株探米国株
英語
エドガーで原本を確認する
6-K 1 ea182341-6k_bankofchile.htm REPORT OF FOREIGN PRIVATE ISSUER

 

 

FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Report of Foreign Private Issuer

 

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

 

For the month of July, 2023

 

Commission File Number 001-15266

 

BANK OF CHILE
(Translation of registrant’s name into English)

 

Ahumada 251  
Santiago, Chile
(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F þ   Form 40-F ☐

 

Indicate by check mark whether by furnishing the information contained in this Form, the
registrant is also thereby furnishing the information to the Commission pursuant to Rule
12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes ☐ No þ

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________ BANCO DE CHILE REPORT ON FORM 6-K

 

 

 

 


 

 

Attached Banco de Chile’s Consolidated Financial Statements with notes as of June 30, 2023.

 

1


 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 

Date: July 27, 2023

 

  Banco de Chile
     
  By: /S/ Eduardo Ebensperger O.
 

Eduardo Ebensperger O.

CEO

 

2

 

EX-99.1 2 ea182341ex99-1_bankofchile.htm CONSOLIDATED FINANCIAL STATEMENTS WITH NOTES AS OF JUNE 30, 2023

Exhibit 99.1

 

 

 


 

BANCO DE CHILE AND SUBSIDIARIES

 

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

 

INDEX

 

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

 

MCh$ = Millions of Chilean pesos
BCh$ = Billions of Chilean pesos

BUS$

 

Billions of U.S. dollars

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

 

 


 

BANCO DE CHILE AND SUBSIDIARIES

INDEX

 

  Page
   
Interim Consolidated Statements of Financial Position 1
Interim Consolidated Statements of Income 3
Interim Consolidated Statements of Other Comprehensive Income 5
Interim Consolidated Statements of Change Equity 6
Interim Consolidated Statements of Cash Flows 7
1. Company information: 9
2. Main Accounting Criteria Used: 10
3. New Accounting Pronouncements Issued and Adopted, or Issued that have not yet been Adopted: 46
4. Accounting Changes: 50
5. Relevant Events: 50
6. Business Segments: 52
7. Cash and Cash Equivalents: 55
8. Financial Assets Held for Trading at Fair Value through Profit or Loss: 56
9. Non-trading Financial Assets mandatorily measured at Fair Value through Profit or Loss: 58
10. Financial Assets and Liabilities designated as at Fair Value through Profit or Loss: 58
11. Financial Assets at Fair Value through Other Comprehensive Income: 59
12. Derivative Financial Instruments for hedging purposes: 62
13. Financial assets at amortized cost: 67
14. Investments in other companies: 94
15. Intangible Assets: 97
16. Property and equipment: 99
17. Right-of-use assets and Lease liabilities: 101
18. Taxes: 104
19. Other Assets: 109
20. Non-current assets and disposal groups held for sale and Liabilities included in disposal groups for sale: 110
21. Financial liabilities held for trading at fair value through profit or loss: 111
22. Financial liabilities at amortized cost: 112
23. Financial instruments of regulatory capital issued: 118
24. Provisions for contingencies: 122
25. Provision for dividends, interests and reappraisal of financial instruments of regulatory capital issued: 127
26. Special provisions for credit risk: 128
27. Other Liabilities: 129
28. Equity: 130
29. Contingencies and Commitments: 135
30. Interest Revenue and Expenses: 140
31. UF indexation revenue and expenses: 143
32. Income and Expeses from commissions: 146
33. Net Financial income (expense): 147
34. Income attributable to investments in other companies: 148
35. Result from non-current assets and disposal groups held for sale not admissible as discontinued operations: 149
36. Other operating Income and Expenses: 150
37. Expenses from salaries and employee benefits: 151
38. Administrative expenses: 152
39. Depreciation and Amortization: 153
40. Impairment of non-financial assets: 153
41. Credit loss expense: 154
42. Income from discontinued operations: 156
43. Related Party Disclosures: 156
44. Fair Value of Financial Assets and Liabilities: 163
45. Maturity according to their remaining Terms of Financial Assets and Liabilities: 175
46. Financial and Non-Financial Assets and Liabilities by Currency: 179
47. Risk Management and Report: 180
48. Information on Regulatory Capital and Capital Adequacy Ratios: 225
49. Subsequent Events: 228

 

i


 

 

BANCO DE CHILE AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

For the periods ended June 30, 2023 and December 31, 2022

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

 

 

 

        June     December  
    Notes   2023     2022  
        MCh$     MCh$  
ASSETS                    
Cash and due from banks   7     2,282,719       2,764,884  
Transactions in the course of collection   7     393,302       772,196  
Financial assets held for trading at fair value through profit or loss:                    
Derivative financial instruments   8     2,355,254       2,960,029  
Debt financial instruments   8     2,988,039       3,433,745  
Others   8     371,559       257,325  
Non-trading financial assets mandatorily measured at fair value through profit or loss   9            
Financial assets at fair value through profit or loss   10            
Financial assets at fair value through other comprehensive income:                    
Debt financial instruments   11     4,264,970       3,967,392  
Others   11            
Derivative financial instruments for hedging purposes   12     4,362       27,077  
Financial assets at amortized cost:                    
Rights by resale agreements and securities lending   13     38,863       54,061  
Debt financial instruments   13     915,407       902,355  
Loans and advances to Banks   13     2,782,662       2,174,115  
Loans to customers - Commercial loans   13     19,045,718       19,871,510  
Loans to customers - Residential mortgage loans   13     11,812,743       11,386,851  
Loans to customers - Consumer loans   13     4,803,667       4,658,051  
Investments in other companies   14     64,650       62,211  
Intangible assets   15     118,680       106,620  
Property and equipment   16     206,053       210,124  
Right-of-use assets   17     93,711       94,921  
Current tax assets   18     19,309       187,401  
Deferred tax assets   18     535,097       539,509  
Other assets   19     1,161,992       814,117  
Non-current assets and disposal groups held for sale   20     15,792       10,868  
TOTAL ASSETS         54,274,549       55,255,362  

 

The accompanying notes 1 to 49 are an integral part of these interim consolidated financial statements

 

1


 

 

BANCO DE CHILE AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

For the periods ended June 30, 2023 and December 31, 2022

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

 

 

 

        June     December  
    Notes   2023     2022  
        MCh$     MCh$  
LIABILITIES                
Transactions in the course of payment   7     311,021       681,792  
Financial liabilities held for trading at fair value through profit or loss:                    
Derivative financial instruments   21     2,451,810       3,101,482  
Others   21     1,258       6,271  
Financial liabilities designated as at fair value through profit or loss   10            
Derivative Financial Instruments for hedging purposes   12     317,618       223,016  
Financial liabilities at amortized cost:                    
Current accounts and other demand deposits   22     12,766,792       13,383,232  
Saving accounts and time deposits   22     15,135,499       14,157,141  
Obligations by repurchase agreements and securities lending   22     166,485       216,264  
Borrowings from financial institutions   22     4,988,749       5,397,676  
Debt financial instruments issued   22     9,526,841       9,267,947  
Other financial obligations   22     240,841       344,030  
Lease liabilities   17     87,526       89,369  
Financial instruments of regulatory capital issued   23     1,027,676       1,010,905  
Provisions for contingencies   24     146,889       176,026  
Provision for dividends, interests and reappraisal of financial instruments of regulatory capital issued   25     285,101       520,158  
Special provisions for credit risk   26     765,928       765,766  
Currents tax liabilities   18     694       932  
Deferred tax liabilities   18            
Other liabilities   27     1,181,833       1,055,028  
Liabilities included in disposal groups held for sale   20            
TOTAL LIABILITIES         49,402,561       50,397,035  
                     
EQUITY                    
Capital   28     2,420,538       2,420,538  
Reserves   28     709,742       709,742  
Accumulated other comprehensive income                    
Elements that are not reclassified in profit and loss   28     2,872       2,520  
Elements that can be reclassified in profit and loss   28     (25,238 )     (72,322 )
Retained earnings from previous period   28     1,451,076       908,572  
Income for the period   28     598,098       1,409,433  
Less: Provision for dividends, interests and reappraisal of financial instruments of regulatory capital issued   28     (285,101 )     (520,158 )
Shareholders of the Bank   28     4,871,987       4,858,325  
Non-controlling interests   28     1       2  
TOTAL EQUITY         4,871,988       4,858,327  
TOTAL LIABILITIES AND EQUITY         54,274,549       55,255,362  

 

The accompanying notes 1 to 49 are an integral part of these interim consolidated financial statements

 

2


 

 

BANCO DE CHILE AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME

for the period between January 1, and June 30

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

 

 

 

        For the six-months period
ended June 30,
   

04.01.2023 to

   

04.01.2022 to

 
    Notes   2023     2022     06.30.2023     06.30.2022  
        MCh$     MCh$     MCh$     MCh$  
                             
Interest revenue   30     1,569,740       990,511       796,595       540,993  
Interest expense   30     (833,212 )     (366,450 )     (427,984 )     (223,147 )
Net interest income         736,528       624,061       368,611       317,846  
                                     
UF indexation revenue   31     481,263       1,083,556       253,845       697,338  
UF indexation expenses   31     (295,628 )     (581,184 )     (154,341 )     (382,120 )
Net income from UF indexation         185,635       502,372       99,504       315,218  
                                     
Income from commissions   32     349,087       326,945       178,160       166,236  
Expenses from commissions   32     (76,107 )     (69,661 )     (42,085 )     (39,192 )
Net income from commissions         272,980       257,284       136,075       127,044  
                                     
Financial income (expense) for:                                    
Financial assets and liabilities held for trading   33     236,851       49,620       103,066       22,249  
Non-trading financial assets mandatorily measured at fair value through profit or loss   33                        
Financial assets and liabilities designated as at fair value through profit or loss   33                        
Result from derecognition of financial assets and liabilities at amortized cost and financial assets at fair value through other comprehensive income   33     (66 )     474       51       (34 )
Exchange, indexation and accounting hedging of foreign currency   33     (13,805 )     82,205       16,891       54,105  
Reclassification of financial assets for changes in the business model   33                        
Other financial result   33                        
Net Financial income (expense)   33     222,980       132,299       120,008       76,320  
                                     
Income attributable to investments in other companies   34     5,796       5,687       3,818       4,153  
Result from non-current assets and disposal groups held for sale not admissible as discontinued operations   35     2,129       1,060       3,530       83  
Other operating income   36     25,517       9,188       16,853       6,102  
TOTAL OPERATING INCOME         1,451,565       1,531,951       748,399       846,766  
                                     
Expenses from salaries and employee benefits   37     (268,794 )     (244,978 )     (134,776 )     (122,911 )
Administrative expenses   38     (200,807 )     (173,424 )     (100,395 )     (86,590 )
Depreciation and amortization   39     (46,302 )     (41,013 )     (23,543 )     (21,088 )
Impairment of non-financial assets   40     17       100       (12 )     2  
Other operating expenses   36     (13,208 )     (10,958 )     (6,261 )     (5,279 )
TOTAL OPERATING EXPENSES         (529,094 )     (470,273 )     (264,987 )     (235,866 )
                                     
OPERATING RESULT BEFORE CREDIT LOSSES         922,471       1,061,678       483,412       610,900  

 

The accompanying notes 1 to 49 are an integral part of these interim consolidated financial statements

 

3


 

 

BANCO DE CHILE AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME

for the period between January 1, and June 30

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

 

 

 

        For the six-months period
ended June 30,
   

04.01.2023 to

   

04.01.2022 to

 
    Notes   2023     2022     06.30.2023     06.30.2022  
        MCh$     MCh$     MCh$     MCh$  
                             
Credit loss expense for:                            
Provisions for credit risk of loans and advances to banks and loans to customers   41     (203,502 )     (119,820 )     (85,660 )     (76,765 )
Special provisions for credit risk   41     (925 )     (117,130 )     (231 )     (47,346 )
Recovery of written-off credits   41     26,702       32,392       14,689       18,751  
Impairments for credit risk from other financial assets at amortized cost and financial assets at fair value through other comprehensive income   41     4,845       (973 )     3,830       (767 )
Credit loss expense   41     (172,880 )     (205,531 )     (67,372 )     (106,127 )
                                     
NET OPERATING INCOME         749,591       856,147       416,040       504,773  
                                     
Income from continuing operations before tax                                    
Income tax   18     (151,493 )     (132,898 )     (83,893 )     (73,251 )
                                     
Income from continuing operations after tax         598,098       723,249       332,147       431,522  
                                     
Income from discontinued operations before tax                                    
Income tax from discontinued operations   18                        
                                     
Income from discontinued operations after tax   42                        
                                     
NET INCOME FOR THE PERIOD   28     598,098       723,249       332,147       431,522  
                                     
Attributable to:                                    
Shareholders of the Bank   28     598,098       723,249       332,147       431,522  
Non-controlling interests                            
                                     
Earnings per share:        $              
Basic earnings   28     5.92       7.16       3.29       4.27  
Diluted earnings   28     5.92       7.16       3.29       4.27  

 

The accompanying notes 1 to 49 are an integral part of these interim consolidated financial statements

 

4


 

 

BANCO DE CHILE AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF

OTHER COMPREHENSIVE INCOME

for the period between January 1, and June 30

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

 

 

 

        For the six-months period
ended June 30,
   

04.01.2023 to

   

04.01.2022 to

 
    Notes   2023     2022     06.30.2023     06.30.2022  
        MCh$     MCh$     MCh$     MCh$  
                             
NET INCOME FOR THE PERIOD   28     598,098       723,249       332,147       431,522  
                                     
ITEMS NOT TO BE RECLASSIFIED TO PROFIT OR LOSS                                    
Re-measurement of the liability (asset) for net defined benefits and actuarial results for other employee benefit plans   28     (115 )     (8 )            
Fair value changes of equity instruments designated as at fair value through other comprehensive income   28     597       199       523       125  
Fair value changes of financial liabilities designated as at fair value through profit or loss attributable to changes in the credit risk of the financial liability   28                        
Others   28                        
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECLASSIFIED TO PROFIT OR LOSS BEFORE TAX         482       191       523       125  
                                     
Income tax on other comprehensive income that will not be reclassified to profit or loss   18     (130 )     (52 )     (141 )     (34 )
                                     
TOTAL OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECLASSIFIED TO INCOME AFTER TAXES   28     352       139       382       91  
                                     
ELEMENTS THAT CAN BE RECLASSIFIED TO PROFIT OR LOSS                                    
Fair value changes of financial assets at fair value through other comprehensive income   28     5,844       (8,230 )     (10,947 )     (2,794 )
Cash flow hedges   28     59,103       (139,951 )     2,799       (75,325 )
Participation in other comprehensive income of entities registered under the equity method   28     (22 )           (18 )     6  
                                     
OTHER COMPREHENSIVE INCOME THAT WILL BE RECLASSIFIED TO INCOME BEFORE TAXES         64,925       (148,181 )     (8,166 )     (78,113 )
                                     
Income tax on other comprehensive income that can be reclassified in profit or loss   28     (17,841 )     37,371       (66 )     20,404  
                                     
TOTAL OTHER COMPREHENSIVE INCOME THAT WILL BE RECLASSIFIED TO PROFIT OR LOSS AFTER TAX   28     47,084       (110,810 )     (8,232 )     (57,709 )
                                     
TOTAL OTHER COMPREHENSIVE INCOME FOR THE PERIOD   28     47,436       (110,671 )     (7,850 )     (57,618 )
                                     
CONSOLIDATED COMPREHENSIVE INCOME FOR THE PERIOD         645,534       612,578       324,297       373,904  
                                     
Attributable to:                                    
Shareholders of the Bank         645,534       612,578       324,297       373,904  
Non-controlling interests                            

 

The accompanying notes 1 to 49 are an integral part of these interim consolidated financial statements

 

5


 

 

BANCO DE CHILE AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY

for the period between January 1, and June 30

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

 

 

 

        Attributable to shareholders of the Bank              
    Note   Capital     Reserves     Accumulated
other
comprehensive
income
    Retained earnings
from previous
years and income
(loss) for the period
    Total     Non-controlling
interests
    Total
Equity
 
      MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                               
Opening balances as of January 1, 2022         2,420,538       710,472       38,739       1,123,772       4,293,521       1       4,293,522  
Dividends distributed and paid   28         —                   (539,827 )     (539,827 )               —       (539,827 )
Earnings reserves from previous year               (730 )           730           —              
Application of provision for payment of common stock dividends                           323,897       323,897             323,897  
Provision for payment of common stock dividends                           (263,675 )     (263,675 )           (263,675 )
Subtotal: transactions with owners during the period               (730 )           (478,875 )     (479,605 )           (479,605 )
Income for the period 2022   28                       723,249       723,249             723,249  
Other comprehensive income for the period   28                 (110,671 )           (110,671 )           (110,671 )
Subtotal: Comprehensive income for the period                     (110,671 )     723,249       612,578             612,578  
Balances as of June 30, 2022         2,420,538       709,742       (71,932 )     1,368,146       4,426,494       1       4,426,495  
Dividends distributed and paid                                       (1 )     (1 )
Provision for payment of common stock dividends                           (256,483 )     (256,483 )           (256,483 )
Subtotal: transactions with owners during the period                           (256,483 )     (256,483 )     (1 )     (256,484 )
Income for the period 2022                           686,184       686,184       2       686,186  
Other comprehensive income for the period                     2,130             2,130             2,130  
Subtotal: Comprehensive income for the period                     2,130       686,184       688,314       2       688,316  
Balances as of December 31, 2022         2,420,538       709,742       (69,802 )     1,797,847       4,858,325       2       4,858,327  
Dividends distributed and paid   28                       (866,929 )     (866,929 )     (1 )     (866,930 )
Application of provision for payment of common stock dividends   28                       520,158       520,158             520,158  
Provision for payment of common stock dividends   28                       (285,101 )     (285,101 )           (285,101 )
Subtotal: transactions with owners during the period                           (631,872 )     (631,872 )     (1 )     (631,873 )
Income for the period 2023   28                       598,098       598,098             598,098  
Other comprehensive income for the period   28                 47,436             47,436             47,436  
Subtotal: Comprehensive income for the period                     47,436       598,098       645,534             645,534  
Balances as of June 30, 2023         2,420,538       709,742       (22,366 )     1,764,073       4,871,987       1       4,871,988  

 

The accompanying notes 1 to 49 are an integral part of these interim consolidated financial statements

 

6


 

 

BANCO DE CHILE AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

for the period between January 1, and June 30

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

 

 

 

        June     June  
    Note   2023     2022  
      MCh$     MCh$  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Profit for the period before taxes         749,591       856,147  
Income tax   18     (151,493 )     (132,898 )
Profit for the period after taxes         598,098       723,249  
Charges (credits) to income (loss) that do not represent cash flows                    
Depreciation and amortization   39     46,302       41,013  
Impairment of non-financial assets   40     (17 )     (100 )
Provisions for credit losses         202,709       129,276  
Provisions for contingencies   26     (3,127 )     (1,353 )
Additional provisions   41           110,000  
Fair value of debt financial instruments held for trading at fair value through in profit or loss         1,153       (6,179 )
Change in deferred tax assets and liabilities   18     2,398       (49,914 )
Net (income) loss from investments in companies with significant influence   14     (5,285 )     (5,264 )
Net (income) loss on sale of assets received in payments         (850 )     (2,288 )
Net (income) loss on sale of sale of fixed assets   35     (2,190 )     (468 )
Write-offs of assets received in payment   35     2,442       2,741  
Other charges (credits) that do not represent cash flows         6,009       (856 )
Net change in exchange rates, interest, readjustments and commissions accrued on assets and liabilities         (61,063 )     (379,600 )
                     
Changes due to (increase) decrease in assets and liabilities affecting the operating flow:                    
Net ( increase ) decrease in accounts receivable from banks         (610,710 )     (815,742 )
Net ( increase ) decrease in loans and accounts receivables from customers         266,140       (665,376 )
Net ( increase ) decrease of debt financial instruments held for trading at fair value through profit or loss         (598,395 )     (696,921 )
Net ( increase ) decrease in other assets and liabilities         32,624       (217,136 )
Increase ( decrease ) in deposits and other demand obligations         (614,458 )     (2,743,112 )
Increase ( decrease ) in repurchase agreements and securities loans         (53,495 )     145,956  
Increase ( decrease ) in deposits and other time deposits         1,029,409       3,105,529  
Sale of assets received in lieu of payment         5,403       8,455  
Increase ( decrease ) in  obligations with foreign banks         (409,182 )     368,777  
Increase ( decrease ) in other financial obligations         (103,146 )     31,447  
Increase ( decrease ) in obligations with the Central Bank of Chile               (14 )
Net increase ( decrease ) of debt financial instruments at fair value through other comprehensive income         (210,838 )     (556,254 )
Net (increase) decrease of financial instruments at amortized cost         3,179       3,174  
Total net cash flows provided by (used in) operating activities         (476,890 )     (1,470,960 )
                     
CASH FLOWS FROM INVESTING ACTIVITIES:                    
Leasedhold improvements   17     (1,083 )     (1,073 )
Fixed assets purchase   16     (13,581 )     (7,197 )
Fixed assets sale         2,772       468  
Acquisition of intangibles   15     (25,740 )     (18,349 )
Acquisition of investments in companies   14            
Dividend received of investments in companies         3,986       1,544  
Total net cash flows from (used in) investing activities         (33,646 )     (24,607 )
                     
CASH FLOW FROM FINANCING ACTIVITIES:                    
Attributable to the interest of the owners:                    
Redemption and payment of interest of letters of credit         (627 )     (1,118 )
Redemption and payment of interest on current bonds         (622,353 )     (749,091 )
Redemption and payment of interest on subordinated bonds         (27,702 )     (29,794 )
Current bonds issuance   22     697,158       350,068  
Subordinated bonds issuance                
Payment of common stock dividends   28     (866,929 )     (539,827 )
Principal and interest payments for obligations under lease contracts   17     (17,865 )     (15,742 )
Attributable to non-controlling interest:                    
Dividend payment and/or withdrawals of paid-in capital in respect of the subsidiaries corresponding to the non-controlling interest         (1 )      
Total net cash flows from (used in) financing activities         (838,319 )     (985,504 )
                     
VARIATION IN CASH AND CASH EQUIVALENTS DURING THE PERIOD         (1,348,855 )     (2,481,071 )
                     
Exchange variations effect         (102,049 )     123,246  
                     
Opening balance of cash and  cash equivalent   7     6,105,389       7,288,827  
                     
Final balance of cash and  cash equivalent   7     4,654,485       4,931,002  

 

    June     June  
    2023     2022  
  MCh$     MCh$  
Interest operating cash flow:            
Interest and readjustments received     1,710,583       1,218,526  
Interest and readjustments paid     (951,532 )     (348,447 )

 

The accompanying notes 1 to 49 are an integral part of these interim consolidated financial statements

 

7


 

 

BANCO DE CHILE AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

for the period between January 1, and June 30

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

 

 

 

Reconciliation of liabilities arising from financing activities:

 

          Changes other than Cash        
    12.31.2022     Net Cash
Flow
    Acquisition /
(Disposals)
    Foreign
currency
    UF
Movement
    06.30.2023  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                     
Letters of credit     2,377       (627 )                 51       1,801  
Bonds     10,276,475       47,103             (127,264 )     356,402       10,552,716  
Dividends paid           (866,929 )                       (866,929 )
Obligations for lease contracts     89,369       (17,865 )     12,977             3,045       87,526  
Dividend payment and/or withdrawals of paid-in capital in respect of the subsidiaries corresponding to the non-controlling interest           (1 )                       (1 )
Total liabilities from financing activities     10,368,221       (838,319 )     12,977       (127,264 )     359,498       9,775,113  

 

The accompanying notes 1 to 49 are an integral part of these interim consolidated financial statements

 

8


 

BANCO DE CHILE AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2023 and 2022 and December 31, 2022

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

 

 

 

1. Company information:

 

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

 

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

 

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

 

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

 

9


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used:

 

(a) Legal Dispositions:

 

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

 

According to the current legal framework, banks must use the accounting principles provided by the CMF and in everything that is not dealt with by it or in contravention of its instructions, they must adhere to the generally accepted accounting principles, which correspond to the technical standards issued by the College of Accountants of Chile AG, coinciding with the International Financial Reporting Standards (“IFRS”) agreed by the International Accounting Standards Board (“IASB”). If there are discrepancies between these accounting principles of general acceptance and the accounting criteria issued by the CMF, the latter shall prevail.

 

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

 

(b) Basis of Consolidation:

 

The Interim Financial Statements of Banco de Chile as of June 30, 2023 and 2022 and December 31, 2022, have been consolidated with its Chilean subsidiaries and foreign subsidiary, using the global integration method (line-by-line). They include preparation of individual financial statements of the Bank and companies that participate in the consolidation and it include adjustments and reclassifications necessary to homologue accounting policies and valuation criteria applied by the Bank. The Interim Consolidated Financial Statements have been prepared using the same accounting policies for similar transactions and other events, in equivalent circumstances.

 

Significant intercompany transactions and balances (assets and liabilities, equity, income, expenses and cash flows) originated in operations performed between the Bank and its subsidiaries and between subsidiaries have been eliminated in the consolidation process. The non-controlling interest corresponding to the participation percentage of third parties in subsidiaries, which the Bank does not own directly or indirectly, has been recognized and is shown separately in the consolidated shareholders’ equity of Banco de Chile.

 

10


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(b) Basis of Consolidation: (continued)

 

(i) Controlled companies (Subsidiaries)

 

Interim Consolidated Financial Statements as of June 30, 2023 and 2022 incorporate Financial Statements of the Bank and the controlled companies (subsidiaries) in accordance with IFRS 10 “Consolidated Financial Statements”.

 

The entities controlled by the Bank and which form parts of the consolidation are detailed as follows:

 

                Interest Owned  
                Directa     Indirect     Total  
            Functional   June     December     June     December     June     December  
Rut   Entity   Country   Currency   2023     2022     2023     2022     2023     2022  
                %     %     %     %     %     %  
96,767,630-6   Banchile Administradora General de Fondos S.A.   Chile   Ch$     99.98       99.98       0.02       0.02       100.00       100.00  
96,543,250-7   Banchile Asesoría Financiera S.A.   Chile   Ch$     99.96       99.96                   99.96       99.96  
77,191,070-K   Banchile Corredores de Seguros Ltda.   Chile   Ch$     99.83       99.83       0.17       0.17       100.00       100.00  
96,571,220-8   Banchile Corredores de Bolsa S.A.   Chile   Ch$     99.70       99.70       0.30       0.30       100.00       100.00  
96,645,790-2   Socofin S.A.   Chile   Ch$     99.00       99.00       1.00       1.00       100.00       100.00  

 

(ii) Investments in associates and joint venture

 

Associated entities are those over which the Bank has the capacity to exercise significant influence, without having control over the associate.

 

Investments in associates where exists significant influence, are accounted for using the equity method.

 

Joint Ventures are joint arrangements whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

 

Investments defined as a “Joint Venture” will be registered according to the equity method.

 

Investments in other companies that, for their characteristics, are defined as “Joint Ventures” are Artikos Chile S.A. and Servipag Ltda.

 

(iii) Minority investments in other companies

 

On initial recognition, the Bank and subsidiaries may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument that is not held for trading and is not contingent consideration recognized by an acquirer in a business combination to which IFRS 3 applies.

 

11


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(b) Basis of Consolidation: (continued)

 

(iv) Fund administration

 

The Bank and its subsidiaries manage and administer assets held in mutual funds and other investment products on behalf of investors, perceiving a paid according to the service provided and according to market conditions. Managed resources are owned by third parties and, therefore, not included in the Consolidated Statements of Financial Position.

 

According to established in IFRS 10, for consolidation purposes is necessary to assess the role of the Bank and its subsidiaries with respect to the funds they manage, must determine whether that role is Agent or Principal.

 

The Bank and its subsidiaries manage on behalf and for the benefit of investors, acting in that relationship only as Agent. Under this category, and as provided in the aforementioned regulation, it does not control such funds when exercise its authority to make decisions. Therefore, as of June 30, 2023 and 2022 act as agent, and therefore do not consolidate any fund, no funds are part of the consolidation.

 

(c) Non-controlling interest:

 

Non-controlling interest represents the share of losses, income and net assets of which, directly or indirectly, the Bank does not own. It is presented separately from the equity of the owners of the Bank in the Consolidated Statements of Income and the Consolidated Statements of Financial Position.

 

(d) Use of Estimates and Judgment:

 

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

 

1. Impairment of debt instruments (Notes No. 10 and No. 41)
2. Provision for credit risk (Notes No. 13, No. 26 and No. 41);
3. Useful life of intangible assets, property and equipment and leased assets and lease liabilities (Notes No. 15, No. 16 and No. 17);
4. Income taxes and deferred taxes (Note No. 18);
5. Provisions (Note No. 24);
6. Contingencies and Commitments (Note No. 29);
7. Fair value of financial assets and liabilities (Note No. 44).

 

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

 

During the period ended June 30, 2022 there have been no significant changes in the estimates made.

 

12


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities:

 

The classification, measurement and presentation of financial assets and liabilities has been carried out based on the standards issued by the CMF in the Compendium of Accounting Standards for Banks (CASB), considering the criteria described below:

 

Financial Assets:

 

Classification of financial assets:

 

On initial recognition, a financial asset is classified within the following categories: Financial assets held for trading at fair value through profit or loss; Financial assets not held for trading mandatorily valued at fair value through profit or loss; Financial assets designated as at fair value through profit or loss; Financial assets at fair value through other comprehensive income and Financial assets at amortized cost.

 

The criteria for classifying financial assets, which incorporates the standards defined in IFRS 9, depends on the business model with which the entity manages the assets and the contractual characteristics of the cash flows, commonly known as “Solely Payments of Principal and Interest” (SPPI) criterion.

 

The valuation of these assets should reflect how the Bank manages groups of financial assets and does not depend on the intent for an individual instrument.

 

A financial asset should be valued at amortized cost if both of the following conditions are met:

 

It is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and
The contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest.

 

A debt financial instrument must be valued at fair value with changes in “Other comprehensive income” if the following two conditions are met:

 

It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and
The contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

A debt financial instrument will be classified at fair value through profit or loss whenever, due to the business model or the characteristics of its contractual cash flows, it is not appropriate to classify it in any of the other categories described.

 

13


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

Valuation of financial assets:

 

Initial recognition:

 

Financial assets are initially recognized at fair value plus, in the case of a financial asset that is not carried at fair value through profit or loss, the transaction costs that are directly attributable to its purchase or issuance, using the Effective Interest Rate method (EIT). The calculation of the EIT includes all fees and other items paid or received that are part of the EIT. Transaction costs include incremental costs that are directly attributable to the acquisition or issuance of a financial asset.

 

Post measurement:

 

All variations in the value of financial assets due to the accrual of interest and items assimilated to interest are recorded in “Interest income” or “Interest expense” of the Consolidated Income Statement for the year in which the accrual occurred, except for trading derivatives that are not part of accounting hedges.

 

The changes in the valuations that occur after the initial registration for reasons other than those mentioned in the previous paragraph, are treated as described below, based on the categories in which the financial assets are classified.

 

Financial assets held for trading at fair value through profit or loss, Financial assets not held for trading mandatorily valued at fair value through profit or loss and Financial assets designated as at fair value through profit or loss:

 

In “Financial assets held for trading at fair value through profit or loss” will record financial assets whose business model aims to generate profits through purchases and sales or to generate results in the short term.

 

The financial assets recorded under ” Financial assets not held for trading mandatorily valued at fair value through profit or loss” are assigned to a business model whose objective is achieved by obtaining contractual cash flows and/or selling financial assets but where the cash flows contracts have not met the conditions of the SPPI test.

 

In “Financial assets designated as at fair value through profit or loss” financial assets will be classified only when such designation eliminates or significantly reduces the inconsistency in the valuation or in the recognition that would arise from valuing or recognizing the assets on a different basis.

 

The assets recorded in these items are valued after their acquisition at their fair value and changes in their value are recorded, at their net amount, under “Financial assets and liabilities held for trading”, “Financial assets and liabilities financial assets not held for trading mandatorily valued at fair value through profit or loss” and “Financial assets and liabilities designated as at fair value through profit or loss” of the Consolidated Income Statement. Variations originated from exchange differences are recorded under “Foreign currency changes, UF indexation and accounting hedge” in the Consolidated Income Statement.

 

14


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

Financial assets at fair value through other comprehensive income

 

Debt financial instruments:

 

The assets recorded in this item are valued at their fair value, interest income and UF indexation of these instruments, as well as exchange differences and impairment arising, are recorded in the Consolidated Statement of Income, while subsequent variations in their valuation are temporarily recorded (for its amount net of taxes) in “Changes in the fair value of financial assets at fair value through other comprehensive income” of the Consolidated Statements of Other Comprehensive Income.

 

The amounts recorded in “Changes in the fair value of financial assets at fair value through other comprehensive income” continue to form part of the Bank’s consolidated equity until the asset is derecognized in the consolidated balance. In the case of selling these assets, the result is recognized in “Financial result for derecognizing financial assets and liabilities at amortized cost and financial assets at fair value with changes in others comprehensive income” of the Consolidated Income Statement.

 

Net losses due to impairment of financial assets at fair value through other comprehensive income produced in the year are recorded in “Impairment due to credit risk of other financial assets at amortized cost and financial assets at fair value through other comprehensive income” of the Consolidated Income Statement.

 

Equity financial instruments:

 

At the time of initial recognition, the Bank may make the irrevocable decision to present subsequent changes in fair value in other comprehensive income. Subsequent variations in this valuation will be recognized in “Changes in the fair value of equity instruments designated as at fair value through other comprehensive income”. The dividends received from these investments are recorded in “Income from investments in companies” of the Consolidated Income Statement. These instruments are not subject to the impairment model of IFRS 9.

 

Financial assets at amortized cost:

 

The assets recorded in this item of the Consolidated Statement of Financial Position are valued after their acquisition at their “amortized cost”, in accordance with the “effective interest rate” method.

 

They are subdivided according to the following:

 

- Investment under resale agreements and securities loans
- Debt financial instruments
- Due from banks
- Loans and accounts receivable from customers (Commercial, Mortgage and Consumer)

 

Losses due to impairment of these assets generated in each year are recorded in “Provisions for credit risk and loans and accounts receivable from customers” and “Impairment due to credit risk of other financial assets at amortized cost and financial assets at fair value through other comprehensive income” of the Consolidated Income Statement.

 

15


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

Investment under resale agreements, obligations under repurchase agreements and securities loans:

 

Resale agreement operations are carried out as a form of investment. Under these agreements, financial instruments are purchased, which are included as assets in “Investment under resale agreements and securities loans”, which are valued according to the interest rate of the agreement through the amortized cost method. In accordance with current regulations, the Bank does not record as its own portfolio those papers purchased under resale agreements.

 

Repurchase agreement operations are also carried out as a form of financing, which are included as liabilities in “Obligations for repurchase agreements and securities loans”. In this regard, the investments that are sold subject to a repurchase obligation and that serve as collateral for the loan correspond to debt financial instruments. The obligation to repurchase the investment is classified in liabilities as “Obligations under repurchase agreements and securities loans” and is valued according to the interest rate of the agreement.

 

Debt financial instruments at amortized cost:

 

These instruments are recorded at their cost value plus accrued interest and UF indexation, less provisions for impairment constituted when their recorded amount is greater than the estimated amount of recovery. Interest and UF indexation of debt financial instrument at amortized cost are included in “Interest income” and “UF indexation income”.

 

Loans and Advances to Banks:

 

This item shows the balances of operations with local and abroad banks, including the Central Bank of Chile and foreign Central Banks. See detail in Note No. 13 (c) Financial Assets at Amortized Cost.

 

Loans and accounts receivable from customers:

 

Loans to customers include originated and purchased non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and which the Bank does not intend to sell immediately or in the short term.

 

(i) Valuation method

 

They are initially measured at cost plus incremental transaction costs and income, and subsequently measured at amortized cost, using the effective interest rate method, less any impairment loss, except when the Bank defined some loans as hedged items, measured at fair value through profit or loss as described in letter (k) of this note.

 

(ii) Lease contracts

 

These are included under the item “Loans to customers” correspond to periodic rent installments of contracts which meet the definition to be classified as financial leases and are presented at their nominal value net of unearned interest as of each year-end.

 

16


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

(iii) Factoring transactions

 

They are valued for the amounts disbursed by the Bank in exchange for invoices or other commercial instruments representative of credit, with or without responsibility of the grantor, received in discount. Price differences between the amounts disbursed and the nominal value of the credits are recorded in the result as interest income, through the effective interest method, during the financing period. In those cases, where the transfer of these instruments it was made without responsibility of the grantor, it is the Bank who assumes the insolvency risks of those required to pay.

 

(iv) Impairment of loans

 

The impaired loans include the following assets, according to Chapter B-1 of the CASB of the CMF:

 

(a) In case of debtors subject to individual assessment, includes credits from “Non-complying loans” those classified in categories B3 and B4 of “Substandard loans”.
(b) Debtors subject to assessment group evaluation, the impaired portfolio includes all credits of the “Non-complying loans”.

 

(v) Credit risk allowance

 

The Bank permanently evaluates the entire portfolio of loans and contingent loans, with the aim of establishing the necessary and sufficient provisions in a timely manner to cover the expected losses associated with the characteristics of the debtors and their credits, based on the payment and subsequent recovery.

 

Allowances are required to cover the risk of loan losses have been established in accordance with the instructions issued by the CMF. The loans are presented net of those allowances and, in the case of contingent loans are shown in liabilities under the item “Special provisions for credit risk”.

 

In accordance with what is stipulated by the CMF, models or methods are used based on an individual and group analysis of debtors, to establish allowance for loan losses. Said models, as well as modifications to their design and application, are approved by the Bank’s Board of Directors.

 

(v.i) Allowance for individual evaluations:

 

An individual analysis of debtors is applied to companies that are of such significance with respect to size, complexity or level of exposure to the bank, that they must be analyzed in detail.

 

Likewise, the analysis of borrowers focuses on its credit quality related to the capacity and willingness to meet their credit obligations, through sufficient and reliable information, and should also be analyzed in terms of guarantees, terms, interest rates, currency and revaluation, etc.

 

17


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

For purposes of establish the allowances, the banks must assess the credit quality, then classify to one of three categories of loans portfolio: Normal, Substandard and Non-Complying Loans, it must classify the debtors and their operations related to loans and contingent loans in the categories that apply.

 

v.i.1 Normal Loans and Substandard Loans:

 

Normal loans: includes those debtors whose payment capacity allows them to meet their obligations and commitments, and according to the evaluation of their economic-financial situation no change in this condition are displayed. Loans classified in categories A1 through A6.

 

Substandard loans: includes all borrowers with insufficient payment capacity or significant deterioration of payment capacity that may be reasonably expected not to comply with all principal and interest payments obligations set forth in the credit agreement, showing a low flexibility to meet its financial obligations in the short term.

 

They are also part of the Substandard Portfolio those debtors who have shown arrears of more than 30 days in the recent past. The classifications assigned to this portfolio are categories B1 to B4 of the rating scale.

 

As a result of individual analysis of the debtors, the Bank must classify them in the following categories, assigning, subsequently, the percentage of probability of default and loss given default resulting in the following percentage of expected loss:

 

Type of portfolio   Category of
the debtors
  Probability of
default (%)
PD
    Loss given
default (%)
LGD
    Expected
loss (%)
EL
 
Normal Loans   A1     0.04       90.0       0.03600  
    A2     0.10       82.5       0.08250  
    A3     0.25       87.5       0.21875  
    A4     2.00       87.5       1.75000  
    A5     4.75       90.0       4.27500  
    A6     10.00       90.0       9.00000  
Substandard Loans   B1     15.00       92.5       13.87500  
    B2     22.00       92.5       20.35000  
    B3     33.00       97.5       32.17500  
    B4     45.00       97.5       43.87500  

 

Allowances for Normal and Substandard Loans:

 

To determine the amount of allowances to be constitute for normal and substandard portfolio, previously should be estimated the exposure to subject to the allowances, which will be applied to respective expected loss, which consist of probability of default (PD) and loss given default (LGD) established for the category in which the debtor and/or guarantor belong, as appropriate.

 

The exposure affects to allowances applicable to loans plus contingent loans minus the amounts to be recovered by way of the foreclosure of financial or real guarantees of the operations. Loans mean the book value of credit of the respective debtor, while for contingent loans, the value resulting from to apply the indicated in No. 3 of Chapter B-3 of the CASB.

 

18


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

In the case of real guarantees, the Bank must demonstrate that the value assigned to this deduction reasonably reflects the value that it would obtain in the sale of the assets or capital instruments. Also, in qualified cases, the direct debtor’s credit risk may be substituted for the credit quality of the guarantor. In no case may the guaranteed securities be discounted from the amount of the exposure, since this procedure is only applicable when it comes to financial or real guarantees.

 

For calculation purposes, the following must be considered:

 

Provision debtor = (ESA-GE) x (PDdebtor /100) x (LGDdebtor /100) + GE x (PDguarantor /100) x (LGDguarantor /100)

 

Where:

 

ESA = Exposure subject to allowances, (Loans + Contingent Loans) – Financial Guarantees

GE = Guaranteed exposure

 

However, the Bank must maintain a minimum provision level of 0.50% over normal portfolio and contingent loans.

 

v.i.2 Non-complying Loans:

 

The non-complying portfolio includes the debtors and their credits for which their recovery is considered remote, as they show an impaired or no payment capacity. This category comprises all debtors who have stopped paying their creditors or with visible evidence that they will stop doing so, as well as those for which a forced restructuring of their debts is necessary, reducing the obligation or postponing the payment of the principal or interest and, in addition, any debtor that has 90 days overdue or more in the payment of interest or principal of any credit. This portfolio is composed of the debtors belonging to categories C1 to C6 of the rating scale and all credits, including 100% of the amount of contingent loans, held by those same debtors.

 

For purposes to establish the allowances on the non-complying loans, the Bank disposes the use of percentage of allowances to be applied on the amount of exposure, which corresponds to the amount of loans and contingent loans that maintain the same debtor. To apply that percentage, must be estimated an expected loss rate, less the amount of the exposure the recoveries by way of foreclosure of financial or real guarantees that to support the operation and, if there are available specific background, also must be deducting present value of recoveries obtainable exerting collection actions, net of expenses associated with them. This loss percentage must be categorized in one of the six levels defined by the range of expected actual losses by the Bank for all transactions of the same debtor.

 

19


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

These categories, their range of loss as estimated by the Bank and the percentages of allowance that must be applied on the amount of exposures, are listed in the following table:

 

Type of portfolio   Scale of risk   Expected Loss Range   Allowance (%)  
Non-complying loans   C1   Up to 3 %     2  
    C2   More than 3% up to 20%     10  
    C3   More than 20% up to 30%     25  
    C4   More than 30 % up to 50%     40  
    C5   More than 50% up to 80%     65  
    C6   More than 80%     90  

 

For calculation purposes, the following must be considered:

 

  Expected Loss Rate = (E−R)/E

Allowance = E × (AP/100)

 

Where:

 

E = Exposure Amount
R = Recoverable Amount
AP = Allowance Percentage (according to the category in which the Expected Loss Rate should be assigned).

 

All credits of the debtor must be kept in the Default Portfolio until there is a normalization of their ability or payment behavior, without prejudice to punishment of each particular credit that meets the condition indicated in Title II of Chapter B-2 of the Compendium of Accounting Standards for Banks. To remove a debtor from the Default Portfolio, once the circumstances that lead to classification in this portfolio according to these regulations have been overcome, at least the following copulative conditions must be met:

 

- No obligation of the debtor with the bank with more than 30 calendar days overdue.

 

- No new refinances granted to pay its obligations.

 

- At least one of the payments includes amortization of capital.

 

- If the debtor has a credit with partial payment periods less than six months, has already made two payments.

 

- If the debtor must pay monthly fees for one or more credits, has paid four consecutive dues.

 

- The debtor does not have direct debts unpaid in the CMF recast information, except in the case of insignificant amounts.

 

20


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

(v.ii) Allowances for group evaluations

 

Group evaluations are relevant for residential mortgage and consumer loan exposures, in addition to commercial exposures related to student loans and exposures with debtors that simultaneously meet the following conditions:

 

(i) The Bank has an aggregate exposure to the same counterparty of less than 20,000 UF. The aggregate exposure should require gross provisions or other mitigations. In addition, for its computation, mortgage loans must be excluded. In the case of off-balance sheet items, the gross amount is calculated by applying the credit conversion factors, defined in chapter B-3 of the CASB. To determine the aggregate exposure, the bank must consider the definition of corporate group established in Title II of Chapter 12-16 of the Actualized Standards Compilation.

 

Banks must carry out a complete and permanent monitoring of all operations with entities belonging to business groups. Considering the costs that may result the conformation of groups for all debtors, the bank must at least keep control and form groups, if applicable, for all debtors who maintain a current exposure greater than a minimum amount established by the banking institution which may not be greater than 1% of its effective equity at the time the definition of the group portfolio is made.

 

(ii) Each aggregate exposure to the same counterparty does not exceed 0.2% of the total commercial group portfolio. To avoid circular computation, the criterion will be checked only once.

 

For the remaining commercial credit exposures, the individual analysis model of the debtors must be applied.

 

The determination of the type of analysis (group or individual) must be carried out at the global consolidated level, once a year, or after significant adjustments in the Bank’s portfolio, such as mergers, acquisitions, purchases or significant portfolio sales.

 

To determine the allowances, the group evaluations require the formation of groups of loans with similar characteristics in terms of type of debtors and conditions agreed, to establish technically based estimates by prudential criteria and following both the payment behavior of the group that concerned as recoveries of defaulted loans and consequently provide the necessary provisions to cover the risk of the portfolio.

 

To determine its provisions, the Bank segments its debtors into homogeneous groups, according described above, associating to each group a determined probability of default and a percentage of recovery based in a historic analysis. The amount of provisions to register it will be obtained multiplied the total loans of respective group by the percentages of estimated default and of loss given the default.

 

In the case of consumer loans, collaterals are not considered for the purpose of estimating the expected loss.

 

The Bank discriminates between provisions on the normal portfolio and on the portfolio in default, and those that protect the risks of contingent credits associated with those portfolios.

 

21


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

(v.ii.1) Standard method of provisions for group portfolio

 

The standard methodologies presented below establish the variables and parameters that determine the provision factor for each type of portfolio that the CMF has defined as representative, according to the common characteristics shared by the operations that comprise them.

 

- Residential mortgage portfolio

 

The provision factor applicable, represented by expected loss over the mortgage loans, it will depend to the past due of each credit and the relation, at the end of month, between outstanding capital and the value of the mortgage guarantees (CMG), according the following table:

 

Provision factor applicable according to delinquency and CMG
        Past due days at the end-month Non-Complying 
CMG section   Concept   0     1-29     30-59     60-89     Portfolio  
CMG ≤ 40%   PD (%)     1.0916       21.3407       46.0536       75.1614       100.0000  
    LGD (%)     0.0225       0.0441       0.0482       0.0482       0.0537  
    EAD (%)     0.0002       0.0094       0.0222       0.0362       0.0537  
40% < CMG ≤ 80%   PD (%)     1.9158       27.4332       52.0824       78.9511       100.0000  
    LGD (%)     2.1955       2.8233       2.9192       2.9192       3.0413  
    EAD (%)     0.0421       0.7745       1.5204       2.3047       3.0413  
80% < CMG ≤ 90%   PD (%)     2.5150       27.9300       52.5800       79.6952       100.0000  
    LGD (%)     21.5527       21.6600       21.9200       22.1331       22.2310  
    EAD (%)     0.5421       6.0496       11.5255       17.6390       22.2310  
CMG > 90%   PD (%)     2.7400       28.4300       53.0800       80.3677       100.0000  
    LGD (%)     27.2000       29.0300       29.5900       30.1558       30.2436  
    EAD (%)     0.7453       8.2532       15.7064       24.2355       30.2436  

 

Where:

 

PD :  Probability of default
LGD :  Loss given default
EAD :  Exposure at default
CMG :  Outstanding loan capital /Mortgage Guarantee value

 

- Commercial portfolio

 

To determine these allowances, the Bank considers the standard methods presented below, as applicable to commercial leasing operations or other types of commercial loans. Then, the applicable provision factor will be assigned considering the parameters defined for each method.

 

22


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

(a) Commercial Leasing Operations

 

The provision factor applies to the current value of commercial leasing operations (including the purchase option) and will depends on the default of each operation, the type of leased asset and the relationship between the current value of each operation and the leased asset value (PVB) at each month-end, as indicated in the following tables:

 

Probability of default (PD) applicable according to default and type of asset (%)  
    Type of asset  
Days of default of the operation at the month-end   Real estate     Non-real estate  
0     0.79       1.61  
1-29     7.94       12.02  
30-59     28.76       40.88  
60-89     58.76       69.38  
Portfolio in default     100.00       100.00  

 

Loss given the default (LGD) applicable according to PVB section and type of asset (%)  
PVB = Current value of the operation / Value of the leased asset  
PVB section   Real estate     Non-real estate  
PVB ≤ 40%     0.05       18.20  
40% < PVB ≤ 50%     0.05       57.00  
50% < PVB ≤ 80%     5.10       68.40  
80% < PVB ≤ 90%     23.20       75.10  
PVB > 90%     36.20       78.90  

  

The determination of the PVB relationship is made considering the appraisal value expressed in UF for real estate and in Chilean pesos for non-real estate, recorded at the time of the respective loan granting, taking into account possible situations that may be causing temporary increases in the assets prices at that time.

 

b) Generic commercial placements and factoring

 

For the factoring operations and other commercial placements, other than those indicated above, the provision factor, applicable to the amount of the placement and the exposure of the contingent loan risk, will depends on the default of each operation and the relationship that exists at the end of each month, between the obligations that the debtor has with the bank and the value of the collateral that protect them (PTVG), as indicated in the following tables:

 

Probability of default (PD) applicable according to default and PTVG section (%)  
    With collateral     Without  
Days of default at the month-end   PTVG≤100%     PTVG>100%     collateral  
0     1.86       2.68       4.91  
1-29     11.60       13.45       22.93  
30-59     25.33       26.92       45.30  
60-89     41.31       41.31       61.63  
Portfolio in default     100.00       100.00       100.00  

 

23


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

Loss given the default (LGD) applicable according to PTVG section (%)  
Collateral (with / without)   PTVG section   Generic commercial operations or factoring without the responsibility of the transferor     Factoring with the responsibility of the transferor  
With collateral   PTVG ≤ 60%     5.00       3,20  
    60% < PTVG≤ 75%     20.30       12,80  
    75% < PTVG ≤ 90%     32.20       20,30  
    90% < PTVG     43.00       27,10  
Without collateral         56,90       35.90  

 

The collaterals used for the purposes of calculating the PTVG relationship of this method may be specific or general, including those that are simultaneously specific and general. Collateral can only be considered if, according to the respective coverage clauses, it was constituted in the first degree of preference in favor of the Bank and only guarantees the debtor’s credits with respect to which it is imputed (not shared with other debtors).

 

The invoices assigned in the factoring operations will not be considered for purposes of calculating the PTVG. The excess of collateral associated with mortgage loans referred to in numeral 3.1.1 Residential mortgage portfolio in Chapter B-1 of CASB may be considered, computed as the difference between 80% of the property’ commercial value, according to with the conditions set out in that framework, and the mortgage loan that guarantees.

 

24


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

  

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

For the calculation of the PTVG ratio, the following considerations must be taken into account:

 

i. Transactions with specific collaterals: when the debtor granted specific collateral for generic commercial loans and factoring, the PTVG ratio is calculated independently for each covered transaction, such as the division between the amount of the loans and the contingent loans exposure and the collateral’s value of the covered product.

 

ii. Transactions with general collaterals: when the debtor granted general or general and specific collaterals, the Bank calculates the respective PTVG, jointly for all generic commercial loans and factoring and not contemplated in the preceding paragraph i), as the quotient between the sum of the amounts of the loans and exposures of contingent loans and the general, or general and specific collateral that, according to the scope of the remaining coverage clauses, safeguard the loans considered in the numerator aforementioned coverage ratio.

 

The amounts of the guarantees used in the PTVG ratio of numerals i) and ii), different from those associated with excess guarantees from mortgage loans to which the residential mortgage portfolio refers, must be determined according to:

 

- The last valuation of the collateral, be it appraisal or fair value, according to the type of real guarantee in question. For the determination of fair value, the criteria indicated in Chapter 7-12 (Fair Value of Financial Instruments) of the RAN should be considered.

 

- Possible situations that could be causing temporary increases in the values of the collaterals.

 

- Limitations on the amount of coverage established in their respective clauses.

 

(v.ii.2) Portfolio in default.

 

Includes all placements and 100% of the amount of the contingent loans, of the debtors that the closing of a month presents a delay equal to or greater than 90 days in the payment of the interest of the capital of any credit. It will also include debtors who are granted a credit to leave an operation that has more than 60 days of delay in their payment, as well as those debtors who were subject to forced restructuring or partial forgiveness of a debt.

 

They may exclude from the portfolio in default: a) mortgage loans for housing, which delinquent less than 90 days, unless the debtor has another loan of the same type with greater delinquency; and, b) credits for financing higher studies of Law No. 20,027, which do not yet present the non-compliance conditions indicated in Circular No. 3,454 of December 10, 2008.

 

25


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

All credits of the debtor must be kept in the Default Portfolio until there is a normalization of their ability or payment behavior, without prejudice to punishment of each particular credit that meets the condition indicated in Title II of Chapter B-2 of the CASB. To remove a debtor from the Default Portfolio, once the circumstances that lead to classification in this portfolio according to the present rules have been overcome, at least the following copulative conditions must be met:

 

- No obligation of the debtor with the bank with more than 30 calendar days overdue.

 

- No new refinances granted to pay its obligations.

 

- At least one of the payments includes amortization of capital.

 

- If the debtor has a credit with partial payment periods less than six months, has already made two payments.

 

- If the debtor must pay monthly fees for one or more credits, has paid four consecutive dues.

 

- The debtor does not appear with unpaid debts direct according to the information recast by CMF, except for insignificant amounts.

 

(v.iii) Provisions related to financing with FOGAPE COVID-19 guarantee.

 

On July 17, 2020, the CMF requested to determine specific provisions of the credits guaranteed by the FOGAPE COVID-19 guarantee, for which the expected losses were determined estimating the risk of each operation, without considering the substitution of credit quality of the guarantee, according to the corresponding individual or group analysis method, in accordance with the provisions of Chapter B-1 of the CASB. This procedure must be carried out in an aggregate manner, grouping all those operations to which the same deductible percentage is applicable.

 

The deductible is applied by the Fund Administrator, which must be borne by each financial institution and does not depend on each particular operation, but is determined based on the total of the balances guaranteed by the Fund, for each group of companies that have the same coverage, according to their net sales size.

 

(v.iv) Provisions related to financing with FOGAPE Reactivation guarantee.

 

To determine the provisions of the amounts guaranteed by the FOGAPE Reactivation, the Bank considers the substitution of the credit quality of the debtors for that of the FOGAPE, for all the types of financing indicated, up to the amount covered by the aforementioned guarantee. Naturally, the option to consider the risk attributable to FOGAPE may be made while said guarantee remains in force, without considering the capitalized interest, in accordance with the provisions of article 17 of the Fund Regulations.

 

26


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

Likewise, for the computation of the provisions of the amount not covered by the guarantee, corresponding to the debtors, the treatment must be differentiated according to the level of default of the refinanced credit and the grace period, which must consider the cumulative consecutive months grace period between the refinanced loan and other prior measures.

 

For this purpose, the following situations should be considered:

 

- Refinancing with less than 60 days past due and less than 180 days of grace.

 

When the Bank grants the refinancing and is the current creditor, depending on the methodology used in accounting for provisions (standard or internal method) for the group portfolio, the computation of default and the expected loss parameters remain constant at the time to carry out the refinancing, as long as no payment is due.

 

In the case of debtors evaluated on an individual basis, their risk category is maintained at the time of rescheduling, which does not prevent them from being reclassified to the category that corresponds to them, in the event of a worsening of their payment capacity.

 

- Refinancing with greater than 60 days and less than 89 days past due or grace periods greater than 180 days and less than 360 days.

 

The provisions established in the previous point apply, and at least one of the following conditions must also be met:

 

i. In its credit granting policies, the Bank considers at least the following aspects:

 

a. A robust procedure for the categorization of viable debtors, which considers at least the sector and its solvency and liquidity situation.

 

b. Efficient mechanisms for monitoring the debtor’s situation, with formally defined internal governance.

 

ii. Interest is charged in the months of grace, in accordance with the guidelines established in article 15 letter a) of the Regulation, or there is a demand for payment in another credit with the bank. In the latter case, if noncompliance is observed, the carry forward rules contained in numerals 2.2 and 3.2 of Chapter B-1 of the CASB must be considered, depending on whether it is a credit subject to individual or group evaluation, respectively.

 

- Refinancing with grace periods greater than 360 days.

 

The Bank must apply the provisions established in Chapter B-1 of the CASB, considering the operation as a forced renegotiation and, therefore, apply the provisions that correspond to the portfolio in default.

 

27


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

(vi) Charge-offs

 

As a general rule, the charge-offs are produced when the contractual rights on cash flows end. In case of loans, even if the above does not happen, it will proceed to charge-offs the respective asset balances.

 

The charge-off refers to derecognition of the assets in the Consolidated Statement of Financial Position, related to the respective transaction and, therefore, the part that could not be past-due if a loan is payable in installments, or a lease.

 

(vi.i) Charge-offs of loans to customers

 

The charge-off must be to make using credit risk provisions constituted, whatever the cause for which the charge-off was produced.

 

Write-offs for loans to customers and accounts receivable, other than from leasing operations, should be made in the following circumstances, whichever occurs first:

 

a) The Bank, based on all available information, concludes that will not obtain any cash flow of the credit recorded as an asset.

 

b) When the debt without executive title expires 90 days after it was recorded in asset.

 

c) At the time the term set by the statute of limitations runs out and as result legal actions are precluded in order to request payment through executive trial or upon rejection or abandonment of title execution issued by judicial and non-recourse resolution.

 

d) When past-due term of a transaction reaches the charge-off term disposed below:

 

Type of Loan   Term
Consumer loans - secured and unsecured   6 months
Other transactions - unsecured   24 months
Commercial loans - secured   36 months
Residential mortgage loans   48 months

 

The term represents the time elapsed since the date on which payment of all or part of the obligation in default became due.

 

28


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

(vi.ii) Charge-offs of lease operations

 

These assets must be charge-offs against the following circumstances, whichever occurs first:

 

a) The Bank concludes that there is no possibility of the rent recoveries and the value of the property cannot be considered for purposes of recovery of the contract, either because the lessee has not the asset, for the property’s conditions, for expenses that involve its recovery, transfer and maintenance, due to technological obsolescence or absence of a history of your location and current situation.

 

b) When it complies the prescription term of actions to demand the payment through executory or upon rejection or abandonment of executory by court.

 

c) When a contract has been in default reach the period of time indicated below:

 

Type of Loan   Term
Consumer leases   6 months
Other non-real estate lease transactions   12 months
Real estate leases (commercial or residential)   36 months

  

The term represents the time elapsed since the date on which payment of all or part of the obligation in default became due.

 

(vi.iii) Written-off loans recoveries

 

Cash recoveries on charge-off loans including loans that were reacquired from the Central Bank of Chile are recorded directly in income in the Consolidated Statement of Income, as a reduction of the “Recoveries of written-off loans” item.

 

In the event of recoveries of assets, the income will be recognized in the results for the amount by which they are incorporated into the asset. The same criterion will be followed if the leased assets were recovered after the charge-off for a leasing operation, when such assets are incorporated into the asset.

 

Any renegotiation of a credit already written off does not give rise to income, as long as the operation remains to have an impaired quality; the actual payments received must be treated as recoveries of credits written off, as indicated above.

 

Therefore, renegotiated credit can be recorded as an asset only if it has not deteriorated quality; also recognizing revenue from activation must be recorded like recovery of loans.

 

The same criteria should apply in the case that was give credit to pay a charge-off loan.

 

29


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

Impairment due to credit risk of Financial assets at amortized cost and Financial assets at fair value through other comprehensive income (FVOCI):

 

In accordance with the established in Chapter A-2 of the CASB of the CMF, the impairment model of IFRS 9 will not be applied to loans in the category “Financial assets at amortized cost” (“Due from banks” and “Loans and accounts receivable from customers”), nor on “Contingent loans”, since the criteria for these instruments are defined in Chapters B-1 to B-3 of the CASB.

 

For the rest of the financial assets measured at Amortized Cost or FVOCI, the model on which impairment losses must be calculated corresponds to one of Expected Credit Loss (ECL) as established in IFRS 9.

 

Debt financial instruments whose subsequent valuation is at amortized cost or at FVOCI will be subject to impairment due to credit risk. On the contrary, those instruments at fair value through profit or loss do not require this measurement.

 

The measurement of impairment is carried out in accordance with a general impairment model that is based on the existence of 3 possible phases of the financial asset, the existence or not of a significant increase in credit risk and the condition of impairment. The 3 phases determine the amount of impairment that will be recognized as an expected credit loss, as well as the interest income that will be recorded at each reporting date. Each phase is listed below:

 

Phase 1: Incorporates financial assets whose credit risk has not increased significantly since initial recognition. Expected credit losses are recognized to 12-month. Interest is recognized based on the gross amount on the balance sheet.

 

Phase 2: Incorporates financial assets whose credit risk has increased significantly since initial recognition. Expected credit losses are recognized throughout the life of the financial asset. Interest is recognized based on the gross amount on the balance sheet.

 

Phase 3: Incorporates impaired financial assets. Expected credit losses are recognized throughout the life of the financial asset. Interest is recognized based on the net amount (gross amount on the balance sheet less allowance for credit risk).

 

Impairment of debt financial instruments measured at fair value through other comprehensive income

 

The Bank applies the value impairment requirements for the recognition and measurement of a value correction for losses to financial assets that are measured at fair value through other comprehensive income in accordance with IFRS 9. This value adjustment for losses is recognized in Other Comprehensive Income (OCI) and does not reduce the carrying amount of the financial asset in the Consolidated Statement of Financial Position. The accumulated loss recognized in OCI is recycled in results when derecognizing the financial assets.

 

30


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

Financial liabilities:

 

Classification of financial liabilities:

 

Financial liabilities are classified in the following categories:

 

- Financial liabilities at amortized cost;

 

- Financial liabilities held for trading at fair value through profit or loss: Financial instruments are recorded in this item when the Bank’s objective is to generate profits through purchases and sales with these instruments. This item includes financial derivative trading contracts that are liabilities, which will be measured subsequently at fair value.

 

- Financial liabilities designated as at fair value through profit or loss: The Bank has the option to irrevocably designate, at the time of initial recognition, a financial liability as measured at fair value through profit or loss if the application of this criterion eliminates or significantly reduces inconsistencies in the measurement or recognition, or if it is a group of financial liabilities, or a group of financial assets and liabilities, that is managed, and its performance evaluated, based on fair value in line with a risk management or investment strategy.

 

Valuation of financial liabilities:

 

Initial valuation:

 

They are initially recorded at fair value, less transaction costs that are directly attributable to the issuance of the instruments.

 

Variations in the value of financial liabilities due to the accrual of interest, UF indexation and similar concepts are recorded under the headings “Interest expenses” and “UF indexation expenses” of the Consolidated Income Statement for the period in which the accrual occurred (see Note No. 30 and No. 31).

 

Subsequent valuation:

 

The changes in the valuations that will occur after the initial registration due to reasons other than those mentioned in the previous paragraph, are treated as described below, based on the categories in which the financial liabilities are classified

 

Financial liabilities at amortized cost:

 

The liabilities recorded in this item are valued after their acquisition at their amortized cost, which is determined in accordance with the effective interest rate method (EIR).

 

31


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

Derecognition of financial assets and liabilities:

 

The Bank and its subsidiaries derecognize a financial asset from its Statement of Financial Position, when the contractual rights to the cash flows of the financial asset have expired or when the contractual rights to receive the cash flows of the financial asset are transferred during a transaction in which all ownership risks and rewards of the financial asset are transferred. Any portion of transferred financial assets that is created or retained by the Bank is recognized as a separate asset or liability.

 

When the Bank transfers a financial asset, it assesses to what extent it has retained the risks and rewards of ownership. In this case:

 

(a) If substantially all risks and rewards of ownership of the financial asset have been transferred, it is derecognized, and any rights or obligations created or retained upon transfer are recognized separately as assets or liabilities.

 

(b) If substantially all risks and rewards of ownership of the financial asset have been retained, the Bank continues to recognize it.

 

(c) If substantially all risks and rewards of ownership of the financial asset are neither transferred nor retained, the Bank will determine if it has retained control of the financial asset. In this case:

 

(i) If the Bank has not retained control, the financial asset will be derecognized, and any rights or obligations created or retained upon transfer will be recognized separately as assets or liabilities.

 

(ii) If the Bank has retained control, it will continue to recognize the financial asset in the Consolidated Financial Statement by an amount equal to its exposure to changes in value that can experience and recognize a financial liability associated to the transferred financial asset.

 

The Bank derecognizes a financial liability (or a portion thereof) from its Consolidated Statement of Financial Position if, and only if, it has extinguished or, in other words, when the obligation specified in the corresponding contract has been paid or settled or has expired.

 

32


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(e) Financial Assets and Liabilities: (continued)

 

Compensation:

 

Financial assets and liabilities are subject to compensation, so that their net amount is presented in the Consolidated Statement of Financial Position, when and only when the Bank has the right, legally enforceable, to offset the recognized amounts and intends to settle the net amount, or to realize the asset and settle the liability simultaneously.

 

Income and expenses are presented net only when permitted by accounting standards, or in the case of gains and losses arising from a group of similar transactions such as the Bank’s trading and foreign exchange activity.

 

(f) Functional currency:

 

The items included in the Financial Statements of Banco de Chile and its subsidiaries are valued using the currency of the primary economic environment in which it operates (functional currency). The functional and presentation currency of the Consolidated Financial Statements of Banco de Chile is the Chilean peso, which is the currency of the primary economic environment in which the Bank operates, and also obeys the currency that influences the cost and income structure.

 

(g) Transactions in foreign currency:

 

Transactions in currencies other than the functional currency are considered to be in foreign currency and are initially recorded at the exchange rate of the functional currency on the transaction date. Monetary assets and liabilities denominated in foreign currencies are converted using the exchange rate of the functional currency as of the date of the Consolidated Statement of Financial Position. All differences are recorded as a debit or credit to income.

 

As of June 30, 2023 and 2022, the Bank and its subsidiaries applied the exchange rate of accounting representation according to the standards issued by the CMF, for which the assets in dollars are shown at their equivalent value in Chilean pesos calculated using the following market exchange rate Ch$801.21 US$1 (Ch$922.79 US$1 as of June 30, 2022)

 

As of June 30, 2023, the amount of Ch$222,980 million corresponding to a net financial profit from exchange, indexation and accounting hedging of foreign currency (Ch$132,299 million as of June 30, 2022) shown in the Consolidated Statements of Income, includes the result from exchange operations, indexation and accounting hedges of foreign currency, including the conversion of assets and liabilities in foreign currency or indexed to the exchange rate.

 

33


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(h) Operating Segments:

 

The Bank discloses information by segment in accordance with IFRS 8. The Bank’s operating segments are determined based on its different business units, considering the following:

 

(i) That it conducts business activities from which income is obtained and expenses are incurred (including income and expenses relating to transactions with other components of the same entity).

 

(ii) That its operating results are reviewed regularly by the entity’s highest decision-making authority for operating decisions, to decide about resource allocation for the segment and evaluate its performance; and

 

(iii) For which separate financial information available.

 

(i) Statement of cash flows:

 

The Consolidated Statement of Cash Flows shows the changes in cash and cash equivalents derived from operating activities, investment and financing activities during the year. The indirect method has been used in the preparation of this statement of cash flows.

 

For the preparation of Consolidated Financial Statements of Cash Flow, it is considered the following concepts:

 

(i) Cash and cash equivalents: corresponds to the item “Cash and deposits in banks”, plus (minus) the net balance corresponding to operations with liquidation in progress that are shown in the Consolidated Statement of Financial Position, plus other cash equivalents such as investments in short-term debt financial instruments that meet the criteria to be considered “cash equivalents”, for which they must have an original maturity of 90 days or less from the date of acquisition, be highly liquid, easily convertible into amounts known amounts of cash as of the date of the initial investment, and that the financial instruments are exposed to an insignificant risk of changes in value.

 

(ii) Operating activities: corresponds to normal activities of the Bank, as well as other activities that cannot classify like investing or financing activities.

 

(iii) Investing activities: correspond to the acquisition, sale or disposition other forms, of long-term assets and other investments not included in cash and cash equivalents.

 

(iv) Financing activities: corresponds to the activities that produce changes in the amount and composition of the equity and the liabilities that are not included in the operating or investing activities.

 

34


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(j) Financial derivative contracts:

 

A “Financial Derivative” is a financial instrument whose value changes in response to changes in an observable market variable (such as an interest rate, exchange rate, the price of a financial instrument or a market index, including credit ratings), whose initial investment is very small in relation to other financial instruments with a similar response to changes in market conditions and which is generally settled at a future date.

 

The Bank maintains contracts of Derivative financial instruments, for cover the exposition of risk of foreign currency and interest rate. These contracts are recorded in the Consolidated Statement of Financial Position at their cost (included transactions costs) and subsequently measured at fair value. Derivative instruments are reported as an asset when their fair value is positive and as a liability when negative under the item “Derivative Instruments”.

 

Changes in fair value of derivative contracts held for trading purpose are included under “Financial Assets and Liabilities held for Trading”, on the Consolidated Statement of Income.

 

In addition, the Bank includes in the valorization of derivatives the “Credit valuation adjustment” (CVA), to reflect the counterparty risk in the determination of fair value and the Bank’s own credit risk, known as “Debit valuation adjustment” (DVA).

 

Certain embedded derivatives in other financial instruments are treated as separate derivatives when their risk and characteristics are not closely related to those of the main contract and if the contract in its entirety is not recorded at its fair value with its unrealized gains and losses included in income.

 

(k) Financial derivative contracts for accounting hedges:

 

The Bank has chosen to continue applying the hedge accounting requirements of IAS 39 when adopting IFRS 9.

 

At the moment of subscription of a derivative contract must be designated by the Bank as a derivative instrument for trading or hedging purposes.

 

If a derivative instrument is classified as a hedging instrument, it can be:

 

(i) A hedge of the fair value of existing assets or liabilities or firm commitments, or;

 

(ii) A hedge of cash flows related to existing assets or liabilities or forecasted transactions.

 

A hedge relationship for accounting hedges purposes must comply with all of the following conditions:

 

(a) at its inception, the hedge relationship has been formally documented;

 

(b) it is expected that the hedge will be highly effective;

 

(c) the effectiveness of the hedge can be measured in a reasonable manner; and

 

(d) the hedge is highly effective with respect to the hedged risk on an ongoing basis and throughout the entire hedge relationship.

 

35


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(k) Financial derivative contracts for accounting hedges: (continued)

 

The Bank presents and measures individual hedges (where there is a specific identification of hedged item and hedged instruments) by classification, according to the following criteria:

 

Fair value hedges: Changes in the fair value of a derivative hedging instrument, designated as a fair value hedge, are recognized in income under the lines “Net interest income” and “Net indexation income” and/or “Foreign currency changes, UF indexation and accounting hedge”, depending on the type of risk covered. The hedged item is also presented at fair value in relation to the risk being hedged; gains or losses attributable to the hedged risk are recognized in income under the lines “Net interest income” and “Net income from UF indexation” and adjust the book value of the item subject to the hedge.

 

Cash flow hedge: Changes in the fair value of financial instruments derivative designated like “cash flow hedge” are recognized in “Cash flow accounting hedge” included in the Consolidated Other Comprehensive Income, to the extent that hedge is effective and hedge is reclassified to income in the item “Net interest income” and “Net income from UF indexation” and/or “Foreign currency changes, UF indexation and accounting hedge”, when hedged item affects the income of the Bank produced for the “interest rate risk” or “foreign exchange risk”, respectively. If the hedge is not effective, the changes in the fair value are recognized directly in the results of the year under the caption “Other financial result”.

 

If the hedged instruments do not comply with criteria of cash flow accounting hedges, it expires or is sold, it suspends or executed, this hedge must be discontinued prospectively. Accumulated gains or losses recognized previously in the equity are maintained there until projected transactions occur, in that moment will be registered in Consolidated Statement of Income (in the item “Net interest income” and “Net income from UF indexation” and/or “Foreign currency changes, UF indexation and accounting hedge”, depend of the hedge), lesser than it foresees that the transaction will not execute, in this case it will be registered immediately in Consolidated Statement of Income (in the item “Net interest income” and “Net income from UF indexation” and/or “Foreign currency changes, UF indexation and accounting hedge”, depend of the hedge).

 

(l) Intangible Assets:

 

Intangible assets are initially recognized at their acquisition cost, and are subsequently measured at their cost less any accumulated amortization or less any accumulated impairment losses.

 

Software or computer programs purchased by the Bank and its subsidiaries are accounted for at cost less accumulated amortization and impairment losses.

 

The subsequent expense in software assets is capitalized only when it increases the future economic benefit for the specific asset. All other expenses are recorded as an expense as incurred.

 

Amortization is recorded in income using the straight-line amortization method based on the estimated useful life of the software, from the date on which it is available for use. The estimated useful life of software is a maximum of 6 years.

 

36


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(m) Property and equipment:

 

Property and equipment includes the amount of land, real estate, furniture, computer equipment and other installations owned by the consolidated entities and which are for own use. These assets are stated at historical cost less depreciation and accumulated impairment. This cost includes expenses than have been directly attributed to the asset’s acquisition.

 

Depreciation is recognized in the Consolidated Statements of Income on a straight-line basis over the estimated useful lives of each part of an item of property and equipment.

 

The estimated average useful lives for the periods 2023 and 2022 are as follows:

 

-  Buildings     50 years  
-  Installations     10 years  
-  Equipment     5 years  
-  Supplies and accessories     5 years  

  

Maintenance expenses relating to those assets held for own uses are recorded as expenses in the year in which they are incurred.

 

(n) Deferred taxes and income taxes:

 

The income tax provision of the Bank and its subsidiaries has been determined in conformity with current legal regulations.

 

The Bank and its subsidiaries recognize, when appropriate, deferred tax assets and liabilities for future estimates of tax effects attributable to temporary differences between the book and tax values of assets and liabilities. Deferred tax assets and liabilities are measured based on the tax rate expected to be applied, in accordance with current tax law, in the year that deferred tax assets are realized or liabilities are settled. The effects of future changes in tax legislation or tax rates are recognized in deferred taxes starting on the date of publication of the law approving such changes.

 

Deferred tax assets are recognized only when it is likely that future tax profits will be sufficient to recover deductions for temporary differences. According to instructions from the CMF, deferred taxes are presented in the Consolidated Statement of Financial Position according with IAS 12 “Income Tax”.

 

37


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(o) Provisions, contingent assets and liabilities:

 

Provisions are liabilities involving uncertainty about their amount or maturity. They are recorded in the Consolidated Statement of Financial Position when the following requirements are jointly met:

 

(i) a present obligation has arisen from a past event;

 

(ii) as of the date of the Financial Statements it is probable that the Bank or its subsidiaries have to disburse resources to settle the obligation; and

 

(iii) the amount of these resources can be reliably measured.

 

A contingent asset or liability is any right or obligation arising from past events whose existence will be confirmed by one or more uncertain future events which are not within the control of the Bank.

 

Contingent credits are understood as operations or commitments in which the Bank assumes a credit risk by committing itself to third parties, in the event of a future event, to make a payment or disbursement that must be recovered from its clients.

 

The following are classified as contingent credits in off-balance sheet information:

 

i. Undrawn credit lines: Considers the unused amounts of lines of credit that allow customers to make use of credit without prior decisions by the bank.

 

ii. Undrawn credit lines with immediate termination: Considers those undrawn credit lines, defined in the previous numeral, that the bank can unconditionally cancel at any time and without prior notice, or for which its automatic cancellation is contemplated in case of deterioration of the debtor’s solvency, as permitted by the current legal framework and the contractual conditions established between the parties.

 

iii. Contingent credits linked to the CAE: Correspond to credit commitments granted in accordance with Law No. 20,027 (“CAE”).

 

iv. Letters of credit for goods circulation operations: Considers the commitments that arise, both to the issuing bank and to the confirming bank, from self-settled commercial letters of credit with a maturity period of less than 1 year, arising from merchandise circulation operations (for example, confirmed foreign or documentary letters of credit). Includes documentary letters of credit issued by the Bank, which have not yet been negotiated.

 

v. Debt purchase commitments in local currency abroad: Note issuance facility (NIF) and revolving underwriting facility (RUF) are considered.

 

38


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(o) Provisions, contingent assets and liabilities: (continued)

 

vi. Transactions related to contingent events: Guarantee bonds with promissory notes referred to in Chapter 8-11 of the Actualized Standards Compilation are considered.

 

vii. Warranty by endorsement and sureties: Includes warranty by endorsement, sureties and standby letters of credit referred to in Chapter 8-10 of the Actualized Standards Compilation. In addition, it includes the payment guarantees of buyers in factoring operations, as indicated in Chapter 8-38 of that Compilation.

 

viii. Other credit commitments: It includes the unplaced amounts of committed credits, which must be disbursed on an agreed future date or processed when the contractually foreseen events occur with the client, as occurs in the case of irrevocable credit lines linked to the progress status of projects (in which for provisions purposes, both the gross exposure referred to in No. 3 and future increases in the amount of guarantees associated with committed disbursements must be considered).

 

Exposure to credit risk on contingent loans:

 

To calculate provisions for contingent credits, the amount of exposure to be considered will be equivalent to the percentage of the amounts of the contingent credits indicated below:

 

Type of contingent credit   Credit
Conversion
Factor
 
Undrawn credit lines with immediate termination     10 %
Contingent credits linked to the CAE     15 %
Letters of credit for goods circulation operations     20 %
Other undrawn credit lines     40 %
Debt purchase commitments in local currency abroad     50 %
Transactions related to contingent events     50 %
Warranty by endorsement and sureties     100 %
Other credit commitments     100 %
Other contingent loans     100 %

 

When dealing with transactions performed with customers with overdue loans, that exposure shall be equivalent to 100% of its contingent loans.

 

(p) Provisions for minimum dividends:

 

According with the CASB of the CMF, the Bank records within liabilities the portion of net income for the year that should be distributed to comply with the Corporations Law or its dividend policy. For these purposes, the Bank establishes a provision in a complementary equity account within retained earnings.

 

For purposes of calculating the provision of minimum dividends, the distributable net income is considered, which is defined as that which results from reducing or adding to the net income for the year, the correction of the value of the paid-in capital and reserves, due to the effects of the variation of the Consumer Price Index.

 

39


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(q) Employee benefits:

 

Employee benefits are all forms of consideration granted by an entity in exchange for services provided by employees or severance pay.

 

Short-term employee benefits are employee benefits (other than termination benefits) that are expected to be settled in full before twelve months after the end of the annual reporting period in which the employees have rendered the related services.

 

(i) Staff vacations

 

The annual costs of vacations and staff benefits are recognized on an accrual basis.

 

(ii) Other short-term benefits

 

The entity contemplates for its employees an annual incentive plan for meeting objectives and individual contribution to the company’s results, which are eventually delivered, consisting of a certain number or portion of monthly salaries and are provisioned based on the estimated amount to be distributed.

 

Other long-term employee benefits are all employee benefits other than short-term employee benefits, post-employment benefits, and termination benefits.

 

(iii) Employee benefits for termination of employment contract

 

The Bank has agreed with part of the staff the payment of compensation to those who have completed 30 or 35 years of permanence, in the event that they retired from the Institution. The proportional part accrued by those employees who will have access to exercise the right to this benefit and who at the end of the year have not yet acquired it has been incorporated into this obligation.

 

The obligations of this benefit plan are valued according to the projected credit unit method, including as variables the staff turnover rate, the expected salary growth and the probability of using this benefit, discounted at the current rate for long-term operations (5.4% as of June 30, 2023 and 5.5% as of December 31, 2022).

 

The discount rate used corresponds to the rate of 10-year Bonds in pesos of the Central Bank of Chile (BCP).

 

Gains and losses arising from changes in actuarial variables are recognized in Other Comprehensive Income. There are no other additional costs that should be recognized by the Bank.

 

40


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(r) Earnings per share:

 

The basic earnings per share is determined by dividing the net income attributed to the Bank’s owners in a period and the weighted average number of shares outstanding during that period.

 

Diluted earnings per share are determined similarly to basic earnings, but the weighted average number of outstanding shares is adjusted to take into account the potential dilutive effect of the options on shares, warrants and convertible debt. At the end of the periods ended June 30, 2023 and 2022 there are no concepts to adjust.

 

(s) Interest revenue and expense and UF indexation:

 

Interest income and expenses and UF indexation are recognized in the Consolidated Statement of Income using the effective interest rate method. The effective interest rate is the rate which exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument (or, where appropriate, in a shorter period), to the carrying amount of the financial asset or financial liability. To calculate the effective interest rate, the Bank determines cash flows by taking into account all contractual conditions of the financial instrument, excluding future credit losses.

 

The effective interest rate calculation includes all fees and other amounts paid or received that form part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the purchase or issuance of a financial asset or liability.

 

In the case of the impaired portfolio and current loans with a high risk of irrecoverability of loans and accounts receivable from customers, the Bank has applied a conservative position of discontinuing the accrual of interest and UF indexation on an accrual basis in the Consolidated Statement of Income, when the credit or one of its installments has been 90 days default in its payment.

 

(t) Commission income and expenses:

 

Revenue and expenses from fees are recognized in the Consolidated Income Statement using the criteria established in IFRS 15 “Revenue from contracts with customers”.

 

Under IFRS 15, revenues are recognized considering the terms of the contract with customers. Revenue is recognized when or as the performance obligation is satisfied by transferring the goods or services committed to the customer.

 

Under IFRS 15, revenues are recognized using different criteria depending on their nature. The most significant are:

 

Those that correspond to a singular act, when the act that originates them takes place.
     
Those that originate in transactions or services that are extended over time, during the life of such transactions or services.
     
Commissions on loan commitments and other fees related to credit operations are deferred (together with the incremental costs directly related to the placement) and recognized as an adjustment to the effective interest rate of the placement. In the case of loan commitments, when there is no certainty of the date of effective placement, the commissions are recognized in the period of the commitment that originates it on a linear basis.

 

41


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(t) Commission income and expenses: (continued)

 

The fees registered by the Bank correspond mainly to:

 

Commissions for credit prepayment: These commissions are accrued at the time the credits are prepaid.
     
Commissions for lines of credit and overdrafts: These commissions are accrued in the period related to the granting of lines of credit and overdrafts in checking accounts.
     
Commissions for warranty by endorsement and letters of credit: These commissions are accrued in the period related to the granting by the bank of payment guarantees for real or contingent obligations of third parties.
     
Commissions for card services: Correspond to commissions accrued for the period, related to the use of credit cards, debit cards and other.
     
Commissions for account management: Includes commissions for the maintenance of current accounts and other deposit accounts.
     
Commissions for collections and payments: Includes commissions generated by the collection and payment services provided by the Bank.
     
Commissions for intermediation and management of securities: correspond to income from brokerage service, placements, administration and custody of securities.
     
Remuneration for administration of mutual funds, investment funds or others: corresponds to the commissions from the General Fund Administrator for the administration of third-party funds.
     
Remuneration for brokerage and insurance consulting services: Income from brokerage and insurance advice by the Bank or its subsidiaries is included.
     
Commissions for factoring operations services: Commissions for factoring operations services performed by the Bank are included.
     
Commissions for services of financial leasing operations: Commissions for services of financial leasing operations carried out by the Bank as lessor are included.
     
Commissions for financial consulting services: commissions for financial advisory services performed by the Bank and its subsidiary are included.
     
Other commissions earned: includes income generated from foreign currency exchange, issuance bank guarantees, issuance of bank check, use of distribution channels, agreement on the use of a brand and placement of financial products and cash transfers, and recognition of payments associated with commercial alliances, among others.

 

Commission expenses include:

 

Commissions for card operations: commissions paid for credit and debit card operations are included.
     
Commissions for licensing the use of card brands
     
Expenses for obligations of loyalty and merits programs for card customers.
     
Commissions for operations with securities: commissions for deposit and custody of securities and brokerage of securities are included.
     
Other commissions for services received: Commissions are included for guarantees and endorsements of Bank obligations, for foreign trade operations, for correspondent banks in the country and abroad, for ATMs and electronic fund transfer services.
     
Commissions for compensation of large value payments: corresponds to commissions paid to entities such as ComBanc, CCLV Contraparte Central, etc.

 

42


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(u) Impairment of non-financial assets:

 

The carrying amounts of the non-financial assets of the Bank and its subsidiaries, are reviewed throughout the year and especially at each reporting date, to determine if any indication of impairment exists. If such indication exists, the recoverable amount of the asset is then estimated.

 

(v) Financial and operating leases:

 

(i) The Bank acting as lessor

 

Assets leased to customers under agreements which transfer substantially all the risks and rewards of ownership, with or without ultimate legal title, are classified as finance leases. When assets held are subject to a finance lease, the leased assets are derecognized and a receivable is recognized which is equal to the present value of the minimum lease payments, discounted at the interest rate implicit in the lease. Initial direct costs incurred in negotiating, and arranging a finance lease are incorporated into the receivable through the discount rate applied to the lease. Finance lease income is recognized over the lease term based on a pattern reflecting a constant periodic rate of return on the net investment in the finance lease.

 

Assets leased to customers under agreements, which do not transfer substantially all the risks, and rewards of ownership are classified as operating leases.

 

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

 

(ii) The Bank acting as lessee

 

A contract is, or contains a lease, if one party has the right to control the use of an identified asset for a period of time in exchange for a regular payment.

 

On the start date of a lease, a right-to-use assets leased is determined at cost, which includes the amount of the initial measurement of the lease liability plus other disbursements made.

 

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

 

The right-of-use asset is measured using the cost model, less accumulated depreciation and accumulated losses due to impairment of value, depreciation of the right-of-use asset, is recognized in the Consolidated Statements of Income based on the linear depreciation method from the start date and until the end of the lease term.

 

43


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(v) Financial and operating leases: (continued)

 

The monthly variation of the UF for the contracts established in said monetary unit should be treated as a new measurement, therefore the UF readjustment modifies the value of the lease liability, and in parallel, the amount of the right-of-use asset must be adjusted by this effect.

 

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

 

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

 

(w) Additional provisions:

 

In accordance to the CMF regulations, the banks have recorded additional allowances for its individually evaluated loan portfolio, taking into consideration the expected impairment of this portfolio. The calculation of this allowance is performed based on the Bank’s historical experience and considering possible future adverse macroeconomic conditions or circumstances that could affect a specific sector.

 

The provisions made in order to forestall the risk of macroeconomic fluctuations should anticipate situations reversal of expansionary economic cycles in the future, could translate into a worsening in the conditions of the economic environment and thus, function as a countercyclical mechanism accumulation of additional provisions when the scenario is favorable and release or assignment to specific provisions when environmental conditions deteriorate.

 

According to the above, additional provisions must always correspond to general provisions on commercial, consumer or mortgage loans, or segments identified, and in no case may be used to offset weaknesses of the models used by the Bank.

 

As of June 30, 2023, the balance of additional provisions amounts to Ch$700,252 million (Ch$700,252 million in December 2022), which are presented in the caption “Special Provisions for Credit Risk” of liabilities in the Consolidated Statement of Financial Position.

 

(x) Fair value measurement:

 

“Fair value” is understood as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants in a principal (or more advantageous) market at the measurement date under current market conditions, independent whether that price is directly observable or estimated using another valuation technique. The most objective and usual reference of fair value is the price that would be paid in an active, transparent and deep market (“quoted price” or “market price”).

 

When available, the Bank estimates the fair value of an instrument using quoted prices in an active market for that instrument. A market is considered active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis.

 

44


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

2. Main Accounting Criteria Used, continued:

 

(x) Fair value measurement: (continued)

 

If a market for a financial instrument is not active, the Bank establishes fair value using a valuation technique. These valuation techniques include the use of recent market transactions between knowledgeable, willing parties in an arm’s length transaction, if available, as well as references to the fair value of other instruments that are substantially the same, discounted cash flows and options pricing models.

 

The chosen valuation technique makes maximum use of information obtained in the market, using the least possible amount of data estimated by the Bank, incorporates all the factors that market participants would consider to establish the price, and will be consistent with generally accepted economic methodologies for calculating the price of financial instruments. The variables used by the valuation technique reasonably represent market expectations and reflect the return-risk factors inherent to the financial instrument. Periodically, the Bank calibrates the valuation techniques and tests it for validity using prices from observable current market transaction in the same instrument or based on available observable market information.

 

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. However, when transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognized in incomes.

 

On the other hand, it should be noted that the Bank has financial assets and liabilities offset each other’s market risks, based on which average market prices are used as a basis for determining their fair value.

 

Then, the fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties; to the extent that the Bank believes that a third-party market participant would take them into account in pricing a transaction.

 

The Bank’s fair value disclosures are included in Note No. 44.

 

45


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

3. New Accounting Pronouncements Issued and Adopted, or Issued that have not yet been Adopted:

 

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

 

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

 

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

 

Accounting standards issued by IASB.

 

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

 

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

 

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

 

The amendments to IAS 1 will be effective for Financial Statement presentation periods beginning on or after January 1, 2023.

 

To implement these amendments, some non-material modifications were made to Note No. 2 Main Accounting Criteria Used in the Consolidated Interim Financial Statements.

 

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

 

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

 

The amendments to IAS 8 will be effective for Financial Statement presentation periods beginning on or after January 1, 2023.

 

The application of this amendment did not generate any impacts on the current Consolidated Interim Financial Statements of Banco de Chile and its subsidiaries.

 

46


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

3. New Accounting Pronouncements Issued and Adopted, or Issued that have not yet been Adopted, continued:

 

IAS 12 Income Tax. Deferred taxes related to assets and liabilities arising from a single transaction.

 

In May 2021, the IASB published amendments to IAS 12, to specify how companies should account for deferred taxes on transactions such as leases and decommissioning obligations.

 

IAS 12 Income Tax specifies how a company accounts for income tax, including deferred tax, which represents tax to be paid or recovered in the future. In certain circumstances, companies are exempt from recognizing deferred taxes when they first recognize assets or liabilities. Prior to the amendment, there was some uncertainty as to whether the exemption applied to transactions such as leases and decommissioning obligations, transactions for which companies recognize both an asset and a liability.

 

The amendments clarify that the exemption does not apply and that companies are required to recognize deferred taxes on such transactions. The purpose of the amendments is to reduce the differences in reporting deferred tax on leases and decommissioning obligations.

 

The amendments are effective for the presentation periods of the Financial Statements beginning on January 1, 2023, and early application is allowed.

 

The implementation of this amendment had no impact for Bank of Chile and its affiliates.

 

Accounting standards issued by CMF

 

Circular No. 2,323. Modifies Chapter B-1 “Provisions for credit risk” of the CASB.

 

On October 21, 2022, the CMF published this Circular that modifies Chapter B-6 “Provisions for country risk” and B-7 “Special provisions for credits abroad” of the Compendium of Accounting Standards for Banks, the objective of this modification is to include to operations denominated in Chilean pesos within the computation of provisions for country risk and special for loans abroad.

 

The Bank implemented this change without generating material impacts.

 

Circular No. 2,331. Information to be reported on credits with the guarantee of FOGAPE Chile Apoya.

 

On February 7, 2023, the CMF issued Circular No. 2.331 containing details of the information that banks and cooperatives must send to the CMF through new regulatory files, in order to adequately monitor the evolution of loans guaranteed by the Chile Apoya program of the Small and Medium-Sized Enterprises Guarantee Fund (FOGAPE).

 

The Bank implemented this Circular, fulfilling the sending of the new regulatory files.

 

47


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

3. New Accounting Pronouncements Issued and Adopted, or Issued that have not yet been Adopted, continued:

 

Circular No. 2,330. Chapter 21-14 of the RAN: Evaluation of the Adequacy of Banks’ Liquidity Position.

 

On January 16, 2023, the CMF published the regulations that aim to present the criteria and guidelines that will be taken into consideration for the evaluation of the liquidity adequacy of banks, together with the possibility of the CMF to determine additional liquid asset requirements as a result of the supervisory review process. The Bank implemented this Circular, complying with the submission in April 2023 of the first Liquidity Self-Assessment Report (LSR).

 

Other Regulations.

 

Law 21,420 modifies art. 2 No. 2 of DL 825 of 1974, on Sales and Services Tax (VAT).

 

On January 1, 2023, the legal modifications incorporated into the basic service taxable event defined in art. 2 No. 2 of DL No. 825 Law on Sales and Services Tax came into effect. Said legal modification implied a higher expense or cost, since some services contracted by the institution from January 1, 2023, went from not being subject to being taxed with VAT.

 

The implementation of this new standard did not have a material impact on the Bank and its subsidiaries.

 

New Standards and interpretations that have been issued but their application date is not yet in force:

 

The following is a summary of new standards, interpretations and improvements to the International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and the CMF that are not yet effective as of June 30, 2023, as follows:

 

Accounting standards issued by IASB.

 

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

 

In September 2014, the IASB published this modification, which clarifies the scope of the profits and losses recognized in a transaction, that involves an associate or joint venture, and that this depends on whether the asset sold or contribution constitutes a business. Therefore, the IASB concluded that all gains or losses must be recognized against loss of control of a business.

 

Likewise, the gains or losses that result from the sale or contribution of a subsidiary that does not constitute a business (definition of IFRS 3) to an associate or joint venture must be recognized only to the extent of unrelated interests in the associate or joint venture.

 

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

 

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

 

48


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

3. New Accounting Pronouncements Issued and Adopted, or Issued that have not yet been Adopted, continued:

 

IFRS 16 Leases. Recognition of the lease liability in a sale with leaseback.

 

In September 2022, the IASB published an amendment to IFRS 16 related to the recognition of the lease liability in a sale with leaseback.

 

The amendment specifies the requirements that a seller-lessee must use to measure the lease liability that arises on sale and leaseback so that the seller-lessee does not recognize any gain or loss related to the right of use that it retains.

 

The modifications are effective for the periods of presentation of the Financial Statements that begin on or after January 1, 2024, and early application is allowed.

 

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

 

Accounting Standards issued by the CMF.

 

General Regulation (NCG by its Spanish initials) No. 484. Commissions in credit operations Law 18,010 and adjustments to current contracts.

 

On August 5, 2022, the CMF issued this NCG 484, which establishes the criteria and conditions that must be met by the collections made to the debtor in a credit operation to be considered commission and not interest. In addition, by virtue of the established definitions and in order to maintain regulatory coherence, other regulatory bodies were modified.

 

The instructions established in this General Regulation are effective as of August 1, 2023.

 

The Bank estimates that the impact of adopting this new standard will not be material.

 

Circulars issued in the process of implementing the Basel III standards.

 

During the year 2023, the CMF has issued the following standards related to the implementation of Basel III:

 

On March 31, 2023, through a press release, the CMF informed that its Council approved resolution No. 2,319 on the qualification of systemically important banks and the additional requirements for them, maintaining for the Bank an additional Basic Capital charge with respect to risk-weighted assets of 1.25%. The requirements of this standard have been gradually established, by December 2023 the requirement will be 50% of the charge.

 

On May 23, 2023, at its Financial Policy meeting, the Board of the Central Bank of Chile agreed to activate the Counter-Cyclical Capital Requirement at a level of 0.5% of risk-weighted assets, this attribution of the Central Bank is part of the Basel III capital standards for banks, in accordance with the provisions of article 66 ter of the General Banking Law. The purpose of the requirement is to accumulate a capital buffer so that it is available in the face of severe stress scenarios. Banks must establish the entire buffer within one year and, therefore, include it in the solvency reports of May 2024.

 

49


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

3. New Accounting Pronouncements Issued and Adopted, or Issued that have not yet been Adopted, continued:

 

On June 20, 2023, the CMF issued Circular No. 2,336, which aims to move towards the complete implementation of the Basel III standards and avoid duplication of regulatory instructions, particularly in the measurement of market risks from the banking book.

 

4. Accounting Changes:

 

During the period ended June 30, 2023, there have been no material or relative importance changes in accounting that affect the presentation of these Consolidated Interim Financial Statements.

 

5. Relevant Events:

 

a) On January 26, 2023, the Board of Directors of Banco de Chile agreed to convene an Ordinary Shareholders’ Meeting for March 23, 2023 in order to propose, among other matters, the following distribution of profits for the year ended on December 31, 2022:

 

i. Deduct and withhold from the net income of the year, an amount equivalent to the effect of inflation of the paid capital and reserves according to the variation of the Consumer Price Index that occurred between November 2021 and November 2022, amounting to Ch$542,504,045,836 which will be added to retained earnings from previous periods.

 

ii. Distribute in the form of dividend the remaining profit, corresponding to a dividend of Ch$8.58200773490 to each of the 101,017,081,114 shares of the Bank.

 

Consequently, it will be proposed a distribution as dividend of 61.5% of the profits for the year ending December 31, 2022.

 

b) On March 3, 2023, Banco de Chile informed the Financial Markets Commission that Mr. Alfredo Ergas Segal had ceased to hold office as Director of the Bank due to a supervening cause of incapacity arising from circumstances beyond his control. This was due to the fact that, within the framework of the corresponding periodic update at the Board meeting on December 22, 2022, a company in which Mr. Ergas is a Director was included as one of the Bank’s main clients, thus constituting the situation outlined in numeral 5 of subsection 3 of article 50 bis of Law 18,046 on corporations.

 

The aforementioned factual circumstances and the corresponding communication to the Superintendence of Pensions previously made by Mr. Ergas regarding the same matter, were reported by the Bank to the Commission for the Financial Market on December 30th.

 

In turn, by Resolution No. E-250 of March 3, 2023, the Superintendence of Pensiones established the disability of Mr. Ergas, based on the verification of the cause of supervening disability referred to above.

 

By virtue of the foregoing, the Independent Alternate Director Mr. Paul Fürst Gwinner assumed the role of Independent Regular Director, replacing Mr. Ergas in accordance with the procedure set forth in the Bank’s Bylaws.

 

50


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

5. Relevant Events, continued:

 

c) On March 23, 2023, at the Bank’s Ordinary Shareholders’ Meeting, our shareholders proceeded to the complete renewal of the Board of Directors, due to the end of the legal and statutory three-year term with respect to the Board of Directors that has ceased in its functions.

 

After the corresponding voting at the aforesaid meeting, the following persons were appointed as the Bank’s Directors for a new three-year term:

 

Directors: Raúl Anaya Elizalde  
  Hernán Büchi Buc  
  Andrés Ergas Heymann  
  Jaime Estévez Valencia (Independent)
  Julio Santiago Figueroa  
  Pablo Granifo Lavín  
  Ana Holuigue Barros (Independent)
  Andrónico Luksic Craig  
  Jean Paul Luksic Fontbona  
  Sinéad O’Connor  
  Francisco Pérez Mackenna  
First Alternate Director: Paul Fürst Gwinner (Independent)
Second Alternate Director: Sandra Marta Guazzotti  

 

Moreover, in its Ordinary Session No. BCH 2,986 of the same date, the Board of Directors of the Bank agreed to the following officer appointments and designations:

 

Chairman: Pablo Granifo Lavín  
Vice Chairman: Andrónico Luksic Craig  
Vice Chairman: Julio Santiago Figueroa  

 

d) During the year 2023 Banco de Chile has reported as essential fact the following placements in the local market of senior, dematerialized and bearer bonds issued by Banco de Chile and registered in the Securities Registry of the Financial Market Commission

 

Date     Registration
number in the
Securities Registry
    Serie     Amount     Currency     Maturity date     Average rate  
January 6, 2023     11/2022     GI     4,000,000     CLF     09/01/2035       2.61 %
March 16, 2023     11/2016     DG     9,750,000,000     CLP     05/01/2027       6.55 %
March 23, 2023     11/2016     DG     11,250,000,000     CLP     05/01/2027       6.55 %
April 11, 2023     11/2022     GG     650,000     CLF     05/01/2035       2.50 %
April 28, 2023     11/2015     CG     500,000     CLF     08/01/2032       2.65 %
May 18, 2023     11/2022     GB     460,000     CLF     09/01/2034       2.78 %
June 2, 2023     11/2015     CH     300,000     CLF     12/01/2032       2.96 %
June 6, 2023     11/2022     GB     215,000     CLF     09/01/2034       2.78 %
June 8, 2023     11/2015     BU     290,000     CLF     08/01/2029       3.39 %
June 9, 2023     11/2015     BU     510,000     CLF     08/01/2029       3.39 %
June 9, 2023     11/2015     CE     740,000     CLF     12/01/2031       2.94 %
June 12, 2023     11/2022     FW     4,000,000     CLF     05/01/2033       2.89 %
June 15, 2023     11/2015     BU     650,000     CLF     08/01/2029       3.26 %
June 16, 2023     11/2022     GB     200,000     CLF     09/01/2034       2.78 %

 

51


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

5. Relevant Events, continued:

 

e) During the year 2023 Banco de Chile has reported as an essential fact the following placements in the foreign market, issued under its Medium Term Notes Program (“MTN”):

 

Date     Amount     Currency     Maturity date     Average rate  
June 1, 2023       700,000,000     MXN     06/03/2027     TIIE (28 days) + 0.85%  
June 8, 2023       6,300,000,000     JPY     06/16/2025     0.75%  

 

6. Business Segments:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(*) Company dissolved in July 2022.

 

52


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

6. Business Segments, continued:

 

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

 

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

 

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

 

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

 

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

 

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

 

For the periods ended June 30, 2023 and 2022 there was no income from transactions with a customer or counterparty that accounted for 10% or more of the Bank’s total revenues.

 

53


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

6. Business Segments, continued:

 

The following table presents the income by segment for the periods ended between January 1, and June 30, 2023 and 2022 for each of the segments defined above:

 

    Retail     Wholesale     Treasury     Subsidiaries     Subtotal    

Consolidation

adjustment

    Total  
    June     June     June     June     June     June     June     June     June     June     June     June     June     June  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Net interest revenue (expense) and UF indexation     672,408       736,719       396,735       419,372       (139,476 )     (26,490 )     (7,660 )     (3,214 )     922,007       1,126,387       156       46       922,163       1,126,433  
Net commissions revenue (expense)     170,287       148,203       36,375       36,258       (1,221 )     (1,156 )     83,072       81,173       288,513       264,478       (15,533 )     (7,194 )     272,980       257,284  
Profit (loss) of financial operations     183       255       11,889       10,993       205,228       27,673       19,615       11,219       236,915       50,140       (130 )     (46 )     236,785       50,094  
Foreign currency changes, indexation and accounting hedge     1,983       7,281       16,792       16,597       (46,128 )     45,875       13,548       12,452       (13,805 )     82,205                   (13,805 )     82,205  
Other income     21,224       7,484       7,973       4,333                   1,921       1,514       31,118       13,331       (3,472 )     (3,083 )     27,646       10,248  
Income attributable to investments in other companies     3,721       3,965       1,397       1,173       126       93       552       456       5,796       5,687                   5,796       5,687  
Total operating revenue     869,806       903,907       471,161       488,726       18,529       45,995       111,048       103,600       1,470,544       1,542,228       (18,979 )     (10,277 )     1,451,565       1,531,951  
Expenses from salaries and employee benefits     (173,179 )     (158,052 )     (53,301 )     (46,762 )     (1,375 )     (1,213 )     (40,949 )     (38,960 )     (268,804 )     (244,987 )     10       9       (268,794 )     (244,978 )
Administrative expenses     (161,014 )     (132,326 )     (38,358 )     (33,247 )     (1,102 )     (775 )     (18,804 )     (16,787 )     (219,278 )     (183,135 )     18,471       9,711       (200,807 )     (173,424 )
Depreciation and amortization     (38,792 )     (33,677 )     (4,220 )     (4,333 )     (225 )     (213 )     (3,065 )     (2,790 )     (46,302 )     (41,013 )                 (46,302 )     (41,013 )
Impairment of non-financial assets     (1 )                                   18       100       17       100                   17       100  
Other operating expenses     (8,869 )     (6,944 )     (3,916 )     (3,796 )     (1 )           (920 )     (775 )     (13,706 )     (11,515 )     498       557       (13,208 )     (10,958 )
Total operating expenses     (381,855 )     (330,999 )     (99,795 )     (88,138 )     (2,703 )     (2,201 )     (63,720 )     (59,212 )     (548,073 )     (480,550 )     18,979       10,277       (529,094 )     (470,273 )
Expenses for credit losses (*)     (186,292 )     (132,550 )     8,567       (72,008 )     4,845       (973 )                 (172,880 )     (205,531 )                 (172,880 )     (205,531 )
Income from operations     301,659       440,358       379,933       328,580       20,671       42,821       47,328       44,388       749,591       856,147                   749,591       856,147  
Income taxes                                                                                                     (151,493 )     (132,898 )
Income after income taxes                                                                                                     598,098       723,249  

 

(*) As of June 30, 2022, the retail and wholesale segments include additional provisions assigned based on their risk-weighted assets for Ch$56,375 million and Ch$53,625 million, respectively.

 

The following table presents assets and liabilities of the periods ended June 30, 2023 and December 31, 2022 by each segment defined above:

 

    Retail     Wholesale     Treasury     Subsidiaries     Subtotal    

Consolidation

adjustment

    Total  
    June     December     June     December     June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                                                     
Assets     22,378,924       22,025,372       12,653,764       13,576,675       18,026,574       18,602,123       792,961       561,621       53,852,223       54,765,791       (132,080 )     (237,339 )     53,720,143       54,528,452  
Current and deferred taxes                                                                                                     554,406       726,910  
Total assets                                                                                                     54,274,549       55,255,362  
                                                                                                                 
Liabilities     18,916,283       17,572,012       9,273,669       10,151,503       20,732,903       22,182,398       611,092       727,529       49,533,947       50,633,442       (132,080 )     (237,339 )     49,401,867       50,396,103  
Current and deferred taxes                                                                                                     694       932  
Total liabilities                                                                                                     49,402,561       50,397,035  
                                                                                                      50,244,580       50,397,035  

 

54


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

7. Cash and Cash Equivalents:

 

The detail of the balances included under cash and cash equivalents as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
Cash and due from banks:            
Cash     840,603       947,669  
Deposit in Chilean Central Bank (*)     375,593       384,230  
Deposit in abroad Central Bank            
Deposits in domestic banks     18,602       116,541  
Deposits in abroad banks     1,047,921       1,316,444  
Subtotal – Cash and due from banks     2,282,719       2,764,884  
                 
Net transactions in the course of settlement (**)     82,281       90,404  
Others cash equivalents (***)     2,289,485       3,250,101  
Total cash and cash equivalents     4,654,485       6,105,389  

 

The detail of the balances included under net ongoing clearance operations is as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
Assets            
Documents drawn on other banks (clearing)     99,028       94,675  
Funds receivable     294,274       677,521  
Subtotal - assets     393,302       772,196  
                 
Liabilities                
Funds payable     (311,021 )     (681,792 )
Subtotal - liabilities     (311,021 )     (681,792 )
Net transactions in the course of settlement     82,281       90,404  

 

(*) The level of funds in cash and in the Central Bank of Chile responds to regulations on reserve requirements that the bank must maintain on average in monthly periods.

 

(**) Ongoing clearance operations correspond to transactions in which only the settlement remains that will increase or decrease the funds in the Central Bank of Chile or in foreign banks, normally within 12 or 24 business hours.

 

(***) Refers to financial instruments that meet the criteria to be considered as “cash equivalents” as defined by IAS 7, i.e., to qualify as “cash equivalents” investments in debt financial instruments must be: short-term with an original maturity of 90 days or less from the date of acquisition, highly liquid, readily convertible to known amounts of cash from the date of initial investment, and that the financial instruments are exposed to an insignificant risk of changes in their value.

 

55


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

8. Financial Assets Held for Trading at Fair Value through Profit or Loss:

 

The item detail is as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Financial derivative contracts     2,355,254       2,960,029  
Debt Financial Instruments     2,988,039       3,433,745  
Other financial instruments     371,559       257,325  
Total     5,714,852       6,651,099  

 

(a) The Bank as of June 30, 2023 and December 31, 2022, maintains the following asset portfolio of derivative instruments:

 

    Notional amount of contract with final expiration date in              
    Demand     Up to 1 month     Over 1 month and up to 3 months     Over 3 months and up to 12 months     Over 1 year and up to 3 years     Over 3 year and up to 5 years     Over 5 years     Total    

Fair Value

Assets

 
    June     December     June     December     June     December     June     December     June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                                                                             
Currency forward                 3,583,472       3,709,915       1,908,956       2,877,266       3,051,346       3,331,247       314,277       523,024       20,778       45,610                   8,878,829       10,487,062       366,463       565,373  
Interest rate swap                 599,597       1,469,421       1,763,742       1,372,813       4,942,799       5,305,882       6,225,199       5,531,197       3,906,090       3,897,824       4,396,214       4,824,660       21,833,641       22,401,797       1,088,668       1,324,541  
Interest rate and cross currency swap                 275,531       400,358       350,500       443,952       1,027,229       1,245,809       2,868,109       2,695,878       1,052,800       1,154,754       2,307,447       2,331,640       7,881,616       8,272,391       894,459       1,065,036  
Call currency options                 5,655       15,504       26,132       44,966       27,900       32,090       8,022                                     67,709       92,560       1,909       2,321  
Put currency options                 6,000       8,806       12,479       16,598       72,212       22,449       12,843                                     103,534       47,853       3,755       2,758  
Total                 4,470,255       5,604,004       4,061,809       4,755,595       9,121,486       9,937,477       9,428,450       8,750,099       4,979,668       5,098,188       6,703,661       7,156,300       38,765,329       41,301,663       2,355,254       2,960,029  

 

56


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

8. Financial Assets Held for Trading at Fair Value through Profit or Loss, continued:

 

b) The detail of the Debt Financial Instruments is the following:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
Instruments issued by the Chilean Government and Central Bank of Chile            
Debt financial instruments from the Central Bank of Chile     2,419,474       3,014,768  
Bonds and Promissory notes from the General Treasury of the Republic     307,744       44,524  
Other fiscal debt financial instruments            
                 
Other Instruments Issued in Chile                
Debt financial instruments from other domestic banks     260,821       374,453  
Bonds and trade effects from domestic companies            
Other debt financial instruments issued in the country            
                 
Instruments Issued Abroad                
Financial instruments from foreign governments or Central Banks            
Financial debt instruments from foreign goverments and fiscal entities            
Debt financial instruments from other foreign banks            
Bonds and trade effects from foreign companies            
Total     2,988,039       3,433,745  

 

Under instruments of the State and Central Bank of Chile are classified instruments sold under repurchase agreements to clients and financial institutions, by amount of Ch$34,946 million as of June 30, 2023 (no balance at December 2022). The repurchase agreements have an average maturity of 4 days at the end of June 2023 (no balance at December 2022).

 

Instruments sold under repurchase agreements to clients and financial institutions include other debt financial instruments issued in the country, by an amount of Ch$121,054 million as of June 30, 2023 (Ch$208,330 million in December 2022). The repurchase agreements have an average maturity of 6 days at the end of the 2023 period (7 days in December 2022).

 

Additionally, the Bank has investments in own-issued letters of credit for an amount equivalent to Ch$2,253 million as of June 30, 2023 (Ch$2,790 million in December 2022), which are presented as a reduction of the liability item “Debt Financial Instruments Issued”.

 

57


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

8. Financial Assets Held for Trading at Fair Value through Profit or Loss, continued:

 

c) The detail of other financial instruments is as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
Mutual fund investments            
Funds managed by related companies     369,775       250,337  
Funds managed by third-party            
                 
Equity instruments                
Domestic equity instruments     1,098       2,357  
Foreign equity instruments           3,261  
                 
Loans originated and acquired by the entity                
Loans and advances to banks            
Commercial loans            
Residential mortgage loans            
Consumer loans            
Others     686       1,370  
Total     371,559       257,325  

 

9. Non-trading Financial Assets mandatorily measured at Fair Value through Profit or Loss:

 

As of June 30, 2023 and December 31, 2022, the Bank does not hold any non-trading financial assets mandatorily measured at fair value through profit or loss.

 

10. Financial Assets and Liabilities designated as at Fair Value through Profit or Loss:

 

As of June 30, 2023 and December 31, 2022, the Bank does not hold financial assets and liabilities designated as at fair value through profit or loss.

 

58


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

11. Financial Assets at Fair Value through Other Comprehensive Income:

 

The item detail is as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Debt Financial Instruments     4,264,970       3,967,392  
Other financial instruments            
Total     4,264,970       3,967,392  

 

(a) As of June 30, 2023 and December 31, 2022, the detail of debt financial instruments is as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
Instruments issued by the Chilean Government and Central Bank of Chile            
Debt financial instruments from the Central Bank of Chile     27,248        
Bonds and Promissory notes from the General Treasury of the Republic     2,584,644       2,254,578  
Other fiscal debt financial instruments     2,542       4,279  
                 
Other Instruments Issued in Chile                
Debt financial instruments from other domestic banks     1,469,289       1,494,914  
Bonds and trade effects from domestic companies     63,114       45,994  
Other debt financial instruments issued in the country            
                 
Instruments Issued Abroad                
Financial instruments from foreign Central Banks            
Financial instruments from foreign governments and fiscal entities     39,585       42,017  
Debt financial instruments from other foreing banks     78,548       125,610  
Bonds and trade effects from foreign companies            
Other debt financial instruments issued abroad            
Total     4,264,970       3,967,392  

 

59


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

11. Financial Assets at Fair Value through Other Comprehensive Income, continued:

 

Instruments of the Government and the Central Bank of Chile include instruments sold under repurchase agreements to clients and financial institutions for an amount of Ch$6,793 million in June 2023 (Ch$7,369 million in December 2022). The repurchase agreements have an average maturity of 6 days in June 2023 (4 days in December 2022). As part of the FCIC program, instruments delivered as collateral are included for an approximate amount of Ch$741,908 million as of June 30, 2023 (Ch$693,206 million in December 2022).

 

Under the same item, instruments that guarantee margins for cleared derivatives transactions are classified through Comder Contraparte Central S.A. for an amount of Ch$34,415 million as of June 30, 2023 (Ch$39,508 million as of December 31, 2022).

 

Under Instruments of Other National Institutions are classified instruments delivered as collateral as part of FCIC program for an approximate amount of Ch$968,914 million as of June 30, 2023 (Ch$219,425 million as of December 31, 2022).

 

As of June 30, 2023 the accumulated credit impairment for debt instruments at fair value through other comprehensive income was Ch$4,004 million (Ch$9,496 million as of December 31, 2022).

 

a.1) The credit rating of the issuers of debt instruments as of June 30, 2023 and December 31, 2022 is as follows:

 

    June 2023           December 2022        
    Phase 1     Phase 2     Phase 3     Total     Phase 1     Phase 2     Phase 3     Total  
    Individual     Individual     Individual     Individual     Individual     Individual     Individual     Individual  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Debt instruments                                                
Investment grade     4,264,970                   4,264,970       3,967,392                   3,967,392  
No investment grade                                                
No rating                                                
Total     4,264,970                   4,264,970       3,967,392                   3,967,392  

 

60


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

11. Financial Assets at Fair Value through Other Comprehensive Income, continued:

 

a.2) The analysis of changes in fair value and expected losses of debt instruments measured at fair value is as follows:

 

    Phase 1 Individual     Phase 2 Individual     Phase 3 Individual     Total  
    Fair value     Impairment     Fair value     Impairment     Fair value     Impairment     Fair value     Impairment  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                 
Balance as of January 1, 2022     3,054,795       4,085       14                         3,054,809       4,085  
Net change in balance     864,521       5,411       (14 )                       864,507       5,411  
Change in fair value     48,076                                     48,076        
Transfer to Phase 1                                                
Transfer to Phase 2                                                
Transfer to Phase 3                                                
Impact due to transfer between phases                                                
Net impact due to impairment                                                
Balance as of December 31, 2022     3,967,392       9,496                               3,967,392       9,496  
                                                                 
Balance as of January 1, 2023     3,967,392       9,496                               3,967,392       9,496  
Net change in balance     321,858       (5,492 )     (30,124 )     (1,921 )                 291,734       (7,413 )
Change in fair value     5,688             156                         5,844        
Transfer to Phase 1                                                
Transfer to Phase 2     (29,968 )           29,968                                
Transfer to Phase 3                                                
Impact due to transfer between phases                       1,921                         1,921  
Net impact due to impairment                                                
Balance as of June 30, 2023     4,264,970       4,004                               4,264,970       4,004  

 

(b) Realized and unrealized gains and losses:

 

As of June 30, 2023, the portfolio of debt financial instruments includes an accumulated unrealized gain of Ch$6,112 millones (Ch$268 million in December 2022), recorded as an equity valuation adjustment.

 

Gross realized gains and losses on the sale of debt financial instruments, as of June 30, 2023 and 2022 are reported under “Net Financial income (expense)” (See Note No. 33). The changes in realized gains and losses at the end of both periods are the following:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Unrealized (losses) gains     5,778       (7,755 )
Realized losses (gains) reclassified to income     66       (475 )
Subtotal     5,844       (8,230 )
Income tax on other comprehensive income     (1,884 )     (416 )
Net effect in equity     3,960       (8,646 )

 

61


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

12. Derivative Financial Instruments for hedging purposes:

 

(a.1) As of June 30, 2023 and December 31, 2022, the Bank has the following asset portfolio of financial derivative instruments for accounting hedging purposes:

 

    Notional amount of contract with final expiration date in        
    Demand     Up to 1 month     Over 1 month and up to 3 months     Over 3 months and up to 12 months     Over 1 year and
up to 3 years
    Over 3 year and
up to 5 years
    Over 5 years     Total    

Fair value

Assets

 
    June     December     June     December     June     December     June     December     June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                                                                             
Derivatives held for fair value hedges                                                                                                            
Currency forward                                                                                                            
Interest rate swap                                                                                                            
Interest rate swap and cross currency swap                                                                                                            
Call currency options                                                                                                            
Put currency options                                                                                                            
Subtotal                                                                                                            
                                                                                                                                                 
Cash flow hedge derivatives                                                                                                                                                
Currency forward                                                                                                            
Interest rate swap                                                                                                            
Interest rate swap and cross currency swap                                         104,352       167,199             135,025       31,999       122,127       58,676       111,547       195,027       535,898       4,362       27,077  
Call currency options                                                                                                            
Put currency options                                                                                                            
Subtotal                                         104,352       167,199             135,025       31,999       122,127       58,676       111,547       195,027       535,898       4,362       27,077  
Total                                         104,352       167,199             135,025       31,999       122,127       58,676       111,547       195,027       535,898       4,362       27,077  

 

62


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

12. Derivative Financial Instruments for hedging purposes, continued:

 

(a.2) As of June 30, 2023 and December 31, 2022, the Bank has the following debt portfolio of financial derivative instruments for accounting hedging purposes:

 

    Notional amount of contract with final expiration date in        
    Demand     Up to 1 month     Over 1 month and up to 3 months     Over 3 months and up to 12 months     Over 1 year and
up to 3 years
    Over 3 year and
up to 5 years
    Over 5 years     Total    

Fair value

Liabilities

 
    June     December     June     December     June     December     June     December     June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                                                                             
Derivatives held for fair value hedges                                                                                                            
Currency forward                                                                                                            
Interest rate swap                                                                                                            
Interest rate swap and cross currency swap                                                                                                            
Call currency options                                                                                                            
Put currency options                                                                                                            
Subtotal                                                                                                            
                                                                                                                                                 
Cash flow hedge derivatives                                                                                                                                                
Currency forward                                                                                                            
Interest rate swap                                                                                                            
Interest rate swap and cross currency swap                                         65,359       63,587       301,310       123,214       258,296       129,166       1,239,959       1,151,878       1,864,924       1,467,845       317,618       223,016  
Call currency options                                                                                                            
Put currency options                                                                                                            
Subtotal                                         65,359       63,587       301,310       123,214       258,296       129,166       1,239,959       1,151,878       1,864,924       1,467,845       317,618       223,016  
Total                                         65,359       63,587       301,310       123,214       258,296       129,166       1,239,959       1,151,878       1,864,924       1,467,845       317,618       223,016  

 

63


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

12. Derivative Financial Instruments for hedging purposes, continued:

 

(b) Fair value Hedges:

 

As of June 30, 2023 and December 31, 2022, no fair value hedges are held.

  

(c) Cash flow Hedges:

 

(c.1) The Bank uses cross currency swaps to hedge the risk from variability of cash flows attributable to changes in the interest rates and foreign exchange of foreign banks obligations and bonds issued abroad in US Dollars, Hong Kong dollars, Swiss Franc, Japanese Yens, Peruvian Sol, Australian Dollars, Euros, Norwegian kroner and Mexican peso. The cash flows of the cross currency swaps equal the cash flows of the hedged items, which modify uncertain cash flows to known cash flows derived from a fixed interest rate.

 

Additionally, these cross currency swap contracts used to hedge the risk from variability of the Unidad de Fomento (“CLF”) in assets flows denominated in CLF until a nominal amount equal to the portion notional of the hedging instrument CLF, whose readjustment impact the item “Interest Revenue” of the Income Financial Statements.

 

64


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

12. Derivative Financial Instruments for hedging purposes, continued:

 

(c) Cash flow Hedges, continued:

 

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

 

    Demand     Up to 1 month     Over 1 month and up to 3 months     Over 3 months and up to 12 months     Over 1 year and
up to 3 years
    Over 3 years and
up to 5 years
    Over 5 years     Total  
    June     December     June     December     June     December     June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Hedge element                                                                                                
Outflows:                                                                                                
Corporate Bond EUR                                         (1,473 )     (1,533 )     (44,045 )     (45,839 )     (1,581 )     (1,646 )     (49,509 )     (52,347 )     (96,608 )     (101,365 )
Corporate Bond HKD                 (1,103 )           (5,225 )           (6,226 )     (92,127 )     (87,256 )     (92,999 )     (151,678 )     (161,662 )     (148,823 )     (158,619 )     (400,311 )     (505,407 )
Corporate Bond PEN                             (3,145 )     (3,172 )     (3,145 )     (3,172 )     (12,582 )     (12,689 )     (12,582 )     (12,689 )     (158,563 )     (163,094 )     (190,017 )     (194,816 )
Corporate Bond CHF                       (378 )                 (104,295 )     (106,877 )     (135,426 )     (139,270 )     (116,809 )     (120,501 )                 (356,530 )     (367,026 )
Corporate Bond USD                                         (13,683 )     (14,520 )     (27,366 )     (29,039 )     (21,377 )     (22,684 )     (489,431 )     (526,617 )     (551,857 )     (592,860 )
Obligation USD                                         (56,257 )     (59,876 )                                         (56,257 )     (59,876 )
Corporate Bond JPY                             (97 )     (113 )     (1,760 )     (1,740 )     (38,439 )     (3,705 )     (3,188 )     (3,705 )     (179,206 )     (209,193 )     (222,690 )     (218,456 )
Corporate Bond AUD                             (2,519 )     (1,138 )     (2,674 )     (4,487 )     (10,376 )     (11,254 )     (10,381 )     (11,252 )     (222,307 )     (242,281 )     (248,257 )     (270,412 )
Corporate Bond NOK                                         (2,043 )     (2,366 )     (4,085 )     (4,732 )     (4,085 )     (4,732 )     (60,111 )     (69,621 )     (70,324 )     (81,451 )
Corporate Bond MXN                 (304 )           (65 )           (195 )           (563 )           (33,036 )                       (34,163 )      
                                                                                                                                 
Hedge instrument                                                                                                                                
Inflows:                                                                                                                                
Cross Currency Swap EUR                                         1,473       1,533       44,045       45,839       1,581       1,646       49,509       52,347       96,608       101,365  
Cross Currency Swap HKD                 1,103             5,225             6,226       92,127       87,256       92,999       151,678       161,662       148,823       158,619       400,311       505,407  
Cross Currency Swap PEN                             3,145       3,172       3,145       3,172       12,582       12,689       12,582       12,689       158,563       163,094       190,017       194,816  
Cross Currency Swap CHF                       378                   104,295       106,877       135,426       139,270       116,809       120,501                   356,530       367,026  
Cross Currency Swap USD                                         13,683       14,520       27,366       29,039       21,377       22,684       489,431       526,617       551,857       592,860  
Cross Currency Swap USD                                         56,257       59,876                                           56,257       59,876  
Cross Currency Swap JPY                             97       113       1,760       1,740       38,439       3,705       3,188       3,705       179,206       209,193       222,690       218,456  
Cross Currency Swap AUD                             2,519       1,138       2,674       4,487       10,376       11,254       10,381       11,252       222,307       242,281       248,257       270,412  
Cross Currency Swap NOK                                         2,043       2,366       4,085       4,732       4,085       4,732       60,111       69,621       70,324       81,451  
Cross Currency Swap MXN                 304             65             195             563             33,036                         34,163        
                                                                                                                                 
Net cash flows                                                                                                

 

65


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

12. Derivative Financial Instruments for hedging purposes, continued:

 

(c) Cash flow Hedges, continued:

 

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

 

    Demand     Up to 1 month     Over 1 month and up to
3 months
    Over 3 months and up to
12 months
    Over 1 year and up to
3 years
    Over 3 years and up to
5 years
    Over 5 years     Total  
    June     December     June     December     June     December     June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                                                                 
Hedge element                                                                                                
Inflows:                                                                                                
Cash flows in CLF                 1,467       1,437       6,414       1,742       202,595       268,092       373,421       327,478       349,696       309,408       1,417,219       1,389,012       2,350,812       2,297,169  
                                                                                                                                 
Hedge instrument                                                                                                                                
Outflows:                                                                                                                                
Cross Currency Swap HKD                 (195 )     (193 )     (4,308 )           (4,611 )     (76,545 )     (94,441 )     (91,880 )     (139,743 )     (135,953 )     (116,436 )     (113,472 )     (359,734 )     (418,043 )
Cross Currency Swap PEN                             (811 )     (745 )     (779 )     (789 )     (3,147 )     (3,058 )     (3,160 )     (3,070 )     (118,480 )     (116,033 )     (126,377 )     (123,695 )
Cross Currency Swap JPY                             (391 )     (387 )     (6,048 )     (4,358 )     (47,168 )     (9,503 )     (9,765 )     (9,490 )     (286,555 )     (281,160 )     (349,927 )     (304,898 )
Cross Currency Swap USD                                         (76,470 )     (74,623 )     (21,606 )     (21,023 )     (21,666 )     (21,052 )     (535,308 )     (526,067 )     (655,050 )     (642,765 )
Cross Currency Swap CHF                 (1,272 )     (1,244 )                 (109,709 )     (107,515 )     (145,527 )     (143,166 )     (135,309 )     (132,878 )                 (391,817 )     (384,803 )
Cross Currency Swap EUR                                         (2,368 )     (2,298 )     (54,482 )     (53,703 )     (1,877 )     (1,824 )     (54,065 )     (53,057 )     (112,792 )     (110,882 )
Cross Currency Swap AUD                             (904 )     (610 )     (964 )     (1,211 )     (3,736 )     (3,636 )     (3,744 )     (3,634 )     (226,882 )     (221,509 )     (236,230 )     (230,600 )
Cross Currency Swap NOK                                         (776 )     (753 )     (1,549 )     (1,509 )     (1,551 )     (1,507 )     (79,493 )     (77,714 )     (83,369 )     (81,483 )
Cross Currency Swap MXN                                         (870 )           (1,765 )           (32,881 )                       (35,516 )      
Forward UF                                                                                                
                                                                                                                                 
Net cash flows                                                                                                

 

66


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

12. Derivative Financial Instruments for hedging purposes, continued:

 

(c) Cash flow Hedges, continued:

 

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

 

(c.3) The unrealized results generated during the period 2023 by those derivative contracts that conform the hedging instruments in this cash flow hedging strategy, have been recorded with credit to equity amounting to Ch$59,103 million (charge to equity of Ch$139,951 million in June 2022). The net effect of taxes credit to equity amounts to Ch$43,146 million (charge to equity of Ch$102,164 million during the period June 2022).

 

The accumulated balance for this concept as of June 30, 2023 corresponds to a charge in equity amounted to Ch$44,679 million (charge to equity of Ch$103,782 million as of December 2022).

 

(c.4) The effect of the cash flow hedging derivatives that offset the result of the hedged instruments corresponds to a charge to income of Ch$172,412 million during the period 2023 (charge to results for Ch$7,187 million during the period June 2022).

 

(c.5) As of June 30, 2023 and 2022, it not exist inefficiency in cash flow hedge, because both, hedge item and hedge instruments, are mirrors of each other, it means that all variation of value attributable to rate and revaluation components are netted totally.

 

(c.6) As of June 30, 2023 and 2022, the Bank does not have hedges of net investments in foreign business.

 

13. Financial assets at amortized cost:

 

The item detail is as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Rights by resale agreements and securities lending     38,863       54,061  
Debt financial instruments     915,407       902,355  
Loans and advances to Banks     2,782,662       2,174,115  
Loans to customers:                
Commercial loans     19,441,148       20,285,710  
Residential mortgage loans     11,843,185       11,416,154  
Consumer loans     5,156,922       4,992,940  
Provisions established for credit risk:                
Commercial loans provisions     (395,430 )     (414,200 )
Mortgage loans provisions     (30,442 )     (29,303 )
Consumer loans provisions     (353,255 )     (334,889 )
Total     39,399,060       39,046,943  

 

67


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(a) Rights arising from resale agreements:

 

The Bank provides financing to its customers through resale agreements and securities lending, in which the financial instrument serves as collateral. As of June 30, 2023 and December 31, 2022, the detail is as follows:

 

    Demand     Up to 1 month     Over 1 month and up to 3 months     Over 3 months and
up to 12 months
    Over 1 year and
up to 3 years
    Over 3 years and
up to 5 years
    Over 5 years     Total  
    June     December     June     December     June     December     June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Instruments issued by the Chilean Governments and Central Bank of Chile                                                                                                
Central Bank bonds                                                                                                
Central Bank promissory notes                                                                                                
Other instruments issued by the Chilean Government and Central Bank of Chile                                                                                                
Subtotal                                                                                                
Other Financial Instruments issued in Chile                                                                                                                                
Deposit promissory notes from domestic banks                                                                                                
Mortgage bonds from domestic banks                                                                                                
Bonds from domestic banks                                                                                                
Deposits in domestic banks                                                                                                
Bonds from other Chilean companies                                                                                                
Other instruments issued in Chile                 21,085       35,549       14,442       14,324       3,336       4,188                                           38,863       54,061  
Subtotal                 21,085       35,549       14,442       14,324       3,336       4,188                                           38,863       54,061  
Financial Instruments issued by foreign institutions                                                                                                                                
Instruments from foreign governments or Central Bank                                                                                                
Other instruments from foreign                                                                                                
Subtotal                                                                                                
Total                 21,085       35,549       14,442       14,324       3,336       4,188                                           38,863       54,061  

 

Purchased Instruments:

 

The Bank and its subsidiaries have received financial instruments that they can sell or give as collateral in case the owner of these instruments enters into default or in bankruptcy. As of June 30, 2023, the fair value of the instruments received amounts to Ch$39,069 million (Ch$53,173 million in December 2022).

 

68


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(b) Debt financial instruments:

 

At the end of each period, the balances presented under this item are as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
Instruments issued by the Chilean Government and Central Bank of Chile            
Debt financial instruments from the Central Bank of Chile        
Bonds and promissory notes from the General Treasury of the Republic     915,407       902,355  
Other fiscal debt financial instruments            
                 
Other Finacial Instruments issued in Chile                
Debt financial instruments from other domestic banks            
Bonds and trade effects from domestic companies            
Other debt financial instruments issued in the country            
                 
Financial Instruments issued Abroad                
Debt financial instruments from foreign Central Banks            
Debt financial instruments from foreign governments and fiscal entities            
Debt financial instruments from other foreing banks            
Bonds and trade effects from foreign companies            
Other debt financial instruments issued abroad            
                 
Accumulated Impairment Value of Financial Assets at Amortized Cost Debt Financial Instruments                
Financial assets with no significant increase in credit risk since initial recognition (phase 1)            
Financial assets with a significant increase in credit risk since initial recognition, but without credit impairment (phase 2)            
Financial assets with credit impairment (phase 3)            
Total     915,407       902,355  
                 

 

Under Instruments of the Government and the Central Bank of Chile, instruments are classified pledged as collateral as part of the FCIC program are included for an approximate amount of Ch$838,882 million as of June 30, 2023 (Ch$560,434 million as of December 31, 2022).

 

69


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(c) Loans and advances to Banks: At the end of each period, the balances presented under this item are as follows:

 

    Assets before allowances     Allowances established        
    Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio         Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio         Net  
    Individual     Individual     Individual           Individual     Individual     Individual           Financial  
As of June 30, 2023   Evaluation     Evaluation     Evaluation     Total     Evaluation     Evaluation     Evaluation     Total   Asset  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                       
Domestic Banks                                                      
Interbank loans of liquidity                  —              —                         —              —              
Interbank loans commercial                                                      
Current accounts overdrafts                                                      
Chilean exports foreign trade loans                                                      
Chilean imports foreign trade loans                                                      
Credits with third countries                                                      
Non-transferable deposits in domestic banks                                                      
Other debts with domestic banks                                                      
Foreign Banks                                                                        
Interbank loans of liquidity                                                      
Interbank loans commercial     182,126                   182,126       (398 )                 (398 )     181,728  
Current accounts overdrafts                                                      
Chilean exports foreign trade loans     100,285                   100,285       (115 )                 (115 )     100,170  
Chilean imports foreign trade loans                                                      
Credits with third countries                                                      
Current account deposits with foreign banks for derivatives transactions                                                      
Other non-transferable deposits with foreign banks                                                      
Other debts with foreign banks                                                      
Subtotal Domestic Bank and Foreign     282,411                   282,411       (513 )                 (513 )     281,898  
Central Bank of Chile                                                                        
Current account deposits for derivative transactions with a counterparty                                                      
Other deposits not available     2,500,764                   2,500,764                               2,500,764  
Other receivables                                                      
Foreign Central Banks                                                                        
Current account deposits for derivatives transactions                                                      
Other deposits not available                                                      
Other receivables                                                      
Subtotal Central Bank of Chile and Foreign Central Banks     2,500,764                   2,500,764                               2,500,764  
Total     2,783,175                   2,783,175       (513 )                 (513 )     2,782,662  

 

70


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(c) Loans and advances to Banks, continued:

 

    Assets before allowances     Allowances established        
    Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio           Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio           Net  
    Individual     Individual     Individual           Individual     Individual     Individual           Financial  
As of December 31, 2022   Evaluation     Evaluation     Evaluation     Total     Evaluation     Evaluation     Evaluation     Total     Asset  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                       
Domestic Banks                                                      
Interbank loans of liquidity                —            —                        —            —              
Interbank loans commercial                                                      
Current accounts overdrafts                                                      
Chilean exports foreign trade loans                                                      
Chilean imports foreign trade loans                                                      
Credits with third countries                                                      
Non-transferable deposits in domestic banks                                                      
Other debts with foreign banks                                                      
Foreign Banks                                                                        
Interbank loans of liquidity                                                      
Interbank loans commercial     186,660                   186,660       (408 )                 (408 )     186,252  
Current accounts overdrafts                                                      
Chilean exports foreign trade loans     186,553                   186,553       (269 )                 (269 )     186,284  
Chilean imports foreign trade loans                                                      
Credits with third countries     479                   479                               479  
Current account deposits with foreign banks for derivatives transactions                                                      
Other non-transferable deposits with foreign banks                                                      
Other debts with foreign banks                                                      
Subtotal Domestic Bank and Foreign     373,692                   373,692       (677 )                 (677 )     373,015  
Central Bank of Chile                                                                        
Current account deposits for derivative transactions with a counterparty                                                      
Other deposits not available     1,801,100                   1,801,100                               1,801,100  
Other receivables                                                      
Foreign Central Banks                                                                        
Current account deposits for derivatives transactions                                                      
Other deposits not available                                                      
Other receivables                                                      
Subtotal Central Bank of Chile and Foreign Central Banks     1,801,100                   1,801,100                               1,801,100  
Total     2,174,792                   2,174,792       (677 )                 (677 )     2,174,115  

 

71


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(d) Loans to Customers: At the end of each period, the balances presented under this item are as follows:

 

    Assets before allowances     Allowances established        
        Substandard     Non-Complying               Substandard     Non-Complying
         

Deductible

           
Loans to Customers  

Normal Portfolio

Evaluation

   

Portfolio

Evaluation

    Portfolio
Evaluation
         

Normal Portfolio

Evaluation

   

Portfolio

Evaluation

   

Portfolio

Evaluation

       

Warranties

Fogape
          Net
Financial
 

As of June 30, 2023

  Individual     Group     Individual     Individual     Group     Total     Individual     Group     Individual     Individual     Group     Sub Total     Covid-19     Total     Asset  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Commercial loans                                                                                          
Commercial loans     10,443,118       3,898,962       166,672       181,537       313,146       15,003,435       (89,202 )     (29,773 )     (3,734 )     (61,143 )     (90,904 )     (274,756 )     (21,464 )     (296,220 )     14,707,215  
Chilean exports foreign trade loans     1,103,083       3,131       5,468       6,656       245       1,118,583       (24,287 )     (121 )     (206 )     (2,881 )     (92 )     (27,587 )           (27,587 )     1,090,996  
Accrediting foreign trade loans negotiated in terms of Chilean imports     2,390                               2,390       (107 )                             (107 )           (107 )     2,283  
Chilean imports foreign trade loans     534,112       35,558       6,787       2,409       2,093       580,959       (18,420 )     (977 )     (890 )     (1,348 )     (1,057 )     (22,692 )           (22,692 )     558,267  
Current account debtors     136,452       88,329       5,644       2,948       1,374       234,747       (2,610 )     (2,111 )     (805 )     (781 )     (656 )     (6,963 )           (6,963 )     227,784  
Credit card debtors     19,989       67,802       948       847       6,707       96,293       (799 )     (2,058 )     (144 )     (477 )     (3,657 )     (7,135 )           (7,135 )     89,158  
Factoring transactions     494,296       32,016       3,637       893       205       531,047       (8,228 )     (769 )     (233 )     (370 )     (72 )     (9,672 )           (9,672 )     521,375  
Commercial lease transactions (1)     1,431,301       282,436       32,327       32,846       10,838       1,789,748       (2,715 )     (3,470 )     (155 )     (4,927 )     (1,357 )     (12,624 )     (621 )     (13,245 )     1,776,503  
Student loans           54,721                   3,376       58,097             (2,631 )                 (2,362 )     (4,993 )           (4,993 )     53,104  
Other loans and accounts receivable     6,534       10,043       451       7,508       1,313       25,849       (217 )     (43 )     (66 )     (6,002 )     (488 )     (6,816 )           (6,816 )     19,033  
Subtotal     14,171,275       4,472,998       221,934       235,644       339,297       19,441,148       (146,585 )     (41,953 )     (6,233 )     (77,929 )     (100,645 )     (373,345 )     (22,085 )     (395,430 )     19,045,718  
Residential mortgage loans                                                                                                                        
Letters of credit           3,006                   150       3,156             (2 )                 (8 )     (10 )           (10 )     3,146  
Endorsable mortgage loans           12,548                   371       12,919             (9 )                 (30 )     (39 )           (39 )     12,880  
Loans with mutual funds financed by mortgage bonds                                                                                          
Other residential lending           11,438,141                   221,282       11,659,423             (14,406 )                 (15,067 )     (29,473 )           (29,473 )     11,629,950  
Residential lease transactions (1)                                                                                          
Other loans and accounts receivable           160,520                   7,167       167,687             (251 )                 (669 )     (920 )           (920 )     166,767  
Subtotal           11,614,215                   228,970       11,843,185             (14,668 )                 (15,774 )     (30,442 )           (30,442 )     11,812,743  
Consumer loans                                                                                                                        
Consumer loans in installments           2,903,996                   211,221       3,115,217             (148,188 )                 (120,860 )     (269,048 )           (269,048 )     2,846,169  
Current account debtors           262,788                   2,650       265,438             (11,123 )                 (1,299 )     (12,422 )           (12,422 )     253,016  
Credit card debtors           1,739,750                   34,844       1,774,594             (49,324 )                 (21,303 )     (70,627 )           (70,627 )     1,703,967  
Consumer lease transactions (1)           451                         451             (5 )                       (5 )           (5 )     446  
Other loans and accounts receivable           30                   1,192       1,222             (8 )                 (1,145 )     (1,153 )           (1,153 )     69  
Subtotal           4,907,015                   249,907       5,156,922             (208,648 )                 (144,607 )     (353,255 )           (353,255 )     4,803,667  
Total     14,171,275       20,994,228       221,934       235,644       818,174       36,441,255       (146,585 )     (265,269 )     (6,233 )     (77,929 )     (261,026 )     (757,042 )     (22,085 )     (779,127 )     35,662,128  

 

(1) In this item, the Bank finances its clients the acquisition of movable and immovable property through financial lease agreements. As of June 30, 2023 Ch$911,073 million correspond to finance leases on immovable property and Ch$879,126 million correspond to finance leases on movable property.

 

72


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(d) Loans to Customers, continued:

 

    Assets before allowances     Allowances established        
        Substandard     Non-Complying               Substandard     Non-Complying          

Deductible

           
Loans to Customers   Normal Portfolio
Evaluation
    Portfolio
Evaluation
    Portfolio
Evaluation
          Normal Portfolio
Evaluation
    Portfolio
Evaluation
    Portfolio
Evaluation
         

Warranties

Fogape

          Net
Financial
 
As of December 31, 2022   Individual     Group     Individual     Individual     Group     Total     Individual     Group     Individual     Individual     Group     Sub Total     Covid-19     Total     Asset  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Commercial loans                                                                                          
Commercial loans     11,267,836       3,946,954       227,161       162,190       267,428       15,871,569       (97,717 )     (29,691 )     (18,459 )     (59,989 )     (82,000 )     (287,856 )     (31,986 )     (319,842 )     15,551,727  
Chilean exports foreign trade loans     941,478       3,857       4,565       5,980       533       956,413       (19,033 )     (114 )     (256 )     (2,779 )     (255 )     (22,437 )           (22,437 )     933,976  
Accrediting foreign trade loans negotiated in terms of Chilean imports     2,715                               2,715       (121 )                             (121 )           (121 )     2,594  
Chilean imports foreign trade loans     638,964       43,915       9,726       3,967       1,843       698,415       (19,478 )     (1,193 )     (709 )     (2,564 )     (868 )     (24,812 )           (24,812 )     673,603  
Current account debtors     78,854       87,728       5,260       2,673       1,144       175,659       (2,093 )     (2,083 )     (679 )     (669 )     (544 )     (6,068 )           (6,068 )     169,591  
Credit card debtors     18,235       61,911       875       649       5,153       86,823       (726 )     (1,852 )     (136 )     (373 )     (2,795 )     (5,882 )           (5,882 )     80,941  
Factoring transactions     589,682       34,074       4,255       454       53       628,518       (10,523 )     (828 )     (333 )     (351 )     (19 )     (12,054 )           (12,054 )     616,464  
Commercial lease transactions (1)     1,415,018       290,772       35,050       31,392       9,162       1,781,394       (2,560 )     (3,784 )     (146 )     (4,259 )     (1,228 )     (11,977 )     (757 )     (12,734 )     1,768,660  
Student loans           56,542                   3,052       59,594             (2,451 )                 (2,105 )     (4,556 )           (4,556 )     55,038  
Other loans and accounts receivable     6,551       9,088       324       7,357       1,290       24,610       (216 )     (25 )     (79 )     (4,951 )     (423 )     (5,694 )           (5,694 )     18,916  
Subtotal     14,959,333       4,534,841       287,216       214,662       289,658       20,285,710       (152,467 )     (42,021 )     (20,797 )     (75,935 )     (90,237 )     (381,457 )     (32,743 )     (414,200 )     19,871,510  
Residential mortgage loans                                                                                                                        
Letters of credit           3,717                   175       3,892             (4 )                 (9 )     (13 )           (13 )     3,879  
Endorsable mortgage loans           14,251                   349       14,600             (16 )                 (28 )     (44 )           (44 )     14,556  
Loans with mutual funds financed by mortgage bonds                                                                                          
Other residential lending           11,044,318                   189,029       11,233,347             (14,495 )                 (13,112 )     (27,607 )           (27,607 )     11,205,740  
Residential lease transactions (1)                                                                                          
Other loans and accounts receivable           158,133                   6,182       164,315             (639 )                 (1,000 )     (1,639 )           (1,639 )     162,676  
Subtotal           11,220,419                   195,735       11,416,154             (15,154 )                 (14,149 )     (29,303 )           (29,303 )     11,386,851  
Consumer loans                                                                                                                        
Consumer loans in installments           2,925,947                   188,507       3,114,454             (147,154 )                 (114,176 )     (261,330 )           (261,330 )     2,853,124  
Current account debtors           250,308                   3,101       253,409             (9,661 )                 (1,522 )     (11,183 )           (11,183 )     242,226  
Credit card debtors           1,593,759                   29,776       1,623,535             (43,204 )                 (18,184 )     (61,388 )           (61,388 )     1,562,147  
Consumer lease transactions (1)           503                         503             (6 )                       (6 )           (6 )     497  
Other loans and accounts receivable           47                   992       1,039             (18 )                 (964 )     (982 )           (982 )     57  
Subtotal           4,770,564                   222,376       4,992,940             (200,043 )                 (134,846 )     (334,889 )           (334,889 )     4,658,051  
Total     14,959,333       20,525,824       287,216       214,662       707,769       36,694,804       (152,467 )     (257,218 )     (20,797 )     (75,935 )     (239,232 )     (745,649 )     (32,743 )     (778,392 )     35,916,412  

 

(1) In this item, the Bank finances its clients the acquisition of movable and immovable property through financial lease agreements. As of December 31, 2022 Ch$910,141 million correspond to finance leases on immovable property and Ch$871,756 million correspond to finance leases on movable property.

 

73


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(e) Contingent loan: At the close of each reporting period, the contingent credit risk exposure is as follows;

 

    Outstanding exposure before provisions     Provisions established     Net exposure  
    Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio           Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio           for credit
risk of
 
    Evaluation     Evaluation     Evaluation           Evaluation     Evaluation     Evaluation           contingent  
As of June 30, 2023   Individual     Group     Individual     Individual     Group     Total     Individual     Group     Individual     Individual     Group     Total     loans  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                                               
Warranty by endorsement and sureties     289,575       462                         290,037       (3,112 )     (6 )                       (3,118 )     286,919  
Letters of credit for goods circulation operations     389,424       1,890             40             391,354       (825 )     (3 )           (26 )           (854 )     390,500  
Commitments to purchase local currency debt abroad                                                                              
Contingent event transactions     2,383,290       51,053       87,664       14,711       169       2,536,887       (25,443 )     (517 )     (7,941 )     (3,601 )     (82 )     (37,584 )     2,499,303  
Undrawn credit lines with immediate termination     1,246,763       8,167,698       4,575       862       10,351       9,430,249       (2,112 )     (4,182 )     (53 )     (426 )     (5,127 )     (11,900 )     9,418,349  
Undrawn credit lines                                                                              
Credits for Higher Education Law No. 20,027 (CAE)                                                                              
Other irrevocable loan commitments     38,899                               38,899       (31 )                             (31 )     38,868  
Other contingent loans                                                                              
Total     4,347,951       8,221,103       92,239       15,613       10,520       12,687,426       (31,523 )     (4,708 )     (7,994 )     (4,053 )     (5,209 )     (53,487 )     12,633,939  

 

74


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(e) Contingent loan, continued:

 

    Outstanding exposure before provisions     Provisions established     Net exposure  
    Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio           Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio           for credit
risk of
 
    Evaluation     Evaluation     Evaluation           Evaluation     Evaluation     Evaluation           contingent  
As of December 31, 2022   Individual     Group     Individual     Individual     Group     Total     Individual     Group     Individual     Individual     Group     Total     loans  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                                               
Warranty by endorsement and sureties     340,789       575       7,362       48             348,774       (2,939 )     (8 )     (2,970 )     (19 )           (5,936 )     342,838  
Letters of credit for goods circulation operations     423,810       385                         424,195       (875 )     (2 )                       (877 )     423,318  
Commitments to purchase local currency debt abroad                                                                              
Contingent event transactions     2,541,711       52,124       86,748       16,872       153       2,697,608       (25,758 )     (533 )     (7,888 )     (3,528 )     (73 )     (37,780 )     2,659,828  
Undrawn credit lines with immediate termination     1,251,041       8,078,996       4,948       789       12,089       9,347,863       (2,061 )     (4,115 )     (67 )     (471 )     (5,986 )     (12,700 )     9,335,163  
Undrawn credit lines                                                                              
Credits for Higher Education Law No. 20,027 (CAE)                                                                              
Other irrevocable loan commitments     72,355                               72,355       (84 )                             (84 )     72,271  
Other contingent loans                                                                              
Total     4,629,706       8,132,080       99,058       17,709       12,242       12,890,795       (31,717 )     (4,658 )     (10,925 )     (4,018 )     (6,059 )     (57,377 )     12,833,418  

 

75


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(f) Provisions:

 

Summary of changes in due from banks provisions constituted by credit risk portfolio in the period:

 

    Changes in provisions constituted by portfolio in the period  
    Individual Evaluation        
    Normal
Portfolio
    Substandard
Portfolio
    Non-Complying
Portfolio
    Total  
    MCh$     MCh$     MCh$     MCh$  
Loans and advances to Banks                        
Balance as of January 1, 2023     677                   677  
Allowances established/ released:                                
Change in measurement without portfolio reclassification during the period     (90 )                 (90 )
Change in measurement without portfolio reclassification from the beginning to the end of the period (portfolio from (-) until (+)):                                
Transfer from Normal individual to Substandard                        
Transfer from Normal individual to Non-Complying individual                        
Transfer from Substandard to Non-Complying individual                        
Transfer from Substandard to Normal individual                        
Transfer from Non-Complying individual to Substandard                        
Transfer from Non-Complying individual to Normal individual                        
New assets originated     856                   856  
New credits for conversion of contingent to loan                        
New assets purchased                        
Sales or transfers of credits                        
Payment of credit     (899 )                 (899 )
Provisions for write-offs                        
Recovery of written-off loans                        
Foreign exchange differences     (31 )                 (31 )
Other changes in allowances                        
Balance as of June 30, 2023     513                   513  

 

76


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(f) Provisions, continued:

 

    Changes in provisions constituted by portfolio in the year  
    Individual Evaluation        
    Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio     Total  
    MCh$     MCh$     MCh$     MCh$  
Loans and advances to Banks                        
Balance as of January 1, 2022     519            —            —       519  
Allowances established/ released:                                
Change in measurement without portfolio reclassification during the year     (51 )                 (51 )
Change in measurement without portfolio reclassification from the beginning to the end of the year (portfolio from (-) until (+)):                                
Transfer from Normal individual to Substandard                        
Transfer from Normal individual to Non-Complying individual                        
Transfer from Substandard to Non-Complying individual                        
Transfer from Substandard to Normal individual                        
Transfer from Non-Complying individual to Substandard                        
Transfer from Non-Complying individual to Normal individual                        
New assets originated     1,793                   1,793  
New credits for conversion of contingent to loan                        
New assets purchased                        
Sales or transfers of credits                        
Payment of credit     (1,550 )                 (1,550 )
Provisions for write-offs                        
Recovery of written-off loans                        
Foreign exchange differences     (34 )                 (34 )
Other changes in allowances                        
Balance as of December 31, 2022     677                   677  

 

77


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(f) Provisions, continued:

 

Summary of changes in commercial loan provisions constituted by credit risk portfolio in the period;

 

    Changes in provisions constituted by portfolio in the period  
              Substandard
          Deductible        
    Normal Portfolio
Evaluation
    Substandard     Portfolio
Evaluation
    Sub total     Warranties
Fogape
       
    Group     Individual     Portfolio     Group     Individual     Group     Individual     Covid-19     Total  
  MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Commercial loans                                                      
Balance as of January 1, 2023     42,021       152,467       20,797       90,237       75,935       132,258       249,199       32,743       414,200  
Provisions established/ released:                                                                        
Change in measurement without portfolio reclassification during the period     1,820       (20,082 )     (3,550 )     10,965       5,707       12,785       (17,925 )           (5,140 )
Change in measurement without portfolio reclassification from the beginning to the end of the period (portfolio from (-) until (+)):                                                                        
Transfer from Normal individual to Substandard           (969 )     1,660                         691             691  
Transfer from Normal individual to Non-Complying individual           (60 )                 1,804             1,744             1,744  
Transfer from Substandard to Non-Complying individual                 (1,732 )           7,444             5,712             5,712  
Transfer from Substandard to Normal individual           843       (12,291 )                       (11,448 )           (11,448 )
Transfer from Non-Complying individual to Substandard                             (4 )           (4 )           (4 )
Transfer from Non-Complying individual to Normal individual                             (17 )           (17 )           (17 )
Transfer from Normal group to Non-Complying group     (7,863 )                 20,326             12,463                   12,463  
Transfer from Non-Complying group to Normal group     266                   (3,171 )           (2,905 )                 (2,905 )
Transfer from Individual (normal, substandard, non-complying) to Group (normal, non-complying)                                                      
Transfer from Group (normal, non-complying) to Individual (normal, substandard, non-complying)     (427 )     933       66       (26 )     55       (453 )     1,054             601  
New assets originated     11,947       108,750       3,598       9,360       9,324       21,307       121,672             142,979  
New credits for conversion of contingent to loan     4,123       6,715       551       373       435       4,496       7,701             12,197  
New assets purchased                                                      
Sales or transfers of credits                                                      
Payment of credit     (9,879 )     (98,557 )     (2,803 )     (16,737 )     (14,166 )     (26,616 )     (115,526 )     (10,658 )     (152,800 )
Provisions for write-offs                       (10,621 )     (7,525 )     (10,621 )     (7,525 )           (18,146 )
Recovery of written-off loans     37                               37                   37  
Changes to models and assumptions                                                      
Foreign exchange differences     (92 )     (3,455 )     (63 )     (61 )     (1,063 )     (153 )     (4,581 )           (4,734 )
Other changes in allowances                                                      
Balance as of June 30, 2023     41,953       146,585       6,233       100,645       77,929       142,598       230,747       22,085       395,430  

 

78


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(f) Provisions, continued:

 

    Changes in provisions constituted by portfolio in the year  
              Substandard
          Deductible        
    Normal Portfolio
Evaluation
    Substandard     Portfolio
Evaluation
    Sub total     Warranties
Fogape
       
    Group     Individual     Portfolio     Group     Individual     Group     Individual     Covid-19     Total  
  MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Commercial loans                                                      
Balance as of January 1, 2022     52,512       148,704       6,121       87,340       73,677       139,852       228,502       48,534       416,888  
Provisions established/ released:                                                                        
Change in measurement without portfolio reclassification during the year     (2,777 )     (25,395 )     (4,103 )     15,801       23,725       13,024       (5,773 )           7,251  
Change in measurement without portfolio reclassification from the beginning to the end of the year (portfolio from (-) until (+)):                                                                        
Transfer from Normal individual to Substandard           (4,203 )     21,075                         16,872             16,872  
Transfer from Normal individual to Non-Complying individual           (1,015 )                 9,568             8,553             8,553  
Transfer from Substandard to Non-Complying individual                 (2,833 )           14,814             11,981             11,981  
Transfer from Substandard to Normal individual           944       (894 )                       50             50  
Transfer from Non-Complying individual to Substandard                 35             (246 )           (211 )           (211 )
Transfer from Non-Complying individual to Normal individual           1                               1             1  
Transfer from Normal group to Non-Complying group     (15,304 )                 35,153             19,849                   19,849  
Transfer from Non-Complying group to Normal group     1,539                   (10,220 )           (8,681 )                 (8,681 )
Transfer from Individual (normal, substandard, non-complying) to Group (normal, non-complying)                                                      
Transfer from Group (normal, non-complying) to Individual (normal, substandard, non-complying)     (2,275 )     2,829       415       (226 )     168       (2,501 )     3,412             911  
New assets originated     26,590       201,650       8,222       13,377       22,174       39,967       232,046             272,013  
New credits for conversion of contingent to loan     359       502       133       32       31       391       666             1,057  
New assets purchased                                                      
Sales or transfers of credits                             (1,630 )           (1,630 )           (1,630 )
Payment of credit     (18,835 )     (171,428 )     (7,238 )     (24,910 )     (48,902 )     (43,745 )     (227,568 )           (271,313 )
Provisions for write-offs     (5 )                 (26,006 )     (18,010 )     (26,011 )     (18,010 )           (44,021 )
Recovery of written-off loans     224                               224                   224  
Changes to models and assumptions                                                      
Foreign exchange differences     (7 )     (122 )     (136 )     (104 )     566       (111 )     308             197  
Other changes in allowances                                               (15,791 )     (15,791 )
Balance as of December 31, 2022     42,021       152,467       20,797       90,237       75,935       132,258       249,199       32,743       414,200  

 

79


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(f) Provisions, continued:

 

Summary of changes in residential mortgage loan provisions constituted by credit risk portfolio in the period;

 

    Changes in provisions constituted by portfolio in the period  
    Group Evaluation        
    Normal Portfolio     Non-Complying Portfolio     Total  
  MCh$     MCh$     MCh$  
Residential mortgage loans                  
Balance as of January 1, 2023     15,154       14,149       29,303  
Allowances established/ released:                        
Change in measurement without portfolio reclassification during the period     1,105       250       1,355  
Change in measurement without portfolio reclassification from the beginning to the end of the period (portfolio from (-) until (+)):                        
Transfer from Normal group to Non-Complying group     (2,077 )     4,152       2,075  
Transfer from Non-Complying group to Normal group     108       (637 )     (529 )
New assets originated     923             923  
New assets purchased                  
Sales or transfers of credits                  
Payment of credit     (545 )     (1,501 )     (2,046 )
Provisions for write-offs           (639 )     (639 )
Recovery of written-off loans                  
Changes to models and assumptions                  
Foreign exchange differences                  
Other changes in allowances                  
Balance as of June 30, 2023     14,668       15,774       30,442  

 

80


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(f) Provisions, continued:

 

    Changes in provisions constituted by portfolio in the year  
    Group Evaluation        
    Normal Portfolio     Non-Complying Portfolio     Total  
  MCh$     MCh$     MCh$  
Residential mortgage loans                  
Balance as of January 1, 2022     9,512       21,219       30,731  
Allowances established/ released:                        
Change in measurement without portfolio reclassification during the year     6,228       1,559       7,787  
Change in measurement without portfolio reclassification from the beginning to the end of the year (portfolio from (-) until (+)):                        
Transfer from Normal group to Non-Complying group     (2,537 )     6,435       3,898  
Transfer from Non-Complying group to Normal group     1,773       (10,431 )     (8,658 )
New assets originated     1,334       280       1,614  
New assets purchased                  
Sales or transfers of credits                  
Payment of credit     (1,156 )     (3,241 )     (4,397 )
Provisions for write-offs           (1,672 )     (1,672 )
Recovery of written-off loans                  
Changes to models and assumptions                  
Foreign exchange differences                  
Other changes in allowances                  
Balance as of December 31, 2022     15,154       14,149       29,303  

 

81


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(f) Provisions, continued:

 

Summary of changes in consumer loan provisions constituted by credit risk portfolio in the period;

 

    Changes in provisions constituted by portfolio in the period  
    Group Evaluation        
    Normal Portfolio     Non-Complying Portfolio     Total  
  MCh$     MCh$     MCh$  
Consumer loans                  
Balance as of January 1, 2023     200,043       134,846       334,889  
Allowances established/ released:                        
Change in measurement without portfolio reclassification during the period     15,721       3,138       18,859  
Change in measurement without portfolio reclassification from the beginning to the end of the period (portfolio from (-) until (+)):                        
Transfer from Normal group to Non-Complying group     (69,207 )     88,677       19,470  
Transfer from Non-Complying group to Normal group     3,650       (10,706 )     (7,056 )
New assets originated     63,382       40,900       104,282  
New credits for conversion of contingent to loan     41,936       2,292       44,228  
New assets purchased                  
Sales or transfers of credits                  
Payment of credit     (47,919 )     (16,593 )     (64,512 )
Provisions for write-offs           (97,907 )     (97,907 )
Recovery of written-off loans     1,056             1,056  
Changes to models and assumptions                  
Foreign exchange differences     (14 )     (40 )     (54 )
Other changes in allowances                  
Balance as of June 30, 2023     208,648       144,607       353,255  

 

82


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(f) Provisions, continued:

 

    Changes in provisions constituted by portfolio in the year  
    Group Evaluation        
    Normal Portfolio     Non-Complying Portfolio     Total  
  MCh$     MCh$     MCh$  
Consumer loans                  
Balance as of January 1, 2022     142,634       127,996       270,630  
Allowances established/ released:                        
Change in measurement without portfolio reclassification during the year     83,308       109,783       193,091  
Change in measurement without portfolio reclassification from the beginning to the end of the year (portfolio from (-) until (+)):                        
Transfer from Normal group to Non-Complying group     (84,107 )     116,954       32,847  
Transfer from Non-Complying group to Normal group     7,923       (36,693 )     (28,770 )
New assets originated     99,205       45,329       144,534  
New credits for conversion of contingent to loan     3,699       528       4,227  
New assets purchased                  
Sales or transfers of credits                  
Payment of credit     (58,447 )     (121,642 )     (180,089 )
Provisions for write-offs     (7 )     (107,605 )     (107,612 )
Recovery of written-off loans     6,048             6,048  
Changes to models and assumptions                  
Foreign exchange differences     (213 )     196       (17 )
Other changes in allowances                  
Balance as of December 31, 2022     200,043       134,846       334,889  

 

83


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(f) Provisions, continued:

 

Summary of changes in contingent credit risk provisions constituted by credit risk portfolio in the period;

 

    Changes in provisions constituted by portfolio in the period  
    Normal Portfolio           Non-Complying Portfolio              
    Evaluation     Substandard     Evaluation     Subtotal        
    Group     Individual     Portfolio     Group     Individual     Group     Individual     Total  
  MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Contingent loan exposure                                                
Balance as of January 1, 2023     4,658       31,717       10,925       6,059       4,018       10,717       46,660       57,377  
Provisions established/ released:                                                                
Change in measurement without portfolio reclassification during the period     (185 )     (885 )     (38 )     (353 )     (13 )     (538 )     (936 )     (1,474 )
Change in measurement without portfolio reclassification from the beginning to the end of the period (portfolio from (-) until (+)):                                                                
Transfer from Normal individual to Substandard           (190 )     371                         181       181  
Transfer from Normal individual to Non-Complying individual           (4 )                 260             256       256  
Transfer from Substandard to Non-Complying individual                 (161 )           832             671       671  
Transfer from Substandard to Normal individual           579       (2,859 )                       (2,280 )     (2,280 )
Transfer from Non-Complying individual to Substandard                 1             (63 )           (62 )     (62 )
Transfer from Non-Complying individual to Normal individual                             (45 )           (45 )     (45 )
Transfer from Normal group to Non-Complying group     (54 )                 1,012             958             958  
Transfer from Non-Complying group to Normal group     13                   (1,088 )           (1,075 )           (1,075 )
Transfer from Individual (normal, substandard, non-complying) to Group (normal, non-complying )                                                
Transfer from Group (normal, non-complying) to Individual (normal, substandard, non-complying)     (25 )     38       1       (2 )     2       (27 )     41       14  
New contingent loan granted     1,022       14,273       7,645       506       1,228       1,528       23,146       24,674  
Contingent credits for conversion     (291 )     (213 )     (57 )     (262 )     (88 )     (553 )     (358 )     (911 )
Changes to models and assumptions                                                
Foreign exchange differences     (1 )     (348 )     (173 )     (239 )     (2 )     (240 )     (523 )     (763 )
Other changes in provisions     (429 )     (13,444 )     (7,661 )     (424 )     (2,076 )     (853 )     (23,181 )     (24,034 )
Balance as of June 30, 2023     4,708       31,523       7,994       5,209       4,053       9,917       43,570       53,487  

 

84


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(f) Provisions, continued:

 

    Changes in provisions constituted by portfolio in the year  
    Normal Portfolio           Non-Complying Portfolio              
    Evaluation      Substandard     Evaluation     Subtotal        
    Group     Individual     Portfolio     Group     Individual     Group     Individual     Total  
  MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Contingent loan exposure                                                
Balance as of January 1, 2022     4,371       34,785       4,297       9,253       1,280       13,624       40,362       53,986  
Provisions established/ released:                                                                
Change in measurement without portfolio reclassification during the year     6,226       1,555       (784 )     (2 )     (11 )     6,224       760       6,984  
Change in measurement without portfolio reclassification from the beginning to the end of the year (portfolio from (-) until (+)):                                                                
Transfer from Normal individual to Substandard           (2,226 )     7,201                         4,975       4,975  
Transfer from Normal individual to Non-Complying individual           (97 )                 1,419             1,322       1,322  
Transfer from Substandard to Non-Complying individual                 (497 )           5,920             5,423       5,423  
Transfer from Substandard to Normal individual           45       (59 )                       (14 )     (14 )
Transfer from Non-Complying individual to Substandard                 1             (17 )           (16 )     (16 )
Transfer from Non-Complying individual to Normal individual           1                   (37 )           (36 )     (36 )
Transfer from Normal group to Non-Complying group     (136 )                 1,790             1,654             1,654  
Transfer from Non-Complying group to Normal group     79                   (5,697 )           (5,618 )           (5,618 )
Transfer from Individual (normal, substandard, non-complying) to Group (normal, non-complying )                                                
Transfer from Group (normal, non-complying) to Individual (normal, substandard, non-complying)     (91 )     130       81       (6 )     2       (97 )     213       116  
New contingent loan granted     2,275       33,913       8,770       1,460       158       3,735       42,841       46,576  
Contingent credits for conversion     (1,172 )     (386 )     (57 )     (12 )     (11 )     (1,184 )     (454 )     (1,638 )
Changes to models and assumptions                                                
Foreign exchange differences     4       (274 )     (11 )     33       (2 )     37       (287 )     (250 )
Other changes in provisions     (6,898 )     (35,729 )     (8,017 )     (760 )     (4,683 )     (7,658 )     (48,429 )     (56,087 )
Balance as of December 31, 2022     4,658       31,717       10,925       6,059       4,018       10,717       46,660       57,377  

 

85


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(f) Provisions, continued:

 

In addition to these provisions for credit risk, country risk provisions are maintained to cover foreign operations and additional provisions agreed by the Board of Directors, which are presented in liabilities under the item Special provisions for credit risk (See Note No. 26).

 

Other disclosures:

 

As of June 30, 2023, under the Commercial Loans item, operations are maintained that guarantee obligations maintained with the Central Bank of Chile as part of the Loan Increase Conditional Credit Facility (FCIC by its Spanish initials) program for an approximate amount of Ch$2,847,475 million (Ch$3,297,016 million in December 2022).

 

86


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(g) Industry sector:

 

At the closing of each reporting period, the composition of economic activity for loans, contingent loans exposure and provisions constituted are as follows:

 

    Credit and Contingent loans Exposure     Allowances Established  
    Domestic loans     Foreign loans     Total     Total     Domestic loans     Foreign loans     Total     Total  
    June     December     June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                                         
Loans and advances to Banks     2,500,764       1,801,100       282,411       373,692       2,783,175       2,174,792                   (513 )     (677 )     (513 )     (677 )
                                                                                                 
Commercial loans                                                                                                
Agriculture and livestock     767,469       797,020                   767,469       797,020       (13,746 )     (15,876 )                 (13,746 )     (15,876 )
Fruit     628,102       663,000                   628,102       663,000       (10,555 )     (13,980 )                 (10,555 )     (13,980 )
Forestry     104,869       102,427                   104,869       102,427       (2,923 )     (2,515 )                 (2,923 )     (2,515 )
Fishing     28,447       30,492                   28,447       30,492       (2,735 )     (2,966 )                 (2,735 )     (2,966 )
Mining     390,535       314,851                   390,535       314,851       (3,831 )     (2,124 )                 (3,831 )     (2,124 )
Oil and natural gas     833       1,011                   833       1,011       (15 )     (19 )                 (15 )     (19 )
Product manufacturing industries;                                                                                                
Foods, beverages and tobacco     569,741       594,583                   569,741       594,583       (19,103 )     (16,315 )                 (19,103 )     (16,315 )
Textiles, leather goods and footwear     28,874       33,130                   28,874       33,130       (841 )     (839 )                 (841 )     (839 )
Woods and furnitures     108,986       105,502                   108,986       105,502       (2,630 )     (2,532 )                 (2,630 )     (2,532 )
Cellulose, Paper and printing     18,543       20,849                   18,543       20,849       (862 )     (962 )                 (862 )     (962 )
Chemicals and petroleum products     313,535       365,185                   313,535       365,185       (5,713 )     (6,568 )                 (5,713 )     (6,568 )
Metal, non-metal, machine or others     556,744       574,024                   556,744       574,024       (10,576 )     (11,097 )                 (10,576 )     (11,097 )
Electricity, gas and water     436,146       463,529                   436,146       463,529       (3,429 )     (4,880 )                 (3,429 )     (4,880 )
Residential construction     260,712       270,049                   260,712       270,049       (11,795 )     (11,518 )                 (11,795 )     (11,518 )
Non-residential construction (office, civil engineering)     329,668       355,453                   329,668       355,453       (10,357 )     (9,938 )                 (10,357 )     (9,938 )
Wholesale     1,724,062       2,034,520                   1,724,062       2,034,520       (55,537 )     (58,705 )                 (55,537 )     (58,705 )
Retail, restaurants and hotels     991,015       1,039,471       5,355       6,752       996,370       1,046,223       (43,212 )     (47,644 )     (425 )     (547 )     (43,637 )     (48,191 )
Transport and storage     1,125,901       1,208,622                   1,125,901       1,208,622       (21,559 )     (22,654 )                 (21,559 )     (22,654 )
Communications     122,386       232,694                   122,386       232,694       (3,285 )     (3,439 )                 (3,285 )     (3,439 )
Financial services     2,916,456       2,990,382                   2,916,456       2,990,382       (30,116 )     (30,132 )                 (30,116 )     (30,132 )
Business services     1,841,982       1,998,911             19,425       1,841,982       2,018,336       (55,119 )     (58,868 )           (830 )     (55,119 )     (59,698 )
Real estate services     3,425,257       3,338,119       3,237       3,367       3,428,494       3,341,486       (19,440 )     (26,399 )     (138 )     (144 )     (19,578 )     (26,543 )
Student loans     58,097       59,594                   58,097       59,594       (4,993 )     (4,555 )                 (4,993 )     (4,555 )
Government administration, defence and police force     23,955       26,136                   23,955       26,136       (353 )     (453 )                 (353 )     (453 )
Social services and other community services     824,923       832,236                   824,923       832,236       (16,285 )     (16,608 )                 (16,285 )     (16,608 )
Personal services     1,835,318       1,804,376                   1,835,318       1,804,376       (45,857 )     (41,093 )                 (45,857 )     (41,093 )
Subtotal     19,432,556       20,256,166       8,592       29,544       19,441,148       20,285,710       (394,867 )     (412,679 )     (563 )     (1,521 )     (395,430 )     (414,200 )
                                                                                                 
Residential mortgage loans     11,843,185       11,416,154                   11,843,185       11,416,154       (30,442 )     (29,303 )                 (30,442 )     (29,303 )
                                                                                                 
Consumer loans     5,156,922       4,992,940                   5,156,922       4,992,940       (353,255 )     (334,889 )                 (353,255 )     (334,889 )
                                                                                                 
Contingent loan exposure     12,687,426       12,890,795                   12,687,426       12,890,795       (53,487 )     (57,377 )                 (53,487 )     (57,377 )

 

87


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(h) Residential mortgage loans and its provisions established by insolvent tranche of the loan on the value of the mortgage guarantee (PVG) and days of default respectively:

 

As of June 30, 2023

 

     Residential mortgage loans (MCh$)     Allowances established of
Residential mortgage loans (MCh$)
 
Loan Tranche /   Days in default at the end of the period     Days in default at the end of the period  
Guarantee Value(%)   0     1 to 29     30 to 59     60 to 89     >  = 90     Total     0     1 to 29     30 to 59     60 to 89     >  = 90     Total  
PVG <=40%     1,587,615       23,296       9,703       3,841       11,280       1,635,735       (1,148 )         (317 )            (246 )              (129 )             (616 )     (2,456 )
40% < PVG <= 80%     9,219,312       177,540       69,456       34,529       92,954       9,593,791       (10,845 )     (2,976 )     (2,213 )     (1,317 )     (6,051 )     (23,402 )
80% < PVG <= 90%     553,857       11,712       5,566       3,003       7,321       581,459       (1,894 )     (421 )     (391 )     (356 )     (1,223 )     (4,285 )
PVG > 90%     30,268       1,130             83       719       32,200       (130 )     (19 )           (12 )     (138 )     (299 )
Total     11,391,052       213,678       84,725       41,456       112,274       11,843,185       (14,017 )     (3,733 )     (2,850 )     (1,814 )     (8,028 )     (30,442 )

 

As of December 31, 2022

 

      Residential mortgage loans (MCh$)     Allowances established of
Residential mortgage loans (MCh$)
 
Loan Tranche /   Days in default at the end of the year     Days in default at the end of the year  
Guarantee Value (%)   0     1 to 29     30 to 59     60 to 89     >  = 90     Total     0     1 to 29     30 to 59     60 to 89     >  = 90     Total  
PVG <=40%     1,502,626       17,899       7,901       3,159            9,253       1,540,838       (1,187 )          (246 )            (224 )            (119 )          (506 )     (2,282 )
40% < PVG <= 80%     8,562,729       143,340       54,539       24,873       71,357       8,856,838       (9,857 )     (2,689 )     (1,815 )     (1,028 )     (4,271 )     (19,660 )
80% < PVG <= 90%     634,977       10,144       5,605       2,493       4,185       657,404       (2,291 )     (429 )     (423 )     (302 )     (788 )     (4,233 )
PVG > 90%     354,689       1,711       545       152       3,977       361,074       (2,053 )     (108 )     (35 )     (30 )     (902 )     (3,128 )
Total     11,055,021       173,094       68,590       30,677       88,772       11,416,154       (15,388 )     (3,472 )     (2,497 )     (1,479 )     (6,467 )     (29,303 )

 

88


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(i) Loans and advances to Banks and Commercial loans and their allowances established by classification category:

 

Below is the concentration of loans and advances to banks and commercial loans and their provisions constituted by classification category:

 

    Individual     Group           Provisions of
deductible warranties
 
As of March   Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio           Portfolio     Portfolio                 Fogape  
31, 2023   A1     A2     A3     A4     A5     A6     Subtotal     B1     B2     B3     B4     Subtotal     C1     C2     C3     C4     C5     C6     Subtotal     Total     Normal     Non-Complying     Total     Total     Covid 19  
  MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Loans and advances to Banks                                                                                                                                                                                                        
Interbank loans for liquidity                                                                                                                                                      
Interbank commercial loans                 182,126                         182,126                                                                               182,126                         182,126        
Current accounts overdrafts                                                                                                                                                      
Chilean exports foreign trade loans           76,811       23,474                         100,285                                                                               100,285                         100,285        
Chilean imports foreign trade loans                                                                                                                                                      
Foreign trade loans between third countries                                                                                                                                                      
Current account deposits in foreign banks for derivative operations                                                                                                                                                      
Other non-transferable deposits in banks                                                                                                                                                      
Other debts with banks                                                                                                                                                      
Subtotal           76,811       205,600                         282,411                                                                               282,411                         282,411        
Allowances established           63       450                         513                                                                               513                         513        
% Allowances established           0.08 %     0.22 %                       0.18 %                                                                             0.18 %                       0.18 %      
                                                                                                                                                                                                         
Commercial loans                                                                                                                                                                                                        
Commercial loans           896,736       1,929,416       2,162,493       3,479,922       1,974,551       10,443,118       97,682       45,212       18,194       5,584       166,672       59,969       20,541       24,032       28,363       12,929       35,703       181,537       10,791,327       3,898,962       313,146       4,212,108       15,003,435       21,464  
Chilean exports foreign trade loans           250,237       183,161       195,182       305,532       168,971       1,103,083       4,032       955       481             5,468       1,048       9       2,286       1,239       297       1,777       6,656       1,115,207       3,131       245       3,376       1,118,583        
Accrediting foreign trade loans negotiated in terms of Chilean imports                             2,295       95       2,390                                                                               2,390                         2,390        
Chilean imports foreign trade loans           9,053       77,564       170,382       117,291       159,822       534,112       6,765       22                   6,787       462       417             6       308       1,216       2,409       543,308       35,558       2,093       37,651       580,959        
Current account debtors           49,328       19,537       18,989       22,093       26,505       136,452       2,234       3,039       241       130       5,644       282       1,701       202       201       125       437       2,948       145,044       88,329       1,374       89,703       234,747        
Credit card debtors     21       310       1,915       3,093       7,338       7,312       19,989       595       262       54       37       948       127       45       43       124       191       317       847       21,784       67,802       6,707       74,509       96,293        
Factoring transactions     990       134,928       114,457       57,377       98,016       88,528       494,296       3,494             143             3,637       6       503                   107       277       893       498,826       32,016       205       32,221       531,047        
Commercial lease transactions           58,846       47,464       365,046       471,491       488,454       1,431,301       18,174       8,332       5,748       73       32,327       1,556       25,528       1,331       3,693       523       215       32,846       1,496,474       282,436       10,838       293,274       1,789,748       621  
Student loans                                                                                                                             54,721       3,376       58,097       58,097        
Other loans and accounts receivable           297       1,434       1,033       2,108       1,662       6,534       349       98       4             451       323       102       137       17       1,168       5,761       7,508       14,493       10,043       1,313       11,356       25,849        
Subtotal     1,011       1,399,735       2,374,948       2,973,595       4,506,086       2,915,900       14,171,275       133,325       57,920       24,865       5,824       221,934       63,773       48,846       28,031       33,643       15,648       45,703       235,644       14,628,853       4,472,998       339,297       4,812,295       19,441,148        
Allowances established           930       3,792       26,946       44,983       69,934       146,585       2,931       1,911       610       781       6,233       1,275       4,884       7,008       13,457       10,171       41,134       77,929       230,747       41,953       100,645       142,598       373,345       22,085  
% Allowances established     0.00 %     0.07 %     0.16 %     0.91 %     1.00 %     2.40 %     1.03 %     2.20 %     3.30 %     2.45 %     13.41 %     2.81 %     2.00 %     10.00 %     25.00 %     40.00 %     65.00 %     90.00 %     33.07 %     1.58 %     0.94 %     29.66 %     2.96 %     1.92 %        

 

89


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(i) Loans and advances to Banks and Commercial loans and their allowances established by classification category, continued:

 

    Individual     Group           Provisions of
deductible
 
As of   Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio         Portfolio     Portfolio                 warranties  
December 31,
2022
  A1     A2     A3     A4     A5     A6     Subtotal     B1     B2     B3     B4     Subtotal     C1     C2     C3     C4     C5     C6     Subtotal     Total     Normal     Non-Complying     Total     Total     Fogape
Covid 19
 
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Loans and advances to Banks                                                                                                                                                      
Interbank loans for liquidity                                                                                                                                                      
Interbank commercial loans                 186,660                         186,660                                                                               186,660                         186,660        
Current accounts overdrafts                                                                                                                                                      
Chilean exports foreign trade loans     78       149,694       32,530       4,251                   186,553                                                                               186,553                         186,553        
Chilean imports foreign trade loans                                                                                                                                                      
Foreign trade loans between third countries           479                               479                                                                               479                         479        

Current account deposits in foreign banks for derivative operations

                                                                                                                                                     
Other non-transferable deposits in banks                                                                                                                                                      
Other debts with banks                                                                                                                                                      
Subtotal     78       150,173       219,190       4,251                   373,692                                                                               373,692                         373,692        
Allowances established           124       479       74                   677                                                                               677                         677        
% Allowances established           0.08 %     0.22 %     1.74 %                 0.18 %                                                                             0.18 %                       0.18 %      
                                                                                                                                                                                                         
Commercial loans                                                                                                                                                                                                        
Commercial loans           1,326,655       2,066,763       2,372,591       3,522,434       1,979,393       11,267,836       125,517       43,693       46,476       11,475       227,161       40,585       21,608       24,175       28,604       11,857       35,361       162,190       11,657,187       3,946,954       267,428       4,214,382       15,871,569       31,986  
Chilean exports foreign trade loans           297,323       142,624       123,281       224,505       153,745       941,478       3,915             650             4,565       448       9       2,263       1,286       351       1,623       5,980       952,023       3,857       533       4,390       956,413        
Accrediting foreign trade loans negotiated in terms of Chilean imports                             2,621       94       2,715                                                                               2,715                         2,715        
Chilean imports foreign trade loans           95,894       88,440       159,031       150,348       145,251       638,964       9,602       124                   9,726       621       435               128       188       2,595       3,967       652,657       43,915       1,843       45,758       698,415        
Current account debtors           89       17,733       29,339       13,264       18,429       78,854       2,396       2,439       269       156       5,260       316       1,595       114       163       105       380       2,673       86,787       87,728       1,144       88,872       175,659        
Credit card debtors     26       314       1,677       2,778       6,456       6,984       18,235       509       288       24       54       875       101       15       59       69       148       257       649       19,759       61,911       5,153       67,064       86,823        
Factoring transactions     9,352       129,798       117,954       124,105       88,514       119,959       589,682       4,249       6                   4,255             7             11       185       251       454       594,391       34,074       53       34,127       628,518        
Commercial lease transactions           60,749       49,668       362,068       442,247       500,286       1,415,018       19,754       5,305       9,602       389       35,050       1,249       25,830       1,485       2,298       468       62       31,392       1,481,460       290,772       9,162       299,934       1,781,394       757  
Student loans                                                                                                                             56,542       3,052       59,594       59,594        
Other loans and accounts receivable           377       1,265       1,161       2,053       1,695       6,551       73       149       6       96       324       179       80       84       2,475       629       3,910       7,357       14,232       9,088       1,290       10,378       24,610        
Subtotal     9,378       1,911,199       2,486,124       3,174,354       4,452,442       2,925,836       14,959,333       166,015       52,004       57,027       12,170       287,216       43,499       49,579       28,180       35,034       13,931       44,439       214,662       15,461,211       4,534,841       289,658       4,824,499       20,285,710        
Allowances established     3       1,391       4,031       28,379       44,647       74,016       152,467       3,758       4,222       10,828       1,989       20,797       870       4,958       7,045       14,014       9,055       39,993       75,935       249,199       42,021       90,237       132,258       381,457       32,743  
% Allowances established     0.03 %     0.07 %     0.16 %     0.89 %     1.00 %     2.53 %     1.02 %     2.26 %     8.12 %     18.99 %     16.34 %     7.24 %     2.00 %     10.00 %     25.00 %     40.00 %     65.00 %     90.00 %     35.37 %     1.61 %     0.93 %     31.15 %     2.74 %     1.88 %        

 

90


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(j) Loans and their provisions for loan losses by tranches of days past-due:

 

The concentration of credit risk by days past due is as follows;

 

    Financial assets before allowances     Allowances established                    
    Normal Portfolio     Substandard
Portfolio
    Non-Complying
Portfolio
          Normal Portfolio     Substandard
Portfolio
    Non-Complying
Portfolio
          Deductible
Warranties
          Net  
    Evaluation     Evaluation     Evaluation           Evaluation     Evaluation     Evaluation     Sub     FOGAPE           Financial  
As of June 30, 2023   Individual     Group     Individual     Individual     Group     Total     Individual     Group     Individual     Individual     Group     Total     Covid-19     Total     Assets  
  MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Loans and advances to Banks                                                                                          
0 days     249,473                               249,473       (486 )                             (486 )           (486 )        
1 to 29 days     32,938                               32,938       (27 )                             (27 )           (27 )        
30 to 59 days                                                                                            
60 to 89 days                                                                                            
>  = 90 days                                                                                            
Subtotal     282,411                               282,411       (513 )                             (513 )           (513 )     281,898  
                                                                                                                         
Commercial loans                                                                                                                        
0 days     13,880,771       4,300,026       166,266       85,836       90,013       18,522,912       (142,976 )     (33,144 )     (4,874 )     (19,986 )     (21,094 )     (222,074 )     (21,557 )     (243,631 )        
1 to 29 days     248,834       128,573       28,199       14,841       28,321       448,768       (3,113 )     (4,708 )     (628 )     (4,846 )     (6,066 )     (19,361 )     (216 )     (19,577 )        
30 to 59 days     40,388       33,878       13,712       33,423       25,421       146,822       (466 )     (2,666 )     (346 )     (4,996 )     (5,940 )     (14,414 )     (101 )     (14,515 )        
60 to 89 days     1,282       10,521       13,757       5,479       14,354       45,393       (30 )     (1,435 )     (385 )     (1,762 )     (3,834 )     (7,446 )     (38 )     (7,484 )        
>  = 90 days                       96,065       181,188       277,253                         (46,339 )     (63,711 )     (110,050 )     (173 )     (110,223 )        
Subtotal     14,171,275       4,472,998       221,934       235,644       339,297       19,441,148       (146,585 )     (41,953 )     (6,233 )     (77,929 )     (100,645 )     (373,345 )     (22,085 )     (395,430 )     19,045,718  
                                                                                                                         
Residential mortgage loans                                                                                                                        
0 days           11,336,611                   54,441       11,391,052             (10,347 )                 (3,670 )     (14,017 )           (14,017 )        
1 to 29 days           188,223                   25,455       213,678             (2,138 )                 (1,595 )     (3,733 )           (3,733 )        
30 to 59 days           62,363                   22,362       84,725             (1,375 )                 (1,475 )     (2,850 )           (2,850 )        
60 to 89 days           27,018                   14,438       41,456             (808 )                 (1,006 )     (1,814 )           (1,814 )        
>  = 90 days                             112,274       112,274                               (8,028 )     (8,028 )           (8,028 )        
Subtotal           11,614,215                   228,970       11,843,185             (14,668 )                 (15,774 )     (30,442 )           (30,442 )     11,812,743  
                                                                                                                         
Consumer loans                                                                                                                        
0 days           4,642,215                   84,122       4,726,337             (153,633 )                 (46,990 )     (200,623 )           (200,623 )        
1 to 29 days           181,420                   25,477       206,897             (29,047 )                 (14,203 )     (43,250 )           (43,250 )        
30 to 59 days           57,691                   25,645       83,336             (16,081 )                 (16,237 )     (32,318 )           (32,318 )        
60 a 89 days           25,689                   18,350       44,039             (9,887 )                 (10,611 )     (20,498 )           (20,498 )        
>  = 90 days                             96,313       96,313                               (56,566 )     (56,566 )           (56,566 )        
Subtotal           4,907,015                   249,907       5,156,922             (208,648 )                 (144,607 )     (353,255 )           (353,255 )     4,803,667  
                                                                                                                         
Total Loans     14,453,686       20,994,228       221,934       235,644       818,174       36,723,666       (147,098 )     (265,269 )     (6,233 )     (77,929 )     (261,026 )     (757,555 )     (22,085 )     (779,640 )     35,944,026  

 

91


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(j) Loans and their provisions for loan losses by number of days past-due, continued:

 

    Financial assets before allowances     Allowances established                  
    Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio           Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio          

Deductible
Warranties

          Net  
    Evaluation     Evaluation     Evaluation     Sub     Evaluation     Evaluation     Evaluation     Sub     FOGAPE           Financial  
As of December 31, 2022   Individual     Group     Individual     Individual     Group    

Total

    Individual     Group     Individual     Individual     Group     Total    

Covid-19

    Total    

Assets

 
  MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Loans and advances to Banks                                                                                          
0 days     271,125                               271,125       (549 )                             (549 )           (549 )        
1 to 29 days     102,567                               102,567       (128 )                             (128 )           (128 )        
30 to 59 days                                                                                            
60 to 89 days                                                                                            
>  = 90 days                                                                                            
Subtotal     373,692                               373,692       (677 )                             (677 )           (677 )     373,015  
                                                                                                                         
Commercial loans                                                                                                                        
0 days     14,830,653       4,390,886       244,263       90,196       77,668       19,633,666       (150,565 )     (34,657 )     (18,649 )     (24,619 )     (20,625 )     (249,115 )     (31,595 )     (280,710 )        
1 to 29 days     120,380       99,476       22,410       29,696       24,008       295,970       (1,672 )     (3,878 )     (1,345 )     (6,236 )     (5,980 )     (19,111 )     (545 )     (19,656 )        
30 to 59 days     7,560       34,552       17,302       14,375       22,225       96,014       (174 )     (2,312 )     (741 )     (5,171 )     (5,636 )     (14,034 )     (193 )     (14,227 )        
60 to 89 days     740       9,927       3,241       7,907       14,886       36,701       (56 )     (1,174 )     (62 )     (3,676 )     (4,049 )     (9,017 )     (81 )     (9,098 )        
>  = 90 days                       72,488       150,871       223,359                         (36,233 )     (53,947 )     (90,180 )     (329 )     (90,509 )        
Subtotal     14,959,333       4,534,841       287,216       214,662       289,658       20,285,710       (152,467 )     (42,021 )     (20,797 )     (75,935 )     (90,237 )     (381,457 )     (32,743 )     (414,200 )     19,871,510  
                                                                                                                         
Residential mortgage loans                                                                                                                        
0 days           11,002,441                   52,580       11,055,021             (11,364 )                 (4,024 )     (15,388 )           (15,388 )        
1 to 29 days           149,652                   23,442       173,094             (1,908 )                 (1,564 )     (3,472 )           (3,472 )        
30 to 59 days           50,866                   17,724       68,590             (1,349 )                 (1,148 )     (2,497 )           (2,497 )        
60 to 89 days           17,460                   13,217       30,677             (533 )                 (946 )     (1,479 )           (1,479 )        
>  = 90 days                             88,772       88,772                               (6,467 )     (6,467 )           (6,467 )        
Subtotal           11,220,419                   195,735       11,416,154             (15,154 )                 (14,149 )     (29,303 )           (29,303 )     11,386,851  
                                                                                                                         
Consumer loans                                                                                                                        
0 days           4,535,528                   74,062       4,609,590             (151,281 )                 (45,533 )     (196,814 )           (196,814 )        
1 to 29 days           162,285                   20,345       182,630             (25,429 )                 (12,424 )     (37,853 )           (37,853 )        
30 to 59 days           52,836                   24,344       77,180             (15,414 )                 (15,709 )     (31,123 )           (31,123 )        
60 a 89 days           19,915                   21,236       41,151             (7,919 )                 (12,437 )     (20,356 )           (20,356 )        
>  = 90 days                             82,389       82,389                               (48,743 )     (48,743 )           (48,743 )        
Subtotal           4,770,564                   222,376       4,992,940             (200,043 )                 (134,846 )     (334,889 )           (334,889 )     4,658,051  
                                                                                                                         
Total Loans     15,333,025       20,525,824       287,216       214,662       707,769       37,068,496       (153,144 )     (257,218 )     (20,797 )     (75,935 )     (239,232 )     (746,326 )     (32,743 )     (779,069 )     36,289,427  

 

92


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

13. Financial assets at amortized cost, continued:

 

(k) Finance lease contracts:

 

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

 

    Total receivable     Unearned income     Net balance receivable (*)  
    June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                     
Within one year   591,626     583,321     (83,850 )   (76,614 )   507,776     506,707  
From 1 to 2 years   442,752     433,397     (60,097 )   (55,714 )   382,655     377,683  
From 2 to 3 years   301,905     294,728     (37,141 )   (35,133 )   264,764     259,595  
From 3 to 4 years   190,940     191,083     (23,651 )   (22,481 )   167,289     168,602  
From 4 to 5 years   136,717     134,590     (16,318 )   (15,614 )   120,399     118,976  
After 5 years   374,501     378,280     (33,667 )   (33,166 )   340,834     345,114  
Total   2,038,441     2,015,399     (254,724 )   (238,722 )   1,783,717     1,776,677  

 

(*) The net balance receivable does not include past-due portfolio totaling Ch$6,482 million as of June 30, 2023 (Ch$5,220 million in December 2022).

 

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

 

(l) Purchase of loan portfolio:

 

During the period ended as of June 30, 2023 and the year 2022 no portfolio purchases were made.

 

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

 

During the period 2023, the following sale were made:

 

    2023  
    Carrying amount     Allowances     Sale price    

Effect on income

(loss) gain

 
    MM$     MM$     MM$     MM$  
                         
Sale of current loans     15,824             15,824        
Sale of written – off loans                        
Total     15,824             15,824        

 

There have not been operations of sale or transfer of the loan portfolio during the period from January to June 2022.

 

(n) Securitization of own assets:

 

During the period 2023 and the year 2022, there is no securitization transactions executed involving its own assets.

 

93


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

14. Investments in other companies:

 

(a) In the item “Investments in other companies” include investments of Ch$64,650 million as of June 30, 2023 (Ch$62,211 million as of December 31, 2022), as follows:

 

        % Ownership Interest     Equity     Assets  
        June     December     June     December     June     December  
Company   Shareholder   2023     2022     2023     2022     2023     2022  
        %     %     MCh$     MCh$     MCh$     MCh$  
Associates                                        
Transbank S.A.   Banco de Chile     26.16       26.16       118,379       109,762       31,575       29,015  
Redbanc S.A.   Banco de Chile     38.13       38.13       11,990       11,368       4,660       4,400  
Centro de Compensación Automatizado S.A.   Banco de Chile     33.33       33.33       11,420       15,047       3,882       5,172  
Administrador Financiero del Transantiago S.A.   Banco de Chile     20.00       20.00       18,822       20,626       3,851       4,366  
Sociedad Interbancaria de Depósitos de Valores S.A.   Banco de Chile     26.81       26.81       7,919       7,255       2,123       2,066  
Sociedad Imerc OTC S.A.   Banco de Chile     12.33       12.33       13,399       13,213       1,698       1,662  
Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A.   Banco de Chile     15.00       15.00       7,575       7,353       1,152       1,145  
Subtotal Associates                         189,504       184,624       48,941       47,826  
                                                     
Joint Ventures                                                    
Servipag Ltda.   Banco de Chile     50.00       50.00       15,466       13,662       7,733       6,831  
Artikos Chile S.A.   Banco de Chile     50.00       50.00       2,693       2,632       1,346       1,520  
Subtotal Joint Ventures                         18,159       16,294       9,079       8,351  
Subtotal                         207,663       200,918       58,020       56,177  
                                                     
Minority Investments                                                    
Sociedad de Infraestructuras de Mercado S.A.(*) (**)   Banchile Corredores de Bolsa                                     4,836        
Bolsa de Comercio de Santiago S.A.  (*) (**)   Banchile Corredores de Bolsa                                     1,104       5,342  
Bolsa Electrónica de Chile S.A. (*)   Banchile Corredores de Bolsa                                     350       350  
Banco Latinoamericano de Comercio Exterior S.A. (Bladex)   Banco de Chile                                     309       309  
Sociedad de Telecomunicaciones Financieras  Interbancarias Mundiales (Swift)   Banco de Chile                                     23       25  
CCLV Contraparte Central S.A.   Banchile Corredores de Bolsa                                     8       8  
Subtotal Minority Investments                                         6,630       6,034  
Total                                         64,650       62,211  

 

(*) Investments in shares have been irrevocably designated as at fair value through other comprehensive income and, therefore, are recorded at market value in accordance with IFRS 9.

 

(**) On March 1, 2023, the division of the Bolsa de Comercio de Santiago (Santiago Stock Exchange) was materialized, remaining as the continuing entity and establishing from it the Sociedad de Infraestructuras de Mercado S.A. (“SIM”).

  

94


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

14. Investments in other companies, continued:

 

(b) Associates:

 

    June 2023        
    Centro de Compensación Automatizado S.A.     Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A.     Sociedad Interbancaria de Depósitos de Valores S.A.    

Redbanc

S.A.

    Transbank S.A.     Administrador Financiero del Transantiago S.A.     Sociedad Imerc OTC S.A.     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                 
Current assets     5,075       1,759       115       13,243       1,363,063       60,611       44,374       1,488,240  
Non-current assets     11,262       7,001       7,804       15,936       155,810       757       10,142       208,712  
Total Assets     16,337       8,760       7,919       29,179       1,518,873       61,368       54,516       1,696,952  
                                                                 
Current liabilities     4,664       1,185             14,029       1,397,245       42,546       39,848       1,499,517  
Non-current liabilities     253                   3,160       3,249             1,261       7,923  
Total Liabilities     4,917       1,185             17,189       1,400,494       42,546       41,109       1,507,440  
Equity     11,420       7,575       7,919       11,990       118,379       18,822       13,399       189,504  
Minority interest                                         8       8  
Total Liabilities and Equity     16,337       8,760       7,919       29,179       1,518,873       61,368       54,516       1,696,952  
                                                                 
Operating income     7,688       2,079       3       24,092       415,056       1,988       4,038       454,944  
Operating expenses     (5,044 )     (1,833 )     (18 )     (23,442 )     (354,579 )     (1,039 )     (3,738 )     (389,693 )
Other expenses or income     304       167       716       58       (48,451 )     1,032       293       (45,881 )
Gain (loss) before tax     2,948       413       701       708       12,026       1,981       593       19,370  
Income tax     (689 )     (55 )           (121 )     (2,451 )     (535 )     (240 )     (4,091 )
Gain for the period     2,259       358       701       587       9,575       1,446       353       15,279  

 

    December 2022  
    Centro de
Compensación
Automatizado S.A.
    Sociedad
Operadora de
la Cámara de
Compensación
de Pagos de
Alto Valor
S.A.
    Sociedad
Interbancaria
de Depósitos
de Valores
S.A.
   

Redbanc

S.A.

    Transbank
S.A.
    Administrador
Financiero del
Transantiago
S.A.
    Sociedad
Imerc
OTC
S.A.
    Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                 
Current assets     8,954       6,646       81       14,459       1,359,640       59,946       31,105       1,480,831  
Non-current assets     10,388       1,711       7,637       16,058       137,505       793       4,459       178,551  
Total Assets     19,342       8,357       7,718       30,517       1,497,145       60,739       35,564       1,659,382  
                                                                 
Current liabilities     3,986       1,004       463       17,595       1,385,956       40,113       20,672       1,469,789  
Non-current liabilities     309                   1,554       1,427             1,670       4,960  
Total Liabilities     4,295       1,004       463       19,149       1,387,383       40,113       22,342       1,474,749  
Equity     15,047       7,353       7,255       11,368       109,762       20,626       13,213       184,624  
Minority interest                                         9       9  
Total Liabilities and Equity     19,342       8,357       7,718       30,517       1,497,145       60,739       35,564       1,659,382  
                                                                 
Operating income     7,516       4,550       17       51,851       969,177       4,468       8,882       1,046,461  
Operating expenses     (2,612 )     (4,279 )     (49 )     (50,155 )     (835,126 )     (2,296 )     (8,412 )     (902,929 )
Other expenses or income     907       667       1,540       264       (103,854 )     2,339       877       (97,260 )
Gain before tax     5,811       938       1,508       1,960       30,197       4,511       1,347       46,272  
Income tax     (1,109 )     (8 )           (249 )     (3,952 )     (490 )     (473 )     (6,281 )
Gain for the year     4,702       930       1,508       1,711       26,245       4,021       874       39,991  

 

95


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

14. Investments in other companies, continued:

 

(c) Joint Ventures:

 

The Bank owns a 50% interest in the companies Artikos Chile S.A. and Servipag Ltda., wich it controls jointly. The Bank’s interest in both entities is accounted for using the equity method in the Consolidated Financial Statements.

 

The table below presents summarized financial information of the entities the Bank controls jointly:

 

    Artikos S.A.     Servipag Ltda.  
    June     December     June     December  
    2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$  
                         
Current assets     2,331       2,540       81,703       76,085  
Non-current assets     1,709       1,985       14,195       14,605  
Total Assets     4,040       4,525       95,898       90,690  
                                 
Current liabilities     765       1,326       77,239       73,923  
Non-current liabilities     582       567       3,193       3,105  
Total Liabilities     1,347       1,893       80,432       77,028  
Equity     2,693       2,632       15,466       13,662  
Total Liabilities and Equity     4,040       4,525       95,898       90,690  
                                 
Operating income     2,566       5,559       17,991       40,403  
Operating expenses     (1,737 )     (3,905 )     (16,221 )     (36,347 )
Other expenses or income     66       69       630       525  
Profit before tax     895       1,723       2,400       4,581  
Income tax     (242 )     (362 )     (596 )     (849 )
Profit for the period /year     653       1,361       1,804       3,732  

 

(d) The change of investments in companies registered under the equity method in the period of 2023 and 2022, are as follows:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Balance as of January 1,     56,177       46,923  
Acquisition of investments in companies            
Participation on income in companies with significant influence and joint control     5,285       5,264  
Dividends received     (3,475 )     (1,121 )
Others     33       13  
Total     58,020       51,079  

 

(e) During the period ended as of June 30, 2023 and 2022 no impairment has incurred in these investments.

 

96


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

15. Intangible Assets:

 

(a) The composition of intangible assets as of June 30, 2023 and December 31, 2022, are as follows:

 

    Useful Life     Average remaining
amortization
    Gross balance     Accumulated
Amortization
    Net balance  
    June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    Years     Years     Years     Years     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                             
Other independently originated intangible assets     6       6       5       5       287,960       263,268       (169,280 )     (156,648 )     118,680       106,620  
Total                                     287,960       263,268       (169,280 )     (156,648 )     118,680       106,620  

 

97


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

15. Intangible Assets, continued:

 

(b) The change of intangible assets during the periods ended as of June 30, 2023 and December 31, 2022, are as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
Gross Balance            
Balance as of January 1,     263,268       209,432  
Acquisition     25,740       56,891  
Disposals/ write-downs     (1,048 )     (2,751 )
Reclassification           (182 )
Impairment           (122 )
Total     287,960       263,268  
                 
Accumulated Amortization                
Balance as of January 1,     (156,648 )     (136,900 )
Amortization for the period (*)     (13,680 )     (21,502 )
Disposals/ write-downs     1,048       1,572  
Reclassification           182  
Impairment            
Total     (169,280 )     (156,648 )
                 
Balance Net     118,680       106,620  

 

(*) See Note No. 39 Depreciation and Amortization.

 

(c) As of June 30, 2023 and December 31, 2022, the Bank maintains the following amounts with technological developments:

 

    Commitment Amount  
    June     December  
    2023     2022  
Detail   MCh$     MCh$  
Software and licenses     9,297       15,213  

 

(d) As of June 30, 2023, there are no indications or concrete evidence of impairment. As of the date of these financial statements have been no events that require the recognition of impairment in them.

 

98


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

16. Property and equipment:

 

(a) The properties and equipment as of June 30, 2023 and December 31, 2022 are composed as follows:

 

    Useful Life     Average remaining depreciation     Gross balance     Accumulated Depreciation     Net balance  
    June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    Years     Years     Years     Years     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Type of property and equipment:                                                            
Land and Buildings     25       25       18       18       318,755       316,968       (161,007 )     (157,810 )     157,748       159,158  
Equipment     5       5       3       3       253,140       246,706       (211,907 )     (203,136 )     41,233       43,570  
Others     7       7       4       4       59,018       58,890       (51,946 )     (51,494 )     7,072       7,396  
Total                                     630,913       622,564       (424,860 )     (412,440 )     206,053       210,124  

 

99


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

16. Property and equipment, continued:

 

(b) The changes in properties and equipment as of June 30, 2023 and December 31, 2022, are as follows:

 

    June 2023  
    Land and
Buildings
    Equipment     Others     Total  
    MCh$     MCh$     MCh$     MCh$  
Gross Balance                        
Balance as of January 1, 2023     316,968       246,706       58,890       622,564  
Additions     5,563       6,909       1,109       13,581  
Write-downs and sales of the period     (3,776 )     (474 )     (981 )     (5,231 )
Impairment (***)           (1 )           (1 )
Total     318,755       253,140       59,018       630,913  
                                 
Accumulated Depreciation                                
Balance as of January 1, 2023     (157,810 )     (203,136 )     (51,494 )     (412,440 )
Depreciation of the period (*) (**)     (4,579 )     (9,244 )     (1,193 )     (15,016 )
Write-downs and sales of the period     1,382       473       741       2,596  
Total     (161,007 )     (211,907 )     (51,946 )     (424,860 )
                                 
Balance as of  June 30, 2023     157,748       41,233       7,072       206,053  

 

    December 2022  
    Land and
Buildings
    Equipment     Others     Total  
    MCh$     MCh$     MCh$     MCh$  
Gross Balance                        
Balance as of January 1, 2022     311,279       243,757       56,582       611,618  
Additions     6,041       9,823       2,842       18,706  
Write-downs and sales of the year     (352 )     (6,900 )     (498 )     (7,750 )
Transfers           36       (36 )      
Impairment           (10 )           (10 )
Total     316,968       246,706       58,890       622,564  
                                 
Accumulated Depreciation                                
Balance as of January 1, 2022     (148,645 )     (191,334 )     (49,319 )     (389,298 )
Depreciation of the year (**)     (9,228 )     (18,650 )     (2,701 )     (30,579 )
Write-downs and sales of the year     63       6,883       490       7,436  
Transfers           (36 )     36        
Impairment           1             1  
Total     (157,810 )     (203,136 )     (51,494 )     (412,440 )
                                 
Balance as of  December 31, 2022     159,158       43,570       7,396       210,124  

 

(*) See Note No. 39 Depreciation and Amortization.

 

(**) This amount does not include the depreciation of the Investment Properties; amount is included in "Other Assets" for Ch$178 million (Ch$357 millon in December 2022).

 

(***) See Note No. 40 Impairment of non-financial assets.

 

As of June 30, 2023 and December 31, 2022, there are no restrictions on the fixed assets of the Bank and its subsidiaries.

 

100


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

17. Right-of-use assets and Lease liabilities:

 

(a) The composition of the rights over leased assets as of June 30, 2023 and December 31, 2022, is as follows:

 

     

Gross Balance

    Accumulated Depreciation      

Net Balance

 
    June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Categories                                    
Buildings     151,832       144,482       (72,238 )     (64,352 )     79,594       80,130  
Floor space for ATMs     21,155       43,492       (14,671 )     (35,735 )     6,484       7,757  
Improvements to leased properties     29,515       28,595       (21,882 )     (21,561 )     7,633       7,034  
Total     202,502       216,569       (108,791 )     (121,648 )     93,711       94,921  

 

(b) The changes of the rights over leased assets as of June 30, 2023 and December 31, 2022, is as follows:

 

   

June 2023

 
    Buildings     Floor space for ATMs     Improvements
to leased
properties
    Total  
    MCh$     MCh$     MCh$     MCh$  
                         
Gross Balance                        
Balance as of January 1, 2023     144,482       43,492       28,595       216,569  
Additions     10,118       5,263       1,083       16,464  
Write-downs     (2,691 )     (27,432 )     (163 )     (30,286 )
Remeasurement     (77 )     (168 )           (245 )
Total     151,832       21,155       29,515       202,502  
                                 
Accumulated Depreciation                                
Balance as of January 1, 2023     (64,352 )     (35,735 )     (21,561 )     (121,648 )
Depreciation of the period (*)     (10,577 )     (6,368 )     (483 )     (17,428 )
Write-downs     2,691       27,432       162       30,285  
Total     (72,238 )     (14,671 )     (21,882 )     (108,791 )
                                 
Balance as of  June 30, 2023     79,594       6,484       7,633       93,711  

 

(*) See Note No. 39 Depreciation and Amortization.

 

101


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

17. Right-of-use assets and Lease liabilities, continued:

 

(b) The changes of the rights over leased assets as of June 30, 2023 and December 31, 2022, is as follows, continued:

 

   

 

December 2022

 
    Buildings     Floor space for ATMs     Improvements
to leased
properties
    Total  
    MCh$     MCh$     MCh$     MCh$  
                         
Gross Balance                        
Balance as of January 1, 2022     124,978       42,051       26,066       193,095  
Additions     23,930       2,819       2,529       29,278  
Write-downs     (4,296 )     (1,002 )           (5,298 )
Remeasurement     (130 )     (376 )           (506 )
Total     144,482       43,492       28,595       216,569  
                                 
Accumulated Depreciation                                
Balance as of January 1, 2022     (46,743 )     (25,566 )     (20,598 )     (92,907 )
Depreciation of the year     (19,636 )     (11,168 )     (963 )     (31,767 )
Write-downs     2,027       999             3,026  
Total     (64,352 )     (35,735 )     (21,561 )     (121,648 )
                                 
Balance as of  December 31, 2022     80,130       7,757       7,034       94,921  

 

  (c) Below are the future maturities (including unearned interest) of the lease liabilities as of June 30, 2023 and December 31, 2022:

 

    June 2023  
    Demand     Up to 1
month
    Over 1
month
and up
to 3
months
    Over 3
months
and up
to 12
months
    Over 1
year and
up to 3
years
    Over 3
years and
up to 5
years
    Over 5
years
    Total  
  MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Lease associated to:                                                
Buildings           1,891       3,762       15,880       27,181       19,259       21,152       89,125  
ATMs           534       776       1,922       3,041       2,424       411       9,108  
Total           2,425       4,538       17,802       30,222       21,683       21,563       98,233  

 

    December 2022  
    Demand     Up to 1
month
    Over 1
month
and up
to 3
months
    Over 3
months
and up
to 12
months
    Over 1
year and
up to 3
years
    Over 3
years and
up to 5
years
    Over 5
years
    Total  
  MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Lease associated to:                                                
Buildings           1,869       3,672       15,954       30,707       19,172       21,533       92,907  
ATMs           1,098       2,176       4,684       1,138       206       79       9,381  
Total           2,967       5,848       20,638       31,845       19,378       21,612       102,288  

 

102


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

17. Right-of-use assets and Lease liabilities, continued:

 

(c) Below are the future maturities (including unearned interest) of the lease liabilities as of June 30, 2023 and December 31, 2022, continued:

 

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

 

The changes of the obligations for lease liabilities and the flows for the periods 2023 and 2022 are as follows:

 

   

Total cash flow

for the period

 
Lease liability   MCh$  
       
Balances as of January 1, 2022     95,670  
Liabilities for new lease agreements     12,617  
Interest accrued expenses     921  
Payments of capital and interests     (15,742 )
Remeasurement      
Derecognized contracts     (1,091 )
Readjustments     5,231  
Balances as of June 30, 2022     97,606  
Liabilities for new lease agreements     3,942  
Interest expenses     944  
Payments of capital and interests     (16,633 )
Remeasurement     (506 )
Derecognized contracts     (929 )
Readjustments     4,945  
Balances as of December 31, 2022     89,369  
Liabilities for new lease agreements     13,229  
Interest accrued expenses     901  
Payments of capital and interests     (17,865 )
Remeasurement     (245 )
Derecognized contracts     (5 )
Readjustments     2,142  
Balances as of June 30, 2023     87,526  

 

(c) The future cash flows related to short-term lease agreements in effect as of June 30, 2023 correspond to Ch$3,473 million (Ch$3,483 million as of December 31, 2022).

 

103


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

18. Taxes:

 

(a) Current Taxes:

 

The Bank and its subsidiaries at the end of each period, have constituted a First Category Income Tax Provision, which was determined based on current tax regulations, and has been reflected in the Statement of Financial Position net of taxes to be recovered or payable, as applicable, as of June 30, 2023 and December 31, 2022 according to the following detail:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Income tax     158,371       311,532  
Less:                
Monthly prepaid taxes     (193,399 )     (492,990 )
Credit for training expenses     (700 )     (2,216 )
Others     17,113       (2,795 )
Total Tax Refundable (net)     (18,615 )     (186,469 )
                 
Tax rate     27 %     27 %

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Current tax assets     19,309       187,401  
Current tax liabilities     (694 )     (932 )
Total tax receivable (payable), net     18,615       186,469  

 

(b) Income Tax:

 

The effect of the tax expense during the periods between January 1 and June 30, 2023 and 2022, are broken down as follows:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
Income tax expense:            
Current year tax     142,414       174,312  
Tax Previous year           2,931  
Subtotal     142,414       177,243  
(Credit) Debit for deferred taxes:                
Origin and reversal of temporary differences     2,398       (49,914 )
Subtotal     2,398       (49,914 )
Others     6,681       5,569  
Net charge to income for income taxes     151,493       132,898  

 

104


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

18. Taxes, continued:

 

(c) Reconciliation of effective tax rate:

 

The following is a reconciliation of the income tax rate to the effective rate applied to determine the Bank’s income tax expense as of June 30, 2023 and 2022:

 

    June 2023     June 2022  
    Tax rate           Tax rate        
    %     MCh$     %     MCh$  
                         
Income tax calculated on net income before tax     27.00       202,390       27.00       231,160  
Additions or deductions     (0.34 )     (2,558 )     (0.22 )     (1,898 )
Price-level restatement     (6.22 )     (46,607 )     (12.26 )     (104,993 )
Others     (0.23 )     (1,732 )     1.01       8,629  
Effective rate and income tax expense     20.21       151,493       15.53       132,898  

 

The effective rate for income tax for the period 2023 is 20.21% (15.53% in June 2022).

 

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

 

The Bank and its subsidiaries have recorded the effects of deferred taxes in their Interim Consolidated Financial Statements. The effects of deferred taxes on assets, liabilities and income accounts as of June 30, 2023:

 

    Balances
as of
December 31,
    Effect on     Balances
as of
June 30,
 
    2022     Income     Equity     2023  
    MCh$     MCh$     MCh$     MCh$  
Debit Differences:                        
Allowances for loan losses     376,743       (5,640 )           371,103  
Personnel provisions     20,228       (5,474 )           14,754  
Provision of undrawn credit lines     3,429       (216 )           3,213  
Staff vacations provisions     11,139       182             11,321  
Accrued interests adjustments from impaired loans     10,305       2,821             13,126  
Staff severance indemnities provision     1,368       (26 )     31       1,373  
Provision of credit cards expenses     9,146       (471 )           8,675  
Provision of accrued expenses     11,829       (1,148 )           10,681  
Adjustment for valuation of financial assets at fair value through other comprehensive income     4,693             (1,884 )     2,809  
Leasing     89,821       11,643             101,464  
Incomes received in advance     9,012       (1,936 )           7,076  
Other adjustments     31,552       (2,122 )           29,430  
Total Debit Differences     579,265       (2,387 )     (1,853 )     575,025  
                                 
Credit Differences:                                
Depreciation and price-level restatement of property and equipment     10,937       1,251             12,188  
Transitory assets     7,953       2,750             10,703  
Loans accrued to effective rate     2,441       28             2,469  
Prepaid expenses     2,688       (1,273 )           1,415  
Other adjustments     15,737       (2,745 )     161       13,153  
Total Credit Differences     39,756       11       161       39,928  
                                 
Total, Net     539,509       (2,398 )     (2,014 )     535,097  

 

105


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

18. Taxes, continued:

 

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

 

The effects of deferred taxes on assets, liabilities and income accounts as of December 31, 2022:

 

    Balances
as of
December 31,
    Effect on     Balances
as of
December 31,
 
    2021     Income     Equity     2022  
    MCh$     MCh$     MCh$     MCh$  
Debit differences:                        
Allowances for loan losses     317,295       59,448             376,743  
Personnel provisions     14,304       5,924             20,228  
Provision of undrawn credit lines     4,139       (710 )           3,429  
Staff vacations provisions     9,993       1,146             11,139  
Accrued interest adjustments from impaired loans     5,073       5,232             10,305  
Staff severance indemnities provision     345       988       35       1,368  
Provisions of credit card expenses     9,774       (628 )           9,146  
Provisions of accrued expenses     12,315       (486 )           11,829  
Adjustment for valuation of financial assets at fair value through other comprehensive income     3,895             798       4,693  
Leasing     52,019       37,802             89,821  
Incomes received in advance     12,368       (3,356 )           9,012  
Other adjustments     35,768       (4,216 )           31,552  
Total Debit Differences     477,288       101,144       833       579,265  
                                 
Credit differences:                                
Depreciation and price-level restatement of property and equipment     16,446       (5,509 )           10,937  
Transitory assets     6,958       995             7,953  
Loans accrued to effective rate     2,437       4             2,441  
Prepaid expenses     5,668       (2,980 )           2,688  
Other adjustments     11,502       4,181       54       15,737  
Total Credit Differences     43,011       (3,309 )     54       39,756  
                                 
Total, Net     434,277       104,453       779       539,509  

 

106


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

18. Taxes, continued:

 

(e) For the purpose of complying with the Circular No. 47 issued by the Chilean Internal Revenue Service (SII) and No. 3,478 issued by the CMF, dated August 18, 2009 the changes and effects generated by the application of Article 31, No. 4 of the Income Tax Law are detailed below.

 

As the circular requires, the information corresponds only to the Bank’s credit operations and does not consider operations of subsidiary entities that are consolidated in these Interim Consolidated Financial Statements.

 

                Tax value assets  
(e.1) Loans and advance to banks and
Loans to customers as of June 30, 2023
  Book value
assets (*)
    Tax value assets     Past-due loans with guarantees     Past-due loans without guarantees     Total
Past-due loans
 
    MCh$     MCh$     MCh$     MCh$     MCh$  
                               
Loans and advance to banks     2,782,662       2,783,175                    
Commercial loans     16,753,697       17,603,221       35,955       99,356       135,311  
Consumer loans     4,803,221       6,020,333       1,183       37,071       38,254  
Residential mortgage loans     11,812,743       11,847,709       8,115       614       8,729  
Total     36,152,323       38,254,438       45,253       137,041       182,294  

 

                Tax value assets  
(e.1) Loans and advance to banks and
Loans to customers as of December 31, 2022
  Book value
assets (*)
    Tax value assets     Past-due loans with guarantees     Past-due loans without guarantees     Total
Past-due loans
 
    MCh$     MCh$     MCh$     MCh$     MCh$  
                               
Loans and advance to banks     2,174,115       2,174,792                    
Commercial loans     17,560,202       18,338,161       28,688       84,524       113,212  
Consumer loans     4,657,554       5,824,164       756       28,448       29,204  
Residential mortgage loans     11,386,851       11,420,425       7,312       669       7,981  
Total     35,778,722       37,757,542       36,756       113,641       150,397  

 

(*) In accordance with the mentioned Circular and instructions from the SII, the value of financial statement assets, are presented on an individual basis (only Banco de Chile) net of allowance for loan losses and do not include lease and factoring operations.

 

107


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

18. Taxes, continued:

 

(e) For the purpose of complying with the Circular No. 47 issued by the Chilean Internal Revenue Service (SII) and No. 3,478 issued by the CMF, dated August 18, 2009 the changes and effects generated by the application of Article 31, No. 4 of the Income Tax Law are detailed below, continued:

 

(e.2) Provisions on past-due loans   Balance
as of
January 1,
2023
    Charge-offs against provisions     Provisions
established
    Provisions
released
    Balance
as of
June 30,
2023
 
    MCh$     MCh$     MCh$     MCh$     MCh$  
                               
Commercial loans     75,561       (26,171 )     63,810       (13,844 )     99,356  
Consumer loans     28,448       (153,317 )     171,095       (9,155 )     37,071  
Residential mortgage loans     669       (1,175 )     1,509       (389 )     614  
Total     104,678       (180,663 )     236,414       (23,388 )     137,041  

 

(e.2) Provisions on past-due loans   Balance
as of
January 1,
2022
    Charge-offs against provisions     Provisions
established
    Provisions
released
    Balance
as of
December 31,
2022
 
    MCh$     MCh$     MCh$     MCh$     MCh$  
                               
Commercial loans     63,603       (46,736 )     136,863       (69,206 )     84,524  
Consumer loans     10,156       (166,355 )     194,341       (9,694 )     28,448  
Residential mortgage loans     363       (4,002 )     16,949       (12,641 )     669  
Total     74,122       (217,093 )     348,153       (91,541 )     113,641  

 

    June     December  
(e.3) Charge-offs and recoveries   2023     2022  
    MCh$     MCh$  
Charge-offs Art. 31 No. 4 second subparagraph     15,027       25,524  
Write-offs resulting in provisions released     37       125  
Recovery or renegotiation of written-off loans     26,134       62,911  

 

    June     December  
(e.4) Application of Art. 31 No. 4 first & third subsections of the income tax law   2023     2022  
    MCh$     MCh$  
Charge-offs in accordance with first subsection            
Write-offs in accordance with third subsection     37       125  

 

108


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

19. Other Assets:

 

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

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Accounts receivable from third parties     425,406       190,912  
Cash collateral provided for derivative financial transactions     348,769       314,301  
Debtors from brokerage of financial instruments     182,874       128,286  
Assets to be leased out as lessor (*)     107,789       94,925  
Prepaid expenses     46,647       39,744  
Investment properties     11,942       12,120  
Income from regular activities from contracts with customers     11,938       6,472  
Pending transactions     2,952       3,058  
Other provided cash collateral     2,241       2,160  
VAT receivable     14       7  
Accumulated impairment in respect of other assets receivable     (892 )     (882 )
Other Assets     22,312       23,014  
Total     1,161,992       814,117  

 

(*) Correspond to fixed assets to be delivered under the financial lease modality.

 

109


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

20. Non-current assets and disposal groups held for sale and Liabilities included in disposal groups for sale:

 

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

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Assets received in lieu of payment or awarded at judicial sale (*)                
Assets awarded at judicial sale     14,031       10,006  
Assets received in lieu of payment     731       143  
Provision for assets received in lieu of payment or awarded           (25 )
                 
Non-current assets for sale                
Investments in other companies            
Assets for recovery of assets transferred in financial leasing operations     1,030       744  
                 
Disposal groups held for sale              
Total     15,792       10,868  

 

(*) Assets received in lieu of payment are assets received as payment of customers’ past-due debts. The assets acquired must in this way does not exceed 20% of the Bank’s effective equity.

 

(b) The changes of the provision for assets received in lieu of payment during the periods 2023 and 2022 are as follows:

 

Provision for assets received in lieu of payment   MCh$  
       
Balance as of January 1, 2022     79  
Provisions used     (269 )
Provisions established     196  
Provisions released      
Balance as of June 30, 2022     6  
Provisions used     (372 )
Provisions established     391  
Provisions released      
Balance as of December 31, 2022     25  
Provisions used     (427 )
Provisions established     402  
Provisions released      
Balance as of June 30, 2023      

 

(c) The Bank does not present liabilities classified in the disposal group for sale during the periods June 2023 and December 2022.

 

110


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

21. Financial liabilities held for trading at fair value through profit or loss:

 

The item detail is as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Financial derivative contracts     2,451,810       3,101,482  
Other financial instruments     1,258       6,271  
Total     2,453,068       3,107,753  

 

a) As of June 30, 2023 and December 31, 2022, the Bank maintains the following debt portfolio of derivative instruments:

 

    Notional amount of contract with final expiration date in        
    Demand     Up to 1 month     Over 1 month and
up to 3 months
    Over 3 months and
up to 12 months
    Over 1 year and up to 3 years     Over 3 year and up to 5 years     Over 5 years     Total    

Fair value

Liabilities

 
    June     December     June     December     June     December     June     December     June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                                                                             
Currency forward              —                 —       2,972,379       3,785,602       1,857,407       2,178,784       2,950,559       3,562,216       651,869       589,336       17,052                         8,449,266       10,115,938       366,927       535,643  
Interest rate swap                 890,882       1,905,526       2,213,330       1,837,023       5,388,855       5,208,401       6,189,156       5,173,535       4,167,592       3,743,709       4,021,934       4,398,123       22,871,749       22,266,317       1,028,257       1,248,414  
Interest rate swap and cross currency swap                 77,929       307,672       419,409       584,427       1,095,689       1,327,828       3,158,720       3,271,782       1,459,731       1,872,025       2,929,500       2,844,395       9,140,978       10,208,129       1,052,035       1,311,871  
Call currency options                 6,394       17,387       12,479       18,726       13,633       26,020       24                                     32,530       62,133       848       1,665  
Put currency options                 859       20,572       16,720       27,620       63,762       27,610       34,725                                     116,066       75,802       3,743       3,889  
Total                 3,948,443       6,036,759       4,519,345       4,646,580       9,512,498       10,152,075       10,034,494       9,034,653       5,644,375       5,615,734       6,951,434       7,242,518       40,610,589       42,728,319       2,451,810       3,101,482  

 

b) Other instruments or financial liabilities:

 

    June     December  
    2023     2022  
      MCh$       MCh$  
                 
Current accounts and other demand deposits            
Savings accounts and other time deposits            
Debt instruments issued            
Others     1,258       6,271  
Total     1,258       6,271  

 

111


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

22. Financial liabilities at amortized cost:

 

The item detail is as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Current accounts and other demand deposits     12,766,792       13,383,232  
Saving accounts and time deposits     15,135,499       14,157,141  
Obligations by repurchase agreements and securities lending     166,485       216,264  
Borrowings from financial institutions     4,988,749       5,397,676  
Debt financial instruments issued     9,526,841       9,267,947  
Other financial obligations     240,841       344,030  
Total     42,825,207       42,766,290  

 

(a) Current accounts and other demand deposits:

 

At the end of each period, the composition of current accounts and other demand deposits is as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Current accounts     10,539,460       11,172,137  
Other demand obligations     1,263,933       1,166,708  
Demand deposits accounts     610,595       657,057  
Other demand deposits     352,804       387,330  
Total     12,766,792       13,383,232  

 

(b) Saving accounts and time deposits:

 

At the end of each period, the composition of saving accounts and time deposits is as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Time deposits     14,735,333       13,723,090  
Term savings accounts     376,224       407,745  
Other term balances payable     23,942       26,306  
Total     15,135,499       14,157,141  

 

112


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

22. Financial liabilities at amortized cost, continued:

 

(c) Obligations by repurchase agreements and securities lending:

 

The Bank obtains financing by selling financial instruments and agreeing to repurchase them in the future, plus interest at a prefixed rate. As of June 30, 2023 and December 31, 2022, the repurchase agreements are the following:

 

    Demand     Up to 1 month     Over 1 month and
up to 3 months
    Over 3 months and
up to 12 months
    Over 1 year and
up to 3 years
    Over 3 years and
up to 5 years
    Over 5 years     Total  
    June     December     June     December     June     December     June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Instruments issued by the Chilean Governments and Central Bank of Chile                                                                                                
Central Bank bonds                                                                                                
Central Bank promissory notes                                                                                                
Other instruments issued by the Chilean Government and Central Bank of Chile                 41,744       7,340                                                                   41,744       7,340  
Subtotal                 41,744       7,340                                                                   41,744       7,340  
                                                                                                                                 
Other Financial Instruments issued in Chile                                                                                                                                
Deposit promissory notes from domestic banks                                                                                                
Mortgage bonds from domestic banks                                                                                                
Bonds from domestic banks                       35,139                                                                         35,139  
Deposits in domestic banks                 124,450       173,733       291       52                                                       124,741       173,785  
Bonds from other Chilean companies                                                                                                
Other instruments issued in Chile                                                                                                
Subtotal                 124,450       208,872       291       52                                                       124,741       208,924  
                                                                                                                                 
Financial Instruments issued by Foreign Institutions                                                                                                                                
Instruments from foreign governments or central bank                                                                                                
Other instruments issued by foreing                                                                                                
Subtotal                                                                                                
Total                 166,194       216,212       291       52                                                       166,485       216,264  

 

Securities sold:

 

The fair value of the financial instruments delivered as collateral by the Bank and its subsidiaries, in sales transactions with repurchase agreement and securities lending as of June 30, 2023 amounts to Ch$166,538 million (Ch$215,781 million in December 2022). In the event that the Bank and its subsidiaries enter into default or bankruptcy, the counterparty is authorized to sell or deliver these investments as collateral.

 

113


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

22. Financial liabilities at amortized cost, continued:

 

(d) Borrowings from Financial Institutions:

 

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

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Domestic banks                
Banco Santander           2,699  
Subtotal domestic banks           2,699  
                 
Foreign banks                
Foreign trade financing                
Bank of New York Mellon     84,772       77,846  
Standard Chartered Bank     83,286       81,828  
HSBC Bank     82,509       85,153  
Wells Fargo Bank     80,757       231,311  
Zurcher Kantonalbank     60,848        
Citibank N.A. United State     46,316       69,810  
Commerzbank AG     36,535       348  
Bank of America     20,773       80,509  
Caixabank S.A.     12,081        
Bank of Nova Scotia           142,787  
Industrial and Commercial Bank of China           1,280  
                 
Borrowings and other obligations                
Wells Fargo Bank     121,457       149,944  
Citibank N.A. United Kingdom     5,687       108,017  
Commerzbank AG     5,214       110  
Standard Chartered Bank           14,281  
Deutsche Bank AG           3,179  
Others     54       53  
Subtotal foreign banks     640,289       1,046,456  
                 
Chilean Central Bank (*)     4,348,460       4,348,521  
                 
Total     4,988,749       5,397,676  

 

(*) Financing provided by the Chilean Central Bank to deliver liquidity to the economy and support the credit flow to households and companies, related to the Conditional Credit Facility to Increase Lending (FCIC by its Spanish initials).

 

114


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

22. Financial liabilities at amortized cost, continued:

 

(e) Debt financial instruments issued:

 

At the end of each period, the composition of debt financial instruments issued as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Letters of credit                
Letters of credit for housing     1,773       2,328  
Letters of credit for general purposes     28       49  
                 
Bonds                
Current Bonds     9,525,040       9,265,570  
Mortgage bonds            
Total     9,526,841       9,267,947  

 

During the period ended June 30, 2023 Banco de Chile has placed bonds for Ch$697,158 million, which corresponds to Short-Term Current Bonds and Long-Term Bonds for amounts of Ch$159,708 and Ch$537,450 million respectively, according to the following details:

 

Short-term Current Bonds

  

 

Counterparty

  Currency   Amount
MCh$
    Annual
interest rate %
   

Issued

date

  Maturity
date
                         
Wells Fargo Bank   USD     39,449       5.65     03/30/2023   08/01/2023
Wells Fargo Bank   USD     39,449       5.65     03/30/2023   07/28/2023
Wells Fargo Bank   USD     40,385       5.60     04/03/2023   10/02/2023
Wells Fargo Bank   USD     40,425       5.56     04/04/2023   09/01/2023
Total as of June 30, 2023         159,708                  

 

115


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

22. Financial liabilities at amortized cost, continued:

 

(e) Debt financial instruments issued, continued:

 

Long-Term Bonds

 

Serie   Currency     Amount
MCh$
   

Terms

Years

    Annual interest
rate %
 

Issued
 date

  Maturity 
date
                               
BCHIGI0322   UF       143,510     12     2.61   01/06/2023   09/01/2035
BCHIDG1116   CLP       9,179     4     6.55   03/16/2023   05/01/2027
BCHIDG1116   CLP       10,604     4     6.55   03/23/2023   05/01/2027
BCHIGG1121   UF       23,889     12     2.50   04/11/2023   05/01/2035
BCHICG0815   UF       18,716     9     2.65   04/28/2023   08/01/2032
BCHIGB0322   UF       16,521     11     2.78   05/18/2023   09/01/2034
BCHICH1215   UF       10,939     9     2.96   06/02/2023   12/01/2032
BCHIGB0322   UF       7,747     11     2.78   06/06/2023   09/01/2034
BCHIBU0815   UF       10,346     6     3.39   06/08/2023   08/01/2029
BCHIBU0815   UF       18,201     8     3.39   06/09/2023   08/01/2029
BCHICE1215   UF       27,023     6     2.94   06/09/2023   12/01/2031
BCHIFW1121   UF       142,385     10     2.89   06/12/2023   05/01/2033
BCHIBU0815   UF       23,372     6     3.26   06/15/2023   08/01/2029
BCHIGB0322   UF       7,217     11     2.78   06/16/2023   09/01/2034
Subtotal           469,649                    
                                 
BONO MXN   MXN       31,968     4     TIIE(28 days)+0.85   06/01/2023   06/03/2027
BONO JPY   JPY       35,833     2     0.75   06/08/2023   06/16/2025
Subtotal other currencies           67,801                    
Total as of June 30, 2023           537,450                    

 

116


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

22. Financial liabilities at amortized cost, continued:

 

(e) Debt financial instruments issued, continued:

 

During the year ended December 31, 2022 Banco de Chile has placed bonds for Ch$1,355,816 million, which corresponds to Short-Term Current Bonds and Long-Term Bonds for amounts of Ch$215,249 and Ch$1,140,567 million respectively, according to the following details:

 

Short-term Bonds

 

 

Counterparty

  Currency   Amount
MCh$
    Annual
interest rate %
 

Issued

date

  Maturity
date
                       
Wells Fargo Bank   USD     17,065     1.61   05/18/2022   08/16/2022
Wells Fargo Bank   USD     41,944     1.61   05/19/2022   08/17/2022
Citibank N.A.   USD     8,379     2.25   05/20/2022   11/21/2022
Citibank N.A.   USD     5,028     1.60   05/20/2022   08/22/2022
Wells Fargo Bank   USD     28,702     2.35   06/06/2022   12/06/2022
Citibank N.A.   USD     1,652     2.25   06/09/2022   12/09/2022
Wells Fargo Bank   USD     85,779     5.40   12/13/2022   06/12/2023
Wells Fargo Bank   USD     26,700     5.00   12/19/2022   03/16/2023
Total as of December 31, 2022         215,249              

 

Long-Term Current Bonds

 

Serie   Currency     Amount
MCh$
 

Terms

Years

    Annual interest
rate %
 

Issued

date

  Maturity
date
                             
BCHIBS0815   UF       15,707     14     3.00   01/05/2022   01/05/2036
BCHIBS0815   UF       15,719     14     3.06   01/20/2022   01/20/2036
BCHICF0815   UF       65,738     17     2.65   03/01/2022   03/01/2039
BCHICP0815   UF       65,883     19     2.80   03/01/2022   03/01/2041
BCHIBS0815   UF       32,583     14     2.60   03/17/2022   03/17/2036
BCHICQ1015   UF       69,443     19     3.20   11/02/2022   11/02/2041
BCHICN0815   UF       69,802     19     3.20   11/02/2022   11/02/2041
BCHICO1215   UF       70,178     19     3.20   11/02/2022   11/02/2041
BCHICK0815   UF       73,568     18     3.20   11/14/2022   11/14/2040
BCHICM1215   UF       18,618     18     3.20   11/18/2022   11/18/2040
BCHIDV1116   UF       9,305     11     4.40   11/21/2022   11/21/2033
BCHIDV1116   UF       37,271     11     4.40   11/22/2022   11/22/2033
BCHIBU0815   UF       20,003     14     3.00   12/02/2022   12/02/2036
BCHIDU0716   UF       36,536     11     4.40   12/02/2022   12/02/2033
BCHICM1215   UF       9,453     18     3.20   12/05/2022   12/05/2040
BCHICM1215   UF       46,318     18     3.20   12/07/2022   12/07/2040
BCHICL1015   UF       74,421     18     3.20   12/07/2022   12/07/2040
BCHIGJ0522   UF       141,320     13     2.70   12/07/2022   12/07/2035
BCHICJ1215   UF       25,912     18     3.20   12/12/2022   12/12/2040
BCHICJ1215   UF       48,099     18     3.20   12/13/2022   12/13/2040
BCHIGK1221   UF       143,020     14     2.70   12/22/2022   12/22/2036
Subtotal UF           1,088,897                    
                                 
BONO PEN   PEN       51,670     20     8.65   03/09/2022   03/09/2042
Subtotal other currencies           51,670                    
Total as of December 31, 2022           1,140,567                    

 

As of June 30, 2023 and December 31, 2022, the Bank has not presented defaults in the payment of principal and interest on its debt instruments. Likewise, there have been no breaches of covenants and other commitments associated with the debt instruments issued.

 

117


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

22. Financial liabilities at amortized cost, continued:

 

(f) Other Financial Obligations:

 

At the end of each period, the composition of other financial obligations as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Other Chilean financial obligations     240,782       343,927  
Other financial obligations with the Public sector     59       103  
Total     240,841       344,030  

 

23. Financial instruments of regulatory capital issued:

 

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

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Subordinated bonds with transitory recognition            
Subordinated bonds     1,027,676       1,010,905  
                 
Bonds with no fixed term of maturity            
Preferred stock            
Total     1,027,676       1,010,905  

 

b) Issuances of regulatory capital financial instruments in the period:

 

During the period ended June 30, 2023 and December 31, 2022, no issues of regulatory capital financial instruments have been made.

 

118


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

23. Financial instruments of regulatory capital issued, continued:

 

c) Changes in regulatory capital financial instruments:

 

    Subordinated bonds     Bonds with
no maturity
    Preferred
shares
 
    MCh$              
                   
Balance as of January 1, 2022     917,510              
Emissions made                  
Transaction costs                  
Transaction costs amortization                  
Accrued interest     31,271              
Acquisition or redemption by the issuer                  
Modification of the issuance conditions                  
Interest and UF indexation payments to the holder     (42,866 )            
Principal payments to the holder     (15,184 )            
Accrued UF indexation     120,174              
Exchange rate differences                  
Depreciation                  
Reappraisal                  
Expiration                  
Conversion to common shares                  
Balance as of December 31, 2022     1,010,905              
                         
Balance as of January 1, 2023     1,010,905              
Emissions made                  
Transaction costs                  
Transaction costs amortization                  
Accrued interest     16,389              
Acquisition or redemption by the issuer                  
Modification of the issuance conditions                  
Interest and UF indexation payments to the holder     (21,501 )            
Principal payments to the holder     (6,201 )            
Accrued UF indexation     28,084              
Exchange rate differences                  
Depreciation                  
Reappraisal                  
Expiration                  
Conversion to common shares                  
Balance as of June 30, 2023     1,027,676              

 

119


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

23. Financial instruments of regulatory capital issued, continued:

 

d) Below is the detail of the subordinated bonds due as of June 30, 2023 and December 31, 2022:

  

June 2023  
Serie   Currency     Issuance currency amount     Interest
rate %
    Registration date   Maturity date   Balance due
MCh$
 
                                 
C1   UF     300,000       7.5     12/06/1999   01/01/2030     5,413  
C1   UF     200,000       7.4     12/06/1999   01/01/2030     3,614  
C1   UF     530,000       7.1     12/06/1999   01/01/2030     9,651  
C1   UF     300,000       7.1     12/06/1999   01/01/2030     5,466  
C1   UF     50,000       6.5     12/06/1999   01/01/2030     925  
C1   UF     450,000       6.6     12/06/1999   01/01/2030     8,326  
D1   UF     2,000,000       3.6     06/20/2002   04/01/2026     18,909  
F   UF     1,000,000       5.0     11/28/2008   11/01/2033     34,920  
F   UF     1,500,000       5.0     11/28/2008   11/01/2033     52,380  
F   UF     759,000       4.5     11/28/2008   11/01/2033     27,578  
F   UF     241,000       4.5     11/28/2008   11/01/2033     8,757  
F   UF     4,130,000       4.2     11/28/2008   11/01/2033     153,102  
F   UF     1,000,000       4.3     11/28/2008   11/01/2033     37,070  
F   UF     70,000       4.2     11/28/2008   11/01/2033     2,603  
F   UF     4,000,000       3.9     11/28/2008   11/01/2033     153,139  
F   UF     2,300,000       3.8     11/28/2008   11/01/2033     88,413  
G   UF     600,000       4.0     11/29/2011   11/01/2036     21,272  
G   UF     50,000       4.0     11/29/2011   11/01/2036     1,773  
G   UF     80,000       3.9     11/29/2011   11/01/2036     2,856  
G   UF     450,000       3.9     11/29/2011   11/01/2036     16,084  
G   UF     160,000       3.9     11/29/2011   11/01/2036     5,719  
G   UF     1,000,000       2.7     11/29/2011   11/01/2036     40,580  
G   UF     300,000       2.7     11/29/2011   11/01/2036     12,175  
G   UF     1,360,000       2.6     11/29/2011   11/01/2036     55,363  
J   UF     1,400,000       1.0     11/29/2011   11/01/2042     74,808  
J   UF     1,500,000       1.0     11/29/2011   11/01/2042     80,268  
J   UF     1,100,000       1.0     11/29/2011   11/01/2042     59,301  
I   UF     900,000       1.0     11/29/2011   11/01/2040     47,211  
                  Total subordinated bonds due     1,027,676  

 

120


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

23. Financial instruments of regulatory capital issued, continued:

 

d) Below is the detail of the subordinated bonds due as of June 30, 2023 and December 31, 2022, continued:

 

December 2022  
Serie   Currency     Issuance currency amount     Interest
rate %
    Registration date   Maturity date   Balance due
MCh$
 
                                 
C1   UF     300,000       7.5     12/06/1999   01/01/2030     5,553  
C1   UF     200,000       7.4     12/06/1999   01/01/2030     3,707  
C1   UF     530,000       7.1     12/06/1999   01/01/2030     9,906  
C1   UF     300,000       7.1     12/06/1999   01/01/2030     5,610  
C1   UF     50,000       6.5     12/06/1999   01/01/2030     951  
C1   UF     450,000       6.6     12/06/1999   01/01/2030     8,555  
D2   UF     1,600,000       4.3     06/20/2002   04/01/2023     2,820  
D2   UF     400,000       4.3     06/20/2002   04/01/2023     705  
D1   UF     2,000,000       3.6     06/20/2002   04/01/2026     21,279  
F   UF     1,000,000       5.0     11/28/2008   11/01/2033     33,930  
F   UF     1,500,000       5.0     11/28/2008   11/01/2033     50,895  
F   UF     759,000       4.5     11/28/2008   11/01/2033     26,835  
F   UF     241,000       4.5     11/28/2008   11/01/2033     8,521  
F   UF     4,130,000       4.2     11/28/2008   11/01/2033     149,084  
F   UF     1,000,000       4.3     11/28/2008   11/01/2033     36,098  
F   UF     70,000       4.2     11/28/2008   11/01/2033     2,535  
F   UF     4,000,000       3.9     11/28/2008   11/01/2033     149,314  
F   UF     2,300,000       3.8     11/28/2008   11/01/2033     86,214  
G   UF     600,000       4.0     11/29/2011   11/01/2036     20,686  
G   UF     50,000       4.0     11/29/2011   11/01/2036     1,724  
G   UF     80,000       3.9     11/29/2011   11/01/2036     2,778  
G   UF     450,000       3.9     11/29/2011   11/01/2036     15,645  
G   UF     160,000       3.9     11/29/2011   11/01/2036     5,563  
G   UF     1,000,000       2.7     11/29/2011   11/01/2036     39,616  
G   UF     300,000       2.7     11/29/2011   11/01/2036     11,885  
G   UF     1,360,000       2.6     11/29/2011   11/01/2036     54,050  
J   UF     1,400,000       1.0     11/29/2011   11/01/2042     73,326  
J   UF     1,500,000       1.0     11/29/2011   11/01/2042     78,679  
J   UF     1,100,000       1.0     11/29/2011   11/01/2042     58,137  
I   UF     900,000       1.0     11/29/2011   11/01/2040     46,304  
                  Total subordinated bonds due     1,010,905  

 

121


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

24. Provisions for contingencies:

 

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

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Provisions for employee benefit obligations     113,014       139,315  
Provisions for obligations of customer loyalty and merit programs     31,864       33,609  
Provisions for operational risk     1,747       2,838  
Provisions of a bank branch abroad for profit remittances to its parent company            
Provisions for reestructuring plans            
Provisions for lawsuits and litigation            
Other provisions for contingencies     264       264  
Total     146,889       176,026  

 

122


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

24. Provisions for contingencies, continued:

 

(b) The following table shows the changes in provisions during the period 2023 and 2022:

 

    Provisions for employee benefit obligations     Provisions of a bank branch abroad for profit remittances to its parent company     Provisions for reestructuring plans     Provisions for lawsuits and litigation     Provisions for obligations
of customer loyalty and merit programs
    Provisions for operational risk     Other provisions for contingencies     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                 
Balances as of January 1, 2022     106,964                         35,937       693       264       143,858  
Provisions established     55,228                               839             56,067  
Provisions used     (64,920 )                                         (64,920 )
Provisions released                             (868 )                 (868 )
Balances as of of June 30, 2022     97,272                         35,069       1,532       264       134,137  
Provisions established     68,560                               1,306             69,866  
Provisions used     (26,517 )                                         (26,517 )
Provisions released                             (1,460 )                 (1,460 )
Balances as of December 31, 2022     139,315                         33,609       2,838       264       176,026  
Provisions established     54,041                               290             54,331  
Provisions used     (80,342 )                             (1,381 )           (81,723 )
Provisions released                             (1,745 )                 (1,745 )
Balances as of June 30, 2023     113,014                         31,864       1,747       264       146,889  

 

123


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

24. Provisions for contingencies, continued:

 

(c) Provisions for employee benefit obligations:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Provision of short-term employee benefits     102,562       128,580  
Provision of benefits to employees for contract termination     10,452       10,735  
Provisión of benefits to post-employment employees            
Provision of long-term employee benefits            
Provision of share-based employee benefits            
Provisión for obligations for defined contribution post-employment plans            
Provisión for obligations for post-employment defined benefit plans            
Provision for other employee obligations            
Total     113,014       139,315  

 

(d) Provision of short-term employee benefits:

 

(i) Compliance bonuses provision:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Balances as of January 1     73,204       53,069  
Net provisions established     26,975       30,122  
Provisions used     (60,025 )     (46,493 )
Total     40,154       36,698  

 

(ii) Vacation provision:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Balances as of January 1     41,257       37,010  
Net provisions established     5,108       4,746  
Provisions used     (4,309 )     (3,900 )
Total     42,056       37,856  

 

124


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

24. Provisions for contingencies, continued:

 

(d) Provision of short-term employee benefits, continued:

 

(iii) Provision of other benefits to personnel:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Balances as of January 1     14,119       10,439  
Net provisions established     21,309       19,676  
Provisions used     (15,076 )     (14,280 )
Total     20,352       15,835  

 

(e) Provision of benefits to employees for contract termination:

 

(i) Changes of the provision for employee benefits due to the termination of the employment contract:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Present value of the obligations at the beginning of the period     10,735       6,446  
Increase in provision     534       676  
Benefit paid     (932 )     (247 )
Effect of change in actuarial factors     115       8  
Total     10,452       6,883  

 

125


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

24. Provisions for contingencies, continued:

 

(e) Provision of benefits to employees for contract termination, continued:

 

(ii) Net benefits expenses:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Increase (decrease) in provisions     5       274  
Interest cost of benefits obligations     529       402  
Effect of change in actuarial factors     115       8  
Net benefit expenses     649       684  

 

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

 

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

 

   

June 30,
2023

    December
31, 2022
 
    %     %  
             
Discount rate     5.40       5.50  
Salary increase rate     5.60       4.80  
Payment probability     99.99       99.99  

 

The most recent actuarial valuation of the staff severance indemnities provision was carried out during the first quarter of 2023.

 

(f) Employee benefits share-based provision:

 

As of June 30, 2023 and December 31, 2022, the Bank and its subsidiaries do not have a stock-based compensation plan.

 

126


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

25. Provision for dividends, interests and reappraisal of financial instruments of regulatory capital issued:

 

(a) The item detail is as follows:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Provisions for dividends     285,101       520,158  
Provisions for payment of interest on bonds with no fixed maturity date            
Provision for revaluation of bonds without a fixed term of maturity            
Total     285,101       520,158  

 

(b) The changes at the end of each period are as follows:

 

    Provisions for dividends     Provisions for payment of interest on bonds with no fixed maturity date     Provision for revaluation of bonds without a fixed term of maturity     Total  
    MCh$     MCh$     MCh$     MCh$  
                         
Balances as of January 1, 2022     323,897                   323,897  
Provisions established     263,675                   263,675  
Provisions used     (323,897 )                 (323,897 )
Provisions released                        
Balances as of June 30, 2022     263,675                   263,675  
Provisions established     256,483                   256,483  
Provisions used                        
Provisions released                        
Balances as of December 31, 2022     520,158                   520,158  
Provisions used     285,101                   285,101  
Provisions released     (520,158 )                 (520,158 )
Provisions used                        
Balances as of June 30, 2023     285,101                   285,101  

 

127


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

26. Special provisions for credit risk:

 

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

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Additional loan provisions     700,252       700,252  
Provisions for credit risk for contingent loans (*)     53,487       57,377  
Provisions for country risk for transactions with debtors with residence abroad     12,189       8,137  
Special provisions for loans abroad            
Provisions for adjustments to the minimum provision required for normal portfolio with individual evaluation            
Provisions constituted by credit risk as a result of additional prudential requirements            
Total     765,928       765,766  

 

(*) The changes of provisions for credit risk for contingent loans is disclosed in Note No. 13 letter f).

 

b) The changes of provisions for special credit risk is as follows:

 

    Additional loan provisions     Provisions for credit risk for contingent loans     Provisions for country risk for transactions with debtors with residence abroad     Total  
    MCh$     MCh$     MCh$     MCh$  
Balances as of January 1, 2022     540,252       53,986       7,336       601,574  
Provisions established     110,000             8,483       118,483  
Provisions used                        
Provisions released           (1,353 )           (1,353 )
Foreign exchange differences           675             675  
Balances as of June 30, 2022     650,252       53,308       15,819       719,379  
Provisions established     50,000       5,221             55,221  
Provisions used                        
Provisions released                        
Foreign exchange differences           (1,152 )     (7,682 )     (8,834 )
Balances as of December 31, 2022     700,252       57,377       8,137       765,766  
Provisions established                 4,052       4,052  
Provisions used                        
Provisions released           (3,127 )           (3,127 )
Foreign exchange differences           (763 )           (763 )
Balances as of June 30, 2023     700,252       53,487       12,189       765,928  

 

128


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

27. Other Liabilities:

 

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

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Accounts payable to third parties     342,992       384,619  
Obligations for mortgage loans granted to be remit to other banks and/or real estate companies     335,990       203,831  
Cash guarantees received for derivative financial transactions     212,546       201,846  
Creditors for intermediation of financial instruments     181,794       131,106  
Liability for income from usual activities from contracts with customers     51,700       59,258  
Agreed dividends payable     14,035       8,005  
VAT debit     7,114       4,744  
Outstanding transactions     1,216       1,208  
Securities to be settled     1,044       27,198  
Other cash guarantees received     502       475  
Other liabilities     32,900       32,738  
Total     1,181,833       1,055,028  

 

129


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

28. Equity:

 

(a) Capital:

 

(i) Authorized, subscribed and paid shares:

 

As of June 30, 2023, the paid-in capital of Banco de Chile is represented by 101,017,081,114 registered shares (101,017,081,114 shares as of December 31, 2022), with no par value, subscribed and fully paid.

 

    As of June 30, 2023  
Corporate Name or Shareholders’s name   Number of Shares     % of Equity Holding  
             
LQ Inversiones Financieras S.A.     46,815,289,329       46.344 %
Banco Santander on behalf foreign investors     5,537,767,071       5.482 %
Banchile Corredores de Bolsa S.A.     5,257,442,956       5.205 %
Inversiones LQ-SM Limitada     4,854,988,014       4.806 %
Banco de Chile on behalf State Street     4,843,929,788       4.795 %
Banco de Chile on behalf of non-resident third parties     4,398,026,017       4.354 %
Ever Chile SPA     1,888,369,814       1.869 %
Banco de Chile on behalf  Citibank New York     1,851,544,160       1.833 %
J P Morgan Chase Bank     1,426,294,908       1.412 %
Inversiones Avenida Borgoño SPA     1,190,565,316       1.179 %
Ever 1 BAE SPA     1,166,584,950       1.155 %
Larraín Vial S.A. Corredora de Bolsa     1,071,087,104       1.060 %
Banco Santander Chile     884,551,276       0.876 %
A.F.P Habitat S.A. for A Fund     606,210,343       0.600 %
BCI Corredores de Bolsa S.A.     603,433,812       0.597 %
A.F.P Cuprum S.A. for A Fund     543,119,886       0.538 %
Valores Security S.A. Corredores de Bolsa     525,915,327       0.521 %
Inversiones CDP SPA     487,744,912       0.483 %
Santander S.A. Corredores de Bolsa Limitada     461,857,656       0.457 %
BTG Pactual Chile S. A. Corredores de Bolsa     451,019,164       0.446 %
Subtotal     84,865,741,803       84.011 %
Others shareholders     16,151,339,311       15.989 %
Total     101,017,081,114       100.000 %

 

130


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

28. Equity, continued:

 

(a) Capital, continued:

 

(i) Authorized, subscribed and paid shares, continued:

 

    As of December 31, 2022  
Corporate Name or Shareholders’s name   Number of Shares     % of Equity Holding  
             
LQ Inversiones Financieras S.A.     46,815,289,329       46.344 %
Banco Santander on behalf foreign investors     5,152,721,486       5.101 %
Banchile Corredores de Bolsa S.A.     5,136,168,146       5.084 %
Inversiones LQ-SM Limitada     4,854,988,014       4.806 %
Banco de Chile on behalf State Street     4,578,821,545       4.533 %
Banco de Chile on behalf of non-resident third parties     4,469,302,412       4.424 %
Banco de Chile on behalf  Citibank New York     2,114,554,951       2.093 %
Ever Chile SPA     1,888,369,814       1.869 %
Inversiones Avenida Borgoño SPA     1,190,565,316       1.179 %
Ever 1 BAE SPA     1,166,584,950       1.155 %
Larraín Vial S.A. Corredora de Bolsa     992,600,803       0.983 %
J P Morgan Chase Bank     912,758,708       0.904 %
Banco Santander Chile     727,463,267       0.720 %
A.F.P Cuprum S.A. for A Fund     665,713,252       0.659 %
A.F.P Habitat S.A. for A Fund     574,953,861       0.569 %
BCI Corredores de Bolsa S.A.     520,057,341       0.515 %
Valores Security S.A. Corredores de Bolsa     516,590,290       0.511 %
Inversiones CDP SPA     487,744,912       0.483 %
A.F.P Capital S.A. for A Fund     475,086,799       0.470 %
Santander S.A. Corredores de Bolsa Limitada     462,028,745       0.457 %
Subtotal     83,702,363,941       82.860 %
Others shareholders     17,314,717,173       17.140 %
Total     101,017,081,114       100.000 %

 

131


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

28. Equity, continued:

 

(a) Capital, continued:

 

(ii) Shares:

 

The following table shows the changes in share from December 31, 2022 to June 30, 2023:

 

    Total  
   

Ordinary

Shares

 
         
Total shares as of December 31, 2022     101,017,081,114  
         
Total shares as of June 30, 2023     101,017,081,114  

 

(b) Approval and payment of dividends:

 

At the Bank Ordinary Shareholders’ Meeting held on March 23, 2023 it was approved the distribution and payment of dividend No. 211 of Ch$8.58200773490 per share of the Banco de Chile, with charge to the net distributable income for the year 2022. The dividends paid in the in the period 2023 amounted to Ch$866,929 million.

 

At the Bank Ordinary Shareholders’ Meeting held on March 17, 2022 it was approved the distribution and payment of dividend No. 210 of Ch$5.34393608948 per share of the Banco de Chile, with charge to the net distributable income for the year 2021. The dividends paid in the in the period 2022 amounted to Ch$539,827 million.

 

(c) Provision for minimum dividends:

 

The Board of Directors of Banco de Chile agreed for the purposes of minimum dividends, to establish a provision of 60% of the net income resulting from reducing or adding to the net income for the corresponding period, the value effect of the monetary unit of paid capital and reserves, as a result of any change in the Consumer Price Index (CPI) between the month prior to the current month and the month of November of the previous year. The amount to be reduced of the liquid income for the period ended as of June 30, 2023 amounted to Ch$122,930 million.

 

As indicated, as of June 30, 2023, the amount of the net income determined in accordance with the preceding paragraph is equivalent to Ch$475,168 million (Ch$866,929 million as of December 31, 2022). Consequently, the Bank recorded a provision for minimum dividends under “Provision for dividends, interests and reappraisal of financial instruments of regulatory capital issued” as of June 30, for an amount of Ch$285,101 million (Ch$520,158 million in December 2022), which reflects as a counterpart an equity reduction for the same amount in the item "Retained earnings".

 

132


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

28. Equity, continued:

 

(d) Earnings per share:

 

(i) Basic earnings per share:

 

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

 

(ii) Diluted earnings per share:

 

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

 

Accordingly, the basic and diluted earnings per share as of June 30, 2023 and 2022 were determined as follows:

 

    June     June  
    2023     2022  
Basic earnings per share:            
Net profits attributable to ordinary equity holders of the bank (in million Chilean pesos)     598,098       723,249  
Weighted average number of ordinary shares     101,017,081,114       101,017,081,114  
Earning per shares (in Chilean pesos)     5.92       7.16  
                 
Diluted earnings per share:                
Net profits attributable to ordinary equity holders of the bank (in million Chilean pesos)     598,098       723,249  
Weighted average number of ordinary shares     101,017,081,114       101,017,081,114  
Assumed conversion of convertible debt            
Adjusted number of shares     101,017,081,114       101,017,081,114  
Diluted earnings per share (in Chilean pesos)     5.92       7.16  

 

As of June 30, 2023 and 2022, the Bank does not have instruments that generate dilutive effects.

 

133


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

28. Equity, continued:

 

(e) Other comprehensive income:

 

Below is the composition and changes of accumulated other comprehensive income as of June 30, 2023 and 2022:

 

    Elements that will not be reclassified in profit or loss     Elements that can be reclassified in profit or loss        
    New measurements of net defined benefit liability and actuarial results for other employee benefit plans     Fair value changes of equity instruments designated as at fair value through other comprehensive income     Income tax     Subtotal     Fair value changes of financial assets at fair value through other comprehensive income     Cash flow accounting hedge     Participation in other comprehensive income of entities registered under the equity method     Income tax     Subtotal     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                             
Opening balances as of January 1, 2022     (208 )     3,590       (913 )     2,469       (47,808 )     111,694       (21 )     (27,595 )     36,270       38,739  
Other comprehensive income for the period     (8 )     199       (52 )     139       (8,230 )     (139,951 )           37,371       (110,810 )     (110,671 )
Balances as of June 30, 2022     (216 )     3,789       (965 )     2,608       (56,038 )     (28,257 )     (21 )     9,776       (74,540 )     (71,932 )
                                                                                 
Opening balances as of January 1, 2023     (338 )     3,790       (932 )     2,520       268       (103,782 )     (190 )     31,382       (72,322 )     (69,802 )
Other comprehensive income for the period     (115 )     597       (130 )     352       5,844       59,103       (22 )     (17,841 )     47,084       47,436  
Balances as of June 30, 2023     (453 )     4,387       (1,062 )     2,872       6,112       (44,679 )     (212 )     13,541       (25,238 )     (22,366 )

 

134


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

28. Equity, continued:

 

(f) Retained earnings from previous years:

 

During the year 2023, the Ordinary Shareholders Meeting of Banco de Chile agreed to deduct and withhold from the year 2022 liquid income, an amount equivalent to the value effect of the monetary unit of paid capital and reserves according to the variation in the Consumer Price Index, which occurred between November 2021 and November 2022, amounting to Ch$542,504 million.

 

29. Contingencies and Commitments:

 

(a) The Bank and its subsidiaries have exposures associated with contingent loans and other liabilities according to the following detail:

 

(a.1) Contingent loans:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
Guarantees and sureties                
Guarantees and sureties in chilean currency            
Guarantees and sureties in foreing currency     290,037       348,774  
                 
Letters of credit for goods circulation operations     391,354       424,195  
                 
Debt purchase commitments in local currency abroad            
                 
Transactions related to contingent events                
Transactions related to contingent events in chilean currency     2,120,139       2,230,917  
Transactions related to contingent events in foreing currency     416,748       466,691  
                 
Undrawn credit lines with immediate termination                
Balance of lines of credit and agreed overdraft in current account – commercial loans     1,393,630       1,396,659  
Balance of lines of credit on credit card – commercial loans     291,265       290,950  
Balance of lines of credit and agreed overdraft in current account – consumer loans     1,482,046       1,457,303  
Balance of lines of credit on credit card – consumer loans     6,263,308       6,202,951  
Balance of lines of credit and agreed overdraft in current account – due from banks loans            
                 
Undrawn credit lines            
                 
Other commitments                
Credits for higher studies Law No. 20,027 (CAE)            
Other irrevocable credit commitments     38,899       72,355  
                 
Other credit commitments            
                 
Total     12,687,426       12,890,795  

 

135


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

  

29. Contingencies and Commitments, continued:

 

(a.2) Responsibilities assumed to meet customer needs:

 

    June     December  
    2023     2022  
    MCh$     MCh$  
             
Transactions on behalf of third parties                
Collections     154,086       174,238  
Placement or sale of financial instruments            
Transferred financial assets managed by the bank            
Third-party resources managed by the bank     777,681       766,706  
Subtotal     931,767       940,944  
                 
Securities custody                
Securities safekept by a banking subsidiary     5,806,578       5,593,924  
Securities safekept by the Bank     3,447,442       3,646,536  
Securities safekept deposited in another entity     14,898,164       14,855,338  
Securities issued by the bank            
Subtotal     24,152,184       24,095,798  
                 
Total     25,083,951       25,036,742  

 

(b) Lawsuits and legal proceedings:

 

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

 

At the date of issuance of these Interim Consolidated Financial Statements, there are legal actions filed against the Bank related with the ordinary course operations. As of June 30, 2023, the Bank maintain provisions for judicial contingencies amounting to Ch$1,201 million (Ch$1,790 million as of December 2022), which are part of the item “Provisions for contingencies” in the Statement of Financial Position.

 

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

 

    As of June 30, 2023  
    2023     2024     2025     2026     2027     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                     
Legal contingencies     251       648       302                   1,201  

 

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

 

As of June 30, 2023 and December 31, 2022, there are not significant lawsuits in court that affect or may affect these Interim Consolidated Financial Statements.

 

136


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

29. Contingencies and Commitments, continued:

 

(c) Guarantees granted by operations:

 

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

 

In compliance with Article No, 12 of Law No. 20,712, Banchile Administradora General de Fondos S.A., has designated Banco de Chile as the representative of the beneficiaries of the guarantees it has established, and in such role the Bank has issued bank guarantees totaling UF 3,264,000 maturing January 5, 2024 (UF 4,153,500, maturing on January 6, 2023). The subsidiary took a policy with Mapfre Seguros Generales S.A. for the Real State Funds by a guaranteed amount of UF 915,300.

 

As of June 30, 2023 and December 31, 2022, the Bank has not guaranteed mutual funds.

 

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

 

For the purposes of ensuring correct and complete compliance with all of its obligations as broker-dealer entity, in conformity with the provisions from Article 30 and subsequent of Law No. 18,045 on Securities Markets, the subsidiary established a guarantee in an insurance policy for UF 20,000, insured by Mapfre Seguros Generales S.A., that matures April 22, 2024, whereby the Securities Exchange of the Santiago Stock Exchange was appointed as the subsidiary’s creditor representative.

 

137


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

29. Contingencies and Commitments, continued:

 

(c) Guarantees granted by operations, continued:

 

    June     December  
    2023     2022  
Guarantees:   MCh$     MCh$  
Shares delivered to guarantee forward sales transactions covered simultaneously:                
Santiago Securities Exchange, Stock Exchange     5,875       15,840  
Electronic Chilean Securities Exchange, Stock Exchange     6,106       10,323  
                 
Fixed income securities to guarantee CCLV system:                
Santiago Securities Exchange, Stock Exchange     9,924       9,983  
                 
Fixed Income securities to guarantee equity short sale and Hedging Loan:                
Santiago Securities Exchange, Stock Exchange            
                 
Shares delivered to guarantee equity lending and short-selling:                
Santiago Securities Exchange, Stock Exchange     3,029       7,992  
                 
Cash guarantees received for operations with derivatives     2,975       743  
Cash guarantees for operations with derivatives     3,208       1,443  
Cash collateral provided for short sale transactions with pershing     1,276       3.035  
                 
Equity securities received for operations with derivatives:                
Electronic Chilean Securities Exchange, Stock Exchange     149       273  
Depósito Central de Valores S.A.     102       1,363  
                 
Financial intermediation securities received for operations with derivatives:                
Internal custody           238  
                 
Total     32,644       51,233  

 

In conformity with the internal regulation of the stock exchange in which it participates, and for the purpose of ensuring its proper performance, the Company maintains a pledge in favor of the Santiago Stock Exchange of one million shares of said stock exchange and the same number of shares of the Sociedad de Infraestructuras de Mercado S.A. It also maintains a pledge in favor of the Electronic Exchange for one hundred thousand shares of said Institution.

 

Banchile Corredores de Bolsa S.A. keeps an insurance policy current with Chubb Seguros Chile S.A. that expires June 30, 2023, this considers matters of employee fidelity, physical losses, falsification or adulteration, and currency fraud with a coverage amount equivalent to US$20,000,000.

 

It also provided a bank guarantee in the amount of UF 311,400 for the benefits of investors in portfolio management contracts. This bank guarantee is revaluated in UF to fixed term, non-endorsable and has a maturity date of January 8, 2024.

 

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

 

138


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

29. Contingencies and Commitments, continued:

 

(c) Guarantees granted by operations, continued:

 

A guarantee corresponding to UF 10,000 has been constituted, to guarantee compliance with the fund's investment portfolio management service contract. Said guarantee corresponds to a non-endorsable fixed-term readjustable bond in UF issued by Banco de Chile with validity until January 27, 2026.

 

iii. In subsidiary Banchile Corredores de Seguros Ltda.:

 

According to established in article 58, letter D of D.F.L. 251, as of June 30, 2023 the entity maintains two insurance policies with effect from April 15, 2023 to April 14, 2024 which protect it against of potential damages caused by infractions of the law, regulations and complementary rules that regulate insurance brokers, especially when the non-compliance comes from acts, errors or omissions of the broker, its representatives, agents or dependents that participate in the intermediation.

 

The policies contracted are:

 

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

 

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

 

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

 

139


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

30. Interest Revenue and Expenses:

 

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

 

    For the six-months period ended June 30,     04.01.2023 to     04.01.2022 to  
    2023     2022     06.30.2023     06.30.2022  
    MCh$     MCh$     MCh$     MCh$  
                         
Interest revenue     1,569,740       990,511       796,595       540,993  
Interest expenses     (833,212 )     (366,450 )     (427,984 )     (223,147 )
Total net interest income     736,528       624,061       368,611       317,846  

  

(b) The composition of interest revenue is as follows:

 

    For the six-months period
ended June 30,
    04.01.2023 to     04.01.2022 to  
    2023     2022     06.30.2023     06.30.2022  
    MCh$     MCh$     MCh$     MCh$  
Financial assets at amortized cost                                
Rights by resale agreements and securities lending     2,658       1,525       1,227       818  
Debt financial instruments     7,035       6,876       3,691       3,603  
Loans and advances to Banks     86,850       65,473       35,605       39,211  
Commercial loans     723,085       441,762       368,795       241,370  
Residential mortgage loans     179,289       153,076       90,406       78,649  
Consumer Loans     378,347       271,496       193,353       143,702  
Other financial instruments     26,469       1,647       14,868       1,321  
Financial assets at fair value through other comprehensive income                                
Debt financial instruments     182,665       60,795       95,671       37,765  
Other financial instruments                        
Income of accounting hedges of interest rate risk     (16,658 )     (12,139 )     (7,021 )     (5,446 )
Total     1,569,740       990,511       796,595       540,993  

 

(b.1) At the end of the period, the stock of interest not recognized in income is as follows:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Commercial loans     29,698       16,301  
Residential mortgage loans     3,216       2,219  
Consumer Loans     4,248       1,640  
Total     37,162       20,160  

 

140


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

30. Interest Revenue and Expenses, continued:

 

(b.2) The amount of interest recognized on a received basis for impaired portfolio in the period amounts to:

 

    For the six-months period ended June 30,     04.01.2023 to     04.01.2022 to  
    2023     2022     06.30.2023     06.30.2022  
    MCh$     MCh$     MCh$     MCh$  
                         
Commercial loans     394       365       263       234  
Residential mortgage loans     913       582       678       347  
Consumer Loans                        
Total     1,307       947       941       581  

 

(c) The composition of interest expenses is as follows:

 

    For the six-months period ended June 30,     04.01.2023 to     04.01.2022 to  
    2023     2022     06.30.2023     06.30.2022  
    MCh$     MCh$     MCh$     MCh$  
Financial liabilities at amortized cost                                
Current accounts and other demand deposits     745       2,017       224       1,125  
Saving accounts and time deposits     677,964       245,177       347,068       158,722  
Obligations by repurchase agreements and securities lending     9,262       3,997       3,773       2,582  
Borrowings from financial institutions     28,771       13,613       14,868       7,451  
Debt financial instruments issued     118,172       100,762       60,555       52,446  
Other financial obligations                        
Lease liabilities     901       921       462       464  
Financial instruments of regulatory capital issued     16,389       15,088       8,255       7,671  
Income of accounting hedges of interest rate risk     (18,992 )     (15,125 )     (7,221 )     (7,314 )
Total     833,212       366,450       427,984       223,147  

 

141


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

  

30. Interest Revenue and Expenses, continued:

 

(d) As of June 30, 2023 and 2022, the Bank uses cross currency and interest rate swaps to hedge its position on changes on the fair value of corporate bonds and commercial loans and cross currency swaps to hedge the risk of variability of obligations flows with foreign banks and bonds issued in foreign currency.

  

 

    For the six-months period ended June 30,     04.01.2023 to     04.01.2022 to  
    2023     2022     06.30.2023     06.30.2022  
    Income     Expense     Total     Income     Expense     Total     Income     Expense     Total     Income     Expense     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Gain from fair value accounting hedges                       608             608                         608             608  
Loss from fair value accounting hedges                       (740 )           (740 )                       (711 )           (711 )
Gain from cash flow accounting hedges     81,602       106,757       188,359       52,294       60,377       112,671       78,939       90,881       169,820       47,786       50,494       98,280  
Loss from cash flow accounting hedges     (98,260 )     (87,765 )     (186,025 )     (63,693 )     (45,252 )     (108,945 )     (85,960 )     (83,660 )     (169,620 )     (52,492 )     (43,180 )     (95,672 )
Net gain on hedge items                       (608 )           (608 )                       (637 )           (637 )
Total     (16,658 )     18,992       2,334       (12,139 )     15,125       2,986       (7,021 )     7,221       200       (5,446 )     7,314       1,868  

 

142


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

31. UF indexation revenue and expenses:

 

(a) At the end of the period, the summary of UF indexation is as follows:

 

    For the six-months period
ended June 30,
    04.01.2023 to     04.01.2022 to  
    2023     2022     06.30.2023     06.30.2022  
    MCh$     MCh$     MCh$     MCh$  
                         
UF indexation revenue     481,263       1,083,556       253,845       697,338  
UF indexation expenses     (295,628 )     (581,184 )     (154,341 )     (382,120 )
Total net income from UF indexation     185,635       502,372       99,504       315,218  

 

(b) The composition of UF indexation revenue is as follows

 

    For the six-months period
ended June 30,
    04.01.2023 to     04.01.2022 to  
    2023     2022     06.30.2023     06.30.2022  
    MCh$     MCh$     MCh$     MCh$  
                         
Financial assets at amortized cost                        
Rights by resale agreements and securities lending                        
Debt financial instruments     16,084       34,703       8,429       22,481  
Loans and advances to Banks                        
Commercial loans     183,119       434,141       97,413       282,593  
Residential mortgage loans     315,851       682,225       165,816       440,939  
Consumer Loans     1,218       3,775       599       2,400  
Other financial instruments     1,733       2,092       692       1,029  
Financial assets at fair value through other comprehensive income                                
Debt financial instruments     18,560       34,196       9,690       22,691  
Other financial instruments                        
Income of accounting hedges of UF, IVP, IPC indexation risk     (55,302 )     (107,576 )     (28,794 )     (74,795 )
Total     481,263       1,083,556       253,845       697,338  

 

(b.1) At the end of the period, the stock of UF indexation not recognized in results is as follows:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Commercial loans     4,725       4,116  
Residential mortgage loans     6,685       5,329  
Consumer Loans     22       87  
Total     11,432       9,532  

 

143


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

31. UF indexation revenue and expenses, continued:

 

(b.2) The amount of indexation recognized on the basis received by the impaired portfolio in the period amounted to:

 

    For the six-months period ended June 30,     04.01.2023 to     04.01.2022 to  
    2023     2022     06.30.2023     06.30.2022  
    MCh$     MCh$     MCh$     MCh$  
                         
Commercial loans     727       574       474       321  
Residential mortgage loans     2,389       1,700       1,824       1,135  
Consumer Loans     1       1              
Total     3,117       2,275       2,298       1,456  

 

(c) The composition of UF indexation expenses is as follows:

 

    For the six-months period ended June 30,     04.01.2023 to     04.01.2022 to  
    2023     2022     06.30.2023     06.30.2022  
    MCh$     MCh$     MCh$     MCh$  
                         
Financial liabilities at amortized cost                        
Current accounts and other demand deposits     8,030       20,143       5,273       12,461  
Saving accounts and time deposits     59,551       84,257       29,439       59,670  
Obligations by repurchase agreements and securities lending                        
Borrowings from financial institutions                        
Debt financial instruments issued     199,963       415,392       104,924       270,303  
Other financial obligations                        
Financial instruments of regulatory capital issued     28,084       61,392       14,705       39,686  
Income of accounting hedges of UF, IVP, IPC indexation risk                        
Total     295,628       581,184       154,341       382,120  

 

144


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

31. UF indexation revenue and expenses, continued:

 

(d) As of June 30, 2023 and 2022, the Bank uses cross currency and interest rate swaps to hedge its position on Changes on the fair value of corporate bonds and commercial loans and cross currency swaps to hedge the risk of variability of obligations flows with foreign banks and bonds issued in foreign currency.

  

    For the six-months period ended June 30,     04.01.2023 to     04.01.2022 to  
    2023     2022     06.30.2023     06.30.2022  
    Income     Expense     Total     Income     Expense     Total     Income     Expense     Total     Income     Expense     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Gain from fair value accounting hedges                                                                        
Loss from fair value accounting hedges                                                                        
Gain from cash flow accounting hedges                                                                        
Loss from cash flow accounting hedges     (55,302 )           (55,302 )     (107,576 )           (107,576 )     (28,794 )           (28,794 )     (74,795 )           (74,795 )
Net gain on hedge items                                                                        
Total     (55,302 )           (55,302 )     (107,576 )           (107,576 )     (28,794 )           (28,794 )     (74,795 )           (74,795 )

 

145


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

  

32. Income and Expeses from commissions:

 

The income and expenses for commissions that are shown in the Interim Consolidated Statement of Income for the period is as following:

 

    For the six-months period ended June 30,    

04.01.2023 to

   

04.01.2022 to

 
    2023     2023     06.30.2023     06.30.2022  
    MCh$     MCh$     MCh$     MCh$  
                         
Income from commissions and services rendered                        
Comissions from card services     121,938       106,776       61,972       53,291  
Remuneration from administration of mutual funds, investment funds or others     57,275       59,185       28,880       30,148  
Comissions from collections and payments     38,549       41,212       19,741       21,125  
Comissions from portfolio management     30,530       28,084       16,406       14,649  
Comissions from guarantees and letters of credit     18,002       16,813       9,174       8,941  
Brand use agreement     16,304       13,225       8,859       6,652  
Use of distribution channel     15,079       13,326       7,546       6,701  
Insurance not related to the granting of credits to natural persons     12,322       10,193       6,086       5,107  
Comissions from trading and securities management     8,458       9,800       4,437       5,132  
Insurance related to the granting of credits to natural persons     7,522       6,943       3,871       3,579  
Comissions from credit prepayments     5,044       4,872       2,577       2,450  
Insurance not related to the granting of credits to legal entities     4,410       1,715       2,491       834  
Comissions from lines of credit and current account overdrafts     2,457       2,244       1,237       1,132  
Financial advisory services     1,326       2,140       62       1,874  
Insurance related to the granting of credits to legal entities     1,006       860       491       462  
Comissions from factoring operations services     676       675       357       348  
Loan commissions with letters of credit     52       82       26       39  
Other commission earned     8,137       8,800       3,947       3,772  
Total     349,087       326,945       178,160       166,236  
                                 
Expenses from commissions and services received                                
Commissions from card transactions     27,585       24,728       14,895       11,888  
Interbank transactions     23,813       18,392       12,363       9,984  
Expenses from obligations of loyalty and merit card customers programs     14,389       15,249       9,635       11,768  
Commissions from use of card brands license     4,272       5,372       2,128       2,791  
Comissions from securities transaction     2,649       2,715       1,249       1,297  
Collections and payments     2,133       2,219       1,047       1,061  
Other commissions from services received     1,266       986       768       403  
Total     76,107       69,661       42,085       39,192  

 

146


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

33. Net Financial income (expense):

 

(a) The amount of net financial income (expense) shown in the Interim Consolidated Income Statement for the period corresponds to the following concepts:

 

    For the six-months period ended June 30,    

04.01.2023 to

   

04.01.2022 to

 
    2023     2022     06.30.2023     06.30.2022  
Financial result from:   MCh$     MCh$     MCh$     MCh$  
                         
Financial assets held for trading at fair value through profit or loss:                        
Financial derivative contracts     2,796,753       2,972,066       992,544       2,462,044  
Debt Financial Instruments     153,048       87,813       76,982       51,768  
Other financial instruments     9,641       3,662       2,003       1,550  
                                 
Financial liabilities held for trading at fair value through profit or loss                                
Financial derivative contracts     (2,721,549 )     (3,014,277 )     (968,103 )     (2,493,467 )
Other financial instruments     (1,042 )     356       (360 )     354  
Subtotal     236,851       49,620       103,066       22,249  
                                 
Non-trading financial assets mandatorily measured at fair value through profit or loss:                                
Debt Financial Instruments                        
Other financial instruments                        
                                 
Financial assets designated as at fair value through profit or loss:                                
Debt Financial Instruments                        
Other financial instruments                        
                                 
Financial liabilities designated as at fair value through profit or loss:                                
Current accounts and other demand deposits  and savings accounts and other time deposits                        
Debt instruments issued                        
Others                        
                                 
Derecognition of financial assets and liabilities at amortized cost and financial assets at fair value through other comprehensive income:                                
Financial assets at amortized cost                        
Financial assets at fair value through other comprehensive income     (66 )     475       51       (33 )
Financial liabilities at amortized cost           (1 )           (1 )
Financial instruments of regulatory capital issued                        
Subtotal     (66 )     474       51       (34 )
                                 
Exchange, indexation and accounting hedging of foreign currency                                
Gain (loss) from foreign currency exchange     114,035       (23,898 )     2,638       (195,537 )
Gain (loss) from indexation for exchange rate     (8,396 )     9,440       1,752       16,011  
Net gain (loss) from derivatives in accounting hedges of foreign currency risk     (119,444 )     96,663       12,501       233,631  
Subtotal     (13,805 )     82,205       16,891       54,105  
                                 
Reclassification of financial assets for changes to business models:                                
From financial assets at amortized cost to financial assets held for trading at fair value through profit or loss                        
From financial assets at fair value through other comprehensive income to financial assets held for trading at fair value through profit or loss                        
                                 
Modifications of financial assets and liabilities:                                
Financial assets at amortized cost                        
Financial assets at fair value through other comprehensive income                        
Financial liabilities at amortized cost                        
Lease liabilities                        
Financial instruments of regulatory capital issued                        
                                 
Ineffective accounting hedges:                                
Gain (loss) from ineffective cash flow accounting hedges                        
Gain (loss) from ineffective accounting hedges of net investment abroad                        
                                 
Other type of accounting hedges:                                
Hedges of other types of financial assets                        
                                 
Total     222,980       132,299       120,008       76,320  

 

147


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

33. Net Financial income (expense), continued:

 

(b) Below is a detail of the income (expense) associated with the changes of provisions constituted for credit risk related to loans and contingent loans denominated in foreign currency, which is reflected in “Exchange, indexation and accounting hedging of foreign currency”.

 

    For the six-months period ended June 30,    

04.01.2023 to

   

04.01.2022 to

 
    2023     2022    

06.30.2023

    06.30.2022  
    MCh$     MCh$     MCh$     MCh$  
                         
Loans and advances to Banks     31       (34 )     (7 )     (69 )
Commercial loans     4,734       (7,601 )     (569 )     (14,854 )
Residential mortgage loans                        
Consumer loans     54       (71 )     (6 )     (144 )
Contingent loans     763       (902 )     (133 )     (2,444 )
Total     5,582       (8,608 )     (715 )     (17,511 )

 

34. Income attributable to investments in other companies:

 

The income obtained from investments in companies detailed in note No. 14 corresponds to the following:

 

        June     June  
Company   Shareholder   2023     2022  
        MCh$     MCh$  
Associates                
Transbank S.A.   Banco de Chile     2,504       2,877  
Centro de Compensación Automatizado S.A.   Banco de Chile     754       583  
Administrador Financiero del Transantiago S.A.   Banco de Chile     289       263  
Redbanc S.A.   Banco de Chile     224       396  
Sociedad Interbancaria de Depósitos de Valores S.A.   Banco de Chile     188       189  
Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A.   Banco de Chile     54       61  
Sociedad Imerc OTC S.A.   Banco de Chile     43       42  
Subtotal Associates         4,056       4,411  
                     
Joint Ventures                    
Servipag Ltda.   Banco de Chile     902       581  
Artikos Chile S.A.   Banco de Chile     327       272  
Subtotal Joint Ventures         1,229       853  
                     
Minority Investments                    
Sociedad de Infraestructuras de Mercado S.A.   Banchile Corredores de Bolsa     418        
Bolsa de Comercio de Santiago S.A.   Banchile Corredores de Bolsa     50       387  
Banco Latinoamericano de Comercio Exterior S.A. (Bladex)   Banco de Chile     24       24  
Bolsa Electrónica de Valores S.A.   Banchile Corredores de Bolsa     19       12  
Subtotal Minority Investments         511       423  
Total         5,796       5,687  

 

148


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

35. Result from non-current assets and disposal groups held for sale not admissible as discontinued operations:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Net income from assets received in payment or adjudicated in judicial auction            
Gain (loss) on sale of assets received in lieu of payment or foreclosed at judicial auction     2,673       2,918  
Other income from assets received in payment or foreclosed at judicial auction     23       144  
Provisions for adjustments to net realizable value of assets received in lieu of payment or foreclosed at judicial auction     (406 )     (227 )
Charge-off assets received in lieu of payment or foreclosed at judicial auction     (2,442 )     (2,741 )
Expenses to maintain assets received in lieu of payment or foreclosed at judicial auction     (400 )     (307 )
Non-current assets held for sale                
Investments in other companies            
Intangible assets            
Property and equipment     2,190       468  
Assets for recovery of assets transferred in financial leasing operations     491       805  
Other assets            
Disposal groups held for sale            
Total     2,129       1,060  

 

149


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

36. Other operating Income and Expenses:

 

a) During the periods 2023 and 2022, the Bank and its subsidiaries present other operating income, according to the following:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Expense recovery     12,277       1,242  
Tax management income     6,775       104  
Income from investment properties     3,422       3,402  
Revaluation of prepaid monthly payments     1,486       2,726  
Income from correspondent banks     1,321       1,523  
Provision for fixed income instruments     58       1  
Foreign trade income     48       33  
Expense recovery income     32       1  
Fiduciary and trustee commissions     30       26  
Others income     68       130  
Total     25,517       9,188  

 

b) During the periods 2023 and 2022, the Bank and its subsidiaries present other operating expenses, according to the following:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Write-offs for operating risks   12,152     6,936  
Expenses for credit operations of financial leasing     1,935       1,081  
Legal expenses     1,764       842  
Correspondent banks     1,237       1,674  
Expenses for charge-off leased assets recoveries     218       71  
Renegotiated loan insurance premium     152       185  
Valuation expense     132       112  
Life ensurance     131       136  
Card administration     116       1,731  
Provisions for trials and litigation     86       32  
Provision for pending operations (90 days)     80       (128 )
(Release) expense of provisions for operational risk     (1,091 )     409  
Expense recovery from operational risk events     (4,280 )     (2,636 )
Others expenses     576       513  
Total     13,208       10,958  

 

150


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

37. Expenses from salaries and employee benefits:

 

The composition of the expense for employee benefit obligations during the period 2023 and 2022 is as follows:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Expenses for short-term employee benefit   252,052     227,912  
Expenses for employee benefits due to termination of employment contract     10,256       12,160  
Training expenses     2,194       1,355  
Expenses for nursery and kindergarten     748       716  
Other personnel expenses     3,544       2,835  
Total     268,794       244,978  

 

151


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

38. Administrative expenses:

 

This item is composed as follows:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
General administrative expenses            
Information technology and communications     69,122       58,281  
Maintenance and repair of property and equipment     22,459       20,140  
External advisory services and professional services fees     6,613       8,247  
Surveillance and securities transport services     5,687       6,141  
Insurance premiums except to cover operational risk events     4,915       4,350  
Office supplies     4,189       4,470  
Energy, heating and other utilities     3,067       2,429  
Legal and notary expenses     2,875       1,748  
External service of financial information     2,131       2,168  
Postal box, mail, postage and home delivery services     2,033       2,106  
Other expenses of obligations for lease contracts     1,996       1,846  
Representation and travel expenses     1,501       1,003  
Expenses for short-term leases     1,430       1,530  
External service of custody of documentation     1,159       1,720  
Fees for other technical reports     508       337  
Fees for review and audit of the financial statements by the external auditor     373       335  
Expenses for leases low value     233       249  
Fines applied by other agencies     80       191  
Other general administrative expenses     15,307       12,025  
                 
Outsource services                
Technological developments expenses, certification and technology testing     10,884       8,803  
Data processing     6,210       4,124  
External credit evaluation service     3,052       2,258  
External collection service     1,564        
External human resources administration services and supply of external personnel     739       761  
External cleaning service, casino, custody of files and documents, storage of furniture and equipment     179       175  
Call Center service for sales, marketing, quality control customer service     59       44  
                 
Board expenses                
Board of Directors Compensation     1,636       1,489  
Other Board expenses     33       12  
                 
Marketing     18,704       15,353  
                 
Taxes, contributions and other legal charges                
Contribution to the banking regulator     7,276       6,789  
Real estate contributions     2,672       2,448  
Taxes other than income tax     1,234       1,048  
Municipal patents     834       761  
Other legal charges     53       43  
Total     200,807       173,424  

 

152


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

39. Depreciation and Amortization:

 

The amounts corresponding to charges to results for depreciation and amortization during the periods 2023 and 2022, are detailed as follows:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
Amortization of intangibles assets            
Other intangible assets arising from business combinations            
Other independently originated intangible assets     13,680       9,947  
Depreciation of property and equipment                
Buildings and land     4,579       4,679  
Other property and equipment     10,615       10,795  
Depreciation and impairment of leased assets                
Buildings and land     16,945       15,161  
Other property and equipment            
Depreciation for improvements in leased real estate as leased of right-to-use assets     483       431  
Amortization for the right-to-use other intangible assets under lease            
Depreciation of other assets for investment properties            
Amortization of other assets per activity income asset            
Total     46,302       41,013  

 

40. Impairment of non-financial assets:

 

As of June 30, 2023 and 2022, the composition of the item for impairment of non-financial assets is composed as follows:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
             
Impairment of intangible assets            
Impairment of property and equipment     (1 )      
Impairment of assets from income from ordinary activities from contracts with customers     18       100  
Total     17       100  

 

153


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

41. Credit loss expense:

 

(a) The composition is as follows:

 

    For the six-months period ended June 30,    

04.01.2023 to
06.30.2023

   

04.01.2022 to
06.30.2022

 
    2023     2022              
    MCh$     MCh$     MCh$     MCh$  
                         
Expense of provisions established for loan credit risk     203,502       119,820       85,660       76,765  
Expense of special provisions for credit risk     925       117,130       231       47,346  
Recovery of written-off credits     (26,702 )     (32,392 )     (14,689 )     (18,751 )
Impairments for credit risk from financial assets at fair value through other comprehensive income     (4,845 )     973       (3,830 )     767  
Total     172,880       205,531       67,372       106,127  

 

(b) Summary of the expense of provisions constituted for credit risk and expense for credit losses:

 

    Expense of loans provisions constituted in the period  
    Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio           Deductible
warranty
       
    Evaluation     Evaluation     Evaluation           Fogape        
As of June 30, 2023   Individual     Group     Individual     Individual     Group     Subtotal     Covid-19     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Loans and advances to Banks                                                
Provisions established                                                
Provisions released     (134 )                             (134 )           (134 )
Subtotal     (134 )                             (134 )           (134 )
Commercial loans                                                                
Provisions established           12             14,480       34,688       49,180             49,180  
Provisions released     (2,570 )           (14,501 )                 (17,071 )     (10,659 )     (27,730 )
Subtotal     (2,570 )     12       (14,501 )     14,480       34,688       32,109       (10,659 )     21,450  
Residential mortgage loans                                                                
Provisions established                             6,846       6,846             6,846  
Provisions released           (486 )                       (486 )           (486 )
Subtotal           (486 )                 6,846       6,360             6,360  
Consumer loans                                                                
Provisions established           8,654                   167,172       175,826             175,826  
Provisions released                                                
Subtotal           8,654                   167,172       175,826             175,826  
Expense (release) of provisions for credit risk     (2,704 )     8,180       (14,501 )     14,480       208,706       214,161       (10,659 )     203,502  
                                                                 
Recovery of written-off credits                                                                
Loans and advances to Banks                                                              
Commercial loans                                                             (6,941 )
Residential mortgage loans                                                             (5,568 )
Consumer loans                                                             (14,193 )
Subtotal                                                             (26,702 )
Loan credit loss expenses                                                             176,800  

 

154


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

41. Credit loss expense, continued:

 

(a) Summary of the expense of provisions constituted for credit risk and expense for credit losses, continued;

  

    Expense of loans provisions constituted in the period  
    Normal Portfolio     Substandard Portfolio     Non-Complying Portfolio           Deductible
warranty
       
    Evaluation     Evaluation     Evaluation           Fogape        
As of June 30, 2022   Individual     Group     Individual     Individual     Group     Subtotal     Covid-19     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Loans and advances to Banks                                                
Provisions established     210                               210             210  
Provisions released                                                
Subtotal     210                               210             210  
Commercial loans                                                                
Provisions established     4,147       391       9,617       9,216       20,767       44,138             44,138  
Provisions released                                         (9,983 )     (9,983 )
Subtotal     4,147       391       9,617       9,216       20,767       44,138       (9,983 )     34,155  
Residential mortgage loans                                                                
Provisions established           2,047                   3,336       5,383             5,383  
Provisions released                                                
Subtotal           2,047                   3,336       5,383             5,383  
Consumer loans                                                                
Provisions established           25,621                   54,451       80,072             80,072  
Provisions released                                                
Subtotal           25,621                   54,451       80,072             80,072  
Expense (release) of provisions for credit risk     4,357       28,059       9,617       9,216       78,554       129,803       (9,983 )     119,820  
                                                                 
Recovery of written-off credits                                                                
Loans and advances to Banks                                                              
Commercial loans                                                             (12,255 )
Residential mortgage loans                                                             (5,458 )
Consumer loans                                                             (14,679 )
Subtotal                                                             (32,392 )
Loan credit loss expenses                                                             87,428  

 

155


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

41. Credit loss expense, continued:

 

(c) Summary of expense for special provisions for credit risk:

 

    For the six-months period ended
June 30,
   

04.01.2023 to

   

04.01.2022 to

 
    2023     2022     06.30.2023     06.30.2022  
    MCh$     MCh$     MCh$     MCh$  
Expenses of provisions for contingent loans:                        
Loans and advances to Banks                        
Commercial loans     (2,513 )     (274 )     (2,647 )     (178 )
Consumer loans     (614 )     (1,079 )     (481 )     (412 )
Expenses form provisions for country risk for transactions with debtors with residence abroad     4,052       8,483       3,359       7,936  
Expense of special provisions for loans abroad                        
Expenses of additional loan provisions:                                
Loans and advances to Banks           110,000             40,000  
Commercial loans                        
Consumer loans                        
Expense of other special provisions established for credit risk     925       117,130       231       47,346  

 

42. Income from discontinued operations:

 

As of June 30, 2023 and December 31, 2022, the Bank does not maintain income from discontinued operations.

 

43. Related Party Disclosures:

 

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

 

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

 

156


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

43. Related Party Disclosures, continued:

 

(a) Assets and liabilities with related parties:

 

    Related Party Type  

Type of current assets and liabilities with related parties As of June 30, 2023

  Parent Entity     Other Legal Entity     Key Personnel
of the
Consolidated Bank
    Othe Related Party     Total  
ASSETS   MCh$     MCh$     MCh$     MCh$     MCh$  
Financial assets held for trading at fair value through profit or loss                              
Derivative Financial Instruments           244,558                   244,558  
Debt financial instruments                              
Other financial instruments           5                   5  
Non-trading financial assets mandatorily measured at fair value through profit or loss                              
Financial assets designated as at fair value through profit or loss                              
Financial assets at fair value through other comprehensive income           6,471                   6,471  
Derivative Financial Instruments for hedging purposes                              
Financial assets at amortized cost:                                        
Rights by resale agreements and securities lending                              
Debt financial instruments                              
Commercial loans           186,775       1,331       10,961       199,067  
Residential mortgage loans                 18,152       59,744       77,896  
Consumer Loans           3       1,854       10,566       12,423  
Allowances established – Loans           (1,399 )     (21 )     (314 )     (1,734 )
Other assets     9       181,883             92       181,984  
Contingent loans           101,271       4,125       17,344       122,740  
                                         
LIABILITIES                                        
Financial liabilities held for trading at fair value through profit or loss                                        
Derivative Financial Instruments           319,079             185       319,264  
Financial liabilities designated as at fair value through profit or loss                              
Derivative Financial Instruments for hedging purposes           10,239                   10,239  
Financial liabilities at amortized cost:                                        
Current accounts and other demand deposits     139       198,506       5,015       6,642       210,302  
Saving accounts and time deposits     3,202       138,821       6,124       26,588       174,735  
Obligations by repurchase agreements and securities lending                              
Borrowings from financial institutions           52,003                   52,003  
Debt financial instruments issued                              
Other financial obligations                              
Lease liabilities           11,246                   11,246  
Other liabilities           115,491       236       30       115,757  

 

157


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

43. Related Party Disclosures, continued:

 

(a) Assets and liabilities with related parties, continued:

 

    Related Party Type  
Type of current assets and liabilities with related parties As of December 31, 2022   Parent Entity     Other Legal Entity     Key Personnel
of the
Consolidated Bank
    Othe Related Party     Total  
ASSETS   MCh$     MCh$     MCh$     MCh$     MCh$  
Financial assets held for trading at fair value through profit or loss                              
Derivative Financial Instruments           343,278                   343,278  
Debt financial instruments                              
Other financial instruments           3,354                   3,354  
Non-trading financial assets mandatorily measured at fair value through profit or loss                              
Financial assets designated as at fair value through profit or loss                              
Financial assets at fair value through other comprehensive income           16,759                   16,759  
Derivative Financial Instruments for hedging purposes                              
Financial assets at amortized cost:                                        
Rights by resale agreements and securities lending                              
Debt financial instruments                              
Commercial loans           609,155       1,384       12,024       622,563  
Residential mortgage loans                 15,221       58,608       73,829  
Consumer Loans                 2,068       10,879       12,947  
Allowances established – Loans           (4,153 )     (21 )     (401 )     (4,575 )
Other assets     9       149,096             21       149,126  
Contingent loans           177,834       4,119       17,872       199,825  
                                         
LIABILITIES                                        
Financial liabilities held for trading at fair value through profit or loss                                        
Derivative Financial Instruments           400,984                   400,984  
Financial liabilities designated as at fair value through profit or loss                              
Derivative Financial Instruments for hedging purposes           7,647                   7,647  
Financial liabilities at amortized cost:0                                        
Current accounts and other demand deposits     217       206,465       3,081       6,529       216,292  
Saving accounts and time deposits     4,643       274,318       3,815       24,125       306,901  
Obligations by repurchase agreements and securities lending                              
Borrowings from financial institutions           177,827                   177,827  
Debt financial instruments issued                              
Other financial obligations                              
Lease liabilities           11,252                   11,252  
Other liabilities           108,767       517       52       109,336  

 

158


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

43. Related Party Disclosures, continued:

 

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

 

As of June 30, 2023   Parent
Entity
    Other
Legal Entity
    Key personnel of the
consolidated
Bank
    Other
Related
party
    Total  
    MCh$     MCh$     MCh$     MCh$     MCh$  
Interest revenue           15.422       258       1.327       17.007  
UF indexation revenue           2,848       481       1,883       5,212  
Income from commissions     98       54,516       7       29       54,650  
Net Financial income (expense)           (10,601 )                 (10,601 )
Other income           218                   218  
Total Income     98       62,403       746       3,239       66,486  
                                         
Interest expense     840       4,262       298       1,317       6,717  
UF indexation expenses                              
Expenses from commissions           16,988                   16,988  
Expenses credit losses (gains)           (2,403 )     (1 )     (56 )     (2,460 )
Expenses from salaries and employee benefits           137       26,287       47,674       74,098  
Administrative expenses           6,730       1,804       168       8,702  
Other expenses                 1       12       13  
Total Expenses     840       25,714       28,389       49,115       104,058  

 

As of June 30, 2022   Parent Entity     Other Legal Entity     Key personnel of the consolidated Bank     Other Related party     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$  
Interest revenue           9,542       198       927       10,667  
UF indexation revenue           15,444       913       3,691       20,048  
Income from commissions     41       56,432       10       37       56,520  
Net Financial income (expense)           25,415                   25,415  
Other income           39                   39  
Total Income     41       106,872       1,121       4,655       112,689  
                                         
Interest expense     726       2,801       24       163       3,714  
UF indexation expenses                 13       32       45  
Expenses from commissions           17,057                   17,057  
Expenses credit losses (gains)           340       (10 )     (57 )     273  
Expenses from salaries and employee benefits                 22,271       41,548       63,819  
Administrative expenses           10,202       1,742       46       11,990  
Other expenses           10       1       7       18  
Total Expenses     726       30,410       24,041       41,739       96,916  

 

(*) This does not constitute a Statement of Income from operations with related parties since the assets with these parties are not necessarily equal to the liabilities and in each of them the total income and expenses are reflected and not those corresponding to matched operations.

 

159


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

43. Related Party Disclosures, continued:

 

(c) Transactions with related parties: Below are the individual transactions in the period with related parties that are legal persons, which do not correspond to the usual operations of the line of business carried out with customers in general and when said individual transactions consider a transfer of resources, services or obligations greater than UF 2,000.

 

As of June 30, 2023

 

    Nature of the relationship   Description of the transaction   Transactions under equivalence conditions to those transactions with mutual independence        

Effect on

Income

   

Effect on

Financial position

 
Company name   with the
Bank
  Type of
service
  Term   Renewal
conditions
  between
the parties
  Amount     Income     Expenses    

Accounts
receivable

    Accounts payable  
                        MCh$     MCh$     MCh$     MCh$     MCh$  
                                                   
Ionix SPA   Other related parties   IT license services   30 days   Contract   Yes     302             302             26  
        IT support services   30 days   Contract   Yes     181             181              
Servipag Ltda.   Joint venture   IT support services   30 days   Contract   Yes     183             183              
        Collection services   30 days   Contract   Yes     2,248             2,248             438  
Bolsa de Comercio de Santiago S.A.   Minority investments   Service of financial information   30 days   Contract   Yes     178             178              
        Brokerage commission   30 days   Contract   Yes     162             162              
        IT support services   30 days   Contract   Yes     141             141              
Enex S.A.   Other related parties   Rent spaces for ATM   30 days   Contract   Yes     166             166             166  
DCV Registros S.A.   Other related parties   Computer service   30 days   Contract   Yes     188             188              
CCLV Contraparte Central S.A   Minority investments   Brokerage commission   30 days   Contract   Yes     135             135              
Redbanc S.A.   Associates   Electronic transaction management services   30 days   Contract   Yes     8,172             8,172             1,448  
        IT project service   30 days   Contract   Yes     92             92              
        Computer service   30 days   Contract   Yes     135             135              
Sistemas Oracle de Chile Ltda.   Other related parties   Software development service   30 days   Contract   Yes     73             73              
        Computer service   30 days   Contract   Yes     91             91              
        IT support services   30 days   Contract   Yes     1,326             1,326              
Depósito Central de Valores S.A.   Other related parties   Quality control and custodial services   30 days   Contract   Yes     502             502             42  
        Custodial services   30 days   Contract   Yes     539             539              
Manantial S.A   Other related parties   General expenses   30 days   Contract   Yes     196             196              
Universidad Adolfo Ibañez   Other related parties   Training   30 days   Contract   Yes     135             135             9  
Nexus S.A.   Other related parties   General income   30 days   Contract   Yes     148       148                    
        Card processing   30 days   Contract   Yes     3,487             3,487              
        Computer service   30 days   Contract   Yes     405             405              
        Embossing services   30 days   Contract   Yes     235             235              
        Customer product delivery services   30 days   Contract   Yes     273             273              
        Fraud prevention services   30 days   Contract   Yes     380             380              
Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A.   Associates   Collection services   30 days   Contract   Yes     327             327             60  
Comder Contraparte Central S.A.   Other related parties   Securities clearing services   30 days   Contract   Yes     405             405              
Citigroup Global Markets INC   Other related parties   Brokerage commission   30 days   Contract   Yes     192             192              
Transbank S.A.   Associates   Card processing   30 days   Contract   Yes     293             293             68  
        Exchange commission   30 days   Contract   Yes     49,812       49,812                    
Centro de Compensación Automatizado S.A.   Associates   Fraud prevention services   30 days   Contract   Yes     233             233             284  
        Transfer services   30 days   Contract   Yes     1,266             1,266              
        Collection services   30 days   Contract   Yes     93             93              
Artikos Chile S.A   Joint venture   IT support services   30 days   Contract   Yes     235             235             22  
        Computer service   30 days   Contract   Yes     147             147              
Citibank N.A.   Other related parties   Connectivity business commissions   Quarterly   Contract   Yes     2,925       2,925             3,309        

 

160


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

43. Related Party Disclosures, continued:

 

(c) Transactions with related parties, continued:

 

As of December 31, 2022

 

    Nature of the relationship   Description of the transaction   Transactions under equivalence conditions to those transactions with mutual independence        

Effect on

Income

   

Effect on

Financial position

 
Company name   with the
Bank
  Type of
service
  Term   Renewal
conditions
  between
the parties
  Amount     Income     Expenses    

Accounts
receivable

    Accounts payable  
                        MCh$     MCh$     MCh$     MCh$     MCh$  
                                                   
Ionix SPA   Other related parties   IT license services   30 days   Contract   Yes     440             440             32  
        IT support services   30 days   Contract   Yes     334             334              
Canal 13 S.A.   Other related parties   Advertising service   30 days   Monthly   Yes     584             584             134  
Servipag Ltda.   Joint venture   Software services   30 days   Contract   Yes     768             768              
      Collection services   30 days   Contract   Yes     4,405             4,405             465  
Bolsa de Comercio de Santiago S.A.   Minority investments   IT support services   30 days   Contract   Yes     259             259              
        Service of financial information   30 days   Contract   Yes     335             335              
        Brokerage commission   30 days   Contract   Yes     310             310              
Enex S.A.   Other related parties   Rent spaces for ATM   30 days   Contract   Yes     168             168             168  
Redbanc S.A.   Associates   Software development   30 days   Contract   Yes     399             399              
        Electronic transaction management services   30 days   Contract   Yes     13,380             13,380             1,223  
Sistemas Oracle de Chile Ltda.   Other related parties   Software services   30 days   Contract   Yes     6,029             6,029             2,281  
        IT support services   30 days   Contract   Yes     2,873             2,873              
Depósito Central de Valores S.A.   Other related parties   Custodial services   30 days   Contract   Yes     2,230             2,230             53  
Inmobiliaria e Inversiones Capitolio S.A.   Other related parties   Space rental   30 days   Contract   Yes     82             82              
Tagle y Compañía Ltda.   Other related parties   Legal services   30 days   Contract   Yes     126             126             6  
Manantial S.A   Other related parties   Materials and supplies   30 days   Contract   Yes     224             224             15  
Radiodifusión SPA   Other related parties   Advertising service   30 days   Contract   Yes     105             105             4  
Nexus S.A.   Other related parties   Customer product delivery services   30 days   Contract   Yes     1,185             1,185             1,679  
        Card processing   30 days   Contract   Yes     11,178             11,178              
        IT development services   30 days   Contract   Yes     1,565             1,565              
        Embossing services   30 days   Contract   Yes     724             724              
        Fraud prevention services   30 days   Contract   Yes     1,234             1,234              
Artikos Chile S.A.   Joint venture   IT support services   30 days   Contract   Yes     421             421             17  
        IT services   30 days       Yes     340             340              
DCV Registros S.A   Other related parties   IT services   30 days   Contract   Yes     275             275              
Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A.   Associates   Collection services   30 days   Contract   Yes     588             588             56  
Comder Contraparte Central S.A.   Other related parties   Securities clearing services   30 days   Contract   Yes     830             830              
Citigroup Global Markets INC   Other related parties   Brokerage commission   30 days   Contract   Yes     480             480              
Bolsa Electrónica de Chile S.A.   Minority investments   Brokerage commission   30 days   Contract   Yes     153             153              
Transbank S.A.   Associates   Processing fees   30 days   Contract   Yes     1,150             1,150             91  
        Exchange commission   30 days   Contract   Yes     94,489       94,489             409        
Centro de Compensación Automatizado S.A.   Associates   Transfer services   30 days   Contract   Yes     2,340             2,340             378  
Citibank N.A.   Other related parties   Connectivity business commissions   Quarterly   Contract   Yes     10,583       10,583             6,702        

 

161


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

43. Related Party Disclosures, continued:

 

(d) Payments to the Board of Directors and to key personnel of the management of the Bank and its subsidiaries:

 

    June     June  
    2023     2022  
    MCh$     MCh$  
Directory:            

Payment of remuneration and attendance fees of the Board of Directors - Bank and its subsidiaries

  1,636     1,489  
                 
Key Personnel of the Management of the Bank and its Subsidiaries:                
Payment for benefits to short-term employees     26,287       21,488  
Payment for benefits to post-employment employees            
Payment for benefits to long-term employees            
Payment for benefits to employees for termination of employment contract           783  
Payment to employees based on shares or equity instruments            
Payment for obligations for defined contribution post-employment plans            
Payment for obligations for post-employment defined benefit plans            
Payment for other staff obligations            
Subtotal     26,287       22,271  
Total     27,923       23,760  

 

(e) Composition of the Board of Directors and key personnel of the Management of the Bank and its subsidiaries:

 

    June     June  
    2023     2022  
    No. Executives  
Directory:      
Directors – Bank and its subsidiaries   19     19  
                 
Key Personnel of the Management of the Bank and its Subsidiaries:                
CEO – Bank     1       1  
CEOs –  Subsidiaries     5       5  
Division Managers / Area – Bank     92       97  
Division Managers / Area – Subsidiaries     32       31  
Subtotal     130       134  
Total     149       153  

 

162


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

44. Fair Value of Financial Assets and Liabilities:

 

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

 

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

 

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

 

(i) Industry standard valuation.

 

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

 

(ii) Quoted prices in active markets.

 

The fair value for instruments with quoted prices in active markets is determined using daily quotes from electronic systems information (such as Bolsa de Comercio de Santiago, Bloomberg, LVA and Risk America, etc). This quote represents the price at which these instruments are regularly traded in the financial markets.

 

(iii) Valuation techniques.

 

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

 

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

 

163


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

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

 

(iv) Fair value adjustments.

 

Part of the fair value process considers three adjustments to the market value, calculated based on the market parameters, including; a liquidity adjustment, a Bid/Offer adjustment and an adjustment is made for credit risk of derivatives (CVA and DVA). Likewise, for certain fixed-income instruments maintained in investment portfolios, the portion of the adjustment at fair value explained by impairment due to credit risk of the counterparty is determined.

 

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

 

Liquidity value adjustments are made to trading instruments (including derivatives) only, while Bid / Offer adjustments are made for trading instruments and Financial instrument at fair value through Other Comprehensive Income. Adjustments for CVA / DVA are carried out only for derivatives. For its part, credit risk impairment is computed for fixed income instruments measured at fair value through other comprehensive income (FVTOCI) and fixed income instruments measured at amortized cost (held to maturity).

 

(v) Fair value control.

 

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

 

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

 

164


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

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

 

(vi) Judgmental analysis and information to Management.

 

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

 

(a) Hierarchy of instrument valued at Fair value:

 

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

 

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

 

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

 

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

 

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

 

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

 

165


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

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

 

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

 

a) Quoted prices for similar assets or liabilities in active markets.

 

b) Quoted prices for identical or similar assets or liabilities in markets that are not active.

 

c) Inputs data other than quoted prices that are observable for the asset or liability.

 

d) Inputs data corroborated by the market.

 

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

 

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

 

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

 

In the event that there is no observable price for an instrument in a specific term, the price will be inferred from the interpolation between periods that have observable quoted price in active markets. These models incorporate various market variables, including the credit quality of counterparties, exchange rates and interest rate curves.

 

166


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

  

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

 

Valuation Techniques and Inputs for Level 2 Instrument:

 

Type of Financial Instrument

  Valuation Method   Description: Inputs and Sources

Local Bank and

Corporate Bonds

  Discounted cash flows model  

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

 

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

 

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

         

Offshore Bank and

Corporate Bonds

     

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

 

Model is based on daily prices.

         

Local Central Bank

and Treasury Bonds

     

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

 

Model is based on daily prices.

         

Mortgage

Notes

     

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

 

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

 

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

         

Time

Deposits

     

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

 

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

         

Cross Currency Swaps,

Interest Rate Swaps,

FX Forwards, Inflation

Forwards

     

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

 

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

 

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

         
FX Options   Black-Scholes Model   Prices for volatility surface estimates are obtained from market brokers that are widely used in the Chilean market.

 

167


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

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

 

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

 

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

 

Valuation Techniques and Inputs for Level 3 Instrument:

 

Type of Financial Instrument   Valuation Method   Description: Inputs and Sources
Local Bank and Corporate Bonds   Discounted cash  flows model   Since inputs for these types of securities are not observable by the market, we model interest rate of returns for them based on a Base Yield (Central Bank Bonds) and issuer spread. These inputs (base yield and issuer spread) are provided on a daily basis by third party price providers that are widely used in the Chilean market.
         
Offshore Bank and Corporate Bonds   Discounted cash  flows model   Since inputs for these types of securities are not observable by the market, we model interest rate of returns for them based on a Base Yield (US-Libor) and issuer spread. These inputs (base yield and issuer spread) are provided on a weekly basis by third party price providers that are widely used in the Chilean market.

 

168


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

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

 

(b) Level chart:

 

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

 

    Level 1     Level 2     Level 3     Total  
    June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Financial Assets                                                
Financial Assets held for trading at fair value through profit or loss                                                
Derivative contracts financial:                                                
Forwards                 366,463       565,373                   366,463       565,373  
Swaps                 1,983,127       2,389,577                   1,983,127       2,389,577  
Call Options                 1,909       2,321                   1,909       2,321  
Put Options                 3,755       2,758                   3,755       2,758  
Futures                                                
Subtotal                 2,355,254       2,960,029                   2,355,254       2,960,029  
Debt Financial Instruments:                                                                
From the Chilean Government and Central Bank     260,731       28,128       2,466,487       3,031,164                   2,727,218       3,059,292  
Other debt financial instruments issued in Chile                 198,827       273,934       61,994       100,519       260,821       374,453  
Financial debt instruments issued Abroad                                                
Subtotal     260,731       28,128       2,665,314       3,305,098       61,994       100,519       2,988,039       3,433,745  
                                                                 
Others     371,559       257,325                               371,559       257,325  
                                                                 
Financial Assets at fair value through Other Comprehensive Income                                                                
Debt Financial Instruments: (1)                                                                
From the Chilean Government and Central Bank     560,493       552,763       2,053,941       1,706,094                   2,614,434       2,258,857  
Other debt financial instruments issued in Chile                 1,435,491       1,499,625       96,912       41,283       1,532,403       1,540,908  
Financial debt instruments issued Abroad                 118,133       167,627                   118,133       167,627  
Subtotal     560,493       552,763       3,607,565       3,373,346       96,912       41,283       4,264,970       3,967,392  
                                                                 
Derivative contracts financial for hedging purposes                                                                
Forwards                                                
Swaps                 4,362       27,077                   4,362       27,077  
Call Options                                                
Put Options                                                
Futures                                                
Subtotal                 4,362       27,077                   4,362       27,077  
Total     1,192,783       838,216       8,632,495       9,665,550       158,906       141,802       9,984,184       10,645,568  
                                                                 
Financial Liabilities                                                                
Financial liabilities held for trading at fair value through profit or loss                                                                
Derivative contracts financial:                                                                
Forwards                 366,927       535,643                   366,927       535,643  
Swaps                 2,080,292       2,560,285                   2,080,292       2,560,285  
Call Options                 848       1,665                   848       1,665  
Put Options                 3,743       3,889                   3,743       3,889  
Futures                                                
Subtotal                 2,451,810       3,101,482                   2,451,810       3,101,482  
                                                                 
Others                 1,258       6,271                   1,258       6,271  
                                                                 
Derivative contracts financial for hedging purposes                                                                
Forwards                                                
Swaps                 317,618       223,016                   317,618       223,016  
Call Options                                                
Put Options                                                
Futures                                                
Subtotal                 317,618       223,016                   317,618       223,016  
Total                 2,770,686       3,330,769                   2,770,686       3,330,769  

 

(1) As of June 30, 2023, 100% of instruments of Level 3 have denomination “Investment Grade”. Also, 100% of total of these financial instruments correspond to domestic issuers.

 

169


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

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

 

(c) Level 3 reconciliation:

 

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

 

    June 2023  
    Balance as of
January 1,
2023
    Gain (Loss)
Recognized
in Income (1)
    Gain (Loss)
Recognized
in Equity (2)
    Purchases     Sales     Transfer from
Level 1 and 2
    Transfer to
Level 1 and 2
    Balance as of
June 30,
2023
 
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Financial Assets held for trading at fair value through profit or loss                                                
Debt Financial Instruments:                                                
Other debt financial instruments issued in Chile     100,519       1,386               —       18,016       (57,927 )             —            —       61,994  
Subtotal     100,519       1,386             18,016       (57,927 )                 61,994  
                                                                 
Financial Assets at fair value through Other Comprehensive Income                                                                
Debt Financial Instruments:                                                                
Other debt financial instruments issued in Chile     41,283       1,837       (750 )     63,930       (1,695 )           (7,693 )     96,912  
Subtotal     41,283       1,837       (750 )     63,930       (1,695 )           (7,693 )     96,912  
Total     141,802       3,223       (750 )     81,946       (59,622 )           (7,693 )     158,906  

 

    December 2022  
    Balance as of
January 1,
2022
    Gain (Loss)
Recognized
in Income (1)
    Gain (Loss)
Recognized
in Equity (2)
    Purchases     Sales     Transfer from
Level 1 and 2
    Transfer to
Level 1 and 2
    Balance as of
December 31,
2022
 
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Financial Assets held for trading at fair value through profit or loss                                                
Debt Financial Instruments:                                                
Other debt financial instruments issued in Chile     51,484       902             111,960       (63,827 )                 100,519  
Subtotal     51,484       902             111,960       (63,827 )                 100,519  
                                                                 
Financial Assets at fair value through Other Comprehensive Income                                                                
Debt Financial Instruments:                                                                
Other debt financial instruments issued in Chile     25,203       (1,477 )     4,921       25,044       (12,408 )                 41,283  
Subtotal     25,203       (1,477 )     4,921       25,044       (12,408 )                 41,283  
Total     76,687       (575 )     4,921       137,004       (76,235 )                 141,802  

 

(1) Recorded in income under item “Net Financial income (expense)”.
   
(2) Recorded in equity under item “Accumulated other comprehensive income”.

 

170


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

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

 

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

 

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

 

    As of June 30, 2023     As of December 31, 2022  
    Level 3     Sensitivity to
changes in key
assumptions of
models
    Level 3     Sensitivity to
changes in key
assumptions of
models
 
    MCh$     MCh$     MCh$     MCh$  
                         
Financial Assets held for trading at fair value through profit or loss                        
Debt Financial Instruments:                        
Other debt financial instruments issued in Chile     61,994       (922 )     100,519       (997 )
Subtotal     61,994       (922 )     100,519       (997 )
                                 
Financial Assets at fair value through Other Comprehensive Income                                
Debt Financial Instruments:                                
Other debt financial instruments issued in Chile     96,912       (2,451 )     41,283       (1,263 )
Subtotal     96,912       (2,451 )     41,283       (1,263 )
Total     158,906       (3,373 )     141,802       (2,260 )

 

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

 

171


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

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

 

(e) Other assets and liabilities:

 

The following table summarizes the fair values of the Bank’s main financial assets and liabilities that are not recorded at fair value in the Statement of Financial Position. The values shown in this note are not attempt to estimate the value of the Bank’s income-generating assets, nor forecast their future behavior. The estimated fair value is as follows:

 

    Book Value     Estimated Fair Value  
    June     December     June     December  
    2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$  
                         
Assets                        
Cash and due from banks     2,282,719       2,764,884       2,282,719       2,764,884  
Transactions in the course of collection     393,302       772,196       393,302       772,196  
Subtotal     2,676,021       3,537,080       2,676,021       3,537,080  
Financial assets at amortized cost:                                
Rights by resale agreements and securities lending     38,863       54,061       38,863       54,061  
Debt financial instruments     915,407       902,355       844,951       836,527  
Loans and advances to Banks:                                
Domestic banks                        
Central Bank of Chile     2,500,764       1,801,100       2,500,764       1,801,100  
Foreign banks     281,898       373,015       284,243       369,526  
Subtotal     3,736,932       3,130,531       3,668,821       3,061,214  
Loans to customers, net:                                
Commercial loans     19,045,718       19,871,510       18,565,841       19,161,774  
Residential mortgage loans     11,812,743       11,386,851       11,435,487       11,138,046  
Consumer loans     4,803,667       4,658,051       4,860,697       4,608,041  
Subtotal     35,662,128       35,916,412       34,862,025       34,907,861  
Total     42,075,081       42,584,023       41,206,867       41,506,155  
                                 
Liabilities                                
Transactions in the course of payment     311,021       681,792       311,021       681,792  
Financial liabilities at amortized cost:                                
Current accounts and other demand deposits     12,766,792       13,383,232       12,766,792       13,383,232  
Saving accounts and time deposits     15,135,499       14,157,141       15,129,604       14,140,995  
Obligations by repurchase agreements and securities lending     166,485       216,264       166,485       216,264  
Borrowings from financial institutions     4,988,749       5,397,676       4,574,167       4,844,427  
Debt financial instruments issued:                                
Letters of credit for residential purposes     1,773       2,328       1,845       2,466  
Letters of credit for general purposes     28       49       29       52  
Bonds     9,525,040       9,265,570       9,215,696       9,030,443  
Other financial obligations     240,841       344,030       260,612       363,809  
Subtotal     42,825,207       42,766,290       42,115,230       41,981,688  
Financial instruments of regulatory capital issued:                                
Subordinate bonds     1,027,676       1,010,905       991,708       1,002,250  
Total     44,163,904       44,458,987       43,417,959       43,665,730  

 

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

172


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

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

 

(f) Levels of other assets and liabilities:

 

The following table shows the estimated fair value of financial assets and liabilities not valued at their fair value, as of June 30, 2023 and December 31, 2022:

 

   

Level 1

Estimated Fair Value

   

Level 2

Estimated Fair Value

   

Level 3

Estimated Fair Value

   

Total

Estimated Fair Value

 
    June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                 
Assets                                                
Cash and due from banks     2,282,719       2,764,884                               2,282,719       2,764,884  
Transactions in the course of collection     393,302       772,196                               393,302       772,196  
Subtotal     2,676,021       3,537,080                               2,676,021       3,537,080  
Financial assets at amortized cost:                                                                
Rights by resale agreements and securities lending     38,863       54,061                               38,863       54,061  
Debt financial instruments     844,951       836,527                               844,951       836,527  
Loans and advances to Banks:                                                                
Domestic banks                                                
Central Bank of Chile     2,500,764       1,801,100                               2,500,764       1,801,100  
Foreign banks                             284,243       369,526       284,243       369,526  
Subtotal     3,384,578       2,691,688                   284,243       369,526       3,668,821       3,061,214  
Loans to customers, net:                                                                
Commercial loans                             18,565,841       19,161,774       18,565,841       19,161,774  
Residential mortgage loans                             11,435,487       11,138,046       11,435,487       11,138,046  
Consumer loans                             4,860,697       4,608,041       4,860,697       4,608,041  
Subtotal                             34,862,025       34,907,861       34,862,025       34,907,861  
Total     6,060,599       6,228,768                   35,146,268       35,277,387       41,206,867       41,506,155  
                                                                 
Liabilities                                                                
Transactions in the course of payment     311,021       681,792                               311,021       681,792  
Financial liabilities at amortized cost:                                                                
Current accounts and other demand deposits     12,766,792       13,383,232                               12,766,792       13,383,232  
Saving accounts and time deposits                             15,129,604       14,140,995       15,129,604       14,140,995  
Obligations by repurchase agreements and securities lending     166,485       216,264                               166,485       216,264  
Borrowings from financial institutions                             4,574,167       4,844,427       4,574,167       4,844,427  
Debt financial instruments issued:                                                                
Letters of credit for residential purposes                 1,845       2,466                   1,845       2,466  
Letters of credit for general purposes                 29       52                   29       52  
Bonds                 9,215,696       9,030,443                   9,215,696       9,030,443  
Other financial obligations                             260,612       363,809       260,612       363,809  
Subtotal     12,933,277       13,599,496       9,217,570       9,032,961       19,964,383       19,349,231       42,115,230       41,981,688  
Financial instruments of regulatory capital issued:                                                                
Subordinate bonds                             991,708       1,002,250       991,708       1,002,250  
Total     13,244,298       14,281,288       9,217,570       9,032,961       20,956,091       20,351,481       43,417,959       43,665,730  

 

173


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

Debt financial instruments at amortized cost: The fair value is calculated with the methodology of the Stock Exchange, using the IRR observed in the market. Because the instruments that are in this category correspond to Treasury Bonds that are Benchmark, they are classified in Level 1.

 

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

 

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

 

174


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

45. Maturity according to their remaining Terms of Financial Assets and Liabilities:

 

The table below details the main financial assets and liabilities grouped in accordance with their remaining maturity, including capitals and accrued interest as of June 30, 2023 and December 31, 2022. As these are for trading and Financial instrument at fair value through other comprehensive income are included at their fair value:

 

    June 2023  
    Demand     Up to
1 month
    Over
1 month and
up to
3 months
    Over
3 month and
up to
12 months
    Subtotal
up to
1 year
    Over
1 year and
up to
3 years
    Over
3 year and
up to
5 years
   

Over

5 years

    Subtotal over
1 year
    Total  
  MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Assets                                                            
Cash and due from banks     2,282,719                         2,282,719                               2,282,719  
Transactions in the course of collection           393,302                   393,302                               393,302  
Financial assets held for trading at fair value through profit or loss                                                                                
Derivative contracts financial           150,449       186,261       357,257       693,967       620,761       346,702       693,824       1,661,287       2,355,254  
Debt financial instruments           2,988,039                   2,988,039                               2,988,039  
Others           371,559                   371,559                               371,559  
Financial assets at fair value through other comprehensive income           303,290       1,344,370       1,418,200       3,065,860       441,503       14,638       742,969       1,199,110       4,264,970  
Derivative contracts financial for hedging purposes                       223       223             1,039       3,100       4,139       4,362  
Financial assets at amortized cost                                                                                
Rights by resale agreements and securities lending           21,085       14,442       3,336       38,863                               38,863  
Debt financial instruments                                   472,144             443,263       915,407       915,407  
Loans and advances to Banks (*)           2,591,940       9,109       170,038       2,771,087       12,088                   12,088       2,783,175  
Loans to customers, net (*)           5,232,040       2,805,055       6,330,559       14,367,654       7,361,349       3,662,773       11,049,479       22,073,601       36,441,255  
Total fnancial assets     2,282,719       12,051,704       4,359,237       8,279,613       26,973,273       8,907,845       4,025,152       12,932,635       25,865,632       52,838,905  

 

175


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

45. Maturity according to their remaining Terms of Financial Assets and Liabilities, continued:

 

    June 2023  
    Demand     Up to
1 month
    Over
1 month and
up to
3 months
    Over
3 month and
up to
12 months
    Subtotal up to
1 year
    Over
1 year and
up to
3 years
    Over
3 year and
up to
5 years
   

Over

5 years

    Subtotal over
1 year
    Total  
Liabilities   MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Transactions in the course of payment           311,021                   311,021                               311,021  
Financial liabilities held for trading at fair value through profit or loss                                                                                
Derivative contracts financial           112,633       160,537       300,063       573,233       586,797       410,136       881,644       1,878,577       2,451,810  
Others           917       2       339       1,258                               1,258  
Derivative contracts financial for hedging purposes                       7,404       7,404       33,611       24,330       252,273       310,214       317,618  
Financial liabilities at amortized cost                                                                                
Current accounts and other demand deposits     12,766,792                         12,766,792                               12,766,792  
Saving accounts and time deposits (**)           10,121,291       3,419,806       1,130,799       14,671,896       81,487       5,320       572       87,379       14,759,275  
Obligations by repurchase agreements and securities lending           166,194       291             166,485                               166,485  
Borrowings from financial institutions           229,478       26,611       3,494,843       3,750,932       1,237,817                   1,237,817       4,988,749  
Debt financial instruments issued                                                                                
Letters of credit           186       367       426       979       409       70       343       822       1,801  
Bonds           155,098       339,137       922,200       1,416,435       2,114,241       1,967,443       4,026,921       8,108,605       9,525,040  
Other financial obligations           240,797       9       23       240,829       12                   12       240,841  
Lease liabilities           2,155       4,063       15,824       22,042       26,761       19,313       19,410       65,484       87,526  
Financial instruments of regulatory capital issued           1,324             113,915       115,239       21,262       9,709       881,466       912,437       1,027,676  
Total fnancial liabilities     12,766,792       11,341,094       3,950,823       5,985,836       34,044,545       4,102,397       2,436,321       6,062,629       12,601,347       46,645,892  
Mismatch     (10,484,073 )     710,610       408,414       2,293,777       (7,071,272 )     4,805,448       1,588,831       6,870,006       13,264,285       6,193,013  

 

(*) These balances are presented without deduction of their respective provisions, which amount to Ch$779,127 million for loans to customers and Ch$513 million for borrowings from financial institutions.
   
(**) Excludes term saving accounts, which amount to Ch$376,224 million.

 

176


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

45. Maturity according to their remaining Terms of Financial Assets and Liabilities, continued:

 

    December 2022  
    Demand     Up to
1 month
    Over
1 month and
up to
3 months
    Over
3 month and
up to
12 months
    Subtotal up to
1 year
    Over
1 year and
up to
3 years
    Over 3 year and
up to
5 years
   

Over

5 years

    Subtotal over
1 year
    Total  
Assets   MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Cash and due from banks     2,764,884                         2,764,884                               2,764,884  
Transactions in the course of collection           772,196                   772,196                               772,196  
Financial assets held for trading at fair value through profit or loss                                                                                
Derivative contracts financial           174,943       243,091       637,830       1,055,864       701,848       415,817       786,500       1,904,165       2,960,029  
Debt financial instruments           3,433,745                   3,433,745                               3,433,745  
Others           257,325                   257,325                               257,325  
Financial assets at fair value through other comprehensive income           71,345       231,925       2,143,838       2,447,108       718,241       80,008       722,035       1,520,284       3,967,392  
Derivative contracts financial for hedging purposes                       15,863       15,863       443       8,052       2,719       11,214       27,077  
Financial assets at amortized cost                                                                                
Rights by resale agreements and securities lending           35,549       14,324       4,188       54,061                               54,061  
Debt financial instruments                                   16,280       445,624       440,451       902,355       902,355  
Loans and advances to Banks (*)           1,904,367       63,396       207,029       2,174,792                               2,174,792  
Loans to customers, net (*)           4,940,664       2,937,024       6,830,834       14,708,522       7,403,768       3,752,730       10,829,784       21,986,282       36,694,804  
Total fnancial assets     2,764,884       11,590,134       3,489,760       9,839,582       27,684,360       8,840,580       4,702,231       12,781,489       26,324,300       54,008,660  

 

177


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

45. Maturity according to their remaining Terms of Financial Assets and Liabilities, continued:

 

    December 2022  
    Demand     Up to
1 month
    Over
1 month and
up to
3 months
    Over 3 month and
up to
12 months
    Subtotal up to
1 year
    Over 1 year and
up to
3 years
    Over 3 year and
up to
5 years
   

Over

5 years

    Subtotal over
1 year
    Total  
Liabilities   MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Transactions in the course of payment           681,792                   681,792                               681,792  
Financial liabilities held for trading at fair value through profit or loss                                                                                
Derivative contracts financial           167,937       222,880       588,342       979,159       692,759       465,828       963,736       2,122,323       3,101,482  
Others           4,355       1,916             6,271                               6,271  
Derivative contracts financial for hedging purposes                       1,462       1,462       20,240       15,639       185,675       221,554       223,016  
Financial liabilities at amortized cost                                                                                
Current accounts and other demand deposits     13,383,232                         13,383,232                               13,383,232  
Saving accounts and time deposits (**)           9,342,195       2,962,617       1,324,088       13,628,900       113,901       5,940       655       120,496       13,749,396  
Obligations by repurchase agreements and securities lending           216,212       52             216,264                               216,264  
Borrowings from financial institutions           289,675       84,391       675,089       1,049,155       4,348,521                   4,348,521       5,397,676  
Debt financial instruments issued                                                                          
Letters of credit           338       364       528       1,230       744       39       364       1,147       2,377  
Bonds           38,469       173,248       1,248,410       1,460,127       1,895,121       2,282,248       3,628,074       7,805,443       9,265,570  
Other financial obligations           343,943       11       54       344,008       22                   22       344,030  
Lease liabilities           2,618       7,644       17,353       27,615       27,634       15,009       19,111       61,754       89,369  
Financial instruments of regulatory capital issued           1,153             117,262       118,415       20,157       12,345       859,988       892,490       1,010,905  
Total fnancial liabilities     13,383,232       11,088,687       3,453,123       3,972,588       31,897,630       7,119,099       2,797,048       5,657,603       15,573,750       47,471,380  
                                                                                 
Mismatch     (10,618,348 )     501,447       36,637       5,866,994       (4,213,270 )     1,721,481       1,905,183       7,123,886       10,750,550       6,537,280  

 

(*) These balances are presented without deduction of their respective provisions, which amount to Ch$778,392 million for loans to customers and Ch$677 million for borrowings from financial institutions.
   
(**) Excludes term saving accounts, which amount to Ch$407,745 million.

 

178


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

46. Financial and Non-Financial Assets and Liabilities by Currency:

 

As of June 30, 2023   CLP     CLF     FX Indexation     USD     COP     GBP     EUR     CHF     JPY     CNY     Others     TOTAL  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Assets                                                                        
Financial assets     26,304,337       20,247,521       123,466       5,107,891             18,141       203,126       5,585       14,698       19,400       15,100       52,059,265  
Non-Financial assets     1,824,083       22,258       10,332       357,839             1       766       4                   1       2,215,284  
Total Assets     28,128,420       20,269,779       133,798       5,465,730             18,142       203,892       5,589       14,698       19,400       15,101       54,274,549  
                                                                                                 
Liabilities                                                                                                
Financial liabilities     29,601,520       10,813,775       313       5,134,837             4,757       235,703       354,762       202,552       6,959       666,938       47,022,116  
Non-Financial liabilities     1,737,985       341,987       462       297,645             38       2,171       22       21       58       56       2,380,445  
Total Liabilities     31,339,505       11,155,762       775       5,432,482             4,795       237,874       354,784       202,573       7,017       666,994       49,402,561  
                                                                                                 
Mismatch of Financial Assets and Liabilities (*)     (3,297,183 )     9,433,746       123,153       (26,946 )           13,384       (32,577 )     (349,177 )     (187,854 )     12,441       (651,838 )     5,037,149  

 

(*) This value does not consider non-financial assets and liabilities and the notional values of derivative instruments, which are disclosed at fair value.

 

As of December 31, 2022   CLP     CLF     FX Indexation     USD     COP     GBP     EUR     CHF     JPY     CNY     Others     TOTAL  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Assets                                                                        
Financial assets     27,002,192       19,662,498       118,265       6,164,921             40,693       191,526       2,646       13,243       14,491       19,116       53,229,591  
Non-Financial assets     1,676,512       25,186       4,625       318,509             23       911                         5       2,025,771  
Total Assets     28,678,704       19,687,684       122,890       6,483,430             40,716       192,437       2,646       13,243       14,491       19,121       55,255,362  
                                                                                                 
Liabilities                                                                                                
Financial liabilities     29,120,086       10,560,342       233       6,624,182             23,466       237,470       364,359       194,286       3,485       751,216       47,879,125  
Non-Financial liabilities     1,981,737       209,270       355       323,996             28       2,106       56       37       117       208       2,517,910  
Total Liabilities     31,101,823       10,769,612       588       6,948,178             23,494       239,576       364,415       194,323       3,602       751,424       50,397,035  
                                                                                                 
Mismatch of Financial Assets and Liabilities (*)     (2,117,894 )     9,102,156       118,032       (459,261 )           17,227       (45,944 )     (361,713 )     (181,043 )     11,006       (732,100 )     5,350,466  

 

(*) This value does not consider non-financial assets and liabilities and the notional values of derivative instruments, which are disclosed at fair value.

 

179


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report:

 

(1) Introduction:

 

Banco de Chile seeks to maintain a risk profile that ensures the sustainable growth that is aligned with its strategic objectives, maximizing value creation and guarantee its long-term solvency.

 

Our risk management policies are established in order to identify and analyze the risks faced by the Bank, set appropriate risk limits, alerts and controls, monitor risks and compliance with limits and alerts in order to carry out the necessary action plans. Through its administration policies and procedures, the Bank develops a disciplined and constructive control environment. Policies as well as risk management standards, procedures and systems are regularly reviewed.

 

For this, the Bank has teams with extensive experience and knowledge in each area associated with risks, ensuring comprehensive and consolidated management of the same, including the Bank and its subsidiaries.

 

(a) Risk Management Structure

 

Credit, Market and Operational Risk Management are at the all levels of the Organization, with a Corporate Governance structure that recognizes the relevance of the different risk areas that exist.

 

The Board of Directors of Banco de Chile is responsible for establishing the policies, the risk appetite framework, the guidelines for the development, validation and monitoring of models. Likewise, it approves the provision models, the Additional Provisions Policy and pronounces annually on the sufficient provisions. Also, it ratifies the strategies, policies, functional structure and comprehensive management model of Operational Risk and is in charge of guaranteeing the consistency of this model with the Bank’s strategy, ensuring proper implementation of the model in the organization. Along with this, it establishes the Subsidiary Risk Control Policy, describing the supervision scheme that the Bank applies to the relevant subsidiaries to control the risks that affect them. For its part, the Administration is responsible both for the establishment of standards and associated procedures as well as for the control and compliance with the disposed by the Board of Directors, ensuring that there is consistency between the criteria applied by the Bank and its subsidiaries, maintaining strict coordination at the corporate level and informing the Board of Directors in the defined instances.

 

The Bank’s Corporate Governance considers the active participation of the Board, acting directly or through different committees made up of Directors and Senior Management. It is permanently informed of the evolution of the different risk areas, participating through its Finance, International and Financial Risk, Credit, Portfolio Risk Committee and Higher Operational Risk Committee, in which the status of credit, market and operational risks are reviewed. These committees are described in the next paragraphs.

 

Risk Management is developed jointly by the Wholesale Credit Risk Division, the Retail Credit Risk and Global Risk Control Division and the Cybersecurity Division, which constitute the corporate risk governance structure, which by having highly experienced and specialized teams, together with a robust regulatory framework, allow optimal and effective management of the matters they address.

 

180


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(1) Introduction, continued:

 

(a) Risk Management Structure, continued:

 

The Wholesale Credit Risk Division and the Retail Credit Risk and Global Risk Control Division are responsible for credit risk in the admission, monitoring and recovery phases for the different business segments. Additionally, the Wholesale Credit Risk Division has under its supervision the Market Risk Management that performs the function of measuring, limiting, controlling and reporting said risk together with the definition of valuation and management standards for the Bank’s assets and liabilities.

 

In turn, in the Retail Credit Risk and Global Risk Control Division, the Admissions Area, among its functions, develops the regulatory framework in matters of credit risk, and the Risk Models Area, which develops the different methodologies related to credit risk. Likewise, in this Division, model monitoring, validation and model risk management are carried out by the respective Areas that deal with these matters, ensuring the independence of the function.

 

This Division also has the Operational Risk and Business Continuity Management, in charge of managing and supervising the application of the policies, rules and procedures in each of these areas within the Bank and Subsidiaries. For purposes, the Operational Risk Management is in charge of guaranteeing the identification and efficient management of operational risks and promoting a culture in terms of risks to prevent financial losses and improve the quality of the processes, as well as proposing continuous improvements to risk management, aligned with business objectives. In addition to the above, the Business Continuity Management aims to manage the strategy and control of business continuity in the operational and technological field for the Bank, maintaining alternative operation plans and controlled tests to reduce the impact of disruptive events that may affect the organization. Both in Operational Risk and in Business Continuity, its methodologies, controls and scope are applied at the Banco de Chile level and are replicated in the subsidiaries, guaranteeing their homologation to the Bank’s global management model.

 

For its part, the Cybersecurity Division is responsible for defining, implementing and reporting the progress of the Strategic Cybersecurity Plan in line with the Bank’s business strategy, one of its main focuses being to protect internal information, that of its customers and collaborators.

 

This Division is comprises by the Cybersecurity Engineering Management, the Cyber Defense Management, the Strategic Management Deputy Management and the Advanced Cyber Intelligence and Analytics Unit. The Technological Risk Management and the Cybersecurity Assurance Deputy Management also constitute it, as control units. Numeral 5 of this Note describes the responsibilities of the indicated Unit, Managers and Deputy Managers.

 

181


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(1) Introduction, continued:

 

(a) Risk Management Structure, continued:

 

(i) Finance, International and Financial Risk Committee

 

This committee functions are to design policies and procedures related to price and liquidity risk; design a structure of limits and alerts of financial exposures, review the proposal to the Board of Directors of the Risk Appetite Framework, and ensure a correct and timely measurement, control and reporting thereof; track exposures and financial risks; analyze impacts on the valuation of operations and / or results due to potential adverse movements in the values of market variables or liquidity narrowness; review the stress test assumptions and establish action plans where appropriate; ensure the existence of independent units that value financial positions, and analyze the results of financial positions; review and approve the Comprehensive Risk Measurement in the area of market and liquidity risk; track the international financial exposure of liabilities; review the main credit exposures of Treasury products (derivatives, bonds); ensure that the management guidelines for price and liquidity risks in subsidiaries are consistent with those of the Bank, and be aware of the evolution of their main financial risks.

 

The Finance, International and Financial Risk Committee, session monthly and is comprises by the Chairman of the Board, three Directors or Advisors to the Board, General Manager, Financial Management Control and Productivity Division Manager, Wholesale Credit Risk Division Manager, Treasury Division Manager and Market Risk Area Deputy Manager. If deemed appropriate, the Committee may invite certain persons to participate, on a permanent or occasional basis, in one or more sessions.

 

(ii) Credit Committees

 

The credit approval process is done mainly through various credit committees, which are composed of qualified professionals and with the sufficient attributions to take decisions required.

 

Each committee is responsible for defining the terms and conditions under which the Bank accepts counterparty risks and the Wholesale Credit Risk and Retail Credit Risk Divisions and Global Risk Control participate independently and autonomously of the commercial areas. They are constituted according to the commercial segments and the amounts to approve and have different meeting periodicities.

 

Within the risk management structure of the Bank, the maximum approval instance is the Credit Committee of Directors. Sessions weekly and is comprises by the Chairman of the Board, regular and alternate directors, General Manager and the Wholesale Credit Risk Division Manager. This Committee is responsible for knowing, analyzing and resolving all credit operations associated with clients and / or economic groups whose total amount subject for approval is equal to or greater than UF 750,000. It also has to know, analyze and resolve all those credit operations that, in accordance with the established in the Bank’s internal rules, must be approved by this Committee, with the exception of the special powers delegated by the Board to the Administration.

 

182


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(1) Introduction, continued:

 

(a) Risk Management Structure, continued:

 

(iii) Portfolio Risk Committee

 

The main function is to know the evolution of the composition, concentration and risk of the loan portfolio of the different banks and segments, covering the complete cycle of credit risk management with the processes of admission, monitoring and recovery of the credits granted. Review the main debtors and the different risk indicators of the portfolio, proposing differentiated management strategies. Approves and proposes to the Board the different credit risk policies. It is responsible for reviewing, approving and recommending to the Board of Directors, for its final approval, the different portfolio evaluation methodologies, provision models and methodologies associated with capital management. It is also responsible for reviewing and analyzing the adequacy of provisions for the different banks and segments. Also to review the guidelines and methodological advances for the development of internal models of credit risk, together with monitoring the concentration by sectors and segments according to the sectoral limits policy. Reviews and approves both the Comprehensive Risk Measurement (CRM) and the Credit Risk Appetite Framework (RAF) in the area of credit risk, ensuring their due approval by the Board of Directors. Defines the metrics that are part of the Risk Appetite Framework and their acceptable levels. Verifies the consistency of the credit risk policies of the subsidiaries in relation to those of the Bank, controls them globally and becomes aware of the credit risk management carried out by the subsidiaries. In general, know and analyze any relevant aspect in matters of Credit Risk in the portfolio of Banco de Chile.

 

The Portfolio Risk Committee meets monthly and is comprises by the Chairman of the Board, three regular and alternate Directors, General Manager, Wholesale Credit Risk Division Manager, Retail Credit Risk Division Manager and Global Risk Control, Commercial Division Manager, Risk Management and Information Control Manager.

 

(iv) Technical Committee for the Supervision of Internal Models

 

The main function of the Committee is to provide a framework of methodological guidelines for the Development, Follow-up and Documentation of the mathematical models that are used in the massive segments for credit risk management, such as Management Models (Admission, Follow-up, Collection and Rating, among others) and the regulatory models (Stress Testing, Capital and Provisions, specific for credit risk or additional, under local or international regulations), among others. The Committee may exceptionally evaluate alternative methodologies, other than those related to credit risk, at the request of its Chairman.

 

The Committee has the functions of defining the main criteria and guidelines to be used for the construction of new models; Review and approve methodologies associated with non-regulatory models (eg admission, collection), which must be submitted for the consideration of the Portfolio Risk Committee, so that it can rule on their ratification; In the case of regulatory models, the Technical Committee is limited to their review, leaving approval in the hands of the Portfolio Risk Committee and the Board of Directors. Establish minimum standards to monitor the quality of internal models. Establish the minimum standards to document the different areas related to the development, construction, monitoring, and operation of the models.

 

183


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(1) Introduction, continued:

 

(a) Risk Management Structure, continued:

 

(iv) Technical Committee for the Supervision of Internal Models, continued:

 

In terms of its composition, it is comprises by the manager of the Retail Credit Risk and Global Risk Control Division, the managers of the Risk Monitoring, Studies and Management, People Business Development, Risk Models Areas, Retail Monitoring and Models, and the Deputy Managers of Big Data and Regulatory Systems, of Models Validation, of Pre-approved Admission, of Regulatory Models, Management Models and Provisions and a Head of People Risk Department who acts as secretary. The Committee meets monthly.

 

(v) Model Risk Management Committee

 

The main function of the Committee is to establish and supervise a model risk management framework at the institutional level of the models and methodologies found in the Bank’s institutional inventory.

 

The Committee has the functions of reviewing and discussing the identification and evaluation of model risks, focused on recognizing and understanding: the risks that may arise from new or evolving initiatives; risks of existing models; and risks of emerging models. Provide guidance based on aggregate model risk results and appreciation of model limitations, through periodic review of model risk reports and dashboards. Ensure that the inventory of institutional models is kept up to date, in accordance with the procedures available in the model risk management framework. Become aware of the status of the observations to the models and the fulfillment of the action plans at the aggregate level. Analyze, review and propose modifications to model risk management documents. Submit the Model Risk Management policy for review and ratification by the Board of Directors on an annual basis.

 

In terms of its composition, it is comprises by the manager of the Retail Credit Risk and Global Risk Control Division, Wholesale Credit Risk Division Manager, and the managers of Model Risk Areas and Internal Control, of Prevention of Asset Laundering, of Financial Control, Treasury and Capital, of Risk Models, of Retail and Regulatory Admission, of Operational Risk, of Retail and Model Monitoring, of Wholesale Monitoring and Risk Information, and by the Assistant Managers of Market Risk, Validation of Models, Model Risk Management that acts as secretary. The Committee meets quarterly.

 

(vi) Operational Risk Higher Committee

 

It is enforceable and is empowered to sanction the necessary changes in the processes, procedures, controls and computer systems that support the operation of the Bank, in order to mitigate its operational risks, ensuring that the different areas properly manage and control these risks. Additionally, it must be aware of the operational risk management carried out by the subsidiary companies and reported in their respective Operational Risk Committee, including the issues of Information Security and Business Continuity. Likewise, know the corrective measures adopted in the event of deviations or contingency scenarios that could affect the subsidiaries and/or the Bank in this type of risk.

 

184


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(1) Introduction, continued:

 

(a) Risk Management Structure, continued:

 

(vi) Operational Risk Higher Committee, continued:

 

The Operational Risk Higher Committee is comprises by the Chairman of the Board, three Directors, regular or alternate, appointed by the Bank’s Board of Directors, General Manager, Retail Credit Risk Divisions and Global Risk Control Manager, Operations and Technology Division Manager, Commercial Division Manager, Cybersecurity Division Manager, Marketing and Digital Banking Division Manager and Operational Risk Manager. The Committee meets monthly and can be summoned in an extraordinary manner.

 

(vii) Operational Risk Committee

 

It is empowered to trigger the necessary changes in the processes, procedures, controls and information systems that support the operation of Banco de Chile, in order to mitigate its operational risks, ensuring that the different areas properly manage and control these risks.

 

The Operational Risk Committee is comprises by the Retail Credit Risk Divisions and Global Risk Control Manager, Financial Management Control and Productivity Division Manager, Cybersecurity Division Manager, Operational Risk Manager, Technological Risk Manager, Business Continuity Manager, Operations Area Manager, Planning and PMO Manager, Customer Area Manager, Large Companies Group Manager, Customer Service Manager, Chief Attorney and Operational Risk Management Deputy Manager. The Committee session monthly and can be summoned extraordinarily.

 

(viii) Capital Management Committee

 

This committee meets quarterly and is comprised by two members of the Board of Directors; the General Manager; the Financial Management Control and Productivity Division Manager; the Wholesale Credit Risk Division Manager; the Retail Credit Risk and Global Risk Control Division Manager; and the Treasury and Capital Financial Control Area Manager. The Presidency of the Committee is in charge of a member of the board of Directors. In case of absence of the Chairman, he is subrogated by the other member of the board of Directors.

 

185


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(1) Introduction, continued:

 

(a) Risk Management Structure, continued:

 

(viii) Capital Management Committee, continued

 

The Capital Management Committee’s main function is to monitor and supervise the capital management of the Bank and its subsidiaries, and ensure its compliance in accordance with the Corporate Capital Management Policy and related regulations, being responsible for: (i) review and propose to the Board of Directors, for its approval, the Corporate Capital Management Policy, at least annually, (ii) review and approve the governance documentation associated with capital management, at least annually, (iii) ensure that the Bank has sufficient capital to meet both its current needs and those arising from stress scenarios, over a three-year horizon, (iv) review and approve, on an annual basis, the Capital Plan and propose Internal Capital Objectives, for their subsequent approval by the Board of Directors, (v) review and approve the Comprehensive Risk Measurement (CRM) and the Business and Capital Risk Appetite Framework (RAF), (vi) review and approve the results of the Stress Tests (previously approved by the specialized Committees), in their integrated version, for inclusion in the Capital Plan, as well as the Bank’s CRM and RAF, in their integrated versions, and propose adjustments to the Specialized Committees if deemed necessary, (vii) review and propose to the Board of Directors, for its approval, the Effective Equity Self-Assessment Report, (viii) periodically monitor the different metrics defined for the Bank’s capital management, as well as the variables that affect those parameters, (ix) keep the Board of Directors informed of compliance with the Capital Plan, the Bank’s Integrated RAF, including the Business and Capital RAF, as well as the evolution of the variables that affect capital management, (x) propose the activation and supervise the execution of the Contingency Plans associated with non-compliance with the RAF for Businesses and Capital, prior to their approval by the Board of Directors, as well as reviewing their updates annually, (xi) know and approve the methodologies and criteria used in regulatory and internal measurements related to capital management, and risk management with an impact on capital, associated with Pillars 1 and 2 of Basel, (xii) know and approve the information disclosed to the market within the framework of Pillar 3 of Basel, (xiii) review the results of the validation of the models associated with capital management and quarterly monitor the status of the observations generated from the validations, (xiv) be aware of the results of the internal control evaluation of the Capital Self-Assessment Process, prior to the issuance of the Total or Regulatory Capital Self-Assessment Report.

 

(b) Internal Audit

 

The risk management processes of the entire Bank are permanently audited by the Internal Audit Area, which examines the sufficiency of the procedures and their compliance. Internal Audit discusses the results of all evaluations with the administration and reports its findings and recommendations to the Board of Directors through the Audit Committee.

 

186


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(1) Introduction, continued:

 

(c) Measurement Methodology

 

Regarding to Credit Risk, provision levels and portfolio expenses are the basic measures for determining the credit quality of our portfolio.

 

Banco de Chile permanently evaluates its loan portfolio, timely recognizing the associated level of risk of the loan portfolio. For this, there are specific guidelines for the generation of management models (reactive and proactive admission models and collection models), provision models (both under local regulations in accordance with the instructions issued by the CMF, as well as under IFRS 9) and stress tests. These guidelines and the models developed are approved by the Board of Directors.

 

As a result of this evaluation, on both individual and group portfolios, the level of provisions that the bank should constitute is determined, in the event of customers payment default.

 

The individual evaluation mainly applies to the Bank’s portfolio of legal persons that, due to their size, complexity or indebtedness, requires a more detailed level of knowledge and a case-by-case analysis. Each debtor is assigned one of the 16 risk categories defined by the CMF, in order to establish the provisions in a timely and appropriate manner. The review of the portfolio risk classifications is carried out permanently considering the financial situation, payment behavior and the environment of each client.

 

The group evaluation mainly applies to the portfolio of natural persons and smaller companies. These assessments are carried out monthly through statistical models that allow estimating the level of provisions necessary to cover the portfolio risk; in the case of commercial and mortgage portfolios, these results are contrasted with the standard models provided by the regulator, with the resulting provision being the largest between both methods. The consistency analysis of the models is carried out through an independent validation of the unit that develops them and, subsequently, through the analysis of retrospective tests that allow to compare the real losses with the expected ones.

 

During this year, the Bank has maintained prudential adjustments to the provisioning models made in 2020, in particular to its Probability of Default (PD) parameters, following a conservative and prospective approach in this regard. Therefore, a permanent monitoring of the models is maintained, in accordance with the guidelines approved by the Board of Directors.

 

In order to validate the quality and robustness of the risk assessment processes, the Bank annually performs a test of the sufficiency of provisions for the total loan portfolio, thus verifying that the provisions established are sufficient to cover the losses that could derive from the credit operations granted. The result of this analysis is presented to the Board of Directors, who manifests itself on the sufficiency of the provisions in each fiscal year.

 

187


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(1) Introduction, continued:

 

(c) Measurement Methodology, continued:

 

Banco de Chile establishes additional provisions with the objective of protecting itself from the risk of unpredictable economic fluctuations that may affect the macroeconomic environment or the situation of a specific economic sector. At least once a year, the amount of additional provisions to be constituted or released is annually proposed to the Portfolio Risk Committee and subsequently to the Board of Directors for approval.

 

In this context, during the year 2022 the Bank constituted additional provisions taking into account various prospective analyzes, economic cycle expectations and local, among the main factors. In turn, during this year, the Bank has not constituted or released any additional provisions.

 

The monitoring and control of risks are carried out mainly based on limits established by the Board of Directors. These limits reflect the Bank’s business and market strategy, as well as the level of risk that it is willing to accept, with additional emphasis on the selected industries.

 

The Bank develops its capital planning process in an integrated manner with its strategic planning, in line with the risks inherent to its activity, the economic and competitive environment, its business strategy, corporate values, as well as its governance, management and risk control. As part of the capital planning process and, in line with what is required by the regulator, it has incorporated the new calculations of Risk-Weighted Assets and stress tests in the dimensions of credit, market and operational risk, as well as the Comprehensive Measurement of financial and non-financial risks.

 

The Bank annually reviews and updates its Risk Appetite Framework, approved by the Board of Directors, through which it is possible to identify, evaluate, measure, mitigate and control proactively and in advance all relevant risks that could materialize in the normal course of their business. To this end, the Bank uses different management tools and defines an adequate structure of alerts and limits, which are part of said Framework, which allow it to constantly monitor the performance of different indicators and implement timely corrective actions, in the event that are required. The result of these activities is part of the annual self-assessment report of effective equity approved by the Board of Directors and reported to the CMF.

 

188


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(2) Credit Risk:

 

Credit risk considers the likelihood that the counterparty in the credit operation will not be able to fulfill its contractual obligation due to incapacity or financial insolvency, and this leads to a potential credit loss.

 

The Bank seeks an adequate risk-return relation and an appropriate balance of the risks assumed, through a permanent credit risk management considering the processes of admission, monitoring and recovery of the loans granted. Likewise, it continuously manages risk knowledge, from a comprehensive approach, in order to contribute to the business and anticipate threats that could damage the solvency, quality of the portfolio, permeating a unique risk culture towards the Corporation, promoting the training and permanent formation of the Corporation’s personnel.

 

The foregoing has the permanent challenge of establishing the risk management framework for the different business segments served by the Bank, responding to regulatory requirements and commercial dynamism, being part of the digital transformation, and contributing from the perspective of risks to the various businesses addressed, through a vision of the portfolio that allows managing, resolving and controlling the business approval and monitoring process efficiently and proactively.

 

In the business segments, the application of additional management processes is taken into consideration, to the extent required, for those financing requests that that will have a greater exposure to environmental and/or social risks.

 

The Bank integrates the socio-environmental criteria in its evaluations for the granting of financing destined to the development of projects, whether national or regional and that can generate an impact of this type, where they are executed. For the financing of projects, they must have the corresponding permits, authorizations, patents and studies, according to the impact they generate. In addition, the Bank has specialized units for serving large clients, through which the financing of project development is concentrated, including those of Public Works concessions that contemplate the construction of infrastructure, mining, electrical, real estate developments that can generate an environmental impact.

 

Credit policies and processes materialize in the following management principles, which are addressed with a specialized approach according to the characteristics of the different markets and segments served, recognizing the singularities of each one of them:

 

1. Apply a rigorous evaluation in the admission process, based on established credit policies, standards and procedures, together with the availability of sufficient and accurate information. Thus, it corresponds to analyze the generation of flows and solvency of the client to meet their payment commitments and, when the characteristics of the operation merit it, must constitute adequate collateral that allow mitigating the risk incurred with the client.

 

2. Have permanent and robust portfolio tracking processes, through systems that alert both the potential signs of impairment of clients, with respect to the conditions of origin, and also the possible business opportunities with those that present a better payments quality and behavior.

 

189


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(2) Credit Risk, continued:

 

3. To develop credit risk modeling guidelines, in regulatory aspects and management, for efficient decision-making at different stages of the credit process.

 

4. Have a collection structure with timely, agile and effective processes that allow management to be carried out in accordance with the different types of clients and the types of breaches that arise, always in strict adherence to the regulatory framework and the Bank’s reputational definitions.

 

5. Maintain an efficient administration in work teams organization, tools and availability of information that allow an optimal credit risk management.

 

Based on these management principles, the credit risk divisions contribute to the business and anticipate threats that may affect the solvency and quality of the portfolio. In particular, during the last three years the solidity of these principles and the role of credit risk have made it possible to respond adequately to the challenges derived from the pandemic, providing timely responses to clients while maintaining the solid fundamentals that characterize the Bank’s portfolio in its different segments and products.

 

Within the framework of risk management, during 2023, a permanent and focused monitoring of the behavior of the portfolios has continued, including the evolution of the credits associated with the FOGAPE Covid, FOGAPE Reactivation programs and recently FOGAPE Chile Apoya and FOGAES.

 

190


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(2) Credit Risk, continued:

 

(a) Retail Segments:

 

In these segments, admission management is carried out mainly through a risk evaluation that uses scoring tools and an adequate credit attribution model to approve each operation. These evaluations take into consideration the level of indebtedness, payment capacity and the maximum acceptable exposure for the client.

 

For these segments, the Bank’s risk functions are segregated and distributed in the following areas:

 

Retail Admission and Regulatory Area, performs the evaluation of operations and clients, with specialization by products and segments. Maintains a framework of policies and standards that ensure the quality of the portfolio according to the desired risk, defining guidelines for the admission of clients and their respective parameterization in the evaluation systems. These definitions are released to commercial and risk areas through programs and continuous training, and their application is monitored through credit review processes.

 

Risk Model Area, is responsible for developing, maintaining and updating credit risk models, whether for regulatory or management uses, in accordance with local and international regulations, determining the most appropriate functional specifications and statistical techniques for the development of the required models. These models are validated by the Model Validation Subdivision and presented to the corresponding government bodies, such as the “Technical Committee for the Supervision and Development of Internal Models”, the Portfolio Risk Committee or the Board of Directors, as appropriate.

 

Model Risk and Internal Control Area, its purpose is to manage the risks associated with models and their processes, for which it relies on the functions of model validation, model risk management and internal control.

 

Model validation is responsible for carrying out an independent review of risk models, including risk-weighted assets and stress tests, both in the construction and implementation stages. It considers the validation of compliance with the guidelines established by the Board of Directors, addressing aspects such as governance, data quality, modeling techniques, implementation, methodological and parametric analysis, and documentation. The results of the review are presented and placed in consideration of the respective Committees, as appropriate.

 

For its part, model risk management is responsible for monitoring and ensuring compliance with the activities associated with the state in which the models are according to their life cycle.

 

191


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(2) Credit Risk, continued:

 

(a) Retail Segments, continued:

 

Finally, internal control has the objective of ensuring the reliability and transparency of the information generated by the Bank. For this, a periodic evaluation process is carried out, based on the risks that could have a material impact and which is carried out through the evaluation of the design and operational effectiveness of the identified controls and thus be able to comply with the operating, information and compliance objectives. Additionally, and complying with the same previous framework, the internal control process for Basel III has been implemented, which consists of an independent review of the capital management function.

 

Retail Tracking and Models Area, is in charge of measuring the behavior of portfolios especially through the monitoring of the main indicators of the aggregate portfolio and the analysis of layers, reported in management reports, generating relevant information for decision-making in different instances defined. Also, special follow-ups are generated according to relevant events in the environment. This Area ensures that the different strategies executed meet the risk quality objectives that determined their implementation.

 

For its part, through the risk model monitoring function, they are monitored, ensuring compliance with the standards defined to ensure their predictive and discriminating power.

 

Additionally, this Area is responsible for managing the process for calculating provisions for credit risk, ensuring the correct execution of the processes and results obtained.

 

Collection Area performs a cross-collection management in the Bank and defines refinancing criteria through the establishment of predefined renegotiation guidelines to solve the indebtedness of viable customers and with payment intentions, maintaining an adequate risk-return ratio, together with the incorporation of robust tools for a differentiated collection management according to the institutional policies and with strict adherence to the current regulatory framework.

 

In this sense, the Bank has specific regulations related to the collection and normalization of clients, which makes it possible to ensure the quality of the portfolio in accordance with credit policies and the desired risk appetite framework. Through collection management, the attention of clients with temporary flow problems is favored, debt normalization plans are proposed to viable clients, in such a way that it is possible to maintain the relationship in the long term once their situation is regularized, the recovery of assets at risk is maximized and the necessary collection actions are carried out, in a timely manner, to ensure the recovery of debts or reduce potential loss.

 

192


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(2) Credit Risk, continued:

 

(b) Wholesale Segments:

 

In these segments, admission management is carried out through an individual evaluation of the client and the relationship of the rest of the group with the Bank is also considered if it belongs to a group of companies. This individual evaluation - and group if applicable - considers, among others, generation capacity, financial capacity with emphasis on equity solvency, exposure levels, industry variables, evaluation of partners and management, and aspects of the operation such as financing structure, term, products and possible collaterals.

 

The indicated evaluation is supported by a rating model that allows greater homogeneity in the evaluation of the client and his group. This evaluation also includes specialized areas in some segments that by their nature require expert knowledge, such as real estate, construction, agriculture, financial, international, among others.

 

In a centralized manner, a permanent monitoring of the portfolio is carried at the individual level off business segments and economic sectors, based on periodically updated information from both the client and the industry. Through this process, alerts are generated that ensure the correct and timely recognition of the risk of the individual portfolio and the special conditions established in the admission stage are monitored, such as controls of financial covenants, coverage of certain collaterals and conditions imposed at the time of approval.

 

Additionally, within the Admission areas, joint monitoring tasks are carried out that allow monitoring the development of operations from their gestation to their recovery, with the aim of ensuring the correct and timely identification of portfolio risks, and to manage in advance those cases with higher risk levels.

 

Upon detection of clients that show signs of impairment or default with any condition, the commercial area to which the client belongs, together with the Wholesale Credit Risk Division, establish action plans for their regularization. In those more complex cases where specialized management is required, the Special Assets Management area, belonging to the Wholesale Credit Risk Division, is directly in charge of collection management, establishing action plans and negotiations based on the particular characteristics of each client.

 

193


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(2) Credit Risk, continued:

 

(c) Portfolio Concentration:

 

The maximum exposure to credit risk, by client or counterparty, without taking into account guarantees or other credit enhancements as of June 30, 2023 and December 31, 2022, does not exceed 10% of the Bank’s effective equity.

 

The following tables show credit risk exposure per balance sheet item, including derivatives, detailed by both geographic region and industry sector as of June 30, 2023:

 

    Chile     United States     England     Brazil     Others     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Financial Assets                                    
                                     
Cash and Due from Banks     1,234,797       967,989       26,667       8       53,258       2,282,719  
                                                 
Financial assets held for trading at fair value through profit or loss                                                
                                                 
Derivative contracts Financial                                                
Forwards (*)     149,505       36,668       77,222             103,068       366,463  
Swaps (**)     834,940       151,724       806,938             189,525       1,983,127  
Call Options     1,909                               1,909  
Put Options     3,755                               3,755  
Futures                                    
Subtotal     990,109       188,392       884,160             292,593       2,355,254  
                                                 
Debt Financial Instruments                                                
From the Chilean Government and Central Bank     2,727,218                               2,727,218  
Other debt financial instruments issued in Chile     260,821                               260,821  
Financial debt instruments issued Abroad                                    
Subtotal     2,988,039                               2,988,039  
                                                 
Others Financial Instruments                                                
Investments in mutual funds     369,775                               369,775  
Equity instruments     1,098                               1,098  
Others     350       263                   73       686  
Subtotal     371,223       263                   73       371,559  
                                                 
Financial Assets at fair value through other comprehensive income                                                
                                                 
Debt Financial Instruments                                                
From the Chilean Government and Central Bank     2,614,434                               2,614,434  
Other debt financial instruments issued in Chile     1,532,403                               1,532,403  
Financial debt instruments issued Abroad           118,133                         118,133  
Subtotal     4,146,837       118,133                         4,264,970  
                                                 
Derivative contracts financial for hedging purposes                                                
Forwards                                    
Swaps                 3,253             1,109       4,362  
Call Options                                    
Put Options                                    
Futures                                    
Subtotal                 3,253             1,109       4,362  
                                                 
Financial assets at amortized cost                                                
Rights by resale agreements and securities lending     38,863                               38,863  
                                                 
Debt Financial Instruments                                                
From the Chilean Government and Central Bank     915,407                               915,407  
Subtotal     915,407                               915,407  
                                                 
Loans and advances to Banks                                                
Central Bank of Chile     2,500,764                               2,500,764  
Domestic banks                                    
Foreign banks                       178,108       104,303       282,411  
Subtotal     2,500,764                   178,108       104,303       2,783,175  
                                                 
Loans to Customers, Net                                                
Commercial loans     19,432,556                         8,592       19,441,148  
Residential mortgage loans     11,843,185                               11,843,185  
Consumer loans     5,156,922                               5,156,922  
Subtotal     36,432,663                         8,592       36,441,255  

 

(*) Others includes: France Ch$90,620 million and Spain Ch$11,248 million.

 

(**) Others includes: France Ch$49,959 million and Spain Ch$35,169 million.

 

194


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(2) Credit Risk, continued:

 

(c) Portfolio Concentration, continued:

 

    Central
Bank of
Chile
    Government     Retail
(Individuals)
    Financial
Services
    Trade     Manufacturing     Mining     Electricity,
Gas and
Water
    Agriculture
and
Livestock
    Fishing    

Transportation

and Telecom

    Construction     Services     Others     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Cash and Due from Banks     375,593                   1,907,126                                                                   2,282,719  
                                                                                                                         
Financial Assets held for trading at fair value through profit or loss                                                                                                                        
Derivative contracts Financial                                                                                                                        
Forwards                       268,382       29,926       6,537       11       1,191       3,623       23       114       4,308       52,348             366,463  
Swaps                       1,916,934       1,150       5,283             10,758       1,900       1,795       26,745       12,509       6,053             1,983,127  
Call Options                       864       179       83                   46                   731       6             1,909  
Put Options                       2,996       559       178                   1                         21             3,755  
Futures                                                                                          
Subtotal                       2,189,176       31,814       12,081       11       11,949       5,570       1,818       26,859       17,548       58,428             2,355,254  
                                                                                                                         
Debt Financial Instruments                                                                                                                        
From the Chilean Government and Central Bank     2,419,474       307,744                                                                               2,727,218  
Other debt financial instruments issued in Chile                       260,821                                                                   260,821  
Financial debt instruments issued Abroad                                                                                          
Subtotal     2,419,474       307,744             260,821                 —                                                       2,988,039  
                                                                                                                         
Others Financial Instruments                                                                                                                        
Investments in mutual funds                       369,775                                                                   369,775  
Equity instruments                       1,098                                                                   1,098  
Others                       686                                                                   686  
Subtotal                       371,559                                                                   371,559  
                                                                                                                         
Financial Assets at fair value through Other Comprehensive Income                                                                                                                        
Debt Financial Instruments                                                                                                                        
From the Chilean Government and Central Bank     27,248       2,587,186                                                                               2,614,434  
Other debt financial instruments issued in Chile                       1,490,884       17,402                   12,253       7,131             4,733                         1,532,403  
Financial debt instruments issued Abroad                       118,133                                                                   118,133  
Subtotal     27,248       2,587,186             1,609,017       17,402                   12,253       7,131             4,733                         4,264,970  
                                                                                                                         
Derivative contracts financial for hedging purposes                                                                                                                        
Forwards                                                                                          
Swaps                       4,362                                                                   4,362  
Call Options                                                                                          
Put Options                                                                                          
Futures                                                                                          
Subtotal                       4,362                                                                   4,362  
                                                                                                                         
Financial assets at amortized cost (*)                                                                                                                        
Rights by resale agreements                       32,382       3,316                                                       3,165       38,863  
                                                                                                                         
Debt financial instruments                                                                                                                        
From the Chilean Government and Central Bank           915,407                                                                               915,407  
Subtotal           915,407                                                                               915,407  
                                                                                                                         
Loans and advances to Banks                                                                                                                        
Central Bank of Chile     2,500,764                                                                                     2,500,764  
Domestic banks                                                                                          
Foreign banks                       282,411                                                                   282,411  
Subtotal     2,500,764                   282,411                                                                   2,783,175  

 

(*) Economic activity of Loans and accounts receivable from customers disclosed in Note No. 13 g).

 

195


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(2) Credit Risk, continued:

 

(c) Portfolio Concentration, continued:

 

The following tables show credit risk exposure per balance sheet item, including derivatives, detailed by both geographic region and industry sector as of December 31, 2022:

 

    Chile     United
States
    England     Brazil     Others     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Financial Assets                                    
                                     
Cash and Due from Banks     1,448,441       1,227,305       24,982       8       64,148       2,764,884  
                                                 
Financial assets held for trading at fair value through profit or loss                                                
                                                 
Derivative contracts Financial                                                
Forwards (*)     315,527       38,355       91,832             119,659       565,373  
Swaps (**)     1,037,521       32,161       1,095,040             224,855       2,389,577  
Call Options     2,321                               2,321  
Put Options     2,758                               2,758  
Futures                                    
Subtotal     1,358,127       70,516       1,186,872             344,514       2,960,029  
                                                 
Debt Financial Instruments                                                
From the Chilean Government and Central Bank     3,059,292                               3,059,292  
Other debt financial instruments issued in Chile     374,453                               374,453  
Financial debt instruments issued Abroad                                    
Subtotal     3,433,745                               3,433,745  
                                                 
Others Financial Instruments                                                
Investments in mutual funds     250,337                               250,337  
Equity instruments     2,357       3,261                         5,618  
Others     763       522                   85       1,370  
Subtotal     253,457       3,783                   85       257,325  
                                                 
Financial Assets at fair value through other comprehensive income                                                
                                                 
Debt Financial Instruments                                                
From the Chilean Government and Central Bank     2,258,857                               2,258,857  
Other debt financial instruments issued in Chile     1,540,908                               1,540,908  
Financial debt instruments issued Abroad           167,627                         167,627  
Subtotal     3,799,765       167,627                         3,967,392  
                                                 
Derivative contracts financial for hedging purposes                                                
Forwards                                    
Swaps     118       18,368       8,142             449       27,077  
Call Options                                    
Put Options                                    
Futures                                    
Subtotal     118       18,368       8,142             449       27,077  
                                                 
Financial assets at amortized cost                                                
Rights by resale agreements and securities lending     54,061                               54,061  
                                                 
Debt Financial Instruments                                                
From the Chilean Government and Central Bank     902,355                               902,355  
Subtotal     902,355                               902,355  
                                                 
Loans and advances to Banks                                                
Central Bank of Chile     1,801,100                               1,801,100  
Domestic banks                                    
Foreign banks                 18,679       182,320       172,693       373,692  
Subtotal     1,801,100             18,679       182,320       172,693       2,174,792  
                                                 
Loans to Customers, Net                                                
Commercial loans     20,256,166                         29,544       20,285,710  
Residential mortgage loans     11,416,154                               11,416,154  
Consumer loans     4,992,940                               4,992,940  
Subtotal     36,665,260                         29,544       36,694,804  

 

(*) Others includes: France Ch$92,885 million and Spain Ch$18,923 million.

 

(**) Others includes: France Ch$62,731 million and Spain Ch$45,189 million.

 

196


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(2) Credit Risk, continued:

 

(c) Portfolio Concentration, continued:

 

 

    Central
Bank of
Chile
    Government     Retail
(Individuals)
    Financial
Services
    Trade     Manufacturing     Mining     Electricity,
Gas and
Water
    Agriculture
and
Livestock
    Fishing    

Transportation

and Telecom

    Construction     Services     Others     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Cash and Due from Banks     384,230                   2,380,654                                                                   2,764,884  
                                                                                                                         
Financial Assets held for trading at fair value through profit or loss                                                                                                                        
Derivative contracts Financial                                                                                                                        
Forwards                       371,960       28,966       12,435       124       2,153       8,456       18       144       1,602       139,515             565,373  
Swaps                       2,311,655       9,770       9,123             10,148       4,236       3,848       16,166       14,493       10,138             2,389,577  
Call Options                       123       601       61                   90       6       1       1,437       2             2,321  
Put Options                       752       1,412       481                   5             21             87             2,758  
Futures                                                                                          
Subtotal                       2,684,490       40,749       22,100       124       12,301       12,787       3,872       16,332       17,532       149,742             2,960,029  
                                                                                                                         
Debt Financial Instruments                                                                                                                        
From the Chilean Government and Central Bank     3,014,768       44,524                                                                               3,059,292  
Other debt financial instruments issued in Chile                       374,453                                                                   374,453  
Financial debt instruments issued Abroad                                                                                          
Subtotal     3,014,768       44,524             374,453                                                                   3,433,745  
                                                                                                                         
Others Financial Instruments                                                                                                                        
Investments in mutual funds                       250,337                                                                   250,337  
Equity instruments                       5,618                                                                   5,618  
Others                       1,370                                                                   1,370  
Subtotal                       257,325                                                                   257,325  
                                                                                                                         
Financial Assets at fair value through Other Comprehensive Income                                                                                                                        
Debt Financial Instruments                                                                                                                        
From the Chilean Government and Central Bank           2,258,857                                                                               2,258,857  
Other debt financial instruments issued in Chile                       1,513,240       13,591                   4,934                   4,639       4,504                   1,540,908  
Financial debt instruments issued Abroad                       167,627                                                                   167,627  
Subtotal           2,258,857             1,680,867       13,591                   4,934                   4,639       4,504                   3,967,392  
                                                                                                                         
Derivative contracts financial for hedging purposes                                                                                                                        
Forwards                                                                                          
Swaps                       27,077                                                                   27,077  
Call Options                                                                                          
Put Options                                                                                          
Futures                                                                                          
Subtotal                       27,077                                                                   27,077  
                                                                                                                         
Financial assets at amortized cost (*)                                                                                                                        
Rights by resale agreements                       43,116       469                                                 7,950       2,526       54,061  
                                                                                                                         
Debt financial instruments                                                                                                                        
From the Chilean Government and Central Bank           902,355                                                                               902,355  
Subtotal           902,355                                                                               902,355  
                                                                                                                         
Loans and advances to Banks                                                                                                                        
Central Bank of Chile     1,801,100                                                                                     1,801,100  
Domestic banks                                                                                          
Foreign banks                       373,692                                                                   373,692  
Subtotal     1,801,100                   373,692                                                                   2,174,792  

 

(*) Economic activity of Loans and accounts receivable from customers disclosed in Note No. 13 g).

 

197


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(2) Credit Risk, continued:

 

(d) Collaterals and Other Credit Enhancements:

 

The amount and type of collateral required depends on the counterparty’s credit risk assessment.

 

The Bank has guidelines regarding the acceptability of types of collateral and valuation parameters.

 

The main types of collateral obtained are:

 

For commercial loans: Residential and non-residential real estate, liens and inventory.

 

For retail loans: Mortgages loans on residential property.

 

The Bank also obtains collateral from parent companies for loans granted to their subsidiaries.

 

Management makes sure its collateral is acceptable according to both external standards and internal policies guidelines and parameters. The Bank has approximately 244,585 collateral assets as of June 30, 2023 (244,033 in December 2022), the majority of which consist of real estate. The following table contains guarantees value:

 

    Guarantee  

June 2023

  Loans     Mortgages     Pledges     Securities     Warrants     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Corporate Lending     14,638,022       4,313,555       198,206       524,003       10,835       5,046,599  
Small Business Lending     4,803,126       3,367,411       18,069       10,991             3,396,471  
Consumer Lending     5,156,922       383,053       769       2,832             386,654  
Mortgage Lending     11,843,185       10,188,354       141       524             10,189,019  
Total     36,441,255       18,252,373       217,185       538,350       10,835       19,018,743  

 

    Guarantee  

December 2022

  Loans     Mortgages     Pledges     Securities     Warrants     Total  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Corporate Lending     15,469,444       3,993,984       193,235       590,126       4,386       4,781,731  
Small Business Lending     4,816,266       3,352,055       20,294       11,700             3,384,049  
Consumer Lending     4,992,940       364,469       912       3,364             368,745  
Mortgage Lending     11,416,154       9,928,827       133       607             9,929,567  
Total     36,694,804       17,639,335       214,574       605,797       4,386       18,464,092  

 

The Bank also uses mitigating tactics for credit risk on derivative transactions. To date, the following mitigating tactics are used:

 

Accelerating transactions and net payment using market values at the date of default of one of the parties.

 

Option for both parties to terminate early any transactions with a counterparty at a given date, using market values as of the respective date.

 

Margins established with time deposits by customers who have FX forwards with subsidiary Banchile Corredores de Bolsa S.A.

 

198


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(2) Credit Risk, continued:

 

(d) Collaterals and Other Credit Enhancements, continued:

 

The value of the guarantees that the Bank maintains related to the loans individually classified as impaired as of June 30, 2023 and December 31, 2022 amounted Ch$124,895 million and Ch$110,686 million, respectively.

 

The value guarantees related to past due loans but no impaired as of June 30, 2023 and December 31, 2022 amounted Ch$489,458 million and Ch$325,079 million respectively.

 

(e) Credit Quality by Asset Class:

 

The Bank determines the credit quality of financial assets using internal credit ratings. The rating process is linked to the Bank’s approval and monitoring processes and is carried out in accordance with risk categories established by current standards. Credit quality is continuously updated based on any favorable or unfavorable developments to customers or their environments, considering aspects such as commercial and payment behavior as well as financial information.

 

The Bank also carries out reviews focused on companies that participate in specific economic sectors, which are affected either by macroeconomic variables or variables of the sector. In this way, it is possible to timely establish the necessary and sufficient level of provisions to cover the losses due to the eventual non-recoverability of the credits granted.

 

The credit quality by asset class for Consolidated Statements of Financial Position sheet items, based on the Bank’s credit rating system, is presented in Note No. 13 letter (d).

 

Below is the detail of the default but not impaired portfolio:

 

    Past due but no impaired (*)  
    1 to 29 days     30 to 59 days     60 to 89 days     90 or more days  
    MCh$     MCh$     MCh$     MCh$  
                         
June 2023     776,568       204,340       65,028        
December 2022     622,379       157,852       46,762        

 

(*) These amounts include the overdue portion and the remaining balance of loans in default.

 

(f) Assets Received in Lieu of Payment:

 

The Bank has received assets in lieu of payment totaling Ch$14,762 million and Ch$10,149 million as of June 30, 2023 and December 31, 2022, respectively, the majority of which are properties. All of these assets are managed for sale.

 

199


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(2) Credit Risk, continued:

 

(g) Renegotiated Assets:

 

The loans are considered to be renegotiated when the corresponding financial commitments are restructured and the Bank assesses the probability of recovery as sufficiently high.

 

The following table details the book value of loans with renegotiated terms per financial asset class:

 

    June     December  
    2023     2022  
  MCh$     MCh$  
Financial Assets            
             
Loans and advances to banks            
Central Bank of Chile            
Domestic banks            
Foreign banks            
Subtotal            
                 
Loans to customers, net                
Commercial loans     417,359       381,171  
Residential mortgage loans     256,040       251,380  
Consumer loans     262,898       258,434  
Subtotal     936,297       890,985  
Total renegotiated financial assets     936,297       890,985  

 

(h) Compliance with credit limit granted to related debtors:

 

Below are detailed the figures for compliance with the credit limit granted to debtors related to the ownership or management of the Bank and subsidiaries, in accordance with the Article 84 No. 2 of the General Banking Law, which establishes that in no case the total of these credits may exceed the amount of its Total or Regulatory Capital:

 

    June 2023     December 2022  
    MCh$     MCh$  
             
Total related debt     448,723       960,640  
Consolidated Total or Regulatory Capital     6,397,845       6,373,416  
Limit used %     7.01 %     15.07 %

 

200


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk:

 

Market Risk refers to the loss that the Bank could face due to a liquidity shortage to honor the payments, or to close financial transactions in a timely manner (Liquidity Risk), or due to adverse movements in the values of market variables (Risk Price). For its correct management, the guidelines of the Liquidity Risk Management Policy and the Market Risk Management Policy are considered, both are subject to review, at least annually, by the Market Risk Manager and approval by the Bank’s Board of Directors, at least annually.

 

(a) Liquidity Risk:

 

Liquidity Risk Measurement and Limits

 

The Bank manages the Liquidity Risk in accordance with the established on the Liquidity Risk Management Policy, managing separately for each sub-category thereof; this is for Trading Liquidity Risk and Funding Liquidity Risk.

 

Trading Liquidity Risk is the inability to close, at current market prices, the financial positions opened mainly from the Trading Book (which is daily valued at market prices and the value differences instantly reflected in the Income Statement). This risk is controlled by establishing limits on the positions amounts of the Trading Book in accordance with what is estimated to be closed in a short time period. Additionally, the Bank incorporates a negative impact on the Income Statement whenever it considers that the size of a certain position in the Trading Book exceeds the reasonable amount, negotiated in the secondary markets, which would allow the exposure to be offset without altering market prices.

 

Funding Liquidity Risk refers to the Bank’s inability to obtain sufficient cash to meet its immediate obligations. This risk is managed by a minimum amount of highly liquid assets called liquidity buffer, and establishing limits and controls of internal metrics, among which the Market Access Report (“MAR”) stands out, which estimates the amount of funding that the Bank would need from wholesale financial counterparties, for the next 30 and 90 days in each of the relevant currencies of the balance sheet, to face a cash need as a result of the operation under business as usual conditions.

 

201


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(a) Liquidity Risk, continued:

 

The use of June within 2023 is illustrated below (LCCY = local currency; FCCY = foreign currency):

 

   

MAR LCCY + FCCY

BCh$

   

MAR FCCY

BUS$

 
    1 - 30 days     1 - 90 days     1 - 30 days     1 - 90 days  
                         
Maximum     877       2,705       994       2,151  
Minimum     -1,359       917       18       1,058  
Average     -202       1,740       494       1,576  

 

The Bank also monitors the amount of assets denominated in local currency that is funded by liabilities denominated in foreign currency, including all tenors and the cash flows generated by full delivery derivatives payments. This metric is referred to as Cross Currency Funding. The bank oversees and limits this amount in order to take precautions against not only Banco de Chile’s event but also against a systemic adverse environment generated by a country risk event that might trigger lack of foreign currency funding.

 

The use of Cross Currency Funding within the year 2023 is illustrated below:

 

   

Cross
Currency Funding

BUS$

 
       
Maximum     2,359  
Minimum     1,085  
Average     1,627  

 

The Bank establishes thresholds that alert behaviors outside the expected ranges at a normal or prudent level of operation, in order to protect other dimensions of liquidity risk such as, for example, maturities concentration of fund providers, the diversification of sources of funds either by type of counterparty or type of product, among others.

 

The evolution over time of the statement of financial ratios of the Bank is monitored in order to detect structural changes in the characteristics of the balance sheet, such as those presented in the following table and whose relevant values of use during the year 2023 are shown below:

 

   

Liquid Assets/

Net Funding
<30 days

   

Liabilities>1 year/

Assets >1 year

   

Deposits/

Loans

 
                   
Maximum     228 %     106 %     66 %
Minimum     190 %     99 %     64 %
Average     204 %     102 %     65 %

 

202


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(a) Liquidity Risk, continued:

 

Additionally, some market index, prices and monetary decisions taken by the Central Bank of Chile are monitored to detect structural changes in market conditions that can trigger a liquidity shortage or even a financial crisis.

 

Furthermore, the Liquidity Risk Management Policy enforces to perform stress tests periodically which are controlled against potentially accessible action plans in each modeled scenario, according with the guidelines established in the Liquidity Contingency Plan. This process is essential in determining the liquidity risk appetite framework of the institution.

 

The Bank measures and controls the mismatch of cash flows under regulatory standards with the C46 index report, which represents the net cash flows expected over time as a result of the contractual maturity of almost all assets and liabilities. Additionally, the Commission for the Financial Market (hereinafter, “CMF”) authorized Banco de Chile, among others, to report the adjusted C46 index. This allows the Bank to report, in addition to the regular C46 index, outflow behavior assumptions of certain specific elements of the liability, such as demand deposits and time deposits. In addition, the regulator also requires some rollover assumptions for the loan portfolio.

 

To date, the CMF establish the following dispositions for the C46 index:

 

Foreign Currency balance sheet items: 1-30 days, Regulatory Limit C46 index < 1 x Tier-1 Capital

 

The levels of use of this index during the period 2023 is illustrated below:

 

   

Adjusted C46 All CCYs

as part of Basic Capital

   

Adjusted C46 FCCY as part of Basic Capital

 
    1 - 30 days     1 - 90 days     1 - 30 days  
                   
Maximum     (0.12 )     (0.16 )     0.20  
Minimum     (0.36 )     (0.32 )     0.13  
Average     (0.22 )     (0.26 )     0.15  
Regulatory Limit     N/A       N/A       1.0  

 

203


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(a) Liquidity Risk, continued:

 

The individual and consolidated term liquidity gap are presented below:

 

QUARTERLY STATEMENT OF INDIVIDUAL LIQUIDITY SITUATION
AS OF JUNE 30, 2023 CONTRACTUAL BASIS
Values in MCh$
 
CONSOLIDATED CURRENCY   From 0 to 7 days     From 0 to 15 days     From 0 to 30 days     From 0 to 90 days  
                         
Cash flow receivable (assets) and income     10,504,730       11,810,444       13,033,764       15,778,416  
Cash flow payable (liabilities) and expenses     17,974,142       20,198,176       24,365,761       28,744,004  
Liquidity Gap     7,469,412       8,387,732       11,331,997       12,965,588  

 

FOREIGN CURRENCY   From 0 to 7 days     From 0 to 15 days     From 0 to 30 days     From 0 to 90 days  
                         
Cash flow receivable (assets) and income     1,599,940       1,870,804       1,797,323       2,003,017  
Cash flow payable (liabilities) and expenses     2,628,447       2,873,689       3,336,593       3,735,588  
Liquidity Gap     1,028,507       1,002,885       1,539,270       1,732,571  
                                 
Limits:                                
One time capital                     4,844,526          
AVAILABLE MARGIN                     3,305,256          

 

* In the limit up to 30 days, in consolidated currency, the Bank has a liquidity situation of Ch$3,305,256,364,697.

 

QUARTERLY STATEMENT OF INDIVIDUAL LIQUIDITY SITUATION
AS OF JUNE 30, 2023 ADJUSTED BASIS
Values in MCh$
 
CONSOLIDATED CURRENCY   From 0 to 7 days     From 0 to 15 days     From 0 to 30 days     From 0 to 90 days  
                         
Cash flow receivable (assets) and income     10,184,770       11,233,848       12,001,571       13,783,739  
Cash flow payable (liabilities) and expenses     8,328,621       9,081,352       10,620,620       12,453,756  
Liquidity Gap     (1,856,149 )     (2,152,496 )     (1,380,951 )     (1,329,983 )

 

FOREIGN CURRENCY   From 0 to 7 days     From 0 to 15 days     From 0 to 30 days     From 0 to 90 days  
                         
Cash flow receivable (assets) and income     1,506,277       1,682,508       1,486,844       1,421,870  
Cash flow payable (liabilities) and expenses     1,647,323       1,805,442       2,117,482       2,405,331  
Liquidity Gap     141,046       122,934       630,638       983,461  
                                 
Limits:                                
One time capital                     4,844,526          
AVAILABLE MARGIN                     4,213,888          

 

* In the limit up to 30 days, in consolidated currency, the Bank has a liquidity situation of Ch$4,213,888,244,328.

 

204


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(a) Liquidity Risk, continued:

 

QUARTERLY STATEMENT OF CONSOLIDATED LIQUIDITY SITUATION
AS OF JUNE 30, 2023 CONTRACTUAL BASIS
Values in MCh$
 
CONSOLIDATED CURRENCY   From 0 to 7 days     From 0 to 15 days     From 0 to 30 days     From 0 to 90 days  
                         
Cash flow receivable (assets) and income     11,158,040       12,468,095       13,692,597       16,452,171  
Cash flow payable (liabilities) and expenses     18,440,875       20,665,713       24,833,463       29,212,000  
Liquidity Gap     7,282,835       8,197,618       11,140,866       12,759,829  

 

FOREIGN CURRENCY   From 0 to 7 days     From 0 to 15 days     From 0 to 30 days     From 0 to 90 days  
                         
Cash flow receivable (assets) and income     1,599,989       1,871,658       1,798,493       2,004,671  
Cash flow payable (liabilities) and expenses     2,628,447       2,874,493       3,337,561       3,736,606  
Liquidity Gap     1,028,458       1,002,835       1,539,068       1,731,935  
                                 
Limits:                                
One time capital                     4,844,526          
AVAILABLE MARGIN                     3,305,458          

 

* In the limit up to 30 days, in consolidated currency, the Bank has a liquidity situation of Ch$3,305,457,864,399.

 

QUARTERLY STATEMENT OF CONSOLIDATED LIQUIDITY SITUATION
AS OF JUNE 30, 2023 ADJUSTED BASIS
Values in MCh$
 
CONSOLIDATED CURRENCY   From 0 to 7 days     From 0 to 15 days     From 0 to 30 days     From 0 to 90 days  
                         
Cash flow receivable (assets) and income     10,838,080       11,891,499       12,660,404       14,457,495  
Cash flow payable (liabilities) and expenses     8,795,354       9,548,889       11,088,322       12,921,753  
Liquidity Gap     (2,042,726 )     (2,342,610 )     (1,572,082 )     (1,535,742 )

 

FOREIGN CURRENCY   From 0 to 7 days     From 0 to 15 days     From 0 to 30 days     From 0 to 90 days  
                         
Cash flow receivable (assets) and income     1,506,327       1,683,361       1,488,015       1,423,524  
Cash flow payable (liabilities) and expenses     1,647,323       1,806,246       2,118,451       2,406,349  
Liquidity Gap     140,996       122,885       630,436       982,825  
                                 
Limits:                                
One time capital                     4,844,526          
AVAILABLE MARGIN                     4,214,090          

 

* In the limit up to 30 days, in consolidated currency, the Bank has a liquidity situation of Ch$4,214,089,744,024.

 

205


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(a) Liquidity Risk, continued:

 

Liquid Assets Consolidated Balance Statement as of June 30, 2023, values in BCh$

 

 

Source: Financial Statements Banco de Chile as of June 30, 2023

 

Additionally, the regulatory entities have introduced other metrics that the Bank uses in its management, such as the Liquidity Coverage Ratio (“LCR”) and Net Stable Financing Ratio (“NSFR”), using assumptions similar to those used in the international banking. For the first, its phase-in was accelerated, increasing the minimum level required to 100%, while for the second, the requirement of the limit began at 70%. The evolution of the LCR and NSFR metrics during the year 2023 are shown below:

 

    LCR     NSFR  
             
Maximum     3.43       1.37  
Minimum     2.60       1.31  
Average     3.08       1.35  
Regulatory Limit     1.0 (*)     0.7 (**)

 

(*) Valid value from June 1, 2022.

 

(**) Effective value from June 1, 2022, which will gradually increase until reaching 1.0 in January 2026.

 

206


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(a) Liquidity Risk, continued:

 

The contractual maturity profile of the financial liabilities of Banco de Chile and its subsidiaries (consolidated basis), to June 30, 2023 and December 2022, is as follows:

 

   

Up to 1

month

    1 to 3
months
    3 to 12
months
    1 to 3
years
    3 to 5
years
   

Over

5 years

   

 

Total

 
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Liabilities as of June 30, 2023                                          
Transactions in the course of payment     311,021                                     311,021  
Full delivery derivative transactions     561,115       892,880       1,249,500       1,232,459       664,976       1,636,468       6,237,398  
Financial liabilities at amortized cost                                                        
Current accounts and other demand deposits     12,766,792                                     12,766,792  
Saving accounts and time deposits     10,527,456       3,485,919       1,174,630       91,895       5,320       572       15,285,792  
Obligations by repurchase agreements and securities lending     166,161       291                               166,452  
Borrowings from financial institutions     106,790       26,611       3,608,250       1,237,800                   4,979,451  
Debt financial instruments issued (all currencies)     162,847       345,905       1,022,409       2,506,544       2,239,036       4,497,484       10,774,225  
Other financial obligations     241,452       18       46       23                   241,539  
Financial instruments of regulatory capital issued (subordinated bonds)     2,950             45,709       97,318       84,024       1,146,517       1,376,518  
Total (excluding non-delivery derivative transactions)     24,846,584       4,751,624       7,100,544       5,166,039       2,993,356       7,281,041       52,139,188  
                                                         
Non-delivery derivative transactions     444,808       338,710       1,091,710       1,239,255       723,714       2,024,563       5,862,760  

 

   

Up to 1

month

    1 to 3
months
    3 to 12
months
    1 to 3
years
    3 to 5
years
   

Over

5 years

   

 

Total

 
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Liabilities as of December 31, 2022                                          
Transactions in the course of payment     681,792                                     681,792  
Full delivery derivative transactions     743,686       780,406       1,375,700       1,581,587       756,582       1,743,275       6,981,236  
Financial liabilities at amortized cost                                                        
Current accounts and other demand deposits     13,383,232                                     13,383,232  
Saving accounts and time deposits     9,774,591       3,013,166       1,362,905       121,808       5,940       655       14,279,065  
Obligations by repurchase agreements and securities lending     219,043       52                               219,095  
Borrowings from financial institutions     158,173       83,612       795,721       4,348,400                   5,385,906  
Debt financial instruments issued (all currencies)     13,442       170,745       1,349,567       2,286,711       2,555,020       4,119,530       10,495,015  
Other financial obligations     343,526       21       110       45                   343,702  
Financial instruments of regulatory capital issued (subordinated bonds)     2,869             48,017       94,649       84,952       1,135,504       1,365,991  
Total (excluding non-delivery derivative transactions)     25,320,354       4,048,002       4,932,020       8,433,200       3,402,494       6,998,964       53,135,034  
                                                         
Non-delivery derivative transactions     686,308       751,720       1,595,212       1,283,629       683,109       2,161,307       7,161,285  

 

207


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(b) Price Risk:

 

The Price Risk measurement and management processes are carried out in accordance with the established on the Market Risk Management Policy, by using internal metrics developed by the Bank, both for the Trading Book and for the Accrual Book (the Accrual Book includes all balance sheet items, including those in the Trading Book but in such case these are reported at an interest rate adjustment term of one day, thus not generating accrual interest rate risk). In addition, the portfolio recorded under the Fair Value Through Other Comprehensive Income (hereinafter FVOCI) is considered, which is a sub-set of the Accrual Book, which given its nature is relevant to measure it independently. In addition, the Bank reports metrics to regulatory entities according to the models defined by them.

 

The Bank has established internal limits for the exposures of the Trading Book. In fact, FX positions (FX delta), interest rate sensitivities generated by the derivatives and debt securities portfolios (DV01 or also referred as to rho) and the FX options volatility sensitivity (vega) are measured, reported and controlled against their limits. Limits are established on an aggregate basis but also for some specific tenor points. The use of these limits is daily monitored, controlled and reported by independent control functions to the senior management of the bank. The internal governance framework also establishes that these limits must be approved by the board and reviewed at least annually.

 

The Bank measures and controls the risk for the Trading Book portfolios using the Value-at-Risk (VaR). The model uses a 99% confidence level and the most recent one-year observed rates, prices and yields data.

 

The use of VaR within the year 2023 is illustrated below:

 

   

Value-at-Risk

99% one-day

confidence level

 
    MCh$  
Maximum     3,530  
Minimum     796  
Average     2,148  

 

Additionally, the Bank performs measuring, limiting, controlling and reporting interest rate exposures and risks for the Accrual Book using internally developed methodologies based on the differences in the amounts of assets and liabilities considering the interest rate repricing dates. Exposures are measured according to the Interest Rate Exposure or IRE metric and their corresponding risks using the Earnings-at-Risk or EaR metric. Within these metrics, Prepayment Risk is considered, which corresponds to the customer’s ability to pay, totally or partially, their debt before maturity. For this, a loan flow allocation model is generated with exposure to interest rate fluctuations, according to their prepayment behavior, finally reflecting a decrease in their average maturity term.

 

208


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(b) Price Risk, continued:

 

The use of EaR within the year 2023 is illustrated below:

 

   

12- months Earnings-at-Risk

99% confidence level

3 months closing period

 
    MCh$  
Maximum     286,176  
Minimum     235,747  
Average     260,515  

 

The regulatory risk measurement for the Trading Book (APRM report, from the spanish Activos Ponderados por Riesgo Mercado) is produced by utilizing guidelines provided by the Central Bank of Chile (hereinafter, “BCCh”) and the CMF. The referred methodologies estimate the potential loss that the bank may incur considering standardized fluctuations of the value of market factors such as FX rates, interest rates and volatilities that may adversely impact the value of FX spot positions, interest rate exposures, and volatility exposures, respectively. In addition, correlation factors are included to represent non-parallel changes in the yield curve.

 

The risk measurement for the Banking Book, according to regulatory guidelines (RMLB report by its Spanish initials), as a result of interest rate fluctuations is carried out through the use of standardized methodologies provided by regulatory entities (BCCh and CMF). The report includes models for reporting interest rate gaps and how their value varies, according to rate fluctuations that are defined by the scenarios provided by the regulations. In addition to this, the regulatory entity has requested banks to establish internal limits, separately for short-term and long-term balances, NII and EVE respectively, for these regulatory measurements.

 

The results effectively realized during the month for trading activities are controlled against defined loss levels and if these levels are exceeded, senior management is notified in order to evaluate potential corrective actions.

 

In addition to the above, the Market Risk Management Policy of Banco de Chile enforces to perform daily stress tests for the Trading Book and monthly for the Accrual Book. Additionally, the stress test for the FVOCI portfolio is included, which is reported daily. The output of the stress testing process is monitored against corresponding alert levels; in the case those triggers are breached, the senior management is notified in order to implement further actions, if necessary. In addition, the results during the month for the trading activities are controlled against defined loss levels and in case such levels are exceeded, senior management is also notified.

 

209


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(b) Price Risk, continued:

 

   

Up to 1

month

    1 to 3
months
    3 to 12
months
    1 to 3
years
    3 to 5
years
   

Over

5 years

   

 

Total

 
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Assets as of June 30,  2023                                          
Cash and due from banks     2,258,858                                     2,258,858  
Transactions in the course of collection     392,856                                     392,856  
Financial assets at fair value through other comprehensive income                                                        
Debt financial instruments     375,488       1,370,391       1,578,344       504,515       233,528       198,926       4,261,192  
Derivative financial instruments for hedging purposes     1,412       12,316       200,096       361,432       356,122       962,247       1,893,625  
Financial assets at amortized cost                                                        
Rights by resale agreements and securities lending                                          
Debt financial instruments           8,932       11,338       498,951       26,233       450,194       995,648  
Loans and advances to Banks     2,591,979       9,160       179,618       12,878                   2,793,635  
Loans to customers, net     5,279,257       3,074,971       7,505,509       9,213,860       4,691,003       13,424,064       43,188,664  
Total Assets     10,899,850       4,475,770       9,474,905       10,591,636       5,306,886       15,035,431       55,784,478  

 

   

Up to 1

month

    1 to 3
months
    3 to 12
months
    1 to 3
years
    3 to 5
years
   

Over

5 years

   

 

Total

 
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Assets as of December 31,  2022                                          
Cash and due from banks     2,624,888                                     2,624,888  
Transactions in the course of collection     743,379                                     743,379  
Financial assets at fair value through other comprehensive income                                                        
Debt financial instruments     82,025       324,492       2,487,874       614,944       220,962       248,832       3,979,129  
Derivative financial instruments for hedging purposes     378       4,040       296,187       347,208       352,502       1,033,196       2,033,511  
Financial assets at amortized cost                                                        
Rights by resale agreements and securities lending                                          
Debt financial instruments           8,816       11,222       56,159       459,884       452,991       989,072  
Loans and advances to Banks     1,904,368       63,569       209,047                         2,176,984  
Loans to customers, net     5,061,294       3,188,902       7,913,635       9,165,338       4,722,852       13,044,702       43,096,723  
Total Assets     10,416,332       3,589,819       10,917,965       10,183,649       5,756,200       14,779,721       55,643,686  

 

210


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(b) Price Risk, continued:

 

   

Up to 1

month

    1 to 3 months     3 to 12 months     1 to 3 years     3 to 5 years    

Over

5 years

   

 

Total

 
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Liabilities as of June 30,  2023                                          
Transactions in the course of payment     295,105                                     295,105  
Derivative Financial Instruments for hedging purposes     1,468       6,381       205,224       372,557       368,525       1,482,643       2,436,798  
Financial liabilities at amortized cost                                                        
Current accounts and other demand deposits     12,806,538                                     12,806,538  
Saving accounts and time deposits     10,527,456       3,485,919       1,174,630       91,895       5,320       572       15,285,792  
Obligations by repurchase agreements and securities lending     6,807                                     6,807  
Borrowings from financial institutions     106,790       26,611       3,608,250       1,237,800                   4,979,451  
Debt financial instruments issued (*)     162,847       345,905       1,022,409       2,506,544       2,239,036       4,497,484       10,774,225  
Financial instruments of regulatory capital issued (subordinated bonds)     2,950             45,709       97,318       84,024       1,146,517       1,376,518  
Other liabilities     241,452       18       46       23                   241,539  
Total liabilities     24,151,413       3,864,834       6,056,268       4,306,137       2,696,905       7,127,216       48,202,773  

 

   

Up to 1

month

    1 to 3 months     3 to 12 months     1 to 3 years     3 to 5 years    

Over

5 years

   

 

Total

 
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Liabilities as of December 31,  2022                                          
Transactions in the course of payment     650,640                                     650,640  
Derivative Financial Instruments for hedging purposes     1,440       1,006       272,568       341,455       332,705       1,503,902       2,453,076  
Financial liabilities at amortized cost                                                        
Current accounts and other demand deposits     13,454,288                                     13,454,288  
Saving accounts and time deposits     9,774,591       3,013,166       1,362,905       121,808       5,940       655       14,279,065  
Obligations by repurchase agreements and securities lending     7,344                                     7,344  
Borrowings from financial institutions     158,173       83,612       795,721       4,348,400                   5,385,906  
Debt financial instruments issued (*)     13,443       170,745       1,349,566       2,286,711       2,555,020       4,119,530       10,495,015  
Financial instruments of regulatory capital issued (subordinated bonds)     2,869             48,017       94,649       84,952       1,135,504       1,365,991  
Other liabilities     343,526       21       110       45                   343,702  
Total liabilities     24,406,314       3,268,550       3,828,887       7,193,068       2,978,617       6,759,591       48,435,027  

 

(*) Amounts shown here are different from those reported in the liabilities report which is part of the liquidity analysis, due to differences in the treatment of mortgage bonds issued by the Bank in both reports.

 

211


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(b) Price Risk, continued:

 

Price Risk Sensitivity Analysis

 

The Bank uses stress tests as the main sensitivity analysis tool for Price Risk. The analysis is implemented for the Trading Book, Accrual Book and the FVOCI portfolio separately. The Bank has adopted this tool as it is considered more useful than fluctuations in business as usual scenario, such as VaR or EaR, given that:

 

(i) The financial crisis show market factors fluctuations that are materially larger than those used in the VaR with 99% of confidence level or EaR with 99% of confidence level.

 

(ii) The financial crisis also show that correlations between these fluctuations are materially different from those used in the VaR computation, since a crisis precisely indicates severe disconnections between the behaviors of market factors fluctuations respect to the patterns observed under normal conditions.

 

(iii) Trading liquidity dramatically diminishes during financial distress and especially in emerging markets. Therefore, the overnight VaR number might not be representative of the loss for trading portfolios in such environment since closing exposures period may exceed one business day. This may also happen when calculating EaR, even considering three months as the closing period.

 

The impacts are determined by mathematical simulations of fluctuations in the values of market factors, and also, estimating the changes of the economic and /or accounting value of the financial positions.

 

212


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(b) Price Risk, continued:

 

In order to comply with IFRS 9, the following exercise was included illustrating an estimation of the impact of extreme but reasonable fluctuations of interest rates, swaps yields, FX rates and exchange volatility, which are used for valuing Trading Book, Accrual Book and the FVOCI portfolio. Given that the Bank's portfolio includes positions denominated in nominal and real interest rates, these fluctuations must be aligned with extreme but realistic Chilean inflation changes forecasts.

 

For the Trading Book, the exercise is implemented by multiplying the sensitivities by the fluctuations obtained as the results of mathematical simulations over a two-week time horizon and using the maximum historical volatility, within a significant period of time, in each of the market factor present. In the case of the FVOCI portfolio a four-week time horizon is used due to liquidity constrains; Accrual Book impacts are estimated by multiplying cumulative gaps by forward interest rates fluctuations modeled over a three-month time horizon and using the maximum historical volatility of interest fluctuations but limited by maximum fluctuations and / or levels observed within a significant period of time. It is relevant to note that the methodology might ignore some portion of the interest rates convexity, since it is not captured properly when large fluctuations are modeled. In any case, given the magnitude of the changes, the methodology may be reasonable enough for the purposes and scope of the analysis.

 

The following table illustrates the fluctuations resulting from the main market factors in the maximum stress test exercise, or more adverse, for the Trading Book.

 

The directions or signs of these fluctuations are those that correspond to those that generate the most adverse impact at the aggregate level.

 

Average Fluctuations of Market Factors for Maximum Stress Scenario

Trading Book

   
    CLP
Derivatives
(bps)
    CLP
Bonds
(bps)
    CLF
Derivatives
(bps)
    CLF
Bonds
(bps)
    USD Offshore Libor
Derivatives
(bps)
    Spread USD On/Off
Derivatives
(bps)
 
Less than 1 year     13       79       76       173       5        
Greater than 1 year     10       76       110       175       (1 )     (1 )

 

bps = basis points.

 

213


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(b) Price Risk, continued:

 

The worst impact on the Bank's Trading Book as of June 30, 2023, as a result of the simulation process described above, is as follows:

 

Most Adverse Stress Scenario P&L Impact
Trading Book
(MCh$)

CLP Interest Rate                   (7,094 )
Derivatives     (237 )        
Debt instruments     (6,857 )        
CLF Interest Rate             (24,521 )
Derivatives     (1,365 )        
Debt instruments     (23,156 )        
Interest rate USD offshore             127  
Domestic/offshore interest rate spread USD             (49 )
Banking spread             (223 )
Total Interest rates             (31,760 )
Total FX and FX Options             (1,257 )
Total             (33,017 )

 

The modeled scenario would generate losses in the Trading Book for approximately Ch$33,017 million. In any case, such fluctuations would not result in material losses compared to Basic Capital or to the P&L estimate for the next 12-months.

 

The impact on the Accrual Book as of June 30, 2023, which does not necessarily mean a net loss(gain) but a greater(lower) net income from funds generation (resulting net interest rate generation), is illustrated below:

 

Most Adverse Stress Scenario 12-Month Revenue

Accrual Book

(MCh$)

Impact by Base Interest Rate shocks     (297,564 )
Impact due to Spreads Shocks     (17,447 )
Higher / (Lower) Net revenues     (315,011 )

 

The impact on the FVOCI portfolio it is show in the followings tables. First are the main fluctuation in the market factors, due to the scenarios provided for the stress test meltdown (more adverse), for this portfolio.

 

214


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(3) Market Risk, continued:

 

(b) Price Risk, continued:

 

The sign of the fluctuation below, correspond to the ones that generate the most adverse impact.

 

Average Fluctuations of Market Factors for Maximum Stress Scenario

FVOCI Portfolio

    CLP Bonds (bps)     CLF Bonds (bps)     USD Offshore Libor Derivatives
(bps)
    Spread USD On/Off Derivatives
(bps)
 
Less than 1 year     187       656       10       62  
Greater than 1 year     157       288       39       32  

 

bps = basis points

 

The worst impact on the Bank's FVOCI portfolio as of June 30, 2023, as a result of the simulation process described above, is as follows:

 

Most Adverse Stress Scenario P&L Impact
FVOCI portfolio
(MCh$)

CLP Debt Instrument     (36,397 )
CLF Debt Instrument     (78,792 )
Interest rate USD offshore     (2,501 )
Domestic/offshore interest rate spread USD      
Banking spread     949  
Corporative spread     (12,244 )
Total     (128,985 )

 

The modeled for the FVTOCI Portfolio would generate potential impacts on equity accounts for approximately Ch$128,985 million.

 

The main negative impact on the Trading Book would occur as a result of an increase in debt instruments in CLF over 1 year, followed by an increase in CLP debt instruments over 1 year, while in the case of the FVTOCI portfolio the main impact comes from upward fluctuations in interest rates on debt instruments in both CLF and CLP, for instruments over 1 year. For its part, the lowest potential income in the next 12 months in the Accrual Book would occur in a scenario of a sharp decline in inflation and nominal rates.

 

215


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(4) Other Information related to Financial Risks:

 

a) Libor transition project:

 

As a consequence of the decisions made by the United Kingdom Financial Conduct Authority (FCA) and the recommendations of the Alternative Reference Rates Committee (ARRC) made up of the Federal Reserve Board and the New York FED, from 12-31-2021 Libor rates in currencies other than US$ are no longer published, from 01-01-2022 new operations based on Libor stopped being issued and it was reported that from 06-30-2023 Libor in US$ will stop being published. As a result, it was recommended to use the US$ Libor published only in contracts in force as of 12-31-2021 up to the last date of publication of this.

Because of this, since 2020 the Bank has been enabling and implementing, in its different dimensions, the new risk-free reference rates (“RFR”) for carrying out operations in foreign currency as of 01-01-2022.

The process has been structured in 5 phases:

1st phase

 

- Identification of the risks associated with the Libor transition process through the collection of information regarding the number of operations, amounts involved, remaining terms, types of products and course coins.

 

- Periodic exchange of information with the main global banks regarding the RFRs that were being defined as a replacement for Libor rates.

 

- Review of the documents published by the ARRC with its recommendations.

 

2nd phase

 

- Preparation and presentation to the CMF in the year 2021 of the situational analysis of Banco de Chile regarding the end of Libor. This included reporting on the information research carried out in the 1st stage and the impact that the end of the Libor rate had both at the level of products and at the level of Bank areas.

 

3rd phase

 

- Definition of the new RFRs to be used in the different currencies (daily SOFR, term SOFR, TONAR, SONIA, etc.)

 

- Implementation of the RFR in the Bank's systems

 

4th phase

 

- Carrying out tests of course of financial operations to review the correct accrual of the new RFR.

 

- Preparation of documentation with the RFR.

 

· 5th phase, currently in process:

 

- Renegotiation of contracts with floating Libor rate with expiration after June 2023, in process.

 

216


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(4) Other Information related to Financial Risks, continued:

 

b) FCA publication of April 03, 2023:

 

In November 2022, FCA announced a consultation on the possibility of continuing to publish synthetic USD LIBOR rates for 1, 3 and 6 months after the cessation of the defined LIBOR panel on June 30, 2023.

 

From the inquiry, on April 3, 2023 the FCA has announced that it will require the LIBOR panel to continue to publish 1, 3 and 6 month LIBOR rate adjustments using a 'synthetic' non-representative methodology.

 

Likewise, the FCA intends to cease publishing synthetic adjustments on September 30, 2024, however, it will take into account any unforeseen and material events.

 

c) Offsetting of financial assets and liabilities:

 

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

 

Below are detail the contracts susceptible to offset:

 

    Fair Value     Negative Fair Value
of contracts with
right to offset
    Positive Fair Value
of contracts with
right to offset
    Financial Collateral     Net Fair Value  
    June     December     June     December     June     December     June     December     June     December  
    2023     2022     2023     2022     2023     2022     2023     2022     2023     2022  
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
                                                             
Derivative financial assets     2,359,616       2,987,106       (1,224,829 )     (1,014,141 )     (752,565 )     (1,508,710 )     (192,185 )     (180,863 )     190,037       283,392  
                                                                                 
Derivative financial liabilities     2,769,428       3,324,498       (1,224,829 )     (1,014,141 )     (752,565 )     (1,508,710 )     (327,956 )     (302,571 )     464,078       499,076  

 

217


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(5) Operational risk:

 

One of the Bank's objectives is to monitor, control and maintain at adequate levels, the risk of losses resulting from a lack of adequacy or a failure of processes, personnel and/or internal systems, or due to external events. This definition includes legal risk and excludes strategic and reputational risk.

 

Operational risk is inherent in all activities, products and systems, and cuts across the entire organization in its strategic, business and support processes. It is the responsibility of all the Bank's collaborators to manage and control the risks generated within their scope of action, since their materialization may lead to direct or indirect financial losses.

 

To face this risk, the Bank has defined a Regulatory Framework and a governance structure according to the volume and complexity of its activities. The Retail Credit Risk and Global Risk Control Division administer the management of this risk, through the establishment of an Operational Risk Management. Likewise, the “Superior Committee for Operational Risk” and the “Committee for Operational Risk” supervise it.

 

The Operational Risk Policy defines a comprehensive management model based on four main processes that ensure an adequate control environment in the organization.

 

These processes are implemented in the different areas of Operational Risk action, using various management and control tools:

 

 

218


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(5) Operational risk, continued:

 

The aforementioned processes correspond to:

 

1. Identification and Evaluation: Identification and assessment is an important feature within operational risk management. At Banco de Chile, the identification and evaluation process considers internal and external factors, which allows the Bank to better understand operational risk, and thus allocate resources and define strategies efficiently and effectively.

 

The Bank promotes the use of methodologies and procedures with the objective of guaranteeing an adequate identification and evaluation of these risks, both inherent and residual. These are executed with a frequency that allows knowing the operational risks in a timely manner.

 

2. Control and Mitigation: Determination of acceptable risk levels and mitigation actions to be applied in case of deviation from these levels.

 

The control and mitigation process is an important characteristic within operational risk management, since its objective is to maintain risk at adequate levels.

 

Banco de Chile will execute a set of control and mitigation tools in the different areas of management, which will make it possible to alert deviations in exposure to operational risk, where mitigation measures will be evaluated to solve them.

 

3. Monitoring and Reporting: Monitoring and reporting is an important characteristic of operational risk management, since its objective is to guarantee the monitoring of the main risks and inform the different interested parties.

 

At Banco de Chile, monitoring and reporting will consider information related to the different areas of management. If necessary, the results of the monitoring activities will be included in the relevant government instances.

 

4. Operational Risk Culture: Continuous training and awareness of Bank employees with the aim of strengthening operational risk management.

 

The Operational Risk Management plans operational risk culture programs, aimed at raising awareness and training Bank employees in risk identification, control effectiveness, and event detection in their normal operating activities, so that each collaborator contributes to reduce the occurrence of risk events and mitigate their impact on the business. This may be done in coordination with the different organizational units as necessary.

 

219


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(5) Operational risk, continued:

 

Additionally, the comprehensive management of Operational Risk considers the following areas:

 

Fraud Management: considers the permanent analysis of information (both internal and external) to identify risk points and behavior, defining and driving mitigation actions, aiming to improve security for our customers and reduce economic losses associated with this concept.

 

Process Assessment: considers the identification and assessment of risks and controls associated with all bank processes, constantly monitoring and determining acceptable risk levels and mitigation actions to be applied in the event of deviation from these levels.

 

Testing of Controls: consists of evaluating the operational effectiveness of the documented controls by risk operational through effectiveness tests, allowing to verify if the controls are correctly designed and implemented to prevent or detect a material error.

 

Event Management: Significant operational risk events, whether resulting in losses or not, are analyzed, controlled, and reported to the defined governance entities, in order to prevent them from recurring, with emphasis on proper process execution and promoting mitigating measures to ensure an adequate control environment.

 

Loss Base Management: Its purpose is to establish processes and procedures that allow the identification, collection and treatment of operational loss records, and their proper recording in the loss base, ensuring compliance with the regulatory requirements established in the methodology for the computation of operational risk weighted assets.

 

Profile and Risk Appetite Framework: Its objective is to determine the inherent risk profile of the institution, through methodologies that allow quantifying said profile. Additionally, Operational Risk management is aligned with the statements established in the Bank's Operational Risk Appetite Framework (“RAF”).

 

Operational Risk Capital Management: considers designing and ensuring the implementation of the measurement, reporting and control of stress testing models for operational risk, in accordance with the regulatory framework established for this area. Additionally, ensure the correct measurement and reporting of operational risk weighted assets.

 

Supplier Management: Its purpose is to identify, manage and monitor the risks that may arise from outsourcing services to external providers. For this, the Bank has a supplier management model that considers an analysis of criticality and risk associated with the services contracted and a scheme of evaluation and monitoring with special focus on those considered relevant.

 

220


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(5) Operational risk, continued:

 

Self-Assessment Matrix: Its purpose is to comply with the established in Chapter 1-13 of the Actualized Standards Compilation for the Financial Market, where the management of both the Bank and its Subsidiaries must analyze and comment on the development of its risk management. This pronouncement considers each of the matters established in the standard, taking into account additional aspects related to management. In this context, the Operational Risk Management Department has the role of coordinator and general orchestrator of the exercise, consolidating results and reporting them to the corresponding government instances.

 

Operational Risk Assessment for Projects: The Bank is constantly working on project development, intensified in a digital transformation context, which includes the creation of new products and services, major technological implementations and operational changes in its processes. The implementation of these projects can lead to the emergence of new risks that must be properly mitigated prior to implementation, through the design of robust controls. For this, there is a methodological framework and specific tools that allow for an assessment of the different risks and controls, establish a general level of risk exposure, and determine mitigation actions in cases where necessary.

 

Subsidiary Control: It consists of verifying the Operational Risk policy of the subsidiaries in relation to the Bank. On the other hand, knowledge is taken of the management carried out by the subsidiaries and reported to their respective government instances. Finally, the corrective measures adopted in the event of deviations or contingency scenarios that could affect subsidiaries and/or the Bank are known.

 

All areas previously mentioned, together with the corresponding regulatory framework and governance structure, constitute the overall management of Operational Risk. Each of the areas is based on a process of identification, evaluation and mitigation of risks, whether or not they have been realized, which can lead to the definition of action plans or indicators that allow for adequate monitoring of each risk. In this way, Banco de Chile and its Subsidiaries ensure an adequate environment for the management of operational risk.

 

221


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(5) Operational risk, continued:

 

Below is the exposure to net loss, gross loss and recoveries due to operational risk events as of June 30, 2023 and 2022:

 

    June 2023     June 2022  
Category  

Lost

Gross

   

Recoveries

   

Lost

Net

   

Lost

Gross

   

Recoveries

   

Lost

Net

 
    MCh$     MCh$     MCh$     MCh$     MCh$     MCh$  
Internal fraud     23       (14 )     9       56             56  
External fraud     10,607       (4,297 )     6,310       6,333       (2,529 )     3,804  
Work practices and safety in the business position     995             995       627       (3 )     624  
Customers, products and business practices     636             636       297             297  
Damage to physical assets     472       (7 )     465       143       (1 )     142  
Business interruption and system failures     153             153       91             91  
Execution, delivery and process management     1,733       (378 )     1,355       1,642       (275 )     1,367  
Total     14,619       (4,696 )     9,923       9,189       (2,808 )     6,381  

 

Cybersecurity

 

The Engineering Management is in charge of defining, implementing and maximizing existing cyber threat protection technologies, and defining and maintaining the security architecture. The Cyber Defense Management is responsible for safeguarding information assets by proactively detecting, responding and containing threats. Likewise, this department is responsible for managing cybersecurity incidents in an assertive and timely manner, minimizing the impact and improving response times, with the aim of protecting the Bank's operations. The Strategic Management Sub-department is responsible for defining and managing and complying with the Strategic Plan of the Cybersecurity Division, guaranteeing the effective and efficient use of resources, and imparting and controlling the Cybersecurity guidelines to suppliers. The Technological Risk Management is in charge of identifying, evaluating, treating and reporting information security, technological and cybersecurity risks, this includes the management of technological risks in the Bank's projects. Furthermore, the Sub-Management of Cybersecurity Assurance has the responsibility of reviewing compliance with the Strategic Plan, policies, procedures and regulatory framework in terms of cybersecurity. It also develops and implements the Cybersecurity Awareness Program of the corporation. Finally, the Advanced Cyber Intelligence and Analytics Unit aims to obtain, analyze, and process timely information regarding threats, to provide cyber intelligence and facilitate decision-making within the corporation, in order to keep it safe, protected and resilient.

 

222


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(6) Business Continuity:

 

The Bank in the management for the compliance with the objectives related to the delivery of the service of attention to its clients, has the Management of Business Continuity, responsible for managing the constant preparation for the safeguard of the operation of the critical products and services before situations that could affect the continuity of the organization or of the country.

 

In addition, the Business Continuity Management defines the global and regulatory framework established in the Policy and Standard, developing a consistent Continuity Plan for the Bank and its Subsidiaries, with the aim of managing the strategy and control of business continuity in operational and technological lines, maintaining alternate operation plans, controlled and simulation tests to reduce the impact of disruptive events, in addition to providing resilience to the organization by establishing comprehensive strategies to ensure the safety of the employees, protect the Bank's assets from catastrophic scenarios, maintain relevant documentation and carry out trainings associated with this subject.

 

That is why Business Continuity has methodologies and controls that contribute to the application of the integrated model within the corporation, mainly represented in the following management areas:

 

Document Management: It consists of carrying out methodological processes of updating the documentation that supports Business Continuity in operational and technological areas, with the aim of keeping the strategy implemented in the Bank up to date and in accordance with the guidelines of Business Continuity Management (BCM).

 

Business Continuity Tests: It refers to annually scheduled contingency simulations that address the 5 risk scenarios defined for the Bank (Failure in Technology Infrastructure, Failure in Physical Infrastructure, Massive Absence of Personnel, Failure in Critical Supplier Service and Cybersecurity), allowing to maintain constant training and integration of critical personnel operating the payment chain, under the defined contingency procedures that support the Bank's critical products and services.

 

Crisis Management: Internal process of the Bank that maintains and trains the key executive roles associated with the Crisis Groups in conjunction with the main recovery strategies and structures defined in the BCM model. In this way, it constantly strengthens the different areas necessary for preparation, execution and monitoring, which will allow to face crisis events in the Bank.

 

Critical Supplier Management: This involves the management, control and testing of Business Continuity Plans implemented by the suppliers involved in the processing of critical products and services for the Bank, associated with the risk scenarios established in direct relation to the contracted service.

 

223


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

47. Risk Management and Report, continued:

 

(6) Business Continuity, continued:

 

Alternative Site Management: It includes the continuous management and control of secondary physical locations for the Bank's critical units, to keep the operation active in case of failure in the main work location. The objective is to protect and maintain the technological and operational functionalities of the alternative sites, to reduce recovery times in case of crisis and that activation is effective when its use is required.

 

Relations with subsidiaries and External Entities: It consists of the permanent control, management and leveling on the compliance of Subsidiaries under the methodology and strategic lines established by the Bank in crisis environments and Business Continuity Management. It also includes the global management with the requirements of internal and external regulators.

 

Continuous Improvement: considers the application of automation processes and the adaptation of resources used in the internal processes of the business continuity model, with the objective of improving response times in the delivery and analysis of information in contingencies, complementing the managed processes of the BCM.

 

Training: It includes the development and implementation of processes and instances prepared under different learning methodologies to strengthen and empower employees about the continuity of business model.

 

Cybersecurity Control: During the first half of 2023, the role of information security officer (ISO) is incorporated into the Retail Credit Risk and Global Risk Control Division, which has an independent function in charge of designing and implementing a monitoring environment of adequate definition and implementation of the information security and cybersecurity strategy and controls, as well as the independence of the control functions of the Cybersecurity Division. Additionally, with the purpose of reinforcing the independence of Technological Risk, there is a double dependence on both the Cybersecurity Division Manager (CSO) and the ISO in their evaluation and management of the risks of processes, information assets and projects.

 

The management and unification of the described areas, together with the compliance of the implemented regulations and the structured governability, constitute the Business Continuity Model of the Bank of Chile.

 

224


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

48. Information on Regulatory Capital and Capital Adequacy Ratios:

 

Requirements and Capital Management:

 

The main objectives of the Bank's capital management are to ensure the adequacy and quality of its capital, at a consolidated level, based on the adequate management of the risks it faces in its operations, establishing sufficient capital levels, through the definition of internal objectives, that supports both the business strategy in both normal and stress scenarios in the short and medium term, thus ensuring compliance with regulatory requirements, coverage of its material risks, a solid credit classification and the generation of adequate capital clearances. During 2023, the Bank has comfortably met the required capital requirements and its internal sufficiency objectives.

 

As part of its Capital Management Policy, the Bank has established capital sufficiency alerts and limits approved by the Board of Directors, which are monitored by the governance structures that the Bank has established for these purposes, including the Capital Management Committee. During 2023, none of the internal alerts defined by the Bank were activated as part of the Capital Risk Appetite Framework. In this sense, the Bank manages capital based on its strategic objectives, its risk profile and its ability to generate cash flows, as well as the economic and business context in which it operates. Consequently, the Bank may modify the amount of payment of dividends to its shareholders or issue basic capital, additional tier 1 capital or tier 2 capital instruments.

 

Capital Requirements

 

In accordance with the General Banking Law, the effective equity of a bank may not be less than 8% of its risk-weighted assets (RWA), net of required provisions. Additionally, it establishes that the Basic Capital may not be less than 4.5% of its APR or 3% of its total assets, net of required provisions. Regarding Tier 1 capital, corresponding to the sum of Basic Capital and Additional Tier 1 Capital, the latter in the form of bonds with no maturity date and preferred shares, it is established that it may not be less than 6% of their RWAs, net of required provisions. Likewise, banking entities must comply, as established by current regulations or regulators, with capital buffers, such as the conservation buffer, the systemically important buffer, the countercyclical buffer and/or capital charges by Pillar 2.

 

Adoption of the Basel III standard

 

In 2019, the CMF began the regulatory process for the implementation of Basel III standards in Chile, as established in Law No. 21,130 that modernizes banking legislation. During the years 2020 and 2021, the CMF promulgated the different regulations for the adoption of the Basel III standard for local banking, which are applicable as of December 1, 2021. The regulation includes the standard methodologies to determine, among others, Credit, Operational and Market Risk-Weighted Assets, regulatory capital, leverage ratio and systemically important banks. Additionally, the regulations describe requirements and conditions applicable to: (i) the application of internal models for the calculation of certain risk-weighted assets, (ii) the issuance of additional tier 1 and tier 2 capital hybrid instruments, (iii) market disclosure requirements (Pillar 3), (iv) the principles for determining capital buffers (countercyclical and conservation), (v) additional requirements to which banks defined as systemically important and (vi) the criteria by which banks can be defined as atypical and subject to more exhaustive supervision, as well as additional capital requirements (Pillar 2) among others.

 

225


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

48. Information on Regulatory Capital and Capital Adequacy Ratios, continued:

 

On March 31, 2023, the CMF ratified the systemically important banking feature of Banco de Chile, confirming a system cushion of 1.25% for the entity, with the graduality defined by the regulation. Likewise, based on the conclusions of the self-assessment of capital process for the year ended December 31, 2021, the CMF did not establish additional capital charges for Pillar 2 for the Bank.

 

On May 23, 2023, the Central Bank reported that its board agreed to activate the countercyclical capital requirement for banks, at a local banking industry level, equivalent to 0.5% of the risk-weighted assets of banking institutions, payable within one year.

 

The aforementioned Basel III banking solvency standards consider a series of transitory regulations. These measures include: i) the gradual adoption of the conservation buffer, requirements for systemic banks, ii) the gradual application of adjustments to regulatory capital, iii) the temporary substitution of additional tier 1 capital (AT1) for tier 2 capital instruments, that is, subordinated bonds and additional provisions and iv) gradualness to continue recognizing subordinated bonds issued by banking subsidiaries as effective equity, among other matters.

 

Information on regulatory capital and capital adequacy indicators is presented below:

 

    Total assets, risk-weighted assets and components of the   Local and Overall     Local and Overall  
    effective equity according to Basel III   consolidated     consolidated  
Item No.   Item description   Jun-2023     Dec-2022  
    MCh$     MCh$  
                     
1   Total assets according to the statement of financial position     54,274,549       55,255,362  
2   Non-consolidated investment in subsidiaries            
3   Assets discounted from regulatory capital, other than item 2     177,580       165,833  
4   Derivative credit equivalents     867,699       1,276,512  
4.1   Financial derivative contracts     2,359,616       2,987,106  
5   Contingent loans     2,582,907       2,756,396  
6   Assets generated by the intermediation of financial instruments                
7   = (1-2-3+4-4.1+5-6) Total assets for regulatory purposes     55,187,959       56,135,331  
8. a   Credit risk weighted assets, estimated according to the standard methodology (CRWA)     30,742,293       30,657,020  
8.b   Credit risk weighted assets, estimated according to internal methodologies (CRWA)            
9   Market risk weighted assets (MRWA)     1,419,686       1,365,367  
10   Operational risk weighted assets (ORWA)     3,837,151       3,630,835  
11.a   = (8.a/8.b+9+10) Risk-weighted assets (RWA)     35,999,130       35,653,222  
11.b   = (8.a/8.b+9+10) Risk-weighted assets, after application of the output floor (RWA)     35,999,130       35,653,222  
12   Owner's equity     4,871,987       4,858,325  
13   Non-controlling interest     1       2  
14   Goodwill            
15   Excess minority investments            
16   = (12+13-14-15) Core Tier 1 Capital (CET1)     4,871,988       4,858,327  
17   Additional deductions to core tier 1 capital, other than item 2     27,462       18,940  
18   = (16-17-2) Core Tier 1 Capital (CET1)     4,844,526       4,839,387  
19   Voluntary provisions (additional) imputed as additional Tier 1 capital (AT1)     179,996       178,266  
20   Subordinated bonds imputed as additional tier 1 capital (AT1)            
21   Preferred shares allocated to additional tier 1 capital (AT1)            
22   Bonds without a fixed term of maturity imputed to additional tier 1 capital (AT1)            
23   Discounts applied to AT1            
24   = (19+20+21+22-23) Additional Tier 1 Capital (AT1)     179,996       178,266  
25   = (18+24) Tier 1 Capital     5,024,522       5,017,653  
26   Voluntary provisions (additional) imputed as Tier 2 capital (T2)     384,279       383,213  
27   Subordinated bonds imputed as Tier 2 capital (T2)     989,044       972,550  
28   = (26+27) Equivalent tier 2 capital (T2)     1,373,323       1,355,763  
29   Discounts applied to T2            
30   = (28-29) Tier 2 capital (T2)     1,373,323       1,355,763  
31   = (25+30) Effective equity     6,397,845       6,373,416  
32   Additional basic capital required for the constitution of the conservation buffer     450,047       445,669  
33   Additional basic capital required to set up the countercyclical buffer            
34   Additional basic capital required for banks qualified as systemic     112,512       111,417  
35   Additional capital required for the evaluation of the adequacy of effective equity (Pillar 2)            

 

226


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

48. Information on Regulatory Capital and Capital Adequacy Ratios, continued:

 

 

   

Local and Overall

   

Local and Overall

 
   

consolidated

   

consolidated

 

 

June -2023

   

December -2022

 
Capital Adequacy Ratios and Regulatory Compliance according to Basel III   %     %  
Leverage Ratio     8.78 %     8.62 %
Leverage Ratio that the bank must meet, considering the minimum requirements     3 %     3 %
CET 1 Capital Ratio     13.46 %     13.57 %
CET 1 Capital Ratio that the bank must meet, considering the minimum requirements     4.81 %     4.81 %
Capital buffer shortfall     0 %     0 %
Tier 1 Capital Ratio     13.96 %     14.07 %
Tier 1 Capital Ratio that the bank must meet, considering the minimum requirements     6.00 %     6.00 %
Total or Regulatory Capital Ratio     17.77 %     17.88 %
Total or Regulatory Capital Ratio that the bank must meet, considering the minimum requirements     8.00 %     8.00 %
Total or Regulatory Capital Ratio that the bank must meet, considering the charge for article 35 bis     8.00 %     8.00 %
Total or Regulatory Capital Ratio that the bank must meet, considering the minimum requirements, conservation buffer and countercyclical buffer     9.25 %     9.25 %
Credit rating     A       A  
Regulatory compliance for Capital Adequacy                
Additional provisions computed in Tier 2 capital (T2) in relation to CRWA     1.25 %     1.25 %
Subordinated bonds computed as Tier 2 capital (T2) in relation to CET 1 Capital     20.30 %     20.02 %
Additional Tier 1 Capital (AT1) in relation to CET 1 Capital     3.72 %     3.68 %
Voluntary (additional) provisions and subordinated bonds computed as AT1 in relation to RWAs     0.50 %     0.50 %

 

 

227


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

 

 

 

49. Subsequent Events:

 

On July 24, 2023, the subsidiary Banchile Administradora General de Fondos S.A. reported that, in the Board meeting on the same date, the resignation presented by the Director, Mr. Andrés Lagos Vicuña, was acknowledged and accepted. Therefore, the Board of Directors agreed to appoint Ms. Catherine Tornel León as Director of Banchile Administradora General de Fondos S.A.

 

The Interim Consolidated Financial Statements of Banco de Chile for the period ended June 30, 2023 were approved by the Directors on July 27, 2023.

 

In Management's opinion, there are no other significant subsequent events that affect or could affect the Interim Consolidated Financial Statements of Banco de Chile and its subsidiaries between June 30, 2023 and the date of issuance of these Interim Consolidated Financial Statements.

 

 

 

/s/ Héctor Hernández G.  

/s/ Eduardo Ebensperger O.

Héctor Hernández G.

General Accounting Manager

 

Eduardo Ebensperger O.

Chief Executive Officer

 

 

 

228