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, 2020

 

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 ☒         Form 40-F ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(1): ____

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(7): ____

 

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 ☒

 

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, 2020.

 

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 29, 2020

 

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

 

 

2

 

Exhibit 99.1

 

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

 

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

 

INDEX

 

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

 

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

 

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

 

INDEX

 

    Page
Interim Consolidated Statement of Financial Position F-1
Interim Consolidated Statements of Income F-2
Interim Consolidated Statements of Other Comprehensive Income F-3
Interim Consolidated Statement of Changes in Equity F-4
Interim Consolidated Statements of Cash Flows F-5
1. Company information: F-6
2. Legal regulations, basis of preparation and Other information: F-7
3. New Accounting Pronouncements: F-10
4. Changes in Accounting Policies and Disclosures: F-17
5. Relevant Events: F-18
6. Business Segments: F-21
7. Cash and Cash Equivalents: F-24
8. Financial Assets Held-for-trading: F-25
9. Investments under resale agreements and obligations under repurchase agreements: F-26
10. Derivative Instruments and Accounting Hedges: F-28
11. Loans and Advances to Banks, net: F-34
12. Loans to Customers, net: F-35
13. Investment Securities: F-41
14. Investments in Other Companies: F-43
15. Intangible Assets: F-45
16. Fixed assets, leased assets and lease liabilities: F-47
17. Current Taxes and Deferred Taxes: F-52
18. Other Assets: F-56
19. Current Accounts and Other Demand Deposits: F-57
20. Savings Accounts and Time Deposits: F-57
21. Borrowings from Financial Institutions: F-58
22. Debt Issued: F-59
23. Other Financial Obligations: F-63
24. Provisions: F-63
25. Other Liabilities: F-67
26. Contingencies and Commitments: F-68
27. Equity: F-73
28. Interest Revenue and Expenses: F-76
29. Income and Expenses from Fees and Commissions: F-78
30. Net Financial Operating Income: F-79
31. Foreign Exchange Transactions, Net: F-76
32. Provisions for Loan Losses: F-80
33. Personnel Expenses: F-81
34. Administrative Expenses: F-82
35. Depreciation, Amortization and Impairment: F-83
36. Other Operating Income: F-84
37. Other Operating Expenses: F-85
38. Related Party Transactions: F-86
39. Fair Value of Financial Assets and Liabilities: F-91
40. Maturity of Assets and Liabilities: F-104
41. Subsequent Events: F-105

 

i

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

For the periods ended June 30, 2020 and December 31, 2019

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

(Expressed in million of Chilean pesos)

 

      June   December 
   Notes  2020   2019 
      MCh$   MCh$ 
ASSETS           
Cash and due from banks  7   2,247,451    2,392,166 
Transactions in the course of collection  7   501,348    584,672 
Financial assets held-for-trading  8   3,979,617    1,872,355 
Investment under resale agreements  9   47,878    142,329 
Derivative instruments  10   3,983,317    2,786,215 
Loans and advances to banks  11   1,940,990    1,139,433 
Loans to customers, net  12   30,162,045    29,334,052 
Financial assets available-for-sale  13   1,597,132    1,357,846 
Financial assets held-to-maturity  13        
Investments in other companies  14   51,273    50,758 
Intangible assets  15   59,464    58,307 
Property and equipment  16   221,888    220,262 
Leased assets  16   136,025    150,665 
Current tax assets  17   28,520    357 
Deferred tax assets  17   324,211    320,948 
Other assets  18   861,478    862,968 
TOTAL ASSETS      46,142,637    41,273,333 
              
LIABILITIES             
Current accounts and other demand deposits  19   13,128,551    11,326,133 
Transactions in the course of payment  7   526,963    352,121 
Obligations under repurchase agreements  9   238,508    308,734 
Savings accounts and time deposits  20   9,687,722    10,856,618 
Derivative instruments  10   4,111,728    2,818,121 
Borrowings from financial institutions  21   4,313,057    1,563,277 
Debt issued  22   9,152,506    8,813,414 
Other financial obligations  23   100,078    156,229 
Lease liabilities  16   132,130    146,013 
Current tax liabilities  17   4    76,289 
Deferred tax liabilities  17   14     
Provisions  24   566,583    684,663 
Other liabilities  25   605,883    643,498 
TOTAL LIABILITIES      42,563,727    37,745,110 
              
EQUITY  27          
Attributable to Bank’s Owners:             
Capital      2,418,833    2,418,833 
Reserves      703,206    703,272 
Other comprehensive income      (85,257)   (56,601)
Retained earnings:             
Retained earnings from previous years      412,641    170,171 
Income for the period      248,585    593,008 
Less:             
Provision for minimum dividends      (119,099)   (300,461)
Subtotal      3,578,909    3,528,222 
Non-controlling interests      1    1 
TOTAL EQUITY      3,578,910    3,528,223 
TOTAL LIABILITIES AND EQUITY      46,142,637    41,273,333 

 

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

 

F-1

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF INCOME

For the six-month ended June 30, 2020 and 2019

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

(Expressed in million of Chilean pesos)

 

      June   June 
   Notes  2020   2019 
      MCh$   MCh$ 
            
Interest revenue  28   995,051    1,031,683 
Interest expense  28   (321,156)   (364,583)
Net interest income      673,895    667,100 
              
Income from fees and commissions  29   298,601    279,671 
Expenses from fees and commissions  29   (56,622)   (64,027)
Net fees and commission income      241,979    215,644 
              
Net financial operating income  30   19,793    43,431 
Foreign exchange transactions, net  31   65,193    32,391 
Other operating income  36   16,242    24,346 
Total operating revenues      1,017,102    982,912 
              
Provisions for loan losses  32   (264,968)   (157,115)
              
OPERATING REVENUES, NET OF PROVISIONS FOR LOAN LOSSES      752,134    825,797 
              
Personnel expenses  33   (214,007)   (228,927)
Administrative expenses  34   (171,920)   (166,323)
Depreciation and amortization  35   (36,112)   (34,665)
Impairment  35   (867)   (822)
Other operating expenses  37   (18,920)   (21,786)
              
TOTAL OPERATING EXPENSES      (441,826)   (452,523)
              
NET OPERATING INCOME      310,308    373,274 
              
Income attributable to associates  14   1,575    3,973 
Income before income tax      311,883    377,247 
              
Income tax  17   (63,298)   (83,584)
              
NET INCOME FOR THE PERIOD      248,585    293,663 
              
Attributable to:             
Bank’s Owners  27   248,585    293,663 
Non-controlling interests           
              
Net income per share attributable to Bank’s Owners:      Ch$    Ch$ 
Basic net income per share  27   2.46    2.91 
Diluted net income per share  27   2.46    2.91 

 

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

 

F-2

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF

OTHER COMPREHENSIVE INCOME

For the six-month ended June 30, 2020 and 2019

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

(Expressed in million of Chilean pesos)

 

      June   June 
      2020   2019 
   Notes  MCh$   MCh$ 
            
NET INCOME FOR THE PERIOD      248,585    293,663 
              
OTHER COMPREHENSIVE INCOME THAT WILL BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS             
              
Net gains (losses) on available-for-sale instruments valuation  13   5,862    17,677 
Net gains (losses) on derivatives held as cash flow hedges  10   (45,119)   (25,344)
Subtotal Other comprehensive income before income taxes      (39,257)   (7,667)
              
Income tax relating to the components of other comprehensive income that are reclassified in income for the period      10,601    2,065 
              
Total other comprehensive income items that will be reclassified subsequently to profit or loss      (28,656)   (5,602)
              
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS             
              
Adjustment for defined benefit plans  24   (91)   (186)
              
Subtotal other comprehensive income before income taxes      (91)   (186)
              
Income tax relating to the components of other comprehensive income that will not be reclassified to income for the period  17   25    50 
              
Total other comprehensive income items that will not be reclassified subsequently to profit or loss      (66)   (136)
              
CONSOLIDATED COMPREHENSIVE INCOME FOR THE PERIOD      219,863    287,925 
              
Attributable to:             
Bank’s Owners      219,863    287,925 
Non-controlling interests           

 

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

 

F-3

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the six-month ended June 30, 2020 and 2019

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

(Expressed in millions of Chilean pesos)

 

          Reserves   Other comprehensive income   Retained earnings     
   Notes  Paid-in Capital   Other reserves   Reserves from earnings   Unrealized gains (losses) on available-for-sale   Derivatives cash flow hedge   Income Tax   Retained earnings from previous period   Income (losses) for the period   Provision for minimum dividends   Attributable to equity holders of the parent   Non-controlling interest   Total equity 
      MCh$   MCh$   MCh$   MCh$   MCh$       MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                    
Balances as of December 31, 2018      2,418,833    31,961    585,636    (9,936)   (43,494)   14,208    17,481    594,872    (305,409)   3,304,152    1    3,304,153 
Retention of profits                              152,705    (152,705)                
Retention (release) of profits according to bylaws              85,856                    (85,856)                
Dividends distributions and paid  27                               (356,311)   305,409    (50,902)       (50,902)
Defined benefit plans adjustment, net          (136)                               (136)       (136)
Other comprehensive income:                                                               
Derivatives cash flow hedge  27                   (25,344)   6,843                (18,501)       (18,501)
Valuation adjustment on available-for-sale instruments  27               17,677        (4,778)               12,899        12,899 
Equity effect change in accounting policy                              (15)           (15)       (15)
Income for the period 2019  27                               293,663        293,663        293,663 
Provision for minimum dividends                                      (148,510)   (148,510)       (148,510)
Balances as of June 30, 2019      2,418,833    31,825    671,492    7,741    (68,838)   16,273    170,171    293,663    (148,510)   3,392,650    1    3,392,651 
Other comprehensive income:                                                               
Defined benefit plans adjustment, net          (45)                               (45)       (45)
Derivatives cash flow hedge                      (12,202)   3,295                (8,907)       (8,907)
Valuation adjustment on available-for-sale instruments                  (3,914)       1,044                (2,870)       (2,870)
Income for the period 2019                                  299,345        299,345        299,345 
Provision for minimum dividends                                      (151,951)   (151,951)       (151,951)
Balances as of December 31, 2019      2,418,833    31,780    671,492    3,827    (81,040)   20,612    170,171    593,008    (300,461)   3,528,222    1    3,528,223 
Retention of profits  27                           242,470    (242,470)                
Dividends distributions and paid  27                               (350,538)   300,461    (50,077)       (50,077)
Other comprehensive income:                                                               
Defined benefit plans adjustment, net          (66)                               (66)       (66)
Derivatives cash flow hedge, net  27                   (45,119)   12,182                (32,937)       (32,937)
Valuation adjustment on available-for-sale instruments  27               5,862        (1,581)               4,281        4,281 
Income for the period 2020  27                               248,585        248,585        248,585 
Provision for minimum dividends  27                                   (119,099)   (119,099)       (119,099)
Balances as of June 30, 2020      2,418,833    31,714    671,492    9,689    (126,159)   31,213    412,641    248,585    (119,099)   3,578,909    1    3,578,910 

 

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

 

F-4

 

 

 

BANCO DE CHILE AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six-month ended June 30, 2020 and 2019

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

(Expressed in million of Chilean pesos)

 

      June   June 
      2020   2019 
   Notes  MCh$   MCh$ 
CASH FLOWS FROM OPERATING ACTIVITIES:           
Net income for the period      248,585    293,663 
Charges (credits) to income  that do not represent cash flows:             
Depreciation and amortization  35   36,112    34,665 
Impairment  35   867    822 
Provision for loans and accounts receivable from customers and owed by banks  32   200,387    178,820 
Provision of contingent loans  32   11,509    2,670 
Additional provisions  32   70,000     
Fair value adjustment of financial assets held-for-trading      (2,129)   (2,305)
Changes in assets and liabilities by deferred taxes  17   (4,805)   (46,728)
(Gain) loss attributable to investments in companies with significant influence, net  14   (1,253)   (3,655)
(Gain) loss from sales of assets received in lieu of payment,net  36   (3,597)   (6,358)
(Gain) loss on sales of property and equipment, net  36   (19)   (43)
Charge-offs of assets received in lieu of payment  37   1,898    3,769 
Other charges (credits) to income that do not represent cash flows      15,983    6,613 
Net changes in exchange rate, interest and fees accrued on assets and liabilities      43,444    (4,210)
              
Changes in assets and liabilities that affect operating cash flows:             
(Increase) decrease in loans and advances to banks, net      (802,279)   302,522 
(Increase) decrease in loans to customers      (996,736)   (1,034,377)
(Increase) decrease in financial assets held-for-trading, net      239,107    90,824 
(Increase) decrease in other assets and liabilities      (111,634)   375,546 
Increase (decrease) in current account and other demand deposits      1,805,194    15,215 
Increase (decrease) in transactions from reverse repurchase agreements      (72,178)   (30,948)
Increase (decrease) in savings accounts and time deposits      (1,123,821)   130,378 
Sale of assets received in lieu of payment or adjudicated      9,879    16,407 
Total cash flows from operating activities      (435,486)   323,290 
              
CASH FLOWS FROM INVESTING ACTIVITIES:             
(Increase) decrease in financial assets available-for-sale, net      (238,226)   (187,415)
Payments for lease agreements  16   (13,852)   (14,332)
Net changes in leased assets      (559)   (212)
Purchases of property and equipment  16   (16,547)   (18,621)
Sales of property and equipment      19    43 
Acquisition of intangible assets  15   (8,938)   (8,469)
Acquisition of investments in companies  14        
Dividends received from investments in companies  14   1,073    871 
Total cash flows from investing activities      (277,030)   (228,135)
              
CASH FLOWS FROM FINANCING ACTIVITIES:             
Redemption of letters of credit      (1,210)   (1,714)
Issuance of bonds  22   814,881    867,072 
Redemption of bonds      (716,547)   (514,893)
Dividends paid  27   (350,538)   (356,311)
Increase (decrease) in borrowings from foreign financial institutions      (357,880)   78,486 
Increase (decrease) in other financial obligations      (44,793)   54,417 
Increase (decrease) in other obligations with Central Bank of Chile      3,110,600     
Payment of other long-term borrowings      (11,236)   (908)
Total cash flows from financing activities      2,443,277    126,149 
              
TOTAL NET  POSITIVE CASH FLOWS FOR THE PERIOD      1,730,761    221,304 
              
Effect of exchange rate changes      114,463    3,817 
              
Cash and cash equivalents at beginning of period      3,931,371    2,256,375 
              
Cash and cash equivalents at end of period  7   5,776,595    2,481,496 

 

   June   June 
   2020   2019 
Operational Cash flow interest:  MCh$   MCh$ 
         
Interest received   961,898    978,878 
Interest paid   (130,096)   (312,171)

 

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

 

F-5

BANCO DE CHILE AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

   

 

1.Company information:

 

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

 

Banco de Chile (or the “Bank”) is a Corporation organized under the laws of the Republic of Chile, regulated by the Chilean Commission for the Financial Market (“CMF”), in accordance with the established in the Law 21,130 dated January 12, 2019, which ordered the integration of the Superintendency of Banks and Financial Institutions (“SBIF”) with the Commission for the Financial Market as of June 1, 2019. 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, financial advisory services and securitization.

 

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

 

The Interim Consolidated Financial Statements of Banco de Chile, for the period ended June 30, 2020 were approved by the Directors on July 29, 2020.

 

F-6

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

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

 

(a)Legal regulations:

 

The Law 21,000 that creates the CMF, in its article 5, empowers it to issue accounting standards of general application for entities it supervises. The Corporations Law, in turn, requires following the generally accepted accounting principles.

 

Based on the aforementioned laws, banks should use the criteria provided by the Compendium of Accounting Standards (“Compendium”), and any matter not addressed therein, as long as it does not contradict its instructions, should adhere to generally accepted accounting principles standards issued by the Chilean Association of Accountants (Colegio de Contadores de Chile A.G.), that coincide with the International Financial Reporting Standards (“IFRS”) agreed upon by the International Accounting Standards Board (“IASB”). Should there be discrepancies between these generally accepted accounting principles and the accounting criteria issued by the CMF, the latter shall prevail.

 

(b)Basis of preparation:

 

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

 

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

 

            Interest Owned 
            Direct   Indirect   Total 
         Functional  June   December   June   December   June   December 
RUT  Subsidiaries  Country  Currency  2020   2019   2020   2019   2020   2019 
            %   %   %   %   %   % 
96,767,630-6  Banchile Administradora General de Fondos S.A.  Chile  Ch$   99.98    99.98    0.02    0.02    100.00    100.00 
96,543,250-7  Banchile Asesoría Financiera S.A.  Chile  Ch$   99.96    99.96            99.96    99.96 
77,191,070-K  Banchile Corredores de Seguros Ltda.  Chile  Ch$   99.83    99.83    0.17    0.17    100.00    100.00 
96,571,220-8  Banchile Corredores de Bolsa S.A.  Chile  Ch$   99.70    99.70    0.30    0.30    100.00    100.00 
96,932,010-K  Banchile Securitizadora S.A.  Chile  Ch$   99.01    99.01    0.99    0.99    100.00    100.00 
96,645,790-2  Socofin S.A.  Chile  Ch$   99.00    99.00    1.00    1.00    100.00    100.00 

 

F-7

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

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

 

(c)Use of estimates and judgments:

 

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

 

1.Provision for loan losses (Notes 11, 12 and 32);

 

2.Useful life of intangible, property and equipment and leased assets and lease liabilities (Notes 15 and 16);

 

3.Income taxes and deferred taxes (Note 17);

 

4.Provisions (Note 24);

 

5.Contingencies and Commitments (Note 26);

 

6.Fair value of financial assets and liabilities (Note 39).

 

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

 

As of June 30, there have been no significant changes in the estimates made.

 

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

 

Given the activities to which the Bank and its subsidiaries are engaged, the transactions of the Bank do not have a cyclical or seasonal nature. For this reason, specific breakdowns in these notes to the Interim Consolidated Financial Statements for the six-month period ended June 30, 2020 are not included.

 

(e)Relative Importance:

 

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

 

(f)Leases:

 

The Bank acts as a lessor

 

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

 

F-8

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

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

 

(f)Leases, continued:

 

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

 

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

 

The Bank acts as a lessee

 

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

 

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

 

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

 

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

 

As established by the Circular No. 3,649 of the CMF, the monthly variation of the UF for the contracts established in said monetary unit should be treated as a new measurement, therefore the value effect of this monetary unit as a result of the change in the Consumer Price Index (CPI) modifies the value of the lease liability and in parallel, the amount of the asset for the right to use leased assets must be adjusted for this effect.

 

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

 

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

 

(g)Reclassifications:

 

There have not been significant reclassifications at the end of this period 2020.

 

F-9

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

3.New Accounting Pronouncements:

 

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

 

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

 

As of the date of issuance of these Interim Consolidated Financial Statements, the new accounting pronouncements issued by both the International Accounting Standards Board 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 IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Definition of materiality or relative importance.

 

The IASB issued changes to IAS 1, Presentation of Financial Statements, and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, to clarify the definition of materiality and align these standards with the Revised Conceptual Framework issued in March 2018, to facilitate companies to make materiality judgments.

 

Under the old definition omissions or misrepresentations of elements are important if they could, individually or collectively, influence the economic decisions that users make on the basis of financial statements (IAS 1 Presentation of Financial Statements).

 

The new definition states that information is material if the omission, distortion or concealment of the information can reasonably be expected to influence decisions that primary users of financial statements of general purpose make on the basis of those financial statements, which provide financial information about a specific reporting entity.

 

This amendment had no impact on the Interim Consolidated Financial Statements of Banco de Chile and its subsidiaries.

 

IFRS 9 Financial Instruments, IFRS 7 Financial Instruments: Disclosures and IAS 39 Financial Instruments: Recognition and Measurement. Interest rate benchmark reform.

 

In September 2019, the IASB issued amendments to IFRS 9, IFRS 7 and IAS 39, as a result of the IBOR (Interbank Offered Rate) reform, which results in the replacement of existing reference interest rates, by alternative interest rates.

 

The amendments provide temporary application exceptions that allow hedge accounting to continue during the uncertainty period, prior to the replacement of existing reference interest rates.

 

This amendment had no impact on the Interim Consolidated Financial Statements of Banco de Chile and its subsidiaries.

 

F-10

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

3.New Accounting Pronouncements, continued:

 

Amendment to IFRS 16 Leases, for facilities granted to lessees related to Covid-19

 

During May 2020, the IASB issued the amendment to IFRS 16 Leases, to make it easier for lessees to account for changes in leases, due to the pandemic declared by COVID-19.

 

The amendment adds a practical simplification that deviates from the requirements in IFRS 16, and is provided only to give lessees practical relief during COVID-19. Therefore, it is not mandatory and empowers the lessee to choose whether or not to use practical simplification.

 

A lessee making this election must recognize in the accounting the changes resulting from the reductions in the rental payment, directly related to the Covid-19, consistent with the treatment that currently exists in the standard, to reflect a modification that does not mean a change in the lease contract.

 

Lessees are required to retrospectively apply the amendment, recognizing any differences that arise from initial application in the opening balance of retained earnings at the beginning of the annual reporting period from which the lessee first applies the amendment.

 

The amendment is applicable to the annual fiscal years beginning on or after June 1, 2020.

 

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

 

Accounting Standards issued by the CMF.

 

Circular No. 2,247. Foreclosed assets or received in lieu of payment. The sale period is extended.

 

On March 25, 2020, the CMF published this circular, which incorporated modifications to Chapter 10-1 “Assets received or awarded in payment of obligations” of the RAN. This circular is part of the work being done by the CMF in face of the worldwide outbreak of COVID19 virus.

 

The transitory standard establishes an additional term of up to 18 months to dispose of the assets, in the case of assets that have been received or awarded lieu of payment from March 1, 2019 to September 30, 2020.

 

The standard also authorizes banks to make use of this additional period, so that the charge-offs that they must currently carry out at 12 months is carried out in installments, at least a proportion of the value of the property must be charge-off, equivalent to the relationship between the number of months elapsed from the date of receipt and the number of months between that date and that the bank sets for its disposal under the additional term granted.

 

The Bank used the additional term for those assets that meet the requirements required for the application of this standard, not generating a material impact on the results of the period.

 

F-11

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

3.New Accounting Pronouncements, continued:

 

Circular No. 2,248. Equity for legal and regulatory purposes. Treatment of guarantees in favor of third parties in bilateral compensation agreements.

 

Regarding the minimum ratios that effective equity must meet with respect to its risk-weighted assets defined in Chapter 12-1 of the Actualized Standards Compilation (“RAN”), dated March 30, 2020, the CMF issued instructions for the treatment of Guarantees constituted in favor of third parties for bilateral compensation contracts, allowing banks may deduct from them, the net fair value of negative offset positions, to determine the asset subject to risk weighting, to the extent that certain conditions relating to the legal basis that protects them and the controls that they maintain over them are met.

 

These instructions are consistent with the rules of the Basel III Framework, regarding the determination of the net exposures of assets and liabilities covered by legally recognized compensation contracts in the jurisdictions to which the parties are entitled.

 

The new rules were implemented at the end of March 2020, without generating a significant impact on the indicators of capital adequacy.

 

Circular No. 2,250. Equity for legal and regulatory purposes. It allows adding to the additional provisions a proportion of the State guarantees.

 

In response to the situation faced by financial markets and audited entities as a result of the health crisis caused by the Covid-19 pandemic, on April 20 the CMF published Circular 2,250, through which Banks may add to the additional provisions, within the limit of 1.25%, an amount of up to 15% of the guarantees that cover the risk-weighted assets, the guarantees that correspond to endorsements or refinancing granted by the Chilean Treasury, CORFO and FOGAPE.

 

The new rules were implemented at the end of April 2020, without generating a significant impact on the indicators of capital adequacy.

 

Circular No. 2,252. Aspects related to the Guarantee Lines COVID-19 of the Guarantee Fund for Small and Medium Entrepreneurs (“FOGAPE”), regarding provisions and other matters.

 

On April 30, 2020, the CMF published this circular that regulates aspects related to the FOGAPE Guarantee Lines COVID-19, addressing the following matters:

 

1)Exceptional measures for the treatment of loan provisions in installments of the commercial portfolio;

 

2)The classification of the debtors and the calculation of the default;

 

3)The establishment of procedures to control the eligibility conditions of the debtors;

 

4)The destination of the financing and;

 

5)Sending periodic information to the CMF incorporating news regulatory files.

 

These modifications are valid until October 31, 2021.

 

F-12

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

3.New Accounting Pronouncements, continued:

 

Circular No. 2,254. Reserve in foreign currency, transitory disposition.

 

On May 8, 2020, the CMF published circular 2,254 which, in line with the provisions of the Central Bank of Chile (BCCh), which temporarily modified the rules on reserve requirements in foreign currency contained in Chapter 3.1 of the Compendium of Monetary Standards and Financial, the CMF adds a transitory disposition to Chapter 4-1 of the RAN on Reserve in foreign currency.

 

This transitory norm that will be applicable between the reserve periods that start from March 9, 2020 and that ends on September 8, 2020, indicates that the reserve requirement in foreign currency may also be constituted in euros or Japanese yen, valued by its equivalent in dollars.

 

Likewise, during said period the surpluses of reserve requirements in national currency may be used to cover reserve deficits in any foreign currency, converted by their equivalent in dollars.

 

In accordance with the provisions of the Central Bank, the remaining amount that arises when the amount of the obligations related to the technical reserve to be deducted is greater than the demand obligations in national currency affected by reserve requirements may be reduced from the term obligations.

 

Banco de Chile implemented this facility from the reserve period from May 9 to June 8, 2020.

 

Circular No. 2,257. It allows the recognition of the mortgage guarantee surplus for the housing in the standard provisions model as a risk mitigator of the groupal commercial portfolio.

 

On May 22, 2020, the CMF published circular 2,257 which introduces modifications to Chapter B-1 “Provisions for credit risk” of the Compendium of Accounting Standards for Banks.

 

Due to the effects that the health crisis caused by the Covid-19 pandemic will have on banking activity and credit risk, the modification allowed the recognition of the mortgage guarantee surplus associated with mortgage loans in the standard model as a mitigator in the standard provisioning model for the groupal commercial portfolio. This is a temporary relaxation, once the new Basel III capital framework has been implemented, the standard provisions models will be reviewed to make them consistent with those used to calculate credit risk-weighted assets.

 

The application of this modification did not generate a material impact on the results of the period.

 

Other standards adopted.

 

Law 21,167

 

On January 1, 2020, Law 21,167 entered into force, which regulates the forms of payment of the lines of credit associated with bank current accounts. This law established the automatic payment of the overdraft line associated with the current account, which operates by default, unless the client instructs his bank to operate a different payment method that is more comfortable for them.

 

The implementation of this new law generates a decrease in interest earned and loan volumes.

 

F-13

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

3.New Accounting Pronouncements, continued:

 

Law 21,210

 

On February 24, 2020, Law 21,210 was published in the Official Journal, which modernizes the tax legislation, incorporating modifications to different legal texts, mainly the Tax Code, the Law on Income Tax and the Law on Sales and Services Tax (VAT).

 

In relation to the tax regime of income tax, the regime with partial credit imputation is maintained.

 

In terms of expenses necessary to produce the income of companies, a new definition is established, linking it to the interest, development or maintenance of the business, of the sole tax established in article 21 of the Income Law.

 

In relation to the VAT Law, one of the relevant changes corresponded to the incorporation of certain services related to entertainment, intermediation, software and other items that are carried out through digital platforms.

 

Another relevant modification refers to the land tax surcharge incorporated in Law 17,235, which taxes all the real estate that is registered in the taxpayer’s name, incorporating the real estate delivered in leasing with purchase option (Leasing).

 

The implementation of these legal changes will not have a significant impact on the Consolidated Financial Statements of Banco de Chile and its subsidiaries.

 

Other instructions issued by the CMF – Management Letter

 

In the context of the circumstances facing the country due to the Covid-19 pandemic and the consequent state of catastrophe decreed and in order to facilitate the implementation by the banks of payment flexibilities for its debtors, the CMF on April 2, 2020 temporarily authorized, under certain conditions, exceptional measures to the treatment of the provisions of the credit operations for the credit portfolios evaluated as a group (mortgage, commercial and consumer) that have been renegotiated.

 

The validity of the exceptional period for the treatment of provisions for group portfolios begins on March 18, 2020 and ends on July 31, 2020, both dates inclusive. As a necessary condition to be able to use the relaxations in provisions, the banks must fully evaluate the financial and credit condition of the debtors who will be eligible for the granting of the relaxations conditions. In no case may the treatment include debtors in default in accordance with the provisions regulations. Additionally, the debtors eligible for the special treatment of provisions indicated will be those that are up to date or have a default of no more than 30 days in the month in which the rescheduling is performed, during the period of validity.

 

Exceptional treatment allows the entity to maintain the associated provisions in the standard matrix of provisions that corresponds at the time of reprogramming. On the other hand, in the case of consumer portfolios, the parameters of Expected Credit Loss (PI and PDI) may be maintained, according to the specific provisions models used by each institution.

 

These instructions were implemented during April 2020.

 

F-14

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

3.New Accounting Pronouncements, continued:

 

Law 21,234

 

On May 29, 2020, Law No. 21,234 was published in the Official Journal, effective as of the same date, which modifies and replaces Law No. 20,009, limiting the liability of payment card holders or users and electronic transactions in the event of loss, theft, robbery or fraud.

 

This new law applies to users or holders of “Payment Methods” defined as all payment cards (debit, credit and pre-payment cards), whether or not they are issued by entities subject to the supervision of the CMF and electronic transactions, giving it a fairly broad definition, which includes any operations carried out by electronic means that cause charges, credits or money orders in different types of account.

 

Users or holders of Payment Methods are obliged to send a notice to the respective issuer, as soon as they become aware of a loss, theft, robbery or fraud that affects their payment methods. Immediately after receiving this notice, the issuer must proceed to block it.

 

In the case of operations subsequent to the notice, the user or owner will be exempt from liability, and the respective issuer must answer for them.

 

For operations prior to the notice, the user or owner will have a period of 30 business days following the notice, to claim them, being able to refer to operations carried out up to 120 calendar days prior to the date of the notice.

 

The burden of proof for operations that the user does not know to have authorized will always fall on the issuer, who is also prevented from offering users the purchase of insurance whose coverage corresponds to risks or claims that the issuer must assume in accordance with this law.

 

The implementation of this new law does not have significant impacts on the Consolidated Financial Statements.

 

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

 

The following is a summary of new standards, interpretations and improvements to the International Financial Reporting Standards issued by IASB that are not yet effective as of June 30, 2020, are detailed below:

 

Accounting standards issued by IASB.

 

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

 

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

 

F-15

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

3.New Accounting Pronouncements, continued:

 

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

 

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

 

Limited Scope Amendments and Annual Improvements 2018-2020.

 

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

 

Among other modifications, it contains amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets which specify the costs that an entity should include when evaluating whether a contract will cause losses.

 

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

 

Accounting standards issued by the CMF.

 

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

 

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

 

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

 

The main changes introduced to the CNC correspond to:

 

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

 

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

 

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

 

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

 

F-16

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

3.New Accounting Pronouncements, continued:

 

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

 

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

 

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

 

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

 

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

 

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

 

The Bank and its subsidiaries have structured an implementation project and have established various Committees to ensure its implementation. All this in order to comply with the new standards required for the preparation and presentation of the Financial Statements. The effects of applying the rule of suspension of interest and UF indexation at 90 days will not have a significant impact.

 

CMF informs the flexibility of the Basel III implementation deadlines.

 

On March 30, 2020, the Council of the Commission for the Financial Market resolved to postpone by one year the start of the implementation of the requirements regarding Risk Weighted Assets, which will take effect from 2022. Additionally, it was agreed to postpone by one year, the additional capital charges for systemically important banks, the requirements associated with the conservation buffer and discounts to effective equity.

 

Other laws enacted

 

On June 3, 2020, Law 21,236 regulating Financial Portability was published, which aims to facilitate people, micro and small businesses to change from one financial service provider to another, or from a financial product or service valid to another new contracted with the same provider, for deeming it convenient.

 

This new law will enter into force on September 8, 2020. To date, it is not possible to determine the impact that the implementation of this law will have.

 

4.Changes in Accounting Policies and Disclosures:

 

During the period ended June 30, 2020, there have been no accounting changes other than those indicated in Note No. 3 related to transitional measures for the treatment of provisions of credit operations that have been reprogrammed.

 

F-17

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

5.Relevant Events:

 

a)On January 20, 2020, the subsidiary Banchile Administradora General de Fondos S.A. informed that during the Ordinary Session held that day, the Board of Directors appointed Mr. José Luis Vizcarra Villalobos as director, replacing Mr. Joaquín Contardo Silva, who presented resignation to the director position.

 

b)On January 30, 2020, the Board of Directors of Banco de Chile agreed to convene an Ordinary Shareholders Meeting on March 26, 2020 in order to propose, among other matters, the following distribution of profits for the year ended on December 31, 2019:

 

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 2018 and November 2019, amounting to Ch$92,239,840,420, which will be added to retained earnings from previous periods.

 

ii.From the resulting balance, distribute in the form of a dividend 70% of the remaining liquid profit, corresponding to a dividend of Ch$3.47008338564 to each of the 101,017,081,114 shares of the Bank, retaining the remaining 30%.

 

Consequently, the distribution as a dividend that will be proposed will amount to 59.1% of the profits for the year ended December 31, 2019.

 

c)On February 21, 2020, in accordance with the disposed in the articles 19 and the following of Law No. 19,913, the Financial Analysis Unit imposed a written admonishment and a fine amounting to UF 800 to Banco de Chile, for not having promptly reported suspicious transactions in accordance with the disposed under numeral 1 of Chapter I of the UAF Circular No. 49 of 2012.

 

d)On March 12, 2020, in the Ordinary session celebrated that day, the Board of Directors of Banco de Chile agreed to establish a provision for minimum dividends of the net distributable profit that results from reducing or adding to the net income of 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. It was also agreed to maintain the monthly provision at 60% of the income balance thus calculated.

 

e)On March 26, 2020, at the Bank’s Ordinary Shareholders’ Meeting, our shareholders approved the distribution of the dividend No. 208 of $3.47008338564 per share, to be charged to the income obtained during the fiscal year 2019.

 

Additionally, the 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.

 

F-18

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

5.Relevant Events, continued:

 

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: Hernán Büchi Buc
  Andrés Ergas Heymann  
  Alfredo Cutiel Ergas Segal (Independent)
  Jaime Estévez Valencia (Independent)
  Julio Santiago Figueroa
  Pablo Granito Lavín
  Álvaro Jaramillo Escallon
  Samuel Libnic
  Andrónico Luksic Craig
  Jean Paul Luksic Fontbona
  Francisco Pérez Mackenna
   
First Alternate Director: Paul Fürst Gwinner (Independent)
Second Alternate Director: Sandra Marta Guazzotti  

 

Moreover, on March 26, 2020, in its Ordinary Session, the Board of Directors of the Bank agreed to the following officer nominations and appointments:

 

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

 

f)On April 20, 2020, the subsidiary Banchile Administradora General de Fondos S.A. reported that in Ordinary Session held that day, the Board was given notice of and accepted the resignation presented by Mr. Francisco Javier Brancoli Bravo to his position as Director of the company. On the occasion of the aforementioned resignation, the Board of Directors agreed to appoint Mr. Paul Javier Fürst Gwinner as the new Director.

 

g)On June 19, 2020, the subsidiary Banchile Corredores de Bolsa S.A. reported that in an Ordinary Session held that day, the Board of Directors appointed Mr. Jorge Antonio Carrasco De Groote as Director, replacing Mr. Fuad Jorge Muvdi Arenas, who presented his resignation from the position of director.

 

h)During March 2020, the World Health Organization (“WHO”) described the outbreak of the new strain of coronavirus (“COVID-19”) as a pandemic. The global spread of this disease has forced the authorities to take drastic sanitary and financial measures to contain and mitigate its effects on global health and economic activity.

 

On this basis, on March 18, 2020 the Government decreed a Constitutional State of Exception defined as State of Catastrophe due to “State of Public Calamity” for the entire national territory, as well as has adopted various sanitary measures such as isolation or quarantine of general populations, localities and people determined; sanitary cords; sanitary customs and other protection measures.

 

F-19

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

5.Relevant Events, continued:

 

Additionally, the Government and the Central Bank of Chile have implemented a set of fiscal and financial measures aimed to mitigate COVID-19’s impact on the economy, and to ensure the proper functioning of the financial system. Among the measures implemented by the Central Bank to deliver liquidity to the economy and support the flow of credit, are the establishment of the Conditional Credit Facility to Increase Placements (FCIC by its Spanish initials), as a special financial line for banking companies complemented by the activation of a “Liquidity Credit Line” (LCL) for which a limit equivalent to the Average Reserve Requirement in national currency of each entity is defined. The FCIC is available to banking companies that have commercial and consumer loans, subject to the granting by them of sufficient collateral guarantees in favor of the Central Bank. The limit for the FCIC line is up to 15% of the base portfolio (sum of commercial and consumer loans), which was expanded with the establishment of a second program announced during the month of June called FCIC2 with similar financial conditions to the first, aimed at deepening and extending commercial credit to respond to the prolongation of the health emergency caused by Covid-19. As of June 30, the Bank has made use of these financing facilities for an amount of Ch$3,110,703 million

 

The CMF, for its part, adopted measures tending to temporary flexibility for the treatment of provisions for credit risk of group portfolios for the period between March 18, 2020 and July 31, 2020. This exceptional treatment will allow reprogramming that meets the eligibility requirements to maintain the associated allowances in the standard matrix (mortgage and commercial) that corresponds at the time of reprogramming. In the case of consumer portfolios, the parameters of Expected Credit Loss may be maintained, in accordance with the allowance internal models used. As of June 30, operations have been reprogrammed for an approximate amount of Ch$493,604 million.

 

During April 2020, the Guarantee Fund for Small Entrepreneurs (FOGAPE), announced the increase of its capital by up to US$3,000 million, in order to guarantee financing of up to US$25,000 million. The objective of this initiative has been to facilitate access to working capital loans for individuals and legal entities with annual sales of less than UF 1,000,000 affected by the COVID-19 pandemic. The guarantee coverage of these loans - differentiated according to sales tranche - is between 60% and 85% of financing, after applying a deductible that may not exceed 5% of the guaranteed amount. From the beginning of the program and until June 30, 2020, the Bank has carried out 22,363 operations for an aggregate amount of Ch$1,131,067 million.

 

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

 

While the potential impact of the pandemic on our operating results remains is difficult to quantify, it is possible to anticipate that factors such as: (i) economic contraction, (ii) low interest rates for a long period of time, (iii) deflationary pressures owed to lowered domestic demand, (iv) increased unemployment, (v) total or partial quarantines affecting commercial activities, and (vi) mobility restrictions that will have an adverse effect on our operating revenues, loan loss provisions and operating expenses. Although these effects will be significant, it is not possible to determine their magnitude since they will depend on the duration and depth of the pandemic.

 

As a result of the prospective analysis of the effects of the spread of Covid-19, both domestically and internationally, as well as the effects of mitigation measures adopted by local and global authorities, during the second quarter of 2020 the Bank established Ch$70,000 million of additional, in accordance with current policy on the matter.

 

F-20

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

6.Business Segments:

 

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

 

  Retail: This segment focuses on individuals and small and medium-sized companies (SMEs) with annual sales up to UF 70,000, where the product offering focuses primarily on consumer loans, commercial loans, checking accounts, credit cards, credit lines and mortgage loans.
     
  Wholesale: This segment focused on corporate clients and large companies, whose annual revenue exceed UF 70,000, where the product offering focuses primarily on commercial loans, checking accounts and liquidity management services, debt instruments, foreign trade, derivative contracts and leases.
     
  Treasury: This segment includes the associated revenues to the management of the investment portfolio and the business of financial transactions and currency trading.
     
    Transactions with customers carried out by the Treasury are reflected in the respective aforementioned segments. These products are highly transaction-focused and include foreign exchange transactions, derivatives and financial instruments in general, among others.
     
  Subsidiaries:  Corresponds to the businesses generated by the companies controlled by the Bank, which carry out activities complementary to the bank business. The companies that comprise this segment are:

 

Entity

 

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

 

F-21

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

6.Business Segments, continued:

 

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

 

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

 

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, 2020 and 2019, there was no income from transactions with a customer or counterparty that accounted for 10% or more of the Bank’s total revenues.

 

F-22

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

6.Business Segments, continued:

 

The following table presents the income by segment for the periods ended June 30, 2020 and 2019 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 
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Net interest income   492,090    502,379    190,184    179,357    (7,576)   (12,890)   (1,871)   (3,770)   672,827    665,076    1,068    2,024    673,895    667,100 
Net commissions income (loss)   150,822    122,296    27,194    24,809    (1,127)   (1,445)   72,794    74,785    249,683    220,445    (7,704)   (4,801)   241,979    215,644 
Financial and exchange operations results   7,054    1,751    30,077    19,734    31,076    29,809    17,778    26,370    85,985    77,664    (999)   (1,842)   84,986    75,822 
Other operating income   9,652    16,248    7,247    8,409            1,459    1,204    18,358    25,861    (2,116)   (1,515)   16,242    24,346 
Total operating revenue   659,618    642,674    

254,702

    232,309    22,373    15,474    90,160    98,589    1,026,853    989,046    (9,751)   (6,134)   1,017,102    982,912 
Provision for loan losses    (175,359)   (150,200)   (89,584)   (6,873)           (25)   (42)   (264,968)   (157,115)           (264,968)   (157,115)
Depreciation and amortization   (29,383)   (28,186)   (3,561)   (3,367)   (136)   (153)   (3,032)   (2,959)   (36,112)   (34,665)           (36,112)   (34,665)
Other operating expenses   (281,244)   (289,278)   (75,209)   (75,292)   (7,595)   (7,528)   (51,417)   (51,894)   (415,465)   (423,992)   9,751    6,134    (405,714)   (417,858)
Income attributable to associates   893    3,143    310    438    34    41    338    351    1,575    3,973            1,575    3,973 
Income before income taxes   74,525    178,153    86,658    147,215    14,676    7,834    36,024    44,045    311,883    377,247            311,883    377,247 
Income taxes                                                               (63,298)   (83,584)
Income after income taxes                                                               248,585    293,663 

 

 

The following table presents assets and liabilities of the periods ended June 30, 2020 and December 31, 2019 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 
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Assets   18,567,487    18,139,505    11,148,945    10,766,374    15,325,506    11,426,849    965,859    964,695    46,007,797    41,297,423    (217,891)   (345,395)   45,789,906    40,952,028 
Current and deferred taxes                                                               352,731    321,305 
Total assets                                                               46,142,637    41,273,333 
                                                                       
Liabilities   12,301,984    11,407,066    10,435,533    10,750,446    19,236,299    15,075,652    807,784    781,052    42,781,600    38,014,216    (217,891)   (345,395)   42,563,709    37,668,821 
Current and deferred taxes                                                               18    76,289 
Total liabilities                                                               42,563,727    37,745,110 

 

F-23

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

7.Cash and Cash Equivalents:

 

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

  

   June   December 
   2020   2019 
   MCh$   MCh$ 
         
Cash and due from banks:        
Cash (*)   751,479    889,911 
Deposit in Chilean Central Bank (*)   206,366    178,429 
Deposits in other domestic banks   77,514    75,651 
Deposits abroad   1,212,092    1,248,175 
Subtotal - Cash and due from banks   2,247,451    2,392,166 
           
Net transactions in the course of collection   (25,615)   232,551 
Highly liquid financial instruments (**)   3,536,698    1,192,188 
Repurchase agreements (**)   18,061    114,466 
Total cash and cash equivalents   5,776,595    3,931,371 

 

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

 

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

 

(b)Transactions in course of settlement:

 

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

 

   June   December 
   2020   2019 
   MCh$   MCh$ 
Assets        
Documents drawn on other banks (clearing)   94,514    222,261 
Funds receivable   406,834    362,411 
Subtotal - assets   501,348    584,672 
           
Liabilities          
Funds payable   (526,963)   (352,121)
Subtotal - liabilities   (526,963)   (352,121)
Net transactions in the course of settlement   (25,615)   232,551 

 

F-24

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

8.Financial Assets Held-for-trading:

 

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

 

   June   December 
   2020   2019 
   MCh$   MCh$ 
Instruments issued by the Chilean Government and Central Bank of Chile        
Central Bank of Chile bonds   3,156    16,490 
Central Bank of Chile promissory notes   3,271,844    1,008,035 
Other instruments issued by the Chilean Government and Central Bank   162,689    99,164 
           
Other instruments issued in Chile          
Bonds from other domestic companies   41,227    1,556 
Bonds from domestic banks   15,777    55,094 
Deposits in domestic banks   110,472    315,415 
Other instruments issued in Chile   2,148    3,272 
           
Instruments issued Abroad          
Instruments from foreign governments or central banks        
Other instruments issued abroad        
           
Mutual fund investments          
Funds managed by related companies   372,304    373,329 
Funds managed by third-party        
Total   3,979,617    1,872,355 
           

  

Under “Instruments issued by the Chilean Government and Central Bank of Chile” are classified instruments sold under repurchase agreements to customers and financial instruments, by an amount of Ch$125,324 million as of June 30, 2020 (Ch$15,243 million as of December 31, 2019). Repurchase agreements had a 1 day average expiration as of period-end 2020 (3 days in December 2019). Additionally, under this line are maintained instruments to comply with the requirements for the constitution of the technical reserve for an amount equivalent to Ch$1,430,000 million.

 

Moreover, under this same item, other financial instruments are maintained as collateral guaranteeing the derivative transactions executed through Comder Contraparte Central S.A. for an amount of Ch$52,563 as of June 30, 2020 (Ch$57,639 million as of December 31, 2019).

 

“Other instruments issued in Chile” include instruments sold under repurchase agreements with customers and financial instruments amounting to Ch$78,343 million as of June 30, 2020 (Ch$251,158 million as of December 31, 2019). The repurchase agreements have an average expiration of 8 days as of period-end 2020 (7 days in December 2019).

 

Additionally, the Bank holds financial investments in mortgage finance bonds issued by itself in the amount of Ch$6,535 million as of June 30, 2020 (Ch$8,029 million as of December 31, 2019), which are presented as a reduction of the liability line item “Debt issued”.

 

F-25

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

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

 

(a)Rights arising from resale repurchase agreements: The Bank provides financing to its customers through repurchase agreements and securities lending, in which the financial instrument serves as collateral. As of June 30, 2020 and December 31, 2019, the detail is as follows:

 

   Up to 1 month   Over 1 month and up
to 3 months
   Over 3 months and up
to 12 months
   Over 1 year and up
to 3 years
   Over 3 years and up
to 5 years
   Over 5 years   Total 
   June   December   June   December   June   December   June   December   June   December   June   December   June   December 
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
   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       11,184                                                11,184 
Central Bank promissory notes                                                        
Other instruments issued by the Chilean Government and Central Bank of Chile       18,459                                                 18,459 
Subtotal       29,643                                                 29,643 
Other Instruments issued in Chile                                                                      
Deposit promissory notes from domestic banks                                                        
Mortgage bonds from domestic banks                                                        
Bonds from domestic banks       15,407                                                15,407 
Deposits in domestic banks                                                        
Bonds from other Chilean companies                                                        
Other instruments issued in Chile   15,653    57,007    24,528    29,393    7,697    10,879                            47,878    97,279 
Subtotal   15,653    72,414    24,528    29,393    7,697    10,879                            47,878    112,686 
Instruments issued by foreign institutions                                                                      
Instruments from foreign governments or Central Bank                                                        
Other instruments                                                        
Subtotal                                                        
Mutual fund investments                                                                      
Funds managed by related companies                                                        
Funds managed by third-party                                                        
Subtotal                                                        
Total   15,653    102,057    24,528    29,393    7,697    10,879                            47,878    142,329 

  

Securities received:

 

The Bank and its subsidiaries have received financial instruments that they can sell or give as collateral in case the owner of these instruments enters into default or in bankruptcy. As of June 30, 2020, the fair value of the instruments received amounts to Ch$46,116 million (Ch$142,370 million as of December, 2019).

 

F-26

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

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

 

(b)Obligations arising from repurchase agreements: The Bank obtains financing by selling financial instruments and agreeing to repurchase them in the future, plus interest at a prefixed rate. As of June 30, 2020 and December 31, 2019, the repurchase agreements are the following:

 

   Up to 1 month   Over 1 month and up
to 3 months
   Over 3 months and up
to 12 months
   Over 1 year and up
to 3 years
   Over 3 years and up
to 5 years
   Over 5 years   Total 
   June   December   June   December   June   December   June   December   June   December   June   December   June   December 
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
   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   70,246    7,301                                            70,246    7,301 
Central Bank promissory notes   55,147    9,067                                            55,147    9,067 
Other instruments issued by the Chilean Government and Central Bank of Chile                                                        
Subtotal   125,393    16,368                                            125,393    16,368 
Other Instruments issued in Chile                                                                      
Deposit promissory notes from domestic banks                                                        
Mortgage bonds from domestic banks                                                        
Bonds from domestic banks                                                        
Deposits in domestic banks   111,807    280,696    305    8,583                                    112,112    289,279 
Bonds from other Chilean companies                                                        
Other instruments issued in Chile   1,003    1,647                1,440                            1,003    3,087 
Subtotal   112,810    282,343    305    8,583        1,440                            113,115    292,366 
Instruments issued by foreign institutions                                                                      
Instruments from foreign governments or central bank                                                         
Other instruments issued by foreing                                                        
Subtotal                                                        
Mutual fund investments                                                                      
Funds managed by related companies                                                        
Funds managed by third-party                                                        
Subtotal                                                        
Total   238,203    298,711    305    8,583        1,440                            238,508    308,734 

  

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, 2020 amounts to Ch$237,481 million (Ch$305,593 million in December 2019). 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.

 

F-27

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

10.Derivative Instruments and Accounting Hedges:

 

(a)As of June 30, 2020 and December 31, 2019, the Bank’s portfolio of derivative instruments is detailed as follows:

  

   Notional amount of contract with final expiration date in   Fair Value 
As of June 30, 2020 

 

Up to 1 month

   Over 1 month and up to 3 months   Over 3 months and up to 12 months  

Over 1 year and up to 3 years

  

Over 3 year and up to 5 years

  

 

Over 5 years

  

 

 

Total

  

 

Assets

  

 

Liabilities

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Derivatives held for hedging purposes                                    
Interest rate swap and cross currency swap               6,622            6,622        2,083 
Interest rate swap               7,434        56,871    64,305        10,234 
Total derivatives held for hedging purposes               14,056        56,871    70,927        12,317 
                                              
Derivatives held as cash flow hedges                                             
Interest rate swap and cross currency swap               248,955    193,332    759,510    1,201,797    130,415    44,022 
Total derivatives held as cash flow hedges               248,955    193,332    759,510    1,201,797    130,415    44,022 
                                              
Trading derivatives                                             
Currency forward   9,622,085    7,107,501    13,233,322    1,290,412    59,453    41,883    31,354,656    967,272    759,189 
Interest rate swap   2,861,912    5,261,687    14,745,427    15,406,061    7,467,627    11,439,109    57,181,823    1,511,447    1,559,405 
Interest rate swap and cross currency swap   518,946    720,948    3,636,689    6,448,506    3,475,175    4,881,828    19,682,092    1,369,168    1,734,120 
Call currency options   20,603    44,981    43,017    3,921            112,522    4,690    1,365 
Put currency options   20,279    37,900    49,812    5,564            113,555    325    1,310 
Total trading derivatives   13,043,825    13,173,017    31,708,267    23,154,464    11,002,255    16,362,820    108,444,648    3,852,902    4,055,389 
                                              
Total   13,043,825    13,173,017    31,708,267    23,417,475    11,195,587    17,179,201    109,717,372    3,983,317    4,111,728 

 

F-28

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

  

10.Derivative Instruments and Accounting Hedges, continued:

 

(a)Portfolio of derivative instruments, continued:

  

   Notional amount of contract with final expiration date in   Fair Value 
As of December 31, 2019 

 

Up to 1 month

   Over 1 month and up to 3 months   Over 3 months and up to 12 months  

Over 1 year and up to 3 years

  

Over 3 year and up to 5 years

  

 

Over 5 years

  

 

 

Total

  

 

Assets

  

 

Liabilities

 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
Derivatives held for hedging purposes                                    
Interest rate swap and cross currency swap               8,166            8,166        2,547 
Interest rate swap               6,806        79,511    86,317    32    6,739 
Total derivatives held for hedging purposes               14,972        79,511    94,483    32    9,286 
                                              
Derivatives held as cash flow hedges                                             
Interest rate swap and cross currency swap       33,182        192,647    134,812    821,241    1,181,882    61,562    34,443 
Total derivatives held as cash flow hedges       33,182        192,647    134,812    821,241    1,181,882    61,562    34,443 
                                              
Trading derivatives                                             
Currency forward   8,770,180    8,736,613    14,803,058    2,067,618    65,321    38,346    34,481,136    956,632    673,630 
Interest rate swap   1,790,715    5,806,453    19,749,389    16,219,325    7,021,586    10,823,786    61,411,254    888,581    886,963 
Interest rate swap and cross currency swap   414,717    858,732    3,849,108    5,679,500    3,569,635    4,204,064    18,575,756    873,371    1,210,061 
Call currency options   22,620    47,513    96,988    11,293            178,414    4,961    1,529 
Put currency options   19,583    36,024    92,524    10,541            158,672    1,076    2,209 
Total trading derivatives   11,017,815    15,485,335    38,591,067    23,988,277    10,656,542    15,066,196    114,805,232    2,724,621    2,774,392 
                                              
Total   11,017,815    15,518,517    38,591,067    24,195,896    10,791,354    15,966,948    116,081,597    2,786,215    2,818,121 

  

F-29

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

10.Derivative Instruments and Accounting Hedges, continued:

 

(b)Fair value Hedges:

 

The Bank uses cross-currency swaps and interest rate swaps to hedge its exposure to changes in the fair value of the hedged elements attributable to interest rates in financial instruments or loans. The aforementioned hedge instruments change the effective cost of long-term assets from a fixed interest rate to a floating rate, decreasing the duration and modifying the sensitivity to the shortest segments of the curve.

 

Below is a detail of the hedged elements and instruments under fair value hedges as of June 30, 2020 and December 31, 2019: 

 

   June   December 
   2020   2019 
   MCh$   MCh$ 
Hedge element          
Commercial loans   6,622    8,166 
Corporate bonds   64,305    86,317 
           
Hedge instrument          
Cross currency swap   6,622    8,166 
Interest rate swap   64,305    86,317 

  

(c)Cash flow Hedges:

 

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

 

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

 

F-30

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

10.Derivative Instruments and Accounting Hedges, continued:

 

(c)Cash flow Hedges, continued:

 

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

 

   Up to 1 month   Over 1 month and up to 3 months   Over 3 months and up to 12 months   Over 1 year and up to 3 years   Over 3 years and up to 5 years   Over 5 years   Total 
   June   December   June   December   June   December   June   December   June   December   June   December   June   December 
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Hedge element                                                        
Outflows:                                                        
Corporate Bond EUR                   (1,555)   (1,421)   (3,110)   (2,842)   (3,110)   (2,842)   (98,844)   (91,089)   (106,619)   (98,194)
Corporate Bond HKD   (1,146)       (5,419)       (8,855)   (12,829)   (104,986)   (25,627)   (26,010)   (91,034)   (388,841)   (320,604)   (535,257)   (450,094)
Corporate Bond PEN           (911)   (894)   (911)   (894)   (3,645)   (3,575)   (3,645)   (3,575)   (49,718)   (49,651)   (58,830)   (58,589)
Corporate Bond CHF                   (892)   (798)   (1,783)   (1,597)   (231,025)   (90,095)       (116,765)   (233,700)   (209,255)
Corporate Bond USD                   (1,748)   (1,600)   (3,495)   (3,200)   (3,495)   (3,200)   (47,179)   (43,994)   (55,917)   (51,994)
Obligation USD   (234)   (216)   (88)   (336)   (965)   (884)   (181,319)   (166,592)                   (182,606)   (168,028)
Corporate Bond JPY               (34,638)   (2,337)   (2,121)   (42,318)   (38,596)   (3,837)   (3,482)   (212,390)   (193,625)   (260,882)   (272,462)
Corporate Bond AUD           (2,560)   (428)   (2,511)   (3,274)   (10,142)   (7,399)   (10,144)   (7,401)   (218,348)   (156,499)   (243,705)   (175,001)
Corporate Bond NOK                   (2,328)   (2,341)   (4,656)   (4,682)   (4,656)   (4,682)   (75,498)   (75,919)   (87,138)   (87,624)
                                                                       
Hedge instrument                                                                      
Inflows:                                                                      
Cross Currency Swap EUR                   1,555    1,421    3,110    2,842    3,110    2,842    98,844    91,089    106,619    98,194 
Cross Currency Swap HKD   1,146        5,419        8,855    12,829    104,986    25,627    26,010    91,034    388,841    320,604    535,257    450,094 
Cross Currency Swap PEN           911    894    911    894    3,645    3,575    3,645    3,575    49,718    49,651    58,830    58,589 
Cross Currency Swap CHF                   892    798    1,783    1,597    231,025    90,095        116,765    233,700    209,255 
Cross Currency Swap USD                   1,748    1,600    3,495    3,200    3,495    3,200    47,179    43,994    55,917    51,994 
Cross Currency Swap USD   234    216    88    336    965    884    181,319    166,592                    182,606    168,028 
Cross Currency Swap JPY               34,638    2,337    2,121    42,318    38,596    3,837    3,482    212,390    193,625    260,882    272,462 
Cross Currency Swap AUD           2,560    428    2,511    3,274    10,142    7,399    10,144    7,401    218,348    156,499    243,705    175,001 
Cross Currency Swap NOK                   2,328    2,341    4,656    4,682    4,656    4,682    75,498    75,919    87,138    87,624 
                                                                       
Net cash flows                                                        

  

F-31

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

10.Derivative Instruments and Accounting Hedges, continued:

 

(c)Cash flow Hedges, continued:

 

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

  

   Up to 1 month   Over 1 month and up to 3 months   Over 3 months and up to 12 months   Over 1 year and up to 3 years   Over 3 years and up to 5 years   Over 5 years   Total 
   June   December   June   December   June   December   June   December   June   December   June   December   June   December 
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ 
                                                         
Hedge element                                                        
Inflows:                                                        
Cash flows in CLF   156    156    3,960    33,648    17,847    21,062    290,955    234,065    227,290    280,074    843,768    795,068    1,383,976    1,364,073 
                                                                       
Hedge instrument                                                                      
Outflows:                                                                      
Cross Currency Swap HKD   (156)   (156)   (3,454)       (5,472)   (8,798)   (71,813)   (17,906)   (14,507)   (69,035)   (271,535)   (268,034)   (366,937)   (363,929)
Cross Currency Swap PEN           (48)   (47)   (47)   (48)   (191)   (188)   (191)   (189)   (31,602)   (31,223)   (32,079)   (31,695)
Cross Currency Swap JPY               (33,570)   (4,141)   (4,096)   (40,453)   (40,344)   (6,511)   (6,424)   (200,890)   (199,778)   (251,995)   (284,212)
Cross Currency Swap USD                   (1,292)   (1,275)   (163,829)   (161,941)   (1,298)   (1,281)   (37,426)   (37,242)   (203,845)   (201,739)
Cross Currency Swap CHF                   (3,900)   (3,858)   (7,758)   (7,653)   (197,864)   (197,107)           (209,522)   (208,618)
Cross Currency Swap EUR                   (1,879)   (1,857)   (3,766)   (3,715)   (3,769)   (3,718)   (85,918)   (85,686)   (95,332)   (94,976)
Cross Currency Swap AUD           (458)   (31)   (500)   (521)   (1,914)   (1,103)   (1,917)   (1,104)   (151,339)   (108,622)   (156,128)   (111,381)
Cross Currency Swap NOK                   (616)   (609)   (1,231)   (1,215)   (1,233)   (1,216)   (65,058)   (64,483)   (68,138)   (67,523)
                                                                       
Net cash flows                                                        

  

F-32

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

10.Derivative Instruments and Accounting Hedges, continued:

 

(c)Cash flow Hedges, continued:

 

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

 

(c.3)The unrealized results generated during the period 2020 by those derivative contracts that conform the hedging instruments in this cash flow hedging strategy, have been recorded with charge to equity amounting to Ch$45,119 million (charge to equity of Ch$25,344 million in June 30, 2019). The net effect of taxes charge to equity amounts to Ch$32,937 million (net charge to equity of Ch$18,501 million equity during the period June 2019).

 

The accumulated balance for this concept as of June 30, 2020 corresponds to a charge in equity amounted to Ch$126,159 million (charge to equity of Ch$81,040 million as of December 2019).

 

(c.4)The effect of the cash flow hedging derivatives that offset the result of the hedged instruments corresponds to a credit to income of Ch$107,463 million during the period 2020 (charge to results for Ch$36,663 million during the June 2019 period).

 

(c.5)As of June 30, 2020 and 2019, 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, 2020 and 2019, the Bank does not have hedges of net investments in foreign business.

 

F-33

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued

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

   

 

11.Loans and Advances to Banks, net:

 

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

 

   June   December 
   2020   2019 
   MCh$   MCh$ 
Domestic Banks        
Interbank loans of liquidity       150,007 
Provisions for loans to domestic banks       (54)
Subtotal       149,953 
Foreign Banks          
Interbank loans commercial   197,541    289,337 
Credits with third countries       8,934 
Chilean exports trade loans   43,919    61,860 
Provisions for loans to foreign banks   (470)   (704)
Subtotal   240,990    359,427 
Central Bank of Chile          
Central Bank deposits   1,700,000    630,053 
Other Central Bank credits        
Subtotal   1,700,000    630,053 
Total   1,940,990    1,139,433 

 

(b)The changes in provisions of the credits owed by the banks, during the periods 2020 and 2019, are summarized as follows:

 

   Bank’s Location     
Detail  Chile   Abroad   Total 
   MCh$   MCh$   MCh$ 
             
Balance as of January 1, 2019   83    1,006    1,089 
Provisions established   10        10 
Provisions released       (232)   (232)
Balance as of June 30, 2019   93    774    867 
Provisions established            
Provisions released   (39)   (70)   (109