other time liabilities |
| | | | | | | |
| | ||||||
Financial derivative contracts held for hedge accounting | — | | | | | | | | ||||||||
Financial derivatives contracts held for trading |
| — | | | | | | |
| | ||||||
Interbank borrowings | — | | | | | | |
| | |||||||
Lease obligations |
| — | | | | | | | | |||||||
Debt instruments issued |
| — | | | | | | | | |||||||
Financial instruments of regulatory capital issued | — | — | — | | | — | | | ||||||||
Other financial liabilities | — | | — | — | — | — | — | | ||||||||
Subtotal | |
| | |
| |
| |
| |
| |
| | ||
(1) Interbank loans are presented gross. The amount of allowances corresponds to MCh$
(2) Loans and accounts receivable from customers at amortized cost are presented gross. Allowances by loan type are detailed as follows: Commercial
MCh$
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-198 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 38 - Foreign currency position
In the Consolidated Statements of Financial Position as of December 31, 2022 and 2021, assets and liabilities are included in local and foreign currency, as well as inflation-indexation adjustable and adjustable by the variation of the exchange rate, for the amounts indicated below:
Other | Exchange rate | |||||||||||||||||
As of December 31, 2022 |
| Note |
| CLP (1) |
| UF |
| USD |
| COP |
| EUR |
| currencies |
| adjustable |
| Totals |
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||
Cash and deposits in banks |
| 5a) |
| | — | | | | | — | | |||||||
Cash items in process of collection |
| 5b) |
| | — | | | | | — | | |||||||
Financial instruments at fair value through profit or loss |
| 6 |
| | — | | — | — | — | — | | |||||||
Financial instruments at fair value through other comprehensive income |
| 11 |
| | | | | — | — | — | | |||||||
Loans and accounts receivable at amortized cost |
| 10 |
| | | | | | | — | | |||||||
Financial instruments at amortized cost |
| 11 |
| | | — | | — | — | — | | |||||||
Investments under resale agreements |
| 7 |
| | — | — | | — | — | — | | |||||||
Investments in companies | | — | | — | | — | — | | ||||||||||
Financial derivative contracts |
| 8 |
| | | | | — | — | — | | |||||||
Financial derivative contracts held for hedge accounting | | — | | — | — | — | — | | ||||||||||
Interbank loans, net |
| 9 |
| — | — | | | — | — | — | | |||||||
Intangible assets |
| 13 |
| | — | | | — | — | — | | |||||||
Property, plant, and equipment |
| 14 |
| | — | | | — | — | — | | |||||||
Right-of-use asset under lease agreements | 15 | | — | | | — | — | — | | |||||||||
Current taxes |
| 16 |
| | — | — | | — | — | — | | |||||||
Deferred taxes |
| 16 |
| | — | | | — | — | — | | |||||||
Other assets |
| 17 |
| | | | | | | | | |||||||
Other non-current assets held for sale |
| 17 |
| | — | | | — | — | — | | |||||||
TOTAL ASSETS |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
Deposits and other demand liabilities |
| 18 |
| | | | | | | — |
| | ||||||
Cash in process of being cleared |
| 5b) |
| | — | | | | | — |
| | ||||||
Obligations under repurchase agreements |
| 7 |
| | — | | | — | — | — |
| | ||||||
Time deposits and other time liabilities |
| 18 |
| | | | | | — | |
| | ||||||
Financial derivative contracts |
| 8 |
| | | | | — | — | — |
| | ||||||
Financial derivative contracts held for hedge accounting | | — | — | | — | — | — | | ||||||||||
Interbank borrowings |
| 19 |
| | | | | | | — |
| | ||||||
Debt instruments issued |
| 20 |
| | | — | | — | — | — |
| | ||||||
Financial instruments of regulatory capital issued | — | | | | — | — | — | | ||||||||||
Other financial liabilities |
| 20 |
| | — | | — | — | — | — |
| | ||||||
Lease contracts liabilities | 15 | | | | | — | — | | | |||||||||
Current taxes |
| 16 |
| — | — | — | | — | — | — |
| | ||||||
Deferred taxes |
| 16 |
| — | — | — | — | — | — | — |
| — | ||||||
Provisions |
| 21 |
| | — | | | — | — | — |
| | ||||||
Other liabilities |
| 22 |
| | | | | | — | — |
| | ||||||
Liabilities directly associated with non-current assets held for sale |
| 22 |
| — | — | — | — | — | — | — |
| — | ||||||
TOTAL LIABILITIES |
|
|
| |
| |
| |
| |
| | |
| |
| | |
Assets (liabilities) net |
|
|
| ( |
| |
| |
| ( |
| | |
| |
| |
(1) Includes transactions denominated in foreign currencies but that are settled in pesos.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-199 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 38 - Foreign currency position, continued
Other | Exchange rate | |||||||||||||||||
As of December 31, 2021 |
| Note |
| CLP (1) |
| UF |
| USD |
| COP |
| EUR |
| currencies |
| adjustable |
| Totals |
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||
Cash and deposits in banks |
| 5a) |
| | — | | | | | — | | |||||||
Cash items in process of collection |
| 5b) |
| |
| — |
| |
| |
| |
| |
| — |
| |
Financial instruments at fair value through profit or loss |
| 6 |
| |
| — |
| — |
| |
| — |
| — |
| — |
| |
Financial instruments at fair value through other comprehensive income |
| 11 |
| | | | | — | — | — |
| | ||||||
Loans and accounts receivable at amortized cost |
| 10 |
| |
| |
| |
| |
| |
| — |
| |
| |
Financial instruments at amortized cost |
| 11 |
| | | ( | | — | — | — | | |||||||
Investments under resale agreements |
| 7 |
| |
| — |
| — |
| |
| — |
| — |
| — | | |
Investments in companies | | — | — | — | — | — | — | | ||||||||||
Financial derivative contracts |
| 8 |
| |
| |
| |
| |
| |
| — |
| — |
| |
Interbank loans, net |
| 9 |
| — |
| — |
| |
| |
| — |
| — |
| — |
| |
Intangible assets |
| 13 |
| |
| — |
| |
| |
| — |
| — |
| — |
| |
Property, plant, and equipment |
| 14 |
| | — | | | — | — | — | | |||||||
Right-of-use asset under lease agreements | 15 | | — | | | — | — | — | | |||||||||
Current taxes |
| 16 |
| | — | | | — | — | — | | |||||||
Deferred taxes |
| 16 |
| | — | | | — | — | — | | |||||||
Other assets |
| 17 |
| |
| |
| |
| |
| |
| — |
| |
| |
Other non-current assets held for sale |
| 17 |
| |
| — |
| — |
| |
| — |
| — |
| — |
| |
TOTAL ASSETS |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
Deposits and other demand liabilities |
| 18 |
| |
| |
| |
| |
| |
| |
| — |
| |
Cash in process of being cleared |
| 5b) |
| |
| — |
| |
| — |
| |
| |
| — |
| |
Obligations under repurchase agreements |
| 7 |
| |
| — |
| — |
| |
| — |
| — |
| — |
| |
Time deposits and other time liabilities |
| 18 |
| |
| |
| |
| |
| |
| — |
| |
| |
Financial derivative contracts |
| 8 |
| | | | | | — | — |
| | ||||||
Interbank borrowings |
| 19 |
| |
| — |
| |
| |
| |
| |
| — |
| |
Debt instruments issued |
| 20 |
| |
| |
| |
| |
| — |
| — |
| — |
| |
Other financial liabilities |
| 20 |
| |
| — |
| — |
| — |
| — |
| — |
| — |
| |
Lease contracts liabilities | 15 | | | | | — | — | | | |||||||||
Current taxes |
| 16 |
| |
| — |
| — |
| |
| — |
| — |
| — |
| |
Deferred taxes |
| 16 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Provisions |
| 21 |
| |
| — |
| |
| |
| — |
| — |
| — |
| |
Other liabilities |
| 22 |
| |
| |
| |
| |
| |
| — |
| — |
| |
Liabilities directly associated with non-current assets held for sale |
| 22 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
TOTAL LIABILITIES |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
Assets (liabilities) net |
|
|
| ( |
| |
| |
| |
| |
| ( |
| |
| |
(1) Includes transactions denominated in foreign currencies but that are settled in pesos.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-200 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 39 - Subsequent events
Extraordinary Shareholders’ Meeting
The Extraordinary Shareholders’ Meeting of Itaú Corpbanca was held on January 19, 2023, at which the following main resolutions were adopted:
(a) Amending (i) Article 1 of the Bylaws, in order to change the business name of the Bank to "BANCO ITAÚ CHILE", and to add the trade name "ITAÚ CHILE", maintaining the current "BANCO ITAÚ" and "ITAÚ” names; (ii) Article 9 of the Bylaws, in order to reduce the number of directors from
The aforementioned amendments will become effective as of the date of the resolution of the Financial Market Commission (the "CMF") approving the amendments to the by-laws agreed upon at the Meeting. The Bank’s Board of Directors shall call a Shareholders’ Meeting to be held within
(b) Decreasing the number of shares in which the share capital is divided from
Each of the Bank’s shareholders shall receive in exchange
Any shares remaining after completion of the exchange will be formally cancelled at an Extraordinary Shareholders’ Meeting that the Board of Directors shall call immediately following the next Ordinary Shareholders’ Meeting to be held after the date on which the exchange is completed.
If, at the time of the share exchange, a number of backup shares in excess of
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-201 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 39 - Subsequent events, continued
At the date of the exchange, shareholders who hold a total number of shares in excess of
As a result of the foregoing, it was agreed to amend Transitory Articles 5 and 1 of the Bylaws, relating to the share capital.
The agreements referred to in this paragraph (b) shall become effective on the date on which the last of the following suspensive and copulative conditions are met: (i) that the CMF approves, via the appropriate resolution, the amendments to the bylaws approved at the Meeting; (ii) that the CMF register with the Securities Registry the
(c) Approving a new text of the Bank's Bylaws that replaces the current Bylaws completely, which includes the amendments to the Bylaws adopted at the Shareholders’ Meeting, and which also contains changes to adapt the Bylaws to legal amendments; and
(d) Broadly empowering the Board of Directors and/or the Bank's Chief Executive Officer to resolve and implement all aspects, modalities, amendments, actions and details that may arise in connection with the resolutions adopted at the Meeting.
Change of Bank’s Name
By Resolution No. 2,215, issued on March 28, 2023, the Comisión para el Mercado Financiero approved the amendments to the by-laws of Itaú Corpbanca (the “Bank”) as resolved at the extraordinary general meeting of shareholders’ held on January 19, 2023, which, among other matters, resolved to change the name of the Bank to “Banco Itaú Chile”, and in turn modify and/or broaden its fantasy names to “Itaú”, “Itaú Chile” and “Banco Itaú”.
The certificate evidencing said resolution was registered in the Registro de Comercio of Santiago on April 3, 2023 and published in the Official Gazette on April 6, 2023.
Consequently, the process of amending the Bank’s by-laws regarding its change of name has been completed, with effect from the date of the aforementioned resolution, that is, on March 28, 2023.
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-202 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 39 - Subsequent events, continued
Banco Itaú Chile announcing 2023 Annual General Shareholder’s Meeting Approvals
On April 20, 2023, Banco Itaú Chile informed by means of a significant event that the following resolutions, among others, were adopted at the Bank's Ordinary Shareholders' Meeting held on April 20, 2023:
1.- To renew in its entirety the Bank’s board of directors. Consequently, the following
Board Members:
1. Diego Fresco Gutiérrez
2. Matias Granata
3. Milton Maluhy Filho
4. Pedro Paulo Giubbina Lorenzini
5. Pedro Samhan Escándar
6. Ricardo Villela Marino
7. Luis Octavio Bofill Genzsch
Alternate Board Member:
1. Rogerio Carvalho Braga
It is noted herein that the board members, Mr. Pedro Samhan Escándar and Mr. Luis Octavio Bofill Genzsch, were appointed as independent directors, as provided in Article 50 bis. of Law No. 18,046.
2.- To distribute a dividend equivalent to
The dividends will be available to the shareholders as of from April 25, 2023. In this regard, shareholders who were registered in the Shareholders Registry at midnight on April 19, 2023, will have the right to receive dividends, that is, those who are registered in said registry
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-203 |
BANCO ITAÚ CHILE AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Note 39 - Subsequent events, continued
Others
In the year between January 1st, 2023 and the date of issuance of these Consolidated Financial Statements, no other subsequent events have occurred that could significantly affect them.
Roxana Zamorano |
| Gabriel Moura | |
Chief Accounting Officer | Chief Executive Officer |
Banco Itaú Chile and Subsidiaries – Consolidated Financial Statements – December 31, 2022 | F-204 |
